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Fishy Friday 14 October 2011 Geir Kristiansen, +47 2414 7475 [email protected]

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Page 1: Fishy Friday 141011

Fishy Friday 14 October 2011

Geir Kristiansen, +47 2414 7475

[email protected]

Page 2: Fishy Friday 141011

Salmon farming

• Investment case: – Our salmon price forecasts for 2011, 2012 and 2013 are NOK 31.6, NOK 26 and

NOK 29, respectively. The long-term supply growth potential is limited, thus we see strong long-term margins in the sector.

– Salmon is not expensive compared to other high-quality protein sources.

– The historically supply-driven salmon market is becoming demand driven as a consequence of increasing demand, particularly from the BRIC countries, combined with lower supply. We believe this is a lasting change, except that Chile’s comeback will provide a short-term supply boost.

• Risk factors:

– Volatility in salmon prices

– Rising fish feed raw material prices will have an impact on costs.

– Diseases, sea lice and other biological risk factors.

• Recommendations

– MHG: Buy, TP NOK 3.2 – CEQ: Buy, TP NOK 100 – LSG: Buy, TP NOK 112 – AUSS: Buy, TP 30 – COP: Buy, TP NOK 55 – GSF: Neutral, TP NOK 5.4 – SALM: Sell, TP NOK 26

2 14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 3: Fishy Friday 141011

In focus this week

• Prices are per Thursday afternoon about NOK 19 pr. kg. (3-6 kg, Oslo, delivery next week), which is down by about NOK 1 from last week. – Traders are worried about the next couple of weeks, when harvesting is expected to

increase due to monitoring of the maximum allowed biomass.

– Forward prices for 4Q11 continue down, but forward prices for 2012 seem to be stabilizing around NOK 24 - NOK 25.

• Chile's national fishing authority Sernapesca has identified the presence of the heart and skeletal muscle inflammation virus, or HSMI, in the local salmon industry. This virus was detected in Norway in 2011, and has not created significant problems. Mortality level increases by 1%-3% for infected salmon.

• A sector update with 3Q 11 previews for Austevoll Seafood and Copeinca is out today (pp 62-66).

− We cut our target price for Austevoll Seafood to NOK 30 (37) due to last week’s lowering of the valuation of Lerøy.

− Target price for Copeinca remains at NOK 55.

− We have Buy recommendations on both shares.

3 14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 4: Fishy Friday 141011

Break-even prices (Norway) 2012E

4

Source: SpareBank 1 Markets

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 5: Fishy Friday 141011

Sensitivity to the salmon price - EPS

5 14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 6: Fishy Friday 141011

Who will be in breach of covenants first?

• MHG, SALM and GSF will be in breach of covenants by end 2012 if salmon price stays at about NOK 27 and in 2Q12 if salmon price stays at NOK 24.

• Will have to pay higher interest

• Strong solidity. Share issues not likely, with possible exceptions for GSF and maybe SalMar.

6 14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Breach in covenants?

Breach in 2012 if When break if

price about (NOK) salmon price NOK 24

MHG 27 2Q12

CEQ - -

LSG - 4Q12

SALM 27 2Q12

GSF 27? 2Q12 (1Q12%)

Source: SpareBank 1 Markets

Covenants

Equity ratio > NIBD/EBITDA Maturity 2012

MHG 40 % 3.5x falling to 3.0x About NOK 435m

Cermaq 40 % None Less than NOK 300m

Lerøy Seafood 30 % Less than 5.0x NOK 371m

SalMar 30% (25% max 12 months) Less than 4.5x Insignificant

Grieg Seafood na/under re-negtotiation NOK 72m

Source: Company data

Page 7: Fishy Friday 141011

Solidity and gearing given salmon price

7 14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

NIBD/EBITDA

Page 8: Fishy Friday 141011

8

EV/kg

Valuation

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Key numbers salmon farmers & pelagic

(NOK) Price

M cap.

(mill)

P/E-

11E

P/E-

12E

P/E-

13E

EV/EBIT-

11E

EV/EBIT-

12E

EV/EBIT-

13E

EV/kg

2011E

Yield-

11E

Yield

2012E

Yield

2013E

Marine Harvest Group 2.30 8 237 4.4 15.1 6.5 5.2 15.9 6.9 32 13.0% 17.4% 21.7%

Cermaq 64.50 5 966 5.9 7.3 5.3 4.5 6.3 4.7 37 7.6% 6.1% 8.5%

Grieg Seafood 3.70 413 nmf 9.9 2.7 5.2 13.9 5.5 25 0.0% 0.0% 10.8%

Lerøy Seafood 84.00 4 584 7.3 28.0 7.1 4.2 22.1 5.8 41 5.4% 1.2% 5.4%

SalMar 29.50 3 039 6.5 9.8 5.8 6.8 8.5 7.7 50 6.1% 4.1% 6.8%

Bakkafrost* 32.40 1 583 4.0 5.1 4.8 3.7 4.8 4.6 43 9.9% 9.0% 9.9%

Austevoll Seafood 19.00 3 852 8.9 11.8 5.3 3.1 7.9 3.6 na 4.5% 3.4% 7.5%

Copeinca 32.90 1 925 8.8 7.2 6.9 7.1 6.2 5.9 na 5.7% 6.9% 7.3%Average nmf 11.8 5.6 5.0 10.7 5.6 38 6.5% 6.0% 9.7%

Median 6.5 9.9 5.6 4.8 8.2 5.7 39 5.9% 5.1% 8.0%

Source: SpareBank1 Markets, *Bloomberg consensus estimates

Norwegian Seafood Sector performance (per cent)

1W 1M 3M 12M YTD

Marine Harvest Group -1.1 -22.3 -39.6 -56.4 -62.7

Lerøy Seafood 9.4 2.8 -33.1 -40.5 -58.1

Cermaq 2.4 10.3 -21.1 -2.6 -27.8

Salmar 0.0 -23.2 -40.4 -44.3 -52.0

Grieg Seafood -15.9 -50.5 -69.2 -77.7 -80.2

Bakkafrost -12.7 -17.2 -21.4 -18.2 -34.7

Scottish Salmon Co. 0.0 -16.4 -34.1 -51.6 -53.4

Aker Seafood 7.3 -3.4 -18.6 -21.9 -37.3

Austevoll Seafood 1.1 -14.8 -37.3 -53.7 -61.7

Codfarmers -17.1 -18.7 -57.9 -46.8 -53.8

Copeinca 6.6 -21.0 -28.9 -32.5 -41.9

Domstein -1.0 4.0 -39.6 -61.5 -38.5

Norway Pelagic 0.0 -6.3 -13.2 -34.4 -32.8

Morpol 8.8 5.7 -35.3 -31.9 -39.5

Unweighted av. -0.9 -12.2 -35.0 -41.0 -48.2

Oslo Stocks (OSEBX) 7.1 2.9 -12.9 -7.0 -17.9

Source: The Online Trader

Page 9: Fishy Friday 141011

MHG – EV per kg 33% below historical average

• Current EV per kg (4Q forward) of NOK 40 vs. historical average of NOK 60.

9

Source: SpareBank1 Markets

ISA & Banking crisis

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Food | Fishy Friday

Page 10: Fishy Friday 141011

MHG – Historical outperformance in the first half-year

• Since 2002, MHG has outperformed the OSEBX 7 of 18 half-years, including 2H10, which is the only second-half year with outperformance.

• Average performance in the first-half year is 56% (44% relative to OSEBX) and the performance in the second half-year is -34% (-38%).

• MHG has outperformed every first-half year since 2005, except 1H11.

10

Source: SpareBank1 Markets

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Food | Fishy Friday

Page 11: Fishy Friday 141011

Salmon prices

Page 12: Fishy Friday 141011

Source: Kontali, NOS Clearing, SpareBank 1 Markets

Salmon prices

12 14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 13: Fishy Friday 141011

Source: EFF Source: EFF, NOS, SpareBank 1 Markets Source: SSB, NOS, SpareBank 1 Markets

Source: SNM Source: SNM

Market prices Europe

13

• So far this year, wholesale prices in France are down by 37%. In the same period retail prices are down by 4%.

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Source: SNM, SpareBank 1 Markets

Page 14: Fishy Friday 141011

Wholesale prices trend in France – Price changes

Source: Kontali

• Wholesale prices for Norwegian salmon are down by 30% in France compared to last year, and down 3% compared to 2009.

• Wholesale prices for other fish species are up compared to 2009.

Wholesale prices in France last 12 months (EUR)

Source: Kontali

Salmon prices vs. other fish species

14 14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 15: Fishy Friday 141011

• Forward prices for 4Q11 continue down,

but forward prices for 2012 seem to be

stabilizing around NOK 24 - NOK 25.

