SalMar ASA

Hi, and welcome to the presentation of the Third Quarter Results of 2020 for SalMar. My name is Gustav Witzøe, and I am the CEO in SalMar.

To present the result today, our CFO, Trine Sæther Romuld and the CEO of Icelandic Salmon with us today, Björn Hembre live from the Westfjords in Iceland. As you can see behind me, we are once again presenting the results from InnovaMar, our main office and fantastic harvesting and processing facility.

In this way, we get to show you where we belong and where the results is created. It is out here on the coastline right next to the ocean, SalMar produced millions of healthy salmon meals to people all over the world.

But before we dive into the results, I would like to give you a great thanks for the efforts our employees are doing every single day. Despite strict restrictions due to the corona pandemic, SalMar has been running as normal, making it possible to send millions of salmon meals across the globe.

It is our employees through the entire organization that make it possible for SalMar to again deliver strong results. And this is not a result of something extraordinary, but this is the result of long-term strategic and operational focus, giving us the strong SalMar culture with great passion and ability to find solution in challenging periods.

I'm both humbled and proud for the efforts from our employees. We are a fantastic group of people that gives everything for each other and for the salmon.

On the highlights, our long-term strategic and operational focus resulting in a good biological and operational performance has once again given us strong results. In Norway, we harvested 35,300 tons in Q3, with an operational EBIT of NOK669 million, with a margin of NOK18.92 per kilo.

Including Icelandic Salmon, we harvested 37,100 tons with an operational EBIT of NOK647 million with a margin of NOK17.46 per kilo. Both Central and Northern Norway delivered strong results through solid operation and good biological performance.

Despite a demand in quarter with high market uncertainty, Sales and Processing delivered record strong results. As commonly indicated in the previously quarterly presentation, we have increased our MAB capacity to purchase a traffic-light auction and the conversion of eight development licenses on OF1 and already know we have made good use of this as the biological development in the sea has been very good in both Central and Northern Norway.

On Iceland, a successful private placement and listing was completed in October. And at the same time, the company has changed name to Icelandic Salmon.

Björn will give you more details on this later on. The board recommends a dividend of NOK13 per share.

To give you more details, I will now give the word to over CFO, Trine, table is yours.

As usual, I will start with the Farming Central Norway, we harvested 30,100 ton in Central Norway in the quarter with operational EBIT of NOK526 million and as an EBIT per kilo NOK17.51. Strategic and operational focus over time has resulted in a strong result with good biological and operational performance.

We did harvest a relative high volume in the beginning of the period, combined with high average weight that has given us a good price achievement in the quarter. This spring-2019 generation, accounted for more than 60% of the harvest volume, with continuous strong biological performance and low cost level.

We started harvesting out from the autumn-2019 generation also with good biological development and our Ocean Farm 1 was the main contributor. In the current quarter, quarter four, we will continue harvesting from autumn-2019 with good biological status and good growth in this recently.

We are already utilizing the increased MAB capacity since we are increasing our biomass. At the same time, increased MAB gives us flexibility to optimize the harvest profile on terms of the salmon.

We expect costs to be at the same level in the quarter four. And the volume guidance for the year is kept unchanged, when it comes to guiding for next year.

Gustav will comment that later on. Over to Farming Northern, we did harvest 5,300 ton in the quarter with operational EBIT of NOK61 million, which gives EBIT per kilo NOK11.55.

As for Central Norway, this is also strong result, whereas spring 2019 has accounted for the volume with strong biological development in the period. Nevertheless, the result is negatively impacted in favorable due to harvest distribution as the entire volume was harvested in the last month, the period where the prices were lowest in the quarter, but high average weight has partly offset a negative impact.

The biological status in the sea is good. And also here in Northern Norway, the growth has been very good, meaning that we are utilizing the increased MAB capacity that we recently has bought.

We expect costs to be at the same level in the quarter four, where we will continue to harvest from the same location as for quarter three. As for the Central Norway, the guiding for the year is kept unchanged at 49,000 ton and we expect significantly higher volume in the quarter four.

When it comes to guiding 2021, Gustav will comment that later on. Sales and processing; sales and processing delivers an operational EBIT of NOK156 million in the quarter.

