Ann: Response to ASX Price Query, page-10

Salmon revenue in FY30 *could* be below FY22. I'm not saying it will be, and I am not even sure if it matters that much, but it *could* be.

The reason is that FY22 saw a reversing of our inventory. This year, we will reduce inventory by around 4,500-5000t. On top of a normal harvest season, that means Tassal may sell around 44,000-45,000t of salmon. Meanwhile, the long term sustainable harvest is around 40,000t. Furthermore, the price for domestic retail may be low, but the prices for export in FY22 and wholesale in 2H22 are above normal rates. My base case for pricing in any commodity is the marginal cost of production to meet the demand, and I reckon that's around 70-75NOK in today's dollars - well below the current prices Tassal is receiving.

But my argument is that it may not matter. If global demand keeps increasing while marine licenses / supply remains relatively fixed, the margins will expand quite dramatically (EBITDA goes up). If they continue to invest in operating efficiencies (salmon growth CAPEX) through improved hatcheries, nurseries, automation, etc, then total volumes may increase to ~45,000t by 2030 with the same number of marine licenses (revenues goes up). Finally, as the salmon maintenance CAPEX pulls back to $50m p.a from an estimated CAPEX of $71m this financial year, we will see substantial increases in the free cash flow generated from salmon (operational leverage on scale). The graph below has not been factored in by the BJ analysts, and it is a substantial miscalculation for the DCF imho.

One other note on a DCF, the terminal value matters a lot. They have used a terminal rate of 1.5%. My expectation for aquaculture is that it will be the population growth (~1%, more people) plus the wealth effect (~1-2%, diets change to higher protein) plus the substitution effect (~1-2%, people switch to more efficient protein sources like beef to fish). Actually this is perhaps the heart of why I am bullish on aquaculture, as I reckon terminal values at maturity should be closer to ~4%.