Grieg Seafood
Annual Report 2019

Plain-text annual report

PASSION FOR IMPROVEMENT A N N U A L R E P O R T 2 019 “SALMON” BY PATRICK HUNT Hunt is Kwakwaka’wakw and the youngest son of hereditary chief George and Mary Hunt. He is the grandson of Tom and Emma Hunt, and May and Sam Henderson. His artwork “Salmon Princess” will be installed on the bow and stack of our new wellboat in British Columbia, the Ronja Islander. PASSION FOR IMPROVEMENT 2 GRIEG SEAFOODA N N U A L R E P O R T 2 0 19 Farming the oceans comes with a responsibility. We are dedicated to provide more food from the sea to people around the globe while reducing our footprint and improving fish welfare. People, partnerships, technologies and innovations will help us get there. Step by step. 3 Our history and our future 5000 B.C.E 1850 1969 1970s First fish farms reported in China. The first wild salmon hatcheries established in Norwegian salmon rivers. The brothers Ove and Sivert Grøntvedt release the first salmon smolts in pens in the sea at the island Hitra in Norway. Commercial salmon farming of chinook, coho and sockeye is established around Sechelt in British Columbia. 2013 2011 2010 2008 The Norwegian Government launch the “green license” scheme, with stricter environmental standards. Grieg Seafood currently has eight green licenses. Grieg Seafood British Columbia is certified by BAP. Together with Bremnes Seashore, Grieg Seafood establish the sales company Ocean Quality. Grieg Seafood Rogaland is certified by GLOBALG.A.P. 2015 2016 2017 2018 Grieg Seafood Shetland is certified by GLOBALG.A.P. Grieg Seafood Finnmark is certified by GLOBALG.A.P. Grieg Seafood harvests 75 000 tonnes. Grieg Seafood achieves an A- score from the Carbon Disclosure Project. Grieg Seafood launches its GSF2020 improvement program: a production target of 100 000 tonnes in 2020, with a cost at or below industry average. Grieg Seafood harvests 63 000 tonnes. Grieg Seafood Finnmark receives its first ASC certi- fications. 4 ANNUAL REPORT 2019GRIEG SEAFOODO U R H I S T O R Y A N D O U R F U T U R E 1973 1990s 1992 1998 Fish vaccines are introdu- ced. As a result, the salmon farming industry has significantly reduced its use of antibiotics. Grieg Seafood Salmon (trading company) and Bioinvest (salmon farming investor) are established. Grieg Seafood Rogaland is established. The Norwegian Parliament adopts a license system for the country's growing aqua- culture industry, with the aim of strengthening local communities along the coast. Since then, salmon farms have contributed with jobs and revenues to small, coastal communities. 2007 2006 2001 2000s Grieg Seafood is listed at Oslo Stock Exchange. Grieg Seafood aquires Hjaltland Ltd in Shetland, the beginning of Grieg Seafood Shetland. Grieg Seafood merges with the Volden Group and establishes Grieg Seafood Finnmark. Grieg Seafood acquires Scandic Marine Ltd. in British Columbia and esta- blishes Grieg Seafood BC. The Norwegian Government and the industry develop the standard NS9415 to ensure fish farms are technically safe and prevent the escape of farmed salmon. 2019 2020 2025 2030 Grieg Seafood harvests 83 000 tonnes. Grieg Seafood aims to harvest 100 000 tonnes. Grieg Seafood achieves the top A-rating from the Carbon Disclosure Project. Grieg Seafood acquires Grieg Newfoundland in Eastern Canada Grieg Seafood aims to harvest at least 150 000 tonnes, to be the cost leader in each region and to have established a new position in the value chain. Grieg Seafood aims to have reduced carbon emissions per kilo by 30% (compared to 2017). The seafood industry Grieg Seafood The future 5 Our organization GRIEG SEAFOOD FARMS We have hatcheries, farms and processing in each region. OCEAN QUALITY Our sales company, jointly owned with Bremnes Seashore AS. 2 5 1 3 4 6 1 2 3 ROGA L A ND FINNM A RK SHE TL A ND 4 BRITISH COLUMBI A 25 217 25 000 38 000 17 000 20 000 32 362 11 273 14 120 7 8 5 6 7 8 BERGEN (HQ) HOUS TON BEI JING SH A NGH A I Harvested volume 2019 Harvest volume target 2020 For more information on the Group structure, refer to note 1 in the Group Accounts. 6 ANNUAL REPORT 2019GRIEG SEAFOODO U R O R G A N I Z AT I O N OUR VISION ROOTED IN NATURE FARMING THE OCEAN FOR A BETTER FUTURE OUR VALUES OPEN We are open with each other. We share knowledge and ideas, and learn from each other. We meet new per- spectives with an open mind. We are always honest – also in difficult situations. Our managers have an open door and welcome suggestions for ways to improve. We are open and transparent towards society. That is the only way we can earn people’s trust. We proac- tively share honest information about our operations with the public, the authorities, and the media – even before they ask. We invite the community to our facilities, participate in the public debate, and engage in dialogue with other users of the fjords. A MBITIOUS Every day, we endeavor to do our job in the best possible way. We never settle for the average. We walk the extra mile. We always strive to improve. We think big and set ambitious goals for everything we do. We are not afraid of making bold decisions, even if they are tough and push us out of our comfort zone. We embrace change and innovation. We prioritize our commitments and carry them out. Our ambitious goals aim to make Grieg Seafood ever more profitable. Only then can we develop the salmon farming industry further. CA RING We not only treat each other with respect, we care. We care about our people, and help them flourish and develop their talents. We foster a caring environment – even in difficult situations and when hard decisions must be made. We care about our fish and the natural environment that is vital to the production of healthy salmon. We work constantly to maintain good biological control and reduce our impact on the environment. We will pass healthy fjords and salmon on to future generations. We care about our communities. We recognize that the fjords belong to them, and we take their concerns seriously. We are a good neighbor. We create opportunities and lasting value for society. 7 PA R T 01 OUR STORY  M A I N A C H I E V E M E N T S K E Y F I G U R E S C EO L E T T E R O U R S C O R E B O A R D O U R B U S I N E S S S T R AT EGY O U R B U S I N E S S M O D E L FA R M I N G T H E O C E A N F O R A B E T T E R F U T U R E T H E U N S U S TA I N A B L E D E V E L O P M E N T G O A L S O U R A P P R O A C H T O S U S TA I N A B L E B U S I N E S S 10 12-13 14 -15 16 -17 18 -19 2 0 -2 5 2 6 -2 7 2 8 - 31 3 2- 3 3 3 4 - 41 G R O U P M A N A G E M E N T T E A M 4 2- 4 5 Content 8 ANNUAL REPORT 2019GRIEG SEAFOODC O N T E N T 162 16 4 -167 16 8 -18 7 PA R T 0 2 PA R T 0 3 OUR PROGRESS 46 OUR RESULTS C E R T I F I C AT I O N S A N D L I C E N S E S 4 8 - 5 3 P R E S E N TAT I O N O F T H E B O A R D O F D I R EC T O R S H E A LT H Y O C E A N Fish health and welfare Sea lice control Escape control Limiting local emissions Interaction with wild life S U S TA I N A B L E F O O D Safe and healthy food Sustainable feed ingredients Reducing carbon emissions Climate risk Waste management P R O F I T & I N N O VAT I O N The global salmon market Ocean Quality and our markets Economic productivity Profitable growth The Grieg Seafood shares Analytical information P EO P L E Human rights and ethics Embracing diversity Creating attractive jobs Keeping our employees safe Anti-corruption L O C A L C O M M U N I T I E S Local value creation Finding the path to shared prosperity 5 4 56-65 66-71 72-73 74-77 78-79 8 0 82-87 88-91 92-95 96-97 98-99 10 0 102-103 104-105 106-111 112-121 122-125 126-133 13 4 136-139 140-141 142-145 146-149 150-151 15 2 154-159 160-161 B O A R D O F D I R EC T O R S' R E P O R T C O R P O R AT E G O V E R N A N C E 18 8 -2 0 7 A N N UA L A C C O U N T S 2 019 2 0 8 - 312 Grieg Seafood Group Grieg Seafood ASA AU D I T O R ' S R E P O R T AU D I T O R ' S S U S TA I N A B I L I T Y R E P O R T 208-285 286-312 313 - 317 318 - 319 PA R T 0 4 APPENDIX T C F D R E P O R T G R I I N D E X 320 3 2 2- 3 2 9 3 3 0 - 3 4 3 9 10 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y C O N T E N T PA R T 01 OUR STORY M A I N A C H I E V E M E N T S K E Y F I G U R E S C EO L E T T E R O U R S C O R E B O A R D O U R B U S I N E S S S T R AT EGY O U R B U S I N E S S M O D E L FA R M I N G T H E O C E A N F O R A B E T T E R F U T U R E T H E U N S U S TA I N A B L E D E V E L O P M E N T G O A L S O U R A P P R O A C H T O S U S TA I N A B L E B U S I N E S S G R O U P M A N A G E M E N T T E A M 12-13 14 -15 16 -17 18 -19 2 0 -2 5 2 6 -2 7 2 8 - 31 3 2- 3 3 3 4 - 41 4 2- 4 5 11 G R I E G S E A F O O D Main achievements GROUP 82 973 V S. 74 62 3 IN 2 018 Harvest volume (tonnes gwt) 13.1 V S. 14.7 IN 2 018 EBIT per kg (NOK) 19% Return on capital employed (ROCE) A Recognized by the Carbon Disclosure Project as a leader for our actions on climate change 2025 Launch of the GSF 2025 strategy, aiming for harvest volume above 150 000 tonnes, cost leadership and value chain repositioning 12 ROGALAND 25 217 V S. 16 2 9 3 IN 2 018 Harvest volume (tonnes gwt) 22.5 V S. 13.5 IN 2 018 EBIT per kg (NOK) 279g Average weight of smolt transferred to sea farms 93% Survival rate 0 No sites affected by Pancreas Disease the last half year 100% All sites monitored and fed by our pilot integrated operations center ANNUAL REPORT 2019PA R T 0 1 O U R S T O R Y M A I N A C H I E V E M E N T S FINNMARK SHETLAND BRITISH COLUMBIA 32 362 V S. 2 9 774 IN 2 018 11 273 V S. 11 924 IN 2 018 14 120 V S. 16 6 32 IN 2 018 Harvest volume (tonnes gwt) Harvest volume (tonnes gwt) Harvest volume (tonnes gwt) 17.9 V S. 2 0.0 IN 2 018 EBIT per kg (NOK) -6.0 V S. 2.8 IN 2 018 EBIT per kg (NOK) 5.2 V S. 17.5 IN 2 018 EBIT per kg (NOK) 94% Superior share of salmon OHSS OHSS certified, the highest safety standard in BC 89% Survival rate increased from 83% in 2018 First Nations Agreement with the Indigenous Nation Ehattesaht Chinehkint 96% Survival rate 10 Total of ten sites ASC certified 1 One new site granted 0.2% Percentage of farmed salmon found in samples taken from the Alta wild salmon river 13 Key figures FIGURE 1.1 H A R V E S T VOLUME 2019 (TONNE S GW T) FIGURE 1.2 S A LE S RE V ENUE S 2019 (NOK 1 0 0 0) FIGURE 1.3 EBIT * 2019 (NOK 1 0 0 0) 11 273 731 583 -67 235 73 315 25 217 1 538 871 568 229 14 120 861 361 32 362 1 815 257 580 157 ROGALAND FINNMARK BRITISH COLUMBIA SHETLAND * EBIT before fair value adjustment of biological assets FIGURE 1. 4 H A R V E S T VOLUME (TONNE S GW T) FIGURE 1.5 EBIT V S. PRICE PRICE NQSALMON (NOK/KG) EBIT/KG GWT 70 60 50 40 30 20 10 0 -10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 90 80 70 60 50 40 30 20 10 0 14 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y K E Y F I G U R E S 8 274 861 SALES REVENUES NO. OF EMPLOYEES MNOK FTE 13.11 EBIT/KG 2019 KEY FIGURES NOK 1 000 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 Sales revenues* 8 273 592 7 500 316 7 017 456 6 545 187 4 608 667 4 099 543 2 404 215 2 050 065 2 047 000 2 446 800 EBITDA EBIT 1 498 157 1 334 473 1 105 533 1 341 662 261 311 483 820 484 330 -29 818 345 820 686 944 1 087 574 1 098 818 904 400 1 167 745 47 742 343 104 348 293 -191 162 205 613 639 754 EBIT after fair value adjustment 866 860 1 354 916 812 937 1 683 486 80 951 219 367 615 743 -93 099 -189 567 847 383 Profit/loss for the year 644 908 997 120 600 899 1 222 331 4 366 144 395 430 985 -147 188 -123 158 631 039 Cash flow from operations 1 455 994 819 841 708 877 953 113 367 282 156 541 317 282 202 733 215 406 594 731 Gross investments including financial leasing investments 706 345 733 034 552 821 254 852 322 168 311 698 163 961 189 539 324 186 241 804 Total assets 8 934 684 8 142 490 7 152 615 6 768 038 5 935 777 5 351 599 4 590 593 4 070 279 4 172 197 4 057 628 NIBD according to covenants requirement 1 938 672 1 689 537 1 283 606 906 319 1 568 878 1 566 242 1 445 005 1 529 976 1 443 690 1 046 640 NIBD incl. factoring Equity (incl. minority) 2 375 786 2 236 320 1 763 786 1 399 981 1 907 109 1 761 802 1 445 005 1 529 976 1 443 690 1 046 640 4 140 843 3 883 511 3 347 905 3 206 951 2 237 511 2 241 451 1 988 557 1 513 230 1 690 150 1 982 405 EBIT/kg 13.11 14.72 14.45 18.04 0.73 5.30 6.00 -2.73 3.42 9.96 Harvest volume (tonnes GWT) 82 973 74 623 62 598 64 726 65 398 64 736 58 061 70 000 60 082 64 214 Market price of salmon (NOK/kg) ** 57.21 59.22 59.18 61.93 40.70 39.81 38.88 43.54 43.10 43.41 39.67 37.70 35.19 34.04 1.3 48% 22% 1.2 47% 24% 0.7 47% 33% 6.3 38% 1% 4.00 4.00 1.50 0.50 3.3 42% 10% - 43% 12% - 3.0 -51.3 25.45 32.47 37% -6% 30.52 31.35 4.2 41% 7% 36.70 29.78 1.5 49% 20% - 1.35 0.25 Group cost NIBD/EBITDA Equity % Return on Capital Employed (ROCE) Dividend per share (NOK) Earnings per share (NOK) 1.4 46% 19% 4.00 5.61 8.81 5.02 10.74 -0.06 1.26 3.90 -1.33 -1.11 5.65 Total market value OSE (NOK 1 000) 15 666 178 11 423 023 8 067 580 9 122 785 3 461 522 3 182 367 2 735 719 1 379 026 463 397 2 210 908 Number of employees (full-time equivalent) 861 769 707 654 681 686 626 640 589 578 *Ref figure 1.2 - see Note 6 for more information on the calculation of total revenues **Average of weekly NQSALMON prices 15 CEO LE T TER Dear shareholder In 2019, Grieg Seafood took another step on our journey of sustainable growth. We harvested more than we ever have, reaching beyond our target of 82 000 tonnes. I am very proud of our skilled employees and their dedication to the improvement areas we are working on: post-smolt, digitali- zation, biosecurity and fish welfare, as well as expansion oppor- tunities. Last year we saw results in all areas. We transferred bigger smolt to the sea, and see that our strategy is starting to pay off. Though it is still early days, the post-smolt fish are so far showing good growth and are generally strong and healthy in the sea phase. Our belief in post-smolt as a sustainable way forward for the industry has been strengthened. We are also at the very beginning of the digital transformation of fish farming, and the outlook is promising. Our feed conversion ratio has improved, partly due to our digitalization efforts. We see increased survival during harmful algal blooms in BC due to our digital mitigation systems. We are using data analytics to analyze selected challenging areas, in search of previously undiscovered connections. In 2019, one of these analyses uncov- ered new information about the cause of pancreas disease (PD) at some of our sites. I am happy to report that salmon survival rates increased in the company last year. We are passionate about improving fish health and welfare in all regions, and work systematically to do so. We also obtained a new site in Finnmark. 16 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y C E O L E T T E R We are targeting a cost at or below the industry average in the various regions. In 2019, we reached our cost target in Rogaland and Finnmark due to improved biological performance. With measures put in place, we believe we will reach our target in BC this year as well. In Shetland, unfortunately, it will take longer than expected to reach our cost target due to low volume and biological challenges. We are not content with the current situ- ation, but we see that our systematic improvement efforts are having an effect. I am encouraged by an increased survival rate from 83 percent to 89 percent on Shetland in 2019. Achieving a harvested volume of 100 000 tonnes and increased biological control in 2020 is the foundation for our new strategy for the period to 2025. By then, we aim to harvest at least 150 000 tonnes, to achieve cost leadership in each region, and to re-po- sition Grieg Seafood in the value chain from a pure commodity supplier to a customer innovation partner. We will increase our presence downstream through partnerships, category develop- ment, and brand cultivation. Sustainability is at the heart of our 2025 strategy. Reducing our footprint and improving fish welfare is key to getting the license to operate we need in our local communities to achieve our growth target. Because good health, high survival, and low impact drive cost down, sustainability is central to achieving cost leadership. With customers increasingly focusing on the environment and health, sustainability is also key to successfully achieving a stron- ger presence in the market. Grieg Seafood is committed to playing our part in solving the challenges that our industry faces. For 2019, we are proud to be included on the Climate A-list by the Carbon Disclosure Project. 2020 has started in a way that none of us could have foreseen. The COVID-19 pandemic has spread across the globe, and no indus- Reducing our footprint and improving fish welfare is key to getting the license to operate we need in our local communities to achieve our growth target. A NDRE A S K VA ME CEO, Grieg Seafood try is unaffected. So far, however, production at Grieg Seafood Nobody knows what lies ahead or how long the impact of COVID- is going relatively well and according to plan. We see a reduced 19 will last. After many profitable years, Grieg Seafood is in a demand from the HoReCa segment and increased demand from robust financial condition. Still, we are preparing for all kinds retail, as people are eating more at home. As of today, we are still of scenarios. We are postponing some investments to increase aiming to harvest 100 000 tonnes in 2020. our buffer further, and we are making sure that our debt ratio We have put in place many measures to keep our staff safe, and class and consumer trends focusing on health and sustainabil- I continue to be impressed by how solution-oriented and flexible ity, we see huge opportunities for our fish in the market. We will our employees are in this difficult situation. The vibrant company do everything we can to ensure that we get through this crisis is reasonable. In the long-run, though, with a growing middle culture that we have been cultivating for years is today one of our strengths. From the bottom of my heart, I want to thank all of my colleagues in Grieg Seafood and Ocean Quality– from young apprentices to management – for their dedication to the company. and continue to create value for our shareholders, customers, employees, and local communities alike for a long time to come. For now, we will work hard, stay calm, and carry on. 17 Our scoreboard PILLAR KPI HEALTHY OCEAN Survival rate* TARGET 93% Rogaland Finnmark Shetland British Columbia Use of antibiotics (g per tonne LWE) No use of antibiotics Rogaland Finnmark Shetland British Columbia Sea lice treatments** (g per tonne LWE) Minimize use of pharmaceutical treatments Rogaland Finnmark Shetland British Columbia Use of hydrogen peroxide** (kg per tonne LWE) Minimize use of pharmaceutical treatments Rogaland Finnmark Shetland British Columbia Escape incidents Zero escape incidents Rogaland Finnmark Shetland British Columbia Carbon emission (kgCO2e per tonne GWT) High quality product 30% reduction (from 2017) in emission/tonnes GWT by 2030 93% superior share Rogaland Finnmark Shetland British Columbia Return on capital employed Farming cost per kg (NOK) 12% p.a. 37.90 in 2020 Harvest volume (tonnes GWT) 100 000 tonnes in 2020 Absence rate Below 4.5% Rogaland Finnmark Shetland British Columbia Harassment Workplace culture Zero harassment cases Above average score in Great Place to Work survey Reputation amongst stakeholders Good stakeholder reputation Support our local communities Collaborate and contribute to local community SUSTAINABLE FOOD PROFIT & INNOVATION PEOPLE LOCAL COMMUNITIES * Survival rate calculated according to the GSI standards. ** Amount of active pharmaceutical ingredients (APIs) used (gr/kg) per tonne of fish produced (LWE). 18 2016 2017 2019 STATUS REFERENCE 126.9 93% 94% 83% 90% 0.0 0.0 0.9 5.2 0.2 2.5 0.3 18.5 42.4 76.0 0.0 0 0 na 88% 89% 93% 76% 33% 39.7 3.4% 6.1% 2.7% 1.6% 0 na - yes 91% 95% 89% 93% 0.0 0.0 1.7 18.3 0.2 1.0 5.9 0.1 10.8 13.4 82.7 9.2 0 0 0 0 421 81% 78% 93% 81% 24% 43.4 3.2% 4.4% 3.2% 0.9% 0 na - yes 2018 92% 96% 83% 88% 0.0 0.0 13.9 151.3 1.1 0.8 3.2 0.3 3.5 14.5 32.6 5.8 0 0 0 459 74% 86% 94% 84% 22 % 43.1 4.7% 5.4% 2.3% 1.8% 0 - yes 1 (200 fish) 2 (1 446 fish) 2 (22 212 fish) 2 (4 500 fish) 64 726 62 598 74 623 82 973 93% 96% 89% 88% 0.0 0.0 29.2 87.0 0.0 0.3 2.0 0.5 11.9 0.0 12.2 6.0 0 0 0 514 75% 86% 94% 86% 19% 43.5 3.5% 4.9% 3.4% 2.0% 0 ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● page 64 page 65 page 69 page 69 page 73 page 94 page 84 page 107 page 113 page 113 page 149 89% (Norway) 79% (global) Improving yes page 138 page 144 page 38-39 page 154-161 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y O U R S C O R E B O A R D The colours indicate ● Within target ● On track to meet our target ● Unsatisfactory result 2019 STATUS REFERENCE 2016 93% 94% 83% 90% 0.0 0.0 0.9 126.9 5.2 0.2 2.5 0.3 18.5 42.4 76.0 0.0 0 1 (200 fish) 2 (1 446 fish) 0 na 88% 89% 93% 76% 33% 39.7 2017 91% 95% 89% 93% 0.0 0.0 1.7 18.3 0.2 1.0 5.9 0.1 10.8 13.4 82.7 9.2 0 0 0 0 421 81% 78% 93% 81% 24% 43.4 2018 92% 96% 83% 88% 0.0 0.0 13.9 151.3 1.1 0.8 3.2 0.3 3.5 14.5 32.6 5.8 0 0 93% 96% 89% 88% 0.0 0.0 29.2 87.0 0.0 0.3 2.0 0.5 11.9 0.0 12.2 6.0 0 0 2 (22 212 fish) 2 (4 500 fish) 0 459 74% 86% 94% 84% 22 % 43.1 0 514 75% 86% 94% 86% 19% 43.5 ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● page 64 page 65 page 69 page 69 page 73 page 94 page 84 page 107 page 113 page 113 page 149 page 138 page 144 page 38-39 page 154-161 19 Harvest volume (tonnes GWT) 100 000 tonnes in 2020 64 726 62 598 74 623 82 973 3.4% 6.1% 2.7% 1.6% 0 na - yes 3.2% 4.4% 3.2% 0.9% 0 na - yes 4.7% 5.4% 2.3% 1.8% 0 3.5% 4.9% 3.4% 2.0% 0 89% (Norway) - yes 79% (global) Improving yes PILLAR KPI Survival rate* HEALTHY OCEAN TARGET 93% Use of antibiotics (g per tonne LWE) No use of antibiotics British Columbia British Columbia British Columbia Rogaland Finnmark Shetland Rogaland Finnmark Shetland Rogaland Finnmark Shetland Rogaland Finnmark Shetland Rogaland Finnmark Shetland British Columbia Rogaland Finnmark Shetland British Columbia Rogaland Finnmark Shetland British Columbia Sea lice treatments** (g per tonne LWE) Minimize use of pharmaceutical treatments Use of hydrogen peroxide** (kg per tonne LWE) Minimize use of pharmaceutical treatments Escape incidents Zero escape incidents British Columbia Carbon emission (kgCO2e per tonne GWT) 30% reduction (from 2017) in emission/tonnes GWT by 2030 High quality product 93% superior share Return on capital employed Farming cost per kg (NOK) Absence rate 12% p.a. 37.90 in 2020 Below 4.5% Harassment Workplace culture Zero harassment cases Above average score in Great Place to Work survey Reputation amongst stakeholders Good stakeholder reputation Support our local communities Collaborate and contribute to local community * Survival rate calculated according to the GSI standards. ** Amount of active pharmaceutical ingredients (APIs) used (gr/kg) per tonne of fish produced (LWE). SUSTAINABLE FOOD PROFIT & INNOVATION PEOPLE LOCAL COMMUNITIES Our business strategy FIGURE 1.6 SUS TA IN A BILIT Y DRI V E S RE SULT In 2016, we launched a growth program based on existing farming licenses. We aim to produce 100 000 tonnes in 2020, which will serve as a platform for further sustainable growth. In 2019, we launched our new strategy for the period 2020–2025. We aim to strengthen our position as a global supplier, and increase value creation by repositioning the Company in the value chain. FIGURE 1.7 OUR GROW TH JOURNE Y: H A R V E S TED TONNE S We aim to harvest at least 150 000 tonnes in 2025. 63 000 2017 75 000 2018 83 000 2019 100 000 2020 150 000 2025 2 0 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y O U R B U S I N E S S S T R AT E G Y SUS TA IN A BILIT Y DRI V ERS SUCCE S S FACTORS FIN A NCI A L TA RGE T S • Sea lice control • Escape control • Disease control • Survival • License to operate • Higher volume • Superior quality • Reduced cost • ROCE: 12% • 100 000 tonnes in 2020 • Cost at/below NOK 37.9/kg • NIBD/EBITDA < 4.5 • Minimal sea lice medication • Engaged employees • NIBD/harvest volume: NOK 20/kg • Preferred by customers and • Dividend of 30-40% of net profit consumers • Wildlife management • Carbon emissions • HSE • Work satisfaction • Diversity • Certifications • Local value creation Salmon farming is a long-term commitment, where sustainability and profit go hand in hand. In fact, sustainability drivers like sea lice control and fish survival rates directly impact success factors like cost and volume. Our sustainability drivers must perform well if we are to reach our financial targets. 2 1 OUR BUSINE S S S TR ATEGY 2017—2020 100 000 TONNES - A PLATFORM FOR SUSTAINABLE GROWTH SUSTAINABILITY P OS T-SMOLT S TR ATEGY BIOSECURIT Y A ND FISH W ELFA RE DIGITA LIZ ATION IN THE SA LMON INDUS TRY E X PA NSION OPP ORTUNITIE S P OS T-SMOLT S TR ATEGY BIOSECURIT Y A ND FISH W ELFA RE During the first stages of their life, salmon are raised in onshore We pursue a systematic, long-term approach to fish welfare. hatcheries. Our post-smolt strategy enables us to delay the trans- The key is investment and further development of preventive fer of smolt to the sea until they are larger. We are piloting the measures against dangers to the fish in the sea, such as sea lice, program in Rogaland. harmful plankton, low oxygen levels, infectious diseases, and low Bigger smolt improves biosecurity because each salmon spends less time in sea, which reduces exposure to biological risks like Prevention will reduce handling and stress for the fish. It will sea lice or diseases. It also increases flexibility with regard to also reduce our environmental footprint by, for instance, reducing the stocking of smolt and allows us to fallow for longer periods the number of treatments needed. The result is stronger growth, if necessary. In addition, post-smolt improves salmon survival high harvesting quality, increased survival rates, and lower cost. seawater temperatures. rates because each salmon is more robust when entering the sea. Post-smolt transfer also allows for a more efficient production cycle. S TATUS It takes less time to reach harvestable size in the sea, which frees up • Improved survival rates in Rogaland and Shetland. capacity at farms and cuts the number of active sea sites. The result • Less use of medical sea lice treatments. is a lower environmental footprint per kilo, better fish health and • Improved EFCR - from 1.52 in 2018 to 1.28 in 2019 in Rogaland. welfare, increased productivity, and lower cost. S TATUS • While an average smolt transferred to the sea in 2014 weighed 90g, the average smolt transferred in Rogaland weighted 279g in 2019, and is expected to reach 410g in 2020. • Good growth, increased survival, less disease and better sea lice control due to post-smolt transfer in Rogaland. • Test of post-smolt production in a floating closed-containment aquaculture facility, the FishGLOBE, with promising results so far. 2 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y O U R B U S I N E S S S T R AT E G Y DIGITA LIZ ATION E X PA NSION OPP ORTUNITIE S When digitalizing salmon farming, we apply advanced sensors, We are looking for more sites and new locations in existing big data, artificial intelligence, and automation, with the aim regions, which will allow us to improve flexibility, biosecurity, of generating better farming decisions. The goal is to enhance and fish welfare. operational and strategic decision making by adding data driven decision support to experience-based knowledge in our daily Expansion gives us greater flexibility in production, which helps operations. us to reach our targets on volume, cost, quality, fish welfare, and We are working to simplify and standardize data acquisition. Farmers are starting to get access to real-time data from the pens to support decision-making. We have started utilizing big S TATUS environmental impact. data analytics to understand and predict events, to improve • One new site approved in Finnmark in 2019 and more applications management decisions, and to prevent negative occurrences. are under consideration. We call it Precision Farming. • Expansion of the post-smolt facility Tytlandsvik Aqua in Rogaland Our digitalization efforts aim to improve insight, provide better • Acquired Grieg Newfoundland in Eastern Canada in 2020. commenced. production control for farmers, increase resource utilization, and improve area management. We have already gained new knowl- edge on correlations between the fish and the environment, which will impact both strategic and operational decisions. The result is increased growth, reduced environmental impact, improved fish welfare, increased productivity and lower cost. S TATUS • EFCR in Rogaland has improved, from 1.52 in 2018 to 1.28 in 2019, supported by centralized feeding by the operations center. • Construction of the operational center in Rogaland is ongoing. • BC had significant improvement to reduced mortality due to plankton mitigation investments. Through monitoring, we noticed a 400% increase in cautionary harmful plankton events, and a 300% increase in lethal plankton events. • Analyses conducted support post-smolt with shorter time in sea as a good solution for the industry. • New digitalization strategy towards 2025 supporting the new business strategy 2025 has been approved by the Board. • A digital tool for optimizing feeding for site managers has been implemented globally. 2 3 OUR BUSINE S S S TR ATEGY 2020 —2025 SCALING GLOBALLY THROUGH GROWTH AND VALUE CHAIN INNOVATION GLOBA L GROW TH COS T LE A DER SHIP VA LUE CH A IN REP OSITIONING Harvest volume above 150 000 tonnes by 2025 Drive competitiveness in each region Evolve from supplier to innovation partner SUSTAINABILITY Going forward, Grieg Seafood will build on our existing platform Grieg Seafood targets cost leadership in each region. To improve from the last years. The strategy for 2020–2025 comprises three operational performance, we will maintain a rigorous focus on key strategic objectives for continued growth and business devel- fish health and welfare. We will also drive performance improve- opment. Increasingly sustainable farming practices is the very ments through continuous research and development, and the foundation of all areas of the strategy. utilization of new technologies. We have identified a potential to reduce cost by NOK 150–250 million by 2022. We are aiming for an annual harvest of at least 150 000 tonnes by 2025. We will focus on post-smolt investments, target new We aim to increase the value of our products by becoming an inno- licenses and seize opportunities within new technology. In some vation partner for our customers. This will be achieved through a regions, there is also potential for continued improvement of site stronger presence in the market, based on partnerships, category utilization. We participate in new growth initiatives, M&As, joint development and brand cultivation. ventures, and greenfield projects, and seek cooperation with farmers in existing areas. 2 4 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y O U R B U S I N E S S S T R AT E G Y 2 5 Our business model GSF 2 02 0 GSF 2 025 BREEDING FRE SH WATER FA RMING SE AWATER FA RMING H A RV E S TING SA LE S A ND DIS TRIBU TION VA LUE A DDED PROCE S SING RE TA IL / HORECA C ON SUMER In Rogaland, we have a broodstock operation where we breed for specific traits, such as strong health or resistance to sea lice and diseases. In all of our regions, we have RAS freshwater facilities, where the eggs are hatched and the salmon spend at least the first year. As part of our post- smolt strategy, we keep the salmon longer on land in all regions. The salmon live and grow in the sea until they reach a harvestable size of 4–5 kg. We have harvesting plants in Rogaland and Finnmark in Norway, and in Shetland in the UK. We use a harvesting vessel in British Columbia, Canada. Our subsidiary Ocean Quality In our 2025 strategy, we handles sales and will form closer distribution in all of our regions. partnerships in the market and Our salmon is found in retail stores or on the menu at restaurants or Every day, 900 000 meals made from Grieg Seafood salmon are consumed by increase the value hotels. Today, we people in more have two HoReCa than 50 countries. of our salmon through VAP. brands, Skuna Bay and Kvitsøy. INPUT N ATURE A ND BIOLOGY – N ATUR A L CA PITA L • Public natural resources: we lend sea areas for our sites and fresh water for our RAS facilities. • Privately owned natural resources: 1. Plantbased and marine feed ingredients 2. Eggs TECHNOLOGY – TECHNOLOGICA L CA PITA L • Farming equipment and technology FIN A NCI A L – FIN A NCI A L CA PITA L • Trust and investment from investors • Access to capital PEOPLE – HUM A N CA PITA L • People (experience, ideas, passion) • Culture • Corporate Governance LICENCE TO OPER ATE – P OLITICA L /SOCI A L CA PITA L • Trusted among our key stakeholders • Favourable political conditions 2 6 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y O U R B U S I N E S S M O D E L GSF 2 02 0 GSF 2 025 OUTCOME BREEDING FRE SH WATER FA RMING SE AWATER FA RMING H A RV E S TING SA LE S A ND DIS TRIBU TION VA LUE A DDED PROCE S SING RE TA IL / HORECA C ON SUMER In Rogaland, we In all of our have a broodstock regions, we have operation where we breed for specific traits, such as strong health or resistance to sea lice and diseases. RAS freshwater facilities, where the eggs are hatched and the salmon spend at least the first year. As part of our post- smolt strategy, we keep the salmon longer on land in all regions. The salmon live and grow in the sea until they reach a harvestable size of 4–5 kg. We have harvesting plants in Rogaland and Finnmark in Norway, and in Shetland in the UK. We use a harvesting vessel in British Columbia, Canada. Our subsidiary Ocean Quality handles sales and distribution in all of our regions. In our 2025 strategy, we will form closer partnerships in the market and increase the value of our salmon through VAP. Our salmon is found in retail stores or on the menu at restaurants or hotels. Today, we have two HoReCa brands, Skuna Bay and Kvitsøy. Every day, 900 000 meals made from Grieg Seafood salmon are consumed by people in more than 50 countries. ALMOST 1 400 000 HEALTHY MEALS PER DAY OUR BRANDS SK UN A BAY Skuna Bay is our high-end HoReCa brand sold in the US. The Skuna Bay fish is preferred by some of the top American chefs, and is regularly served at the James Beard Award. Read more here: https://www.skunasalmon.com/ K V IT SØY Kvitsøy is our high-end HoReCa brand sold in Europe, mainly to Italy and Spain. 2 7 Farming the ocean for a better future 70% of the Earth is covered by ocean. Today, however, we obtain only about 2% of our food from the sea. The ocean can provide much more healthy nutrition to people on all continents. 6–10 FIGURE 1.8 FEED CON V ERSION R ATIO Feed conversion ratio (FCR) measures the productivity of different protein production methods. A lower FCR represents a more efficient use of feed resources. 2.7–5 1.7–2 CHICKEN PORK CATTLE 1.2–1.5 FARMED SALMON 2 8 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y FA R M I N G T H E O C E A N F O R A B E T T E R F U T U R E The global population continues to grow rapidly, and fish farming represents one way to meet the increasing demand for sustainable protein production and healthy food. Because there are limits to the amount of wild fish that can be sustainably harvested, aquaculture must meet the demand for more seafood in peoples’ diets. Sustainable farming of fish and other marine species has an enormous potential globally. With a low carbon footprint, a low feed conversion ratio and a low land and fresh water use, farmed salmon continues to be one of the most eco-efficient forms of animal protein. FIGURE 1.9 EDIBLE Y IELD Edible yield measures how much of the animal is actually used for human consumption. Salmon has a high edible yield compared to other animal proteins. 