TINE SA English_2012_09.indd
Transcription
TINE SA English_2012_09.indd
Annual report 2012 Annual report from the Board of Directors Financial statement TINE annual report 2012 tine TINE aims to be a leading supplier of food and drink brands with a main focus on dairy products. Price to milk producers Vision We will be Norway’s most important generator of value. Our business idea NOK PER LITRE DELIVERED 2012 2011 2010 2009 Milk price from TINE Råvare (TINE Milk Supplies) 4.53 4.32 4.20 4.07 0.26 0.42 0.33 0.27 4.79 4.74 4.53 4.34 Subsequent payment from TINE SA Total price achieved by the owners The TINE Group creates value in close interaction with nature, agriculture and the market. The TINE Group processes pure, natural commodities into good, healthy food, which is preferred by the consumers and is the country’s leading food supplier. The TINE Group is owned by Norwegian dairy farmers in a cooperative society. Our objectives HSE figures THE tine group EMPLOYEES Number of employees Number Absence due to illness, Per cent Lost time injury (LTI) rate 2012 2011 2010 2009 5 485 5 505 5 496 5 675 6,4 6,7 6,8 7,1 9,6 11,9 12,7 13,5 1.Give the owners the best possible price for their milk and an organisation with the power to continue doing this in the future. 2. We will be an attractive employer by: – giving the employees both professional and personal development opportunities – ensuring that employees feel they are treated respectfully and fairly. 3. Give customers and consumers value for money. 4. Give society a company that creates growth in food production. Key figures The TINE Group Revenues Operating profit Net profit margin 2012 2011 2010 2009 NOK million 19 769 19 387 18 834 18 712 NOK million 934 1 176 1 189 911 4.7 6.1 6.3 4.9 762 1 095 1 085 848 Operating profit/revenue in per cent NOK million Profit before tax Net profit for the year NOK million 669 937 910 674 Assets NOK million 13 700 12 957 11 352 9 999 Equity ratio Equity/total capital as a per cent Net interest-bearing debt/EBITDA 40.8 41.3 44.6 46.3 2.28 1.54 0.92 0.86 Investments NOK million 1 843 2 365 1 766 1 040 Working capital NOK million 1 202 1 627 1 741 1 457 CONSUMPTION PER CAPITA Source: melk.no/january 2013 KG/LITRE 17,6 9,8 91,6 KG/LITRE 10,4 TineMelk from farms in your region. February A new brown cheese for the whole family, Millom, Go’Morgen Yoghurt with a Greek twist and two new flavours of YT were a few of the new products. March Norvegia received the Nielsen Brand Strength Award 2012. According to the jury, Norvegia was «the most important contributor to growth in its category with very good development in both value and volume». April Sold ownership interest in Salmon Brands. The decision was made to remove 90 per cent of palm oil from TINE’s products in 2012, and the remainder in 2013. May The Minister of Agriculture and Food opened TINE Meieriet Jæren – the largest dairy in Norway and one of Europe’s most modern. Distribution became a separate business unit in TINE. 800 YT-sponsored runners from TINE participated in the Holmenkollen Relay, «spring’s most beautiful adventure». June TINE’s subsidiary in the US, Nor- August New operations organisation implemented. The division into regions ended and was replaced by five function areas. The owner organisation and TINE Rådgiving (advisory service) and Medlem (membership organisations) are still organised as regions. TINE was awarded the «Grocery Supplier of the Year» award during Dagligvaredagen (Grocery Day) in Ålesund. Ice cream/LITRE 3,2 Yoghurt/KG Incl. import Highlights from the past year January Regional milk was launched, 13,0 Cheese/KG White, brown, imported and processed cheese Cream/sour cream/KG Butter/KG Incl. mixed products COW’S AND GOAT’S MILK DELIVERED TO TINE MILLION LITRES September TINE entered into a transport agreement with Hansa Borg Bryggerier (brewery) for parts of the country. The new milk – TINE Styrk – was launched. TINE Styrk contains 50 per cent more protein, 50 per cent more calcium, extra vitamin D and is fat-free, with a shelf life of 30 days. October TINE awarded Osteprisen (cheese award) for 2012 to De Historiske Hotel & Spisesteder (historic hotels & restaurants). The citation for the award cited the chains’ efforts to provide customers with a valuable added experience through their role as passionate ambassadors for Norwegian and local foods. TINE opened its own pavilion for specialty dairy products, Melkerampa, at Mathallen in Oslo. seland Inc., bought Alpine Cheese Co. – the dairy which produces Jarlsberg. The Red Cross and TINE signed a new partnership agreement on Galdhøpiggen. The agreement has a duration of five years. November TINE purchased butter import quotas for a total of 400 tonnes. TINE received 54 special awards and medals from the Danish International Food Contest in Herning. July TINE and Sprett renewed their December Total butter production sponsorship agreement with the Kristiansand Zoo and Amusement Park and organised activities for children and families. in 2012 ended at 14.8 million kg. The total growth was 1.7 million kg, or 13 per cent, compared with 2011. 1453,9 Cow’s milk 19,4 Goat’s milk Contents CEO Annual report from the Board of Directors Financial statement Auditor’s Report Subsidiaries in the TINE Group Contact information 2 4 20 49 50 52 TINE ANNUAL REPORT 2012 | 1 TINE ANNUAL REPORT 2012 Common sense is the way to the future Never before has TINE been better poised to provide Norwegian consumers with milk of the highest quality The propotion of dairy farmers who delivered elite milk to TINE has never been higher than it was in 2012. This is the highest quality rating Norwegian dairy farmers can achieve for their milk supply deliveries. This means that the milk, according to objective criteria, is considered to have outstanding quality, even on an international scale. Dairy farmers who deliver elite milk for 15 consecutive years are awarded a Sølvtine (silver food container). This year, more than 100 of the farmers who deliver to TINE received such an award. Over the last five years, nearly 500 farmers have received TINE’s highest award. The farmers and cows actually have to repeat this achivement, every day, year round, for 15 years in order to qualify for such an award. I think few of us understand what it takes to win such an award. There is an average of 20 cows in a typical Norwegian herd. The operation is biological, complex and multi-faceted, and there are many elements of uncertainty. The margin of error is minimal. I believe this is a marathon performance that can be compared with walking up to Holmenkollen ski jump and jumping to the bottom of the hill with three 19.5 style scores, every day. The fact that as much as about 1.473 billion litres of the milk (cow/ goat) delivered to TINE from more than 10 000 small and large farms throughout the country, maintains this quality, is not a matter of course. This is the result of painstaking, long-term work by farmers, as well as TINE’s advisory services. Such a tour de force requires particularly good operations and consummate professional skills from milk farmers. This constitutes an obligation for us in the industry. There are no shortcuts to ensure that this quality follows TINE’s brands all the way to Norwegian tables. Making sure that TINE delivers brands of the highest quality that satisfy the consumer’s expectations and which contribute to growth and profitability for our customers, is job number one. And we have to do it every single day. TINE’s brands will maintain the highest quality. 2 | TINE ANNUAL REPORT 2012 Ceo «making sure that tine delivers brands of the highest quality that satisfy the consumer’s expectations and which contribute to growth and profitability for our customers, is job number one» TINE is currently making big changes in order to satisfy both the customers’ and consumers’ requirements across multiple dimensions. In 2012, we renewed our technological platform at several dairies in order to become more efficient. This improves our ability to compete and requires even sharper market focus. Through consumer insight and innovation, we will develop new brands to meet trends and consumer needs. This winter we have seen that consumers in Europe, and perhaps also in Norway, have encountered products in the frozen-goods section whose content did not match their declarations. As a brand supplier, high quality and trust are our most important criteria for succeeding in tough competition. I am confident that, in the future, Norwegian consumers will request even more information about the products they buy and how they are produced. Both we suppliers and the grocery retailers will experience this increased demand, and TINE is eager to contribute. starts with the farmer in the field and ends in the supermarket. It actually stretches even further, for example with the workout food product YT, where the consumer also gains access to TINE’s nutritional knowledge before, during and after their workout. Information about production and applications adds value to TINE’s brands. This is a benefit for the Norwegian consumer. We can provide this because we take responsibility for the entire value chain and because we have consumer insight and expertise in every single product category we deliver to consumers. This type of branding is hard to emulate and builds trust. TINE’s future competitiveness depends on our success in providing our customers with growth and profitability. TINE’s portfolio includes some of Norway’s leading brands and maintains a strong position in the large dairy-based product categories. Our goal is to drive half of the growth in the categories where we have a presence. We largely succeeded with this in 2012 – and we will increase these efforts in 2013 – and beyond. Many of us, not only within food and drink, have much to learn from Norwegian dairy farmers. Hard work over time with a purpose will yield results. TINE is using this lesson when we convert pride, knowledge and skills into top-quality brands, made with what just might be the world’s finest raw material – real, natural Norwegian milk. Hanne refsHolt Consumers must have confidence in TINE’s brands. Our value chain Ceo TINE ANNUAL REPORT 2012 | 3 TINE ANNUAL REPORT 2012 Annual report from the Board of Directors • Result in line with expectations • Operations and the result are characterised by the start-up of new facilities • Good growth for white cheese and cooking ingredients • Decline in milk consumption • Challenging fat balance • New plant structure TINE’s objectives and strategy TINE is a food manufacturing group that processes clean and natural raw materials into good, healthy food. The parent company TINE SA is a cooperative society owned by Norwegian milk producers. The goal is to provide the owners with the best possible milk price. TINE works in a goal-oriented fashion to deliver according to customers’ and consumers’ needs, and working for TINE should be attractive. TINE aims to be a leading supplier of food and drink brands with a focus on dairy products. This involves an obligation to deliver products with the right and stable quality every single time. Our products will be available to the consumer wherever he or she may be and in the form the consumer wants. Furthermore, TINE will be characterised by safe food, a high ethical standard and focus on reducing its environmental impact. TINE’s business consists of TINE’s Domestic dairy operations, TINE’s International dairy operations and Other activities. Purchase and resale of the raw material milk is organised in TINE Råvare (Milk Supplies), a department which is separate from TINE SA both administratively and as regards accounting. TINE’s primary market is Norway, but the group is also growing internationally. TINE has operations throughout Norway with headquarters in Oslo. Most of our international operations are based in the US, Sweden and the UK. Our international subsidiaries are located in the US, Sweden and the UK. Result TINE’s 2012 result is characterised by strong sales development in cheese and dairy-based cooking ingredients such as cream, sour cream and butter, continued decline in the sale of fresh milk and costs associated with starting up new facilities. The TINE Group can show revenues of NOK 19.8 billion, an increase of NOK 382 million, which corresponds to a 2.0 per cent increase from 2011. The operating profit was NOK 934 million, a decline of NOK 242 million from 2011. 4 | TINE ANNUAL REPORT 2012 aNNUAL REPORT FROM THE BOARD OF DIRECTORS 2012 TINE is commissioning a new dairy at Jæren in the first half of 2013, as well as expanding its plants in Oslo, Trondheim and Verdal. The investments will provide a basis for future growth and improved efficiency. In 2012, costs have been higher than anticipated, mainly as a result of commissioning new warehouses in Oslo and at Tunga, as well as operation of both new and old dairies at Jæren. In line with starting up the new dairies, depreciation has increased by NOK 118 million, whereas increased pension costs have reduced the operating profit by NOK 185 million compared with last year. Operating income per business segment NOK MILLION 2012 2011 TINE's domestic dairy operations TINE's international dairy operations Other business activities 783 1 102 35 (19) 141 76 Group eliminations (25) 18 TINE Group 934 1 176 * In the first quarter of 2012, TINE sold its majority stake in Salmon Brands AS to the other owner of the company, Bremnes Seashore AS. Salmon Brands is the company behind SALMA. The sale yielded book gains. The Company has since changed it’s name to Alpine Dairy LLC. Operations in Alpine Cheese Co.* were purchased in the summer of 2012 in order to ensure stable deliveries and a basis for future growth in the sale of Jarlsberg in the US market. For the year as a whole, the accounts have been credited with a net of NOK 84 million in non-recurring items which consist of gains from the sale of Salmon Brands AS and the sale of decommissioned dairies, with deductions for reorganisation costs and depreciation of fixed assets. Correspondingly, the accounts for 2011 were charged a net of NOK 81 million in non-recurring items. TINE’s domestic dairy operations TINE is a leading supplier of brands in Norway and has more than 1300 product lines in its portfolio. These are produced at 36 dairies spread across the country. Furthermore, TINE has two central warehouses and three distribution terminals. TINE processed a total of 1.25 billion litres of cows’ and goats’ milk in 2012 (1.21 billion litres in 2011). The largest product groups were liquid products with 474 million litres, (483 million litres in 2011) and cheese with 76 400 tonnes (67 700 tonnes in 2011). Revenues in TINE’s domestic dairy operations for 2012 were NOK 16.4 billion, an increase of 1.0 per cent. Over the last year, TINE has seen good development in several of its established and new products, and the development in cheese and dairy-based cooking ingredients categories has been particularly strong. The sale of fresh milk, however, continued its decline in 2012, but somewhat less sharply than in the preceding year. The operating income for TINE’s Domestic dairy operations was NOK 783 million, a reduction of NOK 319 million from 2011. In 2012, there has been growth in sales to grocery retailers, whereas the institutional segment has been characterised by increased competition. The profit is also negatively influenced by increased operating costs and depreciation as a result of starting up and commissioning new dairies. There have also been challenges associated with product quality and delivery ratios for certain product lines, particularly in connection with start-up and conversion measures in production. In 2012, pension costs have increased as a result of decline in long-term interest rate levels, as well as the stock markets in the autumn of 2011. The most important product areas for TINE’s Domestic dairy operations are fresh milk, white cheese and cooking ingredients. Yoghurt has also become an increasingly important category. We therefore have a strong focus on efforts to create growth in these areas. At the same time, it is important to keep developing other product segments in order to satisfy the consumers’ expectation of a broad assortment of dairy-related products. Challenging fat balance In the autumn of 2011, TINE discovered that the supply of milk raw materials was lower than expected. This was due to e.g. poor feed quality as a result of a rainy summer, which also led to a lower-thannormal fat content in the milk. This coincided with an increase in demand for fatty products. Towards the end of 2011, TINE could thus not meet the market’s rising demand for butter, a situation which continued into the first quarter of 2012. The butter supply situation is challenging, both on the short and long term. Demand for products that «produce» fat is declining, while the demand for products that «require» fat is growing. This is a trend that has developed over time and will most likely continue in the years ahead. In the short term, increased dairy production from farmers, imports of butter and a reduction in the level of fat in various dairy products have contributed to an improved ability to deliver butter. One important measure is to stimulate increased fat content in the TINE ANNUAL REPORT 2012 | 5 raw material, milk. Research and development processes are also underway with a view towards utilising the milk’s other components in a more profitable manner than today. Robust growth in the sale of white cheese, decline in milk consumption Cheese consumption continued to grow in 2012 1) and several new suppliers of cheese have established themselves in Norway in recent years, including efforts by retailers. TINE strengthened its category share and we are particularly happy to see the positive development in the major brands such as Norvegia, Jarlsberg and TINE Revet ost (grated cheese) 2). The launch of new variants has also provided positive contributions. The consumption of milk per capita in Norway continued its decline in 2012 and, since 2000, the decline has amounted to about 18.5 per cent, whereas the decline from 2011 to 2012 was 2.1 percent 3). The consumption pattern has undergone significant changes where fresh milk is no longer as important as before and the spectrum of other healthy drinks has been greatly expanded. TINE is also experiencing increasing competition in the sweet milk segment, which further contributed to the decline in volume for TINE in 2012 4). Measured in volume, the decline in sales of other milkbased drinks in supermarkets also continued in 2012 4). Flavoured and cultured milk as a whole also declined somewhat, whereas TINE experienced a somewhat minor decline in these segments. Continued solid growth in cooking ingredients, lower growth in yoghurt 2012 was yet another positive year for dairy-based cooking ingredients such as cream, sour cream and butter. Increased demand for natural raw materials and a desire to make food from scratch, have a positive effect on the sale of all of TINE’s cooking ingredients. In addition, new launches such as cottage cheese have contributed positively to the strong development. Yoghurt sales in Norway continue to grow, but at a somewhat lower rate than in previous years. The growth is primarily driven by a high pace of new launches and innovation in the category. Competition in the Norwegian market has picked up and there are currently several suppliers of yoghurt, including large foreign players. In 2012, the sales development for TINE’s yoghurts has been weaker than for the category in general in Norwegian grocery retailers 5). Organic dairy products TINE wants to offer a wide range of organic dairy products and secure profitable and sustainable production. TINE introduced organic school milk and relaunched TINE Økologisk Lettmelk (organic low-fat milk) in new packaging in 2012. The demand for organic dairy products is substantially lower than the current production of organic milk. TINE has therefore temporarily stopped entering into new agreements for deliveries of organic milk. TINE is working in line with the authorities’ goals to increase the consumption of organic products. TINE therefore wants to increase the degree of consumption of organic milk from the current 38 per cent to 70 per cent by 2015, and its long-term goal is for six per cent of the milk it receives from farms to be organic. 6 | TINE ANNUAL REPORT 2012 Increased focus on goats’ milk products Goat husbandry in Norway helps preserve the cultural landscape and is part of Norwegian cultural heritage. This form of operation provides a basis for concepts and products in line with the trend favouring Norwegian and local culinary traditions. The supply of goats’ milk still outweighs the demand for goats’ milk-based products. The brown cheeses are TINE’s most important goat products and about 75 per cent of goats’ milk is used to produce the different brown cheeses. The brown cheese segment has declined over the last 10-15 years. TINE is working on various alternatives in order to reach its goal of profitable utilisation of a greater share of goats’ milk in TINE. The focus is on revamping brown cheese, increased efforts on Snøfrisk cream cheese and strengthened focus on specialty products originating from goats. Through the «Healthier goats» project, the authorities and TINE cooperate on improving animal health in Norwegian goat husbandry. The main project is expected to be completed over the course of 2014. A significant effort has also been undertaken in order to improve goats’ milk quality through feed and breeding. Structural changes and streamlining In order to be as well-prepared as possible to meet future competition, TINE carries out continuous efficiency improvements and streamlining programs. 