ANNUAL REPORT MARINE HARVEST

Transcription

1 2007 ANNUAL REPORT MARINE HARVEST 2007 was a year of contrasts. While most Marine Harvest Business Units showed solid development in their operations, there were major challenges in Chile.

2 MArine MArine Harvest Harvest KEY FIGURES REGNSKAP and og highlights Noter KONSERN GROUP KEY FIGURES Operating revenue (MNOK) Harvesting volume of salmonoids (HOG), tonnes Operational EBITDA (MNOK) Operational EBIT (MNOK) Operational EBT (MNOK) Net Profit (MNOK) Operational EBITDA margin 10.5% 20.7% 18.4% Operational EBIT margin 4.8% 15.3% 9.1% Total assets (MNOK) Net interest bearing debt (MNOK) Book value of equity (MNOK) Equity % 53.8% 48.6% 42.8% Cash flow from operations (MNOK) Net cash flow (MNOK) Earnings per share (NOK) Share price (high) Share price (low) Share price at year end Number of shares at year end Market value (cap) at year end (MNOK) Number of employees Operating INCOME (NOK million) Operating PROFIT EBIT (NOK million) EQUITY % % % % Annual ÅRSRAPPORT report 2007

3 Content 0 1 Main events Key figures 0 main events 1 Letters from CEO 2 BoD report 4 Annual Accounts Group 14 Notes Group 20 Annual Accouts marine harvest ASA 58 Notes marine harvest ASA 63 Auditor s Report 77 AdDresses 78 First year completed First full year of operation for the three party merger. Good progress for MH Norway and VAP Europe Lighthouse Dividend Caledonia ASA divested as a dividend distribution to Marine Harvest s shareholders Significant ISA costs restructuring costs in Chile in Q3 and Q4 related to the outbreak of ISA New CEO 1 March 2008 Åse Aulie Michelet appointed CEO, started Share Price 2007 NOK 10 MNOK 280 Gross synergy take out of NOK 280 million in 2007 well ahead of plan 8 6 Total harvest tons of salmonids: tons (HOG) in 2007, approximately 28 percent of global supply /01 27/12 54% Equity share 54%, slightly above end of last year

4 MArine Harvest LEtter from CEO Letter from CEO raw materials is increasing because of growing demand from these growing populations and, importantly, we see a surge in demand for many of the same products for the production of biofuels. The price of food products has increased and food will probably take a larger proportion of the household budget, reversing a trend that dates back some 50 years. While this may reduce the total volume of food purchased per household, we do not believe it will have more than a minor affect on the increase in consumption of fish. There is reason to have a positive view on the longterm future for aquaculture in general and for salmon farming in particular. The rising demand for seafood, coupled with a preference for convenience, indicates that the value adding activities have an important role to play in future developments. Prices for salmon in 2007 did not match the strong performance of However, the analysis of price development is encouraging going forward as prices in 2007 were similar to those in 2005 yet the supply of farmed Atlantic salmon to the global market was 33 percent higher. More people are eating salmon and per capita consumption is increasing. We expect demand will continue to grow. In Europe and North America the rate of growth has become modest in comparison with some earlier years. Even so, a growth rate of 9 percent, as seen for example in Europe in 2007, would be welcomed by many market sectors. For salmon farming, though, the new engine for growth is found in the emerging economies. New markets Countries such as Brazil, Russia, India and China have several factors in common. They have very large populations, with an expanding middle class that have increasing disposable incomes. Economists observe that as income grows there is a shift in diet from carbohydrate to protein, and fish is regarded to be an important source of healthy protein. The market for Atlantic salmon in Brazil grew by 32 percent in 2007, the Russian by 38 percent while the neighbouring country, Ukraine, saw a 45 percent growth. These trends will continue in Eastern Europe, in South America and in much of Asia. Due to the large numbers of people living in these countries the growth of these markets for Atlantic salmon could more than compensate for any slow-down in growth in Europe and North America. The cost of food In the mid-20th century, the average European household spent around 35 percent of income on food. Government policies and increasing efficiency meant the price of food did not increase as fast as incomes. In recent years, the average household has been spending around 10 percent of income on food. Now that is likely to change. Competition for agricultural Efficient feed conversion Increases in raw material prices mean increases in feed prices and feed is a substantial part of the cost of farming fish. Margins will become tighter and we will need some of the extra volume to offset these costs. The challenge of increasing feed costs applies across all types of feed and affects livestock farming as well as aquaculture. In fact, aquaculture makes far more efficient use of feed than any other form of animal protein production. On a global scale, the main animal protein sources are poultry, pigs, cattle, sheep and seafood. Commercial salmon farmers are regularly achieving feed conversion ratios around 1.2 kg of feed for every kilogram of growth in the salmon which is lower than any other farmed animal. Sustainability In Marine Harvest we have a clear focus on safety and sustainability of raw materials used in feed. With regard to marine raw materials (fishmeal and fish oil), we are working with our feed suppliers to ensure that the feed comes from controlled and, in the future, possibly also certified sources. We expect marine raw materials to continue to be important feed ingredients in the future, but due to limitations in supply and competition from other industries, e.g. producers of omega-3 capsules, pig and chicken production, growth in salmon production will depend on using alternative feed raw materials. We thoroughly endorse and encourage the efforts being made by the fish feed companies to be sustainable in marine raw materials, both by monitoring their origins and by supplementing their use. Coupled with our focus on continuous improvement in farming practices, they are helping us to move towards net fish protein production. That is the point at which we provide a kilogram of fish protein from less than a kilogram of fish from the wild catch. As we progress towards this goal, we will maintain a close watch on fish welfare and final product quality, to ensure Marine Harvest salmon meet the demands for taste, texture and nutritional content made by customers on behalf of the consumer. Challenges in Chile In the Annual Report of 2006, we referred to the continuing need for further consolidation in the salmon aquaculture sector. The structure of the sector remained relatively unchanged in 2007 for a combination of reasons. Principal among these were the decline in prices and an uncertain financial climate that was not conducive to taking large steps, as well as the disease situation in Chile. Annual report 2007

5 2 3 For salmon farming in Chile, 2007 has been a challenging year. Already at the beginning of this century there were clear signals that the biological performance was declining. In 2006 the industry lost control over sea lice infestations, resulting in additional decline in biological performance, and the spreading of the ISA virus hit the industry with full strength in Hence, the crisis currently facing the Chilean industry has been building up over several years. Too much fish in a limited production area result in loss of carrying capacity. The other salmon production regions have already learnt this lesson and therefore restructured and spread out their production. We will follow the same formula when we restructure our operations in Chile. The outbreaks in Chile should be a reminder to the whole industry that even though demand may be rising, it is not necessarily good practice to increase production intensity too far. We will develop our positions further down the value chain to take more of our farmed fish and fish purchased through to end products and gain a greater share of the final price. The fish processing industry, in Europe especially, is highly fragmented and there are real opportunities to build positions. Currently the sector is characterised by a large number of small players that cannot match the negotiating power of large retailers. The progress in our VAP Europe business is a good example of the potential in this part of the value chain. Through restructuring of our operations the return doubled in 2007 compared to Our strategy is to take part in the further consolidation of the value added industry. Marine Harvest can build on its global production base and its established value adding activities to take the leading position in the seafood industry. Consolidation ahead We continue to believe that consolidation in the salmon aquaculture industry is important to maintain a better balance between increases in production and increases in demand. Our current priority, though, is to ensure that we optimise the structure of our upstream activities and follow our strategic intentions downstream. Leif Frode Onarheim Acting CEO (until end of February 2008)

6 MArine Harvest Board of directors report Board of Directors Report Short term challenges contrast with long term progress. Major task in Chile An outbreak of ISA (infectious salmon anaemia) mid-year in Region 10 of Chile proved to be the greatest challenge of Region 10 is the main salmon production region in Chile. The disease persisted and spread to new areas including a number of Marine Harvest farms. Marine Harvest is the leading producer of Atlantic salmon in Chile, which is the second largest production country for Marine Harvest, after Norway. For the Marine Harvest Group 2007 has been a year with great contrasts. Most of our activities delivered steady progress towards a long-term solid performance. However, it was the difficulties in Chile that attracted the most attention. Marine Harvest made progress in integrating its activities to achieve important and lasting synergies, built an effective management structure and positioned itself to benefit from the more balanced markets expected in future years. On the other hand, outbreaks of ISA disease in Chile, lower salmon prices and currency fluctuations led to disappointing results for the second half of Integration and reducing costs In 2007, Marine Harvest realised gross synergies amounting to NOK 280 million, with the main contributions coming from improvements in processing and packaging operations in Norway and VAP Europe. Additionally, savings were obtained from reductions in management and administration costs globally and lower feed procurement costs. Further progress in the integration is expected in Due to the challenges in Chile, a new synergy capture plan will be established for Marine Harvest Chile. Marine Harvest Norway combined a reduction in costs with high harvest volumes to deliver a strong result, despite the level of global supply leading to a modest decline in prices. Marine Harvest VAP made substantial operational improvements. Entities of Marine Harvest VAP that were loss making in 2006 now make a profit. The business benefited from lower raw material costs and has become a strong performer in the portfolio. Results for Marine Harvest Scotland and Marine Harvest Canada were reduced due to the decreasing prices for salmon but both are on target with regard to cost performance. Despite the appreciation of CAD vs USD throughout 2007, the Canadian result was good. Looking at the other businesses, Marine Harvest s halibut activity has been through a turnaround and delivered a profit. Marine Harvest Ireland and Marine Harvest Faroes maintained their steady performance. Yellowtail farming activity in Japan faced problems. Profitable farming of yellowtail has proved difficult because of high costs and volatility in prices. The activity will cease during This is the first outbreak of ISA on Atlantic salmon in Chile. To get control over the situation extraordinary and tough measures were required and actions have been taken. Consequently, Marine Harvest reported writedowns in Chile of more than NOK 500 million for the second half of 2007, of which more than NOK 400 million was related to culling of small fish. It is clear to Marine Harvest that control of the disease requires a collaborative effort from all salmon producers and the regulatory authorities. Marine Harvest actively shares its knowledge and experience gained in Norway and the other salmon farming regions, both by sending scientists to Chile and by inviting official representatives from Chile to observe practices in Norway. However, several challenges have to be dealt with before Marine Harvest Chile gets control of the situation. It will take some years before Marine Harvest is back to its 2007 harvest level in Chile. Over a period of three years, the number of Marine Harvest salmon farms in Region 10 will be reduced and attention to growth will focus to the south, in Region 11 and eventually Region 12. Additionally, Marine Harvest Chile will cease production of coho salmon. Currently Region 11 provides about 25 percent of the total Chilean salmon production and this is from aquaculture activities that occupy a small part of the locations in the region that are suitable. Expansion in Region 11 offers Marine Harvest the opportunity to position its activities where it has control of its production area in terms of production intensity and practices. While Marine Harvest has begun reducing production in Region 10, development of compensating activities to the south will take time. Therefore the volumes of salmon harvested by Marine Harvest Chile will be lowered, by about tons compared with 2007, in the coming few years as the changeover is implemented. For that reason, freshwater and processing activities in Region 10 will be reduced to match this development. Simultaneously, the changeover of freshwater smolt production to fully land-based facilities will be accelerated. The reduction in processing activities inevitably will result in substantial redundancies in Region 10. Management in Marine Harvest Chile will ensure that this is carried out in a proper manner in accordance with Chilean legislation. Organisational changes It was in the second half of the year, at the beginning of September, that Leif Frode Onarheim stepped across from his position on the Board of Directors to be the acting Chief Executive Officer for a period of six months until a new CEO was appointed. In that time, he has led Marine Harvest Annual report 2007

7 4 5 carefully through a difficult transition, managing external difficulties while overseeing the continuing integration of the businesses, with the resultant capture of synergies. The Board of Directors would like to take this opportunity to express its gratitude to Leif Frode Onarheim for his valuable contribution. For the whole organisation 2007 has been a challenging year. The Board of Directors would like to thank all employees for all the hard work and hours spent in 2007 to take Marine Harvest one step further as a leading global seafood company. At the beginning of 2008, the Board of Directors of Marine Harvest ASA announced the appointment of Åse Aulie Michelet (born 1952) as Chief Executive Officer, with effect from 1 March Aulie Michelet previously held global positions within General Electric (GE) including Executive Vice President GE Healthcare, Manufacturing and Supply chain and President GE Healthcare AS (Norway), positions she has held since Divestment In the fourth quarter of 2007 the divestment of activities of Pan Fish Scotland, together with Outer Hebrides Seafood (originally Fjord Seafood Scotland) and some Marine Harvest sites was accomplished. This was done in accordance with requirements from the French competition authorities. The divested activities were combined as a company named Lighthouse Caledonia ASA and a Marine Harvest share dividend was provided in the form of shares in Lighthouse Caledonia ASA. The shares have been traded on the Axess list of the Oslo Stock Exchange since 21 December Balancing supply and demand Global harvest of Atlantic salmon reached an estimated tons (wfe) in 2007, an increase from the 2006 figure of tons, i.e. a growth of about 10 percent. Even so, although prices fell in all markets, they were not drastically weakened. Added to this, farming in Norway, Canada and Chile is exposed to currency fluctuations as each area sells mainly in curr encies that differ from those of their costs. Marine Harvest will play an important role in moderating production growth in the future. Estimates for global production in 2008 indicate a much lower growth than for previous years, around 1 2 percent. As demand continues to grow, this lower growth should lead to an improved balance of supply and demand and firmer prices. In 2008 Marine Harvest expects to benefit from these economic conditions coupled with the performance in Norway, and steady progress in Scotland and Canada. Turnaround costs in Chile will partially offset these benefits. Another positive change, for which there are reasonable prospects, would be an end to the minimum import price imposed by the European Union on Atlantic salmon from Norway. In November 2007 the WTO gave its final ruling on the dumping charges made by the EU against the Norwegian salmon industry. The ruling supported substantial parts of the Norwegian claims but the final outcome remains unclear while the EU continues to evaluate the ruling. Further development Marine Harvest currently produces around 25 percent of the global farmed Atlantic salmon. Contrary to the other farming regions, the company cannot make significant growth through increasing its market share in Norway. Areas that do hold promise for growth are integration downstream towards the consumer, and by expansion into other species that would be suited as raw materials for value adding activities. Either alone or together with partners, Marine Harvest has several new products for the end user market in process of being developed and tested. These efforts paid off in 2007 as four consumer products from Marine Harvest VAP were nominated as finalists in the Prix d Elite at the European Seafood Exposition in Brussels in April To qualify for the final, products must be original, clearly different, offer genuine benefits for the consumer or end user, and be market ready for Europe. Marine Harvest won a special award for health and nutrition with its salmon tatare, a readyto-serve blend of marinated salmon with chives. Sustainability An area that will be given further attention in 2008 is the cost, quality and sustainability of the feed utilised in farming of salmon. Even though, in comparison with land animals, farmed salmon are by far the most efficient converters of feed into protein for human consumption, the supply of feed raw materials faces two challenges. These are competition for other uses and limited availability. The marine raw materials, fishmeal and fish oil, are important ingredients of the feed. They are specified as essential main ingredients by customers in some markets. The aquaculture industry faces competition for fishmeal from land farming. For example, China purchases substantial quantities for use in pig feed. Fish oil is now much sought after by the expanding omega-3 industry, which in 2007 bought a substantial share of the global production. Simultaneously, the growth in production of biofuels, encouraged and supported by governments, led in 2007 to a substantial increase in the price of agricultural raw materials. Several of these raw materials are used by fish feed producers to supplement the limited supply both of fishmeal and fish oil. Marine raw materials are derived mainly from industrial fisheries, for example in the North Sea and in the Pacific Ocean off the coast of Peru and Chile. These fisheries must be carefully managed to ensure that the supply of fishmeal and fish oil is sustainable. In response to these challenges, Marine Harvest will work with feed suppliers, customers, research institutions and other stakeholders in the value chain to establish ways in which the sustainability of raw materials can be secured while continuing to provide the nutritional content and quality in farmed fish and fish products that consumers require.

8 MArine Harvest Board of directors report About the annual accounts The group accounts have been drawn up in accordance with the International Financial Reporting Standards (IFRS). The company accounts for Marine Harvest ASA have been drawn up in accordance with generally accepted accounting principles in Norway, as IFRS is only compulsory for the group accounts. General trends in the results for Marine Harvest Group in 2007 are: Weakening of sales prices through the year as a result of strong growth in the global supply Capture of significant gross synergies far above the restructuring costs Significant restructuring costs as a result of the integration process Good results from processing operations Extraordinary costs in Chile as a result of the outbreak of ISA In 2006 net earnings from ongoing operations was NOK million including tax income of NOK million mainly due to capitalisation of deferred tax assets. Net earnings was NOK 5.1 million including net income from discontinued operations. Cash flow and liquidity In 2007 the net cash flow from operational activities came to NOK 973 million compared with NOK million in Net cash flow from investment activities was NOK million in 2007 compared with NOK million in Purchase of fixed assets amounted to NOK million in The group s cash flow from financing was negative with NOK million compared with million at the end of At the end of 2007 the group had NOK million of cash and cash equivalents. The profit and loss account Marine Harvest Group had an operating revenue of NOK million in Operating revenue was NOK million in The significant increase in revenues is due to the fact that 2007 was the first full year for the merged company. Pro forma operating revenue in 2006 was NOK million. Balance sheet The group s total balance as of 31 December 2007 amounted to NOK million. During the year, the balance decreased by NOK million. The reduction is mainly caused by the down payment of debt with excess cash, by the divestment of Lighthouse Caledonia ASA, and reduced standing biomass. The group achieved an operating result for continued operations in 2007 of NOK million compared with NOK million in This reduction is primarily due to lower prices and the weak results in Chile due to the outbreak of ISA and the biological challenges in Chile. The operating result was further negatively impacted by NOK million of restructuring costs in Financial items in 2007 totalled NOK 30.7 million compared with NOK million in Financial items include agio and net agio gains in 2007 amounting to NOK million. In 2006, currency gain and imputed interest on prepayment made on the shares in Marine Harvest N.V were included with NOK million. The group had interest expenses of NOK million in 2007 compared with NOK million in Net earnings from ongoing operations was NOK 37 million in Of the group s book value of assets, NOK million constituted the book value of licences and NOK million is book value of goodwill. In total the book value of intangible assets amount to NOK million as of 31 December The allocation of excess values in connection with the purchase of Marine Harvest N.V., was completed in 2007, as the accounts of 2006 were based on a preliminary allocation only. The final allocation increased the book value of licences by NOK million, book value of tangible fixed assets and financial assets by NOK million, customer contracts and customer relationships increased its book value with NOK million and other current assets increased by NOK 7.1 million. Long term debt and liabilities, mostly due to deferred tax liabilities, increased by NOK million, and finally goodwill was reduced by NOK million. USD PER KG (4 5 KG FOB SEATTLE) NOK PER KG (4 5 KG FHL OSLO) Price for salmon Price for salmon size 4 5 kg Head on Gutted (HOG) in Oslo and Seattle /05 13/05 26/05 39/05 1/06 13/06 26/06 39/06 1/07 13/07 26/ /07 Week/Year Annual report 2007

