Annual Report • Mar 20, 2018
Annual Report
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Leading The Blue Revolution
See our geographical presence
world-wide.
We are organized into three Business Areas:
– Feed comprises our first feed plant, located in Norway. A new feed plant will be opened in Kyleakin on the Island of Skye, Scotland, in
2018.
Farming comprises our farming operations, some primary processing and filleting activities, in Norway, Scotland, Canada,
Chile, Ireland and the Faroe Islands.
– Sales and Marketing consist of our secondary processing and value added operations in Europe, the US and Asia, and sales, logistics and delivery of our products obtained from our farming
We are the world´s largest producer of farmed salmon, both by volume and revenue, offering seafood products to approximately 70 countries world-wide.
We are organized into three Business Areas:
Bjugn, Norway 305 174 tonnes produced 67 FTE
Kyleakin, Scotland (2018) 170 000 tonnes capacity
We are represented in 24 countries, employing 13 233 people
Americas 596 FTE Europe 7 078 FTE Asia 1 134 FTE
Norway 210 152 GWT 1 556 FTE
44 894 GWT 1 112 FTE
Ireland
9 745 GWT 260 FTE
39 389 GWT 595 FTE
60 186 GWT 734 FTE
5 980 GWT 39 FTE
01
Part
In terms of profitability from our operations, 2017 was our best year ever. We are proud of our accomplishments and encouraged by the opportunities across our value chain. However, going forward our industry still faces biological challenges in particular from sea lice.
We work hard every day to deliver good returns for our shareholders, and this is achieved by constantly improving our operations and products to give the planet a more sustainable alternative to land-based protein.
This integrated report sets out how we run our business, it describes our vision and ambition, our successes and our disappointments - all of them in an open and transparent way. At the end of the day, all of us working at Marine Harvest have a clear and simple goal; we wish to produce affordable, high quality products in a sustainable way, and this report tells the story of how we work to accomplish that target.
| (EUR MILLION) | |
|---|---|
| Revenue and other income | |
| Harvest volume of salmonids (GWT) | |
| Operational EBITDA | |
| Operational EBIT | |
| EBIT 1) | |
| Operational EBIT (EUR per kg harvested salmonid) | |
| Profit or loss for the year | |
| Cash flow from operations | |
| Gross investments | |
| Total assets | |
| Net interest-bearing debt | |
| Earnings per share (EUR) - basic | |
| Underlying earnings per share (EUR) | |
| Net cash flow per share (EUR) | |
| Dividend per share (NOK) | |
| ROCE % | |
| Equity % | |
| Equity (owners of Marine Harvest) | |
| Total market value OSE (NOK million) | |
| Number of shares (million) | |
| Number of employees (FTE) | |
| Cost in box (EUR/kg) | |
| Market price of salmon (EUR/kg) | |
| Market price of salmon (USD/kg) | |
| EUR average | |
| EUR end rate |
| (EUR MILLION) | 2017 | 2016 | 2015 | 2014 | 2013 |
|---|---|---|---|---|---|
| Revenue and other income | 3 649.4 | 3 510.2 | 3 112.4 | 3 053.2 | 2 456.2 |
| Harvest volume of salmonids (GWT) | 370 346 | 380 621 | 420 148 | 418 873 | 343 772 |
| Operational EBITDA | 942.5 | 842.7 | 486.6 | 624.3 | 508.5 |
| Operational EBIT | 792.1 | 700.2 | 346.8 | 508.7 | 411.0 |
| EBIT * | 484.9 | 991.2 | 345.3 | 434.5 | 596.4 |
| Operational EBIT (EUR per kg harvested salmonid) | 2.14 | 1.84 | 0.83 | 1.21 | 1.20 |
| Profit or loss for the year | 462.7 | 539.3 | 158.3 | 112.4 | 321.8 |
| Cash flow from operations | 632.4 | 693.2 | 233.3 | 471.5 | 258.8 |
| Gross investments | 254.9 | 211.6 | 215.8 | 210.6 | 251.7 |
| Total assets | 4 330.3 | 4 810.4 | 4 196.1 | 4 119.7 | 4 023.2 |
| Net interest-bearing debt | 831.9 | 890.0 | 999.7 | 1 032.6 | 929.3 |
| Earnings per share (EUR) - basic | 0.97 | 1.20 | 0.36 | 0.27 | 0.85 |
| Underlying earnings per share (EUR) | 1.23 | 1.13 | 0.52 | 0.84 | 0.68 |
| Net cash flow per share (EUR) | 0.74 | 1.23 | (0.02) | 0.80 | -0.05 |
| Dividend declared and paid per share (NOK) | 12.40 | 8.60 | 5.20 | 8.30 | 2.25 |
| ROCE % | 26.7% | 28.1% | 13.1% | 20.9% | 18.5% |
| Equity % | 53.5% | 43.0% | 45.2% | 39.8% | 48.5% |
| Equity (owners of Marine Harvest) | 2 314.2 | 2 068.4 | 1 894.6 | 1 638.1 | 1 946.5 |
| Total market value OSE (NOK million) | 68 133.3 | 70 078.3 | 53 830.2 | 42 227.9 | 30 306.4 |
| Number of shares (million) | 490.2 | 450.1 | 450.1 | 410.4 | 410.4 |
| Number of employees (FTE) | 13 233 | 12 717 | 12 454 | 11 715 | 10 676 |
| Cost in box (EUR/kg) | 4.16 | 4.00 | 3.68 | 3.27 | 3.41 |
| Market price of salmon (EUR/kg) | 6.31 | 6.72 | 4.60 | 4.80 | 5.07 |
| Market price of salmon (USD/kg) | 7.14 | 7.31 | 5.01 | 6.27 | 6.61 |
| EUR average | 9.3348 | 9.2797 | 8.9579 | 8.3622 | 7.8168 |
| EUR end rate | 9.8259 | 9.0793 | 9.5946 | 8.9750 | 8.3833 |
* including income from associated companies.
We aim to capitalize on our integrated value chain to achieve our ambition to become a world leading, integrated producer of seafood protein.
NIBD of EUR 831.9 million at year end on strong cash flow. Completed refinancing of bank facility of EUR 1 206 million and conversion of EUR 375 million convertible bond. ROCE was above the long-term target of 12.0% at 26.7%.
Operational EBIT of EUR 792.1 million, up from EUR 700.2 million in 2016, mainly as a result of increased prices driven by strong demand and decline in supply.
Dividend of NOK 12.40 paid out to the shareholders in 2017, up from NOK 8.60 in 2016. The 2016 dividends also included NOK 1.10 related to divestment of shares in Grieg Seafood. Underlying earnings per share was EUR 1.23 (equivalent to NOK 11.48), an increase from EUR 1.13 (equivalent to NOK 10.51) in 2016.
Superior share
Superior share of 93% in 2017, compared to 92% in 2016.
ASC certification
13 new sites certified in 2017, making Marine Harvest number one in the industry with a total of 72 of our sites (31%) certified.
Entered into conditional agreement to purchase Northern Harvest, a salmon farmer on the East Coast of Canada. The acquisition of the farming and processing facilities from the Gray Aqua Group on the East Coast of Canada was completed in 2017.
Since starting in the salmon farming industry in the mid-1980s the pace of change has been rapid and relentless. Very soon we will be entering a new and exciting era as innovating farming technology being developed will allow us to operate in more exposed locations and enable us to have better control of our farming inputs and outputs. The strides being made in design technology which will make this happen are also being seen in new and innovative products that will assist and support these new sustainable farming developments, which will at the same time require new skills and training amongst our employees.
Alf-Helge Aarskog
CEO
To be leading the Blue Revolution we need to be at the forefront and embrace change as it comes. But this demands a strong and targeted focus on our own R&D to make sure we know what is best for our salmon and ultimately our customers and consumers. To give us this competitive advantage we will continue to invest in a range of R&D projects extending from feed through to farming and processing which can all evolve to match our future changing needs. We have never said that our salmon alone can feed the world but through R&D much of what we learn is undoubtedly transferrable within the wider aquaculture industry.
Marine Harvest continues to evolve as the leader of the global seafood sector. In 2017, we achieved the best financial results in the history of our Company, thanks to strong demand for salmon and salmon products combined with only a modest increase in the overall volume of salmon produced. The global supply of salmon increased by 6% in 2017 as a whole, but low growth, especially in the first half of the year, resulted in the highest prices ever realized. This clearly shows the enduring popularity of our products with consumers. The constant development of new and better products also contributes to the strong demand for seafood.
Marine Harvest is a vertically integrated company that is divided into three divisions, Feed, Farming, and Sales and Marketing. We employ 13 233 people, operate in 24 countries, and sell our end-products to more than 70 different countries worldwide. Looking to the future, it is essential that we continue developing the skills and expertise of all our staff. For example, we are offering even greater opportunities for our employees to work overseas, and gain experience of different countries and cultures, while furthering their development as managers and leaders for the future.
We also want to further strengthen our company culture. With a clear vision of Leading the Blue Revolution, and strong global values and leadership principles, we have an excellent platform on which to build an even better organization. Over the years, Marine Harvest has focused intently on the safety of our workers. In 2017, this resulted in the lowest number of LTIs (lost time due to injuries) so far in the
Company's history. Nevertheless, there is still room for further improvement in this area, as well as for the development of our company culture. We know that the world is changing. Indeed, change is one of our four core values. In consequence, Marine Harvest sees great opportunities for improvement by further automating our production processes and embracing new technologies along the entire value chain.
There are many reasons to believe that the market for seafood will continue to grow into the future. The main mega-trends, like population growth, increased standard of living, focus on healthy food and resource-efficient food production, all support a bright future for seafood in general, and farmed seafood in particular. We also see opportunities to increase our product development efforts to boost our brands' market share, alongside our support for and promotion of private label products. This will go hand in hand with our focus on sustainability as a part of our long-term value creation. It will take resources and time, but will pay off in the years to come in the shape of improved margins.
Marine Harvest established a separate fish feed division in 2012, because fish feed plays a central part in the quality of the final product, and is also the major cost component in salmon farming. Our first feed plant was opened in 2014, and by 2017 it had already paid for itself. This is a great achievement, and enabled the feed division to start work on a second production facility in 2017. The plant currently under construction is located at Kyleakin on the west coast of the Isle of Skye in Scotland, close to where the bulk of Marine Harvest Scotland's farming operations can be found. The new plant is expected to be completed in 2018, and will have an annual capacity of around 170 000 tonnes. With this new plant, Marine Harvest will have the capacity to produce more than 500 000 tonnes of fish feed each year in Europe, making the company self-sufficient in the region. The new plant in Scotland will have dedicated production lines for freshwater feed and organic fish feed. Along with our plant in Bjugn, Norway, it will be among the most efficient feed operations in the world.
We will continue to research and develop new feed ingredients, with the focus on producing quality salmon in the most energy-efficient way. Marine Harvest will continue to benchmark its fish feed against other feed producers to make sure our feed is best in class.
The feed division's financial performance in 2017 was negatively affected by strong competition and startup costs for the new project in Scotland. Its financial result was therefore down on 2016. However, we expect to see improvements when the operation in Scotland starts full production towards the end of 2018.
Marine Harvest farms Atlantic salmon, operating in all major salmon farming areas in the world. 2017 was a challenging year in Norway and Scotland due to biological issues, which resulted in lower than expected survival rates. In some cases, this resulted in fish being harvested before they reached their optimal harvest weights. Globally in 2017, we harvested a total of 370 346 tonnes, compared to a harvested volume of 380 621 tonnes in 2016. This is disappointing, but efforts to help solve these issues are already underway.
The main challenge we faced in 2017 was caused by sea lice, a natural salmon parasite. However, in an open farming environment the parasite takes advantage of the large number of hosts. To manage sea lice, a number of new methods have been successfully tested. The methods used to reduce the number of sea lice can often be stressful for the salmon, and can weaken their immune systems, leading to lower survival rates. The focus in the short term is to optimize the methods currently in use. The long-term solutions are either new farming practices that prevent the salmon from coming into contact with the parasite, or improved genetics that make the salmon resistant to sea lice. Most of our R&D efforts are devoted to fish health and welfare.
In 2017, we started to develop salmon farming on the east coast of Canada. The main farming area is in the southern part of Newfoundland. Towards the end of 2017, we acquired a company named Northern Harvest. If this transaction is approved by the competition authorities it will, together with our existing operation, make up Marine Harvest Atlantic.
This division consists of all our sales and marketing activities, along with our steadily growing production of consumer-ready products. The division is organized geographically to support our worldwide client base. We sell salmon and other seafood products to more than 70 countries, where we have seen a substantial, and growing, appetite for our products in 2017. We continue to develop better tasting and more convenient products for consumers throughout the world.
The construction of new freshwater facilities based on recirculating aquaculture system (RAS) technology accounts for the bulk of our investments in the farming area. These facilities allow us to produce smolt more efficiently and at a reduced cost. They also enable us to more precisely time the transfer of smolt to our sea farms. Producing a larger smolt reduces the time the salmon spend in the sea, which in turn decreases their exposure to biological risks such as sea lice. In 2017, we opened the largest freshwater unit in Marine Harvest Norway, and added one new unit in Scotland and one in the Faroe Islands. Another two are nearing completion on the west coast of Canada. range, we will ensure demand for our products continues to grow in the future as well. We continue working to improve production efficiency at our 39 factories around the world. Marine Harvest is well positioned to take advantage of the growing world market for seafood. We have a great organization and will do whatever we can to produce even better products going forward.
We have major value adding facilities in the Americas, Europe and Asia. In 2017, we strengthened our operation in the Americas with one new factory in Dallas and another new processing facility just outside Vancouver. These two plants are near to major markets and will increase the availability of quality seafood in nearby areas. In Europe, we continued to streamline operations at most of our factories. A major upgrade was finalized in Poland, where we increased the size of the world's largest processing plant by approximately 10 000 m3 . Financial results improved in this division compared to previous years. We believe that by continuing to increase and improve our product
From the vision of the early pioneers and the beginning of salmon farming in Norway back in 1964 to the growth and spread of today's global industry the changes we have seen have been transformational - and continue to be so. Since we began growing fish in dammed fjords and wooden pens in the early years we have seen great progress, decade by decade in genetics, nutrition, farming, processing, sales & marketing and logistics. But we need to add to this list the increase in the skills, knowledge, experience and passion of everyone involved in producing the very best seafood for our customers and consumers around the world.
In each decade since the 1960s it is clear there have been events that have defined our business and directed who we are and what we do. Over the last 50 years we have gone through mergers and acquisitions that have all contributed to making Marine Harvest what it is today and which will keep us at the forefront of seafood production. In the not too distant
future the methods we use to grow, harvest and process our seafood will all evolve at an even faster rate as ever more advanced technology takes forward our business and the industry as a whole.
For the future what we do know is that we will be Leading the Blue Revolution.
2017
Marine Harvest acquires Gray Aqua Group and
establish Marine Harvest Atlantic Canada
Mowi starts working with salmon in Norway
Hydro buys 50 % of Mowi. First stocking of salmon smolt in seawater - 70 000 smolt
1975
Mowi becomes a recognized brand (500 GWT)
Mowi acquires Fanad Fisheries in Ireland
Mowi acquires Golden Sea Produce in Scotland
Norsk Hydro takes 100 % ownership of Mowi and registers the name Hydro Seafood in 1990
(1 600 GWT)
Nutreco acquires Hydro Seafood, new company name is Marine Harvest (62 000 GWT)
2006
Pan Fish acquires Marine Harvest, the group takes the company name Marine Harvest in 2007
Feed Division established
Marine Harvest acquires Morpol
Sources: FAO (2013) World Fisheries and Aquaculture, OECD-FAO (2016) Agricultural Outlook 2016-2025, World Bank (2013) Fish to 2030
Seafood consumption kg per capita
Stagnating wild catch – growing aquaculture
Additional aquatic food needs to come from aquaculture
We will need an additional 47.5 million tonnes of aquatic food to maintain current consumption in 2050
We will be 9.4 billion people on the planet by 2050
02 Part
We aim to be an integrated provider of proteins from the ocean, taking the lead in all key areas, from the production of fish feed to meeting the needs of the market. By integrating the entire value chain, we can control our products from feed to fork, and be more proactive in addressing challenges related to sustainable feed, farming and value-added processing.
The Blue Revolution will not happen by itself - we have to make it happen. Change is about challenging existing ways of doing things - over and over again. We encourage our staff to try new things, and sometimes we fail. The important thing is that we learn and grow from the experience.
Driving a revolution requires passionate people who share our vision and values. Marine Harvest is made up of 13 233 people in 24 different countries. We are committed to high ethical standards in our business conduct worldwide, and we expect our employees to make our Code of Conduct a personal commitment so that we can engender trust to all our stakeholders.
"One of the greatest challenges facing the world today is how to feed a growing global population, and provide them with healthy, nutritious and tasty food that is produced in a sustainable and efficient way. Seafood has the potential to meet this challenge. Seafood has a lower carbon footprint and a lower feed conversion ratio than land-based animal protein, so surely more has to be produced in the oceans if we are to sustainably feed the world?
Through substantial investment in research and development, we intend to be at the forefront of technological advances and address current and future challenges, while growing seafood's share of global protein consumption. We call it the Blue Revolution."
Alf-Helge Aarskog, CEO
Our corporate foundation is the belief that by farming the ocean, we can sustainably produce healthy, nutritious and affordable food for society at large. 70% of our planet is covered by water, yet the United Nations Food and Agriculture Organization (FAO) estimates that only around 2% of the world's food supply comes from the ocean. This includes both farmed and wild-caught fish. We believe that global consumption of farmed seafood will increase in the future, both in terms of overall volumes and as a percentage of the global food supply, for the following reasons:
Financial results are created through interaction between people, the natural environment and technology. Our goal is to find an optimal combination of these elements to create long-term success, whilst understanding that our growth must be environmentally, socially and financially sustainable. To manage the risks that may prevent us from reaching our goal and delivering on our strategy, we have developed the "Marine Harvest Way". The Marine Harvest Way combines our vision, values, strategy, leadership, and our guiding principles.
Our vision, "Leading the Blue Revolution", gives direction and outlines possibilities. The possibilities lie in the increased need for protein to supply a growing and increasingly prosperous world population with healthy, sustainably produced food products. We believe the most efficient way to produce more proteins is by farming the ocean.
Our global values Passion, Change, Trust and Share inspire us to act in the right way and are key enablers for reaching our goals.
Passion for the Company and the product: Passion is the key to our success and how we make a difference.
Change is the new "normal": We are ready for change and work continuously to improve our operations.
Trust is essential in everything we do: Our operations provide safe, delicious and healthy food, and we deliver on our promises.
Share underpins the performance of our over 13 000 employees: We share knowledge and experience, we are open and transparent, and we cooperate with key stakeholders globally.
Taking the lead is about setting a course and taking responsibility, and our leadership principles provide an important guide for managers' behavior:
Inspire people: we recruit the very best and build talent for the future. We strive to create winning teams and challenge people to succeed.
Make it happen: we challenge existing thinking and promote change and innovation. We encourage people to propose solutions and learn from mistakes.
Live the values: we want our leaders to be role models and build our culture; leaders should show direction and engage with stakeholders. Think and act: we want our leaders to think and act as if the Company was their own. Leaders should do what is best for the Company, bearing in mind both the short and the long-term picture.
We aim to be an integrated provider of proteins from the ocean, taking the lead in all key areas, from the production of fish feed to meeting the needs of the market. By integrating the entire value chain, we can control our products from feed to fork, and be more proactive in addressing challenges related to sustainable feed, breeding and genetics, farming and secondary processing. We see research and development as an integral part across our value chain, which differentiates Marine Harvest within the industry.
We believe there are benefits to vertical integration, due to the greater capacity it gives us to control the production process. We refer to activities which occur after farming (i.e. secondary processing) as downstream operations, and activities occurring prior to farming (i.e. feed production) as upstream operations. Our integrated production helps us stabilize costs, control the quality of our products and improve efficiency. Over time, vertical integration is expected to result in more stable earnings and unlock future growth. We expect to be less exposed to the cyclical nature of salmon prices, and to be better able to control the quality of our products.
Growing our fish feed activities remains our goal. The new feed plant in Scotland is expected to commence operations in the summer of 2018. The plant is expected to have a capacity of around 170 000 tonnes of feed, with the potential for further expansion.
Further to our integrated marine protein provider strategy, we have entered into a 50/50 joint venture with SolstadFarstad to build, own and operate aquaculture vessels. We believe there is significant room for efficiency improvements across the value chain in aquaculture shipping, ranging from a reduction in new-building costs to more cost-efficient operations. In 2017, we increased our investment in the joint venture by EUR 10.5 million to a total of EUR 13.4 million. As of year end 2017, the joint venture had a total of four wellboats and one harvesting vessel under construction
We continue to screen for strategic initiatives that we believe will benefit our global operations.
In 2017, we completed the purchase of farming assets formerly owned by the Gray Aqua Group of Companies, located on the East Coast of Canada. We also entered into a conditional agreement to acquire the salmon farmer Northern Harvest, located in the same region. The transaction is subject to approval by relevant competition authorities and customary closing conditions. Among the benefits these acquisitions will bring, are expansion into a new region for Marine Harvest, as well as improved market access to the eastern Canadian and US seafood markets.
We also purchased increased farming capacity in Norway, under the amended fish farming regulations, which have given farmers in green production areas the opportunity to buy an increase in the maximum allowed biomass (MAB) permitted under existing licenses. Marine Harvest's share of the 2% fixed-price growth is 1 400 tonnes MAB.
In 2017, we also continued to expand our freshwater facilities. The new facilities are expected to result in higher quality, larger smolt, produced in a controlled environment, as well as cost reductions resulting from economies of scale. Transferring larger smolt will reduce the time taken to reach harvest weight in the sea farms, and thereby the associated biological risk.
As we are aiming for growth in sales of our new and existing products, production capacity must also increase. We have substantially increased our capacity and upgraded several of processing plants to serve our customers with new products, including sushi.
In order to offer our European customers an even wider assortment of chilled seafood products, Marine Harvest and Espersen have entered into a strategic partnership for the processing and distribution of whitefish products.
Reflecting the success of our fresh prepacked products in the North American market, we opened a new plant in Surrey near Vancouver, Canada, to facilitate further sales growth.
The way we operate our business is centered around our four equally important guiding principles: Planet, Product, People and Profit, which underpin our vision and guide our behavior. Balancing the four principles is a prerequisite for Leading the Blue Revolution and creating long term value. This ensures that, as well as focusing upon delivering healthy shareholder returns and ensuring access to capital, we also continue to deliver a premium product with minimal impact upon the environment that generates value for the local communities in which we operate.
Profit: Our financial success hinges on our ability to provide customer value from healthy, tasty and nutritious seafood, farmed both cost effectively and in an environmentally sustainable way.
Planet: Our operational success and long-term profitability ultimately depend on sustainable and environmentally responsible interactions with the natural environment. We rely on qualified personnel to maintain fish health, avoid escapes and minimize the environmental impact of our operations.
Product: We aim to continually supply healthy, tasty and responsibly produced seafood to our customers in order to deliver long-term financial profitability.
People: The safety, self-respect and personal pride of our employees cannot be compromised if Marine Harvest is to succeed as a company and maintain good relationships with local communities.
In 2017, we updated our materiality analysis to reflect the evolving nature of the salmon industry. We have chosen to use an integrated materiality analysis* which identifies the value drivers that have the most material impact on long-term value creation. We considered the following groups of stakeholders to help us identify the key economic, environmental and social impacts, both positive and negative, we have upon the world throughout our value chain:
The authorities, to facilitate the development and implementation of smart, fair and enforced industry regulations.
Key retailers, for product and process development and greater understanding in general.
Key suppliers, to ensure that we have a shared approach to the delivery of goods and services, sustainability, human rights and ethics in general.
The industry, for a unified approach to common challenges e.g. GSI for greater industry cooperation and continuous progress on industry sustainability challenges.
Environmental organizations, including WWF Norway, for the mutual exchange of ideas and information.
Investors, through road shows, capital markets days and other presentations to share our ambitions and concerns.
The local communities in which we operate, to promote healthy cooperation and create win-win solutions.
Our employees, utilizing their potential for personal and company growth and progress.
Along its entire value chain, Marine Harvest is affected by social issues, such as worker's rights and public acceptance of fish farming. Climate change, environmental regulations and certification requirements may have an impact on the supply chain, by affecting the availability of raw feed ingredients as well as of farming areas. Trade barriers may have a significant impact on our products' availability in different markets.
In turn, Marine Harvest also has an impact on people and the environment along its value chain. Our feed, farming, sales and marketing operations create jobs and contribute to the economic development of local communities. In addition, the health benefits of our products clearly have a positive impact on people and society in general. Health and safety issues and labor rights are also key components of the social impact we have at both our own operations and our suppliers. Our impact also extends to social and environmental standards setting. In terms of environmental impacts we contribute to greenhouse gas emissions along the supply chain, and affect local ecosystems in the vicinity of our farming operations. However, the new technology and infrastructure we are developing will lead to more sustainable farming methods that could also be relevant to other fish species.
Marine Harvest supports the UN Sustainable Development Goals (SDGs). The alignment of our strategy, guiding principles, material long-term value drivers and the SDGs is provided on the following pages.
Importance to Marine Harvest
*Marine Harvest's original materiality analysis from 2013 was based upon the guidelines of the GRI (Global Reporting Initiative) and GRI was also used to guide the new integrated materiality analysis along with the integrated reporting council's integrated reporting framework. The integrated reporting framework involves identifying the key inputs, or capitals, that a company relies upon to carry out its business activities, how these inputs are processed by the business and what are the resultant outputs. These key inputs and outputs and processes were identified by considering Marine Harvest's value chain from supply of fish feed ingredients through to delivery of products to customers. The GRI materiality process requires identifying the key economic, environmental and social impacts, both positive and negative, that a company has upon its stakeholders throughout its value chain. Our key impacts were identified using a stakeholder dialogue process and desktop review of relevant academic literature, media reports, reporting standards, regulations and competitors. To identify the value drivers that have the most material impact on long-term value creation, each value driver has been assessed with regards to current and future stakeholder expectations as well as operational and strategic impact on Marine Harvest. The prioritization was performed in conjunction with executive management, and material value drivers will be addressed on a regular basis at senior management level to ensure adequate focus.
The SDGs have been agreed by all 193 UN member states in 2015 and guide governments, civil society and the private sector in a collaborative effort for change towards a sustainable development. The SDGs described below are those considered the most material for Marine Harvest, i.e. those where we can have the greatest impact, but we also contribute to others.
Farmed salmon is a rich source of Omega-3 fatty acids, minerals and vitamins. Its benefits on human health are well documented (see Product section). Our KPIs that contribute to SDG 3: harvested volumes, nutritional values of our salmon, quality of harvested salmon, contaminant levels.
Our operations contribute to the development of local communities providing safe and meaningful jobs (see People section). Our KPIs that contribute to SDG 8: LTIs, absence rate, code of conduct test participation, number of cases raised in whistle blower channel, non-compliance incidents and community engagement.
We invest significantly in research, development and innovation to solve our challenges and create new growth opportunities (see R&D section). Our KPIs that contribute to SDG 9: R&D spending.
Salmon farming is one of the most efficient ways of using natural resources to produce a healthy protein: it has a low carbon footprint, high energy and protein retention efficiency and low water footprint (see Planet section). Our KPIs that contribute to SDG 12: energy use and GHG emissions, % of sites with minimum benthic impact, number of biodiversity projects, number of escape incidents and escaped fish, ASC certification, compliance with sustainable feed policy, FFDRm and FFDR0 limits, antibiotic use, sea lice counts and medicine use.
Our business depends on a healthy ocean. We minimize our environmental impact by monitoring, applying best practices and following the strictest environmental standards available for aquaculture (see Planet section). Our KPIs that contribute to SDG 14: % of sites with minimum benthic impact, number of biodiversity projects, number of escape incidents and escaped fish, ASC certification, compliance with sustainable feed policy, FFDRm and FFDR0 limits, antibiotic use, sea lice counts and medicine use.
Achieving a sustainable future will require concerted action and new forms of partnership. Examples of our key partnerships are the Global Salmon Initiative, the Keystone dialogues, Global Sustainable Seafood Initiative and our partnership with WWF Norway (see Planet section). We are also committed to support the UN Global Compact Principles. Marine Harvest is also one of the partners of the SeaBOS initiative.
| MATERIAL VALUE DRIVER | AMBITION | EFFORT | STATUS VS AMBITION |
2017 | 2016 | 2015 | 2014 | 2013 | 2012 | 2011 | 2010 | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Reliable shareholder return - profitability |
ROCE% > 12% p.a. | Through achieving our ambitions in the below indicators, we believe that our profitability will remain above target |
26.7% | 28.1% | 13.1% | 20.9% | 18.5% | 3.9% | 16.7% | 20.4% | ||
| PROFIT | Reliable shareholder return - solidity |
NIBD < EUR 1 200 million |
Continuous monitoring of access to borrowed capital and dialog with lenders |
831.9 | 890.0 | 999.7 | 1 032.6 | 929.3 | 731.7 | 832.3 | 668.3 | |
| Climate friendly food production |
ASC certified sites | Ongoing ASC implementation strategy | 72 (31%) | 59 (26%) | 39 (24%) | 8 (4%) | 0 | 0 | 0 | 0 | ||
| Reduce energy consumption in our processing plants by 10% by 2018 * (% of plants achieving target) |
Compliance with our policy on climate change; focus on reporting, reduction targets and energy saving initiatives |
22 % | na | na | na | na | na | na | na | |||
| Prevent fish escapes | Zero escapes | Compliance with industry and internal standards, focus on preventing human error (training) and reduced net cleaning |
23 223 | 12 790 | 94 450 | 2 052 | 73 744 | 3 150 | 71 515 | 144 512 | ||
| Fish welfare, health and robustness |
99.5% survival in sea (avg mt) by 2020 |
Focus on more gentle non-medicinal tools for delousing and R&D |
98.3% | 98.2% | 98.6% | 99.0% | 99.2% | 99.2% | 99.3% | n.a. | ||
| PLANET | Sea lice management | Minimize % of sites above action limit (avg mt) |
Optimization of non-medicinal tools, cleaner fish performance and welfare and breeding tools |
8.7% | 10.3% | 12.1% | 8.3% | 4.1% | 9.9% | 6.5% | 10.2% | |
| Reduction in sea lice medicine use (% year on-year) |
Application of the sea lice strategy and increased use of non-medicinal methods |
73 % | 50 % | na | na | na | na | na | na | |||
| Responsible use of medicines and chemicals |
Reduction in antibiotic use (g per tonne prod) |
New vaccine against SRS in Chile | 62 | 53 | 82 | 40 | 26 | 12 | 40 | 28 | ||
| Efficient and sustainable fish feed |
100% compliance with our sustainable sourcing policy |
Continuous focus on novel, sustainable and affordable feed ingredients; sharing best practices on optimal feeding |
100% | 100% | 100% | na | na | na | na | na | ||
| Branding and product innovation |
Value added sales growth |
Focus on strenghtening relationship with key customers and improving our market and consumer insight to facilita te innovation and product development |
45.9% | 46.3% | 45.4% | 43.2% | 35.8% | 34.6% | na | na | ||
| Ensure food quality | Superior share > 92% | Ongoing projects to gain a better understanding of the main causes of downgrading (Kudoa and melanization) |
93% | 92% | 92% | 93% | 89% | 91% | 92% | 89% | ||
| Ensure food safety | Compliant with laws and regulations |
Comprehensive monitoring program to document that the level of environmental contaminants is far below the safe limits set by the food safety authorities |
yes | yes | yes | yes | yes | yes | yes | yes | ||
| PRODUCT | Product certification and verification |
Compliant with laws and regulations |
Conducting external and internal audits and reviews to ensure our activities are in accordance with stakeholder expectations |
yes | yes | yes | yes | yes | yes | yes | yes | |
| Healthy seafood | Omega 3 content >1g per 100 g product |
Monitoring the level of important nutrients in our farmed salmon to ensure that it is both safe and healthy |
yes | yes | yes | yes | yes | yes | yes | yes | ||
| Cost leadership culture | Live our values and vision, and work cost effectively |
Continuous integration of our vision, values and leadership principles |
yes | yes | yes | yes | yes | na | na | na | ||
| Ethical business conduct | Compliance with our Code of Conduct |
Mandatory testing on our Code of Conduct | yes | yes | yes | yes | yes | yes | na | na | ||
| Ensure employee safety and security |
Absence rate < 4% | Systematic approach to safety to obtain a safer workplace and reduce absenteeism |
5.2% | 5.7% | 4.8% | 5.0% | 4.8% | 3.4% | 3.8% | 3.8% | ||
| PEOPLE | Reduction in LTI per million hrs worked |
Focus on a strong health and safety culture, with BrainSafe as an integral part of the way we operate |
6.56 | 9.9 | 11.4 | 11.4 | 13.8 | 13.7 | na | na | ||
| Purpose-driven organization | Develop and support the local communities in which we operate |
Maintain good relations with local communities and support local initiatives |
yes | yes | yes | yes | yes | yes | yes | yes |
Our breeding program has transitioned to "full genomics", with the selection of all broodfish based on high-resolution genomic data. We have, for example, discovered significant potential in selection for resistance to sea lice, CMS and PD.
The well-resourced and dedicated Lice Action Team (LAT) was established to optimize existing methods and develop safe, effective and cost-efficient new tools to help tackle sea lice.
Six development licenses have been granted. Marine Harvest and Hauge Aqua have started a project to build and test the ground-breaking technology for semi-closed containment sea farms.
"For Marine Harvest, research and development makes a huge difference. We aim to accelerate innovation to unlock the potential of the ocean. Whether through innovations in biology and technology, or taking advantage of artificial intelligence and automation - the potential for salmon farming is huge."
Øyvind Oaland Global Director R&D and Technical
| AMBITIONS | MAIN FOCUS WITHIN R&D AND TECHNICAL |
|---|---|
| Employ new farming systems | Develop and test new closed/ semi-closed production technology |
| Reduce losses at sea and achieve a 97% survival rate per generation |
Monitor diseases and loss factors. Identify risk-factors and develop best practices for prevention and mitigation |
| Control sea lice mainly by non-medicinal means | Develop non-medicinal methods and approaches for sea lice control |
| Continue our ASC certification efforts | Develop necessary knowledge and practices to support ASC expansion |
| Eliminate limits on sustainable growth caused by the feed ingredients situation |
Identity and implement safe and sustainable alternative feed ingre dients |
| Maintain premium product quality and further reduce downgrading |
Develop Improved technological solutions for optimized processing, packaging and storage of our products |
| Maintain salmon's reputation, and further improve customer satisfaction |
Secure and maintain good Listeria control. Continue to ensure con trol of environmental contaminants in fish feed and end product |
Certain issues look set to define the 21st century - issues that are simply too important to ignore. Climate change. Food availability and security. Hunger and obesity. And how we deal with them now will have a profound impact on our future. Aquaculture is a growing industry and an increasingly significant component in the complex solution to these very issues. We farm salmon at about 1/10 of the carbon footprint of beef. The ocean is vast, but although it covers over 70% of our planet, only about 2% of all proteins are produced there. Salmon is a health-promoting food, and among the most efficient farmed species, with a low feed conversion rate, low freshwater consumption and high edible output. The list of benefits goes on and on. At Marine Harvest, we acknowledge that we are facing global issues simply too important to overlook. We believe wholeheartedly that a significant part of the solution lies in our investment in knowledge and research to stimulate the development and continued growth of the global aquaculture industry.
Our Global R&D and Technical Department aims to "seek improvements and provide solutions". This means planning, coordinating and leading Marine Harvest's global research and development efforts for and together with the operating units. The department consists of 18 technical experts in the areas of biology, technology, engineering, nutrition, genetics and veterinary medicine.
The Global R&D and Technical Department works directly with technical staff at our operating units, through participation in global technical teams and collaborative projects. This ensures that Marine Harvest's R&D work constantly benefits from a culture of shared expertise, knowledge and practical application within operations.
The department's aim is to help our global operations achieve goals related to commercial growth, operational performance and corporate reputation within the fields of fish health and welfare, feed and fish performance, food safety and product quality, environment and sustainability, and technology. R&D and innovation is integrated with the farming operations; we have R&D teams in our feed division; within our cleaner-fish farming department; in the global breeding and genetics team; and within product development in our downstream Sales and Marketing division.
Marine Harvest's commitment to invest in knowledge and research to develop new and improved ways of expanding the aquaculture industry is reflected in our R&D expenditure. It totaled EUR 43.6 million in 2017, compared to EUR 51.3 million in 2016. The reduction was mainly associated with production cycles at the Centre for Aquaculture Competence in Norway, where one of two sites was fallowed for a large part of the year. Reported expenditures are gross values, and exclude any related income from our R&D activities. In addition, an annual fee of 0.3% of Marine Harvest Norway's export value is paid to the Norwegian Seafood Research Fund (FHF). In 2017, this amounted to EUR 3.1 million, compared to EUR 3.2 million in 2016.
The Global R&D and Technical Department is responsible for collecting and analyzing key performance indicators for fish health, the environment, feed and fish performance, and product quality and processing. Through systemization and analysis, this provides an overview of performance indicators and identifies key biological challenges. By quantifying these, the relative importance of the various factors is easily visualized at Business Unit and Group level.
* Applications pending.
Identify and exploit continuous improvement opportunities
Implement best practices, R&D results,
group policies, group requirements - Analyze current situation in operations
Ensure competency and knowledge sharing across all Business Units
Represent the Business Unit in setting priorities and defining R&D needs
1
2
3
Roadmap Selected high priority R&D programs for the different key focus areas. The overview does not include all R&D efforts and topics carried out in Marine Harvest.
In our strategy, we have identified five key focus areas for our R&D programs, with corresponding objectives. The five areas are; fish welfare and robustness, footprint, new growth, production efficiency, and product quality and safety. The purpose of the R&D strategy is to identify and plan the R&D activities needed to reach our ambitions and goals, to align priorities and expectations, and to ensure resources are prioritized accordingly. For each of the key focus areas we have identified core programs with corresponding targets. Since Marine Harvest is an integrated company with its own salmon breeding program, feed production as well as farming, processing and sales and marketing activities, the Global R&D and Technical Department will support the whole value chain.
The goal of R&D at Marine Harvest is to enable increased production of sustainably farmed, healthy and safe seafood. We target production bottlenecks to ensure we don't lose the future ability to grow, but also focus on the significant currently untapped potential to ensure we don't fail to utilize existing opportunities. Arguably, one of the greatest bottlenecks for future industry growth is the availability of fish feed and the raw materials needed to produce it. Our most significant opportunities lie in our breeding program, in improving marine phase survival rates, and in the development of new and improved production systems and tools to increase our efficiency.
Feed production is a relatively new venture for Marine Harvest. R&D efforts in our feed division have been largely focused on developing comprehensive knowledge of the feed ingredients available in the market. We must provide our salmon with the nutrients they require at different stages of their lives, with the ultimate goal of achieving the best fish performance and health. The main objective for current and future R&D projects is to safely increase raw-material flexibility. In other words, we aim to have the widest possible range of options, whilst maintaining our high standards for sustainability and food safety, both in our feeds and in our fish.
Besides investing heavily in R&D related to feed composition, formulation and production, we have a strong focus on maximizing feed utilization through best feeding practices, and on optimizing the feed conversion ratio. In 2017, we engaged in high-impact projects to identify and evaluate the best ways of feeding salmon, given the knowledge that we possess today. Coupled with R&D on optimal nutritional and physical feed quality, these projects will shed light on how to maximize feed utilization throughout our organization.
In 2017, we achieved significant milestones in breeding and genetics, with new technologies implemented and breakthrough results obtained. Among the most significant advances was the transition of the breeding program to "full genomics", with the selection of all broodfish based on high-resolution genomic data. We also introduced selection for resistance to sea lice and the viral disease Cardiomyopathy Syndrome (CMS) for the first time.
In 2017, we generated our largest sea lice datasets, comprising over 7 000 fish from three independent sea lice challenge tests. This data not only confirmed that there is a significant heritable component to sea lice resistance, but also identified the optimal experimental design to obtain the most accurate and reliable data. Major breakthroughs were also achieved for CMS, where three independent datasets have validated a set of genetic markers that can be used with high accuracy to select for higher CMS resistance. Within the field of pigmentation, we were successful in identifying several genetic markers that can be used to select broodstock with a significantly higher capacity for flesh pigmentation. Further work on resistance to Pancreas Disease (PD) has also validated an important set of genetic markers that can be used to identify broodstock with significantly higher resistance to PD. In parallel, we carried out our first large-scale tagging and sampling project to enable targeted genetic selection at a very early stage. More than 150 000 parr (freshwater juveniles) were tagged and DNA sampled. Combined with our new sets of DNA markers, this will provide the foundation for a significant increase in genetic gain in coming generations.
Fulfilling our responsibility for the health and welfare of our fish is vital. The industry will only be able to grow within sustainable parameters if certain biological challenges are overcome. Improved survival rates offer considerable potential for output growth.
Infectious diseases can occur naturally, and it is our responsibility to ensure we rear robust fish and optimize our biosecurity protocols to reduce the negative impacts from fish diseases. In 2017, we maintained our strong focus on research into understanding the infection dynamics, virulence patterns and pathogenesis of diseases like Pancreas Disease (PD), Heart and Skeletal Muscle Inflammation (HSMI), Cardiomyopathy Syndrome (CMS) and several gill conditions. We made considerable efforts to identify best practices for farming a healthy salmon. This work will continue in 2018, with a view to developing practices for optimal smolt production.
Sea lice remained a top priority in 2017. We have a large portfolio of projects to learn more about sea lice biology and transmission patterns, to validate the efficacy of numerous preventive measures, and to find new and improved ways to safely treat our salmon. A Lice Action Team (LAT) was formed in 2017, its mission to deliver innovative solutions for safe, effective and cost-efficient sea lice mitigation. LAT is a designated working group with participation from the whole company, coordinated by the Global R&D and Technical Department. Reflecting the importance of tackling sea lice in the most effective and sustainable manner, LAT has its own project portfolio and budget. In 2017, we also reviewed our sea lice strategy, and our analyzes show improvements in the sea lice situation have been achieved since its implementation in 2015 (see section on Sea Lice Management).
In 2018, further investments will be made in the Lice Action Team, as well as in new and optimized non-medicinal solutions for prevention
and treatment. Continued focus will be placed on the prevention of infectious diseases and production disorders through the acquisition of new knowledge, vaccine testing and implementation of best practices.
At Marine Harvest, we split technological R&D and Innovation into net pen production at sea, and closed/semi-closed production in sea and freshwater. In both areas, disruptive technologies will have a significant impact. By definition, "disruption" relates to any development that can acutely change something for the better, by quickly replacing an existing norm or system: how we communicate, how we travel, how food is produced. Disruptive technologies will profoundly change where and how salmon is farmed. These new technologies and tools can either be rejected or embraced. Marine Harvest has chosen the latter.
Our fish spend half their lives (egg to smolts) in closed or semiclosed onshore facilities, predominantly using recirculation aquaculture systems (RAS) technologies. RAS provides an opportunity for better control of the rearing environment, and enables us to treat our effluent and collect waste material. This technology allows our smolts to grow larger in a more controllable environment, and has been a top priority in recent years. Reducing amount of time fish spend in open net pens, a period associated with a higher level of risk, is an important strategy and a policy for further development. Moving into more exposed farming areas and using new farming technologies may necessitate the transfer of larger and more robust smolt. For example, the new floating, semi-closed technologies, like our Neptune tank, are being tested to produce post-smolts of up to 1 kg. Currently, our third cohort of post-smolts is being produced using this method. The knowledge we gain from pilot production in this semi-closed system has significant value for the further development of this technology.
Producing large smolts is not new to Marine Harvest. We have been producing smolts larger than 200 g for the last twelve years, with identifiable benefits driving our increased production of larger smolts today. However, ramping up production of bigger smolts will put pressure on the capacity of our existing freshwater production sites. We must therefore adapt by optimizing production regimes, expanding existing sites and, importantly, building new cutting-edge RAS facilities like Steinsvik in Norway, Inchmore in Scotland, Dalrymple in Canada, and Laxa in the Faroe Islands. Since RAS is a relatively new and complex production technology, we are increasingly focused on building our internal knowledge and capabilities.
Marine Harvest has filed development license applications for three floating, semi-closed sea farm concepts: The Egg®, The Marine Donut® and The Ship. These systems make use of a large but controllable water intake, solid tank walls, optimized internal water hydraulics, and have the potential to extract particles from the discharge water. These systems also offer a high degree of flexibility in terms of geographical placement. Promising results from our Neptune tank, with regards to fish health, growth and post-smolt quality, strengthen our confidence that floating, semi-closed sea farm facilities will be a valuable part of our future production methods.
Development of semi-closed containment systems (S-CCS) for use at sea is important for Marine Harvest. So far, we have received six development licenses for the development and testing of five Egg® facilities. Construction of a prototype Egg® will start in 2018, in cooperation with Hauge Aqua AS. We expect decisions about development licenses for The Marine Donut® and The Ship during the first half of 2018. Large-scale testing in our Neptune tank will continue alongside work on these new S-CCS innovations.
In 2018, we will also continue our participation in the CtrlAqua program, a Research-based Innovation Centre (SFI) that will lay the foundations for the development of closed-containment best practices and concepts for the future, alongside other projects targeting relevant issues for the optimum performance of CCS/S-CCS in land-based and marine applications. Projects related to water quality, microbiology, fish health and water hydraulics in such systems will be targeted. A global technical team for freshwater and closed production will be set up to prioritize and coordinate activities.
Even with our significant efforts in developing feasible platforms for large-scale closed or semi-closed containment salmon farming, we realize that salmon will mainly be farmed using coastal net pen systems for the foreseeable future. This production method allows all major salmon producing countries to capitalize on their geographical and environmental advantages. Almost 100% of the global harvest volume is produced in such systems today. In parallel with investigating and developing new groundbreaking production systems, we must place significant emphasis on the coastal net pen. This is our core production model, and we will continue to improve it through the development of disruptive technologies which can sustainably secure lower production costs and increased production volumes.
The oceans are vast, rough and desolate. However, if we can develop technology that safely and cost effectively enables salmon to be farmed closer to the open ocean, under conditions suitable for maintaining the health and welfare of our salmon, we can unlock a massive production area. In time, such areas can be used to produce an immense amount of sustainable and healthy seafood. Distances between farms can be greater; distances to large markets can be shorter, and it may give us the flexibility to move production around to secure optimal farming conditions all year round.
During the last two years, Marine Harvest has made progress in this area, moving from fjord to ocean. In the Faroe Islands, we farm the roughest site known in the industry, with a maximum wave height of 18 meters and periodically strong currents well above 1 m/s, using the best state-of-the-art equipment available today. Although we have experienced some challenges related to winter storms, the fish have performed very well, with growth and feed conversion rates far better than an average site. In 2018, we will transfer larger smolts and harvest the fish before the storm season, reducing their stay in net pens. Our initial results provide strong evidence that farming in areas more exposed than is currently the norm has real merit.
We have applied for development licenses to evaluate two concepts for offshore farming. Both production systems are submersible, which allows farming under more extreme conditions while the production unit itself is maintained underwater.
For the same reason, we are establishing the Blue Revolution Centre (BRC); a brand-new, large-scale research station planned to operate six R&D licenses and state-of-the-art facilities. The center will be a collaboration between the Norwegian University of Life Sciences (NMBU), Marine Harvest and SINTEF Ocean. BRC will serve as a knowledge hub for farming operations in exposed waters. We will test and document the suitability and performance of new equipment, tools and methods to enable and optimize this way of farming. In the first generation, we plan to perform a thorough benchmarking study of different pen technologies to find the one best suited to production in exposed areas. similar results have been substantiated by using a novel compound group which allows the manufacture of nets with inherent antifouling capabilities. To deal with any residual need to clean our nets, we are currently working to test solutions for automated, continuous and gentle net cleaning using net-cleaning robots. If successful, these initiatives will make high-pressure cleaning redundant, with highly positive effects on cleaner fish efficacy, on salmon gill health, on feeding, and by extension also on production costs. "Picture perfect" In 2017, we were involved in developing and testing cameras that
The coastal net pen is our best production system, yet its traditionally low production costs are being challenged by losses due to waterborne pathogens, increased costs for sea lice mitigation measures, and other costs related to parasite control. It is therefore important to emphasize our strong commitment to further developing and optimizing salmon farming in net pens. We are currently working to develop and test several groundbreaking tools that will provide new and profound insights into biology, improvements in production efficiency, and cost reductions. In the age of digitalization and automation, these tools will facilitate the intelligent collection and use of large amounts of production data. They will also replace time-consuming, monotonous and laborious tasks, which are normally performed by humans.
can radically change how we monitor our operations from below the surface. Not only do these cameras enable the use of machine vision in salmon farming, they also provide our operators with crystal-clear images of the fish and the pen environment. The potential exists to make the traditional feeding camera obsolete, and at the same time create equipment far more sophisticated than a standard feeding camera.
Fouling organisms grow exceedingly well on salmon nets. This increases the net's weight, reduces water flow through the pen, and provides an unwanted food source for our cleaner fish. Today, we coat and regularly clean our nets, predominantly with high-pressure cleaning systems. This process has a negative impact on salmon performance, and probably also on their health. In 2017, we worked on ways to radically change this process. We are testing new coatings that could potentially eliminate the use of traditional copper paints on nylon nets. Breakthrough results from 2017 indicate that we can avoid net cleaning for more than six months, even during the challenging summer period, when biological activity is usually high and results in rapid fouling of the nets. For HDPE (High Density Polyethylene) nets, With the development of new camera tools and machine-learning applications, the external characteristics of our salmon can be traced and measured. We know that each individual salmon can be distinguished by subtle differences in their morphometrics and skin pigment pattern. In time, this will allow for the capture of detailed information about every individual fish from sea transfer onwards. Importantly, we will gain insights into when and why morphological changes occur. More information about cause and effect will eventually enable us to make targeted improvements to prevent such anomalies from occurring, and allow us to implement an ongoing
When we gain access to high-quality images, we can train a machine to recognize almost everything in these digital images. This is done by building machine-learning models that respond to a certain range of criteria within an image, for example the presence or absence of a feed pellet. The detection of one or many feed pellets can be translated into a range of actions. As an extension of basic machine-learning models, Artificial Intelligence (AI) and Deep Learning can be used to decipher exceedingly complex relationships not easily modeled or manually controlled, such as salmon behavior in a net pen. AI software can work out an optimal course of action (e.g. how to optimally feed 200 000 salmon) without human interference, learning from its past experiences every time. The capture of pristine imagery, development of machine-learning models, and implementation of AI techniques both to gain biological insight and provide a best course of action for our operators, will be one of our top R&D priorities.
We can train a machine to target, find and track any anomaly in a net pen. When implemented in underwater drone technology, machine-learning applications can be used to survey the net for the presence of holes and tears, with each net deviation digitally "tagged" to allow swift repair. Similar capabilities can be used for inspections of shackles and moorings, where 3D imaging ability enables the measurement of chain thickness, for example. These features could potentially make diver inspections redundant, providing a safer working environment. They can also provide a safety measure to prevent large escape incidents by facilitating swift repairs.
assessment of fish welfare based on such parameters as outer condition, prevalence of biological anomalies and fish behavior.
The development and implementation of innovative camera solutions, coupled with machine-learning capabilities, will provide new and transformative insights. We can progress from sampling 20 fish per week to 10 000 fish or more per day. From a fixed starting point at seawater transfer, developments in aspects such as weight, length and number of sea lice per fish can be measured in detail over time.
Having detailed information about the development of our fish in real time offers a large potential advantage for our operations. Today, growth and feed conversion rates during the 16-month production cycle are based on model estimates for an entire population. With a precise tool for real-time biomass surveillance, we can translate the amount of feed given directly into weight gained in precise detail, e.g. over one week or a month. This offers great insight into when the fish exhibit signs of an unrealized or over-estimated growth potential, which can also be used to optimize feeding rates in such periods to achieve higher growth rates and better feed conversion. In terms of feed utilization, we will acquire new knowledge on periodical feed conversion rates. After just one production cycle we will learn when in the 16-month production cycle the feed conversion rates are low (optimal feeding or potential under-feeding) or high (potential over-feeding). Detailed data on weight gain also serves as an early-warning system, by identifying abnormal growth patterns indicative of early-stage infections.
Sea lice counting based on high resolution imagery, rather than manual inspection, will facilitate automatic sampling of a large number of fish each day. This will inevitably boost confidence in the estimated figures for the prevalence of sea lice, and enable treatment to be applied at precisely the correct time. Continuous information about sea lice numbers will also provide the farmer with a continuous assessment of cleaner fish efficacy, and will constitute a valuable tool for the development and testing of different preventive measures. Real-time surveillance will also reveal information about the circumstances during which infestation occurs. As with other biological anomalies, if we know when it happened and under which conditions, it may be possible to prevent sea lice infestations by manipulating the production environment. The switch to automatic sea lice counting will eliminate the need for laborious manual sea lice counting. More precise data can facilitate robust forecasting of the sea lice population size, as envisaged with the AquaCloud project, an innovation platform that aims to utilize the massive amount of data generated in and around
salmon farms to guide decisions and actions for optimal welfare and performance, with Marine Harvest as one of the partners involved. Knowing the sea lice situation weeks in advance, through forecasting and predictive tools, should result in fewer treatments over a full production cycle. Fewer treatments will lead to improved fish welfare, increased growth and significant cost savings.
Feeding salmon in a pen is not difficult in the practical sense, but doing so "optimally" is a challenging task that requires years of training and experience. Feeding requires intense human focus, and it can at times be challenging to provide this focus in the context of other priorities and issues. At certain periods of the year, feeding may be sub-optimal or made impossible by weather conditions or other environmental factors like algae in the water, low oxygen levels, or strong winds or sea currents. The feeding operator may not be able to reach the site, and/or able to distribute the feed. The intricacy of what constitutes the "best" feeding approach is evidenced by the variation in growth and feed conversion rates across our many farming sites. This variation is embraced, as it indicates potential for improvement given the relevant knowledge and tools.
Salmon behavior in a pen, and specifically how fish behave during feeding and across a feeding day, is a complex relationship. AI techniques can be used to decipher the "feeding complex" by considering a multitude of fish-related and farm data readily available through implementation of the correct sensors and instruments. Going forward, we will focus on developing a fully automated feeding control system. The potential of such a system is immense, with gains in growth and feed conversion rates through optimized feeding, the ability to provide feed without being on-site, and less dependence on weather and environmental conditions. It can also maintain a constant focus on its one single task. Multiple data streams, like environmental factors and weather conditions, biomass development, fish behavior, welfare status and pellet density can be integrated by machine-learning software to produce a best course of action in an unlimited range of feeding situations.
In 2018, R&D efforts to enhance salmon farming in traditional net pens will focus on developing and testing solutions to allow high-pressure net cleaning to be phased out. We will subject new camera systems to rigorous testing, and make significant efforts to further develop and test innovations to optimize net pen technology.
Wireless monitoring of the whole water column
Establishing real-time monitoring
Trialing the use of desalination plants to provide a constant brackish water layer to mitigate new sea lice infection
Trialing the use of sea lice traps and skimmers to remove sea lice from the environment
Trialing different combinations of preventive technologies/ approaches
efficiency
Lighting strategies
Lighting regimes to stimulate increased growth rate
Light as a tool in sea lice prevention
Real-time surveillance
Collecting environmental data from smart sensors
Developing machine learning models to allow identification of individual fish and realtime welfare monitoring, real-time biomass estimation, automatic sea lice counting and autonomous feeding control
Harnessing multiple data streams for decision support Development of AI techniques to facilitate optimized feeding
Development of novel camera solutions to improve feeding control and allow implementation of machine vision
Monitoring of nets, moorings and other site infrastructure
Key development for offshore/ exposed operations
Financing
Our financial success hinges on our ability to provide customer value from healthy, tasty and nutritious seafood, farmed both cost effectively and in an environmentally sustainable way.
831.9
| MATERIAL VALUE DRIVERS | AMBITIONS |
|---|---|
| Reliable shareholder return - profitability | ROCE% > 12% (per annum) |
| Reliable shareholder return - solidity | Total NIBD < EUR 1 200 million |
Total revenues in 2017 amounted to EUR 3 649.4 million, an increase of 4% from 2016. This improvement was mainly due to higher prices. We harvested 370 346 tonnes gutted weight of salmon in 2017, compared to 380 621 tonnes for the year ended December 31, 2016. Our earnings before financial items (EBIT), totaled EUR 484.9 million in 2017, compared to EUR 991.2 million in 2016. Our Operational EBIT came to EUR 792.1 million in 2017, compared to EUR 700.2 million for the year ended December 31, 2016. We achieved a return on capital employed (ROCE) of 26.7% in 2017, well above our long-term target of 12.0%. The comparable figure for 2016 was 28.1%. Following a strong cash flow in the year, the Group had a net interest-bearing debt (NIBD) at year-end of EUR 832 million, which is below our long-term target of EUR 1 200 million. The comparable figure at year-end 2016 was EUR 890 million.
THE MARKET IN GENERAL
SUPPLY
The global harvest volume of Atlantic salmon was approximately 2 073 500 tonnes gutted weight in 2017. This was 124 100 tonnes (6.4%) more than in 2016. Chile accounted for a significant portion of the increase as the output from Chile increased by 67 200 tonnes, mainly as a result of a recovery from the algal bloom experienced in 2016. Supply from Norway increased by 33 000 tonnes in 2017, while supply from Scotland increased by 15 200 tonnes. The increase in Norway and Scotland were mainly related to slightly improved handling of sea lice related issues. Supply from North America decreased by 6 200 tonnes. The supply from other regions increased by 14 800
tonnes compared to 2016.
| (GWT) | 2017 | 2016 | CHANGE % |
|---|---|---|---|
| Norway | 1 087 000 | 1 054 000 | 3.1% |
| Scotland | 156 900 | 141 700 | 10.7% |
| Faroe Islands | 70 900 | 69 600 | 1.9% |
| Ireland | 15 500 | 14 200 | 9.2% |
| Total Europe | 1 330 300 | 1 279 400 | 4% |
| Chile | 521 200 | 454 000 | 14.8% |
| North America | 145 500 | 151 700 | -4.1% |
| Total Americas | 666 700 | 605 600 | 10.1% |
| Australia | 54 900 | 45 800 | 19.9% |
| Other | 21 600 | 18 500 | 16.8% |
| Total | 2 073 500 | 1 949 400 | 6.4% |
Prices in 2017 decreased throughout the year from all-time high levels, due to an increase in the supply of salmon. The reference price for salmon of Norwegian origin decreased by 6.1% in the market currency compared to 2016. Although the prices in the North American market also decreased throughout the year, the average price increased in Miami and Seattle by 5.0% and 3.9% respectively.
| 2017 | 2016 | CHANGE | 2017 | 2016 | CHANGE | |
|---|---|---|---|---|---|---|
| MARKET 4) | MARKET 4) | % | NOK | NOK | % | |
| Norway 1) | 6.31 | 6.72 | -6.1% | 58.78 | 62.28 | -5.6% |
| Chile 2) | 5.41 | 5.15 | 5.0% | 44.76 | 43.29 | 3.4% |
| North America 3) | 3.48 | 3.34 | 3.9% | 28.74 | 28.08 | 2.3% |
1) Average superior price per kg gutted weight (NOS/FHL FCA Oslo). 2) Average D trim price per pound (Urner Barry Miami 2-3 pound). 3) Average superior price per pound gutted weight (Urner Barry Seattle 10-12 pound). 4) Market price in EUR for Norway, and USD for Canada and Chile.
| (GWT) | 2017 | 2016 | CHANGE % |
|---|---|---|---|
| EU | 918 200 | 940 500 | -2.4% |
| Russia | 67 600 | 68 900 | -1.9% |
| Other Europe | 79 200 | 73 500 | 7.8% |
| Total Europe | 1 065 000 | 1 082 900 | -1.7% |
| USA | 396 200 | 379 900 | 4.3% |
| Brazil | 79 900 | 83 800 | -4.7% |
| Other Americas | 109 100 | 104 700 | 4.2% |
| Total Americas | 585 200 | 568 400 | 3% |
| China/Hong Kong | 84 800 | 79 000 | 7.3% |
| Japan | 57 600 | 58 600 | -1.7% |
| South Korea/ Taiwan | 45 400 | 40 000 | 13.5% |
| Other Asia | 82 300 | 65 300 | 26% |
| Total Asia | 270 100 | 242 900 | 11.2% |
| All other markets | 110 500 | 102 000 | 8.3% |
| Total all markets | 2 030 800 | 1 996 200 | 1.7% |
Consumption in the EU fell by 2.4% compared to 2016. Although Germany, France and UK continue to be important countries for salmon consumption, higher retail prices have hampered sales to traditional retail customer in these markets. Developments in Spain, Italy, Benelux and the Nordic region were positive, with increased consumption. US consumption rose by 4.3% compared to 2016 and reached an impressive 396 200 tonnes. Growing imports of Chilean salmon and large-sized European salmon were the main drivers for the volume increase. Product innovation, convenient products and making salmon accessible in new areas are all having a positive effect on consumption. In Brazil consumption declined by 4.7% compared to 2016, largely due to the lack of available Chilean salmon resulting from the algal bloom in 2016 and its diversion to the higher paying US market. Consumption in the Asian market rose by 11.2% compared to 2016. The developments across Asia were in general very positive. The Chinese market grew by 7.3% compared to 2016 due to increased imports from Chile and Australia. Exports from Norway to China gained pace towards the end of 2017 which also contributed to growth.
Our main source of revenues is the sale of Atlantic salmon. Europe is by far the largest market for our salmon, representing approximately 70% of our total revenues in both 2017 and 2016. We experienced good sales growth in the UK, Benelux and Eastern European markets. France and Germany continue to be very important regions. However, higher retail prices have continued to hamper sales to traditional retail customers in these markets, although we saw signs of improvement towards the end of the year. A compensating factor for us was an increase in sales to discount retailers.
Compared to 2016, the relative share of sales to the American market increased, as prices in Americas improved significantly post the algal bloom, while Marine Harvest's sold volumes remained unchanged from 2016 levels. The reduced volumes from Chile were offset by increased volumes from Canada and Europe. For the Asian market, the relative share of sales compared to 2016 decreased somewhat, as shortages of large-sized fish more than offset the effect of price increases.
Sales of salmon products accounted for 90.9% and 91.1% of our revenues for the years ended December 31, 2017 and 2016 respectively. Fresh whole salmon (i.e. primary processed salmon) represented 41.1% of our total revenues in 2017, compared to 43.8% in 2016. In the same periods, fresh smoked salmon and fresh and frozen elaborated salmon (i.e. secondary processed salmon) accounted for 48.1% and 45.4% of our revenues respectively. We are actively pursuing strategies to reduce our dependence on spot market prices for salmon. This includes increasing our capacity to produce elaborated and value-added products, which generally command more stable consumer prices. In line with this strategy, we opened a new value-added plant in Surrey, Canada in 2017. This plant will produce value-added products for sale in western Canada and the north western region of the US. The Surrey plant is the latest addition to our value-added plant structure in North America. The other plants are located in Miami and Dallas. In addition, our branded smoked salmon producer Ducktrap in Maine is in the process of expanding its business.
Compared to 2016, the reference price for Atlantic salmon of Norwegian origin, measured in EUR, decreased by 6.1% in 2017. The reference price for salmon of Chilean and North American origin, measured in USD, increased by 5.0% and 3.9% respectively, mainly due to volume shortages following the algal bloom in Chile. The growth in harvested volumes in the last part of 2017 put pressure on spot salmon prices in all markets, but particularly in Europe, where the contract share is higher.
Marine Harvest achieved a combined global price that was 3% above the weighted reference price in 2017. The corresponding price achievement in 2016 was 9% below the weighted reference price. Relative to the reference price, contract sales made a positive contribution in 2017, but a negative contribution in 2016.
In 2017, the contract share ranged from 0% for salmon of Canadian origin to 47% for salmon of Norwegian origin and 46% for salmon of Scottish origin. The Group's overall contract share was 38% in 2017, compared to 42% in 2016.
The overall share of the volumes sold as superior quality rose to 93% in 2017 from 92% in 2016. Both figures are within the normal range.
| 2017 | NORWEGIAN ORIGIN |
SCOTTISH ORIGIN |
CANADIAN ORIGIN |
CHILEAN ORIGIN |
IRISH ORIGIN |
FAROESE ORIGIN |
TOTAL |
|---|---|---|---|---|---|---|---|
| Contract share | 47% | 46% | — | 17% | 82% | 4% | 38% |
| Quality - superior share | 93% | 96% | 90% | 88% | 89% | 91% | 93% |
| Price achievement | 102% | 111% | 100% | 99% | N/A | 131% | 103% |
The following is a presentation of our operating performance by business segment, using Operational EBIT per kg of fish harvested as a key measure of performance. The table below shows Operational EBIT for each of our operating segments for the years ended December 31, 2017 and 2016:
| (IN EUR MILLION) | 2017 | 2016 |
|---|---|---|
| Operational EBIT - Feed | 8.5 | 28.1 |
| Operational EBIT - Farming | 660.5 | 585.9 |
| Operational EBIT - Markets | 73.2 | 76.1 |
| Operational EBIT - Consumer Products | 61.7 | 21.5 |
| Operational EBIT - Other | -11.8 | -11.4 |
| Group Operational EBIT 1) | 792.1 | 700.2 |
| Group EBIT | 484.9 | 991.2 |
1) Group Operational EBIT is a non-IFRS financial measure. See Note 4 Business segments for an explanation of how we define and calculate Operational EBIT, and for a reconciliation of Group Operational EBIT to Financial EBIT according to IFRS.
Although underlying raw material prices decreased during the year, costs were negatively impacted by currency effects and the consumption of raw materials on stock purchased at higher prices. Feed prices (sales prices for the feed products) fell in line with underlying raw material prices, with a corresponding negative effect on earnings for our Feed segment.
Compared to 2016, Operational EBIT was also negatively impacted by EUR 3.8 million in costs related to the construction phase of the new feed plant in Scotland, which is expected to be completed in 2018. The new plant will have an estimated capacity of 170 000 tonnes per year, and is expected to create 55 permanent full-time jobs.
In December, our Norwegian feed plant reached a major milestone, with 1 million tonnes of feed produced since its start-up in 2014. The plant produced 305 174 tonnes of feed in 2017 (310 242 tonnes in 2016), ensuring that our Norwegian farming operations were 85.0% supplied by our own feed. The reduction from 86.5% in 2016 is due to rapid increase in demand towards the end of the year which exhausted stocks of finished goods and production capacity of the Bjugn plant, thereby necessitating external purchases of feed by Farming Norway.
We continue to develop our range of products to reduce our dependence on third-party feed purchases.
Farming's Operational EBIT totaled EUR 660.5 million in the year ended December 31, 2017, compared to EUR 585.9 million in the year ended December 31, 2016. The increase was primarily the result of higher prices achieved. The volume harvested decreased by 2.7% from 2016 to 2017. The cost in box decreased for our Scottish and
Chilean operations, while it increased for Norway and Canada. For details of our farming entities' operational performance, please see the comments under Operational performance by country of origin.
Our Sales and Marketing operations consist of the reporting segments Markets and Consumer Products.
Markets' Operational EBIT for the year ended December 31, 2017 came to EUR 73.2 million, compared to EUR 76.1 million in 2016. The 2017 Operational EBIT comprised EUR 41.4 million from Markets Europe, EUR 12.9 million from Markets Asia and EUR 15.6 million from Markets Americas, compared to EUR 41.9 million, EUR 11.9 million and EUR 22.3 million, respectively, in 2016.
In the European market, we experienced good sales growth in the UK, Benelux and Eastern European markets. The effects of reduced volumes were to a large extent offset by increased prices.
Markets Asia experienced a shortage of large-sized fish, but the effects of reduced volumes were more than offset by increased prices, and margins increased compared to the previous year.
The significant reductions in volumes from Chile had an adverse effect on earnings in Markets Americas compared to the previous year. The reduced volumes from Chile were replaced by increased volumes from Canada and Europe, but this negatively impacted margins. Consumption in the US increased in 2017, but is still low by European standards. One of the main barriers to consumption has been availability of fresh salmon in retail stores. The opening of our new value-added plants in Dallas, Texas (in the fourth quarter of 2016) and Surrey, near Vancouver (in the fourth quarter of 2017), has improved our market access.
Marine Harvest Consumer Products is geographically organized, but constitutes one reporting segment. Consumer Products' Operational EBIT for the year ended December 31, 2017 came to EUR 61.7 million, compared to EUR 21.5 million in 2016, making 2017 the best year ever for Consumer Products. 2017 was a record year for many of our plants, including Morpol, Boulogne, Rosyth, Pieters and Sterk.
For our Rosyth plant in the UK, 2017 was the first full year which was not affected by preparation and startup costs, which explains this unit's increased profitability compared to 2016. In general, the improved results at our other entities are due to operational improvements and the adjustment of sales prices to the upsurge in raw material costs in 2016 and 2017.
Salmon's share of total sales value was 84.3% in 2017 compared to 81.8% in 2016. We experienced good growth in the UK, Benelux and Eastern European markets in 2017. In the French and German markets, sales to traditional retail customers became increasingly difficult as a result of the high prices, although we saw signs of improvement towards the end of the year. However, our Consumer Products
organization managed to partly offset this through increased sales to discount retailers. All in all, the volume sold decreased by 7.9% compared to 2016, ending at 123 926 tonnes end-product weight. The volume decrease also contributed to higher overall processing costs per kilogram produced than in 2016.
For our Chilled operations (mainly smoked products), earnings have been positively affected by the adjustment of sales prices to accommodate increased raw material costs. Operational EBIT for the Chilled operations therefore ended at EUR 32.8 million in 2017, compared to EUR 20.3 million in 2016. Volumes have been under pressure due to price increases.
In our Fresh operations, Operational EBIT ended at EUR 28.9 million, which is a considerable improvement from EUR 1.2 million achieved in 2016. In general, the increase is due to operational improvements, successful promotions and the adjustment of sales prices to higher raw material costs. In 2016, results were still influenced by preparation and startup costs for the Rosyth plant. The development of MAP sales has been good in 2017, but the total volume sold has been stifled by the higher consumer prices.
| NORWEGIAN ORIGIN |
SCOTTISH ORIGIN |
CANADIAN ORIGIN |
CHILEAN ORIGIN |
IRISH ORIGIN |
FAROESE ORIGIN |
OTHER | TOTAL | |
|---|---|---|---|---|---|---|---|---|
| 2017 | ||||||||
| Operational EBIT | 462 977 | 153 652 | 81 293 | 58 581 | 29 894 | 18 932 | -13 243 | 792 087 |
| Harvest volume of salmon 1) | 210 152 | 60 186 | 39 389 | 44 894 | 9 745 | 5 980 | 370 346 | |
| Average price achievement 2) | 102% | 111% | 100% | 99% | — | 131% | 103% | |
| Contract coverage 3) | 47% | 46% | — | 17% | 82% | 4% | 38% | |
| Quality - superior share 4) | 93% | 96% | 90% | 88% | 89% | 91% | 93% | |
| Feed cost (EUR per kg) 5) | — | — | — | — | — | — | — | 1.69 |
| Total cost (EUR per kg)6) | — | — | — | — | — | — | — | 4.16 |
| Operational EBIT (EUR per kg) | 2.20 | 2.55 | 2.06 | 1.30 | 3.07 | 3.17 | — | 2.14 |
| EBIT (EUR per kg) | 2.01 | 1.46 | 1.34 | -0.87 | 3.17 | 3.05 | — | 1.31 |
| 2016 | ||||||||
| Operational EBIT | 514 851 | 41 092 | 109 794 | 4 164 | 6 320 | 33 792 | -9 816 | 700 198 |
| Harvest volume of salmon 1) | 235 962 | 45 046 | 43 349 | 36 931 | 8 441 | 10 893 | 380 621 | |
| Average price achievement 2) | 89% | 88% | 100% | 99% | — | 100% | 91% | |
| Contract coverage 3) | 49% | 66% | — | 14% | 83% | — | 41% | |
| Quality - superior share4) | 93% | 94% | 88% | 90% | 91% | 89% | 92% | |
| Feed cost (EUR per kg) 5) | — | — | — | — | — | — | — | 1.71 |
| Total cost (EUR per kg)6) | — | — | — | — | — | — | — | 4.00 |
| Operational EBIT (EUR per kg) | 2.18 | 0.91 | 2.53 | 0.11 | 0.75 | 3.10 | -0.03 | 1.84 |
| EBIT (EUR per kg) | 2.67 | 2.60 | 3.83 | 0.85 | 1.38 | 2.97 | — | 2.60 |
1) We measure our harvest volume in terms of tonnes of gutted weight of salmon. Harvest volume of salmon is a key measure of our success as, in the absence of trading, it corresponds to the volume of salmon available for sale. As trading volume generally achieves limited margin, harvested volume is the volume-related driver of our profit. 2) The average price achievement measures the prices that we are able to achieve on our products compared to a salmon price index. Price achievement is measured against NASDAQ for salmon of Norwegian, Scottish and Faroese origin and Urner Barry for salmon of North American and Chilean origin. The market reference prices are spot prices for superior quality salmon, while our achieved price is a blend of spot and contract price for all qualities. Average price achievement measures our ability to sell our products at above market rates and is thus important for understanding our performance. In situations where contract prices deviate from spot prices, or the quality of our sold fish is low, our achieved price will deviate from the reference price.
