Projection of Ingredients growth

The Ingredients segment was Aker BioMarine's only segment until the Brands segment was introduced in 2019 after the acquisition of Lang. This segment remains at the core of the business today, with 68% of revenue coming from Ingredients in 2019. It is expected to maintain an important role in the firm's business model in the foreseeable future, as this division encompasses krill harvesting and the production of krill meal and krill oil. With the introduction of state-of-the-art krill harvesting vessel Antarctic Endurance to its operations during 2019, the segment has already seen an increase in its revenue contribution in 2020, with the full effect expected to be seen in 2021. With this addressable market in place for Aker BioMarine to manifest its presence, we expect future revenue growth in the Ingredients segment to be driven by three factors: vessel harvesting capacity, offshore production of products, and product price development.

Vessel harvesting capacity

In 2019, Aker BioMarine received their new krill fishing vessel Antarctic Endurance, which ramped up their harvesting vessel fleet from two to three operative vessels. More than 1/3 of the annual total available harvesting quota for all krill fisheries in "Area 48" in the arctic was not harvested in the same year.

Therefore, in an "Olympic Quota" fishing environment, introducing new vessels to the fleet will increase the maximum harvest for an individual operator. Although the players operating in the krill fishing industry today cannot fully exploit the currently allowed quota, Aker BioMarine is superior to its peers in krill harvesting. More precisely, and as showcased in figure 35, Aker BioMarine today captures ~62% of the total harvest in the Antarctic krill fishing region Area 48. On top of this, Aker BioMarine has also seen higher growth than its peers in the last four years, with a CAGR of ~15.4% relative to an overall market CAGR of 9.6%. With recent investments in both technology for re-fits and advanced newbuilds, we believe this trend is likely to continue for Aker BioMarine in the coming years.

Figure 35: Krill harvest development in Antarctic krill fishing regions

Source: Aker BioMarine (2020b)

All three of the company's vessels are custom-built to enable good krill harvest and onboard production and packaging. Central to the firm's highly effective harvesting approach is the use of support vessels that transport krill from the fishing grounds to the shore, so that harvesting vessels can remain on location to continuously fish and produce. The company has one support vessel in operation with another newbuild to be brought into operations in 2021. We anticipate a bounce in the harvest in 2021 once this vessel is introduced to the rotation and as Antarctic Endurance closes in on its full production run-rate.

153 161 201 235

108 99 111 142

359 360 308 243

892 892 892 892

2016 2017 2018 2019

Aker BioMarine Other Remaning quota Area 48 Precautionary quota Area 58

Moreover, there are also entry barriers for competing firms to take a share of the remaining quota. In particular, it requires considerable investments in harvesting vessels, support vessels, and production factories to increase harvest capacity. Aker BioMarine has already carried out these investments, and it is likely to take years for competitors to make the necessary investments to follow suit.

Based on the firm's projections of vessel harvesting capacity from mid-2020, we have developed a forecast for Aker BioMarine's production per vessel, presented in exhibit 37. Our forecasts are predominantly based on the company's projections from mid-2020 until 2024.

Since the release of these forecasts, Aker BioMarine has announced that 2020 harvest numbers are likely to end up below their initial targets due to challenging ice conditions and various technical issues, reducing the utilized capacity of Antarctic Endurance to as low as 62% this year. This was also reflected in Q3 financials reported below initial guidance, which we will discuss later. For this reason, we have adjusted volumes in 2020 to reflect the issues mentioned earlier. According to the firm's projections, production rates are expected to reach their full capacity of ~74 000MT in 2022 before staying at maximum capacity until 2024. From 2024 and onwards, we project that production will continue to increase moderately by ~2% annually due to technical advances and vessel upgrades.

Exhibit 37: Historical and forecasted production on vessel level

Historical Forecast

In MT thousands 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Antarctic Sea 19.1 23.2 18.0 15.0 20.0 23.2 23.2 23.2 23.7 24.1 24.6 25.1 25.6 26.1 Saga Sea 10.1 13.4 15.8 15.0 17.0 18.8 18.8 18.8 19.2 19.6 20.0 20.3 20.8 21.2 Antarctic Endurance - - 7.1 19.2 30.4 32.0 32.0 32.0 32.6 33.3 34.0 34.6 35.3 36.0

Vessel capacity 29.2 36.6 40.9 49.2 67.4 74.0 74.0 74.0 75.5 77.0 78.5 80.1 81.7 83.3

Source: Aker BioMarine (2020b) and own forecasts

Product production and shifts in pricing

The offshore production aboard the company's three purpose-built vessels turns into three products: Pet meal, Aqua meal, and Nutra meal. Historically, the Aqua meal has been the most produced product aboard the vessels by a significant margin. Aker BioMarine has stated that this trend will continue as the capacity increase stemming from Antarctic Endurance will be mostly realized as Aqua meal. Hence, with this vessel at full capacity in 2021 along with the new support vessel, we expect to see a steep increase in production next year in line with Aker

BioMarine's forecasts of producing around 74 000MT between 2021 and 2024. The historical production split and related production forecasts are showcased in exhibit 38.