68% FARMED ATL ANTIC SALMON 46% CHICKEN 52% PORK 38% L AMB FIGURE 1.10 CA RBON FOOTPRINT Salmon has a low carbon footprint compared to other animal proteins. Carbon footprint measures the total greenhouse gas emissions caused directly and indirectly by production of an item. Carbon footprint is measured as tonnes of carbon dioxide equivalent per tonne of edible protein. 0.60 FARMED ATL ANTIC SALMON 0.88 CHICKEN 1.30 PORK 5.92 BEEF Source: https://globalsalmoninitiative.org/en/sustainability-report/protein-production-facts/ 2 9 THE CHALLENGES WE MUST SOLVE Though we have made great progress in finding more sustainable fish farming methods in recent decades, many challenges remain: 1. ENSURING CO-EXISTENCE WITH OTHER SPECIES It is our responsibility to protect biodiversity wherever we operate. Our aim is to use farming methods that allow us to co-exist with other species, such as wild salmon, cod, shrimp, wild mammals, and birds. Going forward, our industry must work hard to reduce our environmental impact. 2 . IMPROV ING FISH W ELFA RE While only a few fish from millions of eggs survive in the wild, farming fish in captivity puts an ethical responsibility on us to safeguard our stocks’ survival, health, and welfare. While we have worked hard to improve survival rates and fish health in recent decades, much work remains to understand how we can improve animal welfare at our farms. This also includes cleaner fish. 3. FINDING SUS TA IN A BLE FEED INGREDIENT S As an industry, we need to develop new feed ingredients in order to grow sustainably. We need novel marine ingredients, as well as novel protein ingredients. 4 . CUT TING CA RBON EMIS SIONS While farmed salmon has a low carbon footprint compared to other animal proteins, our industry must still cut more to contribute to achieving the Paris Climate Agreement. New technologies must be developed to cut emissions in our operations and value chain. 5. RECYCLE RE SOURCE S Our industry must develop a circular approach in more areas. The aim is to support the circular economy and recycle resources throughout our value chain. As the global pioneer and first-mover in developing food production in the ocean, the salmon farming industry is spearheading new knowledge, innovation and technology to find solutions to the challenges. As life below water is extremely complex, billions in research & development investments are needed to advance within each area. As such, the salmon farming industry must solve the challenges together, each company testing out different solutions. Together we advance aquaculture practices. 3 0 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y FA R M I N G T H E O C E A N F O R A B E T T E R F U T U R E 31 The UN Sustainable Development Goals SUSTAINABLE OCEAN PRINCIPLES Grieg Seafood has committed to the UN Global Compact as part of the Grieg Group. Grieg Seafood has committed to the Sustainable Ocean Principles established by the UN Global Compact. For more information, please see: https://www.unglobalcompact.org/take-action/ocean S T RE TCH GOA L S SDG 2 — ZERO HUNGER The salmon farming industry is driving developments in global aquaculture. As a result, we are making a broader contribution to sustainable seafood production. Sustainable farming methods and practices, biological and technical innovation, research, new knowledge, and government regulations developed for the salmon farming industry can be transferred to the production of other marine species in other parts of the world. The solutions we find not only make our own operations more sustainable, but also advance the practices of fish farming industries in other countries. That way, we can truly contribute to zero hunger. SDG 13 — CLIM ATE ACTION Farmed fish is one of the animal proteins with the lowest carbon footprint. Still, the salmon farming industry must work to cut the carbon footprint of our salmon even further. SDG 14 — LIFE BELOW WATER We work to conserve and use oceans, seas, and marine resources sustainably. We have a responsibility to protect marine biodiversity, and we strive to find new ways to reduce our environmental footprint and improve the welfare of our fish. SDG 17 — PA RTNER SHIP S FOR THE GOA L S We cannot reach the goals we have set alone. We collaborate with authorities, research institutions, other salmon farmers, NGOs, students, suppliers and others to advance sustainable aquaculture. We share knowledge, expertise, and technology. We seek to be honest, exchange ideas, and learn from those around us. 3 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y T H E U N S U S TA I N A B L E D E V E L O P M E N T G O A L S W E A RE A L S O C OMMI T T ED TO SDG 3 — GOOD HE A LTH A ND W ELL-BEING The salmon we produce is a source of marine omega-3 and healthy for the human body. SDG 4 — QUA LIT Y EDUCATION We ensure that our employees receive the right training and development, so that the Company always has the knowledge and expertise it needs. SDG 5 — GENDER EQUA LIT Y Gender equality and a diverse workforce, with people of different backgrounds, is not only our social responsibility, it is also key to profitable growth. SDG 6 — CLE A N WATER A ND SA NITATION Fresh water is a scarce resource in some countries, but not in the regions in which we operate. However, we have a responsibility to ensure efficient use of fresh water, and by using recirculating aquaculture systems (RAS) for most of our freshwater facilities, we reuse 90-97% of our water. SDG 8 — DECENT WORK A ND ECONOMIC GROW TH We provide good jobs with fair conditions in rural areas. We contribute to economic growth in our local communities in Norway, the UK, and Canada. SDG 9 — INDUSTRY, INNOVATION AND INFRASTRUCTURE We take part in research and innovation to find new solutions to our challenges , and advance global food production in the ocean. SDG 12 — RE SP ONSIBLE CONSUMP TION A ND PRODUCTION We implement policies and processes to improve resource efficiency and reduce waste. We look for new solutions to boost the circular economy. SDG 15 — LIFE ON L A ND We participate in projects to combat deforestation in our supply chain, and certify the soy we use for our feed. SDG 16 — PE ACE, JUS TICE A ND S TRONG INS TITUTIONS We do business in a way that is inclusive, just, and accountable, and that promotes strong societies and institutions. 3 3 Our approach to sustainable business OUR PILL ARS SDG ALIGNMENT HEALTHY OCEAN SUSTAINABLE FOOD TOPICS • Fish health and welfare • Safe and healthy food • Sea lice control • Escape control • Limiting local emissions • Interaction with wild life • Sustainable feed ingredients • Reducing carbon emissions • Climate risk • Waste management 3 4 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y O U R A P P R O A C H T O S U S TA I N A B L E B U S I N E S S In our long-term perspective, there is no contradiction between clean seas, healthy fish and financial profit. It is our task to make these aspects go hand in hand. Our overall target goes beyond short-term profitability. With our five pillars, we are committed to sustainable and long-term value creation for all of our stakeholders. PROFIT & INNOVATION PEOPLE LOCAL COMMUNITIES • Seafood demand • Economic productivity • Profitable growth • Human rights and ethics • Local value creation and local • Embracing diversity purchasing • Creating attractive jobs • Respect for Indigenous rights • Keeping our employees safe • Dialogue and engagement • Anti-corruption 3 5 OUR MATERIALITY MATRIX FOR SUSTAINABLE REPORTING Together with our stakeholders, we have identified our most important risks and opportunities, based on our operations and geographical locations. C AT EG ORIE S Healthy Ocean Sustainable Food Profit & Innovation People Local Communities • Anticorruption • Escape control • Sea lice control • Fish health & welfare • Organic emission • Medicines and chemicals • Plastic waste • GHG emissions • Safe & healthy food • Sustainable feed ingredients • Economic performance • Corporate governance & responsible business conduct • Human rights • Workplace safety (HSE) • Indigenous relations • Visual and noise pollution • Recycling & waste • Community dialogue management • Local value creation • Wildlife interactions • Community sponsorships • Freedom of association • R&D/ innovation • Diversity • Integrity • Lifelong learning (training, education) • Data security & privacy S N O I S I C E D D N A S T N E M S S E S S A R E D L O H E K A T S N O E C N E U L F N I L A I R E T A M T N A C I F I N G I S E T A R E D O M MODER ATE SIGNIFICA NT M ATERI A L SIGNIFICA NCE OF ECONOMIC, EN V IRONMENTA L A ND SOCI A L IMPACT S The identified sustainability topics are based on the positive and negative environmental, social, and economic impacts that our stakeholders think Grieg Seafood may have. The materiality analysis is based on stakeholder dialogues and evaluations by our global and regional management teams. The material topics identified define the content of this report and are aligned with how we report our pillars. For more information, please see the GRI index in the Appendix of this Annual Report. 3 6 ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 1 O U R S T O R Y O U R A P P R O A C H T O S U S TA I N A B L E B U S I N E S S 3 7 STAKEHOLDER DIALOGUE Our value Open guides our stakeholder dialogue. We aim to be open and honest about our challenges, make it easy for our stakeholders to hold us accountable, and share how we are working to improve. Engaging and collaborating with our stakeholders helps us under- We engage actively and continuously with our stakeholders, and stand and address our most material sustainability issues. Our always maintain an open door for stakeholder feedback. Stake- stakeholders span our five pillars and gaining their trust is integral holders frequently contact us to discuss issues. We also engage for our license to operate. Stakeholders are chosen according to stakeholders proactively on matters where we believe we can the impact they have on our business, and the economic, environ- have significant impact, such as with feed suppliers. Ultimately, mental and social impact we have on the stakeholders. Stakeholder our stakeholders help us deliver healthy food and make positive dialogue is also key to be able to grasp emerging opportunities for impact throughout our value chain. The trust of all our stakehold- our business, and to understand and mitigate risk. ers is an important part of our license to operate. STAKEHOLDER KEY TOPIC HOW WE ENGAGE ACTIONS EXAMPLE N AT ION A L AU T HORI T IE S / REGUL AT OR S • Sustainability challenges. • Balanced regula- tion and long-term value creation. Meetings, site visits, and correspondence. We have an open dialogue with all official authorities where we operate, and collaborate on all aspects. We welcome their efforts to enforce regulations and engage in constructive dialogue. LO C A L AU T HORI T IE S / C OMMUNI T IE S • Local employment and purchasing. • Contributions to public life. • Sustainability challenges. • Co-existence with other local interests. Dialogue with special interest groups locally, open meetings, site visits, and dialogue through mainstream media and digital channels. We recognize public concern for the oceans, invite visitors to our farms and participate in the public debate about salmon farming. We try to find solutions to accommodate other local interests. In areas with Indigenous populations, consent, dialogue and relations with Indigenous representa- tives are especially important. In 2019, we hosted a visit by the Norwe- gian Minister of Trade, Industry and Fisheries to discuss establish- ment of apprentice- ships. Before the local electi- ons in Norway in 2019, we arranged farm tours for politicians from different political parties in Finnmark and Rogaland. 3 8 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y O U R A P P R O A C H T O S U S TA I N A B L E B U S I N E S S STAKEHOLDER KEY TOPIC HOW WE ENGAGE ACTIONS EXAMPLE S TA K EHOL DER ORGA NIZ AT ION S / NON - G O V ERNMEN TA L ORGA NIZ AT ION S SH A REHOL DER S , IN V E S T OR S , A S SE T M A N AGER S A ND A N A LY S T S CUS TOMER S EMP LOY EE S • Sustainability challenges. Correspondence, meetings, media and social media. We collaborate with and seek advice from actors that constructively seek to improve the industry. That includes several environmental organizations and research institutions. • Long-term performance and returns, both on financial and sustainability-re- lated parameters. • How we utilize opportunities and mitigate risk. • Food safety. • Health attributes. • Quality. • Certifications. • Sustainability challenges. • Health and safety. • A good working environment. • Personal develop- ment. • Fish welfare and sustainability challenges. Quarterly presentations, roadshows, meetings, frequent dialogue, capital market days, and engagement with relevant indexes. We make every effort to maintain a continuous, open, and honest dialogue about our strategy and results. We have also started enga- ging with relevant indexes where we are rated, to make sure they give Grieg Seafood an accurate score. Customer surveys, frequent dialogue, audits, visits and trade fairs. We have frequent dialogues with our customers. We supply them with material for dialogue with their own stakeholders, and participate in initiatives where our customers are present. Continuous dialogue and meetings, intranet, and employee surveys. Frequent dialogue on all levels and initiatives for training, education, and development. We also engage in dialogue with trade unions and employee representatives. Focus on developing a culture in line with our values. We have regularly received advice from the Rainforest Foundation Norway on deforestation risk in our supply chain. During 2019, we have completed investor roadshows in France, Germany, Sweden, Switzerland and the UK. We have engaged in Cerrado Manifesto Signatories of Support, which aims to halt deforestation in the Brazilian Cerrado. Many of our customers are also signatories to the initiative. We use Workplace on an almost daily basis to inform employees about developments, build culture, and cultivate engagement. SUP P L IER S • Our integrity. • That we are a fair and predictable partner. Dialogue, meetings, conferences and corre- spondence. Ensuring that they comply with our Code of Conduct, and that we have a common understanding of ethics, sustainability and the delivery of goods and services. This particularly pertains to our suppliers of fish feed and staffing. We have quarterly meetings with our feed suppliers, where we discuss issues and developments. 3 9 TRANSPARENT REPORTING ON OUR PROGRESS This is an integrated report, in which we report our progress with respect to all of our pillars. We believe that measuring and integrating comparable, consistent, and reliable environmental, social, and governance parameters is fundamental to making more informed decisions and to facilitating long-term sustainable growth. INDEX /FRAMEWORK 2019 RESULT COMMENT CDP C A RB ON DI S CLO S URE P R O JEC T FA IRR INDE X C OL L ER FA IRR P R O T EIN P R ODUCER INDE X A 6th Grieg Seafood has engaged with CDP since 2018. Grieg Seafood is engaging with the index to better understand the concerns of our stakeholders and issues we should address in our reporting. SUS TA IN A LY TIC S S U S TA IN A LY T IC S E S G RI SK R AT ING 38.3 - High Risk (where 0 is best) Grieg Seafood has not engaged with the index so far, but will do so going forward, to ensure that the index reflects our actual performance on the different parameters. GRI GLOB A L REP OR T ING INI T I AT I V E Audited This is our first report prepared in accordance with the GRI Standards. G SI GLOB A L S A L MON INI T I AT I V E Audited The GSI issues an annual sustainability report covering 50% of the salmon farming industry. NUE S NOR W EGI A N C ODE OF P R A C T ICE FOR C ORP OR AT E G O V ERN A NCE In compliance We adopted the Norwegian Code of Practice for Corporate Governance in 2007. OECD GUIDEL INE S FOR MULT IN AT ION A L EN T ERP RI SE S O SE O SLO S TO CK E XCH A NGE TCFD TA SK FOR CE ON CL IM AT E-REL AT ED F IN A NCI A L DI S CLO S URE S – – – We adhere to principles and standards for responsible business conduct. We follow the Euronext guidance on ESG reporting. Our first TCFD report is included as part of this Annual Report. For more information, see the GRI Content Index and the TCFD index in the Appendix to this report. 4 0 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y O U R A P P R O A C H T O S U S TA I N A B L E B U S I N E S S 41 Group management team 4 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y G R O U P M A N A G E M E N T T E A M GROUP MANAGEMENT A NDRE A S K VA ME (1962) Chief Executive Officer (from 2015) BACKGROUND Andreas Kvame has international experience from change management and improvements in the aquaculture industry from a number of companies. He has previously worked as CEO of Scanbio AS, and as director of sales and supply at Mowi, where he was also responsible for the integration of Stolt Seafarms, Panfisk, and Fjord Seafood. EDUCATION Kvame has an educational background in agriculture and aquaculture. NUMBER OF SHARES 31.12.2019 39 165 (0.04%) NUMBER OF OPTIONS 31.12.2019 400 000 ATLE H A R A LD SA NDTORV (1967) Chief Financial Officer (from 2009) BACKGROUND Atle Harald Sandtorv has extensive experience of mergers and acquisitions, with responsibility of pursuing growth and structural changes. He has previously served as CFO of Bennex and Tide. EDUCATION Sandtorv holds a master's degree in business and economics. NUMBER OF SHARES 31.12.2019 24 208 (0.02%) NUMBER OF OPTIONS 31.12.2019 200 000 K NUT UTHEIM (1966) Chief Operational Officer Farming (from 2014) BACKGROUND Knut Utheim has 30 years of experience within the aquaculture industry, with the focus on salmon farming and biology. He has previously served as a regional director with Mowi and as COO of farming at Stolt Seafarm, among others. EDUCATION Utheim has an aquaculture degree. NUMBER OF SHARES 31.12.2019 23 507 (0.02%) NUMBER OF OPTIONS 31.12.2019 200 000 K ATHLEEN O. M ATHISEN (1971) Chief Human Resource Officer (from 2016) BACKGROUND Kathleen O. Mathisen has extensive experience of business-driven HR activities, focusing on the human capital in the organization, mainly from the international offshore oil and gas industry. She has previously worked as vice president HR at Dof Subsea, among others. EDUCATION Mathisen has taken several management courses, including courses within leader- ship and sustainability. NUMBER OF SHARES 31.12.2019 7 536 (0.01%) NUMBER OF OPTIONS 31.12.2019 132 712 4 3 REGIONAL MANAGEMENT M A RV IN D. “ROCK Y ” BOSCHM A N (1961) Regional Manager Grieg Seafood British Columbia (from 2014) BACKGROUND Rocky Boschman has been working in the salmon farming industry for more than 30 years. He has held various management positions, including production manager at Stolt Seafarm and operations manager at Mowi. He also held the position of saltwater production director at Grieg Seafood BC. EDUCATION Boschman has an MBA and a bachelor's degree in marine biology. NUMBER OF SHARES 31.12.2019 6 324 (0.01%) NUMBER OF OPTIONS 31.12.2019 135 056 A LE X A NDER K NUDSEN (1974) Regional Manager Grieg Seafood Rogaland (from 2008) BACKGROUND Alexander Knudsen has more than 20 years of experience from various positions within the aquaculture industry. Knudsen worked at Øvrebø Fisk, which was acquired by Grieg Seafood in 1997, since then he has held several positions at Grieg Seafood Rogaland. EDUCATION Knudsen has a degree in economics and business administration. NUMBER OF SHARES 31.12.2019 22 165 (0.02%) NUMBER OF OPTIONS 31.12.2019 200 000 ROY-TORE RIK A RDSEN (1967) Regional Manager Grieg Seafood Finnmark (from 2014) BACKGROUND Roy-Tore Rikardsen has more than 20 years of experience from the aquaculture industry. He has held various positions, including production manager seawater at Lerøy Aurora, regional manager at Akva Group, and sales consultant at Ewos. EDUCATION Rikardsen has an engineering degree within environment and marine technology. NUMBER OF SHARES 31.12.2019 19 565 (0.02%) NUMBER OF OPTIONS 31.12.2019 200 000 GR A NT CUMMING (1971) Regional Manager Grieg Seafood Shetland (from 2016) BACKGROUND Grant Cumming has almost 20 years of experience of salmon farming. He has previously served as site manager at Mowi and production manager at Orkney Seafoods. He joined Grieg Seafood Shetland in 2005 as production manager. He has also been lecturing in aquaculture. EDUCATION Cumming has a degree in zoology and a master's degree in mariculture science. NUMBER OF SHARES 31.12.2019 7 283 (0.01%) NUMBER OF OPTIONS 31.12.2019 142 437 4 4 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 1 O U R S T O R Y G R O U P M A N A G E M E N T T E A M OTHER MEMBERS OF THE GROUP MANAGEMENT TEAM K RISTIN A FURNE S (1987) Group Communication Manager (from 2019) BACKGROUND Kristina Furnes has seven years of experience within strategic communications, PR, public affairs, journalism and public administration. Her previous positions include client director at the communications agency Geelmuyden Kiese and freelance journalism. EDUCATION Furnes has a master's degree in political science and government. NUMBER OF SHARES 31.12.2019 0 NUMBER OF OPTIONS 31.12.2019 N/A NIN A W ILLUMSEN GRIEG (198 3) Manager Business Development (from 2017) BACKGROUND Nina W. Grieg has more than ten years of experience within strategy and oper- ations. Previous positions include advisory and project management roles at Accenture, PwC, and Grieg Shipbrokers. She joined Grieg Seafood in 2015. EDUCATION Willumsen Grieg holds a master of science degree in technology, industrial economics, and technology management. NUMBER OF SHARES 31.12.2019 0 NUMBER OF OPTIONS 31.12.2019 N/A TROND K ATHENE S (1962) Chief Digital Officer (from 2011) BACKGROUND Trond Kathenes has more than 20 years of experience from strategy development and execution, ICT management, and business process improvements. He is a recognized driver for change. He has previously been a partner at @dvice Human Resources and Conferit, CEO of Global Quality Manning, ICT manager at Rieber& Son, and business development manager at Capgemini. EDUCATION Kathenes has an educational background in strategy and operations. NUMBER OF SHARES 31.12.2019 0 NUMBER OF OPTIONS 31.12.2019 N/A 4 5 G R I E G S E A F O O D 4 6 ANNUAL REPORT 2019PA R T 0 2 O U R P R O G R E S S C O N T E N T PA R T 0 2 OUR PROGRESS C E R T I F I C AT I O N S A N D L I C E N S E S H E A LT H Y O C E A N Fish health and welfare Sea lice control Escape control Limiting local emissions Interaction with wild life S U S TA I N A B L E F O O D Safe and healthy food Sustainable feed ingredients Reducing carbon emissions Climate risk Waste management 4 8 - 5 3 P R O F I T & I N N O VAT I O N 5 4 56-65 66-71 72-73 74-77 78-79 8 0 82-87 88-91 92-95 96-97 98-99 The global salmon market Ocean Quality and our markets Economic productivity Profitable growth The Grieg Seafood shares Analytical information P EO P L E Human rights and ethics Embracing diversity Creating attractive jobs Keeping our employees safe Anti-corruption L O C A L C O M M U N I T I E S Local value creation Finding the path to shared prosperity 10 0 102-103 104-105 106-111 112-121 122-125 126-133 13 4 136-139 140-141 142-145 146-149 150-151 15 2 154-159 160-161 47 Our certifications and special licenses It is important for both our local communities and customers to know that our farming practices are sustainable. To reassure them, our farms are certified by independent bodies. In Norway, we also have some special farming licenses with specific requirements. 4 8 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 O U R P R O G R E S S C E R T I F I C AT I O N S A N D L I C E N S E S ASC certifica- tion of all sites in all regions. In Finnmark and Canada we aim to achieve this within 2021, while the timeline is not set for Rogaland and Shetland. Maintain certification of all farms in Norway and the UK. CERTIFICATE/ LICENSE A SC WHAT STATUS AIM Aquaculture Stewardship Council (ASC) was founded in 2010 by World Wide Fund for Nature (WWF) and IDH Sustainable Trade Initiative to establish global standards for sustainable seafood production. At year end 2019, ten of our 20 active sites in Finnmark have received ASC certi- fication: Sarnes, Hesten, Mårsanjarga, Vinnalandet, Bergsnes, Davatluft, Kleppe- nes, Tinnlandet, Laholmen, and Vedbotn. GLOBA LG. A .P Global Good Agricultural Practices is a standard for both agriculture and aquaculture. The standard covers food safety, animal welfare, sustainability, employment, and traceability. GlobalG.A.P is particularly important for custo- mers in Europe. All our farms in Norway and the UK are certified. (Not relevant for Canada) BA P Best Aquaculture Practices is a standard for aquaculture that covers practices in all produ- ction stages of fish farming. BAP is particularly important for customers in the United States. All our farms in Canada are certified. (Not relevant for Norway and the UK). Maintain certification on all farms in Canada. GREEN LICENSE S EDUCATION LICENSE S Green Licenses in Norway have stricter environmental criteria. The sea lice limit is half that of regular licenses, it has stricter criteria for escape prevention technologies, and the amount of medical treatments permitted per generation is limited. Grieg Seafood has eight green licenses in Finnmark. Maintain our green licenses in Finnmark. Education licenses in Norway are given to universities, colleges, or high schools offering aquaculture-related courses of study. Salmon farming companies can lease education licen- ses from the educational institution. Part of the training will then take place at their salmon farms. Grieg Seafood leases one education license from Nordkapp High School in Finnmark, and one education license from Strand High School in Rogaland. Maintain our education licenses in Finnmark and Rogaland. BROODS TOCK LICENSE S The purpose is to produce roe and milt from salmon with improved and/or specific traits. Grieg Seafood has three broodstock licenses in Erfjord in Rogaland. Maintain our broodstock licenses. R&D LICENSE S The purpose is to encourage important rese- arch projects that can bring the Norwegian aquaculture industry forward. Grieg Seafood had in 2019 one R&D license in Rogaland. We have applied for renewal of our R&D license. 49 ASC The Aquaculture Stewardship Council (ASC) promotes responsibly farmed seafood through its certification and labelling program. Fish farms that meet the ASC´s standards gain the right to sell their products bearing the ASC logo. This gives farms a public endor- sement of their responsible practices and gives consumers the reassurance that they are making an ethical purchase. ASC-certified salmon is a responsible choice, helping the consumer to care for the natural environment and support local communities. BIODI V ERSIT Y Requirement to minimize impacts on the local ecosystem in a number of ways, such as the development and implementation of an impact assessment to protect birds, marine mammals, and sensitive habitats. FEED Requirement to adhere to strict limits to minimize the use of wild fish as a feed ingredient. P OLLUTION Requirement to measure various water parameters (phosphorus, oxygen levels, etc.) at regular intervals, and remain within set limits. Copper release into the water must be minimized and monitored. DISE A SE S Requirements to minimize disease outbreaks. A Fish Health Management Plan detailing steps for biosecurity management must be implemented at the farm. Survival rates must be high. SOCI A L Requirements based on the core principles of the International Labor Organization (ILO). For more information, visit: https://www.asc-aqua.org/ COLLABORATIONS THE GLOBAL SALMON INITIATIVE (GS)) GSI, established in 2013, is a group of 17 companies which together control over 50% of the world’s salmonid production. GSI member companies have committed to cooperation and transparency. and the initiative has developed industry-specific performance indicators. GSI was recognized by the World Wildlife Fund (WWF) as a best-practice pre-competitive industry collaboration in 2019. The member companies transparently report company-wide data on key sustainability criteria each year as part of the GSI Sustainability Report. For more information on this report, see https://globalsalmoninitiative.org/en/. BELLONA The Bellona Foundation is a Norwegian, independent non-profit organization that aims to meet and fight climate-related challenges, by identifying and implementing sustainable environmental solutions. Grieg Seafood and Bellona are collaborating on opportunities and challenges specifically related to plastic waste. Read more about our plastic project in the "Waste management" section. 5 0 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 O U R P R O G R E S S C E R T I F I C AT I O N S A N D L I C E N S E S THE SEAFOOD INNVATION CLUSTER The cluster aims to foster strategic collaboration, initiate partnerships, and facilitate collaboration processes in the whole seafood value chain, to solve challenges and make the industry more sustainable. The cluster is a Norwegian Centre of Expertise. Grieg Seafood has been an active member of the NCE cluster since the start. KOMPETANSEKLYNGE LAKS (SALMON COMPETENCE CLUSTER) Kompetanseklynge Laks in Finnmark is a collaboration between the local municipalities, the Sami Parliament, the salmon industry, the Norwegian Fishermen's Association, wild salmon management and research bodies. The cluster is researching various interactions between farmed and wild salmon in Alta, where one of the world’s most famous wild salmon rivers, the Alta river, is located. The aim is to learn more about interactions to avoid impact on wild salmon. Grieg Seafood is a founding partner of the cluster and currently a member of the board. ASC FEED STANDARD ASC decided in 2013 to devolop a common, global standard for aquaculture feed. Grieg Seafood is an active member of the steering commit- tee. The standard will define requirements for both responsible factory practices and responsible ingredients for the main ingredient groups used in fish feed. The standard will be launched late 2020 or early 2021. CLIMEFISH Climefish is a research project funded by the EU. The overall goal is to ensure that the increase in seafood production comes from areas and species with potential for sustainable growth, given the expected climate risk and developments. Grieg Seafood is a key stakeholder in the part of the project that discuss how future climate-change can affect ocean temperatures and salmon farming in the North Atlantic. For more information, please see https://climefish.eu/grieg-seafood-asa/. 51 We take part in innovation to develop the industry further FISHGLOBE We work with FishGLOBE, a company that has developed, built and is testing a new patented solution for closed-containment aquaculture in sea. The business concept is to offer a solution that makes salmon farming more profitable, more sustainable, and with improved fish welfare. HARMFUL ALGAE MONITORING PROGRAM (H.A.M.P.) Grieg Seafood BC has a partnership with Vancouver Island University and the H.A.M.P. program, collecting and analyzing 20 years of plankton data. Salmon farming companies send their preserved water quality samples to H.A.M.P for analysis. We are working to transfer the data into modern data analytical tools. So far, great progress has been made in how to use online environmental monitored parameters to control and improve our daily operations. 5 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 O U R P R O G R E S S I N N O VAT I O N T O D E V E L O P T H E I N D U S T R Y F U R T H E R AQUACLOUD The AquaCloud platform, launched by the Seafood Innovation Cluster, is a cloud-based platform that aims to help fish health managers and resear- chers improve the industry’s response to sea lice. AquaCloud represents a new innovation platform that will bring together expertise from fish health managers, researchers, and data scientists to give new insights from the massive amount of data generated by the industry every day. CTRL AQUA We work with Centre for Research-Based Inno- vation in Closed-Containment Aquaculture to develop technological and biological innovati- ons to make closed-containment aquaculture systems (CCS) a reliable and economically viable technology. The results will be used in strategic parts of the Atlantic salmon production cycle, contributing significantly to solving the challen- ges that currently limit the envisioned growth in aquaculture. DATA ANALYTICS We use data analytics to analyze the data that we are collecting from our operations. The aim is to learn about new, previously unknown connections between our salmon and the ecosystem, and drive knowledge based decisions in our operations. POST-SMOLT Through our investments in Tytlandsvik Aqua (33% shareholding) and Nordnorsk Smolt (50% shareholding), we produce large smolt up to 1 000g. Larger smolt size will significantly cut seawater production time, reducing the fish stocks’ exposure to sea lice, disease, and other challenges. 5 3 ROOT ED IN HEALTHY OCEAN Improving Aquaculture Farming salmon with practices that keep the fish and oceans healthy has a direct positive impact on our harvested volume, cost, quality, license to operate, and employee engagement. 5 4 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 H E A LT H Y O C E A N I N T R O 5 5 Fish health and welfare Good fish health and welfare is both an ethical responsibility and the most important measure we can to do ensure good growth, higher harvesting quality and lower cost. OUR PRINCIPLES Good fish health implies that the highest possible number of fish thrive, grow normally, and survive to the end of their life cycle. We take a preventative, systematic and long-term approach to fish health and welfare, doing what we can to ensure that our fish are robust, healthy, and happy from the very outset. We have a survival target rate of 93% (12 months rolling) for fish at sea. We apply Area-Based Management and collaborate with neighboring fish farmers to prevent and contain diseases. In case sea lice treatments are needed, we must find the correct balance between the welfare of our fish and the potential impact on the local environment, and avoid parasite resistance to existing treatments. We do our best to avoid using antibiotics in all forms, to preserve their effectiveness and to minimize resistance against antibiotics. We only use antibiotics as a last resort. Cleaner fish should have just as good health and welfare as our salmon, and we are working to reach this goal. 5 6 ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 2 H E A LT H Y O C E A N F I S H H E A LT H A N D W E L FA R E HOW WE WORK TO IMPROVE FIGURE 2.1 DENSIT Y IN THE PENS FISH W ELFA RE EFFORT S • We are implementing welfare indicators from the Fishwell project, a research project that compiled a manual on which indicators to use to assess salmon welfare. Grieg Seafood participated in the manual’s creation. It has already been implemented in Finnmark, and we will implement the same indicators in all our regions. • Procedures to avoid stressing the fish, for example, when handling, transporting or treating the fish. > Prior to treatment, fish health personnel or veterinarians must assess whether the fish are robust enough to receive treat- ment. • Harvesting procedures in accordance with requirements from customers and regulations to prevent suffering. > The fish are euthanized by stunning shortly after leaving the seawater. For instance, in Shetland, the salmon must be stunned and killed no more than 15 seconds after leaving seawater. • Grieg Seafood Shetland is assured according to the animal welfare charity, RSPCA. OV ER A LL FISH HE A LTH EFFORT S • Selection of high-quality roe with qualities that suit the condi- tions where the fish will be farmed. Senior management coor- dinates roe purchasing, to ensure a uniform high standard. • Policies and procedures to ensure good fish health in general. > Based on regulations and standards for fish health and welfare. > Regional fish health plans, because each area has its own challenges. > Available for employees through quality assurance systems. In BC, the document management program DATS ensures digital sign-off when procedures have been read. • Different feed programs for each stage of the salmon’s life cycle, to optimize health and welfare. • There are ongoing fish health and welfare training programs for all employees, with refresher course at least every third to fifth year. • Cooperation between our regions to learn from best practice internally and externally. FISH BIOMASS: 2.5% WATER: 97.5% A regular seawater pen is at least 97.5% water and 2.5% fish biomass, providing space for the fish in our facilities to allow for comfort and a healthy growth cycle. 