Grieg Seafood
Annual Report 2015

Plain-text annual report

ANNUAL REPORT 2015 Grieg Seafood Rogaland // Grieg Seafood Finnmark // Grieg Seafood UK // Grieg Seafood B.C. // Ocean Quality AS CONTENTS POTENTIAL FOR FURTHER GROWTH KEY FIGURES 2015 GRIEG SEAFOOD ROGALAND AS GRIEG SEAFOOD SHETLAND LTD GRIEG SEAFOOD FINNMARK AS GRIEG SEAFOOD BC LTD OCEAN QUALITY AS INVESTOR INFORMATION BOARD OF DIRECTORS REPORT 2015 PRINCIPLES OF CORPORATE GOVERNANCE 2015 CONSOLIDATED STATEMENT OF PROFIT AND LOSS CONSOLIDATED COMPREHENSIVE INCOME STATEMENT CONSOLIDATED STATEMENT OF FINANCIAL POSITION CONSOLIDATED STATEMENT OF CHANGES IN EQUITY CONSOLIDATED CASH FLOW STATEMENT NOTES PARENT COMPANY INCOME STATEMENT PARENT COMPANY BALANCE PARENT COMPANY CASH FLOW STATEMENT PARENT COMPANY CHANGE IN EQUITY NOTES 3 4 5 6 7 8 9 10 11 18 26 27 28 30 32 33 88 89 90 91 92 INDEPENDENT AUDITOR’S REPORT 117 SUSTAINABILITY REPORT - PLEASE REFER TO GRIEGSEAFOOD.COM 2 A N N U A L R E P O R T 2 0 1 5 POTENTIAL FOR FURTHER GROWTH 2015 has been a challenging and eventful year. Grieg Seafood has completed several significant projects in our four regions Rogaland (NO), Finnmark (NO), Shetland (UK) and British Columbia (CA). As the new CEO I have met many highly competent people with a great drive, and I recognize that my responsibility is to inspire and develop the good collaboration between the regions and the administration. Our employees are our most valuable assets. As a consequence we have created a new HR-manager position whose responsibilities will be employee qualifications and other measures to improve and develop the company’s human capital. The value of our fish and our licences has increased during 2015, and the number of employees has been stable. At the same time, our equity constitutes a strong financial base for the continued efforts we make to be the leading salmon producer in our four regions. After fluctuation in 2015, we observe that the start of 2016 shows promising salmon prices, which in turn increases interest in our company. A lot can be said about the economic development in Norway, but I would like to focus on a positive element for Grieg Seafood: In a period of economic instability and falling oil prices, the aquaculture industry receives a lot of positive attention. The community recognizes that the industry is a job-provider with a healthy profit and a strong brand for Norway providing healthy and tasty salmon from clean waters. Additionally, we contribute to developing rural areas, and we are proud to be a part of the Bergen-based centre for the Norwegian aquaculture industry. Our employees work purposefully to maintain a high production standard where healthy fish with good appetite stay in the nets. However, all salmon farming is exposed to risk due to biology, price fluctuation, political trade conditions and changes in currency and interest rates. Good plans and routines for managing risks is the foundation for succeeding with our strategies and maintaining a stable production platform. High environmental standards at all our sites are of great importance to Grieg Seafood. During 2015 the green licences in Finnmark have undergone planning and implementation, and in 2016, all four licences will be fully operational. The Group management has set a goal of being self-supplied with smolt in all regions, and we are working specifically to increase the average weight of smolts released into the sea. At the end of 2015 regions were self-supplied with smolts up to 100 grams. In June 2015 Grieg Seafood Shetland opened the new RAS hatchery, and simultaneously the plans to reduce the region’s cycle at sea from 24 to 18 months were initiated. Thus we have achieved a substantial reduction of biological risks in the sea phase. This effort will be continued at full force in 2016. During 2015, the group implemented a common IT platform for the regions that is currently operative on the biological factors. The project is being expanded to other operating areas. Our staff has delivered a great effort, and as CEO I conclude that the project complies with the positive expectations of the organization. Another positive development is found in the sales and distribution company Ocean Quality. Since January 1st 2015, Ocean Quality been fully consolidated, and today it serves all four regions. The collaboration between Ocean Quality and owner companies Grieg Seafood and Bremnes Fryseri has been very good throughout the year. Among the challenges I will mention licencing and capacity utilization, which is still too low in relation to the actual capacity of the group. The administration is working to increase utilization, especially at our Norwegian localities, which have the greatest potential in the current market. Increased capacity utilization will contribute to cost savings. Our on going efforts to reduce mortality through preventive measures such as bigger smolt, good locations, common fallowing, use of cleaner fish and early implementation of mechanical action, will further contribute to cost savings. Throughout the year, prices were negatively affected in North America by a large overhang in shipments of fresh and frozen salmon from Chile, where parts of the production from 2014 were delivered in 2015. Simultaneously, high volumes from Canada led to historically low price levels in the North American market. The European market has in return been very strong and showed a gradual upward trend throughout 2015. This includes an increased demand in Germany for fresh salmon at the expense of frozen products, which have given a positive result for Grieg Seafood and the rest of the aquaculture industry. Russia has in 2015 been closed for large parts of the global aquaculture industry including Grieg Seafood, whereas China has welcomed salmon from the Group regions outside of Norway. Regardless of price fluctuations and changing biological conditions, farmed fish is the most promising nutritional resource for the world’s growing population. This means that demand for our services will increase. Our development depends on increased production while diminishing the negative impact on the environment and fauna. When we succeed, Grieg Seafood and our employees contributes to create value for the world community. Andreas Kvame CEO 3 GRIEGSEAFOOD 2 0 1 5KEY FIGURES 2015 OUR MARKETS (EXPORT REGIONS) HARVEST VOLUME (GWT) EBIT OPERATIONAL (NOK 1000) TURNOVER (NOK 1000) 2015 5 % 38 % 1 569 -0,06 6,3 2014 10 % 42 % 1 576 1,26 3,3 2013 12 % 43 % 1 445 3,9 3,0 2012 -6 % 37 % 1 530 -1,33 -51,3 2011 7 % 41 % 1 444 -1,11 4,2 2010 20 % 49 % 1 047 5,65 1,53 FINANCIAL KEY FIGURES ROCE * EQUITY % NIBD ** EPS *** NIBD / EBITDA * Return on capital employed ** Net interest bearing debt *** Earnings per share 4 A N N U A L R E P O R T 2 0 1 5102 EMPLOYEES 20 FARM SITES GRIEG SEAFOOD ROGALAND AS Grieg Seafood Rogaland ( GSFR ) farms salmon in Rogaland. The company has 20 growout licences and two smolt licences. The company has its own brood activity in Erfjord. All the fish produced at our own plants are processed at our own facilities. The company has 102 employees in the region divided into four divisions (Broodstock, Hatcheries, Grow-out and Processing) Our operations are located in six municipalities in Rogaland and they contribute significant local value creation. Production capacity is estimated to be approximately 24,000 tonnes gutted weight. The company is Global GAP certified. ROGALAND Harvest in tons GWE Sales revenue TNOK EBIT TNOK EBIT /kg GWE 2015 15 236 661 204 83 516 5,5 2014 12 778 571 150 77 835 6,10 2013 15 088 640 600 144 800 9,60 2012 19 247 558 300 50 800 2,64 2011 15 986 547 700 104 200 6,52 5 GRIEGSEAFOOD 2 0 1 5GRIEG SEAFOOD SHETLAND LTD 166 EMPLOYEES 39 FARM SITES Grieg Seafood Shetland (GSFSH) operates in Shetland and the Ilse of Skye. We are the largest player in salmon production in Shetland. The company has activities in the complete the value chain (Hatcheries , Grow-out and Processing). A new hatchery was completed in 2015. This facility will eventually give us 70-90 % smolt coverage. The company has 166 employees in the three departments. The business is a significant contributor to local value creation. The business has an estimated production capacity of around 22,000 tonnes gutted weight. Grieg Seafood Shetland was Global GAP certified in 2015. SHETLAND Harvest in tons GWE Sales revenue TNOK EBIT TNOK EBIT /kg GWE 6 2015 16 370 773 526 -164 833 -10,1 2014 19 231 852 455 81 495 4,20 2013 13 158 567 400 27 300 2,07 2012 17 097 538 100 -83 700 -4,89 2011 14 717 511 900 5 900 0,4 A N N U A L R E P O R T 2 0 1 5GRIEG SEAFOOD FINNMARK AS 162 EMPLOYEES 28 FARM SITES Production capacity is estimated at 33,000 tonnes gutted weight. The company will be Global GAP certified during 2016. Grieg Seafood Finnmark (GSFF) farms salmon in Finnmark county in Norway. The company has a total of totaling 27 grow- out licences and noe smolt licence. Four of the 27 licences are so-called green concessions that will become fully operational during 2016. The company has its own processing plants that harvest all salmon produced by the company. The business is located in five municipalities and is a significant contributor to local value creation. The company has 162 employees in the region divided into three divisions (Hatcheries, Grow-out and Processing). FINNMARK Harvest in tons GWE Sales revenue TNOK EBIT TNOK EBIT /kg GWE 2015 19 481 797 872 124 004 6,4 2014 26 470 975 291 205 934 7,80 2013 23 076 870 100 216 800 9,39 2012 20 080 519 800 -17 700 -0,88 2011 16 143 499 900 55 500 3,44 7 GRIEGSEAFOOD 2 0 1 5GRIEG SEAFOOD BC LTD 105 EMPLOYEES 22 FARM SITES production capacity of all licences is approximately 20.000 tonnes gutted weight. Grieg Seafood BC Ltd. farms salmon on the west and east sides of Vancouver Island as well on the Sunshine Coast just north of the city of Vancouver. There are currently a total of 22 marine farm licences and a land based hatchery located in Gold River. Grieg Seafood BC Ltd. is committed to operating responsibly and meeting or exceeding all regulatory requirements. Grieg Seafood was the first salmon farming company in North America to be sourcing salmon from farms that were independently audited by the Best Aquaculture Practices certification program. Grieg Seafood BC has also been audited and approved by the Aquarium of the Pacific’s ‘Seafood for the Future’ responsible sourcing program. Grieg Seafood BC had 105 employees in 2015, and the BC Harvest in tons GWE Sales revenue TNOK EBIT TNOK EBIT /kg GWE 8 2015 14 311 573 900 13 310 0,9 2014 6 257 280 399 -47 810 -7,60 2013 6 739 330 700 17 500 -1,15 2012 13 576 438 400 -32 200 -2,37 2011 13 236 491 300 38 000 2,87 A N N U A L R E P O R T 2 0 1 5OCEAN QUALITY AS Ocean Quality is the Norwegian sales company for Grieg Seafood ASA (60%) and Bremnes Fryseri AS (40%). The company was established in the fall of 2010 and has its main office in Bergen, Norway. In 2015 Ocean Quality established a subsidiary company in Canada. The company is managed from the main office in Vancouver. From 2015 Ocean Quality handled all fish sales for Grieg Seafood. At year-end 2015 the Group had 39 employees, of whom 27 men and 12 women. The main strategy of the company is to become the market´s preferred supplier of seafood. The sales organisation of Ocean Quality carries out its services in accordance with high standards of seafood supply to our customers across the globe. The quality of the products and our customer service emphasizes the following: Fresh and healthy products with desirable nutrition content • • Customer requirements, reliability and year-round delivery Full traceability and focus on food safety for finished • products and raw materials Strict quality control and sustainable utilization of raw materials Fish health and protection of the environment • • 9 GRIEGSEAFOOD 2 0 1 5INVESTOR INFORMATION Largest shareholders of Grieg Seafood ASA at 31.12.2015 Analytics following the GSF stock Grieg Holdings AS DNB Nor Bank ASA Nordea Bank Norge ASA Kontrari AS Ystholmen AS OM Holding AS Grieg Seafood ASA State street Bank and Trust Co. Skandinaviska Enskilda Banken AB DNB Nor SMB Nordea Markets DnB NOR Markets Handelsbanken Enskilda RS Pareto Securities Swedbank Carnegie ASA ABG Sunndal Collier Fondsfinans Sparebank 1 Markets Danske Bank Markets 10 A N N U A L R E P O R T 2 0 1 5BOARD OF DIRECTORS REPORT 2015 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. 11 GRIEGSEAFOOD 2 0 1 5• 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 accordance with international accounting principles (IFRS). in 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 12 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 A N N U A L R E P O R T 2 0 1 5 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 13 GRIEGSEAFOOD 2 0 1 5MNOK 2,241 at year-end 2014. The equity ratio at year-end 2015 was 38% (42%). 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. 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 14 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. A N N U A L R E P O R T 2 0 1 5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 Total dispensed MNOK 40 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, 15 GRIEGSEAFOOD 2 0 1 5 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. 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. 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 16 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. A N N U A L R E P O R T 2 0 1 5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 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 17 GRIEGSEAFOOD 2 0 1 5PRINCIPLES OF CORPORATE GOVERNANCE 2015 Adopted by the Company’s Board of Directors on 20 April 2007 and updated on 22 January 2010, 4 April 2011, 22 March 2012, 22 March 2013, 1 April 2014, 23 March 2015, and 6 April 2016. 1. INTRODUCTION 1.1 Presentation of Corporate Governance The responsibility for ensuring that the company has good corporate governance rests with the Board. The board and management review and annually evaluates the company’s principles for corporate governance. The Group’s Corporate Governance is based on the Norwegian Code of Practice for Corporate Governance (NUES) as recommended by the Norwegian Corporate Governance Board on 30 October 2014. The Grieg Seafood Group follows the current recommendation from NUES, and has updated existing rules and defined values in accordance with changes in NUES 2014. 18 The company complies with these recommendations according to the follow or explain principle. This means that the company should explain all points where the recommendations are not followed. The Annual Report offers a full report on the company’s principles for corporate governance, which is available on www. griegseafood.com. 2. OPERATIONS A N N U A L R E P O R T 2 0 1 52.1 Grieg Seafood ASA The Company is the parent company of a group where companies of this Group are engaged in the production and sale of seafood and naturally related activities. The object of the Company is to engage in the production and sale of seafood and naturally related activities, including investment in companies engaged in the production and sale of seafood and other activities naturally related to similar companies. The Company is established and registered in Norway and is required to comply with Norwegian law, including laws and regulations pertaining to companies and securities. 2.2 Grieg Seafood ASA’s vision and overall objectives The Group aims to comply with all relevant laws and regulations and with the Norwegian Code of Practice for Corporate Governance. This also applies to all companies which are controlled by the Group. In as far as it goes, this document of principle therefore applies to all companies of the Group. The Group’s core values are to be open, respectful and ambitious. The Group shall be managed applying the following principles: • • • • • We shall be open and honest. We shall become better day by day. We do what we say. We are positive and enthusiastic. We care. The Group is committed to the sustainable use of natural resources and the development of the organisation based on high ethical standards. Targets and detailed plans have been adopted for the implementation of initiatives in these areas. The fish farmer has overall responsibility for the wellbeing of the fish and for ensuring that at all times the fish can be kept in their natural surroundings under optimal conditions. The Group selects locations where the water is as deep as possible and with good currents. The Group has drawn up a designated health plan which stipulates how all production operations are to be performed. The fish shall be systematically examined by a veterinarian. The Group attaches great importance to preventive measures and a rapid reaction in the event of disease or pollution. This is important not only to protect the environment and fish health, but also to safeguard the quality and profitability of production. The work shall be performed in accordance with the Group’s designated health plan. Measures have been implemented to prevent the escape of farmed fish. The objective is to conduct operations that do not cause any lasting damage to the environment. As a user of natural resources such as clean water and feed from wild fish, the Group has a responsibility which extends beyond its own operations. The Group requires its feed suppliers to ensure that the feed is based on sustainable supplies of raw materials. Starting with 2013, an own Sustainability report has been prepared, pointing out ten areas defining Grieg Seafood´s highest priorities for sustainability and social responsibility. The priorities were conducted according to guidelines developed by GSI (Global Reporting Initiative) of which Grieg Seafood is a member. The ten areas include both biology and social responsibility. 2.3 Management of the Company Control and management of the Company is divided between the shareholders, represented through the General Meeting, the Board of Directors and the managing director, and is exercised in accordance with prevailing company legislation. Divergences from this Code of Practice: None. 3. GROUP EQUITY AND DIVIDEND POLICY 3.1 Equity At any given time the Group shall have a level of equity which is appropriate in relation to the Group’s cyclical activities. The Board aims to consistently keep the equity in accordance with current loan terms, as a minimum. 3.2 Dividend The Group’s objective is to give the shareholders a competitive return on invested capital through dividend payments and value appreciation of the share, which is at least at the same level as other companies with comparable risk. The future dividend will depend on the Group’s future earnings, financial situation and cash flow. The Board believes that the dividend paid should develop in pace with the growth of the Group’s profits, while at the same time ensuring that equity is at a healthy and optimal level and that there are adequate financial resources to prepare the way for future growth and investment, and taking into account the wish to minimise capital costs. The Board believes it is natural that the average dividend, over a period of several years, should correspond to 25-35% pre-tax profit, adjusted for the accounting effect of fair value adjustment of biological assets. 3.3 Board authorisation The Board will request the AGM to grant a general mandate to pay out dividends in the period until the next AGM. The Board´s proposal must be justified. The dividend will be based on the Group’s current policy in accordance with clause 3.2. Dividends should be awarded on the basis of the latest financial statements approved within the scope of the Public Companies Act. Upon granted authorisation, the Board determines from which date the shares are traded ex-dividend. The Board has general authorisation to increase the Company’s 19 GRIEGSEAFOOD 2 0 1 5 share capital through share subscription for a total amount not exceeding NOK 44 664 800 divided into not more than 11 162 200 shares of nominal value NOK 4 each. This authorisation remains in effect until 30 June 2016 and replaces the authorisation approved by the Annual General Meeting (AGM) on 28 May 2015. The Board has general authorisation to acquire the Company’s own shares in accordance with the provisions of chapter 9 of the Norwegian Public Limited Companies Act for an aggregate nominal amount not exceeding NOK 44 664 800. The Company shall pay not less than NOK 4 per share and not more than NOK 40 per share when acquiring its own shares. Divergences from the Code of Practice: None. 4.4 Capital increases In the event of a waiver of the shareholders’ preferential subscription right, the Code of Practice shall be observed. 5. NEGOTIABILITY OF THE SHARES The Company’s shares shall be freely negotiable. Divergences from the Code of Practice: None. This authorisation remains in effect until the next AGM, but not later than 30 June 2016. 6. GENERAL MEETING The Company will observe the Code of Practice in respect of new proposals to authorise the Board to implement capital increases and acquire the Company’s own shares. The shareholders represent the Company’s highest decision- making body through the General Meeting. Divergences from the Code of Practice: None. 4. EQUAL TREATMENT OF SHAREHOLDERS. TRANSACTIONS WITH RELATED PARTIES Share class 4.1 The Company has only one class of shares and all shares carry the same rights. At 31 December 2015 the Company had 11 166 200 outstanding shares. 4.2 Own shares If the Company trades in its own shares, the Code of Practice shall be observed. At 31 December 2015 the Company owned 11 162 000 of its own shares. 4.3 Approval of agreements with shareholders and other related parties All transactions of no lesser significance between the Company and a shareholder, Board member or a senior employee (or their related parties) shall be subject to a value assessment by an independent third party. If the consideration exceeds one twentieth of the Company’s share capital, transactions of this kind shall be approved by the General Meeting, in so far as this is required under Section 3-8 of the Norwegian Public Limited Companies Act. Board members and senior employees shall inform the Board if they have any significant interest in a transaction to which the Company is a party. 20 The Company’s AGM shall be held each year before the end of June. The AGM shall consider and, if thought fit, adopt the annual financial statements, the annual report and the dividend, as well as deciding on other matters which under current laws and regulations pertain to the AGM. The Board may convene an Extraordinary General Meeting (EGM) at whatever time it deems necessary or when such a meeting is required under current laws or regulations. The Company’s auditor and any shareholder or group of shareholders representing more than 5% of the Company’s share capital may require the Board to convene an EGM. The Board calls General Meetings at least 21 days before the date of the meeting. During the same period, the notice of meeting and the documents pertaining to matters to be considered at the General Meeting shall be accessible on the Company’s homepage. The same applies to the nomination committee’s recommendation. When documents are made available in this manner the statutory requirements for distribution to shareholders do not apply. Still, a shareholder may claim to receive documents concerning matters to be considered at the General Meeting. The deadline to register for the general meeting is set by the Board in the notice. Shareholders who are unable to attend may vote by proxy. An authorisation form containing a vote option for each issue will be enclosed with the notice of meeting and it will also be possible to give authorisation to the chairman of the Board or the managing director of the Company. The Company will publish the Minutes of the General Meetings in accordance with the stock exchange regulations in addition to making them available for inspection at the Company’s registered offices. The Board, the Nomination Committee and the auditor will be represented at the meeting and the Chairman will normally preside at the meeting. The Board shall not make contact with the Company’s A N N U A L R E P O R T 2 0 1 5shareholders outside the General Meeting in a manner which could be deemed to constitute differential treatment of shareholders or which could be in conflict with current laws or regulations. Divergences from the Code of Practice: None. 7. NOMINATION COMMITTEE On 13 February 2009 the AGM approved a resolution to establish a nomination committee. This is described in article 8 of the Article of Association. At the same time, the AGM adopted instructions for the nomination committee. According to the instructions, the election committee through its work should take care of the interests currently embodied in the Norwegian Code of Practice for Corporate Governance. The present nomination committee was elected at the AGM on 28 May 2015 and comprises Marianne Johnsen (chair), Helge Nielsen and Tone Østensen, of whose Helge Nielsen and Tone Østensen are candidates for election in 2016. At least 2/3 of the members of the nominating committee shall be independent of the Board and may not be members of the Board. CEO cannot be a member of the nomination committee. The nomination committee shall have meetings with the directors, chief executive and relevant shareholders. Details about the nomination committee members, including telephone number and email address, are available on the Company´s website. The nomination committee´s recommendation to the General Assembly should be submitted in good time and follow the summons to the General Assembly, no later than 21 days before the meeting. The recommendation of the nomination committee must include information about the candidate´s impartiality, competence, age, education and professional experience. Upon proposal for re-election, the recommendation should include additional information about how long the candidate has been a board member, as well as details about participation in the board meetings. When the recommendation comprises candidates to the nomination committee, it should include relevant information about these candidates. The Company does not diverge from the Code of Practice. 8. CORPORATE ASSEMBLY AND BOARD OF DIRECTORS, COMPOSITION 8.1 Number of Board members The Company has no corporate assembly. Under the Articles of Association the Board shall have up to seven members. 8.2 Election period Board members are elected by the AGM for a period of two years. 8.3 Independent Board members The Board members are presented in the Annual Report and on the Company’s homepage, showing the Board members’ competence, relationship to main shareholders, and a description of Board members who are deemed to be independent. No overview of participation at Board meetings is included in the Annual Report. An overview of the Board members’ ownership of shares in the Company appears in the relevant note to the accounts in the Annual Report. The Company has no corporate assembly. The Company does not otherwise diverge from the Code of Practice. There is compliance with the required number of independent Board members contained in the Code of Practice. 9. BOARD OF DIRECTORS 9.1 Duties and work plan The Board has overall responsibility for the management of the Group and for overseeing the daily management and business activities. The Company shall be managed by an effective Board of Directors (the Board) who has shared responsibility for the success of the Company. The Board represents and is accountable to the Company’s shareholders. Each year the Board shall draw up a work plan for its activities. The Board’s duties include drawing up the Group’s strategy and ensuring that the adopted strategy is implemented, effective supervision of the managing director, control and supervision of the Group’s financial situation, internal control and the Company’s responsibility to and communication with the shareholders. The Board shall initiate any investigations it considers necessary at any given time to perform its duties. The Board shall also initiate such investigation that is requested by one or more Board members. Divergences from the Code of Practice: None. 9.2 Instructions The Board has drawn up instructions for its members and the Management which contain a more detailed description of the Board’s duties, meetings, the managing director’s duties in relation to the Board, the meeting schedule for the Board, participation, separate entries in the Minutes and duty of confidentiality. The respective roles of the Board and the managing director are separate and there is a clear division of responsibility between the two. Separate instructions have been drawn up for the group managing director. He/she is responsible for the Company’s senior employees. The Board underlines that special care must be exercised in matters relating to financial reporting and remuneration to senior employees. 