Atlantic Sapphire As

Good morning, America. Good afternoon, Europe. Good evening, Asia. Welcome to the Atlantic Sapphire first half 2024 report. My name is Gunnar Skinderhåg. I'm the CFO of the company. Together with me, I have Pedro Corar, who is the CEO of the company. Pedro will start with an operational update. I will continue with a financial update. And then Pedro will finish off with some closing remarks. So, Pedro, over to you. Thank you, Gunnar.

Hello, everybody. As mentioned by Gunnar, I will start making the operational update, and then I will give the word to my colleague. Okay, moving to the company highlights. Main highlights are as follows, starting by the normal statement said in previous presentations. The combination of our permits and licenses together with the closeness to a huge market should give the company all the competitive advantages required to become a unique supplier in the United States. We have stabilized our production, which in this kind of business is key. That means we are starting a period where we plan to achieve the full utilization of phase one while we prepare the next step by finishing the phase two decision process. Our plan, together with better size of fish as well as consistent production, is to increase our prices and at the same time optimize the operation in terms of performance and cost. Once phase two is in full operation, we estimate an EVTA generation above $100 million, considering a margin of $5 per kilo hog. The process will be performed by the combination of the competence of the existing team with the new management focus in adding value and fulfilling committed plans. We have defined a company business plan divided basically in three stages. Stage one called proof of concept will have as an output the proof that the farm can raise fish at all the required characteristics to be sold at a premium price in the American market in stable farming and biological conditions. This stage is expected to be realized by the end of 2024. Stage two, called resiliency and efficiency, running in parallel with stage one, will be the step to optimize phase one by fixing main bottlenecks that are currently limiting our production capacity as well as our feed conversion rates. The final output of the stage should be deemed cash positive by the end of 2025. And stage three, called phase two investment decision, correspond to phase two investment decision. We plan to finish all the design and the engineering by the end of first quarter 2025, allowing us to have the final capex that will permit to make the final decision. In term of biological development during first half of the year, From one side, we had the consequences of maturation events in summer 2023 due to high water farming temperatures. This situation produced bad quality fish, both in terms of color and average size, affecting sales price. On the other hand, and due to operational improvements done by the end of 2023, mortality during the first half was very low, even much lower than traditional farming industry. Being a very positive aspect low mortality results in a bigger stock of fish that was not possible to feed well with current feeding capacities forcing us to make elimination or early harvest of very small fish having also as consequence lower prices however and is it possible to see in the graph All this process ended with current very good picture in term of biomass distribution, where for the first time in the history of the company, more than 30% of the fish is about 2.5 kilos, showing a very good perspective. In term of harvest, during first half, we harvest 2.4 thousand tons of hog off of fish, which is a record and a much higher volume compared to same period in 2023. We expect a similar level of harvest for second half, but at much better harvest average weight and better prices, especially during last quarter. As part of the stage one, the change done in the second half of 2023, like the installation of new chillers to avoid future maturation, the elimination of different bottlenecks, the implementation of new protocols and the change of our technical service from reactive maintenance to preventive one, has allowed us to stabilize water quality, producing a drastic drop to normal water temperature level, as well as very low mortality. Low mortality in a rust operation is one of the main indicators of good farming conditions, which is, without no doubt, the main challenge in a land-based operation. This graph is probably the best way to show difference in performance for different groups of fish. The graph shows the evolution of average weight for different groups for the same farming periods. As reference, we have light blue lines that correspond to the Denmark curve and in dark blue our current growing model. Then we have in red line our historical batches and in green current batches from 28 to batch 34. As it is possible to see, new generations are coming with much better performance, not only compared to previous batches, but also compared to our model. The impact of that, especially in batches 28 and 34, will be a better tank volume utilization of the farm, an increase of the superior chair product, and final, an improvement of cost and the reduction of rust load. What do we understand of proof of concept? For us, and that's very important, proof of concept will be a stable production in many aspects. First, we consider four consecutive weeks of average weight above or equal to three kilos hock. a biological feed conversion rate below 1.3 for harvest fish, and at least 80% of harvest in superior grade. We will need to have stable farm operations for 12 months. That means monthly average water temperature below 14 degrees for our ungrown phase and monthly mortalities below 1% per month. In land days, one of the production restrictions is the feeding capacity, which is directly linked to the capacity of the system to keep good water quality. Since Q4 2023 today, feeding rate has been constantly increasing through the elimination of part of existing bottlenecks. In this stage, from November 2024 onwards, we are planning to make improvements to increase the water quality and, in consequence, increase gradually our feeding capacity to reach, by the end of 2025, an estimated annualized harvest volume of 8,000 tons, defined as a breaking point to move to cash positives. To increase our feeding capacity, we will need to do some investment. First, oxygen and ozone distribution system. Second, water flow improvements. And third, degasser and skimmer capacity. The combination of these three investments is what we are thinking will help us to move from 23 tons per day of feeding to 33 tons per day of feeding. Also, we plan to invest in a new water well to serve both phase one and phase two. We are now working in the final step of phase two. Phase two design is considering all the improvement and the lesson learned from phase one. After we finish the engineering and the design of phase two, we will start with the tender process in order to have the final investment required for this important step. Now I will give the word to Gunnar who will explain the financial update.