3) The contract coverage measure represents the percentage of our products that was sold pursuant to contracts. A contract is for this purpose defined as a commitment to sell our salmon at a fixed price for a period of three months or longer. We have a sales contract policy aimed at limiting our exposure to short and medium-term fluctuations in salmon prices. 4) The superior share of salmon is the percentage graded as being of superior quality, divided by the total volume of harvested salmon. If salmon for some reason, e.g., pale color or scale loss, cannot be classified as a superior product, it is downgraded and sold as production or ordinary grade product at a lower price.
5) Feed cost per kg harvested is calculated by dividing our total cost of fish feed for harvested fish by tonnes of gutted weight of salmon harvested. 6) Total cost per kg harvested is calculated by dividing our total cost for harvested fish by tonnes of gutted weight of salmon harvested.
Our Operational EBIT for salmon of Norwegian origin was EUR 463.0 million for the year ended December 31, 2017 compared to EUR 514.9 million in 2016. The effects of significantly higher salmon prices were offset by reduced harvest volume following reduced survival rates, as well as increased feed costs and increased sea lice mitigation costs. Operational EBIT per kg was EUR 2.20 compared to EUR 2.18 in 2016. Our EBIT for salmon of Norwegian origin was EUR 421.5 million for the year ended December 31, 2017 compared to EUR 630.9 million in the same period in 2016. EBIT per kg was EUR 2.01 in 2017 compared to EUR 2.67 in 2016.
Compared to 2016, the reference price for Atlantic salmon of Norwegian origin decreased by 6.1%. The global harvest growth in the latter part of 2017 put pressure on spot salmon prices in all markets, but particularly in Europe, where the contract share is higher. Our price achievement for the year ended December 31, 2017 was 2% above the reference price, compared to 11% below in 2016. In 2017, contracts had a positive effect on price achievement, while it was negative in 2016 due to the significantly increased spot prices that year. The contract share was 47% in 2017, compared to 49% in 2016. The superior share of salmon harvested in 2017 was 93% in both 2017 and 2016.
The harvest volume for the year ended December 31, 2017 was 210 152 tonnes gutted weight, a reduction of 25 810 tonnes from 2016. The decrease in harvest volume is due to biological challenges, in particular related to sea lice (reduced survival, early harvest and reduced appetite due to sea lice treatments).
The total cost per kg for salmon of Norwegian origin harvested in 2017 rose by 10.0% compared to 2016. The primary drivers for the cost increase were a rise in the health cost (mainly sea lice mitigation) and increased feed costs, combined with reduced survival mainly due to losses during sea lice treatment.
The feed cost for the fish harvested in 2017 was 4% higher than in 2016. This was mainly due to higher feed conversion rates. Other seawater costs per kg of fish harvested were 15% higher in 2017 than in 2016, mainly as a result of sea lice treatments. As in previous years, sea lice mitigation costs for the fish harvested in 2017 were high. The nominal exceptional cost related to sea lice mitigation amounted to EUR 80.6 million in 2017, compared to EUR 83.6 million in 2016, a decrease of 3.6%. However, per kg harvested it increased by 8.3% to EUR 0.38 per kg due to the volume decrease. We are engaged in several ongoing projects related to sea lice mitigation, and the level of sea lice was lower at the end of the year compared to the same time in 2016 in all regions in Norway.
Incident-based mortality in the amount of EUR 13.5 million was recognized in 2017 compared to EUR 18.2 million in 2016.
In 2017, our Norwegian Farming unit was divided into four regional business units for operational follow-up. The table below shows an overview of operating performance by region in 2017 compared to 2016. From January 1, 2018, the number of regions has been reduced from four to three (Regions South, Mid and North), see more information below.
| SOUTH | WEST | MID | NORTH | |||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |
| Operational EBIT (EUR million) | 92.5 | 104.3 | 145.1 | 171.5 | 100.0 | 85.2 | 125.4 | 153.8 |
| Harvest volume (GWT) | 42 000 | 49 495 | 61 999 | 72 356 | 52 625 | 47 932 | 53 527 | 66 179 |
| Operational EBIT per kg (EUR) | 2.20 | 2.11 | 2.34 | 2.37 | 1.90 | 1.78 | 2.34 | 2.32 |
| Incident based mortality (EUR million) | 3.5 | 1.9 | 0.3 | 4.5 | 7.5 | 6.1 | 2.2 | 5.7 |
| Superior share | 95% | 94% | 94% | 95% | 94% | 90% | 92% | 91% |
The table below shows a selection of operating metrics by country of origin for our harvested salmon for the years ended December 31, 2017 and 2016:
Operational EBIT in Region South amounted to EUR 92.5 million in 2017 compared to EUR 104.3 million in 2016. The volume harvested was 42 000 tonnes gutted weight compared to 49 495 tonnes in 2016. Operational EBIT per kg harvested was EUR 2.20 compared to EUR 2.11 in 2016. The effects of reduced volume and increased costs more than offset the effect of increased achieved price compared to 2016. The drop in volumes is mainly due to lower opening biomass. The cost development is a consequence of negative scale effects and harvesting from a lower performing generation of fish, with increased health costs and reduced growth. Incident-based mortality in the amount of EUR 3.5 million was recognized in 2017, of which EUR 1.3 million due to a bacteria incident at Fjæra, and the remainder due to gill issues. In 2016, incident-based mortality amounted to EUR 1.9 million.
Operational EBIT in Region West amounted to EUR 145.1 million in 2017 compared to EUR 171.5 million in 2016. Regions West and North were the most profitable regions in Norway in 2017. Region West was also the most profitable region in 2016. The volume harvested was 61 999 tonnes gutted weight compared to 72 356 tonnes in 2016. The reduction in volumes is mainly due to lower growth. Operational EBIT per kg harvested was EUR 2.34, compared to EUR 2.37 in 2016. The effect of increased prices has been more than offset by the effects of reduced volumes and increased costs. The main cost increases are feed costs, mainly due to increased feed conversion ratios, and increased health costs. Incident-based mortality in the amount of EUR 0.3 million was recognized in 2017; the largest incident in terms of costs was a EUR 1.1 million loss of smolt at the Steinsvik plant, partly offset by insurance income related to previous incidents. In 2016, incident-based mortality amounted to EUR 4.5 million.
Operational EBIT in Region Mid amounted to EUR 100.0 million in 2017 compared to EUR 85.2 million in 2016. Although Operational EBIT per kg harvested was improved to EUR 1.90 from EUR 1.78 in 2016, Region Mid was still the poorest performing region in Marine Harvest Norway. Several measures have been initiated to address the challenges in this part of our operations, including the restructuring of the company with effect from January 1, 2018. The volume harvested was 52 625 tonnes gutted weight compared to 47 932 tonnes in 2016. The increased volume is mainly due to the fact that the volume in 2016 was very low, in addition to early harvesting in 2017 following biological issues. Region Mid experienced significant challenges related to sea lice and related issues in both 2017 and 2016, and in 2017, the region was also negatively impacted by ERM/Yersiniosis. These issues have had an adverse effect on costs, but this has been more than offset by the effects of increased achieved prices and higher volumes compared to 2016. Incident-based mortality in the amount of EUR 7.5 million was recognized in 2017, mainly due to CMS, treatments and ERM/Yersiniosis. In 2016, incident-based mortality amounted to EUR 6.1 million.
Operational EBIT in Region North amounted to EUR 125.4 million in 2017 compared to EUR 153.8 million in 2016. Regions North and West were the most profitable regions in Norway in 2017. Region North was the region with lowest costs in Marine Harvest Norway in 2017. Operational EBIT per kg harvested was EUR 2.34 compared to EUR 2.32 in 2016. Increased achieved prices have more than offset the effects of reduced volumes and somewhat increased costs compared to 2016. The volume harvested was 53 527 tonnes gutted weight compared to 66 179 tonnes in 2016, and the main reason for the decrease was early harvesting in 2016. Incident-based mortality in the amount of EUR 2.2 million was recognized in 2017, mainly related to CMS. In 2016, incident-based mortality amounted to EUR 5.7 million.
Marine Harvest Norway has initiated a restructuring with effect from January 1, 2018. The aim of the restructuring is to adapt to the amended fish farming regulations in Norway regarding production areas, and to streamline the organization following the cost increases and volume reductions in recent years. The number of regions in Marine Harvest Norway has been reduced from four to three: Regions South, Mid and West. Financial EBIT in 2017 was impacted of a provision of EUR 2 million related to this restructuring work.
Our Operational EBIT for salmon of Scottish origin was EUR 153.7 million for the year ended December 31, 2017 compared to EUR 41.1 million in 2016. Operational EBIT per kg was EUR 2.55 in 2017 compared to EUR 0.91 in 2016. The improved results are due to higher achieved prices, higher volume, lower costs and improved margin allocated by Consumer Products to salmon of Scottish origin. The overall fish health situation improved for our Scottish operations in the first nine months of the year when we harvested from good performing sites. However, biological performance was more challenging in the last quarter of the year.
Our EBIT for salmon of Scottish origin was EUR 87.9 million for the year ended December 31, 2017 compared to EUR 117.2 million in 2016. EBIT per kg was EUR 1.46 in 2017 compared to EUR 2.60 in 2016.
The reference price in GBP decreased compared to 2016. The global harvest growth in the last part of 2017 put pressure on spot salmon prices in all markets, and as the contract share is higher in Europe, the effect was most significant in this region. Our price achievement for salmon of Scottish origin for the year ended December 31, 2017 was 11% above the reference price, compared to 12% below in 2016. Price achievement in 2017 was positively affected by contracts in 2017, but the effect was negative in 2016 due to the high spot prices. In addition, the margin from Consumer Products allocated to salmon of Scottish origin was improved in 2017. The contract share was 46% in 2017 compared to 66% in 2016, mainly due to increased volumes. The superior share was 96% in 2017 and 94% in 2016.
At 60 186 tonnes gutted weight, the harvest volume in the year ended December 31, 2017 was significantly increased from 2016, when the harvest volume was 45 046 tonnes. This was due to more biomass in sea at the start of the year, combined with good production and improved fish health.
Although total cost per kg for harvested fish were reduced by 3.8% from 2016, health costs have increased by 10.7%. In addition to sea lice and gill issues, our Scottish operations experienced a challenging situation related to a bacterial infection (Pasteurella skyensis). The sea lice levels at the end of the year were lower than at the same time in 2016. Mitigation of sea lice and related issues will remain a main focus area going forward.
The overall cost decreases, including the 4.0% drop in feed costs, were mainly due to positive scale effects from higher volumes, as well as improved biology in most of the year. Other seawater costs per kg harvested decreased by 3.5%.
In 2017, we recognized incident-based mortality losses in the amount of EUR 9.8 million, mainly related to anaemia, bacterial infection, CMS and gill issues. Incident-based mortality amounted to EUR 6.5 million in 2016.
Our Operational EBIT for salmon of Canadian origin was EUR 81.3 million for the year ended December 31, 2017 compared to EUR 109.8 million in 2016. Operational EBIT per kg was EUR 2.06 in 2017 compared to EUR 2.53 in 2016. The effect of increased overall prices compared to 2016 has been more than offset by lower volumes and increased costs. Our EBIT for salmon of Canadian origin was EUR 52.8 million in the year ended December 31, 2017 compared to EUR 166.2 million in 2016. EBIT per kg was EUR 1.34 in 2017 compared to EUR 3.83 in 2016.
Market prices for salmon of Canadian origin increased by 3.9% in 2017 compared to 2016, mainly due to volume shortages in the North American market following the algal bloom in Chile. The prices achieved equaled the reference price in both 2017 and 2016. There were no contracts for salmon of Canadian origin in 2017 or 2016. The superior share was 90% in 2017, compared to 88% in 2016.
The harvest volume in the year ended December 31, 2017 was 39 389 tonnes gutted weight compared to 43 349 tonnes in 2016. The decrease was due to lower opening biomass and unfavorable environmental conditions in sea.
In 2017, Marine Harvest Canada completed the purchase of assets owned by the Gray Aqua Group on the East Coast of Canada. In addition, Marine Harvest Canada entered into a conditional agreement to acquire the salmon farmer Northern Harvest, located in the same region. The transaction is subject to approval by relevant competition authorities and customary closing conditions. The potential acquisition is of strategic importance, and the benefits include expansion into a new region for Marine Harvest, as well as improved market access to the Eastern Canadian and US seafood markets.
Our Operational EBIT for salmon of Chilean origin was EUR 58.6 million for the year ended December 31, 2017 compared to EUR 4.2 million in 2016. Operational EBIT per kg was EUR 1.30 in 2017 compared to EUR 0.11 in 2016. Earnings in 2016 were significantly affected by the algal bloom in Region X.
The total cost per kg for salmon of Canadian origin harvested in the year ended December 31, 2017 increased by 12.1% compared to 2016, due to negative scale effects from reduced volumes, and adverse environmental circumstances which led to increased mortality and reduced growth. Incident-based mortality of EUR 1.9 million was recognized in 2017 (none in 2016) due to severe environmental conditions related to jelly fish, plankton and oxygen levels. Salmon of Irish origin Operational EBIT Our Operational EBIT for salmon of Irish origin was EUR 29.9 million for the year ended December 31, 2017 compared to EUR 6.3 million in the same period in 2016. Operational EBIT per kg amounted to EUR
Our EBIT for salmon of Chilean origin was EUR (39.2) million in the year ended December 31, 2017 compared to EUR 31.4 million in 2016. EBIT per kg was EUR -0.87 in 2017 compared to EUR 0.85 in 2016. The 2017 financial EBIT was negatively affected by a EUR 97.2 million impairment of licenses. Marine Harvest Chile has 187 seawater licenses, and a large part of the capacity is unused. Based on an assessment of the recent regulatory changes for fish farming in Chile and estimated volumes going forward, the value-in-use of the licenses is considered to be impaired.
Market prices for salmon of Chilean origin increased by 5.0% in 2017 compared to 2016, mainly due to volume shortages in the North American market following the algal bloom in 2016. The prices achieved were 1% below the reference price in both 2017 and 2016. The contract share increased to 17% in 2017 from 14% in 2016. The superior share for salmon of Chilean origin was 88% in 2017 compared to 90% in 2016.
At 44 894 tonnes gutted weight, the harvest volume in the year ended December 31, 2017 was higher than in 2016, when it totaled 36 931 tonnes gutted weight. This was a consequence of the algal bloom, and changes in the harvest pattern.
The total cost per kg for Chilean salmon harvested in the year ended December 31, 2017 was reduced by 12.9% compared to 2016 on higher volumes and improved biology. Incident-based mortality in the amount of EUR 2.5 million was recognized in 2017, mainly related to SRS and a low-scale algal bloom in the first quarter. Incident-based mortality in 2016 amounted to EUR 9.5 million, mainly related to the algal bloom.
3.07 in 2017 compared to EUR 0.75 in 2016. The increase is due to improved prices for organic salmon, increased harvest volumes and decreased costs.
Our EBIT for salmon of Irish origin was EUR 30.9 million in the year ended December 31, 2017 compared to EUR 11.6 million in the same period in 2016. EBIT per kg was EUR 3.17 in 2017 compared to EUR 1.38 in 2016.
As our Irish operation mainly produces organic salmon, there is no reference price available for benchmarking. Compared to 2016, prices achieved were up by 22% for the year ended December 31, 2017. Our contract share was stable at 82% compared to 83% in 2016. The superior share of salmon harvested was 89% in 2017 and 91% in 2016.
The harvest volume in the year ended December 31, 2017 was 9 745 tonnes gutted weight compared to 8 441 tonnes in 2016. Volumes in 2016 were influenced by very challenging weather conditions and biological issues.
The total cost per kg for salmon of Irish origin harvested in the year ended December 31, 2017 decreased by 13.9% compared to 2016 mainly due to positive scale effects from increased volumes and improved biology. Incident-based mortality in the amount of EUR 4.7 million was recognized in 2017, compared to EUR 3.5 million in 2016.
Our Operational EBIT for salmon of Faroese origin was EUR 18.9 million for the year ended December 31, 2017 compared to EUR 33.8 million in 2016. Operational EBIT per kg was EUR 3.17 in 2017 compared to EUR 3.10 in 2016. Due to the limited number of sites in operation, we have extended periods without harvesting on the Faroe Islands. In 2017, there was no harvesting from February to August.
Our EBIT for salmon of Faroese origin was EUR 18.2 million in the year ended December 31, 2017 compared to EUR 32.3 million in 2016. EBIT per kg was EUR 3.05 in 2017 compared to EUR 2.97 in 2016.
Compared to 2016, the reference price decreased by 6.1% on increased supply. The bulk of the salmon harvested was sold at favorable prices, and achieved prices in 2017 were 31% above the reference price, while it was at the reference price level in 2016. The contract share was 4% compared to 3% in 2016.
The harvest volume in the year ended December 31, 2017 was 5 980 tonnes gutted weight compared to 10 893 tonnes in 2016. The low volume in 2017 was due to the uneven smolt stocking pattern resulting from the limited number of sites in operations.
In 2017, the cost level for salmon of Faroese origin was higher than in 2016 mainly due to negative scale effects from reduced volumes. There was no incident-based mortality in 2017, compared to EUR 2.5 million in 2016.
Our principal sources of liquidity are cash on hand, revenues generated from our operations, loans and other financings. Our principal needs for liquidity have been, and will likely continue to be, costs of raw materials, including fish feed, other working capital items and capital expenditures, to service our debt, and to fund dividend payments and acquisitions. We believe that our liquidity is sufficient to cover our working capital needs in the ordinary course of business.
Our cash and cash equivalents as of December 31, 2017 was EUR 71.7 million compared to EUR 103.9 million as of December 31, 2016. Cash and cash equivalents comprise cash and bank deposits, including restricted funds. Restricted funds comprise employees' income tax withholdings as well as deposits to fulfill collateral requirements for financial instruments.
Our NIBD was EUR 831.9 million as of December 31, 2017, i.e. at the same level as the EUR 890.0 million as of December 31, 2016. As a result of the new feed factory in Scotland and expected higher longterm earnings, the Board of Directors has revised the Farming NIBD/ kg from EUR 1.8 to EUR 2.0 and the long-term net interest bearing debt target from EUR 1 050 million to EUR 1 200 million.
Our capital expenditures primarily relate to investments in our operating facilities and equipment used in our operations. Net capital expenditures were EUR 248.7 million for the year ended December 31, 2017, compared to EUR 199.2 million for the year ended December 31, 2016. For 2017 and 2016 respectively, EUR 79.2 million and EUR 94.8 million of the total net capital expenditure was attributable to our farming operations in Norway. In both 2017 and 2016, the bulk of the capital expenditure in Norway was related to expansions in our fresh water operations, investments related to mitigation of sea lice, and general maintenance investments at our seawater facilities. The main purpose of the expansions in our fresh water operations is to enable the production of larger smolt.
Cash flow from operations for the year ended December 31, 2017 was EUR 632.4 million, compared to EUR 693.2 million for 2016. The increased earnings in 2017 compared to 2016 were offset by increased working capital tie-up and increased prepayments of tax.
Cash flow from investments for the year ended December 31, 2017 was EUR -234.7 million, compared to cash flow from investments of EUR -132.6 million in 2016. The differences were primarily due to the new feed factory in Scotland, as well as the positive cash flow in 2016 related to the divestment of shares in Grieg Seafood.
Cash flow from financing for the year ended December 31, 2017 was EUR -425.5 million, compared to EUR -533.0 million for 2016. In 2017, the cash flow effect related to the bond converted to equity amounted to EUR 349.1 million. In line with the dividend policy, repayment of paid-in capital amounted to EUR 640.3 million in 2017. In 2016, repayment of paid-in capital amounted to EUR 418.1 million.
In 2017, we completed the closing of a senior secured five-year EUR 1 206 million multi-currency revolving credit facility. The facility includes an accordion option of EUR 200 million. We also completed the conversion of the EUR 375 million convertible bond to equity.
As of December 31, 2017 our main outstanding borrowings consisted of the EUR 1 206 million syndicated facility mentioned above, a convertible bond of EUR 340 million and an unsecured bond of NOK 1 250 million.
For further details of our borrowing facilities and bonds, please see Note 11 to the Group financial statement. For further details of how to analyze our performance, please see Part IV - Analytical Information.
Another record year for profit in Farming, and all time high Operational EBIT in Consumer Products. New milestone achieved in Feed.
Dividend growth and NIBD below target
tonnes of feed produced
paid out to the shareholders as repayment of paid in capital (NOK 8.60 in 2016)
Operational EBIT (EUR)
million at year end, below target level (NIBD target EUR 1 200)
Operational EBIT (EUR)
New milestone in Feed All time high profit in Farming All time high profit in
Consumer Products
Dividend of NOK NIBD of
Good prices globally on increased supply Supply of Atlantic salmon increased by 6%
in 2017, which was driven by the recovery of
volumes in Chile following the algal bloom in 2016, and by increased harvest in Norway and Scotland. Prices in 2017 decreased throughout most of the
year from all-time high levels, due to an increase in supply of salmon. The reference price for salmon of Norwegian origin decreased by 6% compared to 2016. Although the prices in the North American market also decreased throughout most of the year, the average yearly price increased in Miami
increased by an average rate of 5.1% per year between 2012 and 2017, mainly due to increased cost of feed and biological challenges.
Continuous cost increases in Farming In EUR our cost per kg in Farming has 2012 2013 2014 2015 2016 2017 Farm cost EUR 0.00 1.00 2.00 3.00 4.00 5.00 (EUR)
Norwegian Chilean Canadian
Our operational success and long-term profitability ultimately depend on sustainable and environmentally responsible interactions with the natural environment. We rely on qualified personnel to maintain fish health, avoid escapes and minimize the environmental impact of our operations.
producing Atlantic
Escapes
Sustainable feed
| Medicine use and losses | |
|---|---|
Comparing a high meat-eating consumer's daily GHG of 7.19 kg CO2e/day with a fish-eating consumer's 3.91 kg CO2e/day.
Data based on Scarborough et al 2014. Dietary greenhouse gas emissions of meat-eaters, fish-eaters, vegetarians and vegans in the UK. Climate Change 125: 179 - 192.
| MATERIAL VALUE DRIVERS | AMBITIONS |
|---|---|
| Climate friendly food production | ASC certified sites Reduce energy consumption in our processing plants by 10% by 2018 compared to 2016 |
| Prevent fish escapes | Zero escapes |
| Fish welfare, health and robustness | 99.5% survival in sea (avg mt) by 2020 |
| Sea lice management | 0% of sites above limit (avg mt) Reduction in sea lice medicine use (% year-on-year) |
| Responsible use of medicines and chemicals | Reduction in antibiotic use (g per tonne prod) from 2015 |
| Efficient and sustainable fish feed | 100% compliance with our sustainable feed sourcing policy |
For Marine Harvest, sustainable development is the means to achieve long-term growth and profit. We are strongly committed to safeguarding the interests of future generations, by protecting the environment and supporting local communities. We also see our contribution to the realization of the UN's sustainable development goals (SDGs) as a business opportunity. Out of the 17 SDGs, we can contribute significantly to at least seven: good health and well-being; decent work and economic growth; industry, innovation and infrastructures; responsible consumption and production; climate action; life below water and partnership for the goals. For more information, please see Leading the Blue Revolution in part 1.
GHG Emissions Your dietary choices have an impact on climate change.
Fish farming offers us a tremendous opportunity to help tackle some of the world's most pressing challenges, such as global climate change. Fish farming is among the most climate-friendly forms of animal husbandry. The carbon footprint of farmed salmon is only 2.9 kg of carbon equivalent per kg of edible product, compared to 5.9 kg of carbon equivalent per edible kg of pork and 30.0 kg per edible kg of beef (SINTEF, 2009). For the consumer, replacing pork and beef with fish would significantly reduce their personal carbon footprint (daily greenhouse gas (GHG) emissions).
We have adopted a global approach to climate change, through the development of an overall policy and the implementation of global minimum requirements for reduction targets, energy-saving initiatives and reporting. Since our processing plants account for the bulk of our overall GHG emissions, we aim to reduce their overall energy consumption by 10% by the end of 2018. In 2017, we implemented a number of energy-saving initiatives at our primary and secondary processing plants.
Our energy consumption and GHG emissions data are reported internally on a quarterly basis, and audited annually. We disclose our GHG emissions strategy and performance in association with the Carbon Disclosure Project (CDP).
We believe that we can accelerate progress by focusing on key partnerships. In 2017, we worked closely with the Global Salmon Initiative (GSI, https://globalsalmoninitiative.org/) on several initiatives linked with ASC certification, non-medicinal approaches to sea lice management and sustainable feed sources. We continued to support the Global Sustainable Seafood Initiative (GSSI, http://www.ourgssi. org/), which plays an important role in providing clarity on seafood certification.
As part of the Keystone dialogues (http://keystonedialogues.earth/), Marine Harvest and other key players in the seafood industry have launched a joint global initiative called "Seafood Business for Ocean Stewardship" (SeaBOS). Our contribution to this initiative ranges from increasing transparency and traceability at our own operations to securing new growth in aquaculture through the deployment of best practices in preventive health management, including improved regulatory regimes.
Initiatives to train employees to contribute to more efficient energy use. Examples of these initiatives are using timers
| Energy saving initiatives | Description |
|---|---|
| Employee awareness | and power strips on electrical objects and regulating heat. |
| Implementation of LED lights | Replacing incandescent lights with LED lights. |
| Heat recovery | pumps and exchangers are examples used for this purpose. |
| Equipment installation/improvement | energy-friendly fuel and equipment working on a variable frequency drive (VFD). |
Taking advantage of heat already produced in one process as a heat source in another process. Transformers, heat
Replacing or upgrading old equipment. Examples of these initiatives are new of improved equipment, using more
In the Farming Business Area, the intensity of our GHG emissions rose 11% compared to 2016. This was mainly attributed to increased energy consumption in Canada and Scotland. In Canada, the increase is attributed primarily to the expansion at our marine production sites and modifications at two freshwater hatcheries. The principal increase of electricity consumption is attributed to the upgrades at our two hatcheries. The higher use of diesel is attributed to new larger capacity diesel generators that were installed at several marine sites. These generators were needed to power new feeding systems designed and tailored for our largest facilities.
In 2017, we continued to align our sustainability strategy with the UN universal principles on human and labor rights, the environment and anti-corruption, and to take actions that advance societal goals (https://www.unglobalcompact.org). In 2017, we achieved our target of 10% reduction in energy consumption at our processing plants at eight plants (22% of all our plants).
In Scotland higher electricity and fuel oil consumption is related to increasing production at sea and freshwater (RAS) facilities, processing at our Blar Mhor facility and use of wellboats during treatments and harvest operations. In Norway and Ireland, it was possible to reduce energy use as compared to 2016. In Ireland an ongoing program to change all lighting to LED lights has resulted in 22% reduction in energy use at the land facilities.
The Feed Business Area achieved a 5% decrease in kg CO2e per tonne feed produced in 2017. This is mainly attributable to ongoing energy saving initiatives such as upgrading drying equipment for better control of air flow and reuse of condensate water from vacuum pumps.
The intensity of GHG emissions from the Sales and Marketing Business Area, which includes our secondary processing units and sales offices across the globe, rose 35%. This is explained by inclusion of data from our Rosyth production plant and production of more value-added products in our plants in Europe and Japan.
| 2017 | 2016 | 2015 | |
|---|---|---|---|
| Energy consumption | |||
| Direct energy consumption (Scope 1) |
1 671 | 1 561 | 1 531 |
| Indirect energy consumption (Scope 2) |
1 168 | 1 056 | 1 038 |
| Total energy consumption (TJ) | 2 839 | 2 618 | 2 569 |
| GHG emissions | |||
| Direct energy consumption (Scope 1) |
122 914 | 111 818 | 103 645 |
| Indirect energy consumption (Scope 2) |
92 367 | 86 965 | 85 634 |
| Total GHG emissions (tonne CO2e) | 215 281 | 198 782 | 189 278 |
Indirect energy emissions refer to electricity consumption and district/indirect heating, while direct energy emissions refer to the use of fossil fuels, such as diesel, fuel oil, gasoline/ petrol, heating oil, natural gas and propane/LPG. The methodology used for the carbon accounting is A Corporate Accounting and Reporting Standard (Revised Edition). The chosen consolidation approach for emissions was operational control. All figures are direct consumption reported by each Business Unit, multiplied by an energy conversion factor and carbon emission factor per unit consumed. All emission and conversion factors for direct emissions are from DEFRA 2017, while emission factors for indirect energy use are based on a threeyear rolling average calculation (2013-2015) using International Energy Agency statistics. The emission factor for electricity consumption in Norway is the Nordic average production mix 2013-2015. The GWP reference is IPCCAR5 (IPCC Fifth Assessment Report). All six greenhouse gases are taken into account and converted into carbon equivalents (CO2e). All figures listed as CO2 in the report are metric carbon equivalents. 2015 and 2016 results were adjusted in accordance with the most recent data set. This is due to the fact the data from certain units are revised after the annual report is released. In addition, continuous data collection improvements, including verification of data relating to previous periods, may cause changes in the final results.
In 2017, our actions and strategies in response to climate change were recognized by the Carbon Disclosure Project (CDP). Marine Harvest was the only salmon farming company in CDP's leadership category (A-).
"This excellent result indicates Marine Harvest Group has implemented a range of actions to manage climate change, both in its own operations and beyond. Companies at Leadership level show evidence of at least one of the following: meaningful targets and emissions reduction activities and verified or assured emissions data"
Third-party certification remains key to our sustainability strategy. We continue our ASC (Aquaculture Stewardship Council) certification efforts. At the end of 2017, Marine Harvest accounted for 36% of all the ASC certified Atlantic Salmon sites worldwide, reaffirming that we are the leading producer of ASC certified farmed salmon.
We certified a total of 13 new sites in 2017, bringing the accumulated total to 72 sites for Marine Harvest Group. This represents 31% of all our farming facilities. Please see the table below for more information about the percentage of farms certified by Business Unit. In Norway, Canada and Ireland, more than 40% of all our sites are now ASC certified. These positive results reflect the commitment and dedication of our ASC implementation teams.
| Number of sites certified (% of total sites) | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2017 | 2016 | 2015 | ||||||
| Norway | 51 (43%) | 43 (35%) | 31 (26%) | |||||
| Scotland | 2 (4%) | 2 (4%) | 2 (4%) | |||||
| Canada | 14 (45%) | 7 (23%) | 3 (10%) | |||||
| Chile | — | 3 (14%) | 2 (9%) | |||||
| Ireland | 4 (50%) | 3 (38%) | 1 (13%) | |||||
| Faroe Islands | 1 (33%) | 1 (33%) | — | |||||
| Group | 72 (31%) | 59 (26%) | 39 (17%) |
Public reporting information for our ASC sites is available at asc-aqua.org.
"Personally, environmental and sustainable issues are important to me. I therefore find it very important and rewarding working at an ASC certified site, which is an environmental friendly way to run our operations."
Kurt Frode Aahjemm, Site Manager at Brudevik, Marine Harvest Norway
To lead the Blue Revolution, we must have a positive impact on global issues, such as climate change, and also tackle environmental challenges that are more industry-specific. Moving forward, we will continue to focus on verification of our improvements by reputable third-party certification schemes, such as the ASC, BAP and Global GAP. In 2018, we aim to increase the number of ASC-certified sites in Chile and Scotland, and will continue the roll-out to our remaining units. In 2018, we expect to certify an additional 14 sites worldwide.
The presence of microplastics in the world's oceans is an emerging issue that we will be looking at in 2018. Our aim is to investigate our contribution to this problem and assess how we can improve our plastics management procedures.
Key partnerships will remain important for us moving forward. Our support for and contribution to the GSSI, GSI, UN Global Compact and SeaBOS initiatives will continue in 2018.
Because escaped farmed salmon may have a negative impact on the environment, due to ecological interactions and interbreeding with wild populations, we have set a target of zero escapes.
In 2017, we updated our global training program on escape prevention and mitigation. This training aims to reaffirm our internal standard for seawater and freshwater management, including the sharing of experiences and lessons to be learnt after escapes, and the highlighting of behavioral changes that can make a difference. We focused on simplifying procedures and developing checklists that our site managers can use to help prevent human error leading to escapes.
In 2017, the number of escaped fish increased to a total of 23 223 (15 escape incidents), compared to 11 escape incidents and a total of 12 790 escaped fish in 2016. A total of 20 000 fish escaped in one incident in Ireland, which was caused by a slider weight ripping the net wall during net changing under strong tidal conditions. After the incident, staff training and the procedures for changing nets were improved. The second largest incident took place in Scotland, with 1 558 fish escaping from Loch Alsh as a result of a thermolicer treatment where the discharge pipe was not properly secured and ended up in the sea. After this incident, we strengthened training in the use of the thermolicing equipment, and improved the video cameras used in the control room to monitor suction and discharge points. In Chile, an escape incident took place after a storm when several objects floated around the site causing damage to a net. Checks of net integrity after storms have been reinforced after this incident.
Our target of zero escapes was achieved on the Faroe Islands and the Western and Southern regions of Norway.
We know that 2018 will be a challenging year as an escape incident in Norway resulted in 54 000 escaped fish in February. We will continue our efforts to improve our training programs, which focus on minimizing human error, ensuring that best practices for delousing operations are followed and implementing anti-fouling strategies that reduce the need for net cleaning.
| 2017 | 2016 | 2015 | |||||
|---|---|---|---|---|---|---|---|
| Number of escape incidents |
Number of escaped fish |
Number of escape incidents |
Number of escaped fish |
Number of escape incidents |
Number of es caped fish |
||
| Norway | 7 | 1 300 | 7 | 9 738 | 12 | 70 447 | |
| Scotland | 3 | 1 571 | 1 | 50 | 3 | 16 003 | |
| Canada | 3 | 4 | 2 | 2 | — | — | |
| Chile | 1 | 348 | — | — | 1 | 8 000 | |
| Ireland | 1 | 20 000 | 1 | 3 000 | — | — | |
| Faroe Islands | — | — | — | — | — | — | |
| Group | 15 | 23 223 | 11 | 12 790 | 16 | 94 450 |
Safeguarding the health and welfare of our fish stocks boosts survival rates, which is both financially beneficial and positive for the environment.
Our goal is to rear healthy fish and ensure the welfare of our stocks. We tend our fish under conditions that satisfy their biological needs for food, clean water and space, and we ensure that our fish obtain the necessary nutrients for good health throughout their lives. Our fish are stocked at densities that balance welfare and enhance performance. Coordinated fallowing and synchronized production are integral components of our farming practices and reduce biological risk.
Under the supervision of our fish health professionals, we continuously apply good farming practices and high standards of biosecurity to optimize the health and welfare of our stocks. High levels of fish health and welfare are achieved through compliance with veterinary health plans, recognized standards and certification schemes (such as those of the Royal Society for the Prevention of Cruelty to Animals, Global GAP, ASC and the OiE Aquatic Animal Health Code) and local welfare laws and regulations. Smolt quality and vaccination are key factors. We vaccinate 100% of our fish, and take a great deal of care to ensure the quality and robustness of our smolt, in order to reduce health risks and maximize the welfare of our stocks.
"Good fish health and welfare is a prerequisite for optimal performance and is essential for sustainable growth. Ensuring good fish welfare is the ethical responsibility of a site manager."
Gordon Ritchie, Group Manager Health & Welfare
In 2017, the Group achieved >98% average monthly survival rate (% biomass) in seawater. As a result of our on-going efforts to reduce the risk of infectious diseases, these accounted for just 39% of the total number of fish lost during the year. The remaining 61% were lost to non-infectious causes.
Following the implementation of further measures to alleviate Salmonid Rickettsial Septicaemia (SRS) in Chile, including a new vaccine, we experienced a further reduction in losses, and expect this development to continue going forward. Relative to 2015, biomass and numbers lost to SRS have now been reduced by 63% and 65% respectively. In 2107 losses associated with Heart and Skeletal Muscle Inflammation, Amoebic Gill Disease, sea lice treatment, algal blooms and poor performers were also lower than in 2016.
The incidence of Cardiomyopathy Syndrome (CMS) and gill infections (excluding AGD), for which there are no vaccines, increased in 2017. Losses due to Pancreas Disease (PD) also increased, due to its re-emergence at a few sites in Western Norway. These developments may be attributed partly to additional fish handling to address the sea lice challenge and reduce the use of medication. Despite continuing to apply our strict risk management approach to Infectious Salmon Anemia, three cases were recorded in Norway in 2017. While treatment losses were reduced by around 20% in 2017, this remains one of our priority focus areas for improvement. Through our breeding and genomic selection program, significant advances were made in the identification of traits for resistance to PD, CMS and sea lice, and these are expected to result in further improvements in our stocks' survival rate.
Safeguarding the health and welfare of our stocks, and improving survival rates, will remain a primary focus in 2018. We will continue to closely monitor the causes of reduced survival and set our R&D priorities accordingly. The further development of gentler delousing treatments, the application of new vaccines, advances in genomic selection for disease resistance and the conclusions of several important R&D projects are expected to contribute towards our long-term goal of >99.5% monthly survival. We will continue to support industry research initiatives in the area of fish health and welfare, and we will continue to engage in the development of better industry practices through the Global Salmon Initiative.
| INFECTIOUS | NON-INFECTIOUS | ||||||
|---|---|---|---|---|---|---|---|
| FISH NUMBERS | BIOMASS | FISH NUMBERS | BIOMASS | ||||
| 1 | CMS | CMS | Treatments | Treatments | |||
| 2 | Gill infections | Gill infections | Poor performers | Poor performers | |||
| 3 | Wounds | HSMI | Physical damage | Physical damage | |||
| 4 | HSMI | PD | Transport | Transport |
(CMS, Cardiomyopathy Syndrome; HSMI, Heart and Skeletal Muscle Inflammation; PD, Pancreas Disease)
Effective sea lice management is important for fish welfare and to ensure sea lice on our farms do not negatively impact wild salmonid stocks. Sea lice also represent a significant cost to the industry.
We continuously strive to improve our approach to sea lice management and minimize the number of adult female sea lice at our sites, especially during the period when wild salmon smolt migrate to sea. Our goal is to manage sea lice in an integrated manner, and reduce our reliance on medicines, through the application of strategic, preventative and non-medicinal measures, such as the use of cleaner fish. We continue to respect the precautionary statutory limits on the maximum number of sea lice per fish, set by relevant authorities. We strive to develop and implement better management practices and the sharing of best sea lice management practices between our operations. Our R&D activities target innovative biological and non-medicinal methods to control sea lice numbers.
In 2017, we significantly increased our R&D activities in sea lice management and established the Lice Action Team, which is tasked with developing novel solutions for safe and cost-efficient sea lice control (see R&D section).
Preventive equipment, such as skirts around our pens and deep lights which keep sea lice away from the salmon, was used more comprehensively in 2017. At operations with non-medicinal treatment systems, an average of 55% (range 18-82%) of all treated fish were treated using non-medicinal tools. The proportion of fish treated with each system varied, depending on equipment availability, environmental conditions and fish size.
We have taken great strides towards our goal of managing sea lice in an integrated and sustainable manner, while reducing the amount of medicines used. We invested further in preventative measures, use of cleaner fish and non-medicinal treatment systems. An extensive review of our sea lice strategy in Norway revealed that several improvements in sea lice control have already been made, and identified areas where further progress can be achieved. While we observed a satisfying decrease in losses where delousing treatments were carried out, we continue to strengthen our efforts to further develop integrated approaches and safer non-medicinal treatment systems at our operations. PRIORITIES GOING FORWARD Maintaining low levels of sea lice at our sites will remain our first
We made further advancements in cleaner fish production in Norway, Scotland and Ireland, and invested in cleaner fish R&D in Chile, Canada and the Faroes as well. On average, 78% of those operations with access to cleaner fish made use of them in 2017.
The average monthly percentage of sites above national sea lice limits (at any time) for each Business Unit is shown in the graph at the end of this section. Good progress was achieved in Canada and, to some extent, Chile. In Norway, the percentage of sites above limits remained stable. In Scotland, limits were introduced in April, resulting in a decrease in the percentage of sites above limits. In Ireland and the Faroes, several factors, including environmental challenges, limited access to non-medicinal treatment systems and high lice challenge pressure, hampered full application of our lice strategy.
priority. We will optimize existing solutions, develop novel and cost-effective methods (through our Lice Action Team), and increase our expertise with regard to the use and welfare of cleaner fish. Our ambition is to ensure that sea lice control is based principally on integrated and non-medicinal approaches, allowing us to reduce the use of medication.
Goal: reduce infection pressure and medicine use
• Counting of 20 fish per pen, per week, implemented
• Single pen intervention approach and 0.2 adult female threshold implemented
• More widespread use of skirts in appropriate environments
(average) of all sites used cleaner fish in combatting sea lice
(average) of all treated fish treated using non-medicinal tools
Licensed medicines may have potential environmental impacts if used too frequently. The risk of sea lice developing reduced sensitivity to medicines is also a concern for the industry.
With our strong focus on optimizing fish survival and preventing disease, licensed medicines are only used when absolutely necessary. Sea lice medicines are additional tools for managing infestation levels and ensuring sea lice from farms do not impact wild salmonids. We use licensed antibiotic medicines only when fish health and welfare are at risk from bacterial infection. Such medicines are applied in a responsible manner only when required and never prophylactically, and we take regular samples to ensure the fish contain no antibiotic residues at harvest.
withdrawal periods and medicine residues in our end products, please see the Product section.
Licensed medicines for sea lice control were prescribed and used only when required, under the supervision of authorized veterinarians and fish health professionals. As a consequence of the broader application of our sea lice strategy and use of non-medicinal treatment systems, our medicine use again fell sharply in 2017. The use of oral and topical medicines, as well as hydrogen peroxide, declined compared to 2016. From 2016 to 2017, our total medicine use and total active substance use (g/t biomass produced) were reduced by 73% as a result of the success of our sea lice strategy and the increased use of non-medicinal treatment methods. Bacterial challenges Licensed medicines for bacterial infections were prescribed and used only when required, and under the supervision of authorized veterinarians and fish health professionals. For information about The number of fish treated with antibiotics remained low in 2017, at 0.3% in freshwater (0.2% in 2016) and 2.5% in seawater (2.6% in 2016). PRIORITIES GOING FORWARD Reducing the use of antibiotics in our operations will remain an important priority. Results from several important R&D projects, together with more focus on vaccine development against Salmonid Rickettsial Septicemia in Chile, are expected to reduce biological risk and contribute to a decrease in antibiotic use. We will also increase our focus on the issue of antimicrobial resistance and management. Continuous implementation of our sea lice strategy, non-medicinal control methods, advances in our breeding program and compliance with the ASC standard are expected to contribute to further reductions in the use of sea lice medicines.
In total, our use of antibiotics (gram of active substance per tonne produced) to combat bacterial infections increased slightly from 53g in 2016 to 62g in 2017. No antibiotics were used in our operations in Ireland or the Faroe Islands and significant reductions were achieved in Canada and notably Chile. Salmonid Rickettsial Septicemia in Chile is a particularly challenging disease, since the causative agent, Piscirickettsia salmonis, is an intracellular bacteria, towards which vaccines have been relatively ineffective. The implementation of new best practices and the broader application of a new vaccine contributed to the significant reduction in Chile. Antibiotic use increased in Scotland because of increased bacterial challenges (Pasteurella skyensis, Moritella viscosa and Piscirickettsia salmonis). Due to an outbreak of Enteric Redmouth Disease at one site in mid-Norway, an antibiotic treatment was prescribed for the health and wellbeing of the fish and to prevent the disease from spreading. The amount of antibiotic medicine used was small and represented only 0.9g per tonne produced. We are implementing several measures to mitigate the risk of further outbreaks, including a new vaccination strategy. For an overview of our use of antibiotics, please see the graph at the end of this section.
Conserving the pool of biological diversity available to future generations is key to our business. We need healthy oceans, not only to drive sustainable salmon farming but also to support flourishing societies and buoyant national economies. We acknowledge that our activities could, potentially, impact biodiversity as a result of sea lice, medicinal treatments, fish escapes, organic loading/nutrient release and the sourcing of feed ingredients. For this reason, we strive to keep our impact to an absolute minimum.
In 2017, we once again paid due regard to critical, highly sensitive environmental areas, special areas of conservation (SAC) and/or special protected areas (SPA) in the vicinity of our sites.
Some of our sites are located close to protected areas or highly sensitive areas of biodiversity. For example, in Norway, we operate three sites in a protected area and have additional sites located on the border of wildlife conservation areas. In Scotland, we operate two marine sites in an SAC, five marine sites in areas classified as both SAC and Marine Protected Areas (MPA) and six marine sites in MPAs. The MPAs were set up in 2014, and all but one of the farms were already in place before the scheme was established. The designation of protected areas (SACs and MPAs) with existing fish farms reflects the minimal impact that farming has in these areas. In Canada, we have 12 marine sites bordering the Broughton Archipelago Provincial Marine Park, which is home to several species of marine mammals. However, none of our sites operates near official High Conservation Value Areas (HCVA) or federal MPAs. In Chile, we operate two marine sites located in a nature sanctuary called Estero Quitralco. In Ireland, five of our marine sites are located within special areas of conservation. These sites have several habitats listed in Annex I of the EU Habitats Directive, such as reefs, large shallow inlets, bays, tidal mudflats and sand flats. A further two marine sites are located within five kilometers of SPAs designated under the EU Birds Directive. For all of these protected sites, we undertake annual monitoring of the seabed, resulting in a comprehensive database of seabed animals under and adjacent to our sites. This, coupled with careful feed management and site fallowing, will continue to ensure that our production does not negatively affect such areas.
All our farming operations are certified according to standards that take account of biodiversity. These standards, such as Global GAP, BAP and ASC, include criteria to minimize environmental impact and preserve biodiversity. Marine Harvest is the industry leader when it comes to ASC certification, and we are continuing our efforts to certify our sites going forward. In addition, our responsible sourcing policy for feed ingredients is key to ensuring that both the marine and non-marine raw materials used in our fish feeds do not compromise biodiversity. Both our own feed plants and external feed suppliers must comply with this policy (see sustainable feed section). We continued our net recycling program in Europe and are looking for recycling possibilities in our Canadian and Chilean operations. In 2017, a total of 287 nets were recycled in Norway and Scotland.
In 2017, we continued to run mandatory national surveys to measure the potential impact of organic loading from our farming operations on the seabed. Results show that, on average, 85% of our sea farms have a minimal impact on faunal communities and/or sediment chemistry near to the fish pens. When the impact on the seabed is considered unsatisfactory (one site in the Faroes, five in Scotland, two in Chile, two in Canada, one in Ireland, two in Norway), we take corrective action. This may include reducing production, repositioning the pens and/or increasing the fallowing period, i.e. the time between production cycles, to allow the seabed to recover from organic loading. Compared to 2016, the largest difference in benthic impact was a reduction in compliance with national quality standards in Scotland. Several mitigation plans are in place, including remodeling with the new Depomod model and transferring production to better locations.
During 2017, we ran a total of 19 projects aimed at understanding our potential impact on biodiversity (three of these projects are highlighted below). In Norway, we are involved in several projects aiming at mapping the migration and survival of wild Atlantic salmon and sea trout and understanding the potential impact of farming activities on wild fish including egg production and recruitment of Atlantic cod. Also in Norway we worked in collaboration with Marin Overvåkning to monitor the effect of the aquaculture industry on the county's water quality.
In Scotland, we are involved in two projects to validate the use of next-generation eDNA sequencing for benthic monitoring. Also in Scotland, we initiated a project aimed at evaluating the level of genetic introgression in wild populations as a result of past escape incidents. In 2017, we continued our contribution to the restoration of the salmon population in the Upper River Lochy catchment, and on the Isle of Skye we run a sea trout telemetry project aimed at evaluating if salmon farms have any impact on sea trout movements. In addition to these projects, our Scottish team has been actively involved in the development and testing of the new version of the particle-tracking model, Depomod. This has allowed Marine Harvest Scotland to be the first company in Scotland to submit license applications using this new tool. Also in Scotland, we are developing area-wide hydrodynamic models that can be used to simulate the movement of particles (algae, sea lice, topical medicines).
The abundance of salmon in the Upper River Garry has declined over the last 50 years and is showing little sign of recovery. Fish counts have decreased from 600 to 800 in the late 1950's, to a current fiveyear average of just 60 fish. In 2012 the University of the Highlands & Islands - Rivers and Lochs Institute (RLI) was commissioned to carry out a scoping study for the development of a salmon stock restoration programme for the Upper Garry. Their recommendations included stock rehabilitation through supportive breeding and supplementary stocking. Scottish Southern Energy, the Ness & Beauly Fisheries Trust, the Ness District Salmon Fishery Board, Marine Harvest, Scottish Environment Protection Agency and RLI subsequently came together to collaborate on the delivery of a project to restore a self-sustaining wild salmon population to the upper River Garry.
ACCORDING TO NATIONAL SEABED QUALITY STANDARDS
Planning sea investigation
Sediment collection
In Norway, seabed quality standards are defined by the Fisheries Directorate. In the figure above, data from Norway and the Faroes refer to sites classified as 1 or 2 in MOM-B surveys. (MOM, short for 'Matfiskanlegg Overvåking Modellering', is a Norwegian fish-farm monitoring and modeling scheme.). The MOM-B surveys are performed regularly by third-party companies under and in the closest vicinity of the net pens, and are based on indicators such as pH and redox, sensory parameters, and presence and/or absence of macrofauna. The performance of these indicators against predefined thresholds categorizes the farming location into different environmental conditions: 1. Low, 2. Medium, 3. High-organic loading and 4. Organic overloading. In Ireland, national compliance is based on positive redox potential. In Scotland, classification is based on SEPA's criteria for seabed quality standards. In Chile, classification is based on Sernapesca's criteria for seabed quality. In Canada, seabed quality standards are defined by the Department of Fisheries and Oceans Aquaculture Activities Regulation. Compliance is based on sediment free sulphides at soft bottom sites and the presence/absence of Beggiatoa sp. and Opportunistic Polychaete Complex (OPC) at hard bottom sites.
In collaboration with the University of Geneva (Switzerland) and Aarhus University (Denmark) we validated the use of DNA metabarcoding as a tool to assess benthic impact in Norway. We are using this new methodology in several of our ASC certified sites In Norway and exploring the same possibility in Canada and Scotland. This new tool allows a faster, more reliable and more environmentally friendly assessment of benthic monitoring.
Together with NTNU (Norway) and several other industrial partners we have started a project in Norway aiming at establishing basic knowledge of how sea lice are spread, within
wild stocks of salmonids, and between wild
and farmed populations.
In 2017, we continued our nets recycling program in Europe with 287 nets being recycled. This corresponds to a decrease in waste equipment going to landfills, incineration or ending up at sea. Recycled nets are used to produce swimwear and carpet yarn.
5 projects on benthic monitoring Norway, Canada and Scotland 10 projects on interaction with wild populations Norway, Canada and Scotland 4 projects on water quality Norway and Faroe Islands
salmonids
From waste to value
In Canada, we are running two projects to improve benthic monitoring methodologies, including the validation of eDNA metabarcoding in British Colombia. Also in Canada, we are running a project to evaluate the transfer of sea lice between wild salmon and farmed salmon populations, and to monitor wild fish activity in the vicinity of aquaculture sites.
In the Faroe Islands, we are running a project to better understand the water quality around our farming location in Sundalagi and the adjacent fjord.
We will continue to focus on projects aimed at protecting our natural capital. Areas such as the reduction of benthic impact through improved monitoring tools, better understanding of farmed-wild salmon interaction, and waste (including plastic) management and recycling will be a priority.
Feed is a key component in ensuring the best possible fish health and performance. In any life cycle assessment* of salmon farming, feed also makes the largest contribution to its environmental footprint. To remain at the forefront of environmental responsibility, we prioritize the sourcing of sustainable feed ingredients, and strive to utilize feed as efficiently as possible at our fish farms.
Sourcing sustainable feed ingredients is crucial if we are to remain a front-runner with regard to environmental responsibility. Our policy for sustainable feed ingredients applies to all feed purchased externally, as well as the feed we produce ourselves. Our feed plant in Bjugn, Norway, is Global GAP certified, and produced more than 300 000 tonnes of feed in 2017. Marine Harvest Fish Feed supplied salmon feed to all our farms in Norway, except our northernmost and southernmost farms.
All ingredients - marine as well as non-marine in origin - which are used in the production of our feeds are fully traceable (for marine raw materials, please see the illustration on the following pages). Marine raw materials are sourced from suppliers who adhere to responsible fishery management practices, as defined by the ASC and/or the IFFO RS scheme (IFFO: The Marine Ingredients Organization). None of our raw materials originate from illegal, unregulated and unreported (IUU) catches, or from fish species classified as endangered on the International Union for the Conservation of Nature (IUCN) red list.
Through research collaboration with scientists from institutes and universities, as well as with industrial partners, we identify and source alternative ingredients - including responsibly produced plant proteins and oils - that provide the necessary nutrients for stateof-the-art salmon feed. As a result, we have significantly decreased our use of fishmeal in aquaculture feeds, while maintaining growth performance, product quality and fish health.
We support global efforts to increase the purchase of sustainably sourced vegetable raw materials. For example, we purchase soy protein concentrates that originate from areas protected from deforestation. Our producers ensure land and water use is lawful and respects the needs and rights of smallholders and indigenous peoples, as well as protecting workers' health and rights. Compliance with these prerequisites is verified through soy certifications, such as the Round Table for Responsible Soy (RTRS), ProTerra and equivalent schemes. The soy used in our own feed production is non-GM (not genetically modified), and is 100% sourced from Brazilian producers with ProTerra certification.
The feed conversion rate (FCR) is a ratio that describes the amount of feed used to produce a certain amount of salmon. It is often defined as kg feed consumed/kg biomass gained. The lower the FCR, the more efficient our salmon are at converting the energy in the feed. On a global level in 2017, we used 1.13 kg of fish feed to grow 1 kg of salmon. This is a favorable reduction from the previous year, and our objective is to constantly lower this figure in all our production areas.
In 2017, we found that advancements made in operational, management and feeding practices at most of our business units resulted in an improved bFCR. Biological feed conversion ratio expresses the amount of feed used to produce 1 kg of salmon, including the biomass that does not survive to harvest. However, the trend in some regions within our Norwegian and Canadian operations shows a steady rise in the amount of feed used per kg of salmon produced. Our ambition is to improve the bFCR in all our business units, and several measures to this end have already been initiated or are about to begin. We have almost completed a comprehensive survey of current practice in our organization, including feeding-related routines, equipment and expertise. The survey's preliminary results have already highlighted some common factors for success. A pilot-scale feeding trial, in which the effects of different feeding strategies were evaluated, is revealing interesting findings for feeding optimization. The next phase is to disseminate our new-found knowledge, to make sure that we implement good practice and success factors for bFCR and fish performance in all our operations. Our focus is to optimize the use of sustainable feed by providing our salmon with precisely the type and volume of feed needed to achieve maximum growth and fish welfare.
At present, our feed plant in Bjugn produces most of the feed for our farming activities in Norway. Construction work on a new feed production plant in Scotland started in 2017. The plant will adopt the same high standards for sustainable production, and will be a great asset in helping us fulfil our goals and ambitions.
* Life Cycle Assessment (LCA) determines the environmental impacts of products, processes or services, through production, usage, and disposal.
We tailor our feeds to match the changing requirements of the fish through their life-cycle
* Where supplements includes vitamins and minerals
fisheries
| FISH MEAL | VOLUME (TONNES) |
% OF TOTAL VOLUME |
FISH OIL | VOLUME (TONNES) |
% OF TOTAL VOLUME |
|
|---|---|---|---|---|---|---|
| Argentine, blue whiting, capelin, | Peruvian anchovy | 9 993 | 29,1% | |||
| horse mackrel, Norway pout, pilchard, sandeel, sprat, trimmings |
43 426 | 100% | Pacific anchovy | 4 230 | 12,3% | |
| from herring and mackrel | Moroccan sardine, round Sardinella, | 8 555 | 24,9% | |||
| Total fish meal (tonnes) | 43 426 | 100% | Moroccan sardine trimmings | |||
| Gulf menhaden | 8 499 | 24,8% | ||||
| Country of origin Peru, Mauritania, Panama, USA, Morocco, China, South Africa, Turkey, Chile, Denmark, Norway. |
Baltic sprat, Atlantic herring, European pilchard, North Sea sprat, Sandeel, Norway pout, blue whiting, trimmings |
1 400 | 4,1% | |||
| Marine Harvest Fish Feed Policy: 100% |
Capelin | 1 200 | 3,5% | |||
| from | Our marine raw materials processed from whole fish will be sourced from suppliers who |
Atlantic salmon (farmed) | 450 | 1,3% | ||
| responsible | adhere to responsible fishery management | Total fish oil (tonnes) | 34 327 | 100% |
ProTerra soy 100%
Fish in- fish out (FIFO) express the number of kg of wild fish it takes to produce 1 kg of salmon (excluding trimmings). The species used in fish meal and fish oil production are from reduction fisheries and trimmings not used for human consumption. In 2017 0.73 kg of low consumer preference wild fish (like anchovy and sardina) produced 1 kg of atlantic salmon.
practices and that are certified as sustainable (e.g. IFFO-RS or similar)
We support efforts to increase purchases of sustainably sourced vegetable raw materials. The soy used by our own fish feed production is 100% sourced from Brazilian producers with ProTerra certification.
Peru, Panama, Morocco, USA, Denemark, Iceland, Norway
* Marine Harvest Fish Feed Policy.
In 2017, particular attention was paid to expanding the raw materials basket for fish feed production. This involved lowering our reliance on wild-caught fish. It is well recognized that the industry has moved on from its initial dependence on fishmeal and fish oil through the inclusion of other types of protein and lipid raw materials. A better understanding of Atlantic salmon nutrient requirements through the various stages of the fish's life cycle has allowed for the inclusion of a range of new raw materials in our salmon feed. We support and closely follow the ongoing development of new raw materials that are currently being tested. This is the case for oils rich in Omega-3, as well as novel protein sources from sustainable production. We continue our efforts to increase the use of fish trimmings to produce fishmeal and fish oil, in both our integrated feed production and purchased feed.
In 2017, Marine Harvest used only 0.73 kg of wild fish to produce 1 kg of farmed salmon. This is a slightly lower ratio than the result for 2016 (0.77 kg), and continues the downward trend achieved in recent years. The causes of this favorable situation may be found in improvements and progress in the area of raw-material replacement. Compared to previous years, we increased the proportion of marine ingredients sourced from the northern hemisphere in 2017. Because the yield from these resources is higher than from other sources, this change helped reduce the wild-fish ratio.
Regional differences in customer preferences, such as production of Label Rouge in Scotland and organic salmon in Ireland, reflect the higher FFDRo*in Scotland and the FFDRo of 0 in Ireland, where all fish oil derives from trimmings. Canada and Chile have replaced the highest proportion of FM and FO with other raw materials. As a result, they have the lowest FIFO, FFDRo and FFDRm. We will continue our work to optimize feed formulations and feeding efficiency to reduce our dependency on wild fish even further.
At present, the sum of EPA and DHA levels in fillets from farmed salmon are comparable to the levels found in wild Atlantic salmon, despite the changes we have been obliged to make in the composition of our salmon feed to compensate for the limited supply of fish oil, and to safeguard the sustainable growth of Atlantic salmon farming. Meals made from Omega-3-rich farmed salmon continue to help protect consumers from diabetes, cardiovascular disorders and metabolic syndromes. Marine Harvest has set a universal minimum standard for EPA and DHA per 100 g fillet, irrespective of which country the fish is farmed in. The minimum standard is governed by the levels in feed and the fillet lipid level. The actual content of EPA and DHA in fillets from harvested fish is closely monitored through sampling and analyzes at external laboratories. The Atlantic salmon we farm in the UK is specially produced to meet individual customer specifications, and contain higher levels of EPA and DHA than our standard of 1.0g/100g, and an Omega-3/Omega-6 ratio of ≥ 1.
The composition of the feed is key to optimal fish health and performance. We strive to balance the need to produce healthy meals for human consumption with our desire to be an environmentally responsible producer. We do this by sourcing sustainable feed ingredients and utilizing the feed resources optimally at our farms. The biology of salmon as an effective protein converter is one of the salmon industry's key success factors. Since Marine Harvest owns its own strain of salmon, the Mowi strain, we believe that it is possible to work with our breeding and genetics group to create a fish capable of even better feed utilization and growth performance. Our ongoing focus will be on optimized feeding procedures and practices to make sure we make the best possible use of the resources available.
* Forage Fish Dependency Ratio (FFDR) expresses kg wild fish needed to produce 1 kg salmon, calculated separately for fish oil (FFDRo) and fishmeal (FFDRm). The ASC standard for salmon farming sets limits for FFDRo and FFDRm.
Environmental DNA is becoming a major player in environmental impact assessment, including fish farming, complementary to physico-chemical parameters and bioindicators. Environmental DNA metabarcoding allows characterizing benthic communities using DNA isolated from the sediments.
In collaboration with the University of Geneva (Switzerland) and Aarhus University (Denmark) we validated the use of DNA metabarcoding as a tool to assess benthic impact in Norway. We are using this new methodology in several of our ASC certified sites In Norway and exploring the same possibility in Canada and Scotland. This new tool allows a faster, more reliable and more environmentally friendly assessment of benthic monitoring. Our results suggest that analysis of eDNA data reveals benthic community changes between impacted and non-impacted stations, diversity indices inferred from eDNA data are correlated to classical indices inferred from macrofauna surveys and that machine learning algorithms significantly improve the analysis of eDNA data.
Lejzerowicz F, Esling P, Pillet L, Wilding TA, Black KD, Pawlowski J. (2015) High-throughput sequencing and morphology perform equally well for benthic monitoring of marine ecosystems. Sci Rep. 2015 5:13932.
Pawlowski J, Esling P, Lejzerowicz F, Cordier T, Visco JA, Martins CIM, Kvalvik A, Staven K, Cedhagen T (2016) Benthic monitoring of salmon farms in Norway using foraminiferal metabarcoding. Aquacult Environ Interact.
Cordier T, Esling P, Lejzerowicz F, Visco J, Ouadahi A, Martins C, Cedhagen T, Pawlowski J. (2017) Predicting the Ecological Quality Status of Marine Environments from eDNA Metabarcoding Data Using Supervised Machine Learning. Environ Sci Technol. 51(16):9118-9126.
From left to right: Prof. Tomas Cedhagen (Aarhus University, Denmark), Prof. Jan Pawlowski (University of Geneva, Switzerland), Arne Kvalvik (Marine Harvest Norway), Catarina Martins (Marine Harvest ASA), Vegard Langvatn and Sondre Veberg Larsen (Åkerblå) and Daniel Kupen (Marine Harvest Norway).
* limits for action to be taken
** limits for action introduced April 2017, and applied retrospectively
* Antibiotic use in Chile is explained by the relatively poor effect of vaccines against SRS, see page 68.
FISH MEAL INCLUSION IN % PER TONNE FEED USED
(WEIGHED AVERAGE EX TRIMMINGS)
FISH OIL INCLUSION IN % PER TONNE FEED USED
(WEIGHED AVERAGE EX TRIMMINGS)
FORAGE FISH DEPENDENCY RATIO - OIL (EX TRIMMINGS)
2014 2013 2015 2016 2017 8% 9% 8% 8% Norway Scotland Faroe Islands 10% 10%10%9% 8% Canada 7% 8% 8% 4% 3% Chile 0% 0% 0% 0% Ireland 0% 9% 11% 13% 11% 9% 13% 9% 9% 9% 9% 8%
Selective breeding has been fundamental to the success of plant, livestock and fish production for thousands of years, delivering dramatic improvements to a vast range of biologically and economically important traits. Atlantic salmon farming is a young industry, and while selective breeding has already achieved great progress, there is still scope for major improvements in fish health, quality and productivity.
The MOWI strain of salmon was created in the 1960s and has been a tremendous success. Through generations of selective breeding, we have transformed MOWI salmon into one of the world's most efficient sources of animal protein. This progress is most apparent when we compare how quickly today's MOWI salmon grow compared to their wild counterparts. Studies (Glover et al. 2009) comparing the growth of wild, MOWI and hybrid strains confirm that under the same environmental conditions, MOWI fish grow more than twice as fast as wild salmon. However, farmed salmon are facing an increasing number of biological challenges that affect survival, welfare and quality, with viral pathogens and sea lice being particularly serious. In recent years, we have collected extensive genetic datasets on our fish, which are now confirming that selective breeding is a very powerful tool for overcoming these challenges.
How quickly can selective breeding make an impact? This is determined by the trait itself, and how much genetic variation exists. The good news is that for almost all traits related to health, quality and productivity there is a significant heritable component, which means they can be improved through selective breeding. We see that for some traits, one or a few genes have a major influence, while for others it is the combined effect of thousands of different genes. Ultimately though, the variation we see is a combination of these genetic effects and the impact of the environment. In the breeding program, our aim is to exploit this natural genetic variation, and to do this we focus on two things: the accuracy of selection and the intensity of selection. We need to measure the genetic quality of the broodstock for the next generation as accurately as possible and we need to choose these broodstocks from as many candidates as possible so we can find the individuals that are strong for all traits. A male broodfish can fertilize over one million eggs, which means that the work we do to select a small number of elite broodfish will influence millions of fish grown at sea.
Marine Harvest is in the unique position in having millions of fish in the sea at any given moment. This represents an incredible data resource for discovery, validation and benchmarking. Utilizing this resource has already begun to bear fruit. In 2016/2017, we obtained data from natural field outbreaks of cardiomyopathy syndrome (CMS), a viral disease causing significant losses in the industry. Genomic analysis of these samples revealed a set of genetic markers that can be used to significantly improve resistance, and this data also showed a strong correlation to a controlled laboratory experiment. This shows that with the new tools available, we can exploit the enormous amount of data that is available in our sea pens, and more quickly respond to biological challenges when they arise. Similarly, our extensive database of the quality and performance traits of production fish represents a tremendous resource for monitoring and improving these traits through our selective breeding work.
Over the last ten years, there has been a 'genomics revolution' that has led to a remarkable shift in animal breeding. The landmark sequencing of the human genome in 2006 coincided with the rapid development of new technologies that made it possible to generate greater volumes of genomic data on large numbers of individuals at a lower and lower cost. The Atlantic salmon genome sequence was published in 2016 and led to the development of high resolution genotyping tools that are now routinely applied by all Atlantic salmon breeding companies. Applying genomics tools in selective breeding work has paid off. For example, the landmark discovery of a genetic marker that explained most of the resistance to Infectious Pancreatic Necrosis (IPN) has led to a dramatic reduction in the number of IPN outbreaks across the whole industry. In 2017, the timing was right to implement genomic technologies on a much broader scale in the MOWI breeding program. As a result, all the broodfish selected in 2017 have been based on breeding values estimated from genomic data. This means that we have been able to select for superior growth, quality and disease resistance much more accurately than we have in the past. In 2018, we will begin benchmarking the offspring of these broodfish to validate, among other things, whether the first generation of fish selected for better sea lice resistance is actually more resistant. we see, the environment and other factors also play a significant role. As we strive to improve the quality of our broodstock in each generation, we need to make equivalent improvements in all other areas of production to fully realize the potential of the MOWI strain. TRACEABILTY The full implementation of genomics in the MOWI breeding program is delivering additional benefits. We now have a very high-resolution genomic fingerprint of the MOWI strain, and when we combine this with our databases of matings and egg distribution, we have a very powerful tool for traceability. This will allow us to monitor and verify potential escape events both internally and through cooperation with national authorities and other industry players. In addition, such traceability represents a powerful tool for benchmarking the quality of our selection work, allowing us to verify the results in natural field conditions through, for example, monitoring if eggs produced from broodstock selected for high disease resistance have high survival rates in commercial farming environments. At the same time, we can use this traceability to feed data from the field back into our breeding program to increase the accuracy of our selection even further.
Selective breeding is one piece of the puzzle, and while our work has shown that genetics is responsible for a large amount of the variation
LONG-TERM PERMANENT SOLUTIONS A new generation of salmon is produced every four years. The genetic improvement that comes with each generation is permanent and represents a core, long-term strategy for improving the efficiency, welfare and productivity of our farmed salmon. We have generated extensive datasets that document the effectiveness of our breeding program. For example, controlled testing has shown that the offspring of families selected for high pancreas-disease resistance survive significantly better than control groups. However, our breeding program is part of a bigger picture, in which complementary approaches are also needed. This is well illustrated by the challenge presented by sea lice. Extensive data collected between 2015 and 2017 has shown that resistance to sea lice is an inherited trait, meaning that in each generation we can breed salmon that are more resistant to lice. However, we cannot make the salmon 100% resistant in one generation, so selective breeding is a long-term strategy that must be combined with other initiatives like the use of cleaner fish to address this problem. The MOWI breeding program took a huge step forward in 2017 with the full implementation of genomics in the selection of broodstock, and progress does not stop there. Technological advances, especially in the area of DNA sequencing, mean that in the near future we will be able to examine the genetic merit of each salmon broodfish with unparalleled resolution and accuracy. Combined with new initiatives for sampling and screening vast numbers of potential broodstock, we will be able to make even bigger strides in our breeding work. Gene editing, where genetic material can be altered at particular locations in the genome, is an exciting area that may enable the genetic makeup of individual fish to be fine-tuned with even greater precision. We know that Coho salmon are highly resistant to sea lice, while Atlantic salmon are much more vulnerable. Understanding the genetic basis of this difference and activating it in Atlantic salmon would be an industry-changing breakthrough. Technological advances within the genomics field are bringing such concepts into the realm of possibility.
Marine Harvest currently runs independent breeding programs in Norway, Canada and Chile. This is partly due to restrictions on egg shipments across borders, but is also the result of each location having its own specific sets of challenges and a 'breeding goal' that must be tailored to meet them. Nevertheless, there is significant potential for greater synergy between these breeding programs. We can be more efficient, and the quality of our work will improve if we work together and exchange data and knowledge. Furthermore, there are direct economic benefits to a more global approach to breeding at Marine Harvest. Significant cost reductions can be achieved by exploiting economies of scale with regard to genomic tools and services. One of our major goals for 2018 is to increase exchange of data and knowledge between these programs so that the improvements made in each can be shared and implemented by the others.
We aim to continually deliver healthy, tasty and responsibly produced seafood to our customers, providing long-term financial profitability.
2017 at a glance
| MATERIAL VALUE DRIVERS | AMBITIONS |
|---|---|
| Branding and product innovation | Value added sales growth |
| Ensure food safety and quality | Superior quality > 92%. Compliant with laws and regulations |
| Product certification and verification | Compliant with laws and regulations |
| Healthy seafood | Omega-3 content >1g per 100 g product |
Salmon is the preferred fish species for consumers in most of our markets, and is seen as a healthy and convenient option when choosing fish.
The health-promoting attributes of oily fish like salmon, i.e. their Omega-3 fatty acids, protein, and essential vitamins and minerals content, are all recognized by health authorities around the world. For this reason, health authorities in Europe (EFSA), the US (FDA) and Norway (Norwegian Scientific Committee for Food Safety, VKM) recommend that people of all ages should increase their intake of oily fish, such as farmed salmon.
A recent study from the University of Philadelphia also supports the increase in seafood intake, especially among children. This study found that eating fish improves cognitive ability in children, and that frequent fish intake (at least 2-3 times per month) was associated with fewer sleep problems and higher IQ scores.
The health benefits of salmon are important to both our commercial customers and members of the buying public, who are also looking for ever more convenient and sustainable products. Combining all these factors, the outlook for salmon products is extremely positive, and the growth potential significant.
"Consumers are getting more and more interested in the story behind the food they are eating. What is salmon feed made from? How has the fish been treated? Is it safe to eat? Has it been farmed sustainably? What are the health effects of eating this product? We believe this represents an opportunity for Marine Harvest. With our traceability, transparency and commitment to sustainability, quality and food safety, we have a great story to tell."
Fresh whole salmon is our main product and represented 46% of total sales revenues in 2017, similar to 2016 but with a steady increase the last few years. This reflects our continued shift from whole salmon to more elaborated salmon products in response to changing preferences in the market. Our value adding facilities in Europe are making a particular contribution to this shift and the continued move towards more convenient consumer products. Our product categories stretch from fresh whole salmon to fillets; smoked, coated and specialty products; and food-to-go products. To extend the products' shelf-life, we also make use of Modified Atmosphere Packaging (MAP).
Through our wide selection of products and convenient solutions, we are breaking down barriers when it comes to fish consumption and fish preparation at home. Our aim is that it should not be difficult to buy, prepare or eat salmon, and that consumers around the world should see this as just as convenient as meat and poultry products. Every day, we are working to bring new, innovative products to the market, based on consumers' needs and in close collaboration with our experienced retail partners.
