Banking View
Claro y Asociados José Mujica
2 2
Agenda
• Learn from past experiences • Looking forward. The bank`s role
3 3
Claro y Asociados
EDISON PRIVATE FUND
PRIVATE EQUITY
STRATEGIC CONSULTING
CORPORATE FINANCE
ADVISORY ASSET MANAGEMENT
FAMILY OFFICE
DVA CAPITA
L
4
• Claro y Asociados was hired a an external adviser to all banks members of ABIF (Banks and Financial insHtuHons associaHon) in January 2009 to advice on the following issues related to the Salmon Industry : – Financial valuaHons – Aquaculture law – Sanitary and producHon – informaHon
The background
5 5
The approach
• We immersed in the industry meeHng more than 300 people in Chile and abroad: – Controlling shareholders and management. Technical staff and operators at sea sites, hatcheries and processing plants
– Suppliers from the enHre value chain – AssociaHons (SalmonChile, suppliers) – AuthoriHes: Sernapesca, Subpesca, Mesa del Salmon – Ministers and cabinet; Senate and lower chamber members
– ScienHfic community
6
Environmental Factors
Diseases Price VolaIlity
Sea lions` AKacks
Escapes & theM
Risks factors
Import prices (US)/ Export volume Chilean producHon (tons ) and new diseases
Thou
sand
of ton
s
Trout Coho Salar
Source: Urner Barry and Salmonchile Source: Salmonchile
7 7
Measuring value with high uncertainty
Back in May 2009
Discount rate
(WACC)
Company A Company B
Firm Value
Equity Value
Firm Value
Equity Value
8% 202.933 20.512 241.913 134.464
9% 174.837 -‐7.584 193.694 86.246
10% 153.739 -‐28.681 158.505 51.057
11% 137.307 -‐45.114 131.925 24.477
12% 124.141 -‐58.280 111.310 3.862
13% 113.351 -‐69.070 94.983 -‐12.465
14% 104.342 -‐78.078 81.829 -‐25.620
15% 96.706 -‐85.715 71.080 -‐36.368
Firm & Equity value (USD Thousands; May 2009)
AssumpIons (May 2009) Smolts seeded 800.000 -‐ 850.000 Months in Seawater 15 – 18 FCRb 1,25 % Mortality 18%-‐20% Harvest Weight 3.500 -‐ 4.000 Feed Price (US$/Ton) 850 – 950 Cost per Kilo at Harvest (US$) 2,77 -‐ 2,95 Farming Density (Kg/m3) 10,49 -‐ 13,88
0.0
1.0
2.0
3.0
4.0
5.0
6.0
Harvest W
eight (Kg
) AtlanHc Salmon Harvest Weight
Source: Informe General de Engoda
Cash available in the short term May 2009
8
$ 0
$ 50
$ 100
$ 150
$ 200
$ 250
Ene-‐06
Abr-‐06
Jul-‐0
6 Oct-‐06
Ene-‐07
Abr-‐07
Jul-‐0
7 Oct-‐07
Ene-‐08
Abr-‐08
Jul-‐0
8 Oct-‐08
Ene-‐09
Abr-‐09
Difference between salmon exports and feed consumpIon,
Jan 06 – May 09 (USD MM )
Montly seeds (all species)
Annual Seeds by species (units)
32 30
23
17 20 20
22
17 16
10 12
15
20 19 16 15
8
3 5 7 10 11 11 11
23
18 18 20
13 11
8 8 11
13 16
20
25
17
21 20
17
10 9 13
20
0
5
10
15
20
25
30
35
ene-‐08
mar-‐08
may-‐08
jul-‐0
8
sep-‐08
nov-‐08
ene-‐09
mar-‐09
may-‐09
jul-‐0
9
sep-‐09
nov-‐09
ene-‐10
mar-‐10
may-‐10
jul-‐1
0
sep-‐10
nov-‐10
ene-‐11
mar-‐11
may-‐11
jul-‐1
1
sep-‐11
Millions
Salar Trout Coho
0
100
200
300
2006 2007 2008 2009 2010 Sep/11
Salar Trout Coho
Source: SGS and SalmonChile
Source: SalmonChile
Source: Claro y Asociados
9 9
Building up biomass in the long term: Capital Intensive
0
2.000
4.000
6.000
8.000
10.000
12.000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Necesidad de Capital de Trabajo (MUS$)
Trimestres
G1 G2 G3 G4 G5 G6 G7 G8 Total
Fish generaHons
Capital needs
• Working capital esHmates (biomass): Case of Working capital requirement for an output of 4,000 tons/ year
• Building up 350,000 tons implied a USD750MM working capital /investment
0
50
100
150
200
250
300
Ene Feb Mar Abr May Jun Jul Ago Sep Oct Nov Dic
Thou
sand
s of ish
2008 2009
Live Biomass (units)
Jan Apr Dec Aug
Source: SalmonChile
Source: Claro y Asociados
Fundraising in a “Perfect storm”? 10
