Bakkafrost P/f

Earnings Release • Feb 22, 2022

Operational EBIT of DKK 120 Million for the Fourth Quarter of 2021

Operational EBIT of DKK 120 Million for the Fourth Quarter of 2021

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

specified)

The Bakkafrost Group delivered a total operating EBIT of DKK 120 million in Q4

2021. Total harvested volumes were 25.8 thousand tonnes gutted weight (tgw).

Faroe Islands (FO): 20.7 tgw, Scotland (SCT): 5.1 tgw. The combined FO farming

and VAP segments made an operational EBIT of DKK 310 million. The FO farming

segment made an operational EBIT of DKK 282 million. The SCT farming segment

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

operational EBIT of DKK 28 million. The EBITDA for the FOF segment was DKK 89

million.

The Group made a profit for Q4 2021 of DKK -3 million (DKK -38 million). For

2021, the profit was DKK 964 million (DKK 463 million). Commenting on the

result, CEO Regin Jacobsen said:

"The results in this quarter have been negatively affected by the continuation

of the biological issues we reported in previous quarter and gave an update on

in our profit warning in December. We are now pleased that mortality levels have

normalized.

In the Faroe Islands, we are pleased to have reached record high harvesting

volumes in the fourth quarter and for the full year, despite some challenges we

are excited to see record low feed conversion rates and record high weight on

transferred smolt.  Our feed operation also sold very high volumes in both the

fourth quarter and for the full year.

We are convinced that our strategy and investments will reduce the biological

risk by ensuring stronger biology, which is crucial to maintain a competitive

operation.

In this quarter we have entered at term sheet for a 700 mEUR sustainability

-linked credit facility with a number of sustainability targets.

The salmon market is very strong. The demand for salmon from all segments has

increased significantly in the last quarter, leading to high prices. Compared to

same quarter last year, the salmon prices increased around 37% in this quarter,

despite higher volumes sold. Looking ahead, the marked situation seems very

bullish with tight supply and markets normalising after Covid-19."

Total harvested volumes for Q4 2021 were 25,800 tonnes gutted weight (25,300

tgw):

· FO: 20,700 tgw (16,000 tgw),

· SCT: 5,100 tgw (9,300 tgw).

Total harvested volumes in 2021 were 97,900 tgw (86,700 tgw):

· FO: 67,200 tgw (50,700 tgw),

· SCT: 29,700 tgw (35,000 tgw).

In total, 9.2 million (9.4 million) smolts were transferred during Q4 2021:

· FO: 5.1 million (5.5 million),

· SCT: 4.2 million (3.9 million).

In 2021, 25.5 million (25.0 million) smolts were transferred:

· FO: 14.4 million (14.7 million),

· SCT 11.1 million (10.4 million).

The combined FO farming and VAP segments made an operational EBIT of DKK 310

million (DKK 143 million) in Q4 2021. The operational EBIT per kg in Q4 2021 was

DKK 15.00 (DKK 8.94), which corresponds to NOK 20.11 (NOK 12.92) for the

combined FO farming and VAP segments. For 2021, the combined FO farming and VAP

segments made an operational EBIT of DKK 1,023 million (DKK 588 million).

The FO farming segment made an operational EBIT of DKK 282 million (DKK 63

million) in Q4 2021. The harvested volumes were higher, and the achieved prices

were higher in Q4 2021, compared to Q4 2020. For 2021, the operational EBIT was

DKK 904 million (DKK 448 million).

The SCT farming segment made an operational EBIT of DKK -214 million (DKK -54

million) in Q4 2021. Costs of DKK -179 million relate to incident-based

mortality in Q4 2021. For 2021, the operational EBIT was DKK -249 million (DKK

24 million).

The VAP segment made an operational EBIT of DKK 28 million (DKK 80 million) for

Q4 2021. For 2021, the operational EBIT was DKK 120 million (DKK 140 million).

The FOF segment (fishmeal, oil and feed) made an EBITDA of DKK 89 million (DKK

48 million) for Q4 2021, and the EBITDA margin was 21% (13%). The EBITDA was DKK

306 million (DKK 208 million) for 2021, corresponding to an EBITDA margin of

18.5% (14.6%).

Sales of fish feed amounted to 32,527 tonnes (30,885 tonnes) in Q4 2021. For

2021, Havsbrún sold 128,489 tonnes (111,998 tonnes) of fish feed.

During Q4 2021, Havsbrún sourced 27,300 tonnes (71,900 tonnes) of raw material,

and in 2021, Havsbrún sourced 152,400 tonnes (283,300 tonnes) of raw material.

The Group has been impacted by the market disruption from Covid-19 from late Q1

The net interest-bearing debt amounted to DKK 2,126 million at the end of Q4

2021, compared to DKK 1,753 million at year-end 2020. Undrawn credit facilities

amounted to DKK 3,063 million at the end of Q4 2021.

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 5.14 (NOK 6.99*) per share shall be paid out as dividend. The Annual General

Meeting will be convened on Friday the 29th of April 2022.

The equity ratio was 64% on 31 December 2021, compared to 66% at the end of

On the 10 December Bakkafrost entered a term sheet for a sustainability-linked

EUR 700 million multicurrency revolving credit facility with a tenor of five

years. The facility agreement is planned for signing by the end of February

*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 increase of 3.1%

The supply of salmon increased 3.1% in Q4 2021, compared to Q4 2020 incl.

inventory movements.

Without inventory movements, the supply was 4.6% higher, according to the latest

estimate from Kontali Analyse.