Europe remains the largest global market for salmon. Despite great variation in the size, maturity and development of the different national markets, there are still substantial opportunities for growth, both in well-established and more emerging European markets. Retail customers drive seafood growth in many European regions, and we are well positioned to take part in this expansion. Foodservice continues to be an important and integral part of our offer to the market, and the outlook in this channel is positive, too.
We have processing plants strategically located around Europe, which enables us to supply fresh, nutritious and delicious products to most corners of the continent in a matter of hours. Our facilities allow us to produce a range of exciting products from artisanal smoked salmon to convenient, ready-to-eat salmon dishes. Our product development teams in the different markets are attuned to local preferences, and make sure flavors and tastes are tailored to appeal to specific markets or meet specific customer requests. Our product developers continuously work on new or improved products and process optimization. This has resulted in the launch of new products such as poached and hot-smoked salmon 'cooked in the pack', and
a new range of festive products such as salmon-based canapés, timbales and (mini) terrines for the end-of-year range in the Belgian retail market. Furthermore, we continue to engage with our major customers to help them grow their fresh fish category and further improve the service they offer their own customers, the consumers. Consumer research and customer insight are important tools in this respect.
We received several awards for the quality of our products in 2017. The performance of our operations, as well as the quality and taste of our products, was recognized by a partnership award for Marine Harvest Pieters from one of their major customers. In the UK, a BBC Good Food award went to salmon canapés produced by Marine Harvest Appéti'Marine. While in France, our Kritsen brand was ranked No. 1 for their smoked Norwegian salmon and smoked wild salmon by UFC Que Choisir, the most important independent French NGO fighting for consumer protection.
The market potential in the US is significant, and the fresh fish segment continues to expand. Today's relatively low level of market penetration and consumption frequency (only 1 in 10 Americans eat seafood twice a week National Health and Nutrition Examination Survey 2011-2012 (http://www.seafoodnutrition.org/current-state. html) ) means that there is considerable room for growth. Through our logistical network and well-situated facilities, we are able to reach the west coast, east coast and central states within days, enabling us to provide fresh, healthy and delicious salmon and fish products to the entire US market. We have expanded rapidly in the US, and are confident in the development of this important market.
The salmon category saw US retail growth in 2017, which we believe will continue in 2018. We have a strong focus on the US retail sector. Salmon is the second biggest seafood product in the US, and is the highest in value in the retail fish category. In the same way as in Europe, we invest in product development and innovation to bring tasty, fresh products to US consumers in close collaboration with our customers. Convenience is key in this market, and among our many tasty products, we launched our own branded cedar plank with salmon on top which can be put directly on to the grill for a perfect barbeque meal.
In the US, we were awarded the Masters of Taste gold medal endorsement from Chefs in America for our cold-smoked salmon and our Chilean skinpack products. For nearly 30 years, consumers have relied on the Gold Medal Seal to lead them to superior-tasting food and beverage products, such as our delicious salmon products.
With its 40 year history of producing premium-quality smoked seafood, Ducktrap is our strongest brand in the US. Traditional smoking techniques, using a blend of local woods combined with the natural flavor of custom brining recipes, give Ducktrap smoked seafood a signature mild flavor. The Ducktrap brand remains trusted and well-recognized in the US, and is preferred by discerning customers and chefs nationwide. Ducktrap' s solid growth continued in 2017, with sales increasing by 14% compared to 2016. In 2018, the extension of our plant into an additional building will double smoking capacity, and establish Ducktrap as one of the three largest smoking facilities in the US.
In Ireland, we produce organic salmon, which is also now available in the US under our own brand. The market for organic salmon has grown significantly, and we see a clear consumer preference for these products in certain markets. It is important for us to address the needs of our customers and consumers, and we are delighted to now offer these products in the American market.
Asia represents a vast market opportunity, and one which has been a priority for many years. The diversity of the Asian market, comprising a multitude of nations, cultures and business practices, calls for individual and customized approaches in each country. We are tailoring not only our products, but the way we market and sell them, to the requirements of each market, in order to appeal to local preferences as well as to help consumers understand the many benefits of salmon.
"Marine Harvest Asia has been at the forefront of establishing a branding strategy for salmon. The Supreme Salmon™ and Mowi™ brands are well established, and have seen significant growth in awareness and sales in key Asian salmon markets. This is inspiring the rest of our sales and marketing organization to create more value by getting closer to the consumers."
Managing Director Marine Harvest Asia
Mowi™ is our premium brand in Japan. It is built on our unique history and heritage, going back to the entrepreneurial start of the Norwegian salmon farming industry. Made from our very own Mowi strain of salmon from the wild, untamed rivers of Western Norway, and with a consistently strong red color, this is a premium, high-quality product for the selective Japanese customer. In 2017, the brand grew both in volume and in awareness, and efforts to continue this positive trend will continue in 2018.
In Taiwan, we are developing our Supreme Salmon™ concept. We are taking advantage of our knowledge and experience in both foodservice and retail to expand the number of Supreme Salmon stores, as well as our retail product range. In 2017, we opened our 5th store and developed several new products for the retail market. Our understanding of the consumer, combined with our innovative approach to the market, has resulted in sound growth and loyal consumers. We see a great potential in expanding this concept in Asia, and in introducing our Supreme Salmon™ to other countries.
Our aim is to continue to grow the salmon and seafood category through increased market and consumer insight, innovation and product development. In the years ahead, we believe these factors will be important if we are to strengthen our relationships with key customers and enhance our own competencies within these areas. We have a project-based approach to developing new and innovative consumer-driven products, which we will continue to pursue. Our own brands represent a small part of our business today, but we have high ambitions to grow these further. We will therefore increase our efforts in the areas of innovation and brand building. We know that not all of these efforts will succeed, but are confident that some, over time, will result in profitable brands, concepts and products with a loyal consumer following. The aim is to attract new consumers and increase the purchasing frequency of our existing consumer base. We plan to be a driving force for the category and for fish consumption.
In the foodservice sector, we will work closely with partners to develop an in-depth understanding not only of their current requirements, but also of future trends, to ensure that our key customers are able to benefit as quickly as possible from emerging culinary trends and formats.
Consuming farmed salmon is both safe and healthy. This assertion is supported by food safety authorities across the world, and proved through our comprehensive monitoring program. We know some consumers may have concerns about farmed salmon containing environmental contaminants, pathogen bacteria or medicine residues. Our approach at Marine Harvest is to be as transparent as possible in order to share information and dispel the myths about farmed salmon.
The safety of our consumers is our top priority. In connection with the production of farmed salmon, food safety hazards fall into three main categories: environmental contaminants; pathogen bacteria; and medicine use/medicine residue.
We have developed a comprehensive monitoring program to ensure that any environmental contaminants in our feed and our fish are kept far below the safe limits (MRL's) set by the food safety authorities. In addition, we have devoted considerable resources to the assessment of risk and the evaluation and approval of our suppliers.
Through our fish-feed monitoring program, we analyze incoming raw materials and finished feeds for heavy metals, pesticides, GMOs, mycotoxins and dioxin/PCB. In 2017, our tests for undesirable substances showed levels far below the maximum limits set by the regulatory authorities.
Due to questions raised over the traces of the antioxidant ethoxyquin in the muscle of farmed salmon measures were taken in 2017 to be able to offer the market Marine Harvest farmed salmon with low Ethoxyquin level by applying diets where the fish meal is without ethoxyquin.
We work hard to prevent contamination in our products, both to ensure the safety of our own ready-to-eat products and to ensure that fish sold to commercial customers for onward processing is risk-free. Listeria monocytogenes is one of the potential food-borne pathogens in fish products which are consumed without prior heat treatment. Due to increased consumption of raw salmon in products such as sushi, it has become even more important to fully control the risk of Listeria contamination.
Our approach to medicine use and medicine residue is very strict, and designed with an emphasis on disease prevention and fish welthat will help the processing units to identify hygiene improvements. In 2016, three of our in-house laboratories (Canada, Scotland and Norway) acquired the ability to type Listeria Monocytogenes genes. We were the first salmon producer to develop such a tool and the requisite in-house competence. If Listeria does occur we can now identify the source faster and take corrective action immediately. In 2017, we had no incidents of recall due to Listeria.
After treating our salmon with medicines, we apply the pre-harvesting medicine withdrawal periods set by the respective authorities. In addition to the statutory testing conducted by the authorities, we carry out our own monitoring to verify and document the safety of our products. In 2017, we detected no medicine residue exceeding safe limits (MRL) set by the food safety authorities.
In 2017, we had three food safety incidents, but no recalls related to food safety.
Maintaining the trust of consumers is a non-negotiable priority for our company. We will continue our comprehensive program to monitor the raw materials and feed used in our farming operations, to ensure that the level of environmental contaminants is far below the safe limits set by food safety authorities. At same time, we will work to keep pathogen bacteria under control so that consumers eating our farmed salmon products can remain confident that they are safe. Through openness and transparency, we aim to provide the evidence-based facts about our products which will help customers and consumers make informed choices.
fare. Fish can become ill just like humans and other animals. Our fish health professionals use medicines only when other measures are not sufficient, or when fish welfare may be compromised. Any prescription is signed by a certified veterinarian or fish health professional, and the approval process is strictly controlled by the relevant authorities. To avoid use of antibiotics we vaccinate young fish against bacterial and viral diseases. In recent years, this has reduced the need to use antibiotics to a minimum in most farming regions. If medicine does have to be used we comply with the medicine withdrawal periods set by the authorities, and carry out our own stringent monitoring to verify and document for our customers that the end-product is safe.
The results of our rigorous testing program to screen our products for environmental contaminants, pathogen bacteria and medicine residues in 2017 show that our salmon is both safe and healthy.
The 2017 results for environmental contaminants show that the levels found in our farmed salmon continuous to decrease and are well below the safe limits set for various markets. After Marine Harvest initiated cleaning the fish oils from the Northern Hemisphere to further remove persistent organic pollutants (POPs) in 2015, the level of dioxin and dioxin-like PCBs have been further reduced by approximately 60% and are now close to 30 times lover than the safe limits set by the most strict market (EU).
As previously mentioned, the consumption of raw salmon in products like sushi has grown enormously over the last decade, and it is now consumed by people worldwide on a monthly or even weekly basis. As a producer of raw fish and sushi, it is vital that we have a strict hygiene regime and good pathogen control. Through our own Hygiene Manual, we enforce a common, group-wide hygiene standard. In addition to this standard, we have developed a self-assessment tool
Every day, we produce high-quality farmed salmon and value-added products. High quality is ensured through procedures, training, and the sharing of best practices across the Group. In addition, we are constantly improving our monitoring programs and quality assurance systems, and implementing technology that helps us deliver high-quality products across the world.
We work hard every day to maintain the trust of our customers and consumers, by offering products and services that match their expectations. When we are unable to meet these expectations, we welcome feedback to help us continuously improve. That information helps us to direct our resources to areas where additional attention is needed.
We have a global Group Quality System, Qmarine, in place to help us operate in a consistent way throughout the Group. All our operations must comply with a minimum set of third-party verified certification schemes addressing food safety, environmental responsibility, social responsibility and fish welfare. Chain of Custody certifications must be achieved, as required by Global GAP, GAA/BAP and ASC.
Although the quality of our products is already high, we believe there is always room for improvement. Feedback from the market and internal KPIs helps us to focus on the right tasks. We continually strive to attain high quality through our research and development efforts and our quality assurance systems and controls.
Based on feedback from the market (quality claims) and the share of superior quality (93%) in 2017, we know our harvested farmed salmon and value-added products are of excellent quality. The superior share (i.e. the proportion of the salmon without damage or defects that provides a positive overall impression) has remained above 90% for the last four years.
In 2017, we received a total of 10 046 quality claims, compared to 10 193 quality claims in 2016. In 2017, around 50% of the claims were
linked to the effects of the parasite Kudoa thyrsites in salmon of Canadian origin. Kudoa causes a softening of the flesh to such an extent that the salmon may become unmarketable. The second most prevalent cause of customer claims in 2017 was texture deterioration, representing approximately 20% of the claims. The highest proportion of these claims related to salmon of Canadian origin. Neither Kudoa thyrsites nor texture deterioration pose a risk to human health, but the product's impaired appearance has a negative impact on the salmon's appeal and reputation.
We aim to ensure that our customers receive products that match their expectations. We also wish to reduce our quality losses.
In Canada, we are undertaking a variety of projects and activities to gain a better understanding of what is needed to reduce the quality losses associated with Kudoa thyrsites. In 2017, we have been able to reduce the number of Kudoa thyrsites claims by 20%, largely due to the various initiatives underway. At the same time, we have taught customers how to distinguish between Kudoa-related damage and other kinds of texture deterioration, enabling them to more accurately specify the reasons for their claims and contributing to the decrease in the number of claims citing Kudoa thyrsites.
Several studies have been completed, but we are yet to identify the main causes for Kudoa thyrsites. We firmly believe that the outcome of these research projects will help us to take new steps in the right direction and further reduce our quality losses due to Kudoa thyrsites.
We conduct numerous external and internal audits and reviews to ensure our activities are conducted in accordance with stakeholder expectations. We arrange stakeholder visits to our freshwater, seawater and processing operations to encourage improved understanding and the exchange of ideas. We have set minimum requirements for third-party certifications throughout the Group. The major new development in this area in recent years has been our decision to certify our farms to the Aquaculture Stewardship Council (ASC) Standard. Work towards this objective will continue in 2018.
| BUSINESS UNIT |
ACTIVITY | CERTIFICATION | PROPORTION OF PLANTS CERTIFIED TO EACH SCHEME |
|---|---|---|---|
| Fish Feed | Feed production | Global GAP | 100 % |
| Ireland Broodstock and juveniles On-growing |
ISO 9001, ISO 14001, OHSAS 18001, GlobalGAP, Naturland Organic, BioSuisse Organic, EU Organic Aquaculture, Freedom Food, Irish Certified Quality Salmon Organic |
100% | |
| ISO 9001, ISO 14001, OHSAS 18001, Naturland Organ ic, BioSuisse Organic, EU Organic Aquaculture, Irish Certified Quality Salmon Organic, ASC |
ISO 9001, ISO 14001, IOHSAS 18001 = 100% EU Organic Aquaculture, Naturland Organic, BioSuisse Organic = 100%, ASC 4 farms |
||
| Primary processing | ISO 9001, ISO 14001, OHSAS 18001, BRC, Naturland Organic, BioSuisse Organic, MSC CoC, ASC CoC, EU Organic Aquaculture, rish Certified Quality Salmon Organic |
100% | |
| Chile | Broodstock and juveniles |
BAP | Implementing 2018 |
| On-growing | GAA BAP, ASC | 100% | |
| Primary and secondary processing |
GAA BAP, BRC (third party), ASC CoC | GAA BAP 100%, BRC 100% third party, ASC CoC 67% | |
| Norway | Broodstock and juveniles |
GlobalGAP | 100% |
| On-growing | GlobalGAP, ASC | 100%, ASC 51 farms | |
| Primary and secondary processing |
FSSC 22000, GlobalGAP, ASC CoC | 100% | |
| Sales office | ISO 9001, ISO 14001, ISO 22000, GG COC og ASC COC. |
100% | |
| Canada | Broodstock and juveniles |
GAA BAP | 100% hatcheries and broodstock facilities |
| On-growing | GAA BAP, ASC | 100%, ASC 14 farms | |
| Primary processing | GAA BAP, ASC CoC | Port Hardy: 100%, Klemtu: ASC CoC | |
| Scotland | Juveniles | Label Rouge, GlobalGAP, ISO 9001, ISO14001, COGP, RSPCA assured, Royal Warrant Holders |
100% Label Rouge |
| On-growing | Label Rouge, ASC, GlobalGAP, ISO 9001, ISO 14001, PGI, COGP, RSPCA assured, Royal Warrant Holders |
Approx. 20% Label Rouge dedicated farms, ASC 2 farms | |
| Primary processing | Label Rouge, BRC, ASC CoC, GlobalGAP, ISO 9001, ISO 14001, PGI, COGP, RSPCA assured, Royal Warrant Holders |
100% | |
| The Faroe Islands |
Broodstock and juveniles, on-growing, primary processing |
GlobalGAP, ASC | 100%, ASC 1 farm |
| Consumer products |
Secondary processing | IFS, BRC, BIO, GlobalGAP, ISO 22000, ASC CoC (salm on, tilapia, pangasius), Icelandic Responsible Fisheries (IRF), Kosher, RSPCA assured, Label Rouge |
Pieters: BRC, IFS, GlobalGAP, Organic, MSC , ASC, (IRF), RSPO Oostende: BRC, MSC, ASC, Organic, GlobalGAP, IFS Boulogne: IFS, GlobalGAP, Organic, BioSuisse, MSC, ASC, Label Rouge, RSPCA Kritsen Landivisiau: IFS, Organic, Label Rouge Kritsen Chateaulin: IFS, Organic, Kosher Appeti Marine: IFS, BRC, Organic, MSC, ASC, RSPCA Sterk: BRC, IFS, GlobalGAP, MSC, ASC, RSPO, ETI* Lorient: IFS, Organic, MSC, ASC MH Poland: BRC, IFS, ASC, BAP, Organic, GlobalGAP, FDA, RSPO ß MORPOL S.A: BRC, AEO, MSC, ASC, BAP, Organic, GlobalGAP, Kosher, IFS, FDA Rosyth: BRC Morpol specialities: BRC, IFS Germany Harsum: MSC, ASC, IFS, Organic, Global Gap Morpol Laurin: IFS, Global GAP, ASC, MSC |
| Sales office | IFS Broker, MSC, ASC, organic, Global GAP, | Laschinger Seafood Germany: 100% | |
| Americas | Secondary processing | SQF level 2, SQF level 3, ASC and MSC | Ducktrap: SQF Code Edition 7.2, Level 3, Kosher, MSC |
| Miami: SQF Level 2, Dallas: SQF Level 2, BAP | |||
| Asia | Secondary processing | SQF level 3, ISO 22000, BRC | Narita, Kansai, Incheon, Zhongli: SQF Level 3, Amanda Foods: BRC Zhongli: ISO 22000 |
"Eating fish is an important source of Omega-3 fatty acids (EPA and DHA). These essential nutrients keep our heart and brain healthy. Our bodies don't produce Omega-3 fatty acids, so we must get them through the food we eat. Omega-3 fatty acids are found in every kind of fish, but are especially high in fatty fish like salmon…"
Washington State Department of Health
Our farmed salmon is an excellent source of high-quality protein, vitamins and minerals (including potassium, selenium and vitamin B12), but it is the content of Omega-3 fatty acids that receives the most attention, and rightly so. These fatty acids are thought to contribute to healthy brain function, as well as the heart, joints and general wellbeing. Other health benefits derive from the protein and amino acid content of salmon. Several recent studies have found that salmon contains small bioactive protein molecules (called bioactive peptides) that may provide special support for joint cartilage, insulin effectiveness, and the control of inflammation in the digestive tract.
In recent years health authorities around the world have advised people to consume plenty of oily fish, because of the health benefits. Since 2014, health authorities in Europe (European Food Safety Authority), the US (Food and Drug Administration) and Norway (Norwegian Scientific Committee for Food Safety, VKM) have recommended that people of all ages increase their intake of seafood, particularly oily fish like farmed salmon.
In 2015, US Health and Human Services (HHS) and the US Department of Agriculture (USDA) published the latest five-yearly Dietary Guidelines for Americans (DGA). Their recommendation is that Americans should eat at least 8oz (237 gram) of seafood per week. For pregnant and breastfeeding women the recommendation is even higher - to eat 8 to 12 oz (237 - 355 gram) per week.
In 2017, The US Food and Drug Administration and the US Environmental Protection Agency issued a further Note regarding fish consumption. This advice is geared to helping women who are pregnant or may become pregnant - as well as breastfeeding mothers and parents of young children - make informed choices when it comes to fish that are healthy and safe to eat. One of the species considered as "best choice" by the FDA is salmon.
A recent study at the University of Pennsylvania in the US supports the recommendation that people, and especially children, should increase their seafood intake. This study found that eating fish improves children's cognitive ability. A study carried out by researchers at the medical school found that frequent fish intake (at least 2-3 times per month) was associated with fewer sleep problems and higher IQ scores.
In 2016, NIFES (the National Institute of Nutrition and Seafood Research) in Norway presented the results of a project proving that schoolchildren have better concentration and kindergarden children gain better learning abilities by eating more oily fish.
Eating our farmed salmon, packed with protein, vitamins, and nutrients, can lower your blood pressure and help reduce the risk of a heart attack or stroke. Our farmed salmon is an important source of Omega-3 fatty acids for many consumers around the world, with these essential nutrients helping to keep their hearts and brains healthy.
Our farmed salmon is also a source of vitamin D, which is necessary for the body to function. The vitamin promotes normal calcium uptake in the intestine, normal bone metabolism, and is important for our cells. In addition, some research shows that vitamin D can help prevent depression, dementia and cancer, as well as diabetic and cardiovascular diseases.
To guarantee our salmon is healthy, tasty and rich in essential nutrients, we track the raw materials used both in our own and third-party feed production. Results from our surveillance program in 2017 show that our farmed salmon contains expected levels of EPA and DHA (long-chain Omega-3 fatty acids) and vitamins (B12, E and D), as well as the minerals selenium and iodine.
As in previous years, we will continue to control the nutritional content of our farmed salmon. We want there to be no doubt that our farmed salmon is both safe and significantly healthier than most other food products, with a nutritional profile that will benefit people of all ages.
Our farmed salmon is a high-quality product that has a taste and health profile that few other products can match. It is rich in Omega-3 fatty acids (EPA+DHA), vitamins (B12, E and D), and the minerals selenium and iodine. These are important nutrients for people of all ages.
Selenium (23% of RDI)
Selenium helps cognitive function and fertility for men and women. Lack of selenium leads to weakening of the heart muscles and increased risk of cardiovascular disease.
metabolism and a deficiency can lead to reduced growth and mental decline. It's particularly vital for pregnant women to aid the growing baby's development.
EPA and DHA are in cell membranes and help cells function properly. Marine Omega-3 prevent development of cardio-vascular disease.
Protein is a building block in muscles. At least nine amino acids are essential for humans, and all nine are present at balanced levels in our salmon.
Helps red blood cells form and keeps the nervous system healthy. A lack of vitamin B12 can cause a form of anaemia.
Plays a role in our immune function and is an important anti-oxidant needed to protect cells.
Salmon is rich in the very long chain fatty acids which are essential for our health and are needed to ensure cells function well.
Helps the body absorb calcium. Lack of vitamin D is associated with rickets in children and soft bones in adults.
VALUE ADDED PRODUCT SALES BY MARKET CHANNEL 2017 NUMBER OF QUALITY CLAIMS QUALITY OF HARVESTED SALMON
2013 2014 2015 2016 2017
| ENVIRONMENTAL CONTAMINANTS |
PATHOGENIC BACTERIA | MEDICINE USE / MEDICINE RESIDUES |
|---|---|---|
| – Traces of environmental pollutants like PCBs, dioxins and heavy metals. – They are widely distributed in nature. – Main sources of such pollutants are fishmeal and fish oil from wildcaught fish used in the diets of farmed salmon. |
– Salmonella, Campylobacter, Yersinia and E. coli are the most common food-borne bacteria, but they are rarely found in seafood. – Listeria monocytogenes is one of the potential food-borne pathogens in fish products which are consumed without prior heat treatment. |
– Medicines are used to control sea lice or for the treatment of infectious diseases if fish welfare is at risk of being compro mised. – Medicines may be applied in feed or via bath treatments. – Treated fish may not be harvested until a certain number of days after the treat ment has been carried out. |
*The 2015 and 2016 results are slightly different from levels reported in the 2016 Annual Report as some samples have been reanalyzed with a more accurate method.
| NUTRITIONAL FACTORS |
PARAMETER | VALUE MARINE HARVEST SALMON |
% OF RECOMMENDED DAILY INTAKE |
% OF RECOMMENDED DAILY INTAKE WILD SALMON |
RECOMMENDED DAILY INTAKE (RDI)** |
|||
|---|---|---|---|---|---|---|---|---|
| Fat | Total fat | 21,1 | g/140 g | 24-39% | 11,2 g/140 g | 12-19% | 55-90 | g/d**** |
| Omega-3 fatty acids |
Total EPA + DHA | 1,8 | g/140 g | 722% | 2,1 g/140 g | 839% | 0,25 | g/d |
| Vitamins | Vitamin B12 | 6,1 ug/140 g | 303% | n/a | n/a | 2 | ug/d | |
| Vitamin D | 5,0 | ug/140 g | 50% | 0,02 mg/140 g | n/a | 10 | ug/d | |
| Vitamin E | 5,9 mg/140 g | 65% | 2,2 mg/140 g | 25% | 9 | mg/d | ||
| Minerals | Iodine | 0,03 mg/140 g | 19% | 0,06mg/140 g | 38% | 0,15 | mg/d | |
| Selenium | 0,01 mg/140 g | 23% | 0,06mg/140 g | 94% | 0,06 | mg/d | ||
| Protein | Protein | 28,6 | g/140 g | 49% | 29,2 g/140 g | 51% | 58 | g/d*** |
*Source: National Institute of Nutrition and Seafood Research (NIFES) - nutritional value of 99 wild salmon in 2013. **Nordic Nutrition Recommendations 2012 and EFSA.
*** Recommended daily intake of proteins for adults (70 kg) is 0.83 g protein/kg body weight/daily. **** For an adult with a calorie requirement of 2000 kcal/day. It is recommended that fat account for 25-40% of daily energy intake. One portion is defined as 140 gram of salmon by the EU.
Started by a group of enthusiasts with energy, willpower, persistence and an unwavering belief in a new idea of farming the sea, Mowi was the forerunner of Marine Harvest. In the 1960s, new ideas, bold visions and untold risks were all central to the start-up and development of this pioneering salmon farming company. From keeping a few fish in a net by a pier in the backyard, Mowi quickly became the largest producer of farmed salmon in the world.
It all started in the backyard of Johan Lærum, a serial entrepreneur and product developer, whose successes ranged from candy to jam to freeze-dried products. Johan, a man with a curious mind and an interest in all things new, was looking for his next project. His jam factory was going well, and less in need of his help. Privately, he had started thinking about trout farming and carried out his own small field experiments. In the 1960s, he shared his new-found expertise with friends who worked in the marine sector. His novel ideas caught their interest. This was the start of a long collaboration between Lærum, Thor Mowinckel and a number of marine institutions, who all believed in the idea of farming fish in the sea. Thor Mowinckel would go on to become Mowi's CEO and an aquaculture industry pioneer.
Mowi's main goal was to farm salmon of the same quality as those caught wild in Norway's rivers and fjords. To achieve this, they had to find the ideal fish to use as broodstock. Based on their own research, fish from the Vosso river were chosen. This fast-flowing river, located in Hordaland county on the west coast of Norway, produced salmon of good weight, strength and resilience - perfect to become the source of Mowi's quality farmed fish. The strain remains the foundation for the salmon farmed by Marine Harvest today.
Quality throughout the entire production process was always essential at Mowi, as it is today in Marine Harvest. Quality, research, and a concern for fish health and the environment were to be the hallmarks of the company. Mowi's open-door policy was also a key feature of their marketing strategy. There was no secrecy, only pride and an enthusiasm to show others how their salmon was produced. Due to the company's meticulous attention to quality, gourmet wholesalers were among the earliest customer groups - first nationally, and then expanding to include professional international buyers looking for high-quality products. At that time, demand for Mowi salmon was often so great that customer waiting lists could be as long as three years.
Mowi represents the beginning of the salmon farming industry as we know it today, built on vision, ambition and an understanding of its future potential. With the expertise of generations of fishermen and fish traders behind them, Mowinckel and Lærum understood that high product quality was a prerequisite for success. They took the lead and set the standards for the industry to follow.
Continuing effort to integrate The Marine Harvest Way globally to unite our organization and inspire our people.
Four incidents were reported through our whistleblower channel in 2017.
Lost Time Incidents (LTI) per million hours worked fell from 9.9 in 2016 to 6.6 in 2017. The rate of absenteeism ended at 5.2% in 2017, compared to 5.7% in 2016. Our target is a rate of 4.0%.
The safety, self-respect and personal pride of our employees cannot be compromised if Marine Harvest is to succeed as a company and maintain good relationships with local communities.
| MATERIAL VALUE DRIVERS | AMBITIONS |
|---|---|
| Cost leadership culture | Live our values and vision, and work cost effectively day to day - the Marine Harvest Way. |
| Ethical business conduct | Compliance with our Code of Conduct across the Group |
| Ensure employee safety and security | Reduction in LTI per million hrs worked and absence rate below 4% |
| Purpose-driven organization | Develop and support the local communities in which we operate |
Our employees are our most valued assets, and our success depends on our ability to attract new and retain existing staff.
We want to attract skilled employees, who are passionate about Marine Harvest's vision of "Leading the Blue Revolution". To do so, we need to be a trusted and professional employer, with a reputation for ensuring our people are protected and rewarded. We believe one of our competitive advantages is our ability to offer meaningful and challenging jobs in a good working environment throughout the organization. We aim to be open and transparent, and we continue our efforts to integrate the ten principles of the United Nations Global Compact into our business strategy, culture and day-to-day operations.
The UN Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human and labor rights, the environment and anti-corruption. By doing so, business, as a primary driver of globalization, can help ensure that markets, commerce, technology and finance advance in ways that benefit economies and societies everywhere.
We are committed to fair employment practices, a commitment embodied in our Code of Conduct and in our values. Our activities are conducted without discrimination, and each employee is treated as an individual.
Wherever we operate, we comply with that country's laws on compensation, and no employee is paid less than the official national
minimum wage. Our personnel review system and the presence of labor unions ensure all employees are compensated fairly. Generally, our base starting salary is set above the national minimum wage in order to attract competent people to our organization. With respect to working hours and overtime, our policy is to comply with the employment protection legislation in the countries in which we operate.
We recognize that all employees are entitled to freedom of association, including the right to engage in collective bargaining. The number of employees who are members of labor unions and participate in collective bargaining agreements varies from country to country, from zero in Ireland and Scotland to almost all employees at our processing units in continental Europe. Approximately 30% of our employees are covered by collective bargaining agreements (an exact figure is unavailable due to legal restrictions). Approximately 98% of our employees have employment contracts. The type of contract we use depends on the legal requirements of the country in which we operate, but in most countries we use offer letters. In the US, approximately 55 % of our salaried employees have offer letters. Going forward, all new employees will receive a written offer.
We strive to attract a diverse workforce and provide equal opportunities. We aim to conduct our activities without discrimination, and value everyone as an individual. Our recruitment efforts include offering apprenticeships to young employees, as well as training, promotion and development opportunities. We also aim to attract female employees to all levels in our organization. Within the Group, there are some differences with regard to the benefits to which permanent and temporary employees are entitled, due to the number of hours worked. As a minimum, we comply with each country's employment laws.
As part of our efforts to be an attractive employer, build competence and share best practices, we offer exchange programs and opportunities to learn through our global database, the "Marine Harvest Academy". We also sponsor several courses and postgraduate studies, including the Seafood Trainee Program, and the Executive MBA in Sustainable Innovation in Global Seafood. In Canada, we have an agreement with Vancouver Island University and have developed our own educational program called Management Skills for Supervisors.
Number of employees: 13 233 Total: 13 233
"As a Seafood Trainee in Marine Harvest I have had the opportunity to use and develop my competence by taking part in interesting projects in the R&D and Technical Department. I have been given a great deal of responsibility, which is very inspiring. The experience and knowledge I gain from my traineeship will help me achieve my ambitions and career goals. This is an exciting industry to be part of."
At the close of 2017, we employed 13 233 people in 24 countries around the world. The number of employees increased by 513 during 2017 because of higher activity in Chile. At the close of 2017, women accounted for 41.2% of our 10 553 permanent employees. The Group also had 813 temporary employees, 43.6% of whom were female. See the table showing a breakdown of our workforce by type of employment, gender and region at the end of this section.
Going forward, we will continue our efforts to keep our organization competitive by attracting, recruiting and developing talented people, engaging and retaining our employees, and practicing fair employment and diversity in the workplace. Traineeships, the talent pipeline, international mobility programs and our global database, the "Marine Harvest Academy", will all be updated in order to continue building competence and sharing best practices. We are implementing new procedures to safeguard our employees´ personal details, ensuring compliance with personal data and privacy regulations that will be fully enforced from 2018. The global employee survey will be performed in 2018 as it is every second year.
Leading a revolution requires passionate people, who share our vision and values. We have a large workforce, from a variety of backgrounds, and this requires a shared corporate culture to unite our organization and inspire our people to reach common goals. An important element, is our conviction that best practices should be applied everywhere. Our leaders must embrace change and dare to take the bold steps necessary to remain at the forefront of developments in the industry.
Our vision, "Leading the Blue Revolution", gives direction and outlines possibilities. Our global values "Passion", "Change", "Trust" and "Share " inspire us to act in the right way, and they are key enablers for reaching our goals. Taking the lead is about setting a course and taking responsibility, and our leadership principles provide an important guide for our managers' behavior. Success depends on all of us, but it depends even more on our leaders, and we want them to know what is expected of them. We encourage our employees to develop and increase their leadership abilities. To facilitate this, we have established a mobility program offering job exchange opportunities across business units, as well as complete leadership programs.
Taking the lead also entails being a cost leader in our industry. We believe there is potential to improve, and as part of this, are streamlining our procurement area to gain cost control and effectiveness. Essential elements to achieve this are clear strategies and goals, central coordination of major procurement categories as well as increased cooperation between our business units.
Building a strong corporate culture that encourages cost-effective performance and mitigates risks by integrating our vision, values, leadership principles and Code of Conduct into our day-to-day work is "The Marine Harvest Way". This is the means by which we will achieve our "One Company" goal.
In 2017, we continued our efforts to integrate our vision, values and leadership principles into our day-to-day operations, implementing and reinforcing "The Marine Harvest Way" globally. Our vision, values and leadership principles are communicated through our Code of Conduct, highlighted during annual training, with posters placed in prominent areas of the workplace as visible reminders to our employees.
The BrainSafe model distinguishes between controllable and non-controllable elements. Our global training has focused on "my life" - the elements that every person can control and/or influence.
We work systematically through guidelines, procedures and processes to mitigate and respond to work-related injuries, occupational health issues, accidents and fatalities. We measure our progress in the area of safety through the key indicators lost-time incidents (LTI) per million hours worked, as well as the rate of absenteeism. LTIs are reported in three categories of seriousness - low, medium and high, and are reported both for own employees and for subcontractors. All incidents are analyzed for cause and for potential learning, and a report with action points to avoid similar incidents is shared through the HSE network. We take preventive measures where possible to counteract these risks. Safety targets are included in the bonus
New employees are required to attend BrainSafe training sessions, and training is also provided to selected contractors and suppliers. BrainSafe materials are made available to all employees, and refresher courses and workshops are held to reinforce and sustain the lessons learned during initial training. We incorporate BrainSafe principles into all of our safe-work practices and communications. BrainSafe posters are placed prominently in the workplace, visible to all employees. Incidents are reported as part of the regular HSE bulletin.
" BrainSafe has been an amazing success. We have trained our workforce to work safely, improved our reporting and enhanced our ability to talk about safety."
Anne Lorgen Riise, Global HR Director
We have reviewed and upgraded our entire performance management system to incorporate our vision, values and the leadership principles which guide our performance management process. These areas are also covered in each employee´s annual performance appraisal.
Through various improvements within our procurement area, including conditions we have towards our suppliers, we are starting to achieve cost savings.
Our ambition is to maintain and strengthen our existing culture, support employee development and drive group-wide best practice - "The Marine Harvest Way". We are continuing our initiatives in the areas of competence and leadership development, talent management and workforce planning. We will also strengthen our efforts to encourage international mobility as part of our "One Company" initiative, since employees working on different types of international assignments make a tremendous contribution to the sharing of knowledge and transfer of skills.
We will continue to streamline our procurement area, aligned with our main strategies and objectives. We have initiated a global cost savings program, and will ensure that the initiatives do not compromise the safety of our employees.
Congratulations to Steve Bracken who has worked 40 years in Marine Harvest. He started as a fish farm assistant and is now business support manager in Marine Harvest Scotland. Steve openly admits that Marine Harvest has been a big part of his life and his journey with the Company has "flown by". His calm nature and his passion for the industry has resulted in him becoming a well-known ambassador. We would like to thank Steve for enormous contribution and everything that he has done and continues to do for Marine Harvest and the industry.
Ben Hadfield, COO Fish Feed and MD of Marine Harvest Scotland
Marine Harvest is made up of 13 233 people from 24 different countries, with different backgrounds, nationalities, cultures and customs. Marine Harvest is committed to high ethical standards in our business dealings worldwide, and we expect our employees to make our Code of Conduct a personal commitment. Abiding by the Code of Conduct is an important element in our ability to engender trust, and is an integral part of "The Marine Harvest Way".
Our Code of Conduct guides what we do and say each day, it provides direction and guidelines and clarifies where we draw the line. The Code of Conduct sets the standards of behavior which we can expect from one another, and which external parties can expect from us. The complete Code of Conduct is available at marineharvest. com.
The Code of Conduct also includes topics on whistleblowing, anti-fraud and anti-corruption, financial reporting as well as regulatory compliance. Our group-wide policies, including anti-fraud and anti-corruption policies, are discussed with local management teams as part of our risk management, internal control and governance processes. Our internal audit function, which is outsourced to PwC, also has a specific focus on fraudulent and unethical behavior.
agreements for all senior managers. The main categories of injuries in our operations are cuts, pinches, impacts, compression, slips, trips and falls. In our farming operations, diving represents the most serious hazard. To ensure diver safety, our divers must complete a diving project plan, detailing the purpose of the dive, evidence of employer liability insurance, a hazard/risk assessment and the suitability of the equipment to be used. They must also be suitably qualified and experienced, and provide diving certification, log books, medical certificates and first aid certificates. Experience shows that many incidents are caused by inattention. We foster a strong safety culture, in which our employees take responsibility for their own safety as well as the safety of their colleagues. Our global safety program, BrainSafe, is a behavior-based safety process designed to empower our employees to take control of their own safety. We believe the best results can be achieved through a holistic approach, encompassing all areas - person, environment and practice - but with the most crucial element being the employees and their safety mindset. Safety must be the top priority in the minds of all our employees, as we all want to go home safely at the end of the day.
We believe that openness and good communication promote a better culture. Our whistleblower channel facilitates the reporting of concerns about potential compliance issues, with regard to both laws and regulations and our own Code of Conduct, covering the areas of environment, human and labor rights, equality and diversity, health and safety, business ethics and anti-corruption, conflict of interest and professional behavior. The whistleblower channel is managed by an independent third party, PwC, and all notifications are handled confidentially.
Marine Harvest Chile is using an Ethics Management System to identify, prevent and address any issues that may damage the image, reputation and sustainability of our Chilean organization. As part of this prevention model, we have a Corporate Integrity channel for our Chilean employees to seek advice and report situations related to ethical topics. Concerns are handled confidentially by an ethics advisor, who will investigate and report to an internal ethics committee.
The majority of our employees must undergo mandatory testing on our Code of Conduct.
No instances of perpetrated or alleged fraud in our operations, nor any major breaches of our Code of Conduct, were reported in 2017. We have implemented Code of Conduct training and testing both online and in workshops.
Four cases were reported through our whistleblower channel. These are currently being investigated in collaboration with Human Resources. In addition, four cases were reported through our Corporate Integrity channel in Chile. All the cases reported concerned the ethical behavior of the company or employees. All the cases were reviewed, investigated and resolved. The majority of the reported cases were made anonymously. We received no whistleblowing reports from communities neighboring our facilities in 2017.
We have not identified any instances of non-compliance with laws or regulations during 2017, but we have been fined and paid the amount of EUR 69 460 (USD 75 955) related to two escape incidents in Norway in 2016. We were also fined EUR 40 473 (USD 44 257) related to late issuance of a barge certification. In addition, we paid fines of EUR 34 540 (USD 37 770 ) related to sanitary and employment regulations in Chile. Please also see Note 27 to the Group financial statements for more information.
Subsequent to our risk assessment, internal audits have been carried out at several of our Business Units. The assessment was not directly linked to fraud risk and none of the audits uncovered any significant risk related to corruption.
We will continue our efforts to ensure that our standards of behavior comply with our Code of Conduct, and that all new employees commit to upholding its provisions. We will continue with annual tests of the Code of Conduct and encourage the reporting of concerns through our established whistleblowing channel. The importance of ethical behavior will continue to be communicated through our leadership workshops, to ensure strong ethical principles are upheld by management.
We are also implementing terms and conditions towards suppliers. This includes key obligations such as Quality Environmental Health & Safety (QEHS), anti-corruption and business ethics (Supplier Code of Conduct), minimum wage and working conditions, compliance with laws and regulations and audit rights.
We aim to have zero workplace injuries. Health and safety is paramount in everything we do, and safety will never be compromised for any other business priority.
We have established a number of initiatives, including a stress-management program, in an effort to reduce the level of absenteeism, in particular at our processing plants. Our efforts also include systematic competence development, job rotation and alternative work schemes where appropriate.
We depend on our business units for consistent reporting of HSE key figures. We share best practices through our global health and safety network. Meetings are held regularly to ensure a common understanding of key-figure reporting, and to benchmark and follow up on key indicators. Some of our business units have taken a step further. Marine Harvest Chile, for example, has certified its health and safety (H&S) management system through DNV. Marine Harvest Chile has also launched a development program co-funded by the government, with the goal of harmonizing its H&S management system with key suppliers.
The majority of our employees have attended training in our global safety program, BrainSafe. LTIs measured per million hours worked came to 6.6 for the Group in 2017, compared to 9.9 in 2016. It is difficult to say to what extent BrainSafe has affected LTIs and the rate of absenteeism, but it is quite clear that it has led to more correct reporting and a proactive approach to incidents and injuries. We are convinced that BrainSafe has, and will continue to have, a positive effect on our key indicators.
We reported 155 LTIs for our own employees in 2017, compared to 247 in 2016. Marine Harvest Fish Feed has had three years without LTIs, and has run BrainSafe training courses on a regular basis. At Morpol, the results have been improving over the last couple of years. In 2016, Morpol reported 138 LTIs, while in 2017 the number was reduced to 68, which is a very positive result. VAP experienced a negative trend from 2015 to 2016, with LTIs increasing from 44 to 70. In 2017, the number fell back to 50 LTIs, which is a trend we hope to continue. In 2017, 76% of LTIs occurred in our processing operations, compared to 84% in 2016. These LTIs were mainly caused by manual handling, impact from objects and equipment, slips, trips and falls. For subcontractors, we recorded 9 incidents compared to 21 last year, with the main causes of injuries being cuts, pinches, trips and falls.
Our rate of absenteeism has held more or less steady in recent years, decreasing from 5.7% in 2016 to 5.2% in 2017. In 2017, long-term absenteeism accounted for 53%, compared to 55% in 2016. The rate of absenteeism is higher in value-added processing operations than in farming and feed, which is largely attributable to ergonomic issues and stress.
We will continue our efforts to build a strong health and safety culture, with BrainSafe as an integral part of the way we operate. New employees are required to participate in the BrainSafe training program, and refresher courses will be held for all employees as well in connection with the introduction of a new campaign.
Our ambition to achieve a rate of absenteeism of below 4% remains unchanged, as does the target of zero LTIs. We believe that our systematic approach to safety will contribute to a safer workplace and will reduce LTIs and absenteeism going forward.
"In an ideal world, none of our employees would be injured at work. The safety of our employees is our priority, and we feel as though we have taken many steps in the right direction."
Ewa PaŸdzior, HR Morpol
For Marine Harvest to thrive, the local communities in which we operate must thrive. By offering support to communities, as well as employment opportunities, we hope to make a positive impact wherever we operate.
Social responsibility, ethical behavior and sustainability are at the heart of our corporate culture. The ASC standard requires us to engage with local communities about our farming operations. In Canada, First Nation consultations are carried out by the Crown to discuss changes to our operations, in line with legal requirements. Marine Harvest Canada operations are located within the traditional territories of 24 independent indigenous (First Nation) governments, and we currently maintain equitable partnership agreements with 15 First Nations. We are committed to continuous and meaningful engagement with all the indigenous governments in whose territories we operate, and to conducting equitable partnership discussions. We will not apply for new farm locations in First Nation territories without equitable partnership agreements.
We aim to maintain good relations with the local communities in which we operate, and we are committed to helping in their development by supporting local schools, sports and cultural initiatives. Our aim is to help young people become good citizens, who give back to their local communities and thereby build a circle of progress in the area. Our social contribution is broader in Chile, with the focus on community projects in which we work even more closely with communities to promote and improve the quality of life.
The bulk of our financial support is channeled through the Marine Harvest Fund in Norway. The purpose of the fund is to offer financial support to voluntary organizations and activities within sports and culture, particularly those aimed at young people, which all contribute to the vibrancy of our local communities.
In Ireland, we organized Charity 5k, a fun run that brought employees and members of the local community together to raise funds for the Children's National Ambulance. Please read the story of our Charity 5k on the following pages.
In Chile, we continued the Good Neighbor Program (GNP), to promote relationships of mutual respect and support for our neighbors, creating positive impacts and developing projects with shared value. As part of the GNP, we hold dialogs with community leaders, organize Open Days at our sites and arrange workshops and training sessions in schools and social organizations about our production model and the salmon lifecycle. We are engaged in more than 20 different projects with social organizations as a part of our contribution to local development through Marine Harvest sponsorships.
Marine Harvest Scotland sponsored the Blas Music Festival. Arthur Cormack, Chief Executive of Fèisean nan Gàidheal which organizes the Blas Festival in partnership with the Highland Council, said: "We are delighted that Marine Harvest has offered sponsorship for this year's Blas Festival and we look forward to promoting events in a number of areas where the company has a presence. The additional support of Marine Harvest will help us deliver our aims and we are looking forward to an exciting festival and to welcoming the many friends who come to the Highlands annually to attend events, as well as those resident in the area."
Marine Harvest Scotland has supported the Camanachd Association since 1988. In 2017, we extended the relationship to the end of 2020, which will represent 33 years of partnership. Stewart Harris, Chief Executive of sportscotland, said: "This type of sponsorship is invaluable in Scottish sport. Marine Harvest has shown a real commitment to the Camanachd Association, allowing them to develop a strategic and sustainable approach to growing the game, from grassroots right through the national team. I am sure this new agreement will see the sport continue to go from strength to strength."
Marine Harvest Canada supported over 130 sporting, charitable, social and conservation groups, and awards academic bursaries every year that help improve the quality of life for communities in small, coastal areas. Our annual charitable salmon barbeque continues to play a big part in this support - with sales of fresh, barbequed salmon generating over CAD 150 000 of funding for local charities and community organizations.
In those areas in which we operate, we will continue our efforts to support local projects, both financially and socially. Going forward, we plan to develop a more systematic approach to collecting data about our community engagement.
"We are very grateful to Marine Harvest Ireland and to all those who put time aside to organize and take part in the Marine Harvest 5k fun run. The funding provided will go a long way in helping us to provide as comfortable an environment as possible for many sick children who use our service."
In 2017, our staff in Donegal swapped their workclothes for running gear in a bid to raise funds for a charity providing ambulances specifically for sick children.
Over 220 people turned out for the third annual Marine Harvest Ireland 5k fun run, which was a resounding success. The 2017 event raised an impressive €11 000, surpassing the €1,000 raised the year before for the Mulroy Coast Guard.
The annual run is part of our local staff and community wellbeing initiative, which sees participants take part in a nine-week training program, culminating in a "Couch to 5k" fun run. All proceeds from this year's event are to be donated to the BUMBLEance service.
Maurice Kelly, HR Manager at Marine Harvest Ireland, said: "The annual Marine Harvest Ireland fun run is always an exciting day in the calendar, and a fantastic way to support and promote the
wellbeing of our staff whilst raising money for a worthy cause. Marine Harvest is delighted to be in a position to match the money raised through local fundraising efforts and play our part in supporting the BUMBLEance service, which works to ensure that sick children can be as comfortable as possible during what can often be a very stressful time. We would like to thank all staff and members of the community who took part in this year's event to raise funds for such a worthy cause."
Established by the Saoirse Foundation in September 2013, the BUMBLEance service is a national children's charity which provides an interactive ambulance service designed specifically for children who require travel from their homes to treatment centers across Ireland. In addition to containing the usual medical equipment found in any ambulance service, each ambulance contains an entertainment system in order to provide a fun environment for ill children.
Tony Heffernan, Founder of the BUMBLEance
In one year, the number of LTIs at Morpol has dropped by 50%, which shows that, safety wise, they have taken huge steps in the right direction.
"This improvement is very promising for the future. Such a great outcome is the result of the safety programs which were introduced several months ago."
Izabela Glamowska, HSE Manager at Morpol,
Morpol has increased its focus on safety over the last two years. The safety program includes an LTI elimination program, and has increased the number of reported near misses and observations, post-LTI actions closed on time, and legal conform ity, as well as fostering a climate of continuous improvement. The program also includes new employee safety equipment. For example, in 2017 we introduced new safety and hygiene-compliant shoes for all factory staff.
The number of injuries has dropped from 40.6 per million hours worked in 2013 to 9.1 in 2017. One of the most significant projects this year was opening an in-house doctor's office, specifically for Morpol employees.
Glamowska said: "Thanks to this project, employees now receive quick emergency aid provided by a physician on site. This, in turn, is a big contributor to the decrease in LTIs, as our employees get the medical help they need straight away."
One of the latest changes is the implementation of a medical emergency group consisting of 180 employees from all departments. The group is run by Anna Bialek-Zalupka of the Health & Safety Department, a former paramedic, who organizes the training program with Wojtek Wartacz from the Technical Department.
Bialek-Zalupka said: "The group's members are now able to provide first-aid response in the event of an emergency. Each member has been trained in firstaid provision, fire prevention and chemical accident prevention. Group members will continue training and actively improve their practical knowledge."
We have introduced safety programs, and staff have also become more engaged in the safety culture. Employees are now able to propose ideas and solutions that may help improve their safety.
Ewa Paÿdzior, HR, said: "I am really glad that the staff are involved, and that they care about their own and their colleagues' safety. Of course we still have a way to go. In an ideal world, none of our employees would be injured at work. The safety of our employees is our priority, and we feel as though we have taken many steps in the right direction. We will continue to focus on the safety of Morpol's employees, and always try to work as safely as possible."
The Group management team
Alf-Helge Aarskog
(1967) Chief Executive Officer Marit Solberg
(1956) Chief Operating Officer Farming
Ivan Vindheim (1971) Chief Financial Officer Per-Roar Gjerde
(1967)
Chief Operating Officer Farming
(1967)
Chief Operating Officer Sales and Marketing
Mr. Aarskog has served as CEO of Marine Harvest since 2010.
Mr. Aarskog has broad experience in the seafood industry:
2002 - 2004 - Various positions at Felleskjøpet Fiskefôr AS, Frøya
Holding, Hydro Seafood and Atlantic Salmon of Maine, until 2002
Mr. Aarskog holds a master degree in Aquaculture from the Norwegian University of Life Sciences.
Number of shares held at year end: 38 876 Number of options alloted at year end: 2 063 774 Mr. Vindheim joined Marine Harvest as CFO in 2012.
Mr. Vindheim has experience from various executive
positions:
2005 - 2008
finance at Deloitte, 1996 - 2005
Mr. Vindheim has a MSc in Business and an MBA from the Norwegian School of Economics. He is also a State Authorized Public Accountant and Certified
European Financial Analyst.
Number of shares held at year end: 966 Number of options alloted at year end: 461 311
Number of shares held at year end: 13 119 Number of options alloted at year end: 461 311 Number of shares held at year end: 629 Number of options alloted at year end: 281 128
Number of shares held at year end: 9 537 Number of options alloted at year end: 461 311
Ms. Solberg has been the COO of Marine Harvest's Farming Business Area since 2011. Today Ms. Solberg leads the farming activities in Canada, Ireland, Scotland and the Faroe Islands.
Mr. Gjerde has served as COO Farming for Norway and Chile since January 2017.
Mr. Brattvoll has served as the COO of Marine Harvest´s Sales and Marketing Business Area since 2010.
Ms. Solberg has long experience in the seafood industry:
Ms. Solberg holds a degree in microbiology from the University of Bergen.
Mr. Gjerde has extensive experience within salmon
farming and sales:
2016 - 2017
AS, 2007 - 2016
1996 - 2002
Mr. Gjerde is a graduate of the Norwegian School of Economics and Business Administration.
Mr. Brattvoll has comprehensive experience within marketing and sales:
Mr. Brattvoll holds a degree in fisheries from the Norwegian College of Fishery Science, University of Tromsø.
(1976) Chief Operating Officer Fish Feed
(1970) Chief Strategy Officer
Øyvind Oaland
(1970) Global Director R&D Anne Lorgen Riise
(1971)
Group Director HR
Chief Communications Officer
Mr. Oaland has served as Marine Harvest's Global Director for Research and Development since 2008.
Mr. Flanders joined Marine Harvest as Chief
Strategy Officer in 2016.
Ms. Riise joined Marine Harvest as Group
Director of Human Resources in 2012.
Ms. Gramstad joined Marine Harvest as
Chief Communications Officer in 2013.
Mr. Hadfield has been the COO of Marine Harvest's Fish Feed Business Area since 2013. Mr. Hadfield has also been Managing Director of Marine Harvest Scotland since January 2016.
Number of shares held at year end: 4 694 Number of options alloted at year end: 0
Number of shares held at year end: 306 Number of options alloted at year end: 0
Number of shares held at year end: 442 Number of options alloted at year end: 0
Number of shares held at year end: 664 Number of options alloted at year end: 0
Number of shares held at year end: 7 176 Number of options alloted at year end: 461 311
Mr. Hadfield has considerable experience within farming:
Scotland, 2000 - 2004
Mr. Hadfield holds a BSc in Environmental Geoscience from the University of Sheffield and an MSc in Pollution Control and Environmental Management from the University of Manchester. Mr. Oaland has held various positions within fish health, food safety and quality within Marine Harvest and also holds various board positions in the industry:
Mr. Oaland holds a degree in veterinary medicine from the Norwegian School of Veterinary Science. Mr. Flanders has 20 years of business experience including consultancy, finance and executive management in aquaculture:
Mr. Flanders holds a BSc in Accounting from University of Southern Maine.
Ms. Riise has held various HR positions and also
practiced as a lawyer:
Affairs, 2000 - 2002
Ms. Riise holds a master's degree in law from the
University of Bergen and Oxford Brookes University.
Ms. Gramstad has various political experience:
Ms. Gramstad holds a master's degree in change management from the University of Stavanger and a bachelor's degree in European studies from the University of Oslo.
| NUMBER OF | 2017 | 2016 | 2015 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| EMPLOYEES (FTE) | Permanent | Temp 3rd party | Total Permanent | Temp 3rd party | Total Permanent | Temp | Total | |||||
| Fish Feed | Male | 47 | 1 | 2 | 50 | 46 | 2 | — | 48 | 57 | 4 | 61 |
| Female | 16 | — | 1 | 17 | 18 | 1 | — | 19 | 21 | 1 | 22 | |
| Farming | ||||||||||||
| Norway | Male | 1 131 | 1 | 87 | 1 219 | 1 116 | 19 | 82 | 1 217 | 1 094 | 77 | 1 068 |
| Female | 298 | — | 39 | 337 | 294 | 14 | 36 | 344 | 274 | 95 | 437 | |
| Farming | ||||||||||||
| Scotland | Male | 628 | 15 | 5 | 648 | 551 | 34 | 5 | 590 | 505 | 41 | 546 |
| Female | 81 | 3 | 1 | 85 | 65 | — | 2 | 67 | 73 | 2 | 75 | |
| Farming Canada |
Male | 488 | — | — | 488 | 408 | — | — | 408 | 391 | — | 391 |
| Female | 107 | — | — | 107 | 93 | — | — | 93 | 88 | — | 88 | |
| Farming Chile | Male | 547 | 89 | 169 | 805 | 449 | 21 | 165 | 635 | 711 | 77 | 788 |
| Female | 242 | 35 | 30 | 307 | 178 | 14 | 16 | 208 | 233 | 75 | 308 | |
| Farming Ireland Male | 127 | 89 | — | 216 | 135 | 84 | — | 219 | 116 | 71 | 187 | |
| Female | 19 | 25 | — | 44 | 19 | 24 | — | 43 | 15 | 24 | 39 | |
| Farming Faroe | ||||||||||||
| Islands | Male | 32 | 2 | — | 34 | 34 | 2 | — | 36 | 27 | 2 | 29 |
| Female | 4 | 1 | — | 5 | 5 | 1 | — | 6 | 4 | 1 | 5 | |
| Farming | Male | 2 952 | 196 | 261 | 3 410 | 2 693 | 160 | 252 | 3 105 | 2 844 | 197 | 3 009 |
| Female | 750 | 64 | 70 | 885 | 653 | 53 | 54 | 760 | 687 | 134 | 952 | |
| Consumer Products |
Male | 2 426 | 152 | 626 | 3 204 | 2 378 | 478 | 350 | 3 206 | 2 117 | 809 | 2 926 |
| Female | 2 995 | 159 | 556 | 3 710 | 3 009 | 387 | 327 | 3 723 | 2 865 | 723 | 3 588 | |
| Markets | ||||||||||||
| Europe | Male | 100 | 1 | 8 | 109 | 96 | — | 7 | 103 | 107 | — | 107 |
| Female | 53 | — | 2 | 55 | 47 | — | 3 | 50 | 49 | — | 49 | |
| Markets America |
Male | 160 | 1 | 139 | 300 | 140 | 136 | — | 276 | 135 | 136 | 271 |
| Female | 112 | — | 184 | 296 | 93 | 136 | — | 229 | 82 | 108 | 190 | |
| Markets Asia | Male | 478 | 107 | 2 | 587 | 443 | 106 | 14 | 563 | 518 | 89 | 607 |
| Female | 405 | 131 | 11 | 547 | 409 | 148 | 17 | 574 | 470 | 112 | 582 | |
| Sales & | ||||||||||||
| Marketing | Male Female |
3 164 3 565 |
261 290 |
775 752 |
4 200 4 607 |
3 057 3 558 |
720 671 |
370 347 |
4 147 4 576 |
2 877 3 466 |
1 034 943 |
3 911 4 409 |
| Corporate/ | ||||||||||||
| other | Male | 37 | — | 4 | 41 | 34 | — | 5 | 39 | 65 | — | 65 |
| Female | 21 | — | 2 | 23 | 23 | — | 1 | 24 | 25 | — | 25 | |
| Marine | Male | 6 200 | 459 | 1 042 | 7 701 | 5 829 | 882 | 628 | 7 339 | 5 843 | 940 | 7 046 |
| Harvest Group | Female | 4 353 | 354 | 825 | 5 532 | 4 253 | 726 | 402 | 5 381 | 4 199 | 1 036 | 5 408 |
| Marine Harvest Group Total |
10 553 | 813 | 1 867 | 13 233 | 10 082 | 1 608 | 1 030 | 12 720 | 10 042 | 2 412 | 12 454 | |
The percentage of self-employed workers is not significant.
| Key indicators | 2017 | 2016 | 2015 | 2014 | 2013* | 2012 |
|---|---|---|---|---|---|---|
| LTI per million hours worked (own employees) | 6.6 | 9.9 | 11.4 | 11.4 | 13.8 | 13.7 |
| LTI own employees | 155 | 247 | 280 | 250 | 180 | 172 |
| LTI subcontractors | 9 | 21 | 25 | 19 | 15 | 10 |
| Absentee rate in % of total hours worked (own employees) | 5.2% | 5.7% | 4.8% | 5.0% | 4.8% | 3.4% |
| Fatalities | 0 | 1 | 0 | 0 | 0 | 1 |
*Morpol is included for three months only.
| Direct support to local communities in 2017 | EUR thousand |
|---|---|
| Norway | 1 319.0 |
| Canada | 246.2 |
| Scotland | 211.0 |
| Chile | 51.2 |
| USA | 5.0 |
| Ireland | 40.0 |
| Total support to local communities | 1 872.4 |
The list covers the main countries or regions in which we operate. The figures include contributions to charities, various community projects and social programs.
| Corporate taxes paid 2017 | EUR thousand |
|---|---|
| Norway | 113 059.3 |
| Canada | 38 124.5 |
| Scotland | 15 198.6 |
| The Faroe Islands | 6 355.8 |
| Japan | 2 677.3 |
| Belgium | 2 650.0 |
| Ireland | 2 482.0 |
| Germany | 1 999.1 |
| Czech | 1 725.8 |
| Singapore | 453.6 |
| France | 428.0 |
| Netherlands | 312.0 |
| Italy | 231.0 |
| South Korea | 126.6 |
| USA | 120.2 |
| Taiwan | 52.8 |
| Vietnam | 41.5 |
| Sweden | (0.6) |
| China | (11.2) |
| Poland | (233.0) |
| Chile | (8 406.8) |
| Total corporate taxes paid | 177 386.4 |
| 121 | Board of Directors' report | |
|---|---|---|
The strength of the salmon market was tested at increasing end-consumer prices for the most part of 2017, and the demand response has been impressive. Through product innovation and development of the salmon category, the consumer can choose between fresh, pre-packed salmon and a wide range of elaborated products. The Board is excited about the prospects for salmon and the many opportunities in both developed and emerging markets.
We consider good corporate governance a prerequisite for generating shareholder value, as well as achieving a low cost of capital and merit investor confidence. We hold the view that our current policies for corporate governance are in line with the latest version of the Norwegian Code of Practice for Corporate Governance.
"2017 was a record year for revenue and profitability, as demand exceeded supply and resulted in exceptionally high prices. Operationally, biological challenges gave rise to further increased costs in our farming operations. Towards the end of the year, a global cost savings program was initiated in order to turn the negative cost development seen in recent years. The conditional agreement to acquire Northern Harvest on the East Coast of Canada is an exciting opportunity to enable growth in the North American market."
NIBD of EUR 831.9 million at year end on strong cash flow. Completed refinancing of bank facility of EUR 1 206 million and conversion of EUR 375 million convertible bond. ROCE was above the long-term target of 12.0% at 26.7%.
Ole-Eirik Lerøy Chair of the Board of Directors
| 792.1 million |
|
|---|---|
| Operational EBIT | |
| Operational EBIT of EUR 792.1 | |
| million, up from EUR 700.2 million | |
| in 2016, mainly as a result of increased prices driven by strong |
|
| demand and decline in supply. | |
Dividend of NOK 12.40 paid out to the shareholders in 2017, up from NOK 8.60 in 2016. The 2016 dividends included NOK 1.10 related to divestment of shares in Grieg Seafood. Underlying earnings per share was EUR 1.23 (equivalent to NOK 11.48), an increase from EUR 1.13 (equivalent to NOK 10.51) in 2016.
Superior share
Superior share of 93% in 2017, compared to 92% in 2016.
13 new sites certified in 2017, making Marine Harvest number one in the industry with a total of 72 of our sites (31%) certified.
Entered into conditional agreement to purchase Northern Harvest, a salmon farmer on the East Coast of Canada. The acquisition of the farming and processing facilities from the Gray Aqua Group was completed in 2017.
(1959) Chair
Lisbet K. Nærø
Ms. Nærø has been a board member of Marine Harvest ASA since 2015. She is CEO
at Fana Sparebank.
Mr. Mulligan has been a board member of Marine Harvest ASA since 2016. He is co-owner and CEO of Liberty Coca-Cola Beverages LLC, a franchise partner of The Cola-Cola Company.
Mr. Lerøy has been a board member of Marine Harvest ASA since 2009. He is the Managing Director of the investment company Framar AS.
Number of shares held at year end: 0
Number of shares held at year end: 0 Number of shares held at year end: 0 Number of shares held at year end: 0
Number of shares held at year end: 2 100 000 Number of options alloted at year end: 1 000 000 Ms. Nærø has comprehensive experience from banking and financial services:
| Kristian Melhuus | Cecilie Fredriksen |
|---|---|
| (1981) | (1983) |
| Mr. Melhuus has been a board member of | Ms. Fredriksen has been a board member |
| Marine Harvest ASA since January 2018. He is Director of the Seatankers Group. |
of Marine Harvest ASA since 2008. She is an Executive Officer at Frontline Corporate Services Ltd. |
| Mr Melhuus has held various positions: | Ms. Fredriksen has served on several boards: |
| - Investment Director of HitecVision AS, 2013 - 2016 - CFO/COO of Liquid Barcodes AS , 2008 - 2013 - Analyst at ABG Sundal Collier, 2006 - 2008 Mr. Melhuus has a Master of Science in Industrial Economics and Technology Management from the Norwegian University of Science and Technology (NTNU), and has also studied Finance, Derivatives and Econometrics at the University of Karlsruhe. |
- Member of the Board of Norwegian Property ASA, since 2015 - Member of the Board of Ship Finance International Ltd., 2008 - 2015 - Member of the Board of Archer Ltd., 2008 - 2015 - Member of the Board of Northern Offshore Ltd., 2008 - 2015 - Member of the Board of Aktiv Kapital ASA, 2006 - 2015 |
| Ms. Fredriksen holds a degree in Business and Science from London Metropolitan University. |
Ms. Nærø has a Master of Science of Business from the Norwegian School of Economics, a Bachelor of Law from the University of Bergen, MBA from the University of Central Florida and the Advanced Management Program from Harvard Business School.
Mr. Lerøy has broad experience in the seafood industry:
Export Council (NSEC), 1994 - 2000 - CEO of Lerøy Seafood Group ASA, 1991 - 2008
Mr. Lerøy is educated at the Norwegian School of Management.
Mr. Mulligan has more than 20 years of experience in the Coca-Cola Company:
Mr. Mulligan has a degree in Economics from the University of Dublin and a Master in Accounting and Finance from the Dublin City University, and graduated from the Harvard Business School AMP (Advanced Management Program).
Birgitte Ringstad Vartdal
(1977) Chair of the Audit Committee
Yngve Magnussen
(1972)
Employee representative
(1971)
Employee representative
| Jean-Pierre Bienfait | |
|---|---|
| ---------------------- | -- |
(1963)
Mrs. Vartdal has been a board member of Marine Harvest ASA since 2016 and is also the Chair of the Audit Committee. She is the CEO of Golden Ocean Management.
Mr. Bienfait has been a board member of Marine Harvest ASA since 2016. He acts as independent Board member and advisor in primarily Food Retail, Foodservice and FMCG.
Mrs. Sværen was elected to the Board of Directors as a representative of the employees in 2016. She is a Long-term Planner at Marine
Harvest Markets Norway.
Mr. Hestnes was elected to the Board of Directors as a representative of the employees in 2014. He is a Health, Safety and Environment (HSE) coordinator and BrainSafe instructor in Marine Harvest Region Mid.
Mr. Magnussen has acted as representative of the employees to the Board of Directors since February 2018, after being a deputy representative since 2012. He is currently a Logistics Coordinator at Marine Harvest Norway Region North.
Number of shares held at year end: 0 Number of shares held at year end: 0 Number of shares held at year end: 0 Number of shares held at year end: 453 Number of shares held at year end: 442
Mrs. Vartdal has held various positions:
Mrs. Vartdal has a Master of Science in Physics and Mathematics from the Norwegian University of Science and Technology, and a Master of Science in Financial Mathematics from Heriot-Watt University.
Mr. Bienfait has over 25 years of experience in the global retail and food service industries and held a variety of leadership positions:
Mr. Bienfait has a Master of Law from Utrecht University, a Master of Business Administration from Columbia University and attended the Advanced Management Program at Harvard Business School.
Mr Magnussen has been in the industry since 1993:
Mr. Magnussen has a certificate of completion as Agro farmer. In 1999 he took a Certificate of apprenticeship in "Fishing industry" and in 2018 he took a Certificate of apprenticeship in "Logistics".
Mrs. Sværen has been with the Company since
1996:
Norway, since 2005
by Nutreco and later changed name to Marine
Harvest, 1996 - 2000
Mrs. Sværen has a Master of Science in Business from Bodø Graduate School of Business.
Mr Hestnes has been in the seafood industry since 1988:
Mr. Hestnes has a certificate of completion as farm technician and management courses organized by Addisco/FLT at Bergen University College.
"Our vision is "Leading the Blue Revolution" and our ambition is to be a world-leading, integrated producer of seafood proteins. In order to achieve this, we aim to capitalize on our integrated value chain and be the leader in key areas from fish feed production to meeting the needs of the market."
Ole-Eirik Lerøy, Chair of the Board of Directors
2017 was a record year for revenues and profitability. Once again a new record was set for the top line, with total revenues amounting to EUR 3 649.4 million, which was 4.0% above the previous record from 2016. Harvested volumes were down by 2.7%, so the revenue increase is attributable to higher achieved prices. Demand for salmon exceeded supply in the first half of the year, resulting in record-high prices in all markets. Contract prices were also higher in 2017 than the year before. Although the recovery of supply in the second half of the year put pressure on spot prices in all markets, overall achieved prices in the year as a whole were higher in 2017 than in 2016. However, the benefit of high prices was partially counterbalanced by increased costs in our Farming operations. Biological challenges contributed to cost increases in Norway and Canada, while costs were reduced in Scotland and Chile. For Consumer Products, 2017 was the best year ever, due to operational improvements and adjustment of sales prices to accommodate the upsurge in raw material costs. Our Feed operations had a challenging year, as the timing of raw material purchases negatively impacted margins, and costs were also negatively impacted by currency effects and preparation costs for our new feed plant in Scotland. As a result of the above, our Operational EBIT for the year ended December 31, 2017, reached a record high at EUR 792.1 million, compared to EUR 700.2 million in 2016. At 26.7%, ROCE was significantly above our long-term target of 12%, while NIBD ended the year at EUR 831.9 million, EUR 368 million below the target level. A dividend of NOK 12.40 per share was paid to shareholders in 2017.
At Marine Harvest, we believe the right way to supply a growing world population with healthy, nutritious protein products is by sustainably farming the ocean. Our vision is "Leading the Blue Revolution" and our ambition is to be a world-leading, integrated producer of seafood proteins. In order to achieve this, we aim to capitalize on our integrated value chain and be the leader in key areas from fish feed production to meeting the needs of the market.
We are the world's largest producer of farmed salmon, both by volume and revenue, offering fresh, whole salmon, processed salmon and other processed seafood products to customers in approximately 70 countries worldwide. We currently engage in three principal types of production activities:
We continue the process of transforming ourselves from a production-driven fish farming company into an integrated marine protein provider, by expanding in fish feed and broadening our farming and secondary processing operations.
We opened our first feed plant in 2014 to facilitate our control of the value chain, enable the rapid development of improved feed products and ensure quality throughout the process. Our feed plant in Bjugn, Norway, supplied 85% of our Norwegian fish feed requirements in 2017. The reduction from 86.5% in 2016 is due to rapid increase in demand towards the end of the year which exhausted stocks of finished goods and the production capacity of the Bjugn plant, thereby necessitating external purchases of feed by Farming Norway. Our second feed plant at Kyleakin on the Isle of Skye, Scotland was given the go-ahead by the Highland Council in February 2017. The plant is scheduled for completion in the summer of 2018. Through the gradual in-sourcing of feed, we expect to obtain lower feed costs as well as improved growth, lower feed conversion rates and higher end-product quality.
In our Farming operations, we continue screening for strategic initiatives that we believe will benefit our global operations. In 2017, we completed the purchase of the Gray Aqua Group, located on the East Coast of Canada. We also entered into a conditional agreement to acquire the salmon farmer Northern Harvest, located in the same region. The CAD 315 million transaction is subject to approval by relevant competition authorities and customary closing conditions. The potential acquisition is of strategic importance, and the benefits include expansion into a new region for Marine Harvest, as well as improved market access to the Eastern Canadian and US seafood markets. We also purchased increased farming capacity in Norway under the amended fish farming regulations, which have given farmers in green production areas the opportunity to buy an increase in existing licenses' maximum allowed biomass (MAB). Marine Harvest's share of the 2% fixed-price growth is 1,400 tonnes MAB. The boundaries of the production areas defined in the amended regulations form the basis for the new region structure that Marine Harvest Norway has implemented with effect from 1 January 2018. The number of regions in our largest Farming business unit has been reduced from four to three, and the aim of the restructuring is to adapt to the amended fish farming regulations, and to streamline the organization following the cost increases and volume reductions of recent years.
To further support our farming activities, we established DESS Aquaculture Shipping in 2016. DESS Aquaculture Shipping, a joint venture with SolstadFarstad, was established for the purpose of building, owning and operating aquaculture vessels. In 2017, we increased our investment in the JV by EUR 10.5 million to a total of EUR 13.4 million. As of year end 2017, the joint venture had a total of four wellboats and one harvesting vessel under construction.
To achieve our ambition of growth in sales of both new and existing products, production capacity must also increase. We have therefore substantially expanded and upgraded several of our processing plants to provide customers with new products including sushi. In addition, reflecting the success of our fresh pre-packed products in the US market, we opened a new plant in Surrey, near Vancouver, Canada, in December 2017, to facilitate further sales growth in North America. This comes in addition to the Dallas plant opened in December 2016, and our plant in Miami. We currently operate around 30 secondary processing facilities, the largest of which are located in Ustka, Poland; Bruges, Belgium; Rosyth, Scotland; and Boulogne and Landivisiau, France.
Our commitment to the sustainable development of the industry include our ASC (Aquaculture Stewardship Council) certification project. Marine Harvest is the industry leader in ASC certification of seawater sites, and
at year-end 2017, we had 72 sites certified. This represents 31% of our sites. We are also continuing our commitment to the Global Salmon Initiative, an industry-led sustainability initiative.
Sea lice still constitute our main sustainability challenge. Recognizing that the sustainable development of our industry requires the development of new technology, we continue to search for solutions, including various closed-containment systems for fish farming that will not only mitigate, but also eradicate the sea lice challenge. Since the floating semi-closed technology is still very new, we intend to test several different concepts, to be sure we select the best one once the technology is scaled up. We have therefore applied for development licenses to test the following closed concepts: The Egg® , The Marine Donut®, The Beck cage, The Ship and The Aquastorm. For the Egg® concept, we have been awarded six licenses for the development of five units. We are still waiting for the fi-
nal decisions regarding the other concepts. We will continue to work with the authorities, and hope they will imminently reach a final conclusion, in order for the projects to commence. Although we are developing and testing closed-containment solutions, we do not think that our existing facilities will become redundant in the future. On the contrary, we see opportunities to combine the present with the future and make the best of both, particularly following the substantial upgrades to our land-based
| smolt facilities, which enable the production of larger smolt. | |
|---|---|
| IN EUR MILLION | AS % OF REVENUE | |||
|---|---|---|---|---|
| 2017 | 2016 | 2017 | 2016 | |
| Revenue and other income | 3 649.4 | 3 510.2 | 100.0% | 100.0% |
| Cost of materials | -1 688.5 | -1 782.2 | -46.3% | -50.8% |
| Net fair value adjustment biomass | -340.3 | 386.2 | -9.3% | 11.0% |
| Salary and personnel expenses | -477.9 | -440.0 | -13.1% | -12.5% |
| Other operating expenses | -555.0 | -472.5 | -15.2% | -13.5% |
| Depreciation and amortization | -150.4 | -142.5 | -4.1% | -4.1% |
| Onerous contracts provision | 119.8 | -108.7 | 3.3% | -3.1% |
| Restructuring costs | -2.5 | -5.4 | -0.1% | -0.2% |
| Other non-operational items | 0.3 | 1.3 | —% | —% |
| Income/loss from associated companies and joint ventures |
33.7 | 62.6 | 0.9% | 1.8% |
| Impairment losses | -103.8 | -17.7 | -2.8% | -0.5% |
| Earnings before financial items (EBIT) | 484.9 | 991.2 | 13.3% | 28.2% |
| Interest expenses | -46.7 | -48.4 | -1.3% | -1.4% |
| Net currency effects | -8.8 | 26.9 | -0.2% | 0.8% |
| Other financial items | 93.2 | -210.5 | 2.6% | -6.0% |
| Earnings before taxes | 522.6 | 759.2 | 14.3% | 21.6% |
| Income taxes | -59.9 | -219.9 | -1.6% | -6.3% |
| Net earnings from continuing operations | 462.7 | 539.3 | 12.7% | 15.4% |
| Non-IFRS measures | ||||
| Operational EBIT | 792.1 | 700.2 | 21.7% | 19.9% |
| ROCE % | 26.7% | 28.1% |
Financial results are created through interaction between people, the natural environment and technology. Our goal is to find an optimal combination of these elements to create long-term success, whilst understanding that our growth must be environmentally, socially and financially sustainable. We use key performance indicators within our four interrelated guiding principles, Profit, Planet, Product and People to measure the Group' progress. This contributes to sustainable long-term results for all stakeholders. Developments with regard to key performance indicators within each guiding principle are discussed in detail in separate sections in this Integrated Annual Report.
Set out below are our consolidated statements of operational data for the years ended December 31, 2017 and 2016.
The table above demonstrates the negative cost development for the group in recent years. It is with great concern that the Board has viewed this development. Marine Harvest has initiated a global cost savings program of EUR 50 million p.a. across all business units, but will ensure that the initiatives do not compromise safety, quality and growth.
Revenue and other income for the year ended December 31, 2017 totaled EUR 3 649.4 million, an increase of 4.0%, or EUR 139.2 million compared to the EUR 3 510.2 million achieved in 2016. The revenues achieved in 2017 were our highest ever, and the year-on-year increase from 2016 was price-driven. Demand for salmon exceeded supply in the first half of the year, resulting in record-high prices in all markets. Contract prices were also higher in 2017 than the year before. Although the recovery of supply in the second half of the year put pressure on spot prices in all markets, overall achieved prices for the year were higher in 2017 than in 2016. Marine Harvest achieved a combined global price that was 3% above the weighted reference price in 2017. The corresponding price achievement in 2016 was 9% below the weighted reference price. Relative to the reference price, contract sales made a positive contribution in 2017, but a negative contribution in 2016.
The Group harvested a total of 370 346 tonnes gutted weight in the year ended December 31, 2017. This was 10 275 tonnes less than the year before, mainly explained by a 25 810 tonnes volume reduction in Norway as a result of biological challenges caused mainly by sea lice. For salmon of Scottish origin, volumes increased by 15 141 tonnes due to more biomass in sea at the start of the year, and improved fish health. In Chile, volumes increased by 7 963 tonnes from a very low level in 2016 resulting from the algal bloom. In Canada, volumes decreased by 3 960 tonnes due to less biomass at the start of the year and unfavorable environmental conditions in sea. Our Faroese operations are subject to a two-year cycle resulting in alternating years with high and low volume, and the volume drop in 2017 was 4 913 tonnes compared to 2016. In Ireland, volumes increased by 1 304 tonnes from 2016.
The cost of materials for the year ended December 31, 2017 totaled EUR 1 688.5 million compared to EUR 1 782.2 million in 2016. The decrease was primarily related to phasing effects of costs allocated to biomass in sea. The costs for harvested fish increased by 1.4% from 2016.
Total salaries and personnel expenses for the year ended December 31, 2017 totaled EUR 477.9 million, an increase of 8.6%, or EUR 37.9 million, compared to EUR 440.0 million in 2016. The increase was evenly distributed between Farming and Sales & Marketing. The number of FTEs has risen by 513 since 2016, and Farming accounts for the bulk of this increase, despite decreased harvest volumes. This development is concerning, and several measures have been initiated to streamline the organization going forward.
Other operating expenses increased by EUR 82.5 million or 17.5% in the year ended December 31, 2017 compared to the same period in 2016. The majority of the increase is due to our Farming operations, as a consequence of increased maintenance costs, rent and leasing costs, fuel costs, service costs and insurance costs. The increase in rents, leases and service costs relate to service boats needed to address the challenges posted by sea lice, ISA and other biological issues.
We recognized a net fair value adjustment of EUR -340.3 million for the year ended December 31, 2017, compared to EUR 386.2 million in 2016. The change in the onerous contracts provision in 2017 was positive in the amount of EUR 119.8 million, compared to EUR -108.7 million in 2016. The movements in both these items can be explained by the significantly reduced salmon prices at the end of 2017 compared to the end of 2016. For more information, please refer to Note 6 to the Group financial statements.
The majority of the restructuring cost in 2017 relates to the reorganization of Marine Harvest Norway and Consumer Products France. In total, we recognized restructuring costs in the amount of EUR 2.5 million for the year ended December 31, 2017. The corresponding figure for 2016 was EUR 5.4 million. For more information, please see Note 30 to the Group financial statements.
We recognized an income from associated companies of EUR 33.7 million for the year ended December 31, 2017 compared to EUR 62.6 million in 2016. The decrease was primarily due to a reduction in the recognized fair value adjustment of the biomass for Nova Sea AS. For more information, please see Notes 21 and 22 to the Group financial statements.
In 2017, we recognized impairment losses of EUR -103.8 million, compared to losses of EUR -17.7 million in 2016. EUR -97.2 million of the losses relate to impairment of farming licenses in Chile. Marine Harvest Chile has 187 seawater licenses, and a large part of the capacity is unused. Based on an updated assessment of the recent regulatory changes for fish farming in Chile and estimated volumes going forward, the value-in-use of the licenses is considered to be impaired. For more information, please see Note 8 to the Group financial statements.
As a result of the foregoing, our EBIT came to EUR 484.9 million in the year ended December 31, 2017, compared to EUR 991.2 million in 2016.
Group Operational EBIT increased by 13.1%, from EUR 700.2 million in 2016 to EUR 792.1 million for the year ended December 31, 2017. The positive development is attributable primarily to record-high prices for salmon.
We achieved a return on capital employed (ROCE) of 26.7% in 2017, well above our long-term target of 12.0%. The comparable figure for 2016 was 28.1%.
In the year ended December 31, 2017, interest expenses decreased by 3.6% to EUR 46.7 million, compared to EUR 48.4 million in the same period in 2016. The average interest-bearing debt for 2017 came to EUR 948.6 million compared to EUR 944.9 million in 2016. Net interest-bearing debt at year-end totaled EUR 831.9 million.
Net currency effects for the year ended December 31, 2017 amounted to EUR -8.8 million, compared to net positive effects of EUR 26.9 million in 2016. The negative currency effect in 2017 was driven by unrealized losses on long-term hedges.
For the year ended December 31, 2017, other financial items totaled EUR 93.2 million compared to EUR -210.5 million in 2016. The positive change in the fair value of the conversion liability component of our convertible bond amounted to EUR 82.4 million due to the decreased share price. In 2016, the effect was opposite due to increased share price, and the corresponding effect was EUR -230.0 million.
For more information about financial items, please see Note 12 to the Group financial statements.
For the year ended December 31, 2017, we recognized a tax expense in profit and loss of EUR 59.9 million, compared to EUR 219.9 million in 2016. The main drivers for the lower tax expense were the decreased earnings before tax, reduced tax rate in Norway and utilization of non-recognized deferred tax assets related to tax losses carried forward in Chile. For more information, including a full reconciliation between earnings before taxes and the tax expense, please see Note 15 to the Group financial statements.
As a result of the foregoing, our profit and loss for 2017 came to EUR 462.7 million, down EUR 76.6 million from EUR 539.3 million for the year ended December 31, 2016.
Although underlying raw material prices decreased during the year, costs were negatively impacted by currency effects and the consumption of raw materials on stock purchased at higher prices. Feed prices (sales prices for the feed products) were reduced in line with underlying raw material prices, with a correspondingly negative effect on earnings for our Feed segment.
Compared to 2016, Operational EBIT was also negatively impacted by EUR 3.8 million in costs related to the construction phase of the new feed plant in Scotland, which is expected to be completed in 2018. The new plant will have an estimated capacity of 170,000 tonnes per year, and is expected to create 55 permanent full-time jobs.
In December 2017, our Norwegian feed plant reached a major milestone, with 1 million tonnes of feed produced since its start-up in 2014. The plant produced 305,174 tonnes of feed in 2017 (310,242 in 2016). We continue to develop our range of products to reduce the dependency on third-party feed purchases.
Farming's Operational EBIT totaled EUR 660.5 million in the year ended December 31, 2017, compared to EUR 585.9 million in the year ended December 31, 2016. The increase was primarily a result of higher prices achieved. The volume harvested decreased by 2.7% from 2016 to 2017. The cost-in-box decreased for our Scottish and Chilean operations, while it increased for Norway and Canada. We are continuing our efforts to improve the efficiency of our operations, with particular focus on the marine-phase growth and feed conversion rates. The cost development is being addressed through the aforementioned global cost savings program.
For details of our farming entities' operational performance, please see the Operational performance by country of origin in the Profit section.
Our Sales and Marketing operations consist of the reporting segments Markets and Consumer Products.
Markets' Operational EBIT for the year ended December 31, 2017 totaled EUR 73.2 million, compared to EUR 76.1 million in 2016. The 2017 Operational EBIT comprised EUR 41.4 million from Markets Europe, EUR 12.9 million from Markets Asia and EUR 15.6 million from Markets Americas, compared to EUR 41.9 million, EUR 11.9 million and EUR 22.3 million, respectively, in 2016.
Markets Europe experienced good sales growth in the UK, Benelux and Eastern Europe. France and Germany continue to be very important regions, but sales have been hampered by higher retail prices. The effects of reduced volumes for Markets Europe were to a large extent offset by increased prices.
Markets Asia experienced volume shortages for large-sized fish, but the effects of reduced volumes were more than offset by increased prices, and margins increased compared to the previous year.
The significant decline in volumes from Chile had an adverse effect on earnings in Markets Americas compared to the previous year. The reduced volumes from Chile were replaced by increased volumes from Canada and Europe, but this negatively impacted margins. Consumption in the US increased in 2017, but is still low by European standards. One of the main barriers to consumption has been access to fresh salmon in retail stores. The opening of our new value-added plants in Dallas (in the fourth quarter of 2016) and Vancouver (in the fourth quarter of 2017) improves our market access.
Marine Harvest Consumer Products is geographically organized, but constitutes one reporting segment. Consumer Products' Operational EBIT for the year ended December 31, 2017 totaled EUR 61.7 million, compared to EUR 21.5 million in 2016, making 2017 the best year ever for Consumer Products. 2017 was a record year for many of our plants, including Morpol, Bolougne, Rosyth, Pieters and Sterk.
For our Rosyth plant in the UK, 2017 was the first full year which was not influenced by preparation and startup costs, which explains the increased profitability for this unit compared to 2016. In general, the improved results of our other entities are due to operational improvements and the adjustment of sales prices to accommodate the upsurge in raw material costs in 2016 and 2017.
Salmon's share of total sales value came to 84.3% in 2017 compared to 81.8% in 2016. We experienced good growth in the UK, Benelux and Eastern European markets in 2017. In the French and German markets, sales to traditional retail customers became increasingly difficult as a result of the high prices, although we saw signs of improvement towards the end of the year. However, our Consumer Products organization managed to partly offset this through increased sales to discount retailers. All in all, the volume sold decreased by 7.9% compared to 2016, ending at 123 926 tonnes end-product weight. The lower volume also contributed to higher overall processing costs per kilogram produced than in 2016.
For our Chilled operations (mainly smoked products), earnings have been positively affected by the adjustment of sales prices to higher raw material costs. Operational EBIT for the Chilled operations therefore ended at EUR 32.8 million in 2017, compared to EUR 20.3 million in 2016. Volumes have been under pressure due to price increases.
For our Fresh operations, Operational EBIT ended at EUR 28.9 million, which is a significant improvement from EUR 1.2 million in 2016. In general, the increase is due to operational improvements, successful promotions and the adjustment of sales prices to higher raw material costs. In 2016, results were still influenced by preparation and startup costs for the Rosyth plant. The development of MAP sales has been good in 2017, but total volumes sold have been stifled by the higher consumer prices.
The recognized book value of our fish farming licenses in our Statement of Financial Position was EUR 615.2 million and EUR 764.3 million at December 31, 2017 and 2016 respectively. The decrease is mainly attributable to the impairment losses on our licenses in Chile in 2017, and currency effects related to the EUR appreciation versus NOK on the book value of our Norwegian licenses. Measured in EUR per kg salmon harvested, book license values were EUR 1.7 and EUR 1.9 respectively. In Chile, we have significant unused license capacity. In other business units, our current harvest volumes are closer to the capacity under the current operating regime. The size of the smolt put to sea influences the production capacity of our sea water operations in the jurisdictions where maximum allowed biomass (MAB) regulations apply. Larger smolts will result in increased harvest per license in these regimes. We are currently in the process of increasing our smolt capacity to allow for the production of bigger smolt.
Our principal sources of liquidity are cash on hand, revenues generated from our operations and, to a lesser extent, loans and other financing arrangements. Our principal needs for liquidity have been, and will probably continue to be, costs of raw materials, including fish feed, other working capital items and capital expenditures, to service our debt, and to fund dividend payments and acquisitions. We believe that our liquidity is sufficient to cover our working capital needs in the ordinary course of business.
In 2017, we signed a senior secured five-year EUR 1,206 million multi-currency revolving credit facility. The facility includes an accordion option of EUR 200 million. We also completed the conversion of the EUR 375 million convertible bond to equity.
Our NIBD totaled EUR 831.9 million as of December 31, 2017, compared to EUR 890.0 million as of December 31, 2016. As a result of the new feed factory in Scotland and expected higher long-term earnings, the Board of Directors has revised the Farming NIBD/kg from EUR 1.8 to EUR 2.0 and the long-term NIBD target from EUR 1 050 million to EUR 1 200 million.
Cash flow from operations for the year ended December 31, 2017 came to EUR 632.4 million, compared to EUR 693.2 million for 2016. The higher earnings in 2017 compared to 2016 were offset by tie-up of working capital and increased prepayments of tax.
Cash flow from investments for the year ended December 31, 2017 came to EUR -234.7 million, compared to cash flow from investments of EUR -132.6 million in 2016. The differences are attributable primarily to the new feed factory in Scotland, as well as the positive cash flow in 2016 deriving from the divestment of shares in Grieg Seafood.
Cash flow from financing for the year ended December 31, 2017 came to EUR -425.5 million, compared to EUR -533.0 million for 2016. In line with our dividend policy, repayment of paid-in capital amounted to EUR 640.3 million in 2017. In 2016, repayment of paid-in capital amounted to EUR 418.1 million.
Marine Harvest ASA made a profit for the year ended December 31, 2017 of EUR 228.6 million, compared to EUR 81 million in 2016.
Marine Harvest ASA paid a dividend per share of NOK 12.40 in 2017. In 2016 the dividend per share was NOK 8.60.
At the forthcoming AGM, the Board will propose that Marine Harvest ASA's EUR 228.6 million net profit for the year should be allocated to other equity.
The Board confirms that the financial statements have been prepared on the assumption that the Company is a going concern, in accordance with section 3-3a of the Norwegian Accounting Act, and that such an assumption is justified. This confirmation is based on the reported results, the Group's business strategy, financial situation and established budgets.
We categorize risk based on the COSO enterprise risk framework, which divides risk into four categories:
We consider our operational risk to cover several individually important subcategories, and have therefore chosen to divide our operational risks into the following sub-categories:
All risk categories could, if not properly managed, have material adverse effects on our business operations and financial results. Each risk category includes one or more identified risks factors that individually and/or in combination with others could significantly affect our performance. For a complete overview of our identified risks, please see the sections Risk and Risk Management and Corporate Governance - Chapter 10 in this Integrated Annual Report.
The Group monitors and manages the financial risks arising from its operations. These include currency risk, interest rate risk, credit risk and price/liquidity risk.
Several business units carry out a large number of business transactions in currencies other than their domestic currency. For the Group, the relative importance of these transactions is substantially larger on the revenue side than on the cost side. To mitigate potential fluctuation effects on our cash flows, we maintain a foreign exchange strategy designed to manage these exposures both in the short and long term. The Group has defined a hedging strategy for each of Marine Harvest's units.
The Group's predominant currency is EUR, which accounts for more than 50% of net cash flow. Since the establishment of the Group in 2006, Marine Harvest has managed its cash flow in EUR and has used EUR as
its main financing currency. From January 1, 2016 the Group's financial reporting currency was changed from NOK to EUR, which has made the reporting currency consistent with a significant portion of the Group's cash flow, cash flow management and financing. The functional currency of the parent company Marine Harvest ASA was also changed from NOK to EUR at the same time. From January 1, 2018, all of our Norwegian subsidiaries apply EUR as their functional and reporting currency.
With the exception of the convertible bond with a principal amount of EUR 340 million, our financing is generally at floating interest rates. It is Marine Harvest ASA's policy to hedge the Group's long-term interest-bearing debt by currency, including external interest-bearing debt and leasing in the parent company or subsidiaries, through fixed-interest or interest-rate derivatives.
Over time, Marine Harvest ASA shall hedge 0%-35% of the Group's longterm interest-bearing debt by currency through fixed-interest or interest-rate derivatives for the first 5 years, and 0% at fixed rates thereafter. Interest-bearing debt includes external interest-bearing debt and leasing in the parent company or subsidiaries. The interest rate hedges shall be based on the targeted currency composition. Interest rate exposure in currencies other than EUR, USD, GBP and NOK shall not be hedged. All interest-rate hedging shall be undertaken by the parent company. At year-end 2017 the Group had a portfolio of interest swaps with a net negative market value of EUR 72.5 million after a decrease in market value during 2017 of EUR 13.7 million, recognized through profit and loss.
We are exposed to the risk of losses if one or more contractual partners fail to meet their obligations. To mitigate this risk the Group trades only with recognized, credit worthy third parties. It is the Group's policy that all customers who wish to trade on credit terms be subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and as a rule the Group's trade receivables are fully credit insured. The Group monitors its exposure to individual customers closely and is not substantially exposed in relation to any individual customer or contractual partner as of December 31, 2017. The maximum exposure is disclosed in Note 17 to the Group financial statements.
The Group enters into derivative transactions only with counterparts with whom it has an established business relationship.
The Group continuously monitors its liquidity, and estimates expected liquidity developments on the basis of budgets and monthly updated forecasts from the units. Marine Harvest's financial position depends heavily on developments in the spot price for salmon, and these prices have historically been volatile. As such we are exposed to movements in supply and demand for salmon. We have to some extent mitigated our exposure to spot prices by entering into bilateral fixed-price/volume contracts with our customers. The contract share has normally varied between 20% and 50% of our sold volume, and the duration of the contracts has typically been three to twelve months. Furthermore, we reduce our exposure to spot price movements through value-added processing activities and
the tailoring of products to specific customer requirements. Other key liquidity risks include fluctuations in production and harvested volumes, biological issues, and changes in the feed price, which is the most important individual factor on the cost side. Feed costs are correlated to the commodity prices of the marine and agricultural ingredients.
Leverage and capital access i.e. capital management refers to the process of acquiring and utilizing capital in the most efficient manner given the available alternatives.
Feed production, salmon farming and seafood processing are capital-intensive industries. Our future development and growth may depend on access to external capital in the form of debt and/or equity capital. Access to borrowed capital is continuously monitored and we maintain a continuous dialog with our lenders.
We have significant indebtedness. Our current debt is on favorable terms including the syndicated loan facility. The syndicated loan facility sets forth an equity ratio as the only financial covenant. The remaining portfolio of interest-bearing debt does not include more restrictive financial covenants. Marine Harvest complied with the covenant in its loan agreements during 2017 and the close of the year. Details of the Group's main loan programs are described in Note 11 to the Group financial statements.
For further information about our financing arrangements, capital management and risk management, please see Notes 11 and 13 to the Group financial statements.
On February 17, 2017, Marine Harvest ASA's Board of Directors resolved to delist Marine Harvest's American Depositary Shares (ADSs), from the New York Stock Exchange (NYSE) and to terminate the registration of the ADSs and shares under the U.S. Exchange Act. Since March 9, 2017, our shares have been listed on the Oslo Stock Exchange only. Following the delisting and deregistration from NYSE, Marine Harvest remains subject to the rules of the Oslo Stock Exchange and other Norwegian and European Union financial market regulations, but is no longer subject to the Sarbanes-Oxley Act of 2002 section 404 - internal control over financial reporting.
For further information regarding the Group's internal control procedures, please refer to Corporate Governance, chapter 10.
We live in a world that is facing major environmental challenges, including climate change and the depletion of natural resources, but also a world where future food production needs to match global demand. Fish farming can improve the world's standard of living by producing food that is both highly nutritious and of high quality, while at the same time delivering a reduced carbon footprint. Fish farming is one of the most climate-friendly ways of producing protein from animal husbandry. Eating salmon instead of land-based animal proteins would, by itself make a difference to climate change.
Delivering continuous excellence means tackling environmental challenges in a holistic way. Our ASC-certification projects have helped us target improvements in key areas, including fish escapes, nutrient release, biodiversity, use of medicines and sustainable feed ingredients. In addition to environmental indicators, the ASC standard also contains numerous social indicators to ensure that salmon farming is undertaken not only in an environmentally responsible manner, but also in a socially acceptable one.
For a detailed review of how Marine Harvest works to secure sustainable operations, please see Part II of this Integrated Annual Report.
From a global perspective, the two most significant challenges related to food production are greenhouse gas emissions and the feed used for animal protein production. We consider these challenges to represent opportunities for the salmon farming industry, as farmed salmon utilizes significantly less feed than competing agricultural protein sources, and causes lower emissions of greenhouse gases.
When comparing the carbon footprint of farmed salmon with that of traditional meat production, the salmon footprint comes out at 2.9 kg carbon equivalent per kg of edible product, whereas pork and beef produce, respectively, 5.9 kg and 30 kg carbon equivalent per kg of edible product. Farmed salmon is also an excellent protein and energy converter compared to alternative meat sources. Producing proteins by farming salmon with sustainably sourced feed is therefore good resource management.
Continuous access to sustainably managed feed ingredients is a prerequisite for the salmon farming industry. Over the past ten years, we have been able to reduce our dependence on marine raw materials (fish meal and fish oil) in salmon feeds by 50%. This is made possible by a significant substitution of marine raw materials by vegetable sources and the use of high-quality by-products from poultry in Chile and Canada. However, such an improvement brings new challenges, including the use of sustainably sourced vegetable ingredients and a continuous effort to source marine ingredients from responsibly managed fisheries.
We believe the coming years will be key to finding alternative EPA and DHA-rich sources that could further reduce our dependence on fish oil. Our efforts to source sustainable feed ingredients will always go hand-inhand with the goal of ensuring that our salmon remain a rich source of Omega-3 fatty acids.
We are committed to developing our business in a way that safeguards the planet's natural capital, including its biodiversity. Our fish farming operations may impact the environment as a result of sea lice, medicinal treatments, fish escapes and nutrient release. All farming systems have an impact, but it is up to us to ensure that ours is kept to a minimum, and that all impacts are measured and controlled.
Since we launched our updated strategy for sea lice management in 2015, we have significantly increased our R&D activities to find new and better
ways to manage sea lice. In 2017 we established the Lice Action Team, tasked with developing novel solutions for safe and cost-efficient sea lice control. At operations with non-medicinal treatment systems, an average of 55% of all treated fish were treated using non-medicinal tools. We continuously track the average monthly percentage of sites above statutory sea lice limits in each business unit. Good progress was achieved in Scotland, Canada and to some extent Chile. In Norway, the percentage of sites that exceeded limits (average monthly basis) remained stable. In Ireland and the Faroes, several factors including environmental challenges, limited access to non-medicinal treatment systems and high levels of sea lice hampered full application of our sea lice strategy.
While we observed a satisfying decrease in losses where treatments were carried out we continue to strengthen our efforts to further develop integrated approaches and safer non-medicinal treatment systems in our operations.
Licensed medicines for sea lice control are prescribed and used only when required, and under the supervision of authorized veterinarians and fish health professionals. As a result of the broader implementation of our sea lice strategy and application of non-medicinal treatment systems, our medicine use fell sharply in 2017. Compared to 2016, the use of both oral medicines and hydrogen peroxide declined, while use of topical medicines remained relatively stable. From 2016 to 2017, our total medicine use and total active substance use (g/t biomass produced) were reduced by 73% as a result of the success of our sea lice strategy and the increased use of non-medicinal methods.
Licensed medicines for bacterial infections are prescribed and used only when required, and under the supervision of authorized veterinarians and fish health professionals. As in previous years, no antibiotics were used in our operations in Ireland or the Faroe Islands in 2017, and significant reductions were achieved in Canada and Chile. Broader application of a new vaccine against Salmonid Rickettsial Septicemia contributed to the reduction in Chile. Antibiotic use increased in Scotland because of increased gill health challenges and an outbreak of Pasteurella skyensis. Due to an outbreak of Enteric Redmouth Disease at one site in Norway Region Mid, an antibiotic treatment was prescribed for the health and wellbeing of the fish and to prevent the disease from spreading. The amount of antibiotic medicine used was small and represented 0.9 g per tonne produced. The number of fish treated with antibiotics remained low in 2017, at 0.3% in freshwater (0.2% in 2016) and 2.5% in seawater (2.6% in 2016).
It is our responsibility to control our fish stocks and eliminate the potential consequences of their escapes. In 2017, the number of escaped fish has increased to a total of 23 223 (15 escape incidents), mainly due to an incident in Ireland where 20 000 fish escaped. The corresponding figures for 2016 were 11 escape incidents and a total of 12 790 escaped fish. Our target of zero escapes was achieved on the Faroe Islands and in Region West in Norway.
Our objective is zero escapes. There is, however, no simple solution to help us achieve this goal. Only an integrated approach that continuously assesses and improves our operations and equipment will bring effective results. We have therefore developed a comprehensive global standard on escape prevention and mitigation that has been rolled out in all our operations, both seawater and freshwater.
For sites located in protected areas, we undertake annual monitoring of benthic populations. In 2017, we continued to measure the potential impact of organic loading from our farming operations on seabed communities in accordance with mandatory national surveys. Results show that on average, 82% of our sea farms have a minimal impact (i.e. the impact is kept within the carrying capacity of the environment) on faunal communities and/or sediment chemistry in the proximity of fish pens. When the impact on the seabed is considered unsatisfactory (one site in the Faroes, five in Scotland, two in Chile, two in Canada, one in Ireland and two in Norway), we take corrective action. This may include reducing production and/or increasing the fallowing period, i.e. the time between production cycles, to allow seabed communities to recover from organic loading.
For more information about sustainability and the aspects of our farming operations that might influence the environment, please see the Planet section.
The Group's other activities may also affect the environment and local communities. The continuous evaluation of potentially negative impacts is based on our experience as well as dialog with non-governmental organizations (NGOs), regulators, customers and the scientific community.
Being aware of the potentially negative effects our activities could have on the environment and local communities, we have incorporated measures to monitor and manage these in the Qmarine global quality program. We continue to work with regulators, industry partners and the scientific community to promote environmental responsibility in the industry. For more information on how the Group works to understand and address stakeholder concerns, please see the Leading the Blue Revolution section.
We believe that successful growth of the industry within a sustainable framework is only possible by overcoming biological challenges and controlling sea lice. Research and development (R&D) at Marine Harvest is an engine for sustainable growth, and is integral to our vision of Leading the Blue Revolution. We focus on creating sustainable value and competitive advantage by making improvements and breakthroughs in our Feed and Farming, as well as our Sales & Marketing business areas.
The specialists in our Global R&D and Technical Department work directly with technical staff at our operating units through participation in global technical teams and collaborative projects. This ensures that our work constantly benefits from a culture of shared expertise and knowledge. Through collaboration and the allocation of defined responsibilities, we ensure knowledge sharing and continuous improvement throughout the organization.
Our commitment to R&D is reflected in our significant R&D spending. R&D costs for the group was EUR 43.6 million for 2017. For more information about R&D in Marine Harvest, please see the Research and development section.
Marine Harvest aims to have zero injuries among its staff. Employee safety and a healthy working environment are high on the Board's agenda, and safety will never be compromised for any other business priority. We foster a strong safety culture, in which our employees feel responsible for their own safety as well as the safety of their colleagues. In order to achieve our safety vision of zero injuries, we utilize a global safety program, BrainSafe. New employees are required to attend training in BrainSafe, and training is also provided to selected suppliers and contractors. We measure our progress in the area of safety through key indicators - lost time incidents (LTI) per million hours worked, as well as the rate of absenteeism. We reported 155 LTIs for our own employees in 2017, compared to 247 in 2016. The decrease was due to a reduction in LTIs at Morpol and other plants in Consumer Products Europe. The number of LTIs per million hours worked in the Group was reduced from 9.9 in 2016 to 6.6 in 2017.
Compared to the industry average, our rate of absenteeism has remained low for several years. Our rate of absenteeism decreased from 5.7% in 2016 to 5.2% in 2017. The rate is higher in value-added processing operations than in farming and feed, which is largely attributable to ergonomic issues and stress. The Board continues to aim for an absentee rate of below 4%.
The Board will continue to emphasize the imperative of improved health and safety performance going forward. For more information about health and safety in Marine Harvest, please see the People section.
At the end of 2017, the Group had 13 233 employees in 24 countries around the world.
Marine Harvest is committed to ensuring diversity in the Group, in accordance with the Norwegian Anti-Discrimination Act.
We strive to attract a diverse workforce and provide equal opportunities. We do not discriminate and we value everyone as an individual. The Group works actively in the area of recruitment including offering apprenticeships to young employees, as well as promotion and development opportunities. The Group also aims to attract female employees to all levels in our organization.
The fish farming industry has traditionally had a majority of male employees. At the close of 2017, women accounted for 41.8% of employees, compared to 42.3% in 2016.
In 2017, the senior management teams of most subsidiaries included one or more women. The Group continues to work actively to promote diversity in senior management positions globally. In 2017, Marine Harvest's
Group Management team consisted of ten people, of whom three were women. Of the ten members of Marine Harvest ASA's Board of Directors, four are women.
2017 was a great year for Marine Harvest with record earnings and dividend distributions. Although salmon spot prices declined throughout 2017 from record high levels, the realized price was higher in 2017 compared to 2016 as contract prices contributed positively. The Farming business area contributed with the majority of earnings in 2017, and all of the farming regions delivered positive financial results. Consumer Products also had a good year with operational improvements across several factories. Results in Feed were negatively impacted by declining feed prices and construction costs related to the new feed plant in Scotland.
Sea lice and connected biological issues continue to be the greatest industry challenge. The challenging biology in Norway in 2017 resulted in pressure on Marine Harvest's harvest volumes. However, the company has increased its capacity for non-medicinal treatment in recent years, including innovative equipment, which is expected to improve current operations and reduce the dependence on medicinal treatments. Hence, the Board expects that the efforts undertaken by Marine Harvest Norway will result in a partial recovery of harvest volumes in 2018.
The Board is pleased that the Norwegian authorities have granted six farming licenses for the development of the Egg® concept. The Board is confident that new farming technologies will bring the salmon industry forward and ensure its sustainable growth. Late 2017, Marine Harvest applied for 36 development licenses for the "AquaStorm" concept, which combines fish farming technology and subsea technology in order to produce fish offshore. In addition, Marine Harvest has applied for development licenses for another three concepts. The Board believes that all of the new production concepts will potentially demonstrate lower production cost per kilo compared to conventional farming methods.
Production costs in Norway have increased significantly in recent years whilst harvesting volumes have declined. These negative developments coupled with the previously announced amended fish farming regulations in Norway have encouraged a restructuring of Marine Harvest Norway. The Board supports the decision to reduce the number of regions in Marine Harvest Norway from four to three, and to streamline operations and save costs.
It is with great concern the Board has viewed the negative cost development for the Group. Marine Harvest has initiated a global cost savings program of EUR 50 million p.a. across all business units. Accordingly, it is of utmost importance that such initiatives are undertaken and managed closely going forward.
Notwithstanding a troublesome biology in the second half of 2017, Scotland delivered better results year over year. Harvest volumes in 2018 are expected to decline temporarily due to the aforementioned biological issues and a change in stocking pattern. Sea water expansion projects and access to new farming sites are expected to increase harvest volumes beyond 2018.
BERGEN, MARCH 19, 2018
Ole-Eirik Lerøy Lisbet K. Nærø Cecilie Fredriksen Paul Mulligan
Jean-Pierre Bienfait Birgitte Ringstad Vartdal Kristian Melhuus Lars Eirik Hestnes
CHAIR OF THE BOARD VICE CHAIR OF THE BOARD Jean-Pierre Bienfait Birgitte Ringstad Vartdal Kristian Melhuus Lars Eirik Hestnes
BERGEN, MARCH 19, 2018
Ole-Eirik Lerøy Chair of the Board
Lisbet K. Nærø Vice Chair of the Board
Cecilie Fredriksen Paul Mulligan
Employee representative
Yngve Magnussen
Employee representative
Unni Sværen Employee representative
Alf-Helge Aarskog Chief Executive Officer
costs related to the construction of the new feed plant in Scotland. The new feed plant at Kyleakin in Scotland is expected to commence operations during the summer of 2018.
In 2018 Marine Harvest will continue to invest across its value chain to support organic growth. The capital expenditure budget for 2018 is approximately EUR 290 million, which includes 2% MAB increase in Norway. In addition, working capital investments in the range of EUR 120 million relate to growth across the three business areas. Freshwater investments continue with two expansion initiatives in Norway, and one in the final phase in Scotland. Selected sea water expansions in Scotland, Canada and Chile will also be undertaken. In Canada, greenfield investments on the East Coast are planned for. Furthermore, Consumer Products expects to open a new plant in Miami, and expansion initiatives of Ducktrap and Morpol are sanctioned. The new Feed plant in Scotland is expected to be completed during summer 2018.
As a result of the new feed factory in Scotland and expected higher long-term earnings, the Board of Directors has revised the Farming NIBD/ kg from EUR 1.8 to EUR 2.0 and the long-term net interest bearing debt target from EUR 1,050 million to EUR 1,200 million.
Global demand for salmon in 2017 has been generally strong as consumption has increased at higher end-consumer prices. The developments in the US have been positive and consumption reached an impressive 396 000 GWT. Marine Harvest has continued to grow its fresh pre-packed sales, which is in part driving the growth. The product portfolio and customer base is expanding, with new products including many seasoned flavors. With the expansion initiatives Marine Harvest has in place for the North American market, the Board expects the favorable developments to continue. Likewise, consumption trends in the Asian market have been positive in 2017, and with the recent market access to China of Norwegian salmon the Board expects that to continue. We have already experienced a double-digit growth of salmon supply into the Chinese market.
Farming Ireland delivered a strong set of results in 2017 and the Board commends the Irish organization for their hard work and great performance. Organic salmon consistently achieves a significant price premium in the market, and through good farming husbandry over time production costs were reduced in 2017 compared to the previous year.
The Faroe Islands Business Unit achieved good results for 2017 despite reduced harvest volumes. Harvest volumes are expected to increase in 2018.
The Canadian farming operation continues to deliver good results. In the fourth quarter of 2017 Marine Harvest announced a conditional agreement to acquire Northern Harvest, an integrated salmon farmer on the East Coast of Canada. The transaction is subject to approval by relevant competition authorities and customary closing conditions. The potential acquisition is of strategic importance and supports Marine Harvest's long-term strategy of being a world leading integrated producer of seafood proteins.
The farming operation in Chile continued to improve and delivered satisfactory results in 2017. Production costs were reduced in 2017, however, the current regulatory regime in Chile is expected to increase production costs for the industry in the longer term.
The Board is pleased with the record high earnings in Consumer Products. The business area has achieved underlying operational improvements throughout 2017 in both the Fresh and Chilled segments. The increased sales price and solid underlying demand for our elaborated products continue.
Overall operational performance in Feed was satisfactory in 2017. However, the results were impacted negatively by rising raw material costs and adverse currency movements. Results were also impacted by expensed
Marine Harvest ASA ("Marine Harvest" or the "Company") considers good corporate governance a prerequisite for generating shareholder value, as well as achieving a low cost of capital and merit investor confidence. Marine Harvest strives to ensure that its internal control mechanisms and management structures comply with generally accepted principles for good corporate governance.
Marine Harvest holds the view that its current policies for corporate governance are in line with the latest version of the Norwegian Code of Practice for Corporate Governance (the "Norwegian Code"). A full description of the Norwegian Code is available from the Oslo Stock Exchange's
website (oslobors.no).
The following sections explain how Marine Harvest has addressed the various issues covered by the Norwegian Code.
The Board of Directors of Marine Harvest (the "Board") is aware of its responsibility for the development and implementation of internal procedures and regulations to ensure that the Company and its subsidiaries (together, the "Group") complies with applicable principles for good corporate governance. The Board reviews the overall position of the Group in relation to such principles annually, and reports thereon in the Company's annual report in accordance with the requirements for listed companies and the Norwegian Code. The Board has defined the Group's overall vision as "Leading the Blue Revolution". Closely linked to the vision are the Group's global values "Passion", "Change", "Trust" and "Share".
Marine Harvest's leadership principles were put in place to strengthen the link between individual management actions and our vision. Our leadership principles are:
The Group is made up of individuals with different backgrounds, nationalities, cultures and customs. Their conduct - what each and every employee does and says each day - determines the Group's ability to succeed as an organization. The Code of Conduct sets standards for behavior that can be expected between colleagues, and that external parties can expect from employees of the Group. The Code of Conduct was updated in 2016. It has been communicated to employees, and it is expected that all employees make a personal commitment to abide by the Code of Conduct. Testing of each employee's understanding has
been, and will continue to be, carried out regularly. The most recent test was performed in December 2017. The Code of Conduct is available at marineharvest.com.
Our four guiding principles underpin our vision and guide our behavior in a balanced way. Growth must be sustainable from an environmental, social and financial perspective. We need good financial results to drive the sustainable development of our operations. This interdependency is the foundation for our four equally important guiding principles: "Profit", "Planet", "Product" and "People".
Marine Harvest has defined specific ambitions for each principle, with corresponding key performance indicators. Defining targets is an integrated part of the budget and long-term planning processes, and achievements are reported in operational review meetings with the Business Units, and in business review meetings with the three Business Areas; Feed, Farming and Sales and Marketing. Development and implementation of best practice is achieved through the global quality system, Qmarine, which contains our standard operating procedures. In addition, a global set of policies has been drawn up to guide decisions, manage risk and achieve results. Marine Harvest's governance and management structure is further described on the website at marineharvest.com.
Marine Harvest's objective is defined in the Company's articles of association: "The objective of the Company is production, refinement, sale and distribution of seafood and goods used in seafood production, either directly or through participation in other companies and hereto-related activities."
The articles of association are available from the Group's website at marineharvest.com. To achieve the objective set forth in the articles of association, the Board has adopted a corporate strategy whose ambitions and priorities lie within the framework of the Group's vision and four guiding principles. The vision "Leading the Blue Revolution" provides direction and shows possibilities. The Group's overall ambition is to grow organically as well as through acquisitions. At present, growth is focused on the salmon value chain, from feed to fork.
In line with this strategy, the Group's first feed plant was opened in Norway in July 2014, and it has proven to be a success. In December 2015 the Board of Directors approved the development of a new feed plant in Scotland and in February 2017 we were granted planning permission on Kyleakin on the Island of Skye. Construction started in March 2017 and will be completed during 2018. In February 2017, Marine Harvest was approved as the purchaser of the assets owned by the Gray Aqua Group of Companies on the East Coast of Canada. In December 2017, Marine Harvest Canada entered into a Share Purchase Agreement to purchase the East Coast Canadian salmon farmer Northern Harvest. The transaction is subject to approval by relevant competition authorities and customary closing conditions. Northern Harvest is fully integrated with its own broodstock, smolt/hatchery, farming sites and processing operations. These acquisitions are important from a strategic point of view, as the market for salmon in North-East America continues to develop very favorably. The ambition of Consumer Products is to become a seafood category leader, with strong focus on quality, innovation, brand building and excellent customer service. As we are aiming for growth in sales of value-added products, production capacity must also increase. Our Rosyth plant, near Edinburgh, opened in 2015. It offers capacity and scope for a wide range of innovative products in the seafood category. In 2016 we completed the expansion of the processing plant in Ustka, Poland, to extend the product assortments and improve production efficiency. Marine Harvest Canada opened its secondary processing plant in Surrey, British Columbia, in December 2017. The Surrey plant is the latest addition to the value-added plant structure in North America. Marine Harvest's other plants are located in Miami and Dallas. In addition, our branded smoked salmon producer Ducktrap is expanding its business, and more than doubling its production capacity. To further support our farming activities, we established DESS Aquaculture Shipping in 2016. DESS Aquaculture Shipping is a joint venture with SolstadFarstad established for the purpose of building, owning and operating aquaculture vessels. In 2017, we increased our investment in the JV with EUR 10.5 million to a total of EUR 13.4 million. As of year end 2017, the joint venture had a total of four wellboats and one harvesting vessel under construction. These are all important steps to becoming a leading integrated provider of proteins from the ocean.
The material aspects of the four guiding principles were systematically assessed for the first time in 2012. Based on this assessment, our key performance indicators were realigned to the different material aspects of the operations. The assessment has been reviewed annually and the material risks/ challenges and opportunities are largely unchanged. The process of defining material aspects is discussed in the section "Leading the Blue Revolution". The ambitions and the priorities set to achieve them are regularly reviewed and revised by the Board. Through its discussion of the long-term plan, the Board sets the targets for the Group for the following five years. Many of the targets are discussed in the relevant sections of this Integrated Annual Report (R&D, Profit, Planet, Product and People).
The shareholders' equity as of December 31, 2017 was EUR 2 314.2 million, which represents 53.5% of the Group's total assets. Marine Harvest ASA's objective is to maintain an equity level that is appropriate for the Company's strategy and risk profile. The Board's ambition is that Marine Harvest
ASA's shareholders will achieve a competitive return on their investment over time, through a combination of dividends and an appreciation of the value of the Company's shares. The Board has defined the following longterm dividend policy:
To facilitate quarterly distribution of dividends in an efficient and cost effective manner, the Board seeks a general authorization from the General Meeting to distribute dividends. Such authorizations shall, however, be limited to a maximum aggregate amount, and limited in time to the next Annual General Meeting ("AGM"). At the 2017 AGM, the Board was granted the following authorizations:
To approve the distribution of dividends based on the Company's annual accounts for 2016. The authority also includes distribution in the form of repayment of paid-in capital.
The authority may be used to approve the distribution of dividends up to an aggregate amount of NOK 7 500 000 000.
The authority is valid for dividends from and including the second quarter of 2017 until the AGM in 2018, though no later than June 30, 2018.
To purchase up to 49 016 781 shares in the Company (representing 10% of the shares in issue at the time) during the period up until the AGM in 2018, though no later than June 30, 2018.
To increase the Company's share capital by up to 49 016 781 shares (representing 10% of the shares in issue at the time). The authority did not define the purpose(s) of such a capital increase. The authority expires at the AGM in 2018, though no later than June 30, 2018.
To take up convertible bond loans of up to NOK 3,200 million (par value), convertible to a share capital equivalent by up 49 016 781 shares, but in no event with an amount that exceeds 10% of the company's share capital at the date of the AGM in 2017. The authority expires at the AGM in 2018, though no later than June 30, 2018.
Marine Harvest ASA has one class of shares.
Any purchase or sale by the Company of its own shares will be carried out either through the Oslo Stock Exchange or at prices quoted on the Oslo Stock Exchange.
Marine Harvest also has American Depositary Shares (ADSs) represented by American Depositary Receipts (ADRs), traded in the US over-thecounter.
Any transaction between the Company and a related party will be on arm's length terms or, if relevant, will rest on a valuation obtained from an independent third party. Marine Harvest ASA will make sure that major transactions with related parties are approved by the AGM in accordance with the Norwegian Public Limited Liability Companies Act.
The Board is currently authorized to set aside the pre-emption rights of existing shareholders in capital increases if it exercises its authority to issue new shares, cf. above. This is to simplify the procedure in connection with capital increases to finance further growth and/or the offering of shares as consideration in acquisitions where this is deemed a favorable form of settlement. Members of the Board and the Global Management Team have an obligation, pursuant to the Company's Code of Conduct, to disclose to the Board any material interest in transactions to which the Group is a party. The Code of Conduct is available at marineharvest.com.
All shares in the Company have equal rights and may be traded freely. Marine Harvest also has American Depositary Shares (ADSs) represented by American Depositary Receipts (ADRs), traded in the US over-thecounter.
The interests of the Company's shareholders are primarily exercised at the Company's general meetings. It is the Company's goal that as many shareholders as possible are given the opportunity to participate in its general meetings and that the general meetings are organized so as to ensure that they represent an effective forum for the Company's shareholders to express their views.
Notices of general meetings are made available on the Company's website, marineharvest.com, and through a separate notice to the Oslo Stock Exchange at least 21 days in advance of the general meeting.
All shareholders with a known address are notified of general meetings a minimum of two weeks in advance. The notice contains detailed information on the resolutions proposed and matters to be considered at the general meeting. It includes the deadline for shareholders to register their intention to attend the general meeting, as well as instructions on how they can cast their votes by proxy. The deadline for registration is set as close to the date of the general meeting as possible.
When documents concerning matters that are to be dealt with at a general meeting have been made accessible to the shareholders on the Company's website, the requirement stipulated by the Norwegian Public Companies Act that the documents shall be sent to shareholders by ordinary mail does not apply. This also applies to documents which, according to law, shall be included in or enclosed with the notice of a general meeting. A shareholder can, however, demand that documents concerning matters that are to be dealt with at a general meeting be sent to him or her by ordinary mail.
The notice of a general meeting shall contain a reference to the Company's website, where shareholders can access relevant documents and, if appropriate, any other information that shareholders may need to gain access to such documents. The Chair of the Board, the CEO and the external auditor shall all be present at the AGM. Marine Harvest does not have a policy that requires the other members of the Board to attend the AGM.
The AGM elects a chair to preside over the meeting and one person to sign the minutes of the meeting together with the elected chair. The minutes are published on the Company's website.
The AGM approves the annual financial statements and annual report, the Board of Directors' report and any proposed dividend. The AGM also approves the remuneration to be paid to the members of the Board, the Nomination Committee (as defined below) and the external auditor.
Other items on the agenda for the AGM may include authorization for the Board to acquire the Company's shares and to increase the Company's share capital, to take up loans convertible into shares, and the election of the members of the Board and the Nomination Committee (please refer to section 3 Equity and Dividend).
Pursuant to Section 6-16a of the Norwegian Public Limited Liability Companies Act, the Board has implemented guidelines for the determination of the remuneration payable to the Company's CEO and other senior executives. These guidelines are tabled for resolution at the AGM.
All shares carry an equal right to vote at general meetings. Resolutions at AGMs are normally passed by simple majority unless otherwise required by Norwegian law.
The Annual General Meeting was held on June 1, 2017. Relevant documents relating to the 2017 AGM are available on the Company's website marineharvest.com.
The AGM elects the Company's nomination committee (the "Nomination Committee"). The Nomination Committee consists of three members, all of whom are independent of the Board and the Company's executive management. The current members of the Nomination Committee are: Robin Bakken (Chair), Nils Bastiansen and Merete Haugli. The Nomination Committee submits its recommendations to the AGM regarding the election of members to the Board and the Nomination Committee and their respective remuneration.
The general meeting has approved a set of instructions defining the responsibilities of the Nomination Committee. These instructions are available from marineharvest.com. All shareholders are invited to propose candidates to the Board and the Nomination Committee through the Company's website.
The Company does not have a corporate assembly.
According to the Company's articles of association, the Company shall have a Board consisting of a minimum of six and a maximum of 12 members. The Chair of the Board and the Deputy Chair of the Board are both elected by the general meeting based on a proposal from the Nomination Committee, as are the other members representing the shareholders. Board members are elected for a period of one or two years at a time. In order to ensure continuity, not all seats on the Board come up for election in the same year.
At present, the Board consists of ten members, of which seven are elected by the general meeting and three are representatives of the employees in Norway. All Board members are considered independent of the Company's executive management and material business partners. More than the minimum required of two Board members elected by the shareholders are independent of the Company's largest shareholder. No executives are members of the Board.
The members of the Board are presented in this Integrated Annual Report. The shareholdings of Board members are listed in Note 24. The Board is of the opinion that it has sufficient expertise and capacity to perform its duties in a satisfactory manner.
According to the Norwegian Public Limited Liability Companies Act, the Board has overall responsibility to oversee the management of the Company, while the CEO is responsible for day-to-day management. The Board is responsible for ensuring that the Group's activities are soundly organized, and for approving all plans and budgets for the activities of the Group. The Board approves a statement of the CEO's duties, responsibilities and authorizations.
The Board keeps itself informed about the Group's activities and financial situation, and is under an obligation to ensure that its activities, financial statements and asset management are subject to adequate control through the review and approval of the Group's monthly and quarterly reports and financial statements. The Board shall also ensure that the Group has satisfactory internal control systems.
The CEO is in charge of the day-to-day management of the Group, and is responsible for ensuring that the Group is organized in accordance with applicable laws, the Company's articles of association and the decisions adopted by the Board and the Company's general meeting. The CEO has particular responsibility for ensuring that the Board receives accurate, relevant and timely information in order to enable it to carry out its duties. The CEO shall also ensure that the Group's financial statements comply with Norwegian legislation and regulations and that the assets of the company are soundly managed.
The Board has formally assessed its performance and expertise in 2017 as recommended by the Norwegian Code.
The Board conducted 19 meetings during 2017, of which seven were held in person. The attendance rate at the physical meetings was 90%. In 2017 the Board continued to spend significant time on the strategic positioning of the company following the decision to transform the Group from a production-driven farming company into an integrated producer of protein from the ocean.
The Board has chosen not to appoint a remuneration committee. Matters relating to the remuneration of executive personnel are discussed by the Board without presence of the CEO or other management representatives.
The Board has one subcommittee: The Audit Committee.
The Board's Audit Committee consists of two members: Birgitte Ringstad Vartdal (Chair) and Lisbet K. Nærø (the "Audit Committee").
The responsibility of the Audit Committee is to monitor the Company's financial reporting process and the effectiveness of its systems for internal control and risk management. The Audit Committee shall also keep in regular contact with the Company's auditor regarding the auditing of the annual accounts, and shall evaluate and oversee the auditor's independence. The Audit Committee reviews ethical and compliance issues. The members of the Audit Committee are deemed to be independent of the Company's management. The Audit Committee reports to the Board. The Audit Committee conducted six meetings during 2017.
The Audit Committee has formally assessed its performance and expertise in 2017 as part of the Board's assessment.
The Board and management attach great importance to the quality of the Group's risk management and internal control systems. Risk management and internal control systems are important to enable the Group to meet its strategic goals. These systems form an integrated part of management's decision-making processes and are central elements in the organization of the Group and the development of routines.
By means of a materiality assessment we have identified areas of opportunity and risk that could influence our ability to achieve our goals and deliver on our strategy.
Risk management is what the Company does to manage risk in order to provide reasonable assurance to stakeholders that it will achieve its goals. The COSO enterprise risk framework, dividing risk into four categories is applied:
. Operational risk . Strategic risk . Reporting risk . Compliance risk
As the Company considers its operational risk to cover several individually important sub categories of risk, a more detailed risk categorization has been chosen. The operational risk category therefore includes the following sub categories:
The Company believes that this risk categorization addresses the main risk areas that could influence the ability to deliver on the strategy. The Company works continuously to mitigate identified risks and capitalize on opportunities by tracking and following up key performance indicators within the framework of our the guiding principles. The Company believes that the long-term success depends on its ability to manage the risks associated with its operations, strategy, reporting and compliance.
For more detailed descriptions of the risks associated with the Company's operations, please see the section Risk Management and the sections Profit, Planet, Product and People. For a more detailed description of the risks related to the financing arrangements, please refer to the Board of Directors report and Note 13 to the Group financial statements.
A continuous risk management process, including analysis, management and follow-up of significant risks, is performed to ensure that the Group is managed in accordance with the risk profile and strategies approved by the Board. This process encompasses the Group's guiding principles and ethical guidelines. The Board reviews the Group's overall risk profile in relation to strategic, operational and transaction-related issues at least once every year. The status of the overall risk situation is reported and discussed with the Board in connection with the annual budget process. The Audit Committee assists the Board and functions as a preparatory body with regards to surveillance of the Company's systems for internal control, internal audit and risk management.
The Board and Group management are responsible for establishing and maintaining adequate internal control over financial reporting. The process for internal control is developed under the supervision of the Chief Financial Officer. The process is intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Group's Financial Statements for external reporting purposes in accordance with International Financial Reporting Standards and the interpretations issued by the International Accounting Standards Board (IASB) as adopted by the European Union (EU IFRS) and the Norwegian Accounting Act.
The Audit Committee monitors financial reporting and its related internal controls, including application of accounting principles and informed judgments. Group management and the Audit Committee have regular meetings with the external auditor present to discuss issues related to financial reporting.
All Business Units periodically upload their financial statements into a common consolidation system, based on a common chart of accounts. All subsidiaries are responsible for the accuracy of their reported figures, and for ensuring that their financial reporting is in compliance with the Group's accounting principles. In addition, general and analytical controls of the reported figures are performed at corporate level.
Additional information is disclosed in connection with quarterly and annual reporting. Extended controls are carried out as part of the quarterly and the year-end reporting processes.
The Group has sufficient expertise to complete proper and efficient financial reporting in accordance with IFRS and the Norwegian Accounting Act.
The Code of Conduct describes Marine Harvest ASA's commitment and requirements in connection with ethical issues relevant to business practice and personal conduct. Marine Harvest ASA will, in its business activities, comply with applicable laws and regulations, and act in an ethical, sustainable and socially responsible manner. The Code of Conduct has been communicated to employees, and each employee is expected to make a personal commitment to abide by the Code of Conduct. The third-party-operated whistleblower channel facilitates the reporting of concerns about potential violations of the law and breaches of Marine Harvest's Code of Conduct in all areas. In 2017 four incidents were reported through this channel, and the reported incidents are being followed up.
Financial reporting in Marine Harvest is an integrated part of the Group's corporate governance. Distinct roles, responsibilities and duties have been established. Requirements with regard to content and deadlines, including accounting policies, checks and validations, have been clearly defined. A key element in the financial reporting process is risk assessment. A risk assessment is performed at least annually, and key controls and control procedures are established to mitigate identified risks. Compliance is reported to the Audit Committee. The Group's applied accounting principles are described in an online accounting manual. The Board of Marine Harvest ASA determines the principles applicable to the Group's policy for compensation of senior executives. The Board is directly responsible for determining the CEO's salary and other benefits. The CEO is, in consultation with the Chair of the Board, responsible for determining the salary and other benefits for the Group's other senior executives. The Group's senior executives include the management team of each Business Area as well as the senior members of the corporate staff.
Marine Harvest has also established a group-wide policy to combat fraud and corruption as part of its risk management, internal control and corporate governance process. The internal audit function, which is outsourced to PwC, also has a specific focus on fraudulent and unethical behavior.
Remuneration for the members of the Board is determined by the AGM based on a proposal from the Nomination Committee. The remuneration reflects the Board's responsibility, expertise, time, commitment and the complexity of the Company's activities. Remuneration is not linked to the Company's performance. All members of the Board, with the exception of the Chair, the Deputy Chair and Paul Mulligan, receive the same remuneration. The members of the Audit Committee receive separate, additional remuneration. The fee paid to the members of the Board is fixed for each 12-month period (from AGM to AGM). The remuneration paid to members of the Board is disclosed in Note 14 to the Marine Harvest ASA financial statements.
The following guidelines underpin the determination of compensation payable to the Group's senior executives:
The compensation shall contain elements providing necessary financial security following termination of the employment relationship, both before and after retirement.
The compensation shall be motivating, both for the individual and for the senior executives as a group.
Remuneration of the Company's CEO and the executive management team is disclosed in Note 14 to the Marine Harvest ASA financial statements. In compliance with the Norwegian Public Limited Liability Companies Act, the Board prepares a statement regarding the remuneration of the executive management team for consideration by the AGM. The remuneration package for corporate executive staff consists of the following main elements:
In addition, the Group has a Share Option Scheme ("Scheme") for key employees. The Scheme is limited to two years' salary for each individual. The details of the Scheme are described in Note 14 to the Marine Harvest Group Financial Statements, and in Note 14 to the Marine Harvest ASA financial statements.
The Company publishes its financial calendar every year, identifying the dates on which it will present its quarterly reports and when the AGM will be held.
All information concerning major events and acquisitions is publicly disclosed in line with the requirements of the Oslo Stock Exchange, and posted on the Company's website (marineharvest.com). All financial reports and other information are prepared and disclosed in such a way as to ensure that shareholders, investors and others receive correct, clear, relevant and up-to-date information equally and in a timely manner.
The Company holds public presentations of its results quarterly.
The Board has formalized guidelines for dialogue with the Company's shareholders outside the AGM. Marine Harvest ASA is entitled by the Norwegian Securities Trading Act to publish all information (including its annual financial statements) in English only.
The Board will not seek to hinder or obstruct any public bid for the Company's activities or shares unless there are particular reasons for doing so. In the event of a takeover bid for the Company's shares, the Board will not exercise mandates or pass any resolutions with the intention of obstructing the takeover bid, unless this is approved by the Company's general meeting following the announcement of such a bid.
The Board acknowledges that it has a particular responsibility to ensure that the Company's shareholders are given sufficient information and time to form a view of any public offer for the Company's shares. If an offer is made for a significant and controlling stake of the shares, the Board will issue a statement evaluating the offer and will make a recommendation as to whether or not shareholders should accept it.
The Board has not established explicit guiding principles for dealing with takeover bids as recommended by the Norwegian code.
The Company's elected external auditor is EY. The auditor is independent of Marine Harvest ASA and is appointed by the AGM. The auditor's fee is approved by the AGM.
The auditor presents a plan to the Audit Committee for the audit, and is present at Board meetings dealing with the preparation of the annual accounts where the audited financial statements are reviewed and approved. The auditor is also present at all meetings with the Audit Committee.
When evaluating the independent auditor, emphasis is placed on the firm's competence, capacity, local and international availability and the level of the fee expected.
The auditor submits a summary document to the Audit Committee and the Board following its audit of the Group's and the Company's annual financial statements. The summary document, in addition to describing the audit review, includes an evaluation of the Group's internal control systems.
The Board and the Audit Committee hold regular meetings with the auditor without the presence of management. The auditor also participates in the AGM. Information about the fee paid to the auditor is stated in Note 32 to the Group financial statements. The independent auditor's remuneration is split between the audit fee, other authorization services, tax advisory services and other non-audit related services. To the extent that the auditor provides services other than the regular audit, this is discussed separately on a case-by-case basis, to ensure that there are no conflicts of interest.
This annual report contains forward-looking statements that reflect our current expectations and views of future events. Some of these forward-looking statements can be identified by terms and phrases such as "anticipate," "should," "likely," "foresee," "believe," "estimate," "expect," "intend," "continue," "could," "may," "plan," "project," "predict," "will" and similar expressions. These forward-looking statements include statements relating to:
our ability to effectively manage the impact of escapes and predation on our stock;
our ability to continue to develop new and attractive high quality products;
The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. The forward-looking statements are based on our beliefs, assumptions and expectations of future performance, taking into account the information currently available to us. These statements are only predictions based upon our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. In particular, such factors are described in the relevant sections in this Integrated Annual Report.
These forward-looking statements speak only as of the date of this annual report. Except as required by law, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The factors set forth in Risk and Risk Management could cause our actual results to differ materially from those contemplated in any forward-looking.
| MARINE HARVEST GROUP (EUR MILLION) |
NOTE | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Revenue | 3 626.1 | 3 502.8 | 3 093.4 | |
| Other income | 23.3 | 7.4 | 19.0 | |
| Revenue and other income | 4 | 3 649.4 | 3 510.2 | 3 112.4 |
| Cost of materials | 7/33 | -1 688.5 | -1 782.2 | -1 770.3 |
| Net fair value adjustment biomass | 6 | -340.3 | 386.2 | 10.1 |
| Salary and personnel expenses | 14 | -477.9 | -440.0 | -427.1 |
| Other operating expenses | 28 | -555.0 | -472.5 | -443.2 |
| Depreciation and amortization | 9/10 | -150.4 | -142.5 | -139.8 |
| Onerous contracts provision | 2/30 | 119.8 | -108.7 | -0.7 |
| Restructuring costs | 30 | -2.5 | -5.4 | -15.2 |
| Other non-operational items | 27 | 0.3 | 1.3 | 2.4 |
| Income/loss from associated companies and joint ventures | 21/22 | 33.7 | 62.6 | 23.4 |
| Impairment losses | 9/10 | -103.8 | -17.7 | -6.8 |
| Earnings before financial items (EBIT) | 484.9 | 991.2 | 345.3 | |
| Interest expenses | 12 | -46.7 | -48.4 | -46.5 |
| Net currency effects | 12 | -8.8 | 26.9 | 4.2 |
| Other financial items | 12 | 93.2 | -210.5 | -52.9 |
| Earnings before taxes | 522.6 | 759.2 | 250.1 | |
| Income taxes | 15 | -59.9 | -219.9 | -91.6 |
| Net earnings from continuing operations | 462.7 | 539.3 | 158.5 | |
| Profit after tax from discontinued operations | — | — | -0.2 | |
| Profit or loss for the year | 462.7 | 539.3 | 158.3 | |
| Other comprehensive income | ||||
| Change in fair value of cash flow hedges including tax | 12/15 | — | — | -2.7 |
| Currency translation differences | -192.6 | 49.0 | 44.7 | |
| Currency translation associated companies and joint ventures | -12.1 | 6.9 | — | |
| Total items to be reclassified to profit or loss in subsequent periods | -204.7 | 55.9 | 42.1 | |
| Actuarial gains (losses) on defined benefit plans net of tax | 5.3 | -3.4 | -0.9 | |
| Other gains and losses in comprehensive income | -0.8 | 0.9 | 2.1 | |
| Total items not to be reclassified to profit or loss | 4.5 | -2.5 | 1.2 | |
| Total other comprehensive income | -200.3 | 53.4 | 43.3 | |
| Comprehensive income for the year | 262.5 | 592.7 | 201.6 | |
| Profit or loss for the year attributable to | ||||
| Non-controlling interests | 0.3 | -0.3 | 0.1 | |
| Owners of Marine Harvest ASA | 462.5 | 539.6 | 158.2 | |
| Comprehensive income for the year attributable to | ||||
| Non-controlling interests | 0.3 | -0.3 | — | |
| Owners of Marine Harvest ASA | 262.2 | 593.0 | 201.6 | |
| Earnings per share - basic (EUR) | 25 | 0.97 | 1.20 | 0.36 |
| Earnings per share - diluted (EUR) | 25 | 0.86 | 1.20 | 0.36 |
| Earnings per share for continuing operations - basic (EUR) | 25 | 0.97 | 1.20 | 0.36 |
| Earnings per share for continuing operations - diluted (EUR) | 25 | 0.86 | 1.20 | 0.36 |
| 146 147 149 151 |
Statement of comprehensive income Statement of financial position Statement of changes in equity Statement of cash flow |
||
|---|---|---|---|
| 152 | Note 1 / General information | 192 | Note 18 / Trade payable and other current liabilities |
| 152 | Note 2 / Significant accounting policies | 193 | Note 19 / Secured liabilities and guarantees |
| 157 | Note 3 / Estimates and judgments | 193 | Note 20 / Other non-current liabilities |
| 159 | Note 4 / Business segments | 194 | Note 21 / Investments in associated companies |
| 162 | Note 5 / Business combinations, assets held for | 195 | Note 22 / Interest in joint ventures |
| sale and discontinued operation | 196 | Note 23 / Consolidated entities | |
| 163 | Note 6 / Biological assets | 198 | Note 24 / Share capital |
| 167 | Note 7 / Inventory | 200 | Note 25 / Earnings per share |
| 167 | Note 8 / Impairment testing of intangible assets | 200 | Note 26 / Related party transactions |
| 169 | Note 9 / Intangible assets | 201 | Note 27 / Contingent liabilities and provisions |
| 172 | Note 10 / Property, plant and equipment | 201 | Note 28 / Other operating expenses |
| 175 | Note 11 / Interest-bearing debt | 202 | Note 29 / Operating leases |
| 179 | Note 12 / Financial instruments | 203 | Note 30 / Provisions |
| 183 | Note 13 / Capital management and risk management | 204 | Note 31 / Research and development |
| 186 | Note 14 / Remuneration | 204 | Note 32 / Auditors fee |
| 188 | Note 15 / Taxes | 205 | Note 33 / Exceptional items |
| 191 | Note 16 / Cash | 205 | Note 34 / New IFRS standards |
| 191 | Note 17 / Trade receivable and other receivables | 206 | Note 35 / Subsequent events |
| MARINE HARVEST GROUP (EUR MILLION) |
NOTE | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| EQUITY AND LIABILITIES | ||||
| Equity | ||||
| Share capital and reserves attributable to owners of Marine Harvest ASA | 24 | 2 314.2 | 2 068.4 | 1 894.6 |
| Non-controlling interests | 23 | 1.2 | 0.9 | 0.9 |
| Total equity | 2 315.4 | 2 069.3 | 1 895.6 | |
| Non-current liabilities | ||||
| Deferred tax liabilities | 15 | 353.9 | 453.5 | 391.8 |
| Non-current interest-bearing debt | 11 | 773.3 | 993.4 | 1 071.4 |
| Other non-current financial liabilities | 12 | 75.9 | 439.6 | 209.5 |
| Other non-current liabilities | 20 | 12.0 | 11.5 | 12.0 |
| Total non-current liabilities | 1 215.2 | 1 898.0 | 1 684.7 | |
| Current liabilities | ||||
| Current tax liabilities | 15 | 90.8 | 142.6 | 72.6 |
| Current interest-bearing debt | 11/18 | 130.3 | 0.1 | 0.2 |
| Trade payables | 18 | 280.9 | 275.5 | 248.0 |
| Other current financial liabilities | 12 | 91.8 | 91.4 | 98.0 |
| Provisions | 30 | 9.4 | 153.7 | 45.9 |
| Other current liabilities | 18 | 196.5 | 179.8 | 151.2 |
| Total current liabilities | 799.7 | 843.1 | 615.9 | |
| Total equity and liabilities | 4 330.3 | 4 810.4 | 4 196.1 |
Ole-Eirik Lerøy Lisbet K. Nærø Cecilie Fredriksen Paul Mulligan
Jean-Pierre Bienfait Birgitte Ringstad Vartdal Kristian Melhuus Lars Eirik Hestnes
BERGEN, MARCH 19, 2018 BERGEN, MARCH 19, 2018
Unni Sværen Yngve Magnussen Alf-Helge Aarskog
Chair Vice-Chair Lisbet K. Nærø Vice Chair of the Board
Employee representative Employee representative Chief Executive Officer
Ole-Eirik Lerøy Chair of the Board
Employee representative Employee representative
Cecilie Fredriksen Paul Mulligan
Jean-Pierre Bienfait Birgitte Ringstad Vartdal Kristian Melhuus Lars Eirik Hestnes
Yngve Magnussen Employee representative
Unni Sværen Employee representative
Alf-Helge Aarskog Chief Executive Officer
| MARINE HARVEST GROUP | ||||
|---|---|---|---|---|
| (EUR MILLION) | NOTE | 2017 | 2016 | 2015 |
| ASSETS | ||||
| Non-current assets | ||||
| Licenses | 8/9 | 615.2 | 764.3 | 746.6 |
| Goodwill | 8/9 | 255.7 | 268.0 | 259.0 |
| Deferred tax assets | 15 | 13.1 | 2.6 | 11.5 |
| Other intangible assets | 9 | 26.1 | 32.4 | 27.6 |
| Total intangible assets | 910.1 | 1 067.4 | 1 044.7 | |
| Property, plant and equipment | 10 | 1 082.7 | 1 008.1 | 963.7 |
| Investments in associated companies and joint ventures | 21/22 | 170.7 | 175.0 | 123.9 |
| Other non-current financial assets | 12 | 0.4 | 0.4 | 0.4 |
| Other non-current assets | 2.9 | 5.0 | 2.1 | |
| Total non-current assets | 2 166.7 | 2 255.8 | 2 134.9 | |
| Current assets | ||||
| Inventory | 7 | 306.9 | 248.2 | 277.7 |
| Biological assets | 6 | 1 200.5 | 1 573.8 | 1 140.2 |
| Trade receivables | 17 | 477.6 | 498.0 | 409.2 |
| Other receivables | 17 | 99.1 | 112.8 | 131.4 |
| Other current financial assets | 12 | 7.2 | 14.2 | 29.2 |
| Restricted cash | 16 | 12.6 | 15.9 | 11.6 |
| Cash in bank | 16 | 59.1 | 88.0 | 60.1 |
| Total current assets | 2 163.0 | 2 551.0 | 2 059.4 | |
| Assets held for sale | 5 | 0.5 | 3.5 | 1.8 |
| Total assets | 4 330.3 | 4 810.4 | 4 196.1 |
| ATTRIBUTABLE TO OWNERS OF MARINE HARVEST ASA | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| SHARE CAPITAL |
OTHER PAID-IN CAPITAL |
CASH FLOW HEDGE RESERVE |
SHARE BASED PAYMENT |
FOREIGN CURRENCY TRANSLATION |
RESERVE OTHER EQUITY | TOTAL | NON CONTROLLING INTERESTS |
TOTAL EQUITY |
|
| 342.9 | 1 032.6 | 2.7 | 3.4 | 73.6 | 182.9 | 1 638.1 | 1.8 | 1 639.9 | |
| — | — | — | — | — | 158.2 | 158.2 | 0.1 | 158.3 | |
| — | — | -2.7 | — | 86.8 | -41.0 | 43.1 | 0.1 | 43.2 | |
| Translation effect1) | -24.4 | -74.5 | — | -0.2 | — | — | -99.1 | — | -99.1 |
| 33.3 | 373.4 | — | — | — | — | 406.7 | — | 406.7 | |
| Share-based payment | — | — | — | 2.9 | — | — | 2.9 | — | 2.9 |
| Repayment of paid-in capital | — | -255.9 | — | — | — | -255.9 | — | -255.9 | |
| — | — | — | — | — | — | — | -1.0 | -1.0 | |
| — | — | — | — | — | 0.5 | 0.5 | — | 0.5 | |
| Total equity 31.12.15 | 351.8 | 1 075.6 | — | 6.1 | 160.4 | 300.6 | 1 894.6 | 0.9 | 1 895.6 |
| ATTRIBUTABLE TO OWNERS OF MARINE HARVEST ASA | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| MARINE HARVEST GROUP (EUR MILLION) 2015 |
SHARE CAPITAL |
OTHER PAID-IN CAPITAL |
CASH FLOW HEDGE RESERVE |
SHARE BASED PAYMENT |
FOREIGN CURRENCY TRANSLATION |
RESERVE OTHER EQUITY | TOTAL | NON CONTROLLING INTERESTS |
TOTAL EQUITY |
| Equity 01.01.15 | 342.9 | 1 032.6 | 2.7 | 3.4 | 73.6 | 182.9 | 1 638.1 | 1.8 | 1 639.9 |
| Comprehensive income | |||||||||
| Profit | — | — | — | — | — | 158.2 | 158.2 | 0.1 | 158.3 |
| Other comprehensive income |
— | — | -2.7 | — | 86.8 | -41.0 | 43.1 | 0.1 | 43.2 |
| Translation effect1) | -24.4 | -74.5 | — | -0.2 | — | — | -99.1 | — | -99.1 |
| Transactions with owners | |||||||||
| Bond conversion | 33.3 | 373.4 | — | — | — | — | 406.7 | — | 406.7 |
| Share-based payment | — | — | — | 2.9 | — | — | 2.9 | — | 2.9 |
| Repayment of paid-in capital | — | -255.9 | — | — | — | -255.9 | — | -255.9 | |
| Sale of non-controlling interests |
— | — | — | — | — | — | — | -1.0 | -1.0 |
| Other changes | — | — | — | — | — | 0.5 | 0.5 | — | 0.5 |
| Total equity 31.12.15 | 351.8 | 1 075.6 | — | 6.1 | 160.4 | 300.6 | 1 894.6 | 0.9 | 1 895.6 |
1)Presentation currency for the Group was changed to EUR from January 1. 2016, with retrospective effect on comparative figures. Equity per January 1 2015 has been translated to EUR using the EUR/NOK closing rate applicable for the same date. As a result, a translation effect occurs for each component of equity. The translation effect related to share capital, other paid in capital, cash flow hedge reserve and share based payment is shown as a separate item in the statement of change in equity for 2015.
