Iceland - January 2007

Glitnir Seafood Team
Iceland
January 2007
Contents
• Foreword and Report’s Main Findings ...............................................
3-4
• The Icelandic Economy …………………………………………………………………………….
5-6
• The Icelandic Fish Industry .............................................................
7 – 14
–
Opportunities and challenges ………………………………………………………………
15
• Glitnir Bank – General Information ..................................................
16 - 17
• Glitnir Bank – Global Seafood Team .................................................
18 - 21
2
Foreword
Dear Reader,
It is with great pleasure that we present this Glitnir Seafood Industry Report, this time focusing on Iceland. 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.
Iceland is one of the largest single fisheries countries in the world, the total fish catches in 2006 amounting to
over 1.3 million tonnes. Fisheries play a great role in the Icelandic economy although other industries have
gained importance during the last few years. Last year, about 60% of the country’s exported goods were marine
products. Marine products are expected to account for 32% of the country’s total export revenue this year.
Icelandic marine products are noted for quality in foreign markets. Icelanders export almost all their marine
products as the domestic market is small.
We trust you find this report of benefit. We at Glitnir are proud of our strong team of seafood industry experts
and look forward to working with you in our quest to make the seafood industry even more dynamic, efficient
and profitable.
You can contact the seafood team via seafood@glitnir.is and www.glitnir.is/seafood .
Best regards,
Glitnir Seafood Team
3
Main findings
• External conditions are favorable for the Icelandic seafood companies. Rising product prices in foreign markets
have helped the companies and the exchange rate of the Icelandic krona (ISK) has been weak. The outlook for
2007 and 2008 is favorable.
• Economic growth in Iceland in 2006 is estimated to have been 4%. Inflation was 6.9%, and unemployment
1.3%.
• 2007 will see a slower growth than last year but growth is likely to pick up again in 2008.
• Consolidation in the fishing industry has increased in recent years. In 2006, the ten largest fisheries companies
owned 50% of the total fishing quotas in Icelandic waters.
• The number of fisheries companies on OMX Nordic Exchange in Iceland continues to dwindle. Only two traditional
fisheries companies are now left, HB Grandi and Vinnslustödin. A wide difference between break-up value and
market value on OMX and slow trading in fisheries companies’ stocks means that owners do not see the purpose
of listing.
• Fishing quotas in Iceland’s territorial waters have not increased in total in recent years. Despite expectations for
an increase in total fishing quotas they have remained almost unchanged.
• Profitability in Icelandic fisheries, both catching and processing, has improved when looking back on the last 25
years.
4
The Icelandic Economy
The Icelandic Economy – Export industries
facing more beneficial environment
•
2006 saw the business cycle in Iceland peaking and a substantial fall of the ISK.
•
Economic growth in 2006 is estimated to have been 4%. Inflation was 6.9%, and unemployment 1.3%.
•
The current-account deficit soared in 2006. Q3 figures indicate that it might amount to as much as 22-25% of GDP.
The deficit will halve in 2007 and improve further in 2008.
•
2007 will see a slower growth than last year but growth is likely to pick up again in 2008.
•
Investment will fall by around 20% in 2007, compared to last year. The main cause is the completion of large FDI
projects, coupled with a slowdown in business and housing investment. Public investment, on the other hand, will
grow substantially this year.
•
The fall of the ISK, high prices for main export commodities and softer oil prices have all served to improve the
prospects of the export sector. The outlook is for a continuing favourable environment.
•
In general, 2007 will be a year of adjustment in the economy with a gradual increase in unemployment, a substantial
fall in inflation and a movement towards a sustainable equilibrium in most indicators.
5
The Icelandic Economy
Export revenue trends
• Total marine product revenues have declined as proportion of other exports. This trend will continue; in the
year 2012 the total share of marine products is expected to be about 27%, according to Glitnir Research’s
forecast.
• This development is regarded as positive for the Icelandic economy, as it means that the economy is
becoming more diversified.
100%
80%
60%
29%
38%
34%
34%
13%
26%
33%
32%
27%
2007 est.
2012 est.
10%
40%
20%
55%
42%
0%
1990
Marine products
2002
Aluminium
Other industrial prod.
Tourism, transp.and other serv.
