Contents. Foreword and Report s Main Findings Seafood Player Comparison Some Key Figures ISB Basic Information...

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2 Contents Foreword and Report s Main Findings The EU s Common Fisheries Policy Fishing Sector Aquaculture Sector Seafood Processing Sector Seafood Consumption Opportunities and Challenges Seafood Player Comparison Some Key Figures ISB Basic Information

3 Foreword Dear Reader, It is with great pleasure that we present this ISB Seafood Industry Report, this time focusing on the European Union. As before, the objective of our Seafood Industry Report is to give a comprehensive and analytical overview of the region or country in question, aimed towards those living outside that area. The European Union, when regarded as one country, is one of the world's largest fishing powers, surpassed only by China and Peru passing in total volume. It is also one of the world's largest seafood markets and has an annual per capita consumption of approximately 24 kg. We hope that you will find our EU overview of interest and we welcome all comments to seafood@isb.is. On 9th of June, ISB will hold its second Ocean of Opportunities conference for industry leaders, held this year in Ålesund, Norway. We will focus on financial and strategic issues for the seafood industry with a full day program by invitation only. Finally, we would like to draw your attention to our Seafood Player Comparison on page 30-33, where we compare a few key figures for some international seafood companies. Enjoy the reading! ISB Seafood Team

4 Main findings The EU's Common Fisheries Policy was refocused in 2003, with the objective of deducing its oversized fishing fleet and managing resources in a more sustainable way To accomplish this, the EU will spend EUR million from 2000 to 2006 in subsidies The EU's fishing fleet caught over 6,3 million tonnes in 2002, being the third largest fishing power in the world Spain is by far the leading EU country in landing value, with over EUR 1,8 billion, followed by Italy and France. Denmark, the leader in volume, comes sixth in terms of value Aquaculture is a growing part of the seafood industry in the region, already representing 33% of the total value General consumption trends in recent years in the EU reflect an increase in the consumption in seafood products. This rise is supported by an increase in the consumption of convenience products The seafood processing is a EUR 16 billion industry and is still very fragmented. The UK leads the way with a turnover of EUR 2,9 billion, followed closely by Spain and then France

5 1. The EU and its Common Fisheries Policy

6 The European Union an introduction 1. The EU and its Common Fisheries Pol Twenty of the 25 European Union (EU) Member States have coasts and the capitals of eight states are located on the coast; Athens, Tallin, Valetta, Lisbon, Dublin, Copenhagen, Stockholm and Helsinki EU has a coastline of km Over the last 50 years the population in the EU living by the sea has more than doubled, today reaching 70 million or 16% of the population While the fishing sector's contribution to the gross national product of Member States is generally less than 1%, its impact is highly significant as a source of employment in areas where there are often few alternatives Member states EU-15 1 Austria 2 Belgium 3 Denmark 4 Finland 5 France 6 Germany 7 Greece 8 Ireland 9 Italy 10 Luxembourg 11 Netherlands 12 Portugal 13 Spain 14 Sweden 15 United Kingdom New member states 1 Cyprus 2 Czech Republic 3 Estonia 4 Hungary 5 Latvia 6 Lithuania 7 Malta 8 Poland 9 Slovakia 10 Slovenia