5 7 HOW WE WORK TO IMPROVE DISE A SE A ND H YGIENE EFFORT S USE OF A NTIBIOTIC S • Smolt should be healthy, vaccinated and have verified smolt- • Our antibiotics policy aims to completely avoid the use of anti- ification status before transfer to sea. • Prevent spread of diseases by strict control of live fish trans- ports and disinfection of boats and equipment transferred between sites and zones. biotics. > Only used after adequate risk assessment to treat bacterial diseases without vaccines or reduced effect of vaccines. > Only used on small salmon, to ensure low quantities of antibiotics and harvestable salmon contain no residues. • Prevent increase of pathogens on sites by hygienic standards • Use is subject to strict internal regulations. All use requires and daily removal of dead or sick individuals. senior management approval, and prescriptions are signed by certified fish health personnel. • Regular fish health inspections and screening programs at all sites by authorized fish health personnel to achieve early • We do not allow use of antibiotics as non-therapeutic treatment detection of diseases and implement early measures. or use of antibiotics as a growth promoter. We do not use anti- biotics routinely and never use antibiotics if the welfare of the • Fallowing periods in accordance with local regulations as a fish is not threatened. minimum, or until acceptable benthic thresholds are met. Synchronized fallowing periods with other fish farmers in the • The type of antibiotics we use in BC is FDA approved, but the area. use is off-label as Yellowmouth disease is not specified by the FDA (Food and Drug Administration). EN V IRONMENTA L MONITORING • The type of antibiotics we use in the UK is not on the list of • Monitoring of environmental conditions that may affect the Highest Priority Critically Important Antibiotics. fish, such as temperature, oxygen levels, and water quality. In our freshwater facilities, we control and adjust these factors to ensure healthy growth conditions for the fish. EFFORT S TO IMPROV E HE A LTH A ND W ELFA RE OF CLE A NER FISH • Daily monitoring and inspection of fish condition and behavior. • Cleaner fish are either farmed or wild where fishing quotas are regulated by authorities. • Regions with specific challenges may perform additional monitoring. • Established practices to ensure that the cleaner fish are as REGION A L EFFORT S • Finnmark focuses on careful handling of the fish in cold water. • BC focuses on controlling harmful algae. robust and healthy as possible. • Optimizing vaccination programs. • Screening before release into the pens. • Shetland focuses on improving the gill health program, where we monitor water quality and gill health, as well as algae. • Tailor-made, artificial kelp forests in the pens where the • Specific feed in the pens, tailor-made for the cleaner fish. • Rogaland focuses on improving pancreas disease (PD) immu- nity with new and effective vaccines, with good results. cleaner fish can hide, avoid stress, rest, and sleep. • We are in the process of revising and improving our policies for cleaner fish. This includes working more systematically to report and reduce mortality. We will start sharing mortality numbers in 2020. 5 8 ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 2 H E A LT H Y O C E A N F I S H H E A LT H A N D W E L FA R E 5 9 THE MOST COMMON ATLANTIC SALMON DISEASES These diseases also exist naturally in wild salmon. However, an outbreak of disease in a pens with higher densities than in the wild, causing bigger problems than in the nature, where fish have less contact with each other. This applies to animal husbandry in general. DISEASE NAME CAUSE AND EFFECT ON THE SALMON TREATMENT F URUNCULOSIS Infectious disease caused by a bacteria of the Aeromonas subspecie salmonicida. It affects Atlantic salmon in both fresh water and seawater. The disease can cause high acute mortality, and lead to sores and boils on the skin. Controlled mainly by vaccination and good husbandry practice. PA NCRE A S DISE A SE (PD) Disease caused by the Salmonid Alpha virus (SAV). It affects the fish’s ability to digest feed and can cause loss of appetite, emaciation, and increased mortality. It is a contagious virus and transmits between fish and between pens. Controlled mainly by management and mitigation practices. Vaccination provides additional protection, and selective breeding of PD-resistant salmon has also contributed to reducing the incidence of PD. GEOGRAPHIC AREAS Scotland, Norway, Canada, and USA Europe INFEC TIOUS S A LMON A NEMI A (IS A ) GILL DISE A SE S Caused by the infectious salmon anemia virus. It attacks the blood vessels and causes internal bleed- ing. The disease can develop in an acute course with high mortality. However, in its more insidious form, the infection may be latent in the fish for several months before an outbreak occurs. Controlled through the culling or harvesting of affected fish, in addition to other biosecurity and mitigation measures. Vaccines are available. Canada, Chile, Scotland, Ireland, Norway General term used to describe different gill diseases. They may be caused by different infectious agents, such as amoeba, viruses, or bacteria, as well as environmental factors including algae or jellyfish blooms. In some cases, the disease may be caused by a single factor, but in most cases the cause is complex and multifactorial, and the primary cause is unknown. Gill disease is a welfare issue, as well as being an important cause of mortality. Controlled through good husbandry and management practices. Canada, Scotland, and Norway CA RDIOM YOPA- TH Y S Y NDROME (CMS) Caused by the newly discovered Piscine myocarditis virus (PMCV). It infects heart muscle cells and leads to inflammation in the heart and increased mortality. Mortality typically occurs late in the production cycle, causing economic impact. Controlled mainly through good husbandry and management practices. Canada, Scotland, and Norway 6 0 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 H E A LT H Y O C E A N F I S H H E A LT H A N D W E L FA R E DISEASE NAME CAUSE AND EFFECT ON THE SALMON TREATMENT W INTER ULCER (MORITELL A V ISCOS A ) Y ELLOW MOU TH / MOU TH ROT Often caused by the bacterium Moritella viscosa. It occurs at low water temperatures. In addition to being a welfare issue causing sores, the disease also leads to increased mortality and reduced quality at harvest. Controlled through good husbandry, management practices, and vaccination. Caused by the filamentous bacterium Tenacibacu- lum maritimum. It typically occurs during the first few weeks after transfer to the sea. It causes yellow plaques around the palate and teeth, which can develop into lesions and result in mortality. S A LMONID RICK E T T SI A L SEP TICA EMI A (SR S) Caused by the bacteria Piscirickettsia salmonis. The disease occurs in both fresh- and saltwater. It causes hemorrhages, lesions in the skin and nodules in several organs. In acute cases, death may be the only sign of disease. Controlled through therapeutic treatments using sulfa-based antibiotics, multiple treatments are often required. Controlled through good husbandry and management practices. Commercial vaccines are available but tend to show limited effect. GEOGRAPHIC AREAS Canada, Scotland, and Norway Canada and USA Canada THE PRV VIRUS Piscine orthoreovirus (PRV) is an ubiquitous virus that can infect salmonids. The virus is geographically distributed in Norway, the United Kingdom, Ireland, Chile, the United States and Canada. It exists in nature and can be found in both farmed and wild salmonids. PRV has been associated with the disease heart and skeletal muscle inflammation (HSMI). Even so, high levels of PRV have been detected in wild and cultured salmonids with no evidence of disease. Why some infected fish develop disease and others do not, is not known. It may indicate that additional factors in addition to PRV is required for disease development, such as environmental factors or PRV strain differences. In Canada for instance, the virus seems to have a low ability to cause disease and research suggests that infected salmon may test positive, but that they are not always infectious. Like all farm animals living a natural environment, farmed salmon are exposed to pathogens and may at some point in time become infected from some natural reservoir. Good husbandry and management practices are essential to decrease impact of disease. In Canada, Grieg BC has since 2016 routinely been screening every batch of smolts for PRV before they are transferred to ocean pens. To this date every test has been negative. It is important to continue the research and try to identify and monitor the timing of infe- ction. By doing so, there is hope to pinpoint the source and potentially find ways to mitigate the spread of PRV. 61 HARMFUL ALGAL BLOOM Under certain conditions, phytoplankton (tiny microscopic plants) may grow out of control and form harmful algal blooms (HABs). These blooms can produce extremely toxic compounds that have a detrimental effect on fish, shellfish, mammals, birds, and even people. A bloom does not have to produce toxins in order to be harmful to the environment. It can also cause anoxic conditions, where oxygen is depleted from the water. Dense blooms can block light to organisms lower in the water column, or even clog or damage fish gills. Mitigation Harmful algal blooms are one of the biggest challenges to fish health and welfare in British Columbia. We have developed a substantial algae mitigation program in BC, comprising of the following main aspects: • Constant monitoring of potential algal blooms, for instance by using NASA satellite images or collaboration with local floatplane pilots. • Technology to detect harmful algae in real-time, with microscopes at the sites and an online library of harmful algae species, helping staff to assess whether algae in the sea are harmful or not. • Mitigation protocol and system in place, should harmful algae occur. Feeding is reduced or stopped, and an upwelling system transfers clean, algae-free water from the depths to the top of the pen, creating a protective “bubble” in the pen. • Data from oxygen sensors are linked to the oxygenation system at sites with low oxygen levels in the water column. • A program using big data to predict harmful algal blooms is under development. While we still see mortality from harmful algae, the incidents are less severe than before, due to our mitigation efforts. We have transferred some of the program to our operations in Shetland, and will, in light of the deadly algal bloom in northern Norway in 2019, implement part of the program in Norway as well. 6 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 H E A LT H Y O C E A N F I S H H E A LT H A N D W E L FA R E 6 3 RESULTS FIGURE 2.2 SUR V I VA L R ATE AT SE A , ROLLING 12 MONTHS 2016-2018 2019 100% 95% 90% 85% 80% 75% TARGET: 93% ROGALAND FINNMARK SHETLAND BRITISH COLUMBIA Survival is reported in accordance with the standards of the Global Salmon Initiative. Survival is defined as: (Total number of mortalities at sea in the last 12 months – total number of culled fish due to illness or similar and not included in the harvested number)/(closing number of fish at sea the last month + total number of mortalities at sea the last 12 months + total number of harvested fish the last 12 months + total number of culled fish (due to illness or similar and not included in the harvested number)) X 100. Freshwater mortalities are reported separately. ROGAL AND SHETL AND BRITISH COLUMBIA With 93%, we reached our survival rate target. The survival rate was impacted by pancreas disease (PD) from 2017 through mid-2019. At the end of 2019, none of our sites were infected with PD. The reduction of mechanical delousing treatments also contributed positively to the survival rate. FINNMARK We reached our target, with a survival rate of 96% in 2019 due to good biological conditions. The survival rate has been affected by gill diseases, Furunculosis and winter ulcers, in addition to mechanical delousing treatments. Our measures to improve smolt health and robustness, which also include a change in our vaccination program, have improved smolt quality and increased survival at sea. We have increased our capacity to perform non-medicinal delousing treatments, and have therefore reduced the number of medical treat- ments. The survival rate has been impacted by low oxygen levels during algae and plankton blooms. A harmful algal bloom (HAB) incident in 2018 impacted our farms severely, affecting the survival rate for 2018 and 2019. Our algae mitigation system is steadily improving, and has enabled us to stabilize the survival rate in periods of challenging environmental conditions. Delousing treatments in well boats have also affected the survival rate. 6 4 ANNUAL REPORT 2019GRIEG SEAFOODRESULTS PA R T 0 2 H E A LT H Y O C E A N F I S H H E A LT H A N D W E L FA R E FIGURE 2.3 M A IN CAUSE S FOR REDUCED SUR V I VA L IN 2019 FIGURE 2. 4 USE OF A NTIBIOTICS MAIN CAUSE NUMBER OF FISH TONNES OF FISH REGION 2016 2017 2018 2019 Infectious Bacterial Gill infections Virus Non-Infectious Life cycle Treatments Physical 672 189 200 939 40 293 1 213 178 537 117 381 440 530 146 2 192 1 607 902 Clinical diseases in Finnmark during the year include HSMI and winter ulcers, while in Rogaland the main diseases were CMS, AGD and complex gill disease. In Shet- land, we experienced Furunculosis, multiple gill diseases, and winter ulcers during the year. In BC, we had challenges with yellowmouth, in addition to winter ulcers. We are working to improve survival rates through general health and welfare measures, a preventive and targeted approach to diseases and sea lice, mitigation against algae and low oxygen levels. We report diseases, mortality, and other fish health indicators for our Norwegian entities to the Norwegian authorities on a weekly basis. This is publicly available information, please visit https://www.barentswatch.no/en/fishhealth/. FIGURE 2.5 SUR V I VA L R ATE IN FRE SH WATER REGION Rogaland Finnmark Shetland British Columbia Tytlandsvik Aqua Nordnorsk Smolt 2019 92% 87% 95% 63% 99% 99% In the wild, only a small percentage of fertilized eggs survive and become adults. That is our biological starting point. Over the years, more knowledge has allowed us to improve quality of breeding, the eggs and survival rates, but we still experience mortality especially in the very early phase. We work systematically in the various stages in the lifecycle to improve survival rates. In Rogaland, the main losses happened in the early life phase, until 1 gram. In Finnmark, main losses were related to low quality eggs. In Shetland, loss happened in the yolksac phase and during the first feeding period. Unfortunately, in BC, we lost a significant number of fry due to an unusual incident of bromide exposure. The part-owned Tytlandsvik Aqua and Nordnorsk Smolt facilities are included, as they are essential to our post-smolt strategy. Both are on-growing facilities, with lower mortality. Rogaland 1 057 Finnmark Shetland 0.00 0.00 0.93 0.00 0.00 0.00 0.00 0.00 0.00 1.65 13.90 29.18 British Columbia 126.93 18.30 151.26 87.00 Amount of active pharmaceutical ingredient (API) used (in grams) per tonne of fish produced (LWE), both in seawater and fresh water. There has been no use of antibiotics at our Norwegian operations in recent years, due to good results from vaccines and efforts to ensure good fish health. In Shetland, the use of antibiotics in 2019 was related to Furunculosis and winter ulcers. The introduction of a new vaccination program has reduced the incidents of winter ulcers this winter, and we expect a reduction of the use of antibiotics going forward. The use of antibiotics in BC was related to treatment of yellowmouth. The use of antibiotics is too high, and we are installing infrastructure that will allow us to lower water temperatures and salinities to aid in limiting the transmission of diseases. We also pursue non-therapeutic means to manage disease, such as vaccines and a healthy diet. Through our post-smolt strategy we have better control of our fish’s environment for a longer period of time. It will also make the fish more robust before being transferred to the sea, and a shorter period at sea will reduce exposure to biolog- ical risks. This in turn will reduce the risk of disease outbreaks and the need for antibiotics. The figures for 2014-2018 have been amended compared to previous reporting, due to changes in the calculation from gross production to net production. Amend- ments: Shetland - 2016 amended from 0.8. BC- amended from 294.9 in 2016, 18.0 in 2017 and 150.3 in 2018. FIGURE 2.6 COS T OF REDUCED SUR V I VA L IN 2019 REGION Rogaland Finnmark Shetland British Columbia Total COST NOK 1000 26 127 15 055 77 186 73 327 191 694 Cost recognized as abnormal mortality in the income statement. See note 7 in the Group Accounts for additional information. 6 5 Sea lice control Controlling sea lice levels is one of the most impor- tant measures to protect wild salmon, as well as the health and welfare of farmed salmon. Sea lice treat- ments are expensive and resource intensive. We aim to keep sea lice levels low at all times. FIGURE 2.7 OUR A PPROACH TO SE A LICE CONTROL OUR PRINCIPLES Our main approach to sea lice control is prevention. We aim to keep adult female sea lice levels low to achieve a low infection pressure. When the sea lice limit rises and approach legal limits, our policy is to perform continuous assessment and apply additional measures. If we need to use sea lice treatments, we favour non-chemical delousing methods, to avoid affecting the environment and other species in the ocean. However, when selecting treatment, fish welfare and potential resistance to sea lice treatments are also considered. If, as a last resort, we need to use medical treatments, we revolve the use of various medicines to avoid resistance to the treatments. We collaborate with neighbouring fish farmers to control sea lice in the areas we operate in. 6 6 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 H E A LT H Y O C E A N S E A L I C E C O N T R O L HOW WE WORK TO IMPROVE WORKING TO IMPROVE SEA LICE CONTROL 1. BREEDING, FEED 2. POST-SMOLT 3. NON-MEDICAL CONTROL WITHOUT HANDLING 4. CLEANER FISH 5. NON-MEDICAL CONTROL WITH HANDLING 6. MEDICINES 1. 2. 3. When available, we use roe that has proven more resistant to sea lice. 4. Post-smolt reduces the time at sea and reduces the exposure to sea lice, which improves sea lice control. We use sea lice skirts, to prevent sea lice from entering the pens. We use lump suckers and wrasse, which eat sea lice. Rogaland in particular has succeeded in understanding how to use wrasse effectively. We use lump suckers at all green licenses in Finnmark. In Shetland, we are conducting tests on how to increase the lump suckers' efficiency in eating more sea lice. 5. We use mechanical treatments, such as fresh water, to avoid affecting the environment. The methods are selected when conditions are favorable. 6. Only as a last resort do we use medical treatments. 67 HOW WE WORK TO IMPROVE OTHER SE A LICE EFFORT S • Systematic monitoring of sea lice levels. > In Norway and the UK, we count sea lice every week. > In BC, we follow local regulations. Here the frequency of counts depends on sea lice levels. When new regulations EFFORT S TO REDUCE EN V IRONMENTA L IMPACT OF SE A LICE TRE ATMENT S • All sea lice medicine is strictly regulated. • While we try to avoid using medicinal sea lice treatments at all, are implemented in 2020, all sites will be counted every there are some instances when it is necessary. In such cases, second week in periods of high sea lice pressure. In BC, we try to take as much care of the environment as possible. farmed salmon usually catch sea lice from the wild salmon passing farms on their way to the rivers to spawn. Here, • We also have procedures to prevent the release of water unlike Norway, the wild salmon population greatly outnum- containing delousing medication in areas close to shrimp fields bers the farmed salmon population. or spawning grounds, in compliance with regulations from the Norwegian Environment Agency. • We hold inter-regional meetings to learn best practice sea lice management from each other. • We follow closely ongoing research projects that are looking into the potential impact of sea lice treatments on other • Long and synchronized fallowing periods reduce the sea lice marine species. pressure on the next generation. • We take part in the AquaCloud artificial intelligence project, which aims to be able to predict sea lice levels in advance and use preventative methods in cases of outbreaks. OUR REGIONS HAVE COMPREHENSIVE PLANS AND STRATEGIES FOR SEA LICE CONTROL ROGA L A ND FINNM A RK In Rogaland, we aim to use wild-caught wrasse as our primary In Finnmark, we mainly use sea lice skirts and lump suckers. method, as well as post-smolt. Freshwater treatment is also used. SHE TL A ND BRITISH COLUMBI A In Shetland, we favor the use of sea lice skirts in areas that are In BC, sea lice skirts are used as a preventative measure, and not too exposed to strong currents and wind. However, fresh- hydrogen peroxide has been used to reduce sea lice pressure. water and mechanical treatments have been the main methods used to reduce sea lice pressure in 2019. 6 8 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 H E A LT H Y O C E A N S E A L I C E C O N T R O L RESULTS FIGURE 2.8 H Y DROGEN PEROX IDE TRE ATMENT S FIGURE 2.9 SE A LICE TRE ATMENT S REGION Rogaland Finnmark Shetland 2016 2017 2018 2019 18.45 10.79 3.46 11.94 42.43 13.36 14.53 0.00 75.96 82.72 32.58 12.23 IN BATH Rogaland Finnmark Shetland 2016 2017 2018 2019 1.88 0.00 0.00 0.00 0.02 0.90 0.72 0.21 1.99 5.70 2.98 1.79 British Columbia 0.00 9.17 5.83 6.01 British Columbia 0.00 0.00 0.00 0.00 Amount of active pharmaceutical ingredients (API) used (kg) per tonne of fish produced (LWE). We use preventative methods against sea lice and avoid using hydrogen peroxide whenever possible. We used no hydrogen peroxide in Finnmark in 2019. In Rogaland, it has been used to treat large numbers of fish at the same time, as a targeted and efficient measure to reduce high sea lice levels. In Shetland, hydrogen peroxide has been used to treat amoebic gill disease (AGD), in addition to sea lice treatment. The reduction in hydrogen peroxide usage is a result of a change to freshwater treatments. The use of hydrogen peroxide in BC is at a similar level to the year before. Hydrogen peroxide is made up of water with an extra oxygen molecule. It was previously considered a sea lice treatment that did not impact the environment. At the moment, research is into whether hydrogen peroxide affects other species in the ocean is ongoing. Grieg Seafood is following this research closely. IN FEED Rogaland Finnmark Shetland 2016 2017 2018 2019 3.32 0.15 1.09 0.03 0.14 0.06 0.08 0.10 0.47 0.22 0.21 0.17 British Columbia 0.28 0.14 0.32 0.52 Amount of active pharmaceutical ingredients (APIs) used (gr) per tonne of fish produced (LWE). Use of bath treatments has decreased in recent years. We also aim to minimize the use of sea lice treatments distributed through feed. We are primarily focusing on preventive solutions like cleaner fish, sea lice skirts, post-smolt transfer. In Rogaland, no medical treatment was used in the period from July to October, as a result of using wrasse effectively. In Shetland, in-bath treatments were replaced by freshwater treatments in 2019, while the use of in-feed treatment has also been reduced as it has been deemed less effective. 69 SE A LICE LE V EL S IN OUR REGIONS FIGURE 2.10 SE A LICE LE V EL S ( A DULT FEM A LE S) IN ROGA L A ND FIGURE 2.11 SE A LICE LE V EL S ( A DULT FEM A LE S) IN FINNM A RK 0.5 0.4 0.3 0.2 0.1 0.0 0.5 Limit of adult female sea lice per fish per site 2019 2018 2017 2016 0.2 Limit when wild salmon smolt migrate from the rivers and pass the salmon farms 0.5 0.4 0.3 0.2 0.1 0.0 0.5 Limit of adult female sea lice per fish per site 2019 2018 2017 2016 0.25 Limit of adult female sea lice per fish per site on green licenses 0.2 Limit when wild salmon smolt migrate from the rivers and pass the salmon farms JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Our sites in Rogaland are located in areas defined as “yellow – moderate sea lice density” under the Norwegian traffic light system (2018–2019). It is defined as "green - low sea lice density" from 2020. Grieg Seafood Rogaland has had success with preventive methods, and by planning and using wrasse effectively we are managing to reduce the number of sea lice treatments. One of the main initiatives aimed at increasing sea lice control is our post-smolt strategy, which shortens the time spent at sea and thereby reduces sea lice pressure per fish. Finnmark has low sea lice levels all year round. Generally lower seawater temperatures in the region are an advantage, and the interconnectivity between the sites is low. We use targeted preventive methods such as sea lice skirts and cleaner fish to ensure that the sea lice level is low. We report sea lice levels and sea lice treatments for our Norwegian entities to the Norwegian authorities on a weekly basis. This is publicly available information. For detailed information on sea lice levels and the various sea lice treatments at each of our Norwegian sites, visit https://www.barentswatch.no/en/fishhealth/. FIGURE 2.12 SE A LICE LE V EL S ( A DULT FEM A LE S) IN SHE TL A ND FIGURE 2.13 SE A LICE LE V EL S ( A DULT FEM A LE S) IN BRITISH COLUMBI A 8.0 6.0 4.0 2.0 0.0 2019 2018 2017 2016 8.0 6.0 4.0 2.0 0.0 2019 2018 2017 2016 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC In general, sea lice levels in Shetland are higher than in Norway. In the past year, we have increased our non-pharmaceutical treatment capacity, and have been able to reduce the amount of pharmaceutical ingredients compared to previous years. Sea lice levels above two adult females per fish are reported to the regulating authority, Marine Scotland. Actions are required when the sea lice level increases above six females per fish. BC is heavily influenced by sea lice pressure from wild salmon each autumn. We have tested, and continue to test, preventive methods such as sea lice skirts to keep the sea lice level stable. However, when the sea lice level increases, we carry out the type of treatment we consider most appropriate. The threshold in BC is an average of three motile sea lice. To ensure comparability within our region, we measure the sea lice levels as adult females. We aim to keep the sea level below 0.5 mature female sea lice. 7 0 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 H E A LT H Y O C E A N S E A L I C E C O N T R O L SALMON FARMING AND BIODIVERSITY The areas where we farm salmon have their own unique biodiversity. While many factors, like global warming, increase in predator stocks, or other industries can impact wild species, it is our responsibility to ensure that our operations can co-exist with the wild species around us. We must use farming practices with the smallest possible environmental impact, and work continuously to reduce our impact further. W ILD S A LMON FIGURE 2.14 FA RMED S A LMON IN RI V ERS Salmon farming can potentially impact wild salmon if we do not use respon- 3.5 sible farming practices. High levels of sea lice, especially when the vulnerable wild salmon smolt are passing farms on their way to the ocean, can affect the 3.0 3.0 3.0 3.0 health and possibly the survivability of wild salmon. In areas where the wild 2.5 salmon is of the Atlantic species, escapes may cause interbreeding between farmed and wild salmon in the rivers, and interfere with the genetic uniqueness 2.0 2.0 2.0 Alta River Repparfjord River of the local wild salmon population. While little research exists on the potential transmission of diseases from salmon farms to wild salmon, the possibility of such impacts does exist. Responsible salmon farming practices, like good sea lice and disease control as well as zero escapes, are fundamental to ensuring co-existence with the wild salmon. Salmon farming in the Alta river and the Repparfjord river in Finnmark is moni- tored in collaboration with the Norwegian Institute for Nature Research, the management of the Alta rivers, and the West Finnmark Hunting and Fishing Association. Anglers are encouraged to send salmon scale samples to the 1.5 1.0 0.5 0.0 1.0 0.8 0.8 1.12 1.0 0.15 0.0 0.2 2013 2014 2015 2016 2017 2018 2019 Percentage of farmed salmon based on analysis of scales taken from wild-caught salmon in the Alta river and the Repparfjord river in the period June 1 to August 31 every year. Norwegian Institute for Nature Research, which analyze whether they are Grieg Seafood is also involved in several wild salmon enhancement projects in from a farmed or wild salmon. Grieg Seafood is the project manager on this British Columbia, such as the Oyster River Enhancement Society and Nootka program, as part of our commitment to co-existence between wild salmon and Sound Watershed Society. As wild salmon is an important part of Indigenous the salmon farming industry. culture, we have an even greater responsibility to avoid causing harm. COD A ND W HITE FISH CRUS TACE A NS While research has yet to establish a link between farmed salmon and the Laboratory tests show that sea lice medication can impact crustaceans if coastal cod population in Norway, many coastal fishermen are concerned that they come into contact with it. For some medicines, this applies even in salmon farms impact cod spawning grounds in fjord areas. Grieg Seafood has smaller doses. However, it is uncertain whether crustaceans actually do engaged in a research project conducted by the Norwegian Institute of Marine come into contact with sea lice medication after treatment in the ocean, Research, which will study this issue in Frakkfjord, Finnmark. The research because factors like currents, temperature, and other natural aspects project is financed by the Research Council of Norway. A number of individual impact how the substances break down. More research to improve our cod are caught and labeled, and released in three different fjords – a fjord with knowledge is underway. existing salmon farms, a fjords where a salmon farm will be established, and a fjord with no salmon farms. The cod are traced by acoustic devices, provi- In any case, we are working to avoid using sea lice medicines. Use of ding information on their behavior. The project started last summer and will such medication has declined significantly in recent years. In line with the continue for five years. precautionary principle, Norway has also prohibited the release of sea lice treatment baths near shrimp fields. Salmon farms are believed to impact the cod, pollock, and other wild fish that eat surplus feed, which may spill out through the pens. Some fishermen believe that such wild fish have a reduced quality. Research by Nofima, the Institute of Marine Research, and the Norwegian Institute for Nature Research, which evaluated the quality of pollock that ate salmon feed around sea farms, concluded that quality of the fish was not reduced. In any case, we work hard to avoid overfeeding and see positive results from moving feeding operations from the farms to larger units. 7 1 Escape control Escaped farmed Atlantic salmon can mix genetically with wild Atlantic salmon stocks, and it is our respon- sibility to use farming methods that minimize farmed salmon’s impact on the wild salmon population. OUR PRINCIPLES We have zero tolerance for escapes from our farms in all regions. 7 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 H E A LT H Y O C E A N E S C A P E C O N T R O L HOW WE WORK TO IMPROVE • High technical standards at our sites. We have implemented • Regular inspections of vessels, moorings, and facilities to the technical minimum requirement given by the govern- verify compliance. ment, the NYTEK standard, at all facilities in Norway to avoid escapes during harsh weather. • Inspections before and after harsh weather. • BC uses double nets on all pens. • We strive to ensure that employees attend courses on escape • Procedures to avoid escapes before, during and after oper- also receive risk and procedural training, and do not carry out prevention at least every third to fifth year. New employees ations. > Divers and/or an ROV are used before and after the transfer or treatment of fish. > In Finnmark, an ROV is used continuously during opera- tions. work operations alone until they have completed the neces- sary training. RESULTS FIGURE 2.15 E SCA PE INCIDENT S REGION Rogaland Finnmark Shetland British Columbia 2016 2017 2018 2019 0 1* 2** 0 0 0 0 0 0 0 2*** 0 0 0 2 0 * One incident with 200 fish escaped. ** Two incidents with 829 and 617 fish escaped. *** Two incidents where we reported 500 and 21 712 escapes. In May 2019, 500 smolt escaped from Grieg Seafood Shetland. The incident was a result of equipment failure during transfer from the delivery boat to the sea farm. Procedures to avoid similar incidents have been implemented. It proved impossible to recover the escaped salmon. We also reported a loss of 4 000 fish. We had at harvest a deviation between number harvested out and smolt input. Small sharks had managed to get into the pen, and escape might have occurred. It was agreed with the authorities that the deviation of 4 000 fish was registered as an escape. We have estimated that fish escapes in 2019 resulted in a financial loss of approximately NOK 500 000. 