Equity Research Sector Report Seafood - Undercurrent News · Sector Report Equity Research 11 October 2018 Seafood Muted growth – price and valuation upside In this report we argue

Sector ReportEquity Research

11 October 2018

Seafood

Muted growth – price and valuation upsideIn this report we argue that our salmon price forecasts have been too conservative. For 2019, we now expect lower y/y supply growth and a further increase in salmon prices. Our new price forecast for 2019-21 is NOK 64 (up from NOK 62) per kilo. We also argue that the sector valuation is too low. The average P/E for 2019E on our estimates is 11x, which is fine for a cyclical sector, but given the stable average prices over a five-year period including 2019-20 forward prices, we argue that the sector should be valued more in line with a Food and Beverage peer group. In our SOTP valuation, we hence increase our targeted EV/EBIT from 9x to 10x for most of the companies under our coverage. As a result, we raise our target prices by an average of 15% and highlight Marine Harvest (Buy/NOK 235) as our new top pick in the sector.

More stability on the supply side, low risk for supply shocksOver the past ten years, average growth rates in supply have dropped from 8% to 2%, as the industry approaches full capacity utilisation. Motivated by high prices, the industry is constantly trying to find ways of growing by farming smarter within the existing licences, including investing in new smolt facilities and adopting more efficient methods to keep sea lice under control. However, the high biomass in the sea also heightens the risk of biological setbacks, such as algae, amoebas and sea lice, as well as diseases. Consequently, key industry players are struggling to obtain material volume growth.

Higher salmon prices not yet fully reflected in share pricesSalmon spot prices varied around NOK 30 per kilo from 2005 to 2012, while in the past three years, the new "normal" salmon price (in NOK terms) has stabilised at around NOK 60 per kilo. This also implies that normal EBIT margins in the industry have moved from NOK 4-6 per kilo historically to NOK 20-25 per kilo. In our view, this is not reflected in the current sector valuation, as the stock market on average implicitly still prices NOK 53-57 as the normal price level.

The sector is still priced as if it was "super-cyclical"The sector is currently priced at a 12-month forward P/E of 12.2x, compared to a broad international Food and Beverage (FB) peer group, which is priced at a P/E of 19.5x. Historically this has not been a good benchmark, as a cyclical food sector is benchmarked against an index of non-cyclical stocks. In this report, however, we argue that the seafood sector should be linked more closely to international FB peers. As the growth opportunities in the sector are limited, we find that the key cyclicality driver (uncontrolled growth followed by a price crash) is gone. We highlight Marine Harvest (Buy/NOK 230) as our top pick in the sector. In our view, the share is attractive as it 1) offers high yield, 2) is by far the most liquid name in the sector and 3) has lagged behind other names recently.

Nordea Markets - AnalystsKolbjørn GiskeødegårdPhone: +47 [email protected]

Anders Espedal HagenPhone: +47 24015006 [email protected]

RECOMMENDATIONS, PRICING AND MULTIPLES

Company Rec. TP (Old TP) Price Upside % Nordea P/E Cons. P/E Nordea EV/EBIT Cons. EV/EBIT Nordea yieldAustevoll Seafood ASA Buy 150.0 130.0 121.4 23.6% 7.4 x 9.3 x 5.5 x 6.1 x 8.4%Bakkafrost Hold n.a n.a 500.5 n.a. 13.5 x 15.4 x 10.4 x 12.3 x 3.1%Grieg Seafood ASA Buy 150.0 110.0 116.7 28.5% 9.1 x 10.7 x 6.9 x 7.5 x 6.0%Leroy Seafood Group ASA Buy 85.0 70.0 69.9 21.6% 12.9 x 15.5 x 10.4 x 12.5 x 7.0%Marine Harvest ASA Buy 235.0 195.0 186.3 26.1% 11.5 x 13.0 x 9.5 x 10.6 x 7.2%Norway Royal Salmon ASA Buy 250.0 225.0 210.0 19.0% 9.3 x 10.6 x 7.5 x 7.4 x 7.5%SalMar ASA Hold n.a 380.0 419.0 n.a 12.9 x 15.5 x 10.4 x 12.5 x 8.3%Salmones Camanchaca Buy 80.0 80.0 69.0 15.9% 6.0 x 7.4 x 4.4 x 5.3 x 8.4%Average 19.3% 10.3 x 12.2 x 8.1 x 9.3 x 7.0%

Source: Thomson Reuters and Nordea estimates

IMPORTANT INFORMATION AND DISCLOSURES AT THE END OF THIS REPORT

Equity Research11 October 2018

Contents

Supply 3

Demand and prices 8

Pricing and estimates 11

Austevoll Seafood: Pelagic sector normalising 15

Bakkafrost: Growth pains 20

Grieg Seafood: Struggling with growth in the short term 25

Leroy Seafood Group: Upside from higher valuation multiples 30

Marine Harvest: Focus to remain on volumes and guidance in Q3 35

Norway Royal Salmon: Haunted by diseases 40

SalMar: Upgrading to Hold on improved price outlook 45

Salmones Camanchaca: Firm growth, increased industry risk 50

Disclaimer and legal disclosures 55

2


SupplyWe expect global supply to reach an all-time high in 2018, driven by 4% growth in Europe and 9% in other regions. We lower our global growth outlook for 2018 to 6.2% (6.8%), while we increase our estimated supply growth for 2019 from 3.9% to 4.1%. The biomass in Norway is 2% lower y/y and we see no major potential for supply growth in the next 6-12 months. We forecast tighter supply in Q4 and further into 2019. Prevailing sea lice issues in Norway combined with increasing challenges in Chile are the main reasons we expect low supply growth in the coming years.

Lowering 2018 supply outlookLower supply growthIn this report, we lower our global growth outlook for 2018 to 6.2% (6.8%) mainly due to the lower supply forecast from Norway. For 2019, we cut our growth forecast to 3.9% (5.2%) owing to lower growth forecasts in the UK and Canada. As the harvesting for 2018 has increased, there is also a base effect in this number.

SUPPLY GROWTH

(1000 tonnes WFE) 2015 2016 2017 2018E 2019E 2020E 2021E

Norway 1,234 1,171 1,207 1,265 1,320 1,380 1,436 UK 170 158 174 156 174 178 175 Faroe Islands 77 77 78 77 80 95 95 Ireland 16 16 16 16 16 16 16 Iceland 8 12 14 20 30 50 Europe 1,497 1,430 1,487 1,528 1,610 1,699 1,772 Annual growth 2% -4% 4.0% 3% 5% 6% 4%

Chile 605 504 562 640 660 670 700 Canada 140 143 142 155 157 170 170 USA 22 22 20 18 15 15 15 Australia 55 51 58 61 60 60 60 Others 20 10 12 25 25 30 40 Total Other 842 730 794 899 917 945 985 Annual growth 11% -13% 9% 13% 2% 3% 4%

Total global harvesting 2,339 2,160 2,281 2,427 2,527 2,644 2,757 Harvesting growth% 5.1 % -7.6 % 5.6 % 6.4 % 4.1 % 4.7 % 4.2 %Previous 6.8 % 3.9 % 4.9 % 4.2 %

Source: Kontali and Nordea estimates

The main change from our previous report is the higher actual Q3 2018 supply figures than we estimated in August. Our estimates for Q4 are now substantially lower.

MAIN CHANGES FROM OUR AUGUST UPDATE

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August October

Source: Nordea estimates

3


The growth profile for the next five quarters is shown in the graph below. Sea lice issues in Chile later in 2018 and into 2019 might trigger early harvesting and hence higher supply growth in Q1 2019. In that case, the growth in the subsequent quarters is likely to be lower.

SUPPLY GROWTH PROFILE

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wth

%

Source: Kontali and Nordea estimates (H2 2018 and 2019)

Sea lice and biology – NorwayThe sea lice situation in Norway has been more challenging in H2 2018, mainly owing to higher sea temperatures.

SEA TEMPERATURES AUGUST 2018 NORWAY – PER REGION

Source: Norwegian Seafood Federation (NSF)

As a consequence, the number of farms exceeding the maximum average number of mature sea lice per fish (0.5) has been higher than in 2017 and now into Q4 this is accelerating.

4


NUMBER OF FISH FARMS EXCEEDING 0.5 MATURE SEA LICE PER FISH

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Source: Barentswatch

The result of this has been a steep increase in number of sea lice treatments and also accelerated early harvesting of fish, bringing the average harvesting weight in August and September down 150-200 grams (3-5%) compared with the same weeks in 2017.

Q3 2018 - HARVESTING WEIGHTS AND CHANGE FROM 2017

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w 27 w 28 w 29 w 30 w 31 w 32 w 33 w 34 w 35 w 36 w 37 w 38 w 39C

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Change from 2017 2018 Linear (Change from 2017)

Source: Fish Pool and Nordea estimates

Sea lice and biology – ChileThe average harvesting weights in Chile have improved significantly over the past two years and in 2018 they have even exceeded those in the Faroes for the first time ever.

5


AVERAGE HARVESTING WEIGHTS

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Source: Company data and Nordea estimates

Improved biological conditions and a consequent reduced need to harvest out smaller fish early are the key reasons for the higher harvesting weights. In addition comes also changes in feed recopies, using feed with higher energy (booster feed).

Higher average weights also mean higher biomass and density in the sea. This seems to have clear negative implications on the levels of sea lice, especially in Region XI.

SEA TEMPERATURES IN CHILE 2018, °C

Source: Camanchaca

6


SEA LICE DEVELOPMENT MONTHLY 2015-18

Source: AquaBench

The level of sea lice (caligus) is now at its highest since 2013 and it is worrying, especially with regards to this being the wintertime, with low sea temperatures and seasonally the time of the year with the lowest amount of sea lice issues. In addition, the sea temperatures have been lower than normal in 2018.

7


Demand and pricesOver the past five years, there has been an impressive demand increase in well-established markets (the EU and the US), while we still see major potential in rebuilding the Russian market and in the return to full /normal Norwegian presence in China. Looking at the relationship between price and supply changes, we conclude that the market is able to absorb 6-7% more fish at stable prices. As a consequence, we expect a 5% increase in prices in 2019 despite 4% supply growth. Accordingly, we expect salmon prices to rise from NOK 61/kg in 2018 to NOK 64/kg in 2019. This is NOK 2 higher than our previous 2019 estimate.

Growth in the global middle class, especially in China and Brazil

Growth in the global middle class is the key demand driverOver the past 20 years, there has been significant growth in the number of people in the middle class, especially in China and Brazil. The World Bank expects this growth to continue in the coming decade.

GROWTH IN THE GLOBAL MIDDLE CLASS

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2010 2020E 2030E

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mb

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f p

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Asia Pacific Europe North America Central & South America Africa/M.E

Source: World Bank

In 2010, around 54% of the global middle class population was located in Europe and North America, while 28% lived in Asia-Pacific. By 2030, the World Bank expects this to change completely, with 21% of the middle class living in the western world and 66% in Asia-Pacific. Most of this growth is projected to be in India, where the population consumes a lot of domestic seafood but is so far a completely untapped market for salmon. The Chinese market is currently one of the world's fastest-growing salmon markets, not so much driven by a supply of Norwegian salmon, but rather from strong growth of Chilean exports to the country.

EXPORTS OF SALMON TO CHINA FROM CHILE

7,406 13,544

8,651 12,960 13,843

20,000 748

3,815

6,834

15,020 12,441

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Source: Kontali

8


During H1 2018, fresh exports grew by 260% y/y. The Chinese market is mainly demanding large-sized fish. With Chilean salmon now reaching the same high average size as Faroese salmon, this means much more salmon are available for China. In addition, this is being facilitated by new transpacific air cargo flights.

Prices have risen sharply over the past decadeThe salmon price has increased substantially (up NOK 30) over the past decade. Costs have also risen substantially (up NOK 15), but prices have outperformed costs by far. While costs are levelling off, prices are still on the rise.

ANNUAL SALMON PRICES 2007-18E


Salmon prices have moved from an average of NOK 30/kg in 2007-12, to the NOK 40/kg level in 2013-15, to NOK 60/kg since 2016. Flat supply in 2012-17 and average demand growth of 8-10% primarily explain this price trend.

Back in 2009, a salmon price of NOK 37/kg was considered to be demand destruction. In 2014, this level increased to NOK 45/kg, while in 2018, we consider a salmon price exceeding NOK 67-70/kg to be a major challenge to the market.

SALMON PRICES


Price and supply changeLooking at the long-term historical relationship between changes in supply and changes in prices, we argue that the market could theoretically absorb 10-15% more fish at the same price. Currently, the market is coming from a price that is 2-3x higher than the historical 'norm' of NOK 25-30/kg for salmon. Thus, we believe it is reasonable to expect that the market is more vulnerable to supply changes. Looking at the 2017 supply/price relationship (illustrated by the three red dots in the figure below) unveils the negative demand shift driven by high prices.

9


SALMON PRICE AND SUPPLY CHANGES

y = -1.7964x + 0.1788R² = 0.5992

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Applying the historical supply change/price change ratio, an expected 4% increase in volumes during 2019 implies a 15% increase in the salmon price. This would correspond to an estimated salmon price of NOK 70/kg (FOB Oslo). With the substantially higher salmon price in recent years, we have seen that the price has been more sensitive to supply changes. Based on this, we expect 4% supply growth to result in a 5% higher salmon price.

Salmon price estimatesBased on a 4-5% supply growth estimate, and similar demand growth, we expect to see an average price of NOK 64/kg for 2019-20. This is NOK 2 higher than our previous estimate; this is also consistent with the forward price level for 2019. We expect prices to vary massively between weeks, months and quarters each year, just as we have seen during the past couple of years.

The following charts show our quarterly price assumptions (NOK and EUR per kilo) for 2018-19.

SALMON PRICE ESTIMATES PER QUARTER (NOK PER KILO)

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6366 68

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SALMON PRICE ESTIMATES PER QUARTER (EUR PER KILO)

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10


Pricing and estimatesIn this report, we increase our salmon price estimates for 2019-20 by NOK 2 to NOK 64/kg; we lift our estimate in euros to EUR 6.75/kg (6.55). Our salmon price forecast is now 7% higher than consensus (NOK 60/kg for 2019), implying a 17% higher EBIT margin. Looking at valuation, the sector is priced at a 12-month forward P/E of 13x on average, whereas a peer group of international food and beverage companies is currently priced at 19x. We argue that the cap on global production is muting the traditional cyclicality, which should prompt pricing more in line with non-cyclical food producers.

Our 2019 P/E estimates are on average 19% higher than consensusWe use 2019 estimates for the companies covered in this report; on average, we forecast 12% higher than consensus on EV/EBIT and 19% higher on P/E.

For 2019, we forecast 12% higher than consensus on EV/EBIT and 19% higher on P/E

2019 ESTIMATES: NORDEA VS CONSENSUS

Company 2019E consensus 2019E Nordea Difference 2019E consensus 2019E Nordea Difference

MHG 10.6 x 9.5 x 11% 13.0 x 11.5 x 13%LSG 8.6 x 7.9 x 8% 12.1 x 10.1 x 20%SALM 12.5 x 10.4 x 20% 15.5 x 12.9 x 20%BAKKA 12.3 x 10.4 x 19% 15.4 x 13.5 x 14%GSF 7.5 x 6.9 x 9% 10.7 x 9.1 x 18%NRS 7.4 x 7.5 x -2% 10.6 x 9.3 x 14%AUSS 6.1 x 5.5 x 11% 9.3 x 7.4 x 26%Salmones Camancha 5.3 x 4.4 x 20% 7.4 x 6.0 x 23%Average 8.8 x 7.8 x 12% 11.8 x 10.0 x 19%

EV/EBIT P/E


Pricing EV/kgThe current pricing leaves the sector (ie the companies we cover) at an average EV/kg of NOK 187.6 based on our 2019 volume assumptions.

PRICING: 2019E EV PER KILO

78 88

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EV/kg 2019E Average (NOK/kg)


Depending on which EV/EBIT multiples are applied – and given the current estimated cost level of NOK 37/kg (Norway industry average for 2018E) – the following table shows 'normal salmon prices' implied by the current sector pricing.

11


Despite the sector being priced close to a record high, we conclude that implied salmon price assumptions are conservative

IMPLIED SALMON PRICES UNDER DIFFERENT PRICING ALTERNATIVES (EV/EBIT)

EV/EBIT target 8x 9x 10x 11x 12x 13x

EV/Kilo per 10/10/2018 187.6 187.6 187.6 187.6 187.6 187.6Normal margin (NOK /kg) 23.4 20.8 18.8 17.1 15.6 14.4Cost 37.0 37.0 37.0 37.0 38.0 39.0Normal price (NOK/kg) 60.4 57.8 55.8 54.1 53.6 53.4


The current 2018 EV/EBIT pricing is 12x, which implicitly prices in NOK 53.6/kg; the 2019 EV/EBIT of 9.2x prices in a salmon price of NOK ~57.5/kg, but even that higher implied salmon price is still NOK 6 (or 9%) lower than our estimates.

