Board of directors report

Group activities and location

Grieg Seafood ASA (”the Company”) is the parent Company of the Grieg Seafood Group (”the Group”). The Group’s business activities relate to production and trading in the sustainable farming of salmon, and in naturally related activities.

The Group is one of the world’s largest producers of farmed salmon, with a production capacity of around 90,000 tons gutted weight annually at full capacity. The Group has 100 licences for salmon production and five licences for smolt production. The Group shall be a leader in the area of aquaculture. The Group’s commercial development is based on profitable growth and the sustainable use of natural resources, as well as being a preferred supplier to selected customers.

The Group has operations in Finnmark and Rogaland in Norway, in British Columbia in Canada (BC) and in Shetland (UK). The Group owns 60% of the sales company Ocean Quality AS and the remaining 40% is owned by Bremnes Fryseri AS. Ocean Quality has offices in Norway, Canada and Shetland (UK). The head office is located in Bergen, Norway.

Grieg Seafood ASA has been listed on the Oslo Stock Exchange since June 2007.

Main features of 2015

2015 was characterised by a fluctuating supply and price determination in relation to the individual regions and relatively large price differences between the first and second half of the year. Supply was strong in Europe in the first half of the year, which led to pressure on prices. Supply was slightly below demand in the second half of the year, which entailed similarly very good prices towards the end of the year. The US market has been weak throughout 2015. Moreover, exchange rate fluctuations and a stronger GBP compared to NOK reduced Shetlands competitiveness and margins.

A decision to sell the smokehouse and filleting plant in Shetland resulted in an impairment of the plant with MNOK 46.

Dividend was paid with NOK 0.5 per share in 2015.

The Group´s bank loans were expanded with MNOK 500 at the end of the first half of the year. The bond loan of MNOK 400 was redeemed in December 2015.

A new hatchery opened in Shetland. The plant is in full operation according to the strategy and will make us self-supplied with smolt.

Production in Finnmark has been good and in line with plans. Production in Rogaland has been slightly lower than planned due to, a.o., PD and other biological challenges. Overall profitability in Norway is acceptable. Production in BC has been considerably better than in 2014 and reached normal production. Production in Grieg Seafood Shetland was good until the end of summer. At that point, algae imposed damage to the gills, which led to weak production throughout the remainder of the year. The Board has initiated a strategic review of the operations in Shetland.

Towards year-end 2014, measures were initiated in order to reduce expenses and streamline operations. Subsequently, 2015 has focused on changes within operations, support functions and systems.

As from 2015, Ocean Quality has been consolidated and accounted for as a subsidiary. Hence, comparable figures have been revised.

Accounts

The consolidated financial statements are prepared in accordance with international accounting principles (IFRS).

Results

The Group had a turnover of MNOK 4,609 in 2015, an increase of 12% compared with the previous year. The total harvest was 65,398 tons glutted weight (64,736 tons in 2014), an increase of 1%. 2015 was marked by high supply growth in the first half of 2015, followed by increasing prices at the end of the year in Norway. Major problems with lice for the industry in general has led to down-harvesting and thus lower supply at the end of the year, which has given a price increase in the last quarter of 2015. A strong GBP has changed the market situation and profitability in UK. Increased production in Chile in 2014 has affected the supply growth in 2015, which in turn has resulted in a weak market for salmon from Canada.

The operating result before fair value adjustment of biological assets was MNOK 48, compared to MNOK 343 in 2014. The operating margin before fair value adjustment of biological assets was 1.0% against 8.4% in 2014. EBIT per kilo (before fair value adjustment of biological assets) was 0.7 against 5.3 in 2014. The reduction in operating profit compared with 2014 is due to higher costs for harvested fish and high mortality in Shetland. The high production costs have persisted in 2015. Feed prices have increased due to the development in commodity prices and the weakening of NOK at year-end. Feed prices are sensitive to both marine and vegetable commodity prices, which vary with seasonal harvesting and production conditions. Treatment costs against lice and preparedness to manage and treat the causes of AGD (Amoebic gill disease) have entailed persistent high production costs for both Norway and the UK. Shetland has faced challenges in relation to algae in the second half of 2015. Low levels of oxygen in BC in Q2 resulted in high mortality. This has negatively affected the operating result. In 2014, the operating result included gains from sale of shares with MNOK 63.8.

