Bakkafrost P/f

Earnings Release • Aug 22, 2023

BAKKAFROST: Building biomass in the Faroes

BAKKAFROST: Building biomass in the Faroes

(Figures in parenthesis refer to the same period last year unless otherwise

specified)

The Bakkafrost Group delivered a total operating EBIT of DKK 353 million (DKK

587 million) in Q2 2023 and made a profit of DKK -123 million (DKK 845 million).

The combined FO farming and VAP segments made an operational EBIT of DKK 216

million (DKK 509 million). The FO farming segment made an operational EBIT of

DKK 242 million (DKK 617 million). The SCT farming segment made an operational

EBIT of DKK 71 million (DKK 41 million). The VAP segment made an operational

EBIT of DKK -26 million (DKK -108 million). The EBITDA for the FOF segment was

DKK 128 million (DKK 119 million).

Commenting on the result, CEO Regin Jacobsen said:

"Overall, we are satisfied with the results in this quarter. Especially with our

Fishmeal, -Oil and Feed segment which delivered a record quarter. H1-2023 has

been record-breaking with all time high sourcing leading to all time high

fishmeal and -oil production. Fish meal and - oil prices are also all-time high.

Harvest volume from our Faroese salmon farms have been low in the quarter due to

a back-end loaded harvest profile for 2023 and low mean weights.

For the first time past 12 years, we increased the biomass in the Faroe Islands

during the cold period of the year. The biomass is healthy, and we expect an

increasing average weight of harvested fish going forward.

The farming operation in Scotland performed well in the first five months of

2023, but towards the end of Q2, mortality levels increased due to environmental

challenges. This development has continued into Q3 and can lead to lower harvest

volumes in Scotland for 2023 than anticipated. We follow the situation closely

and evaluate a range of risk-mitigating measures.

With the recent AP4 expansion of the Applecross hatchery in Scotland, the

hatchery capacity in Scotland is increasing. In Q2 2023, we released the first

batch of smolt weighing between 200-300g and a large batch of 200-300g smolt

will be released later this year. This marks the beginning of the large-smolt

transition instrumental for the transition of the farming operation in Scotland.

At our Capital Market Day in Scotland 6 June 2023, we presented our plans for

2024-2028, which includes investments of 6.3bn DKK leading to an annual harvest

of 165,000 tonnes HOG in 2028 and an annual production capacity of 200,000

tonnes.

The salmon market has been good in this quarter with high prices, although a

more significant price difference between small and large-sized salmon towards

the end of the quarter, and a tight supply outlook for H2."

Total harvested volumes for Q2 2023 were 16,001 tonnes gutted weight (19,747

tgw)

· FO: 8,658 tgw (13,101 tgw),

· SCT: 7,343 tgw (6,646 tgw).

In total, 6.7 million (6.2 million) smolts were transferred during Q2 2023

· FO: 3.6 million (3.3 million),

· SCT: 3.1 million (2.8 million).

The combined FO farming and VAP segments made an operational EBIT per kg in Q2

2023 on DKK 24.99 (DKK 38.85), corresponding to NOK 39.09 (NOK 52.28). The FO

Farming segment achieved lower prices in Q2 2023 than in Q2 2022 and also lower

harvest volume compared to Q2 2022. For H1 2023, the combined FO farming and VAP

segments made an operational EBIT of DKK 537 million (DKK 951 million).

The SCT farming segment made an operational EBIT of DKK 71 million (DKK 41

million). The SCT Farming segment achieved higher prices and had a higher

harvest volume in Q2 2023 compared to Q2 2022. In Q2 2023, the SCT farming

segment had incident-based costs of DKK 43 million (DKK 56 million). For H1

2023, the operational EBIT was DKK 226 million (DKK -12 million).

During Q1 2023, the FOF segment

· sourcing of raw material was 147,785 tonnes (97,610 tonnes),

· the EBITDA margin was 17% (23%) EBITDA, and

· fish feed sales amounted to 30,231 tonnes (31,243 tonnes).

For H1 2022, the FOF segments EBITDA was 17% (21%). During H1 2023, Havsbrún

sourced 303,800 tonnes (175,581 tonnes) of raw material

The net interest-bearing debt amounted to DKK 2,911 million at the end of H1

2023, compared to DKK 2,664 million at year-end 2022. Undrawn credit facilities

amounted to DKK 2,304 million at the end of H1 2023.

The long-term goal of the Board of Directors is that 30-50% of earnings per

share shall be paid out as a dividend. The financial position of Bakkafrost is

strong, with a solid balance sheet, a competitive operation and available credit

facilities. The Annual General Meeting convened on 28 April 2023, decided to pay

out a dividend of DKK 10.00, corresponding to NOK 15.63 per share. The total

dividend of DKK 591 million (NOK 924 million) was paid out on 22 May 2023.

