CERMAQ ANNUAL REPORT 2011

Transcription

1 CERMAQ ANNUAL REPORT 2011

2 CONTENT integrated annual and sustainability report Our company FLAP Cermaq: A global leader Cermaq in brief: Key objectives, core values and map of locations 2 3 Message from the CEO Summary of 2011 and challenges ahead 4 5 Key figures and highlights 2011 Cermaq s financial and sustainability performance 2011 Main events in Strategy and history Cermaq s priorities and objectives for 2012 Company history 9 Management team Photo and presentation Our value chain EWOS Stable market share secures volume growth and profitability Mainstream Producing sustainably and entering new areas Innovation Innovation is our lifeblood Employees Cermaq people: Cermaq s HR policy and key facts Our approach Progress through sustainability reporting Our approach to sustainability 34 Stakeholders engagement Our engagement with stakeholders 35 Compliance Our point of entry Management approach Our approach to the material sustainability aspects 40 Table of indicators Our indicators related to the material aspects 41 Objectives 2012 and results 2011 Our endorsement of global initiatives 42 Endorsing global initiatives Our endorsement of global initiatives 43 Auditor s review Review report from KPMG Our results Board of directors report Cermaq delivers solid results in a very challenging market 55 Board of directors Photo and presentation 56 Corporate governance table Summary of Cermaq s corporate governance Annual accounts 2011 Accounts and notes for Group and Parent Company Senior management s remuneration Principles for the company s senior management policy 108 Responsibility statement Responsibility statement from the Board and CEO Auditor s statement Statement from KPMG Analytical information Background on harvest, supply, price development, and export quantities Shareholder information Cermaq share information 116 Information about Cermaq s digital reporting Guide to the web report This report is tagged according to Global Compact s ten Principles GC PRINCIPLES 1 2: Human rights GC PRINCIPLES 3 6: Labour Standards GC PRINCIPLES 7 9: Environment GC PRINCIPLES 7 9: Environment CG PRINCIPLE 10: Anti-corruption HUMAN RIGHTS Cermaq acknowledges, supports and respects human rights LABOR STANDARDS Cermaq acknowledges, supports and respects labour standards FISH HEALTH Cermaq seeks to maximise fish health through knowledge based, preventive work ENVIRONMENTAL IMPACT ANTI-CORRUPTION Cermaq s operations Cermaq has a zero have, like all aqua and tolerance for corruption agri-industry, an impact on environment. However, Cermaq strives to operate in a sustain able manner COMMUNITY ENGAGEMENT Cermaq seeks to be a reliable partner and a positive contribution to local communities

3 CERMAQ: a global leader Cermaq is an international fish farming and fish feed group with head office in Oslo, Norway. The group has a diversified presence in the major salmon farming regions worldwide. Creating values through sustainable aquaculture is the mission that underlies all of Cermaq s operations. The company is listed on Oslo Stock Exchange. SCOTLAND WESTFIELD (EWOS) Cermaq employs a total of 63 people through its feed operations located in Westfield. The feed production in Scotland mainly supplies fish farmers in Scotland, where the market is the most diverse in speciality feeds. EWOS Scotland also exports feeds to other European countries. CANADA CAMPBELL RIVER (MAINSTREAM) SURREY (EWOS) Cermaq s operations are located in British Columbia. Here, Cermaq employs a total of 328 people in a wide variety of jobs. Mainstream operations are headed out of Campbell River on Vancouver Island. Fish farming is a key employer in the northern part of Vancouver Island, mainly supplying the US west coast market with fresh salmon. The feed factory also supplies enhancement hatcheries for salmon located in Surrey, south of Vancouver, ranging along the entire west coast of the US. 36% of global feed market share EWOS continues to grow in a competitive market, and delivered a record full year in The company delivers through expertise within value added products and focus on supporting customer needs. CHILE PUERTO MONTT (MAINSTREAM) CORONEL (EWOS) COLACO (EWOS INNOVATION) Mainstream s operations are located in region X, XI and XII and lead out of Puerto Montt, the fish farming capital of Chile. Due to higher production of processed products, a large proportion of employees work in processing. Feed production is located in Coronel in Region VIII, where work opportunities are less dependent on fish farming. EWOS Innovation has a research station in Colaco, near Puerto Montt. In Chile, Cermaq employs a total of people. #3 global salmonid farming company Mainstream is one of the global leaders in farming of salmon and trout. Production is spread both geographically and on species, which makes the company well suited to meet market demands. The company delivers good biological results in all regions.