The operating result after value adjustment of biological assets was MNOK 81 against MNOK 219 in 2014. Net financial items showed a loss of MNOK 93 against a loss of MNOK 50 in 2014. Interest expenses are higher than in 2014 due to increased utilisation of credit facility as well as higher interest-bearing debt. In 2015, the Group has been granted a waiver from the original loan terms on the mortgage debt at year-end.

The Group had a positive net unrealised gain in 2015 of MNOK 29, against MNOK 46 in 2014, mainly due to current loans from the parent company in GBP and CAD.

Net tax income for the year was MNOK 14, against net tax cost of MNOK 28 in 2014. The effective tax rate of 147% for 2015 is due to change in tax rate in Norway and permanent differences.

Effective tax rate for 2014 was 16%. The Group as a whole has entered into tax position and MNOK 25 has been provisioned at year-end 2015 (MNOK 57 for 2014) for tax payable.

The Group’s result for 2015 was MNOK 4 after taxes versus MNOK 144 in 2014.

Grieg Seafood ASA

The financial statements for the parent company have been prepared in accordance with generally accepted accounting principles in Norway (NGAAP). The Company recorded an operating result for 2015 of MNOK -19 (MNOK -36). The improved operating result is due to, a.o., less exercised options during 2015 compared to 2014.

The Company has provided loans to subsidiaries in foreign currency which carry a positive unrealised net gain of MNOK 77 in 2015, which is MNOK 25 below 2014, due to a weakening of NOK against GBP throughout 2015. In 2015, a recognised group contribution of MNOK 39 (MNOK 34) contributes to the positive financial result, in addition to the gain on foreign currency. Interest expenses have increased compared to 2014 due to expanded financing frame as well as waiver granted for loan terms and thus increased margin.

The parent company’s profit after tax for the year was MNOK 40 against MNOK 59 in 2014.

Segment report

Rogaland

Operating profit before fair value adjustment of biological assets was MNOK 84, corresponding to NOK 5.5/kg. The equivalent in 2014 was MNOK 78 (NOK 6.1/kg). Total harvested volume in 2015 was 15,236 tons. The decrease of the result is caused by higher costs on down-harvested fish, due to earlier incidents of algae, sea lice and PD (Pancreas Disease). 64% of the harvested volume was in the first half of the year. The output price is high due to down-harvesting of sites with PD (Pancreas Disease) in 2014. In the first half of 2015, real prices were lower than in the first half of the year. Due to PD in 2014, the harvested volume was lower than projected in 2015. PD and unusually low sea temperatures in the first half of the year, as well as bad weather conditions, entailed lower production in the sea. An underlying cost increase regarding treatment and preparedness to reduce PD, AGD and other biological challenges, has contributed to increased production costs. Rogaland uses wrasse agains sea lice, which has proved effective also in 2015. There are significant costs incurred, but this has yielded positive results in terms of low sea lice levels. Production at the hatchery has been satisfactory in 2015.

Finnmark

The operating result before fair value adjustment of biological assets was MNOK 124, corresponding to NOK 6.4/kg. The equivalent for 2014 was MNOK 206 (NOK 7.8/kg). Finnmark showed a high harvested volume in Q1 directed to a market with low prices and high costs for harvested fish. Harvesting was suspended in Q2. Both factors have affected the result negatively. A review of procedures and processes at the harvesting plant has been carried out in order to achieve higher efficiency and reduced costs. Due to sea lice challenges in Øksfjorden a decision has been made to fallow the whole area. Some harvesting was expedited from Q4 to Q3, which also entailed a lower margin. Total harvested volume in 2015 was 19,481 tons. Procuction in the sea has been satisfactorily throughout the year. The degree of disease has been low throughout the year, and the fish in sea maintains prime quality.

Finnmark has been awarded 4 green licences at year-end 2014. Production will be initiated in the course of 2016. Production in the hatchery still has potential to improve regarding attainment of proper weight of large smolt in due time, which will improve operations considerably.