• 4Q11: 23.2 (23.6)

• 1Q12: 24.3 (24.7)

• 2Q12: 24.7 (25.0)

(Note that the FPI price normally is about NOK 0.5 higher

than the spot price in our prognosis )

Forward prices Norway

15 14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Source: Fishpool and SpareBank1 Markets

Page 16: Fishy Friday 141011

Source: Urner Barry Source: Urner Barry

The US price level support the

European price level below

NOK 20 per kg.

From Chile and Norway

From Canada

Salmon filet prices were down USD 0.11 to USD 8.39 in Miami last week. Whole, fresh salmon prices were down USD 0.11 to USD 5.30 in Seattle last week.

Prices in the US marked are stabilizing

16 14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Margin calculation export to the USA - Two different players

Trader Farmer with own processing capacity:

Whole salmon, 5-6 kg 19.0 Salmon COGS 23.0

Yield 70 % Yield 70 %

Filet raw material 27.1 Filet raw material 32.9

Costs fileting 9.0 Costs fileting 9.0

Freigth to Oslo 0.7 Lorry freigth 0.7

Air freigth 9.5 Air freigth 9.5

Total costs 46.3 Total costs 52.1

Price fob Miami (USD) 8.39 Price fob Miami (USD)/Oslo (NOK) 8.39

Currency rate 5.64 Currency rate 5.64

Price fob Miami (NOK) 47.3 Price fob Miami (NOK) 47.3

Margin 1.0 Margin -4.7

Source: SpareBank 1 Markets

Page 17: Fishy Friday 141011

17

• So far this year, export volumes are 6.2% higher than in 2010, and 8.5% higher than in 2009.

• Volumes have been relatively high the last couple of months. 4 week average export volumes are up 20% compared to same period in 2009, and up 28% compared to last year.

Source: Kontali

Source: NSEC

Prices and volumes in Japan

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 18: Fishy Friday 141011

Supply and demand

Page 19: Fishy Friday 141011

11% growth in smolt release in so far in 2011

19

• Since vaccine sales historically has been a good indication of smolt release, 16% growth in sale of vaccines to the 2011 S1 generation and 26% growth in 2011 S0 have led to speculations in a harvesting boom in 2012/13. However, we believe that the strong growth can be attributed to sales to other markets and to optimization of licenses (MAB) and expect lower growth in smolt release going forward.

• This is supported by statistics from FHL (Norwegian Seafood Federation) showing 11% growth in smolt release the first 8 months of 2011. FHL reported 12% growth in smolt release in 2010. We expect 11% harvesting growth in Norway in 2012.

Source: Kontali, Pharmaq, FHL

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 20: Fishy Friday 141011

• More large salmon (2009G) than expected – Most if it is harvested in September.

• 6.5% (5.1%) growth in the 2010G, while 2011G is lower than 2010G last year. The number of individuals is, however, up by 11%.

Source: Kontali

Moderate biomass growth in Norway

20 14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 21: Fishy Friday 141011

• Harvesting is up by 13.2% the last 4 weeks compared to the same period last year. 23,300 tonnes* were harvested last week, 500 tonnes more than the previous week.

• Harvesting is up 2.8% so far this year compared to the same period last year.

• Feed sales were up by 7.4% YTD and 20.8% the last 4 weeks compared to the same period last year (per week 38).

Source: NSL, FHL, Kontali

Source: EFF, Kontali

*Round weight equivalents

Norway – Harvesting and feed sales

21 14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 22: Fishy Friday 141011

• There were 4 new incidents in September, against 8 in September last year. There were 2 incidents in Hordaland, 1 in Rogaland and 1 in Møre & Romsdal.

• PD will usually have a negative impact on growth, and may lead to increased mortality and early harvesting. Good biological conditions on the site, good farming practises and vaccination seem to make the PD infected fish which survive the smolt stage grow to normal harvesting size. The disease does not (at least in these cases) impact the quality of the fish.

• The PD vaccine is not effective against infection from the virus, but has reduced the mortality by 20% and has led to better weight gain on infected salmon. Furthermore, PD has not spread to new areas. We believe that a new vaccine from Novartis next year will give a better protection against infection.

22

Source: Veterinærtilsynet

PD – Down from last year and less costly

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 23: Fishy Friday 141011

• The average number of lice per salmon in August is significantly lower than last year, particularly in Hordaland and Sogn & Fjordane..

• The sea number of sea lice per salmon normally peak November.

23

Source: Mattilsynet

Adult females in red

Average number of lice per salmon

Sea lice – Continues to be a problem in Norway

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 24: Fishy Friday 141011

24

Full capacity utilization in Norway in 2012

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Norway - Development in harvesting and biomass

2011E

Biomass

start

Growth

per

month Harvesting

Biomass

end

Change (y-o-y)

harvesting

Utilization of

licenses

September 609 141 95 655 11.9 % 87 %

Oktober 655 128 100 683 10.3 % 91 %

November 683 104 102 685 9.2 % 91 %

December 685 78 100 663 5.6 % 88 %

Sum 2012E 989

Januar 663 74 80 657 18.0 % 88 %

Februar 657 44 75 626 15.2 % 83 %

Mars 626 56 90 592 14.8 % 79 %

April 592 52 80 564 16.6 % 75 %

May 564 81 85 559 14.9 % 75 %

June 559 102 90 571 11.2 % 76 %

July 571 114 90 596 15.5 % 79 %

August 596 149 90 654 12.9 % 87 %

September 654 151 98 708 3.2 % 94 %

Oktober 708 138 105 741 5.0 % 99 %

November 741 113 105 749 2.9 % 100 %

Desember 749 85 105 729 5.0 % 97 %

Sum 2012E 1093

Source: SpareBank 1 Markets

Page 25: Fishy Friday 141011

25

• Our harvesting estimates are in line with projections from SalmonChile and AquaGen (350,000-400,000 tonnes in 2013)

• Low market prices and turmoil in financial markets may delay smolt release and harvesting growth.

• According to Cermaq, new regulations in Chile reduce the production capacity by 30% (region X).

• The numbers assume an average on-growing period in the sea of 14 months. However, in region 12, the growth conditions are similar to Finnmark, and the on-growing period will increase.

Source: Marine Harvest Group

Chile – Harvesting estimates

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Smolt

release

(mill.) Yield (kg)

Production

(1,000

tonnes)

Harvesting

(1,000

tonnes)

2008 140 1.4 196 403

2009 31 3.2 99 239

2010 60 4.3 258 130

2011 91 3.5 319 210

2012 110 3.5 385 300

2013 120 3.3 396 365

2014 120 3.3 396 393

2015 120 3.3 396 396

Page 26: Fishy Friday 141011

26

• There is 976 licences in Norway; max realistic production is probably around 1.1-1.2 mill. tonnes. The salmon producing regions in Chile are small relative to Norway. Thus, the long-term growth potential is limited.

Strong supply growth in 2012

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 27: Fishy Friday 141011

27

Quarterly supply estimates

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Quarterly supply of Atlantic (1,000 tonnes wfe)

4Q11 1Q12 2Q12 3Q12 4Q12

Norway 302.0 245.0 255.0 278.0 315.0

UK 43.6 34.9 35.1 41.0 42.4

Faroe Islands 18.0 14.7 16.3 15.4 16.1

Ireland 4.4 3.9 3.8 3.9 4.4

Chile 65.5 76.0 72.0 74.1 80.7

Canada 31.0 25.5 28.0 28.3 30.7

USA 4.7 4.3 4.4 4.4 4.9

Australia 9.3 10.6 8.1 8.3 10.0

Other 0.6 0.6 0.7 0.8 0.9

Total 479.1 414.9 422.7 453.4 504.2

Y-o-y growth

4Q11 1Q12 2Q12 3Q12 4Q12

Norway 8.1 % 15.9 % 14.2 % 9.4 % 4.3 %

UK 9.0 % 4.8 % -4.6 % 0.2 % -2.8 %

Faroe Islands 33.3 % 31.3 % 10.1 % 23.2 % -10.6 %

Ireland -15.4 % 0.0 % 0.0 % 0.0 % 0.0 %

Chile 87.7 % 107.1 % 59.3 % 14.2 % 23.2 %

Canada -2.8 % 7.1 % 9.4 % -2.7 % -1.0 %

USA 20.5 % -2.3 % 0.0 % -2.2 % 4.3 %

Australia -8.8 % 1.0 % 0.0 % 2.5 % 7.5 %

Growth total (y-o-y) 14 % 24 % 17 % 8 % 5 %

Growth Europe 9 % 15 % 11 % 9 % 3 %

Growth America 43 % 63 % 39 % 8 % 15 %

Siource: Kontali, SpareBank 1 Markets

Page 28: Fishy Friday 141011

28

Quarterly supply estimates Catch-up effect give double digit growth until 4Q 12

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Source: SpareBank 1 Markets, Kontali

World supply of Atlantic salmon

3 year supply growth

(CAGR)

4Q11E 4 %

1Q12E 4 %

2Q12E 8 %

3Q12E 9 %

4Q12E 7 %

Page 29: Fishy Friday 141011

Quarterly price forecasts – regression analysis

• 67% correlation between quarterly supply growth and price change data.