This is a very strong result in a period with high market uncertainty due to COVID-19. Actually, it's the second best quarter ever for sales and processing in SalMar.

However, we're still focused on local processing, strengthens the results. Combined with higher volume to harvesting and processing plant and solid operational performance, this has given strong margin from our harvesting and operational activities and spot sales.

As expected, the quarter has given a lower price level due to seasonality. This has given increased positive contribution from our fixed price contracts.

The contract share was 25% in the quarter. In quarter four, the contract share is expected to be at the same level around 35%.

Construction of InnovaNor is continuing as planned. And in the quarter, all the leaders for each department has been employed, which will start the work in January 1 next year.

We look forward to the summer next year, when we can use the facility and process our own fish locally on SalMar. Icelandic Salmon; as mentioned in the previous quarterly reporting, Icelandic Salmon delivers a weak result in this quarter.

We harvested 1,700 tons with operational EBIT negative with NOK22 million and negative EBIT per kilo NOK12.89 – NOK12.81, sorry. The result is impacted by high cost and weak price achievement.

The 2018 generation accounted for the volume in the period and was finished in the quarter. As previously communicated, high mortality earlier this year has led to high cost level on this generation.

In addition, seasonality, low prices in the quarter has affected Iceland significantly with challenging freight condition. In addition, the company, that can sell most of its volume in Europe, hasn't got the same positive currency impact effect as the Norwegian business.

But the good thing is that the 2018 generation is now finished, and in quarter four, we will have already started to harvest out from the 2019 generation, which has shown significantly improved biological performance and lower cost lower level. But the period we are in right now, with low spot prices, will continue to affect the results from Icelandic Salmon also in quarter four.

Volume guidance for 2020 is kept unchanged at 12,000 ton. And as such, we therefore expect higher volume and lower cost level in quarter four.

For next year, we expect to harvest 14,000 in 2021. The name of the company has been changed to Icelandic Salmon to strengthen the brand SalMar.

And Björn Hembre will tell you more about that later. At the same time, in October, a successful private placement and following listing on Merkur Market was completed.

Through this, we have gotten aboard strong institution in Iceland with us to further develop the company and also to work to develop the sustainable salmon farming in Iceland. This is something we in SalMar are very pleased with and something that we strongly believe is important for Icelandic Salmon to succeed in a way forward.

Scotland; Scottish Sea Farms harvested 8,100 ton in the quarter and delivers a good operational EBIT of NOK101 million and EBIT per kilo NOK12.45. The volume harvested in the quarter is according to our expectation and plans.

We harvested out from all region in the period with good results. The positive development with lower cost compared to previous quarters continuous, due to good biological performance with good growth and low mortality rates.

Volume for 2020 is kept unchanged at 26,000 ton and the company expects to harvest 36,000 ton in 2021. And some comments to the financial updates.

I would start with a comparison with the previous quarter. First under the Norwegian activities.

We have a reduction in EBIT per kilo of NOK4.32 compared with previous quarter that is due to limited decrease in net sales price due to strong price achievement, despite lower spot price, comparing as that every spot price quarter to quarter is NOK10.30 lower in the quarter. Costs are slightly higher due to change of harvesting generations.

So that is the main explanation. And at the bottom, we are doing the same comparison for the group where we also include the Icelandic Salmon.

P&L, some comments to the P&L in quarter where we compare with the same period last year. Higher revenue due to increased volume and stronger price achievements despite lower spot prices.

We see that both EBITDA and operational EBIT is increased as a consequence of this combined with lower cost. We have also some fair value adjustment this quarter, and it's negative due to time factor in present value calculation, longer time to harvest, despite higher volume in the calculation.

Other financial items, negative due to transition to hedge accounting. Income from associates that is mainly from Scottish Sea Farm both in 2020 and 2019 were positive this quarter due to improved results.

So comparing group EBIT per kilo from the same quarter last year, we have improved prices even our stock is lower and we have lower cost. Balance sheet.

Some comments to the balance sheet. And there we are comparing to the last quarter and the quarter two.

