Atlantic Sapphire As

Hello, everyone, and welcome to Atlantic Sapphire's presentation of the 2023 half-year report and operational updates. I am Johan Andreasen, and with me to present today, as always, is our CFO, Carl Øyhag.

I will start with some highlights from the first half of the year.

The focus has been on heavy infrastructure upgrades and operational improvements. We had approximately 2,100 tons of gross biomass gain and harvest volume of 870 tons hog. We saw a decrease in revenue driven by lower volume, partly offset by higher sales prices. We had a consistent price achievement of approximately $12 per kilo hog on our premium fish. There was an increase in overall cost per kilo of biomass produced compared to the first half of last year. We did an internal reorganization of the company to streamline the organization and strengthen the operational resources. Our phase two construction is currently focused on design and optimizing quality and costs of the project, while limiting actual capex for the project to a minimum. and we successfully completed an extension of our debt facilities with dnb to april 25 and we did a 55 million dollars private placement here is a timeline of 2023 so far and an outlook for the rest of the year from january through april the focus was on the heavy infrastructure upgrades and operational improvements requiring production to be put on hold as we had biofilter and flow restrictions. This resulted in lower harvest rates. The upgrades done are setting the stage for a good and safe production environment going forward. The net production in this period was negatively impacted by higher than normal mortality rates. Following that, we had a good period in May and June, where we saw good conditions and productivity. During that time, we had stable conditions and low mortality, and we saw what our farm is capable of. We saw feeding capacities and growth rates in line with our expectations. Then, unfortunately, we started to experience temperature issues in the farm, which resulted in slower growth and restricted feeding once again. I will get into more details about the temperature issue on the next slide. This will result in lower harvest weights and potentially higher the percentage of downgrades in the second half of this year. This setback will also result in reduced harvest volume and revenue for the second half and a delay to achieve what we call steady state biomass and production.

Looking forward,

And as we put these challenges behind us, we do expect to achieve the targeted temperatures in the farm by the end of September, which will create a stable production environment and gradually improving the biological performance. To give some guidance for the rest of the year, we foresee a Q3 harvest volume of approximately 400 tons hog and a ramp up in harvest in Q4. that can range from 750 to 1500 tons, depending on how fast we achieve stability and how the fish responds to the improved conditions. We currently have about 2700 tons of standing biomass in the farm and more than enough numbers of fish to get to steady state production. Now over to a deeper dive into the temperature issue that we have mentioned previously, the cause, the consequences and the path forward. We have had higher than expected downtime for maintenance and repairs of the rental chillers. Since we underestimated the need for more redundancy in cooling capacity, we have seen temperatures increased in the farm. In the graph on the right hand side, you can see our daily average deployed cooling into the facility the last four months and how temperatures in the farm are going up when our amount of cooling goes down and that it stays stable when we have a high percentage of uptime on our external chiller bank. As you can see, we have never been able to utilize 100% of the design capacity due to downtime. High water temperatures is bad. It may lead to higher maturation, reduced growth, increased feed conversion ratio, a higher risk of anaerobic conditions, higher oxygen consumption, higher caustic consumption, higher turbidity and higher ammonia toxicity. Long story short, it makes it very difficult to operate the farm. The solution to this is that we will install five additional chillers in September, adding 45% more cooling capacity. This is resulting in more redundancy and a large overcapacity. In addition, this will give us an opportunity to reduce the average electricity price by deploying more cooling during off peak hours and less during peak hours. In addition, a recently installed heat exchanger, or pre-cooler as we call it, will allow us to cool the well water coming out of the ground and into the farm from 26 Celsius to 12 Celsius, allowing a distribution of large volume of cold water across the farm once the new chiller capacity is online. recent fish sampling does not indicate that we have a spike in maturation levels but the status of the biomass including maturation will be monitored closely going forward so over to price achievement We have seen good development of branded sales and programs for superior quality product, and we keep seeing great engagement to our brand promise and attributes. We are now focusing on new value-added convenience and ready-to-eat product lines, such as smoked salmon. Our current footprint is stable at about 2,000 retail locations. As expected, our price achievement in Q2 was affected by a high share of downgrades, but we do expect the percentage of superior fish to increase from Q4. Long term, under stable conditions, we expect 80 to 90% of our harvest to be sold at the Blue House premium price, raising the average price achievement considerably. We are targeting approximately $12 in average price achievement once we are in steady state production. With that, over to you, Carl.