21 GRIEGSEAFOOD 2 0 1 5In matters of importance where the chairman of the Board is or has been actively involved, Board discussions shall be chaired by the vice chairman. The instructions for the Board and Management were last revised by the Board on 4 April 2011. 9.3 Annual assessment Each year, in connection with the first Board meeting in the calendar year, the Board shall make an assessment of its work in the previous year. 9.4 Audit Committee The Board has set up a sub-committee (audit committee) comprising a minimum of two and a maximum of three members elected from among the Board’s members, and has drawn up a mandate for its work. The committee assists the Board in the work of exercising its supervisory responsibility by monitoring and controlling the financial reporting process, systems for internal control and financial risk management, external audits and procedures for ensuring that the Company complies with laws and statutory provisions, and with the Company’s own guidelines. 9.5 Remuneration Committee The Board has set up a sub-committee (remuneration committee) comprising no less than two members. The committee shall hold discussions with the group managing director concerning his/her financial terms of employment. The committee shall submit a recommendation to the Board concerning all matters relating to the group managing director’s financial terms of employment. The committee shall also keep itself updated on and propose guidelines for the determination of remuneration to senior employees in the Group. The committee is also the advisory body for the group managing director in relation to remuneration schemes which cover all employees to a significant extent, including the Group’s bonus system and pension scheme. Matters of an unusual nature relating to personnel policy or matters considered to entail an especially great or additional risk, should be put before the committee. The composition of the committee is subject to assessment each year. Divergences from the Code of Practice: None. 10. INTERNAL CONTROL AND RISK MANAGEMENT The Board has a responsibility to ensure that the company has proper risk management and internal control adaptable to statutory provisions for the company. The Board conducts an annual evaluation of the most important risk areas and internal control. 22 Internal control means activities carried out by the Group to organise its business activities and procedures in order to safeguard its own values and those of its customers, and to realise adopted goals through appropriate operations. The achievement of these goals also requires systematic strategy work and planning, identification of risk, choice of risk profile, as well as establishing and implementing control measures to ensure that the goals are achieved. The Group’s core values, external guidelines and social corporate responsibility constitute the external outer framework of internal control. The Group is decentralised and considerable responsibility and authority are therefore delegated to the regional operating units. Risk management and internal control are designed to take account of this. Internal control is an on-going process that is initiated, implemented and monitored by the Company’s Board of Directors, management and other employees. Internal control is designed to provide reasonable assurance that the Company’s goals will be achieved in the following areas: Targeted, efficient and appropriate operations. Reliable internal and external reporting. Compliance with laws and regulations, including • • • internal guidelines. The audit committee updates the Board after each meeting. Each year the auditor carries out a review of internal control which is an element of financial reporting. The auditor’s review is submitted to the audit committee. The Company has established framework procedures to manage and eliminate most of the risk that could prevent a goal from being achieved. This includes a description of the Company’s risk management policy as well as all financial control processes. There is on-going risk assessment of the main transaction processes. Descriptions of the transaction processes are currently in preparation for each region, with the aim of clarifying key controls and ensuring that these controls are in place. This means assessing all processes to determine the probability of divergences arising, and how serious the economic consequences would be of any such divergence. The establishment of controls in each region is aimed at reducing the likelihood of divergences arising with major economic consequences. The biological development in course of producing smolt and farming in the sea poses the greatest risk in the group. The Group therefore continuously and systematically works to develop processes that ensure animal welfare and reduce diseases and mortality, and so that “best practices” are being implemented at all levels. Control routines have been prepared, including conditions for the employees as well as safeguarding against escapes, animal welfare, pollution, water resources and food safety. Referring to the Sustainability report prepared annually, objectives, internal controls and measures are described within the company’s main focus areas. The Group’s activities entail various kinds of financial risk: A N N U A L R E P O R T 2 0 1 5Market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management plan focuses on the unpredictability of the capital markets and seeks to minimise the potential negative effects on the Group’s financial results. To some extent, the Group uses financial derivatives to hedge against some risks. Risk management is drawn up at Group level and involves identifying, evaluating and hedging financial risk in close cooperation with the Group’s operational units. The Board has established written principles for risk management related to foreign exchange and interest rate risk and the use of financial instruments. The Board has established procedures for reporting within the Group: • At the start of each year the Board adopts a budget for the year. Divergences from the budget are reported on a monthly basis. Forecasts are drawn up for the next three years and they are updated every month. • • Every month, each region submits a report containing given Key Performance Indicators (KPI). The main KPIs are: EBIT/kg, feed factor, production, production cost, harvest volume, harvest cost and fish health. Analyses are made and measured against budget figures and KPIs. The information form of the regions is summarised in a report submitted to the Board. Each quarter, a risk assessment covering biology, feed, market, finance and Compliance is prepared. These areas are considered to pose the greatest risks for the Company. This can be changed from the changed situation. The risk assessment is reviewed by the Audit Committee in connection with quarterly reporting. Divergences from the Code of Practice: None. 11. BOARD REMUNERATION Proposals concerning Board remuneration are submitted by the nomination committee. Remuneration to Board members is not linked to the Company’s results. None of the Board members have special duties in relation to the Company which are additional to those they have as Board members. Board remuneration shall be shown in the financial statements of both the Company and the Group. Divergences from the Code of Practice: None. 12. REMUNERATION TO SENIOR EMPLOYEES 12.1 Senior employees in Rogaland, Finnmark, Shetland and British Columbia) and the two people responsible for feed/nutrition and biology, respectively. The objective of the guidelines for determination of salary and other remuneration to senior employees within the Group is to attract people with the required competence and at the same time retain key personnel. The guidelines should also motivate the employees to work with a long-term perspective to enable the Group to achieve its goals. The determination of salary and other remuneration to the Group’s senior employees is therefore based on the following guidelines: • • • • Salary and other remuneration shall be competitive and motivating for each manager and for everyone in the senior management group. Salary and other remuneration shall be linked to value creation generated by the Company for the shareholders. The principles used to determine salary and other remuneration shall be simple and understandable to employees, the shareholders and the public at large. The principles used to determine salary and other remuneration shall also be sufficiently flexible to allow adjustments to be made on an individual basis in the light of the results achieved and the contribution made by the individual to the development of the Group. The salary paid to the members of the senior management group consists of a fixed and a variable element. Under the bonus scheme in force the variable salary under the scheme cannot exceed six times the monthly salary. Each year, information about the provisions of the bonus scheme is included in the Group declaration on the determination of salary to the senior management group and appears in the financial statements for the Group, note 16. The Company´s Board approved the allocation of cash options based on the General Assembly´s resolution for the framework of the share and cash options programme. The last approval from the General Assembly was May 28 2015. The allocation from the Board has been approved on 20 April 2007, 6 May 2009, 27 March 2012, 22 March 2013 and 17 December 2013.The group managing director, the financial director, the operational director and the four regional managers are included in the share options programme. The options agreements have been entered into within the scope of the resolution adopted by the General Assembly. Minutes of this General Assembly can be accessed on the Company’s homepage. This has been followed by the establishment of a synthetic options programme. Options agreements with members of the senior management group have been entered into within the framework of the adopted resolution. The group management consists of the group managing director, the director of operations and the financial director. The Group has an extended management group of ten, comprising the group managing director, the director of operations, the financial director, the group head of accounting, four regional managers (the respective managers of fish farming activities Remuneration to the group managing director is determined at a meeting of the Board of Directors. The salary payable to the other members of the senior management group is determined by the group managing director. The group managing director shall discuss the remuneration which he/she proposes with the chairman of the Board before the amount of remuneration is 23 GRIEGSEAFOOD 2 0 1 5determined. General schemes for the allocation of variable benefits, including bonus schemes and options programmes, are determined by the Board. Schemes which entail an allotment of shares, subscription rights, options and other forms of remuneration related to shares or the development of the Company’s share price, are determined by the General Assembly. The Board´s declaration of management remuneration is a separate agenda paper of the General Assembly. The General Assembly votes separately on guidelines to guide the Board and remuneration comprising the synthetic options programme. The Company has no divergences from the Code of Practice. 12.2 Severance pay The group managing director is entitled to 12 months’ severance pay after dismissal and 12 months salary during illness. A severance pay agreement has also been established for the CFO and COO providing for 12 months’ severance pay after dismissal. The acting resigning CEO is entitled to 18 months salary after dismissal or change in position or employment and 12 months’ salary during illness. Divergences from the Code of Practice: None. 13. INFORMATION AND COMMUNICATION 13.1 Financial information The Company shall at all times provide its shareholders, the Oslo Stock Exchange and the finance market in general (through the Oslo Stock Exchange information system) with timely and accurate information. The Board shall ensure that the quarterly reports from the Company give a correct and complete picture of the Group’s financial and commercial position and whether the Group’s operational and strategic objectives are being reached. Financial reporting shall also contain the Group’s realistic expectations of its commercial and performance- related development. The Company publishes all information on its own homepage and in press releases. Quarterly reports, annual reports and press releases are presented as they arise on the Company’s homepage in accordance with the Company’s financial calendar. The Company shall have an open and active policy in relation to investor relations and shall hold regular presentations in connection with the annual and interim results. 13.2 Shareholder information The Board shall ensure that information is provided on matters of importance for the shareholders and for the stock market’s assessment of the Company, its activities and results and that such information is made publicly available without undue delay. Publication shall take place in a reliable and comprehensive manner and by using information channels which ensure that everyone has equal access to the information. 24 All information shall be provided in both Norwegian and English. The Company has procedures to ensure that this is done. The chairman of the Board shall ensure that the shareholders’ views are communicated to the entire Board. Divergences from the Code of Practice: None. 14. COMPANY TAKEOVER 14.1 Change of control and takeovers The Company has no established mechanisms which can prevent or act as a deterrent to takeover bids, unless this has been resolved by the General Meeting by a majority of two thirds (of the votes cast and of the share capital represented). The Board will not use its authorisation to prevent a takeover bid without the approval of the General Meeting after the takeover bid has become known. If a takeover bid is received, the management and the Board will ensure that all shareholders are treated equally. The Board will obtain a value assessment from a competent independent party and advise the shareholders whether to accept or reject the bid. The shareholders will be advised of any difference of views among the Board members in the Board’s statement on the takeover bid. The Board has in its Board meeting 13 October 2015 adopted some core principles for how the Board will act in the event of any persuasion offers. These core principles are in accordance with the recommendation of NUES. Divergences from the Code of Practice: None. 15. AUDITOR The Board through its audit committee seeks to have a close and open cooperation with the Company’s auditor. Each year the audit committee obtains confirmation that the auditor meets the requirements of the Act on auditing and auditors concerning the independence and objectivity of the auditor. The auditor’s schedule of audit work is submitted to the audit committee once a year. In particular, the audit committee considers whether, to a satisfactory extent, the auditor is performing a satisfactory control function. Both the Company management and the auditor comply with guidelines issued by the Financial Supervisory Authority of Norway concerning the extent to which the auditor can provide advisory services. The auditor attends Board meetings which deal with the annual financial statements. The audit committee has an additional meeting with the auditor at least once a year to review the auditor’s report on the auditor’s view of the Group’s accounting principles, risk areas and internal control procedures. Moreover, each year the Board has a meeting with auditor when neither the managing director nor anyone else from the management is present. A N N U A L R E P O R T 2 0 1 5The auditor also attends meetings of the audit committee to consider relevant matters. The auditor’s fee appears in the relevant note in the annual report showing the division of the fee between audit and other services. Divergences from the Code of Practice: None. * * * Bergen, 6th of April 2016 25 GRIEGSEAFOOD 2 0 1 5CONSOLIDATED STATEMENT OF PROFIT AND LOSS Amounts in NOK 1 000 Sales revenue Other income Other gains and losses Share of profit from associated companies Cost of sales Salaries and personnel expenses Other operating expenses Note 2015 REVISED 2014 8 8 7, 8 7 9 4 608 667 4 099 543 44 921 -15 218 6 994 2 819 59 122 3 576 -2 738 926 -2 293 279 16/ 17 -409 432 -359 529 13/ 17/ 22/ 26 -1 235 695 -1 028 434 Operating profit/loss before depreciation and fair value adjustments of biological assets 261 311 483 820 Depreciation property, plant and equipment Depreciation licences and other intangible assets Depreciation property, plant and equipment, and intangible assets Operating profit/loss before fair value adjustment of biological assets 11 10 10/11 Fair value adjustment of biological assets Operating result Share of profit/loss from associated companies Financial income Financial expenses Net financial loss Profit before income tax Income tax expense Profit for the year Allocated to: Controlling interests Non-controlling interests Earnings per share (NOK) Diluted earnings per share (NOK) 26 9 7 25 25 15 20 20 -162 211 -5 163 -46 195 47 742 33 209 80 951 -135 495 -5 222 0 343 104 -123 737 219 366 3 142 2 865 38 056 -131 357 -93 301 57 245 -107 521 -50 276 -9 208 171 956 13 574 4 366 -6 626 10 992 -0,06 -0,06 -27 561 144 395 138 806 5 588 1,26 1,26 A N N U A L R E P O R T 2 0 1 5 GROUP CONSOLIDATED COMPREHENSIVE INCOME STATEMENT Amounts in NOK 1000 Profit for the year ITEMS WITH NO TAX EFFECT ON REALISATION SUBSEQUENTLY REVERSED IN PROFIT: Currency translation differences, subsidiaries Change in value of available-for-sale assets Total ITEMS WITH TAX EFFECT ON REALISATION SUBSEQUENTLY REVERSED IN PROFIT: Currency effect of net investments 3 Tax effect Net effect Comprehensive income after taxes Total comprehensive income for the year Allocated to: Controlling interests Non-controlling interests 2015 REVISED 2014 4 366 144 394 6 266 31 6 297 54 134 -13 533 40 601 46 898 51 264 37 099 26 37 125 78 912 -21 306 57 606 94 731 239 125 40 272 10 992 233 537 5 588 27 GRIEGSEAFOOD 2 0 1 5 GROUP CONSOLIDATED STATEMENT OF FINANCIAL POSITION Amounts in NOK 1000 ASSETS Goodwill Deferred tax assets Licences Other intangible assets Property, plant and equipment Investments in associated companies Available-for-sale financial assets Other non-current receivables Total non-current assets Inventories Biological assets Accounts receivable Other current receivables Derivatives and other financial instruments Cash and cash equivalents Total current assets Total assets Note 31.12.15 REVISED 31.12.2014 REVISED 01.01.2014 10 15 10 10 11 7 9 9 3, 22 23 3, 14 3, 21 110 647 10 317 1 093 338 16 993 1 534 770 25 947 1 426 2 667 108 708 2 180 1 066 184 11 517 1 424 952 22 379 1 518 67 107 310 0 994 066 4 545 1 204 627 28 058 1 392 1 275 2 796 104 2 637 505 2 341 273 90 867 1 929 115 581 904 145 767 0 392 020 3 139 673 5 935 777 91 016 1 844 097 504 110 93 371 0 181 498 2 714 092 5 351 597 75 009 1 766 332 441 608 98 171 2 806 182 258 2 566 184 4 907 458 28 A N N U A L R E P O R T 2 0 1 5 GROUP Amounts in NOK 1 000 LIABILITIES AND EQUITY Note 31.12.15 REVISED 01.01.2014 REVISED 01.01.2014 Share capital Treasury shares Other equity - not recognised Retained earnings Total controlling interests Non-controlling interests Total equity Deferred tax liabilities Pension obligations Cash-settled share options Loan Other long-term borrowings Financial leasing liabilities Total non-current liabilities Short-term loan facilities Current portion of long-term borrowings Current portion of financial leasing liabilities Factoring liabilities Cash-settled share options Accounts payable Tax payable Accrued salary expense and public tax payable Derivatives and other financial instruments Other current liabilities Total current liabilities 19 19 15 18 12 12 12, 13 3, 12 12 12, 13 3, 12 18 3 15 3, 14 25 446 648 -5 000 139 993 1 625 521 2 207 162 30 349 2 237 511 539 040 109 4 389 1 518 261 21 425 272 968 2 356 192 0 101 922 61 008 338 231 1 250 653 083 24 545 12 134 27 104 446 648 -5 000 93 095 1 687 351 2 222 094 19 357 2 241 451 560 320 198 2 334 958 828 23 640 236 430 446 648 -5 000 -2 181 1 548 547 1 988 014 13 767 2 001 781 557 523 610 0 850 646 24 056 170 251 1 781 750 1 603 086 0 487 664 53 231 195 560 929 360 358 56 975 14 232 27 932 425 000 111 060 46 149 181 297 9 567 418 150 1 471 22 791 12 964 74 142 1 302 591 122 795 1 342 072 131 515 1 328 396 Total liabilities 3 698 264 3 110 146 2 905 676 Total liabilities and equity 5 935 777 5 351 597 4 907 457 Bergen, 06.04.2016 Grieg Seafood ASA TRANSLATED - NOT TO BE SIGNED 29 GRIEGSEAFOOD 2 0 1 5 GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Amounts in NOK 1000 Note Share capital Own shares Other equity - not recognised Retained equity Non- controlling interests Total equity Equity at 01.01.2014 446 648 -5 000 -2 181 1 548 547 13 767 2 001 781 RESULT FOR 2014 138 806 5 588 144 395 Translation effects foreign currency Net investment Change in value in shares held for sale 15 Total comprehensive income Total comprehensive income for 2014 Total equity from shareholders 2014 Total change in equity in 2014 Equity at 31.12.2014 37 644 57 606 26 95 276 95 276 0 37 644 57 606 26 95 276 0 0 0 138 806 5 588 239 671 0 0 0 95 276 138 806 5 588 239 671 0 0 0 0 0 0 0 0 446 648 -5 000 93 095 1 687 353 19 357 2 241 452 RESULT FOR 2015 -6 626 10 992 4 366 Translation effects foreign currency Net investment Change in value in shares held for sale 15 Total comprehensive income Total comprehensive income for 2015 Dividend paid Total equity from shareholders 2015 Total change in equity in 2015 Equity at 31.12.2015 6 266 40 601 31 46 898 46 898 0 46 898 0 0 0 0 0 0 0 0 0 0 -6 626 10 992 -55 206 -55 206 -61 832 0 10 992 6 266 40 601 31 46 898 51 264 -55 206 -55 206 -3 942 446 648 -5 000 139 993 1 625 521 30 349 2 237 511 Booked amount on the line “Own shares” equals nominal value of parent company´s holding of own shares. 30 A N N U A L R E P O R T 2 0 1 5 GROUP SPECIFICATION OF EQUITY ITEMS Book value at 01.01.2014 Change in 2014 Change in 2015 Effect of share-based remuneration Purchase of own shares *) Profit for the year - dividend paid Total 1 094 -13 036 1 560 489 1 548 547 0 0 0 0 138 806 -61 832 138 806 -61 832 Book value at 31.12.2015 1 094 -13 036 1 637 463 1 625 521 SPECIFICATION OF OTHER EQUITY, NOT RECOGNISED Shares held for sale Net investment Book value at 01.01.2014 Change in 2014 Change in 2015 Book value at 31.12.2015 711 26 31 768 Currency conversion -20 658 37 644 6 266 Total -2 181 95 276 46 898 17 766 57 606 40 601 115 973 23 252 139 993 *) Amount classified under “Purchase of own shares” is cost price in excess of nominal value. See also note 19. 31 GRIEGSEAFOOD 2 0 1 5 GROUP CONSOLIDATED CASH FLOW STATEMENT Amounts in NOK 1000 Operating result Taxes paid for period Fair value adjustment of biological assets Ordinary depreciation Depreciation property, plant and equipment, and intangible assets (Gain/)Loss on sale of property, plant and equipment (Gain/)Loss on sale of own shares Share of results from companies which apply the equity method of accounting Change in inventories and biological assets ex. fair value Change in customer accounts receivable and other receivables Change in accounts payable Change in other accruals items Change in net pension and option obligations Net cash flow from operations Receipts from sale of property, plant and equipment Receipts from sale of shares and other equity instruments Dividends received Payments on purchase of property, plant and equipment Payments on purchase of intangible assets Change in other non-current receivables Net cash flow from investment activities Change in short-term interest-bearing debt Change in long-term interest-bearing debt Leasing receipts Repayment of long-term interest-bearing debt and leasing Other financial items Dividend Change in factoring Interest expense Net cash flow from financing activities Note 2015 15 9 10,11 11 7 7 10 13 25 11 10 80 951 -57 005 -33 209 167 374 46 195 -403 -1 405 -6 994 -51 661 -168 672 292 689 99 839 1 966 369 665 2 092 6 568 446 -264 050 -58 651 -2 953 REVISED 2014 219 366 -8 740 127 108 140 717 - -478 -63 815 -3 576 -219 138 -37 438 -76 174 86 528 -7 818 156 541 6 245 71 446 474 -303 404 -8 294 47 -316 548 -233 486 - 650 000 71 795 -528 987 -823 -55 206 139 131 -117 641 158 269 -410 737 895 109 103 135 -649 750 26 412 - 195 568 -88 303 71 434 Net change in cash and cash equivalents 211 386 -5 511 Cash and cash equivalents at 01.01 181 498 182 257 Currency conversion of cash and cash equivalents -865 4 752 Cash and cash equivalents at 31.12 392 020 181 498 32 A N N U A L R E P O R T 2 0 1 5 GROUP NOTE 1 GENERAL INFORMATION Grieg Seafood ASA is an integrated Norwegian seafood company operating in the area of salmon farming and processing. Grieg Seafood ASA is a public limited company registered in Norway. Its head office is located at C. Sundtsgt. 17/19, Bergen, Norway. Grieg Seafood ASA was listed on the Oslo Stock Exchange on 21 June 2007. The Company has operations in Norway, the UK and Canada. The consolidated accounts are prepared in accordance with International Financial Reporting Stantards (IFRS) as adopted by EU, and approved by the Board of Directors 6 April 2016. In the following, ”Group” is used to describe information related to the Grieg Seafood Group, whilst “the Company” is used for the parent company itself. All amounts are in NOK thousand unless stated otherwise. All amounts for 2014 are revised due to the full consolidation of Ocean Quality as from 1 January 2015. See note 6 for further information about the revision. 