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The Role of Private Equity in Aquaculture


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Oceanis Partners Key Highlights

!! Oceanis is the worlds first global private equity player to be dedicated exclusively to the seafood and aquatic resource sector !! Founded in 2010, the company has offices in Dubai and New York !! Oceanis works with a selected number of investors through customized investment structures !! Our team combines capital markets, private equity, strategy consulting and aquatic resources operational / technical expertise
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Presentation Structure

Capital Supplier
Private Equity Investor

Capital Demand
Aquaculture Operation

Oceanis View

!! We will focus on the alternative investments asset class, and private equity (PE) in particular !! Growth of Thematic PE !! What PE investors look for and what they can bring to aquaculture

!! Private capital vs. public capital in the seafood sector !! Aquacultures macro dynamics are appealing to PE investors

!! Potential mismatches between the aspirations of classic private equity funds and the fundamental dynamics of aquaculture !! An alternative approach !! An investment case study
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Global Assets Under Management Institutional and Retail 2005-2011, USD Trillions
60 50 40 30 39.8 20 10 0 2.9 2005 4.2 2006 5.7 2007 5 2008 5.6 2009 6.2 2010 6.5 2011 14.2 % CAGR 34.8 SUPPLY

Comments
!! Despite a very public flameout during the financial crisis, alternative investments grew up to USD 6.5 TN in 2011, around 15% of the global institutional and retail investment market !! This represents a compounded annual growth rate of 14.2% over 6-year period, outperforming traditional asset class growth !! Alternative includes Private Equity, Hedge Funds, Real Estate, Infrastructure and Commodities
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43.1 35.4

40.4

43.6

38.9

1.9%

Non-alternative

Alternative

Source: McKinsey Financial Investment Practice

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Average Percentage of Total Portfolio AUM (simple average) 2009-2013 Expected
8 7 6 5 4 3 2 1 0 Private Equity 8 7 6 5 4 3 2 1 0 Hedge Funds SUPPLY

Comments
!! Private Equitys percentage allocation will more than double from 2009 to 2013, particularly in the US market where it will reach 7.3% (5.1% expected in Europe)

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2013E 7 6 5 4 3 2 1 0

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2011

2013E

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Commodities

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6.5

0.7 2009

2 2011

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2009

2011

2013E

Source: McKinsey Financial Investment Practice, Global Survey on Institutional Investing, 2011

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SUPPLY

!! Thematic investing is about capitalising on future macro trends, as opposed to allocating to incumbent sectors, based on the assumptions that past winners will continue to win !! Increase of thematic PE and venture capital funds observed in the last decade !! Examples of popular thematic funds: "! Clean-tech "! Agriculture "! Timberland "! Biotech "! Healthcare "! Energy & Natural resources
At our recent London Ideas Exchange conference, the majority of the audience believed that thematic investing is an under-exploited way to capture value
Towers Watson (firm), March 2011

In our view, investors should focus on thematic private equity investment


Credit Suisse Research Monthly, Swiss edition June 2010

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Typical PE Investors Core Goals !! Empirical support for the strategic plan and financial forecast !! Exit options after 4-6 years Riskadjusted returns Downside protection !! Substantial capital gains !! Dividends !! Avoid losses in any possible scenario !! Have a clear Plan B !! Ability to steer key strategic decisions, and protect their interests !! Minority positions with negative control are acceptable to some funds
S" 5 Years SUPPLY

Visibility

Expected Return Profile Conceptual


Multiple of Investment 3-4 X

Control

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PE Investor Typical Value Add Skillset Complementar y to Management
SUPPLY

!! Strategic thinking capabilities to support long term plans !! Assistance and support in executing a strategy, with global connections !! Corporate finance and capital markets expertise and relationships !! Follow-on investments !! Catalysis of third party PE capital flow !! Key role in shaping and executing the exit process !! Synergies with other portfolio companies, particularly in the case of a thematic PE player (e.g. downstream sales and distribution, logistics, technology) !! Access to customers and JV partners

Long Term Commitment

Synergies

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Seafood & Aquaculture Market Size Comparison Comments
!! Total seafood and aquaculture market (yearly revenue) is estimated at USD 500 BN1 !! Yet the aggregate market capitalization of public companies accounts for less than USD 30 BN (June 2012)2 !! Private owners control more than 90% of the sector !! In comparison, private owners only control 25% of the total US economy !! Marine Harvest, the largest public company is only USD 3 BN market cap Total market capitalization of publicly traded companies2
DEMAND

Total Market Size USD 500 BN

USD 30 BN
Estimates Bubbles to Scale

1)! Estimate based on annual production of 150MM MT of fish (2012), at an average retail selling value of around 3 USD/Kg 2)! Estimate based observing 65 of the largest seafood / aqua companies by market capitalization as of June 2012

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Seafood & Aquaculture Key Points of Appeal
DEMAND

