ETHICS AND SOCIAL RESPONSIBILITIES
Lerøy Seafood Group takes a very conscious approach to its responsibility for ethical conduct, society at large and the environment.
As a general rule, Lerøy Seafood Group shall with its trading partners fully comply with legislation in the respective countries and with the company’s own/Lerøy Seafood Group’s quality systems/procedures. The Group has a principal rule that the strictest requirements shall be met.
In the event of deviations, measures shall be implemented to improve the situation. Our goal is to contribute towards improving human rights, labour rights and environmental protection, both within our own Group, in relation to our suppliers and subcontractors and in relation to our trading partners.
ACTIVITIES
The company’s Articles of Association define its commercial activities as follows: “The Company’s purpose is acquisition and management of shares and activities associated with this”. The parent company’s Articles of Association reflect that the parent company is a holding company established exclusively for the purpose of owning other companies. The Group’s activities are represented by the annual report as a whole, but can be summarised as follows: “The Group’s core activities are distribution, sale and marketing of seafood, processing of seafood, production of salmon, trout and other species, as well as product development”. Lerøy Seafood Group’s vision is to be the leading and most profitable global supplier of seafood.
THE BOARD OF DIRECTORS AND ITS FUNCTION
In its central position between owners and management, it is the Board of Directors’ function to safeguard the shareholders’ need for strategic governance and operational control. The function and focus of the Board will always vary somewhat depending on circumstances within the company and on developments in the external business environment.
The transformation of the Lerøy Group from a family company to a listed public limited company has been guided by the owners’ clear awareness of the type of Board the company needs. The process to establish a Board with members from various fields of expertise and independent of the Group’s management team and largest shareholders was initiated by the owners already at the end of the 1980s. Since the early 1990s, the majority of the members of the Lerøy Group Board have been independent of the Group’s management team precisely in order to protect the Board’s ability to challenge management practices. In part because of the Board’s composition (size and independence from management and main owners, etc.), there has so far been no need for establishing so-called “board committees”.
For several years, as well as during its eight meetings in 2010, the Board has maintained a particular focus on the connection between practical operations and strategic business development. The Board and company management has since 1997 worked purposefully to develop the Group into a wholly integrated leading and profitable seafood group. This work has for a considerable time been carried out in accordance with our public announcements. In this respect, reference is made to the “Purpose of Share Distribution” described in the prospectus issued for registration on the Oslo Stock Exchange in June 2002: “With this share issue the company wants to secure active future participation in the restructuring and internationalisation taking place in the industry. Consequently, in order to capitalise on past performance and to be in position for future earnings, the Lerøy Seafood Group will assess possible acquisition and merger alternatives as well as possible alliances that may enhance the basis for further value creation”. The Board’s work reflects this strategy and the results are shown through management implementation.
The Group’s activities are varied, depending on each unit’s position in the value chain, and consequently require differentiated forms of management and follow-up. Good internal management systems are essential for success, but these must be continuously developed in order to accommodate fluctuating economic conditions. The Group’s regional structure with independent units, also in respect of short-term reporting, facilitates good control and a powerful focus. The internal control is based on daily and weekly reports that are summarised into monthly reports tailored to the individual company, while at the same time providing satisfactory reporting at group level.
When recruiting board members, the company’s owners have already for many years considered the company’s needs for varied expertise, continuity, renewal and changes in ownership structure. It will always be in the company’s interest to ensure that the composition of the Board varies in line with the demands made on the company and with expectations regarding Group performance. The Board’s assessment of itself and of Group management must of necessity be seen in conjunction with the Group’s performance. To date, the Board has not issued reports on its assessment of its own work; this is a conscious priority decision and must be viewed in connection with other announcements made by the Group to the public. Moreover, external assessments of the Board’s work are probably the most influential and are likely to remain so in the future.
Audit committee
The audit committee consists of Fons Brusselmans (Chairman) and Britt Kathrine Drivenes (member). The audit committee reports to the Chairman of the Board. The audit committee performs a quality audit of the internal control and reporting system and is responsible for the Board’s dialogue with and monitoring of the external auditor. The audit committee held three meetings in 2010.
Nomination committee
The ordinary shareholders’ meeting on 25 May 2005 voted to change Article 5 of the company’s Articles of Association to give the company a permanent nomination committee consisting of three members elected by the shareholders’ meeting for a period of two years. The company’s nomination committee is charged with preparing suggestions for the composition of an owner elected Board of Directors and to submit recommendations to the shareholders’ meeting for appointments to the Board. At present the nomination committee members are Didrik Munch (Chairman), Helge Møgster and Benedicte Schilbred Fasmer.
