Strategic Financial Analysis and Valuation of Lerøy Seafood Group

Copenhagen Business School, June 2014 Master Thesis

Supervisor: Jeppe Schønfeld Hand-in date: 23.06.2014 Number of standard pages: 80 Number of characters: 179 638

Alexander Løes Nilsson, FIR

Executive summary

The objective of this thesis is to estimate the stand-alone value of one share of Lerøy Seafood Group (LSG) as of 27/05/2014. In order to find the fair per-share value, I have conducted an in-depth strategic- and financial analysis on the company. These analyses have identified significant value-drivers for both revenues and costs, which will serve as foundation for the forecast.

The strategic analysis is divided into sections regarding specific revenue- and cost drivers essential to the forecasting, in addition to an industry- and macro analysis that reveal factors which influence the company. The valuation is based on two methods; the present value method and market based multiples. The present value method includes the Discounted Cash Flow model and Economic Value added model. To support these results, I have conducted a multiple analysis inspired by industry practices, including sensitivity- and scenario analysis.

The strategic analysis revealed that the main revenue drivers are growth in harvest volumes, salmon spot price and the premium above the salmon spot price that LSG can claim on its processed products. The cost of materials is identified as the most important cost driver, which is largely influenced by the price of fish feed.

There has been a significant consolidation trend in industry which is also expected to continue. LSG is financially well positioned to participate in the industry’s merger and acquisitions activities. There are limited organic growth opportunities in the salmon farming industry as the capacity limit per license restricts further utilization improvements. However, the market outlook is bright, as weaker supply growth and a strong demand support higher salmon prices.

LSG is a wholly integrated Norwegian seafood company with its core business in salmon farming, but also has significant downstream activities such as secondary processing and a substantial sales & distribution network. The group’s downstream activities give LSG close access to the end-customer, which greatly improves product development and innovation. The significant secondary processing division gives LSG the possibility to sell its products with a premium. LSG is considered to have a solid and flexible financial position with an impressive historical performance.

Based on the analysis in this thesis I find LSG to be an attractive long-term holding. The present value models estimate NOK 222 stand-alone value of one share of LSG, indicating an upside potential of ~12%. The current price does not offer a large margin of safety. However, as LSG is a quality company with a strong financial position in an industry with good prospects for the future, it should offer reasonable returns as part of a long- term investor’s portfolio.

Contents 1.0 Introduction / Motivation ...... 4

1.1 Problem statement ...... 5 1.2 Models and data collection ...... 6 1.3 Delimitation ...... 11 2.0 Introduction to Lerøy Seafood Group and the Salmon Farming Industry ...... 12

2.1 The Seafood farming Industry ...... 12 2.1.1 Historical development in the salmon farming industry ...... 13

2.1.2 Markets ...... 14

2.1.3 Production of salmon ...... 14

2.1.4 Supply and demand – historical salmon spot price ...... 17

2.1.5 European value-added processing (VAP) industry...... 17

2.2 Lerøy Seafood Group ...... 18 2.2.1 Vision and strategy ...... 19

2.2.2 Share price development and important events ...... 19

2.2.3 Value chain ...... 20

2.2.4 Key decision makers and ownership ...... 21

2.2.5 Organizational structure ...... 22

2.2.6 Financial performance and overview ...... 25

2.3 Summary salmon farming industry and Lerøy Seafood Group ...... 25 2.4 Peer Group introduction ...... 26 3.0 Strategic analysis ...... 28

3.1 Revenue drivers ...... 28 3.1.1 Salmon price...... 29

3.1.1.1 Supply...... 29

3.1.1.2 Summary supply ...... 32

3.1.1.3 Demand ...... 33

3.1.1.4 Summary demand ...... 34

3.1.2 Harvest volumes ...... 34

3.1.3 Value-added products ...... 36

3.1.4 Summary revenue drivers ...... 37

3.2 Cost value drivers ...... 38 3.2.1 Fish feed ...... 38

3.2.2 Salaries ...... 39

3.2.3 Other operating costs ...... 39

3.2.4 Summary cost drivers ...... 40

3.3 Macro factors – PESTEL ...... 40 3.4 Industry factors – Porter’s Five Forces...... 44 3.4.1 Bargaining power of customers ...... 44

3.4.2 Bargaining power of suppliers ...... 44

3.4.3 Threat of new entrants ...... 45

3.4.4 Threat of substitute products ...... 46

3.4.5 Intensity of competitive rivalry ...... 47

3.5 Summary PESTEL and Porter’s Five Forces ...... 48 4.0 Financial analysis ...... 49

4.1 Rebalancing the financial statements for analytical purpose ...... 49 4.1.1 Rebalancing the income statement ...... 50

4.1.2 Rebalancing the balance sheet ...... 51

4.2 Lerøy Seafood Group financial overview ...... 52 4.3 Analysis of historical profitability and performance ...... 52 4.3.1 Operational performance – Return on Invested Capital (ROIC) ...... 53

4.3.2 Decomposition of ROIC ...... 54

4.3.3 Return on Equity ...... 56

4.4 Liquidity risk analysis ...... 57 4.5 Summary financial analysis ...... 58 5.0 SWOT – Combining the strategic- and financial analysis ...... 59

6.0 Forecast ...... 60

6.1 Revenue drivers ...... 60 6.2 Cost drivers ...... 64 6.3 Other items ...... 65 6.4 Balance sheet ...... 66 6.5 CAPEX ...... 68 6.6 Forecast summary ...... 69 7.0 Valuation ...... 70

7.1 Weighted average cost of Capital (WACC) ...... 70 7.2 Summary - WACC calculation ...... 73 7.3 Present value models ...... 74 7.3.1 Discounted cash flow model ...... 74

7.3.2 Economic Value Added model ...... 74

7.4 Sensitivity analysis ...... 75 7.5 Worst- & best case scenarios ...... 75 7.6 Relative valuation - multiples ...... 76 7.7 Summary valuation ...... 77 8.0 Discussion ...... 78

9.0 Conclusion ...... 79

10.0 Thesis in perspective ...... 80

11.0 Reference ...... 81

1.0 Introduction / Motivation The main purpose of this thesis is to estimate the intrinsic equity value of the Norwegian Seafood company Lerøy Seafood Group. My motivation for writing my master thesis on Lerøy and the seafood industry is based on several factors.

The recent decline in the Norwegian salmon production and the increased demand in 2013 led to record high prices for Norwegian salmon. The total value of exports of Norwegian salmon in 2013 was NOK 39,8bn (up 35% from 2012), the highest annual Norwegian salmon export figure ever registered1. The record high prices for Norwegian salmon ranged between NOK 33,45/kg (September) and NOK 44/kg (December) over the course of the year, with an average of NOK 39,74. The average price was up 44% from 2012 figures, which is the highest since 1988 (Norwegian Seafood Council, 06/01/2014)2.

Figure 1 – Salmon newspaper headlines in 2014

Source: FT.com, “Slow supply growth raises ‘peak salmon’ fears” / Aftenposten.no/okonomi/Rekordar-for-norsk-laks-7424954.html

On February 17, 2014, Financial Times published an article regarding peak salmon prices, caused by strong demand and the slow growth in production. The exchange broker Piotr Wingaard of FishPool stated that the recent rise in prices is “driven by the fear of lack of supply” and that “it’s very difficult to see substantial volumes coming through”3. The Financial Times article also states that some industry experts warns that the salmon farming sector which accounts for 2/3 of the global consumption of salmon, is approaching capacity limits. Supply growth is constrained by the few countries that possess the natural environment that make profitable production possible. Some experts also believe it’s doubtful that additional supply will keep up with the growing demand estimated to be 5-10% per year (FT.com, 17/02/2014). These statements describe an environment with potentially higher long-term salmon prices.

I therefore find it very interesting to investigate the potentially good long-term prospects of the salmon farming industry and the established player Lerøy Seafood Group. I also find it practical to gain in-depth knowledge of one of the larger industries in Norway which could serve positively in years to come.

1 Norwegian Seafood Council, Value of Norwegian salmon exports at record levels, 06/01/2014 2 Norwegian Seafood Council, Value of Norwegian salmon exports at record levels, 06/01/2014 3 FT.com, Slow supply growth raises ‘peak salmon’ fears, Emiko Terazono, 17/02/2014

1.1 Problem statement The purpose of this thesis is to estimate the intrinsic value of Lerøy Seafood Group (LSG from now) using different valuation techniques. My findings will be summarized into a recommendation to the potential investor, directed towards minority investors. I have formulated the following problem statement for this thesis:

“What is the estimated stand-alone value of one share of Lerøy Seafood Group per 27/05/2014 compared to the market price of the shares trading at the Oslo Stock Exchange?”

Sub questions In order to accurately answer the problem statement listed above, a number of sub questions must be answered. The sub questions are divided into different sub sections. Throughout the thesis, the findings in the different sections will be summarized into partial conclusions. These partial conclusions will serve as the foundation for the forecast and the final conclusion at the end. I will hereby give a brief description of the different sub sections throughout this thesis.

Introduction to Lerøy Seafood Group and the salmon farming industry The thesis will begin by introducing of the salmon farming industry and LSG. Before valuing a company one needs a good understanding of the industry it operates in. Having a good overview of the industry will also serve as important input when conducting a strategic analysis of the company, as it is helpful when identifying the company’s value drivers. In this section of the thesis, the following sub questions will be answered:

- What are the main characteristics of the salmon farming industry? (Question answered on p.25-26) - What are the main characteristics of LSG and how has the Company developed? (p.25-26) - Who are LSG’s main competitors (comparable firms)? (p.26-27)

Strategic analysis of the salmon farming industry and Lerøy Seafood Group The goal of the strategic analysis is to determine how the strategic value drivers of LSG and its competitors are affected by external and internal conditions. Findings in this section will serve as foundation when making projection for the future. Following questions will be answered:

- What factors influence LSG’s revenues and costs? (p.37-38+40) - What are the macro and industry factors that influence the company’s cash flow? (p.48)

Financial analysis The purpose of this section is to analyze LSG’s historical performance and break it down into different components. The financial analysis will shed light on important areas that require focus during the strategic

analysis. LSG’s performance will also be benchmarked against a selected group of closely related companies. The sub questions to this section are the following:

- How has LSG historically performed compared to its peers? (p. 58) - How does the cyclical nature of the industry affect the year-to-year financials? (p. 58) - Does LSG have a satisfying financial position which allows it to conduct valuable investment in the future? (p. 58)

Forecasting This section will comprise of my estimates for realistic forecasts of LSGs key value drivers, based on the findings in the strategic- and financial analysis. The sub questions to be answered:

- How will LSG’s key value drivers progress in the future? (p. 69) - When is LSG likely to reach the state of steady growth? (p. 69)

Valuation There are numerous of models to use when trying to value a company. As LSG will be valued as a going concern, it is appropriate to exclude the use of models such as the liquidation method. A common way to value going concerns would be by applying a present value model such as the DCF and/or the EVA, often combined with a relative valuation methods such as an in-depth multiple analysis. To estimate the equity value and stand- alone price per share of LSG, the following sub questions will be answered:

- What is the proper discount rate for an equity investor in LSG? (p. 73) - How sensitive is the estimated share price to changes in key drivers? (p.75-76) - What is the estimated equity value of LSG based on present value models (DCF & EVA) and market based multiples? (p. 77-78)

1.2 Models and data collection This section provides a brief overview of the methods and sources of data used in this thesis. The applied models during this thesis will briefly be presented in this section, giving the reader an insight and overview of the chosen models and structure. A wordlist is included in appendix 1.

1.2.1 Data collection This thesis is written from an independent analyst/private investor’s point of view with information limited to what is publicly available. The information and data used mostly origin between around 2000 to the date of valuation (27/05/2014). No information dated after the valuation date has been used.

The main sources of information for this thesis are from annual reports, trade publications, statistical & government websites, Bloomberg and equity research reports from investment banks. Most of the applied theories are from academic books and other financial literature used in courses at Copenhagen Business School. Although a financial analyst will never have perfect information, I am confident that these sources will provide a solid foundation in order to estimate the intrinsic equity value of Lerøy Seafood Group. Material and information from secondary sources will be critically reviewed before using, as it is important to be aware of potential biases among these sources (e.g. incentive structures in investment banks).

1.2.2 Strategic analysis The strategic analysis will start of by analyzing the different value drivers that influence LSG’s revenues and costs, followed by the PESTEL- and Porter’s five forces model. I find that addressing the most essential revenue- and cost drivers first is a more direct way of approaching the strategic analysis, which is also consistent with the structure used in the forecast-section. The PESTEL- and Porter’s Five Forces will include the macro- and industry- factors that affect LSG and its industry, which is not already mentioned.

1.2.3 PESTEL I will apply the PESTEL-model in order to get a better understanding of the macro-environment. PESTEL stands for Political, Economic, Social, Technological, Environmental and Legal factors that influence a company; factors which usually are beyond the firm’s control4. A thorough analysis of the macro-environment makes sure that the current and future operating environment has been addressed. These factors may either serve as a source of competitive advantage (opportunities) or an erosion of competitive advantage (threats). Each individual factor will be explained shortly before applied in the strategic analysis. Figure 2 – Porter’s Five Forces 1.2.4 Porter’s Five Forces Threat of I have chosen Michael Porter’s Five Forces a suitable model to new entrants determine the attractiveness of the salmon farming industry. This model emphasizes the five forces defining the rules of competition Bargaining Bargaining Intensity of 5 power of within a market . The different forces are displayed in the figure to power of rivalry suppliers customers the right; bargaining power of suppliers and customers, threats of substitute products and new entrants, and lastly the intensity of rivalry Threat of in the industry. These forces will directly affect the capacity a substitute products company has to serve its customers and thus make a profit in the Source: Own creation / Strategy – Theory and Practice 2011, p.59

4 Clegg, Carter, Kornberger, Schweitzer, Strategy – Theory & Practice, 2011, p.54 5 Clegg, Carter, Kornberger, Schweitzer, Strategy – Theory & Practice, 2011, p.59

future6. I expect this model to cover some of the most important industry factors that influence LSG and in the process reveal the industry’s attractiveness. Although the PESTEL and Porters Five Forces are exceptional models which help you think hard and creatively regarding the factors that influence a company and its industry, there are some limitations to the model. The most important thing to keep in mind is that these models provide a current picture of the market environment, which may be subject to rapid changes in the future.

1.2.5 SWOT I have used the SWOT model to summarize my findings during the introduction of LSG and industry, the strategic analysis and the financial analysis. The SWOT reveals the Strength, Weakness, Opportunities and Threats which influence the company. I have modified the SWOT matrix to target the specific revenue and cost drivers of the company, where I ultimately give an assessment of my overall expectations for the future.

1.2.6 Valuation approaches I have chosen to use a present value approach as the main valuation method. The models used are the Discounted Cash Flow- and Economic Value Added model, which is based on the present value of future cash flows. However, any valuation method is only as accurate as the forecast it is based on. I have therefore performed a careful relative valuation using relevant multiples in order to support the results.

1.2.6.1 Discounted Cash Flow Model Discounted cash flow (DCF) model is the most accurate and flexible method for valuing projects, divisions and companies7. This valuation model estimates the enterprise value of a company by discounting its future free cash flow to firm (FCFF), which is calculated in the forecast period. The following formula has been used to calculate FCFF8:

FCFF = NOPAT + Depreciation + ∆Net Working Capital + ∆ non-current liabilities - CAPEX

This formula estimates the amount of after tax cash flow that is available for all equity- and the bond holders. NOPAT is defined as the net operating profit after tax, which excludes the cost of financing and nonoperation items. Subsequently, the forecasted FCFF is discounted using the following formula:

6 Clegg, Carter, Kornberger, Schweitzer, Strategy – Theory & Practice, 2011, p.60 7 T.Koller, M.Goedhart, D. Wessels, Valuation, 2010, p. 313 8 Plenborg and Petersen, Financial Statement Analysis, 2012, p.180

The terminal value is calculated using the second part of the formula above. G is defined as the growth rate when the company reaches steady state. The sum of the present value of the future FCFF represents the estimated enterprise value. In order to find the estimated market value of equity, you subtract the market value of net interest bearing debt and minority interest from the enterprise value. The standard way of discounting is using t=1, 2 etc. which assumes that all the FCFF arrives ultimo each year. As it is more realistic that FCFF falls continuously throughout the year, I have chosen to use mid-year discounting. Mid-year discounting helps to even out the FCFF throughout the period, which is the reason why t=0,5, 1,5 etc. is used.

1.2.6.2 Economic Value Added Model The economic value added (EVA) estimates a company’s enterprise value by taking the sum of the primo invested capital and the present value model of the future EVAs9. The future EVA is calculated by this formula:

EVAt = NOPATt – WACC * Invested capitalt-1

The enterprise value is then calculated by discounting all future EVA’s using the following formula:

From here, you follow the same procedure as the DCF in order to find the estimated market value of equity. The EVA model will also serve as a check for errors in the DCF model.

1.2.6.3 Relative Valuation models Relative valuation models are often referred to as multiples. The multiple analyses of LSG and its comparable firms will include a comparison of different metrics (Sales, EBITDA etc.) relative to market values. The relative valuation is performed following the three requirements outlined by T.Koller et al. (Valuation, 2010)10:

1) Use the right multiple 2) Calculate the multiple in a consistent manner 3) Use the right peer group

I have chosen to include multiples commonly used by general- and seafood financial analysts, to ensure that the analysis is coherent with both financial theory and industry practice. The multiples used are introduced in the table below.

9 Plenborg and Petersen, Financial Statement Analysis, 2012, p.220 10 T.Koller, M.Goedhart, D. Wessels, Valuation, 2010, p. 314-315

Figure 3 – Introduction of multiples • EV/Sales assumes similar growth rates and return on incremental capital, but EV/Sales also similar operating margins on the company’s existing business • Easy to compute • Focus on core operation, but does not consider CAPEX EV/EBITDA • Takes differences in capital structure into account • Operational leasing affects EBITDA more negative than financial leasing P/B • Represents market capitalization in relation to the book value of equity • A commonly used multiple among financial seafood analysts EV/Kg • Indicates the enterprise value per kg harvested • Assumes similar operating margins Source: Own creation / T.Koller, M.Goedhart, D.Wessels, Valuation, 2010, p. 313-333 / Plenborg & Petersen, p.241-244

All of the multiples are calculated in a consistent manner using figures from Bloomberg (Expect for EV/Kg), all extracted at the date of valuation. This allows for consistency throughout the whole analysis, which provides reliable and quality results. Comparable companies should have similar expectation about profitability, growth and risk as LSG11. I feel that the peer group defined later qualifies in regards to this. Transaction multiples have not been used in this thesis, even though they could serve as interesting comparisons.

1.2.7 Thesis structure Figure 4 – Thesis structure

Source: Own creation

The thesis structure is displayed in the figure above. The thesis is written with the specific company as main focus, rather than the overall movement of the stock market. This means that the thesis will be based on an in-

11 Plenborg and Petersen, Financial Statement Analysis, 2012, p.7

depth fundamental analysis of the company regardless of the predictions of the stock market as a whole. The sub questions will be mentioned and answered in summaries throughout the thesis in order to preserve the correct focus. Industry terms will either be explained in the thesis or in the word-list in appendix 1.

1.3 Delimitation - The valuation of LSG is directed towards the minority investor. If the analysis was directed towards a large institutional buyer which required large volumes in order to achieve a standard position, the thesis/conclusions may look somewhat different. The thesis would also be very different if it was directed toward an industry player or a private equity fund which intentions were to buy a majority share - General knowledge of financial theory, accounting and the securities market is expected of the reader. The thesis will not contain in-depth descriptions of all theories used - LSG is divided into a production (farming) & processing part, and a sales & distribution part. Due to limited information in the annual report, the financials is analyzed as a consolidated company. LSG produce and/or sell salmon, trout, white fish and shellfish. The strategic analysis will however focus solely on Atlantic salmon due to limited information in the annual report and as salmon is the dominant part the net income - LSG’s sales & distribution department is assumed to buy all produced salmon from the farming division, meaning that LSG’s revenues depend on harvested volumes and the future sales price per kg - The main reference price for salmon spot price in this thesis is the spot price listed by Fishpool.eu - The date of the valuation has been set at 27/05/2014. No information about the market or company is used after this date. A period of 9 years has been used as the historical analyze period - Currency fluctuation can significantly influence global company’s net income. However, as it is extremely hard to forecast the effects of currency fluctuation on future cash flow and not the focus of this thesis, it is ignored in the forecast - A constant WACC is assumed during the valuation. It is also assumed that there are no seasonality in the free cash flow throughout the year - Potential acquisitions is not forecasted individually in the future, but rather as part of an annual growth rate of the total harvest volumes - The producing regions of farmed salmon are largely Norway and Chile, with smaller regions such as Canada and Scotland. The strategic analysis will focus on Norway and Chile, as they are expected to be the regions with capacity large enough to significantly influence the future supply/demand relationship

2.0 Introduction to Lerøy Seafood Group and the Salmon Farming Industry The thesis will start off with a brief introduction of Lerøy Seafood Group and the salmon farming industry. The goal of this section is to provide an overview of the company and industry, introduce LSG’s main competitors and answer the following questions:

- What are the main characteristics of the salmon farming industry? - What are the main characteristics of LSG and how has the Company developed? - Who are LSG’s main competitors (comparable firms)?

2.1 The Seafood farming Industry Figure 5 – The Seafood farming industry

Source: http://www.pewenvironment.org / LSG Homepage

This section will describe the seafood farming industry, in terms of the Norwegian and the global market. The farming of fish species (Aquaculture/aquafarming) can be defined as the raising of fresh- and/or saltwater fish under controlled conditions, as opposed to the harvesting of wild fish (commercial fishing). As commercial fishing in recent years has been in stagnation, the growth in the supply of fish is expected to come from the fast growing aquaculture industry. Aquaculture is the fastest growing animal food producing sector and accounted for nearly 50% of the fishery output for human consumption in 201212.

This thesis will focus on the farming of the fish family salmonoids (e.g. Atlantic salmon, Pacific salmon), which is LSG’s main product. The common name for all the species included in the fish family “salmonoids” is salmon. Salmon are typically anadromous, which means that they are born in fresh water and later migrate to the ocean. Several of these species is available for both wild catch and farmed, however all commercially available Atlantic salmon is farmed. Approximately 60% of the world’s supply of salmon is farmed, largely in Norway, Chile, Scotland and Canada (MH Industry Handbook 2013, p.3). The farming in these regions takes place in large nets in sheltered quiet waters, or in tanks on land. The ultimate goal of this section is to introduce the

12 Marine Harvest, Salmon Industry Handbook 2013, p.5 (MH Industry Handbook 2013)

aquaculture industry while focusing on LSG’s main segment which is salmon farming, in order to prepare the reader for the in-depth analysis of LSG and the industry later in this thesis.

2.1.1 Historical development in the salmon farming industry Figure 6 – Annual Global harvest quantity of Atlantic salmon & Overview of producing regions (HOG – Head on gutted fish)

Source: Own creation / Marine Harvest Salmon Industry Handbook 2013 p.13 / Kontali Analyse

The general supply of seafood has been shifting more and more from live catch towards aquaculture. Wild catch of salmonids vary between 700 000 and 1 000 000 tons HOG (Head on gutted fish13), and is hence in stagnation14. 1999 was the first year when the total supply of salmonids was dominated by farmed fish. Since then, the share of farmed salmonids has become the dominant source. The global supply of Atlantic salmon has doubled since 2000, equivalent to an annual growth rate of 7% (MH Industry Handbook 2013, p.12).

Because of the specific natural conditions required for optimal production of Atlantic salmon (Seawater temperature range, sheltered coast line such as Norwegian fjords & certain biological conditions), the production has been dominated by a few countries15. Since the early 2000, Chile started to aggressively increase its production of salmon. However, Chile met a serious setback in 2007 after an outbreak of the ISA virus, which severely hurt production between 2009 and 2011, resulting in high salmon prices. The impact of the ISA virus on the global production of salmon can clearly be seen in the total global harvest quantity in figure 6. The Chilean seafood industry has gone through a serious rebuild after 2010. Salmon production in UK and Canada has been stable the recent 5 years with limited future growth potential (MH Industry Handbook 2013, p.13).

13 Head on gutted = HOG. Whole fish equivalent = WFE. Difference between HOG and WFE = gutted loss (Appendix 1) 14 Marine Harvest, Salmon Industry Handbook 2013, p.11 (MH Industry Handbook 2013) 15 Marine Harvest, Salmon Industry Handbook 2013, p.13 (MH Industry Handbook 2013)

2.1.2 Markets Figure 7 – Global trade flows of farmed Atlantic salmon – 2012 (HOG – Head on gutted fish; see appendix 1 for explanation)

Source: Own creation / Kontali Analyse / Salmon World 2013/ Marine Harvest Handbook 2013 p.14

The figure above shows the global trade flows of farmed Atlantic salmon, with volumes measured in HOG for each market. The main producing regions of Atlantic salmon are Norway and Chile which represent ~80% of the total global supply, while the largest markets are the EU and the US. Norway mainly supplies the EU, Russia and Asia, while Chile serves USA, South America and Asia. The market for salmon has become more globalized, marked by stronger competition between Norwegian and Chilean salmon in the Japanese market and increased export from Scotland and Norway to the US when Chile faced a period of reduced supply. Since the beginning of this millennium, the trend has been that Chilean frozen salmon has caused more competition for Norwegian fresh salmon in the European market16. However, there will always be regional markets for the different producing countries because of the logistics of transporting fresh salmon. Distant markets can only be reached at low costs by large quantities of frozen salmons.

2.1.3 Production of salmon The prerequisite of salmon farming is having a license, which is distributed by the relevant authorities in the different producing regions. A license puts constrains on the maximum production for a company and the industry as a whole. In Norway, licenses are awarded by the Ministry of Fisheries and administered by the

16 Marine Harvest, Salmon Industry Handbook 2013, p.14 (MH Industry Handbook 2013)

Directorate of Fisheries. There were 959 seawater licenses in Norway at the end of 2013, but only a limited number of licenses have been awarded since 198217. Licenses are currently being traded at around NOK 20-70m.

Figure 8 – Sea water licenses for salmon and trout in Norway

Source: Own creation / Data material from the Directorate of Fisheries; Statistics/Atlantic salmon and rainbow trout, # licenses

Licenses in Norway are set to have a maximum allowed biomass (“MAB”, see appendix 1) of 780 tonnes (900 tonnes in Troms and Finnmark). This means that the production capacity per license is restricted. The MAB of most Norwegian fish farming sites are therefore between 2340 and 3120 tonnes. Larger players usually have higher utilization than the average of the industry, as large players have better flexibility to maximize the output per license (MHG Handbook p.27 + 30).

Figure 9 – Value Chain – Atlantic salmon production cycle Spawn Smolt Transfer to sea Growth phase in Primary processing Secondary sea (4) (to HOG) (5) processing (6) (1) (2) (3)

Source: Own creation / Marine Harvest Industry Handbook 2013, p.36

After a license has been received, it has to be used within 2 years with a minimum of one third of the allowed biomass. The investment cost for equipping a normal facility in Norway with 850 000 smolt release ranges

17 Marine Harvest, Salmon Industry Handbook 2013, p.27+29 (This paragraph) & Directorate of Fisheries 2014

between NOK 25 and 30m. This covers cages, mooring, nets, cameras, feed barge/automats and boats18. The production cycle for salmon is usually around 3 years. In the first year of production, eggs are fertilized and fish is grown in controlled freshwater environment (tanks) into mature “smolt”. When the fish is around 100 grams (smolt), it is transported into seawater cages were they are “grown out” to around 4-5kg. This step takes around 14-24 month in Norway depending on seawater temperatures. Cycles are slightly shorter in Chile because of more optimal sea water temperatures. When the salmon has reached harvestable size, they are transported to the primary processing plant to be slaughtered and gutted19.

Salmon processing is divided into primary- and secondary processing (Value-added products). Primary processing is the slaughtering and gutting of the fish, while secondary processing includes such as filleting, portioning, different cuttings and making ready meal (Value-added products). Products that have gone through secondary processing are called value-added products (VAP), which is a significant part of LSG’s business.

Figure 10 – Inputs used in the production of salmon Eggs • Several suppliers: Aquagen AS, Fanad Fisheries Ltd, Lakeland and Salmoebreed AS • Egg production can easiliy be scaled - suppliers can tailor their production to demand

Smolt • Smolt production takes 6-12 month from eggs to a mature smolt weighing 60-100 grams • Produced in a controlled enviorment (Temperature regulated tanks) • Vertically integrated salmon farmers produce smolt internally

Fish feed • Feed makes up the largest share of total cost, as in all protein production • Raw materials include soy, sunflower, wheat, corn, beans, peas, rape seed oil etc. • Feed production increasingly consolidated: majority controlled by BioMar, Ewos and Skretting

Labour • Salaries and the levels of automation are highest in Norway, while Chile has the oppsite case • Just under 5 900 employed in aquaculture in Norway (2011), of which more than half works within salmon and trout production

Electricity • Used mostly in the earliest and latest stage of the salmon's life cycle • Represents 8-10% of smolt costs in Norway (Energy required to regulate tank temperature) • Energy used in processing of salmon depends of level of automation (3-5% of harvest cost)

Source: Own creation / Marine Harvest Industry Handbook 2013, p.38, 39, 42, 44 & 45

18 Marine Harvest, Salmon Industry Handbook 2013, p.28 19 Marine Harvest, Salmon Industry Handbook 2013, p.26

Some of the main inputs to salmon production are listed in figure above. The main cost components of the production of salmon differ from regions to regions (See appendix 11). Feed however, makes up the largest share of total cost in all regions. Smolt and primary processing are usually the second most expensive factor.

2.1.4 Supply and demand – historical salmon spot price Figure 11 – Fish Pool Index (FPI) Salmon spot price (NOK/Kg) 2004-2013 + Average salmon spot price

Soure: Own creation / fishpool.eu

The price of salmon is subject to a lot of volatility which is easily observed in the graph above. This volatility can be explained by several factors. First of all, due to the long salmon production cycle (3 years) and its short shelf life (3 weeks), the spot price is adjusted according to the overall price/quantity preference of the customers20. As salmon is such a perishable product it has to be consumed in that same period. Because of the planning/production cycle lasts around three years; it is very difficult and expensive to adjust production in the short term, which causes a very inelastic short-term supply. This creates large fluctuations in the price of salmon.

2.1.5 European value-added processing (VAP) industry The European value-added (secondary processing) processing industry is a EUR 25bn industry with over 135 000 employees. Traditionally, the VAP industry’s EBIT-margins vary between 2-5% with a turnover of EUR 4,2m for the average company. It is an extremely fragmented industry with over 4 000 companies, of which around 50% of the companies have less than 20 employees21. There is however larger players involved in the secondary processing industry, and a few of them are: Lerøy Seafood Group, Marine Harvest Group, Morpol, Icelandic Group and Royal Greenland. The largest players usually base their secondary processing on Atlantic salmon, making smoked salmon, portions or ready packed meals. As consumers are willing to pay for quality and value added products it is expected to see increased demand for products such as ready-to-cook fish and other packed products (MH Industry Handbook 2013, p.58).

20 Marine Harvest, Salmon Industry Handbook 2013, p.18 (Used for this section) 21 Marine Harvest, Salmon Industry Handbook 2013, p.58 (Paragraph)

2.2 Lerøy Seafood Group Figure 12 – Some of LSGs products and brand

Source: Own creation / Pictures from LSG’s homepage (https://www.leroyseafood.com/en --> product database)

Lerøy Seafood Group is a leading Norwegian exporter of seafood and the second largest producer of Atlantic salmon in the world. It supplies more than 70 markets worldwide and has 14 processing facilities located in a series of countries in Europe. Its global network includes daughter companies in Sweden, Finland, France, Spain, Portugal and Turkey, with sales offices in China, Japan and the USA. LSG’s core activities include production of salmon, trout and other species, and the distribution, sale and marketing of seafood, in addition to seafood processing and product development. LSG is a wholly integrated company from salmon egg to finished product, with more than 1900 employees22.

The company can trace its operations all the way back to the end of the 19th, century, where Ole Mikkel Lerøen started selling live fish in the Bergen market, which he had either self-caught or bought from other fishermen. Gradually, Ole included retail sales in Bergen and an export business. In 1939, Hallvard Lerøy sr. and Elias Fjeldstad established Hallvard Lerøy AS, the company that today has become the Group’s principal sales company. Since around 2000, the company has acquired substantial interests in domestic and international enterprises (LSG Annual report 2013, p.4).

Currently, LSG is trading at the Oslo Stock Exchange at a market capitalization of NOK 10,9bn. The company was listed in June 2002, which gave the parent company Lerøy Seafood Group ASA access to capital, in addition to a few cases were shares has been used as payment for acquisitions. The availability of capital has been essential in LSG’s development from being a seafood exporter to becoming fully integrated23. In the next section, we start of by looking at LSG’s vision and strategy.

22 https://www.leroyseafood.com/en/Business/About-us/Leroy-in-brief/ 23 Lerøy Seafood Group Annual report 2013, p.4

2.2.1 Vision and strategy “Lerøy Seafood Group’s vision is to be the leading and most profitable global supplier of quality seafood”24

To accomplish this, extensive focus is to be given areas such as alliances, market orientation, quality, environment, risk management, know-how and strategic business development25. “LSG’s strategy is to meet the demand for seafood and culinary highlights, both at home and abroad, by supplying high quality products” (Leroyseafood.com – “business concept”). The group focus on developing profitable, efficient and binding partnerships in order to successfully provide high quality products. LSG wants to play an active role in future developments, which may comprise of acquisitions, mergers or similar initiatives. Since getting listed in June 2002, the company has had infusion of capital in 2003, 2005, 2006 and 2007. This availability of cash has been essential in Lerøy’s development. Most recently, shares was used as payment in connection with the acquisition of shares in Sjøtroll Havbruk AS26.

2.2.2 Share price development and important events Figure 13 – Share- and salmon spot price development 31/12/2004 – 23/03/2014

Source: Own creation / LSG Annual Reports / Bloomberg: Norway salmon exports fresh price (NOK/KG) (NOSMFSVL)

The graph above shows the price of the stock on the left axis, and salmon spot price on the right axis. Since 1999, the Group has made numerous acquisitions. A few of the acquisitions in addition to other important events

24 Lerøy Seafood Group Annual report 2013, p.13 25 Lerøy Seafood Group Annual report 2012, p.21 26 https://www.leroyseafood.com/en/Business/About-us/History1/

are listed in the figure above. LSG’s share price and the price of fresh salmon NOK/Kg27 is also included. The Group acquired 100% of Lerøy Midnor AS in 2003 and Lerøy Aurora AS in 2005. Two more companies was acquired in 2006 (Lerøy Fossen AS and Hydrotech AS), while Lerøy Vest AS was acquired in 2007 (LSG Annual report 2013, p.4). In 2010, the group continued its expansion in farming activities by acquiring 50,71% of Sjøtroll Havbruk AS. These acquisitions and similar investments have turned LSG into a national and international distributor of fresh fish, while transforming the company into an integrated seafood group.

2.2.3 Value chain Figure 14 – LSG’s Value chain

Source: Own creation / LSG’s Homepage (About-us/Leroy-in-brief) / Marine Harvest Handbook 2013, p.36 + 38 + 39

LSG is a fully integrated company which means that the company is actively involved in all the parts of the value chain for the production of salmon and trout; ranging from the production of salmon eggs to finished product. LSG has an annual capacity of producing 100m fertilized eggs. LSG is mainly self-sufficient in regards to smolt within its three production regions28. Through its subsidiaries, LSG can produce 45m smolt per year, which is produced in onshore facilities in fresh water, where the producer deliver hatched larvae to young fish facilities. As explained earlier, LSG’s farming of salmon and fjord trout takes place in carefully selected locations in sea water. In the figure above, production is defined as slaughtering and processing.

The slaughtering and processing of the fish takes place in modern production facilities in Norway, Sweden, France, the Netherlands, Portugal, Turkey and the UK29. Finished products are then sold through the group’s global sales network consisting of Hallvard Leroy AS’s sales offices in numerous countries, as well as associated companies. A significant part of LSG operations is also to purchase raw seafood from other producers and resell it through its global sales & distribution network. This is a low margin business, but in return requires low investments.

27 Norway Salmon exports fresh price (NOK/KG) – Bloomberg (NOSMFSVL). See wordlist appendix 1 for explanation 28 https://www.leroyseafood.com/en/Business/Sustainability1/Fish-farming/ 29 https://www.leroyseafood.com/en/Investor/About-Leroy/The-complete-value-chain/

2.2.4 Key decision makers and ownership Figure 15 – Key decision makers in LSG

Source: Own creation / Lerøyseafood.com (Investor/Group management) / LSG Annual report 2012 + 2013

I have defined the CEO, CFO, Chairman and Executive Vice President of Farming as key decision makers in LSG. I consider these people to have the position and knowledge to influence strategic decisions in the company. Both the CEO and the Executive VP of Farming have extensive experience from being employed in the Seafood industry and more specifically in LSG. The chairman, Helge Singelstad, has previously been CEO, Vice CEO and CFO. His presence on the board contributes solid company- and industry knowledge, which is expected to positively contribute to the decision making in LSG.

The table above includes the number of LSG shares and total compensation for 2013 (and 2012) for the key decision makers. Management who own stock in a company is often a good sign to shareholders. It implies that the leadership has faith in the company’s long-term prospects while aligning their interest along with the other shareholders. Executives that on the other hand are paying themselves excessive salaries and bonuses tied to short-term performance, have few interests aligned with the shareholders. The CEO does not own any shares in LSG. Stig Nilsen (EVP Farming) and Sjur Malm (CFO) however own 1,784 (NOK 0,36m market value) and 1,500 (NOK 0,3m) shares in LSG. The board of directors consists of 7 members with Helge Singelstad as chairman. The company encourages board members to own shares in the company. Helge (Chairman) holds shares in LSG indirectly through his shareholding in Austevoll Seafood ASA. Other board members such as Arne Møgster, Britt Kathrine Drivenes and Marianne Møgster also own shares in Austevoll Seafood ASA as of yearend 2013 (LSG Annual report 2013, p.29-30). I find that the indirect/direct ownership amongst key decision makers support a long-term shareholder friendly strategy.

Figure 16 – Management guidance Harvest volumes 2009 2010 2011 2012 2013 Management guidance 123.000 128.000 155.500 154.500 166.500 Actual 121.700 130.300 147.500 167.000 158.200 % difference -1,1% 1,8% -5,1% 8,1% -5,0% Source: Own creation / Lerøy Seafood Group Annual reports

A method I have used to assess the quality of LSG’s management is to compare the last 5 years actual harvest volume with the predictions that the company made in the annual report one year earlier. As you can see, the management has in the past been good at predicting LSG’s harvested volumes. This supports that management is fairly good at delivering what they promise; a positive indication of a quality management.

