ANNUAL REPORT 2020 1

ANNUAL REPORT 2020

Faroese Company Registration No. 1724 CONTENTS ANNUAL REPORT 2020 2

Chairman’s Statement 4  RISKS 66

Contents Statement by the Management and the Board of Directors 6 Risks and Risk Management 67

Outlook 10

Bakkafrost at a Glance 14  GOVERNANCE 72

Key Figures 17 Corporate Governance 73

Main Events 18 Corporate Responsibility and Sustainability 75

Shareholder Information 77

 STRATEGY 19 Directors and Management 78

Business Objectives and Strategy 20 Directors’ Profiles 79

Business Model 22 Group Management’s Profiles 81

Outline of Bakkafrost’s History 23 Statement by the Management The Value Chain 24 and the Board of Directors on the Annual Report 82

Independent Auditor’s Report 83  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 CONTENTS ANNUAL REPORT 2020 3

FINANCIAL STATEMENTS AND NOTES FINANCIAL STATEMENTS – P/F BAKKAFROST 151 – BAKKAFROST GROUP 86 Contents P/F BAKKAFROST - Income Statement 153 Consolidated Income Statement 90 P/F BAKKAFROST - Statement of Financial Position 154 Consolidated Statement of Comprehensive Income 91 P/F BAKKAFROST - Cash Flow Statement 156 Consolidated Statement of Financial Position 92 P/F BAKKAFROST - Statement of Changes in Equity 157 Consolidated Cash Flow Statement 94

Consolidated Statement of Changes in Equity 95 P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS 158

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS – BAKKAFROST GROUP 96 APPENDIX 166  NOTES - SECTION 1 BASIS OF PREPARATION 97 Quarterly Financial Figures 2017-2019 166  NOTES - SECTION 2 RESULTS FOR THE YEAR 100 Market Announcements Published in 2019 169  NOTES - SECTION 3 ASSETS AND LIABILITIES 111 Financial Calendar for 2020 170  NOTES - SECTION 4 CAPITAL STRUCTURE Glossary 171 AND FINANCING ITEMS 136

 NOTES - SECTION 5 OTHER DISCLOSURES 143 CHAIRMAN’S STATEMENT ANNUAL REPORT 2019 4

AN UNUSUAL YEAR In Q4 2019 Bakkafrost acquired The Scottish Salmon Com- Chairman’s pany (SSC) and hereby diversified our farming operation 2020 has been an unusual year in many ways. In the begin- into a new geography. The acquisition increased the scope Statement ning of 2020, it was hard to imagine that a small invisible of Bakkafrost’s­ operation and brought new growth and de- virus could cause such disruption to everyone’s lives. Fortu- velopment opportunities to the Group. The acquisition was nately, our staff has been kept safe throughout the Covid-19 made on low multiples relative to industry peers. We see pandemic and Bakkafrost’s operation has only mildly been this as a 5-year turnaround case and during 2020 we have affected. It is however a completely different story with the worked closely with the organisation in Scotland to begin global salmon market. transforming of the operation using targeted investments and redefined processes, based on best practice. We are During 2020 the salmon market changed in many ways as convinced that the investment case is strong and see a good different parts of the world experienced one wave after an- upside potential. other with increasing cases of Covid-19 infection. The lock- downs of the HoReCa segment in our key markets has had a One of the important measures to improve the performance negative impact on Bakkafrost’s revenue and profitability, as in the farming operation in Scotland is to increase the size we normally sell our large sized superior salmon to high-end and quality of the released smolt. Therefore, Bakkafrost restaurants across the world. People have also travelled less plans to construct three large and modern RAS-based hatch- during 2020 and commercial flights have been reduced. This eries in Scotland, similar to the hatcheries Bakkafrost has in has reduced the access to cost-efficient air cargo capacity the Faroe Islands. This will enable us to extend Bakkafrost’s and more than doubled airfreight rates to US and early dur- large-smolt strategy to the farming operation in Scotland. By ing the pandemic also to China. increasing the quality and smolt size to 500g the cycle time at sea is reduced to 10-12 months, hereby reducing the bi- Earnings were not only affected by increased freight prices ological risk as well as enabling sustainable growth in har- in 2020. Average spot price on salmon decreased by 24.1% vest volume. The first of these 3 hatcheries in Scotland is the during the year and the downward trend was especially pre- hatchery at Applecross, which is an existing hatchery now dominant from the end of the second quarter to the end of being expanded and converted into RAS-technology. This ex- the year. pansion will gradually increase smolt size and quality and is expected to be completed by 2023, whereafter we will be During the pandemic, Bakkafrost has benefited from its self-sufficient with 250g smolt in Scotland. This alone will flexible value chain. As the demand in the HoReCa segment be a game-changer for the farming operation in Scotland and for fresh salmon has decreased, Bakkafrost has been able will improve further when the next two hatcheries are final- to swiftly divert volumes to the VAP-segment. This segment ised and average size of smolts is increased to 500g. produces consumer-packed products for the retail industry where the demand for salmon has been very strong through- Over the past years Bakkafrost has made large investments out the pandemic. The market for global salmon market has across its value chain in the Faroe Islands to grow production grown during 2020 and the growth has been especially capacity sustainably to 100,000 tonnes head-on gutted (HOG). RÚNI M. HANSEN strong in US and Europe. These investments, totalling 3 billion DKK, were outlined in Chairman of the Board our 5-year investment plan for the period 2018-2022. Some CHAIRMAN’S STATEMENT ANNUAL REPORT 2020 5

ning circular system in our value chain is now efficiently solving a biological waste issue for Bakkafrost as well as for local dairy farmers. Simultaneously it is producing renewable energy for the public electricity grid and district heating sys- tem in the Faroe Islands. Even the biproduct from the biogas plant has value as the plant delivers high-quality fertiliser for the Faroese dairy farmers. The big winner is of course the environment with a reduced CO2 emission of around 11,000 tonnes per year.

Sustainable sourcing of raw materials and sustainable farm- ing is also key to us. For our feed production, we only use sustainably certified raw materials. In our farming operation, we are very proud of achieving our 2020-goal of having 100% of our farming sites in the Faroe Islands ASC-certified.

It has always been important for Bakkafrost to take good care of the environment, which is the precondition for a healthy operation in the long run. Preserving and respecting of these investments have been made in the fishmeal, -oil lands are good for offshore farming and the legislation in the our heritage, operating in a society so dependent on nature and -feed segment (FOF), which can now provide all the feed ­Faroe­ Islands has been prepared for issuing offshore farming – it is essential that the balance with nature is right and sus- for the farming operation in the Faroe Islands as well as to licen­ses. The location is also well suited for Bakkafrost as it tainable. We are very much aware of the current and future Scotland. Most of the investments in the 2018 investment is within short distances to Bakkafrost’s operation. We have challenge we face, to be able to feed the world’s growing plan have now been completed or are well underway. One applied for an offshore farming license and expect to receive population with safe and healthy food but without compro- example of completed investments is the very large hatchery it during 2021. mising our planet. at Strond which is now in full production of large smolts of very high quality. The year 2021 will be the year where we It is however important to us that our growth ambitions are RETURN TO SHAREHOLDERS really begin to see the results of the investments. Hence, we well balanced with the natural boundaries given to us. We The Board of Directors will propose a dividend of DKK 3.65 see increasing harvest volume in the Faroe Islands for 2021 strongly believe, that farmed salmon is one of the solutions per share at the Annual General Meeting convened in April where we expect to harvest 66,000 tonnes HOG. This is a to ensure sustainably produced food for the world’s growing 2021. This corresponds to a total dividend of DKK 215.9 mil- significant increase over previous years. Over the next years population. Our salmon has an industry-leading low feed-to- lion. this volume will increase steadily until we reach 100,000 food conversion factor and a low carbon footprint. Therefore, tonnes HOG, most likely around 2025-2026. we need to grow but without outgrowing our planet. THANK YOU TO OUR EMPLOYEES On behalf of the Board of Directors, I express our apprecia- To grow Bakkafrost’s harvest volumes in the Faroe Islands We continuously work on improving the resource-efficiency tion to all employees in the Bakkafrost Group for the commit- sustainably beyond the 100,000 tonnes HOG, we believe of the operation and incorporate circular thinking and new ment and hard work in 2020. that offshore farming presents is great potential for Bakka­ innovations in our value chain. One example of such is our frost. The conditions on the eastern coast of the Faroe Is- Biogas plant, which was completed in 2020. This award-win- STATEMENT BY THE MANAGEMENT AND THE BOARD OF DIRECTORS ANNUAL REPORT 2020 6

MARKET DISRUPTIONS AND NEW RECORDS Coming into the second quarter of 2020, salmon prices re- Statement by duced further – except for a few weeks with high prices in In the beginning of 2020 salmon prices were amongst the the second half of the quarter. At the same time the Nor- the Management highest ever. This was a continuation of the steep increase in wegian krona weakened significantly against the Euro and salmon prices during the fourth quarter of 2019. However, the Danish krona, which is Bakkafrost’s base currency. This had and the Board positive market situation suddenly changed when the Cov- a negative effect on Bakkafrost’s competitive position in the id-19 pandemic began to spread, which caused a significant market. drop in salmon spot prices towards the end of the first quarter. of Directors Sale to China picked up again early in the second quarter and The Chinese market was first affected and Bakkafrost’s sale airfreight rates to China were normalised again during the to Asia dropped down to 14% of the Faroese harvest vol- quarter. In early June however, China again imposed again ume in the first quarter 2020, compared to 24% in the first strict import restrictions on seafood after closing a fish mar- quarter of 2019. Airfreight rates to US and China increased ket in Beijing. This affected Bakkafrost’s sales to China nega- significantly and were at times more than tripled, compared tively for the rest of 2020. to normal rates. The farming operation in the Faroe Islands performed well The Chinese market is mostly a fresh market for Bakka­ in the second quarter and the biological development was frost and with the reduced sale to China in the first quar- good. In Scotland the farming operation gradually improved ter we choose to divert volumes from the fresh market to as well. The VAP-production volume increased further in the the VAP-segment, serving the retail industry. By the end of second quarter and contributed with positive margins. The the first quarter Bakkafrost had increased the share of the sourcing of raw material to the FOF-segment also increased, ­Faroese harvest volume used in the VAP segment to 51%. after a soft start in the beginning of the year due to stormy This was made possible by our high production capacity in weather hindering fishery around the Faroe Islands. the VAP factory at Glyvrar in the Faroe Islands. At the very beginning of the pandemic, we implemented In late February, the Faroe Islands were hit by a severe storm strict measures to protect our employees. This was done in that lasted for several days. Severe storms are frequent in close cooperation with health professionals. Early in the sec- the Faroe Islands and Bakkafrost has equipped itself accord- ond quarter of 2020 Bakkafrost also began to offer bi-week- ingly, however the characteristics of this storm were unusual, ly Covid-19 screening to its employees. and it caused great damage and loss of around 1.2 million fish planned for harvest later in 2020. As a result, we re- Due to the increased uncertainty on the development of the duced the expected harvest for 2020 from 57,000 tgw to Covid-19 pandemic, the Board of Directors choose to call off 50,000 tgw. dividend payments for 2019.

Despite challenges in the first quarter of 2020, Bakkafrost Salmon prices continued to decrease during the third and had good results and good biological development in the fourth quarters towards the lowest levels since 2015 by the farming segment in the Faroe Islands and were profitable in end of the fourth quarter. Normally salmon prices tend to Scotland. increase towards the end of the year, but this did not happen STATEMENT BY THE MANAGEMENT AND THE BOARD OF DIRECTORS ANNUAL REPORT 2020 7

During the second half of 2020, the farming operation in Scotland continued to improve its key performing indicators, however mortality was higher, especially driven by biologi- cal issues induced by a severe rainfall in August. History has demonstrated that biological challenges in the second half of the year have been a repeating pattern in the Scottish Salmon Company. This pattern is expected to be broken with the transformation of the farming operation, that we will be making in the Scottish operation in coming years.

Overall for the year, the farming operation in the Faroe ­Islands has performed well with strong growth and excep- tionally high quality. Feeding set new records in the autumn, surpassing 10,000 tonnes per month. The harvest volumes in the Faroe Islands for 2020 were 50,700 tgw, compared to 57,184 tgw in 2019. The lower harvest volume in the Far- oe Islands was a consequence of the lost fish in the storm in February 2020. In Scotland the harvest volume for 2020 was 34,986 tgw, whereof 9,305 tgw were harvested in the fourth quarter. In comparison 7,925 tgw were harvested in the fourth quarter of 2019.

During 2020, Bakkafrost has transferred 24.6 million smolt to sea, compared to 18.3 million smolt in 2019. 14.3 million (12.7 million in 2019) have been transferred in the Faroe Islands and 10.3 million (5.3 million) in Scotland. The upscal- ing of capacity in the freshwater division in Faroe Islands has made good contribution in the year with average smolt size setting new records. The average size of the transferred in 2020. Despite lockdowns and restrictions imposed in most For the full year 2020, 70% of Bakkafrost’s sales went to smolt was 343g in Q4 2020 in the Faroe Islands, compared markets the demand for salmon has been strong during the EU, compared to 50% in 2019. Sale to the US market is re- with 195g in the same quarter in 2019. The performance of pandemic and supplied volumes to the markets have been duced to 17% in 2020 from 21% in 2019. The most significant the smolt after transfer has been very good and the growth increasing. Especially the demand from the retail industry in change were sales to Asia (mainly China), which dropped to rate during the first period after the smolt have been trans- European and the US market has been growing. For the full 7% from 21% the year before. Sale to Eastern Europe also ferred has never been as high as in 2020. year 2020 Bakkafrost diverted 47% of the harvested volume dropped to 5% from 8% the year before. This is partly due to in the Faroe Islands into the VAP segment, supplying retail Bakkafrost being denied access to the Russian market in the Bakkafrost’s large smolt strategy that is being implemented customers. In comparison 29% of the harvest volume in 2019 period from February to end of September 2020. in the Faroe Islands is largely driven by large investments in was used in the VAP segment. hatcheries. The large hatchery at Strond is now in full pro- STATEMENT BY THE MANAGEMENT AND THE BOARD OF DIRECTORS ANNUAL REPORT 2020 8

duction and the expansions of the hatcheries at Glyvradal and Norðtoftir in the Faroe Islands are underway. With the increased hatchery capacity hereby added during 2021 and 2022 the average size of the transferred smolt in the ­Faroe Islands will increase to 400g in 2021 and 500g in 2022. Once completed, these expansions will give Bakkafrost the capac- ity to produce more than 20 million smolts at 500g by the end of 2022.

The Bakkafrost Group’s operational EBIT was DKK 621 mil- lion for 2020, compared to DKK 1,325 million for 2019. The decreased operational EBIT was mainly due to lower salmon prices in 2020 than the year before. The margins were se- verely affected by the Covid-19 pandemic’s disruptive effect on the salmon market. The combined Farming and VAP seg- ment in the Faroe Islands made an operational EBIT of DKK 587.5 million, compared to DKK 1,166.7 million in 2019. This corresponds to an EBIT/kg of 11.59 DKK compared to 20.40 DKK in 2019.

The farming segment in Scotland made an operational EBIT of DKK -24.0 million, compared to DKK 18.1 million in 2019. This corresponds to an EBIT/kg of -0.69 DKK, compared to 2.29 in Q4 2019 which was the first quarter after the acqui- sition.

The VAP segment made an operational EBIT of DKK 139.7 million, compared to DKK 63.7 million in 2019. This corre- sponds to an EBIT/kg of 5.84 DKK, compared to 3.82 DKK in 2019. The VAP production was 23,931 tgw, compared to 16,690 tgw in 2019. In the fourth quarter, the VAP segment supply feed for the farming operation in Scotland. As existing programme, which is to reduce biological risk, increase effi- set new records for production in one quarter with 6,790 feed contracts with external suppliers expire by first quarter ciency and to build annual production capacity of 100,000 tgw produced. of 2021, all the feed for the farming operation in Scotland tonnes in the Faroe Islands. One of the milestones of the will be supplied from Havsbrún. investment programme was the expansion of our hatchery The FOF segment had an EBITDA of DKK 207.7 million in capacity. Besides the ongoing expansions of the hatcheries at 2020, compared to DKK 275.8 in 2019. Havsbrún sourced Bakkafrost’s DKK 3 billion investment programme for the Glyvradal and Norðtoftir, the new Strond hatchery is now in 283,307 tonnes of raw material in 2020, compared to period 2018-2022 targeting the Faroese operation is well full production. In October 2020 we harvested fish from the 278,664 tonnes in 2019. During 2020 Havsbrún began to underway and we are on track to achieve our goal with the first batch of smolts transferred from the Strond hatchery in STATEMENT BY THE MANAGEMENT AND THE BOARD OF DIRECTORS ANNUAL REPORT 2020 9

August 2019. The smolt were transferred at only 230g and tion in Scotland and how we intend to grow beyond 100,000 harvested only 14 months later weighing 6.1 kg. Since then, tonnes in the Faroe Islands. the average weight of the smolt from Strond has increased steadily and we are very pleased that the performance of the In 2019, Bakkafrost refinanced the bank facilities for the en- hatchery and the produced smolt exceed expectations. tire Group, including SSC. The 5-year facilities included a EUR 352 million facility (plus a EUR 150 million accordion option) The large smolt strategy is also the core component of the and a GBP 100 million facility for SSC. In 2020 the two fa- investments planned in Scotland, where we plan to replace cilities were merged into one new EUR 463 million facility the 11 small and inefficient hatcheries we acquired with agreement (plus 150 million accordion option). The Bakka- the company, with 3 modern RAS-based hatcheries similar frost Group’s interest-bearing debt amounted to DKK 1,753 to the Faroese hatcheries. Hereby we will become self-suf- million at the end of 2020, compared with DKK 1,019 million ficient with 500g smolt in Scotland as well, which will be a at year-end 2019. The Group had undrawn credit facilities of game-changer for the farming operation and reduce the bio- DKK 1,677 million at the end of 2020. logical risk significantly. In total we expect to invest around 400 million DKK per year over a 5-year period in the oper- The Bakkafrost Group made a profit of DKK 463 million for ation in Scotland. 2020, compared with DKK 802 million for 2019. Bakkafrost’s equity ratio was 66% at the end of 2020, compared to 65% In 2019, Bakkafrost acquired a new building for the oper- at the end of 2019. ation in New Jersey, US. During 2020 we have rebuilt this into a state-of-the-art processing facility, which improves The management of Bakkafrost and our dedicated and talent- our ability to serve our customers on the eastern coast of the ed employees look forward to an exciting year ahead of us. US with customised fresh salmon products. This facility also fulfils the online orders generated through our B2C web shop which we opened for US-consumers in the autumn of 2020.

In the second quarter 2020 Bakkafrost commissioned a new 7,000 m3 well boat with hybrid technology, to be delivered in H1 2022. The well boat will upscale our freshwater treat- ment capacity as well as increase live-fish carriage capacity. This added capacity will also be needed for offshore farming, which we believe will provide us with future growth oppor- tunities beyond 100,000 tonnes in the Faroe Islands. Bakka- frost expects to receive a licence for offshore farming during 2021.

On the Capital Market Day 14-15 September 2021, we will present more details on the planned investments in Scotland, details on how we intend to transform the farming opera- OUTLOOK ANNUAL REPORT 2020 10

during 2021. It is uncertain what “new normal” the market sites. Challenging 3rd and 4th quarters may be expected for Outlook will settle at, once the Covid-19 pandemic has passed. Dur- the next couple of years but with gradually reduced severity ing the pandemic, new and innovative business models have as the large-smolt strategy is being implemented in the Scot- emerged, especially in food service, and it is not unlikely that tish farming operation. Once fully implemented, the large- some of these are here to stay. Due to our highly flexible smolt strategy will be a game changer for the farming oper- value chain, Bakkafrost is well positioned to adapt to these ation. To achieve this, Bakkafrost plans to invest in 3 large changes. Bakkafrost also maintains a strong focus on ensur- hatcheries in the coming years to become self-sufficient with ing a well-balanced flow to the different markets to increase large smolts. diversification and mitigate the market risk. MARKET Bakkafrost focuses on reducing biological risk continuously The global harvest of Atlantic salmon was 10.8% higher in Q4 FARMING and has over the past years made significant investments to 2020, compared to Q4 2019, according to the latest estimate Overall, the biological performance of the harvested fish diminish this risk, but also to improve efficiency and ensures from Kontali Analyse. The market was affected negatively in the Faroe Islands has been strong during Q4 2020. The sustainable growth. The large-smolt strategy occupies a cen- by the market disruption caused by the Covid-19 pandemic. growth has been strong with very low feed conversion ratio. tral role in this in the Faroe Islands as well as in Scotland. The quality of the harvested fish has improved even more Looking forward the market dynamics will still be affect- and is exceptionally high. Mortality, mainly linked to sea lice Bakkafrost expects to release around 14.5 million smolts in ed by the Covid-19 situation which imposes greater than treatments, has been somewhat higher than normal and this 2021 in the Faroe Islands, compared to 14.3 million smolts normal uncertainty on the market development estimates. is an area of priority for 2021. in 2020, 12.7 million smolts in 2019 and 12.6 million smolts However, market conditions could improve during 2021 as in 2018. The smolt release in Scotland is expected to be 11.0 Covid-19 mass-vaccination progresses in key markets. In Q1 The average size of transferred smolt continues to increase million smolts in 2021, compared to 10.4 million smolts in 2021, the global harvest of Atlantic salmon is expected to in- in the Faroe Islands, and Bakkafrost is well on track in pursu- 2020, 12.4 million smolts in 2019 and 8.6 million smolts in crease around 4%, compared to Q1 2020. In 2021, the global ing the large-smolt strategy. In Q4 2020, the average weight 2018. The number and average weight of smolts released are harvest of salmon is expected to increase around 2-3%, com- of the transferred smolt was 343g and is expected to in- key elements of predicting Bakkafrost’s future production. pared to 2020. Due to the effects of inventory movements, crease to around 400g in 2021 and 500g in 2022. The main the market supply of salmon in 2021 is expected to increase driver behind this development is the massively increased Bakkafrost’s harvest volumes for 2021 in the Faroe Islands around 5-6%, compared to 2020. production capacity delivered by the Strond hatchery which are expected to be 66,000 tonnes gutted weight and 40,000 is in full operation producing large and high-quality smolts. tonnes gutted weight in Scotland. Hence the total harvest The increase in supply of salmon in 2021 is mainly expected To add further capacity, expansion of the existing hatcher- volume is expected to be 106,000 tonnes gutted weight, to occur during the first half of the year. During the second ies at Norðtoftir and Glyvradalur have commenced. As these compared with 85,686 tonnes harvested in 2020. half of 2021, the global supply of salmon is expected to be expansions are made to already existing hatcheries, the in- tight due to the growth in global harvest volumes being fore- creased production output will be available in 2022, enabling The estimates for harvest volumes and smolt releases in both casted below 1%, according to Kontali Analyse. Bakkafrost to produce 20 million smolts of 500g in the Faroe geographies are dependent on the biological development. Islands. Bakkafrost operates in the main salmon markets, Europe, VAP (VALUE ADDED PRODUCTS) USA, the Far East and Russia. The Covid-19 pandemic has The farming operation in Scotland is gradually improving, Bakkafrost has made large investments in building a high- caused global market disruptions and a shift from foodser- however the second half of the year is in general a more chal- ly flexible value chain which includes a state-of-the-art VAP vice to retail. These changes will remain for some time. How- lenging period in the Scottish farming operation. In Q4 2020, factory with high capacity. This enables Bakkafrost to adapt ever, some normalisation of the market situation is expected the mortality has been exceptionally high in some farming well to the rapidly changing market situations, which is a OUTLOOK ANNUAL REPORT 2020 11

ardship Council (MSC) has suspended the certification of all Atlanto-Scandian blue whiting. During 2020, Bakkafrost has built up inventory of certified fish meal to ensure continued ASC-certification of the Faroese farming sites in 2021.

Bakkafrost expects a decrease in production volumes of fish- meal and fish oil in 2021, compared to 2020.

Havsbrún’s sales of fish feed for 2021 is expected to be 120,000 tonnes, depending on external sales.

The major market for Havsbrún´s fish feed is the local ­Faroese market, including Bakkafrost FO’s internal use of fish feed, and the feed used in the Scottish farming operation.

INVESTMENTS Bakkafrost’s investment programme for the period from 2020 to 2022 in the Faroe Islands, will amount to around DKK 1.8 billion, including maintenance capex, and will re- inforce Bakkafrost’s integrated business model and ensure

Fig. 1

INVESTMENT PLAN (MDKK) great advantage during market disruptions as the one seen The contracts are at fixed prices, based on the salmon for- 765 during the Covid-19 pandemic. Due to the flexibility and ward prices at the time they are agreed and the expectations 590 large capacity of the VAP factory, Bakkafrost has been able for the salmon spot price for the contract period. The con- to meet the significantly increased demand from the retail tracts last for 6 to 12 months. segment by redirecting volumes into the VAP segment. 390 FOF (FISHMEAL, OIL AND FEED) For 2021 Bakkafrost has signed contracts covering around The outlook for the production of fishmeal and fish oil is 28% of the expected harvest volumes in the Faroe Islands dependent on the availability of raw material. and Scotland combined. Bakkafrost’s long-term strategy is to sell around 40% of the harvested volumes of salmon as VAP The ICES 2021 recommendation for blue whiting is 929 thou- 2020 2021 2022 products at contracts. sand tonnes, which is a 20% reduction from the recommen- Broodstock Smolt Farming VAP FOF dation for 2020. As of 30. December 2020 the Marine Stew- OUTLOOK ANNUAL REPORT 2020 12

a capacity across the value chain to be able to produce Scottish operation. A significant part of this will be invest- demic, and the operation in Scotland has been only mildly 100,000 tonnes gutted weight of salmon in the Faroe Islands. ed in building 3 large hatcheries to increase smolt capacity affected. A range of preventive measures have been imple- The aim of the investment programme is to minimize the and become selfsufficient with large smolt. The first of these mented to protect our workforce and ensure continuous pro- biological risk, increase efficiency and create sustainable or- hatcheries will be the Applecross hatchery, which is being duction. New procedures and social distancing and working ganic growth. Bakkafrost’s focus on producing larger smolts expanded and equipped with RAS technology. Other suita- from home are implemented widely in the business, and plays a key role in achieving this goal. ble sites for the next 2 large hatcheries are currently being production and office facilities have been modified where investigated. necessary to prevent infection. In the Faroe Islands, all our All in all, Bakkafrost is on track with the investment pro- employees have been offered regular free Covid-19 screen- gramme. The hatchery at Strond is finalized, and the expan- FINANCIAL ing by health professionals. sion of the hatcheries at Norðtoftir and Glyvradalur has com- Despite the uncertainties imposed by the Covid-19 pandem- menced. As these expansions are made to existing hatcheries ic, long term development in the world market for salmon As the market situation is significantly affected by the in operation, the added capacity will materialize in increased products will most likely remain favourable for Bakkafrost. ­Covid-19 pandemic, Bakkafrost is taking all necessary steps output sooner, compared to if they were greenfield projects. Bakkafrost has a long value chain and a cost-efficient pro- to protect the business and constantly adapts to the changing Hence the increased production from these hatcheries will duction of high-quality salmon products and will likely main- market conditions and shifting demands from customers. emerge from early 2022. tain the financial flexibility going forward.

In Q2 2020, Bakkafrost commissioned a new 7,000 m3 well During Q4 2019, Bakkafrost refinanced its bank facilities boat with hybrid technology to reduce the carbon emission amounting to 352 million EUR with a further accordion op- and ensure optimal energy consumption. The vessel will tion of 150 mEUR. In addition, bank facilities amounting be delivered in H1 2022 and will play an important role in to 100 million GBP were ensured to refinance The Scottish Bakkafrost’s large-smolt strategy and plans to grow beyond Salmon Company. In 2020 the two facilities were merged 100,000 tonnes in the Faroe Islands with offshore farming, into one new EUR 463 million facility agreement (plus 150 as well as adding freshwater treatment capacity. million accordion option).

Bakkafrost’s recently finished Biogas plant is an important A high equity ratio together with Bakkafrost’s bank financ- stepping-stone on Bakkafrost’s sustainable growth path, as it ing, makes Bakkafrost’s financial situation strong. This enables delivers an efficient and sustainable solution to waste man- Bakkafrost to carry out its investment plans in the Faroe Is- agement. By converting the growing biological waste from lands as well as in Scotland, hereby strengthening the Group, the increasing operation into clean energy, the biogas plant enabling M&A activity and organic growth opportunities as alone is expected to save the environment from 11,000 well as to fulfil its unchanged dividend policy in the future. tonnes of CO2 per year. The Biogas plant is now operational, supplying electricity into the Faroese electricity grid as well Covid-19 pandemic as providing heating for the residents in Tórshavn, the capi- Bakkafrost plays an important role in ensuring healthy food tal of the Faroe Islands. for the world’s growing population, and this role is especially important in the difficult times the world is facing at present. In addition to the planned investments in the value chain in the Faroe Islands, Bakkafrost expects to make investments of During the Covid-19 pandemic, Bakkafrost’s ability to oper- around DKK 350-400 million per year for 2020-2024 in the ate in the Faroe Islands has not been affected by the pan- OUTLOOK ANNUAL REPORT 2020 13 BAKKAFROST AT A GLANCE ANNUAL REPORT 2020 14

Bakkafrost at a Glance

FAROE ISLANDS

Headquarters, Sales

Fishmeal, Fish oil & Fish feed

Broodstock, Hatcheries & Farming

Harvest & Processing

Farming Service Vessels, Packaging & Biogas

SCOTLAND Adminstration, Sales ENGLAND Broodstock, Hatcheries & Farming Sales Harvest & Processing

UNITED STATES OF AMERICA

Sales

Processing

LEGEND TO MAP SYMBOLS BAKKAFROST Salmon, packaging, fishmeal, fish oil and fish feed producer FISHMEAL BROODSTOCK HARVESTING FSV (FARMING SERVICE VESSELS) Location: Faroe Islands

Headquarters: Glyvrar, Eysturoy FISH OIL HATCHERIES PROCESSING PACKAGING Production and business-to-business sale: salmon, fishmeal, fish oil and fish feed

Longest integrated value chain in the industry FISH FEED FARMING SALES BIOGAS Listed on: Oslo Børs with ticker code BAKKA BAKKAFROST AT A GLANCE ANNUAL REPORT 2020 15

Facilities and locations

HARRIS AND LEWIS ES ID R B FAROE ISLANDS E SCOTLAND H R MARYBANK E T STORNOWAY S-21 U LOCH ROAG O (SMOKEHOUSE) S-08 A-73 A-72 A-71 S-03 A-21 A-11 S-04 S-24 A-12 FO5101 KLAKSVK A-57 A-63 FUGLAFJRUR A-13 GLYVRAR L-01 A-25 A-80 FO125 A-04 LANGASS HATCHERY LOCH TORRIDON A-05 S-16 A-81 NORTH UIST A-85 APPLECROSS

F-079 LOCH CARRON TÓRSHAVN SKYE A-06 SOUTH UIST

L-02 ES ID R B E H L-08 R E N IN

MULL

CAIRNDOW LEGEND TO MAP SYMBOLS FISHMEAL/OIL & FEED FACTORY A-23 LOCH FYNE HATCHERIES JURA EDINBURGH FARMING SITES A-15 LOCH STRIVEN BROODSTOCK A-17 FO-189 A-19 HARVEST FACTORIES VGUR ISLAY S-25 GIGHA PROCESSING PLANT PACKAGING FACTORY ARRAN HEADQUARTERS SALES OFFICES ANNUAL REPORT 2020 16 KEY FIGURES ANNUAL REPORT 2020 17

Fig. 2

(DKK 1,000) Key Figures Income Statement 2020 2019 2018 2017 2016

Operating revenues 4,651,892 4,511,107 3,177,422 3,770,049 3,202,686 Operational EBIT * 621,158 1,325,100 1,074,912 1,377,647 1,164,953 Operational EBITDA * 1,067,923 1,635,215 1,273,810 1,561,237 1,298,214 Earnings before interest and taxes (EBIT) 691,123 1,019,217 1,184,233 649,104 1,673,587 Earnings before taxes (EBT) 625,984 981,916 1,172,066 623,884 1,632,614 Net earnings 462,845 801,885 960,292 511,402 1,338,887

Earnings per share before fair value adjustments of biomass and provision for onerous contracts (DKK) 6.20 19.04 16.44 21.08 17.57 Earnings per share after fair value adjustments of biomass and provision for onerous contracts (DKK) 7.83 15.53 19.74 10.52 27.56

Statement of Financial Position

Total non-current assets 9,224,680 8,670,109 3,396,036 3,023,807 2,567,212 Total current assets 3,983,644 4,431,296 2,406,487 2,131,709 2,850,904 TOTAL ASSETS 13,208,324 13,101,405 5,802,523 5,155,516 5,418,116

Total equity 8,729,487 8,496,875 4,077,029 3,626,429 3,549,035 Total liabilities 4,478,837 4,604,530 1,725,494 1,529,087 1,869,081 TOTAL EQUITY AND LIABILITIES 13,208,324 13,101,405 5,802,523 5,155,516 5,418,116

Net interest-bearing debt 1,752,751 1,018,685 495,479 258,070 635,266 Equity share 66% 65% 70% 70% 66%

*Aligned for fair value adjustments of biomass, onerous contracts provision, income from associates, revenue tax and other non-operating related adjustments MAIN EVENTS ANNUAL REPORT 2020 18

Main Events October • Bakkafrost scores above industry average in employee survey 2021 March • Launches third sustainability report June • Contract signed for • Signed agreement November construction of a new hatchery at Norðtoftir with the Environ­ August • Receives ACS certification for the last farming site and with capacity to produce 3.5 million smolt of mental Agency to • First biogas produced is now 100% ASC certified in the Faroe Islands 500g develop and build at the new biogas plant • Bakkafrost ranked 3rd in Coller Fair Protein Producer January • Compulsory acquisition of remaining 4.5% a green catamaran • Heavy rainfall in the Index and ranked as “low risk” for investors • Start production of of the shares in SSC is completed and the work boat area around Loch • Bakkafrost nominated finalist in the two categories salmon meal and company delisted from Oslo Børs • New feed barge is Striven causes high “Business Leader of the Year” and “Circular Economy salmon oil from salmon • New biogas plant starts receiving organic delivered to A72 mortality in the sites at Innovation of the Year” at the edie Sustainability guts waste Haraldsund Loch Striven Leaders Awards 2021

April • Commissioning a 7,000 m3 live-fish carrier to be built by the Sefine shipyard in Turkey. Delivery in H1 2022 • Beginning offering bi-weekly Covid-19 September screening to employees in the Faroe • Groundwork for new Islands broodstock facility in • SSC becomes the first salmon producer Skálavík is sent out in Europe to be recognised with a 4-star for tender / RfP BAP certification • First 100 orders received in Bakkafrost February US’ new B2C • Sign contracts for webshop construction of two July • First orders for the December new work boats May • Book about Bakkafrost’s new smokery are • Production begins at Bakkafrost’s new • Severe storm hits • Contract is signed for expansion of the hatchery at history is published received processing facility in New Jersey, US, which is the Faroe Islands. Glyvradal. Capacity 3.5 million smolt of 500g • Construction of the • The biogas plant sells now complete Bakkafrost loses 1.2 • First work boat from Arran in Scotland ordered for the new shore base at A12 the first KWh’s of • The keel laying for the new live-fish carrier is million fish farming operation in the Faroe Islands Kunoyarnes is finished renewable electricity complete.

