GLOBAL TRENDS IN THE OMEGA-3 INDUSTRY Three The questions • How are spending their money? • Is the ingredient market market growing? • Where is the growth? The market

Consumers spend $31 billion on products with added EPA and DHA. The US is the largest single market, but Asia as a region is larger and growing faster, so attention has shifted.

Source: GOED Proprietary Research The market

Asia has become the leading market of interest.

The Asian market is both sizeable and growing quickly, while other high growth markets are smaller. The United States has become the slowest growing market in the world

Source: GOED Proprietary Research The market

The East and Southeast Asian omega- 3 market is expected to develop very quickly very soon. It’s very likely that per capita spending for the relevant reasons will develop accordingly.

Source: GOED Proprietary Research The market

Potential Omega-3 Spending Increase in Developing Countries $30.1 Billion What if spending in $18.8 Billion developing countries reached European levels? The global omega-3 market will be fine simply due to the pace of economic development in the world. Developing countries alone $7.5 could triple the size of the market if Billion per capita spending reaches $3.2 European levels Billion $1.3 $0.7 Billion Billion

Rest of APAC Mexico China South Rest of Asia Rest of World America Current Spending European Spending Scenario Source: GOED Proprietary Research The market

Global EPA/DHA Ingredient Volumes (Metric Tons)

91,321 87,370 86,294 87,925

The global market is growing again.

Even though volumes are growing slightly, ingredient prices have been under pressure due to overcapacity.

2013 2014 2015E 2016P

4-yr CAGR: +1%

Source: GOED Proprietary Analysis The market 2016 Projected Omega-3 Ingredient Growth by Region

Rest of Asia 14.0%

Rest of APAC 9.5%

China 9.2%

The East and Southeast Asian omega- Other 8.4% 3 market is already developing very Mexico quickly. It is likely that this growth will 8.1% continue in the coming years and South America 6.4% market attention will remain in these regions. Japan 5.8%

Canada 3.7%

Australia 2.9%

US 1.8%

Europe -0.6%

-5% 0% 5% 10% 15%

Source: GOED Proprietary Analysis The market

2016 Projected Global Omega-3 Ingredient Volume Increase by Geography

Asia accounted for two- thirds of global growth in omega-3s last year.

While other countries contributed less, only Europe actually declined in 2016, primarily due to declines in 18/12-type dietary supplements.

Source: GOED Proprietary Research Two Questions

• Is demand for crude oil growing? Supply of • Which factors determine Omega-3 growth? Supply of Omega-3

Global Omega-3 Crude Oil Demand (Metric Tons)

194,530 177,903 184,193

Demand for crude oil is stronger than omega-3s.

Lower yield omega-3 products like concentrates have been growing in volume, which has increased demand for crude oil despite tight supplies. 2014 2015E 2016P

CAGR: +5%

Source: GOED Proprietary Analysis Supply of Omega-3

Share by Primary Source of EPA/DHA

2016 Projected Crude Oil Demand by Species Anchoveta is still the All Others 49,134 dominant source of oil for omega-3s.

However, due to issues in the fishery in recent years, many omega-3 companies have set up alternate supply chains with similar species in Africa, Europe and Asia. In total, demand increased 12,200 tons for Anchovy and these oils from 2014-2016. similar species 145,396

Source: GOED Proprietary Research Supply of Omega-3 13

Heatmap of 2014-2016 Omega-3 Crude Oil Demand Growth Rates

Higher rates of growth have been seen in unique sources and higher concentrations. However, unique sources also contribute much lower volumes, and thus receive fewer economies of scale

Source: GOED Proprietary Research One Significant question barriers • Can omega-3 ingredient companies make money in to growth today’s environment? Barriers to growth | MARGINS 15

Masked Revenues and Income of Leading Omega-3 Refiners and Concentrators, 2014-2015 These 15 companies $140 represent 1/3 of global $120 omega-3 sales and collectively account for a $100 net loss of $11 million. $80

$60

$40 US$ millions US$

$20

$0

-$20

Company 1 Company 2 Company 3 Company 4 Company 5 Company 6 Company 7 Company 8 Company 9 Company

Company 10 Company 11 Company 12 Company 13 Company 14 Company 15 Company -$40 Revenue Net Income

Source: Company Filings Barriers to growth | MARGINS 16

Change in Gross Margin for Leading Omega-3 Refiners and Concentrators, 2012-2015 70%

60%

50% Gross margins for refiners 40% and concentrators are 30% declining.

20% Increased raw material prices have offset gains in operating efficiencies, so the only 10% way for companies to generate sufficient margin to cover their overhead is to increase 0% sales...but that leads to other issues. 2012 2015 -10%

-20%

-30%

Source: Company Filings Barriers to growth | OXIDATION Barriers to growth | OXIDATION

Retail products are oxidized

Oxidation reduces Five general complaints EPA/DHA levels have been raised about oxidized omega-3s. Harmful compounds Omega-3 Oxidation are created in Complaints Most lipid scientists and analytical chemists oxidation GOED has consulted believe there is not a significant oxidation problem, but there may be specific issues where more research needs to be Oxidized lipids are conducted. unsafe