BC

The operating result before fair value adjustment was MNOK 13, corresponding to NOK 0.9/kg, against MNOK -48 (NOK -7.8/kg) in 2014. The positive result is due to substantially higher harvesting volumes in 2015 compared to 2014, at 8,054 tons. In addition, there has been lower costs on harvested fish. During summer, low levels of oxygen generated high mortality, which has reduced the volume by approximately 1,000 tons. Investments have been made to decrease the risk of future biological irregularities in connection with low oxygen levels.

In 2014, it was decided to wound up the production of Pacific salmon. The last generation was harvested in Q3 2015. All frozen Coho from 2014 has been sold during 2015, which has affected the operating result negatively. By now, the company has exclusively Atlantic salmon.

Production in the sea has been good throughout 2015. The hatchery also had a healthy production. In 2014, agreements were implemented for external delivery of smolt, in order to ensure sufficient backup of smolt to avoid negative production impacts from new incidents of disease at the hatchery in 2015. This generates higher costs than normal related to smolt. As a result of the smolt delivery backup-system, Grieg Seafood has introduced the projected number of smolt in 2015. Total harvested volume in BC was 14,311 tons.

Shetland

In Shetland the operating result before fair value adjustment was MNOK -165, corresponding to NOK -10.1/kg. The equivalent for 2014 was MNOK 81 (NOK 4.2/kg). 2015 has been a year of change in Shetland. The smokehouse and filleting plant is shut down, entailing an impairment of MNOK 46. Changes have been implemented in the harvesting line, and further adjustments will be considered to lower costs of processing. These modifications include downsizing of staff. Efforts are still made to keep as low as possible the levels of sea lice, which still is a challenge. High treatment expenses were incurred in order to maintain sea lice levels at a satisfactory level. There has been challenges with algae causing gill problems, mortality and high impairment costs, especially in the second half of the year.

Total harvested volume in 2015 was 16,370 tons, which is 2,861 tons below 2014. Gill damages in 2014 led to lower growth than normal and thus harvesting of small fish at a time of low market prices for this fish size. High output prices on harvested fish have been the most significant factor for weak results.

An active effort is made to implement measures for increased production, decreased risk and reduced costs in Shetland in the upcoming period.

The hatchery was completed in 2015 and the production of smolt went according to plans throughout the second half of the year. Increased quality of the smolt in combination with minor transport time, should contribute to improve production significantly.

Ocean Quality AS Group

Ocean Quality AS is the sales company owned by Grieg Seafood ASA (60%) and Bremnes Seashore AS (40%). The company was established in 2010 and has its main office in Bergen, Norway. As from 2015, Ocean Quality North America Inc. was established as a 100% owned subsidiary of Ocean Quality AS. Ocean Quality is from 2015 a subsidiary of Grieg Seafood ASA. Ocean Quality sells all fish for Bremnes Fryseri AS and for Grieg Seafood Norway, UK and BC. The Group has 39 employees, of whom 27 men and 12 women.

The revenue in 2015 was MNOK 4,543 against MNOK 3,555 in 2014. The Ocean Quality Group recorded an operating profit of MNOK 115 in 2015, against MNOK 27 in 2014 (before bonus to producer).

The establishing of the company both in UK and Canada has yielded synergies in terms of sale of varied sizes of salmon in different markets. 2015 opened with low earnings due to weak prices. Throughout the autumn of 2015, the Norwegian market has improved with higher prices. A larger volume than expected out of Chile has also generated lower prices in 2015 in the US market. As for UK, the strong GBP has negatively affected competitiveness in UK and real prices have remained low.

Research and development

Grieg Seafood utilises funds for research and development every year. This relates to various activities ranging from active participation in steering committees in national research projects to local test and trial projects in the regions. These activities focus on finding solutions to biological and technical challenges both short and long term, which in turn helps us increase the efficiency of daily operation of our plants. The Group is working on many different projects, ranging from improving fish health and welfare, efficient operation of large units, feeding control and optimisation of young fish production in large recycling plants.

Balance Sheet

The Group had total recorded assets of MNOK 5,936 as at 31. Dec 2015, against MNOK 5,352 at year-end 2014. Of this, goodwill accounted for MNOK 111 and licences MNOK 1,093. Investments in tangible fixed assets relate mainly to maintenance investments. Additional investments have been made to prepare the green licences in Finnmark. Fair value adjustment of biological assets was positive due to expected future sales prices that will exceed the accrued production costs.