2012 has been characterised by readjustments, with e.g. demanding and complex start-up of new production facilities as well as implementation of a new operations organisation. The market in which TINE operates is undergoing significant change and this requires TINE to adjust its activities and organisation in order to ensure efficiency and competitiveness. The new operations organisation was established by replacing the regional units with the function areas raw materials handling, solid products, liquid products, specialty products and distribution. There have been challenges at the new dairy at Jæren throughout 2012. The start-up period has lasted longer than anticipated and product quality has, at times, not been satisfactory. This has resulted in greater shrinkage costs than budgeted, as only goods that maintain brand quality are brought to market. Over the course of the year, the production of butter and margarine has reached the anticipated level, whereas the production of white cheese and whey protein powder was still in the commissioning phase at the end of 2012. Production at the Nærbø and Voll dairies was maintained in order to cover demand in the market. The dairies at Kleppe and Vikeså were decommissioned over the course of 2012. Production at Nærbø and Voll is expected to be decommissioned over the course of 2013. As a consequence of changes in the production of fresh foods in Eastern Norway and the production structure for consumer milk between Bergen and Trondheim, the distribution terminal at Mysen and the dairy at Høgset in Møre og Romsdal county were decommissioned in 2012. The dairies in Sarpsborg, Odal and at Fossheim in Valdres are scheduled for decommissioning during the period leading up to the end of 2014. aNNUAL REPORT FROM THE BOARD OF DIRECTORS 2012 Parts of the new distribution warehouse in Oslo were utilised in the first half of 2012, which signalled a comprehensive restructuring of operations and goods supply in TINE. The plan is for the new facility to be phased in gradually and full operation cannot be expected until the three facilities at Sarpsborg, Odal and Fossheim have been decommissioned. Start-up of the new distribution facility has been challenging at times, with a demanding technological integration of automatic storage, which on certain occasions has led to delayed transport and delivery of goods. Measures have been implemented to reduce the risk of new operational disturbances. Upgrades at the dairy in Verdal, including e.g. establishment of a new churnery were finalised in 2011, whereas the new plant for production of whey protein powder started up toward the end of 2012. Brand export and sales from TINE’s international dairy operations FIGURES IN TONNES BRAND EXPORTTOTAL SALES* 2012 2011 2012 2011 US 6 481 6 440 18 449 17 604 Australia 1 889 1 772 2 116 2 092 Canada 1 436 1 415 1 650 1 594 UK 716 859 7 043 6 934 Sweden/Denmark 476 727 13 294 12 775 Other markets Total 924 864 1 394 1 448 11 922 12 077 43 946 42 447 * Brand export consists of sales out of Norway and total sales are sales to the consumer/end market of all brands in volume. TINE’s international dairy operations TINE has subsidiaries in Sweden, Denmark, the UK and the US, and the turnover is mainly based on the sale of Norwegian and international brands of cheese. Total operating revenues for TINE’s international dairy operations amounted to approxemately ten per cent of the TINE Group’s turnover in 2012. Of the total volume of cheese sold abroad, approxemately 30 percent was produced from Norwegian milk. In order to ensure increased sales and the opportunity to increase production of Jarlsberg in the US, TINE purchased the activities of the US company Alpine Cheese Co. in 2012 6). Jarlsberg is currently TINE’s largest brand on the international market, with separate production in Norway and the US, as well as franchise production in Ireland. Processing, ageing and packing of cheese also takes place at TINE’s dairies in the UK and Sweden. TINE’s goal is for a greater share of TINE’s turnover to come from dairy operations and sales of specialty cheeses outside Norway. In 2012, TINE’s international dairy operations had revenues of NOK 2.0 billion, a growth of 9.2 per cent from 2011. Adjusted for changes in currency exchange rates, the growth was 6.9 per cent. The operating profit in 2012 was NOK 35 million, an improvement of NOK 54 million from a weak profit in 2011. The sale of Jarlsberg wheels in the US market reached record levels in 2012, in spite of stiff competition. Jarlsberg further strengthened its market position in the US in 2012. The UK business developed well in 2012, after several cost-reducing measures were implemented following the negative result in 2011. The sale of Jarlsberg was at approximately the same level as in 2011. In Sweden and Denmark, the good development continued in 2012, e.g. due to marketing campaigns for Jarlsberg associated with relaunching the Jarlsberg wheel. The result is increased brand familiarity and positive sales development. Other exports of TINE products, primarily Jarlsberg, take place through subsidiaries and independent partners in countries such as Canada, Australia, Russia and Germany. Source: melk.no. The total per-capita consumption of cheese increased by 0.37 % from 2011 to 2012. 2 Source: Nielsen , ref no. 20130122-CLK, Nielsen ScanTrack, Groceries, T. TINE SA, T. Norvegia, T. Jarlsberg, T. TINE Revet ost (grated cheese), T. Brunoster (brown cheeses), T. Snøfrisk, Sales in value (NOK 1000) and volume (1000), share of value, value and volume change in % previous year, value and volume change in % previous year. 2011 and 2012. TINE SA increased its percentage in volume from 61.7 % in 2011 to 62.5 % in 2012 and correspondingly in value from 64.5 % to 65.9 %. Norvegia increased in value from 27.7 % in share of volume to 27.8 %, whereas the share of value increased from 24.8 % to 25.2 %. Jarlsberg increased its percentage from 7.4 % in volume to 7.9 % and for value from 8.3 % to 8.7 %. TINE Revet ost increased from a volume share of 3.1 % to 3.6 % and in value share from 3.8 % to 4.2 %. 3 Source: melk.no. The figures show total per-capita consumption of milk. The overall volume decline was 0.69 %. The decline in non-flavoured fresh milk alone was 14.3 % from the year 2000 to 2012. 4 Source: Nielsen , ref no. 20130122, Nielsen ScanTrack, Groceries, T. TINE SA, T. other milk prod., T. Flavoured milk prod., T. Cultured milk, T. TINE flavoured milk prod., T. TINE cultured milk, T. TINE milk sweet, TINE fresh milk, TINE cultured milk, Sales in value (NOK 1000) and volume (1000), value and volume change in % previous year, value and volume change in figures previous year, value share. 2011 and 2012. TINE’s volume decline in fresh milk was -2 % from 2011 to 2012. The decline in volume for TINE’s other milk-based products was -0.5 %, whereas flavoured and cultured declined by 0.3 % and 0.6 %, respectively. The overall flavoured market declined by -0.4 %, whereas cultured declined by -2.2 %. 5 Source: Nielsen , ref no. 20130122-CLK, Nielsen ScanTrack, Groceries, T. SA and T. Yoghurt (NOK 1000), volume (1000), value and volume change in % previous year, value and volume change in % previous year. 2011 and 2012. The overall yoghurt category increased by 2.2 % in volume, whereas TINE lost 0.5 %. 6 The company has now changed its name to Alpine Dairy LLC. 1 TINE ANNUAL REPORT 2012 | 7 SALES REVENUES FROM CONVENIENCE PRODUCTS les of certain Sunniva products have declined somewhat in 2012, although the total juice category has increased. With good growth in ice tea and fruit drinks, the turnover has nevertheless increased somewhat. The competitive situation in juice did squeeze the margins a bit and the operating income was somewhat weaker than in 2011. PER SEGMENT TINE GROUP (MNOK) 2012 627 926 1160 142 Ice cream and desserts Other products Convenience food Juice, fruit drinks and water 8083 Liquid dairy products Margarines and fresh convenience products are growing TINE owns 51 per cent of Fjordland AS, a brand company that drives the development, marketing and sale of fresh convenience food, margarines, yoghurt and desserts in the Norwegian market. Positive sales development contributed to an improvement in operating income for 2012. Fjordland has strong focus on product development and consumer communication in order to meet increasingly tough competition. Finances and capital structure Financial result and tax 7360 Solid dairy products Other activities TINE’s Other activities includes production and sale of food products such as ice cream and frozen desserts, juice and fruit-based drinks, margarines and fresh convenience products. The activities mainly take place in the wholly and partly owned subsidiaries FellesJuice AS, Diplom-Is AS and Fjordland AS. In 2012, TINE sold its ownership interest in Salmon Brands AS to Bremnes Seashore AS. The revenues in Other activities ended at NOK 3.2 billion, which is NOK 16 million lower than in 2011. The reduction is due to the sale of Salmon Brands. The operating income for Other activities was NOK 141 million, an improvement of NOK 65 million from 2011. Net financial items for 2012 increased from a loss of NOK 81 million in 2011 to a loss of NOK 172 million in 2012. The net interest cost for the large structural projects was capitalised in the construction period leading up to commissioning of facilities in 2012. This explains NOK 48 million of the increase in net interest costs, whereas continued increase in net interest-bearing debt explains the rest of the increase in net interest cost. The increase in net interestbearing debt is mainly associated with the structural investments. The result from associated companies increased from NOK 2 million in 2011 to NOK 13 million in 2012. The main reason for the increase is the gains from the sale of Wernersson Ost’s percentage in Skånemejerier Storhushåll AB and improved profit in Skala AS (previously Landteknikk AS). TINE uses currency hedging for parts of factor input imports, mainly purchases in EUR, as well as part of the currency revenues, mainly denominated in USD. In 2011, this resulted in a net currency gain of NOK 7 million, while in 2012, it resulted in a currency loss of NOK 7 million. Tax costs for 2012 were NOK 93 million. The effective tax rate was reduced from 14.5 per cent in 2011 to 12.2 per cent in 2012. Ice cream and frozen desserts were affected by the poor summer Diplom-Is AS is a wholly-owned subsidiary of TINE which produces and markets ice cream and frozen desserts. The company is the category leader in Norway. A wet and cold summer resulted in somewhat lower growth than anticipated in the Norwegian ice cream market, which is also the case for the turnover in Diplom-Is. Continued focus on structural changes in distribution, the improvement program in production and good new product launches under familiar brands have had a positive effect on profit. Lower sales, higher pension costs and costs for reorganisation and gains from the sale of fixed assets in 2011, however, led to an overall reduction in operating income for 2012. Juice and fruit-based drinks in a tough market FellesJuice AS is a wholly-owned subsidiary of TINE which sells juice and fruit-based drinks. Its most familiar brand is Sunniva. Sa- 8 | TINE ANNUAL REPORT 2012 TINE’s profit before tax amounted to NOK 669 million, a reduction of NOK 268 million from 2011. Balance sheet As of 31 December 2012, TINE’s balance sheet showed NOK 13.7 billion, an increase of NOK 743 million from the end of 2011. TINE is in the process of completing the large investments associated with production and distribution. Overall, TINE made new investments totalling NOK 1.8 billion in 2012. Work on financing these investments has been underway throughout the year and a new 12-year loan was taken out in 2012 from the Nordic Investment Bank totalling NOK 600 million, in addition to a new bond issue amounting to NOK 600 million, with a term of five years. aNNUAL REPORT FROM THE BOARD OF DIRECTORS 2012 Cash flow Net cash flow from operations contributed NOK 1202 million, a reduction of NOK 425 million from 2011. The decline was mainly due to reduced trade and other payables, lower profit before tax costs and increased inventories. Net cash flow to investment activities was NOK 1638 million, a reduction of NOK 656 million from 2011. The reduction was due to lower disbursements in the previously mentioned investment programme than in 2011. Disbursed subsequent payments and loans to the owners in 2012 totalled NOK 606 million, an increase of NOK 72 million compared with 2011. In sum, this entailed that net interest-bearing debt (interest-bearing debt reduced for bank deposits, cash and money market funds) increased by NOK 1074 million from the end of 2011 to NOK 4067 million. Estimates and going concern The assessments made in the consolidated and company accounts for 2012 are based on the expectations for future earnings and business structure that existed at the time when the financial statements were submitted. If these expectations change, the value estimates and assessments may also have to be changed. No events have occurred after the end of the accounting year that are of significance for evaluating TINE SA or TINE beyond what is stated in the annual accounts with associated notes. The group board confirms that the financial statements have been prepared on the basis of the going concern assumption, and that the conditions for this are in place. assets through our pension fund MP Pensjon. The assets in the pension fund are invested in shares and bonds, and our accounts are therefore also exposed to risk linked to fluctuations in the share and bond markets. A minor increase in pension costs is expected in 2013, compared with 2012. TINE’s customers are wholesalers and individual customers in all customer segments. Their financial capacity is regarded as good, which is apparent from the low level of losses on receivables over many years. TINE actively monitors the credit limits of all its customers. In addition, all new customers are subject to a credit check. TINE has not found it necessary to insure against losses from its outstanding receivables. TINE’s liquidity is considered to be good. Overall, TINE’s financial risk is considered moderate. Allocation of net profit for 2012 The investment programme associated with the new plant structure which TINE has been working on for a couple of years is expected to be completed in 2013. The group’s tied-up capital is therefore also expected to increase in 2013, albeit somewhat less than in recent years. In 2010, the group board approved a subsequent payment policy where the goal was for between 50 and 65 per cent of the group’s net profit to be allocated for subsequent payment to the owners. The annual allocation should be affected by the level of coming years’ investments, but the goal of at least 40 per cent equity should have priority ahead of the subsequent payment policy. As regards 2012, 57 per cent of the group’s net profit has been allocated for subsequent payment to the owners. Financial risk in 2013 and beyond TINE’s financial risk is related to uncertainty regarding changes in interest rates, exchange rates, share prices and liquidity. Our objective is to minimise financial risk and thus contribute to stability and predictability in TINE’s financial expenses over time. A financial policy has been prepared for TINE that provides guidelines for how this type of risk must be handled. TINE SA handles this task on behalf of the entire group. This provides an overall subsequent payment of NOK 0.26 per litre of received milk. The parent company TINE SA’s annual profit shows a surplus of NOK 654 million. On the basis of the above, the group board proposes the following allocations (NOK million): TINE is exposed to changes in exchange rates, particularly vis-à-vis the EUR, USD, SEK and GBP. Through its international activities, TINE receives net payments in USD, while import of various factor inputs and purchase of machines and equipment entails net disbursements in EUR. Increased international activity with sales across national borders contributes to increasing this exposure. However, TINE SA has entered into forward contracts and other agreements in order to reduce the group’s currency risk. The value of assets in SEK, USD and GBP is hedged against currency risk. TINE’s exposure to changes in the interest rate level has increased in 2012 as a result of an increase in the group’s interest-bearing debt. To minimise this exposure, the group’s debt consists of a combination of loans with floating and fixed interest rates and/ or fixed-rate hedging. TINE SA manages the group’s interest risk through the use of various interest rate hedging instruments. NOK MILLION Subsequent payment to the owners 2012 383 Allocated to other equity 271 Total allocated amount 654 TINE Råvare (milk supplies) TINE Råvare is a separate department in TINE SA, both administratively and as regards accounting. TINE Råvare is responsible for activities associated with handling raw materials from farm coolers to a quoting point, where the milk is invoiced to the customer. The duties mainly include counselling vis-à-vis milk producers, inbound transport and inspection of the milk, settlement to producers, as well as invoicing the milk sold to the players. TINE Råvare annually prepares a separate accounting report which is submitted to the Norwegian Agricultural Authority. A credit item has been included in TINE’s accounts for pension TINE ANNUAL REPORT 2012 | 9 milk price NOK/LITRE 2012 2011 2010 2009 2008 Milk price from TINE Råvare (TINE Milk Supplies) 4.53 4.32 4.20 4.07 3.75 Subsequent payment from TINE SA 0.26 0.42 0.33 0.27 0.16 Total milk price 4.79 4.74 4.53 4.34 3.91 TARGET PRICE DEVELOPMENT PER LITRE 4,8 In 2012, TINE Råvare received 1.47 billion litres (compared with 1.43 billion litres in 2011) of cows’ and goats’ milk, of which 54 million litres were organic (51 million litres in 2011). Of the total volume, 223 million litres (compared to 219 million in 2011) was sold to external players. Deliveries of goats’ milk were on par with 2011. The target price is stipulated by the parties in the agricultural settlement. In the first half of 2012, the target price was NOK 4.73 per litre of milk. A new Agricultural Agreement was not signed in 2012. During the Storting’s processing of the Cabinet’s proposed Agricultural Agreement, the target price was increased by NOK 0.09 to NOK 4.82 per litre as of 1 July 2012. TINE Råvare has achieved the target price in its sales of milk to the players in the various agreement periods. For further information, reference is made to note 35 to the annual accounts. 4,6 Framework conditions 4,4 It is important for TINE that there are good and stable framework conditions for dairy production and dairy operations in Norway. A good dialogue with national authorities is necessary in order to take part in shaping and predicting future framework conditions. Furthermore, it is important to have insight into international processes that concern trade policy and regulations for milk and dairy products. Norwegian agriculture depends on an effective tariff protection, as the price of the milk raw materials is significantly higher in Norway than in Europe. 4,2 4,0 3,8 3,6 3,4 3,2 1.h.12 2.h.11 1.h. 11 2.h.10 1.h.10 2.h.09 1.h.09 2.h.08 1.h.08 2.h.07 1.h.07 2.h.06 1.h.06 2.h.05 1.h.05 3,0 Distribution women/men EMPLOYEES AS OF 2012 TINE SA Subsidiaries The TINE Group LEADERS WOMEN MEN TOTAL WOMEN MEN TOTAL 1627 2991 4618 52 122 174 353 514 867 25 32 57 1980 3505 5485 77 154 231 In connection with the presentation of the 2013 national budget, the government presented its proposition on import duties and tariffs for 2013. The government proposed changing the framework for import fees on cheese. This means that affected products will be liable for ad valorem duty, stated as a percentage of the product’s value, compared with the previous fixed duty rate stated in NOK per kg. The market regulation system No significant changes were made to the market scheme for milk in 2012. The competition policy instruments in the price equalisation scheme for milk were evaluated in the autumn and potential changes will be implemented over the course of 2013. Due to the difficult supply situation for butter during the autumn of 2011, the Norwegian Agricultural Authority decided to continue the reduced tariff on butter in January 2012. The market balance for milk fat was re-evaluated towards the end of the first half of 2012, which resulted in increased milk production quotas. The tariff on butter was reduced in the third and fourth quarters in order to prevent a market imbalance. Innovation, research & development Research and development is a strategically important area for TINE. The work is an important precondition for innovation and growth in TINE’s categories, and for efficient and responsible production. The competitive situation is intensifying and the market is changing, placing greater demands on innovation in order to strengthen the TINE’s competitiveness. Research results are actively included in the company’s product launches. TINE also works 10 | TINE ANNUAL REPORT 2012 aNNUAL REPORT FROM THE BOARD OF DIRECTORS 2012 to develop and implement new technology which increases utilisation of the milk’s components. The TINE Group works across the entire value chain on innovations, value development and quality assurance. TINE wants to strengthen its good and important cooperation with various research communities in Norway and is actively engaged in public policy in order to obtain external financing. TINE as a corporate citizen regarding TINE’s work on corporate social responsibility and the environment. Organisation and people One of TINE’s paramount goals is to be an attractive employer by providing employees with opportunities for both professional and personal development. Furthermore, the employees must feel that they are treated with respect and fairness. Corporate social responsibility TINE aims to create values for both owners and society at large by exercising corporate social responsibility throughout the value chain, with particular emphasis on Norwegian milk, sustainable resource utilisation and correct nutrition. TINE’s corporate social responsibility will increase the company’s competitiveness, contribute to financial value creation and support a sustainable development. The agricultural sector currently manages some of Norway’s most important natural resources. TINE takes part in this management through its activities and thus contributes to healthy and sustainable management of nature and resources. TINE depends on maintaining Norwegian dairy production in order to ensure access to good-quality raw materials. We therefore need to help ensure a clean environment and sustainable use of nature’s resources. The company will seek to minimise its use of non-renewable resources and maintain focus on recycling and optimal resource utilisation. Measures associated with sustainable resource use will, insofar as possible, be adapted to nature’s own cycle in TINE’s value chain. As a large food manufacturer, TINE will take responsibility for contributing to a healthy, varied and balanced diet for the entire population. TINE will provide a wide range of products that can satisfy the individual consumer’s nutritional needs, as well as provide good information about the products so that consumers themselves can make informed choices. Environment TINE’s impact on the external environment is primarily related to its transport activity and energy consumption in the production process. TINE’s goal is to reduce emissions of greenhouse gases by 30 per cent from the 2007 emissions level by 2020. A conversion to bioenergy and district heating in the production process as well as optimisation of transport and distribution activities including increased use of biofuels, will be important measures for TINE to reach its environmental objectives. As a result of the previous decision by the Norwegian Water Resources and Energy Directorate (NVE), the interruptible power regulations were repealed as of the summer of 2012. The grid companies can still offer interruptible power where this is appropriate. Under the current price structure, the repeal of the mentioned regulation will therefore not have a significant effect on the costs associated with heat production at our facilities. Reference is also made to www.tine.no for additional information TINE relies on motivated and enthusiastic employees with correct expertise to achieve its ambitions. Expertise development is therefore one of the company’s focus areas. TINE must expect increased competition as regards attracting labour in the years ahead. At the end of 2012, The TINE Group had 5485 employees, while TINE SA had 4618. In connection with President and CEO Hanne Refsholt being granted a leave of absence for the purpose of study from 1 September, 2011 to 31 August, 2012, deputy CEO Stein Øiom was appointed as President and CEO and Group director Stein A. Aasgaard was appointed as deputy CEO. At the same time, Kjetil Thu was appointed to group management with responsibility for operations, purchasing, raw materials and HSE. Group director Elisabeth Morthen resigned in April. Johnny Ødegaard was appointed to the position of Group director with responsibility for TINE Rådgiving (consultancy)/Members and Policy/Community contact. Two major changes were made to the operations organisation in 2012 in order to better enable TINE to meet future challenges. Effective 1 May, TINE Distribution was established as a separate function area, and effective 20 August 2012, the regional units were dissolved and replaced by the function areas raw materials handling, solid products, liquid products and specialty products. Mobility and transition TINE’s organisation is in the process of completing major transition processes as a result of the new operations organisation and changes in the dairy and plant structure. Many of the company’s employees are affected by this transition, which leads to uncertainty for the individual. TINE has therefore emphasised having a good system set up for the transitional work, as well as to ensure fair treatment of those who are in the transition. The framework for this is regulated by a separate transitional scheme whose paramount goal is to find a new permanent solution inside or outside TINE for employees who are affected by the reorganisation. Diversity TINE’s Code of Conduct directs us to reject any form of harassment or discrimination based on gender, religion, race, national or ethnic origin, cultural background, social affiliation, disability, sexual predisposition, marital status, age or political views. TINE practises equal wages between genders and this has been followed up in 2012 as well in order to ensure compliance with this principle. No significant wage differences have been identified which can be attributed to gender. The company also has an equality contact who deals with issues such as gender equality. Equality in TINE also concerns diversity and the belief that representation of TINE ANNUAL REPORT 2012 | 11 both genders, ethnic and age groups and disabled persons results in an improved ability to promote innovation and positive results. 