Oslo Business Memo


Funds are pouring into the marine sector

Marine Harvest on the NYSE: (From left) Tor Olav Trøim, MOB,  Kristine Gramstad, Director of Communications, Leif Frode Onarheim, MOP, Henrik Heiberg,  VP Finance and Treasury, Cecilie Fredriksen, MOB, Duncan Niederauer, CEO NYSE, Ole Eirik Lerøy, COB, John Fredriksen, majority owner,   Alf-Helge Aarskog, CEO,  Ola Helge Hjetland, Communications Manager, Ingrid Erlandsen, IR Contact Manager,  Ivan Vindheim, CFO.  Photo:  Ben Hider

Marine Harvest on the NYSE: (From left) Tor Olav Trøim, MOB,  Kristine Gramstad, Director of Communications, Leif Frode Onarheim, MOP, Henrik Heiberg,  VP Finance and Treasury, Cecilie Fredriksen, MOB, Duncan Niederauer, CEO NYSE, Ole Eirik Lerøy, COB, John Fredriksen, majority owner,   Alf-Helge Aarskog, CEO,  Ola Helge Hjetland, Communications Manager, Ingrid Erlandsen, IR Contact Manager,  Ivan Vindheim, CFO. Photo: Ben Hider

In the future fish for food will be farmed, not caught. Big investors are flocking into the new business, but there are still risks to overcome.

Bluechip companies as well as private investment funds have discovered marine innovation and research, a field traditionally covered by government funding and research institutions.
Now the big players seem to be eager to get involved in the early stages. Collaboration with inventors, entrepreneurs and new solution providers will become the new standard in the marine sector, according to sources in the industry. That might be good news for stressed oceans. But aquaculture has to find a new ways to produce with less environmental destruction, waste, diseases and over-harvesting smaller fish for feeding. New startups in the aquaculture industry are trying to overcome those challenges with better technology and management.

Going for New York
When the Norwegian aquamarine company Marine Harvest rang the opening bell at the New York Stock Exchange earlier this year it was the beginning of a new era for the salmon farming industry.
- This is a big day for Marine Harvest and the salmon farming industry, said Alf-Helge Aarskog, CEO of Marine Harvest, ringing the bell at the NYSE together with Chairman Ole Eirik Lerøy.
Marine Harvest, the world’s leading seafood company, was the first aquaculture company to be listed at the NYSE. The company controls about 22 per cent of the global production of farmed Atlantic salmon, the most industrialized and commercially developed aquaculture specie.
- According to the UN, the world must increase its food production by 70 percent by 2050. As much as 70 percent of the globe is covered by water. Yet, only six percent of the world’s protein supply is sourced from the oceans today. The potential is enormous, says Aarskog.

Blue revolution
Marine Harvest has chosen ”Leading the blue revolution” as its vision. The company wants to be a leader in cultivating and growing food from the ocean.
- Our vision is to be “leading the blue revolution” - something similar to what happened 5,000 years ago when the agriculture revolution made people move from hunting and fishing to agriculture. We want to elevate aquaculture to be comparable to agriculture and beyond, Aarskog adds.
Marine Harvest is not the only company in New York that has found a new future in fish. The charitable foundation of New York City’s former mayor, Michael Bloomberg, recently announced that its Vibrant Oceans Initiative, a $53 million, five-year effort to boost fish populations in Brazil, the Philippines and Chile. Reforming fishing practices in these countries will revitalize 7 percent of the world’s fisheries, according to Vibrant Oceans.

Salmon record
The strong market for salmon will produce record high cash flows for Norwegian fish farmers, providing a solid financial platform for high dividends to the shareholders and increased investment activity.
Last year proved to be the best year ever for the fish farming industry in Norway. The seven biggest companies listed on the Oslo Stock Exchange increased their total revenues with 29 percent to NOK 49 billion due to record high salmon prices, providing a formidable increase in operating income to NOK 7 billion, despite higher costs.
According to analyst Kolbjørn Giskeødeggård at Nordea, the operation profit per kilo amounted to around NOK 11 for companies like Salmar, Lerøy and Norway Royal Salmon, while Marine Harvest had operating profit over NOK 12 per kilo in its Norwegian business.

High ambitions
The growth will continue, according to the independent analysis firm Kontali Analyse, which estimates an increase in the production of gutted Atlantic salmon of five percent this year. Looking at the listed companies, their ambitions are even higher. In their guiding to the investor community, they have estimated an increase in the region of 13-14 percent to over 1 million tons. Norwegian fish farmers will probably deliver most of the expected global growth in the production both this year and next.
Salmon prices are still high and most observers and analysts expect the party to continue, which will  provide the fish farmers with continued strong high free cash flows from operations.

Strong dividends
In a comprehensive analysis published late last year, analyst Tore Tønseth in Sparebank 1 Markets noted the strong dividend capacity in the sector.
Using EBITDA (earnings before interest, tax, depreciations and amortizations) minus capex (capital expenditures) to estimate the free cash flow, Tønseth expects most fish farmers to generate between 30 and 40 percent of their market capitalization in free cash flow during 2014 and 2015.
So while shareholders may expect increased dividends, companies will also likely boost their investments, both in productivity and production.
Marine Harvest, the biggest producer by far in Norway, said it will pursue selective acquisitions both in Norway and Chile in order to substantially increase the global share of production from the current level of 22 about percent.
And while production is increasing, the companies are still fighting costly challenges related to sea lice and various other diseases. So some of the strong cash flows may also be invested in innovative projects and businesses which can help solve some of these challenges.

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