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Nutreco Aquaculture results down by more than half; optimistic for remainder of year

Nutreco Aquaculture’s first half operating result was EUR 4.0 million, a decrease of EUR 5.6 million compared with the first-half 2003 figure

August 4, 2004

Nutreco Aquaculture’s first half operating result (EBITA) was EUR 4.0 million, a decrease of EUR 5.6 million compared with the first-half 2003 figure of EUR 9.6 million (adjusted for incidental items). But the company says the balance between supply and demand for salmon in Europe is expected to improve in the second half of this year. Higher salmon prices will translate into an improved result.

Norwegian salmon prices were higher compared with the same period last year. Salmon
prices on the important US market, though lower in the first six months of this year than in
the same period in 2003, remained at a profitable level, despite higher freight costs from Chile to the US. The salmon farming businesses in Canada were still suffering the effects of diseases at the farms in 2003. The implementation of a European organisation for production, marketing and sales, to replace the separate country organisations, entailed further expense in 2004.

Demand for salmon and salmon products is further growing, and the supply in Europe this
year is expected to be below the 2003 level. Reasonable supply-side growth is forecasted in
the US.

The weakened financial position of salmon feed customers, the forecasted decrease in
European salmon production and the high raw material prices exerted modest pressure on
salmon feed margins in the first half year, but Nutreco’s income from feed for other species
of farmed fish was in line with last year.


‘Nutreco’s animal nutrition businesses (compound feed, speciality feed and fish feed) again made in 2004 an important contribution to Nutreco’s result and cash flow’, says Nutreco’s Chief Executive Officer Wout Dekker. ‘Nutreco consolidated in 2003, by means of restructuring, impairment of goodwill, cost control and improved efficiency. We are currently reviewing our strategy. The resulting actions will make our results less volatile and will improve the return on capital employed.’

2004 first-half financial results
Nutreco’s net result in the first half of 2004 was EUR 16.2 million, an increase of 184.2% on
the comparable figure for the same period in 2003 (EUR 5.7 million). The net result for the
first half of 2003, after impairment of goodwill, concessions and non-consolidated companies
including tax effect, was a loss of EUR 186.3 million.

Net earnings per ordinary share before amortisation of goodwill was 59.4% higher, up from EUR 0.32 to EUR 0.51. Net earnings per share after amortisation of goodwill amounted to EUR 0.41, compared with a loss of EUR 5.66 per share in the first half of 2003.

Net sales for the first half of 2004 amounted to EUR 1,843.9 million, up 6.5% compared with
the same period last year. The sales of Nutreco Agriculture increased mainly by compound
feed sales, reflecting higher selling prices in line with higher raw material prices. Nutreco
Aquaculture’s sales showed little change.

The operating result before amortisation of goodwill (EBITA) increased slightly to EUR 35.9
million, compared with EUR 35.1 million for the first half of 2003. This figure includes
incidental income of EUR 11.0 million for Nutreco Agriculture in respect of agreements
reached with suppliers on purchase terms and partnerships. Nutreco Aquaculture’s 2003
operating result included net incidental income of EUR 10.9 million.

The operating result after amortisation of goodwill (EBIT) was 17.1% higher at EUR 32.8
million, due to lower amortisation of goodwill following the impairment recognised in 2003.
Gross margin improved by 3.9% from EUR 503.1 million to EUR 522.6 million. Gross margin as a percentage of sales decreased from 29.1% to 28.3%, mainly reflecting narrower margins in the poultry businesses.

Operational expenses were 4.0% higher, rising from EUR 468.0 million to EUR 486.7 million, mainly due to slightly higher personnel costs.

Net financial income and charges were EUR 2.6 million lower compared with the first half of
2003, at EUR 13.8 million, reflecting the lower average interest rates and a decrease in
average indebtedness.

The effective tax rate remained virtually the same (around 19%), mainly as a result of
utilisation of tax facilities and tax loss carry-forwards.

The share in the result of non-consolidated companies increased from EUR –1.2 million to
EUR 2.2 million, mainly benefiting from better performance by minority interests in
Norway.

Free cash flow before acquisitions and disposals decreased from EUR 3.4 million to
EUR –54.0 million, due to an increase in stocks (higher raw material prices) and the
utilisation of the provisions for the restructuring exercises announced in 2003 and pensions.
Investments in tangible fixed assets, which slightly increased from EUR 24.2 million to EUR
28.9 million, were mainly in new processing and packaging lines.

Nutreco’s balance sheet is sound, with shareholders’ equity representing 31% of total assets
and net indebtedness amounting to 82% of shareholders’ equity as at 30 June 2004. Nutreco
placed a private loan of USD 204 million with institutional investors in the United States in
May 2004 which was used to replace part of the short-term loans with long-term finance. The loan is divided into three tranches, with maturities of five, seven and ten years.

Nutreco Agriculture
Nutreco Agriculture’s operating result (EBITA) for the first half of 2004 was EUR 18.4
million higher at EUR 40.5 million. This includes incidental income of EUR 11.0 million in
respect of agreements reached with suppliers on purchase terms and partnerships. Excluding
this income, the operating result was EUR 7.4 million higher at EUR 29.5 million, an
increase of 33.5% on the same period in 2003. This result was largely generated by a
satisfactory performances of Nutreco’s compound feed activities in the Benelux and Spain, in
which the strategic focus is on service, advice, feed safety and efficiency. Closer cooperation between Nutreco’s compound feed businesses on the one hand and its premix and speciality feed activities on the other were a contributory factor. The results on the premix operations showed little change on the same period in 2003.

Nutreco’s pork business achieved a satisfactory result, despite the difficult market conditions, by continuing to focus on the top end of the industrial market and fresh, prepacked products for the retail market, efficient production and cost structure.

The restructuring of the poultry operations in the Benelux was almost completed in the first
half of 2004. Nutreco intends to concentrate exclusively on fresh products for the retail and
food service markets and the quality segment of the industrial market. The first six months
have seen a decline in consumer demand for poultry products, caused partly by the adverse
publicity surrounding the outbreak of avian flu in Asia.

Poultry product prices in Spain in the first half of 2004 were below those in the same period
last year. Higher feed prices resulted in higher production costs, bringing pressure on
margins. The poultry breeding businesses have nearly recovered from last year’s avian flu in the Benelux.

Interim dividend
The interim dividend per ordinary share for 2004 has been fixed at EUR 0.14, which equates
to a pay-out of 35% of the net result available to holders of ordinary shares. Shareholders can opt to have the dividend paid in cash or shares. Shareholders wishing to receive the dividend in ordinary shares must notify the company of their choice in the period from 6 August until close of trading on Euronext on 20 August 2004. The dividend will be payable as from 25 August 2004. The exchange ratio will be determined after close of trading on 3 August 2004, on the basis of the closing price. Ordinary shares will be issued to enable payment of the stock dividend.

The market is expected to continue to recover from the adverse effects of the avian flu in the Benelux in 2003. The reorganisation of Nutreco Agriculture’s poultry businesses in the
Benelux will yield savings this year. The poultry businesses in Spain will show an improved
result, thanks to a combination of higher prices and lower feed costs. The compound feed and premix activities are expected to achieve healthy growth.

On that basis, an improvement in both operating and net result is forecasted for Nutreco as a whole in 2004 compared with 2003.

[Source: Nutreco]

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