Interim Report January September 2013
Disclaimer Albain Bidco Norway AS is providing the following financial results for the third quarter of 2013 to holders of its EUR225,000,000 6.750% Senior Secured Notes due 2020 and NOK 1,810,000,000 Senior Secured Floating Rate Notes due 2020, and Albain Midco Norway AS is providing the following financial results for the third quarter of 2013 to holders of its NOK 1,040,000,000 Senior Floating Rate Notes due 2021. This report is for information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy the notes or any other security. This report includes forward looking statements which are based on our current expectations and projections about future events. All statements other than statements of historical facts included in this notice, including statements regarding our future financial position, risks and uncertainties related to our business, strategy, capital expenditures, projected costs and our plans and objectives for future operations, including our plans for future costs savings and synergies may be deemed to be forward looking statements. Words such as believe, expect, anticipate, may, assume, plan, intend, will, should, estimate, risk and similar expressions or the negatives of these expressions are intended to identify forward looking statements. By their nature, forward looking statements involve known and unknown risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward looking statements are not guarantees of future performance. You should not place undue reliance on these forward looking statements. In addition any forward looking statements are made only as of the date of this notice, and we do not intend and do not assume any obligation to update any statements set forth in this notice. EWOS INTERIM REPORT 2/24
Important events January September 2013 On July 18, 2013 an entity indirectly and wholly owned by funds advised by Altor Equity Partners and Bain Capital Europe LLP entered into an acquisition agreement with Cermaq ASA, a public company listed on Oslo Børs, to acquire the outstanding shares in EWOS, based on an enterprise value of NOK 6.5 billion, subject to certain closing and post-closing adjustments. As part of the acquisition, EWOS entered into supply agreements with Cermaq s farming operations on market terms and for a period of five to six years, including a period of 2 years exclusivity. Einar Wathne was appointed new COO for EWOS in March 2013 and subsequently CEO on November 1, 2013. Important subsequent events The acquisition of EWOS was completed on October 31, 2013. The acquisition was financed by a contribution from funds advised by Altor Equity Partners and Bain Capital Europe LLP of approximately NOK 2,058 million*, an issuance of Senior Subordinated Notes in the amount of NOK 1,040 million, EUR Senior Secured Notes in the amount of EUR 225 million and NOK Senior Secured Notes in the amount of NOK 1,810 million. Application has been made to list the NOK Senior Secured Notes and the NOK Senior Subordinated Notes on the Oslo Børs, as well as to list the EUR Senior Secured Notes on the Official List of the Irish Stock Exchange and have them admitted to trading on the Global Exchange Market. We currently expect these listings to be completed early in 2014. As from October 31, 2013, EWOS entered into a revolving credit facility in the amount of NOK 600 million with Danske Bank, Rabobank International and Swedbank. As from October 31, 2013 a transitional services agreement entered into force, under which Cermaq will provide administrative, financial reporting, information technology and certain other services to the EWOS group. This agreement will remain in force until December 31, 2014. * Based on estimates as of the date of issuance of the Notes. The final contribution is subject to adjustment and will be disclosed in our annual report for the year ending December 31, 2013, which is expected to be published prior to April 30, 2014. EWOS INTERIM REPORT 3/24
Introduction EWOS is a leading supplier of feed and nutrition for the international aquaculture industry. EWOS has produced fish feed for decades and today the company operates in all four of the world's major salmon farming regions of Norway, Chile, Canada and Scotland. In addition, EWOS has entered the feed market for other species in Vietnam. EWOS continuously invests in research and development in order to maintain its strong reputation as a leader in its field. EWOS had 1024 employees as of December 31, 2012. Financial presentation On 18 July 2013 Cermaq ASA entered into a definitive agreement for the sale of the fish feed segment of Cermaq ASA (the EWOS Business ) to an entity indirectly and wholly owned by funds advised by Altor Equity Partners and Bain Capital Europe LLP ( Altor and Bain Capital ). The acquirer company is a newly established Norwegian company, Albain Bidco Norway AS, 100 % indirectly owned by funds advised by Altor and Bain Capital. The financial information contain herein relates to the historic results and positions of the EWOS Business interim condensed combined financial statements covering the EWOS Business for the nine months ending September 30, 2012 and 2013. EWOS INTERIM REPORT 4/24