7 The EU s Common Fisheries Policy (CFP) 1. The EU and its Common Fisheries Pol The EU has a Common Fisheries Policy in order to manage its fisheries for the benefit of both fishing communities and consumers Since 1 January 2003, the European Union has had a new fisheries policy. The reason was many years of over-fishing, leaving several important fish stocks, such as cod, on the verge of collapse The EU Council of Fisheries Ministers agreed on the first package of reform measures in December The main changes can be summarised as follows: Long-term approach: Long term objectives for attaining and/or maintaining safe levels of adult fish in EU stocks will be adopted, together with the measures needed to reach these levels. A new policy for the fleets: The reform has responded to the challenge posed by the chronic overcapacity of the EU fleet by providing two sets of measures; i) a simpler fleet policy that puts responsibility for matching fishing capacity to fishing possibilities with the member states ii) a phasing out of public aid to private investors to help them renew or modernise fishing vessels, while retaining aid to improve security and working conditions on board. Better application of the rules: Measures are being taken to develop cooperation among the various authorities concerned and to strengthen the uniformity of control and sanctions throughout the EU Stakeholders' involvement: Stakeholders, particularly fishermen, need to take a greater part in the CFP management process. It is important that fishermen and scientists share their expertise. Regional advisory councils (RAC) will be created to enable them to work together to identify ways of achieving sustainable fisheries in the areas of interest to the RAC concerned. In March 2005 the European Commission announced its decision to launch a consultation process on a future maritime policy for the EU. The challenge is to ensure that the Union makes the most of this potential in a sustainable manner. Commissioner Joe Borg has said that a maritime policy would enable the EU to identify, coordinate and implement measures in the Union in a way that optimizes economical and recreational returns from the sea in a more participative and sustainable manner

8 1. The EU and its Common Fisheries Pol EU financial support To achieve the objectives of the Common Fisheries Policy the E.U. provides financial support to the fishing industry through the Financial Instrument for Fisheries Guidance (FIFG). EU aid is targeted towards the following areas: vessel decommissioning, construction of new vessels, modernization of aquaculture, fishing port facilities, processing and marketing, and socioeconomic measures, among others FIFG allocations by area The programming period EUR Million % Scrapping 357 9,7% Construction of new vessels ,5% Modernisation of existing vessels 270 7,3% Aquaculture 290 7,8% Fishing port facilities 239 6,5% Processing & Marketing ,9% Socio-economics measures 61 1,6% Others ,7% Total % Source: European Communities, 2004 Share of total E.U. Structural aid by member state % Spain ,3% Italy ,4% France 275 7,4% Portugal 218 5,9% Germany 217 5,9% UK 215 5,8% Greece 211 5,7% Denmark 204 5,5% Sweden 74 2,0% Ireland 71 1,9% Finland 39 1,1% Netherlands 38 1,0% Belgium 36 1,0% Austria 5 0,1% Total E.U % Source: European Communities, 2004

9 2. The EU s Fishing Sector

10 EU and world fisheries 2. The EU Fishing Sect Total world fish catches have only increased by 3% during the period The EU accounted for about 5% of this total in 2002, making it the third largest world producer after China and Peru With the accession of the 10 new member states to the EU in 2004, its fisheries production increased by 11% Total catches in all regions made up 83% of EU-25 fishery production in 2002; 17% came from aquaculture Catches in the North-East Atlantic alone accounted for more than 60% of EU-25 total production World fisheries production, Million tonnes Total catches of main world producers (1000 tonnes) : 11,7% growth : 3,0% growth Source: FAO, The state of world fisheries and aquaculture : 36,9% growth Catches Aquaculture Total Source: Statistics Iceland, Russia India Chile Japan Indonesia USA EU Peru China

11 2. The EU Fishing Sect Leading EU fishing countries, by value In the EU countries some fishermen produced approximately EUR 7,1 billion worth of fish in Compared to the year 2002, the value of production has remained constant but the number employed has decreased by about 9% Spain: The main target species are tuna, crustacean and hake Pelagic species such as herring, mackerel and sprat are the mainstay of EU catches, Denmark alone accounts for about a one sixth of EU catches Leading EU fishing countries 2003, by value (million EUR) Leading EU fishing countries, volume of landings (1000 t), Source: European Assessment of European Fisheries, Annual Report Source: Economic Assessment of European Fisheries, Spain Italy France UK Netherlands Denmark Portugal Greece Ireland Germany 0 Denmark Spain UK France Netherlands

