Income statement forecasting

Exhibit 44: Summary of income statement ratios and assumptions

Historical Forecast CV

* For visual purposes, we only include one historical year.

Gross margin (COGS/Revenue ratio)

The historical ratio has been averaging 58.44% the past two years, which we consider high-end. The rationale behind this is that Aker BioMarine depreciates their producing assets (vessels and Houston facility) in the reported COGS (~20% of the reported COGS is historical depreciation), and the reported COGS is derived from historical weighted average production costs. In accordance with IFRS, actual production expenses are capitalized in the inventory each quarter and new weighted average cost is calculated at quarter-end. Thus, weighted average costs at quarter-end are used as COGS in the following quarter. The lead times are typically six to nine months, depending on the product. The implication of this is that the reported COGS is different than the true COGS. For this reason, we have decided to split COGS and depreciation to paint a clearer picture of how Aker BioMarine's COGS will develop in our forecasts.

Going forward, we expect the unit economic gross margin of the Ingredients segment to increase from ~59% to ~65% in 2022 due to a more favorable product mix with higher margins. I.e., shifting from Qrill Aqua (~30% margin) to krill oil products (between ~50-70%

margin) will boost the overall margins. In the Brands segment, we expect a margin increase from ~47% in 2019 to ~52% in 2022, driven by the contribution from Epion and its high-margin brand Kori, while the gross high-margin of Lang is assumed to be constant. The growth beyond 2020 will steadily increase as the high-margin products drive much of the projected growth. Based on the elements mentioned above, we expect the gross margin to be ~54% in 2022, and following the company guidance, we presume this to be the medium-term margins.

The long-term margins are expected to increase further as we judge the high margin products to be the primary driver of growth, projecting a long-term gross margin of ~61%.

SG&A/Revenue

In the past two years, the SG&A/Revenue ratio has been stable, averaging 30.02%, and we regard this to be the average ratio going forward. A ratio of 30% is consistent with the past performance of Aker BioMarine, and in line with the near-term company guidance (Aker BioMarine, 2020b). In the long-term estimates, the revenues to grow exponentially such that the SG&A/Revenue ratio will shrink as we move closer to steady state, to ~28%. However, the exception will be 2020 with the US launch of Kori, in which we have incorporated USD 15mn of marketing cost to boost the launch.

Other operating/revenue

Fuel consumption

Aker BioMarine expects to use ~35 000MT of fuel annually with the delivery of the new vessel. The company has purchased call options for 100% of its expected fuel consumption for 2021 – 2024, making the line item fully fixed in this period. The fuel consumption is baked in the “other operating expenses” item and will not be forecasted separately. The hedging of the fuel is as follows (Aker BioMarine, 2020b):

Figure 36: Aker BioMarine fuel hedging

Source: Aker BioMarine (2020b)

Aker BioMarine's 2019 cost of fuel was on average ~USD 750 per MT (Aker BioMarine, 2020). The company is still exposed to the spread between the Rotterdam index and the local price in Montevideo, Uruguay, which historically has been USD 200-300 per MT. The total cost of the call options purchased are USD 9mn and will be settled in 2021. The company has not hedged the 2020 consumption, but the majority of volumes have already been purchased.

Looking beyond the period of fuel hedging, it will be challenging to forecast both the fuel consumption due to potential acquisitions (divestitures) of vessels and companies, in addition to the fluctuation of the fuel prices. The fuel cost follows the brent oil price closely, and the forecasting of commodities is highly unreliable. Averaging a full cycle is a better proxy for future prices than forecasts (Petersen, Plenborg, & Kinserdal, 2017). Hence, we will not utilize commodity forecasts but rather look at historical averages to estimate long-term fuel prices.

General operating costs

A significant part of the “other operating costs” item consists of fuel expenses, while the rest consists of general operating costs such as IT, insurance, licensing fees, travel expenses, and

utilities. We expect these costs to continue to be a small percentage of the revenues going forward. These costs are expected to increase slightly with the integration and expansion of Lang before normalizing in 2022.

Taxes, depreciation, and amortization

In certain jurisdictions, Aker BioMarine pays taxes, and in the US, it pays state tax based on nexus (employee and inventory), whereas the tax-loss carryforwards offset federal tax.

Further, the firm has significant historical net operating losses in Norway and expects to limit the annual tax expenses in 2020 and medium-term. The statutory taxes are not expected to change in the coming years. We assume the operating tax will be equal to the average between 2018 and 2019 long-term. The discrepancies and uncertainties regarding the tax elements discussed and the ongoing lawsuit against Norway make it problematic to forecast the carryforwards' outcome. Thus, we do not adjust the projections for the potential upside in the court case or carryforwards.

Further, over the past ten years, Aker BioMarine has invested ~USD 600mn in fixed assets, of which the majority is vessels with ~USD 314mn since 2015. We expect the maintenance of around ~USD 10mn quarterly from 2020 in depreciation in the vessels and the plant, with some increases in the future with the expected investment in a new protein plant, following Aker BioMarine (2020b). Further, the total depreciation is expected to be increased after accounting for the new Antarctic Provider, which is already included in the depreciation in COGS, which is adjusted. Lastly, the company has guided the quarterly amortization of ~USD 4mn related to customer portfolios and the Flexitech production technologies.

Other non-operating items and financial expenses

The projections of non-operating items do not affect the fundamental valuation of Aker BioMarine's core operations as they do not run through the free cash flows. Still, they contribute to the forecasting as a checking account for whether there are any mistakes in forecasting the operating items. This being outlined, we do not expect any radical changes in the non-operating items going forward.

The net financial items include interest payments to external lenders and Aker ASA, in addition to the FX effects. We decided to strip out the FX effects in our projections in the financial items as it is unfeasible to forecast long-term. Consequently, our forecast of "other financial expenses" is set to a rate of 2% of other non-current liabilities, including expenses

concerning a guarantee fee payable to the firm's parent company Aker ASA and does not take into account any future potential FX effects. In 2019, Aker ASA also converted NOK 1bn of debt to equity, which reduces the interest rate expenses going forward. The 2019 interest expense ratio is artificially high as the interest expense is based on last year's borrowing, not considering the debt conversion made by Aker ASA.

Exhibit 45: Income statement forecast and net income reconciliation

Historical Forecast CV

The following subchapter will present and justify the assumptions in our projections of the balance sheet. The balance sheet will be presented at the end of the subchapter after the rationale and explanations. The following balance sheet ratios and assumptions will function as the quantitative basis of our balance sheet forecasts and is summarized in exhibit 46 as follows: