Tassal : Market Briefing -Tassal MD on FY17 & Outlook

Level 9, Marine Board Building 1 Franklin Wharf

Hobart, Tasmania 7000

Attention: ASX Company Announcements Platform Lodgement of Market Briefing

23 August 2017

Tassal MD & CEO on FY2017 results and growth outlook Interview with Mark Ryan (Managing Director & CEO)

In this Market Briefing interview, Mark Ryan, Tassal's Managing Director & CEO, gives an update on the company's FY2017 result and growth outlook, including:

• Continued growth in earnings reflecting sales mix optimisation and a favourable operating environment

• De Costi Seafoods earn-out

• Macquarie Harbour sustainability, and diversified operations

• Managing contribution margin

• Exports and volatility

• Outlook for FY2018

Mark Ryan

Once again, our full year result has proven the effectiveness of our sustainable operating model, as well as the robust fundamentals of our underlying business.

Pleasingly, we were up on all our key metrics, with earnings [EBIT up 11.2%] growing faster than revenue [up 4.5%]. This was in line with our strategy to rebalance sales mix away from lower margin retail channels to higher margin wholesale and export channels.

Even though we have adapted our operations to be less reliant on Macquarie Harbour, and have also incurred a higher cost of fish as we kept fish in the water longer and fed them more, we have delivered a higher contribution margin through optimising sales mix and benefiting from operating efficiencies.

Favourable growing conditions and keeping the fish in the water longer have enabled Tassal to continue to optimise biomass and fish size. Tassal has achieved a 'step change' in its underlying biomass and fish size. In fact, we have achieved a harvest fish

size of circa 4.80kg hog by the end of the financial year. Our ultimate goal is a harvest size of 5kg hog - and this is a key objective for FY2018.

Fish size is being matched to sales market demand both domestically and internationally to support sales mix flexing. This will ensure we optimise the contribution margin Tassal achieves and support the company's growth trajectory in a sustainable way.

Further, in March 2017 we successfully raised $82.3 million [net] to primarily support strategic efforts to establish sustainable operations at Okehampton Bay, Port Arthur and Storm Bay. A portion of these funds will also be used to invest in improved net technologies and new feeding barges to improve salmon survival rates and feed conversion, accelerate growth in fish biomass, automate production and increase processing capacity.

Mark Ryan

Our strategic acquisition of the De Costi business is driving seafood sales (including salmon) and category growth by focusing on highly innovative product and packaging formats, together with higher margin products. This focus is delivering results. The $6.7 million earnout reflected the most recent assessment of the likelihood of the earnout being triggered for FY2018.

Given the increased result, which saw EBITDA for De Costi Seafoods as a standalone operation up 11.4% to $12.7 million [FY2016: $11.4 million], Tassal will issue an additional 2.0 million shares under the provisions of the Contingent Consideration. The issue of the shares under the earn-out equates to 60% of the maximum possible earn- out for FY2017, year two of a three year earn-out.

The De Costi acquisition was acquired on a 5 times operational EBITDA multiple at

$10m. The earnout period of over 3 years was structured on effectively maintaining this purchase multiple and our actual and forecast issuing of shares and value maintains this multiple.

Mark Ryan

Macquarie Harbour continues to receive a high level of media scrutiny and we take our responsibility in our shared waterways extremely seriously. Our aim is to always ensure that our operations are environmentally sustainable for the long term and support growing societal value in the communities in which we operate.

Tassal is determined to ensure the ongoing health of Macquarie Harbour. Importantly, lessons have been learnt from this experience which will form part of our ongoing risk

management and sustainability initiatives in the future to prevent such events occurring not just in Macquarie Harbour, but across Tassal's operations. The situation and environmental impact on Macquarie Harbour was certainly unexpected and difficult to predict, even with the best science available.

The company has acknowledged several unforeseen environmental non-compliances over the summer of 2016-17 at its Franklin lease in Macquarie Harbour. By May 2017, all Tassal leases in Macquarie Harbour returned to compliance from an 'out of compliance' perspective and in-fauna abundance is returning. This was confirmed by recent surveys that confirmed signs of biological recovery.