7 3 Limiting local emissions Local emissions from salmon farming may affect the environment in the ocean under or around the pens. Local emissions can be excess feed, feces from the fish or copper from the fish net. OUR PRINCIPLES In line with the precautionary approach, we aim to minimize local emissions. With the current production methods in open pens, some organic emissions must be anticipated. The impact from such emissions must be kept below limits and levels considered acceptable by national authorities. Our footprint should never be irreversible. ORGANIC EMISSIONS Fish feces are a part of the natural eco-system. When a shoal of fish enters an ocean area or a fjord system, fecal emissions from the fish occur naturally. Fish feces contain nutrients, and like manure from agricultural animals, they act as fertilizers for new life. In the ocean, these nutrients sustain the growth of small plankton, which may be eaten by bigger species and thereby move up the natural food chain. However, too many nutrients in one area can cause eutrop- hication, which can potentially harm the existing fauna in an eco-system. While the feces of wild fish are widely distributed around the fjord system, salmon farms contain a lot of fish in a smaller area, and the risk of eutrophication increases. On the seabed beneath a farm, there will also be some tempo- rary impact on the benthic fauna due to organic emissions. Therefore, the release of organic emissions is strictly monito- red and regulated in all of the countries in which we operate. When a farm is removed or fallowed for a period, the seabed recovers and goes back to its original state after some time. 74 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 H E A LT H Y O C E A N L I M I T I N G L O C A L E M I S S I O N S HOW WE WORK TO IMPROVE REDUCING E XCE S S FEED • We monitor the seabed under and around our sea farms, and • We are working to reduce excess feeding by using underwa- perform benthic testing during peak biomass. ter cameras, so that we can stop feeding when the fish are satisfied. • Local regulations impose fallowing periods after each genera- tion, to ensure the environment under and around the pen can • We have an integrated operation center in Rogaland, where we recover. If the local environment is not sufficiently restored can develop specialized feeding expertise. We are also build- according to independent monitoring, we must extend the ing an integrated operation center in Shetland, with a similar fallowing period before transferring new fish to the pens or design and functionality as in Rogaland. In BC, a cluster of sites are being fed from one feeding station. reduce production at the site concerned. > In Rogaland and Finnmark, regulations impose a fallowing REDUCING IMPACT FROM FECE S period of at least two months. > In Shetland, the fallowing period is at least six weeks, but normally we fallow for two or three months. • When selecting sites, we choose those with good currents and exchange of water, which disperse the feces into a wider area > In BC, the fallowing period is three months, although the seabed is often healthy and restored straight after harvesting. of the fjords, mitigating their negative impact. REDUCING OTHER EMIS SIONS • We support copper-free antifouling solutions on our nets. > BC was 100% copper free in 2019. > Finnmark will be copper free by the end of 2020. > Rogaland aims to be copper free within the next two years. > Shetland has been copper free, but is currently using copper- based paints on some sites in an effort to promote good gill health (to prevent gill damage due to net cleaning). Shetland is actively looking for alternatives to copper based paints to return to 100% copper free. 7 5 RESULTS Each country has it’s own score system for benthic tests of the sea bed under the farm. In Norway, farms must take sea bed tests (B test) on peak biomass production/max load, and also take test in the area around the farms regularly (C test). Benthic testing on peak biomass is also performed in BC and Shetland. FIGURE 2.16 ROGA L A ND (B RE SULT S) Very good Good 92% 8% Poor 0% Very poor Test not yet taken 0% 0% FIGURE 2.17 FINNM A RK (B RE SULT S) Very good Good Poor Very poor Sites with hard seabed (do not get a score) Test not yet taken (new sites) 29% 10% 24% 10% 10% 19% FIGURE 2.18 SHE TL A ND Satisfactory Borderline Unsatisfactory 50% 25% 25% 12.5% because they are tidal sites, 12.5% due to environmental impact BRITISH COLUMBIA • There is no regulatory scoring system in place today. Regulations require us to conduct benthic tests at the time of peak biomasse at each farm, and fallow the farm after ended production cycle until the seabed of the site is remediated. If Beggiatoa (a genus of bacteria which indicates organic impact) covers > more than 10% of the compliance zone, the site is not considered remedi- ated and must fallow for longer. The results of the test must be accepted by an independent third party. > 76 ROGAL AND Grieg Seafood has together with other salmon farming companies engaged an inde- pendent, environmental monitoring program in Rogaland, to ensure that organic emissions from all the farms do not altogether impact the fjords significantly. The program monitors the water quality and possible eutrophication in the Ryfylke fjord system. The results from 2019 shows that the environmental condition in the fjord system is good. According to the Risk Report of Norwegian Fish Farming from the Institute of Marine Research, the risk of impact from organic waste from fish farming is low and the environmental condition good in Rogaland (PO2). FINNM ARK We aim for a higher percentage of good scores. Longer fallowing periods are in place for sites with unsatisfactory scores, and a new generation will not be stocked until the impact is reversed and the site has received an acceptable score. We are also working hard to get more sites in Finnmark, which will reduce the organic impact. In addition, we are testing out new models to help us better place the farms in relation to the currents, which will reduce the organic impact. According to the Risk Report of Norwegian Fish Farming from the Institute of Marine Research, the risk of impact from organic waste from fish farming in Finnmark (PO12) is low and the environmental condition good. Compared to Western Norway, there is much less fish farming in Finnmark altogether, reducing the risk. An environmental study from 2017 of organic impact from fish farming in the Alta fjord, showed low impact on the fjord system. Organic materials decom- pose slower in low seawater temperatures. SHE TL AND We aim for a higher percentage of “satisfactory” scores. Improvement measures are longer fallowing periods, but also a reduction in the maximum number of grown fish we can have at a site. We are also installing feeding cameras to reduce excess feeding. We work with Scottish Environmental Protection Agency (SEPA) to find the right way ahead for each site. The Scottish benthic monitoring system is based on modelling, which do not accurately predict the environmental impact on tidal sites. As a result, some of our sites get unsatisfactory scores not due to a greater than permitted level of envi- ronmental impact on the sea bed, but because the results are different from those predicted by the hydrographic model. Out of the four sites that have an unsatisfac- tory result, two are tidal sites. SEPA is working with the sector to determine better ways of monitoring these particular sites. • Grieg Seafood BC takes monthly seabed tests to map our the impact through the years and production cycle. We see that the sites recover more quickly than expected. • Grieg Seafood BC usually fallow the sites for approximately three months. ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 H E A LT H Y O C E A N L I M I T I N G L O C A L E M I S S I O N S 7 7 Interaction with wild life Farms are often located in areas abundant with birdlife and marine mammals. As a responsible salmon farming company, we do what we can to avoid conflicts with wild animals. OUR PRINCIPLES We try to arrange operations and facilities in a way that minimize our impact on local wild life. Weapons are not allowed on our sites. 7 8 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 H E A LT H Y O C E A N I N T E R A C T I O N W I T H W I L D L I F E HOW WE WORK TO IMPROVE • Where relevant, we use equipment that minimizes the risk of • Potential conflicts with wild animals are evaluated when we injury to wildlife, such as strong nets or anti-predator equip- consider new sites. ment. For example, we use protection on the pens to prevent marine mammals from injury if they come into contact with • We try to avoid using Acoustic Deterrent Devices (ADDs) the farm, and we have bird net covers on the pens. We are because some research state that they impact the navigation also planning to invest in more equipment that is not harmful systems of certain marine mammals. to wild animals. • We generally only euthanize animals that are injured, and choose alternative ways to protect farms against intruders. > In BC, we are prohibited from killing wildlife. We aim to release any animal that gets stuck in our pens unharmed. In case of injured animals, we will call on external assis- tance. OUR RESULTS FIGURE 2.19 DE A D BIRDS A ND M A RINE M A MM A L S REGION Rogaland Finnmark Shetland British Columbia 2017 2018 2019 Birds Marine mammals 20 18 0 0 0 0 1 0 Birds 24 1 0 0 Marine mammals Birds Marine mammals 0 0 0 0 2 2 2 14 0 0 0 0 We are not content with reporting any dead birds, and will continue to work on measures to avoid any dead animals. The ASC standard sets the level. 7 9 ROOT ED IN SUSTAINABLE FOOD Improving Food Quality We work to make practices more sustainable along the entire value chain. Focus areas expand from safe and healthy food, traceability and feed to carbon emissions and waste management. 8 0 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 S U S TA I N A B L E F O O D I N T R O 8 1 Safe and healthy food Salmon is a good source of the vital long-chain omega 3-fatty acids DHA and EPA. We humans cannot produce these fatty acids ourselves and must obtain them from the foods we eat. OUR PRINCIPLES We farm salmon that is safe to eat and healthy for our bodies. Full traceability and strict quality control at every stage of production. Open communication about our farming methods and standards with customers. 8 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 S U S TA I N A B L E F O O D S A F E A N D H E A LT H Y F O O D HOW WE WORK TO IMPROVE SA FE FOOD PRODUCT SA FE T Y • All food products contain trace amounts of environmental • We have Hazard Analysis and Critical Control Point (HACCP) contaminants. > In Norway and the UK, the limits on such substances in seafood are set by the European Food Safety Authority systems at our processing plants, approved by national food safety authorities. HACCP is a management system which maintains food safety through the analysis and control of (EFSA), based on the best available research. biological, chemical, and physical hazards - from raw materi- > In BC, the limits are set according to the requirements by the destination country of the exported seafood product. als, production, procurement, and handling, to manufacturing, distribution, and consumption of the finished product. • Dioxins, PCBs, dioxin-like PCBs, and heavy metal have been • Before harvesting the fish, we perform a risk analysis of each released into the ocean by human industrial activities for many location to assess levels of environmental pollutants, residual decades. Fatty fish from Northern Europe, which is turned into foreign substances and bacteria. fish oil, may be a source of such substances in salmon feed. • We maintain a constant focus on high standards of hygiene at • Environmental contaminants in our feed and fish are kept far our processing plants. below the safe limits set by the food safety authorities around • We are working to develop a uniform approach to monitoring, the world. In our monitoring program we include dioxin, PCBs, with weekly reporting and customized action plans. dioxin-like PCBs and heavy metals. • We set standards for transport and storage. • At the end of 2018, EFSA published new scientific advice, which suggested lowering the allowed limit of these substances in food. Grieg Seafood has started to further purify the fish oil GSF GROUP QUA LIT Y NE T WORK used in our feed. • Our GSF Group Quality Network performs a continuous review • Ethoxyquin is an antioxidant that can be used as an additive to of hygiene-related challenges at our processing plants. prevent oxidation and preserve high quality of feed raw mate- • Microbiology and safe food production is the main area of rials during transport. Grieg Seafood is no longer using raw focus, especially the prevention of Listeria monocytogenes. materials with added ethoxyquin in Norway and the UK, and • We work to prevent introduction, contamination and establish- will stop using it in Canada in 2020. ment of Listeria in the production environment and have plans MONITORING A ND TR ACE A BILIT Y to remove Listeria if detected. • We perform thousands of Listeria tests every year at our harvesting plants, both on the fish and in the plant environ- • We have a fully integrated value chain from roe to harvest, ment. and the production management program Fishtalk and trading system Maritech provides documentation and full traceability. Fishtalk also provides a complete record of all feed used and S TA NDA RDS A ND CERTIFICATIONS treatments applied. • The certifications BAP and GLOBALG.A.P. cover our entire • Systems to register and follow up customer feedback and supply chain. complaints. • Our sales company, Ocean Quality, is chain of custody certified • EU Directive 96/23 EC requires a monitoring program for according to GlobalG.A.P and ASC. undesirable substances in aquaculture products, to ensure • Grieg Seafood Shetland operates according to standards such that food does not contain residues above legal limits. > In Norway, the program is administered by the Food Safety Authority and the Institute of Marine Research. Since the program began in 1998, residue levels have remained significantly below the recommended maximum limits. • We include heavy metals and dioxin/PCB in our monitoring program. as those from the British Retail Consortium (BRC), Protected Geographic Federation, and Kosher. 8 3 RESULTS FIGURE 2.20 EN V IRONMENTA L CONTA MIN A NT S A ND LIMIT S 2019 FOR S A MPLE S OF GRIEG SE A FOOD S A LMON Environmental contaminant Lead Mercury PCB 6 EU limit 0.3 mg/kg 0.5 mg/kg 75 µg/kg Dioxins PSDD/F TEQ excl LOQ 3.5 pg/g Samples Median Max Median Max Median Max Median Max Norway <0.05 mg/kg <0.05 mg/kg 0.0085 mg/kg 0.018 mg/kg 4.60 µg/kg 5.69 µg/kg 0.03685 pg/g 0.198 pg/g Shetland <0.05 mg/kg <0.05 mg/kg 0.018 mg/kg 0.025 mg/kg 3.33 µg/kg 5.51 µg/kg 0.14 pg/g 1 pg/g British Columbia <0.05 mg/kg <0.05 mg/kg 0.005 mg/kg 0.02 mg/kg - - - - Our sampling for PCBs, dioxins, PCB-like dioxins and heavy metals are taken on all farms at the end of the production cycle. Samples from each site are tested according to standard analytical methods by external laboratories. BC does not source fish oil form areas where all of these contaminants can be a challenge, and therefore the samples are less comprehensive. FIGURE 2.21 LIS TERI A CONTA MIN ATION IN 2019 REGION Rogaland Finnmark Shetland British Columbia Number of samples* Listeria detected (%) 2 136 2 406 1 564 572 5.2% 1.3% 2.1% 2.1% *Number of samples of end product and plant environment. Our Listeria sampling is done on key points on the production line to ensure food safety. Samples are taken regularly to show variations over time. We also test finished product for Listeria. Samples are analyzed according to standard methods by external laboratories. If Listeria is detected, action plans are executed in the form of extra thorough cleaning and the replacement of equipment. Relevant customers are informed. Most of them have measures in place to manage Listeria for the fish they buy, even when Listeria is not found at the harvesting plant. FIGURE 2.22 SUPERIOR SH A RE REGION Rogaland Finnmark Shetland British Columbia 2016 2017 2018 2019 88% 89% 93% 76% 81% 78% 93% 81% 74% 86% 94% 84% 75% 86% 94% 86% We categorize our salmon as superior, ordinary or production grade. Superior quality has a positive overall impression with good meat quality and no external damage or faults. The superior share is calculated as a percentage of net biomass, excluding discards. Please see the section "Analytical information" for further details. We have corrected the superior share for the years 2016-2018 due to exclusion of discards. Previous reporting was: Rogaland with 85% in 2016, 79% in 2017 and 73% in 2018. Finnmark with 88% in 2016 and 85% in 2018. The share of superior quality fish in Rogaland was impacted by PD from 2017 until mid-2019. Quality improved the second half of 2019. Claims were mainly related to melanin. In Finnmark, colder sea temperatures in general can cause winter ulcers, which affects the superior share. Winter ulcers and melanin were the main reasons for claims in 2019. In Shetland, the share of superior quality fish is consistently high, although it has been somewhat affected by gill-related diseases and mechanical sea lice treat- ments. Claims were mainly related to melanin. The share of superior quality in BC has been rising in recent years, despite algal bloom incidents. Claims during the year were related to pigmentation, texture or soft flesh. 8 4 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 S U S TA I N A B L E F O O D S A F E A N D H E A LT H Y F O O D 8 5 Salmon & health Salmon is healthy food. Fish and seafood contain a number of nutrients that are vital to the human body. IODINE Iodine is important for maintaining a normal metabolism. Iodine deficiency can lead to meta- bolic changes, which may cause reduced growth and mental retardation. V ITA MIN D Vitamin D is necessary to maintain the calcium level in our bodies. It is also important to build and maintain our skeletons. The body can only produce vitamin D itself when the skin is exposed to direct sunlight, or if our diets includes natural sources of vitamin D. Fatty fish and fish liver contains vitamin D. SOURCE: S A L MONFACT S.C OM 8 6 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 S U S TA I N A B L E F O O D S A F E A N D H E A LT H Y F O O D V ITA MIN B12 Vitamin B12 is essential when the body grows new cells. Because we constantly need a lot of red blood cells, we can develop anemia if we don`t have enough of this vitamin. V ITA MIN A Vitamin A contributes to healthy eyesight and a strong immune system. The vitamin is also essential for healthy fetal development and has a positive impact on reproductive health. SELENIUM Selenium is important for the body's immune system because it helps to fight damaging chemi- cal processes in the body. Selenium also seems to protect us against pollutants and heavy metals. PROTEIN Protein builds and maintains all the cells in our body. Proteins consist of various amino acids, and the ones the body cannot produce itself are called essential amino acids. They must be obtained through our diet. OMEGA-3 FAT T Y ACIDS Omega-3 fatty acids prevent and slow down the development of cardio vascular diseases. These fatty acids are also among the vital building blocks for our brain. Most important are the two long-chain fatty acids, DHA and EPA. 8 7 Sustainable feed ingredients Fish feed is the most important and costly input factor in salmon farming. Sustainable sourcing has long been an important issue, and a lack of sustainably fished marine ingredients has made feed producers substitute marine fish oil and fish meal with plant-based ingredi- ents. As the aquaculture industry continues to expand, we strive to source new feed ingredients in order to grow sustainably. OUR PRINCIPLES Input factors in fish feed, both marine ingredients and plant- based ingredients, should come from sustainable sources. We comply with the ASC standard for how much fish meal and fish oil we have in our feed. We recognize the need to develop novel marine and plant based feed ingredients. FEED INGREDIENTS AND RISKS We have focused on several supply chain risks connected to feed ingre- dients for several years. Overfishing can be a risk connected to marine ingredients, and deforestation can be a risk connected to some plant based ingredients. We have set specific sourcing requirements to feed suppliers on these aspects. During 2020, we will conduct a broader risk assessment of our feed ingredients, which will include assessment areas like carbon footprint, human rights and more. 8 8 FIGURE 2.23 FEED INGREDIENT S 2019 12% 3% 5% 14% 10% 23% 10% 23% BEANS GUAR SOY WHEAT RAPESEED OIL FISHOIL FISHMEAL WHEAT GLUTEN This illustrates the average of raw material content in our feed used in Norway and UK. In BC, the content is somewhat different as in general protein from vegetable are replaced by poultry-bi product. ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 S U S TA I N A B L E F O O D S U S TA I N A B L E F E E D I N G R E D I E N T S HOW WE WORK TO IMPROVE REQUIREMENT S FOR FEED SUPPLIERS • From 2020, 100% of the marine ingredients in the feed we use, will comply with the sustainability standard set by Marine Stewardship Council (MSC), Iceland Responsible Fisheries Management (IRFM) Certification Program, Alaska Respon- sible Fisheries Management Program, or the International Fishmeal and Fish Oil Organization Responsible Supply Stan- dard (FIPs). • No marine ingredients come from illegal, unreported, or unregulated fisheries. • 100% of soy ingredients are certified according to the sustain- ability standards Proterra or Round Table on Responsible Soy. These standards ensure that the soy we use has not contrib- uted to deforestation. • In our Supplier Code of Conduct, we require our suppliers to minimize their environmental impact, with a particular emphasis on the exploitation of limited resources and on deforestation. Our suppliers are expected to identify and monitor their impact and implement measures where needed. DE V ELOPING MORE SUS TA IN A BLE FEED • We are in dialogue with suppliers to cooperate on developing novel sustainable feed ingredients, such as insect meal. • We cooperate with other players in the industry, such as the GSI, to encourage feed producers to increase their focus on sustainable ingredients. • We are a member of the steering committee for the develop- ment of a new global ASC standard for fish feed. • We encourage our suppliers to participate in the International Fishmeal and Fish Oil Organization (IFFO), and its work on a standard for responsible resource use. • We have been a partner to an R&D project, CO2 Bio, that uses carbon dioxide from the oil and gas industry to produce algae as an alternative fish feed ingredient. In 2019, we withdrew from this project and will look for alternatives. FUNDING FOR SOY FARMERS IN THE CERRADO COALITION Our mission is to end soy-related deforestation in the Cerrado, while facilitating expansion of the Brazilian soy industry on already cleared land. The problem The Brazilian Cerrado stores huge amounts of carbon and is home to 5% of the world’s animals and plants. Still, the savannah is one of the world’s deforestation frontiers. The habitat is being rapidly cleared to make way for soy and beef plantations. Once covering an area larger than the UK, France and Germany combined, now only half of its original extent and native vegetation remains. An additional 2,000 hectares are being lost every day, equivalent to the area of Greater London every three months. The solution Grieg Seafood has together with Tesco and Nutreco launched the Funding for Soy Farmers in the Cerrado Coalition. We aim to raise the critical funding needed to implement a Brazilian-led innovative financial mecha- nism to end deforestation from soy in the Cerrado. This funding will be used by Brazilian stakeholders to develop and implement the mechanism to provide the financial incentives necessary to support farmers to transition to producing soy only on existing agricultural land. “Although the soy we use in our salmon feed is certified and deforestation-free in and of itself, the Funding Coali- tion gives us an opportunity to make a greater industry impact further back in our value chain. There is no contra- diction between ending soy related deforestation and conti- nued development of the local soy industry in the Cerrado. We hope many companies will join us, both in and outside the salmon sector, to make that happen.” — Andreas Kvame, Grieg Seafood CEO Grieg Seafood will contribute with 2 dollars per ton soy we use in our feed for five years, starting when the financial mechanism is launched. Grieg Seafood is also in the Steering Committee of Cerrado Manifesto Signatories of Support, together with Tesco (chair), Ahold Delhaize, APG, Avara Foods, CGF, FAIRR, Nestlé, Nutreco, PRI, Robeco, SIM and Unilever. For more information, please visit: www.businessforthecerrado.com/ 8 9 RESULTS FIGURE 2.24 FISH ME A L FFDRM FIGURE 2.25 FISH OIL FFDRO FDDRM Norway UK BC - Canada 2016 0.56 0.83 0.63 2017 0.73 1.12 0.46 2018 0.54 0.76 0.46 2019 0.38 0.64 0.37 FDDRO Norway UK BC - Canada 2016 1.61 2.04 1.90 2017 1.75 1.89 1.48 2018 1.64 2.09 1.88 2019 1.97 1.44 1.39 ASC DEMAND: 2.52 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Norway UK BC - Canada ASC DEMAND: 1.20 3.00 2.50 2.00 1.50 1.00 0.50 0.00 2016 2017 2018 2019 2016 2017 2018 2019 The forage fish dependency ratio (FFDR) represents the amount of wild fish needed to produce sufficient fishmeal and fish oil for one kilo farmed salmon. Both are well below the ASC limit. We use little fish meal and fish oil in our feed. Our FFDRm figures shows a continuous reduction and that we were a net producer of marine protein in 2019 in all regions. We used less fish oil in 2019 than the year before, except in Norway. We are still well below ASC requirements. FIGURE 2.26 ECONOMIC FEED CON V ERSION R ATIO (EFCR) REGION Rogaland Finnmark Shetland British Columbia 9 0 The eFCR describes the amount of feed required to produce one kilo of farmed salmon. It is calculated as the total weight of feed divided by net production (harvested weight). In Rogaland, we had less impact from pancrease disease in 2019 compared to 2018, which improved the feed conversion rate. Due to our efforts related to algae moni- toring and improved feeding during challenging situations, we managed to reduce the feed conversion rate in BC. 2018 2019 1.52 1.17 1.44 1.54 1.28 1.21 1.47 1.41 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 S U S TA I N A B L E F O O D S U S TA I N A B L E F E E D I N G R E D I E N T S 9 1 Reducing carbon emissions Though farmed salmon has a low carbon footprint compared to other protein sources, we must reduce our carbon emissions further. OUR PRINCIPLES We must play our part in reducing greenhouse gas emissions in order to reach the Paris Agreement´s objectives. Our target is to cut greenhouse gas emissions by 30% per kilo by 2030, from a 2017 baseline. 9 2 COOPERATING TO REDUCE SCOPE 3 EMISSIONS Grieg Seafood will take part in a test with transportation suppli- ers, where salmon from Finnmark will be moved from trucks to train through Sweden to get to the south of Scandinavia. It is estimated that carbon emissions for this distance can be reduced by approximately 66%. THE CARBON DISCLOSURE PROJECT In 2019, Grieg Seafood was given an A rating by the Carbon Disclosure Project (CDP) for our climate disclosures and actions towards a low-carbon future. Even though fish has a low carbon footprint, cutting more emissions from our operations and supply chain is one of the challenges we must solve in our industry. For more information on the CDP, visit www.cdp.net. ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 S U S TA I N A B L E F O O D R E D U C I N G C A R B O N E M I S S I O N S HOW WE WORK TO IMPROVE SCOPE 1 A ND 2 SCOPE 3 • Our largest direct source of emissions is from the fuel that • We are working to include Scope 3 GHG emissions in our powers our boats, vehicles, and on-site electricity generators. reporting, and will publish the results in 2020. Our main emis- We are testing out a variety of new technologies to reduce the sion drivers are transport, airfreight and feed. carbon footprint of these sources, such as replacing the diesel • We are working to reduce our emissions, both within Scope engines used at sites with battery packs or hybrid solutions. > We are also testing out new solutions. For instance, in Rogaland, we have a test project on one of our farms with a wind turbine and solar panel. 1, 2 and 3. We will adopt Science-Based Targets to meet the goals of the Paris Agreement. • We have tested out methods to chill the salmon after harvest- ing, which made it possible to avoid ice in packaging and • Our preventative approach to sea lice control will also reduce reduced the carbon footprint per kilo of packed salmon. We our carbon footprint, as use of large vessels in treatments also will invest in this equipment in the years to come. lead to greenhouse gas emissions (GHG). • We maintain a regular dialogue with our suppliers of feed, • Before making any investments, we evaluate their potential goods and services, and we discuss what they are doing to carbon emissions and environmental impact. reduce their GHG emissions. Some of our suppliers already • The Grieg Seafood´s head office is a certified Eco Lighthouse. have their own GHG reduction targets. Going forward, we will The certification process involves an evaluation of energy encourage others to clarify their goals. consumption, supply management, waste management, trans- port use, sewage treatment, system criteria and the working environment. 9 3 RESULTS FIGURE 2.27 GREENHOUSE GA S EMIS SIONS REGION Scope Scope 1 ROGALAND Scope 2 location based Total (scope 1+2) Scope 1 FINNMARK Scope 2 location based Total (scope 1+2) Scope 1 SHETLAND Scope 2 location based TOTAL EMISSIONS (tCO2e) EMISSIONS (kgCO2e) / TONNES 2017 2018 3 753 3 721 420 4 173 4 540 567 5 107 8 071 2 265 456 4 177 7 134 420 7 554 9 813 2 741 2019 9 211 424 9 634 4 779 696 5 474 10 507 1 494 2017 2018 2019 230 256 382 224 254 169 Total (scope 1+2) Scope 1 10 336 12 554 12 001 857 1 053 1 065 5 974 9 143 14 867 Scope 2 location based 768 783 685 BRITISH COLUMBIA ASA OQ Total (scope 1+2) Scope 1 Scope 2 location based Total (scope 1+2) Scope 1 Scope 2 location based Total (scope 1+2) Scope 1 (tCO2e) 6 742 9 926 15 552 702 597 1 101 - 5 5 - - - 4 4 - - - 3 3 - 2 2 22 338 29 811 39 363 4 025 4 404 3 304 TOTAL GROUP Scope 2 location based (tCO2e) Total scope 1 + location based scope 2 26 363 34 215 42 667 421 459 514 Our total greenhouse emissions increased by 25% compared to last year, while production increased by 11%. Measured as C02 equivalents per tonne harvested, the increase is 12%. In Shetland, the harvested volume decreased by 5%, while total emissions decreased by 4%. Emissions per tonne rose by 1%. In Rogaland, total emissions more than doubled from 2018 to 2019. The increase is due to a 55% increase in the harvested volume, and a considerable increase in the consumption of marine gas oil (MGO), which is mainly used for well boat services. Measured in terms of emissions per tonne, the increase from 2018 to 2019 is 49%. In Finnmark, the decrease of both total emissions and emissions per tonne harvested is due to the reclassification of 3 299 tCO2e of marine gas oil consumption from Scope 1 to Scope 3 based on a change in operational ownership at the start of 2019. Exclud- ing this reclassification, total emissions increased by 16%, while the increase per tonne is 7%. The harvested volume rose by 9%. Measures taken to reduce green- house gas emissions during the year includes connecting three production sites to the electrical grid, and installing batteries on four production vessels, enabling diesel electric production. With the installation of heat pumps, on-shore electricity, and hybrid solutions, we were able to save 521 tCO2e in 2019. At the same time, these measures increased our electricity consumption by 63 tCO2e. The net reduction of these measures came to 458 tCO2e. In BC, the 57% increase in total emissions is attributable to a substantial increase in the consumption of diesel to power our sites. Due to a 15% decrease in the harvested volume compared to the year before, emissions per tonne rose by 85%. Because we are growth oriented, and are therefore targeting higher production and harvest volumes, we expect an increase in our total emissions going forward. Never- theless, we will continue to work towards our goal of a reduction per kilo. In Finnmark, we have started to observe the benefits of using onshore electric- ity instead of diesel generators to operate a growing number of production sites. However, we are not satisfied with the substantial increases in Scope 1-emissions, especially in Rogaland and BC. Well-boat services make up a substantial proportion of our emissions, and the decisions we take about whether to provide these services ourselves or outsource them to external service providers, have a considerable influ- ence on our Scope 1 emissions. In 2019, we were able to significantly increase the level of detail of our data collection, and aim to include Scope 3 in our reporting in 2020. Capturing all emission data on an individual production site basis allows us to compare the energy intensity of each production site across all regions, and to develop strategic low-carbon transition plans for 2020 and beyond. 94 ANNUAL REPORT 2019GRIEG SEAFOODRESULTS PA R T 0 2 S U S TA I N A B L E F O O D R E D U C I N G C A R B O N E M I S S I O N S FIGURE 2.28 GREENHOUSE GA S EMIS SIONS 45 000 Scope 1 (tCO2e) Scope 2 location based (tCO2e) 3 304 39 363 4 404 29 881 4 025 22 338 0 2017 2018 2019 Our greenhouse gas emissions are reported in accordance with the Corporate Accounting and Reporting Standard, developed by the Greenhouse Gas Protocol Initiative (GHG protocol), using the operational approach. 2017 is our baseline year, as this was our first year of complete and verified data. Scope 1 emissions are those that are directly emitted by Grieg Seafood’s activities and include emissions from the combustion of fossil fuels for generators, heating, and our own vehicles. Emissions are calculated on the basis of recorded energy cost using local energy prices. We also have a relatively small consumption of hydrofluorocar- bons for cooling, which are included in Scope 1. All Scope 1 emission factors used are from DEFRA (Department for Environment Food and Rural Affairs, UK Government). Scope 2 emissions are indirect emissions relating to third-party generation of the electricity we consume at our sites. Emissions are reported as location-based and market-based emissions in accordance with the GHG protocol. Location-based factors are from the International Energy Agency (IEA), using three-year rolling averages, while market-based factors are from RE-DISS (Reliable Disclosure Systems for Europe), apart from Canada which come from Green-E. Underlying data is collected from financial cost and on-site meters. 9 5 Climate risk The effects of climate change, such as extreme weather, warmer seawater, and rising sea levels can have financial impact in the coming decades. Knowledge of the possible financial consequences of global warming, and the integration of climate risk, is an essential part of our risk management strategy. OUR PRINCIPLES Climate-related risks are mapped as part of our overall risk management strategy. We are committed to transitioning to a low-carbon economy together with the rest of the world. 96 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 S U S TA I N A B L E F O O D C L I M AT E R I S K HOW WE WORK TO IMPROVE • Climate-related risks are mapped in accordance with the • When considering our exposure to climate-related risks and recommendations of the Task Force on Climate-Related opportunities, we also consider exposure in our value chain. Financial Disclosures. • Our climate-related risks include the physical risks of climate risks and opportunities. change, such as disruption of operations due to extreme weather, and the impact of the transition to a lower-car- • To ensure that our long-term strategic decisions enable us to bon economy. Transition risk covers market risk, such as be a sustainable and preferred agent in the low-carbon future, constraints on emissions; regulatory risks, such as impo- we will conduct scenario analyses and assess the related • As a part of our 2025 strategy, we will address climate-related sition of carbon tax; technology risks, such as competition financial impacts. from land-based fish farming or lab-produced proteins; and reputational risk. OUR RESULTS See our TCFD report in the Appendix to this Annual Report. 