Bakkafrost P/f

Earnings Release • Feb 21, 2023

Operational EBIT of DKK 376 Million for the Fourth Quarter of 2022

Operational EBIT of DKK 376 Million for the Fourth Quarter of 2022

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

specified)

The Bakkafrost Group delivered a total operating EBIT of DKK 376 million (DKK

120 million) in Q4 2022 and made a profit of DKK -154 million (DKK -3 million).

The combined FO farming and VAP segments made an operational EBIT of DKK 467

million (DKK 310 million). The FO farming segment made an operational EBIT of

DKK 380 million (DKK 282 million). The SCT farming segment made an operational

EBIT of DKK -149 million (DKK -214 million). The VAP segment made an operational

EBIT of DKK 86 million (DKK 28 million). The EBITDA for the FOF segment was DKK

110 million (DKK 89 million).

Commenting on the result, CEO Regin Jacobsen said:

"Overall, we are satisfied with the results from the Faroe Islands in this

quarter. The salmon market has been strong due to low global supply and the

biological performance in the Faroe Islands has been strong with all-time low

sea lice levels and historically low mortality. Our smolt production in the

Faroe Islands receives new production capacity from the hatchery expansions at

Norðtoftir and Glyvradal.

Around new year, we received our new wellboat, Bakkafossur, in the Faroe

Islands. With a total capacity of 10,000m3, this is one of the biggest wellboats

in the world, and also one of the most technologically advanced. It brings new

freshwater treatment capabilities to the Faroese farming operation, which will

be positive to further improve the biological performance, and it also prepares

Bakkafrost for future offshore farming in the Faroe Island.

The biological performance in Scotland is still more challenging than in the

Faroe Islands, but we are now much better equipped to tackle the challenges and

mitigate biological risks in Scotland, e.g. with the new 4,000m3 wellboat in

Scotland with dual treatment and freshwater capabilities. In second half of Q4

2022, the mortality in Scotland reduced significantly and we decided to reduce

harvest to let the fish grow and gain weight and value. As a result, we have

harvested bigger fish than ever before in January 2023.

We have made good progress with the implementation of our One Company strategy,

with which we merge the Faroese and Scottish organisations, building upon the

strengths of both. Sharing knowledge and best practice is key to us, especially

within the farming operation and large smolt production. The latter is very

important as we prepare for the release the first batch of large smolt from our

expanded Applecross hatchery in Q2 2023.

The turbulence and uncertainty in the world economy is concerning. It is

difficult to predict, how the inflation will impact the demand for salmon. Input

costs have increased for the salmon industry, as well as for the other main

animal protein sources, such as chicken, pork and beef, we compete with. It is

therefore important to maintain a strong focus on costs and competitiveness in

the global market. Despite high inflation on food the demand for salmon is still

strong which is reflected in contract prices for this year. Looking ahead into

2023, the supply growth in the salmon market will be tight."

Total harvested volumes for Q4 2022 were 24,500 tonnes gutted weight (25,800

tgw):

· FO: 19,300 tgw (20,700 tgw),

· SCT: 5,200 tgw (5,100 tgw).

Total harvested volumes in 2022 were 90,600 tonnes gutted weight (96,900 tgw):

· FO: 66,700 tgw (67,200 tgw),

· SCT: 23,900 tgw (29,700 tgw).

In total, 8.5 million (9.2 million) smolts were transferred during Q4 2022:

· FO: 5.0 million (5.1 million),

· SCT: 3.5 million (4.2 million).

In 2022, 25.4 million (25.5 million) smolts were transferred:

· FO: 14.4 million (14.4 million),

· SCT: 11.0 million (11.1 million).

The combined FO farming and VAP segments made an operational EBIT of DKK 467

million (DKK 310 million) in Q4 2022. The operational EBIT per kg in Q4 2022 was

DKK 24.21 (DKK 15.00), corresponding to NOK 33.81 (NOK 20.11). The FO Farming

segment achieved higher prices in Q4 2022 than in Q4 2021. For 2022, the

combined FO farming and VAP segments made an operational EBIT of DKK 1,862

million (DKK 1,023 million).