36 per cent of TINE’s employees are women. In 2012, the percentage of women in management positions in TINE was 33, while the percentage of women in group management was 25. The percentage of women on TINE’s group board was 43 per cent. and priorities for the HSE work and to follow them up. One of the requirements TINE must abide by is the provision in the Working Environment Act concerning facilitation of physical activity for our employees. TINE is concerned with its employees’ physical and psychological well-being. The communication and interaction between management, safety delegates and employee representatives is generally good. Management and employee cooperation Absence due to illness TINE’s management must have a good, inclusive dialogue with employees and must build cooperation on the basis of respect for their role and for the agreements. TINE’s management meets with employee representatives in the group’s works council. Employee representatives are included in the group director meeting as well as in various director groups during processing of certain matters. Furthermore, TINE emphasises good interaction between management, safety delegates and employee representatives. TINE has had a steady decline in absence due to illness since 2006. Systematic work on the basis of the agreement on an inclusive working life (IA) has yielded results. Nevertheless, the absence in several units within warehouses and distribution is high. The greatest challenges are associated with the scope of physical work in cold and somewhat damp surroundings. Work is continuously underway on improvements for the physical working environment. Approximately 75 per cent of the employees in TINE SA are organised in a trade union. Through such membership, the employees have elected four representatives to the group board. In 2012, TINE’s total absence due to illness was at 6.4 per cent, which is a decline from 6.7 per cent in 2011. In 2012, absence due to illness in TINE SA was 6.7 per cent (6.9 per cent in 2011). Work accidents None of the employees in TINE’s subsidiaries in the US, the UK or Sweden are currently organised in a trade union. Ethics TINE’s Code of Conduct highlights the attitudes and conduct which TINE expects from each employee with regard to respect, integrity and loyalty. Based on our Code of Conduct, TINE has also adopted guidelines for whistle-blowing and appointed a special contact person for whistle-blowers, the notification officer. Important issues in the notification rules are non-discrimination, anti-corruption, good business ethics and the duty and right to speak up about breaches of the law and the TINE Code of Conduct. The individual employee must feel secure enough to report potential irregularities. TINE purchases goods and services where there will be various challenges associated with ethical trade. It is equally important to require principles of ethical trade in all types of purchases. For the time being, it is not realistic that imports from all countries can take place without a risk of directly or indirectly contributing to breach of international principles. However, this risk can be reduced through goal-oriented work on ethical trade. TINE is a member of the Ethical Trading Initiative Norway (IEH), and their ethical trade guidelines have been incorporated in TINE’s procurement terms. Health, safety and the environment Healthy and stable employees in a good working environment are a definite requirement if TINE is to achieve efficient production and the right quality in all parts of our value chain. The work must be organised in such a way that our employees are not exposed to harmful physical or psychological strains, and so that no one is injured or becomes ill because of their work. All TINE employees are also jointly responsible for their own and their colleagues’ safety. TINE’s vision is that lost time injuries must be reduced to zero. It is the group management’s responsibility to determine overall targets 12 | TINE ANNUAL REPORT 2012 TINEs paramount goal is zero work accidents. The decline in the number of work accidents in 2012 is positive, although the absolute level is still too high. There are significant differences between facilities, where some have seen a very positive development in recent years, while others still have too many incidents. Following internal HSE audits with focus on risks and safety, important points in instructions and routines associated with risk and risk assessment have been assessed and improved for all TINE’s dairies. Work is also underway on improving expertise in health, safety and the environment with TINE’s internal HSE audit teams, as well as senior management. Registration of near misses is an important precondition for reducing work accidents and measures have been implemented to contribute to this end. A serious incident occurred in August 2011, with fatal consequences for one of our employees at TINE Meieriet Bergen. The Hordaland County Chief of Police closed the case in 2012 and TINE was fined NOK 1 million. TINE has accepted the fine. TINE registered 97 lost-time injuries (LTI rate: 9.61) in 2012, compared with 116 registered injuries in 2011 (LTI rate: 11.9). Corporate governance At the end of 2012, TINE SA had 14 170 members affiliated with 230 member societies. Within the framework of agricultural policy and markets, TINE will seek to recoup the target price on milk, stipulated in the Agricultural Agreement. The group board emphasises that the company must be administered and managed according to good overall principles. For TINE, corporate governance concerns how TINE, through constructive dialogue, will create trust with various stakeholders as well as ensure that the group board receives sufficient information on the activities. An important part of corporate governance relates to establishing and maintaining systems and procedures that aNNUAL REPORT FROM THE BOARD OF DIRECTORS 2012 ensure compliance with statues, regulations, standards and own ethical guidelines. The Norwegian Code of Practice for Corporate Governance (NUES) stipulates principles and guidelines that contribute to clarifying responsibilities and authority in larger companies. The recommendation has been drawn up for companies that are listed in regulated markets in Norway, but the group board decided in 2010 that TINE will follow the principles of this recommendation insofar as they are suitable for TINE’s business organisation and ownership. A more detailed account of how TINE complies with the principles and NUES guidelines can be found on www.tine.no. TINE’s OWNERSHIP ORGANISATION Member organisation The regional divisions have been continued in the member organisation. The introduction of function areas in the operations organisation results in new chains of information and channels for contact between members and the administration. Contact and information between the regional boards and the administration will now take place through the individual regional managers in the member organisation. The regional managers are responsible for consultancy work vis-à-vis milk producers and contact with the member societies. Absence due to illness, staff turnover and lost time injury (LTI) rate ABSENCE DUE TO 2012 ILLNESS1 TURNOVER % LTI RATE2 9.80 TINE SA 6.71 3.56 Subsidiaries 5.13 8.62 8.71 The TINE Group 6.43 4.35 9.61 1 2 Alpine Dairy LLC is not included in the basis for absence due to illness. The number of injuries causing absence per million hours worked. Alpine Dairy LLC has been included for six months. The company was included in the TINE Group on 1 July 2012. ABSENCE DUE TO ILLNESS IN PER CENT THE TINE GROUP 2008 7,3 2009 7,1 2010 6,8 2011 The member organisation has been very active in 2012. The 2012 annual meeting approved several minor adaptations in the bylaws. For example, the control committee’s mandate was adjusted, and the rights and obligations of employee representatives in the various governing bodies have been streamlined. 6,7 2012 6,4 2 0 4 6 8 10 Future outlook As a point of departure, the food industry is not greatly affected by economic cycles and has historically experienced a relatively stable growth in demand. Over the next few years, however, a number of market and political processes could significantly impact TINE’s business. WORK ACCIDENTS LOST TIME INCIDENT (LTI) RATE * THE TINE GROUP 2008 In recent years, price differences on dairy products between the international and Norwegian market have grown. In some segments, the Norwegian prices are now attractive for foreign players and some have also established themselves in Norway. We must expect that competition will become stiffer. It is challenging for TINE to meet this competition as the company operates in a high-cost country, with demanding natural conditions for food production and transport of raw materials and finished products throughout the country. 13,5 2009 13,4 2010 12,7 2011 11,9 2012 TINE’s portfolio includes some of Norway’s leading brands and maintains a strong position in the large dairy-based product categories. Market investments have increased considerably in recent years in an effort to drive growth in TINE’s categories and secure TINE’s strong position. 9,6 0 * 2 4 6 8 10 12 14 16 he number of injuries leading to absence per million hours worked. Alpine T Dairy LLC has been included for six months. The company was included in the Group on 1 July 2012 The four major grocery retailers, which are important customers for TINE, have also established themselves as competitors in several TINE ANNUAL REPORT 2012 | 13 1 2 3 4 TINE’S OWNERSHIP ORGANISATION Member societies (230) Regional meetings (5) Annual meeting TINE SA Council Control committee Group board Regional boards TINE East, TINE South, TINE West, TINE Central Norway, TINE North of TINE’s product groups. This takes place through vertical integration, resulting in an ever-expanding range of the grocery retailers’ own private labels (PLs). TINE’s future competitiveness is affected by how TINE provides customers with growth and profitability. TINEs products shall be available throughout the country. This requires efficient logistics, particularly considering the fact that our goods require refrigeration. TINE’s transport and distribution activities are therefore a key part of our business activities. Efficiency as regards costs and the environment in distribution is necessary in order to ensure our future competitiveness. Global and national environmental challenges impact TINE’s business. New national and international environmental measures and regulations will affect both the farmers’ dairy production, as well as TINE’s industrial production, for example through increases in costs associated with energy, emissions, discharges and pollution. Businesses that succeed in reducing their emissions will thus im- 14 | TINE ANNUAL REPORT 2012 5 6 7 8 prove their competitiveness. A constantly growing global population in combination with environmental challenges could limit the opportunities for global food production. This could result in geographical changes in the world’s arable areas and increase the importance of national self-sufficiency. Large parts of TINE’s investment programme are now approaching the commissioning phase. Increased depreciation and capital expenditures as well as extensive conversion measures and commissioning will continue to have a negative impact on profits in 2013, but to a lesser degree than what has been the case in 2012. Over the long term, the investments will provide TINE with a substantial lift in the ongoing work to improve efficiency in production and distribution. However, we must expect that the efficiency gains will not fully materialise until 2014. Even though TINE has carried out significant investments in recent years, additional investments may be relevant on the dairy side. A project group has been appointed to study and suggest solutions for supplying the Western Norway region with TINE products in the future. TINE’s solid market position, combined with considerable investments, gives us a good starting point for 2013 and future growth in TINE’s core areas. annual report from tHe BoarD of DireCtors 2012 9 10 11 12 13 14 15 16 grOup BOard 1. torstein grande (Member) 9. ingunn sognnes Deputy chairman (Member) 2. Helga thorvik ulven (Member) 10. svein førde (Employee) 3. askild eggebø (Member) 11. Cecilie Bjørlo (Member) 4. lars iver wiig (Employee) 12. Hanne refsholt president and Ceo (see page 16) 5. elin aarvik (Employee) 13. nina Kolltveit sæter (Member) 6. anders Johansen (Member) 14. lars woie (Member) 7. steinar Koen (Employee) 15. anne maren wasmuth (Member) 8. trond reierstad Chairman (Member) 16. nils asle Dolmseth Chairman of the Council (Member) oslo, 18 feBruary 2013 anDers JoHansen Helga tHorviK ulven asKilD eggeBØ anne maren wasmutH nina Kolltveit sÆter torstein granDe lars iver wiig CeCilie BJØrlo lars woie elin aarviK steinar Koen svein fØrDe ingunn sognnes Deputy chairman tronD reierstaD Chairman Hanne refsHolt Ceo TINE ANNUAL REPORT 2012 | 15 1 2 3 4 5 6 7 8 Group Management 1. Jørn Spakrud Group director business analysis, accounts, finance and ICT Spakrud started working for TINE in 2008 and came from 11 years in Yara International ASA/Norsk Hydro ASA with experience from various positions within economy and finance. Before this, he spent six years working on financial auditing with Deloitte AS. Spakrud is a Master of Business and Economics and a governmentauthorised accountant from the Norwegian School of Economics and Business Administration. Spakrud is the chairman of MP Pensjon and Fjordland AS, as well as a board member in TUN Media AS. 2. Stein Øiom Deputy CEO purchasing, logistics, distribution, production (solid, specialty, liquid, raw materials handling) Øiom started his career in TINE in 1976 and has held multiple key positions within operations. From 1994 to 2002, he was the managing director of Fellesmeieriet. During the period 2002-2008, he was the managing director of TINE Meieriet East and became deputy CEO in 2008. He is also the chairman of FellesJuice AS. Øiom is trained as a dairy engineer at the Norwegian University of Life Sciences. 3. Johnny Ødegård Group director consultancy and members, policy and community contact Ødegård has worked for TINE since 2011. He came from Felleskjøpet, where he worked with industry policy. He also has experience from the Norwegian Farmers and Smallholders Union. Ødegård was trained at Norges Landbrukshøgskole (now the Norwegian University of Life Sciences) with specialisation in agricultural economy. 4. Hanne Refsholt CEO Refsholt has worked for TINE since 1988, with a short break during the period 1996-1998, as Director of Kjøttbransjens Landsforbund (National meat producer association). She started as a consultant in the TINE R&D Centre, moved on as Director of R&D from 1998-2001, and then became deputy CEO of TINE Norske Meierier. She became deputy CEO of the TINE Group as of 2002 and was appointed President and CEO in 2005. Refsholt received a Cand. Agric (master’s degree in agricultural science) from the Norwegian University of Life Sciences (UMB). She has an MBA from BI Norwegian Business School and master’ studies at HEC, Paris and SAID, Oxford. Refsholt is the chairman of the Red Cross centres and a board member of the Federation of Norwegian Agricultural Co-operatives, the Grocery Manufacturers of Norway (DLF), as well as Arcus AS. 16 | TINE ANNUAL REPORT 2012 5. Stein A. Aasgaard Group director corporate governance, HR and expertise, HSE, ingredients, export, international Aasgaard has been with TINE for a many years and has held various positions within finance and operations, for example as managing director of TINE Central Norway. Aasgaard became a Group director in 2002, when the TINE Group was established. He is educated as a dairy engineer from the Norwegian University of Life Sciences, business administration from BI, as well as an educational science exam from the Norwegian University of Science and Technology (NTNU). Aasgaard is the chairman of Norseland Inc., Norseland Ltd. and Wernersson Ost AB. He is also on the board of NHO (Confederation of Norwegian Business and Industry) Food and Agriculture. 6. John Ole Skeide Group director sales Norway Skeide came to TINE in 2009 from Orkla ASA, where he was Director of Group development. He had then served 17 years in the Orkla Group, including as Director of Peter Möller and Sales Director in Lilleborg AS. Skeide has a Master of Business and Economics degree from the Norwegian School of Economics and Business Administration (NHH), with specialisation in strategy and international finance. Skeide is the chairman of Diplom-Is AS and OsteCompagniet AS, as well as a board member of Fjordland AS and Melkerampa AS. 7. Hege Holter Brekke Group director marketing Holter Brekke started working for TINE in 2006 and came from a position as marketing director in Plantasjen ASA. Before this, she worked eight years in key positions in the Orkla Group, including as director of innovation in Nidar AS. She also has experience as a consultant from McKinsey. Holter Brekke has a Master of Business and Economics degree from BI Norwegian Business School. She is the chairman of the Information Office for Dairy Products/melk.no and Melkerampa AS, is the deputy chairman of the board of FellesJuice AS and a board member of Nille AS. 8. Eirik Selmer-Olsen Group director, R&D and CSR Selmer-Olsen started working for TINE in 1989 and has held multiple positions within the TINE R&D Centre, most recently as R&D Director from 2008. He also has a background as a consultant in Meierienes Bygningskontor. Selmer-Olsen has a Cand. Agric degree from the Norwegian University of Life Sciences and a Dr. Scient degree from the same university. His degree is specialised within resource use in the food industry. Selmer-Olsen is chairman of the Bionær programme in the Research Council of Norway, deputy chairman on the Group board of the Norwegian Institute of Food, Fisheries and Aquaculture Research (Nofima) AS, as well as a board member of Norseland Inc. and Måltidets Hus AS. aNNUAL REPORT FROM THE BOARD OF DIRECTORS 2012 TINE'S GROUP MANAGEMENT AS OF 1 JANUARY 2013 Hanne Refsholt CEO Communication Administration Stein Øiom Deputy CEO Purchasing, logistics, distribution, production (solid, specialty, liquid, raw materials handling) Hege Holter Brekke Group director Marketing Eirik Selmer-Olsen Group director R&D and CSR John Ole Skeide Group director Sales Norway Jørn Spakrud Group director Business analysis, accounts, finance and ICT Stein A. Aasgaard Group director Corporate governance, HR and expertise, HSE, ingredients, export, international Johnny Ødegård Group director Consultancy and members, policy and community contact TINE Råvare (milk supplies) as of 1 March 2013 TINE ANNUAL REPORT 2012 | 17 TINE as a corporate citizen Sustainability TINE must consider its social and environmental surroundings. If we do this right, it will strengthen TINE in an increasingly competitive situation. In general, companies should have a clear interest in acting in a socially responsible fashion. Consumers increasingly demand that goods and services be produced in a respectful and prudent manner. The media has a critical focus on how companies follow up suppliers and how the environment is safeguarded. Employees and job-seekers emphasise companies’ attitudes toward corporate social responsibility. TINE aims to be a leading supplier of food and drink brands with a focus on dairy products. We are hard at work in multiple areas in order to reach these goals. TINE must continue to innovate and use its knowledge to create new and support existing brands. Products must be produced in a safe, effective and efficient manner. TINE must also reach consumers across the country with modern, efficient transport and distribution. Three focus areas TINE’s work on corporate social responsibility is linked to the following strategically important areas: 1.Norwegian milk Presence, culinary culture and tradition 2.Sustainable resource utilisation Transport, packaging, food waste and energy 3.Correct nutrition The focus areas are the result of interviews with employees, opinion-shaping entities, organisations, students and experts. They have given clear advice as to what TINE can and should take more responsibility for. In its efforts to strengthen TINE as a food production group for the future, the company will influence its social and environmental surroundings. The environment is strained by far-reaching transport, and the production of milk and cheese requires energy for both heating and cooling. These are examples of challenges which also provide opportunities for both environmental benefits and cost reductions, if they are solved in the right way. TINE’s presence creates strong ties to the local community and contributes workplaces and activities. Such proximity creates expectations for TINE to keep contributing to development of these communities. Therefore, it is important that the company is aware of how its surroundings are affected, and not least how we can actively take responsibility for our surroundings. Transport is very important for TINE. The company aims to reduce its emissions of greenhouse gases by 30 per cent by 2020. As transport is responsible for a significant share of the emissions, TINE must do something about this. In 2011, TINE introduced biogas as fuel and followed this up in 2012 by using bioethanol as fuel. TINE is also a major consumer of packaging. Material recycling and energy recovery from packaging yields significant environmental benefits. Optimal packaging will also reduce the cost of production, contribute to more environmentally friendly transport, as well as reduce damage to the products and thus also result in less food waste. In a society where ever-increasing demands are set for efficiency and profitability, the Norwegian culinary culture and traditions could be lost. TINE has developed, produced and sold Norwegian dairy products since the last half of the 1800s. With such an important place in the lives of Norwegians, TINE’s corporate social responsibility must include Norwegian culinary culture and traditions, a responsibility which will also help strengthen TINE’s competitiveness. TINE’s corporate social responsibility reporting TINE’s reporting practice for 2012 has changed somewhat compared with last year. The printed annual report will this year primarily cover applicable statutory requirements and will only discuss TINE’s work on corporate social responsibility and the environment in general terms. GRI’s reporting principles, and that the reporting satisfies level B in accordance with the guidelines. TINE’s corporate social responsibility reporting has been certified by Deloitte and the auditor’s statement can be found in the online version of the annual report. This year, a more detailed and supplementary report concerning TINE’s corporate social responsibility can be found in the online version of the annual report, see www.tine.no The GRI table on TINE’s website contains references to where information about the individual indicators can be found, whether they have been answered in their entirety