9 7 Waste management Our waste should always be disposed of in compliance with prevailing regulations, and recycled whenever possible. OUR PRINCIPLES We make every effort not to pollute the environment where we farm our salmon. As much waste as possible should be recycled and fed back into the circular economy. Plastic should be recycled and not end up in the ocean. 9 8 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 S U S TA I N A B L E F O O D WA S T E M A N A G E M E N T HOW WE WORK TO IMPROVE FRE SH WATER FA RMING EQUIPMENT • Most of the tanks in our fresh water facilities are Recirculating • Old farming equipment is safely removed, and we are working Aquaculture Systems (RAS), which recycle at least 90–97% of to establish an effective recycling system. Project to improve the water used. recycling practices will be implemented in 2020. • We engage in annual beach clean-ups around our farms. BIOLOGICA L WA S TE • Fish trimmings and dead fish from the farms are disposed of separately, and processed into fish silage. Depending on quality, it may be used for animal feed, biofuel, or fertilizer. • Organic waste from our fresh water facilities are recycled and used as biofuel or fertilizer. We currently do this in Rogaland, Finnmark, and BC. In Shetland, the organic waste is currently used for biogas production. OCEAN PLASTICS Ocean plastics is pollution, which can impact fish and life below water negatively. While the aquaculture industry has been less conscious of plastics from operations going astray in the past, awareness has increased during recent years. Grieg Seafood has a partnership with the NGO Bellona, where Finnmark is • Develop plastics products that last longer and are easier to recycle piloting a project on plastics. Main parts of the initiative are: together with suppliers, such as sea lice skirts and artificial kelp forests • Mapping sources of plastics in operations. At our sites, cages, moorings for cleaner fish. and ropes, nets, feeding tubes, sea lice skirts, and shelter for cleaner • Work with suppliers to develop return schemes. For instance, nets fish are the main sources of plastics. A typical site with ten cages of made of nylon can be reused in various textiles and carpets, or turned 90 x 90 meter pens contains approximately 360 000 kg of plastic. It is into other nylon products. estimated that 0.5% of this, 1 800 kg, disappears. The project will be implemented in other regions in the coming years. Grieg • Developing plastics accounting, an overview of all plastics bought. The Seafood Finnmark will extend the pilot and start evaluating the value chain. aim is to recycle all plastics and avoid leakages. • Making recycling of plastics easier at sites with separate containers, and create a culture for reducing use of plastics and recycle what is used. As part of the Grieg Group, we have also partnered with the World Wildlife Fund to reduce ocean plastics in Asia. The project has clear ambitions: 50% reduction of plastic pollution in three Philippine port cities by 2023. 9 9 ROOT ED IN PROFIT & INNOVATION Improving Performance Without a profitable business, we will not be able to farm healthy salmon for people to eat all over the world. To achieve good financial results, our farming methods need to be both cost-effective and sustainable. 10 0 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N I N T R O 10 1 The global salmon market Grieg Seafood is part of a global salmon market. We supplied approximately 4% of the global volume of Atlantic salmon harvested in 2019 and aim to increase this to almost 5% by 2020. FIGURE 2.29 ATL A NTIC S A LMON CONSUMP TION IN 2019 FIGURE 2.31 NQSALMON WEEKLY AVER AGES (NOK /KG) (LESS DISTRIBUTOR MARGIN OF NOK 0.75) 100 80 60 40 20 0 2019 2018 2017 2016 2015 1 5 9 13 17 21 25 29 33 37 41 45 49 53 ≥ Source: https://salmonprice.nasdaqomxtrader.com/public/home?0 ≤ Source: Kontali - Production and market update Feb 2020* *All market data is based on reports from Kontali Analyse AS. OTHER 30% EU 44% RUSSIA 4% JAPAN 2% USA 20% FIGURE 2.30 ATL A NTIC S A LMON H A R V E S T IN 2019 OTHER 9% CANADA 6% UK 7% CHILE 27% NORWAY 52% 10 2 ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 2 P R O F I T & I N N O VAT I O N T H E G L O B A L S A L M O N M A R K E T GLOBAL MARKET DEVELOPMENTS IN 2019 The global harvest of Atlantic salmon increased by 7.4% in 2019, It is estimated that consumption in most major markets increased continuing an upward trend seen over several years. A total of in 2019, except for Russia and Japan which decreased by 9% and 2 325 600 tonnes GWT was estimated to have been harvested 2%, respectively. The largest relative increases in consumption globally in 2019, up from 2 164 590 tonnes in 2018. The largest were found in the USA and the EU, with 8% and 6%, respectively. contributors to the increase in supply were Norway, Chile, and the UK, with an increase in output of 72 000, 27 180, and 27 000 Salmon spot prices noted on NASDAQ Salmon Index (NQSALMON) tonnes, respectively. The Chilean industry has mustered an had a notable price drop from August to October, with the lowest impressive recovery after its difficulties in 2016, while Norway price of NOK 39.75 per kg. Prices stabilized in November and has seen incremental growth in harvested volumes as farmers ended the year at NOK 77.07. After five years of sharply rising have adapted to challenging biological conditions over the past prices, the 12-month average NQSALMON for 2019 (less distrib- few years. Canada, on the other hand, experienced a 2 610 tonne utor margin of NOK 0.75) came to NOK 57.21 compared to NOK reduction in the volume harvested in 2019. 59.22 in 2018. GLOBAL MARKET EXPECTATIONS Kontali estimates that the supply of Atlantic salmon will increase For the past 25 years, literally all new fish volumes have come by 4% worldwide in 2020. This is based on a forecast increase in from aquaculture. Wild fishing has long had to deal with smaller output of 3% in Norway, 4% in Chile, 33% in Iceland, and 6% in catches, quotas, and other regulatory restrictions. Since 1990, the Faroe Islands. the volume of farmed fish has multiplied more than six-fold, with salmon making up less than 2.5% of the volume. At year-end 2019, the consensus was that the global demand for Atlantic salmon would remain high. Combined with limited In line with the ongoing global megatrends relating to health and possibilities for increasing the harvested volume, prices were sustainability, there has been growing interest in the health and also expected to remain high. However, the market situation in potential environmental benefits that can be gained from sustain- 2020 has been impacted by the coronavirus (COVID-19) pandemic. able aquaculture. At the moment, Europe is the largest and most The escalation of both spread of the disease and the measures mature market for Atlantic salmon, consuming more per capita taken to combat it is currently causing extreme uncertainty for than other continents. There are, however, countless ongoing producers and processors, as well as for consumers. Industry initiatives to introduce salmon to more and more new consumers reports point to a boost in sales to the retail segment, while sales across the globe. An increase in consumption per capita in large to the HoReCa segment is essentially closed. Market distribution markets and growing economies such as the USA, Brazil, China, going forward is both uncertain and challenging. and India is expected to contribute to rising demand for Atlantic salmon over time. Looking further ahead, there is a consensus in the market that the existing coastal open-pen aquaculture industry will achieve modest organic growth. This development will primarily be driven by the opening of new sites and areas for sea farms, new and improved technologies and farming practices, and better cooperation both between industry players and with the public authorities. In addition to this incremental growth, more experi- mental attempts to farm salmon, either offshore or on land, may supplement the traditional salmon farming industry with addi- tional volumes in the longer term. 10 3 Ocean Quality and our markets By focusing on sustainable farming practices and good fish health and welfare, we can provide the healthy, tasty, and high-quality product that our customers demand. OUR PRINCIPLES Our operations span the entire value chain from roe to harvestable fish, primary processing, packaging, and sales. Our farming regions sell their fish to Ocean Quality, which resells it to third parties for further processing, or to other customers for consumption as is. Ocean Quality aims to be a preferred and reliable global supplier. FIGURE 2.32 OUR M A RK E T S IN 2019 OTHER 5% ASIA 16% NORTH AMERICA 15% UK 12% EU 53% 10 4 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N O C E A N Q U A L I T Y A N D O U R M A R K E T S OCEAN QUALITY OUR MARKET EXPECTATIONS Headquartered in Bergen, Norway, Ocean Quality is the sales 2020 started well, with high market activity. In March 2020, organization of Grieg Seafood (60% shareholding) and Bremnes however, the COVID-19 situation impacted the salmon marked, Seashore (40% shareholding). The Ocean Quality Group also has with a shift in demand from hotels and restaurants to super- sales companies in Shetland and North America which sell Grieg market retailers, as people started to eat more at home. So far, Seafood’s salmon in these regions. In 2019, Ocean Quality sold production in Grieg Seafood is going relatively well and according 125 530 tonnes of salmon, an increase in volume of more than to plan, and sales have remained more or less at normal level. 9% compared to the 114 720 tonnes it sold in the year before. Most of our salmon is trucked from Norway or the UK to European Grieg Seafood accounted for 66% of the total volume sold in 2019. customers, or from Canada to our American customers. Having OUR MARKET DEVELOPMENT IN 2019 In 2019, the Grieg Seafood Group's (including Ocean Quality) sales production in more than one continent gives us more flexibility and reduces logistical difficulties. Exporting salmon by air is a challenge due to the reduced availability of commercial flights. We are working closely with freight carriers and customers to find appropriate solutions. revenues amounted to NOK 8 274 million, corresponding to an The production cycle of salmon is 12-16 months in sea, and adjust- increase of NOK 773 million or 10.3% from 2018. Continental ing supply in the short term is difficult. Logistical challenges or Europe is by far our most important market, representing 53% changes to demand will cause short to medium-term mismatch of our sales revenues. The market distribution of sales varies year between supply and demand, and potentially pressure on spot on year, depending on the harvested volumes across our regions. prices. The spot market price of fresh whole salmon is trending The main change in our sales distribution was an increase to the down, in particular for large sized salmon. While expert opinions EU, from 51% in 2018 to 53% in 2019, due to the increased volume indicate that the virus situation in some European countries and from our Norwegian farming regions. At the same time, sales in the USA will get worse before it improves, the market situation directed to the UK market decreased from 17% in 2018 to 12% is improving and gradually returning close to a normal situation in 2019. in China. OCEAN QUALITY IS COMMITTED TO HIGH STANDARDS Reliable year-round supply that meets customer requirements. Fresh and healthy products. Traceability and food safety. Quality control and sustainability of raw materials. Fish health, welfare, and environmental care. Although the market situation is uncertain, Ocean Quality currently expects to sell 150 125 tonnes in 2020, correspond- ing to an increase of 13% compared to 2019. Grieg Seafood´s harvest will account for 100 000 tonnes of this sales volume. In the medium and long term, there is a clear market trend towards increased demand for certified and specialty products. Grieg Seafood is working continuously to adapt to changing customer preference. Our efforts to increase the number of ASC-certified sites is one example of this. After the HoReCa markets have recovered from COVID-19, we are committed to improve sales of our high-end products like our Skuna Bay brand from BC or Kvitsøy from Rogaland. Skuna Bay salmon is sold to gourmet restaurants in major American cities, while the majority of the Kvitsøy Salmon brand is sold to the Italian and Spanish markets. As part of our 2025 strategy, we also aim to to re-position Grieg Seafood in the value chain from a pure commodity supplier to a customer innovation partner. We will increase our presence downstream through partnerships, category development and brand cultivation. 10 5 Economic productivity By focusing on sustainability and driving forward improvements at our farming operations, we aim to create value for all our stakeholders. OUR PRINCIPLES Improving sustainability is key to increasing our profits. By focusing on reducing our environmental impact and improving fish welfare, we aim to increase the harvested volume and reduce production cost. We aim to provide our shareholders with a competitive return on capital invested and have set a ROCE target of 12%. Our investments reflect our growth strategy: digitalization, post- smolt, biosecurity, and fish welfare, including a continuous evaluation of expansion opportunities. 10 6 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N E C O N O M I C P R O D U C T I V I T Y RESULTS PROFIT A ND LOS S 2019 was characterized by good market conditions and continu- EBIT for the Group before fair value adjustment of biological ous improvement across our operations. We reached a harvested assets ended at NOK 1 088 million, a decrease of about 1% volume of 82 973 tonnes, which was almost 1 000 tonnes above compared to last year. The EBIT per kg of NOK 13.11 was positively our target of 82 000 tonnes and approx. 11% higher than in 2018. affected by the harvested volume and high spot prices. Lower cost The average spot price for 2019 (NASDAQ Salmon Index average, in Rogaland and Finnmark contributed positively, while cost in BC less a distributor margin of NOK 0.75) was NOK 57.21 per kg, down and Shetland were impacted by challenging biological conditions. by NOK 2.01 per kg compared to last year. The Group´s sales The total farming cost per kg for the Group came to NOK 43.54 revenues increased by NOK 773 million to NOK 8 274 million. In compared to NOK 43.10 in 2018. addition to a strong market for our product, these results were achieved by maintaining a strict focus on sustainability, driving forward improvements at our farming operations and increased harvest volume. Total cost, excluding depreciation and write downs, came to NOK 6 806 million, an increase of NOK 590 million compared to 2018. The rise in cost mainly relates to a higher harvested volume. FIGURE 2.33 K E Y FIGURE S FIGURE 2.3 4 GROS S IN V E S TMENT S Growth investments Maintenance investments Harvest volume (GWT) NOK MILLION Sales revenues EBITDA EBIT 2015 2016 2017 2018 2019 4 609 6 545 7 017 7 500 8 274 261 1 342 1 106 1 334 1 498 48 1 168 904 1 099 1 088 Harvest volume (tonnes GWT) 65 398 64 726 62 598 74 623 82 973 EBIT/ kg (NOK) 0.73 18.04 14.45 14.71 13.11 Return on Capital Employed (ROCE) 1% 33% 24% 22% 19% NOK MILLION 1 000 TONNES 86 76 66 56 800 600 400 200 0 2015 2016 2017 2018 2019 10 7 RESULTS CA SH FLOW the year before. Ocean Quality AS entered into a new factoring Operating activities The Group had a net positive cash flow from operating activities of agreement during the year, with the factoring company purchas- ing all credit-insured trade receivables from Ocean Quality. Net NOK 1 456 million in 2019, compared to NOK 806 million the year interest-bearing debt (NIBD) totaled NOK 2 376 million, compared before. There was a change in working capital of NOK 5 million to NOK 2 236 million at year-end 2018. NIBD at year-end 2019 during the year. This mainly related to increased biomass, in accor- includes leases classified as operational leases according to dance with our growth strategy, and increased trade receivables as the superseded standard, IAS 17, which have been recognized a result of a high sales volume towards the end of the year. in the balance sheet after the adoption of IFRS 16. NIBD accord- Investing activities Net cash flow from investing activities totaled NOK -382 million 1 939 at year-end 2019, compared to NOK 1 690 million in in 2018. The NIBD/harvested volume ratio was 23.4 at year-end 2019, in 2019, compared to NOK -593 million the year before. The compared to 22.3 in 2018. The NIBD/EBITDA ratio came to 1.4 at largest investment in 2019 was related to several new sea sites year end-2019, compared to 1.3 the year before. ing to loan covenants (refer to APM for description) totaled NOK in Finnmark, totaling almost NOK 185 million, together with the expansion of our Gold River Hatchery in BC. Access to high-quality smolt is key to ensuring production growth through improved fish DIRECT ECONOMIC VA LUE GENER ATED health and better survival in sea, and is a cornerstone in our oper- Taxes are important sources of government revenue. They are ational strategy in all regions. Obtaining new farming locations central to the fiscal policy and macroeconomic stability of coun- in Finnmark is a key part of our strategy to improved utilization tries and are acknowledged by the United Nations to play a vital of our maximum allowed biomass in the region, through better role in achieving the Sustainable Development Goals. Further, flexibility in production and harvest planning. they are a key mechanism by which organizations contribute to Financing activities Net cash flow from financing activities came to NOK -1 000 million the UK and Canada for Grieg Seafood. By reporting our taxes paid country-by-country, we indicate our scale of activity and the in 2019 compared to NOK -347 million the year before. The Group´s contribution we make through tax in these jurisdictions. Living up gross interest-bearing liabilities, including lease liabilities, had a to our obligation to comply with tax legislation and our responsi- net increase of NOK 194 million during the year. The Group applied bility to our stakeholders to meet their expectations of good tax IFRS 16 from 1 January 2019, affecting interest-bearing liabilities practices is extremely important to us. the economies of the countries in which they operate, i.e. Norway, at a total of NOK 380 million at 31 December 2019. Please refer to Note 11 and 26 for further information. During the year, Ocean Quality AS entered into a new factoring agreement, in which the factoring company purchases all credit-insured trade receivables from Ocean Quality AS, which had a significant positive effect on total factoring liabilities at year-end. Furthermore, financing activ- ities were negatively affected by the payment of dividends totaling NOK 462 million to shareholders and non-controlling interests. FIGURE 2.35 TOTA L TA X E S (INCOME A ND PROPERT Y TA X ) PA ID IN 2019 (NOK 1 0 0 0) Norway Shetland British Columbia, Canada Total taxes paid 130 037 4 665 2 056 136 758 FIN A NCI A L P OSITION A ND LIQUIDIT Y The information on the creation and distribution of economic value As of 31 December 2019, the book value of total assets was NOK shall provide a basic indication of how we create wealth for our 8 935 million, up from NOK 8 142 million at the same time in stakeholders. In addition, the components of the economic value 2018. NOK 374 million of this increase are due to the adoption of generated and distributed sharpen Grieg Seafood’s economic IFRS 16 (see Note 11). Total equity amounted to NOK 4 141 million, profile, permit a different interpretation of the economic figures corresponding to an equity ratio of 46% at year end. The return on and outline the overall economic value retained from the Group’s capital employed (ROCE) was 19%, compared to our target of 12%. ordinary operations during the year. In 2019, the economic value retained came to NOK 735 million, corresponding to an increase of about 55% compared to 2018. The Group had a good level of free liquidity and unutilized credit facilities at the end of the year, with an available bank credit framework of NOK 955 million. Factoring liabilities amounted to NOK 86 million at year-end 2019, compared to NOK 573 million 10 8 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N E C O N O M I C P R O D U C T I V I T Y FIGURE 2.36 DIRECT ECONOMIC VA LUE GENER ATED A ND DIS TRIBU TED FIGURE 2.37 VA LUE GENER ATED IN 2019 NOK MILLION Value generated Revenues Value distributed 2015 2016 2017 2018 2019 4 609 6 545 7 017 7 500 8 274 9% 7% 2% 6% 1% Salaries and personnel expenses 409 483 483 541 611 Operating cost Raw materials and consumables used 2 739 3 287 3 724 3 853 4 182 Other operating expenses 1 236 1 457 1 725 1 822 2 013 24% 51% Payments to providers of capital Net interest and other financial items Paid dividends Payments to government Estimated taxation Value retained All figures compiled from the audited Group Accounts. 118 55 14 38 91 179 339 709 62 474 198 351 64 467 280 474 75 462 196 735 Salaries and personell expenses Raw materials and consumables used Other operating expenses Net interest and other financial items Paid dividends Estimated taxation Value retained 10 9 110 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N E C O N O M I C P R O D U C T I V I T Y GRIEG SEAFOOD PRECISION FARMING A IM To develop our experience-based salmon farming processes by introducing smart techn- ology and data analytics enabling our employees to make better decisions throughout the value chain. RE SULT S SO FA R • We used regression analyses to better understand the cause of PD in Rogaland. • We have analyzed drivers for growth and mortality in Shetland. The results back up our improvement strategy in the region. • We are developing a model for daily prediction of harmful algal blooms (hetero- sigma). • We analyze causes of winter wounds to improve fish welfare. • We see improved feed conversion ratio partially due to our Operations Center in Rogaland. • Though digital tools, we compare the effect from feeding on growth, regardless of fish size, between all sites. HOW W E WORK Operations Centers • We have tested a pilot installation for integrated operations for our marine facilities in Rogaland. • The Operations Center has gradually taken over responsibility and execution of several production-related tasks. An integrated management and control system that monitors and provides decision support in operational processes in the site. • The goal is to improve fish health and welfare through closer monitoring with early warning algorithms, better coordination of on-site operations and optimizing the feed factor. A HUB for analyses • We have started building a HUB for analyses for the entire Group, and conducted data analyses in all regions. Analyses consist of regressions, machine learning and AI, as well as prediction models. 111 Profitable growth By combining skilled and motivated people with new technology, and increasingly farming salmon on nature’s terms, we aim to ensure sustainable and profitable growth in the years ahead. OUR PRINCIPLES By focusing on a number of different areas to reduce our environmental impact, fish welfare will be improved and, as a result, the harvested volume will increase and production cost will decrease. In 2020, we are aiming for a harvest volume of 100 000 tonnes, with a production cost at or below a weighted industry average of NOK 37.90 per kg. We believe that improving sustainability is key to increasing profits in the salmon farming industry. 112 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N P R O F I TA B L E G R O W T H HOW WE WORK TO IMPROVE • Improve the utilization of our current capacity. • Produce larger smolt to reduce production time at sea, thereby reducing exposure to biological challenges while increasing fish welfare and survival rates. • Optimize feeding by using advanced sensor systems, real-time monitoring, and automation. • Continuous monitoring of environmental parameters, combined with big data and artificial intelligence, to predict biological conditions. RESULTS FIGURE 2.38 H A R V E S T A ND GROUP COS T TONNES GWT 100 000 NOK/KG Total harvested volume (tonnes GWT) Group cost excl. headquarters (NOK/kg) 80 000 60 000 40 000 20 000 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020E 58 53 48 43 38 33 28 113 Grieg Seafood Rogaland Grieg Seafood Rogaland AS farms salmon in Rogaland on the west coast of Norway. The company has 19* seawater license equivalents and two licenses for land-based production of smolt. We also operate our own brood-stock activity in Erfjord. All the salmon we harvest in this region is processed and packed at our own facilities. Our operations contribute significantly to local value creation. For remotely from this facility. Precision farming will ensure more further detail, see the "Local Communities" section. efficient feeding, leading to reduced cost and improved growth OPER ATION A L PRIORITIE S going forward. Grieg Seafood Rogaland aims to reduce production time at sea from 18 to 12 months, with an average smolt size increasing to OPER ATION A L RE SULT S 410 grams in 2020. Larger smolt will significantly reduce seawater A total of 25 217 tonnes was harvested in 2019, an increase of 55% production time, making the fish less exposed to challenges such compared to the 16 293 tonnes harvested in 2018. The increase as sea lice and Pancreas Disease (PD). In 2018, the average weight in the harvested volume was primarily linked to strong biological of smolt transferred to sea in Rogaland was 178 grams. In 2019, this performance, combining favorable sea temperatures with good increased to 279 grams, with individuals larger than 550 grams. fish health and continuous efforts to keep sea lice pressure low. An important part of our post-smolt strategy is the expansion of Revenue amounted to NOK 1 539 million, with an average price Tytlandsvik Aqua in Rogaland, where we have a 33.33% ownership. achieved of NOK 61.03 per kg. Our sites in Rogaland are located in Norwegian Production Area 2, Seawater production was strong throughout the year, with a which received a green light under Norway’s recently introduced survival rate of 93% (calculated according to the GSI definition), “traffic light” system. This means that the area’s production compared to 92% in 2018. capacity may be increased by up to 6%. Grieg Seafood Rogaland has worked methodically to sustainably combat the challenge of The cost per kg of harvested salmon decreased from 2018 to 2019. sea lice and has used cleaner fish as a preventive measure. We did The reduction was primarily achieved through the strong farming not perform any sea lice treatments between July and October. performance in 2019, and mitigation of the challenges related to PD has been a long-term challenge in Rogaland, negatively biological performance, we expect the cost level in Rogaland for PD and lice that we experienced in 2018. Based on the current affecting feeding and reducing growth rates. Two of our sites were 2020 to remain stable. affected by PD going into 2019, but by year-end, all of our sites were free of the disease. This has been a key factor in the strong EBIT per kg before fair value adjustments amounted to NOK 22.53 performance delivered by Rogaland in 2019. in 2019, compared to NOK 13.48 in 2018. As part of our Precision Farming project, we launched our first pilot of an integrated operations center in Rogaland in Septem- ber 2018. All sites in Rogaland are now being monitored and fed *We have 18 license numbers, but one of our licenses is doubled, which in practice means we have 19 licenses. In addition, we have a long-term rental agreement with Rogaland County for one license, which means that we make use of 20 license equivalents in total. 114 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N P R O F I TA B L E G R O W T H 25 217 TONNE S GW T H A RV E S TED 22.53 EBIT/KG (NOK ) FIGURE 2.39 RE SULT S FOR ROGA L A ND ROGALAND 2014 2015 2016 2017 2018 2019 Harvest (tonnes GWT) 12 778 15 236 18 367 18 111 16 293 25 217 Revenue (NOK million) 572.6 661.2 1 140.4 1 150.2 959.6 1 538.9 EBIT (NOK million) EBIT / kg (NOK) 77.8 6.1 83.5 466.8 393.1 219.6 568.3 5.5 25.4 21.7 13.5 22.5 FIGURE 2. 40 EBIT A ND H A R V E S T ROGA L A ND Harvest (tonnes GWT) EBIT/kg (NOK) 30 000 25 000 20 000 15 000 10 000 5 000 0 H ARVEST (TONNES GWT) EBIT/KG (NOK) 30 25 20 15 10 5 0 2015 2016 2017 2018 2019 115 Grieg Seafood Finnmark Grieg Seafood Finnmark AS farms salmon in Finnmark, the northern- most county in Norway. Of the company's 28 seawater licenses, eight are “green licenses” and therefore subject to stricter environmental standards. In addition, we own one freshwater license. In general, the salmon we harvest is processed and packed at our local facility in Alta. Our operations contribute significantly to local value creation. For of continued growth, safeguarding survival rates, and lowering further detail, see the "Local Communities" section. cost through the stocking of larger smolt. OPER ATION A L PRIORITIE S OPER ATION A L RE SULT S As in all our regions, we focus on improving fish welfare and A total of 32 362 tonnes was harvested in 2019, an increase of achieving a high survival rate. Camera surveillance and sensor 9% compared to 2018. Favorable farming conditions, with low technology are utilized to continuously monitor the environment. seawater temperatures and a continuous focus on fish welfare, As a result of our efforts in the area of sustainable production, contributed to a survival rate of 96% (calculated according to we had achieved ASC certification of ten sites in Finnmark by the GSI definition). Revenues totaled NOK 1 815 million, and the year-end 2019. average price achieved was NOK 56.09 per kg. Flexibility is a requirement to achieve better utilization of our The cost per kg of salmon harvested increased slightly in 2019 capacity, and we are continuously looking for opportunities to compared to 2018. Growth rates in 2019 were somewhat impacted secure access to good new locations. In 2019, we were granted by low seawater temperatures, and the mortality of fish with a approval for a new location in the Hammerfest area. slightly larger average size negatively affected the achieved Biological conditions in Finnmark were favorable throughout the mance in Finnmark was strong in 2019, with a very low mortality year, with consistently low sea lice levels. We utilized our option to rate and a favorable sea lice situation. economical feed conversion rates. However, biological perfor- increase our MAB by 470 tonnes, in accordance with the Norwe- gian “traffic light” system. EBIT per kg before fair value adjustments came to NOK 17.93, compared to NOK 19.98 in 2018. The expansion of the Adamselv smolt facility was completed at the end of 2018. This helped increase the average size of smolt transferred to the sea in Finnmark from 135 grams in 2018 to 184 grams in 2019. Together with the acquisition of 50% of Nordnorsk Smolt AS during the year, this is an important step in our strategy 116 ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 2 P R O F I T & I N N O VAT I O N P R O F I TA B L E G R O W T H 32 362 TONNE S GW T H A RV E S TED 17.93 EBIT/KG (NOK ) FIGURE 2. 41 RE SULT S FOR FINNM A RK FINNMARK 2014 2015 2016 2017 2018 2019 Harvest (tonnes GWT) 26 470 19 481 22 104 22 831 29 774 32 362 Revenue (NOK million) 975.3 797.9 1 244.3 1 265.2 1 671.3 1 815.3 EBIT (NOK million) 205.9 124.0 447.1 351.9 594.9 580.2 EBIT / kg (NOK) 7.8 6.4 20.2 15.4 20.0 17.9 FIGURE 2. 42 EBIT A ND H A R V E S T FINNM A RK Harvest (tonnes GWT) EBIT/kg (NOK) 35 000 30 000 25 000 20 000 15 000 10 000 5 000 0 H AR VEST (TONNES GWT) EBIT/KG (NOK) 25 20 15 10 5 0 2015 2016 2017 2018 2019 117 Grieg Seafood Shetland Grieg Seafood Shetland Ltd farms salmon in Shetland and the Isle of Skye in Scotland. We have 17 active seawater sites and one fresh- water location. We process our salmon at our own facility in Lerwick. Our operations contribute significantly to local value creation. For OPER ATION A L RE SULT S further detail, see the "Local Communities" section. A total of 11 273 tonnes was harvested in 2019, compared to 11 924 tonnes in 2018. Revenues amounted to NOK 731.6 million, with an average price achieved of NOK 64.90 per kg. OPER ATION A L PRIORITIE S The aquaculture industry in Shetland has experienced a variety Biological conditions in Shetland have been challenging in the of biological challenges over the years. We cooperate closely with past year due to gill-related diseases, algae, and plankton, in other sea farmers in the region to secure a sustainable marine combination with high sea lice pressure. As a result of healthier biology. Whole farming areas operate with coordinated fallowing and more robust smolt, improved vaccine strategies and continu- periods and sea lice counting, and treatment activities are coor- ous improvement of the handling and treatment of fish at sea, the dinated between farmers. 12-month survival rate has increased from 83% in 2018 to 89% in Over the last four years, we have cut production from 27 to 17 sites, focusing our production to the best sites with the strongest Loss of production, combined with extensive efforts to miti- biological control. We have implemented routines and systems for gate biological challenges, impacted the cost per kg of salmon monitoring and mitigating algae-related issues. Other measures harvested in 2019. By improving our smolt quality and continuing to ensure strong biosecurity, improved fish welfare, and control of to focus on initiatives to improve biosecurity and fish welfare we the sea lice situation include the use of aeration systems, cleaner expect to be able to reduce the cost going forward. 2019 (calculated according to the GSI definition). fish, sea lice skirts, and freshwater treatments. The EBIT per kg before fair value adjustments amounted to NOK We have a strong focus on improving our smolt quality to ensure a -5.96, compared to NOK 2.83 in 2018. more robust and healthy fish, which is essential for good growth. In 2019, we saw the first IPN-free generation go through our nursery, and we believe this can improve performance at sea going forward. 118 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N P R O F I TA B L E G R O W T H 11 273 TONNE S GW T H A RV E S TED -5.96 EBIT/KG (NOK ) FIGURE 2. 4 3 RE SULT S FOR SHE TL A ND SHETLAND 2014 2015 2016 2017 2018 2019 Harvest (tonnes GWT) 19 231 16 370 13 541 12 056 11 924 11 273 Revenue (NOK million) 852.5 773.5 859.8 745.9 799.9 731.6 EBIT (NOK million) 81.1 -164.9 176.6 EBIT / kg (NOK) 4.2 -10.1 13.0 68.7 5.7 33.8 -67.2 2.8 -6.0 FIGURE 2. 