Financial overview Operating revenues NOK 7,855.3 million for the nine month period. For the third quarter operating revenues were NOK 3.484,9. Operating revenues increased 7.1% for the nine months ended September 30, 2013 compared to the prior corresponding period. For the third quarter operating revenues increased 4%, compared to the same period in 2012. EBITDA NOK 500.0 million for the nine months ended September 30, 2013 and NOK 239.9 million for the three months ended September 30, 2013. EBITDA decreased by 20.8% YTD compared to the prior corresponding period, while third quarter EBITDA fell 35%. Net interest bearing debt NOK 769.5 million as of September 30, 2013 compared to NOK 1,722.3 million to first nine months of 2012. Key financial figures (NOK in millions) Q3 2013 Q3 2012 YTD 2013 YTD 2012 FY 2012 INCOME STATEMENT Operating revenues 3,484.9 3,348.5 7,855.3 7,336.2 10,275.6 EBITDA 239.9 369.2 500.0 631.1 870.6 EBITDA Margin 6.9 % 11.0 % 6.4 % 8.6 % 8.5 % EBIT pre f air value adjustments* 198.5 330.1 377.7 513.9 713.2 EBIT Margin pre f air value adjustments** 5.7 % 9.9 % 4.8 % 7.0 % 6.9 % EBIT (operating result) 203.2 335.3 362.4 519.0 734.9 Net income (loss) 134.2 226.6 224.8 352.0 498.2 FINANCIAL POSITION AND LIQUIDITY Total assets 5,765.4 5,489.5 5,765.4 5,489.5 5,063.1 Net interest bearing debt 769.5 1,722.3 769.5 1,722.3 1,503.2 CAPITAL EXPENDITURE (46.3) (54.0) (156.1) (148.1) (168.3) * Operating result before fair value adjustments of biological assets ** Operating result before fair value adjustments of biological assets in percentage of operating result EWOS INTERIM REPORT 5/24
Comments by the CEO At a group level EWOS delivered strong revenues for the first nine months of 2013, significantly higher than the same period in 2012. Our operating result (EBIT) was lower than the first nine months of 2012 due to volume loss and therefore higher costs per tonne. The market in Norway declined for the first time in several years due to colder water temperatures in the first half of the year impacting the total market. EWOS also experienced unforeseen lower purchasing volumes from a leading customer. Results for the first nine months of 2013 showed strong improvements for our businesses in Chile and Scotland, with strong operational and sales performance yielding increases in volumes and revenues. On October 31, 2013 we celebrated the closing of the transaction and November 1, 2013 marked the beginning of a new era for EWOS as a fully independent feed supplier. As part of this transaction, Cermaq will continue to procure feed from EWOS, in accordance with a long term global feed agreement entered into with EWOS on market terms. The six year contract includes exclusive deliveries from EWOS during the first two years of the contract. EWOS is evolving from a business unit to a standalone company, and we are in the process of recruiting new employees for various roles. EWOS and Cermaq have entered into a transitional services agreement whereby EWOS will procure administrative, financial reporting, information technology and certain other services. This agreement is expected to continue through December 2014. EWOS operations in Canada continue to develop new markets for their feed products in North America and Asia to offset challenging market conditions for salmonid feed in British Columbia. EWOS Vietnam reported a profit in the third quarter for the first time since operations were established in 2010. Our impressive track record of R&D driven innovation is a key strength that enables us to adapt competitively to challenges and opportunities, ranging from changes in price and availability of key raw materials to developing feed for new fish species. A key innovation from EWOS, functional feed, maintained its share of total feed sales to 39% in the first nine months of 2013. When combined with our strong market position and the well established EWOS brand, I am confident that this knowledge base will serve us well for growth and performance in future. Einar Wathne CEO EWOS Group EWOS INTERIM REPORT 6/24
Market conditions Feed markets The main salmonid feed markets experienced declines in the first six months of 2013, with recoveries in Q3. This led to lower market volumes in both Norway and Chile. Our largest feed market, Norway, experienced lower water temperatures than usual, impacting feed demand in the first half of 2013. According to Kontali, the Norwegian feed market declined by nealy 90,000 tonnes in this period, although the third quarter saw a recovery of volumes, bringing the first nine months to 1,132,000 tonnes, nearly 60,000 tonnes lower than the same period in 2012. Total feed volumes in the Chilean market contracted by 57,000 tonnes to 881,000 tonnes in the first nine months of the year, according to Kontali. The main reason being lower growth rates than anticipated and lower average harvest weight of fish. The third largest salmonid feed market, Scotland, experienced growth of 10,000 tonnes to 163,000 tonnes through the first