STRATEGY 19 ANNUAL REPORT 2020 REPORT ANNUAL STRATEGY STRATEGY STRATEGY and Strategy Business Objectives BUSINESS OBJECTIVES ANDSTRATEGY tives are: back Bakkafrost’s experience withintheseafood industry dates ty acids. tainably andresponsibly produced protein andessential fat class salmon to meet the world’s growing demand for sus salmon industry. Our mission is to produce healthy world- Bakkafrost’s visionisto beaworld-class company in the other potential prospects for growth. opment infeed, farming, production andsales, inadditionto We strive for acontinuous market driven increase anddevel- • Today, to achieve this. munities inwhichwe operate, we willbeinabetter position ness, ourpeople, oursalmon,theenvironment andthecom- Weing. recognize thatby investing inthehealthof ourbusi- workforce, andcollective socialandenvironmental wellbe- capability andreputation of thebusiness, thequalityof our extends Our strategy isfocused onsustainable value creation. This farming group. a healthy, attractive andcompetitive cost-conscious salmon Development &Growth to To beaworld-class company our 1968, beyond in thesalmonindustry seven and VISION healthy financial since then, financial and non-financial our returns, priority has to strategic the To produce healthy world-class been strength, to objec MISSION run - - - salmon view to findthebest solutions. promoting dialogue andmakingroom for different points of We are dedicated to creating aninteresting place of work, • Fish • our progress in2020. www.bakkafrost.com/sustainability for more information on a cost-conscious production. Seeoursustainability report crease inproduction, whilebalancinganimalwelfare and We are committed to securingalong-term sustainable in- • quirements of ourcustomers. We aimatdelivering products that match orexceed there- • petitive advantages throughout thevalue chain. feed We are dedicated to optimizing thetotal value chain–from • bakka­ wellbeing of thesalmon. See oursustainability report on inasustainable environment securingthewelfare and areas of vital importance to us.We aim at farming salm- progress in2020. Attractive company culture Biological security Sustainability Food safety &Top quality Efficiency &Creating value health, to frost.com/sustainability for more information onour finished fish product welfare – and To beresponsible, respectful, and persistent, efficient and the utilizing prevention VALUES ambitious ANNUAL REPORT 2020 the benefits of diseases of ­www. com- are 20 STRATEGY BUSINESS OBJECTIVES ANDSTRATEGY our Our core values, whichsupportourperformance andguide growth strategy. tributing to thesociety andcontinue pursuing thecompany’s customers andshareholders. Furthermore, we aimatcon - shape ouractions withthepurpose of creating value to our of healthy andnutritious salmonproducts. These priorities sition inthemarketplace asareliable partnerandsupplier We are focused onmaintaining andstrengthening ourpo- • ing value for ourcustomers, shareholders and thesociety by act our sustainability report. strategic objectives withourHealthy LivingPlan,outlined in In 2020,we reviewed ourcorporate strategy andalignedour cient andambitious. Sales &Marketing responsibly, behaviour, reflect showing our respect, commitment and being to creating persistent, long-term effi- - ANNUAL REPORT 2020 21 STRATEGY and thecosts of production. and responsibility over allaspects of production. Thisenables Bakkafrost to have optimal control over thequalityof its salmon Bakkafrost isprobably themost vertically integrated salmonfarming company intheworld, whichgives Bakkafrost fullcontrol Business Model BUSINESS MODEL Fig. 3 Fig. Geographical Diversification Shareholder Capital Natural Resources Skilled Workforce Pristine Waters resources Licences VALUE CHAIN SALES/MARKETING PACKAGING PROCESSING HARVESTING FSV FARMING BIOGAS HATCHERIES BROODSTOCK FISH FEED FISH OIL FISHMEAL Longest integrated value chain Sustainable fishmeal,fish oil Optimal farming conditions Healthy Omega 3-6Ratio Lower thanaverage feed High levels of Omega 3 corporate strategy in thesalmonindustry HOW WEDIFFER conversion ratio and fishfeed High quality Provenance Heritage

SUPERIOR QUALITY SALMON Community investments Shareholders returns Satisfied employees Satisfied customers values created Tax contributions ANNUAL REPORT 2020 22 STRATEGY please visitwww.bakkafrost.com/about/history For more details onBakkafrost’s history, Bakkafrost’s History Outline of OUTLINE OFBAKKAFROST’S HISTORY companies intheFaroe Islandsto doso. rope andtheUSA. is now owned by international investors from allover Eu- er base. Inadditionto local Faroese investors, thecompany Bakkafrost islisted onOsloBørs andbroadens its sharehold- materials to finishedVAP products andSales. ed intheFaroe Islands. Bakkafrost 2011 from Bakkafrost Group isanintegrated farming company, ranging farming company withaharvest factory inKollafjørður. The remunerated inBakkafrost shares. TheVestlax Group isa the companies. Vestlax Group’s shareholders agree to be The shareholders of Bakkafrost andVestlax agree to merge 2010 eration increases significantly, both onlandandatsea. ers withseveral farming companies. Bakkafrost’s farming op- The Bakkafrost Group grows through acquisitions andmerg 2006 is Bakkafrost’s starting pointof value-added salmonproduction. Although theinvestment islimited andthecapacity islow, this Bakkafrost buildsafactory for value addingsalmonatGlyv­ 1995 Bakkafrost 1979 Hans The Bakkafrost business isestablished by thetwo brothers 1968 renowned company in1971. the sameyear. Thethird brother, MartinJakobsen, joinsthe smolt and Róland producer acquires production, starts Jacobsen. fish of P/F fishmeal, farming fish Havsbrún, farming, The activities first fish a production processing oil modern, and – fish one internationally of plant feed, of packaging the is situat built first rar. - - Bakkafrost traceability andtotal supplychainintegrity. tegrated salmonfarming business inScotland withfocus on Bakkafrost acquird TheScottish Salmon Company PLC, anin- 2019 lands. 2022 focusing ongrowth to 100,000tgw intheFaroe Is Bakkafrost updates the investment programme for 2018- assets intheUS salmonimporter NorthLanding. ation. Bakkafrost closes theacquisition of thebusiness and programme. Bakkafrost’s new hatchery atStrond starts oper Bakkafrost starts theintegration of theFaroese broodstock 2018 in Bakkafrost’s new harvest/VAP factory andtheheadquarters 2017 operation andaimsatproducing 500grams smoltby 2020. the same goals as in 2013. Bakkafrost enhances the onshore Bakkafrost 2016 Bakkafrost 2013 on OsloBørs to finance theacquisition. the growth andto reduce thebiological risk. FSVs MartinandRóland start operation. ities inSeptember. Glyvrar onshore are announces issued updates operation finished. new a its new The shares more five-year public five-year efficient, for is the investment invited investment first ANNUAL REPORT 2020 to time increase to visit plan since plan the to organic listing make facil- with - - 23 STRATEGY of harvested fish. traceability value chainisconsidered important to ensure availability, and availability Both customers andprocessing facilities dependonadaily own The Bakkafrost Group controls theentire value chainfrom The Value Chain THE VALUE CHAIN Fig. 4 Fig. marketing production of and salmon of to of finished FISHMEAL be fishmeal, able and VAP depend to fish control products. FISH OIL oil entirely the and Control product fish on a feed of FISH FEED steady flow the to entire daily. sales flow BROODSTOCK the ing of thesalmon.Thedocumentation andtraceability from tion, from production of fishmealandfishoil The qualityof thesalmonisresult of thewholeopera- to ensure thequalityand predictability of thedeliveries. It relationships without beingdependentonanythird party make long-term delivery contracts andlong-term customer The control of theentire value chainenables Bakkafrost to important to Bakkafrost. isimportantthe salmoneggs for thecustomers andtherefore finished HATCHERIES product back to BIOGAS the raw material FARMING in to theprocess the feed and FSV - were chain onanongoing basis.In2018,broodstock andbiogas Bakkafrost continues to improve, adjust andextend thevalue centres. the value chainandprevents sub-optimization between cost further enables better utilization of thefacilities throughout quired cessing andSales. chain; Broodstock, Hatcheries, Farming, FSV, Harvesting, Pro- a considerable addition,to thefollowing parts of ourvalue HARVESTING added The Scottish to the value PROCESSING Salmon chain. Company, And PACKAGING in which ANNUAL REPORT 2020 2019, is Bakkafrost a SALES/MARKETING good fit and ac - 24 STRATEGY to terial combined withourprocessing technology enables us farmed salmon. provides a foundation for good growth for the salmon in our Thus, themainingredients inourdietary feed composition of the natural food sources which salmon feed onin the wild. file Fishmeal isrichinprotein withabalanced aminoacidpro- which mings meal As North Atlantic. cessing factories aswell asforeign vessels operating inthe addition destined health is agreat source of andcontains energy theessential and Havsbrún material fish THE VALUE CHAIN Bakkafrost FISHMEAL, FISHOILANDFEED Fig. 5 Fig. manufacture FISHMEAL producers which oil. and we and beneficial This comes to for transform is fish makes fish sources whole uniquely is direct of oil silage. mainly top-quality mainly our it long-chain for fish, an FISH OIL to human fish own positioned our The fishmeal ideal based from we materials high-quality feed demands consumption fishmeal, also ingredient omega-3 Faroese on and production. to various utilize to select FISH FEED fish to produce fish vessels fish high fatty in oil co-products pelagic the such fish oil constitutes feed The quality acids. very and and fishmeal feed. as fish ingredients, species. BROODSTOCK fish fish best fish The fish Fish species of a trim- feed. fish- pro- part ma- and fish fish oil In

using duction are responsibly sourced. We strongly prioritiseonly It isimportant to us,thattheraw materials for ourfeed pro- and superiorBakkafrost product for endcustomers. to thenatural diet of thewildsalmon to create anutritious feed, aimingatkeeping thesalmon’s diet asclose as possible carbon fed production for oursalmon.In2020allBakkafrost salmonwas Before only implementation environmental pollutants are strictly regulated. Priorto the detected inavariety of foods. Limits for thecontent of these and Dioxin-Like-PCBs (DL-PCBs). Dioxin andDL-PCBs can be We bon filtered fishoilinourHavsbrún feed. salmon product by, amongother things, exclusively usingcar Bakkafrost brand onthemarket withadifferentiated healthy er, we have chosen to strengthen theproduct position of the these pollutants were far below allassigned limits. Howev Faroese Food and Veterinary Authority found that levels of the surveillance program of Faroese salmonconducted by the HATCHERIES are on raw feed the dedicated cleansing materials fish produced oil of filtration to is BIOGAS using that maintain included from are carbon to sustainably sustainably a minimize in high filtered our FARMING marine feed certified the fish certified

it content profile has oil, raw undergone results in in of the material FSV the Dioxin from feed fish a - -

HARVESTING • • • 700 tonnes of fish feed daily capacity 300 tonnes of fishoildaily capacity 450 tonnes of fishmealdaily capacity PROCESSING PACKAGING ANNUAL REPORT 2020 SALES/MARKETING 25 STRATEGY the remaining Faroese salmon. 1.200 families were cre support from theGovernment of theFaroe Islands,using The breeding programme was resurrected in2016with with ahighlyskilledteam of employees. sary conditions for theprogramme to befullydeveloped a new site ontheislandof Sandoy, willprovide the neces the programme. Theinvestment into new infrastructure at ­Faroe Islands,whichhasbeenbuiltupover theyears with salmon –but alsoprotect theintellectual capital inthe more resilient roe –reducing risks of diseaseinfarmed The programme will enableaccelerated development of longest integrated value chain intheindustry. imize biosecurity, breeding andgenetics, andto have the The broodstock programme ispartof ourstrategy to max has theoption to obtain thegenome rights in2021. sibility of theFaroese broodstock programme. Bakkafrost In April2018,Bakkafrost took fullownership andrespon Native Faroese broodstock programme BROODSTOCK interval. ated, 300families for eachyear ina4-year generation THE VALUE CHAIN Fig. 6 Fig. FISHMEAL FISH OIL FISH FEED BROODSTOCK - - - - to increase to peryear. 10millioneggs pacity to produce withproposed 6millioneggs investment The Native Hebrideanbroodstock programme hastheca sourced arrangement withathird party. facility inNorthUist withbroodstock reared underanout The broodstock programme ismanaged from ourLangass ticeably firmersalmonthanother Atlantic salmon. Hebridean waters whichresults inastrong, leanandno salmon, originallybred from wildstock andfarmed onlyin an broodstock programme producing pure Scottish Island In Scotland, theGroup operates auniqueNative Hebride Native Hebrideanbroodstock programme and diseaseresistance. concentrate thefollowing important traits: growth, quality The selective breeding program isusingtargeted matingto HATCHERIES BIOGAS FARMING

FSV - - - - HARVESTING • • • • capacity to produce 6millioneggs Native Hebrideanbroodstock annual Skálavík in2023 New Native Faroese broodstock facility in Native Faroese genome rights in2021 taken over in2018 Native Faroese broodstock programme PROCESSING PACKAGING ANNUAL REPORT 2020 SALES/MARKETING 26 STRATEGY diseases selected to Bakkafrost’shigh-quality eggs, strategy is to buy fromeggs tems hatcheries are equipped withclosed water circulation sys there isnoground water available intheFaroe Islands. The industries are competing for thewater. as Thisisimportant, large quantities of cleanfresh water, where no villages or Bakkafrost’s hatcheries are located inenvironments with resources to improve product qualityandperformance. of The of eggs. order to limitthe effect of external factors, suchasweather, the Bakkafrost purchases externally. salmoneggs Thecapacity of to 14.5millionsmolts at370gperyear. at anaverage weight of Thiswillincrease 318g. during2021 Islands. 14.3millionsmolts were transferred to seain2020 The Bakkafrost Group operates six hatcheries in the Faroe Hatcheries intheFaroe Islands HATCHERIES THE VALUE CHAIN Fig. 7 Fig. the FISHMEAL suppliers vitality with best external is biofilters, an genetic of is important the sufficient suppliers fish properties FISH OIL and is property the to important. that meet fish is invest vital. tanks of the FISH FEED the Therefore, current The significant are fish. fish’s inside To and ensure the resistance buildings future efforts BROODSTOCK selection access need and to in -

annual production capacity of around 3million smolts. at ÓnavíkinSuðuroy. Thishatchery isexpected to have an ation in2022.Inaddition,we planto buildanew hatchery hatchery sites inNorðtoftir andGlyvradalur to begin oper will beachieved by increasing thecapacity of ourcurrent the capacity of the hatcheries by a total of 30,000m3. This In production timeatseaaswell asreduced biological risk. age weight of 500grams by 2022.Thebenefits are ashorter Bakkafrost aimsatproducing allsmolts for release atanaver Bakkafrost for decades. experienced staff atthehatcheries; some who have been at birds andother pollution. Bakkafrost hashighly educated and next large andmodernhatcheries technology with RAS over the water hatcheries. Bakkafrost intends to replace these with3 In Scotland, the Bakkafrost Group operates 11olderfresh- Hatcheries inScotland million smolts withanaverage size of just over 90g. The annualcapacity of ourhatcheries inScotland iscirca 8 hatcheries are currently beinginvestigated. Applecross hatchery. Other suitable sites for thenext 2large HATCHERIES January 3 years 2019, or so. Bakkafrost BIOGAS The first announced of these FARMING hatcheries the plan to will increase FSV be the - -

HARVESTING • • • million smoltat250grams Increased capacity in2023at Applecross, 11 Glyvradalur, 9.1millionsmoltat500grams Increased capacity in2023atNorðtoftir and smolt at500grams Islands isnow fullyoperational, 9million The new hatchery atStrond intheFaroe PROCESSING PACKAGING ANNUAL REPORT 2020 SALES/MARKETING 27 STRATEGY This isprojected to save 11,000tonnes of CO 1,900 homes withthe current input predicted. ing enoughrenewable heatfor 400homes andelectricity for 45-50,000 tonnes annuallyof allwaste from farms, provid When in operation, theplanthascapacity to convert up to as fertilizer). renewable production), energy anddigestate (whichisused carbon dioxide andmethane (thelatter whichisusedfor this process, thebiomass isconverted into biogas, namely ecules through anaerobic digestion. Uponcompletion of down the organic matter in the biomass into smaller mol andfertilizer.able energy Theprocess works by breaking farms The new biogas plantwilluses waste products from our BIOGAS crease runoff into fjords. THE VALUE CHAIN The fertilizer’s higherabsorption potential isexpected to de be redistributed to farmers across theislands,free of charge. 50,000 tonnes of natural liquidfertilizer annually, which will wellAs asproducing renewable energy, itwillproduce 45- on theequivalent fossil fuelreplacement) annually. Fig. 8 Fig. FISHMEAL and other fish FISH OIL and dairy farmers FISH FEED to 2 emissions (based emissions (based produce BROODSTOCK renew - - - - • • which reduce waste, reduce andavoid CO This includes advancing circular solutions suchasthisone, to meet thegrowing demandfor sustainably produced protein. Our was operational inthesummerof 2020. Construction electricity from renewable sources by 2030. contributing to theFaroe Islands’nationaltarget to have 100% The renewable produced energy willfeed into thenationalgrid, ulate sustainability through other industries. HATCHERIES

annual estimated production 45-50,000 tonnes of natural liquidfertilizer of 2020 New biogas plantoperational inthesummer ambitious of investment the BIOGAS biogas strategy plant started focusses FARMING in 2 emissions, andstim 2019, on efficient and the FSV growth plant -

HARVESTING PROCESSING PACKAGING ANNUAL REPORT 2020 SALES/MARKETING 28 STRATEGY get weight isconsidered to provide anoptimal breakdown/ 300g+ upto target weight of about 6.0–6.5kg wfe. Thistar 16–18 farming results possible. planning to achieve thebest environmental andsustainable result of each survey becomes input data used in the tactical each year by external agencies ateachfarming location. The regulations, environmental investigations are undertaken viding The and cool steady seatemperatures. cellent water quality and circulation due to strong currents extend THE VALUE CHAIN Bakkafrost’s Farming intheFaroe Islands tain andthereforeportant, does its utmost to create andmain- reach thisgoal, Bakkafrost believes theenvironment isim- on atalow feed conversion rate andwithlow mortality. To The maingoal of thefarming operation isto produce salm- FARMING 9 Fig. FISHMEAL fish a healthy the months. across are fish 19 kept, 17 environment with During salmon of fed FISH OIL abundant the this and farming islands’ period, nurtured for space the fjords sites the FISH FEED fish. to in fish in and grow large operation Following grow benefit for sea from a pens, BROODSTOCK period from in national around 2020 pro- ex of - - The smaller a healthy environment for thefish. andthereforeportant, does its utmost to create andmaintain reach thisgoal, Bakkafrost believes theenvironment is im- on atalow feed conversion rate andwithlow mortality. To The maingoal of thefarming operation isto produce salm- a new generation isreleased. been harvested, the fjord is set aside for 2–4 months before in aseparate fjord, andafter alllocations inafjord have During theentire production period,eachgeneration iskept tion ismonitored continuously. As the internal VAP production. mix licence volume. Hebridean Islandswith74,765 tonnes of current permitted natural environment of theWest Coast of Scotland andthe The Bakkafrost Group operates 44marinesites intheunique Farming inScotland HATCHERIES a fish of rule, sizes fish are the are in fed larger order used several BIOGAS fish to as serve times raw are distributed material both a day, FARMING the and in fresh as the the fresh VAP fish feed fish market production. consump- FSV and and the HARVESTING The • • viding a new generation isreleased After total harvest thesite isset asidefor 2+months before kg wfe. from of around Coast of Scotland andtheHebrideanIslands 44 farming sites inoperation across theWest in theFaroe Islands 19 farming sites inoperation across 17fjords fish around the are 18-24 fish kept, 90g PROCESSING with months. up fed to abundant and average During nurtured PACKAGING space target this in period, to ANNUAL REPORT 2020 large weight grow sea SALES/MARKETING the of for fish pens, about a period grows pro- 5.0 29 STRATEGY and isexpected to becompleted in 2022. dition with the latest technology and both with closed systems. In ad- Bakkafrost´s FSV intheFaroe Islands FARMING SERVICE VESSELS (FSV) THE VALUE CHAIN is The sels: Four live fishcarriers andtwo service vessels. wellboat. of sustainable farmed salmon, Bakkafrost hasordered anew partofAs thecompany’s strategy to produce larger quantities are alsoequippedto doother operations. ical systems for lice-treatment, systems for net-cleaning and The two service vessels are equippedwithvarious non-med- is equippedfor treatment of thefishinfresh water. medium smolt Of harvest. Fig. 10 Fig. a the FISHMEAL large live to transport two size transporting fish The live vessels live FSV wellboat fish carrier and fish fleet carrier for FISH OIL two fish carrier fleet transportation in is built vessels the (3,500m to again harvest, (660m Faroe at the for consists 3 /450 tonnes wfe) equipped 3 Islands /110 tonnes wfe) andone of Sefine FISH FEED the transportation fish larger of shipyard to consist two harvest, live

vessels fish of

BROODSTOCK of in six one Turkey carrier fish ves is for to a -

term sels, four wellboats andtwo large workboats allunderlong The has acapacity of 10.000m sible stress onthesalmon. lousing without usinganychemicals andcreating lowest pos Bakkafrost iscontinually seekingto improve methods for de- of 1.000tons of salmon. In FSV inScotland capacity of 3.000m capacity of 7.000m for site operations whichare largely owned. HATCHERIES Scotland new charter wellboat the agreements Bakkafrost is BIOGAS 3 3 of freshwater. Thevessel hasacapacity 109 of seawater, andthetanks have atotal along meters 3 Group , where thefour wells have atotal with long operates FARMING a and fleet 22 a of fleet smaller meters of FSV six wide. vessels ves It - -

HARVESTING • • • biosecurity strategy in2022 New farming service vessel to support carriers and2large work boats) inScotland 6 farming service vessels (including4live fish Islands carriers and2large work boats) intheFaroe 6 farming service vessels (including4live fish PROCESSING PACKAGING ANNUAL REPORT 2020 SALES/MARKETING 30 STRATEGY factory inlive fishcarriers withclosed water systems. The ry inVágur hasadailycapacity of 100tonnes wfe. the dailycapacity by 100-150tonnes wfe. Theharvest facto- current run rate on withoneshift average but can increase Glyvrar hasadailycapacity of around 350tonnes wfe atthe harvest factories inGlyvrar andVágur. Theharvest factory in • In Harvesting in theFaroe Islands HARVESTING THE VALUE CHAIN Fig. 11 Fig. the FISHMEAL Scotland wfe intheFaroe Islands,and266tonnes in Total daily harvesting capacity of 450tonnes fish Faroe is transported Islands, FISH OIL all from Bakkafrost´s the farming FISH FEED fish sites is harvested to the BROODSTOCK harvest at the sites inlive fishcarriers. Fish are transported from thefarming sites to theharvest total dailycapacity is266tonnes. Point intheNorthof Scotland andArdyne intheSouth. The The Bakkafrost Group operates two harvest stations, Arnish Harvesting in Scotland HATCHERIES BIOGAS FARMING FSV HARVESTING PROCESSING PACKAGING ANNUAL REPORT 2020 SALES/MARKETING 31 STRATEGY industrial Another market segmentimportant for theVAP products is the HoReCa segment. customers for these products are the supermarket chains and ity of 100tons of value-added products aday. Theprimary • • THE VALUE CHAIN The 4,000m Processing intheFaroe Islands PROCESSING European orfrom theFar East. the last decade. Thecustomers inthissegmentare mainly ing andby-products. Thismarket hasbeen developed during

Fig. 12 Fig. FISHMEAL tonnes during 2020 capacity inScotland increases to 50,000 Combined primary andsecondary annual capacity intheFaroe Islands 40,000 tonnes annualsecondary processing customers 2 VAP factory atGlyvrar hasaproduction capac FISH OIL buying whole fillets FISH FEED for further BROODSTOCK process - - and packaging facilities. ing South, aswell asaSmokehouse inStornoway. Both process Mary­ The Bakkafrost Group operates two processing factories, Processing inScotland HATCHERIES plants bank intheNorthof Scotland andCairndow inthe are equipped BIOGAS with pre-rigour FARMING filleting, portioning FSV - HARVESTING PROCESSING PACKAGING ANNUAL REPORT 2020 SALES/MARKETING 32 STRATEGY • sea andairfreight. Thepackaging factory at­ tory produces styropor boxes for thefresh salmon,both for grated into the Glyvrar processing facility. The packaging fac Bakkafrost hasapackaging factory, whichislocated andinte- PACKAGING THE VALUE CHAIN to customize theboxes withlogo etc. all Bakkafrost’s needfor styropor boxes andhasequipment

Fig. 13 Fig. FISHMEAL annual packaging capacity 70,000 tonnes of salmon, FISH OIL

FISH FEED Glyvr BROODSTOCK ­­ar meets - HATCHERIES BIOGAS FARMING FSV HARVESTING PROCESSING PACKAGING ANNUAL REPORT 2020 SALES/MARKETING 33 STRATEGY various markets. ical Bakkafrost believes thatits capability to serve these geograph- tracts. contracts. TheVAP products are onlysoldonlong-term con- Scotland issoldboth onthespot market and onlong-term duces THE VALUE CHAIN Bakkafrost by plane to theUS andChinafrom theUKand/orDenmark. based ontransportation by shipto Europe and Russia and The current distribution network from the Faroe Islands is Distribution from theFaroe Islands Islands and Russian market. arule, As thewholefishfrom theFaroe The most important markets are the European, US, Chinese ferent geographical markets anddifferent product segments. The Group’s strategy isto balance thesales mixbetween dif SALES ANDDISTRIBUTION ity andpreferred products. chains by securing product availability and stable high qual- The strategy isto offer advantages to thelarger supermarket Fig. 14 Fig. FISHMEAL markets cross-cycle is sold can with on distribute fluctuations the the FISH OIL two spot categories both market, in both fresh while revenues of FISH FEED and products the frozen whole and efficiently profitability. fish BROODSTOCK fish to from the re- - for furtherdistribution ontrucks. transported by shipto DenmarkortheUKwithintwo days Products plannedfor the European andRussian markets are in theUS andChinawithin24hours. mark, theproducts are distributed by planeto majorairports ship andto Denmarkwithin36hours. From theUKandDen- products from theFaroe Islandsto theUKwithin20hours by With theexisting distribution network, Bakkafrost can ship America, and other Asia export markets from theUK. portation by Eurotunnel to Europe andby planeto North The distribution network from Scotland isbasedontrans Distribution from Scotland HATCHERIES BIOGAS FARMING FSV - HARVESTING •

Other (2%) Eastern Europe (5%) (8%) Asia North America (18%) Western Europe (67%) Markets served: PROCESSING PACKAGING ANNUAL REPORT 2020 SALES/MARKETING 34 PERFORMANCE PERFORMANCE PERFORMANCE ANNUAL REPORT 2020 35 PERFORMANCE Operational Review OPERATIONAL REVIEW current levels andto maximize returns oninvested capital. biological situation iscrucialto maintain production costs at sion rate andgives best inclass performance. The excellent weight, whichminimizes unitcosts, biological feed conver the opportunity to grow salmonwithahigher-than-average ities. Thebiological situation intheFaroe Islands provides yearly basis by both veterinary andenvironmental author Production plans in the Faroe Islands are approved on a (SSPO) andMarineScotland. nels includingtheScottish SalmonProducers’ Organisation a compulsory andvoluntary basisthrough avariety of chan- committed to operating transparently and share data onboth Health Inspectorate andScottish Natural Heritage. SSC are land, Scottish Environmental Protection Agency (SEPA), Fish larly audited by a range of bodies, including Marine Scot regulated farming sectors intheUKandoursites are regu- farming inScotland isoneof themost transparent andhighly mentally All farm sites in the Faroe Islands and Scotland are environ- are reached inthelate summermonths. a north-west of Scotland. Thelicenses give theright to utilize south parts of theFaroe Islands as well aslicenses inthe Bakkafrost holdsseafarming licenses inthenorth-east and FARMING The imately reached inFebruary, andthehighest temperatures, approx is excellent water quality. Thewater temperature intheregions Faroe IslandsandScotland throughout theyear aswell as The GulfStream provides stable farming conditions inthe are requested inorder to certify theoperation. cators. Yearly reports andplans,approved by theauthorities, focus onveterinary andenvironmental key performing indi- given steady, lowest 10.5 area certified with temperatures, °C of a in fjords fluctuation the and Faroe for yearly farming approximately Islands of audited only fish. and 6-8 by Farming 14.5 °C 6 agencies. during °C, °C in are authorities Scotland, the Salmon usually year. - - - - knowledge of the equipment and the treatment methods, the but after astart-up phaseand more experience andbetter new mechanical treatments resulted inelevated mortality, ing withcleanseawater with ambienttemperature. These ments, From 2015,Bakkafrost hasmainlyusednon-medical treat The healthcosts mainlyrelate to treatments against sealice. pact onnon-feed cost elements. high standards of animalwelfare whichhave apositive im- in in the wild,isusedinboth theFaroes andScotland, thisresults Salmon feed withahighmarinecontent, similarto thediet in needed. Theplanisalsoto dosoinScotland where possible. to more exposed areas, where more expensive equipmentis Islands, farming sites have beenmoved furtherout thefjords because of increased feed costs andhealthcosts. In theFaroe The farming costs have increased inrecent years, especially significant investments across thevalue chainare needed. to the farming intheFaroe Islands.Itwilltherefore take time The farming inScotland differs andlegislationfrom inbiology continuous to improve fishhealthandreduce costs. of diseases (ISA amongothers), strict regulation of movement aration of salmon generations, vaccination against different to support a sustainable and healthy operation, by total sep- Islands isto increase biological andveterinary securityand The objective of theBakkafrost farming method intheFaroe Faroe Islands has delivered strong results, compared to peers. In terms of production costs, ourfarming operation inthe AND VETERINARY MODEL COST-CONSCIOUS PRODUCER higher relatively refine equipment including and production high improve and freshwater, feed fish efficiency, the costs. and farming other lukewarm However, this method regulations. is also ANNUAL REPORT 2020 sea benefits in water impacted Scotland. This are and method evident by flush- Also, the - 36 PERFORMANCE scious farming operation. of these initiatives is to maintain a sustainable, cost-con- farming sites to reduce thenumberof sealice. Thepurpose parts OPERATIONAL REVIEW In treatments. on improving the negative side effects of these mechanical mortality level has improved, but Bakkafrost is still working Bakkafrost INVESTMENTS TO REDUCEBIOLOGICAL RISK risk, increasing efficiency andgivingorganic growth. The goals for the investment plan are to reduce the biological ers are ataplanningstage. cessing facility at Marybank, have beeninitiated whileoth- of these investments, e.g. theApplecross hatchery andpro - DKK 400 million per year for 2020-2024 in Scotland. Some Islands, Bakkafrost expects to make investments of around to theplannedinvestments inthevalue chainintheFaroe 1.6 billionhasbeeninvested inthelast two years. Inaddition August 2018amounted to around DKK3billion.Around DKK Mortality ofoutput addition Fig. 15 Fig. MORTALITY %OFOUTPUTFARMING FO 3 2 1 0 0 0 % % % of its has value to 2 this, invested 1 chain. SC T Bakkafrost p re 2 The 1 DKK five-year 3,9 2 has 1 billion used investment 2 1 lumpfish since SC T p 2 2015 o s plan t 2 at F O in some from all creased The average release size of smoltintheFaroe Islandshasin- enable furthergrowth inBakkafrost’s smoltproduction. Bakkafrost alsoplansto buildanew hatchery inSuðuroy to ceed 20millionsmolts withanaverage weight of 500g. Glyvradal andNorðtoftir are available thecapacity willex smolt capacity substantially. Whentheaddedcapacity from pleted andisinfullproduction. Thisincreases theFaroese in progress. Thenew hatchery atStrond hasalsobeencom- expansions of thehatchery atGlyvradal andNorðtoftir are at Norðtoftir andViðareiði have beenexpanded andfurther of 500gfor allsmolts released into thesea.Thehatcheries self-supplied withsmoltandaimsto have anaverage weight tion intheFaroe Islands.Theoperation intheFaroes is Around DKK1billionwillbeinvested inthesmoltopera- is alsoto increase thesizes of smolts inScotland. duce theproduction timeatseainthefarming sites. Theplan risk andthefuture growth potential, aslarger smolts willre- The larger smolts willhave apositive effect onthebiological corresponding to a166%increase insize. Biological feedfactor BIOLOGICAL FEEDFACTOR FARMING FO Fig. 16 Fig. 1 1 1 . . . 3 1 0 0 5 0 from SC around 2 T p 1 re 120g 2 1 in 2014 2 1 to around 2 1 319g SC T 2 p o 2 s in t F O 2020, - are our suppliers. Allstages of ourFaroese production chain our own salmonfarms andprocessing plants, but alsofor ries of procedures andqualitycontrol systems, not onlyat To ensure primequality, Bakkafrost has implemented ase- CERTIFICATES HACCP, ing Bakkafrost was proud to reach its goal to have allof its farm- ing economic growth. mental increasing impact, socialcontribution andmaintain- cused onthree pillars of sustainability: Reducing environ - is amemberof theGlobalSalmonInitiative (GSI).GSIisfo- one operation. Since 2015,Bakkafrost hasacquired three ships, Bakkafrost hasinvested innew equipmentinthefarming for new new feeding barges, catamarans andlarger pens. vested innew equipment atBakkafrost’s farming sites, e.g. Average harvestweight AVERAGE HARVEST WEIGHTFARMING FO (KG LW) Fig. 17 Fig. 1 2 3 4 5 6 delivery Global sites live ...... 7,000 0 0 0 0 0 0 0 0 0 0 0 0 IFS, fish in G.A.P. m3 GMP+, the in carrier 2 live 2022. Faroe 1 compliant. MSC, fish and Significant 2 Islands ISO9001:2008 carrier 1 two SC T Other p re service ASC 2 was 1 amount certifications certified commissioned vessels. ANNUAL REPORT 2020 and 2 has 1 BRC. by SC In also include T 2020 2 p addition, Bakkafrost o 2 s been t in F O 2020 – ASC, the in- a 37 PERFORMANCE latest OPERATIONAL REVIEW ments stringent standard intheaquaculture industry withrequire- developed incooperation withWWF andisseenasthemost tations Farming Scotland holds national and international accredi- production andtheenvironment. Global (BAP) in theEUto beawarded 4-star Best Aquaculture Practice ing andsupply chain management. tail Consortium (BRC) Accreditation for food safety, process facilities have beenawarded thehighest level of BritishRe- the well asthefeed suppliers. Thisisthehighest designation in 4 3 2 1 0 0 0 0 Fig. 18 Fig. BAP 0 0 0 0 site certification regarding G.A.P. and third-party

was 11.2 FO M certifications Farming 2 I L certified

1 8.3 SCT L A I fish ON V for ER

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G ASC 12.4 SCT Y salmon EA production, chain, The R standard 2

14.2 FO SC processing 2 T post including producer

sites, 10.4 SCT F O feed was as - by increased demandfor retail products from theVAP seg the VAP Thehighvolume segment. share for VAP was caused In 202047%of theFaroese harvest volumes was usedin the contract prices decrease. hand, whenthespot prices decrease, there isatimelaguntil increase inthecontract prices for VAP products. Ontheother lag between theincrease inthespot prices andasubsequent as thespot market prices for fresh salmon.There isatime ities short distances between farming areas andprocessing facil- improves biological control andarea Relatively management. ­Faroese fjords provide separation between locations, which of water quality, water temperature andcirculation. The in areas with attractive qualities for salmon farming in terms Salmon farms intheFaroe IslandsandScotland are located GEOGRAPHICAL LOCATION fixed-price ucts stabilize theGroup’s earnings, asthesales are basedon of theFaroese harvested volumes. Thesales of VAP prod- strategy isthatVAP products shallrepresent around 40% selling value addedproducts (VAP). Bakkafrost’s long-term Bakkafrost hasalong-term experience inproducing and VAP frost By focusing onmeeting existing customers’ demands,Bakka­ MARKETS IN ALLMAJOR STRONG CUSTOMER BASE transportation of both feed andfishonlandatsea. position inthemainmarkets: EU,US andEastern Asia, Europe. ated market strategy. Thishasensured Bakkafrost agood market Over thepast manyyears Bakkafrost hasdeveloped adifferenti - and marketing. give acompetitive advantage through product development customers. The relationships with customers have proven to and benefits well-developed contracts. from its The long-term contract infrastructure prices relationships offer are not cost-efficient with as volatile many - ment. ment. 2020 hadapositive effect onthe margins intheVAP seg of feed. sourced Havsbrún oil isusedfor feed production. the Going was Havsbrún cuts from thisproduction. in theFaroe Islandsinrecent years, increasing access to off ­Islands. Processing plants for pelagicspecies have beenbuilt tonnes compared Beside sites in2021. to the 2020 theMarineStewardship Council (MSC)hassuspended ever, have decreased over thelast years. of As 30December of ceived 283,307tonnes of raw materials in2020,anincrease 2020, ment volatile ery intheNorthAtlantic. Theraw material situation willbe fish disruption Thedriverment. for thischange indemandwas themarket 2020 Havsbrún PRODUCTION OFFISHMEAL,OIL ANDFEED availability ensure 2%, internal certification used oil produced forward, and Havsbrún compared in sourcing depends in offcuts 2019. continued sold internally. sold with – the caused had is consumption FOF highly 111,998 18,675 future. external 23.931 good 31,769 The of has with from on wild segment by all ASC-certification built higher In the related access the 2019. Atlanto-Scandian Quotas tonnes caught pelagic tonnes 2019, tonnes sale tonnes increases. sourcing up Covid-19 – volumes of The to inventory performed to of for Havsbrún in of fishmeal pelagic in fish raw fishmeal the production 2020, feed fishing 2019, of All pandemic. quotas factories in material. of raw in the ANNUAL REPORT 2020 of the fish, compared blue is the sold 2020, a again blue externally certified likely material, production decrease VAP for Faroese of whiting. Havsbrún 97,408 whiting, Havsbrún in The of fishmeal very pelagic segment to which the to reduce fish VAP in and farming of 16,690 well tonnes During of 2020, Faroe how meal 41%. fish- seg 84% also fish and the for re- as in - - - - 38 PERFORMANCE source increased. stable of the demand.Bakkafrost’s strategy isto have ahighcontent salmon feed, led by the major producers, will reduce some of OPERATIONAL REVIEW to beareliable and responsible partner. Manygreat results company culture and the fundamental values of Bakkafrost The foundations of ourhuman resource development are the es of employees. cus onHR,work satisfaction anddeveloping thecompetenc Therefore, we shall maintain andfurtherstrengthen thefo - retain employees withtheright competences andknowledge. expand ourleadingmarket position, itisvital to attract and Bakka­ Our most important resource isouremployees, and for PEOPLE The tent of omega 3. fish world’s frost to remain ahigh-performing organization and for oil in the in many Therefore, total the future feed, decades, production Size: 3mm but fish resulting decreasing while oil of is in expected the fish a content salmon demand oil has to with of be been for fish a fish a scarce relatively high oil oil in con- has the re- - Size: 4mm on health,safety, business andcommerce education. ships with local educational institutions and experts focusing well asother forms of training, we engage andform partner For work-related training, in-house and external courses, as levels intheGroup. al competences aswell asdeveloping leadership skillsatall It isanongoing process to furtherdeveloping profession- in-house andexternal courses, andother forms of training. Bakkafrost’s training isperformed aswork-related training, our customers isessential for alltraining efforts. conduct inadditionto creating thebest possible value for frost’s strategy andsecuringhighstandards inourbusiness ture menting relevant training schemes to meet current andfu- on alllevels in the Group onacontinuous basisby imple- We aimatstrengthening the competences of ouremployees tinuously to nurture ourcompany culture. have been achieved during the past years and we strive con- demands for a qualified workforce. Supporting Size: 6mm Bakka- - During US/UK: April tent healthcare professionals whohave guided uswell. In has beenheldataminimum.Bakkafrost alliedwithcompe- has helped to ensure that the negative impact from Covid understanding andengagement duringthepandemic,which in thecompany. Ouremployees have showed a remarkable virus andto reduce thepotential impact of anoutbreak with- to protect ouremployees from beinginfected by theCorona the pandemic a range of safety measures were implemented us to keep ouremployees safe. From thevery beginningof Bakkafrost In 2020,thenumberof full-time equivalent employees inthe screening for allemployees intheFaroe Islands. For further information seeourSustainability Report 2020. divisions, primarilydueto short-term employment. strong seasonalvariations related to the Harvest andVAP 2020 the 45), Covid-19 Group compared Bakkafrost was pandemic to 1,699 began 1,553 Size: 9-12mm employees in employees to 2020 offer Extruded feed for smolt it ANNUAL REPORT 2020 bi-weekly has (FO: in 2019. been 940, critical There SCT: Covid-19 714, are for 39 PERFORMANCE FINANCIAL REVIEW ANNUAL REPORT 2020 40 PERFORMANCE FINANCIAL REVIEW Financial Review tion costs for salmon. fluctuations are themainingredients inBakkafrost’s salmonfeed. The ucts VAP tion costs in2020,asvolumes were higher. Therefore, the added production were positively affected by lower produc price price The average feed price was higherthantheaverage feed follow thetrend onthespot market withatimelag. of 6-12months,where theprices for value addedproducts lower, on spot market every week. In2020,theaverage price was VAP segmentpurchases its raw material basedonthesalm- for theVAP segmentare alsotheraw material prices, asthe The in 2019adecrease of 12%. spot price in2020was DKK38.78,compared to DKK44.20 and around The supplyof salmonto theworld market increased by prices are are segment is in compared 4% on the typically 2019. for the in market in 2020 made value the same The to sold feed situation (2019: 2019. added a reason level profit on prices as fixed The products 6% for in in for will increase). margins 2019. 2020. price the fish be (VAP) fluctuations contracts reflected Important oil The of and The flatten value Bakkafrost’s average fishmeal, in with for added out in the the the duration in produc salmon which result prod- value 2020 feed - - lion DKK The Bakkafrost Group generated gross operating revenues of tonnes tober a added products increased 43%in2020.TheGroup harvested consolidated for thewhole2020.The volumes soldasvalue decreased in ucts in2020.Harvested volumes of salmonincreased 32% volumes of both fresh/frozen salmonandvalue addedprod- fishmeal decreased 41%. Profit orloss for theperiod Taxes EBT EBIT Revenue tax Income from associates Fair value adjustments of biological assets Change ininventory andbiological assets (atcost) Purchase of goods Operating revenue DKK 1,000 Income statement Operational EBIT Other income Depreciation Other operation expenses Salary andpersonnel expenses total 2020, in 4,651.9 2019. 2019. of in compared 85,687 2019. in The million 2020, Revenue The increase tonnes compared to external in in 2019, 2020, gutted 2019 in revenue mostly revenue compared to only weight, 2019. includes coming is from 0,7 -29,423 401,679 ANNUAL REPORT 2020 mainly The 23863 -1,354,921 -2,358,623 10279 -978,787 -1,062,719 compared to 4,651,892 1319 -180,031 -163,139 -446,765 -310,115 -608,347 118,003 462,845 625,984 981,916 691,123 1,019,217 621,158 5,8 -99,128 -53,584 DKK 44,041 sales external 5,546 2020 from SSC due 4,511.1

of from to SSC to 4,511,107 1,325,100 fishmeal -220,567 -512,761 sales 801,885 65,109 higher 13,812 being 8 2019 mil- Oc of 0 -

41 PERFORMANCE 2019. share totalled DKK7.83in2020, compared to DKK15.53in of amounting to DKK118.0million,compared to anadjustment the Group’s biological assets hasbeenrecognized in2020 2020, million, has No provisions are madefor onerous contracts, asBakkafrost shorter production timeuntilharvest. ment mostly relates to ahighervolume of biomass atseaand The end of 2019. 13,208.3 million,compared to DKK13,101.4millionatthe The Group’s total assets asatend2020amounted to DKK STATEMENT OFFINANCIALPOSITION 1,325.1 Operational EBIT was DKK 621.2 million, compared to DKK FINANCIAL REVIEW million es amounted to DKK-36.3million,compared to DKK-17.1 The -180.0 millionin2019. Net taxes amounted to DKK-163.1million,compared to DKK DKK -12.5millionin2019. cial expenses amounted to DKK-17.1million,compared to compared Financial income in2020amounted to DKK1.4million, lion in2019. to Bakkafrost of DKK5.5million,compared to DKK13.8mil- In 2020,theGroup’s associated companies madeanet result future withanegative margin. DKK no Group’s consolidated compared in long-term -220.6 compared million 2019. to intangible DKK million in Net to contracts to net 2019. 5.0 DKK currency DKK in million profit assets 2019. 801.9 A -12.7 positive to totalled effects amounted in deliver The million million 2019. positive fair amounted DKK at in in Net value to a 2019. 2019. fixed DKK fair 462.8 interest adjustment to value Earnings 4,493.4 Other price DKK million expens adjust finan- in -13.1 mil- per the of in - - at at lion asattheendof 2020,compared to DKK548.5million The Group’s total inventories amounted to DKK776.0mil- DKK 27.7millionattheendof 2019. adjustment amountingto DKK145.4million,compared to in thecarrying amountof thebiological assets isafair value lion at million attheendof 2020,compared to DKK3,780.5million Property, plantandequipment amounted to DKK4,220.6 Islands. value of acquired farming licences inScotland andtheFaroe the acquisition of TheScottish SalmonCompany Plc,thefair brún’s pared amounted to DKK2,117.0millionattheendof 2020,com- The Group’s carrying amount(fair value) of biological assets 701.5 in PP&Eamountingto DKK836.4million,compared to DKK pared amounted to DKK 122.5 million at the end of 2020, com- Investments inassociated companies andstocks andshares of 2020,compared to DKK332.8attheendof 2019. Right of useassets amounted to DKK353.2millionattheend investments. wellboat. Other investments relate mainlyto maintenance Bakkafrost carried out in 2020, were in hatcheries a new end Bakkafrost had DKK8.1millioninlong-term receivables atthe companies. in year-end the financial the of at to to inventory 2020, end end million the DKK DKK of of end assets 2019. compared 119.1 2019. 2019. 1,901.7 in of of 2019. The relates 2020, fishmeal, million Intangible In inventory million to 2019, The DKK compared to at fish the most Bakkafrost the 4.4 at assets oil primarily the result million end significant and to end comprise of DKK from fish 2019. at made of represents the feed 4,395.7 2019. the investments, end The investments primarily in associated Included of increase addition million Havs 2019. of - pared to 65%at theendof 2019. Bakkafrost’s equityratio was 66%attheend of 2020,com- DKK 584.4millionatthebeginning of theyear. DKK Cash andcash equivalents attheendof 2020amounted to end of 2019. as at the end of 2020, compared to DKK 671.5 million at the The Group’s total receivables amounted to DKK623.6million materials andother raw materials. Trade end of 2019. The end of 2019. Long-term of 2019. 1,222.2 million,compared to DKK1,123.8 millionattheend 3,708.6 The Group’s total non-current liabilities amounted to DKK positive result for 2020. The increase inequityisprimarilydueto theincrease of the lion, to DKK At theendof 2020,theGroup’s total current liabilities were 2020, compared to DKK15.5millionattheendof 2019. Derivatives amounted to DKK11.2millionattheendof compared to DKK2,328.2millionattheendof 2019. million feed Group’s compared 466.9 770.2 payable at at million the the debt million, million, equity end feed amounted at to was the of DKK at compared stations, compared DKK 2019. end the 8,496.9 2,219.7 to end of Deferred DKK 2020, finished of to to million 2020 DKK 563.9 million DKK compared taxes VAP 1,309.5 was ANNUAL REPORT 2020 925.0 million, at at products, amounted the DKK the to million million end end compared DKK 8,729.5 of of packing 3,679.6 to at at 2019. 2020, DKK mil- the the to 42 PERFORMANCE Current liabilities Other current liabilities Short-term leasingdebt Current tax liabilities Non-current liabilities Derivatives Equity Total liabilities Trade payables Derivatives Current liabilities Long-term leasingdebt Long-term interest-bearing debt Deferred taxes ASSETS CURRENT ASSETS Cash andcash equivalents Receivables Inventory Current assets Non-current assets ASSETS DKK 1,000 FINANCIAL REVIEW EQUITY AND LIABILITIES NON-CURRENT ASSETS Financial assets Property, plantandequipment Intangible assets 13,208,324 13,208,324 ,1,9 2,328,231 2,219,690 1,123,796 1,222,222 2,450,237 2,893,056 ,7,9 4,113,323 4,573,791 4,395,687 4,493,395 4,478,837 3,708,627 8,729,487 3,983,644 9,224,680 131,336 563,857 265,235 1,309,546 466,939 671,513 623,649 5,9 161,099 157,494 770,210 27,885 742 195,484 37,422 ,8 1,966 1,480 ,1 13,493 9,710 2020

13,101,405 13,101,405 4,604,530 3,679,578 8,496,875 4,431,296 8,670,109 107,808 584,435 225,585 924,952 23,732 2019

million, million change in long-term interest-bearing debt of DKK -107.5 and With the established credit facilities, the Group’s liquidity lease payments of DKK-134.6million. For compared to DKK-4,601.2millionin2019. from investment activities amounted to DKK-816.1million, flow at theendof 2020. drawn credit facilities of approximately DKK1,674.4million of in million, Cash andcash equivalents –closing balance total Cash andcash equivalents –openingbalance Cash flow from financing Cash flow from investments Cash flow from operations The Cash flow Operating profit (EBIT) Cash flow from operations DKK 1,000 effect results. Paid taxes andchange ininventory hadanegative

2020. DKK 2020, financial total from on had -167.6, compared compared Other cash the cash operations a strength negative cash flow 2020 flow financial to flow from to from figures DKK is effect in DKK considered from operations expenses 2020 financing 1,036.4 include 4,557.5 on operations is the primarily million of amounted good. cash acquisition in million DKK 2020 flow 1,309,546 in Bakkafrost 5049 4,557,491 -500,449 -4,601,246 -816,128 7,7 1,036,407 473,970 9,2 1,019,217 691,123 in 466,939 -53.4 2020. due was 2019. 2020 for from to of DKK million

to DKK 2019. minorities Cash financing 1,309,546 The positive had 316,894 -500.4 474.0 2019 cash flow and The un-

ANNUAL REPORT 2020 43 PERFORMANCE The Atlantic salmonfrom roe to harvest size salmon. The farming FO segmentproduces highquality - Faroe Islands(FO) Farming Segment FARMING SEGMENT -FAROE ISLANDS (FO) sites are located intheFaroe Islands. and to theinternal VAP production. Thefarming salmon is sold to fresh fish markets globally 2020, Farming West harvested 14,415tonnes gutted weight in of DKK36millionwere relate to incident-based mortality. The smoltrelease in2019was 12.7millionsmolts. The Group released 14.3 million smolts into the seain2020. 6,722 tonnes in2019. harvested 5,255tonnes gutted weight in2020,compared to in DKK 1,000 global Volumes andEBITwere impacted from late Q1to Q4by the FINANCIAL PERFORMANCE 2019. weight in2020, compared to 57,184tonnes gutted weight in The Group’s farming segmentharvested 50,700tonnes gutted VOLUMES Total revenue EBIT Operational EBIT Farming -Operational EBIT/kg (DKK) Harvested volume (tgw) Smolts released (thousand) 2020, Farming market compared compared disruption North to to 32,210 harvested 18,252 caused tonnes tonnes 31,030 by Covid-19. in gutted 2019. tonnes weight For Farming gutted 2020,

in weight 2019. South costs

pared pared In 2020,operational EBITtotalled DKK 448 million, com- than in2019. The volumes sold to the VAP segment were higher in 2020 weight in2019. DKK 2019. 1,548.6 millionin2020,down from DKK2,501.6million in revenues for Bakkafrost’s farming segmentdecreased to DKK an million amounted to DKK2,340.3million,compared to DKK3,152.5 Total revenues for Bakkafrost’s farming segment in 2020 weight, operational 650.8 to The to in compared 2019. DKK 2019, volumes million 1,103 EBIT The a to change internal in sold of 2,340,261 DKK million 8,8 10880 -82% 1,028,840 180,689 4,2 11301 -59% 1,103,001 447,829 2019 DKK 50,700 14,278 externally 2020 .3 92 -54% 19.29 8.83 of 19.29 revenue 8.83 to -26%. in DKK 2019. (NOK (NOK decreased Gross 3,152,462 increased 791.6 57,184 12,651 ANNUAL REPORT 2020 25.44) 12.69) This 2019 external million corresponds in per per in 2020, 2020 operating kg kg in Change gutted gutted 2020. com- from -26% -11% 13% to 44 PERFORMANCE FARMING SEGMENT -FAROE ISLANDS (FO) Farming Segment-FOTotalRevenue Farming Segment-FOSmoltRelease 1 1 SMOLT -MILLIONSMOLTS RELEASE TOTAL REVENUE(DKK1,000) Fig. 22 Fig. 19 Fig. , , 2 2 2 2 2 2 2 0 8 6 4 2 0 0 0 0 0 0 0 0 0 0 0 0 2 1 1 1 1 1 0 0 0 0 0 0 0 8 7 6 5 , , , , , , 0 0 0 0 0 0 2 0 0 0 0 0 0 0 0 0 0 0 0 1 5 2 1 2 1 2 1 .

