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## MANAGEMENT’S DISCUSSION & ANALYSIS (CONT’D) 

Growth in the global supply of seafood is due to increased aquaculture production and the stabilization of wild caught species in most areas of the world, as illustrated in the following chart: 

<img src='content_image/136605.jpg'>

Globally, there has been considerable development in the aquaculture industry both in finfish and shellfish species. This trend is expected to continue. We currently procure aquaculture products, including warm water shrimp, tilapia, pangasius (basa), mussels, scallops and Atlantic salmon. Our strategy is to increase the procurement of aquaculture products in the future as we continue to expand shrimp, tilapia and pangasius sales and investigate the feasibility and profitability of using more aquaculture species. Despite procuring aquaculture products, the vast majority of our seafood product sales are from wild caught fish. Excluding sales from American Pride, aquaculture accounted for 23% of our sales in 2013, as shown in the following chart: 

<img src='content_image/136603.jpg'>

Globally, demand over time is expected to increase faster than supply, resulting in increases in seafood costs. These increases in demand come about as a result of increasing disposable incomes in 

countries like Russia, Brazil, India and China that also increase consumption of seafood products. The trend of increasing demand was affected, at least temporarily, as a result of the global financial crisis and the changed relationship between currencies of producing and consuming countries. Demand from Europe, especially Southern European countries, decreased significantly due to the financial uncertainty surrounding the European Union. However, in the longer term, we expect demand to continue to increase, resulting in increases to prices of seafood. In 2014, we expect raw material costs to decrease for several significant species that we procure, due to both continued low demand in Europe and increasing supply due to quota increases, although for some species, such as shrimp, scallops and haddock, they are likely to stay above recent historical levels due to continued supply shortages. 

## 2013 Strategic Goals 

Our strategic objectives for 2013, along with commentary thereon, were: 

1. Supply Chain Optimization 

2013 was the first year for this multi-year goal to focus on driving innovation across the organization through standardization and system optimization in the purchase of materials, inventory management, product rationalization, and shipping, both into North America and to customers. 

We buy approximately 30 species of seafood from 20 countries. Our customers deserve and expect great customer service and we need to manage inventory at reasonable levels in order to achieve our financial targets. Our inventory management can improve. This is a big challenge that touches most parts of the organization. However, with focus and hard work we can become the industry leader in supply chain management, which will be a powerful competitive advantage difficult for our competitors to achieve. 

In the first quarter of 2013, we expedited the closure of our plant in Danvers and increased production at our manufacturing facilities in Newport News and Portsmouth, and relocated U.S. food service distribution to Newport News. During this transition, plant throughput rates decreased at Newport News and Portsmouth as they integrated new products into their respective production facilities. Restoring these production issues was an organizational priority for the remainder of 2013 and as a result, less resources were available than planned to focus on optimizing our supply chain, slowing progress on this goal. However, several initiatives were initiated related to this strategic goal and in 2014, driving costs out of our supply chain and taking advantage of our growing infrastructure, will be a larger focus for the Company than it was in 2013. 

2. Profitable Growth 

This goal is a multi-year goal as well. Prior to 2013, we had been working towards a goal to earn $100 million of Adjusted EBITDA by 2015; however, based on our financial performance in 2012 and the Icelandic USA Acquisition, we believed we would achieve $100 million in Adjusted EBITDA in 2013 and changed this goal to $150 million of Adjusted EBITDA by 2015. Through a combination of supply chain excellence, internal growth and acquisition, we believe we can increase Adjusted EBITDA to $150 million. 