9 6 7 As of 31 December 2007 the group had net interest-bearing debt of NOK million, which includes interest-bearing debt of NOK million and cash and cash equivalents of NOK million. Of the gross interestbearing debt, the debt to the group syndicate was NOK million. At year end, Marine Harvest ASA and the group complies with the covenants stipulated in the group s loan agreements. However, there is a dialogue with the banks regarding how to define the input in the calculation of the covenants at year-end (see note 35 to the group accounts). The book value of equity for the group as of 31 December 2007 is NOK million, resulting in an equity ratio of 53.8 percent. Significant events in the accounting year The escalating situation for the salmon farming industry and for Marine Harvest in Chile has heavily impacted the accounts for Information about the situation in Chile is presented in note 5 and note 35 to the group accounts, as well as partly in other notes and other parts of the annual report. During 2007 various alternatives were considered for the divestment of Pan Fish Scotland. The conclusion came with the establishment of Lighthouse Caledonia ASA, which consisted of the former Pan Fish Scotland, Fjord Seafood Scotland and some sites previously owned by Marine Harvest Scotland. Lighthouse Caledonia ASA was divested by a distribution of the shares in Lighthouse Caledonia ASA to the shareholders of Marine Harvest ASA as dividend. Lighthouse Caledonia ASA is reported as discontinued operations in the accounts, and further information about this is provided in note 14 to the group accounts. Significant events after closing date The Board is unaware of any significant events after the end of the accounting year beyond what has been mentioned above and in note 35 to the group accounts. Fish-farming and sale of own produced salmon In 2007, Marine Harvest harvested tons of salmonids (gutted weight the figure does not include the Lighthouse Caledonia Group that was divested in the year). The figure comprises Atlantic salmon, coho and trout. For 2008, the estimate is a harvest volume in the region of tons (gutted weight). The Board of Marine Harvest has decided that the increase in smolt release shall not exceed 5 percent growth on an annual basis for the group as a whole. Norway In 2007, Marine Harvest Norway produced tons of fish (live weight). Harvested volume in 2007 was tons (gutted weight), which is an increase of tons from Smolt output was 51.7 million in In the first half of the year the market price was at a relatively favourable level. The prices dropped through the second half due to the significant increase in global supply. In accordance with the group s sales strategy, parts of the volume are allocated to contract sales. On the cost side, Marine Harvest in Norway is continuing its efforts to reduce production costs. Better utilization of the capacity both for licences and processing plants pushed the figures in the right direction in Implementation of best practice and significant synergy capture is expected to contribute to substantial cost reductions going forward. EBIT before fair value adjustment of the biomass for 2007 was NOK million compared with NOK million in Scotland The operations of the former Pan Fish Scotland, Fjord Seafood Scotland as well as some sites previously owned by Marine Harvest Scotland were combined in Lighthouse Caledonia Group and divested in 2007 as a condition for the competition authorities approval of the three party merger in The divestment resulted in a loss for Marine Harvest of NOK 56 million. The comments in the following are therefore related to the remaining Marine Harvest Scotland. In 2007, Marine Harvest Scotland produced tons (live weight), while the harvested volume in the same period was tons (gutted weight). EBIT before the fair value adjustment of the biomass for 2007 came to NOK 20.4 million. Also in 2007, the Scottish operation has achieved a price premium in the market. The transfer of some sites to Lighthouse Caledonia (prior to the divestment) has contributed to simplifications in the operations and operational improvements. Further improvements in results beyond what has already been achieved in 2007 is expected when optimization of all stages of the value chain is completed. Canada In 2007 Marine Harvest Canada produced tons (live weight). The harvesting volume in the year was tons (gutted weight) compared with tons in EBIT before fair value adjustment of the biomass came to NOK million in 2007 compared with NOK 60.8 million in Salmon prices in the American market declined during the year. The underlying performance of the operations has been good, but the results have been hit both by reduced prices and by the appreciation of the CAD towards USD throughout the year. Chile Marine Harvest Chile produced tons (live weight) in 2007, while the sold volume during the year was tons (gutted weight). For 2007, EBIT before fair value adjustment of the biomass came to NOK million, compared with NOK million in turned out to be a very challenging year for the salmon farming industry in Chile. Increased mortality in the biomass and low growth due to the disease situation escalated during the year. ISA (Infectious Salmon Anaemia virus) hit a number of sites owned by different companies in Chile including Marine harvest and it became clear that the whole industry had a demanding situation to handle. The industry and the authorities recognized the challenges and the largest producers have been working together to find solutions. Marine Harvest Chile profits deteriorated through 2007 and negative results were reported in the third and fourth quarter, mainly due to charges made for the culling of ISA infected fish. The biological situation

10 MArine Harvest ACCOUNTS And Notes GROUP Sickness/injury absence aquafarming processing sales and admin. total Absence due to illness 1.7% 2.5% 4.7% 5.6% 1.5% 2.2% 3.4% 4.4% Absence due to injury 0.1% 0.1% 0.4% 1.0% 0.0% 0.0% 0.3% 0.7% Total absence 1.8% 2.6% 5.1% 6.6% 1.5% 2.2% 3.7% 5.1% in Chile calls for substantial changes in the salmon farming industry and for Marine Harvest the activity in Region 10 will go through a considerable downsizing while the activity in Region 11 will be gradually increased. One processing plant will be closed. Ireland Marine Harvest Ireland produced tons (live weight) in The volume harvested reached 5117 tons (gutted weight), a decrease of 665 tons compared to EBIT before fair value adjustment of the biomass ended at NOK 21.5 million. Prices for Irish salmon have been relatively stable on a high level, but the results are hit by PD (pancrease disease) mortality. PD vaccines have been secured for the spring and fall stockings of The Faroes In 2007, tons (live weight) were produced on the Faroes. The level is still relatively low as the farming activities in the Faroes are still recovering from the complete stop of the operations a few years ago due to the ISA virus that wiped out the industry. The harvest volume was tons (gutted weight) in 2007, while in 2006 the harvest was tons. EBIT in 2007 ended at NOK 4.9 million. Following a financial and operational restructuring process, the operations showed improved profits in VAP Europe (Processing) Through the restructuring of the production, product and customer portfolio, Marine Harvest has strengthened its position significantly in 2007 when it comes to further processing of seafood. The range of products includes all types of seafood, including smoked and coated products, instant meals and catering products, as well as fillets and portion packages. Raw materials in addition to salmon include whitefish and shellfish. The strategy of Marine Harvest Group for VAP Europe is to become a significant force in the field of processing seafood products in Europe. The EBIT margin of VAP Europe increased from 1.8 percent in 2006 to 4.6 percent in Significant synergies were realised. Some of the financial improvements during the year are results of lower salmon prices in 2007 than in High prices for other fish raw materials have pressed the margins during the year. Operating results (EBIT) in 2007 came to NOK 171 million. About the going concern assumption Pursuant to section 3-3 of the Norwegian Accounting Act, the Board confirms that the annual accounts have been drawn up based on an assumption of going concern. This is based on the results reported, the group s business strategy, the financial situation and the budgets established. The market value of the Marine Harvest Group at the end of 2007 was NOK million which is lower than book value of the group s equity. The share price development after year end has further reduced the market value of the group. The fact that the market value of the group is lower than book value has not affected carrying book value of the assets held by the group. About the working environment Activities aimed at developing a good and safe working environment have high priority in Marine Harvest Group. All regions have HSE officers who focus on developing competence, job satisfaction, the environment and safety. The group s aim is that its operations have no detrimental effects on people and the environment, and that they are in accordance with the principles for sustainable development. Regretfully, we have to report three fatalities that occurred in the activities of Marine Harvest in One was a Marine Harvest employee and two were sub-contractors working on Marine Harvest sites. 21 May 2007 A Marine Harvest employee in the Faroe Islands was fatally injured while working at a farm. 22 August 2007 A diver, the employee of a service company, died following an accident while working on the nets at a Marine Harvest farm in Chile. 12 September 2007 In British Colombia, Canada, a diver from a service company drowned while collecting dead fish at a Marine Harvest site. In all three cases the incidents were reported to the authorities in accordance with relevant regulations and Marine Harvest participated fully in enquiries relating to the fatalities. With respect to work environment, the level of absence due to sickness and injuries are a strong indication of the quality. The group finds that the highest sickness absence and injury rates are in the harvesting and processing plants. Long-term sickness absence connected to various types Annual report 2007

11 8 9 Sickness/injury absence by business unit Norway 3.8% 6.0% Chile/USA 3.0% 3.3% Canada 1.8% 1.4% UK 2.5% 2.7% VAP Europe 7.3% 7.2% Others/Corporate 3.1% - Total 3.7% 5.1% Factors that might influence the external environment Sustainable and cost-efficient fish farming can only be operated in harmony with the external environment. Knowledge about what fish need for nutrition, health and growth is therefore decisive. Any negative environmental influence from operations will quickly have detrimental impacts on the ability of the fish to grow and develop naturally, in addition to the fact that the facilities would be unusable after only a few years. Such development is incompatible with sustainable resource management and the company s objective of being a model company when it comes to sustainable fish farming. Marine Harvest s aim is that the operations will run without leaving lasting footprints in the environment. In all regions systematic work is being undertaken to enable this. Among the considerations: of strain injuries is the main reason for the high sickness absence rates in this part of the operations. Marine Harvest is working proactively to prevent such injuries and to provide for alternative work in cases where this is necessary. However, various measures and awareness-raising schemes, such as job rotation, competence development and restrictions on the use of overtime appear to have a preventive effect on the sickness absence statistics. The local management follow developments closely when it comes to sickness absence and injuries. Burden on the recipient (sea areas surrounding the fish cages) Use of medications Consideration of wild fish stocks The Board of Directors has stated that this aspect should have an even stronger focus in the coming years. Preventing fish from escaping, improving fish health, combating salmon lice and additional focus on sustainable feed ingredients are some of the topics that will receive extra focus. A total of days were registered in 2007 as sickness/injury absence. There are large variations in sickness absence within the group. In 2007 Marine Harvest had a sickness/injury absence of 3.7 percent. When comparing with the Pan Fish and Fjord Seafood operations only in 2006, the level of sickness/injury absence is reduced substantially. In Norway, Chile/USA, and Scotland there has been a decline in the sickness absence percentage when comparing with 2006, while there has been a small increase in VAP Europe and in Canada. VAP Europe has the highest sickness absence and this may be explained by the fact that VAP Europe operates a number of processing plants. The Board will keep a strong focus on this aspect in 2008, recognizing that there is room for major improvements in several areas. Corporate governance Marine Harvest will comply with the Norwegian Code of Practice for Corporate Governance issued by the Norwegian Corporate Governance Board (NUES). Reporting of compliance and any deviations from the code of practice is updated and available on Marine Harvest s website. Marine Harvest finds that corporate governance is a requirement for delivering increased shareholder value, investor trust and low capital costs. Good corporate governance builds on responsible communication between shareholders, the Board of Directors and corporate management in the endeavour to develop the company s role as the leading industrial player in the aquaculture industry. Three representatives from the employees have met in the Board meetings throughout An application to make them permanent members has been sent to the Norwegian body (Bedriftsdemokratinemnda) dealing with these issues. Equal rights On average there have been employees in 2007, whereof were women. The fish-farming industry in general is one where there traditionally has been and continues to be a majority of male employees. There is, however, a majority of women in the slaughtering and processing plants. In 2007, the group has had female managers in senior management of most subsidiaries. The group will work actively to have more women in senior management positions in the regional companies. Of the six members of the Marine Harvest ASA board, three are women. The Board of Directors has reviewed the group s compliance with the code of practice during the year and the group s steering documents have been reviewed. Risk As the Marine Harvest Group s operations are global, decentralized with operations in many jurisdictions, and based on biological material, the company is exposed to a number of risks. The Board deems it important that the group should initiate necessary measures to control risks, restrict individual risk or hazards and keep the total risk situation within acceptable limits. Risk management and internal control systems will be further strengthened in 2008.

12 MArine Harvest ACCOUNTS And Notes GROUP Operational risks/biological risks Fish farming is carried out in relatively open waters which supply the best conditions for a healthy environment and healthy fish. This places heavy demands on personnel and equipment. The production facilities are continually exposed to natural forces, representing a degree of risk of fish escaping and cages breaking. The company has had fish escapes in The zero escape ambition is nevertheless still a Marine Harvests goal, as this is deemed to be attainable. Animal husbandry in intensive cultures represents a certain risk of disease. Fish are particularly vulnerable when they start to live in the sea as they are then subject to stress and have to become accustomed to a completely new environment. The risk of disease is reduced through good smolt, good animal husbandry and selecting good locations. All levels of the organization are working systematically to reduce the risk of disease and the loss of fish through mortality. Market risks Marine Harvest s financial position and development depend significantly on price developments for salmon, and these prices are very volatile. Marine Harvest has to some extent mitigated this risk by entering into 6- and 12-month contracts for parts of its volumes. Hedging activities will be further developed in Salmon has now become a major com modity. As the world s leading producer, Norway has great financial interests in seeing this industry develop and expand. However, any trade policy measures against Norwegian seafood industries would undermine the foundation of long-term profitable operations. Furthermore, salmon as food has been subjected to critical journalism based on statements and publications from various research communities. This type of attack has had and may potentially result in temporary damage to the industry, and can only be countered by solid and well-documented information from professional spokespersons for the industry. As of today the industry has constructive relationship with WWF and national authorities in Canada, the USA, the EU and Norway. Currency risks Marine Harvest has substantial international activities and is exposed to changes in the currency exchange rates as a natural part of its business operations. Fluctuations in the currency exchange rates will therefore continually influence Marine Harvest s operating profits and revenues. Marine Harvest applies a currency risk mitigation policy and limits the effects caused by fluctuations in currencies where the company is vulnerable. Credit risks Credit risks are defined as accounting losses the group would suffer if one or more contractual partners do not meet their obligations, and dependency on a small number of major customers. A large proportion of the group s accounts receivable are credit insured and credit ratings are undertaken of all new customers. Historically, the group has suffered minor losses on accounts receivable. The group is not substantially exposed in relation to any individual customer or contractual partner as of 31 December where percent of the group s interest-bearing debts shall be secured by loans with fixed interest rates or by interest derivatives with an average loan period of three to four years. Liquidity risks The largest single factor in connection with liquidity risks is fluctuation in salmon prices. Some fixed price contracts that limit this risk have been entered into, but the bulk of the volumes is subject to the market price. Other key liquidity risks are primarily connected to fluctuations in production and harvesting volumes and changes in the feed price, which is the most important individual factor on the cost side. The company is strongly exposed to the development in the feed costs. These costs have increased on a unit basis through The company is considering mechanisms to reduce the feed cost exposure. The parent company/allocation of profits Marine Harvest ASA is the parent company of the group. Operating revenues were nil in 2007 compared with NOK 30.2 million in Operating revenues in 2006 were mainly administration fees collected from the former Pan Fish subsidiaries has been a year for restructuring of the group and establishing new organisation and management structures, and the operating costs incurred by Marine Harvest ASA have mainly been shareholder/stewardship costs for the subsidiaries and operating costs for the parent company. The operating result for 2007 came to NOK million compared with NOK -75 million in Net finance items in 2007 amounted to NOK million compared with NOK million in The net financial items of 2006 were heavily impacted by currency gains and imputed interest on the prepayment made for the shares in Marine Harvest N.V. Interest costs amounted to NOK million in 2007 compared with NOK million in The annual result came to NOK million compared with NOK million in In addition to a substantial net financial gain in 2006, the company in the same year also recorded NOK million of tax income (mainly deferred tax assets). At the end of 2007, Marine Harvest ASA has a total book value of equity of NOK million, giving an equity ratio of 51.6 percent. In the balance sheet, deferred tax assets of NOK million are capitalised, and the capitalisation is justified by the expected future taxable profits from the Norwegian subsidiaries. The Board will propose to the annual general meeting that the loss for the year of NOK million should be covered by the following distribution: Transferred from other equity NOK million Interest risks The group is generally financed using floating interest rates for debts to financing institutions and leasing debts. To minimize the risk connected to fluctuations of floating interest rates the group has a strategy In the opinion of the Board the annual accounts provide a satisfactory description of the company s and the group s positions at the end of the year. Annual report 2007

13 10 11 At the end of 2007, Marine Harvest ASA had 32 employees. Of the 32 employees, 8 are women. Marine Harvest ASA does not have its own operations that could pollute the external environment. The company has a very low sickness absence rate. Future prospects At the start of 2008, the prospects are good for the company s main product, gutted superior fresh salmon. A better balance between the production of salmon and the demand going forward is expected. The global supply is estimated to grow by 1 2 percent from 2007 to 2008, while the long-term demand growth is in the range of 5 8 percent. This should imply a better market balance both in the US and EU, the two most important markets for salmon. In addition, the wild salmon supply is expected to be lower in 2008 compared with 2007, and many of the feed intensive substitutes to farmed salmon, such as poultry and pork, are exposed to price increase due to the increase in feed costs. After the positive WTO ruling, there is reason to be optimistic with regards to amendments in 2008 to the Minimum Import Price regime in EU. Except for Chile, the Board expects that the good progress in the other Business Units, with an estimated harvest this year of more than tons gutted weight, will continue in The reduction in production costs is expected to continue. The falling costs are in part due to higher volumes, a result of better biological operations of current plants and further synergy effects. In 2008, Marine Harvest Chile will undergo a major restructuring. Based on experience from other regions, the ISA disease can only be dealt with by introducing immediate and comprehensive measures. The harvest volume will be reduced in the short term and capacity will be closed. The Board of Directors regrets that a large number of employees have to leave the company as a result of the downsizing. Going forward, harvest volumes from Marine Harvest s operations in Region 10 will be lower than in 2007, while the harvest from Region 11 will gradually increase. The Board of Directors expects that by well coordinated actions by the industry and the authorities, Marine Harvest Chile will return as a competitive producer after the restructuring period. Feed is by far the most important cost component for our business. Marine Harvest will in 2008 negotiate feed contracts for the next two years. Quality as well as price terms is a focus in the negotiations. Marine Harvest has developed a global quality system that will apply throughout all Marine Harvest businesses, with implementation beginning in Named Qmarine, it is organised in six strategic areas: Food safety, Food Quality, Fish welfare, Environmental responsibility, Social responsibility and Quality Assurance. These clearly indicate the priorities for Marine Harvest as a responsible producer and supplier of quality fish and fish products. Marine Harvest is planning to harvest in the range of tons gutted weight, of which approximately tons will be in Chile, in Marine Harvest s downstream category, where some of the company s own salmon and other marine protein sources are processed, will provide good and exciting possibilities for developing the group further. There is a substantial potential for further restructuring of this part of the industry in Europe. Marine Harvest will raise capacity through takeovers where this strengthens the company s position. Oslo, 14 APRIL 2008 Svein Aaser Chairman of the board Leif Frode Onarheim Solveig Strand Tor Olav Trøim Eldbjørg Sture Kathrine Mo Åse Aulie Michelet Chief Executive Officer

14 MArine Harvest BOard Of DIRECTORS Board of Directors Svein Aaser (1946) Position: Executive Director Seatankers Education: Graduate from the Norwegian School of Economics and Business Administration and a degree from IMEDE. Background: Aaser was group chief executive in DnB NOR until Aaser is former president and CEO of Hafslund Nycomed and deputy CEO of Nycomed Amersham. Aaser has also been managing director of Storebrand Skade, NORA matprodukter and of Stabburet/Norge. From he was president of NHO (Confederation of Norwegian Enterprise). Kathrine Mo (1965) Position: Chief of Marketing, Telenor Norway Education: Licence HEC degree from Lausanne in Switzerland. Background: Director in SLB/HEI! Marketing director in Coca Cola Oslo for the Nordic and Baltic regions/russia in 1995, rising in 1999 to the position of country manager for Norway in Ringnes within brand development and management. From Procter & Gamble within brand development and management. Leif Frode Onarheim (1934) Position: Associate Partner, Norscan Partners AS Education: MBA, Graduate from Norwegian School of Economics and business administration (NHH). Background: Former President and CEO, Nora Industrier AS, President Norwegian School of Management , Member of Parliament , Chairman Løvenskiold Vækerø AS, Director of Private and Governmental Enterprises. Annual report 2007

15 12 13 Tor Olav Trøim (1963) Position: VP and director of Frontline Ltd. Education: Master of Science from NTH University of Technology in Trondheim, Norway in Background: Extensive background as a Director in companies like Knightsbridge Tankers Ltd, Aktiv Kapital ASA and Golar LNG. He is also President and Chief Executive Officer of Ship Finance International. Until April 2000 Mr. Trøim was the Chief Executive Officer of Frontline Management AS. Prior to his service with Frontline, Mr. Trøim served as Managing Director and a member of the Board of Directors of DNO AS, a Norwegian oil company. Solveig Strand (1961) Position: General Manager Education: IT/ Economic degree. Background: Managing Director of companies within the Strand Group. Former State secretary for the Ministry of Fisheries. Member of the county council of Møre i Romsdal. Eldbjørg Sture (1956) Position: Consultant Education: Graduate from Norwegian School of Economics and Business Administration (NHH). Master of Management program e-business, Norwegian School of Management. Background: Independent consultant from Formerly in the DnB NOR corporation in various executive positions within corporate customers, shipping, capital market and corporate risk management. Head of division with responsibility for the investment bank s strategy and business development as well as all business support functions.