or only partially. TINE has chosen to develop its reporting regarding corporate social responsibility based on the Global Reporting Initiative’s (GRI’s) guidelines. This is the most widespread and internationally relevant standard for such reporting. TINE is of the opinion that the company’s reporting practice is principally in accordance with Do you have comments or viewpoints regarding our report on corporate social responsibility reporting or how TINE handles its corporate social responsibility? Contact Bjørn Malm via e-mail: bjorn.malm@tine.no 18 | TINE ANNUAL REPORT 2012 TINE ANNUAL REPORT 2012 Financial Statement notes note 1 Segment information note 2 Sales revenues from convenience products by geographical area note 3 Other operating income note 4 Cost of materials and changes in inventory note 5 Purchase of raw cow and goat milk from milk producers note 6 Employee benefit expenses and number of full-time equivalents note 7 Pensions and pension obligations note 8 Related parties and senior management note 9 Intangible assets and goodwill note 10 Property, plant and equipment note 11 Auditor’s remuneration note 12 Other operating expenses note 13 Income from investments in subsidiaries note 14 Investments in subsidiaries and associated companies note 15 Change in market value of market-based financial current assets note 16 Impairment of long-term financial assets note 17 Financial risk and derivatives note 18 Taxes note 19 Equity note 20 Obligations related to financial leasing note 21 Long-term receivables from Group companies note 22 Other long-term receivables note 23 Inventories note 24 Balances with associated companies note 25 Other short-term receivables note 26 Bank deposits, cash and money market securities note 27 Minority share in the balance sheet note 28 Long-term loans note 29 Short-term interest-bearing liabilities note 30 Other short-term liabilities note 31 Mortgages note 32 Transactions with related parties note 33 Loans and guarantees note 34 Outstanding accounts with the Norwegian Agricultural Authority – market regulation and subsidy schemes note 35 TINE Råvare Note 36 Business combinations and changes in ownership interests Note 37 Provisions Note 38 Other off balance sheet leaseliabilities Note 39 Environmental issues Note 40 Major individual transactions Note 41 Note 42 Government grants Discontinuation and divestment of business 20 | TINE ANNUAL REPORT 2012 TINE Annual report 2012 inncome statement Income statement Amounts in NOK 1000 THE TINE GROUP 2012 TINE SA 2011 Note 2012 2011 14 869 033 14 793 645 1 087 305 1 031 574 REVENUES AND OTHER OPERATING INCOME 1,2 Sales, convenience products 18 298 201 18 056 509 1 087 305 1 031 574 383 742 299 160 19 769 248 19 387 243 11 330 654 11 400 816 3 569 936 3 169 804 836 119 718 354 14 149 50 989 3 084 452 2 871 228 18 835 310 18 211 191 933 938 1 176 052 - - 12 644 2 376 - - 1 828 1 944 936 527 -739 -500 16 Impairment of long-term financial assets -9 949 -52 500 -179 009 -91 734 17 Net other financial income and expenses -104 550 -89 102 -6 598 7 303 -171 874 -80 611 762 064 92 950 669 114 936 922 Sales, raw materials 3 Other operating income Total revenues and other operating income 444 708 465 848 16 401 046 16 291 067 9 350 891 9 581 631 3 013 090 2 659 985 722 201 596 095 OPERATING EXPENSES 4,5 Cost of materials and changes in inventory 6,7,8 Employee benefit expenses 9,10 Depreciation and amortisation 9,10 Impairment property, plant and equipment and intangible assets 13 149 34 936 11,12 Other operating expenses 2 512 685 2 315 747 Total operating expenses 15 612 016 15 188 394 789 030 1 102 673 13 Income from investments in subsidiaries 28 837 15 577 14 Result of investments in associated companies 11 037 6 359 18 971 17 086 Operating profit FINANCIAL INCOME AND EXPENSES Interest income from Group companies 15 Change in market value of market-based financial current assets 17 Net realised and unrealised currency gain and loss 25 2 003 Total financial income and expenses -54 693 -100 050 1 095 441 Profit before tax 734 337 1 002 623 158 519 18 Total tax expense 80 417 138 425 653 920 864 198 19 Payment to milk producers -383 076 -598 878 19 Allocated to other equity -270 844 -265 320 -653 920 -864 198 1 420 13 646 Net profit for the year 15 100 8 355 19 Minority share of profits 654 014 928 567 19 Majority share of profits Allocations Total allocations Net Group contributions to subsidiaries TINE ANNUAL REPORT 2012 | 21 Balance sheet Amounts in NOK 1000 THE TINE GROUP 2012 TINE SA 2011 Note 2012 2011 ASSETS Non-current assets Intangible assets 18 Deferred tax asset 4 555 16 210 - - 87 732 92 801 9 Goodwill - - 80 111 69 942 9 Other intangible assets - - 172 398 178 953 Total intangible assets - - 3 565 103 3 494 710 3 279 909 3 270 041 4 238 986 3 375 802 7 804 089 6 870 512 Total tangible fixed assets - - - - 107 244 120 788 5 915 11 291 1 883 594 1 930 454 Tangible fixed assets 9,10 Land, buildings and other real property 10,20 Machines, fixtures and fittings and means of transport 3 882 748 3 056 681 7 162 657 6 326 722 14 Investments in subsidiaries 799 344 841 461 21 Long-term receivables from Group companies 345 970 178 596 14 Investments in associated companies 22 717 26 773 Other shares and ownership interests 5 839 8 553 1 750 969 1 817 816 Non-current financial assets 7 Pension plan assets 22,24 Other long-term receivables 18 523 24 981 2 015 276 2 087 514 Total long-term investments 9 991 763 9 136 979 Total non-current assets 1 603 887 1 471 477 23 Inventories 1 444 487 1 438 075 24 Trade receivables - - 521 434 508 304 25 Other short-term receivables 472 653 435 613 1 965 921 1 946 379 Total short-term receivables 1 900 383 2 057 676 10 872 16 718 2 935 711 2 889 917 10 098 368 9 216 639 1 220 902 1 098 988 1 182 678 1 151 409 245 052 470 654 Current assets Short-term receivables 11 991 19 004 126 128 383 271 3 707 927 3 820 131 13 699 690 12 957 110 22 | TINE ANNUAL REPORT 2012 Accounts receivable from Group companies 15 Unit trust funds and listed shares 15,26 Bank deposits, cash and money market securities Total current assets Total assets 11 991 19 004 4 770 206 354 3 138 046 3 382 022 13 236 414 12 598 661 tine annual report 2012 BalanCe sHeet Amounts in NOK 1000 tHe tine group 2012 tine sa note 2011 2012 2011 LIABILITIES AND EQUITY EQUITY paid-in equity 7 872 9 536 19 Cooperative share capital 7 872 9 536 7 872 9 536 total paid-in equity 7 872 9 536 340 000 340 000 5 202 667 4 952 720 5 542 667 5 292 720 35 386 55 380 5 585 925 5 357 636 retained earnings 19 Subsequent payment fund 19 Other equity total retained earnings 27 minority share of profits total equity 340 000 340 000 5 296 539 5 037 611 5 636 539 5 377 611 - - 5 644 411 5 387 147 59 104 73 831 LONG-TERM LIABILITIES provisions 85 140 89 282 67 360 81 425 531 041 499 790 683 541 670 497 1 975 560 1 609 722 1 209 000 880 000 257 257 3 184 817 2 489 979 3 868 358 3 160 476 7 Pension liabilities Long-term financial liabilities 57 598 72 229 18 Deferred tax liabilities 470 446 432 646 total provisions 587 148 578 706 Long-term debt to financial institutions 1 969 720 1 595 363 Bond issues 1 209 000 880 000 other long-term liabilities Other interest-bearing long-term liabilities 28 total other long-term liabilities total long-term liabilities 257 257 3 178 977 2 475 620 3 766 125 3 054 326 SHORT-TERM LIABILITIES trade and other payables 775 958 694 750 - - Short-term debt to milk producers Other short-term liabilities to Group companies 24 Trade and other payables 910 268 1 193 344 1 686 226 1 888 094 total trade and other payables 1 008 556 886 686 29 Short-term interest-bearing debt 383 076 598 878 54 551 85 695 175 135 170 460 775 958 694 750 34 933 154 673 686 785 920 523 1 497 676 1 769 946 937 346 816 606 383 076 598 878 other short-term liabilities - - 937 863 809 185 2 559 181 2 550 904 4 245 407 4 438 998 13 699 690 12 957 110 5 Allocated to subsequent payment to milk producers 18 Taxes payable Public duties payable Other short-term debt to Group companies 40 740 75 400 158 328 156 088 2 456 19 315 806 256 720 955 total other short-term liabilities 2 328 202 2 387 242 total short-term liabilities 3 825 878 4 157 188 total equity and liabilities 13 236 414 12 598 661 30 Other short-term liabilities oslo, feBruary 18, 2013 anDers JoHansen Helga tHorviK ulven asKilD eggeBØ anne maren wasmutH nina Kolltveit sÆter torstein granDe lars iver wiig CeCilie BJØrlo lars woie elin aarviK steinar Koen svein fØrDe ingunn sognnes Deputy Chairman tronD reierstaD Chairman Hanne refsHolt CEO TINE ANNUAL REPORT 2012 | 23 Cash flow Amounts in NOK 1000 THE TINE GROUP 2012 TINE SA 2011 2012 2011 734 337 1 002 623 -72 091 -82 956 Cash flows from operating activities 762 064 -91 535 1 095 441 Profit before tax -104 737 Taxes paid for the period -110 299 -17 315 Profit and loss on sale of fixed assets -26 784 -2 809 850 268 769 343 Depreciation, amortisation and impairments 735 350 631 031 -82 166 52 713 -17 822 -15 586 – 42 718 -1 607 238 -132 410 -18 644 -201 868 136 094 – 1 201 611 713 Profit and loss on sale of financial fixed assets 27 159 Unrealised change in value of financial items – Group contributions recognised, not received -282 999 Difference between pension charged as an expense and payments/disbursements in pension plans 8 734 Difference between recognised and received dividend from associated companies -584 Effect of changes in foreign currency rates and unrealised exchange gains 65 899 Changes in inventories -124 304 Change in trade receivables and other short-term receivables 154 559 Changes in accounts payable 34 715 Change in other short-term liabilities – Change in intercompany balances from operational activities 1 626 624 Net cash flow from operating activities -28 487 30 167 -20 957 -10 210 52 120 -261 666 – – – – -121 914 112 495 -63 611 -102 864 -152 530 116 215 86 601 93 585 89 004 -69 416 1 128 872 1 508 908 Cash flows to investment activities 63 606 -1 842 798 7 743 131 458 -5 207 7 012 -1 638 186 56 387 Payments from the sale of tangible fixed assets -2 364 845 Disbursements from purchase of tangible fixed assets 15 951 Change in long-term receivables 577 Payments received from the sale of financial non-current assets -4 970 Payments to acquire financial non-current assets 3 017 Payments received from the sale of financial current assets - Net cash inflow on intercompany long-term receivables -2 293 883 Net cash flow to investment activities 54 412 8 670 -1 600 605 -2 250 042 7 131 19 241 118 155 577 -10 157 -29 077 7 013 3 007 -114 329 1 374 -1 538 380 -2 246 250 1 200 000 400 000 Cash flows from financing activities 1 200 000 -507 889 166 000 – -300 000 400 000 New long-term borrowing -131 276 Repayment of long-term borrowings 400 000 Net receipts and payments of commercial paper 300 000 New short-term debt – Repayment of short-term debt -27 199 -5 133 Disbursed to minorities 255 870 64 100 Net change in bank overdraft -1 665 – -153 Net payments and disbursements of cooperative share capital – Payments received/made of net Group contributions to offset receivables -499 370 -88 215 166 000 400 000 – 300 000 -300 000 – – – 254 741 16 606 -1 665 -153 -6 097 -16 800 -533 892 -605 685 -533 892 Disbursed subsequent payment and credit to milk producers -605 685 179 432 493 646 Net cash flow from financing activities 207 924 477 546 -257 143 -173 613 Net change in bank deposits, cash and money market securities -201 584 -259 796 383 271 556 884 Bank deposits, cash in hand and money market securities at 1 January 206 354 466 150 126 128 383 271 Bank deposits, cash in hand and money market securities at 31 December 4 770 206 354 24 | TINE ANNUAL REPORT 2012 TINE Annual report 2012 statement of cash flows Accounting principles ACCOUNTING PRINCIPLES Operating expenses ACCOUNTING PRINCIPLES The annual accounts are prepared in accordance with the Accounting Act and generally accepted accounting principles in Norway. Costs are recognised in the income statement in accordance with the matching principle. Main rule for classification of assets and liabilities Consolidation The TINE Group accounts present the overall financial position, the result of the year’s activity and cash flows for the parent company, TINE SA, and the subsidiaries. The subsidiaries include the companies where TINE SA directly or indirectly has a controlling influence. Initially, controlling influence is regarded as being present when there is direct or indirect ownership of more than 50 % of the voting capital. Uniform accounting principles are applied to all companies in the TINE Group. All transactions between group companies, outstanding accounts and unrealised group internal gains are eliminated in the Group accounts. Shares in subsidiaries are included in the Group accounts according to the acquisition method. The difference between the cost price of the shares and book value of net assets at the time of acquisition is analysed and allocated to the relevant items in the balance sheet according to fair value. Cost price that exceeds the fair value of net identifiable assets is capitalised as goodwill and amortised in the income statement in accordance with the underlying circumstances and expected economic life. For acquisitions, nominal tax rates are applied to excess value, excluding goodwill. The minority share is included in the Group equity. Changed ownership interests in subsidiaries are treated as equity transactions in the Group and there is thus no gain or loss in the Group accounts. Associated companies are companies where the Group has significant influence, but not control, and where the interest is of a long-term strategic nature. Significant influence is normally present when the Group has an ownership interest of between 20 % and 50 %. Associated companies are included according to the equity method in the Group accounts. Cost prices that exceed the acquired share of book equity are recognised in the balance sheet as excess value and are amortised in accordance with the underlying circumstances and expected economic life. The Group’s share of the result in associated companies is based on the result after tax in the associated company with the deduction of any depreciation on excess values, as well as gains and losses on realisation of interests. In the income statement, the share of the result in associated companies is presented as part of the financial result. In the balance sheet, interests in associated companies are classified as long-term investments. The share of the loss in associated companies is not recognised in the income statement if this entails that the value of the investment recognised in the balance sheet is negative, unless the Group has undertaken an obligation or provided guarantees for the associated company. In the case of recognition of investments in subsidiaries and associated companies where the annual accounts are presented in foreign currency, the items in the balance sheet are converted to Norwegian kroner using the exchange rate on the balance sheet date. The income statement items are converted to Norwegian kroner using the average exchange rate for the accounting year. The conversion difference which arises when the Company’s opening equity and the result for the year are converted at a different exchange rate than the closing equity is recognised in the Group’s equity. Revenues and other income Operating revenues are measured at fair value of the compensation, net after deductions for value added tax, returns, rebates and other public fees. Revenues from sale of goods are recognised in the accounts when the products are delivered to the customer and there are no unsatisfied liabilities to affect the customer’s acceptance of the delivery. Delivery is not made until the products have been sent to the agreed location and risk of loss and obsoleteness has been transferred to the customer. Individual assessments based on agreements are used as a basis for estimating and accounting for provisions for volume discounts and returns at the time of sale. Services are recognised as income as and when they are provided. Assets intended for permanent ownership or use, are classified as non-current assets. Receivables to be repaid within one year, as well as other assets related to goods circulation, are classified as current assets. In the classification of short-term and long-term liabilities, the corresponding criteria are used. Current assets are recognised at the lowest of acquisition cost or fair value. Non-current assets are recognised at acquisition cost with the deduction of depreciation and impairment. Long-term and short term liabilities are recognized at nominal value. Intangible assets Goodwill Goodwill is the difference between the acquisition cost of the purchased business and the fair value of the Group’s share of net identifiable assets in the purchased business at the time of acquisition. Goodwill from acquisition of subsidiaries is classified as an intangible asset. Goodwill at acquisition of a share in associated companies is included in the value of investments in associated companies recognised in the balance sheet. Goodwill is tested for impairment and is recognised in the balance sheet at acquisition cost with the deduction of accumulated amortisation and impairment. The amortisation period for goodwill is five years unless there are special reasons for a longer lifetime. Other intangible assets Expenses for other intangible assets are recognised in the balance sheet to the extent a future financial benefit connected to the development of an identifiable intangible asset has been identified, and the expenses can be reliably measured. Should this not be the case, such costs are expensed on an ongoing basis. Intangible assets with a limited useful economic life are amortised according to schedule. Intangible assets are written down to fair value if the residual value is lower than the total of the value recognised in the balance sheet and any remaining production expenses. Research and product development costs Own expenses for research and product development are expensed on a continuous basis. NON-CURRENT ASSETS Property, plant and equipment Investments in production facilities and other property, plant and equipment are recognised at cost less accumulated depreciation and impairments. Borrowing costs related to the construction period for substantial property, plant and equipment during construction are recognised in the balance sheet as part of the cost price. The acquisition cost for property, plant and equipment with a limited useful economic life is depreciated according to the straight-line method over the economic lifetime. Costs associated with normal maintenance and repairs will be expensed on a continuous basis. Costs for major replacements and renovations which substantially increase the lifetime of the fixed asset, are capitalised and depreciated in line with the fixed asset. If the recoverable amount of the fixed asset is lower than the value recognised in the balance sheet and the impairment is not expected to be temporary, then the asset must be written down. The recoverable amount is the highest of the net sales value and the value-in-use. The value-in-use is the current value of the future cash flows which the asset is expected to generate. Lease agreements Lease agreements are classified as financial or operational leases after a concrete evaluation of the individual agreement. Lease agreements associated with assets leased on terms where the lessee principally bears the financial risk and control of the ownership are classified as financial lease agreements. Non-current assets under financial lease agreements are recognised in the balance sheet and associated lease obligations are included in the balance sheet item other long-term liabilities at the current value of the lease payments. The fixed asset is depreciated according to schedule, and the obligation is reduced by the paid lease amount after the deduction of calculated interest cost. TINE ANNUAL REPORT 2012 | 25 Lease agreements where a significant share of risk and returns associated with ownership are still borne by the lessor, are classified as operational lease agreements. Lease amounts associated with operational lease agreements are expensed according to the linear method over the lease period. Debt Shares and interests in associated companies and subsidiaries Investments in subsidiaries and associated companies are valued according to the cost method in the company accounts. The investments are valued at acquisition cost with the deduction of any impairment. Impairment to fair value is carried out if the impairment is not temporary. Dividend and group contributions received from subsidiaries which represent returns during the period of ownership are recognised as other financial income. Group contributions from subsidiaries are recognised in the balance sheet the same year as the subsidiary allocates this amount. Dividend received is recognised as income when the dividend has been adopted. Contingent liabilities Contingent liabilities are recognised in the income statement if it is probable that they will have to be settled. A best estimate is used to calculate the value of the settlement sum. Other shares and interests classified as non-current assets Investments in long-term shareholdings and interests where the Company does not have significant influence, are recognised in the balance sheet at acquisition cost. The investments are written down to fair value in the event of an impairment which is not expected to be temporary. Dividend received from the companies which represent return in the ownership period, are entered as income and presented as other financial income when the dividend is adopted. Long-term receivables Long-term receivables are recorded in the balance sheet at nominal value after the deduction of expected losses. Loss provisions are made on the basis of individual assessments. Interest income is recognised as it is earned. Current assets Inventories Inventories are valued at the lowest of acquisition cost according to the «first in - first out» principle and fair value. The acquisition cost for self-produced goods and goods under production consist of direct materials, direct wages as well as other direct and indirect production costs (based on normal production). Acquisition costs are adjusted for price compensation charges/subsidies. The acquisition cost for raw materials and goods for resale is the net cost price. Fair value is the estimated sale price with the deduction of estimated expenses for completion, sale and distribution. Long-term liabilities Long-term debt is recognised in the balance sheet at the nominal debt amount. The costs of raising loans are continually expensed. Restructuring provisions When restructuring measures are adopted, a provision is made for the anticipated expenses related to implementation of the measure. The provision is based on a best estimate and is reassessed at the end of each reporting period. Expenses which are incurred during the implementation of the restructuring are recognised against the provision as they are incurred. PENSION PLAN The Company has pension plans which give employees the right to agreed future pension benefits. The obligations are expensed over the service period in accordance with the plan’s benefit formula. The allocation method corresponds to the plan’s benefit formula unless most of the accrual takes place towards the end of the service life. Straight-line accrual is then used. The pension obligations are calculated on the basis of assumptions regarding the number of service years, discount rate, expected returns on plan assets, future adjustment of wages and pensions and the level of the Norwegian National Insurance’s basic amount and actuarial assumptions regarding mortality, voluntary turnover and disability rate. The plan assets are valued at fair value. The net pension obligation consists of gross pension obligation with the deduction of fair value of the plan assets. Net pension obligations for under-financed plans are recognised in the balance sheet as long-term financial