Dividend declared and paid of NOK 5.20 per share in 2015.
| ATTRIBUTABLE TO OWNERS OF MARINE HARVEST ASA | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| MARINE HARVEST GROUP (EUR MILLION) 2017 |
SHARE CAPITAL |
OTHER PAID-IN CAPITAL |
SHARE BASED PAYMENT |
FOREIGN CURRENCY TRANSLATION RESERVE |
FOREIGN CURRENCY TRANSLATION RESERVE ASSOCIATED COMPANIES |
OTHER EQUITY TOTAL |
NON CONTROLLING INTERESTS |
TOTAL EQUITY |
|
| Equity 01.01.17 | 351.8 | 657.5 | 4.6 | 209.8 | 6.9 | 837.7 2 068.4 | 0.9 | 2 069.3 | |
| Comprehensive income | |||||||||
| Profit | — | — | — | — | — | 462.5 | 462.5 | 0.3 | 462.7 |
| Other comprehensive income |
— | — | — | -158.5 | -12.1 | -29.6 | -200.3 | — | -200.3 |
| Transactions with owners | |||||||||
| Share-based payment | — | — | 0.8 | — | — | -5.5 | -4.7 | — | -4.7 |
| Repayment of paid-in capital | — | -322.5 | — | — | — | -317.8 | -640.3 | — | -640.3 |
| Bond conversion | 32.0 | 596.5 | — | — | — | — | 628.5 | — | 628.5 |
| Total equity 31.12.17 | 383.8 | 931.5 | 5.4 | 51.3 | -5.2 | 947.3 2 314.2 | 1.2 | 2 315.4 |
Dividend declared and paid of NOK 12.40 per share in 2017.
| ATTRIBUTABLE TO OWNERS OF MARINE HARVEST ASA | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| MARINE HARVEST GROUP (EUR MILLION) 2016 |
SHARE CAPITAL |
OTHER PAID-IN CAPITAL |
SHARE BASED PAYMENT |
FOREIGN CURRENCY TRANSLATION RESERVE |
FOREIGN CURRENCY TRANSLATION RESERVE ASSOCIATED COMPANIES |
OTHER EQUITY TOTAL |
NON CONTROLLING INTERESTS |
TOTAL EQUITY |
|
| Equity 01.01.16 | 351.8 | 1 075.6 | 6.1 | 160.4 | — | 300.6 1 894.6 | 0.9 | 1 895.5 | |
| Comprehensive income | |||||||||
| Profit | — | — | — | — | — | 539.6 | 539.6 | -0.3 | 539.3 |
| Other comprehensive income |
— | — | — | 49.4 | 6.9 | -2.9 | 53.4 | — | 53.4 |
| Transactions with owners | |||||||||
| Share-based payment | — | — | -1.5 | — | — | -2.7 | -4.2 | — | -4.2 |
| Repayment of paid-in capital | — | -418.1 | — | — | — | — | -418.1 | — | -418.1 |
| Business combinations | — | — | — | — | — | 1.4 | 1.4 | 0.3 | 1.7 |
| Other changes | — | — | — | — | — | 1.7 | 1.7 | — | 1.7 |
| Total equity 31.12.16 | 351.8 | 657.5 | 4.6 | 209.8 | 6.9 | 837.7 2 068.4 | 0.9 | 2 069.3 |
Dividend declared and paid NOK 8.60 per share in 2016.
Marine Harvest ASA is a Norwegian company headquartered at Sandviksboder 77A/B, 5035 Bergen. Marine Harvest ASA is a publicly listed company on the Oslo Stock Exchange, with the ticker symbol MHG.
The Group's operations are described in Note 4. Marine Harvest has operations in 24 countries and has structured its operations in three Business Areas: Feed, Farming and Sales and Marketing. The Feed factories are located in Norway and Scotland. The Group's farming activities are located in Norway, Scotland, Canada, Chile, Ireland and the Faroe Islands.
Sales and Marketing comprises the global market organization, in addition to Consumer Products.
The financial statements were authorized by the Board of Directors on March 19, 2018.
The principal accounting policies applied in the preparation of these consolidated financial statements are described below. These policies have been consistently applied to all periods presented.
As of December 31, 2017, the consolidated financial statements of Marine Harvest ASA and its subsidiaries (''the Group'' or ''Marine Harvest'') have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the EU. In compliance with the Norwegian Accounting Act, additional disclosures are included in the notes to the financial statements of Marine Harvest ASA.
New standards and amendments adopted by the Group in 2017 are described in Note 34. At the end of 2017, new standards and changes to existing standards and interpretations have been enacted but are not yet effective. Relevant effects for Marine Harvest are further described in Note 34.
The consolidated financial statements have been prepared on the historical cost basis, except when IFRS requires recognition at fair value. This relates to the measurement of certain financial instruments and valuation of the biomass as further described below. The reporting period follows the calendar year.
Consolidated financial statements present the Group's financial position, comprehensive income, changes in equity and cash flow. All intragroup transactions, receivables and liabilities are eliminated. Unrealized gains from intragroup transactions are eliminated. Unrealized losses from intragroup transactions are also eliminated, but are considered an indicator of impairment with respect to the asset transferred.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group's accounting policies.
The Group's consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at December 31, 2017. Control is achieved when the Group is exposed, or is entitled, to variable returns from its involvement with the investee and has the ability to affect those returns though its power over the investee. Specifically, the Group controls an investee if, and only if, the Group has:
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights in an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee.
Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary.
Associated companies are companies in which the Group has a significant non-controlling interest (normally ownership of 20-50%). Significant influence is the power to participate in the financial and operating policy decisions of the investee, but not to exercise control or joint control over those policies.
A joint venture is an arrangement whereby the parties that have joint control of the arrangement have rights with respect to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
The Group's investments in its associated companies and joint ventures are accounted for using the equity method.
| MARINE HARVEST GROUP (EUR MILLION) |
NOTE | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Cash flow from operations | ||||
| Earnings before taxes | 522.6 | 759.2 | 250.1 | |
| Interest expense | 12 | 46.7 | 48.4 | 46.5 |
| Currency effects | 12 | 8.8 | -26.9 | -4.2 |
| Other financial items | 12 | -93.2 | 210.5 | 52.9 |
| Impairment losses and depreciation | 9/10 | 254.2 | 160.2 | 146.6 |
| Net fair value adjustment on biological assets and onerous contracts | 6/30 | 220.5 | -277.5 | -9.3 |
| Gain/loss on disposal of assets | — | 4.7 | 0.7 | |
| Income from associated companies | 21 | -33.7 | -62.6 | -23.4 |
| Taxes paid | 15 | -177.4 | -92.6 | -68.3 |
| Change in inventory, trade payables and trade receivables | -94.6 | -14.9 | -146.2 | |
| Restructuring and other provisions | -18.6 | -4.8 | -9.8 | |
| Other adjustments | -2.8 | -10.6 | -2.2 | |
| Cash flow from operations | 632.4 | 693.2 | 233.3 | |
| Cash flow from investments | ||||
| Sale of fixed assets | 6.2 | 12.4 | 5.5 | |
| Purchase of fixed assets | 4 | -254.9 | -211.6 | -215.8 |
| Proceeds and dividend from associates and other investments | 34.7 | 17.1 | 44.0 | |
| Proceeds from sale of shares | — | 52.3 | — | |
| Purchase of shares and other investments | -20.7 | -2.7 | -22.0 | |
| Cash flow from investments | -234.7 | -132.6 | -188.3 | |
| Cash flow from financing | ||||
| Proceeds from convertible bond | 11 | — | — | 318.2 |
| Proceeds from new interest-bearing debt (current and non-current) | 11 | 308.2 | 45.0 | 93.0 |
| Down payment of interest-bearing debt (current and non-current) | 11 | -42.0 | -151.8 | -224.7 |
| Interest received | 1.0 | 1.8 | 1.2 | |
| Interest paid | -28.5 | -24.7 | -40.7 | |
| Realized currency effects | -17.1 | 14.8 | -15.4 | |
| Repayment of paid in capital | -640.3 | -418.1 | -255.9 | |
| Other financing items | -6.7 | — | — | |
| Cash flow from financing | -425.5 | -533.0 | -124.3 | |
| Currency effects on cash | -1.1 | 0.3 | 6.1 | |
| Net change in cash in period | -28.9 | 27.9 | -73.2 | |
| Cash - opening balance | 88.0 | 60.1 | 133.2 | |
| Net change in cash in period | -28.9 | 27.9 | -73.2 | |
| Cash - closing balance total | 16 | 59.1 | 88.0 | 60.1 |
is separated from the host contract and is accounted for as a freestanding derivative instrument, if the economic characteristics and risk of the embedded derivative are not closely related to that of the host contract. Multiple embedded derivatives in a single instrument are treated as a single compound instrument if the embedded derivatives relate to the same risk exposures and are not readily separable and independent of each other.
The equity conversion rights of the EUR 340 million bond are separated from the debt instruments and accounted for as a derivative liability due to cash settlement option (option of the issuer to settle the fair value of the conversion rights in cash instead of own equity instruments), in accordance with IAS 32.26.
The fair value of the financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations, without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques.
Financial assets and liabilities are offset and the net amount recognized in the statement of financial position only when there is a legally enforceable right to offset the recognized amounts, and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
The Group uses derivative financial instruments, such as forward currency contracts and interest rate swaps, to hedge its foreign currency risks and interest rate risks. The Group trades in salmon derivatives, both as an operational hedging activity and a financial activity. Operational trading of salmon derivatives is presented as other operating income, while financial trading of salmon derivatives is presented as other financial items. Derivative financial instruments are recognized at fair value. Derivatives are presented as financial assets when the fair value is positive, and as financial liabilities when the fair value is negative. Gains or losses at expiration, as well as unrealized changes in fair value on derivatives, are recognized in profit or loss, except for cash flow hedges.
value adjustment consists of "fair value adjustment on biological assets", "fair value adjustment on harvested fish" and "fair value on incident based mortality", see Note 6. The fair value adjustment on biological assets represents the change in fair value of the biomass less the change in accumulated cost of production for the biomass. The fair value adjustment on harvested fish is the release from stock of the fair value adjustment related to the fish harvested in the period. The fair value adjustment on incident based mortality is the release from stock of the fair value adjustment related to the fish recognized as incident based mortality in the period. The accumulated cost of incident based mortality is included in "cost of materials" in the statement of comprehensive income.
The Group discontinued hedge accounting of both interest rate swaps and currency cash flow hedges during 2014, as they no longer qualified for hedge accounting. The cumulative gain on the hedged interest rate swaps that had been recognized in other comprehensive income was reclassified from equity to profit or loss in 2014, as it was no longer highly probable that the forecast transactions would occur. The cumulative gain on the currency cash flow hedges that had been recognized in other comprehensive income was reclassified from equity to profit or loss, when the forecast transactions occurred. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units (CGU) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
For all financial instruments measured at amortized cost, interest income is recorded using the effective interest rate (EIR). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in other financial items in the statement of comprehensive income.
Revenue is recognized when the Group's right to receive the payment is established, which is generally when the dividend is approved.
REVENUE RECOGNITION Sale of fish products Revenue for the Group derives from the sale of fish and elaborated fish products. Sales of fish and elaborated fish products are recognized when the significant risk and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. Biomass Changes in the estimated fair value of the biomass are recognized in profit or loss. The fair value adjustment is presented in the statement of comprehensive income as "Net fair value adjustment biomass". The fair Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed of in such circumstance is measured on the basis of the relative values of the disposed operation and the portion of the cash-generating unit retained. Goodwill is tested for impairment annually as at December 31, and when circumstances otherwise indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.
Government grants are recognized where there is reasonable assurance that the grant will be received and where the Company will be in compliance with all conditions attached thereto. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the costs that it is intended to compensate are expensed. When the grant relates to an asset, it is deducted from the carrying
amount of the asset. The grant is then recognized in profit or loss over the useful life of a depreciable asset by way of a reduced depreciation charge.
Goodwill is initially measured at cost, and is the excess of the aggregate of the consideration transferred and the amount recognized for a noncontrolling interest in the net identifiable assets acquired and liabilities assumed through a business combination.
Under the equity method, the investment in an associate or a joint venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group's share of the associate or joint venture's net assets since the acquisition date. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring their accounting policies in line with those of the Group.
The statement of profit or loss reflects the Group's share of the results deriving from the associate or joint venture's operations.
The financial statements for the Group are presented in EUR, which is the functional currency of the parent company. The functional currency of the subsidiaries is their local currency, with the exception of the holding companies in Norway and Marine Harvest Markets Norway AS, which use EUR as their functional currency, subsidiaries in Chile, Singapore and Vietnam, which use USD as their functional currency and Waynor Trading which use EUR as functional currency.
The presentation currency of the Group was changed from NOK to EUR in 2016. In 2018, the functional currency for the Norwegian subsidiaries Maine Harvest Norway AS and Marine Harvest Fish Feed AS have been changed to EUR, see Note 35 for more information.
On consolidation, exchange differences arising from the translation of any net investment in foreign entities are recognized in other comprehensive income. When a foreign operation is sold the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.
Profit or loss transactions in foreign subsidiaries are translated to the presentation currency using the average exchange rate for the reporting period, unless exchange rates in the period have fluctuated significantly, in which case the exchange rates in effect on the transaction dates are applied. Assets and liabilities of foreign subsidiaries are translated at the exchange rate at the end of the reporting period.
Foreign currency transactions are translated using the exchange rate at the time of the transaction. Receivables, debt and other monetary items in foreign currency are measured at the exchange rate at the end of the reporting period, and the translation differences are recognized in profit or loss. Other assets in foreign currencies are translated at the exchange rate in effect on the transaction date.
Financial assets are classified into the following categories:
The classification depends on the nature and purpose of the financial instrument and is determined at the time of initial recognition. Subsequent measurement of financial instruments depends on their classification in the specified categories.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate (EIR) method, less impairment.
Financial instruments at fair value through profit or loss include:
Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. This category includes derivative financial instruments that are not designated as hedging instruments that qualify for hedge accounting.
Financial instruments at ''fair value through profit or loss'' are recognized in the statement of financial position at fair value, with changes in fair value recognized in profit or loss as financial items. Marine Harvest has assigned investments in financial derivatives and other shares listed on the stock exchange to this category.
Financial assets, other than those subsequently measured at fair value, are assessed for indicators of impairment. Financial assets are considered to be impaired when there is objective evidence that the estimated future cash flow of the investment will be less than previously anticipated.
Financial liabilities are classified as follows:
– Loans and borrowings
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. EIR amortization is presented under finance costs in the statement of comprehensive income.
All financial instruments are recognized in the statement of financial position when the Group becomes a party to the contractual provisions of the instrument. At initial recognition, an assessment is made as to whether a financial instrument shall be accounted for as a financial liability, a financial asset or an equity instrument, based on the substance of the contractual instrument. The terms of a non-derivative financial instrument are evaluated to determine whether the instrument contains a liability and an equity component, and such components are classified separately as financial liabilities, financial assets or equity instruments as appropriate. When a non-derivative financial instrument contains an embedded derivative that would have met the definition of a derivative instrument had it been a separate instrument, that embedded derivative
Lerøy Seafood Group ASA, Grieg Seafood ASA, Salmar ASA, P/F Bakkafrost, NTS ASA, Cermaq Group AS, NRS ASA and Marine Harvest ASA.
With respect to item 2 above, the participating companies have now agreed on the main principles for a common model for measurement of fair value of biomass according to IAS 41. The industry group plans to continue its discussions in 2018, with the aim to reach even further agreement regarding the different aspects of the common model. The participating companies in the financial reporting industry group are regional variances) or more are classified as mature fish, while fish that have still not achieved this weight are classified as immature fish. All fish at sea are subject to a fair value calculation, while broodstock and smolt are measured at cost less impairment losses. Cost is deemed a reasonable approximation for fair value for broodstock and smolt. Historically the market prices for eggs (broodstock are not traded) and smolt have not departed significantly from own production cost.
An interpolation model as described works best if important variables such as pace of growth, mortality and feed conversion ratios are constant per unit of time or weight increase. Experience shows that in particular there is a deviation from an even development the first period in sea relating to increased value among other due to reduced risk after handling of the fish, vaccination and mortality related to the transfer to sea. This has been adjusted for.
Based on the work in the industry group, Marine Harvest has updated its model with effect on the 2017 financial statements. The refined model is based on a present value methodology, while the previous model was based on a growth methodology with proportionate allocation of expected net profit based on size of the fish and historical carried expenses added. The new model is a cash flow-based present value model, which does not rely on historical cost. Incoming cash flows are calculated as functions of estimated volume multiplied with estimated price at the estimated time of harvesting. Fish ready for harvest (mature fish), are valued at expected sales price with a deduction of cost related to harvest, transport etc. Sales costs are not deducted. For fish not ready for harvest (immature fish), cost to completion is also deducted. The new model uses an interpolation methodology where the known data points are the value of the fish when put to sea and when recognized as mature fish. Technically, the interpolation is calculated per location. The effect of this is that fish that have the same weight and quality are valued similarly. The interpolation model has a natural interpretation in the form of a present value calculation where an imputed rent of assets (i.e. theoretical license rent) per location is included as part of the rate of return. Thus, the value is to a lesser degree affected by the site because low production cost at a high quality site is offset by a higher imputed rent and vice versa. All surplus return in the future is assigned to the licenses through a similarly high imputed rent of assets, and where any shortage in return is recognized in profit and loss immediately. The interpolation model is updated every month, with best estimates for time of harvest, remaining months at sea, expected price at time of harvest and estimated residual cost to grow the fish to harvest weight. The methodology has the effect that any changes in price will have full effect on the biomass at hand, while the price effect on increased weight going forward will be allocated to the license and recognized over time as remaining time at sea decreases. An effect of this is that even with high salmon prices there is no profit at the time the fish is put to sea because all surplus return is assigned to future periods (licenses). Correspondingly the fair value of small fish is rather insensitive to price fluctuations. Transactions in live fish rarely take place, partly due to regulatory constraints, so the valuation of live fish under IAS 41 implies the establishment of an estimated fair value of the fish in a hypothetical market. The calculation of the estimated fair value is based on market prices for harvested fish and adjusted for estimated differences in accordance with IFRS 13. The prices are reduced for harvesting costs and freight costs to market, to arrive at a net value back to farm. The valuation reflects the expected quality grading and size distribution. The valuation is completed for each Business Unit and is based on the biomass in sea for each seawater site and the estimated market price in each market derived from the development in recent contracts as well as spot prices. Where reliable forward prices are available, those have been used. The change in estimated fair value is recognized in profit or loss based on measurement as of each period, and is classified separately. At harvest, the fair value adjustment is classified as fair value adjustment on harvested fish. In cases of incident based mortality, the fair value adjustment is classified as fair value adjustment on incident based mortality. Both are included in net fair value adjustment of biological assets in the statement of comprehensive income. ONEROUS CONTRACTS At each reporting date, management assesses if there are contracts in which the unavoidable costs of meeting the Group's obligations under the contract exceed the economic benefits expected to be received in accordance with IAS 37. Fair value adjustment of biological assets is included in the unavoidable cost. This implies that the contract may be considered onerous even though the actual production cost of the products sold is lower than the contract price. Volumes used in the calculation is based on estimated remaining volumes for the contracts. Onerous contracts are classified as provisions in the statement of financial position. NON-CURRENT ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS The Group classifies non-current assets and disposal groups as held
Biological assets comprise eggs, juveniles, smolt and fish in the sea. Biological assets are, in accordance with IAS 41 and IFRS 13, measured at fair value less cost to sell. In line with IFRS 13, the highest and best use of the biological assets is applied for the valuation. In accordance with the principle for highest and best use, the financial reporting industry group considers that the fish have optimal harvest weight at 4 kg gutted. This corresponds to that a live weight of approximately 4.8 kg (there may be
for sale or for distribution parent company shareholders if their carrying amounts will be recovered principally through a sale or distribution rather than through continuing use. Such non-current assets and disposal groups classified as held for sale or as held for distribution are measured at the lower of their carrying amount and fair value, less costs to sell or to distribute. Costs to distribute are the incremental costs directly attributable to distribution, excluding finance costs and income tax expenses.
The criteria for classification as held for sale are regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is unlikely that significant changes to the sale will be made or that the sale will be canceled. Management must be committed to the sale taking place within one year from the date of classification. Similar considerations apply to assets or a disposal group held for distribution.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite. The value of licenses acquired by Marine Harvest (mainly licenses for salmon farming) in Norway, Chile, Ireland, the Faroe Islands, Scotland and Canada are considered indefinite. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually or when circumstances otherwise indicate that the carrying value may be impaired, either individually or at the cash-generating unit level. The indefinite life classification is reviewed annually to determine whether it continues to be appropriate. If not, the change in useful life from indefinite to finite is made on a prospective basis.
Property, plant and equipment are measured at acquisition cost less accumulated depreciation and any impairment. Costs associated with normal maintenance and repairs are expensed as incurred. Costs of major replacements and renewals that substantially extend the economic life and functionality of the asset are capitalized. Assets are normally considered property, plant and equipment if the useful economic life exceeds one year. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. Straight-line depreciation is applied over the useful life of property, plant and equipment, based on the asset's historical cost and estimated residual value at disposal. If a substantial part of an asset has an individual and different useful life, this part is depreciated separately. The asset's residual value and useful life are evaluated annually. The gain or loss arising from the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset.
At the end of the reporting period, the carrying amounts of the Group's assets are reviewed to determine whether there are indications that specific assets have suffered an impairment loss. If such indications exist, the recoverable amount of the asset is estimated in order to determine the extent of net present value of discounted cash flows (value in use).
Annually or upon indication, each CGU is tested for impairment. If the recoverable amount of a cash-generating unit is estimated to be less than the carrying amount of the net assets of the cash-generating unit, impairment to the recoverable amount is recognized. If impairment is required, goodwill is written down first, thereafter other intangible assets. If further impairment is required, other assets will be written down on a pro-rata basis.
Impairment losses recognized in previous periods are reversed if the recoverable amount in a later period exceeds the carrying amount. The reversal will not exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years.
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
Finance leases that transfer substantially all the risks and benefits incidental to ownership of the leased item to the Group, are capitalized at the commencement of the lease at the fair value of the leased assets or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and a reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are presented as finance costs in the statement of comprehensive income.
A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
Operating lease payments are recognized as an operating expense in the statement of comprehensive income on a straight-line basis over the lease term.
Inventories mainly comprise feed, goods in progress, packaging materials and finished goods. Inventories of goods are measured at the lower of cost and net realizable value.
The cost of finished goods includes direct material costs, direct personnel expenses and indirect processing costs (full production cost). Interest costs are not included in the inventory value. The cost price of purchased goods is the actual purchase price. The cost is based on the principle of first-in first-out, except for feed and value-added-products, where a weighted average is used.
If fish farmed by the Group is included in inventory as a raw material for further processing in one of the Groups processing entities, such fish is included in inventory at fair value at harvest.
In the autumn of 2014, The Financial Supervisory Authority of Norway (Finanstilsynet) initiated an evaluation of certain aspects of the financial reporting prepared by fish farming companies listed on the Oslo Stock Exchange. The purpose of this process was to evaluate whether or not the industry companies reported in a uniform and consistent manner in accordance with IFRS. Finanstilsynet published a final report November 17, 2015 on their website (finanstilsynet.no). In response to Finanstilsynets evaluation process, affected fish farming companies established a financial reporting industry group, as an arena for discussions and improvement work. The group has had several meetings also in 2017. The main purpose of the group has been as follows:
With respect to item 1 above, the participating companies identified certain areas of improvement, and certain updates to the fair value model and information included in disclosures were made with effect from December 31, 2015.
profitability of the CGU compared to previous periods, negative deviations from budgets, changes in the use of assets, market changes and regulatory changes.
For further information about uncertainty in the valuation of intangible assets and impairment testing, please see Note 8, Impairment testing. Note 9, Intangible assets, illustrates the specification of intangible assets in the Group.
Biological assets comprise eggs, juveniles, smolt and fish in the sea. These assets are measured at fair value less cost to sell, unless the fair value cannot be measured reliably. The estimation of the fair value relies on a series of uncertain assumptions, e.g., biomass volume, biomass quality, size distribution, market prices, expected future costs, remaining time to harvest and total time to harvest.
Marine Harvest measures all deviations in biomass volume compared to estimates when a site is harvested out. Except for situations where there has been an incident causing mass mortality, particularly early in the cycle, combined with an inability to count and weigh fish after the event in fear of further stressing the fish, volume deviations are normally minor. Similarly, excluding the effects of soft flesh and melanin, the quality of the fish can normally be estimated with a relatively high degree of accuracy. Categorization of quality is normally set per country based on averages, but can be set individually per site when needed. The size distribution shows some degree of variation but normally not to an extent that significantly changes the estimated value of the biomass (the value of two fish at five kg is very similar to the value of two fish weighing four and six kg, respectively).
The accumulated cost of the fish per kg will only deviate from the estimate if the volume is different from the estimate. For the estimation of future costs, there is uncertainty with regard to feed prices, other input costs and biological development. Marine Harvest measures cost deviations vs. budget as part of the follow up of Business Units. Excluding special situations (incidents etc.), the deviations in costs vs budgets are normally limited for a group of sites, although individual sites might show deviations. The estimation of costs influences the biomass value through the recognized fair value adjustment in the statements of comprehensive income and financial position (calculated as fair value less accumulated biological costs).
The key element in the estimation of fair value is the assumed market price. The assumed market price is the price that we expect to receive on the future date when the live fish is harvested. We derive these prices from a variety of sources, normally a combination of the prices achieved in the previous month and the contracts most recently entered into. For salmon of Norwegian and Faroese origin, quoted forward prices (Nasdaq) are used in the estimation, see Note 2. The use of third-party forward prices improves the reliability and comparability of the price estimation.
For further information about biological asset values please see Note 6, Biological assets.
The matters described below are considered to be the most important in understanding the key sources of judgments that are involved in preparing these consolidated financial statements and the uncertainties that could most significantly impact the amounts reported on the result of operations, financial position and cash flows.
The Group has assessed that all fish farming licenses have indefinite lives and, as such, are not amortized. Most of the jurisdictions in which the Group operates require us to obtain a license for each fish farm owned and operated in that jurisdiction. The Group has obtained and currently holds a license to own and operate each of our fish farms where a license is required. These licenses have indefinite lives or require renewal after a specific time period, but normally with automatic renewal and, as such, we have assessed that they have indefinite lives. However, the Group's licenses in each country are subject to certain requirements, and we risk penalties (including, in some cases, criminal charges), sanctions or even license revocation if we fail to comply with license requirements or related regulations. Also, local government may change the way licenses are renewed.
One company in the Group holds a Supply Chain Finance (SCF) agreement meaning that some vendors will indirectly offer extended credit terms to the company through a separate agreement with a financial institution. The vendors sell their trade receivables to the financial institution in order to receive payment immediately. Payment terms under the SCF agreement are in line with industry standard. The transaction is still between the company and its suppliers, and the company does not waive the right to claim any refund on quality issues, return goods etc. towards the supplier.
The refinancing by vendors has no cash-flow impact on the company, and only when the trade payable is settled with the bank will the cash flow statement be impacted, with a operating cash flow charge. Liabilities under the SCF agreement are presented as trade payables.
Prices used to calculate fair value in Norway, Scotland and the Faroe Islands are based on quoted forward prices (Nasdaq). Based on expected time of harvest per site, the corresponding forward price is used. For more information about the forward prices used, see Note 6.
Property, plant and equipment and intangible assets are not depreciated or amortized once classified as held for sale or as held for distribution.
Assets and liabilities classified as held for sale or for distribution are presented separately as current items in the statement of financial position.
A disposal group qualifies as a discontinued operation if it is:
Discontinued operations are excluded from the results of continuing operations and are presented separately as a single amount under profit or loss after tax from discontinued operations in the statement of comprehensive income.
Income taxes comprise taxes on the taxable profit for the year, changes in deferred taxes and any adjustments in prior years' taxes. Taxes on transactions that are recorded in other comprehensive income or directly in equity do not form part of the tax expense in profit or loss.
Tax payable is calculated using the nominal tax rate for the relevant tax jurisdiction at the end of the reporting period.
Deferred tax is calculated on the basis of temporary differences between accounting and taxation values at the close of the accounting year. Deferred tax assets arise from temporary differences that give rise to future tax deductions. Deferred tax assets are recognized to the extent that it is probable that a taxable profit will arise, against which the deductible
temporary differences, and the carry forward of unused tax credits and unused tax losses, can be utilized.
Tax increasing and tax decreasing temporary differences are offset against each other to the extent that the taxes can be netted within one tax regime.
A provision is recognized if the Company has a legal or constructive obligation related to a past event, and it is likely that the obligation will lead to a financial outflow for the Company. Long-term provisions are valued on the basis of discounted expected cash flows.
Provisions for restructuring costs will be recognized if the Company has, within the reporting period, published or initiated a restructuring plan, which identifies which parts of the Company and approximately how many employees will be affected, the actions that will be taken and when the plan will be implemented. Provisions are recognized only for costs that cannot be associated with future earnings. Costs related to restructuring are presented on a separate line in the statement of profit or loss.
The Group has share option schemes from 2014, 2015, 2016 and 2017 which will be settled in shares (equity settlement). The cost of equitysettled transactions is recognized as a payroll expense over the vesting period. The cumulative expense is recognized in other equity reserves within equity.
The cash flow statement is prepared in accordance with the indirect method. Cash comprises cash and bank deposits, except restricted funds.
The preparation of financial statements in accordance with IFRS requires management to make accounting estimates and judgments that affect the recognized amounts of assets and liabilities, income and expenses. The estimates and underlying assumptions are based on past experience and information perceived to be relevant and probable when the judgments are made. Estimates are reviewed on an on-going basis and actual values and results may deviate from these estimates. Adjustments to accounting estimates are recognized in the period in which the estimates are revised.
Marine Harvest is exposed to a number of underlying economic factors which affect the overall results, such as salmon prices, foreign exchange rates and interest rates, as well as financial instruments with fair values derived from changes in these factors.
The matters described below are considered to be the most important in understanding the key sources of estimation uncertainty that are involved in preparing these consolidated financial statements and the uncertainties that could most significantly impact the amounts reported on the result of operations, financial position and cash flows.
The annual impairment test on intangible assets is based on a discounted cash flow model per cash-generating unit (CGU). The cash flows used in the calculations represent management's best estimate at the time of reporting. The assumptions used rest on uncertainty with regard to product prices, input prices, biological performance and future regulatory frameworks. Costs can normally be estimated with a higher degree of accuracy than income.
As profitability in the salmon farming industry historically has been very volatile, depending on developments in the price of salmon, Marine Harvest uses budgets and long-term plans for the first four years of the analysis, but returns to long-term historic averages for growth in the fifth year and terminal value, except for Marine Harvest Chile. For further information on this CGU, refer to Note 8.
The WACC model is used for estimating the discount rate. The input data for the model is updated every year for the annual impairment test. The choice of input data for the model significantly influences the outcome of the model, and to ensure that there is as little uncertainty as possible with regards to the calculation of the WACC, third-party sources are used where available (interest, inflation, beta). The WACC is calculated separately for the different CGUs. Indications of impairment that initiate testing beyond the year-end test include a significant reduction in the
| KEY SEGMENT FIGURES (EUR MILLION) |
SALES AND MARKETING | ||||||
|---|---|---|---|---|---|---|---|
| BUSINESS SEGMENTS 2017 |
FEED | FARMING | MARKETS | CONSUMER PRODUCTS |
OTHER ELIMINATIONS | TOTAL | |
| External revenue | 20.3 | 80.2 | 1 997.9 | 1 555.4 | — | — | 3 653.8 |
| Internal revenue | 333.5 | 2 234.4 | 711.4 | 43.8 | 22.8 | -3 345.9 | — |
| Operational revenue | 353.8 | 2 314.6 | 2 709.3 | 1 599.2 | 22.8 | -3 345.9 | 3 653.8 |
| Gain/loss from derivatives | — | 57.7 | -5.7 | — | 4.0 | -60.5 | -4.4 |
| Revenue and other income | 353.8 | 2 372.3 | 2 703.7 | 1 599.2 | 26.9 | -3 406.4 | 3 649.4 |
| Operational EBITDA | 16.3 | 772.5 | 77.9 | 83.9 | -8.3 | — | 942.5 |
| Operational EBIT | 8.5 | 660.5 | 73.2 | 61.7 | -11.8 | — | 792.1 |
| Change in unrealized internal margin | — | — | — | — | — | 5.7 | 5.7 |
| Gain/loss from derivatives | — | 57.9 | -5.7 | -60.8 | -11.6 | — | -20.2 |
| Net fair value adjustment biomass | 1.1 | -341.4 | — | — | — | — | -340.3 |
| Onerous contract provisions | — | 119.8 | — | — | — | — | 119.8 |
| Restructuring cost | — | -0.8 | -0.1 | -1.4 | -0.2 | — | -2.5 |
| Other non-operational items | — | 0.3 | — | -0.1 | — | — | 0.3 |
| Income from associated companies and joint ventures | — | 34.2 | — | — | -0.5 | — | 33.7 |
| Impairment losses | — | -103.1 | -0.2 | 0.1 | -0.5 | — | -103.8 |
| EBIT | 9.6 | 427.4 | 67.1 | -0.4 | -24.5 | 5.7 | 484.9 |
| Gross investments | 58.4 | 166.8 | 7.4 | 21.2 | 1.1 | — | 254.9 |
| Number of employees 31.12 (FTE) | 67 | 4 295 | 1 893 | 6 916 | 62 | — | 13 233 |
| KEY SEGMENT FIGURES (EUR MILLION) |
SALES AND MARKETING | ||||||
|---|---|---|---|---|---|---|---|
| BUSINESS SEGMENTS 2016 |
FEED | FARMING | MARKETS | CONSUMER PRODUCTS |
OTHER ELIMINATIONS | TOTAL | |
| External revenue | 16.6 | 50.0 | 1 991.5 | 1 448.8 | 2.8 | — | 3 509.8 |
| Internal revenue | 364.9 | 2 173.9 | 735.5 | 29.6 | 19.9 | -3 323.8 | — |
| Operational revenue | 381.6 | 2 223.9 | 2 727.0 | 1 478.4 | 22.7 | -3 323.8 | 3 509.8 |
| Gain/loss from derivatives | — | -43.9 | -5.7 | — | 4.1 | 45.9 | 0.4 |
| Revenue and other income | 381.6 | 2 180.0 | 2 721.3 | 1 478.4 | 26.9 | -3 277.9 | 3 510.2 |
| Operational EBITDA | 35.4 | 690.7 | 80.2 | 43.9 | -7.4 | — | 842.7 |
| Operational EBIT | 28.1 | 585.9 | 76.1 | 21.5 | -11.4 | — | 700.2 |
| Change in unrealized internal margin | — | — | — | — | — | -22.1 | -22.1 |
| Gain/loss from derivatives | — | -42.4 | -5.7 | 44.3 | 12.1 | — | 8.3 |
| Net fair value adjustment biomass | -1.4 | 389.0 | — | — | -1.6 | — | 386.2 |
| Onerous contract provisions | — | -108.7 | — | — | — | — | -108.7 |
| Restructuring cost | — | -4.6 | — | -0.9 | — | — | -5.4 |
| Other non-operational items | — | 1.3 | — | — | — | — | 1.3 |
| Income from associated companies and joint ventures | — | 62.8 | — | — | -0.2 | — | 62.6 |
| Impairment losses | -13.5 | -17.9 | -0.2 | 0.4 | — | — | -31.2 |
| EBIT | 13.3 | 865.5 | 70.2 | 65.3 | -1.0 | -22.1 | 991.2 |
| Gross investments | 10.8 | 175.8 | 5.5 | 16.3 | 3.1 | — | 211.6 |
| Number of employees 31.12 (FTE) | 68 | 3 865 | 1 795 | 6 925 | 63 | — | 12 717 |
For management purposes, Marine Harvest is organized into three Business Areas: Feed, Farming and Sales and Marketing.
Business segments are components of a business that are regularly reviewed by its chief operating decision-makers for the purpose of assessing performance and allocating resources. The Group Management Team is the Group's chief operating decision-maker.
In Marine Harvest the Feed Business Area consist of the production of fish feed in Norway and the production plant under construction in Scotland. Feed is considered to be a separate business segment, due to the nature of the business (different economic characteristics compared to other business segments in the Group and separate management follow up).
The Farming Business Area consists of the farming and primary processing operations in Norway, Scotland, Canada, Chile, Ireland and the Faroe Islands. The Farming operations are, due to similar production processes, a global market for both salmon feed and sales of salmon, in addition to similar biological risk factors, considered to have similar economic characteristics. The farming units are therefore aggregated into one business segment.
The Sales and Marketing Business Area consists of the Markets operations in the Americas, Asia- and Europe, as well as Consumer Products. As the Markets operations are considered to have similar economic characteristics, due to similar production processes and operational risk factors, and a common set of key performance indicators, the Markets operations are presented as one business segment.
Consumer Products, which comprises the combined operations of VAP Europe and Morpol, is presented as a single separate business segment due to similar production processes and operational risk factors, and a common set of key performance indicators. During 2017 Marine Harvest CEE (Czech Republic) was moved from the business segment Markets to Consumer Products. The comparable figures have been restated.
The business segment ''Other'' consists of corporate functions and holding companies, in addition to Halibut-farming until the disposal of Sterling White Halibut in 2016.
The business segments' performance is monitored in order to achieve the overall objective of maximizing the operational EBIT per kg and margins. Consequently, reporting focuses on measuring and illustrating the overall profitability of the harvested volume, based on source of origin (operational EBIT per kg) and operational EBIT margin for the business segments Markets and Consumer Products. Legal entities with activities in both Farming, Sales and Marketing do not split their financial items or their statement of financial position. The net effects of Investments in these entities are recognized in the business segment Farming.
The pricing principle between Feed and Farming is set at market terms and benchmarked against third parties. The pricing principle between Farming and Sales and Marketing is based on market reference prices for spot sales, while contracts are at market terms, with the target for Sales and Marketing to maximize profit beyond these terms.
The same accounting principles as described for the consolidated financial statements have been applied to the business segment reporting. Inter-segment transfers or transactions are entered into under normal commercial terms and conditions, and the measurements used in the business segment reporting are the same as those used for the third-party transactions.
In the business segment reporting internal profit related to unrealized gains from intra-group transactions are included in Operational EBIT for the relevant business segments, but eliminated in EBIT.
Operational EBIT and Operational EBITDA are non-IFRS financial measures. Operational EBIT is calculated by excluding certain items, according to the reconciliation below, from earnings before financial items and taxes (EBIT). Operational EBITDA is calculated by adding depreciation and amortization to Operational EBIT. For further explanations, see section Analytical information in this report.
| Integrated Annual Report 2017 | ||
|---|---|---|
In December 2016, Marine Harvest entered into an agreement to purchase Gray Aqua Group, based on the East Coast of Canada. The acquisition price on a cash and debt free basis was CAD 17 million (equivalent to EUR 12.1 million). The acquisition has been accounted for as a business combination. Marine Harvest has established Marine Harvest Atlantic Canada as the owner of the Gray Aqua Group.
At the date of completion of the transaction, March 31, 2017, Marine Harvest could exercise rights over the assets, and hence had obtained control. Thus, March 31, 2017 has been identified as the acquisition date, and the assets have been consolidated into the group financial statements as of this date.
| NON-CURRENT ASSETS BY COUNTRY LOCATION (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Norway | 1 157.9 | 1 226.6 | 1 087.1 |
| Poland | 115.0 | 105.8 | 111.6 |
| Scotland | 286.0 | 202.3 | 211.4 |
| Belgium | 79.9 | 81.2 | 83.7 |
| France | 41.5 | 44.2 | 48.2 |
| Rest of Europe | 71.5 | 69.2 | 57.5 |
| Chile | 203.2 | 335.1 | 366.1 |
| Canada/USA | 189.1 | 177.9 | 146.0 |
| Asia | 9.1 | 10.5 | 11.2 |
| Non-current assets | 2 153.2 | 2 252.8 | 2 123.0 |
| Other non-current assets 1) | 13.5 | 3.0 | 11.9 |
| Total non-current assets | 2 166.7 | 2 255.8 | 2 134.9 |
1) Deferred tax assets and other non-current financial assets
The acquired assets include one hatchery in New Brunswick, two farming licenses in New Brunswick, seven farming licenses in Newfoundland, and one processing plant in Newfoundland.
A final purchase price allocation (PPA) has been carried out. The Table below summarizes the consideration paid for Gray Aqua, and the final fair value of the assets acquired, as recognized at the acquisition date March 31, 2017.
Transaction costs amounted to EUR 0.3 million, and except from this, the business combination has not impacted the consolidated statement of comprehensive income in 2017. Accordingly, proforma financial information has been omitted based on materiality. The transaction costs have been reported as other operating cost.
| RECOGNIZED AMOUNTS OF IDENTIFIABLE ASSETS ACQUIRED AS OF March 31, 2017 (EUR MILLION) |
EUR | CAD |
|---|---|---|
| Fair value | ||
| Farming licenses | 8.2 | 11.6 |
| Land & buildings | 1.7 | 2.5 |
| Machinery & equipment | 0.6 | 0.9 |
| Transport | 0.6 | 0.8 |
| Held for sale | 0.9 | 1.3 |
| Total identifiable fair value of net assets per acquisition date for owners of Marine Harvest ASA | 12.1 | 17.0 |
| KEY SEGMENT FIGURES (EUR MILLION) |
SALES AND MARKETING | ||||||
|---|---|---|---|---|---|---|---|
| BUSINESS SEGMENTS 2015 |
FEED | FARMING | MARKETS | CONSUMER PRODUCTS |
OTHER ELIMINATIONS | TOTAL | |
| External revenue | 3.1 | 88.3 | 1 833.8 | 1 189.5 | 6.5 | — | 3 121.1 |
| Internal revenue | 317.0 | 1 822.7 | 434.7 | 35.9 | 39.9 | -2 650.2 | — |
| Operational revenue | 320.1 | 1 911.0 | 2 268.5 | 1 225.4 | 46.4 | -2 650.2 | 3 121.1 |
| Gain/loss from derivatives | — | -10.2 | -0.7 | — | -8.0 | 10.2 | -8.7 |
| Revenue and other income | 320.1 | 1 900.8 | 2 267.8 | 1 225.4 | 38.4 | -2 640.0 | 3 112.4 |
| Operational EBITDA | 30.5 | 339.1 | 66.9 | 44.9 | 5.1 | — | 486.6 |
| Operational EBIT | 21.5 | 238.5 | 63.6 | 21.6 | 1.7 | — | 346.8 |
| Change in unrealized internal margin | — | — | — | — | — | -2.2 | -2.2 |
| Gain/loss from derivatives | — | -10.2 | -0.7 | 10.2 | -11.8 | — | -12.5 |
| Net fair value adjustment biomass | — | 23.3 | — | — | -13.1 | — | 10.1 |
| Onerous contract provisions | — | -0.7 | — | — | — | — | -0.7 |
| Restructuring cost | — | -9.3 | — | -4.7 | -1.2 | — | -15.2 |
| Other non-operational items | — | 2.4 | — | — | — | — | 2.4 |
| Income from associated companies and joint ventures | — | 23.6 | — | -0.2 | — | — | 23.4 |
| Impairment losses | — | -4.4 | — | -1.3 | -1.1 | — | -6.8 |
| EBIT | 21.5 | 263.0 | 62.9 | 25.6 | -25.5 | -2.2 | 345.3 |
| Gross investments | 9.5 | 169.0 | 5.9 | 25.9 | 6.5 | -0.9 | 215.8 |
| Number of employees 31.12 (FTE) | 83 | 3 961 | 1 806 | 6 514 | 90 | — | 12 454 |
| REVENUE BY CUSTOMER LOCATION (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Norway | 198.4 | 201.7 | 168.9 |
| Europe, excluding Norway and Russia | 2 297.9 | 2 233.6 | 2 024.4 |
| Russia | 54.3 | 60.5 | 24.1 |
| Americas | 646.8 | 594.4 | 536.0 |
| Asia | 327.5 | 355.9 | 272.5 |
| Rest of the world | 44.2 | 31.7 | 35.4 |
| External gross revenue | 3 569.0 | 3 477.9 | 3 061.3 |
| Other income | 84.8 | 31.9 | 59.8 |
| Operational revenue | 3 653.8 | 3 509.8 | 3 121.1 |
We have no customers accounting for 10% or more of our revenues.
| REVENUE BY PRODUCT (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Whole salmon | 1 560.2 | 1 514.3 | 1 364.4 |
| Elaborated and smoked salmon | 1 696.3 | 1 609.8 | 1 391.2 |
| Other products | 312.5 | 353.7 | 305.8 |
| External gross revenue | 3 569.0 | 3 477.9 | 3 061.3 |
Mortality: Normalized mortality will affect the fair value estimates both as a reduction of estimated harvesting volumes and because cost to completion includes cost incurred on fish that eventually will perish.
Market price: The market price assumption is very important for the valuation and even minor changes in the market price will result in significant changes in the valuation. The methodology used for establishing the market price is explained in Note 2. A EUR 0.1 increase in the market price would result in an increase in value of EUR 14.7 million.
The market price risk is reduced through fixed price/volume customer contracts and financial contracts, as well as our downstream integration as explained in Note 13.
See Note 2 regarding the work of the financial reporting industry group change in model for calculating the fair value of live fish.
Incident-based mortality is accounted for when a site either experiences elevated mortality over time or substantial mortality due to an incident at the farm (outbreak of disease, lack of oxygen etc). The cost of incident based mortality is included in "cost of materials" in the statement of
comprehensive income, see Note 33. The fair value element is adjusted through fair value adjustment on incident based mortality, and included in net fair value adjustment in the statement of comprehensive income.
| RECONCILIATION OF CHANGES IN THE CARRYING AMOUNT OF BIOLOGICAL ASSETS (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Carrying amount as of 01.01 | 1 573.8 | 1 140.2 | 1 115.8 |
| Cost to stock | 1 383.1 | 1 340.2 | 1 384.5 |
| Net fair value adjustment | -353.5 | 386.2 | 10.1 |
| Implementation of new biomass valuation model 1) | 13.2 | — | — |
| Mortality for fish in sea | -36.5 | -59.5 | -45.2 |
| Cost of harvested fish | -1 282.0 | -1 268.5 | -1 287.0 |
| Effects of deconsolidations | — | -9.0 | — |
| Effects of business combinations | 0.7 | 11.6 | — |
| Currency translation differences | -98.3 | 32.5 | -38.0 |
| Total carrying amount of biological assets as of 31.12 | 1 200.5 | 1 573.8 | 1 140.2 |
| 1) 1) Change in estimate recognized through other comprehensive income according to IAS 8. |
| FAIR VALUE ADJUSTMENT ON BIOLOGICAL ASSETS IN THE STATEMENT OF FINANCIAL POSITION | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Marine Harvest Norway | 187.9 | 432.9 | 236.5 |
| Marine Harvest Chile | 19.0 | 19.0 | -29.5 |
| Marine Harvest Canada | 46.7 | 78.7 | 19.0 |
| Marine Harvest Scotland | 21.0 | 116.0 | 17.9 |
| Marine Harvest Faroe Islands | 4.9 | 5.6 | 7.1 |
| Marine Harvest Ireland | 10.6 | 9.6 | 4.3 |
| Sterling White Halibut | — | — | -11.1 |
| Marine Harvest Fish Feed | -0.2 | -1.4 | — |
| Total fair value adjustment included in carrying amount in the statement of financial position | 289.9 | 660.5 | 244.2 |
| Biomass at cost | 910.5 | 913.3 | 896.0 |
| Total biological assets | 1 200.5 | 1 573.8 | 1 140.2 |
| FAIR VALUE ADJUSTMENT ON BIOLOGICAL ASSETS IN THE STATEMENT OF COMPREHENSIVE INCOME | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Marine Harvest Norway | 323.8 | 836.9 | 375.3 |
| Marine Harvest Chile | 68.1 | 32.0 | 0.9 |
| Marine Harvest Canada | 74.2 | 156.9 | 36.6 |
| Marine Harvest Scotland | 70.5 | 183.4 | 41.5 |
| Marine Harvest Faroe Islands | 13.6 | 30.5 | 9.5 |
| Marine Harvest Ireland | 35.5 | 18.7 | 16.5 |
| Sterling White Halibut | — | -1.4 | -12.7 |
| Marine Harvest Fish Feed | -0.3 | -1.2 | — |
| Total fair value adjustment in the statement of comprehensive income | 585.5 | 1 255.8 | 467.7 |
In December 2017, Marine Harvest Canada entered into a Share Purchase Agreement to purchase the East Coast Canadian salmon farmer Northern Harvest for CAD 315 million (approximately EUR 210 million) on a cash and debt free basis. Northern Harvest is fully integrated with its own broodstock, smolt/hatchery, farming sites and processing operations. Northern Harvest is expected to harvest 19,000 GWT of salmon in 2018, and currently has 45 farming licenses in Newfoundland and New Brunswick. The company has an additional 13 farming licenses in application mode. The transaction is subject to approval by relevant competition authorities and customary closing conditions. Marine Harvest will not consolidate Northern Harvest until the transaction has been approved.
Asset held for sale as of December 31, 2017, in the amount of EUR 0.5 million, relate to a factory and land in Germany.
Marine Harvest Group had no results from discontinued operations in 2016 and 2017.
Biological assets are, in accordance with IAS 41, measured at fair value,. All fish at sea are subject to a fair value calculation, while broodstock and smolt are measured at cost less impairment losses. Cost is deemed a reasonable approximation for fair value for broodstock and smolt as there is little biological transformation (IAS 41.24).
Biomass measured at fair value, is categorized at Level 3 in the fair value hierarchy, as the input is mostly unobservable. In line with IFRS 13, the highest and best use of the biological assets is applied for the valuation. In accordance with the principle for highest and best use, the financial reporting industry group considers that the fish have optimal harvest weight when they have a live weight corresponding to 4 kg gutted weight. This corresponds to a live weight of 4.8 kg (there may be regional variances). Fish of this weight or above are classified as ready for harvest (mature fish), while fish that have still not achieved this weight are classified as not ready for harvest (immature fish). The valuations are carried out at business unit level based on a common model and basis for assumptions established at group level. All assumptions are subject to monthly quality assurance and analysis at the group level.
The valuations are based on an income approach and takes into consideration unobservable input based on biomass in the sea, the estimated growth rate and cost to completion at site level. Mortality, quality of the fish going forward and market price are considered at business unit level. A special assessment is performed for sites with high/low performance due to disease or other deviating factors. The market prices are derived from observable market prices where available.
The estimated fair value of the biomass will always be based on uncertain assumptions, even though the group has built substantial expertise in assessing these factors. Estimates are applied to the following factors; biomass volume, the quality of the biomass, size distribution, cost, mortality and market prices.
Biomass volume: The biomass volume is in itself an estimate based on the number of smolt released into the sea, the estimated growth from the time of stocking, estimated mortality based on observed mortality in the period, etc. There is normally little uncertainty with regard to biomass volume.
The level of uncertainty will, however, be higher if an incident has resulted in mass mortality, especially early in the cycle, or if the fish's health status restricts handling. If the total biomass at sea was 1% higher than our estimates, this would result in an increase in value of EUR 1.9 million.
The quality of the biomass: The quality of the biomass can be difficult to assess prior to harvesting, if the reason for downgrading is related to muscle quality (e.g. the effect of Kudoa in Canada). In Norway downgraded fish is normally priced according to standard rates of deduction compared to a Superior quality fish. For fish classified as Ordinary grade, the standard rate of reduction is EUR 0.15 to EUR 0.20 per kg gutted weight. For fish classified as Production grade, the standard rate of reduction is EUR 0.5 to EUR 1.5 per kg gutted weight, depending on the reason for downgrading. In our fair value model for salmon of Norwegian origin, we have used EUR 0.20 and EUR 0.61 as deductions from Superior grade for Ordinary and Production grade quality respectively. In other countries the price deductions related to quality are not as standardized. The quality of harvested fish has been good in 2017. For the Group as a whole, 93% of the fish were graded as Superior quality. A 1% change from Production grade to Superior quality would result in a change in value of EUR 0.8 million.
The size distribution: Fish in sea grow at different rates, and even in a situation with good estimates for the average weight of the fish there can be a considerable spread in the quality and weight of the fish. The size distribution affects the price achieved for the fish, as each size category of fish is priced separately in the market. When estimating the biomass value, a normal size distribution is applied.
Cost: For the estimation of future costs, there is uncertainty with regard to feed prices, other input costs and biological development. Marine Harvest measures cost deviations vs. budget as part of the follow up of business units. Excluding special situations (incidents etc.), the deviations in costs vs budgets are normally limited for a group of sites, although individual sites might show deviations. The estimation of costs influences the biomass value through the recognized fair value adjustment in the statements of comprehensive income and financial position (calculated as fair value less accumulated biological costs).
| SENSITIVITIY EFFECT ON FAIR VALUE (SALMON ONLY) AT YEAR-END (EUR MILLION) |
PRICE +0.1 EUR |
BIOMASS +1% LWT |
QUALITY +1% SUP |
|---|---|---|---|
| Marine Harvest Norway | 9.0 | 1.1 | 0.2 |
| Marine Harvest Chile | 2.0 | 0.1 | 0.4 |
| Marine Harvest Canada | 1.9 | 0.2 | 0.1 |
| Marine Harvest Scotland | 1.3 | 0.4 | 0.1 |
| Marine Harvest Faroe Islands | 0.3 | — | — |
| Marine Harvest Ireland | 0.3 | 0.1 | — |
| Marine Harvest Fish Feed | — | — | — |
| Total sensitivity effect on fair value | 14.7 | 1.9 | 0.8 |
| INCIDENT-BASED MORTALITY 2017 (SALMON ONLY) (EUR MILLION) |
|---|
| INCIDENT-BASED MORTALITY 2017 (SALMON ONLY) (EUR MILLION) |
INCIDENT-BASED MORTALITY IN THE STATEMENT OF COM PREHENSIVE INCOME |
INCIDENT-BASED MORTALITY (1000 TONNES) |
INCIDENT-BASED MORTALITY IN % OF TOTAL MORTALITY (VOLUME) |
|---|---|---|---|
| Marine Harvest Norway | 17.0 | 5.1 | 16.4% |
| Marine Harvest Chile | 2.5 | 0.7 | 20.3% |
| Marine Harvest Canada | 1.9 | — | — |
| Marine Harvest Scotland | 10.3 | 2.8 | 39.0% |
| Marine Harvest Faroe Islands | — | — | —% |
| Marine Harvest Ireland | 4.7 | 1.0 | 40.8% |
| Marine Harvest Fish Feed | — | — | — |
| Marine Harvest Group | 36.5 | 9.7 | 19.7% |
| FORWARD PRICES USED IN FAIR VALUE CALCULATION 1) | |
|---|---|
| QUARTER | EUR/KG |
| Q1 2018 | 5.49 |
| Q2 2018 | 5.41 |
| Q3 2018 | 5.42 |
| Q4 2018 | 5.60 |
| Q1 2019 | 5.88 |
| Q2 2019 | 5.88 |
1) Norway and Faroe Islands only. Before reduction of export costs.
| FAIR VALUE ADJUSTMENT ON HARVESTED FISH IN THE STATEMENT OF COMPREHENSIVE INCOME | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Marine Harvest Norway | -540.0 | -661.1 | -352.2 |
| Marine Harvest Chile | -64.7 | 15.0 | -15.7 |
| Marine Harvest Canada | -102.3 | -100.6 | -25.9 |
| Marine Harvest Scotland | -160.3 | -77.3 | -43.7 |
| Marine Harvest Faroe Islands | -14.3 | -32.0 | -2.4 |
| Marine Harvest Ireland | -33.1 | -13.4 | -17.2 |
| Sterling White Halibut | — | -0.2 | -0.4 |
| Marine Harvest Fish Feed | 1.5 | -0.2 | — |
| Total fair value uplift in the statement of comprehensive income | -913.4 | -869.6 | -457.6 |
| FAIR VALUE ADJUSTMENT ON INCIDENT BASED MORTALITY IN THE STATEMENT OF COMPREHENSIVE INCOME 1) |
|||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Marine Harvest Norway | -7.1 | — | — |
| Marine Harvest Chile | -0.9 | — | — |
| Marine Harvest Canada | — | — | — |
| Marine Harvest Scotland | -3.0 | — | — |
| Marine Harvest Faroe Islands | — | — | — |
| Marine Harvest Ireland | -1.4 | — | — |
| Sterling White Halibut | — | — | — |
| Marine Harvest Fish Feed | — | — | — |
| Total fair value uplift in the statement of comprehensive income | -12.4 | — | — |
1) Measurement of fair value on incident based mortality from 2017.
| NET FAIR VALUE ADJUSTMENT IN THE STATEMENT OF COMPREHENSIVE INCOME (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Marine Harvest Norway | -223.3 | 175.8 | 23.1 |
| Marine Harvest Chile | 2.5 | 47.0 | -14.8 |
| Marine Harvest Canada | -28.1 | 56.3 | 10.7 |
| Marine Harvest Scotland | -92.8 | 106.1 | -2.2 |
| Marine Harvest Faroe Islands | -0.7 | -1.5 | 7.1 |
| Marine Harvest Ireland | 1.0 | 5.3 | -0.7 |
| Sterling White Halibut | — | -1.5 | -13.1 |
| Marine Harvest Fish Feed | 1.2 | -1.4 | — |
| Total fair value uplift in the statement of comprehensive income | -340.3 | 386.2 | 10.1 |
| VOLUMES OF BIOMASS (TONNES) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Volume of biomass harvested during the year (gutted weight) | 370 346 | 380 621 | 420 617 |
| Volume of biomass in the sea at year-end (live weight) | 258 049 | 253 449 | 275 360 |
| FFECT ON FAIR VALUE (SALMON ONLY) AT YEAR-END | |
|---|---|
| Vorway |
After the recognition of the impairment loss, book value of our farming licenses in Chile is USD 142 million, or EUR 118.3 million. The remaining of total book value of licenses in Marine Harvest Chile is approximately 19%
The key assumptions with regards to sensitivity are expected harvest volumes and EBIT(DA)/Margins.
of the license value for the group. Sensitivity With regard to the assessment of recoverable amount, the Group is of the view that no reasonably likely change in any of the above key assumptions would cause the carrying value to materially exceed the recoverable amount for any of the CGUs except for CGU Farming Chile as explained above. With regards to CGU Chile an increase of harvest volume of 30% in the terminal value, would have brought the value in use in line with the book value prior to the impairment charge. Similarly, an increase of the EBIT/ KG of 23% in the terminal value would have brought the value in use in line with the book value prior to the impairment charge. The book value as at the balance sheet date equals the recoverable amount. Therefore, any negative changes to key assumptions would bring the recoverable amount below book value
| ASSUMPTIONS | WACC | TERMINAL | |||||
|---|---|---|---|---|---|---|---|
| HARVEST VOLUME |
BEFORE TAX | VALUE GROWTH% | |||||
| CASH GENERATING UNITS | 2017(GWT) | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 |
| Marine Harvest Norway Farming | 210 152 | 10.1% | 10.4% | 10.3% | 1.2% | 1.3% | 1.6% |
| Marine Harvest Chile Farming | 44 894 | 11.4% | 11.6% | 11.6% | 1.3% | 1.3% | 1.4% |
| Marine Harvest Canada Farming | 39 389 | 10.2% | 10.3% | 10.0% | 1.4% | 1.4% | 1.6% |
| Marine Harvest Scotland Farming | 60 186 | 9% | 9.3% | 9.6% | 1.2% | 1.2% | 1.6% |
| Marine Harvest Ireland Farming | 9 745 | 8.7% | 9.7% | 11.3% | 0.1% | 0.2% | 1.6% |
| Marine Harvest Faroe Islands Farming | 5 980 | 9.3% | 9.8% | 9.7% | 1.2% | 1.3% | 1.4% |
| Marine Harvest Consumer Products | — | 10% | 10.3% | 10.8% | 0.5% | 0.6% | 0.9% |
| Marine Harvest Asia | — | 9.7% | 9.6% | 9.8% | 1.2% | 1.3% | 1.6% |
| Marine Harvest USA sale and smoked | — | 12.7% | 12.5% | 11.3% | 1.3% | 1.3% | 1.4% |
| Marine Harvest Fish Feed | — | 9.5% | 9.6% | 9.8% | 1.2% | 1.3% | 1.6% |
| Total | 370 346 |
Please see table below for an overview of the CGU's with allocated intangible assets as of December 31, 2017, 2016, and 2015.
| CASH GENERATING UNITS | GOODWILL | LICENSES | ||||
|---|---|---|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 | 2017 | 2016 | 2015 |
| Marine Harvest Norway Farming | 161.7 | 175.0 | 165.5 | 369.0 | 399.6 | 377.9 |
| Marine Harvest Scotland Farming | — | — | — | 58.4 | 60.8 | 70.4 |
| Marine Harvest Canada Farming | 2.7 | 2.8 | 2.7 | 60.7 | 56.4 | 53.0 |
| Marine Harvest Chile Farming | — | — | — | 118.3 | 238.8 | 236.6 |
| Marine Harvest Ireland Farming | — | — | — | 2.2 | 2.2 | 2.2 |
| Marine Harvest Faroe Islands Farming | — | — | — | 6.5 | 6.6 | 6.5 |
| Marine Harvest Consumer Products | 91.4 | 90.2 | 90.8 | — | — | — |
| Total | 255.7 | 268.0 | 259.0 | 615.2 | 764.3 | 746.6 |
| INVENTORY (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Raw materials and goods in process | 143.0 | 111.7 | 135.8 |
| Finished goods | 164.0 | 136.6 | 141.9 |
| Total inventory | 306.9 | 248.2 | 277.7 |
The amounts above are net after provision for obsolete goods, EUR 8.6 million (2016: EUR 8.1 million, 2015: EUR 7.8 million). The amount of inventory recognized as an expense during the period totaled EUR 1 394.7 million.
At year-end 2017, the market value of the Group's equity was significantly higher than the carrying amount of equity, which is an indication that the market considers the value of the Group's assets to exceed the carrying amount. For all cash generating units (CGUs), the recoverable amount has been determined based on a value-in-use calculation using cash flow projections based on approved budgets for the first year. The three next years are based on the approved long-term plan. The cash flow projections beyond the fourth year are estimated by extrapolating the projections reflecting steady-state operations. The net present value of the cash flow is compared to the carrying amount in the CGU. If the carrying amount is higher than the calculated value in use, an impairment loss is recognized in profit or loss, reducing the asset value to the calculated value in use. The estimated cash flows are based on the assumption of continued operation as part of the Marine Harvest Group.
There has been no changes in the identified CGUs for the year 2017.
The key assumptions used in the calculation of value in use are harvested volume, EBIT(DA)/margins, capital expenditure, discount rates and the terminal growth rates. Please see the table below for a summary of the key assumptions for each CGU.
The expected harvest volume is based on the fish currently being held at sea, forward stocking plan and adjusted for the expected future increase in production given today's licenses. This evaluation has been performed CGU by CGU and is updated yearly.
The key profit target for salmon farming and sales is EBIT per kg, while value-added operations are measured in terms of EBIT/EBITDA in % of sales. EBIT per kg is highly volatile due to fluctuations in the price of salmon. Costs can under normal circumstances be forecast with a relatively high level of accuracy. As Marine Harvest has entered into long-term sales contracts for a proportion of the volume to be harvested in 2018, the margin for 2018 can be forecasted with a higher level of accuracy than the margin for the years beyond (2019-2021). For the terminal value in the Farming entities the EBIT pr kg has been set at EUR 0.66.
In the five-year forecast period, the capital expenditure necessary to meet the expected growth in revenue and profit is taken into consideration. Consistent with the Group's plan, the capital expenditure level for 2018 is high to further grow the operations. Beyond 2018, capital expenditures are aligned with growth and replacement plans. Capital expenditure to comply with current laws and regulations has been included. Capital expenditure related to committed and approved efficiency improvement programs has also been included to support the inclusion of the benefits in the applied margin.
Changes in applicable laws and regulations may affect future estimated capital expenditure needs; this is not reflected in the figures used in the impairment test. Beyond the forecast period, capital expenditure will in general equal depreciation and relate to maintenance investments.
The discount rates are based on the Weighted Average Cost of Capital (WACC) methodology. The cost of equity is based on Capital Asset Pricing Model (CAPM). The cost of debt is based on the risk-free rate in the applicable country. In the model, a five-year average of the ten-year riskfree rate has been used. Calculation of the final discount rates (WACC) also takes into account market risk premium, debt risk premium, gearing and beta value. In the calculations, the Group has applied estimated cash flows before tax and the corresponding discount rates before tax.
Growth after the five-year forecast period has in general been set independently for each cash-generating unit based on the five year average historic inflation rate. The maximum growth rate applied beyond the forecast period is 1.4%. This is lower than the expected growth rates in the first five years and lower than the historic growth rate in salmon demand.
During the fourth quarter of 2017 an impairment loss of USD 110 million, or EUR 97.2 million, on farming licenses in Chile was recognized. Marine Harvest Chile has 187 seawater licenses, and a large part of the capacity is unused. Based on an updated assessment of the recent regulatory changes for fish farming in Chile, the Long Term Plan has been adjusted. The main changes in the assumptions for Marine Harvest Chile, since the previous impairment test, are estimated harvest volumes in the future periods and the corresponding negative effects on the cash flow projections.
| SPECIFICATION OF INTANGIBLE ASSETS 2015 (EUR MILLION) |
GOODWILL | LICENSES | OTHER INTANGIBLE ASSETS |
TOTAL |
|---|---|---|---|---|
| Acquisition cost as of 01.01 | 546.3 | 803.5 | 40.9 | 1 390.8 |
| Additions in the year as a result of acquisitions | — | 20.9 | — | 20.9 |
| Additions in the year | — | 2.8 | 5.0 | 7.8 |
| Reclassification | — | 0.7 | 8.2 | 8.8 |
| Disposals / scrapping in the year | — | -0.6 | — | -0.6 |
| Foreign currency adjustments | -14.6 | -7.8 | -0.3 | -22.7 |
| Total acquisition cost as of 31.12 | 531.8 | 819.5 | 53.8 | 1 405.0 |
| Accumulated amortization and impairment losses as of 01.01 | 277.1 | 77.6 | 22.4 | 377.1 |
| Amortization in the year | — | — | 3.4 | 3.4 |
| Impairment losses in the year | — | — | 0.2 | 0.2 |
| Reclassification | 0.3 | — | -0.3 | — |
| Foreign currency adjustments | -4.6 | -4.8 | 0.5 | -8.9 |
| Total accumulated amortization and impairment losses as of 31.12 | 272.8 | 72.8 | 26.2 | 371.8 |
| Total carrying amount as of 31.12 | 259.0 | 746.6 | 27.6 | 1 033.2 |
| Estimated lifetime | 3 - 25 years | |||
| Amortization method | Linear |
| SPECIFICATION OF | NUMBER OF LICENSES/ TENURES |
NUMBER OF LICENSES/ TENURES IN USE |
TOTAL CURRENT PRODUCTION CAPACITY HOG, FULL UTILIZATION |
||
|---|---|---|---|---|---|
| SEAWATER LICENSES | (SEAWATER ONLY) | (SEAWATER ONLY) | DURATION | (T TONNES) OTHER LIMITATIONS | |
| Marine Harvest Norway 1) | 225.8 | 224.8 Perpetual | 225-280 | MAB limitation per license |
|
| Marine Harvest Chile | 186 | 30-40 Perpetual/25 years | 120-130 | ||
| Marine Harvest Scotland | 63 | 45 Perpetual | 66 | MAB limitation per license |
|
| Marine Harvest Canada | 50 | 41 Perpetual | 50 | MAB limitation per license |
|
| Marine Harvest Ireland | 26 | 26 | License regime under review2) |
10 | |
| Marine Harvest Faroe Islands | 3 | 3 12 years | 15 | Total capacity is 15 T tonnes over a two year cycle. |
1) CAC licenses not included.