33 GRIEGSEAFOOD 2 0 1 5 GROUP NOTE 2 ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless stated otherwise. BASIS OF PREPARATION The consolidated financial statements of Grieg Seafood Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. The consolidated financial statements have been prepared under the historical cost convention, as modified by biological assets, available-for-sale financial assets, and financial assets/liabilities (including derivative instruments) at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of estimates. It also requires management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are described in note 4. acquisition price are recognised through profit or loss or are posted as a change in the comprehensive income statement where the contingent price is classified as an asset or a liability. There is no new value measurement of a contingent acquisition price classified as equity, and the subsequent settlement is charged against equity. Intra-group transactions, balances, and unrealised gains between Group companies are eliminated. Unrealised loss is also eliminated. The accounts of subsidiaries are re-stated where necessary to ensure consistency with the accounting policies adopted by the Group. (B) CHANGE IN OWNER INTERESTS IN SUBSIDIARIES WITHOUT LOSS OF CONTROL Transactions with non-controlling owners of subsidiaries, which do not entail a loss of control, are regarded as equity transactions. On the purchase of further shares from non-controlling owners, the difference between the consideration paid and the shares’ proportionate share of the net assets in the accounts of the subsidiary is recorded in the equity of the parent company’s owners. Similarly, any gain or loss on a sale to non-controlling owners is recorded in equity. CONSOLIDATION PRINCIPLES (A) SUBSIDIARIES Subsidiaries are all entities (including special purpose entities) over which the Group has control. A situation where the Group controls another entity arises when the Group is exposed to variability in returns from the entity, and has power to influence this return through its control of the entity. Subsidiaries are consolidated from the point when the group can exercise control and consolidation ends when control of the subsidiary terminates. C) DIVESTMENT OF SUBSIDIARIES In the event of loss of control, any remaining ownership interest is stated as fair value change through profit or loss. Thereafter, for accounting purposes, fair value is the acquisition cost either as an investment in an associated company, joint venture or a financial asset. Amounts previously recorded in a comprehensive income statement related to this company, are dealt with as if the Group had disposed of underlying assets and liabilities. This may mean that amounts previously recorded in a comprehensive income statement, are reclassified as part of the income statement. If the Company´s ownership exceeds 50 % but is below 100 % of the subsidiaries, the minority´s share of profit after tax and share of equity are posted on separate lines in the statement. The purchase method of accounting is used for acquisitions. The cost of an acquisition is measured as the fair value of the assets and liabilities taken over, and equity instruments issued. The cost also includes the fair value of all assets and liabilities and contingent liabilities taken over by agreement. Identifiable assets, debt and contingent liabilities are booked at fair value on the date of acquisition. Non-controlling owner interests in the acquired entity are measured from time to time either at fair value, or as their proportion of net assets of the entity that has been acquired. Costs related to acquisitions are charged as they arise. In the case of a multi-stage acquisition, the proportion of ownership from an earlier purchase is re-stated at fair value at the date of control and the value change is recognised through profit or loss. A contingent acquisition price is measured at fair value at the date of acquisition. Under IAS 39, subsequent changes in the contingent 34 (D) ASSOCIATED COMPANIES Associated companies are entities over which the Group has significant influence, but not control. Significant influence is deemed to exist where the Group has between 20% and 50% of the voting rights. Investments in associates are recognised using the equity method. Investments in associates are initially recognised at cost, and the Group´s share of the results in subsequent periods is recognised through profit or loss. The amount recorded in the balance sheet includes implicit goodwill identified at the date of purchase. Share of profit or losses of associates that are closely linked to the Group´s operations and thus are included in the value chain of the Group, are classified on a separate line included in the Group’s operating result. In the event of a reduction in the owner interest in an associated company where the Group retains significant influence, only a proportionate part of amounts previously recognised in the comprehensive income statement is reclassified through profit or loss. A N N U A L R E P O R T 2 0 1 5 GROUP The Group’s share of profits or losses of associated companies is recognised in the income statement and is added to the value of the investment in the balance sheet. The Group’s share of the comprehensive results for the associated company is entered in the Group’s comprehensive income statement and is also added to the amount of the investment in the balance sheet. The Group’s share of a loss is not posted in the income statement if this means that the value of the investment in the balance sheet is negative (including the entity’s unhedged receivables), unless the group has undertaken obligations or made payments on behalf of the associate. The accounts of associated companies are re-stated where necessary to ensure consistency with the accounting policies adopted by the Group. At the end of each accounting period, the Group determines if there is a need to write down the investment in the associated company. In such case, the amount of the write-down is calculated as the difference between the recoverable amount of the investment and its book value, and the difference is recorded on a separate line along with ”Share of results of associated companies”. If a gain or a loss arises on transactions between the Group and its associated companies, only the proportionate amount related to shareholders outside the Group is recorded. Unrealised losses are eliminated unless there is a need to write down the asset that was the subject of the transaction. Accounting policies of associates are changed where necessary to ensure consistency with the accounting policies adopted by the Group. Gains and losses on dilution of assets of associated companies are posted in the income statement. SEGMENT REPORTING Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision- maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Group management. FOREIGN CURRENCY TRANSLATION Functional and presentation currency. The financial statements of each of the Group’s entities are generally measured using the currency of the economic area in which the entity operates (“the functional currency”). The consolidated financial statements are presented in Norwegian Kroner (NOK), which is the parent company’s functional and presentation currency. TRANSACTIONS AND BALANCE SHEET ITEMS Foreign currency transactions are translated into the functional currency using the exchange rates. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currency at year-end at the exchange rate on the date of the balance sheet are recognised in the income statement. GROUP COMPANIES The income statements and balance sheets of the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) assets and liabilities are translated at the closing rate on the date of the balance sheet, (ii) income and expense items in the income statement are translated at average exchange rates for the period (if the average is not a reasonable estimate of the cumulative effects of using the transaction rate, the transaction rate is used) (iii) translation differences are recorded in comprehensive income and specified separately. When a foreign operation is sold, the exchange difference, which in previous periods was recorded in consolidated income, is not accrued. The accumulated exchange difference from the sale of the foreign operation is hence reversed in the consolidated income. Gain/loss from the sale is recognised on a basis of zero exchange difference. Gain/loss is recorded in the ordinary net profit. Goodwill and fair value adjustments of assets and liabilities on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and are translated into the functional currency at the closing rate. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at historical cost less depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the item. Acquisition cost may also include gains or losses transferred from equity as a result of hedging the cash flow in foreign currency on the purchase of property, plant and equipment. Improvements are included in the asset’s carrying amount or recognised as a separate asset when it is probable that future economic benefits associated with the improvement will flow to the Group and the cost of the item can be reliably measured. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Land and buildings comprise mainly factories and offices. Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate cost less residual value over estimated useful lives, as follows: • Buildings/real estate 10 - 50 år • Plants, barges, onshore power supply 5 - 30 years • Nets/cages/moorings 5 - 25 years • Other equipment 3 – 35 years The assets’ useful lives and residual values are reviewed at each balance sheet date and adjusted, if necessary. An asset’s carrying amount is written down to its recoverable amount if the carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are posted net in the income statement and correspond to the difference between the sale price and the carrying amount. INTANGIBLE ASSETS Intangible assets, which arise internally within the Group, are not recognised. Goodwill and licences with an indefinite economic life are subject to annual impairment tests. Impairment tests are performed more frequently if indications of impairment exist. Amortised licences are tested for impairment only if there are indications that future earnings do not justify the asset’s balance sheet value. GOODWILL Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired entity at the date of acquisition. Goodwill on acquisitions of subsidiaries is classified as an intangible asset. Goodwill on the purchase of a share in an associated company is included in “investments in associates”. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. LICENCES Fish quotas and fish farming licences that have an indefinite useful life are not amortised but reviewed for impairment annually, or more frequently if there are indications that the balance sheet value may have decreased. The Group considers the following licences to have indefinite useful life: • Licences granted with indefinite useful life, where the company has no other contractual restrictions related to the use of the licence. 35 GRIEGSEAFOOD 2 0 1 5 GROUPLicences granted with limited useful life, but where renewal • from licence holders´ side can be arranged without substantial expenses. of licences allows for application for renewal based on demand. A licence for harvesting cages is valid for 10 years and needs renewal upon expiration, given that the licence is still connected to an approved harvesting plant. Licences with a limited useful life are amortised over the useful lifetime. These regard water concessions for hatcheries and some specific grow-out licences. The following sections provide a description of concessions related to the segments Norway, UK (Shetland) and BC (Canada). Please refer to note 10 Intangible assets for an overview of the number and types of licences, as well as impairment testing. NORWAY The licencing regime for the production of salmon and trout in Norway has been introduced by the Parliament and adopted through the Aquaculture Act. The Ministry of Trade, Industry and Fisheries grants permits for aquaculture (licences). All aquaculture operations are subject to licencing and nobody can produce salmon/ trout without permission from the authorities regardless of when the permit was issued, cf. Aquaculture Act § 4. The aquaculture permit entitles the production of salmon and trout in limited geographic areas (sites), with the current determined limitations of the permit scope. The Aquaculture Act is administered centrally by the Ministry of Trade, Industry and Fisheries, with the Directorate of Fisheries as the supervisory authority. Regionally, several industry authorities collectively manage a complete administrative and supervisory responsibility within the regulating range of the Aquaculture Act. The county is the regional administrative body, while the Directorate of Fisheries serves as appellate body in locality and licencing matters. Grow-out licences Each licence for salmon and trout in the sea is subject to a production limit in the form of “maximum allowed biomass” (“MTB”). MTB does not directly limit the number of tons of fish production within a year, but limits the amount of fish to keep in the sea at any time. Normally, a licence has a limit of 780 tons MTB, ref. the Salmon Allocation Regulation § 15 (“laksetildelingsforskriften”). Such licences are limited in number and only subject to application, following politically decided licencing rounds. Hatchery licences Young salmon/trout are defined as eggs, juveniles, parr or smolts to be released in another locality ref. Salmon Allocation Regulation § 4 f. Such licences are not limited in number and thus subject to continuous application for new licences or changes to existing licences. Basically, it is not allowed to produce smolts over 250 grams, but the regulations allow for applications to produce a certain percentage of fish up to 1 kilogram. R&D and broodstock licences These licences are not limited in number. Permissions are means- tested, meaning the applicant must demonstrate a need for the production of eggs, specific research projects or educational purposes. Broodstock licences include both land and sea phase, ie the broodfish and egg production belong to the same licencing consideration. Harvesting cage licences Licences utilised to cage setting of live fish for harvesting. These relate to specific locations. Duration and renewal The Ministry may in individual decisions or regulations specify further provisions on the contents of aquaculture licences, including scope, time limitations, etc., cf. the Aquaculture Act § 5, second paragraph. Still, the preparatory work for the Aquaculture Act specify that licences normally are granted without a time limit. Grieg Seafood’s general food fish licences and hatchery licences are not time limited under current regulations. After the reform in 2009, a number of licences were time limited, mainly to 15 years. As no government practices have been established related to renewal of broodstock licences, the current understanding is that expiration Disposal and withdrawal All licences can be transferred and mortgaged according to the Aquaculture Act § 19. Transfers and mortgages must be registered in a separate register (the Aquaculture Register). It is not allowed to rent out licences or licence capacity. The Aquaculture Act reviews the basis for withdrawal of an aquaculture licence. This states inter alia that there must be significant breaches of the terms of an aquaculture licence before it can be revoked. UK Grieg Seafood Hjaltland UK Ltd (“Grieg UK”) has farms on both the west and east coast of Shetland, as well as the west coast of Scotland. In order to operate farms in Scotland, the following five licences must be in place: • Water Environment (Controlled activities) “CAR” licence – issued by Scottish Environment Protection Agency (SEPA) • Planning permission – issued by local authorities (Town and Country Planning Act) • Crown Estate Lease/Permission (The Crown Estate act 1961) • Aquaculture Production Business Licence (APB) – issued by Aqua Animal Health • Marine Licence (Navigation) – issued by the Scottish government For limitations related to production quantity, see table in note 10. Duration and renewal • CAR licence – requires periodic inspection and monitoring. If a substantial negative effect on the environment can be proven, as a consequence of the operation, the production volume can be reduced or, as a worst-case scenario, revoked. • Planning Permission – indefinite duration, but if the plant is left unused for 3 consecutive years, the licence may be withdrawn • Crown Estate Lease/Permission – 25 years of duration. Normal procedure is renewal of the licences upon expiration. • APB – indefinite duration depending on compliance with the licence´s conditions. • Marine Licence – required application for renewal every 6 years. This is normally a formality. BC Grieg Seafood B.C. Ltd (“Grieg BC”) has farms on both the west and east coast of Vancouver Island. In order to operate farms in British Columbia, Canada, the following three licences must be in place: • Aquaculture licence – issued by Department of Fisheries and • Oceans Licence of Occupation (Tenures) – issued by Ministry of Forest, Lands and Natural Resource Operations • Navigation Water Permit – issued by Transport Canada (Canadian public authorities) For limitations related to production quantity, see table in note 10. Duration and renewal • Aquaculture licence – duration of 1 year, renewal each year is • a formality. Licence of Occupation – duration of between 2 and 20 years. Renewal is applied for upon expiration. • Navigation Water Permit – duration of 5 years, but possible to apply for renewal. OTHER INTANGIBLE ASSETS Acquired customer portfolios and computer software licences are capitalised at cost and amortised over their estimated useful lives. Customer portfolios are capitalised at historical cost at the date of purchase. Amortisation is calculated using the straight-line method 36 A N N U A L R E P O R T 2 0 1 5 GROUPover the estimated useful life, as follows: - Customer portfolios 6 years - Computer software 3-10 years IMPAIRMENT OF NON-FINANCIAL ASSETS Assets that have an indefinite useful life are not amortised and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever there are indications that future earnings do not justify the carrying amount. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non- financial assets, other than goodwill, that suffered an impairment are reviewed for indicators of possible reversal of the impairment at each reporting date. FINANCIAL ASSETS/LIABILITIES The Group classifies its financial assets in the following categories: At fair value through profit or loss, loans and receivables, and assets available for sale. The classification depends on the purpose for which the financial assets were acquired. The management determines the classification of its financial assets upon acquisition and re-evaluates this designation at every reporting date in case of material changes. A) LOANS AND RECEIVABLES Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are classified as current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as ‘other receivables’ in the balance sheet. At each balance sheet date the Group considers whether there is any objective evidence that the loans and receivables are impaired. Such objective evidence is, for instance: - breach of contract, such as a default or delinquency in payments, - the probability that the borrower will become insolvent or be subject to financial reorganisation. Loans and receivables are carried at amortised cost using the effective interest method. B) AVAILABLE-FOR-SALE FINANCIAL ASSETS Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any other category. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date. Available for-sale financial assets are stated at fair value. Change of value is recorded in consolidated total financial statement. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as ‘other financial income/ losses from investment in securities ’. Interest on available-for- sale securities calculated using the effective interest method is recognised in the income statement. Dividends on shares classified as available-for-sale are recognised in the income statement when the Group’s right to receive dividends is established. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include recent transactions on market terms, reference to other instruments which are essentially the same, the use of discounted cash flows and options models. The techniques used make maximum use of market and avoid company-specific information as much as possible. Investments are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Regular purchases and sales of investments are recognised on trade-date – the date on which the Group commits to purchase or sell the asset. All financial assets which are not stated at fair value through profit or loss are initially recognised at fair value plus transaction costs. At each balance sheet date the Group assesses whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of shares classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and fair value, less any impairment loss on that financial asset previously recognised through profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on shares and corresponding equity instruments are not reversed through the income statement. Impairment testing of accounts receivable is described below. C) FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE INCLUDED IN INCOME STATEMENT, INCLUDING DERIVATIVES AND HEDGING Financial equity classified as available-for-sale is recorded at fair value, whereas change of value is included in income statement. The Group does not apply hedge accounting according to IAS 39. Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently stated at fair value on an ongoing basis. Changes in the fair value of derivatives are posted net in the income statement under ‘other financial income/costs’. This includes derivatives intended for hedging purposes. Assets/liabilities in this category are classified as current assets/ short term debt when intended to be disposed of within 12 months, otherwise as non-current assets/liabilities. INVENTORIES Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method. The net realisable value is the estimated selling price, less processing and selling expenses. BIOLOGICAL ASSETS The accounting treatment of living fish by companies applying IFRS is regulated by IAS 41 Agriculture. IAS 41 comprises a hierarchy of methods for accounting measurement of biological assets. The basic principle is that such assets shall be measured at fair value. The model applied by the Group divides the fish into three weight categories and assumes the following: 1. Fish below 1 kilogram is recorded at accumulated cost. The best estimate for fair value is considered to be accumulated cost. 2. For fish between 1 and 4 kilograms the estimated fair value includes a proportionate part of the estimated profit. 3. For fish over 4 kilograms (fish ready for harvesting) the fair value is set at the net sale price on the basis of harvesting at the balance sheet date. If the expected sale price is below the estimated cost, this will entail a negative value adjustment of biological assets, which is 100 % accrued. Upon estimating actual accumulated cost at the respective grow-out facility, direct costs (fish feeds a.o.) are allocated to the locality. Indirect costs are distributed across localities through a norm of distribution. Given unusual mortality rate, the cost is amortised. This applies only when mortality rate exceeds normal expectations. Financial costs are not allocated to cost. 37 GRIEGSEAFOOD 2 0 1 5 GROUPThe sale price for fish ready for harvesting is based on spot prices, while the price of fish between 1 and 4 kilograms is based on forward prices and/or the most relevant price information that is available for the period when the fish is expected to be harvested. The net sales are adjusted for quality differences (superior, ordinary and prod.), and for freight and sales commissions. Estimated harvesting expenses are also deducted. The volume is adjusted for gutting waste, as the price is measured for gutted weight. Change in fair value of biological assets is recognised. The value adjustment is presented on the separate line “Fair value adjustment of biological assets.” The Group applies an internal principle of impairment in the event of extraordinary mortality. Such impairments are recorded as they arise as part of the cost of sales in the income statement. Information on recorded fair value for extraordinary mortality is based on the same principle as estimating value-adjusted biological assets. For specification of annual extraordinary mortality, see note 9. INDUSTRY GROUP FOR AQUACULTURE In autumn 2014 the Fincancial Supervisory Authority of Norway (FSA) initiated an evaluation project related to parts of the financial reporting for aquaculture companies listed on the Oslo Stock Exchange. The purpose of the project was to assess whether the aquaculture industry practices a uniform and consistent reporting in accordance with IFRS. FSA published its final report on 17 November 2015 on its website (www.finanstilsynet.no). As a result of this review, the fish farming companies subject to the project, established an industry group for financial reporting, as a venue for discussions and common improvements of reporting. The group has held several meetings during the autumn of 2015, and the two main agendas of the meetings were to: 1) identify possible note improvements and policy applications, and 2) develop a common model for fair value measurement of biomass in line with IAS 41. Affiliated with the first agenda, the group has identified some areas for improvement, and some adjustments of the note disclosures and presentation with effect for the fiscal year 2015. Further standardisation of the note information with effect from the fiscal year 2016, is expected. As for the other agenda, the industry group has initiated work on a common valuation model, and this work will continue in 2016. The group aims to have completed this work in time to effect the financial statements as of December 31, 2016. The following companies participate in the industry group: Lerøy Seafood Group ASA, Grieg Seafood ASA, Salmar ASA, Cermaq AS, P/F Bakkafrost and Marine Harvest ASA. ACCOUNTS RECEIVABLE Accounts receivable are generated from trading of goods or services within the ordinary operating cycle. Accounts receivable under normal terms of payment are recognised initially at nominal value. Longer terms of payment implies a subsequent measurement of net present value/discounting of the accounts receivable. A provision for impairment of accounts receivable is established when there is objective indication that the Group will not be able to collect all amounts due according to the original terms of trade. Significant financial difficulties affecting the debtor, the probability that the debtor will become insolvent or be subject to financial reorganisation, and default or delinquency in payments are considered indicators that the account receivable is impaired. The provision is the difference between nominal and recoverable amount, which is the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the provision is recognised in the income statement under ‘other operating expenses’. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash in hand, bank deposits, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown under borrowings included in current liabilities. SHARE CAPITAL Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares or options, net of tax, are shown in equity as a deduction, net of tax, from the proceeds. BORROWINGS Borrowings are recognised initially at fair value when the funds are received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost applying the effective interest method. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. DEFERRED TAX Deferred tax is provided for in full at nominal values, using the liability method, on temporary differences arising between the value of assets and liabilities for tax and accounting purposes. Deferred tax is determined using tax rates and laws that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred income liability is settled. Deferred tax assets are offset against deferred tax liabilities to the extent that it is probable that future taxable income will be available, from which the temporary differences can be deducted. Deferred tax is calculated on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not be reversed in the foreseeable future. EMPLOYEE BENEFITS PENSION OBLIGATIONS Effective from 1 July 2009 the pension obligations of Grieg Seafood ASA have been based on a defined contribution based scheme for all employees, following the termination of a defined benefits based scheme. The Company’s pension scheme is in accordance with rules and regulations for mandatory occupational pensions. The premium is charged through operations as it arises in the profit and loss account. Employer’s social security contributions are charged on the basis of the pension premium paid. Grieg Seafood Rogaland AS and Grieg Seafood Finnmark AS have a contractual early retirement pension scheme (AFP). The financial commitments associated with this scheme are included in the Group’s pension calculations. The AFP early retirement scheme follows the rules for public sector AFP, and both companies are members of the LO/NHO scheme. The pension payment calculations are based on standard assumtions relating to the development of mortality and disability as well as other factors such as age, years of service and remuneration. The old AFP scheme has terminated, and the previous balance sheet obligation was therefore written back in 2010. This does not apply to that part of the obligation related to those who have already taken out a pension under the old scheme. On termination of the old AFP scheme LO/NHO required the member companies to cover the underfunding of the old scheme. Companies which have been members of LO/NHO must make a provision to cover the underfunding, with payment due over a 5-year period. SHARE-BASED REMUNERATION The Group operates a share-based management remuneration plan 38 A N N U A L R E P O R T 2 0 1 5 GROUPwith settlement in cash. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be charged over the vesting period is calculated on the basis of the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the company revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision relative to original estimates, if any, in the income statement, with a corresponding adjustment to liability. The Black and Scholes option pricing model is used for valuation. long-term The company´s obligations are posted under commitments if the latest possible redemption date exceeds one year. TRANSACTIONS UNDER JOINT CONTROL On the purchase of entities under joint control the Group has chosen to apply IFRS 3 as its accounting standard. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. TERMINATION BENEFITS Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either terminating the employment of current employees according to a detailed formal plan without the possibility of withdrawal, or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Profit sharing and bonus plans The Group recognises a provision where it has a contractual obligation or where there is a past practice that has created a constructive obligation. PROVISIONS Provisions (e.g. environmental improvements, restructuring costs and legal claims) are recognised when: • the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; the amount of the obligation can be reliably estimated. • • Restructuring provisions comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses. Where there is a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects the current market situation and the risks specific to the obligation. The increase in the provision due to the change in value because of passage of time is posted as a financial expense. and collectability of the related receivables and when the risks and rewards have been transferred to the customer. INTEREST INCOME Interest income is recorded proportionately over time using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate. Interest income on impaired loans is recognised on the basis of the amortised cost and the original effective interest rate. DIVIDEND INCOME Dividend income from investments under the cost method or available-for-sale is recognised when the right to receive payment is established. Dividend income from entities under the equity method are not being recognised but recorded as a reduction in the carrying value of the investment. LEASES FINANCE LEASES Leases, or other arrangements as described in IFRIC 4, relating to property, plant and equipment where the Group has substantially all the risks and control, are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the aggregate minimum lease payments. Each lease payment is allocated between an instalment element and an interest element so as to achieve a constant interest rate in the different periods on the outstanding lease obligation in the balance sheet. The lease obligation, less interest costs, is classified as other long-term debt. The interest expense is posted in the income statement as a financial expense over the lease period so as to achieve a constant interest expense on the outstanding obligation in each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset or the lease period. OPERATING LEASES Leases, or other arrangements as described in IFRIC 4, in which a significant portion of the risks and rewards of ownership are retained by the lessor, are classified as operating leases. Payments made under operating leases (net of any financial incentives from the lessor) are charged to the income statement on a straight-line basis over the period of the lease. DIVIDENDS Dividends payable to the Company’s shareholders are recognised as a liability in the Group’s financial statements when the dividends are approved by the AGM. BORROWING COSTS Borrowing costs incurred during the construction of operating assets are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are charged in the income statement. CONTINGENT ASSETS AND LIABILITIES Contingent liabilities are defined as: 1. possible obligations resulting from past events whose existence depends on future events; 2. obligations that are not recognised because it is not probable that they will lead to an outflow of resources entailing financial benefits out of the company 3. obligations that cannot be measured with sufficient reliability. REVENUE RECOGNITION Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating intra-group sales. Revenue is recognised when it is reliably measured and it is reasonably assured that the economical assets will be transferred, i.e. when a group entity has delivered products to the customer, the customer has accepted the products Contingent liabilities are not recognised in the annual financial statements apart from contingent liabilities which are acquired through the acquisition of an entity. Significant contingent liabilities are disclosed, with the exception of contingent liabilities where the probability of the liability occurring is remote. Contingent liabilities acquired through the purchase of operations are recognised at fair value even if the liability is not probable. The 39 GRIEGSEAFOOD 2 0 1 5 GROUPassessment of probability and fair value is subject to constant review. Changes in the fair value are recognised in the income statement. A contingent asset is not recognised in the financial statements, but is disclosed if it is likely that a benefit will accrue to the Group. CASH FLOW STATEMENT The Group’s cash flow statement shows the overall cash flow broken down into operating, investing and financing activities by using the indirect method. The cash flow statement illustrates the effect of the various activities on cash and cash equivalents. Cash flows resulting from the disposal of operations are presented under investing activities. EARNINGS PER SHARE Earnings per share are calculated by dividing the profit for the year allocated to the company’s shareholders by a weighted average of the number of issued ordinary shares during the year. Diluted earnings per share are calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. 40 A N N U A L R E P O R T 2 0 1 5 GROUPNOTE 3 FINANCIAL RISK MANAGEMENT CAPITAL MANAGEMENT “It is a Group aim to ensure that it has access to capital to enable the Company to develop in accordance with adopted strategies. By so doing, Grieg Seafood should continue to be one of the leading players in its sphere of activity. Historically, the industry has always been vulnerable to price fluctuations in the market. Because of this, the accounting performance may fluctuate considerably from year to year. Therefore, It is a goal to ensure that the business maintains an appropriate level of free liquidity. The Board believes it is natural that, over a period of several years, the average dividend should correspond to 25-30% of the profit after tax, after allowing for the effects of fair value adjustments of biomass on profits. However, the dividend must always be considered in the light of what is deemed to be a healthy and optimal level of equity. At 31.12.2015 the Group had net interest-bearing debt including finance leases of MNOK 1 907, ref. note 12. Funding is mainly in the form of bank loans. The level of debt and alternative forms of funding are subject to constant evaluation. FINANCIAL RISK FACTORS The Group is exposed to a range of financial risks; market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of the financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. To some extent, the Group uses financial derivatives to reduce some risks. The Group identifies, evaluates and hedges financial risks in close cooperation with the Group’s operational units. The board has established written principles for the management of foreign exchange risk, interest rate risk and the use of financial instruments. MARKET RISK (I) FOREIGN EXCHANGE RISK The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the CAD, USD, GBP and EUR. Foreign exchange risk arises from future commercial transactions, recognised assets, liabilities and net investments in foreign operations. Hedge accounting is not applied to foreign currency forward contracts and other derivatives. Change in value of forward contracts/other derivatives thus affect the result, since these are accounted for at fair value through profit or loss, see description in accounting principles (note 2). The Group enters into foreign currency forward contracts to manage this risk. Foreign currency in NOK 2015 NOK USD EUR GBP CAD JPY Other currency Total Accounts receivable Accounts payable 102 482 87 647 271 653 92 021 4 679 23 422 0 581 904 424 127 769 7 419 124 405 91 513 - 4 850 653 083 Foreign currency in NOK 2014 NOK USD EUR GBP CAD JPY Accounts receivable Accounts payable 97 366 71 332 173 908 145 184 3 782 12 538 214 994 341 2 168 97 021 45 835 0 Other currency Total 0 0 504 110 360 358 Currency statement net interest-bearing debt 2015 NOK USD EUR GBP CAD Cash and cash equivalents 261 739 24 165 1 601 48 231 55 930 Other currency Total 1 392 020 JPY 353 Longt-term interest- bearing debt* 1 965 818 71 053 199 476 50 587 - 12 195 - 2 299 129 Net interest-bearing debt 1 704 079 46 888 197 875 2 356 -55 930 11 842 -1 1 907 109 *Overview interest-bearing debt, see note 12 Currency statement net interest-bearing debt 2014 NOK USD EUR GBP CAD Cash and cash equivalents 109 059 13 822 Interest-bearing* 1 866 456 - Net interest-bearing debt 1 757 397 -13 822 - - - 48 124 10 490 86 371 - 38 247 -10 490 Other currency Total - - 181 498 1 952 827 - 1 771 329 JPY 4 - -4 41 GRIEGSEAFOOD 2 0 1 5 GROUP The Group has investments in foreign subsidiaries whose net assets are exposed to foreign currency translation risk. Currency exposure arising from the net assets of the Group’s foreign operations has previously been managed primarily through borrowings denominated in the relevant foreign currencies. The Group´s bank loans are now in NOK. The background is a wish to prevent the parameters of the financial framework from being affected by foreign currencies, since all of the syndicated bank loans are measured in NOK. The parent company has short and long-term loans to the subsidiaries denominated in these companies’ functional currency. All long-term loans are considered to be equity in these companies, as they will not be repaid. The currency effect of loans are posted under “currency effect of net investments” in consolidated comprehensive income. Numerical effects for 2015 and 2014 are presented below. The currency effect of the net investments of subsidiaries is as follows: Currency effect Tax effect Net effect charged against equity 2015 54 134 -14 616 39 518 2014 78 912 -21 306 57 606 Sensitivity analysis Given a currency appreciation of NOK with 10% against USD, CAD, GBP and EUR on the balance sheet date 31.12.2015, the following effects on net interest-bearing debt in TNOK can be expected. 10% appreciation against Net effect on net interest-bearing debt USD 4 689 EUR 19 788 GBP 236 CAD -10 282 The reversed effect will take place if NOK depreciates with 10% 10% appreciation against Monetary items - net effect on profit after tax USD 5 579 EUR 117 GBP 12 506 CAD 9 399 The reversed effect will take place if NOK depreciates with 10% Forward currency contracts Forward currency contracts are classified at fair value through profit or loss as current assets or current liabilities, respectively. Changes in fair value are recognised as financial expenses or financial income. The following table shows the Group’s forward currency contracts as at 31.12.2014 and 31.12.2015: Forward currency contracts as at 31.12.2015: Amount Bought Amount Weighted hedging rate Market rate Maturity interval *) 5 550 51 070 2 826 9 032 299 059 193 CAD NOK NOK NOK NOK NOK 7 562 483 247 24 311 117 080 21 448 244 1,3625 9,4625 8,6036 12,9631 0,0717 1,3884 05.01.16 - 12.02.16 9,6030 04.01.16 - 24.01.17 8,8206 05.01.16 - 08.02.16 13,0840 04.01.16 - 20.01.17 0,0733 05.01.16 - 08.02.16 05.01.16 - 07.01.16 Market value in TNOK at 31.12.2015 -847 -9 420 -615 -1 196 -467 -4 -12 549 Sold USD EUR USD GBP JPY Other currency Total 42 A N N U A L R E P O R T 2 0 1 5 GROUP Forward currency contracts as at 31.12.2014: Amount Bought Amount 14 700 30 353 9 197 255 907 CAD NOK NOK NOK 16 655 268 825 65 730 15 679 635 Weighted hedging rate 1,1326 8,7820 6,9798 0,0609 Market rate Maturity interval *) 1,1612 27.02.15 - 29.06.15 9,0400 7,4500 02.01.15-23.01.15 02.01.15-23.01.15 Sold USD EUR USD JPY Other currency Total Market value in TNOK at 31.12.2014 -2 695 -6 129 -2 825 -259 39 -11 869 *) The maturity is stated in intervals where there are several contracts. (II) PRICE RISK The Group is exposed to fluctuations in the spot prices for salmon, which is mainly determined by the global supply of salmon. The effect of price changes is reduced by geographical diversification, but due to the long production cycle it can be difficult to respond rapidly to global trends in market prices. Salmon is mainly traded at spot prices, and an increase in the global supply of salmon can result in a decline in spot prices. When entering into a financial price contract, the buyer and the seller agree on a price and a fixed volume for future delivery. In 2015, the Group has no financial price contracts, but the sales company Ocean Quality AS has secured contracts with customers. The Group management continously analyses the price market and opportunities to enter into price contracts. In 2014, the Group entered into financial price contracts for 2015 of 1445 tons. (III) INTEREST RATE RISK As the Group has no significant interest-bearing assets, its income and operating cash flows are largely independent of changes in market rates. The Group’s interest rate risk arises from borrowings. Borrowings at variable rates expose the Group to cash flow interest rate risk. Fixed interest contracts are used to reduce this risk. The level of fixed interest loans is insignificant. The Group monitors its interest rate exposure continuously. The Group calculates the imact on profit and loss of a defined interest rate shift. For each simulation, the same change in the interest rate is used for all currencies. The scenarios are run only for liabilities which represent major interest-bearing positions. Sensitivity calculations show the following expected values: If the interest rate had been 1% higher (lower) throughout the year, other things being equal, the pre-tax profit would have been reduced (increased) by MNOK 17,7 in 2015 and MNOK 14,2 in 2014 due to the floating rate of interest on loans and deposits. The sensitivity analysis is based on average net interest-bearing debt throughout 2015 and 2014, notwithstanding concluded interest rate swap agreements. Amounts in NOK 1000 Increase/reduction in interest rate points 2015 2014 Effect on profit before income tax -/+ 1% -/+ 17 704 -/+ 14 214 43 GRIEGSEAFOOD 2 0 1 5 GROUPINTEREST RATE SWAP AGREEMENTS The purpose of the Group’s risk management activities is to establish an overview of the financial risk that exists at any given time and to take protective steps which give more time to adapt to the changes that take place. With this purpose in mind, the Group has chosen to employ interest rate swap agreements to establish greater stability for the Group’s loan interest expenses on variable rate. The Group has decided that at any given time a certain percentage of its interest-bearing debt on variable rate in banks a.o. shall be hedged under interest rate swap agreements. A specific proportion will always be at a floating rate, while the remainder will be subject to possible hedging. This is under constant consideration, based on the market situation. The interest rate swap agreements have a horizon of 2-4 years and whether these periods are to be rolled over is a matter of constant evaluation. The following table shows the Group’s interest rate swap agreements in TNOK, and the market value as at 31.12.2014 and 31.12.2015: 2015 Agreement Fixed rate paid - floating rate received Fixed rate paid - floating rate received Fixed rate paid - floating rate received Total Principal Fixed rate 400 000 200 000 200 000 1,69 2,34 2,40 Basis of floating rate Nibor 3 mth Nibor 3 mth Nibor 3 mth The interest rate swap agreements are measured at market value excluding accrued interest. 2014 Agreement Fixed rate paid - floating rate received Fixed rate paid - floating rate received Fixed rate paid - floating rate received Total Principal Fixed rate 400 000 200 000 200 000 1,70 2,34 2,40 Basis of floating rate Nibor 3 mth Nibor 3 mth Nibor 3 mth Duration Market value 27.03.19 17.10.16 16.08.16 -10 380 -1 766 -2 409 -14 555 Duration Market value 31.10.19 16.08.16 17.10.16 -8 603 -4 315 -4 980 -17 898 Similar to the forward currency contracts hedge accounting under IAS 39 is not applied to interest rate swap agreements. Change in value of interest rate swap agreements thus affect the result, since these are accounted for at fair value through profit or loss, see description in accounting principles (note 2). Recognised change in value (unrealized) is classified as financial income or expense. FAIR VALUE, FINANCIAL ASSETS Carrying value of derivatives and other financial instruments as at 31.12 is displayed below (TNOK). Carrying value equals fair value. Positive value is classified as assets, negative value is classified as liabilities in the balance. 2015 2014 Assets Short-term loan Assets Short-term loan Forward currency contracts Interest rate swap agreem. (3 contracts totalling MNOK 800 due in 2016 and 2019) Financial salmon contracts Sum financial instruments at fair value 0 0 0 0 -12 549 -14 555 0 -27 104 -11 869 -17 898 1 834 -27 932 0 0 0 44 A N N U A L R E P O R T 2 0 1 5 GROUP CREDIT RISK Credit risk is managed at Group level. Credit risk arises from transactions with derivatives and deposits in banks and financial institutions, as well as from transactions with customers, including accounts receivable and fixed contracts. The Group has procedures to ensure that products are only sold to customers with satisfactory creditworthiness. The company normally sells to new customers only on presentation of a letter of credit or upon advance payment. Credit insurance is used when deemed appropriate. For customers who have a reliable track record with the Group, sales up to a certain level agreed in advance are permitted without any security. Factoring agreements have been concluded with Ocean Quality AS and Ocean Quality UK regarding accounts receivable, see further information in note 12. All production is sold to Ocean Quality Group which in turn sells to external customers. As from 2015, this also applies to production in BC, selling to Ocean Quality´s subsidiary in NA. It is the policy of Ocean Quality AS to secure the bulk of its sales through credit insurance and bank guarantees. The book value of financial assets represents the maximum credit exposure. The maximum credit risk exposure as at 31.12.2015 was as follows: Amounts in NOK 1000 Accounts receivable Other receivables Cash and cash equivalents Total Other receivables relates mainly to prepayments and VAT receivable. AGE DISTRIBUTION OF ACCOUNTS RECEIVABLE NOTE 22 23 21 Not due Due - 0-3 months - more than 3 months - more than 1 year Total nominal value of accounts receivable CHANGE IN PROVISION FOR BAD DEBTS 01.01. Change in provision At 31.12. 2015 581 904 145 767 392 020 1 119 691 2015 460 807 120 973 109 423 10 132 1 404 581 780 2015 1 704 3 275 4 979 2014 504 110 93 371 181 498 778 979 2014 158 298 95 745 78 787 7 574 9 384 254 043 2014 4 420 2 715 1 704 45 GRIEGSEAFOOD 2 0 1 5 GROUP LIQIDITY RISK The Group performs prudent liquidity risk management, which implies maintaining sufficient cash and marketable securities, the availability of funding through sufficient credit facilities and the ability to close our market positions when considered appropriate. Due to the dynamic nature of the underlying nature of the business, the Group aims to maintain flexibility in funding by keeping committed credit lines available. In June 2015 the Company´s bank loans were expanded by MNOK 500 to ensure financing upon expiration of bond loans totalling MNOK 400. Simultaneously, Danske Bank exited the bank syndicate, leaving DNB and Nordea with 50% each. The financing agreement consists of a total credit frame of MNOK 1 910, of which a long-term credit facility of MNOK 700. The Group redeemed the bond loan of MNOK 400 December 2015, by utilising the bank loan with MNOK 400. By year-end 2015, a total of MNOK 450 has been utilised of a total frame of MNOK 700. This credit facility is classified as non-current liability, as it matures with the maturity of the mortgage loan in June 2019. For further information about non-current liabilities, see note 12. The management monitors the Group’s liquidity reserve comprising credit facilities (see note 12) and cash and cash equivalents (note 21) based on expected cash flows. This is generally carried out at Group level in cooperation with the operating companies. The following table shows a specification of the Group’s financial liabilites that are not derivatives, classified by structure of maturity. The amounts in the table are undiscounted contractual cash flows. Note 12 shows the payment profile for the Group’s non-current liabilities. 31 December 2015 < 3 mth 3-12 mth 1-2 years 2-5 years Over 5 years Total Long-term loan instalments Loan interest - floating Long-term credit facility Short-term loan interest - floating Finance leases Finance lease interest Accounts payable Export credits Factoring commitments Total commitments 22 866 11 909 1 580 16 739 1 695 652 106 338 213 68 598 34 627 4 740 44 269 7 792 235 10 458 90 000 42 778 6 320 63 732 8 471 742 985 018 60 967 450 000 15 800 151 345 18 442 0 57 891 5 426 0 1 166 482 150 281 450 000 28 440 333 976 41 826 653 083 10 458 338 213 1 045 108 170 719 212 043 1 681 572 63 317 3 172 759 31 December 2014 < 3 mth 3-12 mth 1-2 years 2-5 years Over 5 years Total Long-term loan instalments Loan interest - floating Long-term credit facility Short-term loan interest - floating Finance leases Finance lease interest Accounts payable Export credits Factoring commitments Total commitments 2 904 15 486 0 1 580 13 936 3 080 360 358 195 560 592 904 464 761 45 329 0 4 740 40 347 8 642 0 9 527 91 464 23 806 0 6 320 51 606 9 772 0 667 363 46 617 200 000 15 800 110 174 21 097 0 24 485 1 250 977 0 0 0 73 598 9 124 0 131 238 200 000 28 440 289 661 51 715 360 358 9 527 195 560 573 346 182 968 1 061 051 107 207 2 517 476 Current and non current liabilities are met with available liquidity, available drawdown on short-term credit facility, as well as positive cash flows from operations. 46 A N N U A L R E P O R T 2 0 1 5 GROUP FAIR VALUE ESTIMATION (I) FINANCIAL INSTRUMENTS The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques (see note 14). The Group uses different methods and makes assumptions that are based on market conditions existing at each balance sheet date. The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates on the balance sheet date. The fair value of financial salmon contracts is determined using forward prices from Fish Pool. (II) ACCOUNTS RECEIVABLE AND PAYABLES The nominal value less write-downs for realised losses on trade receivables and payables is assumed to correspond to the fair value of these items. The fair value of financial liabilities is assumed to be close to the book value, as they nearly all carry a floating interest rate. (III) BIOLOGICAL INVENTORIES Fish in the sea is measured at fair value. As a consequence, the value of biological inventories will likely vary more than the value of inventories based on cost. Fair value varies due to a number of reasons, including volatility in pricing of Atlantic salmon and factors related to production, unpredictability of biological production and changes in the composition of inventories. A sensitivity analysis of the prices of salmon as at 31.12.2015 and 31.12.2014 shows the following impact on the Group’s operating result before tax (MNOK). 31 DECEMBER 2015 Price reduction per kg Reduced profit after tax Price increase per kg Increased profit after tax 31 DECEMBER 2014 Price reduction per kg Reduced profit after tax Price increase per kg Increased profit after tax NOK 1 22 527 NOK 1 22 519 NOK 1 24 478 NOK 1 24 474 NOK 2 45 050 NOK 2 45 042 NOK 2 48 958 NOK 2 48 541 A sensitivity analysis of the full volume of Atlantic salmon as at 31.12.2015 shows the following impact on profit after tax (MNOK): 31 DECEMBER 2015 Increased volume in tons Increased profit after tax Reduced volume in tons Reduced profit after tax + 10 % 92 443 - 10 % 83 860 47 GRIEGSEAFOOD 2 0 1 5 GROUP NOTE 4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The management is required to make estimates and assumptions concerning the future which affect which accounting policies are to be used and reported amounts for assets, liabilities and contingent liabilities in the balance sheet, as well as income and expenses for the accounting year. Estimates, judgements and underlying assumptions are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the present circumstances. The final results may diverge from these estimates. Changes in accounting estimates are included in the period when the estimates are changed. ESTIMATED IMPAIRMENT OF GOODWILL, LICENCES AND PROPERTY, PLANT AND EQUIPMENT The group tests annually whether goodwill and licences have suffered any impairment, in accordance with the accounting policy stated in note 2. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates of future cash flows from the cash-generating unit, and the application of a discount rate in order to calculate the present value of future cash flows. Expectations of future cash flows will vary over time. Changes in market conditions and expected cash flows can result in future impairment. The value of long-term growth in demand, the competitive situation, the strength of the production link in the value chain and thereby also the expectations of the long-term profit margin are also of significance. The different parameters could variously affect the value of the licences over time. Any change in these critical assumptions will entail related write-downs, or the reversal of write-downs of the value of licences in accordance with the accounting policies described in note 2. Please also refer to note 10 for further remarks on tests related to value impairment. BIOLOGICAL ASSETS There are several factors which create uncertainty when estimating fair value of biological assets. Future prices, time of harvesting, carcass and the remaining production cost. Salmon prices are highly volatile. The sale prices for harvestable fish is based on forward-prices and/or the the most relevant price information available for the expected harvesting period. Changes in prices has the most significant impact on the estimated fair value of biological assets. Sensitivity analysis regarding changes in prices, see note 3. The assumption of harvesting the fish when it reaches 4 kg is also subject to uncertainty regarding the estimated growth. An estimated production cost is budgeted, which take into account estimated feed prices, cost related to treatment of lice and other preparedness to avoid biolgical incidents. There are uncertainty regarding the number of lice-treatments, the temperature in the sea and other weather conditions which influences the growth and production cost. Se note 2 for accounting policies and note 9 for more information about valuation of biological assets. 