Tassal : TGR 1H22 Market Briefing

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With salmon capital over the medium term focused on maintenance spend, our plan is to further grow operating and free cashflows from 2H22 underpinning our focus of optimsing cash and returns.

Operating EBITDA $/kg was down for salmon, and slightly up for prawns. Can you please explain the underlying drivers and whether you are targeting salmon margin growth to return?

Mark Ryan

Operating EBITDA $/kg for salmon was down 13.4% for two key reasons. Firstly, tenders for Grocery contracts in late FY21 resulted in reduced pricing for unbranded Deli contracts and the introduction of lower margin Private Label MAP contracts. At the same time, and secondly, like many farmers during COVID-19 we have experienced material supply chain cost increases across energy, feed commodities, labour, and domestic freight costs.

While salmon margin was down overall, pleasingly EBITDA $/kg increased for our combined International and Out-Of-Home market segments based on the pricing recovery in both markets. We will look to leverage what we feel will be better short- term operating conditions in these market segments1, and look to pass on increased supply chain costs across all sales channels, to target a return to EBITDA $/kg growth.

Prawn EBITDA $/kg grew 6.4% underpinned by pricing increases in the Out-of-Home market segment in 1H22, and these increases are targeted to continue in 2H22. Partially offsetting this, supply chain cost increases and the sale of our frozen prawns generated a lower return compared to fresh cooked prawns. We are targeting an improving EBITDA $/kg from 2H22 from both our pricing and sales channel discipline.

As your cashflows grow, are you looking to reduce debt?

Mark Ryan

With $160 million of headroom in our current facilities, diversity of funding sources, and a tenor of

3.5 years, our balance sheet is sound. Having said that, we delivered a step-change in our cashflows and are now starting to reduce debt. The level of leverage in our business reduced from 2.55 to 2.37 over 1H22, as cash was used to lower debt and EBITDA grew.

With the end of the salmon growth capital spend, reduction in frozen salmon inventory and a sustainable and maintainable circa 40,000 hog tonnes annual harvest for salmon, together with a more efficient and effective capital and working capital cycle from prawns, we are focused on targeting further growing cashflows and reducing debt.

For personal use only

You talked a lot about Blue AgTech in the result. Can you please explain what it is?

Mark Ryan

Blue AgTech is the phrase referred to in relation to responsibly growing the value of aquaculture through the adoption of technology and innovation. Tassal has been doing this over the past few years, introducing many technological advances across all aspects of our operations, from farming to production and supply.

The key initiatives we have developed and implemented are encapsulated within our SmartFarm application. SmartFarming was developed through our deep experience with salmon and effectively taking data and learnings and packaging it up.

Through this we have led the Australian market in introducing technologies to both large scale salmon and prawn farming operations, bringing integrated feed, welfare and environmental management experience to our farmers. Real time in-pen/pond data, visuals and sensing across stock behaviour, climatic and environmental monitoring coupled with AI and localised predictive tools are supporting improved yields, reduced feed wastage, informed decision making and reduced environmental impact.

Given the benefits you are generating from your proprietary Blue AgTech technologies, why do you want to share them with other industry participants, and how will this assist Tassal?

Mark Ryan

We believe that Australia should have the world's best aquaculture industry and the results we are achieving in our business across multiple fronts, support Tassal's ranking as Australia's number 1 sustainable protein producer as judged by FAIRR2.

While our focus is on delivering growing cashflows and returns from our salmon and prawn operations through, amongst other things, the implementation of technology innovation, there is no reason why we can't either licence our technologies to other industry participants or even look to invest, either in time or dollars, in other aquaculture businesses. This would achieve the dual benefit of further helping our environment and also creating a new revenue stream for Tassal.

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A lot has been said and written about Tassal's impact on the environment, much of it misinformed. Can you please provide us with your perspective on Tassal's environmental impact?

Mark Ryan

A lot has been said and written about Tassal's environmental practices. Unfortunately it is very misinformed, and Tassal's ranking as Australia's number 1 sustainable protein producer by FAIRR2 is clear recognition that we're leading protein production in this country, whether in the sea or on the land.

We have taken multiple factors into account in developing our environmental approach. For example, Tassal's pen density is very low, lower than other global aquaculture companies. We do this on purpose to ensure our fish are not stressed, they grow as efficiently as possible, and waste is minimised and more effectively managed.

There will always be by-products from animal farming, whether in the sea or on the land and this needs to be measured against several other factors like feed conversion efficiency and relative edible meat produced. On both those measures, Tassal's salmon significantly outperforms chicken, pork and beef. As population increases, wild harvest stocks decrease, and farming land is restricted, aquaculture provides a source of renewable protein farmed through practices that seek to mimic nature and minimise environmental impact.

Like all farmed animals, fish produce waste, however, a lot less than pork and beef. Contrary to what some people say, fish waste at Tassal's pens is not damaging the marine ecosystem. Waste from our hatcheries is turned into compost, and waste at our seawater pens is mostly dispersed by currents. We continue to research and trial new technologies and ways of farming to further enhance water quality in our pens.

Through our selective breeding program, automated feeding and SmartFarm, we are addressing the challenges of warming water temperatures. While we are yet to remove the challenge altogether, having now reached biomass scale with the same smolt input as three years ago, we are clearly growing healthier larger fish and addressing the challenges posed by warming water temperatures. There is more to do on this front, and Tassal has committed to become carbon and climate positive as part of that journey.

We are working proactively with the industry to highlight integrity, accuracy, and transparency as well as the credibility of the independent science that underpins the collective operations of Tasmanian salmon. This leverages Tassal's reputation for transparent reporting of its ESG practices and progress. For the past three years running, ACSI, whose members include some of Australia's largest industry and State super funds with over $1 trillion in funds under management, awarded Tassal a "Leading level of ESG reporting" given the comprehensive data we provide publicly on our ESG initiatives.