Figure 17 – Ownership of LSG as of 31.12.2013 Top 5 investors # shares # of total Austevoll Seafood ASA 34.144.281 62,56% Pareto Aksje Norge 2.788.417 5,11% Folketrygdfondet 1.679.935 3,09% Pareto Aktiv 1.179.351 2,16% Pareto Verdi 549.377 1,01% Total owned by top 20 44.521.062 81,57% Total number of shares 54.577.368 100% Source: Own creation / LSG Annual report 2013, p.104

The overview of the top 5 shareholders of LSG is listed above. Austevoll Seafood ASA is the majority holder with its 62,56% stake, while the rest is owned by minority shareholders. Austevoll Seafood ASA is an Oslo Stock Exchange listed company largely owned by the holding company LACO AS (LSG Annual report 2013, p.29), in addition to a series of minority shareholders. Helge Møgster, board member of Austevoll, is one of the main owners of the LACO AS30. The focused ownership in addition to the extensive industry experience and the seemingly financial alignment of many key decision makers is positive for the company.

2.2.5 Organizational structure Figure 18 – Organization structure Lerøy Seafood Group ASA

Farming* VAP* SALES & DISTRIBUTION * Production segment Source: Own creation / Lerøy Seafood Group annual report 2013, p.22

LSG’s companies can be divided into the business areas “farming”, “value-added products” (VAP – Secondary processing) and “Sales & Distribution”. Associated companies include the 50% owned Norskott Havbruk AS (SalMar ASA owns the other 50%), the 50% owned Alfarm Alarko Lerøy which is a Turkey based distributer and processor for Atlantic salmon, and the newly acquired Villa Organic AS (49,4%) 31. The Group’s whole organizational structure can be seen in appendix 2.

30 http://www.auss.no/Helge%20M%C3%B8gster-432.aspx 31 Lerøy Seafood Group Annual report 2013, p.22

2.2.5.1 Sales & Distribution Figure 19 – Geographical location of LSG operations

Source: Own creation / leroyseafood.com/en/Business/About-us/worldwide-distribution/

LSG sells its products to more than 70 markets and has the offering of new products to new markets as a central aspect of its growth strategy32. The Group’s products are divided into salmon products, white fish, pelagic fish and shellfish. This thesis will however consider all farmed fish and sold products as salmon, which also is the dominant species produced by LSG. LSG distributes its own harvest volumes, but also has alliances with other sales & distribution companies. Because of the intensive effort during 2012 in finding new markets and creating new products, which was largely as a consequence of low salmon prices due to the record-high supply growth, the company was able to achieve extremely high prices for its main product throughout 2013 (LSG Annual report 2013, p.17).

Hallvard Lerøy AS is the sales and distribution company with the highest turnover and a wide product range structured to meet the market’s needs. The presence of its sales offices in several markets is a competitive advantage, as it allows for close follow-up of key customers and creating new customer relationship. The Group recently signed a long-term contract with Norwegian largest grocery chain in 2013, which led to the construction of a large new production facility for fish, Sjømathuset AS. Corporate management expects new development such as this to increase the Group’s activities and have a positive impact on domestic demand for fish33.

32 Lerøy Seafood Group Annual report 2013, p.15 33 Lerøy Seafood Group Annual report 2013, p.17

2.2.5.2 Salmon and trout farming Figure 20 – Overview of LSG’s salmon and trout farming

Own creation: Lerøy Seafood Group Q4’13 Presentation, p.10 / Lerøy Seafood Group Annual report 2013, p.16

The table above represent LSG’s share of the produced salmon and trout. The Group’s production can be divided into 3 regions in Norway: Lerøy Midt, Lerøy South/west and Lerøy North. The Northern region includes Lerøy Aurora and its 17 licenses in Troms Country. Central Norway includes Lerøy Midnor AS and Lerøy Hydrotech AS which merged with Lerøy Midt, representing a total of 54 licenses. The last region is West Norway, consisting of Lerøy Vest AS and Sjøtroll Havbruk AS with its 59 licenses. LSG also has production through its affiliated companies Villa Organic (Acquired in 2013) and Norskott Havbruk. Villa Organic will be split into two parts in 2014, leaving LSG with 8 licenses in the region Finnmark34.

2.2.5.3 Value added products – Secondary processing The dominant part of LSG’s processing capacity is dedicated to salmon and trout. LSG has and will continue to invest significant capital in the processing of Atlantic salmon and trout as the Group believes that new products is essential for sustaining increased demand. LSG’s value added products range from portion sizes, smoked and cured salmon, sandwich fillings and ready-to-cook products (LSG Annual report 2013, p. 21). LSGs processing companies include Lerøy Fossen AS, Lerøy Smøgen, 50,1% owned Rode Beheer BV and Bulandet Fiskeindustri AS. Lerøy Fossen consists of the largest smoking facility in Norway. The company recently invested NOK 50m in Lerøy Fossen’ facility, which will practically double its processing capacity when the work is completed in 2014. Lerøy Smøgen also has impressive processing facilities; one of the world’s most modern and efficient facility for producing highly processed salmon. LSG also holds excellent foothold in delivering high-quality seafood to the Benelux Countries, Germany and France through Rode Beheer BV located in the Netherlands.

34 LSG Annual report 2013, p.19

2.2.6 Financial performance and overview Figure 21 – Performance of key figures CAGR Sales: 11,6%

CAGR NOPAT: 20,4%

Source: Own creation / Lerøy Seafood Group Annual reports

A company’s organic growth is an important aspect; as growth tied to acquisition does not necessary tell you much about outperformance. Organic growth is achieved by increasing output and sales, disregarding profit/growth from merger & acquisition activity. LSG emphasize a combination of organic growth, acquisitions and alliances in order to generate value for its shareholders (LSG Annual report 2013, p.60). The company has enjoyed a strong growth in harvest volumes, sales and net operating profit after tax. Since 2005, sales have compounded with 11,6% annually, while NOPAT compounded with 20,4%. The high salmon price during 2013 helped cause the recent exceptional performance. Farming volumes increased from 62 500 GWT (2005) to 158 000 GWT in 2013. This represent an annual compounding of 10,9 %. The growth in harvest volumes has largely been done through merger and acquisition activities, which will be covered in the strategic analysis.

2.3 Summary salmon farming industry and Lerøy Seafood Group - Aquaculture is the fastest growing animal food producing sector and accounted for nearly 50% of the fishery output for human consumption in 2012, with stagnating catch of wild fish - Approximately 60% of the world’s supply of salmon is farmed, with Norway and Chile as main producing countries. The supply of Atlantic salmon has doubled since 2000, equivalent to an annual growth rate of 7% - As commercial fishing in recent years has been in stagnation, the growth in the supply of fish is expected to come from the fast growing aquaculture industry. - The local government controls the issuance of new licenses, which are required in order to produce salmon - Salmon farming has a long production cycle (Around 3 years). The long production cycle creates high fluctuations in salmon prices, as farmers are unable to adjust short-term supply to demand

- High barriers of entry due to the specific natural condition required for optimal production of Atlantic salmon (seawater temperature range, sheltered coastline, certain biological conditions) - Larger players usually have higher utilization output per license than the average of the industry - LSG is a fully integrated salmon farming company from eggs to finished product. The Group has a large sales & distribution network. LSG supplies over 70 markets with 14 processing facilities located around Europe - LSG has experienced and competent management, with several key decision makers who directly or indirectly own LSG shares. The management has a good track record in terms of guidance - LSG has had strong growth with the help of merger and acquisition activities. Over the last 9 years, harvest volumes has grown with an CAGR of ~11%, while sales growth has be close to ~12% CAGR - As production is limited to the number of licenses, there is limited room for organic growth in harvest volumes

2.4 Peer Group introduction Figure 22 – Peer group selection

Source: Own creation / Pareto Securities Seafood Quarterly 10.04.2014, p.44

The figure above lists 7 Norwegian farming companies and parts of their value chains, all listed on the Oslo Stock Exchange. I have chosen Marine Harvest, SalMar and Grieg Seafood as LSG’s peer group. All of which have financial information back to 2005. Cermaq has been excluded because until late 2013 when the sale of its feed business (EWOS) was completed, fish feed accounted for a majority of the company’s sales. Norway Royal Salmon is excluded because of the large part of revenues that relates to buying and selling salmon, in addition to limited smolt- and VAP activity. Bakkafrost is excluded due to the 18% of sales that relates to fishmeal, oil and feed35. A few international peers have been excluded because of either not being listed, lack of size and

35 http://bakkafrost.com/default.asp?menu=259

information. The 4 companies chosen are all in the top 5 of the largest producers of Atlantic salmon in Norway36. The table below gives a quick introduction of the peer group:

Figure 23 – Peer group overview Company Harvest Market cap. Revenues EBITDA- Volumes’13 (NOK bn) (NOK bn) margin’13

Lerøy 158 200 10,9bn 10,8bn 19,8% Marine Harvest 343 772 28,3bn 19,2bn 21,7% SalMar 128 000 10,5bn 6,2bn 26,4% Grieg Seafood 58 061 2,8bn 2,4bn 20,2% Source: Own creation / Company annual reports / Bloomberg

Marine Harvest Group Marine Harvest (MHG) is one of the leading global seafood companies and the largest producer of Atlantic salmon. The company is represented in 21 countries and is headquartered in Oslo, Norway. MHG represents 36% of the Norwegian Industry’s fillet volume and produces 5m meals of salmon every day. Its business covers the whole value chain and the company has around 6400 employees. Marine Harvest decided in 2012 to invest in feed production, with a significant investment of NOK 800m for its first feed plant. The plant is completed in July 201437.

SalMar SalMar is an efficient producer of farmed salmon with 83 licenses, which makes it the third largest producer of farmed Atlantic salmon in Norway. 60 licenses are located Mid-Norway (Trøndelag/Nordmøre) while 23 licenses are in Northern-Norway. The company was listed in 2007 on the Oslo Stock Exchange. Lerøy and SalMar jointly own Norskott Havbruk AS, the second-largest salmon farmer in Great Britain. SalMar expects harvest volume of 145 000 tons in 201438.

Grieg Seafood Grieg Seafood is a fish farming company specialized in salmon and trout, with an annual production capacity of over 90 000 tons gutted weight. The company is present in Norway, Canada and UK, with around 700 employees. It is headquartered in Bergen, Norway. The company was listed on the Oslo Stock Exchange in 200739.

36 Kontali Analyse, Marine Harvest Industry Handbook 2013, p.24 37 Marineharvest.com 15.04.14/Annual Report/MHGQ4’13 Presentation, p.16/Capital Markets Day MHG, May 2013, p.42 38 http://salmar.no/Om-Salmar & SalMar Q4’2013 Presentation p.16 39 http://www.griegseafood.no/english.aspx?pageId=12

3.0 Strategic analysis The introduction sections should now have provided a basic overview over LSG, the peer group and the salmon farming industry, which should have prepared the reader for the strategic analysis. Through the strategic analysis, the thesis will try to answer the following questions.

- What factors influence LSG’s revenues and costs? - What are the macro and industry factors that influence the company’s cash flow?

Figure 24 – Structure – Strategic analysis

Source: Own creation

Along with these questions, the strategic analysis will give insight to the nature of the company’s business environment, the value chain and the company’s strength, weakness, opportunities and threats40. As seen above, the sections are divided into revenue drivers, cost drivers, macro factors and industry factors. The section for revenue and cost will explain and analyze the identified drivers for each item, even though some revenue- and cost drivers may fit into other models such as PESTEL and Porter’s Five Forces. I find this setup to be more to the point and easier to apply in the forecasting section later. Some factors might be relevant to more than one section, but in order to avoid overlap, those issues will be mentioned where I find them most appropriate. Each section will start off with a quick overview. However, the different theories and models used will not include long explanations.

3.1 Revenue drivers Figure 25 – Main revenue drivers

Revenue drivers

Salmon Harvest Value-added price volumes products (VAP)

Licenses Supply Demand Innovation Acqusitions

Norway Pop. growth Utilization Chile Health etc.

Source: Own creation

40 Plenborg and Petersen, Financial Statement Analysis, 2012, p.187

The section on revenue drivers will follow the structure outlined in the figure above. I have defined the salmon price, harvest volume and VAP premium as the primary revenue drivers. Other factors can and will influence future revenues (e.g government, diseases); however, I judge these 3 to be the most important factors to focus on when trying to estimate future revenues. This section will start off with an analysis of the price of salmon.

3.1.1 Salmon price Figure 26 – Salmon spot price 01/2004 – 04/2014 & Average spot price

Source: Own creation / Fishpool.eu /

LSG’s sales are obviously significantly influenced by the volatile price of salmon. The Fish Pool Index41 (FPI) above is based on the weighted weekly average of superior quality “head-on gutted” salmon sizes 3-6 kg42. This index as mentioned before, will serve as the spot price for sold unprocessed salmon in this thesis. Since 2004, the spot price of salmon has ranged all the way from NOK 18,5 to 52,8 per kg. The average spot price over the period above was 30,3 NOK/Kg. In order to try and explain the salmon price volatility, I will start off by analyzing the supply and demand relationship.

3.1.1.1 Supply Figure 27 – Change in global supply vs Change in salmon price + Global salmon supply growth

Source: Kontali Analyse / Marine Harvest Industry Handbook 2013 p.22 + p.12

41 Fish Pool is 94,3% owned by Oslo Stock Exchange and quarterly assessed by Kontali Analyse 42 http://fishpool.eu/uploads/docs/Summary_of_Fish_Pool_index_settlement_prices.pdf

Supply obviously has a significant effect on the market price of salmon. In the period between 2001 and 2011, the explanatory power of global supply on the change of salmon price was 87%. Including the outlier 2012, the explanatory power is 66%. This high degree of correlation between salmon price and global supply growth supports the need for a detailed analysis of the global supply situation (MH Industry Handbook 2013, p.22).

With Norway as the most significant producer of Atlantic salmon and Chile as the second largest (Together representing ~80% of global supply of Atlantic salmon), the supply analysis will focus on these two regions. The future supply from producing regions is influenced by local government, natural restriction, diseases, efficiency etc. Kontali Analyse estimate that global supply of Atlantic salmon have more than doubled in the period 2000- 2012 (119%, equivalent to CAGR 7% - MHG Handbook 2013, p.22). However, they expect the supply growth to drop to CAGR of 3% in the period 2013-2020 (MHG Handbook 2013, p.12). Pareto Securities estimates a global supply growth of 4-5% in 2014E, 2015E and 2016E. In the period 2012-2020E, they expect a global supply CAGR of 6,5%, with Norway (6%) and Chile (8%) in the lead43. Currently, the salmon industry is experiencing record high salmon prices due to strong demand and slowing production growth. As mentioned in Emiko Terazono’s article regarding peak salmon prices in the Financial Times, experts are doubtful that additional supply can keep growing at an estimated CAGR of 5-10%44.

Norway Figure 28 – Norwegian supply of Atlantic salmon

Source: Own creation / Kontali, FHL, Pareto Securities Quarterly Seafood 10.04.2014, p.4, DNB Seafood 22.10.2013, p.11

As Norway is the largest supplier of farmed salmon, it makes sense to start with this region. Because of Norwegian regulation, the maximum allowed biomass (MAB) per license is restricted to 780 ton. An increase in this capacity limit would increase production volumes and cause extra supply to the market. However, scientists

43 Pareto Securities Seafood Quarterly 10 April 2014, p.11 44 FT.com, Slow supply growth raises ‘peak salmon’ fears, Emiko Terazono, 17/02/2014

and authorities agree that increasing or changing the MAB could lead to a rapid growth in salmon production, which introduces biological risks and could have a negative impact on environmental sustainability45. Tor Olav Troim, a board member of Marine Harvest, commented: “don’t mess up the regulation and turn Norway into Chile II”. Marine Harvest would rather see a 3-5 percent annual increase in MAB over a ten year period (Undercurrentnews.com, Neil Ramsden, 2014/03/07). Licenses can be traded in Norway, but there are a few restrictions. Owners cannot own more than 50% of the total biomass in any regions, in addition to buyers who get control of more than 15% of the total licensed biomass in the country needs approval from the Ministry of Fisheries and Coastal Affairs. The buyer cannot get approval by the Ministry if it implies that buyer gets control of more than 25% of the total biomass in the country (MH Industry Handbook 2013, p.29).

Forecasted supply growth in figure 28 is from Pareto Securities, which is 7% in 2014E and 5% in 2015E. Pareto estimates a supply growth of CAGR of 6% for Norway in the period 2012-2020E46, which is a considerable drop from the historical supply CAGR in Norway of 10% (MH Industry Handbook 2013, p.13). This sounds reasonable due to the limited licenses being issued and the already high utilization on current licenses. At the end of 2013, there were 959 seawater licenses in Norway, with a maximum allowed biomass of 780 tonnes (900 in Troms and Finnmark). There have been a limited number of licenses issued since 1982. The current utilization of Norwegian licenses are close to max in high season, leaving little room for supply growth unless the maximum per license (MAB) is raised, or more licenses are handed out by the government47. If government suddenly decides to both issue new licenses and raise the MAB limit in the same year, the supply growth might be significantly stronger than demand growth in the short term, which may cause a period with lower salmon prices. Overall however, there are strong indications that the long-term supply growth will be lower than historical CAGR.

Chile Chile is the second largest producer of salmon and hence important to the global supply. Chile produced 468 000 tones Atlantic salmon compared to the 1144 000 tones Norway produced in 2013 (Pareto Securities Seafood Quarterly, 10.04.14, p.4). The significant production setback in 2009-2011 was caused by the outbreak of the ISA virus in 2007, which led to significantly higher salmon prices during 2009-2011. The Chilean seafood industry has undergone a serious rebuild since 2010. The above supply forecast for 2014E (3%) and 2015E (1%) is from Pareto Securities, with a 2012-2020E CAGR of 8%48. Short-term, it would be necessary for the Chilean

45 Undercurrentnews, Upping Norway’s salmon production: What do the players say?, 07/03/2014, Neil Ramsden 46 Pareto Securities Seafood Quarterly, 10.04.14, p.11 47 Pareto Securities Seafood Quarterly, 10.04.14, p.16 48 Pareto Securities Seafood Quarterly, 10.04.14, p.4 + 11

industry to improve their sanitary situation. Since the ISA crisis in 2007, the Chilean industry has also been affected by Caligus lice (sea lice). Therefore, judging the signals given by major Chilean players, a strong short- term supply growth from Chile is not likely. The next 3-5 years, it is expected that Chile have marginal supply growth. Several Chilean players have recently proclaimed that their current focus is to be more productive, not growing in size. This indicates that the majority of Chilean growth will only come from increased yield/efficiency on the released smolt (Pareto Securities Seafood Quarterly, 10.04.14, p.19+23).

Figure 29 – Chilean supply of Atlantic salmon

Source: Kontali, FHL, Pareto Securities Quarterly Seafood 10.04.2014 p.4, DNB Seafood 22.10.2013 p.11

Chilean licenses are regulated by the General Law on Fisheries and Aquaculture (LGPA). To operate aquaculture licenses you must follow the terms established by LGPA in order to avoid expiration. Licenses issued after April 2010 have a defined horizon of 25 years, while licenses issued before have an indefinite period of time. Production in Chile is divided into different regions such as XII, XI and X. New laws will impact the regulations of zone and the availability of the different regions suitable for harvesting fish (MH Industry Handbook 2013, p.33-34). The regulations that will be made authorities in Chile in the future are hard to predict. Pareto believes that region X and XI (Which contain 95% of salmon farms) will not contribute to growth other than increased productivity the next 3-5 years, due to regions being close to its peak in terms of sustainability. They also predict the growth in region XII to be very uncertain due to its lack of infrastructure49.

3.1.1.2 Summary supply - Marine Harvest Group has estimated historical global supply growth since 2000 to be CAGR 7%, while expecting it to drop to 3% in the period 2013-2020E (MH Industry Handbook 2013, p. 12) - A drop in future global supply growth seems likely due to: the restriction of regions that can profitably operate salmon farms, Norwegian licenses are reaching max utilization in high seasons while limited new

49 Pareto Securities Seafood Quarterly, 10.04.14, p.23

licenses are being issued yearly, Chilean regions are close to its peak in terms of sustainability, in addition to signs that Chilean players are focusing on productivity rather than growing in size in the short-term - Short-term oversupply which leads to lower salmon prices may happen in the future if Norwegian government suddenly decides to both issue new licenses and increase capacity (MAB) per license in the same year. Also, a successful rebuild of the Chilean industry would increase long-term supply

3.1.1.3 Demand This section will present the key drivers for the demand of salmon, which have a large degree of influence on the spot price. Salmon prices may remain high in the future if there is limited supply growth, in addition to strong demand. A strong demand may come from factors such as population growth, innovation (Covered later), GDP growth and increased health awareness. Pareto Securities estimate a CAGR of 7% in the demand of Atlantic from 2012-2020E50, which is far above the Kontali’s estimates for supply growth expectation of 3% CAGR mentioned earlier (MH Handbook 2013, p.12). As the supply of wild catch seafood is in stagnation, the increase in demand must be covered by farmers. Historically, demand has increased by around CAGR 8%; however in recent years there has been a 13-14% annual demand growth51, possibly due to extensive product development, marketing and a global shift towards healthy seafood such as salmon sushi. Pareto estimates a global demand growth of CAGR 6,6% during 2012-2020E, largely due to significant growth in middle class population and growth in food retail (supermarkets) in countries such as China, Brazil, India and emerging markets52.

Population growth Only 6% of protein sources for human consumption are produced in water. By 2050, global population is expected to grow by 2bn people, requiring 40% increase in demand for protein assuming a constant consumption per capita. The main growth is expected to occur in Asia and Africa, which currently consumes the lowest protein per capita today. Factoring in an increase instead of constant consumption in these regions, demand may in fact double by 2050. This signifies strong long-term growth in protein consumption, which either has to be covered by increased protein production on land or in the sea (MH Industry Handbook 2013, p.4).

Health trend Food and agriculture Organization (FAO) defines fish as a “highly nutritious, tasty and easily digested” source of protein, with significant amounts of all essential amino acids53. Salmon is a popular food with high content of protein and Omega-3 fatty acids (EPA) and docosahexaenoic acid (DHA). Omega-3 (EPA) and DHA reduce the

50 Pareto Securities Seafood Quarterly, 10.04.14, p.25 51 Pareto Securities Seafood Quarterly, 10.04.14, p.26 52 Pareto Securities Seafood Quarterly 10.04.2014, p.27 53 http://www.fao.org/fishery/topic/12319/en, Nutritional elements of fish

risk for cardiovascular diseases, while data indicates that they reduce the risk for numerous other health issues. Multiple studies show that having salmon in your diet will lead to an improved overall nutritional status and other health benefits (MHG Handbook 2013, p.9). Government and food & health advisors in Europe and the USA encourage its population to consume more fish in their diets in order to fight obesity and decreased health standards54. The increased global awareness of the health benefits of fish should support stronger future demand of fish per capita. This demand will be further increased by the growth in BNP per capita, as consumers have higher resources to buy more expensive protein sources.

Consumer wealth – GDP growth Pareto estimates that 2/3 of demand will come from “new markets”, with a 4% demand growth in mature markets between 2012 and 2020, and significantly higher in countries such as China, Brazil, India and emerging markets55. As salmon is still an expensive source of protein, it makes sense to look at the GDP growth of potential “new markets”. A richer population can afford more expensive sources of protein. Using growth in GDP as a proxy for consumer wealth, we can see in appendix 3 that IMF expects a strong and healthy GDP growth in China and India going forwards, which supports higher future demand in these markets.

3.1.1.4 Summary demand - A strong global demand growth 2012-2020E is expected, significantly higher than Kontali’s expectations for global supply growth (3%, MH Industry Handbook 2013, p.12). The strong demand growth can be justified with the higher need of protein due to a growing global population, increasing health awareness in Europe and USA, in addition to expected strong GDP growth in new immature markets such as China and India

3.1.2 Harvest volumes The salmon industry has historically been made up by many small players. However, there has been increased industry consolidation in the recent decade. The ~70 firms representing 80% of the Norwegian ocean-farmed salmon and trout in 1997, has now dropped to 24 firms in 201256. The larger fragmentation in Norway opposed to Chile, is a consequence of government’s priority to decentralize structures and local ownership. The government in Chile has put fewer demands on ownership structure in order to grow its new industry faster. Evidence of the fragmentation in Norway can be seen in figure 30 below, which displays the percentage of sales accounted for by the 10 largest firms. In 1996, 10 of the largest firms in Norway accounted for 18,9% of total sales. In 2012, the 10 largest firms accounted for 69,1% of total sales.

54 http://www.fda.gov/Food/FoodborneIllnessContaminants/BuyStoreServeSafeFood/ucm077331.htm 55 Pareto Securities Seafood Quarterly 10.04.2014, p.27 56 Kontali Analyse (Marine Harvest Salmon Industry Handbook 2013, p.25)

Figure 30 – Percentage share of total Norwegian sale of salmon for the 10 largest Norwegian firms

Source: Own creation / Directorate of Fisheries

There has been “countless” mergers between companies in Norway during the last decade. In appendix 4, there is a list of several historical acquisitions/divestments between 1999 and 2013, many of which LSG has partaken in. I find limited potential for organic growth, as the number of licenses puts a capacity on harvest volumes. To increase the capacity, LSG must either be awarded new licenses by the government, acquire licenses in the second hand market or acquire companies with licenses. Assuming that demand will absorb all available supply, LSG will always try to maximize its output per license. Most of the Norwegian farming companies are close to full utilization, which means that there is not much potential for supply growth unless government issues new licenses (Pareto Securities Seafood Quarterly, 10 April 2014, p.1+16). LSG is now expected to be producing at close to full capacity, as larger players usually have better than average utilization because of a higher degree of flexibility. Therefore, I see limited potential for growing organically in the farming segment.

Figure 31 – Proxy for LSG global market share

Source: Own creation / LSG + Peers annual report / Pareto Securities Seafood Quarterly 10.04.2014, p.4 / Kontali

In the graph above, I have made a proxy for LSG market share since 2006 to 2013. I have divided LSG’s total harvest volumes by the world production of Atlantic salmon. Both axis show LSG’s market share in % of total

global supply. The reason I say proxy is that there is a small part of LSG’s total harvest volumes that include trout, but I do however think this gives a good indication of the development in market share. LSG has in terms of harvest volumes grown at a higher pace than the global supply between 2006 and 2010. The reason for this may be because of high acquisition activity and some utilization improvement. However, since 2010, LSG’s market share has declined a few percent. A possible explanation for this might be that there are fewer acquisition possibilities and already high utilization on the licenses, combined with the reduced Norwegian output during 2013 due to unusually low sea temperatures. Overall, LSG has gained market share during the analyze period.

3.1.3 Value-added products Figure 32 – Product innovation

Source: leroyseafood.com/en/Business/Products/Innovations/ & /Key-Brands1/Sandwich-sliced-smoked-salmon-and-trout/

Consumption of fresh “ready to eat” clean fish in Norway has had a 672% volume growth from 2002-2012, with a 91% increase from 2011 to 2012. In addition to that, Norwegian consumers spent 7% more on seafood in 2012 compared to 2011. This positive trend is driven by industry innovation (Simpler and more user-friendly products), greater product selection in the retail sector and increased marketing57. Creating new products is an important part of LSG’s strategy for growth. This requires knowledge and proximity to both customer and market (LSG Annual report 2012, p.7), which LSG has due to its high degree of downstream activities. LSG’s product developer, Chef Fredrik Hald (Picture above), follows consumer trends closely and introduces new innovative seafood solutions. New innovative products are LSG’s direct response to the requirements of consumers and markets. Recent development has led to several innovations, including the award-winning “oven- ready” salmon and the sandwich-sliced smoked salmon. LSG’s innovative round shaped sliced smoked salmon called “Påleggslaks” and “Påleggsørret” in Norwegian, won the international prestige award Seafood Prix d’Elite and the Norwegian seafood award in 201258. This new innovative product of sandwich sliced smoked salmon has launched seafood into the same retail category that currently is being dominated by meat, ham and cold cuts. Future innovative solutions such as this will be important in order to maintain and increase demand. NorgesGruppen and LSG recently (25.03.2014) opened the processing & distribution center Sjømathuset located

57 Utviklingstrender I Norsk sjømatkonsum 2012, p.8 + 18, (GfK –Norge/ Norwegian Seafood Council) – Seafood.no 58 leroyseafood.com/en/Business/Products/Innovations/ & /Key-Brands1/Sandwich-sliced-smoked-salmon-and-trout/

in Oslo, which is now Europe’s largest and most innovative facilities for fresh fish and seafood. Through Sjømathuset’s production facility, LSG and NorgesGruppen will provide more and better seafood for Meny’s (Retail store) fish departments and a wider range of pre-packed products. The facility will deliver pre-packet seafood and sushi to NorgesGruppen’s retail stores across the country, making LSG the largest producer of sushi in Norway59.

Figure 33 – Sales price per kg analysis Revenue analysis 2005 2006 2007 2008 2009 2010 2011 2012 2013 Avg. Period Salmon spot price (Fishpool) 25,7 32,3 25,8 26,4 30,9 37,3 32,0 26,6 39,6 30,7

Lerøy sales price 64,2 76,0 62,3 58,2 61,4 68,2 62,2 54,5 68,0 63,9 VAP premium as % spot price 150% 135% 142% 121% 99% 83% 94% 105% 72% 111% Marine Harvest sales price 32,7 52,5 41,8 41,3 44,3 51,4 46,9 39,4 55,8 45,1 VAP premium as % spot price 27% 62% 62% 57% 44% 38% 47% 48% 41% 47% SalMar sales price 24,8 28,2 26,0 26,2 30,9 43,0 36,5 36,0 48,7 33,4 VAP premium as % spot price -4% -13% 1% 0% 0% 16% 14% 35% 23% 8% Grieg Seafood sales price 26,5 31,6 25,3 28,6 33,1 38,1 34,1 29,3 41,4 32,0 VAP premium as % spot price 3% -2% -2% 8% 7% 2% 7% 10% 5% 4% Source: Own creation / Annual reports / Fishpool.eu

The table above shows the sales price per harvested kg and its premium over the yearly salmon spot price. The sales price is calculated by dividing revenues on harvest volumes, under the assumptions listed in the delimitation section. Before interpreting the results above, one must remember that there are significant differences between the companies operations such as the level of value-added products. However, I believe it to give some indications as to how each company’s revenues are compared to their harvest volumes. As you can see, LSG’s sales price is significantly higher than its peers, which is coherent with its high degree of value-added products and innovation. Another significant reason for this is that LSG buys and resells seafood, which boosts revenues. SalMar and Grieg Seafood have significantly lower VAP premium than LSG, which mirrors their low secondary processing (VAP) activities. Another interesting observation is that LSG’s VAP premium is significantly higher (/lower) in years with low (/high) salmon prices, possibly indicating some pricing power.

3.1.4 Summary revenue drivers - LSG’s main revenue drivers are salmon price, harvest volumes and value-added product (VAP) premium - There are several factors supporting a higher demand growth than the growth in supply. If a market environment unfold where supply is significantly below demand, one can expect higher salmon prices than the historical - A lower supply growth is supported by: the restriction on regions that can profitably operate salmon farms, Norwegian licenses reaching max utilizations in high season, Chilean regions close to max in terms of sustainability and Chilean players is expected to focus on efficiency rather than growing in size (Short-term)

59 LSG Q1’14 Presentation, p.11 & https://www.leroyseafood.com/en/Business/About-us/News/2014/Sjomathuset/

- A strong demand is supported by higher protein requirement needed from population growth, innovation, increasing health awareness and GDP growth in immature markets such as China/India - LSG increased its market share from 2006 to 2011, mainly due to M&A activities. The market share decline from 2011 might be due to fewer M&A possibilities, high utilization and low temperatures. I expect organic growth in harvest volumes to be limited, with less M&A opportunities in the medium- to long-term - Innovation and product development is also likely to increase demand by meeting future consumer- and market requirement - LSG’s value-added premium has historically been at its highest when salmon prices are low, and, lowest when salmon prices are high

3.2 Cost value drivers Figure 34 – Structure - Cost drivers

Cost drivers

Other Fish feed Salaries operating costs

Raw materials Economics of Automatisation Suppliers scale

Source: Own creation

Now that I have analyzed the revenue drivers, it’s time to look at the different cost drivers. This section’s structure is inspired by the structure of the income statement, as I have identified fish feed, salaries and other operating costs as the most essential costs. These are key items that will be forecasted in order to estimate future free cash flow. Further quantitative cost analysis will be done in the financial analysis.

3.2.1 Fish feed As in all protein production, feed is also the most costly input for salmon farmers. Fish require feed with high nutritional content, but other than that, there are no specific requirements in regards to the content of raw materials in fish feed. LSG examines its feed thoroughly in terms of chemical content, dust and presence of foreign agents etc. The two most important inputs in fish feed has historically been the marine products fish meal and fish oil. These have over time been reduced and replaced by agricultural commodities such as soy, sunflower, wheat, corn, beans, peas and rape seed oil60. LSG’s fish feed contains approx. 70% vegetable raw materials and approx. 30% marine raw materials (LSG Annual report 2012, p.44+45).

60 Marine Harvest Salmon Industry Handbook, p.44 (See appendix 22 for historical development in fish feed input)

Figure 35 – Cost of fish feed input

Source: Marine Harvest Industry Salmon Handbook 2013, p.46, Marine Harvest, Holtermann

The price in 2012 for fish oil was around 1400 USD/ton and has steadily increased since 2009. Fish meal has had a falling trend since 2010-2011, which is not expected to continue. An increasing demand for biodiesel is expected to put pressure on vegetable oils (MHG Handbook 2013, p.46). Soy prices reached a 34 year high in mid-2008 due to less soy being planted, but has since fallen and remained stable for a couple of years. Wheat prices have also been stable since around 2010. Vegetable protein such as soy may rise in prices in the future, as former soy farms are being used for corn production due to increased demand for ethanol (MH Industry Handbook 2013, p.46). These finding may indicate somewhat higher future raw material costs for fish feed. However, Piotr Wingaard, a broker from Fish Pool in Oslo stated that “feed is increasing in price, but it’s so low compared to the [farmed salmon] price increase, it’s almost irrelevant”61.

3.2.2 Salaries Salaries and other personnel costs have historically been around 10% of total revenues, ranging from around ~6% (2005) to ~11% (2012). LSG had 2067 employees at the end of 2013 (LSG Annual report 2013, p.4). Cost of labor is usually low in the Norwegian salmon farming industry due to the high degree of automatisation, such as feed blowers. The high Norwegian salaries are therefore stabilized with the high degree of automatisation.

3.2.3 Other operating costs Other operating costs have averaged around 8% of revenues in the period 2005-2013, ranging from ~5% (2005) to ~10% (2008). It has however been fairly stable over the 9 year period while representing a relatively low part of total costs. LSG does not disclose a lot of information about the costs included in other operating costs, but one might assume it contains cost of administration, insurance etc. As LSG grows in size, there may be potential to unlock economics of scale benefits (e.g. cheaper insurance, smarter and more effective administration).

61 Npr.org, 'Peak Salmon' May Be Unlikely, But Threats To Farmed Salmon Loom, Eliza Barclay, 28/02/2014

3.2.4 Summary cost drivers - Main factors that influence LSG’s costs are fish feed, salaries and other operating costs - Factors support an increase in the price of vegetable oils as farms are being used to cover increasing demand of biodiesel. Soy prices may increase, as farms used for ethanol becomes more profitable than soy farms. There has also been a falling trend for fish meal since 2010-2010, which is not expected to continue - All in all, the cost of fish feed in the future seems to be higher, but not necessarily relative to an increase in salmon price - High salaries in Norway is compensated with a high degree of automatization - Other operating costs have been relatively low and stable, with potential for economics of scale savings

3.3 Macro factors – PESTEL Figure 36 – PESTEL model PESTEL

Political Economical Social Technological Environmental Legal

Source: Own creation / Clegg, Carter, Kornberger, Schweitzer, Strategy – Theory & Practice, 2011, p.55

Now that I have gone through a few of the central value drivers for LSGs revenues and costs, I will start analyzing the macro factors that may influence LSG and its industry. The macro analysis is based on the PESTEL-model, which includes factors that are usually beyond a company’s control that might either be a source of competitive advantage (Opportunities) or erosion of competitive advantage (threats)62.

3.3.1 Political factors Two of the most central political factors influencing LSG and the salmon farming industry are the already mentioned issuance of new licenses and raising the capacity per license, which is done by local government. Other political factors are trade restrictions and tariffs.

Trade restrictions Government may create trade restrictions which can cause export problems for the fish farming industry, especially if it would happen in key markets. You don’t have to look further back than 2006, when Russia closed its imports from the Norwegian industry due to claims of unhygienic practices in the Norwegian seafood industry63 made by the Russian Federal Service for Veterinary and Phytosanitary Surveillance. Arne Aarhus of

62 Clegg, Carter, Kornberger, Schweitzer, Strategy – Theory & Practice, 2011, p.54 63 Upi.com, Norway says working to end Russian boycott on fish exports, 08/01/2014

the salmon exporter Ocean Quality told the Norwegian newspaper E24.no that two Russian importers offered him exclusive contracts, and tried to push him into exporting salmon to only one Russian importer, and by doing so he would not receive problems from the Federal Service for Veterinary64. As of today, there are currently 15 Norwegian players in the salmon industry that are refused to export to Russia. Dagens næringsliv (Norwegian newspaper) have gotten access to a report from the Russian “Federal Antimonopoly Service” (FAS), that explains as of autumn 2011, how large Russian importers threatened to blacklist large Norwegian salmon producers if they refused to sign exclusive contracts binding them to just one single Russian importer. Dagens næringsliv have tried to get salmon industry players to open up regarding their relationship with Russia, however, everyone has been short of words, most likely to avoid giving any criticism to the Russian Federal Service of Veterinary or Russian players65.

Norway has also had problems with exports to China, due to the decision of a Norwegian committee to award the Nobel Peace Prize to the political prisoner Lui Xiaobo in 2010. Alf Helge Aaskog, chief executive of Marine Harvest stated that “It is no secret that declining sales in China are connected to the Nobel Peace Prize” and that it cannot be solved by the industry. Norway had 92% market share of salmon exports to China in 2010, which fell to just 29% in the first half of 201366.

3.3.2 Economical factors

GDP growth in LSG’s new- and main markets LSG’s main markets are the EU, Norway, the rest of Europe and Asia. I have already mentioned GDP growth in “new” immature markets such as China, Brazil and India as important factors for global demand in the future. However, on the same assumption that GDP growth serves as a proxy for consumer wealth in new markets, a healthy GDP growth in LSG’s main markets would also support higher future demand. I have used OECD’s forecast for the growth in world GDP as proxy for LSG’s main markets. The world GDP seems to have a healthy growth going forwards, with 3,4% growth in 2014E and 3,9% in 2015E67(“What is the global economic outlook?”, Gurria & Tamaki, p.3, May 2014).