4 p p EWOS A leading international player in the production of feed for the fish farming industry producing primarily feed for salmon and trout. An important contributor to knowledge development through the R&D unit EWOS Innovation. Mainstream One of the largest players in the salmon farming industry. The group produces Atlantic salmon, rainbow trout and coho salmon Our objectives: Cermaq shall be one of the leading global suppliers of feed to salmon and trout, with a complete product range and with operations in all four main salmon producing regions of the world. Cermaq shall be a significant player within farming of salmonid species in the two main farming regions, Norway and Chile. Cermaq shall be among the best players when it comes to research and development on fish feed and salmon farming. NORWAY OSLO (CERMAQ) STEIGEN (MAINSTREAM) BERGEN, FLORØ, BERGNESET, HALSA (EWOS) DIRDAL, LØNNINGDAL (EWOS INNOVATION) Cermaq is located in Oslo, with a lean head office of 47 employees. Mainstream s operations are located in Nordland and in Finnmark, and headquartered from Steigen. EWOS is lead out of Bergen and the three feed plants are located in Florø (Sogn og Fjordane), Halsa (Nordland) and Bergneset (Troms). EWOS Innovation has research facilities in Dirdal (Rogaland) and Lønningdal (Hordaland). Cermaq employs a total of 760 people in Norway. Cermaq shall maintain strong operational focus as a basis for success and future growth. Our core values: Integrity We adhere to a code of ethical values such as fairness, loyalty and respect so that we maintain our pride and earn trust. Prudence We are disciplined and reasoned. We depend on skill and good judgement in use of resources, and we manage risk proactively. Preparedness We anticipate change and capitalize on growth opportunities through hard work and creative thinking. Business mindedness We are always thinking of generating cash and opportunities for profit. All other goals come to naught if we fail. VIETNAM BEN LUC, LONG AN PROVINCE (EWOS) Sharing success and concerns In order to create a positive working environment where success is shared and problems are solved, we encourage networking, personal development, teamwork and open communication. EWOS Vietnam was established in 2011 as a joint venture with local partner Anova. The company produces feed for the pangasius feed market in South East Asia. EWOS Vietnam employs 181 people. nok11.6billion operating revenues Has increased by 6 percent despite volatile salmon prices due to strong feed sector and efficient risk management.

5 Our Company CEO MESSAGE KEY FIGURES HIGHLIGHTS STRATEGY HISTORY MANAGEMENT Creating values Cermaq s vision is to be a global leader in the aquaculture industry. Global leadership requires high standards for sustainable aquaculture. We believe that the key to value creation through sustainable aquaculture is to demonstrate respect for each other, the consumer, and the communities and environment in which we operate.

6 Our Company: CEO message WELL PREPARED FOR THE FUTURE With a total operating profit of NOK million and a return on average capital employed of 22 percent, Cermaq has just experienced one of its best years ever. This is due to well-run operations, successful product launches and good biological performance. The high price of salmon in the first half of the year along with low and extremely volatile prices in the second half of the year had a significant impact on the results. both in Chile and other areas. By continuous improvements, we can ensure optimal cost development and gain the acceptance of the society for continued growth in the salmon farming industry in order to meet the growing consumption of healthy salmon. In December 2011, Jon Hindar was appointed new CEO. He assumed his position in March We will always be prepared to carry out transactions that increase value for our share holders in the long term. Despite good results generated by all of the group s companies, I should particularly like to highlight EWOS, which once again has delivered record profits with strong growth in Chile and rising sales of functional feeds. Mainstream Chile also saw an operating profit of NOK 430 million in 2011, compared with NOK 206 million in The strong financial and biological performance of Mainstream Chile is highly impressive, bearing in mind the challenging rebuilding process that has taken place in Chile in recent years. Change is bases for renewed growth In the second half of 2011, we saw a sharp rise on the supply side in the salmon market. The rebuilding of production capacity in Chile has so far been very successful and has been based on new sustainable operating procedures. We experience that the salmon farming industry and the Chilean authorities have together taken it upon themselves to reduce the risk of an outbreak of disease similar to those happening a few years ago. This is reflected in low mortality rates, the reduced use of antibiotics and the high average yield per smolt. It is important that these efforts continue unabated in the years to come, Despite an increase in demand, the sharp rise in production this year has created a temporary imbalance between supply and demand with occasional but severe price fluctuations during the autumn. At the same time, we are also experiencing significant growth in new markets such as Russia and Brazil as well as good development in more established markets. This trend is expected to be further reinforced in the coming years. New products increase value creation Also in 2011, EWOS launched new products based on research carried out by EWOS Innovation. The products have helped boost performance and improve fish health in the salmon farming industry, and the proportion of functional feeds at EWOS Norway exceeded 50 percent in One of the successes was EWOS Robust, which helps reduce the attachment of salmon lice. This and other EWOS products can reduce mortality, improve growth and thus increase profits for salmon farmers regardless of price performance. We therefore expect to continue to see a large share of these quality products in the times ahead. 2 CERMAQ ANNUAL REPORT 2011

7 always a risk of disease and other biological challenges, our primary task is to create expertise and good procedures for preventive fish health along with processes for reducing the impact of any outbreaks of disease. This was demonstrated in the summer of 2011 in Finnmark, where an ISA outbreak was well managed, both in terms of operations and in relation to the authorities. This limited the damage done to the company and upheld trust in Mainstream as a professional operator in the industry. Profitable growth is decisive If Cermaq is to continue developing its position as a leading aquaculture business, it needs to see sustained, profitable volume growth in both areas of business. With regard to salmon farming, we worked to increase production capacity in 2011 in Region XII, Chile and in Finnmark, Norway. The investment projects will be completed in 2012, and the group s production capacity will subsequently increase by around tonnes in Combined with increased production at existing locations in Chile, we will be operating at almost maximum capacity and see a production output of around tonnes by the end of In order to be able to grow further, we will either need to obtain more concessions or take structural action. We will always be prepared to carry out transactions that increase value for our shareholders in the long term. EWOS has seen strong growth in the last two years, and in 2011 the unit produced more than 1 million tonnes of fish feed for the first time. With a large market share Tore Valderhaug was appointed acting CEO in July 2011 when Geir Isaksen left the company. He was the acting CEO until March and new launches of quality products, this gives it a solid basis for future growth in step with increased salmon production saw the establishment of EWOS Vietnam for the production of feed for Pangasius. This unit will be developed further in We also continue to consider more wide-reaching initiatives in relation to other species. Sustainable aquaculture is a prerequisite Cermaq once again achieved good results on key sustainability indicators in Transparent reporting and endorsement of international initiatives, including Global Compact and the Global Reporting Initiative, are important both internally and externally. However, our results are generated within the individual business units. EWOS has drawn up a new code of conduct for suppliers which demands that they sign up to the ten GC principles. In Chile, new processes and good management have helped generate strong biological performance in relation to mortality, sea lice and the use of antibiotics. As there is Well prepared for the future The strong results generated in the last two years along with the sale of non-strategic assets have helped Cermaq create a good foundation for future growth. We have established a solid financial structure and thus the ability to grow, even in a weak market. We continue to emphasise the importance of maintaining a predictable dividend policy. We operate salmon farming in three regions. In Chile we also produce trout and coho in addition to Atlantic salmon, and these are in high demand in the Asian market. EWOS revenues are stable, which gives us more flexibility to operate optimally, even in times with challenging salmon prices. However, we are conscious of the fact that working in an industry with live animals is challenging, and despite all the measures we have taken and continue to develop, we are not immune to various biological or operational incidents. In that respect it is extremely good to know that we have a solid organisation throughout the group which is well prepared both on a professional and a human level, to handle the challenges that will arise. Some wonderful work has been done throughout the year to deliver a very good result, and I would like to thank our employees for their outstanding efforts in Tore Valderhaug CERMAQ ANNUAL REPORT