48 A N N U A L R E P O R T 2 0 1 5 GROUPNOTE 5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Grieg Seafood Group consists of the following entities as at 31.12.2015: Grieg Seafood Hjaltland UK Ltd including all subsidiary companies and Ocean Quality UK Ltd are resident in UK. Grieg Seafood BC Ltd and Ocean Quality North America Ltd are resident in Canada. The rest of the companies are resident in Norway. Grieg Seafood ASA has a 60% stake in Ocean Quality AS, the other subsidiaries are owned 100%. CORPORATE STRUCTURE GRIEG SEAFOOD ASA ERFJORD STAMFISK AS GRIEG SEAFOOD ROGALAND AS GRIEG SEAFOOD HJALTLAND UK LTD GRIEG SEAFOOD FINNMARK AS GRIEG SEAFOOD CANADA AS OCEAN QUALITY AS 60% GRIEG SEAFOOD SHETLAND UK LTD DORMANT/ UNDER AVVIKLING Hjaltland Hatcheries Ltd Hjaltland Seafarms Ltd Lerwick Fish Traders Ltd Shetland Product Vidlin Seafarms Ltd Collarfirth Salmon Ltd Fisholm Ltd SEGMENT STRUCTURE GRIEG SEAFOOD BC LTD OCEAN QUALITY UK OCEAN QUALITY NA ROGALAND (NOR) FINNMARK (NOR) SHETLAND (UK) BRITISH COLUMBIA (CAN) GRIEG SEAFOOD ROGALAND AS GRIEG SEAFOOD FINNMARK AS GRIEG SEAFOOD SHETLAND GRIEG SEAFOOD BC LTD ERFJORD STAMFISK AS OCEAN QUALITY NOR OCEAN QUALITY UK OCEAN QUALITY NA OCEAN QUALITY NOR 49 GRIEGSEAFOOD 2 0 1 5 GROUP NOTE 6 INFORMATION ABOUT OCEAN QUALITY As from 2015, Ocean Quality AS Group (OQ) was accounted for as a subsidiary in accordance with IFRS 10. Grieg Seafood held a discussion with the Financial Supervisory Authority of Norway (FSA) from the autumn 2014, were questions were asked about the Group´s statement of its investment in Ocean Quality (OQ AS). Grieg Seafood has accepted FSA´s proposal. The accounts for 2014 have been restated in the annual report to be comparable with 2015. OQ is owned 40 % by Bremnes Fryseri and 60 % by Grieg Seafood ASA. Grieg Seafood does not receive any of the profit from sale of fish from Bremnes Fryseri, as the result is based on a skewed distribution of profit from the delivered volume from each shareholder, respectively. Share of profit and share of equity in Bremnes Fryseri AS are presented as non-controlling interests. As from 2015, OQ is reported as a segment, see note 8 for further information. The Group consists of Ocean Quality AS and its two fully owned subsidiaries Ocean Quality UK and Ocean Quality NA (North America). See note 5 for an overview of the corporate structure. Below stated the effect of revision shown for the income statement and balance sheet for 1.1.2014 and 31.12.2014. Result GSF ASA Group Consolidation of OQ Revised 2014 Operating income Operating expenses EBITDA Depreciation Operating profit before fair value adjustment of biological assets Fair value adjustment of biological assets Operating profit Share of profit from associated companies Net financial items Profit before tax Tax Profit of the year ALLOCATION OF PROFIT OF THE YEAR: Shareholders of parent company Non-controlling interests 2 675 227 -2 193 761 481 466 -140 609 340 857 -127 108 213 749 2 865 -55 722 160 892 -22 806 138 086 138 086 0 1 486 258 -1 483 905 2 353 -108 2 246 3 371 5 617 0 5 447 11 063 -4 755 6 308 720 5 588 4 161 484 -3 677 666 483 819 -140 717 343 103 -123 737 219 366 2 865 -50 275 171 955 -27 561 144 394 138 806 5 588 50 A N N U A L R E P O R T 2 0 1 5 GROUPResult BALANCE 31.12.14 Deferred tax assets Intangible assets Non-current assets Financial assets Inventories Receivables Cash and cash equivalents Assets Equity controlling interests Equity non-controlling interests Total equity Pension liabilities and other liabilities Other non-current liabilities Current debt Total equity and liabilities BALANCE 01.01.14 Intangible assets Non-current assets Financial assets Inventories Receivables Cash and cash equivalents Assets Equity controlling interests Equity non-controlling interests Total equity Pension liabilities and other liabilities Other non-current liabilities Current debt Total equity and liabilities GSF ASA Group Consolidation of OQ Revised 2014 0 1 186 409 1 424 562 43 522 1 932 347 311 330 144 003 5 042 172 2 221 919 2 221 919 559 740 1 221 232 1 039 281 5 042 172 1 105 921 1 204 207 44 375 1 840 347 231 829 163 913 4 590 593 1 988 557 0 1 988 557 557 960 1 044 953 999 123 4 590 593 2 180 0 390 -19 558 2 766 286 151 37 495 309 424 175 19 357 19 532 778 0 289 114 309 424 0 420 -10 844 994 307 942 18 344 316 856 -543 13 767 13 224 173 0 303 460 316 857 2 180 1 186 409 1 424 952 23 964 1 935 113 597 481 181 498 5 351 597 2 222 094 19 357 2 241 451 560 518 1 221 232 1 328 395 5 351 597 1 105 921 1 204 627 33 531 1 841 341 539 771 182 257 4 907 449 1 988 014 13 767 2 001 781 558 133 1 044 953 1 302 583 4 907 450 51 GRIEGSEAFOOD 2 0 1 5 GROUPNOTE 7 INVESTMENTS IN ASSOCIATED COMPANIES Associated companies closely related to the Group operation and included in the Group´s value chain, are classified on a separate line in the operating results. This applies where associated companies and jointly controlled ventures operate in the same position in the value chain as the Group. As for 2015, OQ is consolidated as a subsidiary according to IFRS and termination as jointly controlled venture. Accounts for 2014 are restated to be comparable with 2015. In Q2, the shares in Bokn Sjøservice AS were sold. In 2014, the shares in SalmoBreed AS and Isopro AS were sold. 2015 Equity interest Book value at 01.01.2015 Share of the result for the year Changes during the period Book value at 31.12.2015 ASSOCIATED COMPANIES CLASSIFIED AS OPERATIONS Bokn Sjøservice AS (sold 2015) Finnmark Brønnbåtrederi AS 50,0 % 49,9 % 5 272 9 325 1 296 5 698 -6 568 - 15 024 Total associated companies classified as operations 14 598 6 994 -6 568 15 024 ASSOCIATED COMPANIES CLASSIFIED ON SEPARATE LINE IN OPERATING RESULTS Salten Stamfisk AS 34,0 % 7 780 3 142 10 922 Total associated companies classified on separate line in operating results Total investments in associated companies and jointly controlled ventures 7 780 3 142 - 10 922 22 379 10 136 -6 568 25 947 2014 Equity interest Book value at 01.01.2014 Share of the result for the year Transfers from the company (dividends) Changes during the period Book value at 31.12.2014 ASSOCIATED COMPANIES CLASSIFIED AS OPERATIONS Bokn Sjøservice AS Finnmark Brønnbåtrederi AS SalmoBreed AS (sold 2014) Isopro AS (sold 2014) Total associated companies classified as operations 50,0 % 49,9 % 27,5 % 20,0 % 6 431 9 490 6 231 991 -1 159 4 326 409 - -4 491 -6 640 -991 5 272 9 325 - - 23 143 3 576 -4 491 -7 631 14 596 ASSOCIATED COMPANIES CLASSIFIED ON SEPARATE LINE IN OPERATING RESULTS Salten Stamfisk AS 34,0 % 4 915 2 865 7 780 Total associated companies classified on separate line in operating results 4 915 2 865 - - 7 780 Total investments in associated companies and jointly controlled ventures 28 058 6 441 -4 491 -7 631 22 379 52 A N N U A L R E P O R T 2 0 1 5 GROUP Summarised preliminary financial information on individual associated companies, on 100% basis. All companies have the same financial year as the Group. Bokn Sjøservice AS is sold and removed from the list. 2015 Total assets at 31.12.2015 Total liabilities at 31.12.2015 Total equity at 31.12.2015 Operating income Pre-tax profit/ loss Finnmark Brønnbåtrederi AS Salten Stamfisk AS 53 299 60 562 34 610 38 086 18 689 22 476 17 408 60 461 6 175 10 747 Total assets at 31.12.2014 Total liabilities at 31.12.2014 Total equity at 31.12.2014 Operating income Pre-tax profit/ loss 2014 Bokn Sjøservice AS Finnmark Brønnbåtrederi AS Salten Stamfisk AS Ocean Quality AS 14 463 49 090 58 047 1 556 27 617 43 987 171 475 145 119 13 085 21 473 14 060 26 355 SALE OF SHARES IN ASSOCIATED COMPANIES Bokn Sjøservice AS Total 2015 Salmon Breed AS Proceeds net of expenses Book value on sales date Book profit 7 973 -6 568 1 405 7 973 -6 568 1 405 66 966 -6 640 60 326 9 352 15 887 55 787 2 989 984 Isopro AS 4 480 -991 3 489 139 4 175 8 344 15 781 Total 2014 71 446 -7 631 63 815 All shares were sold in 2015. Book profit in the Group is included in other gains/losses in the operating income statement. In 2014, all shares in Salmon Breed AS and Isopro AS were sold. Book profit is includen in other gains/losses. ASSOCIATED COMPANIES - CONDENSED FINANCIAL INFORMATION All associated companies are accounted for using NGaap. There would be no significant differences if the financial statements were reported in accordance with IFRS. The accounts for 2015 are preliminary figures, except Finnmark Brønnbåtrederi AS, where the General Assembly has approved the statement. (Amounts in TNOK) CONDENSED BALANCE SHEET Property, plant and equipment Current assets Total assets Non-current liabilities Current liabilities Equity CONDENSED PROFIT AND LOSS ACCOUNT Sales revenues Operating expenses Profit before taxes Net financial expenses Taxes Profit of the year after taxes Finnmark Brønnbåtrederi AS Salten Stamfisk AS 2015 137 30 179 30 316 - 210 30 106 14 603 -2 399 12 204 -786 11 418 2014 36 270 17 029 53 299 22 311 12 300 18 689 17 408 -10 283 7 125 -950 41 6 215 2015 35 765 57 905 93 670 14 111 44 563 34 996 36 132 -31 595 4 537 -278 4 259 2014 20 115 40 447 60 562 9 468 28 618 22 476 60 461 -49 393 11 068 -322 -2 617 8 130 Dividend received from associated companies - 4 491 - - 53 GRIEGSEAFOOD 2 0 1 5 GROUP NOTE 8 SEGMENT INFORMATION The operational segments are identified on the basis of the reports which the Group management (chief operating decision-maker) uses to assess performance and profitability at strategic level. The Group management assess our business activities from a geographical standpoint, based on the location of assets. The Group has only one production segment: the production of farmed salmon. Geographically, the management assess the results of production in Rogaland - Norway, Finnmark - Norway, BC - Canada and Shetland - UK. The Group management assess the results from the segments based on the adjusted operating result (EBIT) before value adjustment. The method of measurement excludes the effect of non-recurring costs, such as restructuring costs, legal costs on acquisition and amortisation of goodwill and intangible assets when amortisation is a result of an isolated event which is not expected to recur. The measurement method also excludes the effect of share options which are settled in shares, as well as unrealised gains and losses on financial instruments. The Group’s customers are divided into different geographical markets. All sales in Norway are channelled through the sales company Ocean Quality AS, which is a sales company in collaboration with Bremnes Fryseri AS. Grieg Seafood ASA owns 60% of Ocean Quality AS (see note 6 for further information). Therefore, Norway shows the aggregate figures for the Norwegian market. Ocean Quality is fully consolidated and exists as a part of the segment Norway. Markets EU UK USA Canada Russia Asia Other markets Total UK Norge 382 346 2 185 598 260 555 95 505 2 449 0 122 702 19 269 75 877 38 612 3 973 198 621 556 464 31 545 BC 0 0 512 974 118 837 0 34 192 0 Elim. SALES REVENUE 2015 SALES REVENUE 2014 -13 055 2 554 891 55 % 2 289 876 -647 -10 413 -34 -1 694 -4 747 -269 335 785 636 679 125 226 196 927 708 613 50 546 7 % 14 % 3 % 4 % 15 % 1 % 785 906 318 017 10 580 199 244 441 522 54 398 56 % 19 % 8 % 0 % 5 % 11 % 1 % 882 826 3 090 690 666 003 -30 859 4 608 667 100 % 4 099 543 100 % Geographical segments Sales revenues Other income *) Other gain/loss *) Share of results from associated companies Norway Rogaland Norway Finmark Canada BC UK Shetland 2015 2014 2015 2014 2015 2014 2015 2014 661 204 571 150 797 872 975 291 573 900 280 399 773 526 852 455 1 316 3 191 1 558 1 272 0 2 158 6 668 3 958 22 064 -2 427 -4 903 0 21 540 1 260 1 369 204 436 148 5 488 3 367 8 712 6 955 6 820 0 Operating costs before depreciation -556 387 -471 159 -627 345 -738 267 -564 388 -300 445 -863 896 -738 870 Operating result before depreciation 114 812 106 188 181 397 254 605 35 969 -24 949 -68 246 116 418 Depreciation and amortisation -31 296 -28 353 -57 393 -48 671 -22 659 -22 861 -96 587 -34 923 Operating result before fair value adjustment 83 516 77 835 124 004 205 934 13 310 -47 810 -164 833 81 495 Assets (excl. associated companies) 1 114 545 1 074 770 1 519 499 1 363 728 867 014 829 963 1 454 857 1 690 186 Associated companies Total assets - Group 0 5 272 15 024 9 326 0 0 0 0 1 114 545 1 080 042 1 534 523 1 373 054 867 014 829 963 1 454 857 1 690 186 Liabilities 503 508 506 808 658 857 584 171 623 445 581 841 1 286 739 1 194 508 Total liabilities - Group 503 508 506 808 658 857 584 171 623 445 581 841 1 286 739 1 194 508 54 A N N U A L R E P O R T 2 0 1 5 GROUPSegments OQ Group AS Others/eliminations *) Grieg Seafood Group Sales revenues Other income *) Other gain/loss *) 2015 2014 2015 2014 2015 2014 4 542 946 3 555 371 -2 740 781 -2 135 123 4 608 667 4 099 543 0 0 -15 100 -9 174 0 -3 476 -14 174 -6 667 66 600 -6 950 44 921 -15 218 6 994 2 819 59 122 3 576 Share of results from associated companies 0 0 Operating costs before depreciation -4 412 807 -3 519 073 2 640 770 2 086 573 -4 384 053 -3 681 241 Operating result before depreciation 115 039 27 124 -117 661 Depreciation and amortisation -359 -108 -5 275 Operating result before fair value adjustment 114 680 27 016 -122 936 4 432 -5 801 -1 369 261 311 483 819 -213 569 -140 717 47 742 343 103 Assets (excl. associated companies) 723 008 310 916 0 0 723 008 310 916 230 907 10 923 241 830 59 655 5 909 830 5 329 218 7 781 25 947 22 379 67 436 5 935 777 5 351 597 Associated companies Total assets - Group Liabilities Total liabilities - Group OPERATING RESULT FOR SEGMENTS Operating result before fair value adjustment Fair value adjustment of biological assets Operating result Share of result from associated company (see note 7) Net financial items (specification in note 25) Profit before income tax Estimated taxes Profit for the year *) Others/eliminations 666 079 666 079 271 351 271 351 -40 364 -40 364 -28 533 3 698 264 3 110 146 -28 533 3 698 264 3 110 146 2015 47 742 33 209 80 951 3 142 -93 301 -9 208 13 574 4 366 2014 343 103 -123 737 219 366 2 865 -50 276 171 955 -27 561 144 394 Other items include the results of activities conducted by the parent company and other Group companies that are not geared for production. There is elimination of internal transactions between subsidiaries and parent company and other items belonging to the parent company. Other gains and losses on sale of shares, assets and foreign currency contracts. See note 7 for information about gains on sale of shares. Other income is mainly the settlement of insurance and other services not directly related to production. The parent company owns software and other office equipment and has accounts payable and other current payables. 55 GRIEGSEAFOOD 2 0 1 5 GROUP NOTE 9 BIOLOGICAL ASSETS AND OTHER INVENTORIES Biological assets at 01.01. Currency translation differences Increase due to purchases of fish Increase due to production Decrease due to extraordinary mortality/loss Decrease due to sales Fair value adjustment at 01.01 Fair value adjustment in connection with business acquisition Fair value adjustment at 31.12 TONS 2015 51 258 N/A 0 121 323 -3 265 -124 492 N/A N/A N/A 2014 50 567 N/A 253 80 962 -2 705 -77 819 N/A N/A N/A TNOK 2015 2014 1 844 097 1 766 332 44 712 0 2 382 410 -104 526 79 081 12 768 2 044 136 -94 378 -2 268 770 -1 847 117 -281 285 N/A 312 479 -398 011 N/A 281 285 Book value of biological assets at 31.12. 44 824 51 258 1 929 117 1 844 096 Recognised fair value adjustment of biological assets Gain & loss arising from price contracts 33 209 -125 714 - 1 977 Recognised fair value adjustment of biological assets incl. fair value of price hedging contracts 33 209 -123 737 The accounting treatment of live fish by companies applying IFRS is regulated by IAS 41 Agriculture. The basic principle is that such assets shall be measured at fair value. The fair value of biological assets (fish in the sea) for fish over 1 kg is based on forward prices from Fish Pool for Norway. For foreign countries, the most relevant price information that is available for the period when the fish is expected to be harvested, has been used. The price is adjusted proportionately to take account of how far the growth cycle has progressed. The price is adjusted for quality differences (superior, ordinary and process), together with the cost of logistics. The volume is adjusted for gutting loss. Fish in the sea with an average weight over 4 kg (mature fish) are assessed at their full value at the balance sheet day of harvesting. The best estimate for fish under 1 kg is considered to be the accumulated cost. Fish < 1 kg are included in the group which includes smolt and broodstock in the table. For further information, please refer to the note on accounting policies (note 2). 56 A N N U A L R E P O R T 2 0 1 5 GROUPSTATUS OF BIOLOGICAL ASSETS AT 31.12.15 Smolt/broodstock/biological assets with round weight < 1 kg Biological assets with round weight 1 - 4 kg Biological assets with round weight > 4 kg Total STATUS OF BIOLOGICAL ASSETS AT 31.12.14 Smolt/broodstock/biological assets with round weight < 1 kg Biological assets with round weight 1 - 4 kg Biological assets with round weight > 4 kg Total BASIS FOR VALUES 31.12.15: Weighted price in relation to volume Weighted price in relation to volume Source Number of fish (1 000) Biological assets (tons) Accrued cost of production Fair value adjustment Book value 35 055 12 131 2 333 49 520 5 753 30 713 11 622 48 089 434 136 873 217 309 283 1 616 635 0 167 292 145 188 312 480 434 136 1 040 509 454 470 1 929 115 Number of fish (1 000) Biological assets (tons) Accrued cost of production Fair value adjustment Book value 28 912 14 333 2 578 45 823 > 4 kilo 1 - 4 kilo 4 600 33 303 13 355 51 258 BC CAD 7,4 CAD 7,4 310 939 915 236 336 636 1 562 812 Shetland GBP 4,30 GBP 3,70 Fish Pool Fish Pool 0 164 474 116 811 281 285 Norge NOK 52,1 NOK 44,0 Fish Pool 310 939 1 079 710 453 447 1 844 097 Forward prices from Fish Pool as stated above are deducted of expected quality reduction and before logistics expenses. The standard deduction for quality reduction is considered. Forward prices are weighted in relation to intended harvesting period. The price for BC is based on forward price in Norway adjusted for own historical difference in price levels between Norway and Canada. The same principle applies for Shetland. Self budgeted harvesting and logistics expenses are assumed. Forward exchange rates are used to translate price into CAD and GBP relative to the period of harvesting. OTHER INVENTORIES Raw materials (feed) at cost price Roe Other (frozen fish, supplementary products) Total inventories Impairment of inventories accounted for at year-end PURCHASE COST OF THE YEAR Inventories at 01.01 (inverted number) Purchases for the year (incl. Change in accrued cost of production) Inventories at 31.12. Purchase cost of the year 2015 72 363 11 810 6 694 90 867 1 027 2015 -91 016 -2 738 777 90 867 -2 738 926 2014 59 268 8 200 23 548 91 016 17 812 2014 -75 009 -2 309 286 91 016 -2 293 279 The purchase cost of the year mainly comprises feed, roe, vaccination and medicines. 57 GRIEGSEAFOOD 2 0 1 5 GROUPThe Group applies an internal rule of impairment in cases of extraordinary loss/mortality. Such impairment is recognised on a straight-line basis as parts of cost of sales through profit/loss. Information about recognised fair value of extraordinary loss/mortality is based on the same rule as calculation of fair value-adjusted biological assets. EXTRAORDINARY LOSS/MORTALITY Rogaland Finnmark Shetland British Columbia Total 2015 2014 Cost of production Fair value Cost of production Fair value 16 660 10 448 39 061 38 357 26 688 12 147 49 030 40 399 104 526 128 264 35 222 9 320 30 525 19 311 94 378 42 753 9 673 43 396 21 632 117 455 2015 Smolt/broodstock/biological assets with round weight < 1 kg Biological assets with round weight 1 - 4 kg Biological assets with round weight > 4 kg Total 2014 Smolt/broodstock/biological assets with round weight < 1 kg Biological assets with round weight 1 - 4 kg Biological assets with round weight > 4 kg Total Number of fish (1 000) Biological assets (tons) Accrued cost of production Fair value adjustment Fair value 1 129 518 296 1 944 603 1 438 1 224 3 265 25 311 43 803 35 411 104 526 0 16 044 7 694 23 738 25 311 59 847 43 105 128 264 Number of fish (1 000) Biological assets (tons) Accrued cost of production Fair value adjustment Fair value 1 346 1 383 54 2 784 550 1 889 266 2 705 25 146 53 171 16 061 94 378 0 20 426 2 650 23 076 25 146 73 597 18 712 117 455 In Rogaland the main cause of extraordinary loss/mortality is PD (Pancreas Disease). In the first half of 2014 mortality due to heart failure (CMS) was also registered. In Finnmark IPN (Infectious Pancreatic Necrosis) and Tenacibaculum comprise the main cause for extraordinary mortality. Some mortality due to delousing has occurred. A large proportion of the mortality is related to small fish, hence adjusted fair value does not deviate much from cost of production. In Shetland sea lice, gill problems and seal have caused mortality both years. In BC, mortality occurs due to low levels of oxygen in the sea, as well as planktonic algae. Furunculosis has also been a challenge in the fish hatchery. Fair value of the impairment in BC is fairly low relative to production cost due to a high proportion of small fish < 1 kilo in the mortality, where the best estimate of fair value is assumed to be the accumulated cost. 58 A N N U A L R E P O R T 2 0 1 5 GROUP NOTE 10 INTANGIBLE ASSETS "Other intangible assets" consist mainly of software. 2015 Book value at 01.01. Currency translation differences Intangible assets purchased Amortisation Book value at 31.12. As at 31.12. Acquisition cost Accumulated amortisation Accumulated impairment Book value at 31.12. 2014 Book value at 01.01. Currency translation differences Reclassification property, plant & equipment Intangible assets purchased *) Amortisation Book value at 31.12. As at 31.12. Acquisition cost Accumulated amortisation Accumulated impairment Book value at 31.12. Goodwill 108 708 1 154 784 -89 603 110 647 Goodwill 107 310 1 398 0 0 0 -89 603 108 708 Fish farming licences indefinite lives Fish farming licences definite lives Other intangible assets 1 043 258 20 140 4 048 -13 22 926 -243 4 566 -1 344 25 905 11 517 29 9 253 -3 806 16 993 110 647 1 067 433 200 250 1 067 446 -13 51 837 -25 932 31 436 -14 443 1 067 433 25 905 16 993 1 220 977 Fish farming licences indefinite lives Fish farming licences definite lives Other intangible assets 972 599 30 659 0 40 000 0 21 467 2 481 0 188 -1 210 22 926 4 545 -463 3 341 8 106 -4 012 11 517 108 708 1 043 258 Total 1 186 409 21 080 18 651 -5 163 1 220 977 1 350 968 -40 388 -89 603 Total 1 105 921 34 075 3 341 48 294 -5 222 1 186 409 1 311 237 -35 225 -89 603 198 311 1 043 258 0 47 514 -24 588 22 154 -10 637 1 043 258 22 926 11 517 1 186 409 *) Purchase of "fish farming licences indefinite lives" relates to purchase of green licences in Finnmark. The licences were paid for in 2015 59 GRIEGSEAFOOD 2 0 1 5 GROUP LICENCES The tables below display an overview of the different licences in the Group. See note 2 for further information about licences. NORWAY: LICENCE CATEGORY Grow-out licences R&D permit Broodstock Smolt Harvesting cage UK: PLANT/AREA Setterness and Gonfirth Railsbrough and Wadbister Woe North Havra South of Linga and Foraness West of Burwick and Merry Holm Fish Holm Easter Score Holm, North Papa and Wester Quarff Whalsay, Swining 2 & 3 Collafirth 3 Gob na Hoe and Leinish (west of Scotland) Hillswick, Hamar, Roe Sound and Heights Spoose Holm and Setter Haminavoe Total IMPAIRMENT TEST FOR GOODWILL AND LICENCES Total number Total volume PLANT/AREA Capacity (tons) BC: 37 1 3 4 2 33 435 tn 780 tn 2 340 tn Ahlstrom Atrevida Barnes bay 12 700 000 fish Bennet Point 1 106 tn Conception Capacity (tons) Culloden Esperanza Gore Hecate 22 297 Kunechin Muchalat N. Muchalat S. Newcomb Salten Site 13 Site 9 Streamer Point Vantage Williamson Total 1 843 1 496 3 845 2 672 1 910 4 925 5 760 1 500 3 721 2 247 2 000 1 910 56 126 1 100 3 300 3 000 4 400 4 100 1 500 3 600 4 100 4 000 1 500 4 100 3 600 1 000 1 500 900 1 500 3 600 1 500 3 900 52 200 Goodwill and licences were not impaired in 2015 or 2014. Goodwill and licences with an indefinite economic life are subject to an annual impairment test. Impairment tests are performed more frequently if there are indications of a decline in value. Licences with definite useful lives are tested for impairment only if there are indications of a decline in value. Estimated value in use is used as a basis for calculating the recoverable amount. Impairment occurs when the carrying value is higher than the recoverable amount. Cash generating unit BC - Canada Finnmark Shetland - UK Rogaland (incl. Erfjord Stamfisk) Total value Location Book value of related goodwill Book value of licences Canada Norge UK Norge 10 159 0 80 025 20 463 110 647 159 510 299 814 499 040 134 974 1 093 338 1 203 985 Total 169 669 299 814 579 065 155 437 Goodwill relates to the acquisition of the subsidiary companies. Goodwill is allocated to the Group’s cash-generating units (CGU) identified according to the operating segment. An annual impairment test for goodwill and licences has been carried out. The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets from the respective cash generating units covering a three-year period. Cash flows beyond the three-year period are extrapolated using the estimated growth rates stated below. The estimated growth rate corresponds with expected inflation. 60 A N N U A L R E P O R T 2 0 1 5 GROUP THE ASSUMPTIONS USED FOR VALUE-IN-USE CALCULATIONS ARE AS FOLLOWS: Unit Budget period Increase in revenues in budget period BC - Canada Finnmark Shetland - UK Rogaland 3 years 36 % 3 years 53 % 3 years 14 % 3 years 34 % Ebitda margin 1) 23% - 13% 29% - 23% 12% -17% 27% -22% Ebitda margin in terminal period Harvest growth - tons 2) Required rate of return 3) Growth rate 4) 14 % 27 % 8,5 % 1,0 % 23 % 56 % 8,5 % 1,0 % 17 % 27 % 8,5 % 1,0 % 21 % 35 % 8,5 % 1,0 % As stated above, the budget period/explicit period is 3 years. Estimated increase in revenue in the budget period thus indicates revenue increase in 2018 compared to income in 2015. Estimated future price levels are calculated from Fish Pool´s projections and takes into account quality reduction and freight. Other comments/explanations to assumptions in the impairment test is presented below; historical price levels and forward markets. 1. Budgeted EBITDA margin. The margin varies in the budget period, due to a.o. variations in estimated production. 2. The growth rate of the harvested volume in the budget period (nominal growth rate) measured against 2015 volume. Over time a corresponding increase in output is assumed. 3. Weighted required return on capital employed before tax. Cash flow forecasts are thus estimated before taxes. 