6
The Seafood Industry
The Icelandic Seafood Industry
•
Key factors determining the performance of Icelandic fisheries:
ƒ Development of the Icelandic krona (ISK)
ƒ Price of seafood products
ƒ Growth of major fish stocks
ƒ Oil prices
ƒ Development of wages and other costs
ƒ Political involvement and possible changes in the fisheries management system
7
The Seafood Industry
The Icelandic krona now more favourable
120
IS K /U S D
IS K /E U R
110
100
90
80
70
60
50
40
Ja n .0 0
Ja n .0 1
Ja n .0 2
Ja n .0 3
Ja n .0 4
Ja n .0 5
Ja n .0 6
Ja n .0 7
•
The year 2006 was favourable for fisheries companies and the outlook for 2007 is promising. Most forecasts assume
a relatively stable exchange rate in the current year.
•
The ISK exchange rate is much more beneficial for the seafood industry now than in 2005 as it is weaker. About
99% of marine products is exported and a large share of the cost is in ISK. The exchange rate of the ISK against
other currencies is therefore important for the earnings of Icelandic fisheries companies.
8
The price of marine products at a historical high
The Seafood Industry
Price index of marine products, ISK (left axis) and SDR, foreign currencies
(right axis)
190
140
180
135
170
130
160
125
150
ISK
140
120
Source: Statistics Iceland
115
130
110
120
SDR
110
105
100
Nov.06
Jun.06
Jan.06
Aug.05
Mar.05
Oct.04
May.04
Dec.03
Jul.03
Feb.03
Sep.02
Apr.02
Nov.01
Jun.01
Jan.01
100
• In foreign currencies (SDR), average product prices are at a historical high. The price of most types of
products has climbed in recent quarters. Fish meal has risen the most.
• The price of demersal fish products is also very high which is convenient for the earnings of freezer trawlers
and land fish processing.
• Glitnir Research expects demand and prices for marine products to remain high.
9
Glitnir Research forecast TACs in Icelandic waters
The Seafood Industry
(major species in thous. of tonnes)
Species
Cod
Haddock
Saithe
Redfish
Greenland hailbut
Capelin
Herring
2003/04
209
75
50
112
23
737
242
2004/05
205
90
70
112
15
700
240
2005/06
198
105
80
91,5
15
185
268
2006/07 2007/08E 2008/09E 2009/10E
193
193
193
193
105
100
90
90
80
75
75
75
86
80
80
80
15
15
15
15
180
500
500
500
284
300
300
300
•
Iceland’s most important fish stock, cod, has not grown as much as hoped for. The spawning stock and fish
stock have not grown in recent years and therefore cod catches around Iceland are not expected to increase in
coming years.
•
The most positive change in TACs (total allowable catch) for the year 2006/2007 is the haddock and saithe
increase.
•
Looking into the future, herring quotas are expected to grow at a moderate pace.
10
The Seafood Industry
Ten largest holders of quotas in Icelandic waters 2006
(TAC: thous. of tonnes in cod equivalents)
Company
TA C
% of total TA C
1
HB Grandi
48,296
11.3%
2
Samherji
33,486
7.8%
3
FISK Seaf ood
17,227
4.0%
4
Brim
17,144
4.0%
5
Þorbjörn Fiskanes
16,889
3.9%
6
Síldarvinnslan
16,827
3.9%
7
Þormóður rammi - Sæberg
16,655
3.9%
8
Ísf élag V estmannaeyja
16,347
3.8%
9
V innslustöðin
13,495
3.2%
10
Eskja
13,362
3.1%
●
● ●●
●●
●
●
●●
•
A single company may not control more than 20% of the quota of individual species. (Except for redfish, 35%).
•
A single company may not control more than 12% of total TACs in Icelandic waters.
•
Consolidation has been increasing steadily in the industry and that trend is expected to continue.
11
The Seafood Industry
Increased consolidation in the industry
60%
50%
50%
45%
Source: Directorate of Fisheries
47%
40%
32%
30%
24%
27%
20%
10%
0%
1992
1995
1999
2002
2004
2006
• The graph above shows the share of total quotas controlled by the ten largest fisheries companies.
• Why increased consolidation?