8 Our company: Key figures / Highlights Key figures 2011 Income statement Operating revenues EBITDA 1) EBITDA margin 14.5% 17.8% 9.6% 3.8% 13.1% EBIT pre fair value adjustments 2) EBIT margin pre fair value adjustments 11.8% 14.4% 5.8% 0.6% 9.7% EBIT 3) Net result continuing operations (55 080) Net result discontinued operations - - (45 035) (2 938) - Net result (58 017) Financial position Non-current assets Current assets Total assets Equity, excluding non-controlling interests Non-controlling interests Non-current liabilities Current liabilities Total equity and liabilities Capital employed pre fair value adjustments 4) Financing Total equity Equity ratio 5) 59.5% 59.8% 52.7% 42.0% 57.3% Net interest bearing debt 6) Profitability Operating margin 7) 8.7% 19.5% 6.1% 1.6% 6.4% EPS adjusted. basic/diluted continuing operations 8) (1.37) 7.54 Dividend per share (paid and proposed) Return on equity 9) 13.3% 30.0% 7.8% (1.3)% 11.6% Return on capital employed 10) 22.1% 21.7% 8.0% 0.8% 14.2% EBIT pre fair value adjustments/kg fish farming 11) (1.3) 4.2 EBIT pre fair value adjustments/tonne fish feed 12) ) EBITDA: Earnings before interest, taxes, depreciation and amortisation 2) EBIT pre fair value adjustments: Earnings before interest, tax and fair value adjustments 3) EBIT: Earnings before interest and taxes 4) Capital employed: Total equity + net interest bearing debt fair value adjustment on biological assets 5) Equity ratio: Total equity/total assets in percent 6) Net interest bearing debt: Long term and short term interest bearing debt cash balance 7) Operating margin: EBIT/operating revenues in percent 8) EPS: Earnings per share adjusted for unrealised fair value adjustments. Diluted EPS reflects the dilutive potential of share options 9) Return on equity: Net result/average total equity in percent 10) Return on capital employed: (EBIT pre fair value + income from associates)/capital employed in percent For 2011, 2010 and month average is used for capital employed, year end balances for prior years 2010 figure excludes material gains on sale of business/assets 11) EBIT pre fair value per kg, gutted weight equivalent, in NOK 12) EBIT pre fair value per tonne in NOK Sustainability Employees (number) Fatalities (number) * Injury rate (injuries per working hours) Workforce absence rate (percent of total work days) 3.2% 3.1% 3.0% 5.0% Total energy consumption (GJ) Global GHG emissions (Tonnes of CO2e) Non-compliance with environmental regulations Non-compliance with food-safety regulations Non-compliance with other societal regulations Non-compliance with product and service regulations Figures except in total employees are adjusted to exclude Mainstream Scotland * In 2008, 2 contracted divers died while carrying out work for Mainstream Chile 4 CERMAQ ANNUAL REPORT 2011

9 OPERATIONS MS Canada advanced domestic egg production by opening spawning facility in fresh water (May) EWOS Norway launched a series of new functional feeds (May) MS Norway established a new production area in Ofotfjorden (August) MS Norway reopened processing plant in Finnmark with increased capacity (August) MS Canada began the trial of increasing the oxygen in the water (September) EWOS Vietnam operated from first half of the year and was officially registered in November MS Chile started production in Region XII (December) EWOS crossed the 1 million tonnes production limit (December) ORGANISATION & TRANSACTIONS Cermaq sold its shares in the non-core business Hordafôr AS (February) CEO Geir Isaksen left Cermaq after 15 years as CEO (July) Jon Hindar was appointed new CEO (December) CERTIFICATIONS AND MEMBERSHIPS Cermaq joined UN Global Compact (March) Highlights 2011 MS Norway was the first Norwegian aquaculture company certified according to OHSAS standard (April) MS Canada was certified according to the APSA (Aboriginal Principles for Sustainable Aquaculture) (May) Cermaq joined Transparency International Norway (June) MS Canada received a COR (Certificate of Recognition) award from the Food and Manufacturing Industry Occupational Safety Alliance of British Columbia (June) MS Canada site was the first in the world to be certified to the Global Aquaculture Alliance s Best Aquaculture Practices new standard for farmed salmon. (December) AWARDS MS Norway was honored with the Industry Federation prize for its training practices (February) Cermaq won the Farmand price for the best annual report for listed companies in Norway (September) Seafood Intelligence rated Cermaq s sustainability report to be the best (September) MS Chile received a Government award for a community project in Chiloé (November) OTHER Cermaq arranged its first Capital markets day (May) OECD complaint was settled, and a joint statement was issued (August) Cermaq was included in the OBX list of the 25 most traded companies at Oslo Stock Exchange (December) SO FAR 2012 MS Chile received the Pro Pyme Seal, from the Chilean President, recognising the importance for small and medium sized suppliers being paid within 30 days (January) OPERATING REVENUES NOK Million EBIT PRE FAIR VALUE ADJUSTMENT NOK Million EARNINGS PER SHARE, ADJUSTED (BASIC, CONTINUING) NOK CERMAQ ANNUAL REPORT

