Cermaq Capital Markets Day

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  • 1. CermaqCapital Markets Day 2012 Bodø, 19. September 2012
  • 2. Agenda Opening remarks Introduction to Cermaq and strategic priorities Mainstream - Long term cost optimization EWOS - Focus on excellence Mainstream - Chilean farming update Closing remarks & preparing for site visits 2
  • 3. Cermaq introduction Two business units; EWOS and Mainstream EWOS: The leading producer of salmonid feed – market share of 37%  Sales 2011: 1,081,000 tonns Mainstream: The third largest global salmon farming company - market share of app. 7%  Sales 2011: 108,500 tons (gwe) Total EBIT pre gain 2011 of NOK 1,369 mill 4,000 employees Operations: Norway, Chile, Canada, Scotland, Vietnam 3
  • 4. Present in all major salmonid regions Pangasius feed in Vietnam Sales volume per region (2011) Canada Vietnam Canada Norw ay Scotland 20% 7% 8% 3% 35% 51% Norw ay 31% 45% Chile Chile 4
  • 5. Sustainable aquaculture our mission • Our mission is Sustainable Aquaculture • Our vision is to to be a global leader in sustainable aquaculture with main focus on farming of salmon and trout and the production of feed for these fish species Sustainable aquaculture defined as • Operating the business in such a way that it does not reduce the potential for future aquaculture activity and the production of fish feed with basis in the same natural resources • Operating in the society in such a way that the business maintains the future support of our stakeholders, including our employees, the local community, politicians and authorities, consumers and customers. • Creating value to the shareholders in such a way that the business can attract capital and secure growth and profitability 5
  • 6. Our platform for value creation PLATFORM BUSINESS STRUCTURE LONG-TERM OBJECTIVE CREATING SHAREHOLDER OBJECTIVES CERMAQ VALUE  Profitable growth within  Two separate business units salmon farming and feed  A leading global supplier of  EWOS – Feed operations feed to salmonids  Mainstream - Farming  Delivering solid operational  A significant player within and financial results global farming of salmonid species  A decentralized operating  Sound financing and ability to structure reap benefits of growth  Among the best players in opportunities R&D on fish feed and salmon farming  Centralized strategy, finance,  Maintain strong operational IT and corporate functions … while maintaining a strong focus as a basis for success dedication to sustainable and future growth aquaculture 66
  • 7. Strong financial development and position KEY FINANCIALS SHAREPRICE DEVELOPMENT Operating revenues (NOK bn) Dividend per share EBITDA% NOK 2.25 NOK 0 NOK 1.50 NOK 5.40 NOK 4.63 CAGR +11% 12 10 9 9 8 18% 15% 13% 10% 4% 2007 2008 2009 2010 2011 NIBD/EBITDA KEY RATIOS 9.4x ROCE Equity ratio 57.3% 59.8% 59.5% 52.7% 42.0% 21.7% 22.1% 2.1x 14.2% 1.2x 8.0% 0.7x 0.6x 0.8% 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 77
  • 8. Value Chain Positioning  No position  Sourcing  No position partners PELAGIC FISH MEAL AND FISHING FLEET OIL FACTORIES FEED PRIMARY TERRESTRIAL RAW MATERIAL FARMING PROCES- VAP SALES FARMING PROCESSING SING BROODSTOCK SMOLT  Limited  Partnerships in position selected areas 88
  • 9. EWOS – a leading global feed supplier  7 factories world wide  20 feed production lines  Norway, UK, Chile, Canada and Vietnam  Global market share of 37% on salmonid feed  More than 1,000 employees  > 1 mill tonnes sold in 2011  Significant activities in R&D through EWOS Innovation EBIT/tonnes (NOK) ROCE (PERCENT)600 30500 25400 20300 15200 10 5100 0 0 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 9
  • 10. Mainstream well positioned in key salmonid areas Sales volumes, 1000 tonnes (gwe) 52 37 38 31 EBIT/kg (NOK) 22 21 21 19 Chile 15 Canada 10 Norway 2009 2010 2011 2012e Scotland2009 2010 2011 2012e 5 TotalMainstream Canada Mainstream Norway 0• Atlantic Salmon • Atlantic Salmon• Fresh & sea water facilities • Fresh & sea water facilities -5• 2 processing plants • 3 processing plants -10• 27 farming licenses • 44 farming licenses 2007 2008 2009 2010 2011• 230 employees • 540 employees ROCE (PERCENT) 40 Chile Norway 30 Mainstream Chile Canada • Atlantic Salmon, Trout, Coho 20 Total • Fresh and sea water facilities 10 49 49 • 2 processing plants 37 40 • Freezing capacity 0 • 62 farming licenses -10 • 2,200 employees -20 2007 2008 2009 2010 20112009 2010 2011 2012e 10