The SCT farming segment made an operational EBIT of DKK -149 million (DKK -214

million). In Q4 2022, the SCT farming segment had incident-based costs of DKK 81

million (DKK 179 million). For 2022, the operational EBIT was DKK -298 million

(DKK -249 million).

The FOF segment made a 14.0% (20.6%) EBITDA margin. Fish feed sales amounted to

32,600 tonnes (32,500 tonnes) in Q4 2022. During Q4 2022, Havsbrún sourced

46,100 tonnes (27,300 tonnes) of raw material. For 2022, the EBITDA was 17.9%

(18.5%). In 2022, Havsbrún sourced 297,800 tonnes (152,400 tonnes) of raw

material.

The net interest-bearing debt amounted to DKK 2,664 million at the end of Q4

2022, compared to DKK 2,126 million at year-end 2021. Undrawn credit facilities

amounted to DKK 2,542 million at the end of Q4 2022.

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

share shall be paid out as dividend. Bakkafrost's financial position is strong

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

facilities. The Board of Directors proposes to the Annual General Meeting that

DKK 10.00 (NOK 14.53*) per share shall be paid out as dividend. The Annual

General Meeting will be convened on Friday the 28th of April 2023.

The equity ratio was 62% on 31 December 2022, compared to 64% at the end of

* The dividend per share in NOK is subject to changes depending on the exchange

rate between NOK and DKK, which will be announced after the Annual General

Meeting.

OUTLOOK

Market

Supply decreased in Q4 2022

The supply of salmon decreased by 0.3% in Q4 2022 compared to Q4 2021, incl.

inventory movements. Without inventory movements, the supply decrease was 2.2%,

according to the latest estimate from Kontali Analyse.

22% higher salmon prices

Salmon spot prices were 22% higher this quarter compared to Q4 2021. Strong

demand for salmon, low supply increase and general inflation have contributed to

high salmon prices this quarter.

Low growth in 2023

In H1 2023, the global supply is expected to be on the same level as in H1 2022.

In H2 2023, the global supply is expected to grow around 4-5%. For the full year

2023, the global supply growth is expected to be around 2%, 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

The strong biological performance in the Faroese farming operation seen in

previous quarters has continued this quarter. Sea lice levels have been

maintained at all-time low this quarter, and the low mortality rates have

continued this quarter.

Bakkafrost's new 10,000m3 Live Fish Carrier, Bakkafossur, arrived in the Faroe

Islands at the beginning of January 2023 and will play an important role in

strengthening Bakkafrost's capabilities to maintain low biological risk in the

Faroe Islands. Also, the vessel is designed to support future off-shore farming

in the Faroe Islands.

The Norðtoftir hatchery is now in operation and has successfully released the

first batch of large smolt since the expansion. The hatchery expansion at

Glyvradal is about to be finished and will start operation in Q1 2023. Combined,

these capacity expansions will increase the smolt production capacity in the

Faroe Islands with around 6.5 million smolts of 500g. These are important

milestones to fulfil Bakkafrost's goal to build an annual smolt production

capacity in the Faroe Islands of over 23 million smolts of 500g in 2026.

In Scotland, farming conditions in Q4 2022 have followed the normal seasonal

pattern with more biological challenges compared to the first half of the year

in particular. However, the biological situation improved considerably in the

second half of Q4, and Bakkafrost decided to slow down harvest to let the fish

continue growing and gain weight. This reduced the harvest volume in Q4 2022 but

will increase value with harvesting larger fish in Q1 2023. Overall, the

mortality in Q4 2022 was lower than the year before, and from the beginning of

December 2022, mortality levels have been at the same level as normally found in

the first half of the year.

One contributing factor to the improved biological development in late Q4 in

Scotland was the arrival of the new 4,000m3 Live Fish Carrier in late September

2022. Equipped with freshwater treatment capacity as well as an innovative in

-line freshwater-based sea lice removal system this vessel can efficiently do

dual treatments for gill-related issues as well as sea lice removal in one

operation. The operation has proven to be efficient and Bakkafrost has decided

to implement the same systems on the second Live Fish Carrier in Scotland as

well as on the new Live Fish Carrier in the Faroe Islands, Bakkafossur.