nine months, while the salmonid feed market in British Colombia, Canada, contracted by 33,000 tonnes to 149,000 tonnes. Raw material markets Global raw material prices weakened during the third quarter. The first half of the year started with high prices for marine raw materials due to low quotas in Peru in 2012. Also, the vegetable raw material prices were high caused by drought in the US (soy) and Europe (wheat and rapeseeds) last year. Increased fishing quotas in Peru, new production records for soy in Brazil and a more normal harvest in Europe have gradually brought raw material market prices down during the third quarter, and the reduced price levels continued into the fourth quarter. Competitive situation Global salmonid feed markets are characterised by a high degree of consolidation and competition among the respective feed suppliers. Furthermore, declining volumes in the main feed markets during the first nine months of 2013, contributed to increased competition for feed contracts amongst established feed suppliers. EWOS INTERIM REPORT 7/24
Operating and financial review Results of Operations Nine months ended September 30, 2013 compared with nine months ended September 30, 2012. The table below sets forth certain line items from our unaudited combined income statement for the nine months ended September 30, 2012 and 2013. EWOS INTERIM REPORT 8/24
The table above presents the breakdown of our sales volume and operating revenue by country for the nine months ended September 30, 2012 and 2013. Operating revenue Operating revenue increased by NOK 519.1 million, or 7.1%, from NOK 7,336.2 million for the nine months ended September 30, 2012 to NOK 7, 855.3 million for the nine months ended September 30, 2013. This increase was primarily due to increased sales prices, resulting from the pass-through of increased raw material prices. This increase was partly offset by an adverse average currency translation into our functional currency which is Norwegian crowns (NOK), from pound sterling (GBP), Canadian dollar (CAN) and of US dollar (USD) related to our businesses abroad, compared to the same period in the prior year, as well as a decrease in sales volume in Norway. Operating revenue in Norway decreased by NOK 149.5 million, or 3.6%, from NOK 4,172.5 million for the nine months ended September 30, 2012 to NOK 4, 023.0 million for the nine months ended September 30, 2013. This decrease was primarily due to a decrease in sales volumes of 14.8%. The decline in volume in Norway was mainly due to lower water temperatures for the first five months of the year, as compared to the higher water temperatures for the same period in 2012, and reduced volumes from a leading customer in the three months ended September 30, 2013. The reduction in volume from this customer was unforeseen and we were unable to adjust the cost base sufficiently quickly in response to the decreased volumes. Operating revenue in Chile increased by NOK 390.2 million, or 18.0%, from NOK 2,164.9 million for the nine months ended September 30, 2012 to NOK 2,555.1 million for the nine months ended September 30, 2013. This increase was primarily due to an increase in both sales volume of 3.3% and increased prices per unit of salmonid feed, resulting from the pass-through of increased raw material prices. Operating revenue in Canada decreased by NOK 40.3 million, or 10.3%, from NOK 389.7 million for the nine months ended September 30, 2012 to NOK 349.4 million for the nine months ended September 30, 2013. This decrease was primarily due to a decrease in sales volume of 18.6% resulting from a significant reduction in the salmonid farming activity on the west coast of Canada, due to certain issues related to diseases experienced by salmonid farmers in Canada, leading to a reduction in the inventory of farmed salmonids. Operating revenue in Scotland increased by NOK 279.4 million, or 48.9%, from NOK 570.8 million for the nine months ended September 30, 2012 to NOK 850.2 million for the nine months ended September 30, 2013. This increase was primarily due to an increase in sales volume of 30.2%, an increased export sales outside the UK, and increased prices per unit of salmonid feed, resulting from pass-through of increased raw material prices. EWOS INTERIM REPORT 9/24
Cost of raw materials Cost of raw materials increased by NOK 584.8 million, or 10.2%, from NOK 5,717.1 million for the nine months ended September 30, 2012 to NOK 6,301.9 million for the nine months ended September 30, 2013. This increase was primarily due to significant increases of certain raw material prices such as fish oil, fish meal and soy compared to the corresponding period in 2012, partly offset by a decrease in sales volume and a realized gain on NOK 25 million on internal currency hedging against Cermaq. In additon, there were unrealized fair value gains on currency hedging arrangements entered into in connection with raw material purchases of NOK 9.6 million. Personnel expenses Personnel expenses increased by NOK 26.7 million, or 9.9%, from NOK 268.6 million for the nine months ended September 30, 2012 to NOK 295.3 