Exchange rates LSG is exposed to several currencies through its international operations, and with it comes currency risks. The group hedges itself as much as possible using forward exchange contracts, negative and positive balance on

64 E24.no, Rapport: Russisk kartell stanset norsk laks, 10/01/2014 65 Dn.no, Russisk kartell stanset norsk laks, 09/01/2014 66 Financial times, “Norway sees Liu Xiaobo’s Nobel Prize Hurt salmon exports to China” – 15/08/2013 67 http://www.oecd.org/eco/outlook/economicoutlook.htm

multi-currency accounts (LSG Annual report 2013, p.32). Future income payments are hedged using currency derivatives, following the group’s strategy for currency risk and management, which reduce some currency risk.

Interest rates The dominant part of LSG’s interest-bearing debt is specified in Norwegian currency and is mainly based on agreement for floating rates of interest. This means that LSG is exposed to the market interest rate. LSG have however two 10-year interest rate swap each totaling NOK 500m (Entered agreement in November 2011 & January 2012), which purpose is to eliminate interest risk for a share of the Group’s long-term liabilities68. LSG states in the 2013 annual report however, that in increase (decrease) of 1% in the interests level causes a NOK 21169 increase (decrease) in interest cost (LSG Annual report 2013, p.89).

3.3.3 Social factors Social factors and trends incorporate changing cultures and demographics such as education, disposable income, lifestyle changes, fashion, health and welfare69. A major influence to demand is the awareness of the health benefits of having fish in your diet, which has already been covered.

3.3.4 Technological factors Some of the relevant technological factors may be defined as new discoveries and development, speed of technology transfers, energy use and cost, in addition to scientific advances70. New technology and new competence have overtime managed to reduce production costs and increased productivity. As aquaculture is a relatively young industry, this trend is expected to continue in the future (MH Industry Handbook, p.41). It is however difficult to predict what and when industry changing technology will arrive, but key R&D areas which can greatly improve the industry may happen in disease, environment, genetics and immunology, welfare, feed and nutrition, smolt and product quality (MH Industry Handbook 2013, p.56). A few examples of technological factors in the industry are listed below. Most of the technology currently used in the salmon industry is standardized. As very few patents are granted, this is expected to continue. Technological development and knowledge is expected to continue to improve at a constant rate (MH Industry Handbook 2013 p.56).

Feed and nutrition During the last 30 years, the salmon farming industry has reduced the required fish feed needed to produce 2,2 pounds of salmon by 15-20%. This trend is expected to continue in the future, as farming techniques evolves71.

68 Lerøy Seafood Group Annual Report 2013, p.75 69 Clegg, Carter, Kornberger, Schweitzer, Strategy – Theory & Practice, 2011, p.54-55 70 Clegg, Carter, Kornberger, Schweitzer, Strategy – Theory & Practice, 2011, p.54-55 71 http://www.salmonfromnorway.com/Articles/Origin/Environmental-Impact

Vaccine When intensive salmon farming was beginning to take place in Norway, it wasn’t long until severe problems regarding bacterial diseases arrived, which was unsuccessfully treated with antibiotics. The bacterial problems grew even bigger, and over 50 tonnes of antibiotic was administered yearly at its peak in 1987. After as serious review of the industry which led to better environmental practices and development of fish vaccines, the usage of antibiotics has been significantly reduced. Since 1996, the usage of antibiotics has been less than 1 ton a year72. However, other problems such as sea lice and salmon escapes need to be solved. LSG administered no antibiotics for fish in the sea in recent years.

3.3.5 Environmental factors Environmental factors that can influence LSG are usually defined as green issues such as environmental regulation and protection, consumer awareness, pollution, biological risks and waste73. If salmon farmers does not have a sustainable operation regarding biological risks such as diseases, sea lice and escapes; aware consumers and activists may demand that players make costly improvements in order to preserve the sustainability of the industry.

Diseases & Sea lice Keeping any animals in an intensive environment will always include the risk of disease. Because of the stress that fish is exposed to when they start their life in the sea while adapting to a new environment, they are particularly vulnerable to diseases. Risks are however reduced by good locations, conditions and vaccinations (LSG Annual report 2012, p.29). Vaccines have reduced a lot of health challenges for salmon farmers, but there are several viral diseases that have no effective vaccines available. There are also some situations where medical treatment is required to maximize survival, even for the best managed farms (MH Handbook 2013, p.53).

Sea lice are another biological risk of investing in salmon farming companies. These seawater parasites can infect the skin of the fish and needs to be controlled before they cause lesions, infections and mortality (MH Handbook, p.54). Sea lice (salmon lice) co-exist naturally with salmon and grow faster in higher temperature water. LSG has practically had no salmon lice affecting its operations in the north during 2012, but preventing sea lice from reaching reproductive takes a lot of effort: cages needs plenty of shelter, cleaning boats needs to clean nets, cages are hosed down every 10th day, in addition to the use of good locations and quality smolt74.

72 http://www.fao.org/fishery/countrysector/naso_norway/en#tcN7017F (Directorate of Fisheries & FHL Havbruk 2003) 73 Clegg, Carter, Kornberger, Schweitzer, Strategy – Theory & Practice, 2011, p.55 74 http://miljorapport.leroy.no/en/environment/lice/

Escapes and facilities As LSG’s fish farms are located in relatively open seas, it puts significant demands on personnel and equipment. Fish farms are constantly subjected to the forces of nature, which may damage equipment and increase the risks of escapes75. Avoiding accidental release of fish is a high priority area for LSG which requires significant work in optimizing equipment and routines. LSG had zero escapes in 2012 and a very small accidental release in 2013.

3.3.6 Legal factors The legal factors influencing LSG and the salmon-farming industry can be defined as regulation of competition, health and safety regulations, government antitrust regulations, consumer protection and fishing & licensing quotas. The most relevant legal factors are the already mentioned subjects regarding regulations around licenses in the different producing regions.

3.4 Industry factors – Porter’s Five Forces Now that we have looked at the macro factors affecting LSG by applying the PESTEL-model, we are ready to analyze the different industry factors by applying Michael Porter’s Five Forces model.

3.4.1 Bargaining power of customers Demand is usually a main factor that determines the bargaining power of customers. Are there many firms competing for few customers or vica verca? Will customers have to settle for the price sellers sets?

There is evidence of loyalty in LSG’s customers. Even though unprocessed salmon is a commodity product, LSG’s is creating customer loyalty/dependency through its innovation and value-added products. As was seen in the innovation section, LSG’s VAP-premium increases drastically when salmon prices are low, indicating that LSG has some degree of pricing power. However, the opposite is also the case when salmon prices are high. This pricing power will be helpful in times of low salmon prices, functioning as a hedge against low-cycles.

3.4.2 Bargaining power of suppliers A few central aspects of the analysis of the suppliers will be whether or not there are many or few of them and to what degree they are able to set prices. Also if LSG’s switching costs are low, suppliers have little power over LSG. Therefore, it would makes sense to look at the supply situation for fish feed, eggs and smolt.

Fish feed LSG purchases the majority of its fish feed from EWOS and Skretting. There has been significant consolidation in the salmonid feed industry, where there now more or less only is EWOS, Skretting and BioMar as suppliers (MH Industry Handbook 2013, p.45). The top 3 players operate in Norway and together provide ~99% of

75 http://miljorapport.leroy.no/en/leroy-seafood-group/fou-havbruk + /romming

Norwegian feed production. Fish feed companies primarily compete in terms of quality, product performance, logistics and pricing as well as long-standing relationships with customers. They must also face that salmon- farmers are starting to build their own salmon feed production facilities, such as Marine Harvest has recently done76. Even though there are only few large suppliers, fish feed can be seen as commodity with low switching costs. However, contract are often on 1-3 year basis, where customers (farmers) must purchase a percentage of their feed requirement from the supplier, with a price adjustment mechanics that pass customers the costs of raw material volatility including certain logistic costs (EWOS Prospectus, p.89).

Eggs and smolt There are several suppliers of eggs, but some of the largest are Aquagen AS; Fanad Fisheries Ltd, Lakeland and Salmonbreed AS. The production of eggs are easily scaled after demand and its market is international (MH Industry Handbook 2013, p.38). LSG’s value chain however covers everything from eggs to finished product. LSG has the capacity to annually produce 100m fertilized eggs and is seen as self-sufficient in terms of salmon eggs. LSG also produces around 35,7m smolt “in-house”77. Due to the large production of smolt, LSG is seen as self-sufficient without the need for external suppliers.

3.4.3 Threat of new entrants The salmon-farming industry is a cyclical, capital intensive industry that requires know-how and proper location. Because of the seawater temperature requirement and other natural constraints, farmed salmon is only being produced in Norway, Chile, UK, North America and New Zealand/Tasmania78. These specific natural conditions, allow only a few producing countries to dominate production. There are also high capital requirement. First, you must either buy or be awarded a license in order to start producing salmon. Second hand licenses are sold at NOK 20-70m and only limited new licenses are issued. In addition, locations must be approved by fisheries-, environmental- and costal authorities. After a new entrant is in possession of a license, it takes 12 month to produce eggs into smolt and 24 month for the fish to grow out in the sea. All during this period the new entrant is incurring costs of production, including the initial investment of 25-30m NOK to equip the new “grow-out” facility (MH Industry Handbook 2013, p.48+28).

76 EWOS Prospectus 2014, p.87 77 https://www.leroyseafood.com/en/Business/Sustainability1/Sustainable-value-chain/ 2014 78 Marine Harvest Salmon Industry Handbook 2013, p.8

3.4.4 Threat of substitute products Substitutes are products that are available in other industries and have the potential to satisfy the need of the buyer. Substitute products may limit a player’s ability to raise prices, which is largely depended on consumers switching cost, relative price performance and quality of substitutes79.

Figure 37 – Relative price development in sources of protein

Source: International Monetary Fund, Marine Harvest, Marine Harvest Industry Handbook 2013, p.23

Salmon is a popular food, but there are substitute products that may steal its market shares. In terms of animal protein consumption, consumer can cover its need through other sources such as beef, lamb, pork, chicken and other species of fish. Even though salmon have become relatively cheaper compared to other protein sources, it is still an expensive product for many consumers. If either salmon price increases significantly for the long-term or the price of other animal protein falls, you may see a shift from salmon to other sources of protein, especially for lower-class consumers. I do however believe that it requires a significant price increase to reduce the demand for salmon in regards to the growing sushi segment and middle- and upper class consumers who prefer quality.

Even though salmon prices were exceptionally high in 2013, demand has still been solid and growing. For the average consumer, there is more or less zero switching cost in buying other types of animal protein. I believe switching costs will be higher in the sushi segment where salmon is deeply ingrained and hard to replace. Also, as salmon has become relatively more affordable, factors support that future demand is not severely threatened by substitute products.

79 Clegg, Carter, Kornberger, Schweitzer, Strategy – Theory & Practice, 2011, p.61

3.4.5 Intensity of competitive rivalry The intensity of competitive rivalry is the last force, which is highly depended on the number of players, their relative size in addition to other the industry characteristics. A large number of firms, especially if they have similar market share, may often lead to intensified competition. Slow growing markets usually increases competition for market share, while players in growing markets often increase revenue simply because of the expanding market. Low switching cost, brand identification and loyalty also play a part80.

Figure 38 - Top 5-10 players within farmed Atlantic salmon per region (Peer group shaded) 2012E Top 10 Norway H.Q Top 10 UK H.Q Top 10 North America H.Q Top 10 Chile H.Q 1 Marine Harvest 283.700 Marine Harvest 44.700 Marine Harvest 44.700 Marine Harvest 44.400 2 Lerøy Seafood 140.000 Scottish Seafarms 30.100 Cooke Acquaculture 30.000 Pesquera Los Fiordos 44.000 3 Salmar 114.000 The Scottish Salmon Company 26.600 Cermaq 21.100 Salmones Multiexport 40.000 4 Cermaq 56.700 Morpol 25.600 Grieg Seafood 15.100 Mainstream inkl. CM Chiloe 34.500 5 Grieg Seafood 43.700 Grieg Seafood 19.000 Northern Harvest 10.000 Camanchaca 31.120 6 Nordlaks 40.000 Blumar 30.600 7 Nova Sea 38.400 Australis Seafood 19.000 8 Alsaker Fjordbruk 27.600 Empresas Aquachile 18.000 9 Bremnes Seashore 27.000 Invertec 18.000 10 Norway Royal Salmon 23.500 Salmones Cupquelan (Cooke) 14.000 Top 10 794.600 Top 10 146.000 Top 10 76.200 Top 10 293.620 Others 388.600 Others 10.200 Others 66.700 Others 70.680 Total 1.183.200 Total 156.200 Total 142.900 Total 364.300 tonnes wfe Source: Kontali Analyse / Marine Harvest Industry Handbook 2013, p.24

The dominant producer in terms of volume is Marine Harvest (Nr.1), LSG (Nr.2) and SalMar (Nr.3), with a few semi-large players (20 000 – 45 000 tons). Industry consolidation should make players more cost efficient and lead to increased flexibility to utilize its licenses, which should already be a competitive advantage to the largest players. The salmon-farming industry is a profitable industry largely supplying products with a high level of homogeneity, were I believe players that focus on innovation will have an additional edge. Even though the supplied product is more or less a commodity, the industry is growing and a stage as not yet been reached where players are struggling to maintain profitability.

80 Clegg, Carter, Kornberger, Schweitzer, Strategy – Theory & Practice, 2011, p.62

3.5 Summary PESTEL and Porter’s Five Forces - The Norwegian salmon farming industry are currently faced with problem exporting to China and Russia due to political factors (trade restrictions). These restrictions are outside the company’s control - As LSG is a global company and has debt with floating interest rates, the company is both exposed to currency- and interest rate fluctuations. LSG hedges a lot of this risk - Technological improvement is expected to improve effectiveness in the future, as the salmon industry is still relatively young - Investing in salmon farming companies exposes you to risks such as temperature fluctuations, diseases, sea lice and accidental release of fish, which can materially affect the company’s costs and revenues - Feed suppliers are expected to have some bargaining power over LSG. Overall, I expect that salmon farmers will share the cost incurred by feed suppliers if the price of raw materials/input were to increase in the future - LSG is self-sufficient regarding eggs and smolt, which eliminates the group’s dependency on these suppliers - I assess that LSG’s products have bargaining power over consumers who prefer quality and segments such as sushi, but may face increased competition from substitutes in the lower-class segment if salmon prices were to drastically increase. My overall view is that demand will absorb future supply within reasonable salmon prices, as the demand has proved to do in the recent year - Salmon has become relatively more affordable compared to other sources of protein - The salmon-farming industry is a profitable, fast growing industry providing products with a high degree of homogeneity. There a several players, but few dominant players. Because of the high barriers of entry due to know-how-, capital- and location requirements, LSG is not expected to be pressured by new entrants - A healthy global GDP growth is expected going forwards. An Increase in consumer wealth is expected to correlate positively with demand for salmon

4.0 Financial analysis This section of the thesis will include a comprehensive financial analysis of Lerøy Seafood Group. The goal is to gain insight into how LSG has historically created value for its shareholders. Combined with the strategic analysis, this section will serve as foundation and support to the assumptions made when forecasting. Understanding LSG’s historical performance will be very important in order to forecast its future cash flow. This section will also answer the questions:

- How has LSG historically performed compared to its peers? - How does the cyclical nature of the industry affect the year-to-year financials? - Does LSG have a satisfying financial position which allows it to conduct valuable investment in the future?

The financial analysis will begin with a reorganization of the financial statements in order to calculate key figures and profitability measures connected to LSG’s core operations. This is done by separating the accounting items that relate to the core-business from financial- and other non-core items. In addition to this, the financial analysis will also include profitability measures, trend- and common-size analysis, in addition to identifying the financial risks of investing in LSG. The complete figures and results from the financial statement analysis are organized in appendix 5-8.

The seafood farming industry is a cyclical industry with volatile fish- and stock price fluctuations. To learn as much as possible about the industry, I have analyzed a long period consisting of at least one cycle, which is inspired by Koller Et al. (Valuation, 2010). A long time horizon is important in order to get a better understanding of the industry’s cyclicality, in regards to when and how the industry tend to revert back to some normal level of performance, or if short-term trend are likely to remain (Koller et.all, Valuation, 2010, p.185&755). The period of the analysis is therefore 9 years (2005-2013). However, the more recent years will have greater focus in the analysis. As both LSG and all of its competitors use IFRS the entire period, no adjustments are needed. On a second note, PriceWaterhouseCoopers have been LSG’s auditors for a number of years. Switching auditors or accounting principles from year to year could be a red flag in terms of accounting shenanigans. I have found no indication of excessive changes in accounting principles during the period.

4.1 Rebalancing the financial statements for analytical purpose The reorganizing of the historical financial statements is done by following the principles outlined in the book “Financial Statement Analysis” by Plenborg & Petersen. Since firms usually consist of operating-, investing- and financing activities, the authors strongly emphasize the benefits of separating operating items from financing items. The reason behind this reorganization is that the primary driving force behind the value creation for the

shareholders comes from a company’s core business. Separating operating from financial activities will therefore give a clearer picture of a firm’s core business. Lastly, non-recurring items are identified and removed in order to find a normalized level of earnings.

4.1.1 Rebalancing the income statement The fully rebalanced income statements of LSG and its peers are found in appendix 5-8, all using the principles outlined in Plenborg & Peterson’s book (2012). This means that every accounting item has been classified as either “operating” or “financing”. The goal of the reclassification is to calculate the operating earnings before and after tax; EBIT (Earnings before interest & tax) and NOPAT (Net operating profit after tax). These figures are key performance figures that show a company’s profit from its core business, regardless of its capital structure. Some of the key reclassifications conducted to LSG’s income statement are listed below:

Biomass fair value adjustment is one of the more important accounting items to mention regarding reclassification in the seafood industry. The accounting of live fish for listed companies is regulated by IAS 41 Agriculture, which states that live fish shall be valued at market price less estimated sales cost81. As fair value adjustments in the income statement represent either impairment or an upward-adjustment of the company’s biological assets, often as a result of volatile sales price, it is not regarded as a permanent source of income. This accounting figure has therefore been excluded from core operations, which is also the normal practice for financial seafood analysts.

Income from associated companies is in the case for LSG and its peer included in operations, as the associated companies are operating within the firm’s core business; the seafood industry. Therefore, the balance sheet item “investment in associated companies” should be included in invested capital.

Impairment losses on fixed assets have only happened in 2012 and 2013, and are therefore classified as non- recurring and excluded from core operations.

I have used the effective tax rate while calculating tax on operations tax and tax on non-operating items, which is estimated by dividing reported tax on reported net income before tax. In LSG’s case, the effective tax rate is stable and close to the marginal tax rate of 28% in Norway, which will be used in the forecasting. The comparison of profitability figures later in this section will be done on a before-tax basis, as the companies have different effective taxes.

81 Lerøy Seafood Group Annual Report 2012 p.71

4.1.2 Rebalancing the balance sheet In order to match the items on the analytical income statement, balance sheet items are also separated by operating and financing activities. The goal of this reclassification is to calculate the company’s invested capital and net interest bearing debt. Invested capital can be defined as the amount a firm has invested in its operating activities which require a return82. This figure is calculated by subtracting operating liabilities from operating assets. Combining NOPAT and the invested capital, we are able to calculate the overall profitability measure for the operation defined as the return on invested capital (ROIC). Significant reclassifications of LSG’s balance sheet are listed below:

Biological assets is equivalent to inventory and therefore included in the working capital, as it is LSG’s share of fish in the sea at fair value. Other inventory includes feed, packaging- and raw materials as well as finished goods, which is also classified as current assets.

Shares in associated companies, as mentioned in the income statement, are classified as operating in order to match income from investments in associates in the analytical income statement.

Deferred tax assets is estimated by taking the difference between temporary taxable and accounting values of licenses. As LSG does not provide information enabling me to link it to operations or financing, in addition to that most cases of tax asset can be traced directly to operations83, it is classified as such.

Deferred tax liabilities rise from temporary differences between book values and tax values. In short, deferred tax liabilities are expenses that are to be paid at a future date, often far into the future or never if the company makes new investments84. Plenborg (2012) also argues that deferred taxes can be disregarded for analytical purposes, and can be treated as quasi equity. LSG’s deferred tax liabilities are linked to operating assets, licenses/rights and biological assets, and are therefore classified as non-interest bearing liability.

As LSG’s pension liabilities are discounted to present value, and would therefore make sense to treat it as part of financing activities85. Pension funds are like vice treated as interest bearing assets.

Other short-term liabilities consist of accrued wages and holiday pay, impacts of fair value hedging, accrued interest costs, accrued customer discounts, other accruals and other short-term liabilities. Accured interest costs and fair value of hedging instruments are financial items, and should be part of financing activities. However, as

82 Plenborg and Petersen, Financial Statement Analysis, 2012, p.74 83 Plenborg and Petersen, Financial Statement Analysis, 2012, p.88 84 Plenborg and Petersen, Financial Statement Analysis, 2012, p.431+433 85 Plenborg and Petersen, Financial Statement Analysis, 2012, p.90 + Lerøy Annual Report 2012

these represent less than 1% of total other short-term liabilities (2011 and 2012) and its reclassification would cause unidentifiable changes in the profitability measures, I have neglected to reclassify these items.

Other receivables include VAT to be refunded, pre-payments, currency futures and impacts of fair value hedging and other. Currency futures and fair value hedging are financial activities, but is neglected to be reclassified from operations because it represents only approx. 1% of total other receivables.

Cash and cash equivalents are classified as excess cash. Optimally, the cash could be divided into a cash-buffer needed for operations (ex. 0,5-1% of revenues) and the rest as excess cash86. However, LSG does not disclose enough information to make this distinction, leading me to classify all cash as part of financing activities.

4.2 Lerøy Seafood Group financial overview Figure 39 - Lerøy Seafood Group quick overview (NOK ‘1000) Income statement 2005 2006 2007 2008 2009 2010 2011 2012 2013 CAGR Total revenues 4 014 454 5 616 592 6 290 898 6 057 053 7 473 807 8 887 671 9 176 873 9 102 941 10 818 519 11,6 % % Growth 39,9 % 12,0 % -3,7 % 23,4 % 18,9 % 3,3 % -0,8 % 18,8 % NOPAT 260 672 617 752 320 418 271 786 749 090 1 258 462 872 491 370 313 1 386 813 20,4 % % Growth 137 % -48 % -15 % 176 % 68 % -31 % -58 % 274 % Net profits, reported 300 947 652 445 279 564 127 052 730 141 1 429 571 378 677 491 762 1 886 395 22,6 %

Balance sheet 2005 2006 2007 2008 2009 2010 2011 2012 2013 CAGR Invested Capital 1 674 937 3 793 619 5 517 452 5 884 270 5 735 780 7 280 348 7 382 486 8 229 969 9 750 185 21,6 % Net interest-bearing debt 398 991 1 452 900 1 738 609 2 119 927 1 435 524 1 286 074 1 584 720 2 266 013 2 201 238 20,9 % Total equity 1 275 946 2 340 719 3 778 843 3 764 343 4 300 256 5 994 274 5 797 766 5 963 956 7 548 947 21,8 % Financial ratioes 2005 2006 2007 2008 2009 2010 2011 2012 2013 Avg. ROIC, after tax 22,6 % 6,9 % 4,8 % 12,9 % 19,3 % 11,9 % 4,7 % 15,4 % 12,3 % Return on equity, after tax 32,5 % 8,7 % 4,1 % 17,0 % 23,5 % 13,8 % 5,1 % 19,4 % 15,5 % NOPAT (Profit) margin 11,0 % 5,1 % 4,5 % 10,0 % 14,2 % 9,5 % 4,1 % 12,9 % 8,9 % Turnover ratio 2,05 1,35 1,06 1,29 1,37 1,25 1,17 1,20 1,34 FGEAR 0,51 0,52 0,51 0,44 0,26 0,24 0,33 0,33 0,39 Average yearly salmon price 25,7 32,3 25,8 26,4 30,9 37,3 32,0 26,6 39,6 30,7 Source: Own creation / Lerøy Seafood Group Annual reports / Fishpool.eu

After successfully separating operating activities from financing activities, I am able to calculate profits from core-operations and invested capital, and can proceed to estimate key profitability ratios. Before going into a deeper financial analysis, I find it helpful to present a few findings on the company in order to give the reader a quick overview of the company and prepare the reader for the rest of the section. Each item will be thoroughly analyzed in the sections to come.

4.3 Analysis of historical profitability and performance An important element of the financial analysis is the measuring of a company’s profitability. A profitable company displays economics strength which strongly supports the maintenance of positive customers and suppliers relations87. Historical financial ratios can reveal the level and trend in a firm’s profitability, growth and risk, while serving as important input in defining expectations for the future. The historical profitability will also

86 Regnskabsanalyse og værdiansættelse – en praktisk tilgang, Ole Sørensen, 3 edition, 2009, Ole Sørensen, p.183 87 Plenborg and Petersen, Financial Statement Analysis, 2012, p.93+63

serve as help when trying to estimate a normalized level of earnings for a firm in a cyclical industry such as the seafood industry. The structure of the profitability analysis is closely based on the DuPont model, shown in figure below. The complete profitability analysis with calculation and explanations is found in appendix 5-8+25. The analysis will start of by focusing on the overall profitability measure for operations (ROIC), which is an important measure as it expresses the return on the capital invested in the business. ROIC will subsequently be divided into profit margin (PM) and the turnover rate on invested capital, in order to determine if profitability is driven by the revenue and expense relation or improved capital utilization88. Lastly, I will analyze the return on equity (ROE); a profitability measure that takes both operating and financial leverage into account.

Figure 40 – Dupont model Profit margin (PM) ROIC Turnover rate EVA invested capital WACC

Source: Own creation / Plenborg & Petersen, 2012, p.94

4.3.1 Operational performance – Return on Invested Capital (ROIC) Return on invested capital (ROIC) is used to measure the overall profitability of a firm’s core business, calculated before or after tax by dividing either EBIT or NOPAT on the invested capital89. The average invested capital primo and ultimo has been used when calculating the ROIC, as profits are recorded in the income statement over the duration of the whole year. ROIC is an important operating measure; not only is it attractive to be the most profitable player in an industry, it may also lead to cheaper bank financing or when issuing bonds. Because of different effective taxes, I found it most instructive to compare before tax profitability measures.

Figure 41 – ROIC before tax comparison + LSG’s ROIC after tax vs WACC & avg. salmon price

Source: Own creation / annual reports / Fishpool.eu

88 Plenborg and Petersen, Financial Statement Analysis, 2012, p.107 89 Plenborg and Petersen, Financial Statement Analysis, 2012, p.94

On the figure to the left you see LSG’s ROIC before tax compared to its closest competitors, while on the right hand side you can see LSG’s ROIC after tax compared to its WACC and average yearly salmon price. In the period 2006 to around 2011, LSG has consistently been the second most profitable of its peers, with SalMar being the most profitable, due to its historically higher profit margin, analyzed later. During the period 2006- 2013, LSG had an average pretax ROIC of 17%, compared to SalMar’s 24%. However, Lerøy, Marine Harvest and SalMar have fairly similar ROIC before tax in the recent two years (2012 and 2013), indicating a slight convergence in the industry. LSG’s average ROIC after tax was 12% during the same period. By comparing LSG’s ROIC with its WACC, one can see that LSG creates value for its shareholders when ROIC>WACC. Due to the industry’s cyclicality, LSG has created shareholders value in some years, but not in every year.

4.3.2 Decomposition of ROIC As seen in the DuPont model, ROIC can be further divided into profit margin and turnover rate on invested capital. Profit margin is essentially EBIT (Before tax) or NOPAT (After tax) divided by Net revenue, while turnover rate of invested capital is calculated by dividing Net revenue with invested capital. By decomposing the ROIC, we are able to get an idea of whether profitability is driven by the revenue and expense relation or improved capital utilization90.

Figure 42 – Decomposition of ROIC

Source: Own creation / Company annual reports

4.3.2.1 Profit margin SalMar has historically had the highest profit margin when observing the profit margins above, which might be attributed to a more streamline business with less VAP activity. LSG’s profit margin is low due to the high degree of VAP- and buying & selling seafood activities, which are low margin businesses. There is however convergence in the industry’s profit margins in recent years, maybe as a result of a more mature industry. Looking at the invested capital comparison, a lot of LSG’s ROIC is explained by its strong ability to utilize its

90 Plenborg and Petersen, Financial Statement Analysis, 2012, p.107

invested capital. LSG’s higher turnover rate is also a consequence of the buying & selling of seafood and VAP activity, which leads to higher revenues and lower margins.

Figure 43 – Common-size cost analysis Lerøy Seafood Group 2005 2006 2007 2008 2009 2010 2011 2012 2013 Avg. Period Avg. 5y Cost of materials * 81,1% 73,1% 74,7% 70,6% 71,1% 60,2% 70,9% 72,0% 67,8% 71,3% 68,4% Salaries and other personnel costs 6,1% 7,1% 9,2% 11,0% 9,2% 8,8% 10,5% 11,3% 10,2% 9,3% 10,0% Other operating costs 4,8% 6,1% 7,5% 9,6% 7,9% 7,8% 9,4% 9,4% 9,3% 8,0% 8,7% EBITDA 9,6% 16,0% 9,2% 9,0% 16,3% 21,7% 16,4% 8,8% 19,8% 14,1% 16,6%

Industry 2005 2006 2007 2008 2009 2010 2011 2012 2013 Avg. Period Avg. 5y Cost of materials * 52,1 % 46,4 % 55,2 % 56,6 % 51,3 % 45,5 % 49,2 % 58,9 % 47,1 % 51,4% 50,4% Salaries and other personnel costs 13,5 % 12,0 % 13,9 % 13,7 % 12,7 % 11,2 % 11,8 % 13,6 % 12,2 % 12,7% 12,3% Other operating costs 12,8 % 11,6 % 13,3 % 15,9 % 16,2 % 15,2 % 20,3 % 22,2 % 19,7 % 16,4% 18,7% EBITDA 25,4 % 33,1 % 19,7 % 14,3 % 21,0 % 30,3 % 20,5 % 7,1 % 22,8 % 21,6% 20,3% * Cost of materials include change in inventory Source: Own creation / Annual reports

The table above compares some of LSGs expenses vs the average of its three peers. When comparing LSG’s figures with the industry, it is important to keep in mind that LSG exports ~200 000tons of seafood a year91, which is considerably more than the harvest volume. This is due to LSG’s non-farming activities, which is what makes LSG a supplier of a total range of seafood products. But the table still gives a good indication as to the explanation of LSGs revenue/expense relationship compared to its peers. LSG’s average cost of materials of both the analyze period and the last 5 years, have been around 70%. This is higher than the rest of the industry, due to LSG’s buying & selling activities. Both salaries and other operating costs have increased as part of total revenues from 2005 to 2013. These items have however consistently been below the industry, also due to the extra revenues caused by its low margin buying & selling activities. LSG’s EBITDA-margin has an average of 14,1%, with 21,7% as the highest and 8,8% as the lowest.

4.3.2.2 Turnover rate invested capital Figure 44 – Development in invested capital and ROIC

Source: Own creation / Company Annual reports

91 https://www.leroyseafood.com/en/Business/About-us/Leroy-in-brief/

LSG had the highest turnover rate on invested capital during the whole period. This usually represents a significant advantage, as it is relatively better than its peers at utilizing its invested capital. The graph above compares the trend the invested capital with the company’s profitability. The reason behind this comparison is to see if the capital invested in the operations of the different companies have achieved reasonable returns. Another way to analyze this would be to compare CAPEX/revenues. One observation made above, is that LSG has a fairly stable trend in its invested capital, with the second best historical operational return in the industry. Grieg Seafood is one that clearly separates from its peers, with a similar trend in invested capital as LSG, but has achieved significantly lower returns. Grieg Seafood’s lower ROIC can be explained by higher than average cost levels in all its production regions and its biological challenges (Nordea, Seafood sector update, 01.04.2014, p.31). A requirement for putting capital to work in a company is that you can expect reasonable returns. This has historically been achieved by LSG without excessive fluctuations in the invested capital.

Figure 45 – Decomposition of Invested capital – Items as a percentage of Invested Capital Decomposition of invested capital 2009 2010 2011 2012 2013 Average Biological assets 32,4% 37,2% 32,1% 33,1% 38,2% 34,6% Accounts receivable 15,3% 13,9% 12,7% 12,1% 15,2% 13,8% Accounts payable 10,7% 8,8% 9,6% 10,0% 10,9% 10,0% Net Working Capital 36,5% 37,8% 32,6% 36,8% 42,1% 37,2% Licences, rights 22,5% 27,1% 26,8% 24,0% 20,3% 24,2% Buildings, real estate, operating accessories 21,4% 21,8% 24,9% 25,5% 24,4% 23,6% Goodwill 29,1% 25,8% 25,7% 24,2% 20,6% 25,1% Invested Capital incl. Goodwill 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% Source: Own creation / LSG Annual reports

Net working capital as percentage of invested capital increased from 36,5% (2009) to 42,1% (2013), mainly because of the increased value in biological assets. The significant increase from 2012 to 2013 is not due to a building inventory, but because of value of the fish in the sea has increased due to higher salmon prices. Accounts payable- and receivables are fairly stable throughout the period. Buildings etc. has increased, which could indicate higher capital requirements going forwards. Goodwill has steadily decreased, which may be due to lower acquisition activity than previously, and, may also indicate fewer possible future acquisition targets.

4.3.3 Return on Equity This section focus on measuring the impact of financial leverage on profitability. Return on equity takes both operating and financial leverage into account, and is calculated by dividing either EBIT (Before tax) or NOPAT (After tax) on average book value of equity. Return on equity can also be calculated using:

ROE = ROIC + (ROIC – NBC) * FGEAR92

92 Plenborg and Petersen, Financial Statement Analysis, 2012, p.117

ROIC has been calculated and explained in the section earlier. FGEAR is calculated by dividing net interest bearing debt (NIBD) on the book value of equity (BVE). NIBD is estimated by subtracting interest bearing assets such as cash and securities from interest bearing debt.

Figure 46 – Return on Equity peer group

Return on equity, after tax 2005 2006 2007 2008 2009 2010 2011 2012 2013 Avg. ROIC, after tax 22,6% 6,9% 4,8% 12,9% 19,3% 11,9% 4,7% 15,4% 12,3% Financial leverage (NIBD/BVE) 0,51 0,52 0,51 0,44 0,26 0,24 0,33 0,33 0,39 Net borrowing cost after tax (NBC) 3,3% 3,3% 6,0% 3,6% 3,6% 4,0% 3,6% 3,5% 3,9% Return on equity 32,5% 8,7% 4,1% 17,0% 23,5% 13,8% 5,1% 19,4% 15,5% Source: Own creation / Company annual reports

If the spread between ROIC and NBC is positive, an increase in the financial leverage would lead to a higher ROE, which it is in all years except 2008. The financial leverage has however decreased over time, in accordance with LSG’s strategy of being financially flexible. Net borrowing cost after tax has be relatively stable around the average of 3,9%. According to these figures, it would seem that LSG has fairly good potential to obtain further financing through leverage, due to the relatively low financial leverage and reasonable net borrowing cost after tax rate. SalMar has had consistently higher ROE of the peer group, but has managed that with the help of higher gearing than LSG, and hence has been more risky.

4.4 Liquidity risk analysis Because of the cyclical nature of the seafood industry, I believe it is important to have an assessment of the short- and long-term liquidity risks of investing in LSG. Without sufficient liquidity, a company may not be able to pay its liabilities on time or carry out profitable investments and in worst case lead to bankruptcy93. Analyzing the liquidity risks will give insights into how LSG would deal with short- or long-term downfalls within the market/industry.

93 Plenborg and Petersen, Financial Statement Analysis, 2012, p.150

Figure 47 – Liquidity risk analysis Lerøy Seafood Group 2005 2006 2007 2008 2009 2010 2011 2012 2013 Short term liquidity Current ratio (Current assets/Current liabilities) 2,5 2,6 3,4 3,5 3,1 2,9 2,8 3,5 3,3 Quick ratio (Cash+Securities+Receivables / Current liabilities) 1,7 1,7 1,9 1,6 1,7 1,8 2,0 1,9 1,5 CFO to short-term debt ratio 29 % 65 % 13 % 26 % 94 % 101 % 63 % 37 % 70 % Long term Financial leverage (Total Liabilities / Total equity) 1,0 1,4 1,0 1,1 0,9 0,9 1,0 1,0 0,8 Solvency ratio (Equity / Total liabilities + Equity) 0,5 0,4 0,5 0,5 0,5 0,5 0,5 0,5 0,5 Interest coverage ratio (EBIT/Net fin.exp.) 19,8 20,2 6,1 2,3 11,8 25,8 15,1 5,3 17,9 Source: Own creation / LSG annual reports / Plenborg & Petersen, Financial Statement Analysis, 2012

The company has a solid current and quick ratio during the entire period. The current ratio is consistently above 2, indicating that current asset more than cover all the current liabilities. These ratios support a good protection against short term liquidity risk. The financial leverage indicates that total liabilities and equity are relatively stable around a ratio of 1 throughout the period. This does not seem excessive, although somewhat higher could represent some long-term risk due to the cyclicality of the industry. Interest coverage ratio averaged around 14 during the 9 year period, indicating good coverage to pay interest expenses. Because of LSG conservative debt financing, the short- and long-term liquidity risks are low.