• Negative autocorrelation: Strong positive changes are followed by strong negative changes

• A linear relationship indicate a price just below NOK 30 the coming quarters.

29

Source: SpareBank1 Markets

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

3Q11

Price Forecasts based on regression analysis

Regr. Our

Ch. in Ch. in forecast assumption

supply price (NOK) (NOK)

4Q11E 12.4 % -16.8 % 31 25

1Q12E 16.5 % -28.2 % 29 25

2Q12E 10.9 % -12.7 % 32 27

2012E 10.0 % -10.1 % 28 26

2013E 6 % 1.1 % 29 29

Source: SpareBan k 1 Markets

Page 30: Fishy Friday 141011

• Empirical evidence suggest that prices tend to react negative when supply grow by more than 7-10%.

• We believe that the salmon prices already reflect the expected volume growth.

30

Source: SpareBank 1 Markets, Kontali

Increasing growth in supply to EU

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 31: Fishy Friday 141011

• Wild catch has become less important, but still affects price levels particularly in the US market and Russia.

• The tsunami will probably have a negative effect on catch in Japan and the nuclear power plant accident may also affect demand of wild (=pacific) salmon negatively.

31

Source: The Alaska Department of Fish and Game

Wild swings in wild catch

Total wild salmon catch Wild salmon catch per region

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 32: Fishy Friday 141011

• Supply is expected to follow the long-term trend line from 2013, which is reflected in our price forecasts.

• We believe that mean reversal of demand will give strong prices the coming years, albeit lower than in 2010. Our price forecasts are close to the long-term trend line.

– “The sustainable salmon price (…) has increased from NOK 25 to NOK 33 (Ulf Ellingsen to Fiskaren).

32

Total supply included wild salmon and other salmonids

Long term trends in volume and prices

Atlantic salmon - Long-term trend in volumes and prices

Source: SpareBank 1 Markets, Kontali

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 33: Fishy Friday 141011

33

• Norway’s export to EU was unchanged in July and up 13% in August compared to the same months last year.

• Norway is, as expected, loosing market shares in the US market to Chile.

Export statistics

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Salmon export from Norway Jan.-Aug 2011 Salmon export from Norway Aug 2011

Volume (tonnes wfe) Volume (tonnes wfe)

2010 2011 Share Change 2010 2011 Share Change %

EU 379 000 386 027 67 % 2 % EU 45 023 50 929 66 % 5 906 13 %

Russia 53 256 60 061 10 % 13 % Russia 6 491 9 551 12 % 3 060 47 %

Japan 17 248 19 672 3 % 14 % Japan 2 093 2 828 4 % 735 35 %

China/HK 21 594 16 391 3 % -24 % China/HK 2 712 1 711 2 % -1 001 -37 %

Other Asia 23 444 33 710 6 % 44 % Other Asia 2 979 5 116 7 % 2 137 72 %

USA 37 158 18 746 3 % -50 % USA 4 284 2 096 3 % -2 188 -51 %

Other 30 444 37 456 7 % 23 % Other 3 888 4 778 6 % 890 23 %

Total 562 146 572 063 100 % 2 % Total 67 470 77 009 100 % 9 539 14 %

Source: Kontali Source: Kontali

Atlantic salmon export from Chile Jan.- July 2011 Atlantic salmon export from Chile July 2011

(tonnes wfe) (tonnes wfe) Volume (tonnes wfe)

2010 2011 Share Change 2010 2011 Share Change %

USA 31 191 49 461 51 % 59 % USA 3 465 10 424 50 % 6 959 201 %

Brazil 21 629 20 345 21 % -6 % Brazil 2 520 3 775 18 % 1 255 50 %

Other America 9 072 9 274 10 % 2 % Other America 1 161 2 061 10 % 900 78 %

Japan 292 1 038 1 % 255 % Japan 33 226 1 % 193 585 %

China 1 189 1 038 1 % -13 % China 242 181 1 % -61 -25 %

Other Asia 2 763 6 908 7 % 150 % Other Asia 363 1 187 6 % 824 227 %

EU 5 490 8 604 9 % 57 % EU 888 2 608 13 % 1 720 194 %

Russia 413 154 0 % -63 % Russia 26 3 0 % -23 -88 %

Other 1 631 706 1 % -57 % Other 61 209 1 % 148 243 %

Total 73 684 97 576 100 % 32 % Total 8 759 20 674 100 % 11 915 136 %

Source: Kontali Source: Kontali

Page 34: Fishy Friday 141011

34

• Export from Chile is expected to pick-up from March 2011 and particularly in 2H11.

• The US market, EU and Russia have all lost share of export to new markets in Latin America and to Asia.

Chilean export of Atlantic

Source: SpareBank 1 Markets, Kontali

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 35: Fishy Friday 141011

Feed prices

Page 36: Fishy Friday 141011

Increased COGS from 2005G to 2010 mainly driven by feed costs

• Food, Beverages & Tobacco

36

Source: SalMar

Cost components (NOK)

Feed 10.6

Primary processing 2.3

Smolt 1.8

Salary 1.4

Maintenance 0.9

Well boat 0.7

Depreciation 0.8

Sales & marketing 0.3

Mortality 0.3

Other 2.0

Total 21.0

Source: Marine Harvest Group

Canada: CAD 4.5 (NOK 24.8) UK: GBP 2.5 (NOK 22.5)

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 37: Fishy Friday 141011

• Lower raw material prices during 2011 will lead to lower COGS for salmon farmers from 4Q11. Feed is more than 50% of normal COGS for salmon

37

Main components (approx. volume): Fish meal 17% Veg. meal 31% Fish oil 17% Veg. oil 17% Wheat 15% Other: 3%

Feed costs are increasing – raw material prices are falling

Source: SpareBank 1 Markets

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 38: Fishy Friday 141011

38

Sourve: Prof. Margareth Øverland, Aquaculture Protein Centre, the Norwegian University of Life Sciences

Intensive research of new raw materials for feed, including Omega 3 sources.

Falling use of marine ingredients in salmon diets

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 39: Fishy Friday 141011

• According to our calculations, about 2 kg fish (raw material) is used in the feed necessary to produce 1 kg salmon. However, only about half of the fish raw material has alternative use as food for humans.

• Salmon farming is obviously a more sustainable use of fishmeal than in animal feed or for industrial use.

• Salmon is also a more affordable (and tasty) source of omega 3 than capsules.

39

Is salmon farming sustainable?

Sources of raw materials (approximation)

Human consumption

No Yes

Anchoveta 34%

Herring 21%

Cut-offs 11%

Sprat 2%

Menhaden 1%

Sardines 2%

Pacific mackerel 4%

Horse mackerel 2%

Sandeel 1%

Blue whitting 20%

Capelin 1%

Total 50% 50%

Source: SpareBank 1 Markets

Raw material consuption in salmon production

Yield

Kg raw material

per kg feed

Feed

factor

Kg raw material

per kg salmon

Fishmeal/oil/consentrate 43% 24% 1.79 1.1 1.97

Vegetable protein*/oil 55% 100% 0.55 1.1 0.61 Total 2.34 1.1 2.58

*Including wheat

Source: SpareBank 1 Markets

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 40: Fishy Friday 141011

Feed raw materials

40

Source: Oil World, Bloomberg

Analyst: Geir Kristiansen| +4724147475 | [email protected] Food, Beverages & Tobacco

Feed raw materials

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 41: Fishy Friday 141011

Enclosures

Page 42: Fishy Friday 141011

14/10/2011 Food | Marine Harvest Group (MGH) | Buy, TP NOK 3.2 42

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Fishing for a bargain

We see the current negative sentiment in the salmon market and the stock market as

an opportunity to Buy shares in MHG, which historically has outperformed in the first

half year, with an exception of 1H 11. Our 6 month target price is revised to NOK 3.2

(3.6).

• Cut in estimates – Lower salmon price expectations have made us cut EBIT estimate for 2012 by 56% and

for 2013 by 19%. Our dividend estimates are cut from NOK 0.5 to NOK 0.3 in 2011 and from NOK 0.55 to NOK 0.4 in 2012. This will bring NIBD/EBITDA just within the 3.5x specified in the bank syndicate’s covenant. We expect an NOK 0.15 interim dividend to be announced in the 3Q report, due 27 October.

• 3Q 11 expectations – The low realised salmon prices have made us cut our operational EBIT forecast by 11% to

NOK 356m. A contract ratio as high as about 60% in Norway will, however, support the EBIT margin. Unlike smaller farmers as SalMar and Grieg Seafood, MHG says that the long-term contracts are honoured by their customers. We expect negative contributions from Canada and Chile.