Group equity at 31 Dec 2015 stood at MNOK 2,238, against MNOK 2,241 at year-end 2014. The equity ratio at year-end 2015 was 38% (42%).

Finance and funding

The Group’s net interest-bearing debt including Ocean Quality Group is MNOK 1,907 at year-end 2015. This includes factoring liabilities of MNOK 338. The equivalent for 2014 was MNOK 1,771, of which factoring liabilities of MNOK 196. This equals an increase of MNOK 136. Net interest-bearing debt excluding factoring liabilities amounts to MNOK 1,569 (MNOK 1,576). The Group´s credit facility was expanded with MNOK 500 through an increase of the bank loan frame in June 2015. The bank syndicate consists of Nordea and Den Norske Bank after the amendment of the credit facility. The expansion of the credit facility was made in order to secure financing when the mortgage loan of MNOK 400 was fully redeemed in December 2015. The syndicated loan comprises a total frame of MNOK 1,910, of which a long-term credit facility of MNOK 700. There are no changes to the repayment profile. The revolving credit has been utilised with MNOK 450 at year-end. Further drawing rights amount to MNOK 250. The credit facility from the syndicate classifies as non-current, as there is no appointment to roll over the credit facility once a year. The term loan has been repaid with MNOK 90 in 2015. The Group mainly uses finance leasing by investing in new feeding barges and other operational equipment. Through the agreement with the bank syndicate, the Group has a leasing facility of MNOK 350. As at 31 December 2015, the leasing liabilities amount to MNOK 334. The Group was in breach with one of the loan covenants, i.e. NIBD/EBITDA at year-end. The Group has been granted a waiver from this covenant from Q4 until the end of Q1 2016. According to the loan covenants, factoring is not regarded as interest-bearing debt. The equity is also estimated exclusive of Ocean Quality. Equity ratio thus stands at 41% with regards to loan covenants.

Cash flow

The net cash flow from operations was increased with MNOK 213 to MNOK 370 in 2015, up from MNOK 157 in 2014. The increase in working capital is related to increased accounts payable. Net cash flow from investment activities in 2015 was MNOK -317, against MNOK -233 in 2014. Investment payments related to fixed assets amounted to MNOK 264. The equivalent for 2014 was MNOK 303. Net cash flow from financing was MNOK 158 against MNOK 71 in 2014. There has been a net drawdown of debt as mentioned under “Funding”, implying a positive cash flow from financing in 2015 when compared to 2014. Increased factoring liabilities from 2014 also contribute to increased financing. For 2015 there was a net change in cash and cash equivalents of MNOK 211. As at 31 December 2015 the disposable cash balance was MNOK 392.

Grieg Seafood ASA

The parent company’s net cash flow from operations in 2015 was MNOK 105 against MNOK 107 in 2014. The cash flow from investing activities was negative with MNOK 3 against MNOK -121 in 2014. Net cash flow from financing activities was MNOK 10 (MNOK -8). In 2015, new long-term debt has been drawn down, and the mortgage loan has been fully redeemed. For 2015 there was a net change in cash and cash equivalents of MNOK 119.

As at 31 December 2015 the disposable cash balance was MNOK 215.

Going concern assumption

Forecasting is carried out, showing a positive and good cash flow based on conservative salmon price assumptions. Q1 2016 presents a very positive price increase both in the European, Asian and US markets, contributing to a positive cash flow. The number of large and robust smolt increases, which will decrease the risk of biological incidents. Shetland has shown weak results throughout 2015, and a strategic review of the whole region has been initiated. Several projects were completed in 2015 which results will manifest in 2016, both in the processing plants and for edible fish, in addition to administrative support functions like common ICT systems. The organisation stands more united because the support functions for Norway have been located to the main office. The purpose is to achieve an operational focus in the regions. The Group has honored its debt under the financing agreements and, by year-end, retains sufficient funding to complete its objectives.

It is the view of the Board that the financial statements give a true and fair presentation of the Group’s assets and liabilities, financial position and accounting results. Based on the above account of the Group’s results and position, and in accordance with the Norwegian Accounting Act, the Board confirms that the annual financial statements have been prepared on a going concern basis, and that the requirements for so doing are met.

