SALMON PANEL. PANEL LEADER Trond Valderhaug ANALYST Georg Liasjø. Mike Cusack, Troy Enz, Sebastian Goycoolea, Patrice Flanagan, Egil Ove Sundheim

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1 SALMON PANEL PANEL LEADER Trond Valderhaug ANALYST Georg Liasjø Mike Cusack, Troy Enz, Sebastian Goycoolea, Patrice Flanagan, Egil Ove Sundheim

2 THE SALMON PANEL Trond Valderhaug Georg Liasjø Mike Cusack Troy Enz Sebastian Goycoolea Patrice Flanagan Egil Ove Sundheim 2

3 Overview Supply Better purchasing environment; supplies are stable, increased in 215 Increase in Canadian production; Chile volumes will remain consistent in 216 Slight increase in world supply 2-3%; strongest growth is in Canadian side A biological situation that needs to be controlled; what kind of efforts are underway to correct? Trade Trade ban in Russia has moved Norwegian product to US market Wild Capture trends Narrative: global currency, comparison by species Trends/shift in the market Different needs for different guests? What does the guest value the most? Millennials needs/concerns as a consumer Expansion of retail market Value added and convenience emerge as important buying factors 3

4 Farmed salmon markets Total supply grew 3-4% in 215 Growth in Norway, Canada and UK, slight decline in Chile Russian embargo on Norwegian/EU salmon maintained Continued growth in new markets Lower prices (Chile vs. Norway) Very low supply growth in 216 Strengthening dollar 4

5 ~75% of world salmon supply is farmed Estimated Total World Salmon Supply: Farmed & Wild 4, WILD FARMED TOTAL 3,5 3, KTONNES (WFE) 2,5 2, 1,5 1, e Source: Kontali, AquaBench 5

6 Atlantic Salmon dominates farmed supply Estimated Total World Salmon Supply: Farmed 25 ATLANTIC SALMON PACIFIC SALMON TROUT 2 KTONNES (WFE) e Source: Kontali, AquaBench 6

7 Norway and Chile dominate farmed Atlantic production Share of World Farmed Atlantic Production, 215e Faroes 3% Other countries 1% Canada 6% Australia 2% USA 1% Ireland 1% UK 7% Chile 26% Norway 53% Source: Kontali, AquaBench 7

8 215, supply: Slight increase in Norway; Chile down 2,5 World Supply of Farmed Atlantic Salmon NORWAY CHILE OTHERS TOTAL HARVEST 2, KTONNES (WFE) 1,5 1, e Source: Kontali, AquaBench 8

9 Total farmed Atlantic supply grew about 3% Farmed Atlantic Salmon By Region (215e Vs. 214) e Δ y-o-y kt Δ y-o-y % 3, 2,5 1% 12% 1% 2, 8% KTONNES (WFE) 1,5 1, 5 3% 3% 6% 4% 2% -5-1% Norway Chile Others World total % -2% Source: Kontali, AquaBench 9

10 Chilean production likely to continue decrease Total Salmonids Trout Coho FARMED SALMON, CHILE TROUT, CHILE COHO, CHILE SMOLT RELEASE SMOLT RELEASE (AVG. Y AND Y - 1) SMOLT RELEASE (AVG. Y AND Y - 1) KTONNES (WFE) MILL. SMOLT KTONNES (WFE) MILL. SMOLT KTONNES (WFE) MILL. SMOLT Source: Kontali, AquaBench 1

11 Chilean production likely to continue decrease Chilean Atlantic Salmon Production and Smolt Release (1 Year Prior) ATLANTIC SALMON, CHILE SMOLT RELEASE (Y - 1) KTONNES (WFE) e 216e 217e MILL. SMOLT Source: Kontali, AquaBench 11

12 Global trade flow of farmed Atlantic salmon Source: Kontali, Marine Harvest 12

13 August (214) Russian import ban closed one of Norway s largest markets; ban maintained in

14 Changes in Russian sourcing Atlantic Salmon Consumption, Russia (By Origin) FROM NORWAY FROM CHILE OTHER Q AVERAGE, LTM KTONNES (WFE) Source: Kontali 14