  • 11. ..the combination creates value for Cermaq Group KNOWLEDGE JOINT PROJECTS Feed the single largest cost component in farming Combined knowledge improves performance ORGANIZATIONAL FINANCIAL SYNERGIES DEVELOPMENT Less volatile feed business  Larger variances in improves financial stability and competencies improves structure solutions Currency hedging synergies  Exchange of personnel 11
  • 12. Strategic Priorities 12
  • 13. Lower supply growth and strong demand support positive sentiment HARVEST OF ATLANTIC SALMON CHANGES IN RETAIL SALE IN KEY MARKETS (%) Change in price Change in volume Change in value 1,975 1,914 GERMANY – SMOKED 145 Other 137 16 107 Canada 11 120 7 8 10 8 7 1,620 155 UK 2 3 2 3 2 1 128 150 -1 -3 110 422 Chile 2007 2008 2009 2010 2011 155 378 FRANCE – SMOKED 221 14 10 12 9 8 6 6 5 6 3 4 1 1 -1 -5 2007 2008 2009 2010 2011 1,129 1,146 Norway 1,006 FRANCE – FRESH FILLETS 20 14 10 6 6 1 0 2 0 0 -2 -6 -8 -9 -11 2011 2012 2013 2007 2008 2009 2010 2011Source: Kontali Analyse Source: Norw egian Seafood Council/Cermaq 13
  • 14. Organic growth in Mainstream require new licenses from 2014 VOLUME IN CURRENT OPERATIONSEstimated harvest volumes based on full utilization, gwe kt CAGR +1% 145 145 141 119 65 65 Chile 68 48 21 21 Canada 20 17 32 35 35 Norway - FM 27 24 24 24 24 Norway - NL 2012 2013 2014 2015 Note: In Canada, 2013 estimated volume is after IHN culling 14
  • 15. Limited aquisition opportunitiesEnterprise Value 81NOK/kg 79 75 71 70 60 60 52 50 50 49 38 35 33 26 21 16 17Midnor S. Andes Aurora Follalaks Heritage Aqua F. Senja S. MHG Fjord Hydrotech Polarlaks Arctic Rauma MS, W/R Lakeland Sjøtroll Bakkafrost JøkelfjordLerøy Cermaq Lerøy Cermaq Cermaq Pan Fish Salmar Pan Fish Pan Fish Lerøy Cermaq Cermaq Salmar Morpol Morpol Lerøy Salmar Morpol 2003 2004 2004 2004 2004 2005 2005 2006 2006 2006 2006 2006 2010 2010 2010 2010 2010 2011  Limited # of transactions during the low cycle  Recent transactions suggests significant synergies or long term high EBIT expectations Note: Selected transaction multiples (harvest next FY) Source: ABGSC 15
  • 16. Key strategic objectives – Mainstream  Long term cost optimization by focus on preventive fish health and best in class operations – Support industry regulations in Chile to secure long term sustainable operations  Profitable growth in Mainstream Norway – Develop existing licenses and actively pursue new licenses – Focus on Nordland and FinnmarkMAINSTREAM  Profitable growth Mainstream Chile – Increase capacity to enable growth and operational flexibility – Acquisitions in selected areas  Maintain current activity in Mainstream Canada – Focus on good biological and operational results at current levels 16
  • 17. EWOS with 8% annual volume growth in salmonids last 6 yearsEWOS salmonid feed volumes EWOSThousand tonnes EWOS market share in salmonids 1,227 7.9% 1,081 902 876 847 777 788 37% 35% 35% 33% 32% 33% 2006 2007 2008 2009 2010 2011 2012E• Approximately 95% organic growth• Continued growth dependent also on increased salmon farming• Limited growth in EWOS so far from new marketsSource: Cermaq 2011 annual report 17
  • 18. Securing continued leadership position EST. SALMONID FEED VOLUMES (1000 TONNES) FOCUS GOING FOWARD 5.0% 1,420 PRIORITY ONE - SALMONIDS 1,353 1,288 1,227 • Secure and develop leading position in salmonids • Invest in new capacity if and when needed PRIORITY 2 – NEW MARKETS • Investment in Vietnam to be developed to secure profitable growth • Assess feasibility and develop plans for other markets next 12-18 months 2012E 2013E 2014E 2015E 18