16 MArine Harvest ACCOUNTS and Notes GROUP Accounts and Notes Annual report 2007

17 Profit and Loss Statement MARINE HARVEST GROUP (NOK MILLION) note Operating revenue Purchase of goods Change in inventory and biological assets (at cost) Fair value adjustment on biological assets Fair value (excess of cost) on biological assets acquired and harvested Salary and personnel expenses 7/8/ Restructuring cost Other operating expenses Income from associates Depreciation Write downs and reversal of write downs Earnings before interest and taxes (EBIT) Financial income Net interest expense Other financial expense Earnings before taxes (EBT) Taxes Net earnings from ongoing operations Income from discontinued operations/assets held for sale Net earnings Minority interest Profit to shareholders of Marine Harvest ASA Earnings per share continued operations (NOK) Diluted earnings per share (NOK) Operational earnings/key figures (NOK MILLION) Operational EBITDA 1) Operational EBIT 2) Operational EBT 3) ) EBIT excluding write downs. depreciations. restructuring costs and fair value adjustment on biomass 2) EBIT excluding write downs. restructuring costs and fair value adjustment on biomass 3) EBT excluding write downs. restructuring costs and fair value adjustment on biomass

18 MArine Harvest ACCOUNTS And Notes GROUP Balance Sheet MARINE HARVEST GROUP (NOK MILLION) note assets Non-current assets Licences Deferred tax asset Goodwill Other intangible assets Total intangible assets Fixed assets Shares. other financial assets 20/ Total tangible assets Total non-current assets Current assets Inventory Biological assets Accounts receivables Other receivables Cash and cash equivalents Total current assets Assets held for sale Total assets Annual report 2007

19 16 17 (NOK MILLION) note Equity AND liabilities Equity Share capital 16/ Other equity Minority interest Total equity Non-current liabilities Deferred taxes Long-term interest bearing debt Other long-term liabilities Total non-current liabilities Current liabilities Short-term interest bearing debt Accounts payable Other short-term liabilities Total current liabilities Liabilities held for sale Total Equity and Liabilities Oslo, 14 APRIL 2008 Svein Aaser Chairman of the board Leif Frode Onarheim Solveig Strand Tor Olav Trøim Eldbjørg Sture Kathrine Mo Åse Aulie Michelet Chief Executive Officer

20 MArine Harvest ACCOUNTS And Notes GROUP Cash Flow Statement MARINE HARVEST GROUP (NOK MILLION) note Cash flow from operations Operating result (EBIT) (excl. discontinued operations) Adjustments for write-downs and depreciation Adjustments for fair value adjustment on biomass Adjustments for gain and loss on disposal of assets Adjustments for profit from associates Tax paid Change in inventory, accounts payables and accounts receivables Other adjustments Cash flow from operations Cash flow from investments Proceeds from sale of fixed assets Payments made for purchase of fixed assets Proceeds from sale of shares and otther investments Purchase of shares and other investments Cash flow from investments Cash flow from financing Proceeds from new interest-bearing debt (short and long) 26/ Down payment of interest-bearing debt (short and long) 26/ Received interest Paid interest Net cash effect of business combinations Equity paid-in Change in other financing items Cash flow from financing Currency effects on cash Net change in cash & cash equivalents in period Cash & cash equivalents opening balance Net change in cash & cash equivalents in period Cash & cash equivalents closing balance total Annual report 2007

21 Changes in Equity MARINE HARVEST GROUP (NOK MILLION) note Total equity previous year Change in equity from completion of purchase price allocations Total equity Profit for the year to equity Gains and losses charged directly to equity in the year Net equity effect at first time consolidation of Fjord Seafood Costs related to capital increases Tax on costs charged directly to equity Change in minority interest Distribution of dividend 14/ Change in fair value of cash flow hedges Other gains and losses charged directly to equity Translation differences Total gains and losses charged directly to equity Total recognised income and expense to equity Equity transactions between the company and its shareholders New equity received from option exercise by employees 7/ New equity received from capital increases Total equity from shareholders in the year Total change in equity in the year Total equity at year-end

22 MArine Harvest ACCOUNTS And Notes GROUP Notes Marine Harvest Group 01 General information Marine Harvest ASA is a Norwegian company located at Stortingsgaten 8, 0161 Oslo. Marine Harvest ASA is a publicly listed company at Oslo Stock Exchange, and the ticker is MHG. Comparable figures for two years are presented for the income statement, one-year comparison is provided for the balance sheet and for the cash flow statement. The nature of the group s operations and its principal activities are described in notes 3 and 4. Marine Harvest has operations in 19 countries and has structured the main part of the business in 5 business units; the farming operations in Norway, Chile, Canada, UK, and the VAP Europe (Value Added Processing), mainly operating in central Europe. These financial statements are presented in NOK, and all figures are presented in millions. The companies in the group have their national currency as functional currency, except for the Chilean companies which have USD as their functional currency. The parent company has NOK as its functional currency. In 2005 the group consisted only of the former Pan Fish Group activities. The income statement of 2006 includes figures from the former Pan Fish Group for the full period, while the former Fjord Seafood Group is included from March As the former Marine Harvest N.V. Group was acquired at year-end 2006 the balance sheet of 2006 and all figures of 2007 includes the combined operations of the former Pan Fish Group, the former Fjord Seafood Group and the former Marine Havest N.V. Group. The financial statements were authorized for issue by the directors on 14 April Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented. Basis of Accounting The annual report comprises the income statement, balance sheet, specification of changes in equity, cash flow statement, and note disclosures for the Group and for the parent company. The accounting year equals the calendar year. The accounts for the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (EU-IFRS) and the interpretations adopted by the International Accounting Standards Board (IASB). At the end of 2007, there are new standards, changes in existing standards and interpretations that are not yet effective, but are relevant for the Marine Harvest Group. The new standard IFRS 8 Operational segments will be implemented by the group in The standard may involve changes in the groups reporting of segments. There are several changes in IAS 1 Presentation of financial statements. The requirement to present all changes in equity arising from transactions with owners in their capacity as owners (i.e. owner changes in equity) separately from non-owner changes in equity is already implemented. Other changes in the standard will be implemented when the standard becomes effective from 1 January The changes in IFRS 3R Business Combinations and IAS 27R Consolidated and Separate Financial Statements were enacted in January 2008 and become effective for financial years beginning on or after 1 July IFRS 3R introduces changes in the accounting for future business combinations and goodwill. IAS 27R requires that a change in ownership of a subsidiary is accounted for as an equity transaction and introduces other changes in the accounting for losses incurred by the subsidiary and the loss of control of a subsidiary. There are also several other enacted changes in standards and interpretations that are not yet effective at the end of These are not consid ered relevant for the group s reporting. The accounts for the parent company have been prepared in accor dance with the Norwegian Accounting Act of 1998 and good accounting practice in Norway and the accounting principles are presented in a separate note in the accounts for the parent company. The financial statements have been prepared on the historical cost basis, except for where IFRS require recognition at fair value, mainly related to the revaluation of certain financial instruments, availablefor-sale investments and valuation of biomass. Preparation of the accounts involves the use of estimates and assumptions. Changes in estimates and assumptions are accounted for when they occur. Descriptions about the various estimates applied are given in the notes to the accounts where relevant, and in particular is addressed in note 3. Consolidation principles Consolidation The consolidated accounts present the financial position, the financial results and the cash flow for the Group as a combined entity. Subsidiaries The Group s consolidated accounts comprise the accounts of companies in which the parent company or subsidiaries have a direct or indirect controlling influence. A controlling influence normally exists if the group directly or indirectly owns more than 50 percent of the voting capital in the controlled entity. Recently Annual report 2007

23 20 21 acquired subsidiaries are included from the time a controlling interest is obtained. Divested subsidiaries are included in the consolidated accounts up to the point of divestiture. operations and assets held for sale is presented on separate line in the income statement. In the balance sheet assets and liabilities held for sale are also presented on separate lines. Investment in associates Associated companies are defined as companies in which the Group has considerable influence and can exercise significant but not controlling influence (normally ownership of 20 50%). Associated companies are included in the Group accounts according to the equity method. The Group s share of profit in an associated company is its proportionate amount of the after-tax profit of the associated company, less any depreciation of the surplus value (due to the cost of the ownership interest exceeding the acquired share of booked equity). In the income statement, the share of profit in associated companies is shown on a separate line included in earnings before interest and taxes. In the balance sheet, ownership interests in associated companies are entered as no-current assets. Elimination of internal transactions All transactions and balances between companies in the Group are eliminated. Unrealized gains from internal transactions are eliminated. Unrealized losses from internal transactions is also eliminated, but are considered an impairment indicator of the asset transferred. Elimination of shareholdings in subsidiaries Shareholdings in subsidiaries are eliminated in the Group Accounts according to the acquisition method. The difference between the cost price of the net ownership interest and the recorded value of the net assets at the time of acquisition (excess value) is analyzed and allocated to the individual balance sheet items according to their fair value. Any further additional value is capitalized as goodwill. If the cost price of the net ownership interest is lower than the value of the acquired, the difference (bad will) is charged directly to the income statement. Deferred tax provisions are made for the excess values, except for goodwill. The nominal tax rate for the relevant tax jurisdiction is used when calculating deferred tax. Minority interests Minority interests shares of after-tax profit are shown as a separate item in the income statement. In the balance sheet and in the specification of equity the minority interest is included, but specified on a separate line. Discontinued operations/assets held for sale Non-current assets and groups of non-current assets and liabilities are classified as held for sale if their carrying amount is expected to be recoverable through sales transactions rather than through value in use, it is expected that the sale is likely to occur within one year from closing date, and management has a clear commitment to sell the assets. Non-current assets and groups of non-current assets and liabilities held for sale are measured at the lower of the carrying amount and fair value less sales cost. Changes in fair value after classification as assets held for sale are included in profit or loss from discontinuing operations Net profit from discontinued operations including gain or loss on sale of discontinued Foreign currencies Translation of accounts of foreign subsidiaries Profit and loss transactions in foreign subsidiaries are translated using the average exchange rate for the consolidation period. The balance sheet of a foreign subsidiary is translated at the exchange rate on the balance sheet date. Differences owing to profit and loss transactions being translated at the average exchange rate and balance sheet value translation at the exchange rate on the balance sheet date are booked against equity. Accumulated translation differences are charged to the income statement when a subsidiary is divested. Transactions in foreign currency Transactions made in a foreign currency are translated using the currency rate at the time of the transaction. Receivables, debt and other monetary items in foreign currency are valued at the currency rate at closing date and the translation differences are charged to the income statement continuously. Other assets and debt in foreign currencies are valued at the currency rate on the transaction date. Financial instruments Financial instruments are at initial recognition measured at cost. For financial instruments who is not classified as fair value trough profit and loss, transaction costs are included in cost. After initial recognition they are carried at fair value. Gains or losses on valuation at fair value are recognized in the income statement when it occurs. In accordance with IAS 39, Financial Instruments: Recognition and Measurement, financial instruments are classified in the following categories: Financial instruments at fair value through profit or loss Marine Harvest uses financial derivatives to reduce its exposure to fluctuations in foreign currencies. These instruments, mainly forward exchange contracts and interest rate swaps, are initially recognized at cost and in subsequent periods measured at fair value. The same applies for interest rate swaps that are entered into with the purpose to reduce the Group s interest rate risk. Fair value of an interest rate swap is the estimated amount the company would receive or pay to redeem the agreement on the balance sheet date, considering the current market interest rate level. Profit and loss arising from revaluations to fair value is recognized immediately in the income statement. Forward sales contracts on Marine Harvest own shares which will be settled net in cash are recognized as financial liabilities in accordance with IAS 32.16, and subsequently measured at fair value. Profit and loss arising from revaluations to fair value is recognized immediately in the income statement.

24 MArine Harvest ACCOUNTS And Notes GROUP Investments in shares available-for-sale Investments in shares held by the Group except for shares in subsidiaries and associates are stated at fair value. Shares that that do not have a quoted market price in an active market and whose fair value cannot be reliably measured is measured at cost. Marine Harvest classifies all investments in shares as available-for-sale with gains or losses being recognized directly in equity unless they are impaired. Impairment losses are taken trough the profit and loss. Loans and receivables Loans and receivables including accounts receivable are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortized cost which is normally identical to face value due to early maturity. Upon recognition, these assets are measured at fair value less directly related transaction expenses. In successive periods interest-bearing liabilities and receivables are measured at amortized cost, and any differences between acquisition cost and redemption value is accounted for over the borrowing period by using the effective interest method. Trade receivables do not carry any interest and are stated at their nominal value reduced by appropriate allowances for estimated irre coverable amounts. Liabilities This category includes long term interest bearing debt, current interest bearing debt and accounts payable. Such liabilities are carried at amortized cost which is normally identical to face value. Upon recognition these liabilities are measured at fair value less directly related transaction expenses. In succes sive periods interest-bearing liabilities are measured at amortized cost, and any differences between acquisition cost and redemption value is accounted for over the borrowing period by using the effective interest method. Trade payables do not carry any interest and are stated at nominal value. Classification principles Assets and liabilities Assets and liabilities associated with the regular business cycle, or held for sale, and items due for payment within one year from the balance sheet date as well as cash, are classi - fied as current assets or short-term liabilities. All other assets are classified as non-current assets. Other liabilities and provisions for long-term liabilities are classified as long-term. Discontinued operations/assets held for sale Net result in discontinued operations and operations held for sale is presented separately in the income statement. In the balance sheet, assets and liabilities owned by operations that are held for sale are presented on separate lines. statement. Distributions to owners of financial instruments classified as equity will be accounted for directly in equity. Cost and tax effects related to transaction with shareholders are recognised directly in equity. The purchasing and sale of treasury shares is recognised directly in equity. Convertible bonds made up of both a debt and equity element, are, when issued, separated into two components that are reported separately as debt and equity respectively. Revenue recognition Revenue is measured at the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of business. Revenue is shown net of discounts, VAT and other sales related taxes. Sales of goods are recognized when the goods are delivered and both title and risk has passed. Changes in estimated fair value on biomass are recognized in the income statement at every closing. The fair value adjustment is reported on a separate line; fair value adjustment on biomass. The change in fair value adjustment is calculated as the change in fair value of the biomass less the change in accumulated cost of production for the biomass. Interest income is recognized on an accrual basis. Dividends on shareholdings are recognized as income when the distribution of dividend is confirmed from the distributor. Dividend received on profits earned before the acquisition of the shareholding is deducted in the cost price of the shares if the shares are carried at cost in the balance sheet. Investment grants are recognized as income with an amount corresponding to the depreciation schedule of the related assets. The recognition in the income statement is classified as a reduction of depreciation. In the balance sheet, the remainder of the investment grants to be charged to the income statement in later periods is classified as debt. Changes in accounting principles and corrections The effect of changes in accounting principles and corrections due to material errors in past years financial statements is booked towards equity. Equity Financial instruments are classified as debt or equity in accordance with the underlying economic realities. Interest, dividends, gains or losses related to a financial instrument that is classified as debt, are presented as income or expense in the income Farming licenses The value of licenses acquired by the company (mainly licenses for farming of salmon), is capitalized. Licenses that are considered perpetual are not subject to amortization, but an impairment test is performed annually. Impairment write down/losses are reversed if the value recovers. Annual report 2007

25 22 23 Goodwill The difference between acquired assets and liabilities and the acquisition cost is capitalized as goodwill. The goodwill in the balance sheet is carried at acquisition cost less any write downs made after acquisition. The goodwill is allocated to the cash generating units which is expected to contribute to synergy capture and future profits when the acquisition was made. them). This impairment testing is done by assessing the value in use based on a discounting of the future estimated cash flow from each cash generating unit. Each business segment is considered a cash generating unit except for VAP where the operations in each country are considered as individual cash generating units. The goodwill is subject to an annual impairment testing, and any impairment loss is recognized in the income statement. Impairment losses on goodwill are not reversed in later periods. When selling a subsidiary or an associated company, the good will related to the investment is included in the calculated gain/loss in the sale. Following an acquisition a preliminary purchase price allocation may be used for the financial reporting. Within one year after the acquisition the purchase price allocation is completed. This normally leads to adjustments in the purchase price allocation which again leads to changes in goodwill. Property, plant and equipment Property, plants and equipment are entered in the balance sheet at acquisition cost less accumulated depreciation and write-downs. Costs associated with normal maintenance and repairs are expensed when they occur. Costs of major replacements and renewals that substantially extend the economic lifetime of production equipment and plants are capitalized. Assets are considered fixed assets if the useful economic lifetime exceeds one year. Ordinary straight-line depreciation is applied over the useful life of the asset, based on the asset s historical cost price and estimated residual value at disposal. If a substantial part of an asset has an individual and different useful life, this part is depreciated individually. Depreciation is classified as operational expenses in the income statement. The asset s residual value and useful life is evaluated annually. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset. Such gains or losses are recognized as other income (net). Impairment At each balance sheet date the carrying amounts of the Groups assets are reviewed to determine whether there are any indications that specific assets have suffered an impairment loss. If any such indications exist, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Recoverable amount is the higher of fair value less costs to sell and the net present value of discounted cash flows (value in use). In addition an annual Impairment testing is done for cash gene rating units (those that have intangible assets or goodwill associated with The estimated cash flow is based on continued operation for the cash generating units within the Marine Harvest Group. Estimated cash flows are based on confirmed budgets for the following year and reasonable assumptions for growth, cost improvements, and profits for another four years. The discount rate is an adjusted WACC (Weighted average cost of capital employed) calculated to reflect actual conditions in each cash generating unit. 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 an impairment write down to recoverable amount is accounted for. If a write down is needed the write down is firstly made for goodwill and then for other intangible assets. If further write down is required other fixed assets are written down. Impairment losses recorded in previous periods are reversed if the recoverable amount in a later period exceeds book value. The reversal will not make the book value exceed the historical cost of the asset. Fixed assets that are not in use, or are held for sale, are valued individually. For other assets the cash generating unit is defined based on the lowest level where individual cash flows can be established. Leasing Assets leased on terms that largely transfer rights and obligations to the Group (financial leasing) are capitalized as fixed assets, and the financial obligations are entered as other long-term debt. Other lease expenses are treated as regular leasing costs, and presented as ordinary operating expenses (operational leasing). Leased items that are recorded in the balance sheet are subject to depreciation according to useful life of the asset, and the leasing liabilities are reduced with the leasing fees paid, after deduction of interest. Inventory Inventories comprise eggs, feed, packaging materials and finished goods. Inventories of goods are stated at the lower of cost and net realizable value. The cost of finished goods includes direct material costs, direct personnel expenses, and a percentage of indirect processing costs (full production cost). Interest costs are not included in value of inventory. The cost price of purchased goods is the actual purchase price. Cost is based on the first-in first-out principle.

26 MArine Harvest ACCOUNTS And Notes GROUP If fish farmed by the Group is included in inventory as raw material for further processing in one of the Groups processing entities, such fish is included in inventory with its fair value when put to inventory. Biological assets Biological assets comprise juveniles, smolt and fish in the sea. In accordance with IAS 41, biological assets are normally carried in the balance sheet at estimated fair value less cost related to harvest. Active markets for sale of live fish do not exist so the valuation of live fish under IAS 41 implies to establish an estimated fair value of the fish in a hypothetical market. Marine Harvest estimate a fair value on the biomass based on observed market prices for harvested fish, and these prices are adjusted to reflect that the observed prices are not prices for live fish. If no external market price exists the valuation is based on achieved prices. The prices are reduced for harvesting costs and freight costs to market, to arrive at a net value for the farmer. The valuation reflects expected quality grading and the fact that the fish is not fully grown to harvest. Small fish (smolt and fish smaller than approximately 1.5 kg) could have production cost per kg being higher than market prices per kg for harvested fish. If this is the case the fish is carried at the higher of the two if it is reasonable that the production cost will be fully covered through further farming and later sale. If further growth and sale is not expected to cover the cost of production the fish is carried at the estimated value based on market prices. Accumulated direct and indirect production costs for fish harvested are classified as costs of goods sold in the income statement when the fish is harvested. The fair value adjustment to cost is charged to the profit and loss statement on a separate line for fair value adjustments. Biomass acquired trough business combinations are carried at full production cost plus a fair value adjustment. When this fish is harvested and sold the cost of production is charged to the profit and loss statement as cost of goods sold, and the fair value adjustment on this fish when acquired through a business combination is charged to the profit and loss statement on a separate line labeled fair value (excess of cost) on biomass acquired and harvested. Fixed-price contracts The company holds long term sale and buy contracts related to salmon products. These contracts do not contain any elements of embedded derivates and are therefore not treated as financial instruments. The contracts are settled based exclusively on the assumption that reception or delivery of salmon products should take place. The contracts are not tradable, nor do they contain a clause for settlement in cash or cash equivalents. Provisions are made for fixed-price contracts that oblige the company to sell fish at a price lower than the calculated fair value of the biomass. Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at hand and in banks and short-term deposits which without significant currency risk can be converted to cash within three months. Taxes Taxes for the year in the profit and loss statement comprise taxes on the taxable profit for the year, changes in deferred taxes and adjustments in previous year s taxes. Taxes on transactions that are recorded directly to equity do not form part of the tax expense for the year. Tax payable is calculated using the nominal tax rate for the relevant tax jurisdiction at the balance sheet date. Deferred tax is calculated on the basis of temporary differences between accounting and taxation values at the close of the accounting year. Temporary differences related to goodwill that are not tax-deductible are not taken into consideration when calculating deferred taxes. Deferred tax assets arise from temporary differences that give rise to future tax deductions. Deferred tax assets are only recognized in the balance sheet if it is likely that it can be utilized directly or by netting a deferred tax liability. Tax increasing and tax decreasing timing differences are offset against each other to the extent that the taxes can be netted within one tax regime. Pension accounting Contribution plans Obligations to make payments to pension schemes that are contribution plans are expensed when they occur. The employer has no obligations under these pension schemes other than making regular payments according to agreement. Defined benefit plans Pension schemes where the employer has guaranteed the pensioner a defined benefit from the plan are accounted for based on the net present value of liability for the company. The net liability in each scheme is the difference between the net present value of the liability in the scheme and the fair value of the assets available in the pension scheme. The net obligation is calculated using actuarial assumptions and expertise. The change in net liability is recorded in the accounts at every closing. Provisions for liabilities A provision is recognized in the accounts if the company has a legally or constructive/self-administered obligation related to a past event, and it is likely that the obligation will lead to a financial loss for the company. Provisions for restructuring are recorded only if the company has authorized specific plans and commitments to carry out the restructuring. No provision is made for future operating losses. Long-term provisions are valued based on discounted expected cash flows. Restructuring costs Provisions for restructuring costs and impairment of assets will be made if the company within the balance sheet date has published or started a restructuring plan, which identifies what parts of the company, Annual report 2007