Despite the sector being priced close to a record high, we conclude that the price assumptions are conservative.

Looking at the current pricing versus the average over the past ten years, we can see that all companies are priced higher than the historical average.

CURRENT PRICING (P/E) COMPARED WITH THE HISTORICAL AVERAGE

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Source: Thomson Reuters and Nordea

While Bakkafrost and SalMar are priced 70-80% higher than the historical average, the corresponding figures for Marine Harvest and Norway Royal Salmon are at the low end of the range, around 20%. This sector has historically been:

"Super-cyclical" with huge variation in prices from one year to the nextMore highly leveraged, meaning higher risk in the downturns Suffering from low (and in periods non-existent) dividend capacity.

Over the past five years this has changed completely and so we argue that substantially higher normal pricing should be justified.

12


Peer pricingWhen comparing the pricing in the seafood sector with a peer group, we choose to use a broader portfolio of international (non-cyclical) food and beverage (F&B) producers.

Until five years ago, the salmon farming sector was highly cyclical. Since 2012, the normal cyclical downturns after a one-year "bull market" have disappeared.

EBIT MARGINS 2003-18E: CYCLICALITY VANISHING

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Owing to the regulatory cap, we argue that the salmon sector is more like non-cyclical food production and sales

As long as there is no medium-term outlook for major (double-digit) supply growth, we consider the regulatory cap on annual growth (3% in Norway and Chile) to be the best indicator and justification to consider the salmon sector as more like non-cyclical food production and sales. Therefore, we argue this is a more relevant peer group than cyclical ones. Using the largest company, Marine Harvest, which is also priced fairly close to the sector average, as a proxy, we arrive at the following observations (see the following charts) about pricing (12-month forward P/E for 2011-18E).

PRICING MARINE HARVEST VS A BROADER F&B PEER GROUP

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MHG'S DISCOUNT ON 12-MONTH FORWARD P/E

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12m forward P/E premium Annual average


Even though the average pricing of Marine Harvest has increased from a level of 10x to the current 13.6x, the discount to this peer group (P/E 19.4x) is still 30%. We thus argue that the stock is not expensive on these multiples. Looking at the average for the whole Seafood sector, we see the following spread between the Seafood sector and consumer staples at the high end and cyclical materials at the low end:

13


PEER PRICING SEAFOOD VS CYCLICAL AND NON-CYCLICAL PEERS

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So while the Seafood sector is, on average, priced 6% higher than the cyclical material sector, the discount to other non-cyclical F&B producers is as high as 35%.

We argue that the Seafood sector should at least be priced in the middle, not as it is now at fairly close to a cyclical industry.

We consider Marine Harvest and the salmon farmers to be attractive versus international F&B peers

Also, when considering the outlook for dividends, we forecast that Marine Harvest offers a 7% dividend yield (consensus 5.5%) for 2019, compared with 2.4% for the consumer staples peer group.

12-MONTH FORWARD P/E AND DIVIDEND YIELD

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Combined with our estimate for 10% annual top-line growth for the next two years and our expectation of a substantial EPS increase, we consider Marine Harvest and the salmon farming sector as a whole to be attractive compared with the international F&B peer group.

14


11 October 2018

Austevoll SeafoodNorway, Seafood

Pelagic sector normalisingReported Q2 EBIT of NOK 1.34bn was slightly lower than expected, solely due to weaker-than-expected margins from Lerøy. For the pelagic business, the company delivered strong EBITDA of NOK 321m in Peru, mainly thanks to higher-than-expected sales and robust margins. The same goes for the Chilean operations, while the results from Br. Birkeland were lower than expected (zero salmon, as guided, and no contribution from fishing). We also register a solid contribution from associated company Pelagia. Overall, Q2 was solid, with salmon causing the marginally negative deviation. The share price has moved up sharply in recent months, which we find fully justified when looking at the strong set of figures from the non-salmon farming segments. Ahead of the Q3 report, we increase our DCF-based target price to NOK 150 (130) and reiterate our Buy recommendation.

Pelagics improving substantiallyEBITDA from the Peruvian operations came in substantially better than expected, mainly driven by high sales volumes in the quarter. The first fishing season opened early in Q2 and the production and sale of fish meal and fish oil also started early. As 44% of the volumes from this season remain for Q3, we also expect a good result this quarter. We view it as positive that the biomass situation is healthy, quotas are higher than expected and the meal/oil yield is high (ie good-quality fish). In addition, the Chinese market has developed favourably due to new environmental standards for domestic fish meal factories. This has removed some local capacity and contributed to increased demand for Peruvian fish meal and fish oil.

Salmon: The markets should be firmDuring 2018, the markets have been flooded with salmon from Norway and Chile. Despite this, the average salmon price in Europe YTD is still above NOK 60 per kilo. Our global supply forecast for 2018 shows 6.8% growth, falling to 4.8% for 2019. The markets have historically absorbed 5-10% annual supply growth at stable prices. Our current salmon price forecast for the next two years is NOK 62 per kilo, while the forward price currently factors in NOK 64 per kilo for 2019.

Buy

NOK 150.0 Target PriceNOK 150.4 Fair ValueNOK 121.4 Share price (close)

A MSCI ESG rating

Nordea Markets - AnalystsKolbjørn Giskeødegård+47 90 04 42 [email protected]

Anders Espedal Hagen+47 22 48 79 [email protected]

KEY INFO

AUSS NOBloombergAUSS.OLReuters

45%Free FloatEUR 2.60/NOK 24.62Market cap. (bn)

www.auss.noCompany website08 Nov 2018Next report date

3-year Performance

Oct15 Oct16 Oct17 Oct18

60

90

120

Austevoll Seafood

Oslo Exchange All share (Rebased)Source: Thomson Reuters

SUMMARY TABLE - KEY FIGURES

2020E2019E2018E2017201620152014NOKm27,33927,82023,64720,79918,90515,27414,344Total revenue

7,8358,0245,9614,7473,8812,2442,516EBITDA (adj)6,5246,8854,9733,8283,0361,4991,856EBIT (adj)

23.9%24.7%21.0%18.4%16.1%9.8%12.9%EBIT (adj) margin15.0116.226.4914.021.082.904.61EPS (adj)-7.5%149.7%-53.7%1,202.3%-62.9%-37.1%2,946.7%EPS (adj) growth10.0010.007.005.332.507.002.00DPS (ord)

1.41.41.61.31.71.31.2EV/Sales5.95.67.87.110.313.09.4EV/EBIT (adj)8.17.518.74.977.818.610.1P/E (adj)1.61.82.11.41.81.21.1P/BV

8.2%8.2%5.8%7.8%3.0%13.0%4.3%Dividend yield (ord)13.8%16.0%6.5%14.4%10.6%-1.6%6.1%FCF Yield bef acq & disp-1,6703042,8324,1095,4593,9313,960Net debt

-0.20.00.50.91.41.81.6Net debt/EBITDA15.6%17.3%13.5%10.8%9.7%5.9%7.8%ROIC after tax


ESTIMATE CHANGES

2020E2019E2018EYear1%1%0%Total revenue4%4%-2%EBITDA (rep)5%5%-2%EBIT (adj)5%5%-2%PTP4%4%-2%EPS (rep)4%4%-3%EPS (adj)0%0%0%DPS (ord)




EstimatesREPORTED FIGURES AND ESTIMATES PER SEGMENT

AUSS Group (NOKm) Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Sales 5,753 6,001 5,767 6,125EBITDA 1,445 1,570 1,210 1,736EBIT 1,217 1,335 951 1,471PTP 2,316 1,831 995 1,516Net profit 922 776 464 623Adj EPS 4.6 3.8 2.3 3.1

Lerøy Q1 2018 Q2 2018 Q3 2018E Q4 2018ERevenues 5,000 5,042 5,019 5,638EBITDA 1,114 1,161 942 1,580- margin 22% 23% 19% 28%Austral Group Peru Q1 2018 Q2 2018 Q3 2018E Q4 2018ERevenues 263 635 600 321EBITDA 63 322 240 96- margin 24% 51% 40% 30%Foodcorp Chile Q1 2018 Q2 2018 Q3 2018E Q4 2018ERevenues 166 222 60 20EBITDA 55 53 8 0- margin 33% 24% 13% 1%

Br. Birkeland Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Revenues 364 73 88 147EBITDA 212 29 20 60- margin 58% 39% 23% 41%

Pelagia Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Revenues 731 638 692 1,187EBITDA 102 86 55 124- margin 14% 14% 8% 10%


16


Reported numbers and forecastsINCOME STATEMENT

2020E2019E2018E20172016201520142013201220112010NOKm27,33927,82023,64720,79918,90515,27414,34412,29511,67612,15612,745Net revenue-1.7%17.6%13.7%10.0%23.8%6.5%16.7%5.3%-4.0%-4.6%12.7%Revenue growth

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which organicn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which FX

7,8358,0245,9614,7473,8812,2442,5162,2261,2642,0462,541EBITDA-1,311-1,139-988-919-845-746-660-529-534-508-498Depreciation and impairments PPE6,5246,8854,9733,8283,0361,4991,8561,6977291,5382,043EBITA

001,469-1,8331,427134-411675269-620240Amortisation and impairments6,5246,8856,4421,9954,4621,6331,4452,3719989182,282EBIT

00000000000of which associates4684685134994602642172481246192Associates excluded from EBIT

-285-284-297-293-239-325-347-239-159-191-249Net financials6,7077,0696,6582,2004,6831,5721,3152,3808527722,225Pre-tax profit

-1,543-1,626-1,458-369-975-289-346-581-247-246-459Reported taxes5,1655,4435,2001,8313,7081,2839691,7996045271,766Net profit from continued operations

0000000-2393800Discontinued operations-2,123-2,155-2,415-821-2,063-561-446-855-217-157-545Minority interests3,0423,2882,7851,0091,6457225237054263691,222Net profit to equity15.0116.2213.744.988.113.562.583.482.101.826.03EPS10.0010.007.005.332.507.002.001.601.201.001.50DPS10.0010.007.005.332.507.002.001.601.201.001.50of which ordinary0.000.000.000.000.000.000.000.000.000.000.00of which extraordinary

Profit margin in percent28.7%28.8%25.2%22.8%20.5%14.7%17.5%18.1%10.8%16.8%19.9%EBITDA23.9%24.7%21.0%18.4%16.1%9.8%12.9%13.8%6.2%12.7%16.0%EBITA23.9%24.7%27.2%9.6%23.6%10.7%10.1%19.3%8.6%7.5%17.9%EBIT

Adjusted earnings7,8358,0245,9614,7473,8812,2442,5162,2261,2642,0462,541EBITDA (adj)6,5246,8854,9733,8283,0361,4991,8561,6977291,5382,043EBITA (adj)6,5246,8854,9733,8283,0361,4991,8561,6977291,5382,043EBIT (adj)15.0116.226.4914.021.082.904.610.150.774.884.84EPS (adj)

Adjusted profit margins in percent28.7%28.8%25.2%22.8%20.5%14.7%17.5%18.1%10.8%16.8%19.9%EBITDA (adj)23.9%24.7%21.0%18.4%16.1%9.8%12.9%13.8%6.2%12.7%16.0%EBITA (adj)23.9%24.7%21.0%18.4%16.1%9.8%12.9%13.8%6.2%12.7%16.0%EBIT (adj)

Performance metricsCAGR last 5 years

12.3%14.2%14.0%12.2%9.2%3.7%4.9%24.9%27.5%34.9%48.1%Net revenue28.4%26.1%21.8%30.3%13.7%-2.5%5.5%23.1%21.2%45.7%46.1%EBITDA31.9%36.6%22.1%14.8%37.2%-6.5%-0.8%31.8%29.1%19.2%53.9%EBIT33.3%44.4%31.6%18.9%34.8%-10.0%-7.1%39.2%-5.0%-6.1%-6.4%EPS7.4%38.0%34.4%34.8%20.1%36.1%10.7%39.3%31.9%n.m.n.m.DPS

Average last 5 years22.2%20.1%17.2%14.6%15.0%11.2%12.7%13.4%12.1%12.8%14.7%Average EBIT margin25.7%23.4%20.8%19.1%16.7%15.7%16.8%16.6%16.5%17.8%17.6%Average EBITDA margin

VALUATION RATIOS - ADJUSTED EARNINGS

2020E2019E2018E20172016201520142013201220112010NOKm8.17.518.74.977.818.610.1n.m.36.94.310.2P/E (adj)4.94.86.55.88.18.76.96.99.64.96.2EV/EBITDA (adj)5.95.67.87.110.313.09.49.116.66.67.8EV/EBITA (adj)5.95.67.87.110.313.09.49.116.66.67.8EV/EBIT (adj)

VALUATION RATIOS - REPORTED EARNINGS

2020E2019E2018E20172016201520142013201220112010NOKm8.17.58.813.710.315.218.010.213.611.58.2P/E1.41.41.61.31.71.31.21.31.00.81.2EV/Sales4.94.86.55.88.18.76.96.99.64.96.2EV/EBITDA5.95.67.87.110.313.09.49.116.66.67.8EV/EBITA5.95.66.013.77.011.912.16.512.111.07.0EV/EBIT

8.2%8.2%5.8%7.8%3.0%13.0%4.3%4.5%4.2%4.8%3.0%Dividend yield (ord.)13.8%16.0%9.5%16.5%1.0%0.2%19.4%-9.9%-0.8%0.4%12.9%FCF yield66.6%61.7%50.9%107.1%30.8%196.5%77.4%45.9%57.1%55.0%24.9%Payout ratio


17


BALANCE SHEET

2020E2019E2018E20172016201520142013201220112010NOKm11,49511,49511,49511,69811,7478,1627,4816,0365,9486,0836,025Intangible assets

000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which R&D9,5599,5599,5599,7629,8116,0125,3313,8863,7983,9333,875of which other intangibles1,9361,9361,9361,9361,9362,1502,1502,1502,1502,1502,150of which goodwill

11,85010,0108,8997,5636,6915,5314,9494,0963,8133,9803,865Tangible assets2,0042,0042,0042,0741,7101,7671,5631,0616161,157993Shares associates

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Interest bearing assets00000000000Deferred tax assets000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Other non-IB non-current assets

1811811812321559510184799576Other non-current assets25,52923,69022,57921,56620,30315,55414,09411,27710,45711,31510,959Total non-current assets

7,8577,9507,6315,8787,8795,5404,7224,4683,3303,2853,465Inventory2,7502,8452,5302,0712,3401,6551,6381,7051,1161,1891,341Accounts receivable

8789118227197346216932,379513402467Other current assets10,6468,6716,1435,0753,7452,4702,1981,3962,1622,3832,811Cash and bank22,13120,37717,12613,74314,69910,2869,2509,9487,1227,2598,084Total current assets

000000001,07100Assets held for sale47,66044,06739,70535,30935,00125,84023,34421,22418,65018,57419,042Total assets

15,44413,82111,9529,7869,2489,0368,3217,3226,7506,6866,497Shareholders equity000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Of which preferred stocks000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Of which equity part of hybrid debt

15,52413,40211,2479,3858,9654,5754,0393,3772,6492,5142,614Minority interest30,96827,22323,19919,17218,21313,61112,36010,6999,4009,2009,111Total Equity

3,7613,7613,7613,4323,9862,7782,4072,0911,8931,8141,987Deferred tax7,2447,7447,7447,3327,0655,3234,7954,9504,3434,2864,866Long term interest bearing debt

82828211014615416945582219Pension provisionsn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Other long-term provisions

2727272934301611173128Other long-term liabilities000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Convertible debt000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Shareholder debt000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Hybrid debt

11,11411,61411,61410,90311,2318,2857,3887,0976,3116,1536,900Total non-current liabilities00000000000Short-term provisions

1,7271,7921,6241,4571,5001,0041,1731,180914843841Accounts payable2,1192,2052,0361,9261,9181,8621,0609845519521,036Other current liabilities1,7321,2321,2321,8522,1391,0781,3631,2641,4751,4271,154Short term interest bearing debt5,5775,2304,8915,2355,5573,9453,5963,4282,9393,2213,031Total current liabilities

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Liabilities for assets held for sale47,66044,06739,70535,30935,00125,84023,34421,22418,65018,57419,042Total liabilities and equity

Balance sheet and debt metrics-1,6703042,8324,1095,4593,9313,9604,8183,6553,3303,210Net debt7,6407,7087,3235,2857,5354,9504,8196,3873,4953,0813,396Working capital

33,16931,39829,90226,85127,83820,50318,91317,66413,95214,39714,355Invested capital42,08338,83734,81330,07529,44421,89619,74817,79615,71015,35316,011Capital employed20.8%25.5%25.6%10.6%18.0%8.3%6.7%10.0%6.3%5.6%20.3%ROE15.6%17.3%13.5%10.8%9.7%5.9%7.8%8.3%4.0%8.2%11.5%ROIC15.5%17.7%18.5%6.6%15.2%7.5%7.3%13.3%6.4%6.0%14.3%ROCE

-0.20.00.50.91.41.81.62.22.91.61.3Net debt/EBITDA22.924.222.27.117.76.45.89.94.95.07.3Interest coverage