obligations, while net pension funds for over-financed plans are recognised in the balance sheet as financial non-current assets if it is probable that the net asset can be utilised. Social security tax is included in the figures for actually underfinanced plans. Receivables Accounts receivable and other receivables are recognised at nominal value after the deduction of expected losses. Allocation for loss is made on the basis of individual assessments of each receivable. Changes in obligations due to changes in the pension plan are expensed immediately if the changes in the plan are unconditional at the time of the change. Any changes in the pension plan that are conditional upon future employment are amortised linearly over the period up to when the benefit is vested. Changes in the obligation and plan assets which are due to changes in and deviation from the actuarial assumptions, are amortised over the expected remaining service period for that part of the deviation that exceeds 10 % of the highest of the gross pension obligation and gross pension plan assets, respectively. Unit trust funds and money market securities Market-based financial instruments, including unit trust funds and money market securities, which are included in the trade portfolio are valued at fair value on the date of the balance sheet. Other short-term investments are valued at the lowest of average acquisition cost and fair value on the balance sheet date. In the event of participation in defined-benefit group plans, the Company enters its share of the defined-benefit pension obligation, plan assets and cost associated with the pension plan, into the accounts. When insufficient information is available for recording a group plan into the accounts as a defined-benefit pension plan, the plan is recorded in the accounts as if it was a defined-contribution plan. Bank deposits, cash and money market securities The accounting item bank deposits and cash includes cash, bank deposits and other means of payment with a due date that is less than three months from acquisition. Obligations within the new Fellesordningen for AFP (joint plan for contractual pension) are a defined-benefit group plan, but this is recorded in the accounts as a contribution plan, as it is currently not measurable and cannot be allocated between the participating companies. EQUITY Net pension cost, which is the gross pension cost with the deduction of expected return on the pension plan assets, adjusted for allocated effect of deviations in estimates and changes in pension plans, is classified as ordinary operating costs and is presented together with wages and other benefits under employee benefit expenses in the income statement. Cooperative share capital TINE’s cooperative share capital is the sum of shares held by TINE’s members. Each member has one share. The share’s face value is NOK 500. Membership in TINE is open to milk producers with a milk quota. Subsequent payment fund Following a decision by the board and within the overall framework proposed by the board, profit may be allocated to the subsequent payment fund and subsequent payments for delivered milk during the year. The annual meeting decides potential disbursements from the subsequent payment fund. Disbursements go to those who are members at the time of the decision and shall take place on the basis of the delivery of milk for the previous calendar year. 26 | TINE ANNUAL REPORT 2012 Contribution plans are accrued according to the matching principle. The contributions for the year to contribution-based pension plans are recognised as costs as they occur. TAXES The tax cost consists of tax payable on taxable income and wealth as well as change in deferred tax liabilities. The tax cost is offset against profit before tax. Tax associated with equity transactions are recognized in equity. Deferred tax liabilities TINE Annual report 2012 Accounting principles are calculated on the basis of temporary differences between book values and tax values at the end of the accounting year, as well as any tax-related loss carried forward. Nominal tax rates are used in the calculation. Positive and negative differences are evaluated against one another within the same time period. Deferred tax liabilities and deferred tax assets are presented as net in the balance sheet. The Group presents net deferred tax liabilities for tax positions related to companies that are part of the same tax group. Deferred tax assets arise if one has temporary differences which give rise to taxrelated deductions in the future. Deferred tax assets are recognised in the balance sheet when it is probable that this can be utilised in future years. CURRENCY Transactions in foreign currency are converted at the exchange rate on the transaction date. Money items in foreign currency, which are not hedged, are valued at the current exchange rate. Realised and unrealised gains and losses on currency are recognised net in the income statement. CHANGED ACCOUNTING PRINCIPLES AND COMPARATIVE FIGURES Comparative figures have been prepared based on the same principles as figures for the current accounting period. There are no new Norwegian accounting standards resulted in accounting effects for TINE as a result of implementation in 2012. Except to reclassify the balance sheet line allocated to subsequent payment to milk producers from trade and other payable to other current liabilities, it is not conducted other significant reclassifications or policy changes. USE OF ESTIMATES AND INFORMATION REGARDING SUBSTANTIAL ESTIMATES The accounting principles that have been described entail that TINE’s management has applied estimates and assumptions which affect items in the income statement and balance sheet. The estimates are based on experience and an evaluation of underlying factors. Future events and changes in the framework conditions can entail that estimates and assumptions must be changed. Changes in accounting estimates are recognised in the income statement in the period when the estimates are changed, unless deferred entry into the income statement is in accordance with generally accepted accounting principles. Valuations, estimates and assumptions which have a substantial effect on the accounts are summarised below. Depreciation and amortisation Depreciation and amortisation of property, plant and equipment and intangible assets are based on their assumed economic life. Changed market conditions and future investment decisions will affect existing production capacity and expected useful life. This can provide the basis for changed depreciation and amortisation profiles and will affect future results. It is in 2012 conducted a review and update of the useful lives of tangible assets. Impairment TINE has considerable investments in property, plant and equipment, intangible assets including goodwill, associated companies and subsidiaries. These non-current assets are tested for impairment when indications are present for possible decline in value. Such indicators can include changes in market prices, contract structures, negative events or other operating circumstances. Calculating the recoverable amount requires a series of estimates concerning future cash flows, where price paths and production volume are the most important. The accounting treatment of financial derivatives follows the intention behind entering into the agreements. Derivatives are classified as long-term non-current assets or long-term financial liabilities if the remaining term to maturity is longer than one year. Pensions Calculation of fair value of pension obligations is based on several financial and demographic assumptions. Any change in the applied assumptions affects the calculated obligation. Reference is made to note 7 for a more detailed description of the applied assumptions. Interest rate derivatives TINE uses interest rate hedging instruments to hedge against large fluctuations in the interest rate. Recognition of gains and losses depends on whether the interest rate derivative has been classified as a hedging instrument and, if applicable, the type of hedging. Interest rate derivatives which are not hedging instruments are recorded in accordance with the principle of lowest value. Unrealised losses are expensed as financial expenses. Fair value financial instruments Principles for estimating fair value are mainly based on market prices and various valuation methods. The fair value of currency futures contracts is fixed by using the exchange rate on the balance sheet date. The fair value of currency swaps is calculated at the present value of future cash flows. The fair value of options is fixed using option pricing models. For all of the above derivatives, fair value is confirmed by the financial institution with which the Company has contracts. Currency derivatives In order to hedge against fluctuations in the foreign currency rates, TINE uses currency derivatives in line with approved financial policy. Recognition of gains and losses depends on whether the currency derivative is designated as a hedging instrument and, if applicable, the type of hedging. Currency derivatives which are not hedging instruments are valued at fair value. Changes in value are recognised in the income statement as financial income or financial costs. Deferred tax asset The deferred tax asset is entered in the balance sheet only to the degree it is probable that there will be future taxable profits which are large enough to utilise the tax asset, either because the entity has shown a profit recently or because there are identifiable assets with excess value. FINANCIAL DERIVATIVES AND HEDGING Hedging The accounting treatment of financial derivatives designated as hedging instruments are recorded in line with the principles for the hedging types asset hedging, cash flow hedging or hedging of net investment in foreign business activities. In the event of hedging of assets or liabilities recognised in the balance sheet, the derivative is entered at fair value. The book value of the hedged asset or liability is adjusted for the value of the financial derivative’s change in value which is related to hedged risk. In the event of hedging of future cash flows, the derivatives are recognised in the balance sheet after tax at fair value. Either unrealised and realised gains or losses on derivatives are recognised directly against the equity until the hedged cash flow affects the income statement. Hedging of net investment in foreign currency is used at the Group level. Derivatives are recorded in the balance sheet at fair value as for cash flow hedging. Unrealised gains and losses on the derivatives (after tax) are recognised in the accounts directly against equity until the foreign activity is sold or the hedge is phased out. Provisions Regarding some income statement items in the accounts, provisions are made for expected future costs based on estimates and information which is available at the time the accounts are submitted. These provisions can deviate from the actual future cost. For example, provisions are related to loss of customers, obsoleteness of goods and contingent loss which are probable and quantifiable, including disputed circumstances and court cases. SEGMENTS Operational segments are reported in the same manner as for internal reporting to the company’s top decision-maker. The company’s top decision-maker, who is responsible for allocating resources to and assessment of earnings in the operational segments, is defined as the Group management. CASH FLOW STATEMENT The cash flow statement is prepared according to the indirect method. PRESENTATION CURRENCY All amounts are in TNOK unless otherwise indicated. Parent company (TINE SA) functional currency is NOK and the Group presentation currency is NOK. TINE ANNUAL REPORT 2012 | 27 Noter note 1 Segment information Amounts in NOK 1000 2012 2011 TINE's domestic dairy operations TINE’s international dairy operations Liquid dairy products 7 896 118 - Solid dairy products 5 014 117 2 024 302 11 851 - 1 285 - 204 941 Sales revenues/operating profit Juice, fruit drinks and water Convenience food Ice cream and desserts Other products Other business Other activities and eliminations 186 904 Total TINE's domestic dairy operations TINE’s international dairy operations - 8 083 022 7 923 067 - 321 912 - 7 360 331 4 760 435 1 854 243 914 219 - 926 071 7 534 - 625 911 - 627 196 1 356 - 610 281 - 611 637 - 954 848 - 1 159 790 202 861 - 951 276 - 1 154 137 Other business Other activities and eliminations Total 180 348 - 8 103 414 285 055 - 6 899 733 887 967 - 895 501 97 756 - 44 036 - 141 792 180 570 - 211 516 - 392 086 Sales revenues from external convenience products 13 226 069 2 024 302 3 047 831 - 18 298 201 13 075 824 1 854 243 3 126 442 - 18 056 509 Sales revenues from external convenience products 13 226 069 2 024 302 3 047 831 - 18 298 201 13 075 824 1 854 243 3 126 442 - 18 056 509 1 698 060 2 842 - -1 700 902 - 1 742 228 - - -1 742 228 - 14 924 128 2 027 143 3 047 831 -1 700 902 18 298 201 14 818 052 1 854 243 3 126 442 -1 742 228 18 056 509 1 087 305 - - - 1 087 305 1 031 574 - - - 1 031 574 407 684 16 193 107 650 -147 785 383 742 425 525 16 458 44 426 -187 249 299 160 16 419 117 2 043 336 3 155 481 -1 848 686 19 769 248 16 275 151 1 870 701 3 170 868 -1 929 478 19 387 243 Sales revenues from internal convenience products Total sales revenues from convenience products Sales revenues from raw materials Other income Operating income Depreciation, amortisation and impairments Other operating expenses Operating profit -735 538 -46 399 -67 331 -1 000 -850 268 -631 080 -58 224 -84 039 4 000 -769 343 -14 900 843 -1 961 817 -2 947 365 1 824 984 -17 985 042 -14 542 417 -1 831 293 -3 011 176 1 943 038 -17 441 848 782 735 35 120 140 785 -24 702 933 938 1 101 654 -18 817 75 653 17 562 1 176 052 12 957 110 Balance Assets 12 645 181 611 272 903 155 -459 918 13 699 690 12 269 692 478 219 1 027 884 -818 685 Debt, non-interest-bearing 3 078 640 478 433 383 438 -20 118 3 920 392 3 534 600 330 143 400 034 -41 968 4 222 810 Investments 1 605 666 181 795 60 421 - 1 847 882 2 253 052 48 940 66 525 - 2 368 517 Description of activity: The TINE’s domestic dairy operations segment consists of TINE SA, OsteCompagniet AS, Melkerampa AS, Næringsmiddelproduksjon AS and TINE Eiendom Espehaugen AS. TINE’s international dairy operations segment consists of the sub-group corporates Wernersson Ost AB (Sweden), Norseland Inc. (USA) and Norseland Ltd. (UK). In addition to depreciation and impairment of goodwill and other excess value in Wernersson Ost AB, Norseland Inc. and Norseland Ltd. Other business activities consist of Diplom-Is AS, FellesJuice AS, Fjordland AS and TINE SAs other subsideries (see note 14) in addition to depreciation of goodwill and other excess value in Fjordland AS (fully depreciated in 2012). note 2 Sales revenues from convenience products by geographical area THE TINE GROUP 2012 16 014 179 1 044 108 2 041 1 134 161 2 782 100 930 18 298 201 28 | TINE ANNUAL REPORT 2012 Amounts in NOK 1000 TINE SA 2011 Geographical area 15 926 604 Norway 1 030 974 Other Europe 1 713 Africa 993 508 America 4 617 Asia 99 094 Oceania 18 056 509 Sales revenues from convenience products 2012 2011 14 285 499 14 188 352 159 503 179 433 147 172 332 082 338 423 654 998 91 148 86 268 14 869 033 14 793 645 TINE Annual report 2012 Notes Other operating income note 3 THE TINE GROUP Amounts in NOK 1000 TINE SA 2011 Income groups 2012 75 581 Transport income 72 376 201 478 Other income 192 057 22 101 Profit from sale of non-current assets 119 309 299 160 Total other operating income 383 742 2012 2011 93 373 96 272 315 745 364 646 35 590 4 930 444 708 465 848 Cost of materials and changes in inventory note 4 THE TINE GROUP TINE SA 2011 Cost category 2012 11 320 772 Consumption of raw materials and goods purchased for resale 11 426 089 2012 2011 9 489 446 9 469 265 80 044 Changes in inventories in production and convenience products -95 435 11 400 816 Total consumption of materials and changes in inventory 11 330 654 Note 5 Purchase Amounts in NOK 1000 -138 555 112 366 9 350 891 9 581 631 of raw cow and goat milk from milk producers Amounts in NOK 1000 TINE SA Specification consumption of raw cow and goat milk Total purchase of raw cow and goat milk, see specification below 2012 2011 6 661 875 6 164 874 Changes in inventories of raw cow and goat milk -4 669 5 029 6 657 206 6 169 903 Purchase of cows' milk including addition due to quality 6 549 512 6 060 161 Purchase of goats' milk including addition due to quality 112 363 104 713 6 661 875 6 164 874 Consumption of raw cow and goat milk Specification of purchases of raw cow and goat milk from milk producers Total purchase of raw cow and goat milk from milk producers Allocations in TINE Råvare Transferred from previous year 19 701 16 291 3 812 -19 701 6 685 388 6 161 464 Transferred to next year Total paid by TINE Råvare Allocated to subsequent payment from TINE SA Total paid to milk producers by TINE 383 076 598 878 7 068 464 6 760 342 1 455 241 1 406 233 Settled raw cow and goat milk in 1000 litres Cow milk including organic milk Goat milk Total offset raw cow and goat milk in 1000 litres 19 617 19 667 1 474 858 1 425 900 4,79 4,74 Total milk price expressed in NOK/litre We also refer to note 35 where indicated an explanatory description of TINE Råvare. note 6 Employee benefit expenses and number of full-time equivalents THE TINE GROUP 2012 2 793 316 366 485 248 249 161 886 3 569 936 5 316 Amounts in NOK 1000 TINE SA 2011 Cost category 2 609 969 Wages and salaries, holiday pay and costs for temporary staff 348 058 Employers' national insurance contribution 62 849 Net pension costs including social security tax, cf. note 7 148 928 Other personnel expences 3 169 804 Total employee benefit expenses 5 364 Average number of employees calculated in full-time equivalents 2012 2011 2 393 430 2 227 500 305 868 288 707 201 717 32 102 112 075 111 676 3 013 090 2 659 985 4 363 4 409 TINE ANNUAL REPORT 2012 | 29 note 7 Pensions and pension obligations TINE SA and its Norwegian subsidiaries have a collective pension plan in MP Pensjon in accordance with the Companies Pension Act. The plan satisfies the rules for Mandatory Occupational Pensions (Norwegian abbreviation - OTP). The group pension plan defines the level of future benefits and the plan is recognised in the Amounts in NOK 1000 accounts as a defined-benefit pension plan. The benefits are mainly dependent on the number of years in service and the wage level at pension age. The service pension is in addition to the National Insurance pension and is independent of National Insurance benefits. The pension plan in MP Pensjon provides the following benefits with a full accrual period (30 years or more): Pension Calculation basis Pension benefit Retirement pension Up to 6 G 20 % of the pension basis From 6 G to 12 G 48 % of the pension basis Survivor pension spouse/cohabitant Calculated retirement pension 55 % of the calculated retirement pension Survivor pension children Pension basis First child 10 % and thereafter 5 % for each child, up to six children In addition to the collective pension scheme has TINE SA and the Norwegian subsidiaries an operating plan for employees who earn more than 12 G. The pension benefits of this scheme is 66 % of salary exceeding 12 G and take effect from the age of 62. TINE SA and most Norwegian subsidiaries are within the agreement area LO NHO. Employees in companies, based on this, the opportunity to apply for early retirement pension at age 62. The current pension plan is a defined benefit multi- employer plan. The companies within the agreement area LO-NHO has a real financial liability as a result of the agreement on early retirement scheme. However, there is not sufficient information to enable the recognition of liabilities in the financial statements. This means that no obligations for the current pension scheme is recognized. Old pension scheme was closed on 31 December 2010. The remaining financial liability in this plan is linked to the control of the AFP pensioners gone before 2011. As of 31 December 2012, the various plans include the following number of people for TINE SA and the TINE Group: THE TINE GROUP TINE SA Employees Retirement 5 412 3 788 38 123 286 - - 242 Defined benefit plans in MP Pensjon Unfunded defined benefits plans 1) Employees Retirement 4 855 3 484 35 111 Defined contribution plans - - AFP - 215 1) Unfunded schemes primarly relate to operational plan for employees with salaries exceeding 12 G and gift pensions for employees who previously fell outside the pension scheme in MP Pension. THE TINE GROUP TINE SA 2011 Pension costs 2012 294 818 Current value of accrued pension entitlements for the year 398 039 311 888 Interest costs on pension liabilities 268 390 -574 995 Expected net return on pension plan assets -529 673 -33 777 Recognised actuarial loss/gain (-) 61 852 1 933 Recognised plan amendment effect 3 387 32 836 Accrued employers' contribution 16 566 30 147 Other pension costs (including premium for AFP and defined contribution plans) 29 688 62 849 Net pension costs 248 249 2012 2011 345 118 255 455 243 340 284 728 -486 903 -529 490 53 572 -32 600 3 328 1 664 11 802 27 977 31 460 24 368 201 717 32 102 Reconciliation of the pension plan’s financial status as of 31 December with the amounts in the balance sheet: THE TINE GROUP 31.12.2012 TINE SA 31.12.2011 Pension obligations and plan assets 31.12.2012 31.12.2011 -10 755 017 -9 844 688 Accrued pension liabilities -9 830 875 -9 009 248 11 184 115 10 167 350 Pension assets (at market value) 10 235 035 9 386 328 322 662 Net pension assets excluding actuarial gains/losses 429 098 1 456 354 1 607 792 Unrecognised actuarial gains/losses - Emplyers contribution -1 858 1 883 594 1 930 454 Net pension assets in overfinanced scheme -170 970 21 175 -149 795 -179 096 Accrued pension liabilities 27 569 Pension assets (at market value) -151 527 Net pension obligations excluding social security tax and actuarial gains/losses 404 161 377 080 1 346 808 1 440 736 - - 1 750 969 1 817 816 -116 253 -121 363 1 317 1 358 -114 936 -120 005 18 527 39 880 28 556 Unrecognised actuarial gains/losses 31 395 41 017 52 863 Unrecognised plan amendment effect 40 283 44 080 -16 243 -19 175 Employers' national insurance contribution -15 846 -16 434 -85 140 -89 282 Net pension obligations in underfinanced scheme -59 104 -73 831 Note 7 continues on following page 30 | TINE ANNUAL REPORT 2012 TINE Annual report 2012 Notes Note 7 continued The following assumptions are applied in Norway for the TINE Group and TINE SA. Economic assumptions 31.12.2012 31.12.2011 Discount rate 3,00 % 2,60 % Anticipated salary adjustment 4,00 % 3,25 % Anticipated adjustment of the National Insurance Scheme’s basic amount (G) 3,75 % 3,50 % Expected increase in pensions 3,00 % 2,30 % Projected yield on pension fund assets 1) 5,50 % 5,50 % Demographical assumptions Applied mortality table K2005 K2005 Applied disability tariff Strengthened KU Strengthened KU Average 3-5 % per year Average 3-5 % per year Voluntary redundancy (all ages) The calculation of pension cost is assumed to be the expected return on plan assets of 5.5 % based on historical and expected returns in the MP Pension. 