The biological risk in Scotland is still higher than in the Faroe Islands but is

expected to be transformed with the implementation of Bakkafrost's large-smolt

strategy. As demonstrated in the Faroe Islands, large high-quality and robust

smolt will have a lower risk exposure in the marine environment due to shorter

production cycles in the sea. This is expected to significantly reduce the

biological risk in Scotland and is fundamental to the turnaround of the farming

operation. Therefore, it is Bakkafrost's topmost priority in Scotland to build

new modern hatcheries. The ongoing expansion of the Applecross hatchery is

progressing well, and the Applecross 4 expansion is expected to be operational

with fish in the tanks in March 2023. The first batch of large smolt delivered

from Applecross 4 is planned for Q2 2023 and will contribute to increasing the

mean weights and quality of the smolt stocked in Scotland in 2023.

The full capacity of the Applecross hatchery, including the next expansions,

will be in operation in mid-2024, bringing the overall annual production

capacity from Applecross to around 10 million high-quality smolts of around

500g.

In Q4 2022, the average weight of released smolt in Scotland was 115g, which is

10% higher than in Q4 2021.

Bakkafrost plans to build 3 large hatcheries in Scotland, which will increase

the total annual production capacity to around 18 million smolts of around 500g

in 2026.

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 150-175g. In 2023, the number of released smolt will be lower

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

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

released volume.

Harvest volumes for 2022 in the Faroe Islands were 66.7 thousand tonnes gutted

weight and 23.9 thousand tonnes gutted weight in Scotland, giving a total of

90.6 thousand tonnes gutted weight.

In 2023, Bakkafrost expects to harvest around 68,000 tonnes gutted weight in the

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

around 98,000 tonnes gutted weight.

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

dependent on biological development.

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.

For 2023, Bakkafrost has signed contracts covering around 23% of the expected

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 similar production volumes of fishmeal and fish oil

as in 2022.

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

increase up to around 130,000 tonnes in 2023.

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

Farming segments.

Lately, the prices on vegetable raw materials have increased significantly. This

affects the whole animal protein market as well as other food producers.

Bakkafrost is in a relatively good competitive position due to the low inclusion

of vegetable ingredients in the feed combined with a low feed conversion ratio

and good access to marine raw materials.

Investments

On the Capital Markets Day on 14-15 September 2021, Bakkafrost announced a 6.2bn

DKK investment plan for 2022-2026. 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 3 large energy

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

large smolt strategy and giving an annual production capacity above 18 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. Further, Bakkafrost will make investments in

marine site development.

The investments in the Faroe Islands include increasing annual hatchery

production capacity to around 23 million smolts at 500g, investments in a brood

stock facility and expansion of feed production capacity.

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

annual harvest volumes to 150,000 tonnes in 2026. Over the same period, the

total annual production capacity in Bakkafrost's value chain will reach 180,000

tonnes gutted weight.

Bakkafrost's next Capital Markets Day will be on 6-7 June 2023 and will be held

in Scotland.

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 an extension of

one year. 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 Q4 2022 report and the Q4 2022 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.

About Bakkafrost:

Bakkafrost is the largest salmon farmer in the Faroe Islands and the second

largest salmon farmer in Scotland. The Group is fully integrated from feed

production to smolt, farming, VAP and sales. The Group has production of

fishmeal, fish oil and salmon feed in the Faroe Islands and primary and

secondary processing in the Faroe Islands, Scotland and Denmark. The Group

operates sea farming and broodstock operations in both the Faroe Islands and

Scotland. The Group has built a biogas plant in the Faroe Islands. The

headquarter is located in the Faroe Islands, and the Group has sales and

administration offices in Grimsby (UK), Edinburgh (Scotland), Boulogne-Sur-Mer

(France), New Jersey (US) and Munkebo (DK). The Bakkafrost Group has 1,778

employees (full-time equivalents).

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