• Valuation – MHG is currently valued at an EV/kg (12 month forward) of NOK 41, vs an historical

average of NOK 60. We saw a deeper discount in 4Q 08. However, the situation then was graver then both for the salmon sector and in the financial markets. We choose to see past the high 2012-multiples, which we believe represent the bottom of the salmon price cycle, and highlight a moderate 2013E P/E of 6.3x.

Marine Harvest Group

Page 43: Fishy Friday 141011

Estimates

14/10/2011 43

Analyst: Geir Kristiansen| +4724147475 | [email protected]

P&L (NOKm) 1Q11 2Q11 3Q11E 4Q11E 2010 2011E 2012E 2013E

Sales 3 942 4 392 4 026 4 853 15 191 17 213 16 161 18 171

Gross profit 2 186 2 416 2 013 2 427 7 500 9 041 6 654 8 122

EBITDA 1 126 1 056 519 602 3 844 3 303 1 535 2 710

Operational EBIT 963 894 356 439 3 167 2 653 852 2 013Associate companies a.o 2 188 247 180 202 617 50 50

Fair value adj. -312 -701 1 092 -1 013 0 0

EBIT 653 381 604 619 4 461 2 257 902 2 063

Pretax profit 491 781 585 618 4 252 2 475 763 1 772

Net income 318 685 421 445 3 108 1 869 549 1 276

Net income shareholders 321 676 418 443 3 087 1 858 546 1 268

EPS (reported) 0.09 0.19 0.12 0.13 0.86 0.52 0.15 0.35

Harvesting* (1,000 ton. gw) 1Q11 2Q11 3Q11E 4Q11E 2010 2011E 2012E 2013E

Norway 48.4 54.0 46.0 64.0 202 212 222 230

Chile 3.6 1.0 11.0 10.0 11 26 30 38

Canada 9.5 8.0 7.0 9.0 33 33 35 37

Scotland 10.4 13.0 13.0 11.0 33 47 48 48

Total main regions 71.9 76.0 77.0 94.0 280 319 335 353

Price assumptions 1Q11 2Q11 3Q11E 4Q11E 2010 2011E 2012E 2013E

Europe (NOK/kg) 39.8 36.8 25.9 25.0 37.4 31.6 26.0 29.0

Europe (EUR/kg) 5.08 4.70 3.35 3.21 4.68 3.6 3.3 3.7

Chilean filets (USD/kg) 12.24 11.89 8.68 8.50 10.91 10.4 8.75 9.50

Canadian fresh Atlantic (USD/kg) 7.85 8.00 5.12 5.50 6.55 6.60 5.60 6.20

USD/NOK 5.73 5.44 5.61 5.90 6.05 5.67 5.95 5.95

EUR/NOK 7.83 7.82 7.72 7.80 7.99 7.79 7.83 7.83

EBIT/kg (NOK)

Norway 13.4 13.1 8.4 6.7 11.6 10.2 2.7 5.2

Chile 12.9 -24.4 -12.3 -11.2 10.5 -14.2 -6.0 0.0

Canada 8.8 5.0 -7.8 -6.0 6.7 -1.8 -2.0 2.9

Scotland 12.9 13.9 11.0 11.0 9.0 12.2 6.9 9.4

Total 12.7 11.8 4.4 4.1 10.7 8.0 2.0 4.9

*Exluding "Other Units" which are included under Other and elim. Source: Sparebank 1 Markets, company data

Food | Marine Harvest Group (MGH) | Buy, TP NOK 3.2

Page 44: Fishy Friday 141011

SOTP valuation

14/10/2011 44

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Source: SpareBank 1 Markets

Marine Harvest Group - SOTP valuation

(NOKm) Value EV/EBIT 13E EV/kg 12E (NOK)

Norway 8 894 7.5 40

Chile 0 7.5 0

Canada 815 7.5 23

Scotland 3 374 7.5 70

Other* 640 40

Total Farming 13 723 39

VAP 2 130 7.5

Nova Sea (48%)** 792 7.5 40Enterprise value 16 644

Net interest bearing debt 2011E -5 356Value of equity 11 28812 month price target 3.2

*Includes Salmon farming Ireland, and Faroes

**Integrated salmon farmer with 29.33 licenses

Source: SpareBank 1 MarketsReturn on average capital employed

Valuation DCF model - Sensitivities (WACC 8.5%)

ROACE

Growth 8 % 9 % 10 % 11 % 12 %

0 % 2.9 3.4 3.9 4.3 4.8

1 % 2.9 3.4 3.9 4.5 5.0

2 % 2.9 3.5 4.1 4.7 5.3

3 % 2.8 3.5 4.2 5.0 5.7

4 % 2.7 3.6 4.5 5.4 6.2

5 % 2.6 3.7 4.9 6.0 7.1

Source: SpareBank 1 Markets

Food | Marine Harvest Group (MGH) | Buy, TP NOK 3.2

Page 45: Fishy Friday 141011

Sensitivities

14/10/2011 45

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Source: SpareBank 1 Markets

Value per share sensitives to the salmon price - EBIT 2012E Value per share given salmon price and earnings multiple

EBIT* EV/EBIT EPS* P/E

NOK/kg 2012E 7.0 7.5 8.0 8.5 9.0 10.0 NOK/kg 2012E 6 7 8 9 10 11

25.0 517 -0.3 -0.2 -0.1 0.0 0.0 0.2 25.0 0.09 0.5 0.6 0.7 0.8 0.9 0.9

25.5 685 0.1 0.2 0.3 0.4 0.4 0.6 25.5 0.12 0.7 0.8 1.0 1.1 1.2 1.3

26.0 852 0.4 0.5 0.6 0.7 0.9 1.1 26.0 0.15 0.9 1.1 1.2 1.4 1.5 1.726.5 1 020 0.7 0.9 1.0 1.1 1.3 1.6 26.5 0.19 1.1 1.3 1.5 1.7 1.9 2.1

27.0 1 187 1.0 1.2 1.4 1.5 1.7 2.0 27.0 0.22 1.3 1.5 1.8 2.0 2.2 2.4

27.5 1 355 1.4 1.6 1.8 1.9 2.1 2.5 27.5 0.25 1.5 1.8 2.0 2.3 2.5 2.8

28.0 1 522 1.7 1.9 2.1 2.3 2.6 3.0 28.0 0.29 1.7 2.0 2.3 2.6 2.9 3.228.5 1 690 2.0 2.3 2.5 2.7 3.0 3.4 28.5 0.32 1.9 2.2 2.6 2.9 3.2 3.5