1) Economic and demographic assumptions used for calculating and accounting for pensions are based on the expectations of the actual membership, the conditions of the pension scheme in MP Pension and TINEs expectations of future economic development. THE TINE GROUP TINE SA 2011 Actual return on pension plan assets in the Group pension plan 2012 -7,70 % Actual return on pension assets in the company pension scheme 11,40 % 2012 2011 11,40 % -7,70 % Major categories of pension plan assets in the MP Pensjon company pension 31.12.12 31.12.11 plan: 31.12.12 31.12.11 47,60 % 47,80 % Shares 47,60 % 47,80 % 49,20 % 50,40 % Bonds 49,20 % 50,40 % 3,20 % 1,80 % 3,20 % note 8 1,80 % Other assets Related parties and senior management Amounts in NOK The Group board, Council, Control Committee and group management are defined as related parties and management personnel in TINE. Group board Board remuneration TINE SA 1) Other remuneration Trond Reierstad (chairman) 500 000 256 425 Ingunn Sognnes (deputy) 340 000 100 244 Anders Johansen 269 300 194 775 Torstein Grande 290 000 148 200 Anne Maren Wasmuth 219 267 108 900 Cecilie Bjørlo 202 000 80 353 Askild Eggebø 290 000 160 800 Nina Kolltveit Sæter 227 900 130 550 Helga Thorvik Ulven 290 000 129 900 Lars Woie 238 100 105 700 Lars Iver Wiig (employee elected) 150 000 – Steinar Koen (employee elected) 202 000 – Elin Aarvik (employee elected) 167 333 – Svein Førde (employee elected) 202 000 – 147 900 145 050 30 000 – Remuneration TINE SA Other remuneration Nils Asle Dolmseth (chief) 152 699 125 150 Roy Erik Hetland (deputy) 72 000 57 000 Deputy member Per Heringstad Ottar Råd (employee elected) Annual meeting and Council Control Committee Helge Sommerseth (chief) 67 100 24 950 Per Amb 56 400 122 750 Anna Stangeland 56 400 23 100 Including remuneration from internal regional boards. It is not paid remuneration from other companies. Note 8 continues on following page 1) TINE ANNUAL REPORT 2012 | 31 Note 8 continued Amounts in NOK Group senior management Total expenses for salaries Board remuneration subsidiaries Pension costs Other remuneration Hanne Refsholt 1) 2 296 392 39 759 1 227 336 144 704 Stein Øiom 1) 2 070 717 43 500 594 683 126 095 Stein Aasgaard 1 833 366 127 365 424 065 133 326 Eirik Selmer-Olsen 1 306 507 5 667 418 601 140 497 Hege Holter Brekke 1 544 811 16 271 770 299 146 758 John Ole Skeide 1 713 287 75 500 945 594 158 466 Johnny Ødegård 1 059 291 – 614 575 73 140 Jørn Spakrud 1 748 420 65 000 952 923 148 728 Employees in TINE SA 1) Hanne Refsholt leave of absence from 1 September 2011 to 31 August 2012. Stein Øiom was acting President and CEO for the same period. Neither the Chairman of the Board, the Group Board, the Group Chief Executive or Group seniors management receive bonuses, options or have agreements on profit sharing. Disbursements are used as a basis in the note with the exception of pensions where the service cost is used as a basis. None of the above-mentioned management personnel or board members have loans or guarantees in TINE beyond those directors who provide milk and are included in the milk producer loan scheme on milk deliveries, see comments in note 33. The following senior management have pension agreements which come into force upon attaining the age of 62: Hanne Refsholt, Stein Aasgaard and Stein Øiom. The agreements are funded by operations. The amount of pension is: 80 % from age 62 to 63, 75 % from age 63 to 64, 70 % from age 64 to 65 and 66 % from age 65 to 67. From the age of 67 they are included in the operations pension plan for employees with salaries exceeding 12 G, which the Group board approved in June 2011. Other Group managers are included in the same operations pension plan. The agreement enters into force as of age 62 and the pension is 66 % of salaries above 12 G. note 9 Intangible assets and goodwill THE TINE GROUP Amounts in NOK 1000 R&D Patents Brand Customers 3 279 13 248 84 175 - 141 - -3 279 -6 804 Exchange differences - -465 Acquisition cost at 31.12 Accumulated depreciation and impairments at 31.12 Book value at 31.12 - 6 121 - - - 6 121 Depreciation for the year - - Impairments for the year - Acquisition cost at 01.01 Acquisitions (+) during the year Disposals (-) during the year Economic life Depreciation schedule Other rights Goodwill Total 2012 Total 2011 70 403 7 462 254 491 433 059 426 648 - 28 778 19 733 48 652 4 551 - -35 203 - -31 493 -76 779 -116 -1 815 -615 -130 -4 720 -7 745 1 976 82 360 34 585 36 110 238 011 397 187 433 059 -37 981 -34 585 -6 499 -150 279 -229 344 -270 316 44 379 - 29 611 87 732 167 843 162 743 -6 601 -2 347 -2 310 -19 934 -31 192 -36 325 - - - - - - -19 887 5-10 years 4-15 years 10-20 years 3 years 5 years 5-10 years Linear Linear Linear Linear Linear Linear 31.12.2012 31.12.2011 Import licence in Norseland Inc., classified as patents, is evaluated to have an indefinite lifetime and is not amortised. Goodwill relates to: Salmon Brands AS Wernersson Ost AB - 3 276 54 431 68 035 - 396 Fjordland AS Alpine Dairy LCC 18 746 - Norseland Ltd. 14 554 21 094 Total goodwill 87 732 92 801 An impairment test has been performed for goodwill and other intangible assets where there are indications of a decline in value. The calculation of the recoverable amount is based on discounting future cash flows. The cash flows are based on the budget and other available information at the time of assessment. A moderate annual increase is expected in the sales and contribution margin ratio for the first five years. Constant figures are used for remaining life. A discount factor of 6.8 % before tax has been applied. On this basis the goodwill related to Norseland Ltd. was impaired by NOK 20 million in 2011. THE TINE GROUP 2012 60 855 44 090 104 945 TINE SA 2011 Expensed research and product development 56 934 Research 41 556 Production development 98 490 Total expensed research and product development 2012 2011 60 855 56 799 40 483 37 630 101 338 94 429 It is assumed that the total expected income from ongoing research and development corresponds with expenses incurred. A considerable part of on-going research and development work is connected to our priority areas within the dairy sector, especially within health and wholesomeness. 32 | TINE ANNUAL REPORT 2012 TINE Annual report 2012 Notes note 10 Property, plant and equipment Amounts in NOK 1000 Land/buildings/ other real property Buildings/ installations Machinery/furniture and fixtures Vehicles Total 2012 Total 2011 214 316 5 451 997 8 329 056 882 756 14 878 124 13 475 893 Acquisitions (+) during the year 57 325 240 001 1 435 431 66 472 1 799 230 2 364 540 Disposals (-) during the year -4 441 -86 084 -635 775 -68 918 -795 218 -966 656 -20 -2 819 -10 081 -6 -12 926 4 347 267 180 5 603 095 9 118 631 880 305 15 869 210 14 878 124 THE TINE GROUP Acquisition cost at 01.01 Exchange differences Acquisition cost at 31.12 Accumulated depreciation and write-downs at 31.12 -4 603 -2 300 569 -5 130 103 -629 845 -8 065 121 -8 007 612 262 576 3 302 526 3 988 527 250 459 7 804 089 6 870 512 Depreciation for the year -2 776 -187 907 -533 165 -81 080 -804 928 -682 028 Impairments for the year - -7 000 -7 149 - -14 149 -31 102 0 - 10 years 20 - 30 yeras 3 - 15 years 5 - 10 years Linear Linear Linear Linear -82 15 504 10 173 1 947 27 542 27 738 Operating leases - 105 126 78 696 11 494 195 316 192 336 Book value at 31.12 of lease agreements recognised in the balance sheet - 22 454 5 314 18 27 786 45 625 Current year depreciation of leased assets - -9 913 -6 147 -9 -16 069 -22 158 Land/buildings/ other real property Buildings/ installations Machinery/furniture and fixtures Vehicles Total 2012 Total 2011 111 035 5 214 159 7 638 314 769 491 13 732 999 11 965 262 Acquisitions (+) during the year 57 325 162 970 1 328 100 52 210 1 600 605 2 250 052 Disposals (-) during the year -3 344 -76 226 -595 211 -52 423 -727 204 -482 315 165 016 5 300 903 8 371 203 769 278 14 606 400 13 732 999 Book value at 31.12 Estimated useful life Depreciation schedule Profit (+) /loss (-) on sale of property, plant and equipment TINE SA Acquisition cost at 01.01 Acquisition cost at 31.12 Accumulated depreciation and write-downs at 31.12 -4 093 -2 181 917 -4 710 912 -546 821 -7 443 743 -7 406 277 160 923 3 118 986 3 660 291 222 457 7 162 657 6 326 722 Depreciation for the year -2 718 -180 188 -465 532 -73 763 -722 201 -596 018 Impairments for the year - -7 000 -6 149 - -13 149 -34 812 0 - 10 years 20 - 30 yeras 3 - 15 years 5 - 10 years Depreciation schedule Linear Linear Linear Linear Profit (+) /loss (-) on sale of property, plant and equipment -2 304 17 955 9 299 1 832 26 782 4 877 Operating leases - 51 494 66 443 2 814 120 751 127 777 Book value at 31.12 of lease agreements recognised in the balance sheet - 22 310 - - 22 310 33 875 Current year depreciation of leased assets - -9 876 - - -9 876 -11 815 Book value at 31.12 Estimated useful life Buildings and installations consist of own production premises, warehouses and administration buildings for use in own dairy activity and production of ice cream. Rental to external tenants is insignificant. Tangible fixed assets where there were indications of a decline in value are tested for impairment. Impairment to recoverable amount of property, plant and equipment is carried out as a result of decisions on future closing of plants, re-organisation of operations and projects which have been experienced as less profitable than expected. Additions in 2012 include NOK 48 million in capitalised interest. This figure for 2011 was MNOK 70. The table below shows the carrying value of buildings, installations and machinery under construction. Construction in progress is not depreciated until the plant is used. THE TINE GROUP 2012 159 907 45 477 346 051 551 435 TINE SA 2011 Construction in progress 1 289 689 Buildings 414 681 Technical 900 289 Equipment 2 604 659 Total construction in progress 2012 2011 159 486 1 289 262 33 844 412 765 337 064 900 289 530 395 2 602 315 Change in assets under construction due to our investments in major new facilities are completed or partially completed. Our new facilities at Jæren is applied, Tunga finished, Verdal and Kalbakken partially completed. Reference to note 40. TINE ANNUAL REPORT 2012 | 33 note 11 Auditor’s remuneration THE TINE GROUP Amounts in NOK 1000 TINE SA 2012 2011 Remuneration to elected auditor - Deloitte AS 2012 2011 5 028 5 599 Statutory audit services 3 221 3 507 438 574 485 1 405 893 7 811 578 Remuneration for certification services 1 220 Renumeration for tax advisory service 818 Renumeration for other services 8 315 Total remuneration to elected auditor - Deloitte AS 1 151 719 682 714 5 492 5 514 Remuneration for other services concerns assistance in connection with environmental audits, as well as other matters. Remuneration for other certification services are mainly connected with certification services vis-à-vis the Norwegian Agricultural Authority and other governmental agencies. Remunerations to auditors are expensed in the year in which they are incurred. THE TINE GROUP 2012 2011 Remuneration to other auditors 984 886 Statutory audit services 142 296 Remuneration for tax advisory service 374 1 500 37 Remuneration for other services 1 219 Remuneration to other auditors Remuneration to other auditors includes the companies Norseland Inc., Salmon Brands AS and Bunes Fryselager AS. Salmon Brands is included only in the 2011’s as the company was sold in 2012. note 12 Other operating expenses THE TINE GROUP 2012 1 056 326 988 784 -462 876 1 492 618 TINE SA 2011 Cost category 994 582 Indirect costs associated with production and operations 941 444 Transportation costs -443 794 Feed transport subsidy income (transport supplement and distribution supplement) 1) 1 373 579 Sales costs, marketing and other operating expenses 2012 2011 918 356 866 066 957 664 909 772 -462 876 -443 794 1 093 009 980 752 6 428 2 316 Loss on sale of property, plant and equipment 4 210 2 069 3 172 3 101 Loss on receivables and contracts 2 322 882 2 512 685 2 315 747 3 084 452 1) Amounts in NOK 1000 2 871 228 Total other operating expenses Reimbursement from the price equalisation scheme for raw milk transport costs for the distance from milk producer to the quoting point, see also note 34. note 13 Income from investments in subsidiaries Amounts in NOK 1000 TINE SA Finance income art 2012 2011 Group contribution 7 880 10 210 Dividend 20 957 5 367 Total income from investments in subsidiaries 28 837 15 577 34 | TINE ANNUAL REPORT 2012 TINE Annual report 2012 Notes note 14 Investments in subsidiaries and associated companies Amounts in NOK 1000 Ownership interest/ voting shares Share of equity in the company at 31.12.2012 Registered offices Procurement time Bunes Fryselager AS Porsgrunn 1975 1) 19 % 2 776 95 95 Diplom-Is AS Nittedal 1991 2) 100 % 240 388 471 394 471 394 FellesJuice AS Oslo 2002 100 % 12 070 12 427 12 427 Fjordland AS Oslo 1985 51 % 30 662 18 333 25 489 Floren Eiendom AS Oslo 2002 100 % 1 692 1 692 1 692 Landbrukets Ferskvaredistribusjon AS Oslo 1994 100 % 334 357 347 Maritex AS Sortland 2001 3) 100 % 11 243 8 624 33 556 Melkerampa AS Oslo 2002 4) 100 % 5 678 6 291 136 Norseland Holdings Ltd. Ilchester, UK 2004 100 % 55 753 67 999 67 999 Norseland Inc. Stamford, USA 1978 100 % 89 880 3 153 3 153 Næringsmiddelproduksjon AS Oslo 2001 100 % 1 000 1 103 1 103 OsteCompagniet AS Oslo 2001 100 % 6 244 3 053 3 053 Salmon Brands AS Fitjar 2004 0% - - 16 399 TINE Eiendom Espehaugen AS Bergen 2010 100 % 36 650 86 781 86 576 TINE Holding AB Ulricehamn, Sweden 2007 100 % 79 167 118 041 118 041 573 537 799 344 841 461 Subsidiaries Book value in TINE SA at 31.12.2012 Book value in TINE SA at 31.12.2011 Companies directly owned by TINE SA 5) 6) Sum Companies owned by subsidiaries Bunes Fryselager AS Porsgrunn 1975 1) Norsk Iskrem AS Nittedal 1989 100 % Diplom-Is HB Gothenburg, Sweden 1998 100 % Diplom-Is Danmark I/S Brondby, Denmark 1999 100 % Norseland Ltd. Ilchester, UK 2008 7) 100 % Phonefood Ltd. Ilchester, UK 2009 7) 100 % Alpine Dairy LLC Winesburg, USA 2012 8) 100 % Wernersson Ost AB Ulricehamn, Sweden 2007 9) 100 % Wernersson Ost Danmark AS Roskilde, Denmark 2007/08/11 9) 100 % Färskvarugruppen AL AB Jönköping, Sweden 2007/08 9) 100 % Wernersson Glass AB Ulricehamn, Sweden 2003/04/06 9) 10) 100 % 40 % Bunes Fryselager AS was founded on 1/1, 2012, after a conversion from Bunes Fryselager A/L. The company has the same owners and distribution of shares that the owners had interests in Bunes Fryselager A/L. The total ownership for TINE SA and Diplom-Is AS is 59 %. The total share capital of the company amounts to TINE Group, TNOK 8 620. 2) Time for establishment of limited company. 3) The business was sold in 2011. 4) Changed name from Gastronom AS to Melkerampa AS in 2012. Registered office and business area has also changed. 5) The company was sold in March 2012, refer to note 42. 6) The change of name from Wernersson Ost Holding AB to TINE Holding AB in December 2012. 7) Owned by Norseland Holding Ltd. 8) Owned by Norseland Inc. 9) Owned by TINE Holding AB. 10) The change of ownership of Diplom-Is AS to TINE Holding AB, December 2011. Changed name from Diplom-Is Sverige AB to Wernersson Glass AB in 2012. Change in registered office from Gothenburg, Sweden to Ulricehamn, Sweden in 2012. 1) Associated companies THE TINE GROUP Registered offices Procurement time TUN Media AS 1) Oslo Skala AS 2) Ownership interest/ voting shares No. of shares/units 2000 25,50 % Oslo 1948 Fjordkjøkken AS Varhaug 1996 Skånemeierier Storhushåll AB 3) Other associated companies Total associated companies Malmö, Sweden 2010 TINE SA Share of result 2012 Share of equity at 31.12.2012 2011 23 523 807 -2 669 10 752 50,00 % 12 500 4 047 21,54 % 4 000 2 646 Share of equity at 31.12.2011 Book value at 31.12.2012 Book value at 31.12.2011 -16 647 9 456 11 762 15 337 75 201 11 285 78 882 984 779 16 403 2 944 16 556 5 600 5 600 8 807 5 093 10 569 -186 4 888 -299 5 325 4 371 5 057 12 644 107 244 2 376 120 788 22 717 26 773 Ownership in TUN Media AS in 2012 changed from 28.52 % to 25.50 %. Changed name from Landteknikk AS to Skala AS in 2012. Ownership was changed in 2012 from 49.83 % to 50.00 %. 3) The company was sold in December 2012. Gains on the sale included in share of result. 1) 2) TINE ANNUAL REPORT 2012 | 35 note 15 Change in market value of market-based financial current assets Amounts in NOK 1000 THE TINE GROUP TINE SA 2011 Unit trust funds and money market securities 2012 18 182 Acquisition cost at 01.01 13 620 2012 2011 13 620 18 182 -7 949 -4 562 – disposals during the year -7 949 -4 562 5 672 13 620 Acquisition cost at 31.12 5 672 13 620 6 320 5 384 11 991 19 004 5 384 Accumulated value adjustment at 31.12 6 320 19 004 Book value at 31.12 11 991 936 -1 555 The year's changes in value of unrealised profit (+)/loss (–) recognised in the accounts 1) 936 -1 555 2 973 -310 The year's profit (+)/loss (–) in the event of realisation recognised in the accounts 2) 2 973 -310 Money market fund 892 3 499 The year's profit (+)/loss (–) in the event of realisation recognised in the accounts 2) 26 700 273 483 Book value at 31.12 3) 38 691 292 487 Book value at 31.12 0 2 083 0 202 674 11 991 221 678 936 527 Total unit trust funds, listed shares and money market funds 1 828 1) 1 944 Change in market value of market-based financial current assets Included in changes in value of market-based financial current assets. note 16 2) Included in net other financial income and costs. 3) Included in accounting line bank deposits, cash in hand and money market funds, see note 26. Impairment of long-term financial assets Amounts in NOK 1000 THE TINE GROUP 2012 TINE SA 2011 Financial cost art – Impairment of subsidaries - – Impairment of associated companies 739 500 Impairment og other companies 739 500 Total impairment of long-term financial assets 2012 2011 - 52 000 9 243 - 706 500 9 949 52 500 Impairment of subsidiaries of TINE SA in 2011 relates to Norseland Ltd. This is based on an evaluation of future earnings in the company and the company’s equity situation. Impairment of associates in 2012 mainly relates to the Tun Media A/S. note 17 Financial risk and derivatives TINE has a unified approach to the Group’s financial risk. The primary objective of TINE’s financial policy is to contribute to the highest and most stable milk price possible. TINE utilises interest rate and currency derivatives as part of managing the Group’s currency and interest rate exposure. Interest rate swaps, forward currency exchange contracts and currency options are entered into in the interest of achieving the desired interest rate structure for the lending portfolio as well as to hedge cash flows in foreign currency that will affect the milk price. Foreign currency risk TINE’s currency risk arises from future trade transactions that are mainly related to sale of goods and purchase of raw materials and packaging abroad as well as investments in and dividend from subsidiaries outside Norway. Balance sheet risk is related to ownership interests in foreign subsidiaries and associated companies in Sweden, Denmark, the UK and the US with functional currency other than NOK. Amounts in NOK 1000 In order to reduce risk in connection with trade transactions in foreign currency, TINE has signed forward currency exchange contracts and currency options related to acquisitions and sales of the USD and EUR currencies, where TINE has its main exposure. Most of the derivatives in EUR are related to purchase, while derivatives in USD are linked to sales. The TINE Group has also defined parts of the external loans in SEK, USD and GBP as hedging instruments for net investment in the Group. The currency derivatives are evaluated in accordance with Section 5-9 of the Norwegian Accounting Act at fair value in the balance sheet. Realised gain and loss, as well as unrealised changes in fair value are recognised in the income statement. Fair value on currency derivatives is calculated based on valuation techniques where expected future cash flows are discounted to present values. Calculation of expected cash flows and discounting of these take place using observed exchange rates for the various currencies. The following table specifies the fair value of currency derivatives entered at 31.12.2012: Currency derivatives Total foreign exchange derivatives Unrealized gains (+)/loss (-) Contract amount in NOK 474 539 31.12.2012 746 All contracts come to maturity by the end of august 2013. Change in the unrealized value of these instruments in 2012 MNOK 0,8. TINE Group has secured portion of net investment in Wernersson Ost AB, Norseland Ltd. and Norseland Inc. by earmarking MGBP 5 of overdraft facilities and currency derivates amounting to MSEK 100 and MUSD 16 as a hedging instrument. Accumulated unrealized changes in value of the hedged portion of the credit facilities as at 31.12.2012 MNOK -2,7 after tax. The cumulative profit of MNOK 2,7 is included in the balance sheet under other equity in the TINE Group. For further discussion of credit facility, see note 28. Note 17 continues on following page 36 | TINE ANNUAL REPORT 2012 TINE Annual report 2012 Notes Note 17 continued The table below shows the net realized and unrealized gains and losses on foreign exchange: THE TINE GROUP TINE SA 2012 2011 51 675 Realised currency exchange profit 98 777 -45 353 Realised currency exchange loss -73 526 981 Unrealised currency exchange profit and loss -31 849 7 303 Net realised and unrealised currency profit and loss -6 598 2012 2011 90 452 44 673 -66 222 -43 651 -24 205 981 25 2 003 Interest rate risk Most of TINE’s interest rate exposure is related to the lending portfolio. The purpose of TINE’s financial policy for managing interest rate risk is to provide the Group with the most cost-effective financing possible, together with a desire for a certain amount of stability and predictability in financial expenses. In order to reduce risk related to future interest rate payments as a result of fluctuations in market interest rates, TINE is entering into interest rate swaps, FRAs (forward rate agreements) and interest rate options. As of 31 December 2012, TINE only has outstanding interest rate swaps. The table below specifies the fair value of currency derivatives, by class, entered into as of 31 December 2012: INTEREST RATE DERIVATIVES Contract amount in NOK Market value 31.12.2012 1 800 000 -52 041 Total interest rate derivatives where the change in value is charged to equity 1) Total interest rate derivatives recognised in accordance with the lower of cost or market principle 2) Total interest rate derivatives 3) 311 200 -3 153 2 111 200 -55 194 Market value at 31 December 2012 excludes accrued interest total MNOK -2,2. Fair value of interest rate derivatives included in cash flow hedging amounts to MNOK -52,0. Fair value adjusted for tax effect, MNOK -37,5, is included in other equity. The change in fair value of interest rate derivatives included in cash flow hedging amounted to MNOK -16,5 in 2012, of which changes following tax effect, MNOK -12,0, have been recognised directly in other equity. 2) The carrying amount of interest rate derivatives evaluated at the lowest value principle amounts to MNOK -3,2 as of 31 December 2012, compared with NOK - 35,1 million as of 31 December 2011. The change of NMOK 31,9 is recognised and included as financial expenses in the income statement. 3) Total carrying amount of interest rate derivatives MNOK -55,2 is recognised in the balance sheet as long-term financial obligations. 