  • 19. Substantial farming consolidation in Norway the last 20 years CONSOLIDATION IN NORWEGIAN FISH FARMING IN 2011, 40% WITH MAJOR PLAYERSNumber of commercial licenses per holder category Number of all licenses per holder category 976 10 1 license 889 897 29 156 2-5 licenses 846 34 2-5 1 license 45 148 licenses 1% >30 760 215 122 6-10 licenses licenses 65 16% 692 186 84 6-10 licenses 70 40% 221 283 12% 162 97 688 636 >10 licenses (70%) 342 570 (71%) 31% (64%) 453 11-30 (54%) 315 licenses (41%) 53 76 (11%) 1994 1998 2002 2006 2008 2011 Source: Kontali 19
  • 20. Cermaqs Strategic Positioning Farming & Value Feed Sales and Feed primary added ingredients marketing processing products• Large farming consolidation last 15 # of players producing 80% of volume years – opportunities in Norway & 70 Norway Chile also forward Chile 60• Main focus on growth in feed and Scotland farming – continue developing value 50 Canada added product business in Chile 40• R&D as an important part of value creation 30 - New functional feeds to secure fish 20 health continuously under development - Alternative sources to produce fish oil 10 explored 0• Participation in industry development 1995 2000 2005 2010 2015 Source: Kontali 20
  • 21. Key strategic objectives – Group  Be a leading global aquaculture company within Salmonids with presence in all major production regions  Continue developing a coordinated feed and farming group  Strong operational and financial performance on key value CERMAQ drivers  Participate in the in the salmonid industry consolidation to the extent this generates shareholder values  Secure a strong financial position with flexibility during cycles and be able to reap opportunities 21
  • 22. Agenda Opening remarks Introduction to Cermaq and strategic priorities Mainstream - Long term cost optimization EWOS - Focus on excellence Mainstream - Chilean farming update Closing remarks & preparing for site visits 22
  • 23. Mainstream leadership philosophy Competence and decision-making close to the fish  Lean business management at BU level  Autonomous OpCos  Committed and educated site management Highest possible operating result through  Biological performance  Optimization  Benchmarking  Prudence  Efficient procurement 23
  • 24. Cost leadership strategies – various approaches SHORT TERM LONGER TERM LONG TERM • Sustainability, i.e., • Cost per kg fish • Cost per kg fish having lowest over time/across MAIN FOCUS harvested possible risk cycles adjusted cost • Low cost (as long • Low average cost • Might give higher as everything over time works…) short term costs IMPLICATIONS • Possibly higher • Should over time • Close to the limit cost short term give lower costs of risks and regulations and less volatility WE STAY FAITHFUL TO OUR LONG-TERM STRATEGY 24
  • 25. Mainstream cost optimization: Critical to focus on the right elementsFOCUSING ON THE RIGHT ELEMENTS KEY DRIVERS FOR OPTIMIZING COST Preventive fish health LOWEST POSSIBLE COST PER KG  Smolt quality HIGHEST EBIT  = EBIT per kg x Volum Optimal feed and nutrition 25
  • 26. The main driver in cost optimization is biological performanceTHE TWO MAJOR COST ELEMENTS EFFECTS ON PERFORMANCEEffects on total cost from a 10%increase in cost Increased mortality by 5%-points increases costs by NOK 0.35-0.70 per 4% kg Increased feed conversion of 5% increases cost by NOK ~0.50 per kg 1% 5% lower MAB utilization reduce EBIT by NOK ~1 per kg Smolt cost Feed cost 26
  • 27. Dedicated focus on fish health across organization Mainstream Central fish health team • Research on critical topics (e.g., ISA, SRS, Parvicapsula) • Developing policies and best practice Mainstream Central • Staying updated on external research fish health team • Assisting the OpCos on case-by-case basis Functional team Functional team • Global functional team • Coordinate best practice and competence Extensive fish health work in each OpCo Extensive fish health • Monitoring fish health status work in each OpCo • Preventive measures • Responding to issues • Operating procedures and policies 27
  • 28. Current fish health statusMS Canada MS Norway• IHN - depopulated two sites • Overall status is good• Low sea lice levels • Mortality is low• Winter Ulcers is reducing premium • Low sea lice levels percentage • PD in Finnmark• Algae and low Dissolved Oxygen levels (DO)MS Chile• Increasing Caligus levels• SRS creates problems• Increased antibiotic use 28