27 24 25 and approximately how many employees that will be affected, the actions that will be taken, and when the plan will be implemented. Provisions are made only for costs that cannot be associated with future earnings. Costs related to restructuring are presented on a separate line in the profit and loss statement. Share based payments Previous senior executives of the Group have received remuneration in the form of share-based payment transactions ( equity-settled transactions ). The Group has no share options which can be settled in cash ( cash-settled transactions ). The fair value of the options is recognized as a payroll expense with a corresponding increase in equity. The fair value is measured when the options are assigned and are distributed over the period until the employees have earned an unconditional right to make use of them. Cash and cash equivalents comprise cash, bank deposits, and other short-term, liquid placements that can be converted rapidly into cash. Cash flow effects from merged or acquired companies are included as of the time the companies were integrated for accounting purposes. The net cash effect from the consolidation of the acquired company, e.g. the cash outlay in the acquisition less the cash available in the acquired entity at acquisition is presented as net cash effect on business combinations, and is presented as part of cash flow from financing. Paid interest is in the cash flow statement included in the cash flow related to financing activities. Purchase and sale of shares is classified as investment activities in the cash flow statement. Cash flow in discontinued operations is not included in the cash flow statement. Cash flow statement The cash flow statement is prepared in accordance with the indirect method and shows cash flow from operations, from investments and from financing. 03 Accounting estimates The preparation of financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting principles and carrying amounts of assets and liabilities, income and expenses. The estimates and underlying assumptions are based on past experience and other factors perceived to be relevant and probable when the judgments were made. Estimates are reviewed on an ongoing basis and actual values and results may deviate from these estimates. Revisions to accounting estimates are recognized in the period in which the estimates are revised. based on budgets for the coming years. All intangible assets are allocated to cash generating units. The value of the licenses are affected by a number of para meters such as long term growth in demand, competitive situation and behaviour and expectations concerning long term profit margins. The different parameters can have different significance for the license values over time. Changes in these assumptions can cause corresponding impairments, or reversals of impairments, of the license values. Valuation of biomass The valuation of biomass in the sea involves estimates of both volume and quality of the biomass. When valuating the biomass, the most updated data on development in biomass is used, and the estimated quality grading is based on historical grading. According to IAS 41, the biomass is carried in the balance sheet at estimated fair value on the balance sheet date. The principles of valuation are described further in the note on biological assets. Impairment testing of licences, goodwill and other intangible assets The Group performs an annual impairment test of goodwill, farming licenses and other intangible assets as described in the accounting principles. Recoverable amount for the cash-generating units is calculated based on a going-concern assumption within the group. In these calculations, the use of estimates is a central element. These calculations are based on reasonable assumptions in relation to profitability and develop ment in the future, and the estimates are Goodwill is affected by the same factors as the licenses and contains the strategic value of licenses. Goodwill also depends on the ability to realize synergies and economies of scale from business combinations and other operation-related excess values. If the book value of goodwill cannot be sustained, an impairment loss is expensed. Previous goodwill impairments cannot be reversed. Accounting for deferred taxes The group is subject to income taxes in numerous jurisdictions. The accounting of deferred taxes reflects tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date in each country. The recognition of a deferred tax asset is based on expectations of profitability in the future. In addition there are many transactions and calculations during the ordinary course of business for which the ultimate tax determination is uncertain. Deferred taxes are according to IAS 12, calculated using the nominal tax rate. This means that the net present value of effects from for instance tax losses carry forward that are utilised in the future, will be different from booked amounts.

28 MArine Harvest ACCOUNTS And Notes GROUP 04 Consolidated entities The consolidated financial statements include the following companies: Parent company Marine Harvest ASA Country Norway Subsidiaries Norway Country ownership % Marine Harvest Holding AS Norway % Pan Fish Sales USA AS Norway % Kinn Salmon AS Norway % Aqua Farms Herand AS Norway % Marine Harvest Norway AS Norway % Fjord Forsøksstasjon Helgeland AS Norway 51.10% Marine Harvest Ingredients AS Norway % Rygro AS Norway % Sterling White Halibut AS Norway % Imsland Smolt AS Norway % Marine Harvest Minority Holding AS Norway % Marine Harvest Cod AS Norway % Subsidiaries Americas Country ownership % Pan Fish Canada Inc. Canada % Marine Harvest Canada Inc. Canada % Marine Harvest North America Inc. Canada % Englewood Packaging company Canada 50.00% Pan Fish USA Inc. USA % Marine Harvest USA Holding LLC USA % Ducktrap River of Maine LLC USA % Marine Harvest USA LLC USA % Heartland Enterprises Ltd. British Virgin Islands % Salmoamerica Ltd. British Virgin Islands % Cultivadora de Salmones Linao Ltd Chile % Fjord Seafood Chile S.A. Chile % Salmones Americanos Ltda. Chile % Salmones Tecmar S.A. Chile % Salmones Lican Ltda. Chile % Processadora De Productos Marinos Delifish Chile % Marine Harvest Chile SA Chile % Ocean Horizons Chile % Aquamerica International Holding S.A. Panama % Panamerica International Holding S.A. Panama % Salmoamerica Corporation Panama % Subsidiaries Asia Country ownership % Marine Harvest Hong Kong Cy Ltd Hong Kong % Pan Fish Japan Co Ltd. Japan 60.00% Marine Harvest Japan Inc Japan % South Sea Food KK Japan % Stolt Seafarm KK Japan % Marine Harvest Korea Co. Ltd Korea % Marine Harvest Singapore Pte Ltd Singapore % Norfisk Trading Pte Ltd Singapore % Annual report 2007

29 26 27 Subsidiaries Australia Country ownership % Marine Harvest Australia Pty Ltd Australia % Subsidiaries Europe Country ownership % Marine Harvest Scotland Ltd Scotland % Borsea Hatcheries Ltd Scotland % Borsea Ltd Scotland % Eishken Estate Ltd Scotland % Followstart Ltd Scotland % Harlosh Salmon Company Ltd Scotland % Marine Harvest (Properties) Ltd Scotland % McConnel Salmon Ltd Scotland % Marine Harvest Fort William Ltd Scotland % Atlantic Sea Products Ltd Scotland % Pairc Salmon Ltd Scotland % Stolt Sea Farms Ltd Scotland % Bradan (Maoil Rua) Teoranta Ireland % Bradan Fanad Teoranta Ireland % Bradan Prioseal Teoranta Ireland % Comhlucht Lascaireachta Fanad Teoranta Ireland % Fanad Pettigeo Teoranta Ireland % Feirm Farraige Oilean Chliara Teoranta Ireland % Fanad Fisheries Trading Ltd Ireland % Pan Fish Faroes faroes 72.60% Belisco Ehf Iceland % Fjord Seafood Spain S.L.U Spain % Marine Harvest Spain SL Spain % Pieters Bresken BV the Netherlands % Gebr Sterk Holding BV the Netherlands % Gebr Sterk Beheer BV the Netherlands % Sterk Specials BV the Netherlands % Marine Harvest Sterk BV the Netherlands % Marine Harvest International BV the Netherlands % Marine Harvest NV the Netherlands % Marine Harvest Holland BV the Netherlands % Marine Harvest Pieters NV Belgium % Fjord Seafood Services NV Belgium % Marine Harvest Belgium NV Belgium % Marine Harvest Insurance NV Netherlands Antilles % Marine Harvest Appéti Marine SAS france % Marine Harvest Boulogne SAS france % Marine Harvest Rolmer SAS france % Marine Harvest Lorient SAS france % J.L. Solimer sarl france % Marine Harvest Kritsen SAS france % Marine Harvest Rennes SAS france % Marine Harvest France SNC france % Kritsen Italy Italy % Marine Harvest Poland Sp. Zoo Poland %

30 MArine Harvest ACCOUNTS And Notes GROUP 05 Business units Identification of segments Marine Harvest has structured its operations in five business units. Business unit Norway incluldes fish farming operations and sales operations in Norway, which is producing and selling Atlantic salmon. The operations on Norway also include several harvesting and processing facilities, which produce filets. Business unit Americas include the Group s operations in Chile and in the US. Operations in Chile include fish farming, and processing facilities. In the US the group has sales offices located in Miami and processing facilities. The business units Canada and UK are fish farming operations. In the farming operations the genetic material of salmon and the growth of fish is the main driver of the business and profits. Operations are exposed to diseases, climate and changing weather conditions. The major cost component in the farming operations are feed. The processing facilities are particularly dependent on a steady flow of fish. The business unit VAP Europe is processing and selling elaborated seafood in the European market, of which 1/3 are based on atlantic salmon, 1/3 are based on whitefish, and 1/3 on other seafood. In the business unit VAP Europe, product development and yield on raw materials are the main drivers of business and profits. Product development is done in close relationship with customers and major customers are retail chains, catering etc. In addition to the business units the group has a number of operations which individually are smaller, and are operated as separate businesses. These other units include the farming operations in Ireland which produces organic salmon, the salmon farming operations in the Faroes, as well as the sales organisation in Asia, and the entities farming Halibut and other species. All these are presented as Other entities below. Accounting principles applied for the segment reporting The same accounting principles as described for the Group accounts have been applied for the segment reporting. Marine Harvest ASA costs have been allocated to the segments, and are presented as part of the income and expenses in the segments. Inter-segment transfers or transactions are entered into under normal commercial terms and conditions, and the measurement used in the segment reporting is the same as used for the actual transactions. Investments in the period comprises of additions to tangible and intangible assets. Key figures by business unit for 2007 (NOK million) sales rev.s sales rev. Operating Depreciation Other operating Fair values Total liabilities invest- n. of external other income and write- operating profit included book value ments in empl. Customers divisions Downs expenses in operating of assets the period profit Norway Americas Canada UK VAP Europe Corporate/other entities Eliminations Total Particular elements included in business unit profits in 2007 The operating results of BU Norway is negatively affected by Pancreas Disease (PD) which has caused mortaility cost of NOK 65.6 million in the year. Furthermore restructuring costs in BU Norway amount to NOK 49 million. Adjusted for these two elements the operating profit of BU Norway is NOK million in The operating results of BU Americas are heavily impacted by the extraordinary biological situation in Chile has shown an adverse movement in several underlying factors in Chile; harvest volume, market prices, product mix, exchange rates as well as increasing cost of production due to increased raw material prices and the challenges with disease, has all negatively impacted profits in The value of biomass in the balance sheet was written down with NOK 54 million in the third quarter of 2007 and additional write down of NOK 364 million was made in the balance sheet at year end 2007, all due to a severe hit of Infectious Salmon Anemia (ISA) to a number of sites operated in Chile, causing substantial culling of fish. The challenging situation has lead to considerable harvesting of salmon at lower size than preferable, Annual report 2007

31 28 29 and increased production cost for the fish harvested. As a consequence the value of finished goods had to be written down with NOK 102 million. Restructuring costs in Chile amount to NOK 18 million in Canada has been hit by the price reductions in the US market as well as adverse changes in exchange rates. Restructuring costs in Canada amount to NOK 32 million in The UK operations have also had some challenges with PD, and mortality related to this has been expensed with NOK 12.6 million. Restructuring costs in the UK amount to NOK 31 million in The operating results of VAP Europe have deloped favourably due to substantial operations improvements in The Corporate/other entities include yellowtail operations in Japan, which will be closed down in As a consequence of the difficulties in the production of yellowtail and the negative market development of this specie a non-recurring write down of biomass with NOK 52 million as well as write down of fixed assets with NOK 7.6 million was recorded in In the same group is included the entity farming cod-juveniles in Norway, which experienced an extraordinary explosion of a gas tank leading to loss of biomass and sales, causing a reduction of NOK 3.2 million in operating profit in the year. In addition an unsucessful vaccine testing program was carried out causing costs of NOK 12.3 million in The same entity also made a write down of fixes assets of NOK 4.5 million. Key figures by business unit for 2006 (NOK million) sales rev.s sales rev. Operating Depreciation Other operating Fair values Total liabilities invest- n. of external other income and write- operating profit included book value ments in empl. Customers divisions Downs expenses in operating of assets the period profit Norway Americas Canada UK VAP Europe Corporate/Others entities/elim Total Key figures by business unit for 2005 The table below presents key figures ny business area for 2005 (only former Pan Fish operations). (NOK million) sales rev.s sales rev. Operating Depreciation Other operating Fair values Total liabilities invest- n. of external other income and write- operating profit included book value ments in empl. Customers divisions Downs expenses in operating of assets the period profit Norway ) Canada VAP Europe Others/elim Total ) This includes reservation of write-offs on concessions from previous years in the amount of NOK 252 million. continuing next page

32 MArine Harvest ACCOUNTS And Notes GROUP continued from previous page Operating REVENUE by customers location The table below presents the operating revenue for Marine Harvest split by main geographical markets. (NOK million) Norway Europe America Japan Rest of Asia Other markets Total operating income Pro forma financials Marine Harvest ASA (former Pan Fish) acquired Fjord Seafood ASA in the start of the second quarter of 2006 and Marine Harvest N.V. on 29 December In the actual figures the groups are consolidated from these points in time. In the proforma figures below, the groups are consolidated from 1 January The Proforma figures are prepared to show the joint activity as one economical unit for the period, provided that the take-over did take place at the beginning of the accounting period. The Proforma figures are based upon the reported accounts of the three individual groups, and the consolidation is done by adding up the income statements for the period. To the extent that there has been transactions between the three groups, these have been eliminated. Adjustments have been made for depreciations of excess values identified in the acquisitions og Marine Harvest N.V. and Fjord Seafood from 1 January Operations held for sale have also been adjusted for. All the groups have reported according to IFRS and there are no differences in the accounting principles that have significance for the pro forma figures. Adjustments in pro forma profit and loss account Excess values from acquisitons The effects from established excess values on identified assets on acquisitions is included in the figures from 1 January Non recurring items are included in 2006 with NOK 75.7 million. This is related to depreciations on excess values calculated on customer contracts and finished goods. In the actuals this effect is included in Funding of the acquisition (debt) assumed established by the start of 2006 When Marine Harvest ASA made the prepayment for the shares of Marine Harvest N.V. new loans of EUR 550 million were established. In the pro forma accounts it is assumed that this debt was established on 1 January 2006, and an interest expense of NOK 36 million has been included in the pro forma accounts to cover the period up to March From March 2006 interest expense on this debt is included in the actual figures and no further adjustment is made. A tax income of 28 percent of the interest expense has been included in the pro forma accounts for the first quarter of Reversal of currency gain and imputed interest on the prepayment for the shares of Marine Harvest N.V. The accounts of Marine Harvest ASA for 2006 include NOK million of currency gain on the prepayment made for the shares of Marine Harvest N.V. In the pro forma accounts it is assumed that shares were taken over on 1 January 2006 and then no such currency gain would occur in the profit and loss account. It has therefore been taken out in the pro forma profit and loss account for Also imputed interest income on the prepay ment of NOK million has been reversed for the same reason. These reversals has no tax effects. Profit from associated companies In the consolidated figures of 2006 Marine Harvest ASA has recognised a profit of NOK 14.6 million as profit from associated companies in the period in which Fjord Seafood ASA was an associated company (end of the first quarter 2006). In the pro forma accounts this profit has been reversed as the full profit of the Fjord Seafood group are included in the pro forma accounts. Annual report 2007

33 30 31 Pro forma Income statement Marine Harvest Group (former Pan Fish, Fjord Seafood and Marine harvest N.V.) INCOME STATEMENT (NOK million) Actual Pro forma Operating revenue Costs of sold goods Fair value adjustment biomass Salary and personnel expenses Restructuring expenses Other operating expenses Income from associates Depreciation Write downs and provisions Earnings before interest and taxes (EBIT) Net financial items Earnings before taxes (EBT) Taxes Net income from ongoing operations Operational EBITDA Operational EBIT Operational EBT Payroll and other personnel expenses BREAKDOWN OF PAYROLL EXPENSES (NOK million) Wages and salaries National insurance contributions Pension expenses Other benefits Total payroll expenses Average number of full-time employees At year-end 2007, there were full-time employees in the Group. 08 Remuneration to corporate management Remuneration to members of the corporate management team that are or have been employeed by the parent company is specified in notes to the parent company accounts. In the following, remuneration to other key personnel in the group is presented. Key personnel are, in addition to the board of directors, employees that have been or are part og the corporate management team and have had substansial influence in important decision-making processes for the group after the acquisition of Fjord Seafood in March The corporate management team have individual contracts that regulates salaries, bonuses and post-employment benefits. continuing next page

34 MArine Harvest ACCOUNTS And Notes GROUP continued from previous page Salary and other benefits paid (NOK million) salary Bonus other Managing Director Business Unit Norway Managing Director Business Unit Americas Managing Director VAP Europe Total remuneration to BU Managers In total for 2007 the combined corporate management team (including those employed by Marine Harvest ASA) was paid NOK 23.2 million in salaries, of which NOK 16.2 million was fixed pay, and other contributions amounted to NOK 7.0 million. In total for 2006 the corporate management team (including those employed by Marine Harvest ASA) was paid NOK 16.4 million in salaries, of which NOK 12.3 million was fixed pay, and other contributions amounted to NOK 4.1 million. Bonus Key personnel has in their contracts right to receive a bonus based on company performance and individual performance. Bonus paid out in 2007 relates mainly to results and performance in 2006 and the bonus is calculated in line with the contracted criterias. Pensions The corporate management team are included in collective pension agreements or have individual pension agreements. Further information about the pension agreements are given in separate note to the accounts. Payments made on pension plans for the key personnel are included in the figures presented above. For further information about pensions, please refer to note 11. Post employment benefits In the agreements with some key personnel, there are also included clauses concerning post employment, and the clauses entitles the employees to receive post employment payments based upon annual salary. None of the key personnel are entitled to receive payment longer than two years after termination. The Managing Director of Business Unit Americas has a right to receive a cash payment/pension compensation of USD 1 million when he has held his position in five years, from March Stock Options A stock option programme was established in 2005, that granted stock options to some of the key personnel of the former Pan Fish group. The remaining shares under this programme were called and settled in the start of The details about the stock option program are presented in note 17. In March 2008 it was established an incentive program in which a cash bonus is earned based on development on the price of the Marine Harvest share at Oslo Stock Exchange (syntetic options). The program is further described in note 35. Loans to employees Loans to employees amounted to NOK 0.4 million. 09 Restructuring The Group has expensed an amount of NOK 196 million as restructuring costs in No restructuring provisions have been made except for those spesififed below, which relates to the planned and initiated reorganisation of the group after the acquisitions made in The costs in 2007 were mainly due to restructuring of administration, site closures and reorganization of existing facilities. In Norway restructuring costs amounted to NOK 49 million. This was mainly due to restructuring of overhead and administration NOK 6 million, site closures NOK 19 million and reorganization of IT and sales NOK 13 million. In the UK restructuring costs amounted to NOK 31 million in Site closures amounted to NOK 11 million, smolt culling NOK 17 million and restructuring of overhead/administration amounted to NOK 3 million. In Canada the restructuring costs amounted to NOK 32 million. The substantial part of these costs were related to administration NOK 10 million, reorganization NOK 10 million and smolt culling of NOK 7 million. In Chile restructuring costs amounted to NOK 18 million. Overheadand administration costs of NOK 9 million was the main part of the restructuring costs. The remaining costs concerned a closure of a Miami sales office with NOK 4 million and NOK 4 million due to reorganization of the processing plant Ducktrap in the US. Total restructuring costs in 2006 amounted to NOK 41.4 million. A major part of this, NOK 20 million, were related to consultancy fees and related costs concerning new strategy and integration process for the group after the acquisitions of Fjord Seafood and Marine Harvest N.V. Furthermore NOK 8.8 million related to severance pay due to changes in the group leadership. In Holland it was expensed NOK 11 million regarding operational changes as a result of the loss of one of the major customers. Annual report 2007