Investments are progressing according to plan, increasing noncurrent tangible assets, noncurrent intangible assets are increasing following an investment in the traffic light auction and the conversion of the development licenses. Standing biomass are higher, both comparing same quarter last year, but also previous quarter, both in number of fish also in average weight.

Net interest-bearing debt that's now including leasing, as well have increased with NOK1.6 billion in the quarter. And we have – the total figure is now NOK4.1 billion.

In total, still a solid financial position with an equity share of 55.4% and including leasing ratio towards EBITDA is 1.03. And also worth mentioning, we had the successful private placement for Icelandic Salmon that was completed in October, which will increase the equity from quarter four.

Some comments in the movement in net interesting-bearing debt for the quarter. Starting to the left including also leasing, EBITDA increase, reducing the net interesting-bearing debt and then you could see that then made sure item here is the investment.

We have our CapEx program ongoing, and also Gustav will show you some nice picture later in the presentation, but the biggest single item here is the licenses from the traffic light auction. We expect to invest approximately NOK1.6 billion in Norwegian operation in 2021, now that is maintenance investment NOK0.3 billion and capacity investment NOK1.3 billion.

Other potential investment will be announced when final investment decision is taken. And we also expect to investment approximately NOK170 million in the Icelandic Salmon in 2021.

Results so far in 2020 have shown that SalMar is well positioned to handle the demanding market. We have delivered strong operational financial result, and therefore also maintaining a solid financial position.

For the Board of Directors in SalMar, it's important that the company has a solid balance sheet and a solid liquidity resource, which the figure from quarter three clearly indicates. At the same time, the Board wants to provide our more than 8,000 shareholders, a competitive and attractive return on investment by paying out surplus liquidity, taking into account of future growth plans in SalMar.

The Board therefore recommends dividends of NOK13 per share for the financial year 2019 to be paid out in December 2020. At the same time, the Board has also updated the dividend policy with long-term financial goals and the clarification of the payout forms of dividends.

The financial – long-term financial goals is set to EBIT including leasing ratio to EBITDA. So in the long-term, it will be in the interval of 1 to 2.

Given that the company, so within this interval and taking into account future investment, intention is to payout surplus liquidity. In addition to ordinary cash dividends, the company will also aim to return capital to the shareholders through share buybacks in the market for later consolation.

More information is available in the notice of the extraordinary general meeting for December 4, 2020. And for clarification, dividends for the financial year 2020 will as usual be announced at the next quarterly presentation.

Then I want to give the floor back to you. Gustav?

Thank you, Trine. Thank you for a good presentation.

Before I pass it over to Björn, I would like to briefly inform why we – in SalMar, believe in salmon production on Iceland. For us, there are some key criteria that must be in place.

It is important for us that the production is sustainable and on the salmon terms. And we find that starting point on Iceland.

It all starts with good biological conditions for the salmon. Iceland has this both in relation to water quality, temperature, location, and so on.

Iceland has also had a strong history and culture on living over what the ocean has to offer. This combined, we knowhow on the farming industry from Iceland combined with SalMar experience gives a good foundation for the continuing development of Icelandic Salmon.

With all this, there is ocean of opportunity on Iceland, but it will take time to reach the full potential. Iceland also has room for growth through both increased utilization of existing licenses, but in the longer term, also with opportunities for expansion of current capacity.

Bjorn will now give you more insight – sorry, Björn will now give you more insight into how we think about the way forward on Iceland. Björn has a long history in SalMar and he knows both in the SalMar culture and the mindset in SalMar as well.

Combined with the culture and knowledge that lies in Iceland is a very good starting point. But before I give the floor to him, we want to show you a video that shows the idea over wonderful colleagues and all my staff are working every single day.

[Video Presentation]

Thank you, Gustav. And I can confirm that natural condition in the Iceland is very good for salmon production.

I found that salmon has today maximum allowed by market 25,200 tones in the Southern part of that West Fjords to Iceland. We have additional applications for 14,500 tons, 10,000 in Ísafjarðardjúp, which we expect in 2021 and 4,500 tons in Arnarfjörður, which we expect in 2022.