  • 29. Preventive measures per countryMS Canada MS Norway• IHN: Screening, reduced handling • Stress reducing measures and vaccination • Education and competence building• Winter Ulcers: Vaccination, vitamin • Working on smolt sourcing C trials and antibiotics trials• Fungus: Improved handling and water quality• Algae and DO: Close monitoring and preventive measuresMS Chile• Harvesting trout before summer• SRS vaccine trials• Antiparasite treatments• Extensive use of functional feed 29
  • 30. Industry cost leveling out and increasing since 2005 VOLUME, PRICE AND COST IN SALMON FARMING Source: Kontali 30
  • 31. ”Sharpen Mainstream” – an improvement process in Mainstream EXECUTIONSharpen PROCESS focus • Bottom-up process • Generating support and enthusiasm • Input to cost-reducing and performance-enhancing measures from all levels in the OpCos KEY TOPICS • CompetenceSharpen • Biological performance mindset • Competitive prices on supplies and services • Re-thinking logistics and processesSharpen position 31
  • 32. Focus on developing operational excellence in Finnmark 2010 2011 2012e 2013e  Learn to tackle the more challenging climatic conditionsSmolt 5,5m 8,5m 7,4m 7,5m  Develop organization to handle volume-Harvest 15kt 16kt 27kt 32kt doubling  Benchmark and stabilize operationalGrowth 35 % 4% 70 % 20 % performanceEX-CAGE COST PER KG FOR ALL HARVESTED SITES 2004G UNTIL TODAY (NOK) NORDLAND FINNMARK25 2520 2015 15 15 13 1410 10 5 5 0 0 32
  • 33. Agenda Opening remarks Introduction to Cermaq and strategic priorities Mainstream - Long term cost optimization EWOS - Focus on excellence Mainstream - Chilean farming update Closing remarks & preparing for site visits 33
  • 34. Key topics Salmonid fish feed is an enabler in feeding the world and EWOS has an increasingly stronger position Raw material sourcing is challenging, but EWOS has a unique set-up in understanding and generating value from raw material transformation Large feed volumes with significant elements of seasonality is logistically challenging – EWOS with new technology to increase flexibility and capacity 34
  • 35. Global aquaculture volumes will increase FEEDING A GROWING POPULATION SUSTAINABLE AND EFFICIENT Low resource usage Efficient energy retention 35
  • 36. Salmon feed is a relatively small part, but a front-runner in the global aqua feed marketGLOBAL AQUA FEED MARKET (MILLION TONNES) 100% = 23 MILLION TONNES Front-running the industry • More industrialized than any other aqua feed segment • Consolidated from decades Other with fierce competition in Salmon aqua 86% 14% innovation and operation feed efficiency feed • High barriers to entry from significant investments, knowledge requirements and distribution capacitySource: EWOS 36
  • 37. EWOS has strengthened its position through profitable growthEWOS SALMONID FEED VOLUMES FINANCIAL PERFORMANCE EWOS volume (1000 tonnes) EBIT-margin* EWOS market share* ROCE 23.2% CAGR: 15.9% 19.1% 1,227 1,081 15.1% 876 788 37% 35% 33% 6.9% 6.7% 6.1% 2009 2010 2011 2012E 2009 2010 2011* In salmonids * Before unrealised fair value adjustments 37
  • 38. Current capacity and competitive edge support strong entry barriersEWOS “HARDWARE” – EWOS “SOFTWARE” –CAPACITY IN PLACE BUILDING COMPETITIVE EDGE Nutritional excellence 1.5 million tonnes NOK 4.5 billion Operational Logistical excellence excellence Economies of Market scale orientation Brand leverage Current Replacement capacity cost Building competitive edge through transformation ofSignificant installed capacity in good shape, with an commodity-like raw materials to customer orientedassumed replacement cost of NOK 3 per kg advanced nutrition solutions 38
  • 39. Key topics Salmonid fish feed is an enabler in feeding the world and EWOS has an increasingly stronger position Raw material sourcing is challenging, but EWOS has a unique set-up in understanding and generating value from raw material transformation Large feed volumes with significant elements of seasonality is logistically challenging – EWOS with new technology to increase flexibility and capacity 39