4.5 Summary financial analysis - LSG has consistently performed as around the second most profitable company compared to the peer group in terms of ROIC and ROE, after SalMar. The reason for this is that SalMar has fewer activities outside salmon production, including higher financial gearing. In addition to the production of salmon, LSG is highly involved in the VAP- and buying & reselling division, which are low-margin businesses, but require little investments. This causes higher revenues and lower profit-margins - LSG’s average ROIC- and ROE after tax over the entire analysis period is 12,3% and 15,5% - The cyclicality and the salmon price volatility cause large fluctuations in the industry’s profitability measures. Even though most of the players are profitable in periods of lower salmon prices, LSG’s ROIC after tax is below the investors required return in some years. However, LSG is also creating significant shareholder returns in the years influenced by higher salmon prices - LSG seems to have very low short-term liquidity risks with current- and quick ratio above 2 and 1 in every year. Its total liabilities to total equity ratio are on average 1, which is fine if it remains there. It also has a significant interest coverage ratio in most years, signifying a low financial risk in the long-term. This financial flexibility allows LSG to conduct valuable investments in the future, even in cycle-downturns

5.0 SWOT – Combining the strategic- and financial analysis Spot- & Sales price Harvest volumes Cost drivers Strength -High barriers of entry: less competition -Larger players usually have better than -Fully integrated salmon farming -Restrictions on regions that can profitably the average utilization per license company produce salmon -Strong historical growth in harvest -Eggs/smolt produced internally: No -Norwegian licenses reaching max volumes with the help of M&A dependency on suppliers utilization -Historical good guidance from -High degree of automatization -Limited issuance of licenses since 1982 management -Chile: regions close to peak in terms of S sustainability, with farmer’s short-term focus away from building size -Higher protein need due to a growing global population -Increasing health awareness in Europe and USA -Pricing power over consumers who prefer quality -Large sales & distribution network -14 processing facilities around Europe -Award winning innovative products

Weaknesses -Salmon is an expensive source of protein -Limited possibilities for organic growth -Cost due to exposure to diseases, -Competition from substitute products in -Capacity per license escapes and environment lower-class consumers segment -Unable to adjust short term supply to -Some bargaining power from feed -Cyclical industry demand suppliers -LSG’s sales price is highly dependent on -Long production cycle -Salmon farmers will with a very high the salmon spot price probability share cost that feed -High degree of homogeneity suppliers incur if raw materials W increase -High salaries in Norway

Opportunities -Stagnating catch of wild salmon -Still not a wholly consolidated industry -Other operating costs: Potential for -Healthy global GDP growth economics of scales savings -Expected strong growth in immature -Relatively young industry: markets such as China and India technological advancement likely to -High VAP activity creates new markets improve efficiency -Innovation and product development increases demand by meeting future O consumer- and market requirement -Salmon have become relatively cheaper

Threats -Long production cycle (3 years) creates -Harvest volumes are influenced by -Increase in demand of biodiesel puts large fluctuations in salmon prices seawater temperatures, escapes and pressure on the price of vegetable oils -Local government controls issuance of new biological risks -Soy price may increase due to licenses and regulations regarding capacity -Limited number of licenses increasing demand for ethanol -A successful Chilean industry rebuild may -Environmental and biological risks -Falling trend of fish meal used in feed significantly increase long-term supply is not expected to continue -Trade restrictions T -Price sensitive consumer segments

Overall ST: Capacity restrictions on global supply ST: Strong growth in harvest volumes ST: Reasonable to assume that cost of and strong demand indicate significantly due to M&A activity, however limited goods (Feed) will be close to 2013- assessment higher spot prices than the historical average organic growth. The industry is not yet levels MT: Still strong demand and somewhat wholly consolidated MT: Indications of higher feed costs ST: Short-term higher supply growth due to Chilean MT: Fewer potential M&A deals in the due to price increase on raw materials MT: Medium-term industry rebuild market LT: High prices of feed input due to LT: Long-term LT: Healthy demand growth and higher LT: Limited M&A opportunities in the more attractive uses of farms. supply growth, but still lower than historical market Potential economics of scales benefits average from other operating costs

6.0 Forecast This section will include forecast of LSG’s key drivers, based on the findings in the strategic- and financial analysis. No person has perfect information about any company and its industry, but I believe the data materials and sources used during the analysis provide a good foundation to make reasonable assumptions regarding the future. In cases where I felt the need of choosing between conservative estimates and fair estimates, the conservative has been chosen.

- How will LSG’s key value drivers progress in the future? - When is LSG likely to reach the state of steady growth?

Every income statement- and balance sheet item will be forecasted. Significant energy has been put on forecasting revenues, as several items on the balance sheet and income statement is directly linked to this figure. The previous sections have indicated that the salmon spot price, harvest volumes, VAP-premiums and cost of materials are key drivers for LSG’s future earnings. The main goal of my forecast is to try and find a normalized level of income with a realistic trend, not to try to accurately predict volatility in the distant future. As an equity investor LSG it is unavoidable not be affected by the industry volatility based on historical development. If you are a long term investor in LSG, you will probably find yourself experiencing years close to a normalized level of earnings, but you will also probably experience years that are significantly below and significantly above the investor’s required return.

I have chosen a forecast period beginning in 2014E and ending in steady state in 2021E, equivalent to 7 years. The forecast period is hence divided into short-term (2014E-2016E), medium-term (2017E-2020E) and long- term (2021E-). Except for the very near term where I have most information to make accurate forecast, I try to revert most value drivers to a normalized level. Every forecasted item will be compared with the analysis, in order to see if they make sense based on the assumptions made.

6.1 Revenue drivers Due to LSG’s secondary processing- and sales & distribution segment, its salmon products are sold with a value- added product (VAP) premium above the salmon spot price. LSG’s revenues will therefore be forecasted on the basis of the development in harvest volumes, salmon spot price and the VAP premium. As mention in the delimitation, it is assumed that all harvested fish is bought internally and undergoes secondary processing. The future revenues in the forecast are computed by the following formula:

Revenue = Harvest volume * Salmon spot price * (1 + VAP Premium in % of salmon spot price) Source: Own construction

6.1.1 Harvest volumes Harvest volumes increased ~11% CAGR between 2005 and 2013, largely due to acquisitions of companies. I will not try to individually forecast acquisitions, but rather find a growth rate in harvest volumes I deem likely, based on the future market environment. Historical growth rate will also serve as important input. LSG’s share of harvest volume fell ~13% in 2013, largely due to the low sea temperature in Norway. This subsequently was a contributor to the record-high prices for salmon and trout in 201394. It is expected that environmental conditions from time to time will result in above and below required returns in the future.

Short-term: As identified earlier in the thesis, current management has historically given reliable guidance in the short-term. The management’s 2014E guidance for LSG’s total share of harvest volumes is 178,500 tons (~13% growth from 2013). The strong growth seems reasonable, due to the low harvest volumes in 2013 caused by very low temperatures. The Northern region (Lerøy Aurora) aims to grow regionally in the years to come, proved by the recent acquisition (49,4%) of Villa Organic AS. This acquisition is expected to generate an additional 9,000 tons in 2014E, which alone represents an 5,7% increase from 2013 volumes. Merger and acquisitions is also expected in the short-term, supported by the corporate management and Board of Directors95. I expect there to be several possibilities of growing through M&A activity, as the industry is not wholly consolidated. However, I expect limited organic growth. I forecast a strong growth of 6% in harvest volumes in the years 2015E and 2016E due to still attractive acquisition targets in the industry, which is conservative compared to the historical CAGR of ~11% (2005-2013).

Medium-term: I believe organic growth possibilities to still be limited and there will be fewer M&A opportunities, as the industry is increasingly becoming consolidated. In 2002, the largest 10 companies provided ~33% of total sales, while they in 2012 provided ~69%96. This consolidation trend is not expected to stop, even though it is likely to be slowing down. Therefore, in the subsequent 4 years (2017E-2020E) I expect the harvest volumes to converge against 3% (Growth in steady state). Forecasted yearly growth rates are 5% (2017), 4%(2018), 3,5%(2019) and 3%(2020). This is far below the 2005-2013 CAGR of ~11% and below the recent 5 year CAGR of 5,4%.

Long-term: The long-term prospect of the salmon farming industry is good. Kontali Analyse expect the global supply of salmon to increase by CAGR 3% in the period between 2013 and 2020, with growth significantly higher than the world’s human population (MH industry Handbook 2013, p.12). In the long term, when the company reaches steady state in 2021, I expect the M&A opportunities to be rarer as the industry is getting

94 Lerøy Seafood Group Annual report 2013, p.19 95 (158,2t + 9t) / 158,2t - 1= 5,7% + LSG Annual report 2013, p.13 & 20 96 fiskeridir.no/english/statistics/norwegian-aquaculture/aquaculture-statistics/atlantic-salmon-and-rainbow-trout

largely consolidated. Also, no owner can control more than 25% of the total biomass in the Norway, which places further restrictions on size and growth in Norway (MH Industry Handbook 2013, p.29). The strong historical growth in harvest volumes is expected to be slowed down by limited licenses, limited possibilities to improve capacity per license and fewer M&A opportunities. I expect a growth rate of 3%, which resembles what might be a reasonable growth in the worlds GDP according to OECD economic outlook97.

Figure 48 – Harvest volumes forecast Lerøy CAGR 2005-2013 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Harvest volume 10,9% 158 200 178 500 189 210 200 563 210 591 219 014 226 680 233 480 240 485 Growth rate 10,9% -5,3% 12,83% 6,00% 6,00% 5,00% 4,00% 3,50% 3,00% 3,00% Source: Own creation / LSG annual reports

If we expect supply to grow at 3% CAGR in the future, LSG would gain market share until 2020, while growing at the same pace as the industry in steady state. This seems appropriate; LSG’s solid financial position should contribute to a higher growth through M&A activities in the near term, which it has also managed historically.

6.1.2 Salmon spot price The salmon spot price will be the second component needed in order to forecast revenues. The salmon price averaged ~45 NOK/Kg last month and has been above 50 NOK/Kg earlier this year (Appendix 23). The strategic analysis revealed that the salmon spot price is highly depended on the global supply and demand situation. I forecast the salmon spot price by reviewing the average historical salmon price and comparing the historical supply/demand relationship with what is expected in the future, in order to find a new price for the market price equilibrium.

The recent year has shown that the market is capable of absorbing supply at exceptionally high prices. The demand has been strong and growing due to innovation, eating habits, health awareness, population growth and GDP/income growth in immature markets, which is also expected in the future. I expect the future demand to be strong, which is also estimated by Pareto Securities (CAGR 7% 2012-2020E98). This is far higher than Kontali’s 3% supply growth expectation (2013-2020E)99 and Pareto Securities’ expected 6,5% global supply growth100. This indicates a higher future salmon price, as there are many factors supporting that long term demand will be higher than supply. The average salmon price between 2004 and 2013 has been ~30 NOK/Kg. Nordea expects NOK 40-42 per kg as the new equilibrium price in the market, due to the capacity restricted supply (Nordea, “40 is the new 30!” 01/04/2014, p.1). Based on the above summary of the supply/demand relationship, I predict the

97 OECD Economic Outlook 2012, p.202 http://www.oecd-ilibrary.org/economics/oecd-economic-outlook-volume-2012- issue-1_eco_outlook-v2012-1-en 98 Pareto Securities Seafood Quarterly, 10/04/2014, p. 25 99 Marine Harvest Industry Handbook 2013, p.12 100 Pareto Securities Seafood Quarterly, 10/04/2014, p. 11

future average spot price of salmon to be higher than the historical average. How much higher is extremely hard to predict, but what we do know is that the historical average has been close to NOK ~30 per kg (2004-2013) calculated using data from fishpool.eu. Therefore, I expect the salmon spot price to converge towards the new equilibrium price level of NOK 32 per kg in its steady state.

Short-term: I expect a strong salmon price in the short-term due to capacity constraint on Norwegian licenses, slow supply growth in Chile as regions are close to its peak in terms of sustainability and that Chilean players are focusing on efficiency instead of growing in size. The average for the first 4 month in 2014 has been 46,67101 , which justifies a NOK 40 per kg in 2014E. Pareto estimates the salmon price of 2014e, 2015e and 2016e to be NOK 40, 37,5 and 36 per kg102. I have forecasted a NOK 37 and NOK 36 per kg in 2015E and 2016E, slowly converging towards a new equilibrium. Demand is still expected to be strong.

Medium-term: I predict that supply growth in Chile will pick up due to the industry rebuild. The increased global supply is greater than in the short-term but still lower than the demand growth, indicating a high salmon price that is slowly converging towards its new equilibrium price. Due to these factors, salmon prices are forecasted at 35 NOK/Kg in 2017 while converging towards 32 NOK/Kg (Steady state) during the medium term (NOK/kg 35, 34, 33 and 32 in 2017E, 2018E, 2019E and 2020E).

Long-term: The market situation is maturing; demand is slowing down equal to supply growth, and the salmon price reaches its new equilibrium at 32 NOK/Kg. This is expected to be around the same as the historical average of ~30 NOK/Kg in terms of present value.

Figure 49 – Salmon spot price forecast Salmon spot price (Fishpool) Avg. 2005-2013 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Spot price 29,8 39,6 40,0 37,0 36,0 35,0 34,0 33,0 32,0 32,0 Growth rate 48,9% 1,0% -7,5% -2,7% -2,8% -2,9% -2,9% -3,0% 0,0% Source: Own creation / Fishpool.eu

6.1.3 Value-added product Premium Now that the salmon spot price and harvest volumes are forecasted, the last component needed is LSG’s VAP premium above the spot price on its products. The VAP premium is tied to LSG’s innovation, symbolizing the extra value added due to secondary processing. The strategic analysis showed that LSG’s VAP-premium moves in the opposite direction of the salmon price. Historically when the salmon price has been low, VAP premium has been high. Therefore, the VAP premium forecast will be estimated while comparing it to the forecasted spot price, following the historical pattern.

101 http://fishpool.eu/iframe.aspx?iframe=fpbackoffice/pricedetails.aspx&pageId=53 (See appendix 23) 102 Pareto Securities Seafood Quarterly, 10/04/2014, p.3

Figure 50 – VAP Premium forecast VAP Premium Avg. 2005-2013 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Spot price 29,8 39,6 40,0 37,0 36,0 35,0 34,0 33,0 32,0 32,0 VAP premium as % of spot price 111 % 72 % 70 % 80 % 85 % 87,5 % 90,0 % 92,5 % 95 % 95 % Sales price 64 68 68 67 67 66 65 64 62 62 Source: Own creation / Fishpool.eu / LSG Annual reports

Short-term: The average VAP premium as % of spot price has been 111%, with a low of 72% in 2013 when salmon prices were highest, and a peak of 150% in 2005 when salmon spot price was at its lowest. The expected high salmon price in the short-term indicates low VAP-premiums, similar to the historical pattern. The very strong salmon price in 2014E (40 NOK/Kg) indicated a record low VAP-premium, which I have forecasted to be 70% (Previous year 72% when salmon price was NOK/Kg 40). As the spot price declines in the rest of the short- term period, the VAP-premium increases to 80% (2015E) and 85% (2016E).

Medium-term: LSG is one of the leading players within product innovation in the salmon industry. With a track record of successful innovations such as “Påleggslaks”, “Påleggørret,” and the new facility “Sjømathuset”, this position is expected to be maintained. These successful innovations will allow LSG to continue selling at a premium above spot prices. The declining spot price in the medium-term increases the VAP-premium toward 95% (Steady state), which is seen in the forecast of 2017 (87,5%), 2018 (90%), 2019 (92,5%) and 2020 (95%).

Long-term: When the company reaches steady state, the VAP premium is expected to be 95%, which is lower than the average of the period 2005-2013 (111%). It is at the same level it has been historically at that salmon price. This figure which is under the historical average seems reasonable as the VAP-industry is maturing.

6.2 Cost drivers The operational costs consist of cost of materials, salaries & other personnel costs and other operating costs. They will all be forecasted as a percentage of revenues.

6.2.1 Cost of materials The largest cost of salmon farmers is the salmon feed, which is impacted by the volatility of its raw materials. LSG buys fish feed from two of the dominant Norwegian distributors. Fish feed input has been relatively more expensive in the recent period. The strategic analysis indicate that fish feed in the future will be more expensive.

Figure 51 – Forecast – Cost of materials Cost of materials Avg. 2009-2013 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Cost of materials -67 % 65,4 % 65,4 % 65,4 % 65,4 % 66,0 % 66,5 % 67,0 % 67,5 % 67,5 % Source: Own creation / LSG Annual reports

Short-term: I believe the raw materials of fish feed will increase in the future, and part of that cost will be shared with salmon farmers. However, due to the high short-term salmon price, I expect cost of materials will

not be higher relative to the increased revenues. Therefore, I forecast cost of materials equal to 2013-levels in the short term, which is 65,4%.

Medium-term: Due to the pressure on raw materials (e.g. biodiesel/ethanol production) used in fish feed, I expect increasing cost of feed. As salmon spot price falls in the medium term, I expect cost of goods sold to increase relatively to revenues. Therefore, I find it converging from 66% in 2017E to 67,5% in 2020E (As in steady state), which is slightly higher than the 5 year average (~67%).

Long-term: Due to the increased price of fish feed input which is shared with the salmon farmers and that the salmon price has reached its new equilibrium price, I expect a 67,5% cost of materials in steady state, which is close to historical figures at approximately that salmon price.

6.2.2 Salaries and other personnel costs Entire forecast horizon: Cost of labor is usually high in Norway, but is evened out due to a high degree of automatisation in the Norwegian farming industry. The average cost of revenue has been 10% in the recent 5 years, which is forecasted as the future level of salaries.

6.2.3 Other operating costs Entire forecast horizon: Other operating costs has averaged ~8% (2005-2013) and 8,74% in the recent 5 years period. Due to the lack of reporting regarding what is included in other costs, the 5 years average will be the best indication for the future (8.74%), which excludes potential economics of scale savings to be conservative.

6.2.4 Depreciation and amortization Entire forecast horizon: Depreciation and amortization is forecasted at 4,3% of intangible- and tangible assets going forwards, which is equal to the average of the recent 5 year period.

6.3 Other items “Other revenue” has only occurred in 2013 and is therefore seen as non-reccuring. Impairment loss has also only happened in 2012 (NOK 33m) and 2013 (NOK 5,5m), and is therefore reorganized as non-reccuring. Biomass adjustment will not be forecasted as it is a value adjustment that happens every year. It is forecasted to be zero in the future (Average of the analyze period was positive NOK 104m). Change in inventories will be forecasted at 1%, which is slightly lower than the average of the recent 5 year period of 1,36%. Net interest expenses is forecasted at 2013 levels going forward (4,6% of NIBD).

Associated companies include the farming companies Norskott Havbruk AS and Villa Organic AS, the sales & distribution company Alfarm Alarko Lerøy, in addition to “other companies”. There are several methods of trying to estimate their income, such as calculating historical income per kg harvested for the farming

companies. It is safe to assume that all the associated companies’ income is also highly correlated to the volatility of the salmon price. Therefore, I have chosen to calculate it as a percentage of revenues. A fair estimate for the future would be to take the historical average 1% of revenues (2005-2013). However, because of the 2013 purchase of Villa Organic AS which significantly boosted income from associates, the 2013 figure of 1,8% is more representative. This figure will be forecasted during the entire period.

6.4 Balance sheet The balance sheet items are forecasted as % of revenues, while holding most constant during the entire forecast.

6.4.1 Total current assets Biological assets represent the fish in the sea at fair value, adjusted for quality differences and logistic costs. The 2013 figure is the peak of the recent 5 year period (34,6%). As emphasized during the analysis, higher biological assets do not mean that LSG is having problem selling their fish. It more or less represents the fair value increase due to higher prices. LSG to therefore expected to maintain the same level as the 5 year average (29,1%), which means that I have forecasted 29% going forwards. Other inventory represents 3,3% of revenues in 2013, which is also projected forwards. Account receivables and other current receivables are both at its 5 year high as % of revenues in 2013 (13,8% & 2,9%). I expect LSG to hold the same level in the future.

6.4.2 Total current liabilities The current liabilities includes account payable, public duties payable, taxes payable and other short term liabilities. The accounts payable are at currently at its peak at 9,8% (2013) during the last 5 years. There is no indication to raise or bring this figure down by the company; therefore, I forecast it to maintain the 5 year average (8,4%) going forward. Other short term liabilities which largely consist of accrued wages and holiday pay, customers discounts and other accruals has been relatively stable during the last 5 years, and will be forecasted at 2013 levels (2,8%). There is few information regarding the development of public duties payable and taxes payable and both therefore been forecasted at their average over the last 5 years (0,8% and 2,6%).

6.4.3 Net working capital The assumptions above result in a net working capital of 34,4% during the forecast period. This is higher than the 9 year and 5 years average (29,2% and 31,3%), but is coherent with the rising trend in NWC as % of revenues since 2005. This means that on average, the company will in the future have tied up more capital in its NWC relative to revenues. It is however a decline from 2013 (38,1%) levels. This is significantly lower than the industry average; which is a result of the extra revenues due to higher secondary processing and buying & selling other seafood, not necessary due to greater efficiency.

6.4.4 Total non-current assets The total non-current assets includes licences/rights, building/real estate/operating accessories, shares in associated companies, long-term receivables, deferred tax assets and goodwill.

Licenses & rights in % of sales will be forecasted as the average of the recent 5 year period at 20,2%, which is slightly higher than the 2013-levels (18,4%). The analysis revealed that Building/real estate/operating accessories has had a rising trend since 2005. It will therefore be held at 2013 levels going forwards (22,1%), which is higher than the 5 year average (19,9%). Shares in associated companies has been stable around ~3,7% between 2009 and 2012, but increased to 6,8% in 2013 because of the purchase of Villa Organic AS. The 2013 level of 6,8% is more representative for the future, and will hence forecasted during the whole period.

Long-term receivables and deferred tax asset are relatively small (0,0%-0,2%) and will both be forecasted at their 2013 levels going forward. Goodwill is defined as the residual value that cannot be assigned to other assets/liabilities when a company or other assets are acquired. As I have chosen not to model potential acquisitions specifically, goodwill is held constant at its current level during the entire forecast period103.

6.4.5 Deferred tax liabilities There are several methods in how to forecast deferred tax liabilities, as mention in the financial analysis. The bottom line is that in many cases, the deferred tax liabilities will be paid in the long distant future or never be paid if the company makes new investments. I have however forecasted with the highly unlikely and extremely conservative method that LSG pays all its deferred tax liabilities in 2014, and leave it at zero going forwards.

6.4.6 Net interest bearing debt Interest bearing debt include the dominant long-term interest bearing debt and short-term loans, and the smaller and less significant other long-term debt, other long-term liabilities and pension liabilities. The most essential is the long-term interest bearing debt and short term loans, which on average resented 24% and 7,6% in the last 5 years. This average is expected to continue, as LSG has a strict policy to maintain flexibility and financial strength. Other long-term debt and pension liabilities were both zero in 2013, which is expected in the future. Other long-term liabilities ranged between 0% and 0,5% between 2009 and 2013. I find the 2013 level at 0,3% to be a fair estimated for the future, which is close to the figure in recent years.

Pension funds and share and securities have represented 0% percent in the last 5 years, which is expected to continue. The 2013 level of 0,1% for share available for sale is expected for the future. However, the only significant item in the interest bearing assets is the cash and cash equivalents, which a varies between a low of

103 T.Koller, M.Goedhart, D. Wessels, Valuation, 2010, p. 204

8,1% (2013) and a peak 17,4% (2011) of total revenues. LSG relies on a high degree of flexibility this is also expected in the future. There are no indications from LSG of bringing down its cash and cash equivalents, which makes the 5 year average (12,4%) a good guess for the future.

This results in a net interest bearing debt of 19,5% of revenues, slightly higher than the 5 years average (19,3%). 19,5% sounds appropriate, as the company has not declared any information regarding whether they want to raise or bring NIBD down in the future.

6.5 CAPEX Figure 52 – Net investments Net investments 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Total non-current assets, primo 7 137 202 8 012 284 8 241 488 8 615 469 8 844 258 9 006 650 9 131 054 9 214 809 Depreciation & amortisation 344 528 354 384 370 465 380 303 387 286 392 635 396 237 408 124 Total non-current assets, ultimo 8 012 284 8 241 488 8 615 469 8 844 258 9 006 650 9 131 054 9 214 809 9 491 254 CAPEX -1 219 611 -583 588 -744 445 -609 092 -549 678 -517 040 -479 992 -684 568 Source: Own creation

The net investment (CAPEX) is calculated using Plenborg’s approach in “Financial Statement Analysis”104 as the difference between non-current assets ultimo (Incl. depreciation & amortization) and non-current assets primo. The average analytical CAPEX in the forecast period is NOK -849m in the short-term, and NOK 539m in the medium-term, compared to NOK -977m between 2006 and 2013. This indicates a lower CAPEX than the historical level. This is coherent with the analysis that shows that the industry is maturing, with fewer investment/M&A opportunities in the future.

104 Plenborg and Petersen, Financial Statement Analysis, 2012, p.180

6.6 Forecast summary Figure 53 – Forecast summary

Source: Own creation / LSG Annual reports 2005-2013 The results of the forecast assumptions is summarized in figure 53, which includes the development in revenues, invested capital, ROIC vs average ROIC (Before tax) and analytical CAPEX as % of revenues. I find this to be a fairly conservative base case on what the normalized levels of ROIC and revenue trend would look like towards and when reaching steady state. The forecasts have all been made by avoiding to look at the differences it makes in share price, in order to be biases of influenced. LSG is expected to reach steady state in 2021, when I expect abnormal growth possibilities to be limited and the rest of the industry has matured. As observed, the ROIC is gradually falling in the forecast period as the industry is becoming more mature, while CAPEX is declining over time.

7.0 Valuation This section will include the valuation of LSG using different methods. LSG will be valued using the DCF- and EVA model, in addition to market based multiples. The results will be summarized in a chart where an appropriate interval for the value per share will be estimated. The following questions will also be answered:

- What is the proper discount rate for an equity investor in LSG? - How sensitive is the estimated share price to changes in key drivers? - What is the estimated equity value of LSG based on present value models (DCF & EVA) and market based multiples?

7.1 Weighted average cost of Capital (WACC) Defining the cost of capital is a central concept in financial analysis. A successful company must take calculated risks in order to achieve its goals. Because of this, the company’s stakeholders want to be compensated for the risk they are taking. This section will therefore take on the challenging task of estimating the appropriate cost of capital for equity investors. In order to value the equity of LSG, I must first calculate the discount rate known as the weighted average cost of capital (WACC). This figure is used to discount free cash flow to the firm in the DCF model and the EVA in the EVA model. A company finances its operating assets through either debt or equity. The WACC is the average cost of this financing and is calculated using the following formula105:

WACC = NIBD / (NIBD + E) * rd * (1 – T) + E / (NIBD + E) * re

NIBD is the market value of net interest-bearing debt, E is the market value of equity (market cap), rd is the required rate of return on NIBD and re is the required rate of return on equity, and lastly, T is the corporate tax rate. This section will focus on the estimation of proportion of debt and equity (capital structure), the required rate of return on equity and required return on debt. The components will be discussed separately below.

7.1.1 Capital structure E/(NIBD+E) = 75% & NIBD/(NIBD+E) = 25% The current capital structure can be calculated using the market value of equity and net interest bearing debt. LSG strives to have an equity ratio of at least 30% (LSG annual report 2013, p.26). It makes sense to have a high degree of equity in order to avoid situations with low liquidity, which may happen due to the industry cyclicality. LSG with its all-time high share price currently has a NIBD to NIBD+E ratio of ~0,17. Due to the current high market capitalization, a higher figure could be justified. Another way to calculate the target capital structure under the perfect-market assumption is that LSG’s capital structure will converge towards the industry average. The current industry equity ratio is ~75%. However, the peer group has historically had higher debt levels than

105 Plenborg and Petersen, Financial Statement Analysis, 2012, p.246

LSG. I estimate the target capital structure to 25% NIBD/(NIBD+E) and 75% E/(NIBD+E), which is assumed constant in the future. This is a fair estimate based on: it is close to the current industry capital structure, higher than LSG current debt ratio as market capitalization is record-high, and, lastly it is close to LSG’s average debt ratio over the analyze period (~23%). Analyzing the industry’s historical equity ratio could also be beneficial; but I deem these factors sufficient to justify E/(NIBD+E)=75% (Calculations: appendix 9).

7.1.2 Corporate tax rate T = 28% The calculated free cash flow used in the valuation models are on an after tax basis, which means the WACC also have to be on an after tax basis. A corporate tax rate of 28% has been used, as this is the uniform Norwegian corporate tax rate. This is close to the average efficient tax (25%) of Lerøy during the analysis period.

7.1.3 Risk free interest rate rd = 4,41% The risk free interest is the rate of return an investor can except by acquiring zero risk. Therefore, the interest rate on government default-free bonds will be used as the risk free interest rate. Treasury bonds are issued at a lot of different maturities, ranging from one month to 30 years. Ideally, each cash flow should be discounted at government bond with the same maturity. The most common proxy is to use a government bond with a 10 year yield (Koller et al., Valuation, 2010, p.241), which is what will be used in this thesis. I have chosen to take the average annual yield of the last 15 year period for 10 year Norwegian government bond as a proxy for the risk free interest rate (1999-2013). This figure turns out to be 4,41%106.

7.1.4 Required rate of return on equity re = 10,47% The required rate of return on equity is a component needed in order to calculate the WACC. The Capital Asset Pricing Model (CAPM) made famous by W.Sharpe et al. is suggested by most financial textbooks when calculated the required returns of investors107. The model is based on several assumptions that are not listed here, as I deem it outside the scope of this thesis. The owners required rate of return is defined by CAPM as:

re = rf + Betae * (rm – rf) + Liquidity premium + Company risk premium

re = Investor’ required rate of return, rf = risk free interest rate, Betae = systematic risk on equity (levered beta) and rm = return on market portfolio (Plenborg & Petersen, p. 249).

The cost of equity without company risk premium is 8,47%, which I find to be low. Because of the capital intensive and cyclical industry with its high dependency on the future supply and demand relationship, in addition to biological- and environmental risks associated to salmon farming industry, I believe adding a 2% risk

106 norges-bank.no/no/prisstabilitet/rentestatistikk/statsobligasjoner-rente-arsgjennomsnitt-av-daglige-noteringer/ 107 Brealey, Myers, Allen, Principles of Corporate Finance, 10 edition, McGraw-Hill Irwin, 2011, p.220

premium due to company-specific factors is warranted. I believe there is no need for adding a liquidity risk premium, as the shares is liquid enough for minority investors. The required return on equity will therefore be:

re = 4,41% + 0,812* (5%) + 0 + 2% = 10,47%

7.1.5 Market risk premium (rm – rf) = 5% The market risk premium is the difference between the expected return of the market and the risk free interest rate above, a heavily debated topic. Koller et al. suggest investors who measures risk premium using historical data to; calculate the premium relative to long-term government bonds, use the longest period possible and use and arithmetic average of longer-dated intervals (T.Koller et al., Valuation 2010, p.242-243). This thesis will however use the Norwegian market risk premium calculated by Aswath Damodaran. He is a professor in Finance at the Stern School of Business and author of several books on valuation, and often referred to in the subject of finance. He estimates the equity risk premium in Norway to be 5%108, which is the figure I will use for valuation.

7.1.6 Beta Beta = 0,812 According to the CAPM, the expected return of a stock is driven by the degree of how much the stock and the entire market move together. This is defined as the beta which is the co-variance between the return of the stock and the return of the market portfolio. The beta can be estimated by performing a regression on the return of the stock price and the market index (T.Koller et.al., Valuation 2010, p.249). The market has a beta of 1, while a default free bond has a beta of 0. Equity investments with a beta above 1 have a greater systematic risk than the market portfolio, while equity investments with betas lower than 1 has a lower systematic risk than the market portfolio. The most common regression used to estimate the raw beta is:

Ri = alpha + beta Rm + e Ri is the stock’s return (Not price) while Rm is the market’s return.

The slope if this line is defined as the beta (T.Koller et al., Valuation, 2010, p.249-250). According to Koller et al., the raw regression should include at least 60 data points (five years of monthly returns), you should use monthly returns as more frequent data often leads to systematic biases, and lastly, the stock return should be regressed against a value-weighted well-diversified market portfolio. When you have the raw regression which is only an estimate of the company’s true beta, you should improve the results by finding the unlevered industry beta and relevering it to a company’s target capital structure. The closest industry beta I could find was the unlevered beta of the “Food processing” industry, calculated 05/01/2014 by Aswath Damodaran using 156 companies109. This might be a good indication of LSG’s beta, but I have chosen to calculate the beta using its

108 http://pages.stern.nyu.edu/~adamodar/ 109 http://pages.stern.nyu.edu/~adamodar/

stock price against the OBX-index (Represents the 25 most liquid stocks on the Oslo Stock Exchange). I have used Bloomberg to calculate the raw beta; the results are found in appendix 10. I have used monthly data in the period between 05/27/08 to the valuation 05/27/14, representing a number of 71 points. The raw beta calculated is 0,718. I have also followed the Bloomberg practice of adjusting the beta using the formula below. Bloomberg defines the adjusted beta as an “estimate of a security’s future beta”, on the basis of modifying the raw data with the assumption that a security’s beta moves toward the market average over time (Bloomberg Terminal, Help, Using Beta, 2014). Calculation:

Betae = 1/3 + 2/3 Raw Beta  Betae = 1/3 + 2/3 * 0,718 = 0,812

7.1.7 Cost of debt rd = 5,18% Figure 54 - Net borrowing cost Lerøy 2006 2007 2008 2009 2010 2011 2012 2013 Avg. Net borrowing cost (NBC) -4,4% -4,4% -7,8% -4,8% -4,9% -5,7% -4,9% -4,6% -5,18% Source: Own creation / LSG Annual reports

There are several methods of finding reasonable estimates for cost of debt. The most ideal would be if the company listed its effective interest rates on its debts, which LSG currently doesn’t do. LSG also doesn’t list the different types of debts with the corresponding amount and interest rates, which eliminates calculating a weighted average of its cost of debts. We can however find net borrowing cost (NBC) by dividing the net financial expenses on net interest bearing debt, and use it as a proxy for the efficient interest rate. The average (NBC) over the 9 year period is 5,18%. This will serve as proxy for the before-tax cost of debt. Ultimately, one can also estimate the cost of debt by adding the risk free rate and a credit spread (risk premium on debt). The credit spread is calculated in appendix 27 by following Plenborg et al.’s book. The analysis implies a credit rating of BBB which results in a credit spread between 1,3% and 4,7% (Plenborg et al., 2012, p.265+291). Analysis indicates the credit spread to be in the low end, so 2,5% seems appropriate. The 10 year government bond is 2,72% as of the valuation date. This indicates a cost of debt of 5,22%. This is very close to the average NBC of 5,18%; which is the one used for calculating the WACC.

7.2 Summary - WACC calculation Now that all the components are in place, we are ready to calculate the proper discount rate. As mention earlier, I have assumed the target capital structure to be constant during the forecast period.

WACC = NIBD / (NIBD + E) * rd * (1 – T) + E / (NIBD + E) * re

WACC = 0,25 * 5,18% * (1 – 0,28) + 0,75 * 10,47% = 8,78%

The proper discount rate for investors in LSG is 8,78%, which is estimated using WACC.

7.3 Present value models

7.3.1 Discounted cash flow model Figure 55 – Discounted cash flow model Explicit forecast period Terminal period Discounted cash flow model (DCF) 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E FCFF -1 055 456 1 052 981 897 649 1 139 136 1 238 582 1 279 197 1 313 951 1 072 743 Discount factor 0,96 0,88 0,81 0,74 0,68 0,63 0,58 PV of FCFF -1 011 945 928 049 727 260 848 384 847 959 805 047 760 145 Sum PV of FCFF forecast forecast horizon 3 904 898 Terminal period 18 545 445 PV FCFF in terminal period 10 728 876 Estimated Enterprise Value (01.01.2014) 14 633 774 Adjusted Enterprise Value (27.05.2014) 15 135 019 NIBD'13 2 201 238 Minority interests (Book Value) 793 747 Estimated equity value 12 140 034 Shares outstanding 54 577 Estimated share price 222

Current share price (27.05.2014) 199 Terminal value % of EV 73 % Source: Own creation / Bloomberg

The DCF model above relies on the future FCFF calculated using the formula in the method section. Appendix 18 includes the calculated future FCFF using the forecast. The sum of the present value of all future FCFF and the terminal value, result in the estimated enterprise value primo 2014. From here, the enterprise value is adjusted to the valuation date of 27.05.2014 by multiplying the primo EV with (1 + WACC)^(146/365). The adjusted EV is then subtracted the market value of NIBD and minority interest. Minority interests are valued at book value. Ideally, if the minority’s share of the annual profit had been fairly consistent, one can calculate the market value of minority interests as the percentage share of enterprise value equal to its historical share of net income. However, I find it appropriate to use the book value as a proxy for the market value, as minority interest’s share of the annual profits has been widely inconsistent the last 5 year period110. By discounting all the FCFF calculated from the forecast-assumptions, I derive an estimated equity value representing NOK 222 per share. The current share price is trading at NOK 199 (27/05/2014).

7.3.2 Economic Value Added model I have also included a valuation using the Economic value added (EVA) model in appendix 21. The purpose for this is to measure when LSG is generating cash in excess of equity- and debt holders requirement, in addition to check for calculation errors in the DCF model. Appendix 21 shows that the EVA and DCF give the same result.

110Minority’s share of net income: 8,1% (2013), 2,2% (2012) and -1,1% (2011) (see appendix 20)

7.4 Sensitivity analysis Figure 56 – Sensitivity analysis Change in Terminal % change in cost % change in Share price Share price Share price Share price sales price growth of materials WACC -2 NOK/kg 197 2,0 % 213 +2% 181 -2 % 149 -1 NOK/kg 204 2,5 % 217 +1% 202 -1 % 180 0 222 3 % 222 0 % 222 0 % 222 +1 NOK/kg 236 3,5 % 228 -1 % 243 1 % 282 +2 NOK/kg 276 4,0 % 236 -2 % 263 2 % 373 Source: Own creation

The table above includes a sensitivity analysis on some of LSG’s parameters. It is conducted by changing individual parameters in the terminal period, while holding the rest constant. One quickly observes how extremely sensitive LSG share price is to parameters such as WACC, which is one of the disadvantages of using the DCF model (Significant part of the value is in the terminal period). Changes in the assumptions regarding LSG’s “Cost of materials” also contribute to large fluctuations in the estimated share price. This makes sense as it is LSG’s dominant cost. This analysis illustrates how sensitive the valuation is to changes in key drivers.

7.5 Worst- & best case scenarios The sensitivity analysis made it clear how sensitive the stock price is to changes in the key value drivers, which again emphasizes the importance of conservative assumptions. The worst- & best case scenarios will include changes to several parameters at the same time. The two scenarios are based on worst- and best possible market development, which illustrates how the estimated value per share changes if these outcomes where to happen.

Figure 57 – Qualitative scenario analysis Scenario analysis Worst-case scenario Best-case scenario

-High supply due to successful Chilean recovery -Slow supply-growth due to unsuccessful Chilean recovery -Reduced demand due to substitute products, trade -Strong global demand due to GDP growth, population growth Sales price restrictions, including slow GDP growth globally and and increased health awareness in immature markets -Innovative product increase demand and provides attractive -Disappointing premium on innovative product due to premiums higher competition -Export problems resolved with China/Russia Harvest -No organic growth -Attractive M&A opportunities -Very few attractive M&A opportunities -LSG is able to receive newly issued licenses from government volumes -Struck by diseases and unfavorable seawater -Manages to improve capacity on licenses temperatures -Significant increase in fish feed, due to pressure on -Raw materials for fish feed remains stable Cost drivers raw materials -Unlocks economics of scale benefits -Suboptimal seawater temperatures -Technological advances increase feed efficiency -Influenced by diseases and sea lice -Optimal seawater temperatures and no cases of diseases Source: Own creation

The worst- and best scenarios which are defined qualitatively above are hereby quantified underneath.

Figure 58 – Best case scenario Best case scenario 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Spot price 40 38 36 36 36 36 35 35 VAP premium 80 % 80 % 80 % 95 % 95 % 95 % 100 % 100 % Growth in harvest volumes 13 % 8 % 7 % 6 % 5 % 4 % 3 % 3 % Cost of materials 65,4 % 65,4 % 65,4 % 65,4 % 65,4 % 65,4 % 65,4 % 65,4 % Share price 305 Source: Own creation

The scenario above provides realistic estimates for LSG’s parameters if the information in the best-case scenario were to happen. This scenario provides a 54% upside to the current share price and 37% from my estimates.

