Valuation of SalMar ASA Værdiansættelse af SalMar ASA Master Thesis Author: René Nicholas Kabel Laursen CPR number: xxxxxx-xxxx Date of submission: 15 October 2013 Copenhagen Business School 2013 M.Sc. Accounting, Strategy & Control Supervisor: Edward Vali Department of Accounting and Auditing Number of standard pages: 73,7 Number of characters: 167.825 1 Table of Contents Executive Summary.................................................................................................................................5 1. Introduction ........................................................................................................................................6 1.1. Research Question.......................................................................................................................6 1.2. Structure of the Thesis.................................................................................................................7 1.3. Methodology and Limitations......................................................................................................7 2. Introduction to Salmon Farming.........................................................................................................9 2.1. Salmon Farming Operations ........................................................................................................9 2.2. VAP Operations..........................................................................................................................11 3. SalMar and Peers ..............................................................................................................................11 3.1. SalMar Profile.............................................................................................................................11 3.1.1. Strategy...............................................................................................................................13 3.1.2. Business Areas and Organizational Structure.....................................................................13 3.1.4. Executive Management and Board of Directors.................................................................16 3.1.4. Ownership...........................................................................................................................17 3.2. Peer Group.................................................................................................................................17 3.2.1 Lerøy Seafood Group ...........................................................................................................17 3.2.2. Grieg Seafood......................................................................................................................17 3.2.3. Marine Harvest ...................................................................................................................18 4. Financial Analysis ..............................................................................................................................19 4.1. Growth and Price Development ................................................................................................19 4.1.1. Revenue Growth .................................................................................................................19 4.1.2. Salmon Price........................................................................................................................21 4.2. Accounting Quality.....................................................................................................................22 4.2.1. Applied Accounting Principles ............................................................................................22 4.2.2. Potential Red Flags..............................................................................................................22 4.3. Preparing the Income Statement for Analytical Purposes.........................................................24 4.3.1. Tax for Analytical Purposes.................................................................................................26 4.5. Profitability Analysis...................................................................................................................27 4.5.1. Return on Equity .................................................................................................................28 4.5.1.1 Return on Invested Capital ...........................................................................................29 4.5.2. Leverage Effect....................................................................................................................32 4.5.2.1. Financial Leverage........................................................................................................32 4.5.2.2. Interest Margin ............................................................................................................33 4.6. Liquidity Analysis........................................................................................................................34 4.6.1 Short-term Liquidity.............................................................................................................34 4.6.2. Long-term Liquidity.............................................................................................................36 4.8. EBIT/kg .......................................................................................................................................37 4.9. Conclusion to the Financial Analysis..........................................................................................38 5. Strategic Analysis ..............................................................................................................................39 5.1. PESTLE Analysis ..........................................................................................................................39 5.1.1. Political Factors...................................................................................................................40 2 5.1.1.1. Licenses........................................................................................................................40 5.1.1.2. Trade Barriers...............................................................................................................41 5.1.2. Economic Factors ................................................................................................................42 5.1.2.2. Exchange Rates ............................................................................................................42 5.1.2.3. GDP ..............................................................................................................................42 5.1.2.4. Interest Rates...............................................................................................................43 5.1.2.5. Raw Materials ..............................................................................................................43 5.1.3. Social Factors ......................................................................................................................44 5.1.3.1. Health Awareness ........................................................................................................44 5.1.3.2. Media Surveillance.......................................................................................................45 5.1.4. Technological Factors..........................................................................................................45 5.1.4.1. Scale Production ..........................................................................................................45 5.1.4.2. Feeding.........................................................................................................................46 5.1.4.3. Disease prevention ......................................................................................................46 5.1.5. Legal Factors .......................................................................................................................47 5.1.4.1. Norway.........................................................................................................................47 5.1.4.2. Scotland........................................................................................................................47 5.1.4.3. Chile .............................................................................................................................47 5.1.4.4. Canada .........................................................................................................................48 5.1.6. Environmental Factors........................................................................................................48 5.1.6.1. Sustainability................................................................................................................48 5.1.6.2. Health Risks..................................................................................................................48 5.1.6.3. Fish Escapes .................................................................................................................49 5.2. Industry Analysis ........................................................................................................................50 5.2.1. Substitution treat................................................................................................................50 5.2.2. Suppliers..............................................................................................................................53