35 Auditor s fee Fee to auditors 2007 (NOK million) Ernst & Young Other appointed auditors Audit services Other assurance services Tax advisory services* 6.9* 0.9 Other services non-audit related Total fees for * Of this NOK 5.4 million is fee for a project on reorganisation and tax optimation in the group, carried by the parent company (see note 4 to the parent company accounts). Fee to auditors 2006 (NOK million) Ernst & Young Other appointed auditors Audit services Other assurance services Tax advisory services Other services non-audit related Total fees for Fee to auditors 2005 (NOK million) Ernst & Young Other appointed auditors Audit services Other assurance services Tax advisory services Other services non-audit related Total fees for Auditor s fee is stated exclusive value added tax. 11 Pensions Defined benefit plans Pensions is not a signifcant cost component or obligation in the finacial statement, but the different scheemes in the group is explained below. AFP and mandatory company pensions in Norway The Group has an early retirement plan for its employees in Norway (AFP). The early retirement plan has only been used in a very limited extent, and the financial effects of this plan is insignificant for the Group. The Group is obligated to follow the Act on Mandatory company pensions in Norway and has established a pension scheme that follows the requirement as set forth in the above mentioned Act. Pension plan for Group CEO Atle Eide resigned as CEO effective from 1 September By the end of the notice period 29 February 2008 he will receive the net present value of the pension entitlements earned in employment for the group, that amounts to NOK 2.2 million. Pension plan for CFO CFO Jørgen Andersen is entitled to an individual pension plan. The conditions for the plan is not finalised per end of December Pension scheme in Marine Harvest Norway From April 2006 Marine Harvest Norway changed the pension agreements from continuing next page

36 MArine Harvest ACCOUNTS And Notes GROUP continued from previous page defined benefit to defined contribution for the large part of employees. As a result of this change a curtailment gain of NOK 99 million has been recorded. There are still some defined benefit plans in effect for e.g. retired employees and early retirement amounting to a net pension liability of NOK 27 million. These plans includes a limited number of employees at 31 December Pension schemes in France The entities in France have established agreements where the employees are entitled to payments after retirement according to a defined benefit plan, limited upward to maximum one year s salary. There are 774 employees in France that are included in these pension schemes, and the net obligations amount to EUR 0.8 million. The calculation is based on normal, actuarial assumptions. A discount rate of 4.25 percent and an expected increase in salaries of 2 4 percent are taken into consideration in the calculation. Estimated remaining average time to retirement in the schemes are 24 years. There are not established any funds for these pension plans, and therefore not estimated any return on pension assets in the scheme. All changes in estimates are accounted for when they occur. Pension scheme in Marine Harvest Scotland In Scotland a benefit plan covers most of the employees. The plan provides pension benefits for employees upon retirement. The pension liability is recorded with NOK 56.4 million. Contribution plans Contribution plan Marine Harvest ASA In Marine Harvest ASA there is a defined contribution plan with 30 members. The cost is charged to the P/L. For 2007 the cost related to this scheeme is NOK 4.8 million. Contribution plan in Belgium There has been established a contri - bution plan in Belgium for groups of employees in Belgium, totalling 61 employees. The premium in the schemes are calculated as a per entage of yearly salary, and both the company and the employee contribute to the scheme. Any costs related to the plan are expensed when they occur. According to the law in Belgium the contribution plan has a minimum return guarantee and in 2007 the return exceeded this minimum guarantee. Pension schemes in Marine Harvest Norway Marine Harvest Norway have entered into a defined contribution plan for employees. All employees with an employment of more than 20 percent positions are included in the scheme where 2.5 percent 3 percent of the salary between 1 and 12 G is paid in by the employer. The cost of the scheemes was NOK 12.2 million in Net financial items (NOK million) Calculated interest on prepayment Marine Harvest N.V Agio on prepayment Marine Harvest N.V Other agio/disagio ) Gain/loss sale of shares Other financial income Total financial income Interest expenses Interest expenses Change in fair value of shares Aker Seafoods Change in market value on financial instruments Other financial expenses Total financial expense Net financial items ) of which agio on long-term syndicated loan NOK million. Annual report 2007

37 Taxes TAX FOR THE YEAR IN THE PROFIT AND LOSS ACCOUNT (NOK MILLION) Norway Foreign units Total tax on profits (current tax) Norway Foreign units Total change in deferred tax/tax benefit Correction of earlier year s taxes Taxes related to profit for the year RECONCILIATION BETWEEN NOMINAL AND EFFECTIVE TAX RATE (NOK MILLION) Profit before tax Nominal tax rate 28% 28% 28% Tax calculated with nominal tax rate Permanent difference reported by the entities Withholding tax Tax free gain/loss on sale of shares Recognition of deferred tax assets not recognised previously/use of losses not recognised Not taxable currency gain and interest on prepayment Marine Harvest N.V Correction of earlier year s taxes Effects from different tax rate in the various juridistictions * Other differences Actual tax in the profit and loss account * = In 2007 mainly related to Chile where nomnal tax rate is 17 percent. TAX FOR THE YEAR RECOGNISED DIRECTLY IN EQUITY (NOK MILLION) Deferred tax related to income charged directly to equity TAX PREPAID/RECEIVABLE IN THE BALANCE SHEET (NOK MILLION) Total tax prepaid/receivable in Norway Total tax prepaid/receivable in foreign units 122.3* Tax prepaid/receivable in the balance sheet * Of this NOK million in Chile continuing next page

38 MArine Harvest ACCOUNTS And Notes GROUP continued from previous page TAX PAYABLE IN THE BALANCE SHEET (NOK MILLION) Tax payable in Norway 32.4* 0.0 Tax payable. foreign units Tax payable in the balance sheet * Of this NOK 27.8 million withholding tax in Norway related to divestment of Lighthouse Caledonia ASA SPECIFICATION OF DEFERRED TAX AND BASIS FOR DEFERRED TAX Tax increasing/(reducing) temporary differences (nok million) Non-current assets Current assets Provisions for liabilities Tax losses carried forward * Other differences Total temporary differences Tax losses carried forward in Norway Other temporary differences in Norway Tax losses carried forward abroad Other temporary differences abroad Total temporary differences * In addition the group has tax losses carried forward of approximately NOK 250 million which has not been capitalised in the balance sheet, mainly in Asia, and disputed tax losses related to NOKUS taxation in Norway of NOK 194 million. Total deferred tax asset/liabilities in the balance sheet (NOK MILLION) Deferred tax assets Deferred tax liabilities Net deferred tax in balance sheet The Group has capitalised considerable deferred tax assets related to tax losses carried forward. This is based on the expectation of sufficient earnings in the future, mainly in Norway and Canada where the large part of tax losses carried forward are located. In Norway tax losses can be carried forward indefinitely, and in Canada also for more than 10 years. In additional substantial deferred tax liabilities linked to non-current assets and current assets are recorded. Deferred tax assets from tax losses are offset against deferred tax liabilities within the different tax jurisdictions where acceptable, and remaining deferred tax assets in the group accounts are mainly deferred tax assets in the USA. Annual report 2007

39 36 37 MATURITY OF TAX LOSSES To year norway abroad TOTAL TAX RATES APPLIED (Selected countries) Country > Total USA 40.00% 40.00% Japan 40.00% 40.00% Canada 30.00% 34.12% Belgium 33.99% 33.99% France 33.33% 33.33% Scotland 28.00% 30.00% Norway 28.00% 28.00% The Netherlands 25.50% 29.60% Poland 19.00% 19.00% Faroe Islands 18.00% 18.00% Chile 17.00% 17.00% Ireland 10.00% 10.00% 14 Discontinued operations Lighthouse Caledonia ASA When Marine Harvest acquired Fjord Seafood Group and Marine Harvest N.V. Group it committed to reduce its combined market share in Scotland within one year from the takeover. This reduction was carried out in 2007 by transferring a substantial part of the activities in Scotland into a newly established company, which then was divested and listed as an independent salmon farming company. the shareholders at 29 November 2007 received one share in Lighthouse Caledonia ASA. Marine Harvest withheld some shares in Lighthouse Caledonia ASA to be sold in the market to pay the withholding tax that arise when distributing dividend to foreign shareholders. The distribution of dividend reduced the book value of equity of Marine Harvest Group with NOK million. Pan Fish Scotland, Fjord Seafood Scotland and some sites previously owned by Marine Harvest Scotland was in third quarter of 2007 transferred to Lighthouse Caledonia ASA, a newly established subsidiary of Marine Harvest ASA. The shares in Lighthouse Caledonia ASA was in November 2007 distributed to Marine Harvest s shareholders as extraordinary dividend. Lighthouse Caledonia ASA was listed on Oslo Axess on 21 December, The distributed dividend was NOK per share in Marine Harvest ASA and valued Lighthouse Caledonia ASA at NOK 330 million (NOK 9.50 per share). For every 100 shares owned in Marine Harvest ASA, The consolidated result from Lighthouse Caledonia ASA in the ownership period in 2007 (11 months) was a profit of NOK 36.8 million. The loss on divesting the Lighthouse Caledonia ASA including the recycling of historically accumulated currency effects in the income statement amounted to NOK 56.0 million. The withheld shares in Lighthouse Caledonia ASA (for payment of withholding tax) has reduced its value with NOK 12.7 million. In total the income from discontinued operations comes to a loss of NOK 31.9 million in Lighthouse Caledonia ASA is listed on Oslo Axess, further information can be found continuing next page

40 MArine Harvest ACCOUNTS And Notes GROUP continued from previous page Financial key figures operations held for sale (NOK MILLION) Operating revenue Operating profit before depreciations (EBITDA) before fair value adjustment Operating profit (EBIT) Net Finance Tax Profit for the period operations held for sale Specification of net loss from discontinued operations in the income statement in 2007 Profit for the period operations held for sale (11 months in 2007) 36.8 Loss when divesting including recycled historical currency effects Loss on withheld shares (see above) Net loss from discontinued operations in Earnings per share EARNINGS PER SHARE (EPS)/DILUTED EARNINGS PER SHARE (NOK million) Profit for the year after tax Profit for the year from continued operations Profit for the year from discontinued operations Time-weighted average of shares issued and outstanding (million) 1) Diluted number of shares (million) 2) Earnings per share Diluted earnings per share Earnings per share from continued operations Diluted earnings per share from continued operations Earnings per share from discontinued operations Diluted earnings per share from discontinued operations Annual report 2007

41 ) DETERMINATION OF AVERAGE NUMBER OF SHARES Number of shares outstanding as of Exercise of stock options, shares Exercise of stock options, shares Exercise of stock options, shares Share issue, shares Share issue, shares Share issue, shares Share issue, shares FJO shares bought, payment in shares shares FJO/PAN share exchange, shares Conversion of debt, shares Share issue, share Conversion of debt, shares Conversion of debt, Share issue, share Share issue, share Average number of shares outstanding Number of shares as of ) DETERMINATION OF DILUTED AVERAGE NUMBER OF SHARES Average number of shares outstanding, calculated above Potential shares Diluted number of shares A stock option program established in 2005 for key personnel is still valid at the end of 2007 (see note 16). The stock option program grants rights to acquire shares in Marine Harvest ASA and therefore represent potential shares in the company when calculating diluted earnings per share. 16 The share and shareholders The Share Total number of shares (thousand) Nominal value as of Share capital (total number of shares at nominal value) Share premium reserve Other paid-in capital Paid-in capital continuing next page

42 MArine Harvest ACCOUNTS And Notes GROUP continued from previous page Overview of the 20 largest sharholders no. of Owner s shares share % Name of shareholders Geveran Trading Co L % Bank Of New York, Br S/A Msf-Mutual Disco % Citibank N.A. A/C Vanguard Windsor % State Street Bank An A/C Client Omnibus D % Euroclear Bank S.A./25% Clients % Mellon Bank As Agent Mellon Bank Na A/C Mellon Nominee % Fidelity Funds % Folketrygdfondet % JPMorgan Chase Bank Clients Treaty Accou % State Street Bank An A/C Client Omnibus F % Bank Of New York, Br S/A Msf-Mutual Beaco % Fidelity Funds-Europ Fund (Sicav) % Citibank N.A. A/C Fidelity Puritan % Bank Of New York, Br S/A Msf-Mutual Quali % JPMorgan Chase Bank Fidelity Lending Acc % State Street Bank An A/C Client Omnibus I % Vital Forsikring Asa Omløpsmidler % State Street Bank An A/C Client Omnibus N % Danske Bank A/S 3887 Operations Sec % DnB Nor Bank Asa Egenhandelskonto % Total 20 largest % Total other % Total number of shares Shareholders by country Cypros 28.89% Norway 20.39% USA 20.05% Belgium 13.74% Great Britain 9.58% Other 7.35% Annual report 2007

43 40 41 Shares owned by board members and management The Board of Directors own shares. Group management and other management own shares. no. of shares Options Board of Directors Svein Aaser (Styreleder) Kathrine Mo Leif Frode Onarheim Solveig Strand Eldbjørg Sture Tor Olav Trøim Key personnel Jørgen Andersen Thomas Farstad Peter Gilles Petter Arnesen Jo Dekeyzer, Managing Director VAP Alan Sutherland, Managing Director Scotland Henrik Heiberg Total number of shares held by Board members and management Total number of shares held by Board members in % of total outstanding shares 0.0% - Total number of options held by Board members and mangemenet in % of total outstanding shares - 0.0% Shareholders rights There are no current limitations in voting rights or trade limitations related to the Marine Harvest share. to the average listed share price for Pan Fish over the last three days before the option program was approved by the board. By the end of 2006 one trance of options was still to be called under this program. Authorization to issue shares The board is auhorized to increase the company s share capital with up to NOK million, by issuig up to new shares at par value of 0.75 each. The authorization may be used one or several times until the stipulated amount is reached. Payment of share contribution may be done in assets (other than cash). The board s authorization is valid for the period until the ordinary general meeting 2007, but not beyond 30 June STOCK Option arrangements Marine Harvest ASA had at year end 2007 an options program that was approved in December 2005, and is still in existense. The option program consisted originally of three separate tranches with different terms to maturity. The strike price is set to NOK 2.06 which corresponded The option program assumes that the gain that is distributed upon an immediate realization of the options, adjusted for expected tax, is reinvested in Marine Harvest shares and that these shares are kept for a minimum of 12 months. In total there are options, which have not been exercised as of 31 December All outstanding options where called and concluded during the first quarter of As the persons who had rights to options all had left the company at year-end 2007 the calculated of the options have been charged to the income statement in 2007 in line with IFRS 2.

44 MArine Harvest ACCOUNTS And Notes GROUP 17 Equity SPESIFICATION OF CHANGES IN EQUITY 2007 (NOK MILLION) note majority s share of equity minority Total Share Share Retained Other TOTAL interest equity capital premium earnings equity Equity Equity effect from completion of purchase price allocation Equity Net profit after tax Income from discontinued operations Share issues Distribution of dividend/shares in Lighthouse Caledonia ASA Taxes charged directly to equity Change in minority interest Other minor gains and losses charged directly to equity Change in fair value of cash flow hedges Currency translation differences Total equity SPESIFICATION OF CHANGES IN EQUITY 2006 (NOK MILLION) majority s share of equity minority Total Share Share Retained Other TOTAL interest equity capital premium earnings equity Equity at Net profit after tax Share issues Costs related to share issues Net equity effect of first time consolidation of Fjord Seafood Tax charged directly to equity Other minor gains and losses charged directly to equity Currency translation differences Total equity at SHARE ISSUES COMPLETED DURING 2007 Stock options exercise 12 March 2007 Key personnel in Marine Harvest Group has exercised one third of their option scheme, to a subscription price of NOK 2.06 per share. A total of options were exercised. SHARE ISSUES COMPLETED DURING 2006 Share issue 6 March 2006 Former Pan Fish ASA has on 6 March completed a private placement of a total of million new shares, each at par value NOK 0.75, at a subscription price of NOK 4.36 per share. Gross proceeds from the private placement amounted to NOK 5.45 billion. The private placement was directed to a selected group of professional Norwegian and international investors. at par value NOK 0.75, at a subscription price of NOK 5.79 per share. Gross proceeds from the private placement amounted to NOK million. Share issue 29 May shares has been allocated in the share issue of shares directed at investors who held shares or more in Pan Fish on 7 April 2006 and who where not invited to purchase shares in the share sale on the same day. The subscription price was NOK 6.40 per share which gives a total subscription amount of NOK million. Stock options exercise 2 June 2006 Key personnel in Pan Fish Group has exercised one third of their option scheme, to a subscription price of NOK 2.06 per share. A total of options were exercised. Share issue 15 March 2006 Former Pan Fish ASA has on 15 March completed a private placement of a total of 120 million new shares, each Stock options exercise 11 October 2006 Group CEO has exercised 4.9 million options to a subscription price of NOK 2.06 per share. Annual report 2007

45 Intangible fixed assets (NOK million) Goodwill Farming other rights/ total licences licences Acquisition cost as of Acquisition of Fjord Seafood Group (2006) Additions in the year Disposals Reclassified as held for sale Foreign currency adjustments Acquisition of Marine Harvest N.V Group (2006) Acquisition cost as of Accum. amortisation and impairment as of Acquisition of Fjord Seafood Group (2006) Amortisation for the year Accum. amortisation and impairment on disposal Foreign currency adjustments Acquisition of Marine Harvest N.V Group (2006) Balance of amort. and impariment as of Book value as of Intangible fixed assets in cash-generating units The following units have significant carrying amounts of intangible assets (excl. deferred taxes): (NOK million) Goodwill Farming Licences Marine Harvest Norway Marine Harvest Americas Marine Harvest Scotland Marine Harvest Canada Marine Harvest VAP Europe Other units Total

46 MArine Harvest ACCOUNTS And Notes GROUP Impairment testing Indications of impairment Book value of equity for the Marine Harvest Group is higher than market value of the group at year-end 2007, and the difference has increased after year-end. According to IAS 36 this is in itself an indication of impairment. The extraordinary biological situation in Chile could have a substantial impact on profit for a period, and this can also lead to impairment. The impaiment testing has not lead to any impairment losses being identified. Cash generating units The impairment testing is done for each cash generating unit. Each business unit are defined as a cash generating unit as each business unit are operated as one entity, with one management team, and where the cash flow can be identified. Exception is made for the VAP Europe operations where the operations in each country are individual cash generating units. The procedure of impairment testing The impairment testing is done by estimating the net present value of estimated future cash flows (value in use) for the cash generating unit in line with IAS 36 and comparing the net present value of the cash flow towards the book value of all assets held by the cash generating unit. If book value is higher than calculated value in use write down to value in use/ recoverable amount is made. The estimated cash flow is based on continued operation for the unit being within the Marine Harvest Group. The basis for the esti mated cash flow is confirmed budgets for the following year. In addition reasonable estimates of development in profit, including develop ment in sales and production costs, for a period of additional four years are included. Growth after the fifth year in the calculation is included at 2.5 percent per year, which is lower than what is refleced in the first five years. In the calculations no price increases from 2008 are reflected. When estimating the cash flow for 2008 in the calculations it is assumed a market price (HOG) on superior salmon in Norway of NOK per kg. In the calculation for Americas (Chile and the USA) the market prices used for 2008 is USD 3.61 per Ibs HOG, for Canada the market price in USA used for 2008 is CAD 4.85 per kg HOG, and for UK the market price used for 2008 is GBP 2.65 per kg HOG. The long term margin used in the calculations are reasonable and fair for the entities and the industry. In the calculations the estimated margins are highest for Norway. For the impairment testing of Marine Harvest Americas (Chile and the US) alternative calculations are made reflecting different assumptions on harvesting volume the coming years. These calculations are also based on budget for In a calculation where the harvesting in Chile in 2009 is below tons and where it increases to tons in 2012 the calculated NPV of the business unit exceeds book value with NOK 102 million. If the long term margin in this calculation drops with 0.5 percent (margin) compared to estimate used the value of the business unit will be NOK 60 million below book value of assets for the business unit. In an alternative calculation where harvesting volume comes to more than tons only in 2014 the calculated value is still NOK 60 million higher than book value. In the impairment testing of Marine Harvest Canada the calculated value is also NOK 60 million higher than book value. If the margin should be 0.5 percent lower than used in the calculation, the calculated value would equal book value of assets in Canada. In the calculations made on Canada it is assumed limited growth from 2008, up to only tons in If the harvesting volume in 2012 should exceed tons calculated value of the assets would be NOK 240 million higher. For the other business units/cgu s the estimated value of the assets are more robust. The main assumptions The key assumptions in the calculations are development in profits (EBITDA), capital expenditures and development in working capital. The assumption of EBITDA (and EBITDA margin) is affected by a number of factors such as volume growth, the consumption of feed and raw materials, the price of feed and raw materials and market prices for the products. In the imparment testing an adjusted discount rate based on adjusted WACC (Weighted average cost of capital employed) has been used. The discount rate is a nominal discount rate before taxes and it varies 9.8 percent and 10.2 percent for the different cash generating units. Annual report 2007

47 Tangible fixed assets Specification of tangible fixed assets (NOk MILLION) Land and machinery, Other TANGIBLE Total total buildings ships & boats assets Opening balance Tangible assets classified as held for sale Tangible assets reclassified as held for sale Opening balance after reclassifications Acquisition of Fjord Seafood accum. acquisition cost as of Purchase price allocations in connection with Fjord Seafood acquisition Acquisition Marine Harvest Purchase price allocation Marine Harvest Additions in period Additions in period due to acquisitions Disposals Foreign currency adjustments Accumulated acquisition cost as of Specification of tangible fixed assets (NOk MILLION) Land and machinery, Other TANGIBLE Total total buildings ships & boats assets Opening balance Accumulated depreciations tangible assets classified as held for sale Accumulated depreciations tangible assets reclassified as held for sale Opening balance after reclassifications Acquisition Fjord Seafood accum. depreciations & write downs Acquisition Marine Harvest accum. depreciations Depreciations Write downs Acc. depreciation and write downs of disposed assets Foreign currency adjustments Accumulated depreciation and write downs as of Net book value Estimated lifetime 0 20 years 5 20 years 3 5 years 3 20 years 3 20 years Depreciation method Linear Linear Linear Linear Linear Sale of fixed assets Tangible fixed assets have been sold throughout the year and net gain on sale of assets amount to NOK 1.6 million in Corresponding figure for 2006 was NOK 12.5 million. Write down of fixed assets The group has had substantial challenges related to the farming of Yellowtail in Japan, and in 2007 it was decided to close down this operation. In the accounts a non-recurring cost is charged related to the write down of fixed assets with NOK 7.6 million in the Yellowtail operation prior to the closing. Other fixed assets have been written down with a net amount of NOK 4.5 million.