–
–
–
–
Increased competition both domestically and from abroad
Demand for economies of scale
Need for new technology and expensive investment
Increased focus on better return on equity
12
The Seafood Industry
Key figures for the listed Icelandic seafood
companies
2006E
Icelandic
Alfesca
Vinnslustöðin
2007E
Icelandic
Alfesca
Vinnslustöðin
m.EUR
m.EUR
m.ISK
m.EUR
m.EUR
m.ISK
Revenues
EBITDA
1,506
47
579
49
5,459
1,420
Revenues
EBITDA
1,627
73.2
616
57.0
5,673
1,439
EBITDA%
3.1%
8.5%
26.0%
EBITDA%
4.5%
9.3%
25.4%
EBIT
17.0
31.5
1,072
EBIT
52.8
40.5
1,079
EBIT%
1.1%
5.4%
19.6%
EBIT%
3.2%
6.6%
19.0%
-7.1
17.3
15
Net profit
18.3
20.8
699
Net profit
• Icelandic Group: The company has undergone substantial restructuring in recent years. The results of
several subsidiaries have been poor and some have been appointed new managers. It is uncertain how long
it will take to improve operations. We forecast that earnings in 2007 will improve substantially from 2006.
• Alfesca: The outlook for Alfesca’s operations is good. The price of salmon has fallen since its peak in mid2006 which is favourable for the company as 40% of income is derived from sales of salmon products. The
company’s other divisions, including foie gras production, are doing well. However, the company’s operations
are subject to a major seasonal fluctuation as a large part of the EBITDA margin is generated by Christmas
sales.
• Vinnslustöðin: The operational outlook is good. Product prices are at a historical high in foreign markets
and the ISK weaker than before which benefits the company as all revenues are in foreign currency. Current
year is expected to be favourable for Vinnslustöðin.
13
Profitability in Icelandic fish industry 1980–2006
Iceland Seafood Industry -
The Seafood Industry
EBITDA as a % of revenues
25
Harvesting as a % of revenues
Processing, % of revenue
20
15
Source: Statistics Iceland, Glitnir
10
5
2006E
2005E
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
Source: Statistics Iceland
1994
1993
1992
1991
1990
1989
1988
Transferable qotas in
1990
1987
1986
1985
1984
1983
1982
1980
0
1981
ITQ system in 1984
• Profitability in Icelandic fisheries has improved when looking back at the last 26 years.
• EBITDA margin in fish processing and harvesting has improved although there are fluctuations between years, these
fluctuations are mainly caused by ISK exchange rate movements.
14
The Icelandic seafood industry: opportunities
and challenges
Challenges & Opportunities
Opportunities
• Further consolidation and acquisitions, both domestically and abroad.
• Increased quotas of haddock, herring and saithe will contribute to higher revenues and earnings.
• The seafood industry must further emphasize the purity of the Icelandic fishing grounds and thereby differentiate
Icelandic seafood products.
• Increased competition will be met by newer and more efficient technologies.
• High product prices and a stable exchange rate will improve earnings in the next two years.
Challenges
• Oil prices are likely to remain high
• Product prices are high but are expected to rise more slowly in coming years.
• Rapid growth in global aquaculture.
• Condition of the cod stock is uncertain.
• Growing supply of frozen products from Asia, e.g. China
15
About Glitnir
Glitnir’s total loan portfolio
• Home markets are Iceland and Norway
• Focus on niche segments worldwide
– Seafood / Food Industry
– Sustainable Energy
– Shipping - Offshore Supply Vessels
• Strong focus on the seafood industry since 1904
Manf. Commerce Other
3%
5%
constr.
8%
Seafood
10%
• Today 10% of the bank’s loan portfolio is in the seafood
Property
companies
30%
industry
• Credit ratings:
A1 / P-1 (Moody’s), A / F1 (Fitch) and A-/A-2 (Standard and
Poor’s)
Services
20%
Households
24%
Services include:
Credit facilities
– Term loan facilities
– Working capital
facilities
– Syndicated loans
– Vessel financing
– Bridge loans
Capital Markets
–
–
–
–
Bond issuances
FX dealings
Forward contracts
Options
Mergers & acquisitions
–
–
–
–
–
–
–
Financial advisory
Acquisitions
Disposals
Minority investments
MBOs / LBOs / MBIs
Private Placements
Strategic reviews
Other services
– Risk management
advisory
– Equity participation
16
Glitnir’s International Platform
Luxembourg
United Kingdom
London Branch
•
•
•
41 Lothbury, London City
•
•
•
•
Corporate Finance
Centre of Excellence
•
•
Corporate Banking
Centre of Excellence
•
•
Food industry
Leveraged Finance
Corporate Finance
Real Estate
Private Banking
Structured Finance
Loan Syndication
534 Rue de Neudorf, Lux.
Norway
BNbank:
Munkegata 21, Trondheim
Dronningens gate 40, Oslo
Glitnir Bank:
St. Olavsplass 1, Alesund
Glitnir Securities:
Haakon VII’s gate 10, Oslo
Copenhagen Branch
Glitnir Luxembourg
Corporate Banking
•
Denmark
BNbank
• Corporate and retail mortgage
Glitnir Bank
• Full service bank, trad. indust.