4. Weighted average growth rate used to extrapolate cash flows beyond the budget period. In the years after 2018, the annual reinvestment is assumed to be equal to the annual depreciation. EBITDA MARGIN IN BUDGET AND TERMINAL PERIOD The budgeted EBITDA margin is based on past performance, expected cost of production and expectations of market development. The increased harvest volume is based on an increase in utilisation of existing production capacity, reflecting the new smolt strategy. In the course of 2015 all of the regions have started to produce their own smolt in recycling plants. This will reduce the production cost pr. smolt and increase the quality of the smolt, which in turn will improve the biology in the sea. The use of different sizes of smolt and better planning of timing of seastocking, will give us a better utilisation of MTB. This will lead to increased production that will also contribute to reducing the cost measured per kg. For all regions, it is assumed a significant increase in harvest volumes in the budget period. Increased harvest volumes will contribute to increased earnings in the terminal. Finnmark has been granted 4 green licences, and the expectation is to reach harvesting of more than 1,000 tons per year per licence. It is therefore assumed a significant increase in harvest volumes. In 2015, a restructuring of the localities has been implemented that will provide impact in the next few years. In Rogaland, an increase in harvest volumes is assumed through bringing down production time in sea by using larger smolts. In the UK, the hatchery has been completed, and a restructuring towards reduced time in sea from 24 months to 18 months will bring down the biological risk. The expected growth in BC’s revenue are significant and is related to the low prices in the USA in 2015. Therefore, a significant increase in the price is expected. Assumptions in the terminal are based on the budget for 2018, but with some adjustments to reflect EBIT/kg in the benchmark and the Group’s own historical results. The applied discount rates are pre-tax and reflect specific risks relating to the relevant operating segments. SENSITIVITY ANALYSIS Value-in-use is sensitive to changes in the assumptions made. The most important are requirement for return and Ebit per kg. The sensitivity analysis covers the entire period, including the terminal value. The conclusion of the analysis is no need for impairment in any of the segments, except for Shetland where an isolated change in assumptions by increasing 1.0% points in the requirement for return-rate or reduction in EBIT per kilo by -1, will result in impairments of respectivel 50 MNOK and 129 MNOK. 61 GRIEGSEAFOOD 2 0 1 5 GROUP NOTE 11 TANGIBLE FIXED ASSETS 2015 Book value at 01.01. Currency translation differences Reclassification of fixed assets Tangible fixed assets acquired *) Tangibe fixed assets sold Amortisation **) Depreciation Book value 31.12. AS AT 31.12. Acquisition cost Accumulated depreciation Accumulated amortisation Book value at 31.12. Book value of finance leases included above Depreciation of finance leases included above Of which book value of property not depreciable 2014 Book value at 01.01. Currency translation differences Reclassification of fixed assets Tangible fixed assets acquired* Tangibe fixed assets sold Depreciation Currency translation differences depreciation Book value at 31.12. AS AT 31.12. Acquisition cost Accumulated depreciation Book value at 31.12. Plant, equipment and other fixtures Buildings/ property 362 070 14 989 28 030 29 651 0 -16 421 418 318 687 432 33 205 -28 314 58 193 -850 -46 195 -69 056 634 414 597 809 1 329 725 -179 491 -649 116 0 418 318 1 284 -33 23 405 -46 195 634 414 178 955 -17 821 Plant, equipment and other fixtures Buildings/ property 319 699 14 635 0 41 235 0 -12 994 -505 362 070 591 682 40 326 0 125 709 -1 159 -65 144 -3 982 687 432 Vessels/ barges 296 702 Other equipment Total 78 748 1 424 952 8 646 2 302 103 120 -1 556 -58 972 350 242 -76 -2 017 73 086 -184 56 764 0 264 050 -2 590 -46 195 -17 763 131 795 -162 211 1 534 770 825 186 -474 945 0 250 378 3 003 098 -118 583 -1 422 134 0 -46 195 350 242 131 795 1 534 770 115 676 -16 367 95 843 -8 109 391 757 -20 958 Vessels/ barges Other equipment Total 218 480 12 340 0 114 521 -2 696 -43 921 -2 022 296 702 74 766 1 204 627 520 -3 341 22 095 -1 912 67 821 -3 341 303 560 -5 767 -13 436 -135 495 56 -6 453 78 748 1 424 952 525 140 1 267 492 -163 070 362 070 -580 060 687 432 712 675 -415 973 296 702 179 568 2 684 875 -100 820 -1 259 923 78 748 1 424 952 Book value of finance leases included above Depreciation of finance leases included above Of which book value of property not depreciable 1 317 -21 27 988 190 980 -25 085 102 337 -35 285 41 231 -5 280 335 865 -65 671 *) Investments mainly comprise maintenance, plus investments in order to initiate production of the green licences in Finnmark. **) In Q3 2015, it was decided to sell the smokehouse and filleting production in Shetland. In this connection, impairment of equipment belonging to this production has been made. 62 A N N U A L R E P O R T 2 0 1 5 GROUPNOTE 12 BORROWINGS AND FINANCE LEASES In June 2015 the Group´s bank loans were extended with MNOK 500 to provide financing upon maturity of a mortgage loan of MNOK 400. Simultaneously, Danske Bank exited the bank syndicate, and DNB and Nordea now own 50% each. The financing agreement consists of a total frame of MNOK 1 910, of which a long-term credit facility of MNOK 700. The Company fully redeemed the mortgage loan with MNOK 400 in December 2015, through utilisation of the bank loan with MNOK 400. At year-end, a total of MNOK 450 is utilised of a total frame of MNOK 700. The finance agreement includes covenants related to book equity exclusive Ocean Quality AS consolidated accounts of 35%, a revolving NIBD / EBITDA ratio of 5.0 if the book equity ratio is higher than 40% and 4.5 if the book equity ratio is between 35% and 40%. Grieg Seafood ASA equity is 41% exclusive Ocean Quality consolidated. As at 31.12.2015 the Company has been granted extention of the covenants related to NIBD/EBITDA. Hence, the Company is in compliance with all covenants at year-end. The extention is valid for Q1 2016. A factoring agreement has been concluded with Ocean Quality AS in Norway and UK. Credit insured receivables are transferred to the factoring companies. This ensures early settlement of receivables. The Group retains the risk related to accounts receivable. Funding received from the factoring company before the counterparty has paid is recognised as factoring debt, which is interest bearing. The factoring agreement includes covenants comprising a.o. required minimum book equity in Ocean Quality AS. At year-end Ocean Quality Group was in breach of loan covenants. The company has been granted extention for this loan covenant in 2016. NON-CURRENT LIABILITIES AND FINANCIAL LEASE OBLIGATIONS (INTEREST-BEARING DEBT) Liabilites to credit institutions and mortgage debt before amortisation effect Long-term credit facility *) Finance lease liabilities Total NON-CURRENT LIABILITIES, NON-INTEREST BEARING Subordinated loans Other long-term non-interest bearing borrowings Total Amortisation effect of loans Total non-current loans and finance lease liabilities 2015 1 075 000 450 000 272 968 2014 766 465 200 000 236 430 1 797 968 1 202 895 21 425 954 22 379 22 795 845 23 640 -6 739 -7 637 1 813 608 1 218 898 * ) The Company has in 2015 a total non-current credit facility of MNOK 700. As at 31.12.2015 this was utilised with MNOK 450. CURRENT INTEREST-BEARING LIABILITIES Current portion of long-term borrowings Bond loan Current portion of finance lease liabilities Factoring debt Export loans Total current interest-bearing liabilities *) The bond loan expired in 2015 NET INTEREST-BEARING DEBT Total non-current interest-bearing liabilities (see above) Total current interest-bearing liabilities (see above) Gross interest-bearing debt Cash and cash equivalents Loans to associated companies Net interest-bearing debt Net interest-bearing debt, excluded of factoring debt 2015 91 464 0 61 008 338 231 10 458 501 161 2014 91 614 400 000 53 231 195 560 9 527 749 932 2015 2014 1 797 968 1 202 895 501 161 749 932 2 299 129 1 952 827 392 020 181 498 0 1 907 109 1 568 878 0 1 771 329 1 575 769 63 GRIEGSEAFOOD 2 0 1 5 GROUPSum 22 380 1 159 725 450 000 333 976 PAYMENT PROFILE NON-CURRENT LIABILITIES Non-current non interest-bearing liabilities 2016 0 2017 0 2018 0 2019 Deretter 22 380 Borrowings Non-current credit facility Finance lease liabilties Total LIABILITIES SECURED BY MORTGAGE/CHARGE ON ASSETS: Liabilities to credit institutions incl. finance leases ASSETS PLEDGED AS SECURITY Licences Fixed assets Accounts receivable Inventories and biological assets Investments in joint ventures Total assets pledged as security 91 464 90 000 90 000 0 0 0 61 008 63 732 50 449 888 261 450 000 50 449 108 338 152 472 153 732 140 449 1 388 710 130 718 1 966 081 2015 2014 2 299 129 1 952 827 2015 2014 1 093 338 1 066 184 1 534 770 1 424 562 581 904 504 110 2 019 982 1 935 113 0 0 5 229 994 4 929 969 Pledges include shares in subsidiaries. The book value of these shares is 0 in the consolidated accounts. DESCRIPTION OF DEBT Currency Fixed or floating interest rate Effective interest rate Final maturity (mth/year) Current portion Non- current portion Current portion Non- current portion 2015 2014 NOK Floating Price grid 06/2019 90 000 1 068 261 90 000 757 363 NOK NOK NOK Floating Price grid 06/2019 Floating Price grid 12/2015 0 0 Floating Price grid 10/2016 1 464 450 000 0 200 000 0 0 400 000 1 614 0 1 465 GBP GBP Floating Fixed 0,0 % 3,20 % 12/2018 04/2014 GBP Multi Floating 2015 0 0 2015 10 458 338 231 2014 0 0 2014 9 527 195 560 954 0 0 0 845 0 0 0 61 008 272 968 53 231 236 429 21 425 22 795 501 161 1 813 608 749 932 1 218 898 GRIEG SEAFOOD ASA Syndicate loan non-current Syndicate loan - credit facility*) Bond loan Other loans GRIEG SEAFOOD HJALTLAND SLAP Export loan OCEAN QUALITY Export loan Factoring debt Finance leases liabilities Subordinated loan Total Sum 64 A N N U A L R E P O R T 2 0 1 5 GROUPBOOK VALUE OF GROUP LOANS BY CURRENCY (NOK): 31.12.15 NOK GBP Other Syndicate loan non-current Syndicate loan - credit facility*) Bond loan Other loans Export loan Factoring *) Finance leases Subordinated loan 1 158 261 1 158 261 450 000 450 000 - 2 418 10 458 338 231 333 976 21 425 - 1 464 59 746 293 218 954 10 458 50 587 40 758 21 425 227 897 Total borrowings and finance leases 2 314 769 1 962 690 124 182 227 897 *) Other currency effects comprise mainly EUR, JPY and USD Average interest rate on loans and credit facility 2015 4,70 % 2014 5,18 % By calculation of average interest-rate on loans and credit facilities the effect of interest-rate swap is taken into account. BOOK VALUE AND FAIR VALUE OF BORROWINGS: Book value 2015 2014 Fair value 2015 2014 Loan (non-current and credit facility) 1 608 261 1 047 363 1 608 261 1 047 363 Bond loan Total 0 400 000 0 412 000 1 608 261 1 447 363 1 608 261 1 459 363 The book value of other loans is virtually the same as the fair value. 65 GRIEGSEAFOOD 2 0 1 5 GROUP NOTE 13 LEASE CONTRACTS OPERATING LEASE COMMITMENTS - GROUP COMPANY AS LEASE: The Group leases offices, docks, berths, etc. with duration tenancies of between 5 and 10 years. The group also leases plant and machinery under cancellable financial lease agreements. The Group must give written notification in case of termination of these agreements, in order to make the termination valid. The Group has a tenacy agreement with its largest shareholder, which expires in 2018. Yearly rent is 1,5 MNOK. For further information, see note 24. The future aggregate minimum lease payments under operating leases are as follows: OVERVIEW OF FUTURE MINIMUM OPERATING LEASES Within 1 year 1-5 years Minimum lease amount Present value of future minimum lease amount (5% discount rate) 41 600 39 619 55 553 49 174 Lease amount charged in the year Total lease amount charged Sub- sequently 40 026 28 446 2015 32 261 32 261 Total 137 180 117 239 2014 26 395 26 395 FINANCIAL LEASE COMMITMENTS - GROUP COMPANY AS LESSEE: The group has signed finance leases for equipment such as barges, well boats, cage installations and other equipment. The lease period for equipment of this kind is mainly 7 - 8 years. The future aggregate minimum lease payments related to financial leases are as follows: OVERVIEW OF FUTURE MINIMUM LEASE AMOUNT (FINANCE LEASES) Within 1 year 1-5 years Future minimum lease amount Future financial expenses related to finance leases Present value of finance leases 72 980 10 663 62 317 216 756 26 911 189 845 LEASED ASSETS BOOKED AS FINANCE LEASE Book value of leased assets (equipment, vessels) Book value of lease commitment Sub- sequently 88 901 7 087 81 814 2015 391 757 333 976 Total 378 637 44 661 333 976 2014 335 865 289 661 66 A N N U A L R E P O R T 2 0 1 5 GROUP NOTE 14 FINANCIAL INSTRUMENTS BY CATEGORY Lendings and receivables Level Assets at fair value through profit or loss Derivatives used for hedging Available-for-sale financial assets 167 581 904 184 251 0 392 020 1 158 342 As at 31 December 2015 Available-for-sale financial assets 2/ 3 Loan to associated companies Accounts receivable Other receivables Derivatives Cash and cash equivalents Total Borrowings Finance lease liabilities Factoring debt Export loan 2 Level 0 0 1 426 1 159 768 Liabilities at fair value through profit or loss Derivatives used for hedging Pension obligations and cash-settled options Derivatives Accounts payable Total 2 10 137 653 083 663 220 0 27 104 27 104 2 314 769 3 005 093 Lendings and receivables Level Assets at fair value through profit or loss Derivatives used for hedging Available-for-sale financial assets As at 31 December 2014 Available-for-sale financial assets 2/ 3 Loan to associated companies Accounts receivable Other receivables Derivatives Cash and cash equivalents Total Borrowings Finance lease liabilities Factoring debt Export loan 2 Level 0 67 504 110 93 371 0 181 498 779 046 0 0 0 Liabilities at fair value through profit or loss Derivatives used for hedging Pension obligations and cash-settled options Derivatives Accounts payable Total 2 3 461 360 358 363 819 0 27 932 27 932 1 964 880 2 356 631 67 1 426 Total 1 426 167 581 904 184 251 0 392 020 Other financial liabilities Total 1 632 104 1 632 104 333 976 338 231 10 458 333 976 338 231 10 458 10 137 27 104 653 083 Total 1 518 67 504 110 93 371 0 181 498 780 564 1 518 1 518 Other financial liabilities Total 1 470 402 1 470 402 289 661 195 560 9 257 289 661 195 560 9 257 3 461 27 932 360 358 GRIEGSEAFOOD 2 0 1 5 GROUP As stated in note 3, hedge accounting of derivatives (forward exchange contracts and interest rate swaps) is not applied. The purpose of these derivatives is to reduce the Group´s exposure to changes in floating interest rates and exchange rates. The derivatives are recognised at fair value on 31.12, and the value change is recognised through profit or loss. See note 3 for further details. See note 15 for further details on available-for-sale financial assets. FAIR VALUE ASSESSMENT The table above shows the fair value of financial instruments according to the valuation method used. The different levels are defined as follows: Level 1 - Fair value based on the quoted price in an active market for an identical asset or liability. Level 2 - Fair value based on other observable factors than the quoted price (used in level 1) and either directly (price) or indirectly (derived from prices) for the asset/liability. Level 3 - Fair value based on factors not taken from observable markets (non-observable assumptions). CREDITWORTHINESS OF FINANCIAL ASSETS The credit risk attached to financial instruments that have not matured or which have not been written down is shown by the internal classification of historical information on breaches of credit conditions. Further information about credit risk is provided in note 3. 2015 2014 ACCOUNTS RECEIVABLE Counterparties with no external credit assessment Group 1 *) Group 2 Group 3 Total accounts receivable that have not been written down BANK DEPOSITS AAA AA A Total bank deposits LOANS TO RELATED PARTIES Group 1 Group 2 Group 3 Total loans to related parties 22 770 445 074 114 060 581 904 0 392 020 0 392 020 0 167 0 167 203 884 221 172 79 053 504 110 0 181 498 0 181 498 0 67 0 67 Group 1 - new customers/related parties (less than 6 months). Group 2 - existing customers/related parties (more than 6 months) with no history of having breached credit conditions. Group 3 - existing customers/related parties (more than 6 months) with a history of one or more breaches of credit conditions. All amounts due have been paid in full after the breaches. 68 A N N U A L R E P O R T 2 0 1 5 GROUP NOTE 15 TAX SPESIFICATION OF TAXES Tax payable Norway Tax payable abroad Tax payable not provided for last year Change in deferred tax Norway - From discontinued operations Change in deferred tax abroad Taxes TAX RECONCILIATION Profit before tax Taxes calculated at nominal tax rates Permanent differences issuance costs Permanent differences sale of shares Withholding tax Changes in deferred tax liabilities due to change in tax rate Use of carryforwards, not recognised earlier Tax loss carried forward, not recognised Other permanent differences Taxes CHANGE IN BOOK VALUE OF DEFERRED TAX Book value at 01.01. Currency conversion Tax effect of currency effect of net investments recognised in comprehensive income (see note 3) Other effects Change in deferred tax taken to income in period Deferred tax liability at balance sheet date Weighted average tax rate 2015 22 371 2 175 -266 -1 344 - -36 510 -13 574 -9 208 12 194 - - 368 -31 613 - -1 057 6 536 -13 571 2014 56 975 - - -35 159 - 5 745 27 560 171 956 45 531 - - 1 401 - - -1 168 -18 204 27 560 558 140 557 523 -81 13 533 -5 015 -37 854 528 723 8 346 22 388 -697 -29 421 558 140 147,38 % 16,03 % The nominal tax rate in Norway is 27%. The nominal tax rate for 2015 in Canada was 26% and Shetland 20 %. The significant tax effects is due to change in tax rate and permanant differances. 69 GRIEGSEAFOOD 2 0 1 5 GROUP The tables below show the composition of deferred tax. The tax effects of taxable and deductible temporary differences are shown sparately. Deferred tax and deferred tax assets are offset. Both the Norwegian, Canadian and UK part of the Group, have a net deferred tax position. Deferred tax and deferred tax assets within Norway, Canada and UK can be set off. DEFERRED TAX LIABILITIES 2014 Licences Fixed assets Biological assets Receivables Inventory Deferred capital gain Current liabilities Total Opening balance at 01.01. 177 375 32 284 350 199 17 045 2 092 1 514 0 580 509 Taken to income in the period Currency translation differences Other effects Effect of business combinations As at 31.12. 2015 Taken to income in the period Currency translation differences Other effects Effect of business combinations As at 31.12. DEFFERED TAX ASSETS 2014 67 9 065 -49 847 23 166 7 107 1 008 -4 447 - 6 - 7 953 2 201 - - 9 - 679 293 - - 180 102 42 363 310 506 40 220 3 064 - -10 - 1 209 -295 - -17 165 -3 772 -1 557 -3 406 10 273 -1 257 -534 2 589 438 - 739 - - 597 480 - - -65 - -36 777 - - - - 179 658 41 244 308 177 50 428 2 548 675 0 582 730 Loss carried forward Fixed assets Pensions Receivables Lease obligations Tax credits Other liabilities Total - - - 16 361 -2 241 - 0 577 464 - - - - -253 3 588 1 192 739 Opening balance at 01.01. -21 283 -187 Taken to income in the period Currency translation differences Other effects Effect of business combinations As at 31.12. 2015 Taken to income in the period Currency translation differences Other effects Effect of business combinations As at 31.12. Net deferred tax -8 738 134 -7 063 24 068 -0 -13 017 -37 742 -3 727 6 824 -32 -47 694 53 - - - - - - - - Deferred tax assets is classified as non-current assets Deferred tax liabilities is classified as non-current debt Tax payable is classified as current debt 70 0 - 0 - - 0 - - - - - -423 -1 903 -6 282 7 092 -22 987 238 2 019 643 -6 550 -12 255 - - - -185 -260 - - - -445 -115 -725 -164 -8 014 - - - - - - - - - - -135 23 933 - - -6 364 243 -19 324 6 324 -5 925 -37 603 40 - - - 19 -3 668 -203 6 621 - -32 -5 866 -54 006 2015 2014 528 723 558 140 10 317 2 180 539 040 560 320 24 545 56 975 A N N U A L R E P O R T 2 0 1 5 GROUP NET DEFERRED TAX TAKEN INTO INCOME: Changes in deferred tax, Norway Changes in deferred tax, other countries Net deferred tax taken into income: Recognition in the period for positions that incur deferred taxes Recognition in the period for positions that incur deferred tax assets Net deferred tax taken into income: 2015 -1 344 -36 510 -37 854 -252 -37 602 -37 854 2014 -35 166 5 745 -29 421 -17 165 -12 255 -29 421 LOSS CARRIED FORWARD Deferred tax assets related to an allowable deficit are recognised in the balance sheet in so far as it is likely that this can be set against future taxable profits. Deferred tax assets related to a tax loss carried forward are divided among the following jurisdictions Norway UK Canada 2015 - -47 687 -7 -47 694 2014 - -13 017 - -13 017 There is no time limit on the application of tax losses carried forward in Norway and the UK. Application of tax losses carried forward in Canada is eliminated for the period 2025 to 2031. 71 GRIEGSEAFOOD 2 0 1 5 GROUPNOTE 16 DECLARATION ON DETERMINATION OF SALARY AND OTHER REMUNERATION TO SENIOR EMPLOYEES BOARD GUIDELINES AND PRINCIPLES FOR THE DETERMINATION OF SALARY AND OTHER REMUNERATION TO KEY PERSONNEL In line with regulations issued pursuant to the Norwegian Public Limited Companies Act, the Board has drawn up the following declaration on guidelines and principles used to determine salary and other remuneration for key personnel. The Group’s remuneration policy will continue to be based on the principle that the Group shall offer its employees a compensation package that is competitive and in accordance with local industry standards. Where appropriate, this may include incentive elements, and the basic salary shall reflect individual performance. The components of remuneration shall consist of a fixed basic salary and other fixed remuneration elements. The latter may be a company car or car allowance, telephone and electronic communications, newspapers and similar benefits. As well as participating in the Company’s ordinary group life insurance and defined contribution based pension scheme up to 12G, the CEO has a separate salary compensation agreement for pension benefits exceeding 12G. CEO has a special cash bonus for 2015 and 2016 which assumes that the CEO is in position at the time of payment. CEO is entitled to a rolling 12 months’ severance pay calculated from the termination date. Termination date is considered the expiration date of the notice. CEO has six months notice. Upon termination of the employment contract a separate agreement on severance pay will be entered into. COO and CFO are entitled to 12 months’ pay after termination or changes in employment/position. Grieg Seafood has an annual bonus scheme based on a combination of earnings and personal performance. For the management team the annual bonus has a limit of maximum 6 months’ fixed salary. A synthetic option scheme (hereafter called “”cash option””) for the company’s management group was established in 2009 as a continuation of the expired option scheme from 2007. The cash options programme scheme requires the participants’ direct share ownership throughout the entire period of the programme. Those who are entitled to the options are required to use 50% of the net gain under the scheme to purchase shares until the share ownership has a value corresponding to 100% of the fixed annual salary. The gain under the synthetic option scheme cannot exceed 12 times the monthly salary per participant per year. The exercise price is increased by 0,5% each month. An option must be exercised not later than 24 months after the first exercise date. The cash options programme corresponds to a total of 2.150 000 shares at year-end after exercise of 1.600.000 options in 2015. Options allocated in 2015 must be exercised not later than 1 June 2019. Throughout 2015, 250 000 options have been exercised. CEO has a total of 400 000 cash-settled options at year-end. The last exercise date for CEO is 1 June 2019. For information about remuneration of the Group management, see note 17. For further information about options, see note 18. 72 A N N U A L R E P O R T 2 0 1 5 GROUPNOTE 17 PAYROLL, FEES, NUMBER OF EMPLOYEES ETC. Salaries Social security costs Share options granted to directors and key employees (incl. social security costs) 18 Note Pension costs Other personnel costs Total Average number of employees 2015 337 591 26 654 3 819 8 983 32 384 409 432 681 2014 307 430 21 700 8 507 6 969 14 923 359 529 686 The Board's guidelines and principles for determination of salary and other remuneration to key employees are detained in note 16. As at 31.12.2015 no loans were provided to Group employees. Accumulated costs related to salaries, pension costs and other remuneration to the CEO, other senior employees and board members in 2015 were as follows: REMUNERATION TO SENIOR OFFICERS IN 2015 IN TNOK Salary Bonus Retained, not yet paid Options exercised during year Other remuneration Andreas Kvame (CEO from 01.06.2015) Morten Vike (CEO until 17.10.2014) *) Atle Harald Sandtorv (CFO) Knut Utheim (COO) 1 369 4 414 1 988 1 701 456 0 119 89 1 488 0 928 0 0 Total remuneration including social security costs M.Vike has received severance pay according to agreement. The expense was provided for in 2014 but paid in 2015. BOARD MEMBERS Per Grieg jr. 1) Wenche Kjølås 2) Karin Bing Orgland Asbjørn Reinkind 1) Ola Braanaas 1) Total remuneration including social security costs Recognision of synthetic options not declared throughout the year, are not included in the above list. 9 104 146 139 405 245 245 274 222 Total 1 834 6 934 2 253 1 929 12 950 405 245 245 274 222 1 392 1) Remuneration for work done in the remuneration committee is included in the payment to Per Grieg jr. with NOK 11 410, in the payment to Asbjørn Reinkind with NOK 11 410, and in the payment to Ola Braanaas with NOK 11 410. 2) Remuneration for work done in the audit committee is included in the payment to Wenche Kjølås with NOK 34 230, and to Karin Bing-Orgland with NOK 34 230. These amounts include social security costs. 73 GRIEGSEAFOOD 2 0 1 5 GROUPAccumulated costs related to salaries, pension costs and other remuneration to the CEO, other senior employees and board members in 2014 were as follows: REMUNERATION TO SENIOR OFFICERS IN 2014 IN TNOK Salary Bonus Retained, not yet paid *) Options exercised during year Other remuneration Morten Vike (resigned as CEO 17.10.2014) Atle Harald Sandtorv (CFO/acting CEO) Knut Utheim (COO from 01.04.2014) 3 149 1 779 1 126 442 248 0 6 075 119 89 7 542 0 0 Total remuneration including social security costs *) Retained, not yet paid benefits to former CEO, see note 16 BOARD MEMBERS Per Grieg jr. 1) Terje Ramm - until 11.06.2014 2) Wenche Kjølås 2) Karin Bing Orgland 1) og 2) Asbjørn Reinkind 1) Ola Braanaas -from 11.06.2014 1) Total remuneration including social security costs 306 144 99 406 102 246 236 275 130 Total 17 514 2 290 1 314 21 118 406 102 246 236 275 130 1 395 Recognision of synthetic options not declared throughout the year, are not included in the above list. 1) Remuneration for work done in the remuneration committee is included in the payment to Per Grieg jr. with TNOK 11, in the payment to Asbjørn Reinkind with TNOK 11, in the payment to Karin Bing Orgland with TNOK 6, and in the payment to Ola Braanaas with TNOK 7. 2) Remuneration for work done in the audit committee is included in the payment to Terje Ramm with TNOK 14, in the payment to Wenche Kjølås with TNOK 34, and in the payment to Karin Bing-Orgland with TNOK 19. These amounts include social security costs. SPECIFICATION OF AUDITORS' FEES AUDIT FEES Group auditor Other auditors OTHER ASSURANCE SERVICES Group auditor Other auditors TAX ADVICE Group auditor Other auditors OTHER SERVICES Group auditor Other auditors Total - Group auditor Total - other auditors Total 74 2015 2014 2 176 777 2 078 798 139 0 415 160 431 144 216 0 280 238 261 145 3 162 1 082 4 243 2 835 1 181 4 016 A N N U A L R E P O R T 2 0 1 5 GROUPNOTE 18 EQUITY AND CASH-BASED REMUNERATION (OPTIONS) The Company has issued options to the management group and regional directors. The options’ strike price is the stock market price on the date of issue increased by 0.5% per month until exercise date. Equity options have been allocated in the period 29 June 2007 until 1 June 2008 with the first due for exercise 29 June 2010 and last due 27 February 2012. As per 31.12.2015 no equity options are available for excercise. As from 2009 an option scheme with settlment in cash has been established for the management and regional directors. The last allocation was in 2015, totalling 1.600 000 options. The last due is 1 June 2019. The options have 2 years of duration, where 50 % is exercised each year. Employees taken on after the first allocation of options have been allocated options on taking up employment. The Black & Scholes option pricing model is used to calculate the market value. A brokerage firm is used to carry out the calculations. The table below illustrates the movement in outstanding options throughout 2014 and 2015. OVERVIEW 2015 Andreas Kvame (CEO) Option category Cash settlement Outstanding options at 31.12.2014 Granted options Exercised options Cancelled options Expired options Outstanding options at 31.12.2015 Of which cash- settled 400 000 400 000 400 000 Morten Vike (former CEO)* Cash settlement 200 000 200 000 Atle Harald Sandtorv (CFO) Cash settlement 100 000 200 000 300 000 300 000 Knut Utheim (COO) Others Total Cash settlement Cash settlement 100 000 200 000 300 000 300 000 400 000 800 000 800 000 50 000 1 150 000 1 150 000 1 600 000 250 000 - - 2 150 000 2 150 000 *) Morten Vike resigned 17.10.14. All options could be exercised latest at 31.05.2015. OVERVIEW 2014 Option category Outstanding options at 31.12.2014 Granted options Exercised options Cancelled options Expired options Morten Vike (former CEO)* Cash settlement Atle Harald Sandtorv (CFO/acting CEO) Cash settlement 600 000 100 000 - - 400 000 - - - - - - - - 100 000 - Outstanding options at 31.12.2015 Of which cash- settled 200 000 200 000 100 000 100 000 100 000 100 000 Knut Utheim (COO) Others Total Cash settlement Cash settlement 750 000 200 000 400 000 100 000 50 000 400 000 1 450 000 300 000 800 000 100 000 50 000 800 000 400 000 800 000 *) Morten Vike resigned 17.10.14. All options could be exercised latest at 31.05.2015. 75 GRIEGSEAFOOD 2 0 1 5 GROUP  Expiry date: Year - month Strike price NOK per share as at 31.12.2015 Strike price NOK per share as at 31.12.2014 OPTIONS Allocation: Year - month 2013 - 12 2013 - 12 2014 - 04 2014 - 04 2014 - 07 2015 - 06 Total 2016 - 06 2017- 06 2016 - 06 2017 - 06 2017 - 06 2019 - 06 Cash-based options available for settlement Weighted average outstanding contract period 24,97 24,97 24,99 24,99 31,55 26,27 23,55 23,55 23,58 23,58 29,77 2015 150 000 150 000 50 000 100 000 100 000 1 600 000 2 150 000 2015 450 000 24,93 2014 250 000 250 000 100 000 100 000 100 000 800 000 2014 250 000 23,48 Option category Listed price on allocation Calculated value per option on allocation Calculated total value on allocation*) Total value of all options at 01.01.2015 Change in provision OB - IB *) Exercised options 2015 Acc. cost charged against equity at 31.12.2015 Book liability cash settlement at 31.12.2015 Equity option 6 887 6 887 2015 Former employees with expired options Andreas Kvame (CEO) Cash settlement Morten Vike (former CEO)** Cash settlement Atle Harald Sandtorv (CFO) Cash settlement Atle Harald Sandtorv (CFO) Cash settlement Knut Utheim (COO) Knut Utheim (COO) Other options allocated in 2013 Cash settlement Cash settlement Cash settlement Other options in allocated 2014 Cash settlement Other options allocated in 2014 Other options allocated in 2015 Total Cash settlement Cash settlement 25,50 3,36 1 342 - 579 22,22 3,94 788 929 -929 813 22,22 3,94 394 491 148 25,50 3,97 793 - 353 22,56 4,78 478 429 233 25,50 3,97 793 - 353 353 22,22 3,94 1 181 957 293 22,56 4,24 424 397 -82 199 28,90 4,20 420 60 146 25,50 3,60 2 876 9 490 - 10 150 1 282 2 376 1 013 6 887 579 - 639 353 662 1 250 315 206 1 282 5 639 *) The amounts are exclusive of social security cost. **) Morten Vike resigned 17.10.14. All options could be exercised latest at 31.05.2015. 76 A N N U A L R E P O R T 2 0 1 5 GROUPOption category Eq. based option Eq. based option Eq. based option Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. 