  • 40. Significant amounts of raw material pass through EWOSEWOS RAW MATERIAL SOURCING VALUE2011, USD million Marine 409 34% proteins Oils 394 33% Vegetable 229 19% proteins Represents Micro more than one 57 million tonnes ingredients of raw materialCarbohydrates/ 52 binders Other 54 Total 1,195 40
  • 41. High volatility and increased raw material pricesRAW MATERIAL MARKET PRICES, 2002-2012 (NOK PER KG CIF) 13,00 Fish Meal 12,00 Soy Protein Concentrate 11,00 Soy (non GMO) 10,00 9,00 8,00 7,00 6,00 5,00 4,00 3,00 2,00 1,00 0,00 jan.02 jan.03 jan.04 jan.05 jan.06 jan.07 jan.08 jan.09 jan.10 jan.11 jan.12 41
  • 42. To meet these challenges, EWOS has organized a globaland specialized sourcing functionEWOS APPROACH TO RAW MATERIAL SOURCING AND PURCHASING TEAM SOURCINGCategory management Focus on category management Global knowledge of the raw material marketsLeading raw material skill set High commercial and biological competence and knowledge Understanding the drivers in the marketR&D knowledge base – EWOS Innovation Develops operational tools for better selection of optimal raw materials Ensuring best raw materials and suppliers 42
  • 43. EWOS’ knowledge enables significant cost avoidance onraw material sourcing – improves competitive position 4.3% USD 1.2 BILLION TOTAL COST AVOIDANCE GLOBAL RAW MATERIAL NORWAY 2011 SOURCING VALUE 2011Note: Cost avoidance is defined as EWOS price vs. spot price in the Norwegian market 43
  • 44. Large variations in raw material availability and qualityFISH GROWTH WITH DIFFERENT FISH MEALSProportional fish growth for various fish meals 44
  • 45. Controlling and optimizing raw material sourcing ishandled through EWOS Innovation You cannot make high quality feed from low quality raw materials! 45
  • 46. EWOS Innovation with competence to evaluateprospective raw material batchesPREDICTION CYCLE RAW MATERIALS «Fm-tool» predicts the potential for growth in fish in any selected fish meal sample – before we sign the contract 46
  • 47. Functional feed – only(?) way to influence fish in production SEA PRODUCTION: 15-18 MONTHSSTOCKING 33.000 MEALS SERVED TO EACH FISH HARVEST 1 BILLION SALMONIDS SWIMMING AROUND WITHOUT “SUPERVISION OR INFLUENCE-POTENTIAL”EWOS obvious strategic platform is to develop products that can influence the fish positivelythrough oral delivery 47
  • 48. 48
  • 49. EWOS’ knowledge enables increasingly improvedproduct-mix towards higher margin productsEWOS FUNCTIONAL FEED (1000 TONNES) EWOS other feed EWOS functional feed Functional feed share% 1,081 46% 902 876 847 777 788 37% 589 723 651 662 670 636 550 26% 753 582 749 709 683 611 16% 611 623 595 12% 492 9% 9% 5% 6% 6% 6% 326 206 149 58 68 98 40 39 39 41 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 49
  • 50. Key topics Salmonid fish feed is an enabler in feeding the world and EWOS has an increasingly stronger position Raw material sourcing is challenging, but EWOS has a unique set-up in understanding and generating value from raw material transformation Large feed volumes with significant elements of seasonality is logistically challenging – EWOS with new technology to increase flexibility and capacity 50
  • 51. Distribution – some challenges  Feed volume in peak month – Average volume x 2 – For large companies x 4.5 – Up to 100 tonnes/day  Delivery 1-3 times a week  Storage capacity varies from 50 to 600 tonnes 51
  • 52. Distribution – increased capacity• Maximizing what we already have - Cabin Factor - PIT – Stop• A new Lemon - Flexible trade (Blue Line) - Not specialized - Lower cost - Two In – Two Out 52
  • 53. Agenda Opening remarks Introduction to Cermaq and strategic priorities Mainstream - Long term cost optimization EWOS - Focus on excellence Mainstream - Chilean farming update Closing remarks & preparing for site visits 53
  • 54. Introduction to Mainstream Chile Harvest 2012e: 54,000 tonnes (rwe) 2,200 employees 63 sea water licenses in regions Los Lagos, Aysén and Magallanes ( X, XI and XII) Strong value-add processing capacity Focus on performance Focus on margin 54
  • 55. Four cornerstones of the Chilean operations 3 regions 3 species On-shore Preventive smolt fish health 55
  • 56. Región de Magallanes (XII): Update on operations 3 regions KEY HIGHLIGHTS AMBITIONS Pt o Montt  Stocking plan:  Access to unutilized  2.2 mill Atlantics organic growth smolt/year opportunities at acceptable cost  Harvest volume: Ays én - 3,000 t in 2013  Ensure risk - Avg. 10,000 t from 2014 diversification - Work in an isolated area  Employment: ~120 - Better sanitary Pto. Natales Pt a Arenas people (direct/indirect) conditions 53° 10′ 1″ S, 70° 56′ 1″ W  Total investment - USD 25 million - Net investment reduced with 36% tax benefit  Current status:  Fry grows according to plans 56
  • 57. 3 regions Region XII: Status and experience so far• First stocking was 28. December 2011• Two full sea sites currently stocked with Atlantics• Lower than expected sea water temperatures• Low mortality• Good growth 57
  • 58. Strategy on species 3 species Gross margin per specie 2,50 2,00 1,50 USD/ KG RWE 1,00 Atlantic 0,50 Coho Trout 0,00 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -0,50 YTD -1,00 -1,50 • Disease resistance different between the three species, specially ISAv & sealice • Better usage of licenses considering the new regulations • Ability to be present in different markets with different products (USA, Japan, Russia, Brazil) 58
  • 59. Historical Coho and Trout price development (1980-2012) 3 species 59
  • 60. Coho price and margin development 3 speciesCOHO PRICES AND GROSS MARGIN 2001-2012 YTD 60
  • 61. Challenging market outlook for the 2012/13 season 3 speciesMONTHLY INVENTORY OF FROZEN SALMON IN JAPAN (TONNES) COMMENTS120,000  High inventory of110,000 frozen salmon100,000  Typical annual Coho 90,000 consumption in 80,000 Japan: 90,000 tons (HG) 70,000  Expected Chilean 60,000 Coho production in 50,000 2012/13: ~115,000 40,000 tons (HG)  Reduced catch of 30,000 Sockeye in Alaska, 20,000 97,000 tons vs. 10,000 113,000 tons in 2011 0  Reduced Sockeye 2005 2006 2007 2008 2009 2010 2011 2012 export to Japan 61
  • 62. All Atlantic and Trout smolt are now on-shore On-shore smoltPRODUCTION CYCLE PRODUCTION AND CAPACITIES (MILLION SMOLTS) Mainstream Broodstock 18.3 100% in Fresh Water 1.8 Rio Pescado 2.0 Cipreces Full individual screening for all relevant diseases 12.8 3.0 Providencia 1.5 1.7Mainstream eggs are sent 3.5 Confluencia to six different MS 1.6 incubation facilities 3.0 Mainstream Atlantic and 4.0 Collin Trout incubation/smolt facilities are land-based and 100% isolated 3.5 4.0 TrafunThe Mainstream on-shore 1.5smolt cycle ensures high quality smolt free of diseases 2012 production Max production 62
  • 63. Current sanitary status Preventive fish healthCHALLENGING SANITARY SITUATION MORTALITY (PERCENT IN INDUSTRY) Coho 18 More challenging sanitary situation YTD Atlantic 15 2012 compared to 2010 and 2011 Trout 12  Increased mortality due to bacterial diseases 9 (SRS), hence increased usage of antibiotics 6  Increased sea lice level and anti parasite 3 treatment  Reduced effectiveness of anti parasite 0 jul- jan- jul- jan- jul- jan- jul- jan- jul- treatments 08 09 09 10 10 11 11 12 12USE OF ANTIBIOTICS (FULL-YR, GR/TONNES) CALIGUS (PARASITE PER FISH IN INDUSTRY)800 Mainstream Industry600400200 0 2008 2009 2010 2011 2012 YTD 63
  • 64. Mainstream’s fish health plan going forward Preventive fish healthSHORT TERM LONG TERMCaligus  Re-definition of capacities, species, time Develop a system for closed treatment of stocking of Neighborhoods / Areas / Sites (Best) alternation of available treatment  To be based on analysis of historical data products  Identify connections between diseases/ Use of functional feed areas/sites neighbors and confirm those Test of vaccine with statistical facts Test of skirts around cages  Stop SRS - projectSRS & IPN Use of oral vaccine across the sites Continue use of functional feed against SRS and implemented across the sites as policy Use of Boost post transfer to sea 64