million for the nine months ended September 30, 2013. This year on year increase was primarily due to the prior year reflecting a credit of approximately NOK 16 million related to the transfer of our pension obligations to our former Chief Operating Officer to Cermaq ASA in 2012. This amount was recharged to EWOS by Cermaq. The effect of this recharge was a credit to personnel expenses and a corresponding debit within other operating expenses. Depreciation and amortization Depreciation and amortization increased by NOK 4.9 million, or 4.2%, from NOK 117.3 million for the nine months ended September 30, 2012 to NOK 122.2 million for the nine months ended September 30, 2013. Other operating expenses Other operating expenses increased by NOK 38.8 million, or 5.4%, from NOK 719.4 million for the nine months ended September 30, 2012 to NOK 758.2 million for the nine months ended September 30, 2013. This increase was primarily due to increased outbound customer freight expenses, increased maintenance costs and a provision of approximately NOK 19 million to cover a potential claim from the Norwegian Customs authorities. or 26.5%, from NOK 513.9 million for the nine months ended September 30, 2012 to NOK 377.7 million for the nine months ended September 30, 2013. This decrease was primarily due to lower sales volume in Norway and the increased other operating expenses described above. Fair value adjustments of biological assets We recognised a fair value adjustment expense of our biological assets of NOK 15.3 million for the nine months ended September 30, 2013, primarily due to the decrease of our inventory of farmed salmonids in our R&D facilities. Financial items, net Net financial items increased by NOK 24.6 million, or 48.3%, from NOK (51.0) million for the nine months ended September 30, 2012 to NOK (75.6) million for the nine months ended September 30, 2013. This increase was primarily due to adverse movements in foreign exchange rates, resulting in a foreign exchange loss, partly offset by our foreign exchange hedging. Income taxes Income taxes decreased by NOK 53.6 million, or 45.9% from NOK (117.0) million for the nine months ended September 30, 2012 to NOK (63.3) million for the nine months ended September 30, 2013. This decrease was primarly due to a decrease in income before taxes in Norway, reflecting lower profitability compared to the nine months ended September 30, 2012. Net income Net income decreased by NOK 127.2 million, or 36.1% from NOK 352.0 million for the nine months ended September 30, 2012 to NOK 224.8 million for the nine months ended September 30, 2013, for the reasons stated above. Operating results before fair value adjustments of biological assets Operating results before fair value adjustments of biological assets decreased by NOK 136.1 million, EWOS INTERIM REPORT 10/24
Overview of Adjusted EBITDA Adjusted EBITDA represents EBITDA as adjusted for certain non-recurring and/or non-cash costs identified in the table below. We present Adjusted EBITDA because we believe it is a relevant measure for assessing underlying performance for a given period. There is no assurance that items we have identified for adjustment as non-recurring will not recur in the future or that similar items will not be incurred in the future. The calculations of our Adjusted EBITDA are based on various assumptions and management estimates. This information is inherently subject to risks and uncertainties. This measure is not a defined financial indicator under IFRS. It should be noted in this context that not all companies calculate items that are not defined under IFRS in the same manner and that, consequently, these measures are not necessarily comparable with similarly described measures employed by other companies. Our Adjusted EBITDA decreased by NOK 125.7, or 19,6% from NOK 642.6 million for the nine months ended September 30, 2012 to NOK 517.0 million for the nine months ended September 30, 2013. The main reason for this decline was lower than expected sales volumes and greater than expected operating expenses. Following the unforeseen decline in sales volumes in Norway during the peak production season, we were unable to adjust our cost base sufficiently quickly in response to the decreased volumes. The following table reconciles EBITDA to Adjusted EBITDA for the periods indicated: (a) (b) (c) (d) (e) Represents one-off vessel improvement costs incurred in 2013. The costs relate to equipment installed on and tested on vessels currently in service. The equipment will also be installed on new vessels to be put into service in the first quarter of 2014. Represents non-cash effects on derivatives used to hedge currency risk related to the acquisition of raw materials. In the nine months ended September 30, 2012 an unrealized fair value loss on derivatives used to hedge currency risk related to acquisition of raw materials of NOK 7.6 million was recognized. In the nine months ended September 30, 2013 an unrealized fair value gain of NOK 9.6 million was recognized. Represents a provision recorded in connection with a claim by the Norwegian tax