Annual Report (ESEF) • Mar 31, 2022
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Company Registration No. 1724 2021 ANNUAL REPORT 2021 2 Contents Chairman’s Statement 4 Statement by the Management and the Board of Directors 6 Outlook 10 Bakkafrost at a Glance 14 Key Figures 17 Main Events 18 STRATEGY 19 Business Objectives and Strategy 20 Business Model 22 Outline of Bakkafrost’s History 23 The Value Chain 24 PERFORMANCE 35 Operational Review 36 Financial Review 41 Farming Segment – Faroe Islands (FO) 44 Farming Segment – Scotland (STC) 46 VAP Segment 48 FOF Segment 50 Market Review 53 RISKS 66 Risks and Risk Management 67 GOVERNANCE 74 Corporate Governance 75 Corporate Responsibility and Sustainability 77 Shareholder Information 79 Directors and Management 80 Directors’Proles 81 GroupManagement’sProles 83 Statement by the Management and the Board of Directors on the Annual Report 84 Independent Auditor’s Report 85 CONTENTS 3 ANNUAL REPORT 2021 Contents FINANCIAL STATEMENTS AND NOTES – BAKKAFROST GROUP 90 Consolidated Income Statement 94 Consolidated Statement of Comprehensive Income 95 Consolidated Statement of Financial Position 96 Consolidated Cash Flow Statement 98 Consolidated Statement of Changes in Equity 99 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – BAKKAFROST GROUP 100 NOTES – SECTION 1 BASIS OF PREPARATION 101 NOTES – SECTION 2 RESULTS FOR THE YEAR 104 NOTES – SECTION 3 ASSETS AND LIABILITIES 115 NOTES – SECTION 4 CAPITAL STRUCTURE AND FINANCING ITEMS 140 NOTES – SECTION 5 OTHER DISCLOSURES 147 FINANCIAL STATEMENTS – P/F BAKKAFROST 155 P/F BAKKAFROST – Income Statement 157 P/F BAKKAFROST – Statement of Financial Position 158 P/F BAKKAFROST – Cash Flow Statement 160 P/F BAKKAFROST – Statement of Changes in Equity 161 P/F BAKKAFROST – NOTES TO THE FINANCIAL STATEMENTS 162 APPENDIX 170 Quarterly Financial Figures 2019-2021 170 Market Announcements Published in 2020 173 Financial Calendar for 2022 174 Glossary 175 CONTENTS 4 Chairman’s Statement PROVIDING HEALTHY AND SUSTAINABLY PRODUCED FOOD FOR THE WORLD’S GROWING POPULATION In September 2021, Bakkafrost held its bi-annual Capital Markets Day in the Faroe Islands, where the Group’s invest- ment plan for 2022-2026 and strategy was disclosed. The large smolt strategy is the main game changer for operation inScotland,reducingbiologicalrisk,improvingefciency,re- ducing cost, and providing an opportunity for further sustainable growth. Another strategic priority is the “One Company” pillar of the strategy, whereby the Faroese and Scottish operations gradually evolve into one, building on the strengths and best practices of both. Given our location in the North-Atlantic Ocean and the challenge of ensuring enough healthy and sustainably produced food for the world’s growing population, we see it as our obligation to increase our production of salmon. Salm- on is amongst the most sustainable and resource-efcient sources of healthy animal protein. Bakkafrost is uniquely located in one of the best natural environments for salmon farming, with excellent and sustainable access to marine raw materialforshfeedproduction.Withthedisclosedinvest- ment plan, Bakkafrost expects to grow harvest volumes to 150,000 tonnes head-on gutted weight in 2026 while simul- taneously building production capacity for 180,000 tonnes and preparing for further growth. In many ways, 2021 has been a turning point for Bakkafrost. Being the second year of market disruption caused by the Covid-19 pandemic, early signs of normalisation emerged duringthersthalfof2021.Overall,Bakkafrosthasman- aged well during the pandemic. Employee safety has been the top priority, and Bakkafrost has adapted the operation and kept everyone safe. The high level of productivity has also been maintained, and Bakkafrost has been able to nav- igate well through the rough seas of new and altered market conditions. During 2021 we have steadily unwound from the pandemic, and Bakkafrost’s operation has been less and less affected. There are two main risks in salmon farming: market risk and biology. Bakkafrost has been hard hit in Scotland on both risksduringthepasttwoyears.WhenBakkafrostacquired The Scottish Salmon Company in Q4 2019, it was fully known thatthiswasaturnaroundcase,requiringsignicantinvest- ments to be made and taking some years to transform the operation.Therstyearsduringthetransitionperiodwere expectedtobe difcult. However,beingsimultaneously hit bytheCovid-19marketdisruptionandsignicantbiological challenges in Scotland in the second half of the year was not foreseen. Many improvements have already been made in Bakkafrost’s operation in Scotland. This includes investments in hatchery capacity and marine farming operations. In addition, best practices have been shared across the Faroe Islands and Scotland to extract and implement the best of two worlds. WebelievethatwiththechangesalreadymadeinScotland, currently ongoing and planned for 2022, the operation in Scotland is out of the deep valley and will begin to see im- provement. Bakkafrost’s operation in the Faroe Islands is robust. Sig- nicant investments have been made in increased hatch- ery capacity to produce large smolt of around 500g. Also, production capacity is grown throughout the value chain to build a production capacity of 100,000 tonnes head-on guttedweight.Notallplannedinvestmentsarenalised,but progressasplanned.2021wastherstyearwherethein- creased production capacity, driven by larger smolt, were seen in Bakkafrost’s Faroese harvest volumes. This is only RÚNI M. HANSEN Chairman of the Board CHAIRMAN’S STATEMENT ANNUAL REPORT 2020 5 ANNUAL REPORT 2021 the beginning as the full effect of the large smolt strategy has not yet materialised, but this will gradually reveal itself in the coming years. Wehavecommittedourselvestoreduceourscope1&2car- bon emissions by 50% and our scope 3 carbon emissions by 52%in2030.Wehavealsocommittedourselvestonet-zero in 2050. Looking ahead at the salmon market, the winds have changed.Intherstquarter of 2022, salmon pricesareat a record high, and demand is strong from the retail and the foodservice market. The supply and demand balance outlook are supportive of strong salmon prices. Weare concernedabout the warin Ukraine and the tragic consequences for people across the region, and hope for a quick resolution. RETURN TO SHAREHOLDERS The Board of Directors will propose a dividend of DKK 5.14 per share at the Annual General Meeting convened on 29 April 2022. This corresponds to a total dividend of DKK 304 million. THANK YOU TO OUR EMPLOYEES On behalf of the Board of Directors, I express our apprecia- tion to all employees in the Bakkafrost Group for their com- mitment and hard work in 2021. CHAIRMAN’S STATEMENT 6 ANNUAL REPORT 2021 MARKET – NAVIGATING CHALLENGING WATERS The salmon market was highly volatile in 2021. Prices on the spot market varied signicantly during the year, and the demand in different market segments and geographies changed. At the beginning of the year, the market was still considerably hampered by the Covid-19 pandemic, which neg- atively affected the foodservice market. In Q1, salmon prices weremuch lower than in any rst quarter of the preceding veyears.Inweek2theFishPoolIndexwasaslowas43,58 NOK/kg. During Q2, the market conditions improved, and pric- es strengthened. In Q3 and Q4, prices were at the upper end of the normal price range for these quarters. In the second half of Q4,spotpricesincreasedsignicantly,peakingat74,78NOK/ kg in week 50. The global sales of salmon grew 9% in 2021, compared to 2020. All main markets grew, and of the larger markets, the US market grew impressively by 13% in volume. In most main markets, the retail segment has developed strongly with high demands from retailers. So far, this strong demand from the retail market has persisted. In 2021, we gradually increased our sales to the foodser- vice segment, as Covid-restrictions were eased, and demand picked up. From the Faroe Islands Bakkafrost sold 33% of the harvested volume to the retail market, compared to 47% in 2020. Bakkafrost has good capacity to produce retail products in the VAP segment and has a strategy of selling around 40% of the harvest volume to the retail market. However, the foodservice market is important to Bakkafrost as we usually achieve a higher price premium. Bakkafrost had revenues of 5,554 mDKK in 2021 and an oper- ational EBIT of 821 mDKK. This is an improvement from 2020, but not satisfactory. 2021 can be regarded as two very differ- enthalves.ThersthalfoftheyearwasthestrongestH1ever since 2018, and the second quarter was solid. H2, on the other hand,wasweakduetosignicantbiologicalchallengesinour Scottish operation. STRONG BIOLOGY IN THE FAROE ISLANDS – SCOTLAND WAS CHALLENGING BUT WITH A STRONG LONG-TERM OUTLOOK Bakkafrost harvested 96.9 thousand tonnes of salmon head- on gutted weight in 2021. 67.2 thousand tonnes hereof were harvestedintheFaroeIslands.Thisissignicantlymorethan previous years and marks the beginning of annual increasing harvest volumes in the Faroe Islands. This is a result of our large investments in the Faroese value chain and increased hatchery capacity for large smolt. Growing larger smolt comes with new challenges, and learnings have been done. But more importantly, we have gained a lot of knowledge of great value for implementing the large smolt strategy in our operation in Scotland. These learnings have also been imple- mented and tested in the Faroe Islands, and we have seen the positive effects already. The harvest in the Faroe Islands in 2021 was based on smolt transferred at 274g. The trans- ferred smolt weight in 2021 was however 382g, we there- fore will see a gradual reduction in the production cycle in nextcoupleofyears.Wehaveobservedimprovedbiological performanceoftheseshintheseawhichwebelieverelates to the larger and more robust smolt. In 2021, we continued to improve our feed conversion ratio, reaching an impressive bFCR of 1.055 vs 1.076 in 2020 for the full year in the Faroe Islands. The growth has all time high. However, we have had more issues with sea lice in the second half of the year. This was caused by a Covid-related delayinttingnewdelousingequipmentonboardM/SMar- tin, our main delousing service vessel. The delay hindered us from following our successful and preventive delousing strategy, which aims at ensuring low sea lice levels before the autumn. As a result, the elevated sea lice levels required more aggressive treatments, including treatment of large sh,whichincreasedthemortalityintheFaroeIslands. Statement by the Management and the Board of Directors STATEMENT BY THE MANAGEMENT AND THE BOARD OF DIRECTORS 7 ANNUAL REPORT 2021 In 2021, we also decided to synchronise two farming sites in the Faroe Island, A-72 Haraldsund and A-73 Viðareiði. This was done to reduce future biological risk. The consequence was a one-off reduction of the average harvest weight due to thesmallershharvestedfromA-72. In Scotland, we had severe mortality in Q3 and Q4, with a total of 262 mDKK in exceptional mortality costs. The un- derlyingissuewaslinkedtothereducedgillhealththesh develops due to the extended growth cycle in the marine en- vironment, up to 22 months, due to the small average smolt sizeonrelease.Theshareexposedtohazardsthatimpair their gills during this period. Late in Q3 and into Q4, there was a signicant bloom of hydrozoans and micro-jellysh, which deteriorated the gill health even more and led to very high mortality across several sites. In short, the micro-jelly- shbloomontopofreducedgillhealthwasadeadlycocktail. In the future, our freshwater treatment capacity will be ex- panded with two new freshwater treatment vessels. This summer, we will permanently have two freshwater vessels in Scotland and one vessel with freshwater treatment capacity intheFaroeIslands.Treatingtheshregularlywithfreshwa- terisanefcientwaytorinsethegillsoftheshandrestore theirgillhealth.Asaresult,theshbecomemorerobust. In the longer term, the growth cycle in the marine envi- ronment in Scotland will be halved down to 10-12 months, as we raise the average smolt size to 500g. Thiswill bea game-changerandreducethebiologicalrisksignicantly. Our investments in new modern hatcheries in Scotland are ongoing.Asignicantmilestonewillbereachedbytheend of 2022, when the fourth expansion phase of our Applec- rosshatcherywillbecompleted,signicantlyincreasingour smoltproductioncapacityandaverageweight.Wealsolook forward to commencing the construction of our next large hatchery in Scotland, which is expected to start in 2022. In 2021, we continued the implementation of a range of tech- nical and procedural improvements in the Scottish farming operation,includingarevisedfarmingstrategy.Webelievein asignicantimprovementintheoperationasthenewfarm- ing strategy reveals its strengths and as the investments in the value chain starts to have an impact. SIGNIFICANT FEED SYNERGIES One of the planned synergies with the acquisition of The Scottish Salmon Company relates to feed production and sale. During 2021, we gradually increased the supply of feed from Havsbrún to Scotland. From the beginning of 2022, all our seawater farming sites in Scotland are supplied with feed from Havsbrún. Consequently, external feed sales at Havs- brún were only 3% (16% in 2020) of the total feed sold and will reduce even more in the future, as the internal feed con- sumptionincreaseswiththegrowingharvestvolumes.With STATEMENT BY THE MANAGEMENT AND THE BOARD OF DIRECTORS 8 ANNUAL REPORT 2021 the increasing feed volume and changed feed consumption proleinducedbythefarmingoperationinScotland,Havs- brúncanutilisetheproductioncapacitymoreefciently. MASSIVE RESEARCH AND DEVELOPMENT ACTIVITIES Bakkafrost needs to improve its operation continuously. Therefore, we have extensive research and development ac- tivities deeply embedded in the entire value chain, through which innovative solutions emerge. 2021 has been another busy year regarding R&D. Some examples are outlined be- low. These examples are not exhaustive, and more details are found in our sustainability report. In 2021, we conducted feed trial projects to optimise feed recipes and the absorption of nutrients and minerals, im- provingshhealthandreducingthebenthicload.Wehave also researched biomarkers to be used in an early warning systemforshhealth. Inourfreshwaterdivision,wehaverenedarangeofparam- eters important for improving large smolt's robustness and biologicperformanceandmadesignicantimprovements. Wehavealsocontinuedourfundingofcollaborativeresearch projects to improve knowledge on biodiversity of benthic macrofauna in Faroese fjords and establish a baseline bio- logical diversity state undisturbed from anthropogenic im- pact. This even includes developing a classication system for benthic macrofauna analysis in Faroese fjords to assess aquaculture's potential environmental effects. Concerning biodiversity, we are engaged in a project to un- derstand better the interaction between salmon farming and the wild trout population. Environmental monitoring is also an area where we have R&Dprojects.Thisincludesmonitoringsolutionsforarange of environmental parameters (e.g. temperature, oxygen, al- gae, pH, salinity, hydrocarbons, sea currents – to mention a few). We have also developed an inspiring new Digital Manage- ment tool to simulate sea lice development, used for proac- tive sea lice treatment planning. Finally,ourbroodstockprogrammeisasignicantR&Dpro- jectinitsentirety.Wehavealreadymadeexcitingdiscoveries that will be important to reduce the risk for diseases like CMS. STATEMENT BY THE MANAGEMENT AND THE BOARD OF DIRECTORS 9 ANNUAL REPORT 2021 SUSTAINABILITY IS DEEPLY EMBEDDED IN OPERATION AND STRATEGY The world is facing enormous challenges with the overall environmental footprint, and the challenges will be even moresignicant as the world’spopulation grows. Overthe nextveyears,wewillincreaseourproductionsignicant- ly, reaching 150,000 tonnes head-on gutted weight in 2026. Hence, it is vital that we rmly address the sustainability challenges.Wehavesetseveralsustainabilitycommitments, includinghalvingourscope1,2&3carbonin2030.These targets are science-based and in line with the Paris Treaty. Bakkafrost has a long value chain, which gives us more au- tonomy to seek opportunities to reduce our environmental footprint. For example, we rely on air cargo to overseas markets. To reduce our carbon emission from air freight, we have decided to acquire our own cargo plane to set up direct transport to the US market. This enables us to shorten the own distance and omit the weight of ice. The result is a reduced carbon emission for the fresh salmon sold to the US by around 40-50%. PEOPLE In 2021, we had two main priorities regarding our employ- ees. Employee health and safety has been our main concern duringtheCovid-19pandemic.Wehavecontinuouslymon- itored and responded to the development of the pandemic and have managed to keep everyone safe. ONE COMPANY Theothermainpriorityisensuringthatwefullybenetfrom thecollectiveknowledgeandcompetenciesintheGroup.We have focused on collaboration and knowledge transfer, main- lybetweentheFaroeseandScottishorganisations.Wehave exchanged best practices and will continue to develop this and organisational simplicity via our strategic focus, named “One Company“. AMBITIOUS CAPEX PROGRAM ON TRACK In September 2021, we held our Capital Markets Day in the Faroe Islands, where we presented our strategy and ve- year 6.2 bnDKK investment program. The ambition is to transform the operation in Scotland, bringing it to a level more comparable with the operation in the Faroe Islands. It will also increase our total production capacity to 180,000 tonnes head-on gutted weight in 2026. The expected harvest volume will be 150,000 tonnes. Both in Scotland and the Faroe Islands, the large smolt strat- egy is the primary enabler to reduce the operational risk, increase efciency and drive growth. In the Faroe Islands, we have come a long way with the necessary investments in hatcheries. The ongoing expansion of the hatcheries at Gly- vradal and Norðtoftir progress well. In the Faroe Islands, our aim is to produce 23 million smolts at 500g in 2026. In Scotland, the Applecross hatchery is the rst large ex- pansion equipped with RAS technology, and in 2021 we re- leasedtherstsmolts fromthe facility producedafter the RASexpansion3.Wealsostartedthe4thexpansionphase, nalisinginlate2022.Thiswillbringtheproductioncapacity from Applecross to 8 million smolts at 250g and will have a signicantpositiveimpactonreducingthebiologicalriskin farming in Scotland. Expansion 5 and 6 has also been started and will be completed 2023 increasing the production capac- ity to 10 million smolts at 500g.. STRONG FINANCIAL POSITION In December 2021, Bakkafrost entered a term sheet for a sus- tainability-linked revolving multicurrency nancing agree- mentof700mEUR. Withthisagreement,wehaveensured the funding of our investment program for 2022–2026. The applicable interest margin depends on Bakkafrost’s per- formance against several sustainability KPIs. These include increasingthe survivabilityrate ofthe sh, decreasingthe biological feed conversion ratio and generating our own pro- duction of renewable energy. The Bakkafrost Group’s interest-bearing debt was DKK 2,126 million at the end of 2021, compared with DKK 1,753 million at year-end 2020. The Group had undrawn committed credit facilities of DKK 3,063 million at the end of 2021. TheBakkafrostGroupmadeaprotofDKK964millionfor 2021, compared with DKK 462 million for 2020. Bakkafrost’s equity ratio was 64% at the end of 2021, compared to 66% at the end of 2020. The management of Bakkafrost and our dedicated and talent- ed employees look forward to an exciting year ahead of us. STATEMENT BY THE MANAGEMENT AND THE BOARD OF DIRECTORS 10 ANNUAL REPORT 2021 Outlook MARKET Supply increase of 8.8% in 2021 The supply of salmon increased 8.8% in 2021, compared to 2020. All markets had good growth, except Japan and China where the growth was 1% and 3% respectively. 37% higher salmon prices in Q4 2021 Salmon prices were higher in 2021, compared to 2020. This was especially the case in H2 2021 and in Q4 2021 prices increased to levels around 37% higher than in Q4 2020 as the market conditions continued to improve. This positive devel- opment 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 H1 2021. Overall, the market supply of salmon in 2022 is ex- pected to increase around 1%, compared to 2021, including inventory movements. Bakkafrost has a strong focus on ensuring a well-balanced owtothedifferentmarketstoincreasediversicationand 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 treat- ments resulting in higher mortality. This summer (2022) a new 7,000m3 wellboat with freshwater production capability is deliveredtoBakkafrost.Thiswillbringasignicantupliftof the freshwater treatment capacity in the Faroe Island. Bakkafrostcontinuestoincreasetheaveragesmoltsize,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 late 2019 and in 2020 with an average smolt weight of around 274g. In comparison, the average weight of the smolt released in 2021 in the Far- oe 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 re- garding 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 hatcher- ies at Norðtoftir and Glyvradalur are currently being expand- ed. In addition, Bakkafrost plans to construct a new hatchery at Ónavík, enabling Bakkafrost to produce more than 23 mil- lion 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 of the mortality in Scot- land is compromised gill health in combination with second- arycomplications,suchasbloomsofmicro-jellysh/hydro- zoansandshhandlingduringnecessarytreatments.Latein 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 fresh- water 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 improvingoverallshhealthandsignicantlyreducingthe 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 oftheApplecrosshatcheryisexpectedtobenalisedbythe end of 2022. By then, the hatchery will have the capacity to produce around 8 million smolts at 250g. Further planned expansion and new hatcheries will increase the production capacity up to more than 18 million smolts 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 the released smolt in Scotland is expected to be around 120g. The real impact of our fresh- water 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 mil- lion smolts in 2019 and 12.6 million smolts in 2018. The smolt release in Scotland in 2022 is expected to be 10.8 mil- lion 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 the average weight of smolts released are key elements of pre- dicting Bakkafrost’s future production. Harvest volumes for 2022 in the Faroe Islands are expect- ed to reach 68,000 tonnes gutted weight and 35,000 tonnes gutted weight in Scotland, giving a total of 103,000 tonnes gutted weight. OUTLOOK 11 ANNUAL REPORT 2021 The estimates for harvest volumes and smolt releases in both geographies are dependent on biological development. VAP (VALUE ADDED PRODUCTS) Bakkafrost’shighly exiblevaluechain includesastate-of- the-art VAP factory with high capacity. This enables Bakka- frost 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. Thecontractsareatxedpriceswithadurationofbetween 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) Theoutlookforproductionofshmealandshoilisdepend- ent on the availability of raw material. The ICES 2022 recommendation for blue whiting is 753 thou- sand tonnes, which is a 19% reduction from the recommen- dation for 2021. Bakkafrostexpectstheproductionvolumesofshmealand shoilin2022tobeonsimilarlevelsasin2021. Havsbrún’s sales of sh feed in 2022 is expected to be around 130,000 tonnes. ThemajormarketforHavsbrún´sshfeedisthelocalFar- oese market, primarily BakkafrostFO’s internal use of sh feed, and the feed used in the Scottish farming operation. INVESTMENTS On the Capital Markets Day on 14-15 September 2021, Bakka frost 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 rep- li cate Bakkafrost’s successful operation in the Faroe Islands. Bakkafrostwill build 3 large energy-efcient hatcheries in 6.2bn DKK Investment programme 2022-2026 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2022 2023 2024 2025 2026 Marine Freshwater&Broodstock FOF Other Processing FSV Fig. 1 INVESTMENT PLAN (MDKK) OUTLOOK 12 ANNUAL REPORT 2021 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 Scot- land will transform the performance, lower the biological risk and increase harvest volumes. In addition to building hatch- ery 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 an- nual 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 sustaina- bly grow total annual harvest volumes to 150,000 tonnes in 2026. Over the same period, the total annual production ca- pacity in Bakkafrost’s value chain will reach 180,000 tonnes gutted weight. FINANCIAL The long-term market balance in the global market for salm- on products will most likely remain favourable for Bakka- frost.Bakkafrosthasalongvaluechainandacost-efcient production of high-quality salmon products and will likely maintainthenancialexibilitygoingforward. 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 of150mEUR.Thefacilityhasatenorofveyearsandthe facility agreement was signed in March 2022. In combina- tion with Bakkafrost’s high equity ratio, the facility gives the necessary nancial strength and exibility for the Group's investment plans aimed at signicant organic growth and structural cost reductions in Scotland. It will also enable M&A’sand further organic growth opportunities as well as support an unchanged dividend policy in the future. OUTLOOK 13 ANNUAL REPORT 2021 OUTLOOK FAROE ISLANDS SCOTLAND DENMARK ENGLAND UNITED STATES OF AMERICA LEGEND TO MAP SYMBOLS Headquarters, Administration & Sales Fishmeal, Fish oil & Fish feed Broodstock, Hatcheries & Farming Harvest & Processing Farming Service Vessels, Packaging & Biogas BIOGAS FISHMEAL FISH OIL FARMING FISH FEED HATCHERIES SALES PACKAGING FSV (FARMING SERVICE VESSELS) HARVESTING PROCESSING Administration & Sales Processing Administration & Sales Processing Sales BROODSTOCK Administration & Sales Broodstock, Hatcheries & Farming Harvest & Processing Farming Service Vessels BAKKAFROST Salmon, fishmeal, fish oil and fish feed producer Location: Faroe Islands Headquarters: Glyvrar, Eysturoy Production and business-to-business sale: salmon, fishmeal, fish oil and fish feed Longest integrated value chain in the industry Listed on: Oslo Stock Exchange with ticker code BAKKA 14 ANNUAL REPORT 2021 Bakkafrost at a Glance BAKKAFROST AT A GLANCE 15 ANNUAL REPORT 2021 Facilities and locations CONSTRUCTION/EXPANSION Faroe Islands Scotland FAROE ISLANDS SCOTLAND HARRIS AND LEWIS SOUTH UIST NORTH UIST GLYVRAR FUGLAFJØRÐUR KLAKSVÍK TÓRSHAVN VÁGUR LOCH CARRON APPLECROSS LOCH FYNE LOCH STRIVEN LOCH TORRIDON CAIRNDOW MARYBANK STORNOWAY (SMOKEHOUSE) LOCH ROAG SKYE MULL JURA ISLAY GIGHA ARRAN EDINBURGH FISHMEAL/OIL & FEED FACTORY HATCHERIES FARMING SITES BROODSTOCK HARVEST FACTORIES PROCESSING PLANT PACKAGING FACTORY HEADQUARTERS SALES OFFICES BIOGAS LEGEND TO MAP SYMBOLS I N N E R H E B R I D E S O U T E R H E B R I D E S BAKKAFROST AT A GLANCE 16 ANNUAL REPORT 2021 17 ANNUAL REPORT 2021 Key Figures (DKK 1,000) Income Statement 2021 2020 2019 2018 2017 Operating revenues 5,553,849 4,651,892 4,511,107 3,177,422 3,770,049 Operational EBIT * 821,194 621,158 1,325,100 1,074,912 1,377,647 Operational EBITDA * 1,351,628 1,067,923 1,635,215 1,273,810 1,561,237 Earnings before interest and taxes (EBIT) 1,144,685 691,123 1,019,217 1,184,233 649,104 Earnings before taxes (EBT) 1,137,662 625,984 981,916 1,172,066 623,884 Net earnings 964,036 462,845 801,885 960,292 511,402 Earnings per share before fair value adjustments of biomass and provision for onerous contracts (DKK) 10.28 6.20 19.04 16.44 21.08 Earnings per share after fair value adjustments of biomass and provision for onerous contracts (DKK) 16.32 7.83 15.53 19.74 10.52 Statement of Financial Position Total non-current assets 10,059,184 9,224,680 8,670,109 3,396,036 3,023,807 Total current assets 4,568,984 3,983,644 4,431,296 2,406,487 2,131,709 TOTAL ASSETS 14,628,168 13,208,324 13,101,405 5,802,523 5,155,516 Total equity 9,347,545 8,729,487 8,496,875 4,077,029 3,626,429 Total liabilities 5,280,623 4,478,837 4,604,530 1,725,494 1,529,087 TOTAL EQUITY AND LIABILITIES 14,628,168 13,208,324 13,101,405 5,802,523 5,155,516 Net interest-bearing debt 2,125,811 1,752,751 1,018,685 495,479 258,070 Equity share 64% 66% 65% 70% 70% Aligned for fair value adjustments of biomass, onerous contracts provision, income from associates, revenue tax and other non-operating related adjustments Fig. 2 KEY FIGURES 18 ANNUAL REPORT 2021 ANNUAL REPORT 2021 Main Events September • Bakkafrost announced a 6.2 billion DKK investment program for 2022-2026 on the Capital Market Day in the Faroe Islands • Farming supply vessel M/S Bakkanes commenced its operation in Scotland • Sudden bloom of hydrozoans and micro-jellysh in Scotland cause beginning mass-mortality • Synchronised harvest of farming sites A-72 Haraldsund and A-73 Viðareiði to reduce future biological risk October • Mortality rates in Scotland peak November • Energy Globe Foundation announce Bakkafrost- owned biogas plant FÖRKA as National Winner of Energy Globe Awards • Groundworks for Bakkafrost’s new broodstock facility at Skálavík is completed December • Bakkafrost enters into a committed term sheet for a sustainability-linked EUR 700 million multicurrency revolving credit facility with a tenor of ve years. • Prot warning released providing update on mortalities in October and November 2021 April • Bakkafrost purchases M/S Bakkanes for Scottish operations to develop farming operations in Scotland and strengthen biological performance July • Farming supply vessel M/S Martin resumes delousing operation in the Faroe Islands after being equipped with new delousing technology February • Bakkafrost signs contract with MEST shipyard to build fully electric workboat • Bakkafrost enters an agreement with MOWI on site exchange in Isle of Harris to create operational efciency as well as further improvement of health management of stock March • Launches its fourth sustainability report • Bakkafrost installs the longest sea cable in the Faroe Islands (5.6 km), providing a remote farming site with electrical power from land May • Bakkafrost Feed division, Havsbrún, is recognized with BAP certication (Best Aquaculture Practices), which covers the entire aquaculture supply chain. With the BAP certication, Havsbrún is an approved provider of feed to Bakkafrost Scotland, holding a 4-star BAP certication June • Bakkafrost signs contract with MEST shipyard to repurpose M/S Bakkanes to farming service vessel • Contract signed with Notec for expansion of the Glyvradal hatchery in the Faroe Islands January • Bakkafrost and 10 other businesses in the Faroe Islands join forces to work together on a three-year corporate sustainability initiative August • Bakkafrost and Notech partner on progressive RAS technology programme for Bakkafrost’s future hatcheries in Scotland MAIN EVENTS MAIN EVENTS STRATEGY 19 STRATEGY ANNUAL REPORT 2021 Main Events September • Bakkafrost announced a 6.2 billion DKK investment program for 2022-2026 on the Capital Market Day in the Faroe Islands • Farming supply vessel M/S Bakkanes commenced its operation in Scotland • Sudden bloom of hydrozoans and micro-jellysh in Scotland cause beginning mass-mortality • Synchronised harvest of farming sites A-72 Haraldsund and A-73 Viðareiði to reduce future biological risk October • Mortality rates in Scotland peak November • Energy Globe Foundation announce Bakkafrost- owned biogas plant FÖRKA as National Winner of Energy Globe Awards • Groundworks for Bakkafrost’s new broodstock facility at Skálavík is completed December • Bakkafrost enters into a committed term sheet for a sustainability-linked EUR 700 million multicurrency revolving credit facility with a tenor of ve years. • Prot warning released providing update on mortalities in October and November 2021 April • Bakkafrost purchases M/S Bakkanes for Scottish operations to develop farming operations in Scotland and strengthen biological performance July • Farming supply vessel M/S Martin resumes delousing operation in the Faroe Islands after being equipped with new delousing technology February • Bakkafrost signs contract with MEST shipyard to build fully electric workboat • Bakkafrost enters an agreement with MOWI on site exchange in Isle of Harris to create operational efciency as well as further improvement of health management of stock March • Launches its fourth sustainability report • Bakkafrost installs the longest sea cable in the Faroe Islands (5.6 km), providing a remote farming site with electrical power from land May • Bakkafrost Feed division, Havsbrún, is recognized with BAP certication (Best Aquaculture Practices), which covers the entire aquaculture supply chain. With the BAP certication, Havsbrún is an approved provider of feed to Bakkafrost Scotland, holding a 4-star BAP certication June • Bakkafrost signs contract with MEST shipyard to repurpose M/S Bakkanes to farming service vessel • Contract signed with Notec for expansion of the Glyvradal hatchery in the Faroe Islands January • Bakkafrost and 10 other businesses in the Faroe Islands join forces to work together on a three-year corporate sustainability initiative August • Bakkafrost and Notech partner on progressive RAS technology programme for Bakkafrost’s future hatcheries in Scotland MAIN EVENTS STRATEGY 20 ANNUAL REPORT 2021 Business Objectives and Strategy VISION To be a signicant contributor in fullling the world’s growing demand for healthy and sustainably produced protein MISSION To produce the best salmon in the world! VALUES To be responsible, respectful, persistent, efcient and ambitious Bakkafrost’svisionistobeasignicantcontributorinfulll- ing the world’s growing demand for healthy and sustainably produced protein. Our mission is to produce the best salmon in the world. Bakkafrost’s experience within the seafood industry dates back to 1968, and since then, our priority has been to run a healthy, attractive and competitive cost-conscious salmon farming group. Our strategy is focused on sustainable value creation. This extends beyond healthy nancial returns, to the strength, capability and reputation of the business, the quality of our workforce, and collective social and environmental wellbe- ing.Werecognizethatbyinvestinginthehealthofourbusi- ness, our people, our salmon, the environment and the com- munities in which we operate, we will be in a better position to achieve this. Today,ourvebusinessobjectivesare: • Growth Westriveforacontinuousmarketdrivengrowthofharvest volumes as well as of the value of our products, while build- ing strategic strongholds in selected markets. • One Company Wewillbeoneunitedcompanywhereouremployeesshare values,identityandcultureandoperateefciently“asone” according to best practices and within simple organisational and governance structures. • Differentiation We differentiate ourselves by increasing brand awareness, based upon the provenance, superior quality, taste and nutri- tionalproleofoursalmonwithfulltraceability. • SSC Turnaround We will transform the performance of our Scottish opera- tion through targeted investments and applied best practic- es, which will reduce biological risks, reduce costs, improve product quality, enable simpler processes and release syn- ergies. • Sustainability Weembedsustainabilitydeeplyinourdecision-makingpro- cesses and demonstrate our commitment to sustainability through our actions and achievements for which we aspire to be acknowledged as industry leading. See our sustainability report www.bakkafrost.com/sustainability for more informa- tion on our progress in 2021. BUSINESS OBJECTIVES AND STRATEGY STRATEGY 21 ANNUAL REPORT 2021 Our core values, which support our performance and guide ourbehaviour,reectourcommitmenttocreatinglong-term value for our customers, shareholders and the society by acting responsibly, showing respect, and being persistent, efcientandambitious. In 2021, we reviewed our corporate strategy and aligned our strategic objectives with our Healthy Living Plan, outlined in our sustainability report. BUSINESS OBJECTIVES AND STRATEGY STRATEGY 22 ANNUAL REPORT 2021 Business Model Bakkafrost is probably the most vertically integrated salmon farming company in the world, which gives Bakkafrost full control and responsibility over all aspects of production. This enables Bakkafrost to have optimal control over the quality of its salmon and the costs of production. Fig. 3 RESOURCES VALUES CREATED CORPORATE STRATEGY Satisedcustomers Shareholders returns Tax contributions Community investments Satisedemployees Shareholder Capital SkilledWorkforce Licences Natural Resources PristineWaters GeographicalDiversication Growth ambition One Company Best practice processes Embedded Sustainability FISHMEAL FISH OIL FISH FEED BROODSTOCK HATCHERIES BIOGAS FARMING FSV HARVESTING PROCESSING PACKAGING SALES/MARKETING Heritage Provenance Longest integrated value chain in the salmon industry Optimal farming conditions High levels of Omega 3 Healthy Omega 3-6 Ratio High quality Sustainableshmeal, shoilandshfeed Lower than average feed conversion ratio DIFFERENTIATORS BRANDINGENABLERSVALUE CHAIN BUSINESS MODEL STRATEGY 23 ANNUAL REPORT 2021 Outline of Bakkafrost’s History For more details on Bakkafrost’s history, please visit www.bakkafrost.com/about/history 1968 The Bakkafrost business is established by the two brothers HansandRólandJacobsen.Therstprocessingplantisbuilt the same year. The third brother, Martin Jakobsen, joins the company in 1971. 1979 Bakkafrost starts sh farming activities – one of the rst companies in the Faroe Islands to do so. 1995 Bakkafrost builds a factory for value adding salmon at Glyv rar. Although the investment is limited and the capacity is low, this is Bakkafrost’s starting point of value-added salmon production. 2006 The Bakkafrost Group grows through acquisitions and merg- ers with several farming companies. Bakkafrost’s farming op- erationincreasessignicantly,bothonlandandatsea. 2018 Bakkafrost starts the integration of the Faroese broodstock programme. Bakkafrost’s new hatchery at Strond starts oper- ation. Bakkafrost closes the acquisition of the business and assets in the US salmon importer North Landing. Bakkafrost updates the investment programme for 2018- 2022 focusing on growth to 100,000 tgw in the Faroe Is- lands. 2019 Bakkafrost acquird The Scottish Salmon Company PLC, an in- tegrated salmon farming business in Scotland with focus on traceability and total supply chain integrity. Bakkafrostissuednewsharesforthersttimesincelisting onOsloBørstonancetheacquisition. 2020 First biogas produced at the new biogas plant and sold the rstKWh’sofrenewableelectricity. Received ASC certication for the last farming site and is now100%ASCcertiedintheFaroeIslands. 2010 The shareholders of Bakkafrost and Vestlax agree to merge the companies. Vestlax Group’s shareholders agree to be remunerated in Bakkafrost shares. The Vestlax Group is a farming company with a harvest factory in Kollafjørður. The Bakkafrost Group is an integrated farming company, ranging fromsmoltproduction,shfarming,productionofpackaging materialstonishedVAPproductsandSales. Bakkafrost is listed on Oslo Børs and broadens its sharehold- er base. In addition to local Faroese investors, the company is now owned by international investors from all over Europe and the USA. 2011 Bakkafrost acquires P/F Havsbrún, a modern, internationally renownedproducerofshmeal,shoilandshfeed,situat- ed in the Faroe Islands. 2013 Bakkafrostannouncesitsve-yearinvestmentplantomake the onshore operation more efcient, to increase organic growth and to reduce the biological risk. 2016 Bakkafrost updates a new ve-year investment plan with the same goals as in 2013. Bakkafrost enhances the onshore operation and aims at producing 500 grams smolt by 2020. 2017 Bakkafrost’s new harvest/VAP factory and the headquarters inGlyvrararenished.Thepublicisinvitedtovisitthefacil- ities in September. FSVs Martin and Róland start operation. RESOURCES VALUES CREATED CORPORATE STRATEGY Satisedcustomers Shareholders returns Tax contributions Community investments Satisedemployees Shareholder Capital SkilledWorkforce Licences Natural Resources PristineWaters GeographicalDiversication Growth ambition One Company Best practice processes Embedded Sustainability FISHMEAL FISH OIL FISH FEED BROODSTOCK HATCHERIES BIOGAS FARMING FSV HARVESTING PROCESSING PACKAGING SALES/MARKETING Heritage Provenance Longest integrated value chain in the salmon industry Optimal farming conditions High levels of Omega 3 Healthy Omega 3-6 Ratio High quality Sustainableshmeal, shoilandshfeed Lower than average feed conversion ratio DIFFERENTIATORS BRANDINGENABLERSVALUE CHAIN OUTLINE OF BAKKAFROST’S HISTORY STRATEGY FISH FEED HATCHERIESFISH OILFISHMEAL BROODSTOCK BIOGAS SALES/LOGISTICS FSV HARVESTING PROCESSINGFARMING PACKAGING FAROE ISLANDS SCOTLAND 24 ANNUAL REPORT 2021 The Value Chain The Bakkafrost Group controls the entire value chain from own production of shmeal, sh oil and sh feed to sales andmarketingofnishedVAPproducts.Controloftheentire value chain is considered important to ensure availability, traceabilityandtobeabletocontroltheproductowdaily. Both customers and processing facilities depend on a daily availabilityofsalmonanddependentirelyonasteadyow ofharvestedsh. The quality of the salmon is the result of the whole opera- tion,fromproductionofshmealandshoiltotheprocess- ing of the salmon. The documentation and traceability from thenishedproductbacktotherawmaterialinthefeedand the salmon eggs is important for the customers and therefore important to Bakkafrost. The control of the entire value chain enables Bakkafrost to make long-term delivery contracts and long-term customer relationships without being dependent on any third party to ensure the quality and predictability of the deliveries. It furtherenablesbetterutilizationofthefacilitiesthroughout thevaluechainandpreventssub-optimizationbetweencost centres. Bakkafrost continues to improve, adjust, and extend the val- ue chain on an ongoing basis. In 2018, broodstock and biogas were added to the value chain. And in 2019, Bakkafrost ac- quiredTheScottishSalmonCompany,whichisagoodtand a considerable addition, to the following parts of our value chain; Broodstock, Hatcheries, Farming, FSV, Harvesting, Pro- cessing and Sales. In January 2022, Bakkafrost acquired Munkebo Seafood, a danish canned seafood producer supplementing Bakkafrost’s other consumer packaged products. The acquisition is an addition to the Processing part of the value chain. Fig. 4 THE VALUE CHAIN STRATEGY 25 ANNUAL REPORT 2021 FISHMEAL, FISH OIL AND FISH FEED Bakkafrostsourcesshmaterialstoproduceshmealand shoil.Thisismainlybasedonvariouspelagicspecies.In addition to whole sh, we also utilize co-productsof sh destinedfordirecthuman consumption,suchasshtrim- mings and sh silage. The demands for high-quality sh material combined with our processing technology enable us to manufacture top-quality shmeal, sh oil and sh feed. Fishmeal is rich in protein with a balanced amino acid prolewhichmakesitanidealingredientinshfeed.Fish oil is a great source of energy and contains the essential and health benecial long-chain omega-3 fatty acids. The sh material comesmainly fromFaroesevesselsand sh processing factories, as well as foreign vessels operating in the North Atlantic. Asproducersofourownhigh-qualityshfeedingredients, Havsbrún is uniquely positioned to select the very best shmealandshoilforourfeedproduction.Theshspe- cieswhichwetransformtoshmealandshoilconstitutes a part of the natural food sources which salmon feed on in the wild. Thus, the main ingredients in our dietary feed compositionprovidesafoundationforhealtyandefcient growth for our farmed salmon. Weexclusivelyusecarbonlteredshoilinourfeed. We are dedicated to maintaining a high marine prole in theshfeed,aimingatkeepingthesalmon’sdietasclose as possible to the natural diet of the wild salmon to create a nutritious and superior Bakkafrost product for end cus- tomers. It is important to us that the raw materials for our feed pro- ductionareresponsiblysourced.Westronglyprioritizeus- ingrawmaterialsthataresustainablycertiedinthefeed production for our salmon. • 450 tonnes of shmeal daily capacity • 300 tonnes of sh oil daily capacity • 700 tonnes of sh feed daily capacity FISH FEED HATCHERIESFISH OILFISHMEAL BROODSTOCK BIOGAS SALES/LOGISTICS FSV HARVESTING PROCESSINGFARMING PACKAGING Fig. 5 THE VALUE CHAIN STRATEGY 26 ANNUAL REPORT 2021 BROODSTOCK Native Faroese broodstock programme In April 2018, Bakkafrost took full ownership and respon- sibility of the Faroese broodstock programme. Bakkafrost obtained the genome rights in 2021. The broodstock programme is part of our strategy to max - imizebiosecurity,breedingandgenetics,andtohavethe longest integrated value chain in the industry. The programme will enable accelerated development of more resilient roe – reducing risks of disease in farmed salmon – but also protect the intellectual capital in the Far - oe Islands, which has been built up over the years with the programme. The investment into a new broodstock facility at Skálavík on the island of Sandoy, will provide the nec - essary conditions for the programme to be fully developed with a highly skilled team of employees. The breeding programme was resurrected in 2016 with support from the Government of the Faroe Islands, using the remaining Faroese salmon. 1.200 families were created, 300 families for each year in a 4-year generation interval. The selective breeding program uses targeted mating to concentrate the following important traits: growth, quality and disease resistance. Native Hebridean broodstock programme In Scotland, the Group operates a unique Native Hebride- an broodstock programme producing pure Scottish Island salmon, originally bred from wild stock and farmed only in Hebridean waters, which results in a strong, lean and noticeablyrmersalmonthanotherAtlanticsalmon. The broodstock programme is reared under an outsourced arrangement with a third party. The Native Hebridean broodstock programme has the capacity to produce 6 million eggs with the proposed in - vestment to increase to 10 million eggs per year. • New Native Faroese broodstock facility in Skálavík in 2023 • Native Hebridean broodstock annual capacity to produce 6 million eggs Fig. 6 FISH FEED HATCHERIESFISH OILFISHMEAL BROODSTOCK BIOGAS SALES/LOGISTICS FSV HARVESTING PROCESSINGFARMING PACKAGING THE VALUE CHAIN STRATEGY 27 ANNUAL REPORT 2021 HATCHERIES The vitality of the sh is essential. Therefore, the selection of the best genetic properties is vital. The sh’s resistance todiseasesisanimportantpropertyofthesh.Bakkafrost’s strategy is to buy high-quality eggs from selected exter- nal suppliers that invest signicant effortsand resourcesto improve product quality and performance. Bakkafrost aims at producing all smolts for release at an aver- age weight of 500 grams by 2022 in the Faroe Islands and by 2025-2026inScotland.Thebenetsareashorterproduction time at sea and reduced biological risk. Hatcheries in the Faroe Islands Bakkafrost operates six hatcheries in the Faroe Islands. 14.4 million smolts were transferred to the sea in 2021 at an av- erage weight of 382g. This will increase during 2022 to 14.9 million smolts at 500g per year. Bakkafrost’s hatcheries are in environments with large quan- tities of clean fresh water, where no villages or industries are competing for the water. This is important, as there is no ground water available in the Faroe Islands. The hatcher- ies are equipped with closed water circulation systems with biolters,andtheshtanksareinsidebuildingstolimitthe effect of external factors, such as weather, birds, and other pollution. Bakkafrost has highly educated and experienced staff at the hatcheries; some of whom have been at Bakka- frost for decades. In September 2021, Bakkafrost announced the plan to in- crease the capacity of the hatcheries to a total of 85,600m3. This will be achieved by increasing the capacity of our cur- rent hatchery sites in Norðtoftir to 5.3 million smolts, and Glyvradalur to 3.8 million smolts. Both hatcheries are to be- gin operation in 2024. In addition, the plan is to build a new hatchery at Ónavík in Suðuroy. This hatchery is expected to have an annual production capacity of around 2.4 million smolts and to begin operation in 2025. Hatcheries in Scotland In Scotland, the Bakkafrost Group operates ve freshwater hatcheries. 11.1 million smolts were transferred to the sea in 2021 at an average weight of 92g. This will increase during 2022 to 10.8 million smolts at around 120g. Bakkafrost intends to replace these with 3 large and mod- ern hatcheries with RAS technology over the next 3–5 years. Thesehatcherieswillbearoundthesamesizeasthehatchery atStrondin the FaroeIslands. The rstof these hatcheries will be the Applecross hatchery. Other suitable sites for the next 2 large hatcheries are currently being investigated. One will be in the northern part of Bakkafrost’s operations in Scot- land and one in the southern part. The annual capacity of our hatcheries in Scotland is circa 6 millionsmoltswithanaveragesizeofjustover85g. • The new hatchery at Strond in the Faroe Islands is now fully operational, 9 million smolts at 500 grams • Increased capacity in 2024 at Norðtoftir and Glyvradalur, 9.1 million smolts at 500 grams • Increased capacity in 2023 at Applecross, 10 million smolts at 500 grams Fig. 7 FISH FEED HATCHERIESFISH OILFISHMEAL BROODSTOCK BIOGAS SALES/LOGISTICS FSV HARVESTING PROCESSINGFARMING PACKAGING THE VALUE CHAIN STRATEGY 28 ANNUAL REPORT 2021 BIOGAS The new biogas plant uses waste products from our farms andothershanddairyfarmerstoproducerenewableen - ergy and fertilizer. The process works by breaking down the organic matter in the biomass into smaller molecules through anaerobic digestion. Upon completion of this pro - cess, the biomass is converted into biogas, namely carbon dioxide and methane (the latter which is used for renewable energyproduction),anddigestate(whichisusedasfertiliz - er). The plant has the capacity to convert up to 45-50,000 tonnes annually of all waste from farms, providing enough renew - able heat for 400 homes and electricity for 1,900 homes. This saves 11,000 tonnes of CO 2 emissions (based on the equivalent fossil fuel replacement) annually. As well as producing renewable energy, it can produce 45- 50,000tonnesofnaturalliquidfertilizerannually,whichis redistributed to farmers across the islands, free of charge. Thefertilizer’shigherabsorptionpotentialisexpectedtode - crease runoff into fjords. The renewable energy produced will feed into the nation - al grid, contributing to the Faroe Islands’ national target to have 100% electricity from renewable sources by 2030. The biogas plant has been in operation for more than a year, showing good results and reliability. Our ambitious investment strategy focuses on efcient growth to meet the growing demand for sustainably pro - duced protein. This includes advancing circular solutions such as this one, which reduce waste, reduce, and avoid CO2 emissions, and stimulate sustainability through other indus - tries. Fig. 8 • New biogas plant operational since the summer of 2020 • 1.8 % of Faroe Island’s total electricity production in 2021 came from our biogas plant, Förka • 35,000 tonnes of natural liquid fertilizer produced in 2021 FISH FEED HATCHERIESFISH OILFISHMEAL BROODSTOCK BIOGAS SALES/LOGISTICS FSV HARVESTING PROCESSINGFARMING PACKAGING THE VALUE CHAIN STRATEGY 29 ANNUAL REPORT 2021 FARMING The main goal of the farming operation is to produce salm- on at a low feed conversion rate and with low mortality. To reach this goal, Bakkafrost believes the environment is important and therefore does its utmost to create and main- taina healthy environmentfor thesh.Followingnational regulations, external agencies undertake environmental in- vestigations at each farming location each year. The result of each survey becomes input data used in the tactical planning to achieve the best environmental and sustainable farming results possible. Thesharefedseveraltimesaday,andthefeedconsump- tion is monitored continuously. Farming in the Faroe Islands Bakkafrost’s 19 salmon farming sites in operation in 2021 extendacross17oftheislands’fjordsandbenetfromex- cellent water quality and circulation due to strong currents and cool, steady sea temperatures. Thesharekept,fedandnurturedinlargeseapens,provid- ingtheshwithabundantspacetogrowfor14–16months. Duringthis period, the shgrowsfrom 371g(Q42021) to a target weight of about 5.8-6.0 kg wfe. This target weight providesanoptimal breakdown/mixofsizesto serveboth thefreshshmarketandtheinternalVAPproduction. Asarule,thelargersharedistributedasfreshsh,andthe smallershareusedasrawmaterialintheVAPproduction. Each generation is kept in a separate fjord during the entire production period. After all locations in a fjord have been harvested, the fjord is set aside for 2–4 months before a new generation is released. Farming in Scotland The Bakkafrost Group operates 44 marine sites in the unique naturalenvironmentoftheWestCoastofScotlandand the Hebridean Islands with 74,765 tonnes of current permitted licence volume. Thesharekept,fedandnurturedinlargeseapens,provid- ingtheshwithabundantspacetogrowforaround16-22 months.Duringthisperiod,theshgrowsfromaround105g (Q4 2021) up to an average target weight of about 5.5-5.7 kg wfe. After total harvest, the site is set aside for 2+ months before a new generation is released. • 19 farming sites in operation across 17 fjords in the Faroe Islands • 44 farming sites in operation across the West Coast of Scotland and the Hebridean Islands Fig. 9 FISH FEED HATCHERIESFISH OILFISHMEAL BROODSTOCK BIOGAS SALES/LOGISTICS FSV HARVESTING PROCESSINGFARMING PACKAGING THE VALUE CHAIN STRATEGY 30 ANNUAL REPORT 2021 FARMING SERVICE VESSELS (FSV) Bakkafrost is continually seeking to improve methods for de- lousing without using any chemicals and creating lowest pos- sible stress on the salmon. Bakkafrost uses a combination of owned and leased vessels. FSV in the Faroe Islands Bakkafrost´sFSVeetintheFaroeIslandsconsistofsixves- sels:Fourliveshcarriersandtwoservicevessels.Novessels in the Faroe Islands are leased. The live sh carrier eet again consists of two vessels for smolttransportandtwovesselsfortransportationofshto harvest. Ofthetwovesselsfortransportationofshtoharvest,one is a medium size live sh carrier (650m 3 /110 tonnes wfe) andoneisalargeliveshcarrier(3,000m 3 /450 tonnes wfe) equipped with the latest technology and both with closed sys- tems. In addition to transporting sh to harvest, the larger liveshcarrierisequippedfortreatmentoftheshinfresh water. The two service vessels are equipped with various non-med- ical systems for lice-treatment, systems for net-cleaning and are also equipped to do other operations. As part of the company’s strategy to produce larger quantities of sustainable farmed salmon, Bakkafrost has ordered a new wellboat.ThewellboatisbuiltattheSeneshipyardinTurkey and is expected to be completed in 2022. The new wellboat is 109 meters long and 22 meters wide. It has a capacity of 10.000 m 3 , where the four wells have a total capacity of 7.000 m 3 of seawater, and the freshwater tanks have a total capacity of 3.000 m 3 . The vessel can carry 1.000 tons of salmon. FSV in Scotland In Scotland the Bakkafrost Group operates a eet of seven, one farming service vessel leased from the operation in the Faroes, four wellboats and two large workboats all under long termcharteragreementsalongwithaeetofsmallervessels for site operations which are largely owned. Fig. 10 • 6 farming service vessels (including 4 live sh carriers), 53 boats and 23 feed barges in the Faroe Islands • 7 farming service vessels, including 3 live sh carriers, 2 large workboats and 2 treatment vessels in Scotland • New farming service vessel to support biosecurity strategy in 2022 biosecurity strategy in 2022 FISH FEED HATCHERIESFISH OILFISHMEAL BROODSTOCK BIOGAS SALES/LOGISTICS FSV HARVESTING PROCESSINGFARMING PACKAGING THE VALUE CHAIN STRATEGY 31 ANNUAL REPORT 2021 HARVESTING Harvesting in the Faroe Islands IntheFaroeIslands,allBakkafrost´sshisharvestedatthe harvest factories in Glyvrar and Vágur. The harvest factory in Glyvrar has a daily capacity of around 400 tonnes wfe and the harvest factory in Vágur has a daily capacity of around 120 tonnes wfe. Theshistransportedfromthefarmingsitestotheharvest factoryinliveshcarrierswithclosedseawatersystems. Harvesting in Scotland The Bakkafrost Group operates two harvest stations, Arnish Point in the North of Scotland and Ardyne in the South. The total daily capacity is 250 tonnes, 125 tonnes in each factory. Fish are transported from the farming sites to the harvest sitesinliveshcarriers. • Total daily harvesting capacity of 520 tonnes wfe in the Faroe Islands, and 250 tonnes in Scotland Fig. 11 FISH FEED HATCHERIESFISH OILFISHMEAL BROODSTOCK BIOGAS SALES/LOGISTICS FSV HARVESTING PROCESSINGFARMING PACKAGING THE VALUE CHAIN STRATEGY 32 ANNUAL REPORT 2021 Fig. 12 PROCESSING Processing in the Faroe Islands The 4,000m 2 VAP factory at Glyvrar has a production capac- ity of 100 tons of value-added products a day. The primary customers for these products are the supermarket chains and the foodservice segment. The VAP factory also has a daily capacity of 4 tons for smoked salmon. Another market segment important for the VAP products is industrialcustomersbuyingwholelletsforfurtherprocess- ing and by-products. This market has been developed during the last decade. The customers in this segment are mainly European or from the Far East. Processing in Scotland The Bakkafrost Group operates two processing plants, Marybank in the North of Scotland, Cairndow in the South, and a Smokehouse in Stornoway. Both processing plants are equipped with pre-rigour lleting, portioning, and packag- ing facilities. The daily production capacity is 28 tonnes of value-added products, and 1 tonne smoked of products. As part of the investment plan 2022–2026, Bakkafrost plans to build a new state-of-the art processing facility in Scotland. • 100 tonnes daily secondary processing capacity in the Faroe Islands • 28 tonnes daily secondary processing capacity in Scotland FISH FEED HATCHERIESFISH OILFISHMEAL BROODSTOCK BIOGAS SALES/LOGISTICS FSV HARVESTING PROCESSINGFARMING PACKAGING THE VALUE CHAIN STRATEGY 33 ANNUAL REPORT 2021 PACKAGING Bakkafrost has a packaging plant, which is located and integrated into the Glyvrar processing facility. The packag- ing plant produces polystyrene boxes for the fresh salmon, both for sea and air freight. The packaging factory at Glyvrar meets all Bakkafrost’s needs for polystyrene boxes and has the equipment to brand the boxes with logo etc. Fig. 13 • 70,000 tonnes of salmon equivalent, annual packaging capacity FISH FEED HATCHERIESFISH OILFISHMEAL BROODSTOCK BIOGAS SALES/LOGISTICS FSV HARVESTING PROCESSINGFARMING PACKAGING THE VALUE CHAIN STRATEGY 34 ANNUAL REPORT 2021 Fig. 14 SALES AND DISTRIBUTION The Group’s strategy is to balance the sales mix between dif- ferent geographical markets and different product segments. The most important markets are the European, US, and Chi- nesemarkets.Asarule,thewholeshfromtheFaroeIslands issoldonthespotmarket,whilethewholeshfromScotland is sold both on the spot market and on long-term contracts. The VAP products are only sold on long-term contracts. Bakkafrost believes that its capability to serve these geo- graphicalmarketswith thetwocategoriesofproductsef- cientlyreducescross-cycleuctuationsinbothrevenuesand protability. The strategy is to offer advantages to the larger supermarket chains by securing product availability and stable high qual- ity and preferred products. Distribution from the Faroe Islands The current distribution network from the Faroe Islands is based on transportation by ship to Europe and by plane to the US and China from the UK and/or Denmark. Bakkafrost candistributebothfreshandfrozenshtothevariousmar- kets. Withthe existingdistributionnetwork,Bakkafrostcanship products from the Faroe Islands to the UK within 20 hours by ship and to Denmark within 36 hours. From the UK and Den- mark, the products are distributed by plane to major airports in the US and China within 24 hours. Bakkafrost is in the process of acquiring a cargo plane, which will be used to transport fresh salmon directly from the Far- oe Islands to the US market. This will reduce carbon emission per kg by 40-50% for fresh salmon sold to the US market. Distribution from Scotland The distribution network from Scotland is based on trans- portation by Eurotunnel to Europe and by plane to North America, Asia and other export markets from the UK. • Markets served: WesternEurope(61%) North America (19%) Asia (11%) Eastern Europe (9%) Other (0%) FISH FEED HATCHERIESFISH OILFISHMEAL BROODSTOCK BIOGAS SALES/LOGISTICS FSV HARVESTING PROCESSINGFARMING PACKAGING THE VALUE CHAIN PERFORMANCE 35 PERFORMANCE PERFORMANCE 36 ANNUAL REPORT 2021 Operational Review FARMING Bakkafrost holds sea farming licenses in the north-east and south parts of the Faroe Islands and licenses in the north- west of Scotland. The licenses give the right to utilise a giv- enareaoffjordsforfarmingsh.Farmingauthoritiesfocus on veterinary and environmental key performing indicators. Yearly reports and plans, approved by the authorities, are requested to certify the operation. The Gulf Stream provides stable farming conditions in the Faroe Islands and excellent water quality throughout the year.Thewatertemperatureissteady,withauctuationof only 4-5 °C during the year. The lowest temperatures, ap- proximately 6 °C, are usually reached in February, and the highest temperatures of around 10.5 °C are reached in the late summer months. Scotland’s farming conditions are also good, but with higher biological risk due to slightly higher seawater temperatures between 7 °C and 14.5 °C. All farm sites in the Faroe Islands and Scotland are environ- mentally certied and yearly audited by agencies. Salmon farming in Scotland is one of the most transparent and highly regulated farming sectors in the UK. Our sites are regularly audited by various bodies, including Marine Scotland, Scot- tish Environmental Protection Agency (SEPA), Fish Health In- spectorate and Scottish Natural Heritage. Bakkafrost is com- mitted to operating transparently and sharing data on both a compulsory and voluntary basis through various channels, including the Scottish Salmon Producers’ Organisation (SSPO) and Marine Scotland. Production plans in the Faroe Islands are approved on a year- ly basis by both veterinary and environmental authorities. The biological situation and regulatory system in the Faroe Islands provide the opportunity to grow salmon with a high- er-than-average weight, which minimises unit costs, biologi- cal feed conversion rate and gives best in class performance. The ideal biological situation is crucial for maintaining low production costs and maximising returns on invested capital. COST-CONSCIOUS PRODUCER AND VETERINARY MODEL Our farming operation in the Faroe Islands has delivered strong results in production costs compared to peers. The objective of the Bakkafrost farming method in the Faroe Islands is to increase biological and veterinary security and to support a sustainable and healthy operation by total sep- aration of salmon generations, vaccination against different diseases (ISA among others), strict regulation of movement ofequipmentandshandotherregulations.Thismethodis criticaltoimproveshhealthandreducecosts. The farming in Scotland differs in biology and legislation from the farming in the Faroe Islands. Bakkafrost is adapting the farming methods in Scotland based on the best practices from the farming operation in the Faroe Islands combined withkeyinsightsintothespecicfarmingconditionsinScot- land. The process will take some time to complete. Also, sig- nicantinvestmentsacrossthevaluechainareneeded. The farming costs have increased in recent years, partly be- cause of increased feed and health costs but especially due to highercostsoflargesmolt.Followingthesignicantinvest- ments made in the Faroe Islands to enable Bakkafrost’s large smolt strategy, smolt costs have increased and transcended into increased total farming costs. Bakkafrost expects the to- tal farmingcosts to reduceas the benets fromthe larger smolts and the increased capacity utilisation will fully mate- rialise. In the Faroe Islands, farming sites have been moved further out the fjords to more exposed areas, where more expensive equipment is needed. The plan is also to do so in Scotland where possible. OPERATIONAL REVIEW PERFORMANCE 37 ANNUAL REPORT 2021 Salmon feed with high marine content, like the diet in the wild, is used in both the Faroes and Scotland; this results inrelativelyhighfeedcosts.However,benetsareevident inhigherproductionefciency;thisisalsoimpactedbythe high animal welfare standards, which positively impact non- feed cost elements. The health costs mainly relate to treatments against sea lice. Since 2015, Bakkafrost has mainly used non-medical treat- ments,includingfreshwater,lukewarmseawaterandushing with clean seawater with ambient temperature. These me- chanical treatments resulted in elevated mortality, but after a start-up phase and more experience and better knowledge of the equipment and the treatment methods, the mortality level has improved, but Bakkafrost is continuously improving these mechanical treatment methods. Inadditiontothis,Bakkafrostisusinglumpshandwrasse to reduce the number of sea lice in the Faroe Islands and Scotland. These initiatives aim to maintain a sustainable, cost-conscious farming operation. INVESTMENTS TO REDUCE BIOLOGICAL RISK, ENABLE ORGANIC GROWTH AND TURNAROUND SCOTTISH OPERATION Bakkafrost has invested DKK 5.0 billion since 2015 in all parts of its value chain. Bakkafrost has announced a DKK 6.2 billion investment plan for 2022-2026 for the Group. The goals for the investment plan are to reduce the biological risk, enable organic growth andturnaroundtheoperationinScotland.Withtheseinvest- ments, Bakkafrost will build production capacity of 180,000 tonnes head-on gutted weight and an actual harvest volume in 2026 of 150,000 tonnes. Also, the investment plan ena- bles turnaround of the operation in Scotland. A signicant part of the investment plan is dedicated to build hatchery capacity for large smolt in the Faroe Islands and Scotland. The operation in the Faroes is self-supplied with smolt and aims to have an average weight of 500g for all smolts re- leased into the sea. Expansions of the hatcheries at Glyvra- dal and Norðtoftir are in progress and a new hatchery at Ónavík will be constructed. Once completed, Bakkafrost will be able to produce more than 23 million smolts with an av- erage weight of 500g. TheaveragereleasesizeofsmoltintheFaroeIslandshasin- creased from around 120g in 2014 to around 382g in 2021. The investment plan 2022-2026 includes three large hatch- eries for Scotland, the rst being the Applecross hatchery. Once completed, these hatcheries will enable the production of more than 18 million smolts of 500g. Bakkafrost has invested in new equipment in the farming operation. Since 2015, Bakkafrost has acquired four ships, one live sh carrier and threeservice vessels.In addition, a new 7,000 m 3 liveshcarrierwascommissionedin2020 for delivery in 2022. In addition, Bakkafrost has a long-term lease for one large well-boat in Scotland and has secured one additional 5-year lease for a well-boat commencing in 2022. Signicantamountshavealsobeeninvestedinnewequip- ment at Bakkafrost’s farming sites, e.g., new feeding barges, catamarans and larger pens. Fig. 15 Fig. 16 Fig. 17 BIOLOGICAL FEED FACTOR FARMING AVERAGE HARVEST WEIGHT FARMING (KG LW) 2017 2018 2019 2020 2021 Mortality % of output 10% 20% 30% SCT post FO SCT pre Biological feed factor 1.20 1.15 1.10 1.05 1.00 1.25 SCT post FO SCT pre 2017 2018 2019 2020 2021 Biological feed factor 5.00 4.50 4.00 3.50 3.00 5.50 6.00 SCT post 2017 2018 2019 2020 2021 FO SCT pre MORTALITY % OF OUTPUT FARMING OPERATIONAL REVIEW PERFORMANCE 38 ANNUAL REPORT 2021 CERTIFICATES To ensure prime quality, Bakkafrost has implemented a se- ries of procedures and quality control systems, not only at our salmon farms and processing plants, but also for our sup- pliers. All stages of our Faroese production chain are Global G.A.P.compliant.OthercerticationsincludeASC,BAP,HAC- CP, IFS, GMP+, MSC, ISO9001:2008 and BRC. Bakkafrost is a member of the Global Salmon Initiative (GSI). GSI focuses on three pillars of sustainability: Reducing environmental impact, increasing social contribution, and maintaining eco- nomic growth. Bakkafrost was proud to reach its goal to have all of its farm- ingsitesintheFaroeIslandsASCcertiedby2020.TheASC standard was developed in cooperation with WWF and is seen as the most stringent standard in the aquaculture indus- trywithrequirementsregardingshwelfare,sealice,smolt production, feed production and the environment. Farming Scotland holds national and international accredi- tations and certications across the value chain, including GlobalG.A.P.FarmingScotland,wastherstsalmonproducer in the EU to be awarded 4-star Best Aquaculture Practice (BAP)certicationforallitsmarineandprocessingsites,as well as the feed suppliers. This is the highest designation in theBAPthird-partycerticationprogramme.Theprocessing facilities have been awarded the highest level of British Re- tail Consortium (BRC) Accreditation for food safety, process- ing, and supply chain management. GEOGRAPHICAL LOCATION Salmon farms in the Faroe Islands and Scotland are in areas with attractive qualities for salmon farming in terms of wa- ter quality, water temperature and circulation. The Faroese fjords provide separation between locations, which improves biological control and area management. Relatively short dis- tances between farming areas and processing facilities and well-developedinfrastructureoffercost-efcienttransporta- tionofbothfeedandshonlandandatsea. STRONG CUSTOMER BASE IN ALL MAJOR MARKETS By focusing on meeting existing customers’ demands, Bakkafrost benetsfromitslong-termrelationshipswithmanycustomers. Customer relationships have proven a competitive advantage through product development and marketing. Over the past many years, Bakkafrost has developed a differ- entiated market strategy. This has ensured Bakkafrost a good market position in the EU, Asia, US, and Eastern Europe. VAP Bakkafrost has long-term experience producing and selling value added products (VAP). Bakkafrost’s long-term strategy is that VAP products shall represent around 40% of the Far- oese harvested volumes. The sales of VAP products stabilise theGroup’searnings,asthe dealsarebasedonxed-price contracts. The contract prices are not as volatile as the spot market prices for fresh salmon. There is a time lag between the increase in the spot prices and a subsequent increase in the contract prices for VAP products. On the other hand, when the spot prices decrease, there is a time lag until the contract prices drop. In 2021 33% of the Faroese harvest volumes was used in the VAP segment. The demand from retail was strong driven by the disruption by Covid-19 pandemic. The VAP segment pro- duced 22,180 tonnes in 2021, compared to 23,594 tonnes in 2020. Higher spot prices in 2021 compared to 2020 had a negative effect on the margins in the VAP segment. PRODUCTION OF FISHMEAL, OIL AND FEED Havsbrún – FOF segment – performed very well in 2021, despite lower raw material sourcing and reduced external sale ofshmealandfeed.Havsbrúnreceived152,383tonnesof raw materials in 2021, compared to 283,307 tonnes in 2020. Theproductionofshmealandshoildependsonsourcing raw materials. The availability is highly related to the quotas forthepelagicsheryintheNorthAtlantic.Therawmaterial situation will be volatile in the future. However, quotas for shingbluewhitinghavedecreasedoverthelastyears. Besides sourcing wild-caught pelagic sh, Havsbrún also sourcedoffcuts from pelagic sh factories in the Faroe Is- lands. In recent years, processing plants for pelagic species have been built in the Faroe Islands, increasing access to off- cuts from this production. Havsbrúnsold16,376tonnesofshmealexternallyin2021, compared with 18,675 tonnes in 2020. Going forward, the externalsale ofshmealis likely toreduceasthe internal consumptionincreases.Externalsaleofshoilin2021was 41 tonnes, compared to 21 tonnes in 2020. Havsbrún sold 128,489 tonnes of feed in 2021, of which 97% was used internally. In 2020, Havsbrún sold 111,998 tonnes of feed. 0 100 200 300 400 0 5 10 15 2015 2016 2017 2018 2019 2020 2021 Average size gram Million smolt Smolt – FO Smolt – SCT Average size – FO Average size – SCT Fig. 18 OPERATIONAL REVIEW PERFORMANCE 39 ANNUAL REPORT 2021 Theworld’stotalshoilproductionhasbeenrelativelysta- bleformanydecades,whilethedemandforshoilhasin- creased.Therefore,shoilisexpectedtobeascarceresource inthefuture,but decreasingsh oil content inthesalmon feed, led by the major producers, will reduce some demand. Bakkafrost’sstrategyistohaveahighshoilcontentinthe feed, resulting in salmon with a high content of omega 3. PEOPLE Our most important resource is our employees. For Bakka- frost to remain a high-performing organisation and expand our leading market position, it is vital to attract and retain employees with the right competencies and knowledge. Therefore, we shall maintain and further strengthen the focus on HR, work satisfaction, and developing employees’ competencies. The foundations of our human resource development are the company culture and the fundamental values of Bakkaf- rost to be a reliable and responsible partner. Many excellent results have been achieved during the past years, and we strive continuously to nurture our company culture. One of our strategic priorities is to merge the acquired busi- ness in Scotland with Bakkafrost into “One Company”. Sever- al workstreams are set up to facilitate collaboration, knowl- edge sharing, and synthesis of best practices, drawing upon both organisations' strengths and unique insights. Over time, company culture and values will also merge, hence becoming truly “One Company”. Weaim to continuouslystrengthenour employees'compe- tencies on all levels in the Group by implementing relevant training schemes to meet current and future demands for a qualiedworkforce.SupportingBakkafrost’sstrategyandse- curing high standards in our business conduct and creating the best possible value for our customers is essential for all training efforts. Bakkafrost’s training is performed as work-related training, in-house and external courses, and other forms of training. It is an ongoing process to develop professional competen- cies further and develop leadership skills at all levels in the Group. Weengageandformpartnershipswithlocaleducationalin- stitutions and experts focusing on health, safety, business, and commerce education for work-related training, in-house and external courses, and other forms of training. During the Covid-19 pandemic in 2020 and 2021, it has been criticalforustokeepouremployeessafe.Wehavecontinu- ously monitored the development of the pandemic, adapted our operation accordingly and managed to keep our employ- ees safe. In 2021, the number of full-time equivalent employees in the Bakkafrost Group was 1,653 employees (FO: 973, SCT/UK: 622 US: 58), compared to 1,699 employees in 2020. For further information, see our Sustainability Report 2021. Extruded feed for smolt Size:3mm Size:4mm Size:6mm Size:9-12mm OPERATIONAL REVIEW PERFORMANCE 40 ANNUAL REPORT 2021 FINANCIAL REVIEW PERFORMANCE 41 ANNUAL REPORT 2021 Financial Review The supply of salmon to the world market increased by around 9% in 2021 (2020: 4% increase). The average salmon spot price in 2021 was DKK 42.69, compared to DKK 38.78 in 2020, an increase of 10%. The prices for value added products (VAP) have been stable in 2021 and on the same level as in 2020. Important for the result for the VAP segment are also the raw material prices, as the VAP segment purchases its raw material based on the salmon spot market every week. In 2021, the average price was higher compared to 2020. The margins of Bakkafrost’s value added production were negatively affected by higher production costs in 2021 because of lower volumes. The val- ue-addedproductsaretypicallysoldonxed-pricecontracts with a duration of 6–12 months, where the prices for value added products follow the trend on the spot market with a time lag. The average feed price during 2021 was higher than the averagefeedpricein2020.Thereasonfortheuctuations inthefeedpriceisthemarketsituationforshoilandsh- meal, which are the main ingredients in Bakkafrost’s salmon feed.Theuctuationsinthefeedpriceswillbereectedin the production costs for salmon. The Bakkafrost Group generated gross operating revenues of DKK 5,554 million in 2021, compared to DKK 4,652 million in 2020. The increase in revenue is mainly due to higher prices and higher volumes of fresh salmon in 2021. Harvest- ed volumes of salmon increased 13% in 2021, compared to 2020, mostly coming from higher harvested volumes in the Faroe Islands. The volumes sold as value added products de- creased 8% in 2021. The Group harvested a total of 96,889 tonnes gutted weight, compared to 85,687 tonnes in 2020. The external revenue from sales of shmeal decreased in 2021,comparedto2020.Theexternalsalesofshmealde- creased 15%. Income statement DKK 1,000 2021 2020 Operating revenue 5,553,849 4,651,892 Purchase of goods -1,692,501 -2,276,518 Change in inventory and biological assets (at cost) -178,060 401,679 Salary and personnel expenses -728,423 -690,452 Other operation expenses -1,632,114 -1,062,719 Depreciation -530,434 -446,765 Other income 28,877 44,041 Operational EBIT 821,194 621,158 Fair value adjustments of biological assets 434,868 118,003 Income from associates 30,112 5,546 Revenue tax -141,489 -53,584 EBIT 1,144,685 691,123 EBT 1,137,662 625,984 Taxes -173,626 -163,139 Prot or loss for the period 964,036 462,845 FINANCIAL REVIEW PERFORMANCE 42 ANNUAL REPORT 2021 Operational EBIT was DKK 821 million, compared to DKK 621 million in 2020. A positive fair value adjustment of the Group’sbiological assets has been recognized in 2021, amounting to DKK 435 million, compared to an adjustment of DKK 118 million in 2020. The positive fair value adjustment mostly relates to higher forward prices. No provisions are made for onerous contracts, as Bakkafrost hasnolong-termcontractstodeliverataxedpriceinthe future with a negative margin. In 2021, the Group’s associated companies made a net result to Bakkafrost of DKK 30 million, compared to DKK 6 million in 2020. Financial income in 2021 amounted to DKK 5 million, com- pared to DKK 1 million in 20120. Net interest expenses amounted to DKK -41 million, compared to DKK -36 million in 2020. Net currency effects amounted to DKK 39 million, compared to DKK -13 million in 2020. Other nancial ex- penses amounted to DKK -11 million, compared to DKK -17 million in 2020. Net taxes amounted to DKK -174 million, compared to DKK -163 million in 2020. TheconsolidatednetprottotalledDKK964millionin2021, compared to DKK 463 million in 2020. Earnings per share totalled DKK 16.32 in 2021, compared to DKK 7.83 in 2020. STATEMENT OF FINANCIAL POSITION The Group’s total assets as at end 2021 amounted to DKK 14,628 million, compared to DKK 13,208 million at the end of 2020. The Group’s intangible assets amounted to DKK 4,496 mil- lion at the end of 2021, compared to DKK 4,493 million at the end of 2020. Intangible assets comprise primarily of the acquisition of The Scottish Salmon Company Ltd, the fair value of acquired farming licences in Scotland and the Faroe Islands. Property, plant, and equipment amounted to DKK 4,889 mil- lion at the end of 2021, compared to DKK 4,221 million at the end of 2020. In 2021, Bakkafrost made investments in PP&EamountingtoDKK1,116million,comparedtoDKK836 millionin2020.Themostsignicantinvestments,Bakkafrost carried out in 2021, were in hatcheries and a new FSV. Other investments relate mainly to maintenance investments. Right of use assets amounted to DKK 302 million at the end of 2021, compared to DKK 353 at the end of 2020. Investments in associated companies and stocks and shares amounted to DKK 149 million at the end of 2021, compared toDKK 122millionat theendof 2020.The increasein - nancial assets relates to the result from the associated com- panies. Bakkafrost had DKK 8 million in long-term receivables at the end of 2021, compared to DKK 8 million at the end of 2020. Deferred tax assets amounted to DKK 215 million, compared to DKK 27 million at the end of 2020. The Group’s carrying amount (fair value) of biological assets amounted to DKK 2,448 million at the end of 2021, com- pared to DKK 2,117 million at the end of 2020. Included in the carrying amount of the biological assets is a fair value adjustment amounting to DKK 605 million, compared to DKK 145 million at the end of 2020. The Group’s total inventories amounted to DKK 709 million as at year-end 2021, compared to DKK 776 million at year- end 2020. The inventory primarily represents Havsbrún’s inventory of shmeal, sh oil and sh feed in addition to feed at the feed stations, nished VAP products, packing materials and other raw materials. The Group’s total receivables amounted to DKK 902 million as at year-end 2021, compared to DKK 624 million at year- end 2020. Cash and cash equivalents at year-end 2021 amounted to DKK 509 million, compared to DKK 467 million at year-end 2020. The Group’s equity at the end of 2021 was DKK 9,348 million, compared to DKK 8,729 million at the end of 2020. The increase in equity is primarily due to the increase of the positive result for 2021. FINANCIAL REVIEW PERFORMANCE 43 ANNUAL REPORT 2021 Cash ow Thetotalcashowfromoperationsin2021wasDKK1,125 million,comparedtoDKK474millionin2020.Thecashow from operations in 2021 is primarily due to positive results. Paid taxes and change in receivables had a negative effect on the cash owfromoperations in 2021. Cash ow from investment activities amounted to DKK -1,112 million, com- pared to DKK -816 million in 2020. For2021,cashowfromnancingamountedtoDKK30mil- lion, compared to DKK -500 million for 2020. The change in long-term interest-bearing debt of DKK 405 million had a positive effect on the cash ow from nancing in 2021. Other2021guresincludedividendpaidofDKK-216,lease payments ofDKK-117 and nancial expensesofDKK -56 million. With the established credit facilities, the Group’s liquidity and nancial strength is considered good. Bakkafrost had undrawn credit facilities of approximately DKK 3,063 million at the end of 2021. DKK 1,000 2021 2020 EBIT 1,144,685 691,123 Cashowfromoperations 1,124,554 473,970 Cashowfrominvestments -1,112,239 -816,128 Cashowfromnancing 29,903 -500,449 Cash and cash equivalents – opening balance 466,939 1,309,546 Cash and cash equivalents – closing balance total 509,157 466,939 DKK 1,000 2021 2020 Intangible assets 4,495,726 4,493,395 Property, plant and equipment 5,190,883 4,573,791 Financial assets 372,575 157,494 NON-CURRENT ASSETS 10,059,184 9,224,680 Inventory 3,157,596 2,893,056 Receivables 902,231 623,649 Cash and cash equivalents 509,157 466,939 CURRENT ASSETS 4,568,984 3,983,644 ASSETS 14,628,168 13,208,324 Equity 9,347,545 8,729,487 Deferred taxes 1,590,034 1,222,222 Long-term interest-bearing debt 2,634,968 2,219,690 Long-term leasing debt 245,753 265,235 Derivatives 3,207 1,480 Non-current liabilities 4,473,962 3,708,627 Derivatives 4,602 9,710 Trade payables 510,357 563,857 Current tax liabilities 170,997 37,422 Short-term leasing debt 87,668 131,336 Other current liabilities 33,037 27,885 Current liabilities 806,661 770,210 Total liabilities 5,280,623 4,478,837 EQUITY AND LIABILITIES 14,628,168 13,208,324 The Group’s total non-current liabilities amounted to DKK 4,474 million at the end of 2021, compared to DKK 3,709 million at the end of 2020. Deferred taxes amounted to DKK 1,590 million, compared to DKK 1,222 million at the end of 2020. Long-term debt was DKK 2,635 million at the end of 2021, compared to DKK 2,220 million at the end of 2020. Derivatives amounted to DKK 8 million at the end of 2021, compared to DKK 11 million at the end of 2020. At the end of 2021, the Group’s total current liabilities were DKK 807 million, compared to DKK 770 million at the end of 2020. Trade payable amounted to DKK 510 million, compared to DKK 564 million at the beginning of the year. Long- and short-term leasing debt amounted to DKK 333 million at the end of 2021, compared to DKK 397 million at the end of 2020. Bakkafrost’s equity ratio was 64% at the end of 2021, compared to 66% at the end of 2020. FINANCIAL REVIEW PERFORMANCE 44 ANNUAL REPORT 2021 Farming Segment – Faroe Islands (FO) The farming FO segment produces high-quality Atlanticsalmonfromroetoharvestsizesalmon. Thesalmonissoldtofreshshmarketsglobally and to the internal VAP production. The farming sites are in the Faroe Islands. VOLUMES The FO farming segment harvested 67,217 tonnes gutted weight in 2021, compared to 50,700 tonnes gutted weight in 2020. Farming North harvested 26,082 tonnes gutted weight in 2021, compared to 31,029 tonnes gutted weight in 2020.FarmingWestharvested32,253tonnesguttedweight in 2021, compared to 14,415 tonnes in 2020. Farming South harvested 8,883 tonnes gutted weight in 2021, compared to 5,256 tonnes in 2020. The FO farming segment released 14.4 million smolts into the sea in 2021. The smolt release in 2020 was 14.7 million smolts. FINANCIAL PERFORMANCE For 2021, costs of DKK 45 million were related to inci- dent-based mortality, compared to DKK 36 million for 2020. Total revenues for FO farming segment in 2021 amounted to DKK 3,477 million, compared to DKK 2,340 million in 2020, a change of 49%. Gross external operating revenues for FO farming segment increased to DKK 2,665 million in 2021, from DKK 1,549 million in 2020. The volumes sold externally increased in 2021, compared to 2020. The internal revenue increased in 2021 from DKK 792 million in 2020 to DKK 811 million in 2021. The volumes sold to the VAP segment were lower in 2021 than in 2020. In 2021, operational EBIT totalled DKK 904 million, com- pared to DKK 448 million in 2020. This corresponds to an operational EBIT of DKK 13,45 (NOK 18.37) per kg gutted weight, compared to DKK 8,83 (NOK 12.69) per kg gutted weight in 2020. DKK 1,000 2021 2020 Change Total revenue 3,476,725 2,340,261 49% EBIT 1,302,738 180,689 621% Operational EBIT 903,820 447,829 102% Farming – Operational EBIT/kg (DKK) 13,45 8.83 52% Harvested volume (tgw) 67,217 50,700 33% Smolts released (thousand) 14,427 14,693 -2% FARMING SEGMENT - FAROE ISLANDS (FO) PERFORMANCE 45 ANNUAL REPORT 2021 Fig. 22 Fig. 19 Fig. 21Fig. 20 Fig. 23 SMOLT RELEASE – MILLION SMOLTS TOTAL REVENUE (DKK 1,000) HARVESTED VOLUME (TGW)OPERTIONAL EBIT/KG (DKK) HARVEST VOLUMES (TGW) Total revenue (DKK 1,000) 1,000,000 500,000 1,500,000 2017 2018 2019 2020 2021 Farming Segment - FO - Harvest Volume 9.9 12.5 12.7 14.4 2017 2018 2019 2020 2021 14.7 Farming Segment - FO - Harvest Volume 54,600 44,600 57,200 67,200 2017 2018 2019 2020 2021 50,700 Operationel EBIT/kg (DKK) 35.00 30.00 25.00 20.00 15.00 10.00 5.00 2017 2018 2019 2020 2021 Harvested volume TGW 25,000 20,000 15,000 10,000 5,000 2017 2018 2019 2020 2021 FARMING SEGMENT - FAROE ISLANDS (FO) PERFORMANCE 46 ANNUAL REPORT 2021 Farming Segment – Scotland (SCT) The Scottish farming segment represents the operating business of The Scottish Salmon Com- pany which was consolidated from 8 October 2019, when Bakkafrost gained control. The Scot- tish Salmon Company is committed to producing thenestqualityScottishSalmon withScottish Provenance and full traceability. The Scottish farmingsegmenthassitesacrosstheWestCoast of Scotland and Hebridean Islands and is export- ing globally. VOLUMES The SCT farming segment harvested 29.672 tonnes gutted weight in 2021, compared to 34,986 tonnes gutted weight for the full year 2020. 