Oxidized fish oil is specifically harmful Barriers to growth | OXIDATION

OXIDATION STUDIES OF OMEGA-3 PRODUCTS TO DATE Assessing the quality Regulatory GOED pAV Compliance Study Compliance Rate Compliance Rate Unflavored Oils Quality Study Country n (PV < 10) (PV > 5) and data in studies is GOED, 2017 New Zealand 47 98% 72% 86% 8 Nichols et al, 2017 Australia 10 100% 100% 88% 7 important Jackowski et al, 2015 171 >95% 83% Not assessed 6 Albert et al, 2015 New Zealand 36 72% 17% Not assessed 6 Fierens, 2007 Belgium 16 75% 69% 100% 6 We believe there are nine important Fantoni, 1996 Brazil 16 69% 63% Not assessed 6 TGA, 2016 Australia 15 100% 100% 100% 6 criteria in product quality studies. You Turner et al, 2006 New Zealand 6 100% 67% 100% 6 must ask, was the study: , 2017 United States 53 98% 91% 100% 5 Labdoor, 2015 United States 51 98% 90% 100% 5 Consumerlab.com, 2016 United States 44 100% 100% 100% 5 1. Peer-reviewed? Kolanowski, 2010 Poland 19 100% 95% Not assessed 5 Ritter 2012 United States 16 88% 69% Not assessed 5 2. Conducted at an accredited lab? Mason & Sherratt, 2017 United States 3 0% 0% 33% 5 3. Utilizing analytical chemists? IFOS, through 2015 North America 1933 100% 99% 100% 4 Consumerlab.com, 2012 United States 63 100% 98% 100% 4 4. Using an accepted method? Consumerlab.com, 2008 United States 50 100% 100% Not assessed 4 5. Confirmed by another lab? Consumerlab.com, 2014 United States 46 100% 100% 100% 4 Consumerlab.com, 2004 United States 41 100% 98% Not assessed 4 6. Blinded from the chemists? Consumerlab.com, 2010 United States 39 100% 100% Not assessed 4 Halvorsen, 2011 Norway 33 97% 88% Not assessed 4 7. Independent from industry? , 2012 United States 15 100% 100% 100% 4 8. Assessing products against the correct Killeen et al, 2017 New Zealand 11 100% Unknown Not assessed 4 Thorkildsen, 2010 Norway 56 50% 7% 96% 4 limits? Opperman & Benade, 2013 South Africa 57 84% 68% Not assessed 3 9. Testing products that were Consumerlab.com, 2001 United States 20 100% 100% Not assessed 3 AVERAGE 89% 79% 93% independently selected? Barriers to growth | OXIDATION

New data comparing 20 oxidation in omega-3 oils to vegetable oils shows they are about the same. 1. 14% of fish oils exceeded GOED’s Monograph limit, which is in line with previous GOED tests and other well- designed studies 2. Only 2.2% of fish oils had PVs exceeding 10meq/kg, the common regulatory limit for edible oils 3. 97% of olive oils had PVs exceeding 10meq/kg 4. If peroxide exposure is a concern, North Americans consume 11,926 thousand tons of vegetable oils annually versus 88 ktons of omega-3 oils

Source: GOED/Nutrasource Barriers to growth | OXIDATION

REASONS CITED FOR CEASING USAGE OF OMEGA-3s IN U.S. FISHY BURP 12% is the top reason consumers stop taking an omega-3 10% product, and is an oxidation issue that is very clearly 8% within industry’s ability to manage. 6%

Encapsulators can add 4% significant value to their 2% customers by helping them avoid the fishy burp. 0%

Source: GOED Proprietary Surveys Barriers to growth | OXIDATION 1-YR PEROXIDATION CHANGE IN 41 ENCAPSULATED FISH OILS

-1 0 1 2 3 4

Once encapsulated, fish oils oxidize an average of 1 meq/kg per year (CI: 0.2 – 2.1). Encapsulators can help plan for this trajectory. Source: GOED Proprietary ONE FACTOR

• One significant growth trend is having an impact CONTRIBUTORS globally and is accelerating, the drive by consumers to TO GROWTH higher value products. CONTRIBUTORS to growth CONVENIENCE Many consumers are simply looking for a more convenient way to consumer US Retail Market Share of Convenience Forms of Omega-3s their omega-3s because they find it too difficult to prepare seafood and/or take large pills.

This trend started in the US, but is now increasing globally. Emulsions Gummies Small Pills Liquids

Source: AC Nielsen CONTRIBUTORS to growth POTENCY Many consumers are simply looking for a more Global Market Share of High EPA/DHA Oils Vs. Low EPA/DHA Oils convenient way to 72% 45% 70% consumer their omega-3s 70% 40% because they find it too 68% 40% 68% 35% difficult to prepare seafood 36% and/or take large pills. 66% 32% 30% 30% 64% 64% 25% This trend started in the US, 62% 20% but is now increasing 60% globally. 60% 15% 58% 10% 56% 5% 54% 0% 2013 2014 2015 2016 Low (EPA+DHA<30%) High (EPA+DHA >30%)

Source: GOED Ingredient Market Reports 2013-2016 About us

How to access this data for yourself This data represents only part of GOED’s proprietary research, and is freely available at varying degrees of curation to Plus-level members of the organization.

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Questions about this presentation Please contact Adam Ismail at [email protected] with any additional questions regarding this presentation.