4 4 EBIT A ND H A R V E S T SHE TL A ND Harvest (tonnes GWT) EBIT/kg (NOK) 25 000 20 000 15 000 10 000 5 000 0 H AR VEST (TONNES GWT) EBIT/KG (NOK) 12 8 4 0 -4 -8 -12 119 2015 2016 2017 2018 2019 Grieg Seafood British Columbia Grieg Seafood BC Ltd farms salmon on the east and west sides of Vancouver Island, and along the Sunshine Coast north of Vancouver. The company has 20 seawater licenses and one license for land- based production of smolt. We do not process our own salmon in B.C. All of our sites are located in traditional First Nation territories. OPER ATION A L RE SULT S Our relations with the Mowachaht Muchalat, Tlowitsis and Ehat- A total of 14 120 tonnes was harvested in 2019, down from 16 632 tesaht Chinehkint First Nations are good, and are very important tonnes in 2018. The decrease was mainly due to the production to us. For further details on our local community initiatives, see and fallowing cycle of our farming areas. In 2020, we expect a the "Local Communities" section. OPER ATION A L PRIORITIE S Access to high-quality smolt is key to ensuring sustainable significant increase in the volume harvested, because we had 60 percent more biomass at sea at the end of 2019 than at year-end 2018. Revenues amounted to NOK 861 million, with an average price achieved of NOK 61.01 per kg. production growth. With the expansion of the Gold River smolt The cost per kg of salmon harvested increased from 2018 to 2019, facility, Grieg Seafood BC expects to increase its smolt capacity mainly as a result of several of our locations being affected by from 500 tonnes to 900 tonnes in early 2021. biological challenges throughout the year of 2019. The survival Harmful Algal Blooms (HAB) represent a major biological risk in nition). Going forward, we expect to mitigate the loss of fish and BC. We continuously monitor and analyze algae movements and boost growth by leveraging our continuous monitoring efforts oxygen levels, using high-grade sensor equipment and satellite to better predict and prepare for algae and plankton incidents. imagery. Aeration systems have been installed to allow feeding during challenging situations and mitigate harm. Investments The EBIT per kg before fair value adjustments came to NOK 5.19, in seagoing production equipment will play an important role in down from NOK 17.49 in 2018. rate for the year was 88% (calculated according to the GSI defi- maintaining good production levels and increasing survival rates when environmental conditions are difficult. 12 0 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N P R O F I TA B L E G R O W T H 14 120 TONNE S GW T H A RV E S TED 5.19 EBIT/KG (NOK ) FIGURE 2. 45 RE SULT S FOR BRITISH COLUMBI A BRITISH COLUMBIA 2014 2015 2016 2017 2018 2019 Harvest (tonnes GWT) 6 257 14 311 10 715 9 600 16 632 14 120 Revenue (NOK million) 277.8 573.9 611.2 580.3 1 075.3 861.4 EBIT (NOK million) EBIT / kg (NOK) -47.8 -7.6 13.3 0.9 80.5 120.2 290.9 7.5 12.5 17.5 73.3 5.2 FIGURE 2. 4 6 EBIT A ND H A R V E S T BRITISH COLUMBI A Harvest (tonnes GWT) EBIT/kg (NOK) 18 000 15 000 12 000 9 000 6 000 3 000 0 H AR VEST (TONNES GWT) EBIT/KG (NOK) 20 15 10 5 0 2015 2016 2017 2018 2019 12 1 The Grieg Seafood shares We aim to provide an attractive return to our share- holders and contribute to the correct pricing of our shares. To achieve this, we proactively share honest information about our operations. OUR PRINCIPLES Our ambition is to create shareholder value and deliver compet- itive returns relative to comparable investment alternatives. Our dividend should average 30-40% of the Group's net profit after tax before fair value adjustments. 12 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N T H E G R I E G S E A F O O D S H A R E S OUR SHARES AND SHAREHOLDERS THE RETURN ON OUR SHARES Grieg Seafood was listed on the Oslo Stock Exchange on 21 June Our ambition is to create shareholder value and deliver competi- 2007, under the ticker GSF. We have only one class of shares, and tive returns relative to comparable investment alternatives. The all shares carry the same rights. As of 31 December 2019, the return on our shares derives from a combination of the dividend Company had 110 448 313 shares outstanding, at a nominal value paid and share price appreciation. of NOK 4.00 per share (excluding treasury shares). Grieg Seafood’s share price increased by 37% in 2019. The closing As of 31 December 2019, we had 4 968 shareholders, with our ten price at 31 December 2019 was NOK 140.30, compared to NOK largest investors holding 71.5% of our shares. Norwegian-based 102.30 at year-end 2018. Our dividend yield was 2.9% in 2019, shareholders own the majority of the Company’s shares, with Per and adjusted for a dividend payout of NOK 4.00 per share, the Grieg Jr. and the Grieg family controlling 52.8% of the outstanding total return on our share was 40.0% in 2019. By comparison, the shares as of 31 December 2019. A further 5.5% was controlled by Oslo Stock Exchange Total Return Index (OBX) and the Oslo Stock OM Holding AS, and 4.6% by the Norwegian National Insurance Exchange Seafood Index (OBSFX) produced a return of 14.1% and Fund (Folketrygdfondet) as of year-end 2019. Grieg Seafood ASA 18.1% respectively. The total accumulated dividend since our held a total of 1 213 687 treasury shares as of 31 December 2019. initial public offering in 2007 is NOK 15.60. For a detailed breakdown of our 20 largest shareholders, please see note 17 in the Group Accounts. Over the past five years, the salmon farming industry has expe- rienced a tremendous increase in profitability and market capi- Our shareholders reside in all parts of the world, with a clear talization. Driven by high demand and increased prices, the Grieg concentration in Europe. Over the last six years, Grieg Seafood Seafood share has yielded a return of 438% over the past five has experienced an upsurge in interest from investors, and we years, compared to 253% for the OBSFX, and 62% for the OBX. have more than doubled the percentage of non-Norwegian share- Since the release of shares following the exercise of forward holders since 2013. Excluding our majority shareholder, the Grieg contracts in 2016 (see below), the return on the Grieg Seafood family, which is based in Bergen, Norway, most of the sharehold- share has substantially outperformed the Seafood Index. ers come from the EU, the UK, or the USA. FIGURE 2. 47 GEOGR A PHICA L OW NERSHIP IN 2013 FIGURE 2. 4 8 GEOGR A PHICA L OW NERSHIP IN 2019 USA 2% EU 7% UK 2% USA 5% OTHER 1% EU 13% UK 14% NORWAY 67% NORWAY 88% 12 3 THE LIQUIDITY OF OUR SHARES DIVIDEND AND DIVIDEND POLICY Since May 2016, the liquidity of our shares has increased signifi- We aim to provide our shareholders with a competitive return on cantly compared to previous years. This development was trig- invested capital, through the payment of dividends in addition to gered by Mowi ASA realizing a set of old forward contracts, share price increases. Dividend will be evaluated twice a year. acquiring nearly 29 million shares in Grieg Seafood ASA, and The dividend payout should amount to 30-40% of the Group's net immediately selling them in the market. Following this injection of profit after tax, before fair value adjustments on biological assets. shares into the open market, the Grieg Seafood share has ranked At the same time, the Group's net interest-bearing debt per kg approximately 25th in terms of trading volume among the shares harvested salmon should remain at NOK 20, with possibilities to on the Oslo Stock Exchange from 2017 to 2019. In 2019, a total of increase during period of growth investments. Dividends declared 72 million shares were traded, with a median of 240 801 shares and paid may be adjusted to satisfy the targeted level of debt. per trading day. In 2019, a dividend of NOK 4.00 per share was paid out. This corres- ponds to a payout ratio of 55% on profit after tax for 2018. The high payout ratio reflects a sound financial position and strong financial performance. For more information about key figures and share trading statis- tics, please visit the Oslo Stock Exchange's web page www.oslo- bors.no – Grieg Seafood (GSF). KEY FIGURES 2014 2015 2016 2017 2018 2019 Number of shares at year-end (incl. own shares) 111 662 000 111 662 000 111 662 000 111 662 000 111 662 000 111 662 000 Number of shares traded Number of shareholders Total value of shares traded per day (NOK million) Average number of shares traded per day Median number of shares traded per day 13 108 181 8 251 926 167 281 077 143 109 533 116 144 510 72 001 397 1 028 1.34 52 433 32 100 1 156 0.94 33 008 19 562 4 390 31.64 661 190 317 820 4 433 40.68 570 158 486 933 5 124 42.07 466 444 411 341 4 968 33.7 289 162 240 801 Total market value OSE (NOK 1 000) 3 182 367 3 461 522 9 122 785 8 067 580 11 423 023 15 666 179 Share price 31.12 (NOK) Average share price (NOK) Lowest closing price (NOK) Highest closing price (NOK) Price/Earnings ratio* Price/Book ratio** Pay-out ratio (%)*** Enterprise value (EV)****/Capital employed (CE)***** Enterprise value (EV)****/EBITDA Enterprise value (EV)****/EBIT before fair value adjustments Dividend yield (%) Return on Capital Employed (ROCE) 28.5 26.1 21.8 29.8 79.17 1.42 0% 1.41 10.15 14.31 0.0% 10% 31.0 28.2 23.1 33.6 -114.81 1.53 139% 1.38 20.40 111.64 1.6% 1% 81.7 52.7 26.7 84.5 11.38 2.81 -556% 2.64 7.77 8.92 1.8% 33% 72.3 71.5 58.0 85.1 12.26 2.41 56% 2.27 8.81 10.77 5.5% 24% 102.3 92.2 66.2 131.9 14.61 2.95 68% 2.71 10.14 12.31 3.9% 22% 140.3 118.0 96.8 146.8 19.57 3.79 55% 3.16 11.93 16.43 2.9% 19% * P/E is calculated as Profit after tax, excluding non-controlling interest and fair value adjustments, divided on total number of shares. **P/B is calculated as Profit after tax, excluding non-controlling interest and fair value adjustments, divided on equity to controlling interest. *** Pay-out ratio is calculated as the dividend paid out in a year divided by the earnings before fair value in the prior accounting year. **** EV is calculated as market capitalization excl. treasury shares pluss NIBD. ***** CE is calculated as NIBD plus equity net of booked fair value adjustment of biomass net of tax. 12 4 ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 2 P R O F I T & I N N O VAT I O N T H E G R I E G S E A F O O D S H A R E S INVESTOR RELATIONS FIGURE 2. 49 DI V IDEND PA ID Dividend paid Dividend paid per share Grieg Seafood provides information to, and communicates with, the capital markets, including shareholders, potential investors, analysts, portfolio managers, investment banks, and others inter- ested in our share. Investor relations activities are primarily aimed at giving the market a correct picture of our activities and future prospects. In connection with the release of our quarterly financial results, we arrange presentations to create a greater understanding of our operations. In addition, we hold meetings with existing and potential investors. In 2018, we held our first Capital Markets Update, where we presented our goals, strat- egy, operations, financial developments, and outlook. Investors, analysts, the media, and other stakeholders were invited. We expect to host a Capital Markets Day in 2020, depending on the coronavirus situation. For more information and the dates of our Annual General Meeting and quarterly presentations in 2020, visit our website www.griegseafood.com. 500 400 300 200 100 0 NOK MILLION NOK 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 FIGURE 2.50 FI V E Y E A R REL ATI V E PERFORM A NCE Volume GSF OBSFX OBX SHA R E PRICE ( NOK) MILLION OF SHAR ES TRADED (30 DAYS AVER AGE) 160 140 120 100 80 60 40 20 0 02.01.15 02.01.16 02.01.17 02.01.18 02.01.19 02.01.20 Source GSF: https://www.oslobors.no/ob_eng/markedsaktivitet/#/details/GSF.OSE/overview Source OBSFX: https://www.oslobors.no/ob_eng/markedsaktivitet/#/details/OBSFX.OSE/overview Source OBX: https://www.oslobors.no/ob_eng/markedsaktivitet/#/details/OBX.OSE/overview 3.0 2.5 2.0 1.5 1.0 0.5 0.0 12 5 Analytical information and alternative performance measures Our ambition is to be open and transparent with respect to all our stakeholders. This is the only way we can earn their trust. By sharing honest and rele- vant information about our operations and the salmon farming industry, we aim to contribute to an improved understanding and correct valuation of our shares. 12 6 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N A N A LY T I C A L I N F O R M AT I O N VALUE CREATION VALUE DRIVERS Creating shareholder value is a prerequisite for company growth With ROCE as our starting point, we break down our performance and survival. Return on Capital Employed (ROCE) is our ultimate based on the profitability of our product (EBIT per kg before fair financial performance indicator. We also believe that sustainabil- value adjustment) and developments in invested capital (fixed ity and financial results go hand in hand. We need good financial assets and working capital). We have a long-term goal of deliv- results to develop our operations sustainably. However, we also ering a ROCE of at least 12% per year. Our EBIT performance is need sustainable operations to safeguard our long-term financial driven by a multitude of operational factors that affect both reve- results and performance. This lays the foundation for our strategy nues and cost. Producing salmon takes two to three years from – to create stakeholder value through sustainable production of roe to harvest, and while the cost of a harvested fish accumulates Atlantic salmon at the lowest possible cost. through the production period, it does not impact the profit and loss statement (apart from fair value adjustment) before the fish is harvested. Although EBIT per kg (before fair value adjustment) is an important external benchmark measure for our regions, our operational focus is not on the cost of the harvested fish, but on the development of the cost drivers affecting our production volume and the cost of salmon to be harvested in the future. FIGURE 2.51 ACHIE V ED PRICE (NOK /KG) 75 65 55 45 35 25 Shetland Finnmark British Columbia Rogaland NQSALMON FIGURE 2.52 ROCE A ND EBIT/KG ROCE % 40% 30% 20% 10% 0% Return on Capital Employed (ROCE) EBIT before fair value (NOK/kg) NOK/KG 35 30 25 20 15 10 5 0 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 FIGURE 2.53 OTHER RE V ENUE DRI V ERS IN 2019 REGIONS Survival rate Superior quality share Rogaland Finnmark Shetland British Columbia 93% 75% 96% 86% 89% 94% 88% 86% 12 7 REVENUE DRIVERS H A RV E S T VOLUME PRICE S How much salmon we harvest depends on the number of smolt Our main product, whole gutted salmon, is largely traded as a transferred to the sea, and how well that fish performs in terms commodity, and the prices achieved largely reflect a general of growth and survival. In line with our growth ambitions, we market price. The prices we achieve will, to some extent, deviate transferred approximately 25 million smolt to the sea in 2019. from the market price, based on quality, sales contracts, and our Fish growth and survival rates at sea can be affected by innu- ability to place our salmon effectively in the market. Our ambition merable factors, but certain factors are of critical importance: is to sell our salmon at or above market prices, and we measure • Seawater temperatures • Seawater conditions • Diseases and health issues • Sea lice our price achievement relative to the relevant observed market price. There are several reference prices for salmon. In Norway, Fish Pool provides historic price information, as well as future salmon derivative prices FCA Oslo as part of the NASDAQ Salmon Index We strive to produce the highest quality salmon at a competitive (NQSALMON). In the USA, Urner Barry provides reference prices cost, overcoming the challenge posed by the above-mentioned for North American salmon in Seattle and Chilean salmon in factors. By effectively preventing and combatting sea lice and Miami. Market prices are correlated across regions, but signifi- health issues, and by understanding our salmon’s behavior, we cant short-term variations between markets are not uncommon. work continuously to improve survival and growth rates. Our total production volumes are limited by our farming licenses, which impose Maximum Allowed Biomass (MAB) restrictions on the volume of fish we can have at sea at any given time. In Shet- land and British Columbia, the limitations are imposed only on a per site basis, while the Norwegian system also introduces limitations on defined areas and per company. Effective utilization of farming licenses, equipment, and personnel requires sophisti- cated and detailed planning of stocking, feeding, and harvesting activities across sites and regions. QUA LIT Y Diseases, winter ulcers, and other biological issues may affect the quality of our product. We categorize the quality of our salmon as superior, ordinary or production grade. "Superior" quality salmon has a positive overall impression with good meat quality and no external damage or faults. Downgraded salmon has from minor to significant external and/or internal faults or damage, and therefore commands a lower price. In Norway, downgraded salmon is priced according to standard discount rates. For salmon classified as "ordinary", the standard discount is NOK 1.50-2.00 per kg GWT. For salmon classified as "production grade", the discount is NOK 5.00-15.00 per kg GWT, depending on the extent of the impairment. In other countries, price deductions compared to "superior" salmon are less standardized, but the same principles apply. As other companies in the salmon farming industry may use other quality categories and criteria for grading their salmon, the quality share may not be comparable between the companies. 12 8 FIGURE 2.5 4 PRODUCTION COS T IN 2017-2019 Feed cost Admin Deprecation Smolt Other 2019 2018 2017 32% 44% 14% 5% 5% ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N A N A LY T I C A L I N F O R M AT I O N COST DRIVERS The cost of the inputs needed to raise a live salmon from roe to across locations and regions. For salmon generations fully harvest accounts for the bulk of our production cost. In addi- harvested in 2019, our survival rates also varied. Grieg Seafood tion, the cost of harvesting and processing our salmon, as well Finnmark achieved a survival rate of 96% (calculated according to as general administration, make up our total operational cost. GSI definition). In our financial statements, we expense mortality We track our performance, both internally and externally, through by month or for the generation to date. Costs associated with the farming cost per kg of harvested salmon. Most important is "normal" mortality are retained kept in the book value of the tracking the cost drivers that influence the cost of salmon to be remaining inventory, contributing to an increased cost when the harvested in the future, namely survival and growth. fish are harvested and sold. exceeding a threshold level, deemed to be extraordinary, either SA LMON SURV I VA L SA LMON GROW TH A vast number of factors can affect salmon survival rates, such Our profitability is also influenced by how quickly our salmon as diseases, algal blooms, water conditions, predation, and sea grow, and how efficiently feed is converted into weight gain (feed lice treatments. In the industry as a whole, approximately one out conversion rate). Water temperatures, biological conditions, of five of the smolt transferred is lost during the seawater growth farming practices, and fish survival are key drivers for salmon phase. The number of fish lost per generation varies immensely growth. Higher seawater temperatures increase growth, but FIGURE 2.55 ECONOMIC FEED CON V ERSION R ATE Shetland Finnmark British Columbia Rogaland Group 1.8 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 2015 2016 2017 2018 2019 12 9 also increase biological risks in the form of diseases, sea lice, COS T OF H A RV E S TED SA LMON and algal blooms. This may in turn result in lost feeding days, Our cost base consists mainly of feed, smolt, salaries, treat- lower growth, and reduced survival. Through the introduction ments, administration, well boats, harvesting cost, and depreci- of improved sensor technology, use of advanced image analysis, ation. In recent years the industry has faced acute challenges with and other technologies, we continuously improve our ability to respect to sea lice. This has caused an increase in cost related make informed decisions about feeding and protective measures. to direct treatment and increased investments in equipment and technologies. This development has had a noticeable effect on Efficient feed conversion is crucial to meeting our future cost the relative allocation of cost factors, as well as the total cost targets. Feed accounts for 44% of our total cost per kg harvested level in the industry. In terms of cost per kg, however, the loss fish. Strong and healthy fish, combined with high feed quality and of harvested volumes has had a significantly larger impact than good feeding practices, is key to achieving low production cost. the direct cost increases. As production cost per kg have risen We measure our farming performance through feed conversion in recent years, the directly variable cost of feed has become a rates (amount of fish feed used to produce one kg of live salmon) smaller part of the total incurred cost per kg produced salmon. and relative growth indices (achieved growth compared to own At the same time, other cost, such as salaries, health cost, and and feed supplier expectations). Salmon growth, survival rates, maintenance, have become a larger share of the total. and the economic feed conversion rate (EFCR), are strongly connected to fish health, disease, and sea lice. Treatments, In recent years, we have seen an increase in total cost across fasting, and reduced appetite impact growth negatively, reduce all our farming regions. In addition to an increase in health cost our harvested volumes, and increase the cost per kg of harvested related to disease and sea lice treatments, smolt cost and depre- ciation have increased due to expansion of our smolt facilities and extensive investments in various item of high-tech equipment. In Shetland, we have experienced significant challenges related to lice and diseases, resulting in reduced survival, low harvested volumes, and therefore high cost per kg. However, our cost per kg remained relatively stable from 2018 to 2019. fish. 13 0 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N A N A LY T I C A L I N F O R M AT I O N 131 KEY PERFORMANCE INDICATORS AND ALTERNATIVE PERFORMANCE MEASURES (APM) We believe that our financial statements only partially reflect the underlying performance of our operations. We are therefore working continuously to develop key operational performance indicators and alternative performance measures that we believe better describe our performance. The APMs listed below have been consistently applied over time, with one exception: the calculation of net interest-bearing debt for covenant purposes. From the first quarter of 2016, we removed the non-controlling interest Bremnes Fryseri AS's share of Ocean Quality AS’s bank deposits from the calculation. APM DEFINITION AND CALCULATION REASON FOR APPLYING APM EBIT = EBI T BEFORE FA IR VA LUE A DJUS T MEN T OF BIOLOGIC A L A S SE T S Operating profit incl. amortization and depreciation excl. fair value adjustment of biological assets. Unless otherwise specified, EBIT before fair value adjustment of biological assets is shortened to EBIT (earnings before interest and taxes). This also applies to all key figures where EBIT is a component, including: EBIT margin (%) EBIT/ kg GWT ROCE EBITDA = EBI T DA BEFORE FA IR VA LUE A DJUS T MEN T OF BIOLOGIC A L A S SE T S Operating profit before amortization and depreciation excl. fair value adjustment of biological assets. Unless otherwise specified, EBITDA before fair value adjustment of biological assets is shortened to EBITDA. This also applies to all key figures where EBITDA is a component, including: EBITDA margin (%) NIBD/EBITDA The equity ratio is calculated both with and without consolidation of Ocean Quality Group. The bank syndicate equity covenant definition is exclusive of Ocean Quality. It covers only Grieg Seafood companies both with regards to equity and total liabilities, excluding effects of IFRS 16. EQUIT Y R ATIO E XCLUDING OCE A N QUA LIT Y 13 2 EBIT before fair value adjustment provides a more informative result, as it does not consider future gains or losses on fish not yet sold. The fair value adjustment has a non-operational nature and can affect the comparability of our performance from period to period. EBIT before fair value adjustment is generally considered the standard industry measure for profitability. EBITDA before fair value adjustment provides a more informative result, as it does not consider future gains or losses on fish not yet sold. The fair value adjustment has a non-operational nature and can affect the comparability of our performance from period to period. The equity ratio is applied to measure financial solidity in accordance with the Group's covenant requirements. ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P R O F I T & I N N O VAT I O N A N A LY T I C A L I N F O R M AT I O N APM NIBD ROCE DEFINITION AND CALCULATION REASON FOR APPLYING APM NIBD/EBITDA is a measure of financial solid- ity and is one of the covenants in our bank agreement. When calculating NIBD/EBITDA, NIBD is calculated according to method 2 and EBITDA is before fair value adjustment of biological assets and consolidation of Ocean Quality Group. ROCE measures the return on invested capital. Fair value adjustment of biological assets is extracted, as this reflects future gains or losses on fish not yet sold, which can affect the comparability of performance from period to period. Net interest-bearing debt (NIBD) comprises non-current and current debt to financial institutions, after deducting cash and cash equivalents. NIBD is calculated in three ways: 1) For ROCE calculation: including all long- term and current debt to credit institu- tions, incl. IFRS 16 effect and factoring liabilities. 2) Including all long-term and current debt to credit institutions incl. IFRS 16 effect, but excl. factoring liabilities. 3) For covenant calculation as required by the bank syndicate: as in method 2, but cash and cash equivalents are reduced with an amount corresponding to Bremnes Fryseri AS 40% share of Ocean Quality AS bank deposits, and lease liabil- ities (former IAS 17 operational leases only) are excluded. This method is used for calculation of NIBD/EBITDA. Return on capital employed (ROCE) is calcu- lated using values before fair value adjust- ment of biological assets and is calculated as follows: ROCE for the year is calculated as the average of the ROCE for each of the years four quarters. Quarterly ROCE is calculated as quarterly EBIT before fair value adjust- ment of biological assets multiplied by four such to annualize the EBIT figure. Then, this annualized EBIT figure is divided by the sum of NIBD plus equity before fair value adjust- ment of biological assets. The quarterly values for NIBD and equity are calculated as Opening balance plus Ending balance divided by 2. NIBD is calculated according to method 1, described in the NIBD section above. EP S A DJUS T ED FOR FA IR VA LUE OF BIOLOGIC A L A S SE T S Adjusted earnings per share (adj. EPS) is calculated as net profit after tax minus non-controlling interests plus/minus fair value adjustment of biological assets net of tax effects, divided by the number of shares. The fair value adjustment of biological assets is extracted to avoid future gains or losses on fish not yet sold due to its non-operational nature. Adj. EPS is used to calculate the dividend payout ratio (dividend paid per share relative to adj. EPS). 13 3 ROOT ED IN PEOPLE Improving Culture Every single day, whether it is sunny, stormy or freezing cold, our fantastic employees are out there working hard in the hatcheries, on the farms or at the harvesting plants. Their passion and dedication drive Grieg Seafood forward. 13 4 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P E O P L E I N T R O 13 5 Human rights and ethics Respecting the rights and dignity of all human beings is the very basis of a civilized society. Businesses, or any other entities, should not compromise on human rights. OUR PRINCIPLES We adhere to the Universal Declaration of Human Rights and ILO Conventions. Through the Grieg Group, we are also a signatory to the UN Global Compact, where these particular rights are emphasized: • We uphold freedom of association and recognize the right to collective bargaining in all regions. • We do not tolerate child labor, forced, or compulsory labor. • We conduct our activities without discrimination, we treat our employees fairly and compensate fairly. We are currently working to implement the United Nations Guiding Principles on Business and Human rights in our opera- tions and supply chain. We have zero tolerance for bullying, unwanted sexual attention and harassment. Employees have a right to privacy. 13 6 NON-DISCRIMINATION Always show respect for individuals as individuals, and do not treat people as members of a class (race, ethnicity, national or other origin, disability, age, gender, sexual orientation, language, religion, or any other characteristic). Base employment decisions on job qualifications (e.g. educa- tion, prior experience) and merit. Positive discrimination is tolerated in order to achieve equality and diversity. Provide a work environment free from harassment and bullying. Consult with higher-level management, if a conflict arises between these provisions and the laws, customs, or practices of a particular area. ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P E O P L E H U M A N R I G H T S A N D E T H I C S HOW WE WORK TO IMPROVE IN OUR OW N OPER ATIONS • All our employees are required to complete and abide by our Code of Business Conduct program, which includes our ethical > GlobalG.A.P has requirements related to the work envi- ronment such as workers’ health, safety and welfare. We standards, employee rights, applicable laws, and regulations. provide ongoing training to update our employees on the • Some regions also have additional courses: > Grieg Seafood Shetland has 15 hours of mandatory training on human rights for the staff representatives, who then requirements in aquaculture, safe chemical handling, and awareness about food safety. Through GLOBALG.A.P. Certification, employees also receive adequate health and inform the employees through town hall meetings. safety training, and a preventive measure and emergency > Grieg Seafood Finnmark has a course in non-discrimina- response plan is in place. tion, which 76% of the employees have taken. • Our Code of Business Conduct and the culture we have built, > BAP has requirements towards unsafe working conditions, eliminating of forced child labor, fair wages and appropriate start from the top, with our Board of Directors and our owners. terms of employment. • Our third-party certifications include independent audits of • We have a whistleblower channel operated via an external human rights practices: > ASC has requirements related to ILO rights, prohibits the use of child or forced labor, and has HSE requirements. service provider, EY. Our whistleblower channel is available to all employees at Workplace and through our intranet. SEXUAL HARASSMENT All our employees are entitled to be treated with dignity and respect. Sexual harassment in the workplace will not be permitted or accepted. Sexual harassment may include unwelcome physical, verbal or non-verbal conduct, but may appear in other forms as well. Definition of sexual harassment Sexual harassment is unwanted conduct of a sexual nature. The unwanted nature of sexual harassment distinguishes it from behavior that is welcome and mutual. IN OUR SUPPLY CH A IN • Our suppliers are required to follow our Supplier Code of Conduct. This means they are expected to adhere to global standards for good corporate practice, including the United Nations Global Compact, the OECD Guidelines for Multina- tional Enterprises, the Norwegian Code of Practice for Corpo- rate Governance and International Labor Standards on Forced and Child Labor. • In Norway we are obligated by law to set the same standards for our suppliers and partners with respect to the provision of proper training, competitive wages, and good working condi- tions, as we do for our own employees. We will work towards implementing the same requirements in all of our regions. • Going forward, we will undertake human rights due diligence to identify, prevent, mitigate, and account for human rights impacts in our supply chain. RIGHT TO PRI VACY • The introduction of the General Data Protection Regulation (GDPR) is an ongoing process that impacts our way of handling CARE FOR PEOPLE - FAIR EMPLOYMENT personal data. All activities shall be conducted with respect for individuals as individuals, and without discrimination. We do not tolerate any form of forced labor and are committed to the abolition of child labor. • We have developed policies and guidelines for data security and privacy that apply to all regions according to the GDPR standard. The regulation gives all our employees more control of their own personal data and ensures that the information is protected. 13 7 RESULTS FIGURE 2.56 UNIONIZED EMPLOY EE S (%) AT Y E A R END 2019 Region Rogaland Finnmark Shetland British Columbia ASA Ocean Quality We accept and welcome union memberships among employees. Grieg Seafood has established a good and involving relationship with our Union representatives and cooperate in more internal improvement projects than just salary negotiations. The numbers reflect union memberships in Fellesforbundet and The Norwegian Food and Allied Workers Union (NNN), which are the most common unions for operational positions in our industry. We do not log all types of memberships, such as members of positions with university education. We do not track the number of unionized employ- ees in Shetland due to legal restrictions. % 31% 40% - 0% 0% 0% FIGURE 2.57 CODE OF CONDUCT PROGR A M FIGURE 2.58 H A R A S SMENT INCIDENT S FIGURE 2.59 W HIS TLE BLOW ER CA SE S 100 percent 0 0 100% of our employees have completed our Code of Conduct program. No harassment incidents were reported in 2019. No cases were reported through our whistle blower channel in 2019. FIGURE 2.60 TR A INING ON HUM A N RIGHT S OUR EMPLOYEES' RIGHT Declarations of Consent Right to correct erroneous information Right to access personal information Right to limited processing of information Right to erase personal information Right to oppose processing of information Right to breach notification Right to transmit information to new Right to be informed employer 13 percent In 2019, 113 employees, constituting 13% of our total employees, were given training on human rights. The training equals 281 hours. 13 8 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P E O P L E H U M A N R I G H T S A N D E T H I C S TRANSPORTATION AND RISKS Most of our salmon is transported by trucks to the Euro- pean or North American markets. There are some particular risks connected to this part of our supply chain, which we are aware of and working on. In Norway, truck drivers from abroad may not always be equipped for driving during winter conditions. While regu- lations on the matter are strict, some are still breaching the rules, which can potentially cause deadly road accidents in our local communities. Such breaches are particularly severe in Finnmark, where winter conditions occur during large parts of the year. To mitigate the challenge, Grieg Seafood Finnmark is taking part in the “Safe trucking” project organi- zed by the Norwegian Seafood Federation. Before each truck leaves the processing plant, employees check whether tires and other trucking conditions are suitable for driving during cold temperatures. Trucks not deemed fit for driving, will not receive any cargo, and police is contacted when appropriate. So-called “social dumping”, to use cheaper foreign labour, can be another issue in the transportation sector serving Norway. While most follow the regulations, some transpor- tation companies are accused of bending the rules regarding employee rights or HSE. Grieg Seafood is mainly working with large transportation suppliers to reduce these risks, and require all Norwegian regulations to be followed. We are also working on improving requirements to transportation compa- nies, making them more comprehensive. 