37% higher salmon prices

Salmon prices were around 37% higher in this quarter compared to Q4 2020 as the

market conditions continued to improve. This positive development is expected to

continue as Covid-19 restrictions are lifted.

Negative growth in H1 2022

In H1 2022, the global supply growth of Atlantic salmon is expected to be

negative with around 7%, compared to Q1 2021. Overall, the market supply of

salmon in 2022 is expected to increase around 1%, compared to 2021, including

inventory movements.

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

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

markets to increase diversification and mitigate the market risk.

Farming

The biological growth rate in the Faroese farming operation has been strong in

this quarter. Also, the biological feed conversion ratio has been lower than

ever before. However, sea lice levels have been higher than normal which has

required more treatments resulting in higher mortality. This summer a new

7,000m3 wellboat with freshwater production capability is delivered to

Bakkafrost. This will bring a significant uplift of the freshwater treatment

capacity in the Faroe Island.

Bakkafrost continues to increase the average smolt size, but the effects on the

biological performance have not yet fully materialised. The salmon harvested in

the Faroe Islands in 2021 were released as smolt with an average smolt weight of

around 274g. In comparison, the average weight of the smolt released in 2021 in

the Faroe Islands was 382g and will be ready for harvest in 2022 and early 2023.

These smolt have performed very well after being released and a lot of knowledge

has been gained regarding the large smolt strategy. This knowledge is valuable

as the large smolt strategy is being implemented in Scotland during the coming

years.

To meet future demand for large smolt, the existing hatcheries at Norðtoftir and

Glyvradalur are currently being expanded. In addition, Bakkafrost plans to

construct a new hatchery at Ónavík, enabling Bakkafrost to produce more than 23

million smolts of 500g in the Faroe Islands in 2026.

The farming operation in Scotland has been very challenged in this quarter. The

main root-cause for the mortality in Scotland is compromised gill health in

combination with secondary complications, such as blooms of micro

-jellyfish/hydrozoans and fish handling during necessary treatments. Late in the

quarter, the situation stabilised on somewhat elevated mortality rates, which

for a few sites remained until end of January 2022.

Bakkafrost will more than triple the freshwater treatment capacity in 2022 with

two new wellboats with large freshwater treatment capability. These vessels are

expected to be in operation in Q2 and Q3 2022 respectively and will play an

important role in mitigating compromised gill health, hence improving overall

fish health and significantly reducing risk of mortality caused by secondary

complications.

Bakkafrost's implementation of the large smolt strategy in Scotland is

progressing well and the current expansion phase of the Applecross hatchery is

expected to be finalised by the end of 2022. By then, the hatchery will have the

capacity to produce around 8 million smolt at 250g. Further planned expansion

and new hatcheries will increase the production capacity up to more than 18

million smolt of around 500g in 2026. In Q4 2021 the average weight of released

smolt in Scotland increased 9% to 105g, compared to 96g in Q4 2020. In 2022 the

average weight of in the released smolt in Scotland is expected to be around

120g. The real impact from our freshwater investments is expected in 2023.

Having large smolt in Scotland will transform the biological risk in the marine

farming operation. It will however take time for Bakkafrost to materialise this

as it takes time to build the necessary hatchery capacity.

Smolt release

Bakkafrost expects to release around 14.9 million smolts of around 500g in 2022

in the Faroe Islands, compared to 14.4 million smolts in 2021, 14.3 million

smolts in 2020, 12.7 million smolts in 2019 and 12.6 million smolts in 2018. The

smolt release in Scotland in 2022 is expected to be 10.8 million smolts of

around 120g, compared to 11.1 million smolts in 2021, 10.4 million smolts in

2020, 12.4 million smolts in 2019 and 8.6 million smolts in 2018. The number and

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

future production.

Harvest volumes for 2022 in the Faroe Islands are expected to reach 68,000

tonnes gutted weight and 35,000 tonnes gutted weight in Scotland, giving at

total of 103,000 tonnes gutted weight.

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

dependent on the 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 between 6 to 12 months.

For 2022 Bakkafrost has signed contracts covering around 32% of the expected

harvest volumes in the Faroe Islands and Scotland combined.

FOF (Fishmeal, Oil and Feed)

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

availability of raw material. The ICES 2022 recommendation for blue whiting is

753 thousand tonnes, which is a 19% reduction from the recommendation for 2021.

Bakkafrost expects the production volumes of fishmeal and fish oil in 2022 to be

on similar levels as in 2021. Havsbrún's sales of fish feed in 2022 is expected

to be around 130,000 tonnes.

The major market for Havsbrún´s fish feed is the local Faroese market, primarily

Bakkafrost FO's internal use of fish feed, and the feed used in the Scottish

farming operation.

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 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

smolt 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 Bakkafrost will also invest in more

treatment vessel capacity to improve 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 above 23 million smolt at 500g, investments in a

broodstock facility and expansion of feed production capacity.

With the investment plan Bakkafrost expects to sustainably grow 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.

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 the financial flexibility going forward.

In December 2021, Bakkafrost entered into a term sheet for a 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

and the facility agreement is planned for signing by the end of February 2022.

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 2021 report and the Q4 2021 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 and Scotland. 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, which started operation in

Q2 2020. The headquarter is located in the Faroe Islands, and the Group has

sales and administration offices in Grimsby (UK), Edinburgh (Scotland) and in

New Jersey (US). The Bakkafrost Group has 1,644 employees (full-time

equivalents).

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