32.4%31.4%30.1%27.7%26.4%35.0%35.6%34.5%36.2%36.0%34.1%Equity ratio-5.4%1.1%12.2%21.4%30.0%28.9%32.0%45.0%38.9%36.2%35.2%Net gearing


18


CASH FLOW STATEMENT

2020E2019E2018E20172016201520142013201220112010NOKm7,8358,0245,9614,7473,8812,2442,5162,2261,2642,0462,541EBITDA (adj) for associates

-1,543-1,626-1,458-502-249-428-446-181-491-345-225Paid taxes-285-284-297-348-314-256-238-242-276-180-293Net financials

00-28-36-8-15124-13363-11Change in provisions0050-83-5620-11-111-1689Change in other LT non-IB

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Cash flow to/from associates00-553-401n.a.n.a.n.a.n.a.n.a.n.a.n.a.Dividends paid to minorities

4684682,452142435-16191-136-148-144Other adj to reconcile to cash flow6,4756,5826,1273,3933,2781,6001,7841,8703991,3601,957Funds from operations (FFO)

68-385-2,038440-343-645-244-769294-508-139Change in NWC6,5436,1974,0893,8332,9369551,5391,1016928521,818Cash flow from operations (CFO)

-3,150-2,250-2,500-1,840-1,142-1,126-967-920-727-736-455Capital expenditure3,3933,9471,5891,9921,793-171572181-351161,363Free cash flow before A&D

008884481,8283441,336257175105846Proceeds from sale of assets00-129-164-3,443-156-80-1,149-189-203-911Acquisitions

3,3933,9472,3482,277178171,828-711-49191,298Free cash flow

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Dividends paid000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Equity issues / buybacks00-20812743921-628314196500152Net change in debt000-4441,776-279-247-170-162-644-16Other financing adjustments

60809-9-21817244-32-4Other non-cash adjustments1,9742,5281,0681,3291,275272802-766-221-4281,187Change in cash

Cash flow metrics240.4%197.5%-520.1%66.9%-196.5%184.2%90.3%-633.5%273.8%65.3%175.9%Capex/D&A-11.5%-8.1%-10.6%-8.8%-6.0%-7.4%-6.7%-7.5%-6.2%-6.1%-3.6%Capex/Sales

Key information1211211216884544736292150Share price year end (/current)

24,61024,61024,61013,83516,97810,9479,4267,1965,7774,25710,055Market cap.38,46438,31638,68927,33031,40119,45217,42515,39212,08210,10115,878Enterprise value

202.7202.7202.7202.7202.7202.7202.7202.7202.7202.7202.7Diluted no. of shares, year-end (m)Source: Company data and Nordea estimates

19


11 October 2018

BakkafrostNorway, Seafood

Growth pains Over the past few months, Bakkafrost has had two incidents that negatively impacted the 2018 and 2019 harvest outlook. In May, it was forced to take out one site at low harvest weights owing to the occurrence of a bacteria (BKD). This prompted Bakkafrost to cut its full-year 2018 volume guidance by 2,000 tonnes in its Q2 report. The second incident was on 20 September, when it lost 750,000 fish in a sudden mortality at one site, likely owing to algae issues or local agricultural impact. The company has not yet issued guidance for 2019 volumes. We previously estimated 60,000 tonnes but now cut this to 55,000 tonnes. Based on the upgraded salmon price forecasts, we lift our 2019 EBIT estimate by 2%. This includes negative effects of lower volume estimates. We reiterate our Hold rating ahead of the Q3 report, with a DCF-based fair value of NOK 521 per share.

Volume setbacks in the short runA key risk for Bakkafrost is that 100% of its operations are located in the smallest salmon farming countries in the world. A disease outbreak out of control could wipe out a substantial part of its production and it thus needs to have a fairly strict precautionary regime in place. This includes taking out fish at an early stage if it suspects eg ISA. This was also the reason it harvested out the site with BKD in May. The most recent incident happened so quickly and with the fish so small that it was unable to prevent the massive mortality. The loss was covered by insurance (cost), so the negative impact is lack of fish in 2019.

Trading update after Q3We expected harvesting of 11,200 tonnes, while the company actually harvested 7,200 tonnes. As management does not issue guidance for quarterly harvesting, Q4 volumes will be adjusted accordingly, unless volume guidance is changed in the Q3 report.

Long-term growth story intact – fully priced inBakkafrost is in the midst of majorly transforming its operations, investing DKK 3bn over a seven-year period to increase smolt size and thereby reduce risk and increase capacity. Its long-term target is 19 million smolts averaging 500 grams, which should yield total capacity of 95,000 tonnes; this is 94% higher than the 2018 volume guidance. We view this as a positive move but acknowledge that the 'cost' of this is a lower dividend outlook in exchange for long-term growth, which also involves a risk of delay.

Hold

n.a on Hold Target PriceNOK 521 Fair ValueNOK 501 Share price (close)

BB MSCI ESG rating



KEY INFO

BAKKA NOBloombergBAKKA.OLReuters

90%Free FloatDKK 19.29/NOK 24.45Market cap. (bn)

www.bakkafrost.comCompany website13 Nov 2018Next report date

3-year Performance


300

450

Bakkafrost



2020E2019E2018E2017201620152014DKKm4,5874,1523,5663,7703,2032,8502,683Total revenue2,5172,2371,5261,5701,3131,115930EBITDA (adj)2,1951,9351,2871,3781,165987834EBIT (adj)

47.9%46.6%36.1%36.5%36.4%34.6%31.1%EBIT (adj) margin33.1329.0219.8625.3816.9917.7712.05EPS (adj)

14.2%46.1%-21.8%49.3%-4.4%47.5%23.9%EPS (adj) growth13.9712.338.9510.458.708.256.00DPS (ord)

4.44.95.73.54.53.62.5EV/Sales9.210.515.89.512.410.38.2EV/EBIT (adj)

11.913.619.910.416.511.411.5P/E (adj)3.34.05.23.63.93.83.3P/BV

3.5%3.1%2.3%4.0%3.1%4.1%4.3%Dividend yield (ord)4.1%2.6%-1.1%6.3%1.0%1.3%9.0%FCF Yield bef acq & disp8089971,057215592346200Net debt0.30.40.70.10.50.30.2Net debt/EBITDA

24.1%24.7%20.0%22.7%20.9%22.8%22.4%ROIC after taxSource: Company data and Nordea estimates

ESTIMATE CHANGES

2020E2019E2018EYear1%0%1%Total revenue3%2%0%EBITDA (rep)4%2%-1%EBIT (adj)4%2%-1%PTP4%2%0%EPS (rep)4%2%-1%EPS (adj)4%2%0%DPS (ord)




EstimatesESTIMATES AND RESULTS PER SEGMENT, DKKm and DKK

Group Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Sales 851.2 954.3 593.2 1,167.5EBITDA 314.0 456.5 252.2 503.0- margin 37% 48% 43% 43%

EBIT 351.4 403.5 202.2 453.0- margin 41% 42% 34% 39%Pre-tax profit 332.7 412.6 191.6 442.4Net profit 272.3 338.8 145.6 336.2Adj EPS 5.6 6.9 3.0 6.9

Farming Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Operating revenues 649.5 775.1 345.6 916.5EBIT pre IFRS 230.8 393.2 148.0 449.9EBIT per kg 18.9 30.5 20.6 27.0- margin 35.5 % 50.7 % 42.8 % 49.1 %Volume (gwe) 12,237 12,900 7,200 16,663VAP Q1 2018 Q2 2018 Q3 2018E Q4 2018EVAP volumes 2,115 1,970 2,952 6,332Share 47% 30% 50% 35%VAP contribution -12.1 -16.9 18.2 -17.9VAP contribution per kg -5.7 -8.6 6.2 -2.8

Fish oil, -meal and feed Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Sales 300.0 326.0 282.2 336.6EBITDA 86.4 65.9 50.8 50.5- margin 28.8 % 20.2 % 18.0 % 15.0 %Feed volume (tonnes) 13,923 30,329 40,554 37,405


21



2020E2019E2018E20172016201520142013201220112010DKKm4,5874,1523,5663,7703,2032,8502,6832,4911,8561,321820Net revenue

10.5%16.4%-5.4%17.7%12.4%6.2%7.7%34.3%40.5%61.1%37.5%Revenue growthn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which organicn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which FX

2,5172,2371,5261,5701,3131,115930697397400290EBITDA-234-214-194-194-133-108-97-87-80-67-42Depreciation and impairments PPE

2,2832,0231,3311,3771,1801,007833611317333247EBITA0079-727494-795991276868Amortisation and impairments

2,2832,0231,4106491,674929892701344401316EBIT000-1157-124-6-21of which associates

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Associates excluded from EBIT-37-42-31-25-41-4726-20-31-8Net financials

2,2461,9811,3796241,633924899727324370307Pre-tax profit-539-475-286-112-294-114-252-138-56-47-48Reported taxes

1,7071,5061,0935111,339810647589268323260Net profit from continued operations000000001300Discontinued operations00000000020Minority interests

1,7071,5061,0935111,339810647589281325260Net profit to equity34.9430.8222.3710.4727.4016.5813.2412.065.766.663.42EPS13.9712.338.9510.458.708.256.004.502.001.001.85DPS13.9712.338.9510.458.708.256.004.502.001.001.85of which ordinary0.000.000.000.000.000.000.000.000.000.000.00of which extraordinary


Adjusted earnings2,5172,2371,5261,5701,3131,115930697397400290EBITDA (adj)2,2832,0231,3311,3771,1801,007833611317333247EBITA (adj)2,1951,9351,2871,3781,165987834587323335247EBIT (adj)33.1329.0219.8625.3816.9917.7712.059.725.345.312.52EPS (adj)



10.0%9.1%7.4%15.2%19.4%28.3%35.1%46.8%51.9%n.a.n.a.Net revenue17.7%19.2%16.9%31.7%26.8%31.0%39.0%53.9%38.7%n.m.n.m.EBITDA19.7%17.8%15.0%13.6%33.1%24.1%35.9%62.5%52.6%n.a.n.a.EBIT16.1%18.4%13.2%12.7%32.7%37.1%55.8%102.5%89.5%n.a.n.a.EPS11.1%15.5%14.7%39.2%54.1%34.8%n.m.n.m.n.m.n.m.n.m.DPS

Average last 5 years41.7%38.1%34.6%32.3%34.7%29.2%28.9%27.6%26.5%30.4%n.a.Average EBIT margin47.5%44.2%40.2%37.5%34.0%31.6%29.6%27.7%27.2%30.8%n.a.Average EBITDA margin


2020E2019E2018E20172016201520142013201220112010DKKm11.913.619.910.416.511.411.58.711.46.618.7P/E (adj)8.09.113.38.310.99.17.36.69.36.38.1EV/EBITDA (adj)8.810.015.39.512.110.18.27.611.77.69.5EV/EBITA (adj)9.210.515.89.512.410.38.28.211.27.59.5EV/EBIT (adj)


2020E2019E2018E20172016201520142013201220112010DKKm11.312.817.725.210.212.210.47.010.65.313.8P/E4.44.95.73.54.53.62.51.92.01.92.9EV/Sales8.09.113.38.311.09.17.36.89.26.38.1EV/EBITDA8.810.015.39.512.310.18.27.911.57.69.5EV/EBITA8.810.014.420.18.611.07.76.810.66.37.5EV/EBIT

3.5%3.1%2.3%4.0%3.1%4.1%4.3%5.3%3.3%2.8%3.9%Dividend yield (ord.)4.1%2.6%-1.0%6.3%0.6%1.4%8.9%6.9%3.9%-52.6%5.0%FCF yield

40.0%40.0%40.0%99.9%31.7%49.8%45.3%37.3%34.7%15.0%54.2%Payout ratio


22


BALANCE SHEET

2020E2019E2018E20172016201520142013201220112010DKKm377377377377377295295295294370137Intangible assets

00000000000of which R&D372372372372372290290290290366133of which other intangibles

55555555444of which goodwill3,9463,4162,9152,5702,1181,5311,041917813829356Tangible assets

7979797759131127117913626Shares associatesn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Interest bearing assets

00000000000Deferred tax assets00000000000Other non-IB non-current assets999013000001Other non-current assets

4,4123,8813,3803,0242,5671,9571,4631,3281,1981,234520Total non-current assets2,9392,5492,0721,4032,2141,4821,2811,201990880511Inventory

408365391262292199314401358171146Accounts receivable1099912415711018000000Other current assets

-808-335-39531023510240518225179Cash and bank2,6482,6782,1922,1322,8511,9632,0001,7841,3731,067665Total current assets

n.a.n.a.n.a.n.a.n.a.n.a.00000Assets held for sale7,0596,5595,5725,1565,4183,9203,4633,1122,5712,3021,185Total assets

5,8744,7693,7003,6263,5492,5802,0641,6651,2631,026902Shareholders equity00000000000Of which preferred stocks00000000000Of which equity part of hybrid debt000000000350Minority interest

5,8744,7693,7003,6263,5492,5802,0641,6651,2631,061902Total Equity613613613455546350414311258256120Deferred tax

0066314782744850568573273437Long term interest bearing debt00000000000Pension provisions

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Other long-term provisions000010112911775000Other long-term liabilities0000n.a.n.a.n.a.n.a.n.a.n.a.n.a.Convertible debt0000n.a.n.a.n.a.n.a.n.a.n.a.n.a.Shareholder debt0000n.a.n.a.n.a.n.a.n.a.n.a.n.a.Hybrid debt

6136131,2766021,4749261,0361,071990990157Total non-current liabilities000001551250000Short-term provisions

57351459642139519512827621815183Accounts payable000127063100000Other current liabilities066303780010010010010042Short term interest bearing debt

5731,177596927395414363376318251125Total current liabilities00000000000Liabilities for assets held for sale

7,0596,5595,5725,1565,4183,9203,4633,1122,5712,3021,185Total liabilities and equity

Balance sheet and debt metrics8089971,05721559234620060380781770Net debt

2,8842,4991,9911,2742,2211,6031,4571,3261,131900573Working capital7,2956,3805,3714,2974,7883,5602,9202,6542,3282,1341,093Invested capital6,4875,3824,9764,2295,0233,5063,1002,7362,2532,0511,060Capital employed

32.1%35.6%29.8%14.3%43.7%34.9%34.7%40.2%24.6%33.7%40.2%ROE24.1%24.7%20.0%22.7%20.9%22.8%22.4%17.7%10.9%15.6%22.7%ROIC35.2%37.6%28.3%15.4%33.3%26.5%28.8%25.6%15.2%19.5%29.8%ROCE

0.30.40.70.10.50.30.20.92.02.00.2Net debt/EBITDA61.547.748.424.764.537.927.744.316.613.138.7Interest coverage

83.2%72.7%66.4%70.3%65.5%65.8%59.6%53.5%49.1%44.6%76.2%Equity ratio13.8%20.9%28.6%5.9%16.7%13.4%9.7%36.2%63.9%77.0%7.8%Net gearing


23


CASH FLOW STATEMENT

2020E2019E2018E20172016201520142013201220112010DKKm2,5172,2371,5261,5711,2981,109931674403402289EBITDA (adj) for associates-539-475-286-140-155-148-81-47-70-320Paid taxes

-37-42-31-36-29-28-34-34-24-31-8Net financials0000-155311250000Change in provisions00-9-89-4012427501-1Change in other LT non-IB00000000000Cash flow to/from associates00000000000Dividends paid to minorities00-1490118-11-127-48-17-11Other adj to reconcile to cash flow

1,9411,7191,0511,3051,037965856663317323268Funds from operations (FFO)-385-507-718146-209-224-20-173-10358-82Change in NWC

1,5561,2123331,451828740836490214380187Cash flow from operations (CFO)-765-715-544-636-687-608-230-200-114-98-68Capital expenditure791497-211816141133606291100282119Free cash flow before A&D

00250226281473520Proceeds from sale of assets0000-750-30-5-30-1,537-4Acquisitions

791497-18681688139603286117-903115Free cash flow

-602-437-511-425-403-293-220-980-191-18Dividends paid000200000068Equity issues / buybacks

-6630138-299379-151-172-41-21,102-207Net change in debt000-2266099-107016Other financing adjustments00-145232200-10Other non-cash adjustments

-47460-70475133-30322315788-26Change in cash

Cash flow metrics326.3%334.5%470.7%69.0%-190.4%325.5%608.2%-5,172.7%214.3%17,950.0%-260.8%Capex/D&A-16.7%-17.2%-15.3%-16.9%-21.4%-21.3%-8.6%-8.0%-6.2%-7.4%-8.3%Capex/Sales




24


11 October 2018

Grieg SeafoodNorway, Seafood

Struggling with growth in the short termGrieg Seafood reported Q2 EBIT of NOK 426m, 3% above expectations. The positive deviation was due to higher-than-expected harvesting volumes in the quarter. EBIT per kilo in Norway was lower than expected, while Canada and the UK came in higher. Grieg faced disease issues and negative effects from poor on-growing in Q1, impacting the performance. The company slashed volume guidance for Rogaland. Costs in this region are expected to increase, while the opposite is true for the UK owing to higher volumes. For the remaining two regions, management expects costs to be flat. Overall, full-year volume guidance was cut by 5,000 tonnes, 80% of which is related to Norway and the remainder to Canada. Despite the short-term volume issues, management reiterated its ambitious growth plan, and within just two years, the company plans to harvest 100,000 tonnes, which is 33% higher than its estimated 2018 volume. The fish are already in the sea (26 million of them); now they just need to stay alive so that the smolt yield reaches the targeted 4 kilos. Ahead of the Q3 report, we lift our target price to NOK 150 (110) and reiterate our DCF-based Buy rating.

Ramping up production and targeting lower costsThe company hosted a Capital Markets Update (CMU) in September at which it reiterated its 100,000-tonne target in 2020, which is 25,000 tonnes (33%) up on the current level. The company aims to achieve this primarily by maximising production in Finnmark and moving average smolt size up to 500 grams in Rogaland. It also states its cost levels in each region showing NOK 43.4 per kilo in 2017, which it expects to be down by NOK 1.04 in 2018 and fall further to NOK 38 in 2020. This is in line with our estimate for Canada, but NOK 1-2 lower than our current cost estimate for Norway.

Financial targets The company is well within its new financial targets (NIBD/EBITDA below 4.5x, equity ratio above 35%, net debt per kilo harvested below NOK 20/kg, ROCE above 12%). The targeted dividend payout (25-35% of net profit) seems to be in line with the 2018 level. Ahead of the Q3 report, we increase our 2019-20 EBIT estimates by 9-15%. We raise our DCF-based target price to NOK 150 (130) and stick to our Buy recommendation.

Buy


A MSCI ESG rating



KEY INFO

GSF NOBloombergGSFO.OLReuters

45%Free FloatEUR 1.38/NOK 13.05Market cap. (bn)www.griegseafood.noCompany website

07 Nov 2018Next report date

3-year Performance


30

60

90

120

Grieg Seafood




2,6572,1981,6431,1041,342261481EBITDA (adj)2,3571,9211,3989041,16848341EBIT (adj)

15.2%20.2%18.1%12.8%17.7%1.0%12.4%EBIT (adj) margin15.6112.688.845.796.00-0.362.37EPS (adj)

23.1%43.4%52.8%-3.6%1,782.8%-115.0%62.2%EPS (adj) growth7.007.001.501.984.001.500.50DPS (ord)0.81.41.91.41.61.21.7EV/Sales5.47.010.310.99.1112.914.0EV/EBIT (adj)7.59.213.212.513.6n.m.12.0P/E (adj)1.92.53.22.52.91.61.4P/BV

6.0%6.0%1.3%2.7%4.9%4.8%1.8%Dividend yield (ord)7.2%8.9%5.5%1.3%6.7%-2.5%-6.9%FCF Yield bef acq & disp-4003081,3031,7801,3951,9001,593Net debt-0.20.10.81.61.07.33.3Net debt/EBITDA


ESTIMATE CHANGES

2020E2019E2018EYear4%5%1%Total revenue

13%8%3%EBITDA (rep)15%9%4%EBIT (adj)16%9%4%PTP16%9%4%EPS (rep)16%9%4%EPS (adj)

0%0%0%DPS (ord)Source: Nordea estimates



EstimatesESTIMATES AND RESULTS PER REGION

GSF Group (NOKm) Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Harvesting volumes 11,433 22,568 17,100 24,000 Sales 1,517 2,319 1,283 2,601 EBIT 340 237 271 539 PTP 314 216 253 524 Net profit 222 164 193 398 Adj EPS 1.99 1.47 1.72 3.56

Rogaland Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Production volume 2,295 6,409 1,200 6,100 Spot price 60 59 56 62 Production cost 48 48 47 42 EBIT per kg 11.9 11.5 8.5 20.0 EBIT - margin 31% 16% 18% 26%Total Sales (1000 NOK) 147,500 380,700 66,624 378,200 Total EBIT (1000 NOK) 27,400 73,900 10,224 122,000

Finnmark Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Production volume 4,179 6,387 8,500 10,500 Spot price 60 59 56 62 Production cost 46 37 37 37 EBIT per kg 14.5 22.3 18.5 25.0 EBIT - margin 24% 38% 18% 26%Total Sales (1000 NOK) 229,300 378,700 471,920 651,000 Total EBIT (1000 NOK) 60,400 142,700 157,420 262,500

Canada Q1-2018 Q2-2018 Q3-2018E Q4-2018E Production volume 3,758 7,290 2,800 3,700 Spot price 55 68 48 55 Production cost 32 44 33 33 EBIT per kg 22.6 23.9 15.0 22.0 EBIT - margin 41% 35% 31% 40%Total Sales (1000 NOK) 233,100 492,700 134,400 203,500 Total EBIT (1000 NOK) 85,100 173,900 42,000 81,400

UK Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Production volume 1,201 2,482 4,600 3,700 Spot price 60 78 60 64 Production cost 66 61 50 50 EBIT per kg - 5.9 16.7 10.0 14.0 EBIT - margin -10% 21% 17% 22%Total Sales (1000 NOK) 86,800 193,100 276,000 236,800 Total EBIT (1000 NOK) - 7,086 41,500 46,000 51,800


26



2020E2019E2018E20172016201520142013201220112010NOKm15,4909,4937,7207,0386,5864,6382,7392,4252,0782,0642,456Net revenue63.2%23.0%9.7%6.9%42.0%69.3%12.9%16.7%0.7%-16.0%51.5%Revenue growth


2,6572,1981,6431,1041,342261481484-30346687EBITDA-300-276-244-201-174-214-141-136-161-140-47Depreciation and impairments PPE

2,3571,9211,3989041,16848341348-191206640EBITA00-11-9151633-12726798-395208Amortisation and impairments

2,3571,9211,3878121,68381214616-93-190847EBIT00000000000of which associates000012332-1258Associates excluded from EBIT

-63-59-80-14-135-93-56-73-108-313Net financials2,2941,8631,3077981,561-9161545-202-195858Pre-tax profit-550-447-323-213-33914-23-1145572-227Reported taxes

1,7431,4169845851,2224138431-147-123631Net profit from continued operations00000000000Discontinued operations00-8-30-36-1100000Minority interests

1,7431,4169765551,186-7138431-147-123631Net profit to equity15.6112.688.744.9710.62-0.061.243.86-1.32-1.105.65EPS

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.DPS7.007.001.501.984.001.500.500.000.000.001.35of which ordinaryn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which extraordinary

Profit margin in percent17.1%23.2%21.3%15.7%20.4%5.6%17.6%20.0%-1.4%16.8%28.0%EBITDA15.2%20.2%18.1%12.8%17.7%1.0%12.4%14.4%-9.2%10.0%26.0%EBITA15.2%20.2%18.0%11.5%25.6%1.7%7.8%25.4%-4.5%-9.2%34.5%EBIT

Adjusted earnings2,6572,1981,6431,1041,342261481484-30346687EBITDA (adj)2,3571,9211,3989041,16848341348-191206640EBITA (adj)2,3571,9211,3989041,16848341348-191206640EBIT (adj)15.6112.688.845.796.00-0.362.371.46-2.202.443.79EPS (adj)

Adjusted profit margins in percent17.1%23.2%21.3%15.7%20.4%5.6%17.6%20.0%-1.4%16.8%28.0%EBITDA (adj)15.2%20.2%18.1%12.8%17.7%1.0%12.4%14.4%-9.2%10.0%26.0%EBITA (adj)15.2%20.2%18.1%12.8%17.7%1.0%12.4%14.4%-9.2%10.0%26.0%EBIT (adj)


27.3%28.2%26.1%27.6%26.1%13.6%11.1%10.3%14.2%30.6%42.4%Net revenue59.0%35.5%27.7%n.m.31.1%-17.6%11.8%28.6%n.m.15.3%49.6%EBITDA96.2%55.1%17.6%n.m.n.m.-37.5%-4.5%n.m.n.m.n.m.62.1%EBIT

n.m.59.3%17.8%n.m.n.m.n.m.-12.8%n.m.n.a.n.a.n.a.EPS36.1%69.5%n.m.n.m.n.m.2.1%n.m.n.m.n.m.n.m.n.m.DPS



2020E2019E2018E20172016201520142013201220112010NOKm7.59.213.212.513.6n.m.12.016.7n.m.1.84.9P/E (adj)4.86.18.79.07.920.69.98.6n.m.5.64.6EV/EBITDA (adj)5.47.010.310.99.1112.914.012.0n.m.9.44.9EV/EBITA (adj)5.47.010.310.99.1112.914.012.0n.m.9.44.9EV/EBIT (adj)


2020E2019E2018E20172016201520142013201220112010NOKm7.59.213.314.57.7n.m.23.06.3n.m.n.m.3.3P/E0.81.41.91.41.61.21.71.71.40.91.3EV/Sales4.86.18.79.07.920.69.98.6n.m.5.64.6EV/EBITDA5.47.010.310.99.1112.914.012.0n.m.9.44.9EV/EBITA5.47.010.412.26.366.622.36.8n.m.n.m.3.7EV/EBIT

6.0%6.0%1.3%2.7%4.9%4.8%1.8%0.0%0.0%0.0%7.2%Dividend yield (ord.)7.2%8.9%5.5%1.2%7.3%-2.3%-4.6%3.0%-6.0%-43.7%13.4%FCF yield

44.8%55.2%17.2%39.8%37.7%n.m.40.4%0.0%0.0%0.0%23.9%Payout ratio


27


BALANCE SHEET


000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which R&D1,1131,1131,1131,0691,0611,1101,078999981992929of which other intangibles

10910910910910911110910710510591of which goodwill2,6032,4232,2191,8691,5101,5351,4251,2041,1411,127924Tangible assets

191919018264241493737Shares associatesn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Interest bearing assets

444501000000Deferred tax assets000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Other non-IB non-current assets

181818306423233Other non-current assets3,8663,6863,4823,0812,7032,7962,6542,3542,2792,2641,983Total non-current assets2,8322,4872,4622,7932,5492,0201,9321,8401,3761,4721,622Inventory2,0141,2371,186761801582254178125224265Accounts receivable

5853613552472121465755516643Other current assets2,5961,921964272504392144164240153144Cash and bank8,0276,0064,9674,0724,0653,1402,3882,2371,7921,9142,075Total current assets

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Assets held for sale11,8939,6918,4497,1536,7685,9365,0424,5914,0704,1794,058Total assets


33333344563000000Minority interest6,8125,2924,0443,3323,2072,2382,2221,9891,5081,6901,982Total Equity

854854854721675539560557432487531Deferred tax1,4731,5411,0761,3941,2301,7911,1961,0221,109775816Long term interest bearing debt




1,325824794585494653301318246303253Accounts payable56034634426429516314798887967Other current liabilities7226881,191658668501541582654825381Short term interest bearing debt

2,7351,9852,4561,6821,6291,3421,0399999881,207702Total current liabilitiesn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Liabilities for assets held for sale


Balance sheet and debt metrics-4003081,3031,7801,3951,9001,5931,4411,5241,4471,053Net debt

3,5462,9152,8652,9522,7731,9311,7961,6571,2181,3801,611Working capital7,4126,6016,3476,0335,4764,7274,4504,0113,4973,6443,593Invested capital9,1587,7065,9925,4725,1394,5944,0033,5913,0822,9723,355Capital employed

29.0%30.5%26.7%17.2%44.3%-0.3%6.6%24.7%-9.2%-6.7%37.6%ROE24.2%21.4%16.3%11.3%16.5%0.7%5.8%6.7%-3.9%4.1%13.8%ROIC25.7%24.9%23.1%14.8%32.8%1.8%5.3%17.1%-3.0%-6.4%25.3%ROCE

-0.20.10.81.61.07.33.33.0-51.14.21.5Net debt/EBITDA37.532.742.0n.m.11.0n.m.n.m.n.m.n.m.n.m.n.m.Interest coverage



28


CASH FLOW STATEMENT

2020E2019E2018E20172016201520142013201220112010NOKm2,6572,1981,6431,1041,342261481484-30346687EBITDA (adj) for associates-550-447-323-213-41-57-153-5-34Paid taxes

-63-59-80-14-91-115-69-89-98-16-51Net financials00-472148-264910-11Change in provisions006-3110-123-1013-620Change in other LT non-IB

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Cash flow to/from associates00-18-43n.a.n.a.n.a.n.a.n.a.n.a.n.a.Dividends paid to minorities0013217-9747-2913-69-53-27Other adj to reconcile to cash flow

2,0431,6921,3128231,27098435405-180264596Funds from operations (FFO)-631-5087-179-405137-311-177288-90-53Change in NWC

1,4121,6421,399644865235124228108175544Cash flow from operations (CFO)-480-480-676-540-253-322-344-163-190-324-242Capital expenditure9321,162722104612-87-22065-82-150302Free cash flow before A&D

000155597417043Proceeds from sale of assets00-10-23-2-3000-65-24Acquisitions

9321,16271297665-81-14783-82-211281Free cash flow

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Dividends paid0000n.a.n.a.n.a.n.a.n.a.n.a.n.a.Equity issues / buybacks

-34-37215154-375342118-160171388-251Net change in debt0000-130000-180Other financing adjustments

5580-157634391-212Other non-cash adjustments675957693-232112248-20-768794Change in cash

Cash flow metrics160.0%173.7%264.8%184.8%-74.2%178.5%128.6%-124.0%300.4%60.6%-150.7%Capex/D&A

-3.1%-5.1%-8.8%-7.7%-3.8%-6.9%-12.6%-6.7%-9.1%-15.7%-9.8%Capex/Sales


13,03113,03113,0318,0689,1233,4623,1822,7361,3794832,088Market cap.12,66413,37214,3679,89110,5745,3924,7754,1762,9031,9313,141Enterprise value


29


11 October 2018

Leroy Seafood GroupNorway, Seafood

Upside from higher valuation multiplesQ2 reported EBIT at NOK 1.0bn was 11% lower than expected. The main reason for this deviation was lower-than-expected price achievement in Sjøtroll, owing to small-sized fish and downgrades. The EBITDA from whitefish was also somewhat lower than expected. For the other segments, EBIT was more or less in line with expectations. Contrary to other companies, Lerøy maintained its full-year volume guidance of 166,000 tonnes. It also expects strong demand and decelerating supply growth for Q4 2018, continuing into 2019. Looking ahead, the company expects further cost reductions for Sjøtroll and Lerøy Midnor. We view the maintained volume guidance and lower costs going forward as the main positives. Margins in Lerøy Aurora and Lerøy Midnor are also now more and less equal to SalMar, while Lerøy is priced at a substantial discount. We expect this gap to narrow and support the share price. Based on higher salmon price estimates, we raise 2019E-20E EBIT by 6%. We lift our DCF-based target price to NOK 85 (70) and reiterate our Buy rating.

A recovery of Midnor is also a recovery of group EBITThe group has three regions and two of them (Sjøtroll and Lerøy Midnor) have been struggling with biological issues since 2015 (sea lice and various disease issues). These issues have dropped group EBIT margins from top levels in the industry to the lower end. Biological performance in this region during 2017-18 has improved substantially; in the Q2 report, management declared the situation fully normalised in terms of costs (we estimate NOK 8 per kilo lower y/y). The turnaround in this region is also the main reason for a relative improvement among Norwegian peers. We expect the next step-up will occur in late 2019, driven by large smolt and reduced time in sea for Sjøtroll, which we expect will lower costs considerably.

Demand: Markets should be firmDuring 2018, the markets have been flooded with salmon from Norway and Chile. Despite this, the average salmon price in Europe YTD is still above NOK 60 per kilo. Our global supply forecast for 2018 shows 6.8% growth, falling to 4.8% for 2019. The markets have historically absorbed 5-10% annual supply growth at stable prices. Our current salmon price forecast for the next two years is NOK 64 per kilo; this is more or less in line with the forward price for 2019.

Buy


A MSCI ESG rating



KEY INFO

LSG NOBloombergLSG.OLReuters


www.leroy.noCompany website08 Nov 2018Next report date

3-year Performance


30

45

60

75

Leroy Seafood Group






-1.6%49.9%-18.4%89.3%69.2%-28.3%42.7%EPS (adj) growth2.005.004.001.591.301.201.20DPS (ord)1.81.82.21.61.91.61.4EV/Sales7.67.711.07.911.615.69.8EV/EBIT (adj)9.99.814.77.615.718.210.8P/E (adj)2.12.32.51.92.32.32.1P/BV

2.9%7.2%5.7%3.6%2.7%3.6%4.4%Dividend yield (ord)10.1%9.0%3.6%7.8%6.6%0.4%4.9%FCF Yield bef acq & disp

-5086882,0302,2623,4022,5951,876Net debt-0.10.10.40.51.01.40.9Net debt/EBITDA


ESTIMATE CHANGES

2020E2019E2018EYear1%1%-1%Total revenue5%6%-4%EBITDA (rep)6%6%-4%EBIT (adj)6%6%-3%PTP6%6%-3%EPS (rep)6%6%-5%EPS (adj)0%0%0%DPS (ord)




EstimatesESTIMATES AND RESULTS

Lerøy Seafood Group (NOKm) Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Sales 5,000 5,042 5,019 5,638EBITDA 1,114 1,161 942 1,580- margin 22% 23% 19% 28%

EBIT 1,917 1,474 761 1,396- margin 38% 29% 15% 25%

PTP 1,977 1,501 796 1,431Net profit 1,537 1,119 580 1,074Adj EPS 1.31 1.28 0.97 1.80

Lerøy Aurora (NOKm) Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Revenue 588 443 477 660EBIT 255 219 180 297- margin 43% 49% 38% 45%- per kg 28.4 32.1 20.1 27.0

Volume 8,979 6,807 9,000 11,000

Lerøy Midnor (NOKm) Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Revenue 736 1,030 1,190 1,351EBIT 263 424 365 559- margin 36% 41% 31% 41%- per kg 21.8 26.4 16.6 25.4

Volume 12,092 16,047 22,000 22,000

Lerøy Sjøtroll (NOKm) Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Revenue 927 930 641 840EBIT 217 190 41 280

- margin 23% 20% 6% 33%- per kg 13.2 12.7 3.3 20.0

Volume 16,504 14,968 12,500 14,000Norskott - 50% (NOKm) Q1-2018 Q2-2018 Q3-2018E Q4-2018ERevenue 260 252 210 300EBIT 87 87 51 100- margin 33% 35% 24% 33%- per kg 26.7 28.0 17.0 25.0

Volume 3,250 3,113 3,000 4,000

VAP, Sales & distribution (NOKm) Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Revenue 4,690 4,807 4,375 4,387EBIT 65 62 87 132- margin 1.4 % 1.3 % 2.0 % 3.0 %

Havfisk/NWS (NOKm) Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Revenues 600 500 380 520EBITDA 209 149 120 162- margin 34.8 % 29.8 % 31.6 % 31.2 %


31



2020E2019E2018E20172016201520142013201220112010NOKm23,01423,69520,42518,62017,27013,48512,69710,8199,1039,1778,888Net revenue-2.9%16.0%9.7%7.8%28.1%6.2%17.4%18.8%-0.8%3.3%18.9%Revenue growth


6,3746,4064,7304,3003,3551,8142,1601,9387751,4851,806EBITDA-824-765-679-583-512-434-371-313-325-272-220Depreciation and impairments PPE

5,5505,6414,0513,7172,8431,3801,7891,6264501,2131,586EBITA001,430-1,7161,471189-327764295-616299Amortisation and impairments

5,5505,6415,4822,0004,3141,5681,4612,3907455971,885EBIT00000000000of which associates

20020032330326361921922520122Associates excluded from EBIT-164-170-167-210-131-129-120-102-95-82-66Net financials

5,5865,6715,6372,0934,4451,5011,4332,4806755351,941Pre-tax profit-1,341-1,361-1,282-344-927-268-329-594-183-156-511Reported taxes4,2454,3104,3561,7493,5191,2331,1041,8864923791,430Net profit from continued operations

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Discontinued operations-73-71-970-294-53-49-153-114-10Minority interests

4,1724,2394,2581,7493,2241,1801,0561,7334813831,420Net profit to equity7.007.127.152.945.652.161.933.180.880.702.62EPS2.005.004.001.591.301.201.201.050.700.701.00DPS2.005.004.001.591.301.201.201.050.700.701.00of which ordinary0.000.000.000.000.000.000.000.000.000.000.00of which extraordinary


Adjusted earnings6,3746,4064,7304,3003,3551,8142,1601,9387751,4851,806EBITDA (adj)5,5505,6414,0513,7172,8431,3801,7891,6264501,2131,586EBITA (adj)5,5505,6414,0513,7172,8431,3801,7891,6264501,2131,586EBIT (adj)7.007.124.755.823.071.822.531.780.341.832.07EPS (adj)



11.3%13.3%13.6%15.4%13.5%8.7%11.2%12.3%7.7%n.a.n.a.Net revenue28.6%24.3%19.5%40.9%17.7%0.1%13.4%29.4%7.4%n.m.n.m.EBITDA28.8%31.0%18.1%21.8%48.5%-3.6%7.7%51.4%13.1%n.a.n.a.EBIT26.5%29.8%17.6%27.2%51.8%-3.8%7.3%68.6%11.2%n.a.n.a.EPS10.8%33.0%30.6%17.8%13.1%3.7%11.3%30.0%n.m.n.a.n.a.DPS



2020E2019E2018E20172016201520142013201220112010NOKm9.99.814.77.615.718.210.810.038.04.69.6P/E (adj)6.66.89.46.89.811.88.16.512.84.56.7EV/EBITDA (adj)7.67.711.07.911.615.69.87.822.15.57.7EV/EBITA (adj)7.67.711.07.911.615.69.87.822.15.57.7EV/EBIT (adj)


2020E2019E2018E20172016201520142013201220112010NOKm9.99.89.715.08.515.314.15.614.712.07.6P/E1.81.82.21.61.91.61.41.21.10.71.4EV/Sales6.66.89.46.89.811.88.16.512.84.56.7EV/EBITDA7.67.711.07.911.615.69.87.822.15.57.7EV/EBITA7.67.78.114.77.613.712.05.313.411.26.4EV/EBIT

2.9%7.2%5.7%3.6%2.7%3.6%4.4%6.0%5.4%8.4%5.0%Dividend yield (ord.)10.1%9.0%3.9%7.9%-3.8%-0.1%5.2%4.7%-3.6%5.9%6.1%FCF yield28.6%70.3%56.0%54.0%23.0%55.5%62.0%33.2%79.5%100.4%38.1%Payout ratio


32


BALANCE SHEET


000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which R&D6,4026,4026,4026,2596,2602,6022,4872,2092,2042,2012,167of which other intangibles1,7901,7901,7901,7901,7901,7901,7901,7901,7901,6851,685of which goodwill7,2836,8276,3125,1484,2092,9002,6772,3772,0951,8361,586Tangible assets1,0011,0011,0011,089816695607767358361370Shares associates

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Interest bearing assetsn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Deferred tax assets

000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Other non-IB non-current assets00000000000Other non-current assets

16,47616,01915,50514,28613,0747,9877,5617,1436,4466,0835,808Total non-current assets6,6967,1097,0865,4497,1404,8734,2074,0863,0512,6992,997Inventory3,0593,1792,9112,4092,6311,8771,7301,8031,1941,0831,190Accounts receivable

00000000000Other current assets5,6344,7043,8343,5142,2341,2481,3608731,0831,5971,357Cash and bank

15,39014,99113,83111,37212,0047,9977,2986,7615,3285,3795,544Total current assetsn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Assets held for sale

31,86531,01129,33625,65825,07915,98414,85813,90411,77411,46211,352Total assets


1,1511,0781,00787593587881779465753519Minority interest20,57519,30917,38214,48213,4758,7648,0807,5495,9645,7985,994Total Equity

2,7742,7742,7742,4132,9291,6981,6701,5271,2831,0991,269Deferred tax4,7114,7114,9764,9464,5412,3772,7672,3572,4032,4292,223Long term interest bearing debt




3,3903,5373,3152,9863,0381,6791,8721,7891,2131,3751,432Accounts payable00000000000Other current liabilities

4156808898301,0941,465469683912761434Short term interest bearing debt3,8054,2174,2043,8164,1323,1442,3422,4712,1252,1361,866Total current liabilities

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Liabilities for assets held for sale31,86531,01129,33625,65825,07915,98414,85813,90411,77411,46211,352Total liabilities and equity

Balance sheet and debt metrics-5086882,0302,2623,4022,5951,8762,1672,2321,5931,300Net debt

6,3666,7516,6814,8726,7325,0704,0654,1003,0332,4072,756Working capital22,84222,77022,18619,15819,80713,05711,62611,2439,4798,4898,563Invested capital28,06026,79425,13221,84220,94612,84012,51711,4339,6509,3269,486Capital employed22.2%24.5%28.4%13.4%31.6%15.6%15.1%28.7%9.1%6.8%27.7%ROE18.7%19.3%15.1%14.7%13.3%8.6%12.0%12.1%3.9%11.0%16.1%ROIC19.8%21.1%21.8%9.2%20.6%12.2%11.7%20.9%7.7%6.4%19.9%ROCE

-0.10.10.40.51.01.40.91.12.91.10.7Net debt/EBITDA33.833.232.89.532.813.114.022.37.816.828.4Interest coverage



33


CASH FLOW STATEMENT

2020E2019E2018E20172016201520142013201220112010NOKm6,3746,4064,7304,3003,3551,8142,1601,9387751,4851,806EBITDA (adj) for associates

-1,341-1,361-1,282-494-225-376-344-100-267-4071Paid taxes-164-170-167-188-141-128-106-110-102-82-20Net financials

00000000000Change in provisions00000000000Change in other LT non-IB

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Cash flow to/from associates0035n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Dividends paid to minorities

2002001,919-36-3660-25-50-94-30-137Other adj to reconcile to cash flow5,0695,0755,2353,5822,9541,3701,6851,6793129661,650Funds from operations (FFO)

385-69-1,810-82-328-731-376-53030-175-209Change in NWC5,4545,0063,4263,5002,6266391,3091,1493427911,441Cash flow from operations (CFO)

-1,280-1,280-1,933-1,464-742-566-583-564-506-517-268Capital expenditure4,1743,7261,4922,0361,88473726585-1642741,174Free cash flow before A&D

001631684248474100233053Proceeds from sale of assets00-20-133-3,411-174-32-236-117-35-561Acquisitions

4,1743,7261,6362,071-1,103-18769450-258270665Free cash flow

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Dividends paid000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Equity issues / buybacks

-265-4738844579586157-280124601219Net change in debt000-200000-70Other financing adjustments

-1,787596979-58-9-2613823-1111Other non-cash adjustments9308693201,280986-113488-210-515240649Change in cash

Cash flow metrics155.4%167.2%-257.2%63.7%-77.4%230.7%83.4%-124.9%1,683.2%58.2%-339.3%Capex/D&A

-5.6%-5.4%-9.5%-7.9%-4.3%-4.2%-4.6%-5.2%-5.6%-5.6%-3.0%Capex/Sales




34


11 October 2018

Marine HarvestNorway, Seafood

Focus to remain on volumes and guidance in Q3Ahead of Marine Harvest's Q3 trading update and full report, we expect the focus to remain on operational issues in Norway. In our view, the key risk is a further cut to its volume guidance for Norway, owing to accelerating sea lice issues in the quarter. The company has already shaved off 38,000 tonnes from its original volume guidance for 2018. It will issue its first 2019 volume guidance alongside the Q3 results; we expect the guidance to be highly conservative for Norwegian volumes to avoid disappointments. The lowered volume guidance is, of course, also a clear indicator on the macro side that supply growth will decelerate heading into Q4 2018E, as large volumes have already been harvested and feed sales are negative. During the summer, there was firm demand growth and we remain optimistic about the outlook. Consequently, we raise our salmon price forecast to NOK 64 per kilo for the coming three years. Based on this, we raise our 2019-20 EBIT estimates by 6-7% and increase our DCF-based target price to NOK 235 (195). We reiterate our Buy rating and see 25% upside in the share. We also highlight Marine Harvest as our top pick in the sector.

Q2 overview: Volume issues in focus for Q3In the Q2 report, Marine Harvest cut its 2018 volume guidance by 28,000 tonnes (7%) to reflect biological issues and low growth, mainly in Canada and southern Norway. Given the challenging biological situation in southern Norway during Q3, we fear that the company might need to lower full-year guidance further in its next report. On a positive note, when the biggest player – Marine Harvest –cuts volumes, it should have a tightening impact (ie higher prices) on the market, which could help compensate for the lost volumes.

Higher margins starting in Q4 2018E, driven by higher pricesAs most of the supply growth has already been harvested, Marine Harvest expects growth rates to slow considerably from Q4. Combined with higher demand after a longer period of low prices, we expect this will trigger a price increase during Q4. Company guidance is now more aligned with the volume outlook at the industry level (ie company figures are down, while macro figures are up). Based on this, we expect to see substantially higher margins from Q4 after a temporary dip in Q3, driven by low prices in the spot market.

Buy


A MSCI ESG rating



KEY INFO

MHG NOBloombergMHG.OLReuters


www.marineharvest.comCompany website31 Oct 2018Next report date

3-year Performance


90

120

150

180

210

Marine Harvest



2020E2019E2018E2017201620152014EURm4,5984,2583,8193,6493,5103,1123,053Total revenue1,5121,414977943873480631EBITDA (adj)1,2901,206801792700347509EBIT (adj)


7.1%76.2%2.4%-19.5%235.0%-21.0%25.6%EPS (adj) growth1.701.461.221.290.920.581.01DPS (ord)2.42.52.82.12.61.71.6EV/Sales8.79.314.010.214.616.79.7EV/EBIT (adj)

10.511.319.914.614.334.625.1P/E (adj)3.23.53.83.04.13.02.9P/BV

8.6%7.4%6.2%9.1%5.4%4.7%8.8%Dividend yield (ord)7.1%4.7%4.6%5.3%5.5%-0.4%4.8%FCF Yield bef acq & disp1,2261,1889268328901,0001,033Net debt

0.80.80.90.91.02.11.6Net debt/EBITDA20.1%20.6%15.3%15.3%13.7%7.3%11.1%ROIC after tax


ESTIMATE CHANGES

2020E2019E2018EYear3%3%0%Total revenue6%5%-3%EBITDA (rep)7%6%-3%EBIT (adj)8%6%-3%PTP8%6%-3%EPS (rep)8%6%-4%EPS (adj)




EstimatesRESULTS AND ESTIMATES: GROUP AND FARMING SEGMENTS

Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Adjusted EPS (EUR/share) 0.36 0.35 0.28 0.43DPS 0.27 0.29 0.21 0.34Operational EBIT (EURm) 158 175 187 281EBIT IFRS adjusted (EURm) 270 255 196 295

FARMING OPERATIONS (EURm)

Norway Q1 2018 Q2 2018 Q3 2018E Q4 2018EVolume (tonnes) 51,050 49,491 67,000 60,000Operational EBIT (EURm) 105.0 115.5 103.3 135.7- margin 31% 36% 28% 31%- EUR per kg 2.1 2.3 1.5 2.3

Scotland Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Volume (tonnes) 8,691 8,958 9,500 14,851Operational EBIT (EURm) 11.9 14.7 14.9 28.0- margin 22% 25% 25% 29%- EUR per kg 1.4 1.6 1.6 1.9

Canada Q1 2018 Q2 2018 Q3 2018E Q4 2018E


Chile Q1 2018 Q2 2018 Q3 2018E Q4 2018E


Ireland Q1 2018 Q2 2018 Q3 2018E Q4 2018E


Faroe Islands Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Volume (tonnes) 1,030 778 2,000 5,700Operational EBIT (EURm) 1.3 2.0 5.5 19.8- margin 19% 40% 45% 51%- EUR per kg 1.3 2.6 2.7 3.5


RESULTS AND ESTIMATES: OTHER SEGMENTS

Sales & Marketing Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Volume sold (tonnes) 20,210 17,000 28,308 25,350Sales (EURm) 1,001.0 947.9 904.0 1,051.6Operational EBIT (EURm) 32.7 21.4 23.6 29.4- margin 3% 2% 3% 3%

Feed operations Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Sold volume (tonnes) 54,440 70,232 114,685 106,492Operational EBIT (EURm) -4.2 0.8 5.8 3.9- margin -6.9 % 0.8 % 4.0 % 3.0 %

Nova Sea Q1 2018 Q2 2018 Q3 2018E Q4 2018E



36



2020E2019E2018E20172016201520142013201220112010EURm4,5984,2583,8193,6493,5103,1123,0532,4562,1082,082820Net revenue8.0%11.5%4.7%4.0%12.8%1.9%24.3%16.5%1.2%153.9%37.5%Revenue growthn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which organicn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which FX

1,5121,414977943873480631498175448289EBITDA-179-165-153-150-142-140-116-98-92-86-42Depreciation and impairments PPE

1,3331,24982379273034051640183362247EBITA00192-3072615-8119647-20569Amortisation and impairments

1,3331,2491,015485991345435596130157316EBIT434345346323182812-19of which associates

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Associates excluded from EBIT-53-50-8738-232-95-257-154-2522-8Net financials

1,2811,200929523759250178442105179307Pre-tax profit-320-300-228-60-220-92-90-131-51-34-48Reported taxes9619007014635391588831154145260Net profit from continued operations

0000002412000Discontinued operations00-100000-12-2Minority interests

96190070146253915811232353147258Net profit to equity1.961.841.430.941.170.360.270.850.150.411.12EPS1.701.461.221.290.920.581.010.280.001.010.07DPS1.701.461.221.290.920.581.010.280.001.010.07of which ordinary0.000.000.000.000.000.000.000.000.000.000.00of which extraordinary