DIVIDEND POLICY
Based on continued growth and improved profitability, Lerøy Seafood Group aims to create financial values for its shareholders, staff and society in general. Lerøy Seafood Group aims to provide a satisfactory rate of return from all its activities. The yield to shareholders in the form of dividends and share price performance ought to reflect the company’s value generation. Distributed dividends should develop in line with the company’s financial strength, growth and profitability. The recommended dividend distribution for the year is NOK 10.00 per share, which is in line with the company’s traditional dividend policy.
The company’s dividend policy implies that, over time, dividends should lie in the region of 30% to 40% of net profits after tax. 2010 has been an extremely good year for Lerøy Seafood Group. Accordingly, the Board has recommended an extraordinarily high dividend distribution of NOK 10.00 per share. However, care must be taken at all times to ensure that the Group has sufficient financial contingency planning in preparedness for new and profitable investments. In the long run, value generation will increasingly be in the form of higher share prices rather than in declared dividends.
FINANCIAL GOALS
On-going structural changes in the global industry in which the company operates, seen in conjunction with the cyclical nature of the industry, demand that the company at all times must maintain a satisfactory financial preparedness. This in turn requires a close relationship with the company’s shareholders and equity capital markets. The company has always stressed the importance of maintaining the confidence of its financial partners and thus also access to necessary loan capital on favourable terms. The Group’s financial goals as established by the Board and management must be reflected in quantified parameters for financial strength and yield. The established requirement for financial adequacy stipulates that the Group’s equity ratio should be at least 30% over time. The Group’s long-term goal is to maintain an annual yield on the Group’s average capital employed of 18% before tax. It will be necessary to assess and adjust the Group’s financial goals from time to time in response to changes in significant external parameters such as interest levels, but also in response to significant changes in the Group’s spheres of activity.
SHAREHOLDERS' MEETING
Negotiability and voting rights
As of 3 June 2002, the shares in Lerøy Seafood Group ASA have been quoted on the main listing of the Oslo Stock Exchange and are freely negotiable within the provisions of Norwegian law. The company has only one class of shares and each share carries one vote at the shareholders’ meeting. Shareholders’ rights are governed by the Public Limited Companies Act (Norway), cf. in particular chapter 4 of the Public Limited Companies Act (Norway).
Attendance or proxy
Shareholders may cast their votes at the shareholders’ meeting either by attending in person or by proxy.
Authorities granted to the Board of Directors
Authorities are granted to the Board of Directors in accordance with the Public Limited Companies Act (Norway), cf. in particular chapters 9 and 10 of the Act.
The first time the Board was authorised to acquire the company’s own shares was at the ordinary shareholders’ meeting on 12 May 2000. This authority has subsequently been renewed, most recently at the ordinary shareholders’ meeting on 26 May 2010, and is to remain valid for 18 months from the date on which the resolution was adopted. The authority was not exercised in 2010. An extension of the authority was made at the ordinary shareholders’ meeting on 25 May 2011. As of 31 December 2010, the company owned 229,776 of its own shares. The Board is authorised to increase the share capital by up to NOK 1,200,000 by issuing up to 1,200,000 shares, each with a face value of NOK 1 through one or more private placings with employees of Lerøy Seafood Group ASA and its subsidiaries. The Board’s authority must be seen in light of the company’s established option programme, see below. This type of authority was first established by the extraordinary shareholders’ meeting on 10 December 1997 and has subsequently been renewed, most recently by the ordinary shareholders’ meeting on 26 May 2010. The authority is valid for two years from the time the resolution was adopted. An extension of the authority was made at the shareholders’ meeting on 25 May 2011. The authority has not been exercised.
The Board has authority to increase the share capital by up to NOK 5,000,000 by issuing up to 5,000,000 shares in Lerøy Seafood Group ASA, each with a face value of NOK 1, through one or more private placings with the company’s shareholders and/or external investors. This type of authority was first established by the ordinary shareholders’ meeting of 4 May 1999 and subsequently renewed by the ordinary shareholders’ meeting on 26 May 2010. The Board did exercise this authority in 2010 in connection with the acquisition of 50.71% of Sjøtroll Havbruk AS where 1,000,000 new shares were issued. An equivalent authority was approved by the ordinary shareholders’ meeting on 25 May 2011.
The Board’s powers to distribute shares are limited to a maximum validity, not only for operational reasons, but also in order to clearly show that the company is growth oriented and that shares are regarded as an important means of payment. This practice is established to ensure an optimum strategic business development for the company. Moreover, the Board has established the practice of having such authorities renewed at each ordinary shareholders’ meeting.
Remuneration including options
Board remuneration is not performance-based. The Board members elected by the shareholders have no share options. The Board’s total remuneration is shown in a separate note to the accounts. Should companies with which board members are associated perform work for the company’s Board, the question of independence is treated specifically by the Board.