12 2. The EU Fishing Sect Most important species Denmark 1000 tonnes Sandeels 662 Sprat 237 Herring 113 Blue mussel 111 Norw ay pout 78 Germany 1000 tonnes Herring 57 Mackerel 27 Blue whiting 17 Horse mackerel 16 Shrimp 16 Spain 1000 tonnes Skipjack tuna 124 Yellow fin tuna 91 Pilchard 71 Horse mackerel 47 Short-fin squid 41 France 1000 tonnes Skipjack tuna 73 Yellow fin tuna 65 Pilchard 34 Saithe 30 Herring 27 UK 1000 tonnes Mackerel 200 Herring 73 Haddock 53 Cod 32 Blue w hiting 29 Greece 1000 tonnes Pilchard 14 Anchovy 11 Picarels 4 Bogue 4 Horse mackerel 3 Source: European Communities, 2004

13 2. The EU Fishing Sect E.U. fishing fleet The overcapacity of the EU fleet has put considerable pressure on fish stocks. The EU has adopted policies to reduce fleet capacity and create a better balance between fishing capacity and fish resources In 2004, the total number of vessels was , down from six years earlier. This downward trend also applies to other characteristics of the fleet, such as power and tonnage (the small increase in 03/04 is due to the new EU states) The European fishing fleet on a downward trend Source: European Communities, Country Number of Volmue of Value of vessels landings landings 1000 tonnes M illion EUR Greece Italy Spain Portugal France UK Denmark Source: Economic Assessment of European Fish

14 2. The EU Fishing Sect Productivity in fisheries in 2003 The value of production per fisherman was highest in the Netherlands in 2003, EUR The average value of production per fisherman in the EU-15 was EUR Denmark had the highest value per KW (Kilowatt), EUR Country Volume of landings Value of landings Fishermen Vessels Total KW Value pr. fisherman Value pr. vessel Value pr. KW (1000 t) (million EUR) Number Number 1000 (1000 EUR) (1000 EUR) (1000 EUR) 1 Denmark Spain UK France Netherlands Italy Ireland Sw eden Germany Portugal Source: Economic Assessment of European Fisheries, 2004

15 3. The Aquaculture Sector

16 3. The Aquaculture Sect Aquaculture, a growing sector in Europe Aquaculture accounts for 17% of the EU s total fisheries production, but represents 33% of the total value Aquaculture will continue to play an important role in alleviating the pressure on fishery resources Aquaculture produced tonnes of fisheries products in 2002 ( caught in inland waters and at sea) and has increased its share in EU-25 total production from one eighth in 1995 to one sixth in 2002 The importance of aquaculture varies. In some states the value of farmed fisheries products is greater than of landed products (for example Germany and Greece), while in others aquaculture represents an insignificant part of their total production (for example Sweden and Portugal) In 2002, Spain was the biggest aquaculture producer with tonnes, followed by France ( ) and Italy and the UK

17 3. The Aquaculture Sect Aquaculture production The principal aquaculture products of the EU are fish (trout, salmon, sea bass and sea bream) and molluscs (mussels, oysters and clams). European production rose from tonnes in 1980 to in 1990, and reached to nearly 1,3 million tonnes in 2002 EU accounts for only 3% of world aquaculture production, but the EU is world leader for some species like trout, sea bass, sea bream, turbot and mussels Total aquaculture production 2002, '000 EUR Total aquaculture production 2002, tonnes Source: European Communities, Source: European Communities, UK France Spain Italy Greece Germany Ireland Denmark Netherlands Poland Spain France Italy UK Greece Ireland Netherlands Germany Poland Denmark