13 9 Embracing diversity Diversity is not only the right thing to do ethically. It leads to greater employee retention and improves productivity. Bringing together employees with different experiences, backgrounds and educations spurs creativity and can lead to new and innovative ideas. OUR PRINCIPLES We embrace diversity with respect to employee gender, age, ethnicity, physical abilities, personality, skills, expe- riences, and backgrounds. RESULTS FIGURE 2.61 THE SHE INDE X 2019 THREE IMPORTANT TASKS FOR MAKING CHANGES TOWARDS AN EQUAL WORKFORCE Bold leadership Top management have defined policies, strategies, goals and practices. Measuring equality targets openly A diverse leadership team that sets, shares and measures equality targets openly. An empowering environment One that trusts employees, respects individuals and offers equal opportunities. 01. 02. 03. 14 0 8TH 2018 2019 H1 2020 H1 We report on the SHE Index in order to be transparent about our organiza- tion and to improve our gender balance. The SHE Index scores companies based on the gender balance in management teams at different levels, as well as the companies´ policies to improve female representation in management. The SHE Index will from 2020 be published once a year. Our goal is to improve gender balance and diversity to become the preferred employer by choice. The methodology used in the index has changed several times. In H2 2019, we received 29th place due to such changes. In 2020, however, the She index adjusted the weighting of the Index to have more focus on the policies and practices that will create a long-term change. Change takes time, and we should pay more attention to the work being done to create positive changes for diversity and inclusion. In 2019, Grieg seafood performed many initiatives and established procedures and guidelines on how to improve our gender balance. This include a fair pay and benefit policy for all of our employees regardless of gender. 12TH8THANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P E O P L E E M B R A C I N G D I V E R S I T Y HOW WE WORK TO IMPROVE IN OUR OW N OPER ATIONS • We offer parental leave to both women and men in accordance • We strive to attract more female workers to reduce the gender with local laws. gap, to which end we are keen to facilitate flexible working. • We have a fair and transparent recruitment process, and strive IN OUR SUPPLY CH A IN to have both female and male candidates in the final round of • We expect our suppliers to conduct their activities with respect interviews. for individuals as individuals, and without discrimination. • We report on the SHE Index because we believe that what gets measured gets done. • We support Women in the Scottish Aquaculture Industry (WiSA). WiSA promotes the diverse and rewarding careers that are available in aquaculture, to encourage more women to enter the sector. It also supports the progression, oppor- tunities, and development of women who already work in aquaculture. RESULTS FIGURE 2.62 NUMBER OF EMPLOY EE S (F TE) A ND GENDER BA L A NCE AT Y E A R-END 2019 ROGALAND FINNMARK SHETLAND BRITISH COLUMBIA ASA OCEAN QUALITY 0% 35 55 36 44 12 20 Female Male TOTAL 122 201 153 127 13 43 100% 157 256 189 171 25 63 861 At the close of 2019, the Grieg Seafood Group had 861 employees including full-time and temporary workers. Women make up 23% of the workforce, while 77% are men. The ratio between male and female employees is similar across the regions. The management and support functions at Grieg Seafood ASA, and the sales teams at Ocean Quality, have the highest proportion of female employees. Employee data is registered in a specific HR database. Only HR personnel are allowed access to register employee data, and the data is reviewed regularly to ensure data quality. 141 Creating attractive jobs To reach our goals and resolve the challenges we face, we need the best people. A good working environment is key to attracting and retaining the best talents. OUR PRINCIPLES Our goal is to attract the best skills, and to be the preferred employer, regardless of industry. We believe in life-long learning, and aim to help our employees develop and reach their individual potential. We have a fair and transparent recruitment process and offer fair compensation. A good working environment creates attractive jobs. We live by our values Open, Ambitious and Caring. 14 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P E O P L E C R E AT I N G AT T R A C T I V E J O B S HOW WE WORK TO IMPROVE COMPENSATION EMPLOY EE DE V ELOPMENT • Our pay and benefits policies are based on a bi-annual survey • We offer employees training and further education to support to ensure that we always pay market rates or above for all jobs. the development of necessary skills. We comply with the laws and regulations related to employ- ment protection, compensation, and working hours in the • We offer aquaculture apprenticeships. countries where we operate. • All our employees have written employment contracts. Most of Precision Farming scheme, we aim to offer untraditional and our employees are employed on a permanent basis, though we exciting positions. Sensor technology, big data, and analytics also use temporary employees, particularly in our process- demands further development and training of our employees, ing facilities. There are some differences in the payment and and will also attract people with new skills to the industry. • Through the use of new technology and digitalization, e.g. our benefit arrangements for temporary employees due to the number of hours worked. • All permanent employees are part of our annual bonus DI A LOGUE A ND CULTURE program. • We hold quarterly feedback meetings to discuss important initiatives with our union representatives in order to encourage • We have an employee share program and share our profits good and constructive dialog. with our employees. • We focus on internal communication. Through our shared communications platform, Workplace by Facebook, all our employees are given a voice and an opportunity to participate actively in discussions, and to share knowledge and informa- tion across borders. 14 3 RESULTS FIGURE 2.63 GRE AT PL ACE TO WORK 2019 FIGURE 2.64 NUMBER OF EMPLOY EE S COMPLE TING TR A INING OR FURTHER EDUCATION IN 2019 FIGURE 2.65 NUMBER OF A PPRENTICE S Y E A R-END 2019 79 percent 34 23 Great Place to Work assesses and evaluates orga- nizations and the practices that underpin workplace culture based on the experience of employees. We are proud to announce that Grieg Seafood´s opera- tions in Finnmark, Rogaland and Bergen, Norway, have received the Great Place to Work certification. This is a step towards becoming one of the best companies to work for in Norway. Grieg Seafood Norway received a score of 86%. The average score for European compa- nies was 57%, the best score being 89%. The Grieg Seafood Group received an overall score of 79%. We will continue our structured approach to working with and including our employees in order to find better solutions in their day-to-day work. FIGURE 2.66 T Y PE OF WORK ER AT Y E A R-END 2019 ROGALAND FINNMARK SHETLAND BRITISH COLUMBIA ASA OCEAN QUALITY 0% 130 220 176 166 24 63 In Rogaland, Finnmark and Shetland, a total of 34 employees received their certificate of apprenticeship in 2019. In cooperation with North Island College, Grieg Seafood British Columbia prepared the “Seawater Technician Advancement Program” (TAP) in 2019. The program will provide mandatory additional training for technicians, as well as further training for higher positions within aquaculture. Permanent Temporary Contractor TOTAL 27 21 178 36 4 260 13 189 5 1 172 1 3 5 28 68 100% 895 87% (779 of 895) of our workers are permanent employees. Temporary workers consist mainly of seasonal workers and apprentices. Most of our apprentices are offered a permanent position with us after their apprenticeship is over. Contractors are mainly used in Norway during peak periods of harvesting. Employee data is registered in a specific HR database. Only HR personnel are allowed access to register employee data, and the data is reviewed regularly to ensure data quality. 14 4 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P E O P L E C R E AT I N G AT T R A C T I V E J O B S FIGURE 2.67 NUMBER OF FULL TIME A ND PA RT TIME EMPLOY EE S IN 2019 FIGURE 2.68 T Y PE OF WORK ER SPLIT BY GENDER IN 2019 Full-time Part-time Region Permanent Temporary Contractor Total Region Rogaland Finnmark Shetland British Columbia ASA Ocean Quality Total Female Male Female Male Total 26 46 32 41 11 20 176 108 197 152 127 13 43 640 9 9 4 3 1 0 14 4 1 - - 0 26 19 157 256 189 171 25 63 861 Female Male Female Male Female Male Female Male Female Male Female Male Rogaland Finnmark Shetland British Columbia ASA Ocean Quality Total 31 99 46 174 31 145 40 126 12 12 20 43 4 23 9 27 5 8 4 1 0 1 0 0 3 18 1 3 0 0 0 1 0 3 3 2 38 140 56 204 36 153 44 128 12 16 23 45 779 82 34 895 14 5 Keeping our employees safe Accidents can be prevented through the development of adequate operating proce- dures, a safety-focused corporate culture, and by improving equipment quality. We never compromise on health and safety. OUR PRINCIPLES Our mission is to provide a safe work place, ensure compliance and minimize future potential liabilities. We work systematically to safeguard our employees´ health, safety and working environ- ment. The aim is to prevent and manage work-related injuries, illness, accidents, and fatalities. We target an absence rate of below 4.5% in each region. We have a zero-tolerance philosophy for accidents. Health and safety are serious and important matters for Grieg Seafood, and we want our employees to know this and act accordingly every single day. 14 6 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P E O P L E K E E P I N G O U R E M P L O Y E E S S A F E HOW WE WORK TO IMPROVE SYS TEMS, PROGR A MS A ND RISK A S SE S SMENT RE V IE W ING A ND REP ORTING • We use occupational health and safety systems and standards • We carry out yearly reviews of our health and safety procedures. in line with local regulations in each country (we are currently implementing one in our UK operations): > Norway: Working Environment Act, Internal Control Regu- lations > UK: Health & Safety at Work Act 1974 > BC: Work Safe BC • All aspects of work are covered by our health and safety systems. • We have dedicated HSE Managers in each region. • On a regular basis, the Health and Safety committees repre- sented by all areas of our operations, monitor and review HSE incidents and accidents together. Feedback from employees is reviewed and, if necessary, implemented in procedures. • Employees can report hazards to their line manager or the • All health and safety managers are certified according to local H&S Advisor by any method they feel comfortable (directly, laws, and ensure that all personnel are well trained in health phone, message apps, email), including our anonymous whis- and safety at work. tleblowing service. Grieg Seafood has a "no reprisal" policy when it comes to reporting health and safety issues, described • We introduced a safety excellence program, Brainsafe, in in our Code of Conduct. Grieg Seafood BC in 2018, which was a pilot project. The project is still undergoing and we will in 2020 decide whether • All incidents are recorded in our health and safety system, to roll it out globally or consider other safety programs for and reviewed. After corrective action is taken, the result of global implementation. the action is disseminated to the rest of the region for imple- mentation. • Job risks in each department are formally evaluated and cate- gorized using a risk matrix. Job hazard assessments are also carried out for non-routine jobs. CRE ATING A N HSE CULTURE • All employees receive health and safety training when they PROMOTING EMPLOY EE HE A LTH • External health services provide health checks and advice to employees. In some regions they are represented on our Health and Safety committees. join the Company, and are required to re-take the courses • We provide a health-plan for employees, ranging from dental regularly. and medical to counselling depending on the region. • To ensure that all our employees understand and follow our • We offer a variety of health programs to the employees Safety Management Principles, each and every one: > is encouraged to take responsibility for their own personal (competitions, gym membership). safety in everything they do. • An employee Health & Wellness program is in place in BC, > understands the importance of working for the safety of focusing on improving our employees´ physical and mental others. health. > is required to engage and communicate with colleagues to support safe behavior and compliance. IN OUR SUPPLY CH A IN • We have annual HSE exercises to ensure that everyone knows • In our Supplier Code of Conduct, we expect suppliers to what to do in case of an emergency. provide a safe and healthy environment for their workers and contractors, and minimize workers´ exposure to poten- tial safety hazards. Furthermore, we expect our suppliers to adhere to all applicable laws and regulations. 147 SAFETY MANAGEMENT PRINCIPLES All locations shall establish annual safety targets with action plans (what, who, when). A safety assessment shall be carried out for all jobs, equipment, and potentially hazardous materials. All locations shall have high standards of housekeeping. Annual audits of HSE-related activities shall be conducted. All managers shall carry out safety walks (Walk - Observe - Communicate). All regions shall have safety procedures, to help facilitate a safety focus throughout the organization. All employees shall participate in safety meet- ings on a regular basis. A program for systematic and regular safety training shall be in place. The use of personal protective equipment and life jackets shall be specified for employees, contractors, and visitors. All accidents and near-misses shall be reported and investigated, including a root-cause analy- sis, and corrective actions implemented within a reasonable period of time. RESULTS FIGURE 2.69 A BSENCE R ATE IN 2019 6.00% 1.98% 1.56% 0.00% Short term Long term TARGET: 4.50% 2.85% 2.01% 1.21% 2.17% 0.51% 1.53% 0.25% 0.50% ROGALAND FINNMARK SHETLAND BRITISH COLUMBIA ASA OCEAN QUALITY In Rogaland and Finnmark, the absence rate has decreased compared to the year before, while in Shetland and British Columbia the absence rate increased. The absence rate in Finnmark is above our target of 4.5%, mainly due to long-term sickness. We are monitoring developments. 14 8 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 P E O P L E K E E P I N G O U R E M P L O Y E E S S A F E FIGURE 2.70 FATA LITIE S IN 2019 0 We had no fatalities in 2019. FIGURE 2.72 S A FE T Y INDICATORS IN 2019 Region Rogaland Finnmark Shetland British Columbia ASA Ocean Quality* FIGURE 2.71 A BSENCE R ATE Absence Short-term Long-term Total 2018 1.29% 2.02% 3.31% 2019 1.69% 1.50% 3.19% Hours worked Total work related injuries High consequence work-related injuries 195 766 361 799 327 469 256 370 45 916 125 800 9 20 11 25 0 0 0 2 0 1 0 0 * Estimated based on number of employees and general annual working hours. Health and safety incidents are registered in our systems, and reviewed as part of the monthly HSE meetings. In BC, quality control of incident data is achieved through support from a third party. Injuries are caused mainly by being struck by objects, handling equipment, squeezes, cuts, slips, and falls. According to risk assessment, the injuries posing high-risk consequences are being struck by an object, squeezes and cuts. During 2019, the high consequence injuries were related to being struck by an object and squeezes. The injuries were assessed, and reported to other sites to prevent similar accidents from happening. FIGURE 2.73 H1-FACTOR /LTIR Region Rogaland Finnmark Shetland British Columbia ASA Ocean Quality H1-factor/LTIR* Absence rate 2016 2017 2018 2019 9 13 10 72 0 na 11 24 13 16 0 na 24 18 24 38 0 0 15 22 15 35 0 0 2016 3.42% 6.10% 2.67% 1.58% 0.30% na 2017 3.17% 4.40% 3.15% 0.88% 1.00% na 2018 4.65% 5.40% 2.25% 1.81% 0.12% 0.62% *H1-factor/LTIR: number of lost-time injuries divided by the total number of hours worked, multiplied by 1 000 000. Permanent and temporary employees are included in our incident data. Information on contractors is not currently available. Absence rate for OQ in 2016 and 2017 is not available due to incomplete information. 2019 3.54% 4.86% 3.38% 2.04% 0.25% 0.50% 149 Anti-corruption Business integrity is essential to become a preferred provider of sustainably produced salmon. OUR PRINCIPLES RESULTS We have zero tolerance for all forms of fraud, corruption, facilitation payments, kickbacks, bribery and other misconduct. IN V E S TIGATIONS IN V E S TIGATIONS In February 2019, the European Commission launched In February 2019, the European Commission launched an investigation to explore potential anti-competitive an investigation to explore potential anti-competitive behavior in the Norwegian salmon industry. Grieg behavior in the Norwegian salmon industry. Grieg Seafood is one of the companies under investigation. Seafood is one of the companies under investigation. Based on the EU investigation, US competition authori- Based on the EU investigation, US competition authori- ties launched their own investigation into the matter in ties launched their own investigation into the matter in November 2019. By the end of the year, four class-ac- November 2019. By the end of the year, four class-ac- tion lawsuits had been filed by minor customers in the tion lawsuits had been filed by minor customers in the USA and two in Canada. Grieg Seafood is not aware of USA and two in Canada. Grieg Seafood is not aware of any anti-competitive behavior within the Group; not in any anti-competitive behavior within the Group; not in Norway, the EU, the USA, or in Canada. We are fully Norway, the EU, the USA, or in Canada. We are fully collaborating with European and American authorities collaborating with European and American authorities in this matter and will follow up the lawsuits in the USA in this matter and will follow up the lawsuits in the USA and Canada accordingly. and Canada accordingly. 15 0 ANNUAL REPORT 2019GRIEG SEAFOOD RESULTS PA R T 0 2 P E O P L E A N T I - C O R R U P T I O N HOW WE WORK TO IMPROVE • Our Code of Conduct sets out a zero-tolerance policy with • In our Supplier Code of Conduct, we state our zero-tolerance respect to anti-corruption, bribery, and money-laundering. policy. We expect our supplier to adhere to the same princi- ples and to never enter into agreements or understandings • We continuously assess our own operations and those of our with competitors, or engage in other conduct, that undermines suppliers with regards to corruption risk, as part of our risk competition. management framework. • Members of group and local management are encouraged not to hold shares or accept board positions in companies that Grieg Seafood has commercial relations or competes with. All relations that may involve a conflict of interest must be reported, to ensure that business decisions are made by impartial staff members. NON- COMPLI A NCE CORRUP TION In January 2018, Ocean Quality AS was suspected of exporting We did not experience any confirmed incidents of corruption in salmon with PD (Pancreas Disease) to China. The case was 2019. However, we did have two incidents where two employees dropped in January 2020 after the Norwegian authorities con- in OQ UK and two employees in OQ in Norway were asked to cluded that Ocean Quality had done nothing wrong. resign due to breach of internal Code of Conduct and policies. We had no corruption incidents that resulted in the termination or non-renewal of contracts with a business partner. FIGURE 2.74 NON-COMPLI A NCE W ITH L AW S A ND REGUL ATIONS IN 2019 Area of non-compliance Description Fines (NOK) Number of non-monetary sanctions Dispute resolution mechanisms Penalty of MNOK 1.4 from the Norwegian Directorate of Fisheries related to incorrect positioning of pens at sea. Fine of MNOK 2.5 related to the export of salmon silage without appropriate certification. The incident took place between 2010 and 2014. 3 904 510 N.a. N.a. 0 0 0 0 0 Environmental Social Economic None None None 151 ROOT ED IN LOCAL COMMUNITIES Improving Relationships We are grateful to our local communities for giving us permission to farm salmon in their fjords and inlets. In return, we do not only do what we can to ensure local biodiversity and sustainable farming methods. We also contribute to vibrant local communities in the many rural areas where we operate. 15 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 L O C A L C O M M U N I T I E S I N T R O 15 3 Local value creation We are grateful to our local communities for giving us permission to farm salmon in their fjords. We need their license to operate to achieve sustainable growth. OUR PRINCIPLES We use local suppliers as often as we can. We hire local apprentices and support aquaculture schools and training facilities. We engage in local environmental projects related to our fish farming. We support sports and cultural activities in our local communities. We strive to achieve good relations and a good dialogue with our local communities. 15 4 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 L O C A L C O M M U N I T I E S L O C A L VA L U E C R E AT I O N LICENSE TO OPERATE RESPECT FOR INDIGENOUS RIGHTS We regard the basis of our license to operate to be two-fold. First, it is In British Columbia, Grieg Seafood is farming in areas that belong to based on the public’s trust that we always work to reduce our environ- Indigenous peoples, while Finnmark has been home to the Sami people mental footprint and improve fish welfare. We report on our efforts for millennia. We recognize that these groups have special rights, as in these areas in the chapters Healthy Ocean and Sustainable Food. acknowledged to them by the United Nations Declaration on the Rights Secondly, it is based on our ability to give back to local communities. This is primarily achieved by creating well-paying, full-time jobs in of Indigenous Peoples (UNDRIP), and we take particular care to avoid infringing on such rights. rural areas, by paying local taxes, by using local suppliers of goods British Columbia is in the middle of a reconciliation process with its and services as often as possible, by hiring local apprentices, and by more than 300 Indigenous peoples. In 2019, the province enshrined supporting local sporting and cultural activities. Grieg Seafood aims UNDRIP into law. Grieg Seafood supports the implementation of to be open and honest with local communities about our production UNDRIP in BC, and is, together with our First Nations partners, the methods, our successes, and our remaining challenges. We view it as province, and other businesses, on a journey to discover what the path our responsibility to engage in constructive dialogue with all stakehol- of reconciliation will look like. ders and groups that are impacted by our activities. In Finnmark, Grieg Seafood is also in a process to understand how we can advance Indigenous culture where we farm salmon. THE GRIEG FOUNDATION Our largest shareholder, the Grieg Group, contributes to sustainable development in a broader perspective. The Grieg Foundation indirectly owns 13% of Grieg Seafood, and a part of the dividend paid to sharehol- ders goes to charitable projects via the Grieg Foundation. Read more here: https://griegfoundation.no/. 15 5 Grieg Seafood Rogaland 157 employees 565 000 000NOK purchase from local suppliers in Rogaland COMMUNITY STORIES ORGANIZ ATIONS We support organizations that engage in ocean-related activities, such as the diving club Sletta Dykkerklubb. Amongst other things, they collect litter and plastics from the ocean. 64% of total purchase was from local suppliers CULTUR AL E VENTS We support cultural events for children and young people, so that those who cannot afford it also have the chance to participate in cultural activities. In Stavanger, for instance, we support Barnas Mablis, a cultural event for children who are not on holiday during the summer. SPORTS CLUBS We support sports clubs in all the municipalities where we have farms. Our aim is to contribute to the health and social life of local children and young people. RIPPLE EFFECTS In 2017, a ripple effect study was conducted on behalf of Grieg Seafood Rogaland. It found that Grieg Seafood Rogaland has an indirect employment effect of about 200 jobs in the private sector, and 111 jobs in the public sector. 15 6 733 167NOK donated to local cultural and sports activities 1 500 000NOK on local road and telecom infrastructure projects 15 900 000NOK support from the Norwegian Aquaculture Fund to municipalities where we operate ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 L O C A L C O M M U N I T I E S L O C A L VA L U E C R E AT I O N Grieg Seafood Finnmark 256 employees COMMUNITY STORIES MED AK TIV SOMMER We support Med Aktiv Sommer in North Cape, an outdoor summer holiday scheme for young people, where learning perseverance is a key element. BUL IN ALTA We support BUL in Alta, a sports club for children and young people. Our support allows the club to reduce fees for member- ship and equipment. “JEG FANT, JEG FANT” L ATHARI We sponsored the artist workshop “Jeg fant, jeg fant” for chil- dren and adults, where nature meets art. It takes place in the nature reserve Lathari and focuses on nature, fairy tales, local belonging, recycling and sustainability. In 2019, about 317 young and old participated. 847 000 000NOK purchase from local suppliers in Troms and Finnmark 66% of total purchase was from local suppliers 2 463 000NOK donated to local cultural and sports activities 2 800 000NOK fiber optic infrastructure project for telecom conne- ction for two of our sites. Of this, approximately NOK 300 000 was spent to ensure connection to local private homes and cabins. 122 000 000NOK support from the Norwegian Aquaculture Fund to municipalities where we operate 15 7 Grieg Seafood British Columbia COMMUNITY STORIES FIELD OFFICE IN GOLD RIVER In 2019, we opened a field office, which is staffed one day a week. We established the office in recognition of the importance of this community, where ourhatchery is located and where we use the local government's dock to transport harvested fish. Members of the public can come to the office to find out about job vacancies, inquire about Grieg sponsorship of events, and arrange for farm tours. DONATIONS T O LOCAL FOOD BANK S In November 2019, we donated 1 650 kilos of farmed salmon to eight food banks in smaller BC communities where young families and seniors living on pensions are unable to afford high-quality protein. NATIONAL CANADA DAY CELEBR ATIONS Each July 1 in the community of Sayward, a team of Grieg volun- teers prepares a salmon barbecue lunch for the community as part of their national Canada Day celebrations. Residents of Sayward and nearby towns participate in the parade and events after enjoying a barbecue lunch. 15 8 171 employees 10% of employees with an Indigenous background 779 000 000NOK purchase from local suppliers in B.C. 83% of total purchase was from local suppliers 1 328 000NOK donated to local cultural and sports activities 2 525 000NOK contributed to upgrading the Ehattesath Chinehkint First Nation's dock in Zeballos BC, for the transport of farmed fish ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 L O C A L C O M M U N I T I E S L O C A L VA L U E C R E AT I O N Grieg Seafood Shetland 189 employees COMMUNITY STORIES THE SHETL AND FOLK FE STIVAL The Shetland Folk Festival has been running for 40 years and brings many international folk performers from all over the world to Shetland. It also provides a stage for the superb local folk musicians for which Shetland is famous. We have been a sponsor for over ten years. SPONSORING DANCE WORK SHOP Last summer, we sponsored local third-year dance student Emily Briggs from Scalloway to run a week-long dance workshop at her local community center, the Scalloway Youth Centre Trust. The class offered a chance for young people from the community to explore the medium of dance for the first time. THE FEBRUARY SHETL AND SWIM MEET Together with H Williamson & Sons, we sponsored the February Shetland Swim Meet run by Shetland Lerwick Amateur Swim- ming Club. 670 000 000NOK purchase from local suppliers in Scotland 70% of total purchase was from local suppliers 234 000NOK donated to local cultural and sports activities 3 113 000NOK or £24.75 per tonne harvested salmon contributed in local tax to the Crown Estate 15 9 Finding the path to shared prosperity Grieg Seafood BC and their Indigenous partners are together exploring what reconciliation means for the salmon farming industry going forward. In 2019, the Government of British Columbia passed Bill 41, which officially implemented into law in the province the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP). British Columbia will renew its relationship with Indigenous peoples, based on the recognition of rights, respect, co-operation and partnership. Grieg Seafood BC supports the implementation of UNDRIP. “It is important to us as a company to respectfully appreciate the rich history, knowledge and rights of coastal Indigenous peoples, while acknowledging that we operate our farms, hatch- eries and offices on their traditional lands and waterways with their permission,” says Rocky Boschman, Managing Director of Grieg Seafood BC. It sounds nice on paper, but how will it change Grieg Seafood’s operations in practice? According to Boschman, the company must go beyond engagement required by regulators. “It means changing – changing how we communicate, how we involve our Indigenous partners in our operations and, most importantly, how we think and act as a company.” The industry’s first Director of Reconciliation OD Hansen was added as the Director of Reconciliation in Grieg Seafood BC in February 2020. Hansen will connect with coastal 16 0 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 2 L O C A L C O M M U N I T I E S C A S E S T O R Y Indigenous communities then liaise with Grieg BC’s employees to help the company move towards reconciliation. This is the first role of its kind in the BC salmon farming industry, one that works to shift workplace culture internally by working with Indigenous communities externally. “This position will be an educational tool so that everyone has an appreciation of where they are and why they’re here,” says Hansen. “We should appreciate that we are allowed to be here. It’s important to have that appreciation because then we can build relationships and partnerships that work for everyone, as opposed to a process where you check off [the exercise of] consultation and have no regard for the desires of the Indigenous peoples.” He says the onus is now on industry as well as government to keep reconciliation going. “We must show that we are serious about working with Indig- enous communities, about listening to them, and following up. Taking their advice and requests and doing something with it.” New Partners – the Ehattasaht Chinehkint On July 16, 2019 Grieg Seafood BC and the Ehattesaht Chinehkint signed an impact benefit agreement at our Campbell River office. In addition to financial contributions, Grieg will also provide employment, training and business opportunities for members of the Nation. “We have had ongoing communications with the Ehattesaht Chinehkint for nearly ten years.” says Marilyn Hutchinson, Direc- tor of Indigenous & Community Relations. “Negotiations toward an agreement can only begin after the trust has been developed by face-to-face meetings over a period of time. It is important for both partners that all interests are acknowledged in the agree- ment and we were able to do this in a respectful way.” Grieg BC’s farms that currently operate in Ehattesaht territory are located in the Esperanza Inlet off the west coast of Vancou- ver Island. These include Steamer Point, Hecate and Esperanza farms. This is Grieg BC’s third impact benefit agreement with a coastal Nation. Twelve Grieg BC farms operate in agreement with three Nations in whose territories the farms are located, and 10 per cent of Grieg BC’s workforce includes Indigenous persons. "We must show that we are serious about working with Indigenous communities, about listening to them, and following up." OD H A NSEN Director of Reconciliation, Grieg Seafood BC From the signing ceremony between Grieg Seafood BC and the Ehattesaht Chinehkint on July 19 2019 OD Hansen, Grieg Seafood BC’s new Director of Reconciliation, in a floatplane on his way to a farm 161 16 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S C O N T E N T PA R T 0 3 OUR RESULTS P R E S E N TAT I O N O F T H E B O A R D O F D I R EC T O R S B O A R D O F D I R EC T O R S' R E P O R T C O R P O R AT E G O V E R N A N C E A N N UA L A C C O U N T S 2 019 Grieg Seafood Group Grieg Seafood ASA AU D I T O R ' S R E P O R T AU D I T O R ' S S U S TA I N A B I L I T Y S TAT E M E N T 16 4 -167 16 8 -18 7 18 8 -2 0 7 2 0 8 - 312 208-285 286-312 313 - 317 318 - 319 16 3 Presentation of the Board of Directors 16 4 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S P R E S E N TAT I O N O F T H E B O A R D O F D I R E C T O R S PER GRIEG JR (1957) Chair of the Board (from 2009) A SBJØRN REINK IND (1960) Vice Chairman (from 2011) FIELD OF EXPERTISE Business development BACKGROUND Per Grieg Jr. has been actively involved in Grieg Seafood ASA FIELD OF EXPERTISE Food industries BACKGROUND Asbjørn Reinkind has extensive experience from the food industry and branded products, as well K A RIN BING ORGL A ND (1959) Board member, Member of the Audit Committee (from 2013) FIELD OF EXPERTISE Business finance BACKGROUND Karin Bing Orgland has acquired extensive experience over a since its foundation in 1992, and has as from aquaculture. Previous positions long career in the financial sector and is played a major role in building up the include CEO of Denja, Toro, and Rieber a professional board member. She has Grieg Seafood Group. He has estab- & Søn, as well as Hydro Seafood Group. held different management positions lished numerous companies within He has also served as chair of Pieters within DNB, including group executives different business sectors and has held Group, Seafarm Invest, and Sjøtroll vice president corporate and personal several directorships. Havbruk, and as a member of the boards banking. EDUCATION • MSc in Marine Systems Design from the Norwegian University of Science of several companies in the marine sector, including Fiskeriforskning, Domstein ASA and Pronova Biocare. and Technology (NTNU) • MBA in Finance and Management EDUCATION • MSc in Economics and Business EDUCATION MSc in Economics and Business Admin- istration from the Norwegian School of Economics (NHH) from INSEAD CURRENT POSITIONS CEO at Grieg Aqua AS Administration from the Norwegian School of Economics (NHH) CURRENT POSITIONS • Chair of the Board at GIEK and Entur • Advanced Management Programme AS at INSEAD, France • Member of the Board and Chair of • Management degree from IMD, the Audit Committee at Storebrand CITIZENSHIP Norwegian Switzerland ASA and KID ASA NUMBER OF SHARES 31.12.2019 58 961 996 (52.80%), together with the CURRENT POSITIONS • Deputy Chair at Biomar Group • Member of the Election Committee at Orkla ASA and Arcus ASA Grieg family • Chair of the Board at Grilstad AS, CITIZENSHIP Norwegian Isbjørn IS AS and Nofitech Holding AS • Board member at Holding Cage/ NUMBER OF SHARES 31.12.2019 0 Mørenot AS CITIZENSHIP Norwegian NUMBER OF SHARES 31.12.2019 120 000 (0.11%) 16 5 SOLVEIG M. R. NYGA ARD (1955) Board member (from 2018) TORE HOL A ND (196 4) Board member (from 2018) SIRINE FODSTA D (1970) Board member (from 2019) FIELD OF EXPERTISE Fish health FIELD OF EXPERTISE Aquaculture FIELD OF EXPERTISE Business organization & transformation BACKGROUND Solveig Nygaard has been working with fish health for 35 BACKGROUND Tore Holand has 30 years of experience from key positions in the years and is a specialist in fish diseases. aquaculture industry. Previous positions BACKGROUND Fodstad has extensive experience from the public and private Nygaard has accumulated extensive include CEO of Midt-Norsk Havbruk sectors, with a focus on people issues experience from a variety of fish health and CFO of SinkaBerg-Hansen and and the HR function. Norges Bank projects and various companies, includ- Arnøylaks. He has held numerous board Investment Management, Norsk Hydro, ing as CEO of FoMAS. Furthermore, positions in salmon farming companies. Deloitte and Centrica are amongst the she has participated a program under the auspices of the Research Council of Norway. EDUCATION • Degree in veterinary medicine from the Norwegian College of Veterinary Medicine companies she has worked at. She has EDUCATION Bachelor’s degree in fishery economics designed and successfully implemented large transformation programs in highly and aquaculture from Bodø University complex global corporations and govern- College ment departments. CURRENT POSITIONS • Chair of the Board at Emilsen Fisk EDUCATION BA in Economics/French and BBA in • Degree in business administration AS Business Admin from Pacific Lutheran from BI Norwegian Business School • Chair of the Board at Eidsvaag AS University WA, US Stavanger CURRENT POSITIONS Independent adviser CITIZENSHIP Norwegian CITIZENSHIP Norwegian CURRENT POSITIONS CEO at Grieg Maturitas AS and Grieg NUMBER OF SHARES 31.12.2019 0 Maturitas II AS CITIZENSHIP Norwegian NUMBER OF SHARES 31.12.2019 0 NUMBER OF SHARES 31.12.2019 0 None of the board members have share options. For more details of the Board of Directors, please visit our website: https://www.griegseafood.no/grieg-seafood-asa/directors/ 16 6 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S P R E S E N TAT I O N O F T H E B O A R D O F D I R E C T O R S 167 Board of Directors’ report HIGHLIGHTS 2019 Earnings driven by highest ever harvested volume and contin- Biological improvements in BC and Shetland, but still high ued strong prices. cost. Harvested volume of 82 973 tonnes, up 11% compared to 2018 Smolt quality in Shetland improved, leading to increased and according to target. survival rate from 83% to 89% in Shetland. EBIT per kg of NOK 13.11, compared to NOK 14.72 in 2018. Smolt investments starting to pay off, as average smolt size is increasing. Dividend payout of NOK 4.00 per share due to good profitability Ten sites ASC certified in Finnmark by the end of the year, and during the year. ASC certification process ongoing in BC. High financial flexibility due to strong solidity and liquidity. Awarded A rating by the Carbon Disclosure Project for actions on climate change. Strong biological performance in Norway resulting in lower cost. Launch of GSF 2025 strategy, targeting harvest volume in excess of 150 000 tonnes, value chain repositioning and cost leadership. 