Nov. 19, 4.17 p.m. G.M.T.

Fishing's mojo

While aquaculture producers are often said to 'feed the world' in the coming decades, fisheries can be somewhat restricted by quota restrictions, government regulations and fears of overfishing.

So where will the growth in the industry come from? Value adding and innovation will have to take the part, the three speakers in the wild catch panel told the audience.

"At best our resources are stable," Bernt Bodal, CEO of American Seafoods -- which annually catches about 230,000 metric tons of Alaska pollock, Pacific cod and hake, said. "You’re not going to see any growth [in production] and the growth will come from adding value to the products we have.

"The largest opportunity is to create more value to the quotas we already have," he said.

Arne Mogster, CEO at Austevoll, agreed, saying "it’s all about adding more value to the fish we already have. We’re handling 1.6 million tons of fish and adding value to that is our opportunity."

Austevoll will continue to focus on selling fish oil for human consumption, as well as create additional value through fish feed.

-- Elisabeth Fischer

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Nov. 19, 4.44 p.m. G.M.T.

Farmed fish accounts for 50% of Faroese exports

In the first half of 2013 Faroese total exports reached DKK 2.5 billion (€355 million), of which 48 percent was farmed fish, said Teitur Samuelsen CFO of Bakkafrost.

In the Faroe Islands, Bakkafrost holds half of the fish farming licenses, and the company reported revenues of DKK 741 million (€99.3 million) in the third quarter of 2013, Samuelsen said.

Producing just 1.8-1.9 million metric tons of salmon per year, Faroese salmon is an "exclusive" product, said Samuelsen, and goes to niche markets in the US and Asia.

-- Dominic Welling

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Nov. 19, 4.15 p.m. G.M.T.

Getting fresh

Salmon producer Leroy Seafood Group has made significant investments in fresh packed products this year, CEO Henning Beltestad told the audience at IntraFish Media’s Seafood Investors Forum.

With new plants acquired in France, Spain, Denmark and Norway this year, the company is actively developing the fresh fish side of the business, with Leroy’s sushi products and ‘fish cuts’ products gracing supermarket shelves.

-- Rijuta Dey

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Nov. 19, 3.57 p.m. G.M.T.

Fetching seafood investment with eco-labels

Eco-labels and third-party certifications are an important selling point for retailers and consumers, but how about investors, asked Melanie Siggs, UK fisheries consultant. 

"What's the importance of standards when looking for investors," she asked the wild catch panel at the IntraFish Seafood Investment Forum.

"Lenders, potential investors and customers like to know they are involved in a sustainable business, which is still around tomorrow," Bernt Bodal, CEO of American Seafoods, simply said in response.

Olav Holst-Dyrnes, CEO at Havfisk, agreed, saying also investors "out there are looking for these kinds of [sustainable] investments," and third-party certifications such as the Marine Stewardship Council (MSC) help to "prove" sustainable operations. 

-- Elisabeth Fischer

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Nov. 19, 3.50 p.m. G.M.T.

Marine Harvest to rein in investment next year

Henrik Heiberg, vice president of finance and treasury at Marine Harvest, told attendees at the IntraFish Seafood Investment Forum in London that his company plans to make significantly lower investments in 2014 in a bid to strengthen its cash flow.

The seafood sector currently accounts for 6 percent of the world’s protein production, said Heiberg, and with the growing population there will be a requirement for 40 percent more protein by 2050.

However, this is unlikely to come from farmed Atlantic salmon, which makes up only a tiny slice of total production, said Heiberg.

“The industry had cracked the code of controlling risk and managing production in a better way, however over time there may not be much more growth,” he said.

As a company, Marine Harvest's priority is to move backwards up the value chain to feed production as shown by its new feed plant it is building in Norway, Heiberg said.

The company hopes to open the plant in July 2014, which it is determined to do as quickly as possible as they are aware of the benefits of having feed production under its own roof. The plant will fulfill 60 percent of Marine Harvest’s feed needs in Norway, he said.

The company is also focused on its integration of Morpol as well as looking at acquisitive growth in Norway and Chile, Heiberg said.