48 MArine Harvest ACCOUNTS And Notes GROUP 20 Associated companies Associated companies are companies where the Group has a significant ownership interest, ranging from percent, and where the Group is able to exercise significant influence. Associated companies are recorded in the Group accounts in accordance with the equity method. None of the companies accounted for as associates are listed companies. Figures are in NOK million. Company head Ownership owned by acquisition cost Book share of Dividends Book office value profit received value AF Vartdal AS Vartdal 50% Marine Harvest Norway AS Åsen Settefisk AS Åsen 30% Marine Harvest Holding AS NFBP Island 20% Belisco EHF Center for Aquaculture Competence AS Hjelmeland 33% Marine Harvest Norway AS Finnøy Fisk AS finnøy 45% Marine Harvest Norway AS Nova Sea AS Lovund 48% Marine Harvest Holding AS Vagafossen Settefisk AS Vikedal 48% Marine Harvest Norway AS Other Total Shares and holdings in other companies Shares and holdings where group does not have significant influence are recorded at fair value. SHAREHOLDINGS Company number Owner- Acquisition Book of shares ship % Cost value Aker Seafoods ASA % Aqua Gen AS % Stofnfiskur % Other shares Withheld shares in Lighthouse Caledonia ASA % Total book value of shares and holdings in the Group The shares in Aker Seafoods ASA and in Lighthouse Caledonia ASA is carried at fair value based on the market prices for the shares at Oslo Stock Exchange at year-end Lighthouse Caledonia ASA was divested in 2007, but some shares were withheld to cover withholding tax on the transaction, ref. note 14. Marine Harvest ASA do not have any shareholders rights related to these shares. Annual report 2007

49 Inventory (NOK million) Raw materials and goods in process Finished goods Book value of inventory Raw materials includes eggs, packaging materials and feed. Goods in process includes semi-finished products and spare parts. Finished goods include all products ready for sale. Write down of finised goods due to the extraordinary biological situation in Chile in 2007 In total inventory has been written down with NOK million in Of this NOK 102 million is write down of finished goods in Chile. The extraordinary biological situation in Chile has lead to increased volume of finished goods based on smaller fish, and this has proven difficult to realise at full production cost, so write down to estimated selling price has been made. In addition NOK 4.6 million of raw materials and NOK 19.8 million of finished products has been written down. 23 Biological assets RECONCILIATION OF CHANGES IN BOOK VALUE OF BIOLOGICAL ASSETS (NOK million) Book value Book value in acquired entities in the year Increase due to purchases Gain/loss from change in fair value Write-down fish in sea in period 1) Decreases due to sales (costs of goods sold) Book value in Marine Harvest N.V entities when acquired at year-end Book value of biological assets at year end for Marine Harvest group ) 1) Write down of biomass in Chile and in Yellowtail in Japan in 2007, further details included below 2) 2006, ex. Pan Fish Scotland FAIR VALUE ADJUSTMENTS ON BIOLOGICAL ASSETS IN THE BALANCE SHEET (NOK million) Norway Chile Canada UK Faroes Ireland Others Total fair value adjustment included in book value in the balance sheet continuing next page

50 MArine Harvest ACCOUNTS And Notes GROUP continued from previous page FAIR VALUE ADJUSTMENTS ON BIOLOGICAL ASSETS IN THE PROFIT & LOSS STATEMENT (NOK million) Norway Chile Canada UK Faroes Ireland Others Net fair value adjustment in the profit and loss statement The fair value adjustment on biomass specified above include the share of fair value adjustment on acquired biomass in the Marine Harvest N.V. acquisition that has been harvested and sold in Fair value adjustment on biomass when acquired at year-end 2006 was NOK million. Of this biomass a volume having a fair value adjustment of NOK 750 million when acquired has been harvested and sold in To summarise the fair value adjustment on biomass for the year is NOK million and expensed fair value adjustment on biomass acquired is NOK 750 million, arriving at net fair value adjustment in the profit and loss statement of NOK million. VOLUMES OF BIOMASS (in tons) Volume of biomass harvested during the year (gutted weight, HOG) Volume of biomass in the sea at year-end (live weight) ) 1) Pro forma figure for the combined group at year-end 2005 Valuation of biological assets IAS 41 require that biomass being accounted for at estimated fair value net of sales costs and harvesting costs. part of the earning. The earning is estimated based on normal costs related to the fish and the observed prices. The valuation take into consideration that not all the fish are of the same quality. The calculation of the estimated fair value is based on marked prises for harvested fish. The prices are reduced for harvesting costs and freight costs to market, to arrive at a net value for the farmer. The valuation reflects expected quality grading. In the accounts the change in estimated fair value is charged to the profit and loss account on a monthly basis, and in the accounts these adjustments are reported separated (own line) from the related cost of the biomass when harvested. About the valuation model The valuation is done for each region and is based on biomass in sea for each location in the region. The specification of biomass include total number of fish, estimated average weight and biological cost for the biomass. In the calculation the value is estimated by setting a value for the total kilo of biomass. Number of kilo biomass is multiplied by a value per kilo which reflect the actual value. The price used is the price for saleable fish. In Norway and Canada external market prices are used in the valuation. In the other regions own achieved prices are being used. For the fish that are not yet saleable the price in the calculation is adjusted to include only Significant assumptions for determining fair value of live fish The estimate of fair value of biomass will always contain uncertain assumptions, even though the company has built substantial expertise in assessing these factors. The volume of biomass is in itself an estimate that is based on the smolt put to sea, the estimated growth from the smolt stage, estimated mortality based on observed mortality in the period etc. Based on experience some mortality will occur during harvest and this is reflected in the calculation. The quality of the fish is difficult to assess prior to harvesting, and the estimates of quality is quite uncertain. Each individual fish in the sea grows independently, and even in a situation with good estimates of the average weight of the fish there will be considerable variance in quality and weight of the fish actually in the cage. The price assumption is also very important for the valuation, and even minor changes in the market price will give significant changes in the valuation. Assuming that all fish are of a size close to harvestable and the volume being tons a change in the price of NOK 1 will have an impact on the valuation with NOK 214 million. Annual report 2007

51 48 49 The extraordinary biological situation in Chile write down of fish Marine Harvest and the fish farming industry in general have experienced significant challenges in relations to the biological situation in Chile in ISA (infectious salmon anemia) have been confirmed in several sites in Chile. Marine Harvest have taken significant measures to curb this outbreak, including harvesting out infected fish sites, culling of smolt, and Marine Harvest has also stopped using sites in infected areas. Marine Harvest decided to write down the biomass due to the planned culling of sites where ISA were confirmed or sites where findings supported ISA infection. The write down of the biomass in the balance sheet in Chile due to the extraordinary situation amounted to NOK 54 million in the third quarter of 2007 and additional NOK 364 million at year-end 2007, a total of NOK 418 million. The write down of biomass in Chile is not part of the fair value adjustment in the income statement, but is included in the line change in inventory. Non-recurring write down of biomass in yellowtail operations in Japan The yellowtail operations in Japan has over the years had substantial operational challenges and high production cost. Marine Harvest has decided to stop producing yellowtail and to sell out the biomass as soon as possible. The recoverable amount of the biomass was lower than production cost and the biomass was written down with NOK 52 million during Restricted funds The Group possessed cash and cash equivalents at 31 December 2007 of NOK million, of which NOK 26.2 million are restricted funds. The large part of the restricted funds is withheld tax for employees in Norway. 25 Trade receivables and other receivables SPESIFICATION OF BOOK VALUE OF RECEIVABLES (NOK million) Trade receivables Provisions for bad debts Net trade receivables Prepayments Net value on currency hedging instruments VAT Other Other receivables Total trade receivables and other receivables Fair value of trade and other receivables AGE DISTRIBUTION OF RECEIVABLES (NOK million) Receivables not overdue Overdue 0 6 months Overdue more than 6 months Total

52 MArine Harvest ACCOUNTS And Notes GROUP MOVEMENT IN PROVISION FOR BAD DEBT At year-end 2006 provision for bad debt amounted to NOK 55.6 million. In 2007 NOK 23.6 million was recovered on receivables provided for, and NOK 20.7 million were written off and considered lost, whereby the provision was taken out. Additional provisions for loss on bad debtors amounted to NOK 3.9 million in 2007 and after this the provision for bad debt amount to NOK 15.2 milion at year-end CURRENCY EXPOSURE TO TRADE RECEIVABLES The group holds trade receivables amounting to NOK million at year-end. The various business units has the large part of their sales in currencies linked to the markeds where sales are made. Below is presented book value of trade receivables per business unit, and indication of currency is given by reference to the markets where sales from the business unit generally are made. Business unit (NOK MILLION) main markets and currency Marine Harvest Norway European market (EUR). Russia (USD) and Asia (Yen) Marine Harvest Americas (Chile and US) US market (USD). Brazil and Argentina (USD) and Asia (Yen) Marine Harvest UK Domestic market (GBP) and European market (EUR) Marine Harvest VAP Europe Belgium. France and Holland (EUR) Marine Harvest Canada US market (USD) Other entities and eliminations Total book value of trade receivables Debt to financial institutions Currency (million) Borrowings Borrowings Borrowings Borrowings IN LOCAL in NOK in LOCAL in NOK CURRENCY CURRENCY NOK USD EUR CAD DKK GBP Other currencies Long term debt in Marine Harvest N.V. Group Total long term debt and leasing liabilities to financial institutions First years installment on debt including leasing Long term interest bearing debt and leasing Book value of interest bearing debt is reduced with NOK 64.6 million in capitalised borrowing costs. Of the long term debt, NOK 78.2 million is a convertible bond loan. Deadline for conversien was 8 January The bond was Out of the Money, and no shares was issued. There are no significant differences between book value and fair value of long term interst bearing debt and leasing. A siqnificant part of the long term debt is described further in note 15 in the financial statement of the parent company. Annual report 2007

53 50 51 THE GROUP S REPAYMENT SCHEDULE (NOK million) Senere sum Annual installments, debt incl. leasing COVENANTS The loan agreements contains standard financial covenants related to earnings (mainly NIBD/EBITDA) and solidity (equity ratio) which has to be met by the group. Furthermore, the ability for the group to take on new debt is limited by the loan agreements. With respect to compliance of covenants at year end 2007, see note Accounts payables and other short term liabilities (NOK million) Trade payables Trade payables are non-interest bearing and are normally settled on days terms. Other short term liabilities (NOK million) Social security and other taxes 1) Accrued expenses 1) Other payables 2) 3) Total other short term payables ) Setlement will normally take place within 1 3 months. 2) Settlement will take place in This item consists of accruals for interest costs and different types of other costs, salesprovisins etc. 3) The Group has entered into two TRS agreements where the underlying instrument is own shares. The group is therefore exposed to the development of shareprices in Marine Harvest shares. The TRS agreements expire 28 May 2008 and is therefore not accounted for as equity. The average Marine Harvest shareprice was NOK 3.66 at the purchasing dates. At year end 2007 the share prices is NOK As a consequence a liability of NOK 0.9 million is booked as other payables. 28 Other long term debt (NOK million) Deferred income investment grants Net pension obligations Loss on office rental contracts Other provisions and other long term debt Total other long term debt

54 MArine Harvest ACCOUNTS And Notes GROUP 29 Secured liabilities and guarantees given BOOK VALUE OF DEBT SECURED BY MORTGAGES AND PLEDGES (NOK million) Debt to financial institutions Leasing debt Total debt secured by mortgages and pledges Guarantee liabilities The principle loan program has been established with security in current assets, licenses (where applicable), fixed assets entities in the group, and guarantees from some of the entities in the group. In addition the shares in larger subsidiaries have been pledged in favour of the bank syndicate. BOOK VALUE OF ASSETS PLEDGED AS SECURITY FOR DEBT (NOK million) Tangible fixed assets and licenses Inventory and biological assets Receivables Other assets Total assets pledged as security Of which owned by Pan Fish Scotland, held for sale Short term interest bearing debt and unused drawing rights SHORT TERM INTEREST BEARING DEBT TO FINANCIAL INSTITUTIONS (NOK million) First year s installment on debt Bank overdrafts Financing of shares in Aker Seafoods ASA* Other short term interest bearing debt Total short term interest bearing debt * The shares in Aker Seafoods ASA is financed through a TRS with a settlement date of 1 July UNUSED DRAWING RIGHTS (NOK million) Unused part of bank overdraft facility (To be renewed within one year) Unused part of bank overdraft facility (To be renewed in more than one year) Unused part of other drawing rights (To be renewed in more than one year) Total unused drawing rights Annual report 2007

55 Financial market risk The groups principal financial liablities other than bankloans, comprise of derivatives and overdrafts, debentures and trade payables. The main purpose of these financial lialbilites is to raise financing for the groups operations. The group has various financial assets such as trade receivables and cash and short term deposits, which arise directly from its operations. The group also enter into derivative transactions, primarily interest rate swaps and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the groups operations. Its the groups policy that no trading in derivatives shall be undertaken. CURRENCY EXPOSURE 1. Currency exposure in the balance sheet The group has currency exposure towards several currencies as the group has operations in worldwide. To reduce the currency exposure the group has established a policy under which it finances the operations in UK and Canada in their local currencies, while the remaining debt is hedged with a structure of 60 percent in EUR and 40 percent in USD. At year-end 2007 the group had net interest bearing debt with the following currency structure: (million) nok USD EUR GBP JPY DKK CAD Other TOTAL Cash Short term interest bearing debt Long term interest bearing debt Net interest bearing debt Based on the currency structure in the table, a 2.5 percent appreciation of the NOK against the currencies in the above table will cause a currency gain of approximately NOK 108 million through the income statement. In addition a currency gain of NOK 125 million will be recorded directly against group equity. 2. Exposure related to sale in forreign currency (exposure of transactions) The large part of the currency exposure is related to sale in forreign currency in the Norwegian operations, as the large part of sales are in forreign currency (mainly EUR and JPY) while the operating cost are in NOK, and in Chile where a large part of the costs are in Chilean pesos, while the sales mainly are in USD, and the canadien operations where the large part of the costs are in candian dollars while the sale mainly is in USD. A policy has been established on hedging for currency exposure in transactions. This policy defines minimum and maximum share of hedging, as well as hedging periods for different currencies. The subsidiaries identify their separate transaction risk that originates from their sale in foreign currencies. Hedging of such risk shall be done with Marine Harvest ASA as counterpart (internal hedging). Currency risk that is not offset internally is hedged against and external third party by Marine Harvest ASA. At year-end 2007 the group had a portfolio of currency hedging instruments with a total contract value of NOK million. Contracts constituting half of the total contract value mature in 2008, and no contract has a maturity beyond 31 December At year-end 2007 the portfolio had a net positive market value of NOK million. Market value of portifolio of currency hedging instruments Released against P/L as currency effects 26.4 Fair value changes against equity 97.0 Market value of portifolio of currency hedging instruments INTEREST RISK Marine Harvest s exposure to the risk of changes in market interest rates relates primarily to the Groups long term debt obligations with floating interest rates. The floating part of the loan portfolio carries interest periods of up to six months. To manage the interest risk, a policy has been established under which between 50 percent and 75 percent of the interest bearing debt of the group shall be hedged through fixed interest borrowings or interest derivatives. The hedging portfolio should have an average maturity of three to four years. After taking into account the effect of interest rate swaps, approximately 67 percent of the groups borrowings are at fixed rates at year end At year-end 2007 the group had a portfolio of interest swaps with a net negative market value of NOK 19.9 million. The swaps entered into are: continuing next page

56 MArine Harvest ACCOUNTS And Notes GROUP continued from previous page Currency Amount the group pays the group receives maturity Market value EUR 46.0 fixed % p.a. 3M Euribor USD 39.0 fixed % p.a. 3M Libor EUR 44.0 fixed % p.a. 3M Euribor USD 37.3 fixed % p.a. 3M Libor EUR 42.0 fixed % p.a. 3M Euribor USD 35.5 fixed % p.a. 3M Libor EUR 40.0 fixed % p.a. 3M Euribor USD 33.8 fixed % p.a. 3M Libor CAD 53.9 fixed % p.a. 3M Libor GBP 5.5 fixed % p.a. 3M Libor EUR fixed % p.a. 3M Euribor USD fixed % p.a. 3M Libor Total As a consequence of fixing the interest rate, an overall interest incrase of 1 percent p.a will increase the net interest cost of the group by NOK 21 million. Of this a 1 percecnt change in LIBOR and EURIBOR will constitute an interest cost of NOK 16 million and NOK 2 million respectively. funding and flexibility through the use of bank overdrafts, new loans and debentures. The Group is in continously dialog with the bank to ensure reasonable credit facilities going forward. In note 25 the Groups repayment schedule for long term debt is disclosed. CREDIT RISK The group trades only with recognised, creditworthy third parties. It is the groups policy that all customers who wish to trade on credit terms are subject to credit verfications procedures. In addition, receivable balances are monitored on an ongoing basis and a large proportion of the group s accounts receivable are 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 31 December The maximum exposure is disclosed in note 27. LIQUIDITY RISK The group monitors its risk to a shortage of funds using a recurring liqudity planning tool. The largest single factor in connection with liquidity risks is fluctuation in salmon prices. Some fixed price contracts have been entered into that limit this risk, but the bulk of the volumes is subject to the market price. Other key liquidity risks are primarily connected to fluctuations in production and harvest volumes and changes in the feed price, which is the most important individual factor on the cost side. The company is exposed to the development in the feed costs. These costs have increased on a unit basis through The company is considering mechanisms to reduce the feed cost exposure. The Groups objective is to maintain a balance between continuity of CAPITAL MANAGEMENT The primary objective of the Groups capital management is to ensure access to capital that contributes to satisfactorily operations and maximum creation of shareholder values. The Group manage 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 continous dialog with the lenders. It is a goal for the group to maintain the covenants in the syndicated loan facility. The syndicated loan agreement sets forths covenants on the financial ratio of net interest bearing debt to EBITDA together with equity ratio. Marine Harvest intends to maintain an equity suitable for the demands on operations, taking into consideration that fish farming is a cyclical business. Equity not deemed necessary for further growth will be returned to shareholders as dividends, redemption of shares or in other ways. For a business cycle, where the company is in normal operations, the company aims to pay approximately half of the annual surplus after taxes as dividends. The board is authorised to raise the share capital by up to NOK million by issuing new shares at NOK 0.75 each. Annual report 2007

57 Related party transactions Related parties are in this respect considered as persons or legal entities which directly or indirectly possess substantial influence on the company through ownership or position. Board of directors Eldbjørg Sture bought shares in Marine Harvest in After the transaction Sture has a total of shares in the company. Svein Aaser bought Marine Harvest shares in After the transaction Aaser has a total of shares in the company. Leif Frode Onarheim (acting CEO for parts of 2007) and related parties bought a total of Marine Harvest shares during At the end of 2007 they possessed shares in the company. Other key personnel CFO, Finance director, HR director and Operations director have during the year 2007 bought shares in Marine Harvest, which also equals their total share ownership in Marine Harvest at year end Shareholders Geveran is a company indirectly controlled by John Fredriksen. Geverans ownership in Marine Harvest was at year end shares, constituting 28.9 percent of the total share capital. Included in this number is purchase of approximately 9 million shares during the year. Furthermore Geveran acquired Total Return Swap (TRS) agreements during 2007 with exposure to shares in Marine Harvest. Calling of stock options In /3 of employee stock options established in December 2005 were excercised at the subscription price of NOK A total of shares were issued. Former employees Former CEO Atle Eide and former CFO Trine S. Romuld did sell a total of shares in Marine Harvest during In addition TRS agreements were bought with a exposure to shares in Marine Harvest. 33 Contingent liabilities Dispute concerning delivery of smolt from Fjord Seafood Norway AS Two companies in Northern Norway took legal proceedings against Fjord Seafood Norway AS, with demands to be compensated for lacking supply of smolt. In the legal proceedings, held in Brønnøy county court in the autumn of 2006, the court ruled in favour of Fjord Seafood Norway and Fjord Seafood was awarded full cost compensation in the case. The case was appealed to Hålogaland court of appeal by one of the two complaintants. Hålogland court of appeals reached in 2007 the same conclusion as Brønnøy county court. The ruling is again appealed by the complaintants, now to the Supreme Court. A ruling is expected during Q There has not been made any provision for the demands. Legal proceedings concering delivery to Royal Greenland Royal Greenland has taken Marine Harvest ASA and former board members of Vestlax Hirtshals AS, Atle Eide and Therese Log Bergjord to court. Both were employed in Marine Harvest ASA. The background for the legal proceedings is a claim related to breach of contract of a delivery to Royal Greenland. A ruling in the case is expected in May Marine Harvest ASA has established a warranty where the company takes on all responsibilities and all commitments that Atle Eide and Therese Log Bergjord may be convicted for. The claim from Royal Greenland amounts to DKK 11 million. There are no provisions in the accounts for this contingent liability.