We put a 50% chance on both of these applications that we get them. So far all licensed applications on Iceland have ended with our license.

We see a potential for organic growth to our existing licenses for the coming two to three years, and expect to see an effect for the new licenses in 2023 and 2024. Our goal is to harvest 30,500 tons in 2024 if we have the new licenses in hand.

We have a fully-integrated value chain in Icelandic Salmon for our smolt production, we have two small plants, Bæjarvík with our capacity or 2 million smolt and we own 50% of Eastwood on the South Coast of Iceland with a capacity of 2.5 million smolt next year, a total of 4.5 million smolts in 2021. If there are available smolts in the market or good quality, we are also open for by that.

Our Seawater sites are located in the West Fjords, Arnarfjörður, Tálknafjörður and Patreksfjörður with a total maximum allowed biomass of 25,200 tons today. Then, we have our harvest plant in Bildudalur, with a capacity of 30,000 ton today.

And in the harvest plant, we also harvest the salmon for neighbors, Arctic Fish. Our sales department sells all our fish out in the markets, which is mainly Europe, U.S.

and China. Europe has the latest time in our far biggest market due to the logistic and the market challenges in U.S.

and China. We have taken the first step towards branding of our fabulous product or changing name or the Norwegian mother company to Icelandic Salmon.

We think that there is a value to catch on the origin of our SalMar, the sustainable production and strong seafood heritage on Iceland. We see that other salmon producing regions are able to catch a premium by promoting the benefits of the production like the federal Ireland and Scotland, and we feel our product might be even more unique and that should give us a base for getting a premium out of the market.

The fact that we are in a global scale, a low-volume producer after all is beneficial in this process. This is our job that I’ve just started and I know building up a strategy towards promoting this brand when we have everything in place.

We feel that we are getting in a position, where we will provide a long-term value creation on our licenses in the West Fjords of Iceland. We have been operating over some years, learned from lessons, but have seen that we are able to compete cost-wise with older salmon producing regions.

We see that we have benefits when it comes to infectious diseases like PD and ISA that is not all Iceland and on sea lice as well. There, we are able to have lower costs than our competitors on these matters.

Then, we have a slightly higher cost for transport into the market that we see an improvement – and we see an improvement that are based on the fact that the scale of the production is coming up. The licensed portfolio is attractive and should, over the coming years, take us over 30,000 tons of harvest volume.

We see that is our strength that we are fully integrated and have a control of the value chain from hatchery to sales. There is a strong focus on sustainability within the company, and also by the Icelandic government.

there is made our risk assessment by the Marine Research Institute of Iceland for protecting the mine stocks that is made for East Fjords and are evaluated every third year to see that the following farming don’t affect the live stocks – wild stocks. Last time, this was evaluated – last year and then it increased from 70,000 tons to 106,000 tons on Iceland in total.

The Marine Research Institute also calculates the carrying capacity for East Fjords, so that there will be no overload or organic waste. In Icelandic Salmon, we have a dedicated management team that get away very good backing from salmon and we work to develop the company culture through the Analog Academy, similar to the SalMar school, trying to build a good culture in the company.

We also have been active in developing vocational training together with the expected school in Iceland and that is our very important part of building infrastructure for the industry on Iceland.

Thank you, Björn. In my presentation, I often speak about static and operational focus.

Therefore, I want to spend some time on detailing what I really mean about this. We shall have sustainable value chain; build on that terms of the salmon from the road to the finished product everything we do must be done with the salmon and the customer in focus.

This start at the very beginning with the row, we must have the right row with the right qualities for us to succeed on the entire value chain and we must have the right flexibility and capacity to produce and deliver the right smolt, with right quality and size and at right time. We shall produce this in the optimal location that has the optimal growth conditions for salmon with a minimal footprint.

This means that our production needs to be adapted to each individual locations, conditions, with the right smolt, right people and the optimal operation regime. Through good fish welfare, this gives us the best salmon that is ready for harvesting when the salmon has reached its potential.

This means that we must have the right flexibility and the capacity to handle a fish when it arrived to our harvesting and processing plants. For local processing, so we can maximize the value creation of the salmon in the market.