2014 Morten Vike (CEO)** Former employees where option has expired Others Morten Vike (former CEO)** Morten Vike (former CEO)** Atle Harald Sandtorv (CFO/ acting CEO) Knut Utheim (COO) Other options allocated in 2010 Other options allocated in 2012 Other options allocated in 2013 Other options allocated in 2014 Other options allocated in 2014 Total Listed price on allocation Calculated value per option on allocation Calculated total value on allocation*) Total value of all options at 01.01.2014 Change in provision OB - IB *) Exercised options 2014 Acc. cost charged against equity at 31.12.2014 Book liability cash settlement at 31.12.2014 13,20 3,74 1 123 1 122 - 1 122 23,00 5,86 2 346 2 346 23,00 5,72 4 005 3 419 - - 2 346 3 419 6,83 1,78 712 4 906 -4 906 6 610 22,22 3,94 788 29 900 22,22 3,94 22,56 4,78 394 478 14 - 477 429 16,50 6,66 666 301 -301 6,83 1,78 1 424 4 277 -4 277 6 645 22,22 3,94 1 181 41 916 22,56 4,24 424 - 397 28,90 2,74 274 - 60 0 929 491 429 0 0 957 397 60 13 815 16 455 -6 305 13 255 6 887 3 263 *) The amounts are exclusive of social security cost. **) Morten Vike resigned 17.10.14. All options could be exercised latest at 31.05.2015. ACCRUED COST IS DIVIDED AS FOLLOWS: Change in provisions Exercised options during year Total cost excl. social security costs Social security costs Total cost incl. social security costs 2015 1 797 2 022 3 819 560 4 379 2014 -6 305 13 255 6 951 1 557 8 507 CLASSIFICATION IN ACCOUNTS Other provisions for liabilities Payroll & social costs/ bank Public taxes payable Payroll and social security costs The costs related to cash-based remuneration in 2015 is TNOK 3 819. This is charged in the income statement as a personnel cost. Social security contributions are provided for an ongoing basis based on the fair value of the options. At 31 December 2015 outstanding options with the right to cash settlement were stated at TNOK 5 639 of which TNOK 1 250 is classified as current liabilities as the options expire in 2016. TNOK 4 389 is non-current liabilities as at 31.12.2015. Options issued are cancelled when employment terminates. ESTIMATES USED IN CALCULATIONS ON ALLOCATION OF OPTIONS Anticipated volatility (%) Risk-free rate of interest (%) Estimated qualification period (years) 36,36 0,69 2,92 The estimated qualification period for the options is based on historical data, and does not necessarily represent an indication of the future. In order to estimate volatility, the management has applied historical volatility for comparable listed companies. 77 GRIEGSEAFOOD 2 0 1 5 GROUP NOTE 19 SHARE CAPITAL AND SHAREHOLDER INFORMATION SHARE CAPITAL As at 31 December 2015 the Company had 111 662 000 shares with a nominal value of NOK 4 per share. All shares issued by the company are fully paid up. There is one class of shares and all shares have the same rights. In June 2011 the company purchased 1 250 000 of its own shares for NOK 14.40 per share. Date of registration Type of change Change in share capital (TNOK) Nominal value (NOK) Total share capital (TNOK) No. of ordinary shares Holdings of treasury shares 31.12.2015 4,00 4,00 446 648 -5 000 441 648 111 662 000 -1 250 000 110 412 000 THE LARGEST SHAREHOLDERS OF GRIEG SEAFOOD ASA No. of shares Shareholding No. of shares Shareholding GRIEG HOLDINGS AS DNB NOR MARKETS NORDEA BANK NORGE ASA KONTRARI AS YSTHOLMEN AS OM HOLDING AS STATE STREET BANK AND TRUST CO. * GRIEG SEAFOOD ASA Total - largest shareholders 31.12.15 31.12.15 31.12.14 55 801 409 49,97 % 55 801 409 22 188 875 19,87 % 22 188 238 6 605 998 5 862 763 2 928 197 2 610 000 1 305 901 1 250 000 5,92 % 5,25 % 2,62 % 2,34 % 1,17 % 1,12 % 6 605 998 6 559 309 2 928 197 2 610 000 1 305 901 1 250 000 98 553 143 88,26 % 99 249 052 Other shareholders with shareholding less than 1% 13 108 857 11,74 % 12 412 948 31.12.14 49,97 % 19,87 % 5,92 % 5,87 % 2,62 % 2,34 % 1,17 % 1,12 % 88,88 % 11,12 % Total shares * Nominee-account 111 662 000 100,00 % 111 662 000 100,00 % SHARES CONTROLLED BY BOARD MEMBERS AND GROUP MANAGEMENT: 31.12.2015 31.12.2015 31.12.2014 31.12.2014 BOARD OF DIRECTORS: Per Grieg jr. *) Wenche Kjølås (Jawendel AS) Asbjørn Reinkind (Reinkind AS) Karin Bing Orgland Ola Braanaas GROUP MANAGEMENT: Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) 60 795 561 54,44 % 60 786 561 54,44 % 7 000 120 000 - - - 45 500 - 0,01 % 0,11 % 0,00 % 0,00 % 0,00 % 0,04 % 0,00 % 7 000 120 000 - - - 45 500 - 0,01 % 0,11 % 0,00 % 0,00 % 0,00 % 0,04 % 0,00 % *The shares owned by the following companies are controlled by Per Grieg jr. and family Grieg Holdings AS Grieg Shipping II AS Ystholmen AS Grieg Ltd AS Kvasshøgdi AS Per Grieg jr. personally Total shares 78 55 801 409 49,97 % 55 801 409 49,97 % 824 565 2 928 197 217 390 1 000 000 15 000 0,74 % 2,62 % 0,19 % 0,90 % 0,01 % 824 565 2 928 197 217 390 1 000 000 15 000 0,74 % 2,62 % 0,19 % 0,90 % 0,01 % 60 786 561 54,44 % 60 786 561 54,44 % A N N U A L R E P O R T 2 0 1 5 GROUPNOTE 20 EARNINGS PER SHARE AND DIVIDEND PER SHARE BASIS FOR CALCULATION OF EARNINGS PER SHARE Earnings for the year (majority share) Number of shares at Jan 1 Effect of treasury shares (see note 19) Average number of outstanding shares during the year Adjustment for effect of share options Diluted average number of outstanding shares during the year Earnings per share Diluted earnings per share Proposed dividend per share 2015 -6 626 2014 138 806 111 662 000 -1 250 000 110 412 000 111 662 000 -1 250 000 110 412 000 0 0 110 412 000 110 412 000 -0,06 -0,06 0,00 1,26 1,26 0,50 79 GRIEGSEAFOOD 2 0 1 5 GROUPNOTE 21 CASH AND CASH EQUIVALENTS Restricted deposits related to employees' tax deduction Restricted bank deposits related to clearing account for financial price contracts*) Other cash and bank deposits Total 2015 8 318 1 513 382 189 392 020 2014 7 580 937 172 981 181 498 *) The restricted deposits are "base" and "portofolio" margin requirements related to financial salmon price contracts in the Norwegian part of the Group. The Group's currency and interest rate exposure is described in note 3. 80 A N N U A L R E P O R T 2 0 1 5 GROUPNOTE 22 ACCOUNTS RECEIVABLE Accounts receivable at nominal value Provision for bad debts Accounts receivable at 31.12. 2015 586 883 -4 979 581 904 2014 505 814 -1 704 504 110 For information about the age distribution of accounts receivable and the Group's exposure to credit risk related to outstanding receivables, please refer to note 3. RECORDED BAD DEBTS ARE STATED AS FOLLOWS: Change in provision for bad debts Year´s actual losses Filed on previous loss provisions Recognised losses on receivables Losses on receivables is recognised as other operating expenses 2015 3 275 1 741 0 5 016 2014 1 733 1 282 -404 2 611 81 GRIEGSEAFOOD 2 0 1 5 GROUPNOTE 23 OTHER CURRENT RECEIVABLES VAT receivable etc. Pre-paid expenses Insurance claims Other current receivables Other current receivables at 31.12. 2015 83 870 30 484 22 237 9 176 145 767 2014 49 038 32 504 0 11 828 93 371 82 A N N U A L R E P O R T 2 0 1 5 GROUPNOTE 24 RELATED PARTIES 2015 Total - related parties as shareholders Total - related parties as associated companies Total 2014 Operating income Operating expenses Financial income Financial expenses Long-term balances Short-term balances 0 0 0 15 966 1 875 17 841 0 0 0 0 0 0 0 0 0 -496 0 -496 Operating income Operating expenses Financial income Financial expenses Long-term balances Short-term balances Total - related parties as shareholders Total - related parties as associated companies Total 0 0 0 4 560 84 375 88 935 0 0 0 0 0 0 0 67 67 -195 -3 187 -3 382 The group purchases service from companies in the same group as its majority shareholder, Grieg Holdings AS. These services include: • Services related to ICT and other functions such as canteen, reception etc. are provided by Grieg Group Resources AS. The services are provided on an arm’s length basis. • Grieg Seafood ASA rents its offices from Grieg Gaarden AS. The rent is on an arm’s length basis. • • Purchase of roe and other services related to operations from Saldobreed AS, which is a related party to a board member. The regions has purchased lumpfish from Ryfylke Rensefisk AS, which is owned by Grieg Holdings AS. Transactions with other related parties in associated companies are the purchase of services related to operations. The board and management are related parties. See note 18 on share-based options and note 19 on shares controlled by board members and management. 83 GRIEGSEAFOOD 2 0 1 5 GROUP NOTE 25 FINANCIAL INCOME AND FINANCIAL EXPENSES Other interest income Dividends Net change in fair value of derivatives Net currency gains Other financial income Total financial income Interest expense on bank borrowings and leasing *) Other interest expenses **) Net change in fair value of derivatives Net currency gains Other financial expenses Total financial expenses 2015 5 002 446 4 024 28 584 0 38 056 117 959 7 969 0 0 5 430 131 357 2014 9 965 474 0 45 994 812 57 245 89 076 6 038 10 968 0 1 439 107 521 *) Interest expenses bank borrowings and leasing includes recognised gains/losses from realised interest rate swaps. **) Interest expenses related to factoring agreement in Ocean Quality is included in other interest expenses. 84 A N N U A L R E P O R T 2 0 1 5 GROUPNOTE 26 OTHER OPERATING EXPENSES Maintenance costs Electricity and fuel Lease expenses Insurance Outsourced services IT expenses Travel costs Marketing costs Transportation costs includin air cargo Other operating expenses Total other operating expenses 2015 191 413 49 822 48 547 28 191 57 672 17 882 15 084 7 008 276 659 543 417 1 235 695 2014 161 500 51 205 37 209 36 834 38 498 16 755 10 320 5 610 237 438 433 066 1 028 434 Included in "other operating expenses" are packaging, oxygen, chemicals, vaccines, customs duty, fuel, loss on receivables, other office costs, phone, charges. 85 GRIEGSEAFOOD 2 0 1 5 GROUPNOTE 27 OTHER CURRENT LIABILITIES Specification of other current liabilities Accrued expenses *) Other current liabilities **) Other current liabilities 2015 107 661 15 135 122 795 2014 82 037 49 478 131 515 *) Accrued expenses relate to accrual of interest, other operating expenses and insurance. **) Included in other non-current liabilities in 2014 is purchase of "green licences" for TNOK 40 000, where the arrangement was finally clarified towards year-end 2014. NOTE 28 POST-BALANCE SHEET EVENTS There have been no events after balance sheet date which materially impact the 2015 statement or the evaluation of the Group. 86 A N N U A L R E P O R T 2 0 1 5 GROUP NOTE 29 NEW ACCOUNTING STANDARDS A) NEW AND AMENDED STANDARDS ADOPTED IN 2015 In 2015, no new standards have been adopted. New requirements for disclosures are set out in IFRS 8 Operating Segments. The additional requirements take effect from 01.01.2015 and regard reporting of assessments about operating segments and reconciliation of assets on segment level against Company level. If multiple segments have been merged to form an aggregation of segments, a short description should disclose the various segments and the economic indicators which have been assessed to constitute economic similarities that justify an aggregation into one segment. Upon periodic reporting of segment assets to the chief operator (Group management), the disclosure must demonstrate a reconciliation of assets on segment level against assets on Company level. Grieg Seafood has only one production segment, farmed salmon; hence, the amendment will not have any effect on the disclosure information. IFRS 2 has been amended so that the vesting conditions for share-based remuneration are divided into conditions attached to respectively service and achievement. This will have no significant effect on the financial statements because the option schemes only have conditions attached to service. B) NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED A series of new standards, amendments of standards and interpretations of existing standards are mandatory for future financial statements. Among those the Group has decided not to implement early, the essential are disclosed below. IFRS 9 Financial instruments includes requirements for classification, measurement and recognition of financial assets and liabilities, as well as general hedge accounting. The complete version of IFRS 9 was issued in July 2014. It replaces the items of IAS 39 relating to similar issues. According to IFRS 9 financial assets are classified in three categories: Fair value through other comprehensive income, fair value through profit/loss, and amortised cost. The measurement category is determined on initial recognition of the asset. The classification depends on the entity’s business model for managing its financial instruments and the characteristics of the cash flows of each instrument. Equity instruments should initially be measured at fair value through profit/loss. The company may opt to present value changes through other comprehensive income, but the option is irreversible as gain/loss from subsequent sales cannot be reclassified through profit/loss. Impairment due to credit risk should be recognised on basis of expected loss rather than the current model where losses must be incurred. Regarding financial obligations the standard materially proceeds with the requirements of IAS39. The biggest modification regards use of the fair value-option for financial obligations, in which case the amount of change in fair value attributable to changes in own credit risk should be presented in other comprehensive income. IFRS 9 simplifies the requirements for hedge accounting by aligning hedge effectiveness more closely with the risk management and allow for increased assessment. Simultaneous hedge documentation is still required. The standard takes effect as from the fiscal year 2018, but earlier application is permitted. The Group still has not fully assessed the effects of IFRS 9. IFRS15 Revenue from contracts with customers regards recognition of revenue. The standard requires a separation of customer contracts into each performance obligation. A performance obligation can be a good or service. Revenue is recognised when control over a good or service is passed to a customer, and the customer has the ability to direct the use of and obtain the benefit from the good or service. The standard replaces IAS 18 Revenue and IAS 11 Construction Contracts and related interpretations. The standard takes effect for the fiscal year 2017, but early implementation is permitted. The Group still has not fully assessed the effects of IFRS 15. IAS 1 has been amended in order to allow the Company to consider to a greater degree whether information is essential or not. The amendment provides more flexibility and an opportunity to omit disclosure of information which the Company itself deems insignificant. This may entail less disclosure information on areas which the Company deems less significant. There are no other standards or interpretations that still have not taken effect that are expected to materially impact the financial statement of the Group. 87 GRIEGSEAFOOD 2 0 1 5 GROUP PARENT COMPANY INCOME STATEMENT Note 2,17 3,4 12,13 6,17 5,17 5,17 15 2015 52 351 52 351 -29 968 -5 275 -36 161 -71 404 -19 053 173 914 -103 846 70 068 51 015 -11 375 39 642 0 39 642 39 642 2014 40 633 40 633 -36 756 -5 802 -34 062 -76 621 -35 988 210 805 -92 341 118 464 82 476 -23 312 59 163 55 206 3 957 59 163 Amounts in NOK 1 000 Other operating income Total operating income Salaries and personnell expenses Depreciation Other operating expenses Total operating expenses Operating loss Financial income Financial expenses Net financial profit Profit before tax Income tax expense Profit for the year ALLOCATION OF NET PROFIT Allocated to dividend Transferred to other equity Sum allocation 88 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY PARENT COMPANY BALANCE Amounts in NOK 1 000 ASSETS Software Property, plant and equipment Investments in subsidiaries Receivables from Group companies Investments in associated companies and joint ventures Loan to associated companies Investments in shares or units Total non-current assets Accounts receivable Receivables from group companies Other current receivables Cash and cash equivalents Total current assets Total assets LIABILITIES AND EQUITY Share capital Treasury shares Other reserves Retained earnings Total equity Deferred tax Cash-settled share options Total provisions Long-term loan Total non-current liabilities Short-term borrowings Bond loan Loans from group companies Cash-settled share options Allocations to dividend Accounts payable Accrued public expense Other current liabilities Total current liabilities Total liabilities Total liabilities and equity Note 12 13, 18 10,18 7,17,18 10, 18 11 6,18 17,18 7 8 14 14 15 4 18 18 18 17 4 17 7,9 Bergen, 6 of April 2016 Grieg Seafood ASA TRANSLATED VERSION. NOT TO BE SIGNED. 31.12.2015 31.12.2014 16 651 4 814 1 226 980 691 259 0 167 637 11 320 3 908 1 220 980 637 126 6 000 67 590 1 940 507 1 879 990 4 827 903 345 4 046 215 057 2 344 933 860 12 204 95 969 1 127 275 1 044 377 3 067 782 2 924 367 31.12.2015 31.12.2014 446 648 -5 000 13 652 899 425 446 648 -5 000 13 652 859 753 1 354 724 1 315 053 36 446 4 389 40 835 1 518 261 1 518 261 90 000 0 26 511 1 250 0 6 280 2 049 27 872 153 961 25 747 2 334 28 082 957 363 957 363 90 000 396 050 40 446 929 55 206 4 931 1 772 34 535 623 869 1 713 057 1 609 314 3 067 782 2 924 367 89 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY PARENT COMPANY CASH FLOW STATEMENT Amounts in NOK 1000 Note 2015 2014 Profit before income taxes Tax payable Depreciation and amortisation Interest paid Change in accounts receivable Change in accounts payable Change in other accruals Net cash flow from operations Dividend income Purchase of tangible assets Purchase of intangible assets Payment on loans to group companies Payment on group receivables Payment on other long term receivables Net cash flow from investment activities Change in short-term credit facilities Payments on long-term debt Proceeds/payment on loans to/from group companies Proceeds on long-term debt Interest paid Dividende paid Net cash flow from financing activities 15 12,13 5 13 12 18 51 015 0 5 275 82 715 -2 483 1 349 -32 490 105 381 30 -2 351 -9 161 69 116 -54 133 -100 3 401 -396 050 -90 000 -16 621 650 898 -82 715 -55 206 10 306 82 476 -1 471 5 802 70 926 2 185 2 881 -56 151 106 648 28 -678 -8 107 359 570 -471 770 0 -120 957 -425 000 -600 200 0 1 088 413 -70 926 0 -7 713 Net change in cash and cash equivalents 119 088 -22 022 Cash and cash equivalents at 01.01. 95 969 117 991 Cash and cash equivalents at 31.12 215 057 95 969 90 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY PARENT COMPANY CHANGE IN EQUITY Amounts in NOK 1000 Equity at 01.01.2014 PROFIT FOR THE YEAR 2014 Other gains recorded in equity Allocations to dividend Equity at 31.12.2014 PROFIT FOR THE YEAR 2015 Other gains/losses recorded in equity Allocations to dividend Equity at 31.12.2015 Share capital Other paid in equity Other equity Total equity 441 648 13 652 441 648 13 652 855 773 59 163 22 -55 206 859 752 1 311 073 59 163 22 -55 206 1 315 053 39 642 39 642 31 0 31 0 441 648 13 652 899 425 1 354 725 91 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY NOTE 1 ACCOUNTING POLICIES The annual financial statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway. at the original purchase date. Leased assets are recognised as fixed assets if the lease contract is considered to be a finance lease. All amounts are in TNOK, unless stated otherwise. REVENUE RECOGNITION Revenue from sales of goods is recognised at the time of delivery. Revenue from the sales of services is recognised when the services are executed. The share of sales revenue associated with future service is recorded in the balance sheet as deferred sales revenue and is recognised as revenue at the time of execution. CLASSIFICATION AND VALUATION OF BALANCE SHEET ITEMS Assets intended for long-term ownership or use are classified as fixed assets. Assets related to the normal operating cycle, are classified as current assets. Receivables are classified as current assets if they are expected to be repaid within 12 months after the transaction date. Similar criteria apply to liabilities. SUBSIDIARIES, ASSOCIATED COMPANIES AND JOINT VENTURES Investments in subsidiaries, associated companies and joint ventures are valued at cost in the company accounts. The investment is valued at the cost of acquiring the shares, providing a write-down has not been necessary. Group contributions to subsidiaries, with tax deducted, are recognised as increases in the purchase cost of the shares. Dividends and group contributions are recognised in the same year as they are recognised in the subsidiary/ associated company accounts. If dividends/group contributions materially exceed retained earnings after acquisition, the exceeding amount is regarded as reimbursement of invested capital and the distribution will reduce the recorded value of the acquisition in the balance sheet. Group contributions received are recognised as other financial income. Current assets are valued at the lower of cost and fair value. Short- term liabilities are recognised in the balance sheet at nominal value. Fixed assets are carried at historical cost. Fixed assets whose value will deteriorate are depreciated on a straight line basis over the asset’s estimated useful life. Fixed assets are written down to fair value where this is required by accounting rules. Nominal amounts are discounted if the interest rate element is significant. IMPAIRMENT OF FIXED ASSETS Impairment tests are performed if it is indicated that the carrying amount of a non-current asset exceeds the estimated fair value. The test is performed on the lowest level of fixed assets at which independent cash flows can be identified. If the carrying amount is higher than both the fair value less selling costs and the recoverable amount (net present value of future use/ownership), the asset is written down to the higher of fair value less selling costs and the recoverable amount. INTANGIBLE ASSETS Expenditure on intangible assets is recognised to the extent that future economic benefits from the development of identifiable intangible assets and costs can be measured reliably. Otherwise, the costs are expensed as they arise. Capitalised development is amortised over the useful life. FIXED ASSETS Fixed assets are recognised in the balance sheet and depreciated on a straight line basis over the estimated useful life, providing the asset has an expected useful life of more than 3 years and a cost price which exceeds TNOK 15. Maintenance costs are charged as they arise as operating expenses, while improvements and additions are added to the acquisition cost and depreciated at the same pace as the asset. The distinction between maintenance and improvements is made with regard to the asset’s relative condition TRADE AND OTHER RECEIVABLES Trade and other receivables are recognised in the balance sheet at nominal value after deduction of provision for bad debts. The provision for bad debts is estimated on the basis of an individual assessment of each major receivable. An additional general provision is made for the remainder of the receivables based on estimated expected losses. SHORT-TERM INVESTMENTS Short-term investments (shares and investments which are considered current assets) are carried at the lower of average purchase cost and net realisable value on the balance sheet date. Dividends and other distributions received are recognised as other financial income. 92 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY temporary differences between the value of assets and liabilities for tax purposes and any allowable loss to be carried forward at year- end in the financial statements. Temporary differences, both positive and negative, are offset within the same period. Deferred tax assets are recorded in the balance sheet when it is more likely than not that the tax assets will be utilised. Deferred tax assets and deferred tax liabilities are presented net in the balance sheet. Tax on group contributions given, booked as an increase in the purchase price of shares in other companies, and tax on group contribution received booked directly against equity, have been booked directly against tax items in the balance sheet (offset against tax payable if the group contribution has affected tax payable, and offset against deferred taxes if the group contribution has affected deferred taxes). CASH FLOW STATEMENT The cash flow statement has been prepared according to the indirect method. Cash and cash equivalents include cash, bank deposits and other short-term highly liquid investments which entail no appreciable exchange rate risk and with maturities of 3 months or less from the purchase date. PENSIONS The company’s pension schemes meet the requirements of the mandatory Occupatonal Pension Act. The premium is paid through operations and is charged as it arises. Social security costs are charged on the basis of the pension premium paid. GROUP BANK ACCOUNTS SYSTEM – DEPOSIT AND LOAN Grieg Seafod ASA operates as an internal bank for the subsidiaries. Grieg Seafood borrows funds under the agreement from the financial institutions and lends these funds onwards to the group companies. The Company has set up a group account system (multi-accounts) in which Grieg Seafood ASA is the legal account holder and where deposits and loans are recognised as intercompany transactions. All group companies are jointly and severally responsible to the financial institutions for the whole amount of the commitment under the scheme. FOREIGN CURRENCY All foreign currency transaction are translated into NOK at the date of the transaction. All monetary items in foreign currency are translated at the balance sheet date. Derivatives are stated at fair value and value changes are recognised in the income statement. CASH-BASED REMUNERATION The Company has a share-based remuneration scheme with settlement in cash. The Company’s estimated liability is posted under current or non-current liabilities based on estimated settlement date. The cost for the year is charged in the income statement. DERIVATIVES Forward currency contracts Realised gains are recorded in the income statement as financial income. The fair value of the contracts is stated on the basis of the exchange rate at balance sheet date for 2015. Interest rate swaps Interest rate swap contracts are stated at the lowest value principle. TAXES The tax expense in the income statement consists of both taxes payable for the accounting period and changes in deferred tax during the period. Deferred tax is calculated as relevant rate of the 93 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY NOTE 2 OPERATING INCOME Amounts in NOK 1000 OPERATING INCOME CONSISTS OF Administrative services - Grieg Seafood Group Other operating income Total other operating income, see note 17 2015 52 351 0 52 351 2014 37 534 3 099 40 633 94 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANYNOTE 3 PAYROLL, FEES, NO. OF EMPLOYEES Amounts in NOK 1000 Wages and salaries Social security costs Shares options for directors and key personnel Pension costs - defined contribution plans Other personnel costs Total Average number of employees Note 4 2015 20 170 3 388 3 819 1 702 889 2014 23 553 3 916 6 951 1 508 828 29 968 36 756 20 16 The Company has a pension scheme covering all employees at 31.12.2015. The pension scheme is funded and managed through an insurance company. The board’s guidelines and principles for the determination of salary and other remuneration to the management group are included in the financial statements for the group. The accumulated cost of salaries, pensions and other benefits to the CEO, CFO, COO and board members in 2015 were as follows: REMUNERATION TO SENIOR EMPLOYEES IN 2015 (TNOK) Salary Bonus Accumulated, not yet paid*) Options exercised during year Other benefits Andreas Kvame (CEO as from 01.06.2015) Morten Vike (resigned as CEO 17.10.2014) Atle Harald Sandtorv (CFO) Knut Utheim (COO as from 01.04.2014) Total remuneration incl. social security costs 1 369 4 414 1 988 1 701 456 0 119 89 0 2 891 0 0 0 928 0 0 *) The amount consists of accumulated, not paid benefits to former CEO BOARD MEMBERS Per Grieg jr. 1) Wenche Kjølås 2) Karin Bing-Orgland Asbjørn Reinkind 1) Ola Braanaas Total remuneration incl. social security costs 9 104 146 139 405 245 245 274 222 Total 1 834 8 337 2 253 1 929 14 353 405 245 245 274 222 1 392 1) The payment for work done in the remuneration committee is included in the remuneration to Per Grieg jr. with NOK 11 410, to Asbjørn Reinkind with NOK 11 410 and to Ola Braanaas with NOK 11 410. 