18 Top seven aquaculture species produced in the EU 3. The Aquaculture Sect The species most widely produced in the EU are blue mussel, rainbow trout and salmon Top species produced in aquaculture 2001, tonnes UK 1000 tonnes Salmon 138,5 Blue mussel 17,3 Rainbow trout 13, Source: European Communities, France 1000 tonnes Cupped oyster 107 Blue mussel 55 Rainbow trout 45,2 Spain 1000 tonnes Blue mussel 43,6 Eel 4,0 Cupped oysters 2,9 0 Blue mussel Rainbow trout Salmon Cupped oyster Mediterranean mussel Gilthead seabream Manila clam Italy 1000 tonnes Mediterranean mussel 92,2 Manila clam 41,1 Rainbow trout 33,8 Source: European Communities, 2004

19 4. The Seafood Processing Sector

20 ,000 1,500 2,000 2,500 3,000 3,500 The UK is the leading seafood processor 4. The Seafood Processing Sect EU seafood processing is a EUR 16 billion industry The UK is the biggest seafood processor (EUR million production value) Spain and the UK lead the consolidation trend, while Germany is lagging behind Evidence from the UK suggests that considerable economy of scale can be achieved in the processing industry The industry in Europe is still very fragmented, with about firms EU seafood processing value by country 2001 Austria 26 Finland 80 Greece Ireland Source: Eurostat Sweden 379 Million EUR Belgium 381 Portugal 550 Netherlands 701 Denmark 1,477 Italy 1,687 Germany 2,169 France 2,542 Spain 2,834 UK 2,939

21 4. The Seafood Processing Sect Retailer Consolidation The big retailers have increased pressure on suppliers as they have grown larger Strong consolidation both in the USA and the EU This trend is most evident in the UK where traditional suppliers such as Northern Foods, Uniq and Geest have recently issued profit warnings 46% 49% US Top 20 Share 62% 58% 53% 65% 68% Europe Top 5 Share 34% 26% 40% 16% 17% Source: Based on data from Supermarket News and the U.S. Department of Commerce

22 4. The Seafood Processing Sect The move towards value-added products The demand for chilled seafood has increased dramatically 1,200 1,000 Frozen UK Retail Market Seafood Spending Chilled 800 Source: Seafish m

23 4. The Seafood Processing Sect EU: Negative fisheries trade balance The EU countries import more fisheries products than they export Since 1993, the total volume of EU exports has increased by about 45% while the value of these exports has doubled External trade 2001, Million EUR EU-15 Export Import Fresh, chilled and frozen Salted, smoked or dried Preparations and presves Crustaceans and molluscs Meals and solubles Total Trade balance Source: European Communities, 2004

24 5. Seafood Consumption

25 Per Capita Consumption 5. Seafood Consumpti The growth in EU countries is expected to be low The most rapid growth continues to be in China Per capita consumption is projected to grow throughout the developing world, while developed-country consumption remains virtually unchanged 80 Consumption of fishery products in kg. per capita Source: International Food Policy Research 70,2 60, forecast 40 35, ,5 19,7 18,2 23,7 11,6 17,1 10 5,5 3,1 5,8 0 China USA India Japan EU-15 World

26 Seafood Consumption in the EU 5. Seafood Consumpti In the European diet, seafood products play a role as a valuable source of protein, and as a healthy food. The average EU consumption stands at 24 kg per capita, considerably higher than the world average of 16 kg per. capita The countries in the South of Europe lead the ranking, with their long tradition in seafood consumption Most of the new EU states have low, but growing per capita consumption Consumption of fishery products in EU-25 in kg. per capita Source: European Communities, Portugal Spain Malta France Finland Sweden Greece Denmark Italy Cyprus Estiona Netherlands Belgium Luxemborg UK Lithuania Latvia Ireland Germany Austria Czech Rep. Poland Slovenia Skovakia Hungary

27 5. Seafood Consumpti Consumption trends General consumption trends in recent years in the EU reflect an increase in the consumption in seafood products. This rise is supported by an increase in the consumption of convenience products Frozen products tend to be on a downward trend while consumption of fresh fish has stagnated Improvement of economic conditions is the main force behind the increased per capita consumption in the new member states The increase of the net supply for the coming years will be possible because of a rise in imports from third countries (e.g. from Asia) and an increase of aquaculture production in some EU countries (e.g. Greece and Spain) The addition of new countries to the EU is increasing intra-european trade