That said the company plans to make significantly lower investments in 2014 in a bid to strengthen its cash flow, while “shareholders can expect a better dividend next year than the last couple of years,” he said.

As for its Chile operations, Marine harvest is expecting a small drop in harvest volumes for the next year and has accepted “we are not making money in this region for the next couple of years,” Heiberg said.

But these problems in Chile could be attributed to a lack of regulation, he said.

Norway regulations are not great either but the new government is testing capacity, assessing changes to regulations.

However the proposed regulations could substantially impact capacity of industry to increase production which will impact on 2015/2016 volumes, and “which is not a great idea as we need to now move ahead in a more sustainable manner, push ahead step by step, Heiberg said.

Initial signals from the new government implies a more liberal licensing regime, the introduction of average Maximum Allowed Biomass constraints, and the assessment of current licensing system in general.

“This may lead to increased biological risk and reduced sustainability,” which Marine Harvest perceives “as a threat” due to the industry’s dependency of a well regulated and sustainable framework.

Instead Marine Harvest recommends the continuation of the current system with maximum allowed biomass, and a predictable annual capacity increase of 3-5 percent for ten years if deemed sustainable, Heiberg said.

-- Dominic Welling

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Nov. 19, 3.30 p.m. G.M.T.

Feeding the fish

Unlike most figures flying about in the industry, in reality, only a maximum 1.4 kg of whole fish are used in fishmeal to produce 1 kg of farmed salmon, according to Andrew Mallison, director general of IFFO.

In terms of the ratio of whole fish used in all feeds, this figure falls even further to 0.3 kg for every 1 kg of farmed fish produced, Mallison added.

Meanwhile global fish meal production is up 16 percent while fish oil production is up 12 percent year on year, but there has been a shift in where it is going.

The majority of fish meal now goes into aquaculture (68 percent), while 23 percent goes into pig farming.

The amount of fish oil going into direct human consumption has increased from 19 percent in 2011 to 22 percent in 2012, Mallison said.

Furthermore now 103 fisheries have been certified to a responsible fish oil/ fish meal standard accounting for 40 percent of global production, Mallison. Which is impressive if you compare it with soy meal, which is less than 5 percent certified, he said.

-- Dominic Welling

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Nov. 19, 2.30 p.m. G.M.T.

Investors' biggest risks

What are the biggest risk factors for seafood investors? High share price volatility caused by commodity price cycles, low earnings predictability due to their sensitivity to market prices are only a couple to be mentioned, David Kerstens, author of the new IntraFish industry report Investing in Seafood, told the audience at the Seafood Investment Forum on Tuesday.

In addition, financial leverage is relatively high, and so are currency transaction risks, he said. Fish diseases and other biological issues add to the mix, as well as environmental and food safety concerns and other economic factors.

-- Elisabeth Fischer

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Nov. 19, 2.19 p.m. G.M.T.

Investing in seafood -- yes or no?

The outlook for the overall seafood sector is a favorable one, but valuation is still relatively low, David Kerstens, independent consultant at Food for Valuation and author of the new IntraFish industry report Investing in Seafood, said.

Projected revenue growth of the 50 largest publicly listed seafood companies, ranging from multi-billion market cap companies such as CP Foods, Marine Harvest, Nutreco and Thai Union to small-cap companies such as Sapmer, Solvtrans, Russian Sea and Nireus, stands at 12 percent per year for the next two years, increasingly driven by favorable pricing and to a lesser extent volume growth.

As a result, profitability is expected to "improve strongly," Kerstens said, with EBIT margins almost doubling from 6.9 percent last year to 13.4 percent this year, and to an expected 14.7 percent next year.

Return on invested capital is projected to recover from 5.4 percent last year, to 9.9 percent this year, broadly in line with the cost of capital, and to 11.3 percent next year, he said.

This year has already seen a small "wave of M&A's," with Kerstens naming Ewos, Copeinca/China Fishery, and Morpol/Marine Harvest. "Further consolidation could be a driver to improve pricing going forward," he said.

However, there are large differences between different segments, with some performing "a lot better than others."

Salmon farming is the sector expected to realize the highest return of capital, Kerstens said, followed by fish meal and fish feed. 