10 Our Company: Strategy / History / Organisation OUR STRATEGY Cermaq is a global leader within the salmonid aquaculture industry with two business areas that carries different business models where the growth opportunities and corresponding strategy therefore will be different. Both business areas focus on sustainable production of its products and as part of this also invest substantial resources in research and development to secure efficiency and quality within feed and farming. The key strategic rationale for operating a combined feed and farming supplier with in Cermaq is the transfer of knowledge between the business areas that we believe adds additional value to both Mainstream and EWOS. Feed is the key cost component in the fish that the farmers grow and knowledge about feeding and its impact on the growth and health of the fish is a key success factor for both business areas. In addition, operating a feed business with less cyclicality together with a traditional cyclical farming business reduces the financial risk for the group as such. Creating shareholder value Cermaq creates shareholder value by focusing on: Delivering solid operational and financial results Profitable growth within salmon farming and feed operations Sound financing and ability to reap benefits of growth opportunities Committing to significant research and development to promote efficiency and quality within fish feed and farming Acting responsibly in relation to sustainable use of natural resources, environmental and social concerns in the communities in which we operate Taking care of occupational safety and health and working conditions of its employees Growth Cermaq s position as a global leader in aquaculture will be developed through profitable volume growth within both business areas. Organic growth in Mainstream is currently being completed through expansions in Region XII in Chile and in Finnmark in Norway. Within EWOS, Cermaq invests currently in new capacity in Norway to be able to meet the increased demand from customers. In addition to organic growth and profitable mergers & acquisitions within our existing activities, Cermaq is continuously exploring new areas for value creation. In the feed sector EWOS entered during 2011 into the white fish market in Vietnam using the competence from comprehensive research in feed processing and fish nutrition. Further steps to grow feed to other species than salmonids are continuously considered. Within farming, key focus has during 2011 been on organic growth within existing licenses. Unless new licenses are distributed in any of the countries where the company currently operates, further growth initiatives will require mergers & acquisitions. Such activities are supported to the extent long term value to our shareholders is created. Value chain focus Cermaq operates in the feed and farming part of the aquaculture value chain. Value added products are in addition delivered through Mainstream Chile and includes most finished products for the retail and restaurant market. Cermaq may however increase the share of such value added products to the extent additional value creation is supported. EWOS operates mainly as a producer of salmonid feed with high focus on research and development to the benefit of all its customers. Raw materials are sourced from external suppliers and EWOS is currently not investing in other parts of the salmonid value chain. Feed: Growing in the Vietnamese market In 2011, Cermaq entered the Vietnamese feed market for white fish to utilise our broad competence in fish feed. EWOS holds 51 percent of the shares in EWOS Vietnam, a producer of feed to pangasius. The production for 2011 were tonnes, a substantial increase from Even though the current operations are not significant, the strategic importance over time may be high due to Vietnam s position in global aquaculture. Entering this market through a small and carefully selected business has provided Cermaq with several achievements in 2011, including: Implementation of EWOS quality and production standards Introduction of functional feeds Establishment of R&D facilities Improvement of marketing & sales promotion Production improvement to support future capacity increase Implementation of Cermaq s CSR policy with training of employees as well as other corporate governance initiatives Cermaq expects the Vietnamese market to grow rapidly, and has through EWOS Vietnam a good position to take part in this 6 CERMAQ ANNUAL REPORT 2011

11 PELAGIC FISHING FLEET FISH MEAL FISH OIL FACTORIES FEED PRODUCERS SALMON FARMERS HARVESTING PROCESSING TERRESTRIAL FARMING RAW MATERIAL PROCESSING development. Further initiatives both in Vietnam and other white fish areas will be considered to support further growth. Farming: Growing in far north and in far south Mainstream has during 2011 continued making use of the growth potential in our existing licenses and through expanding into new areas. Mainstream has initiated operations in Region XII in Chile, an area which until now has seen little activity due to challenging climate. Mainstream has so far invested in the development of 2 out of 9 licenses and the first smolt was transferred to sea on December 28th Cermaq s ambition is to achieve a harvesting volume of tons Atlantic salmon from Region XII in In Finnmark, we are utilising our potential for organic growth through increasing production within the existing concessions. Cermaq considers the profitability from this kind of growth to be good, and we experience good operational results. The expansion in Finnmark involves investments in sea sites, as well as an expansion of our processing plant in Hammerfest, which has increased its capacity to 150 tonnes per shift. Region XII in Chile and Finnmark in Norway are areas which historically have seen modest activity within fish farming, but which we believe are attractive areas which through a strong operational focus can be cost efficient and sustainable. Increased activity in new areas for fish farming also provides a risk diversifying effect for Mainstream. Objectives and results Objectives 2011 Results 2011 Objectives 2012 Rebuild farming operations in Chile. Expanding into region XII Constructed and started operations of land based fresh water facility for production of juvenile trout Established operations in Region XII through the development and stocking of one site Develop and stock further three sites in Region XII Grow farming volumes in Nordland and Finnmark, Norway Develop and launch new and profitable products through R&D Establish EWOS Vietnam Protect the framework conditions for our operations and demonstrate sustainability performance Developed three sites and expanded primary processing plant Own developed anti-attachment feeds for salmon against sea lice is among several successful product launches in 2011 Platform is established and further growth is planned Sustainability performance was demonstrated in our third party reviewed GRI report which also received external recognition and awards Develop and stock further one site in Finnmark Implement a program to further strengthen Mainstream s focus on cost-efficient production in all regions Leverage our core competencies from the technology, in more species and geographies Implement new supplier control system, with attention on corporate social responsibility in the entire value chain Ensure sufficient capacity expansion to support the planned volume growth, with low CAPEX / tonne new capacity Improve overall OHS performance CERMAQ ANNUAL REPORT

12 Our company: Strategy / History / Organisation Company history The history of Cermaq ASA starts where the Norwegian state monopoly on grain import ended. What started out as an agricultural company with import and domestic operations, took a distinct new direction in 2000 and has developed into a global leader within aquaculture. The historic events that transformed our company are presented on Today our company structure is based on fish feed and fish farming, with some remains from our past within agriculture. CERMAQ ASA FISH FEED AND R&D FISH FARMING NON CORE EWOS AS (NORWAY) MAINSTREAM NORWAY AS NORGRAIN AS 72.5% OWNERSHIP EWOS CANADA LTD EWOS CHILE S.A. EWOS INNOVATION AS MAINSTREAM CANADA A DIVISION OF EWOS CANADA LTD MAINSTREAM CHILE S.A EWOS LTD (SCOTLAND) EWOS VIETNAM JSC 51% OWNERSHIP Minority shareholdings are not included. 8 CERMAQ ANNUAL REPORT 2011

13 Our company: Group of management GROUP OF MANAGEMENT AS OF MARCH : JON HINDAR (1956) Chief Executive Officer as of March 19th 2012 Mr. Hindar took up the position as CEO of Cermaq in March Mr. Hindar holds a Master of Science in Chemical Engineering from the Norwegian University of Science and Technology, and has supplementary management education at IMD from Lausanne, Switzerland. He was previously the CEO of Norsun AS, Senior Vice President of Invitrogen Corp., CEO of Dynal Biotech ASA, and Partner and Managing Director of Fondsfinans ASA. Jon Hindar is on the board of amongst others Photocure ASA and Handicare ASA. 2: KJELL BJORDAL (1953) Chief Operating Officer Feed Mr. Bjordal was appointed Global Director of the EWOS group and COO of Cermaq feed in He was formerly CEO of NorAqua, which he joined in He is a business studies graduate from the Norwegian School of Economics and Business Administration and has also pursued legal studies. In addition he has attended the Advanced Management Programme at Wharton Business School. Mr. Bjordal s previous employment includes President and CEO of the Glamox Group ( ) and Chief Financial Officer of Glamox Group ( ). 3: TORE VALDERHAUG (1960) Chief Financial Officer and Acting CEO until March 19th 2012 Mr. Valderhaug was appointed CFO of Cermaq ASA in November He is a Norwegian State Authorized Public Accountant and has long audit experience inter alia from Arthur Andersen & Co. Mr. Valderhaug has broad experience as CFO in listed companies, including EDB Business Partner ASA, Proxima ASA, and Ocean Rig ASA. Mr. Valderhaug was acting CEO in Cermaq between July 2011 and March : GEIR SJAASTAD (1953) Project Director 5: GEIR MOLVIK (1958) Chief Operating Officer Farming 6: SYNNE HOMBLE (1972) Director Corporate Functions Mr. Sjaastad joined Cermaq ASA (previously Statkorn Holding ASA) in 1996 and was appointed Deputy CEO in From March 2009 he took up the role as Project Director. He is a business studies graduate from the Norwegian School of Economics and Business Administration and has also pursued legal studies. Mr. Sjaastad s previous employment includes periods as manager/partner of Gemini Consulting and IKO Strategi ( ), as well as finance director and company secretary of Bjølsen Valsemølle AS ( ). Mr. Molvik joined the Cermaq group as Managing Director for EWOS Norway in 2006 and was appointed Chief Operating Officer Farming from June He holds a MSc. from the University of Tromsø, Norway, and has broad experience in aquaculture from Hydrotech-gruppen, Hydro Seafood and Noraqua in Norway and from Georgia Sea Farms Ltd. in Canada and Tassal Ltd. in Tasmania, Australia. Mr. Molvik was Senior Vice President in Christiania Bank og Kreditkasse for several years. Synne Homble joined Cermaq ASA as Group Legal Counsel in 2006, and was appointed Chief Legal Counsel and a member of the Management Team in August From March 2009 she took on the role as Director Corporate Functions, with responsibility for legal affairs, communication, corporate responsibility/ sustainability and HR. Mrs. Homble has her law degree from the University of Oslo, with special classes from Hamline School of Law, Minnesota, USA. From 1998 to 2006 she was employed as attorney at law in the Norwegian law firm Wikborg, Rein & Co. CERMAQ ANNUAL REPORT

14 Our value chain EWOS MAINSTREAM INNOVATION R&D EMPLOYEES

15 FEED FARM INNOVATION ADAPTABLE Sharing knowledge, thinking ahead Cermaq has two core business areas EWOS (fish feed production) and Mainstream (fish farming) and our many employees represent the backbone in our value creation. Cermaq invests heavily in research to improve performance and quality throughout the value chain.

16 Our value chain: EWOS STABLE MARKET SHARE SECURES VOLUME GROWTH AND PROFITABILITY EWOS maintained its overall share of 36 percent in the global salmon feed market in The group reaped the benefits of considerable investment in R&D, yielding new functional feeds and increased formulation flexibility. 12 CERMAQ ANNUAL REPORT 2011

17 Cermaq s fish feed operations are organised in the EWOS business division. EWOS is one of three major salmonid fish feed companies globally, with a market share of around 36 percent. Operations EWOS supplies extruded feeds for the full life cycle from hatch to harvest of salmonids and pangasius. Feeds are also supplied for a number of other marine and fresh water species, positioning EWOS to take part in the expected growth within these species. Today EWOS produces feeds for 28 different farmed fish species. EWOS is present in all of the four large salmon-producing countries, with three production facilities in Norway, and one each in Chile, Canada and Scotland, in addition to presence in the pangasius feed market in Vietnam. From these operations, EWOS exports feed to a range of countries in Europe, South America, Asia, and to the US. EWOS reached a significant milestone in 2011, passing a combined production of 1 million tonnes of fish feed. Total sales for the year ended at thousand tonnes of feed and had revenues of NOK million and an EBIT pre fair value of 625 million. EWOS has a total of employees, including EWOS Innovation. Competitive advantages EWOS is recognised in all markets on five important characteristics; performance, fish health and welfare, experience, service, and partnership. Considerable investment in research contributed to a competitive edge especially in speciality and functional feeds. An in depth knowledge of the impact of advanced nutrition on fish health and performance is of fundamental value for customer relations. EWOS also offers an industry leading performance and benchmarking system which is widely used in improvement programmes by EWOS customers. Framework conditions There have been no major regulatory changes directly influencing the fish feed business in However, regulators are refining the system by gradually adjusting requirements regarding controls and monitoring of undesirable substances as well as documentation of practice within the industry. EU s new Common Fisheries Policy (CFP) is being developed and is to be effective 1 January It will focus on better control and management of fisheries and will help improve the sustainability of EU s fisheries. Aquaculture is to be part of CFP. Risk considerations EWOS continuously manages operational risk and uncertainties in order to protect its strong reputation, to ensure continuously supply and to protect our assets. The main factors creating risk exposure to EWOS are: Food safety risks Raw material price volatility risks Raw material availability risks Receivables risks particularly in Chile where there has traditionally been a market practice for granting extended credit terms Business interruption risks EWOS is well prepared to manoeuvre in this challenging business environment and has EWOS is recognised in all markets on five important characteristics; performance, fish health and welfare, experience, service, and partnership. KEY FIGURES EWOS NOK million Operating revenues EBITDA EBITDA margin 8.4% 9.1% 8.2% 4.4% 8.3% EBIT before unrealised fair value adjustments EBIT margin before unrealised fair value adjustments 6.7% 6.9% 6.1% 2.7% 6.4% EBIT (operating profit) Volumes (ktonnes) CERMAQ ANNUAL REPORT

18 Our value chain: EWOS FUNCTIONAL FEEDS Percent of sales volume % 25% 36% 47% SALES VOLUME PER REGION CANADA 7% VIETNAM 3% NORWAY 51% SCOTLAND 8% CHILE 31% implemented EWOS Integrated Management System EIMS which integrates food safety, quality, occupational health and safety and environmental management. Risks related to sourcing of raw materials are managed by a highly competent global purchasing team. Risk related to receivables is managed through credit authorization procedures and close follow up of customers. Sustainability Sustainable sourcing and efficient use of raw materials are key sustainability elements in the feed sector. The global supply of marine ingredients is limited and unstable, and EWOS has through advanced R&D contributed to a significantly more efficient utilisation of those ingredients. Recently a milestone of being a net fish protein and oil producer was achieved by EWOS Norway. The carbon footprint of salmon is in line with that of chicken and significantly lower than pork and beef. Further EWOS promotes better utilisation of marine raw materials e.g. the use of bycatch for feed purposes, and sources marine raw materials from sustainable fisheries. EWOS supports the IFFO Global Standard for Responsible Supply demonstrating responsible fish stock management, food safety and traceability in their factories. In 2011, EWOS was sponsor of the IFFO RS Improvers programme for fishmeal and fish oil factories that initially fall short of the IFFO RS standard. EWOS adopted a new sourcing policy and code of conduct for suppliers in 2011, clearly stating EWOS expectations that suppliers should enact the Global Compact s 10 principles. EWOS continues to use marine raw materials efficiently, which still remain an important feed ingredient. The marine index was 37.5 percent excluding Vietnam, down from 42 percent in Trimmings used as raw materials in EWOS feed constituted 18 percent of the marine ingredients in 2011, a decrease from 21 percent in Market overview Biologically favourable conditions in Norway and the successful comeback of farming operations in Chile led to a higher market growth than expected in EWOS maintained its market share in all markets, gaining volume growth in Norway, Chile and Scotland. SOURCING OF MARINE RAW MATERIALS Forage fish / Origin Tonnes % Anchovy Peru,Chile Capelin Norway, Iceland Sand Eaal Danmark, Norge Sprat Denmark Menhaden USA Misc. Species* Forage fish total Trimmings and byproducts Herring trimmings Misc. Species* Fish trimmings and byproducts total Other marine ingredients Krill and shrimp trimmings Other Marine Ingredients Total Marine ingredients total *Species included are Blue whiting, Jack Mackrell, Hake, Norway Pout, Pilchard, and Sardine. In Norway, the fish feed market grew by 12 percent to tonnes in EWOS ended the year with a relatively stable market share of around 37.5 percent. Total sales volume rose by around tonnes and passed tonnes for EWOS produced more than tonnes of feed in the peak month of August, a new all-time high for the industry. Scotland is part of the UK and Ireland market of tonnes for all species, where Scottish salmon accounted for approximately tonnes, 5 percent higher than EWOS slightly increased its share of this sector to 33 percent. Export sales from EWOS Scotland to the EU and Norway increased by over 30 percent to tonnes. In Canada, there was a small decrease in the total market in 2011 and it is expected that 14 CERMAQ ANNUAL REPORT 2011

19 the market will decrease again in 2012 as a result of planned reductions in the number of smolts being put to sea in 2011/2012. The farming operations are highly consolidated with four companies accounting for more than 90 percent of total production. EWOS Chile experienced growth, strengthened market positioning and increased leadership in 2011, with a growth of 58 percent, compared to 43 percent for the Chilean Feed Industry. EWOS market share was 32 percent with total annual sales at tonnes. Functional feed sales represented more than 40 percent of total sales. The Vietnamese total aquaculture feed market probably exceeds 3.5 million tonnes, of which the local pangasius market alone accounts for close to 2 million tonnes of feed. In 2011, the global economy affected farmers financial situation and feed sales were challenging for all companies. Since its operational takeover in February 2011, EWOS has through considerable efforts built sales to a year-end total of tonnes. Business development Functional feeds strengthened their role as a tool for preventative management of diseases and parasites. During spring 2011 EWOS released new functional feeds containing combinations of immune stimulants and natural, plant-based masking compounds that can confuse sea lice at settlement and reduce the levels of lice that attach to the salmon. This functional feed was very well received amongst EWOS customers, and functional feeds represented 47 percent of EWOS group s total sales in 2011, an increase from 36 percent in In Norway, the capacity expansion at the Florø factory in 2009 was basis for the high volume growth in With the increased output of smolt in 2011 EWOS Norway will again adjust its capacity to be able to meet the expected increased demand for feed in The investment programme in Scotland continues to drive manufacturing efficiency and new warehousing and loading facilities due for completion in 2012 should improve distribution performance. In Canada, EWOS continues its efforts to increase sales to marine fish in Asia and the salmon enhancement operations in the Pacific Northwest and Alaska to utilize available plant capacity. In Chile, the impact of Atlantic Salmon price reduction in the second half of 2011, together with new regulations will be challenging for farmers for at least the next 1.5 years, although very good prices of Coho and Trout in the international markets have helped diversified producers. EWOS Vietnam had provided increased capacity through efforts in repairs and replacement of equipment and site infrastructure, and maintenance. EWOS has established local R&D and sales support, important to build EWOS product portfolio and reputation. Outlook for 2012 The strong demand from 2011 is expected to continue in In Norway, farmers are successfully optimising production within the present regulatory framework. It therefore seems likely that the Norwegian market will have another year of strong volume growth in Canada and Scotland have limited growth potential in Chile has so far demonstrated a successful comeback and will continue to grow at the highest rate of all markets. In Vietnam, EWOS has rented new facilities and will as a result increase its capacity and market share significantly. Functional feed sales are expected to hold in 2012, building on their proven success in trials and in the market. Support from academia and fish health authorities also further strengthens the acceptance of functional feeds as an important tool for preventative health management. The main focus for EWOS in its raw material sourcing is to optimize the supply base as well as to contribute to realizing the EWOS growth strategy through a coordinated global approach to all raw material markets. Competition on access to marine oils, mainly from the omega 3 segment for human consumption, remains moderate. EWOS reached a milestone producing more than 1 million tonnes in one year. CERMAQ ANNUAL REPORT

20 Do Our value chain: EWOS Working for continuous improvement EWOS commitment to continuous improvement according to international standards is called EWOS Integrated Management System (EIMS). It is based on the feed plants independent certification according to international management standards and for quality (ISO9001); food safety (ISO22000); environment (ISO14001); and health & safety (OHSAS18001) management, in addition to accreditation of individual plants in accordance to standards like GlobalGap, to meet local market needs. Mission Vision Values Policies Plan EIMS HACCP ISO FOOD SAFETY GRI UNGC CDP IFFO RS EIMS has become pivotal to the way EWOS does business. It represents a systematic way of managing social and environmental risk in business, working by recognised international standards. EIMS also ensures that the continuous improvement of business is done in a transparent and responsible way. For example, all EWOS operating companies take part in a global program for the monitoring of undesirables in feed. Act ISO ENVIRONMENTAL MANAGEMENT ISO 9001 QUALIY MANAGEMENT ISO OCCUPATIONAL HEALTH &SAFETY Feed and food safety risks are managed systematically also in the supply chain for raw materials. A system for supply chain risk analysis and supplier approval defines the processes and criteria on how raw material suppliers are selected, approved, audited and controlled. Global G.A.P. Check Objectives and results Objectives 2011 Results 2011 Objectives 2012 Refocus our marketing and support organisation to better reflect our high competences and the potential in our strong product range. We aim to be the feed supplier that creates the highest value for our customers We have continued to develop new feed based solutions for the challenges in the fish farming industry. Our success is confirmed by increased sales of value added products, and has inspired the competition to follow. This has professionalised the industry and made it overall more sustainable Defend our market share and high profitability in the salmon market Develop and launch new and profitable products through R&D Utilise the competent purchasing team to outperform competition in a complex raw material market, aiming to create benefits for our customers Own developed anti-attachment feeds for salmon against sea lice is among several successful product launches in 2011 The refreshed global purchasing team has supported the rapid EWOS growth with right volumes and qualities of raw materials to right prices ensuring safe supply of feed to the market Leverage our core competencies from the technology, in more species and geographies Implement new supplier control system with attention to corporate social responsibility in the entire value chain Maintain current market position in all markets and profitability as best in class Establish our future growth platform in Asia, by developing EWOS Vietnam to become one of the 10 largest feed suppliers in the country EWOS has maintained or gained market shares in all markets during 2011 Platform is established and further growth is planned Ensure sufficient capacity expansion to support the planned volume growth with low CAPEX / tonne new capacity 16 CERMAQ ANNUAL REPORT 2011