15 The EU and the US absorbed the supply growth Atlantic Salmon Consumption By Market Q1-Q3, 213 Q1-Q3, 214 Q1-Q3, KTONNES (WFE) EU USA Russia Japan Greater China ASEAN Latin America Other markets Source: Kontali 15

16 Total US Atlantic imports up 12-13% in US Farmed Atlantic Salmon Imports By Month KTONNES (PRODUCT WEIGHT) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: NOAA 16

17 US Atlantic salmon market 215 (January October, WFE) Share By Product, 214 and 215 Fresh, whole 27% Other 2% Share By Country, 214 and 215 Norway 14% Other UK Faroe Isl. 3% 4% 4% Fresh fillet 55% Chile 53% Frozen fillet 16% Canada 22% Fresh, whole 21% Other 2% Faroe Isl. 6% UK 5% Other 6% Frozen fillet 21% Fresh fillet 56% Source: NOAA Norway 11% Canada 14% Chile 58% 17

18 Growing imports from most markets US Atlantic Salmon Imports, By Country 3 CANADA CHILE FAROE ISLANDS NORWAY UK OTHERS 25 KTONNES (PRODUCT WEIGHT) Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Source: NOAA 18

19 Monthly Imports: Fresh Fillets 14 US Monthly Imports: Atlantic Fresh Fillets KTONNES (PRODUCT WEIGHT) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: NOAA 19

20 Chile dominates fresh fillet imports US Monthly Imports: Fresh Farmed Fillets Share, LTM KTONNES (PRODUCT WEIGHT) Jan-14 CHILE NORWAY CANADA OTHER FAROE ISLANDS UK Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Other 3% Canada 4% Norway 12% Faroe UK Islands 3% 2% Chile 76% Source: NOAA 2

21 Monthly Imports: Frozen Fillets US Monthly Imports: Atlantic Frozen Fillets KTONNES (PRODUCT WEIGHT) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: NOAA 21

22 Chile & Norway dominate frozen fillet imports US Atlantic Salmon Imports: Frozen Fillets Share, LTM KTONNES (PRODUCT WEIGHT) CHILE NORWAY OTHER FAROE ISLANDS CANADA UK Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Other 6% Norway 25% Faroe Islands 1% Canada % UK % Chile 68% Source: NOAA 22

23 Monthly Imports: Fresh Whole 14 US Monthly Imports: Fresh Atlantic Whole KTONNES (PRODUCT WEIGHT) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: NOAA 23

24 Canada dominates fresh whole imports US Atlantic Salmon Imports: Fresh Whole Share, LTM KTONNES (PRODUCT WEIGHT) Jan-14 CANADA FAROE ISLANDS NORWAY UK CHILE OTHERS Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Norway 1% Faroe Islands 9% UK 8% Chile 2% Others 1% Canada 7% Source: NOAA 24

25 Atlantic salmon prices fell in 215 (as in 214) Fresh Farmed Atlantic Salmon Prices 6. Norway, whole fish Canada, whole fish Chile, fresh fillets (D-trim, Miami) USD/lb Source: NOAA, Urner Barry 25

26 Indexes of foreign currency values Indexes Of Exchange Rates (As Of December 215) USDNOK USDJPY USDCAD USDGBP USDCLP USDEUR Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Source: FactSet 26 26

27 Projected Atlantic supply growth: ~1% World Supply Of Farmed Atlantic Salmon SUPPLY GROWTH 25% 2% Y-O-Y GROWTH (PERCENT) 15% 1% 5% % -5% Source: Kontali, ABG Sundal Collier 27

28 Strong correlation between change in supply and change in price 15 H1 vs. 14 H1 Source: Marine Harvest, Kontali

29 Projected Atlantic supply World Supply Of Farmed Atlantic Salmon 2,5 NORWAY CHILE OTHERS TOTAL HARVEST 2, KTONNES (WFE) 1,5 1, 5 Source: Kontali, ABG Sundal Collier 29