28 6. Challenges & Opportunities

29 6. Challenges & Opportuniti The EU Seafood Industry: Opportunities and challenges Opportunities The increased focus on fresh, convenient seafood products will create market opportunities, led by the trend already very much in place in the UK New member states will bring low cost processing opportunities within the EU Still room for consolidation in processing, with subsequent economy of scale Aquaculture will continue to grow, focusing on species that are not mass produced by other countries Consumption growth is expected in the new EU member states, especially in value-added chilled seafood products EU and individual countries are encouraging seafood consumption China is an opportunity for lower cost, more convenient frozen-product solutions Challenges Intensive competition from China for the frozen-seafood processing sector Reduction in quotas, weak implementation of fishery management, politically influenced quota decisions Overcapacity of the EU fishing fleet Import barriers and duties on several seafood items such as salmon, shrimp and whitefish, aimed at protecting EU seafood industry, is increasing input prices for secondary manufacturers in the EU Increased retail consolidation will pressure seafood firms to merge and/ or seek strategic alliances Large parts of the primary seafood industry in EU have suffered due to low profitability and lack of investment

30 International Seafood Player Comparison

31 Seafood Player Comparis Primary seafood companies Company Country Currency Market Cap. Enterprise Value Rev. EBITDA EV/EBITDA Maruha Group Inc. Japan 724, ,2 111,7 Nippon Suisan Kaisha Ltd. Japan 919, ,3 96,4 Pescanova S.A. Spain 285,5 590, ,4 86,7 6,8 Thai Union Frozen Foods Grp ( 03) Thailand 624,1 782, ,2 76,7 10,2 Royal Greenland Group Greenland 688,5 53,0 Fishery Products (FPI) Ltd. Canada 87,5 253,4 633,9 29,8 8,5 American Seafoods Holdings LLC US 461,7 42,4 Aker Seafoods Norway 220,1 450,6 382,5 32,9 13,7 Samherji hf. Iceland 307,3 471,4 256,4 34,7 13,6 Sanford Limited New Zealand 283,2 271,6 254,9 25,2 10,8 Domstein Norway 54,6 165,5 231,7 2,6 63,7 NB: Royal Greenland and American Seafoods are privately held. Source: Company reports for 2004, market information and ISB research forecast, currency information May 19, 2005

32 Seafood Player Comparis Secondary seafood companies Company Country Currency Market Cap. Enterprise Value Revenue EBITDA EV/EBITDA Icelandic Group PLC Iceland 262,4 571, ,3 36,3 15,7 Young s Bluecrest UK 889,0 SIF Group Iceland 448,7 942,9 846,0-8,2 StarKist Seafood Co. US 630,0 Pacific Andes H. Kong 166,3 175,5 562,4 27,4 6,4 Connor Bros. Income Fund Canada 555,7 662,5 477,1 39,2 16,9 High Liner Foods Inc. Canada 76,8 83,1 213,4 14,7 5,7 NB: Young s Bluecrest Ltd. and StarKist Seafood Co. are privately held. Source: Company reports for 2004, market information and ISB research forecast, currency information May 19, 2005

33 Seafood Player Comparis Aquaculture companies Company Country Currency Market Cap. Enterprise Value Revenue EBITDA EV/EBITDA Marine Harvest International B.V. Netherlands 737,9 Fjord Seafood Group Norway 227,1 583,4 575,5 46,4 12,6 Stolt Sea Farms Norway 459,1 Pan Fish Norway 84,9 377,3 362,1 20,3 18,6 AquaChile (Salmones Pacifico) Chile 250,0 Mainstream Group (Cermaq) Chile/Canada 209,3 28,5* Heritage Salmon Canada 145,0 Cooke Aquaculture Canada 47,0 Mainstream as part of Cermaq, Cooke Aquaculture, AquaChile, Stolt Sea Farms and Heritage Salmon are privately held (Stolt Sea Farms and Marine Harvest merged in 2005). Source: Company reports for 2004, market information and ISB research forecast, currency information May 19, 2005