21 Our value chain: Mainstream PRODUCING SUSTAINABLY AND ENTERING NEW AREAS Mainstream s volumes grew significantly in 2011 driven by strong performance in Chile and organic growth in Norway. Despite price decrease through the year, Mainstream s results were solid due to diversified production and efficient risk management. p CERMAQ ANNUAL REPORT

22 Our value chain: Mainstream Fish farming activities in Cermaq are executed by the Mainstream business division, one of the largest players in the global salmon farming industry. The division has operations in Chile, Canada and Norway, and produces Atlantic salmon, trout and coho salmon. Mainstream employs ca people, and reported operating revenue for 2011 of NOK 3.6 billion. This is an increase of 2.6 percent from 2010 (NOK 3.5 billion). Volume grew by 12 percent, to a total of ktonnes, gutted weight of salmon and trout delivered during the year. EBIT pre fair value was 772 million in 2011, down from NOK 913 million in Operating companies Mainstream Chile produces three species (Atlantic salmon, coho salmon and trout) and covers the value chain from brood fish to value added processing. The company has eight land based freshwater sites and is present in two lakes for smolt production (coho and trout). In 2011, all Atlantic smolt stocked was produced in land based facilities. For on-growing in sea the company has 62 licences and the company has two processing plants. Most of the sea sites for coho and trout are located in the area of Chiloé Island, in region X, while almost half of the Atlantic salmon is produced in region XI and XII. The company is managed from the head office in Puerto Montt in Region X. Mainstream Canada operates both on the west and east coasts of Vancouver Island, British Columbia. The company produces Atlantic salmon and has 27 sea sites and three freshwater sites. Salmon is processed at a company-owned facility in Tofino and under contract at a processing plant near Campbell River. All operations are managed from the head office in Campbell River. Mainstream Norway produces Atlantic salmon with operations in Nordland (17 licences and two processing plants) and in Finnmark (27 licences and one processing plant). The four freshwater sites are all located in Nordland, and the head office is located in Steigen, Nordland. Competitive advantages A strategy of diversified production contributes to reducing the company s fish health and market risks. Balanced production in major salmon producing countries, significant production of coho and trout in addition to Atlantic salmon, high level of aquaculture competence and years of business experience make Mainstream a stable and important supplier to the global market. Framework conditions New regulations implemented in Chile in 2010 have strengthened the authorities power of influence in several fields related to: environment, fish health, biosecurity, and union rights. The new regulations will reduce production volume within each area, and farming will probably expand further south to regions XI and XII. Further licenses are to be assigned in Region XII. In Norway, the Gullestad committee delivered their recommendations for future regulation of the Norwegian salmon farming industry, which will be considered by authorities in In 2011, two new regulations were adopted; maximum number of fish per cage is set at fish, and maximum weight of smolt stocked increased from 250 grams to grams. Both regulations have limited effect on Mainstream s operations. In British Columbia, Canada, the transfer of regulations from the provincial level to the federal level has gone smoothly with minimal interruptions to operations. The Federal Government continues to work on improving the regulations with stakeholder input. Litigation by one group of First Nations in the Broughton Islands against the Province of British Columbia is on-going. Whereas the industry is not a part in the court case the outcome might affect our activity in that region. Risk consideration Biological risk is one of the major challenges in fish farming, and includes environmental conditions (algae, oxygen), infectious and non-infectious diseases as well as marine predators. Mainstream has built up a fish health team with fish health experts working across the operating regions. Key elements in our preventive fish health approach are monitoring of relevant pathogens, vaccination policy, use of functional feeds, stress mapping, policies for antibiotic use and monitoring, improving water quality, and building general knowledge and competence. The team supports and complements skills of the local fish health teams. Mainstream cooperates also with renowned research institutes. Area management is crucial for effective fish health measures, giving the possibility to work preventive and with long-term strategies. In 2011 all sites in Chile and Norway were included in area management agre- KEY FIGURES MAINSTREAM NOK Million Income statement Operating revenues EBITDA EBITDA margin 25.7% 31.0% 11.4% 1.3% 21.5% EBIT before unrealised fair value adjustments (130.8) EBIT margin before unrealised fair value adjustments 21.5% 26.1% 5.3% (5.0%) 15.9% EBIT (operating profit) (27.9) Volumes, GWE (ktonnes) CERMAQ ANNUAL REPORT 2011