30 Price divergence, Chile vs. Norway (partly driven by supply) Salmon Price Norway Norway (NOK/kg) Salmon Price Chile (US Market) Chile (USD/lb) European Supply (Norway + UK + Faroes) American Supply (Chile + Canada) SUPPLY, EUROPE SUPPLY GROWTH, EUROPE SUPPLY, AMERICA SUPPLY GROWTH, AMERICA KTONNES (WFE) 1,6 1,4 1,2 1, % 15% 1% 5% % -5% Y-O-Y GROWTH (PERCENT) KTONNES (WFE) % 5% 4% 3% 2% 1% % -1% -2% -3% -4% Y-O-Y GROWTH (PERCENT) Source: ABG Sundal Collier, Kontali, Sernapesca, AquaBench, FHL, Urner Barry 3

31 Price divergence explained #1: Variation in supply growth Price, Atlantic Salmon Norway vs. Chile NOK/kg (gwe) Growth diff Q1'6 Q3'6 Q1'7 Difference (Chile Norway) In Supply Growth And Price Q3'7 Q1'8 Q3'8 Q1'9 Q3'9 Q1'1 Q3'1 Q1'11 Q3'11 Q1'12 Q3'12 Q1'13 Q3'13 Q1'14 NOK/kg gwe 1 Q3'14 Q1' Diff Chile, Miami Hist. avg. Norway Diff Chilean supply growth vs. European supply growth Source: ABG Sundal Collier, Kontali, Sernapesca, AquaBench, FHL, Urner Barry 31

32 Price divergence explained #2: FX matters (strong USD)! Price, Atlantic Salmon Norway vs. Chile NOK/kg (gwe) Diff Chile, Miami Hist. avg. Norway Jan-13 Mar-13 May-13 Jul-13 USDNOK Vs. Usdeur Sep-13 USDNOK Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 USDEUR Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Source: ABG Sundal Collier, Kontali, Sernapesca, AquaBench, FHL, Urner Barry, FactSet 32

33 Supply driver, Chile: Negative operating margins 1. USD/kg EBIT/Kg, Listed Chilean Salmon Producers (Atlantic Salmon Only).9 Reference price (USD/lbs) Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q3' Farming EBIT/kg Reference price (rhs) Source: Multiexport, AquaChile, Australis, Blumar, Camanchaca 33

34 III. Wild Salmon Markets Alaska 215 Second largest salmon harvest on record, only exceeded by 213 harvest levels Sockeye Bristol Bay Second largest run in the last 2 years and 12% above forecast Fraser River 248,4 fish harvested in the Fraser River, In-season forecast decreased sustainably from pre-season forecast Pinks..The number of pink salmon came closer to the 213 record year Prince William Sound pink salmon harvest was largest on record at 98.3 million fish 34

35 Global Wild Salmon Supply CHUM COHO PINK SOCKEYE CHINOOK 7, 6, 5, METRIC TONS 4, 3, 2, 1, E Source: Kontali, Canada Dept of Fisheries, ADFG

36 Estimated Catch of Russian Wild Salmon CHUM COHO PINK SOCKEYE METRIC TONS E Source: Kontali

37 Alaska Wild Salmon Harvests CHINOOK SOCKEYE COHO PINK CHUM 35, 3, 25, MT 2, 15, 1, 5, Source: ADFG 37

38 Alaska and BC Sockeye Harvest ALASKA CANADA 6 5 MILLIONS OF FISH Sources: Alaska Department of Fish and Game, Canada Department of Fisheries and Oceans 38

39 US Sockeye Salmon Imports From Canada 9 FRESH FROZEN CANNED MT Source: National Marine Fisheries 39

40 Alaska Sockeye Salmon Production HARVEST (IN LBS) FROZEN CANNED BASED ON POUNDS/48 TALL FRESH 3,, 25,, 2,, POUNDS 15,, 1,, 5,, Source: ADF&G, Alaska Department of Tax and Revenue; Annual Alaska Salmon Production Report 4