Adjusted earnings1,5121,414977943873480631498175448289EBITDA (adj)1,3331,24982379273034051640183362247EBITA (adj)1,2901,206801792700347509411000EBIT (adj)1.871.750.990.971.200.360.450.36-0.21-0.03-0.25EPS (adj)



8.1%6.9%9.2%11.6%11.0%30.6%38.6%46.4%55.8%n.a.n.a.Net revenue25.8%17.5%14.4%40.1%14.3%10.7%28.6%43.9%17.8%n.m.n.m.EBITDA31.0%23.5%11.2%30.2%44.6%1.8%17.7%57.3%25.5%n.a.n.a.EBIT40.7%46.3%10.9%44.9%23.2%-20.5%-28.3%19.2%-8.9%n.a.n.a.EPS24.0%7.7%34.5%n.m.-1.8%51.7%n.m.n.m.n.a.n.m.n.m.DPS



2020E2019E2018E20172016201520142013201220112010EURm10.511.319.914.614.334.625.124.3n.m.n.m.n.m.P/E (adj)7.27.710.88.210.711.37.57.015.14.612.1EV/EBITDA (adj)8.28.712.99.812.715.99.28.731.95.614.2EV/EBITA (adj)8.79.314.010.214.616.79.79.1n.m.1,859.3n.m.EV/EBIT (adj)


2020E2019E2018E20172016201520142013201220112010EURm10.110.713.815.014.634.941.710.347.08.17.0P/E2.42.52.82.12.61.71.61.41.31.04.3EV/Sales7.47.911.48.511.511.87.77.416.24.512.5EV/EBITDA8.49.013.610.213.917.09.59.437.35.614.7EV/EBITA8.49.010.917.210.016.811.46.122.412.911.4EV/EBIT

8.6%7.4%6.2%9.1%5.4%4.7%8.8%3.1%0.0%30.1%0.9%Dividend yield (ord.)7.1%4.7%4.8%5.6%6.5%0.2%6.3%-3.6%-1.2%14.3%3.8%FCF yield

86.9%79.6%85.1%136.2%78.3%163.6%368.2%32.5%0.0%244.2%6.5%Payout ratio


37


BALANCE SHEET

2020E2019E2018E20172016201520142013201220112010EURm9449449448711,0321,0069951,0031,029997966Intangible assets

000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which R&D688688688615764747726720741720696of which other intangibles255255255256268259269283288277270of which goodwill

1,5431,3501,1881,0831,008964920796560538497Tangible assets4203332471711681241091078881103Shares associatesn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Interest bearing assets

101010133111621102115Deferred tax assets000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Other non-IB non-current assets

27272729383039391633117Other non-current assets2,9432,6652,4162,1672,2492,1352,0791,9681,8511,6671,597Total non-current assets2,1922,0891,8191,5071,8221,4181,3831,3469589121,030Inventory


-65-44213721047215772463641Cash and bank3,0222,8992,6852,1632,5512,0592,0381,9291,3231,2751,396Total current assets

0001422126000Assets held for sale5,9665,5645,1014,3304,8034,1964,1204,0233,1742,9422,993Total assets

3,0272,7432,5202,3142,0621,8951,6381,9471,5841,3901,601Shareholders equity000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Of which preferred stocks000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Of which equity part of hybrid debt222111239109Minority interest

3,0292,7452,5222,3152,0621,8961,6401,9501,5931,4001,610Total Equity390390390354454392398401347304287Deferred tax

1,1618619617739931,0711,189920728851653Long term interest bearing debt00000000000Pension provisions

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Other long-term provisionsn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Other long-term liabilities

000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Convertible debt000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Shareholder debt000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Hybrid debt


1,2521,151916669843616632554398355316Accounts payable00000000000Other current liabilities028317913000182522055Short term interest bearing debt

1,2521,4341,094800843616633636450375371Total current liabilitiesn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Liabilities for assets held for sale


Balance sheet and debt metrics1,2261,1889268328901,0001,033929733835667Net debt1,8351,7921,5561,4221,6041,3721,2491,3038798841,040Working capital4,7794,4573,9723,5893,8533,5073,3283,2712,7302,5512,636Invested capital4,7144,1304,0073,5313,9603,5803,4863,3872,7242,5672,622Capital employed

33.3%34.2%29.0%21.1%27.3%9.0%6.3%18.3%3.6%9.9%25.9%ROE20.1%20.6%15.3%15.3%13.7%7.3%11.1%9.9%0.0%0.0%0.0%ROIC28.3%30.2%25.3%13.7%25.0%9.6%12.5%17.6%4.8%6.1%12.0%ROCE




38


CASH FLOW STATEMENT

2020E2019E2018E20172016201520142013201220112010EURm1,4691,371932909810457613470163449280EBITDA (adj) for associates-320-300-228-177-93-70-35-14-17-110Paid taxes

-53-50-87-33-23-40-49-68-41-45-8Net financials00000000000Change in provisions0051-365231-25149172-78-8041Change in other LT non-IB

-43-43-45-34-63-23-18-28-121-9Cash flow to/from associates00000000000Dividends paid to minorities

4343252440-17140-139-1209170-45Other adj to reconcile to cash flow1,0961,022876739692338521412106383259Funds from operations (FFO)

-43-236-134-115-15-143-84-21764-68-82Change in NWC1,053786742624677196437195170315178Cash flow from operations (CFO)-371-328-298-255-212-216-210-251-100-136-68Capital expenditure682458444369465-21227-5671179110Free cash flow before A&D

00334184511574227200Proceeds from sale of assets00-15-23-4-21-90-110-129-29-4Acquisitions

68245846338754410293-124-32170106Free cash flow

-834-717-596-640-418-256-412-1040-360-18Dividends paid00000000116568Equity issues / buybacks

175236269-107180247223-109159-207Net change in debt000-4712-18-4332342048Other financing adjustments

114-33901000009Other non-cash adjustments-21-257142-3232-85852710-55Change in cash

Cash flow metrics207.7%198.5%-771.7%55.7%-178.4%160.3%106.9%-255.1%220.0%46.8%-255.8%Capex/D&A

-8.1%-7.7%-7.8%-7.0%-6.0%-6.9%-6.9%-10.2%-4.7%-6.5%-8.3%Capex/Sales




39


11 October 2018

Norway Royal SalmonNorway, Seafood

Haunted by diseasesThe company has now reported three ISA incidents in just ten months. The first affected 430,000 fish averaging 2.2 kilos per fish, forcing NRS to report an extraordinary cost of NOK 55m. The latest incident affected 300,000 fish, each with an average weight of 1.5 kilos, bringing about a Q3 EBIT one-off cost of NOK 12m. The concern is whether this is fully sufficient and not least the effects the incidents will have on future volumes, as there is a possible negative effect on the 2019 harvested volumes of 1,200-1,500 tonnes. The aggregated effect of incidents such as these is hence a contraction of the supply side and higher prices in the market, all else equal. Owing to higher estimated salmon prices, we raise our 2019-20 EBIT estimates by 5-13%. Ahead of the Q3 report, we increase our DCF-based target price to NOK 250 (225) and reiterate our Buy rating.

Third ISA incident in ten monthsOn 26 September, the company reported an ISA suspicion in one of its farms in Region North. There are 300,000 fish at this location, each with an average weight of 1.5 kilos. This implies a one-off cost of NOK 12m, lowering our Q3 EBIT estimate by 20% and our 2018E EBIT by 2%. There is also a possible negative volume effect on the 2019 harvested volumes of 1,200-1,500 tonnes. For Norway Royal Salmon, this serves as a good illustration of its vulnerability to incidents, and will also delay the company's planned volume ramp-up. Looking at the current sea lice situation, we see a (seasonal) increase in sea lice figures in Finnmark with three locations in the same fjord struggling with sea lice. This is also a reminder that even in the far north, sea lice causes operational challenges.

Three Q3 incidents with a contractive effect on global supplyThis is the third major incident for a listed salmon company (Marine Harvest and Bakkafrost being the two others) losing fish in Q3 intended to be harvested in H2 2018 or during 2019 and we estimate that the total volume effect of these incidents will be close to 10,000 tonnes less harvestable fish available in the market. This represents 0.4% of the expected 2019 harvesting. The aggregated effect of incidents such as these is a contraction in supply and higher prices in the market, all else equal. The net positive effect on the 2019 EBIT estimate (lower volumes and higher estimated salmon prices) is 5%.

Buy


AA MSCI ESG rating



KEY INFO

NRS NOBloombergNRSM.OLReuters


norwayroyalsalmon.comCompany website06 Nov 2018Next report date

3-year Performance


60

90

120

150

180

210

240

Norway Royal Salmon



2020E2019E2018E2017201620152014NOKm6,9547,1635,4594,9384,2243,2112,600Total revenue1,6271,498870763774278227EBITDA (adj)1,4621,335769628641202158EBIT (adj)


10.3%76.5%51.3%-50.7%312.1%7.5%-5.1%EPS (adj) growth16.0016.0011.005.169.502.501.50DPS (ord)


7.6%7.6%5.2%3.8%4.6%3.2%2.3%Dividend yield (ord)10.2%7.1%4.2%-0.8%2.6%3.7%-2.9%FCF Yield bef acq & disp

-67393565652282499639Net debt0.00.30.60.90.41.82.8Net debt/EBITDA


ESTIMATE CHANGES

2020E2019E2018EYear6%5%0%Total revenue

11%6%1%EBITDA (rep)13%5%1%EBIT (adj)12%7%0%PTP12%7%0%EPS (rep)14%4%1%EPS (adj)





Base case (NOKm) Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Sales 1,392 1,210 1,048 1,809EBITDA 226 180 83 381EBIT 193 181 56 340PTP 316 270 51 347Net profit 250 210 40 267Adj EPS 5.7 4.8 0.9 6.1

Farming (NOKm) Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Sales 1,991 1,808 1,185 1,801EBIT 205 189 50 333- per kg 18.8 21.5 14.6 25.8

volume 10,935 8,772 3,400 12,900

Trading & sales (NOKm) Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Sales 650 734 664 810EBIT (MNOK) 5.5 5.7 6.1 6.5- margin 0.8 % 0.8 % 0.9 % 0.8 %

Associated companies (NOKm) Q1 2018 Q2 2018 Q3 2018E Q4 2018E

Total EBIT 19.5 19.9 15.6 54.0- per kg 13.0 12.6 13.0 18.0

volume 1,500 1,577 1,200 3,000


41



2020E2019E2018E20172016201520142013201220112010NOKm6,9547,1635,4594,9384,2243,2112,6002,6041,7441,734544Net revenue-2.9%31.2%10.6%16.9%31.6%23.5%-0.2%49.3%0.6%218.8%n.a.Revenue growth


1,6271,4988707637742782273056111517EBITDA-137-116-92-82-61-54-41-34-30-26-17Depreciation and impairments PPE

1,4901,38277868171322518527230890EBITA00196-195164245710850-730Amortisation and impairments

1,4901,38297448687724924338080160EBIT2947953722327160420of which associates

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.0Associates excluded from EBIT-35-3510-163296217817-40-33-6Net financials

1,4561,3489853231,17227032139641-17-6Pre-tax profit-335-310-215-86-168-32-52-80-916-15Reported taxes

1,1211,0387692361,00523826831632-2-21Net profit from continued operations00000000000Discontinued operations00-3-8-17-8-14-13-34-6Minority interests

1,1211,038767229988230254302282-28Net profit to equity25.7223.8217.595.2522.685.275.846.940.650.06-0.32EPS16.0016.0011.005.169.502.501.503.200.000.000.00DPS16.0016.0011.005.169.502.501.503.200.000.000.00of which ordinary0.000.000.000.000.000.000.000.000.000.000.00of which extraordinary


Adjusted earnings1,6271,4988707637742782273056111517EBITDA (adj)1,4901,38277868171322518527230890EBITA (adj)1,4621,33576962864120215825630470EBIT (adj)25.0622.7312.888.5117.264.193.904.11-0.500.88-0.32EPS (adj)



16.7%22.5%16.0%23.1%19.5%42.6%n.a.n.a.n.a.n.a.n.a.Net revenue42.4%45.9%23.3%65.8%46.4%75.4%n.m.n.m.n.m.n.m.n.m.EBITDA43.0%41.6%20.8%43.3%123.4%n.m.n.a.n.a.n.a.n.a.n.a.EBIT37.3%32.5%20.4%52.0%232.6%n.m.n.a.n.a.n.a.n.a.n.a.EPS45.0%60.6%28.0%n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.DPS

Average last 5 years18.1%15.9%13.8%12.7%12.7%8.1%7.8%n.a.n.a.n.a.n.a.Average EBIT margin19.3%16.7%14.2%13.4%11.4%8.3%7.9%n.a.n.a.n.a.n.a.Average EBITDA margin


2020E2019E2018E20172016201520142013201220112010NOKm8.49.316.315.812.018.916.48.7n.m.8.2n.a.P/E (adj)5.66.411.28.612.113.714.76.318.66.5n.a.EV/EBITDA (adj)6.16.912.69.613.117.018.07.137.28.4n.a.EV/EBITA (adj)6.47.512.911.416.421.325.58.037.2132.9n.a.EV/EBIT (adj)


2020E2019E2018E20172016201520142013201220112010NOKm8.28.812.025.69.115.011.05.122.8n.m.n.a.P/E1.31.31.81.32.21.21.30.70.60.4n.a.EV/Sales5.76.611.49.213.315.016.76.618.610.2n.a.EV/EBITDA6.37.212.710.414.618.921.17.537.215.9n.a.EV/EBITA6.37.210.115.111.616.915.55.314.1n.m.n.a.EV/EBIT

7.6%7.6%5.2%3.8%4.6%3.2%2.3%9.0%0.0%0.0%n.a.Dividend yield (ord.)10.2%7.1%3.4%1.1%3.8%6.8%-2.4%12.1%-6.2%-28.9%n.a.FCF yield62.2%67.2%62.5%98.3%41.9%47.4%25.7%46.1%0.0%0.0%0.0%Payout ratio


42


BALANCE SHEET

2020E2019E2018E20172016201520142013201220112010NOKm847847847649649649649503503503498Intangible assets

000n.a.n.a.000000of which R&D754754754556556556556410410410405of which other intangibles

9393939393939393939393of which goodwill1,2751,013729544417358289211179177114Tangible assets

741712665614548190155137119103152Shares associates000n.a.n.a.000000Interest bearing assets00000000000Deferred tax assets000n.a.n.a.000000Other non-IB non-current assets00000000000Other non-current assets

2,8632,5722,2401,8061,6141,1971,093851801783764Total non-current assets1,3241,4631,4041,2771,307871849666547407401Inventory


1,0305703991526920161541065Cash and bank3,1543,0062,7032,0492,0991,6731,5061,201875684701Total current assets

n.a.n.a.n.a.n.a.n.a.000000Assets held for sale6,0175,5784,9443,8553,7132,8702,5992,0521,6761,4671,465Total assets

3,5662,9252,3661,8132,0141,114949815566495538Shareholders equity000n.a.n.a.000000Of which preferred stocks000n.a.n.a.000000Of which equity part of hybrid debt

4141413833736554413742Minority interest3,6072,9662,4071,8512,0471,1871,014869607533580Total Equity

493493493365395303273232162154174Deferred tax963963963461304653519323328321282Long term interest bearing debt

17171717111219101088Pension provisionsn.a.n.a.n.a.n.a.n.a.000000Other long-term provisions

00000000000Other long-term liabilities000n.a.n.a.000000Convertible debt000n.a.n.a.000000Shareholder debt000n.a.n.a.000000Hybrid debt

1,4731,4731,473843710969810565500483464Total non-current liabilities799810011379328101Short-term provisions

717870796550647530426383293220254Accounts payable14117216715618313416542271517Other current liabilities

0003434847182185248217148Short term interest bearing debt9371,1391,0641,162956714775618568451421Total current liabilities

00000000000Liabilities for assets held for sale6,0175,5784,9443,8553,7132,8702,5992,0521,6761,4671,465Total liabilities and equity

Balance sheet and debt metrics-67393565652282499639454566532426Net debt

1,2661,3941,3411,1911,200807854722545443424Working capital4,1303,9663,5822,9982,8152,0041,9471,5731,3461,2271,188Invested capital5,0804,4393,8802,6942,7572,1561,8241,4341,1071,0161,044Capital employed

34.5%39.2%36.7%11.9%63.2%22.3%28.8%43.8%5.3%0.4%-10.3%ROE24.2%23.7%15.7%14.5%17.8%6.8%6.0%11.8%1.6%2.6%0.0%ROIC29.3%31.1%25.1%18.0%31.8%11.6%13.3%26.5%7.3%1.5%0.0%ROCE

0.00.30.60.90.41.82.81.59.34.625.4Net debt/EBITDA43.039.934.031.555.310.110.929.9n.m.0.6n.m.Interest coverage



43


CASH FLOW STATEMENT

2020E2019E2018E20172016201520142013201220112010NOKm1,5991,451861710702256199290617317EBITDA (adj) for associates-335-310-215-81-3-2-8-1000Paid taxes

-35-3510-15-16-23-22-13000Net financials-18-2-134075-528209Change in provisions

00000000000Change in other LT non-IB00000000000Cash flow to/from associates00000000000Dividends paid to minorities00245-39-4728195-11-6-9Other adj to reconcile to cash flow

1,2111,104888615711253190289526717Funds from operations (FFO)128-53-164-444-8387-95-77-54-93-76Change in NWC

1,3391,05172417162834095212-3-26-59Cash flow from operations (CFO)-400-400-343-215-391-213-177-65-35-95-15Capital expenditure939651381-45237127-81146-38-120-74Free cash flow before A&D

0014120178130184234116Proceeds from sale of assets00-86-12-69-25-3-1-6-3-16Acquisitions

93965130963346233-67187-40-82-74Free cash flow

-697-479-225-414-109-65-96-440-360Dividends paid0008-2-30-242401Equity issues / buybacks00159454-348-1193-683811268Net change in debt000-29-19-24-23-30-36-327Other financing adjustments

21803-10000-102Other non-cash adjustments46017224783-132140844415Change in cash

Cash flow metrics291.7%344.9%-328.6%77.7%-379.3%726.6%-1,101.4%-88.1%-178.0%95.5%86.9%Capex/D&A

-5.8%-5.6%-6.3%-4.4%-9.3%-6.6%-6.8%-2.5%-2.0%-5.5%-2.7%Capex/Sales

Key information211211211135207796436157n.a.Share price year end (/current)

9,1729,1729,1725,8609,0193,4432,7861,552642285n.a.Market cap.9,1469,6069,7776,5509,3353,8243,3361,9221,130751n.a.Enterprise value43.643.643.643.643.643.643.643.643.639.637.2Diluted no. of shares, year-end (m)


44


11 October 2018

SalMarNorway, Seafood

Upgrading to Hold on improved price outlookAt NOK 879m, SalMar's Q2 EBIT fell 5% short of expectations, mainly owing to the higher-than-expected deficit in the VAP division. High and volatile raw material prices, driven by the increase in spot prices from Q1, were the main reason for this. With lower spot prices in Q3, we expect VAP's EBIT to turn positive again. The contract share has dropped from 45% in Q2 to 35% for Q3 and Q4. Total volume guidance is stable at 143,000 tonnes. Management now guides for declining costs for H2 2018 in both of its regions, which we view as positive, and biological conditions appear to be under control. Ahead of the Q3 report, we increase our 2018E EBIT by 5%. We upgrade the share to Hold (Sell) with a DCF-based fair value of NOK 450.