1) INTEREST SENSITIVITY ANALYSIS The analysis illustrates the interest risk connected to the Group’s interest-bearing debt and interest derivatives. pr 31.12.2012. This shows how an interest rate change of 2 % will affect the result for the next fiscal year. Any effects on the market value of the interest rate derivatives as a result of changes in the future yield curve are not included in the analysis. Any changes to the yield curve will affect the market value of both interest rate derivatives and interest-bearing debt with fixed interest. A nominal tax rate of 28 % has been used. THE TINE GROUP Net interest bearing debt 4 067 4 067 TINE SA Total hedging (fixed rate and interest rate swap) 1 500 1 500 Net interest bearing debt Total hedging (fixed rate and interest rate swap) Net exposure to interest rate ris 2 567 The net effect positive change in the 37 interest rate (2 %) 3 928 1 500 2 428 35 2 567 The net effect of adverse changes in -37 interest rates (-2 %) 3 928 1 500 2 428 -35 Net exposure to interest rate ris Profit after tax CREDIT RISK Credit risk is the risk of a party inflicting a financial loss on the other party by not fulfilling its obligations. TINE assumes counterparty risk in the sale of goods, in investment of surplus liquidity and in financial derivatives trading. TINE has established routines for credit rating of customers and establishment of credit limits in relation to the company’s credit policy. These guidelines allow e.g for reassessment of guarantees or demanding cash payment for deliveries of goods. The TINEs customers are wholesalers and individual customers in several customer segments. Their capacity to pay is regarded as good and TINE’s losses on receivables have historically been low. In connection with the fundamental changes in the economy, the follow-up of exposed customer groups has been strengthened. TINE SA has also entered into an operating guarantee scheme where TINE guarantees maximum 50 % of outstanding credit which the milk producers have in the Trade Credit Facility for agriculture. Historically there have been low payments under this scheme. Counterparty risk for financial derivatives and placement of surplus liquidity is reduced by choosing counterparties with high credit ratings, as well as diversification, see also note 33 loans and guarantees. Profit after tax has credits within drawing rights that can cover short-term refinancing needs, and the available credits indicates that the liquidity risk may be considered very low. TINE is in an investment phase and work on planning future plant structures and financing is in progress. Reference is made to Note 28 where a further description is given of overdraft facilities and the financing situation. RAW MATERIALS RISK World market prices for the main bulk products such as butter, milk powder, cheddar and Gouda dropped significantly in 2012. This was due to increased supply of milk especially in New Zealand and falling demand in key markets. The fall in demand hung closely together with the major economic challenges in many countries. The international price level has great impact on the national price levels in the U.S. and EU. As a result, milk prices fell in the EU and the U.S. significantly. The average price of raw milk were in New Zealand at $. 2,20/kg, and in the U.S. and the EU in £. 2,50/kg. It is expected a better balance in the market and thus a slight price increase in 2013. For TINE primary challenge will be the price occurring in the EU. A strong import protection is essential to limit the effect of the changes taking place in the international market. LIQUIDITY RISK The liquidity risk is the risk that TINE will not be able to service its financial liabilities as they mature. TINE manages its liquidity risk by having sufficient liquid reserves and overdraft facilities in agreed credit limits with banks and by continuous monitoring future cash flows from the Group’s financial assets and liabilities. TINE’s liquidity is considered to be good. As of 31 December 2012, TINE Energy is a major cost to TINE, and volatile energy prices pose a commodity risk. A significant proportion of the volume is ensured, however, so that the total risk of TINE was still limited in 2012. For inputs in general TINE experienced some price reduction in 2012 compared with the year before. This is largely due to a stronger NOK. TINE ANNUAL REPORT 2012 | 37 note 18 Taxes Amounts in NOK 1000 THE TINE GROUP TINE SA 2011 Reconciliation from nominal to actual tax rate: 2012 1 095 441 Profit before tax 762 064 309 793 Expected income tax according to nominal tax rate in Norway 213 379 2012 2011 734 337 1 002 623 205 614 280 734 Tax effect of the following items: 12 093 12 224 Non-deductible costs 10 586 6 925 -35 515 -4 484 Non-taxable income -42 158 -3 693 2 824 Differences in tax rates in other countries 2 073 -167 686 Payments to milk producers -107 261 8 659 Amortisation of goodwill 5 282 -6 834 Change in impairment of deferred tax assets -2 450 -579 Net associated companies -3 390 140 Impairment of long-term financial assets 198 -1 887 4 313 Tax effect of change in tax rate 7 320 7 382 Wealth tax -7 233 Other items 3 108 - - -107 261 -167 686 - - - - - - 2 786 14 700 - - 7 320 7 329 3 530 116 92 950 158 519 Total tax expense 80 417 138 425 12,2 % 14,5 % Effective tax rate 11,0 % 13,8 % THE TINE GROUP TINE SA 2011 Deferred tax effect of items recognised directly against equity: 2012 -13 650 Hedging of future cash flows -4 634 -842 Equity hedging of foreign subsidiary 2 336 -14 492 Deferred tax effect of items recognised directly in equity -2 298 THE TINE GROUP/NORWAY 2011 -13 650 - – -4 634 -13 650 THE TINE GROUP/INTERNATIONAL 2011 Split of income tax expense between Norway and other countries: 2012 2012 2011 7 615 881 31.12.2012 31.12.2011 33 972 73 378 -552 -5 307 157 638 Total tax expense 85 335 2012 -4 634 THE TINE GROUP TINE SA 31.12.2011 Tax payable in the balance sheet: 31.12.2012 78 313 Income tax 47 231 - Tax effect of disbursed group contribution - 7 382 Wealth tax 7 320 85 695 Tax payable in the balance sheet 54 551 7 320 7 329 40 740 75 400 THE TINE GROUP 31.12.2012 31.12.2011 Assets Liabilities - 21 056 - 9 676 Excess values through acquisitions - 1 860 Long-term liabilities - 492 411 - 22 426 37 322 - - 14 680 - 6 189 73 611 - 110 933 Specification of tax effect of temporary differences and loss carried forward: Property, plant and equipment Non-current financial assets Inventories Short-term receivables Short-term liabilities Profit and loss account Assets Liabilities 25 781 - - 15 279 3 307 - - 512 838 - 29 255 56 299 - - 17 115 - 6 942 Remuneration/loss carried forward 101 147 - 568 298 Total 186 536 581 430 -37 257 -37 257 Offsetting of tax assets/tax liabilities -81 640 -81 640 73 676 531 041 Deferred tax assets/tax liabilities 104 896 499 790 Unrecognised deferred tax asset -88 686 Net deferred tax asset/tax liability in the balance sheet 16 210 -69 121 4 555 531 041 499 790 Deferred tax assets are recognized based on future income. Tax losses carried forward have no time limit. TNOK 70 850 of tax effect of the loss per 31.12.2012 belong to the Swedish business in TINE. Provision for deferred taxes on undistributed earnings of associated companies and foreign subsidiaries are taken to the extent that it is expected that it will be paid dividends in the foreseeable future. Note 18 continues on following page 38 | TINE ANNUAL REPORT 2012 TINE Annual report 2012 Notes Note 18 continued TINE SA 31.12.2012 Assets 31.12.2011 Liabilities Assets Liabilities Specification of tax effect of temporary differences and loss carried forward: note 19 - 11 744 - 492 410 16 549 - - 17 430 Property, plant and equipment 30 404 - - 511 892 Non-current financial assets Long-term liabilities 20 673 - - 23 780 Inventory 37 168 - Short-term receivables 54 961 - - 2 579 Profit and loss account - 3 012 53 717 524 163 Total 106 038 538 684 -53 717 -53 717 Offsetting of tax assets/tax liabilities -106 038 -106 038 - 470 446 Deferred tax assets/tax liability in the balance sheet - 432 646 Equity Amounts in NOK 1000 THE TINE GROUP 31.12.2011 31.12.2012 Cooperative share capital Subsequent payment fund Other equity Minority share Total equity 9 536 340 000 4 952 720 55 380 5 357 636 - - 654 014 15 100 669 114 - - -383 076 - -383 076 -1 664 - - - -1 664 - - -11 916 - - - 6 007 - - - - -15 051 - - - - - 7 872 340 000 Cooperative share capital Subsequent payment fund Other equity Minority share Total equity 9 689 340 000 4 656 266 53 273 5 059 228 Net profit for the year and minority interest - - 928 567 8 355 936 922 - - -598 878 - -598 878 -153 - - - -153 -11 916 Allocated to milk producers Net payments and disbursements of cooperative share capital Hedging of future cash flows - - -35 101 - -35 101 6 007 Equity hedge of foreign subsidiaries - - -2 165 - -2 165 -15 051 Changes in minority - - -1 115 -1 115 -20 043 -20 043 The minority's share of disbursed dividend - - -5 133 -5 133 -15 082 - -15 082 Currency conversion difference and miscellaneous - - 4 031 - 4 031 5 202 667 35 386 5 585 925 9 536 340 000 4 952 720 55 380 5 357 636 Equity at 01.01 Change in equity for the year Equity at 31.12 TINE SA 31.12.2012 Cooperative share capital Subsequent payment fund Other equity Total equity 9 536 340 000 5 037 611 5 387 147 - - 653 920 653 920 - - -383 076 -383 076 -1 664 - - -1 664 31.12.2011 Equity at 01.01 Cooperative share capital Subsequent payment fund Other equity Total equity 9 689 340 000 4 807 392 5 157 081 Change in equity for the year - - -11 916 -11 916 7 872 340 000 5 296 539 5 644 411 Net profit for the year - - 864 198 864 198 Allocated to milk producers - - -598 878 -598 878 -153 - - -153 Net payments and disbursements of cooperative share capital Hedging of future cash flows Equity at 31.12 - - -35 101 -35 101 9 536 340 000 5 037 611 5 387 147 TINE ANNUAL REPORT 2012 | 39 note 20 Obligations related to financial leasing THE TINE GROUP Amounts in NOK 1000 TINE SA 31.12.2012 31.12.2011 31.12.2012 31.12.2011 27 077 45 083 Present value of lease payments 24 751 36 713 29 703 50 891 Nominal value 26 877 40 786 Estimated minimum lease payments which fall due during one year, two to five years, and over five years respectively: THE TINE GROUP TINE SA 1 year 2 to 5 years more than 5 years 12 353 14 724 - 14 009 15 694 - Total 1 year 2 to 5 years more than 5 years Total 27 077 Present value of lease payments 10 289 14 462 - 24 751 29 703 Nominal value 11 506 15 371 - 26 877 Book value of leased assets is specified in note 10 Tangible fixed assets. Fixed assets that are leased on terms that essentially transfer the financial rights and liabilities to Group companies are capitalised at current value of the lease (financial lease). The liability is included in interest-bearing long-term debt. The fixed assets are depreciated according to plan, and the liability is reduced by the paid lease amount after the deduction of calculated interest cost. For other leasing agreements the rental payment is an operating expense which is distributed over the leasing period. note 21 Long-term receivables from Group companies Amounts in NOK 1000 TINE SA 31.12.2012 31.12.2011 Long-term receivables from Group companies 345 970 178 596 Total long-term receivables from Group companies 345 970 178 596 Long-term receivables from Group companies are loans TINE SA has issued to subsidiaries. The loans are exempt from repayment, but interest is charged on the principal. For 2012, the average interest rate was 4,3 % p.a. and for 2011 the average interest rate was 3,9 % p.a. note 22 Other long-term receivables THE TINE GROUP 31.12.2012 TINE SA 31.12.2011 Other long-term receivables 3 375 Loans to associated companies 5 625 11 613 21 606 Other long-term receivables 18 523 24 981 Total other long-term receivables 31.12.2011 1 285 – 5 625 3 375 3 962 13 343 10 872 16 718 Inventories Amounts in NOK 1000 THE TINE GROUP TINE SA 31.12.2012 31.12.2011 Specification 31.12.2012 31.12.2011 257 295 263 069 Raw materials 221 655 226 966 434 538 493 752 Goods in production 434 201 425 104 773 775 619 126 Convenience products 1) 491 733 362 275 138 279 1 603 887 95 530 Goods for resale 1) 1 471 477 Total inventories THE TINE GROUP 31.12.2012 1 461 151 142 736 1 603 887 1) 31.12.2012 – Carrying amount of financial derivatives classified as long-term receivables, cf. note 17 1 285 note 23 Amounts in NOK 1000 73 313 84 643 1 220 902 1 098 988 TINE SA 31.12.2011 Value assessment 1 313 433 Valued at acquisition cost 158 044 Valued at fair value 1 471 477 Total inventories 31.12.2012 31.12.2011 1 100 546 945 188 120 356 153 800 1 220 902 1 098 988 The distribution between convenience products and goods for resale are modified in the 2011 figures for the comparable distribution in line with the current allocation principles in 2012. The Group’s inventories were written down by MNOK 103,4 as of 31.12.2012 due to obsolescence and changed market conditions for same individual product segment. The figure for 2011 was MNOK 33,3. 40 | TINE ANNUAL REPORT 2012 TINE Annual report 2012 Notes note 24 Balances with associated companies THE TINE GROUP 31.12.2012 936 5 625 6 561 27 466 note 25 TINE SA 31.12.2011 Balances with associated companies 31.12.2012 747 Receivables to associated companies 3 375 Loans to associated companies 4 122 Total receivables and loans to associated companies 55 617 Total short-term liabilities to associated companies 31.12.2012 12 248 31.12.2011 919 747 5 625 3 375 6 544 4 122 27 463 54 948 Other short-term receivables THE TINE GROUP note 26 Amounts in NOK 1000 Amounts in NOK 1000 TINE SA 31.12.2011 Other short-term receivables 31.12.2012 5 908 Value of financial derivatives classified as short-term receivables, cf. note 17 12 208 Quota loans to milk producers, cf. note 33 31.12.2011 - 5 908 12 248 12 208 199 128 205 935 199 128 Credit to milk producers, to be settled against subsequent payments, cf. notes 5 and 33 205 935 303 251 291 060 Other short-term receivables 254 470 218 369 521 434 508 304 Total other short-term receivables 472 653 435 613 Bank deposits, cash and money market securities THE TINE GROUP 31.12.2012 TINE SA 31.12.2011 Bank deposits, cash and money market securities 99 427 109 788 Bank deposits and cash 26 701 273 483 Money market securities 126 128 Amounts in NOK 1000 383 271 Total bank deposits, cash and money market securities 31.12.2012 31.12.2011 4 770 3 680 - 202 674 4 770 206 354 – – consisting of: 3 592 note 27 3 961 Restricted bank deposits Minority share in the balance sheet Minorities represent external owner’s share in subsidiaries The minority share in the balance sheet is distributed as follows: Bunes Fryselager AS Fjordland AS Salmon Brands AS Total minority share in the balance sheet Amounts in NOK 1000 THE TINE GROUP 31.12.2012 31.12.2011 5 990 5 795 29 396 42 116 - 7 469 35 386 55 380 Salmon Brands AS was sold in March 2012, refer to note 42. TINE ANNUAL REPORT 2012 | 41 Long-term loans note 28 Amounts in NOK 1000 The table below shows the long-term loans in TINE and contractual loan payments date. THE TINE GROUP TINE SA Total outstanding 31.12.2012 Total outstanding 31.12.2011 Total outstanding 31.12.2012 Type of loan 880 000 Bond 1 209 000 1 300 000 Other long-term debt 1 900 000 1 209 000 880 000 1 900 000 1 300 000 44 969 258 650 258 650 Multi-currency credit facilities 44 969 3 511 5 988 Bank loans 27 337 45 341 Other loans 2 489 979 Total other liabilities 3 184 817 THE TINE GROUP Total outstanding 31.12.2011 - - 25 008 36 971 3 178 977 2 475 620 TINE SA Repayment in 2013 2014 2015 2016 - 609 000 - - - - 400 000 438 462 3 511 - - - 12 610 8 561 4 800 1 366 16 121 617 561 404 800 439 828 2017 and later Type of loans 600 000 Bond 1 061 538 Other long-term debt Repayment in 2015 2016 2017 and later 2013 2014 - 609 000 - - 600 000 - - 400 000 438 462 1 061 538 44 969 - - - - - Other loans 10 546 8 296 4 800 1 366 - 1 706 507 Total other liabilities 10 546 617 296 404 800 439 828 1 706 507 44 969 Bank loans The average interest rate for long-term interest bearing loans for 2012 was 4.3 %. Similarly, the average rate was 4.8 % in 2011. Bond issues TINE SA has two bond issues traded on ABM (Alternative Bond Market) with a total outstanding amount of MNOK 1 209 as of 31.12.2012. Both loans are based on contracts with Norsk Tillitsmann ASA. The loans have a negative pledge clause and are on the same footing as other interest-bearing loans. Other long-term debt TINE SA’s remaining long-term debt as at 31.12.2012 amounts to MNOK 1 900 and consists of two loans from the Export Finance and two loans from the Nordic Investment Bank. Multi-currency revolving credit TINE SA has an agreement with four banks for a long-term multi-currency credit facility of MNOK 1 000 The credit facility was renegotiated in May 2011 and has a term of 5 years. The credit facility is primarily used as a ’back-stop’ for short-term financing. As at 31.12.2012 it was drawn MNOK 45 in loan agreement. The cover is mainly in economic hedges of net investment in Norseland Ltd. Hedge accounting is reflected in the TINE Group. See further discussion in note 17. Loan Terms The agreements restrict the admission of new loans with collateral without the approval of the lenders. Key covenants beyond this minimum equity capital ratio in the TINE Group, limitation of access to the use of financial leasing and sales of assets that constitute a substantial part of the activities to be approved by the lender. note 29 Short-term interest-bearing liabilities THE TINE GROUP 31.12.2012 Amounts in NOK 1000 TINE SA 31.12.2011 Short-term interest-bearing liabilities 31.12.2012 31.12.2011 666 000 500 000 Certificate loans 666 000 500 000 - 300 000 Overnight loans - 300 000 271 346 16 606 Overdraft facilities, Group account contract 271 346 16 606 71 210 70 080 Overdraft facilities, outside the Group account contract 1 008 556 674 151 - – 886 686 Total short-term interest-bearing liabilities 937 346 816 606 924 680 Unused overdraft facilities 578 654 833 394 TINE SA has a group account contract with Danske Bank for a total overdraft facility for the whole of the group with the exception of Norseland Inc., Norseland Ltd. and Fjordland AS, which have separate bank contracts and overdraft facilities. note 30 Other short-term liabilities THE TINE GROUP 31.12.2012 10 338 Amounts in NOK 1000 TINE SA 31.12.2011 Other short-term liabilities 4 542 Carrying amount of financial derivatives classified as short-term liabilities, cf. note 17 12 854 Short-term liabilites to Statens landbruksforvaltning, cf note 34 31.12.2012 31.12.2011 - 4 542 10 338 12 854 927 525 791 789 Other short-term liabilities 795 918 703 559 937 863 809 185 Total other short-term liabilities 806 256 720 955 42 | TINE ANNUAL REPORT 2012 TINE Annual report 2012 Notes note 31 Mortgages Amounts in NOK 1000 THE TINE GROUP 31.12.2012 31.12.2011 37 043 40 118 15 640 16 482 Debt secured by mortgage Carrying amount of pledged assets Buildings and land Machines - movable property Inventories Trade receivables Total mortgaged assets 1 062 4 335 120 600 99 590 86 208 86 345 223 510 206 752 A limited part of the long-term and short-term debt at Group level is secured by mortgage. This mortgage security was provided to TINE’s subsidiaries before TINE entered in to the existing long-term and short-term loans in the Group. TINE has made a commitment to not take up new loans with mortgage security in the Group’s assets without the lender’s consent. note 32 Transactions with related parties Amounts in NOK 1000 TINE SA Transactions with subsidiaries Sale of convenience products and services Purchase of convenience products and services 2012 2011 1 747 125 1 935 743 25 167 207 028 Transactions with associated companies Sale of conveniance products and services Purchase of convenience products and services 7 538 7 242 608 477 655 788 We define related parties as our owners, senior emplyees, all subsidiaries and associated companies of TINE SA and MP Pensjon. Concerning transactions with our owners, reference is made to note 5 Purchases of raw cow and goat milk from the milk producers. Transactions with MP Pensjon regarding payment of pension premiums is described in note 7 Pensions and pension obligations. Remuneration for senior management is described in note 8. Receivables and liabilities from Group companies are presented in notes 13 and 21. TINE SA’s ownership in subsidiaries and associated companies are presented in note 14. Convenience products are bought and sold at the same prices and terms used for external third parties transactions. Transactions related to services to related parties are sold at cost price added an estimated profit at commercial terms. The profit added depends on the type of service delivered. note 33 Loans and guarantees LOANS The Group provides loans to employees for the purchase of vehicles and computers. As of 31.12.2012 the total lending in this connection amounts to MNOK 5.3 for the TINE Group. TINE SA provides monthly loans to the individual milk producers based on the member’s monthly milk deliveries. Accumulated loans throughout the year are offset against part of the member’s subsequent payment as decided at TINE’s annual meeting. As of 31.12.2012, the milk producer loan scheme amounts to MNOK 206. The loans are granted against security in the member’s future milk deliveries. In addition, TINE SA has provided loans to members of TINE in connection with purchasing milk quotas. As of 31.12.2012, total loans in this connection amount to MNOK 12. Scheme is to be liquidated. GUARANTEES: Bank guarantees Danske Bank has provided a total guarantee limit of MNOK 200 at the disposal of TINE SA. The guarantee liability principally covers the tax withholding guarantee for TINE SA and its subsidiaries, transportation permit guarantees and rental bond. The utilised limit as of 31.12.2012 is MNOK 170, of which tax withholding guarantees amount to MNOK 153. Guarantees provided by TINE Surety on MNOK 21 provided by TINE SA vis-a-vis Danske Bank as security for the signed agreement regarding Group allocation with majority-owned subsidiaries. Parent company guarantee on MGBP 9,25 by TINE SA to Danske Bank as security for Norseland Ltd.’s liabilities to the bank. A «Letter of Support» has been granted to Norseland Ltd., where TINE SA guarantees the company’s operation for the next 12 months. Parent company guarantee on MNOK 1.5 by TINE SA to Toyota Material Handling Norway AS as security for Diplom-Is AS’ liabilities relating to a signed lease agreement. In general, TINE SA covers maximum 50 % of the current operating credits the milk producers have in the Operating Credit Scheme for Agriculture. See also note 17, section creditrisk. TINE ANNUAL REPORT 2012 | 43 note 34 Outstanding accounts with the Norwegian Agricultural Authority – market regulation and subsidy schemes Market schemes for milk consist of: 1) The quota scheme for milk, which is one of the regulation measures to adjust milk production to needs. 2) Market regulation, which TINE handles on behalf of all the milk producers in the country. 3) Subsidy schemes for milk producers: Basic and district subsidies. 4) Price compensation scheme, which equalises between milk applications and geographic differences. 