29.0 1 857 2.4 2.6 2.9 3.1 3.4 3.9 29.0 0.36 2.1 2.5 2.8 3.2 3.6 3.9

29.5 2 025 2.7 3.0 3.3 3.5 3.8 4.4 29.5 0.39 2.3 2.7 3.1 3.5 3.9 4.3

30.0 2 192 3.0 3.3 3.6 3.9 4.2 4.9 30.0 0.42 2.5 3.0 3.4 3.8 4.2 4.6

30.5 2 360 3.3 3.7 4.0 4.3 4.7 5.3 30.5 0.46 2.7 3.2 3.7 4.1 4.6 5.0

31.0 2 527 3.7 4.0 4.4 4.7 5.1 5.8 31.0 0.49 2.9 3.4 3.9 4.4 4.9 5.4

31.5 2 695 4.0 4.4 4.8 5.1 5.5 6.3 31.5 0.52 3.1 3.7 4.2 4.7 5.2 5.8

32.0 2 862 4.3 4.7 5.1 5.5 5.9 6.7 32.0 0.56 3.3 3.9 4.5 5.0 5.6 6.1

32.5 3 030 4.7 5.1 5.5 5.9 6.4 7.2 32.5 0.59 3.5 4.1 4.7 5.3 5.9 6.5

33.0 3 197 5.0 5.4 5.9 6.3 6.8 7.7 33.0 0.62 3.7 4.4 5.0 5.6 6.2 6.9

33.5 3 365 5.3 5.8 6.3 6.7 7.2 8.1 33.5 0.66 4.0 4.6 5.3 5.9 6.6 7.2

34.0 3 532 5.6 6.1 6.6 7.1 7.6 8.6 34.0 0.69 4.2 4.8 5.5 6.2 6.9 7.6

34.5 3 700 6.0 6.5 7.0 7.5 8.0 9.1 34.5 0.73 4.4 5.1 5.8 6.5 7.3 8.0

35.0 3 867 6.3 6.8 7.4 7.9 8.5 9.5 35.0 0.76 4.6 5.3 6.1 6.8 7.6 8.4

35.5 4 035 6.6 7.2 7.8 8.3 8.9 10.0 35.5 0.79 4.8 5.6 6.3 7.1 7.9 8.7

36.0 4 202 7.0 7.5 8.1 8.7 9.3 10.5 36.0 0.83 5.0 5.8 6.6 7.4 8.3 9.1

36.5 4 370 7.3 7.9 8.5 9.1 9.7 10.9 36.5 0.86 5.2 6.0 6.9 7.8 8.6 9.5

37.0 4 537 7.6 8.2 8.9 9.5 10.1 11.4 37.0 0.89 5.4 6.3 7.2 8.1 8.9 9.8

37.5 4 705 7.9 8.6 9.3 9.9 10.6 11.9 37.5 0.93 5.6 6.5 7.4 8.4 9.3 10.2

38.0 4 872 8.3 8.9 9.6 10.3 11.0 12.4 38.0 0.96 5.8 6.7 7.7 8.7 9.6 10.6

38.5 5 040 8.6 9.3 10.0 10.7 11.4 12.8 38.5 1.00 6.0 7.0 8.0 9.0 10.0 11.0

39.0 5 207 8.9 9.6 10.4 11.1 11.8 13.3 39.0 1.03 6.2 7.2 8.2 9.3 10.3 11.3

39.5 5 375 9.2 10.0 10.8 11.5 12.3 13.8 39.5 1.06 6.4 7.4 8.5 9.6 10.6 11.7

40.0 5 542 9.6 10.4 11.1 11.9 12.7 14.2 40.0 1.10 6.6 7.7 8.8 9.9 11.0 12.1

*Assuming parallel price changes in all markets *Assuming parallel price changes in all markets

Food | Marine Harvest Group (MGH) | Buy, TP NOK 3.2

Page 46: Fishy Friday 141011

Cermaq

14/10/2011 46

Keep on truckin’

We expect Cermaq to continue to deliver stronger than consensus’ expectations, boosted by strong volume growth both in salmon farming and in the feed business. We cut the target price to NOK 100 (114) and keep Cermaq as our top-pick in the sector.

• Cut in estimates

– Lower salmon price expectations are the main driver for our cut in EBIT estimate for 2012 by 25% and for 2013 by 14%. We have, however, also cut EWOS’ margins the coming years; from 7% to 6.3% in 2012 and 6% in 2013. Note that we also have changed our USD/NOK assumption from NOK 5.5 to NOK 5.83.

• 3Q 11 expectations

– We have only made minor adjustments to out 3Q 11 estimates, and expect an EBIT before fair value adjustments of NOK 400m. While realised prices were lower than expected in Europe, they were about in line in the important US market. Cermaq has also benefited from a weakening of the NOK vs USD and JPY during the quarter. The 3Q figures will be reported on 25 May.

• Valuation

– With a P/E of 6.9x 2012E and 5x 2013E, Cermaq is one of the most attractively valued shares in the sector on earnings multiples, despite both lower financial gearing and lower sensitivity to the salmon price than peers.

Food | Cermaq (CEQ) | Buy, TP NOK 100

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 47: Fishy Friday 141011

• According to EWOS, a salmon farmer with optimal stocking will have incentives to use value-added feed (OPAL 120) when the salmon price is above NOK 25. However, cash flow issues may make farmers choose less expensive feed than optimal.

• In the past EWOS have been able to increase margins when farmers have cash flow problems, when it will act as a funding source for the farmers. Source: Bank managers.

• Scarce empirical evidence: 2007 seems like a case; low salmon price level and strong EWOS margins despite increasing raw material costs

• Currently: Low salmon prices, falling/stable raw material costs and increasing volumes. We believe in strong EBIT margins for EWOS (6.5%) also in 2012.

47

Cermaq – Sustainable margins in EWOS?

Source: SpareBank 1 Markets

14/10/2011

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Food | Cermaq (CEQ) | Buy, TP NOK 100

Page 48: Fishy Friday 141011

14/10/2011 48

Cermaq – Estimates

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Food | Cermaq (CEQ) | Buy, TP NOK 100

P&L (NOKm) 1Q11 2Q11 3Q11E 4Q11E 2011E 2012E 2013E

Sales 2 286 2 558 4 030 3 598 12 472 13 011 14 673

EBITDA 480 395 477 566 1 918 1 453 1 857

EBIT bef fair value adj. 403 318 400 489 1 611 1 129 1 529

EBIT 231 200 400 489 1 321 1 129 1 529

Pretax profit 252 220 412 500 1 384 1 142 1 568Net income 180 171 306 357 1 014 815 1 121

EPS (reported), fully diluted 1.9 1.8 3.3 3.8 10.9 8.8 12.1

Volume gw (1,000 tonnes) 1Q11 2Q11 3Q11E 4Q11E 2011E 2012E 2013E

Chile 14.4 4.1 8.3 18.9 45.7 53.0 63.5

Canada 2.8 6.3 6.6 5.1 20.8 20.5 20.5

Scotland 0.0 0.0 0.0

Norway 9.4 7.1 8.9 12.3 37.7 41.7 47.8

Total 26.6 17.5 23.8 36.3 104.2 115.2 131.8

Market prices 1Q11 2Q11 3Q11E 4Q11E 2011E 2012E 2013E

Spot Europe (NOK/kg) 39.8 36.8 25.9 25.0 31.9 26.0 29.0

USA, Chilean filets (USD/kg) 12.24 11.89 8.7 8.5 10.3 8.8 9.5

Canada, fresh Atlantic (USD/kg) 7.85 7.93 5.1 5.5 6.60 5.6 6.2

Coho (JPY/kg) 571 640 592 550 588.3 575 600

USD/NOK 5.73 5.44 5.61 5.90 5.67 5.95 5.95

JPY/NOK 6.95 6.67 7.32 7.60 7.14 7.60 7.60

EBIT/kg gw (NOK)

Mainstream Chile 11.1 8.0 6.8 7.9 8.7 6.2 8.0

Mainstream Canada 9.4 14.8 -1.9 1.1 5.4 1.7 4.4

Mainstream Norway 16.4 12.4 5.4 5.7 9.5 3.3 5.8

Average 12.8 12.2 3.9 6.2 8.4 4.3 6.6

EWOS 1Q11 2Q11 3Q11E 4Q11E 2011E 2012E 2013E

Volume rwe (1,000 tonnes) 164 245 395 322 1 125 1 227 1 300

Price (NOK/kg) 9.0 8.7 9.0 9.0 8.9 8.8 9.0

Revenues 1 480 2 118 3 559 2 894 10 050 10 795 11 729

EBIT margin 3.4 % 6.0 % 9.0 % 9.5 % 7.7 % 6.3 % 6.0 %

EBIT before value adj. biomass 50 128 320 275 772 680 704

Source: SpareBank 1 Markets and company data

Page 49: Fishy Friday 141011

14/10/2011 49

Cermaq – Valuation

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Food | Cermaq (CEQ) | Buy, TP NOK 100

Return on average capital employed

Valuation DCF model - Sensitivities (WACC 8.5%)

ROACE

Growth 11 % 12 % 13 % 14 % 15 %

0 % 93 101 109 117 125

1 % 96 104 113 122 131

2 % 99 109 120 130 140

3 % 104 116 128 140 153

4 % 110 125 140 155 170

5 % 121 140 160 179 198

6 % 140 167 194 221 248

7 % 185 230 275 320 364

Source: SpareBank1 Markets

Cermaq SOTP valuation

(NOKm) Value

EV/EBIT

13E

EV/kg 12E

(NOK)

Mainstream Chile 3 559 7.0 67

Mainstream Canada 673 7.5 33

Mainstream Norway 2 077 7.5 50

Total Mainstream 6 308 7.2 55

EWOS 5 278 7.5

Other -113 7.5

Enterprise value 2011E 11 474 7.5

Net interst bearing debt 2012E -1 187

Equity value 10 286

Value per share (NOK) 111

10% ownership/liquidity discount -11

Fair value per share (NOK) 100

Source: Sparebank 1 Markets

Page 50: Fishy Friday 141011

14/10/2011 50

Cermaq – Sensitivities

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Food | Cermaq (CEQ) | Buy, TP NOK 100

Valuation - sensitivities to salmon priced based on 2012E*EV/EBIT EPS* P/E

NOK/kg EBIT 7 8 9 10 11 12 2012E 7 8 9 1024.0 558 29 35 41 47 53 59 24.0 6.72 52 59 66 7225.0 653 36 44 51 58 65 72 25.0 7.61 59 66 74 8126.0 748 44 52 60 68 76 84 26.0 8.51 65 73 82 9027.0 843 51 60 69 78 87 96 27.0 9.41 71 80 90 9928.0 938 58 68 78 88 99 109 28.0 10.30 77 88 98 10829.0 1 033 65 76 88 99 110 121 29.0 11.20 84 95 106 11730.0 1 129 72 85 97 109 121 133 30.0 12.1 90 102 114 12631.0 1 224 80 93 106 119 133 146 31.0 12.99 96 109 122 13532.0 1 319 87 101 115 130 144 158 32.0 13.89 102 116 130 14433.0 1 414 94 109 125 140 155 170 33.0 14.79 109 123 138 15334.0 1 509 101 118 134 150 167 183 34.0 15.68 115 131 146 16235.0 1 604 108 126 143 160 178 195 35.0 16.58 121 138 154 17136.0 1 699 116 134 152 171 189 207 36.0 17.48 128 145 162 18037.0 1 794 123 142 162 181 200 220 37.0 18.37 134 152 171 18938.0 1 890 130 150 171 191 212 232 38.0 19.27 140 159 179 19839.0 1 985 137 159 180 202 223 245 39.0 20.16 146 167 187 20740.0 2 080 144 167 189 212 234 257 40.0 21.06 153 174 195 216

*Assuming parallel price changes in all markets

Source: SpareBank 1 Markets

Page 51: Fishy Friday 141011

14/10/2011 51

Swimming against the stream

While it is not straightforward to estimate the salmon price development going forward, we are quite confident that 2H11 and 2012 represent the bottom of a price cycle which is already discounted in the share price. We cut our target price to NOK 112 (146), and maintain our Buy recommendation.