58 MArine Harvest ACCOUNTS And Notes GROUP 34 Acquisitions and purchase price allocation No acquisitions have been made during Completion of purchase price allocation (PPA) for the acquisition of Marine Harvest N.V. The acquisition of Marine Harvest N.V. was formally closed 29 December Due to the late closing the 2006 consolidation of Marine Harvest N.V. in the group accounts was based on a preliminary PPA. The PPA was finalised in December In the final PPA excess values was allocated to other assets than indicated in the preliminary PPA. The effects from the completion of the PPA are reflected in the financial statements for Effects on the balance sheet The PPA reflects the situation and values at year-end None of the changes in the balance sheet or in the profit and loss account have any cash effect. Below is the balance sheet of Marine Harvest N.V. after final allocation of excess value. Balance sheet of the Marine Harvest N.V. group (NOK million) Balance sheet Excess values excess values Final Balance When acquired prelim. final sheet at allocation allocation fair value Licenses Goodwill Other intangible assets Other fixed assets Cash Other current assets Total assets Equity Long-term debt and liabilities Current debt Total equity and liabilities The final PPA lead to allocation of excess values to depreciable assets. As a consequence it is estimated that the effect on EBIT in 2008 will be additional costs in the area of NOK 90 million, mainly as a consequence of increased depreciations. Effects on the Profit and Loss Statement The adjustment in the opening balance causes changes in depreciation, operating costs etc. in the periods after year-end The table below stipulates the effects. (NOK million) 2007 (Actual) 2008 (Estimate) Effect on EBITDA Effect on EBIT Deferred taxes Total Annual report 2007

59 Events after balance sheet date Substantial changes to the operations in Chile During 2007 Marine Harvest has faced operational challenges in Chile, in particular in the 10th region, due to the outbreak of ISA. The accounts for 2007 report substantial losses for the operations in Chile including write down of biomass with more than NOK 360 million for the culling of large volumes of fish. After year-end ISA has been observed also on other sites than those known at the end of 2007, but the loss of fish is sufficiently reflected in the accounts of The challenges in region 10 in Chile has made it necessary to establish a new strategy for the operations of Marine Harvest in Chile. All details in this new strategy is not yet in place, but it will require a substantial reduction in the production in region 10, probably the reduction will be in the range of 50 percent, and new production will be established in region 11, and later most likely in region 12. These changes imply substantial staff reductions i region 10 in both seawater- and freshwater operations as well as in the processing entities. Marine Harvest are operating three processing plants in region 10 and one of these plants will be closed down in The production of smolt will over time be moved from lakes to land based facilities with recirculation functionality. The farming operations will be downscaled in region 10, and a number of sites will cease production. In the future it is expected that the sites will produce in accordance with a rotation plan, as this allow longer fallow periods which should mitigate the problems with infections and desease of the biomass. The staff will be reduced with more than employees, but the final number is not yet known. In the accounts for 2007 no provisions has been made for staff reductions or other parts of the restructuring. Marine Harvest has initiated investments in region 11 during the first quarter of 2008, and the establishing of operations will expand during the year. The company will employ a large number of employees in region 11 and make substantial investments in farming equipment, infrastructure etc. So far 20 million USD of investments are committed. The impairment testing made at year-end 2007 reflect the budget and situation present by the end of the first quarter 2008 in Chile, but the completion of the new strategy might lead to changes in the operations that can have an affect on the value of the assets and operations in Chile. Contaminated salmon products sold in the European market In February 2008 it appeared that some salmon products produced and sold by Marine Harvest in the European market, was contaminated with diesel. Investigations revealed that the contamination had occurred over a limited period of time, and it happened during well boat transportation of salmon farmed in Scotland. The well boat was operated by an external supplier. The incident lead to a recall of some salmon products in several countries in Europe and Marine Harvest has claimed for a compensation for its losses towards the well boat supplier. The total loss on the incident is not yet confirmed. Dialogue with the banks regarding level of covenants compliance In note 26 information about covenants on debt is given. After reporting quarterly figures the group issues a documentation on covenants compliance to the banks. When providing documentation related to the fourth quarter figures of 2007 a discussion with the banks regarding the interpretation of the loan agreement with respect to what adjustments should be done in the calculation of the covenants has occurred. The loan agreement require adjustments to be done to reflect extraordinary events and effects in the accounts, but the loan agreement do not spesifically define what constitutes extraordinary events. In a situation where major part of the adjustments made by the group would eventually be rejected this will lead to an increased pricing of the loans in the next quarter. New incentive program established for key personnel In the general assembly held on 13 June 2007 the Board of Directors got autorised to establish an stock option program for key personnel in Marine Harvest Group. The number of shares was limited to 35 million shares per year, and the stock option program would last for three years. With effect from 31 March 2008 the Board of Directors has established a cash bonus incentive program for 87 employees in the group, where the cash bonus is calculated based on the development of the share price of the Marine Harvest share (syntetic stock option). A total of syntetic options are granted in the program. The program do not grant rights to receive shares in the company, but if cash bonus is paid out the receiver is required to re-invest half the bonus (net after tax) in Marine Harvest shares. The cash bonus will be calculated as the number of syntetic options received multiplied with the difference between the share price at Oslo Stock Exchange at the last day of March 2011 and the strike of NOK per syntetic stock option, where the strike is percent of the share price at the end of March 2008.

60 MArine Harvest ACCOUNTS and Notes ASA Accounts and Notes ASA Annual report 2007

61 Profit and Loss Statement MARINE HARVEST ASA (NOK MILLION) note Operating revenue Salaries and personnel expenses 2/ Other operating expenses 3/ Depreciation Earnings before interest and taxes (EBIT) Interest income Net currency effects Interest expenses Other financal items Earnings before tax (EBT) Tax income Net earnings (- =loss) Distribution of result From (-)/to retained earnings

62 MArine Harvest ACCOUNTS AND NOTES ASA Balance Sheet MARINE HARVEST ASA (NOK MILLION) note Assets Non-current assets Deferred tax asset Total intangible assets Tools, office machinery etc Total tangible assets Investments in subsidiaries Intercompany long term receivables 12/ Investments in shares Other long term receivables Total financial assets Total non-current assets Current assets Trade receivables Other short term receivables Total receivables Cash and cash equivalents Total current assets Total assets Annual report 2007

63 60 61 (NOK MILLION) note Equity and liabilites Equity Share capital Other paid-in capital Total paid-in capital Retained earnings Total retained earnings/deficit Total equity Liabilities Convertible bonds Liabilities to financial institutions 15/ Pension obligations Total non-current liabilities Liabilities to financial institutions Trade accounts payable Intercompany liabilities Tax payable Accrued salary expense and public taxes payable Other current liabilities Total current liabilities Total liabilities Total equity and liabilities Oslo, 14 APRIL 2008 Svein Aaser Chairman of the board Leif Frode Onarheim Solveig Strand Tor Olav Trøim Eldbjørg Sture Kathrine Mo Åse Aulie Michelet Chief Executive Officer

64 MArine Harvest ACCOUNTS AND NOTES ASA Cash Flow Statement MARINE HARVEST ASA (NOK MILLION) note Cash flow from operations Operating result (EBIT) Adjustments for write downs and depreciation Taxes paid Change in inventory, payables and receivables Change in other current items Cash flow from operations Cash flow from investments Payments made for purchase of fixed assets Proceeds from sale of shares and otther investments Purchase of shares and other investments Other investments Cash flow from investments Cash flow from financing Proceeds from new interest-bearing debt (short and long) Down payment of interest-bearing debt (short and long) Paid interest Received interest group Net change in intercompany balances Dividends recieved Paid-in capital Change in other financing items Cash flow from financing Net change in cash and cash equivalents in period Cash and cash equivalents - opening balance Net change in cash and cash equivalents in period Cash and cash equivalents - closing balance total Annual report 2007

65 Notes Marine Harvest ASA Accounting principles The financial statements of Marine Harvest ASA have been prepared in accordance with the Norwegian Accounting Act of 1998 and good accounting practice in Norway. Marine Harvest ASA is the parent company in the Marine Harvest Group. The consolidated financial statements of the Marine Harvest Group including comparable figures for 2007 have been prepared in accordance with International Financial Reporting Standards as adopted by the EU (EU-IFRS) and published by the International Accounting Standards Board (IASB). Please refer to note 1 in the consolidated financial statements for a presentation of significant accounting principles and policies used in the consolidated financial statements. Below is a presentation of the accounting principles as applied in the financial statements of Marine Harvest ASA. There are no differences between the accounting principles applied in the group accounts and in the accounts of Marine Harvest ASA. Financial investments In the parent company, investments in subsidiaries, joint ventures and associates are recognized at cost unless write-downs have been necessary. Investments are written down to fair value when the decrease in value is caused by conditions not assumed to be temporary and the write-down is considered necessary based on generally accepted accounting principles in Norway. The write-downs are reversed when the basis for the write-downs is no longer present. Revenue recognition Revenues are recognized at the time of transaction. The compensation is entered as income when both associated control and risk have been transferred. Matching principle Accruals in the financial statement are recorded based on matching of accrued revenues and expenses in the period, as well as based on the prudence principle according to generally accepted accounting principles. Any unrealized loss that is probable and quantifiable, as well as implicit liabilities and impositions, are recorded in accordance with generally accepted accounting principles. Classification and measurement of balance sheet items Assets intended for permanent ownership or use is classified in the balance sheet as non-current assets. Other assets are classified as current assets. Liabilities that are due later than one year after balance sheet date have been classified as long term liabilities. First years instalments on these loans are classified as current. Other liabilities are classified as current liabilities. Contingent liabilities Contingent liabilities are recognized if they can be reliably measured and the probability of occurrence is more than 50 percent. The best estimate is used to calculate the settlement value Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at hand and in banks and short-term deposits which without significant currency risk can be converted to cash within three months. receivables Trade receivables and other receivables are recognized and carried at nominal value less provisions for bad debts. The company s provisions for bad debts are made based on separate evaluations of specific receivables and an evaluation of the level of trade receivables in general. Foreign currency translation Monetary assets, receivables and liabilities denominated in foreign currencies are translated exchange rates at the balance sheet date. Fixed assets Fixed assets are stated at cost less accumulated depreciation and impairment. Expenditures for maintenance and repairs are expensed as incurred, whereas improvements and upgrading are capitalized and depreciated along with the asset. Depreciations are based on the straight-line method and are established based on an assessment of the useful life for the specific asset. Assets where individual assessments justify that the fair value is lower than the carrying amount, are written down. Fair value is defined as the higher of sales price and the net present value of expected future cash flows. Leases, that transfer substantially all rights and obligations related to ownership to Marine Harvest ASA, are accounted for as capital leases and recorded as fixed assets. The present value of the lease payments is recorded as an interest bearing liability under long-term debt. The assets are depreciated according to schedule, and the liability is reduced by the amount of the lease payments less the effective interest expense. For other leases, the lease payments are recognized as an expense in the period they are incurred.

66 MArine Harvest ACCOUNTS AND NOTES ASA Shares and long-term investments Shares and other securities are classified as fixed financial assets and stated at cost. Impairments are undertaken individually if the fair value is lower than cost and the decrease in value is not considered to be temporary. Gain and loss on shares and other securities are recorded as financial items. Taxes Taxes for the year in the profit and loss statement comprise taxes on the taxable profit for the year, changes in deferred taxes and adjustments in previous year s taxes. Taxes on transactions that are recorded directly to equity do not form part of the tax expense for the year. Restructuring costs Provisions for restructuring costs and impairment of assets will be made if the company within the balance sheet date has published or started a restructuring plan, which identifies what parts of the company, and approximately how many employees that will be affected, the actions that will be taken, and when the plan will be implemented. Provisions are made only for costs that cannot be associated with future earnings. Changes in accounting principles and corrections The effect of changes in accounting principles and corrections due to material errors in past years financial statements is booked towards equity. Tax payable is calculated using the nominal tax rate at the balance sheet date. Deferred tax is calculated on the basis of temporary differences between accounting and taxation values at the close of the accounting year. Temporary differences related to goodwill that are not tax-deductible are not taken into consideration when calculating deferred taxes. Deferred tax assets arise from temporary differences that give rise to future tax deductions. Deferred tax assets are only recognized in the balance sheet if it is likely that it can be utilized directly or by netting a deferred tax liability. Tax increasing and tax decreasing timing differences are offset against each other. Pensions Contribution plans Obligations to make payments to pension schemes that are contribution plans are expensed when they occur. The employer has no obligations under these pension schemes other than making regular payments according to agreement. Defined benefit plans Pension schemes where the employer has guaranteed the pensioner a defined benefit from the plan are accounted for based on the net present value of liability for the company. The net liability in each scheme is the difference between the net present value of the liability in the scheme and the fair value of the assets available in the pension scheme. The net obligation is calculated using actuarial assumptions and expertise. The change in net liability is recorded in the accounts at every closing. Share based payments Previously employed senior executives of Marine Harvest ASA have received remuneration in the form of share-based payment transactions ( equity-settled transactions ). The company has no share options which can be settled in cash ( cash-settled transactions ). The fair value of the options is recognized as a payroll expense with a corresponding increase in equity. The fair value is measured when the options are assigned and are distributed over the period until the employees have earned an unconditional right to make use of them. Bonds Convertible debt instruments made up of both a debt and equity element, are, when issued, separated into two components that are reported separately as debt and equity respectively. The debt element reflects the contractual obligation to distribute cash. The equity element reflects the call option that gives the owner of the bond a right to convert the debt instrument to equity. Total interest expenses are accrued linearly over the term of the bond using the effective interest rate method. Financial instruments at fair value recognized in income statement Marine Harvest ASA uses financial derivatives to reduce its exposure to fluctuations in foreign currencies. These instruments, mainly forward exchange contracts and interest rate swaps, are initially recognized at cost and in subsequent periods measured at fair value. The same applies for interest rate swaps that are entered into with the purpose to reduce the Marine Harvest ASAs interest rate risk. Fair value of an interest rate swap is the estimated amount the company would receive or pay to redeem the agreement on the balance sheet date, considering the current market interest rate level. Profit and loss arising from revaluations to fair value is recognized immediately in the income statement. Forward sales contracts on Marine Harvest own shares which will be settled net in cash are recognized as financial liabilities in accordance with IAS 32.16, and subsequently measured at fair value. Profit and loss arising from revaluations to fair value is recognized immediately in the income statement. Cash flow statement The cash flow statement is prepared based on the indirect method. The cash flow statement shows the overall cash flow broken down to operating, investing and financing activities. Cash is defined as cash in hand, bank deposits and other liquid investments that immediately and with an insignificant risk of currency losses can be converted to cash holdings. Interest paid is included in the cash flow statement as a financing activity. Annual report 2007

67 Payroll expenses, number of employees, remunerations, loans to employees etc. Specification of total payroll expenses and employees (NOK MILLION) Salaries Social security taxes Pension costs (excluding employer s social security contributions) Other contributions Total payroll expenses Loans to employees Average number of employees 27* 15 9 * At the end of 2007 a total of 32 persons are employed. (NOK MILLION) paid other paid total SALARIES TAXABLE pension CONTRI- premium BUTIONS Specification of remuneration to management 2007 Former Group CEO Former Group CFO Present CFO Technical Director Communications Director Strategy Director Human Resources Director Specification of remuneration to management 2006 Group CEO CFO Specification of remuneration to management 2005 Group CEO Other executives** ** Other executives in 2005 are the CFO and the Commercial Director. Remuneration to Chief Executive Officer The former CEO, mr Atle Eide, had an annual salary of NOK 3.0 million in He also had a bonus scheme giving bonus up to 50 percent bonus of base salary from The agreement with Mr Atle Eide granted him the right to severance pay given fulfilment of certain conditions, if he was to leave the company. The severance pay would equal two years salary plus salary in the notice period of six months. Atle Eide has previously held stock options but all had been called and settled during Atle Eide resigned from his position 1 September At year-end 2007 a provision has been made for outstanding severance pay of NOK 7.5 million to be paid in the periode , including social security tax on the same. In addition he is entitled to be paid in cash the rights earned as pensions, amounting to NOK 2.2 million. The Vice Chairman of the Board, Leif Frode Onarheim agreed to be acting CEO until a new CEO was in place. Leif Frode Onarheim has through his company Lonar AS invoiced Marine Harvest ASA a fee for his services of NOK 0.9 million for the year The Board of Directors in Marine Harvest ASA has appointed Åse Aulie Michelet as CEO in Marine Harvest ASA as of March Aulie Michelet has broad international management experience, coming from GE Health Care and other positions. Terms and agreements with key personnel The corporate management is included in collective pension schemes or have individual pension agreements. These pension schemes are further described in the note for pension schemes to the group accounts.