11,1 million smolts were transferred in 2021, compared to 10,4 million smolts for 2020. FINANCIAL PERFORMANCE For 2021, costs of DKK 262 million relate to incident-based mortality, compared to DKK 90 million for 2020. In 2021, the operating revenue for the SCT farming segment was DKK 1,455 million, compared to DKK 1,596 million in 2020. Operational EBIT amounted to DKK -249 million, compared to DKK -24 million in 2020. This corresponds to an opera- tional EBIT of DKK -8.41 (NOK -11,49) per kg gutted weight, compared to DKK -0,69 (NOK -0,99) per kg gutted weight in 2020. DKK 1,000 2021 2020 Change Total revenue 1,455,391 1,595,561 -9% EBIT -353,669 308,265 -215% Operational EBIT -249,497 -24,013 -939% Farming – Operational EBIT/kg (DKK) -8.41 -0,69 -1125% Harvested volumes (tgw) 29,672 34,986 -15% Smolts released (thousand) 11,108 10,354 7% FARMING SEGMENT - SCOTLAND (SCT) PERFORMANCE 47 ANNUAL REPORT 2021 Fig. 24 TOTAL REVENUE (DKK 1,000) Fig. 26 HARVEST VOLUME (TGW) Fig. 25 OPERATIONAL EBIT/KG (DKK) Farming Segment - SCT - Total Revenue 200.000 400.000 600.000 2019 2020 2021 Farming Segment - SCT - Operationel EBIT -45.00 -35.00 -40.00 -25,00 -30,00 -20,00 -15,00 -10,00 -5,00 0,00 5,00 10,00 2019 2020 2021 Farming Segment - SCT - Harvest Volume 2.000 4.000 6.000 8.000 10.000 12.000 2019 2020 2021 Fig. 27 Fig. 28 SMOLT RELEASE – MILLION SMOLTS HARVEST VOLUMES (TGW) Farming Segment - SCT - Smolt Release 5.7 10.4 11.1 2019 2020 2021 Farming Segment - SCT - Harvest Volume 7,900 29,700 2019 2020 2021 35,000 FARMING SEGMENT - SCOTLAND (SCT) PERFORMANCE 48 ANNUAL REPORT 2021 VAP Segment The VAP (value added products) segment produc- es skinless and boneless portions of salmon in the Faroe Islands. The main market for the VAP products is Europe with increasing sales in other markets. The VAP products are sold on long-term xed-pricecontracts. VOLUMES Bakkafrost has a long-term strategy of producing 40% of its harvested salmon as value added products. The output is predominantly portions for the retail market in Europe, but some sales are also to the US retail market. The strate- gy with value added products is – in addition to increasing the Group’s earnings – to reduce the volatility in Bakkafrost Group’s net earnings, as these products are sold under differ- entxed-pricecontractsforaperiodofupto12months.As there is a time lag between the movement in fresh salmon prices and the contract prices, Bakkafrost normally makes a protintheVAPsegment,whenthespotpricesaredecreas- ing and vice versa, when the spot prices increase during a period. In 2021, 33% of the total harvested volumes went to the pro- duction of VAP products, compared to 47% in 2020. The VAP production in 2021 was 21,974 tonnes gutted weight, compared to 23,931 tonnes gutted weight in 2020. DKK 1,000 2021 2020 Change Total revenue 1,195,195 1,116,216 7% EBIT 119,521 139,693 -14% Operational EBIT 119,521 139,693 -14% VAP – Operational EBIT/kg (DKK) 5.39 5,92 -9% VAP produced volume (tgw) 21,974 23,931 -8% FINANCIAL PERFORMANCE The contract prices in 2021 have not increased at the same rate as the spot prices, but the contract prices were on a higher level than in 2020. The VAP segment’s operating revenue amounted to DKK 1,195 million in 2021, compared to DKK 1,116 million in 2020, an increase of 7%. Operational EBIT in 2021, which is EBIT adjusted for pro- vision for onerous contracts etc., totalled DKK 120 million, compared to DKK 140 million in 2020. This corresponds to an operational EBIT of DKK 5.39 (NOK 7,36) per kg gutted weight, compared to DKK 5,92 (NOK 8,51) per kg gutted weight in 2020. The VAP segment had no onerous contracts neither at the end of 2021 nor 2020. VAP SEGMENT PERFORMANCE 49 ANNUAL REPORT 2021 Fig. 32 Fig. 33 PRODUCT WEIGHT OF VAP (TGW) DISTRIBUTION OF HARVESTED VOLUMES (%) Fig. 29 TOTAL REVENUE (DKK 1,000) Fig.31 VAP VOLUME (TGW) Fig. 30 OPERATIONAL EBIT/KG (DKK) VAP Segment - Total Revenue 100,000 200,000 300,000 400,000 2017 2018 2019 2020 2021 2017 201 8 2019 2020 2021 VAP Segment - Operationel EBIT -15.00 -10.00 -5.00 5.00 10.00 15.00 2017 2018 2019 2020 2021 VAP Segment - VAP Volumes 1,000 3,000 2,000 5,000 6,000 4,000 7,000 VAP - Product weight 19,100 8,400 16,700 23,900 22,000 2017 2018 2019 2020 2021 VAP Segment- Distribution of harvest volumes 0% 25% 50% 75% 100% 2017 2018 2019 2020 2021 Harvested volumes used in Vap production Harvested volumes sold fresh/frozen VAP SEGMENT PERFORMANCE 50 ANNUAL REPORT 2021 FOF Segment The FOF (shmeal, -oil and feed) segment pro- ducesshmeal,shoilandshfeed.Mostofthe productionis used for sh feed, which is used internally in the farming segment. The quality of thesh feedis important tothe quality of the salmon from Bakkafrost. Fishmeal, sh oil and shfeedarealsosoldexternally. VOLUMES The FOF segment, has over the last couple of years had a declineinrawmaterialintakeforshmealandshoilpro- duction.Theproducedshmealandoilwerepartlyusedin- ternally for feed production, and partly exported. In 2021, the FOF segment sourced 152,383 tonnes of raw material, compared to 283,307 tonnes in 2020, which corresponds to a decrease of 46%. The raw material intake depends on off- cutsfromthepelagicindustryaswellassheryintheNorth Atlanticandavailablespeciesofsh. Theproductionofshmealin2021was34,962tonnes,com- paredto60,661tonnesin2020.Theproductionofshoilin 2021 was 8,124 tonnes, compared to 9,932 tonnes in 2020. Theproductionofshoilvaries,dependingonthespeciesof shavailableforproductionandthetimingofcatches. The FOF segment sold 128,489 tonnes of feed in 2021, com- pared to 111,998 tonnes in 2020. Bakkafrost used 124,259 tonnes of sold feed in 2021 internally, corresponding to 97%. The internal use in 2020 was 94,345 tonnes, corresponding to 84%. DKK 1,000 2021 2020 Change Total revenue 1,659,351 1,418,970 17% EBIT 305,988 181,610 68% EBITDA 306,227 207,695 47% FOF – EBITDA margin 18.5% 14.6% 26% Sold feed tonnes 128,489 111,998 15% FINANCIAL PERFORMANCE Total revenues for the FOF segment in 2021 amounted to DKK 1,659 million, compared to DKK 1,419 million in 2020, an increase of 17%. The external operating revenue for the FOF segment amount- ed to DKK 238 million in 2021, compared to DKK 391 mil- lion in 2020. The decrease in external revenue from 2020 to 2021wasmainlyduetolowerexternalsaleofshfeedand shmeal. The internal revenue in 2021 amounted to DKK 1,421 mil- lion, compared to DKK 1,027 million in 2020. The internal revenue comprises the sales of feed to Bakkafrost’s farming activities, both in Scotland and the Faroe Islands EBITDA was DKK 306 million in 2021, compared to DKK 208 million in 2020, and the EBITDA margin was 18.5% in 2021, compared to 14.6% in 2020. FOF SEGMENT PERFORMANCE 51 ANNUAL REPORT 2021 FISH FEED PRODUCTION VOLUMES (TONNES) SOURCING OF RAW MATERIAL (TONNES) Fig. 34 TOTAL EBITDA (DKK 1,000) Fig. 35 SOLD FEED TONNES Fig. 36 EBITDA MARGIN (%) Fig. 37 Fig. 38 2017 2018 2019 2020 2021 FOF Segment - Total EBITDA 20,000 40,000 60,000 80,000 100,000 120,000 2017 2018 2019 2020 2021 FOF Segment - Total Feed Sold TGW 10,000 50,000 20,000 30,000 40,000 2017 2018 2019 2020 2021 FOF Segment - EBITDA Margin 10% 20% 15% 5% 30% 25% 35% FOF Segment - Fish feed production volumes 78,200 80,100 99,200 113,700 128,090 2017 2018 2019 2020 2021 FOF Segment - Sourcing of raw material 342,456 302,465 278,665 283,307 152,383 2017 2018 2019 2020 2021 FOF SEGMENT PERFORMANCE 52 ANNUAL REPORT 2021 MARKET REVIEW PERFORMANCE 53 ANNUAL REPORT 2021 Market Review Bakkafrost is committed to producing; tasty, healthy, sustain- able, and quality salmon, truly creating value for customers. This ensures a price premium can be achieved which in turn reectspositivelyintheGroup’sresults. The Bakkafrost Group plans to further strengthen this posi- tion by investing in differentiation and the following USPs (unique selling points). ORIGIN The natural conditions and cold waters in the North Atlantic around the Faroe Islands as well in Scotland are perfect for raising salmon. Bakkafrost will further promote this unique provenance as producing exceptional quality salmon. LIMITED VOLUMES Both salmon from The Faroe Islands and Scotland is recog- nizedgloballyastopquality,butas theFaroeIslands only produce about 3.0% and Scotland 6.7% of the world’s salmon, the salmon from these two origins is in high demand. Bakka- frost salmon is sought after around the world with accepted premium positioning and is preferred by select customers. LARGE SALMON TheFaroeIslandsaquacultureindustryisrecognizedaspro- ducing the largest Atlantic salmon in the world. In recent years, a signicant price difference has been evident be- tweenthe differentsizesofsalmon.Due to lackofsupply, salmon over 6 kg achieved a considerable price premium. Withgoodsupplyoflargersizes,Bakkafrostwaswellplaced tocapitalizeonthisposition.Farminglargesalmonrequires good biology. The longer the salmon is at sea, the more it is exposed to different risks as in any natural environment. SALES AND GEOGRAPHICAL DIVERSIFICATION The Sales and Marketing Department at Bakkafrost is respon- sible for the worldwide sales of Bakkafrost Salmon, wheth- er it is farmed in the Faroe Islands or Scotland. The Group focusses on direct sales into channels, where the quality attributes of Bakkafrost Salmon are recognised, and a price premium is achieved. The strategy continues to ensure geo- graphicalsalesdiversicationtherebyminimizingtheriskof marketuctuations. WORLDWIDE REACH Bakkafrost uses ship transport and trucking whenever pos- sible,such asforallfrozenproductsand freshproductsto nearby markets. Fresh salmon delivered to long-distance markets such as US and Asia are transported by air. Fast reliable logistics with global reach is vital for the dis- tribution of fresh perishable produce which is sought after around the world. To maintain the leading position, Bakka- frost works closely with key freight forwarders to ensure ef- fectivelogisticsandrst-classcustomerserviceworldwide. This ensures that Bakkafrost´s salmon is always delivered as fresh as possible by freight carriers to major airports and then linking with further passenger airlines to diverse world- wide locations. Bakkafrost expects to have it’s own airplane in operation in 2022, primarily serving the US market. This will strengthen Bakkafrost’s position as a supplier of superior quality fresh salmon. SEGMENTATION The Bakkafrost brand is particularly strong in USA, where demand for salmon over 6 kg is strong, predominantly in the sushi segment. The market share in China is also strong. ThestrongsustainabilityproleofBakkafrostSalmonispar- ticularly important to clients in the premium sushi segment. Bakkafrost does not use any antibiotics and uses only non- GMO ingredients in feed. MARKET REVIEW PERFORMANCE 54 ANNUAL REPORT 2021 Faroe Islands VAP Bakkafrost holds a leading position in frozen salmon por- tions, the main markets are leading European and US retail- ers. Bakkafrost adds value to VAP production by producing the highest quality productand is recognized as a reliable and responsible supplier. ThediversicationoftheBakkafrostproductmixbringsad- ditionalbenetsfortheGroup;itensuresincreasedrevenue stability with 6- and 12-months contracts being negotiated andoffersanoutletforwholefreshshinadversemarket conditions. Fig. 39 FEED Feedisrecognizedasoneofthemostimportantaspectsin salmon production regarding the quality of salmon and cost. VERTICAL INTEGRATION Bakkafrost is one of the most vertically integrated salmon farming companies in the world and uniquely produces its ownshmealandshoil.ThisensuresthatBakkafrosthas full control and responsibility over all aspects of production and gives clients unparalleled traceability. FEED RICH IN MARINE CONTENT Bakkafrost has an integrated value chain that includes own productionofshmeal,oilandfeed.Withitsrichaccessto marine raw material from the waters surrounding the Faroe Islands, Bakkafrost is uniquely positioned to maintain a sub- stantially higher marine inclusion in the salmon feed, com- pared to peers in the industry. The natural diet for wild salm- on is rich in marine resources. By keeping the Bakkafrost diet close to this, the Bakkafrost Group is able to have one of the industry’s best Feed Conversion Ratios (FCR) which is a keyindicatorofshwelfareandlowproductioncosts. A diet rich in marine content is also the most important fac- tor for the quality of Bakkafrost Salmon, as the marine con- tent ensures the optimum fat content, rich in healthy Omega 3 fatty acids DHA and EPA. The natural diet also ensures enjoyment in the exceptional taste of Bakkafrost Salmon. ASC Bakkafrost is committed to sustainability and care for the environment in which it operates, this is fundamental for dis- cerning customers. 100% of Bakkafrost’s sites in the Faroe IslandsareASCcertied. MARKET REVIEW PERFORMANCE 55 ANNUAL REPORT 2021 WORLD SEAFOOD PRODUCTION FOR HUMAN CONSUMPTION AND CONSUMPTION PER CAPITA Source: Kontali, FAO Fig. 40 - 2 4 6 8 10 12 14 16 18 20 - 20 40 60 80 100 120 140 160 180 200 2012 2013 2014 2015 2016 2017 2018 2019 2020E 2021E kilo/Capita million tonnes World seafood for human consumption World fishery and aquaculture production Per capita consumption SEAFOOD CONSUMPTION In 2019, capturesheries and aquaculture wereestimated to be about 178 million tonnes, of which roughly 158 mil- liontonneswereutilizedasfood.Thiscorrespondstoaper capita consumption of seafood just above 20 kg (live weight equivalent),withshaccountingforabout18percentofthe global population's intake of animal proteins and 7 percent of all proteins consumed. Overall, global capture sheries production continues to remain stable above 90 million tonnes, of which about 20 millionisutilizedintheproductionofshmealandshoil. The share of non-food uses has remained at a steady level overthelastcoupleofyears.Ascapturesheriesproduction remains stable, aquaculture production continues to cover the increasing demand for seafood. Salmon and trout became the most important commodity traded in value terms since 2013 and accounted for about 18 percentof the totalvalue ofinternationallytraded sh products in 2019. The other main groups of exported species were shrimps and prawns with around 16 percent, followed by groundsh (10 percent, e.g., hake,cod,haddock, Alaska pollock) and tuna (9 percent). MARKET REVIEW PERFORMANCE 56 ANNUAL REPORT 2021 MAIN MARKETS FOR SALMON AND CONSUMPTION TRENDS In 2021, worldwide supply of farmed Atlantic salmon ex- ceeded 2,85 million tonnes wfe. This corresponds to an in- crease of 9 % or 230,000 tonnes wfe, which is the highest growth rate year over year since 2012. Of this increase, sup- ply to Europe grew by 8% (+95,000 tonnes wfe) and the USA by 13% (+73,000 tonnes wfe) – accounted for more than 70% of the global supply growth. The spread of COVID-19 worldwide in 2020 led to restric- tions on travel and lockdowns which impacted the demand from the foodservice industry – in addition to limitations in global supply chains / logistics. As a result, the global salm- on market became much more concentrated with increased dependency on sales through the retail-sector and impacted both the market balance and price achievement for Atlantic salmon.Whilethepandemiccontinuedtoimpactthesalmon market in 2021 – strong demand from particularly the United States, Southern Europe (France, Spain, Italy) and Asian mar- ket led to an increase in salmon prices. European spot prices (Nasdaq 3-6 kg) for Atlantic salmon in 2021 ended on average just above 58 NOK per kg (+5%) or 5.7 EUR per kg (+11%). The Norwegian krone continues to trend on a historically weak level. Source: Kontali PER CAPITA CONSUMPTION OF ATLANTIC SALMON (kg wfe / capita) Fig. 41 0,5 1,0 1,5 2,0 2,5 3.0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E ES & United Kingdom USA Russia Japan MARKET REVIEW PERFORMANCE 57 ANNUAL REPORT 2021 Source: Kontali THE US MARKET Despite the US being heavily affected by the COVID-19 pan- demic, both in 2020 and 2021, the supply and consumption of Atlantic salmon have continued to grow at an impressive rate.2021 does forthe rsttimeever, representamarket sizeexceeding600thousandtonneswfeforAtlanticsalmon only. Withapopulationof331millionandconsumptioncloseto 630,000 tonnes wfe in 2021, this corresponds to a per cap- ita consumption of approx. 1.9 kg wfe, indicating about 6-7 meals per capita each year. Salmon was the second-most consumed seafood specie by US consumers, while shrimp stillrmlyholdsthetopspot. Growth to the US market was driven by an increase in suppy from Chile, Canada and supply growth from Europe. From Chile, the close to 350,000 tonnes wfe (+8%) also represents the highest supply share in over a decade (51% of total Chil- ean exports). Supply growth from both Canada and Norway exceeded 10,000 tonnes wfe, while UK and the Faroe Islands growth was closer to 5–6,000 tonnes wfe. Other European supplies (incl. supply from processing hub) exceeded 10,000 tonnes wfe. Average export prices for Chilean salmon llets (repre- sent approx. 40% of the total US market) increased from 7.8 USD/kilogram in 2020 to 10.3 USD/kilogram in 2021 – corresponds to an increase of 33%. This illustrates the strong demand growth in the US market. Fig. 42 Fig. 43 SUPPLY OF ATLANTIC SALMON TO THE US MARKET (TONNES WFE) 100,000 400,000 600,000 2021E2012 2013 2014 2015 2016 2017 2018 2019 2020 Tonnes WFE Other USA United Kingdom Faroe Islands Norway Canada Chile SUPPLY OF ATLANTIC SALMON IN THE US MARKET Country 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E Chile 162,200 191,600 214,700 224,100 217,300 220,400 267,200 284,300 325,100 349,600 Canada 98,200 77,400 55,000 92,900 100,900 92,100 90,500 91,600 92,600 104,400 Norway 23,700 27,000 39,900 51,200 55,700 68,400 67,300 68,300 68,200 81,300 Faroe Islands 13,100 16,400 17,100 14,700 16,900 14,800 12,800 18,500 14,400 20,800 United Kingdom 17,700 16,100 20,400 16,300 12,700 18,000 16,100 20,300 11,500 17,100 USA 9,400 10,100 16,200 13,800 7,700 13,100 7,300 8,100 8,800 6,200 Other 5,700 11,000 10,400 14,600 16,100 19,200 22,300 29,300 40,400 54,200 Total 330,000 349,600 373,700 427,600 427,300 446,000 483,500 520,400 561,000 633,600 MARKET REVIEW PERFORMANCE 58 ANNUAL REPORT 2021 THE EUROPEAN MARKET In 2021, the EU market (including the United Kingdom) for farmed Atlantic salmon increased by 8 %, or 94,000 tonnes wfe, to a total supply of 1,28 million tonnes wfe. Norway accountsforapprox.85%ofthetotalsupplyvolume.With a combined population of 513 million, this corresponds to a per capita consumption of 2.5 kg wfe per year, indicating 8-9 meals per capita per year. The COVID-19 pandemic has caused a higher share of sales from European producers to be allocated in the European market. The backdrop for this was the logistical challenges in the airfreight markets and in addition to restrictions and lockdowns which reduced the demand from the foodservice segments.Tradeowswereimpactedbyamoreconcentrat- ed market, with increased dependency on sales through the retail segment where salmon hubs/countries with secondary processingcapacitysawasignicantincreaseinvolumein 2020. During 2021, the global market balance improved. Within Europe, Germany, France, and the United Kingdom accounted for approx. 50 % of the total consumption, making them the largest markets for salmon. Supply growth was notable both to Italy and Spain (Southern Europe) last year. Source: Kontali Fig. 44 Fig. 45 SUPPLY OF ATLANTIC SALMON TO EU AND UK MARKET Country 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E Norway 761,900 755,500 834,600 912,200 860,200 841,400 910,800 944,500 993,800 1,082,700 United Kingdom 117,000 110,300 117,800 121,100 115,400 124,900 108,000 142,300 152,500 163,300 Chile 27,000 50,200 50,500 44,900 53,900 42,500 40,700 36,200 40,900 28,400 Faroe Islands 36,800 34,300 32,300 20,400 28,400 27,800 20,600 30,800 34,400 50,600 Other/Re-export -9,600 -18,800 -30,100 -27,700 -16,900 -17,100 -25,800 -23,400 -31,400 -39,500 Total 933,100 931,500 1,005,100 1,070,900 1,041,000 1,019,500 1,054,300 1,130,400 1,190,200 1,285,500 SUPPLY OF ATLANTIC SALMON TO THE EU+UK MARKET (TONNES WFE) 200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 2021E2012 2013 2014 2015 2016 2017 2018 2019 2020E Other/Re-export Faroe Islands Chile United Kingdom Norway MARKET REVIEW PERFORMANCE 59 ANNUAL REPORT 2021 CHINA AND HONG KONG In December 2021, China announced a reduction in import tariffs on various seafood products. Among them are salmon products, including fresh gutted Atlantic salmon. In gener- al, the tariff for fresh whole salmon is lowered from 10% in 2021 to 7% starting from January 1st, 2022. The lowering of ChineseimporttariffswouldbeforthebenetofmostAtlan- tic salmon producers except those having an FTA with China with 0% import tariffs (Chile, Iceland and Australia). From 2015 to 2019 supply of Atlantic salmon to China and Hong Kong is almost doubled, reaching almost 125,000 tonnes wfe (pre-pandemic). In 2020, supply fell to 83,000 tonnes wfe, and saw a marginal recovery last year + 7% or close to 90,000 tonnes wfe. While supply from Norway is relativelyunchanged around 44,000 tonnes wfe – supply from Chile have decreased from 45,000 tonnes wfe in 2019 to 28,000 tonnes wfe in 2020 to the lowest level since 2014 with sales around 15,000 tonnes wfe last year. The supply of Faroese salmon to China and Hong Kong have also seen a notable drop in the correspond- ing period. This drop must be seen in relation to logistical challenges – in addition to measures / perceived risk to limit the spread of the Coronavirus. Historically, supply to China has been mainlyfreshwholesalmonandlargesizes(6+kg),withthe foodservice segment covering a high share of consumption. SUPPLY OF ATLANTIC SALMON TO CHINA AND HONG KONG (TONNES WFE) Source: Kontali Fig. 46 Fig. 47 SUPPLY OF ATLANTIC SALMON TO CHINA AND HONG KONG Country 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E Norway 32,370 32,190 34,140 31,110 16,480 17,860 30,920 42,990 32,540 44,710 Chile 5,470 10,750 19,960 18,270 29,280 27,790 44,770 45,540 28,580 15,110 United Kingdom 8,120 12,200 16,430 14,920 12,250 12,660 12,370 10,900 3,300 7,100 Denmark 90 300 350 130 80 340 330 320 230 60 Australia 270 230 940 6,420 1,360 9,630 6,770 7,590 10,700 13,990 Faroe Islands 6,780 9,710 11,050 9,520 10,410 8,730 10,620 14,690 6,200 6,430 Canada 600 410 280 2,430 5,790 2,120 5,090 870 530 320 Others 6,060 10,090 3,240 2,570 12,220 18,590 800 960 870 1,380 Total 59,760 75,880 86,390 85,370 87,870 97,720 111,670 123,860 82,950 89,100 20,000 40,000 60,000 80,000 100,000 120,000 140,000 2021E2012 2013 2014 2015 2016 2017 2018 2019 2020 Other Canada Faroe Islands Australia Denmark United Kingdom Chile Norway MARKET REVIEW PERFORMANCE 60 ANNUAL REPORT 2021 Source: Kontali GLOBAL SUPPLY OF ALL FARMED AND WILD SALMONIDS (TONNES WFE) Fig. 49 Fig. 48 HISTORICAL SUPPLY OF ALL SALMONIDS 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E Atlantic salmon 1,998,550 2,041,250 2,229,000 2,317,900 2,161,100 2,293,100 2,402,750 2,577,800 2,711,500 2,896,700 Small trout 524,600 570,000 550,600 565,600 610,600 626,500 660,400 685,100 718,400 741,800 Chum 294,700 338,300 321,900 338,100 280,900 261,100 268,600 229,000 164,800 196,000 Pink 410,300 580,600 307,900 398,900 354,300 448,400 591,400 525,100 279,400 550,000 Large trout 385,900 320,600 307,300 280,400 278,200 259,100 264,800 297,600 313,900 282,900 Sockeye 142,300 133,200 173,700 190,300 183,000 173,700 171,600 178,500 138,900 155,100 Coho 191,000 176,800 200,400 190,600 151,800 194,900 211,100 234,700 232,600 243,500 Chinook 18,800 19,500 18,800 20,900 19,200 19,900 19,800 20,900 20,900 21,400 Total 3,966,150 4,180,250 4,109,600 4,302,700 4,039,100 4,276,700 4,590,450 4,748,700 4,580,400 5,087,400 1,500,000 3,000,000 4,500,000 6,000,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E Chinook Coho Sockeye Large trout Pink Chum Small trout Atlantic salmon MARKET REVIEW PERFORMANCE 61 ANNUAL REPORT 2021 Source: Kontali GLOBAL HARVEST OF FARMED ATLANTIC SALMON Norway is the largest producing country of Atlantic salm- on in the world and accounted for 53% of global production in 2021. During the past few years, increased MAB capacity throughboththetrafc-lightsystemandnewdevelopment licenses have allowed for increased stocking and growth. However, during the same period, sea lice regulation and high treatment frequency have limited productivity (lost feeding days impacting the smolt yield potential). The second largest producing country of Atlantic salmon, Chile, accounting for 25% of the global production in 2021. Chile has recovered biology-wise since the ISA-crisis in 2008–2009 and has seen improved productivity year after year. Following the heavy losses caused by the Algae bloom crisis in 2016, the Chilean industry has continued to show improvements in key production parameters. After the all- time high harvested volume in 2020, there was a 7% de- crease in 2021. The new year had a challenging start with a deadly algae bloom in January which resulted in losses of about 3,500 tonnes according to Sernapesca. In other European farming regions, the total harvest vol- ume increased 19%. Production in North America (Canada) and Ireland continued at a stable level, Australia increased their production and Russia is now producing above 20,000 tonnes wfe. Ireland has a steady production below 20,000 tonnes wfe. In addition, the global harvest volume from landbased (grow- out) plants is estimated to be approximately 10,000 tonnes wfe in 2021. Fig. 50 HARVEST OF ATLANTIC SALMON IN TONNES (TONNES WFE) Country 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E Norway 1,183,100 1,143,600 1,199,000 1,234,200 1,171,100 1,207,800 1,253,400 1,333,400 1,369,100 1,532,100 Chile 364,000 468,100 582,900 598,200 504,400 564,200 660,100 690,300 778,500 720,400 UK 159,400 157,800 170,500 166,300 157,400 177,200 152,100 190,500 178,300 199,700 North America 156,100 135,400 119,000 155,400 168,500 158,700 165,000 158,300 156,800 160,500 Faroe Island 70,300 72,600 82,700 75,600 77,300 80,300 71,700 86,600 80,600 105,500 Ireland 15,600 10,600 12,300 15,700 15,800 17,000 14,300 15,500 15,800 15,900 Australia 40,000 39,000 42,000 53,600 49,600 63,100 62,300 60,900 82,800 87,800 Iceland 3,250 3,350 4,400 3,600 8,100 11,600 13,600 24,500 31,200 41,500 Russia 6,000 10,000 14,500 13,600 5,000 8,600 5,400 11,400 10,500 23,000 Others 300 300 300 300 300 300 450 300 300 300 Landbased RAS 100 300 1,500 1,400 3,500 4,200 4,400 6,100 7,700 10,000 Total 1,998,150 2,041,050 2,229,100 2,317,900 2,161,000 2,293,000 2,402,750 2,577,800 2,711,600 2,896,700 Fig. 51 GLOBAL HARVEST OF ATLANTIC SALMON (TONNES WFE) 750,000 1,500,000 2,250,000 3,000,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E Landbased RAS Others Russia Iceland Australia Ireland Faroe Island North America UK Chile Norway MARKET REVIEW PERFORMANCE 62 ANNUAL REPORT 2021 SUPPLY OF FARMED ATLANTIC SALMON FROM THE FAROE ISLANDS The biological performance of the Faroese salmon has over the last decade been the best in the world with high survival rates and high average harvest weights. This has led to the highest smolt yield in the industry. The Faroese industry has faced biological challenges with shhealthissueslikegilldisease(e.g.,lossesin2017),high- er levels of sea lice, and extraordinary events like losses due to bad weather which have periodically affected production over the past 5 years. In 2021, record high volumes of At- lantic salmon were harvested, with a supply estimated just above 105,000 tonnes wfe (+30%). Faroese export to Russia, USA and Denmark accounted for approx. 60% of the total supply in 2021 – around 20,000 each. Spain, Netherlands, United Kingdom, France, Italy, and Germany are other important markets in Europe. China remains within the top 5 markets for Faroese salmon, but where supply is notably lower compared to pre-pandemic levels. Source: Kontali Fig. 53 Fig. 52 FO SUPPLY OF ATLANTIC SALMON Country 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Russia 7,997 2,613 15,465 25,660 19,798 24,096 23,812 18,276 19,465 23,665 USA 13,085 16,394 17,105 14,671 16,908 14,820 12,829 18,469 14,392 20,812 China 6,738 9,603 10,945 9,505 10,305 8,556 10,615 14,539 6,052 6,561 Denmark 4,806 1,447 2,122 5,489 5,010 4,920 7,654 10,860 11,896 19,420 United Kingdom 9,466 10,199 9,050 4,633 8,024 5,621 6,538 5,015 3,877 5,140 Spain 33 0 0 0 19 92 306 3,973 5,444 8,483 Germany 8,637 11,439 11,256 5,404 8,156 10,916 1,421 2,646 2,984 1,410 Netherlands 1,466 906 176 138 651 1,056 460 2,150 1,651 6,154 Italy 25 75 0 253 363 404 599 1,776 1,550 3,052 France 5,304 3,938 3,663 1,740 3,061 1,557 1,375 1,352 2,722 3,341 All other markets 13,056 15,071 11,557 7,266 5,780 7,273 5,183 7,399 9,280 8,240 Total 70,613 71,685 81,339 74,759 78,075 79,311 70,792 86,455 79,311 106,278 SUPPLY OF ATLANTIC SALMON FROM THE FAROE ISLANDS TO DIFFERENT MARKETS (TONNES WFE) (ILLUSTRATES THE MARKET DIVERSIFICATION) 30,000 60,000 90,000 120,000 2012 2013 2014 2015 2016 2017 2018 2019 2020 YTD 2021 All other markets France Italy Netherlands Germany Spain United Kingdom Denmark China USA Russia MARKET REVIEW PERFORMANCE 63 ANNUAL REPORT 2021 CHANGE IN MARKET SUPPLY AND MARKET PRICES Pre-pandemic or during Q1 2020, salmon prices averaged around 70 NOK / kilo – a period with limited global growth and the European market not yet impacted by Covid-19. During the pandemic, the salmon processing industry in Eu- rope has had a historically important role with their capaci- ty and opportunity to absorb larger volumes, producing and increasingsalesofsmokedsalmon,freshllet,andfrozen products to the retail sector. Poland, the largest salmon hub for secondary processing, noted a signicant increase in supply in the second half of 2020. Spot prices were at the lowest point during Q4 2020 – low NOK 40-ties, approach- ing an average cost of production in Norway. This illustrates the increased dependency and market con- centration which continued to impact the market into 2021. However, strong demand from particularly the United States, Southern Europe (France, Spain, Italy) and the Asian market gradually restored the market balance. The gradual return of high-value segments (e.g. foodservice and overseas market) and organic growth in demand for Atlantic salmon resulted in spot prices in December 2021 at the pre-pandemic lev- el.Inthersttwomonthsof2022,demandhasremained strong(normalization)combinedwithlimitedglobalgrowth for fresh salmon. SUPPLY AND MARKET PRICES Source: Kontali Fig. 54 Change in global market supply of farmed Atlantic salmon from the previous year Change in European spot prices — fresh Atlantic salmon (Nasdaq 3-6 kg in NOK) from the previous year -60% -40% -20% 0% 20% 40% 60% 80% 2016 20 17 2018 2019 2020 2021 MARKET REVIEW PERFORMANCE 64 ANNUAL REPORT 2021 TOP 15 – FARMING COMPANIES (SALMONIDS) In 2020, the world’s largest 15 salmon farming companies harvested approximately 2 million tonnes wfe of salmonids (Atlantic Salmon, Coho Salmon, Chinook, Big Trout), repre- senting 64 % of the total harvest quantity. In Norway, these companies made up 59 % of the total harvest and 69 % in Chile. * Aquachile, Salmones Magellanes, Los Fiordos and Friosur merged in 2018. The company is controlled by Agrosuper ** Volumes from Scottish Sea Farms (50% stake) not included. Owned 50/50 by Lerøy Seafood and Salmar *** Bakkafrost acquired The Scottish Salmon Company in 2019 * Excluding UK operations, acquired by Scottish Sea Farms, pending approval from EU competition authorities in Dec 2021 Mowi has 48% ownership in Nova Sea. Source: Kontali Fig. 55 TOP 15 SALMON FARMING COMPANIES IN 2020 (HARVEST VOLUME, ALL FARMED SALMONID SPECIES) Group Head off. Total Norway United K Chile North Am. Faroe Isl. Australia Other MOWI NO 488,800 291,100 58,600 71,800 48,900 9,600 8,900 AQUACHILE CL 248,000 248,000 LERØYSEAFOODGROUP NO 189,800 189,800 MITSUBISHI/CERMAQ NO 184,800 73,100 93,400 18,300 SALMAR NO 179,400 167,000 12,400 COOKEAQUACULTURE CA 119,500 29,000 28,500 62,000 MULTIEXPORT CL 99,200 99,200 BAKKAFROST FO 95,200 38,900 56,300 AUSTRALISSEAFOOD CL 87,500 87,500 GRIEGSEAFOOD* NO 79,000 55,400 23,600 SALMONESBLUMAR CL 66,400 66,400 SALMONESCAMANCHACA CL 56,600 56,600 NOVASEA NO 47,300 47,300 TASSAL AU 45,500 45,500 NORDLAKS NO 44,000 44,000 Top15 2,031,100 867,700 126,500 751,400 152,800 65,900 8,900 57,900 Global harvest-Farmed Salmonids 3,168,900 1,461,500 183,300 1,066,700 166,500 80,600 16,300 194,000 Share 64% 59% 69% 70% 92% 82% 55% 30% MARKET REVIEW PERFORMANCE 65 ANNUAL REPORT 2021 BUSINESS REVIEW – FISH FEED The total feed consumption of ocean-farmed salmonids has seen an increase of approximately 1 million tonnes over the past decade, to almost 4.7 million tonnes of feed in 2021. Norway and Chile accounts for approximately 60 % of this increase. The granting of new license capacity and increased smolt stocking in Norway has facilitated production growth and increased feed consumption over the last few years. In Chile, both higher stocking and improved productivity (increased weights) have driven the growth. Growth has also been notable in other European farming regions and in Australia and Russia. Landbased grow-out production remains on a marginal level. The share of marine ingredients in feed for farmed salmonids has shown a decreasing trend over the last decade. However, shmealandshoilpricesstillimpactthefeedpricedeliv- ered to farmers. In2021,globalshmealproductionremainedrelativelysta- ble, increasing by 2% to around 5.1 million tons. Two success- fulshingseasonsinPeruliftedtheoutputby18%toabove 1.2 million tons while the production in Northern Europe de- creased due to lower landings of blue whiting and sandeel. DespitehigherlandingsinPeru,shoilproductiondecreased around 4% due to low oil yield in the anchoveta landings. Pricesforshmealhasremainedremarkablystablethrough- out the last year, considering the high price level on substi- tutes like soy and rape. The successful production season in Peruandhigherlandingsofshforreductionin theNorth Atlantic(capelinetc.)willprobablykeepshmealpricesona reasonable level in the coming months as well. Source: Kontali Loweroutputofshoilhasalreadyaffectedthepricelevel, and we have seen increasing prices in Europe and Peru over the past weeks. China is increasingly consuming a larger share of the global shmealproductionas importsreachedan all-timehigh at 1.8 million tonnes in 2021, a 28% increase from the year before. Of this, 56% of the volumes were sourced from Peru. The Chinese pig inventory appears to have recovered, which hasincreasedthedemandforshmeal. Fig. 57 Fig. 56 ESTIMATED FEED CONSUMPTION/SALE TO SALMONIDS Country 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021E Norway 1,652 1,618 1,738 1,743 1,704 1,822 1,837 1,965 2,120 2,184 Chile 1,255 1,209 1,263 1,239 1,036 1,191 1,269 1,406 1,374 1,295 UK 210 223 231 245 244 241 249 273 291 276 North America 235 202 235 255 264 282 289 307 286 274 Faroe Islands 89 96 98 103 107 101 102 108 117 125 Others 280 291 324 346 344 383 393 431 471 536 Total 3,721 3,639 3,889 3,931 3,699 4,020 4,139 4,490 4,659 4,690 0 750 1,500 2,250 3,000 2016 2017 2018 2019 2020 2021 Fishmeal Fishoil Soyameal Rape oil Wheat Maize DEVELOPMENT IN FISH FEED (RAW MATERIAL PRICES LAST 5 YEARS. USD/TONNE) MARKET REVIEW RISKS 66 RISKS RISKS 67 Risk Management The Bakkafrost Group is exposed to several risks, which will always be a natural part of our business activities. Therefore, risk management is crucial so that the risks Bakkafrost is exposedtoandthepotentialnancialimpactisreducedto an acceptable level. Bakkafrost has general operational and business risks aris- ing from the normal business activities in the value chain. In addition to the operational risks, Bakkafrost is exposed to marketsandnancialrisksarisingfromthenormalbusiness activities in the value chain. RISK MANAGEMENT STRUCTURE AND PROCESS TheBoardofDirectorshasthenalresponsibilityfortherisk management of the Group. The Board of Directors determines the framework for identifying and mitigating risks. The Audit Committee supervises risk management. The Group Management is responsible for the daily compli- ance with the risk management framework and the Group’s day-to-day risk management. The Group Management as- sesses the Group’s principal risks on an ongoing basis, based on weekly or monthly reporting from the organisation on business activities, market development, technology etc. The continuous risk assessment is followed up yearly with an extensive risk analysis for the whole Group. The risks are assessedandquantied,andreportedtotheGroupManage- ment. The latest analysis of the Group’s risks was in Decem- ber 2021. Around year-end, the status of main risks is reported to the Audit Committee and is approved by both the Audit Commit- tee and the Board of Directors. OPERATIONAL RISKS Farming One of the most signicant risk factors, Bakkafrost is ex- posed to is the biological risk in the seawater grow-out stage. Examplesofsuchrisksaredirectthreatstothesh,suchas diseases, sea lice and algae blooms. Although comprehensive measures are put in place to mitigate negative impact arising from exposure to such threats, there is always a variation in key performance indicators such as mortality, growth, yield per smolt, price achievement versus reference prices, feed conversion ratio, costs of mechanical and medicinal treat- ment and required fallowing time between generations for sites or larger geographic areas. The impact from being ex- posed to such risks can vary from minor cost variations to a complete wipe-out of the biomass in a vast geographic area. Due to exceptionally good mitigating measures in the Faroe Islands, the outcome on key performance indicators has been attractive in recent years. However, the corresponding scores have generally been less attractive in Scotland and