• Cut in estimates

– Lower salmon price expectations make us cut EBIT estimate for 2012 by 49% and for 2013 by 19%. Lerøy will be well within covenants despite the heavy cutting, and can manage salmon prices as low as NOK 22.5 per kg through 2012 without breaching the NIIBD/EBITDA covenant.

• 3Q 11 expectations

– Our 3Q 11 EBIT estimate is cut by 20% due to lower than expected salmon prices in Europe, and we expect an EBIT before fair value adjustments of NOK 218m. The third quarter has historically been prone to higher disease related costs due to high water temperatures, and both sea lice and PD continue to be issues in western Norway. In central Norway, we believe that lower than normal sea water temperatures have had a negative impact on margins. Lerøy will report on 8 November, when we expect the management to comment on plans to invest in Chilean salmon farming.

• Valuation

– Lerøy is valued about in line with average for the sector on most multiples. However, the financial risk is low compared to peers, with an exception for Cermaq.

Lerøy Seafood

Food | Lerøy Seafood (LSG) | Buy, TP NOK 112

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 52: Fishy Friday 141011

Lerøy goes south?

• Austevoll Seafood would be interested in start producing salmon in Chile according to the general manager of its Chilean subsidiary Foodcorp.

• Lerøy Seafood, Austevoll’s salmon farming subsidiary, holds 10 licenses in region XI, while waiting for the approval of another 8 licenses in the area.

• Production capacity will be around 35,000 tonnes per year (would have ranked as number 8 worldwide in 2010). Lerøy is currently harvesting 155,000 tonnes per year.

• A greenfield investment will, we believe cost at least NOK 650m in investments in working capital and equipment (exclusive processing facilities). We therefore believe in a gradual build-up in Chile.

• Lerøy’s management declines to comment.

52 14/10/2011

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Food | Lerøy Seafood (LSG) | Buy, TP NOK 112

Page 53: Fishy Friday 141011

Detailed estimates

14/10/2011 53 Food | Lerøy Seafood (LSG) | Buy, TP NOK 112

Analyst: Geir Kristiansen| +4724147475 | [email protected]

P&L (NOKm) 3Q10 3Q11E 4Q11E 2011E 2012E 2013E

Sales 2 264 2 238 2 555 9 414 9 014 10 047

Gross profit 803 704 850 3 435 2 581 3 053

EBITDA 477 284 371 1 672 831 1 253

EBIT bef biomass adj 424 218 305 1 409 571 993

Fair value adjustment biomass -30 -494

EBIT 394 218 305 914 571 993

Financial net -16 -15 -15 -65 -70 -63

Norskott Havbruk 12 1 6- 29 9- 18

Pretax profit. cont operations 391 204 284 878 492 948

Net income 283 147 204 637 352 688

Net income shareholders 283 153 207 652 355 662

EPS (reported) 5.29 2.83 3.80 11.47 6.67 11.78

EBIT bef. biomass adj.

Sales & Distribution 52 56 87 237 238 250

Production 379 174 229 1 218 379 788

Other and eliminations -6 -12 -12 -46 -45 -45

Total 424 218 305 1 409 571 993

EBIT margin bef. biomass adj.

Sales & Distribution 2.3% 2.5% 3.5% 2.6% 2.5% 2.5%

Production 32.1% 13.3% 15.1% 22.2% 8.0% 14.2%

Total 18.7% 9.7% 11.9% 14.6% 6.3% 9.9%

Total harvesting 31.0 37.9 45.0 144.0 149.0 153.0

EBIT/kg bef. biomass adj. (NOK)

Midnor 14.7 8.5 8.5 11.4 5.1 7.6

Hydrotech 12.1 4.5 4.9 9.0 2.9 5.4

Aurora 13.1 3.6 4.0 7.1 1.1 3.6

Sjøtroll -2.6 -1.0 3.1 -0.3 2.7

Vest 8.7 5.8 5.7 8.8 2.3 4.8

Average 12.0 4.4 4.9 8.2 2.4 5.0

Source: SpareBank 1 Markets and company data

Page 54: Fishy Friday 141011

Valuation

14/10/2011 54 Food | Lerøy Seafood (LSG) | Buy, TP NOK 112

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Lerøy Seafood - SOTP valuation

(NOKm) Value EV/EBIT 13E

EV/kg 12E

(NOK)

Production 5 911 7.5 40

Norskott Havbruk 201 7.5 16

Distribution and sales 1 747 7.0

Net interest bearing debt 2011E -1 227

Value of equity 6 665

Value per share (NOK) 124

Liquidity discount (20%) -12

Fair value per share 112

Source: SpareBank 1 Markets

Return on average capital employed

Valuation DCF model - Sensitivities (WACC 8.5%)

ROACE

Growth 7 % 8 % 9 % 10 % 11 % 12 %

0 % 101 116 132 147 163 178

1 % 97 115 133 150 168 186

2 % 93 114 134 154 175 195

3 % 88 112 136 160 184 208

4 % 80 109 139 168 197 227

5 % 67 105 143 181 218 256

6 % 45 97 150 203 256 309

7 % -8 80 168 256 344 433

Source: SpareBank 1 Markets

Page 55: Fishy Friday 141011

Sensitivities

14/10/2011 55 Food | Lerøy Seafood (LSG) | Buy, TP NOK 112

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Share prices - Sensitivities to salmon prices based on 2012E*

EV/EBIT P/E

NOK/kg EBIT** 7 8 9 10 11 12 NOK/kg EPS 7 8 9 10

24.0 -407 -75 -83 -91 -98 -106 -113 24.0 -6.1 -43 -49 -55 -61

25.0 -245 -55 -59 -64 -68 -73 -77 25.0 -4.0 -28 -32 -36 -40

26.0 -84 -34 -35 -37 -38 -40 -41 26.0 -1.8 -13 -15 -17 -18

27.0 78 -13 -11 -10 -8 -7 -5 27.0 0.3 2 2 3 3

28.0 239 8 13 17 22 26 30 28.0 2.4 17 19 22 24

29.0 401 29 37 44 52 59 66 29.0 4.5 32 36 41 45

30.0 562 50 61 71 81 92 102 30.0 6.7 47 53 60 67

31.0 724 71 85 98 111 125 138 31.0 8.8 62 70 79 88

32.0 885 92 108 125 141 158 174 32.0 10.9 77 87 98 109

33.0 1 047 113 132 152 171 191 210 33.0 13.1 91 105 118 131

34.0 1 208 134 156 179 201 223 246 34.0 15.2 106 122 137 152

35.0 1 370 155 180 206 231 256 282 35.0 17.3 121 139 156 173

36.0 1 531 176 204 232 261 289 318 36.0 19.5 136 156 175 195

37.0 1 693 197 228 259 291 322 353 37.0 21.6 151 173 194 216

38.0 1 854 218 252 286 321 355 389 38.0 23.7 166 190 213 237

*Assuming parallel price changes in all markets. **Including Norskott Havbruk

Page 56: Fishy Friday 141011

SalMar

14/10/2011 56

Plenty of fish in the sea

SalMar continues to be the best performing listed salmon farmer in Norway. However, the beauty has faded somewhat, and we do not see the premium stock price as warranted. We cut the target price to NOK 26 (38) and downgrade to Sell (Neutral).

• Cut in estimates – Lower salmon price expectations make us cut EBIT estimate for 2012 by 39% and

for 2013 by 15%. SalMar is still expected to be the best performing farmer in our selection going forward, with an EBIT/kg of NOK 4.9 in 2012 and NOK 7.1 in 2013.