The valuation of the seafood sector has increased by 14 percent so far this year, Kerstens went on saying, mainly driven by salmon farmers, and by 56 percent since the beginning of 2010, mainly driven by fish feed production.

The seafood sector is now trading at 7.0x EBIT and 10.3x EBIT projected for the full year of 2014. This is relatively low compared to the consumer sector at 16.5x EPS projected for next year.

Reasons for the low valuation of the seafood sector are its still small size, and the low share of financial institutions among the shareholders. In addition, there is a "relatively high cyclicality of earnings, outweighing favorable long-term demographic trends."

Combined, the 50 biggest listed companies companies have a current market cap of only about €24 billion, compared to almost €300 billion for the European food majors.

-- Elisabeth Fischer

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Nov. 19, 1.45 p.m. G.M.T.

Getting the basics right

Being a below-cost producer is a top priority for seafood businesses, before focusing on volume growth, said Mitchell Presser of Paine & Partners.

Presser was responding to an audience member’s query about volume growth in seafood business.

“There is a need to focus on FCR, technology, disease control et cetera as managing these will create value in the industry and reduce costs,” he said.

-- Rijuta Dey

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Nov. 19, 1.30 p.m. G.M.T.

The need for consolidation

The Med bass and bream sector is in critical need of restructuring and consolidation, said Mitchell Presser of Paine & Partners.

“There is way too much production, and too much leverage, as well as the competition Greece faces from Turkey,” Presser told the audience when panel moderator Drew Cherry, editorial director of IntraFish Media, asked where the seafood industry is in need of consolidation. “The overall banking system in Greece needs to be restructured.”

Helge Moen of Kverva drew attention to the Norwegian pelagic industry, which he said was in need of consolidation. “We have 40 to 50 pelagic plants and declining stocks,” Moen said.

-- Rijuta Dey

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Nov. 19, 1.05 p.m. G.M.T.

Africa: aquaculture’s blank sheet

“Africa is the market we see with the strongest growth potential,” said Adam Taylor, CIO of Liongate Venture Partners.

“Overfishing has reached catastrophic levels in African countries, and its rising demand is met by imports from Asia, mostly China,” he said. The aquaculture industry basically does not exist as yet in Africa, Taylor told the audience, highlighting its potential.

“There is real potential in building brand value of your fish products, and you can market yourself as a local producer,” Taylor said, adding that Yalelo -- the Zambian company Liongate Venture Partners supports in farming tilapia in Lake Kariba -- will be producing 7,000 metric tons of tilapia next year.

“We will be investing $30 million (€ 22.2 million) to $40 million (€ 29.6 million) in aquaculture in Africa in the next 3 to 4 years,” Taylor said.

-- Rijuta Dey

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Nov. 19, 12.30 p.m. G.M.T.

Stuck in salmon

Salmon is seen as a safe bet by investors, more than one speaker commented, prompting an audience member to ask why they only talked of “salmon, salmon, salmon.”

“What about tropical fish?” asked Sofjan Alisjahbana of Fega Marikultura, an Indonesian company that produces ocean farmed barramundi.

“Barramundi is the fish of the future,” Alisjahbana said.

“The risk-reward aspect made us focus on farmed salmon,” said Helge Moen of Kverva. “Salmon has established markets and geography, whereas barramundi -- which is a very good fish -- is a new fish in the market, is at an early stage in farming commercially, and does not have established markets.

“We still see the salmon business as the best combination of risk and reward.”

“Things become too risky when it is both a new fish and a new geography,” added Adam Taylor, CIO of Liongate Venture Partners.

-- Rijuta Dey

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Nov. 19, 12.10 p.m. G.M.T.

Wooing shaky PE investors

Doing justice to the name of the forum, the private equity panel discussion turned its attention on why there aren’t more private equity (PE) investors in the seafood industry.

“The seafood industry isn’t a classic case of PE investment,” said Mitchell Presser of Paine & Partners. “There is a lot of volatility and a lot of factors you cannot control.”