S&P Prices for Chilean Fresh AtlanHc Salmon Fillet 3-‐4 Pounds
1 5 0 3 7 7 5 7 4 7 5 10 13 17 11
32 24 23 19 3 1 6 6 9
16 23 28 35
39 46 51 61
74 91
102
134 158
181 200 203
1 3 3 3 4
5 5 5
8 9 11
13 15 16
18
21 23 24 24 24
0
5
10
15
20
25
0
50
100
150
200
Jul/07 Sep/07 Nov/07 Jan/08 Mar/08 May/08 Jul/08 Sep/08 Nov/08 Jan/09
New Farms Affected Total Acumulated
Number of ISA cases per month (based on Sernapesca reports )
2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50 6.00 6.50
Janu
ary
April
June
Au
gust
Octob
er
March
May
Decembe
r February
July
Septem
ber
Novem
ber
Janu
ary
April
June
Au
gust
Octob
er
March
May
2007 2008 2009 2010 2011
Source: Claro y Asociados bases in Sernapesca Reports
Source: SalmonChile
Source: Bloomberg
• Growing demand for proteins. Healthy ones, ever more. Trend here to stay!
• Chile maintains its natural compeHHve advantages – OpHmal water temperature combined with sheltered coasts exist in a few regions around the world. Therefore, limited growth capacity for the industry (given exisHng technology)
The bright side; PaIent should pay
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Sea Surface Temperature Sea Temperature by month of the year (° C)
024681012141618
Chile Noruega Escocia Irlanda CanadaNorwayChile Scotland Ireland Canada
Feb Mar Apr May Jun AugJul Sept Oct Nov DecJan
Source: hmp://upload.wikimedia.org/wikipedia/commons/f/fe/WOA05_sea-‐surf_TMP_AYool.png
Source: Salmon farming Industry Handbook, Marine Harvest and racerocks.com
What do you do in between?
1. Give Hme and support to increase the chances of new investors
2. Improve your understanding to reduce the risk
3. Secure your posiHon
Paving the road for new money: Example of debt amorIzaIon of listed Companies
0
10
20
30
40
50
60
2011 2012 2013 2014 2015 2016 2017 2018
AquaChile
0 10 20 30 40 50 60 70
2010 2011 2012 2013 2014 2015 2016 2017
Invertec Debt/Equity RaIo Company Dec 2007 Dec 2008 Dec 2009
MulHexport 0,58 2,61 5,91 AquaChile 1,86 6,08 -‐10,64 Invertec 0,93 2,86 8,77 Yadran 1,55 2,48 4,35 CM Chiloé 9,68 Australis 6,5
Source: Company Reports
0
50
100
150
200
2011 2012 2013 2014-‐2015 2016-‐onwards
MulIexport
AmorHzaHon
Improve your understanding A successful join venture
Company 1
ProducIon informaIon
Sanitary measures: SalmonChile
Financial Models
Global trends: Kontali Analyse
InformaHon is shared with the bank and the Industry
Sanitary regulaIon: Sernapesca
Sanitary InformaIon
Independent 3rd parIes
3 Stakeholders: SalmonChile, Banks, CORFO
InformaIon on seed acIvity,
harvesIng, eggs imports
Regulatory and sanitary control
Bank 1
Company 2 Company N
Bank 2
Bank 3
Bank 4
Bank N
Source: Claro y Asociados
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Agenda
• Learn from past experiences • Looking forward. The bank`s role
Future Financing (Our view) A relevant Industry for the country
• Aquaculture`s relevance in the economy make it an amracHve sector to remain present
0%
20%
40%
2000 2003 2006
Poverty Ra
te
Poverty Rate 2000-‐2006. Salmon Communes X Región, No Salmon Communes X Region and whole Country
No Salmoneras X Región País Salmoneras X Región
0
50,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
EvoluIón Direct Employment in the chilean salmon industry
Empleo Directo Chile (Personas)
27,454
4,240 3,011 2,030 1,978 1,381
0
5,000
10,000
15,000
20,000
25,000
30,000
Copper Processed Foods
Fresh Fruit
Salmon Cellulose Wine
Chilean Export 2010, MM US$
Source: Direcon
No Salmon X Region Salmon X Region Country
Direct Employment Chile (people)
Source: Informe Económico Salmonicultura 2005 and 2006, SalmonChile