The equity ratio was 61% on 30 June 2023, compared to 62% at the end of 2022.

OUTLOOK

Market

Stable supply in Q2 2023

The supply of salmon increased marginally by 0.3% in Q2 2023 compared to Q2

2022, incl. inventory movements. Without inventory movements, the supply

increase was 0.9%, according to the latest estimate from Kontali Analyse.

Salmon prices increased 1% in NOK - decreased 15% in EUR

Salmon spot prices (in NOK) were 1% higher this quarter compared to Q2 2022 but

were 15% lower in EUR due to the weak NOK. Prices in Q2 2023 were affected by

strong demand for salmon and a low supply increase. However, with increasing

supply towards the end of the quarter which led to increased price

differentiation between small and large-sized salmon.

Low growth in 2023

In H2 2023, the global supply is expected to grow around 2-3%, excluding

inventory movements. For the full year 2023, the global supply growth is

expected to be around 2%, excluding inventory movements. In H1 2024, the supply

growth is expected to be around 3%, excluding inventory movements.

Bakkafrost has a strong focus on ensuring a well-balanced flow to the different

markets to increase diversification and mitigate market risk. Bakkafrost

operates in the main salmon markets, Europe, the USA, and the Far East. Since

the beginning of the war in Ukraine, Bakkafrost has stopped all trading with

Russia.

Farming

In the Faroe Islands, growth has been strong in H1 2023. For the first time past

12 years, the biomass in the Faroese farms has increased in H1 instead of

decreasing. Higher growth than harvest has increased the biomass by 20% from

around 30kt up to 36kt, and during Q3, the biomass will follow the normal trend

of the year with further growth, as feeding is peeking during Q3. The biological

condition of the biomass is good. The backend-loaded harvest profile for 2023

means higher volume in H2, whereof around 17,000 - 18,000 tonnes gutted weight

is expected to be harvested in the Faroe Islands in Q3. Bakkafrost expects to

harvest larger fish in the Faroe Islands in H2 driven by healthy smolt and good

healthy operation.

The expanded hatcheries at Norðtoftir and Glyvradal in the Faroe Islands are in

operation and will be ramped up in production volumes during the next year.

Combined, these capacity expansions increase the smolt production capacity in

the Faroe Islands with around 6.5 million smolts of 500g. This is important to

fulfil Bakkafrost's goal to build an annual smolt production capacity in the

Faroe Islands of over 24 million smolts of 500g as part of the 2024-2028

investment programme.

The biological development in Scotland was improved during the first five months

of 2023 with increased harvest weights and low mortality. Late in Q2 and

continuing into Q3, biological development became more challenging.

Environmental challenges affected fish being in their second summer in the sea,

leading to higher mortality. This will affect the cost and mortality rates

negatively in H2 and can compromise planned harvest volumes for 2023 in

Scotland, with 5,000-6,000 tonnes, dependent on the continued biological

development in H2 2023.

Bakkafrost has obtained good results treating the fish in Scotland with

freshwater using the upscaled treatment vessel capacity. However, the recent

environmental challenges emphasize the importance of having large and high

-quality smolt that reduce the production cycle in the sea and hereby, also the

biological risk. The risk picture is expected to be gradually transformed as

Bakkafrost's large-smolt strategy materializes in Scotland. As demonstrated in

the Faroe Islands, large high-quality smolt will have a lower risk exposure in

the marine environment due to shorter production cycles in the sea and the

robustness of the smolt. In addition, Bakkafrost is evaluating other measures

and farming equipment in the marine farming operation with the potential to

reduce the risk of environmental challenges.

The ongoing expansion of the Applecross hatchery is progressing, and the

operation of the Applecross-4 expansion has started. In Q2 2023, the first batch

of smolt weighing between 200-300g was released from Applecross, and in Q4 2023,

a large batch of 200-300g smolt is planned to be transferred to marine sites.

This is the first fish to be only one summer in the sea in Scotland. The

capacity of the Applecross hatchery, will be gradually increased to full

capacity during 2024, bringing the overall annual production capacity from

Applecross to around 7 million high-quality smolts of around 500g.

In Q2 2023, the average weight of released smolt in Scotland was 125g, which is

24% higher than in Q2 2022.

In addition to the Applecross hatchery, Bakkafrost plans to build a second large

hatchery at Fairlie in Scotland, increasing the total annual production capacity

to around 15 million smolts of around 500g as part of the 2024-2028 investment

programme.

Smolt release

Bakkafrost expects to release around 16 million large smolts in 2023 in the

Faroe Islands and around 9.6 million smolts in Scotland. The number and the

average weight of smolts released are key elements of predicting Bakkafrost's

future production.