Steep price fluctuations in species such as salmon make PE investors nervous, said Jens Petter Hagen, director of Nordic region at Advent International. “We like to be in control,” he said, though he stressed the “exposure to a very interesting demand curve.” Hagen gave the example of the price fluctuation of as much as 100 percent in over two years that the global salmon industry saw post Chile’s production collapse due to the infectious salmon anemia crisis.

“Apart from the price behavior, farming fish is a delicate science,” he said. “For example, cod farming is pretty much a failed effort.”

Helge Moen, managing director of investment company Kverva, pointed out the estimation that supply volatility in the farmed salmon sector will be lower than it has been in the past. “Hopefully the price fluctuations will be lesser too,” he said.

Presser sounded a positive note as well. “They will approach cautiously, but more PE investors will come into the seafood industry in the future.”

-- Rijuta Dey

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Nov. 19, 11.35 a.m. G.M.T.

Cermaq targets 14% organic volume growth

"We think 2014 will be a good year from a market point of view," Dag Sletmo, Cermaq’s IR director, said while looking back at a "very eventful" year for the Oslo-listed salmon farmer at the IntraFish Seafood Investment Forum.

The company is looking for a 14 percent organic growth next year compared to 2013, and "continued tight supply supports strong market during 2014," picking up on DNB's Stein Alexander Aukner idea of two more years of super profits for the sector.

The reduction of biological challenges and cost reduction is Cermaq's main focus for the next year -- especially in Chile, Slatmo said.

While the company reported an EBIT of NOK 5.2 per kilogram on average -- and sees a stable/good outlook in Canada and Norway -- Chilean farming operations lagged behind, reporting an EBIT of zero in the third quarter of this year.

This is mainly due to the still "very challenging biological situation" and consequently high cost in the region, Sletmo said. "The problem is the combination of sea lice and SRS [salmon rickettsial syndrome], not ISA [infectious salmon anemia] as many believe," he said.

-- Elisabeth Fischer

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Nov. 19, 11.26 a.m. G.M.T.

Two more years of ‘super profits’ for salmon industry

The supply of Atlantic salmon is expected to hit 2 million tons in 2013, and there will be two more years of “super profits” before the market will start to normalize, Stein Alexander Aukner, analyst at DNB Markets, told the IntraFish Seafood Investment in London today.

Salmon prices are higher than other proteins but relative price development is now quite similar between the different key proteins, beef, sheep, pig, Aukner said. For example, while salmon and pig prices are increasing, beef is declining. 

There has been a sharp rebound in salmon prices over the year with them now reaching NOK 37.9 (€4.60/$6.20) per kilo, Aukner said.  In terms of exports from Norway, although volumes are down 3 percent the value is up 37 percent due to 42 percent higher prices, he said.

Over the past year Russia and Japan were the markets who showed the most significant changes, Norway’s salmon exports to these markets declined by more than 20 percent over the year, he said.

Elsewhere, DNB expects a 5 percent global growth in Atlantic salmon supply in 2014, while this will grow by 7.3 percent in 2015.

Norwegian production volumes are expected to shrink 4 percent in 2013 and 7.5 percent in 2014, however this will be offset by a 25 percent supply growth expected from Chile, Aukner said.

But this is dependent on the Norwegian and Chilean authorities granting new licenses, he added.

Over the past 25 years salmon prices have been decreasing as costs have been reduced however both are now trending upwards, said Aukner. Salmon prices are expected to reach NOK 37 (€4.50/$6.10) in 2014 and NOK 36 (€4.40/$5.90) in 2015.

In Europe the top 8 producers account for 55 percent of output in the market, while the top 15 account for 70 percent.

In terms of an outlook for shareholder returns in the sector, Aukner said DNB expects Marine Harvest to be trading at a price to earnings (P/E) ratio of 8.5x, with the rest of the sector trading at 7.2x.

In general, “you should be a very happy investor” considering the strong performance of the salmon sector over the last 12 months, Aukner said.

-- Dominic Welling

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Nov. 19, 10.55 a.m. G.M.T.

Fine-tuning the world’s fisheries

“There is little focus on how to extract maximum efficiency out of existing fisheries,” said Melanie Siggs, a industry consultant, who asked some tough questions at the end of the aquaculture panel discussion at IntraFish Media’s Seafood Investors Forum.