Capital structures that incorporate the true risk of the industry (biomass isn't working capital)
Debt/Equity RaIo
Company Dec 2007 Dec 2008
Dec 2009
Dec 2010
Jun-‐ 2011
MulHexport 0,58 2,61 5,91 1,45 1,25 AquaChile 1,86 6,08 -‐10,64 16,3 0,9 Invertec 0,93 2,86 8,77 4,8 4,11 Yadran 1,55 2,48 4,35 5,14 CM Chiloe 9,68 6,42 5,24 Australis 6,5 2,1 0,8
Future Financing Different capital structure
IPO & Capital Increase
Company OperaIon Date % Property Amount Collected (MMUS$)
MulHexport Capital Increase Dec-‐2010 12,0% 89
AquaChile IPO May-‐11 32,3% 373
Invertec Capital Increase Aug-‐2010 16,1% 24
Yadran* Capital Increase Jun-‐11 20,0% 22
Australis IPO Jun-‐11 12,8% 71
Camanchaca IPO Dec-‐2010 30,0% 224
Source: Company Reports
• Current informaHon requirements should be the rule rather than the excepHon
0
10
20
30
40
50
60
70
80
Num
ber o
f on-‐site visits
Aquabench DNV DQS -‐ POCH
Number of on-‐site visits to producIon faciliIes, September 2010-‐ August 2011
Future Financing InformaIon is Key
Source: Claro y Asociados
Future Financing Industry evoluIon
• From a sanitary perspecHve (risk) consolidaHon of operaHons or management areas is welcomed
Ranking 2008 # Company Ton % % Acum 1 Aquachile S.A. 64.815 15% 15% 2 Marine Harvest 49.566 11% 26% 3 Camanchaca 26.564 6% 32% 4 MulHexport S.A. 26.300 6% 38% 5 Mainstream S.A. 30.589 7% 45% 6 Los Fiordos Ltda. 25.806 6% 51% 7 C.M. Chiloé Ltda. 16.505 4% 55% 8 AntarHca S.A. 18.340 4% 59% 9 Yadran 15.389 3% 62% 10 Invertec 12.337 3% 65% 11 Trusal S.A. 15.459 3% 68% Others 143.271 32% 100%
Total 444.939 100%
Ranking 2010 # Company Ton % % Acum 1 Aquachile S.A. 32.613 11% 11% 2 Mainstream S.A. 23.564 8% 20% 3 MulHexport S.A. 20.392 7% 27% 4 Los Fiordos Ltda. 16.333 6% 32% 5 AntarHca S.A. 13.110 5% 37% 6 Marine Harvest 12.701 4% 41% 7 Accuinova Chile 12.300 4% 46% 8 VenHsqueros S.A. 12.268 4% 50% 9 G.M.Tornagaleones 11.911 4% 54% 10 Trusal 9.901 3% 57% 11 Salmones Aysén 9.822 3% 61%
Others 112.666 39% 100% Total 287.581 100%
Source: SalmonChile
Future Financing • Risk management in the
enHre value chain: from the sanitary condiHon to the markets – A diversified “poryolio” so{en price
volaHlity – Diversified geographic locaHons
Live Biomass by specie (ton)
Source: Kontali
Jun-‐2008 Jun-‐2009 Jun-‐2011
Salar 75%
Trout 18%
Coho 7%
Total: 384.242Ton
Salar 41%
Trout 38%
Coho 21%
Total: 146.697 Ton
Salar 70%
Trout 17%
Coho 13%
Total: 256.958 Ton
Chilean Fresh AtlanIc Salmon fillet 1-‐1,5 kg Price FOB Miami
Chilean frozen trout 4-‐6 lb wholesales prices, Tsukiji-‐market
Chilean frozen coho 4-‐6 lb wholesales prices, Tsukiji-‐market
Source: Informe General de Barrios and Intesal
Future Financing
The importance of Sea licenses: Collateral • Concessions in Chile, accounted at book value, don't effecHvely reflect the value of a extremely limited asset. Therefore the shared effort to incorporate that in the Aquaculture law. This increases the leverage capacity of the companies
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(1) InformaHon based on 2007 and 2008 producHon depending on availability.
(2) InformaHon based on companies' financial publicaHons 2007 and 2008 depending on availability.
Conversions to the current exchange rate where applicable.
Company Licenses Book Value(2)
Marine Harvest US$815
Cermaq (Global) US$164
Mainstream (Cermaq Chile) US$90
Salmar US$148
MulHexport US$ 5,7
Invermar US$ 7,8
Yadran US$ 7,6
Maximum WFE Price USD
Concessions 2009: Troms y Finnmark (remote) 1.152 510.000
Concessions 2009 (central) 1.000 1.360.000
Gracias
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