authorities that we have benefitted from certain tax refunds in connection with fuel deliveries in violation of Norwegian tax laws. The amount has been provisioned in the nine months ended September 30, 2013. The associated payable will reduce the working capital used to calculate the post-closing purchase price adjustment under the Acquisition Agreement. Gives pro forma effect to cost savings associated with replacing on-and-off loading of salmonid feed using big bags by direct delivery of salmonid feed in bulk to salmonid farms ( silos-to-silos delivery ) The adjustments reconciling EBITDA and Adjusted EBITDA represent an illustration of how possible expected cost savings could have impacted EBITDA. Only adjustments arising from decisions or events taking place up to September 30, 2013 are included. EWOS INTERIM REPORT 11/24
EBITDA Our EBITDA represents operating results before fair value adjustments of biological assets, plus depreciation and amortization. This measure is not a defined financial indicator under IFRS. It should be noted in this context that not all companies calculate items that are not defined under IFRS in the same manner and that, consequently, these measures are not necessarily comparable with similarly described measures employed by other companies. 2013. Our EBITDA decreased by NOK 131.2 million, or 20.8%, from NOK 631.1 million for the nine months ended September 30, 2012 to NOK 500.0 million for the nine months ended September 30, 2013. The main reason for this decline was lower than expected sales volumes and greater than expected operating expenses. Following the unforeseen decline in sales volumes in Norway during the peak production season, we were unable to adjust our cost base sufficiently quickly in response to the decreased volumes. The table below sets forth our EBITDA for the nine months ended September 30, 2012 and Free Cash Flow The following table presents a reconciliation of EBITDA to operating free cash flow for the nine months ended September 30, 2012 and 2013. (1) Capital expenditures reported represent the cash effects of purchases of property, plant and equipment. (2) Operating free cash flow is defined as operating cash flow minus purchases of property, plant and equipment. This measure is not a defined financial indicator under IFRS. It should be noted in this context that not all companies calculate items that are not defined under IFRS in the same manner and that, consequently, these measures are not necessarily comparable with similarly described measures employed by other companies. EWOS INTERIM REPORT 12/24
Cash Flow The table below sets forth certain line items from our combined cash flow statement for the nine months ended September 30, 2012 and 2013. Cash flow from operating activities Cash inflow from operating activities for the nine months ended September 30, 2013 was positive by NOK 398.5 million, compared to an outflow of NOK 102.7 million in the same period last year. Working capital increased by NOK 2.2 million for the nine months ended September 30, 2013, while as in 2012 the working capital increased by NOK 808.2 million, which led to a cash outflow. Cash flow from investing activities Cash outflow from investing activities for the nine months ended September 30, 2013 increased by NOK 21.8 million, or 14.7%, from NOK 148.1 million for the nine months ended September 30, 2012 to NOK 169.8 million for the nine months ended September 30, 2013. This increase was primarily due to an increase in capital expenditures. Cash flow from financing activities Cash outflow from financing activities for the nine months ended September 30, 2013 was NOK 342.7 million, primarily due to payment of group contribution to Cermaq ASA as well as a reduction in changes in drawing facilities compared to the same period in 2012. to fund our future capital expenditures with cash from operating activities. Financial position Net interest bearing debt decreased by NOK 952.8 million, from NOK 1,722.3 million as of September 30, 2012, to NOK 769.5 million as of September 30, 2013. The decrease was primarily due to settlement of a loan in EWOS Chile of NOK 789 million and repayment of debt to Cermaq ASA. Parent Company Albain Midco Norway AS and Albain Bidco Norway AS are entities with limited or no activities, acting as holding companies in relation to the EWOS group. Material changes in Liquidity and Capital Resources The Company continually analyses its liquity and capital resources position. The Company has assessed its currently available capital resources and its current liquidity position as satisfactory and not noted any material changes in the current quarter. Capital Expenditures We have made capital expenditures of approximately NOK 156.1 million during the nine months ended September 30, 2013, aimed at further removing bottlenecks in our production plants in Norway, improving raw material capacity and handling and commencing the construction of an extension to our R&D facility in Coronel, Chile, in addition to replacement investments. We plan EWOS INTERIM REPORT 13/24