1 2 1 1 1 . 0 1 . 3

1 1 2 2 . 5 . 7

2 1 4 2 . 3

Farming Segment-FOOperationelEBIT Farming Segment-FOHarvestVolume 1 1 2 2 3 3 HARVEST VOLUMES (TGW) Fig. 23 Fig. Fig. 20 Fig. 0 5 0 5 0 5 2 2 2 2 2 2 5 OPERATIONEL EBIT/KG (DKK) 0 0 0 0 0 0 ...... 0 0 0 0 0 0 0 2 1 1 1 1 1 0 0 0 0 0 0 0 0 8 7 6 5 2 1 5 2 1 2 1 2 1 2 4 4 , 1 4 6 7 0 , 0 5 5 5

0 0 0 0 , , 6 7

5 57,200 0 0 2 4 0 0 ,

6

2 0 0

Farming Segment-FOHarvestVolumes Fig. 21 Fig. 1 1 2 HARVESTED VOLUME (TGW) 0 5 0 5 , , , , 0 0 0 0 0 0 0 0 0 0 0 0 2 1 5 2 1 2 1 2 1 ANNUAL REPORT 2020 2 1 2 2 45 PERFORMANCE Please - Scotland (SCT) Farming Segment FARMING SEGMENT -SCOTLAND (SCT) October pany PLC (SSC) whichwas consolidated from 8 operating business of TheScottish SalmonCom- The Scottish farming segmentrepresents the not part of the consolidated Bakkafrost accounts. narrative inthissection are proforma andare producing The Scottish SalmonCompany iscommitted to and HebrideanIslandsisexporting globally. SSC has sites across the West Coast of Scotland with Scottish Provenance andfulltraceability. note 2019, the that when finest the comparable Bakkafrost quality Scottish figures gained and control. Salmon the 12.4 millionsmolts for thefullyear 2019(proforma). 10.4 millionsmolts were transferred in2020,compared to (proforma) for thefullyear 2019. The DKK 1,000 Financial Total revenue gutted EBIT VOLUMES Operational EBIT Farming -Operational EBIT/kg (DKK) Harvested volumes (tgw) Smolts released (thousand) total weight, volumes compared harvested to 33,799 in 2020 tonnes were 34,986 gutted

weight tonnes

weight in2019(proforma). ted weight, compared to DKK4.22(NOK5.57)per kg gutted global Volumes andEBITwere impacted from late Q1to Q4by the FINANCIAL PERFORMANCE an to Operational EBIT amounted to DKK -24.0 million, compared 2019. was In 2020,theoperating revenue for theSCTfarming segment costs of DKK90millionrelate to incident-based mortality. DKK operational DKK market 18.1 1,595.6 million disruption EBIT million, in ,9,6 437,171 1,595,561 of 308,265 2,1 18,129 -24,013 2019 496 7,925 34,986 034 5,696 10,354 DKK -0.69 2020 compared caused (proforma). -0.69

by (NOK to -224,285 Covid-19. ANNUAL REPORT 2020 DKK This 2019 2.29 -0.99) 437.2 corresponds

per For million kg Change 2020, gut n/a n/a n/a n/a n/a n/a to in - 46 PERFORMANCE FARMING SEGMENT -SCOTLAND (SCT) Farming Segment-SCTTotalRevenue Farming Segment-SCTSmoltRelease 5 4 3 2 1 SMOLT -MILLIONSMOLTS RELEASE TOTAL REVENUE(DKK1,000) Fig. 27 Fig. 24 Fig. 0 0 0 0 0 2 2 0 0 0 0 0 0 0 , , , , , 0 0 0 0 0 2 1 0 0 0 0 0 0 0 0 0 0 0

1

2 2

2

2 5 . 7 2

3

2 1 2 0 . 4

4

2 2 Farming Segment-SCTHarvestVolumesTGW Farming Segment-SCTOperationelEBIT Fig. 25 Fig. Fig. 28 Fig. - - - HARVEST VOLUMES (TGW) OPERATIONEL EBIT/KG (DKK) 2 2 6 4 2 2 4 6 0 0 ...... 0 0 0 0 0 0 2 1 0 0 0 0 0 0 0

1

2 2 7 , 0 0

2

2 2

3 3

5 2 , 0 0 2 0

4

2 2 Farming Segment-SCTHarvestVolume Fig. 26 Fig. 1 1 HARVEST VOLUME (TGW) 2 4 6 8 0 2 , , , , , , 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

1

2 2

2

2 2

3 ANNUAL REPORT 2020

2 2

4

2 2 47 PERFORMANCE fixed-price contracts. markets. TheVAP products are soldonlong-term products isEurope with increasing sales inother the Faroe Islands.Themainmarket for theVAP es skinless andboneless portionsof salmonin The VAP (value addedproducts) segmentproduc VAP Segment VAP SEGMENT - The production of VAP products, compared to 29%in2019. For 2020,47%of thetotal harvested volumes went to the period. ing andvice versa, whenthespot prices increase duringa profit prices andthecontract prices, Bakkafrost normallymakes a there isa time lagbetween the movement infresh salmon VOLUMES DKK 1,000 ent Group’s net earnings, asthese products are soldunderdiffer the Group’s earnings – to reduce the volatility in Bakkafrost withvaluegy addedproducts is–inadditionto increasing but somesales are alsoto theUS retail market. Thestrate- is predominantly portionsfor theretail market inEurope, its harvested salmonasvalue addedproducts. Theoutput Bakkafrost hasalong-term strategy of producing 40-50%of Total revenue weight, compared to 16,690tonnes gutted weight in2019. EBIT Operational EBIT VAP -Operational EBIT/kg (DKK) VAP produced volume (tgw) fixed-price VAP in the production VAP contracts segment, in for 2020 when a period was the spot 23,931 of up prices to tonnes 12 are months.

decreas gutted As - -

end of 2020nor2019. The VAP segmenthadnoonerous contracts neitheratthe weight in2019. weight, compared to DKK3.82(NOK5.04)perkg gutted an compared sion Operational EBITin2020,whichisadjusted for provi- 964.5 millionin2019,anincrease of 16%. amounted to DKK1,116.2millionin2020,compared to DKK er rate asthespot prices, but thecontract prices were onalow The contract prices in2020 have not decreased atthesame FINANCIAL PERFORMANCE level operational for than onerous to DKK in EBIT 2019. contracts 63.7 ,1,1 9444 16% 964,484 1,116,216 of 3,9 6,2 119% 63,727 139,693 3,9 6,2 119% 63,727 139,693 The 391 660 43% 16,690 23,931 million DKK 2020 5.84 VAP etc., 5.84 in segment’s totalled 2019. (NOK ANNUAL REPORT 2020 8.39) This 2019 DKK 3.82 operating corresponds 139.7 per kg revenue million, Change gutted 53% to - 48 PERFORMANCE VAP SEGMENT VAP Segment-TotalRevenue VAP -Productweight 3 3 2 2 1 1 PRODUCT WEIGHT OFVAP (TGW) TOTAL REVENUE(DKK1,000) Fig. 32 Fig. 29 Fig. 5 5 0 5 0 5 0 2 2 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 , , , , , , , 0 2 1 1 1 1 1 0 0 0 0 0 0 0 0 8 7 6 5 0 0 0 0 0 0 0 0 0 0 0 0 0 2 1 5 2 1 8 , 4 0 2 0

1 2 1 1 6 , 7 1 1 0 8 8 1 0 , , 1 2

2 0 0 , 1 0 0 0 1

0

2 3 2 , 0 2 0

VAP Segment-Distributionofharvestvolumes VAP Segment-OperationelEBIT Fig. 30 Fig. - - Fig. 33 Fig. 2 2 2 2 2 2 DISTRIBUTION OFHARVESTED VOLUMES (%) OPERATIONEL EBIT/KG (DKK) 1 1 1 1 - 0 0 0 0 0 0 5 5 0 5 5 0 15 16 17 18 1 20 ...... 0 0 0 0 0 0 0 0 0 0 0 0 0 % 2 1 5 H 2 H a a 2 r r 5 1 v v % e e st st e e d d v v 2 o o lum lum 1 e e 5 s s 0 u % so se ld 2 d f i r n 1 e sh/ V A P f r o p 7 z r 5 o e 2 % duc n 1 t i o n 2 1 0 2 0 % VAP Segment-Volumes Fig.31 VAP VOLUME (TGW) 2 4 6 8 , , , , 0 0 0 0 0 0 0 0 0 0 0 0 2 1 5 2 1 2 1 2 1 ANNUAL REPORT 2020 2 1 2 2 49 PERFORMANCE salmon the internally in thefarming Thequalityof segment. fish feed are alsosoldexternally. production duces The FOF Segment FOF SEGMENT fish FOF fishmeal, from feed (fishmeal, is Bakkafrost. is used fish important for -oil oil and fish and Fishmeal, to fish feed, feed) the feed. which quality segment fish Most is oil of of used pro- and the the Havsbrún fish available for production andthe timingof catches. ternal sold feed in2020 internally, corresponding to 84%. Thein- to The species of fish. The pared depends corresponds to aincrease of 2%.Theraw material intake VOLUMES 2019 for last couple of years had an improving raw material situation Havsbrún, DKK 1,000 Total revenue of EBIT partly and oil were partly used internally for feed production, and EBITDA FOF -EBITDA margin Sold feed tonnes 97,408 raw fishmeal production production was to use exported. material, 60,646 on in tonnes sold 9,932 which the 2019 and of of 111,998 compared tonnes In fishery tonnes, fish in represents fishmeal fish was 2020, 2019. oil oil 76,583 in in compared tonnes production. varies, Havsbrún 2019. Bakkafrost to in the the 278,664 2020 tonnes, North depending of The FOF to was feed sourced production The segment, used 9,633 Atlantic tonnes corresponding 60,661 in produced 94,345 on 2020, 283,307 tonnes in the and has tonnes, 2019, of

species compared tonnes fish available over fishmeal in to tonnes which 2019. oil com- 79%. the of of in

amounted Total revenues for Bakkafrost’s FOF segmentin2020 FINANCIAL PERFORMANCE ed The external operating revenue for theFOF segmentamount million in2019,anincrease of 2%. million to lion, The internal revenue in2020amounted to DKK1,027.5mil- and fishmeal. 275.8 EBITDA was DKK207.7millionin2020,compared to DKK activities, both inScotland andtheFaroe Islands. revenue comprises thesales of feed to Bakkafrost’s farming 2020, compared to 19.9%in2019. 2020 to compared DKK million in was 2019. to 391.5 DKK mainly in to The 2019, 1,419.0 million DKK decrease ,1,7 1,388,461 1,418,970 due 181,610 0,9 2576 -25% 275,796 207,695 1,9 9,0 15% 97,408 111,998 and 780.7 46 1.% -26% 19.9% 14.6% 2020 to in million, the lower 2020, in million EBITDA external compared external compared 257,870 in ANNUAL REPORT 2020 margin revenue 2019 2019. sale to to was DKK The of DKK from fish 14.6% internal 1,388.5 Change 607.8 2019 -30% feed 2% in - 50 PERFORMANCE FOF SEGMENT FOF Segment-TotalEBITDA FOF Segment-Fishfeedproductionvolumes 1 TOTAL EBITDA (DKK1,000) Fig. 37 Fig. 34 Fig. FISH FEEDPRODUCTION VOLUMES (TONNES) 1 2 3 4 5 6 7 8 0 2 2 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 , , , , , , , , , , 1 1 1 1 1 2 0 0 0 0 0 0 0 0 0 0 5 6 7 8 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 1 5 2 1 2 1 2 1 7 7 8 8 8 0 , , 0 2 , 8 1 0 0 6 0 0 0 , 2 0 0

0 0 1

, 2 0 0 1

1 2 3 , 7 2 0 0

FOF Segment-Sourcingofrawmaterial FOF Segment-TotalFeedSoldTGW Fig. 35 Fig. Fig. 38 Fig. 1 2 3 4 SOURCING OFRAW MATERIAL (TONNES) SOLD FEEDTONNES 2 2 2 2 2 2 0 0 0 0 0 0 0 0 0 0 , , , , 0 0 0 0 2 1 1 1 1 1 0 0 0 0 0 8 7 6 5 0 0 0 0 2 1 5 2 1 2 1 2 0 2 1 , 200 1 2 3 5 , 0 00 2 2 2 7 8 8 3 1 , 3 700 , 3 0 0 2 0 , 500 3 4 2 2 , 500 2 FOF Segment-EBITDAMargin Fig. 36 Fig. 1 2 3 4 EBITDA MARGIN (%) 0 0 0 0 % % % % 2 1 5 2 1 2 1 2 1 ANNUAL REPORT 2020 2 1 2 2 51 PERFORMANCE MARKET REVIEW ANNUAL REPORT 2020 52 PERFORMANCE MARKET REVIEW Market Review The Group focusses ondirect sales into channels,where the sponsible for theworldwide sales of Bakkafrost Salmon. The Sales andMarketing Departmentat Bakkafrost isre- SALES ANDGEOGRAPHICAL DIVERSIFICATION years, ducing thelargest Atlantic salmonintheworld. Inrecent The Faroe Islandsaquaculture industry isrecognized as pro- LARGE SALMON premium positioning andispreferred by select customers.. frost salmonissought after around theworld withaccepted the salmonfrom these two originsisinhighdemand.Bakka- produce about 3.0%andScotland 6.7%of theworld’s salmon, nized globallyastop quality, but astheFaroe Islandsonly Both salmonfrom TheFaroe IslandsandScotland isrecog LIMITED VOLUMES provenance asproducing exceptional qualitysalmon. raising salmon. Bakkafrost will further promote this unique around theFaroe Islands aswell inScotland are perfect for The natural conditions andcold waters intheNorthAtlantic ORIGIN (unique sellingpoints). tion by investing indifferentiation and thefollowing USPs The Bakkafrost Group plansto furtherstrengthen thisposi- reflects positively intheGroup’s results. This ensures aprice premium can beachieved whichinturn able andqualitysalmon,trulycreating value for customers. Bakkafrost is committed to producing; tasty, healthy, sustain- is exposed to different risks asinanynatural environment. good biology. Thelonger thesalmonisatsea,more it to capitalize onthisposition. Farming large salmondemands With good supplyof larger sizes, Bakkafrost was well placed salmon over 6 kg achieved aconsiderable price premium. tween thedifferent sizes of salmon. Dueto lack of supply, a significant price difference has been evident be- - wide locations. then linkingwithfurtherpassenger airlines to diverse world- fresh as possible by freight carriers to major airports and GMO ingredients infeed. Bakkafrost does not useanyantibiotics anduses onlynon- ticularly important to clients inthepremium sushisegment. ensuring risk of market fluctuations. geographical price premium isachieved. Thestrategy continues to ensure quality attributes of Bakkafrost Salmonare recognised anda The marketsushi segment, share inChinaisalsostrong. demand for salmon over 6 kg isstrong, predominantly in the The Bakkafrost brand isparticularlystrong inUSA, where SEGMENTATION fective frost works closely withkey freight forwarders to ensure ef around theworld. To maintain theleadingposition, Bakka­ tribution of fresh perishableproduce whichis sought after Fast reliable logistics withglobalreach isvital for thedis WORLDWIDE REACH strong logistics that sustainability sales Bakkafrost´s and diversification first-class profile salmon customer of Bakkafrost thereby is ANNUAL REPORT 2020 always service minimizing Salmon delivered worldwide, is par the as - - - 53 PERFORMANCE conditions. ditional The ble andresponsible supplier. the highest qualityproduct andbeingrecognized asarelia- ers. Bakkafrost addsvalue to VAP production by producing tions, themainmarkets are leading European andUS retail- Bakkafrost holdsa leading position infrozen salmonpor VAP MARKET REVIEW and stability with 6 and 12 months contracts being negotiated 39 Fig. diversification offers benefits an outlet for of the for the Group; whole Bakkafrost fresh it ensures product fish in increased adverse mix brings FAROE ISLANDS revenue market ad- - and gives clients unparalleled traceability. full control andresponsibility over allaspects of production own farming companies intheworld anduniquelyproduces its Bakkafrost isoneof themost vertically integrated salmon VERTICAL INTEGRATION cost. salmon production withregard to thequalityof salmonand Feed isrecognized asoneof themost important aspects in FEED fishmeal and fish oil. This ensures that Bakkafrost has exceptional taste of Bakkafrost Salmon. DHA andEPA. Thenatural diet also ensures enjoyment inthe the optimum fat content, richinhealthy Omega 3fatty acids the qualityof Bakkafrost Salmon,themarinecontent ensures A diet rich in marine content is the most important factor for welfare andlow production costs. Feed cerning environment in which it operates, this is fundamental for dis Bakkafrost iscommitted to sustainability andcare for the ASC this, marine resource. By keeping theBakkafrost diet close to marine content. Thenatural diet for wildsalmonisrichin to decideto invest insalmonfeed withsubstantially higher Vertical integration meansthatBakkafrost hastheexpertise FEED RICHINMARINECONTENT commitment, across all sites by 2021. to achieve the Conversion customers. Group ASC and certification, is Ratios able Bakkafrost is rigorously (FCR) to have which which was one pursuing one underpins is of a of ANNUAL REPORT 2020 key the the ASC indicator industry´s first the certification Bakkafrost companies of best fish - 54 PERFORMANCE mated equivalent). IntheEU, theoverall supplyfor 2018was esti - to apercapita consumption of seafood of 20kg (live weight 156 milliontonnes were utilized asfood. Thiscorresponds estimated atabout 178milliontonnes, of whichroughly In SEAFOOD CONSUMPTION MARKET REVIEW lion Overall, 2018 was estimated at24.4kg live weight. decrease from 2017.Per capita consumption inthe EU for ies and aquaculture suppliers in Europe. This represents a 1% main Source: Kontali, FAO 2018, Fig. 40 Fig. WORLD SEAFOOD PRODUCTION FOR HUMANCONSUMPTION ANDCONSUMPTION PERCAPITA is stable utilized million tonnes at global

2 2 1 1 1 1 1

the 14.7

2 4 2 4 2 above capture million in capture 2 the 1 90 1 production fisheries tonnes million fisheries

2 1 for tonnes, 2

and of production the fishmeal aquaculture main 2 of

1 which 3 market continues and about 2 market fish 1 for 4 20 oil. fisher to mil- was The re- 2 - 1 5

ing years. seafood. Thistrend ismost likely to continue intheupcom- production continues to cover theincreasing demandfor As the last couple of years. share of non-food uses hasremained atasteady level over 2 capture 1

fisheries 2 1 production 2 1 P 2 remains 1 E

stable, 2 2 E aquaculture

2 4 1 1 1 1 1 2 2 2 4 2

kilo/capita ANNUAL REPORT 2020 55 PERFORMANCE ment. Inaddition,logisticalment. barriers suchasreduced airline increasing thedependencyonsales through theretail seg downs have reduced thedemandfrom foodservice, thereby tion The supplyof Atlantic salmonin2020must beseeninrela- decline was observed for allother regions. America (+40,000 tonnes wfe) experienced growth while a Of this,supplyto Europe (+60,000tonnes wfe) andNorth responds to anincrease of just below 100,000tonnes wfe. creased by 4% andexceeded 2.6milliontonnes wfe. Thiscor In 2020,worldwide supplyof farmed Atlantic salmonin- CONSUMPTION TRENDS MAIN MARKETS FOR SALMON AND MARKET REVIEW Source: Kontali PER CAPITA CONSUMPTION OFATLANTIC SALMON (kg wfe /capita) 41 Fig. to 5 1 15 2 25 the COVID-19 21 pandemic, 21 where 213 restrictions 214 and lock 215 - - - ucts anddependencyonsales through retail. market withlower market prices for Atlantic salmonprod - ment from Q2 2020. A similar trend was observed on the US sector) and secondary processing led to low price achieve- larly, increased dependencyon theEuropean market (retail above 55NOKperkg (-5%)or5.2EURperkg (-13%).Particu - European spot prices for Atlantic salmonin2020endedjust limited market access andpotential. cargo capacity andincreased airfreight rates have further 21 21 21 21 2E R S E A K ANNUAL REPORT 2020 56 PERFORMANCE vest be seeninrelation to production growth andincreased har The 40,000tonnes supplyincrease from Chile(+14%)must of fresh andfrozen fillets to theUS market. the pandemic.Thisadaption implies higherforeign supplies neously, sorb volumes allowed for thisincrease insupply. Simulta- U.S market alongside theretail industry’s availability to ab- market condition for Chileanfarmed salmon.Access to the demand, andlogistical obstacles have created challenging a have adapted to thesituation by focusing ontheretail sector, US the USA have alsoclosed. Supplyof Atlantic salmonto the later stages of thepandemic,other geographical regions in on salmon supply from European producers. However, in the segment hadto temporarily close. Thishadastrong impact phase of thepandemicwhere alarge partof theHoReCa The East-coast market was heavily impacted in the initial significant increase inimports of Atlantic salmon. lion cases and 466 thousand deaths *Jan 2021), there was a from 10USD/kg in2019to 7.8USD/kg last year (-22%). the Despite theUS beingthemost heavilyaffected country by 5-6 mealspercapita eachyear. a percapita consumption of approx. 1.7kg wfe, indicating MARKET REVIEW tonnes. more than40,000tonnes wfe to atotal supplyof 562,100 In 2020,theUS market for farmed Atlantic salmongrew by THE US MARKET sector market COVID-19 volume. With average from has a In pandemic population which changed addition, export sales in significantly price of the terms have 329 COVID-19 for of million, grown Chilean number during significantly this pandemic, salmon of 2020. corresponds cases fillets Suppliers reduced (27 during mil- fell to - Source: Kontali Fig. 42 Fig. SUPPLY OFATLANTIC SALMON TO THE US MARKET(TONNES WFE) 43 Fig. Total Other USA United Kingdom Faroe Islands Norway Canada Chile Country SUPPLY OFATLANTIC SALMON INTHEUS MARKET 1 2 3 4 5 21 266,300 13,200 21,500 16,600 28,700 80,400 99,100 6,800 2011 21 162,200 330,000 17,700 13,100 23,700 98,200 5,700 9,400 2012 2013 213 191,600 350,000 11,400 10,100 16,100 16,400 27,000 77,400 214 214,700 373,900 10,600 16,200 20,400 17,100 39,900 55,000 2014 215

224,100 427,600 14,600 13,800 16,300 14,700 51,200 92,900 2015 21 100,900 217,300 427,500 16,300 12,700 16,900 55,700 7,700 2016 21 220,400 446,400 19,600 13,100 18,000 14,800 68,400 92,100 2017 21 267,200 483,900 22,700 16,100 12,800 67,300 90,500 7,300 21 2018 2019 284,300 520,800 29,700 20,300 18,500 68,300 91,600 ANNUAL REPORT 2020 2E 8,100 C C N F S O 325,100 562,100 562,100 A 41,600 11,900 14,800 68,200 91,600 K I 2020E 8,900

57 PERFORMANCE The markets for salmonconsumption inEurope. prox. 50%of thetotal consumption, makingthemthelargest Germany, France, andtheUnited Kingdom account for ap- meals percapita peryear. capita consumption of 2.3kg wfe peryear, indicating 7-8 bined populationof 512million,thiscorresponds to aper segments. lockdowns whichreduced thedemandfrom thefoodservice in theairfreight markets andinadditionto restrictions and market. Thebackdrop for thiswas thelogistical challenges from European producers to beallocated intheEuropean wfe, farmed Atlantic salmonincreased by 5.3%, or60,000tonnes In 2020,theEUmarket (includingtheUnited Kingdom) for THE EUROPEAN MARKET MARKET REVIEW crease involume in2020. processing retail segmentwhere salmonhubs/countries withsecondary ed market, with increased dependency on sales through the COVID-19 to a total Trade capacity supply pandemic flows (e.g. of were 1.19 Poland has impacted million caused +20%) tonnes a by higher saw a more wfe. a share significant With concentrat of a com- sales in- - Source: Kontali Total Other/ Re-export Faroe Islands Chile United Kingdom SUPPLY OFATLANTIC SALMON TO THE EU+UKMARKET(TONNES WFE) 45 Fig. 44 Fig. SUPPLY OFATLANTIC SALMON TO EUANDUKMARKET Norway Country 1 1 1 2 4 2 4 21 117,500 648,400 802,800 28,700 17,200 -9,000 2011 21 117,000 761,900 933,100 36,800 27,000 -9,600 2012 2013 213 110,300 755,500 931,200 -19,100 34,300 50,200 214 1,005,100 117,800 834,600 -30,100 32,300 50,500 2014 215 1,070,900 121,100 912,200 -27,700 20,400 44,900 2015 21 1,041,000 115,400 860,200 -16,900 28,400 53,900 2016 21 1,019,500 124,900 841,400 -17,100 27,800 42,500 2017 21 1,054,300 108,000 910,800 -25,800 20,600 40,700 21 2018 2019 1,130,600 142,300 944,500 2E -23,200 30,800 36,200 ANNUAL REPORT 2020 N C F O 1,189,800 1,189,800 154,700 993,800 -32,800 K I 33,200 33,200 40,900 2020E R

58 PERFORMANCE geographic proximity andaless severe impact of COVID-19. Australia sawanincreased supply(+3,000tonnes wfe) dueto tonnes MARKET REVIEW Supply to ChinaandHongKong fell by more than30%­ consumption. kg), withthefoodservice-segment covering ahighshare of to Chinaismainlyfresh wholesalmonandlarge sizes (6+ rope (Norway, Faroe Islands andtheUnited Kingdom). Supply increased from Chile, but alsofrom producing regions inEu- reaching 124,000tonnes wfe. Most noteworthy, thesupply na andHongKong experienced more thana3-fold increase, From CHINA ANDHONGKONG Europe Supply to China from both Chile (-17,000 tonnes wfe) and quarantine certificate, traceability info etc.) up fresh seafood, includingAtlantic salmon.Thiswas followed tion schemes onimported seafood to Chinacaused delays for and frozen food products. Theintroduction of new inspec concern Another factor limitingdemandinthe2ndhalfof 2020was a vast increase infreight rates impacted themarket potential. down inChina.Reduction inairfreight capacity, asfrom Q2,and by 2010 wfe) certification (-26,500 that in to COVID-19 the 2019, tonnes 1st schemes half the wfe) could of supply 2020 fell for be significantly of transmitted due suppliers Atlantic to the (inspection COVID-19 salmon last through year, (40,­ to close- while fresh 000 Chi- and - ­ Source: Kontali Fig. 46 Fig. Fig. 47 Fig. Total Others Canada SUPPLY OFATLANTIC SALMON TO CHINA ANDHONGKONG (TONNES WFE) Faroe Islands Australia Denmark United Kingdom Chile Norway Country SUPPLY OFATLANTIC SALMON TO CHINESEMARKET(INKL.HONGKONG) 1 12 14 2 4 21 21,840 26,340 1,740 1,180 2011 530 870 70 60 50 21 32,370 59,760 6,060 6,780 8,120 5,470 2012 2013 600 270 90 213 10,090 12,200 10,750 32,190 75,880 9,710 410 230 300 214 11,050 16,430 19,960 34,140 86,390 3,240 2014 280 940 350 215 14,920 18,270 31,110 85,370 2,570 2,430 9,520 6,420 2015 130 21 12,220 10,410 12,250 29,280 16,480 87,870 5,790 1,360 2016 21 80 18,590 12,660 27,790 17,860 97,720 2,120 8,730 9,630 2017 21 340 111,670 10,620 12,370 44,770 30,920 21 5,090 6,770 2018 2019 800 330 123,860 2E 14,690 10,900 45,540 42,990 ANNUAL REPORT 2020 7,590 960 870 320 N C A F C O K I 10,810 28,580 32,540 83,390 83,390 2020E 6,280 3,360 920 680 220

59 PERFORMANCE MARKET REVIEW Source: Kontali Fig. 48 Fig. Total Chinook Coho Sockeye Large trout Pink Chum Small trout GLOBAL SUPPLY OFALLFARMED AND WILDSALMONIDS (TONNES WFE) 49 Fig. Atlantic salmon HISTORICAL SUPPLY OFALLSALMONIDS 1 2 3 4 5 21 1,633,400 3,675,700 174,400 148,800 344,400 587,500 274,600 490,600 22,000 2011 21 1,998,550 3,975,650 191,000 142,300 385,900 410,300 294,700 534,100 18,800 2012 2013 213 2,041,250 4,187,750 176,800 133,200 320,600 580,600 338,300 577,500 19,500 214 2,229,300 4,115,000 200,400 173,700 307,300 307,900 321,900 555,700 18,800 2014 215 2,318,600 4,311,200 190,600 190,300 280,400 398,900 338,100 573,400 20,900 2015 21 2,162,550 4,042,550 151,800 183,000 278,100 354,300 280,900 612,700 19,200 2016 21 2,291,400 4,280,600 194,900 173,700 260,400 448,400 261,100 630,800 19,900 2017 21 2,403,400 4,576,600 211,100 171,600 262,400 591,400 268,600 648,300 19,800 21 2018 2019 2,581,800 4,728,400 234,600 178,400 293,600 524,500 228,600 666,300 2E 20,600 A S C P S C C 2,715,400 4,586,200 4,586,200 227,800 160,200 307,100 285,200 180,600 689,300 20,600 2020E

ANNUAL REPORT 2020 60 PERFORMANCE MARKET REVIEW in 2020. out) plants isestimated atapproximately 8,500tonnes wfe In addition,theglobalharvest volume from landbased(grow- Russia withmarginalproduction below 20,000tonnes wfe. Other regions withconventional farming includeIreland and land andAustralia sawanincrease. North America (Canada) continued atastable level, whileIce- Islands andintheUnited Kingdom last year. Production in declined by 3%,withlower production inboth theFaroe In other European farming regions, thetotal harvest volume volume was alltimehigh. provements inkey production parameter. In2020,harvest sis in 2016, the Chilean industry has continued to show im- Following theheavy losses caused by theAlgae bloomcri- through in 2020.Duringthepast few years, increased MABcapacity on intheworld andaccounted for 50%of globalproduction Norway isthelargest producing country of Atlantic salm- FARMED ATLANTIC SALMON GLOBAL HARVEST OF Chile, The second largest producing country of Atlantic salmon, feeding days impacting theharvest weight potential). high treatment frequency have limited theproductivity (lost However, duringthesameperiod,sealice regulation and licenses have allowed for increased stocking andgrowth. 2008-2009 Chile hasrecovered biology-wise since theISA-crisis in accounted both and the seen for traffic-light 29% improved of the system productivity global and production new year development after in 2020. year. Source: Kontali Fig. 50 Fig. GLOBAL HARVEST OFATLANTIC SALMON (TONNES WFE) 51 Fig. *Total Landbased RAS Others Russia Iceland Australia Ireland Faroe Island North America UK Chile HARVEST OFATLANTIC SALMON INTONNES (TONNES WFE) Norway Country 1 1 2 2 3 5 5 5 21 1,005,600 1,633,400 137,800 154,700 221,000 36,000 16,000 56,300 4,000 1,200 2011 100 700 21 1,183,100 1,998,150 156,100 159,400 364,000 40,000 15,600 70,300 6,000 3,250 2012 2013 100 300 213 1,143,600 2,041,050 135,400 157,800 468,100 10,000 39,000 10,600 72,600 3,350 300 300 214 1,199,000 2,229,400 119,000 170,500 582,900 14,500 42,000 12,300 82,700 1,800 4,400 2014 300 215 1,234,200 2,318,600 155,400 166,300 598,200 13,600 54,400 15,700 75,600 1,300 3,600 2015 300 21

1,171,100 2,162,450 168,500 157,400 504,400 50,900 15,800 77,300 3,500 5,000 8,100 2016 450 21 1,207,800 2,291,300 158,700 177,200 564,200 11,600 61,200 17,000 80,300 4,200 8,600 2017 500 21 1,253,400 2,403,400 165,400 152,100 660,100 13,600 62,600 14,300 71,700 21 4,300 5,400 2018 2019 500 1,333,400 2,581,800 158,800 190,500 690,300 2E 11,500 24,500 64,000 15,500 86,600 ANNUAL REPORT 2020 6,200 500 N C K N F I A I R O 1,369,200 2,715,600 2,715,600 161,400 181,200 778,400 11,000 11,000 31,200 31,200 77,800 15,800 15,800 80,800 80,800 A I 2020E 8,300 8,300 RA 500 500 S

61 PERFORMANCE fish The Faroese industry hasfaced biological challenges with smolt yieldintheindustry. and highaverage harvest weights. Thishasledto thehighest the last decade beenthebest intheworld withlow loss rates The biological performance of the Faroese salmon has over FROM THEFAROE ISLANDS SUPPLY OFFARMED ATLANTIC SALMON MARKET REVIEW points from 2019. on, reached 40%in2020,anincrease of approximately 5% the export share to EU, the main market for Faroese salm- over to badweather whichhave periodically affected production levels of sealice, andextraordinary events like losses due is The share of Faroese export to theRussian market in2020 the opposite direction both innominalandrelative terms. ever, sales to markets suppliedby shipandtrucktrended in where salmonisdistributed by airfreight (e.g. China).How conditions. Thisapplies to thegreatest extent inmarkets Supply in2020was highlyimpacted by challengingmarket exceeded 80,000tonnes wfe. mately 7%(5-6,000tonnes) althoughitwas still estimated to for recorded withsupplyexceeding 85,000tonnes wfe (+21%) estimated the health the first past issues time to 5 years. 24%, in like history. up gill In from 2019, disease Last 21% a year, (e.g. strong in supply losses 2019. harvest in Simultaneously, fell 2017), volume by approxi- higher was - Source: Kontali All other markets France Italy Netherlands Germany Spain United Kingdom Denmark China USA (ILLUSTRATES THEMARKETDIVERSIFICATION) SUPPLY OFATLANTIC SALMON FROM THEFAROE ISLANDS TO DIFFERENTMARKETS (TONNES WFE) 53 Fig. 52 Fig. FO SUPPLY OFATLANTIC SALMON Russia Country 1 1 2 3 4 5 21 16,579 8,158 3,636 6,265 7,631 5,195 3,648 2,373 2011 637 43 3 21 13,056 13,085 5,304 1,466 8,637 9,466 4,806 6,738 7,997 2012 2013 25 33 213 15,071 11,439 10,199 16,394 3,938 1,447 9,603 2,613 906 75 0 214 11,557 11,256 10,945 17,105 15,465 3,663 9,050 2,122 2014 176 0 0 215 14,671 25,660 7,266 1,740 5,404 4,633 5,489 9,505 2015 253 138 21 - 10,305 16,908 19,798 5,780 3,061 8,156 8,024 5,010 2016 363 651 21 19 10,916 14,820 24,096 7,273 1,557 1,056 5,621 4,920 8,556 2017 21 404 92 10,615 12,829 23,812 21 5,183 1,375 1,421 6,538 7,654 2018 2019 599 460 306 Y T 10,860 14,539 18,469 18,276 ANNUAL REPORT 2020 2 7,399 1,352 1,776 2,150 2,646 3,973 5,015 R S C S G N I F A A K 13,297 17,318 2020E 8,782 2,459 1,438 1,472 2,888 4,653 3,494 9,600 5,633

62 PERFORMANCE continued into 2021. increased dependency and market concentration which has increase in supply in Q3 and Q4 of 2020.This indicates the The MARKET REVIEW kg, Salmon prices averaged athighlevels, around 70NOKper AND MARKETPRICES CHANGE INMARKETSUPPLY ducing capacity andopportunity to absorb larger volumes, pro- torically important role duringthecrisisin2020withtheir The salmonprocessing industry inEurope hashadanhis averaged around 46NOK/kg in the second halfof 2020. age European spot prices for fresh wholesuperiorsalmon impacted from Q2.Combined withgrowth insupply, aver balance andprice achievement for fresh wholesalmonwas ency onsales through theretail-sector andboth themarket became muchmore concentrated withincreased depend- foodservice industry. result, As theglobalsalmonmarket travel and lockdowns which impacted the demand from the salmon and frozen product to theretail sector. Poland, thelargest ply in and spread the and the hub first European increasing of for quarter COVID-19 secondary market of sales 2020 worldwide processing, of not with smoked yet no impacted led growth salmon, noted to restrictions in by ­ a fresh global significant COV­ ID-19. fillet, sup- on - -