41 Bristol Bay Sockeye Forecast TOTAL FORECAST TOTAL HARVEST MILLIONS OF FISH projected Source: ADF&G 41

42 Sockeye Salmon Wholesale Price $9. FROZEN H&G FROZEN FILLETS FRESH H&G CANNED BASED ON 48 TALL CASE $8. $7. PRICE PER LB USD $6. $5. $4. $3. $2. $1. $- Source: Alaska Department of Revenue 42

43 Alaskan Sockeye Canned Production 3,, TALLS HALFS QUARTERS OTHER 25,, 2,, POUNDS 15,, 1,, 5,, Source: Alaska Department of Tax and Revenue; Annual Alaska Salmon Production Report 43

44 Alaska Pink Salmon Total Harvest HARVEST 8,, 7,, 6,, ROUND POUNDS 5,, 4,, 3,, 2,, 1,, Source: ADFG 44

45 Alaska Pink Salmon Production FROZEN FRESH CANNED 3,, 25,, FINISHED POUNDS 2,, 15,, 1,, 5,, Source: State of Alaska Dept of Revenue 45

46 Pink Salmon Wholesale Prices FROZEN H&G CANNED TALLS/CAN $2.5 $2. PRICE $1.5 $1. $.5 $ Source: Alaska Department of Revenue 46

Consumers want and expect healthier choices when they are eating out today Consumers are increasingly looking for ways to bring their at-home health aspirations into the food service realm.

47 Consumers want and expect healthier choices when they are eating out today Consumers are increasingly looking for ways to bring their at-home health aspirations into the food service realm. 84% have changed their dining habits in past few years Making good food choices outside the home has little to do with nutritional information and everything to do with increasingly nuanced and sophisticated quality cue. 25% Choose freshest, cooked-to-order menu items 42% Order healthier options 31% Try new flavors and styles of food 34% Avoid sugaradded beverages 18% Choose locally sourced, seasonal items 18% Explore more global or ethnic types of food 18% Order more 17% Choose restaurants that allow meal customization/ subs Q6. Compared to a few years ago, which of these things are you doing MORE often than before? plant-based foods Source: Sustainable Food Service (214); Base: Total Respondents (n=1554) 47

What ingredients are in your products From where you source the ingredients that contribute to quality and flavor of the food (e.g., terroir) Inherent positives Absence of negatives Short ingredient list Recognizable ingredients HOW THEIR FOOD CAME TO BE.

48 Guests care first about what is in their food, and then how it came to be GUEST IMPORTANCE Tier 1: WHAT S IN IT? Tier 2: HOW WAS IT MADE? GUESTS WANT TO KNOW GUESTS ARE LOOKING FOR ABOUT WHAT IS IN THE FOOD THEY ARE BUYING. What ingredients are in your products From where you source the ingredients that contribute to quality and flavor of the food (e.g., terroir) Inherent positives Absence of negatives Short ingredient list Recognizable ingredients HOW THEIR FOOD CAME TO BE. How a company's products are sourced and manufactured to assure quality and safety standards How you treat the animals that are used in your products Growing methods Humane treatment of animals Issues of scale Production techniques Source: The Hartman Group Insights On Health & Wellness And Sustainability 48

Consumers increasingly demand fresh, real, less processed options at food service Fresh continues to be a most valued quality distinction marker, whereas descriptors such as locally

Menu labels that indicate attributes such as fresh, real, locally grown and the absence of harmful ingredients (i.e., pesticide or hormone free) are also most personally relevant to consumers as they are perceived as quality cues.

49 Consumers increasingly demand fresh, real, less processed options at food service Fresh continues to be a most valued quality distinction marker, whereas descriptors such as locally grown and seasonal are now almost as salient as calorie and fat information. Menu labels that indicate attributes such as fresh, real, locally grown and the absence of harmful ingredients (i.e., pesticide or hormone free) are also most personally relevant to consumers as they are perceived as quality cues. TOP 1 MOST IMPORTANT MENU LABELS Fresh (55%) Pesticide free (37%) Real (36%) Hormone free (31%) Natural (31%) No artificial flavors/colors/preservati ves (31%) MSG free (31%) Locally grown produce (31%) Less processed (3%) Humane treatment of animals (3%) 49

17% Consumer engagement with sustainability varies THE CORE is the segment most intensely involved in sustainability

drives decision making 67% 16% THE MID-LEVEL represents the majority of consumers and the greatest opportunity because

attitudes and behaviors, but more typically make decisions based on benefits to themselves Outer Mid-Level (33%)

PERIPHERY is least involved in sustainability Periphery consumers rarely consider sustainability explicitly in their

Sustainability defines the intensity of their engagement with and decisions made around sustainability topics.