Thank you, Johan. So starting with the phase two capex status as of June 30th, we have invested approximately $104 million as of mid-2023, with cash conservation still being in focus. Looking into the second half of the year, we expect to spend approximately $7 million in CAPEX. This is roughly half of what we spent in the first half of this year. The focus continues to be on value engineering and optimizing the cost and quality of the remaining Phase 2 projects. Until we have a new updated budget in place, we continue to expect total capex for the project to be in the 275 to 300 million dollar range. But note that this estimate hasn't been updated for a while. In conclusion, phase 2 construction spending will be kept at a minimum until phase 1 breakeven is accomplished. Moving over to the financials for the first six months of the year and starting with the summary of the key figures. As announced in our trading update earlier this month, we had revenues of 8 million dollars in the first half and an EBTA of negative 36.4 million. If we exclude the effect of fair value adjustments on the results, The EVTA adjusted was negative 33.5 million in the first half, compared to negative 33 million in the same period last year. After accounting for 14.6 million dollars of capex, we ended the first half of the year with total assets of 366 million dollars. On the next slide, we dive deeper into the P&L statement. In total, we harvested 870 tons head on gutted in H1 2023, down from 1,217 tons in the same period last year. Revenue per kilo was slightly higher than the same period last year. Diving into cost of goods sold, These were up by 4.3 million dollars year over year, despite the lower harvest volume. This is explained by a mortality cost of 7.2 million compared to 1.3 million in H1 2022. Further, we incurred 13.4 million of indirect production costs expensed through cost of materials for underutilized capacity in the first six months. which is 5 million dollars more than the same period last year. The underutilized capacity charge is linked to how much we fed compared to the theoretical feeding capacity of the farm. The higher the feeding is, the more production costs are allocated to the biological assets on the balance sheet. In the first half, we incurred around $5 million in extraordinary costs tied to infrastructure upgrades, distributed between higher outsourced labor costs and maintenance costs. With this work pretty much completed, this is expected to return to normal now in the second half of 2023, resulting in a significant reduction in monthly cash burn going forward. Looking at the SG&A, this line item is also down considerably year over year. This is explained by a $2.2 million temporary chill rental costs now being classified as cost of production and upon harvest, cost of goods sold. Last year, these charges had been booked as overhead costs under SG&A. Looking into the rest of the year, we see that cost inflation has eased across most key production inputs, although they still remain at elevated levels. For example, our current feed price is quite stable compared to earlier periods at 2.3 dollars per kilo, including the 30 cents in transportation costs. As Johan discussed, we are hooking up five additional chillers in September. These will add around $100,000 in total in additional monthly rental costs that will be booked under cost of production. In conclusion, we expect lower fixed costs in the second half of 2023 as the infrastructure upgrades are finalized And these charges are returning to normal maintenance cost levels. Our final slide for today is the overview of the balance sheets. The group ended the first six months of the year with $23.6 million of cash on the balance sheets. We have not drawn on the revolving credit facility, isolating our drawn debt to the $44.6 million of term debt. This means that the net interest-bearing debt as of mid-year was 21 million, which is half of the net debt level at the same point in time last year. In addition to the undrawn RCF facility, we also have $100 million in undrawn term debt, earmarked for Phase 2 construction, available. To recap, the availability of this debt is subject to incurrence tests. most importantly reaching EBITDA breakeven with our phase one operation. For further comments on our financial projections and financing considerations, I refer to the stock exchange announcement that we just published together with the first half report, where this topic is covered in greater detail. We'll leave the summary of the financials there. As Johan highlighted, we've faced challenges in 2023, but our focus is on getting the conditions in the farm back on track, which is the prerequisite for getting the biological and financial performance we are here to deliver. Thanks to everyone for your attention. And as always, please don't hesitate to reach out to Johan or myself with any questions.