The Group’s development is closely linked to its ability to recruit and retain managerial staff and the Group employs various models for remuneration of management personnel at competitive terms. Senior executives receive salary according to market terms. Remuneration varies over time both in respect of level and form of payment. In addition to the annual salary, the Group uses a performance-based bonus scheme not exceeding the respective annual wage, non-recurring amounts, sign-on fees, arranged leave of absence, education possibilities and option agreements (see below). The Group has collective pension schemes. For logical reasons and to date, the Chairman of the Board has on behalf of the Board handled all practical matters in respect of agreements with the Group CEO. Remuneration is reviewed annually, but is assessed over several years in order to secure continuity. The Board limits the use of so-called severance pay agreements, but these have been practised in a few cases, albeit limited to two years’ salary. Severance pay may at times be a good alternative for all parties involved.
Since the spring of 1999, the Board has used options as an important instrument in the Group’s development (see also the treatment of options in a separate note to the accounts). In its meeting on 20 June 2006, the Board established a new option scheme limited to 700,000 options at NOK 125 each. These options were fully distributed as of 29 February 2008, and one third of the options can be exercised in the month of May in 2009, 2010 and 2011 respectively. The options that expired in May 2010 and 2011 were exercised.
Reference is made to descriptions of option schemes and their consequences elsewhere in the annual report. One common factor for all the option programmes is that if the option holder leaves the company, any options not exercised will lapse. Moreover, the exercise price for the various option programmes reflects the market price (or higher) at the time of allocation.
Employees’ purchase of shares at reduced price
In connection with public share issues, the first of which took place in 1998, the company’s employees have been granted the right to subscribe to a limited number of shares at reduced price (20%). The company’s employees have also been allowed to purchase a limited number of shares at reduced price (20%).
Auditing
The company’s auditor works in accordance with an annual schedule known to the Board and the administration. The auditor is available for questions and comments to the annual accounts and other matters at the Board’s discretion. The auditor reports on his work in writing to the company administration and the Board through the audit committee. The Board is informed of the general nature of the services the administration buys from the auditor. Apart from normal auditing, the Board has to date found no need to request detailed descriptions of services delivered to the company. Moreover, the auditor has not been requested to submit an annual statement of independence, in as much as the company’s auditor practices internal rotation and the auditing firm is quite large.
INFORMATION
Lerøy Seafood Group ASA strongly emphasises correct and open information to shareholders, potential shareholders and other interested parties. The company has presented quarterly reports with financial information since 1997. Timely, relevant, consistent and current information is the basis upon which all interested parties will assess the value of the company’s shares. The company’s most important medium for distributing information will be the Oslo Stock Exchange reporting system, but the company also aims to present such information directly to investors and analysts. Lerøy Seafood Group aims to keep its shareholders informed via the annual reports, quarterly reports and at appropriate presentations. In addition, press releases will be sent out regarding important events on the company’s markets, or about other relevant circumstances. The company has been awarded the so-called “Information Badge" and the “English Badge” by the Oslo Stock Exchange.
The company’s web site will also be updated with relevant information. The company’s web site is at: www.leroy.no.
TECHNICAL INFORMATION
As of 31 December 2010, Lerøy Seafood Group ASA had 54,577,368 shares, each with a face value of NOK 1. The number of shareholders as per 31 December 2010 was 1,142 of whom 175 were foreign shareholders. The company’s register of shareholders, cf. section 4-4 of the Public Limited Companies Act (Norway), was registered with the Norwegian Central Securities Depository (Verdipapirsentralen – VPS) on 28 November 1997 and carries the VPS registration number ISIN NO-000-3096208. DnB NOR Bank ASA, Oslo, is the account manager. The share’s Ticker code on the Oslo Stock Exchange’s main list is LSG. The company’s business register number in the Register of Business Enterprises is 975 350 940.
The overview below shows the so-called RISK values for the company’s shares:
1 January 1996 NOK 0.0
1 January 1997 NOK 1,592.60
1 January 1998 NOK 3.50
1 January 1999 NOK 1.14
1 January 2000 NOK 0.83
1 January 2001 NOK 0.89
1 January 2002 NOK 1.69
1 January 2003 NOK -0.02
1 January 2004 NOK -0.59
1 January 2005 NOK -0.88
1 January 2006 NOK -1.80
RISK values have not been calculated since the 2006 accounting year because of changes in the tax regulations.
Adjustment factors applied when redistributing RISK amounts after share splits:
Share split on 11 May 1998, factor 0.10000
Share split on 30 June 1997, factor 0.00100
Actual distributed dividend for the accounting year 2004 was NOK 0.80 per share. Each shareholder can therefore demand RISK per 1 January 2005 adjusted from NOK -0.88 per share to NOK -0.80 per share.