2) The payment for work done in the audit committee is included in the remuneration to Wenche Kjølås with NOK 34 230 and to Karin Bing-Orgland with NOK 34 230. The amounts include social security costs. 95 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY The accumulated cost of salaries, pensions and other benefits to the CEO, CFO, COO and to Board members in 2014 were as follows: REMUNERATION TO SENIOR EMPLOYEES IN 2014 (TNOK) Salary Bonus Accumulated not paid Options exercised during year Other benefits Morten Vike (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Total remuneration incl. social security costs 3 149 1 777 1 126 442 248 0 6 075 119 89 7 542 0 0 BOARD MEMBERS Per Grieg jr. 1) Terje Ramm - until 11.06.2014 2) Wenche Kjølås 2) Karin Bing-Orgland 1) og 2) Asbjørn Reinkind 1) Ola Braanaas - as from 11.06.2014 1) Total remuneration incl. social security costs 306 144 99 406 102 246 236 275 130 Total 17 514 2 288 1 314 21 116 406 102 246 236 275 130 1 395 1) The payment for work done in the remuneration committee is included in the remuneration to Per Grieg jr. with NOK 11 409, to Asbjørn Reinkind with NOK 11 409, to Karin Bing-Orgland with NOK 5 705, and to Ola Braanaas with NOK 6 655. 2) The payment for work done in the audit committee is included in the remuneration to Terje Ramm with NOK 14 250, to Wenche Kjølås with NOK 34 200, and to Karin-Bing Orgland with NOK 18 999. The amounts include social security costs. . SPECIFICATION OF AUDITOR'S FEE Statutory audit Tax advisory fee Other services Total 2015 2014 910 90 129 774 111 318 1 129 1 202 96 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY NOTE 4 SHARE-BASED REMUNERATION (OPTIONS) The company has a share-based options programme for the management group and regional directors. The options’ strike price is the stock market price on the date of issue increased by 0.5% per month until exercise date. Equity-based options have been allocated in the period 29.06.2007 until 01.06.2008 with the first expiry date 29.06.2010 and the last 27.02.2012. As at 31.12.2015 there are no equity options outstanding for exercise. Since 2009 the Company has issued cash-based options to the management group and regional directors. The last allocation was in 2015, totalling 1 600 000 options. The last exercise date is 31.05.2019. The options have 2 years’ duration, where 50% is invested each year. Employees taken on after the first allocation of options have been allocated options on taking up employment. The Black & Scholes option pricing model is used to calculate the market value. A brokerage firm is used to carry out the calculations. The table below illustrates the movement in outstanding options throughout 2014 and 2015. OVERVIEW 2015 Andreas Kvame (CEO) Morten Vike (former CEO)* Atle Harald Sandtorv (CFO) Knut Utheim (COO) Others Total Option category Cash settlement Cash settlement Cash settlement Cash settlement Cash settlement Outstanding options 31.12.2014 Granted options Exercised options Cancelled options Expired options Outstanding options at 31.12.2015 Of which cash- settled 400 000 400 000 400 000 200 000 200 000 100 000 200 000 100 000 200 000 300 000 300 000 300 000 300 000 400 000 800 000 50 000 1 150 000 1 150 000 800 000 1 600 000 250 000 - - 2 150 000 2 150 000 *) Morten Vike resigned at 17.10.14. All options could be exercised until latest 31.05.2015. Outstanding options 31.12.2013 600 000 100 000 OVERVIEW 2014 Morten Vike (former CEO)* Atle Harald Sandtorv (CFO/ acting CEO) Knut Utheim (COO) Others Total Option category Cash settlement Cash settlement Cash settlement Cash settlement Granted options Exercised options Cancelled options Expired options Outstanding options at 31.12.2014 Of which cash- settled - - 400 000 - - - - - - - - 200 000 200 000 100 000 100 000 100 000 100 000 - 100 000 750 000 200 000 400 000 100 000 50 000 400 000 400 000 1 450 000 300 000 800 000 100 000 50 000 800 000 800 000 *) Morten Vike resigned at 17.10.14. All options could be exercised until latest 31.05.2015. 97 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY  Expiry date: Year - month Strike price NOK per share as at 31.12.2015 Strike price NOK per share as at 31.12.2014 Options ALLOCATION: YEAR - MONTH 2013 - 12 2013 - 12 2014 - 04 2014 - 04 2014 - 07 2015 - 06 Total 2016 - 06 2017- 06 2016 - 06 2017 - 06 2017 - 06 2019 - 06 24,97 24,97 24,99 24,99 31,55 26,27 23,55 23,55 23,58 23,58 29,77 Equity based options available for exercise Weighted average outstanding contract period 2015 150 000 150 000 50 000 100 000 100 000 1 600 000 2 150 000 2015 450 000 24,93 2014 250 000 250 000 100 000 100 000 100 000 800 000 2014 250 000 23,48 Option category Listed price on allocation Calculated value per option on allocation Calculated total value on allocation*) Total value of all options at 01.01.2015 Change in provision OB-IB *) Exercised options 2015 Acc. cost charged against equity at 31.12.2015 Book liability cash settlement at 31.12.2015 Equity- based option Equity- based option Equity- based option Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. 6 887 6 887 25,50 3,36 1 342 - 579 22,22 3,94 22,22 3,94 25,50 3,97 22,56 4,78 25,50 3,97 788 394 793 478 793 929 -929 813 491 148 - 353 429 233 - 353 22,22 3,94 1 181 957 293 22,56 4,24 424 397 -82 199 28,90 4,20 420 60 146 25,50 3,60 2 876 9 490 - 10 150 1 282 2 376 1 013 6 887 579 - 639 353 662 353 1 250 315 206 1 282 5 639 2015 Former employees where option has expired Andreas Kvame (CEO) Morten Vike (former CEO)** Atle Harald Sandtorv (CFO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Knut Utheim (COO) Other options allocated in 2013 Other options allocated in 2014 Other options allocated in 2014 Other options allocated in 2015 Total *) The amounts are excluded of social security costs **) Morten Vike resigned at 17.10.14. All options could be exercised until latest 31.05.2015. 98 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY Option category Listed price on allocation Calculated value per option on allocation Calculated total value on allocation*) Total value of all options at 01.01.2015 Change in provision OB-IB *) Exercised options 2015 2014 Acc. cost charged against equity at 31.12.2015 Book liability cash settlement at 31.12.2015 Morten Vike (former CEO)** Eq.based option 13,20 3,74 1 123 1 122 - 1 122 Former employees where option has expired Others Morten Vike (former CEO)** Morten Vike (former CEO)** Atle Harald Sandtorv (CFO/ acting CEO) Knut Utheim (COO) Other options allocated in 2010 Other options allocated in 2011 Other options allocated in 2012 Other options allocated in 2013 Other options allocated in 2014 Total Eq.based option Eq.based option Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. Cash settlem. 23,00 5,86 2 346 2 346 23,00 5,72 4 005 3 419 - - 2 346 3 419 6,83 1,78 712 4 906 -4 906 6 610 22,22 3,94 788 29 900 22,22 3,94 22,56 4,78 394 478 14 - 477 429 16,50 6,66 666 301 -301 6,83 1,78 1 424 4 277 -4 277 6 645 22,22 3,94 1 181 41 916 22,56 4,24 424 - 397 28,90 2,74 274 - 60 13 815 16 455 -6 305 13 255 6 887 0 929 491 429 0 0 957 397 60 3 263 *) The amounts are excluded of social security costs **) Morten Vike resigned at 17.10.14. All options could be exercised until latest 31.05.2015. ACCRUED COST IS DIVIDED AS FOLLOWS: Accrued cost cash settlement Exercised options during the year Total cost excl. employer's national insurance contributions Employer's national insurance contributions Total cost incl. employer's national insurance contributions 2015 2 376 1 013 3 389 430 3 819 2014 -6 305 13 255 6 951 1 557 8 507 CLASSIFICATION IN STATEMENT Other provisions for liabilities Salary and social costs / bank Accrued public expense Salary and social security costs The costs related to share and cash-based remuneration in 2015 is TNOK 3 370. This is charged in the income statement as a personnel cost. Social security contributions are provided for an ongoing basis based on the fair value of the options. At 31. December 2015 outstanding options with the right to cash settlement were stated at TNOK 5 639, of which TNOK 1 250 is stated as “Other non-current liabilities” as the options expire in 2016. TNOK 4 389 is stated as long-term commitments as pr. 31.12.2015. Options issued are cancelled when employments are terminated. ESTIMATES USED IN CALCULATIONS ON ALLOCATION OF OPTIONS Anticipated volatility (%) Risk-free rate of interest (%) Estimated qualification period (years) 36,36 0,69 2,92 The estimated qualification period for the options is based on historical data, and does not necessarily represent an indication of the future. In order to estimate volatility, the management have applied historical volatility for comparable listed companies. 99 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY NOTE 5 FINANCIAL INCOME AND FINANCIAL EXPENSES Amounts in NOK 1000 Interest income from group companies Other interest income Other financial income from subsidiaries Group contribution from subsidiaries Dividend Unrealised value changes derivatives, see note 9 Unrealised value changes long-term borrowings group Net gains/losses Total financial income Interest expenses from group companies Loan interest expenses Other interest expenses Unrealised value changes derivatives, see note 9 Other financial expenses Total financial expenses Net financial items 2015 55 823 0 0 39 091 30 2 316 54 134 22 520 173 914 529 101 444 1 263 0 610 103 846 2014 51 104 2 086 2 591 33 651 28 0 78 912 42 434 210 805 311 80 454 21 10 968 587 92 341 70 067 118 464 100 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANYNOTE 6 ACCOUNTS RECEIVABLE Amounts in NOK 1000 Accounts receivable at nominal value Provisions for bad debt Book value of accounts receivable at 31.12 Change in bad debts provision Bad debt realised Total loss on accounts receivable charged in the accounts 2015 4 827 0 4 827 0 0 0 2014 2 344 0 2 344 0 -404 -404 On behalf of its subsidiaries Grieg Seafood Finnmark AS and Grieg Seafood Rogaland AS, Grieg Seafood ASA has arranged salmon price contracts. In view of the fact that the contractual counterparty is in compulsory liquidation, the accounts for 2012 include a loss of TNOK 905 related to these price contracts. Bankruptcy proceedings were concluded in 2014 and Grieg Seafood ASA received TNOK 404 in the final residual settlement. 101 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANYNOTE 7 OTHER RECEIVABLES/OTHER CURRENT LIABILITIES Amounts in NOK 1000 OTHER CURRENT RECEIVABLES Prepaid expenses Accrued tax Deposit Nasdaq*) Other current receivables Other current receivables 31.12 2015 599 1 672 1 513 262 4 046 2014 814 2 521 8 771 98 12 204 *) Deposit Nasdaq is linked to the ongoing financial salmon price contracts. Grieg Seafood ASA enters into hedging contracts on behalf of Grieg Seafood Rogaland AS and Grieg Seafood Finnmark AS. OTHER CURRENT LIABILITIES Accrued interest Other accrued expenses Unrealised loss on interest rate swap contracts, see note 9 Unrealised loss on foreign currency contracts Other current liabilities Other current liabilities at 31.12 2015 5 532 5 939 14 555 0 1 846 27 872 2014 2 094 11 357 17 898 2 696 490 34 535 102 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANYNOTE 8 RESTRICTED BANK DEPOSITS Amounts in NOK 1000 Restricted deposits related to employees' tax deductions Restricted account Nasdaq *) Other bank deposits Total 2015 1 295 1 513 212 249 215 057 2014 1 079 937 93 953 95 969 *) Restricted amounts to financial salmon price contracts. Grieg Seafood ASA enters into hedging contracts on behalf of Grieg Seafood Rogaland AS and Grieg Seafood Finnmark AS. 103 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANYNOTE 9 FINANCIAL INSTRUMENTS RECOGNISED AT FAIR VALUE Amounts in NOK 1000 Forward foreign currency contracts Intrerest swap rate contracts (3 contracts for a total of MNOK 800 maturing in 2016 and 2019) Total financial instruments at fair value CHANGE IN FAIR VALUE POSTED AS FINANCIAL ITEMS Unrealised gain/loss on foreign currency contracts Unrealised gain/loss on interest rate swaps Net realised/unrealised gain/loss on financial instruments 2015 ASSETS 0 0 0 CURRENT LIABILITIES 0 -15 582 -15 582 2014 ASSETS 0 0 0 2015 0 2 316 2 316 CURRENT LIABILITIES -2 696 -17 898 -20 594 2014 -3 213 -7 755 -10 968 104 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANYNOTE 10 INVESTMENTS IN SUBSIDIARIES Amounts in NOK 1000 Grieg Seafood Rogaland AS Grieg Seafood Canada AS Grieg Seafood Finnmark AS Registered office - country Norway Norway Norway Registered office - location Bergen Bergen Alta Grieg Seafood Hjaltland UK Ltd UK Shetland Erfjord Stamfisk AS Ocean Quality AS Norway Norway Suldal Bergen Book value of subsidiaries at 31.12 Ownership/ voting share Equity at 31.12.2015 Profit/loss 2015 Book value 100 % 100 % 100 % 100 % 100 % 60 % 385 407 68 493 625 467 24 784 1 377 922 38 159 55 232 -14 96 433 -164 313 -4 436 19 594 174 658 138 252 400 481 458 750 48 839 6 000 1 226 980 105 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANYNOTE 11 INVESTMENTS IN SHARES Amounts in NOK 1000 INVESTMENTS IN SHARES Finnøy Næringspark AS DN Global Allokering Codfarmers ASA CO2 AS Norsk Villaksforvaltning Fiskeriforum Vest Book value of shares at 31.12 Registered office - country Norge Norge Norge Norge Norge Norge Registered office - location Ownership/ voting share Finnøy 7,14 % Oslo Oslo Lindås Førde Bergen - 0,00 % 10,00 % 15,15 % 20,00 % No. of shares Acquisition cost Book value 100 3 038 500 2 5 20 103 630 156 20 50 16 103 444 4 20 50 16 637 106 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANYNOTE 12 INTANGIBLE ASSETS 2014 Book value at 01.01 Book value 01.01 reclassified intangible assets Intangible assets acquired Amortisation Book value at 31.12 As at 31.12. Acquisition cost Accumulated amortisation Book value at 31.12 Economic lifetime/amortisation plan 2015 Book value at 01.01. Intangible assets acquired Amortisation Book value at 31.12 As at 31.12. Acquisition cost Accumulated amortisation Book value at 31.12 Economic lifetime/amortisation plan SOFTWARE 4 373 3 341 8 107 -4 501 11 320 23 703 -12 383 11 320 3 - 10 years SOFTWARE 11 320 9 161 -3 830 16 651 32 864 -16 213 16 651 3 - 10 years 107 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANYNOTE 13 TANGIBLE FIXED ASSETS 2014 Book value at 01.01 Book value 01.01 reclassified intangible assets Tangible fixed assets acquired Depreciation Book value at 31.12. As at 31.12. Acquisition cost Accumulated depreciation Book value at 31.12 PLANT, EQUIPMENT AND OTHER FIXTURES ETC. 7 871 -3 341 678 -1 301 3 908 10 678 -6 770 3 908 Economic lifetime/amortisation plan 3-5 years PLANT, EQUIPMENT AND OTHER FIXTURES ETC. 3 908 2 351 -1 446 4 814 13 030 -8 216 4 814 3-5 years 2015 Book value at 01.01 Tangible fixed assets acquired Depreciation Book value at 31.12 As at 31.12. Acquisition cost Accumulated depreciation Book value at 31.12 Economic lifetime/amortisation plan 108 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANYNOTE 14 SHARE CAPITAL AND SHAREHOLDER INFORMATION SHARE CAPITAL As at 31 December 2015 the company had 111 662 000 shares with a nominal value of NOK 4 per share. All shares issued by the company are fully paid up. There is one class of shares and all shares have the same rights. In June 2011 the company purchased 1 250 000 of its own shares for NOK 14.40 per share Holdings of treasury shares 31.12.2015 THE LARGEST SHAREHOLDERS OF GRIEG SEAFOOD ASA GRIEG HOLDINGS AS DNB NOR MARKETS NORDEA BANK NORGE ASA KONTRARI AS YSTHOLMEN AS OM HOLDING AS STATE STREET BANK AND TRUST CO. GRIEG SEAFOOD ASA Total - largest shareholders Other shareholders with shareholding less than 1% Change in share capital (TNOK) Nominal value (NOK) Total share capital (TNOK) No. of ordinary shares 4,00 4,00 446 648 111 662 000 -5 000 -1 250 000 441 648 110 412 000 No. of shares Shareholding No. of shares Shareholding 31.12.15 55 801 409 22 188 238 6 605 998 5 862 763 2 928 197 2 610 000 1 305 901 1 250 000 98 552 506 13 109 494 31.12.15 49,97 % 19,87 % 5,92 % 5,25 % 2,62 % 2,34 % 1,17 % 1,12 % 88,26 % 11,74 % 31.12.14 55 801 409 22 188 238 6 605 998 6 559 309 2 928 197 2 610 000 1 305 901 1 250 000 99 249 052 12 412 948 31.12.14 49,97 % 19,87 % 5,92 % 5,87 % 2,62 % 2,34 % 1,17 % 1,12 % 88,88 % 11,12 % Total shares 111 662 000 100,00 % 111 662 000 100,00 % SHARES CONTROLLED BY BOARD MEMBERS AND GROUP MANAGEMENT: 31.12.15 31.12.15 31.12.14 31.12.24 BOARD OF DIRECTORS: Per Grieg jr. *) Wenche Kjølås (Jawendel AS) Asbjørn Reinkind (Reinkind AS) Karin Bing Orgland Ola Braanaas GROUP MANAGEMENT: Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Morten Vike (resigned as CEO 17.10.2014) 60 786 561 54,44 % 60 786 561 54,44 % 7 000 120 000 - - 0 45 500 0 0 0,00 % 0,11 % 0,00 % 0,00 % 0,00 % 0,04 % 0,00 % 0,00 % 7 000 120 000 - - 0 45 500 0 75 000 0,00 % 0,11 % 0,00 % 0,00 % 0,00 % 0,04 % 0,00 % 0,07 % *Shares owned by the following companies are controlled by Per Grieg jr. and family. Grieg Holdings AS Grieg Shipping II AS Ystholmen AS Grieg Ltd AS Kvasshøgdi AS Per Grieg jr. private Total shares 55 801 409 49,98 % 55 801 409 49,98 % 824 565 2 928 197 217 390 1 000 000 15 000 0,74 % 2,62 % 0,19 % 0,90 % 0,01 % 824 565 2 928 197 217 390 1 000 000 15 000 0,74 % 2,62 % 0,19 % 0,90 % 0,01 % 60 786 561 54,45 % 60 786 561 54,45 % 109 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY NOTE 15 TAXES TEMPORARY DIFFERENCES Fixed assets Profit and loss account Long-term debt/amortised cost Accounts receivable Financial instruments Revaluation account non-current liabilities Cash-based options Net temporary differences/ basis for deferred tax in balance sheet Carryforwards Change -2 104 485 4 848 0 -2 324 -54 134 2 806 -50 423 0 2015 1 871 1 939 6 739 0 -15 582 157 118 -6 302 145 783 0 Basis for deferred tax in balance sheet -50 422 145 783 Deferred tax assets 27% Change in deffered tax assets due to change in tax rate Deferred tax/deferred tax assets in balance sheet -13 614 2 916 -10 699 Change in deferred tax in balance sheet Change in deferred tax in income statement THE TAX CHARGE FOR THE YEAR ARISES AS FOLLOWS: BASIS FOR TAX PAYABLE Profit before taxes Group contribution entered as income Recognised share dividends Other permanent differences Basis for tax expense for the year Change in temporary differences Basis for tax payable in the income statement Group contribution received Basis for tax payable 39 361 -2 916 36 446 -10 699 -10 699 2015 51 015 -39 091 -30 -563 11 331 -50 423 -39 093 39 091 0 2014 -233 2 424 11 587 0 -17 907 102 985 -3 496 95 360 0 95 360 25 747 0 25 748 -21 927 -21 927 2014 82 476 -33 651 -28 -1 241 47 557 -81 209 -33 651 33 651 0 110 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY27% of the basis for tax payable (tax expense in the income statement) Repayment of withholding tax Tax effect of foreign tax not credited Norwegian tax Change in deferred tax Change in deferred tax due to change of rate in 2015 Total tax charge 2015 0 28 648 13 614 -2 916 11 375 2014 0 -16 1 401 21 927 0 23 313 Reconciliation of tax expense Basis Basis Profit before taxes Estimated tax 27% Tax expense in income statement Difference THE DIFFERENCE CONSISTS OF THE FOLLOWING: 27% of permanent differences Change in unutilised credit allowance/dividend payments Tax effect of foreign tax not credited Norwegian tax Change in tax/deferred tax due to change of rate Total explained difference TAX PAYABLE IN THE BALANCE SHEET Tax payable (27% of the basis for tax payable) Tax payable in balance sheet Tax loss carried forward 51 015 13 774 -11 375 2 400 152 -312 676 -2 916 -2 400 82 476 22 269 -23 312 -1 043 335 -694 1 401 0 1 043 2015 2014 0 0 0 0 0 0 111 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANYNOTE 16 GARANTEES, GUARANTOR GUARANTEES As at 31.12.2015 GSF ASA had a guarantee commitment of MNOK 190 in connection with leasing contracts with SF Finans AS, on behalf of subsidiaries. GUARANTOR Grieg Seafood ASA served as guarantor on behalf of Grieg Seafood Finnmark AS, Grieg Seafood Rogaland AS and Erfjord Stamfisk AS in connection with an extension of credit for the purchase of fish feed from Skretting. The total amount is MNOK 115, with maturity on 30.06.2016. 112 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANYNOTE 17 RELATED PARTIES Amounts in NOK 1000 2015 Operating income Operating expenses Financial income Financial expenses Current receivables, group companies Non- current receivables, group companies Current liabilities to group companies Current receivables Total related parties - group companies Total related parties - shareholders 52 351 782 55 823 -529 903 345 691 259 4 827 -26 511 0 5 373 0 0 0 0 0 -492 Total 52 351 6 155 55 823 -529 903 345 691 259 4 827 -27 003 2014 Operating income Operating expenses Financial income Financial expenses Current receivables, group companies Non- current receivables, group companies Current liabilities to group companies Current receivables Total related parties - group companies Total related parties - joint venture Total related parties - shareholders 37 534 1 626 51 104 311 933 860 637 126 1 901 40 446 3 099 0 0 4 560 0 0 0 0 0 0 0 0 146 297 0 -195 Total 40 633 6 186 51 104 311 933 860 637 126 2 344 40 251 The company purchases services from companies controlled by Grieg Seafood ASA´s majority shareholder, Grieg Holdings AS. These services include • Services related to ICT and other functions such as book-keeping, canteen, reception etc., provided by Grieg Group Resources AS on an arm’s length basis. • Grieg Seafood ASA rents its offices from Grieg Gaarden KS, based on an arm’s length. • The parent company provides a range of services to the subsidiaries. The services include administrative services and services related to the parent provision of non-current loans and short-term credit facilities to the subsidiaries. The interest is on an arm´s length basis. • As from 2015, Ocean Quality AS is classified as a subsidiary to Grieg Seafood ASA. Grieg Seafood ASA enters into hedging contracts on behalf of Grieg Seafood Rogaland AS and Grieg Seafood Finnmark AS. The arrangement is intended to reduce these companies´ exposure to salmon prices. The agreements with the subsidiaries are priced on the basis of a “back to back” arrangement. 113 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY NOTE 18 NET INTEREST-BEARING DEBT AND MORTGAGES June 2015, the Company´s bank credit was expanded by MNOK 500 to provide financing upon redemption of bond loans of MNOK 400. Simultaneously, Danske Bank left the bank syndicate and DNB and Nordea currently provide 50% each. The financing agreement consists of a total frame of MNOK 1 910 including a long-term credit facility of MNOK 700. The Group fully redeemed the bond loan of MNOK 400 in December 2015, through utilising MNOK 400 of the bank credit. At year-end a total of MNOK 450 was drawn down of the total credit line of MNOK 700. The corporate finance agreement includes covenants related to consolidated accounts of 35%, a revolving NIBD/EBITDA ratio of 5.0 if the book equity ratio is higher than 40% and 4.5 if the book equity ratio is between 35% and 40%. As at 31.12.2015 there has been granted an extention for the NIBD/EBITDA requirements. Hence, the Group as at 31.12.2014 was in compliance with all covenants. The extention applies for Q1 2016. NON-CURRENT LIABILITIES Mortgage loan Long-term credit facility *) Amortised cost Total interest-bearing non-current liabilities 2015 1 075 000 450 000 -6 739 1 518 261 2014 765 000 200 000 -7 637 957 363 *) In accordance with a new financing agreement entered into in June 2015 the current revolving facility is replaced by a total long-term credit. As at 31.12.2015 this is utilised with MNOK 450. SHORT-TERM DEBT Bond loan Share of current part of mortgage loan Total interest-bearing current liabilities Gross interest-bearing liabilities Bank deposits Loans to group companies Net interest-bearing liabilities 0 90 000 90 000 1 608 261 215 057 864 945 528 259 396 050 90 000 486 050 1 443 413 95 969 1 527 854 -180 410 114 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY MATURITY PROFILE - NON-CURRENT LIABILITIES Mortgage loan Long-term credit facility *) Total 2015 90 000 2016 90 000 2017 90 000 SUBSE- QUENTLY 2018 TOTAL 90 000 798 261 1 068 261 450 000 450 000 90 000 90 000 90 000 90 000 1 248 261 1 518 261 *) In accordance with a new financing agreement entered into in June 2015 the current revolving facility is replaced by a total long-term credit. As at 31.12.2015 this is utilised with MNOK 450. LIABILITIES SECURED BY MORTGAGE Liabilities to credit institutions Total liabilities BOOK VALUE OF ASSETS PLEDGED AS SECURITY Shares in subsidiaries Shares in joint ventures Fixed assets Accounts receivable Loans to group companies Total assets pledged as security 2015 1 608 261 1 608 261 2014 1 055 1 055 1 226 980 1 220 980 - 4 814 4 827 6 000 3 908 2 344 864 945 1 527 854 2 101 566 2 761 086 In addition, pledges to banks include fixed assets, licences, inventories and accounts receivables from subsidiaries. TYPE OF DEBT Currency Interest rate Maturity Syndicated long-term loan NOK Syndicated loan revolving credit NOK Bond loan Total NOK Floating Floating Floating 06/2019 06/2019 12/2015 AVERAGE INTEREST RATE ON SYNDICATED LOANS, 2015 2015 2014 Current portion Non- current portion Current portion 90 000 1 518 261 90 000 Non- current portion 757 363 200 000 90 000 1 518 261 486 050 957 363 396 050 Syndicated long-term loan Syndicated loan revolving credit Total loans 31.12.15 NOK CAD GBP USD 1 158 261 1 158 261 450 000 450 000 1 608 261 1 608 261 0 0 0 Average rate of interest (adjusted with effect of interest swap) 2015 2014 4,70 % 5,18 % 115 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANYNOTE 19 POST-BALANCE SHEET EVENTS Since the closing of accounts at year-end 2015 there have been no events which could materially affect the accounts for 2015. 116 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY To the Annual Shareholders' Meeting of Grieg Seafood ASA Independent auditor’s report Report on the Financial Statements We have audited the accompanying financial statements of Grieg Seafood ASA, which comprise the financial statements of the parent company and the financial statements of the group. The financial statements of the parent company comprise the balance sheet as at 31 December 2015, and the income statement, statement of changes in equity and cash flow statement, for the year then ended, and a summary of significant accounting policies and other explanatory information. The financial statements of the group comprise the balance sheet at 31 December 2015, income statement, statement of comprehensive income, changes in equity and cash flow 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 the financial statements of the parent company in accordance with Norwegian Accounting Act and accounting standards and practices generally accepted in Norway, and for the preparation and fair presentation of the financial statements of the group in accordance with International Financial Reporting Standards as adopted by EU 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. PricewaterhouseCoopers AS, Sandviksbodene 2A, Postboks 3984 - Sandviken, NO-5835 Bergen T: 02316, org. no.: 987 009 713 MVA, www.pwc.no Statsautoriserte revisorer, medlemmer av Den norske Revisorforening og autorisert regnskapsførerselskap 117 GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY Independent auditor's report - 2015 - Grieg Seafood ASA, page 2 Opinion on the financial statements of the parent company In our opinion, the financial statements of the parent company are prepared in accordance with the law and regulations and present fairly, in all material respects, the financial position for Grieg Seafood ASA as at 31 December 2015, and 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. Opinion on the financial statements of the group In our opinion, the financial statements of the group are prepared in accordance with the law and regulations and present fairly, in all material respects, the financial position of the group Grieg Seafood ASA as at 31 December 2015, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by EU. Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors' report and the statement on Corporate Governance 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 and in the statement on Corporate Governance concerning the financial statements, the going concern assumption and the proposal for the allocation of the profit is consistent with the financial statements and complies with the law and regulations. 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. Bergen, 6 April 2016 PricewaterhouseCoopers AS Jon Haugervåg State Authorised Public Accountant (Norway) Note: This translation from Norwegian has been prepared for information purposes only. 118 (2) GRIEGSEAFOOD 2 0 1 5 PARENT COMPANY 

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