Source: Kontali SUPPLY ANDMARKETPRICES 54 Fig. 1 1 2 4 4 2 1 4 2 1 5 8 1 2 1 4 2 1 8 1 2 1 4 2 1 8 1 2 1 4 2 1 8 1 2 1 4 2 1 8 1 2 1 4 2 2 8 ANNUAL REPORT 2020 1 2 C NO A E C N K A 3

63 PERFORMANCE in Chile. these representing 62% of the total harvest quantity. In Norway, nids (Atlantic Salmon,Coho Salmon,Chinook,BigTrout), harvested In TOP 15-FARMING COMPANIES (SALMONIDS) MARKET REVIEW 2019, companies the approximately world’s made largest up 1.9 59% 15 million of salmon the tonnes total farming harvest wfe companies of and salmo- 70% Source: Kontali All farmed salmonids(Atlantic salmon,Large Trout, Coho andChinook).Figures rounded to nearest 100tonnes WFE(round bledweight) **** Mowi has48%ownership inNova Sea *** Bakkafrost acquired TheScottish SalmonCompany inQ42019 ** Volumes from Scottish SeaFarms (50%stake) not included * Aquachile, Salmones Magellanes, Los Fiordos andFriosur merged in2018 - HARVEST VOLUME, ALLFARMED SALMONID SPECIES (TONNES WFE) TOP 15SALMON FARMING COMPANIES 2019 Group Agrosuper *("New Aquachile") Mowi Multiexport Cooke Aquaculture Salmar ** Lerøy Seafood Group ** Cermaq Group Salmones Camanchaca Australis Seafood Grieg Seafood Nova Sea**** Bakkafrost *** Salmones Blumar The Scottish SalmonCompany *** Nordlaks Share Global harvest -Farmed Salmonids Top 15 Fig. 55 Fig. Head office NO NO NO NO NO NO NO UK FO CA CL CL CL CL CL

3,098,300 1,916,600 484,300 170,100 175,800 107,800 210,000 218,000 92,200 95,500 58,000 72,000 43,900 51,100 36,800 63,500 37,600 Total 62%

1,411,700 263,200 159,200 175,800 837,900 Norway 80,700 64,000 43,900 51,100

59% United K. 195,300 148,700 72,600 26,000 12,500 37,600

76% 109,500 218,000 977,400 681,800

73,000 19,000 95,500 58,000 72,000 36,800 Chile 70%

North Am. North 169,300 158,700 60,400 62,800 19,800 15,700 94%

Faroe Isl. 86,600 71,200 63,500 ANNUAL REPORT 2020 7,700 82%

258,000 10,900 18,300 7,400 Other

7% 64 PERFORMANCE relation growth intheharvest volume of 2020.Thismust be seenin significant in thenewest generation (20Gdue to earlier stocking anda crease of close to 16%inNorway, driven by strong growth a record growth rate of 8%.Thelast quarter showed anin- In 2020,total feed consumption inEurope endedstrong with weights) have driven thegrowth. both higherstocking andimproved productivity (increased increased feed consumption thelast few years. InChile, stocking inNorway hasfacilitated production growth and The granting of new license capacity andincreased smolt way andChileaccounts for approximately 75%of thisincrease. past decade, exceeding 4.6milliontonnes of feed in2020.Nor seen an increase of approximately 1,3 million tonnes over the The total feed consumption of ocean-farmed salmonidshave BUSINESS –FISHFEED REVIEW MARKET REVIEW following Feed consumption inChilehastrended downwards (H22020) Kingdom, Faroe Islands, andIceland. other European producing regions, particularlyintheUnited At thesametime, there was strong growth (close to 10%)in both has over thelast decade shown adecreasing trend. However, The share of marine ingredients in feed for farmed salmonids lower standing biomass attheendof 2020. before Global delivered to farmers. by 2020. World fishmeal production isestimated to have increase estimated to increase around 7%to 1.25milliontonnes in2020. around fishmeal due fishmeal to a lower increase 5% to strong an to and and stocking 5.1 increase increase fish in fishoil million the oil in in share prices in supply both tonnes Peruvian feed of H2 still consumption large improved and 2019 Anchoveta impact fishoil smolt and from the (+250 H1 production in fisheries feed-price 2019 2020 the gram)). year and and in is -

ing months. last year but nearlycompensated for the“loss” inthefollow Peru were heavilyinterrupted by thepandemicuntilAugust suppliersAsian (mainlyVietnam andThailand).Imports from 8% from Chile, while the remaining 18% came from other tonnes. Of this, 46% of the volumes was sourced from Peru, before but above thelast 10years average of 1.3million na in2020,whichwas around thesamevolume astheyear Roughly Source: Kontali RAW MATERIAL PRICES2011-2018(USD/TONNES) 57 Fig. Total Others Faroe Islands North America UK Chile Fig. 56 Fig. Norway Country (ATLANTIC SALMON, LARGE TROUT, COHO, CHINOOK)(1,000TONNES) ESTIMATED FEEDCONSUMPTION/SALE TO SALMONIDS FOR SELECTED SALMONID PRODUCING REGIONS 1 1 2 2 5 5 5 1.4 million 2 1 5 tonnes 1,037 1,494 3,330 2011 263 225 227 85 of fishmeal 1,255 1,652 3,720 2012 2013 280 235 210 89 2 1 was 1,209 1,618 3,640 291 202 223 imported 96 2 1,263 1,738 3,890 1 2014 324 235 231 by 98 Chi- - 1,239 1,743 3,930 2015 346 103 255 245 the es remaining high.Ifsoymeal prices remain attoday’s level, est substitute for marineproteins andoils,alsopointto pric The current highprice level of soymeal andsoy oil,thelarg latest Peruvian production are presold before theseason. demand The fishmeal andfishoilprices willlikely continue to increase. recent highof 4.5inJune2020. the lowest level since March 2014,andsharplybelow the (Hamburg) reduced to less than 3 towards the end of 2020, The 2 1 attractiveness prices price 1,036 1,704 3,710 2016 354 107 264 244 for ratio for fishmeal fishmeal of 2 1,191 1,822 4,020 2017 382 101 282 242 of 1 fishmeal remains buying are expected 1,269 1,837 4,140 (Hamburg) strong 2018 2019 fishmeal 393 103 289 249 2 2 and to ANNUAL REPORT 2020 will 1,406 1,965 4,500 remain vis-a-vis large 440 108 307 273 strengthen, shares

high, M R S F F soy 2020E 1,336 2,120 4,600 4,600 455 116 286 286 as of meal

and the the - - 65 RISKS RISKS RISKS 66 RISKS activities inthevalue chain. markets In addition to the operational risks, Bakkafrost is exposed to ing from thenormalbusiness activities inthevalue chain. Bakkafrost hasgeneral operational andbusiness risks aris pact of these, are reduced to anacceptable level. The RISK MANAGEMENT STRUCTURE AND PROCESS risks activities. Riskmanagement istherefore crucial,so thatthe risks, andrisks willalways beanatural partof ourbusiness The Bakkafrost Group isexposed to anumberof different Risk Management RISKS ANDRISKMANAGEMENT quantified analys­ risk assessment isfollowed upyearly withanextensive risk activities, market development, technology etc. The ongoing ly ormonthlyreporting from theorganization onbusiness the Group’s mainrisks onanongoing basis,basedonweek TheGroupdaily riskmanagement. Management assesses ance withtheriskmanagement framework and theGroup’s The Group Management isresponsible for thedaily compli- The Audit Committee supervises theriskmanagement. termines theframework for identifying andmitigating risks. risk management of the Group. The Board of Directors de- the Board of Directors. Committee andisapproved by both the Audit Committee and At year-end, status onmainrisks are reported to theAudit analys­ Board Bakkafrost is for thewhole Group. Therisks are assessed and is of theGroup’s risks was inDecember 2020. and and of financial Directors reported is exposed risks to has the arising to, the Group and final the from Management. potential responsibility the normal financial The business for latest im- the - - is kafrost’s operations can alsobematerially impacted by what of the biological risk in the sea water grow-out stage. Examples One of thelargest riskfactors, Bakkafrost isexposed to, is Farming OPERATIONAL RISKS rienced anincrease inthe mortality rate mainly dueto ashift farming industry. However, inrecent years, Bakkafrost expe- ade experienced a lower mortality rate thanthe rest of the The farming industry intheFaroe Islandshasinthelast dec Mortality rially with primaryprocessing, suchrisks might, ifoccurring, mate- by means of systematic group-wide biosecurity auditing. aims atreducing thatriskthrough theentire production cycle associated withahighlevel of biological risk,andBakkafrost pliers andsub-suppliers, etc. Thesalmonfarming industry is centage in budgets by meansof estimates for mortality andtheper Although significantly highervolatility. scores have generally beenless attractive andhave hada in recent years. In Scotland, however, thecorresponding outcome on key performance indicators has been attractive exceptionally good mitigating measures intheFaroe Islands, wipe-out of the biomass in a vast geographic area. Due to such risks can vary from minorcost variations to acomplete larger geographic areas. Theimpact from beingexposed to and required fallowing timebetween generations for sites or version ratio, costs of mechanical and medicinal treatment pricesmolt, achievement versus reference prices, feed con- performance indicators suchasmortality, growth, yieldper exposure to suchthreats, there isalways avariation inkey ures are put inplace to mitigate negative impact arisingfrom sea lice andalgae blooms.Althoughcomprehensive meas classified such affect risks of operational fish Bakkafrost’s as are normal whose direct risks operating quality threats results are is to to and risks, downgraded a the financial certain fish e.g. quality such extent condition. in as connection from diseases, reflected Bak sup- - - - - having 94%survival rate ously working on reducing the mortality towards the goal of significant demonstrates thatchanges infarming methods can have a dent based cases. The increase in mortality in in recent years from medical to mechanical lice treatment andsomeinci- of substantial costs intheform of premature harvesting, loss Operation Disease temperatures things, onweather conditions. Unexpected warm orcold The growth rate of farmed salmondepends,amongother Storms maintain thisposition inthemarket. the rest of the farming industry. Bakkafrost Group strives to Bakka­ quality andsize. Thisprice premium can onlybeobtained if mium isbasedon,amongst other things, brand, salmon achievement, comparing to reference prices. This price pre- In recent years, Bakkafrost andSSC have hadahigherprice Price premium Bakkafrost with regard to diseases. Inthecase of anoutbreak of disease, in sea undersometimes challengingconditions. Thiscan result growth rates andfeed consumption. Bakkafrost operates at facilities. as facilities well secured, thoughother weather conditions, such areas, where theweather conditions are well known andthe operational organization. Bakkafrost’s facilities are located in reducing risks usingexperience location and withequipment, or escaped fish,even ifBakkafrost iscontinually cant cost implications, e.g. unexpected maintenance/repairs quality incidents storms frost asaGroup continues to ableto differentiate from of of or impact will, harvested or fish floods, can necessary in farming on have addition could the fish facilities a also measures mortality. and significant to lead the subsequent involves direct to that Bakkafrost ANNUAL REPORT 2020 unexpected negative may loss considerable periodic of have working on is impact fish, losses continu- reduced signifi- incur risk on at 67 RISKS frost to improve delousingmethods continuously. vessels assealice treatment. Additionally, Bakkafrost strives er, andlukewarm seawater treatment intwo farming service society as awhole. Procedures, quality assurance systems hard to quantify for the accounts of Bakkafrost and for the salmon, governmental penalties and negative publicityare effects such as spread of diseases, negative impact on wild due will an important preventive measure against sealice. Bakkafrost er, sites, each of which are exposed to risks linked to bad weath - The company operates, however, alarge numberof seawater Bakkafrost hasazero tolerance for escape of farmed salmon. Escapes Bakkafrost treatment. Theprocedures are improved onacontinuing basis. for reducing thenumberof sealice withdifferent types of stress, whichcan leadto diseases. Bakkafrost hasprocedures Faroe Islandstoday. Increased numberof sealice maycause and challenges inthefarming industry globallyandinthe The increasing numberof sealice isoneof thelargest risks Sea lice and anaemia (ISA), Cardiomyopathy syndrome (CMS) and Heart (AGD), Bacterial kidney disease(BKD),Infectious salmon in theFaroe Islands in recent years are Amoebicgilldisease production capacity. Examples of diseases beingprevalent RISKS ANDRISKMANAGEMENT sonnel. as aresult of equipment failure ormistakes madeby per boats andwell boats, predators etc. Escapes normally occur creas disease(PD)asanexample. eases prevalent inScotland are inadditionto theabove, Pan - fish handling to increase skeletal is uses the the The geographic both only uses direct muscle of the a cleaner fish, lumpfish use freshwater financial inflammation changing of diversification fish lumpfish as exposure used cleaner bath of in in (HSMI). nets, on-board its the of fish to farming the operations escapes Faroe Corresponding for sites. a sea live Islands sites. is The lice. fish moderate of indirect Bakka­ Lump- and work carri- dis is - - - harvesting anddamage to theindustry’s reputation. of reduced growth andinferior health,reduced quality on mitigate theriskof escapes. and new technological solutions are important elements to periods, examples have shown thatlarge industrial groups network services unavailable to intended users). Inrecent denial-of-service attacks onwebsites (i.e., efforts to make not require gaining unauthorized access, suchascausing Cyber-attacks mayalsobecarried out inamannerthatdoes mation, corrupting data, orcausing operational disruption. for purposes of misappropriating assets orsensitive infor tems (e.g., through ormalicioussoftware “hacking” coding) are not limited to, gaining unauthorized access to digital sys attacks orunintentional events. Cyber incidents include, but ance. Ingeneral, cyberincidents can result from deliberate Group, these risks are typically not covered by anyinsur cial losses. Unlike manyother types of risks faced by the and production-related disorders relate to physical deformities populations can be severely affected. The most important arule,As suchdisorders appearinfrequently, but certain disorders caused by intensive farming methods. duction, anumberof production-related disorders arise, i.e. challenged. withallother As forms of intensive food pro- Deformities impacting Group andtheshareholders, suchascausing disruptions and which could result in material adverse consequences for the curity andrelated “cyber” risks both directly andindirectly, and OsloBørs are susceptible to operational information se- conduct business, theGroup, service providers to theGroup With theincreased useof technologies suchastheinternet to Cyber security biological theaquacultureAs industry hasevolved anddeveloped, the cataracts. business limits These for operations, how invariably fast fish potentially cause can financial grow resulting have loss also in by finan- been way - - - delay inprofits andcash flows. ing asolution to suchnegative event, whichwould implya of of cyber-attacks isprocessing andsales. For shorter periods The most exposed area of theCompany’s value chainincase nel to applymanualback-up systems to theextent possible. tacks. For Bakkafrost, suchanincidentwould require person- can besubject to complete shutdowns asaresult of cyber-at replacement obligations from third party. factors, thisriskisnormallymitigated contractually through buyer harvests orquotas. Althoughanysalmonfarmer, beinganet trade restrictions, orindirectly through restrictions onocean could bematerially adversely affected directly from any in the­ working such stances. Most contaminants are accumulated inorganisms, exposed to contamination by anumberof undesirable sub- als andingredients andthrough its production processes, be Feed may, through its useof different types of raw materi- Feed contaminants The Fishmeal, fishoiland feed have This mayresult inincidents ornecessary measures thatmay substitutes, could affect thevolumes produced inthefactory. and es. tablished methods withautomated andcontrolled process and Bakka­ umes expected shortfalls inraw material dueto limited catch vol- quire feed, Bakkafrost isexposed to certain risks whichmayre- time, As production fish possible as significant purchase frost isvulnerable to food safety incidents, downtime or of Faroe Islands,inwhichcase the Company’s business self-sufficient marine harvestable on feed fish limited reducing feed insufficient department of wild of cost delivery fish is fishmeal, fish catch also operator risks. implications. feed can indirectly supply used or at The from fish be Havsbrún’s purchase of held to Company’s oil of a fish produce Bakkafrost third exposed and raw in meal, sea ANNUAL REPORT 2020 of fish party. material facilities fish water fishmeal fishmeal, fish to feed is the For or oil continually sites input. follow supply is same example, and and located fish pend- risk fish fish Un- es oil of - - - 68 RISKS tamination deliberately through maliciousproduct tampering. Suchcon- Generally, contamination may occur either accidentally or to thelist. possibility of “new” contaminants beingadded periodically tored by theauthorities andmaybealtered. There isalso the important contaminants. These limits are continuously moni- chain. Authorities set maximum allowable levels for the most fat, and the concentration is greater thehigher up thefood oil. These contaminants are deposited into the organism’s RISKS ANDRISKMANAGEMENT has the potential to affect the environment, fish The environment, fishhealthorfood safety. ance compliance. Thereputation riskassociated withnon-compli- increase theriskof non-compliance andthecost of ensuring ber of controls to reduce the risk of contamination. Examples ating events could have anegative impact onBakkafrost’s oper on health and/orfood safety withapotential negative impact the Company´s may result public’s be and significant feed confidence financial department, even condition. in eating if Havsbrún, there Future salmon. is no operates legislation impact Any of a on these num- may the - and DL-PCBs, mycotoxins, pesticides, antioxidants suchas are not limited to, organic contaminants such asdioxins Contaminants eliminated. ty procedures. Therisks, however, can never becompletely cedures cedures, of measures and controls, included in HACCP and ISO pro- raw of raw materials, targeted sourcing of raw materials, regular material for include cleaning and that supplier finished may of fish be audits feed a oils, risk quality etc. and for and supplier fish control ANNUAL REPORT 2020 strict feed analyses, specifications plant include, securi- pro- but 69 RISKS cleaned by e.g. theEuropean Union,Bakkafrost hasfrom early2015 Bakkafrost salmon are well within the safety limits, imposed Even thoughalltests show that thelevels of pollutants inthe mercury, arsenic andcadmium. rial contamination andinorganic contaminants suchaslead, RISKS ANDRISKMANAGEMENT above are beingmonitored. physical objects, etc. Several substances inadditionto thelist taminated by other inorganic substances suchasmineral oil, The feed mayalso, through accidents ortampering, becon- Ethoxyquin,dant, hasbeenreplaced withnatural antioxidant. PCBs andother pollutants, andsince early2018,theantioxi- ­Ethoxyquin The overseen by theScottish Environment Protection Agency (SEPA). In Scotland, all licenses and consents, policies and regulations are farming license. ing theprerequisites andrestrictions thatare connected to a dialogue with the Faroese and Scottish authorities regard- Salmon farming isregulated by licenses. TheGroup has good or suddenchanges intheindustry framework. that theregulatory authorities willimpose restrictions and/ measures isreduced, but there willalways bealatent risk organizing its operations sothattheriskfor unexpected ations fare concerns, maymaterially impact theCompany’s oper Regulatory impositions dueto environmental oranimalwel- Regulatory or ifthelicensee breaches theconditions set inconnection against overall development plans andprotective measures, changed since the license was issued, orifthe license goes farming operations if substantial preconditions have been Faroese and the and fish financial authorities BHT, oil used brominated condition. for may Bakkafrost’s withdraw flame The Company retardants salmon licenses feed emphasizes and for for bacte- fish DL- - ing practice willbecome stricter. that therules onthisarea maybecome stricter orthatexist in relation to aquafarming, andtherefore itcan beexpected has become thesubject of increasing attention andpublicity The Price onfarmed salmon MARKET RISKS and thelikelihood thatthe event may occur. importance of apotential event for Bakkafrost operations ations. TheITrisks are assessed continuously, basedonthe tive systems will have negative effect on Bakkafrost’s oper breakdown of Bakkafrost’s control systems andadministra- come more integrated in Bakkafrost’s operations. Therefore, IT-related risks have increased inrecent years, asIThasbe- IT exceeds vironmental studies show thatpollution of theenvironment last stocking, incase examinations of theseabedorother en- demand areduction inthestocking of fry, compared to the isting practice, therelevant environmental authorities may Under theAct onEnvironmental Protection andunder ex pany hasalegal claimto have thelicense periodprolonged. it must beassumed (but there can benoassurance) thatthecom - contrary to overall development plans,whichhave beenadopted, tions inthelicense andifacontinuation of theactivities isnot may riod of 12years from thedate of issue. TheFaroese government In the Faroese Islands, a salmon farming license is issued for a pe- mental license of thecompany isrepealed. license. The license may also be withdrawn, if the environ- ownership of licenses, orif the company does not use the withdrawn if the company breaches the rule on maximum with theissuance of thelicense. Thelicense mayalsobe pend to aconsiderable extent ontheprice of farmed salmon, Company’s prolong certain the financial license specified period. position limits. If the and The company future Faroese development fulfils environment the condi- de- - - - to Natural limitations inthemarineresource basecould lead large, globalproducers. and thefeed industry isdominated by asmallnumberof global production input factors withvegetable raw materials. Furthermore, the ever, intheirefforts to replace someof themarinebased production. Thefeed producers have come alongway, how pend fluctuations production costs withinthesalmonfarming and segment, which Bakkafrost FINANCIAL RISKS Feed Price onfish feed Bakkafrost’s Price onfishmealandfishoil value chain and thusreducing thisrisk. tions. which pact and cash position. for farmed salmonisakey parameter. cal pattern. Thebalance between thetotal supplyanddemand to assume thatthemarket price willcontinue to follow acycli- Farmed salmonisacommodity, anditistherefore reasonable tional measures or(where suchmeasures are not available) supply to follow acyclical pattern. Thebalance between thetotal fore reasonable to assume thatthemarket price willcontinue could rameter. Decreased supplymaycause prices to increase. This global on costs to Fishmeal in has market have and profitability. turn some shortages historically account of seeks demand in historically financial have for fish extent feed and fishmeal to feed an of fish for prices manage for been Feed on impact position fishmeal a is been oil fishmeal the significant an and could subject are prices integrated price financial on subject marine/animal/vegetable and commodities, and therefore the are and to of future fish proportion company’s substantial to fishmeal affected ANNUAL REPORT 2020 risks fish part oil substantial have development for oil through and in the is by and Bakkafrost’s profitability a fluctuations. of it a major fish both the is key fluctua- fish opera- there- total feed oils, im- de- pa- the oil, -

70 RISKS and customers thathave not previously hadpaymentproblems frost hasguidelines to ensure thatsales are madeonlyto losses due to bad debts historically have been small. Bakka­ to meet theirobligations isconsidered relatively low, since change pany’s GBP, The Credit risk those to EUR. Therefore, Bakkafrost has some natural For hedging. inated in DKK, which has a relatively stable rate, compared purchases of raw materials etc. are predominantly denom- extent alsoinother foreign currencies. Ontheother hand, denominated inDKK,EUR,USD andGBP, but to somesmall The revenues andaccounts receivable are predominantly Bakkafrost trades intheworld market for farmed salmonids. Foreign exchange risk through RISKS ANDRISKMANAGEMENT the ed and export sales can be denominated in other currencies, main currency for themajorityof contracted revenues. Trad- EUR. SSCs maintransaction currency isGBP, whichisalsothe Bakkafrost isinsome degree exposed to NOK,GBP, USD and currencies. Inconnection withsomematerial investments, Please refer to Note 4.1for additionalinformation. day-to-day supervision andtheprocess owners’ follow-up. cial reporting isundertaken aspartof themanagement’s strategy. Group, theBoard willcontinue to adapt its currency hedging The Directors. agement of these risks has beenapproved by theBoard of become most risk follow-up that but currencies financing rates that the an significant Bakkafrost outstanding increasingly use counterparties present of of not is internal financial bank of fully has a balances financial which significant the financing procedures hedged, do derivatives. possibility is not risk EUR. do have fluctuations source and not to As associated Bakkafrost. the A exceed is exports to policy of in financial finance revenue DKK, in on fixed continue with foreign The the EUR strength in for finan- credit other Com- man- and the ex to - The certain riskelementinaccounts receivable. notAs allreceivables are insured, Bakkafrost must accept a limits. Themajorityof total accounts receivable isinsured. position regards Bakkafrost’s receivables portfolio. terms are described inNote 4.1. requirement intheshortterm. Unusedcredit facilities and alents ormedium-term credit facilities to meet its borrowing Bakka­ is secured by meansof established borrowing facilities. of new shares. pay-outs, buyback of own shares, capital reduction orissue medium-term outlook, including any adjustment in dividend ditions underwhichthebusiness operates andits short- and ture Bakkafrost manages andmakes changes to its capital struc uity ratio, Bakkafrost willsupportits business operations. favourable borrowing terms. By ensuringagood debt-to-eq- to ensure thatitmaintains agood credit rating to achieve The prime objective of Bakkafrost’s capital management is Capital structure andequity meet Liquidity riskisthethatBakkafrost willnot beableto Liquidity risk managed main in its frost’s response financial by credit objective maintaining risk to obligations an on is ongoing the to a flexible date have as they assessment of sufficient the financial fall statement due. cash, of structure, Liquidity financial cash of financial equiv which risk con- is - - ANNUAL REPORT 2020 71 GOVERNANCE GOVERNANCE GOVERNANCE 72 GOVERNANCE CORPORATE GOVERNANCE Governance Corporate • ernance: tions intheNorwegian Code of Practice for Corporate Gov Bakkafrost does not comply withthefollowing recommenda- porate Governance, whichmaybefound onourwebsite. report, Bakkafrost publishes amore detailed report onCor Beside theCorporate Governance description inourannual tice”). The recommendation may be found at www.nues.no. Norwegian Corporate Governance Board (the“Code of Prac porate Governance, published on 17 October 2018 by the gime, as detailed in the Norwegian Code of Practice for Cor compliance withtheNorwegian corporate governance re- of corporate governance. Thecompany endeavours to bein P/F Bakkafrost is dedicated to maintaining high standards board willsupportachange to theArticles of Association. if Association of P/FBakkafrost. Itistheboard’s view that cal reasons, thishasbeenimplemented into theArticles of permission maylast for more thanoneyear. For practi- to increase theshare capital andbuyown shares. This that theAGM maygive theBoard of Directors authority law, a company may in its Articles of Association decide meeting isheldin2022.According to theFaroese company shares onbehalfof thecompany untiltheannualgeneral § 4Bgives theBoard of Directors authorization to buyown the ordinary general meeting of thecompany in2022,and Directors authorization to increase theshare capital until Bakkafrost’s Articles of Association §4Agives theBoard of next annualgeneral meeting”. should be limited in time to no later than the date of the Section 3stipulates, mandates “that granted to theboard shareholders find this authorization unacceptable, the - - - - BAKKAFROST’S GOVERNANCE MODEL is responsible for theoverall year. TheBoard of Directors management of Bakkafrost. management of Bakkafrost. Management isresponsible exercise theirrights atthe Bakkafrost’s shareholders Consists of 3-7members, which are elected every BOARD OFDIRECTORS The Group Executive GENERAL MEETING GROUP EXECUTIVE for theday-to-day General Meeting. SHAREHOLDERS MANAGEMENT Directors andDirectors’ fees. from theBoard of Directors and ischaired by theBoard for election to theBoard of NOMINATION COMMITTEE Consists of three members which are elected by AGM. Consists of four members, Recommends candidates of Directors’ Chairman. AUDIT COMMITTEE ANNUAL REPORT 2020 73 GOVERNANCE tion. mittee are incorporated inBakkafrost’s Articles of Associa- The regulations governing thework of theNominationCom- members isalsodetermined by theGeneral Meeting. The remuneration payable to theNominationCommittee’s of two years, unless theGeneral Meeting decides otherwise. der its chairman,for theNominationCommittee for aperiod Bakkafrost’s General Meeting elects the members, hereun- mittee is31January. deadlines for proposals submitting to theNominationCom- tion to the Board of Directors and the Directors’ fees. The The NominationCommittee recommends candidates for elec Nomination Committee Bakkafrost’s Articles of Association. standard rules stipulated intheFaroese company lawand The procedures at Bakkafrost’s general meeting follow the mittee, Board of Directors andauditor. meeting –suchasappointingBakkafrost’s NominationCom- Shareholders exercise theirrights atBakkafrost’s general Shareholders andGeneral Meeting orated To ensure adherence to theprinciples, thecompany haselab- Bakkafrost’s Governance Model CORPORATE GOVERNANCE related-party transactions. policy, guidelines relating to takeover bidsandguidelines for instructions for theAudit Committee, aninvestor relations guidelines with regardsmanagement, to values and ethics, mittee, the Board of Directors, instructions for theNominationCom- specific instructions instructions for the Chief regarding Executive rules Officer of procedure and other for - muneration, which isapproved by thegeneral meeting. The • • • • mittee were: At theendof 2020,themembers of theNominationCom- Directors members. Information about themembers of theBoard of The Board of Directors shallhave between three andseven the vice-chairman is appointed by theBoard of Directors. Board of Directors iselected by thegeneral meeting, whilst shall beresidents intheFaroe Islands.Thechairmanof the The majorityof themembers of theBoard of Directors agement andmaterial operational decisions Board of Directors isresponsible for Bakkafrost’s RiskMan- policies andcontrols andfor reviewing auditmatters. The Bakkafrost hasatanytimeanappropriate capital base, key The Board of Directors isalsoresponsible for ensuringthat Bakkafrost and decides major investments and divestments. Bakkafrost. TheBoard of Directors sets out thestrategy for of oneorseveral managers to manage thedailybusiness of management of thecompany andappoints amanagement Bakkafrost’s Board of Directors isresponsible for theoverall Board of Directors The ipation intheBoard meetings heldduring2020. der The Board of Directors heldten meetings in2020.Below un- regularly. ing its activities inaworking procedure, whichisreviewed The Board of Directors haslaiddown detailed rules regard- Report. Leif Eriksrød JacobsenRógvi Eyðun Rasmussen Gunnar íLiða (Chairman) each members Director’s may of be the found profile Board in is “Directors’ of disclosed Directors Profiles” each receive Director’s in a the fixed Annual partic re- - frost’s share savings planfor employees. members of the Board of Directors are not part of Bakka­ committee to review accounting and operational issues in detail. The Profiles” intheAnnual Report. utive Management maybefound in“Group Managements’ Sandvik andTeitur Samuelsen. specific The Board of Directors hasinexecutive instructions laiddown the Board of Directors. Board of Directors aswell asto anyrules andrequests from ly business andshalladhere to anydecisionsmadeby the The Group Executive Management leads Bakkafrost’s dai- Group Executive Management The qualifications. external auditors, evaluates theauditors’ independence and The Audit Committee decides theframework of Bakkafrost’s statutory andother requirements from publicauthorities. business-related risks, internal controls andcompliance with financial rectors andassists the Board of Directors inoverseeing the The Audit Committee isasub-committee of theBoard of Di- Audit Committee Havsbrún, Jacobsen, CFO Høgni D. Jakobsen andmanaging director of The Group Executive Management consist of CEO Regin ment andgives more specificrules regarding its work. the employment conditions of theGroup Executive Manage- Executive TheBoard Management. of Directors alsodecides company’s rules and Odd consists regarding non-financial audit Eliasen. of committee Rúni the Information authority reporting M. Hansen met five and about process, ANNUAL REPORT 2020 (Chairman), duties times the financial during of Group the Øystein Group Exec 2020 and - 74 GOVERNANCE CORPORATE ANDSUSTAINABILITY RESPONSIBILITY and Sustainability Responsibility Corporate dealing withfellow employees andallexternal stakeholders. ities. They must employ afair and honest approach inevery personal ethics intheconduct of theirduties andresponsibil - quires allemployees to observe highstandards of business and which aimsto create asoundcorporate culture. TheCode re- and society andare outlined inBakkafrost’s Code of Conduct, proach to creating long-term value for customers, shareholders values andprinciples. Its values guide its behaviourandap- throughout thevalue chain,consistent withBakkafrost’s core The company upholdsandpromotes good business practice commitment to have zero cases of non-compliance. fare regulation intheFaroes. Thecompany hasanongoing into these in2021,through theHealthy LivingPlan. and management plansandwillcontinue to beintegrated Sustainability iscovered inBakkafrost’s corporate strategy responsibility of Bakkafrost’s Management Team. is overseen by theBoard of Directors andistheday-to-day thorities. Sustainability strategy, management andreporting ance with statutory and other requirements from public au- cial andbusiness-related risks, internal controls andcompli- The in theAnnualReport andSustainability Report. ternally onaregular basisandexternally onanannualbasis are monitored throughout thesupplychainandreported in- health Bakkafrost acts inaccordance withstrict nationalworkplace Compliance andethical conduct bility our risk assessment process. The process allocates responsi- approach to themanagement of sustainability riskthrough environmental issues. Thecompany follows aprecautionary bly, thisincludes thinkinglong-term oneconomic, social,and Bakkafrost’s core values specifyanintent to act responsi- Governance andmanagement Audit for and the Committee safety, mitigation environmental, assists of significant the Board and operational fish in overseeing health risks. and finan- Risks wel- and certifications isoutlined below. Further commitment to voluntary sustainability standards gagement. The 2023 Healthygagement. Living Plan will outline areas workforce competency, andto maintain highemployee en- workplace, to attract and retain talent andexpertise, to build The company isdedicated to havinga diverse andinclusive to its core values. have acapable andengaged workforce, whichiscommitted achieve its mission andmeet its strategic objectives, itmust UK, Scotland andUSA. Itacknowledges thatinorder to Bakkafrost Human capital tainability Report. against these principles annuallyintheHealthy Living Sus and discrimination.Thecompany communicates its progress have aworkforce free from forced/compulsory/child labour, of association andtheright to collective bargaining; andto pact to pledge to protect humanrights; respect thefreedom by signing up to the ten principles of the UN Global Com- In 2018,Bakkafrost strengthened its commitment inthisarea vironment whichisinclusive andfree from discrimination. commitment to create aprofessional andpositive work en- creating optimal working conditions andculture, includinga Bakkafrost’s Code of Conduct alsooutlines its approach to asked to signupto, whenentering into agreements. bour force. Thisissupported by thestandards, suppliers are frost norits business partners shallexploit children asala- Its Code states acommitment to ensure thatneitherBakka - human rights abuses. human rights andto makingsure thatitisnot complicit in The company iscommitted to respecting the protection of Workplace andhumanrights employs 1,699 employees ANNUAL REPORT 2020 in the Faroe Islands, - 75 GOVERNANCE and to have zero fishescapes. maintain anindustry-leading approach to animalwelfare, made health and welfare is always maintained. The company has includes surveillance across allsites to ensure thatoptimal and assistants –hasastrategy inplace to achieve this,which health er product qualityscores. maintain ourhighomega 3levels andmaintain highcustom- highest standards, the company hasmadeacommitment to food safety regulations. well As asongoing adherence to the ing andmonitoring for compliance withnationalhealthand inspected by theauthorities; thisinvolves dailyproduct test hensive internal control system isinplace, whichisregularly try-leading product qualityandsafety standards. Acompre- programmes (outlined below), Bakkafrost ensures indus the ards andreducing theuseof chemicals andmedicines in Bakkafrost iscommitted to upholdingleadingwelfare stand- Biosecurity, fishhealthand welfare Through Product qualityandsafety Employees receive regular training onthese. on the highest health, safety and environment standards. workplace. Thisisachieved through aset of guidelines based tematic approach to attaining aninjuryandaccident-free The company’s Code outlines its intention to ensure asys working culture. ard of occupational health and safety and creating a healthy Protecting humancapital involves maintaining ahighstand- Health, safety andwellbeing human capital. in whichthecompany willincrease focus, to strengthen its CORPORATE ANDSUSTAINABILITY RESPONSIBILITY prevention a team commitment various – made of best disease up to practice of maintain and certified sea standards high lice. veterinarians, fish The survival and experienced certification biologists, rates, fish to - - - of duction hastheAquaculture Stewardship Council Chain (ASC) Bakkafrost’s harvesting andvalue-added product (VAP) pro- star) andBRC for theprocessing plants andthesmokehouse. The operation inScotland isaccredited according to BAP (3- on. Our value chainalsohastheOhne Gentechnik Non-GMOadd welfare, healthandsafety, andenvironmental management. tified farming sites, andharvesting andprocessing plant–iscer the Faroe Islands–feed production, broodstock, hatcheries, sustainability, qualityandsafety. Theentire value chainin which The mentally friendlysolutions to theextent reasonably possible. ties have onnature andtheenvironment andapplyenviron- bear inmindtheenvironmental effects work-related activi- environmental protection. Allemployees willberequired to Code outlines anintention to strive to bemarket leadingin ronment from eachstage of thevalue chain.Thecompany’s Bakkafrost iscommitted to minimizing pollution of theenvi- Environmental management andsustainable feed according standards on Initiative (GSI).Bakkafrost subscribes to several external the Faroese Aquaculture Association and the Global Salm- wellAs as collaborating with the salmon industry through Collaboration andcertification meal, tifications; on theenvironment, andreducing its GHGemissions. environmental standard, reducing theimpact from packaging health of theenvironment, includingmeeting athird-party sil fuelsandhasmadeaseries of commitments towards the Custody company oil according focuses and to and all certification, the feed is on units certification focused to BRC food production the are and safety international on certified and IFS optimizing programmes food the throughout at Havsbrún, VAP to safety GLOBAL ISO9001:2015, production its standards. the efficient to hold production, ensure G.A.P. multiple is use standard, The certified and product of fish- fos cer fish the - - - All farming sites intheFaroe Islandsare certified. ASC GMP+. of Custody standard. Oursalmonmealandoilalso have GMP+ frost’s 2020Healthy Living Sustainability Report. 2020 performance against them,can befound inBakka­ to these issues, its planto meet its commitments, andits Further information onBakkafrost’s management approach stakeholder interest, suchascommunity investment. national level, and increase transparency onissues of high demonstrate responsible leadership atboth alocal andinter in thecompany. Thecompany hasmadeacommitment to a big responsibility to everyone with an invested interest Islands, through employment, taxes andreturns, meansithas The considerable value generated by Bakkafrost to theFaroe Responsible leadership andvalue generation fishmeal standards, and fish the oil IFFO division RS certification is certified ANNUAL REPORT 2020 and according the MSC to Chain the - 76 GOVERNANCE SHAREHOLDER INFORMATION Information Shareholder corresponds to DKK 216million(NOK297*million). (NOK 5.03*)per share shallbepaid out asdividends. This ed to propose to theAnnualGeneral Meeting thatDKK3.65 credit facilities. The Board of Directors hastherefore decid- ance sheet,acompetitive operation and undrawn available analysts. annual general meetings andpresentations to investors and exchange announcements, interim reports, annualreports, the Group’s shareholders through theformal channelof stock The company aimsatmaintaining aregular dialogue with Information to shareholders has high priority in Bakkafrost. Bakkafrost’s adjusted EPSshallbepaidout asdividends. A long-term goal for the Board of Directors is that 30–50% of healthy future growth of thecompany. healthy capital base, both for the daily operations and for a tors to make anoverall assessment to secure thecompany a holders, but itistheresponsibility of theBoard of Direc Generally, the company should pay dividendsto its share- of theequitythrough positive operations. from thecompany andby securinganincrease inthevalue turn ontheirinvestment, both through paymentof dividends Bakkafrost aimsto give its shareholders acompetitive re- DIVIDEND POLICY - - - sidiaries, registered intheFaroe Islands.Auditor for subsidiaries which isalsotheauditor of the parent company andallits sub- grannskoðanarvirkiløggilt (State Authorized PublicAccountants), The consolidated accounts have beenaudited by P/FJanuar, AUDITORS

The Scottish SalmonCompany PlcisAzets, Glasgow. Bakkafrost USA LLC isClifton Larsen AllenLLC. New Jersey. Grimsby Bakkafrost UKLtd isForrester Boyd Chartered ­ financial position is strong with a Accountants,­ healthy bal- -

dividends. (approximately NOK5.03*)pershare shallbepaidout as to propose to theAnnualGeneral Meeting thatDKK3.65 Ticker code: BAKKA holds 98,929treasury shares asat31December 2020. DKK 8,822million. After paymentof dividends,thedistributable equitytotals - Total provision for dividends:DKK216million - Transferred to other equity:DKK765million - Result for 2020:DKK981 million The Board thereby proposes thefollowing allocation of funds: million). 981 rate NOK/DKK. Thecurrency rate NOK/DKKwillbeannounced onex-date. * Thedividendpershare inNOKissubject to changes, dependingonthecurrency ­Oddvør Jacobsen, Regin Jacobsen andFolketrygdfondet. 5% of theshares inthecompany asat31December 2020: These shareholders helddirectly orindirectly more than LARGEST SHAREHOLDERS 59,143,000 P/F Bakkafrost had,on31December 2020,atotal of SHAREHOLDERS, CAPITAL ANDVOTES The AND ALLOCATION OFPROFIT FOR THEYEAR PARENT COMPANY’S FINANCIALSTATEMENTS DKK parent 1. million Of the This company shares for 59,143,000 corresponds 2020. outstanding, P/F The Bakkafrost shares Board to each DKK outstanding, of had with 216 Directors ANNUAL REPORT 2020 a million a net nominal P/F profit has Bakkafrost (NOK value decided of 297* DKK of

77 GOVERNANCE Directors andManagement DIRECTORS ANDMANAGEMENT 78 GOVERNANCE and shippingindustry. Faroe Islands.Prior to Equinor (Statoil) hewas intheseafood toil) he has been based in London, Copenhagen, Oslo and The ration Executive team. DuringhistimeinEquinor (former Sta- gas Hansen hasextensive experience intheinternational oiland Agenda Council ontheArctic inthePeriod 2012-2016.Mr. of Holds 10,761shares atyear-end 2020.Mr. Hansenismember Number of shares heldinBakkafrost: Participated inall10Board meetings in2020. Board meetings in2020: Business School.Postgraduate, Lancaster University. MSc. inEconomics andBusiness Administration, Copenhagen Education: Born Chairman of theBoard RÚNI M.HANSEN Directors’ Profiles DIRECTORS’ PROFILES Business. holding company Tjaldur. ered Executive to beindependent. chairmanof theindustry been The industry. 1967. Chairman UN He Global Faroese He was since. was a Compact´s citizen. member among Term of Joined other of office Platform the member the expires World Board for of Economic Sustainable in Equinor´s in 2020. 2009 Is Forum´s and consid- Explo- Ocean has