The fact that the salmon is harvested when it really gives us the best quality, flexibility, and capacity means that we can meet market requirements; both in terms of volume and product type, this to ensure that we have the best product for our customers all around the world. This is what we work with every single day and this is only possible with a strong culture and a fantastic, and please we have the experience, see the opportunities and a willingness to go the extra mile and make sure that we are in that front position every day.

In the strategic and operational focus in the entire value chain that is the basis for the large investments, we now make in a robust platform for future growth. People on culture, even in a challenging time with a COVID-19, we must ensure that everyone is seen, and that is safe to go to work.

This means that we must comply with all the measures we impose to reduce the possibility of infections, while maintaining the passion and energy for what we are working with the salmon. We will continue to take social responsibility and we will ensure that we continue to focus on the solution and that everything, we do today, we’ll do better than yesterday.

On the smolt; in smolt development on Senja is well underway. This would be an important competence center for us in our future growth.

At the same time, we are continuing the planning of a new smolt facility in Central Norway and we are in the final phase of using a completely new closed net open for post-smolt production in the sea. The coastal farming.

We said that release in the details when it comes to optimizing our coastal production. We’re constantly working to improve ourselves and we will ensure that we share the best practice, so we can minimize the difference between a good and a less good performing farms.

In this way, we will ensure an even more optimal utilization of our location and our MTB. Offshore farming.

A milestone has been reach when we have converted that the development licenses and we are now planning for the next smolt release in OF1. At the same time, we have started a project, where we look at the possibilities to build a new ocean farm unit for use in the exposed sites within the current production regime.

We’re planning for a new open ocean unit to Smart Fish Farm is continuing as planned. In all these projects, we take you those all the learnings the first two production cycles of OF1 has given us, where we will make all the necessary improvements for our way forward.

In the next quarterly presentation, we plan to bring with us Olav-Andreas Ervik, which is the CEO in SalMar Ocean, who will give you further details and how we think about the way forward in offshore farming and how all of this can be a significant growth catalyst for the entire industry. Industry and sales, [indiscernible] with high market uncertainty has shown us how important it is to have a flexible local processing capacity.

In the one word, it's moving forward as planned and we look forward to the summer of 2021, when the plant is ready for its first harvest. At the same time, we can go, it's now on the final phases for upgrading its plant, which will be completed in the end of this year, and will be in full production from January 2021.

So to the outlook and we are going forward and we'll continue with our strong operational focus. Again, what we do today, we do better than yesterday.

We will continue to have focus on the things we can impact and do something with. We have good financial results come from good biological conditions and operations on the salmon terms.

SalMar wish to – and strengthen our position as the technology leader in the aquaculture industry, to become an even larger contributor for sustainable growth in the future. Therefore, our offshore project are continuing as planned.

This will also make us more robust to handle demanding period in the future. To be the strong and robust platform for future growth, we expect to invest NOK1.6 billion in Northern Norway, and $170 million in Iceland in 2021.

As mentioned by Trine, the board recommends a dividend at over NOK13 per share. At the moment, we are experiencing good biological status in the sea in all our regions.

The volume guidance for 2020 is unchanged and increased MAB [ph] have given us the ability to optimize over harvesting profile. Overall, we expect slightly higher volume and cost at the same level in quarter four, significantly lower volume and stable cost in Central Norway, significantly higher volume and stable costs in Northern Norway and higher volume and lower cost on Iceland.

The contract share is around 25% for quarter four. In 2021, we expect future growth in volume in Norway 163,000 ton, Iceland, 14,000 ton and we expect 36,000 ton in our associated company in Scotland, Scottish Sea Farms.

We expect low supply growth in 2021, the same time – at the same time Covington has lead to increase market uncertainty, somewhere it’s well positioned to handle at the mining market with strong operational and financial flexibility, another positive view for the future for salmon. Our job is to implement the measures that strengthens us today and at the same time will make us even stronger going forward.

We focus on the solution, not the problems. With this, we have come to the end of our presentation and we'd like to thank all of you who have been watching.

Our next quarterly presentation will be in February, until then, we hope you all stay safe and healthy and eat a lot of salmon. Thank you very much.