2) The Minister`s Independent Aquaculture License Review Report reviewing the process of licensing for aquaculture and its associated legal framework was published June 2017 with 31 recommendations. The Minister has asked his officials to establish an implementation group.
| SPECIFICATION OF INTANGIBLE ASSETS 2017 (EUR MILLION) |
GOODWILL | LICENSES | OTHER INTANGIBLE ASSETS |
TOTAL |
|---|---|---|---|---|
| Acquisition cost as of 01.01 | 553.5 | 841.6 | 60.5 | 1 455.6 |
| Additions in the year as a result of acquisitions | — | 7.9 | — | 7.9 |
| Additions in the year | — | — | 1.1 | 1.1 |
| Reclassification | — | — | 2.5 | 2.5 |
| Disposals / scrapping in the year | — | — | -0.6 | -0.6 |
| Foreign currency adjustments | -39.1 | -71.0 | -2.5 | -112.5 |
| Total acquisition cost as of 31.12 | 514.4 | 778.5 | 61.1 | 1 353.9 |
| Accumulated amortization and impairment losses as of 01.01 | 285.5 | 77.2 | 28.0 | 390.8 |
| Amortization in the year | — | 0.3 | 6.1 | 6.3 |
| Impairment losses in the year | — | 97.2 | 0.7 | 97.9 |
| Reclassification | — | — | 1.9 | 1.9 |
| Accumulated amortization and impairment losses on disposals | — | — | -0.6 | -0.6 |
| Foreign currency adjustments | -26.8 | -11.4 | -1.2 | -39.5 |
| Total accumulated amortization and impairment losses as of 31.12 | 258.7 | 163.3 | 34.9 | 456.9 |
| Total carrying amount as of 31.12 | 255.7 | 615.2 | 26.1 | 897.0 |
| Estimated lifetime | 3 - 25 years | |||
| Amortization method | Linear |
| SPECIFICATION OF INTANGIBLE ASSETS 2016 (EUR MILLION) |
GOODWILL | LICENSES | OTHER INTANGIBLE ASSETS |
TOTAL |
|---|---|---|---|---|
| Acquisition cost as of 01.01 | 531.8 | 819.5 | 53.8 | 1 405.0 |
| Additions in the year | — | — | 4.1 | 4.1 |
| Reclassification | 0.2 | 1.1 | 1.6 | 2.9 |
| Disposals / scrapping in the year | — | -5.6 | — | -5.6 |
| Foreign currency adjustments | 21.6 | 26.6 | 1.0 | 49.2 |
| Total acquisition cost as of 31.12 | 553.5 | 841.6 | 60.5 | 1 455.6 |
| Accumulated amortization and impairment losses as of 01.01 | 272.8 | 72.8 | 26.2 | 371.8 |
| Amortization in the year | — | 0.3 | 1.5 | 1.8 |
| Foreign currency adjustments | 12.7 | 4.1 | 0.4 | 17.2 |
| Total accumulated amortization and impairment losses as of 31.12 | 285.5 | 77.2 | 28.0 | 390.8 |
| Total carrying amount as of 31.12 | 268.0 | 764.3 | 32.4 | 1 064.8 |
| Estimated lifetime | 3 - 25 years | |||
| Amortization method | Linear |
| SPECIFICATION OF PPE 2017 (EUR MILLION) |
LAND & BUILDINGS |
MACHINERY & EQUIPMENT |
TRANSPORT | NETS, PENS & MOORINGS |
UNDER CONSTRUCTION /PREPAYMENTS |
OTHER TANGIBLE |
TOTAL |
|---|---|---|---|---|---|---|---|
| Acquisition cost as of 01.01 | 605.4 | 998.7 | 185.5 | 348.2 | 131.2 | 63.2 | 2 332.2 |
| Acquisitions through business combinations2) |
1.7 | 0.6 | 0.6 | 0.1 | 3.9 | — | 6.9 |
| Additions in the year | 2.8 | 8.4 | 1.2 | — | 264.2 | 1.5 | 278.1 |
| Reclassification | 57.8 | 68.3 | 16.3 | 36.8 | -178.7 | 0.2 | 0.6 |
| Transfer of assets held for sale | 2.4 | 0.3 | — | — | — | — | 2.7 |
| Disposals / scrapping in the year | -14.6 | -27.3 | -4.5 | -14.1 | — | -4.6 | -65.1 |
| Divestments | -0.3 | -0.3 | — | — | — | — | -0.6 |
| Foreign currency adjustments | -32.0 | -63.4 | -13.2 | -28.9 | -8.0 | -3.7 | -149.2 |
| Total acquisition cost as of 31.12 | 623.2 | 985.3 | 185.8 | 342.0 | 212.7 | 56.6 | 2 405.6 |
| Accumulated depreciation and impairment losses as of 01.01 |
258.8 | 704.7 | 91.0 | 214.2 | 2.7 | 52.7 | 1 324.2 |
| Depreciation in the year | 23.3 | 74.9 | 8.1 | 34.5 | — | 3.4 | 144.0 |
| Impairment losses and reversal of previous write-downs in the year |
-0.1 | 5.0 | 0.2 | 0.5 | 0.3 | — | 5.9 |
| Reclassification | 1.0 | -0.4 | — | 3.8 | — | -2.6 | 1.8 |
| Accumulated depreciation and impairment losses on disposals |
-11.7 | -27.0 | -4.4 | -13.9 | — | -4.5 | -61.5 |
| Divestments | -0.1 | -0.2 | — | — | — | — | -0.3 |
| Foreign currency adjustments | -15.0 | -47.9 | -6.1 | -18.4 | -0.2 | -3.4 | -91.1 |
| Total accumulated depreciation and impairment losses as of 31.12 |
256.2 | 709.0 | 88.7 | 220.7 | 2.8 | 45.6 | 1 323.0 |
| Total carrying amount as of 31.12 | 367.0 | 276.3 | 97.1 | 121.3 | 209.8 | 11.1 | 1 082.7 |
| Estimated lifetime | Land; infinite Buildings; 0-20 years |
5-20 years | 3-10 years | 5-10 years | NA | 3-10 years | |
| Depreciation method | Linear | Linear | Linear | Linear | NA | Linear |
| SPECIFICATION LICENSES 2017 | TOTAL CURRENT PRODUCTION CAPACITY HOG, FULL UTILIZATION (T TONNES) |
HARVEST VOLUME 2017 (SALMON ONLY) |
UTILIZATION BASED ON PRODUCTION CAPACITY |
BOOK VALUE (MEUR)1) |
BOOK VALUE PER PRODUCTION VOLUME (2017) |
|---|---|---|---|---|---|
| Marine Harvest Norway | 225-280 | 210.2 | 75% - 93 % | 369.0 | 1.8 |
| Marine Harvest Chile | 120-130 | 44.9 | 34% - 37 % | 118.3 | 2.6 |
| Marine Harvest Scotland | 66 | 60.2 | 91% | 58.4 | 1.0 |
| Marine Harvest Canada | 50 | 39.4 | 79% | 60.7 | 1.5 |
| Marine Harvest Ireland | 10 | 9.7 | 97% | 2.2 | 0.2 |
| Marine Harvest Faroe Islands | 15 | 6.0 | 40% | 6.5 | 1.1 |
| Total | 370.3 | 615.2 | 1.7 |
1) Book value includes freshwater licenses in addition to seawater licenses.
The recognized value of our fish farming licenses in our Statement of Financial Position was EUR 615.2 million, EUR 764.3 million and 746.6 million in December 31, 2017, 2016 and 2015 respectively. Measured in EUR per kg salmon harvested the values were EUR 1.7, EUR 2.0 and EUR 1.8 respectively. The decrease in 2017 is mainly related to write down of licenses in MH Chile with EUR 97.2 million.
| SPECIFICATION OF PPE 2015 (EUR MILLION) |
LAND & BUILDINGS |
MACHINERY & EQUIPMENT |
TRANSPORT | NETS, PENS & MOORINGS |
UNDER CONSTRUCTION /PREPAYMENTS |
OTHER TANGIBLE |
TOTAL |
|---|---|---|---|---|---|---|---|
| Acquisition cost as of 01.01 | 512.9 | 930.9 | 147.9 | 314.8 | 98.2 | 68.3 | 2 073.1 |
| Additions in the year | 1.3 | 8.0 | 0.2 | — | 198.9 | 2.8 | 211.2 |
| Reclassification | 69.9 | 65.3 | 31.7 | 42.3 | -209.0 | -7.6 | -7.4 |
| Transfer of assets held for sale | -0.9 | — | — | — | — | — | -0.9 |
| Disposals / scrapping in the year | -16.2 | -41.5 | -3.2 | -32.6 | -0.9 | -3.3 | -97.7 |
| Divestments | -1.4 | -2.3 | — | — | — | -0.5 | -4.2 |
| Foreign currency adjustments | -5.5 | -0.9 | -9.3 | 1.1 | -0.7 | 1.6 | -13.8 |
| Total acquisition cost as of 31.12 | 560.1 | 959.5 | 167.3 | 325.7 | 86.5 | 61.3 | 2 160.3 |
| Accumulated depreciation and impairment losses as of 01.01 |
221.7 | 638.8 | 72.8 | 167.1 | 2.8 | 50.0 | 1 153.1 |
| Depreciation in the year | 21.4 | 63.0 | 11.9 | 36.3 | — | 3.7 | 136.4 |
| Impairment losses and reversal of previous write-downs in the year |
2.6 | 2.9 | 0.1 | 0.5 | 0.3 | 0.1 | 6.6 |
| Reclassification | 0.5 | -10.6 | 9.5 | 2.7 | -0.1 | -1.8 | 0.3 |
| Accumulated depreciation and impairment losses on disposals |
-15.0 | -40.6 | -3.0 | -32.3 | 0.1 | -3.3 | -94.1 |
| Divestments | -0.5 | -1.6 | — | — | — | -0.3 | -2.4 |
| Foreign currency adjustments | -3.0 | 4.4 | -4.4 | -1.5 | -0.2 | 1.6 | -3.1 |
| Total accumulated depreciation and impairment losses as of 31.12 |
227.8 | 656.3 | 86.8 | 172.9 | 2.9 | 50.1 | 1 196.7 |
| Total carrying amount as of 31.12 | 332.3 | 303.3 | 80.5 | 152.8 | 83.6 | 11.3 | 963.7 |
| Estimated lifetime | Land; infinite Buildings; 0-20 years |
5-20 years | 3-10 years | 5-10 years | NA | 3-10 years | |
| Depreciation method | Linear | Linear | Linear | Linear | NA | Linear |
Non-current tangible assets have been sold during the year, and the net gain on the sale of assets (included in the line item Other operating expenses in the consolidated statement of comprehensive income) amounts to EUR 2.2 million in 2017. The corresponding figure for 2016 is EUR 4.7 million and EUR 0.7 million for 2015.
Impairment tests for specific non-current assets are performed when there are indications of impairment. In 2017, a net loss in fixed assets of EUR 3.6 million was booked in Chile, EUR 2.0 million in Norway and EUR 0.3 million in Canada.
| SPECIFICATION OF PPE 2016 (EUR MILLION) |
LAND & BUILDINGS |
MACHINERY & EQUIPMENT |
TRANSPORT | NETS, PENS & MOORINGS |
UNDER CONSTRUCTION /PREPAYMENTS |
OTHER TANGIBLE |
TOTAL |
|---|---|---|---|---|---|---|---|
| Acquisition cost as of 01.01 | 560.1 | 959.5 | 167.3 | 325.7 | 86.5 | 61.3 | 2 160.3 |
| Additions in the year | 11.9 | 8.4 | 1.3 | — | 177.3 | 1.1 | 200.2 |
| Reclassification | 32.6 | 49.1 | 17.3 | 29.3 | -133.3 | 1.3 | -3.7 |
| Transfer of assets held for sale | -2.4 | -0.3 | — | — | — | — | -2.7 |
| Disposals / scrapping in the year | -5.9 | -27.2 | -5.9 | -10.3 | — | -1.8 | -51.1 |
| Divestments | -1.5 | -7.9 | -0.5 | -1.6 | -0.3 | — | -11.8 |
| Foreign currency adjustments | 10.6 | 17.1 | 6.1 | 5.1 | 1.0 | 1.3 | 41.2 |
| Total acquisition cost as of 31.12 | 605.4 | 998.7 | 185.5 | 348.2 | 131.2 | 63.2 | 2 332.2 |
| Accumulated depreciation and impairment losses as of 01.01 |
227.8 | 656.3 | 86.8 | 172.9 | 2.9 | 50.1 | 1 196.7 |
| Depreciation in the year | 23.3 | 70.1 | 7.5 | 36.4 | — | 3.3 | 140.7 |
| Impairment losses and reversal of previous write-downs in the year |
2.8 | 3.5 | 0.2 | 11.3 | 0.1 | -0.2 | 17.6 |
| Reclassification | 3.7 | -5.4 | 0.2 | 0.9 | -0.1 | -0.1 | -0.8 |
| Accumulated depreciation and impairment losses on disposals |
-5.8 | -26.5 | -5.8 | -10.2 | — | -1.6 | -49.9 |
| Divestments | -1.1 | -8.0 | -0.5 | -1.6 | -0.3 | — | -11.5 |
| Foreign currency adjustments | 8.2 | 14.7 | 2.6 | 4.6 | 0.2 | 1.2 | 31.4 |
| Total accumulated depreciation and impairment losses as of 31.12 |
258.8 | 704.7 | 91.0 | 214.2 | 2.7 | 52.7 | 1 324.2 |
| Total carrying amount as of 31.12 | 346.6 | 294.0 | 94.5 | 133.9 | 128.5 | 10.5 | 1 008.1 |
| Estimated lifetime | Land; infinite Buildings; 0-20 years |
5-20 years | 3-10 years | 5-10 years | NA | 3-10 years | |
| Depreciation method | Linear | Linear | Linear | Linear | NA | Linear |
Marine Harvest has entered into significant contractual commitments for the acquisition of property, plant and equipment at year-end 2017. The commitments have been entered into in Farming Norway (EUR 22.3 million), Farming Faroes (EUR 1.1 million), Farming Scotland (EUR 8.7 million), Consumer Products (EUR 2.5 million), US Sales (EUR 1.4 million) and Fish Feed Scotland (EUR 41.1 million).
| STATEMENT OF FINANCIAL POSITION | STATEMENT OF COMPREHENSIVE INCOME | ||||||
|---|---|---|---|---|---|---|---|
| CONVERTIBLE BONDS (EUR MILLION) |
NON-CUR RENT INTER EST-BEARING DEBT |
CONVERSION LIABILITY COMPONENT 2013-BOND |
CONVERSION LIABILITY COMPONENT 2014-BOND |
CONVERSION LIABILITY COMPONENT 2015-BOND |
NET INTEREST EXPENSES |
NET CURRENCY EFFECTS |
OTHER FINANCIAL ITEMS |
| Initial recognition | |||||||
| EUR 350 mill 2013-bond 1) | 296.7 | 49.5 | |||||
| EUR 375 mill 2014-bond 1) | 309.8 | 59.0 | |||||
| EUR 340 mill 2015-bond | 283.1 | 51.6 | |||||
| Subsequent measurement 2014 |
|||||||
| Interest and currency 2) | 67.3 | 11.1 | 26.5 | ||||
| Change in fair value of conver sion liability component |
76.5 | 63.6 | 140.1 | ||||
| Subsequent measurement 2015 |
|||||||
| Interest and currency 2) | 32.1 | 26.3 | 49.7 | ||||
| Change in fair value of conver sion liability component |
8.8 | 42.9 | 13.9 | 65.6 | |||
| Converted/Redeemed | -301.9 | -142.8 | — | ||||
| Translation effect | -72.6 | 8.0 | -19.3 | -2.1 | |||
| Subsequent measurement 2016 |
|||||||
| Interest and currency | 23.4 | 27.1 | |||||
| Change in fair value of conver sion liability components |
— | 176.2 | 53.9 | 230.0 | |||
| Subsequent measurement 2017 |
|||||||
| Interest and amortization 3) | 43.5 | 17.3 | |||||
| Change in fair value of conver sion liability components |
-41.1 | -41.4 | -82.4 | ||||
| Converted | -375.0 | — | -281.2 | ||||
| Net recognized end of 2017 | 306.3 | 0.0 | 0.0 | 75.9 |
1) EUR 375 million 2014 bond converted to shares during May 2017., EUR 350 million bond converted to shares during March 2015. 2) In 2015 and 2014 this amount includes both interest and a translation effect from EUR to NOK. In 2016 and 2017 only interest. 3) Including effect of conversion on amortization element of EUR 27.6 million in 2017.
At initial recognition, the nominal value of the convertible bond was split into a liability component and a conversion liability component. The value of the liability component, classified as non-current interest-bearing debt, was calculated using a market interest rate for an equivalent, non-convertible bond. The residual amount, representing the value of the conversion liability component, was classified under other non-current financial liabilities.
Conversion of the convertible bond will have an effect on the share capital. A conversion of the EUR 340 convertible bond will give 24.5 million new shares.
On subsequent measurements the amortized interest is recognized as an interest expense and increases the carrying amount of the convertible bond. The conversion liability component is recognized at fair value using a valuation technique based on observable data.
| INTEREST-BEARING DEBT (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Non-current interest-bearing debt | 467.0 | 218.2 | 327.3 |
| Bond | — | 137.4 | 129.7 |
| Convertible bonds | 306.3 | 637.8 | 614.4 |
| Total non-current interest-bearing debt | 773.3 | 993.4 | 1 071.4 |
| Current interest-bearing debt | 130.3 | 0.1 | 0.2 |
| Total interest-bearing debt | 903.6 | 993.5 | 1 071.5 |
Financing of the Marine Harvest Group is mainly carried out through the parent company Marine Harvest ASA. External financing is obtained by subsidiaries only if this is optimal for the Group. Marine Harvest complied with its covenants at the end of 2017.
The following programs are the main sources of financing for the Marine Harvest Group as of December 31, 2017:
In June 2017, Marine Harvest signed a senior secured five-year EUR 1,206 million multicurrency revolving credit facility (the "Facility Agreement") with DNB, Nordea, ABN Amro, Rabobank, Danske Bank and SEB. The Facility Agreement includes an accordion increase option, which provides flexibility for the parties to agree an increased size of the Facility Agreement by an additional EUR 200 million during the five-year term. The principal financial covenant of the Facility Agreement is an equity ratio of minimum 35%. Furthermore, the ability of the Group to take on new debt is regulated by the loan agreement. The facility has final maturity in June 2022.
The facility is available to Marine Harvest ASA and selected subsidiaries. In addition, part of the revolving credit facility may be allocated as bilateral credits (including overdraft facilities and facilities for the issuance of guarantees) between syndicate banks and group companies.
Draw at year end 2017 on the syndicated credit facility amounts to EUR 473.7 million.
In November 2015, Marine Harvest issued a convertible bond loan with a EUR 340 million principal. The loan carries a fixed coupon of 0.125% p.a., payable semi-annually. In the absence of prior conversion, the loan will mature in November 2020. There are no installments. The conversion share price at the end of 2017 was EUR 13.8724, representing an adjustment of the original conversion share price (EUR 16.2877) for dividends paid. The conversion share price is subject to standard adjustment mechanisms for convertible bonds. From November 2018, Marine Harvest can, under certain market conditions, call the bond at par plus accrued interest. After receiving notice of such a call, bondholders may elect to exercise their conversion rights.
In March 2013, Marine Harvest issued an unsecured bond with a principal amount of NOK 1 250 million. The bond issue carries a coupon of three month NIBOR plus 3.5% p.a., payable quarterly. The bond is repayable in March 2018 with no interim installments. The bond is listed on the Oslo Stock Exchange. On March 12, 2018 Marine Harvest repaid the NOK 1 250 million bond, see Note 35 for details.
| CASH MOVEMENTS FINANCING ACTIVITIES (EUR MILLION) |
BANK SYNDICATE4) |
MNOK 1250 BOND |
MEUR 340 CB1) |
MEUR 340 CL2) |
MEUR 375 CB1) |
MEUR 375 CL2) |
INTEREST RATE SWAPS |
FX INSTRUMENTS |
OTHER MOVEMENTS |
SHARE CAPITAL |
OTHER RESERVES |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance at 1 January 20173) |
217.7 | 137.7 | 295.4 | 117.3 | 343.0 | 322.3 | 86.3 | -9.0 | — | 351.8 | 1 716.5 |
| Proceeds from loans and borrowings |
308.2 | — | — | — | — | — | — | — | — | — | — |
| Proceeds/payments from settlement of derivatives |
— | — | — | — | — | — | — | -2.2 | — | — | — |
| Converted/redeemed | — | — | — | — -347.4 | -281.2 | — | — | — | 32.0 | 596.5 | |
| Transaction cost related to loans and borrowings |
-8.0 | — | — | — | — | — | — | — | — | — | — |
| Repayment of borrowings |
-42.0 | — | — | — | — | — | — | — | — | — | — |
| Repayment of paid in capital |
— | — | — | — | — | — | — | — | — | — | -640.3 |
| Total changes from financing cash flows |
258.2 | — | — | — -347.4 | -281.2 | — | -2.2 | — | 32.0 | -43.8 | |
| The effect of changes in foreign exchange rates |
-13.0 | -10.4 | — | — | — | — | — | — | — | — | — |
| Changes in fair value | — | — | — | -41.4 | — | -41.1 | -13.7 | 23.3 | — | — | — |
| Liability-related | -13.0 | -10.4 | — | -41.4 | — | -41.1 | -13.7 | 23.3 | — | — | — |
| Capitalized borrowing cost |
3.8 | 0.3 | 11.0 | — | 4.9 | — | — | — | — | — | |
| Interest expense | 6.3 | 5.9 | 0.4 | — | 1.0 | — | 10.6 | — | 2.5 | — | — |
| Interest paid | -5.3 | -5.9 | -0.4 | — | -1.5 | — | -10.6 | — | -2.5 | — | — |
| Total liability-related other changes |
4.8 | 0.2 | 11.0 | — | 4.4 | — | — | — | — | — | — |
| Total equity-related other changes |
— | — | — | — | — | — | — | — | — | — | 257.5 |
| Balance at 31 December 20173) |
467.7 | 127.5 | 306.4 | 75.9 | — | — | 72.6 | 12.1 | — | 383.8 | 1 930.2 |
1) CB= Convertible bond; 2) CL= Conversion Liability 3) Included accrued interest 4) Closing balance includes bank overdrafts of EUR 3.1m
Financial lease liabilities of EUR 1.0 million at year end 2017, up from EUR 0.7 million, due to new leasing agreements.
Marine Harvest has a NIBD target of EUR 1 200 million and an expected interest payment of EUR 35 million in 2018, i.e. an effective interest rate of 2.92%.
| CATEGORIES OF FINANCIAL INSTRUMENTS IN THE STATEMENT |
|||||
|---|---|---|---|---|---|
| OF FINANCIAL POSITION | |||||
| (EUR MILLION) | FINANCIAL ASSETS AND LIABILITIES | ||||
| DECEMBER 31, 2017 | LOANS AND RECEIVABLES, AND LIABILITIES, AT AMORTIZED COST |
FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS |
COST | NON-FINANCIAL ASSETS AND LIABILITIES |
TOTAL |
| Non-current assets | |||||
| Other non-current financial assets | — | — | 0.4 | — | 0.4 |
| Current assets | |||||
| Trade receivables | 477.6 | — | — | — | 477.6 |
| Other receivables | 69.4 | — | — | 29.7 | 99.1 |
| Other current financial assets | — | 7.2 | — | — | 7.2 |
| Cash | 71.7 | — | — | — | 71.7 |
| Non-current liabilities | |||||
| Non-current interest-bearing debt | -773.3 | — | — | — | -773.3 |
| Other non-current financial liabilities | — | -75.9 | — | — | -75.9 |
| Current liabilities | |||||
| Current interest-bearing debt | -130.3 | — | — | — | -130.3 |
| Trade payables | -280.9 | — | — | — | -280.8 |
| Other current financial liabilities | — | -91.8 | — | — | -91.8 |
| Other current liabilities | -64.8 | — | — | -131.7 | -196.5 |
| Total | -630.6 | -160.5 | 0.4 | ||
| Fair value | -636.7 | -160.5 | 0.4 |
| CATEGORIES OF FINANCIAL INSTRUMENTS IN THE STATEMENT |
||||||||
|---|---|---|---|---|---|---|---|---|
| OF FINANCIAL POSITION (EUR MILLION) |
FINANCIAL ASSETS AND LIABILITIES | |||||||
| DECEMBER 31, 2016 | LOANS AND RECEIVABLES, AND LIABILITIES, AT AMORTIZED COST |
FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS |
COST | NON-FINANCIAL ASSETS AND LIABILITIES |
TOTAL | |||
| Non-current assets | ||||||||
| Other non-current financial assets | — | — | 0.4 | — | 0.4 | |||
| Current assets | ||||||||
| Trade receivables | 498.0 | — | — | — | 498.0 | |||
| Other receivables | 78.4 | — | — | 34.4 | 112.8 | |||
| Other current financial assets | — | 14.2 | — | — | 14.2 | |||
| Cash | 103.9 | — | — | — | 104.0 | |||
| Non-current liabilities | ||||||||
| Non-current interest-bearing debt | -993.4 | — | — | — | -993.4 | |||
| Other non-current financial liabilities | — | -439.6 | — | — | -439.6 | |||
| Current liabilities | ||||||||
| Current interest-bearing debt | -0.1 | — | — | — | -0.1 | |||
| Trade payables | -275.5 | — | — | — | -275.5 | |||
| Other current financial liabilities | — | -91.4 | — | — | -91.4 | |||
| Other current liabilities | -69.1 | — | — | -112.7 | -181.8 | |||
| Total | -657.8 | -516.8 | 0.4 | |||||
| Fair value | -682.1 | -516.8 | 0.4 |
| FINANCIAL INSTRUMENTS IMPACT ON COMPREHENSIVE INCOME | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Interest expenses | -26.8 | -23.2 | -29.0 |
| Amortized interest cost | -19.9 | -25.3 | -17.5 |
| Interest expenses | -46.7 | -48.4 | -46.5 |
| Net currency effects on interest-bearing debt | 25.0 | 11.6 | 8.7 |
| Net currency effects on cash, trade receivables and trade payables | -9.1 | -15.5 | 7.1 |
| Gain/loss on short-term currency hedges | -2.7 | 5.6 | -1.1 |
| Gain/loss on long-term currency hedges | -21.9 | 25.2 | -10.6 |
| Net currency effects | -8.8 | 26.9 | 4.2 |
| Interest income | 1.2 | 1.8 | 1.2 |
| Gain/loss on salmon derivatives non-operational | -4.0 | -0.6 | 0.2 |
| Change in fair value other financial instruments | 14.5 | 16.4 | -0.5 |
| Change in fair value conversion liability component of convertible bonds | 82.4 | -230.0 | -65.6 |
| Change in fair value other shares | — | — | 11.3 |
| Dividends and gain/loss on sales of other shares | 0.1 | 0.3 | 2.5 |
| Net other financial items | -1.1 | 1.6 | -1.9 |
| Other financial items | 93.2 | -210.5 | -52.9 |
| Total financial items | 37.7 | -232.0 | -95.2 |
| Other comprehensive income | |||
| Cash flow hedges qualified for hedge accounting | — | — | -2.7 |
| ASSETS AND LIABILITIES MEASURED AT FAIR VALUE |
2017 | 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (EUR MILLION) NOTE |
LEVEL 1 | LEVEL 2 | LEVEL 3 | LEVEL 1 | LEVEL 2 | LEVEL 3 | LEVEL 1 | LEVEL 2 | LEVEL 3 | |
| Financial assets/liabilities to fair value through profit or loss: |
||||||||||
| Other financial instruments | — | — | — | — | — | — | 27.0 | — | — | |
| Current currency hedges | — | 7.2 | — | — | 14.2 | — | — | 2.2 | — | |
| Conversion liability component of convertible bond |
11 | — | -75.9 | — | — | -439.6 | — | — | -209.5 | — |
| Interest swaps | — | -72.5 | — | — | -86.3 | — | — | -76.9 | — | |
| Current currency hedges | — | -19.3 | — | — | -5.1 | — | — | -21.1 | — | |
| BONDS AT AMORTIZED COST, FAIR VALUE |
— | -439.6 | — | — | -682.1 | — | — | -836.0 | — |
Fair value of financial instruments carried at amortized cost With the exception of the EUR 340 million convertible bond, the Group considers that the carrying amount of financial assets and liabilities recognized at amortized cost in the financial statements approximates their fair value. See Note 11 for further information regarding convertible bonds.
Financial instruments that are measured at fair value subsequent to initial recognition are grouped into a hierarchy of three different levels, based on the degree to which the fair value is observable:
Fair value determined directly by reference to published quotations.
Fair value estimated using a valuation technique based on observable data.
Fair value estimated using a valuation technique based on unobservable data.
The fair value of the conversion liability component of the EUR 340 million convertible bond is determined as the difference between a) the market value of the convertible bond, and b) the DCF-value of the convertible bond using a market interest rate for an equivalent, non-convertible bond. The own nonperformance risk as at December 31, 2017 was assessed to be insignificant. There were no transfers between the levels in 2017, 2016 or 2015.
| CATEGORIES OF FINANCIAL INSTRUMENTS IN THE STATEMENT |
|||||||||
|---|---|---|---|---|---|---|---|---|---|
| OF FINANCIAL POSITION | |||||||||
| (EUR MILLION) | FINANCIAL ASSETS AND LIABILITIES | ||||||||
| DECEMBER 31, 2015 | LOANS AND RECEIVABLES, AND LIABILITIES, AT AMORTIZED COST |
FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS |
COST | NON-FINANCIAL ASSETS AND LIABILITIES |
TOTAL | ||||
| Non-current assets | |||||||||
| Other non-current financial assets | — | — | 0.4 | — | 0.4 | ||||
| Current assets | |||||||||
| Trade receivables | 409.2 | — | — | — | 409.2 | ||||
| Other receivables | 86.9 | — | — | 44.5 | 131.4 | ||||
| Other current financial assets | — | 29.2 | — | — | 29.2 | ||||
| Cash | 71.8 | — | — | — | 71.8 | ||||
| Non-current liabilities | |||||||||
| Non-current interest-bearing debt | -1 071.4 | — | — | — | -1 071.4 | ||||
| Other non-current financial liabilities | — | -209.5 | — | — | -209.5 | ||||
| Current liabilities | |||||||||
| Current interest-bearing debt | -0.2 | — | — | — | -0.2 | ||||
| Trade payables | -248.0 | — | — | — | -248.0 | ||||
| Other current financial liabilities | — | -98.0 | — | — | -98.0 | ||||
| Other current liabilities | -60.0 | — | — | -91.2 | -151.2 | ||||
| Total | -811.7 | -278.3 | 0.4 | ||||||
| Fair value | -836.0 | -278.3 | 0.4 |
There has not been any reclassification between the categories of financial assets or liabilities in 2017, 2016 or 2015. Details regarding the criteria for recognition and the basis for measurement of each class of financial instrument are disclosed in Note 2 Significant accounting principles.
| OTHER CURRENT FINANCIAL ASSETS (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Market value of financial instruments | — | — | 27.0 |
| Currency hedges | 7.2 | 14.2 | 2.2 |
| Other current financial assets as of 31.12 | 7.2 | 14.2 | 29.2 |
| OTHER CURRENT FINANCIAL LIABILITIES (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Currency hedges | 19.3 | 5.1 | 21.1 |
| Interest rate swaps | 72.5 | 86.3 | 76.9 |
| Other current financial liabilities as of 31.12 | 91.8 | 91.4 | 98.0 |
Transaction exposures arise from firm commitments made to transact in a currency different from the main currency. The transaction exposure depends on the duration of the commitment, but will normally be of relatively short duration. Hedging transactions designated to manage transaction exposures are referred to as transaction hedges.
Through hedging of transaction exposures, each Business Unit aims to ensure that its net cash flows in currencies other than its main hedging currency are hedged towards this currency. Further exposures arise from structural imbalances between the main currencies on the revenue side versus the expense side. These imbalances are predominantly a result of production taking place in a country different from where the product is sold. Due to their structural nature, the exposures are of a longer horizon than for transaction exposures and are therefore quantified on the basis of estimates for future revenues and expenses. In this estimation, focus is kept on the underlying currency structure of the individual revenue and cost item and the actual currency in which transactions are invoiced is of lesser importance.
| CURRENCY STRUCTURE OF NET INTEREST-BEARING DEBT |
||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (EUR MILLION) | NOK | USD | EUR | GBP | JPY | DKK | CAD | PLN | OTHER | TOTAL |
| Cash and cash equivalents | 15.6 | 5.0 | 20.0 | 1.3 | — | 1.2 | 9.1 | 13.8 | 5.7 | 71.7 |
| Current interest-bearing debt | 105.5 | -3.4 | 35.5 | 4.2 | -5.5 | -0.2 | -8.0 | 3.4 | -1.4 | 130.1 |
| Non-current interest-bearing debt | 0.4 | 117.6 | 619.1 | 36.1 | — | — | — | — | — | 773.2 |
| Financial instruments | — | |||||||||
| Net interest-bearing debt | 90.3 | 109.2 | 634.7 | 39.0 | -5.5 | -1.3 | -17.1 | -10.4 | -7.0 | 831.9 |
The Marine Harvest Group normally has a net positive cash flow exposure towards EUR, GBP, USD and JPY and a net negative cash flow exposure towards NOK, CAD and CLP. To hedge Group cash flows against exchange rate fluctuations Marine Harvest has a policy for long-term hedging of the most predominant net exposures. The Group currently hedges up to 30% of its' underlying exposure between EUR/ NOK and USD/CAD with a horizon of two years.
As of December 31, 2017 the Group held a portfolio of hedging instruments designated to mitigate transaction and cash flow exposure with a total contract value of EUR 665.9 million. Instruments equivalent to 61% of the contract value mature in 2018 and no instrument matures beyond June 2021. The portfolio had a net negative market value of EUR 12.1 million at year-end.
As a consequence of the Group's net cash flows being generated in EUR, GBP and USD, the interest-bearing debt should reflect this currency structure. On December 31, 2017, the portfolio was in line with policy.
The carrying amount of interest-bearing debt has been reduced by EUR 7.2 million in transaction costs. With the exception of the EUR 340 million convertible bond, there are no significant differences between the carrying amount and the fair value of non-current interest-bearing debt and leasing. Details related to the EUR 340 million convertible bond and a significant part of the non-current debt are described in Note 11.
On the basis of financial positions and currency hedges in existence as of December 31, 2017. The effect of a 10% change in exchange rate of the following relevant currency pairs has been estimated:
| CURRENCY PAIR (EUR MILLION) |
EUR/NOK | EUR/USD | EUR/GBP | EUR/JPY | USD/CAD |
|---|---|---|---|---|---|
| Effect in EUR from a 10% increase in the value of | EUR | EUR | EUR | EUR | CAD |
| Financial items | -30.4 | -23.5 | 4.4 | -2.3 | 2.9 |
Marine Harvest ASA shall over time hedge 0%-35% of the Group's longterm interest bearing debt by currency with fixed interest or interest rate derivatives for the first 5 years and 0% fixed rates thereafter. Interest-bearing debt includes external interest-bearing debt and leasing in the parent company or subsidiaries. The interest rate hedges shall be based on the targeted currency composition. Interest rate exposure in
other currencies than EUR, USD, GBP and NOK shall not be hedged. All interest rate hedging shall be executed from the parent company. At year-end 2017 the Group had a portfolio of interest swaps with a net negative market value of EUR 72.6 million after an increase in market value during 2017 of EUR 13.7 million, recognized through profit and loss.
Leverage and Capital access (i.e. Capital management) refers to the process of acquiring and utilizing capital in the most efficient manner compared to the available alternatives. The primary objective of the Group's capital management is to ensure access to capital contributing to satisfactory operations and maximum generation of shareholder values. The Group manages its capital structure and makes adjustments in light of changes in the underlying economic conditions. Access to borrowed capital is continuously monitored and the Group has a continuous dialog with its lenders. The syndicated loan facility sets forth an equity ratio as the only financial covenant. The remaining portfolio of interest bearing debt does not include more restrictive financial covenants. Marine Harvest complied with the covenant in its loan agreements during and at the end of 2017. Details relating to the main loan programs in the Group are described in Note 11.
Marine Harvest intends to maintain an equity base suitable to the characteristics of the operations, taking into consideration that fish farming is a cyclical business. Capital not deemed necessary for further growth will be returned to shareholders as dividends or repurchase of shares. At year-end 2017, the equity of Marine Harvest amounted to EUR 2 315.4 million. The equity share, defined by equity/total assets, was at the same time 53.5%. Net interest bearing debt, defined as total interest-bearing debt less cash was EUR 831.9 million at year-end below long term target of EUR 1 200 million. The Board of Directors of Marine Harvest ASA considers the equity in the Group appropriate for the scale of the operation.
A dividend policy has been resolved by the Board of Directors. The policy states that:
The Board of Directors has further adopted guidelines targeting quarterly dividend distribution, whereby each dividend proposal shall be dimensioned with a view to manage net interest bearing debt around a target level. The target level is dimensioned relative to the scope of the Group's operations and was at year end 2017 equaling a NIBD target of EUR 1 200 million.
The Board of Directors of Marine Harvest ASA has been given proxies from the Annual General Meeting in June 2017 to:
The Group's principal financial liabilities, other than loans, consist of convertible and non-convertible bonds, derivatives and trade payables. These financial liabilities constitute the majority of the Group's third party financing. The Group holds financial assets such as trade receivables, cash and shares.
The Group uses financial derivatives, mainly currency forward contracts, interest rate swaps and financial salmon futures. The purpose of these derivatives is to manage the interest rate, currency and salmon price risks arising from the operations of the Group. With the exception of financial salmon futures, no trading activities in financial instruments are undertaken. On a selective basis, the Group also enters into other financial derivatives such as equity forward contracts.
Details regarding significant accounting policies for financial assets and liabilities are disclosed in Note 2 Significant accounting policies.
The Group monitors and manages the financial risks arising from the operations. These include currency risks, interest rate risk, credit risk and price/liquidity risk.
The Group seeks to manage these risks through operational measures or (where such measures are not available) through the use of financial derivatives.
A policy on the management of these risks has been approved by the Board of Directors. The policy includes principles on currency risk, interest rate risk, price risk, the use of financial instruments and other operational means as well as limits on the maximum and minimum levels of these exposures.
In the Marine Harvest Group, several Business Units carry out a large number of business transactions in currencies different from the domestic currency. For the Group, the relative importance of these transactions is substantially larger on the revenue side than on the cost side. To mitigate the potential fluctuation effects on its cash flows, the Group maintains a foreign exchange strategy designated to manage these exposures both in the short and long term. For each of Marine Harvest's units, the Group has defined a hedging strategy. According to the hedging strategy, units located in the following regions generate cash flow in currencies (main hedging currencies) according to the below table.
| REGION | HEDGING CURRENCY |
|---|---|
| Norway | EUR |
| Chile | USD |
| Canada | USD |
| Scotland | GBP |
| Ireland | EUR |
| The Faroe Islands | EUR |
| Consumer Products | EUR |
| Asia | USD |
| Feed | EUR |
For some units the main hedging currency is different from the functional currency.
| MATURITY PROFILE OF THE FINANCIAL LIABILITIES AND DERIVATIVES BASED ON CONTRACTUAL UNDISCOUNTED PAYMENTS, INCLUDING INTEREST (EUR MILLION) |
CARRYING AMOUNT |
CONTRACTUAL CASH FLOWS |
WITHIN 1 YEAR |
1 -2 YEARS | 2 - 5 YEARS | MORE THAN 5 YEARS |
|---|---|---|---|---|---|---|
| Non-derivative financial liabilities | ||||||
| Syndicated loan | -470.0 | -511.6 | -10.7 | -7.7 | -493.3 | — |
| Convertible bonds | -306.3 | -341.3 | -0.4 | -0.4 | -340.4 | — |
| Unsecured bond | -127.5 | -128.9 | -128.9 | — | — | — |
| Leasing debt | -0.4 | -0.4 | -0.3 | -0.1 | — | — |
| Trade payables and other liabilities | -281.0 | -281.0 | -280.9 | -0.1 | — | — |
| Derivative financial liabilities | ||||||
| Conversion liability component | -75.9 | — | — | — | — | — |
| Interest rate swaps | -72.5 | -85.0 | -19.5 | -33.8 | -31.4 | -0.3 |
| Cash flow hedges | -16.9 | -11.3 | -6.0 | -5.3 | — | — |
| Transaction hedges | -2.4 | -0.6 | -0.3 | -0.1 | -0.2 | — |
| Total financial liabilities | -1 353.0 | -1 360.1 | -447.1 | -47.5 | -865.2 | -0.3 |
| SALARY AND PERSONNEL EXPENSES | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Salaries | -327.4 | -307.8 | -302.9 |
| Cash bonuses | -22.7 | -19.7 | -18.0 |
| Social security taxes | -49.0 | -45.4 | -42.2 |
| Pension expenses | -13.9 | -10.6 | -10.4 |
| Share price based bonus | -2.8 | -2.4 | -3.4 |
| Temporary labor | -42.3 | -35.5 | -33.7 |
| Other benefits | -19.8 | -18.6 | -16.4 |
| Total salary and personnel expenses | -477.9 | -440.0 | -427.1 |
| Average number of employees | 12 975 | 12 585 | 12 084 |
At year-end 2017 there were 13 233 full-time employees in the Group.
| REMUNERATION TO SENIOR EXECUTIVES 1) (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Salaries and other short-term employee benefits | 4.3 | 3.4 | 3.4 |
| Post-employment benefits | 0.3 | 0.3 | 0.3 |
| Share-based payments | 4.9 | 3.0 | — |
| Total remuneration to senior executives | 9.5 | 6.6 | 3.7 |
1) See Note 14 to the financial statements for Marine Harvest ASA for a specification of senior executives.
The portfolio held at the end of 2017, will ensure the payment of the following weighted fixed rates against receipt of three month EURIBOR/LIBOR for each of the below currencies and periods:
| NOMINAL AMOUNT OF INTEREST RATE SWAPS AND WEIGHTED AVERAGE FIXED |
EUR | USD | GBP | |||
|---|---|---|---|---|---|---|
| RATE (MILLION) |
NOMINAL VALUE |
WEIGHTED FIXED RATE |
NOMINAL VALUE |
WEIGHTED FIXED RATE |
NOMINAL VALUE |
WEIGHTED FIXED RATE |
| UNTIL MARCH 2018 | 586.0 | 1.35% | 138.5 | 3.12% | 34.0 | 3.13% |
| MARCH 2018 - MARCH 2019 | 860.3 | 2.16% | 138.5 | 3.21% | 34.0 | 3.13% |
| MARCH 2019- MARCH 2020 | 1 296.5 | 2.50% | 167.5 | 2.93% | 34.0 | 3.13% |
| MARCH 2020- MARCH 2021 | 716.6 | 1.24% | 78.3 | 2.31% | 23.5 | 2.83% |
| MARCH 2021- MARCH 2022 | 380.0 | 2.20% | 78.3 | 2.31% | 23.5 | 2.83% |
| MARCH 2022- MARCH 2023 | — | —% | 60.0 | 4.13% | — | —% |
| MARKET VALUE 31.12.2017 (EUR MILLION) | |
|---|---|
| EUR | -66.3 |
| USD | -3.4 |
| GBP | -2.9 |
| TOTAL | -72.6 |
A 0.50% point parallel increase in all relevant yield curves will cause a EUR 14.9 million increase in the market value. This change would be recognized through profit and loss. In addition, the fixed rate coupon on the convertible bonds as described in Note 11 is part of the hedging of interest rate risk in the Group.
The Group trades only with recognized, credit worthy third parties. It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and as a main rule the Group's trade receivables are fully credit insured. The Group is monitoring exposure towards individual customers closely and is not substantially exposed in relation to any individual customer or contractual partner as of December 31, 2017. The maximum exposure is disclosed in Note 17.
The Group only enters into derivative transactions with counterparties with an established business relationship to the Group.
The Group is continuously monitoring liquidity and estimates expected liquidity development on the basis of budgets and monthly updated forecasts from the units. Marine Harvest's financial position and development depend significantly on the spot price developments for salmon, and these prices have historically been volatile. As such Marine Harvest is exposed to movements in supply and demand for salmon. Marine Harvest has to some extent mitigated its exposure to spot prices by entering into bilateral fixed price/volume contracts with its' customers. The contract share has normally varied between 20% and 50% of our sold volume, however hedged volumes can increase up to 65% under special circumstances, and the duration of the contracts has typically been three to eighteen months. Furthermore Marine Harvest is reducing the exposure to spot price movements through the value added processing activities and tailoring of products for its customers. Other key liquidity risks are fluctuations in production and harvest volumes, biological issues, and changes in the feed price, which is the most important individual factor on the cost side. Feed costs are correlated to the marine and agricultural commodity prices of the ingredients.
| PENSION PLANS (EUR MILLION) |
PENSION COST | PENSION NET LIABILITY (FUND) 31.12 |
|---|---|---|
| Marine Harvest Norway 1) | 7.6 | — |
| Marine Harvest Scotland | 1.6 | -9.0 |
| Marine Harvest Canada | 1.6 | — |
| Marine Harvest Consumer Products | 0.8 | 3.5 |
| Corporate | 0.6 | 6.2 |
| Other entities | 1.7 | 0.3 |
| Total 2017 | 13.9 | 0.9 |
| Total 2016 | 10.6 | 7.2 |
| Total 2015 | 10.4 | 3.4 |
1) The term Marine Harvest Norway includes both of the legal entities Marine Harvest Norway AS and Marine Harvest Markets Norway AS.
| INCOME TAXES FOR THE YEAR IN THE STATEMENT OF COMPREHENSIVE INCOME (EUR MILLION) |
|||
|---|---|---|---|
| Norway | 2017 -67.8 |
2016 -115.1 |
2015 -66.3 |
| Foreign units | -71.4 | -51.6 | -7.3 |
| Tax on profits (current tax) | -139.1 | -166.6 | -73.5 |
| Norway | 21.6 | -14.6 | 5.8 |
| Foreign units | 57.7 | -38.6 | -23.9 |
| Change in deferred tax | 79.2 | -53.3 | -18.1 |
| Total income taxes related to profit for the year | -59.9 | -219.9 | -91.6 |
| RECONCILIATION BETWEEN NOMINAL AND EFFECTIVE TAX RATES | |||
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Profit before tax | 522.6 | 759.2 | 250.1 |
| Nominal tax rate | 24% | 25% | 27% |
| Tax calculated with nominal tax rate | -125.4 | -189.8 | -67.5 |
| Non-taxable income/loss on sale of shares | — | 1.1 | — |
| Change in value of conversion liability component | 18.8 | -58.8 | -17.7 |
| Amortization borrowing costs | -3.1 | — | — |
| Non-taxable income/loss from associated companies | 15.2 | 18.3 | 6.0 |
| Non-taxable income/loss on change in market value on financial instruments | — | 1.0 | -1.7 |
| Non-taxable income/loss on change in market value on other shares | — | — | 3.1 |
| Effect of changed tax rate on deferred tax positions | 14.5 | 13.5 | 23.3 |
| Effect of adjustment of income tax from previous years | -0.4 | -1.6 | -7.5 |
| Effect of recognition of previously non-recognized tax assets | 19.3 | 0.2 | 0.6 |
| Effect of non-recognition of losses and tax assets | -1.1 | -1.6 | -27.8 |
| Withholding tax | -2.7 | -3.8 | -1.7 |
| Other permanent differences | 1.6 | -5.0 | -5.6 |
| Effect of different tax rates compared to nominal rate | 3.4 | 6.6 | 4.9 |
| Total income taxes | -59.9 | -219.9 | -91.6 |
Marine Harvest Group has a share-price based bonus scheme for Senior Executives, and management and key experts of Business Areas, subsidiaries and group functions:
| OUTSTANDING OPTIONS PER ALLOTMENT |
2017-ALLOTMENT OF CALL OPTIONS |
2016-ALLOTMENT OF CALL OPTIONS |
2015-ALLOTMENT OF CALL OPTIONS |
2014-ALLOTMENT OF CALL OPTIONS |
|---|---|---|---|---|
| Distributed options | 1 460 000 | 1 499 993 | 1 475 000 | 1 500 000 |
| Forfeited options | — | — | -150 000 | -200 000 |
| Dividend adjustment | 64 603 | 196 647 | 249 356 | 324 444 |
| Total options outstanding at year end 1) | 1 524 603 | 1 696 640 | 1 574 356 | 1 624 444 |
| Strike price December 31, 2017 (NOK) | 154.90 | 135.30 | 84.51 | 71.32 |
| Number of employees in the scheme at year end | 22 | 18 | 14 | 14 |
1) None of the options were exercisable at year-end 2017.
The Share-Price-Based Bonus Scheme comprises annual allocations by the Board of Directors of a number of European call options with a strike price of 107.5% of the share price of Marine Harvest's shares at the date of the annual general meeting authorizing allocations under the scheme. The options have a term of four years but will become exercisable immediately if a mandatory bid is made for all of the shares in Marine Harvest or if Marine Harvest is the non-surviving entity in a merger with another company. If the holder of the options exercises the options, the company may settle its obligation through the issue of new shares or, alternatively, by selling treasury shares to the option holder. There will be no lock-up obligation on the shares the option holder receives through the exercise of the option. The exercise of the option is conditional upon the option holder being employed in a non-terminated position in the Group on the date of exercise.
The number of shares and the strike price will be adjusted for dividends and changes in equity capital during the term of the option in accordance with Oslo Stock Exchange derivative rules (A.2.2.8(1)b). Total profit through the exercise of the option in a year is capped at two years' salary for the option holder. If the profit exceeds this limit, the number of shares to be issued will be reduced accordingly. Following the 2017 annual general meeting (the "AGM"), the Board of Directors allocated 1 460 000 options with a strike price corresponding to 107.5% of the volume-weighted average share price on the OSE on the day of the AGM (NOK 161.7566) to a total of 22 individuals.
Eligibility to the senior executive share option scheme is limited to: Group CEO, other Senior Executives and management and key experts of Business Areas, subsidiaries and group functions, based on the following criteria:
All permanent employees in Marine Harvest ASA and its Norwegian subsidiaries have the opportunity to acquire shares in the Company within the scope of the Norwegian Tax Act Section 5-14. These provisions entitle this group of employees to receive a tax-free benefit of NOK 3 000 in connection with their participation in such a scheme.
Permanent employees in Marine Harvest Scotland and Marine Harvest Canada have also been offered the opportunity to buy shares, though without any element of tax-free discount.
No loans or guaranties have been granted to key management personnel.
Pension plans in the Group are mainly defined contribution plans. There are a few defined benefits plans, which are considered to be immaterial for the Groups financial statements.
| MATURITY OF TAX LOSSES WHERE DEFERRED TAX LOSS IS RECOGNIZED |
|||
|---|---|---|---|
| TO YEAR (EUR MILLION) | NORWAY | ABROAD | TOTAL |
| 2018 | — | — | — |
| 2019 | — | — | — |
| 2020 | — | — | — |
| 2021 | — | 0.4 | 0.4 |
| 2022 | — | — | — |
| 2023 | — | — | — |
| 2024 | — | — | — |
| 2025 | — | 0.2 | 0.2 |
| 2026 | — | — | — |
| 2027+ | — | — | — |
| Unlimited | 11.6 | 9.1 | 20.7 |
| Total 2017 | 11.6 | 9.6 | 21.2 |
| Total 2016 | 13.2 | 19.4 | 32.6 |
| Total 2015 | — | 30.6 | 30.6 |
| MATURITY OF TAX LOSSES FOR WHICH NO DEFERRED TAX ASSET IS RECOGNIZED |
||
|---|---|---|
| TO YEAR (EUR MILLION) | NORWAY | ABROAD |
| 2018 | — | — |
| 2019 | — | — |
| 2020 | — | — |
| 2021 | — | — |
| 2022 | — | — |
| 2023 | — | — |
| 2024 | — | 5.4 |
| 2025 | — | 17.4 |
| 2026 | — | — |
| 2027+ | — | — |
| Unlimited | — | 146.1 |
| Total 2017 | — | 168.9 |
| Total 2016 | — | 210.9 |
| Total 2015 | — | 119.9 |
| TAX RATES APPLIED (SELECTED COUNTRIES) |
|||
|---|---|---|---|
| COUNTRIES | 2017 | 2016 | 2015 |
| Japan | 30.9% | 33.0% | 35.3% |
| USA | 35.0% | 35.0% | 35.0% |
| Belgium | 34.0% | 34.0% | 34.0% |
| Germany | 29.1% | 29.6% | 31.0% |
| France | 33.3% | 33.3% | 33.3% |
| Norway | 24.0% | 25.0% | 27.0% |
| China | 25.0% | 25.0% | 25.0% |
| Netherlands | 25.0% | 25.0% | 25.0% |
| Scotland | 19.3% | 20.0% | 20.3% |
| Canada | 26.0% | 26.0% | 26.0% |
| Faroe Islands | 18.0% | 18.0% | 22.5% |
| Chile | 25.5% | 24.0% | 22.5% |
| Poland | 19.0% | 19.0% | 19.0% |
| Ireland | 12.5% | 12.5% | 12.5% |
| TAX FOR THE YEAR RECOGNIZED IN OTHER COMPREHENSIVE INCOME (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Deferred tax related to income/cost recognized as other comprehensive income | — | — | 1.0 |
| Deferred tax related to actuarial gains/losses in other comprehensive income | — | 0.1 | -1.6 |
| Total tax for the year recognized in other comprehensive income | — | 0.1 | -0.7 |
| TAX PREPAID/RECEIVABLE IN THE STATEMENT OF FINANCIAL POSITION (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Tax prepaid/receivable in Norway | — | — | — |
| Tax prepaid/receivable in foreign units | 3.1 | 14.7 | 20.4 |
| Total tax prepaid/receivable in the statement of financial position | 3.1 | 14.7 | 20.4 |
| TAX PAYABLE IN THE STATEMENT OF FINANCIAL POSITION (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Tax payable in Norway | 65.7 | 112.6 | 59.4 |
| Tax payable in foreign units | 25.1 | 29.9 | 13.2 |
| Total tax payable in the statement of financial position | 90.8 | 142.6 | 72.6 |
| SPECIFICATION OF DEFERRED TAX AND BASIS FOR DEFERRED TAX/TAX ASSETS TAX | |||
|---|---|---|---|
| INCREASING/REDUCING TEMPORARY DIFFERENCES (EUR MILLION) |
2017 | 2016 | 2015 |
| Non-current assets | 773.3 | 964.9 | 857.9 |
| Current assets | 761.3 | 1 099.0 | 754.1 |
| Debt | -43.1 | -95.7 | -37.9 |
| Pension obligation | -8.4 | -7.9 | -6.7 |
| Tax losses carried forward | -21.2 | -32.6 | -30.6 |
| Other differences | 15.3 | 19.5 | -30.6 |
| Total temporary differences | 1 477.2 | 1 947.2 | 1 506.2 |
| Tax losses carried forward in Norway | -11.6 | -13.2 | — |
| Other temporary differences in Norway | 1 099.5 | 1 259.6 | 1 058.6 |
| Tax losses carried forward abroad | -9.6 | -19.4 | -30.6 |
| Other temporary differences abroad | 398.8 | 720.2 | 478.2 |
| Total temporary differences | 1 477.2 | 1 947.2 | 1 506.2 |
| TOTAL DEFERRED TAX ASSET/LIABILITIES IN THE STATEMENT OF FINANCIAL POSITION (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Deferred tax assets | 13.1 | 2.6 | 11.5 |
| Deferred tax liabilities | -353.9 | -453.5 | -391.8 |
| Net deferred tax in the statement of financial position | -340.9 | -450.9 | -380.3 |
Marine Harvest has recognized deferred tax assets related to tax losses carried forward. This is based on the expectation of probable sufficient earnings in the future, mainly in Poland and in the US where the majority of tax losses carried forward are located. The expectations are based on current earnings and approved budgets. In addition, substantial deferred tax liabilities linked to non-current assets and current assets are recorded. Deferred tax assets related to tax losses carried forward at a total of EUR 168.9 million have not been recognized due to uncertain utilization.
Deferred tax assets linked to tax losses are offset against deferred tax liabilities in the tax jurisdictions, where acceptable.
| CURRENT LIABILITIES | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Trade payables 1) | 280.9 | 275.5 | 248.0 |
| Other current liabilities | |||
| Salaries and vacation pay due | 35.3 | 33.1 | 29.3 |
| Social security and other taxes | 24.0 | 23.0 | 22.6 |
| Accrued expenses | 63.1 | 67.9 | 58.6 |
| Other liabilities | 74.1 | 55.8 | 40.7 |
| Total other current liabilities | 196.5 | 179.8 | 151.2 |
1) As of year-end 2017 the payable related to the Supply Chain Financing was 54.4 million EUR (44.0 million EUR at year-end 2016).
| CURRENT INTEREST-BEARING DEBT TO FINANCIAL INSTITUTIONS |
|---|
| CURRENT INTEREST-BEARING DEBT TO FINANCIAL INSTITUTIONS | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Bank overdrafts | 3.0 | — | — |
| Other current interest-bearing debt | 127.2 | 0.1 | 0.1 |
| Current part (first year) financial leases | — | — | 0.1 |
| Total current interest-bearing debt | 130.3 | 0.1 | 0.2 |
| UNUSED DRAWING RIGHTS | |
|---|---|
| UNUSED DRAWING RIGHTS (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Unused part of bank overdraft facility (to be renewed within one year) | 7.0 | 7.0 | 7.0 |
| Unused part of bank overdraft facility (to be renewed in more than one year) | 44.6 | 47.6 | 47.6 |
| Unused part of other drawing rights (to be renewed in more than one year) | 672.3 | 502.5 | 392.6 |
| Total unused drawing rights | 723.9 | 557.1 | 447.2 |
| CASH | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Cash in bank | 59.1 | 88.0 | 60.1 |
| Employees' tax deduction | 5.2 | 5.8 | 5.6 |
| Other restricted cash1) | 7.4 | 10.2 | 6.0 |
| Total cash | 71.7 | 103.9 | 71.8 |
1) Other restricted cash is mainly composed of deposits to fulfill collateral requirements for financial instruments.
| SPECIFICATION OF RECEIVABLES (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Trade receivables | 480.7 | 500.4 | 411.0 |
| Provisions for bad debts | -3.1 | -2.4 | -1.8 |
| Net trade receivables | 477.6 | 498.0 | 409.2 |
| Prepayments | 16.7 | 16.9 | 18.6 |
| Pension fund | 9.7 | 2.8 | 5.5 |
| Tax prepaid/receivable | 3.1 | 14.7 | 20.4 |
| Other | 69.7 | 78.4 | 86.9 |
| Other receivables | 99.1 | 112.8 | 131.4 |
| Total trade receivables and other receivables | 576.7 | 610.8 | 540.6 |
| AGE DISTRIBUTION OF TRADE RECEIVABLES (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Receivables not overdue | 408.7 | 426.9 | 333.4 |
| Overdue 0-6 months | 66.5 | 68.9 | 74.8 |
| Overdue more than 6 months | 5.6 | 4.5 | 2.8 |
| Total trade receivables | 480.7 | 500.4 | 411.0 |
At the beginning of 2017, provisions for bad debt amounted to EUR 2.4 million. During 2017, provisions amounting to EUR 0.3 million were considered lost. Adjusted for additional provisions for losses of EUR 1.0 million the provision for bad debt amounted to EUR 3.1 million at year-end 2017.
The Business Units generally complete their sales in the main trading currency in the country of destination. The carrying amount of trade receivables per currency is presented below.
Associated companies are companies where Marine Harvest Group has a significant ownership interest, ranging from 20-50%, and where Marine Harvest Group is able to exercise significant influence.
Associated companies are recorded in Marine Harvest Group statements in accordance with the equity method. None of the associated companies are listed.
| ASSOCIATED COMPANIES (EUR MILLION) |
HEAD OFFICE |
OWNER SHIP |
OWNED BY | AQUISITION COST |
CARRYING AMOUNT 01.01.17 |
SHARE OF PROFIT 2017 |
DIVIDENDS RECEIVED 2017 |
OTHER CHANGES 2017 |
CARRYING AMOUNT 31.12.17 |
|---|---|---|---|---|---|---|---|---|---|
| Nova Sea AS 1) | Lovund | 48% | Marine Harvest Holding AS |
28.2 | 159.6 | 34.2 | -31.7 | -13.5 | 148.7 |
| Finnøy Fisk AS | Finnøy | 45% | Marine Harvest Norway AS |
2.4 | 11.3 | -0.1 | -1.0 | -2.3 | 8.0 |
| Vågafossen Settefisk AS 2) Vikedal | 48% | Marine Harvest Norway AS |
0.1 | 1.0 | — | — | -1.0 | — | |
| Others | 0.3 | 1.9 | — | — | -0.1 | 1.8 | |||
| Total | 31.1 | 173.8 | 34.2 | -32.7 | -16.9 | 158.5 |
1) Other changes relates to foreign currency adjustments.
2) Marine Harvest purchased all shares in Vågafossen Settefisk AS during 2017. Vågafossen Settefisk AS was then merged with Marine Harvest Norway AS.
| ASSOCIATED COMPANIES 100 % BASIS (EUR MILLION) |
DIVIDEND RECEIVED |
FAIR VALUE ADJUST MENT BIOMASS 1) |
TOTAL REVENUE |
TOTAL PROFIT AND LOSS |
TOTAL NON CURRENT ASSETS |
TOTAL BIOLOGICAL ASSETS |
TOTAL OTHER CURRENT ASSETS |
TOTAL NON CURRENT LIABILITIES |
TOTAL CURRENT LIABILITIES |
|---|---|---|---|---|---|---|---|---|---|
| 2017 | |||||||||
| Nova Sea AS | 31.7 | 12.2 | 277.6 | 93.3 | 177.7 | 69.7 | 92.4 | 66.1 | 42.1 |
| Finnøy Fisk AS | 1.0 | 0.4 | 7.9 | 4.0 | 2.3 | 1.6 | 7.6 | 0.7 | 3.4 |
| 2016 | |||||||||
| Nova Sea AS | 10.1 | 26.1 | 276.3 | 83.5 | 169.0 | 66.1 | 120.8 | 79.3 | 104.2 |
| Finnøy Fisk AS | 0.5 | 2.1 | 4.7 | 2.2 | 2.8 | 2.0 | 5.5 | 1.1 | 5.3 |
| Vågafossen Settefisk AS | — | — | 2.8 | 0.5 | 3.8 | 0.7 | 1.3 | 2.9 | 0.4 |
| 2015 | |||||||||
| Nova Sea AS | 7.7 | 9.0 | 201.9 | 47.5 | 140.4 | 56.5 | 65.6 | 81.6 | 47.7 |
| Finnøy Fisk AS | 0.9 | 0.6 | 3.5 | 1.1 | 3.8 | 1.1 | 3.6 | 1.4 | 2.9 |
| Vågafossen Settefisk AS | — | — | 2.5 | 0.1 | 3.7 | 0.6 | 1.0 | 2.9 | 0.4 |
1) Effect of adjusting Marine Harvest`s share of total biological assets as of December 31 presented above to fair value. The effect is shown after tax.
| DEBT SECURED BY MORTGAGES AND PLEDGES (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Debt to financial institutions | 524.0 | 261.5 | 340.1 |
| Leasing debt | 0.4 | 0.7 | 1.2 |
| Total debt secured by mortgages and pledges | 524.4 | 262.2 | 341.3 |
| Guarantee liabilities 1) | 26.0 | 28.2 | 23.5 |
1) In addition Marine Harvest Group have provided guarantees to unrelated parties for commitments that may arise for a joint venture regarding the purchase contracts of new vessels. Marine Harvest ASA has also provided an ultimate parent company guarantee for commitments that may arise under the contract with the main supplier to the construction of the new feed factory in Scotland.
The Marine Harvest Group syndicated loan facility has been established with security in current assets, licenses (where applicable), fixed assets and guarantees from some of the entities in the Group. In addition the shares in larger subsidiaries have been pledged in favor of the bank syndicate.
| ASSETS PLEDGED AS SECURITY FOR DEBT (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Tangible non-current assets and licenses | 1 036.2 | 1 058.8 | 1 036.1 |
| Inventory and biological assets | 1 354.0 | 1 669.5 | 1 211.0 |
| Trade receivables | 322.4 | 287.5 | 240.1 |
| Other assets | 180.2 | 160.3 | 135.2 |
| Total assets pledged as security | 2 892.7 | 3 176.0 | 2 622.5 |
| OTHER NON-CURRENT LIABILITIES (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Net pension obligations | 10.6 | 10.0 | 8.9 |
| Other non-current liabilities | 1.4 | 1.5 | 3.1 |
| Total other non-current liabilities | 12.0 | 11.5 | 12.0 |
The consolidated financial statements include the following companies:
| PARENT COMPANY | COUNTRY | |
|---|---|---|
| Marine Harvest ASA | Norway | |
| SUBSIDIARIES - NORWAY | COUNTRY | OWNERSHIP % |
| Marine Harvest Fish Feed AS | Norway | 100.00% |
| Marine Harvest Holding AS | Norway | 100.00% |
| Marine Harvest Minority Holding AS | Norway | 100.00% |
| Marine Harvest Norway AS | Norway | 100.00% |
| Marine Harvest Markets Norway AS | Norway | 100.00% |
| Marine Harvest FOU AS | Norway | 100.00% |
| Morpol ASA | Norway | 100.00% |
| Waynor Trading AS | Norway | 100.00% |
| Center for Aquaculture Competence AS | Norway | 33.30% |
| SUBSIDIARIES - AMERICAS | ||
| COUNTRY | OWNERSHIP % | |
| Marine Harvest North America Inc. | Canada | 100.00% |
| Marine Harvest Canada Inc. | Canada | 100.00% |
| Marine Harvest Atlantic Canada Inc. | Canada | 100.00% |
| Englewood Packing Company Ltd. | Canada | 100.00% |
| Marine Harvest Chile S.A | Chile | 100.00% |
| Salmones Tecmar S.A | Chile | 100.00% |
| Processadora De Productos Marinos Delifish S.A | Chile | 100.00% |
| Aquamerica International Holdings S.A | Panama | 100.00% |
| Panamerica International Holdings S.A | Panama | 100.00% |
| Salmoamerica Corp. | Panama | 100.00% |
| Ducktrap River of Maine LLC | USA | 100.00% |
| Marine Harvest USA Holding LLC | USA | 100.00% |
| SUBSIDIARIES - ASIA | |
|---|---|
| Marine Harvest China Co Ltd | |
| Marine Harvest Hong Kong Ltd | |
| Marine Harvest Japan Inc | |
| Marine Harvest Food Service Inc. | |
| Marine Harvest Korea Co I td | |
| Marine Harvest Singapore Pte Ltd | |
| Morpol Holdings Singapore Pte Ltd | |
| Marine Harvest Taiwan Co. I td. | |
| Amanda Foods Vietnam Ltd |
| SUBSIDIARIES - ASIA | COUNTRY | OWNERSHIP % |
|---|---|---|
| Marine Harvest China Co. Ltd. | China | 100.00% |
| Marine Harvest Hong Kong Ltd | Hong Kong | 100.00% |
| Marine Harvest Japan Inc | Japan | 100.00% |
| Marine Harvest Food Service Inc | Japan | 100.00% |
| Marine Harvest Korea Co. Ltd | Korea | 100.00% |
| Marine Harvest Singapore Pte Ltd | Singapore | 100.00% |
| Morpol Holdings Singapore Pte Ltd | Singapore | 100.00% |
| Marine Harvest Taiwan Co. Ltd | Taiwan | 100.00% |
| Amanda Foods Vietnam Ltd | Vietnam | 100.00% |
The Marine Harvest Group has a 50% interest in DESS Aquaculture Shipping AS, a joint venture that going forward will provide shipping services to the aquaculture industry. At year end 2017 vessels were under construction. The interest in DESS Aquaculture Shipping AS is accounted for using the equity method in the consolidated financial statements. Summarized financial information of the consolidated joint venture and reconciliation with the carrying amount of the investment are set out below:
| Summarized statement of Financial position | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Non-current assets | 14.3 | 2.2 | — |
| Cash and cash equivalents | 9.9 | — | — |
| Other current assets | 0.2 | 0.1 | — |
| Non-current liabilities | — | -2.6 | — |
| Current liabilities | -0.1 | — | — |
| Equity | 24.4 | -0.4 | — |
| Marine Harvest group's share in equity (50%) | 12.2 | -0.2 | — |
| Short term loan to the joint venture | — | 1.3 | — |
| Groups carrying amount of the investment | 12.2 | 1.2 | — |
| Summarized statement of profit or loss: (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Revenue | — | — | — |
| Operating expenses | -1.0 | -0.4 | — |
| Profit before tax | -1.0 | -0.4 | — |
| Income tax expense | — | — | — |
| Profit for the year (continuing operations) | -1.0 | -0.4 | — |
| Total comprehensive income for the year (continuing operations) | -1.0 | -0.4 | — |
| Groups share of profit for the year | -0.5 | -0.2 | — |
The joint venture has entered into significant contractual commitments for the acquisition of vessels. At year-end 2017 the contractual commitments amounted to EUR 113.6 million. Marine Harvest has provided guarantees for the commitments that may arise under these contracts (see group Note 19).
SUBSIDIARIES - EUROPE COUNTRY OWNERSHIP %
| Marine Harvest Pieters NV | Belgium | 100.00% |
|---|---|---|
| Marine Harvest Central and Eastern Europe s.r.o. | Czech Republic | 100.00% |
| Marine Harvest Faroes P/F | Faroes | 100.00% |
| Marine Harvest VAP France SAS | France | 100.00% |
| Marine Harvest Appéti' Marine SAS | France | 100.00% |
| Marine Harvest Boulogne SAS | France | 100.00% |
| Marine Harvest Lorient SAS | France | 100.00% |
| Marine Harvest Kritsen SAS | France | 100.00% |
| Marine Harvest Rennes SAS | France | 100.00% |
| Morpol France SAS | France | 100.00% |
| Laschinger Seafood GmbH | Germany | 100.00% |
| Marine Harvest DACH Gmbh | Germany | 100.00% |
| Belisco Ehf | Iceland | 100.00% |
| Comhlucht Iascaireachta Fanad Teoranta | Ireland | 100.00% |
| Bradan (Maoil Rua) Teoranta | Ireland | 100.00% |
| Bradan Fanad Teoranta | Ireland | 100.00% |
| Fanad Pettigo Teoranta | Ireland | 100.00% |
| Feirm Farraige Oilean Chliara Teoranta | Ireland | 92.03% |
| Silverking Seafoods Ltd | Ireland | 100.00% |
| Marine Harvest Italia S.R.L. | Italy | 100.00% |
| Marine Harvest NV | Netherlands | 100.00% |
| Marine Harvest International BV | Netherlands | 100.00% |
| Marine Harvest Holland BV | Netherlands | 100.00% |
| Marine Harvest Sterk Holding BV | Netherlands | 100.00% |
| Marine Harvest Sterk BV | Netherlands | 100.00% |
| Marine Harvest Polska SA | Poland | 100.00% |
| Morpol S.A. | Poland | 100.00% |
| Morpol Laurin Sp. z.o.o. | Poland | 100.00% |
| Morpol Services Sp z.o.o. | Poland | 100.00% |
| Morpol Specialities Sp. z.o.o. | Poland | 100.00% |
| Morpol Technology Sp. z.o.o. | Poland | 100.00% |
| Marine Harvest Turkiye su Ürünleri Ticaret A.Ş. | Turkey | 100.00% |
| Marine Harvest (Scotland) Ltd | UK | 100.00% |
| Meridian Salmon Group Ltd | UK | 100.00% |
| Meridian Salmon Processing Ltd | UK | 100.00% |
| Meridian Salmon Farms (Argyll) Ltd | UK | 100.00% |
| Lakeland Smolt Ltd | UK | 100.00% |
| Marine Harvest VAP UK Ltd | UK | 100.00% |
| Dorseth Cleanerfish Ltd | UK | 100.00% |
| Anglesey Aquaculture Ltd. | UK | 100.00% |
| Marine Harvest Spain, S.L. | Spain | 100.00% |
| Marine Harvest Sweden AB | Sweden | 100.00% |
Marine Harvest Group has no material partly-owned subsidiaries, and the non-controlling interests are immaterial. Additional financial information is therefore not disclosed.
| SHARE CAPITAL | 2017 | 2016 | 2015 |
|---|---|---|---|
| Total number of shares as of 01.01 | 450 085 652 | 450 085 652 | 410 377 759 |
| Shares issued during the year | 40 082 125 | — | 39 707 893 |
| Total number of shares as of 31.12 | 490 167 777 | 450 085 652 | 450 085 652 |
| Treasury shares as of 01.01 | — | — | 40 970 |
| Treasury shares purchased during the year | 829 775 | 594 621 | — |
| Treasury shares sold during the year | -829 775 | -594 621 | -40 970 |
| Treasury shares as of 31.12 | — | — | — |
| Nominal value as of 31.12 (NOK) | 7.50 | 7.50 | 7.50 |
| Share capital (total number of shares at nominal value) (EUR million) | 383.8 | 351.8 | 351.8 |
| Other paid-in capital (EUR million) | 931.5 | 657.5 | 1 075.6 |
| OVERVIEW OF THE LARGEST SHAREHOLDERS 31.12.17 | NUMBER OF SHARES | SHAREHOLDING % |
|---|---|---|
| Geveran Trading Co Ltd | 79 551 603 | 16.23% |
| Folketrygdfondet | 34 794 228 | 7.10% |
| Clearstream Banking S.A. | 33 750 891 | 6.89% |
| Jupiter European Fund | 10 095 670 | 2.06% |
| State Street Bank & Trust Comp. | 9 894 809 | 2.02% |
| Citibank N.A. | 9 461 363 | 1.93% |
| State Street Bank & Trust Comp. | 8 292 708 | 1.69% |
| State Street Bank & Trust Comp. | 7 363 489 | 1.50% |
| State Street Bank & Trust Comp. | 6 789 367 | 1.39% |
| The Bank of New York Mellon SA/NV | 5 798 534 | 1.18% |
| J.P. Morgan Chase Bank N.A., London | 5 537 020 | 1.13% |
| J.P. Morgan Chase Bank N.A., London | 5 317 631 | 1.08% |
| State Street Bank & Trust Comp. | 5 044 296 | 1.03% |
| BNP Paribas Securities Services | 4 718 368 | 0.96% |
| The Northern Trust Comp, London BR | 4 604 441 | 0.94% |
| J.P. Morgan Chase Bank N.A., London | 4 550 080 | 0.93% |
| Euroclear Bank S.A./N.V. | 4 349 427 | 0.89% |
| J.P. Morgan Bank Luxembourg S.A. | 3 976 116 | 0.81% |
| The Bank of New York Mellon | 3 923 824 | 0.80% |
| Aviva Investors | 3 684 972 | 0.75% |
| Total 20 largest shareholders | 251 498 837 | 51.31% |
| Total other shareholders | 238 668 940 | 48.69% |
| Total number of shares 31.12.17 | 490 167 777 | 100.00% |
| SHAREHOLDERS PER COUNTRY | NUMBER OF SHARES | SHARE % |
|---|---|---|
| Norway | 105 386 026 | 21.50% |
| USA | 92 834 507 | 18.94% |
| Cyprus | 79 551 603 | 16.23% |
| Great Britain | 76 441 590 | 15.59% |
| Other countries | 135 954 051 | 27.74% |
| Total number of shares 31.12.17 | 490 167 777 | 100.00% |
| BASIC AND DILUTED EARNINGS PER SHARE | 2017 | 2016 | 2015 |
|---|---|---|---|
| Profit for the year attributable to owners of Marine Harvest ASA | |||
| Profit from continuing operations attributable to the owners of the parent (EUR million) | 462.5 | 539.6 | 158.4 |
| Profit from discontinued operations attributable to the owners of the parent (EUR million) | — | — | -0.2 |
| Profit for the year attributable to owners of Marine Harvest ASA (EUR million) | 462.5 | 539.6 | 158.2 |
| Time-weighted average of shares issued and outstanding (million) | 475.5 | 450.1 | 440.9 |
| Basic earnings per share attributable to the owners of Marine Harvest ASA | |||
| Basic earnings per share from continuing operations (EUR) | 0.97 | 1.20 | 0.36 |
| Basic earnings per share from discontinued operations (EUR) | — | — | — |
| Basic earnings per share (EUR) | 0.97 | 1.20 | 0.36 |
| Diluted earnings per share attributable to the owners of Marine Harvest ASA | |||
| Diluted earnings per share from continuing operations (EUR) | 0.86 | 1.20 | 0.36 |
| Diluted earnings per share from discontinued operations (EUR) | — | — | — |
| Diluted earnings per share (EUR) | 0.86 | 1.20 | 0.36 |
Geveran Trading Co Ltd is indirectly controlled by trusts established by John Fredriksen for the benefit of his immediate family.
