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How to deliver margins trough low cost production in salmon

farming and value added production in Norway

SalMar ASA

CEO Yngve Myhre 22 November 2011

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Content

About SalMar

Q3 – YTD 2011

Delivering margins:

– Farming

– VAP

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SalMar ASA

• Founded in 1991, Frøya, Norway, listed on Oslo Stock Exchange May 8th 2007

• Revenues 2010: NOK 3,4 billion EBIT: NOK 973 million 600 employees

• 71 wholly owned farming licenses in Norway. 80 including all partnerships

• One of the largest and most cost effective salmon farming companies in the world

Central Norway : 58 licenses / 77 100 tgw including Segment Rauma

Northern Norway :13 licenses / 18 000 tgw

50% of Scottish Sea Farms Ltd. And 24,8% of P/f Bakkafrost

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SalMar Japan KK – sales

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Built brick by brick ……..

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25 % annual

growth in volumes

33 % annual

growth in EBIT

7 9 11 13 14 17 23 2230

45 4250 51

77

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011G

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Scottish Sea Farms (SalMars share)

SalMar Northern Norway

SalMar Central Norway

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…to become an integrated salmon farmer

• Brood stock

• Roe

• Genetics

• “Raumastammen”

• 71 wholly owned

licenses

• 80 including all

partnerships

• High quality sites

• Fish health

• SalMar Sales AS

• SalMar Japan KK

• SalMar Korea

• Long time partners

• Global reach

• InnovaMar facility

• Vikenco

• Harvesting

• VAP

• Scale, quality and

cost 5

• Hatch, vaccination

and smoltification

• 7 production

facilities

• Essential for the

performance in the

entire value chain

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Content

About SalMar

Q3 – YTD 2011

Delivering margins:

– Farming

– Processing and VAP

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Short summary of Q3/YTD 2011

Phasing in of InnovaMar in 2011

Room for improvement. especially in VAP

Relatively low contract coverage (20%)

Strong growth, some biological challenges

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All sales done in spot market

Steady cost levels

Most sales done in spot market

Increased production costs in 2H 2011

Contributions from harvesting and VAP

Higher cost level than in Norway

High contract coverage

Central Norway 3Q 11 YTD 11 FY 2010

Operating income (NOK mill) 1 001,9 2 551,5 3 137,2

EBIT bef. value adj. biomass 127,1 379,8 733,6

Harvest volume (1,000 tgw) 23,1 42,5 47,2

EBIT/ kg gw (NOK) 5,51 8,9 15,55

Northern Norway 3Q 11 YTD 11 FY 2010

Operating income (NOK mill) 147,8 409,1 506,0

EBIT bef. value adj. biomass 10,0 121,0 211,2

Harvest volume (1,000 tgw) 5,8 12,4 13,6

EBIT/ kg gw (NOK) 1,73 9,7 15,55

Segment Rauma 3Q 11 YTD 11 FY 2010

Operating income (NOK mill) 139,2 415,9 257,2

EBIT bef. value adj. biomass 9,2 70,7 66,8

Harvest volume (1,000 tgw) 3,0 6,9 4,2

EBIT/ kg gw (NOK) 3,06 10,3 15,92

Norskott / SSF 3Q 11 YTD 11 FY 2010

Operating income (NOK mill) 154,6 549,9 1 026,8

EBIT bef. value adj. biomass 20,9 130,9 279,4

Harvest volume (1,000 tgw) 4,5 14,3 27,1

EBIT/ kg gw (NOK) 4,67 9,1 10,31

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Group profit and loss – 3Q/YTD

Op. income in line with Q3 2010

– Higher volumes

– Lower salmon prices

EBIT NOK 134 mill

Negative value adjustment of

biomass

Income from associated companies

mainly 50% of Scottish Sea Farms

and 24,8 % of Bakkafrost after tax

results.

– Share of EBIT SSF: -8,9 mill

– Share of EBIT Bakka: 38,9 mill

Other financial items include both

interest and currency effects

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NOK million 3Q 11 3Q 10 YTD 11 YTD 10

Operating income 1 077,2 1 002,3 2 763,6 2 279,8

Cost of goods sold 665,1 477,3 1 571,5 1 106,5

Payroll expenses 114,7 83,1 270,0 204,6

Other operating expenses 128,9 114,3 299,8 275,8

EBITDA 168,5 327,6 622,4 692,8

Depreciations 34,5 26,9 94,5 66,0

EBIT before biomass adj. 134,0 300,7 528,0 626,8

Value adjustment biomass -71,0 -48,9 -385,3 171,1

EBIT after biomass adj. 63,1 251,8 142,7 797,9

Income from ass. comp. 30,8 13,2 81,8 81,5

Other financial items -49,4 -22,4 -74,6 -54,1

Earnings before tax 44,5 242,6 149,9 825,2

Tax 3,8 64,2 19,1 208,2

Result for the period 40,7 178,4 130,8 617,0

Earnings per share (NOK) 0,38 1,73 1,16 5,99

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Content

About SalMar

Q3 – YTD 2011

Delivering margins:

– Farming

– Processing and VAP

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10 Source: Pareto Securities

SalMar has over time delivered “best in class”

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Source: Company financial reports

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4q06 1q07 2q07 3q07 4q07 1q08 2q08 3q08 4q08 1q09 2q09 3q09 4q09 1q10 2q10 3q10 4q10 1q11 2q11 3q11

EBIT/kg

SALM

SalMar has over time delivered “best in class” - 2011 more challenging with start up cost, and low contract share

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Best performing SalMar site 2005G

Production cost (live fish) pr. kg:

– Well below 11.00 (10,55)

– Equal to 15,38 gutted in box

Feed costs NOK 6,47 average pr. kg

Salary costs NOK 0,63 pr. kg

Administration costs NOK 0,35 pr. kg

Other operating costs NOK 0,28 pr. kg

Health & veterinarian cost NOK 0,06 pr. kg

12 Source: SalMar

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Marked difference from best performing 2005G

to 2010 production cost levels

NOS Price 2010 : NOK 37,45

Estimated average production cost best performing listed

companies 2010:

– NOK 22,00 per kg gutted weight

– Average Norway above NOK 24 per kg (SalMar estimate)

Comparison

13 Source: SalMar estimates

Top performer 2005 G Sample 2010 harvest Delta

Cost live weight 10,55 15,94 -5,39

Cost gutted in sea 12,71 19,20 -6,49

Harvest & well boat 2,67 2,80 -0,13

Cost gutted weight 15,38 22,00 -6,62

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Illustration of developments in key cost

components

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Cost component Cost development (approximation)

Comment

Feed Costs + NOK 3 – 4 A product of price of feed and feed conversion ratio

Health & veterinarian + NOK 0,5 – 1,5 Sea lice treatments, medicine & vaccines, veterinary costs

Administration + NOK 0,2 – 0,4 Corporate HQ, listing costs, IT & telecom, business support etc.

Smolt + NOK 0,2 – 0,5 Price, mortality rate

Harvesting + NOK 0,1 – 0,3 Charter costs, fuel, salary, packaging, utilization

Other operating costs + NOK 0,5 – 1,0 Depreciation, insurance, maintenance, salary , rent

Total + NOK 4,5 – 7,7

Source: SalMar estimates of development for the industry in general

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What can be done to counteract this development?

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Cost component Focus areas and actions to mitigate cost increase (examples)

Feed Costs Feed conversion ratio, selection of feed (feed composition), commodity prices

Health & veterinarian Sea lice treatment: Wrasse, mechanical, less use of chemicals

Administration “Rightsizing” the organization, streamline IT & communications platforms, effective business support

Smolt Size, timing, mortality rate, vaccines

Harvesting Volume, high capacity utilization, automation, flexibility

Reduce production time in sea

Feeding strategies, size of smolt, use of lights, fewer and effective treatments of sea lice

Other operating costs Centralized purchasing arrangements, efficient working practices, high utilization of fixed assets

How much of the cost increase can be addressed?

NOK 2,50 – 3,50

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Content

About SalMar

Q3 – YTD 2011

Delivering margins:

– Farming

– Processing and VAP

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InnovaMar – a strategic and value creating

investment

Harvest and processing capacity

Economies of scale

Optimize biological production

− Flexibility

− Fish welfare

− Product quality

− Optimal use of raw material

Reduced need for transportation

- 10 000 tons GW in august 2011

- Pre rigor processing online

Handling of waste & byproducts

The InnovaMar facility

Investment of EUR 70 million

17 500 square meters

Capacity >70 000 tons GW per shift

Capacity > 25 000 tons GW to filet

per shift

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InnovaMar 2012 – Harvest / HOG

Key Innovations

Expected quality and cost improvements

Automatic stunning

Automatic in feed, gutting and cleaning

Capacity of 120 fish/minute

Direct flow to pre rigor lines

Automation and improved working conditions

Hygienic design of plant and machinery

Reduced handling and improved shelf life

Flexibility in use of raw material (fresh/frozen/fillet)

Capacity and economies of scale

Reduced use of man hour

Flexibility in selection of sizes to customers needs

Estimated cost saving of 10-20% compared to

industry average in Norway

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InnomvaMar 2012 – VAP

Key Innovations

Direct flow of pre – rigor raw material

Flexibility to produce pre – rigor and post rigor

volumes in three separate lines (50/50 share)

Total capacity of 50-60 fish/minute. >15 tons/hour

Traceability (organic salmon 2x125 grams)

Moving down the value chain

Product flexibility, with potential to sell volumes to a

less price sensitive market segment

Improved shelf life

Meeting to strict quality standards

Improved yield

Reduced need for transport (lower CO2 emissions)

Target of 100+ tones raw material per shift/day

Improve efficiency of 10-20% versus old plant

Expected quality and cost improvements

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Thank you for your attention See www.salmar.no for more information

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