68 MArine Harvest ACCOUNTS AND NOTES ASA All key personnel in Marine Harvest ASA are entitled to a bonus limited to a percentage of base salary, and the conditions for fulfilment are linked to the group s annual results and individual accomplishments. There is included in the agreements with the key personnel conditions relating to terminal payments based on base salary, given fulfilment of certain conditions. No key personnel are entitled to terminal payment for a longer period than two years from termination of employment. In 2005 there was established an option program for corporate management at that time (Pan Fish ASA). The last options in this scheme was settled in February 2008, but none of the present management were entitled to options in this program. There have not been established other option programs in the group. In 2008 a new incentive program has been established, that grant key personnel a cash bonus if staying in the company for more than three years. Further information about this new program is given in note 35. Fees paid to the Board of Directors The fees to the Board of Directors amounted to NOK 3.9 million in The following is paid to board members in 2007: Svein Aaser (Chairman of the Board) NOK 1.1 million Leif Frode Onarheim (Vice Chairman of the Board) NOK 0.5 million Tor Olav Trøim NOK 0.4 million Kathrine Mo NOK 0.4 million Solveig Strand NOK 0.4 million Jon Gunnar Pedersen* NOK 0.3 million Eldbjørg Sture NOK 0.4 million Arne Hjeltnes* NOK 0.3 million Gabriel Smith* NOK 0.1 million * Resigned and not Board member at year-end. The CEO and the Chairman of the Board decide the remuneration to key personnel. Key personnel are defined as Business Unit Management Team members, Business Unit Managing Directors, and Senior Group Staff. In principle, wages are set using well-known job weighing techniques and salary scales based on regional compensation trends. The salary policy is designed to provide fair wages to those who wish to work in the company. The salary policy will allow the group to compete in the labour market and should attract and hold employees, but the primary focus of the company is to provide significant and meaningful work in an outstanding company rather than paying people to stay. Salary increases are based on achieved results and contribution to the business. Bonuses are awarded as a percentage of base salary. The CEO is entitled to a 50 percent bonus yearly based on criteria set by the Board. Business Unit Managing Directors and Senior Group Staff are entitled to a 30 percent bonus based on a mix of Group financial targets (70%) and personal targets (30%). Business Unit Management Team members are entitled to a 20 percent bonus which is also based on Group financial performance and personal business targets. These targets are designed to further the objectives of the business and motivate Key Personnel to align their actions with the needs of the business and to reward them for achieving budgeted goals. Pensions To ensure access to qualified key personnel the pension plans will be based on the pension systems applied to all employees but will also take into account what additional measures may need to be taken to ensure alignment with positions in competitive companies. The system will be competitive to the relevant labour market. The pension plans and the funds established for the pension liabilities will normally be under management of the insurance company. The pension plans will normally be structured as defined contribution schemes. In the balance sheet per 31 December 2007 there are no provisions related to remuneration of Board members. Of the remuneration paid to the Board in 2007, NOK 1.4 million relates to work performed in There was paid fees to the Board of Directors of NOK 1.2 million in 2006 where NOK 0.5 million relates to Internal Remuneration Policy for Key Personnel This section differs materially from the statement of remuneration in the annual report of 2006 due to design of a new policy document. The previous policy was applied to the year Severance Pay The company can enter into employment agreements that grant key personnel the right to severance pay. Further, if a person in management is deprived of position, whether actual or de facto, the health and safety work act mitigates with the right to receive severance pay. An appointment in a new position in another company will normally lead to a proportional reduction in the severance payment. In special circum stances and during staff reductions severance pay can be agreed for staff leaving voluntarily. Severance pay may not apply where there are pre-agreed contractual or other negotiated terms of agreement for dismissal. Annual report 2007

69 Other operating expenses (NOK MILLION) Sales and marketing costs Restructuring costs* Losses on accounts receivable IT costs Consultancy fees** Other operating costs*** Total other operating expenses * Restructuring costs are primarily related to use of external consultants in connection with the planning of the integration of the companies acquired in In addition to this a provision for moving costs of the head office and termination pay is also included, ref. note 2 annual report ** Includes fees to external auditor, legal services and consultancy fees. *** Includes operational leasing and rental of administration buildings and other operating expenses. 04 Auditor s fee Fee to auditors 2007 (nok MILLION) Ernst & Young Other appointed auditors Audit services Other authorization services - - Tax advisory services Other services non-audit related Total fees for A fee of NOK 5.4 million has been paid to a subsidiary of E&Y Audit, which provides tax services. The fee is for services related to a review and restructuring process for the combined group after the acquisitions made in The project is by large completed, but implementation of suggested changes will be ongoing for a period. Fee to auditors 2006 (nok MILLION) Ernst & Young Other appointed auditors Audit services Other authorization services Tax advisory services Other services non-audit related Total fees for

70 MArine Harvest ACCOUNTS AND NOTES ASA 05 Tax (NOK MILLION) Specification of this year s tax expense Tax payable Witholding tax, changes compared to earlier years Deferred taxes entered against equity Changes in deferred taxes Total tax expense Specification of temporary differences and losses carried forward Fixed assets Non current assets and liabilities in foreign currencies Current assets Net pension liability Profit and loss account Losses carried forward Other provisions for liabilities Total basis for deferred taxes/deferred tax asset Nominal tax rate 28% 28% 28% Deferred taxes/deferred tax asset Recorded deferred tax asset Marine Harvest ASA has recorded NOK million in deferred tax assets, which is an increase of NOK 37.4 million from NOK million in The recognition is based on an expectation that the Norwegian companies in the group will be able to give group contributions in the coming years. The increase is due to the fact that there are significant tax increasing temporary differences that the tax asset can be netted against. There is no deadline for the utilization of losses carried forward in Norway. 06 Tangible fixed assets Office furnitures and equipement (NOK MILLION) Purchase cost Acquisitions Disposals - - Purchase cost Accumulated depreciation and impairment as of Disposals - - Depreciations this year Write-downs this year - - Accumulated depreciation and impairment as of Book value Economic life 3 6 years 3 6 years Depreciation schedule Linear Linear Annual report 2007

71 Shares in subsidiaries Company Business Date of owner s numer Equity as result Book value (NOK MILLION) address purchase share of shares of this year at Marine Harvest NV Amersfoort. Netherland % Marine Harvest Holding AS Oslo % Pan Fish Sales USA AS Ålesund % Pan Fish USA Inc. Anacortes. USA % Marine Harvest Faroes Kollafjordur. Faroes % Marine Harvest Kritsen SAS Pollaouen. France % Pan Fish Japan Ltd. Tokyo. Japan % Total Shares in subsidiaries are recorded using the cost method. The owners share listed above are equal to the voting rights for each company. The following changes has occured in the ownership structure in 2007: - Pan Fish Canada Inc was sold internally to Marine Harvest North America Inc. - Pan Fish Scotland Ltd was transferred internally to Lighthouse Caledonia Ltd, a company incorporated in The shares in Lighthouse Caledonia was distributed to the shareholders of Marine Harvest ASA as dividend in December 2007, and Lighthouse Caledonia ASA was listed on Oslo Stock Exchange. Afther the listing Lighthouse Caledonia ASA is no longer part of the Marine Harvest Group. - The previous subsidiaries Fjord Seafood AS, Pan Fish Norge AS, Marine Harvest AS and Kritsen Holding AS was merged in 2007 and the merged company was named Marine Harvest Holding AS. This holding company (the continuation of Fjord Seafood AS) owns the salmon farming operations of Marine Harvest in Norway (and these operations are in 2007 gathered in one legal entity after the merger of the former Pan Fish Norway AS, Fjord Seafood Norway AS and Marine Harvest Norway AS). - Pan Fish Kritsen SAS was transferred from Kritsen Holding AS to Pan Fish France SA, and Pan Fish France SA changed its name to Marine Harvest Kritsen SAS. 08 Shares in associates Marine Harvest ASA did not hold any shares in associated companies (20 50%) in In 2006 Fjord Seafood ASA was an associated company for a period. On 6 March percent of the shares in Fjord Seafood ASA were acquired for NOK 1221 million and on 15 March another percent were acquired for NOK 669 million. As a consequence Fjord Seafood was accounted for as an associated company until 7 April when still another percent of the shares were acquired for NOK 874 million and the company became a subsidiary. In the period as an associated company a profit share of NOK 14.6 million from Fjord Seafood was recognized in the accounts of Marine Harvest ASA. Also in 2006 on 12 January NOK 9.75 million were invested in 27.4 percent of the shares in Ålesund Fisk and 7 July Aqua Farms 16.8 percent of the shares in the same company were acquired for NOK 2.6 million. During the year of 2006 a profit share of NOK -2.1 million was recorded. The company was sold 15 November 2006 at a price of NOK 9.8 million, resulting in a loss of NOK 0.4 million.

72 MArine Harvest ACCOUNTS AND NOTES ASA 09 Other shares Included here are investments where Marine Harvest do not have any or only very limited influence on operations and management (normally an ownership less than 20 percent). Shareholdings Company number of Ownership AcqUSITION BOOK value shares % Cost value 2007 value 2006 Aker Seafoods ASA % Lighthouse Caledonia ASA, withheld for withholding tax* % Andre aksjer Total book value of other shares in Marine Harvest ASA * See note 14 in group accounts. The shares in Aker Seafoods ASA that were acqured in 2007, has been written down to market value at year-end, resulting in a loss of NOK 43.8 million. The shares withheld from shareholders of Lighthouse Caledonia ASA for payment of withholding tax on the dividend distribution gives Marine Harvest no shareholders rights in Lighthouse Caledonia ASA. The shares has been written down to market value, resulting in a loss of NOK 12.7 million. Further information about these shares is given in note 14 to the group accounts. 10 Other long-term receivables (NOK MILLION) Receivables due more than one year after the balance sheet date The above mentioned figure consists in its entirety of sales credit related to the disposal of Østerbris. The total sales credit is NOK 8 million, whereof NOK 2 million was due in The remaining NOK 6 million at year-end 2006 was received in December The amount was interest-bearing. 11 Provisions, contingent liabilities and contingent assets (NOK MILLION) restructuring LEASe Interest ForwarD other trs total provisions provisions swap Contracts provisions provisions New provisions Reversed provisions Settlements offset by provisions Per Annual report 2007

73 70 71 Royal Greeland has taken Marine Harvest ASA and former board members of Vestlax Hirtshals AS, Atle Eide and Therese Log Bergjord to court. Both were employed in Marine Harvest ASA. The background for the leagal proceedings is a claim related to breach of contract of a delivery to Royal Greenland. A ruling in the case is expected in May Marine Harvest ASA has established a surety where the company takes on all responsibilities and all commitments that Atle Eide and Therese Log Bergjord may be convicted for. The claim from Royal Greenland amounts to DKK 11 million. There are no provisions in the accounts for this contingent liability. Other provisions in the table above are related to severance pay, borrowing costs, and bonuses. 12 Transactions with subsidiaries RECEIVABLES AND LIABILITIES TOWARDS SUBSIDIARIES (NOK MILLION) Intercompany long-term receivables Total short term intercompany balances Intercompany, holding companies the Netherlands Total short term balances Net intercompany balances Included in the figures are forward contracts amounting to a net debt to subsidiaries of NOK million. These forward contracts are entered into between the subsidiaries and Marine Harvest ASA for hedging of exposures in the subsidiaries. Marine Harvest ASA has hedged its net hedging positions towards the subsidiaries with external banks. GROUP INTERNAL Financial INCOME AND EXPENSE The table below shows the effects group internal transactions have on each line of the financial income and -expense lines presented in the income statement. (NOK MILLION) Interest income group companies ) Currency effect prepayment Marine Harvest N.V Interest expense group companies Other financial items group companies ) includes NOK million of imputed interest income on prepayment Marine Harvest N.V. 13 Restricted funds Marine Harvest ASA possessed cash and cash equivalents of NOK million at 31 December 2007, of which NOK 7.1 million were restricted funds. This amount were split between withheld tax for employees of NOK 2.6 million and NOK 4.5 million to be used for buying out remaining external shareowners in former Fjord Seafood ASA.

74 MArine Harvest ACCOUNTS AND NOTES ASA 14 Changes in shareholder s equity Change in equity in 2007 (nok million) issued share Retained other total capital prem. res. earnings equity equity Equity (see below) Shares issues, calling of options Option program booked directly towards equity Change in deferred tax related to direct equity transactions Dividend distribution. Lighthouse Caledonia ASA Currency translation booked directly towards equity Other minor items charged directly to equity Net profit for the year Equity Change in equity in 2006 (nok million) issued Share Retained other total capital prem. res. earnings equity equity Equity Share issues Costs related to share issues Options to management Net profit for the year Equity Liabilities to financial institutions (nok million) Long-term debt to financial institutions as of New loans Change in revolving loan facilities Repaid loans Foreign exchange effect Ordinary loan instalments Long-term debt to financial institutions as of Pension obligations Other non interest bearing long-term debt as of Total long-term debt as of Annual report 2007

75 72 73 In addition to long term debt to credit institutions NOK million is classified as short term debt to credit institutions, representing first year instalments. Other non interest bearing long-term debt as of 31 December 2007 includes a convertible bond loan of NOK 78.2 million. In the financial statements this loan is recognized with the amount of NOK 78.9 million, as the equity element of the loan is isolated. Total interest expenses related to long-term debt to financial institutions were NOK million in 2007, corresponding to an average annual interest rate of 6.4 percent. Repayment profile on long-term debt to financial institutions YEAR Later Total Instalment* * The instalments in year one are classified as short term debt in the balance sheet. The repayment profile described is in line with the contractual instalments to the syndicate. Based on the cash flow generated in a calendar year, the instalment may, under given circumstances, increase beyond the table above. Financing of the Marine Harvest Group is principally through the parent company Marine Harvest ASA. External financing in the subsidiaries are only conducted if this is optimal for the group for operational or tax purposes. may be allocated as bilateral credits (including overdraft facilities and facilities for the issuance of guarantees) between syndicate banks and group companies. The syndicated loan agreement sets forths covenants on the financial ratio of net interest bearing debt to EBITDA together with equity ratio. The group is per 31 December 2007 in a dialog with the banks regarding interpretation of the covenants, but considers that the Group is in compliance with the covenants in the loan agreement. The following programs are the main financing sources of Marine Harves Group per 31 December 2007: EUR million syndicated borrowing facility The Group has a syndicated loan facility with an original limit of MEUR The loan facility consists of a term loan of originally MEUR 550 together with two revolving credit facilities totalling EUR 550 million. The term loan is repaid in semi annual instalments of EUR 22 million and USD 20 million and has final maturity in March 2011, which is also the final maturity for the revolving credit facilities. The revolving credit facilities is available to Marine Harvest ASA and selected subsidiaries. In addition parts of the revolving credit facilities Net interest bearing debt to EBITDA is also the basis for determining the interest margin. Based on group performance the loan margin can vary between 0.50 percent p.a. og 1.50 percent p.a. above the interbank interest rate. Bond In connection with the refinancing in January 2003, a subordinated convertible bond of NOK 78 million was established. The bond matures in 2013, is non interest bearing the first 5 years, and is thereafter interest-bearing with an interest rate of NIBOR basis points. The bond could have been converted to equity until 8 January Due to high strike price no shares were issued.

76 MArine Harvest ACCOUNTS AND NOTES ASA 16 Assets pledged as security and guarantee liabilities Assets pledged as security and guarantee liabilities Marine Harvests syndicated loan facility is secured by security from the larger subsidiaries of the group. In addition Marine Harvest ASA has pledged the ownership in its subsidiaries, as well as certain current assets. The larger subsidiaries of the group have also granted a pledge in their current assets, partly as a pledge in favour of a third party and partly as security for the fuilfilment of the obligations. (nok million) Secured group debt Book value of assets pledged as security Receivables Fixed assets - - Other (shares in subsidiaries) Total book value of assets pledged as security Guarantee liabilities Nominal value of guarantee liabilities NOK million of the guarantee liabilities applies to the cross guarantee financing to DnB NOR. 17 Financial derivatives Foreign exchange risk At year-end 2007 the company had a portfolio of currency hedging instruments with a total contract value of NOK million. Contracts constituting half of the total contract value mature in 2008, and no contract has a maturity beyond 31 December At year-end 2007 the portfolio had a net positive market value of NOK million. Interest rate risk The floating part of the loan portfolio carries interest periods of up to six months. A policy has been established under which between 50 percent and 75 percent of the interest bearing debt of the group shall be hedged through fixed interest borrowings or interest derivatives. The hedging portfolio should have an average maturity of three to four years. The forward and cross currency interest rate swaps are recorded at fair value in the balance sheet. At year-end 2007 the group had a portfolio of interest swaps which in total has a negative market value of NOK 19.9 million. The swaps entered into are: Currency Amount the group pays the group receives maturity Market value EUR 46.0 fixed % p.a. 3M Euribor USD 39.0 fixed % p.a. 3M Libor EUR 44.0 fixed % p.a. 3M Euribor USD 37.3 fixed % p.a. 3M Libor EUR 42.0 fixed % p.a. 3M Euribor USD 35.5 fixed % p.a. 3M Libor EUR 40.0 fixed % p.a. 3M Euribor USD 33.8 fixed % p.a. 3M Libor CAD 53.9 fixed % p.a. 3M Libor GBP 5.5 fixed % p.a. 3M Libor EUR fixed % p.a. 3M Euribor USD fixed % p.a. 3M Libor Total Annual report 2007

77 Pensions Pension plan for Group CEO Atle Eide resigned as CEO effective from 1 September By the end of the notice period 29 February 2008 he will receive the net present value of the pension entitlements earned in employment for the group, that amounts to NOK 2.2 million. Pension plan for CFO CFO Jørgen Andersen is entitled to an individual pension plan. The conditions for the plan is not finalised pr end of desember Pension scheemes other employees Marine Harvest ASA has during 2007 terminated the defined benefit plan and has elected to transfer all employees to a contribution plan. The plan has 30 members. The pension cost for 2007 is specified in the table below. Including termination effects the pension cost for 2007 is NOK 4.8 million. Mandatory company pensions in Norway The Group is obligated to follow the Act on Mandatory company pensions in Norway and has establish a pension scheme that follows the requirement as set in the above mentioned Act Pension plan members Expected rate of return % Discount rate % Expected salary increase % Expected social security increase % Expected pension regulation % Net pension cost (NOK MILLION) Service cost Interest on the pension obligation Return on pension plan assets Amortization of prior service cost - - Amortization of loss/(gain) - - Curtailment settlement - - Termination of defined benefit plan Provision pension entitlements CEO Costs contribution plan Net pension cost ex. social security tax Social security tax Net pension cost incl. social security tax Funded status (NOK MILLION) Accumulated benefit obligation Present value of future salary increase Projected benefit obligation Market value of pension plan assets Unamortized prior service cost Social security tax Net pension obligations incl. social security tax

78 MArine Harvest ACCOUNTS And Notes ASA 19 Sharebased payments Marine Harvest ASA had at the end of 2007 still in existence an options program for senior executives which was established 22 December All outstanding options were called and settled by the end of February Black-Scholes option pricing model has been applied for the valuation. The volatility was set to 40 percent and was based on historic listed share prices. The calculations on the time of establishment was based on a risk-free interest rate of 3.45 percent. The option program consisted of three separate tranches with different terms to maturity. The third tranch matured 10 days after the presentation of fourth quarter figures for The different tranches were valued separately as they had different time values. Each of the three tranches consisted of 8.7 million options, in total 26.1 million options, equivalent to 0.75 percent of the total outstanding shares as of 31 December The strike price was set to NOK 2.06 which corresponded to the average listed share price for Marine Harvest over the last three days before the option program was approved by the board of directors in Pan Fish. Closing price on the Marine Harvest share at Oslo Stock Exchange on 28 December 2007 was NOK The intrinsic value at the end of 2007 was NOK 1.43 per option. Cost of the option program expensed in 2007 amounts to NOK 2.3 million and cost expensed related to the same in 2006 was NOK 7.3 million. All costs related to the option program has been expensed in 2007 as the option holders, all but one, have left the company. It is provided for social security taxes on the intrinsic value of the options as per 31 December 2007 with NOK 1.1 million. The following persons were granted options in Name and position number of options granted exercised outstanding at year-end 2007 Atle Eide, Group Chief Executive Officer Trine Sæther Romuld, CFO Øyvind Tørlen, CEO Pan Fish Norway OddGeir Oddsen, CEO Pan Fish Scotland Keith Bullough, CEO Pan Fish Canada Ragnar Joensen, CEO Pan Fish Faroes Andrew Colvin, CEO Pan Fish France Therese Log Bergjord, Commercial director Total Odd Geir Oddsen exercised all his options when Lighthouse Caledonia ASA was divested. Atle Eide exercised all his options in All options outstanding at year-end 2007 was called during the first quarter of Annual report 2007

79 Auditor s Report 76 77

80 MArine Harvest ADDRESSEs Addresses Marine Harvest launched its new website in March Please visit for a comprehensive tour of Marine Harvest and the salmon farming industry. Marine Harvest ASA Stortingsgt OSLO P.O. Box 1086 Sentrum N-0104 OSLO Norway Tel.: Fax: Corporate@marineharvest.com Marine Harvest Norway Sandviksboder 78A 5035 Bergen P.O. Box 4102 Dreggen 5835 Bergen Norway Tel.: Fax: Norway@marineharvest.com Marine Harvest VAP Kolvestraat Brugge, Belgium Tel.: Fax: Europe@marineharvest.com Marine Harvest Scotland Ratho Park, 1st floor, South Wing, 88 Glasgow Road Ratho Station, Newbridge, EH28 8PP Edinburgh Scotland Tel.: Fax: Scotland@marineharvest.com Marine Harvest Chile Ruta 226, Km 8 Camino El Tepual Puerto Montt, Chile Tel.: Fax: Chile@marineharvest.com Marine Harvest Canada # Island Hwy Campbell River, BC V9W 8C9 Canada Tel.: Fax: Canada@marineharvest.com Marine Harvest Faroes Ternubrekkan 1 FO-695 Hellurnar Faroes Tel.: Fax: Faroes@marineharvest.com Marine Harvest Ireland Kindrum, Cashel P.O. Letterkenny, County Donegal Ireland Tel.: Fax: Ireland@marineharvest.com Marine Harvest Asia, Singapore office 20, Harbour Drive #05-02 PSA Vista Singapore Tel.: Fax: Asia@marineharvest.com Marine Harvest Cold Water Species Hundsnes 4130 Hjelmeland Norway Tel.: Fax: Coldwater@marineharvest.com Marine Harvest Japan, Inc. 15th Floor, Tennozu First Tower 2 4, 2 Chome Higashishinagawa, Shinagawa-ku, Tokyo, Japan Tel.: Fax: Annual report 2007

81 DESIGN: CREUNA/COBRA PHOTO: Getty (cover), Pål Rødahl and Marine Harvest image library

82 REGNSKAP og Noter KONSERN MARINE HARVEST ASA P.O. Box 1086 Sentrum NO-0104 Oslo Norway Tel.: Fax: