Investors in the global seafood industry – implications and trends

Irish Seafood Summit:

Picture: courtesy of Unima

Gorjan Nikolik, Food and Agribusiness Research, Rabobank International

2

Rabobank in the seafood industry

Rabobank has c.60 corporate level relationships in the global seafood industry and a large number of smaller “rural” sector clients

3

Lets start with a framework: seafood is global sector made up of niche sub-segments

Crustaceans and Molluscs / bivalves

Small pelagic

Tuna

Salmonids

1

2

3

4

5

6

7 Aqua feed

Source: Rabobank 2012

White fish

VAP

Seafood is the most fragmented and least commoditized protein, where bigger is not always better, but rarity and uniqueness are appreciated

4

Risk capital origins and flows in the seafood industry are from a number of different sourcesRisk capital is one of the key drivers of any industry and is especially relevant in the global marine proteins sector

5

Public Equity in seafood: opportunity or necessity?

Europe

(Mostly Norwegian

salmon farmers)

Americas

(Mostly Chilean)

Asia

(Japanese, Chinese, Thai, South Korean

and Vietnamese)

There are currently more than 100 listed seafood companies (>35bln mrk cap) with the majority active in aquaculture

6

Aquaculture and wild catch are the most “asset heavy” protein subsectors

ROCE based on average EBITDA and asset turnover, 2005-2010

7

Examples of PE investments

Investments largely focused on processing and brands close to the key markets­ Expected stable returns due to market power of brands and diversification

But it was not all according to plan……­ Some had profitable investments – but in the period 2009-2012 many had

underperforming seafood investments

­ Macroeconomic downturns, raw material costs, private label expansion are all reasons

Private Equity seafood model has been focused on processing and brands In the last decade PE have invested billions in the seafood sector

8

Some examples of PE investments where primary production plays a more important role

BUT Primary production (aquaculture and fisheries) are not ideal sectors for PE Large capital need tied up in biological assets or fishing rights Little visibility of value at exit: Biological risk, TAC changes Cash flow volatility: Cyclicality, biological risk No synergies with current management skills of most PE companies No proven economies of scale and benefits from add-ons

How to deal with this miss mach – there is no real answer to this yet­ One option: Combine a few smaller primary production businesses with a larger more

stable seafood processor

­ Thematic funds are becoming more common

….. So Private Equity is seeking for a new seafood industry modelThe new approach is to find a way to become exposed to more primary production

9

Venture Capital are seeking diversification: new industries, new regions

VC are at home in the high tech sectors ­ They like high growth, low asset size

companies

BUT ever since the internet bubble VCs seek diversification, ­ “The protein challenge” is an attractive

dynamic in need of innovative solutions

Here too thematic funds are emerging ­ VC’s create thematic funds to leverage on a

knowledge base

As well as partnerships­ They seek partners with other specialized

investors (e.g. Rabobank)

10

There are many more ideas than investors in the aquaculture space

11

Capital flows within the seafood industry: from more mature sectors to less mature

12

Time for salmon farmers to diversify, but where to?

Salmon price (right axis) and salmon global production volumes (left axis)

Salm

on p

rice

NO

K /

kg

The new “up cycle”” may be longer than in the past and it will have a positive influence on the cash flows and balance sheet of the producers

13

Many wild-catch companies face a good price outlook but have no organic growth options

Fish meal and fish oil prices (USD/MT)

14

The dilemma of the Western seafood processing sector (1)How can western processors ensure not to be out competed for rawmaterial

2010 2020

Vertically integrated

Processors in EU, US and Japan

Vertically integrated

Processors in EU, US and Japan

15

How will the processors continue to add value and stay relevant in view of consolidation of producers

2010 2020Complex and fragmented seafood industry

Consolidation among primary producers

The dilemma of the Western seafood processing sector (2)

16

In response a few key strategic directions are being perused in the processing sector

Regional focus

Have a broad portfolio of products

Consolidate similar companies adding product groups, regions and brands

Evolve into value added food groups?

Species focus

Acquire peers in different regions

Could eventually become part of vertically integrated groups?

Processors in general terms can develop a regional focus or a species / product strategy

17

Other industries: Retailers, Conglomerates and Animal Protein producers

??

18

In Asia vertical integrators dominate the animal protein production and many have become active in aquaculture and seafood processing

Only Asian animal protein companies invest in seafood (particularly aquaculture)

TradingFeed manufacturing

Fish & shrimpprocessing

Juveniles

Fish meal and othercommodities Fish and shrimp farming

Fish byproducts as input for feed

19

Seafood will be in demand long after meat demand is satisfied in China

Relative share of food expenditure, meat (left axis); seafood (right)

20

Retailers and large food service groups as investors in the seafood industry?Not a trend so far, rather isolated cases. Still worth understanding the motivation

21

Clearly there are many different investors in the marine protein industry ­ Could be a large salmon farmer ­ Or a global fleet operator­ Or a diversifying processor ­ Asian conglomerate­ Or a PE investor......................

There are implications with each one ­ different competences­ different impact on the value generated in each part of the value

chain ­ And all need to be addressed and enticed in a different way­ The more investors are present the higher the value of the target

assets

Ireland is well positioned ­ There are options, global and local ­ Primary production assets are rapidly appreciating in value –

this is the key strength of Ireland ­ Probably the best result can be archived if these investors are

engaged actively and with a plan – otherwise the sector will either underperform or find a way it self

Current dynamics in the global seafood industry are favourable for Ireland.

Where risk capital will come from poses questions and implications

22

Thank you for your attention

“The financial link in the global food chain”™