CAPITALIZATION The following table sets forth, in each case as of September 30, 2013, the cash and cash equivalents and capitalization of: the EWOS business on an actual basis; and Albain Midco Norway AS (the Parent) and its subsidiaries, including Albain Bidco Norway AS, on a consolidated basis and as adjusted to give effect to the senior secured notes (the "Offering") and the Acquisition. The adjustments are based on available information and contains assumptions made by our management. (1) Financial information for EWOS is extracted from the interim financial statements for September 2013. (2) Amounts denominated in Norwegian kroner have been converted from Norwegian kroner to euro using an exchange rate of NOK 1 = 0.1229, which represents the rate of exchange as of September 30, 2013 as published by Bloomberg (source: http://www.bloomberg.com/quote/eurnok:cur/chart). (3) Represents the estimated NOK 204.0 million of proceeds which we expect to retain as cash for general corporate purposes, as well as the NOK 0.1 million of cash on the balance sheet of the Parent, following completion of the acquisition. For the purposes of the above presentation, the estimates used at the date of issuance of the Notes have been used in the above table. The final amounts will be disclosed in our annual report for the year ending December 31, 2013, which we expect to publish prior to April 30, 2014. (4) The Issuer has entered into the Revolving Credit Facility Agreement on October 10, 2013 to provide for a Revolving Credit Facility in the amount of NOK 600.0 million to finance or refinance the general corporate and ongoing working capital needs of the Group. The Revolving Credit Facility remained undrawn as of the Completion Date. (5) Represents the aggregate of the NOK 370.0 million shareholder loan provided by HoldCo to the Parent and the NOK 1,688.0 million of ordinary equity in the Parent subscribed by HoldCo. The final equity contribution will be subject to post-closing adjustments. For the purposes of the above presentation, the estimates used at the date of the issuance of the Notes have been used in the above table. The final amounts will be disclosed in our annual report for the year ending December 31, 2013, which we expect to publish prior to April 30, 2014. Update of material risk factors We continually review the risk presented by our business and have not identified any significant changes in our risk factors occurred which would require a corresponding update of those as of the end of the quarter. As a result to this review, no major updates of our risk factors was deemed necessary. Update of material subsequent events For an overview of material subsequent events, please see note 7 in our Unaudited Condensed Combined Interim Financial Statements. EWOS INTERIM REPORT 14/24
Difference of financial conditions and results of operation between Albain Bidco Norway AS and Albain Midco Norway AS As mentioned above, the acquisition was completed on October 31, 2013. For purposes of this September 30, 2013 report, we therefore refer to note 7 in our Unaudited Condensed Combined Interim Financial Statements. EWOS INTERIM REPORT 15/24
UNAUDITED CONDENSED COMBINED INTERIM FINANCIAL STATEMENTS OF THE EWOS BUSINESS AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2013 EWOS INTERIM REPORT 16/24
Condensed combined interim statement of income The interim financial information has not been subject to audit. The notes on pages 21 and 24 are an integrated part of these unaudited condensed combined interim financial statements. EWOS INTERIM REPORT 17/24
Condensed combined interim statement of comprehensive income The interim financial information has not been subject to audit. EWOS INTERIM REPORT 18/24
Condensed combined interim statement of financial position The interim financial information has not been subject to audit. EWOS INTERIM REPORT 19/24
Condensed combined interim statement of cash flows * Includes restricted cash of NOK 1.7 million (NOK 1.6 million) at 30 September 2013. The interim financial information has not been subject to audit. EWOS INTERIM REPORT 20/24
Condensed combined interim statement of changes in invested capital * Group contribution to Cermaq ASA and Mainstream Norway AS, and the de-merger of debt in Chile. The interim financial information has not been subject to audit. EWOS INTERIM REPORT 21/24
Note 1. General information and basis for preparation On 18 July 2013 Cermaq ASA entered into a definitive agreement for the sale of the fish feed segment of Cermaq ASA (the EWOS Business ) to an entity indirectly and wholly owned by funds advised by Altor Equity Partners and Bain Capital Europe LLP ( Altor and Bain Capital ). The acquirer is a new established Norwegian company, Albain Bidco Norway AS, 100 % indirectly owned by funds advised by Altor and Bain Capital. The EWOS Business interim condensed combined financial statements covering the EWOS Business for the nine months ending 30 September 2012 and 2013 have been prepared in order to comply with certain ongoing reporting and other affirmative obligations to which the Senior Secured Notes Issuer and the Parent are subject following