Accounting results and allocations – Grieg Seafood ASA

The Group´s strategy for dividend is that the annual dividend should correspond to around 25% of the Group’s profit after fair value adjustment for biomass and after tax. The Group has at year-end been granted a waiver from the loan covenant related to NIBD/EBITDA until the end of Q1 2016. Upon this condition, no provision has been made to pay dividend based on the statement for 2015. In 2015, a dividend of NOK 0.50 per share was paid, based on the 2014 statement, equivalent to appr. 25% of the profit for 2014.

The parent company, Grieg Seafood ASA, recorded a profit for 2015 of MNOK 40, which the Board proposes to the General Assembly to dispense as follows:

Transfer to retained equity MNOK 40
Total dispensed MNOK 40

Risk and risk management

The Group is exposed to risks in a number of areas, such as biological production, changes in salmon prices, the risk of political trade barriers, as well as financial risks such as changes in interest, exchange rates and liquidity.

The Group’s internal control and risk exposure are subject to continuous observation and improvement, and the work of reducing risk in different areas has a high priority.

The management has set parameters for managing and eliminating most of the risks that could prevent the company from achieving its goals. For further information, we refer to the document of principle relating to corporate governances as practised by Grieg Seafood ASA.

Financial risk

The Group operates within an industry characterised by great volatility which entails greater financial risk. 2015 has continued a tight financial market, although providing a somewhat easier access to available liquidity in the market. The requirements for the borrower are still high. Financial and contractual hedging as is a matter of constant consideration, in combination with operational measures. The company draws up rolling liquidity forecasts extending over three years. These forecasts incorporate conservative assumptions for salmon prices, and this is applied as basis for calculating the liquidity requirement. This forecast forms the basis of the need for financial parameters. With the financing of the Group at year-end, the level of this risk is considered to be satisfactory. The bond loan was refinanced in 2015, and the company had installed an expanded financing frame, which has secured an adequate financing for the Group. At the end of Q4, the Group was granted a waiver until the end of Q1 2016. The new long-term financing agreement includes a revolving credit facility totaling MNOK 700. It is flexible, as it can be drawn down within 1 month or a longer period, depending on the Group´s need for liquidity. In 2015, drawdowns have been made within a 3 months´ period, corresponding to the period of the interest rate swap agreements. The following sections provide further information about the individual risk areas.

Currency risk

In converting the accounts of foreign subsidiaries, the Group’s greatest exposure relates to CAD and GBP. Our main strategy is to reduce the currency risk by funding the business in the local currency.All long-term loans from the parent company to subsidiaries are in the local currency and loans of this kind are regarded as a net investment, since the loans are not repayable to the parent company.The subsidiaries will always require long-term funding. The currency effect of the net investment is incorporated in the consolidated statement of comprehensive income (OCI).

Income for the Norwegian operation is denominated in NOK, and the translation risk is transferred to the sales company. The case is similar for UK and BC. BC sells in CAD denomination to the sales company, which in turn hedges against currency volatility in relation to CAD/USD. The Norwegian sales company likewise hedges against currency volatility in relation to EUR/NOK. At year-end, contracts are concluded until January 2017.

The currency situation is continuously assessed against the volatility of the currencies. The remaining net exposure is frequently monitored. For further information, refer to Note 3 to the consolidated financial statements.

Interest rate risk

The Group is exposed to interest rate risk through its loan activities and to fluctuating interest rate levels in connection with financing of its activities in all regions.

Most of the Group’s existing loans are based on floating rates, but separate fixed rate contracts have been entered into in order to reduce the interest rate risk. It is group policy to have a certain percentage of the Group’s interest-bearing debt hedged through interest rate swap agreements. A given proportion shall be at a floating rate, while consideration will be given to the use of hedging contracts for the remainder.

Liquidity risk

The Company´s equity ratio is reduced from 42% at year-end 2014 to 38% at year-end 2015.