Growing Demand

!! Increasing population trend !! Correlation with GDP/Capita Total Global Aquatic Organism Production growth !! Healthy and highly efficient source Forecas 180 t of protein 160 !! Compelling non-food opportunities
140 120

Constraine d Supply

Long Term Outlook

!! Resource depletion !! Increasing limitations of other 100 80 sources of proteins (e.g. land and freshwater use, high FCRs 60 etc.) !! Good growth expectations over 40 the long run, albeit tempered by 20 0 the emergence of sustainable 1950 fisheries !! Expectation of decoupling from economic cycles (efficient source of protein)

MM MT

90MM MT

1960

1970

1980

1990

2000

2010

2020

Wild catch

Aquaculture

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DEMAND

!! !!

Aquaculture is one of the most efficient ways to produce animal protein, when considering feed Furthermore, marine based aquaculture uses very limited fresh water, as opposed to land based animal production which actually consumes huge volumes
Average(1) FCR Values
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Aquaculture Project - Typical Proposition
!! Many business plans for greenfield projects !! Often, unproven technology or pilot scale testing that is too small to extrapolate !! Often, track record is flimsy !! Limited profits generated, or volatile performance !! Often, track record just shows mistakes and bad decisions !! Most of the business plans are highly capital intensive !! Residual value of CAPEX is minimal if the business does not work

PE Investors Concerns
!! Deep industry knowledge and dedicated resources / time required to assess the opportunity !! PE investors want to see proven ability to execute plans and generate sustained cash flows with high ROEs

Maturity Stage

Track Record

Capital at Risk

!! Difficult to protect the downside !! Risk of total write off in a worst case scenario

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Aquaculture Project - Typical Proposition
!! Projects are often in jurisdictions with high perceived or real political / legal risk !! Founder frequently wishes to retain control !! Many investment opportunities fall below a minimum threshold ticket size for institutional investors

PE Investors Concerns
!! Governance and regulatory issues !! Can they gain control, or at least negative control?

Governance

Investment Size

!! Aquaculture investments may be perceived to have a low return-on-effort

Timing

!! Track records often show that it always takes longer than expected !! Break-even for start ups sometimes requires more than 5 years

!! Typical PE investors require visibility on a credible exit within 4-6 years

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Required Characteristics for a PE investor in Aqua !! Patient capital provider !! Long term focus !! Thematic investment mindset !! Commitment to fundamentals !! Desire for inflation protection !! Belief in the efficient protein story !! Pension funds !! Life insurance companies Investor Type
Early Stage

!! Family Offices

!! Sovereign Wealth Funds !! Endowments


Later Stage

The aquaculture sector still needs more nurturing and development before it will be seriously interesting to a large number of classic PE funds. Oceanis therefore works with more patient pools of capital to catalyse such development
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Ideal Aquaculture Venture Evolution
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Revenues EBITDA

Years

Phase

Source of Funds

!! Prove the concept on semi-commercial scale !! Generate consistent revenue stream !! Focus on the market !! Development banks !! Founder capital !! Angel investors

!! Generate some profit !! Build a solid scale-up plan

!! Reach full vertical integration !! Diversification into various markets and species !! Private equity capital (generalists) !! Public markets / banks !! Reinvested profits
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!! Private equity capital (thematic players) !! Reinvested profits

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Emerging Trends Food and resource security !! Food security in certain regions as strategic move for governments and investors !! Food production for export as a means to improve balance of trade Regional play as opposed to globalisation !! Long term negative outlook on transportation costs (both air and shipping are very much oil dependent) !! Counter-globalisation trend to produce and consume locally !! Strong natural resources !! Local capital employed for local development !! Greater potential for synergies across the portfolio Strategic Investment Vehicle Key Features Geographic focus !! The SIV will invest in Middle East countries as well as North Africa, and parts of the Mediterranean Investment Types !! Greenfield projects, Strategic JVs and Acquisitions Timeline and financial objectives !! Evergreen investment vehicle !! Long term value creation through dividend yield generation, with capital gains as a secondary target SIV Geographical Scope

SIV scope Out of the SIV scope !S"

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Snapshot of SIV Targets
Export to Russia

NON COMPREHENSIVE & PRELIMINARY

Mussels and Shellfish

Export to Asia

MENA Demand
Sea bass Logistics/Processing/Technology/ Cages/RAS/Feed

Sea bream Bluefin Tuna Amberjack \)3&"$ Lobster

!! The MENA region offers good endemic bio-diversity and excellent natural aquatic resources !! Geographic differentiation will minimize extreme risks (e.g. natural catastrophes, diseases, political risk) and provide overall protection to the invested capital !! The MENA region has the potential to become a significant international production centre for aquatic products

Grouper/Hammour Algae Tilapia Prawn Existing Aquaculture Species To be Developed

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Mattia Pipino Oceanis Partners Bangkok 2012