“Fraser Thompson’s presentation focused on the competition for land usage and the need of achieving efficiency in food production,” she told IntraFish. “But Viggo Halseth’s presentation focused on the need of finding alternatives to fish meal and fish oil -- not on how we can extract maximum efficiency from the existing fishmeal fisheries.”

“There is $30 billion (€22.23 billion) out there in subsidies, which obviously aren’t doing a good job [citing Thomson’s stats about the wild catch sector being stagnant and loss-making]. “The need is to redirect this into the existing fisheries of the world to make them more efficient, and we need to draw the attention of politicians to this.”

For example, UK retailer Wm Morrison Supermarkets is investing in fisheries improvement projects in Vietnam and Thailand, because it is concerned about their sourcing shrimp from these companies, Siggs said.

“Earlier in SE Asia, 200 kg of fish per unit effort were caught – now they are going further ashore to catch just 2 kg,” she told IntraFish. This drop has been brought about due to overfishing in inshore waters, she added.

If these sectors are invested in, it will be a win-win situation for all, Siggs said. “The need is to make food production efficient.”

-- Rijuta Dey

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Nov. 19, 10.46 a.m. G.M.T.

Aquaculture's mega-species

The industry will see a development toward some "mega-species" -- similar to the meat industry, which is dominated by pork, poultry and beef, Nutreco's Viggo Halseth, said in the first panel discussion at the IntraFish Seafood Investment Forum.

Salmon is already one, and so is carp -- even though "we don't talk about it," Halseth said. Shrimp will develop to become one of the "mega-species" and so will tuna, if "we succeed in farming."

Nevertheless, diversification into different species is important to mitigate risk, Fransisco Murillo, chief business development officer at tilapia producer Regal Springs, said.

"There will be a lot of species producing 200,000 metric tons but in terms of global supply they will remain very small," also said Halseth.

When asked how Norway should diversify from salmon, Henning Beltestad, CEO at Leroy Seafood Group, said he sees potential in halibut farming. "It is growing -- not very profitable so far, but it could become in the future."

Cod farming, on the other hand, has been "costly for many investors," he said. In general, it will take time to develop new species, Beltestad said, but the industry "should think broader," he said.

"It’s important to focus on new species, but we have to be patient," he said.

-- Elisabeth Fischer

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Nov. 19, 10.09 a.m. G.M.T.

China 'still a long way to go'

Panelists in the first round of discussion at the IntraFish Seafood Investment Forum took up the popular subject of China -- its opportunities and challenges.

Viggo Halseth, COO of Nutreco Aquaculture, said the country "has still a long way to go, I believe.

"It’s very fragmented and the confidence level is very low," he told the audience. "It’s difficult to reach out, to change old habits. I believe China will change slower than other developing countries."

The biggest challenges are still in terms of food regulation, safety and quality, he said.

Nevertheless, opportunities to grow in China are a given, Henning Beltestad, CEO at Leroy Seafood Group, said.

"Key for us and the industry would be to build the [salmon] category, develop new products, develop new markets. That’s a huge opportunity, a huge potential, especially in China," he told the audience.

-- Elisabeth Fischer

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Nov. 19, 9.55 a.m. G.M.T.

One planet, many needs

Planet Earth's surging food demand might be shouldered by the fisheries and aquaculture industries, but as Fraser Thompson's presentation pointed out, there are several challenges to meet before these sectors fulfill their potential efficiently.

The environmental impact that aquaculture's detractors often highlight -- impact on wild fisheries, destruction of mangroves in places such as Bangladesh, poor feed conversion ratios -- can only be tackled with R&D and innovation.

This is something Skretting -- the world's biggest feed producer -- is continuously working on, said  Viggo Halseth, COO of Nutreco Aquaculture.

''The way things are going now, we will need three planets to meet the world's food demands," Halseth said. "But we have only one."

Halseth spoke of the oft repeated stats of doubling food production to feed 9 billion people by 2050, and synchronized the global protein need with where Skretting stands as a feed company.

Thompson had cited FAO numbers which predict aquaculture will soon overtake wild capture fisheries as the dominant fish supplier in the world, and the sector is well poised to fill a protein gap in the world. Halseth cited another FAO report that said the aquaculture industry needs to grow by 5.6 percent by 2030 to keep up with demand, but is expected to grow only by 3.5 percent.

"Meeting this gap depends on the availability of quality and affordable feed," Halseth told the audience at IntraFish Media's Seafood Investors Forum.

Skretting will double its volumes from 1.3 million metric tons to 2.7 million metric tons between 2010 and 2016, Halseth said, before highlighting SKretting's Micro Balance feed formulation which turned Norwegian salmon produces into net fish produces in 2010.

"Innovation in fish feed is key to meet future demand," he said. " We expect to start implementing our shrimp Micro Balance concept within the next 12 months."

-- Rijuta Dey

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Nov. 19, 9.27 a.m. G.M.T

Filling the land gap with fisheries and aquaculture

The world is in the center of a fundamental challenge to meet food demand and the fisheries sector has the opportunity to meet this challenge, Dr Fraser Thompson, senior fellow, McKinsey Global Institute told the IntraFish Seafood Investment Forum in London, Tuesday.

Addressing the question on how the world will meet the demand of feeding 9 billion people by 2050, Thompson said the fisheries and aquaculture sectors had an important role to play.

Global food demand is projected to increase 70 percent by 2050, he said, driven by the growth of emerging markets such as China and India, and predominantly the middle class consumers, and rising prosperity in these markets. This is combined by a slowdown in supply, or crop yields, which has been steadily dropping since 1970, Thompson said.

In order to meet 2030 food, feed and fuel demand, the world needs an additional 175 million to 200 million hectares of additional cropland. As it stands the world has this but in different qualities, in fact only 98 million hectares are “readily cultivable” or actually available.

This presents an opportunity for fisheries and aquaculture to play a part in solving the food and feed challenge, Thompson said.

In terms of the world economy, the fisheries sector already contributes $220 billion in value, 55 million direct jobs, and 15 percent of the world’s animal protein. In terms of GDP, the fisheries sector is growing 4 percent, driven by price, which is up 3 percent and volume which is up 2 percent, Thompson said.

Meanwhile, a rapid growth in aquaculture, which accounts for almost half of fish consumption already, has the potential to be the ‘savior’ of the food demand dilemma, however it also has its challenges, Thompson warned.

Primarily how the industry can be scaled up successfully, how fish and feed stock efficiency can be increased, and how to combat the effects of disease.

Elsewhere, wild catch fisheries need to combat overfishing and introduce better global management of stocks, especially in tropical areas.

According to Thompson there are four imperatives the fisheries sector must take on board to grow successfully and meet the increasing demand for feed, food, and fuel.

First, there must be a more integrated approach between the aquaculture and fisheries sectors, they have to work together to meet the demand, he said.

There must also be a "strengthening of market signals" where government subsidies are given to research and development rather than focusing on over fishing.

Thirdly the industry needs to address market failures, improve management of fisheries and improve the quality of regulation.

And lastly there needs to be better innovation, and investment in technological advancements, Thompson said.

-- Dominic Welling

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Nov. 19, 8.00 a.m. G.M.T

Seafood industry leaders gather in London

From salmon farms and wheelhouses all the way to The City and Wall Street -- seafood and the investment community are coming together at the May Fair Hotel in London, United Kingdom, this Tuesday to explore opportunities for investment in global seafood industry.

The day-long event will examine investment strategies in the global wild-capture and aquaculture sectors and the role of private equity in restructuring the seafood sector.

Fraser Thompson, senior fellow at the McKinsey Global Institute, will be the keynote speaker, followed by panels on the outlook for global seafood investment opportunities in the wild and farmed seafood industries.

The panels will explore a range of topics, including:

  • What are the best long term positions in the farmed and wild sectors?
  • What are the best success stories in wild-fish investments?
  • Is there a future IPO market for fisheries companies?
  • What return on investment can aquaculture investors expect
  • What are the best hedges against the risk of aquaculture disease and disaster?
  • What are private equity groups looking for in their seafood investments?

The event is sponsored by DNB Bank.

-- IntraFish Media

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