50 17% Consumer engagement with sustainability varies THE CORE is the segment most intensely involved in sustainability Promoting sustainability for the benefit of the greater good is a defining feature of their values, and it consistently drives decision making 67% 16% THE MID-LEVEL represents the majority of consumers and the greatest opportunity because of both their size and relatively high level of interest in sustainability Inner Mid-Level (34%) consumers adopt Core attitudes and behaviors, but more typically make decisions based on benefits to themselves Outer Mid-Level (33%) consumers are occasionally influenced by sustainability in their purchases when it intersects with personal benefits THE PERIPHERY is least involved in sustainability Periphery consumers rarely consider sustainability explicitly in their decision making, but it does play a role in their value system more generally Where consumers reside within the World of Sustainability defines the intensity of their engagement with and decisions made around sustainability topics. The gap between aspirations and behavior narrows as consumers become more engaged and the scope of their sustainability-driven behaviors grows. 5

52 APPENDIX

53 Economics matter; so does the economy Farmed Atlantic Salmon Consumption Per Capita vs. GDP Per Capita Kg/capita (WFE) France Netherlands 2.5 Israel Germany KG/CAPITA (WFE) Russia Ukraine Brazil ThailandArgentina China/HK/Viet. Mexico Portugal Spain South Korea Italy UK Singapore Belgium USA JapanCanada GDP/CAPITA, USDK (CURRENT) GDP/capita, USDk (current) Source: ABG Sundal Collier 53

54 The EU and the US absorbed the supply growth Atlantic Salmon Demand By Country Atlantic Salmon Demand, EU and The US EU USA RUSSIA JAPAN GREATER CHINA ASEAN LATIN AMERICA OTHER MARKETS EU USA KTONNES (WFE) Q3'14 Q4'14 Q1'15 Q2'15 Q3'15 KTONNES (WFE) KTONNES (WFE) Atlantic Salmon Demand, Russia, Japan And G. China RUSSIA JAPAN GREATER CHINA Atlantic Salmon Demand, ASEAN, L. America And Others ASEAN LATIN AMERICA OTHER MARKETS 1 KTONNES (WFE) Source: Kontali 54

55 Norway exported more to almost everywhere except Russia, Ukraine, Finland & greater China Norwegian Salmon Exports, January-November NOV-15 NOV-14 Czech Portugal Finland Japan Germany Netherlands Baltics UK Russia Poland Source: NSEC 55

56 Chile exported more to everywhere except the EU, Japan and others Chilean Salmon Exports, January-October OCT-15 OCT-14 Other Europe China South Korea Others Japan Other FarEast Russia Other Am. EU Brazil USA Source: Kontali 56

57 Exports of fresh Chilean products up Chilean Atlantic Salmon Exports, January-October Other Smoked/Salted Frozen fillets Fresh fillets Frozen Fresh Source: NOAA 57

58 Atlantic salmon prices fell in 215 (Chilean salmon prices decreased the most) Average US Import Prices, Selected Farmed Atlantic Salmon Products Fresh Fillets Whole Fresh Chile Norway Canada Norway Faroe Islands USD/kg product weight Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 USD/kg product weight Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Frozen Fillets Chile Norway USD/kg product weight Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Source: NOAA 58

59 Some US retailers expand into new non-antibiotic categories Source: IntraFish 59

Bristol Bay and World Salmon Markets in 2016

Bristol Bay and World Salmon Markets in 2016 Gunnar Knapp Professor Emeritus of Economics Institute of Social and Economic Research University of Alaska Anchorage Gunnar.Knapp@gmail.com January 24, 2017