Islands. presently also Chairmanof P/FFrost andof P/FVisitFaroe was keting. Hehad a longcareer atFaroe Seafood, where he Mr. Jensenhasextensive experience inseafood andmar in 2020. Holds noshares atyear-end 2020–nochange inportfolio Number of shares heldinBakkafrost: Participated inall10Board meetings in2020. Board meetings in2020: MBA, Lancaster University Management School. Education: Born Deputy Chairmanof theBoard JOHANNES JENSEN P/F Gist &Vist. 2020. Isconsidered ManagingDirector to beindependent. at has been Marketing 1962. Deputy Faroese Director Chairman citizen. from since. Joined 1992 Term the to 2001. Board of office Mr. in expires 2009 Jensen and in is - and Betri Trygging. member of theBoard of Directors atP/F6.September and and Mr. Samuelsenhasanextensive experience from accounting Holds 100shares –nochange inportfolio in2020. Number of shares inBakkafrost: Participated inall10Board meetings in2020. Board meetings in2020: School. MSc. inBusiness Economics &Auditing, Copenhagen Business Education: Born Board member TEITUR SAMUELSEN Managing Director atP/FEystur- ogSandoyartunlar. mark of office finance. Bakkafrost 1972. and expires has Faroese He been (2009-2014). has in 2020. CFO citizen. worked at Is Atlantic Joined at considered Mr. KMPG Samuelsen the Petroleum and ANNUAL REPORT 2020 Board to Dong be is in independent. (2005-2009) E/P presently 2016. in Term Den- a 79 GOVERNANCE Sales Manager atBakkafrost. of administration team andsales team for over 25years. on industry andsales. Shehasbeenpartof Bakkafrost’s Mrs. Frederiksberg hasextensive experience inthesalm- change inportfolio in2020:+253shares. Holds directly andindirectly 16,063shares atyear-end 2020– Number of shares inBakkafrost: Participated inall10Board meetings in2020. Board meetings in2020: School. Basic Vocational Course, Commercial Line, Faroese Business Education: Born Board member ANNIKA FREDERIKSBERG DIRECTORS’ PROFILES office 1971. expires Faroese in 2020. citizen. Is not Joined considered the Board to be in independent. 2008. Term

Norge and seafood. Hehasheldseveral positions atNordea Bank Norway andinDrevik AS International AS. a memberof theBoard of Directors of Coldwater Prawns of Mr. Holds noshares –nochange inportfolio in2020. Number of shares inBakkafrost: Participated inall10Board meetings in2020. Board meetings in2020: Bank Economist. Education: Born Board member ØYSTEIN SANDVIK of office expires in2020.Isconsidered to beindependent. Sandvik 1948. within Norwegian has fish extensive farming citizen. and experience fishery. Joined the Mr. from Board Sandvik the finance in is 2013. presently sector Term

and hasheldpositions as CEO inCargill andEWOS. Mr. Wathne has extensive experience from seafood business Holds noshares –nochange inportfolio in2020. Number of shares inBakkafrost: Participated inall10Board meetings in2020. Board meetings in2020: MBA, Handelshøyskolen BI. Ph.D. inAquaculture, NMBU. Master inAnimalNutrition atNMBU. Education: Born Board member EINAR WATHNE of office expires in2020.Isconsidered to beindependent. 1961. Norwegian citizen. Joined the ANNUAL REPORT 2020 Board in 2019. Term

80 GOVERNANCE before hebecame Chief Executive Officer of Bakkafrost. Group Management’s Profiles GROUP MANAGEMENT PROFILES dustry Mr. Jacobsen hasextensive experience from thesalmonin- Changes inportfolio in2020:+792shares. Holds 4,616,755shares at year-end 2020. Number of shares heldinBakkafrost: (HD-R), Aarhus Schoolof Business. Graduate DiplomainBusiness Administration andAccounting Education: Born Chief Executive Officer REGIN JACOBSEN ­Executive Officer of Bakkafrost since 1989. 1966. and finances. Faroese He citizen. was Financial Mr. Jacobsen Manager has of been Bakkafrost Chief been Chief FinancialOfficer of Bakkafrost since 2019. Management Consultant atPA Consulting Group. positions asSeniorPartner inQuorumConsulting andbeen ment consulting sector. Before joiningBakkafrost hehasheld Mr. Jakobsen hasextensive experience from themanage - Changes inportfolio in2020:+272shares. Holds directly andindirectly 412shares atyear-end 2020. Number of shares heldinBakkafrost: merc.dat), Copenhagen Business School. MSc inBusiness Administration andComputer Science (cand. Business Design, Henley Business School. Education: Born Chief FinancialOfficer HØGNI DAHL JAKOBSEN 1972. Faroese & Swedish citizen. Mr. Jakobsen has member of Bakkafrost from 2006to 2012. ious board positions in the industry. Mr. Eliasen was a board fish dustry andhasbeenanactive player inrestructuring the sponsible Mr. Changes inportfolio in2020:+609shares. Holds 184,479shares atyear-end 2020. Number of shares heldinBakkafrost: Teacher Certificate Exam, University of theFaroe Islands. Education: Born Managing Director of Havsbrún ODD ELIASEN of theScottish SalmonCompany since 2019. Director Eliasen farming 1965. of for Havsbrún has Faroese industry Havsbrún’s broad citizen. since in experience the farming 2012 Mr. Faroe Eliasen and activities from Islands. Chief ANNUAL REPORT 2020 the has and Executive He fish been has has farming Managing held been Officer var re- in- - 81 STATEMENT BY THE MANAGEMENT AND THE BOARD OF DIRECTORS ON THE ANNUAL REPORT ANNUAL REPORT 2020 82

The Management and the Board of Directors have today con- flows for the financial year 1 January 2020 to 31 December Statement by sidered and approved the Annual and Consolidated Report 2020. and Accounts of P/F Bakkafrost for the financial year 1 Jan- the Management uary 2020 to 31 December 2020. In our opinion, the management's review provides a true and fair account of the development in the Group's and the par- and the Board of The Annual Report has been prepared in accordance with the ent company's operations and financial circumstances, of the International Financial Reporting Standards as adopted by results for the year and of the overall financial position of the EU and Faroese disclosure requirements for listed com- the Group and the parent company as well as a description of Directors on the panies. the most significant risks and elements of uncertainty facing the Group and the parent company. Annual Report In our opinion, the accounting policies used are appropriate, and the Annual and Consolidated Report and Accounts gives We recommend that the annual report be adopted at the an- a true and fair view of the Group’s and parent company’s fi- nual general meeting. nancial positions at 31 December 2020, as well as the results of the Group’s and the parent company’s activities and cash

Glyvrar, 10 March 2021

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 INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 2020 83

To the shareholders of P/F Bakkafrost Basis of opinion Independent We conducted our audit in accordance with international Opinion standards on auditing and the additional requirements ap- Auditor’s Report In our opinion, the consolidated annual accounts and the an- plicable in the Faroe Islands. Our responsibilities under those nual accounts give a true and fair view of the assets and lia- standards and requirements are further described in the bilities, of the financial position of the Group and the Compa- below section “Auditor’s responsibilities for the audit of the ny as at 31 December 2020, and of the results of the Group consolidated annual accounts and the annual accounts”. and the Company operations as well as the consolidated cash flows for the financial year 1 January - 31 December 2020 in Independence accordance with International Financial Reporting Standards We are independent of the Group in accordance with the in- at adopted by the EU. ternational ethics standards for accountants (IESBA's Code of Ethics) and the additional requirements applicable in the Identification Faroe Islands, and we have fulfilled our additional ethical We have audited the consolidated annual accounts and the responsibilities in accordance with these standards and re- annual accounts of P/F Bakkafrost for the financial year 1 quirements. We believe that the audit evidence obtained is January - 31 December 2020, which comprise Income State- sufficient and appropriate to provide a basis for our opinion. ment, Statement of Financial Position, Statement of Compre- hensive Income, Statement of Changes in Equity, and notes, Key Audit matters including a summary of accounting policies used, for both the Key audit matters are the matters, which the auditors con- Group and the Company, as well as consolidated statement of sider central to their audit of the annual and consolidated cash flows. The consolidated annual accounts and the annual accounts. The matters are considered during our audit of the accounts are prepared in accordance with the International accounts in their entirety and when forming our opinion. We Financial Reporting Standards as adopted by the EU. do not provide separate opinions on these matters. INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 2020 84

Statement on the management’s review Key Audit matter Our response to the matter during our audit The management is responsible for the management’s review.

Biomass at cost Summary of audit approach Our opinion on the consolidated annual accounts and the Biomass at marine sites is not accurately ascertainable prior During our audit, we: to harvest and material accounting estimates are applied at • Applied our experience and knowledge about the characteristics annual accounts does not cover the management’s review, the balance sheet date, regarding existence and valuation. of salmon production process when considering the accounting and we do not express any kind of assurance opinion on the Estimates are based on information on number at launch, estimates. management's review. feeding, sea temperature, exposure to daylight and treatment for • Assured ourselves, that the estimates are based on factual data, lice and other health issues and knowledge about how salmon and data which can be supported empirically. responds to these factors in terms of growth rate, mortality, feed • Assured ourselves, that management is applying estimates in In connection with our audit of the consolidated annual ac- consumption ratio, and liability to stress and decease. Material a way consistent with knowledge of the production process, counts and the annual accounts, our responsibility is to read inherent risk is related to biomass at sea. and that the estimates are performed consistently and that the the management’s review and, in that connection, consider, estimates are free from bias. whether the management’s review is materially inconsistent • Assured ourselves of the ability of management to perform these estimates by examining estimates made by management with the consolidated annual accounts and the annual ac- at prior balance sheet dates on a back-end basis. counts or our knowledge obtained during the audit, or wheth- er it otherwise appears to contain material misstatement.

Biomass at Fair Value according to IAS41 Summary of audit approach Furthermore, it is our responsibility to consider, whether the man- Measuring biomass at fair value includes present value During our audit, we: agement’s review provides the information required under the In- calculations based on complex inputs regarding the properties • Reviewed and reconciled the company specific characteristics of ternational Financial Reporting Standards as adopted by EU. of existing biomass and forecast regarding growth and mortality inputs into the valuation models. rates form balance sheet date to harvest, quality distributions as • Reconciled inputs into the calculations model to observable well as market conditions at expected harvest date. market conditions at the balance sheet date. Based on the work we have performed; we believe that the man- • Reviewed the calculation model and ascertained that it agement’s review is in accordance with the consolidated annual comparable to industry standards. accounts and the annual accounts and that it has been prepared • On a sample bases reperformed net present value calculation in accordance with the requirements of the International Finan- cial Reporting Standards as adopted by EU. We did not find any material misstatement in the management’s review.

Responsibilities for the accounts and the audit Valuation of licenses and goodwill Summary of audit approach The group has acquired production licenses at significant During our audit, we: amounts as part of business combinations where the group is • Reviewed impairment model and ascertained that it is built on The management’s responsibilities for the consolidated identified as acquiree according to IFRS 3. During the Purchase observable assumptions. annual accounts and the annual accounts Price Allocation process, licenses and goodwill at material • Aligned inputs to board approved plans and budgets, and amounts were identified. Carrying amounts are calculated using historical performance of the individual licenses. generally accepted valuation models, based on unobservable • Reviewed valuation models for mathematical coherence and The management is responsible for the preparation of consol- inputs according to level 3 inputs in IFRS13. reperformed calculations on a test basis. idated annual accounts and annual accounts that give a true • Reviewed and challenged the indefinite useful life assumptions. and fair view in accordance with the International Financial Reporting Standards as adopted by EU. The management is also responsible for such internal control as the management determines is necessary to enable the preparation of con- INDEPENDENT AUDITOR’S REPORT ANNUAL REPORT 2020 85

solidated annual accounts and annual accounts that are free idence that is sufficient and appropriate to provide a basis consolidated annual accounts. We are responsible for the from material misstatement, whether due to fraud or error. for our opinion. The risk of not detecting a material mis- direction, supervision and performance of the Group audit. statement resulting from fraud is higher than the risk of We remain solely responsible for our audit opinion. In preparing the consolidated annual accounts and the an- not detecting a misstatement resulting from error, as fraud nual accounts, the management is responsible for evaluating may involve collusion, forgery, intentional omissions, mis- We communicate with those charged with governance re- the Group’s and the Company’s ability to continue as a going representations, or overriding of internal control. garding, among other matters, the planned scope and timing concern, and, when relevant, disclosing matters related to • Obtain an understanding of the internal controls relevant of the audit and significant audit findings, including any sig- going concern and using the going concern basis of account- to the audit in order to design audit procedures that are nificant deficiencies in the internal control that we identify ing when preparing the consolidated annual accounts and the appropriate in the circumstances, but not for the pur- during our audit. annual accounts, unless the management either intends to pose of expressing an opinion on the effectiveness of the liquidate the Group or the Company or to cease operations, Group’s and the Company’s internal controls. We also provide a statement to the Board of Directors stat- or if it has no realistic alternative but to do so. • Evaluate the appropriateness of accounting policies used by ing, that we adhere to the relevant ethical requirements re- the management and the reasonableness of accounting esti- lating to our independence, and provide information on any Auditor’s responsibilities for the audit of the mates and related disclosures made by the management. relation, which may reasonably be considered to influence consolidated annual accounts and the annual accounts • Conclude on the appropriateness of the management’s our independence, and where relevant, security measures Our objectives are to obtain reasonable assurance about preparation of the consolidated annual accounts and the employed. whether the consolidated annual accounts and the annual annual accounts being based on the going concern principle accounts as a whole are free from material misstatement, and, based on the audit evidence obtained, whether a ma- Based on the issues communicated to the Board of Directors, whether due to fraud or error, and to issue an auditor’s re- terial uncertainty exists related to events or conditions that we determine which issues we consider key to our audit of port including an opinion. Reasonable assurance is a high may raise significant doubt about the Group’s and the Com- the annual and consolidated accounts for the current peri- level of assurance but is not a guarantee that an audit con- pany’s ability to continue as a going concern. If we conclude od, and hence Key Audit Matters. We describe these matters ducted in accordance with international standards on audit- that a material uncertainty exists, we are required to draw in our report, unless legislation or other legal impediments ing and the additional requirements applicable in the Faroe attention in our auditor’s report to the related disclosures in prohibit publication of the matters, or in the extremely rare Islands will always detect a material misstatement when it the consolidated annual accounts and the annual accounts circumstances, where we determine, that matters cannot be exists. Misstatements may arise due to fraud or error and or, if such disclosures are inadequate, to modify our opinion. described in our Auditors Report, because negative implica- may be considered material if, individually or on aggregate, Our conclusions are based on the audit evidence obtained tions thereof may reasonably be expected to outweigh the they could reasonably be expected to influence the economic up to the date of our auditor’s report. However, future public interest in the information provided by description of decisions made by users based on these consolidated annual events or conditions may cause the Group and the Company Key Audit Matters. accounts and annual accounts. to cease to continue as a going concern. • Evaluate the overall presentation, structure and contents Tórshavn, 10 March 2021. As part of an audit conducted in accordance with international of the consolidated annual accounts and the annual ac- standards on auditing and the additional requirements applica- counts, including the disclosures in the notes, and whether Januar P/F ble in the Faroe Islands, we exercise professional evaluations and the consolidated annual accounts and the annual accounts løggilt grannskoðanarvirki maintain professional scepticism throughout the audit. We also: reflect the underlying transactions and events in a manner State authorized Public Accountants ∙ Company reg.no. 5821 • Identify and assess the risks of material misstatement in that gives a true and fair view. the consolidated annual accounts and the annual accounts, • Obtain sufficient and appropriate audit evidence regarding whether due to fraud or error, design and perform audit the financial information of the entities or the business Heini Thomsen Fróði Sivertsen procedures in response to those risks and obtain audit ev- activities within the Group to express an opinion on the State Authorised Public Accountant State Authorised Public Accountant 86

Financial Statements and Notes

BAKKAFROST GROUP TABLE OF CONTENTS - BAKKAFROST GROUP ANNUAL REPORT 2020 87

BAKKAFROST GROUP Table of Contents

Consolidated Income Statement for the year ended 31 December 90

Consolidated Statement of Comprehensive Income for the year ended 31 December 91

Consolidated Statement of Financial Position as at 31 December 92

Consolidated Cash Flow Statement for the year ended 31 December 94

Consolidated Statement of Changes in Equity as at 31 December 95

NOTES - SECTION 1 – BASIS OF PREPARATION 96

The section gives an overview of the financial accounting policies in general and an overview of the management’s key accounting estimates

Note 1. General Information 97

Note 1.1 Summary of Significant Accounting Policies 97

Note 1.2 Basis of Presentation 97

Note 1.3 Consolidation Principles 97

Note 1.4 Translation of Foreign Currencies 98

Note 1.5 Classification Principles 98

Note 1.6 Functional Currency 98

Note 1.7 New standards 98

Note 1.8 Accounting Estimates 99 TABLE OF CONTENTS - BAKKAFROST GROUP ANNUAL REPORT 2020 88

NOTES - SECTION 2 – RESULTS FOR THE YEAR 100

This section gives more details on the results for the year, including operating segments, taxes and employee costs.

Note 2.1 Revenues 100

Note 2.2 Major Customers 100

Note 2.3 Operating Segment Information 101

Note 2.4 Salaries and other Personnel Expenses 105

Note 2.5 Other Operating Expenses 107

Note 2.6 Research and Development Expenses 107

Note 2.7 Net Financial Items 108

Note 2.8 Tax 109

NOTES - SECTION 3 – ASSETS AND LIABILITIES 111

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 111

Note 3.2 Property, Plant and Equipment 115

Note 3.3 Leasing 117

Note 3.4 Companies in the Group 119

Note 3.5 Shares and Holdings in other Companies 121

Note 3.6 Inventory 122

Note 3.7 Biological Assets 123

Note 3.8 Accounts Receivables and other Receivables 126

Note 3.9 Cash and Cash Equivalents 127

Note 3.10 Share Capital and Major Shareholders 128

Note 3.11 Interest-bearing Debt 130

Note 3.12 Mortgages and Guarantees 133

Note 3.13 Derivatives 134

Note 3.14 Provisions 135 TABLE OF CONTENTS - BAKKAFROST GROUP ANNUAL REPORT 2020 89

NOTES - SECTION 4 – CAPITAL STRUCTURE AND FINANCING ITEMS 136

This section gives an insight into the capital structure and financing items.

Note 4.1 Financial Risk Management 136

Note 4.2 Categories and Fair Value of Financial Instruments 141

Note 4.3 Earnings per Share 142

NOTES - SECTION 5 – OTHER DISCLOSURES 143

This section gives more details on the statutory notes that have secondary importance from the perspective of Bakkafrost.

Note 5.1 Capital Commitments 143

Note 5.2 Related-Party Transactions 144

Note 5.3 Business Combinations 145

Note 5.4 Events after the Date of the Statement of Financial Position 147

Note 5.5 Auditor’s Fees 147

Note 5.6 Going Concern 148

Note 5.7 Alternative Performance Measures 148 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP ANNUAL REPORT 2020 90

DKK 1,000 2020 2019 Consolidated Operating revenue 4,651,892 4,511,107

Income Statement Purchase of goods -2,358,623 -1,354,921 Change in inventory and biological assets (at cost) 401,679 -29,423 FOR THE YEAR ENDED 31 DECEMBER Salary and personnel expenses 2.4 -608,347 -512,761 Other operating expenses 2.5 -1,062,719 -978,787 Depreciation 3.1/3.2/3.3 -446,765 -310,115 Other income 2.5 44,041 0 Operational EBIT* 621,158 1,325,100

Fair value adjustments of biological assets 3.7 118,003 -220,567 Income from associates 5,546 13,812 Revenue tax - FO -53,584 -99,128 Earnings before interest and taxes (EBIT) 691,123 1,019,217

Financial income 2.7 1,399 4,996 Net interest expenses 2.7 -36,317 -17,114 Net currency effects 2.7 -13,096 -12,670 Other financial expenses 2.7 -17,125 -12,513 Earnings before taxes (EBT) 625,984 981,916

Taxes 2.8 -163,139 -180,031 Profit or loss for the period continuing operations 462,845 801,885

Profit or loss for the year attributable to Non-controlling interests 0 -8,382 Owners of P/F Bakkafrost 462,845 810,267 462,845 801,885

*Operational EBIT is EBIT before fair value adjustment of biomass, onerous Earnings/Diluted earnings per share (DKK) 4.3 7.83 15.53 contracts, income from associates and revenue tax CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP ANNUAL REPORT 2020 91

DKK 1,000 2020 2019 Consolidated Profit for the year 462,845 810,267

Statement of Changes on financial derivatives 602 -17,789 Hereof income tax effect -83 2,705 Comprehensive Currency translation differences -44,303 72,673 Income Reserve to share based payment 1,170 -1,094 Adjustment treasury shares -37,604 15,457 Net other comprehensive income to be reclassified to profit or loss in subsequent periods -80,218 71,952 FOR THE YEAR ENDED 31 DECEMBER

Net other comprehensive income not to be reclassified to profit or loss in subsequent periods 0 0

Other comprehensive income -80,218 71,952

Total comprehensive income for the year net tax 382,627 882,219

Total comprehensive income attributable to: Non-controlling interests 0 -8,382 Owners of P/F Bakkafrost 382,627 890,601 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP ANNUAL REPORT 2020 92

DKK 1,000 Note 2020 2019 Consolidated ASSETS

Statement of Intangible assets 4,493,395 4,395,687 Total intangible assets 3.1 4,493,395 4,395,687

Financial Position Land buildings and other real estate 3.2 1,555,019 1,174,427 Plant machinery and other operating equipment 3.2 1,703,233 1,420,379 AS AT 31 DECEMBER Other operating equipment 3.2 242,147 210,750 Vessels 3.2 332,254 341,259 Prepayments for purchase of PP&E 3.2 387,946 633,683 Right of use assets 3.3 353,192 332,824 Total property, plant and equipment 4,573,791 4,113,323

Investments in associated companies 3.4 67,141 63,766 Investments in stocks and shares 3.5 55,318 55,318 Long-term receivables 3.8 8,101 4,422 Deferred tax assets 2.8 26,934 37,593 Total non-current financial assets 157,494 161,099

TOTAL NON-CURRENT ASSETS 9,224,680 8,670,109

Current assets Biological assets (biomass) 3.7 2,117,024 1,901,729 Inventory 3.6 776,032 548,508 Total inventory 2,893,056 2,450,237

Accounts receivable 3.8 490,075 625,993 Tax receivables 72,143 0 Other receivables 3.8 61,431 45,520 Total receivables 623,649 671,513

Cash and cash equivalents 3.9 466,939 1,309,546 TOTAL CURRENT ASSETS 3,983,644 4,431,296

TOTAL ASSETS 13,208,324 13,101,405 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP ANNUAL REPORT 2020 93

DKK 1,000 Note 2020 2019 EQUITY AND LIABILITIES Equity Share capital 3.10 59,143 59,143 Other equity 8,670,344 8,270,112 Non-controlling interest 0 167,620 Total equity 8,729,487 8,496,875

Non-current liabilities Deferred taxes 2.8 1,222,222 1,123,796 Long-term interest-bearing debt 3.11 2,219,690 2,328,231 Long-term leasing debt 3.3 265,235 225,585 Derivatives 3.13 1,480 1,966 Total non-current liabilities 3,708,627 3,679,578

Current liabilities Financial derivatives 3.13 9,710 13,493 Trade payables 563,857 584,435 Current tax liabilities 2.8 37,422 195,484 Short-term leasing debt 3.3 131,336 107,808 Other current liabilities 27,885 23,732 Total current liabilities 770,210 924,952 TOTAL LIABILITIES 4,478,837 4,604,530

TOTAL EQUITY AND LIABILITIES 13,208,324 13,101,405 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP ANNUAL REPORT 2020 94

DKK 1,000 Note 2020 2019 Consolidated Cash Cash flow from operations Operating profit (EBIT) 691,123 1,019,217 Flow Statement Adjustments for write-downs and depreciation 3.1/3.2/3.3 446,501 313,844 Adjustments for fair value adjustments on biomass 3.7 -118,003 220,567 Adjustments for income from associates -5,546 -13,812 FOR THE YEAR ENDED 31 DECEMBER Adjustments for currency effects -65,402 -65,556 Taxes paid -189,132 -152,000 Change in inventory -309,873 -181,295 Accounting Policies Change in receivables 48,252 -261,369 The Group’s statement of cash flow shows a breakdown of Change in current debts -23,950 156,811 the Group’s overall cash flow into operating, investing and Cash flow from operations 473,970 1,036,407 financing activities. The cash flow statement is prepared ac- cording to the indirect method. The statement shows the in- Cash flow from investments dividual activity’s impact on cash and cash equivalents. The Acquisition/sale of subsidiaries and activities, etc., net 0 -3,907,972 cash flow deriving from the acquisition and sale of business- Proceeds from sale of fixed assets 18,412 669 es is presented under investing activities. Payments made for purchase of fixed assets 3.2 -836,383 -702,173 Purchase of shares and other investments 1,843 3,988 Change in long-term receivables 0 4,242 Cash flow from investments -816,128 -4,601,246

Cash flow from financing Change in revolving credit facilities -107,451 1,217,600 Acquisition of minorities -167,620 0 Financial income 1,399 4,998 Financial expenses -53,442 -20,807 Lease payment -134,569 -42,274 Proceeds/Acquisition of treasury shares -38,766 68,358 Proceeds from share capital increases 0 3,731,129 Dividend paid 0 -401,513 Cash flow from financing -500,449 4,557,491

Net change in cash and cash equivalents in period -842,607 992,652

Cash and cash equivalents – opening balance 1,309,546 316,894 Cash and cash equivalents – closing balance total 466,939 1,309,546 CONSOLIDATED FINANCIAL STATEMENTS - BAKKAFROST GROUP ANNUAL REPORT 2020 95

Share Share- Currency Biomass Share Premium Treasury Based translation Fair value Retained Total DKK 1,000 Capital Reserve Shares Payment differences Derivatives Dividend adjustments Earnings Equity Consolidated Equity 01.01.2020 59,143 4,027,375 -68 5,059 78,850 -15,348 0 162,203 4,179,661 8,496,875 Consolidated profit 0 0 0 0 0 0 0 118,003 346,196 464,199 Statement of Reclassification to 01.01.2020 0 0 0 0 0 0 0 -134,819 134,819 0 Other comprehensive income: Adjustment related to purchase price allocation 0 0 0 0 0 0 0 0 16,253 16,253 Changes in Equity Fair value adjustment on financial derivatives 0 0 0 0 0 602 0 0 0 602 Hereof tax effect 0 0 0 0 0 -83 0 0 0 -83 Share-based payment 0 0 1,170 0 0 0 0 0 1,170 AS AT 31 DECEMBER Currency translation differences 0 0 0 -44,305 0 0 0 0 -44,305 Total other comprehensive income 0 0 0 1,170 -44,305 519 0 0 16,253 -26,363 Restricted equity comprises equity in which distribution to Total comprehensive income 0 0 0 1,170 -44,305 519 0 -16,816 497,268 437,836 the shareholders may only take place adhering to specific procedures prescribed by the Faroese Limited Companies Transaction with owners: Treasury shares 0 0 -37,604 0 0 0 0 0 0 -37,604 Act. Restricted equity consists of Equity Recognition Surplus Proposed dividend 0 0 0 0 0 0 215,872 0 -215,872 0 and Fair Value Adjustments of Biomass. Free equity may be Total transaction with owners 0 0 -37,604 0 0 0 215,872 0 -215,872 -37,604 readily distributed to the shareholders, or otherwise dis- Total changes in equity 0 0 -37,604 1,170 -44,305 519 215,872 -16,816 281,396 232,612 posed of, after due approval by the AGM. The composition of Change in non-controlling interest 0 0 0 0 0 0 0 0 -167,620 -167,620 equity may be specified as follows:

Total equity 31.12.2020 59,143 4,027,375 -37,672 6,229 34,545 -14,829 215,872 145,387 4,293,438 8,729,487

Equity 01.01.2019 48,858 306,537 -15,525 6,153 6,176 -264 403,079 382,770 2,939,245 4,077,029

Consolidated profit 0 0 0 0 0 0 0 -220,567 1,071,230 850,663

Other comprehensive income: Fair value adjustment on financial derivatives 0 0 0 0 0 -17,789 0 0 0 -17,789 Hereof tax effect 0 0 0 0 0 2,705 0 0 0 2,705 Share-based payment 0 0 0 -1,094 0 0 0 0 0 -1,094 Currency translation differences 0 0 0 0 72,674 0 0 0 0 72,674 Total other comprehensive income 0 0 0 -1,094 72,674 -15,084 0 0 0 56,496 Total comprehensive income 0 0 0 -1,094 72,674 -15,084 0 -220,567 1,071,230 907,159

Transaction with owners: Share capital increase* 10,285 3,720,838 0 0 0 0 0 0 3,731,123 Treasury shares 0 0 15,457 0 0 0 0 0 0 15,457 Paid-out dividend 0 0 0 0 0 0 -403,079 0 1,566 -401,513 Total transaction with owners 10,285 3,720,838 15,457 0 0 0 -403,079 0 1,566 3,345,067

Total changes in equity 10,285 3,720,838 15,457 -1,094 72,674 -15,084 -403,079 -220,567 1,072,796 4,252,226 Whereof non-controlling interest 0 0 0 0 0 0 0 0 167,620 167,620

Total equity 31.12.2019 59,143 4,027,375 -68 5,059 78,850 -15,348 0 162,203 4,179,661 8,496,875

*Whereof subtracted transaction costs 99,435 96

Notes to the Consolidated Financial Statements

BAKKAFROST GROUP SECTION 1 of Preparation Basis NOTES -SECTION 1 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP This accounting estimates. policies ingeneral andanoverview of themanagement’s key section gives an overview of the financial accounting presented. These policies have beenconsistently appliedto allperiods The Accounts for theparent company. frost andits subsidiaries (Group) andthe separate Annual Consolidated Annual Report andAccounts for P/F Bakka- period 1Januaryto 31December 2020comprises both the The AnnualandConsolidated Report andAccounts for the in theFaroese FinancialReporting act. by theEuropean Community andtheadditionalrequirements the International Accounting Standards Board asapproved Reporting Standards (IFRS)andtheinterpretations issued by mally drawn upinaccordance withInternational Financial equals and note disclosures for theGroup. Theaccounting year with theticker code: BAKKA. P/F Bakkafrost was listed onOsloStock Exchange in2010 iciled intheFaroe IslandsatBakkavegur 9,Glyvrar. P/F Bakkafrost (“company”) isapubliclimited company dom- NOTE 1.GENERALINFORMATION basis except for where IFRSrequires recognition atfair value, The AnnualReport hasbeenprepared onahistorical cost by theBoard of Directors on10 March 2021. ment The Annual Report comprises the income statement, state- NOTE 1.2BASIS OFPRESENTATION of The principalaccounting policies appliedinthepreparation ACCOUNTING POLICIES NOTE 1.1SUMMARY OFSIGNIFICANT tion, these financial specification of the comprehensive consolidated calendar statements of year. changes financial income, were The in financial formally statements equity, statement statements cash authorized are of flow financial set out statement were for below. issue posi- for - the notes to theaccounts where relevant. scriptions about thevarious estimates appliedare given in mated assumptions are accounted for whenthey occur. De- estimates andassumptions. Changes inestimates andesti- dated Shares insubsidiaries have beeneliminated intheconsoli- panies have beeneliminated. All material transactions andbalances between Group Com- companies includedintheconsolidated accounts. uniform accounting principles for similartransactions inall solidated accounts have beenprepared inaccordance with iaries are included up until the date of divestment. The con- which acontrolling interest issecured, anddivested subsid- Newly acquired subsidiaries are includedfrom thedate on concerned willbeconsidered anassociate. ment mayimpedeexercise of control, andtheinvestment agreement. Similarly, limitations invoting rights by agree- ing rights. Controlling interest may also exist by nature of ership directly orindirectly exceeds 50percent of thevot controlling interest isnormallydeemedto exist whenown- Preparation combinations, andof biomass. mainly valuation of licences, whichare acquired by business with liabilities are reported atfair value atthedate of acquisition, method. Thismeansthat theacquired company’s assets and The NOTE 1.3CONSOLIDATION PRINCIPLES Statement. the difference is treated as negative goodwill in the Income fair value of the assets acquired exceeds the payment made, trolling and thesubsidiaries over whichP/FBakkafrost hascon- consolidated any financial influence excess of statements the value financial either financial being by statements in shareholding classified statements accordance include as ANNUAL REPORT 2020 goodwill. involves with or by P/F the agreement. acquisition Bakkafrost the Where use the of A - 97 SECTION 1 presented share ispresented onaseparate line, whiletheassets are portion to thecost price of theshares beinghigherthantheacquired tax, less internal gains anddepreciation onexcess value due achieve consistency withtheprinciples usedby theGroup. sociated companies have beenchanged where necessary to rent considerable ance withtheequitymethod intheconsolidated accounts. A share Group owns 20–50percent of thevoting capital. TheGroup’s cant the dated accounts, a functional currency is determined in which For eachindividualentity, whichisrecognized intheconsoli- CURRENCIES NOTE 1.4TRANSLATION OFFOREIGN Investments calculated witheachacquisition. the value of assets orliabilities, except for goodwill, whichis acquisition of assets inexisting subsidiaries will not affect assets andliabilities isthedate, theGroup was formed. Later When shares are acquired instages, thevalue basisof the NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP er monetary items in foreign currency are translated to the At eachbalance sheet date, receivables, payables andoth - the date of thetransaction. between the functional currency and the foreign currency on corded in thefunctional currency atthespot exchange rate A foreign currency transaction is,oninitialrecognition, re- tions inaforeign currency. other currencies than the functional currency are transac environment inwhichtheentityoperates. Transactions in functional currency isthecurrency of theprimaryeconomic entity financial influence of of the in book measures profits in influence the assets. (associated companies equity. statement in its The such is In normally results accounting companies) companies in the of which financial Income and deemed the financial principles is are Statement, based position Group treated to exist on position. has used as profit in the when a non-cur accord- signifi- by profit after The the as - - - Liabilities, whichform part of theproduction cycle orfall due rent fall deposits. Assets, whichform partof theproduction cycle and Cash andcash equivalents consist of cash inhandandbank mass measured atcost and measured atfair value. The IFRS adjustmentment. is the difference between bio- less The biomass isthen adjusted to fair value, i.e. market value Statement. Biomass atcost consists of allproduction costs. ured at cost are presented as a one-line item in the Income nancial Position. Changes inbiomass andinventory meas Biomass isrecognized atfair value intheStatement of Fi- NOTE 1.5CLASSIFICATION PRINCIPLES period which they were translated oninitialrecognition duringthe translating monetary items, at rates different from those at ences arisingonthesettlement of monetary items oron functional currency usingtheclosing rate. Exchange differ nized On expenses. • • • lowing procedure: lated into theGroup’s presentation currency usingthefol- cies thantheGroup’s presentation currency (DKK)are trans Group’s individualentities withdifferent functional curren- the exchange rates atthedates of thetransactions isused. reasons anaverage rate for theperiodthatapproximates in equityasaseparate component of equity. For practical All resulting exchange differences are recognized directly the dates of thetransactions. Income andexpenses are translated atexchange rates at the date of thebalance sheet. Assets andliabilities are translated attheclosing rate at due consolidation, finishing assets. in or for the in payment Other income previous costs, assets the by statement within results financial adding are 12 classified and or under months, statements, subtracting financial financial as are non-current classified position shall an revenues IFRS be adjust as assets. of recog cur and the ------

for Dividend bilities. Other liabilities are classified asnoncurrent liabilities. this narrative. Financial Next been approved by theAnnualGeneral Meeting. pay thedividend,normallywhendividendproposals have parent company hasassumed anirrevocable obligation to or New standards, regulating issues not relevant to theGroup The standards are implemented asthey become effective. require additional disclosures wheneffective atafuture date. ments intheFinancialstatements, alter existing disclosures or biomass atfair value. cost on alineitem separately from biomass changes measured at Changes inthefair value of biological assets are presented current liabilities. financial position date. translated at theexchange rate ineffect onthestatement of nancial position, monetary items in foreign currencies are ing are disclosed below. Thedisclosures contain standards includ- the Group's Financialstatements, but willbecome effective later, Standards andinterpretations, whichare issued atthedate of NOTE STANDARDS 1.7NEW into rency. Alltransactions inforeign currencies are translated (DKK), whichistheGroup’s functional andpresentation cur The consolidated accounts are presented inDanish Kroner NOTE CURRENCY 1.6FUNCTIONAL with amendments, payment under DKK year’s insignificant Report proposals at operating instalments the within to time which determine 12 are profit/loss. impact of may months, on not transaction. long-term influence on classified both the This are production Group, classified allows recognition In debts as ANNUAL REPORT 2020 the liabilities are the are statement as efficiency omitted reader classified or current measure- until of of from and the the lia- fi- as - 98 SECTION 1 mates, which the estimates are revised. The evaluations and esti- sion to accounting estimates are recognized intheperiod ues andresults maydeviate from the initialestimates. Revi - Estimates are reviewed on an on-going basis, and actual val- be relevant andprobable whenthejudgements were made. tions are basedonexperience andother factors perceived to come andexpenses. Theestimates andunderlyingassump- principles andcarrying amounts of assets andliabilities, in- and assumptions thataffect theapplication of accounting IFRS requires themanagement to make judgement estimates the Bakkafrost Group. these from 2021andforth expected to have anyimpact on year 2020.Neitherare new standards noramendments to interpretations Only minoradjustments have beenmadeinstandards and New standards effective from 1January2020andforth NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Group’s FinancialStatements, are described inthenotes. The NOTE 1.8ACCOUNTING ESTIMATES preparation deemed (IFRIC) to of be financial of which greatest statements are significance effective in for accordance for the Bakkafrost financial with ANNUAL REPORT 2020 99 SECTION 2 including operating segments, taxes andemployee costs. This section gives more details ontheresults for theyear, the Year Results for NOTES -SECTION 2 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP 53% in2019. 52% of thetotal revenue intheVAP compared segment, to VAP 8.34, representing DKK570millionof therevenue inthe fishmeal, The revenue of the Group is mainly from sales of salmon, discounts, VAT andother sales related taxes. the ordinary course of business. Revenue isrecognized net of received or receivable for the sale of goods and services in Revenue ismeasured atthefair value of theconsideration NOTE 2.1REVENUE In CUSTOMERSNOTE 2.2MAJOR passed to thecustomer. Thiswillnormallybeupondelivery. when the goods are delivered, and both title and risk have 2020, segment, there fish oil compared was and one fish major to feed. DKK customer Sales 510 million revenue - as in defined is 2019. recognized in This IFRS is ANNUAL REPORT 2020 100 SECTION 2 Depreciation Property, plantandequipment INVESTMENTS Operating EBIT Revenue Income from associates Fair value adjustments onbiological assets Net Earnings before taxes Operating Taxes Net financialitems Other income Internal operating expenses Operating expenses Depreciation andamortization External operating revenue 2020 –DKK1,000 NOTE 2.3OPERATING SEGMENT INFORMATION NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Internal operating revenue Total operating revenue earnings tax EBITDA EBIT Farming FO ,4,2 1,116,216 1,548,623 2,340,261 -239,814 -214,275 -878,999 -773,619 -239,814 582,419 791,638 687,643 159,223207,696 180,689 139,693181,611 128,028 447,829 139,693176,784 -53,584 0 -30,445 -52,661 97,583 114,030139,025 719 0

Value Added 1,116,216 1535 12125 13866 1915 -3,628,010 -119,135 -1,358,626 -1,211,275 -791,638 -165,355 Products 139,062 -19,530 -25,032 -19,530 3,334 -631 0 0 0 1,027,480 0

oil andfeed 1,418,971 Fishmeal, 9,9 1,595,561 391,491 169,542 3,1 -156,508 -30,912 -30,517 -12,069 -156,508 -30,912 086 246,837 30,866 4,827 0 0 -4,8 1,819,118 -148,481 0

Farming SCT 1,595,561 332,278 132,495 308,265 308,487 209,600 -98,887 -24,013 44,041 222 0 0 -1,819,118 0

Eliminations -1,819,118 -119,135 -119,135 -119,135 -119,135 -97,393 21,742 0 0 0 0 0 0 4,651,891 0

Bakkafrost 1,067,922 4,651,891 -446,764 -163,139 -446,764 863,456 118,003 691,123 462,845 625,984 621,158 -53,584 -65,139 44,041 Group 5,546 0 0

ANNUAL REPORT 2020 101 SECTION 2 Depreciation Property, plantandequipment Earnings before taxes External operating revenue * Farming SCTisconsolidated from 8October 2019 INVESTMENTS Operating EBITDA Net earnings Taxes Net financialitems 2019 –DKK1,000 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP EBIT Revenue tax - FO Fair value adjustments onbiological assets Income from associates Operating EBIT Internal operating expenses Operating expenses Depreciation andamortization Internal operating revenue Total operating revenue Farming FO -1,061,463 2,501,646 1,002,918 1,310,345 1,028,840 1,103,001 3,152,462 -207,344 -161,566 -780,654 -207,344 666,776 650,816 841,352 -25,922 -99,127 21,847 3,119

Value Added 2248 11265 3232 1694 -2,875,892 -106,934 -362,372 -1,112,665 -650,816 -232,458 Products 964,484 964,484 -17,482 -11,375 -17,482 15,212 63,187 81,210 51,812 63,728 63,728 -541 0 0 0 0

oil andfeed 1,388,461 Fishmeal, 0,0 437,171 607,807 780,654 252,007 275,796 207,031 257,870 247,177 -28,619 -44,976 -28,619 20,185 10,693 -5,863 0 0 0