Figure 59 – Worst case scenario Worst case scenario 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Spot price 40 35 33 30 28 28 28 28 VAP premium 70 % 75 % 80 % 80 % 80 % 80 % 80 % 80 % Growth in harvest volumes 12,8 % 5,0 % 4,0 % 3,0 % 3,0 % 3,0 % 3,0 % 3,0 % Cost of materials 70,0 % 70,0 % 70,0 % 70,0 % 70,0 % 70,0 % 70,0 % 70,0 % Share price 117 Source: Own creation

The worst-case scenario provides a 41% downside to the current share price and 48% from the estimated share price. As you can see, changing multiple value drivers at once causes significant movements in the estimated share price. These scenarios can be very helpful in estimating different outcomes. However, it is important to remember that a company would most likely adjust its operation to different market conditions as they develop, by either capitalizing on opportunities or reducing downsides. But these scenarios are a good illustration of how external factors may influence LSG’s operations.

7.6 Relative valuation - multiples Figure 60 – Relative valuation – Multiples 27-05-2014 Share Market Enterprise EV/Sales EV/EBITDA P/B EV/Kg NOK'million price cap. value 2013 2014 2013 2014 2013 2013 Marine Harvest 68,9 28.275 35.790 1,9x 1,4x 9,1x 6,1x 1,7x 104,1x SalMar 93 10.537 12.611 2,0x 1,8x 8,5x 6,1x 2,1x 98,5x Grieg Seafood 24,8 2.769 4.233 1,8x 1,5x 8,8x 5,6x 1,4x 72,9x Average 1,9x 1,6x 8,8x 5,9x 1,7x 91,8x

LSG Figures/Forecast Sales 10.819 12.138 EBITDA 2.131 2.270 BV of Equity'13 7.549 Harvest volumes'13 158.200 LSG Enterprise Value 20.352 18.911 18.754 13.478 16.099 14.529 LSG NIBD, Minority Interest 2.995 2.995 2.995 2.995 2.995 2.995 LSG Market value of equity value 17.357 15.916 15.759 10.483 13.104 11.534 LSG estimated share price 318 292 289 192 240 211 Premium/Discount to current markedprice 60% 47% 45% -3% 21% 6% Source: Own creation / Bloomberg

The relative valuation will include a multiple analysis using the peers SalMar, Marine Harvest and Grieg Seafood. To ensure consistency, all the data collection has been done from Bloomberg. I have used consensus figures gathered from Bloomberg to calculate the 2014 multiples. LSG’s EV and market cap is estimated by multiplying the average peer group multiple with the appropriate LSG figure/forecast. Ideally, I would try to find more than 3 comparable firms; however, this small group will serve as a decent indicator of what multiples LSG’s closest peers are currently trading on.

LSG is currently trading at a discount to EV/EBITDA 2013, EV/Sales P/B and EV/KG compared to its peers. The multiples indicate that LSG share price should be in the range NOK 192 – NOK 318, with an average of NOK 257. This is not far from the estimated share price of NOK 222 using the present value method. The EV/Sales multiples indicate a significant higher estimated LSG share price, which is largely due to LSG’s lower- EBIT activities such as VAP and buy/sell of seafood. As EV/Sales requires similar operating margins and is less relevant when there are volatile earnings111, emphasis is put on the other multiples. Still without using EV/Sales, the market based multiples show an upside to the current price. I believe this discount is unjustified, as LSG delivers solid return and is financially better positioned than its peers. Even though the table display some promising figures, it is not enough to conclude that LSG is undervalued; the whole sector could be overvalued. This may be the situation as all of its peers, including LSG, are currently trading at all-time-high levels.

7.7 Summary valuation Figure 61 – Summary valuation

Source: Own creation / Bloomberg

111 T.Koller, M.Goedhart, D. Wessels, Valuation, 2010, p. 327

The estimated share price using the different valuations methods, are all summaries in the figure above. I estimated LSG’s stock price to be NOK 222 by applying the DCF and EVA model. This is slightly above the current price of NOK 199. This shows little upside to the stock price, which is already at all-time high levels due to the current high salmon price and promising future environment. Market based multiples indicate a fair value of LSG between NOK 192 and NOK 318 per share, with an average of NOK 257 per share (NOK 233 excluding EV/Sales).Based on the base-, worst- and best case scenario, combined with the multiple analysis; the fair value of one stand-alone share is indicated to be around NOK 210-230 per share.

8.0 Discussion Even though the stock price is at all-time high, I still consider an investment in LSG to be attractive. Nordea’s target price of LSG is NOK 250, while Pareto Securities’ is NOK 238, DnB’s is NOK 210, Swedbank’s is NOK 230 and Artic Securities’ is NOK 190112. Most investment banks estimate an upside to the current share price. The valuation using DCF & EVA estimate a stand-alone price per share of NOK 222, indicating ~12% upside to the current share price. There are however several downsides to this model. It’s highly sensitive to changes in parameters such as WACC, revenue growth and cost, which implies that the user must be fairly conservative. Also, a significant part of the estimated value lies in the terminal period, which also largely fluctuates to parameter-changes.

The summarization of the present value approach in addition to the multiple- and the two scenario analysis, support a fair price between NOK 210 and NOK 230 per share. I find combining several valuation methods to create an interval to be an excellent method of defining a value-range for a company. It is extremely hard in practice to signify one specific market value to a constantly changing company and market environment. However, I believe one does not need to pinpoint a specific value of a company, in order to make a good investment decision. This point of view is reflected in Warren Buffet quote regarding pinpointing a specific value to a company: “If somebody walks in this door and they weight between 300 and 350 pounds, I don’t need to say they weight 327 to say that they’re fat”113. Therefore, for investment decision purposes; if a stock is trading at 100, and you estimate its fair value to be between 150 and 180, you can safely say that the stock is trading at a discount to its underlying value. The LSG’s stock price seems to be trading close to fair value.

112 Arctic Securities Lerøy Seafood Group ASA, 25.02.2014, DnB Markets Seafood Weekly, 20.02.2014, Nordea Seafood sector update, 01.04.2014, Pareto Securities Seafood weekly, 03.04.2014, Swedbank, Lerøy Seafood, 28.02.2014 113 http://www.businessweek.com/articles/2012-11-29/charlie-rose-talks-to-warren-buffett

9.0 Conclusion The objective of this thesis is to estimate the stand-alone value of one share of LSG per 27/05/2014 and compare it to the current market price of the shares trading at the Oslo Stock Exchange. The strategic- and financial analysis served as the foundation for the forecast and hence the valuation process. The share price has been estimated by applying the present value models; DCF and EVA, combined with market based multiples. The results from the DCF- and EVA models were further stress-tested and evaluated using sensitivity- and scenario analysis.

The industry analysis established that the two dominant supplying countries of Atlantic salmon are Norway and Chile, which are responsible for ~80% of the total global supply. The salmon farming industry is influenced by a long production cycle and a product with a short shelf time, which cause volatile salmon spot prices that largely affect players’ year-to-year profitability.

The previous year was influenced by strong demand and slowing supply growth of Atlantic salmon, leading to record salmon prices and high profitability amongst salmon farmers. Future market outlook indicates a strong demand for Atlantic salmon, due to growth in immature markets, the global shift towards healthy food, growing global population and that salmon has become a relatively more affordable product.

LSG’s most significant value drivers are harvest volumes, salmon price, VAP-premium and cost of materials. The salmon price is driven by the supply and demand relationship, while the VAP-premium is driven by innovation and product development. Harvest volumes are mostly driven by inorganic growth such as acquisitions, as most salmon producers have reached their maximum capacity. There is limited potential for organic growth in the Norwegian salmon industry, unless government raises the maximum allowed biomass per license. LSG has a flexible financial position with low liquidity risk; which make it well positioned to participate in future industry consolidation. Cost of materials are largely driven by the price of fish feed, while cost is also incurred due to factors such as diseases, escapes and sea lice.

The two present value models estimate a stand-alone price of NOK 222 per share, implying a ~12% upside from the share trading at NOK 199 as of 27/05/2014. The estimated price is further supported by a multiple analysis, which also indicates an upside to the current price. The present value models is further stress-tested with a sensitivity analysis and two different scenarios, which illustrate the large affect small changes to the parameters has on the valuation. Even though the company is not trading at a significant margin of safety to its current price, I believe it will provide reasonable returns for a long-term investor, as LSG is a well-established player in an industry with excellent long-term prospects.

10.0 Thesis in perspective Figure 62 – Price/Book and Price/Earnings (TTM) vs LSG’s share price (01/2001 – 04/2014)

Source: Own creation / Bloomberg Terminal

I will end this thesis by talking about investing in cyclical companies, inspired by the famous portfolio manager Peter Lynch. A low P/E is regarded as a good thing, however, Peter Lynch argues against this when it comes to investing in cyclical companies. When the P/E-ratio of a cyclical company is low, it’s often a sign of the end of a prosperous period. Unaware investor are holding onto their stock as business is still good and there are still hopes of continued increase in earnings, all the while smart investor are taking profits by selling the stock. As smart investors are selling, the share price drops, which also make the P/E drop to what seems like an attractive valuation. He states that buying a cyclical company after several years of record earnings when the P/E hits a low point is a proven way to lose half your money in a short time114.

Interestingly enough, LSG is currently trading at a low P/E (TTM) multiple, which has also happened historically before large declines in the share price. This might be a warning to investors looking at LSG. On the other hand, buying LSG at low P/B multiples (Around 1) seems to have been a smart decision historically. LSG is currently trading at the P/B multiple of ~1,4, which may indicate that it’s time to wait for a larger margin of safety before buying.

114 Peter Lynch, Beating the street, 1994, p.233-234

11.0 Reference

Books Aswath Damodaran, Investment valuation – Tools and Techniques for Determining the Value of Any Asset, 2 edition, Wiley Finance, 2002

Brealey, Myers, Allen, Principles of Corporate Finance, 10 edition, McGraw-Hill Irwin, 2011

Ole Sørensen, Regnskabsanalyse og værdiansættelse – en praktisk tilgang, 3 edition, 2009

Peter Lynch, Beating the street, Simon & Schuster Paperbacks, 1994

Petersen & Plenborg, Financial Statement Analysis, Pearson Education Limited, 2012

Stewart Clegg, Chris Carter, Martin Kornberger, Jochen Schweitzer, Strategy – Theory & Practice, SAGE Publications Ltd, 2011

Tim Koller, Marc Goedhart, David Wessels, Valuation – Measuring and Managing the Value of Companies, 5 edition, , John Wiley & Sons, 2010

Annual report, quarterly reports, prospectus Lerøy Seafood Group 2005-2013

Marine Harvest Group 2005-2013

SalMar 2007 – 2013 (Including SalMar Prospectus 2007)

Grieg Seafood 2007 – 2013 (Including Grieg Seafood Prospectus 2007)

EWOS Prospectus 2014

Seafood trade publications Salmon World 2013, Kontali Analyse, 2013 (+ 2012 & 2010)

Marine Harvest Salmon Farming Industry Handbook 2013, Marine Harvest (MH Industry Handbook 2013)

Et kunnskapsbasert fiskeri og havbruksnæring – Juni 2011 – Ragnar Tveterå & Frank Asche

Utviklingstrender i norsk sjømatkonsum, Seafood.no, Tromsø, Mars 2013

Investment banks Arctic Securities – Lerøy Seafood Group – 25 February 2014 – Thomas Lorck & Stian Malterudbakken

DnB Markets – Seafood Weekly – 20 February 2014 – Alexander Aukner & Eivind Sars Veddeng

DnB Markets – Seafood Equity Research – 22 October 2013 – Knut-Ivar Bakken

Nordea – Seafood sector update – 1 April 2014 – Kolbjørn Giskeødegård & Line Tønnessen

Pareto Securities – LSG Quarterly review – 25 February 2014 – Henning Lund & Fredrik Steinslien

Pareto Securities – Seafood Quarterly Preview – 13 January 2014 – Henning Lund & Fredrik Steinslien

Pareto Securities – Seafood Quarterly Preview – 10 April 2014 – Henning Lund & Fredrik Steinslien

Pareto Securities – Seafood Update Weekly – 3 April 2014 – Henning Lund & Fredrik Steinslien

Swedbank – Lerøy Seafood – 28 Februar 2014 – Henning C. Steffensrud

Articles & Internet Financial times, “Slow supply growth raises “peak salmon” fears”, Emiko Terazono, 17.02.2014 www.ft.com/intl/cms/s/0/6235dd24-9573-11e3-8371-00144feab7de.html#axzz2yw4oYGF5

Norwegian Seafood Counsil, “Value of Norwegian salmon exports at record levels” – 06.01.2014 http://en.seafood.no/News-and-media/News-archive/Press-releases/Value-of-Norwegian-salmon-exports-at- record-levels

Aftenposten, “Rekordår for norsk laks” – 06.01.2014 – Ingvild Bruaset, Øystein Kløvstad Langberg http://www.aftenposten.no/okonomi/Rekordar-for-norsk-laks-7424954.html#.U0-dIvl_uSo

Dagens næringsliv, “Russisk Kartell stanset norsk laks” – 09.01.2014 https://www.dn.no/nyheter/naringsliv/2014/01/09/russisk-kartell-stanset-norsk-laks

UPI, “Norway says working to end Russian boycott on fish export” – 08.01.2014 http://www.upi.com/Business_News/Energy-Resources/2014/01/08/Norway-says-working-to-end-Russian- boycott-on-fish-exports/UPI-83961389157380/

E24, “Rapport: Russisk kartell stanset norsk laks” – 10.01.2014 http://e24.no/naeringsliv/rapport-russisk-kartell-stanset-norsk-laks/22710831

Financial times, “Norway sees Liu Xiaobo’s Nobel Prize Hurt salmon exports to China” – 15 August 2013 http://www.ft.com/intl/cms/s/ab456776-05b0-11e3-8ed5- 00144feab7de,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fab456 776-05b0-11e3-8ed5-00144feab7de.html%3Fsiteedition%3Dintl&siteedition=intl&_i_referer=#axzz2zbU4Y06r

Undercurrentnews, Upping Norway’s salmon production: What do the players say?, 07/03/2014, Neil Ramsden http://www.undercurrentnews.com/2014/03/07/upping-norways-salmon-production-what-do-the-players-say/

Npr.org, 'Peak Salmon' May Be Unlikely, But Threats To Farmed Salmon Loom, Eliza Barclay, 28/02/2014 http://www.npr.org/blogs/thesalt/2014/02/28/283946905/peak-salmon-may-be-unlikely-but-threats-to-farmed- salmon-loom

Upi.com, Norway says working to end Russian boycott on fish exports, 08/01/2014 http://www.upi.com/Business_News/Energy-Resources/2014/01/08/Norway-says-working-to-end-Russian- boycott-on-fish-exports/UPI-83961389157380/

E24.no, Rapport: Russisk kartell stanset norsk laks, 10/01/2014

http://e24.no/naeringsliv/rapport-russisk-kartell-stanset-norsk-laks/22710831

Businessweek.com, Charlie Rose talks to Warren Buffett, 29/11/2012 http://www.businessweek.com/articles/2012-11-29/charlie-rose-talks-to-warren-buffett

Internet http://en.seafood.no/News-and-media/News-archive/Press-releases/Value-of-Norwegian-salmon-exports-at- record-levels http://www.fiskeridir.no/english/statistics/norwegian-aquaculture/aquaculture-statistics/atlantic-salmon-and- rainbow-trout http://www.fao.org/fishery/countrysector/naso_norway/en#tcN7017 http://miljorapport.leroy.no/en/environment/lice/ http://www.fda.gov/Food/FoodborneIllnessContaminants/BuyStoreServeSafeFood/ucm077331.htm http://www.salmonfromnorway.com/Articles/Origin/Environmental-Impact

http://www.imf.org/external/pubs/ft/weo/2014/01/weodata/index.aspx http://fishpool.eu/uploads/docs/Summary_of_Fish_Pool_index_settlement_prices.pdf https://www.leroyseafood.com/en/Business/About-us/News/2014/Sjomathuset/ http://www.norges-bank.no/no/prisstabilitet/rentestatistikk/statsobligasjoner-rente-daglige-noteringer/

Oslo Børs Oslobors.no

United Nations www.un.org

International Monetary Fund www.imf.org

Norges Bank Norges-bank.no

OECD http://www.oecd.org/berlin/50405107.pdf

Lerøy Seafood Group ww.leroyseafood.com

SalMar http://salmar.no

Marine Harvest http://marineharvest.com/

Grieg Seafood http://www.griegseafood.no/

Directorate of fisheries http://www.fiskeridir.no/

Norwegian Seafood Counsil http://www.salmonfromnorway.com/

U.S. Food and Drug Administration http://www.fda.gov/Food/

Aswath Damodaran http://people.stern.nyu.edu/adamodar/

Bakkafrost http://bakkafrost.com/default.asp?menu=259

E24.no e24.no

Dagens næringsliv dn.no

Aftenposten aftenposten.no

Kontali http://www.kontali.no/

Fiskeri- og havbruksnæringens landsforening http://fhl.no/havbruk/

Food and Agriculture Organization of the United Nations (FAO) www.fao.org/home/en

Other: Marine Harvest capital markets Day New York, May 2013

Medium and long-term scenarios for global growth and imbalances, OECD Economic Outlook, Volume 2012/1

OECD: “What is the global economic outlook?” presentation by Angel Gurria and Rintaro Tamaki, 6 May 2014. - http://www.oecd.org/eco/outlook/economicoutlook.htm

Lerøy Seafood Group Q1’14 Presentation

Lerøy Seafood Group Q4’13 Presentation

Marine Harvest Group Q4’13 Presentation

Marine Harvest Group Capital Markets Day, May 2013

SalMar Q4’2013 Presentation

Financial tools and programs Bloomberg Terminal

Frontpage: Leroyseafood.no (Logo) Lerøy Seafood Group Annual report 2013, p.44 (Picture) Cbs.dk (Logo)

12.0 Appendix

Innhold Table of figures ...... 3 Appendix 1 – Wordlist & Definitions ...... 6 Appendix 2 – LSG’s organizational structure ...... 7 Appendix 3 – Expected annual GDP growth in Brazil, China & India ...... 7 Appendix 4 – Historic acquisitions and divestments in Norway ...... 8 Appendix 5 – Financial analysis Lerøy Seafood Group (LSG) ...... 9 5.1 LSG: Reformulated Income statement ...... 9 5.2 LSG: Reformulated Balance sheet ...... 10 5.3 LSG: Profitability ...... 11 5.4 LSG: Revenues, sales price and harvest volumes ...... 11 5.5 LSG: Common-size ...... 11 5.6 LSG: Index-analysis ...... 13 Appendix 6 – Financial analysis Marine Harvest Group (MHG) ...... 14 6.1 MHG: Reformulated Income statement ...... 14 6.2 MHG: Reformulated Balance sheet ...... 15 6.3 MHG: Profitability ...... 16 6.4 MHG: Revenues, sales price and harvest volumes ...... 16 6.5 MHG: Common-size ...... 17 6.6 MHG: Index-analysis ...... 18 Appendix 7 – Financial analysis SalMar (SALM) ...... 20 7.1 SALM: Reformulated Income statement ...... 20 7.2 SALM: Reformulated Balance sheet ...... 21 7.3 SALM: Profitability ...... 22 7.4 SALM: Revenues, sales price and harvest volumes ...... 22 7.5 SALM: Common-size ...... 23 7.6 SALM: Index-analysis ...... 24 Appendix 8 – Financial analysis Grieg Seafood (GSF) ...... 26 8.1 GSF: Reformulated Income statement ...... 26 8.2 GSF: Reformulated Balance sheet ...... 27

8.3 GSF: Profitability ...... 28 8.4 GSF: Revenues, sales price and harvest volumes ...... 28 8.5 GSF: Common-size ...... 29 8.6 GSF: Index-analysis ...... 30 Appendix 9 – Capital structure ...... 31 Appendix 10 – Calculation of beta ...... 31 Appendix 11 – Production costs in different regions ...... 31 Appendix 12 – Global supply of Atlantic salmon ...... 32 Appendix 13 – LSG: Forcast assumptions ...... 33 Appendix 14 – LSG: Forcast – Income statement ...... 35 Appendix 15 – LSG: Forcast – Balance sheet ...... 36 Appendix 16 – LSG: Changes in equity ...... 37 Appendix 17 – LSG: CAPEX calculations ...... 37 Appendix 18 – LSG: Cash flow statement ...... 37 Appendix 19 – LSG: Assessment of forecast assumptions ...... 37 Appendix 20 – Minority’s share of net income ...... 37 Appendix 21 – Economic Value Added- & Discounted Cash Flow model ...... 38 Appendix 22 – Development in fish feed input ...... 38 Appendix 23 – Fishpool, salmon spot price ...... 39 Appendix 24 – LSG: Historical analytical cash flow statement ...... 39 Appendix 25 – Financial ratios with formulas and DuPont structure...... 40 Appendix 26 – Financial leverage (Peer group) ...... 41 Appendix 27 – Credit rating ...... 41

Table of figures Figure 1: Salmon newspaper headlines in 2014

Figure 2: Porter’s Five Forces

Figure 3: Introduction of multiples

Figure 4: Thesis structure

Figure 5: The Seafood farming industry

Figure 6: Annual Global harvest quantity of Atlantic salmon & Overview of producing regions (HOG)

Figure 7: Global trade flows of farmed Atlantic salmon – 2012 (HOG – Head on gutted fish)

Figure 8: Sea water licenses for salmon and trout in Norway

Figure 9: Value Chain – Atlantic salmon production cycle

Figure 10: Inputs used in the production of salmon

Figure 11: Fish Pool Index (FPI) Salmon spot price (NOK/Kg) 2004-2013 + Average salmon spot price

Figure 12: Some of LSGs products and brand

Figure 13: Share- and salmon spot price development 31/12/2004 – 23/03/2014

Figure 14: LSG’s Value chain

Figure 15: Key decision makers in LSG

Figure 16: Management guidance

Figure 17: Ownership of LSG as of 31.12.2013

Figure 18: Organization structure

Figure 19: Geographical location of LSG operations

Figure 20: Overview of LSG’s salmon and trout farming

Figure 21: Performance of key figures

Figure 22: Peer group selection

Figure 23: Peer group overview

Figure 24: Structure – Strategic analysis

Figure 25: Main revenue drivers

Figure 26: Salmon spot price 01/2004 – 04/2014 & Average spot

Figure 27: Change in global supply vs Change in salmon price + Global salmon supply growth

Figure 28: Norwegian supply of Atlantic salmon

Figure 29: Chilean supply of Atlantic salmon

Figure 30: Percentage share of total Norwegian sale of salmon for the 10 largest Norwegian firms

Figure 31: Proxy for LSG global market share

Figure 32: Product innovation

Figure 33: Sales price per kg analysis

Figure 34: Structure - Cost drivers

Figure 35: Cost of fish feed input

Figure 36: PESTEL model

Figure 37: Relative price development in sources of protein

Figure 38: Top 5-10 players within farmed Atlantic salmon per region (Peer group shaded)

Figure 39: Lerøy Seafood Group quick overview (NOK ‘1000)

Figure 40: Dupont model

Figure 41: ROIC before tax comparison + LSG’s ROIC after tax vs WACC & avg. salmon price

Figure 42: Decomposition of ROIC

Figure 43: Common-size cost analysis

Figure 44: Development in invested capital and ROIC

Figure 45: Decomposition of Invested capital – Items as a percentage of Invested Capital

Figure 46: Return on Equity peer group

Figure 47: Liquidity risk

Figure 48: Harvest volumes forecast

Figure 49: Salmon spot price forecast

Figure 50: VAP Premium forecast

Figure 51: Forecast – Cost of materials

Figure 52: Net investments

Figure 53: Forecast summary

Figure 54: Net borrowing cost

Figure 55: Discounted cash flow model

Figure 56: Sensitivity analysis

Figure 57: Qualitative scenario analysis

Figure 58: Best case scenario

Figure 59: Worst case scenario

Figure 60: Relative valuation – Multiples

Figure 61: Summary valuation

Figure 62: Price/Book and Price/Earnings vs LSG’s share price (Trailing twelve month earnings)

Appendix 1 – Wordlist & Definitions Weight conversion ratios and key words

Source: Marine Harvest Industry Handbook 2013, p. 62

Primary processing: Whole fish HOG/GW Secondary processing: Any value added processing beyond HOG Biomass: The total weight of live fish, where number of fish is multiplied with an average weight Smolt: A smolt is produced over a 6-12 months period from the eggs are fertilized to a mature smolt with weight of 60-100 grams.

Source: Marine Harvest Industry Handbook 2013, p. 38+62

Kontali Analyse: Kontali Analyse AS is an independent world leading provider of analyses, mainly for aquaculture and fishing industry.

Source: http://www.kontali.no/?div_id=22&pag_id=24

Norway Salmon exports fresh price (NOK/KG) – Bloomberg (NOSMFSVL):

Bloomberg definition: Published every Wednesday by Statistics Norway, representing total weight in tonnes of salmon exported, or the price in Norwegian Kroner per kilo in the week preceding the date shown

Source: Bloomberg Terminal

Appendix 2 – LSG’s organizational structure Lerøy Seafood Group ASA

Farming* VAP* SALES & DISTRIBUTION

Lerøy Aurora AS Lerøy Fossen AS Hallvard Lerøy AS

Lerøy Midt AS Lerøy Smøgen Seafood AB Lerøy Sverige AB

Lerøy Vest AS Rode Beheer BV Group 50,1% SAS Hallvard Lerøy

Sjøtroll Havbruk AS 50,71% Bulandet Fikeindustri AS 68,8% Lerøy Portugal LDA 60%

Norskott Havbruk AS ** 50% Lerøy Sjømatgruppen

Villa Organic AS ** 49,4% Lerøy Finland OY

Lerøy Processing Spain * Production segment ** Associated companies Lerøy Schlie AS 50%

Alfarm Alarko Lerøy** 50%

Appendix 3 – Expected annual GDP growth in Brazil, China & India

Source: Own creation / IMF / http://www.imf.org/external/pubs/ft/weo/2014/01/weodata/index.aspx

Appendix 4 – Historic acquisitions and divestments in Norway Norway 1999 Hydro Seafoods - Sold from Norsk Hydro to Nutreco Aquaculture 2007 Arctic Seafood - Sold to Mainstream 2001 Gjølaks - Sold to PanFish 2007 Fiskekultur - Sold to Haugland Group 2001 Vest Laks - Sold to Austevoll Havfiske 2007 UFO Laks - Sold to Haugland Group 2001 Torris Products - Sold from Torris to Seafarm Invest 2007 Anton Misund - Sold to Rauma Gruppen 2001 Gjølanger Havbruk - Sold to Aqua Farms 2007 Mico Fiskeoppdrett - Sold to Rauma Gruppen 2001 Alf Lone - Sold to Sjøtroll 2008 Hamneidet - Sold to Eidsfjord Sjøfarm 2001 Sandvoll Havbruk - Sold to Nutreco Aquaculture 2008 Misundfisk - Sold to Lerøy Seafood Group 2001 Fosen Edelfisk - Sold to Salmar 2008 Henden Fiskeoppdrett - Sold to Salmar ASA 2001 Langsteinfisk - Sold to Salmar 2008 AS Tri - Sold to Norway Royal Salmon (NRS) 2001 Tveit Gård - Sold to Alsaker Fjordbruk 2008 Feøy Fiskeopprett - Sold to Norway Royal Salmon 2001 Petter Laks - Sold to Senja Sjøfarm 2008 Salmo Arctica - Sold to Norway Royal Salmon 2001 Kråkøyfisk - Sold to Salmar 2008 Åmøy Fiskeoppdrett - Sold to Norway Royal Salmon 2002 Amulaks - Sold to Follalaks 2008 Nor Seafood - Sold to Norway Royal Salmon 2002 Kvamsdal Fiskeoppdrett - Sold to Rong Laks 2008 Altafjord Laks - Sold to Norway Royal Salmon 2002 Matland Fisk - Sold to Bolaks 2008 Lerøy Seafood Group - Purchased by Austevoll Seafood 2002 Sanden Fiskeoppdrett - Sold to Aqua Farms 2009 Skjærgårdsfisk - Sold to Lingalaks 2002 Ørsnes Fiskeoppdrett - Sold to Aqua Farms 2009 Brilliant Fiskeoppdrett - Sold to Norway Royal Salmon 2002 Toftøysund Laks - Sold to Alsaker Fjordbruk 2009 Polarlaks II - Sold to Nova Sea 2003 Nye Midnor - Sold from Sparebank1 MidtNorge to Lerøy Seafood Group 2009 Fjordfarm - Sold to Blom Fiskeoppdrett 2003 Ishavslaks - Sold to Aurora to Volden Group 2009 Fyllingsnes Fisk - Sold to Eide Fjordbruk 2003 Loden Laks - Sold to Grieg Seafood 2009 Salaks merged with Rølaks 2003 Finnmark Seafood - Sold to Follalaks 2009 65 new licenses granted 2003 Ullsfjord Fisk - Sold to Nordlaks 2010 Espevær Fiskeoppdrett - Sold to Bremnes Fryseri 2003 Henningsværfisk - Sold to Nordlaks 2010 AL Nordsjø - Sold to Alsaker Fjordbruk 2004 Flatanger Akva - Sold to Salmar 2010 Nord Senja Fiskeindustri - Sold to Norway Royal Salmon 2004 Naustdal Fiskefarm/Bremanger Fiskefarm - Sold to Firda Sjøfarm 2010 Marøy Salmon - Sold to Blom Fiskeoppdrett 2004 Fjordfisk - Sold to Firda Sjøfarm 2010 Fjord Drift - Sold to Tombre Fiskeanlegg 2004 Snekvik Salmon - Sold to Lerøy Seafood Group 2010 Hennco Laks - Sold to Haugland Group 2004 Aure Havbruk / M. Ulfsnes - Sold from Sjøfor to Salmar 2010 Raumagruppen - Sold to Salmar 2005 Follalaks - Sold to Cermaq 2010 Stettefisk / Marius Eikremsvik - Sold to Salmar 2005 Aqua Farms - Sold to PanFish 2010 Lund Fiskeoppdrett - Sold to Vikna Sjøfarm (Salmonor) 2005 Aurora Salmon (Part of company) - Sold from DNB Nor to Lerøy Seafood Group 2011 R. Lernes - Sold to Måsøval Fiskeoppdrett 2005 Marine Harvest Bolga - Sold to Seafarm Invest 2011 Erfjord Stamfisk - Sold to Grieg Seafood 2005 Aurora Salmon (Part of company) - Sold from DNB Nor to Polarlaks 2011 Jøkelfjord Laks - Sold to Morpol 2005 Sjølaks - Sold from Marine Farms to Northern Lights Salmon 2011 Krifo Havbruk - Sold to Salmar 2005 Bolstad Fjordbruk - Sold to Haugland Group 2011 Straume Fiskeoppdrett - Sold to Marine Harvest Norway 2005 Skjervøyfisk - Sold to Nordlaks 2011 Bringsvor Laks - Sold to Salmar 2006 Fossen AS - Sold to Lerøy Seafood Group 2011 Nordfjord Havbruk - Changed name to Nordfjord Laks 2006 Marine Harvest N.V. - Acquired by Pan Fish ASA 2011 Villa Miljølaks - Sold to Salmar 2006 Fjord Seafood ASA. - Acquired by Pan Fish ASA 2011 Karma Havbruk - Sold to E. Karstensen Fiskeoppdrett (50 %) 2006 Marine Harvest Finnmark - Sold from Marine Harvest to Volden Group and Marø Havbruk (50 %) 2006 Troika Seafarms/North Salmon - Sold to Villa Gruppen 2012 Skottneslaks - Sold to Eidsfjord Laks 2006 Aakvik - Sold to Hydrotech 2012 Villa Arctic - 10 licenses, etc. sold to Salmar 2006 Hydrotech - Sold to Lerøy Seafood Group 2012 Salmon Brands - Sold to Bremnes Fryseri 2006 Senja Sjøfarm - Sold to Salmar ASA 2012 Pundslett Laks - Sold to Nordlaks Holding 2006 Halsa Fiskeoppdrett - Sold to Salmar ASA 2012 Strømsnes Akvakultur – Sold to Blom Fiskeoppdrett 2006 Langfjordlaks - Sold to Mainstream 2012 Ilsvåg Matfisk – Sold to Bremnes Seashore 2006 Polarlaks - Sold to Mainstream 2012 The granting of 45 new green licenses announced 2007 Veststar - Sold to Lerøy Seafood Group 2013 Morpol – 85% of shares sold to Marine Harvest 2007 Volden Group - Sold to Grieg Seafood 2013 Villa Organic – 39,7% of shares sold to Lerøy Seafood Group 2007 Artic Seafood Troms - Sold to Salmar ASA 2013 Villa Organic – 49,7% of shares sold to SalMar Source: Marine Harvest Group Salmon Industry Handbook 2013, p.63

Appendix 5 – Financial analysis Lerøy Seafood Group (LSG)

5.1 LSG: Reformulated Income statement REFORMULATED INCOME STATEMENT Core Operations (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues 4.014.454 5.616.592 6.290.898 6.057.053 7.473.807 8.887.671 9.176.873 9.102.941 10.764.714 Other revenue 0 0 0 0 0 0 0 0 53.805 Total revenues 4.014.454 5.616.592 6.290.898 6.057.053 7.473.807 8.887.671 9.176.873 9.102.941 10.818.519 Income from investments in associated companies 64.534 128.982 35.509 13.716 62.744 122.006 19.741 24.831 192.188 Total revenues incl. Income from associated companies 4.078.988 5.745.574 6.326.407 6.070.769 7.536.551 9.009.677 9.196.614 9.127.772 11.010.707 Cost of materials -3.254.686 -4.105.186 -4.698.675 -4.279.152 -5.177.492 -5.479.869 -6.184.793 -6.499.768 -7.039.813 Salaries and other personnel costs -245.819 -399.999 -579.004 -664.377 -690.477 -777.845 -967.789 -1.031.872 -1.094.464 Other operating costs -191.625 -342.943 -472.158 -579.295 -586.743 -691.791 -858.107 -853.884 -1.004.148 Change in inventories 0 0 0 0 135.068 -132.291 318.613 57.449 258.380 Total operating expenses -3.692.130 -4.848.128 -5.749.837 -5.522.824 -6.319.644 -7.081.796 -7.692.076 -8.328.075 -8.880.045 EBITDA 386.858 897.446 576.570 547.945 1.216.907 1.927.881 1.504.538 799.697 2.130.662 Depreciation & amortisation -48.214 -84.707 -153.846 -197.023 -204.007 -219.624 -271.899 -291.768 -307.175 EBIT 338.644 812.739 422.724 350.922 1.012.900 1.708.257 1.232.639 507.929 1.823.487 Tax on core operations -77.972 -194.987 -102.306 -79.136 -263.810 -449.795 -360.148 -137.616 -436.674 NOPAT 260.672 617.752 320.418 271.786 749.090 1.258.462 872.491 370.313 1.386.813

Non-Operating & Non-Recurring Items (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net financial expenses -17.090 -40.294 -69.736 -150.507 -86.105 -66.272 -81.884 -95.153 -101.840 Tax on net financial expenses (Tax shield) 3.935 9.667 16.877 33.941 22.426 17.450 23.925 25.780 24.388 Net financial expenses after tax -13.155 -30.627 -52.859 -116.566 -63.679 -48.822 -57.959 -69.373 -77.452 Biomass fair value adjustments 69.412 85.938 15.838 -36.369 60.483 298.538 -615.767 294.735 764.229 Impairment loss 0 0 0 0 0 0 0 -33.000 -5.500 Special items after tax 53.430 65.320 12.005 -28.167 44.730 219.931 -435.854 190.822 577.035 Net profit 300.947 652.445 279.564 127.052 730.141 1.429.571 378.677 491.762 1.886.395

Tax 2005 2006 2007 2008 2009 2010 2011 2012 2013 Reported tax 90.019 205.938 89.262 36.994 257.137 510.952 156.311 182.749 593.981 Profit before tax 390.966 858.383 368.826 164.046 987.278 1.940.523 534.988 674.511 2.480.376 Effective tax rate 23% 24% 24% 23% 26% 26% 29% 27% 24%

5.2 LSG: Reformulated Balance sheet REFORMULATED BALANCE SHEET Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Biological assets 528.123 1.052.319 1.494.133 1.676.164 1.858.562 2.706.733 2.370.938 2.724.941 3.727.361 Other inventories 95.337 189.326 265.008 223.158 236.311 290.379 328.045 326.225 358.482 Accounts receivable 594.752 752.676 690.800 772.440 876.127 1.013.932 934.443 995.289 1.486.428 Other current receivables 83.065 169.539 219.885 159.844 130.734 176.282 148.395 199.083 316.192 Total current assets 1.301.277 2.163.860 2.669.826 2.831.606 3.101.734 4.187.326 3.781.821 4.245.538 5.888.463 Accounts payable 373.030 468.529 508.294 544.757 615.996 638.213 705.165 826.677 1.059.434 Public duties payable 12.182 32.963 37.743 49.014 55.671 74.312 62.386 66.915 103.656 Taxes payable 19.206 153.513 76.154 16.631 93.551 395.233 322.105 88.925 320.344 Other short-term liabilities 118.913 190.310 158.242 206.081 240.228 323.976 285.410 230.400 305.074 Total current liabilities 523.331 845.315 780.433 816.483 1.005.446 1.431.734 1.375.066 1.212.917 1.788.508 Net Working Capital 777.946 1.318.545 1.889.393 2.015.123 2.096.288 2.755.592 2.406.755 3.032.621 4.099.955 Licences, rights 309.400 764.587 1.183.089 1.291.625 1.289.977 1.972.239 1.981.726 1.978.924 1.978.656 Buildings, real estate, operating accessories 284.832 695.062 1.149.128 1.294.818 1.225.399 1.586.334 1.836.384 2.094.539 2.377.012 Shares in associated companies 320.867 308.592 289.474 277.455 272.970 338.864 329.168 331.056 735.071 Long-term receivables 1.621 244 681 6.274 11.928 8.129 8.453 8.607 26.171 Deferred tax asset 0 0 0 0 4.461 3.697 6.546 21.545 11.807 Total non-current assets 916.720 1.768.485 2.622.372 2.870.172 2.804.735 3.909.263 4.162.277 4.434.671 5.128.717 Deferred tax 154.237 451.172 643.529 669.327 834.877 1.260.028 1.083.693 1.230.458 1.486.972 Non-interest bearing liabilities 154.237 451.172 643.529 669.327 834.877 1.260.028 1.083.693 1.230.458 1.486.972 Invested Capital excl. Goodwill 1.540.429 2.635.858 3.868.236 4.215.968 4.066.146 5.404.827 5.485.339 6.236.834 7.741.700 Goodwill 134.508 1.157.761 1.649.216 1.668.302 1.669.634 1.875.521 1.897.147 1.993.129 2.008.485 Invested Capital incl. Goodwill 1.674.937 3.793.619 5.517.452 5.884.270 5.735.780 7.280.348 7.382.486 8.229.963 9.750.185

Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total equity 1.275.946 2.340.719 3.778.843 3.764.343 4.300.256 5.994.274 5.797.766 5.963.956 7.548.947

Long-term interest-bearing debt 458.545 1.577.997 1.724.699 1.672.761 1.504.707 2.221.701 2.429.365 2.402.770 2.356.803 Other long-term debt 0 0 0 4.150 826 1.312 0 0 0 Pension liabilities 4.191 8.869 12.012 13.211 14.990 9.025 7.812 7.646 3.227 Short-term loans 131.082 382.003 566.594 841.921 646.105 434.121 760.977 911.887 682.574 Other long-term liabilities 0 0 0 0 0 0 7.168 44.788 36.700 Total interest bearing debt 593.818 1.968.869 2.303.305 2.532.043 2.166.628 2.666.159 3.205.322 3.367.091 3.079.304 Shares available for sale 2.615 5.737 26.423 23.161 23.115 22.989 23.173 18.281 5.553 Pension funds 245 360 535 469 0 0 0 0 0 Shares and securities 810 0 0 0 0 0 0 0 0 Cash and cash equivalents 191.157 509.872 537.738 388.486 707.989 1.357.096 1.597.429 1.082.797 872.513 Total interest-bearing assets 194.827 515.969 564.696 412.116 731.104 1.380.085 1.620.602 1.101.078 878.066 Net interest-bearing debt 398.991 1.452.900 1.738.609 2.119.927 1.435.524 1.286.074 1.584.720 2.266.013 2.201.238 Invested Capital 1.674.937 3.793.619 5.517.452 5.884.270 5.735.780 7.280.348 7.382.486 8.229.969 9.750.185

Average figures 2005 2006 2007 2008 2009 2010 2011 2012 2013 Average equity 1.808.333 3.059.781 3.771.593 4.032.300 5.147.265 5.896.020 5.880.861 6.756.452 Average net interest-bearing debt 925.946 1.595.755 1.929.268 1.777.726 1.360.799 1.435.397 1.925.367 2.233.626 Average Invested Capital 2.734.278 4.655.536 5.700.861 5.810.025 6.508.064 7.331.417 7.806.228 8.990.077

5.3 LSG: Profitability

5.4 LSG: Revenues, sales price and harvest volumes Lerøy Seafood Group 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total revenues 4 014 454 5 616 592 6 290 898 6 057 053 7 473 807 8 887 671 9 176 873 9 102 941 10 764 714 Harvested volume (GWT) 62 500 73 900 100 900 104 100 121 700 130 300 147 500 167 000 158 200 Sales price 64,2 76,0 62,3 58,2 61,4 68,2 62,2 54,5 68,0 EBIT/kg 5,4 11,0 4,2 3,4 8,3 13,1 8,4 3,0 11,5 Spot price 25,7 32,3 25,8 26,4 30,9 37,3 32,0 26,6 39,6 VAP premium over spot price 38,5 43,7 36,6 31,8 30,5 30,9 30,2 27,9 28,5 VAP premium as % of spot price 150 % 135 % 142 % 121 % 99 % 83 % 94 % 105 % 72 % 5.5 LSG: Common-size Core Operations (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% Other revenue 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,5% Total revenues 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,5% Income from investments in associated companies 1,6% 2,3% 0,6% 0,2% 0,8% 1,4% 0,2% 0,3% 1,8% Total revenues incl. Income from associated companies 101,6% 102,3% 100,6% 100,2% 100,8% 101,4% 100,2% 100,3% 102,3% Cost of materials -81,1% -73,1% -74,7% -70,6% -69,3% -61,7% -67,4% -71,4% -65,4% Salaries and other personnel costs -6,1% -7,1% -9,2% -11,0% -9,2% -8,8% -10,5% -11,3% -10,2% Other operating costs -4,8% -6,1% -7,5% -9,6% -7,9% -7,8% -9,4% -9,4% -9,3% Change in inventories 0,0% 0,0% 0,0% 0,0% 1,8% -1,5% 3,5% 0,6% 2,4% Total operating expenses -92,0% -86,3% -91,4% -91,2% -84,6% -79,7% -83,8% -91,5% -82,5% EBITDA 9,6% 16,0% 9,2% 9,0% 16,3% 21,7% 16,4% 8,8% 19,8% Depreciation & amortisation -1,2% -1,5% -2,4% -3,3% -2,7% -2,5% -3,0% -3,2% -2,9% EBIT 8,4% 14,5% 6,7% 5,8% 13,6% 19,2% 13,4% 5,6% 16,9% Tax on core operations -1,9% -3,5% -1,6% -1,3% -3,5% -5,1% -3,9% -1,5% -4,1% NOPAT 6,5% 11,0% 5,1% 4,5% 10,0% 14,2% 9,5% 4,1% 12,9%

Non-Operating & Non-Recurring Items (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net financial expenses -0,4% -0,7% -1,1% -2,5% -1,2% -0,7% -0,9% -1,0% -0,9% Tax on net financial expenses (Tax shield) 0,1% 0,2% 0,3% 0,6% 0,3% 0,2% 0,3% 0,3% 0,2% Net financial expenses after tax -0,3% -0,5% -0,8% -1,9% -0,9% -0,5% -0,6% -0,8% -0,7% Biomass fair value adjustments 1,7% 1,5% 0,3% -0,6% 0,8% 3,4% -6,7% 3,2% 7,1% Impairment loss 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% -0,4% -0,1% Special items after tax 1,3% 1,2% 0,2% -0,5% 0,6% 2,5% -4,7% 2,1% 5,4% Net profit 7,5% 11,6% 4,4% 2,1% 9,8% 16,1% 4,1% 5,4% 17,5%

REFORMULATED BALANCE SHEET Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Biological assets 13,2% 18,7% 23,8% 27,7% 24,9% 30,5% 25,8% 29,9% 34,6% Other inventories 2,4% 3,4% 4,2% 3,7% 3,2% 3,3% 3,6% 3,6% 3,3% Accounts receivable 14,8% 13,4% 11,0% 12,8% 11,7% 11,4% 10,2% 10,9% 13,8% Other current receivables 2,1% 3,0% 3,5% 2,6% 1,7% 2,0% 1,6% 2,2% 2,9% Total current assets 32,4% 38,5% 42,4% 46,7% 41,5% 47,1% 41,2% 46,6% 54,7% Accounts payable 9,3% 8,3% 8,1% 9,0% 8,2% 7,2% 7,7% 9,1% 9,8% Public duties payable 0,3% 0,6% 0,6% 0,8% 0,7% 0,8% 0,7% 0,7% 1,0% Taxes payable 0,5% 2,7% 1,2% 0,3% 1,3% 4,4% 3,5% 1,0% 3,0% Other short-term liabilities 3,0% 3,4% 2,5% 3,4% 3,2% 3,6% 3,1% 2,5% 2,8% Total current liabilities 13,0% 15,1% 12,4% 13,5% 13,5% 16,1% 15,0% 13,3% 16,6% Net Working Capital 19,4% 23,5% 30,0% 33,3% 28,0% 31,0% 26,2% 33,3% 38,1% Licences, rights 7,7% 13,6% 18,8% 21,3% 17,3% 22,2% 21,6% 21,7% 18,4% Buildings, real estate, operating accessories 7,1% 12,4% 18,3% 21,4% 16,4% 17,8% 20,0% 23,0% 22,1% Shares in associated companies 8,0% 5,5% 4,6% 4,6% 3,7% 3,8% 3,6% 3,6% 6,8% Long-term receivables 0,0% 0,0% 0,0% 0,1% 0,2% 0,1% 0,1% 0,1% 0,2% Deferred tax asset 0,0% 0,0% 0,0% 0,0% 0,1% 0,0% 0,1% 0,2% 0,1% Total non-current assets 22,8% 31,5% 41,7% 47,4% 37,5% 44,0% 45,4% 48,7% 47,6% Deferred tax 3,8% 8,0% 10,2% 11,1% 11,2% 14,2% 11,8% 13,5% 13,8% Non-interest bearing liabilities 3,8% 8,0% 10,2% 11,1% 11,2% 14,2% 11,8% 13,5% 13,8% Invested Capital excl. Goodwill 38,4% 46,9% 61,5% 69,6% 54,4% 60,8% 59,8% 68,5% 71,9% Goodwill 3,4% 20,6% 26,2% 27,5% 22,3% 21,1% 20,7% 21,9% 18,7% Invested Capital incl. Goodwill 41,7% 67,5% 87,7% 97,1% 76,7% 81,9% 80,4% 90,4% 90,6%

Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total equity 31,8% 41,7% 60,1% 62,1% 57,5% 67,4% 63,2% 65,5% 70,1%

Long-term interest-bearing debt 11,4% 28,1% 27,4% 27,6% 20,1% 25,0% 26,5% 26,4% 21,9% Other long-term debt 0,0% 0,0% 0,0% 0,1% 0,0% 0,0% 0,0% 0,0% 0,0% Pension liabilities 0,1% 0,2% 0,2% 0,2% 0,2% 0,1% 0,1% 0,1% 0,0% Short-term loans 3,3% 6,8% 9,0% 13,9% 8,6% 4,9% 8,3% 10,0% 6,3% Other long-term liabilities 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,1% 0,5% 0,3% Total interest bearing debt 14,8% 35,1% 36,6% 41,8% 29,0% 30,0% 34,9% 37,0% 28,6% Shares available for sale 0,1% 0,1% 0,4% 0,4% 0,3% 0,3% 0,3% 0,2% 0,1% Pension funds 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% Shares and securities 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% Cash and cash equivalents 4,8% 9,1% 8,5% 6,4% 9,5% 15,3% 17,4% 11,9% 8,1% Total interest-bearing assets 4,9% 9,2% 9,0% 6,8% 9,8% 15,5% 17,7% 12,1% 8,2% Net interest-bearing debt 9,9% 25,9% 27,6% 35,0% 19,2% 14,5% 17,3% 24,9% 20,4% Invested Capital 41,7% 67,5% 87,7% 97,1% 76,7% 81,9% 80,4% 90,4% 90,6%

5.6 LSG: Index-analysis Core Operations (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues 100 140 157 151 186 221 229 227 268 Other revenue 0 0 0 0 0 0 0 0 0 Total revenues 100 140 157 151 186 221 229 227 269 Income from investments in associated companies 100 200 55 21 97 189 31 38 298 Total revenues incl. Income from associated companies 100 141 155 149 185 221 225 224 270 Cost of materials 100 126 144 131 159 168 190 200 216 Salaries and other personnel costs 100 163 236 270 281 316 394 420 445 Other operating costs 100 179 246 302 306 361 448 446 524 Change in inventories 100 -98 236 43 191 Total operating expenses 100 131 156 150 171 192 208 226 241 EBITDA 100 232 149 142 315 498 389 207 551 Depreciation & amortisation 100 176 319 409 423 456 564 605 637 EBIT 100 240 125 104 299 504 364 150 538 Tax on core operations 100 250 131 101 338 577 462 176 560 NOPAT 100 237 123 104 287 483 335 142 532

Non-Operating & Non-Recurring Items (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net financial expenses 100 236 408 881 504 388 479 557 596 Tax on net financial expenses (Tax shield) 100 246 429 863 570 443 608 655 620 Net financial expenses after tax 100 233 402 886 484 371 441 527 589 Biomass fair value adjustments 100 124 23 -52 87 430 -887 425 1101 Impairment loss 0 0 0 0 0 0 0 100 17 Special items after tax 100 122 22 -53 84 412 -816 357 1080 Net profit 100 217 93 42 243 475 126 163 627

REFORMULATED BALANCE SHEET Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Biological assets 100 199 283 317 352 513 449 516 706 Other inventories 100 199 278 234 248 305 344 342 376 Accounts receivable 100 127 116 130 147 170 157 167 250 Other current receivables 100 204 265 192 157 212 179 240 381 Total current assets 100 166 205 218 238 322 291 326 453 Accounts payable 100 126 136 146 165 171 189 222 284 Public duties payable 100 271 310 402 457 610 512 549 851 Taxes payable 100 799 397 87 487 2.058 1.677 463 1.668 Other short-term liabilities 100 160 133 173 202 272 240 194 257 Total current liabilities 100 162 149 156 192 274 263 232 342 Net Working Capital 100 169 243 259 269 354 309 390 527 Licences, rights 100 247 382 417 417 637 641 640 640 Buildings, real estate, operating accessories 100 244 403 455 430 557 645 735 835 Shares in associated companies 100 96 90 86 85 106 103 103 229 Long-term receivables 100 15 42 387 736 501 521 531 1.614 Deferred tax asset 100 83 147 483 265 Total non-current assets 100 193 286 313 306 426 454 484 559 Deferred tax 100 293 417 434 541 817 703 798 964 Non-interest bearing liabilities 100 293 417 434 541 817 703 798 964 Invested Capital excl. Goodwill 100 171 251 274 264 351 356 405 503 Goodwill 100 861 1.226 1.240 1.241 1.394 1.410 1.482 1.493 Invested Capital incl. Goodwill 100 226 329 351 342 435 441 491 582

Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total equity 100 183 296 295 337 470 454 467 592

Long-term interest-bearing debt 100 344 376 365 328 485 530 524 514 Other long-term debt 100 20 32 0 0 0 Pension liabilities 100 212 287 315 358 215 186 182 77 Short-term loans 100 291 432 642 493 331 581 696 521 Other long-term liabilities 100 625 512 Total interest bearing debt 100 332 388 426 365 449 540 567 519 Shares available for sale 100 219 1.010 886 884 879 886 699 212 Pension funds 100 147 218 191 0 0 0 0 0 Shares and securities 100 0 0 0 0 0 0 0 0 Cash and cash equivalents 100 267 281 203 370 710 836 566 456 Total interest-bearing assets 100 265 290 212 375 708 832 565 451 Net interest-bearing debt 100 364 436 531 360 322 397 568 552 Invested Capital 100 226 329 351 342 435 441 491 582

Appendix 6 – Financial analysis Marine Harvest Group (MHG)

6.1 MHG: Reformulated Income statement REFORMULATED INCOME STATEMENT Core Operations (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues 1.501.300 5.655.400 14.028.700 13.486.900 14.500.200 15.191.400 16.132.800 15.463.500 19.199.400 Other revenue 0 0 0 0 0 0 0 0 0 Total revenues 1.501.300 5.655.400 14.028.700 13.486.900 14.500.200 15.191.400 16.132.800 15.463.500 19.199.400 Income from investments in associated companies 1.400 23.700 66.600 5.800 69.500 202.000 -8.500 88.300 221.800 Total revenues incl. Income from associated companies 1.502.700 5.679.100 14.095.300 13.492.700 14.569.700 15.393.400 16.124.300 15.551.800 19.421.200 Cost of materials -774.000 -2.730.700 -9.116.800 -8.733.900 -8.690.900 -7.690.700 -8.398.600 -9.666.500 -9.998.500 Salaries and other personnel costs -255.100 -861.100 -2.165.000 -2.139.800 -2.167.400 -2.202.500 -2.177.800 -2.418.600 -2.674.300 Other operating costs -197.500 -899.100 -1.304.300 -1.393.800 -1.448.200 -1.453.800 -2.063.200 -2.163.600 -2.581.900 Change in inventories 0 0 -41.900 79.500 0 0 0 0 0 Total operating expenses -1.226.600 -4.490.900 -12.628.000 -12.188.000 -12.306.500 -11.347.000 -12.639.600 -14.248.700 -15.254.700 EBITDA 276.100 1.188.200 1.467.300 1.304.700 2.263.200 4.046.400 3.484.700 1.303.100 4.166.500 Depreciation & amortisation -139.100 -315.900 -791.800 -685.300 -687.700 -653.000 -666.700 -677.200 -762.500 EBIT 137.000 872.300 675.500 619.400 1.575.500 3.393.400 2.818.000 625.900 3.404.000 Tax on core operations -3.541 634.667 -505.938 -77.736 -339.959 -912.807 -533.278 -298.595 -1.010.941 NOPAT 133.459 1.506.967 169.562 541.664 1.235.541 2.480.593 2.284.722 327.305 2.393.059

Non-Operating & Non-Recurring Items (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net financial expenses -73.700 152.300 30.700 -936.900 -364.200 -575.600 -62.900 -702.800 -892.600 Tax on net financial expenses (Tax shield) 1.905 110.810 -22.994 117.583 78.586 154.833 11.903 335.282 265.090 Net financial expenses after tax -71.795 263.110 7.706 -819.317 -285.614 -420.767 -50.997 -367.518 -627.510 Biomass fair value adjustments 71.600 28.100 -350.400 -278.800 301.200 1.091.700 -1.514.000 350.200 1.794.600 Provision for onerous contracts 0 0 0 0 0 -14.300 -5.800 -6.100 -124.700 Restructuring costs 0 -41.400 -196.300 -241.000 -169.500 -4.400 -21.800 -800 -272.800 Impairment losses 252.000 0 -12.100 -1.579.400 -373.100 -5.000 -67.000 -500 -65.000 Net currency effects 0 0 0 -844600 690600 366700 236400 523300 -311700 Other non-operational items 0 0 0 0 0 0 0 0 -74400 Special items after tax 315.236 -22.977 -140.269 -2.574.347 352.272 1.048.773 -1.112.525 452.914 665.051 Net profit 376.900 1.747.100 37.000 -2.852.000 1.302.200 3.108.600 1.121.200 412.700 2.430.600

Tax 2005 2006 2007 2008 2009 2010 2011 2012 2013 Reported tax 10.000 -735.800 110.400 -409.300 358.300 1.143.900 261.700 376.500 1.026.800 Profit before tax 386.900 1.011.300 147.400 -3.261.300 1.660.500 4.252.500 1.382.900 789.200 3.457.400 Effective tax rate 3% -73% 75% 13% 22% 27% 19% 48% 30%

6.2 MHG: Reformulated Balance sheet REFORMULATED BALANCE SHEET Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Biological assets 1.060.300 6.311.700 5.553.900 5.620.600 5.351.100 7.278.100 6.285.200 6.207.900 9.536.600 Other inventories 73.800 948.600 917.400 1.074.500 742.700 775.800 783.000 819.700 1.751.100 Accounts receivable 334.600 2.443.700 1.883.400 1.903.400 1.672.100 1.844.900 1.914.900 1.782.000 3.191.400 Other current receivables 80.900 211.400 667.500 532.400 551.600 817.200 609.800 592.700 1.086.500 Total current assets 1.549.600 9.915.400 9.022.200 9.130.900 8.317.500 10.716.000 9.592.900 9.402.300 15.565.600 Accounts payable 222.600 1.787.400 1.349.700 1.729.200 1.339.800 1.450.200 1.481.800 1.452.500 2.232.600 Current tax liabilities 0 0 0 0 50800 49700 86600 26200 252600 Other short-term liabilities 265.600 752.900 907.100 2.419.800 1.048.600 1.112.200 1.180.300 1.475.400 1.967.700 Total current liabilities 488.200 2.540.300 2.256.800 4.149.000 2.439.200 2.612.100 2.748.700 2.954.100 4.452.900 Net Working Capital 1.061.400 7.375.100 6.765.400 4.981.900 5.878.300 8.103.900 6.844.200 6.448.200 11.112.700 Licenses 1.037.800 5.622.500 5.566.600 5.766.600 5.409.500 5.442.500 5.577.500 5.435.400 6.036.100 Property, plant and equipment 1.205.800 3.558.100 3.894.700 4.243.600 3.518.100 3.885.100 4.167.500 4.111.900 6.677.200 Investments in associated companies 72.800 583.900 541.100 513.500 520.100 678.900 624.400 647.300 900.400 Deferred tax assets 0 641.300 27.000 230.500 54.500 118.600 160.100 73.900 178.800 Other intangible assets 10.300 50.400 135.900 160.000 136.000 132.900 123.100 114.200 188.400 Other non-current assets 0 0 0 0 0 0 25800 73200 8800 Total non-current assets 2.326.700 10.456.200 10.165.300 10.914.200 9.638.200 10.258.000 10.678.400 10.455.900 13.989.700 Deferred tax liabilities 84.400 1.326.800 1.199.700 732.900 1.142.600 2.237.900 2.351.900 2.543.700 3.365.000 Non-interest bearing liabilities 84.400 1.326.800 1.199.700 732.900 1.142.600 2.237.900 2.351.900 2.543.700 3.365.000 Invested Capital excl. Goodwill 3.303.700 16.504.500 15.731.000 15.163.200 14.373.900 16.124.000 15.170.700 14.360.400 21.737.400 Goodwill 128700 4159800 3344600 2239900 2142600 2111600 2146100 2115500 2374900 Invested Capital incl. Goodwill 3.432.400 20.664.300 19.075.600 17.403.100 16.516.500 18.235.600 17.316.800 16.475.900 24.112.300

Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total equity 1.778.300 13.589.100 12.484.000 9.624.600 11.460.500 12.570.700 10.842.100 11.688.700 16.346.300

Non-current interest-bearing debt 1.610.500 7.956.000 5.856.900 6.747.700 5.116.900 5.107.300 6.589.400 5.338.500 7.710.200 Other non-current liabilities 10.800 202.600 136.400 116.700 99.800 571.100 99.300 414.700 976.200 Current interest-bearing debt 185.400 1.625.100 1.249.200 1.365.500 130.300 429.700 157.000 377.800 686.700 Liabilities held for sale 0 113.900 0 0 0 0 0 0 190.500 Total interest bearing debt 1.806.700 9.897.600 7.242.500 8.229.900 5.347.000 6.108.100 6.845.700 6.131.000 9.563.600 Cash 152.700 2.182.500 362.600 372.600 172.200 319.000 279.100 335.300 606.200 Assets held for sale 0 640.000 0 0 0 0 0 0 1.059.100 Other shares 0 0 288.300 78.900 118.800 124.200 92.100 1.008.600 132.100 Total interest-bearing assets 152.700 2.822.500 650.900 451.500 291.000 443.200 371.200 1.343.900 1.797.400 Net interest-bearing debt 1.654.000 7.075.100 6.591.600 7.778.400 5.056.000 5.664.900 6.474.500 4.787.100 7.766.200 Invested Capital 3.432.300 20.664.200 19.075.600 17.403.000 16.516.500 18.235.600 17.316.600 16.475.800 24.112.500

Average figures 2005 2006 2007 2008 2009 2010 2011 2012 2013 Average equity 7.683.700 13.036.550 11.054.300 10.542.550 12.015.600 11.706.400 11.265.400 14.017.500 Average net interest-bearing debt 4.364.550 6.833.350 7.185.000 6.417.200 5.360.450 6.069.700 5.630.800 6.276.650 Average Invested Capital 12.048.250 19.869.900 18.239.300 16.959.750 17.376.050 17.776.100 16.896.200 20.294.150

6.3 MHG: Profitability Marine Harvest 2005 2006 2007 2008 2009 2010 2011 2012 2013 Turnover rate, invested capital 0,47 0,71 0,74 0,85 0,87 0,91 0,92 0,95 Financial leverage 0,57 0,52 0,65 0,61 0,45 0,52 0,50 0,45 Before tax ROIC 7,2 % 3,4 % 3,4 % 9,3 % 19,5 % 15,9 % 3,7 % 16,8 % Profit margin 15,4 % 4,8 % 4,6 % 10,9 % 22,3 % 17,5 % 4,0 % 17,7 % NBC 3,5 % 0,4 % -13,0 % -5,7 % -10,7 % -1,0 % -12,5 % -14,2 % ROE = ROIC + (ROIC - NBC) * FGEAR 13,3 % 5,4 % -2,9 % 11,5 % 23,5 % 23,5 % -0,7 % 17,9 % ROE, reported 13,2 % 1,1 % -29,5 % 15,8 % 35,4 % 11,8 % 7,0 % 24,7 % After tax ROIC 12,5 % 0,9 % 3,0 % 7,3 % 14,3 % 12,9 % 1,9 % 11,8 % Profit margin 26,6 % 1,2 % 4,0 % 8,5 % 16,3 % 14,2 % 2,1 % 12,5 % NBC 6,0 % 0,1 % -11,4 % -4,5 % -7,8 % -0,8 % -6,5 % -10,0 % ROE = ROIC + (ROIC - NBC) * FGEAR 23,0 % 1,4 % -2,5 % 9,0 % 17,1 % 19,1 % -0,4 % 12,6 % ROE, reported 22,7 % 0,3 % -25,8 % 12,4 % 25,9 % 9,6 % 3,7 % 17,3 % Profitability margins EBITDA-margin 18,4 % 21,0 % 10,5 % 9,7 % 15,6 % 26,6 % 21,6 % 8,4 % 21,7 % EBIT-margin 9,1 % 15,4 % 4,8 % 4,6 % 10,9 % 22,3 % 17,5 % 4,0 % 17,7 % Profit margin, reported 25,1 % 30,9 % 0,3 % -21,1 % 9,0 % 20,5 % 6,9 % 2,7 % 12,7 %

6.4 MHG: Revenues, sales price and harvest volumes Marine Harvest 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total revenues 1 501 300 5 655 400 14 028 700 13 486 900 14 500 200 15 191 400 16 132 800 15 463 500 19 199 400 Harvested volume (GWT) 45 952 107 813 335 328 326 623 327 100 295 683 343 685 392 306 343 772 Total revenues/kg 32,7 52,5 41,8 41,3 44,3 51,4 46,9 39,4 55,8 EBIT/kg 3,0 8,1 2,0 1,9 4,8 11,5 8,2 1,6 9,9 Cost/kg -26,7 -41,7 -37,7 -37,3 -37,6 -38,4 -36,8 -36,3 -44,4

6.5 MHG: Common-size Common size Core Operations (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues 100% 100% 100% 100% 100% 100% 100% 100% 100% Other revenue 0% 0% 0% 0% 0% 0% 0% 0% 0% Total revenues 100% 100% 100% 100% 100% 100% 100% 100% 100% Income from investments in associated companies 0% 0% 0% 0% 0% 1% 0% 1% 1% Total revenues incl. Income from associated companies 100% 100% 100% 100% 100% 101% 100% 101% 101% Cost of materials -52% -48% -65% -65% -60% -51% -52% -63% -52% Salaries and other personnel costs -17% -15% -15% -16% -15% -14% -13% -16% -14% Other operating costs -13% -16% -9% -10% -10% -10% -13% -14% -13% Change in inventories 0% 0% 0% 1% 0% 0% 0% 0% 0% Total operating expenses -82% -79% -90% -90% -85% -75% -78% -92% -79% EBITDA 18% 21% 10% 10% 16% 27% 22% 8% 22% Depreciation & amortisation -9% -6% -6% -5% -5% -4% -4% -4% -4% EBIT 9% 15% 5% 5% 11% 22% 17% 4% 18% Tax on core operations 0% 11% -4% -1% -2% -6% -3% -2% -5% NOPAT 9% 27% 1% 4% 9% 16% 14% 2% 12%

Non-Operating & Non-Recurring Items (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net financial expenses -5% 3% 0% -7% -3% -4% 0% -5% -5% Tax on net financial expenses (Tax shield) 0% 2% 0% 1% 1% 1% 0% 2% 1% Net financial expenses after tax -5% 5% 0% -6% -2% -3% 0% -2% -3% Biomass fair value adjustments 5% 0% -2% -2% 2% 7% -9% 2% 9% Provision for onerous contracts 0% 0% 0% 0% 0% 0% 0% 0% -1% Restructuring costs 0% -1% -1% -2% -1% 0% 0% 0% -1% Impairment losses 17% 0% 0% -12% -3% 0% 0% 0% 0% Net currency effects 0% 0% 0% -6% 5% 2% 1% 3% -2% Other non-operational items 0% 0% 0% 0% 0% 0% 0% 0% 0% Special items after tax 21% 0% -1% -19% 2% 7% -7% 3% 3% Net profit 25% 31% 0% -21% 9% 20% 7% 3% 13%

REFORMULATED BALANCE SHEET Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Biological assets 71% 112% 40% 42% 37% 48% 39% 40% 50% Other inventories 5% 17% 7% 8% 5% 5% 5% 5% 9% Accounts receivable 22% 43% 13% 14% 12% 12% 12% 12% 17% Other current receivables 5% 4% 5% 4% 4% 5% 4% 4% 6% Total current assets 103% 175% 64% 68% 57% 71% 59% 61% 81% Accounts payable 15% 32% 10% 13% 9% 10% 9% 9% 12% Current tax liabilities 0% 0% 0% 0% 0% 0% 1% 0% 1% Other short-term liabilities 18% 13% 6% 18% 7% 7% 7% 10% 10% Total current liabilities 33% 45% 16% 31% 17% 17% 17% 19% 23% Net Working Capital 71% 130% 48% 37% 41% 53% 42% 42% 58% Licenses 69% 99% 40% 43% 37% 36% 35% 35% 31% Property, plant and equipment 80% 63% 28% 31% 24% 26% 26% 27% 35% Investments in associated companies 5% 10% 4% 4% 4% 4% 4% 4% 5% Deferred tax assets 0% 11% 0% 2% 0% 1% 1% 0% 1% Other intangible assets 1% 1% 1% 1% 1% 1% 1% 1% 1% Other non-current assets 0% 0% 0% 0% 0% 0% 0% 0% 0% Total non-current assets 155% 185% 72% 81% 66% 68% 66% 68% 73% Deferred tax liabilities 6% 23% 9% 5% 8% 15% 15% 16% 18% Non-interest bearing liabilities 6% 23% 9% 5% 8% 15% 15% 16% 18% Invested Capital excl. Goodwill 220% 292% 112% 112% 99% 106% 94% 93% 113% Goodwill 9% 74% 24% 17% 15% 14% 13% 14% 12% Invested Capital incl. Goodwill 229% 365% 136% 129% 114% 120% 107% 107% 126%

Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total equity 118% 240% 89% 71% 79% 83% 67% 76% 85%

Non-current interest-bearing debt 107% 141% 42% 50% 35% 34% 41% 35% 40% Other non-current liabilities 1% 4% 1% 1% 1% 4% 1% 3% 5% Current interest-bearing debt 12% 29% 9% 10% 1% 3% 1% 2% 4% Liabilities held for sale 0% 2% 0% 0% 0% 0% 0% 0% 1% Total interest bearing debt 120% 175% 52% 61% 37% 40% 42% 40% 50% Cash 10% 39% 3% 3% 1% 2% 2% 2% 3% Assets held for sale 0% 11% 0% 0% 0% 0% 0% 0% 6% Other shares 0% 0% 2% 1% 1% 1% 1% 7% 1% Total interest-bearing assets 10% 50% 5% 3% 2% 3% 2% 9% 9% Net interest-bearing debt 110% 125% 47% 58% 35% 37% 40% 31% 40% Invested Capital 229% 365% 136% 129% 114% 120% 107% 107% 126% 6.6 MHG: Index-analysis Core Operations (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues 100 377 934 898 966 1012 1075 1030 1279 Other revenue 0 0 0 0 0 0 0 0 0 Total revenues 100 377 934 898 966 1012 1075 1030 1279 Income from investments in associated companies 100 1693 4757 414 4964 14429 -607 6307 15843 Total revenues incl. Income from associated companies 100 378 938 898 970 1024 1073 1035 1292 Cost of materials 100 353 1178 1128 1123 994 1085 1249 1292 Salaries and other personnel costs 100 338 849 839 850 863 854 948 1048 Other operating costs 100 455 660 706 733 736 1045 1095 1307 Change in inventories 100 -190 0 0 0 0 0 Total operating expenses 100 366 1030 994 1003 925 1030 1162 1244 EBITDA 100 430 531 473 820 1466 1262 472 1509 Depreciation & amortisation 100 227 569 493 494 469 479 487 548 EBIT 100 637 493 452 1150 2477 2057 457 2485 Tax on core operations 100 -17924 14288 2195 9601 25778 15060 8433 28550 NOPAT 100 1129 127 406 926 1859 1712 245 1793

Non-Operating & Non-Recurring Items (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net financial expenses 100 -207 -42 1271 494 781 85 954 1211 Tax on net financial expenses (Tax shield) 100 5817 -1207 6173 4126 8128 625 17601 13916 Net financial expenses after tax 100 -366 -11 1141 398 586 71 512 874 Biomass fair value adjustments 100 39 -489 -389 421 1525 -2115 489 2506 Provision for onerous contracts 100 41 43 872 Restructuring costs 100 474 582 409 11 53 2 659 Impairment losses 100 0 -5 -627 -148 -2 -27 0 -26 Net currency effects 100 -82 -43 -28 -62 37 Other non-operational items 100 Special items after tax 100 -7 -44 -817 112 333 -353 144 211 Net profit 100 464 10 -757 346 825 297 109 645

REFORMULATED BALANCE SHEET Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Biological assets 100 595 524 530 505 686 593 585 899 Other inventories 100 1285 1243 1456 1006 1051 1061 1111 2373 Accounts receivable 100 730 563 569 500 551 572 533 954 Other current receivables 100 261 825 658 682 1010 754 733 1343 Total current assets 100 640 582 589 537 692 619 607 1.004 Accounts payable 100 803 606 777 602 651 666 653 1003 Current tax liabilities 100 98 170 52 497 Other short-term liabilities 100 283 342 911 395 419 444 555 741 Total current liabilities 100 520 462 850 500 535 563 605 912 Net Working Capital 100 695 637 469 554 764 645 608 1.047 Licenses 100 542 536 556 521 524 537 524 582 Property, plant and equipment 100 295 323 352 292 322 346 341 554 Investments in associated companies 100 802 743 705 714 933 858 889 1237 Deferred tax assets 100 4 36 8 18 25 12 28 Other intangible assets 100 489 1319 1553 1320 1290 1195 1109 1829 Other non-current assets 100 284 34 Total non-current assets 100 449 437 469 414 441 459 449 601 Deferred tax liabilities 100 1572 1421 868 1354 2652 2787 3014 3987 Non-interest bearing liabilities 100 1572 1421 868 1354 2652 2787 3014 3987 Invested Capital excl. Goodwill 100 500 476 459 435 488 459 435 658 Goodwill 100 3.232 2.599 1.740 1.665 1.641 1.668 1.644 1.845 Invested Capital incl. Goodwill 100 602 556 507 481 531 505 480 702

Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total equity 100 764 702 541 644 707 610 657 919

Non-current interest-bearing debt 100 494 364 419 318 317 409 331 479 Other non-current liabilities 100 1876 1263 1081 924 5288 919 3840 9039 Current interest-bearing debt 100 877 674 737 70 232 85 204 370 Liabilities held for sale 100 0 0 0 0 0 0 167 Total interest bearing debt 100 548 401 456 296 338 379 339 529 Cash 100 1429 237 244 113 209 183 220 397 Assets held for sale 100 0 0 0 0 0 0 165 Other shares 100 27 41 43 32 350 46 Total interest-bearing assets 100 1848 426 296 191 290 243 880 1177 Net interest-bearing debt 100 428 399 470 306 342 391 289 470 Invested Capital 100 602 556 507 481 531 505 480 703

Appendix 7 – Financial analysis SalMar (SALM)

7.1 SALM: Reformulated Income statement REFORMULATED INCOME STATEMENT Core Operations (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues 866.584 1.240.668 1.665.530 1.704.242 2.376.262 3.399.868 3.795.746 4.180.414 6.228.305 Other revenue 4.867 7.896 12.157 10.014 1.042 29.564 33.299 24.377 17.555 Total revenues 871.451 1.248.564 1.677.687 1.714.256 2.377.304 3.429.432 3.829.045 4.204.791 6.245.860 Income from investments in associated companies 73.711 91.752 31.600 12.248 56.769 147.365 97.999 93.909 157.980 Total revenues incl. Income from associated companies 945.162 1.340.316 1.709.287 1.726.504 2.434.073 3.576.797 3.927.044 4.298.700 6.403.840 Cost of materials -456.871 -643.547 -836.652 -922.016 -1.162.445 -2.013.312 -2.373.168 -2.715.056 -3.376.109 Salaries and other personnel costs -119.766 -131.913 -217.808 -240.393 -265.517 -313.290 -391.745 -483.215 -623.053 Other operating costs -85.220 -110.851 -191.270 -253.701 -311.973 -402.453 -705.891 -885.983 -1.086.299 Change in inventories 27.362 131.612 47.750 103.844 25.567 401.629 395.900 390.297 324.914 Excess value of inventory from acquisitions 0 -8.617 -17.641 -9.303 0 -33.587 -20.259 0 0 Total operating expenses -634.495 -763.316 -1.215.621 -1.321.569 -1.714.368 -2.361.013 -3.095.163 -3.693.957 -4.760.547 EBITDA 310.667 577.000 493.666 404.935 719.705 1.215.784 831.881 604.743 1.643.293 Depreciation & amortisation -27.267 -37.874 -50.671 -55.225 -66.578 -93.962 -132.000 -169.621 -220.820 EBIT 283.400 539.126 442.995 349.710 653.127 1.121.822 699.881 435.122 1.422.473 Tax on core operations -59.458 -123.483 -119.140 -98.153 -168.114 -269.308 -57.159 -90.858 -256.488 NOPAT 223.942 415.643 323.855 251.557 485.013 852.514 642.722 344.264 1.165.985

Non-Operating & Non-Recurring Items (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net financial expenses -4.997 -25.484 -55.969 -82.012 -2.801 -40.394 -125.733 -124.264 214.666 Tax on net financial expenses (Tax shield) 1.048 5.837 15.052 23.018 721 9.697 10.268 25.948 -38.707 Net financial expenses after tax -3.949 -19.647 -40.917 -58.994 -2.080 -30.697 -115.465 -98.316 175.959 Biomass fair value adjustments 40.785 63.676 94.234 -32.996 -4.624 184.658 -356.693 290.417 528.176 Write-downs of PP&E and intangible assets 0 0 0 0 -11.600 -1.668 -543 -547 -5.000 Non-recurring gains on acquisitions 0 0 0 0 0 0 0 62.390 161.755 Particular biological events 0 0 0 0 0 0 -60.070 -54.614 0 Onerous contracts 0 0 0 0 0 -3.635 3.635 0 0 Special items after tax 32.228 49.091 68.891 -23.735 -12.048 136.299 -379.887 235.494 561.430 Net profit 252.222 445.087 351.829 168.828 470.885 958.116 147.371 481.442 1.903.375

Tax 2005 2006 2007 2008 2009 2010 2011 2012 2013 Reported tax 66.966 132.231 129.431 65.874 163.217 302.667 13.106 127.062 418.695 Profit before tax 319.188 577.318 481.260 234.702 634.102 1.260.783 160.477 608.504 2.322.070 Effective tax rate 21% 23% 27% 28% 26% 24% 8% 21% 18%