Costs declining in farming, but watch out for sea liceQ2 costs in Central Norway were negatively influenced by a one-off related to lumpfish (cleaning salmon for sea lice) and harvesting of brood stocks. The company also harvested a high share of the volume in June (lowest prices in Q2). In Northern Norway, SalMar managed to harvest earlier and thus achieved a better price. However, the cost was fairly high, as it harvested from the 2016 generation (high costs owing to biological issues in the past). Management guides for declining costs in both regions, as the new generation (2017) has lower accumulated costs. We highlight that the sudden increase in sea lice numbers in Central Norway might force SalMar to harvest fish earlier than planned in H2 2018. For now at least, the good biological conditions have resulted in lower costs and higher volume guidance for Central Norway.

Aiming for more growth and higher capex In H2 2018, SalMar plans to harvest an estimated 8,000 tonnes of salmon from Ocean Farm 1. This is a big robust cage moored just outside its existing locations on the coast of Central Norway. The experience from this pilot project has been positive and SalMar now intends to build a farm twice as big (called Smart Fish Farm). This is open ocean farming and it has applied for 16 development licences and estimates capex of NOK 1.5bn. If approved, this represents growth over a five-year period and, in our view, demonstrates the innovation drive, both at SalMar and in the industry in general, owing to a lack of growth and high returns.

Hold

n.a on Hold Target PriceNOK 451.4 Fair ValueNOK 419.0 Share price (close)

BBB MSCI ESG rating



KEY INFO

SALM NOBloombergSALM.OLReuters


www.salmar.noCompany website08 Nov 2018Next report date

3-year Performance


120

180

240

300

360

420

480

SalMar





35.5%36.5%28.0%29.2%26.9%19.2%26.1%EBIT (adj) margin33.7132.9224.1223.5217.649.4112.58EPS (adj)2.4%36.5%2.5%33.3%87.6%-25.2%29.5%EPS (adj) growth35.0035.0035.0019.1212.0010.0010.00DPS (ord)


8.4%8.4%8.4%7.7%4.6%6.5%7.8%Dividend yield (ord)7.4%7.2%4.4%9.1%4.8%4.6%3.3%FCF Yield bef acq & disp2,2661,8341,2791,2232,3652,6282,301Net debt

0.40.30.30.30.81.51.1Net debt/EBITDA32.2%32.3%24.5%23.4%18.8%11.7%16.9%ROIC after tax


ESTIMATE CHANGES

2020E2019E2018EYear-3%-4%0%Total revenue5%4%0%EBITDA (rep)6%5%0%EBIT (adj)6%5%0%PTP6%5%0%EPS (rep)6%5%0%EPS (adj)0%0%0%DPS (ord)




EstimatesRESULTS AND ESTIMATES PER REGION

Group total (NOKm) Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Sales 2,531 2,944 3,126 3,597EBITDA 829 1,000 873 1,199EBIT 860 904 751 1,079- margin 34% 31% 24% 30%

PTP 913 968 767 1,112Net profit 713 766 575 834Adj EPS 6.3 6.8 5.1 7.4

Central Norway Q1-2018 Q2-2018 Q3-2018E Q4-2018ESales 1,376 1,092 1,711 1,770EBIT 531 496 635 729- margin 39% 45% 37% 41%- per kg 23.8 29.7 19.3 26.0Volume 22,300 16,700 32,900 28,100

Northern Norway Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Sales 561 1,208 166 806EBIT 231 581 58 384- margin 41% 48% 35% 48%- per kg 24.1 33.4 18.0 30.0Volume 9,600 17,400 3,200 12,800

Norskott (associated company) Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Sales 260 252 210 300EBIT 87 87 51 100- margin 33% 35% 24% 33%- per kg 26.7 28.0 17.0 25.0Volume 3,250 3,113 3,000 4,000

Arnarlax (associated company) Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Sales 146 78 114 111EBIT 35 3 4- 5- margin 24% 4% -4% 5%- per kg 11.6 3.0 -4.0 3.0Volume 3,000 1,000 1,000 1,700Sales and Processing Q1-2018 Q2-2018 Q3-2018E Q4-2018E

Sales 2,524 3,002 2,920 3,516EBIT -15.0 -150.0 58.4 -34.4- margin -1% -5% 2% -1%- per kg -0.6 -5.3 1.9 -1.0Volume 25,300 28,438 30,600 34,400


46



2020E2019E2018E20172016201520142013201220112010NOKm13,81613,10512,19810,8179,0307,3267,1866,2464,2053,8293,429Net revenue

5.4%7.4%12.8%19.8%23.3%2.0%15.1%48.5%9.8%11.7%44.3%Revenue growthn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which organicn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which FX

5,3995,2623,9013,5812,7901,7112,1571,4855117341,068EBITDA-496-481-484-419-358-307-278-226-170-132-94Depreciation and impairments PPE

4,9034,7813,4163,1622,4321,4041,8791,259341602974EBITA00177-37065440-232690298-414179Amortisation and impairments

4,9034,7813,5942,7923,0861,4441,6471,9496391881,154EBIT00000000000of which associates

23023023720928740961589498147Associates excluded from EBIT-82-78-71-145-30-100-114215-124-126-40Net financials

5,0524,9343,7602,8563,3421,3841,6292,3226091601,261Pre-tax profit-1,263-1,233-866-558-691-255-413-419-127-13-303Reported taxes3,7893,7002,8942,2982,6511,1291,2151,903481147958Net profit from continued operations

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Discontinued operations00-6-24-14-26-23-113-14-3-11Minority interests

3,7893,7002,8882,2742,6371,1031,1921,790467145947Net profit to equity33.7132.9225.6920.2323.469.7610.5315.804.131.419.19EPS35.0035.0035.0019.1212.0010.0010.008.000.000.004.00DPS35.0035.0035.0019.1212.0010.0010.008.000.000.004.00of which ordinary0.000.000.000.000.000.000.000.000.000.000.00of which extraordinary


Adjusted earnings5,3995,2623,9013,5812,7901,7112,1571,4855117341,068EBITDA (adj)4,9034,7813,4163,1622,4321,4041,8791,259341602974EBITA (adj)4,9034,7813,4163,1622,4321,4041,8791,259341602974EBIT (adj)33.7132.9224.1223.5217.649.4112.589.711.505.427.45EPS (adj)



13.5%12.8%14.3%20.8%18.7%16.4%24.8%29.5%20.2%25.1%31.5%Net revenue25.8%19.5%21.3%47.6%30.6%9.9%26.6%30.5%2.0%8.6%35.1%EBITDA27.7%23.8%13.0%34.3%75.0%4.6%23.2%45.0%4.8%-18.1%35.7%EBIT28.1%25.6%10.2%37.4%75.6%1.2%18.1%57.4%3.8%-20.6%28.6%EPS28.5%28.5%34.3%n.m.n.m.20.1%35.4%82.3%n.m.n.m.n.m.DPS



2020E2019E2018E20172016201520142013201220112010NOKm12.412.717.410.514.616.510.17.629.85.58.3P/E (adj)9.29.312.48.111.311.87.87.115.68.07.7EV/EBITDA (adj)

10.110.314.29.212.914.38.98.323.39.88.5EV/EBITA (adj)10.110.314.29.212.914.38.98.323.39.88.5EV/EBIT (adj)


2020E2019E2018E20172016201520142013201220112010NOKm12.412.716.312.211.015.912.14.710.821.36.7P/E3.63.74.02.73.52.72.31.71.91.52.4EV/Sales9.29.312.48.111.311.87.87.115.68.07.7EV/EBITDA

10.110.314.29.212.914.38.98.323.39.88.5EV/EBITA10.110.313.510.410.213.910.25.412.531.27.2EV/EBIT

8.4%8.4%8.4%7.7%4.6%6.5%7.8%10.8%0.0%0.0%6.5%Dividend yield (ord.)7.4%7.2%4.4%9.1%4.8%4.6%3.4%19.5%-7.2%-9.9%-11.5%FCF yield

103.8%106.3%136.2%94.5%51.1%102.5%95.0%50.6%0.0%0.0%43.5%Payout ratio


47


BALANCE SHEET


000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which R&D3,2533,2533,2532,6182,6042,6072,5922,1571,8291,9171,688of which other intangibles

30730730730730730730730730700of which goodwill3,7323,6293,5103,6053,1382,4122,0181,8591,2691,126872Tangible assets1,6031,3731,1431,081960636539409971926884Shares associates

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Interest bearing assets00000000000Deferred tax assets000n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Other non-IB non-current assets00000000000Other non-current assets

8,8968,5628,2127,6117,0085,9625,4554,7324,3753,9703,444Total non-current assets5,5895,5005,2004,3955,2223,6343,3213,2492,2901,6491,710Inventory


-3233491,2741772742741671,0715548107Cash and bank6,6287,1427,5795,3166,3934,9824,6695,1993,2522,3472,363Total current assets

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Assets held for sale15,52415,70415,79112,92613,40210,94410,1249,9327,6276,3165,807Total assets


87878788828061330136122118Minority interest8,1908,3318,5627,6686,6815,2275,1375,0542,9672,2152,469Total Equity1,4021,4021,4021,3541,4951,2311,2631,207873738762Deferred tax1,6081,8482,2181,1562,4402,7612,1922,4462,2232,2021,869Long term interest bearing debt



3,0103,2503,6202,5103,9353,9923,4543,6533,0972,9422,633Total non-current liabilities0000029232226766148Short-term provisions00000649409516763413351Accounts payable

3,9893,7873,2742,5052,587642525286197179155Other current liabilities33633633624419914027739759650251Short term interest bearing debt

4,3244,1233,6102,7482,7861,7241,5331,2251,5631,160705Total current liabilitiesn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Liabilities for assets held for sale


Balance sheet and debt metrics2,2661,8341,2791,2232,3652,6282,3011,7722,7642,6561,814Net debt2,9623,0063,0312,6343,5323,4173,5673,3262,2371,7071,750Working capital

11,85811,56711,24310,24510,5419,3789,0238,0596,6125,6775,194Invested capital11,19911,58112,18210,17810,6169,2198,5918,7076,0645,1565,102Capital employed46.4%44.3%36.0%32.1%44.9%21.6%24.3%47.4%19.0%6.5%46.8%ROE32.2%32.3%24.5%23.4%18.8%11.7%16.9%13.2%4.3%8.5%18.0%ROIC43.8%41.3%29.5%27.4%29.1%15.7%19.2%22.4%10.5%3.7%22.6%ROCE




48


CASH FLOW STATEMENT

2020E2019E2018E20172016201520142013201220112010NOKm5,3995,2623,9013,5812,7901,7112,1571,4855117341,068EBITDA (adj) for associates

-1,263-1,233-866-558-291-315-26-7-81-147-128Paid taxes-82-78-71-145-101-99-124-168-177-99-50Net financials

0000-292-3029618-60-82-2Change in provisions00000000000Change in other LT non-IB

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Cash flow to/from associates00-7-18n.a.n.a.n.a.n.a.n.a.n.a.n.a.Dividends paid to minorities00250-479186-32-404-132-11892-12Other adj to reconcile to cash flow

4,0553,9513,2062,3802,2901,2351,8991,19775498876Funds from operations (FFO)4425-397898364289-376-260-66-302-395Change in NWC

4,0983,9762,8103,2792,6551,5241,5239389196481Cash flow from operations (CFO)-600-600-715-758-1,263-727-1,040-299-251-407-308Capital expenditure

3,4983,3762,0952,5211,392797483639-242-211174Free cash flow before A&D0000046371,259-1539049Proceeds from sale of assets00000-44-29-26130-184-954Acquisitions

3,4983,3762,0952,5211,3927994911,637-365-306-731Free cash flow

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Dividends paid0000n.a.n.a.n.a.n.a.n.a.n.a.n.a.Equity issues / buybacks

-240-3701,154-1,239-264425-357-54170675930Net change in debt000003-143-813-19-17Other financing adjustments00-4-315431-103Other non-cash adjustments

-672-9251,097-970107-9041,0168-59-41Change in cash

Cash flow metrics120.9%124.7%232.8%96.1%-426.6%271.8%203.7%-64.5%-196.1%74.7%-360.6%Capex/D&A

-4.3%-4.6%-5.9%-7.0%-14.0%-9.9%-14.5%-4.8%-6.0%-10.6%-9.0%Capex/Sales




49


11 October 2018

Salmones CamanchacaNorway, Seafood

Firm growth, increased industry risk Salmones Camanchaca reported Q2 operational EBIT of USD 13m, which was 15% lower than our USD 15.6m estimate. Previous guidance had been for 45,000-48,000 tonnes in 2018, but it now expects 48,000 tonnes. It also plans to increase harvesting by 6,000 tonnes in 2019; in other words, it estimates 1,500 tonnes higher than our previous forecast for 2018 and 1,000 tonnes higher for 2019. This likely stems from the currently high harvesting weights in the industry. Industry figures for sea lice showed a worryingly high level during the Chilean winter and we see a risk of early harvesting in a few months' time. Higher smolt release than expected is also a clear indicator that Chilean biomass will increase further and thereby contribute to sustaining high sea lice levels. We view this as negative for operational risk. Our higher price assumptions for 2019-20 prompt us to raise our EBIT estimates by 9%. To reflect the higher risk, we leave our DCF-based target price unchanged at NOK 80 and reiterate our Buy rating.

The growth story is confirmedDuring H1 2018, the company increased its harvesting volumes of Atlantic salmon by 104% to 20,700 tonnes versus the same period in 2017. This is in line with the guidance it issued ahead of the year. Average harvesting weights (WFE) in Chile now exceed 5 kg per fish, which is also the main reason for higher-than-expected industry harvesting YTD in 2018.

Costs to come downQ2 costs per kilo were USD 0.2 higher than expected, which accounted for the negative deviation versus our EBIT estimates. Rough winter weather brought operational disturbances and pushed up costs at some of its sites in Q2. Costs normally come down in H2, due to higher volumes and fewer issues with sea lice and diseases in the winter. Our farming cost estimates for H2 are thus USD 0.30-0.40 lower per kilo than for Q2.

Prices expected to remain highWe expect achieved prices in Q3 to have been marginally higher owing to the high price level in Q2 and the three-month lag versus the spot market. For 2019-20, we expect USD 0.5 higher prices per kilo compared with 2018, in line with our overall positive market view (low supply growth and high prices).