Tassal has excellent environmental credentials and compliance across its operations. Tassal strives to lead the way in regard to transparency of business operations and as such, we publish an annual sustainability report that details our farming practices including environment interactions. Furthermore, we have been announced as the second highest benchmarked aquaculture business in the world for transparent corporate, social and environmental reporting by seafoodintell.com.

This follows a position in the top three globally since 2012, which reinforces the high level of commitment to sustainable reporting and business practices.

We are proud to have maintained Aquaculture Stewardship Council (ASC) certification across all Tassal's operations for harvest fish. In fact, Tassal was the first salmon producer globally to achieve ASC certification across its entire business - and remains one of only two producers globally [the other being Petuna] that holds ASC certification across all harvest sites, which is a remarkable achievement.

Mark Ryan

As we have clearly and consistently stated to the market, in late 2016, monitoring picked up non-compliances at one of our three leases in Macquarie Harbour - the Franklin lease. The other two leases, Gordon and Middle Harbour, continue to be at 100% full compliance.

A decision was made to fully destock the Franklin Lease and it is currently empty with no salmon on the lease per EPA direction. Tassal's Franklin lease achieved full 'out of lease' compliance as at May 2017.

Tassal's business is geographically diversified and it is this diversification that allows a proactive focus on risk mitigation whilst maintaining a strong revenue stream. With our operation spread throughout Tasmania, Tassal can adaptively manage and grow the same amount of fish, and achieve the same biomass growth over its Strategic Plan period to 2025, despite the reduction of fish for the 2017-year class to be input into Macquarie Harbour.

Across our operating areas, we have effective risk mitigation strategies in place that will support our continued growth in a sustainable way. Our growth initiative of farming expansion in Okehampton and oceanic sites in Storm Bay will support sustainable growth

in harvest biomass which is key to fulfilling demand growth in domestic per capita consumption and allowing access to key export opportunities.

Tassal's lease in Okehampton Bay is now approved and we plan to stock fish in August 2017. This, together with stocking fish in our Port Arthur lease will counteract any decrease in our leases within Macquarie Harbour and ensure a strong and geographically diversified business.

We are exploring an eco-aquaculture concept for the Okehampton Bay site, which is co- producing multiple species on one marine lease. This should have local environmental and social benefits as well as increase the output of any given lease. This is in the research and development phase and supports our transition from a "salmon" company to a seafood company.

Through our strategic planning process, we have factored in a reduction in Macquarie Harbour's percentage of total biomass as other new leases come on-stream. Although the reduction at Macquarie Harbour is more than we initially had anticipated, Tassal is well positioned to increase earnings and shareholder value. This is an example of our risk mitigation strategy of geographic distribution, working.

Mark Ryan

Tassal is geographically diversified and it is this geographic diversification and substantial scale that has allowed the business to manage its contribution margin over time. With our operations spread throughout Tasmania, Tassal is able to adaptively manage and grow the same amount of fish, and achieve the same biomass growth over its Strategic Plan period to 2025, despite the reduction of fish for the 2017 year class to be input into Macquarie Harbour.

It is important to not look at costs in isolation. As we have seen globally, costs have risen, however prices and profitability has increased. At Tassal, we look at optimising contribution margin - whether this is cost out or price increases / sale mix optimisation. Our view is that you need to look at margin in its totality - i.e. price and costs - given there are several levers that determine, and can be pulled, to drive the overall profitability of the company.

The strategies we are pursuing put Tassal in a strong position to best manage costs by enhancing salmon growing performance to reduce operating costs and improve returns. In fact, it is this investment in biomass that is delivering scale and operational cost efficiencies - i.e. the bigger the fish the better the cost efficiencies.

We have been able to grow and improve contribution margin by increasing the proportion of sales towards higher margin wholesale and export channels. Our ability to flex our sales mix provides us with the opportunity to match fish size to market demand