Farming SCT* -242,414 -229,262 -191,376 -224,285 -106,934 437,171 -56,670 -56,670 37,886 74,799 18,129 -4,977 521 0 0 0 0

Eliminations -1,431,470 -1,431,470 1,431,470 -106,934 -106,934 -106,934 -106,934 0 0 4,511,107 0 0 0 0 0 0

Bakkafrost 1,635,216 1,019,217 1,325,100 4,511,107 -310,115 -180,031 -220,567 -310,115 702,694 981,916 801,885 -37,303 -99,127 13,812 Group 0 0

ANNUAL REPORT 2020 102 SECTION 2 Harvested FO volume usedinVAP production FARMING FO -DISTRIBUTION OFHARVESTED VOLUMES NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Total harvested volumes Harvested volume soldfresh/frozen Harvested volume usedinVAP production FARMING -DISTRIBUTION SCT OFHARVESTED VOLUMES Total production Fish oil Fishmeal PRODUCTION OFFISHMEALANDFISHOIL Sold volumes External sold Volumes usedinternally FOF SEGMENT -DISTRIBUTION OFFEED Total harvested volumes Harvested FO volume soldfresh/frozen

111,998 496 100.0% 34,986 60,661 17,653 94,345 26,769 23,931 34,986 70,593 50,700 tonnes tonnes tonnes 9,932 tgw 0 2020 2019

100.0% 100.0% 100.0% 100.0% 85.9% 15.8% 84.2% 52.8% 47.2% 14.1% 0.0% % % % % 066 86.3% 60,646 78.6% 20,825 76,583 70.8% 29.2% 40,494 16,690 70,279 57,184 97,408 tonnes tonnes tonnes ,2 100.0% 7,925 ,3 13.7% 9,633 7,925 tgw 0 100.0% 100.0% 100.0% 100.0% 21.4% 0.0% % % % % ANNUAL REPORT 2020 103 SECTION 2 Rest of theworld Total Eastern Europe Asia Total Eastern Europe Asia North America Western Europe 2020 –DKK1,000 area IFRS 8,Operating Segments. TheGroup’s mainstrategic business The Group hasfour reportable segments inaccordance with North America Western Europe 2019 –DKK1,000 GEOGRAPHIC BREAKDOWN OFSALES REVENUESBASED ONSEGMENTS ANDCUSTOMER LOCATION NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP ed The sameaccounting principles, asdescribed for theconsolidat production andsales of fishmeal,fishoilandfeed (FOF). ing Faroe IslandsandScotland, value addedproducts (VAP) and and thefarming FO segments isbasedonquarterly contracts. prices for spot sale, andthe pricing principlebetween the FOF VAP and Farming FO segments is based on market reference the third party’s transactions. The pricing principle between the urement usedinthesegmentreporting isthesameasusedfor under normalcommercial terms andconditions, andthemeas Intersegmentporting. transfers ortransactions are entered into financial is aquaculture, statements, which have consists been of applied four segments: for Farming FO Farming FO 2,501,646 1,548,623 the 307,702 833,048 3,249,644 1,443,510 391,491 179,733 941,027 300,792 594,301 473,616 3,1 7157 0,0 4838 2,420,628 408,318 607,807 771,587 727,979 632,916 segment 181 fish farm- re- - - 1,116,216 127,312 964,484 607,807 24,112 37,259 43,929 94,001 41,473 over Scottish SalmonCompany Plc, whichBakkafrost gained control The Farming SCT segmentcomprises thetotal operation inThe Farming SCT are Group hasproduction facilities around theFaroe Islands.There as well astheharvesting, sales anddistribution of salmon.The Fish farming involves thebreeding andon-growing of salmon Farming FO includingsales of fresh fish ACCOUNTING POLICIESSEGMENT REPORTING foreign seafood processing companies. salmon issoldonthespot market for salmonproducts andto monids, includingthesaleof fresh The salmon,asonesegment. the licences, andtheGroup therefore reports thefarmed sal- VAP VAP no on 0

significant the 8 October 391,491 1,595,561 differences FOF FOF 0 0 0 0 0 0 0 2019. Farming SCT Farming SCT The in the 437,171 operation 52,893 11,585 87,573 16,612 3,497 8,743 production 0 is located properties 4,511,108 4,651,891 216,992 860,658 356,306 775,875 451,627 778,195 in 53,074 Total Total Scot of -

the retail market. market andthevalue-added products for theend-consumers in is basedonthedistinction between output soldto theindustrial Havsbrún, located inFuglafjørður. portions factory inGlyvrar. Theoutputs of thefactory are predominantly administration. fish of Fishmeal, Fishmeal, fishoiland feed (FOF) A Value addedproducts (VAP) land significant fishmeal, oil and and for includes fish fish the fish share oil retail feed oil and salmon of and the fish are market. fish farmed feed operated farming, feed. The involve products

business The harvest, by the production Bakkafrost’s ANNUAL REPORT 2020 is production segment value filleting, added of subsidiary definition sales fishmeal, and at sale and the

104 SECTION 2 Total payroll expenses Social securitytaxes Share basedpayment Wages andsalaries DKK 1,000 REMUNERATION TO CORPORATE MANAGEMENT Average numberof full-time employees Other benefits Pension expenses DKK 1,000 NOTE 2.4SALARIES ANDOTHER PERSONNELEXPENSES DKK 1,000 Chief FinancialOfficer Managing Director Chief Executive Officer Salary andother benefits paid Salary andother benefits paid Total Chief Executive Officer Managing Director Chief FinancialOfficer* Total NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP * In2019,thecompany haspaidwages to both theresigned andthenew CFO. remuneration remuneration Salary Salary 1,328 1,703 2,145 2,164 1,493 1,755 5,176 230368 5,412 530 317

Bonus Bonus 115 115 300 115 115 0

Pension Pension

146 124 137 98 89 91

516,445 608,347 155 11,687 11,545 42,656 34,025 ,7 2,529 3,676 ,9 1,534 1,699 Other Other 2020 178 176 9 2,380 89 9 1,630 89 8 2,689 88 8 2,049 88 1,942 0 1,697 0

432,550 512,761 33,214 32,782 5,952 6,435 2019 2020 2019 Total Total ANNUAL REPORT 2020 105 SECTION 2 Total remuneration Øystein Sandvik** Teitur Samuelsen** Einar Wathne*** Annika Frederiksberg* Johannes Jensen sists The total remuneration to thecorporate management con- Remuneration to corporate management *** Memberof theBoard of Directors from April2019 ** Memberof theauditcommittee. Salaryincludes fee to theauditcommittee * Annika Frederiksberg isalsoanemployee intheBakkafrost Group. For this,shereceived DKK651thousand(2019:641thousand). DKK 1,000 Fees paidto theBoard of Directors Rúni M.Hansen** NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Chief sion schemes, but varies from person to person. TheGroup’s salary levels inthelabourmarket. to an annual evaluation and is determined based on general the desired skills andexperience. Thebasicsalary issubject that Bakkafrost attracts and retains senior executives with frost’s reputation nor be market leading but should ensure The total remuneration must neitherpose athreat to Bakka- petitiveness intherelevant labourmarket. areas. Theremunerations shouldpromote theGroup’s com- the needto offer competitive terms inthevarious business of Directors. Thetotal remuneration isdetermined basedon er management inagreement withtheChairman of theBoard of Executive basic salary Officer (main determines element), the benefits remunerations in-kind and to pen- oth-

Member of theBoard Member of theBoard

Chairman of theBoard Member of theBoard Member of theBoard Deputy Chairmanof theBoard in behalfof theemployees. Thepurchase willbemadefrom monthly net salaryandusedto purchase Bakkafrost shares Bakka­ Employees mayinvest upto 5%of theirbasesalaryin and theterms of theplan. discretion, whether theplanwillbe extended inthefuture, The Board shall,however, have theright to decide, inits sole continuing partof thecompany's employee incentive scheme. ployees. ItistheBoard's intention thattheplanshallbea Bakkafrost hasestablished ashare savingplanfor its em- SHARE-BASED PAYMENT notice agement Executives anotice period. Thecompany’s periodof Bakkafrost mayterminate employment by givingGroup Man- Notice of Termination andSeverance Payment Executives covers aperiodfrom 6to 12months. The company’s periodof notice for other Group Management frost shares. Thesaved amountisdeducted from the for the

Group’s Chief Executive

278 217

479 1,738 Officer 2020 262 231 271 is 24 months. 1,609 2019 265 209 252 161 261 461 ments. towards theemployees, apartfrom these periodical pay they accrue. TheGroup has noadditionalpensionliabilities Pension premiums are charged to the Income Statement as in other equityreserves within equity. cial item intheincome statement. Theliabilityisrecognized to employees are acquired by thecompany onthemarket. will beawarded for eachshare purchased. Shares transferred After alock-in periodof two calendar years, oneextra share regulations. company will be reported in accordance with the applicable purchase price andthenumberof shares acquired by the employee maycancel thesubscription duringtheyear. The may not change thesavings amountduring the year, but an Bakkafrost's treasury shares oronthemarket. Anemployee The PENSIONS price, plan. Thedifference between thefair value and theshare adjustment ismadefor estimated leavers of theshare saving using theshare price onthedate of theemployee signature, of shares contracted atthestart of theshare savingplan, value of these liabilities willbedetermined usingthenumber share savingplananduntiltheshares are granted. Thefair contribution periodisfrom whentheemployee signedthe been allocated over theemployees' contribution period.The The share savingplanliabilities andpayroll expense have PAYMENTS ACCOUNTING POLICIESSHARE-BASED at31.12.2020,thereAs are noloansto employees. LOANS TO EMPLOYEES Group when operates the shares a defined are granted, contribution will be ANNUAL REPORT 2020 booked pension as scheme. a finan- - 106 SECTION 2 ments of its own operating practices. ical. Inaddition, Bakkafrost continuously performs assess feeding, as well asoperating technologies, are equallytop- the development andimprovement of vaccines, nutrition and mass control andsmoltqualityremain highpriorities, and slightly improved duringrecent years. Lice bio- abatement, The focus of Bakkafrost’s R&Defforts has beenevaluated and other operating expenses andsalaries. chain. Thisisnot seenasR&Dbut isanintegrated partof Bakkafrost hasacontinual development of theentire value built intheBakkafrost business modelDNA. R&D expenditure occurs throughout thevalue chain. R&Dis Other income total R&D expenditure tax credit inSCT Energy Freight Health Operating expenses Maintenance Other operating expenses total Other costs DKK 1,000 NOTE 2.5OTHER OPERATING EXPENSESAND OTHER INCOME NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP NOTE 2.6RESEARCH ANDDEVELOPMENT EXPENSES - diminish this risk. Bakkafrost focuses on using non-medical and hasmade several new investments andprocedures to Bakkafrost focuses onreducing biological riskcontinuously under large-scale conditions. better and more comprehensive research into these issues in thefeed. Itis Bakkafrost’s clearlyexpressed goal to initiate mix of raw material hasresulted inbetter nutritional quality ments infarming. We are convinced thatouradaption of the be above ourexpectations interms of production improve- can maintain ahealthy salmon.Thepast year hasproven to cus feed andfeeding andsees asubstantial needfor greater fo- Bakkafrost aimsto expand its R&Dactivities inthearea of on

basic knowledge

of how the -1,062,719 1799 -156,697 -167,999 -424,575 -127,605 -175,788 -161,327 fish 545 -71,359 -5,425 44,041 44,041 2020 are fed and -364,288 -102,884 -152,442 -131,118 -978,787 how 2019 we 0 0 volumes from 2021. investment programme willgradually appearinharvested in fulloperation from 2020.Thecapacity growth from this Klaksvík, is animportant part of this plan. Thehatchery is well asreduced biological risk. Thenew hatchery atStrond, in Bakkafrost aimsatincreasing smoltsize to 500grams smolts new technology to follow thisstrategy. methods in treatments against sea lice and has invested in 2023. The benefits are a shorter production ANNUAL REPORT 2020 time at sea as 107 SECTION 2 Net financialitems Other financialitems Other financialexpenses Net currency effects Other exchange differences Financial expenses Interest expenses oncredit lines Interest expenses onlong-term loans Financial income Other financialincome Interest expenses onaccounts payable DKK 1,000 NOTE 2.7NETFINANCIALITEMS NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP

-12,513 -17,125 -12,670 -13,096 -33,512 -65,139 -17,125 -13,096 -36,317 -2,476 ,9 4,996 1,399 1,399 2020 -329 -14,437 -37,301 -12,513 -12,670 -17,114 -2,085 4,996 2019 -592 Borrowings in theincome statement over theperiodof theborrowings. transaction costs) andtheredemption value isrecognized amortized cost; anydifference between theproceeds (net of action costs incurred. Borrowings is subsequently stated at Borrowings isrecognized initiallyatfair value, net of trans BORROWING COSTS ing. a dividendhasbeenapproved by theAnnualGeneral Meet income isrecognized, whentheshareholders’ right to receive Interest income isrecognized onanaccrual basis.Dividend ACCOUNTING POLICIESFINANCIALINCOME liability for atleast 12monthsafter thebalance sheet date. Group hasanunconditional right to defer settlement of the is classified as a current ANNUAL REPORT 2020 liability, unless the - - 108 SECTION 2 Tax payable inthestatement of financialposition Tax payable Tax expense onordinary profit Tax ontreasury shares Change indeferred tax Total temporary differences Other differences Derivatives (Equity posted) Receivables Biomass Financial assets Property, plantandequipment Licences Deferred tax assets Tax credit Tax payable DKK 1,000 Specifications of temporary differences anddeferred tax DKK 1,000 The tax expense for theyear breaks down asfollows: NOTE 2.8TAX NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP 1,318 43,483

Differences Temporary 104,415

147 0 0 0

38,783

-23,974 38,783

Deferred tax 148,330 163,139 38,783 18,460 26,933 8,224 2020 2020 224 25 0 0 0 0

Differences Temporary -190,181 337,250 35,946 4,406 1,089 8,860 486

Deferred tax 195,484 -36,134 195,484 195,484 180,031 -10,705 64,078 37,593 -4,748 1,683 6,830 2019 2019 837 207 92 0

ANNUAL REPORT 2020 109 SECTION 2 Deferred tax liabilities Deferred tax assets Total temporary differences Deferred tax liabilities (+)/assets (-) Other differences Derivatives (Equity posted) Currency effects Receivables Biomass Financial assets Property, plantandequipment Licences Deferred tax liabilities Calculated tax expense Permanent differences* Expected tax atnominaltax rate - UK/Scotland 19% - - Normal tax rate for countries intheGroup: Effective tax rate excl. equityentries Profit before tax DKK 1,000 Reconciliation from nominal to actual tax rate DKK 1,000 * Wherof DKK +64.9million,relates to change inthetax rate change inScotland from 17%to 19% NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP USA 28% Faroe Islands18%

510 1,413,357 78,742 1,562,011 3,624,015

Differences Temporary

0 0 0 1,222,222

Deferred tax

625,984 1,195,289 1,222,222 106,417 163,139 258,023 269,909 680,554 -26,933 26.06% 56,722 13,610 2020 2020 126 0 0 0

Differences Temporary 1,390,953 1,358,688 3,438,453 59,067 -1,534 -1,245 -437 -633 1,123,796

Deferred tax 1,123,796 1,086,203 250,371 244,564 618,922 -37,593 176,745 981,916 180,031 10,632 18.33% 3,286 2019 -114 -276 -224 2019 -79

a financial year. well asthetaxable loss carried forward attheendof the tween accounting andtax values attheirintended use, as inal amountcalculated basedontemporary differences be- cording to 12. IAS Deferred taxes are calculated usingthenominaltax rate ac the ultimate tax determination isuncertain. calculations duringtheordinary course of business for which in thefuture. Inaddition,there are manytransactions and date laws thathave beenenacted orsubstantively enacted by the financial deferred tax assets are presented net in the statement of changes innet deferred taxes. Deferred tax liabilities and tax payable (tax ontheyear’s direct taxable income) and transactions istaken to equity. Thetax expense comprises tax, as it appears in the accounts. Tax ascribable to equity Deferred can benetted against eachother. they will beutilized inthe foreseeable future. assessed once ayear. Losses are recognized ifitislikely that Deferred tax assets, including tax loss carry forwards, are FOR DEFERREDTAX ASSETS ASSUMPTIONSIGNIFICANT ACCOUNTING The FOR DEFERREDTAX LIABILITIES ASSUMPTIONSIGNIFICANT ACCOUNTING The ACCOUNTING POLICIES deferred tax accounting of the expense position tax tax statement in asset the of is to deferred matched statement is the of based financial extent taxes against on of that expectations financial position. reflects tax the ANNUAL REPORT 2020 assets profit position The tax of or recognition rates and profitability loss is liabilities and a before nom- tax of - 110 SECTION 3 Liabilities Assets and NOTES -SECTION 3 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP ities. basis for theactivities of Bakkafrost andtherelated liabil- This section gives more details ontheassets thatform the Additions intheyear asaresult of acquisitions Acquisitions costs asat01.01.19 DKK 1,000 Acquisitions costs asat31.12.19 Acquisitions costs asat31.12.20 Currency translation differences Additions intheyear asaresult of adjustment to prior year acquisitions Acquisitions costs asat01.01.20 DKK 1,000 NOTE 3.1INTANGIBLE ASSETS tivity In theFaroe Islands,Bakkafrost operates its seafarming ac Net bookvalue asat31.12.19 Accumulated impairments/depreciation andwrite-downs asat31.12.19 Depreciation duringtheyear Impairments 01.01.19 Net bookvalue asat31.12.20 Accumulated impairments/depreciation andwrite-downs asat31.12.20 Depreciation duringtheyear Impairments 01.01.20 binations. Respectively, whenacquiring theVestlax Group, The other seven CGUs were acquired as part of business com- talized. These belongto theNorthregion. government without consideration, andhence are not capi- sea farming licenses, seven out of whichare issued by the in 14 identifiable CGUs based on single or groups of - ing licenses. Havsbrún 21 In Scotland, Bakkafrost operates its sea farming activity in goodwill andintangible assets withindefinite useful lives. as CGUs. These belongto theWest region. These are considered significant identifiable Goodwill 550,400 568,885 666,950 567,129 664,837 Goodwill -16,180 6,8 37018 0,0 4,397,443 108,400 3,720,158 114,245 568,885 845 372,138 18,485 Group -1,756 -2,113 -1,756 -878 -878 -357 in CGUs comparison and

Total based Faroe 3,348,020 3,720,158 3,720,158 3,720,158 3,720,158 Licences Licences on Farming, to single the 0 0 0 0 0 0 0 0

total or hence 108,400 108,400 108,400 108,400 108,400 ANNUAL REPORT 2020 Brands Brands groups carrying three 390,623 0 0 0 -878 0 0 0 0 0 0 of 4,006,820 4,397,443 4,495,508 4,395,687 4,493,395 amount groups sea 114,245 -16,180 -1,756 -1,756 -2,113 2019 2020 farm- Total -878 -357 of of 111 SECTION 3 (CGU). ing amountof net assets heldby thecash-generating unit ment test. CGUs inthefuture, thiswillbeincorporated into theimpair will bevariances between theassumptions for thedifferent period. AllCGUs are calculated withthesameWACC. Ifthere also assumed to bethesamefor allCGUs over thecalculated ity, production time, fallowing andharvest weight. is CAPEX Other operating conditions considered thesameare mortal- of feed, harvest, smolt, packaging, transport and other costs. Faroe Islands.Theconsidered operating conditions are costs erating conditions are predominantly thesameallover the All CGUs have thesameoperating assumptions since theop - the targets approved by theGroup management. following years. Thestrategic planshave beenreviewed and sis is basedontheassumption of continued operation. Theba- the carrying amountishigherthanthecalculated value inuse, management’s best estimate atthetimeof reporting. Ifthe the the cash-generating 36andcomparing unitinlinewithIAS unit. or several licences orfarming sites, asonecash-generating ent Impairment testing iscarried out by calculating thenet pres The procedure of impairmenttesting end. impaired. Theannualimpairmenttest isperformed atyear- more frequently ifthere are indications thattheassets are The Group tests intangible assets annually for impairment or Impairment testing Group testing incombination withgoodwill intheannualtest. The the form of licenses. Thelicenses are subject to impairment NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP for assets value net The The identifies the present Group of are cash estimated estimated considered has flow value each substantial used cash farming of future impaired. the in flow the cash zone, cash assets is calculations the flow The flows which with strategic estimated towards (value indefinite may represents plan contain in the cash use) lives for carry flow one the the for in - - - • • estimate • The key assumptions usedindetermining thevalue inuseare: itability inthesixthyear andterminal period. analysis but returns to long- term historic averages for prof budgets ing on developments in the prices of salmon. Bakkafrost uses farming industry historically hasbeenvery volatile, depend- assets. Thetest confirmed theasset values. impairment cation of impairment losses. Intangible assets were tested for The Indications of impairment more ulatory frameworks. Costs can normallybeestimated with prices, input prices, biological performance andfuture reg The assumptions used,rest onuncertainty regarding product in both macroeconomic andcompany-related conditions. future strategic plans considering the expected development In general, thevalue inusehasbeendetermined basedon other assumptions are andterminal inflation,CAPEX growth. vest volume, prices andcosts, hence EBIDTA andWACC. Amongst The key assumptions in the calculations of value in use are har The key assumptions ties’ sources. tion. Thelong-term forward prices are basedonthird-par which isapartof OsloBørs ASA –atthedayof thecalcula- The forward prices are based on theFish Pool index – inflation rate of 0.9%. ed to remain stable but are calculated to increase withan on historical costs and expectations. Thecosts are expect The costs are basedontheGroups own assumptions, based harvest weight andmortality, basedonhistorical figures. for Harvested volume isbasedonthecurrent stocking plans impairment each accuracy and was unit, to long-term sufficient evaluate than testing and forecasted income. to at plans if support the year-end As cash for figures profitability the the flow did carrying first for not from five growth, result a in amount conservative years the in assumed identifi- salmon of of the net - - - - - • • • is DKK9,459million. generating units. With theassumptions used,theheadroom analysis sets, asensitivityanalysis hasbeencarried out. Sensitivity In connection with the impairment testing of intangible as Sensitivity (interest, of theWACC, third-party sources are usedwhere available tle uncertainty aspossible withregards to thecalculation the outcome of themodel,andto ensure thatthere isaslit to maintenance investments. expenditure willin general equaldepreciation andrelate in theimpairmenttest. Beyond theforecast period,capital five-year The choice is updated each year for the annual impairment test. The timating thediscount rate. Theinput data for themodel accordance 36.TheWACC withIAS modelisusedfor es expenditure laws andregulations mayaffect future estimated capital The industry intheEU. ish government, withanadjustment marginfor thefood growth the capital expenditure necessary to meet theexpected Capital expenditure In the 5-year (CAPEX). forecast period, is set to 0%. done based on third-parties’ sources. The terminal growth to rent laws andregulations hasbeenincluded.Capex related placement plans.Capital expenditure to comply withcur Capital expenditures are alignedwiththegrowth andre- of grammes hasalsobeenincludedto supporttheinclusion the committed inflation WACC benefits has of in inflation, input average revenue is been needs; is 7.2% and in data set performed the for approved (2019: beta). and this to for applied ten-year 0.9% is profit the The not 8.5%) for model for margin. efficiency discount reflected is bonds the each pre-tax taken significantly budget Changes ANNUAL REPORT 2020 of issued into rate in improvement and the the period. consideration. is defined calculated in by figures based applicable influences the This Dan- used on cash pro- in is a - - - - 112 SECTION 3 termine statement expenses asthey accrue. R&Dcosts are capitalized inthe Costs relating to research and development are charged as not cover theircarrying amount. the recoverable amountiftheexpected financialbenefits do ciated systematically. Intangible assets are written down to Intangible assets withalimited economic lifespan are depre- are met. acquisition cost whenthecriteria for separate recognition tion withthepurchase of abusiness entityare capitalized at ized atacquisition cost. Intangible assets acquired inconnec Intangible assets thatare purchased individuallyare capital- ACCOUNTING POLICIES NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP The downs are entered andcharged to theIncome Statement. erable licences amount, are considered impaired, andwrite- impairment test. Ifthecarrying amountexceeds therecov not depreciated systematically, but are subject to anannual mal welfare are met. Consequently, seafarming licences are preconditions regarding environmental protection andani- and Scotland are considered perpetual, given thatcertain to aPPA analysis. Sea farming licences in theFaroe Islands capitalized atcost less accumulated write-downs according acquisition orbusiness combination according to IFRS3,are Sea farming licences, whichare purchased either aspartof an mated periodof use. costs are depreciated inastraight lineover theasset’s esti- accumulated depreciation and write-downs. Capitalized R&D Capitalized R&Dcosts are recognized atacquisition cost less tends that they assessment the can to whether and relevant be of is technically financial financially of the R&D indefinite indefinite position, projects finalized, able life to carry life when is reap and continues reviewed economic it the that can economic be the annually to demonstrated benefits, company be appropri- benefits. to that de- in- - - is inal lifespan of 12years. Licenses are renewed, unless there The seafarming licenses intheFaroes are issued withanom- mentally sustainable. ures to regulate thefarming activity inorder to beenviron- at thegiven site, but thelegislationhasimposed strict meas There are noprovisions asto themaximumallowed biomass made onaprospective basis. intangible rights withindefinite useful lives. licenses, which are capitalized, following theprovisions for The Group hastherefore decidedto account for seafarming specified inthelicenses continue to bemet. certain environmental, operational andbiological conditions The seafarming licenses inScotland are perpetual aslong other locations. the farmers have obtained licenses from theauthorities at renew licenses in order to use locations for other purposes, the very rare cases, where theauthorities have declinedto system, where thelicenses are renewed every 12thyear. In farming licenses are operated ina12-year rolling lifespan that itisrenewals of existing licenses. Thismeansthatsea of the licenses. Special emphasis is to be placed on the fact ate. Licenses withindefinite useful lives entity for aconsideration that exceeds thefair value of the When thecompany assumes control over aseparate business GOODWILL renewal tion withrenewal of licenses, authorities mayonlydecline the veterinary conditions set by theauthorities. Inconnec The fare the a specific If right sea or not, environmental farming if to the specific reason utilize change licenses legislation against a in given protection useful in renewal, the area on life Faroe area of is from based in fjords Islands planning, conflict indefinite on for failure are with farming animal defined to renewal finite to fulfil wel- fish. as is - - goodwill, Whenassessingcarrying amount. theneedto write-down often ifthere are indications thatits value islower thanthe depreciated but is tested for impairment annually or more ciates is presented under intangible assets. Goodwill is not Goodwill derivingfrom purchases of subsidiaries andasso- statement of financialposition. individual assets, thedifference isentered asgoodwill inthe independent grouped according to the lowest level to which separate and of If thecalculated value inuseisless thanthecarrying amount mating future cash flows. is calculated basedonvalue inuse. Thisisarrived atby esti- units first, andthenother assets asrequired. ment Write-downs are performed inaccordance withanassess quisition. tify generating units to which the goodwill is assigned. To iden- the the or of cash-flow groups, Group’s the this cash recoverable is which cash-flow assigned generating flows are may to value expected generating unit, be relevant ascribed. of goodwill each to cash ANNUAL REPORT 2020 units, benefit Recoverable of is flow the the written from generating assets cash-flow the down value are ac - - 113 SECTION 3 TOTAL TOTAL **** Other assets consist of goodwill, PP&E,inventory, receivables, etc. whichcan beallocated to CGUs orare directly attributable to CGUs. 06 *** 1CGU inlicense numbers A-15 andA-92. Acquired in2016. Faroe Farming acquisition*** Faroe Farming acquisition*** Havsbrún acquisition** Havsbrún acquisition** ** 2CGUs inlicense numbers A-71 andA-82. Acquired in2011. Vestlax acquisition* Vestlax acquisition* 4,006,820 The Scottish SalmonCompany acquisition * 4CGUs inlicense numbers A-03, A-05, A-06, A-25, A-57, A-80 andA-81. Acquired in2010. 4,006,820 The Scottish SalmonCompany acquisition 31.12.2019 31.12.2020 DKK 1,000 CGUs Sensitivity analyses andbooked value perCGU: The CGUs tested are intheWest region andinScotland. SPECIFICATION OFCGUS -BOOKEDVALUE TESTED ANDSENSITIVITY NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP 4,378,958 3,600,4317,979,389 4,378,958 3,132,1107,857,797 Licenses 157,430 157,430 132,708 132,708 82,000 82,000

1,591,827 1,338,793 assets****

890,295 736,823 422,603 482,380 574,114 695,706 Other

1,724,535 1,724,535 4,580,934 4,702,526 972,295 972,295 580,033 580,033 booked tested value Total

WACC 7.4% 7.2% 7.4% 7.2% 7.4% 7.2% 7.4% 7.2% 7.2% 7.4%

of smolts Number 303 1,6 3970 -362,679 379,700 311,560 23,083 303 4,4 3183 -91,078 321,873 142,248 23,083 36,503 37,433 (1,000) 3,500 4,200 ,5 1350 6,0 -454,849 662,102 163,560 -540,723 2,250 746,094 145,545 2,250 7,670 7,900

437,955 575,936 of +/-1% EBITDA 396 3,2 -233,449 339,820 83,946 -287,473 396,657 77,378 821 9,2 -134,045 195,123 48,201 -154,003 212,495 41,453 change

1,518,918 1,764,946

change of -1% WACC ANNUAL REPORT 2020 -1,344,878 -913,421 change of +1% WACC 114 SECTION 3 Currency translation differences Disposals andscrapping duringtheyear Acquisitions duringtheyear Reclassification Acquisition costs asat01.01.20 NOTE 3.2PROPERTY, PLANTANDEQUIPMENT Acquisition costs asat31.12.19 Acquisition costs asat31.12.20 Disposals andscrapping duringtheyear Acquisitions duringtheyear Accumulated depreciations andwrite-downs asat31.12.20 Currency translation differences DKK 1,000 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Net book value asat31.12.19 Currency translation differences Accumulated deprecations andwrite-downs ondisposals andscrapping Depreciations duringtheyear Accumulated depreciations andwrite-downs asat01.01.19 Acquisition of subsidiary Reclassification Acquisition costs asat01.01.19 Net bookvalue asat31.12.20 Accumulated deprecations andwrite-downs ondisposals andscrapping Depreciations duringtheyear Reclassification Accumulated depreciations andwrite-downs asat01.01.20 Accumulated depreciations andwrite-downs asat31.12.19

1,491,693 1,248,933 1,491,693 1,948,796 1,174,427 1,555,019 -254,579 -317,266 buildings -393,777 -317,266 145,918 343,386 191,506 -11,022 -33,008 -63,400 -67,606 -11,829 28,210 23,910 1,099 1,825 Land -865 and 714 -1

equipment, fixtures etc. -1,099,286 2,326,299 1,688,862 2,326,299 2,802,519 1,420,379 1,703,233 Operating -154,685 -762,528 -216,699 -905,920 -905,920 356,500 172,562 259,463 271,092 121,847 -15,517 -93,169 -14,965 -55,844 11,318 82,909 -3,732 -25

equipment operating 1158 -59,925 -111,598 -85,755 -132,983 -165,248 -132,982 4,3 427,014 343,733 7,6 416,440 271,661 343,733 407,395 210,750 242,147 2,7 -25,835 -22,974 -44,002 -33,613 -33,882 62,418 76,333 41,982 -2,242 Other 2,133 1,590 -119 -386 -902 847 386 -1

-119,301 427,014 451,555 341,259 332,254 -85,754 Vessels 26,846 -3,248 7,093 3,594 -690 -210 -657 7 -539,554 977 121 603 6 -101,851 96 -3 9

Assets under construction 9,5 885,238 293,556 3,8 5,222,422 633,683 6,7 702,173 465,576 167,778 120,698 4,5 4,072,955 447,059 633,683 387,946 633,683 387,946 261 ANNUAL REPORT 2020 -127,253 0 0 0 -266,894 0 -351,800 0 0 0 0 0 -1,188,630 0 -1,441,924 0 0 0

-1,777,611 -1,441,923 5,222,422 5,998,211 3,780,500 4,220,599 -21,781 -18,282 -29,645 -69,232 85,723 13,631 Total -379 -30 0

115 SECTION 3 Ships Other operating equipment machinery,Plant, operating fixtures equipment, etc. Land andbuildings If into consideration theestimated residual value. over theexpected economic lifespan of theassets, taking economic lifespan. Depreciation isassigned inastraight line goes into normaloperation and is calculated based on its depreciation commences from the date on which the asset any loss orgain entered to theIncome Statement. Ordinary assets are sold,ordivested, thebookvalue isdeducted, and cost, less accumulated depreciation andwrite downs. When Property, plantandequipment iscapitalized atacquisition ACCOUNTING POLICIES Description of depreciations NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP are reassessed annually. the depreciation periodanddepreciation method employed scrap value of theproperty, plantandequipmentaswell as lifespan, these components are depreciated separately. The an asset comprises significant components with varying Estimated lifetime use value is the greater of net sales price or value in use. Value in are written down to therecoverable value. Therecoverable the impairmentisnot expected to betemporary, theassets able value of theassets isless thanthecarrying amountand made about whether to write-down its value. Iftherecover ing amountof anasset cannot berecovered, anassessment is use. Ifthesituation orcircumstances indicate thatthecarry tion ischarged to expenses when thefacilities are ready for Facilities underconstruction are not depreciated. Deprecia - asset willgenerate. is 10-25 years the 3-20 years 3-8years 25 years present value Depreciation method of the future linear linear ier 0%-10% linear linear cash flows, Scrap value which 10% 10% the 0% - - ANNUAL REPORT 2020 116 SECTION 3 Currency translation differences FX adjustment Interest charge Paid duringtheyear Additions/remeasurements Opening Liabilityat01.01.20 Closing cost at31.12.20 Remeasurements Disposals Additions Acquisition costs from merged company Opening Cost at 01.01.20 DKK 1,000 Lease liability Closing Depreciation at31.12.20 Eliminated ondisposal Currency translation differences Charge for theyear posted underother costs Right of useassets NOTE 3.3LEASING NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Due >1year Due <1year Closing Liability at31.12.20 Closing NBV at31.12.20 Charge for year Opening Depreciation at01.01.20

Land, buildings Land, buildings & property & property 135,140 140,809 126,027 125,633 137,771 107,439 -12,745 -11,281 -18,195 15,772 15,686 11,743 -2,586 -7,092 -2,962 2,566 178 -28 0 0 0 0

Motor vehicles Motor vehicles 10,116 -2,911 -1,886 -1,876 -2,770 -3,548 9,327 2,858 1,364 7,669 4,222 4,122 -571 -881 -478 170 103 0 0 0 0 0

plant &equipment plant &equipment Ships, boats and Ships, boats and 1893 -134,569 -118,913 -137,729 198,246 188,926 189,019 223,304 116,735 137,844 379,361 254,579 241,632 -19,125 -16,608 -27,331 8,2 -103,376 -89,325 -33,433 -12,828 -8,497 7,646 2,771 16,580 8,382 3,978 ANNUAL REPORT 2020 -159,471 212,131 333,393 189,020 374,230 131,337 265,235 512,663 396,572 353,193 -47,401 -19,765 -27,331 -41,405 -16,268 10,382 -8,497 8,382 4,259 Total Total

117 SECTION 3 Due >1year Closing Liabilityat31.12.2019 Due <1year Currency translation differences Interest charge Paid duringtheyear Closing NBV at31.12.19 Currency translation differences Charge for theyear Opening Depreciation at01.01.19 Closing cost at31.12.19 Additions/remeasurements Opening Liabilityfrom merged company Closing Depreciation at31.12.19 Additions Acquisition costs from merged company Opening Liabilityat01.01.2019 Opening Cost at 01.01.19 DKK 1,000 Lease liability Right of useassets NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Land, buildings Land, buildings & property & property 123,168 135,140 133,718 140,809 11,972 47,061 46,703 94,106 94,106 -7,319 -7,090 -7,092 1,292 -2 0 0 0 0

Motor vehicles Motor vehicles 10,116 5,826 3,502 7,598 7,526 2,595 2,590 9,327 9,235 -929 -880 -881 63 -1 0 0 0 0

plant &equipment plant &equipment Ships, boats and Ships, boats and 214,783 214,058 188,926 223,304 189,872 -34,027 -33,391 -33,433 96,591 92,335 -2,913 1,819 9,264 9,246 -42 ANNUAL REPORT 2020 0 0 0 225,585 107,808 269,442 268,287 333,393 374,230 332,824 -42,274 -41,361 -41,405 11,858 11,836 94,106 94,106 -2,913 3,174 Total Total -45 0 118 SECTION 3 Bakkafrost UKLtd. P/F Havsbrún P/F Bakkafrost Packaging P/F Bakkafrost Sales P/F Bakkafrost Processing P/F Bakkafrost Farming P/F Förka Bakkafrost USA LLC Subsidiary Companies NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP The consolidated accounts for 2020includethefollowing subsidiaries andassociates: NOTE 3.4COMPANIES INTHEGROUP the date of thecontract for allleases, conveying theright to control a right-of-use asset andaleaseliabilityatthecommencement Based ontheaccounting policyapplied,Bakkafrost recognizes Accounting policies income statement. Theamountisnot material to the Group. es withlow value leasing assets andhasexpensed these inthe Bakkafrost hasappliedtherules for short-term leases andleas use. ment andtheobligation to demolishorrestore theasset after plus anycosts directly related to theconclusion of theagree- ment (e.g. upfront payments) less anyleaseincentives received, obligation), plusleasepayments paidatcontract of theagree- asset consists of thetotal discounted leasepayments (thelease The right of useassets isrecognized atcost. Thecost of the lying asset available for useby alessee. mencement date is the date on which a lessor makes an under use of an identified asset for a period Currency of time. DKK DKK DKK DKK DKK DKK USD GBP

The com- - - ed Fuglafjørður Production andsales of fishmeal,fishoilandfeed Production of styrofoam boxes Sales of salmonandVAP products Value addingof salmon(VAP) Salmon farming Nature of Business Sales of salmon Sales of salmon Production of biogas andfertilizer company. to thesamepractice asfor similarassets, thatisowned by the Subsequent measurement of theleasingasset isdoneaccording The rate cannot bereasonably defined. using the company's marginal borrowing rate, since the internal lease payments obtained by discounting the lease payments, The leaseobligation isrecognized atthepresent value of the ble fixed assets, even ifitislegally aright of useasset. nized aspartof thecost of theleaseasset andliability. whereas consumption-based leasingpayments are not recog variable leasepayments whichare adjusted, basedonanindex, reasonably certain thattheoptions are exercised. Inaddition, option orpaymentfor cancellation of leasewhenconsidered anteed residual values andpaymentfor exercise of purchase lease payments This means consist that leased of the assets fixed are lease classified payments, as Clifton,New Jersey tangi- guar - - Head Office Grimsby Glyvrar Glyvrar Glyvrar Glyvrar Glyvrar lease agreements thatare lower thanDKK35,000each. from thedate of thecontract, and low value assets represent term leases represent leaseagreements shorter than12months 16 regarding shortterm leases andlow value assets. Short The Group chose to applythetwo practical exceptions inIFRS asset. payments and/orthere are recovery obligations regarding the responds to thevalue of theleaseobligation, unless upfront used. At initialrecognition, thevalue of theleasedasset cor at aconstant interest rate, corresponding to thediscount rate tion andaninterest portion.Theleaseobligation isrecalculated The leasepayments are distributed between aninstalment por

Ownership 100% 100% 100% 100% 100% 100% 100% 100%

ANNUAL REPORT 2020 share capital Nominal 2 mUSD 50,000 19,762 2,000 8,022 5,000 667 2£ - - 119 SECTION 3 Sea Catch Ltd Scotfish Farms Ltd Pulford (Scotland) Ltd Portree SalmonFarmers Ltd Kenmore SalmonFarms Ltd Fjord Seafoods Scotland Ltd Tobson Fish Farms Ltd Mull SalmonLtd Highland FishFarmers Ltd Minnamurra Ltd Murray Seafoods Ltd Loch Fyne SalmonLtd Loch Fyne Salmon(Scotland) Ltd Hebridean Smoked SalmonLtd Scottish Smoked SalmonLtd Hebridean Salmon(Scotland) Ltd Sidinish SalmonLtd Atlantic West SalmonCompany Ltd West MinchSalmonLtd Lighthouse Caledonia Ltd Bradan Cuan SairLtd Harris &Lewis Smokers Trading Ltd The Scottish SalmonCompany Limited Pieters UKLtd Fjord Seafood Scotland Farming Ltd Corrie MhorSalmonLtd Salmon Finance (Scotland) Ltd The Scottish SalmonCompany PLC Subsidiary Companies NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Currency GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP GBP

Dormant Dormant Dormant Dissolved on12January2021 Dormant Dormant Dissolved on12January2021 Dormant Dormant Nature of Business Dormant Dormant Dormant Dormant Dormant Dissolved on 12January2021 Dissolved on 12January2021 Dissolved on 12January2021 Dissolved on 12January2021 Dissolved on 12January2021 Dormant Dormant Dormant Dissolved on 12January2021 Dormant In liquidation Group Finance Dormant Salmon Farming Head Office Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Edinburgh Jersey

Ownership 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

ANNUAL REPORT 2020 share capital 20,000,000 17,530,000 3,190,001 5,928,594 5,408,023 934,558 300,000 130,000 Nominal 10,000 39,750 20,000 50,000 12,505 2,200 2,500 7,000 5,000 100 340 100 100 100 100 100 100 2 2 1 120 SECTION 3 Svínoyar rognkelsisstøð** P/F SalmonProteins* P/F Pelagos Total Svínoyar rognkelsisstøð** P/F SalmonProteins* P/F Pelagos DKK 1,000 Associated Companies NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Investments ACCOUNTING POLICIES Others Companies DKK 1,000 NOTE 3.5SHARESANDHOLDINGSINOTHER COMPANIES **Information from 2019 *Voting rights 30%.The voting rights are limited intheArticles of Association of P/fSalmonProteins. Total nificant influence are valued atcost asfair value cannot be measured reliably. in other companies Fuglafjørður Total assets are 35,190 18,519 187,385 197,645 360,039 331,598 Svínoy Office 11,128 6,896 9,537 2020 Head classified Eiði

as Total assets Ownership available 2019 N/A 79% 42% 30% for

sale. Additions Shares Equity 8,275 2020 733

Net -5 0 0 and

holdings the result Share of Equity 7,936 in 2019

-1,480 -1,480 N/A 733 which 0 5,8 56,778 59,887 0

the Group Carrying Carrying Carrying Carrying amount 55,318 55,318 67,141 Result 6,255 6,521 value 2020 2019 2020 2020 2019 340 733 does not have amount 55,318 63,766 Result value 2019 255 733 sig - ANNUAL REPORT 2020 121 SECTION 3 Inventories are measured atfullcost price. cessed salmonproducts. Total inventory Finished goods Raw materials andgoods in-progress Inventories FARMING FO ANDFARMING SCT Farming VAP SCTunit, unitandthe FOF unit. Inventories consist of inventories in the Farming FO unit, ACCOUNTING POLICIES duction Raw materials primarilyconsist of raw material for thepro- DKK 1,000 NOTE 3.6INVENTORY NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP as Finished products includeallproducts ready for sale, such parts. Cost isbased onthefirst-in first-out principle. The cost price of purchased goods istheacquisition price. in thevalue of inventory. of indirect processing costs. Interest costs are not included cludes direct material andpersonnel costs, andapercentage The cost of processed goods isafullproduction cost thatin- cost andnet realizable value. ished goods. Inventories of goods are stated atthelower of Goods terials usedinprocessing. fish in-progress feed, of fishmeal, include fresh and include mainly fish frozen oil semi-finished feed, and whole fish packaging feed salmon, products and materials as packaging well and and as spare pro- ma- fin- ance withtheFIFO principle. lower of historical cost andnet realizable value inaccord- Raw materials and purchased commodities are valued at the FOF terial Inventories consist of raw material, additives, packaging ma- VAP penses. Net realizable value isestimated sales price less sellingex tration costs. indirectly allocated to produce goods, less general adminis duction cost, includingproduction costs, whichcan beonly The cost price of goods produced in-house isthefullpro- Statement. sales cost, impairmentisentered andcharged to theIncome In a case, where the cost price exceeds the sales price less the lesser of cost ortheexpected sales price less sales costs. Finished goods ininventory, fresh orfrozen, are measured at costs. ple isusedconcerning theperiodicassignment of inventory cost orexpected sales price less sales costs. TheFIFO princi- Packaging material andadditives are valued atthelesser of ured atfair value atthetimeof harvesting. sist basically of processed salmonids.Raw material ismeas and

finished goods.