7.2 SALM: Reformulated Balance sheet REFORMULATED BALANCE SHEET Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Biological assets 344.319 701.017 905.675 971.454 1.011.518 1.580.934 1.420.788 1.986.213 3.077.150 Other inventories 19.718 53.398 63.979 97.768 103.176 128.973 227.935 303.682 171.539 Accounts receivable 72.629 110.156 124.325 148.596 252.155 409.707 505.280 660.944 662.149 Other current receivables 14.082 51.544 57.486 34.156 73.247 136.266 144.993 245.501 217.584 Total current assets 450.748 916.115 1.151.465 1.251.974 1.440.096 2.255.880 2.298.996 3.196.340 4.128.422 Accounts payable 110.995 148.380 98.713 133.022 204.394 351.042 412.802 762.765 515.856 Public duties payable 0 11.364 22.076 19.137 19.710 48.023 52.980 43.192 93.532 Taxes payable 55.350 79.007 89.867 46.271 146.293 148.088 66.399 7.008 25.843 Other short-term liabilities 22.630 33.860 44.250 59.837 43.627 106.845 126.195 153.515 192.556 Total current liabilities 188.975 272.611 254.906 258.267 414.024 653.998 658.376 966.480 827.787 Net Working Capital 261.773 643.504 896.559 993.707 1.026.072 1.601.882 1.640.620 2.229.860 3.300.635 Licences, patents, etc 222.070 711.503 1.009.335 914.116 935.916 1.406.483 1.483.752 1.702.152 2.030.710 Land, buildings & other real property 35.038 50.674 58.342 66.864 102.624 179.364 206.409 233.732 473.408 Plant, equipment & operating consumables 119.600 224.681 273.569 319.847 403.979 636.720 845.581 947.824 1.248.820 Vessels, vehicles, etc 7.483 31.254 16.311 29.374 26.684 55.951 74.455 87.247 137.096 Other receivables 20.370 9.317 7.530 5.485 12.720 12.276 4.609 4.029 5.225 Investments in associates 339.035 261.790 258.203 257.615 268.508 866.809 918.868 948.575 402.338 Total non-current assets 743.596 1.289.219 1.623.290 1.593.301 1.750.431 3.157.603 3.533.674 3.923.559 4.297.597 Deferred tax liabilities 127.075 336.102 460.067 481.813 498.508 787.188 738.475 872.398 1.199.557 Non-interest bearing liabilities 127.075 336.102 460.067 481.813 498.508 787.188 738.475 872.398 1.199.557 Invested Capital excl. Goodwill 878.294 1.596.621 2.059.782 2.105.195 2.277.995 3.972.297 4.435.819 5.281.021 6.398.675 Goodwill 5823 56155 69139 196932 205458 306999 433348 433348 433348 Invested Capital incl. Goodwill 884.117 1.652.776 2.128.921 2.302.127 2.483.453 4.279.296 4.869.167 5.714.369 6.832.023

Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total equity 407.586 885.214 1.322.658 1.315.113 1.699.806 2.469.367 2.214.611 2.967.713 5.060.783

Pension liabilities 13.445 3.364 2.741 5.233 5.784 1.714 1.213 528 0 Debt to credit institutions 283.290 525.498 687.336 758.171 746.071 1.760.567 2.028.537 2.098.240 1.974.521 Leasing liabilitis and other non-current liabilities 71.808 97.239 77.721 65.764 68.070 108.606 173.460 125.188 471.716 Debt to credit institutions 82.785 149.474 88.394 183.999 118.073 51.431 501.754 596.288 397.186 Debt to parent company 28.693 0 0 0 0 0 0 0 0 Total interest bearing debt 480.021 775.575 856.192 1.013.167 937.998 1.922.318 2.704.964 2.820.244 2.843.423 Investments in share & securities 527 762 1.001 975 1.025 1.426 762 15.760 384 Pension assets 0 301 1.119 1.637 4.904 3.901 2.023 2.492 802 Bank deposits,cash & cash equivalents 2.964 6.950 47.809 23.541 148.424 107.062 47.621 55.336 1.070.998 Total interest-bearing assets 3.491 8.013 49.929 26.153 154.353 112.389 50.406 73.588 1.072.184 Net interest-bearing debt 476.530 767.562 806.263 987.014 783.645 1.809.929 2.654.558 2.746.656 1.771.239 Invested Capital 884.116 1.652.776 2.128.921 2.302.127 2.483.451 4.279.296 4.869.169 5.714.369 6.832.022

7.3 SALM: Profitability Salmar 2005 2006 2007 2008 2009 2010 2011 2012 2013 Turnover rate, invested capital 0,98 0,89 0,77 0,99 1,01 0,84 0,79 1,00 Financial leverage 0,96 0,71 0,68 0,59 0,62 0,95 1,04 0,56 Before tax ROIC 42,5 % 23,4 % 15,8 % 27,3 % 33,2 % 15,3 % 8,2 % 22,7 % Profit margin 43,2 % 26,4 % 20,4 % 27,5 % 32,7 % 18,3 % 10,3 % 22,8 % NBC -4,1 % -7,1 % -9,1 % -0,3 % -3,1 % -5,6 % -4,6 % 9,5 % ROE = ROIC + (ROIC - NBC) * FGEAR 79,5 % 35,1 % 20,3 % 43,1 % 51,9 % 24,5 % 12,0 % 40,8 % ROE, reported 89,3 % 43,6 % 17,8 % 42,1 % 60,5 % 6,9 % 23,5 % 57,8 % After tax ROIC 32,8 % 17,1 % 11,4 % 20,3 % 25,2 % 14,1 % 6,5 % 18,6 % Profit margin 33,5 % 19,4 % 14,8 % 20,4 % 25,1 % 16,9 % 8,2 % 18,7 % NBC -3,2 % -5,2 % -6,6 % -0,2 % -2,4 % -5,2 % -3,6 % 7,8 % ROE = ROIC + (ROIC - NBC) * FGEAR 61,3 % 25,6 % 14,6 % 32,0 % 39,4 % 22,5 % 9,5 % 33,4 % ROE, reported 68,9 % 31,9 % 12,8 % 31,2 % 46,0 % 6,3 % 18,6 % 47,4 % Profitability margins EBITDA-margin 35,6 % 46,2 % 29,4 % 23,6 % 30,3 % 35,5 % 21,7 % 14,4 % 26,3 % EBIT-margin 32,5 % 43,2 % 26,4 % 20,4 % 27,5 % 32,7 % 18,3 % 10,3 % 22,8 % Profit margin, reported 28,9 % 35,6 % 21,0 % 9,8 % 19,8 % 27,9 % 3,8 % 11,4 % 30,5 %

7.4 SALM: Revenues, sales price and harvest volumes SalMar 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total revenues 866 584 1 240 668 1 665 530 1 704 242 2 376 262 3 399 868 3 795 746 4 180 414 6 228 305 Harvested volume (GWT) 35 000 44 000 64 000 65 000 77 000 79 000 104 000 116 100 128 000 Total revenues/kg 24,8 28,2 26,0 26,2 30,9 43,0 36,5 36,0 48,7 EBIT/kg 8,1 12,3 6,9 5,4 8,5 14,2 6,7 3,7 11,1 Cost/kg -18,1 -17,3 -19,0 -20,3 -22,3 -29,9 -29,8 -31,8 -37,2

7.5 SALM: Common-size Common size Core Operations (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Other revenue 1 % 1 % 1 % 1 % 0 % 1 % 1 % 1 % 0 % Total revenues 101 % 101 % 101 % 101 % 100 % 101 % 101 % 101 % 100 % Income from investments in associated companies 9 % 7 % 2 % 1 % 2 % 4 % 3 % 2 % 3 % Total revenues incl. Income from associated companies 109 % 108 % 103 % 101 % 102 % 105 % 103 % 103 % 103 % Cost of materials -53 % -52 % -50 % -54 % -49 % -59 % -63 % -65 % -54 % Salaries and other personnel costs -14 % -11 % -13 % -14 % -11 % -9 % -10 % -12 % -10 % Other operating costs -10 % -9 % -11 % -15 % -13 % -12 % -19 % -21 % -17 % Change in inventories 3 % 11 % 3 % 6 % 1 % 12 % 10 % 9 % 5 % Excess value of inventory from acquisitions 0 % -1 % -1 % -1 % 0 % -1 % -1 % 0 % 0 % Total operating expenses -73 % -62 % -73 % -78 % -72 % -69 % -82 % -88 % -76 % EBITDA 36 % 47 % 30 % 24 % 30 % 36 % 22 % 14 % 26 % Depreciation & amortisation -3 % -3 % -3 % -3 % -3 % -3 % -3 % -4 % -4 % EBIT 33 % 43 % 27 % 21 % 27 % 33 % 18 % 10 % 23 % Tax on core operations -7 % -10 % -7 % -6 % -7 % -8 % -2 % -2 % -4 % NOPAT 26 % 34 % 19 % 15 % 20 % 25 % 17 % 8 % 19 %

Non-Operating & Non-Recurring Items (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net financial expenses -1 % -2 % -3 % -5 % 0 % -1 % -3 % -3 % 3 % Tax on net financial expenses (Tax shield) 0 % 0 % 1 % 1 % 0 % 0 % 0 % 1 % -1 % Net financial expenses after tax 0 % -2 % -2 % -3 % 0 % -1 % -3 % -2 % 3 % Biomass fair value adjustments 5 % 5 % 6 % -2 % 0 % 5 % -9 % 7 % 8 % Write-downs of PP&E and intangible assets 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % Non-recurring gains on acquisitions 0 % 0 % 0 % 0 % 0 % 0 % 0 % 1 % 3 % Particular biological events 0 % 0 % 0 % 0 % 0 % 0 % -2 % -1 % 0 % Onerous contracts 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % 0 % Special items after tax 4 % 4 % 4 % -1 % -1 % 4 % -10 % 6 % 9 % Net profit 29 % 36 % 21 % 10 % 20 % 28 % 4 % 12 % 31 %

REFORMULATED BALANCE SHEET Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Biological assets 40% 57% 54% 57% 43% 46% 37% 48% 49% Other inventories 2% 4% 4% 6% 4% 4% 6% 7% 3% Accounts receivable 8% 9% 7% 9% 11% 12% 13% 16% 11% Other current receivables 2% 4% 3% 2% 3% 4% 4% 6% 3% Total current assets 52% 74% 69% 73% 61% 66% 61% 76% 66% Accounts payable 13% 12% 6% 8% 9% 10% 11% 18% 8% Public duties payable 0% 1% 1% 1% 1% 1% 1% 1% 2% Taxes payable 6% 6% 5% 3% 6% 4% 2% 0% 0% Other short-term liabilities 3% 3% 3% 4% 2% 3% 3% 4% 3% Total current liabilities 22% 22% 15% 15% 17% 19% 17% 23% 13% Net Working Capital 30% 52% 54% 58% 43% 47% 43% 53% 53% Licences, patents, etc 26% 57% 61% 54% 39% 41% 39% 41% 33% Land, buildings & other real property 4% 4% 4% 4% 4% 5% 5% 6% 8% Plant, equipment & operating consumables 14% 18% 16% 19% 17% 19% 22% 23% 20% Vessels, vehicles, etc 1% 3% 1% 2% 1% 2% 2% 2% 2% Investments in associates 39% 21% 16% 15% 11% 25% 24% 23% 6% Total non-current assets 86% 104% 97% 93% 74% 93% 93% 94% 69% Deferred tax liabilities 15% 27% 28% 28% 21% 23% 19% 21% 19% Non-interest bearing liabilities 15% 27% 28% 28% 21% 23% 19% 21% 19% Invested Capital excl. Goodwill 101% 129% 124% 124% 96% 117% 117% 126% 103% Goodwill 1% 5% 4% 12% 9% 9% 11% 10% 7% Invested Capital incl. Goodwill 102% 133% 128% 135% 105% 126% 128% 137% 110%

Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total equity 47% 71% 79% 77% 72% 73% 58% 71% 81%

Pension liabilities 2% 0% 0% 0% 0% 0% 0% 0% 0% Debt to credit institutions 33% 42% 41% 44% 31% 52% 53% 50% 32% Leasing liabilitis and other non-current liabilities 8% 8% 5% 4% 3% 3% 5% 3% 8% Debt to credit institutions 10% 12% 5% 11% 5% 2% 13% 14% 6% Debt to parent company 3% 0% 0% 0% 0% 0% 0% 0% 0% Total interest bearing debt 55% 63% 51% 59% 39% 57% 71% 67% 46% Investments in share & securities 0% 0% 0% 0% 0% 0% 0% 0% 0% Pension assets 0% 0% 0% 0% 0% 0% 0% 0% 0% Bank deposits,cash & cash equivalents 0% 1% 3% 1% 6% 3% 1% 1% 17% Total interest-bearing assets 0% 1% 3% 2% 6% 3% 1% 2% 17% Net interest-bearing debt 55% 62% 48% 58% 33% 53% 70% 66% 28% Invested Capital 102% 133% 128% 135% 105% 126% 128% 137% 110%

7.6 SALM: Index-analysis Core Operations (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues 100 143 192 197 274 392 438 482 719 Other revenue 100 162 250 206 21 607 684 501 361 Total revenues 100 143 193 197 273 394 439 483 717 Income from investments in associated companies 100 124 43 17 77 200 133 127 214 Total revenues incl. Income from associated companies 100 142 181 183 258 378 415 455 678 Cost of materials 100 141 183 202 254 441 519 594 739 Salaries and other personnel costs 100 110 182 201 222 262 327 403 520 Other operating costs 100 130 224 298 366 472 828 1040 1275 Change in inventories 100 481 175 380 93 1468 1447 1426 1187 Excess value of inventory from acquisitions 100 205 108 0 390 235 0 0 Total operating expenses 100 120 192 208 270 372 488 582 750 EBITDA 100 186 159 130 232 391 268 195 529 Depreciation & amortisation 100 139 186 203 244 345 484 622 810 EBIT 100 190 156 123 230 396 247 154 502 Tax on core operations 100 208 200 165 283 453 96 153 431 NOPAT 100 186 145 112 217 381 287 154 521

Non-Operating & Non-Recurring Items (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net financial expenses 100 510 1120 1641 56 808 2516 2487 -4296 Tax on net financial expenses (Tax shield) 100 557 1436 2196 69 925 979 2475 -3692 Net financial expenses after tax 100 498 1036 1494 53 777 2924 2490 -4456 Biomass fair value adjustments 100 156 231 -81 -11 453 -875 712 1295 Write-downs of PP&E and intangible assets 100 14 5 5 43 Non-recurring gains on acquisitions 100 259 Particular biological events 100 91 0 Onerous contracts 100 -100 0 0 Special items after tax 100 152 214 -74 -37 423 -1179 731 1742 Net profit 100 176 139 67 187 380 58 191 755

REFORMULATED BALANCE SHEET Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Biological assets 100 204 263 282 294 459 413 577 894 Other inventories 100 271 324 496 523 654 1.156 1.540 870 Accounts receivable 100 152 171 205 347 564 696 910 912 Other current receivables 100 366 408 243 520 968 1.030 1.743 1.545 Total current assets 100 203 255 278 319 500 510 709 916 Accounts payable 100 134 89 120 184 316 372 687 465 Public duties payable 100 194 168 173 423 466 380 823 Taxes payable 100 143 162 84 264 268 120 13 47 Other short-term liabilities 100 150 196 264 193 472 558 678 851 Total current liabilities 100 144 135 137 219 346 348 511 438 Net Working Capital 100 246 342 380 392 612 627 852 1.261 Licences, patents, etc 100 320 455 412 421 633 668 766 914 Land, buildings & other real property 100 145 167 191 293 512 589 667 1.351 Plant, equipment & operating consumables 100 188 229 267 338 532 707 792 1.044 Vessels, vehicles, etc 100 418 218 393 357 748 995 1.166 1.832 Investments in associates 100 323 342 353 150 Total non-current assets 100 173 218 214 235 425 475 528 578 Deferred tax liabilities 100 264 362 379 392 619 581 687 944 Non-interest bearing liabilities 100 264 362 379 392 619 581 687 944 Invested Capital excl. Goodwill 100 182 235 240 259 452 505 601 729 Goodwill 100 964 1.187 3.382 3.528 5.272 7.442 7.442 7.442 Invested Capital incl. Goodwill 100 187 241 260 281 484 551 646 773

Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total equity 100 217 325 323 417 606 543 728 1.242

Pension liabilities 100 25 20 39 43 13 9 4 0 Debt to credit institutions 100 98 232 268 277 260 Leasing liabilitis and other non-current liabilities 100 135 108 92 95 151 242 174 657 Debt to credit institutions 100 181 107 222 143 62 606 720 480 Debt to parent company Total interest bearing debt 100 162 178 211 195 400 564 588 592 Investments in share & securities 100 145 190 185 194 271 145 2.991 73 Pension assets 100 372 544 1.629 1.296 672 828 266 Bank deposits,cash & cash equivalents 100 234 1.613 794 5.008 3.612 1.607 1.867 36.134 Total interest-bearing assets 100 230 1.430 749 4.421 3.219 1.444 2.108 30.713 Net interest-bearing debt 100 161 169 207 164 380 557 576 372 Invested Capital 100 187 241 260 281 484 551 646 773

Appendix 8 – Financial analysis Grieg Seafood (GSF)

8.1 GSF: Reformulated Income statement REFORMULATED INCOME STATEMENT Core Operations (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues 408.097 535.756 1.021.810 1.477.029 1.612.619 2.446.490 2.046.991 2.050.065 2.404.215 Other revenue 11.283 7.704 46.542 10.474 8.826 9.398 16.769 28.164 20.827 Total revenues 419.380 543.460 1.068.352 1.487.503 1.621.445 2.455.888 2.063.760 2.078.229 2.425.042 Income from investments in associated companies -2.097 -66 -1.897 700 1.985 12.337 38.869 11.831 7.889 Total revenues incl. Income from associated companies 417.283 543.394 1.066.455 1.488.203 1.623.430 2.468.225 2.102.629 2.090.060 2.432.931 Cost of materials -226.204 -306.582 -746.174 -903.678 -900.581 -932.118 -1.087.430 0 0 Salaries and other personnel costs -39.030 -53.696 -136.246 -165.148 -193.300 -238.409 -238.382 -276.103 -302.223 Other operating costs -63.285 -53.890 -196.814 -332.645 -410.541 -592.752 -603.585 -642.374 -675.156 Change in inventories 849 40.497 205.859 51.637 158.085 -10.412 197.753 -1.202.314 -968.978 Total operating expenses -327.670 -373.671 -873.375 -1.349.834 -1.346.337 -1.773.691 -1.731.644 -2.120.791 -1.946.357 EBITDA 89.613 169.723 193.080 138.369 277.093 694.534 370.985 -30.731 486.574 Depreciation & amortisation -38.696 -44.147 -73.641 -110.522 -121.582 -119.574 -140.206 -161.345 -136.037 EBIT 50.917 125.576 119.439 27.847 155.511 574.960 230.779 -192.076 350.537 Tax on core operations -14.325 -39.911 53.576 -6.142 -42.434 -151.975 -85.189 52.366 -73.297 NOPAT 36.592 85.665 173.015 21.705 113.077 422.985 145.590 -139.710 277.240

Non-Operating & Non-Recurring Items (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net financial expenses -14.271 -28.937 -39.327 -233.965 46.727 2.793 -30.822 -108.347 -73.056 Tax on net financial expenses (Tax shield) 4.015 9.197 -17.641 51.605 -12.750 -738 11.378 29.539 15.276 Net financial expenses after tax -10.256 -19.740 -56.968 -182.360 33.977 2.055 -19.444 -78.808 -57.780 Biomass fair value adjustments 22.693 42.367 -44.075 -35.747 115.276 207.629 -395.180 98.063 267.450 Imapirment of fixed assets 0 0 0 -38.012 0 0 0 0 0 Impairment of goodwill and licenses 0 0 0 -161.988 0 0 0 0 0 Reversal of previous amortisation of licences 0 0 0 0 0 72.385 0 0 0 Special items after tax 16.309 28.902 -63.846 -183.749 83.821 206.000 -249.305 71.328 211.526 Net profit 42.645 94.827 52.202 -344.404 230.874 631.040 -123.159 -147.190 430.986

Tax 2005 2006 2007 2008 2009 2010 2011 2012 2013 Reported tax 16.694 44.179 -16.165 -97.461 86.640 226.727 -72.064 -55.170 113.945 Profit before tax 59.339 139.006 36.037 -441.865 317.514 857.767 -195.223 -202.360 544.931 Effective tax rate 28% 32% -45% 22% 27% 26% 37% 27% 21%

8.2 GSF: Reformulated Balance sheet REFORMULATED BALANCE SHEET Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Biological assets 301.467 551.637 1.067.574 1.073.341 1.367.061 1.564.041 1.404.934 1.310.142 1.766.332 Other inventories 7.812 17.091 34.927 44.592 49.180 58.409 67.355 65.692 74.015 Accounts receivable 30.550 60.589 111.893 157.876 188.052 265.350 223.682 124.657 177.814 Other current receivables 44.018 34.073 82.578 48.488 57.051 43.265 58.139 51.299 54.015 Total current assets 383.847 663.390 1.296.972 1.324.297 1.661.344 1.931.065 1.754.110 1.551.790 2.072.176 Accounts payable 60.571 63.703 197.356 214.687 233.443 253.305 303.196 246.119 317.753 Accrued salary expense and public tax payable 6160 8629 18021 13611 13869 25104 16072 19720 23202 Other short-term liabilities 21.249 11.281 25.535 23.702 72.400 41.674 48.452 53.982 54.761 Total current liabilities 87.980 83.613 240.912 252.000 319.712 320.083 367.720 319.821 395.716 Net Working Capital 295.867 579.777 1.056.060 1.072.297 1.341.632 1.610.982 1.386.390 1.231.969 1.676.460 Licences 185.902 445.117 849.838 831.921 818.340 926.170 987.596 976.740 994.066 Other intangible assets 0 0 0 8.205 5.578 3.160 4.618 3.800 4.545 Property, plant and equipment 185.372 300.629 639.092 794.346 819.110 923.546 1.126.699 1.141.317 1.204.207 Investments in associated companies and joint ventures 13.720 10.729 10.879 11.579 13.619 33.456 37.387 49.229 41.190 Other non-current receivables 0 12.667 10.275 1.790 0 1.958 311 53 255 Total non-current assets 384.994 769.142 1.510.084 1.647.841 1.656.647 1.888.290 2.156.611 2.171.139 2.244.263 Deferred tax liabilities 46.715 206.567 281.294 207.020 331.995 531.498 486.702 426.781 557.350 Other non-current liabilities 0 1.962 19.096 5.882 691 3.292 2.701 0 24.056 Cash-settled share options 0 0 0 0 1351 5845 194 9267 0 Non-interest bearing liabilities 46.715 208.529 300.390 212.902 334.037 540.635 489.597 436.048 581.406 Invested Capital excl. Goodwill 634.146 1.140.390 2.265.754 2.507.236 2.664.242 2.958.637 3.053.404 2.967.060 3.339.317 Goodwill 16.063 105.556 138.661 43.616 87.583 90.540 105.373 105.108 107.310 Invested Capital incl. Goodwill 650.209 1.245.946 2.404.415 2.550.852 2.751.825 3.049.177 3.158.777 3.072.168 3.446.627

Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total equity 185.758 579.255 1.266.083 928.603 1.374.421 1.982.405 1.690.150 1.513.230 1.988.557

Subordinated loans 50.000 0 9.800 13.517 13.548 14.581 18.287 0 0 Long-term borrowings 265.054 427.730 563.484 8.065 711.419 646.686 592.685 975.844 850.646 Financial leasing liabilities 58.141 72.197 123.352 213.117 198.167 168.856 179.670 156.150 170.251 Bank overdraft 96.436 175.354 337.957 0 0 0 0 0 0 Short-term loan facilities 0 0 0 496.702 482.989 260.000 700.000 500.000 425.000 Current portion of long-term borrowings 19.872 26.115 76.184 807.827 85.295 79.000 79.983 109.542 111.060 Current portion of financial leasing liabilities 17.131 19.034 52.498 35.305 37.383 41.726 44.662 44.730 46.149 Pension obligations 3.368 3.523 4.369 4.161 1.927 2.051 1.557 1.110 610 Financial instruments 0 0 50 122.532 9.672 1.605 7.887 13.805 21.198 Total interest bearing debt 510.002 723.953 1.167.694 1.701.226 1.540.400 1.214.505 1.624.731 1.801.181 1.624.914 Loans to associated companies 0 3.871 2.897 2.410 1.923 3.449 996 1.020 1.020 Available-for-sale financial assets 35.823 40.700 156 178 945 557 1.307 1.337 1.392 Financial instruments 0 0 1.991 8.243 20.350 0 1.178 0 518 Cash and cash equivalents 9.729 12.692 24.318 68.146 139.778 143.727 152.622 239.885 163.913 Total interest-bearing assets 45.552 57.263 29.362 78.977 162.996 147.733 156.103 242.242 166.843 Net interest-bearing debt 464.450 666.690 1.138.332 1.622.249 1.377.404 1.066.772 1.468.628 1.558.939 1.458.071 Invested Capital 650.208 1.245.945 2.404.415 2.550.852 2.751.825 3.049.177 3.158.778 3.072.169 3.446.628

Average figures 2005 2006 2007 2008 2009 2010 2011 2012 2013 Average equity 382.507 922.669 1.097.343 1.151.512 1.678.413 1.836.278 1.601.690 1.750.894 Average net interest-bearing debt 565.570 902.511 1.380.291 1.499.827 1.222.088 1.267.700 1.513.784 1.508.505 Average Invested Capital 948.077 1.825.180 2.477.634 2.651.339 2.900.501 3.103.978 3.115.474 3.259.399

8.3 GSF: Profitability Grieg Seafood 2005 2006 2007 2008 2009 2010 2011 2012 2013 Turnover rate, invested capital 0,57 0,59 0,60 0,61 0,85 0,66 0,67 0,74 Financial leverage 1,48 0,98 1,26 1,30 0,73 0,69 0,95 0,86 Before tax ROIC 13,2 % 6,5 % 1,1 % 5,9 % 19,8 % 7,4 % -6,2 % 10,8 % Profit margin 23,1 % 11,2 % 1,9 % 9,6 % 23,4 % 11,2 % -9,2 % 14,5 % NBC -5,1 % -4,4 % -17,0 % 3,1 % 0,2 % -2,4 % -7,2 % -4,8 % ROE = ROIC + (ROIC - NBC) * FGEAR 25,3 % 8,7 % -18,8 % 17,6 % 34,4 % 10,9 % -18,8 % 15,8 % ROE, reported 36,3 % 3,9 % -40,3 % 27,6 % 51,1 % -10,6 % -12,6 % 31,1 % After tax ROIC 9,0 % 9,5 % 0,9 % 4,3 % 14,6 % 4,7 % -4,5 % 8,5 % Profit margin 16,0 % 16,9 % 1,5 % 7,0 % 17,3 % 7,1 % -6,8 % 11,5 % NBC -3,5 % -6,3 % -13,2 % 2,3 % 0,2 % -1,5 % -5,2 % -3,8 % ROE = ROIC + (ROIC - NBC) * FGEAR 17,2 % 12,6 % -14,6 % 12,8 % 25,3 % 6,9 % -13,6 % 12,5 % ROE, reported 24,8 % 5,7 % -31,4 % 20,0 % 37,6 % -6,7 % -9,2 % 24,6 % Profitability margins EBITDA-margin 21,4 % 31,2 % 18,1 % 9,3 % 17,1 % 28,3 % 18,0 % -1,5 % 20,1 % EBIT-margin 12,1 % 23,1 % 11,2 % 1,9 % 9,6 % 23,4 % 11,2 % -9,2 % 14,5 % Profit margin, reported 10,2 % 17,4 % 4,9 % -23,2 % 14,2 % 25,7 % -6,0 % -7,1 % 17,8 %

8.4 GSF: Revenues, sales price and harvest volumes Grieg Seafood 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total revenues 408 097 535 756 1 021 810 1 477 029 1 612 619 2 446 490 2 046 991 2 050 065 2 404 215 Harvested volume (GWT) 15 414 16 955 40 461 51 731 48 747 64 214 60 082 70 000 58 061 Total revenues/kg 26,5 31,6 25,3 28,6 33,1 38,1 34,1 29,3 41,4 EBIT/kg 3,3 7,4 3,0 0,5 3,2 9,0 3,8 -2,7 6,0 Cost/kg -21,3 -22,0 -21,6 -26,1 -27,6 -27,6 -28,8 -30,3 -33,5

8.5 GSF: Common-size Core Operations (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% 100,0% Other revenue 2,8% 1,4% 4,6% 0,7% 0,5% 0,4% 0,8% 1,4% 0,9% Total revenues 102,8% 101,4% 104,6% 100,7% 100,5% 100,4% 100,8% 101,4% 100,9% Income from investments in associated companies -0,5% 0,0% -0,2% 0,0% 0,1% 0,5% 1,9% 0,6% 0,3% Total revenues incl. Income from associated companies 102,3% 101,4% 104,4% 100,8% 100,7% 100,9% 102,7% 102,0% 101,2% Cost of materials -55,4% -57,2% -73,0% -61,2% -55,8% -38,1% -53,1% 0,0% 0,0% Salaries and other personnel costs -9,6% -10,0% -13,3% -11,2% -12,0% -9,7% -11,6% -13,5% -12,6% Other operating costs -15,5% -10,1% -19,3% -22,5% -25,5% -24,2% -29,5% -31,3% -28,1% Change in inventories 0,2% 7,6% 20,1% 3,5% 9,8% -0,4% 9,7% -58,6% -40,3% Total operating expenses -80,3% -69,7% -85,5% -91,4% -83,5% -72,5% -84,6% -103,4% -81,0% EBITDA 22,0% 31,7% 18,9% 9,4% 17,2% 28,4% 18,1% -1,5% 20,2% Depreciation & amortisation -9,5% -8,2% -7,2% -7,5% -7,5% -4,9% -6,8% -7,9% -5,7% EBIT 12,5% 23,4% 11,7% 1,9% 9,6% 23,5% 11,3% -9,4% 14,6% Tax on core operations -3,5% -7,4% 5,2% -0,4% -2,6% -6,2% -4,2% 2,6% -3,0% NOPAT 9,0% 16,0% 16,9% 1,5% 7,0% 17,3% 7,1% -6,8% 11,5%

Non-Operating & Non-Recurring Items (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net financial expenses -3,5% -5,4% -3,8% -15,8% 2,9% 0,1% -1,5% -5,3% -3,0% Tax on net financial expenses (Tax shield) 1,0% 1,7% -1,7% 3,5% -0,8% 0,0% 0,6% 1,4% 0,6% Net financial expenses after tax -2,5% -3,7% -5,6% -12,3% 2,1% 0,1% -0,9% -3,8% -2,4% Biomass fair value adjustments 5,6% 7,9% -4,3% -2,4% 7,1% 8,5% -19,3% 4,8% 11,1% Imapirment of fixed assets 0,0% 0,0% 0,0% -2,6% 0,0% 0,0% 0,0% 0,0% 0,0% Impairment of goodwill and licenses 0,0% 0,0% 0,0% -11,0% 0,0% 0,0% 0,0% 0,0% 0,0% Reversal of previous amortisation of licences 0,0% 0,0% 0,0% 0,0% 0,0% 3,0% 0,0% 0,0% 0,0% Special items after tax 4,0% 5,4% -6,2% -12,4% 5,2% 8,4% -12,2% 3,5% 8,8% Net profit 10,4% 17,7% 5,1% -23,3% 14,3% 25,8% -6,0% -7,2% 17,9%

REFORMULATED BALANCE SHEET Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Biological assets 73,9% 103,0% 104,5% 72,7% 84,8% 63,9% 68,6% 63,9% 73,5% Other inventories 1,9% 3,2% 3,4% 3,0% 3,0% 2,4% 3,3% 3,2% 3,1% Accounts receivable 7,5% 11,3% 11,0% 10,7% 11,7% 10,8% 10,9% 6,1% 7,4% Other current receivables 10,8% 6,4% 8,1% 3,3% 3,5% 1,8% 2,8% 2,5% 2,2% Total current assets 94,1% 123,8% 126,9% 89,7% 103,0% 78,9% 85,7% 75,7% 86,2% Accounts payable 14,8% 11,9% 19,3% 14,5% 14,5% 10,4% 14,8% 12,0% 13,2% Accrued salary expense and public tax payable 1,5% 1,6% 1,8% 0,9% 0,9% 1,0% 0,8% 1,0% 1,0% Other short-term liabilities 5,2% 2,1% 2,5% 1,6% 4,5% 1,7% 2,4% 2,6% 2,3% Total current liabilities 21,6% 15,6% 23,6% 17,1% 19,8% 13,1% 18,0% 15,6% 16,5% Net Working Capital 72,5% 108,2% 103,4% 72,6% 83,2% 65,8% 67,7% 60,1% 69,7% Licences 45,6% 83,1% 83,2% 56,3% 50,7% 37,9% 48,2% 47,6% 41,3% Other intangible assets 0,0% 0,0% 0,0% 0,6% 0,3% 0,1% 0,2% 0,2% 0,2% Property, plant and equipment 45,4% 56,1% 62,5% 53,8% 50,8% 37,7% 55,0% 55,7% 50,1% Investments in associated companies and joint ventures 3,4% 2,0% 1,1% 0,8% 0,8% 1,4% 1,8% 2,4% 1,7% Other non-current receivables 0,0% 2,4% 1,0% 0,1% 0,0% 0,1% 0,0% 0,0% 0,0% Total non-current assets 94,3% 143,6% 147,8% 111,6% 102,7% 77,2% 105,4% 105,9% 93,3% Deferred tax liabilities 11,4% 38,6% 27,5% 14,0% 20,6% 21,7% 23,8% 20,8% 23,2% Other non-current liabilities 0,0% 0,4% 1,9% 0,4% 0,0% 0,1% 0,1% 0,0% 1,0% Cash-settled share options 0,0% 0,0% 0,0% 0,0% 0,1% 0,2% 0,0% 0,5% 0,0% Non-interest bearing liabilities 11,4% 38,9% 29,4% 14,4% 20,7% 22,1% 23,9% 21,3% 24,2% Invested Capital excl. Goodwill 155,4% 212,9% 221,7% 169,7% 165,2% 120,9% 149,2% 144,7% 138,9% Goodwill 3,9% 19,7% 13,6% 3,0% 5,4% 3,7% 5,1% 5,1% 4,5% Invested Capital incl. Goodwill 159,3% 232,6% 235,3% 172,7% 170,6% 124,6% 154,3% 149,9% 143,4%

Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total equity 45,5% 108,1% 123,9% 62,9% 85,2% 81,0% 82,6% 73,8% 82,7%

Subordinated loans 12,3% 0,0% 1,0% 0,9% 0,8% 0,6% 0,9% 0,0% 0,0% Long-term borrowings 64,9% 79,8% 55,1% 0,5% 44,1% 26,4% 29,0% 47,6% 35,4% Financial leasing liabilities 14,2% 13,5% 12,1% 14,4% 12,3% 6,9% 8,8% 7,6% 7,1% Bank overdraft 23,6% 32,7% 33,1% 0,0% 0,0% 0,0% 0,0% 0,0% 0,0% Short-term loan facilities 0,0% 0,0% 0,0% 33,6% 30,0% 10,6% 34,2% 24,4% 17,7% Current portion of long-term borrowings 4,9% 4,9% 7,5% 54,7% 5,3% 3,2% 3,9% 5,3% 4,6% Current portion of financial leasing liabilities 4,2% 3,6% 5,1% 2,4% 2,3% 1,7% 2,2% 2,2% 1,9% Pension obligations 0,8% 0,7% 0,4% 0,3% 0,1% 0,1% 0,1% 0,1% 0,0% Financial instruments 0,0% 0,0% 0,0% 8,3% 0,6% 0,1% 0,4% 0,7% 0,9% Total interest bearing debt 125,0% 135,1% 114,3% 115,2% 95,5% 49,6% 79,4% 87,9% 67,6% Loans to associated companies 0,0% 0,7% 0,3% 0,2% 0,1% 0,1% 0,0% 0,0% 0,0% Available-for-sale financial assets 8,8% 7,6% 0,0% 0,0% 0,1% 0,0% 0,1% 0,1% 0,1% Financial instruments 0,0% 0,0% 0,2% 0,6% 1,3% 0,0% 0,1% 0,0% 0,0% Cash and cash equivalents 2,4% 2,4% 2,4% 4,6% 8,7% 5,9% 7,5% 11,7% 6,8% Total interest-bearing assets 11,2% 10,7% 2,9% 5,3% 10,1% 6,0% 7,6% 11,8% 6,9% Net interest-bearing debt 113,8% 124,4% 111,4% 109,8% 85,4% 43,6% 71,7% 76,0% 60,6% Invested Capital 159,3% 232,6% 235,3% 172,7% 170,6% 124,6% 154,3% 149,9% 143,4%

8.6 GSF: Index-analysis Core Operations (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Revenues 100 131 250 362 395 599 502 502 589 Other revenue 100 68 412 93 78 83 149 250 185 Total revenues 100 130 255 355 387 586 492 496 578 Income from investments in associated companies 100 3 90 -33 -95 -588 -1854 -564 -376 Total revenues incl. Income from associated companies 100 130 256 357 389 591 504 501 583 Cost of materials 100 136 330 399 398 412 481 0 0 Salaries and other personnel costs 100 138 349 423 495 611 611 707 774 Other operating costs 100 85 311 526 649 937 954 1015 1067 Change in inventories 100 4770 24247 6082 18620 -1226 23292 -141615 -114132 Total operating expenses 100 114 267 412 411 541 528 647 594 EBITDA 100 189 215 154 309 775 414 -34 543 Depreciation & amortisation 100 114 190 286 314 309 362 417 352 EBIT 100 247 235 55 305 1129 453 -377 688 Tax on core operations 100 279 -374 43 296 1061 595 -366 512 NOPAT 100 234 473 59 309 1156 398 -382 758

Non-Operating & Non-Recurring Items (NOK 1000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net financial expenses 100 203 276 1639 -327 -20 216 759 512 Tax on net financial expenses (Tax shield) 100 229 -439 1285 -318 -18 283 736 380 Net financial expenses after tax 100 192 555 1778 -331 -20 190 768 563 Biomass fair value adjustments 100 187 -194 -158 508 915 -1741 432 1179 Imapirment of fixed assets 100 0 0 0 0 0 Impairment of goodwill and licenses 100 0 0 0 0 0 Reversal of previous amortisation of licences 100 0 0 0 Special items after tax 100 177 -391 -1127 514 1263 -1529 437 1297 Net profit 100 222 122 -808 541 1480 -289 -345 1011

REFORMULATED BALANCE SHEET Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Biological assets 100 183 354 356 453 519 466 435 586 Other inventories 100 219 447 571 630 748 862 841 947 Accounts receivable 100 198 366 517 616 869 732 408 582 Other current receivables 100 77 188 110 130 98 132 117 123 Total current assets 100 173 338 345 433 503 457 404 540 Accounts payable 100 105 326 354 385 418 501 406 525 Accrued salary expense and public tax payable 100 140 293 221 225 408 261 320 377 Other short-term liabilities 100 53 120 112 341 196 228 254 258 Total current liabilities 100 95 274 286 363 364 418 364 450 Net Working Capital 100 196 357 362 453 544 469 416 567 Licences 100 239 457 448 440 498 531 525 535 Other intangible assets 100 68 39 56 46 55 Property, plant and equipment 100 162 345 429 442 498 608 616 650 Investments in associated companies and joint ventures 100 78 79 84 99 244 273 359 300 Other non-current receivables 100 81 14 0 15 2 0 2 Total non-current assets 100 200 392 428 430 490 560 564 583 Deferred tax liabilities 100 442 602 443 711 1138 1042 914 1193 Other non-current liabilities 100 973 300 35 168 138 0 1226 Cash-settled share options 100 433 14 686 0 Non-interest bearing liabilities 100 446 643 456 715 1157 1048 933 1245 Invested Capital excl. Goodwill 100 180 357 395 420 467 481 468 527 Goodwill 100 657 863 272 545 564 656 654 668 Invested Capital incl. Goodwill 100 192 370 392 423 469 486 472 530

Invested Capital 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total equity 100 100 219 160 237 342 292 261 343

Subordinated loans 100 0 20 27 27 29 37 0 0 Long-term borrowings 100 161 213 3 268 244 224 368 321 Financial leasing liabilities 100 124 212 367 341 290 309 269 293 Bank overdraft 100 182 350 0 0 0 0 0 0 Short-term loan facilities 100 97 52 141 101 86 Current portion of long-term borrowings 100 131 383 4065 429 398 402 551 559 Current portion of financial leasing liabilities 100 111 306 206 218 244 261 261 269 Pension obligations 100 105 130 124 57 61 46 33 18 Financial instruments 100 8 1 6 11 17 Total interest bearing debt 100 142 229 334 302 238 319 353 319 Loans to associated companies 100 75 62 50 89 26 26 26 Available-for-sale financial assets 100 114 0 0 3 2 4 4 4 Financial instruments 100 414 1022 0 59 0 26 Cash and cash equivalents 100 130 250 700 1437 1477 1569 2466 1685 Total interest-bearing assets 100 126 64 173 358 324 343 532 366 Net interest-bearing debt 100 144 245 349 297 230 316 336 314 Invested Capital 100 192 370 392 423 469 486 472 530

Appendix 9 – Capital structure Capital structure LSG (27.05.2014) % Peers, E/EV (27.05.2014) E 10 861 83,1 % Marine Harvest 79,0 % NIDB 2 201 16,9 % SalMar 83,6 % EV 13 062 100,0 % Grieg Seafood 65,4 % Average 76,0 % LSG Average (2005-2013) NIBD/EV 22,7 % Source: Bloomberg/Annual reports/Oslo Børs

Lerøy Seafood Group 2005 2006 2007 2008 2009 2010 2011 2012 2013 Market capitalization ultimo (MV) 2 559 529 4 726 899 6 030 799 2 565 136 5 730 624 10 478 855 4 584 499 7 067 769 9 660 194 MVE + NIBD 2 958 520 6 179 799 7 769 408 4 685 063 7 166 148 11 764 929 6 169 219 9 333 782 11 861 432 NIBD/(NIBD+MVE) 13,5 % 23,5 % 22,4 % 45,2 % 20,0 % 10,9 % 25,7 % 24,3 % 18,6 % Average NIBD/(NIBD+MVE) 22,7 %

Appendix 10 – Calculation of beta

Appendix 11 – Production costs in different regions Production costs Norway (NOK) % Canada (CAD) % Scotland (GBP) % Chile (USD) % Feed 11,65 50 % 2,17 42 % 1,49 48 % 2,05 43 % Primary processing 2,4 10 % 0,49 10 % 0,27 9 % 0,05 1 % Smolt 2,11 9 % 0,6 12 % 0,29 9 % 0,6 13 % Salary 1,38 6 % 0,43 8 % 0,15 5 % 0,16 3 % Maintenance 0,75 3 % 0,15 3 % 0,07 2 % 0,23 5 % Well boat 1,03 4 % 0,21 4 % 0,2 6 % 0,31 7 % Deprectiation 0,63 3 % 0,23 4 % 0,11 4 % 0,12 3 % Sales and marketing 0,52 2 % 0,01 0 % 0,06 2 % 0,01 0 % Mortality 0,3 1 % 0,04 1 % 0,01 0 % 0,05 1 % Other 2,56 11 % 0,8 16 % 0,47 15 % 1,15 24 % Total* 23,33 100 % 5,13 100 % 3,12 100 % 4,73 100 % * HOG cost in box delivered at the processing plant including mortality Source: Marine Harvest Industry Handbook 2013, p.42

Appendix 12 – Global supply of Atlantic salmon Supply of Atlantic salmon (K tons wfe) 2006 2007 2008 2009 2010 2011 2012 2013 Norway 599 723 741 856 945 1006 1183 1144 UK 127 135 137 145 142 155 159 158 Ireland 15 16 11 15 18 16 16 11 Faroes 12 19 37 47 42 56 70 73 Iceland 4 2 1 1 0 0 0 0 Total Europe 757 895 927 1064 1147 1233 1428 1386 Chile 369 356 403 239 130 221 364 468 Canada 115 110 119 115 118 120 137 115 USA 10 12 17 16 18 18 20 20 Total America 494 478 539 370 266 359 521 603 Australia 19 24 26 32 33 36 37 38 Other 0 2 1 1 1 5 9 14 Total Atlantic (Harvest volumes) 1270 1399 1493 1467 1447 1633 1995 2041 Change frozen salmon inventory 2 -4 -25 39 2 1 Total supply Atlantic 1272 1395 1468 1506 1449 1634 1995 2041

Supply of Atlantic salmon (K tons wfe) 2006 2007 2008 2009 2010 2011 2012 2013 Norway 599 723 741 856 945 1006 1183 1144 Chile 369 356 403 239 130 221 364 468 UK 127 135 137 145 142 155 159 158 Canada 115 110 119 115 118 120 137 115 Other 56 73 92 111 112 131 152 156 Total 1266 1397 1492 1466 1447 1633 1995 2041

Supply of Atlantic salmon (K tons wfe) 2006 2007 2008 2009 2010 2011 2012 2013 Norway 47 % 52 % 50 % 58 % 65 % 62 % 59 % 56 % Chile 29 % 25 % 27 % 16 % 9 % 14 % 18 % 23 % UK 10 % 10 % 9 % 10 % 10 % 9 % 8 % 8 % Canada 9 % 8 % 8 % 8 % 8 % 7 % 7 % 6 % Other 4 % 5 % 6 % 8 % 8 % 8 % 8 % 8 % Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Source: Pareto Securities Quarterly Seafood 10.04.2014 p.4, DNB Seafood 22.10.2013 p.11

Appendix 13 – LSG: Forcast assumptions

Revenues

Sales price Sales

VAP premium above above premium VAP

Forward rate

Spot price Spot (Average) price

Growth harvest volumes

Harvest volumes

Revenues

NOPAT

Interest rate as Interest % NIBD of

Tax rate

Depr. & amortisation as % of intangible and tangible assets andDepr. & tangible asamortisation % intangible of

EBITDA margin

Change in inventories Change in

Other operating costsOther operating

Salaries and other personnel costs and other personnel Salaries

Cost of Cost materials of

Income from associated companies Income asfrom companies associated % revenues of

Other revenues as % revenues of Other revenues

Revenue growth Revenue growth

Revenues

Income statement

Value Value drivers - Assumptions

7 473 807

121 700

23,4%

10,0%

26,0%

16,3%

69,3%

99 %

17 %

2009

-1,8%

30,9

6,0%

4,6%

7,9%

9,2%

0,8%

0,0%

2009

8 887 671

130 300

18,9%

14,2%

26,3%

21,7%

61,7%

83 %

2010

37,3

5,2%

3,8%

1,5%

7,8%

8,8%

1,4%

0,0%

2010

7 %

Historical

9 176 873

147 500

29,2%

16,4%

10,5%

67,4%

94 %

13 %

2011

-3,5%

32,0

3,3%

9,5%

5,2%

4,5%

9,4%

0,2%

0,0%

2011

9 102 941

167 000

105 %

27,1%

11,3%

71,4%

-0,8%

-0,6%

13 %

2012

26,6

4,1%

4,2%

4,5%

8,8%

9,4%

0,3%

0,0%

2012

10 764 714

158 200

18,3%

12,9%

23,9%

19,8%

10,2%

65,4%

-2,4%

72 %

2013

-5 %

39,6

4,6%

4,3%

9,3%

1,8%

0,5%

2013

12 138 000

178 500

70,0 %

12,8%

2014E

12,8%

11,4%

28,0%

18,7%

10,0%

65,4%

-1,0%

2014E

40,0

4,6%

4,3%

8,7%

1,8%

0,0%

12 601 386

189 210

80,0 %

2015E

11,4%

28,0%

18,7%

10,0%

65,4%

2015E

-1,0%

6,0%

3,8%

4,6%

4,3%

8,7%

1,8%

0,0%

37,0

Explicit forecasting period

13 357 469

200 563

85,0 %

2016E

11,5%

28,0%

18,7%

10,0%

65,4%

-1,0%

2016E

6,0%

4,6%

4,3%

8,7%

1,8%

0,0%

36,0

13 820 017

210 591

87,5 %

2017E

11,1%

28,0%

18,1%

10,0%

66,0%

-1,0%

2017E

5,0%

3,5%

4,6%

4,3%

8,7%

1,8%

0,0%

35,0

14 148 328

219 014

90,0 %

10,7%

28,0%

17,6%

10,0%

66,5%

2018E

-1,0%

2018E

2,4%

4,0%

4,6%

4,3%

8,7%

1,8%

0,0%

34,0

14 399 838

226 680

92,5 %

10,3%

28,0%

17,1%

10,0%

67,0%

2019E

-1,0%

2019E

1,8%

3,5%

4,6%

4,3%

8,7%

1,8%

0,0%

33,0

14 569 168

233 480

95,0 %

10,0%

28,0%

16,6%

10,0%

67,5%

2020E

-1,0%

2020E

1,2%

4,6%

4,3%

8,7%

1,8%

0,0%

3,0%

32,0

15 006 243

240 485

95,0 %

10,0%

28,0%

16,6%

10,0%

67,5%

-1,0%

2021E

3,0%

4,6%

4,3%

8,7%

1,8%

0,0%

3,0%

32,0

T.P

T.P 62

Net Net interest-bearing debt

Cash and cash equivalents

Shares Shares and securities

Pension funds Pension

Shares available for sale Shares available

Other long-term liabilities Other long-term

Short-term loans Short-term

Pension liabilities Pension

Other long-term debt Other long-term

Long-term interest-bearing debt Long-term interest-bearing

Invested Invested capital incl. Goodwill

Goodwill

Invested Invested capital Goodwill excl.

Deferred tax liabilities Deferred

Total non-current assets

Deferred tax asset Deferred

Long-term Long-term receivables

Shares in associated companies associated Shares in

Buildings, real estate, operating accessories operating estate, real Buildings,

Licences, rights Licences,

Net Net Working Capital

Other short-term liabilities Other short-term

Taxes payable Taxes

Public duties payable duties Public

Accounts payable

Other Other current receivables

Accounts receivable

Other Other inventories

Biological assets Biological

Balance sheet

19,2%

20,1%

76,7%

22,3%

54,4%

11,2%

37,5%

16,4%

17,3%

28,0%

11,7%

24,9%

9,5%

0,0%

0,3%

0,0%

8,6%

0,2%

0,0%

0,1%

0,2%

3,7%

3,2%

1,3%

0,7%

8,2%

1,7%

3,2%

2009

14,5%

15,3%

25,0%

81,9%

21,1%

60,8%

14,2%

44,0%

17,8%

22,2%

31,0%

11,4%

30,5%

0,0%

0,3%

0,0%

4,9%

0,1%

0,0%

0,1%

3,8%

3,6%

4,4%

0,8%

7,2%

2,0%

3,3%

2010

Historical

17,3%

17,4%

26,5%

80,4%

20,7%

59,8%

11,8%

45,4%

20,0%

21,6%

26,2%

10,2%

25,8%

0,0%

0,3%

0,1%

8,3%

0,1%

0,0%

0,1%

3,6%

3,1%

3,5%

0,7%

7,7%

1,6%

3,6%

2011

24,9%

11,9%

10,0%

26,4%

90,4%

21,9%

68,5%

13,5%

48,7%

23,0%

21,7%

33,3%

10,9%

29,9%

0,0%

0,2%

0,5%

0,1%

0,0%

0,2%

0,1%

3,6%

2,5%

1,0%

0,7%

9,1%

2,2%

3,6%

2012

20,4%

21,9%

90,6%

18,7%

71,9%

13,8%

47,6%

22,1%

18,4%

38,1%

13,8%

34,6%

8,1%

0,0%

0,1%

0,3%

6,3%

0,0%

0,1%

0,2%

6,8%

2,8%

3,0%

1,0%

9,8%

2,9%

3,3%

2013

2 008 485

100,4%

19,5%

12,4%

24,0%

83,9%

49,5%

22,1%

20,2%

34,4%

13,8%

29,0%

2014E

0,0%

0,1%

0,3%

7,6%

0,0%

0,1%

0,2%

6,8%

2,8%

2,6%

0,8%

8,4%

2,9%

3,3%

0 %

2 008 485

19,5%

12,4%

24,0%

99,8%

83,9%

49,5%

22,1%

20,2%

34,4%

13,8%

29,0%

2015E

0,0%

0,1%

0,3%

7,6%

0,0%

0,1%

0,2%

6,8%

2,8%

2,6%

0,8%

8,4%

2,9%

3,3%

0 %

Explicit Explicit forecasting period

2 008 485

19,5%

12,4%

24,0%

98,9%

83,9%

49,5%

22,1%

20,2%

34,4%

13,8%

29,0%

2016E

0,0%

0,1%

0,3%

7,6%

0,0%

0,1%

0,2%

6,8%

2,8%

2,6%

0,8%

8,4%

2,9%

3,3%

0 %

2 008 485

19,5%

12,4%

24,0%

98,4%

83,9%

49,5%

22,1%

20,2%

34,4%

13,8%

29,0%

2017E

0,0%

0,1%

0,3%

7,6%

0,0%

0,1%

0,2%

6,8%

2,8%

2,6%

0,8%

8,4%

2,9%

3,3%

0 %

2 008 485

19,5%

12,4%

24,0%

98,1%

83,9%

49,5%

22,1%

20,2%

34,4%

13,8%

29,0%

2018E

0,0%

0,1%

0,3%

7,6%

0,0%

0,1%

0,2%

6,8%

2,8%

2,6%

0,8%

8,4%

2,9%

3,3%

0 %

2 008 485

19,5%

12,4%

24,0%

97,8%

83,9%

49,5%

22,1%

20,2%

34,4%

13,8%

29,0%

2019E

0,0%

0,1%

0,3%

7,6%

0,0%

0,1%

0,2%

6,8%

2,8%

2,6%

0,8%

8,4%

2,9%

3,3%

0 %

2 008 485

19,5%

12,4%

24,0%

97,7%

83,9%

49,5%

22,1%

20,2%

34,4%

13,8%

29,0%

2020E

0,0%

0,1%

0,3%

7,6%

0,0%

0,1%

0,2%

6,8%

2,8%

2,6%

0,8%

8,4%

2,9%

3,3%

0 %

2 068 740

19,5%

12,4%

24,0%

97,7%

83,9%

49,5%

22,1%

20,2%

34,4%

13,8%

29,0%

2021E

0,0%

0,1%

0,3%

7,6%

0,0%

0,1%

0,2%

6,8%

2,8%

2,6%

0,8%

8,4%

2,9%

3,3%

0 % T.P

Appendix 14 – LSG: Forcast – Income statement

Net Net profit

Special Special items after tax

Impairment loss Impairment

Biomass fair value adjustments value fair Biomass

Net financial expenses afterNet financial taxexpenses

Tax on net financial expenses (Tax shield) (Tax expenses Tax on financial net

Net financial expenses financial Net

Non-Operating & Non-Recurring Items (NOK 1000)

NOPAT

Tax on core operations

EBIT

Depreciation & amortisation Depreciation

EBITDA

Total operating expenses

Change in inventories Change in

Other operating costs Other operating

Salaries and other personnel costs and other personnel Salaries

Cost of Cost materials of

Total incl. Incomerevenues from associated companies

Income from investments in associated companies associated in from Income investments

Total revenues

Other Other revenue

Revenues

Core Core Operations (NOK 1000)

-6 319 644

-5 177 492

1 012 900

1 216 907

7 536 551

7 473 807

-263 810

-204 007

-586 743

-690 477

730 141

749 090

135 068

-63 679

-86 105

44 730

60 483

22 426

62 744

2009

-7 081 796

-5 479 869

1 429 571

1 258 462

1 708 257

1 927 881

9 009 677

8 887 671

-449 795

-219 624

-132 291

-691 791

-777 845

219 931

298 538

122 006

-48 822

-66 272

17 450

2010

-7 692 076

-6 184 793

1 232 639

1 504 538

9 196 614

9 176 873

-435 854

-615 767

-360 148

-271 899

-858 107

-967 789

378 677

872 491

318 613

-57 959

-81 884

23 925

19 741

2011

-8 328 075

-1 031 872

-6 499 768

9 127 772

9 102 941

-137 616

-291 768

-853 884

491 762

190 822

294 735

370 313

507 929

799 697

-33 000

-69 373

-95 153

25 780

57 449

24 831

2012

11 010 707

10 818 519

10 764 714

-8 880 045

-1 004 148

-1 094 464

-7 039 813

1 886 395

1 386 813

1 823 487

2 130 662

-101 840

-436 674

-307 175

577 035

764 229

258 380

192 188

-77 452

24 388

53 805

-5 500

2013

-10 086 329

12 356 484

12 138 000

-1 056 006

-1 213 800

-7 937 903

1 246 147

1 386 452

1 925 627

2 270 155

-140 305

-109 613

-539 176

-344 528

121 380

218 484

-30 692

2014E

-10 471 389

12 828 211

12 601 386

-1 096 321

-1 260 139

-8 240 944

1 296 094

1 441 755

2 002 438

2 356 822

-145 661

-113 798

-560 683

-354 384

126 014

226 825

-31 863

2015E

-11 099 672

13 597 904

13 357 469

-1 162 100

-1 335 747

-8 735 400

1 377 591

1 531 992

2 127 766

2 498 231

-154 401

-120 626

-595 775

-370 465

133 575

240 434

-33 775

2016E

-11 567 354

14 068 777

13 820 017

-1 202 341

-1 382 002

-9 121 211

1 367 459

1 527 206

2 121 120

2 501 423

-159 748

-124 803

-593 914

-380 303

138 200

248 760

-34 945

2017E

-11 912 892

14 402 998

14 148 328

-1 230 905

-1 414 833

-9 408 638

1 350 487

1 514 030

2 102 820

2 490 106

-163 543

-127 768

-588 790

-387 286

141 483

254 670

-35 775

2018E

-12 196 663

14 659 035

14 399 838

-1 252 786

-1 439 984

-9 647 892

1 323 761

1 490 211

2 069 737

2 462 372

-166 450

-130 039

-579 526

-392 635

143 998

259 197

-36 411

2019E

-12 412 931

14 831 413

14 569 168

-1 267 518

-1 456 917

-9 834 188

1 287 609

1 456 016

2 022 245

2 418 482

-168 407

-131 568

-566 229

-396 237

145 692

262 245

-36 839

2020E

-12 785 319

-10 129 214

15 276 355

15 006 243

-1 305 543

-1 500 624

1 326 237

1 499 697

2 082 912

2 491 036

-173 459

-135 515

-583 215

-408 124

150 062

270 112

-37 944

2021E

0 0

Appendix 15 – LSG: Forcast – Balance sheet

Invested Invested Capital

Net Net interest-bearing debt

Total interest-bearing assets

Cash and cash equivalents

Shares Shares and securities

Pension funds Pension

Shares available for sale Shares available

Total interest bearing debt

Other long-term liabilities Other long-term

Short-term loans Short-term

Pension liabilities Pension

Other long-term debt Other long-term

Long-term interest-bearing debt Long-term interest-bearing

Total equity

Invested Invested Capital

Invested Invested Capital incl. Goodwill

Goodwill

Invested Invested Capital Goodwill excl.

Non-interest bearingNon-interest liabilities

Deferred tax Deferred

Total non-current assets

Deferred tax asset Deferred

Long-term Long-term receivables

Shares in associated companies associated Shares in

Buildings, real estate, operating accessories operating estate, real Buildings,

Licences, rights Licences,

Net Net Working Capital

Total current liabilities

Other short-term liabilities Other short-term

Taxes payable Taxes

Public duties payable duties Public

Accounts payable

Total current assets

Other Other current receivables

Accounts receivable

Other Other inventories

Biological assets Biological

Invested Invested Capital

5 735 780

1 435 524

2 166 628

1 504 707

4 300 256

5 735 780

1 669 634

4 066 146

2 804 735

1 225 399

1 289 977

2 096 288

1 005 446

3 101 734

1 858 562

731 104

707 989

646 105

834 877

272 970

240 228

615 996

130 734

876 127

236 311

23 115

14 990

11 928

93 551

55 671

4 461

2009

826

7 280 348

1 286 074

1 380 085

1 357 096

2 666 159

2 221 701

5 994 274

7 280 348

1 875 521

5 404 827

1 260 028

3 909 263

1 586 334

1 972 239

2 755 592

1 431 734

4 187 326

1 013 932

2 706 733

434 121

338 864

323 976

395 233

638 213

176 282

290 379

22 989

74 312

9 025

1 312

3 697

8 129

2010

7 382 486

1 584 720

1 620 602

1 597 429

3 205 322

2 429 365

5 797 766

7 382 486

1 897 147

5 485 339

1 083 693

4 162 277

1 836 384

1 981 726

2 406 755

1 375 066

3 781 821

2 370 938

760 977

329 168

285 410

322 105

705 165

148 395

934 443

328 045

23 173

62 386

7 168

7 812

6 546

8 453

2011

8 229 969

2 266 013

1 101 078

1 082 797

3 367 091

2 402 770

5 963 956

8 229 963

1 993 129

6 236 834

1 230 458

4 434 671

2 094 539

1 978 924

3 032 621

1 212 917

4 245 538

2 724 941

911 887

331 056

230 400

826 677

199 083

995 289

326 225

18 281

44 788

21 545

88 925

66 915

7 646

8 607

2012

9 750 185

2 201 238

3 079 304

2 356 803

7 548 947

9 750 185

2 008 485

7 741 700

1 486 972

5 128 717

2 377 012

1 978 656

4 099 955

1 788 508

1 059 434

5 888 463

1 486 428

3 727 361

878 066

872 513

682 574

735 071

305 074

320 344

103 656

316 192

358 482

36 700

11 807

26 171

5 553

3 227

2013

12 192 093

10 183 608

2 369 255

1 511 373

1 505 112

3 880 629

2 913 120

9 822 838

2 008 485

6 003 799

2 680 254

2 451 876

4 179 808

1 777 012

1 020 326

5 956 820

1 676 056

3 520 020

922 488

828 846

343 993

315 588

356 530

404 215

41 382

13 313

29 510

97 104

2014E

6 261

3 639

12 580 867

10 121 162

12 580 867

10 572 382

2 459 705

1 569 072

1 562 572

4 028 777

3 024 333

2 008 485

6 233 003

2 782 577

2 545 480

4 339 379

1 844 852

1 059 279

6 184 230

1 740 042

3 654 402

957 705

860 489

357 126

327 636

100 811

370 141

419 646

42 962

13 822

30 636

2015E

6 500

3 778

13 215 210

10 607 923

13 215 210

11 206 725

2 607 287

1 663 217

1 656 326

4 270 504

1 015 168

3 205 793

2 008 485

6 606 984

2 949 532

2 698 209

4 599 742

1 955 543

1 122 836

6 555 284

1 844 444

3 873 666

912 118

378 553

347 294

106 860

392 349

444 825

45 539

14 651

32 474

2016E

6 890

4 004

13 603 281

10 905 707

13 603 281

11 594 796

2 697 573

1 720 811

1 713 682

4 418 385

1 050 321

3 316 804

2 008 485

6 835 773

3 051 669

2 791 643

4 759 023

2 023 260

1 161 718

6 782 283

1 908 314

4 007 805

943 703

391 662

359 320

110 560

405 935

460 228

47 116

15 158

33 599

2017E

7 129

4 143

13 878 729

11 117 071

13 878 729

11 870 244

2 761 657

1 761 691

1 754 393

4 523 349

1 075 273

3 395 599

2 008 485

6 998 165

3 124 165

2 857 962

4 872 079

2 071 325

1 189 316

6 943 404

1 953 649

4 103 015

966 122

400 966

367 857

113 187

415 579

471 162

48 236

15 518

34 397

2018E

7 298

4 241

14 089 743

11 278 992

14 089 743

12 081 258

2 810 751

1 793 008

1 785 580

4 603 759

1 094 388

3 455 961

2 008 485

7 122 569

3 179 703

2 908 767

4 958 689

2 108 146

1 210 458

7 066 835

1 988 378

4 175 953

983 296

408 094

374 396

115 199

422 967

479 537

49 093

15 794

35 009

2019E

7 428

4 317

14 231 808

11 388 005

14 231 808

12 223 323

2 843 803

1 814 092

1 806 577

4 657 895

1 107 257

3 496 600

2 008 485

7 206 324

3 217 093

2 942 972

5 016 999

2 132 936

1 224 692

7 149 935

2 011 760

4 225 059

994 859

412 893

378 798

116 553

427 940

485 176

49 670

15 980

35 420

2020E

7 516

4 367

14 658 762

11 729 646

14 658 762

12 590 023

2 929 117

1 868 515

1 860 774

4 797 632

1 140 474

3 601 498

2 068 740

7 422 514

1 024 705

3 313 606

3 031 261

5 167 509

2 196 924

1 261 432

7 364 433

2 072 113

4 351 811

425 280

390 162

120 050

440 778

499 732

51 161

16 459

36 483

2021E

7 741

4 499

0 0

Appendix 16 – LSG: Changes in equity Equity 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Equity primo 4 300 256 5 994 274 5 797 766 5 963 950 7 548 947 9 822 838 10 121 162 10 607 923 10 905 707 11 117 071 11 278 992 11 388 005 Net profit 1 429 571 378 677 491 762 1 886 395 1 246 147 1 296 094 1 377 591 1 367 459 1 350 487 1 323 761 1 287 609 1 326 237 Dividend 264 447 -575 185 -325 578 -301 398 1 027 744 -997 770 -890 830 -1 069 674 -1 139 123 -1 161 840 -1 178 596 -984 597 Equity ultimo 4 300 256 5 994 274 5 797 766 5 963 950 7 548 947 9 822 838 10 121 162 10 607 923 10 905 707 11 117 071 11 278 992 11 388 005 11 729 646 NIBD 1 286 074 1 584 720 2 266 013 2 201 238 2 369 255 2 459 705 2 607 287 2 697 573 2 761 657 2 810 751 2 843 803 2 929 117 Invested capital ultimo 5 735 780 7 280 348 7 382 486 8 229 963 9 750 185 12 192 093 12 580 867 13 215 210 13 603 281 13 878 729 14 089 743 14 231 808 14 658 762

Appendix 17 – LSG: CAPEX calculations CAPEX 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Total non-current assets, primo 4 474 369 5 784 784 6 059 424 6 427 800 7 137 202 8 012 284 8 241 488 8 615 469 8 844 258 9 006 650 9 131 054 9 214 809 Depreciation & amortisation 219 624 271 899 291 768 307 175 344 528 354 384 370 465 380 303 387 286 392 635 396 237 408 124 Total non-current assets, ultimo 5 784 784 6 059 424 6 427 800 7 137 202 8 012 284 8 241 488 8 615 469 8 844 258 9 006 650 9 131 054 9 214 809 9 491 254 CAPEX -1 530 039 -546 539 -660 144 -1 016 577 -1 219 611 -583 588 -744 445 -609 092 -549 678 -517 040 -479 992 -684 568

Appendix 18 – LSG: Cash flow statement Cash flow statement 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E NOPAT 1 258 462 872 491 370 313 1 386 813 1 386 452 1 441 755 1 531 992 1 527 206 1 514 030 1 490 211 1 456 016 1 499 697 Special items after tax 219 931 -435 854 190 822 577 035 0 0 0 0 0 0 0 0 Change in deferred tax liabilities 425 151 -176 335 146 765 256 514 -1 486 972 0 0 0 0 0 0 0 Depreciation & amortisation 219 624 271 899 291 768 307 175 344 528 354 384 370 465 380 303 387 286 392 635 396 237 408 124 NWC -659 304 348 837 -625 866 -1 067 334 -79 853 -159 570 -260 363 -159 282 -113 056 -86 610 -58 310 -150 510 CAPEX -1 530 039 -546 539 -660 144 -1 016 577 -1 219 611 -583 588 -744 445 -609 092 -549 678 -517 040 -479 992 -684 568 FCFF -66 175 334 498 -286 342 443 625 -1 055 456 1 052 981 897 649 1 139 136 1 238 582 1 279 197 1 313 951 1 072 743 Changes in NIBD -149 450 298 646 681 293 -64 775 168 017 90 450 147 582 90 286 64 084 49 093 33 052 85 314 Net financial expenses after tax -48 822 -57 959 -69 373 -77 452 -140 305 -145 661 -154 401 -159 748 -163 543 -166 450 -168 407 -173 459 FCFE -264 447 575 185 325 578 301 398 -1 027 744 997 770 890 830 1 069 674 1 139 123 1 161 840 1 178 596 984 597 Dividend 264 447 -575 185 -325 578 -301 398 1 027 744 -997 770 -890 830 -1 069 674 -1 139 123 -1 161 840 -1 178 596 -984 597 Cash surplus 0 0 0 0 0 0 0 0 0 0 0 0

Appendix 19 – LSG: Assessment of forecast assumptions Assesment of forecast assumptions 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E Growth 18,9% 3,3% -0,8% 18,3% 12,8% 3,8% 6,0% 3,5% 2,4% 1,8% 1,2% 3,0% ROIC before tax 26,2% 16,8% 6,5% 20,3% 17,6% 16,2% 16,5% 15,8% 15,3% 14,8% 14,3% 14,4% EBIT margin 19,2% 13,4% 5,6% 16,9% 15,9% 15,9% 15,9% 15,3% 14,9% 14,4% 13,9% 13,9% Turnover ratio, invested capital 1,37 1,25 1,17 1,20 1,11 1,02 1,04 1,03 1,03 1,03 1,03 1,04 ROE after tax 27,8% 6,4% 8,4% 27,9% 14,3% 13,0% 13,3% 12,7% 12,3% 11,8% 11,4% 11,5%

Appendix 20 – Minority’s share of net income Income Statement 2005 2006 2007 2008 2009 2010 2011 2012 2013 Annual profit 300 947 652 445 279 564 127 052 730 141 1 429 571 378 677 491 762 1 886 395 Of which controlling interest 300 402 651 516 277 014 124 730 729 488 1 419 507 382 705 480 797 1 733 352 Of which non-controlling interest 545 929 2 550 2 322 653 10 062 -4 028 10 963 153 043 Minority's share of annual profits 0,2 % 0,1 % 0,9 % 1,8 % 0,1 % 0,7 % -1,1 % 2,2 % 8,1 %

Appendix 21 – Economic Value Added- & Discounted Cash Flow model Explicit forecast period Terminal period Economic Value Added model (EVA) 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E NOPAT 1 386 452 1 441 755 1 531 992 1 527 206 1 514 030 1 490 211 1 456 016 1 499 697 Invested capital, primo 9 750 185 12 192 093 12 580 867 13 215 210 13 603 281 13 878 729 14 089 743 14 231 808 WACC 4,30 % 8,78 % 8,78 % 8,78 % 8,78 % 8,78 % 8,78 % 8,78 % Cost of capital 419 235 1 071 002 1 105 154 1 160 877 1 194 967 1 219 163 1 237 699 1 250 179 EVA 967 217 370 753 426 838 366 329 319 064 271 048 218 317 249 518 Discount factor 0,96 0,88 0,81 0,74 0,68 0,63 0,58 PV EVA 927 343 326 765 345 817 272 828 218 438 170 580 126 300 Invested capital, primo 9 750 185 PV EVA in forecast horizon 2 388 071 Terminal period 4 313 637 PV EVA in terminal periode 2 495 517 Estimated Enterprise Value (01.01.2014) 14 633 774 Adjusted Enterprise Value (27.05.2014) 15 135 019 NIBD 2 201 238 Minority interests (Book Value) 793 747 Estimated equity value 12 140 034 Shares outstanding 54 577 Estimated share price 222 Source: Own creation

Explicit forecast period Terminal period Discounted cash flow model (DCF) 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E FCFF -1 055 456 1 052 981 897 649 1 139 136 1 238 582 1 279 197 1 313 951 1 072 743 Discount factor 0,96 0,88 0,81 0,74 0,68 0,63 0,58 PV of FCFF -1 011 945 928 049 727 260 848 384 847 959 805 047 760 145 Sum PV of FCFF forecast forecast horizon 3 904 898 Terminal period 18 545 445 PV FCFF in terminal period 10 728 876 Estimated Enterprise Value (01.01.2014) 14 633 774 Adjusted Enterprise Value (27.05.2014) 15 135 019 NIBD'13 2 201 238 Minority interests (Book Value) 793 747 Estimated equity value 12 140 034 Shares outstanding 54 577 Estimated share price 222

Current share price (27.05.2014) 199 Terminal value % of EV 73 % Source: Own creation

Appendix 22 – Development in fish feed input Development in the use & ingredients in salmon feed

Source: Own creation / Marine Harvest Salmon Industry Handbook 2013, p.44

Appendix 23 – Fishpool, salmon spot price

Source: http://fishpool.eu/iframe.aspx?iframe=fpbackoffice/pricedetails.aspx&pageId=53

Appendix 24 – LSG: Historical analytical cash flow statement Analytical cash flow statement 2005 2006 2007 2008 2009 2010 2011 2012 2013 NOPAT 617 752 320 418 271 786 749 090 1 258 462 872 491 370 313 1 386 813 Special items after tax 65 320 12 005 -28 167 44 730 219 931 -435 854 190 822 577 035 Change in deferred tax liabilities 296 935 192 357 25 798 165 550 425 151 -176 335 146 765 256 514 Depreciation and amortization 84 707 153 846 197 023 204 007 219 624 271 899 291 768 307 175 Change in NWC -540 599 -570 848 -125 730 -81 165 -659 304 348 837 -625 866 -1 067 334 Net investments -1 959 725 -1 499 188 -463 909 -139 902 -1 530 039 -546 539 -660 144 -1 016 577 FCFF -1 435 610 -1 391 410 -123 200 942 310 -66 175 334 498 -286 342 443 625 Net financial expenses after tax -30 627 -52 859 -116 566 -63 679 -48 822 -57 959 -69 373 -77 452 Changes in NIBD 1 053 909 285 709 381 318 -684 403 -149 450 298 646 681 293 -64 775 FCFE -412 328 -1 158 560 141 552 194 228 -264 447 575 185 325 578 301 398

Dividends 412 328 1 158 560 -141 552 -194 228 264 447 -575 185 -325 578 -301 398

Appendix 25 – Financial ratios with formulas and DuPont structure

ROE, after tax = NOPAT + NBC after tax / Average equity

ROE, before tax = EBIT + NBC before tax / Average equity

ROIC, after tax = NOPAT /Average Invested capital

ROIC, before tax = EBIT / Average Invested capital

Net borrowing cost, NBC = Net financial expenses / Average NIBD

Financial leverage (FGEAR) = Average NIBD / Average Equity

Turnover rate invested capital = Net revenue / Average Invested capital

Source: Own creation / Plenborg & Petersen, Financial Statement Analysis, 2012

Appendix 26 – Financial leverage (Peer group)

Appendix 27 – Credit rating LSG yearly rating:

Credit rating 2010 AAA AA A BBB BB BB CCC EBIT Interest cover 1 EBITDA Interest cover 1 Operating cash flow/total liabilities (%) 1 Return on invested capital (%) 1 Operating income/revenue (%) 1 Total debt/capital (%) 1 Rating AA Credit rating 2011 AAA AA A BBB BB BB CCC EBIT Interest cover 1 EBITDA Interest cover 1 Operating cash flow/total liabilities (%) 1 Return on invested capital (%) 1 Operating income/revenue (%) 1 Total debt/capital (%) 1 Rating A Credit rating 2012 AAA AA A BBB BB BB CCC EBIT Interest cover 1 EBITDA Interest cover 1 Operating cash flow/total liabilities (%) 1 Return on invested capital (%) 1 Operating income/revenue (%) 1 Total debt/capital (%) 1 Rating BB Credit rating 2013 AAA AA A BBB BB BB CCC EBIT Interest cover 1 EBITDA Interest cover 1 Operating cash flow/total liabilities (%) 1 Return on invested capital (%) 1 Operating income/revenue (%) 1 Total debt/capital (%) 1 Rating A

LSG rating:

Credit rating based on 2010-2013 AAA AA A BBB BB BB CCC Frequency 4 4 5 5 3 1 2 Weight 7 6 5 4 3 2 1 Frequency * Weight 28 24 25 20 9 2 2 Sum 110 Sum frequency 24 Average 4,6 LSG Credit rating BBB

Year 2010 2011 2012 2013 Credit rating AA A BB A Implied rating BBB

Industrial rating:

Rating AAA AA A BBB BB BB CCC EBIT Interest cover 21,4 10,1 6,1 3,7 2,1 0,8 0,1 EBIT /netto.fin omk EBITDA Interest cover 26,5 12,9 9,1 5,8 3,4 1,8 1,3 EBITDA /nettofinansielle omk Operating cash flow/total liabilities (%) 84,2 25,2 15 8,5 2,6 -3,2 -12,9 Operating cash flow/total liabilities Return on invested capital (%) 34,9 21,7 19,4 13,6 11,6 6,6 1 EBIT/ invested capital Operating income/revenue (%) 27 22,1 18,6 15,4 15,9 11,9 11,9 EBIT /revenues Total debt/capital (%) 22,9 37,7 42,5 48,2 62,6 74,8 87,7 Total liabilities /total assets

LSG ratios:

Lerøy Seafood Group 2005 2006 2007 2008 2009 2010 2011 2012 2013 EBIT Interest cover 25,7 26,5 8,0 3,0 15,9 35,0 21,3 7,3 23,5 EBITDA Interest cover 29,4 29,3 10,9 4,7 19,1 39,5 26,0 11,5 27,5 Operating cash flow/total liabilities (%) 12,0% 16,7% 2,6% 5,2% 23,6% 26,9% 15,4% 7,6% 20,7% Return on invested capital (%) 20,2% 21,4% 7,7% 6,0% 17,7% 23,5% 16,7% 6,2% 18,7% Operating income/revenue (%) 8,4% 14,5% 6,7% 5,8% 13,6% 19,2% 13,4% 5,6% 16,9% Total debt/capital (%) 49,9% 58,2% 49,7% 51,6% 48,2% 47,2% 49,4% 49,3% 45,7% * Ultimo figures are used