Million smolt released 2023 2022 2021 2020 2019 2018

FO 16,0 14,5 14,4 14,3 12,7 12,6

SCT 9,6 10,8 11,1 10,4 12,4 8,6

The average weight of the smolt released in Scotland in 2023 is expected to

increase to around 140g. In 2023, the number of released smolt will be lower

than in previous years as the focus is on stabilizing the operation before

increasing the volume. In this respect, smolt quality is more important than the

released volume.

In 2023, Bakkafrost expects to harvest around 63,000 tonnes gutted weight in the

Faroe Islands and 30,000* tonnes gutted weight in Scotland, giving a total of

around 93,000* tonnes gutted weight.

The estimates for harvest volumes and smolt releases in both geographies are

dependent on biological development.

* Risk to be reduced by 5,000-6,000 tonnes

VAP (Value added products)

Bakkafrost's highly flexible value chain includes a state-of-the-art VAP factory

with high capacity. This enables Bakkafrost to adapt well to the rapidly

changing market situations.

Bakkafrost's long-term strategy is to sell around 40% of the harvested volumes

of salmon as VAP products on contracts. The contracts are at fixed prices with a

duration of 6 to 12 months. Bakkafrost's VAP contract strategy is impacted

negatively by the changes to the Faroese revenue tax made effective from 1

August 2023. The Faroese Government has however indicated that adjustments could

be made to the revenue tax in order to reduce the negative impact on contracted

sale of VAP products. Bakkafrost might revise the VAP contract strategy

dependent on the outcome of this.

For 2023, Bakkafrost has signed contracts covering around 26% of the expected

remaining harvest volumes in the Faroe Islands and Scotland combined.

FOF (Fishmeal, oil and feed)

The outlook of fishmeal and fish oil production is dependent on the availability

of raw materials.

The ICES 2023 recommendation for blue whiting is 1,360 thousand tonnes, which is

an 81% increase from the recommendation for 2022.

In 2023 Bakkafrost expects record-high production volumes of fishmeal and fish

oil.

Havsbrún's sales of fish feed in 2022 was 128,000 tonnes and is expected to

increase to around 130,000 tonnes in 2023.

The major markets for Havsbrún's fish feed are the internal Faroese and Scottish

Farming segments.

Investments

On the Capital Markets Day on 6 June 2023, Bakkafrost announced a 6.3bn DKK

investment plan for 2024-2028. The investments will enable a transformation of

the operation in Scotland and provide sustainable growth in the Faroe Islands as

well as Scotland.

The main purpose of the investments in Scotland is to replicate Bakkafrost's

successful operation in the Faroe Islands. Bakkafrost will build 2 large energy

-efficient hatcheries in Scotland, enabling the implementation of Bakkafrost's

large smolt strategy and giving an annual production capacity above 15 million

smolts at 500g. Having large smolt in Scotland will transform the performance,

lower the biological risk and increase harvest volumes. In addition to building

hatchery capacity, Bakkafrost plans to build a new processing plant to

strengthen processing capabilities and increase flexibility in operation.

Bakkafrost will also invest in more service vessel capacity to improve the

mitigation of biological risk and improve the cost of operation. Further,

Bakkafrost will make investments in marine site development.

The investments in the Faroe Islands include increasing annual hatchery

production capacity to around 24 million smolts at 500g, cost-efficient

repurposing of old hatcheries into broodstock operation, expansion of feed

production capacity and growing sustainably by optimization of existing sites

and new technology.

With the investment plan, Bakkafrost expects to sustainably grow the total

annual harvest volumes to 165,000 tonnes in 2028. Over the same period, the

total annual production capacity in Bakkafrost's value chain will reach 200,000

tonnes gutted weight.

Financial

The long-term market balance in the global market for salmon products will most

likely remain favourable for Bakkafrost. Bakkafrost has a long value chain and a

cost-efficient production of high-quality salmon products and will likely

maintain financial flexibility going forward.

In March 2022, Bakkafrost finalized a new sustainability-linked 700 mEUR

multicurrency revolving credit facility agreement with an additional accordion

option of 150 mEUR. The facility has a tenor of five years plus extension

options of two years. In combination with Bakkafrost's high equity ratio, the

facility gives the necessary financial strength and flexibility for the Group's

investment plans aimed at significant organic growth and structural cost

reductions in Scotland. It will also enable M&A's and further organic growth

opportunities as well as support an unchanged dividend policy in the future.

Please find the Company's Q2/H1 2023 report and the Q2/H1 2023 presentation

enclosed.

Contacts:

· Regin Jacobsen, CEO of P/F Bakkafrost: +298 235001 (mobile)

· Høgni Dahl Jakobsen, CFO of P/F Bakkafrost: +298 235060 (mobile)

This information is subject of the disclosure requirements pursuant to section 5

-12 of the Norwegian Securities Trading Act.