The figures presented below are with associated companies, mainly Nova
Sea AS, Finnøy Fisk AS, Migdale Transport (owned 35 % by January 1, 2016, the remainder of the shares was sold during 2016) and Vågafossen Settefisk AS (merged with MH Norway AS effective from January 1, 2017).
At year-end 2017, Geveran Trading's affiliated ownership in Marine Harvest was 79 551 603 shares, constituting 16.23% of the total share capital.
| RELATED PARTY TRANSACTIONS (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Revenue | 16.8 | 10.2 | 7.3 |
| Purchase | -7.2 | -8.7 | -7.6 |
| Trade receivables | 2.4 | 4.0 | 2.0 |
| Trade payables | 7.3 | 4.7 | 6.5 |
All significant transaction are mainly related to the sale or purchase of fish or smolt and related services.
number of shares outstanding during the period. Convertible bonds that are "in the money" are considered to have a dilutive effect if EPS is reduced when assuming a full conversion into shares at the beginning of the period and reversing all its effects on earnings for the period. On the other hand, if the effect of the above increases EPS, the bond is considered anti-dilutive, and is then not included in diluted EPS. The adjustments to earnings are changes in fair value of the equity conversion option and net interest expenses after tax.
The conversion liability component on the 340 EUR million convertible bond was "in the money" at the end of the reporting period, and the and the effect on EPS was dilutive . Adjusted for effect of dilution the profit for the year attributable to the owners of Marine Harvest ASA is 429.8 million EUR. The effect of dilution consists of a 41.4 EUR million reduction in fair value of the convertible bond, offset by net interest costs after tax of 8.7 million EUR. Average number of shares adjusted for effect of dilution is 500.5 million. The adjustment of 30.0 million shares consist of a 29.5 million effect of dilution from the convertible bond and a 0.5 million effect of dilution from share price based options to senior executives
| SHARES OWNED BY BOARD MEMBERS, GROUP MANAGEMENT AND THEIR RELATED PARTIES AS OF 31.12.17 | NUMBER OF SHARES |
|---|---|
| Board of Directors | |
| Ole-Eirik Lerøy (Chair of the Board) 1) | 2 100 000 |
| Lisbet K. Nærø | — |
| Cecilie Fredriksen 2) | — |
| Kristian Melhuus | — |
| Paul Mulligan | — |
| Jean-Pierre Bienfait | — |
| Birgitte Ringstad Vartdal | — |
| Yngve Magnussen | — |
| Lars Erik Hestnes | 442 |
| Unni Sværen | 453 |
| Total number of shares held by Board members | 2 100 895 |
| Group Management | |
| Alf-Helge Aarskog CEO | 38 876 |
| Ivan Vindheim CFO | 966 |
| Marit Solberg COO Farming | 13 119 |
| Per-Roar Gjerde COO Farming | 629 |
| Ola Brattvoll COO Sales and Marketing | 9 537 |
| Ben Hadfield COO Fish Feed | 7 176 |
| Øyvind Oaland R&D Global Director | 4 694 |
| Glenn Flanders CSO | 306 |
| Anne Lorgen Riise HR Global Director | 664 |
| Kristine Gramstad Wedler, Communication Director | 442 |
| Total number of shares held by Group management | 76 409 |
| Total number of shares held by Board members and Group management | 2 177 304 |
| Total number of shares held by Board members and Group management in % of total outstanding shares | 0.44% |
1) Geveran Trading Co. Ltd. (Geveran), which is indirectly controlled by trusts established by John Fredriksen for the benefit of his immediate family, has entered into a commercial two year marine sector consultancy agreement with Framar AS (Framar), a company owned by Ole-Eirik Lerøy. In connection with the consultancy agreement, Geveran and Framar have entered into a separate dividend adjusted option agreement whereby Geveran has granted Framar an option to acquire 1 000 000 shares in Marine Harvest. The premium paid by Framar for the option is NOK 1 000 000. The option may be exercised by Framar once, and only for the full number of shares, between April 24, 2017 and October 24, 2018. The strike price is set at NOK 163.94 per share, reflecting the last closing price of the Marine Harvest share on the date of the agreement plus a 5 % annual interest component till maturity. 2) Cecilie Fredriksen is a member of the class of Beneficiaries of the Trusts which indirectly control Geveran Trading Co Limited.
There are no current limitations on voting rights or trade limitations related to the Marine Harvest share.
The Board of Directors is granted an authorization to increase the Company's share capital by up to 49 016 781 shares (representing 10% of shares in issue at the time). The authority does not define the purpose(s) of such capital increase. The authority expires at the AGM in 2018.
The Board has been granted a power of attorney to purchase shares in the Company up to 49 016 781 shares (representing 10% of shares in issue at the time) during the period up until the AGM in 2018.
| FUTURE PAYMENTS FOR OPERATING LEASES | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Gross amount payable within 1 year | 122.6 | 106.5 | 81.8 |
| Gross amount payable within 1-5 years | 343.0 | 308.0 | 234.2 |
| Gross amount payable after 5 years | 92.8 | 32.6 | 13.7 |
| Total gross amount payable | 558.4 | 447.1 | 329.7 |
| SIGNIFICANT LEASE AGREEMENTS | |
|---|---|
| Gross amount payable within 1 year | |
| WELLBOAT | |
| OTHER MACHINERY AND TRANSPORT | |
| Gross amount payable within 1-5 years | |
| WELLBOAT | |
| OTHER MACHINERY AND TRANSPORT | |
| WELLBOAT | Gross amount payable after 5 years |
| OTHER MACHINERY AND TRANSPORT | |
| SIGNIFICANT LEASE AGREEMENTS (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Gross amount payable within 1 year | |||
| WELLBOAT | |||
| Marine Harvest Norway | 40.9 | 31.0 | 31.7 |
| Marine Harvest Scotland | 15.9 | 15.1 | 10.4 |
| OTHER MACHINERY AND TRANSPORT | |||
| Marine Harvest Norway | 26.6 | 21.4 | 16.3 |
| Marine Harvest Fish Feed | 10.0 | 12.3 | 10.4 |
| Gross amount payable within 1-5 years | |||
| WELLBOAT | |||
| Marine Harvest Norway | 133.4 | 102.3 | 118.5 |
| Marine Harvest Scotland | 25.1 | 38.3 | 39.9 |
| Marine Harvest Canada | 23.4 | 3.9 | 5.9 |
| OTHER MACHINERY AND TRANSPORT | |||
| Marine Harvest Norway | 60.3 | 54.3 | 38.6 |
| Marine Harvest Fish Feed | 34.4 | 53.9 | 10.4 |
| Marine Harvest Scotland | 20.9 | — | — |
| Gross amount payable after 5 years | |||
| WELLBOAT | |||
| Marine Harvest Norway | 24.8 | — | — |
| OTHER MACHINERY AND TRANSPORT | |||
| Marine Harvest Norway | 23.2 | — | — |
| Marine Harvest Scotland | 20.9 | — | — |
| Marine Harvest Fish Feed | 13.3 | 20.8 | — |
| FUTURE INCOME FOR OPERATING SUBLEASES (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Total future income for operating subleases | 4.7 | — | 0.4 |
| OPERATING LEASES AND SUBLEASES (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Operating leases expensed | -102.4 | -81.4 | -55.4 |
| Income from operating subleases | 2.6 | 5.0 | 3.6 |
| Total net operating leases | -99.8 | -76.4 | -51.8 |
After having approved the takeover of Morpol ASA by Marine Harvest ASA on September 30, 2013, the European Commission informed Marine Harvest ASA that it was investigating whether Marine Harvest ASA has committed an infringement of the suspension obligation and of the notification requirement under the EU Merger Regulation by acquiring an initial shareholding in Morpol ASA, before the related acquisition was notified to and approved by the European Commission. On March 31, 2014 the European Commission issued a statement of objections, informing Marine Harvest ASA of the objections that have been raised.On July 23, Marine Harvest ASA was advised that the Commission had decided to impose a fine in the amount of EUR 20 million as a consequence of an alleged breach of the provisions of the EU Merger Regulations.Marine Harvest ASA decided to appeal the European Commission's decision to fine the Company. The judgment of the general court was received October 26,2017. The initial decision to fine Marine Harvest of EUR 20 million was maintained by the European Commission.
The judgment of the General Court has been appealed to the EU Court of Justice, which issues a final non-appealable judgment/decision. A final judgment from the EU Court of Justice is expected at the end of 2020. Following the decision by the EU General Court in October 2017, Marine Harvest has paid the fine of EUR 20 million. The amount will be refunded if the final decision by the EU Court of Justice is in Marine Harvest's favor.
We are routinely involved in various legal matters arising from the normal course of business, for which no material provisions are made in the financial statements. While the outcome of these proceedings cannot be predicted with certainty, we believe that, when resolved, they will not have any material adverse effect on our operating results, financial position or liquidity.
| SPECIFICATION OF OTHER OPERATING EXPENSES | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Maintenance | -154.0 | -125.2 | -120.3 |
| Electricity and fuel | -68.5 | -58.3 | -54.3 |
| Rent and leases | -89.2 | -75.0 | -62.8 |
| Third-party services | -55.8 | -39.1 | -43.4 |
| Insurance | -26.1 | -19.3 | -22.0 |
| Consultancy and audit fees | -33.5 | -27.1 | -24.8 |
| IT costs | -25.3 | -22.1 | -21.0 |
| Travel cost | -17.5 | -15.3 | -16.4 |
| Sales and marketing costs | -8.9 | -7.2 | -10.1 |
| Other operating costs | -76.1 | -83.8 | -68.0 |
| Total other operating expenses | -555.0 | -472.5 | -443.2 |
| RESEARCH AND DEVELOPMENT EXPENSES (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| R&D expenses | 43.6 | 51.3 | 26.3 |
Our reported expenditures are gross values, and exclude any related income from our R&D activities. In addition, a fee of 0.3% of Marine Harvest Norway's export value is paid to the Norwegian Seafood Research Fund
(EUR 3.1 million for 2017). This fee is not included in the R&D expenses. Marine Harvest Group has not capitalized any R&D expenditures during 2017.
| FEES TO AUDITORS 2017 (EUR MILLION) |
EY | OTHER APPOINTED AUDITORS |
|---|---|---|
| Audit services 1) | 1.6 | — |
| Tax advisory services | 0.3 | — |
| Other non-audit fees | — | — |
| Total fees for 2017 | 1.9 | — |
1) The audit fee is estimated cost for 2017, not recognized audit cost in 2017.
| FEES TO AUDITORS 2016 (EUR MILLION) |
EY | OTHER APPOINTED AUDITORS |
|---|---|---|
| Audit services 2) | 2.5 | — |
| Tax advisory services | 0.6 | — |
| Other non-audit fees | — | — |
| Total fees for 2016 | 3.1 | — |
2) The audit fee is estimated cost for 2016, not recognized audit cost in 2016. Audit costs include costs for audit work related to SOX and other audit costs related to the listing on the New York Stock Exchange.
| FEES TO AUDITORS 2015 (EUR MILLION) |
EY | OTHER APPOINTED AUDITORS |
|---|---|---|
| Audit services 3) | 2.1 | 0.1 |
| Tax advisory services | 0.6 | — |
| Other non-audit fees | 0.2 | — |
| Total fees for 2015 | 2.9 | 0.1 |
3) The audit fee is estimated cost for 2015, not recognized audit cost in 2015. Audit costs include costs for audit work related to SOX implementation and internal control design improvements, as well as other audit costs related to the listing on the New York Stock Exchange
Auditor's fees is stated exclusive value added tax.
| SPECIFICATION OF PROVISIONS 2017 (EUR MILLION) |
RESTRUCTURING | ONEROUS CONTRACTS |
OTHER | TOTAL PROVISIONS |
|---|---|---|---|---|
| Provisions as of 01.01 | 6.1 | 124.6 | 23.0 | 153.7 |
| New provisions in the year | 2.5 | — | 2.1 | 4.7 |
| Utilized provisions | -1.9 | — | -23.3 | -25.2 |
| Non cash utilization | — | -119.8 | — | -119.8 |
| Currency adjustment | -0.5 | -3.5 | — | -4.0 |
| Provisions as of 31.12 | 6.2 | 1.3 | 1.8 | 9.4 |
Provisions related to onerous contracts are mainly due to the technical accounting treatment of fair value of biomass.
The majority of restructuring cost in 2017 is related to the ongoing reorganization process in Marine Harvest Norway Farming, with the amount of EUR 2.0 million. In addition a restructuring costs of EUR 1.1 million was recognized in Marine Harvest Kritsen related to the reorganization of Consumer Products France. A reversal of the old provision/restructuring of EUR 1.1 million related to the former reorganization in Marine Harvest Chile Farming and Marine Harvest Scotland was recognized in 2017.
Following the decision by the EU General Court in October 2017, Marine Harvest has paid the fine of EUR 20 million related to an alleged breach of the European Merger Regulations. See Note 27 for further details. The amount will be refunded if the final decision by the EU Court of Justice is in Marine Harvest's favor. The main part of utilized other provisions is related to this payment. The rest of the amount is mainly related to various ongoing legal cases in Marine Harvest Norway.
| SPECIFICATION OF PROVISIONS 2016 (EUR MILLION) |
RESTRUCTURING | ONEROUS CONTRACTS |
OTHER | TOTAL PROVISIONS |
|---|---|---|---|---|
| Provisions as of 01.01 | 11.5 | 14.4 | 20.0 | 45.9 |
| New provisions in the year | 5.4 | 108.7 | 0.4 | 114.5 |
| Utilized provisions | -10.8 | — | — | -10.8 |
| Non cash utilization | — | — | 2.5 | 2.5 |
| Currency adjustment | -0.1 | 1.5 | 0.1 | 1.6 |
| Provisions as of 31.12 | 6.1 | 124.6 | 23.0 | 153.8 |
The majority of restructuring cost in 2016 was related to the reorganization process in Marine Harvest Scotland Farming, with the amount of EUR 2.4 million. In addition a restructuring costs of EUR 2.2 million was recognized in Marine Harvest Chile Farming as a result of the significant setback due to the algal bloom incident in the first quarter of 2016. The remaining restructuring cost in 2016 was related to the reorganization of Consumer Products France, Netherlands and Belgium.
The majority of other provisions in 2016 was related to an accrual made to cover the EUR 20 million fine imposed by the European Commission. The fine was a consequence of an alleged breach of the European Merger Regulations. The rest of the amount was mainly related to various ongoing legal cases in Marine Harvest Norway.
| SPECIFICATION OF PROVISIONS 2015 (EUR MILLION) |
RESTRUCTURING | ONEROUS CONTRACTS |
OTHER | TOTAL PROVISIONS |
|---|---|---|---|---|
| Provisions as of 01.01 | 23.2 | 14.6 | 20.0 | 57.8 |
| New provisions in the year | 15.2 | 0.7 | — | 15.9 |
| Utilized provisions | -27.6 | — | — | -27.6 |
| Currency adjustment | 0.7 | -0.9 | — | -0.2 |
| Provisions as of 31.12 | 11.5 | 14.4 | 20.0 | 45.9 |
The majority of restructuring costs in 2015 was related to the downsizing of Marine Harvest Chile Farming following the decision to decrease smolt stocks by EUR 9.4 million. In addition, a cost of EUR 4.7 million was recognized in Consumer Products Belgium in relation to its reorganization. The remaining restructuring costs in 2015, related to co-location of Group staff functions at the head office in Bergen during 2015. Onerous contracts relate to Marine Harvest Norway and Marine Harvest Scotland.
Other provisions of EUR 20 million was an accrual made to cover the fine imposed by the European Commission.
On March 12, 2018 Marine Harvest repaid the NOK 1 250 Million bond. The bond was issued in March 2013 as an unsecured bond with a principal amount of NOK 1 250 million. The bond carried a coupon of three month NIBOR plus 3.5% p.a., payable quarterly. The bond was repaid according to terms and is delisted from the Oslo Stock Exchange. For information about interest bearing debt see Note 11 and 13.
Marine Harvest Norway initiated in 2017 a restructuring to adapt to the emended fish farming regulations in Norway regarding production areas, and to streamline the organization following the cost increases and volume reductions in recent years. With effect from 1 January 2018, the number of regions in Marine Harvest Norway has been reduced from four to three. the new regions are Region South, region Mid and region North.
Marine Harvest Norway and Marine Harvest Fish Feed Norway have changed functional currency and implemented EUR reporting from 1 January 2018.
At the end of 2017, there are new standards/interpretations and amendments to existing standards/interpretations that are not yet effective, but will be relevant for Marine Harvest Group at implementation. Marine Harvest Group intends to adopt these standards, if applicable, when they become effective.
IFRS 9 will replace the classification and measurement rules in IAS 39 Financial Instruments - Recognition and measurement of financial instruments. The standard was initially effective for annual periods beginning on or after January 1, 2013, but the mandatory effective date has been postponed to 2018. Marine Harvest Group has finalized its deliberations on the effects of the implementation of IFRS 9, and the new standard will not have any material impact on the measurement of financial assets and liabilities.
IFRS 15 replaces existing IFRS revenue requirements. The core principle of IFRS 15 is that revenue is recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard applies to all revenue contracts and provides a model for the recognition and measurement of sales of some non-financial assets. The effective date is 2018, and the standard will not have material effects for revenue recognition for Marine Harvest Group.
IFRS 16 Leases replaces existing IFRS leases requirements in IAS 17. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer ('lessee') and the supplier ('lessor'). The new leases standard requires lessees to recognize assets and liabilities for leases with longer than 12 months duration. The asset and liability to be recognized is the present value of the lease payments to be made over the lease term. Lease payments for low value assets may be recognized as they accrue.
The standard will affect primarily the accounting for the group's operational leases. As at the reporting date, Marine Harvest Group has non-cancellable operating lease commitments of EUR 558.4 million, see Note 29. The significant part of these lease commitments will be covered by the IFRS 16, and hence, recognized. Depending on the effective interest rate in the underlying contracts, the calculation shows that the total assets of Marine Harvest Group will increase with approximately EUR 500 million, or approximately 11.5%
The standard is mandatory for financial years commencing on or after January 1, 2019. At this stage, Marine Harvest Group does not intend to adopt the standard before its effective date. Marine Harvest Group has not decided on which method to use for implementing the new standard.
The 2017 financial statements contain several items that are considered exceptional relative to the normal business operations. The total effect of exceptional items included in operational EBIT was EUR 111.1 million for the year. Exceptional items are included in the line item Cost of materials in the consolidated statement of comprehensive income.
| EXCEPTIONAL ITEMS INCLUDED IN OPERATIONAL EBIT (EUR MILLION) | 2017 | 2016 | 2015 |
|---|---|---|---|
| Sea lice mitigation MH Norway | 78.7 | 78.5 | 59.4 |
| Incident-based mortality MH Norway | 13.5 | 18.2 | 12.7 |
| Incident-based mortality MH Scotland | 9.8 | 6.5 | 8.2 |
| Incident-based mortality MH Canada | 1.9 | — | 2.1 |
| Incident-based mortality MH Chile | 2.6 | 13.3 | 8.7 |
| Net insurance coverage MH Chile included in operational EBIT due to the volcano eruption |
-4.6 | ||
| Incident-based mortality MH Faroes | — | 2.5 | — |
| Incident-based mortality MH Ireland | 4.7 | 3.5 | 4.1 |
| Exceptional items in Operational EBIT | 111.1 | 122.5 | 90.6 |
| MARINE HARVEST ASA | ||||
|---|---|---|---|---|
| (EUR MILLION) | NOTE | 2017 | 2016 | 2015 |
| Other income | 1 | 22.5 | 20.0 | 14.6 |
| Salary and personnel expenses | 14 | -17.2 | -15.1 | -15.5 |
| Other operating expenses | 15 | -18.1 | -16.1 | -18.5 |
| Depreciation and amortization | 10,11 | -3.5 | -3.9 | -3.1 |
| Impairment losses | 10,11 | -0.5 | 0.0 | 0.0 |
| Other non-operational items | -0.2 | 0.0 | -1.2 | |
| Earnings before financial items | -17.0 | -15.1 | -23.7 | |
| Interest expenses | 3 | -46.7 | -47.8 | -45.7 |
| Net currency effects | 3 | -57.0 | 10.1 | 14.7 |
| Other financial items | 3 | 87.2 | -145.5 | -8.4 |
| Group contribution | 8 | 316.0 | 383.1 | 268.1 |
| Earnings before taxes (EBT) | 282.6 | 184.8 | 205.0 | |
| Income taxes | 7 | -54.1 | -103.9 | -68.6 |
| Profit or loss for the year | 228.6 | 81.0 | 136.4 | |
| Allocation of profit | ||||
| To other equity | 2 | 228.6 | 81.0 | 136.4 |
| Profit or loss for the year | 228.6 | 81.0 | 136.4 |
| 208 | Statement of profit and loss |
|---|---|
| 209 | Statement of financial position |
| 211 | Statement of cash flow |
| Note 1 / General information and accounting principles | |
| 212 213 |
Note 2 / Equity |
| 214 | Note 3 / Financial items |
| 214 | Note 4 / Financial instruments |
| 215 | Note 5 / Interest-bearing debt |
| 215 | Note 6 / Assets pledged as security and guarantee liabilities |
| 216 | Note 7 / Taxes |
| 217 | Note 8 / Intercompany transactions |
| 217 | Note 9 / Shares in subsidiaries |
| 218 | Note 10 / Intangible Asset |
| 218 | Note 11 / Property, plant and equipment |
| 219 | Note 12 / Cash |
| 219 | Note 13 / Other liabilities |
| 219 | Note 14 / Remuneration |
| 223 | Note 15 / Other operating expenses |
| 223 | Note 16 / Auditors fees |
| 223 | Note 17 / Subsequent events |
| MARINE HARVEST ASA (EUR MILLION) |
NOTE | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| ASSETS | ||||
| Non-current assets | ||||
| Other intangible assets | 10 | 6.6 | 9.5 | 9.6 |
| Total intangible assets | 6.6 | 9.5 | 9.6 | |
| Property, plant and equipment | 11 | 1.1 | 1.7 | 2.4 |
| Total tangible assets | 1.1 | 1.7 | 2.4 | |
| Investments in subsidiaries | 9 | 2 396.6 | 2 432.6 | 2 432.5 |
| Intercompany non-current receivables | 8 | 413.7 | 470.2 | 465.8 |
| Total financial assets | 2 810.3 | 2 902.8 | 2 898.3 | |
| Total non-current assets | 2 818.0 | 2 914.1 | 2 910.3 | |
| Current assets | ||||
| Intercompany current receivables | 8 | 760.6 | 856.2 | 832.3 |
| Other current receivables | 8.1 | 16.0 | 30.1 | |
| Total receivables | 768.7 | 872.2 | 862.4 | |
| Restricted cash | 12 | 7.8 | 10.5 | 5.4 |
| Cash in bank | 12 | 0.0 | 35.9 | 12.9 |
| Total current assets | 776.5 | 918.5 | 880.6 | |
| Total assets | 3 594.6 | 3 832.6 | 3 791.0 |
| MARINE HARVEST ASA | ||||
|---|---|---|---|---|
| (EUR MILLION) | NOTE | 2017 | 2016 | 2015 |
| EQUITY AND LIABILITES | ||||
| Equity | ||||
| Share capital | 2 | 383.9 | 351.8 | 351.8 |
| Other paid-in capital | 2 | 931.5 | 657.5 | 1 075.6 |
| Total paid-in capital | 1 315.4 | 1 009.3 | 1 427.4 | |
| Other equity | 2 | 614.6 | 709.0 | 632.2 |
| Total equity | 1 930.0 | 1 718.2 | 2 059.7 | |
| Non-current liabilities | ||||
| Deferred tax liabilities | 7 | 4.6 | 9.1 | 6.5 |
| Non-current interest-bearing debt | 5 | 772.8 | 992.6 | 1 070.0 |
| Other non-current liabilities | 13 | 80.1 | 443.5 | 212.9 |
| Total non-current liabilities | 857.4 | 1 445.2 | 1 289.5 | |
| Current liabilities | ||||
| Current interest-bearing debt | 5 | 130.2 | — | — |
| Intercompany current liabilities | 8 | 520.9 | 449.3 | 260.3 |
| Other current liabilities | 13 | 156.0 | 219.9 | 181.5 |
| Total current liabilities | 807.1 | 669.2 | 441.8 | |
| Total liabilities | 1 664.6 | 2 114.3 | 1 731.3 | |
| Total equity and liabilities | 3 594.6 | 3 832.6 | 3 791.0 |
Ole-Eirik Lerøy Lisbet K. Nærø Cecilie Fredriksen Paul Mulligan
Jean-Pierre Bienfait Birgitte Ringstad Vartdal Kristian Melhuus Lars Eirik Hestnes
BERGEN, MARCH 19, 2018 BERGEN, MARCH 19, 2018
Employee representative
Unni Sværen Yngve Magnussen Alf-Helge Aarskog Employee representative Employee representative CHIEF EXECUTIVE OFFICER
Ole-Eirik Lerøy Chair of the Board
Lisbet K. Nærø Vice Chair of the Board
Cecilie Fredriksen Paul Mulligan
Jean-Pierre Bienfait Birgitte Ringstad Vartdal Kristian Melhuus Lars Eirik Hestnes Employee representative
Yngve Magnussen Employee representative
Unni Sværen Employee representative
Alf-Helge Aarskog Chief Executive Officer
| MARINE HARVEST ASA (EUR MILLION) |
NOTE | 2017 | 2016 | 2015 |
|---|---|---|---|---|
| Cash flow from operations | ||||
| Earnings before taxes | 282.6 | 184.8 | 205.0 | |
| Interest | 3 | 46.7 | 47.8 | 45.7 |
| Currency effects | 3 | 57.0 | -10.1 | -14.7 |
| Other financial items | 3 | -87.2 | 145.5 | 8.4 |
| Group contribution | 8 | -316.0 | -383.1 | -268.1 |
| Impairment losses and depreciation | 10,11 | 4.1 | 3.9 | 3.1 |
| Taxes paid | 7 | -100.9 | -57.7 | -39.3 |
| Change in inventory, acc. payables and acc. receivables | 0.2 | -1.1 | -1.5 | |
| Change in restricted cash | 13 | 2.7 | -5.1 | 13.6 |
| Restructuring and other non-operational issues | -20.0 | -1.1 | 3.8 | |
| Other adjustments | 0.1 | 0.5 | 0.2 | |
| Cash flow from operations | -130.9 | -75.8 | -43.7 | |
| Cash flow from investments | ||||
| Payments made for purchase of fixed assets | 10,11 | -1.1 | -3.1 | -5.9 |
| Proceeds from sale of shares and other investments | 0.6 | 52.3 | 29.3 | |
| Purchase of shares and other investments | — | -2.8 | -32.2 | |
| Cash flow from investments | -0.5 | 46.4 | -8.8 | |
| Cash flow from financing | ||||
| Proceeds from convertible bond | — | — | 318.2 | |
| Proceeds from new interest-bearing debt (current and non-current) | 308.2 | 45.0 | 93.0 | |
| Down payment of interest-bearing debt (current and non-current) | -42.0 | -142.6 | -223.3 | |
| Paid interest (net) | -33.7 | -36.0 | -41.8 | |
| Received interest group internal (net) | 8 | 25.8 | 28.0 | 26.5 |
| Net change in intercompany balances | 519.7 | 510.1 | 64.2 | |
| Realized currency effects | -39.7 | 11.2 | 7.8 | |
| Dividends received | 3 | — | 54.7 | 23.2 |
| Dividend paid | -640.3 | -418.1 | -255.9 | |
| Transactions with treasury shares | -5.6 | — | 0.5 | |
| Cash flow from financing | 92.4 | 52.4 | 12.2 | |
| Net change in cash in period | -39.0 | 23.0 | -40.6 | |
| Cash - opening balance | 35.9 | 12.9 | 53.1 | |
| Net change in cash in period | -39.0 | 23.0 | -40.6 | |
| Cash - closing balance total | 5,12 | -3.1 | 35.9 | 12.5 |
Marine Harvest ASA is the parent company in the Marine Harvest Group and consists of corporate management.
The separate financial statements of Marine Harvest ASA have been prepared in accordance with the Norwegian Accounting Act from 1988 and Generally Accepted Accounting Principles in Norway. The financial statements for Marine Harvest Group have been prepared in accordance with International Financial Reporting Standards and interpretations issued by the International Accounting Standards Board (IASB) as adopted by the EU (EU-IFRS).
For accounting policies used reference is made to Note 2 in Marine Harvest Group financial statements. The accounting principles used in the financial statements for Marine Harvest ASA are similar to the accounting principles used for Marine Harvest Group's financial statements, except for:
– Acquisition costs in Business Combinations are in the Group financial statements recognized as expenses in profit and loss
| SPECIFICATIONS OF CHANGES IN EQUITY IN 2017 (EUR MILLION) |
SHARE CAPITAL |
OTHER PAID IN CAPITAL |
SHARE BASED PAYMENT |
OTHER EQUITY |
TOTAL EQUITY |
|---|---|---|---|---|---|
| Equity 01.01.17 | 351.8 | 657.5 | 4.6 | 704.3 | 1 718.2 |
| Issue of shares | 32.0 | 596.5 | — | — | 628.5 |
| Share based payment | — | — | 0.8 | — | 0.8 |
| Purchase of treasury shares | — | — | — | -5.6 | -5.6 |
| Dividend | — | -322.5 | — | -317.8 | -640.3 |
| Actuarial gains/losses (net of tax) | — | — | — | -0.2 | -0.2 |
| Profit or loss for the year | — | — | — | 228.6 | 228.6 |
| Total Equity 31.12.17 | 383.9 | 931.5 | 5.4 | 609.2 | 1 930.0 |
| SPECIFICATION OF CHANGES IN EQUITY IN 2016 | |||||
| Equity 01.01.16 | 351.8 | 1 075.6 | 6.1 | 626.2 | 2 059.7 |
| Share based payment | — | — | -1.5 | -2.7 | -4.2 |
| Dividend | — | -418.1 | — | — | -418.1 |
| Actuarial gains/losses (net of tax) | — | — | — | -0.1 | -0.1 |
| Profit or loss for the year | — | — | — | 81.0 | 81.0 |
| Total Equity 31.12.16 | 351.8 | 657.5 | 4.6 | 704.3 | 1 718.2 |
| SPECIFICATION OF CHANGES IN EQUITY IN 2015 | |||||
| Equity 01.01.15 | 342.9 | 1 032.6 | 3.4 | 532.6 | 1 911.6 |
| Issue of shares | 33.2 | 373.4 | — | — | 406.6 |
| Share based payment | — | — | 2.9 | — | 2.9 |
| Purchase of treasury shares | — | — | — | 0.5 | 0.5 |
| Dividend | — | -255.9 | — | — | -255.9 |
| Actuarial gains/losses (net of tax) | — | — | — | 0.1 | 0.1 |
| Profit or loss for the year | — | — | — | 136.4 | 136.4 |
| Translation effect1) | -24.4 | -74.5 | -0.2 | -43.4 | -142.5 |
| Total Equity 31.12.15 | 351.8 | 1 075.6 | 6.1 | 626.2 | 2 059.7 |
1) The functional currency was changed to EUR from January 1st 2016. The presentation currency was also changed, with retrospective effect on 2015 figures. Equity per January 1, 2015 was translated to EUR using the EUR/NOK closing rate applicable for the same date. As a result, a translation effect occurs for each component of equity, as specified in the table above for 2015.
For information related to shareholders and share capital reference is made to Note 24 in Marine Harvest Group financial statements.
| FINANCIAL ITEMS | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Interest expense | -46.7 | -47.8 | -45.7 |
| Net currency effects | -57.0 | 10.1 | 14.7 |
| Dividend from subsidiaries | — | 54.7 | 20.7 |
| Interest income from subsidiaries | 26.4 | 28.2 | 27.0 |
| Change in fair value - other shares | — | — | 14.1 |
| Change in fair value - other financial instruments | 14.2 | 15.8 | -0.5 |
| Change in fair value - conversion liability component convertible bond | 82.4 | -230.0 | -65.6 |
| Impairment of shares in subsidiaries | -36.0 | — | — |
| Other financial items | 0.1 | -14.1 | -4.2 |
| Net other financial items | 87.2 | -145.5 | -8.4 |
The subsidiaries are required to do all their currency hedging with Marine Harvest ASA as their counterparty. In addition to the portfolio of external hedges, Marine Harvest ASA also holds a portfolio of foreign exchange hedges with its subsidiaries as counterparty. This portfolio offsets the external portfolio with respect to amounts, maturities and market values.
At the end of 2017 Marine Harvest ASA had a portfolio of currency hedging instruments against third party counterparts with a total contract value of EUR 665.9 million. The portfolio had a net negative market value of EUR 12.1 million. The portfolio is described in further detail in Note 13 to Marine Harvest Group financial statements. INTEREST RATE RISK Marine Harvest ASA hedges all interest rate risk on behalf of Marine Harvest Group. For positions held in interest rate derivatives and their value, reference is made to Note 12 and Note 13 of Marine Harvest Group financial statements.
The forward contracts are recognized at fair value in the statement of financial position.
At the end of 2017, Marine Harvest ASA held a portfolio of financial forward contracts for purchase and sale of salmon with third parties. The portfolio had a negative market value of EUR 7.5 million. The subsidiaries are required to do their financial hedging of salmon prices with Marine Harvest ASA as their counterparty. The third party portfolio is therefore largely offset by an internal portfolio of forward contracts largely offsetting the external portfolio with respect to amounts, maturities and market values.
| INTEREST-BEARING DEBT | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Non-current interest-bearing debt | 466.5 | 217.4 | 326.0 |
| Bonds | — | 137.3 | 129.7 |
| Convertible bond | 306.3 | 637.8 | 614.4 |
| Total non-current interest-bearing debt | 772.8 | 992.6 | 1 070.0 |
| Current interest-bearing debt | 130.2 | — | — |
| Total interest-bearing debt | 903.0 | 992.6 | 1 070.0 |
The syndicated loan facility in Marine Harvest is secured by guarantees from, as well as certain assets pledged by, the larger subsidiaries in the Group. The pledges are set up partly as a pledge in favor of a third party and partly as security for the fulfillment of the guarantee obligations. Marine Harvest ASA has pledged the ownership in its subsidiaries, as well as certain assets.
| ASSETS PLEDGED AS SECURITY AND GUARANTEE LIABILITIES (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Secured Group debt | 469.6 | 217.4 | 326.0 |
| Carrying amount of assets pledged as security | |||
| Receivables | 1 040.5 | 1 263.8 | 1 178.0 |
| Other (shares in subsidiaries) | 2 396.6 | 2 432.6 | 2 432.5 |
| Total carrying amount of assets pledged as security | 3 437.1 | 3 696.4 | 3 610.5 |
| Guarantee liabilities1) | 9.5 | 16.5 | 14.5 |
| Nominal value of guarantee liabilities | 9.5 | 16.5 | 14.5 |
1) In addition Marine Harvest ASA has provided an ultimate parent company guarantee for commitments that may arise under the contract with the main supplier to the construction of the new feed factory in Scotland.
| TAXES (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Specification of this year´s tax expense | |||
| Withholding tax | -2.7 | -1.9 | -1.3 |
| Payable tax | -55.2 | -99.7 | -61.2 |
| Changes in deferred taxes | 3.8 | -2.3 | -6.0 |
| Total income tax expense | -54.1 | -103.9 | -68.6 |
| Specification of temporary differences and losses carried forward | |||
| Financial instruments | -21.8 | -25.6 | -15.6 |
| Non-current assets and liabilities in foreign currencies | 1.9 | 3.3 | 3.4 |
| Long term debt/loans to subsidiaries | 35.4 | 57.7 | 33.0 |
| Pension obligation | -4.2 | -3.9 | -3.4 |
| Other differences | 8.5 | 6.5 | 8.5 |
| Total basis for deferred tax | 19.9 | 38.0 | 26.0 |
| Nominal tax rate | 23% | 24% | 25% |
| Deferred taxes asset/deferred tax liability | -4.6 | -9.1 | -6.5 |
| Total recognized deferred tax asset/deferred tax liability (-) | -4.6 | -9.1 | -6.5 |
| Reconciliation between nominal and effective tax rate | |||
| Profit before tax | 282.6 | 184.8 | 205.0 |
| Nominal tax rate | 24% | 25% | 27% |
| Tax calculated with nominal tax rate | -67.8 | -46.2 | -55.3 |
| Withholding tax | -2.7 | -1.9 | -1.3 |
| Correction of earlier year 's taxes | 0.6 | -1.3 | -1.1 |
| Impairment of shares in subsidiaries | -8.6 | — | — |
| Dividends | — | 13.7 | 6.2 |
| Effect of change in tax rate | 0.2 | 0.4 | 0.6 |
| Effect of conversion to NOK | 8.5 | -6.9 | — |
| Conversion liability component of convertible bond - change in fair value | 18.8 | -58.8 | -17.7 |
| Financial instruments | -3.1 | 1.0 | -1.7 |
| Changes in market value of other shares | — | — | 3.1 |
| Other differences | 0.2 | -3.8 | -1.4 |
| ZID | |
|---|---|
The conversion liability component on the convertible bond, amounting to EUR 75.9 million, is classified as other non current liabilities. For specification of interest-bearing debt and convertible bond reference is made to Note 11 to Marine Harvest Group financial statements. The NOK 1 250 million bond is presented as current interest- bearing debt in 2017,
as it matures March 12, 2018. Book value of the NOK 1 250 million bond at 31.12.2017 is EUR 127.2 million, remaining amount on Current interestbearing debt of EUR 3.1 million is bank overdrafts.
| INTERCOMPANY TRANSACTIONS (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Intercompany receivables and liabilities | |||
| Intercompany non-current receivables | 413.7 | 470.2 | 465.8 |
| Net intercompany non-current receivables | 413.7 | 470.2 | 465.8 |
| Intercompany current receivables | 760.6 | 856.2 | 832.3 |
| Intercompany current liabilities | -520.9 | -449.3 | -260.3 |
| Net intercompany current receivables | 239.7 | 406.8 | 572.0 |
| Total net intercompany balances | 653.4 | 877.1 | 1 037.8 |
| Management fee, net invoiced subsidiaries | 20.1 | 18.1 | 12.9 |
| Group internal financial income and expense | |||
| Dividend from subsidiaries | — | 54.7 | 20.7 |
| Interest income group companies | 26.4 | 28.2 | 27.0 |
| Interest expense group companies | -0.6 | -0.3 | -0.6 |
| Group contribution 1) | 316.0 | 383.1 | 268.1 |
1) The Group contribution mainly comes from Marine Harvest Norway AS.
| COMPANY (EUR MILLION) |
BUSINESS ADDRESS |
DATE OF PURCHASE |
OWNER SHIP % |
NUMBER OF SHARES |
EQUITY AS OF 31.12.17 |
PROFIT THIS YEAR |
CARRYING AMOUNT 31.12.17 |
|---|---|---|---|---|---|---|---|
| Marine Harvest NV | Amersfoort, Netherlands | 29.12.2006 | 100% | 225 000 | 219.2 | — | 562.1 |
| Marine Harvest Holding AS | Oslo, Norway | 07.04.2006 | 100% | 590 452 360 | 746.7 | 29.4 | 1 586.6 |
| Marine Harvest Faroes | Kollafjordur, Faroes | 01.11.1999 | 100% | 10 | 81.1 | 15.4 | 31.9 |
| Morpol ASA | Oslo, Norway | 30.09.2013 | 100% | 168 009 099 | 190.2 | 8.2 | 204.3 |
| Marine Harvest Kritsen SAS | Pollaouen, France | 11.04.1997 | 100% | 7 005 366 | 12.6 | -1.3 | 11.8 |
| Total | 1 249.9 | 51.8 | 2 396.6 |
Shares in subsidiaries are recognized according to the cost method and yearly tested for impairment. Following the impairment test for 2017 an impairment cost of 36.0 EUR million has been recognized for the shares in Marine Harvest Kritsen SAS, and the carrying amount has been reduced from 47.8 EUR million to 11.8 EUR million (see also Note 3).
The owners share listed above are equal to the voting rights for each company.
| SPECIFICATION OF INTANGIBLE ASSETS (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Acquisition cost as of 01.01 | 14.9 | 11.9 | — |
| Additions in the year | 0.5 | 3.0 | 4.9 |
| Disposals / scrapping in the year | -0.5 | — | — |
| Reclassification | 2.3 | — | 7.8 |
| Translation effect | — | — | -0.8 |
| Total acquisition cost as of 31.12 | 17.1 | 14.9 | 11.9 |
| Accumulated amortization and impairment losses as of 01.01 | 5.4 | 2.3 | — |
| Amortization in the year | 2.9 | 3.1 | 2.4 |
| Impairment losses in the year | 0.5 | — | — |
| Disposals / scrapping in the year | -0.5 | — | — |
| Reclassification | 2.3 | — | — |
| Translation effect | — | — | -0.2 |
| Total accumulated amortization and impairment losses as of 31.12 | 10.5 | 5.4 | 2.3 |
| Total carrying amount as of 31.12 | 6.6 | 9.5 | 9.6 |
| Estimated useful life | 3-5 years | 3-5 years | 3-5 years |
| Amortization method | Linear | Linear | Linear |
| SPECIFICATION OF PROPERTY, PLANT AND EQUIPMENT (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Acquisition cost as of 01.01 | 7.2 | 7.1 | 14.5 |
| Additions in the year | — | 0.1 | 1.0 |
| Disposals / scrapping in the year | -1.6 | — | — |
| Reclassification | -2.3 | — | -7.8 |
| Translation effect | — | — | -0.5 |
| Total acquisition cost as of 31.12 | 3.4 | 7.2 | 7.1 |
| Accumulated depreciation and impairment losses as of 01.01 | 5.5 | 4.7 | 4.3 |
| Depreciation in the year | 0.6 | 0.8 | 0.7 |
| Disposals / scrapping in the year | -1.6 | — | — |
| Reclassification | -2.3 | — | — |
| Translation effect | — | — | -0.3 |
| Total accumulated depreciation and impairment losses as of 31.12 | 2.3 | 5.5 | 4.7 |
| Total net carrying amount as of 31.12 | 1.1 | 1.7 | 2.4 |
| Estimated useful life | 3-5 years | 3-5 years | 3-6 years |
| Depreciation method | Linear | Linear | Linear |
| OTHER LIABILITIES | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Conversion liability components of convertible bond | 75.9 | 439.6 | 209.5 |
| Pension liability | 4.2 | 3.9 | 3.4 |
| Total other non-current liabilities | 80.1 | 443.5 | 212.9 |
| Financial instruments | 91.8 | 90.9 | 97.7 |
| Tax liabilities | 55.8 | 100.3 | 55.4 |
| Other accruals | 8.4 | 28.6 | 28.5 |
| Total other current liabilities | 156.0 | 219.9 | 181.5 |
| SALARY AND PERSONNEL EXPENSES | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Salaries and other short-term employee benefits | -11.2 | -9.4 | -10.1 |
| Social security taxes | -2.2 | -1.6 | -1.5 |
| Pension expenses | -0.6 | -0.6 | -0.6 |
| Share option scheme including social security taxes | -1.6 | -2.1 | -2.3 |
| 3rd party staff | -1.5 | -1.4 | -0.7 |
| Other benefits | -0.2 | -0.2 | -0.3 |
| Total salary and personnel expenses | -17.2 | -15.1 | -15.5 |
| Loans to employees | — | — | — |
| Average number of full-time employees | 62 | 59 | 54 |
| Full time employees at year-end | 62 | 63 | 55 |
| CASH (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Cash at bank | — | 35.9 | 12.9 |
| Restricted cash / withheld taxes | 0.7 | 0.6 | 0.5 |
| Other restricted cash | 7.1 | 9.9 | 4.9 |
| Cash | 7.8 | 46.4 | 18.2 |
| EXECUTED SHARE PRICE |
|||||||||
|---|---|---|---|---|---|---|---|---|---|
| (EUR THOUSAND) | REMUNERATION TO SENIOR EXECUTIVES3) | SALARY | CASH BONUS |
BASED BONUS |
PENSION COST |
OTHER | TOTAL 2017 |
TOTAL 2016 |
TOTAL 2015 |
| Alf-Helge Aarskog | CEO | 634 | 268 | 1 250 | 7 | 2 | 2 161 | 2 024 | 890 |
| Ivan Vindheim | CFO | 359 | 345 | 709 | 7 | 2 | 1 422 | 1 350 | 707 |
| Marit Solberg | COO Farming | 300 | 76 | 614 | 205 | 19 | 1 215 | 1 201 | 655 |
| Per-Roar Gjerde1) | COO Farming | 284 | 164 | 551 | 7 | 1 | 1 007 | — | — |
| Ola Brattvoll | COO Sales & Marketing | 264 | 115 | 521 | 7 | 2 | 909 | 847 | 377 |
| Ben Hadfield | COO Fish Feed | 283 | 110 | 507 | — | — | 900 | 293 | 357 |
| Øyvind Oaland | Global Director R&D | 185 | 78 | 400 | 7 | 19 | 690 | 255 | 249 |
| Anne Lorgen Riise | Group Director HR | 157 | 73 | 310 | 7 | 1 | 549 | 218 | 233 |
| Kristine Gramstad Wedler |
Group Communication Director | 162 | 56 | — | 7 | 2 | 226 | 205 | 206 |
| Glenn Flanders2) | Chief Strategy Officer | 268 | 102 | — | 9 | 1 | 380 | 244 | — |
| Total | 2 897 | 1 387 | 4 862 | 263 | 48 | 9 458 | 6 637 | 3 674 |
1) Per-Roar Gjerde entered the position January 1, 2017.
2) Glenn Flanders entered the position February 10, 2016.
3) Senior Executives in Marine Harvest ASA are remunerated in the local currency NOK, except Ben Hadfield and Glenn Flanders who are remunerated in GBP and USD respectively. The amounts in this note have been converted to EUR using yearly average rates for 2017, 2016 and 2015.
| SHARE OPTION SCHEME - OPTIONS TO SENIOR EXECUTIVES |
2017-ALLOTMENT OF CALL OPTIONS |
2016-ALLOTMENT OF CALL OPTIONS |
2015-ALLOTMENT OF CALL OPTIONS |
2014-ALLOTMENT OF CALL OPTIONS |
|
|---|---|---|---|---|---|
| Alf-Helge Aarskog | CEO | 313 276 | 531 618 | 594 095 | 624 785 |
| Ivan Vindheim | CFO | 104 425 | 113 110 | 118 819 | 124 957 |
| Marit Solberg | COO Farming | 104 425 | 113 110 | 118 819 | 124 957 |
| Per-Roar Gjerde | COO Farming | 104 425 | 54 814 | 59 410 | 62 479 |
| Ola Brattvoll | COO Sales & Marketing | 104 425 | 113 110 | 118 819 | 124 957 |
| Ben Hadfield | COO Fish Feed | 104 425 | 113 110 | 118 819 | 124 957 |
| Total options | 835 401 | 1 038 872 | 1 128 781 | 1 187 092 | |
| Strike price as of December 31, 2017 (NOK) | 154.90 | 135.30 | 84.51 | 71.32 |
Marine Harvest ASA has a defined contribution plan where the contribution is limited to 8% of salaries up to 12G. There were 57 members in the plan as of December 31, 2017. The pension plan is in accordance with the legal requirements in Norway. Marine Harvest ASA has a defined benefit plan for one employee.
| DEFINED BENEFIT PLAN (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Current service cost | 0.1 | 0.1 | 0.1 |
| Interest cost on benefit obligation | 0.1 | 0.1 | 0.1 |
| Social security taxes | — | — | — |
| Net pension expense | 0.2 | 0.2 | 0.2 |
| Benefit liability | 4.2 | 3.9 | 3.4 |
| The assumptions used in determining the pension liability | |||
| Discount rate | 2.40% | 2.60% | 2.60% |
| Expected rate of future salary increase | 2.50% | 2.50% | 2.50% |
| Future rate of pension increases | 2.00% | 2.25% | 2.25% |
| Members in the plan | 1 | 1 | 1 |
| REMUNERATION TO BOARD OF DIRECTORS (EUR THOUSAND) |
BOARD FEE |
AUDIT COMMITTEE FEE |
TOTAL 2017 |
TOTAL 2016 |
TOTAL 2015 |
|
|---|---|---|---|---|---|---|
| Ole-Eirik Lerøy | Chair of the Board | 118 | — | 118 | 110 | 106 |
| Lisbet K. Nærø | Vice chair of the Board and member of the audit committee |
62 | 11 | 72 | 61 | 25 |
| Birgitte Ringstad Vartdal | Member of the Board and Chair of the audit committee |
43 | 16 | 59 | 30 | — |
| Cecilie Fredriksen | Member of the Board and member of the audit committee |
43 | 11 | 54 | 45 | 39 |
| Ørjan Svanevik | Member of the Board 1) | 43 | — | 43 | 35 | 39 |
| Paul Mulligan | Member of the Board | — | 133 | 68 | — | |
| Jean-Pierre Bienfait | Member of the Board | — | 43 | 22 | — | |
| Unni Sværen | Member of the Board - employee representative | 43 | — | 43 | 22 | — |
| Stein Mathiesen | Member of the Board - employee representative 2) | 43 | — | 43 | 40 | 39 |
| Lars Eirik Hestnes | Member of the Board - employee representative | 43 | — | 43 | 40 | 36 |
| Leif Frode Onarheim | Former vice chair of the Board | — | — | — | 35 | 73 |
| Kjellaug Hoås Samland | Former member of the Board - employee representative | — | — | — | 19 | 39 |
| Heléne Vibbleus | Former member of the Board | — | — | — | 24 | 50 |
| Solveig Strand | Former member of the Board | — | — | — | — | 25 |
| Michael Parker | Former member of the Board | — | — | — | — | 10 |
| Nils O. Klevjer | Former deputy member of the Board - employee represent ative |
— | — | — | — | 3 |
| 612 | 38 | 650 | 551 | 484 |
1) Until January 2018, then replaced by Kristian Melhuus
2) Until February 2018, then replaced by Yngve Magnussen
None of the members of the Board received compensation from any other Group companies, except for the employee representatives. Their remuneration as employees is not included above.
Pursuant to section 6-16a of the Public Limited Companies Act the Board of Directors of Marine Harvest ASA is required to prepare a statement on the principles applicable to the determination of salaries and other compensation for senior executives.
The Board of Marine Harvest ASA determines the principles applicable to the Group's policy for senior executive compensation.
The Board is directly responsible for the determination of the CEO's salary and other benefits. The CEO is, in consultation with the chair of the Board, responsible for the determination of the salary and other benefits for the Group's other senior executives. The Group's senior executives include the management team of each Business Area as well as the senior members of the corporate staff.
The purpose of Marine Harvest's compensation principles for senior executives is to attract employees with the competence required by the Group, retain employees with important competence and motivate employees to contribute in the long-term in order to reach the Group's business goals.
The Group's most important competitive advantage shall be the ability to offer each employee meaningful and challenging responsibilities in a good working environment.
The following guidelines shall form the basis of the determination of compensation to the Group's senior executives:
The total compensation offered to senior executives shall be competitive, both nationally and internationally.
The compensation shall contain elements providing necessary financial security following termination of the employment, both before the age of retirement and in connection with this.
The compensation shall be motivating, both for the individual and for the Group's senior executives as a group.
Variable elements in the total compensation to the Group's senior executives shall be linked to the values generated by the Group for the benefit of Marine Harvest ASA's shareholders.
The system of compensation shall be understandable and meet general acceptance internally in the Group, among the Company's shareholders and with the public.
The system of compensation shall be flexible and contain mechanisms which make it possible to carry out individual adjustments based on the results achieved and contributions made towards the development of the Group.
The fixed salary which each individual senior executive in the Group will receive in 2017 is a consequence of existing employment agreements. When recruiting, the salary level offered will reflect this. Adjustments of individual fixed salaries will be carried out in accordance with trends in local labor markets, the results achieved, and individual contributions to the development of the Group.
The Group's compensation schemes include only a limited number of benefits in kind. These benefits correspond to common practice in local labor markets and typically include personal communication equipment, access to media, and in some cases car and parking arrangements. These schemes will be continued in 2018 according to existing agreements. Such schemes will be included in the terms for new employees in accordance with established practice.
The Group currently operates a number of pension schemes for its employees. These are further described in Note 14 to the Group financial statements.
The pension schemes comply with such local statutory requirements as the individual companies in the Group are obliged to comply with. Schemes which go beyond what is required by law are mainly contribution based. These schemes will be continued in 2018. New employees will be included in the schemes in accordance with local practice.
The Group has individual agreements on termination payments upon dismissal with several of its senior executives. The right to receive a termination payment is linked to a waiver of the general protection against termination under applicable employment laws. The period of termination payment is normally up to 24 months from resignation. There are no plans to change existing agreements for senior executives in this area in 2018. The current practice on the use of termination payments will be continued in 2018 in relation to new recruits.
The Group's senior executives have, as a part of their employment terms, a right to receive an annual bonus. The scheme is cash-based and is normally triggered for each individual if set goals for the Group, and for the individual entitled to bonus, are met. 70 % of the bonus is linked to the target achievement of the Group and a Business Area, while 30 % is linked to individual goal achievement. The size of the bonus is, for each
individual, limited to a share of the person's fixed salary. Such bonus shall normally not exceed 50% of the fixed salary. Bonus for the CEO and the CFO is capped at 75% and 100% respectively of the fixed salary. There are no plans to change the current bonus scheme. New permanent employees in 2018 will be included in this scheme.
The Group has a share option scheme for senior executives, pursuant to which allocations were made in 2014, 2015, 2016 and in 2017. The scheme is based on annual allocations by the Board of Directors of a number of European call options with a strike price of 107.5% of the share price at the date of the annual general meeting authorizing allocations under the scheme. The options have a term of four years but will become exercisable immediately if a mandatory bid is made for all of the shares in Marine Harvest or if Marine Harvest is the non-surviving entity in a merger with another company.
If the holder of the options exercises the options, the Company may settle its obligation through the issue of new shares or, alternatively, by selling treasury shares to the option holder. There will be no lock-up obligation on the shares the option holder receives through the exercise of the option. The exercise of the option is conditional upon the option holder being employed in a non-terminated position in the Group at the date of exercise. The number of shares and the strike price will be adjusted for dividends and changes in the equity capital during the term of the option according to the Oslo Stock Exchange's derivative rules. Total profit through the exercise of the option in a year is capped at two years' salary for the option holder. If the profit exceeds this limit, the number of shares to be issued will be reduced accordingly.
Following the 2017 annual general meeting (the "2017 AGM"), the Board of Directors allocated 1.5 million options with a strike price corresponding to 107.5% of the volume weighted average share price on OSE the day of the 2017 AGM, being NOK 161.7566 to a total of 22 individuals.
The Board of Directors will propose a continuation of the scheme to the 2018 annual general meeting (the "2018 AGM"). A total allotment of up to 1.5 million options will be proposed based on a strike price corresponding to 107.5% of the volume weighted average share price on OSE the day of the 2018 AGM.
Eligibility to the share option scheme is limited to: Group CEO, other Senior Executives and management and key experts of business areas, subsidiaries and group functions, based on the following criteria:
The Board will, annually, consider giving all permanent employees in Marine Harvest ASA and its Norwegian, Scottish and Canadian subsidiaries the opportunity to acquire shares in the Company at a gross amount of up to NOK 30 000 at a discount of 20%.
In the course of 2017 and the first quarter of 2018, the Group has complied with the policy for remuneration of senior executives that was presented at last year's general meeting.
| SPECIFICATION OF OTHER OPERATING EXPENSES (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Sales and marketing costs | -0.8 | -0.7 | -0.8 |
| IT costs | -5.8 | -5.9 | -4.4 |
| Consultancy and audit fees | -8.9 | -6.5 | -10.1 |
| Travel expenses | -1.2 | -1.4 | -1.6 |
| Rent and leases | -0.7 | -0.9 | -1.0 |
| Other operating costs | -0.6 | -0.7 | -0.7 |
| Total other operating expenses | -18.1 | -16.1 | -18.5 |
| FEES TO AUDITORS (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Audit services | 0.5 | 1.1 | 0.6 |
| Tax advisory services | 0.1 | 0.1 | 0.1 |
| Other non-audit fees | — | — | 0.1 |
| Total fees | 0.6 | 1.2 | 0.8 |
Auditor 's fee is stated exclusive value added tax.
On March 12, 2018 Marine Harvest repaid the NOK 1 250 million bond. The bond was issued in March 2013 as an unsecured bond with a principal amount of NOK 1 250 million. The bond carried a coupon of three month NIBOR plus 3.5% p.a., payable quarterly. The bond was repaid according to terms and is delisted from the Oslo Stock Exchange. For information about interest bearing debt see Note 5 in MH ASA and Note 11 and 13 in Group.
Today, the Board of Directors and the Chief Executive Officer reviewed and approved the Board of Director's report and the consolidated and separate annual financial statements for Marine Harvest ASA, for the year ended December 31, 2017 (Annual report 2017).
Marine Harvest ASA's consolidated financial statements have been prepared in accordance with IFRSs and IFRICs as adopted by the EU and applicable additional disclosure requirements in the Norwegian Accounting Act. The separate financial statements for Marine Harvest ASA have been prepared in accordance with the Norwegian Accounting Act and Norwegian accounting standards as of December 31, 2017. The Board of Directors' report for the Group and the parent company is in accordance with the requirements in the Norwegian Accounting Act and Norwegian accounting standard no 16, as of December 31, 2017.
Chair Vice-Chair
Employee representative
Jean-Pierre Bienfait Ole-Eirik Lerøy Chair of the Board
Employee representative Employee representative Chief Executive Officer
BERGEN, MARCH 19, 2018
Lisbet K. Nærø Vice Chair of the Board
Cecilie Fredriksen Paul Mulligan
Jean-Pierre Bienfait Birgitte Ringstad Vartdal Kristian Melhuus Lars Eirik Hestnes
Employee representative
Yngve Magnussen
Employee representative
Unni Sværen Employee representative
Alf-Helge Aarskog Chief Executive Officer
Part 04
| 231 | Analytical information and alternative performance measures (APM) | ||
|---|---|---|---|
| ----- | -- | ------------------------------------------------------------------- | -- |
We want to contribute to the correct pricing of our share by giving the market in-depth, relevant and accurate information about the salmon farming industry in general and our activities in particular. This is why we include an extensive overview of our industry, its key drivers and alternative performance measures (APM) in a separate section of the integrated annual report. We use APMs in our operational follow up as we believe these provide additional insight when analyzing our Group's development. For more information see also our industry handbook at marineharvest.com.
Risk relates to the uncertainty and the factors that may prevent us from generating the expected returns, reaching our goals and deliver on our strategy. In Marine Harvest, we split our defined risks into subcategories within our four guiding principles - Profit, Planet, Product and People to ensure that they are addressed by our most capable people within each area.
At year-end 2017, the market value of Marine Harvest was NOK 68.1 billion. The price per share price at year-end 2017 was NOK 139 (USD 16.94).
We want to contribute to the correct pricing of our share by giving the market in-depth, relevant and accurate information about the salmon farming industry in general and our activities in particular.
producing sector. 70% of our planet is covered with water, yet the United Nations Food and Agriculture Organization (FAO) estimates that only approximately 2% of the world's food supply comes from the ocean. In 2014, the aquaculture industry contributed 44% of the fish destined for human consumption. The aquaculture industry's output has soared since the mid-1990s, while the wild fish harvest in the same period has been stable.
It is estimated that the global population will grow from 7.4 billion in 2016 to almost 9.4 billion by 2050, resulting in increased demand for protein- rich food. According to the FAO, an additional 47.5 million tonnes of aquatic food will be required by 2050.
Our main product is farmed Atlantic salmon. Consumption of Atlantic salmon is considered to be healthy because of its high content of protein, Omega-3 fatty acids, vitamins and minerals. Atlantic salmon farming started on an experimental level in the 1960s, and became an industry in Norway in the 1980s. Salmon farming consists of raising juvenile salmon, or smolt, to fully grown salmon in large pens located in the sea, fjords and bays. Salmon farming also includes raising smolt from salmon eggs, which takes place in freshwater, typically in lakes or tanks on land. Almost all commercially available Atlantic salmon is farmed. Due to biological constraints, seawater temperature requirements and other natural limitations, farmed salmon is produced in Norway, Chile, Scotland, North America, Faroe Islands, Ireland and New Zealand/Tasmania.
Atlantic salmon is a small but growing part of the global protein supply. Despite an increase in production of Atlantic salmon of more than 900% since 1990 (according to the FAO), the total global supply of salmon is still marginal compared to most other major seafood categories. This is because the industry has reached a production level where biological boundaries are being pushed.
Future growth requires the implementation of measures to reduce the industry's biological footprint. This will necessitate progress in technology, non-pharmaceutical techniques, industry regulations and intercompany cooperation.
We are the world's largest producer of farmed salmon, both by volume and revenue, offering fresh, whole salmon, processed salmon and other processed seafood products to customers in approximately 70 countries worldwide. We currently engage in three principal types of production activities:
To further support our farming activities, we established DESS Aquaculture Shipping in 2016. DESS Aquaculture Shipping is a joint venture with Solstad Farstad ASA established for the purpose of building, owning and operating aquaculture vessels. In August 2016, the company contracted its first two newbuilds, one well boat and one harvest vessel, and in the second quarter of 2017 the company entered into two new wellboat newbuilding contracts. Accordingly, DESS Aquaculture Shipping has a total of 4 wellboats and 1 harvest vessel under construction at year end 2017.
We continue the process of transforming ourselves from a production-driven fish farming company into an integrated marine protein provider, by expanding in fish feed and broadening our farming and secondary processing operations.
We opened our first feed factory in June 2014 to facilitate our control of the value chain, enable the rapid development of improved feed products and ensure quality throughout the process. Our feed plant in Bjugn, Norway, supplied 85.5% of our Norwegian fish feed requirements in 2017. Our second feed plant at Kyleakin on the Island of Skye, Scotland was given the go-ahead by the Highland Council in February 2017. The plant is expected to be completed during the summer of 2018. Through the gradual in-sourcing of feed, we expect to obtain lower feed costs as well as improved growth, lower feed conversion rates and higher end-product quality.
Our fish farming operations cover the salmon's entire lifecycle, from egg to harvest size. We also have facilities for harvesting and primary processing of our fish. We have our own breeding and genetics department and our strategy is to produce our own eggs to secure the selection of the best genetic properties. We keep our own broodstock and invest significant efforts and resources to improve the performance, disease resistance, quality and welfare of the fish. Juvenile fish (smolt) are transferred to the sea at different weights depending on the requirements of the sites to be stocked and our smolt production capacity. The average weight of smolt put to sea in 2017 was 145 grams, up from 140 grams in 2016. The fish are then nurtured in the sea for a period of 12-22 months depending on the size of the smolt stocked, the temperature of the seawater, our farming practices and the biological situation. At harvest weight, approximately five to six kg live weight equivalent, or LWE, the salmon undergoes primary processing into gutted weight equivalent, or GWT, which is the main commodity sold to the markets and used in most reference prices. The customers of our primary processed salmon are retailers, secondary processors, including our own operations, and distributors.
Our secondary processing operations turn the gutted fish into products such as fillets, steaks and other portions of fish - smoked, fresh and frozen. The broadening of our secondary processing operations started with the acquisition of Morpol, a world leading secondary processor of salmon in 2012/2013. Reflecting the success of our sales of fresh prepacked products in the US market, we opened a new plant in Dallas, Texas in December 2016 and in Surrey, British Columbia, in December 2017. We currently operate 30 secondary processing facilities, the largest of which are located in Ustka, Poland; Bruges, Belgium; Rosyth, Scotland; and Boulogne and Landivisiau, France. Secondary processing activities include further preparation to create ready-to-heat or ready-to-eat products and packaging the products. Purchasers of secondary processed salmon include retailers, such as grocery stores, food service providers such as hotels and other service and catering entities, as well as industry customers including meal and salad producers.
We are organized into three Business Areas: Feed, Farming and Sales and Marketing.
Feed comprises our first feed plant, located in Norway. A new feed plant will be opened in Kyleakin on the Island of Skye, Scotland, in 2018.
Farming comprises a single operating segment composed of our farming operations in Norway (three regions from January 2018), Scotland, Canada, Chile, Ireland and the Faroe Islands. This segment also includes primary processing activities and some filleting activities (a secondary processing activity).
Sales and Marketing is composed of two operating segments:
– Markets: the segment comprises activities relating to sales of our primary processed products obtained from the Farming business and, to a lesser extent, purchased from third parties. It also includes logistics and delivery of our products to third-party customers, as well as to our internal secondary processing operations (including Consumer Products) and some secondary processing activities; and
– Consumer Products: the segment includes our European secondary processing and value added operations, as well as end-product sales, including logistics.
In addition to our principal operating segments, we have a group of "Other" activities, consisting of corporate functions.
The following illustration demonstrates activities conducted by our Business Areas.
Our Farming business is engaged in the production, harvesting and primary (and some secondary) processing of fish. For reporting purposes, Farming sells its main products (i.e., salmon gutted weight) to the Markets segment at prices quoted by Nasdaq OMX (Nasdaq price) or similar salmon pricing indices. Where Markets enter into medium or short-term contracts with third parties, salmon is sold from Farming to Markets at prices reflected in such contracts. The Markets segment resells the primary processed salmon to (i) third parties or (ii) Consumer Products for further processing. Markets also include some secondary processing activities. Consumer Products secondary process salmon purchased from Markets, together with salmon and other seafood purchased from third parties, and sells these products to third parties. Third-party purchases comprised approximately 35% of Consumer Products total fish purchases by value in 2017.
We assess the overall value creation of our operations based on the salmon's source of origin, using Operational EBIT per kg of fish harvested as a key measure of performance. For this reason Operational EBIT related to our Feed and Sales and Marketing operations is allocated back to the country of origin. There was a change in the allocation principle in 2016 to also include Operational EBIT from Feed and third party fish in Sales and Marketing in the allocated Operational EBIT.
The relationship between our functional segments and our operational reporting per country of origin is illustrated on the following page.
Our primary source of revenue is the sale of primary and secondary processed seafood (including value added products), mainly salmon. Revenue generated by our products is the factor of volumes sold and the price that we achieve for our products. Our products are shipped long distances by road, air and water. Our revenues therefore include a substantial freight element, since the freight cost generally is paid by customers.
Sales of salmon and salmon-derived products represented 91.2% and 89.8% of our revenue for the years ended December 31, 2017 and 2016, respectively. Whole (fresh and frozen) salmon represented 43.7% and 43.5% of our total revenues for the years ended December 31, 2017 and 2016 respectively, while the sale of secondary processed salmon accounted for 47.5% and 46.3% respectively of our revenue for the same periods.
We sell salmon and other seafood directly to retailers, hotels, restaurants as well as to third party processors and distributors in approximately 70 countries worldwide.
Harvested volume primarily depends on the quantities of smolt introduced into our operations, which are determined by us one-totwo years prior to harvesting, fish growth rates and our harvesting schedule.
The quantities of smolt introduced into our operations are based on our expectations for the demand for finished product at harvest time, anticipated product prices and our organic growth ambitions in light of regulatory constraints (e.g., maximum standing biomass in production established by our farming licenses).
Fish growth rates are affected by water temperature, disease and other biological issues. As salmon is a cold-blooded animal, seawater temperature plays an important role for its growth rate. With high seawater temperatures, disease risk increases, while temperatures below freezing cause mass mortality. Similarly, biological factors, disease, sea lice and stress of fish each negatively impact the rate of growth of our fish and may result in reduced fish survival.
Volumes in a period are also affected by our harvest schedule, i.e., when we decide to harvest fish from a particular location. Our harvest window is effectively limited by fish age, as fish must be harvested prior to maturation. Nevertheless, we do have a limited ability to accelerate or delay harvest (typically, by a matter of weeks) to optimize price achievement.
The majority of our secondary processing occurs in our Consumer Products segment, while some secondary processing also occurs in our Markets segment in the Americas, Asia and Europe. Some filleting activities are also carried out by our Farming operations. The volume of secondary processed salmon, including value added products that we produce depends on market demand for our secondary processed seafood and the production capacities of our operations.
In 2017, 65% of the fish used in our secondary processing business in Consumer Products, as measured by value, was produced by our fish farms. We have a constant supply of raw materials used in production and can vary our volume of secondary processed seafood based on projected customer demand. Sales of salmon-based products to third party customers accounted for 85% of Consumer Products total sales in 2017, with the remaining representing sales of products based on other fish species, such as cod, pangasius, saithe, Alaska pollock, sockeye, and haddock.
The price received for our products is determined by the relevant market prices. Our achieved prices may deviate from market prices due to differences in the quality of our product, sales contracts, which typically fix the sales price for a period of three to 12 months, but sometimes longer, and our ability to place our products efficiently in the market. We aim to sell our products at or above market prices, and we measure our ability to do so through price achievement, which measures the prices at which we sell our products against the relevant salmon price index or reference price.
We have been actively pursuing strategies to reduce our dependence on market prices for salmon by increasing our capacity to produce more value- added products, which are generally associated with more stable consumer prices.
Several price indices for salmon are publicly available. The two most important indices for Norwegian salmon are Nasdaq/Fish Pool provided by NOS Clearing ASA, a subsidiary of Nasdaq OMX Group Inc., and the official statistics of Norway by Statistics Norway, or SSB, a Norwegian governmental entity. Urner Barry in the United States provides a reference price for Chilean salmon in Miami and North American salmon in Seattle. Price correlation across regional markets is generally strong for Atlantic salmon, but we have recently seen a tendency of reduced correlation between prices in America and Europe.
Historically, reference prices for salmon have been subject to significant fluctuations, as demand for salmon has been growing steadily, whereas supply has fluctuated strongly due to variations in factors such as smolt release and biological status, including disease.
Activities conducted by our Business Areas, interacting with suppliers and customers.
Although the market price of salmon is established through supply and demand for the product, in the short term, salmon producers are expected to be price takers. The long production cycle and a short time window available for harvesting leave salmon farmers with limited flexibility to manage their short-term supply. In addition, salmon is generally sold as a fresh commodity with a limited product lifespan, further restricting producers' ability to control short-term supply.
As our Irish operation produces mainly organic salmon, there is no reference price available for benchmarking our salmon of Irish origin. Salmon from our Irish operations is sold mainly on contracts.
Prices for the products produced by Consumer Products are primarily driven by customer demand and the cost of the raw materials used in their production. Because secondary processed/elaborated products, including value added products, are to some extent considered to be premium products, demand fluctuates with the state of regional and global economies and the consumers' general wealth. In addition, global trends in consumer tastes affect demand for such products.
The cost of raw materials is largely dependent on reference prices, especially Atlantic salmon prices, most of which we supply internally from our Farming operations. In 2017 average raw material prices declined somewhat in the European market (NASDAQ Oslo). Prices started at peak levels, but declined gradually throughout the year. Prices in the North American market followed the same pattern throughout the year as in Europe, however, the average price for the year was somewhat higher than in 2016.
The quality of our fish may greatly affect the price we are able to achieve in comparison to the reference price. Diseases, sea lice, biological issues (such as Kudoa) and stress may all impact the quality of our fish, resulting in downgrading and lower achieved prices. In addition, when salmon reach reproductive maturity, or maturation, the flesh color and meat quality changes, resulting in lower product quality.
Fish may be classified as superior, ordinary or production quality.
1 Includes secondary processing operations in the Czech Republic.
2 Includes secondary processing operations in the USA and Chile.
3 Includes secondary processing operations in Japan, China, Taiwan, South Korea and Vietnam.
4 Where Markets enters into medium or short term sales contracts with third parties, salmon is sold from Farming to Markets at prices reflected in such contracts.
To limit our exposure to short and medium-term fluctuations in salmon prices, we enter into sales contracts for future deliveries of our products. Our sales contracts generally have a duration of three to 18 months, but sometimes longer. Our target is to optimize the contract portfolio to attain the best possible mix of contracts and spot sales, with an average contract coverage ratio typically between 20% and 50%.
Contracts mitigate our exposure to fluctuations in salmon prices, but can also result in us selling our products at prices that are lower than reference price.