34 ISB Some Basic Facts

35 ISB Current Operations Iceland International corporate credit Leveraged finance Project finance Relationship management Global seafood Norway KredittBanken Full service bank for traditional industries BNbank Corporate and retail mortgage financing London Corporate finance UK/European food industry Global seafood Leveraged finance Brokerage of Icelandic securities International investors Luxembourg Treasury services Nordic small/medium banks Loan participation Nordic area Private banking

36 ISB - Sector Services Corporate Finance Financing Food Sector Seafood Industry (Global) Food Ingredients (Northern & Western Europe) Packaged Foods (Northern & Western Europe) Icelandic & Norwegian Clients Any Sector Type of Services Acquisitions Disposals Minority Investments MBOs / LBOs / MBIs Private Placements Strategic Reviews Small to Medium Size $40m to $1.5bn size transactions Type of Credit Facilities Term loan Working capital Syndicated loans Vessel financing Other Services Fx dealing Risk management advisory ISB s total loan portfolio of $9.7bn Industry & contractors 14% Seafood 16% Commerce 9% Other 2% Individuals 23% Services 36% ISB is perfectly positioned to compete with, and provide a better service than, bulge bracket investment banks within our sector and size focus

37 Seafood Industry Team Business Managers Pétur Einarsson Executive Director London Office Direct line: +44(0) Mobile: +44(0) Helgi Anton Eiríksson Business Director Direct line: Mobile: Covering: Asia and Oceania Covering: UK and USA Jón Gardar Gudmundsson Business Director Direct line: Mobile: Covering: Central and Southern Europe, South America and Africa Hjálmur Nordal Business Director Direct line: Mobile: Covering: Canada and Iceland Kjartan Ólafsson Business Director KredittBanken Direct line: Mobile: Covering: Nordic Countries

38 Valdimar Halldórsson Analyst ISB Research Direct line: Mobile: Gísli Sigurgeirsson Senior Manager International Corporate Credit Direct line: Mobile: eafood Industry Team Other members Elfar Rúnarsson Executive Director Direct line: Mobile: Tim Owen Head of Corporate Finance London Office Direct line: +44(0) Mobile: +44(0) Örn Gunnarsson Executive Director Direct line: Mobile: Eiríkur R. Eiríksson General Manager Risk Advisory Direct line: Mobile: Steinunn Thórdardóttir Executive Director International Corporate Credit Direct line: Mobile: Timothy H. Spanos Director International Corporate Credit Direct line: Mobile: Gunnar Engilbertsson Senior Manager International Corporate Credit Direct line: Mobile: Helgi H. Ófeigsson Senior Manager International Corporate Credit Direct line: Mobile: Ragnar Gudjónsson Senior Manager Icelandic Credit Direct line: Mobile: Guðmundur Ragnarsson Senior Manager Icelandic Credit Direct line: Mobile: Rúnar Jónsson Capital Markets - FX Direct line: Mobile: runar.jonsson@isb.is Stefán Eiríks Stefánsson Capital Markets - FX Direct line: Mobile: stefan.stefansson@isb.is

39 Legal disclaimer All opinions and analyses represent the views of Íslandsbanki at the time of writing and are subject to change without notice. Íslandsbanki and its employees cannot be held responsible for any trading conducted on the basis of the information and views presented here. Íslandsbanki may at any time have vested interests in individual companies, for example as an investor, creditor or service provider, but its opinions and analyses are produced independently by the Íslandsbanki Research division, based on publicly available information on the company in question. This Seafood Industry Report was written by Valdimar Halldórsson - Íslandsbanki - Research division: valdimar.halldorsson@isb.is