A brighter outlook for Chile? CEO Jon Hindar Havbrukskonferansen Oslo, 21 st November 2012
Cermaq introduction Two business units; EWOS and Mainstream EWOS: The leading producer of salmonid feed market share of 37% Sales 2011: 1,081kt Mainstream: The third largest global salmon farming company - market share of app. 7% Sales 2011: 109 kt (gwe) Total EBIT pre gain 2011 of NOK 1,369 mill 4,000 employees Operations: Norway, Chile, Canada, Scotland, Vietnam 2
Cermaq introduction Highlights 3 rd quarter 2012 (NOKm/NOK for EPS) Q3 12 Q3 11 EBIT NOK 232m pre write-down Op. Revenues 3 472 3 506 EBIT* 232 348 EPS** 1.0 2.5 Op. Cash flow (342) 258 (NOKm) Q3 12 Q2 12 ROCE*** 8.7 % 11.6 % NIBD 2 498 2 081 Solid results in EWOS from strong volume growth in Norway Reduced Mainstream results from challenging market conditions Biological incidents impact results - NOK 33m IHN charge in Canada - NOK 20m PD charge in Norway Working capital build up increased NIBD Acquisition of CMCh completed * EBIT throughout this document is EBIT pre fair value adjustments on live inventory and excluding biomass write-down ** Earnings per share, adjusted *** Return on capital employed, 12-months rolling average, based on EBIT pre gain and fair value adjustments 3
Cermaq introduction Mainstream results 3 rd quarter 2012 (NOK million, NOK per kg) Q3 12 Q3 11 EBIT Q312 vs Q311 Volum es sold (kt, gw e) 24.5 23.3 80 60-16 Operating revenues 664.5 719.3 EBIT* (72.9) 61.2 40 20 61-100 EBIT per kg (3.0) 2.6 0 ROCE (12-month rolling avg.) 1.2 % 24.3 % * excl biomass write-down -20-40 -73 Volume increased by 5% vs Q311-4.5kt variance vs. estimate mainly from postponed harvest in Norway Significant impact from challenging market conditions in Americas - 14% lower sales price vs Q311; down 8% vs Q212 5% cost increase from Q311-60 -80 Return on capital employed (12-month rolling average) 24.3 % 18.8 % -22 Q311 Volume Price Cost Other Q312 12.0 % 4 5.7 % - Stable vs Q212 1.2 % Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 4
Cermaq introduction EWOS results 3rd quarter 2012 (NOK million, NOK per tonne) Q3 12 Q3 11 Volum es sold (kt) 387.9 370.6 Operating revenues 3 348.5 3 226.7 EBIT 346.3 290.3 EBIT % 10.3 % 9.0 % EBIT per tonne 892.6 783.3 ROCE (12-month rolling avg.) 22.9 % 25.4 % Return on capital employed (12-month rolling average) 25.4 % 23.2 % 23.1 % 21.9 % 22.9 % Q3 11 Q4 11 Q1 12 Q2 12 Q3 12 Volume growth of 5% vs Q311-16% growth in Norway from high capacity utilisation - Successful expansion project in Norway supports increased capacity - Reduced volume, but stable market share in other regions EBIT improvement from large volume growth in Norway - Optimal capacity utilisation secures reduced unit cost - Stable prices from efficient sourcing and feed composition 5
Update on Chile Acquisition of Cultivos Marinos Chiloé Market outlook Sanitary situation Key priorities 6
Cultivos Marinos Chiloé acquisition Support our strategy for sustainable growth Capacity increase from 60kt (gwe) to 90kt (gwe) MS Chile s four cornerstones Increase diversification between species & farming areas Focus on preventive fish health On land smolt facilities Self sufficient on eggs for Atlantics and Coho Increase involvement in long term value added products Focus downstream sales strategy 7
Cultivos Marinos Chiloé acquisition New Mainstream Chile Value Chain Freshwater Seawater Harvesting & Processing Logistics & sales 12 hatcheries 89 sea water 4 processing plants US Sales office with 4 Lakes sites licenses - Quemchi cold storage facilities Located in Regions VII,IX, X, XII & XIV Located in Regions X, XI & XII - Calbuco - Ancud - Dalcahue to be established The combined entity will have around 4.000 employees during high season 8
Cultivos Marinos Chiloé acquisition Integration and Synergies from the acquisition Integration plan defined, approved and implemented Key integration activities includes - Consolidate and adjust production and sales plans - Implement consistent preventive fish health activities - Detailed analysis and implementation of synergies Preliminary direct synergy potential estimated to USD 6m per year - 50% impact in 2013 and 100% in 2014 Investments in seawater and freshwater 2013 and 2014; Current total estimate USD 30m 9