have had signicantly higher volatility. Bakkafrost’s investment plan forScotlandisexpectedtoreducetherisksignicantly. Althoughoperationalrisksaretoacertainextentreectedin budgets using estimates for mortality and the percentage of shwhosequalityisdowngradedinconnectionwithprimary processing, such risks might, if they occur, materially affect Bakkafrost’sresultsandnancialcondition.Bakkafrost’sop- erationscanalsobemateriallyimpactedbywhatisclassied as normal operating risks, e.g., quality from suppliers and sub-suppliers, etc. The salmon farming industry is associated with a high level of biological risk, and Bakkafrost aims at reducing that risk through the entire production cycle using systematic group-wide biosecurity auditing. Mortality The farming industry in the Faroe Islands has experienced a lower mortality rate than the rest of the farming industry in the last decade. However, in recent years, Bakkafrost ex- perienced an increase in the mortality rate mainly due to a shift from medical to mechanical lice treatment and some in- cident-based cases. The increase in mortality in recent years demonstratesthat changes in farmingmethodscan signi- cantly impact mortality. Bakkafrost is continuously working on reducing mortality to have a 94% survival rate in the Far- oe Islands. In Scotland, the survival rate is expected to be somewhat lower, and Bakkafrost targets 88% in 2026. Price premium Bakkafrost has had a higher price achievement for the Faro- ese and Scottish salmon than reference prices in recent years. This price premium is based on, amongst other things, brand, salmonqualityandsize.Thispricepremiumcanonlybeob- tained if Bakkafrost as a Group differentiates from the rest of the farming industry. Bakkafrost Group strives to maintain this position in the market. Storms The growth rate of farmed salmon depends, among other things, on weather conditions. Unexpected warm or cold temperatures can signicantly negatively impact growth rates and feed consumption. Bakkafrost operates at sea under sometimes challenging conditions. This can result in incidents or necessary measures that may have signicant cost implications, e.g., unexpected maintenance/repairs or escaped sh, even if Bakkafrost continually reduces risks using experience with equipment, location, and operational organisation. Bakkafrost’s facilities are in areas where the weather conditions are well known and the facilities well se- cured. However, other weather conditions, such as storms or oods,couldalso lead to unexpectedlosses at facilities.In recent years, Bakkafrost has moved several farming sites in the Faroe Islands to more exposed areas but simultaneously upgraded the farming equipment to more robust equipment to mitigate the risk of storms. RISKS AND RISK MANAGEMENT RISKS 68 ANNUAL REPORT 2021 Disease Theoperationofshfarmingfacilitiesinvolvesconsiderable risk regarding diseases. In the case of an outbreak of disease, Bakkafrostwill, in addition to the direct loss of sh, incur substantial costs in the form of premature harvesting, loss ofqualityofharvestedshandsubsequentperiodicreduced production capacity. Examples of diseases being prevalent in the Faroe Islands in recent years are Amoebic gill disease (AGD), Bacterial kidney disease (BKD), Infectious salmon anaemia (ISA), Cardiomyopathy syndrome (CMS) and Heart and skeletal muscle inammation (HSMI). Corresponding diseases prevalent in Scotland are, in addition to the above, Pancreas disease (PD) as an example. Bakkafrost’s large smolt strategy and investments in fresh- water treatment capacity play essential roles in mitigating these risks. Sea lice Sea lice is one of the most signicant risks and challenges in the farming industry globally. Increased number of sea lice may cause stress, which can lead to diseases. Bakkafrost has procedures for reducing the number of sea lice with dif- ferent types of treatment. The procedures are improved con- tinuously. Bakkafrostuses lumpsh as cleaner sh for sea lice. Lump- shistheonlycleanershusedintheFaroeIslands,whilea combinationoflumpshandwrasseisusedinScotland.These cleanershareessentialpreventivemeasuresagainstsealice. Bakkafrostusesafreshwaterbathon-boardliveshcarriers and lukewarm seawater treatments in farming service vessels as a sea lice treatment. Additionally, Bakkafrost strives to im- prove delousing methods continuously. Escapes Bakkafrost has a zero tolerance for the escape of farmed salmon. However, the company operates many seawater sites, each exposed to risks linked to bad weather, handling ofsh,changingofnets,operationsofworkboatsandwell boats,predators,etc.Thedirectnancialexposuretoescapes ismoderateduetothegeographicdiversicationofthesites. The indirect effects such as the spread of diseases, negative impact on wild salmon, governmental penalties and negative publicity are hard to quantify for the accounts of Bakkafrost and the society. Procedures, quality assurance systems and new technological solutions, such as predator-resistant nets, are essential elements to mitigate the risk of escapes. Smolt The smolts are produced in freshwater hatcheries on land. Therefore, enough freshwater is critical for smolt production as reduced freshwater intake can severely affect the water quality in the hatcheries and cause mortality. In the Faroe Is- lands, Bakkafrost’s hatcheries use water-recycling technology (RAS), whereby more than 97% of the freshwater is recycled. Thissignicantly reducestherisk offreshwatershortage.In Scotland, Bakkafrost’s hatcheries are in part ow-through hatcheries but will all be replaced by modern RAS-based hatcheries over the following years. Bakkafrost releases millions of smolt per year. A limited ca- pacity in the wellboats for smolt transport can necessitate smolt transportation under sub-optimal conditions such as bad weather. This can strain the released smolt, leading to higher mortality. Bakkafrost is constantly improving handling procedurestooptimiseshwelfare.Transportofshhaveim- proved considerably over the years, and a lot of this is caused by improved knowledge and experience of the workers. In 2022, Bakkafrost will increase the wellboat capacity signicantly. This will help mitigate the risk associated with the smolt transfer. Roe Essential to a good smolt production is the quality of roe. Bakkafrost is dependent on external providers of roe. Poor roe quality reduces the survival of fry in start feeding and affects the whole salmon production chain. Bakkafrost is ramping up its own roe production from the Faroese and Na- tive Hebridean strains, which Bakkafrost owns. This reduces dependence on external providers of good quality roe, and Bakkafrost will control the productions. Also, this will reduce the risk of importing foreign pathogens into the stocks. Raw materials for shmeal, sh oil and sh feed Theproductionofshmeal,shoilandshfeedfollowestab- lished methods with automated and controlled processes. As theself-sufcientoperatorofshmeal,shoilandshfeed, Bakkafrost is exposed to certain risks which may require the purchaseof sh feed from a third party.For example, Bak- kafrost is vulnerable to food safety incidents, downtime, and possibleinsufcientsupplyofrawmaterialinput.Unexpected shortfalls in raw material due to limited catch volumes or lim- iteddeliveryorpurchaseofshorsupplyofsubstitutescould affect the volumes produced in the factory. This may result in incidents or necessarymeasures with signicant costimpli- cations. Bakkafrost is continually working on reducing risks. TheCompany’sshmeal,shoilandshfeeddepartmentat Havsbrún’s facilities are in the Faroe Islands, in which case the Company’s business could be materially adversely affect- ed directly from any trade restrictions or indirectly through restrictions on ocean harvests or quotas. Although any salmon farmer,beinganetbuyerofshfeed,isindirectlyexposedto the same risk factors, this risk is usually mitigated contractu- ally through third-party replacement obligations. RISKS AND RISK MANAGEMENT RISKS 69 ANNUAL REPORT 2021 Feed contaminants Through its use of different types of raw materials and ingre- dients and its production processes, the feed may be exposed to contamination by several undesirable substances. Most contaminants are accumulated in organisms, such as marine wildcatchusedtoproduceshmealandshoil.These con- taminants are deposited into the organism’s fat, and the con- centration is greater the higher up the food chain. Authorities set maximum allowable levels for the most critical contami- nants. These limits are continuously monitored by the author- ities and may be altered. There is also the possibility of “new” contaminants being added periodically to the list. Generally, contamination may occur either accidentally or de- liberately through malicious product tampering. Such contam- inationcanaffecttheenvironment,shhealth,andfoodsafe- ty,potentiallynegativelyimpactingthepublic’scondencein eating salmon. Any of these events could hurt Bakkafrost’s op- eratingresultsandnancialcondition.Futurelegislationmay increase the risk of non-compliance and the cost of ensuring compliance. The reputation risk associated with non-compli- ancemaybesignicantevenifthereisnoimpactontheen- vironment,shhealthorfoodsafety. The Company´s feed department, Havsbrún, operates sever- al controls to reduce the risk of contamination. Examples of measures and controls included in HACCP and ISO procedures includesupplierauditsandsupplierspecicationsofrawma- terials, targeted sourcing of raw materials, regular raw mate- rialandnishedfeedqualitycontrolanalyses,proceduresfor cleaningshoils,etc.andstrictplantsecurityprocedures.The risks, however, can never be eliminated. Contaminantsthatmaybeariskforshfeedinclude,butare not limited to, organic contaminants such as dioxins and DL- PCBs, mycotoxins, pesticides, antioxidants such as Ethoxyquin andBHT,brominatedameretardantsandbacterialcontam- what changes should be made to reduce all possible risks of re.Toreducetheriskofrespreading,thelargeproduction facilities and hatcheries are divided into several separate recellswithautomaticreextinguishingsystems.Thewalls withinrecellsarecoveredwithresafematerialandthe staffaretrainedinhandlingrehandlingincidents. IT RISKS Cyber security With the increased use of technologies such as the inter- net to conduct business, the Group and its customers and service providers are susceptible to operational information security and related “cyber” risks both directly and indirect- ly. This could result in material adverse consequences for the Group and the shareholders, such as causing disruptions and impacting business operations, potentially resulting in nanciallosses. Ingeneral,cyberincidents canresultfrom deliberate attacks or unintentional events. Cyber incidents include, but are not limited to, gaining unauthorised access to digital systems (e.g., through “hacking” or malicious software coding) for purposes of misappropriating assets or sensitive information, corrupting data (e.g. ransomware), or causing operational disruption. Cyber-attacks may also be carried out in a manner that does not require gaining unauthorised access, such as causing denial-of-service attacks on web- sites (i.e., efforts to make network services unavailable to intended users). In recent periods, examples have shown that large industrial groups can be subject to complete shutdowns because of cyber-attacks. For Bakkafrost, such an incident would require personnel to apply manual backup systems to the extent possible. The most exposed area of the Company’s value chain in case of cyber-attacks is hatcheries, process- ing and sales. For shorter periods, harvestable sh can be held in seawater sites pending a solution to such an adverse event,implyingadelayinprotsandcashows. ination and inorganic contaminants such as lead, mercury, arsenic, and cadmium. Even though all tests show that the levels of pollutants in the Bakkafrost salmon are well within the safety limits imposed by, e.g., the European Union, Bakkafrost has from early 2015 cleanedtheshoilusedforBakkafrost’ssalmonfeedforDL- PCBs and other pollutants. Since early 2018, the antioxidant, Ethoxyquin has been replaced with a natural antioxidant. Through accidents or tampering, the feed may also be con- taminated by other inorganic substances such as mineral oil, physical objects, etc. Several substances in addition to the list above are being monitored. Fish meal spontaneous combustion Spontaneous combustion is a serious risk that could occur whenshmealisstoredinsilosortransportedoverseas,al- though very improbable. To avoid this, Havsbrún adds nat- uralantioxidantstotheshmealduringproduction.Thead- dition of an antioxidant is done according to requirements from IMO to prevent spontaneous combustion of shmeal stored and transported overseas. IMO is a specialised agency of the UN, the global standard-setting authority for the safe- ty, security, and environmental performance of internation- alshipping.Bynotaddingantioxidantstotheshmeal,the possibility of spontaneous combustion would be present, in- creasingtheriskofanexplosion/re.Theantioxidantdosage is based on research results from an IFFO report combined with equivalent internal research based on Havsbrún's stor- age and transport conditions. Fire in production facility or hatchery AreoccurrenceinoneofBakkafrost’slargeproductionfa- cilities or hatcheries could be severe. To mitigate the risk of re, regular re-technological inspections and assessments are made by 3rd parties who also advice on and supervise RISKS AND RISK MANAGEMENT RISKS 70 ANNUAL REPORT 2021 The IT risks are assessed continuously, based on the impor- tance of a potential event for Bakkafrost operations and the likelihood that the event may occur. MARKET RISKS Price on farmed salmon The Company’s nancial position and future development depend considerably on the price of farmed salmon, which has historically been subject to substantial uctuations. Therefore, farmed salmon is a commodity, and it is reason- able to assume that the market price will continue to follow a cyclical pattern. The balance between the total supply and demand for farmed salmon is a crucial parameter. Ination Theinationrateshaveincreasedingeneral.Inationcould affect revenues and the cost of operation, and the planned investments.Inrecentyears,therehasbeensignicantina- tion on vegetable ingredients for feed production. Bakkafrost islessexposedtotheinationofvegetablefeedingredients than its competitors due to the much lower vegetable content in the Havsbrún feed. Also, Bakkafrost’s low feed conversion ratio compared to competitors and compared to other animal (non-salmon) protein producers can give Bakkafrost a competitive advantage. Price on shmeal and sh oil Bakkafrost’s nancial position and future developmentde- pend to some extent on the price of shmeal and sh oil, whichhave historicallybeensubject tosubstantialuctua- tions.Fishmealandshoilarecommodities,anditisreason- able to assume that the market price will continue to follow a cyclical pattern. The balance between the total supply and demandforshmealandshoiliscritical.Decreasedsupply may cause prices to increase. This could, in turn, impact the company’sprotabilityandcashposition. Price on sh feed Feedcostsaccount fora signicant proportion of the total production costs within the salmon farming segment, and feedpriceuctuationscouldsubstantiallyimpactprotabili- ty.Feedpricesareaffectedbyboththeglobalmarketforsh- meal and marine/animal/vegetable oils, and the feed industry is dominated by a small number of large, global producers. Natural limitations in the marine resource base could lead to globalshortagesofshmealandshoilforshfeedproduc- tion. However, the feed producers have come a long way in their efforts to replace some of the marine-based input fac- tors with vegetable raw materials. Furthermore, the produc- tionofshfeedisanintegratedpartofBakkafrost’svalue chain and thus reducing this risk. Customer and market dependency Singlelarge customersorspecic marketsaccountingfora large share of sales can constitute a risk to future revenues. Bakkafrost maintains a diversied sale strategy, spreading the sale across many customers in several markets. Bakkaf- rost’s strategy is to sell around 30-40% of the harvest volume to the retail segment, whereas the remaining share is sold to thefoodservicemarket.Inaddition,Bakkafrosthastheex- ibility and necessary production capacity to adapt the pro- duction to changes in demand, as demonstrated during the Covid-19 pandemic. FINANCIAL, LEGAL & REGULATORY RISKS Macro-economic factors Bakkafrost operates in different countries and sells its prod- ucts all over the world. Hence, Bakkafrost is subject to mac- roeconomic changes, whether local, regional or global. Such changes can be positive and negative to Bakkafrost and can signicantlyimpactBakkafrost.TheCovid-19pandemicand theongoingconictbetweenRussiaandUkrainearerecent examplesoftheworldeconomy,marketandtradeowcan bedisrupted.Thisincreasesthelevelofnancialuncertainty signicantly. Bakkafrostmaintainsa diversiedapproachtothe market, spreading the risk by selling products to different geograph- ic markets and selling to different channels (retail vs food service).Beingpresentindifferentmarkets,whicharenot- nancially dependent on each other, lowers this risk. Likewise, Bakkafrost seeks to source raw materials and services from many suppliers to avoid relying on single suppliers. Foreign exchange risk Bakkafrost trades in the world market for farmed salmonids. The revenues and accounts receivable are predominantly de- nominated in DKK, EUR, USD and GBP, but to some small ex- tent also in other foreign currencies. Accounts payables are primarily in DKK, USD, GBP and NOK. As a group, Bakkafrost hassignicantnaturalhedging.Forthosecurrenciesnotfully hedged,uctuationsinforeignexchangeratespresenta- nancialrisktoBakkafrost.TheCompany’snanceagreement is a 700 mEUR multicurrency facility giving Bakkafrost the possibility to request other currencies at utilisation. Bakkafrost’s foreign exchange risk is partly mitigated through the natural hedging within the Group. Intragroup transactions and external trade balance reduce the Group’s foreign ex- change rate exposure to the reporting currency. A hedging strategy for the remaining net exposure to foreign exchange rates is implemented to reduce the risk further. The perfor- RISKS AND RISK MANAGEMENT RISKS 71 ANNUAL REPORT 2021 mance of the hedging strategy is reviewed monthly, and the Board oversees the strategy. Insurance risk Bakkafrosthassignicantassetsandtradeowsatrisk,and risk mitigation is sought through insurance. The insurance market has tightened in recent years, and the insurance mar- ket has become less competitive. To get appropriate insurance cover at competitive prices, Bakkafrost offers its insurances to international insurance companies, and Group policies are sought where feasible. External benchmarking is performed regularly, and brokers are used to negotiating terms and pull quotesforabroadereldofinsuranceproviders. Tax risk The Bakkafrost Group is complex, with subsidiaries in sev- eral jurisdictions. This increases the risk of non-compliance with local tax rules, and transfer pricing rules becomes more complicated. To mitigate this risk, Bakkafrost relies on tax and legal advice and relevant services from acknowledged competent external advisors/experts covering the jurisdic- tions where Bakkafrost has its operation. Bakkafrost also maintainsarmtransferpricingpolicyanddocumentation. Credit risk The risk that counterparties do not have the nancial strength to meet their obligations is considered relatively low since historically, losses due to bad debts have been small. Bakkafrost has guidelines to ensure that sales are made only to customers that have not previously had pay- ment problems and that outstanding balances do not exceed xedcreditlimits.Mostaccountsreceivablesareinsured,but as not all receivables are insured, Bakkafrost must accept a certain risk element in accounts. Bakkafrost has implement- ed strong internal controls to reduce the credit risk. This in- cludes centralised weekly monitoring of debtors’ balances, and any non-standard credit terms need to be approved by the Credit Committee. Liquidity risk LiquidityriskistheriskthatBakkafrostwillnotmeetits- nancial obligations as they fall due. Liquidity risk is managed by maintaining a exible nancial structure, secured using established borrowing facilities. Bakkafrost’s objective is to havesufcientcash,cashequivalentsormedium-termcredit facilities to meet its borrowing requirement in the short term. Unused credit facilities and terms are described in Note 3.11. Capital structure and equity The prime objective of Bakkafrost’s capital management is to ensure that it maintains a good credit rating to achieve favourable borrowing terms. By ensuring a good debt-to-eq- uity ratio, Bakkafrost will support its business operations. Bakkafrost manages and changes its capital structure in re- sponsetoanongoingassessmentofthenancialconditions under which the business operates. It’s short- and medi- um-term outlook, including any adjustment in dividend pay- outs, buyback of its own shares, capital reduction or issue of new shares. Regulatory Due to environmental or animal welfare concerns, regulatory imposition may materially impact the Company’s operations and nancial condition. The Company emphasises organis- ing its operations so that the risk for unexpected measures is reduced. Still, there will always be a latent risk that the regulatory authorities will impose restrictions and/or sudden changes in the industry framework. Salmon farming is regulated by licenses. The Group has a good dialogue with the Faroese and Scottish authorities regarding the prerequisites and restrictions connected to a farming license. In Scotland, all licenses and consents, policies and regulations are overseen by the Scottish Environment Protection Agency (SEPA). Theauthoritiesmaywithdrawlicensesforshfarmingoper- ations if substantial preconditions have been changed since the license was issued, if the license goes against overall de- velopment plans and protective measures, or if the licensee breaches the conditions set in connection with the issuance of the license. The license may also be withdrawn if the com- pany breaches the rule on maximum ownership of licenses or does not use the license. The license may also be revoked if the environmental license of the company is repealed. In the Faroese Islands, a salmon farming license is issued for a period of 12 years from the date of issue. The Faroese government may prolong the license period. If the company fullstheconditionsin thelicenseandifacontinuationof the activities is not contrary to overall development plans, which have been adopted, it must be assumed (but there can be no assurance) that the company has a legal claim to have the license period prolonged. Under the Act on Environmental Protection and under existing practice, the relevant environmental authorities may demand a reduction in the stocking of fry, compared to the last stocking, in case examinations of the seabed or other en- vironmental studies show that pollution of the environment exceeds certain specied limits. The Faroese environment has become the subject of increasing attention and publici- ty about aquafarming. Therefore it can be expected that the rules in this area may become stricter or that existing prac- tice will become stricter. GeographicaldiversicationbyacquiringTheScottishSalm- on Company has reduced the likelihood of regulatory changes having devastating effects on a group level. In addition, con- tinuous dialogue with regulators and politicians in the Faroes andScotlandisperformedtobeabletoinuenceregulatory changes and be prepared for changes. The dialogue occurs directly and via memberships in industry organisations such as Havbúnaðarfelagið and Salmon Scotland (former SSPO). RISKS AND RISK MANAGEMENT RISKS 72 ANNUAL REPORT 2021 Bakkafrost continuously monitors if the company complies with legal and regulatory requirements, such as veterinary regulations,foodsafety,humansafety,nancialregulations, tax, corporate laws etc. This responsibility is unambiguous- ly split between several parts of the organisation, e.g. the QualityDepartment(FO),BiologyDepartment(SCO),Health& Safety and Finance. External advice and assistance are used when needed – e.g. lawyers and renowned professional ser- vicesrms. ESG RISK ESG rating and stakeholder management risk Sustainability is increasingly becoming a key priority to gov- ernments, the public, NGOs, customers, investors and the nancialmarketasawhole.Duetotheinherentcomplexity in the “measurement of sustainability”, stakeholders are in- creasingly relying on ESG ratings before making decisions on buying Bakkafrost’s salmon, shares or providing nancing. It is increasingly important to demonstrate to stakeholders clearly and convincingly that Bakkafrost takes its ESG re- sponsibility seriously. Failing in this can negatively affect license to operate, sales, share price, and access to capital. Bakkafrost has strengthened the capabilities and capacity to engage with organisations providing ESG ratings. Active dialoguewith themostimportantand inuentialratingor- ganisations will increase transparency and accurately picture Bakkafrost’ssustainabilityproleandachievements. External dependencies for ESG commitments Bakkafrosthassetseveralambitioustargets:thescope1&2 carbonemissionreductiontargetsfor2030andthenet-ze- ro target for 2050. To reach these targets, the main hurdle is that Bakkafrost relies on deregulation of the electricity marketintheFaroeIslandsoraccesstosufcientamounts of renewable energy to power its operation, primarily at Havsbrún. Although the declared 2030 goal from the Faro- ese Government is to have 100% renewable electricity in the Faroesin2030,thereisasignicantriskthatthiswillnotbe achieved. Also, it is uncertain if the offered electricity prices in the Faroese national grid will be competitive compared to non-renewable alternatives. To mitigate this risk, Bakkafrost actively engages stakehold- erstofacilitatethetransitiontocost-efcientsolutionsfor powering Bakkafrost with renewable energy. This includes lobbying the political system and cooperation with the Faro- ese national electricity company, SEV. RISKS 73 ANNUAL REPORT 2021 GOVERNANCE 74 GOVERNANCE GOVERNANCE 75 ANNUAL REPORT 2021 Corporate Governance BAKKAFROST’S GOVERNANCE MODEL P/F Bakkafrost is dedicated to maintaining high standards of corporate governance. The company endeavours to be in compliance with the Norwegian corporate governance re- gime, as detailed in the Norwegian Code of Practice for Cor- porate Governance, published on 14 October 2021 by the Norwegian Corporate Governance Board (the “Code of Prac- tice”). The recommendation may be found at www.nues.no. Besides the Corporate Governance description in our annual report, Bakkafrost publishes a more detailed report on Cor- porate Governance, which may be found on our website. Bakkafrost does not comply with the following recommenda- tions in the Norwegian Code of Practice for Corporate Gov- ernance: • Section 3 stipulates, “that mandates granted to the board should be limited in time to no later than the date of the next annual general meeting”. Bakkafrost’s Articles of Association § 4A gives the Board of Directorsauthorizationtoincreasethesharecapitaluntil the ordinary general meeting of the company in 2022, and §4BgivestheBoardofDirectorsauthorizationtobuyown shares on behalf of the company until the annual general meeting is held in 2022. According to the Faroese company law, a company may in its Articles of Association decide that the AGM may give the Board of Directors authority to increase the share capital and buy own shares. This permission may last for more than one year. For practi- cal reasons, this has been implemented into the Articles of Association of P/F Bakkafrost. It is the Board’s view that if shareholders nd this authorization unacceptable, the Board will support a change to the Articles of Association. SHAREHOLDERS GENERAL MEETING Bakkafrost’s shareholders exercise their rights at the General Meeting. BOARD OF DIRECTORS Consists of 3-7 members, which are elected every year. The Board of Directors is responsible for the overall management of Bakkafrost. GROUP EXECUTIVE MANAGEMENT The Group Executive Management is responsible for the day-to-day management of Bakkafrost. NOMINATION COMMITTEE Consists of four members, which are elected by AGM. Recommends candidates for election to the Board of Directors and Directors’ fees. AUDIT COMMITTEE Consists of three members from the Board of Directors and is chaired by the Board of Directors’ Chairman. CORPORATE GOVERNANCE GOVERNANCE 76 ANNUAL REPORT 2021 Bakkafrost’s Governance Model To ensure adherence to the principles, the company has elab- oratedspecicinstructionsregardingrulesofprocedurefor the Board of Directors, instructions for the Nomination Com- mittee,instructionsfortheChiefExecutiveOfcerandother management, guidelines with regards to values and ethics, instructions for the Audit Committee, an investor relations policy, guidelines relating to takeover bids and guidelines for related-party transactions. Shareholders and General Meeting Shareholders exercise their rights at Bakkafrost’s general meeting – such as appointing Bakkafrost’s Nomination Com- mittee, Board of Directors and auditor. The procedures at Bakkafrost’s general meeting follow the standard rules stipulated in the Faroese company law and Bakkafrost’s Articles of Association. Nomination Committee The Nomination Committee recommends candidates for elec- tion to the Board of Directors and the Directors’ fees. The deadline for submitting proposals to the Nomination Com- mittee is 31 January. Bakkafrost’s General Meeting elects the members, hereun- der its chairman, for the Nomination Committee for a period of two years, unless the General Meeting decides otherwise. The remuneration payable to the Nomination Committee’s members is also determined by the General Meeting. The regulations governing the work of the Nomination Com- mittee are incorporated in Bakkafrost’s Articles of Associa- tion. At the end of 2021, the members of the Nomination Com- mittee were: • Gunnar í Liða (Chairman) • Eyðun Rasmussen • Rógvi Jacobsen • Leif Eriksrød Board of Directors Bakkafrost’s Board of Directors is responsible for the overall management of the company and appoints a management of one or several managers to manage the daily business of Bakkafrost. The Board of Directors sets out the strategy for Bakkafrost and decides major investments and divestments. The Board of Directors is also responsible for ensuring that Bakkafrost has at any time an appropriate capital base, key policies and controls and for reviewing audit matters. The Board of Directors is responsible for Bakkafrost’s Risk Man- agement and material operational decisions. The majority of the members of the Board of Directors shall be residents in the Faroe Islands. The chairman of the Board of Directors is elected by the general meeting, whilst the vice-chairman is appointed by the Board of Directors. The Board of Directors shall have between three and seven members. Information about the members of the Board of Directorsmaybefoundin“Directors’Proles”intheAnnual Report. The Board of Directors has laid down detailed rules regard- ing its activities in a working procedure, which is reviewed regularly. The Board of Directors held ten meetings in 2021. Below undereachDirector’sproleisdisclosedeachDirector’spar- ticipation in the Board meetings held during 2021. The members of the Board of Directors receive a xed remuneration, which is approved by the general meeting. The members of the Board of Directors that are not employed by Bakkafrost are not part of Bakka frost’s share savings plan for employees. Audit Committee The Audit Committee is a sub-committee of the Board of Di- rectors and assists the Board of Directors in overseeing the nancial and non-nancial reporting process, nancial and business-related risks, internal controls, and compliance with statutory and other requirements from the public authorities. The Audit Committee decides the framework of Bakkafrost’s external auditors, evaluates the auditors’ independence and qualications. Thecompany’sauditcommitteemetvetimesduring2021 to review accounting and operational issues in detail. The committee consists of Rúni M. Hansen (Chairman), Øystein Sandvik and Teitur Samuelsen. Group Executive Management The Group Executive Management leads Bakkafrost’s dai- ly business and shall adhere to any decisions made by the Board of Directors as well as to any rules and requests from the Board of Directors. The Board of Directors has in executive instructions laid down specicrulesregardingtheauthorityanddutiesoftheGroup Executive Management. The Board of Directors also decides the employment conditions of the Group Executive Manage- mentandgivesmorespecicrulesregardingitswork. The Group Executive Management consist of CEO Regin Jacobsen, CFO Høgni D. Jakobsen and managing director of Havsbrún Odd Eliasen. Information about the Group Exec- utive Management may be found in “Group Managements’ Proles”intheAnnualReport. CORPORATE GOVERNANCE GOVERNANCE 77 ANNUAL REPORT 2021 Corporate Responsibility and Sustainability Governance and management Bakkafrost’s core values specify an intent to act responsi- bly, this includes thinking long-term on economic, social, and environmental issues. The company follows a precautionary approach to the management of sustainability risk through our risk assessment process. The process allocates responsi- bilityforthemitigationofsignicantoperationalrisks.Risks are monitored throughout the supply chain and reported in- ternally on a regular basis and externally on an annual basis in the Annual Report and Sustainability Report. TheAuditCommitteeassiststheBoardinoverseeingnan- cial and business-related risks, internal controls and compli- ance with statutory and other requirements from public au- thorities. Sustainability strategy, management and reporting is overseen by the Board of Directors and is the day-to-day responsibility of Bakkafrost’s Management Team. Sustainability is covered in Bakkafrost’s corporate strategy and management plans and will continue to be integrated into these in 2021, through the Healthy Living Plan. Compliance and ethical conduct Bakkafrost acts in accordance with strict national workplace health and safety, environmental, and sh health and wel- fare regulation in the Faroes. The company has an ongoing commitmenttohavezerocasesofnon-compliance. The company upholds and promotes good business practice throughout the value chain, consistent with Bakkafrost’s core values and principles. Its values guide its behaviour and ap- proach to creating long-term value for customers, sharehold- ers and society and are outlined in Bakkafrost’s Code of Con- duct, which aims to create a sound corporate culture. The Code requires all employees to observe high standards of business and personal ethics in the conduct of their duties and responsi- bilities. They must employ a fair and honest approach in every dealing with fellow employees and all external stakeholders. Further commitment to voluntary sustainability standards andcerticationsisoutlinedbelow. Workplace and human rights The company is committed to respecting the protection of human rights and to making sure that it is not complicit in human rights abuses. Its Code states a commitment to ensure that neither Bakka- frost nor its business partners shall exploit children as a labour force. This is supported by the standards, suppliers are asked to sign up to, when entering into agreements. Bakkafrost’s Code of Conduct also outlines its approach to creating optimal working conditions and culture, including a commitment to create a professional and positive work en- vironment which is inclusive and free from discrimination. In 2018, Bakkafrost strengthened its commitment in this area by signing up to the ten principles of the UN Global Com- pact to pledge to protect human rights; respect the freedom of association and the right to collective bargaining; and to have a workforce free from forced/compulsory/child labour and discrimination. The company communicates its progress against these principles annually in the Healthy Living Sus- tainability Report. Human capital Bakkafrost employs 1,653 employees in the Faroe Islands, UK, Scotland, and the USA. It acknowledges that to achieve its mission and meet its strategic objectives, it must have a capable and engaged workforce, which is committed to its core values. The company is dedicated to having a diverse and inclusive workplace, to attract and retain talent and expertise, to build workforce competency and maintaining high employee en- gagement. The 2023 Healthy Living Plan outlines areas in CORPORATE RESPONSIBILITY AND SUSTAINABILITY GOVERNANCE 78 ANNUAL REPORT 2021 which the company will increase focus to strengthen its human capital. Health, safety and wellbeing Protecting human capital involves maintaining a high stand- ard of occupational health and safety and creating a healthy working culture. The company’s Code outlines its intention to ensure a sys- tematic approach to attaining an injury and accident-free workplace. This is achieved through a set of guidelines based on the highest health, safety and environment standards. Employees receive regular training on these. Product quality and safety Through various best practice standards and certication programmes (outlined below), Bakkafrost ensures indus- try-leading product quality and safety standards. A compre- hensive internal control system is in place, which is regularly inspected by the authorities; this involves daily product test- ing and monitoring for compliance with national health and food safety regulations. As well as ongoing adherence to the highest standards, the company has made a commitment to maintain our high omega 3 levels and maintain high custom- er product quality scores. Biosecurity, sh health and welfare Bakkafrost is committed to upholding leading welfare stand- ards and reducing the use of chemicals and medicines in thepreventionofdiseaseandsealice.Theexperiencedsh healthteam–madeupofcertiedveterinarians,biologists, and assistants – has a strategy in place to achieve this, which includes surveillance across all sites to ensure that optimal health and welfare is always maintained. The company has madeacommitmenttomaintainhighshsurvivalrates,to maintain an industry-leading approach to animal welfare and tohavezeroshescapes. Environmental management and sustainable feed Bakkafrostiscommittedtominimizingpollutionoftheenvi- ronment from each stage of the value chain. The company’s Code outlines an intention to strive to be market leading in environmental protection. All employees will be required to bear in mind the environmental effects work-related activi- ties have on nature and the environment and apply environ- mentally friendly solutions to the extent reasonably possible. Thecompanyisfocusedonoptimizingitsefcientuseoffos- sil fuels and has made a series of commitments towards the health of the environment, including meeting a third-party environmental standard, reducing the impact from packaging on the environment and reducing its GHG emissions. Collaboration and certication As well as collaborating with the salmon industry through the Faroese Aquaculture Association and the Global Salmon Ini- tiative (GSI). Bakkafrost subscribes to several external stand- ardsandcerticationprogrammestoensureproductsustain- ability, quality and safety. The entire value chain in the Faroe Islands – feed production, broodstock, hatcheries, farming sites,andharvestingandprocessingplant– iscertiedac- cording to the international GLOBAL G.A.P. standard, which focusesonfoodsafetythroughouttheproduction,shwel- fare, health and safety and environmental management. Our value chain also has the Ohne Gentechnik Non-GMO add on. The operation in Scotland is accredited according to BAP (4- star) and BRC for the processing plants and the smokehouse. Bakkafrost’s harvesting and value-added product (VAP) pro- duction have the Aquaculture Stewardship Council (ASC) ChainofCustodycertication,andtheVAPproductioniscer- tied according to the BRC and IFS food safety standards. Theshmeal,oilandfeedproductionatHavsbrúnholdsmul- tiple certications; all units are certied to ISO9001:2015, andthe shmealand shoildivisioniscertiedaccording totheGMP+standards,theIFFORScerticationandtheMSC Chain of Custody standard. Our salmon meal and oil also have GMP+. AllfarmingsitesintheFaroeIslandsareASCcertied. Responsible leadership and value generation The considerable value generated by Bakkafrost to the Faroe Islands through employment, taxes and returns, means it has a big responsibility to everyone with an invested interest in the company. The company has made a commitment to demonstrate responsible leadership at both a local and in- ternational level and increase transparency on issues of high stakeholder interest, such as community investment. Further information on Bakkafrost’s management approach to these issues, its plan to meet its commitments and its 2021 performance against them, can be found in Bakkaf- rost’s 2021 Healthy Living Sustainability Report. CORPORATE RESPONSIBILITY AND SUSTAINABILITY GOVERNANCE 79 ANNUAL REPORT 2021 Shareholder Information Information to shareholders has high priority in Bakkafrost. The company aims at maintaining a regular dialogue with the Group’s shareholders through the formal channel of stock exchange announcements, interim reports, annual reports, annual general meetings and presentations to investors and analysts. AUDITORS The consolidated accounts have been audited by P/F Januar, løggiltgrannskoðanarvirki(StateAuthorizedPublicAccountants), which is also the auditor of the parent company and all its sub- sidiaries, registered in the Faroe Islands. Auditor for subsidiaries - Bakkafrost UK Ltd is Forrester Boyd Chartered Account- ants, Grimsby - Bakkafrost USA LLC is CliftonLarsenAllen Llp, New Jersey. - TheScottishSalmonCompanyPlcisAzets,Glasgow. DIVIDEND POLICY Bakkafrost aims to give its shareholders a competitive re- turn on their investment, both through payment of dividends from the company and by securing an increase in the value of the equity through positive operations. Generally, the company should pay dividends to its share- holders, but it is the responsibility of the Board of Direc- tors to make an overall assessment to secure the company a healthy capital base, both for the daily operations and for a healthy future growth of the company. A long-term goal for the Board of Directors is that 30–50% of adjusted EPS shall be paid out as dividends. Bakkafrost’snancialposition isstrongwitha healthybal- ance sheet, a competitive operation and undrawn available credit facilities. PARENT COMPANY’S FINANCIAL STATEMENTS AND ALLOCATION OF PROFIT FOR THE YEAR TheparentcompanyP/FBakkafrosthadanetprotofDKK 312 million for 2021. The Board of Directors has decided to propose to the Annual General Meeting that DKK 5.14 (approximately NOK 6.99) per share shall be paid out as dividends. This corresponds to DKK 304 million (NOK 413 million). The Board thereby proposes the following allocation of funds: - Result for 2021: DKK 312 million - Transferred to other equity: DKK 8 million - Total provision for dividends: DKK 304 million After the payment of dividends, the distributable equity to- tals DKK 8,901 million. SHAREHOLDERS, CAPITAL AND VOTES P/F Bakkafrost had on 31 December 2021, a total of 59,143,000 shares outstanding, each with a nominal value of DKK 1. Of the 59,143,000 shares outstanding, P/F Bakkafrost holds 67,835 treasury shares as at 31 December 2021. Ticker code: BAKKA LARGEST SHAREHOLDERS These shareholders held directly or indirectly more than 5% of the shares in the company as at 31 December 2021: Odd- vør Jacobsen, Regin Jacobsen and Folketrygdfondet.. * The dividend per share in NOK is subject to changes, depending on the currency rate NOK/DKK. The currency rate NOK/DKK will be announced on ex-date. SHAREHOLDER INFORMATION GOVERNANCE 80 Directors and Management GOVERNANCE 81 ANNUAL REPORT 2021 Directors’ Proles RÚNI M. HANSEN Chairman of the Board Born 1967. Faroese citizen. He joined the Board in 2009 and has beenChairmansince.Thetermofofceexpiresin2022.Heiscon- sidered to be independent. Executive Chairman of the industry hold- ing company Tjaldur. Chairman of the Board of Mintra. Mintra is a listed company on Oslo Euronext Growth Education: MSc. in Economics and Business Administration, Copenhagen Business School. Postgraduate, Lancaster University. Board meetings in 2021: Participated in all 10 Board meetings in 2021. Number of shares held in Bakkafrost: Holds 10,761 shares - no change in portfolio in 2021. Mr Hansen is a member of The UN Global Compact´s Platform forSustainableOceanBusiness.HewasamemberoftheWorld Economic Forum´s Agenda Council on the Arctic from 2012 to 2016. Mr Hansen has extensive experience in the seafood in- dustry and the international energy industry. He was among other members of Equinor´s Exploration Executive team. Dur- ing his time in Equinor (former Statoil), he has been based in London, Copenhagen, Oslo and The Faroe Islands. Prior to Equinor (Statoil) he was in the seafood and shipping industry. JOHANNES JENSEN Deputy Chairman of the Board Born1962.Faroesecitizen.HejoinedtheBoardin2009and hasbeenDeputyChairmansince.Thetermofofceexpires in 2022. He is considered to be independent. Managing Di- rectoratP/FGist&Vist. Education: MBA, Lancaster University Management School. Board meetings in 2021: Participated in all 10 Board meetings in 2021. Number of shares held in Bakkafrost: Holds no shares – no change in portfolio in 2021. Mr Jensen has extensive experience in seafood and market- ing. He had a long career at Faroe Seafood, where he was Marketing Director from 1992 to 2001. Mr Jensen is present- ly also Chairman of P/F Frost and of P/F Visit Faroe Islands. TEITUR SAMUELSEN Board member Born 1972. Faroese citizen. He joined the Board in 2016. Thetermof ofceexpiresin 2022. He is consideredto be independent. Managing Director at P/F Eystur- og Sandoyar- tunlar. Education: MSc.inBusinessEconomics&Auditing,CopenhagenBusiness School. Board meetings in 2021: Participated in all 10 Board meetings in 2021. Number of shares in Bakkafrost: Holds 100 shares – no change in portfolio in 2021. Mr Samuelsen has extensive experience in accounting and nance.HehasworkedatKMPGandDongE/PinDenmark and has been CFO at Atlantic Petroleum (2005-2009) and Bakkafrost (2009-2014). Mr Samuelsen is presently a mem- ber of the Board of Directors at Betri Trygging. DIRECTORS’ PROFILES GOVERNANCE 82 ANNUAL REPORT 2021 ANNIKA FREDERIKSBERG Board member Born1971.Faroesecitizen.ShejoinedtheBoardin2008.The term of ofce expires in 2022. She is not considered to be independent. Sales Manager at Bakkafrost. Education: Basic Vocational Course, Commercial Line, Faroese Business School. Board meetings in 2021: Participated in all 10 Board meetings in 2021. Number of shares in Bakkafrost: Holds directly and indirectly 16,250 shares – change in port- folio in 2021: +187 shares. Mrs Frederiksberg has extensive experience in the salm- on industry and sales. She has been part of Bakkafrost’s administration team and sales team for over 25 years. ØYSTEIN SANDVIK Board member Born1948.Norwegiancitizen.HejoinedtheBoardin2013. The term of ofce expires in 2022. He is considered to be independent. Education: Bank Economist. Board meetings in 2021: Participated in all 10 Board meetings in 2021. Number of shares in Bakkafrost: Holds no shares – no change in portfolio in 2021. Mr Sandvik has extensive experience in the nance sector and seafood. He has held several positions at Nordea Bank Norgewithinshfarmingandshery.MrSandvikispresently a member of the Board of Directors of Coldwater Prawns of Norway AS. EINAR WATHNE Board member Born1961.Norwegiancitizen.HejoinedtheBoardin2019. The term of ofce expires in 2022. He is considered to be independent. Education: Master in Animal Nutrition at NMBU. Ph.D. in Aquaculture, NMBU. MBA, Handelshøyskolen BI. Board meetings in 2021: Participated in all 10 Board meetings in 2021. Number of shares in Bakkafrost: Holds no shares – no change in portfolio in 2021. MrWathnehasextensiveexperienceintheseafoodbusiness. MrWathnehasheldpositionsasCEOinCargillandEWOS. DIRECTORS’ PROFILES GOVERNANCE 83 ANNUAL REPORT 2021 REGIN JACOBSEN Chief Executive Ofcer Born 1966. Faroese citizen. Mr Jacobsen has been Chief ExecutiveOfcerofBakkafrostsince1989. Education: Graduate Diploma in Business Administration and Accounting (HD-R), Aarhus School of Business. Number of shares held in Bakkafrost: Holds 4,617,351 shares at year-end 2021. Changes in portfolio in 2021: +596 shares. Mr Jacobsen has extensive experience in the salmon indus- tryandnances.HewastheFinancialManagerofBakkafrost beforehebecameChiefExecutiveOfcerofBakkafrost. HØGNI DAHL JAKOBSEN Chief Financial Ofcer Born1972.Faroese&Swedishcitizen.MrJakobsenhasbeen ChiefFinancialOfcerofBakkafrostsince2019. Education: Business Design, Henley Business School. MSc in Business Administration and Computer Science (cand. merc.dat), Copenhagen Business School. Number of shares held in Bakkafrost: Holds directly and indirectly 74,593 shares at year-end 2021. Changes in portfolio in 2021: +74,181 shares. Mr Jakobsen has extensive experience in the management consulting sector. Before joining Bakkafrost, he has held positions as Senior Partner in Quorum Consulting and been Management Consultant at PA Consulting Group. ODD ELIASEN Managing Director of Havsbrún Born 1965. Faroese citizen.MrEliasenhas been Managing Director of Havsbrún since 2012. Education: TeacherCerticateExam,UniversityoftheFaroeIslands. Number of shares held in Bakkafrost: Holds 184,969 shares at year-end 2021. Changes in portfolio in 2021: +490 shares. MrEliasenhasbroadexperienceintheshfarmingindustry andhasbeenanactiveplayerinrestructuringtheshfarm- ing industry in the Faroe Islands. He has been responsible for Havsbrún’s farming activities and has held various board positions in the industry. Mr Eliasen was a board member of Bakkafrost from 2006 to 2012. Group Management’s Proles GROUP MANAGEMENT PROFILES 84 ANNUAL REPORT 2021 Statement by the Management and the Board of Directors on the Annual Report Today, the Management and the Board of Directors have con- sidered and approved the Annual and Consolidated Report andAccountsofP/FBakkafrostforthenancialyear1Jan- uary 2021 to 31 December 2021. The Annual Report has been prepared in accordance with the International Financial Reporting Standards as adopted by the EU and Faroese disclosure requirements for listed com- panies. In our opinion, the accounting policies used are appropriate, and the Annual and Consolidated Report and Accounts gives atrueandfairviewoftheGroup'sandparentcompany's- nancial positions at 31 December 2021, as well as the results of the Group's and the parent company's activities and cash owsforthenancialyear1January2021to31December 2021. In our opinion, the management's review provides a true and fair account of the development in the Group's and the par- entcompany'soperationsandnancialcircumstances,ofthe resultsfortheyearandof theoverallnancialpositionof the Group and the parent company as well as a description of themostsignicantrisksandelementsofuncertaintyfacing the Group and the parent company. We recommend that the annual report be adopted at the annual general meeting. Glyvrar, 31 March 2022 Management: Regin Jacobsen CEO The Board of Directors of P/F Bakkafrost Rúni M. Hansen Johannes Jensen Øystein Sandvik Chairman of the Board Deputy Chairman of the Board Board Member Annika Frederiksberg Teitur Samuelsen Einar Wathne Board Member Board Member Board Member STATEMENT BY THE MANAGEMENT AND THE BOARD OF DIRECTORS ON THE ANNUAL REPORT 85 ANNUAL REPORT 2021 Independent Auditor’s Report To the Shareholders of P/F Bakkafrost Opinion Wehaveauditedtheconsolidatednancialstatementsand parentcompanynancialstatementsofP/FBakkafrostand its subsidiaries (the Group), which comprise the consolidated statementofnancialpositionasatDecember31,2021,and the consolidated statement of comprehensive income, con- solidated statement of changes in equity and consolidated statementofcashowsfortheyearthenended,andnotes totheconsolidatednancialstatementsandparentcompa- nynancial statements,including asummaryof signicant accounting policies. In our opinion, the accompanying consolidated nancial statementsandparentcompanynancialstatementsgivea trueand fairviewoftheconsolidatednancial position of the Group and the parent company as at December 31, 2021, and of its consolidated nancial performance and its con- solidatedcashowsfortheyearthenendedinaccordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. Our opinion is consistent with our audi- tor’s long-form report to the audit committee and the board of directors. Basis of opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) and additional requirements applicable in the Faroe Islands. Our responsibilities under those standards and requirements are further described in the Auditor’s Responsibilities for the audit of the Consolidat- ednancialstatementsandparentcompanynancialstate- ments section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Professional Accountants (IESBA Code) and the additional ethical require- mentsapplicableintheFaroeIslands,andwehavefullled our other ethical responsibilities in accordance with these requirements and the IESBA Code. To the best of our knowledge and belief, prohibited non- audit services referred to in article 5(1) of Regulation (EU) no 537/2014 were not provided. Webelievethattheauditevidencewehaveobtainedissuf- cientandappropriatetoprovideabasisforouropinion. Appointment P/F Januar was rst appointed auditors of P/F Bakkafrost on18April2013forthenancialyear2013.Wehavebeen reappointed by shareholders on AGMs for an annual engage- ment every year since. Key Audit matters Key audit matters are those matters that, in our professional judgment,wereofmostsignicanceinourauditofthecon- solidated nancial statements of the current period. These matters were addressed in the context of our audit of the consolidatednancialstatementsasawhole,andinforming our opinion thereon, and we do not provide a separate opin- ion on these matters. INDEPENDENT AUDITOR’S REPORT 86 ANNUAL REPORT 2021 Responsibilities of Management and Those Charged with Governance for the Consolidated nancial statements and parent company nancial statements Management is responsible for the preparation and fair pres- entationoftheconsolidatednancialstatementsandparent company nancial statements in accordance with IFRSs as adopted by the EU, and for such internal control as manage- ment determines is necessary to enable the preparation of consolidated nancial statements and parent company - nancial statements that are free from material misstatement, whether due to fraud or error. Inpreparingtheconsolidatednancialstatementsandparent companynancialstatements,managementisresponsiblefor assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless manage- ment either intends to liquidate the Group or to cease opera- tions, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Consolidated nancial statements and parent company nancial statements Our objectives are to obtain reasonable assurance about whether the consolidated nancial statements and parent companynancialstatements,asawhole,arefreefromma- terial misstatement, whether due to fraud or error, and to is- sue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expectedtoinuencetheeconomicdecisionsofuserstaken onthebasisoftheseconsolidatednancialstatementsand parentcompanynancialstatements. Key Audit matter Our response to the matter during our audit Biomass at cost Biomass at marine sites is not accurately ascertainable prior to harvest and material accounting estimates are applied at the balance sheet date regarding existence and valuation. Estimates are based on information on the number at launch, feeding, sea temperature, exposure to daylight and treatment for lice and other health issues, and knowledge about how salmon responds to these factors in terms of growth rate, mortality, feed consumption ratio, and liability to stress and decease. Material inherent risk is related to biomass at sea. Summary of audit approach During our audit, we: • Applied our experience and knowledge about the characteristics of the salmon production process when considering the accounting estimates. • Assured ourselves, that the estimates are based on factual data and data which can be supported empirically. • Assured ourselves, that management is applying estimates in a way consistent with knowledge of the production process, and that the estimates are performed consistently, and that the estimates are free from bias. • Assured ourselves of the ability of management to perform these estimates by examining estimates made by management at prior balance sheet dates on a back-end basis. Biomass at Fair Value according to IAS41 Measuring biomass at fair value includes present value calculations based on complex inputs regarding the properties of existing biomass and forecast regarding growth and mortality rates from the balance sheet date to harvest, quality distributions, as well as market conditions at expected harvest date. Summary of audit approach During our audit, we: • Reviewedandreconciledthecompany-speciccharacteristicsof inputs into the valuation models • Reconciled inputs into the calculations model to observable market conditions at the balance sheet date. • Reviewed the calculation model and ascertained that it is comparable to industry standards. • On a sample bases reperformed net present value calculation Valuation of licenses and goodwill The group has acquired production licenses at signicant amounts as part of business combinations where the group is identiedasacquireeaccordingtoIFRS 3.DuringthePurchase Price Allocation process, licenses and goodwill at material amountswereidentied.Carryingamountsarecalculatedusing generally accepted valuation models, based on unobservable inputs according to level 3 inputs in IFRS13. Summary of audit approach During our audit, we: • Reviewed impairment model, and ascertained that it is built on observable assumptions • Aligned inputs to board approved plans and budgets, and historical performance of the individual licenses • Reviewed valuation models for mathematical coherence and reperformed calculations on a test basis. • Reviewedandchallengedtheindeniteusefullifeassumptions. INDEPENDENT AUDITOR’S REPORT 87 ANNUAL REPORT 2021 As part of an audit in accordance with ISAs as adopted by the EU and additional requirements applicable in the Faroe Islands, we exercise professional judgment and maintain pro- fessionalscepticismthroughouttheaudit.Wealso: • Identify and assess the risks of material misstatement of theconsolidatednancialstatementsandparentcompany nancialstatements,whetherduetofraudorerror,design and perform audit procedures responsive to those risks, andobtainauditevidencethatissufcientandappropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collu- sion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the pur- pose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and relat- ed disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signif- icant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to therelateddisclosuresintheconsolidatednancialstate- mentsandparentcompanynancialstatementsor,ifsuch disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content oftheconsolidatednancialstatementsandparentcom- pany nancial statements, including the disclosures, and whethertheconsolidatednancialstatementsandparent company nancial statements represent the underlying transactions and events in a manner that gives a true and fair view. •Obtainsufcientappropriateauditevidenceregardingthe nancialinformationoftheentitiesorbusinessactivities within the Group to express an opinion on the consolidated nancial statementsand parent company nancial state- ments. We are responsible for the direction, supervision andperformanceofthegroupaudit.Weremainsolelyre- sponsible for our audit opinion. We communicate with those charged with governance re- garding, among other matters, the planned scope and tim- ingoftheauditandsignicantauditndings,includingany signicant deciencies in internal control that we identify during our audit. Wealsoprovidethosechargedwithgovernancewithastate- ment that we have complied with relevant ethical require- ments regarding independence, and to communicate with them all relationships and other matters that may reason- ably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most signicanceintheauditoftheconsolidatednancialstate- mentsandparentcompanynancialstatementsofthecur- rent period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benets of such communication. Statement on the management’s review Management is responsible for the management’s review. Our opinion on the consolidated nancial statements and parent company nancial statements does not cover the management’s review, and we do not express any kind of assurance opinion thereon. In connection with our audit of the consolidated nancial statementsandparentcompanynancialstatements,ourre- sponsibility is to read the management’s review and, in doing so, consider whether the management’s review is materially inconsistentwiththeconsolidatednancialstatementorour knowledge obtained during the audit, or whether it other- wise appears to be materially misstated. Further, it is our responsibility to consider whether the man- agement’s review provides the information required by the International Financial Reporting Standards as adopted by EU and further requirements in the FaroeIslands nancial statements act. Based on the work we have performed, we believe that the management’s review is in accordance with the consolidat- ednancialstatementsandparentcompanynancialstate- ments and that it has been prepared in accordance with the requirements of the International Financial Reporting Stand- ards as adopted by EU and further requirements in the Faroe Islandsnancialstatementsact. Wedidnotidentifyanymaterialmisstatementintheman- agement’s review. INDEPENDENT AUDITOR’S REPORT 88 ANNUAL REPORT 2021 Report on compliance with the ESEF Regulation As part of our audit of the Consolidated Financial Statements, we performed procedures to express an opinion on whether the Consolidated Financial Statements of P/F Bakkafrost for thenancialyear1Januaryto31December2021withthe lename[2138007LH7OP4V112978-2021-12-31-en.zip]isprepared,inallma- terial respects, in compliance with the Commission Delegated Regulation (EU) 2019/815 on the European Single Electronic Format (ESEF Regulation) which includes requirements relat- ed to the preparation of the annual report in XHTML format and iXBRL tagging of the Consolidated Financial Statements. Managementisresponsibleforpreparingaconsolidated- nancial statement that complies with the ESEF Regulation. This responsibility includes: • The preparing of the annual report in XHTML format. • The selection and application of appropriate iXBRL tags, including extensions to the ESEF taxonomy and the anchoring thereof to elements in the taxonomy, for all nancialinformationrequiredtobetaggedusingjudge- ment where necessary. • Ensuring consistency between iXBRL tagged data and the Consolidated Financial Statements presented in hu- man-readable format; and • For such internal control as Management determines necessary to enable the preparation of a consolidated nancialstatementthatiscompliantwiththeESEFReg- ulation. Our responsibility is to obtain reasonable assurance on whether the Consolidated Financial Statement is prepared, in all material respects, in compliance with the ESEF Regulation based on the evidence we have obtained and to issue a re- port that includes our opinion. The nature, timing and extent of procedures selected depend on the auditor’s judgement, including the assessment of the risks of material departures from the requirements set out in the ESEF Regulation, wheth- er due to fraud or error. The procedures include: • Testing whether the Consolidated Financial Statement is prepared in XHTML format. • Obtaining an understanding of the company’s iXBRL tagging process and of internal control over the tagging process. • Evaluating the completeness of the iXBRL tagging of the Consolidated Financial Statements. • Evaluating the appropriateness of the company’s use of iXBRL elements selected from the ESEF taxonomy and the creation of extension elements where no suitable elementintheESEFtaxonomyhasbeenidentied. • Evaluating the use of anchoring of extension elements to elements in the ESEF taxonomy; and • Reconciling the iXBRL tagged data with the audited Con- solidated Financial Statements. In our opinion, the Consolidated Financial Report of P/F Bakkafrostforthenancialyear1Januaryto31December2021 withthelename[2138007LH7OP4V112978-2021-12-31-en.zip] is prepared, in all material respects, in compliance with the ESEF Regulation. Tórshavn, 31 March 2022 Januar P/F løggilt grannskoðanarvirki StateauthorizedPublicAccountants∙ Company reg.no. 5821 Heini Thomsen State Authorised Public Accountant John Michal Petersen State Authorised Public Accountant 89 ANNUAL REPORT 2021 90 Financial Statements and Notes BAKKAFROST GROUP 91 ANNUAL REPORT 2021 BAKKAFROST GROUP Table of Contents Consolidated Income Statement for the year ended 31 December 94 Consolidated Statement of Other Comprehensive Income for the year ended 31 December 95 Consolidated Statement of Financial Position as at 31 December 96 Consolidated Cash Flow Statement for the year ended 31 December 98 Consolidated Statement of Changes in Equity as at 31 December 99 NOTES – SECTION 1 – BASIS OF PREPARATION 100 Thesectiongivesanoverviewofthenancialaccountingpoliciesingeneralandanoverviewofthemanagement’skeyaccountingestimates Note 1. General Information 101 Note1.1SummaryofSignicantAccountingPolicies 101 Note 1.2 Basis of Presentation 101 Note 1.3 Consolidation Principles 101 Note 1.4 Translation of Foreign Currencies 102 Note1.5ClassicationPrinciples 102 Note 1.6 Functional Currency 102 Note 1.7 New standards 102 Note 1.8 Accounting Estimates 103 Note 1.9 iXBRL Reporting 103 TABLE OF CONTENTS - BAKKAFROST GROUP 92 ANNUAL REPORT 2021 NOTES – SECTION 2 – RESULTS FOR THE YEAR 104 This section gives more details on the results for the year, including operating segments, taxes and employee costs. Note 2.1 Revenues 104 Note 2.2 Major Customers 104 Note 2.3 Operating Segment Information 105 Note 2.4 Salaries and other Personnel Expenses 109 Note 2.5 Other Operating Expenses 111 Note 2.6 Research and Development Expenses 111 Note 2.7 Net Financial Items 112 Note 2.8 Tax 113 NOTES – SECTION 3 – ASSETS AND LIABILITIES 115 This section gives more details on the assets that form the basis for the activities of Bakkafrost, and the related liabilities. Note 3.1 Intangible Assets 115 Note 3.2 Property, Plant and Equipment 119 Note 3.3 Leasing 121 Note 3.4 Companies in the Group 123 Note 3.5 Shares and Holdings in other Companies 125 Note 3.6 Inventory 126 Note 3.7 Biological Assets 127 Note 3.8 Accounts Receivables and other Receivables 130 Note 3.9 Cash and Cash Equivalents 131 Note 3.10 Share Capital and Major Shareholders 132 Note 3.11 Interest-bearing Debt 134 Note 3.12 Mortgages and Guarantees 137 Note 3.13 Derivatives 138 Note 3.14 Provisions 139 TABLE OF CONTENTS - BAKKAFROST GROUP 93 ANNUAL REPORT 2021 NOTES – SECTION 4 – CAPITAL STRUCTURE AND FINANCING ITEMS 140 Thissectiongivesaninsightintothecapitalstructureandnancingitems. Note 4.1 Financial Risk Management 140 Note 4.2 Categories and Fair Value of Financial Instruments 145 Note 4.3 Earnings per Share 146 NOTES – SECTION 5 – OTHER DISCLOSURES 147 This section gives more details on the statutory notes that have secondary importance from the perspective of Bakkafrost. Note 5.1 Capital Commitments 147 Note 5.2 Related-Party Transactions 148 Note 5.3 Business Combinations 149 Note 5.4 Events after the Date of the Statement of Financial Position 150 Note 5.5 Auditor’s Fees 151 Note 5.6 Going Concern 152 Note 5.7 Alternative Performance Measures 152 TABLE OF CONTENTS - BAKKAFROST GROUP 94 ANNUAL REPORT 2021 Consolidated Income Statement FOR THE YEAR ENDED 31 DECEMBER Operational EBIT is EBIT before fair value adjustment of biomass, onerous contracts, income from associates and revenue tax DKK 1,000 2021 2020 Operating revenue 5,553,849 4,651,892 Purchase of goods -1,692,501 -2,276,518 Change in inventory and biological assets (at cost) -178,060 401,679 Salary and personnel expenses 2.4 -728,423 -690,452 Other operating expenses 2.5 -1,632,114 -1,062,719 Depreciation 3.1/3.2/3.3 -530,434 -446,765 Other income 2.5 28,877 44,041 Operational EBIT 821,194 621,158 Fair value adjustments of biological assets 3.7 434,868 118,003 Income from associates 30,112 5,546 Revenue tax – FO -141,489 -53,584 Earnings before interest and taxes (EBIT) 1,144,685 691,123 Financial income 2.7 5,415 1,399 Financial expenses 2.7 -40,608 -36,317 Net currency effects 2.7 38,761 -13,096 Othernancialitems 2.7 -10,591 -17,125 Earnings before taxes (EBT) 1,137,662 625,984 Taxes 2.8 -173,626 -163,139 Prot or loss for the period continuing operations 964,036 462,845 Prot or loss for the year attributable to Non-controlling interests -17 0 Owners of P/F Bakkafrost 964,053 462,845 964,036 462,845 Earnings/Diluted earnings per share (DKK) 4.3 16.32 7.83 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP 95 ANNUAL REPORT 2021 Consolidated Statement of Other Comprehensive Income FOR THE YEAR ENDED 31 DECEMBER DKK 1,000 2021 2020 Prot for the year 964,036 462,845 Change in tax rate on equity posted PPA in prior years -193,574 0 Adjustment related to purchase price allocation 0 16,253 Changesonnancialderivatives 12,928 602 Hereof income tax effect -1,972 -83 Reserve to share based payment 1,570 1,170 Currency translation differences 36,139 -44,305 Reclassication-Currencytranslationdifferencesfund -24,452 0 Reclassication-BiomassFairvalueadjustmentsfund 24,452 -134,819 Reclassication-Retainedearningsfund 0 134,819 Net other comprehensive income to be reclassied to prot or loss in subsequent periods -144,909 -26,363 Net other comprehensive income not to be reclassied to prot or loss in subsequent periods 0 0 Other comprehensive income -144,909 -26,363 Total comprehensive income for the year net tax 819,127 436,482 Total comprehensive income attributable to Non-controlling interests -17 0 Owners of P/F Bakkafrost 819,144 436,482 819,127 436,482 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP 96 ANNUAL REPORT 2021 Consolidated Statement of Financial Position AS AT 31 DECEMBER DKK 1,000 Note 2021 2020 ASSETS Non-currents assets Intangible assets 4,495,726 4,493,395 Total intangible assets 3.1 4,495,726 4,493,395 Property, plant and equipment 3.2 4,888,778 4,220,599 Right of use assets 3.3 302,105 353,192 Total property, plant and equipment 5,190,883 4,573,791 Investments in associated companies 3.4 93,904 67,141 Investments in stocks and shares 3.5 55,321 55,318 Long-term receivables 3.8 8,102 8,101 Deferred tax assets 2.8 215,248 26,934 Total non-current nancial assets 372,575 157,494 TOTAL NON-CURRENT ASSETS 10,059,184 9,224,680 Current assets Biological assets (biomass) 3.7 2,448,290 2,117,024 Inventory 3.6 709,306 776,032 Total inventory 3,157,596 2,893,056 Accounts receivable 3.8 620,324 490,075 Tax receivables 109,701 72,143 Other receivables 3.8 172,206 61,431 Total receivables 902,231 623,649 Cash and cash equivalents 3.9 509,157 466,939 TOTAL CURRENT ASSETS 4,568,984 3,983,644 TOTAL ASSETS 14,628,168 13,208,324 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP 97 ANNUAL REPORT 2021 DKK 1,000 Note 2021 2020 EQUITY AND LIABILITIES Equity Share capital 3.10 59,143 59,143 Other equity 9,288,269 8,670,344 Non-controlling interest 133 0 Total equity 9,347,545 8,729,487 Non-current liabilities Deferred taxes 2.8 1,590,034 1,222,222 Long-term interest-bearing debt 3.11 2,634,968 2,219,690 Long-term leasing debt 3.3 245,753 265,235 Derivatives 3.13 3,207 1,480 Total non-current liabilities 4,473,962 3,708,627 Current liabilities Financial derivatives 3.13 4,602 9,710 Trade payables 510,357 563,857 Current tax liabilities 2.8 170,997 37,422 Short-term leasing debt 3.3 87,668 131,336 Other current liabilities 33,037 27,885 Total current liabilities 806,661 770,210 TOTAL LIABILITIES 5,280,623 4,478,837 TOTAL EQUITY AND LIABILITIES 14,628,168 13,208,324 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP 98 ANNUAL REPORT 2021 Consolidated Cash Flow Statement FOR THE YEAR ENDED 31 DECEMBER Accounting Policies The Group’sstatementof cash owshowsa breakdownof the Group’soverall cash ow into operating, investing and nancingactivities.Thecashowstatementispreparedac- cording to the indirect method. The statement shows the in- dividual activity’s impact on cash and cash equivalents. The cashowderivingfromtheacquisitionandsaleofbusiness- es is presented under investing activities. DKK 1,000 Note 2021 2020 Cash ow from operations EBIT 1,144,685 691,123 Adjustments for write-downs and depreciation 3.1/3.2/3.3 530,434 446,501 Adjustments for fair value adjustments on biomass 3.7 -434,868 -118,003 Adjustments for income from associates -30,112 -5,546 Adjustments for currency effects 45,160 -65,402 Taxes paid -54,327 -189,132 Change in inventory 142,314 -309,873 Change in receivables -493,831 48,252 Change in current debts 275,099 -23,950 Cash ow from operations 1,124,554 473,970 Cash ow from investments Proceedsfromsaleofxedassets 667 18,412 Paymentsmadeforpurchaseofxedassets 3.2 -1,115,680 -836,383 Purchase of shares and other investments 2,775 1,843 Change in long-term receivables -1 0 Cash ow from investments -1,112,239 -816,128 Cash ow from nancing Change in revolving credit facilities 404,600 -107,451 Acquisition of minorities 0 -167,620 Financial income 3,542 1,399 Financial expenses -56,427 -53,442 Lease payment -116,897 -134,569 Proceeds/Acquisition of treasury shares 10,957 -38,766 Dividend paid -215,872 0 Cash ow from nancing 29,903 -500,449 Net change in cash and cash equivalents in period 42,218 -842,607 Cash and cash equivalents – opening balance 466,939 1,309,546 Cash and cash equivalents – closing balance total 509,157 466,939 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP 99 ANNUAL REPORT 2021 Consolidated Statement of Changes in Equity AS AT 31 DECEMBER Restricted equity comprises equity in which dis- tribution to the shareholders may only take place adhering to specic procedures prescribed by the Faroese Limited Companies Act. Restricted equi- ty consists of Equity Recognition Surplus and Fair Value Adjustments of Biomass. Free equity may be readily distributed to the shareholders, or otherwise disposed of, after due approval by the AGM. The compositionofequitymaybespeciedasfollows: DKK 1,000 Equity 01.01.2021 59,143 4,027,375 -37,672 6,229 34,545 -14,829 215,872 145,387 4,293,437 0 8,729,487 Consolidated prot 0 0 0 0 0 0 0 434,868 529,185 -17 964,036 Change in tax rate on equity posted PPA in prior years 0 0 0 0 0 0 0 0 -193,574 0 -193,574 Changesinnancialderivatives 0 0 0 0 0 12,928 0 0 0 0 12,928 Hereof tax effect 0 0 0 0 0 -1,972 0 0 0 0 -1,972 Share-based payment 0 001,570 0 00 0 0 01,570 Currency translation differences 0 0 0 0 36,139 0 0 0 0 0 36,139 Reclassification between funds 0 0 0 0 -24,452 0 0 24,452 0 0 0 Total other comprehensive income 0 0 0 1,570 11,687 10,956 0 24,452 -193,574 0 -144,909 Total comprehensive income 0 0 0 1,570 11,687 10,956 0 459,320 335,611 -17 819,127 Treasury shares 0 010,905 0 0 00 03,748 0 14,653 Addition of non-controlling interests 0 0 0 0 0 0 0 0 0 150 150 Paid-out dividend 0 0 0 0 0 0-215,872 0 0 0-215,872 Proposed dividend 0 0 0 0 0 0303,995 0-303,995 0 0 Total transaction with owners 0 0 10,905 0 0 0 88,123 0 -300,247 150 -201,069 Total changes in equity 0 0 10,905 1,570 11,687 10,956 88,123 459,320 35,364 133 618,058 Total equity 31.12.2021 59,143 4,027,375 -26,767 7,799 46,232 -3,873 303,995 604,707 4,328,801 133 9,347,545 Equity 01.01.2020 59,143 4,027,375 -68 5,059 78,850 -15,348 0 162,203 4,012,041 167,620 8,496,875 Consolidated prot 0 0 0 0 0 0 0 118,003 344,842 0 462,845 Adjustment related to purchase price allocation 0 0 0 0 0 0 0 0 16,253 0 16,253 Changes in financial derivatives 0 0 0 0 0 602 0 0 0 0 602 Hereof tax effect 0 0 0 0 0 -83 0 0 0 0 -83 Share-based payment 0 001,170 0 00 0 0 01,170 Currency translation differences 0 0 0 0 -44,305 0 0 0 0 0 -44,305 Reclassification between funds 0 0 0 0 0 0 0 -134,819 134,819 0 0 Total other comprehensive income 0 0 0 1,170 -44,305 519 0 -134,819 151,072 0 -26,363 Total comprehensive income 0 0 0 1,170 -44,305 519 0 -16,816 495,914 0 436,482 Treasury shares 0 0-37,604 0 0 00 01,354 0-36,250 Change in non-controlling interests 0 0 0 0 0 0 0 0 0 -167,620 -167,620 Proposed dividend 0 0 0 0 0 0 215,872 0-215,872 0 0 Total transaction with owners 0 0 -37,604 0 0 0 215,872 0 -214,518 -167,620 -203,870 Total changes in equity 0 0 -37,604 1,170 -44,305 519 215,872 -16,816 281,396 -167,620 232,612 Total equity 31.12.2020 59,143 4,027,375 -37,672 6,229 34,545 -14,829 215,872 145,387 4,293,437 0 8,729,487 Share Capital Share Premium Reserve Treasury Shares Share- Based Payment Currency translation differences Derivatives Dividend Total Equity Non controlling interest Fair value adjustments Retained Earnings CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP Notes to the Consolidated Financial Statements BAKKAFROST GROUP 100 SECTION 1 101 ANNUAL REPORT 2021 NOTES – SECTION 1 Basis of Preparation This section gives an overview of the nancial accounting policies in general and an overview of the management’s key accounting estimates. NOTE 1. GENERAL INFORMATION P/F Bakkafrost (“company”) is a public limited company dom- iciled in the Faroe Islands at Bakkavegur 9, Glyvrar. P/F Bakkafrost was listed on Oslo Stock Exchange in 2010 with the ticker code: BAKKA. NOTE 1.1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation oftheseconsolidatednancialstatementsaresetoutbelow. These policies have been consistently applied to all periods presented. NOTE 1.2 BASIS OF PRESENTATION The Annual Report comprises the income statement, state- mentofcomprehensiveincome,statementofnancialposi- tion,specicationofchangesinequity,cashowstatement and note disclosures for the Group. The accounting year equalsthecalendaryear.Thenancialstatementswerefor- mally drawn up in accordance with International Financial Reporting Standards (IFRS) and the interpretations issued by the International Accounting Standards Board as approved by the European Community and the additional requirements in the Faroese Financial Reporting act. The Annual and Consolidated Report and Accounts for the period 1 January to 31 December 2021 comprises both the Consolidated Annual Report and Accounts for P/F Bakka- frost and its subsidiaries (Group) and the separate Annual Accounts for the parent company. Thenancialstatementswereformallyauthorizedforissue by the Board of Directors on 30 March 2022. The Annual Report has been prepared on a historical cost basis except for where IFRS requires recognition at fair value, mainly valuation of licences, which are acquired by business combinations, and of biomass. Preparationofthenancialstatementsinvolvestheuseof estimates and assumptions. Changes in estimates and esti- mated assumptions are accounted for when they occur. De- scriptions about the various estimates applied are given in the notes to the accounts where relevant. NOTE 1.3 CONSOLIDATION PRINCIPLES TheconsolidatednancialstatementsincludeP/FBakkafrost and the subsidiaries over which P/F Bakkafrost has con- trollinginuenceeitherbyshareholdingorbyagreement.A controlling interest is normally deemed to exist when own- ership directly or indirectly exceeds 50 percent of the vot- ing rights. Controlling interest may also exist by nature of agreement. Similarly, limitations in voting rights by agree- ment may impede exercise of control, and the investment concerned will be considered an associate. Newly acquired subsidiaries are included from the date on which a controlling interest is secured, and divested subsid- iaries are included up until the date of divestment. The con- solidated accounts have been prepared in accordance with uniform accounting principles for similar transactions in all companies included in the consolidated accounts. All material transactions and balances between Group Com- panies have been eliminated. Shares in subsidiaries have been eliminated in the consoli- datednancialstatementsinaccordancewiththeacquisition method. This means that the acquired company’s assets and liabilities are reported at fair value at the date of acquisition, withanyexcessvaluebeingclassiedasgoodwill.Wherethe fair value of the assets acquired exceeds the payment made, the difference is treated as negative goodwill in the Income Statement. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 1 102 ANNUAL REPORT 2021 Whensharesareacquiredinstages, thevaluebasis ofthe assets and liabilities is the date, the Group was formed. Later acquisition of assets in existing subsidiaries will not affect the value of assets or liabilities, except for goodwill, which is calculated with each acquisition. InvestmentsincompaniesinwhichtheGrouphasasigni- cantinuence(associatedcompanies)aretreatedinaccord- ance with the equity method in the consolidated accounts. A considerableinuenceisnormallydeemedtoexistwhenthe Group owns 20–50 percent of the voting capital. The Group’s shareoftheprotsinsuchcompaniesisbasedonprotafter tax, less internal gains, and depreciation on excess value due to the cost price of the shares being higher than the acquired portionofbook equity.Inthe IncomeStatement,theprot share is presented on a separate line, while the assets are presentedinthestatementofnancialpositionasnon-cur- rentnancial assets.The accountingprinciples usedbyas- sociated companies have been changed where necessary to achieve consistency with the principles used by the Group. NOTE 1.4 TRANSLATION OF FOREIGN CURRENCIES Foreachindividualentity,whichisrecognizedintheconsoli- dated accounts, a functional currency is determined in which the entity measures its results and nancial position. The functional currency is the currency of the primary economic environment in which the entity operates. Transactions in other currencies than the functional currency are transac- tions in a foreign currency. A foreign currency transaction is, on initial recognition, re- corded in the functional currency at the spot exchange rate between the functional currency and the foreign currency on the date of the transaction. At each balance sheet date, receivables, payables, and oth- er monetary items in foreign currency are translated to the functional currency using the closing rate. Exchange differ- ences arising on the settlement of monetary items or on translating monetary items, at rates different from those at which they were translated on initial recognition during the period or in previous nancial statements, shall be recog- nizedintheincomestatementundernancialrevenuesand expenses. On consolidation, the results and nancial position of the Group’s individual entities with different functional curren- cies than the Group’s presentation currency (DKK) are trans- lated into the Group’s presentation currency using the fol- lowing procedure: • Assets and liabilities are translated at the closing rate at the date of the balance sheet. • Income and expenses are translated at exchange rates at the dates of the transactions. • Allresultingexchangedifferencesarerecognizeddirectly in equity as a separate component of equity. For practical reasons an average rate for the period that approximates the exchange rates at the dates of the transactions is used. NOTE 1.5 CLASSIFICATION PRINCIPLES Biomassisrecognizedat fair valuein the StatementofFi- nancial Position. Changes in biomass and inventory meas- ured at cost are presented as a one-line item in the Income Statement. Biomass at cost consists of all production costs. The biomass is then adjusted to fair value, i.e., market value lessnishingcosts,byaddingorsubtractinganIFRSadjust- ment. The IFRS adjustment is the difference between bio- mass measured at cost and measured at fair value. Cash and cash equivalents consist of cash in hand and bank deposits. Assets, which form part of the production cycle or falldueforpaymentwithin12months,areclassiedascur- rentassets.Otherassetsareclassiedasnon-currentassets. Liabilities, which form part of the production cycle or fall dueforpaymentwithin12months,areclassiedascurrent liabilities. Other liabilities are classied as non-current lia- bilities. Dividendproposalsarenot classiedasliabilities until the parent company has assumed an irrevocable obligation to pay the dividend, normally when dividend proposals have been approved by the Annual General Meeting. Nextyear’sinstalmentsonlong-termdebtsareclassiedas current liabilities. Changes in the fair value of biological assets are presented on a line item separately from biomass changes measured at costunderoperatingprot/loss.Thisallowsthereaderofthe FinancialReporttodeterminebothproductionefciencyand biomass at fair value. NOTE 1.6 FUNCTIONAL CURRENCY The consolidated accounts are presented in Danish Kroner (DKK), which is the Group’s functional and presentation cur- rency. All transactions in foreign currencies are translated intoDKKatthe timeof transaction.Inthe statementof- nancial position, monetary items in foreign currencies are translated at the exchange rate in effect on the statement of nancialpositiondate. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 1 103 ANNUAL REPORT 2021 NOTE 1.7 NEW STANDARDS Standards and interpretations, which are issued at the date of the Group’s Financial statements, but will become effective later, are disclosed below. The disclosures contain standards including amendments, which may inuence recognition or measurements in the Financial statements, alter existing dis- closures or require additional disclosures when effective at a future date. The standards are implemented as they become effective. New standards, regulating issues not relevant to the Group or withinsignicant impact ontheGroup,areomittedfromthis narrative. New standards effective from 1 January 2021 and Only minor adjustments have been made in standards and interpretations (IFRIC) which are effectivefor the nancial year 2021. Neither are new standards nor amendments to these from 2022 and forth expected to have any impact on the Bakkafrost Group. NOTE 1.8 ACCOUNTING ESTIMATES Thepreparationofnancialstatementsin accordancewith IFRS requires the management to make judgement estimates and assumptions that affect the application of accounting principles and carrying amounts of assets and liabilities, in- come, and expenses. The estimates and underlying assump- tions are based on experience and other factors perceived to be relevant and probable when the judgements were made. Estimates are reviewed on an on-going basis, and actual val- ues and results may deviate from the initial estimates. Revi- siontoaccountingestimatesarerecognizedintheperiodin which the estimates are revised. The evaluations and esti- mates,deemedtobeofgreatestsignicanceforBakkafrost Group’s Financial Statements, are described in the notes. NOTE 1.9 iXBRL REPORTING We are required to le our annual report in the European Single Electronic Format (‘ESEF’) using the XHTML format and to tag the primary consolidated nancial statements using Inline eXtensible Business Reporting Language (iXBRL). The iXBRLtagscomplywiththeESEFtaxonomy.Whereanan- cial statement line item is not dened in the ESEF taxon- omy, an extension to the taxonomy has been created. The annual report submitted to the Faroese Financial Supervi- sory Authority consists of the XHTML document together withcertaintechnicalles,allincludedinaZIPlenamed 2138007LH7OP4V112978-2021-12-31-en.zip. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 2 104 ANNUAL REPORT 2021 NOTES – SECTION 2 Results for the Year This section gives more details on the results for the year, including operating segments, taxes, and employee costs. NOTE 2.1 REVENUE Revenue is measured at the fair value of the consideration received or receivable for the sale of goods and services in theordinarycourseofbusiness.Revenueisrecognizednetof discounts, VAT and other sales related taxes. The revenue of the Group is mainly from sales of salmon, shmeal,shoilandshfeed.Salesrevenueisrecognized when the goods are delivered, and both title and risk have passed to the customer. This will normally be upon delivery. NOTE 2.2 MAJOR CUSTOMERS In2021,therewerenomajorcustomers–asdenedinIFRS 8.34, compared to one major customer in 2020 of DKK 570 million, corresponding to 52% of the VAP operation revenue. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 2 105 ANNUAL REPORT 2021 NOTE 2.3 OPERATING SEGMENT INFORMATION Value Added Fishmeal, Bakkafrost 2021 – DKK 1,000 Farming FO Products oil and feed Farming SCT Eliminations Group External operating revenue 2,665,396 1,195,195 237,867 1,455,391 0 5,553,849 Internal operating revenue 811,326 0 1,421,484 0 -2,232,810 0 Total operating revenue 3,476,722 1,195,195 1,659,351 1,455,391 -2,232,810 5,553,849 Depreciationandamortization -278,395 -21,316 -30,057 -200,666 0 -530,434 Operating expenses -1,241,170 -243,032 -1,353,124 -1,163,882 -229,890 -4,231,098 Internal operating expenses -1,052,267 -811,326 0 -369,217 2,232,810 0 Other income 0 0 0 28,877 0 28,877 Operating EBIT 904,890 119,521 276,170 -249,497 -229,890 821,194 Fair value adjustments on biological assets 539,040 0 0 -104,172 0 434,868 Income from associates 294 0 29,818 0 0 30,112 Revenue tax -141,489 0 0 0 0 -141,489 EBIT 1,302,735 119,521 305,988 -353,669 -229,890 1,144,685 Netnancialitems 9,774 -692 1,905 -18,010 -7,023 Earnings before taxes 1,312,509 118,829 307,893 -371,679 -229,890 1,137,662 Taxes -217,365 -22,067 -55,420 79,020 42,206 -173,626 Net earnings 1,095,144 96,762 252,473 -292,659 -187,684 964,036 Operating EBITDA 1,183,285 140,837 306,227 -48,831 -229,890 1,351,628 INVESTMENTS Property, plant and equipment 601,185 720 29,430 436,533 1,067,868 Depreciation -278,395 -21,316 -30,057 -200,666 -530,434 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 2 106 ANNUAL REPORT 2021 Value Added Fishmeal, Bakkafrost 2020 – DKK 1,000 Farming FO Products oil and feed Farming SCT Eliminations Group External operating revenue 1,548,623 1,116,216 391,491 1,595,561 0 4,651,891 Internal operating revenue 791,638 0 1,027,480 0 -1,819,118 0 Total operating revenue 2,340,261 1,116,216 1,418,971 1,595,561 -1,819,118 4,651,891 Depreciationandamortization -239,814 -19,530 -30,912 -156,508 0 -446,764 Operating expenses -773,619 -165,355 -1,211,275 -1,358,626 -119,135 -3,628,010 Internal operating expenses -878,999 -791,638 0 -148,481 1,819,118 0 Other income 0 0 0 44,041 0 44,041 Operating EBIT 447,829 139,693 176,784 -24,013 -119,135 621,158 Fair value adjustments on biological assets -214,275 0 0 332,278 0 118,003 Income from associates 719 0 4,827 0 0 5,546 Revenue tax -53,584 0 0 0 0 -53,584 EBIT 180,689 139,693 181,611 308,265 -119,135 691,123 Netnancialitems -52,661 -631 -12,069 222 0 -65,139 Earnings before taxes 128,028 139,062 169,542 308,487 -119,135 625,984 Taxes -30,445 -25,032 -30,517 -98,887 21,742 -163,139 Net earnings 97,583 114,030 139,025 209,600 -97,393 462,845 Operating EBITDA 687,643 159,223 207,696 132,495 -119,135 1,067,922 INVESTMENTS Property, plant and equipment 582,419 3,334 30,866 246,837 863,456 Depreciation -239,814 -19,530 -30,912 -156,508 -446,764 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 2 107 ANNUAL REPORT 2021 2021 2020 FARMING FO – DISTRIBUTION OF HARVESTED VOLUMES tgw % tgw % Harvested FO volume used in VAP production 21,974 32.7% 23,931 47.2% HarvestedFOvolumesoldfresh/frozen 45,243 67.3% 26,769 52.8% Total harvested volumes 67,217 100.0% 50,700 100.0% FOF SEGMENT – DISTRIBUTION OF FEED tonnes % tonnes % Volumes used internally 124,259 96.7% 94,345 84.2% External sold 4,230 3.3% 17,653 15.8% Total Sold volumes 128,489 100.0% 111,998 100.0% PRODUCTION OF FISHMEAL AND FISH OIL tonnes % tonnes % Fishmeal 34,962 81.1% 60,661 85.9% Fish oil 8,124 18.9% 9,932 14.1% Total production 43,086 100.0% 70,593 100.0% FARMING SCT – DISTRIBUTION OF HARVESTED VOLUMES tgw % tgw % Harvestedvolumesoldfresh/frozenandother 29,672 100.0% 34,986 100.0% Total harvested volumes 29,672 100.0% 34,986 100.0% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 2 108 ANNUAL REPORT 2021 GEOGRAPHIC BREAKDOWN OF SALES REVENUES BASED ON SEGMENTS AND CUSTOMER LOCATION 2021 – DKK 1,000 Farming FO VAP FOF Farming SCT Total WesternEurope 1,170,908 896,396 237,867 1,178,867 3,484,038 North America 693,003 179,279 0 145,539 1,017,821 Asia 453,117 11,952 0 130,985 596,054 Eastern Europe 346,501 107,568 0 0 454,069 Rest of the world 1,866 0 0 0 1,866 Total 2,665,396 1,195,195 237,867 1,455,391 5,553,849 2020 – DKK 1,000 Farming FO VAP FOF Farming SCT Total WesternEurope 473,616 941,027 391,491 1,443,510 3,249,644 North America 594,301 94,001 0 87,573 775,875 Asia 300,792 43,929 0 11,585 356,306 Eastern Europe 179,733 37,259 0 0 216,992 Rest of the world 181 0 0 52,893 53,074 Total 1,548,623 1,116,216 391,491 1,595,561 4,651,891 The Group has four reportable segments in accordance with IFRS 8, Operating Segments. The Group’s main strategic business areaisaquaculture,whichconsistsoffoursegments:shfarm- ing Faroe Islands and Scotland, value added products (VAP) and productionandsalesofshmeal,shoilandshfeed(FOF). The same accounting principles, as described for the consolidat- ednancialstatements,havebeenappliedforthesegmentre- porting. Intersegment transfers or transactions are entered into under normal commercial terms and conditions, and the meas- urement used in the segment reporting is the same as used for the third party’s transactions. The pricing principle between the VAP and Farming FO segments is based on market reference prices for spot sale, and the pricing principle between the FOF and the Farming segments is based on quarterly contracts. ACCOUNTING POLICIES SEGMENT REPORTING Farming FO including sales of fresh sh Fish farming involves the breeding and on-growing of salmon as well as the harvesting, sales, and distribution of salmon. The Group has production facilities around the Faroe Islands. There are no signicant differences in the production properties of the licences, and the Group therefore reports the farmed sal- monids, including the sale of fresh salmon, as one segment. The salmon is sold on the spot market for salmon products and to foreign seafood processing companies. Farming SCT The Farming SCT segment comprises the total operation in The Scottish Salmon Company Ltd, which Bakkafrost gained control over on the 8 October 2019. The operation is in Scotland and includessalmon farming,harvest,lleting,sales andadminis- tration. Value added products (VAP) Asignicantshareofthefarmedproductsisvalueaddedatthe factory in Glyvrar. The outputs of the factory are predominantly portionsfortheretailmarket.Thebusinesssegmentdenition is based on the distinction between output sold to the industrial market and the value-added products for the end-consumers in the retail market. Fishmeal, sh oil and sh feed (FOF) Fishmeal,shoilandshfeedinvolvetheproductionandsale ofshmeal,shoilandshfeed.Theproductionofshmeal, shoil andsh feedareoperatedbyBakkafrost’ssubsidiary Havsbrún, located in Fuglafjørður. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 2 109 ANNUAL REPORT 2021 NOTE 2.4 SALARIES AND OTHER PERSONNEL EXPENSES DKK 1,000 2021 2020 Wagesandsalaries 613,756 598,550 Share based payment 3,547 3,676 Social security taxes 45,825 34,025 Pension expenses 48,392 42,656 Otherbenets 16,903 11,545 Total payroll expenses 728,423 690,452 Average number of full-time employees 1,653 1,699 REMUNERATION TO CORPORATE MANAGEMENT DKK 1,000 Total Salary and other benets paid Salary Bonus Pension Other 2021 ChiefExecutiveOfcer 2,099 0 168 89 2,356 Managing Director 1,727 58 140 0 1,925 ChiefFinancialOfcer 1,362 58 109 89 1,618 Total remuneration 5,188 115 417 178 5,898 DKK 1,000 Total Salary and other benets paid Salary Bonus Pension Other 2020 ChiefExecutiveOfcer 2,145 0 146 89 2,380 Managing Director 1,703 115 124 0 1,942 ChiefFinancialOfcer 1,328 115 98 89 1,630 Total remuneration 5,176 230 368 178 5,952 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 2 110 ANNUAL REPORT 2021 Remuneration to corporate management The total remuneration to the corporate management con- sistsofbasicsalary(mainelement),benetsin-kindandpen- sion schemes, but varies from person to person. The Group’s ChiefExecutiveOfcerdeterminestheremunerationstooth- er management in agreement with the Chairman of the Board of Directors. The total remuneration is determined based on the need to offer competitive terms in the various business areas. The remunerations should promote the Group’s com- petitiveness in the relevant labour market. The total remuneration must neither pose a threat to Bakka- frost’s reputation nor be market leading but should ensure that Bakkafrost attracts and retains senior executives with the desired skills and experience. The basic salary is subject to an annual evaluation and is determined based on general salary levels in the labour market. Notice of Termination and Severance Payment Bakkafrost may terminate employment by giving Group Man- agement Executives a notice period. The company’s period of noticefortheGroup’sChiefExecutiveOfceris24months. The company’s period of notice for other Group Management Executives covers a period from 6 to 12 months. SHARE-BASED PAYMENT In 2021, Bakkafrost implemented a share-based bonus scheme for all employees in the Group. According to the scheme, all employees are awarded free bonus shares de- pendent on achieved performance against certain KPIs and Bakkafrost Group’s adjusted earnings per share being above a certain threshold. The bonus shares are awarded quarterly as restricted shares units which are released pursuant only to the Annual General Meeting resolution to pay dividends to the shareholders. Employees still employed two calendar years after being awarded bonus shares, will receive free loyalty shares. Each quarter, the Board reviews and determines the param- etersusedinthebonusscheme–e.g.overallsizeofbonus pool, KPIs and thresholds. The Board has the right to decide, in its sole discretion, whether the bonus scheme will be con- tinued in the following quarter, and the terms of the plan. SHARE SAVING PLAN Bakkafrost has established a share saving plan for its em- ployees in the Faroe Islands. In 2022, the plan will be ex- tended to all employees of the Group. It is the Board's inten- tion that the plan shall be a continuing part of the company's employee incentive scheme. The Board shall, however, have the right to decide, in its sole discretion, whether the plan will be extended in the future, and the terms of the plan Employees may invest up to 5% of their base salary in Bak- kafrost shares. The saved amount is deducted from the monthly net salary and used to purchase Bakkafrost shares on behalf of the employees. The purchase will be made from Bakkafrost's treasury shares or on the market. An employee may not change the savings amount during the year, but an employee may cancel the subscription during the year. The purchase price and the number of shares acquired by the company will be reported in accordance with the applicable regulations. After a lock-in period of two calendar years, one extra share will be awarded for each share purchased. Shares transferred to employees are acquired by the company on the market. LOANS TO EMPLOYEES As at 31.12.2021, there are no loans to employees. ACCOUNTING POLICIES SHARE-BASED PAYMENTS The share saving plan liabilities and payroll expense have been allocated over the employees' contribution period. The contribution period is from when the employee signed the share saving plan and until the shares are granted. The fair value of these liabilities will be determined using the number of shares contracted at the start of the share saving plan, using the share price on the date of the employee signature, adjustment is made for estimated leavers of the share saving plan. The difference between the fair value and the share Fees paid to the Board of Directors DKK 1,000 2021 2020 Rúni M. Hansen Chairman of the Board 482 479 Johannes Jensen Deputy Chairman of the Board 274 271 Annika Frederiksberg Member of the Board 219 217 EinarWathne MemberoftheBoard 236 231 Teitur Samuelsen ** Member of the Board 263 262 Øystein Sandvik* Member of the Board 283 278 Total remuneration 1,757 1,738 * Annika Frederiksberg is also an employee in the Bakkafrost Group. For this, she received DKK 656 thousand (2020: DKK 651 thousand). ** Member of the audit committee. Salary includes fee to the audit committee NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 2 111 ANNUAL REPORT 2021 NOTE 2.5 OTHER OPERATING EXPENSES AND OTHER INCOME DKK 1,000 2021 2020 Maintenance -187,655 -161,327 Operating expenses -291,690 -175,788 Health -227,542 -127,605 Freight -629,123 -424,575 Energy -226,988 -167,999 Other costs -69,116 -5,425 Other operating expenses total -1,632,114 -1,062,719 R&DexpendituretaxcreditinSCT 28,877 44,041 Other income total 28,877 44,041 R&Dexpenditureoccursthroughoutthevaluechain.R&Dis built in the Bakkafrost business model DNA. Bakkafrost has a continual development of the entire value chain. This is not seen as R&D but is an integratedpart of other operating expenses and salaries. ThefocusofBakkafrost’sR&Deffortshasbeenevaluatedand slightly improved during recent years. Lice abatement, bio- mass control and smolt quality remain high priorities, and the development and improvement of vaccines, nutrition and feeding, as well as operating technologies, are equally top- ical. In addition, Bakkafrost continuously performs assess- ments of its own operating practices. Bakkafrost aims to expand its R&D activities in feed and feeding and sees a substantial need for greater focus on basic knowledgeofhowthesharefedandhowwecanmaintain a healthy salmon. The past year has proven to be above our expectations in terms of production improvements in farm- ing.Weareconvincedthat ouradaptionofthe mixofraw material has resulted in better nutritional quality in the feed. NOTE 2.6 RESEARCH AND DEVELOPMENT EXPENSES It is Bakkafrost’s clearly expressed goal to initiate better and more comprehensive research into these issues under large- scale conditions. Bakkafrost focuses on reducing biological risk continuously and has made several new investments and procedures to diminish this risk. Bakkafrost focuses on using non-medical methods in treatments against sea lice and has invested in new technology to follow this strategy. price,whenthesharesaregranted,willbebookedasanan- cialitemintheincomestatement.Theliabilityisrecognized in other equity reserves within equity. PENSIONS TheGroupoperatesadenedcontributionpensionscheme. Pension premiums are charged to the Income Statement as they accrue. The Group has no additional pension liabilities towards the employees, apart from these periodical pay- ments. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 2 112 ANNUAL REPORT 2021 NOTE 2.7 NET FINANCIAL ITEMS DKK 1,000 2021 2020 Realisedprotonnancialderivatives 4,942 0 Othernancialincome 473 1,399 Financial income 5,415 1,399 Interest expenses on long-term loans -31,958 -33,512 Interest expenses on credit lines -403 -2,476 Interest expenses on IFRS 16 (leases) -7,468 -10,382 Interest expenses on accounts payable -779 -329 Financial expenses -40,608 -46,699 Other exchange differences 38,761 -13,096 Net currency effects 38,761 -13,096 Othernancialexpenses 10,591 -6,743 Other nancial items -10,591 -6,743 Net nancial items -7,023 -65,139 ACCOUNTING POLICIES FINANCIAL INCOME Interest income is recognized on an accrual basis. Divi- dendincomeisrecognized,whentheshareholders’rightto receive a dividend has been approved by the Annual General Meeting. BORROWING COSTS Borrowingsisrecognizedinitiallyatfairvalue,netoftrans- action costs incurred. Borrowings is subsequently stated at amortizedcost;anydifferencebetweentheproceeds(netof transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings. Borrowings is classied as a current liability, unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Bakkafrost has a large-smolt strategy and aims at increasing smolt size to around 500 grams smolts in 2022 the Faroe Islands. The strategy is also pivotal to the turnaround of the operation in Scotland. The benets are shorter production time at sea and reduced biological risk. The hatchery at Strond, Klaksvík, is an essential part of this plan for the Far- oe Islands. This hatchery is fully operational and can produce 9 million smolts at 500g. In addition, Bakkafrost is expand- ing Faroese hatchery capacity of the hatcheries at Glyvradal, Norðtoftir and the new hatchery at Ónavík. In Scotland, three large hatcheries will be built, the rst being the hatchery at Applecross. All Bakkafrost’s hatcheries will be based on state-of-the-art technology and advanced RAS (water recir- culation) systems. The capacity growth from these invest- ments is crucial to enable harvest volume growth to 150,000 tonnes for the Group in 2026. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 2 113 ANNUAL REPORT 2021 Specications of temporary differences and deferred tax DKK 1,000 2021 2020 Temporary Temporary Deferred tax assets Differences Deferred tax Differences Deferred tax Licences 0 0 0 0 Property, plant and equipment 32,450 8,037 43,483 8,224 Financial assets 0 0 0 0 Biomass 175,529 36,248 104,415 18,460 Receivables 1,995 359 1,318 224 Derivatives (Equity posted) 5,099 1,275 147 25 Losses carried forward 677,309 169,329 0 0 Total temporary differences 215,248 26,933 NOTE 2.8 TAX The tax expense for the year breaks down as follows: DKK 1,000 2021 2020 Tax payable 171,283 38,783 Tax credit -1,151 -23,974 Change in deferred tax 3,494 148,330 Tax expense on ordinary prot 173,626 163,139 Tax payable 170,997 38,783 Tax payable in the statement of nancial position 170,997 38,783 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 2 114 ANNUAL REPORT 2021 Normal tax rate for countries in the Group: - Faroe Islands 18% - UK/Scotland 19% and 25% from 2022 - Norway 23% - USA 28% Reconciliation from nominal to actual tax rate DKK 1,000 2021 2020 Protbeforetax 1,137,662 625,984 Expected tax at nominal tax rate 178,385 106,417 Permanent differences -4,759 56,722 Calculated tax expense 173,626 163,139 Effective tax rate excl. equity entries 15.26% 26.06% ACCOUNTING POLICIES Thetaxexpenseismatchedagainsttheprotorlossbefore tax, as it appears in the accounts. Tax ascribable to equity transactions is taken to equity. The tax expense comprises tax payable (tax on the year’s direct taxable income) and changes in net deferred taxes. Deferred tax liabilities and deferred tax assets are presented net in the statement of nancialpositiontotheextentthattaxassetsandliabilities can be netted against each other. Deferredtaxinthestatementofnancialpositionisanom- inal amount calculated based on temporary differences be- tween accounting and tax values at their intended use, as well as the taxable loss carried forward at the end of the nancialyear. SIGNIFICANT ASSUMPTION ACCOUNTING FOR DEFERRED TAX LIABILITIES Theaccountingofdeferredtaxesreectstax ratesand tax laws that have been enacted or substantively enacted by the dateofthestatementofnancialposition.Therecognitionof adeferredtaxassetisbasedonexpectationsofprotability in the future. In addition, there are many transactions and calculations during the ordinary course of business for which the ultimate tax determination is uncertain. Deferred taxes are calculated using the nominal tax rate ac- cording to IAS 12. SIGNIFICANT ASSUMPTION ACCOUNTING FOR DEFERRED TAX ASSETS Deferred tax assets, including tax loss carry forwards, are assessedonceayear.Lossesarerecognizedifitislikelythat theywillbeutilizedintheforeseeablefuture. DKK 1,000 2021 2020 Temporary Temporary Deferred tax liabilities Differences Deferred tax Differences Deferred tax Licences 3,601,916 874,182 3,624,015 680,554 Property, plant and equipment 1,539,529 353,079 1,562,011 269,909 Financial assets 92,302 16,614 78,742 13,610 Biomass 1,892,013 340,562 1,413,357 258,023 Receivables 0 0 0 0 Currency effects 1,219 240 0 0 Derivatives (Equity posted) 0 0 0 0 Other differences 21,428 5,357 510 126 Total temporary differences 1,590,034 1,222,222 Deferred tax assets -215,248 -26,933 Deferred tax liabilities 1,590,034 1,222,222 Deferred tax liabilities (+) / assets (-) 1,374,786 1,195,289 *WherofDKK-4.6million,relatestochangeinthetaxratechangeinScotlandfrom19%to25% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 115 ANNUAL REPORT 2021 NOTES – SECTION 3 Assets and Liabilities This section gives more details on the assets that form the basis for the activities of Bakkafrost and the related liabil- ities. NOTE 3.1 INTANGIBLE ASSETS DKK 1,000 Goodwill Licences Brands Total Acquisitions costs as at 01.01.21 666,950 3,720,158 108,400 4,495,508 Currency translation differences 2,369 0 0 2,369 Acquisitions costs as at 31.12.21 669,319 3,720,158 108,400 4,497,877 Depreciations and impairments 01.01.21 -2,113 0 0 -2,113 Depreciation during the year -38 0 0 -38 Accumulated impairments/depreciation and write-downs as at 31.12.21 -2,151 0 0 -2,151 Net book value as at 31.12.21 667,168 3,720,158 108,400 4,495,726 DKK 1,000 Goodwill Licences Brands Total Acquisitions costs as at 01.01.20 568,885 3,720,158 108,400 4,397,443 Additions in the year as a result of acquisitions 114,245 0 0 114,245 Currency translation differences -16,180 0 -16,180 Acquisitions costs as at 31.12.20 666,950 3,720,158 108,400 4,495,508 Impairments 01.01.20 -1,756 0 0 -1,756 Depreciation during the year -357 0 0 -357 Accumulated impairments/depreciation and write-downs as at 31.12.20 -2,113 0 0 -2,113 Net book value as at 31.12.20 664,837 3,720,158 108,400 4,493,395 In the Faroe Islands, Bakkafrost operates its sea farming ac- tivityin14 identiable CGUs basedonsingle or groupsof sea farming licenses, seven out of which are issued by the government without consideration, and hence are not capi- talized.ThesebelongtotheNorthregion. The other seven CGUs were acquired as part of business com- binations. Respectively, when acquiring the Vestlax Group, Havsbrún Group and Faroe Farming, hence three groups of CGUs.ThesebelongtotheWestregion.Theseareconsidered assignicantincomparisontothetotalcarryingamountof goodwillandintangibleassetswithindeniteusefullives. In Scotland, Bakkafrost operates its sea farming activity in 7identiableCGUsbasedongroupsofseafarminglicenses. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 116 ANNUAL REPORT 2021 Impairment testing The Group tests intangible assets annually for impairment or more frequently if there are indications that the assets are impaired. The annual impairment test is performed at year- end.TheGrouphassubstantialassetswithindenitelivesin the form of licenses. The licenses are subject to impairment testing in combination with goodwill in the annual test. The Groupidentieseachfarmingzone,whichmaycontainone or several licences or farming sites, as one cash-generating unit. The procedure of impairment testing Impairment testing is carried out by calculating the net pres- ent value of estimatedfuturecash ows (value in use) for the cash-generating unit in line with IAS 36 and comparing the net present value of the cash ow towards the carry- ing amount of net assets held by the cash-generating unit (CGU).Thecashowusedinthecalculationsrepresentsthe management’s best estimate at the time of reporting. If the carrying amount is higher than the calculated value in use, theassetsareconsideredimpaired.Theestimatedcashow is based on an assumption of continued operation. The ba- sisfortheestimatedcashowisthestrategicplan forthe following years. The strategic plans have been reviewed and the targets approved by the Group management. The considered operating conditions are costs of feed, smolt, harvest, packaging, transport, and other costs. Other operat- ing conditions considered the same are mortality, production time, fallowing and harvest weight. CAPEX is also assumed to be the same for all CGUs over the calculated period. All CGUs are calculated with the same WACC. If there will be variances between the assumptions for the different CGUs in the future, this will be incorporated into the impairment test. Indications of impairment Theimpairmenttestingatyear-enddidnotresultinidenti- cation of impairment losses. Intangible assets were tested for impairmenttoevaluateifthecashowfromaconservative estimatewassufcienttosupportthecarryingamountofnet assets.Thetestconrmedtheassetvalues. The key assumptions The key assumptions in the calculations of value in use are harvestvolume,prices,andcosts,henceEBIDTAandWACC. Amongstotherassumptionsareination,CAPEX,andtermi- nal growth. In general, the value in use has been determined based on future strategic plans considering the expected development in both macroeconomic and company-related conditions. The assumptions used, rest on uncertainty regarding pro- duct prices, input prices, biological performance, and future regula tory frameworks. Costs can normally be estimated withmoreaccuracythanincome.Asprotabilityinthesal- mon farming industry historically has been very volatile, de- pen ding on developments in the prices of salmon. Bakkafrost usesbudgetsandlong-termplansfortherstveyearsof the analysis but returns to long- term historic averages for protabilityinthesixthyearandterminalperiod. The key assumptions used in determining the value in use are:: • Harvested volume is based on the current stocking plans foreachunit,andforecastedguresforgrowth,assumed harvestweightandmortality,basedonhistoricalgures. • The costs are based on the Groups own assumptions, based on historical costs and expectations. The costs are expect- ed to remain stable but are calculated to increase with an inationrateofFO:0.9%andSCT:2,3%. • The forward prices are based on the Fish Pool index – which is a part of Oslo Børs ASA – at the day of the calcula- tion. The long-term forward prices are based on third-par- ties’ sources. • The WACCis8.9% (2020: 7.2%) pre-taxandcalculatedin accordancewithIAS36. TheWACCmodelis usedfores- timating the discount rate. The input data for the model is updated each year for the annual impairment test. The choiceofinputdataforthemodelsignicantlyinuences the outcome of the model, and to ensure that there is as lit- tle uncertainty as possible with regards to the calculation oftheWACC,third-partysourcesareusedwhereavailable (interest, ination, beta).The discount rateis based on a ve-yearaverageforten-yearbondsissued bythe Dan- ish government, with an adjustment margin for the food industry in the EU. • TheinationissettoFO:0.9%andSCT:2,3%.forthebudget period. This is done based on third-parties’ sources. The terminal growth is set to 0%. • Capital expenditure (CAPEX). In the 5-year forecast period, the capital expenditure necessary to meet the expected growthinrevenueand protistakenintoconsideration. Capital expenditures are aligned with the growth and re- placement plans. Capital expenditure to comply with cur- rent laws and regulations has been included. Capex related tocommittedand approvedefciencyimprovementpro- grammes has also been included to support the inclusion ofthebenetsintheappliedmargin.Changesinapplicable laws and regulations may affect future estimated capital expenditureneeds;thisisnotreectedintheguresused in the impairment test. Beyond the forecast period, capital expenditure will in general equal depreciation and relate to maintenance investments. Sensitivity In connection with the impairment testing of intangible as- sets, a sensitivity analysis has been carried out. Sensitivity analysis has been performed for each of the dened cash generatingunits.Withtheassumptionsused,theheadroom is DKK 10,900 million (DKK 9,459 million). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 117 ANNUAL REPORT 2021 ACCOUNTING POLICIES Intangible assets that are purchased individually are capital- izedatacquisitioncost.Intangibleassetsacquiredinconnec- tionwiththepurchaseofabusinessentityarecapitalizedat acquisition cost when the criteria for separate recognition are met. Intangible assets with a limited economic lifespan are depre- ciated systematically. Intangible assets are written down to therecoverableamountiftheexpectednancialbenetsdo not cover their carrying amount. Costs relating to research and development are charged as expenses as they accrue. R&D costs are capitalized in the statementofnancialposition,whenitcanbedemonstrated thattherelevantR&Dprojectscarryeconomicbenets,that theycanbetechnicallynalized,andthatthecompanyin- tendstoandisnanciallyabletoreaptheeconomicbenets. Sea farming licences, which are purchased either as part of an acquisition or business combination according to IFRS 3, are capitalizedat costless accumulatedwrite-downsaccording to a PPA analysis. Sea farming licences in the Faroe Islands and Scotland are considered perpetual, given that certain preconditions regarding environmental protection and ani- mal welfare are met. Consequently, sea farming licences are not depreciated systematically, but are subject to an annual impairment test. If the carrying amount exceeds the recov- erable amount, licences are considered impaired, and write- downs are entered and charged to the Income Statement. Theassessmentofindenitelifeisreviewedannuallytode- terminewhethertheindenitelifecontinuestobeappropri- ate.Ifnot,thechangeinusefullifefromindenitetoniteis made on a prospective basis. Licenses with indenite useful lives TheseafarminglicensesintheFaroeIslandsaredenedas the right to utilize a given area of fjords for farming sh. There are no provisions as to the maximum allowed biomass at the given site, but the legislation has imposed strict meas- ures to regulate the farming activity to be environmentally sustainable. The sea farming licenses in the Faroes are issued with a nom- inal lifespan of 12 years. Licenses are renewed, unless there isaspecicreasonagainstrenewal,basedonfailuretofull the veterinary conditions set by the authorities. In connec- tion with renewal of licenses, authorities may only decline renewalifspeciclegislationonareaplanning,animalwel- fare or environmental protection conicts with renewal of the licenses. Special emphasis is to be placed on the fact that it is renewals of existing licenses. This means that sea farm- ing licenses are operated in a 12-year rolling lifespan system, where the licenses are renewed every 12th year. In the very rare cases, where the authorities have declined to renew li- censes to use locations for other purposes, the farmers have obtained licenses from the authorities at other locations. The sea farming licenses in Scotland are perpetual if certain environmental, operational, and biological conditions speci- edinthelicensescontinuetobemet. The Group has therefore decided to account for sea farming licenses,whicharecapitalized,followingtheprovisionsfor intangiblerightswithindeniteusefullives. GOODWILL Whenthecompanyassumescontroloveraseparatebusiness entity for a consideration that exceeds the fair value of the individual assets, the difference is entered as goodwill in the statementofnancialposition. Goodwill deriving from purchases of subsidiaries and asso- ciates is presented under intangible assets. Goodwill is not depreciated but is tested for impairment annually or more often if there are indications that its value is lower than the carrying amount. When assessing the need to write-down goodwill, this is assigned to relevant cash ow generating unitsorgroups,whichareexpectedtobenetfromtheac- quisition. Write-downs are performed in accordance with an assess- ment of the recoverable value of each of the cash-ow generating units to which the goodwill is assigned. To iden- tify the Group’s cash-ow generating units, the assets are grouped according to the lowest level to which separate and independentcashowsmaybeascribed.Recoverablevalue is calculated based on value in use. This is arrived at by esti- matingfuturecashows. If the calculated value in use is less than the carrying amount of the cash-ow generating unit, goodwill is written down rst,andthenotherassetsasrequired. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 118 ANNUAL REPORT 2021 SPECIFICATION OF CGUS – BOOKED VALUE TESTED AND SENSITIVITY Sensitivity analyses and booked value per CGU: CGUs DKK 1,000 31.12.2021 The Scottish Salmon Company acquisition 4,006,820 1,906,234 5,913,054 8.9% 18,845 382,619 2,378,574 -1,599,072 Vestlax acquisition 132,708 1,318,791 1,451,499 8.9% 7,450 57,039 365,472 -269,400 Havsbrún acquisition 157,430 301,696 459,126 8.9% 2,250 188,862 1,210,119 -892,012 Faroe Farming acquisition 82,000 955,167 1,037,167 8.9% 4,300 109,008 514,853 -698,458 TOTAL 4,378,958 4,481,888 8,860,846 32,845 737,528 4,469,018 -3,458,942 31.12.2020 The Scottish Salmon Company acquisition 4,006,820 574,114 4,580,934 7.2% 23,083 311,560 379,700 -362,679 Vestlax acquisition 132,708 1,338,793 1,724,535 7.2% 7,900 41,453 212,495 -154,003 Havsbrún acquisition 157,430 482,380 580,033 7.2% 2,250 145,545 746,094 -540,723 Faroe Farming acquisition 82,000 736,823 972,295 7.2% 4,200 77,378 396,657 -287,473 TOTAL 4,378,958 3,132,110 7,857,797 37,433 575,936 1,764,946 -1,344,878 * 4 CGUs in 7 licenses.. Acquired in 2010. ** 2 CGUs in 7 licenses. Acquired in 2011. *** 1 CGU in 7 licenses.. Acquired in 2016. 7 CGUs in 44 licenses. Acquired in 2019. *Otherassetsconsistofgoodwill,PP&E,inventory,receivables,etc.whichcanbeallocatedtoCGUsoraredirectlyattributabletoCGUs. Licenses Other assets Total booked value tested WACC Number of smolts (1,000) EBITDA change of +/-1% WACC change of -1% WACC change of +1% NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 119 ANNUAL REPORT 2021 Plant machinery Land operating Other and euipment, operating Assets under DKK 1,000 buildings xtures etc. equipment Vessels construction Total Acquisition costs as at 01.01.21 1,936,967 2,746,675 406,493 450,899 387,946 5,928,980 Reclassication 83,078 61,012 57,444 53,117 -52,912 201,739 Acquisitions during the year 72,206 432,757 41,218 81,455 440,231 1,067,867 Disposals and scrapping during the year -2,519 -96,842 -5,023 -373 0 -104,757 Currency translation differences 29,383 85,994 -51,101 57,555 7,280 129,111 Acquisition costs as at 31.12.21 2,119,115 3,229,596 449,031 642,653 782,545 7,222,940 Accumulated depreciations and write-downs as at 01.01.21 -381,949 -1,043,442 -164,346 -118,644 0 -1,708,381 Reclassication -44,377 -141,158 -16,205 0 0 -201.739 Depreciations during the year -80,574 -277,445 -45,526 -30,403 0 -433,948 Accumulated deprecations and write-downs on disposals and scrapping 2,519 94,787 4,239 242 0 101,787 Currency translation differences -13,552 -75,851 -1,083 -1,394 0 -91,880 Accumulated depreciations and write-downs as at 31.12.21 -517,933 -1,443,109 -222,921 -150,199 0 -2,334,162 Net book value as at 31.12.21 1,601,182 1,786,487 226,110 492,454 782,545 4,888,778 Acquisition costs as at 01.01.20 1,491,693 2,326,299 343,733 427,014 633,683 5,222,422 Reclassication 343,386 172,562 847 977 -539,554 -21,781 Acquisition of subsidiary 145,918 356,500 62,418 26,846 293,556 885,238 Acquisitions during the year -33,008 -93,169 -386 -690 0 -127,253 Disposals and scrapping during the year -11,022 -15,517 -119 -3,248 261 -29,645 Acquisition costs as at 31.12.20 1,936,967 2,746,675 406,493 450,899 387,946 5,928,980 Accumulated depreciations and write-downs as at 01.01.20 -317,266 -905,920 -132,983 -85,755 0 -1,441,924 Depreciations during the year -67,607 -216,699 -33,882 -33,613 0 -351,801 Accumulated deprecations and write-downs on disposals and scrapping 1,825 82,909 386 603 0 85,723 Currency translation differences 1,099 -3,732 2,133 121 0 -379 Accumulated depreciations and write-downs as at 31.12.20 -381,949 1,043,442 -164,346 -118,645 0 -1,708,381 Net book value as at 31.12.20 1,555,018 1,703,233 242,147 332,254 387,946 4,220,599 NOTE 3.2 PROPERTY, PLANT AND EQUIPMENT NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 120 ANNUAL REPORT 2021 Description of depreciations Estimated lifetime Depreciation method Scrap value Land and buildings 10-25 years linear 10% Plant,machinery,operatingequipment,xturesetc. 3-20years linear 0%-10% Other operating equipment 3-8 years linear 0% Ships 25 years linear 10% ACCOUNTING POLICIES Property, plant, and equipmentiscapitalizedat acquisition cost,lessaccumulateddepreciationandwritedowns.When assets are sold, or divested, the book value is deducted, and any loss or gain entered to the Income Statement. Ordinary depreciation commences from the date on which the asset goes into normal operation and is calculated based on its economic lifespan. Depreciation is assigned in a straight line over the expected economic lifespan of the assets, taking into consideration the estimated residual value. If an asset comprises signicant components with varying lifespan, these components are depreciated separately. The scrap value of the property, plant, and equipment as well as the depreciation period and depreciation method employed are reassessed annually. Facilities under construction are not depreciated. Deprecia- tion is charged to expenses when the facilities are ready for use. If the situation or circumstances indicate that the carry- ing amount of an asset cannot be recovered, an assessment is made about whether to write-down its value. If the recover- able value of the assets is less than the carrying amount and the impairment is not expected to be temporary, the assets are written down to the recoverable value. The recoverable value is the greater of net sales price or value in use. Value in useisthepresentvalueofthefuturecashows,whichthe asset will generate. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 121 ANNUAL REPORT 2021 NOTE 3.3 LEASING Right of use Land, buildings Ships and DKK 1,000 & property other equipment Total Beginning balance 01.01.21 107,108 239,376 346,484 Additions 10,322 10,752 21,074 Adjustments 17,267 305 17,572 Depreciation -7,835 -88,632 -96,468 Effect of changes in currency exchange rate 0 13,443 13,443 Ending balance 31.12.21 126,861 175,244 302,105 Lease liability Beginning balance 01.01.21 -136,031 -252,182 -388,213 Additions -9,962 -3,878 -13,840 Effect of changes in currency exchange rate 0 1,898 1,898 Adjustments -17,266 -304 -17,570 Lease payments 12,769 102,482 115,251 Interests -2,554 -5,050 -7,604 Effect of changes in currency exchange rate 0 -23,344 -23,344 Ending balance 31.12.21 -153,043 -180,378 -333,421 Current lease liability -9,399 -78,608 -87,668 Non-current lease liability -143,644 -101,769 -245,753 Maturity analysis, undiscounted cash ow Up to 1 year 87,668 1-2 years 51,216 2-3 years 48,550 3-4 years 46,710 4-5 years 11,257 More than 5 years 88,020 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP 122 ANNUAL REPORT 2021 Right of use Land, buildings Ships, boats and DKK 1,000 & property plant & equipment Total Beginning balance 01.01.20 133,717 199,106 332,823 Acquisition costs from merged company -2,586 -17,179 -19,765 Additions 0 189,019 189,019 Adjustments -12,590 -9,848 -22,438 Depreciation -11,281 -119,426 -130,707 Effect of changes in currency exchange rate 178 4,081 4,259 Ending balance 31.12.20 107,439 245,754 353,193 Lease liability Land, buildings Ships, boats and & property plant & equipment Total Beginning balance 01.01.20 135,140 198,253 333,393 Additions 15,772 196,360 212,132 Effect of changes in currency exchange rate 0 -8,497 -8,497 Lease payments -12,745 -121,824 -134,569 Interests 2,566 7,816 10,382 Effect of changes in currency exchange rate -2,962 -13,306 -16,268 Ending balance 31.12.20 137,771 258,801 396,572 Maturity analysis, undiscounted cash ow Up to 1 year 131,337 More than 1 year 265,235 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP 123 ANNUAL REPORT 2021 Bakkafrost has applied the rules for short-term leases and leas- es with low value leasing assets and has expensed these in the Income Statement. The amount is not material to the Group. Accounting policies Basedontheaccountingpolicyapplied,Bakkafrostrecognizes a right-of-use asset and a lease liability at the commencement date of the contract for all leases, conveying the right to control theuseofanidentiedassetforaperiod.Thecommencement date is the date on which a lessor makes an underlying asset available for use by a lessee. Therightofuseassetsisrecognizedatcost.Thecostofthe asset consists of the total discounted lease payments (the lease obligation), plus lease payments paid at contract of the agreement (e.g., upfront payments) less any lease incentives re- ceived, plus any costs directly related to the conclusion of the agreement and the obligation to demolish or restore the asset after use. Subsequent measurement of the leasing asset is done according to the same practice as for similar assets, that is owned by the company.Thismeansthatleasedassetsareclassiedastangi- blexedassets,evenifitislegallyarightofuseasset. Theleaseobligationisrecognizedatthepresentvalueofthe lease payments obtained by discounting the lease payments, using the company's marginal borrowing rate, since the internal ratecannotbereasonablydened. Theleasepaymentsconsistofthexedleasepayments,guar- anteed residual values and payment for exercise of purchase option or payment for cancellation of lease when considered reasonably certain that the options are exercised. In addition, variable lease payments which are adjusted, based on an index, whereas consumption-based leasing payments are not recog- nizedaspartofthecostoftheleaseassetandliability. The lease payments are distributed between an instalment por- tion and an interest portion. The lease obligation is recalculated at a constant interest rate, corresponding to the discount rate used. At initial recognition, the value of the leased asset cor- responds to the value of the lease obligation, unless upfront payments and/or there are recovery obligations regarding the asset. The Group chose to apply the two practical exceptions in IFRS 16 regarding short term leases and low value assets. Short term leases represent lease agreements shorter than 12 months from the date of the contract, and low value assets represent lease agreements that are lower than DKK 35,000 each. NOTE 3.4 COMPANIES IN THE GROUP The consolidated accounts for 2021 include the following subsidiaries and associates: Subsidiary Companies Nominal Currency Nature of Business Head Ofce Ownership share capital Bakkafrost Farming P/F DKK Salmon farming Glyvrar 100% 19,762 Bakkafrost Processing P/F DKK Value adding of salmon (VAP) Glyvrar 100% 150,000 Bakkafrost Sales P/F DKK Sales of salmon and VAP products Glyvrar 100% 667 Bakkafrost Packaging P/F DKK Production of styrofoam boxes Glyvrar 100% 8,022 HavsbrúnP/F DKK Productionandsalesofshmeal,shoilandshfeed Fuglafjørður 100% 2,000 Bakkafrost UK Ltd. GBP Sales of salmon Grimsby 100% 2£ Bakkafrost USA LLC USD Sales of salmon Clifton,New Jersey 100% 2 mUSD FörkaP/F DKK Productionofbiogasandfertilizer Glyvrar 100% 5,000 The Scottish Salmon Company Limited GBP Salmon Farming Edinburgh 100% 20,000,000 Scottish Salmon 2020 (Jersey) Limited GBP In liquidation Edinburgh 100% 17,530,000 07.07.2021 P/F DKK Freight transportation of goods Tórshavn 70% 350 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP 124 125 ANNUAL REPORT 2021 Carrying Carrying Associated Companies Head Net Share of value value DKK 1,000 Ofce Ownership Additions the result 2021 2020 Pelagos P/F Fuglafjørður 30% 0 28,420 88,307 59,887 Salmon Proteins P/F Eiði 79% -2,033 376 4,864 6,521 Svínoyar rognkelsisstøð Sp/f Svínoy 42% 0 0 733 733 Total 93,904 67,141 Total assets Total assets Equity Equity Result Result 2021 2020 2021 2020 2021 2020 Pelagos P/F 540,104 331,598 291,441 197,645 97,495 18,519 Salmon Proteins P/F 9,557 9,539 6,183 8,277 407 341 Svínoyar rognkelsisstøð Sp/f 8,386 6,896 -842 -5 -837 -1,480 Voting rights 30%. The voting rights are limited in the Articles of Association of P/f Salmon Proteins. Information from 2020 NOTE 3.5 SHARES AND HOLDINGS IN OTHER COMPANIES Carrying Carrying DKK 1,000 amount amount Companies 2021 2020 Others 55,321 55,318 Total 55,321 55,318 ACCOUNTING POLICIES Shares and holdings in which the Group does not have signicant inuence are valued at cost as fair value cannot be measured reliably. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 126 ANNUAL REPORT 2021 NOTE 3.6 INVENTORY DKK 1,000 2021 2020 Raw materials and goods in-progress 514,977 576,355 Finished goods 194,329 199,677 Total inventory 709,306 776,032 Raw materials primarily consist of raw material to produce shmeal,shoilandshfeedandpackagingmaterialsused in processing. Goodsin-progressincludesemi-nishedproductsandspare parts. Finished products include all products ready for sale, such asshfeed,freshandfrozenwholesalmon,aswellaspro- cessed salmon products. Inventories are measured at full cost price. ACCOUNTING POLICIES Inventories consist of inventories in the Farming FO unit, Farming SCT unit, VAP unit and the FOF unit. FARMING FO AND FARMING SCT Inventoriesincludemainlyfeed,packagingmaterialsandn- ished goods. Inventories of goods are stated at the lower of costandnetrealizablevalue. The cost of processed goods is a full production cost that in- cludes direct material and personnel costs, and a percentage of indirect processing costs. Interest costs are not included in the value of inventory. The cost price of purchased goods is the acquisition price. Cost is based on the FIFO principle. Net realizable value is estimated sales price less selling expenses. VAP Inventories consist of raw material, additives, packaging ma- terialandnishedgoods.RawmaterialintheVAPunitcon- sist basically of processed salmonids. Raw material is meas- ured at fair value at the time of harvesting. Packaging material and additives are valued at the lesser of cost or expected sales price less sales costs. The FIFO princi- ple is used concerning the periodic assignment of inventory costs. Finishedgoodsininventory,freshorfrozen,aremeasuredat the lesser of cost or the expected sales price less sales costs. In a case, where the cost price exceeds the sales price less sales cost, impairment is entered and charged to the Income Statement. The cost price of goods produced in-house is the full pro- duction cost, including production costs, which can be only indirectly allocated to produce goods, less general adminis- tration costs. FOF Raw materials and purchased commodities are valued at the lowerof historicalcost and net realizable value in accord- ance with the FIFO principle. Finishedgoodsareshmeal,oilandfeedreadyfordelivery tocustomer,valuedatthelowerofcostand netrealizable value. The cost of nished goods includes any processing costs that have incurred. Processing costs consist of logistics, handling and storage costs. The cost price of goods produced in-house is the full pro- duction cost, including production costs, which can be only indirectly allocated to produce goods, less general adminis- tration costs. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 127 ANNUAL REPORT 2021 NOTE 3.7 BIOLOGICAL ASSETS DKK 1,000 2021 2020 Biological assets carrying amount 01.01. 2,117,024 1,901,730 Increase due to production or purchases 3,158,703 3,012,251 Reduction due to harvesting or sale (costs of goods sold) -2,931,526 -2,761,374 Reduction due to mortality (costs of incidents-based mortality) -307,551 -125,806 Fair value adjustment at the beginning of the period reversed -145,387 -27,695 Fairvaluereclassicationcurrencytranslationdifferencesprioryear -24,452 0 Fair value adjustments at the end of the period 604,707 145,387 Reversal of elimination at the beginning of the period 80,083 59,121 Eliminations -134,193 -80,083 Currency translation differences 30,881 -6,507 Biological assets carrying amount 31.12. 2,448,289 2,117,024 Cost price biological assets 1,946,894 2,058,228 Fair value adjustments at the end of the 604,707 145,387 Eliminations -134,193 -80,083 Currency translation differences 30,881 -6,508 Biological assets carrying amount 2,448,289 2,117,024 Biomass on average (tonnes) < 1 kg 5,070 5,777 1 < 2 kg 7,673 10,258 2 < 3 kg 10,026 10,880 3 < 4 kg 13,538 11,921 4 kg < 22,288 25,642 Volume of biomass at sea 58,595 64,478 Number of sh on average (thousand) < 1 kg 9,770 11,960 1 < 2 kg 5,255 6,192 2 < 3 kg 3,873 4,338 3 < 4 kg 3,920 3,415 4 kg < 4,595 5,324 Total number of sh at sea 27,413 31,229 2021 2020 Harvested volumes 96,889 85,686 Number of smolts released (thousand) Q1 4,044 3,295 Q2 5,233 5,757 Q3 7,022 6,577 Q4 9,236 9,418 Total number of smolts released 25,535 25,047 Sensitivity analysis of biomass DKK 1,000 Change in discount rate +1% -150,709 -150,403 Change in discount rate -1% 167,502 169,708 Change in sales price +5 DKK 423,223 466,110 Change in sales price -5 DKK -423,223 -465,110 Change in biomass volume +1% 8,982 5,414 Change in biomass volume -1% -8,982 -5,414 One year forward prices in EUR FCA Oslo At year end 6.72 4.36 Q1 (forward) 6.86 4.85 Q2 (forward) 6.81 5.39 Q3 (forward) 5.66 5.10 Q4 (forward) 6.15 5.25 * Source Fish Pool NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 128 ANNUAL REPORT 2021 VALUATION OF BIOLOGICAL ASSETS IAS 41 requires biomass to be accounted for at the estimated fair value net of sales costs and harvesting costs. The calcu- lation of the estimated fair value is based on market prices forharvested sh. Inthe accounts, thechangein estimated fair value is entered to the Income Statement on a continuous basis. The Group’s biological assets are salmon at all stages of the life cycle.Theshisdividedintotwomaingroups,dependingon thestageofthelifecycle.Therstgroupisshproducedon landinfreshwater.Thesecondis,whenthesharereleased to sea. Fortherstgroup,historicalcostisdeemedareasonableap- proach to fair value, as there is little biological transforma- tion. This assessment must be seen in the light of the fact that smolts are currently released to sea at a stage when their weight is still relatively low. For the second group, the fair value is calculated by applying a present value model at level 3 in the fair value hierarchy in IFRS 13. In accordance with the principle in IFRS 13 for highest and best use, the Group considers optimal harvest weight to be for Farming FO 5.2 kg gutted weight (6.3 kg live weight) and for Farming SCT 4.9 kg gutted weight (6.0 kg live weight). The valuation model The valuation model calculates the net present value of ex- pectedcashowfrombiologicalassets. Changes to estimated fair value of biological assets are pre- sented on the line Fair value adjustments of biological assets in the Income Statement. The measurement unit is the individual sh. However, for practicalreasons, cash ows and estimates arecarriedout per locality. Main components in the model are: • Volume • Production costs • Sales price • Discount rate Volume Estimated harvest volume is based on the actual number of shintheseaonthe balance sheet date,minus estimated future mortality from balance sheet date and multiplied by optimalharvestweightpersh. Future monthly mortality is estimated to be for Farming FO 0.9% (0.6%) and for Farming SCT 1.5% (1.0%) of the number of incomingshpermonth. Cost Estimated future costs are based on the Group´s prognoses per locality. Cost comprises mainly feed, production, harvest, and transport costs. Price Estimated sales prices are based on externally quoted prices from Fish Pool with adjustments to local conditions. Fish Pool is a marketplace for nancial purchase and sale agreementsforsuperiorNorwegiansalmonsize3-6kggut- ted weight. The volume on Fish Pool is, however, limited. This marketmaythereforebeconsideredinsufcientlyactiveand effective. Despite this, Bakkafrost’s opinion is that the ob- servable forward prices are the best approach to a price for the sale of salmon. The prices are reduced for harvesting costs, freight costs to market to arrive at a net value back-to-farm and for Farming FOalsorevenuetax.Thevaluationalsoreectstheexpected quality grading. Discounts The estimatedfuture cash ow is discounted monthly. The monthly discount rate on 31 December 2021 is 6% (6%) per month for Farming FO and 4% (6%) per month for Farming SCT. The discount rate considers a risk adjustment and time NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 129 ANNUAL REPORT 2021 The risk adjustment considers the volatility in volume, cost, and price. Mortality Mortality above normal will be accounted for when a farming site either experiences elevated mortality over time or mor- tality due to an incident. Costsrelatedtoabnormalmortalitywillberecognizedinthe Income Statement and presented on the line for changes in inventory,whilenormalmortalityisclassiedaspartofpro- duction costs. Bakkafrost uses a common indicator and threshold for all farming sites to assess normal and abnormal mortality. In- dication of abnormal mortality is when a farming site in a month registers mortality exceeding 1.5% for Farming FO and 4%forFarmingSCToftheincomingnumberofsh.Amore detailed assessment is then carried out to evaluate, whether mortality is abnormal. These assessments consider the cause ofmortalityandthesizeofthesh. SIGNIFICANT ASSUMPTIONS SENSITIVITY The estimate of fair value of biomass will always be based on uncertain assumptions, even though the company has built substantial expertise in assessing these factors. The Group considers three components to be key param- eters for valuation. These are: average price, monthly dis- count rate and estimated biomass volume. In the table above a simulated sensitivity analysis to changes in fair value of the biological assets is portrayed in the event of changes in these parameters. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 130 ANNUAL REPORT 2021 NOTE 3.8. ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES DKK 1,000 2021 2020 Accounts receivable 620,356 490.116 Provisions for bad debts -32 -41 Net accounts receivables 620,324 490,075 VAT 78.227 12.087 Other 93.979 49.344 Tax receivables 109.701 72,143 Other receivables 281.907 133,574 Total short-term receivables 902,231 623,649 Long-term receivables 8,102 8,101 Total accounts receivable and other receivables 910,333 631,750 AGE DISTRIBUTION OF ACCOUNTS RECEIVABLE DKK 1,000 2021 2020 Receivables not overdue 508,400 420,212 Overdue 0–6 months 103,258 66,194 Overdue more than 6 months 8,666 3,669 Total 620,324 490,075 * Loan to assoicates The Group’s exposure to credit risks related to accounts receivable is disclosed in Note 4.1. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 131 ANNUAL REPORT 2021 CURRENCY DISTRIBUTION OF RECEIVABLES DKK 1,000 2021 2020 DKK 92,104 59,217 EUR 318,369 113,778 USD 126,231 214,800 GBP 66,754 80,200 NOK 2,803 16,567 Others 14,063 5,512 Total 620,324 490,075 CURRENCY EXPOSURE TO ACCOUNTS RECEIVABLE The Group holds accounts receivable in foreign currencies amounting to DKK 528 million at year-end 2021. (2020: DKK 431 million). Belowispresentedthebookvalueofreceivablesspeciedincurrency,translatedintoDKKemployingthecurrencyvalueat 31.12. ACCOUNTING POLICIES Accounts receivable and other receivables are presented at face value less provisions for bad debts. Provisions for bad debts are made based on an individual assessment of the re- ceivables concerned. Due to insignicant costand the short creditperiod,amortizedcostisequivalenttofacevalueless foreseeable losses. NOTE 3.9 CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of short-term bank deposits and were DKK 509 million at year-end 2021, compared to DKK 467 million at year-end 2020. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 132 ANNUAL REPORT 2021 NOTE 3.10 SHARE CAPITAL AND MAJOR SHAREHOLDERS Share capital: DKK 1,000 2021 2020 Share capital at 1 January 59,143 59,143 Share capital at 31 December 59,143 59,143 The parent company's share capital comprises: DKK No. of Shares Face Value Share Capital Ordinary shares 59,143,000 1 59,143,000 Total share capital 59,143,000 Reconciliation of outstanding shares: 2021 2020 Outstanding shares at 1 January 59,044,071 59,142,108 Purchase of treasury shares 0 -134,500 Sale of own shares to cover the employee bonus program 31,094 36,463 Outstanding shares at 31 December 59,075,165 59,044,071 Treasury shares at 31 December 67,835 98,929 SHAREHOLDERS These shareholders held directly or indirectly more than 5% of the shares in the company as at 31 December 2021: Odd- vør Jacobsen, Regin Jacobsen and Folketrygdfondet. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 133 ANNUAL REPORT 2021 Name Position No. of shares Shareholding Rúni M. Hansen Chairman of the Board 10,761 0.02% Johannes Jensen Deputy Chairman of the Board 0 0.00% Teitur Samuelsen Member of the Board 100 0.00% Annika Frederiksberg Member of the Board 16,250 0.03% Øystein Sandvik Member of the Board 0 0.00% EinarWathne MemberoftheBoard 0 0.00% ReginJacobsen ChiefExecutiveOfcer 4,617,351 7.81% Odd Eliasen Managing Director 184,969 0.31% HøgniD.Jakobsen ChiefFinancialOfcer 74,593 0.13% Shares owned directly and indirectly by the members of the Board of Directors and Group Management: Dividend The Board has proposed a dividend per share of DKK 5.14 for 2021. DKK 216 million were paid out for 2020. The div- idends proposed are to be approved at the Annual General Meeting and if approved, the total dividend payment will amount to DKK 304 million. The dividend proposal has not beenrecognizedas a liability at 31 December2021 but is presented as an item within equity. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 134 ANNUAL REPORT 2021 NOTE 3.11 INTEREST-BEARING DEBT DKK 1,000 2021 2020 Long-term interest-bearing debt 2,634,968 2,219,690 Total long-term interest-bearing debt 31.12. 2,634,968 2,219,690 Total interest-bearing debt 2,634,968 2,219,690 Cash and cash equivalents -509,157 -466,939 Net interest-bearing debt 2,125,811 1,752,751 ThematuritystructureoftheGroup’snancialcommitments is based on undiscounted contractual payments. As the credit limit is not necessarily in the same currency of debt drawn, currencyuctuationsaffecttheamountavailableunderthe facilities at any time. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 135 ANNUAL REPORT 2021 The maturity plan of the Group's interest-bearing debt is as follows 2021 2020 DKK 1,000 Carrying Contractual Carrying Contractual amount payments amount payments Credit facilities -2,634,968 -2,648,059 -2,219,690 -2,237,307 Gross interest-bearing debt -2,634,968 -2,648,059 -2,219,690 -2,237,307 Credit line 5,205,550 3,444,396 Bank guarantees -17,200 -17,200 Available credit lines 2,553,382 1,207,506 Cash and cash equivalents 509,157 466,939 Total available credit lines 3,062,539 1,674,445 REMAINING PERIOD 31.12.2021 1–3 months 3–12 months 1–5 years > 5 years Total Interest-bearing bank loans 0 0 2,634,968 0 2,634,968 Accounts payable and other debt 543,394 170,997 0 0 714,391 REMAINING PERIOD 31.12.2020 1–3 months 3–12 months 1–5 years > 5 years Total Interest-bearing bank loans 0 0 2,219,690 0 2,219,690 Accounts payable and other debt 591,742 37,422 0 0 629,164 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 136 ANNUAL REPORT 2021 The difference between the carrying amount and the total expected payments in the table above is due to upfront ar- rangement and legal fees incurred in connection with the re- nancingofthecreditfacilities.Onelong-termbankborrow- ing is drawn from a revolving credit facility, under which the Group may draw and pay down any amount. The contractual paymentsillustratedinthetableabovedonotreectrollo- ver dates of loans drawn but are based on the maturity date of the credit facilities. INTEREST-BEARING DEBT IN MORE DETAIL Financing of the Bakkafrost Group is mainly executed by the parentcompany.Subsidiariescanonlyenterexternalnanc- ing if it is seen favourable for the whole Bakkafrost Group. New sustainability-linked nancing In December 2021 The Group entered a term sheet for a sus- tainability-linked EUR 700 million multicurrency revolving creditfacilitywithatenorofveyears.TheFacilityAgree- ment was signed in March. ThepurposeoftheFacilitywastorenanceBakkafrost'sex- isting bank facilities as well as general corporate purposes including acquisitions. The Facility will serve as a robust and exiblenancialframeworkfortheGroup'sinvestmentplans aimed at organic growth for the Group and structural cost reductions in Scotland, as described at the Capital Markets Day 2021. As The Facility is sustainability-linked means that the margin payable will be linked to Bakkafrost's performance against certain sustainability KPIs, consistent with the Group's over- allESGtargetsandambitions.TheFacilityincludesexibility for the parties to agree an additional amount of up to EUR 150 million during the tenor. The principal nancial cove- nants of the Facility are: (1) an equity ratio of no less than Maturity analysis – contractual payments DKK 1,000 2022 2023 2024 2025 2026 Long-term credit facilities 0 0 0 0 2,634,968 Gross interest-bearing debt 0 0 0 0 2,634,968 Reconciliation of development in interest-bearing debt 2020 Cash ows Acquistion Reclassication FX movements 2021 Long term interest-bearing debt 2.219.690 415.278 0 0 0 2.634.968 Total interest-bearing debt 2.219.690 415.278 0 0 0 2.634.968 2019 Cash ows Acquisition Reclassication FX movements 2020 Long term interest-bearing debt 2,328,232 -108,542 0 0 0 2,219,690 Total interest-bearing debt 2,328,232 -108,542 0 0 0 2,219,690 35% and (2) an interest coverage ratio (EBITDA to net interest payable) of no less than 2x. The Bakkafrost Group complied with these covenants at the end of 2021. Coöperatieve Rabobank U.A, DNB Bank ASA and Nordea Bank ABPm (Filial i Norge), have agreed to continue their support as lenders. At the end of 2021, the Group had unused committed credit facilities of DKK 3,063 million (DKK 2,163 million). In addi- tion, the Group has an accordion of EUR 150 million. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 137 ANNUAL REPORT 2021 NOTE 3.12 MORTGAGES AND GUARANTEES Carrying amount of debt secured by mortgages and pledges TheBakkafrostGrouphasagroupnancing.TheGroupcom- panies are liable jointly and severely for the balance without limitations for each other. As part of the guarantees are also any insurance refunds. In addition, the shares in larger subsidiaries have been pledged to the bank syndicate. DKK 1,000 2021 2020 Long-term debt to nancial institutions 2,634,968 2,219,690 Carrying amount of assets pledged as security for recognized debt Licences 3,720,158 4,493,395 Property, plant and equipment 3,606,250 3,320,949 Biological assets (biomass) 2,448,289 2,117,024 Inventory 703,600 763,146 Total 10,478,297 10,694,514 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 138 ANNUAL REPORT 2021 NOTE 3.13 DERIVATIVES DKK 1,000 2021 2020 Currency swaps regarding forward contracts 7,809 6,449 Interest and currency swaps 0 4,741 Derivatives total 7,809 11,190 The fair value of derivatives held at the balance sheet date can be allocated as follows: Recognized in Recognized in the Income Recognized the Income Recognized Fair Value Statement in equity Fair Value Statement in equity DKK 1,000 2021 2021 2021 2020 2020 2020 Currency derivatives 7,809 0 7,809 6,449 0 6,449 Interest and currency derivatives 0 0 0 4,741 0 4,741 Total 7,809 0 7,809 11,190 0 11,190 The expected timing of the effect on the income statement is as follows: Interest and Interest and Currency currency Total Currency currency Total derivatives derivatives 2021 derivatives derivatives 2020 Withinoneyear 4,602 0 4,602 6,212 3,498 9,710 Betweenoneandveyears 3,207 0 3,207 237 1,243 1,480 Afterveyears 0 0 0 0 0 0 Total 7,809 0 7,809 6,449 4,741 11,190 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 3 139 ANNUAL REPORT 2021 FINANCIAL INSTRUMENTS InaccordancewithIFRS9,nancialinstrumentsfallingwith- inits remitare classiedinto thefollowingcategories:fair value with changes in value entered to the Income State- ment, hold until maturity, loans and receivables, available for sale, and other liabilities. Financial instruments at fair value with changes in value entered to the Income Statement Financial instruments, which are held primarily for buying orsellingintheshortterm,areclassiedasbeingheldfor trading purposes. These instruments are included in the cat- egoryofnancialinstrumentsrecognizedatfairvaluewith changes in value entered to the Income Statement alongside forwardcurrencycontracts,whicharerecognizedatfairval- ue with changes in value, entered to the Income Statement. Hedge accounting Interest rate swaps and forward currency settlement con- tracts are used as hedges of its exposure to foreign currency risk, interest expenses and instalment payments in foreign currencies.Thehedgesarecashowhedges. The effective portion of the gain or loss on the hedging in- strumentis recognizeddirectly in other comprehensivein- comeinthecashowhedgereserve. Amounts recognized as other comprehensive income are transferred to the Income Statement, when the hedged trans- actionaffectsprotorloss,andwhennancialliabilitiesare settled,suchaswhenthehedgednancialincomeornan- cialexpenseisrecognized. If the forecast transactions or commitments are no longer ex- pected to occur, the cumulative gain or loss, previously rec- ognizedinequity,istransferredtotheIncomeStatement.If the hedging instrument expires or is sold, terminated, or ex- ercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss, previ- ouslyrecognizedinothercomprehensiveincome,remainin othercomprehensiveincomeuntilrmcommitmentaffects protorloss,orsettlementpaymentsaremade. NOTE 3.14 PROVISIONS Aprovisionisrecognizedwhen,andonlywhen,thecompa- ny has a valid liability (legal or self-imposed) deriving from an event which has occurred, and when it is probable (more likely than not) that a nancial settlement will take place because of that liability, and when the amount in question canbereliablyquantied.Provisionsarereviewedoneach closingdate,andthelevelreectsthebestestimateforthe liability. The Group has no provisions as per 31 December 2021. PROVISIONS FOR ONEROUS CONTRACTS ACCOUNTING POLICIES The Group enters sales contracts for value added salmon products (VAP) on an on-going basis. The contracts involve physical settlement, and deliveries associated with the con- tracts form part of the Group’s normal business activities. The contracts contain no built-in derivative elements. With respect to xed-price contracts, which result in the Group being obligated to sell salmon products at a price less than production cost (including fair value adjustment of raw materials at the point of harvesting), the contracts are considered onerous, and provisions are calculated and en- teredtothestatementofnancialposition.Theprovisionis charged to the Income Statement. SIGNIFICANT ASSUMPTION The company holds long-term sale contracts related to salm- on products. These contracts do not contain any elements of embedded derivatives and are therefore not treated as nancialinstruments.Thecontractsaresettled,basedexclu- sively on the assumption that delivery of salmon products should take place. The contracts are not tradable, nor do they contain a clause for settlement in cash or cash equivalents. Provisions are made for estimated onerous contracts that obligethe Group tosellsh at a pricelessthan calculated production costs including raw materials, biomass, measured at fair value. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 4 140 ANNUAL REPORT 2021 NOTES – SECTION 4 Capital Structure and Financing Items This section gives an insight into the capital structure and nancingitems. NOTE 4.1 FINANCIAL RISK MANAGEMENT CAPITAL MANAGEMENT The Group’s objective, when managing capital, is to maintain a capital structure able to support the operations and max- imizeshareholdervalue.Thefarmingbusinessischaracter- izedbypricevolatilityandchallengingproductiondynamics. The Group must be nancially solid in order to be able to copewithuctuationsinprotsandnancialposition,and the consolidated equity ratio shall at no time be lower than 35 percent. At 31 December 2021, the Group’s equity ratio was 64 percent. The Group manages the capital structure and adjusts corre- sponding to changes in the underlying economic conditions. In December Bakkafrost entered a term sheet for a sustaina- bility-linked EUR 700 million multicurrency revolving credit facilitywithatenorofveyears.Thefacilityagreementwas signed in March 2022. According to the Group’s dividend policy, under normal cir- cumstances, average dividends over several years should be 30to 50percentof theadjustednetprot.The Boardhas proposedadividendofDKK5.14pershareforthenancial year 2021, corresponding to a distribution to shareholders of DKK 304 million. At 31 December 2021, net interest-bearing debt amounted to DKK 2,126 million. Note 3.10 provides an overview of the debt’smaturityproleandinformationonthedebt’snan- cial covenants. Bakkafrost complied with the covenants loan agreements at the end of 2021. FINANCIAL RISK MANAGEMENT The Group has exposure to the following risks from its use ofnancialinstruments:marketrisk,liquidityriskandcred- it risk. This note presents information about the Group’s exposure to each of these risks, the Group’s objectives, poli- cies and procedures for measuring and managing risks. Further quantitative disclosures are included throughout theseconsolidatednancialstatements. The main objective of Bakkafrost’s nancial risk manage- ment policies is to ensure the ongoing liquidity of the Group, denedasbeingatalltimesinapositiontomeettheliabil- ities of the Group as they fall due. This also includes being abletomeetnancialcovenantsonGroupdebtundernormal circumstances. Concerning insurance coverage, the Group insures against material risks, where the insurance is economically viable. The balance between the amount covered by insurance and what is left to own risk varies, depending on the nature of the risk, the value of the assets and prospective liabilities and the cost, actual coverage and the availability of insur- ance. The Board of Directors believe that the most important meas- ureagainstanyriskistohaveastrongnancialposition.At 31 December 2021, the Group’s equity ratio was 64%. Risk management policies and procedures are reviewed reg- ularlytoreectchangesinmarketconditionsandtheGroup’s activities. FINANCIAL RISK FinancialriskcanbedenedastheriskthattheGroupwill notbeabletomeetitsnancialobligations. In addition to bank loans, the Group has nancial instru- ments such as accounts receivables, cash, shares, accounts payables, etc., which are ascribable directly to day-to-day business operations. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 4 141 ANNUAL REPORT 2021 The Group uses nancial derivatives, mainly currency for- ward contracts. The purpose of these instruments is to man- age the currency risks arising from the Group’s operations. TheGroupdoesnotemploynancialinstruments,including nancialderivatives,forthepurposeofarbitrage. Themostimportantnancialrisks,towhichthecompanyis exposed, are interest rate risk, foreign exchange risk, liquidity risk and credit risk. The management monitors these risks on an on-going basis and draws up guidelines, for how these should be managed. MARKET RISK Marketrisk can be dened as the risk that the Group’sin- comeandexpenses,futurecashowsorfairvalueofnan- cialinstrumentswilluctuatebecauseofchangesinmarket prices. Market risk comprises three types of risk: currency risk, interest rates risk and other price risk (such as commod- ity prices and salmon spot prices). Market risk is monitored and actively managed by the Group. Exposuretotheserisksisreducedbydiversication,suitable controls and business tactics. In some cases, market risks are transferred to third parties via contractual price adjustment clauses,butrarelybymeansofnancialderivatives. Foreign exchange risk Because of the international nature of its operations, the Group is exposed to uctuations of foreign currency rates. For risk management purposes, three types of currency ex- posurehavebeen identied: Translationalexposure,Trans- actional exposure and Economic currency exposure: Translational exposure Bakkafrost has subsidiaries abroad in Scotland, England, USA and Denmark. Thus, Bakkafrost faces currency risks arising from the translation of subsidiaries whose functional curren- cy differ from the presentation currency of the Group. The exposure related to equity of foreign subsidiaries is gener- ally not hedged. Transactional exposure Most of the operating companies in the Group are exposed to changes in the value received or paid under foreign currency denominated committed transactions. For the farming seg- ments, exposure arises mainly from export sales, while for the FOF segment, exposure results from the sourcing of raw materials in the international commodities markets. The Group has normally a net positive cash ow exposure from USD and EUR and a net negative cash ow expo- sure from DKK, GBP, and NOK. The predominant exposure comes from the USD. The Group has therefor a policy for a 12-months hedging programme of USD/DKK. The Group cur- rently hedges up to 26% of the 12-months exposure from USD/DKK. Thetablebelowsummarizestheforeigncurrencyexposure on the net monetary position of all Group entities against theirfunctionalcurrency.Theexposureontranslatingthe- nancial statements of subsidiaries into the presentation cur- rency is not included in the analysis. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 4 142 ANNUAL REPORT 2021 Exposure to currency risk Currency DKK 1,000 2021 EUR/DKK GBP/DKK USD/DKK NOK/DKK JPY/DKK Cash and cash equivalents 203,593 0 181,144 0 15,018 Accounts receivable 318,369 66,785 203,383 14,063 2,803 Trade payables -1,253 -88,590 -9,992 0 0 Interest-bearing debt -706,468 -716,025 0 -8,905 0 Forward contracts 0 0 -249,562 7,873 0 Net exposure -185,759 -737,830 124,973 13,031 17,821 2020 EUR/DKK GBP/DKK USD/DKK NOK/DKK JPY/DKK Cash and cash equivalents 211,736 0 125,532 0 9,239 Accounts receivable 113,778 80,200 214,800 16,566 0 Trade payables -35,530 -125,931 -26,581 -37,265 0 Interest-bearing debt -706,733 -724,465 0 -9,075 0 Forward contracts 0 0 0 11,190 0 Net exposure -416,749 -770,196 313,751 -18,584 9,239 Sensitivity analysis Currency DKK 1,000 2021 EUR/DKK GBP/DKK USD/DKK NOK/DKK JPY/DKK Result Net exposure -185,759 -737,830 124,973 13,031 17,821 Historical volatility for the last 5 years 0.28% 7.19% 6.65% 9.31% 7.21% Total effect on Prot of +movements -520 -53,050 8,311 1,213 1,285 -42,761 Total effect on Prot of -movements 520 53,050 -8,311 -1,213 -1,285 42,761 2020 EUR/DKK GBP/DKK USD/DKK NOK/DKK JPY/DKK Result Net exposure -416,749 -770,196 313,751 -18,584 9,239 Historical volatility for the last 5 years 0.31% 8.63% 7.08% 9.05% 8.71% Total effect on Prot of +movements -1,292 -66,468 22,214 -1,682 805 -46,423 Total effect on Prot of -movements 1,292 66,468 -22,214 1,682 -805 46,423 The analysis is based on the currencies that the Group is most exposed to at the end of 2021. The reasonable shifts in exchange rates in the table above are based on 5 years historical volatility. If the relevant cross foreign exchange rates moved by the amounts showed in the table above, the effect on the Group’s net income would be DKK -43 million (2020: DKK -46 mil- lion). NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 4 143 ANNUAL REPORT 2021 Currency forward contracts as at 31 December 2021 Bakkafrost Group buys Bakkafrost Group sells DKK 1,000 DKK 249,562 USD 39,247 NOK 10,950 DKK 7,873 Currency forward contracts as at 31 December 2020 Bakkafrost Group buys Bakkafrost Group sells DKK 1,000 NOK 138,730 GBP 12,684 Signicant exchange rates (average) during the year EUR/DKK GBP/DKK USD/DKK NOK/DKK JPY/DKK 2021 743.70 865.25 629.18 73.18 5.73 2020 743.93 823.78 605.76 70.53 5.88 Interest rate risk The Group is exposed to increase in interest rates as a result ofhavingdebtwithoatinginterestrateterms.Anincreased costofborrowingmightadverselyaffecttheGroup’sprota- bility.TheGroupdoesnothavexedinterestratedebt. Accordingtothe Group’snancepolicy,themain objective of interest rate risk management activities should be to min- imizetheriskofbreachoftheGroup’sdebtcovenantsand toavoidsituationsofnancial distressthatmightjeopard- izestrategicexibility.Tradingininterestratederivativesis undertaken to cover existing exposures. Purely speculative transactions are not allowed. TheGrouphas no xedrateliabilities and is thereforenot exposed to the risk that changes in interest rates might drive changes in market value of outstanding debt. A 100 basis points increase in interest rate at the reporting date would have a negative impact on the income statement amounting to DKK 26 million (2020: DKK 17 million), based on NIBD. Price risk The farming segments are sensitive to uctuations in the spot prices of salmon, which are determined by global supply and demand. The impact of changes in salmon spot prices is partlymitigatedbylong-termcontractsatxedpricesinthe VAPsegment and nancial contracts,however, due tolong productioncycles,itisdifculttorespondquicklytoglobal trends in market prices. Salmon is to a large extent traded based on spot prices, although this would vary with different markets and with the market position of the Group. Other price risk The Group’s FOF segment is active in the international com- modity markets. A large portion of raw materials needed in production is contracted in advance of periodic sales price regulations, this way the risk associated with increases in commodity prices is effectively transferred to feed custom- ers, mainly inside the Group. Constraints in the availability of certain raw materials might result in increased sourcing costs in those cases, where an unexpected surge in sales vol- ume makes it necessary to purchase raw materials outside of previously negotiated purchase agreements. Under these cir- cumstances, it might not be possible to charge the customers withtheincreasedcost,andprotabilitywouldthussuffer. Liquidity risk Liquidity risk arises from the Group’s potential inability to meet its nancial obligations towards suppliers and debt capital providers. The Group’s liquidity situation is closely monitoredandrollingforecastsofcashowsandcashhold- ings are prepared regularly. Liquidityriskis managed throughmaintaining exibilityin funding by securing available committed credit lines, pro- videdbyourbank,andthroughmaintainingsufcientliquid assets with the same relationship bank. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 4 144 ANNUAL REPORT 2021 The Group seeks to maintain committed facilities to cover forecastborrowingsfor the next 24 months, plus nancial headroom to cover the planned investments and unforeseen movements in cash requirements. Please also refer to Note 3.11 for information on committed credit facilities, available credit lines, and maturity of interest-bearing debt. In addition to the above-described sources of liquidity, Bak- kafrost monitors funding options available in the capital markets as well as trends in the availability and cost of such fundingwithaviewtomaintainnancialexibilityandlim- itingrenancingrisk.Bakkafrost’soverallliquidityasat31 December 2021 included DKK 509 million (2020: DKK 467 million) (see Note 3.11) of cash and cash equivalents held in various currencies. Credit risk Credit risk represents the accounting loss that would have to be recognizedif other parties failed to perform as con- tractedand isrelatedtonancialinstrumentssuchascash and cash equivalents, receivables and derivative nancial instruments. Bakkafrost has a Group-wide credit management policy, governed by Bakkafrost’s credit committee. The committee is responsible for granting credits to the Groups customers. In general, Bakkafrost uses credit insurance, bank guaran- tees, parent company guarantees, or other securities such as pledges on biological assets, thus reducing the actual risk on outstandingreceivablessignicantly.Historically,lossesdue to bad debts have been low in Bakkafrost. Recoverable Tax and VAT, included in the balance, also reduces the risk. In addition to such risk mitigating measures, the Group focuses on detailed credit management in operating companies, sup- ported by regular follow up by central functions. The concentration of credit risk is at the outset not con- sidered signicant, since the Group’s customers represent various industries and geographic areas. Counterparty risk against nancial institutions is not considered signicant, due to limited liquid assets and low traded volumes in deriv- atives. For these transactions, the Group relies upon Nordic relationship banks, other relationship banks or widely recog- nizedcommodityexchanges. Thecarryingamountofnancialassetsrepresentsthemax- imum credit exposure. The maximum exposure to credit risk at the reporting date consists of accounts receivables, oth- er receivables and cash and cash equivalents and amounts to DKK 1,411 million as at 31 December 2021 (2020: DKK 1,091 million). For the age distribution of accounts receiva- ble, please refer to Note 3.8. Credit Risk 2021 2020 Accounts receivable 714,304 490,075 Other receivables 78,227 61,431 Tax receivables 109,700 72,143 Cash and Cash equivalents 509,157 466,939 Total 1,411,388 1,090,588 Bakkafrost has implemented a Group-wide cash management policywiththeoverallobjectiveofminimizingcashholdings, while ensuring sufcient liquidity to meet business needs, avoid shortage of cash and limit the need for borrowing. The cashmanagementiscarriedoutfromtheGroup’sheadofce. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 4 145 ANNUAL REPORT 2021 NOTE 4.2 CATEGORIES AND FAIR VALUE OF FINANCIAL INSTRUMENTS Fair value of nancial instruments Allassets/liabilities,forwhichfairvalueisrecognizedordis- closed, arecategorized within the fair valuehierarchy, de- scribed as follows, based on the lowest level input that is signicanttothefairvaluemeasurementasawhole: Level 1: Quoted market prices in an active market (that are unadjusted) for identical assets or liabilities. Level 2: Valuation techniques (for which the lowest level in- putthatissignicanttothefairvaluemeasurementisdirect- ly or indirectly observable). Level 3: Valuation techniques (for which the lowest level in- putthatissignicanttothefairvaluemeasurementisun- observable). For biological assets, the fair value calculation is done using a valuation model (level 3 in the valuation hierarchy), where the value is estimated based on observable market prices per period end. For more information on these calculations, refer to Note 3.7. Forassets/liabilitiesthatarerecognizedatfairvalueonare- curring basis, the Group determines, whether transfers have occurred between Levels in the hierarchy by reassessing cat- egorization(based on the lowestlevelinputthat is signi- cant to the fair value measurement). There have been no transfers into or out of Level 3 fair value measurements. DKK 1,000 Assets and liabilities measured at fair value Fair value Cost amount Level 1 Level 2 Level 3 Biological assets (biomass) 2,448,289 1,843,582 0 0 2,448,289 Assets measured at fair value 31-12-21 2,448,289 1,843,582 0 0 2,448,289 Liabilities measured at fair value 31-12-21 0 0 0 0 0 Biological assets (biomass) 2,117,024 1,971,637 0 0 2,117,024 Assets measured at fair value 31-12-20 2,117,024 1,971,637 0 0 2,117,024 Liabilities measured at fair value 31-12-20 0 0 0 0 0 As at December 31st the Group held the following classes of assets/liabilities measured at fair value: NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 4 146 ANNUAL REPORT 2021 DKK 1,000 2021 2020 ProtfortheyeartotheshareholdersofP/FBakkafrost 964,036 462,845 Fair value adjustment of biomass (IAS 41) -434,868 -118,003 Tax on fair value adjustment 78,276 21,241 Adjusted prot for the year to shareholders of P/F Bakkafrost 607,444 366,083 Ordinary shares as at 01.01. 59,143,000 59,143,000 Emission – increase of share capital 0 0 Ordinary shares as at 31.12. 59,143,000 59,143,000 Time-weighted average number of shares outstanding through the year 59,090,092 59,090,092 2021 2020 Earnings per share Basic (DKK) 16.32 7.83 Diluted (DKK) 16.32 7.83 Adjusted earnings per share (before fair value adjustments of biomass and provision for onerous contracts (adjusted EPS) Basic (DKK) 10.28 6.20 Diluted (DKK) 10.28 6.20 NOTE 4.3 EARNINGS PER SHARE Bakkafrost Group has no stock option programme running at present. Earnings per share (EPS) Basic earnings per share Basic EPS is calculated by dividing the prot attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year, exclud- ing ordinary shares purchased by the company and held as treasury shares. Diluted earnings per share Diluted earnings per share are adjusted for the dilution effect of issued share options. Bakkafrost has no share options out- standing. Adjusted earnings per share Adjusted EPS is based on the reversal of certain fair value adjustments shown in the table above, as it is Bakkafrost’s viewthatthisgureprovidesamorereliablemeasureofthe underlying performance. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 5 147 ANNUAL REPORT 2021 NOTES – SECTION 5 Other Disclosures This section gives more details on the statutory notes that have secondary importance from the perspective of Bakkafrost. The Group had capital expenditure committed but not provided in these accounts at the date of the Statement of Financial Position of approximately DKK 750 million. DKK 651 million for 2022 and DKK 99 million for 2023. NOTE 5.1. CAPITAL COMMITMENTS 2021 2022 2023 Total contractual new Hatchery stations in the Faroe Islands 163.204 99.065 Total contractual new marine sites and development of an existing freshwater site in Scotland. 163.400 0 Total contractual other PPE investments 324.600 0 Total 651,204 99,065 2020 2021 2022 Total contractual new Hatchery stations in the Faroe Islands 340,883 202,587 Total contractual new marine sites and development of an existing freshwater site in Scotland. 102,216 0 Total contractual other PPE investments 109,692 269,253 Total 552,791 471,840 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 5 148 ANNUAL REPORT 2021 DKK 1,000 2021 2020 Based on key personnel Purchase – Betri Trygging P/F 42,593 35,495 Accounts payable – Betri Trygging P/F 50 717 Revenues–Gist&VistP/F 919 806 Purchase–Gist&VistP/F 106 24 Accountsreceivable–Gist&VistP/F 59 92 Revenues – Frost P/F 0 8 Purchase – Frost P/F 669 3,289 Accounts payable – Frost P/F 77 592 Purchase – Vest Pack P/F 0 15,293 Accounts payable Vest Pack P/F 0 1,579 Purchase – Tjaldur P/F 81,766 66,397 Accounts payable – Tjaldur P/F 5,375 6,903 Purchase – Eystur- og Sandoyartunlar P/F 704 63 Accounts payable – Eystur- og Sandoyartunlar P/F 2 3 Based on association Revenues – FF Skagen A/S 14,019 0 Purchase – FF Skagen A/S 0 98 Accounts payable – FF Skagen A/S 0 83 Revenues – Pelagos P/F 27 0 Purchase – Pelagos P/F 51,401 40,752 Accounts – Pelagos P/F 4,028 0 Revenues – Salmon Proteins P/F 8,005 560 Accounts receivable – Salmon Proteins P/F 131 91 Accounts payable – Salmon Proteins P/F 1,941 0 Revenues – Svínoyar Rognkelsisstøð SP/F 411 591 Purchase – Svínoyar Rognkelsisstøð SP/F 6,137 7,439 Accounts receivables – Svínoyar Rognkelsisstøð SP/F 8,102 8,101 Accounts payable – Svínoyar Rognkelsisstøð SP/F 722 0 NOTE 5.2 RELATED-PARTY TRANSACTIONS Related parties are in this respect considered as persons or legalentities,whichdirectlyorindirectlypossesssignicant inuenceontheBakkafrostGroupthroughshareholdingor position and vice versa. Related party transactions are at arm’s length terms. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 5 149 ANNUAL REPORT 2021 There have been no new business combinations in 2020 or 2021. In a transaction closed on 1 January 2022, Bakkafrost has acquired 90% of the shares in Munkebo Seafood A/S. The deal was jointly made with the General Manager of Munke- bo Seafood. The shares were acquired from Paul Lybech, who has been engaged with Munkebo Seafood for almost 25 years. Following the transaction, the General Manager holds 10% of the shares in Munkebo Seafood A/S while Bakka frost holds 90% of the shares. Munkebo Seafood A/S was founded in 1974 and has since theformationbeenengagedinproductionofcannedsh at the factory in the city of Munkebo in Denmark. Today, the company operates a modern canning facility and offers a wide range of products, of which a larger share is based on salmon. Bakkafrost has been one of the largest sup- pliers of raw materials for Munkebo Seafood for the past few years, making Munkebo Seafood a great extension of Bakkafrost'svaluechain.Withaplannedincreaseinpro- duction of salmon over the coming years, from Bakkaf- rost's farms in the Faroe Islands and in Scotland, Munkebo Seafood will have a strengthened raw material base and Bakkafrost will strengthen the ability to further increase the value derived from its salmon by-products. The operations of Munkebo Seafood will remain un- changed. Munkebo Seafood has around 40 employees, and the products are currently sold mainly within the EU mar- ket to retail customers. The key employees of Munkebo AS will continue. There is considerable spare production capacity for future growth within the current facility. With the acquisition of Munkebo Seafood, Bakkafrost can now offer a wider range of products. Bakkafrost of- fersfresh,frozen,andsmokedsalmonproducts,andnow canned food is added. Bakkafrost has a global sales net- work, and Munkebo Seafood's products will now be offered in a wider market as a supplement to Bakkafrost's other consumer packaged products. The fair value of intangible assets has been determined on anestimatedfairvalue.Fairvaluehas beenidentiedin customer relationship employing generally accepted valu- ation techniques. The market value of the customer rela- tionship is measured to DKK 6.2 million. The fair value of property, plant and equipment has been determined based a 3rd party valuation. The fair value of receivables has been determined based an estimate of an age-distributed debtor list and historical guresondoubtfuldebtors. The fair value of the inventory has been determined based on inventory lists, historical sales data, and subtraction of obsolete goods. NOTE 5.3 BUSINESS COMBINATIONS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 5 150 ANNUAL REPORT 2021 Book value Fair Value DKK 1,000 31/12/2021 adjustment Fair value Goodwill 0 7,586 7,586 Intangible assets 7 0 7 Property, plant, and equipment – incl. IFRS 16 13,665 0 13,665 Account’s receivables 8,480 0 8,480 Inventories 21,238 0 21,238 Other current assets, excluding cash and bank 2,202 0 2,202 Total assets 45,592 7,586 53,178 Deferred taxes and other taxes 1,091 1,157 2,248 Long-term liabilities, interest-bearing 7,405 0 7,405 Accounts payable 13,733 0 13,733 Other payable 4,404 0 4,404 Liabilities 26,633 1,157 27,790 Net assets 18,959 6,429 25,388 SECTION 5 151 ANNUAL REPORT 2021 NOTE 5.5 AUDITOR’S FEES Fees paid to auditors (ex. VAT) break down as follows: DKK 1,000 2021 2020 Statutory auditing 1,262 1,357 Tax advisory services 55 50 Other services 300 407 Total auditor’s fees 1,617 1,814 NOTE 5.4 EVENTS AFTER THE DATE OF THE STATEMENT OF FINANCIAL POSITION This is regarding new information regarding the company’s nancialpositiononthestatementofnancialposition,which isreceivedafterthedateofthestatementofnancialposi- tion,hasbeenrecognizedintheannualaccounts.Eventsafter thedateofthestatementofnancialposition,whichdonot affect the company’s nancial position on the statement of nancial position date, but which will affect the company’s futurenancialposition,aredisclosedifmaterial. SECTION 5 152 ANNUAL REPORT 2021 NOTE 5.7 ALTERNATIVE PERFORMANCE MEASURES TheGroupsnancialinformationispreparedinaccordance withinternationalnancialreportingstandards(IFRS).Inad- dition, the management’s intention is to provide alternative performance measures, which are regularly reviewed by the management to enhance the understanding of the company’s performance,butnotreplacingthenancialstatementspre- pared in accordance with IFRS. The alternative performance measures presented may be determined or calculated dif- ferently by other companies. Bakkafrost’s experience is that these APM’s are frequently used by analysts, investors and other parties. TheseAPM’sareadjustedIFRSmeasuresdened,calculated and used in a consistent and transparent manner over the years and across the company where relevant. NIBD Net interest-bearing debt consists of both current and non-current interest-bearing liabilities, less related current andnon-currenthedginginstruments,nancialinstruments, such as debt instruments and derivatives, and cash and cash equivalents. The net interest-bearing debt is a measure of the Group’s net indebtedness that provides an indicator of the overall balance sheet strength. It is also a single measure that can be used to assess both the Group’s cash position and its indebtedness. The use of the term ‘net debt’ does not neces- sarily mean that the cash included in the net debt calculation is available to settle the liabilities included in this measure. Net debt is an alternative performance measure as it is not denedinIFRS.ThemostdirectlycomparableIFRSmeasure is the aggregate interest-bearing liabilities (both current and non-current) and cash and cash equivalents. A reconciliation from these to net debt is provided below. 31.12.2021 31.12.2020 DKK 1,000 Cash and cash equivalents -509,157 -466,939 Long- and short-term interest-bearing debt 2,634,968 2,219,690 Net interest-bearing debt 2,125,811 1,752,751 NOTE 5.6 GOING CONCERN WithreferencetotheGroup’sprots,nancialstrengthand long-termforecastsfortheyearsahead,itisconrmedthat thenancialstatementsfor2021arebasedontheassump- tion that Bakkafrost is a going concern. In the opinion of the Board,theGroup’snancialpositionisgood. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP SECTION 5 153 ANNUAL REPORT 2021 DKK 1,000 2021 2020 EBIT 1,144,685 691,123 Fair value adjustments of biological assets -434,868 -118,003 Income from associates -30,112 -5,546 Revenue tax – FO 141,489 53,584 Operational EBIT 821,194 621,158 Operational EBIT Operational EBIT is EBIT aligned for fair value adjustments, onerous contracts provisions, income from associates and revenue tax – FO. Operational EBIT is a major alternative performance measure in the salmon farming industry. A reconciliation from EBIT to Operational EBIT is provided below. Operational EBIT per kg: EBITDA Earnings before interest, tax, depreciations and amortiza- tions(EBITDA)isakeynancialparameterforBakkafrost’s FOF segment. EBITDA before other income and other expens- esisdenedasEBITDAlessgainsandlossesondisposalsof xedassetsandoperationsandisreconciledinthesection Group overview. This measure is useful to users of Bakkaf- rost’s nancial informationin evaluatingoperatingprota- bility on a more variable cost basis, as it excludes deprecia- tionsandamortizationexpensesrelatedprimarilytocapital expenditures and acquisitions, which occurred in the past, nonrecurring items, as well as evaluating operating perfor- mance in relation to Bakkafrost’s FOF segments competitors. The EBITDA margin presented is dened as EBITDAbefore other income and other expenses divided by total revenues. Farming FO segment:: Operational EBIT Farming FO segment Total harvested volumes FO (gw) VAP segment: Operational EBIT VAP segment Total volumes produced (raw material gw) Farming FO and VAP segment: Operational EBIT Farming FO and VAP segment Total harvested volumes FO (gw) Farming SCT segment: Operational EBIT Farming SCT segment Total harvested volumes SCT (gw) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP 154 ANNUAL REPORT 2021 DKK 1,000 2021 2020 ProtfortheyeartotheshareholdersofP/FBakkafrost 964,036 462,845 Fair value adjustment of biomass -434,868 -118,003 Tax on fair value adjustment and onerous contracts provisions 78,276 21,241 Adjusted prot for the year to shareholders of P/F Bakkafrost 607,444 366,083 Time-weighted average number of shares outstanding through the year 59,064,994 59,090,092 Adjusted earnings per share (before fair value adjustment of biomass and provisions for onerous contracts) (adjusted EPS) 10.28 6.20 Adjusted EPS Adjusted EPS is based on the reversal of certain fair value adjustments shown in the table above, as it is Bakkafrost’s viewthatthisgureprovidesamorereliablemeasureofthe underlying performance. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP 155 Financial Statements P/F BAKKAFROST 156 ANNUAL REPORT 2021 P/F BAKKAFROST Table of Contents P/F BAKKAFROST – Income Statement for the year ended 31 December 157 P/F BAKKAFROST – Statement of Financial Position as at 31 December 158 P/F BAKKAFROST – Cash Flow Statement for the year ended 31 December 160 P/F BAKKAFROST – Statement of Changes in Equity as at 31 December 161 Note 1 – Accounting Policies 162 Note 2 – Salaries and other Personnel Expenses 162 Note 3 – Net Financial Items 163 Note 4 – Property, Plant and Equipment 164 Note 5 – Subsidiaries and Associates 165 Note 6 – Investments in Stocks and Shares 167 Note 7 – Share Capital and Major Shareholders 167 Note 8 – Tax 168 Note 9 – Security Pledges and Contingent Liabilities 169 Note 10 – Related-Party Transactions 169 P/F BAKKAFROST - FINANCIAL STATEMENTS AND NOTES 157 ANNUAL REPORT 2021 DKK 1,000 Note 2021 2020 Operating revenue 163,467 164,253 Salary and personnel expenses 2 -38,205 -36,395 Other operating expenses -97,291 -100,522 Depreciation 4 -29,500 -29,642 Earnings before interest and taxes (EBIT) -1,529 -2,306 Dividends from subsidiaries 282,140 989,908 Income from other investments in shares 6 50 36 Financial income 3 44,227 17,187 Net interest expenses 3 -31,501 -21,110 Net currency effects 3 31,014 1,350 Othernancialexpenses 3 -5,822 -6,175 Earnings before taxes (EBT) 318,579 978,890 Taxes 8 -6,655 1,834 Prot to shareholders of P/F Bakkafrost 311,924 980,724 Distribution of prot Dividend proposed 303,995 215,872 Retained earnings 7,929 764,852 Distribution in total 311,924 980,724 P/F BAKKAFROST Income Statement FOR THE YEAR ENDED 31 DECEMBER P/F BAKKAFROST - FINANCIAL STATEMENTS 158 ANNUAL REPORT 2021 DKK 1,000 Note 2021 2020 ASSETS Non-current assets Intangible assets 1,000 1,000 Total intangible assets 1,000 1,000 Property, plant and equipment Land, buildings and other real estate 4 219,864 226,706 Plant, machinery and other operating equipment 4 90,477 107,423 Total property plant and equipment 310,341 334,129 Non-current nancial assets Investments in subsidiaries 5 5,575,253 5,576,500 Investments in stocks and shares 6 750 1,273 Total non-current nancial assets 5,576,003 5,577,773 TOTAL NON-CURRENT ASSETS 5,887,344 5,912,902 Inventory 31,059 23,840 Total inventory 31,059 23,840 Receivables from Group companies 6,422,500 5,041,764 Accounts receivable 24,753 2,780 Other receivables 23,279 17,592 Total receivables 6,470,532 5,062,136 Cash and cash equivalents 400,145 348,385 TOTAL CURRENT ASSETS 6,901,736 5,434,361 TOTAL ASSETS 12,789,080 11,347,263 P/F BAKKAFROST Statement of Financial Position AS AT 31 DECEMBER P/F BAKKAFROST - FINANCIAL STATEMENTS 159 ANNUAL REPORT 2021 DKK 1,000 Note 2021 2020 EQUITY AND LIABILITIES Equity Share capital 7 59,143 59,143 Other equity 9,146,165 9,038,737 Total equity 9,205,308 9,097,880 Non-current liabilities Long-term interest-bearing debt 9 2,634,362 2,219,652 Deferred taxes 8 10,116 11,471 Total non-current liabilities 2,644,478 2,231,123 Current liabilities Derivatives 3.12 4,721 0 Payables to Group companies 905,003 0 Current tax liabilities 7,559 0 Accounts payable 15,527 12,619 Other short-term liabilities 6,484 5,641 Total current liabilities 939,294 18,260 Total liabilities 3,583,772 2,249,383 TOTAL EQUITY AND LIABILITIES 12,789,080 11,347,263 P/F BAKKAFROST - FINANCIAL STATEMENTS 160 ANNUAL REPORT 2021 DKK 1,000 Note 2021 2020 Cash ow from operations EBIT -1,529 -2,306 Adjustments for write-downs and depreciation 4 29,500 29,642 Adjustments for net currency effects 3 31,014 1,350 Adjustments for share-based payment 2 601 810 Taxes paid 8 1,099 -4,284 Change in inventory -7,219 -5,392 Change in receivables -27,660 -17,675 Change in current debts 5,397 1,930 Cash ow from operations 31,203 4,075 Cash ow from investments Increase of share capital in subsidiaries, etc., net 5 1,770 -167,807 Paymentsmadeforpurchaseofxedassets 4 -5,712 -256 Cash ow from investments -3,942 -168,063 Cash ow from nancing Changes in interest-bearing debt (short and long) 415,560 508,347 Financial income 3 44,227 17,187 Financial expenses 3 -37,323 -27,285 Financing of associates/subsidiaries -475,733 -1,527,431 Acquisition/sale treasury shares 11,499 -37,616 Dividend from subsidiaries 282,140 989,908 Dividend paid -215,872 0 Cash ow from nancing 24,498 -76,890 Net change in cash and cash equivalents 51,759 -240,878 Cash and cash equivalents – opening balance 348,386 589,264 Cash and cash equivalents – closing balance total 400,145 348,385 P/F BAKKAFROST Cash Flow Statement FOR THE YEAR ENDED 31 DECEMBER P/F BAKKAFROST - FINANCIAL STATEMENTS 161 ANNUAL REPORT 2021 P/F BAKKAFROST Statement of Changes in Equity AS AT 31 DECEMBER Share Share- premium Treasury based Proposed Retained DKK 1,000 Share capital account shares payment Derivatives dividends earnings Total 1 January 2021 59,143 3,838,206 -37,685 1,354 0 215,872 5,020,990 9,097,880 Net annual prot 0 0 0 0 0 0 311,924 311,924 Other comprehensive income: Fairvalueadjustmentonnancialderivatives 0 0 0 0 -3,871 0 0 -3,871 Total other comprehensive income 0 0 0 0 -3,871 0 0 -3,871 Total comprehensive income 0 0 0 0 -3,871 0 311,924 308,053 Transaction with owners: Treasury shares 0 0 10,958 0 0 0 3,748 14,706 Share-based payment 0 0 0 217 0 0 0 217 Dividend treasury shares 0 0 0 0 0 0 324 324 Paid-out dividends 0 0 0 0 0 -215,872 0 -215,872 Proposed dividends 0 0 0 0 0 303,995 -303,995 0 Total transaction with owners 0 0 10,958 217 0 88,123 -299,923 -200,625 Total changes in equity 0 0 10,958 217 -3,871 88,123 12,001 107,428 31 December 2021 59,143 3,838,206 -26,727 1,571 -3,871 303,995 5,032,991 9,205,308 1 January 2020 59,143 3,838,206 -68 1,001 -520 0 4,254,784 8,152,546 Net annual prot 0 0 0 0 0 0 980,724 980,724 Other comprehensive income: Fairvalueadjustmentonnancialderivatives 0 0 0 0 520 0 0 520 Total other comprehensive income 0 0 0 0 520 0 0 520 Total comprehensive income 0 0 0 0 520 0 980,724 981,244 Transaction with owners: Treasury shares 0 0 -37,617 0 0 0 1,354 -36,263 Share-based payment 0 0 0 353 0 0 0 353 Proposed dividends 0 0 0 0 0 215,872 -215,872 0 Total transaction with owners 0 0 -37,617 353 0 215,872 -214,518 -35,910 Total changes in equity 0 0 -37,617 353 520 215,872 766,206 945,334 31 December 2020 59,143 3,838,206 -37,685 1,354 0 215,872 5,020,990 9,097,880 P/F BAKKAFROST - FINANCIAL STATEMENTS 162 ANNUAL REPORT 2021 DKK 1,000 2021 2020 Wagesandsalaries 30,834 27,754 Share based payments 601 810 Social security taxes 1,349 1,773 Pension expenses 2,153 1,995 Otherbenets 3,268 4,063 Total payroll expenses 38,205 36,395 Average number of full-time employees 66 63 P/F BAKKAFROST Notes to the Financial Statements NOTE 1. ACCOUNTING POLICIES Thenancialstatementshavebeenpreparedinaccordance with the International Financial Reporting Standards (IFRS), endorsed by the European Union (EU), and the additional requirements according to the Faroese Financial Reporting Act. The accounting policies applied to the consolidated ac- counts have also been applied to the parent company, P/F Bakkafrost. The notes to the consolidated accounts provide additional information to the parent company’s accounts, whichisnotpresentedhere separately.Thecompany’s- nancial statements are presented in DKK. Investments in subsidiaries are measured at historic cost unless there is any indication of impairment. In case of impairment, an in- vestment is written down to fair value. NOTE 2. SALARIES AND OTHER PERSONNEL EXPENSES REMUNERATION TO SENIOR EXECUTIVES AND AUDITORS For details of remuneration paid to senior executives, see notestotheconsolidatednancialstatements.Thecompany paid DKK 586,000 (DKK 954,000) for audit service, DKK 55,000 (DKK 50,000) for tax advisory and DKK 97,500 (DKK 379,500) for other service. Please also see note 5.5 in the consolidatednancialstatements. P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS 163 ANNUAL REPORT 2021 NOTE 3. NET FINANCIAL ITEMS DKK 1,000 2021 2020 Interests received from Group companies 43,303 16,289 Realizedprotonnancialderivatives 861 0 Othernancialincome 63 898 Financial income 44,227 17,187 Interest expenses on long- and short-term loans -31,500 -21,110 Interest expenses on accounts payable -1 0 Financial expenses -31,501 -21,110 Other exchange differences 31,014 1,350 Net currency effects 31,014 1,350 Othernancialexpenses -5,822 -6,175 Other nancial items -5,822 -6,175 Net nancial items 37,918 -8,748 P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS 164 ANNUAL REPORT 2021 Land and Other DKK 1,000 buildings equipment Total Acquisition cost as at 01.01.21 289,773 178,737 468,510 Disposals and scrapping during the year 0 -787 -787 Acquisitions during the year 4,638 1,234 5,872 Acquisition cost as at 31.12.21 294,411 179,184 473,595 Accumulated depreciation and write-down as at 01.01.21 -63,067 -71,315 -134,382 Depreciations during the year related to disposals 0 628 628 Depreciations during the year -11,480 -18,020 -29,500 Accumulated depreciation and write-down as at 31.12.21 -74,547 -88,707 -163,254 Net book value as at 31.12.21 219,864 90,477 310,341 Acquisition cost as at 01.01.20 415,940 52,313 468,253 Reclassication -126,167 126,167 0 Acquisitions during the year 0 257 257 Acquisition cost as at 31.12.20 289,773 178,737 468,510 Accumulated depreciation and write-down as at 01.01.20 -67,622 -37,117 -104,739 Reclassication 15,982 -15,982 0 Depreciations during the year -11,427 -18,216 -29,643 Accumulated depreciation and write-down as at 31.12.20 -63,067 -71,315 -134,382 Net book value as at 31.12.20 226,706 107,423 334,129 AsignicantpartofBakkafrost’sbuildingsislocatedonrentedland. Estimated lifetime Depreciation method Scrap value Land and buildings 15-25 years linear 10% Other operating equipment 3-8 years linear 0% NOTE 4. PROPERTY, PLANT AND EQUIPMENT P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS 165 ANNUAL REPORT 2021 NOTE 5. SUBSIDIARIES AND ASSOCIATES DKK 1,000 2021 2020 Acquisition cost as at 01.01. 5,579,266 5,411,459 Additions during the year -1,247 167,807 Acquisition cost as at 31.12. 5,578,019 5,579,266 Re-evaluations as at 01.01. -2,766 -2,766 Re-evaluations as at 31.12. -2,766 -2,766 Net book value as at 31.12. 5,575,253 5,576,500 P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS 166 ANNUAL REPORT 2021 Carrying Carrying Cost amount in amount in DKK 1,000 Method Head Voting P/F Bakkafrost P/F Bakkafrost Company Yes/No Ofce Ownership share 2021 2020 Bakkafrost Processing P/F Yes Glyvrar 100% 100% 258,591 258,591 Bakkafrost Sales P/F Yes Glyvrar 100% 100% 879 879 Bakkafrost Packaging P/F Yes Glyvrar 100% 100% 7,781 7,781 Bakkafrost Farming P/F Yes Glyvrar 100% 100% 314,887 314,887 Havsbrún P/F Yes Glyvrar 100% 100% 908,884 908,884 Bakkafrost UK Ltd Yes Grimsby 100% 100% 4,649 4,649 Bakkafrost Danmark ApS Yes Glyvrar 100% 100% 50 50 Scottish Salmon Company Ltd Yes Edinburgh 100% 100% 4,074,182 4,075,779 Förka P/F Yes Glyvrar 100% 100% 5,000 5,000 07.07.2021 P/F Yes Tórshavn 70% 70% 350 n/a Total subsidiaries 5,575,253 5,576,500 P/F Bakkafrost and subsidiaries, the Group, own a total of 78.7% in P/F Salmon Proteins, which is an associated company on the Group level. P/F Bakkafrost owns 14.23% in P/F Salmon Proteins and this is classed in investment in stocks and shares. Excess dividends Result Result DKK 1,000 Dividends on result 2021 2020 Bakkafrost Farming P/F 316,840 193 317,033 192,196 Bakkafrost Sales P/F 205,298 2,110 207,408 -2,181 Bakkafrost Packaging P/F 15,324 -155 15,169 202 Bakkafrost Processing P/F 75,074 0 75,074 140,064 Havsbrún P/F 267,873 -15,403 252,470 119,020 Bakkafrost UK Ltd. 0 3,754 3,754 3,340 Bakkafrost Danmark ApS 0 -6 -6 -7 Scottish Salmon Company 0 -253,231 -253,231 -163,185 Förka P/F 0 2,430 2,430 -2,678 07.07.2021 P/F 0 -56 -56 0 Total revenue Group contribution 880,409 -260,364 620,045 -286,771 * Dividends from subsidiaries paid out in 2022 P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS 167 ANNUAL REPORT 2021 NOTE 6. INVESTMENTS IN STOCKS AND SHARES DKK 1,000 2021 2020 Acquisition cost as at 01.01. 183 183 Acquisition cost as at 31.12. 183 183 Re-evaluations as at 01.01. 1,090 1,053 Dividend -573 0 Re-evaluations during the year 50 37 Re-evaluations as at 31.12. 567 1,090 Net book value as at 31.12. 750 1,273 Sharesandholdings,inwhichtheGroupdoesnothavesignicantinuence.Thesearevaluedusingtheequitymethodoratcost since fair value cannot be measured reliably. NOTE 7. SHARE CAPITAL AND MAJOR SHAREHOLDERS DKK 1,000 2021 2020 Share capital at 31.12. 59,143 59,143 Share capital at 31.12. 59,143 59,143 The share capital is distributed into shares of DKK 1 and multiples thereof. For shareholders holding more than 5% in the Company as at 31 December 2021, see Group Accounts. P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS 168 ANNUAL REPORT 2021 NOTE 8. TAX The tax expense for the year breaks down as follows: DKK 1,000 2021 2020 Tax payable -6,737 1,819 Change in deferred tax 82 15 Tax expense on ordinary prot -6,655 1,834 Tax in the statement of nancial position Deferred tax 10,116 11,471 Tax in the statement of nancial position 10,116 11,471 Specicationoftemporarydifferences Property, plant and equipment 60,883 63,691 Swaps -4,683 0 Total temporary differences 56,200 63,691 Deferred tax liabilities (+) / assets (-) 10,116 11,471 Reconciliation from nominal to actual tax rate Protbeforetax 318,579 978,890 Expected tax at nominal tax rate (18%) -57,344 -176,200 Permanent differences, including Group contribution without tax effect (18%) 50,785 178,183 Other permanent differences (18%) -96 -149 Calculated tax expense -6,655 1,834 Effective tax rate -2.09% 0.19% As Parent company in the Bakkafrost Group, Bakkafrost P/F is the administrating company in the Group Joint Taxation and is liable towards the Faroese Tax Authorities for taxes payable on behalf of its subsidiaries. P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS 169 ANNUAL REPORT 2021 NOTE 9. SECURITY PLEDGES AND CONTINGENT LIABILITIES Carrying amount of debt secured by mortgages and pledges: DKK 1,000 2021 2020 Long-termdebttonancialinstitutions 2,634,362 2,219,652 Total 2,634,362 2,219,652 Carrying amount of assets pledged as security for recognized debt Property, plant and equipment 219,864 226,706 Total 219,864 226,706 ThecompanyparticipatesinaGroupnancingfortheBakka- frost Group. In connection to this, the company has together with other Group companies pledged licenses, property, plant and equipment, shareholdings, inventory and receivables as surety for the Group’s total debt to the banks. In addition, the Group companies have guaranteed severally and jointly for the balance without limitations for each other. NOTE 10. RELATED-PARTY TRANSACTIONS The company operates cash pooling arrangements in the Group. Further, the company extends loans to subsidiaries andassociatesattermsandconditionsreectingprevailing market conditions for corresponding services, allowing a margin to cover administration and risk. The company allo- cates costs for corporate staff services and shared services to subsidiaries and renting of buildings. The total amounts for rent are DKK 21.2 million (2020: DKK 21.2 million), allocation of administration etc. DKK 84.4 million (2020: DKK 82.1 million), nancial incomes of DKK 15.9million(2020:DKK16.7million)andnancialexpens- es amounting to DKK 0.0 million (2020: DKK 0.4 million). The principle of arm’s length is used in all transactions with related parties. As part of the guarantees are also any insurance refunds. In addition, the shares in larger subsidiaries have been pledged to the bank syndicate. P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS 170 ANNUAL REPORT 2021 APPENDIX Quarterly nancial gures 2019-2021 DKK 1,000 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 Operating revenue 963,709 946,506 996,050 1,604,842 1,255,226 1,134,222 1,123,147 1,139,297 1,175,637 1,617,534 1,272,362 1,488,316 Purchase of goods -361,540 -366,899 -274,775 -351,707 -415,276 -642,818 -574,394 -726,135 -288,602 -399,307 -496,680 -507,912 Change in inventory and biological assets (at cost) 34,013 134,296 -34,510 -163,222 -56,667 215,285 22,773 220,288 -7,375 -79,924 30,181 -120,942 Salary and personnel expenses -114,552 -117,690 -95,713 -184,806 -148,713 -159,987 -135,441 -164,206 -167,570 -184,782 -177,607 -198,464 Other operating expenses -200,153 -199,656 -218,367 -360,611 -267,470 -249,039 -248,265 -297,945 -357,934 -419,751 -434,744 -419,685 Depreciation -53,773 -57,793 -69,304 -129,245 -119,017 -115,766 -85,157 -126,825 -130,655 -126,281 -122,967 -150,531 Other income 0 0 0 0 0 0 0 44,041 0 0 0 28,877 Operational EBIT 267,704 338,764 303,381 415,251 248,083 181,897 102,663 88,515 223,501 407,489 70,545 119,659 Fair value adjustments on biological assets 17,871 -65,536 -69,804 -103,098 -410,711 426,650 124,429 -22,365 284,622 176,486 113,713 -139,953 Income from associates 6,947 -4,408 7,620 3,653 0 0 0 5,546 1,317 3,081 7,963 17,751 Revenue tax – FO -31,994 -32,031 -20,616 -14,487 -19,132 -22,633 -9,353 -2,466 -20,363 -41,152 -30,645 -49,329 Earnings before interest and taxes (EBIT) 260,528 236,789 220,581 301,319 -181,760 585,914 217,739 69,230 489,077 545,904 161,576 -51,872 Net interest revenue 111 638 850 3,397 803 344 101 151 120 2,239 1,073 110 Net interest expenses -1,865 -2,534 -3,011 -9,704 -9,527 -10,057 -6,446 -10,287 -7,605 -10,908 -7,784 -10,566 Net currency effects 1,425 -4,760 5,165 -14,500 15,448 -2,554 -12,284 -13,706 18,901 -1,992 6,552 22,401 Othernancialexpenses -864 -974 -935 -9,740 -6,015 -2,355 -3,919 -4,836 -7,025 -5,438 -3,319 -3,782 Earnings before taxes (EBT) 259,335 229,159 222,650 270,772 -181,051 571,292 195,191 40,552 493,468 529,805 158,098 -43,709 Taxes -46,499 -40,557 -41,715 -51,260 33,070 -99,611 -18,369 -78,229 -85,736 -101,678 -26,796 40,584 Prot or loss for the period 212,836 188,602 180,935 219,512 -147,981 471,681 176,822 -37,677 407,732 428,127 131,302 -3,125 Earnings per share (DKK) 4.37 3.88 3.67 4.25 -2.50 7.98 2.99 -0.64 6.90 7.25 2.22 -0.05 Diluted earnings per share (DKK) 4.37 3.88 3.67 4.25 -2.50 7.98 2.99 -0.64 6.90 7.25 2.22 -0.05 *Operational EBIT is EBIT before fair value of biomass, onerous contracts and income from associates, and revenue tax – FO APPENDIX 171 ANNUAL REPORT 2021 DKK 1,000 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 ASSETS Non-current assets Intangible assets 391,042 390,456 390,456 4,395,687 4,386,056 4,377,948 4,491,387 4,493,395 4,493,081 4,494,960 4,495,225 4,495,726 Property, plant and equipment 3,004,587 3,112,331 3,215,676 3,780,499 3,762,740 3,894,070 3,977,620 4,220,599 4,405,542 4,549,575 4,742,180 4,888,778 Right of use assets 0 0 0 332,824 480,085 431,525 380,121 353,192 337,739 314,509 308,919 302,105 Financial assets 115,725 111,268 494,006 119,084 119,116 116,712 116,702 122,459 123,204 124,225 132,313 149,225 Long-term receivables 7,688 3,446 3,446 4,422 4,422 4,422 8,737 8,101 8,202 8,101 8,204 8,102 Deferred tax assets 0 0 0 37,593 37,840 35,718 58,238 26,934 0 0 0 215,248 Total non-current assets 3,519,042 3,617,501 4,103,584 8,670,109 8,790,259 8,860,395 9,032,805 9,224,680 9,367,768 9,491,370 9,686,841 10,059,184 Current assets Biological assets (biomass) 1,290,944 1,231,495 1,268,948 1,901,729 1,492,337 1,903,359 2,146,338 2,117,024 2,441,083 2,489,210 2,703,268 2,448,290 Inventory 562,817 697,073 534,057 548,508 523,833 720,764 613,505 776,032 772,024 809,443 690,251 709,306 Total inventory 1,853,761 1,928,568 1,803,005 2,450,237 2,016,170 2,624,123 2,759,843 2,893,056 3,213,107 3,298,653 3,393,519 3,157,596 Financial derivatives 0 0 575 0 0 0 0 0 0 6,805 6,412 0 Accounts receivable 429,608 371,960 356,026 625,993 629,372 563,364 524,943 490,075 548,537 618,859 645,983 824,004 Other receivables 22,444 28,884 35,970 45,520 22,780 11,236 57,546 133,574 61,171 84,598 152,506 78,227 Total receivables 452,052 400,844 392,571 671,513 652,152 574,600 582,489 623,649 609,708 710,262 804,901 902,231 Cash and cash equivalents 341,574 322,694 2,611,554 1,309,546 801,079 454,389 445,929 466,939 373,706 552,981 373,318 509,157 Total current assets 2,647,387 2,652,106 4,807,130 4,431,296 3,469,401 3,653,112 3,788,261 3,983,644 4,196,521 4,561,896 4,571,738 4,568,984 TOTAL ASSETS 6,166,429 6,269,608 8,910,714 13,101,405 12,259,660 12,513,507 12,821,066 13,208,324 13,564,289 14,053,266 14,258,579 14,628,168 APPENDIX 172 ANNUAL REPORT 2021 DKK 1,000 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021 EQUITY AND LIABILITIES Equity Share capital 48,858 48,859 53,658 59,143 59,143 59,143 59,143 59,143 59,143 59,143 59,143 59,143 Other equity 4,240,869 4,035,000 5,984,391 8,270,112 8,070,356 8,522,287 8,702,346 8,670,344 9,120,850 9,336,906 9,464,500 9,288,269 Non-controlling interests 0 0 0 167,620 0 0 0 0 0 0 0 133 Total equity 4,289,727 4,083,859 6,038,049 8,496,875 8,129,499 8,581,430 8,761,489 8,729,487 9,179,993 9,396,049 9,523,643 9,347,545 Non-current liabilities Deferred and other taxes 581,371 622,500 672,628 1,123,796 1,097,117 1,181,972 1,218,379 1,222,222 1,288,242 1,367,759 1,409,473 1,590,034 Long-term interest-bearing debt 862,944 1,066,266 1,340,073 2,328,231 1,789,537 1,570,512 1,702,579 2,219,690 2,312,487 2,456,065 2,359,589 2,634,968 Long-term leasing debt 60,816 71,445 71,109 225,585 261,105 249,178 287,937 265,235 235,552 249,024 247,076 245,753 Financial derivatives 0 0 0 1,966 1,966 1,282 -1,077 1,480 0 0 0 3,207 Total non-current liabilities 1,505,131 1,760,211 2,083,810 3,679,578 3,149,725 3,002,944 3,207,818 3,708,627 3,836,281 4,072,848 4,016,138 4,473,962 Current liabilities Financial derivatives 613 0 0 13,493 13,158 18,042 17,371 9,710 4,649 2,251 2,994 4,602 Short-term leasing debt 0 0 0 107,808 201,047 195,140 130,043 131,336 143,271 97,669 93,487 87,668 Accounts payable and other debt 370,958 425,538 788,855 803,651 766,231 715,951 704,345 629,164 400,095 484,449 622,317 714,391 Total current liabilities 371,571 425,538 788,855 924,952 980,436 929,133 851,759 770,210 548,015 584,369 718,798 806,661 Total liabilities 1,876,702 2,185,749 2,872,665 4,604,530 4,130,161 3,932,077 4,059,577 4,478,837 4,384,296 4,657,217 4,734,936 5,280,623 TOTAL EQUITY AND LIABILITIES 6,166,429 6,269,608 8,910,714 13,101,405 12,259,660 12,513,507 12,821,066 13,208,324 13,564,289 14,053,266 14,258,579 14,628,168 APPENDIX 173 ANNUAL REPORT 2021 Market Announcements Published in 2021 Exclusive Invitations, Managements', Board of Directors' and large shareholders'notication of trade and notication of trade regarding Bakkafrost's Share Savings Plan Q1 2021 4 January 2021: Q4 2020 Trading Update 23 February 2021: Financial Calendar 23 February 2021: Q4 2020 Interim Results and Full Year 2020 23 February 2021: Key Information Regarding Cash Dividend for Bakkafrost 10 March 2021: Annual Report 2020 16 March 2021: Notice to the Annual General Meeting Q2 2021 6 April 2021: Q1 2021 Trading Update 9 April 2021: Protocol from Annual General Meeting 9 April 2021: Sustainability Report 2019 12 April 2021: Ex dividend DKK 3.65 today 12 April 2021: Payment of dividend in NOK on 30 April 2021 11 May 2021: Q1 2021 Interim Results Q3 2021 1 July 2021: Q2 2021 Trading Update 24 August 2021: Q2 2021 Interim Results 13September2021:CapitalMarketsDayWebcast–14September2021 14 September 2021: Capital Markets Day presentation 14 September 2021 Q4 2021 4 October 2021: Q3 2021 Trading Update 7 October 2021: Financial Calendar 3 November 2021: Q3 2021 Interim Results 10December2021:Renancing 19 December 2021: Update on the continued effects from previously disclosed biological challenges All market announcements are available on www.bakkafrost.com and www.newsweb.no. APPENDIX 174 ANNUAL REPORT 2021 Financial Calendar for 2022 Annual General Meeting will take place at Bakkavegur 9, Glyvrar, Faroe Islands. Pleasenotethatthenancialcalendarissubjecttochange. Any changes will be announced via Oslo Børs, and the Group’s website, www.bakkafrost.com, will be updated accordingly. 29 April 2022 Annual General Meeting 10 May 2022 Presentation of Q1 2022 23 August 2022 Presentation of Q2 2022 8 November 2022 Presentation of Q3 2022 APPENDIX 175 ANNUAL REPORT 2021 Glossary AGM: Annual General Meeting ASC: Aquaculture Stewardship Council CGU: Cash-generating Unit EBT: Earnings Before Tax EBIT: Earnings Before Interest and Tax EBITA: EarningsBeforeInterest,AmortizationandTax EBITDA: Earnings Before Interest, Tax, Depreciation and Amortization EPS: Earnings Per Share FIFO: First in First out FOF: Fishmeal, Oil and Feed FO: Faroe Islands HACCP: HazardAnalysesCriticalControlPoint IAS: International Accounting Standards IFRS: International Financial Reporting Standards ISO: InternationalOrganizationforStandardization LW: LiveWeight NIBD: Net Interesting Bearing Debt PP&E: Property, Plant and Equipment R&D: Research and Development Costs SCT: Scotland SSC: The Scottish Salmon Company Plc TGW: TonnesGuttedWeight USP: Unique Selling Points VAT: Value Added Tax VAP: Value Added Products; Value Added Production WACC: WeightedAverageCostofCapital WFE: WholeFishEquivalent APPENDIX Bakkafrost P/F • Bakkavegur 9 • PO Box 221 • FO-625 Glyvrar Tel +298 40 50 00 • Fax +298 40 50 09 • [email protected] • www.bakkafrost.com
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