5) Import tariffs, which are notified through the WTO agreement. Outstanding accounts here include market regulation (2), subsidy schemes (3) which are agreed in the agricultural agreement and where TINE also has the task of payment to its owners, as well as the price compensation scheme (4). Market regulation The Sales and Marketing Council is responsible for the regulations that lay down premises for implementation of market regulation, and the Sales and Marketing Council manages the application of the funds. The Norwegian Agricultural Authority is the secretariat for the Sales and Marketing Council. The Authority considers applications and proposals from the market regulator and presents recommendations for decisions to the Council. TINE SA ensures market regulation in the dairy sector on behalf of all the milk producers in the country. The purpose is to implement different regulatory measures for: • on the one hand to ensure all milk producers sale of their products at agreed target prices, and • on the other hand, TINE Råvare shall ensure satisfactory supplies of raw milk on equal terms to all players in the market scheme for milk. Milk deliveries vary throughout the year and the variation is different in different areas of the country at the same time as the domestic consumption is relatively steady. The need for regulation therefore arises from the lack of correlation between the supply of milk and consumption. The most important sales measures are regulatory storage, regulated transport of milk, compensation for unused production capacity and regulatory export. In addi- tion, funds are used for professional measures directed towards quality and breeding work at dairy farms, information work undertaken by the Information Office for Dairy Products (melk.no) and price reduction of school milk. Administration costs in TINE and costs for administration of the scheme in the Norwegian Agricultural Authority and Sales and Marketing Council are also incurred. The budget for TINE’s costs including market-adjustment in 2012 was MNOK 102,1. Including professional measures and information activities, support to KSL Matmerk and administration of market regulation in the Norwegian Agricultural Authority and the Norwegian Agricultural Marketing Board, the budget totalled MNOK 152,9. Market regulation statements and cost coverage applications are not processed by the Norwegian Agricultural Marketing Board before the end of March of the following year. Changes may therefore occur. The uncertainty is greatest for the regulation capacity statement. The market regulation costs are covered by all Norwegian milk producers paying a sales tax which is deducted in the milk settlement. The sales tax was NOK 0.08 per litre during the first half of 2012 and NOK 0.12 per litre during the second half. The cost coverage also includes paid over-production tax and any income from extraordinary sale of quotas. The market regulation section is responsible for ensuring that TINE SA receives coverage for its regulation costs, as presented in the following table. TINE SA’s costs for market regulation, including administration of the scheme, are not included in the accounts for TINE Råvare. Basic and district subsidies This is a subsidy that TINE pays to its owners in accordance with an agreement with the authorities. The amount of the subsidies is negotiated in the agricultural agreement and varies based on the extent of production and geographical location. The funds are transferred from the Norwegian Agricultural Authority and disbursed to the producers via the producer settlement. Amounts in NOK 1000 2012 2011 Available funds Outstanding accounts at 01.01 12 854 8 236 Payments/disbursements -3 189 -6 750 Adjustments for previous years -9 665 -1 486 Received for professional measures and information activities 33 550 31 789 Sales tax funds 120 082 107 575 Total available funds 153 632 139 364 9 653 10 316 Other measures, excluding administration and interest 60 745 43 631 School milk scheme 29 015 29 218 Administration TINE and interest 10 332 11 053 109 745 94 722 Expenditures Sales measures, school milk, administration and interest Price reduction export Price reduction domestic, excluding school milk Total expenditures excluding professional measures Professional measures and information activities Total expenditures Outstanding sales measures at 31.12 504 33 550 31 789 143 295 126 510 10 338 12 854 Collected Fees Collected sales fee Collected over-production fee Collected research fee Note 34 continues on following page 44 | TINE ANNUAL REPORT 2012 146 270 92 954 1 249 37 425 24 600 22 910 Note 34 continued TINE Annual report 2012 Notes Amounts in NOK 1000 2012 2011 -18 727 -9 927 Outstanding accounts between the Norwegian Agricultural Authority and TINE SA 31.12 Unpaid, collectable taxes Receivable subsidy scheme 1 115 4 854 Payable compensation scheme -7 372 -67 704 Basic and district subsidies Basic subsidy District subsidy 60 030 60 231 486 297 468 131 Basic and district subsidies disbursed from TINE SA to milk producers on behalf of the Norwegian Agricultural Authority (SLF). COMPENSATION SETTLEMENT MARKET SCHEME FOR MILK The price compensation scheme for milk is intended to regulate the price differentiation of milk as raw material for different applications in accordance with the agricultural agreement’s provisions by ensuring a higher total market consumption and at the same time enabling milk producers to receive equal milk prices independent of milk applications and location of production. Further, it is an important premise for the scheme to ensure equal competition conditions for the players who are part of the scheme. The statutory basis for the scheme is a Regulation relating to the price compensation scheme for milk, laid down by the Ministry of Agriculture on 18 December 2007. Adjustment tax/addition and feed transport subsidy In-freight addition Distribution addition Total in-freight addition and distribution addition (see Note 12) 2012 2011 -452 296 -433 070 -10 580 -10 724 -462 876 -443 794 596 148 694 478 Settlement in-freight addition and distribution addition previous years Main milk/by-product application Settlement main milk/by-product application previous years Net adjustment tax/addition and feed transport subsidy -51 2 949 8 238 136 221 258 871 In-freight addition and distribution addition are recognised in the income statement under other operating expenses, see note 12. Main milk and by-product application is charged as commodity cost. note 35 TINE Råvare The agreement signed between the Norwegian authorities and TINE SA in 2004 concerning having TINE Råvare (TINE Milk Supplies) be a separate accounting and profit centre so as to have clear administrative and accounting separation between raw materials handling and processing in TINE. TINE Råvare performs all tasks related to handling of milk as raw material from the milk producers and up to the individual participants in the market scheme for milk. The Norwegian Agricultural Authority ensures that all players, including TINE, are able to buy raw milk at the same price from TINE Råvare. In order to fulfill their responsibilities TINE Råvare purchases services from various other departments of TINE SA basis of clearly defined service instructions detailing what is performed. The instructions are based on a contractual setup originally developed and quality assured by the Norwegian Agricultural Economics Research Institute (NILF), and approved of SLF. Service instructions were in 2012 adjusted according to the changes when regional responsibilities were taken over by new public spaces within TINE SA. All changes in service instructions occurs only after discussions with the SLF. Formally, TINE Råvare is included as a part of TINE’s annual accounts, but through the contract that has been entered into between TINE SA and the Government by SLF, any surplus/deficit in TINE Milk Supplies shall be settled against the milk producers. In addition, separate reporting shall be undertaken of the accounts for TINE Råvare to SLF which documents that TINE has met its obligations in relation to this contract. The audit of TINE Råvare is performed by the same auditor that audits TINE SA’s annual accounts and group accounts. Please also refer to a separate section about TINE Råvare in the Director’s report. Accounts for TINE Råvare is presented below. Note 35 continues on following page TINE ANNUAL REPORT 2012 | 45 Note 35 continued Amounts in NOK 1000 Accounts for TINE Råvare 2012 2011 Sales of raw cow and goat milk 7 088 190 6 577 814 Cost of raw cow and goat milk -6 724 830 -6 196 756 Gross profit 363 360 381 058 Producer functions 149 970 153 644 Coordination towards farmers 21 642 22 987 132 426 128 852 Milk inspection 38 731 38 240 Collection and inbound transport (net) 36 604 30 143 Own costs in TINE Råvare 17 682 15 973 Administration and infrastructure 15 171 13 028 Interest on working capital -8 083 -8 692 Membership fee and Geno -17 270 -16 527 Total costs 386 873 377 648 TINE Råvare profit before carrying over profit from the preceding year Farm tanks -23 513 3 410 Profit/loss carried forward from last year 19 701 16 291 Profit/loss TINE Råvare to carry forward -3 812 19 701 Accounts for TINE Råvare for 2012 show a loss of MNOK 23.5 before transfer of income from foor years. Deferred loss as per 31.12.2012 is then MNOK 3.8, and shall be offset against milk producers in the following year. The amount is therefore the basis for determining the price paid to the producer (base price) in the coming years. The various income, expense and balance sheet for TINE Råvare material is included in the respective accounts and balances in the financial statements of TINE SA. It is only the profit element in TINE Råvare materials that are eliminated from the result of TINE SA. note 36 Business combinations and changes in ownership interests TINEs subsidiary in the U.S., Norseland Inc., acquired in June 2012 the business in Alpine Cheese Co. Alpine Cheese Co. has been tolling for Norseland Inc. in the United States since 2000. Acquired business is located in the newly formed subsidiary of Norseland Inc. The name of the subsidary is Alpine Dairy LLC. Goodwill was calculated to MNOK 19.7. Wernersson Ost Holding AB acquired the remaining shares (20 %) in Wernersson Ost Danmark AS in September 2011. Goodwill was calculated to MNOK 0.5. See the separate section of the annual report that reviews Wernersson. Wernersson Ost Holding AB changed its name to TINE Holding AB in 2012. Gastronom AS changed its name in 2012 to Melkerampa AS. Melekrampa is a wholly owned subsidiary of TINE. Melkerampa is a shop located in Mathallen (the Food Hall) Oslo. Melkerampa is a provider of Norwegian Food and joy of food with a focus on dairy specialties. Product range includes everything from TINE specialty cheeses to products from small producers. The operation of the company started in October 2012. note 37 Provisions Amounts in NOK 1000 The following provisions for future obligations have been recognised in the balance sheet as debt: THE TINE GROUP 31.12.2012 48 112 1 300 TINE SA 31.12.2011 Provisions 62 332 Reorganisation costs - Production contract for cheese abroad 31.12.2012 31.12.2011 48 112 62 332 25 900 45 900 Reorganisation costs include the final payment and costs of buying out rental contracts. Reorganisation measures were carried out in TINE SA during both years. TINE SA has signed an agreement with Dairygold Ltd. in Ireland regarding the production of Jarlsberg. The agreement expires in 2014. Provision for 2012 represents the expected loss on the resale of the cheese. 46 | TINE ANNUAL REPORT 2012 TINE Annual report 2012 Notes note 38 Other off balance sheet lease liabilities Amounts in NOK 1000 TINE SA and subsidiaries in the TINE Group have rental relationships and rental contracts concerning rental of external office premises, warehouse, refrigeration plants, production machinery, trucks, other means of transport, office machines, computers and freezers. The table below shows the annual lease payments and the lease duration: THE TINE GROUP 2012 2011 Rent object 2012 2011 63 736 80 348 88 885 Office premises 3 - 10 years 51 494 24 776 26 951 Warehouse and cold storage 0 - 10 years - - 49 002 39 482 Production machines 3 - 7 years 48 963 39 405 212 10 536 3 340 14 468 10 912 193 594 note 39 TINE SA Agreement duration 203 Trucks 12 873 Other transport equipment 5 860 Office equipment 16 474 Computers 371 Freezers 3 - 5 yeras - - 2 - 5 years 2 814 2 645 3 years 3 155 5 693 3 years 14 325 16 298 4 - 5 years 191 099 Total off-balance sheet leases - - 120 751 127 777 Environmental issues The TINE Group has adopted environmental objectives within the areas of waste, discharge to water, phasing out of refrigerants, energy consumption and optimising of packaging materials. There are both operating expenses, wage costs and investments connected to reaching these objectives. We pay taxes in connection with discharge to water and delivery of different types of waste. There are environmental taxes on several types of packaging materials. Investments are being made to reduce TINE’s environmental impact, e.g. by building and upgrading cleaning plants, equipment for saving energy and water and equipment for source separation of waste. note 40 Major individual transactions THE TINE GROUP 2012 Amounts in NOK 1000 TINE SA 2011 Balance sheet 850 870 1 641 836 Investments in lager new plants 152 048 - Gain on sales on assets 2012 2011 850 870 1 641 836 Profit and loss items -14 149 -739 -15 551 - -50 989 Write-down of tangible fixed assets and goodwill -500 Impairment of financial assets -53 000 Costs connected with reorganisation and closure 26 000 Awarded legal costs 141 403 - -13 149 -34 936 -9 949 -52 500 -11 492 -53 000 - 26 000 Investments in major new plants for 2012 and 2011 apply to a new dairy plant at Jæren, expansion of the dairy plant at Verdal, and expansion of the terminal and warehouse in Oslo and in Trondheim. Gain on sale of fixed assets consist primarily of gains from the sale of Salmon Brands AS and sale of discontinued equipment. Write-down of tangible fixed assets are mainly related to discontinued products due to market development and reduced profitability. See note 16 for further comments concerning write-down of financial fixed assets. Costs due to reorganisation and discontinuations are mainly related to TINE SA’s dairy activities. In 2011, the Norwegian Supreme Court ruled in favour of TINE in regard to its alleged abuse of its dominant position during chain shop negotiations with REMA in 2004. TINE was awarded legal costs and the 2011 accounts was credited MNOK 26 as a result of this. note 41 Government grants Amounts in NOK 1000 Regarding the TINE Group and TINE SA, innovation and other governmental and municipal grants have been received as shown in the following table. The grants are presented net of costs incurred. THE TINE GROUP TINE SA 2012 2011 Government grants 1 213 1 433 Tax-related incentive scheme 2012 2011 910 1 130 15 609 20 391 Other governmental and municipal grants 15 609 20 391 16 822 21 824 Total government grants 16 519 21 521 TINE ANNUAL REPORT 2012 | 47 note 42 Discontinuation and divestment of business Amounts in NOK 1000 In March 2012 was Salmon Brands AS sold. The sale of the business generated a net gain included in other operating income in the Group and in financial income in TINE SA. Below lists figures for Salmon Brands AS, part of TINE Group consolidated income statement and balance. Business Outcomes 2012 2011 Sales revenues 30 053 191 308 Operating expenses 27 257 189 532 2 796 1 776 Operating profit The entities' assets and liabilities 15.03.2012 31.12.2011 Assets 65 202 60 391 Liabilities 48 048 45 149 48 | TINE ANNUAL REPORT 2012 TINE Annual report 2012 notes/ auditor’s report Translation from the original Norwegian version To the Annual Meeting of TINE SA INDEPENDENT AUDITOR’S REPORT Report on the Financial Statements We have audited the accompanying financial statements of TINE SA, which comprise the financial statements of the parent company, showing a profit of NOK 653.920.000, and the financial statements of the group, showing a profit of NOK 669.114.000. The financial statements of the parent company and the financial statements of the group comprise the balance sheet as at December 31, 2012, and the income statement and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information. The Board of Directors and the Managing Director’s Responsibility for the Financial Statements The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of these financial statements in accordance with the Norwegian accounting act and accounting standards and practices generally accepted in Norway, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements are prepared in accordance with the law and regulations and give a true and fair view of the financial position of TINE SA and of the group as at December 31, 2012, and of its financial performance and its cash flows for the year then ended in accordance with the Norwegian accounting act and accounting standards and practices generally accepted in Norway. Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors’ report and the the allocation of the profit Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors report concerning the financial statements and the going concern assumption, and that the proposal for the the allocation of the profit complies with the law and regulations and that the information is consistent with the financial statements. Opinion on Registration and Documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, «Assurance Engagements Other than Audits or Reviews of Historical Financial Information», it is our opinion that management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the company’s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway. Oslo, February 18, 2013 Deloitte AS Kjetil Nevstad (signed) State Authorised Public Accountant (Norway) TINE ANNUAL REPORT 2012 Subsidiaries in the TINE Group TINE’s domestic dairy operations OsteCompagniet AS Highlights 2012 •Strong focus on TINE Smørbar and Snøfrisk •Lost positions within the institutional segment The company markets and sells TINE’s speciality cheeses, Norwegian farm cheese and imported cheese from large parts of Europe. OsteCompagniet’s vision is “Bringing cheese with character to the people”. The goal is to develop the market for speciality cheeses in Norway. KEY FIGURES (NOK million) Revenues Operating income Number of employees 2012 2011 265 276 4 7 12 13 TINE’s international dairy operations Norseland Inc. Norseland Inc produces, ripens, markets and distributes specialty cheeses from TINE and other producers to supermarkets and the institutional market in the US. Norseland Ltd. Norseland Ltd. ripens, markets and distributes specialty cheeses from TINE and Ilchester in the grocery retail market in England. Highlights 2012 •Sales growth and improved operating income •Purchased Alpine Cheese* Co., which has operated franchise production of Jarlsberg cheese since 2000 •The sale of Jarlsberg wheels reached record levels in spite of stiff competition. Highlights 2012 •Revenues on par with 2011 •Significant profit improvement, e.g. due to implemented cost savings •The sale of Jarlsberg cheese was somewhat below the volume sold in 2011 KEY FIGURES (NOK million | MUSD) 2012 Revenues Operating income Number of employees 2011 1 056 182 907 162 26 5 24 4 85 31 The number of employees increased by 50 people as of 1 July 2012 due to the acquisition of Alpine Dairy Co. * The company has subsequently changed its name to Alpine Dairy LLC NØKKELTALL (MNOK | MGBP) 2012 Revenues Operating income Number of employees 2011 1 056 182 907 162 26 5 24 4 85 31 NØKKELTALL (MNOK | SEK MILLION) Wernersson Ost AB Wernersson Ost AB ripens, markets and distributes a broad and international cheese selection for supermarkets and the institutional market in the Nordic region. 50 | TINE ANNUAL REPORT 2012 Highlights 2012 •Good growth in sales and profit •Expansion of both inventories and production at the dairy in Ulricehamn •Good increase in the sale of Jarlsberg cheese after significant marketing activities 2012 Revenues 2011 589 686 571 662 Operating income 8 10 6 7 Number of employees 101 92 tHe tine group suBsiDiaries otHer Business aCtivities Diplom-is as Diplom-Is AS is a brand-name company which manufactures and markets ice cream and frozen desserts. fellesJuice as FellesJuice AS is a brand-name company which develops and markets Sunniva juice, TINE IsTe and other fruit-based drinks. The products are produced and sold through TINE. fjordland as Fjordland AS is a brand-name company which drives the development, marketing and sale of fresh convenience food, margarines, yoghurt and desserts in the Norwegian market. Highlights 2012 • In spite of a very mixed summer season, the ice cream category in Norway showed moderate growth and Diplom-Is drove the growth in the category • The company has had a good launch programme within its core brands and will increase its resource input in innovation and branding • Focus on completing structural changes in distribution and improvements in production Highlights 2012 • In spite of increased competition in multiple sales channels, FellesJuice has delivered satisfactory results • An effort to clarify additional focus on fruit-based drinks has been completed • Focus on the «on-the-go» market continues, and the company has had a strong launch programme Highlights 2012 • Sales growth in all product categories yielded improved operating income • Continued focus on the development of quality products which are preferred by consumers in order to strengthen Fjordland’s position in the market • Increased consumer communication, both through traditional media and digital channels in order to further build the brands Key figures (noK million) Revenues Operating income number of employees 2012 2011 924 929 8 38 420 436 2012 2011 181 221 Key figures (noK million) Revenues Operating income number of employees 6 9 15 14 Key figures (noK million) Revenues 2012 2011 1 190 1 130 Operating income 43 33 number of employees 82 81 TINE ANNUAL REPORT 2012 | 51 Årsrapport 2012 contact information employee representatives ANNUAL MEETING The annual meeting consists of 110 member-elected delegates. The delegates will be divided between the regions so that there is an equal ratio between the number of members and the number of delegates in all regions, based on the number of members in each region during the year before the annual meeting year. This is in addition to the Group board and Council members. Council The Council consists of 38 members. The Annual Meeting elects 21 members and the employees elect 17 members. Chairman of the Council Nils Arne Dolmseth Deputy chairman Roy Erik Hetland Other member-elected delegates Turid Næss Knut Johnny Enoksen Tormod Nilsen Bjarne Leonhardsen Inger Lise Ingdal Jarle Bogen Karl Fredrik Okkenhaug Borghild Reenskaug Lars Istad Norvald Dalsbø Christian Aasland Gunn Elise Helle Aslak Snarteland Arna Høyland Rolf Øyvind Thune Elisabeth Irgens Hokstad Gudmund Tronsmoen Ellen Anne Bergseng Per Heringstad 52 | TINE ANNUAL REPORT 2012 Employee-elected delegates Alf Einar Graven Asbjørn Laugen Anne Enoksen Svein Førde Stein Hagala Jeffrey Thomas Steinar Koen Tor Arne Johansen Dag Rune Herting Lillian Saur Kåre Pedersen Jan Gaute Krokstadmo Egil Torland Kjell Inge Robberstad Ingunn Engelsvoll Kurt Haugland John Arve Håseth CONTROL COMMITTEE Chairman Helge Sommerseth Deputy chairman Per Amb Member Anna Stangeland GROUP BOARD The Board consists of 14 members. The Annual Meeting elects ten members. The chairman and deputy chairman are elected every year in special elections. The employees elect four members in special elections. Chairman Trond Reierstad Deputy chairman Ingunn Sognnes Other member-elected delegates Anne Maren Wasmuth Anders Johansen Torstein Grande Nina Kolltveit Sæter Lars Woie Askild Eggebø Helga Thorvik Ulven Cecilie Bjørlo Employee-elected delegates Lars Iver Wiig Svein Førde Elin Aarvik Steinar Koen Deputy members elected by the Annual Meeting 1st deputy member: Per Heringstad 2nd deputy member: Jarle Bogen 3rd deputy member: Birgit Oline Kjerstad Deputy members for employee-elected delegates: 1st deputy member: Ottar Råd 2nd deputy member: Tor Arne Johansen 3rd deputy member: Anne Enoksen 4th deputy member: Kåre Pedersen CENTRAL ELECTION COMMITTEE The election committee has eight members elected by the Annual Meeting: Chairman Marit Bårnes Deputy chairman Elling Ruggli Other members Jan Egil Skjørestad Arild Herstad Sigfrid Nilssen Jon Husdal Ole Martin Pettersen Mari-Ann Hoff AUDITING Auditing will be carried out by Deloitte AS and the auditor is elected by the Annual Meeting. Head office TINE SA Dronning Eufemias gate 6 N-0191 Oslo P.O. Box 25, 0051 Oslo www.tine.no Switchboard: +47 45 66 30 80 firmapost@tine.no WHOLLY-OWNED SUBSIDIARIES DIPLOM-IS AS Wernersson ost AB P.O. Box 23, 1483 Skytta Telephone 02001 Street address: Brennaveien 10 1481 Hagan Telephone +47 02001 Managing Director Bjørn Moldskred bjorn.moldskred@diplom-is.no www.diplom-is.no Industrivägen 5, 523 90 Ulricehamn, Sweden Telephone +46 321 261 50 VD Magnus Ekstrand magnus.ekstrand@wernerssonost.se www.wernerssonost.se FELLESJUICE AS P.O. Box 113 Kalbakken, 0902 Oslo Street address: Bedriftsveien 7 Telephone +47 45 66 30 80 General Manager Siw D. Steen siw.dejligbjerg.steen@tine.no www.sunniva.no Ostecompagniet as P.O. Box 6678 Etterstad, 0609 Oslo Street address: Tevlingveien 23 Telephone +47 45 66 30 80 General Manager Rune B. Jenssen rune.jenssen@tine.no www.ostecompagniet.no NORSELAND INC. (US) 1260 East Main Street, Stamford, CT 06902 USA Telephone +1 203 324 5620 President and CEO John J. Sullivan jsullivan@norseland.com www.norseland.com NORSELAND LTD. (UK) Somerton Road, Ilchester, Somerset BA22 8JU, England Telephone +44 0 1935 842800 CEO Nigel Meadows nigel.meadows@tine.no www.norseland.co.uk PARTLY OWNED SUBSIDIARIES Fjordland as Brynsengveien 10 0667 Oslo Telephone +47 22 97 49 00 Managing Director André Gobel andre.gobel@fjordland.no www.fjordland.no tine.no/årsrapport2012 The annual report was compiled by TINE Communication, TINE SA Design Itera Gazette Photo credits TINE Media Bank Emil Lundgren, front cover Yvonne Holt pp. 14-16 Kaia Means p. 3 Printing digitaltrykk@tine.no Circulation 300 TINE annual report 2012 TINE SA Dronning Eufemias gate 6 0191 Oslo P.O. Box 25, 0051 Oslo Telephone +47 45 66 30 80 www.tine.no
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