Kjell Bjordal - Head Ewos Group/COO Feed Cermaq - Status and development in salmonid feed production 2012

Status and development in

salmonid feed production 2012 Havbrukskonferansen 22. November 2011

Kjell Bjordal

Head EWOS Group/COO Feed Cermaq

• Intro to Cermaq and EWOS

• Status & Outlook in feed- and

raw material markets

• The value of growth

– Use of functional feed in a low

salmon price market

Agenda

Photograph: Tom Haga

Photograph: Ragge Strand

This is Cermaq

A global leader in the aquaculture industry

Two business units; EWOS and Mainstream

EWOS: The world’s 2nd largest producer of salmonid feed

– market share of app. 35 %

Sales 2010: 876.000 tons

Sales 2011E: > 1 mill tons

Mainstream: A leading salmon farming company

Sales 2010: 97.000 tons (gwe)

Sales 2011E: 105.000 tons (gwe)

Total EBIT 2010 NOK mill 1.439

Approx 3.500 employees

Operations in Norway, Chile, Canada , Scotland and

Vietnam

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• Operations in Norway, Canada, Chile, Scotland, Vietnam

– 7 factories globally; 875 employees

– 21 feed production lines

• Increased attention on functional feeds

– Ensure healthy fish and improved growth

• Extensive R&D through Ewos Innovation – Fish nutrition, Raw materials, Fish performance and health

– 3 locations, 80 People, NOK 80 mill per year in R&D

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EWOS NorAqua /FK4

Status & Outlook in

feed- and raw material markets

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Development in feed markets

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Source Kontali Nov 2011

• Global feed sales in 2012 influenced by

– Salmon price development

– MTB limitations impact on harvest volume in 2H 2012

– Changes in biological conditions

• Chilean feed suppliers indicate higher growth in Chile than Kontali

2006 2007 2008 2009 2010 2011E 2012E

Norway 933 800 1 083 000 16 % 1 136 700 5 % 1 302 500 15 % 1 307 500 0 % 1 463 000 12 % 1 531 600 5 %

Chile 1 006 300 1 082 400 8 % 1 018 200 -6 % 594 000 -42 % 698 400 18 % 926 400 33 % 934 100 1 %

UK 194 800 211 300 8 % 201 300 -5 % 207 400 3 % 207 500 0 % 221 400 7 % 218 700 -1 %

North America 194 200 201 400 4 % 193 800 -4 % 191 500 -1 % 204 900 7 % 191 700 -6 % 193 500 1 %

Faraoe Islands 28 900 45 600 58 % 59 700 31 % 62 200 4 % 61 700 -1 % 81 300 32 % 84 700 4 %

Total 2 358 000 2 623 700 11 % 2 609 700 -1 % 2 357 600 -10 % 2 480 000 5 % 2 883 800 16 % 2 962 600 3 %

Fishmeal production development

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Source IFFO 2011

Fishoil production development

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Source IFFO 2011

General vegetable market trends

• We expect stable and sufficient supply of soy, both for GM and non-

GM qualities

• Speculators seem to withdraw cash from traded commodities

• Use of biofuel will influence total world demand, will subsidies for non

fossil fuel be withdrawn in current financial markets?

• Fish feed is a price taker for vegetable raw materials

• Advanced formulation capabilities for feed, make feed manufacturers

less and less susceptible for price fluctuations on individual raw

materials

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Conclusion: Less volatility in and more stable

raw material pricing expected for the next

quarters

• Fish quotas already set in Peru, fish meal

production is expected to stabilize on 2,5

mill tons, significantly higher than 2010

• Chinese demand drive markets, but the

Chinese users seem to have established

a substitution competence balancing

growth in demand

• In conclusion; fish meal prices stable or

slightly downwards

• Vegetable proteins expected to maintain

stable or slightly downward prices in 2012

unless extreme weather conditions occur

• Vegetable oils: Crops have been good –

importance of substitutes for rape oil as

biodiesel have been significant. Uncertain

trend, but no dramatic price changes

expected

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Raw Material Prices

(USD/tonne)

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2008 2009 2010 2011

Fishmeal Peru, FOB Soymeal extracted, FOB

Fish Oil Scandinavia, CIF Vegetable Oil, FOB

Main uncertainty is currency development

The value of growth

Use of functional feed in a

low salmon price market

Faster growth / more resistant fish

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Functional feed improve fish performance

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– EWOS adapt – designed for fish to cope with transition from FW to SW;

functional components to increase the ability to handle new pathogens in a

new environment and fatty acid profile to benefit a good/even smoltification

– EWOS robust – strengthens and optimises immune response of the fish.

Contains a functional component which makes salmon less attractive to

sea lice by masking the salmon host odors and a powerful immune

stimulant and boost to prepare the fish against pathogens

– EWOS synergy – new base for medicated feed

– EWOS alpha – clinical diet for fish suffering from Pancreas disease

– EWOS opal 120 with boost-contains boost and prebiotica to strengthen

the fish

Value of growth

Cost distribution for 5.5 kilo live weight salmon fed on standard feed

Growth patterns for advanced, standard and low cost feed

• Feed contributes to almost 50 % of salmon production cost

• Choice of feed determines not only feed cost, but also growth rate

• Advanced feed is here a Functional feed, low cost a reformulated feed

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What is the value of growth? Our model use following input parameters

• Production parameters (feed dependent)

– Growth rate and size distribution

– Production time

– Mortality

– Feed conversion ratio (FCR)

• Economical parameters

– Smolt cost

– Feed cost

– Salmon price per size interval

– Cost of transport, slaughting & packing

– Capital interests – capital cost

– Other variable costs

– Fixed costs

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At low salmon prices; will EWOS functional grower feeds still be more beneficial

than standard feeds?

• Currently many salmon

farms see productions

costs about 25 NOK/kg

• Benefit of increasing

production volume by

using EWOS functional

grower feeds is

maintained for prices

far below break even

costs (25-13nok/kg), as

higher sales volumes

increases the cash flow

to cover fixed costs

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Benefits of using EWOS functional health feeds

• Additional cost of using EWOS suggested functional feed

program through a life cycle approximates 250

KNOK/production site (MTB)

• Such additional cost will be covered by reducing the need

of medicated de-licing with only one treatment

(approximate costs from 300 – 1,000 KNOK/site,

depending on method)

• -or by improving survival by only 2% at salmon prices of

22 NOK/kg)

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Customer experiences with EWOS functional

feeds against sea lice in 2011

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Fastsittende

Bevegelig

Kjønnsmoden

EWOS robust EWOS alpha EWOS robust

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Lice numbers

Attached stages

Mobile stages

Mature stages

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Are we living as we preach?

MS Norway*

Functional Feed

Standard Feed

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MS Chile**

Functional Feed

Standard Feed

• Continued significant

use of EWOS

Functional Feed in

Mainstream following

Salmon price reduction

* Aug – Oct 2011 (Atlantic)

** YTD Oct 2011 (Atlantic)

EWOS outlook

• Continued growth in Chile from increased

salmon production

– Market growth 2011 maintained at 45 %

– Reduced growth rate for 2012

• Focus on fish performance and fish

health expected to support continued

large share of value added feed

• High raw material volatility to continue,

but limited changes expected in Q4 2011

• Investments in all plants in Norway to

increase capacity with 75 000 tonnes in

time for peak season 2012

• Full year EBIT margin of 5-7 %

maintained

Bilde

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