Bakkafrost P/f

Earnings Release • Aug 23, 2022

Operational EBIT of DKK 1,004 Million for the First Half of 2022

Operational EBIT of DKK 1,004 Million for the First Half of 2022

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

specified)

The Bakkafrost Group delivered a total operating EBIT of DKK 587 million (DKK

407 million) in Q2 2022 and made a profit of DKK 845 million (DKK 428 million).

The combined FO farming and VAP segments made an operational EBIT of DKK 509

million (DKK 348 million). The FO farming segment made an operational EBIT of

DKK 617 million (DKK 343 million). The SCT farming segment made an operational

EBIT of DKK 41 million (DKK 53 million). The VAP segment made an operational

EBIT of DKK -108 million (DKK 5 million). The EBITDA for the FOF segment was DKK

119 million (DKK 57 million).

Commenting on the result, CEO Regin Jacobsen said:

"We are satisfied with the results in this quarter. We are especially pleased

with the strong biological performance in the Faroe Islands, where we had the

lowest sea lice levels for 8 years, low mortality rates, and strong growth. We

have also made significant advancements in our large smolt strategy, learning

from our experience's past year. Adjustments to the large smolt production have

led to further improved smolt quality and robustness.

The farming operation in Scotland has improved compared to previous quarters,

but we have had some challenges in one area in this quarter. Our investments in

new hatcheries for the production of large and high-quality smolt is the key to

transforming the operation in Scotland and we are well on our way with the first

of the new hatcheries at Applecross, significantly increasing smolt production

capacity in 2023.

The salmon market in this quarter has been marked by all-time high prices. We

have seen strong post-Covid come-back from the Horeca-market while the global

supply has decreased by more than 6% in two consecutive quarters. The supply of

fresh salmon to the spot market has been further constricted by high contract

share levels in the industry. In combination with strong demand, this has led to

all-time high salmon prices. For the next year at least, supply growth will be

low, and we expect moderately strong prices.

The salmon industry is also affected by the current strong inflation on raw

materials and energy. Due to the long production time, there is a significant

time lag before the increased costs will be fully visible in the financials of

the salmon farming companies."

Total harvested volumes for Q2 2022 were 19,700 tonnes gutted weight (28,200

tgw):

· FO: 13,100 tgw (17,600 tgw),

· SCT: 6,600 tgw (10,600 tgw).

Total harvested volumes for H1 2022 were 41,200 tonnes gutted weight (49,200

tgw):

· FO: 30,600 tgw (31,600 tgw),

· SCT: 10,600 tgw (17,600 tgw).

In total, 6.2 million (5.2 million) smolts were transferred during Q2 2022:

· FO: 3.3 million (3.2 million),

· SCT: 2.8 million (2.1 million).

In total, 10.4 million (9.3 million) smolts were transferred during H1 2022:

· FO: 5.3 million (5.6 million),

· SCT: 5.1 million (3.7 million).

The combined FO farming and VAP segments made an operational EBIT of DKK 509

million (DKK 348 million) in Q2 2022. The operational EBIT per kg in Q2 2022 was

DKK 38.85 (DKK 19.84), corresponding to NOK 52.28 (NOK 26.93). The FO Farming

segment achieved higher prices in Q2 2022 than in Q2 2021. For H1 2022, the

combined FO farming and VAP segments made an operational EBIT of DKK 951 million

(DKK 567 million).

The SCT farming segment made an operational EBIT of DKK 41 million (DKK 53

million). In Q2 2022, the SCT farming segment had incident-based costs of DKK 57

million (DKK 7 million). For H1 2022, the operational EBIT was DKK -12 million

(DKK 46 million).

The FOF segment made a 23% (17%) EBITDA margin. Sales of fish feed amounted to

31,200 tonnes (27,300 tonnes) in Q2 2022. During Q2 2022, Havsbrún sourced

97,600 tonnes (59,300 tonnes) of raw material. For H1 2022, the EBITDA was 21%

(16%). During H1 2022, Havsbrún sourced 175,600 tonnes (107,800 tonnes) of raw

material.

The net interest-bearing debt amounted to DKK 2,267 million at the end of Q2

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

amounted to DKK 2,924 million at the end of Q2 2022.

Bakkafrost aims at giving the shareholders a competitive return on their

investment, both through payments of dividends and by value growth of the equity

through positive operations.

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

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

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

credit facilities.

The Annual General Meeting, convened on April 29[th] 2022, decided to pay out a

dividend of DKK 5.14, corresponding to NOK 6.70 per share. The total dividend of

DKK  304 million (NOK 396 million) was paid out on May 20th 2022.

The equity ratio was 65% on June 30th 2022, compared to 64% at the end of 2021.

OUTLOOK

Market

Supply decrease of 7%

The supply of salmon decreased 6.8% in Q2 2022, compared to Q2 2021 incl.

inventory movements. Without inventory movements, the supply was 2.8% lower,

according to the latest estimate from Kontali Analyse.

70% higher salmon prices

Salmon spot prices were 70% higher in this quarter compared to Q2 2021. Reduced

supply, exceptional high contract share in the market, general inflation on

food, and continued strong demand for salmon have pushed salmon prices to an all

-time high level in this quarter.

Negative growth in 2022

In H1 2022, the global supply growth of Atlantic salmon was negative at around

6%, compared to H1 2021. In H2 2022, the global supply growth is expected to be

around 2%. For the full year of 2022, the supply is expected to decrease by

around 1%, compared to 2021, including inventory movements, while the market

supply of salmon in H1 2023 is expected to grow around 3%.

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

markets to increase diversification and mitigate market risk. Bakkafrost

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

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

Russia.