• Centre of Excellence
• Shipping/ Offshore supply
vessels
• Subsidiaries:
•
Glitnir Factoring
Glitnir Securities
Union Group
Norsk Privatøkonomi ASA
Frederiksgade 19, Copenhagen
Canada
Iceland
Kirkjusandur, Reykjavik
Headquarters
Glitnir Canada
•
•
Corporate Banking
Representative Office Halifax
Centres of Excellence
•
•
•
•
•
Global seafood
•
Sustainable energy
•
International core customers
1718 Argyle Street, Halifax
Structured Finance
Capital Markets
Corporate Finance
China
Glitnir China
Sweden
Representative Office Shanghai
• Opened December 2006
Glitnir AB
•
Hovslagargatan, Stockholm
Opened April 2006
Equity Trading & Brokerage
Level 8, CitiGroup Tower
33, Hua Yuan Shai Qiao Road
Pudong, Shanghai
17
Glitnir Seafood Team
Websites:
www.glitnir.is/Seafood
Global Seafood Stockwatch:
www.glitnir.is/Stockwatch
Iceland
Magnús Bjarnason
Managing Director
International Markets
Direct line: +354 440 4523
Mobile: +354 844 4523
magnus.bjarnason@glitnir.is
Ragnar Gudjónsson
Director
Corporate Banking, Iceland
Direct line: +354 440 4550
Mobile: +354 844 4550
ragnar.gudjonsson@glitnir.is
Helgi Anton Eiríksson
Global Seafood Director
International Markets
Direct line: +354 440 4518
Mobile: +354 844 4518
helgi.eiriksson@glitnir.is
Hjálmur Nordal
Director
Corporate Banking, Iceland
Direct line: +354 - 440 4522
Mobile: +354 - 844 4522
hjalmur.nordal@glitnir.is
Kristján Th. Davídsson
Managing Director
Corporate Banking, Iceland
Direct line: +354 440 4517
Mobile: +354 844 4517
kristjan.davidsson@glitnir.is
Gudmundur Ragnarsson
Senior Manager
Corporate Banking, Iceland
Direct line: +354 440 4547
Mobile: +354 844 4547
gudmundur.ragnarsson@glitnir.is
Ásmundur Gíslason
Valdimar Halldórsson
Alexander Richter
Analyst
Direct line: +354 440 4768
Mobile: +354 844 4768
asmundur.gislason@glitnir.is
Analyst
Direct line: +354 440 4638
Mobile: +354 844 4638
valdimar.halldorsson@glitnir.is
Analyst
Direct line: +354 440 4766
Mobile: +354 844 4766
alexander.richter@glitnir.is
18
Glitnir Seafood – Regional Teams
North America
Jonathan Logan
Executive Director
United States
US: +1 (203) 979 5275 (mobile)
Iceland: +354 844 4521 (mobile)
jonathan.logan@glitnir.is
Joe Fillmore
Director
Canada
Direct line:: +1 (902) 429 3114
Mobile: +1 (902) 237 2114
joe.fillmore@glitnir.is
Michael Richard
Director
United States
Mobile: +1 (508) 878 0171
michael.richard@glitnirbank.com
Asia
Natasha Sideris
Associate
Canada
Direct line: +1 (902) 429 3115
Mobile: +1 (902) 441 9190
natasha.sideris@glitnirbank.com
Jiang Zhu
Director
Glitnir Representative Office
China
Direct line: +86 21 6101 0190
Mobile: +86 139 0161 1875
jiang.zhul@glitnirbank.com
Grace Liu
Executive Assistant
Glitnir Representative Office China
Direct line: +86 21 6101 0191
Mobile: +86 136 6166 1660
grace.liu@glitnirbank.com
Hafliði Sævarsson
Analyst
Glitnir Representative Office China
Direct line: +86 21 6101 0191
Mobile: +354 844 4569
haflidi.saevarsson@glitnirbank.com
Bjartur Logi Ye Shen
Analyst
Glitnir Corporate Banking
Direct line: +354 440 4560
Mobile: +354 844 4560
bjartur.shen@glitnir.is
19
Glitnir Seafood – Regional Teams
Europe/Nordic
Kjartan Ólafsson
Director
Glitnir Bank
Norway
Direct line: +47 7010 2015
Mobile: +47 9592 6015