Buy


NR MSCI ESG rating



KEY INFO

SALMON NOBloombergSALMON.OLReuters

35%Free FloatUSD 0.56/NOK 4.59Market cap. (bn)

salmonescamanchaca.clCompany websiteNext report date

3-year Performance

Oct18

45

60

75

Salmones Camanchaca



2020E2019E2018E2017201620152014USDm426419355203226201238Total revenue145140805235230EBITDA (adj)131126694224-819EBIT (adj)

30.7%30.1%19.3%20.6%10.8%-4.1%8.0%EBIT (adj) margin1.441.390.740.400.03-0.070.22EPS (adj)

3.5%89.7%83.7%1,081.0%146.0%-133.8%n.a.EPS (adj) growth0.580.700.220.050.000.380.00DPS (ord)1.21.31.8n.a.n.a.n.a.n.a.EV/Sales4.04.59.1n.a.n.a.n.a.n.a.EV/EBIT (adj)5.96.111.5n.a.n.a.n.a.n.a.P/E (adj)1.72.02.7n.a.n.a.n.a.n.a.P/BV

6.8%8.2%2.6%n.a.n.a.n.a.n.a.Dividend yield (ord)15.3%12.9%-1.8%n.a.n.a.n.a.n.a.FCF Yield bef acq & disp

-35563100145180171Net debt-0.20.00.81.94.281.45.8Net debt/EBITDA

29.8%30.2%19.5%16.1%10.9%-3.6%16.7%ROIC after taxSource: Company data and Nordea estimates

ESTIMATE CHANGES

2020E2019E2018EYear3%3%0%Total revenue8%8%-8%EBITDA (rep)9%9%-9%EBIT (adj)9%9%-10%PTP9%9%-10%EPS (rep)9%9%-10%EPS (adj)9%9%-10%DPS (ord)





Total Salmones Camanchaca Q1 2018 Q2-2018 Q3-2018E Q4-2018E

Sales 80,560 75,093 96,940 101,280 EBIT 15,867 13,371 19,274 20,818 Volumes of salmon (own sales) 9,517 9,830 13,000 14,000 Volumes of trout (1/3 of JV) 1,475 1,933 1,267 1,333 EBIT - USD/kilo 1.39 1.14 1.35 1.36 EPS (adjusted) 0.24 0.05 0.21 0.24

Salmon division Q1 2018 Q2-2018 Q3-2018E Q4-2018E

Sold volume 9,589 9,830 13,000 14,000 Achieved price 6.30 6.40 6.40 6.20 Ex cage cost 3.12 3.28 3.25 3.15 Processing, logistics and sales 1.93 1.82 1.85 1.74 EBIT per kilo 1.25 1.30 1.30 1.31 EBIT - margin 22% 18% 20% 21%Sales 60,411 71,245 83,200 86,800 EBIT 13,357 12,672 16,900 18,302

Caleta Bay (Trout) 100% basis Q1 2018 Q2-2018 Q3-2018E Q4-2018E

Production volume 4,426 5,800 3,800 4,000

EBIT per kilo 1.70 1.20 1.20 1.20

EBIT 7,500 2,100 4,560 4,800

VAP Income Q1 2018 Q2-2018 Q3-2018E Q4-2018EVAP volume 9,589 11,132 13,000 14,000 Price per kilo 0.30 0.30 0.30 0.30Cost per kilo 0.22 0.22 0.22 0.22 Sales 2,877 3,340 3,900 4,200 EBIT 767 891 1,040 1,120


51



2020E2019E2018E20172016201520142013201220112010USDm426419355203226201238000n.a.Net revenue

1.6%18.0%74.9%-10.0%12.3%-15.6%n.a.n.a.n.a.n.a.n.a.Revenue growthn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which organicn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.of which FX1451408052352300000EBITDA-15-13-11-11-10-10-100000Depreciation and impairments PPE

131126694224-8190000EBITA00-1525-6-100000Amortisation and impairments

131126684749-149000n.a.EBIT00000000000of which associates3321000n.a.n.a.n.a.0Associates excluded from EBIT

-3-3-6-5-140-40000Net financials131126654335-1450000Pre-tax profit-35-34-17-11-83-10000Reported taxes9592483227-1140000Net profit from continued operations00000000000Discontinued operations00000000000Minority interests

9592483227-1140000Net profit to equity1.441.390.730.480.41-0.170.06n.a.n.a.0.00n.a.EPS0.580.700.220.050.000.380.000.000.000.950.00DPS0.580.700.220.050.000.380.000.000.000.950.00of which ordinary0.000.000.000.000.000.000.000.000.000.000.00of which extraordinary

Profit margin in percent34.2%33.3%22.5%25.8%15.5%1.1%12.4%n.m.n.m.n.m.n.a.EBITDA30.7%30.1%19.3%20.6%10.8%-4.1%8.0%n.m.n.m.n.m.n.a.EBITA30.7%30.1%19.2%23.2%21.9%-7.2%3.6%n.m.n.m.n.m.n.a.EBIT

Adjusted earnings1451408052352300000EBITDA (adj)131126694224-8190000EBITA (adj)131126694224-8190000EBIT (adj)1.441.390.740.400.03-0.070.22n.a.n.a.0.00n.a.EPS (adj)

Adjusted profit margins in percent34.2%33.3%22.5%25.8%15.5%1.1%12.4%n.m.n.m.n.m.n.a.EBITDA (adj)30.7%30.1%19.3%20.6%10.8%-4.1%8.0%n.m.n.m.n.m.n.a.EBITA (adj)30.7%30.1%19.3%20.6%10.8%-4.1%8.0%n.m.n.m.n.m.n.a.EBIT (adj)


16.2%12.0%n.m.n.m.n.m.n.a.n.a.n.a.n.a.n.a.n.a.Net revenue131.0%36.4%n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.EBITDA

n.m.70.9%n.m.n.m.n.m.n.a.n.a.n.a.n.a.n.a.n.a.EBITn.m.88.0%n.a.n.a.n.m.n.a.n.a.n.a.n.a.n.a.n.a.EPS

8.7%n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.n.m.DPSAverage last 5 years

25.9%19.7%13.0%10.5%6.6%-1.3%n.a.n.a.n.a.n.a.n.a.Average EBIT margin27.8%22.0%16.3%13.7%10.0%7.2%n.a.n.a.n.a.n.a.n.a.Average EBITDA margin


2020E2019E2018E20172016201520142013201220112010USDm5.96.111.5n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.P/E (adj)3.64.07.8n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.EV/EBITDA (adj)4.04.59.1n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.EV/EBITA (adj)4.04.59.1n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.EV/EBIT (adj)


2020E2019E2018E20172016201520142013201220112010USDm5.96.111.6n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.P/E1.21.31.8n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.EV/Sales3.64.07.8n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.EV/EBITDA4.04.59.1n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.EV/EBITA4.04.59.1n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.EV/EBIT

6.8%8.2%2.6%n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Dividend yield (ord.)15.3%12.9%-1.8%n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.FCF yield40.0%50.0%30.0%10.6%0.0%n.m.0.0%n.a.n.a.n.m.n.a.Payout ratio


52


BALANCE SHEET

2020E2019E2018E20172016201520142013201220112010USDm272727222118260000Intangible assets00000000000of which R&D

272727222118260000of which other intangibles00000000000of which goodwill

1089889746970690000Tangible assets66660000000Shares associates

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.0Interest bearing assets00000410000Deferred tax assets00000000000Other non-IB non-current assets66664440000Other non-current assets

14613612710795971000000Total non-current assets19018017013684117990000Inventory12010080544335410000Accounts receivable

20201597550000Other current assets115761812230000Cash and bank4453762831991361591490000Total current assetsn.a.n.a.n.a.n.a.n.a.000000Assets held for sale5915114103062312562500000Total assets

33628720910918-920000Shareholders equity00000000000Of which preferred stocks00000000000Of which equity part of hybrid debt00000000000Minority interest

33628720910918-920000Total Equity303030134000000Deferred tax8080801001361711650000Long term interest bearing debt00000000000Pension provisions

n.a.n.a.n.a.00000000Other long-term provisions55550000000Other long-term liabilities00000000000Convertible debt00000000000Shareholder debt00000000000Hybrid debt

1151151151181401711660000Total non-current liabilities22220000000Short-term provisions

13310379722948410000Accounts payable55553335310000Other current liabilities0000111190000Short term interest bearing debt

14111086797293820000Total current liabilitiesn.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.0Liabilities for assets held for sale5915114103062312562500000Total liabilities and equity

Balance sheet and debt metrics-355631001451801710000Net debt

1911921811217375740000Working capital3383283082281681711740000Invested capital4514013242261591621680000Capital employed

30.6%37.2%30.3%50.0%583.8%328.3%359.4%n.m.n.m.n.m.n.m.ROE29.8%30.2%19.5%16.1%10.9%-3.6%16.7%n.m.n.m.n.m.n.m.ROIC29.0%31.5%21.1%20.8%31.1%-8.9%5.1%n.m.n.m.n.m.n.a.ROCE

-0.20.00.81.94.281.45.8n.m.n.m.n.m.n.m.Net debt/EBITDAn.m.n.m.36.894.3112.0-71.716.4n.m.n.m.n.m.n.a.Interest coverage

56.8%56.0%50.9%35.5%7.9%-3.5%0.9%n.m.n.m.n.m.n.m.Equity ratio-10.4%1.7%30.0%91.6%795.8%-2,014.7%7,849.2%n.m.n.m.n.m.n.m.Net gearing


53


CASH FLOW STATEMENT

2020E2019E2018E20172016201520142013201220112010USDm1451408052352300000EBITDA (adj) for associates-35-3400000n.a.n.a.n.a.0Paid taxes-3-3-6n.a.n.a.n.a.n.a.n.a.n.a.n.a.0Net financials00020000000Change in provisions00034-4-50000Change in other LT non-IB332n.a.n.a.n.a.n.a.n.a.n.a.n.a.0Cash flow to/from associates

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.0Dividends paid to minoritiesn.a.n.a.n.a.61-36-32-320000Other adj to reconcile to cash flow110105761183-34-80000Funds from operations (FFO)

1-11-60-81444226n.a.n.a.n.a.0Change in NWC11194163747818n.a.n.a.n.a.0Cash flow from operations (CFO)-25-22-26-16-11-16-7n.a.n.a.n.a.0Capital expenditure8672-102136-7110000Free cash flow before A&D0000000n.a.n.a.n.a.0Proceeds from sale of assets0000000n.a.n.a.n.a.0Acquisitions

8672-102136-7110000Free cash flow

n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.0Dividends paid0050n.a.n.a.n.a.n.a.n.a.n.a.n.a.0Equity issues / buybacks00-20-46-11-9n.a.n.a.n.a.n.a.0Net change in debt0000n.a.n.a.n.a.n.a.n.a.n.a.0Other financing adjustments000-1401510000Other non-cash adjustments

405817-10-230000Change in cash

Cash flow metrics170.2%167.0%228.6%302.2%-76.2%94.6%33.1%n.a.n.a.n.a.n.m.Capex/D&A

-5.9%-5.3%-7.4%-8.0%-4.9%-7.8%-2.9%n.a.n.a.n.a.n.a.Capex/Sales

Key information888n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Share price year end (/current)

560560560n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Market cap.525564622n.a.n.a.n.a.n.a.n.a.n.a.n.a.n.a.Enterprise value66.066.066.066.066.066.066.00.00.039.60.0Diluted no. of shares, year-end (m)


54

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Equity recommendation structure and fair value sensitivity (absolute ratings)

Buy Positive share price potential versus our fair value Buy: and we see a compelling investment case to buy the share.

Sell Negative share price potential versus our fair value Sell: and we see a compelling investment case to sell the share

Hold Share in line with our fair value and/or we see no compelling investment case.

We calculate our fair values by weighting DCF, DDM, SOTP, asset-based and other standard valuation methods. When applicable, we set a 12-month target price by applying an appropriate premium/discount and/ or other relevant adjustment to our fair value to reflect the share price potential we see within the coming 12 months. Our fair values are sensitive to changes in valuation assumptions, of which growth, margins, tax rates, working capital ratios, investment-to-sales ratios and cost of capital are typically the most sensitive. It should be noted that our fair values would change by a disproportionate factor if changes are made to any or all valuation assumptions, owing to the non-linear nature of the standard valuation models applied (mentioned above). As a consequence of the standard valuation models we apply, changes of 1-2 percentage points in any single valuation assumption can change the derived fair value by as much as 30% or more. Dividend payouts are included in the target price. All research is produced on an ad hoc basis and will be updated when the circumstances require it.

Previous equity rating changes in the past 12 months

See individual company reports for information on the most recent changes in recommendations.

Distribution of equity recommendations

Recommendation % distributionBuy 56%Hold 34%Sell 10%As of 1 October 2018

Distribution of equity recommendations (transactions*)

Recommendation % distributionBuy 65%Hold 29%Sell 6%As of 1 October 2018

* Companies under coverage with which Nordea has ongoing or completed public investment banking transactions

Equity risk rating As a measure of the company’s operational risk, we apply a risk rating scale of 1-5 where 1 is the lowest risk and 5 is the highest. The risk rating is calculated using a weighted average of earnings/cash flow predictability, earnings quality and backward-looking asset beta. For the most illiquid stocks, the risk rating is also adjusted for liquidity risk. The risk rating is then converted to asset beta and used to calculate the cost of capital. It is thus implicitly included in our fair value calculations.

Market-making obligations in shares or derivatives and other significant financial interest Nordea Markets has market-making obligations in Ahlstrom-Munksjö, Aspo, Assa Abloy, Boliden, DNB, DSV, Danske Bank, Elekta, Gjensidige Forsikring, Kinnevik, Norsk Hydro, Novo Nordisk, Skanska, Telenor and Vestas Wind Systems. Nordea has direct or indirect ownership of shares in Velliv. Nordea Markets has no market-making obligations in other companies in the coverage universe.

Completion date 11 October 2018, 07:22 CET

Bond recommendation definitions

Outperform: Over the next three months, the fixed income instrument's total return is expected to exceed the total return of the relevant benchmark.

Market Perform: Over the next three months, the fixed income instrument's total return is expected to be in line with the total return of the relevant benchmark.

Underperform: Over the next three months, the fixed income instrument's total return is expected to be below the total return of the relevant benchmark.

All research is produced on an ad hoc basis and will be updated when the circumstances require it.

Distribution of bond recommendations

Recommendation Count % distributionOutperform 155 32%Market perform 211 43%Underperform 121 25%Total 487 100%As of 1 October 2018

Distribution of bond recommendations (transactions)*

Recommendation Count % distributionOutperform 73 40%Market perform 58 32%Underperform 52 28%Total 183 100%As of 1 October 2018

* Companies under coverage with which Nordea has ongoing or completed public investment banking transactions

Investment banking transactions Nordea has over the previous 12 months been lead or co-lead manager in a public disclosed offer of financial instruments issued by: A.P. Møller - Mærsk, ABB, AcadeMedia, Agder Energi, Ahlsell, Ahlstrom-Munksjö, Aker ASA, Aker BP, Aker Solutions, Aktia Bank, Altia, Amer Sports, Axactor, B2Holding, BEWiSynbra Group, BKK, Bane NOR Eiendom AS, Better Collective, Bilia AB, BillerudKorsnäs, Catella, Caverion, Citycon, Com Hem, Consilium, Corem, Cramo, DNA, DOF, DWS Group, Danske Bank, Detection Technology, Diana Shipping, Elkem, Energi Danmark, Euronav, European Energy, Fjord1, Flex LNG, GN Store Nord, Gjensidige Forsikring, HKScan, Hoist Finance, Ikano Bank, Indutrade, Intrum, Kemira, Klarna AB, Klövern, Kojamo plc, Konecranes, Lyse, M2, Magnolia Bostad, Marine Harvest, Mekonomen, Mercada, NKT , Nets, Nilfisk Holding, Nordea Bank, Norsk Gjenvinning, Norsk Hydro, Northern Drilling, Nortura SA, Norwegian Air Shuttle, Norwegian Property, Nynas, OBOS BBL, Ocean Yield, Odfjell Drilling, Olav Thon Eiendomsselskap, Oma Säästöpankki Oyj, Outokumpu, Outotec, Petroleum Geo-Services (PGS), Polygon, Protector Forsikring, Raufoss, SAS, SBB, Saab, SalMar, Salmones Camanchaca, Sampo, Sandvik, Sbanken, Scatec Solar, Securitas, Siemens Healthineers, Silmäasema, Småkraft, Sparebank 1 Nord-Norge, Sparebank 1 SMN, Sparebank 1 SR-Bank, Sparebanken Møre, Sparebanken Vest, Sparebanken Øst, Steen & Strøm, Stockmann, Stolt-Nielsen Ltd, TDC, Technopolis, Teekay LNG Partners LP, Teekay Offshore Partners LP, Tele2, Terveystalo, Thon Holding, Topdanmark, Transcom, Tryg, Vapo, Veidekke, Velliv, Verisure Holding, Verkkokauppa.com, Volati, Wallenius Wilhelmsen, Wallenstam, YIT and Ørsted. Analyst shareholdings Nordea equity and credit research analysts do not have any holdings in the companies they cover.

Material interest held by the issuer in shares issued by Nordea

Sampo owns 21.3% in Nordea (as of 31 August 2018).

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