• 3Q 11 expectations – Our 3Q 11 EBIT estimate is cut by 21% due to lower than expected salmon prices in

Europe, and we expect an EBIT before fair value adjustments of NOK 218m. We believe that lower than normal sea water temperatures in central Norway have had a negative impact on volumes and margins. SalMar’s management has also complained about difficulties regarding customers honouring long-term contracts, which may have a negative impact on 3Q profit. The report is due 9 November.

• Valuation – With and EV/kg of NOK 54 based on 2012 volumes, SalMar is valued at a 50%

premium to peers. SalMar is also valued higher than peers on EBIT multiples, and the higher valuation is thus not fully explained by stronger profitability.

Food | SalMar (SALM) | Sell, TP NOK 26

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 57: Fishy Friday 141011

Detailed estimates

14/10/2011 57

Analyst: Geir Kristiansen| +4724147475 | [email protected]

P&L (NOKm) 1Q11 2Q11 3Q11E 4Q11E 2011E 2012E 2013E

Sales 1 005 957 1 572 1 877 5 412 4 984 5 275

Gross profit 467 588 409 517 1 706 1 268 1 555

EBITDA 311 143 249 299 1 001 619 868

EBIT bef fair value adj. 282 112 218 268 880 493 739

Fair value adj biomass -6 -309 -314

EBIT 276 -197 218 268 565 493 739

Financial net 2 -27 -24 -23 -73 -108 -101

Associated companies 46 5 20 12 155 61 84

Pretax profit 324 -219 214 256 648 446 722

Net income 233 -156 154 185 488 321 520

EPS (reported) 2.27 -1.52 1.50 1.79 4.64 3.03 4.90

Volumes (1,000 tonnes GW) 1Q11 2Q11 3Q11E 4Q11E 2011E 2012E 2013E

Central Norway 11.6 7.9 20.0 24.0 63.5 66.0 67.0

RaumaGruppen 1.9 2.0 3.7 4.5 12.1 14.5 15.5

Northern Norway 5.0 1.6 4.7 5.7 17.0 20.0 22.0Total 18.4 11.5 28.4 34.2 92.5 100.5 104.5

EBIT/kg bef. fair value adj. (NOK)

Central Norway 16.0 8.6 8.3 8.8 9.9 5.5 7.7

RaumaGruppen 17.2 14.8 5.6 7.2 9.5 5.6 7.4

Northern Norway 16.9 16.4 6.5 5.7 10.3 4.5 6.8

Average 15.3 9.7 7.7 7.8 9.5 4.9 7.1

Food | SalMar (SALM) | Sell, TP NOK 26

Page 58: Fishy Friday 141011

Valuation

14/10/2011 58

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Return on average capital employed

SOTP-valuation

Value EV/EBIT 13E EV/kg 12E (NOK)

Production 5 543 7.5 55

Norskott Havbruk (50%) 201 7.5 16

Bakkafrost (23.3%, at market value) 431 48

Enterprise value 6 176

NIBD 2011E -2 770

Value of equity 3 406

Value per share 33

Liquidity discount (20%) -7

Fair value per share 26

Source: SpareBank1 Markets

Valuation DCF model - Sensitivities (WACC 8.5%)

ROACE

Growth 9 % 10 % 11 % 12 % 13 %

0 % 24 28 33 37 42

1 % 24 29 34 39 44

2 % 25 30 36 42 48

3 % 25 32 39 46 52

4 % 26 34 43 51 59

5 % 27 38 49 59 70

6 % 29 44 59 74 89

7 % 34 59 84 109 134

Source: SpareBank 1 Markets

Food | SalMar (SALM) | Sell, TP NOK 26

Page 59: Fishy Friday 141011

Grieg Seafood

14/10/2011 59

Not for the faint hearted

Grieg Seafood struggles to break-even in the third quarter and we have particularly cut our 2012 estimates dramatically. The high gearing makes Grieg Seafood a risky investment and we cut our recommendation to Neutral (Buy) with a NOK 5.4 (13.5) target price.

• Cut in estimates – Lower salmon price expectations are the main driver for the cut in our EBIT

estimate for 2012 by 83% and for 2013 by 35%. We have also increased the cost level in Canada, which alone has a 14% negative effect on EBIT. The high financial gearing makes it unlikely that Grieg Seafood will pay dividend for 2011 and 2012.

• 3Q 11 expectations – Our 3Q 11 EBIT estimate is cut by 65% due to lower than expected salmon

prices, particularly in Europe, and we expect an EBIT before fair value adjustments of NOK 9m. We expect a pretax profit of NOK -4m for the quarter. The 3Q 11 report is due on 3 November.

• Valuation – On earnings multiples and EV/kg, Grieg Seafood has the most attractively

valued share in our universe. This is explained by the high financial gearing and operational risk in the company.

Food | Grieg Seafood (GSF) | Neutral, TP NOK 5.4

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 60: Fishy Friday 141011

Detailed estimates

14/10/2011 60

Analyst: Geir Kristiansen| +4724147475 | [email protected]

P&L (NOKm) 1Q11 2Q11 3Q11E 4Q11E 2011E 2012E 2013E

Sales 504 568 491 642 2 205 2 229 2 489

EBITDA 166 177 43 79 459 246 397

Depreciation, impairments -34 -34 -34 -32 -134 -135 -135

Operational EBIT 132 143 9 47 325 111 262

EBIT 271 -342 9 47 -20 111 262

Pretax profit. cont operations 285 -355 -4 32 -74 58 210

Taxes -76 94 1 -9 11 -16 -59

Net income 209 -261 -3 23 -63 42 151

EPS (reported) 1.87 -2.34 -0.03 0.21 -0.57 0.37 1.36

Volume (1,000 tons GW) 1Q11 2Q11 3Q11E 4Q11E 2011E 2012E 2013E

Rogaland (No) 2.5 4.7 3.8 5.0 16.0 16.5 16.5

Finnmark (No) 4.0 4.3 2.9 6.8 18.0 25.0 27.0

British Colombia 2.4 2.3 4.5 4.3 13.5 14.5 14.5

Shetland (UK) 3.0 3.0 4.8 5.2 16.0 18.0 19.0

Total 11.9 14.3 16.0 21.3 63.5 74.0 77.0

Average spot prices Norway (NOK) 39.8 36.8 25.9 25.0 31.9 26.0 29.0

Average spot prices Canada (USD) 7.9 7.9 5.1 5.5 6.6 6.2 6.2

Average spot prices Canada (NOK) 45.0 43.1 28.7 32.5 37.4 36.6 36.9

NOK/USD 5.73 5.44 5.61 5.90 5.67 5.95 5.95

Operational EBIT/kg

Rogaland (No) 15.3 13.7 2.6 3.4 8.1 2.4 4.9

Finnmark (No) 10.9 13.1 2.2 2.3 6.8 1.5 3.5

British Colombia 12.6 7.0 -5.1 -1.3 1.3 3.0 3.3

Shetland (UK) 6.6 2.1 4.5 3.9 4.3 0.8 3.3

Average 11.1 10.0 0.9 2.2 5.3 1.8 3.7

Source: SpareBank1 Markets and company data

Food | Grieg Seafood (GSF) | Neutral, TP NOK 5.4

Page 61: Fishy Friday 141011

Valuation

14/10/2011 61

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Return on average capital employed

SOTP valuation model (NOKm)

Value

EV/EBIT

13E

EV/kg

12E (NOK)

Rogaland (No) 571 7.0 35

Finnmark (No) 662 7.0 25

British Colombia 335 7.0 23

Shetland (UK) 441 7.0 23

Associated companies 34

Total/Enterprise value 2 043 7.8 27

Net interest bearing debt 2011E -1 287

Equity value 756

Value per share 6.8

25% liquidity discount -1.4

Fair value 5.4

Source:SpareBank 1 Markets

Valuation DCF model - Sensitivities (WACC 8.5%)

ROACE

Growth 5 % 6 % 7 % 8 % 9 %

0 % 6 9 11 14 17

1 % 5 8 11 14 17

2 % 3 7 10 14 17

3 % 1 5 9 13 17

4 % nmf 3 8 13 18

5 % nmf nmf 6 12 18

6 % nmf nmf 2 11 20

7 % nmf nmf nmf 8 23

Source: Argo Securities

Food | Grieg Seafood (GSF) | Neutral, TP NOK 5.4

Page 62: Fishy Friday 141011

Austevoll Seafood

14/10/2011 62

Strong pelagic performance, low salmon prices

• 3Q 11 preview

– We expect Austevoll to report an EBIT of NOK 320m for the third quarter, f which NOK 218m stems from salmon farming. Our estimate is revised down by NOK 48m due to the weak salmon prices in the quarter. We expect the fishmeal and -oil business to contribute by NOK 118m inn EBIT, of which NOK 92m is generated in Peru, and Human Consumption by NOK -12m. Austevoll will report its 3q result on 8 November.