Interest-bearing debt has increased mainly due to factoring liabilities. Ocean Quality has concluded agreements with factoring companies for Norway and UK, implying transfer of credit insured receivables to factoring company. This ensures early settlement of account receivables. This is a financial arrangement, as the factoring company does not acquire the substantial credit risk. The management monitors the Group’s liquidity reserve which comprises a loan facility and bank deposits, as well as cash equivalents based on expected cash flows. This is carried out at Group level in collaboration with the operating companies. The management and Board seek to maintain a high equity ratio in order to be well equipped to meet financial and operational challenges. Considering the dynamic nature of the industry, the Group aims to maintain flexibility of funding. An expanded financing frame was installed in June 2015, providing the Group with financing for redemption of the bond loan.

Operating risk

Operating risk was adequately managed throughout 2015, less of Shetland and individual incidents in BC. The Board recognises the importance of focusing on further improvements related to biological development as well as focus on operational measures. One such measure aimed at bringing down the biological risk in all regions, is to increase the number of large smolt which in turn reduces production time in sea. A review of all three harvesting plants has been carried out with a focus on streamlining the harvesting lines in order to decrease cost of harvesting. The decision to exclusively produce Atlantic salmon and to discontinue Pacific salmon simplifies production in BC. The challenge for BC is low levels of oxygen in the sea, which has implied high mortality. Oxygen equipment will be acquired in order to reduce the negative effect. Otherwise, the production in BC has been good. Sea lice and algae still pose a challenge in Shetland. Procedures for managing sea lice have been implemented and are continuously monitored. Lumpfish is implemented as a treatment against sea lice, but it remains a challenge that UK has a lengthy approval process for new treatments, posing the risk that resistance arises. Monitoring of algae is another focus area. Termination of processing simplifies operations and allows for the focus to be shifted towards production in the sea. As for Rogaland, high sea temperatures have resulted in low growth rates and outbreak of PD and algae blooming, with subsequent high mortality.

Cooperation with other companies in this region is considered important in order to decrease the biological risk. A new structure of regions has been established and will take effect during 2017. Finnmark has experienced challenges arising from sea lice in Øksfjorden, where fallowing of the entire fjord was determined. The production has been good in the course of the year. Group policy maintans a zero tolerance for escape, and in 2015 this has been fulfilled in all regions. Staff training is emphasised in order to achieve improved biological knowledge and internal procedures.

Andreas Kvame was appointed new CEO and commenced in position on 1 June 2015. He holds extensive experience in managing larger operational units in the aquaculture industry. The CEO has initiated operational measures in 2015, a.o. changes in the organisation aimed at sharpening the operational focus, through locating all staff functions in Bergen. All ICT systems have been standardised in the Group during 2015, a process starting ini 2014.

For further information about financial risks (currency, interest rate, credit and liquidity), refer to Note 3 to the consolidated financial statements.

Corporate social responsibility and sustainability

The Group´s main cost drivers, risks and opportunities are increasingly connected with managing our impact on the environment, our personnel and the local communities where we operate. Systematic efforts to secure a balanced sustainability are therefore fundamental in order to facilitate a long-term profitable growth. These efforts are increasingly material for the industry´s viability. The Group has in 2013 conducted an assessment in order to accentuate priority areas for sustainability, an assessment which has been further followed up in 2014 and 2015. Our priorities will ensure that our efforts respond to our main stakeholders´ expectations of us, as well as being resource efficient in terms of our strategy and long-term value creation. The priorities also take into account our long-term liabilities through Global Salmon Initiative. A comprehensive statement of the Group´s approach, efforts, results and ambitions towards sustainability priorities are available in the Sustainability report.

The Group´s sustainability priorities treated in the report are divided into the following main areas; External environment, working environment and social relations. Within external environment fish health, sea lice and escape are focus areas. In the domain of the soft factors, HSE and working environment are priorities. Social relations are divided into three main areas, comprising quality and food safety, the ripple effect in communities and anti-corruption.

Employees

Of the Group´s 684 employees at year-end 2015, 371 work in Norway, 200 in Shetland and 113 in Canada. The Board wishes to thank the employees for good work in the past year.

The Group has a majority of male managers and employees. In total, 556 men and 128 women are hired in the Group. The employee policy is to take the steps necessary to retain and attract qualified personnel of both genders.