  • 65. Preventive fish healthUpdate on regulatory framework in Chile Establishment of “macrozones” New concessions suspended in X and XI regions Sites with > 9 avg. total adult parasites is declared as “High Infestation Sites”  No more than 3 events in a six weeks period  Non compliance => mandatory harvest Sanitary fallowing program, January 2012 - Extended to 2016 Health management and biosecurity regulation required to loading ports and unloading ports (Resolution 302), February 16th, 2012 - Estab lish b iosecurity measures. Ob ligatory from March, 2013 Certification and other health requirements for import of aquatic species (Decree 72), March 24th, 2012 - Risk analysis required b efore import eggs from other countries - Chilean authority has to approve sanitary certification issued b y origin country Changes to the Fisheries Act (Decree 430), April 2nd , 2012 - Estab lish “macrozones” - New concessions suspended in X and XI regions - Estab lish new penalty and and license rental payments Caligus (Resolution 1141), May 29th , 2012 - Ob ligatory closed system will not b e b efore than May, 2013 - Sites with > 9 Average total adult parasites, it is declared, “High Infestation Site”: No more than 3 events in a six weeks period (non compliance => mandatory harvest) Mortalities handling and sorting (Resolution 1468), July 28th, 2012 - Ob ligatory classification (twice a week) - Daily removal of mortalities - Necropsy (twice a week) 65
  • 66. Summary of focus in the Chilean operations 3 REGIONS  Controlled growth in Region XII  Diversifying biological and market risk by maintaining three 3 SPECIES species ON-SHORE FRESH  Broodstock, trout and Atlantic smolt production moved on shore WATER OPERATIONS PREVENTIVE  Structured approach to fish health with both short-term and FISH HEALTH long-term strategies 66
  • 67. Agenda Opening remarks Introduction to Cermaq and strategic priorities Mainstream - Long term cost optimization EWOS - Focus on excellence Mainstream - Chilean farming update Closing remarks & preparing for site visits 67
  • 68. Closing remarks A walk to the boat (follow the guides) Boat trip to the facilities  Further info to be provided on the boat Presentation of Mainstream Norway Q&A from the presentations Touring the facilities And then safely to the airport 68
  • 69. CermaqCapital Markets Day 2012 – Part II Site visit Bodø, 19. September 2012
  • 70. Agenda – Capital Markets Day 2012 – Part II Presentation Mainstream Norway Site visit – Oksøy sea farm Site visit – Dyping Hatchery 70
  • 71. Overview Mainstream Norway• 44 licenses in operation• Estimated 2012-harvest: 52kt• Growth 32%• Licenses fully utilized in Nordland and fully utilized in Finnmark from August 2012• Main markets are Russia and EU 2011 Harvest volume 38 Turnover 1.120 EBIT 217 Growth (%) 3% 71
  • 72. Nordland – complete aquaculture production Broodstock/eggs Hatchery On growing Processing Nordnorsk Stamfisk AS - JV with Aqua Gen, Nordlaks and Nova Sea - Secure local production and supply of roe Three hatcheries in Nordland, covering 50 % of stocking requirements New hatchery in Steigen under planning to boost own smolt production by 8.4 mill 17 licenses in Northern Nordland Two processing plants: Skutvik and Alsvåg 72
  • 73. Main advantages in Nordland – Geography  Deep fjords with unique sites  Limited number of neighbors makes long term biosecurity and sea lice strategy easier to implement  Opportunity to develop new production cluster in Ofoten (Narvik) with Ballangen Sjøfarm (2 licenses) 73
  • 74. Practicing risk adjusted cost leadership in Nordland  Not the most aggressive when it comes to short term cost leadership  Pay a risk premium in some cost elements  Avoid mixing well boats  Conservative when it comes to equipment and size - Larges cages limited to 120m in diameter - Still use feed automats at some sites - Feeding is done at the cage - Largest site is 5,400 tonnes MAB  Some biological statistics - Not used antibiotics since 1992 - Sea lice treatment cost was NOK 0.20 per kg (lwe) last generation 74
  • 75. Main advantages in Nordland – People  Mainstreams leading principle: Operational decisions to be decided as close to the cage as possible  Good site managers is the key to ensure operational success  83 % of employees have Craft Certificate  Annual courses at the University of Nordland for site managers to improve competence and update skills  Extensive internal and external benchmarking 75
  • 76. MSN Nordland – the best farming region in Norway? MAB UTILIZATION* FOR NORWEGIAN FARMERS, 2011 0 200 400 600 800 1,000 1,200 1,400 MSN Nordland Average sample MS Norway *Tonnes produced per normal license Source: Kontali M SN NORDLAND WITH THE BEST M AB-UTILIZATION IN 2011 76
  • 77. MSN Nordland with low mortality DEVELOPMENT IN MORTALITY (PERCENT) Industry average MSN NL 16% 15% 14% Focus on preventive fish health and reduced stress in smolt production and during stocking has given results 8%  Decreased mortality in Mainstream 5% 4%  Significant improvement of production parameters  Reduction of fixed costs 10G 11G Est. 12GSource: University of Nordland 77
  • 78. Large potential for future growth in Nordland  Northern Nordland with significant potential for future growth  Strong biological results - No disease issues - Low levels of sea lice  Available areas - Opportunity to expand within existing sites - New areas are available  Economy of scale for well boat and processing will secure cost optimization  …but new licenses are needed 78
  • 79. Agenda – Capital Markets Day 2012 – Part II Presentation Mainstream Norway Site visit – Oksøy sea farm Site visit – Dyping Hatchery 79
  • 80. Oksøy Sea Site• The first smolt was stocked in 1992• 1,000 tons harvested in 1994• Maximum allowed biomass 5,400 tons• Total production approx. 6,000 tons lwe• Stocking of 1.2 mill. smolt every second year• One site manager and 5 staff• The fallow period is 12 months at this site 80
  • 81. FarmBase 500• The FarmBase 500 is a feed barge constructed and delivered by Marine Construction• Central feeding system which feeds 12 cages at the same time• 380 tons silo capacity• When the site is at peak biomass, we feed 50 tons per day• 4 Cabins with separate bathroom• Sauna and fitness room 81
  • 82. Testing of Polarcirkel EcoNet• High durability and escape prevention• This long-life net technology used to make over 4,000 fish farming nets in Japan the last 20 years• Also eliminates the use of antifouling paints and ongoing net changes• Easily recyclable• Technical data; - PolarCirkel 400 mm -120m. - EcoNet: - Depth of cylinder 17.4 m - Depth of bottom 9.6 m - Circumference of net 118.8 m. 82
  • 83. Dønnland – Well Boat• Next generation wellboat which will be put in operation late September 2012• 1,500 m³ capacity and state of the art technology• First type of well boat that fulfills the requirements in the new regulation currently on hearing and supposed to come into force in 2017• Full recirculation of water• Sea Lice filter both on intake and outlet of water 83
  • 84. Agenda – Capital Markets Day 2012 – Part II Presentation Mainstream Norway Site visit – Oksøy sea farm Site visit – Dyping Hatchery 84
  • 85. Mainstream Norway – Dyping Hatchery• Annual production of 2.5 mill. smolt split 50/50 between S1 and S0• Dyping was amongst the first hatcheries in Norway with an electric generator installed to produce electricity from the water intake• The generator cover 80 % of the needed electricity of the production• Uses sea water during winter time to enhance growth 85
  • 86. Grading and vaccination• Grading of the fish is essential in order to have fish with equal performance and good growth• We also vaccinate all the fish manually before transfer to sea• In one day 130,000 fish are vaccinated• Laboratory and quality control are crucial to secure good performance and smolt quality 86
  • 87. Growth hall• In this hall we have 100 % control of temperature to maximize the growth of the fish• Four tanks of 190 m3 volume and maximum biomass of 30 tons of fish• The water temperature never exceeds 14°C because too strong growth increase the risk of deformities• 4,500 l/min of warm water 87
  • 88. Outdoor area• The outdoor area consists of 10 tanks which uses natural tempered water• In the winter time sea water may be used to boost growth on the smolt before transfer to the sea sites• The seawater is pumped up from 100 meter deep and the temperature is approx. 7°C year around• The seawater pump station has a capacity of 30,000 l/min 88
  • 89. 89