Raw material 9,7 125,743 199,677 576,355 776,032 2020 in the VAP unit 422,765 548,508 2019 con- - - - Finished tration costs. indirectly allocated to produce goods, less general adminis duction cost, includingproduction costs, whichcan beonly The cost price of goods produced in-houseisthefullpro- handling andstorage costs. costs thathave incurred. Processing costs consist of logistics, value. to customer, valued atthelower of cost andnet realizable The goods cost are of fishmeal, finished goods oil and includes feed ANNUAL REPORT 2020 ready any for processing delivery - 122 SECTION 3 Increase dueto production orpurchases Biological assets carrying amount01.01. DKK 1,000 NOTE 3.7BIOLOGICAL ASSETS NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Total number of fishatsea 4 kg < 3 <4kg 2 <3kg 1 <2kg < 1kg Number of fishonaverage (thousand) Volume of biomass atsea 4 kg < 3 <4kg 2 <3kg 1 <2kg < 1kg Biomass onaverage (tonnes) Biological assets carrying amount Currency translation differences Eliminations Fair value adjustments at theendof theperiod Cost price biological assets Biological assets carrying amount31.12. Currency translation differences -248,262 Eliminations -27,695 Reversal of eliminationatthebeginningof theperiod Fair value adjustments at theendof theperiod Fair value adjustment atthebeginningof theperiodreversed Reduction dueto mortality (costs of incidents basedmortality) Reduction dueto harvesting orsale(costs of goods sold) Increase dueto acquisitions 27134 -1,921,456 -2,761,374 ,0,3 1,358,462 3,012,251 1,901,730 ,5,2 1,931,617 2,058,228 2,117,024 2,117,024 -125,806 4,8 27,695 145,387 27,695 145,387 8,8 -59,121 -80,083 -59,121 -80,083 190 12,801 11,960 22,980 14,146 25,642 8,649 11,921 10,880 10,258 53,790 59,121 31,229 64,478 658 1,539 -6,508 1,539 -6,507 5,324 5,481 3,415 4,338 6,192 5,777 2020 0

2,021,601 1,901,730 1,901,730 667,482 10,334 31,334 61,319 4,633 4,148 4,271 5,210 2019 0 Change inbiomass volume +1% Change inbiomass volume -1% Change insales price -5DKK Change insales price +5DKK Change indiscount rate -1% Total numberof smolts released Q4 Q3 Q2 Q1 Number of smolts released (thousand)* Harvested volumes * Source FishPool Q4 (forward) Q3 (forward) Q2 (forward) Q1 (forward) At year end One year forward prices Oslo* inEURFCA Change indiscount rate +1% Sensitivity analysis of biomass DKK1,000 *SSC released 6.7millionsmolts from Q1to Q32019 -465,110 -150,403 6,0 115,364 466,110 169,708 24,631 85,686 -5,414 5,414 ,1 10,682 9,418 1,721 6,161 2,365 5,757 3,580 3,295 ANNUAL REPORT 2020 2020 2019 5.25 5.10 5.39 4.85 4.36

-251,416 -101,607 251,416 18,348 65,109 -5,836 5,836 5.62 5.51 6.75 6.72 7.24 123 SECTION 3 for lation of theestimated fair value isbasedonmarket prices fair value net of sales costs andharvesting costs. Thecalcu- 41requiresIAS biomass to beaccounted for attheestimated VALUATION OFBIOLOGICAL ASSETS NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP ing duced life The Group’s biological assets are salmonatallstages of the basis. fair value isentered to theIncome Statement onacontinuous and to befor Farming FO 5.2kg gutted weight (6.3kg live weight) est andbest use, theGroup considers optimal harvest weight IFRS 13.Inaccordance withtheprincipleinIFRS13for high- a present value model at level 3 in the fair value hierarchy in For thesecond group, thefair value iscalculated by applying their weight isstill relatively low. that smolts are currently released to seaatastage when mation. Thisassessment must beseeninthelight of thefact approach to fair value, asthere biological islittle transfor For are released to sea. cycle. harvested on for the on the Farming first The land stage group, fish fish. in SCT of fresh are In the 4.9 historical divided the life water. kg accounts, gutted cycle. into cost The The weight two second is the first deemed main change (6.0 group is, groups, kg when a in live is reasonable estimated fish depend- weight). the pro- fish - fish permonth. 0.6% andfor Farming SCT1.0%of thenumberof incoming Future montlymortality isestimated to befor Farming FO optimal harvest weight perfish. future mortality from balance sheet date andmultiplied by cal The in theIncome Statement. sented onthelineFair value adjustments of biological assets Changes to estimated fair value of biological assets are pre- pected cash flow from biological assets. The valuation model calculates the net present value of ex The valuation model fish Estimated harvest volume isbasedontheactual numberof Volume • • • • Main components inthemodelare: Discount rate Sales price Production costs Volume reasons, measurement in the cash sea on flows unit the is and balance the estimates individual sheet are fish. date, carried However, minus out per estimated for locality. practi- - and transport costs. per locality. Cost comprises mainlyfeed, production, harvest be 6% per month. The discount rate takes into account a risk monthly discount rate at31December 2020isestimated to The Discounts Fish from FishPool withadjustments to local conditions. Estimated sales prices are basedonexternally quoted prices Price Estimated Cost market ted weight. The volume on Fish Pool is, however, limited. This agreements for superiorNorwegian salmonsize 3-6kg gut FO market to arrive atanet value back-to-farm andfor Farming The prices are reduced for harvesting costs, freight costs to to aprice for the saleof salmon. servable forward prices must beseenas thebest approach effective. Despite this,Bakkafrost’s opinionisthattheob- quality grading. also estimated Pool may revenue is future therefore a future marketplace tax. costs The be cash are valuation considered based flow for financial is on also discounted insufficiently the ANNUAL REPORT 2020 reflects Group´s purchase monthly. the active prognoses expected and sale and The - 124 SECTION 3 the cause of mortality andthesize of thefish. mortality isabnormal.These assessments take into account detailed assessment isthencarried out to evaluate, whether 4% month registers mortality exceeding 1.5%for Farming FO and dication of abnormalmortality iswhenafarming site ina farming sites to assess normal and abnormal mortality. In- Bakkafrost uses acommon indicator and threshold for all duction costs. inventory, Income Statement andpresented onthelinefor changes in Costs related to abnormalmortality willberecognized inthe tality dueto anincident. site eitherexperiences elevated mortality over timeor mor Mortality above normalwillbeaccounted for whenafarming Mortality account thevolatility involume, cost andprice. adjustment andtimevalue. Theriskadjustment takes into NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP substantial expertise inassessing these factors. uncertain assumptions, even thoughthecompany hasbuilt The estimate of fair value of biomass willalways bebasedon ASSUMPTIONSSIGNIFICANT SENSITIVITY for Farming while SCT normal of the mortality incoming is classified number of as fish. part A of more pro- - parameters. ological assets isportrayed intheevent of changes inthese lated sensitivityanalysis to changes infair value of thebi- and estimated biomass volume. Inthetable above asimu- for valuation. These are: average price, monthlydiscount rate The Group considers three components to bekey parameters ANNUAL REPORT 2020 125 SECTION 3 Total Overdue more than6months Overdue 0–6months Receivables not overdue Total accounts receivable andother receivables Long-term receivables Total short-term receivables Other receivables VAT Net accounts receivables Provisions for baddebts Accounts receivable The Group’s exposure to credit risks related to accounts receivables isdisclosed inNote 4.1. DKK 1,000 AGE DISTRIBUTION OFACCOUNTS RECEIVABLE Other DKK 1,000 NOTE 3.8.ACCOUNTS RECEIVABLE ANDOTHER RECEIVABLES NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP

420,212 625,993 490,116 490,075 625,993 559,607 551,506 490,075 614 107,945 66,194 20,738 49,344 12,087 61,431 ,6 2,923 3,669 8,101 2020 2020 -41 515,125 675,935 671,514 625,993 24,782 45,520 4,422 2019 2019 0 ANNUAL REPORT 2020 126 SECTION 3 less foreseeable losses. short credit period,amortized cost isequivalent to face value NOK GBP USD EUR DKK the debts are madeonthebasisof anindividualassessment of face value less provisions for baddebts. Provisions for bad Accounts receivable andother receivables are presented at ACCOUNTING POLICIES Total Others DKK 1,000 DISTRIBUTIONCURRENCY OFRECEIVABLES Below (2019: DKK576.0million). The Group holdsaccounts receivable inforeign currencies amountingto DKK430.9millionatyear-end 2020. EXPOSURE TOCURRENCY ACCOUNTS RECEIVABLE 31.12. NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP receivables is presented concerned. the book Due value to insignificant of receivables cost specified and the

in currency, DKK 1,309millionatyear-end 2019. and were DKK467millionatyear-end 2020,compared to Cash andcash equivalents consist of short-term bankdeposits NOTE EQUIVALENTS ANDCASH 3.9CASH

translated into DKK

employing 1,0 109,054 294,621 214,800 113,778 490,075 16,567 80,200 49,953 59,217 5,513 the 2020 currency 36,025 115,605 625,993 value 20,735 2019 at ANNUAL REPORT 2020 127 SECTION 3 price was DKK429.04(NOK614.50)pershare. 6.2 million.Thegrant date was 3June2020,andtheshare located 14,368shares to its employees atafair value of DKK of frost, have received bonusshares in2020withatotal value Treasury shares at31December Outstanding shares at31December Issuing new shares Sale of own shares to cover theemployee bonusprogram Purchase of treasury shares Outstanding shares at1January Total share capital Ordinary shares Share capital at31December Emission -increase of share capital Share capital at1January DKK 1,000 Oddvør Jacobsen, Regin Jacobsen andFolketrygdfondet. 5% of theshares inthecompany as at31December 2020: These shareholders helddirectly orindirectly more than SHAREHOLDERS All Reconciliation of outstanding shares: DKK The parent company's share capital comprises: Share capital: NOTE 3.10SHARECAPITAL SHAREHOLDERS ANDMAJOR NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP 2% full-time of paid employees out salary from in 2019. 2019, In still total, employed Bakkafrost

in

Bakka- has al-

59,143,000 No. of Shares -

91218 48,655,500 59,142,108 59,044,071 Face Value 134,500 36,463 48,858 59,143 98,929 59,143 2020 2020 10,284,935 0 59,143,000 1 0

Share Capital 59,142,108 59,143,000 201,673 10,285 59,143 2019 2019 892 0 ANNUAL REPORT 2020 128 SECTION 3 DKK and ifapproved, thetotal dividendpaymentwillamountto proposed are to beapproved attheAnnual General Meeting as anitem withinequity. ognized asaliabilityat31December 2020but ispresented Johannes Jensen Rúni M.Hansen for The Board has proposed adividendpershare of DKK3.65 Dividend Name Shares owned directly andindirectly by themembers of theBoard of Directors andGroup Management: NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Høgni D. Jakobsen Odd Eliasen Regin Jacobsen Einar Wathne Øystein Sandvik Annika Frederiksberg Teitur Samuelsen 2020. 215.9 No million. dividend The was dividend paid out proposal for 2019. has The not Deputy Chairmanof theBoard dividends been rec Chief Executive Officer Chairman of theBoard Chief FinancialOfficer Member of theBoard Member of theBoard Member of theBoard Member of theBoard - Managing Director Position No. of shares 4,616,755 184,479 10,761 16,063 412 100 0 0 0 Shareholding 0.02% 0.00% 0.31% 0.00% 0.00% 0.03% 0.00% 7.80% 0.00% ANNUAL REPORT 2020 129 SECTION 3 Cash andcash equivalents Total long-term interest-bearing debt 31.12. Next year instalments onlong-term interest-bearing debt Long-term interest-bearing debt The Net interest-bearing debt Total interest-bearing debt DKK 1,000 NOTE 3.11INTEREST-BEARING DEBT NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP currency limit isnot necessarily inthesamecurrency of debt drawn, is basedonundiscounted contractual thecredit payments. As facilities atanytime. maturity fluctuations structure affect of the the Group’s amount financial available commitments under the

,1,9 2,328,232 2,219,690 2,328,232 2,219,690 1,752,751 2,219,690 4699 -1,309,546 -466,939 2020 0 1,018,686 2,328,232 2019 0 ANNUAL REPORT 2020 130 SECTION 3 et 591,742 Accounts payable andother debt 31.12.2019 REMAINING PERIOD 31.12.2020 REMAINING PERIOD DKK 1,000 The maturity planof theGroup's interest-bearing debt isasfollows et 608,167 Accounts payable andother debt Interest-bearing bankloans Interest-bearing bankloans Credit line Gross interest-bearing debt Credit facilities NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Cash andcash equivalents Available credit lines Bank guarantee Total available credit lines 1–3 months 1–3 months 0 0 3–12 months 3–12 months ,1,9 22737 ,2,3 2,348,488 2,328,231 2,237,307 2,219,690 2,219,690 Carrying 195,484 amount 37,422 0 0 3,444,396 466,939

2020 2019 Contractual 1,207,506 2,237,307 1,674,445 payments amount 2,328,231 2,219,690 1–5 years 1–5 years 17,200 0 0 2,328,231 Carrying > 5years > 5years 3,505,974 1,309,546

629,164 0 803,651 0 0 2,219,690 0 Contractual 1,177,742 2,348,488 2,487,288 2,328,232 payments Total Total 0 ANNUAL REPORT 2020 131 SECTION 3 comprised and Nordea Bank ABP (Filial i Norge). This merged facility 463 millionwithCoöperatieve Rabobank U.A, DNB BankASA million. The undrawn amount at31December 2020was DKK 1,677.0 of 2020. The Bakkafrost Group complied withits covenants attheend more, theinterest cover shallnot beless than3.00. the equity ratio of the Group must be at least 35%. Further are Regarding the Merged Agreement, the covenant stipulates to EUR150millionsubject to agreement withlenders. facility andallows for afuture increase of thefacilities of up cility andaEUR368millionmulticurrency revolving loan one and 100 million GBP) were in September 2020 merged into above Thecontractualamount. payments illustrated inthetable facility, underwhichtheGroup maydraw andpaydown any long-term bankborrowing isdrawn from arevolving credit based onthematurity date of thecredit facilities. The Merging of thetwo agreements financing parent company. Subsidiaries can onlyenter into external Financing of theBakkafrost Group ismainlyexecuted by the INTEREST-BEARING DEBT INMOREDETAIL refinancing rangement andlegal fees incurred inconnection withthe expected payments inthetable above isdueto upfront ar The difference between thecarrying amountandthetotal NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Group. which inSeptember 2020were merged into oneagreement. identical fully two do The agreements secured if not of Group of it to a reflect is the EUR the seen five-year entered credit New 95 from rollover favourable million facilities Agreement two December credit dates financing multicurrency facility for and of 2019 from the loans the agreements of whole (352 in December bond drawn aggregate term million Bakkafrost issue. loan in but 2019; 2019 EUR EUR One are fa- - - Gross interest-bearing debt Long-term credit facilities Total interest-bearing debt DKK 1,000 Maturity analysis -contractual payments Long term interest-bearing debt -108,542 2,328,232 Total interest-bearing debt Long term interest-bearing debt Reconciliation of development ininterest-bearing debt 2,328,232 812,053 812,053 2018 2019 2021

0 0 Cash flows Cash flows 1,211,347 1,211,347 -108,542 Acquisition Acquisition 2022 304,832 304,832 0 0 0 0 Reclassification Reclassification 2023 0 0 0 0 0 0 FX movements FX movements 2,328,232 2,328,232 ANNUAL REPORT 2020 2024 0 2,219,690 0 0 0 2,328,232 2,328,232 2,219,690 2019 2020 2025 0 0 132 SECTION 3 As partofAs theguarantees are alsoanyinsurance refunds. limitations for eachother. panies are liablejointlyandseverely for thebalance without The Carrying amountof debt secured by mortgages andpledges NOTE 3.12MORTGAGES ANDGUARANTEES NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Total Biological assets (biomass) Licences Carrying amountof assets pledged assecurityfor recognized debt Long-term debt to financialinstitutions DKK 1,000 Inventory Financial assets Property, plantandequipment Bakkafrost Group has a group financing. The Group com-

10,761,655 11,207,632 ,1,2 1,901,728 2,117,024 3,051,180 4,277,587 3,320,949 4,493,395 1,752,751 548,509 763,146 67,141 2020 1,428,628 2,328,232 2019 ANNUAL REPORT 2020 133 SECTION 3 Total Interest andcurrency derivatives Total Currency derivatives After five years Between oneandfive years Within oneyear DKK 1,000

Derivatives total Interest andcurrency swaps regarding bonds Currency swaps regarding forward contracts The expected timingof theeffect ontheincome statement isasfollows: The fair value of derivatives heldatthebalance sheet date can beallocated asfollows: DKK 1,000 NOTE 3.13DERIVATIVES NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP derivatives Fair Value Currency 11,190 0 4,741 13,493 2,010 11,483 9,710 3,498 6,212 6,449 6,449 2020 1,966 -1,003 2,969 1,480 1,243 237 0

Recognized in Interest and derivatives the Income Statement currency 4,741 2020 0 0 0 4,741 Recognized in equity 14,452 6,449

11,190 11,190 2020 2020 Total 0

derivatives Fair Value Currency 15,459 0 14,452

1,007 2019 0

Recognized in Interest and derivatives the Income Statement currency 11,190 ,4 14,452 4,741 6,449 1,007 2020 2019 0 14,452 0 0 Recognized in equity 15,459 15,459 15,459 1,007 1,007 2019 2019 2019 Total 0 ANNUAL REPORT 2020 134 SECTION 3 sale, andother liabilities. holduntilmaturity,ment, loansand receivables, available for value withchanges in value entered to theIncome State- ue withchanges invalue, entered to theIncome Statement. forward currency contracts, which are recognized at fair val- changes invalue entered to theIncome Statement alongside egory trading purposes. These instruments are includedinthecat in settled, ognized inequity, istransferred to theIncome Statement. If pected to occur, thecumulative gain orloss, previously rec If theforecast transactions orcommitments are nolonger ex cial expense isrecognized. entered to theIncome Statement Financial instruments atfair value withchanges invalue In FINANCIAL INSTRUMENTS NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP action transferred to theIncome Statement, whenthehedged trans Amounts recognized as other comprehensive income are come inthecash flow hedge reserve. strument isrecognized directly inother comprehensive in- The effective portionof thegain orloss onthehedgingin- currencies. Thehedges are cash flow hedges. risk, interest expenses andinstalment payments inforeign tracts are usedashedges of its exposure to foreign currency Interest rate swaps andforward currency settlement con- Bonds are measured atfair value. Hedge accounting or Financial instruments, whichare heldprimarilyfor buying accordance its selling remit of affects such financial in are the as profit with when classified short instruments IFRS or the term, loss, 9, hedged into financial and are the recognized when classified financial following instruments financial at as income categories: fair being liabilities falling value or held finan- with- with fair are for - - - - profit orloss, orsettlement payments are made. other ously recognized inother comprehensive income, remain in as ahedge isrevoked, anycumulative gain orloss, previ- ercised without replacement orrollover, orifits designation the hedginginstrument expires orissold,terminated orex closing on products. These contracts donot contain anyelements The company holdslong-term salecontracts related to salm - ASSUMPTIONSIGNIFICANT With The contracts contain nobuilt-in derivative elements. tracts form partof theGroup’s normalbusiness activities. physical anddeliveries settlement, associated withthecon- products (VAP) onanon-going basis.Thecontracts involve The Group enters into sales contracts for value added salmon ACCOUNTING POLICIES PROVISIONS FOR ONEROUS CONTRACTS likely an event whichhasoccurred, andwhenitisprobable (more ny hasavalid liability(legal orself-imposed) derivingfrom A provision isrecognized when,andonly thecompa- NOTE 3.14PROVISIONS can because of thatliability, andwhentheamountinquestion charged to theIncome Statement. tered considered onerous, and provisions are calculated and en- raw materials atthepointof harvesting), thecontracts are less thanproduction cost (includingfair value adjustment of Group beingobligated to sellsalmonproducts ataprice 2020. liability. The Group hasnoprovisions asper31December be respect to comprehensive than reliably date, the not) statement and to quantified. that fixed-price the level a income of financial financial reflects Provisions contracts, until settlement position. the firm are best which commitment reviewed estimate The will result provision take on for affects in place each the the is - oblige Provisions are made for estimated onerous contracts that contain aclausefor settlement incash orcash equivalents. should take place. The contracts are not tradable, nordothey sively ontheassumption thatdelivery of salmonproducts financial instruments. Thecontracts are settled, basedexclu - of embeddedderivatives andare therefore not treated as at fair value. production costs including raw materials, biomass, measured the Group to sell fish at a price ANNUAL REPORT 2020 less than calculated 135 SECTION 4 financing items. This section gives aninsight into thecapital structure and Financing Items Structure and Capital NOTES -SECTION 4 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP a no 30 cumstances, average dividendsover several years shouldbe According to theGroup’s dividendpolicy, undernormalcir was 66percent. 35 percent. At 31December 2020,theGroup’s equityratio the consolidated equity ratio shallatnotimebelower than corresponding 2020. complied withthecovenants loanagreements attheendof information cope financed tal and has ongoing dialogue with its lenders. The Group is The Group monitors continuously access to borrowed capi- sponding to changes in the underlying economic conditions. The Group manages thecapital structure andadjusts corre- million. The ized by price volatility and challenging production dynamics. imize shareholder value. Thefarming business ischaracter a capital structure ableto support theoperations andmax The Group’s objective, whenmanagingcapital, isto maintain CAPITAL MANAGEMENT NOTE 4.1FINANCIALRISK MANAGEMENT of The Group hasexposure to thefollowing risks from its use FINANCIAL RISKMANAGEMENT 3.10 est-bearing debt amounted to DKK1,752.8million.Note and procedures for measuringandmanaging risks. sure to each of these risks, the Group’s objectives, policies risk. Thisnote presents information about theGroup’s expo - dividend financial dividend to Group provides with 50 percent by fluctuations of must instruments: was on bank DKK an to the paid be a of overview 3.65 distribution loans. the financially debt’s out in per adjusted market At profits in of share financial 2019. 31 the to solid risk, December net for and shareholders debt’s The the profit. liquidity in covenants. financial Board maturity order financial Due 2020, risk to has of position, to year profile Bakkafrost DKK be and COVID-19 net proposed able 2020, 215.9 credit inter and and to - - - - age thecurrency risks arising from the Group’s operations. ward contracts. The purpose of these instruments is to man - In not beableto meet its financialobligations. The business operations. payables, etc., whichare ascribabledirectly to day-to-day ments suchasaccounts receivables, cash, shares, accounts Financial FINANCIAL RISK The these consolidated financialstatements. Further quantitative disclosures are includedthroughout defined ment policies isto ensure theongoing liquidityof theGroup, ure The Board of Directors believe thatthemost important meas ance. and the cost, actual coverage and the availability of insur the risk,value of theassets andprospective liabilities what isleft to own riskvaries, dependingonthenature of The balance between theamountcovered by insurance and material risks, where theinsurance iseconomically viable. Concerning insurance coverage, the Group insures against circumstances. ularly Risk management policies andprocedures are reviewed reg 31 December 2020,theGroup’s equityratio was 66%. able ities of theGroup asthey fall due. Thisalsoincludes being activities. addition against Group main to to meet as reflect risk objective being uses any to financial can bank changes risk financial at be all is of loans, defined covenants to times Bakkafrost’s in have derivatives, market the in as a a on Group the strong position conditions Group risk financial mainly ANNUAL REPORT 2020 has financial that debt to financial and meet the currency risk under position. the Group the manage- Group’s normal instru- liabil- for will At - - - - 136 SECTION 4 from thepresentation currency of theGroup. Theexposure translation of subsidiaries whose functional currency differ USA. Thus,Bakkafrost faces currency risks arisingfrom the Bakkafrost hassubsidiaries abroad inScotland, Englandand Translational exposure Group Because of theinternational nature of its operations, the Foreign exchange risk Market MARKET RISK The NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP a significant riskof breach of financialcovenants. return, theGroup onlyuses external where hedging, there is hedging activities normallyresult inlower average expected ment are transferred to third parties via contractual price adjust ble controls andbusiness tactics. Insomecases, market risks The financial derivatives, for thepurpose of arbitrage. Exposure Market risk is monitored and actively managed by the Group. ity prices andsalmonspot prices). risk, interest rates riskandother price risk(suchascommod- prices. Market riskcomprises three types of risk: currency posure For riskmanagement purposes, three types of currency ex come should bemanaged. on anon-going basisanddraws upguidelines, for how these ty riskandcredit risk.Themanagement monitors these risks exposed, are interest rate risk,foreign exchange risk,liquidi- cial actional exposure andEconomic currency exposure: instruments most Group clauses, and is have risk exposed important to expenses, does can these been but not will be rarely to risks identified: defined financial future employ fluctuate fluctuations by is reduced means cash as financial risks, Translational because the flows of of to risk by financial foreign instruments, which or diversification, of that fair changes exposure, the the currency value derivatives. company Group’s in including of market Trans finan- suita- rates. in- As is - - - rency isnot includedintheanalysis. nancial statements of subsidiaries into thepresentation cur their functional currency. Theexposure ontranslating thefi- on thenet monetary position of allGroup entities against The table below summarizes theforeign currency exposure counting measures. position of theGroup, thusaffecting covenants basedonac hedged, asitisnot considered material. related to equityof foreign subsidiaries isgenerally not Transactional exposure sification Transactional exposure for theGroup ismitigated by diver materials intheinternational commodities markets. exposurethe FOF segment, results from thesourcing of raw exposuresegment, arises mainlyfrom export sales, whilefor rency denominated committed transactions. For thefarming to changes inthevalue received orpaidunderforeign cur Most of theoperating companies intheGroup are exposed streams verse movements in foreign currency rates ontransaction segments are not perfectly offset, theresidual effect of ad- could benefits. negatively Where opposite impact the exposure results from and different financial - - - - ANNUAL REPORT 2020 137 SECTION 4 Cash andcash equivalents Total effect onProfit of -movements Total effect onProfit of +movements Historical volatility for thelast 5 years Net exposure Trade payables Accounts receivable 2020 DKK 2019 Sensitivity analysis Exposure to currency risk Total effect onProfit of -movements Total effect onProfit of +movements Historical volatility for thelast 5years Net exposure 2020 DKK 1,000 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Net exposure Forward contracts Trade payables Accounts receivable Cash andcash equivalents 2019 Interest-bearing debt Net exposure Forward contracts Interest-bearing debt 1,000 -416,749 EUR/DKK EUR/DKK 19,202 119,232 380,221 -524,548 402,845 -1,329 -1,292 1,329 .3 88% .2 74% 8.99% 7.42% 8.12% 8.83% 0.33% .1 86% .8 90% 8.71% 9.05% 7.08% 8.63% 0.31% 1,292

GBP/DKK 9,239 -18,584 313,751 -770,196 EUR/DKK GBP/DKK EUR/DKK 7673 -724,465 -706,733 -373,485 -416,749 113,778 211,736 0,2 1568 0,4 3,2 10,618 8,585 36,025 288,238 109,840 309,152 115,608 88,869 304,021 478,875 402,846 -46,318 -66,468 3,3 -2,3 -651 -37,265 -26,581 -125,931 -35,530 66,468 46,318 655 2191 3,4 -12,262 -38,746 -211,901 -6,565 0 0

USD/DKK GBP/DKK USD/DKK GBP/DKK -517,124 -770,196 -524,548 -30,874 -22,214 30,874 22,214 80,200 125,532 0 0 0

NOK/DKK NOK/DKK USD/DKK USD/DKK Currency Currency 214,800 313,751 380,221 -8,847 -1,682 8,847 1,682 2 -192,768 -25 11,190 -9,075 0 0 0 NOK/DKK JPY/DKK NOK/DKK JPY/DKK 119,233 -18,584 16,566 -1,726 1,726 -805 805 9,239 0 0

JPY/DKK JPY/DKK -46,423 46,423 19,203 Result -3,542 Result 3,542 9,239 0 0 0 0 0 0 0

tively reduced by useof operational hedges. distress inthose cases, where theexposure cannot beeffec measures the lion). TheGroup does not hedge transaction exposure in net amounts showed inthetable above, theeffect ontheGroup’s If therelevant cross foreign exchange rates moved by the historical volatility. in exchange rates inthetable above are basedon5years most exposed to attheendof 2020.Thereasonable shifts The analysis isbasedonthecurrencies thattheGroup is income financial may would markets be be allowed DKK as a -46.4 general to prevent million rule. situations ANNUAL REPORT 2020 (2019: Currency DKK of protection financial 3.5 mil- - 138 SECTION 4 NOK 2019 DKK 2020 Significant exchange rates (average) duringthe year NOK DKK 1,000 Currency forward contracts asat31December 2019 Bakkafrost Group buys Currency forward contracts asat31December 2020 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP of The Group isexposed to increase ininterest rates as aresult Interest rate risk strategic currency exposure isregularly monitored, but astheexposure iscurrently considered limited itisnot actively hedged. The Group isexposed to theriskthatmedium/long-term trend shifts inexchange rates might affect its competitive position. This Economic currency exposure DKK DKK 1,000 Bakkafrost Group buys According bility. TheGroup does not have fixed interest rate debt. ize cost to imize theriskof breach of theGroup’s debt covenants and of interest rate riskmanagement activities shouldbeto min- having avoid strategic of borrowing situations debt to flexibility. the with Group’s might of floating financial Trading adversely finance interest in distress interest policy, affect rate that terms. the the rate Group’s might main derivatives An increased 743.93 objective 253,423 138,730 jeopard- profita- 30,000 26,742 746.60 is

EUR/DKK based onNIBD. The transactions are not allowed. undertaken to cover existing exposures. Purely speculative amounting date would have anegative impact ontheincome statement A 100basispoints increase ininterest rate atthe reporting changes inmarket value of outstanding debt. exposed to the risk thatchanges in interest rates might drive GBP NOK GBP USD Bakkafrost Group sells Bakkafrost Group sells Group 850.93 823.78 GBP/DKK has to DKK no fixed 17.5 667.03 605.76 USD/DKK rate million liabilities (2019: 75.80 70.53 NOK/DKK and DKK is 10.2 therefore 6.12 5.88 JPY/DKK 40,840 million), 23,185 12,684 4,002 not

partly and demand.Theimpact of changes insalmonspot prices is prices of salmon,whichare determined by globalsupply VAP production monitored, capital providers. TheGroup’s liquiditysituation isclosely meet Liquidity riskarises from theGroup’s potential inabilityto Liquidity risk with theincreased cost, andprofitability would thussuffer. cumstances, itmight not bepossible to charge thecustomers previously negotiated purchase agreements. Underthese cir ume makes itnecessary to purchase raw materials outside of costs inthose cases, where anunexpected surge insales vol- of certain raw materials might result inincreased sourcing ers, mainlyinsidetheGroup. Constraints in the availability commodity prices iseffectively transferred to feed custom- regulations, thisway theriskassociated withincreases in production iscontracted inadvance of periodicsales price modity markets. Alarge portion of raw materials neededin The Group’s FOF segmentisactive intheinternational com- Other price risk The Price risk markets andwiththemarket position of theGroup. based onspot prices, althoughthiswould vary withdifferent trends inmarket prices. Salmonisto alarge extent traded Liquidity ings are prepared regularly. vided funding by securingavailable committed credit lines, pro- assets with the samerelationship bank. farming segment its by mitigated our financial risk and cycles, segment bank, and is rolling by managed financial it obligations and long-term is is forecasts difficult through sensitive through contracts, contracts towards to of maintaining to respond cash maintaining fluctuations however, ANNUAL REPORT 2020 at flows suppliers fixed quickly sufficient and prices flexibility due in cash and to the to global in liquid hold- debt spot long the in - 139 SECTION 4 significant, Concentration of credit risk is at the outset not considered regular follow upby central functions. credit management inoperating companies, supported by such riskmitigating measures, theGroup focuses ondetailed included inthebalance, also reduces therisk.Inadditionto to baddebts have beenlow inBakkafrost. Recoverable VAT, outstanding pledges onbiological assets, thusreducing theactual riskon tees, parent company guarantees, orother securities suchas In general, Bakkafrost uses credit insurance, bank guaran- is responsible for granting credits to theGroups customers. governed by Bakkafrost’s credit committee. Thecommittee Bakkafrost has a Group-wide credit management policy, instruments. funding markets aswell astrends intheavailability and cost of such kafrost monitors fundingoptions available inthecapital In additionto theabove described sources of liquidity, Bak credit lines, andmaturity of interest-bearing debt. 3.11 for information oncommitted credit facilities, available movements incash requirements. Pleasealsorefer to Note headroom to cover the planned investments and unforeseen and iting tracted to berecognized ifother parties failed to perform ascon- Credit riskrepresents theaccounting loss thatwould have Credit risk forecast The Group seeks to maintain committed facilities to cover NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP various currencies. million) (seeNote 3.11)of cash andcash equivalents heldin December cash refinancing and with borrowings equivalents, 2020 since receivables is a related view included risk. the to for Bakkafrost’s Group’s to maintain receivables significantly. the financial DKK next 467 customers financial 12 instruments million overall and Historically, months, derivative flexibility represent (2019: liquidity plus such DKK losses financial financial as and as various 1.310 at cash lim- due 31 - ments are entered withoneof theGroup’s relationship banks. Total Cash andCash equivalents Other receivables Accounts receivable 1,981 financial industries andgeographic areas. Counterparty riskagainst hedge tives, andinthose cases, where itisdeemedappropriate to cash avoid shortage of cash andlimittheneedfor borrowing. The while policy with the overall objective of minimizing cash holdings, Bakkafrost hasimplemented aGroup-wide cash management Credit Risk The modity exchanges. banks, other relationship banks orwidelyrecognized com- these transactions, theGroup relies uponNordic relationship ited liquidassets andlow traded volumes inderivatives. For please refer to Note 3.8. to er receivables andcash andcash equivalents andamounts at the reporting date consists of accounts receivables, oth - imum credit exposure. Themaximumexposure to credit risk The DKK carrying Group management ensuring an million). 1,018 institutions existing does amount million For sufficient not is exposure age carried make is of as not financial distribution at liquidity extensive considered out 31 on the December from assets 1,018,445 1,981,059 to financial 6,3 1,309,546 466,939 9,7 625,993 490,075 use of the 61,431 significant, meet 2020 accounts represents Group’s of 2020 financial business markets, (2019: head due receivable, the 45,520 deriva- to needs, agree- office. 2019 max DKK lim- - ANNUAL REPORT 2020 140 SECTION 4 OF FINANCIALINSTRUMENTS NOTE 4.2CATEGORIES ANDFAIR VALUE put Level 2:Valuation techniques (for whichthelowest level in- unadjusted) for identical assets orliabilities. Level 1:Quoted market prices inanactive market (thatare significant to thefair value measurement asawhole: scribed asfollows, basedonthelowest level input thatis closed, are categorized withinthefair value hierarchy, de- All assets/liabilities, for whichfair value isrecognized ordis Fair value of financialinstruments NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP measurements. There have beennotransfers into or out of Level 3fair value cant to the fair value measurement). put Level 3:Valuation techniques (for whichthelowest level in- ly orindirectly observable). egorization occurred between Levels in the hierarchy by reassessing cat curring basis, the Group determines, whether transfers have For assets/liabilities thatare recognized atfair value onare- refer to Note 3.6. per periodend.For more information onthese calculations, the value isestimated basedonobservable market prices a valuation model(level 3inthevaluation hierarchy), where For biological assets, thefair value calculation isdoneusing observable). that that is is significant significant (based on to to the the the lowest fair fair value value level measurement input measurement that is is signifi- direct is un- - - - Liabilities measured atfair value 31-12-19 Assets measured atfair value 31-12-19 Biological assets (biomass) Liabilities measured atfair value 31-12-20 Assets andliabilities measured atfair value DKK 1,000 atDecember As 31 Assets measured atfair value 31-12-20 Biological assets (biomass) st theGroup heldthefollowing classes of assets/liabilities measured atfair value: 2,117,024 1,874,034 1,901,729 1,971,637 2,117,024 1,901,729 Fair value 0 0

Cost amount 1,874,034 1,971,637 0 0

Level 1 0 0 0 0 0 0

Level 2 ANNUAL REPORT 2020 1,901,729 0 2,117,024 0 0 0 0 0 1,901,729 2,117,024 Level 3 0 0 141 SECTION 4 Diluted (DKK) Basic (DKK) Diluted (DKK) Basic (DKK) Earnings pershare Ordinary shares asat31.12. Emission -increase of share capital Adjusted profit for the year to shareholders of P/FBakkafrost Tax onfair value adjustment Fair value adjustment of biomass 41) (IAS Profit for theyear to theshareholders of P/FBakkafrost Bakkafrost Group hasnostock option programme runningatpresent. of biomass andprovision for onerous contracts (adjusted EPS) Adjusted earnings pershare (before fair value adjustments Time-weighted average numberof shares outstanding through theyear Ordinary shares asat01.01. DKK 1,000 NOTE 4.3EARNINGSPERSHARE NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP

48,858,065 59,143,000

59,143,000 59,090,092 -118,003 6,4 801,885 462,845 366,083 121 -39,702 21,241 2020 2019 2020 .0 19.04 19.04 6.20 6.20 7.83 7.83 10.284.935 0 59,143,000 51,624,366 220,567 982,750 15.53 15.53 2019 view adjustments shown in the table above, asitisBakkafrost’s Adjusted EPS is based on thereversal of certain fair value Adjusted earnings pershare outstanding. fect of issued share options. Bakkafrost hasnoshare options Diluted earnings pershare are adjusted for thedilution ef Diluted earnings pershare Basic Basic earnings pershare Earnings pershare (EPS) treasury shares. ing ordinary shares purchased by thecompany andheldas number of ordinary shares inissue duringtheyear, exclud - to equityholders of thecompany by theweighted average underlying performance. that EPS this is calculated figure provides by dividing a more reliable the ANNUAL REPORT 2020 profit measure attributable of the - 142 SECTION 5 Disclosures Other NOTES -SECTION 5 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP secondary importance from theperspective of Bakkafrost This section gives more details onthestatutory notes thathave sition of approximately DKK1,025million.553millionfor 2021andDKK472millionfor 2022. The Group had capital expenditure committed but not provided inthese accounts atthedate of theStatement of FinancialPo- Total Total contractual other PPEinvestments Total contractual new marinesites anddevelopment of anexisting freshwater site inScotland. Total contractual new Hatchery stations intheFaroe Islands 2020 NOTE 5.1.CAPITAL COMMITMENTS Total Total contractual other PPEinvestments Total contractual new Biogas plant Total contractual new marinesites anddevelopment of anexisting freshwater site inScotland. Total contractual new Hatchery stations intheFaroe Islands 2019

