Ann: Tassal 1H22 results presentation, page-6

(Excerpt from my Twitter update)
Tassal half year results out and they didn’t disappoint✅Revenue +43%✅EBITDA +25%✅NPAT +31%✅FCF +137%

The three components of my investment thesis
✅ Cyclical (salmon) – peaking now butexpecting to stay elevated
✅ FCF conversion (prawns) – on track
✅ Valuation – remains cheap relative topeers

•Cyclical nature has bottomed forsalmon, and 1H22 was a clear turning point. Wholesale prices up post lockdowns. Export prices and volumes way up. Cyclical prices have reached all time highs this week. I expect that due to lack of globalinventory, this will remain elevated (perhaps not 90NOK) for 2H22 and maybeinto 1H23. The cycle is really getting going .

Inventory has declined by 4000tpushing up cash flow. We can expectanother 1000t to be drawn down in 2H22 before we hit around 2,000t workingcapital requirements. However combined with higher prices including wholesale price increases in Feb, exportEBITDA may actuallyincrease in2H.

The second part of theinvestment thesis is FCF improving as CAPEX pulls back. The EBIDTAto op.CF bridge shows this *starting* to kick in, but expect more in FY23+ as airfreight reduces, prawn production increases. You can see it more clearly here theCAPEX declining, with maintenance CAPEX stabilizing around $70m for both salmonand prawn. I think of salmon / prawns as an infrastructure play. CAPEX up forward, then revenues coming through. As biomass increases (particularly for longerduration salmon), the efficiency improves. Salmon is nearing optimization, but prawns are still early (4000t withtarget of 20000t by 2030).

Prawns are a big part of mythesis. The land (CAPEX) has been paid, production is only at the early stage oframping up, working capital is lower (6months grow vs 4yr for salmon), ROIC ishigher, etc. Big growth numbers (+400%) coming outof prawns. And as they get moreefficient, better marketing (all year round availability, fresh neverfrozen, etc) the EBITDA margins of $5-6should be achievable (today $3ish).

For the first time we got aglimpseas to what the third pillar of the product life cycle would be. Seaweed will reduce carbon, reduce runoff and produce consumables. This will be one of the first large-scaleintegrated multi-trophic aquaculture based on decades of research.

Last comments onvaluation. Tassal are still trading at heavydiscounts to international peers and the Huon takeover value. Huon transacted at 20xpre-Covid EBITDA. With an EV of $1.3bn, Tassal’s pre-Covid EBITDA was $140m (9x),and I estimate a non-cyclical normalised EBIDTA for Tassal of $174m (7.4x) in FY23. 40% discount is consistent with EuropeanM&Atoo.

Overall, happy with these results. It’smy highest conviction position, and the investment thesis is unfolding asplanned albeit 6 months later than I originally anticipated. Target: 2x revenue, 3x EBITDA, 4x FCF by 2030still in play.