Cultivos Marinos Chiloé acquisition Rationale for the three specie strategy Margin by Specie (Gwe Ton) 2.50 2.00 1.50 1.00 0.50 0.00-0.50-1.00-1.50 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 ATLANTIC COHO TROUT Different disease resistance between the three species Particularly on ISAv and sealice Better utilization of the licenses considering the new regulations. Ability to be in different markets with different products USA, Japan, Russia, Brasil 10
Market outlook A challenging situation for fishfarmers in Chile Low price-levels for all species in traditional markets - Atlantic salmon in the Americas and Coho and trout in Japan Significant biomass build during 2012 - increased need for working capital Challenging fish health situation put pressure on cost - higher mortality, mainly due to SRS - increased sea lice level in neighbourhoods with high biomass density No obvious signs of immediate price relief - margin pressure expected to remain through Q2/13 More difficult to obtain financing through traditional sources 11
Market outlook. mind the gap.. Price development Atlantic salmon, Americas vs. Europe Source: Fish Pool/Urner Barry/Larrain Vial 12
Market outlook and also a difficult Coho and trout market Japan - Chile (wholesale Tsukiji market) (JPY/kg) 800 700 600 500 400 300 200 100 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Challenging Coho and trout market expected to continue Price decline potentially level off for trout going forward Source: NMFS Japan - Chile frozen coho 4-6lb JPY/kg Japan - Chile frozen trout 4-6lb JPY/kg Mixed picture between sizes Japan - Chile (wholesale Tsukiji market) (JPY/kg) 700 Coho price increased last weeks on certain sizes 600 500 400 300 Aug 11 Sept Oct Nov Dec JanFeb Mar Apr May Jun July Aug Sept 12 Significant reduction in smolt stocking on both species for next season Source: NMFS Japan - Chile frozen coho 4-6lb JPY/kg Japan - Chile frozen trout 4-6lb JPY/kg Series3 13
Market outlook Updated 2013 volume estimates from Aquabench Source: Aquabench Increased Atlantic supply in 2013 - Actual volume to be dependent on sanitary conditions, market development, financial situation, etc. Reduction on other salmonids expected - More than 15 % reduction on trout - Reason to expect a more pronounced reduction in Coho at next volume update 14
Sanitary situation Significant biomass increase in Chile Biomass update Chile 2008-2011 Source: Aquabench Sept 2012 almost 30 % higher than last peak (2008) and same period 2011 Atlantics account for 2/3 of biomass volume Total Atlantic biomass at same level as last peak 15
Sanitary situation - but average harvest weight is at a satisfactory level Atlantics - Chile Norway Source: Directorate of Fisheries Average harvest weight is at around 4.5kg (rwe) Reduction due to - Cash constraints - Market request for more ideal fillet size - Early harvest to comply with fallow regulations 16
Sanitary situation while some higher mortality vs. last year Atlantic Salmon monthly mortality 2011 2012 SRS a significant cause for mortality Reduced mortality during Q3 Coho Salmon monthly mortality 2011 2012 Mainly caused by harvest of SRS sites and seasonally lower temperatures Local high levels of sea lice remains a challenge for Atlantics and trout Trout monthly mortality 2011 2012 Source: Aquabench (85.6% of the Chilean industry) 17
Key priorities Mainstream Chile s strategy for preventive fish health Use only ISAv free brood fish. Fresh water: - Less transport and handling - Vaccination Sea water: - Density reduction - All in all out - Increased bio-security Systematic monitoring of every fish group (screening) Evaluation of new strategies to reduce sea lice levels, and to combat SRS Increase knowledge about fish health in the organization. 18
Summary Chilean Salmon Industry is experiencing a challenging period, but has a long term promising future Mainstream Chile shall continue its leadership in the Chilean Industry Key operational priorities in Mainstream - Reduce FCR - Continued Fish Health focus - Particularly initiatives on SRS and Caligus - Be able to realize the synergies from the acquisition 19
Thank you! 20