269,253 109,692 102,216 340,883 121,000 552,791 271,400 89,700 53,600 7,100 ANNUAL REPORT 2020 2021 2022 2020 2021 202,587 471,840 53,600 53,600 0 0 0 0 143 SECTION 5 influence legal Related parties are inthisrespect considered aspersons or NOTE 5.2RELATED-PARTY TRANSACTIONS NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP arm’s terms. length position andvice versa. Related partytransactions are at entities, on the which Bakkafrost directly or Group indirectly through possess shareholding significant or Accounts payable -Tjaldur Purchase -TjaldurP/F Accounts payable P/fVest Pack Purchase –P/fVest Pack Accounts payable -Frost P/F Purchase –Frost P/F Revenues -Frost P/F Accounts payable –Gist &Vist P/F Accounts receivable –Gist &Vist P/F Purchase -Gist &Vist P/F Revenues -Gist &Vist P/F Accounts payable -Betri P/F Purchase -Betri P/F Revenues -Betri P/F Based onkey personnel DKK 1,000 Accounts payable -SalmonProteins P/F Accounts receivable -SalmonProteins P/F Revenues -SalmonProteins P/F Purchase -Pelagos P/F Accounts payable -FFSkagen A/S Purchase -FFSkagen A/S Based onassociation

637 86,118 13,021 66,397 15,293 072 32,239 40,752 ,0 6,246 1,427 6,903 1,579 1,425 3,289 ANNUAL REPORT 2020 2020 592 806 560 92 24 91 10,647 83 98 8 0 32,490 17,189 0 0 0 0 1,332 1,017 4,350 2019 248 166 676 671 189 0 4 0 144 SECTION 5 SSC’s mainoffice isinEdinburgh, Scotland. lander Salmon.Thecompany has651employees. Hebridean Salmon,Tartan SalmonLabel Rouge andLoch- December oped a focus on North America andtheFar East. SSC has devel- • gutted 2019. from NorthernLinkLtd. Theclosing date was 8October standing shares inTheScottish SalmonCom-pany Plc(SSC) Purchase Agreement (SPA) to acquire 68.6%of theout capacity total supplychainintegrity. Thecurrent annualproduction all stages of thevalue chainensuringfulltraceability and and HebrideanIslands.Thecompany isengaged innearly clusively inScotland with60sites across theWest Coast SSC isanintegrated salmonfarming business operating ex frost now holds100%of theshares inSSC. SSC. Further acquisition was madeinQ12020,andBakka- NOTE 5.3BUSINESS COMBINATIONS On 2019 There have beennonew business combinations in2020. 2020 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP • lowing: The strategic rationale for theacquisition includes thefol- Strategic Rationale ography, whichisaniche farming region with Scottish gion, diversifying ourfarming operation into anew ge - Provides Bakkafrost access to theScottish farming re- op-portunities to theGroup. fi-cantly Increases the scope of Bakkafrost’s operation signi- 25 a Further September weight range is 2019, 50,000 and of acquisition in 2019 strong brings Bakkafrost 2019, tonnes. and Bakkafrost flagship new was exported SSC held been growth produced brands, 95.6% signed made to and 21 of including in a 33,798 countries binding Q4, the development and shares tonnes Native Share at with 31 in - -

• • • • mentation of better farming procedures for improved cost • ulate transfer of best practices including(i)secondments to stim- Bakkafrost alsobelieves that there isthepotential for • Salmon Potential for material improvement inTheScottish on developed markets andmarkets for premium products. tive salmonfarming markets, whileremaining both focused pure playFaroe Islandscompany to apres-ence intwo attrac Positive and Scottish premium salmon. mium salmonwithdualexposure to both Faroe Islands Creates acombined differentiated globalleaderinpre- provenance products priced atapremium to themarket. zon efficiency Feed operation andSG&AOver-head savings. areas mainlyrelated to Feed andProcurement, Sales Co- Bakkafrost expects to generate syner-gies inthree key of best practices andatargeted investment programme. try a mium Sales Cooperation: Both SSC andBakkafrost market pre- onwards (~NOK2.6/kg of SSC harvested salmon). synergies of approximately DKK70millionfrom 2022 estimated at DKK 1.2per kg feed, equating to annual company sales of higherqualityfeed to SSC. Net synergy tion. higher price dueto provenance andproduct differentia- land (through discontinuing thelisted functions of SSC). SG&A relative distribution strengths in globalmarkets. dinating sales efforts going forward, taking advantage of significantly identification feed. through Both & & salmon Procurement: Overheads: Company’s diversification Supplying companies at realization Bakkafrost’s higher and and feed Leaner profitability brands transfer Bakkafrost plan marine of of to Bakkafrost’s to feed SSC identified head that drive of index, would best facilities produces over office obtain effi-ciencies compared practices, synergies, result a operations structure five-year a through fish signifi-cantly in fixed feed (ii) to by transfer in from imple- indus ho-ri- inter coor Scot with cost a - - - - -

strengthen theScottish regulatory framework. Additionally, Bakkafrost iscommitted to on-going work to ployment communities andauthorities andhopes to stimu-late em- Bakkafrost iscommitted to strong cooperation withlocal ed towards replacing SSC’s existing seawater equipment. cilities. Additionally, investments are plannedto bedirect production, replacing SSC’s large numberof smallsmoltfa- vestment inanew modernrecirculation plantfor smolt PPA, to draw the linebetween goodwill and licenses. In the tion is related to licenses, and the question will be, where We expect thatmost of theexcess value from the transac income approach by calculating thenet present value (NPV). salers anddirectly to cus-tomers. Brand is valued by the Scottish SalmonCompany brand, to alarge extent to whole - ridean. Theremaining volumes are sold underthegeneral namely Tartan Salmon, Lochlander SalmonandNative Heb- subsequently allocated to licenses. We have thenassessed including brand value, andtheremaining excess value is We tized but madesubject to anannualimpairmentreview. es are viewed asperpetual innature andare thusnot amor Most of SSC’s intangible assets are related to licenses. Licens Net assets acquired achieve Bakkafrost alsoplansto make targeted investments to fish, improving price achievement andprofitability. overall result of these actions isexpected to result inlarger tion of biological threats through delousingexpertise. The performance, (iii)gradual consolidation of sites, (iv)mitiga- have we the have identified through efficiencies allocated significant three value outlined significant to investment all above. other brand ANNUAL REPORT 2020 These identified in names the include business. in assets SSC, in- - - - -

145 SECTION 5 The assets andliabilities recognized are asfollows: million. is DKK 10.8 million, and costs held by SSC are DKK 57.0 in theStatement of Cash Flow. Total cost for Bakkafrost Acquisition-related assets, Deferred tax, Other debt andGoodwill. al amounts for Property, Biological plantandequipment, amounts. Bakkafrost hasrecognized achange inprovision- ment periodthatresults inadjustments to theprovisional Bakkafrost has obtained information during the measure- curred after theacquisition date. or whether thatinformation results from events thatoc in anadjustment to theprovisional amounts recognized, formation obtained after theacquisition date shouldresult considered allpertinentfactors indetermining whether in- In theperiodafter theacquisition date, Bakkafrost has stipulated by IFRS3. more information from SSC within the 12-month period could change as Bakkafrost became ableto gain access to The assumed, recognized attheacquisition date. assessed fair value of theassets acquired andliabilities low summarizes the consideration paid for SSC and the ments andtheadjustment madeinQ32020.Thetable be- arises from thetax calculations onthefair value adjust The aggregated goodwill of DKK665.0millionrecognized, names have adefinite expected life. We have not seenany indicators thattherespective trade refer to theprevious page regarding strategic rationale. this value by utilizing atop-down market approach. Please NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP loss figures as incurred provided and costs included were were subject within expensed to operating further to the scrutiny cash profit flows and or - -

Transaction value (market value of equity) Purchase price for shares (100%) Purchase price for shares (68.6%) Purchase price allocation: Net assets Liabilities Total shareholders' equityandliabilities Current taxes Other current liabilities incl.IFRS16 Accounts payable Current liabilities, interest-bearing Long-term liabilities, interest-bearing Other long-term liabilities incl.IFRS 16 Deferred taxes Total shareholders' equity Total assets Cash, bankandmarketable securities Other current assets, excluding cash andbank Biological assets Inventories Accounts receivables Property, plantandequipment– incl.IFRS16 Brands Licenses Goodwill DKK 1,000,000

08.10.2019 Book Value 1,844.0 1,844.0 239.4 201.8 108.4 192.7 198.5 893.2 660.5 123.4 702.2 201.8 950.7 32.5 41.0 31.7 50.9 8.3 1.7 -

adjustment Fair Value 3,188.3 3,131.6 3,739.6 3,739.6 551.3 108.4 499.6 551.3 ------

adjustment in Q32020 114.6 -24.9 -66.0 26.9 23.7 1,525.7 23.7 23.7 PPA -3.2 ANNUAL REPORT 2020 - 108.4 - - - 4,081.5 - - - - - 31.7 - - -

fair value Adjusted 4,081.5 2,800.4 3,333.4 4,081.5 4,081.5 5,607.3 5,607.3 266.3 201.8 108.4 192.7 198.5 123.4 665.1 549.9 635.6 636.2 32.5 41.0 8.3 146 SECTION 5 Total auditor’s fees Tax advisoryservices Statutory auditing Other services DKK 1,000 Fees paidto auditors (ex. VAT) break down asfollows: NOTE 5.5AUDITOR’S FEES STATEMENT OFFINANCIALPOSITION NOTE THEDATE 5.4EVENTS AFTER OFTHE NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP This is nancial affect future financialposition, are disclosed ifmaterial. financial the tion, hasbeenrecognized intheannualaccounts. Events after received date is

the regarding position of position company’s after the statement on new the date, the date information financial

statement but of of which the financial position statement regarding of will financial position, 1,357 1,814 2020 affect on 407 50 the the of position, the financial company’s which statement company’s do which 1,268 2019 posi- 947 309 not 12 fi- of

materially influence theinformation provided by thisreport. financial Bakkafrost discloses thatfrom thedate of thestatement of position until today, no events ANNUAL REPORT 2020 have occurred which

147 SECTION 5 With NOTE 5.6GOINGCONCERN NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP long-term the Board, theGroup’s financialposition isgood. tion that Bakkafrost is a going concern. In the opinion of the financial reference forecasts statements to the for Group’s the for years 2020 profits, ahead, are based financial it is on confirmed strength the assump- that and The ALTERNATIVE PERFORMANCE MEASURES NOTE 5.7 years andacross thecompany where relevant. and usedinaconsistent andtransparent mannerover the performance, management to enhance theunderstanding of thecompany’s performance measures, whichare regularly reviewed by the dition, the management’s intention is to provide alternative These other parties. these APM’s are frequently usedby analysts, investors and ferently by other companies. Bakkafrost’s experience is that measures presented maybedetermined orcalculated dif pared inaccordance withIFRS. Thealternative performance with Groups international APM’s financial are but adjusted not financial information replacing IFRS reporting measures the is financial prepared standards defined, statements in (IFRS). accordance calculated In pre- ad- - defined Net debt isanalternative performance measure asitisnot is available to settle theliabilities included inthismeasure. sarily meanthatthecash includedinthenet debt calculation indebtedness. Theuseof theterm ‘net debt’ does not neces can beusedto assess both theGroup’s cash position andits overall balance sheet strength. Itisalsoasinglemeasure that Group’s net indebtedness that provides anindicator of the equivalents. Thenet interest-bearing debt isameasure of the such asdebt instruments andderivatives, andcash andcash and non-current interest-bearing liabilities, less related current Net interest-bearing debt consists of both current and NIBD from these to net debt isprovided below. non-current) andcash andcash equivalents. Areconciliation is theaggregate interest-bearing liabilities (both current and non-current in IFRS. The hedging most instruments, directly comparable financial ANNUAL REPORT 2020 IFRS instruments, measure - 148 SECTION 5 Operational EBIT Income from associates Fair value adjustments of biological assets EBIT Revenue tax -FO DKK 1,000 revenue tax -FO. onerous contracts provisions, income from associates and Operational EBITisalignedfor fair value adjustments, Operational EBIT Net interest-bearing debt Long- andshort-term interest-bearing debt Cash andcash equivalents DKK 1,000

Operational EBITperkg: NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP Operational EBITFarming segment Total harvested volumes (gw) Farming segment: Total volumes produced (raw material gw) Operational EBITVAP segment VAP segment: Operational EBITisprovided below. in thesalmonfarming industry. Areconciliation from EBITto Operational EBITisamajoralternative performance measure

Operational EBITFarming andVAP segment

22960 -2,328,231 -2,219,690 Total harvested volumes (gw) Farming andVAP: 31.12.2020 31.12.2019 -1,752,751 -118,003 6,3 1,309,546 466,939 621,158 691,123 1,019,217 354 99,128 53,584 -5,546 2020 -1,018,685 1,325,100 220,567 -13,812 2019 EBITDA tions Earnings before interest, tax, depreciations andamortiza- es FOFEBITDA segment. before other income and other expens rost’s Group overview. Thismeasure isuseful to users of Bakkaf fixed The mance inrelation to Bakkafrost’s FOF segments competitors. nonrecurring items, aswell asevaluating operating perfor expenditures and acquisitions, which occurred in the past, tions andamortization expenses related primarilyto capital bility onamore variable cost basis,asitexcludes deprecia- other income andother expenses dividedby total revenues. is EBITDA defined (EBITDA) assets financial and margin as is information EBITDA operations a key presented financial less in gains and evaluating is is parameter defined and reconciled losses ANNUAL REPORT 2020 operating as for on EBITDA in Bakkafrost’s disposals the profita- section before of - - - 149 SECTION 5 Time-weighted average numberof shares outstanding through theyear Adjusted profit for the year to shareholders of P/FBakkafrost Tax onfair value adjustment andonerous contracts provisions Fair value adjustment of biomass Profit for theyear to theshareholders of P/FBakkafrost biomass andprovisions for onerous contracts) (adjusted EPS) Adjusted earnings per share (before fair value adjustment of DKK 1,000 NOTES TO THECONSOLIDATED FINANCIALSTATEMENTS -BAKKAFROST GROUP

59,090,092 -118,003 6,4 801,885 462,845 366,083 121 -39,702 21,241 2020 6.20 51,624,366 220,567 982,750 19.04 2019 view adjustments shown in the table above, asitisBakkafrost’s Adjusted EPS is based on thereversal of certain fair value Adjusted EPS underlying performance. that this figure provides a more reliable ANNUAL REPORT 2020 measure of the 150 ANNUAL REPORT 2020 151

Financial Statements

P/F BAKKAFROST P/F BAKKAFROST - FINANCIAL STATEMENTS AND NOTES ANNUAL REPORT 2020 152

P/F BAKKAFROST P/F BAKKAFROST – Income Statement for the year ended 31 December 153 P/F BAKKAFROST – Statement of Financial Position as at 31 December 154 Table of Contents P/F BAKKAFROST – Cash Flow Statement for the year ended 31 December 156 P/F BAKKAFROST – Statement of Changes in Equity as at 31 December 157

Note 1 - Accounting Policies 158

Note 2 - Salaries and other Personnel Expenses 158

Note 3 - Net Financial Items 159

Note 4 - Property, Plant and Equipment 160

Note 5 - Subsidiaries and Associates 161

Note 6 - Investments in Stocks and Shares 163

Note 7 - Share Capital and Major Shareholders 163

Note 8 - Tax 164

Note 9 - Security Pledges and Contingent Liabilities 165

Note 10 - Related-Party Transactions 165 P/F BAKKAFROST - FINANCIAL STATEMENTS AND NOTES ANNUAL REPORT 2020 153

P/F BAKKAFROST DKK 1,000 Note 2020 2019 Operating revenue 164,253 147,843 Income Statement Salary and personnel expenses 2 -36,395 -37,271 Other operating expenses -100,522 -94,188 Depreciation 4 -29,642 -30,729 Earnings before interest and taxes (EBIT) -2,306 -14,345 FOR THE YEAR ENDED 31 DECEMBER Dividends from subsidiaries 989,908 841,190 Income from other investments in shares 6 36 36 Financial income 3 17,187 12,265 Net interest expenses 3 -21,110 -9,985 Net currency effects 3 1,350 -10,842 Other financial expenses 3 -6,175 -13,124 Earnings before taxes (EBT) 978,890 805,195

Taxes 8 1,834 -4,365 Profit to shareholders of P/F Bakkafrost 980,724 800,830

Distribution of profit Dividend proposed 215,872 0 Retained earnings 764,852 800,830 Distribution in total 980,724 800,830 P/F BAKKAFROST - FINANCIAL STATEMENTS AND NOTES ANNUAL REPORT 2020 154

P/F BAKKAFROST DKK 1,000 Note 2020 2019

ASSETS Statement of Non-current assets Financial Position Intangible assets 1,000 1,000 Total intangible assets 1,000 1,000

AS AT 31 DECEMBER Property, plant and equipment Land, buildings and other real estate 4 226,706 348,319 Plant, machinery and other operating equipment 4 107,423 15,196 Total property plant and equipment 334,129 363,515

Non-current financial assets Investments in subsidiaries 5 5,576,500 5,408,693 Investments in stocks and shares 6 1,273 1,236 Receivables from Group companies 0 100,599 Total non-current financial assets 5,577,773 5,510,528

TOTAL NON-CURRENT ASSETS 5,912,902 5,875,043

Inventory 23,840 18,448 Total inventory 23,840 18,448

Receivables from Group companies 5,041,764 3,688,612 Accounts receivable 2,780 2,461 Other receivables 17,592 236 Total receivables 5,062,136 3,691,309

Cash and cash equivalents 348,385 589,264 TOTAL CURRENT ASSETS 5,434,361 4,299,021

TOTAL ASSETS 11,347,263 10,174,064 P/F BAKKAFROST - FINANCIAL STATEMENTS AND NOTES ANNUAL REPORT 2020 155

DKK 1,000 Note 2020 2019

EQUITY AND LIABILITIES Equity Share capital 7 59,143 59,143 Other equity 9,038,737 8,093,403 Total equity 9,097,880 8,152,546

Non-current liabilities Long-term interest-bearing debt 9 2,219,652 1,710,672 Deferred taxes 8 11,471 11,372 Total non-current liabilities 2,231,123 1,722,044

Current liabilities Derivatives 3.12 0 633 Payables to Group companies 0 274,878 Accounts payable 12,619 13,741 Other short-term liabilities 5,641 10,222 Total current liabilities 18,260 299,474

Total liabilities 2,249,383 2,021,518

TOTAL EQUITY AND LIABILITIES 11,347,263 10,174,064 P/F BAKKAFROST - FINANCIAL STATEMENTS AND NOTES ANNUAL REPORT 2020 156

P/F BAKKAFROST DKK 1,000 Note 2020 2019 Cash flow from operations Cash Flow Operating profit (EBIT) -2,306 -14,345 Adjustments for write-downs and depreciation 4 29,642 30,729 Statement Adjustments for net currency effects 1,350 -10,842 Adjustments for share-based payment 2 810 503 Taxes paid 8 -4,284 -21,970 FOR THE YEAR ENDED 31 DECEMBER Change in inventory -5,392 -2,361 Change in receivables -17,675 23,836 Change in current debts 1,930 2,895 Cash flow from operations 4,075 8,445

Cash flow from investments Increase of share capital in subsidiaries, etc., net 5 -167,807 -4,008,022 Proceeds from sales of purchase of fixed assets 0 522 Payments made for purchase of fixed assets 4 -256 -3,034 Cash flow from investments -168,063 -4,010,534

Cash flow from financing Changes in interest-bearing debt (short and long) 508,347 945,421 Financial income 17,187 12,265 Financial expenses -27,285 -23,109 Financing of associates/subsidiaries -1,527,431 -724,542 Acquisition/sale treasury shares -37,616 75,349 Dividend from subsidiaries 5 989,908 841,190 Emission – increase of share capital 0 3,731,123 Dividend paid 0 -401,512 Cash flow from financing -76,890 4,456,185

Net change in cash and cash equivalents -240,878 454,096

Cash and cash equivalents – opening balance 589,264 135,168 Cash and cash equivalents – closing balance total 348,385 589,264 P/F BAKKAFROST - FINANCIAL STATEMENTS AND NOTES ANNUAL REPORT 2020 157

Share Share- premium Treasury based Proposed Retained DKK 1,000 Share capital account shares payment Derivatives dividends earnings Total

1 January 2020 59,143 3,838,206 -68 1,001 -520 0 4,254,784 8,152,546 P/F BAKKAFROST Net annual profit 0 0 0 0 0 0 982,078 982,078

Other comprehensive income: Statement of Fair value adjustment on financial derivatives 0 0 0 0 520 0 0 520 Total other comprehensive income 0 0 0 0 520 0 0 520 Changes in Equity Total comprehensive income 0 0 0 0 520 0 982,078 982,598

Transaction with owners: AS AT 31 DECEMBER Treasury shares 0 0 -37,617 0 0 0 0 -37,617 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 -215,872 -37,264

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

1 January 2019 48,858 117,368 -15,525 1,219 -265 403,079 3,392,492 3,947,226

Net annual profit 0 0 0 0 0 0 860,725 860,725

Other comprehensive income: Fair value adjustment on financial derivatives 0 0 0 0 -311 0 0 -311 Income tax effect 0 0 0 0 56 0 0 56 Total other comprehensive income 0 0 0 0 -255 0 0 -255 Total comprehensive income 0 0 0 0 -255 0 860,725 860,470

Transaction with owners: Emission - increase share capital 10,285 3,720,838 0 0 0 0 0 3,731,123 Treasury shares 0 0 15,457 0 0 0 0 15,457 Share-based payment 0 0 0 -218 0 0 0 -218 Dividend treasury shares 0 0 0 0 0 0 1,567 1,567 Proceeds/acquisition treasury shares 0 0 0 0 0 0 0 0 Paid-out dividends 0 0 0 0 0 -403,079 0 -403,079 Proposed dividends 0 0 0 0 0 0 0 0 Total transaction with owners 10,285 3,720,838 15,457 -218 0 -403,079 1,567 3,344,850

Total changes in equity 10,285 3,720,838 15,457 -218 -255 -403,079 862,292 4,205,320

31 December 2019 59,143 3,838,206 -68 1,001 -520 0 4,254,784 8,152,546 P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2020 158

P/F BAKKAFROST NOTE 1. ACCOUNTING POLICIES Bakkafrost. The notes to the consolidated accounts provide The financial statements have been prepared in accordance additional information to the parent company’s accounts, with the International Financial Reporting Standards (IFRS), which is not presented here separately. The company’s fi- Notes to the endorsed by the European Union (EU), and the additional nancial statements are presented in DKK. Investments in requirements according to the Faroese Financial Reporting subsidiaries are measured at historic cost unless there is Financial Statements Act. The accounting policies applied to the consolidated ac- any indication of impairment. In case of impairment, an in- counts have also been applied to the parent company, P/F vestment is written down to fair value.

NOTE 2. SALARIES AND OTHER PERSONNEL EXPENSES

DKK 1,000 2020 2019 Wages and salaries 27,754 28,426 Share based payments 810 503 Social security taxes 1,773 1,137 Pension expenses 1,995 1,301 Other benefits 4,063 5,904 Total payroll expenses 36,395 37,271

Average number of full-time employees 40 35

REMUNERATION TO SENIOR EXECUTIVES AND AUDITORS paid DKK 45,000 for audit service and DKK 10,000 for tax For details of remuneration paid to senior executives, see advisory. For other services, see note to the consolidated fi- notes to the consolidated financial statements. The company nancial statements. P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2020 159

NOTE 3. NET FINANCIAL ITEMS

DKK 1,000 2020 2019 Interests received from Group companies 16,289 7,378 Other financial income 898 4,888 Financial income 17,187 12,266

Interest expenses on long- and short-term loans -21,110 -9,986 Financial expenses -21,110 -9,986

Other exchange differences 1,350 -10,842 Net currency effects 1,350 -10,842

Other financial expenses -6,175 -13,124 Other financial items -6,175 -13,124

Net financial items -8,748 -21,686 P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2020 160

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

Land and Other DKK 1,000 buildings equipment Total Acquisition cost as at 01.01.20 415,940 52,313 468,253 Reclassification -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 Reclassification 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

Acquisition cost as at 01.01.19 415,081 50,735 465,816 Disposals and scrapping during the year - reclass -597 -597 Acquisitions during the year 859 2,175 3,034 Acquisition cost as at 31.12.19 415,940 52,313 468,253

Accumulated depreciation and write-down as at 01.01.19 -56,218 -17,867 -74,085 Depreciations during the year related to disposals 0 75 75 Depreciations during the year -11,404 -19,325 -30,729 Accumulated depreciation and write-down as at 31.12.19 -67,622 -37,117 -104,739

Net book value as at 31.12.19 348,319 15,196 363,515

A significant part of Bakkafrost’s buildings is located on rented land.

Estimated lifetime Depreciation method Scrap value Land and buildings 15-25 years linear 10% Other operating equipment 3-8 years linear 0% P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2020 161

NOTE 5. SUBSIDIARIES AND ASSOCIATES

DKK 1,000 2020 2019 Acquisition cost as at 01.01. 5,411,459 1,403,437 Additions during the year 167,807 4,008,022 Acquisition cost as at 31.12. 5,579,266 5,411,459

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. 5,576,500 5,408,693 P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2020 162

Carrying Carrying Cost amount in amount in DKK 1,000 Method Head Voting P/F Bakkafrost P/F Bakkafrost Company Yes/No Office Ownership share 2020 2019 P/F Bakkafrost Processing Yes Glyvrar 100% 100% 258,591 258,591 P/F Bakkafrost Sales Yes Glyvrar 100% 100% 879 879 P/F Bakkafrost Packaging Yes Glyvrar 100% 100% 7,781 7,781 P/F Bakkafrost Farming Yes Glyvrar 100% 100% 314,887 314,887 P/F Havsbrún 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 Plc Yes Jersey 100% 100% 4,075,779 3,907,972 The Scottish Salmon Company Ltd Yes Edinburgh 100% 100% 0 0 P/F Förka Yes Glyvrar 100% 100% 5,000 5,000 Total subsidiaries 5,576,500 5,408,693

Excess dividends Result Result DKK 1,000 Dividends* on result 2020 2019 P/F Bakkafrost Farming 168,100 24,096 192,196 616,897 P/F Bakkafrost Sales 0 -2,181 -2,181 136,252 P/F Bakkafrost Packaging 190 12 202 13,178 P/F Bakkafrost Processing 0 140,064 140,064 30,723 P/F Havsbrún 113,851 5,169 119,020 207,075 Bakkafrost UK Ltd. 0 3,340 3,340 12,059 Scottish Salmon Company Plc** 0 184,609 184,609 -191,377 P/F Förka 0 -2,678 -2,678 -166 Total revenue Group contribution 282,141 352,431 634,572 824,641

* Dividends from subsidiaries paid out in 2021 ** Since acquisition 8/10-19 P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2020 163

NOTE 6. INVESTMENTS IN STOCKS AND SHARES

DKK 1,000 2020 2019 Acquisition cost as at 01.01. 183 183 Acquisition cost as at 31.12. 183 183

Re-evaluations as at 01.01. 1,053 1,581 Re-evaluations during the year 37 -528 Re-evaluations as at 31.12. 1,090 1,053

Net book value as at 31.12. 1,273 1,236

Shares and holdings, in which the Group does not have significant influence. These are valued at cost, since fair value cannot be measured reliably..

NOTE 7. SHARE CAPITAL AND MAJOR SHAREHOLDERS

DKK 1,000 2020 2019 Share capital at 31.12. 59,143 48,858 Emission - increase of share capital 0 10,285 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 2020, see Group Accounts. P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2020 164

NOTE 8. TAX

The tax expense for the year breaks down as follows: DKK 1,000 2020 2019 As Parent company in the Bakkafrost Group, Bakkafrost P/F is the administrating company in the Group Joint Taxation Tax payable 1,819 -4,284 and is liable towards the Faroese Tax Authorities for taxes Change in deferred tax 15 -81 payable on behalf of its subsidiaries. Tax expense on ordinary profit 1,834 -4,365

Tax in the statement of financial position Deferred tax 11,471 11,372 Tax in the statement of financial position 11,471 11,372

Specification of temporary differences Property, plant and equipment 63,691 63,811 Swaps 0 -633 Total temporary differences 63,691 63,178

Deferred tax liabilities (+) / assets (-) 11,471 11,372

Reconciliation from nominal to actual tax rate Profit before tax 978,890 805,195

Expected tax at nominal tax rate (18%) -176,200 -144,935 Permanent differences, including Group contribution without tax effect (18%) 178,183 151,414 Other permanent differences (18%) -149 -10,844 Calculated tax expense 1,834 -4,365

Effective tax rate 0.19% -0.54% P/F BAKKAFROST - NOTES TO THE FINANCIAL STATEMENTS ANNUAL REPORT 2020 165

NOTE 9. SECURITY PLEDGES AND CONTINGENT LIABILITIES NOTE 10. RELATED-PARTY TRANSACTIONS The company operates cash pooling arrangements in the Carrying amount of debt secured by mortgages and pledges: Group. Further, the company extends loans to subsidiaries and associates at terms and conditions reflecting prevailing DKK 1,000 2020 2019 market conditions for corresponding services, allowing a margin to cover administration and risk. The company allo- Long-term debt to financial institutions 2,219,652 1,710,672 cates costs for corporate staff services and shared services Total 2,219,652 1,710,672 to subsidiaries and renting of buildings.

Carrying amount of assets pledged as security for recognized debt The total amounts for rent are DKK 21.2 million (2019: DKK Property, plant and equipment 334,129 363,515 21.2 million), allocation of administration etc. DKK 82.1 mil- Non-current financial assets 5,577,773 5,510,528 lion (2019: DKK 73.6 million), financial incomes of DKK 16.7 million (2019: DKK 7.4 million) and financial expenses DKK Receivables 5,062,136 3,691,309 0.4 million (2019: DKK 0.0 million). The principle of arm’s Total 10,974,038 9,565,352 length is used in all transactions with related parties.

The company participates in a Group financing for the Bakka- As part of the guarantees are also any insurance refunds. frost Group. In connection to this, the company has together with other Group companies pledged licenses, property, plant As Parent company in the Bakkafrost Group, Bakkafrost P/F and equipment, shareholdings, inventory and receivables as is the administrating company in the Group Joint Taxation surety for the Group’s total debt to the banks. In addition, the and is liable towards the Faroese Tax Authorities for taxes Group companies have guaranteed severally and jointly for payable on behalf of its subsidiaries. the balance without limitations for each other. APPENDIX ANNUAL REPORT 2020 166

APPENDIX Quarterly financial figures 2018-2020

DKK 1,000 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q3 2020 Q4 2020 Operating revenue 851,156 954,316 621,602 750,348 963,709 946,506 996,050 1,604,842 1,255,226 1,134,222 1,123,147 1,139,297

Purchase of goods -289,145 -254,324 -177,389 -332,721 -361,540 -366,899 -274,775 -351,707 -415,276 -642,818 -574,394 -726,135 Change in inventory and biological assets (at cost) 31,393 6,770 7,117 154,416 34,013 134,296 -34,510 -163,222 -56,667 215,285 22,773 220,288 Salary and personnel expenses -91,183 -87,115 -71,940 -103,518 -114,552 -117,690 -95,713 -184,806 -148,713 -159,987 -135,441 -164,206 Other operating expenses -188,224 -163,172 -158,008 -186,569 -200,153 -199,656 -218,367 -360,611 -267,470 -249,039 -248,265 -297,945 Depreciation -45,775 -48,582 -53,094 -51,447 -53,773 -57,793 -69,304 -129,245 -119,017 -115,766 -85,157 -126,825 Other income 0 0 0 0 0 0 0 0 0 0 0 44,041 Operational EBIT 268,222 407,893 168,288 230,509 267,704 338,764 303,381 415,251 248,083 181,897 102,663 88,515

Fair value adjustments on biological assets 107,131 34,777 293,459 -239,548 17,871 -65,536 -69,804 -103,098 -410,711 426,650 124,429 -22,365 Onerous contracts 0 -6,109 -10,968 17,076 0 0 0 0 0 0 0 0 Income from associates 2,419 -1,695 -2,459 11,104 6,947 -4,408 7,620 3,653 0 0 0 5,546

Revenue tax - FO -26,327 -31,411 -14,092 -24,036 -31,994 -32,031 -20,616 -14,487 -19,132 -22,633 -9,353 -2,466 Earnings before interest and taxes (EBIT) 351,445 403,455 434,228 -4,895 260,528 236,789 220,581 301,319 -181,760 585,914 217,739 69,230

Net interest revenue 1,001 621 467 562 111 638 850 3,397 803 344 101 151 Net interest expenses -4,925 -3,019 -2,271 -2,262 -1,865 -2,534 -3,011 -9,704 -9,527 -10,057 -6,446 -10,287 Net currency effects -13,159 12,347 1,938 293 1,425 -4,760 5,165 -14,500 15,448 -2,554 -12,284 -13,706 Other financial expenses -1,627 -815 -799 -519 -864 -974 -935 -9,740 -6,015 -2,355 -3,919 -4,836 Earnings before taxes (EBT) 332,735 412,589 433,563 -6,821 259,335 229,159 222,650 270,772 -181,051 571,292 195,191 40,552

Taxes -60,434 -73,833 -77,708 201 -46,499 -40,557 -41,715 -51,260 33,070 -99,611 -18,369 -78,229 Profit or loss for the period 272,301 338,756 355,855 -6,620 212,836 188,602 180,935 219,512 -147,981 471,681 176,822 -37,677

Earnings per share (DKK) 5.60 6.96 7.32 -0.14 4.37 3.88 3.67 4.25 -2.50 7.98 2.99 -0.64 Diluted earnings per share (DKK) 5.60 6.96 7.32 -0.14 4.37 3.88 3.67 4.25 -2.50 7.98 2.99 -0.64

*Operational EBIT is EBIT before fair value of biomass, onerous contracts and income from associates, and revenue tax - FO APPENDIX ANNUAL REPORT 2020 167

DKK 1,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 2020 ASSETS Non-current assets Intangible assets 376,675 376,675 388,934 389,745 391,042 390,456 390,456 4,395,687 4,386,056 4,377,948 4,491,387 4,493,395 Property, plant and equipment 2,636,126 2,714,633 2,788,753 2,884,325 3,004,587 3,112,331 3,215,676 3,780,499 3,762,740 3,894,070 3,977,620 4,220,599 Right of use assets 0 0 0 0 0 0 0 332,824 480,085 431,525 380,121 353,192 Financial assets 79,121 79,310 101,864 112,766 115,725 111,268 494,006 119,084 119,116 116,712 116,702 122,459 Long-term receivables 9,200 9,200 9,200 9,200 7,688 3,446 3,446 4,422 4,422 4,422 8,737 8,101 Deferred tax assets 0 0 0 0 0 0 0 37,593 37,840 35,718 58,238 26,934 Total non-current assets 3,101,122 3,179,818 3,288,751 3,396,036 3,519,042 3,617,501 4,103,584 8,670,109 8,790,259 8,860,395 9,032,805 9,224,680

Current assets Biological assets (biomass) 1,114,678 1,107,275 1,562,940 1,358,462 1,290,944 1,231,495 1,268,948 1,901,729 1,492,337 1,903,359 2,146,338 2,117,024 Inventory 428,639 478,872 330,851 438,847 562,817 697,073 534,057 548,508 523,833 720,764 613,505 776,032

Total inventory 1,543,317 1,586,147 1,893,791 1,797,309 1,853,761 1,928,568 1,803,005 2,450,237 2,016,170 2,624,123 2,759,843 2,893,056

Financial derivatives 0 0 0 0 0 0 575 0 0 0 0 0 Accounts receivable 244,231 352,437 247,657 269,348 429,608 371,960 356,026 625,993 629,372 563,364 524,943 490,075 Other receivables 75,008 67,591 54,365 22,936 22,444 28,884 35,970 45,520 22,780 11,236 57,546 133,574

Total receivables 319,239 420,028 302,022 292,284 452,052 400,844 392,571 671,513 652,152 574,600 582,489 623,649

Cash and cash equivalents 668,361 284,329 306,167 316,894 341,574 322,694 2,611,554 1,309,546 801,079 454,389 445,929 466,939

Total current assets 2,530,917 2,290,504 2,501,980 2,406,487 2,647,387 2,652,106 4,807,130 4,431,296 3,469,401 3,653,112 3,788,261 3,983,644

TOTAL ASSETS 5,632,039 5,470,322 5,790,731 5,802,523 6,166,429 6,269,608 8,910,714 13,101,405 12,259,660 12,513,507 12,821,066 13,208,324 APPENDIX ANNUAL REPORT 2020 168

DKK 1,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 2020

EQUITY AND LIABILITIES Equity Share capital 48,858 48,858 48,858 48,858 48,858 48,859 53,658 59,143 59,143 59,143 59,143 59,143 Other equity 3,842,919 3,676,540 4,033,116 4,028,171 4,240,869 4,035,000 5,984,391 8,270,112 8,070,356 8,522,287 8,702,346 8,670,344 Non-controlling interests 0 0 0 0 0 0 0 167,620 0 0 0 0

Total equity 3,891,777 3,725,398 4,081,974 4,077,029 4,289,727 4,083,859 6,038,049 8,496,875 8,129,499 8,581,430 8,761,489 8,729,487

Non-current liabilities Deferred and other taxes 538,840 613,025 690,629 534,430 581,371 622,500 672,628 1,123,796 1,097,117 1,181,972 1,218,379 1,222,222 Long-term interest-bearing debt 770,383 727,474 591,956 812,053 862,944 1,066,266 1,340,073 2,328,231 1,789,537 1,570,512 1,702,579 2,219,690 Long-term leasing debt 0 0 0 0 60,816 71,445 71,109 225,585 261,105 249,178 287,937 265,235 Financial derivatives 0 0 0 0 0 0 0 1,966 1,966 1,282 -1,077 1,480

Total non-current liabilities 1,309,223 1,340,678 1,282,585 1,346,483 1,505,131 1,760,211 2,083,810 3,679,578 3,149,725 3,002,944 3,207,818 3,708,627

Current liabilities Financial derivatives 0 0 630 320 613 0 0 13,493 13,158 18,042 17,371 9,710 Short-term leasing debt 0 0 0 0 0 0 0 107,808 201,047 195,140 130,043 131,336 Accounts payable and other debt 431,039 404,246 425,542 378,691 370,958 425,538 788,855 803,651 766,231 715,951 704,345 629,164

Total current liabilities 431,039 404,246 426,172 379,011 371,571 425,538 788,855 924,952 980,436 929,133 851,759 770,210

Total liabilities 1,740,262 1,744,924 1,708,757 1,725,494 1,876,702 2,185,749 2,872,665 4,604,530 4,130,161 3,932,077 4,059,577 4,478,837

TOTAL EQUITY AND LIABILITIES 5,632,039 5,470,322 5,790,731 5,802,523 6,166,429 6,269,608 8,910,714 13,101,405 12,259,660 12,513,507 12,821,066 13,208,324 APPENDIX ANNUAL REPORT 2020 169

Q1 2020 Market 3 January 2020: Q4 2019 Trading Update 25 February 2020: Q4 2019 Interim Results and Full Year 2019 27 February 2020: Key Information Regarding Cash Dividend for Bakkafrost Announcements 8 March 2020: Severe storm hit the Faroe Islands and damaged two farming sites resulting in the loss of 1 million fish 10 March 2020: Notice to the Annual General Meeting Published in 2020 10 March 2020: Annual Report 2019 and Sustainability Report 2019

Q2 2020 2 April 2020: Q1 2020 Trading Update Exclusive Invitations, Managements', Board of Directors' and 3 April 2020: Protocol from Annual General Meeting large shareholders' notification of trade and notification of 5 May 2020: Q1 2020 Interim Results trade regarding Bakkafrost's Share Savings Plan Q3 2020 2 July 2020: Q2 2020 Trading Update 25 August 2020: Q2 2020 Interim Results

Q4 2020 2 October 2020: Q3 2020 Trading Update 7 October 2020: Financial Calendar 10 November 2020: Q3 2020 Interim Results

All market announcements are available on www.bakkafrost.com and www.newsweb.no. APPENDIX ANNUAL REPORT 2020 170

Financial Calendar  9 April 2021 Annual General Meeting  11 May 2021 Presentation of Q1 2021 for 2021  24 August 2021 Presentation of Q2 2021

 14 September 2021 Capital Markets Day 2021

 9 November 2021 Presentation of Q3 2021

Annual General Meeting will take place at Bakkavegur 9, Glyvrar, Faroe Islands.

Please note that the financial calendar is subject to change.

Any changes will be announced via Oslo Børs, and the Group’s website, www.bakkafrost.com, will be updated accordingly. APPENDIX ANNUAL REPORT 2020 171

AGM: Annual General Meeting LW: Live Weight Glossary ASC: Aquaculture Stewardship Council NIBD: Net Interesting Bearing Debt CGU: Cash-generating Unit PP&E: Property, Plant and Equipment EBT: Earnings Before Tax EBIT: Earnings Before Interest and Tax R&D: Research and Development Costs EBITA: Earnings Before Interest, Amortization and Tax EBITDA: Earnings Before Interest, Tax, Depreciation and SCT: Scotland Amortization SSC: The Scottish Salmon Company Plc EPS: Earnings Per Share TGW: Tonnes Gutted Weight FOF: Fishmeal, Oil and Feed USP: Unique Selling Points FO: Faroe Islands VAT: Value Added Tax HACCP: Hazard Analyses Critical Control Point VAP: Value Added Products; Value Added Production

IAS: International Accounting Standards WACC: Weighted Average Cost of Capital IFRS: International Financial Reporting Standards WFE: Whole Fish Equivalent ISO: International Organization for Standardization ANNUAL REPORT 2020 172

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