Exhibit 38: Historical and forecasted production by product group

Historical Forecast

In MT thousands 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Aqua meal 23.8 31.6 33.2 40.8 55.8 60.5 60.5 60.5 61.7 62.9 64.2 65.5 66.8 68.1 Nutra 4.6 4.3 6.4 7.0 10.1 11.9 11.9 11.9 12.1 12.4 12.6 12.9 13.1 13.4 Pet meal 0.8 0.7 1.3 1.4 1.5 1.6 1.6 1.6 1.6 1.7 1.7 1.7 1.8 1.8

Total production 29.2 36.6 40.9 49.2 67.4 74.0 74.0 74.0 75.5 77.0 78.5 80.1 81.7 83.3

Source: Aker BioMarine (2020b) and own forecasts

These products are predominantly sold through fixed contracts, with only 9% of Ingredients revenue coming from the spot market. Of the remaining revenue, 57% stems from long-term contracts, with the last 33% attributable to 1-year contracts and (or) predictable pricing (Aker BioMarine, 2020b).

In 2019, 54% of the segment's revenue came from sales of the Superba Krill products. Since Superba Krill production is responsible for the highest margins among products in the Ingredients segment, Aker BioMarine is targeting to increase the portion of raw material sourced into the production of Superba Krill to lift margins and reach its 2024 EBITDA target of USD 200mn. The company has reported that a large part of costs is fixed, and scaling its business model is likely to cause higher revenue and higher percent-wise margins. The latter will be addressed later in this chapter.

Since we have only access to limited information on each krill product's pricing, we have decided to analyze product pricing on an aggregate level. Aker BioMarine has reported historical prices per product since 2017 to be stable as they have maintained a steady portion of revenues from higher-margin and lower-margin product categories. In line with the firm's guidance, we believe that prices per product will increase in the coming years as more raw material is shifted towards high-margin krill oil production. From 2024 and onwards, we forecast price growth to flatten out.

Total ingredients revenue

As we have argued, 2020 has proved more challenging than expected for the company due to difficult weather conditions and technical issues preventing the new harvesting vessel from

reaching production levels in the upper range of its capacity. Although management has stated that COVID-19 has had limited to no impact on Aker BioMarine's activity in 2020, the pandemic has had a troubling effect on its outbound logistics and crew changes. Company officials expect these issues faced in 2020 to be short-lived. Nonetheless, growth is expected to be driven significantly in 2021 as the updated operative fleet will produce at near full run-rate levels, which we consider is the primary driver of growth in this segment.

Historically, Aker BioMarine's revenue growth has been nearly 1:1 with the growth in production output from its harvesting vessels. From 2022 and onwards, we expect revenue growth levels to stabilize as the expanded operational fleet settles into full run-rate production.

The Ingredients segment is the firm's most mature segment, and our growth rate of ~2%

starting in 2025 reflects our perception that the firm is likely to focus on finding growth in other segments once the krill harvest has reached its intended scale from the recent additions to the operative fleet.

We find it hard to predict any future development in the total available quota for krill fisheries, and we determine that a steady 2% increase in revenue is suitable to account for potential future increases in the total allowable quota for krill harvesting. Finally, to derive our ultimate forecast of revenue stemming from the Ingredients segment, we combine Aker BioMarine's forecasts for increased production and per unit pricing along with our tweaks to estimates and various corrections to reflect our interpretation of projected growth. Our forecasts follow in exhibit 39.

Exhibit 39: Forecast of Revenue from the Ingredients segment

Historical Forecast

In USD 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Production 29.2 36.6 40.9 49.2 67.4 74.0 74.0 74.0 75.5 77.0 78.5 80.1 81.7 83.3 Annual growth - 25.3% 11.7% 20.3% 37.0% 9.8% 0.0% 0.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Pricing 1.2 1.2 1.2 1.3 1.3 1.3 1.3 1.3 1.4 1.4 1.4 1.4 1.4 1.4 Revenue per unit 4.25 4.21 4.33 3.92 4.01 4.14 4.27 4.36 4.40 4.44 4.44 4.44 4.44 4.44

Revenue (USDm) 124.2 154.2 177.2 192.7 270.3 306.4 316.0 322.3 332.0 342.1 348.9 355.9 363.0 370.3

Nominal growth - 24.2% 14.9% 8.8% 40.2% 13.4% 3.1% 2.0% 3.0% 3.0% 2.0% 2.0% 2.0% 2.0%

Source: Aker BioMarine (2020b) and own forecasts