kjartan.olafsson@glitnir.no
Kristján Hjaltason
Director
Glitnir Bank
Denmark
Direct line: +45 - 8833 5081
Mobile: +45 - 5199 5081
kristjan.hjaltason@glitnir.dk
Henning Lund
Analyst
Glitnir Bank
Norway
Direct line: +47 2201 6347
Mobile: +47 952 55 839
henning.lund@glitnir.no
Ola Övrelid
Bank Executive | Glitnir Bank
Seafood Credit, Norway
phone: +47 7010 2026
mobile: +47 9133 6733
ola.oevrelid@glitnir.no
Glenn Kristiansen
Director
Glitnir Bank
Norway
Direct line: +47 - 2201 6392
Mobile: +47 - 911 79 105
glenn.kristiansen@glitnir.no
South America
Jón Gardar Gudmundsson
Director
Business Management
Direct line: +354 440 4516
Mobile: +354 844 4516
jon.gudmundsson@glitnir.is
Greta Marín Pálmadóttir
Administrative Assistant
Corporate Banking
Direct line: +354 440 4746
Mobile: +354 844 4746
greta.palmadottir@glitnir.is
Anna Rósa Róbertsdóttir
Analyst
Corporate Banking
Direct line: +354 440 4554
Mobile: +354 844 4554
anna.robertsdottir@glitnir.is
20
Glitnir Seafood Team – Other Members
Timothy H. Spanos
Director
International Corporate Banking
Direct line: +354 440 4777
Mobile: +354 844 4777
timothy.spanos@glitnir.is
Tim Owen
Executive Director
Head of Corporate Finance, UK
Direct line: +44(0) 20 7710 9130
Mobile: +44(0) 7843 512 092
tim.owen@glitnir.is
Eiríkur R. Eiríksson
Senior Manager
Corporate Risk Advisory
Direct line: +354 440 4565
Mobile: +354 844 4565
eirikur.eiriksson@glitnir.is
Gísli Sigurgeirsson
Senior Manager
International Corporate Banking
Direct line: +354 440 4765
Mobile: +354 844 4765
gisli.sigurgeirsson@glitnir.is
Atli Rafn Björnsson
Associate
Corporate Finance, UK
Direct line: +44(0) 20 7710 9135
Mobile: +44(0) 788 798 2201
atli.bjornsson@glitnir.isv
Ingi Rafnar Júlíusson
Executive Director
Capital Markets
Direct line: +354 440 4459
Mobile: +354 844 4459
ingi.juliusson@glitnir.is
Hjörtur Thor Steindorsson
Credit Manager
International Corporate Banking
Direct line: +354 440 4503
Mobile: +354 844 4503
hjortur.steindorsson@glitnir.is
Davíð Stefánsson
Analyst
Corporate Finance, UK
Direct line: +44(0) 20 7710 9136
Mobile: +44(0) 788 795 4877
david.stefansson@glitnir.is
Kyrre Dale
Credit Manager | Glitnir Bank
Seafood Credit, Norway
Direct line: +47 7011 2034
Mobile: +47 9137 6551
kyrre.dale@glitnir.no
Snorri Arnar Vidarsson
Credit Manager
International Corporate Banking
Direct line: +354 440 4771
Mobile: +354 844 4771
snorri.vidarsson@glitnir.is
Rúnar Jónsson
FX Brokerage
Capital Markets
Direct line: +354 440 4489
Mobile: +354 844 4489
runar.jonsson@glitnir.is
Stefán Eiríks Stefánsson
FX Brokerage
Capital Markets
Direct line: +354 440 4483
Mobile: +354 844 4483
stefan.stefansson@glitnir.is
21
Legal Disclaimer
All opinions and analyses represent the views of Glitnir at the time of writing and are subject to change
without notice. Glitnir and its employees cannot be held responsible for any trading conducted on the
basis of the information and views presented here. Glitnir 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 Glitnir Region Asia & Americas, based on publicly available
information on the company in question.
This Seafood Industry Report is written by
Valdimar Halldórsson – Glitnir – Research valdimar.halldorsson@glitnir.is
22
www.glitnir.is/seafood