Superior quality fish is a product without damage or defect that provides a positive overall impression. Ordinary quality fish is a product with limited external or internal faults, damage or defects. Production quality fish is a product that does not satisfy the requirements of either superior or ordinary quality due to product faults, damage or defects. In Norway, downgraded fish are normally priced according to standard rates of deduction compared to a superior quality fish. For fish classified as ordinary the standard rate of reduction is EUR 0.15 to EUR 0.20 per kg gutted weight. For fish classified as production grade the standard rate of reduction is EUR 0.5 to EUR 1.50 per kg gutted weight, depending on the reason for downgrading. In other countries, price deductions related to quality are not as standardized, but the same general principles apply. Costs in our Farming segment are categorized into feed costs, other seawater cost and non-seawater costs and we track these costs per kg of fish harvested, where: – fish feed costs measure the cost of fish feed; – other seawater costs measure costs relating to smolt, salaries, able to fish production at sea; and – non-seawater costs are the cost of bringing the fish from the costs, administration costs, exceptional mortality costs and other
We also utilize salmon derivatives to hedge our exposure to fluctuations in reference prices. Salmon derivatives provide the same hedge against exposure to spot price fluctuations as contracts for future sales of salmon to customers, so we use hedging instruments as well as contracts to achieve our contract coverage goals described above.
The average price achievement measures the prices that we are able to achieve on our products against a salmon price index. The achievement is measured against Nasdaq for salmon of Norwegian, Scottish and Faroese origin, and Urner Barry for salmon of Canadian and Chilean origin.
The average price achievement measure demonstrates our ability to sell our products at above market rates and is thus an important measure of our success. Price achievement is primarily affected by contract coverage, fish quality and our ability to place our products efficiently in the market.
Our costs are primarily affected by the cost of our fish feed, other purchases (including third-party raw material sourcing), salaries, other operational costs and biological factors. We use these cost categories to track our costs at consolidated level.
These costs (fish feed, other seawater costs and non-seawater costs) represent the total cost for one kg gutted salmon packed in a standard box for shipping ("cost in box"). The term "cost in box" is widely used by the industry and analyst community as an indicator of operational efficiency in fish farming operations. These costs are included in the following line items in our consolidated statement of operations: cost of materials, salary and personnel expenses, other operating expenses and depreciation. The total of feed cost and other seawater costs is the cost of harvested fish in seawater, before transportation to the processing plant. We refer to these costs as biomass costs or biological costs.
Costs in our Feed operations are primarily composed of raw material costs (e.g. fish meal, fish oil, vegetable meals and oils) and costs associated with running feed operations, such as salaries and utilities.
Costs in our Sales and Marketing Business Area are primarily composed of raw material costs (e.g., primary processed salmon), which we to a large extent produce internally for our Consumer Products operations, and costs associated with running secondary processing operations, such as salaries and utilities. We measure our secondary processing operational efficiency through yield and throughput. Yield measures the number of kgs of end product we are able to produce from one kg of raw materials. Throughput measures our secondary processing cost per kg produced.
Because it takes two to three years to bring a salmon to harvest size, fish feed prices and prices for other costs associated with the farming of fish accumulate over multiple periods (i.e., the entire life of the fish), and affect the cost of materials recognized in the period when our fish is harvested and sold. Costs associated with secondary processing are expensed in the period in which the product is sold, unless goods are produced for stock to be sold in a later period.
The table below shows the estimated effect on our Operational EBIT of a change in market price, harvest volume and cost of fish feed.
| CHANGE FACTOR | CHANGE | EFFECT ON OPERATIONAL EBIT | FIXED CONTRACT SHARE |
|---|---|---|---|
| Change in global average sales price with contracts 1) |
0.10 EUR per kg GWT | 22.0 | 40.0% |
| 1.00 EUR per kg GWT | 222.0 | 40.0% | |
| 2.50 EUR per kg GWT | 556.0 | 40.0% | |
| Change in global average sales price without contracts 2) |
0.10 EUR per kg GWT | 37.0 | 0% |
| 1.00 EUR per kg GWT | 370.0 | 0% | |
| 2.50 EUR per kg GWT | 926.0 | 0% | |
| Change in total harvest volume 3) | 10 000 tonnes GWT | 20.0 | |
| Change in global feed price 4) | -0.05 EUR per kg feed | 25.0 | |
| -0.50 EUR per kg feed | 251.0 | ||
| -1.00 EUR per kg feed | 503.0 |
1) Assuming 40% of sales on fixed price contracts and 60% in the spot market
2) Assuming all sales in the spot market
3) Assuming margin per kg harvested of EUR 2
4) Annual harvest volume converted to live weight multiplied with the feed conversion rate
Note that the effect in Operational EBIT will be recognized when the fish is harvested and sold
Fish feed is our largest expense category, and it accounted for approximately 41% of our "cost in box" per kg in 2017 compared to 43% in 2016.
In addition to own production of feed, we procure our fish feed from a limited number of suppliers globally, primarily Skretting and BioMar. Our arrangements with the suppliers generally provide that we acquire the fish feed at prices tied to the market prices for the raw materials used in producing the feed, such as fish meal, fish oil, vegetable oils and meals. The arrangements are subject to a minimum fee per kg of fish feed, structured to cover the suppliers' operational costs and margins. Our arrangements generally do not contain minimum or maximum fish feed purchase quantities. The feed cost accumulate over multiple periods (i.e., the entire life of the fish) and is recognized in the period when our fish is harvested and sold.
The yield generated from our fish feed is affected by the feed conversion rates, which is the number of kgs of fish feed needed to increase a fish's bodyweight by one kg. Our feed conversion rate is typically between 1.1 and 1.2 kg of feed per kg of fish produced.
Other seawater costs in Farming represent costs associated with smolt purchases, employee salaries, insurance, medication and other direct and indirect costs attributable to fish production at sea. These costs accumulate over multiple periods (i.e., the entire life of the fish) and are recognized in the period when our fish is harvested and sold.
In Farming, non-seawater costs represent the cost of bringing the fish from seawater sites to primary processing facilities, primary processing costs, administration costs, exceptional mortality costs and other relevant costs for the fish harvested in the period. Non-seawater costs are generally incurred and expensed in the same period. As the majority of these costs are fixed, this category is subject to substantial scale effects based on the volumes of salmon harvested.
Biological factors, such as fish mortality, fish diseases and sea lice affect our harvest volumes and therefore our revenue, but also our costs. We may be required to expend resources to mitigate the effects of the foregoing factors (e.g., costs of vaccines) and the cost per kg harvested increases if fish die or growth is impaired.
Farmed salmon is exposed to various infectious and non-infectious diseases. An outbreak of a disease represents a cost for us through direct loss of fish. In addition, disease can result in lost growth of fish, accelerated harvesting and reduced quality of harvested fish, which would affect our revenues. In some cases, a disease outbreak may be followed by a subsequent period of reduced production resulting in lower revenues and increased cost per kg fish harvested. Fish survival rates are affected by a number of factors, including infectious and non-infectious diseases, wounds, predators and fish handling. We expense incident-based mortality in the period when incidents occur. The cost associated with normal mortality is included in the value of the remaining inventory, contributing to the increased cost of the fish when harvested and sold.
Sea lice, of which there are several species, are naturally occurring seawater parasites. They infect the salmon's skin and, if not controlled, they can cause lesions, secondary infections and mortality. Sea lice can be controlled through good husbandry and management practices, the use of pharmaceutical products, cleaner fish (wrasse and lumpsuckers that eat sea lice off the salmon's skin), other non-medicinal tools (e.g. skirts around pens), thermolizers, hydrolizers, FLS flushers and freshwater baths. Effective sea lice management is important for fish welfare and ensuring lice on our farms do not negatively impact wild salmonid stocks. Sea lice also represent a cost to the industry.
As we believe the financial figures set forth in our consolidated statement of income and financial position do not always reflect the underlying performance of our operations, we continuously work to develop key operational performance indicators and alternative performance measures (non-IFRS measures) that we think provide additional insight when analyzing our Group's development.
Operational EBIT is a non-IFRS financial measure, calculated by excluding each of the following items from earnings before financial items and taxes, or EBIT, as set forth in our consolidated statement of income prepared in accordance with IFRS:
We exclude these items from our EBIT as we believe they affect the comparability of our operational performance from period to period, given their non-operational or non-recurring nature. Operational EBIT is used by management, analysts, rating agencies and investors in assessing our performance. Accordingly, we believe that the presentation of Operational EBIT provides useful information to investors. Our use of Operational EBIT should not be viewed as an alternative to EBIT or to profit or loss for the year, which are measures calculated in accordance with IFRS. Operational EBIT has limitations as an analytical tool in comparison to EBIT or other profit and loss measures prepared in accordance with IFRS. Some of these limitations are:
it does not reflect the impact of earnings or charges that we consider not to be indicative of our on-going operations,
it does not reflect financial items and income tax expense; and 3. other companies, including other companies in our industry, may calculate Operational EBIT differently than we do, limiting its usefulness as a comparative measure.
We present Operational EBIT at Group level, by country of origin and by segment. For a reconciliation of our Operational EBIT by segment to EBIT, see Note 4 to the Group financial statements.
Operational EBIT % is a non-IFRS financial measure. We calculate Operational EBIT % by dividing Operational EBIT by Operational Revenue, each a non-IFRS financial measure. Management employs Operational EBIT % to assess operational performance of some of our segments, disregarding certain non-recurring and non-operational items, excluded from Operational EBIT and Operational Revenue. The usefulness of Operational EBIT % is inherently limited as further described in Operational EBIT and Operational Revenue paragraphs above. A table setting forth our calculation of Operational EBIT % is set forth below.
Operational Revenue is a non-IFRS financial measure, calculated by including realized gain/loss from currency derivatives related to contract sales of Norwegian origin and excluding change in unrealized salmon derivatives from revenue and other income as set forth in our consolidated statement of comprehensive income prepared in accordance with IFRS. We exclude change in unrealized salmon derivatives from our revenue and other income as we believe it affects the comparability of our operational performance from period to period, given its non-operational nature. Our use of Operational Revenue should not be viewed as an alternative to revenue and other income, which is a measure calculated in accordance with IFRS. Operational Revenue has limitations as an analytical tool in comparison to revenue. Some of these limitations include the fact that changes in unrealized salmon derivatives may need to be cash settled at a future date. Our Operational Revenue is reconciled to revenue and other income in footnotes to our interim financial statements included in documents incorporated herein by reference.
ROCE is a non-IFRS financial measure, calculated by dividing Adjusted EBIT by average capital employed. Adjusted EBIT is calculated as EBIT, as set forth in our consolidated statement of income prepared in accordance with IFRS, adjusted for:
Average capital employed is calculated as the average of the beginning of the period and end of the period capital employed except when there are material transactions during the year. Capital employed is the sum of net interest bearing debt, or NIBD, as of the end of the period plus equity as of the end of the period adjusted for:
Our NIBD as of the end of a period (for purposes of calculating average NIBD) is equal to our non-current interest-bearing debt minus our total cash, plus our current interest-bearing debt, plus the net effect of currency derivatives on interest-berating debt.
We use ROCE to measure the return on capital employed, regardless of whether the financing is through equity or debt. In our view, this measure provides useful information for both management and our investors about our performance during periods under evaluation. We believe that the presentation of ROCE provides useful information to investors because ROCE can be used to determine whether capital invested in us yields competitive returns.
Our use of ROCE should not be viewed as an alternative to EBIT or to profit or loss for the year, which are measures calculated in accordance with IFRS or ratios based on these figures.
The usefulness of ROCE is also inherently limited by the fact that it is a ratio and thus does not provide information as to the absolute amount of our income, debt or equity. It also excludes certain items from the calculation and other companies may use a similar measure but calculate it differently.
Underlying Earnings per Share, or Underlying EPS, is a non-IFRS financial measure. We calculate Underlying EPS by dividing Adjusted Operational EBIT, calculated as Operational EBIT net of accrued payable interest (net), minority share of profit and tax expense calculated based on estimated tax rates, divided by the weighted average number of shares outstanding during the period.
Management employs Underlying EPS to assess our operational performance, disregarding non-operational items like amortized interest, net currency effects and net other financial items with the exception of cash costs, and not reflecting permanent and temporary differences in the computation of taxes.
We view Underlying EPS as a useful tool reflecting our operational performance per ordinary share outstanding. The usefulness of Underlying EPS is inherently limited. Some of these limitations are that Underlying EPS does not reflect the impact of earnings or charges that we consider not to be indicative of our on-going operations and Underlying EPS. A table setting forth our calculation of Underlying EPS is set forth below.
For further details about our financial performance, please see the Profit section and Statements and Notes.
The following tables reconciles our Operational EBIT to EBIT in EUR million and EUR per kg for the Group and for our Farming units for the years ended December 31, 2017, 2016 and 2015:
| RECONCILIATION GROUP (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Group Operational EBIT | 792.1 | 700.2 | 346.8 |
| Change in unrealized internal margin | 5.7 | -22.1 | -2.2 |
| Gain/loss from derivatives | -20.1 | 8.3 | -12.5 |
| Net fair value adjustment biomass | -340.3 | 386.2 | 10.1 |
| Onerous contracts provision | 119.8 | -108.7 | -0.7 |
| Restructuring costs | -2.5 | -5.4 | -15.2 |
| Income/loss from associated companies and joint ventures | 33.7 | 62.6 | 23.4 |
| Impairment losses | -103.8 | -31.2 | -6.8 |
| Other non-operational items | 0.3 | 1.3 | 2.4 |
| Group EBIT | 484.9 | 991.2 | 345.3 |
| RECONCILIATION GROUP (EUR per kg) |
|||
| 2017 | 2016 | 2015 | |
| Group Operational EBIT | 2.14 | 1.84 | 0.83 |
| Change in unrealized internal margin | 0.02 | -0.06 | -0.01 |
| Change in unrealized salmon derivatives | -0.05 | 0.02 | -0.03 |
| Net fair value adjustment biomass | -0.92 | 1.02 | 0.02 |
| nerous contracts provisi | |
|---|---|
| RECONCILIATION GROUP (EUR per kg) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Group Operational EBIT | 2.14 | 1.84 | 0.83 |
| Change in unrealized internal margin | 0.02 | -0.06 | -0.01 |
| Change in unrealized salmon derivatives | -0.05 | 0.02 | -0.03 |
| Net fair value adjustment biomass | -0.92 | 1.02 | 0.02 |
| Onerous contracts provision | 0.32 | -0.29 | 0.00 |
| Restructuring costs | -0.01 | -0.01 | -0.04 |
| Income/loss from associated companies and joint ventures | 0.09 | 0.16 | 0.06 |
| Impairment losses | -0.28 | -0.09 | -0.02 |
| Other non-operational items | 0.00 | 0.00 | 0.01 |
| Group EBIT | 1.31 | 2.60 | 0.82 |
| RECONCILIATION NORWEGIAN ORIGIN (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Operational EBIT—Salmon of Norwegian Origin | 463.0 | 514.9 | 348.2 |
| Change in unrealized internal margin | 57.9 | -42.4 | -10.2 |
| Net fair value adjustment biomass | -223.3 | 175.8 | 23.1 |
| Onerous contracts provision | 93.6 | -81.0 | -0.4 |
| Income/loss from associated companies and joint ventures | 34.2 | 62.7 | 23.3 |
| Impairment losses | -2.0 | -0.2 | -0.3 |
| Other non-operational items | 0.0 | 1.3 | 0.0 |
| EBIT—Salmon of Norwegian Origin | 421.5 | 630.9 | 383.7 |
| RECONCILIATION NORWEGIAN ORIGIN (EUR per kg) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Operational EBIT—Salmon of Norwegian Origin | 2.20 | 2.18 | 1.37 |
| Change in unrealized internal margin | 0.28 | -0.18 | -0.04 |
| Net fair value adjustment biomass | -1.06 | 0.75 | 0.09 |
| Onerous contracts provision | 0.45 | -0.34 | 0.00 |
| Income/loss from associated companies and joint ventures | 0.16 | 0.27 | 0.09 |
| Impairment losses | -0.01 | 0.00 | 0.00 |
| Other non-operational items | 0.00 | 0.01 | 0.00 |
| EBIT—Salmon of Norwegian Origin | 2.01 | 2.67 | 1.51 |
| RECONCILIATION SCOTTISH ORIGIN (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Operational EBIT—Salmon of Scottish Origin | 153.7 | 41.1 | 17.5 |
| Net fair value adjustment biomass | -92.8 | 106.1 | -2.2 |
| Onerous contracts provision | 26.2 | -27.7 | -0.4 |
| Restructuring costs | 0.6 | -2.4 | 0.0 |
| Income/loss from associated companies and joint ventures | 0.0 | 0.1 | 0.3 |
| Other non-operational items | 0.3 | 0.0 | 0.0 |
| EBIT—Salmon of Scottish Origin | 87.9 | 117.2 | 15.2 |
| RECONCILIATION SCOTTISH ORIGIN (EUR per kg) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Operational EBIT—Salmon of Scottish Origin | 2.55 | 0.91 | 0.35 |
| Net fair value adjustment biomass | -1.54 | 2.35 | -0.04 |
| Onerous contracts provision | 0.43 | -0.61 | -0.01 |
| Restructuring costs | 0.01 | -0.05 | 0.00 |
| Income/loss from associated companies and joint ventures | 0.00 | 0.00 | 0.01 |
| Other non-operational items | 0.01 | 0.00 | 0.00 |
| EBIT—Salmon of Scottish Origin | 1.46 | 2.60 | 0.30 |
| RECONCILIATION CANADIAN ORIGIN (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Operational EBIT—Salmon of Canadian Origin | 81.3 | 109.8 | 13.7 |
| Net fair value adjustment biomass | -28.1 | 56.3 | 10.7 |
| Restructuring costs | 0.0 | 0.0 | 0.1 |
| Impairment losses | -0.3 | 0.0 | -0.1 |
| EBIT—Salmon of Canadian Origin | 52.8 | 166.2 | 24.5 |
| RECONCILIATION CANADIAN ORIGIN (EUR per kg) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Operational EBIT—Salmon of Canadian Origin | 2.06 | 2.53 | 0.34 |
| Net fair value adjustment biomass | -0.72 | 1.30 | 0.26 |
| Restructuring costs | 0.00 | 0.00 | 0.00 |
| Impairment losses | -0.01 | 0.00 | 0.00 |
| EBIT—Salmon of Canadian Origin | 1.34 | 3.83 | 0.61 |
| RECONCILIATION CHILEAN ORIGIN |
|---|
| RECONCILIATION CHILEAN ORIGIN | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Operational EBIT—Salmon of Chilean Origin | 58.6 | 4.2 | -51.4 |
| Net fair value adjustment biomass | 2.5 | 47.0 | -14.8 |
| Restructuring costs | 0.5 | -2.2 | -9.4 |
| Impairment losses | -100.7 | -17.7 | -4.0 |
| Other non-operational items | 0.0 | 0.0 | 2.4 |
| EBIT—Salmon of Chilean Origin | -39.2 | 31.4 | -77.2 |
| RECONCILIATION CHILEAN ORIGIN |
|---|
| RECONCILIATION CHILEAN ORIGIN | |||
|---|---|---|---|
| (EUR per kg) | 2017 | 2016 | 2015 |
| Operational EBIT—Salmon of Chilean Origin | 1.30 | 0.11 | -0.82 |
| Net fair value adjustment biomass | 0.06 | 1.28 | -0.24 |
| Restructuring costs | 0.01 | -0.06 | -0.15 |
| Impairment losses | -2.24 | -0.48 | -0.06 |
| Other non-operational items | 0.00 | 0.00 | 0.04 |
| EBIT—Salmon of Chilean Origin | -0.87 | 0.85 | -1.24 |
| RECONCILIATION IRISH ORIGIN |
|---|
| RECONCILIATION IRISH ORIGIN (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Operational EBIT—Salmon of Irish Origin | 29.9 | 6.3 | 9.3 |
| Net fair value adjustment biomass | 1.0 | 5.3 | -0.7 |
| EBIT—Salmon of Irish Origin | 30.9 | 11.6 | 8.7 |
| RECONCILIATION IRISH ORIGIN |
|---|
| RECONCILIATION IRISH ORIGIN (EUR per kg) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Operational EBIT—Salmon of Irish Origin | 3.07 | 0.75 | 0.96 |
| Net fair value adjustment biomass | 0.10 | 0.63 | -0.06 |
| EBIT—Salmon of Irish Origin | 3.17 | 1.38 | 0.89 |
| RECONCILIATION FAROESE ORIGIN |
|---|
| RECONCILIATION FAROESE ORIGIN |
| RECONCILIATION FAROESE ORIGIN (EUR MILLION) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Operational EBIT—Salmon of Faroese Origin | 18.9 | 33.8 | 5.1 |
| Net fair value adjustment biomass | -0.7 | -1.5 | 7.1 |
| EBIT—Salmon of Faroese Origin | 18.2 | 32.3 | 12.1 |
| RECONCILIATION FAROESE ORIGIN (EUR per kg) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Operational EBIT—Salmon of Faroese Origin | 3.17 | 3.10 | 1.74 |
| Net fair value adjustment biomass | -0.12 | -0.14 | 2.40 |
| EBIT—Salmon of Faroese Origin | 3.05 | 2.97 | 4.13 |
The following tables set forth our calculation of ROCE, requiring reconciliation of Adjusted EBIT to EBIT and NIBD to non-current interest-bearing debt, for the years ended December 31, 2017, 2016 and 2015:
| CALCULATION OF ROCE, RECONCILIATION OF ADJUSTED EBIT AND NET INTEREST BEARING DEBT (EUR MILLION, EXCEPT ROCE) |
2017 | 2016 | 2015 |
|---|---|---|---|
| Adjusted EBIT | 705.4 | 713.7 | 333.5 |
| Net fair value adjustment biomass | -340.3 | 386.2 | 10.1 |
| Onerous contracts provision | 119.8 | -108.7 | -0.7 |
| Other non-operational items | -0.1 | 0.0 | 2.4 |
| EBIT | 484.9 | 991.2 | 345.3 |
| Net interest-bearing debt (NIBD) | 831.9 | 890.0 | 999.7 |
| Cash | 71.7 | 103.9 | 71.8 |
| Current interest-bearing debt | -130.3 | -0.1 | -0.2 |
| Gain/loss financial instruments | 0.0 | -0.5 | 0.0 |
| Non-current interest-bearing debt | 773.3 | 993.4 | 1 071.4 |
| NIBD | 831.9 | 890.0 | 999.7 |
| Assets held for sale | -0.5 | -3.5 | -1.8 |
| Total equity | 2 315.4 | 2 069.3 | 1 895.6 |
| Fair value adjustment on biological assets | -289.9 | -660.5 | -244.5 |
| Onerous contracts provision | 1.3 | 124.6 | 14.4 |
| Capital employed as of the end of the period | 2 858.2 | 2 420.0 | 2 663.4 |
| Average capital employed1) | 2 638.8 | 2 541.6 | 2 548.4 |
| Adjusted EBIT | 705.4 | 713.7 | 333.5 |
| ROCE | 26.7% | 28.1% | 13.1% |
1) Calculated as the average capital employed as of the beginning and the end of the period, except when there are material transactions during the year.
The following table set forth our calculation of Underlying EPS for the year ended December 31, 2017, 2016 and 2015:
| UNDERLYING EARNINGS PER SHARE | |||
|---|---|---|---|
| (EUR MILLION) | 2017 | 2016 | 2015 |
| Operational EBIT | 792.1 | 700.2 | 346.8 |
| Accrued payable interest (NET) | -26.6 | -22.7 | -29.7 |
| Calculated tax expense | -182.4 | -168.2 | -85.8 |
| Minority share of profit | -0.3 | 0.3 | -0.1 |
| Operational EBIT adjusted for above items | 582.9 | 509.5 | 231.2 |
| Shares outstanding (average) | 475 528 080 | 450 085 652 | 440 906 427 |
| Underlying EPS (EUR Per share) | 1.23 | 1.13 | 0.52 |
Due to biological constraints, seawater temperature requirements and other natural limitations, farmed salmon is produced in Norway, Chile, Scotland, North America, Faroe Islands, Ireland and New Zealand/Tasmania, with Norway being the dominant supplier.
Risk relates to uncertainty and the factors that may prevent us from generating the expected returns, reaching our goals and deliver on our strategy. Through our risk management processes we identify, quantify, and define actions to manage the risks we are facing. We split our defined risks into subcategories within our four guiding principles - Profit, Planet, Product and People to ensure that they are addressed by our most capable people within each area.
| RISK | SHORT DESCRIPTION | MITIGATION ACTION | REFERENCE | PAGE |
|---|---|---|---|---|
| 1a Risks related to the sale and supply of our products | ||||
| I Our results depend on salmon prices |
Our results are substantially dependent on salmon prices, and salmon prices are subject to large short and long-term fluctuations due to variations in supply and demand caused by factors such as smolt transfer, biological fac tors, quality, shifts in consumption and license changes. Short or long-term decreases in the price of farmed salmon may have a materially adverse effect on our financial figures |
Sales contract policy to reduce exposure to fluctuations Downstream integration to reduce de pendence on spot whole-fish prices Product innovation to grow overall salmon sales Commitment to sustainable development of the industry and information exchange with authorities to ensure a sustainable operational framework for steady growth |
– Profit – Note 13 Group – Leading the Blue Revolution – Product – Planet – R&D – Analytical informa tion |
– p 43 – p 183 – p 21-23 – p 83-100 – p 59-82 – p 234-246 |
| II A reduction in the price of salmon may trigger substan tial reduction in the value of our biological assets |
A reduction in the price of salmon may trigger substantial reduction in the value of our bio logical assets, as the price of salmon is a signif icant factor in the valuation of these assets |
– Ref Salmon prices above | – Ref Salmon prices above – Note 6 Group |
– Ref above – p 163- 166 |
| III We may be unable to effec tively hedge our exposure to short- and medium-term fluctuations in salmon prices |
We seek to manage our exposure to short and medium-term fluctuations in salmon reference prices through sales contracts and Fish Pool financial futures, as well as through our secondary processing activities. An inability to effectively hedge our exposure to short and mediumterm fluctuations in salmon prices may have a materially adverse effect on our financial figures. |
– Sales contract policy to reduce exposure to fluctuations – Downstream integration to reduce de pendence on spot whole-fish prices |
– Profit – Note 13 Group – Analytical informa tion – Leading the Blue Revolution |
– p 43 – p 183 – p 234-246 – p 21-23 |
| IV Market demand for our products may decrease |
Increased competition, consolidation and over capacity may lead to reductions in the price of competing products that could curtail demand for our products. This may have a materially adverse effect on our financial figures. |
– Focus on health benefits of salmon con sumption – Continuous effort to find sustainable, more affordable raw materials for feed production and focus on best operational practices to reduce operational costs |
– Product – Planet – R&D |
– p 83-100 – p 59-82 – p 31-42 |
| V Changes in consumer prefer ences/lack of product inno vation may have an adverse effect on our business |
Our continued success will depend in part on our ability to anticipate, identify and respond quickly to changing consumer preferences for fish, especially secondary processed seafood. If we are unable to do so, this may have a materi ally adverse effect on our financial figures |
– Focus on health benefits of salmon con sumption – Product innovation to grow overall salmon sales – Continue to strengthen our market and new product development |
– Product – R&D |
– p 83-100 – p 31-42 |
| VI Disruptions to our supply chain may impair our ability to bring our products to market |
We source and transport our salmon over long distances. As most of our products are perishable and can be stored only for a limited time, disruptions to our supply chain due to weather, earthquakes, natural disaster, fire or explosion, terrorism, pandemics, strikes, government action, environmental incidents or other matters beyond our control could impair our ability to bring our products to the market (timely or at all). |
– Emergency plans to mitigate consequenc es – Global footprint for farming and processing enabling cross-production |
– Analytical informa tion |
– p 231 |
| VII Natural disasters, catastrophes, fire or other unexpected events could cause significant losses of operational capacity. |
Our facilities could be materially damaged by natural disasters, and we could incur uninsured losses and liabilities arising from such events, including damage to our reputation and/or suffer material losses in operational capacity. |
– Risk-based insurance coverage – Emergency plans to mitigate consequenc es – Strict standards for construction of operat ing units – Global footprint for farming and processing enabling cross-production |
– Analytical informa tion |
– p 231 |
Our ambition is to be a leading, integrated provider of proteins from the ocean. We aim to be a leader in all key areas from production of fish feed to meeting the needs of the market:
Through our materiality assessment we have identified areas of opportunity and risk that could influence our ability to achieve our goals and deliver on our strategy. Risk management is what we do to manage our risk in order to provide reasonable assurance to our stakeholders that we will achieve our goals. Different risk management frameworks are in use globally, the most widely used being the COSO 2) enterprise risk framework, which divides risk into four categories:
We consider our operational risk to cover several individually important subcategories, and have therefore chosen to divide our operational risks into the following sub categories:
a. Risks related to the sale/supply of our products b. Risks related to governmental regulations c. Risks related to our fish farming operations d. Risks related to our supply of fish feed and feed operations e. Risks related to our industry f. Risks related to our business g. Risks related to our financial arrangements h. Risks related to tax and legal matters i. Risks related to climate change
All risk categories could, if not properly managed, have a material adverse effects on our business operations and financial results. Each risk category includes one or more identified risks factors that individually and/or in combination with others could significantly affect our performance. We are continuously working to mitigate identified risks and capitalize on opportunities by tracking and following up key performance indicators within the framework of our four guiding principles. We believe that our long-term success depends on our ability to manage the relevant risks associated with our operations, strategy, reporting and compliance.
An overview of our identified risk factors, along with our mitigation efforts and what we do to manage our risk, is outlined in the table below. For more detailed descriptions of the risks/ challenges and opportunities associated with our operations, please see the referenced sections in this Integrated Annual Report. We apply the precautionary approach to risk management through our materiality assessment. Marine Harvest reports in accordance with the Global Reporting Initiative (GRI) G4 core requirements. The appendix found on our website marineharvest.com provides the required additional disclosures including the GRI disclosure index.
2) Committee of Sponsoring Organizations
| 1b Risks related to governmental regulations | ||||
|---|---|---|---|---|
| I Governmental regulations affect our business |
The fish farming and processing industries are subject to local, regional and national government regulations relating to the farming, processing, packaging, storage, distribution, advertising, labeling, quality and safety of food products.Our operations are also subject to ex tensive and increasingly stringent regulations administered by environmental agencies in the jurisdictions in which we operate. |
– Continuous dialog with the authorities in the countries in which we operate to se cure a sustainable operational framework – Active participation, alone or through joint industry groups, in consultative processes for new or updated regulatory frameworks – Rigorous testing to ensure that our prod ucts are safe and healthy – Third-party certification |
– Leading the Blue Revolution – R&D – Product |
– p 21-23 – p 31-42 – p 83-100 |
| II Trade restrictions could have a negative impact on price in some countries |
Trade restrictions resulting in suboptimal distribution of salmon may be intensified, creating a negative impact on price in some countries. Many of our production sites are located outside our principal markets, leaving us exposed to trade restrictions. The effects of trade restrictions may have a significant negative impact on our ability to sell in certain regions or our ability to charge competitive prices for our products in such regions. |
– Dialog with authorities to ensure access to markets globally – Sales contract policy to reduce exposure to fluctuations – Global farming and processing footprint to mitigate the effects of trade restrictions with regional reach – Promotion of health benefits of salmon |
– Leading the Blue Revolution – Profit – Note 13 Group – Analytical informa tion |
– p 21-22 – p 43 – p 183 – p 231 – p 7-8, 231 |
| IV We may face restrictions with regard to operating sites located close to protected or highly sensitive areas. |
Some of our sites are located close to or within sensitive areas with respect to biodiversity. The effect of salmon farming on the environment and biodiversity is being intensively discussed and new regulations in this area could result in the closure of sites or require the implementa tion of costly measures. In addition, new reg ulations could result in restrictions to certain additives used in fish feed and in medication becoming prohibited at these sites if they are believed to have an adverse impact on the environment. Compliance with such laws, rules and regulations, or a breach of them, may have a materially adverse effect on our business and financial figures. |
– Continuous dialog with the authorities in the countries in which we operate to document that biodiversity is not adversely affected by our operations – Cooperation agreement with WWF – Norway for mutual exchange of ideas and information – Environmental testing and documentation to ensure that our operations do not leave a lasting footprint |
– Leading the Blue Revolution – R&D – Planet – BoD report |
– p 21-22 – p 31-42 – p 59-82 – p 121-122 |
| V Our fish farming operations are dependent on fish farm ing licenses |
In the jurisdictions in which we operate, we are required to obtain licenses in order to farm fish. We have obtained and currently hold such licenses for our operations. Governments may, however, change the way licenses are distributed, or otherwise dilute or invalidate our licenses. If we are unable to maintain existing or obtain new fish farming licenses, or if a new licensing regulation dilutes the value of our licenses, this may have a materially adverse effect on our business. |
– Continuous dialog with the authorities in the countries in which we operate to discuss our and their role in securing the sustainable development of the industry |
– Dear shareholders – Leading the Blue Revolution – R&D – Note 9 Group |
– p 11-14 – p 21-22 – p 31-42 – p 169 |
| VI Antitrust and competition regulations may restrict further growth in some of the jurisdictions in which we operate |
Our business and operations are subject to regulation by antitrust or competition author ities, particularly due to our significant market shares in the jurisdictions in which we operate. The risks of infringing competition laws and regulations are higher in markets in which we hold a leading position. In an acquisition setting, we may be forced to divest certain parts of the acquisition, which may have a materially adverse effect on our business and financial figures. |
– Continuous dialog with the authorities in the countries in which we operate to discuss the potential benefits of industry consolidation from a sustainability point of view |
– Dear shareholders – Leading the Blue Revolution |
– p 11-14 – p 21-22 |
| VII We could be adversely affected by violations of the acceptable anti-corruption laws. |
Applicable anti-corruption laws, including the US Foreign Corrupt Practices Act and the UK Bribery Act of 2010, generally prohibit com panies and their intermediaries from making improper payments, and require companies to keep accurate books and records as well as appropriate internal controls. We operate in some parts of the world that have experienced governmental corruption, and if we were found liable for violations of anti-corruption laws, we may incur civil and criminal penalties which could have a materially adverse effect on our business, financial figures and reputation. |
– Code of Conduct – Leadership Principles |
– Leading the Blue Revolution – People – Corporate governance |
– p 21-22 – p 101-1120 – p 137-144 |
| 1c Risks related to our fish farming operations | |||||
|---|---|---|---|---|---|
| I Fish are adversely affected by sea lice, and we may incur significant costs and be exposed to regulatory actions if the challenge is not addressed. |
The authorities in all countries with an aquaculture industry have set limits for the acceptable number of sea lice per fish. A failure to control sea lice levels may result in an increased number of treatments, compromised fish welfare, higher costs and the possibility of regulatory actions. |
||||
| II We may be exposed to criti cism and regulatory actions arising from our farming of and use of wild caught clean er fish for sea lice control. |
Our sea lice control strategy is primarily based on using non-medicinal tools and includes the use of cleaner fish. Cleaner fish are predomi nantly caught from the wild. However, due to regulations which have limited the availability of cleaner fish and seasonal variations, we have begun cleaner fish farming. Catch, farming and use of cleaner fish have raised concerns with regards to protection of wild stocks, husbandry practices, fish welfare and survival. Therefore, the use of cleaner fish could result in negative publicity, reputational harm and possibly regulatory actions. |
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| III Our fish stocks, operations and reputation can be adversely affected by various diseases |
Our fish are affected by diseases caused by viruses, bacteria and parasites which may have an adverse effect on fish survival, health, growth and welfare and result in reduced harvest weight and volume, downgrading of products, claims from customers and increased costs. Continued disease problems may also attract negative media attention and public concerns. |
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| IV Our stock may be infected with Kudoa thyrsites, causing soft flesh |
Our salmon has, at times, been infected by the parasite Kudoa thyrsites, or Kudoa, commonly called "soft flesh" syndrome. Kudoa is more common in British Columbia, Canada, although there have also been sporadic cases in Ireland. Kudoa may be difficult to detect during harvesting and processing, as the effect mate rializes in flesh quality post mortem and takes some time to develop. Even though most of the Kudoa-affected fish can be detected before the product reaches the customer, it must be substantially downgraded or discarded, leading to a reduction in its commercial value. |
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| V Our fish stocks can be depleted by environmental factors such as plankton, low oxygen levels and fluctuating seawater temperatures. |
Our salmon farming operations are subject to a number of environmental risks which may impact profitability and cash flows through adverse effects on growth, harvest weight, harvest volume, mortality, downgrading and claims. |
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| VI Our fish stocks are subject to risks associated with fish escapes and predation |
Salmon escapes are most commonly caused by human error, severe weather and structural issues at our farming sites. In addition to affecting our salmon count, escaped farmed salmon may impact wild salmonid stocks by genetic interaction and the risk of transferring disease. This may result in negative publicity and penalties or other sanctions from govern mental authorities. Our salmon is also subject to predation by other animals which can affect our salmon count and adversely impact our results of operations. |
| – Implementation of our sea lice strategy. – Continuous R&D efforts on most effective lice strategy, as well as new tools to control sea lice in a sustainable manner |
– R&D – Planet |
– p 31-42 – p 59-82 |
|---|---|---|
| – R&D in key areas including fish health, fish nutrition and husbandry – Good farming practices (identification and implementation of best practices during farming of cleaner fish, as well as at the salmon farms) |
– R&D – Planet |
– p 31-42 – p 59-82 |
| – Disease registration and tracking of reasons for reduced survival to monitor development and prioritize R&D – Applying best farming practices for disease control – R&D efforts within disease management and control, including more knowledge of best farming practices, vaccine testing and use, breeding program which includes selection of best genetics related to fish robustness and resistance to diseases |
– R&D – Planet |
– p 31-42 – p 59-82 |
| – Continue to follow the Kudoa mitigation plan, which focuses on stocking only fish above one kg in areas with a high prev alence of Kudoa (R&D has shown lower susceptibility after one kg) – Continuous R&D effort to better under stand and eradicate the Kudoa challenge |
– Product | – p 83-100 |
| – Continuous R&D effort to manage the challenges including the use of skirts around the pens and continuous oxygen monitoring systems at the bottom of the pens – Plankton (including algae) surveillance systems |
– Planet | – p 59-82 |
| – Escape prevention and mitigation plans – Tracking of all escape incidents and investigation for cause of incident for information sharing and learning – Applying best practices for escape preven tion – Continuous R&D effort to test farming equipment for severe weather conditions |
– R&D – Planet – BoD report |
– p 31-42 – p 59-82 – p 121 |
| VII Intensive production may result in physical deformities, leading to downgrading and/ or losses of biomass as well as to reputational harm. |
Intensified production may push the boundaries for how fast fish can grow, and cause productionrelated disorders relating to physical deformities and cataracts. High water temperatures of more than 14 degrees Celsius early in the freshwater stage, water quality and diet composition may all be contributing factors. Deformities and cataracts may lead to financial losses and damage to the industry and our reputation. |
– R&D - feed research trials to document that the diets used in commercial salmon farming are not compromising fish health and welfare – R&D salmon growth trials to develop best farming practices for growth |
– R&D – Planet |
p 31-42 p 59-82 |
|---|---|---|---|---|
| VIII Our fish stocks might be exposed to contaminants, leading to product recalls, product liability, negative publicity and governmental sanctions. |
Farmed salmon may be exposed to contam ination by undesirable substances through raw materials and ingredients in the fish feed, polluted waters, poor processing hygiene and cross-contamination during handling. Con tamination may affect food safety, fish health and the environment, and reduce the publics confidence in eating salmon. |
– Vigorous product testing to document that our products are safe – Requirements to suppliers and certification of raw materials used in our fish feed – Testing of raw materials and feed used in our farming operations |
– R&D – Planet – Product |
– p 31-42 – p 59-82 – p 83-100 |
| IX Our fish may be exposed to pollutants from open seas resulting in mortality and poor end-product quality |
Fish farming is conducted using open net pen systems located in marine environments. Oper ations are therefore exposed to pollution from the open sea, including potential oil leaks or spills. Oil products floating into a farm will severely affect the fish's normal oxygen uptake, reduce fish survival and leave an unpleasant taste on surviving fish, making it inedible. |
– Testing of end-products to document that they are safe and of high quality – Locating farms in areas with clean waters and a low risk of pollution |
– R&D – Product |
– p 31-42 – p 83-100 |
| X Inclement weather could hurt our stocks negatively affect our operations and damage our facilities |
Unusually warm or cold temperatures, altered oxygen levels in the sea resulting from annual variations, as well as extreme weather in the regions where we operate could cause impairment of the health and growth of our fish or result in fish escapes, loss of biomass, lost feeding days, repair costs, damage to infrastructure, etc. |
– Ref Fish Escapes above – New technology – Evaluation of environmental conditions and use of equipment fit for the conditions in the area |
– Ref Fish Escapes above – R&D |
– Ref above – p 31-42 |
| XI Our operations are exposed to risks related to biological events or natural phenomena for which insurance coverage is expensive, limited and potentially inadequate. |
Our business operations are subject to a number of adverse biological risks, including risks relating to sea lice, fish mortality, disease, predation and other biological risks. There will always be a risk that certain biological events or natural phenomena may occur for which no or only partial insurance coverage is payable. |
– Ref Sea lice above – Ref Disease above – Risk-based insurance coverage |
– Ref Sea lice above – Ref Disease above |
– Ref above |
| 1d Risks related to our supply of fish feed and our feed operations | ||||
| I Reduced availability of the main ingredients used in fish feed production could result in higher costs for fish feed. |
Fish feed is a main cost driver approximately 40-50% of our "cost in box". Global inventories, currency fluctuations and seawater tempera tures all affect the supply of feed ingredients. Fish oil and fish meal are produced using wild caught fish such as anchovies. The extensive use of fish oil combined with a growing fish farming industry presents a sustainability chal lenge for the industry. Other key ingredients such as canola oil, soy bean protein and wheat are subject to unpredictable price changes caused by supply and demand fluctuations, weather, size of harvest, transportation and storage cost, global policies, etc. |
– Continuously working in-house and with feed suppliers to ensure that the feed recipes are altered based on relative prices to secure the lowest possible cost without compromising fish health – Efforts to test and document feeds with lower levels of marine ingredients without compromising fish health/performance |
– R&D – Profit – Planet – Analytical informa tion |
– p 31-42 – p 43 – p 59-82 – p 231-246 |
| II Termination of one or more of our feed contracts at short notice could result in material additional costs. |
We still depend on third-party feed suppliers in most of the regions in which we operate. The fish feed industry is dominated by three large, global suppliers, which normally adapt their production volumes to prevailing supply com mitments. If one or more of our feed contracts were terminated at short notice prior to their respective expiration dates, we may be forced to find alternative suppliers at short notice, incurring additional costs. |
– Long-term supply contracts with termina tion clauses – Own feed production |
– Leading the Blue Revolution |
– p 21-23 |
| III Production issues in our own feed operations could cause us to incur material additional costs. |
If our feed operation were to encounter pro duction challenges, including those related to contaminated fish feed/feed ingredients, labor stoppages, disruptions in the supply chain and environmental and regulatory issues, we may be forced to find alternative suppliers in the market at short notice, incurring additional costs and potential disruptions to our farming operations. We could also be liable for losses incurred by third party feed customers. |
|---|---|
| IV A reduction in the quality of our fish feed could have a materially adverse effect on our production |
Fish feed is essential to our fish production, as its quality affects the quality and volume of our harvests. Our feed conversion rate may increase due to lower quality or a suboptimal mix of ingredients used. |
| V Inferior or contaminated fish feed could result in product liability or other serious ad verse consequences for us |
Harmful substances may be found in feed in gredients, and although we have implemented risk analysis and screening protocols to pre vent the contamination of our feed, undetected contamination could cause severe damage to the salmon, potentially causing health issues for consumers and resulting in liability claims. |
| 1e Risks related to our industry | |
| I Our facilities may be the target of sabotage by envi ronmental organizations. |
Some environmental organizations have the eradication of salmon farming as one of their stated aims. A risk of sabotage can therefore not be ruled out. |
| II The farmed-salmon industry may be subject to negative media coverage. |
Farmed salmon has in some instances been subject to criticism from various research communities and NGOs, which may affect consumer attitudes towards farmed salmon. Such negative consumer attitudes may result |
| in a lower demand for our products. | |
| 1f Risks related to our business | |
| I We derive nearly all our revenues from sales of At lantic salmon and are heavily dependent on the market for Atlantic salmon. |
Our business consists primarily of raising and selling Atlantic salmon, and we expect this to continue for the foreseeable future. Accord ingly, our business is heavily dependent on the market for Atlantic salmon. |
| II We rely heavily on the servic es of key personnel |
We depend substantially on the leadership of a small number of executive officers and other key employees. The loss of the services provided by these individuals could have a materially adverse effect on our business. We may also find it difficult to attract the neces sary employee resources in the remote areas in which we operate. |
| – Certification of raw materials used – Testing of feed ingredients – Employee HSE surveys – Use of numerous suppliers of feed ingredi ents |
– Planet – People |
– p 59-83 – p 101-120 |
|---|---|---|
| – Testing to document that our feed is of high quality, contributing to good growth and favorable feed conversion rates |
– R&D – Planet |
p 31-42 p 59-82 |
| – Certification of raw materials used – Testing of feed ingredients – Testing of end products – Risk analysis and screening protocols |
– R&D – Planet – Product |
– p 31-42 – p 59-82 – p 83-100 |
| – Stakeholder dialog for the exchange of information and ideas |
– Leading the Blue Revolution |
– p 21 |
| – Stakeholder dialog for the exchange of information and ideas – Documentation of our farming practices and third-party certification |
– Leading the Blue Revolution – Planet – Product |
– p 21 – p 59-82 |
| – Ref Market demand for our products above | – Ref Market demand | – Ref above |
| – Ref Change in consumer preferences above |
for our products above – Ref Change in consumer prefer ences above |
– Ref above |
| – Roll out our leadership principles and continue to build a winning culture that supports employee development and attracts new employees – Remuneration of key management person nel |
– Leading the Blue Revolution – People – Note 14 Group – Note 15 ASA |
– p 21-23 |
| – Identification of risk and risk mitigating actions prior to entering new markets – Risk mapping on a continuous basis |
– Risk an Risk Man agement |
– p 247 |
| IV Political instability may have a material adverse effect on our business, results of operation and financial condition. |
Political instability has in the past, and may in the future, adversely affect our operational results. The Russian ban on imports of salmon products from certain countries, the sudden reduction in Russian purchasing power due to the depreciation of the Russian Ruble, and the Chinese ban on imports of Norwegian salmon are recent examples in this regard. |
– Global farming, processing and supply footprint expanding the opportunities if political actions target a specific place of origin only |
– Analytical informa tion |
– p 231-246 |
|---|---|---|---|---|
| V We depend on the availability of and good relations with our employees |
Our operations depend on the availability, retention and relative cost of labor, and on maintaining satisfactory relations with employ ees and labor unions. Labor relation issues may arise from time to time, which could result in strikes or other labor disputes. |
– Roll out our leadership principles and continue to build a winning culture that supports employee development and attracts new employees – Fair compensation |
– Leading the Blue Revolution – People |
– p 21-23 – p 101-120 |
| VI We depend on a small number of contractors for key industry supplies, such as fish feed and well boats |
We depend on major industry suppliers of well boats and fish feed. We currently hire most of our well boats, and we purchase a significant share of our fish feed from third parties. There is a limited number of key suppliers of these items to our industry, and failure to maintain good business relationships with these suppliers may have a significantly adverse effect on us. |
– Commitment to expand own feed produc tion – JV with Solstad Farstad ASA forming DESS Aquaculture – Stakeholder dialog |
– Leading the Blue Revolution |
– p 21-23 |
| VII Some steps of the production process are outside our control. |
We purchase seafood from third parties as an input factor in some of our secondary process ing activities. We do not control the production process for the seafood we purchase, and it may contain foreign elements that are harmful or prohibited under the laws of the countries in which we distribute the product. Furthermore, substantial sales of generic and private label products mean that we do not always control the brand under which our products are sold. This may have a negative impact on our repu tation in addition to making it difficult for us to build brand loyalty. |
– Brand building to differentiate our products – Product testing – Supplier commitment to our code of conduct |
– Product – People |
– p 83-101 – p 101-121 |
| 1g Risks related to our financing arrangements | ||||
| I If we are unable to access capital, we may be unable to grow or implement our strategy as designed. |
Feed production, salmon farming and seafood processing are capital intensive industries. Our future development and growth may depend on access to external capital in the form of debt and/ or equity capital. A lack of access to such capital, or material changes in the terms and conditions of our external financing could limit our future growth and strategy. |
– Ref all actions to safeguard profit and reduce/manage costs – Ref Salmon price, market demand, sea lice, disease, kudoa above |
– Ref salmon price, market demand, sea lice, disease, kudoa, contractors for key industry supplies above – Note 13 Group – BoD report |
– Ref above – p 183 – p 121-122 |
| II We are highly leveraged and subject to restrictions in our financing agreements that impose constraints on our operating and financing flexibility. |
We have substantial debts outstanding. We may need to refinance some or all of our borrowings, and may not be able to do so at at tractive terms or at all. We may incur additional debt in the future, subject to limitations under our credit facilities and bond terms. |
– Ref all actions to safeguard profit and reduce/manage costs – Ref salmon price, market demand, sea lice, disease, kudoa above – Using a portfolio of financing options to reduce dependence on our syndicated credit facility |
– Ref salmon price, market demand, sea lice, disease, kudoa, contractors for key industry supplies above – Note 11 Group – Note 13 Group – BoD report |
– Ref above – p 175 – p 183 |
| III Fluctuations in the value of the derivatives used to hedge our exposure to salmon prices may adversely impact our operating results |
Our business is exposed to fluctuating salmon prices, and we use contracts and derivative financial instruments to reduce such exposure. The use of derivative financial instruments reduces our exposure to changes in prices, but may also limit our ability to benefit from favorable trends in salmon prices, while our contracts can adversely affect our profitability when spot prices are rising. |
– Ref salmon price above | – Ref salmon price above – Note 13 Group – BoD report |
– Ref above – p 183 – p 121-122 |
| I The expected benefits of our expansion on the Canadian East Coast is subject to risks and uncertainties |
The Share Purchase Agreement to Purchase Northern Harvest is subject to approval by rel evant competition authorities and customary closing conditions. We expect benefits from our potential acquisition on the East Coast of Canada. Whether we will actually realize these anticipated benefits depends on future events and circumstances, some of which are beyond our control. Also the potential synergies we currently anticipate may not be realized. |
|---|---|
| 2 Risks related to our strategy - acquisitions and expansions | |
| II Climate change rules and regulations could increase the costs of operating our facilities or transporting our products. |
Climate change and its link to the emission of greenhouse gases is receiving more and more attention. Certain countries and regions have adopted, or are considering, legislation or regulations imposing overall caps or taxes on greenhouse gas emissions, or mandating the increased use of electricity from renewable energy sources. These actions could increase our operating costs. |
| I The tangible effect of climate change have the potential to damage fish farming facilities, disrupt production activities and could cause us to incur significant costs |
Climate change could affect the severity of weather, sea levels and temperatures, and the availability of the raw materials for our fish feeds. If any such effects were to occur, they may have a materially adverse effect on our business and financial figures. |
| 1 i Risks related to climate change | |
| II We may become involved in legal disputes |
We may from time to time become involved in legal disputes. We could be involved in criminal or civil proceedings relating to product liability, environmental, food safety, competition or anti-bribery regulations, and other types of dispute which may have a materially adverse effect. |
| I We are exposed to potentially adverse changes in the tax regimes of the jurisdictions in which we operate. |
Significant changes in the tax regimes in the countries in which we operate may have a ma terially adverse effect on our financial figures. |
| 1h Risks related to tax and legal matters | |
| VI If our customers fail to fulfill their contractual obligations we may suffer losses. |
We are exposed to the risk of losses if one or more contractual partners do not meet their obligations. We cannot guarantee that we will be able to recover losses from trade receiva bles from credit insurance companies or that our credit evaluations of trading partners will be effective. |
| V We are subject to fluctuations in interest rates due to the prevalence of floating interest rates in our debt. |
We are partly financed at floating interest rates, and our hedges against interest rate fluctuations in the main currencies related to our interest-bearing debt may be ineffective in protecting us from the effects of interest rate increases. |
| IV Fluctuations in foreign ex change rates may adversely impact our operating results. |
We are exposed to changes in foreign exchange rates as a part of our business operations. Although we seek to hedge our exposure to currency risk, such hedging arrangements may not be effective, which may ultimately have a materially adverse effect on our business and financial figures. |
| – Converted the holding company and the Norwegian Markets unit into EUR-de nominated companies from January 1, 2016. Converted the Norwegian Farming company and Feed company into EUR denominated companies from January 1,2018. The overall aim us to better match financing and reporting currency – Foreign Exchange Strategy – Hedging Policy |
– Note 13 Group – BoD report |
– p 183 – p 121-122 |
|---|---|---|
| – Hedging policy - interest rate swaps | – Note 13 Group – BoD report |
– p 183 – p 121-122 |
| – Insurance policy – Credit ratings of all customers – Close follow up of customers |
– Note 13 Group – BoD report |
– p 183 – p 121-122 |
| – Tax optimization within the laws of the countries in which we operate |
– Note 15 Group | – p 188 |
| – Contract negotiations – Use of expert advisers in complex matters |
– Note 27 Group | – p 201 |
| – Doing our part: endorsing global sustaina bility issues and addressing climate change – Testing of alternative raw materials in feed |
– R&D – Planet |
– p 31-42 – p 59-82 |
| – Doing our part: endorsing global sustaina bility issues and addressing climate change – Dear shareholders |
– Planet | – p 11-14 – p 59-83 |
| – Build on Group wide know how and skills and existing customer relations to sell our products |
– Leading the Blue Revolution |
– p 21 |
| II The construction and poten tial benefits of our new fish feed facility is subject to risks and uncertainties |
In 2015 the Board of Directors approved the development of a new feed plant in Scotland. The construction of the plant is going accord ing to plan , and it is expected to be completed during the first half of 2018. Our ability to com plete construction work on a timely basis and within budget is subject to a number of risks, including our ability to construct the plant as planned and start commercial feed production. As the capacity of the plant is higher than our own current needs, we also depend on third party deliveries to fully utilize the plant. |
– Utilize key staff from the planning and construction of the feed plant in Norway in 2012-2014 – Utilize local expertise with regard to work ing with authorities |
– Leading the Blue Revolution |
– p 21-22 | |
|---|---|---|---|---|---|
| III The construction and potential benefits of our fresh water expansion projects are subject to risks and uncertainties. |
We have initiated the building of new and larg er facilities for production of smolt in Norway, Scotland and Canada. The expected benefits are higher quality and larger smolt, produced in a controlled environment and at a lower cost. The anticipated benefits may not be achieved or if achieved, may not be achieved in the expected time frame. |
– Build on group wide know how and skills in the construction and production process es. |
– Leading the Blue Revolution |
– p 21-22 | |
| IV We would be adversely affected if we expanded our business through acquisitions or greenfield projects but failed to successfully integrate them or run them efficiently or retain the asso ciated fish farming licenses. |
We regularly evaluate expansion opportuni ties,such as acquiring other businesses, or building new processing plants and expanding our fish farming operations, or expanding into new related areas of operations. Significant expansion involves risks, and if we are unable to integrate acquired businesses or newly formed opera tions, expansion may have a materially adverse effect on our business and financial figures. |
– Draw on internal key resources – Recruitment of experienced staff – Use of expert advisers in complex matters |
– People | – p 101-120 | |
| 3 Risks related to reporting | |||||
| I A failure to run an effective risk assessment process and update our internal control system accordingly, could imply that there is a risk of material mistakes in our financial figures. |
As of December 31, 2017 we consider our internal control system to be effective, but there can be no assurance that, going forward, our efforts will effectively prevent material misstatements in our consolidated statements. If we are unable to maintain effective internal control, this could have a materially adverse effect on our business. |
– Global risk and risk management focus | – BoD report – Corporate Governance |
– p 121-122 – p 137-144 |
|
| 4 Risks related to other legal matters | |||||
| I Developments related to antitrust investigations could have a materially adverse effect. |
We are subject to a variety of laws and regulations that govern our business, including those relating to competition (antitrust). If we are found to have violated the competition laws in a jurisdiction, we may be fined, which |
– Use of expert advisers in complex matters | – Note 27 Group | – p 201 | |
| could have a materially adverse effect on our financial figures. |
|||||
| II | Failure to ensure food safety and compliance with food safety standards could result in serious ad verse consequences for us. |
The food industry in general experiences high levels of customer awareness with respect to food safety and product quality, information and traceability. We may fail to meet new and exacting customer requirements, which could reduce demand for our products. |
– Applying best practices related to food safety at all stages of the production chain – Vigorous product testing to document that our products are safe – Third-party certification with respect to best practices in hygiene and food safety |
– R&D – Product |
– p 31-42 – p 83-100 |
We aim to be open and transparent in our communications with the market in order to develop and retain investor confidence, and to deliver an attractive return to our shareholders.
Marine Harvest was incorporated in Norway on May 18, 1992, under the name Pan Fish AS. Its legal and commercial name is Marine Harvest ASA, a public limited liability company (allmennaksjeselskap) under Norwegian law.
Marine Harvest N.V. was founded in Lochailort, Scotland in 1965, changing names and owners several times before being acquired by Pan Fish ASA in 2006. Pan Fish AS was founded in 1992 and listed on the Oslo Stock Exchange in 1997. Pan Fish also acquired Fjord Seafood ASA in 2006, a company founded in 1996 as Torgnes Invest AS and listed on the Oslo Stock Exchange in 2000. Pan Fish ASA changed its name to Marine Harvest ASA in 2007.
Marine Harvest ASA's shares are listed on the Oslo Stock Exchange under the ticker MHG. On January 28, 2014 Marine Harvest ASA listed and commenced trading of its American Depositary Shares (ADS), each representing one ordinary share, represented by American Depositary Receipts (ADR) on the New York Stock Exchange (NYSE). On February 14, 2017, the Board of Directors resolved to delist the Marine Harvest`s ADS and to terminate the registration of the ADSs due to the low trading volume and the significant cost of maintaining the listing and registration. We will maintain the ADR program as a Sponsored Level I program and the ADSs are tradable over-thecounter.
As at year end 2017, we had 490 167 777 shares, traded at NOK 139.0 (USD 16.94), valuing our company at NOK 68.1 billion. Please see charts at the end of this section for further information of our share performance over the last ten years. For additional information about our shares, please see Note 24 to the Group financial statements.
As of December 31, 2017, Marine Harvest had 490 167 777 ordinary shares with a nominal value of NOK 7.50.
Shareholders
As of December 31, 2017, we had 20 280 shareholders, with our 20 largest shareholders holding 51.31% of our shares. The majority of our shares are held in Norway, the US, Great Britain and Cyprus. The two main shareholders of Marine Harvest are Geveran Trading Co Ltd and affiliates (16.2%) and Folketrygdfondet (7.1%). For additional information on share ownership, please see Note 24 to the Group financial statements. Our senior executives hold shares in the Company, please see Marine Harvest ASA Note 14 Remuneration for further details.
As of December 31, 2017 Marine Harvest ASA had 9 463 637 ADR's outstanding, representing 1.9% of total shares outstanding. In term of total volume of Marine Harvest shares traded in Norway and in the US, the ADR's represented 3.2% of volumes in 2017.
Our policy is to maintain a dividend level that reflects the present and future cash generation potential of Marine Harvest. To this end, our target level for net interest-bearing debt is reviewed and updated on a regular basis. We are currently aiming for a net interest-bearing debt of EUR 1 200 million. When this target level is met, at least 75% of the annual free cash flow after operational and financial commitments will be distributed as dividends.
Dividend declared and paid in 2017 was NOK 12.40 per share as a repayment of paid in capital. See charts at the end this section displaying dividend paid per share and total dividend paid for the last ten years.
We expect to present our results in 2018 as follows:
Our presentations will be webcast at 8:00 a.m. CET, and presentation material will be available on our website at 06:30 a.m. CET on the day of release. Please see our website for further details.
| SHAREHOLDERS BY COUNTRY 2017 1) | ||
|---|---|---|
| SHAREHOLDERS BY COUNTRY2017 1) | NUMBER OF SHARES | SHAREHOLDING IN % |
|---|---|---|
| Norway | 105 386 026 | 21.5% |
| USA | 92 834 507 | 18.9% |
| Cyprus | 79 551 603 | 16.2% |
| Great Britain | 76 441 590 | 15.6% |
| Other countries | 135 954 051 | 27.7% |
| Total number of shares | 490 167 777 | 100.0% |
| Total number of shares | 490 167 777 | 100.0% |
|---|---|---|
| Other countries | 135 954 051 | 27.7% |
| Great Britain | 76 441 590 | 15.6% |
| Cyprus | 79 551 603 | 16.2% |
| USA | 92 834 507 | 18.9% |
| Norway | 105 386 026 | 21.5% |
| SHAREHOLDERS BY COUNTRY2016 1) | NUMBER OF SHARES | SHAREHOLDING IN % |
|---|---|---|
| Norway | 136 467 610 | 30.3% |
| USA | 84 552 477 | 18.8% |
| Cyprus | 78 229 603 | 17.4% |
| Great Britain | 47 332 989 | 10.5% |
| Other countries | 103 502 973 | 23.0% |
| Total number of shares | 450 085 652 | 100.0% |
| SHAREHOLDERS BY COUNTRY2015 1) | NUMBER OF SHARES | SHAREHOLDING IN % |
|---|---|---|
| Norway | 129 622 485 | 28.8% |
| USA | 66 193 586 | 14.7% |
| Cyprus | 117 351 603 | 26.1% |
| Great Britain | 43 298 218 | 9.6% |
| Other countries | 93 619 760 | 20.8% |
| Total number of shares | 450 085 652 | 100.0% |
1) Shareholder by country, based on actual ownership behind the nominee accounts.
Please refer to Key Figures on pages 6-7 which provides a 10-year summary of important shareholder information
our Company at NOK 70.1 billion.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
0
Market capitalization
Enterprise value to capital employed indicates how the market values Marine Harvest based on expected future cash flows compared to the capital that is invested in our assets. The value of a large portion of our assets (i.e. the majority of our licenses and buildings) were assigned in 2006/2007. Since then these assets have multiplied in value, but as they are not subject to fair value adjustment, the recognized values have remained unchanged and in the case of buildings been depreciated, which explains the increasing difference between capital employed and the enterprise value.
Enterprise value to EBIT or Operational EBIT measures the markets valuation of Marine Harvest based on expected future cash flows compared to the past year's EBIT. As EBIT includes the change in fair value of biological assets, we recommend using the Operational EBIT in the calculation. Looking back on recent history, 2012 was a very challenging year for us, while 2015 was a year of mixed results, which explains the fluctuation in our EV/Op EBIT ratio.
| NOK | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 |
|---|---|---|---|---|---|---|---|---|---|---|
| EV/CE | 0.6 | 0.9 | 1.7 | 0.9 | 1.6 | 1.8 | 2.4 | 2.5 | 3.2 | 2.9 |
| EV/EBIT | -7.0 | 11.1 | 6.1 | 13.0 | 25.4 | 8.2 | 14.1 | 20.5 | 8.5 | 16.9 |
| EV/Op EBIT | 16.9 | 9.8 | 8.5 | 5.8 | 38.2 | 11.9 | 12.1 | 20.4 | 12.0 | 10.3 |
Dividend paid per share
In 2017 we paid NOK 5 972 million in dividend.
Dividend is declared and paid quarterly based on the dividend policy, reflecting the present and future cash generation potential in the Company.
In 2017 we declared and paid NOK 12.40 per share in dividend as repayment of paid-in-capital.
Dividend is adjusted for the reverse share split, implemented January 21, 2014 (10 shares consolidated to 1). Total dividend paid is not adjusted for withholding taxes, but reflects cash paid.
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
6.00
8.00 8.30
5.20
8.60
12.40
Underlying earnings per share Underlying earnings per share reflects
an estimate of underlying earnings, pre fair value adjustments of biomass, attributable to our equity holders.
In 2017 underlying earnings per share was EUR 1.23.
2.25
261
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| GENERAL STANDARD DISCLOSURES | PAGE NUMBER IN THE INTEGRATED ANNUAL REPORT | EXTERNAL ASSURANCE | |||
|---|---|---|---|---|---|
| STRATEGY AND ANALYSIS | |||||
| G4-1 | p. 10-12 | No | |||
| ORGANIZATIONAL PROFILE | |||||
| G4-3 | p. 257 | No | |||
| G4-4 | p. 49-50, 85-87 | No | |||
| G4-5 | p. 152 | No | |||
| G4-6 | folded page | No | |||
| G4-7 | p. 152, 257 | No | |||
| G4-8 | p. 47, 85-86, 233 | No | |||
| G4-9 | folded page, p. 7-8, 117, 146-148, 196-197, 233-234 | No | |||
| G4-10 | p. 103-104, 117 | No | |||
| G4-11 | p. 103 | No | |||
| G4-12 | p. 22-24, 233-234 | No | |||
| G4-13 | p. 22-24, 55-56, 196-197, 257-258 | No | |||
| G4-14 | p. 247-255 | No | |||
| G4-15 | p. 25, 27-28, 62, 90, 103 | No | |||
| G4-16 | p. 25, 27-28, 33-34, 38, 69-72, 76 | No | |||
| IDENTIFIED MATERIAL ASPECTS AND BOUNDARIES |
| G4-17 | p. 152, 196-197 | No |
|---|---|---|
| G4-18 | p. 25-26, 138, 248-255 | No |
| G4-19 | p. 25-26 | No |
| G4-20 | p. 25-26 | No |
| G4-21 | p. 25-26 | No |
| G4-22 | p. 78, 97 | No |
| G4-23 | p. 25-26 | No |
| STAKEHOLDER ENGAGEMENT | ||
| G4-24 | p. 25 | No |
| G4-25 | p. 25 | No |
| G4-26 | p. 25-26 | No |
| G4-27 | p. 25-26 | No |
The GRI (Global Reporting Initiative) Index provides an overview of the G4 Standard Disclosures based on the selections made by the Group.
GRI's Standard Disclosures, both general and specific, are comprised of disclosure requirements. The General Standard Disclosures applies to all reporting organizations depending on the chosen 'in accordance' level. The Specific Standard Disclosures are selected with regard to the materiality principle. In order to report 'in accordance' with the Core
requirements Marine Harvest has answered each of the disclosure requirements for the required Standard Disclosures. Only in exceptional cases, if certain required information has not been possible to disclose, accepted reasons for omission have been applied.
The Index is a reference to the disclosed information and gives an overview over the omissions and the reasons why omissions are applied.
Planet and Product Øyvind Oaland, Global Director R&D
| DMA AND INDICATORS |
PAGE NUMBER | IDENTIFIED OMISSION(S) |
REASON(S) FOR OMISSION(S) |
EXPLANATION FOR OMISSION(S) |
EXTERNAL ASSURANCE |
|---|---|---|---|---|---|
| Information related to Standard Disclosures required by the 'in accordance' options may already be included in other reports prepared by the organization. In these circumstances, the organization may elect to add a specific reference to where the relevant informa tion can be found. |
In exceptional cases, if it is not possible to disclose certain required information, identify the information that has been omitted. |
In exceptional cases, if it is not possible to disclose certain required informa tion, provide the reason for omission. |
In exceptional cases, if it is not possible to disclose certain required informa tion, explain the reasons why the information has been omitted. |
Indicate if the Standard Disclosure has been externally assured. If yes, include the page reference for the External Assur ance Statement in the report. |
CATEGORY: ECONOMIC / MATERIAL ASPECT: ECONOMIC PERFORMANCE
| G4-DMA | p. 19-26, 43-58, 231-239 |
No | |||
|---|---|---|---|---|---|
| G4-EC1 | p. 107-110, 118, 146, 159-162, 175-178, 186- 190, 257 |
No | |||
| G4-EC2 | p. 61-63, 77 | The costs of actions taken to manage the risk or opportunity |
The information is currently unavailable. |
Management has not quantitatively estimated the impacts of climate change |
No |
| G4-EC3 | p. 186-188, 219-222 | No | |||
| MATERIAL ASPECT: INDIRECT ECONOMIC IMPACTS |
| G4-DMA | p. 107-110, 118 | No | |
|---|---|---|---|
| G4-EC7 | p. 107-110, 118 | No |
| GENERAL STANDARD DISCLOSURES | PAGE NUMBER IN THE INTEGRATED ANNUAL REPORT | EXTERNAL ASSURANCE | |||||
|---|---|---|---|---|---|---|---|
| REPORT PROFILE | |||||||
| G4-28 | p. 152 | No | |||||
| G4-29 | p. 152 | No | |||||
| G4-30 | p. 152 | No | |||||
| G4-31 | p. 261 | No | |||||
| G4-32 | p. 261-265 | No | |||||
| G4-33 | p. 261 | No | |||||
| GOVERNANCE | |||||||
| G4-34 | p.140-141 | No | |||||
| ETHICS AND INTEGRITY | |||||||
| G4-56 | p. 22-24, 105-106 | No |
| DMA AND INDICATORS |
PAGE NUMBER | IDENTIFIED OMISSION(S) |
REASON(S) FOR OMISSION(S) |
EXPLANATION FOR OMISSION(S) |
EXTERNAL ASSURANCE |
||||
|---|---|---|---|---|---|---|---|---|---|
| CATEGORY: ENVIRONMENTAL / MATERIAL ASPECT: ENERGY | |||||||||
| G4-DMA | p. 61-63, 77 | No | |||||||
| G4-EN3 | p. 61-63, 77 | Not split by consumption type |
One material source | No | |||||
| MATERIAL ASPECT: BIODIVERSITY | |||||||||
| G4-DMA | p. 64-65, 69-76, 133-134 |
No | |||||||
| G4-EN11 | p. 69-76 | Size of operational site in km2 |
The information is currently unavailable. |
The company plans to report the missing information when available |
No | ||||
| G4-EN12 | p. 69-76 | No* | |||||||
| MATERIAL ASPECT: EMISSIONS | |||||||||
| G4-DMA | No | ||||||||
| G4-EN15 | No | ||||||||
| G4-EN16 | No | ||||||||
| G4-EN18 | No | ||||||||
| MATERIAL ASPECT: COMPLIANCE | |||||||||
| G4-DMA | No | ||||||||
| G4-EN29 | No* | ||||||||
| MATERIAL ASPECT: OCCUPATIONAL HEALTH AND SAFETY | CATEGORY: SOCIAL / SUB-CATEGORY: LABOR PRACTICES AND DECENT WORK | ||||||||
| G4-DMA | p. 103-107 | No | |||||||
| G4-LA6 | p. 106-107, 111, 118, 135 |
Injury rate (IR), occupa tional diseases rate (ODR), lost day rate (LDR) are not reported. The information provided is not reported by region or gender. |
The information is currently unavailable. |
The company plans to report the missing information when available |
No* | ||||
| G4-LA7 | p. 106 | No | |||||||
| SUB-CATEGORY: HUMAN RIGHTS / MATERIAL ASPECT: NON-DISCRIMINATION | |||||||||
| G4-DMA | p. 103-106, 135 | No | |||||||
| G4-HR3 | p. 105-106 | No | |||||||
| SUB-CATEGORY: SOCIETY / MATERIAL ASPECT: ANTI-CORRUPTION | |||||||||
| G4-DMA | p. 105-106 | No | |
|---|---|---|---|
| G4-SO3 | p. 106 | No | |
| G4-SO5 | p. 106 | No |
| REASON(S) FOR | EXPLANATION FOR OMISSION(S) |
EXTERNAL ASSURANCE |
|---|---|---|
| One material source | No | |
| No | ||
| The information is currently unavailable. |
The company plans to report the missing information when available |
No |
| DMA AND INDICATORS |
PAGE NUMBER | IDENTIFIED OMISSION(S) |
REASON(S) FOR OMISSION(S) |
EXPLANATION FOR OMISSION(S) |
EXTERNAL ASSURANCE |
|
|---|---|---|---|---|---|---|
| MATERIAL ASPECT: COMPLIANCE | ||||||
| G4-DMA | p. 87-98 | No | ||||
| G4-S08 | p. 87-98 | No* | ||||
| SUB-CATEGORY: PRODUCT RESPONSIBILITY / MATERIAL ASPECT: CUSTOMER HEALTH AND SAFETY | ||||||
| G4-DMA | p. 87-98 | No | ||||
| G4-PR1 | p. 87-98 | No | ||||
| MATERIAL ASPECT: PRODUCT AND SERVICE LABELING | ||||||
| G4-DMA | p. 87-98 | No | ||||
| G4-PR3 | p. 87-98 | No | ||||
| G4-PR5 | p. 96 | Customer survey not performed in the reporting period |
Customer survey was performed in 2015 |
The company plans to report this information when available |
No | |
| MATERIAL ASPECT: COMPLIANCE |
| G4-DMA | p. 87-98 | No | |
|---|---|---|---|
| G4-PR9 | p. 106, 201 | No* |
* The indicator has been verified as part of the GSI audit.
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