Gunnar, thank you. Thank you, Pedro.

The company is in a bit of a paradox. With good biological performance, stable growth, increasing fish weight, stable conditions, while the financial situation is a very challenging one. For the first half of 2024, the main negative deviation from plan has been that the fish has been smaller than estimated. Partly because the facility has a capacity limitation and partly because we've had too many fish compared to the feeding capacity. The sales price in the first half has been low and lower than expected. In the first quarter, we harvested fish with early maturation issues due to prior high temperatures. The growth of the fish was slow and the price achievement was low. In the second quarter, we harvested mainly fish of small size, with sales price far lower than expected. The lower sales price have given lower revenue and thus lower cash flow from operation. This is the main negative deviation compared to earlier plants. In addition, the low average fish weight has reduced access to revolving credit facility with DNB under the bowring base, as smaller fish gives significantly lower borrowing base. We have taken measures to improve the situation, both short-term to reduce the number of fish affecting harvest weights in the summer of 2024, then mid-term to improve the capacity of the farm by removing bottlenecks. This requires both capital for capex items and operational activities as we have realistic plans to build up the feeding capacity. Hence the company needs additional capital which I will come back to. We have had a harvest volume of 2,395 tons in the first half of 2024, and a revenue of $11 million. Revenue is higher than last year, despite small fish size and low sales price of $4.6 per kilogram. However, on premium fish, we've had consistent price achievement, although very low share of premium fish during the last quarters. EBITDA of negative 40 million and also lower than the same period last year, despite production cost is lower this year. However, the EBITDA per kilogram with a sales price of $4.60 per kilogram is negative, and thus increased production explains the negative development of EBITDA compared to last year. EBIT is negative 48 million, And with four million US dollars in net financial costs, we have a net loss of 52 million US dollars for the first half of 2024. Total assets is 328 million US dollars. Net interest bearing debt is 23 million US dollars and the equity ratio is 80 percent. Revenue is higher than last year, as mentioned, driven by the higher sales volume and offset by low sales price per kilogram. Cost of goods sold is close to $20 per kilogram, still affected by low production volume in the facility and poor FCR, especially on mature fish. However, cost of goods sold is around half the level it was the same period last year. Salary, personnel cost and SG&A cost is affected by litigation costs related to the aftermath of phase one construction, change of management and employee share option program, as well as provision for bad debt and higher cost of property insurance. With regards to the balance sheet, cash balance is 10 million US dollars plus an additional 15 million US dollars in restricted cash. We have capex of 6 million US dollars in the first half, half mostly tied to phase two preparations. But the total capitalized cost is 130 million dollars at the end of June. On the debt side, we have drawn $6 million on the revolving credit facility with DNB and have $11.4 million undrawn on the facility. Long-term debt is $41 million, and the Phase 2 loan of $100 million is undrawn, and we are canceling this loan in order to reduce the commitment fees to the bank going forward.

With regards to the segments in the company, all attention is now on the U.S. operation. We are considering to divest the remaining Danish assets.

For the first half, both Q1 and Q2, we have realized good prices on Bluehouse premium products. However, the share of those products have been low. The average sales price has been around 4.6 US dollars per kilogram in the first half and was driven as mentioned by harvesting of mature fish and small fish. Both neither qualifying for premium market prices. Our ambitions are unchanged. Harvest size will increase with the measures taken and we are targeting 12 US dollars per kilogram on average for the volume

from the current facility under stable conditions and production when production is ramped up. As Peter already has mentioned, we have strong focus on continuing developing Atlantic Sapphire.

The most significant development is the completion of phase two, which is a very different facility than the current phase one facility. Design is based on all the knowledge we have gained in phase one over the last six years, and also with extensive use of vendor experience and involvement. Phase two will enable a potential also in phase one, in addition to adding total capacity to Atlantic Sapphire production. The company has not performed any pricing activities, so we are basing the estimates for completion of phase two on prior estimates. However, we acknowledge that there has been significant inflation and there's also been some changes in design. We estimate the total capex for phase two completion to be between 350 and 400 million US dollars, of which 113 million US dollars are already invested. There are significant economies of scale effects for the operations here in Miami. Phase one alone is expected to give an EBITDA of between 10 and 20 million US dollars annually at scale. Phase one and two combined is expected to give an EBITDA of 125 million dollars when fully ramped up per year. For the following quarters, we will develop a new well for phase two and continue engineering, pricing and together with providing proof of concept from phase one, work on financing for phase two. For financing, we have a capital need of 94 million US dollars to get to a cash positive phase one. Included in those numbers is 11 million US dollars for development of the phase two well, as Pedro mentioned. Beyond that, we are investing 25 million US dollars into phase one improvements and the bottlenecking items. And we are increasing the working capital with 19 million US dollars through build up of biomass and accounts receivables. Operational costs are 29 million US dollars net and finance costs and general company purposes are 10 million US dollars. The capital will be covered by three main sources. Number one, existing debt facility with DNB will be amended with no installments over the next 18 months. Reduction of restricted cash of five million US dollars and the cancellation of the commitment of phase two loan, which gives a lower commitment fee. Two, subscription rights issue of up to 60 million US dollars. which is fully underwritten by a list of guarantors. The subscription price will be 0.10 NOK per share and shareholders will be given warrants to subscribe for their shares. Convertible loan of minimum 20 million USD directed at two investors. with a six-year tenor, an 8% cash interest or 10% peak interest at the company's decision. The combination of rights issue and convertible loan will be 80 million US dollars. Then there will be warrants issued for the participants in the capital raise. which will be available to be used for the future phase two expansion funding. Guarantors and subscribers from this round will be given warrants to subscribe for shares under certain conditions in the future phase two financing round. And for further complete information on this, please see separate message published on the USWeb.

And I'll pass on the words to Pedro, who will do a closing statement.

After a probably longer challenging period than expected, Atlantic Sapphire is embarking now on a new chapter of its history. As we have presented since October 2023, the most important productive parameters like biomass gain, feed conversion ratio and mortality were stabilized. We have prepared the farm to progressively increase its standing biomass and output and project to start harvesting with premium commercial pricing from October onwards this year, proving the feasibility of the business plan, at least from technical perspectives. While this proof of concept is achieved, we will start additional investment that will allow us to increase our production from the current annualized level of 5,000 tons hog to 8,000 tons hog by the end of 2025, production level that is required to reach gas flow positive operations. In addition, we plan to finalize the design and engineering for phase two in the first quarter of 2025. Once phase two is fully implemented, Atlantic Sapphire should reach a very healthy profitability, compensating the shareholders that have had the courage to invest in the most advanced land-based company and in a technology that will probably be the future of the salmon industry in the world. When Atlantic Sapphire was created, one of the drivers to justify the project was that production salmon in the largest market in the world would have advantages in terms of cost by eliminating air freight from Norway and Chile, as well as a fresher product thanks to the proximity to the end consumer. To these two drivers that still fully apply, An additional one, probably more powerful, has emerged during the last 10 years. The projected production limitation from traditional salmon farming is here. For those of us who come from the traditional salmon farming industry, it's not a secret that every single year producing in sea farms seems to be more complex with a sustained increase of cost. Reason behind this new scenario can be attributed to climate change, sanitary challenges, but also to political pressures and regulations coming from the authorities, environmental NGOs and other agencies. While the demand for an amazing protein like salmon continues to increase, the supply will continue to be limited, opening the door for future production technologies land-based being the most advanced one and Atlantic Sapphire being the most prominent project of the planet. Currently, Atlantic Sapphire has all the required components to fill part of the gap between supply and demand of salmon. The experience gained at a very high cost is today probably one of the main assets and consists not only of specific production practices, but also a fully committed and very competent human capital. The appointment of new professional to the management team with experience in the aquaculture industry will permit complementing current capacity for future steps. Our vision of the future is a realistic one. Despite being full of ambitions, we are pragmatic and we know we will need to commit the best of ourselves to recover the market's confidence. We have a big task in front of us, but we are convinced that by strengthening what has been done well, avoiding what has been done bad, and continuing to look at the future with an innovative view, we will achieve what we all of us are looking forward to. Thank you everyone, and I give the final word to Gunnar.

Thank you very much for attending the presentation. We will not take Q&A here in this session, but you're welcome to reach out to Investor Relations at AtlanticSapphire.com for investor questions or AtlanticSapphire at BrightRadAgency.com for press questions.