Farming

The strong biological performance in the Faroese farming operation seen in

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

all-time low - the lowest in this quarter, compared to the same quarter previous

8 years. The low mortality rates have also continued in this quarter.

In Q3 2022, Bakkafrost will receive the new wellboat, Bakkafossur. The wellboat

has a 7,000m3 tank capacity for seawater, 3,000m3 for freshwater, and a reverse

osmosis system onboard for freshwater generation. This will strengthen

Bakkafrost's capabilities to maintain low biological risk in the Faroe Islands.

The expansions of the hatcheries at Glyvradal and Norðtoftir are progressing

well and will start operation in Q1/23. These are important milestones to

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

Faroe Islands of over 23 million smolts of 500g in 2026. Further operational

adjustments and fine-tuning have been made in the smolt production, based on the

accumulated experience with large smolt. These adjustments aim to further

improve the robustness and biological performance of the large smolt.

In Scotland, there have been some challenges in one farming area, but not as

severe as in previous quarters. This demonstrates that the biological risks are

still high. Bakkafrosts strategy to implement large smolt in Scotland is key to

reducing the biological risk and improving biological performance. Building

hatchery capacity in Scotland is, therefore, the topmost priority for

Bakkafrost. The ongoing expansion of the Applecross hatchery is progressing well

and will reach an important milestone by the end of this year when the 4th

expansion phase is expected to be completed. This enables Bakkafrost to

significantly improve the quality and increase the size of the smolt. During

2023 the Applecross hatchery will ramp up production to around 8 million smolts

at 250g, the full capacity will be in operation in mid-2024 with an additional

40% capacity increase.

In Q2 2022 the average weight of released smolt in Scotland was 101g, which is

32% higher than in Q2 2021.

New hatcheries in Scotland will increase the total production capacity up to

around 18 million smolts of around 500g in 2026. During Q1 2022, Bakkafrost

secured the land for the construction of the second large hatchery in Scotland.

Depending on the final surveys, the construction of the next large hatchery is

expected to commence in H2 2022.

Having large smolt in Scotland is vital to transform the farming operation and

reduce the biological risk in Scotland. It will however take time for Bakkafrost

to materialise as it takes time to build the necessary hatchery capacity.

In Q2 2022, Bakkafrost upscaled the freshwater treatment capacity in Scotland

with the introduction of the second wellboat with freshwater treatment capacity.

This more than doubled Bakkafrost's freshwater treatment capacity in Scotland,

which is an important measure for mitigating biological risk and reducing

mortality.

Smolt release

Bakkafrost expects to release around 14.9 million large smolts in 2022 in the

Faroe Islands and around 10.8 million smolts of around 120g in Scotland. The

number and the average weight of smolts released are key elements in predicting

Bakkafrost's future production.

Million smolt released 2022 2021 2020 2019 2018

FO 14.9 14.4 14.3 12.7 12.6

SCT 10.8 11.1 10.4 12.4 8.6

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

tonnes gutted weight and 35,000 tonnes gutted weight in Scotland, giving a total

of 103,000 tonnes gutted weight.

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

dependent on biological development.

VAP (Value Added Products)

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

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

changing market situations.

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

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

duration of between 6 to 12 months.

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

harvest volumes in the Faroe Islands and Scotland combined.

FOF (Fishmeal, oil, and feed)

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

availability of raw materials.

The ICES 2022 recommendation for blue whiting is 753 thousand tonnes, which is a

19% reduction from the recommendation for 2021.

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

higher than in 2021.

Havsbrún's sales of fish feed in 2022 is expected to be around 130,000 tonnes.

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

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

farming operation.

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

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

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

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

and good access to marine raw materials.

Investments

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

DKK investment plan for 2022-2026. The investments will enable the

transformation of the operation in Scotland and

provide sustainable growth in the Faroe Islands as well as Scotland.

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

successful operation in the Faroe Islands. Bakkafrost will build 3 large energy

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

large smolt strategy and giving an annual production capacity above 18 million

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

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

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

strengthen processing capabilities and Bakkafrost will also invest in more

treatment vessel capacity to improve mitigation of biological risk. Further,

Bakkafrost will make investments in marine site development.

The investments in the Faroe Islands include increasing annual hatchery

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

broodstock facility, and expansion of feed production capacity.

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

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

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

gutted weight.

Financial

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

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

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

maintain financial flexibility going forward.

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

multicurrency revolving credit facility agreement with an additional accordion

option of 150 mEUR. The facility has a tenor of five years. In combination with

Bakkafrost's high equity ratio, the facility gives the necessary financial

strength and flexibility for the Group's investment plans aimed at significant

organic growth and structural cost reductions in Scotland. It will also enable

M&A's and further organic growth opportunities as well as support an unchanged

dividend policy in the future.

Please find the Company's Q2 2021 report and the Q2 2021 presentation enclosed.

Contacts:

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

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

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

-12 of the Norwegian Securities Trading Act.

About Bakkafrost:

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

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

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

fishmeal, fish oil and salmon feed in Fuglafjørður (Faroe Islands). The Group

has primary processing in Glyvrar and Vágur (Faroe Islands), and secondary

processing (VAP) in Glyvrar (Faroe Islands). The Group operates sea farming in

Norðoyggjar, Eysturoy, Streymoy and Suðuroy (Faroe Islands) and in Scotland. The

Group has broodstock operations in Streymoy and Sandoy (Faroe Islands) and in

Scotland. The Group has a biogas plant in Streymoy (Faroe Islands). The

headquarter is located in Glyvrar (Faroe Islands) and has sales and

administration offices in Grimsby (UK), Edinburgh (Scotland) and in New Jersey

(US). The Bakkafrost Group has 1,699 employees (full-time equivalents).

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