the issuance of the Notes and signing of the SS RCF. The interim condensed combined financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting. The same accounting principles have been applied as in the Combined Financial Statements for 2012. Furthermore, these interim condensed combined financial statements have been prepared on the same basis as the 2012 Combined Financial Statements by combining the historical results and carrying amounts of assets and liabilities of the entities forming the EWOS Business as at 30 June 2012 and 2013. For information about the entities included and the basis for preparation refer to details in note 1 and 4 of the Combined Financial Statements for 2012. The entities/operations included were under common control of Cermaq ASA until October 31, 2013 on which the completion of the acquisition of the EWOS business by Albain Bidco Norway AS took place (see note 7"Subsequent Events" for further information). The 2012 combined financial statements of the EWOS Business have been prepared based on IFRS as adopted by the EU and principles consistent with the historical consolidated financial statements of Cermaq ASA. The interim condensed combined financial statements do not include all the information and disclosures required for full annual financial statements and should be read in conjunction with the EWOS Business combined financial statements for 2012. As a result of rounding differences, numbers or percentages may not add up to the total. The condensed combined interim financial statements have not been subject to an audit. These interim condensed combined financial statements were approved by the Board of Directors on December 17, 2013. For information about the standards and interpretations effective from 1 January 2013, please refer to Note 2 in the EWOS Business Combined Financial Statements for 2012. The adoption of new and revised standards and interpretations effective from 1 January 2013 did not have an impact on the interim condensed combined financial statements. However, the amended IAS 1 require companies to group together items within other comprehensive income (OCI) that may be reclassified to the ordinary comprehensive income in future periods. The amendments became effective for annual periods beginning on or after 1 July 2012, and are implemented in the combined financial statements for the EWOS Business for the interim condensed combined financial statements. The amendment affected the presentation of the total comprehensive income only. The IASB has also issued several amendments to IAS 19. These vary from fundamental changes such as removing the corridor method and that the expected return on plan assets is conceptually changed to clarifications and rephrasing. Removing the corridor method implies that actuarial gains and losses shall be recognised in other comprehensive income (OCI) in the current period. The revised IAS 19 is effective for accounting periods beginning on or after 1 January 2013 and is implemented in the EWOS Business interim condensed combined financial statements for 2012 with effect from 1 January 2011. Hence, actuarial gains and losses are recognised in OCI as incurred. EWOS INTERIM REPORT 22/24
Note 2. Key earnings measure EWOS key earnings measure under IFRS is Operating result pre fair value adjustments of biological assets. The fair value adjustments of biological assets relate to valuation of biological assets. EWOS reports Operating result pre fair value adjustments of biological assets to clearly identify earnings on sales during the period. Note 3. Cost of raw materials Cost of raw materials includes a positive realized gain on internal currency hedge against Cermaq ASA on NOK 25 million and a positive unrealized fair value adjustments of NOK 9.6 million on derivatives used to hedge currency risk related to acquisition of raw materials at 30 September 2013. For the corresponding period in 2012, there was a realized gain on internal hedging against Cermaq ASA on NOK 5.8 million and a negative unrealized fair value adjustment of NOK 7.6 million. Note 4. Financial items Note 5. Currency rate Foreign currency versus NOK EWOS INTERIM REPORT 23/24
Note 6. Transactions with related parties Note 27 in the combined financial statement for 2012 provides detailed information on related parties transactions. Transactions with related parties in 2013 have been in the ordinary course of business on arm s length principle towards the Mainstream companies and Cermaq ASA in the Cermaq Group. Note 7. Subsequent events On 18 July 2013 it was announced that Cermaq ASA had entered into a definitive agreement for the sale of its EWOS business area to an entity indirectly and wholly owned by funds advised by Altor Equity Partners and Bain Capital Europe, LLP. The transaction was completed on 31 October 2013 at the previously announced enterprise value of NOK 6.5 billion, subject to certain closing and post-closing adjustments. Final consideration is dependent on certain events to be settled in accordance with the Share Purchase Agreement at a later stage. EWOS INTERIM REPORT 24/24