Grieg Seafood’s position as an international concern is also reflected in the fact that 36 different nationalities are represented in the Group’s workforce. A total of 173 employees originate from a country different from the country where they work. The Group accepts no kind of discrimination related to gender, religion, cultural or ethnic background, disability or in any other way. Our aim is to conduct our activities on the basis of equality and respect. In terms of human rights and equal treatment, we are not exposed to substantial risk. A focused effort is made to secure equal treatment and to avoid discrimination.

In 2015, the incidence of short-term sick leave within the Group was 3.36% while the figure for long-term sick leave was 1.8%. For further information, refer to the Sustainability report, in the section about employee health, safety and working environment.

All management of human resources is managed locally according to local rules and instructions, and in accordance with Group guidelines. The working environment in the Group is considered satisfactory, at the same time as we work actively to reduce sick leave and injury. An HR director has been employed, scheduled to commence in position from May 2016, holding the responsibility to develop the human capital in the Group.

Grieg Seafood ASA

The parent company had 20 employees in its main office in Bergen, of which five men and two women in senior positions. Short-term sick leave in the parent company was 1.04%, while long-term sick leave was 0.65%. No injuries/accidents were registered in the Company in 2015. The Company does not pollute the external environment.

Corporate Governance

The activities of Grieg Seafood ASA are conducted in accordance with Norwegian law and regulations for good corporate governance (Norwegian Corporate Government Board’s Code of Practice). The Company seeks to comply with all relevant laws and regulations and the Norwegian Code of Practice for Corporate Governance. This also applies to all other companies which are controlled by the Group. The document of principle which is enclosed along with the Board of Directors Report therefore applies to all companies of the Group, in as far as it goes.

Statement from the Board of Directors and CEO

We hereby confirm that the financial statements for the period from 1 January to 31 December 2015 to the best of our knowledge have been prepared in accordance with applicable accounting standards and give a true and fair view of the Group and of the Group’s assets, liabilities, financial position and overall results. We also confirm that the Directors’ Report gives a true and fair view of the development and performance of the business and the position of the Company and the Group, as well as a description of the principal risks and uncertainties facing the Company and the Group.

Post-balance sheet development

At the beginning of 2016 the prices were increasing in the whole market, continuing this development throughout Q1. The biological situation has been good at the start of 2016 for Norway and BC. 10% of the fish harvested in BC in Q1 is sexually mature, which impacts the price negatively. A new contract for processing in BC from 2016 has been entered into, and the delivery complies with the agreement. In the beginning of 2016, down-harvesting of fish in Shetland has been carried out with high costs. This has implied a negative margin, even though the prices have been relatively good during Q1 2016. The production in Norway has been adequate so far. The hatcheries both in Norway and Shetland deliver according to plans.

Outlook

The fish farming industry is very volatile and it will always be considerable uncertainty when projecting for future conditions. At the entrance to 2016, the situation has changed due to emergence demands exceeding the expected harvesting volumes. This is caused by high down-harvesting due to sea lice throughout the autumn of 2015, both in Chile and Norway. In addition, Chile has reduced biomass volumes after large appearance of algae in 2016. There is an improvement of private economy among people in Europe and Asia, which spurs increased demand for salmon. The positive change of individual consumers´ eating habits all over the world is directed towards more fish than other foods, which has yielded a sustained higher demand.

Grieg Seafood expects a harvesting volume of 70,000 tons in 2016, in accordance with previously announced forecasts. This represents an increase of 4,600 tons (7%) from 2015. In Shetland, a shift in the production cycle from 24 to 18 months is being applied. This increases the turnover rate in sea and facilitates better exploitation of the prime localities.

The harvesting volume for the two Norwegian regions is expected to increase to 19,000 tons in Rogaland and 23,000 tons in Finnmark. The awarded 4 green licences underpin a considerable growth in Finnmark. There is a general focus on increasing MTB exploitation, as well as reducing production time in sea. As a part of this, a decision has been made to expand the smolt facility in Rogaland in 2016/2017.

In 2016, a strategic review of the company´s activities in Shetland has been initiated. Continuous efforts are made to improve internal procedures and training of staff.

Bergen, 6 April 2016

The Board of Directors in Grieg Seafood ASA

Translated version – NOT TO BE SIGNED