• Salmon farming

– Austevoll owns 62.6% of Lerøy Seafood, the world’s second largest salmon farmer. We expect salmon farming to contribute 73% of Austevoll’s EBIT in 2011, falling to 56% in 2012

• Valuation

– In our Salmon farming sector report dated 12 October 2011 we cut our estimates and valuation for Lerøy due to lower salmon price forecasts. This also triggers a downward revision of estimates and target price for Austevoll. Our new target price is NOK 30, based on a NOK 112 target price for Lerøy. We recommend to Buy both Austevoll and Lerøy.

Food | Austevold Seafood (AUSS) | Buy, TP NOK 30

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 63: Fishy Friday 141011

Estimates

14/10/2011 63

Source: SpareBank 1 Markets

Food | Austevold Seafood (AUSS) | Buy, TP NOK 30

Analyst: Geir Kristiansen| +4724147475 | [email protected]

P&L (NOKm) 3Q10 3Q11E 4Q11E 2011E 2012E 2013E

Sales 3 329 2 680 3 216 12 494 10 581 12 012

EBITDA 706 441 567 2 414 1 188 1 955

EBIT before fair value adj 572 320 446 1 926 709 1 476

EBIT 542 320 446 1 432 709 1 476

Pretax profit. cont op. 533 301 426 1 337 515 1 346

Net income 383 223 315 966 381 996

Minority interests a.o -107 -58 -80 -531 -55 -270

Net income shareholders 276 165 235 435 326 726

EPS (reported) 1.36 0.81 1.16 2.15 1.61 3.58

EBIT (NOKm)

Fishmeal/oil 156 118 167 529 491 538

Human consumption -7 -12 -19 -17 -28 -32

Pelagic North Atlantic 4 21

Lerøy Seafood 424 218 305 1 409 268 993

Not allocated/elim. -5 -4 -7 -21 -22 -23

Total 572 320 446 1 921 709 1 476

572

EBIT margin

Fishmeal/oil 23.0% 28.5% 27.6% 25.4% 28.2% 29.8%

Human consumption -3.4% -11.8% -12.3% -2.8% -5.0% -5.6%

Trading/Pelagic North Atlantic 1.4% 2.6%

Lerøy Seafood 18.7% 9.7% 11.9% 15.0% 3.1% 9.9%

Total 17.2% 11.9% 13.9% 15.4% 6.7% 12.3%

Page 64: Fishy Friday 141011

Copeinca

14/10/2011 64

A Pure Play on Peru

• 3Q 11 expectations

– We expect that the strong second quarter will be followed by an even strong 3Q result, based on high sales volume and strong prices. We expect an EBIT of USD 32.9m, which is unchanged from our earlier estimate. The 3Q report is due 19 October.

• Valuation

– Our EBIT estimates are cut by about 2% for the 2011-2013 period, due to somewhat lower fishmeal price assumptions. Our NOK 55 target price is, however, unchanged, due to the weaker Norwegian currency.

• Pure Play on Peru

– Copeinca is a pure play on the Peruvian fishmeal industry and should be considered as a safer bet than Austevoll Seafood. Using Lerøy’s market value and Copeinca’s trading multiples on Austevoll yields a fair value of NOK 20.4, marginally above Austevoll’s share price. We are thus indifferent between an investment in Austevoll alone or a combination of Copeinca and Lerøy.

Food | Copeinca (COP) | Buy, TP NOK 55

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Page 65: Fishy Friday 141011

Estimates

14/10/2011 65

Source: SpareBank 1 Markets, company data

Food | Copeinca (COP) | Buy, TP NOK 55

Analyst: Geir Kristiansen| +4724147475 | [email protected]

P&L (USDm) 3Q10 3Q11E 4Q11E 2011E 2012E 2013E

Sales 106.2 107.2 50.8 265.6 303.7 313.8

EBITDA 49.3 42.2 18.7 107.3 119.6 124.3

EBIT 20.2 32.9 11.8 75.3 87.6 91.5

PTP 22.6 27.9 6.8 55.5 67.1 70.9

Taxes 0.8 -8.4 -2.0 -16.6 -20.1 -21.3

Net income 23.4 19.5 4.8 38.8 47.0 49.7

Margins

Gross margin 48 % 41 % 40 % 42 % 41 % 41 %

Operating profit margin 42 % 36 % 29 % 35 % 34 % 35 %

EBITDA margin 46 % 39 % 37 % 40 % 39 % 40 %

EBIT margin 19 % 31 % 23 % 28 % 29 % 29 %

EBITDA per ton (USD/MT) 644.5 528.3 469.0 556.4 534.9 556.0

EPS (reported) 0.40 0.33 0.08 0.66 0.80 0.85

Page 66: Fishy Friday 141011

Main assumptions

14/10/2011 66

Source: SpareBank 1 Markets, company data

Food | Copeinca (COP) | Buy, TP NOK 55

Analyst: Geir Kristiansen| +4724147475 | [email protected]

3Q10 3Q11E 4Q11E 2011E 2012E 2013E

Quota (MT)

North-Central 0 2 000 000 5 675 000 5 500 000 5 500 000

South 14 688 241 151 0 600 000 600 000 600 000

Total Peruvian quota 14 688 241 151 2 000 000 6 275 000 6 100 000 6 100 000

Raw material Catch (MT)

Own fleet catch 7 235 214 000 625 237 606 500 606 500

Third-party supply 7 235 46 000 156 946 144 500 144 500

Total 0 14 469 260 000 782 183 751 000 751 000

Own fleet catch 0.0% 3.0% 10.7% 10.0% 9.9% 9.9%

Third-party supply 0.0% 3.0% 2.3% 2.5% 2.4% 2.4%

Total Participation 0.0% 6.0% 13.0% 12.5% 12.3% 12.3%

Fishmeal yield 24.2% 24.2% 23.6% 24.7% 26.4%

Fishoil yield 4.2% 4.2% 4.8% 4.3% 4.6%

Total yield 28.4% 28.4% 28.3% 29.8% 29.8%

Production (MT)

Fishmeal SD 0 3 494 62 790 184 252 190 435 190 435

Fishmeal FD 0 0 0 0 0 0

Fishoil 0 608 10 920 37 460 33 119 33 119

Total 18 506 4 102 73 710 221 712 223 554 223 554

Volume sold (MT)

Fishmeal SD 45 840 66 331 33 165 158 966 190 435 190 435

Fishmeal FD 12 020 0 0 540 0 0

Fishoil 18 650 13 486 6 743 33 297 33 119 33 119

Total 76 510 79 816 39 908 192 804 223 554 223 554

Fishmeal price 1 355 1 331 1 238 1 304 1 330 1 373

Fishoil price 940 1 330 1 300 1 383 1 400 1 445

Page 67: Fishy Friday 141011

Fishmeal - supply

14/10/2011 67

Source: SpareBank 1 Markets, company data

Food | Copeinca (COP) | Buy, TP NOK 55

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Cathces of anchoveta – Peru Export of fishmeal - Peru

Page 68: Fishy Friday 141011

Fishmeal - Demand

14/10/2011 68

Source: SpareBank 1 Markets, company data

Food | Copeinca (COP) | Buy, TP NOK 55

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Fishmeal stock and consumption– China Import of fishmeal - China

Page 69: Fishy Friday 141011

Feed raw materials

69

Source: Oil World, Bloomberg

Analyst: Geir Kristiansen| +4724147475 | [email protected] Food, Beverages & Tobacco

Fishmeal and fish oil prices

14/10/2011 Food | Fishy Friday

Analyst: Geir Kristiansen| +4724147475 | [email protected]

Fishmeal prices Peru

Fish oil prices Peru

Page 70: Fishy Friday 141011

Disclaimer

14/10/2011 70

IMPORTANT DISCLOSURES

SpareBank 1 Markets operates a system of Chinese Walls in order to control the flow of information within the firm; the Research Department is part of this system. The Research

Analysts of SpareBank 1 Markets receive salary, and are members of the bonus pool. Analysts do not receive remuneration linked to the performance of their recommendations.

Furthermore their remuneration is not linked to specific Investment Banking projects.

Generally, investments in financial instruments involve risks. For specific risks related to our various recommendations, please see the latest relevant reports. The target prices on

companies in the SpareBank 1 Markets Research universe reflect the subjective view of the analyst about the absolute price that shares should trade at, within our twelve-month

recommendation horizon. The target price is based on an absolute valuation approach, which is detailed in our research reports. The target price can differ from the absolute

valuation, in accordance with the analyst's subjective view on the trading or cyclical patterns for a particular stock, or a possible discount/premium to reflect factors such as

market capitalization, ownership structure and/or changes in the same, and company-specific issues.

This report or summary has been prepared by SpareBank 1 Markets from information obtained from different sources not all of which are controlled by SpareBank 1 Markets.

Such information is believed to be reliable, and although it has not been independently verified SpareBank 1 Markets has taken all reasonable care to ensure that the information

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