16 8 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S B O A R D O F D I R E C T O R S ' R E P O R T GRIEG SEAFOOD’S VISION AND AMBITIONS The Grieg Seafood Group is one of the world's leading salmon farmers. The Group has licenses for seawater farming and land-based smolt production in Finnmark and Rogaland in Norway, British Columbia in Canada, and Shetland in the UK. In 2019, the Group harvested a total of 82 973 tonnes of Atlantic salmon. Its entire output was sold through the sales company Ocean Quality. The Group was established in 1992 and has over the years grown to become a leading industry player. The Group's vision "Rooted in Nature – farming the ocean for a better future", represents how the Group intends to make a difference and what it aims to accom- plish. It also encompasses the foundation for the Group's operational development – a healthy ocean, sustainable food, profitable growth and innovation, good jobs for everyone, and local value creation. Short-term, the Group aims to harvest 100 000 tonnes in 2020 at a cost equal to or below the industry average, building a platform for sustainable growth for the longer term. By 2025, the Company aims to harvest at least 150 000 tonnes and drive competitiveness through cost leadership in each region. The Company also has an ambition to evolve from a purely commodity supplier into an innovation partner, through increased involvement downstream. Sustainable farming practices are the foundation of the three focus areas towards 2025. The Company’s long-term growth ambitions are built on a continued focus on post-smolt initiatives, new licenses, new technologies, maximizing site utilization, and continuous evaluations of potential merger and acquisition (M&A) opportunities. To achieve cost leadership in each region, Grieg Seafood will maintain its rigorous focus on fish health and welfare, and drive digitalization through continuous research and development and the utilization of new cutting-edge technologies throughout its operations. TA RGE T S A ND ACHIE V EMENT S The scoreboard is an overview of a set of key performance indicators for the Group´s five pillars, which is used to track developments according to the current 2020 strategy. The increase in the survival rate in Shetland from 83% in 2018 to 89% in 2019 is a result of measures taken to ensure healthier and more robust smolt, as well as continuous improvement of the handling and treatment of the fish in sea. The post-smolt strategy provides better control of the environment of the fish for a longer period of time. It makes the fish more robust before being transferred to sea and reduces exposure time to biological risks in sea. The total use of antibiotics, sea lice treatment and hydrogen peroxide, measured as gram API per tonne net growth for the period, decreased by 30% compared to 2018. Medicine is used to fight illness and subject to strict regula- tions. Because sea lice are developing a resistance to medical treatments, the industry is transitioning from medical to mechanical treatment. The use of wrasse to combat sea lice has provided good results in Rogaland. We regret to report two escape incidents in Shetland during the year, with a loss of 4 500 fish. Investigations were performed and procedures to avoid future escapes have been implemented, 169 The Group targets to reduce carbon emissions per kilo by 30% in 2030. We are not satis- fied with the increase of 12% in carbon emissions per kilo harvested from 2018 to 2019. Grieg Seafood reports to the Carbon Disclosure Project (CDP). Even though fish has a low carbon footprint, cutting more emissions from both own operations and the supply chain is a challenge that the Grieg Seafood will continue to work on. The Board is proud that the Company has been awarded the highest rating, A, by the CDP for its climate disclosures and actions towards a low-carbon future. The Group does not compromise on health and safety, and follows up accidents and absence rates. We are below the target of 4.5% absence rate in all regions, except in Finnmark which ended at 4.9% due to long-term sickness. In the beginning of 2019, a Group communication manager was hired as part of the efforts to improve dialogue with the stakeholders. During the year, we have actively engaged with our stakeholders. Examples of the stakeholder dialogue can be found in Part 1 of this Annual Report. The Group aims for a cost at or below industry average in 2020, which was set at NOK 37.9 per kilo as part of the GSF 2020 strategy in 2017. The farming cost has increased from NOK 39.7 in 2016 to NOK 43.5 in 2019. Rogaland and Finnmark have competitive cost levels driven by good biological performance and successful post-smolt strategy. In British Columbia and Shetland we have environmental challenges which still needs to be solved. Operational measures implemented in British Columbia are promising. In Shetland, unfortunately, it will take longer than expected to reach the cost target due to low volume in addition to biological challenges. Creating shareholder value is the prerequisite for growth and survival, and return on capital employed (ROCE) is the Group´s ultimate performance target. Sustainability and financial results are interdependent. The ROCE for 2019 was 19%, well above the target of 12% per year. OPERATIONAL REVIEW AND SEGMENTS 2019 was another strong year for Grieg Seafood, and was marked by good market condi- tions and continuous improvement across all operations. This was achieved by main- taining a strict focus on sustainability and driving forward improvements in farming operations. The global harvest volume of Atlantic salmon increased by 7.4% compared to 2018. The main increase came from Norway, due to higher smolt stockings, and Scotland due to improved production. Canada experienced a reduction in harvested volume. Consumption also increased in most markets in 2019, with the highest increase in the EU and the USA. Monthly average salmon spot prices varied from NOK 39.75 to NOK 77.07, with an annual average of NOK 57.21 compared to NOK 59.22 last year. Contract prices were in general somewhat higher than spot prices during the year. The Group´s contract share was 22% in Norway and 24% in the UK. As a result of an efficient Ocean Quality sales organization, the Group was able to achieve prices above spot, even with a high proportion of spot sales. 17 0 ANNUAL REPORT 2019GRIEG SEAFOOD B O A R D O F D I R E C T O R S ' R E P O R T PA R T 0 3 O U R R E S U LT S B O A R D O F D I R E C T O R S ' R E P O R T This helped us deliver our highest annual revenue ever. Feed comprised 44% of the Group´s cost in 2019. Feed prices are sensitive to change in currency rate, marine and vegetable raw material prices, seasonal variation, fish catches, and production. Good access to feed raw materials and a strong NOK/USD exchange rate contributed to stable feed prices throughout 2019. Grieg Seafood harvested a total of 82 973 tonnes of fish in 2019, an 11% increase from 2018. This was slightly above expectations. Improved utilization of seawater licenses through a larger and more stable biomass was the most important factor behind the increase in production and harvested volume. Tools such as oxygen sensors and digitally assisted feeding are a vital part of our strategy and growth initiatives. Better predic- tion and industrial monitoring of both feeding and biological development ensure stable growth in accordance with our plans. Throughout 2019, operational performance varied between regions. While Finnmark and Rogaland exceeded expectations, operations in BC and Shetland were impacted by challenging biological conditions, which resulted in somewhat higher cost. Long-term initiatives to address biological challenges in BC and Shetland continued to yield positive results throughout the year, and in Shetland in particular biological improvements led to higher survival rates. 2019 started with good production across all regions, due to favorable temperatures and a good fish health situation, especially in Rogaland and Finnmark. We managed to avoid previous challenges related to PD in Rogaland, and were not affected by the harmful algal bloom in Norway during the spring. Taken together, the first two quarters showed a very strong performance for the Group as a whole. During the summer and early fall, production remained very strong in Rogaland, while low sea temperatures negatively impacted growth in Finnmark. Challenges related to algae and environmental conditions negatively impacted feeding and growth in BC, while the UK faced challenging conditions related to gill health and sea lice pressure. During the early winter, conditions improved across all regions and production was strong. However, some challenges remained in the UK. We initiated a strategic assess- ment of our operations on Skye in 2019, as the synergy between our farming areas on Shetland and Skye are low. The evaluation has not yet been completed. For the year as a whole, we were able to surpass our forecast harvested volume by almost 1 000 tonnes, with a total harvest of 82 973 tonnes. Access to equipment and measures to address biological challenges in a timely and effective manner has increased cost in recent years, and a proactive approach is therefore required to minimize the consequences. Grieg Seafood’s objective is to ensure sustainable growth in the years ahead by combining skilled and motivated people and new technology, and to increasingly farm salmon on nature’s terms. Smolt production was good during the year. The Group continues to follow its growth strategy and transferred 25 million smolt to the sea during 2019, with an average weight of 191 grams per smolt. 17 1 For 2020, Grieg Seafood has a long-standing ambition of reaching a harvested volume of 100 000 tonnes, with cost equal to or below the industry average. At the start of 2020, this volume target is well within reach. ROGA L A ND Rogaland harvested 25 217 tonnes in 2019. This was above expectations and 55% up on 2018. Sales revenues amounted to NOK 1 538.9 million, compared to NOK 959.6 million in 2018. The higher revenue is mainly explained by higher harvested volumes, increased average weight at harvest, and improved biological performance. Price achievement was good compared to 2018, mainly due to improved quality and increased average weight at harvest. This was partly offset by somewhat lower spot prices in the second and the third quarters. Biological performance was very good in 2019, with high production and utilization of the maximum allowed biomass (MAB). The average survival rate for the year met our target of 93% (calculated according to the GSI definition), up from 92% in 2018. The cost per kg decreased compared to 2018, due to biological improvements. EBIT before fair value adjustment of biological assets for the year totaled NOK 568.3 million, which corresponds to NOK 22.53 per kg. Comparable figures for 2018 were NOK 219.6 million and NOK 13.48 per kg, respectively. In previous years, Grieg Seafood Rogaland has faced challenges with sea lice and pancreas disease (PD), which have negatively impacted feed and growth rates, thus increasing cost. As of mid-2019, none of the sites in Rogaland were affected by PD. Grieg Seafood Rogaland aims to reduce the time fish are kept at sea from 18 to 12 months, primarily by increasing average smolt size to 500 grams by 2020. While the average weight of smolt transferred to the sea was 173 grams in 2018, this increased to 279 grams in 2019, with some individuals weighing up to 550 grams. As part of Grieg Seafood’s digitalization efforts, a pilot integrated operations center is monitoring all sites in Rogaland. Precision Farming will ensure more efficient feeding, leading to reduced cost and improved growth going forward. By focusing on its stated operational priorities, Grieg Seafood Rogaland has improved its performance and maintains its forecast for 25 000 tonnes harvested in 2020. FINNM A RK Finnmark harvested 32 362 tonnes in 2019, an increase of 9% compared with 2018. The average weight at harvest was 4.01 kg, and the superior share for the year was unchanged at 86%. Earnings were somewhat impacted by lower spot prices in the second and third quarters, in addition to lower average weights toward the end of the year due to MAB harvesting. The majority of the harvested volume was skewed towards the second half of 2019, which was somewhat unfavorable due to a fall in spot prices towards the end of the year. Sales revenue for the year totaled NOK 1 815.3 million, compared to NOK 1 671.3 million in 2018. 17 2 ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 3 O U R R E S U LT S B O A R D O F D I R E C T O R S ' R E P O R T Production and biological performance were strong during the year, with a survival rate of 96%, well above the target of 93%. The cost per kg increased sightly compared to 2018, mainly due to early harvest of a few sites in the second and third quarters due to winter ulcers, and mortalities with a slightly larger average size. EBIT before fair value adjustments ended at NOK 580.2 million or NOK 17.93 per kg, compared to NOK 594.9 million and NOK 19.98 per kg in 2018. Grieg Seafood Finnmark is focused on continuing to improve fish welfare and survival rates. Camera surveillance and sensor technology are used to continuously monitor the environment and take appropriate actions. Biological conditions were favorable in 2019, however medical treatments were performed during the year due to increasing sea lice levels. Grieg Seafood Finnmark works towards sustainable production, and at the end of 2019, ten out of 27 sites were ASC certified. Grieg Seafood Finnmark was allocated a new location in the Hammerfest area at the start of October 2019, and smolt were transferred to this location a month later. Acquiring additional farming locations is a key component in improving the utilization of resources, assets, and licenses in the region. Production at the smolt facility in Adamselv and at Nordnorsk Smolt AS (50% share- holding) is progressing as planned, which is important to increase access to larger, high-quality smolt going forward. Grieg Seafood Finnmark expects to harvest 38 000 tonnes in 2020. SHE TL A ND Shetland harvested 11 273 tonnes in 2019, compared to 11 924 tonnes in 2018. Price achievement was impacted by lower spot prices during the period, and total revenues amounted to NOK 731.6 million, compared to NOK 799.9 million in 2018. Despite biological challenges related to gill diseases, algae and plankton, combined with high sea lice pressure, the quality of fish harvested throughout the year was high. Average weight at harvest remained at 4.30 kg, with a superior share of 94% in both 2018 and 2019. Furthermore, the use of healthier and more robust smolt, combined with a new vaccination strategy and continuous improvement in the handling and treatment of fish during seawater production, resulted in a survival rate of 89%, up from 83% in 2018. Loss of production combined with extensive efforts to mitigate biological challenges impacted the cost per kg, which increased compared to 2018. EBIT before fair value adjustment of biological assets for 2019 came to NOK -67.2 million or NOK -5.96 per kg, compared to NOK 33.8 million and NOK 2.83 per kg, respectively, in 2018. As part of the accounting principle of recognizing abnormal mortality as a cost in the income statement, a write-down of NOK 77.2 million was recognized during the year, increasing cost by NOK 6.85 per kg. Grieg Seafood Shetland cooperates with other sea farmers in the region to secure sustainable marine biology. Production is concentrated at the best sites with the strongest biological control, and routines and systems for monitoring and mitigating algae-related 17 3 issues have been implemented. Other measures to ensure strong biosecurity, improved fish welfare, and control of the sea lice situation include the use of aeration systems, sea lice skirts, and freshwater delousing treatments. The sea lice level remained high during the year, and both medical and non-medical sea lice treatments were carried out. Grieg Seafood Shetland has managed to improve smolt quality, which is essential for good growth and reduced cost, and the survival rate for smolt transferred to the sea has risen. On the basis of its focus on initiatives to improve biosecurity and fish welfare, Grieg Seafood Shetland expects to harvest 17 000 tonnes in 2020. BRITISH COLUMBI A Grieg Seafood British Columbia (BC) harvested 14 120 tonnes in 2019, compared to 16 632 tonnes in 2018. The lower harvested volume was primarily due to cyclicality in site utilization as a result of fallowing procedures in the region. Price achievement per kg decreased compared to 2018, due to lower spot prices. However, this was partly offset by higher average weights at harvest. The superior share for the year ended at 86%, up from 84% in 2018. Sales revenues for 2019 ended at NOK 861.4 million, compared to NOK 1 075.3 million in 2018. Biological conditions in 2019 were challenging, with algal blooms and plankton causing acute low oxygen levels at times. Combined with high sea lice pressure, this had a nega- tive impact on production and cost, which increased compared to 2018. Despite chal- lenging conditions, the use of aeration systems enabled high feeding rates and improved seawater production. The overall survival rate for the year was 88%, similar to 2018. EBIT before fair value adjustment of biological assets came to NOK 73.3 million, which corresponds to NOK 5.19 per kg, compared to NOK 290.9 million and NOK 17.49 per kg in 2018. As part of the accounting principle of recognizing abnormal mortality as a cost in the income statement, a write-down of NOK 73.3 million was recognized during the year, increasing cost by NOK 5.19 per kg. Access to high-quality smolt is key to ensuring sustainable production growth. The expan- sion of the Gold River smolt facility is proceeding as planned, and Grieg Seafood BC is expected to increase its smolt capacity from 500 tonnes to 900 tonnes by the end of 2020. Harmful Algal Blooms (HAB) represent a major biological risk in BC. Algae movements and oxygen levels are therefore continuously monitored and analyzed using high-grade sensor equipment and satellite imagery. In addition, aeration systems have been installed to enable feeding during challenging situations. Investments in sea production equipment will play an important role in maintaining good production levels and increasing survival rates during challenging environmental conditions. Grieg Seafood BC will continue its efforts within the areas of algae mitigation and digital monitoring in order to increase the harvested volume and reduce cost. It expects to harvest 20 000 tonnes in 2020. 174 ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 3 O U R R E S U LT S B O A R D O F D I R E C T O R S ' R E P O R T SA LE S – OCE A N QUA LIT Y All Grieg Seafood’s salmon is sold through the sales company Ocean Quality (OQ). The company also sells fish from Bremnes Fryseri AS, including fresh, processed, and frozen salmon. Ocean Quality handles marketing, sales, and distribution. Through sales companies in Norway, the UK, Canada and the USA, Ocean Quality sells fish to Europe, Asia, the USA, and Canada. Europe is the dominant market, representing 65% of total sales in 2019. During its nine years of operation, Ocean Quality has established good customer relations and is therefore able to return solid profits to the salmon producers. Ocean Quality sold a total of 125 530 tonnes in 2019, compared to 114 720 tonnes in 2018. Overall demand for Atlantic salmon remained strong in 2019 with demand for branded and certified, high-quality products increasing. This included the Grieg Seafood brands; Skuna Bay and Kvitsøy. By the end of 2019, Grieg Seafood had achieved ASC certification at ten of its 27 sites in Finnmark, and is working to certify more sites in Finnmark and also in BC. In January 2018, Ocean Quality AS was suspected of exporting salmon with pancreas disease (PD) to China. The case was dismissed in January 2020 after the Norwegian authorities concluded that Ocean Quality had done nothing wrong. FINANCIAL PERFORMANCE GROUP FIN A NCI A L S TATEMENT S The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS). PROFIT A ND LOS S Sales revenue and harvested volume Grieg Seafood harvested a total of 82 973 tonnes in 2019, compared to 74 623 tonnes in 2018. The higher volume, combined with continued strong prices, generated revenues of NOK 8 273.6 million, up from NOK 7 500.3 million in 2018. The higher harvested volume is a result of Grieg Seafood’s overall growth strategy, and derives mainly from higher utiliza- tion of current production capacity, in addition to improved biology and better fish health. The global supply of Atlantic salmon has flattened out, while underlying demand has strengthened. This resulted in a shortage of salmon and high prices, a situation that is expected to persist. However, short-term price fluctuations may occur. To offset the effects of possible fluctuations, Grieg Seafood has adopted a policy to ensure that some 20–50% of all production in the coming years is hedged at fixed prices. In 2019, the share of fixed-price contracts was 22% in Norway and 24% the UK. Farming cost The total farming cost per kg for the Group came to NOK 43.54 in 2019, compared to NOK 43.10 the year before. This includes write-downs due to abnormal mortality of NOK 2.31 17 5 per kg, compared to 2.78 per kg in 2018. Use of raw materials and consumables, which consist mainly of our biomass in freshwater and seawater in addition to feed, ended at NOK 4 182.0 million, a cost increase of NOK 329.1 million compared to last year due to the increased harvest volume and a slightly higher cost of fish harvested. Salaries and personnel expenses for the year ended at NOK 610.8 million, an increase of NOK 69.8 million compared to 2018. The increase was driven by 42 new employees, in addition to more farming activities driven by the volume increase. Other operating expenses ended at NOK 2 013.0 million, an increase of NOK 191.4 million compared to 2018, which is also related to the increase in production and harvested volume. Digi- talization projects also generated an increased operating cost during the testing and implementation phase. The group also had increased cost related to attorneys' fees in connection to the investigation from European Commission and US competition authori- ties. IFRS 16 affects other operating expenses positively by NOK 126.5 million, as opera- tional leases are replaced by depreciation and interest on lease liabilities. EBIT Depreciation and amortization came to NOK 410.6 million in 2019, an increase of NOK 174.9 million compared to 2018. The main reason for the increase is the effect of IFRS 16, which increased depreciation by NOK 120.7 million in 2019. The remaining depreciation is related to the new smolt plant in Finnmark which was completed at the end of 2018. Investment in new sites and production technology has also driven up depreciation. EBIT for the Group before fair value adjustment of biological assets ended at NOK 1 087.6 million, compared to NOK 1 098.8 million in 2018. EBIT per kg came to NOK 13.11, compared to NOK 14.72 per kg in 2018. EBIT per kg was positively affected by the increased harvested volume and high spot prices. However, biological challenges related to algae and environmental conditions in BC and Shetland negatively impacted cost. Fair value adjustment Fair value adjustments of biological assets in 2019 were negative in the amount of NOK 220.7 million, and the EBIT after fair value adjustments came to NOK 866.9 million. In 2018, fair value adjustments of biological assets were positive in the amount of NOK 256.1 million, while EBIT after fair value adjustments totaled NOK 1 354.9 million. The nega- tive changes in 2019 is mainly due to lower forward salmon prices in the global market compared to the end of 2018. The relation between the time of harvest and fluctuations in price also has a negative effect. Financial items Net financial items came to NOK -26.2 million, bringing profit before tax to NOK 840.6 million. In 2018, net financial items came to NOK -78.0 million, while profit before tax totaled NOK 1 276.9 5 million. The decrease in financial items is due to positive effects in currency gain compared to 2018. 176 ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 3 O U R R E S U LT S B O A R D O F D I R E C T O R S ' R E P O R T Taxes Taxes for the year amounted to NOK 195.7 million, bringing the net profit for the period to NOK 644.9 million. Taxes in 2018 amounted to NOK 279.8 million, while net profit ended at NOK 997.1 million. FIN A NCI A L P OSITION The Group's recognized asset value as at 31 December 2019 was NOK 8 934.7 million, compared to NOK 8 142.5 million at the end of 2018. Goodwill amounted to NOK 109.5 million, while the value of farming licenses was NOK 1 133.6 million. The value of property, plant, and equipment including right of use assets totaled NOK 2 957.9 million. Investment in non-current tangible assets relates mainly to new farming sites in Finnmark, totaling NOK 185 million, expansion of the Gold River hatchery in BC. and the expansion of smolt capacity in Finnmark and Rogaland. As at 31 December 2019, the Group’s equity amounted to NOK 4 140.8 million, compared to NOK 3 883.5 million in 2018. The equity ratio at the end of the year was 46%, compared to 48% the year before. The Group's net interest-bearing liabilities totaled NOK 2 375.8 million at year-end 2019. This figure includes factoring liabilities of NOK 86.1 million. In 2018, the comparable figure was NOK 2 236.3 million, of which factoring amounted to NOK 573.4 million. During the year, the Group has through Ocean Quality AS entered into a new factoring agreement, in which the factoring company purchases all credit-insured trade receivables from Ocean Quality AS. Net interest-bearing liabilities excluding factoring and IFRS 16 lease liabilities, as per bank covenants, totaled NOK 1 938.7 million (NOK 1 689.5 million in 2018). The bank syndicate consists of Nordea and DNB. The Grieg Seafood Group’s loan agreements include two term loans of NOK 600.0 million and EUR 60.0 million, respectively; a revolving credit facility of NOK 1 000.0 million, which during the year was extended to NOK 1 300.0 million; and an overdraft facility of NOK 100.0 million. At the end of the year, NOK 769.0 million of the revolving credit facility and the overdraft facility had been drawn down. NOK 98.3 million was repaid during the year. Current loan agreements also allow the Group to utilize up to NOK 600 million for leasing. The majority of the Group's new feed barges and operational equipment are leased. At the end of 2019, operational lease liabilities (classification according to IAS 17) amounted to NOK 379.8 million, while financial lease liabilities (classification according to IAS 17) amounted to NOK 452.1 million. According to the Group’s loan covenants, the equity ratio is calculated excluding Ocean Quality, and was 51% at year-end 2019, compared to 53% at year-end 2018. As at 31 December 2019, the Group had a good level of free liquidity and unutilized credit facilities, with available cash and credit facilities of NOK 955 million. 17 7 CA SH FLOW Net cash flow from operations ended at NOK 1 456.0 million in 2019, up from NOK 805.9 million in 2018. The increase is mainly related to changes in working capital due to biomass transfers. Net cash flow from investment activities amounted to NOK 381.5 million, compared to NOK 592.5 million in 2018. Investment in non-current assets and intangible assets amounted to NOK 706.3 million, of which NOK 181.4 was financed by financial leasing and NOK 155.5 by operational leasing. Last year’s figure was NOK 733.0 million, of which NOK 169.2 million was financed by leasing. In line with its growth strategy, the Group has invested substantially in smolt production, biosecurity, and digitalization. Net cash flow from financing activities came to NOK -1 000.0 million, compared to NOK -346.6 million in 2018. The change is due to the derecognition of financial assets (factoring agreement) of NOK 487.3 million in 2019. As mentioned above, drawdowns on the credit facility increased in 2019 due to the effect of IFRS 16 on operational lease. A dividend of NOK 462.0 million, or NOK 4.00 per share, was paid in 2019. NOK 20.3 million of this was paid by Ocean Quality to non-controlling interests. Cash and cash equivalents increased by NOK 74.5 million during the year, and available cash totaled NOK 214.5 million as at 31 December 2019. GRIEG SEAFOOD ASA PROFIT FOR THE Y E A R The parent company’s financial statements are prepared in accordance with Norwegian accounting principles (NGAAP). The parent company recorded an operating loss of NOK 87.4 million in 2019, compared to a loss of NOK 61.7 million in 2018. The increase in operating cost is due to legal fees related to the EU investigation, share options, and cost associated with our Precision Farming project. The company has a syndicated loan provided 50/50 by DNB and Nordea. The financing agreement includes two term loans of NOK 600.0 million and EUR 60.0 million, a revolving credit facility of NOK 1 300.0 million, alongside overdraft facilities of NOK 100.0 million. The agreement has a term of five years and matures on 28 February 2023. At the end of the year, the company had a total revolver credit facility and overdraft facility of NOK 1 400.0 million, of which NOK 769.0 million was available for utilization. Accrued dividends from Ocean Quality, in the amount of NOK 14.7 million (NOK 20.1 million in 2018), and Group contributions from subsidiaries in the amount of NOK 862.4 million (NOK 611.0 million in 2018), contributed to a positive financial result. Unrealized gains/losses on foreign exchange relating to non-current loans from Group companies amounted to NOK 29.8 million for the year, while net unrealized currency gains amounted to NOK 29.0 million. 17 8 ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 3 O U R R E S U LT S B O A R D O F D I R E C T O R S ' R E P O R T Interest expenses from external financing increased slightly in 2019. This is due to increased funding compared to 2018. The Group was in compliance with its covenants throughout the year, which had a positive effect on the interest margin. The equity ratio at year-end was 46%, compared to 41% last year. During the year, there were two dividend payments of NOK 2.00 per share. The total payout for the year came to NOK 441.8 million, or NOK 4.00 per share. The last payment was approved by the AGM (Annual General Meeting) on 13 June 2019. The parent company´s net cash flow from operations in 2019 totaled NOK -159.9 million, compared to NOK -146.9 million in 2018. Cash flow from investing activities came to NOK 349.5 million (NOK 333.0 million in 2018). The decrease is due to lower repayments of loans from Group companies compared to 2018. Net cash flow from financing activities came to NOK -189.0 million, compared to NOK -337.8 million in 2018. In 2019, dividends were paid, while loans to subsidiaries increased. Cash and cash equivalents increased marginally during the year. As at 31 December 2019, available cash totaled NOK 6.4 million. FIN A NCI A L RE SULT S A ND A LLOCATIONS – GRIEG SE A FOOD A SA The aim of the Group is to offer a competitive return on invested capital to its shareholders through a combination of dividends and share price appreciation. The Group’s dividend policy is that the dividend should, over time, average 30-40% of the Group's net profit after tax before fair value adjustment of biological assets. At the same time, the Group’s net interest-bearing debt per kg harvested salmon should remain at NOK 20. The Board has resolved to request an authorization provided by the Annual General Meeting to pay dividend later in 2020. The parent company, Grieg Seafood ASA, recorded a gain of NOK 667.0 million for 2019, which the Board proposes the Annual General Meeting allocates as follows: Additional dividend paid out, not accrued previous year Transferred to other equity NOK 220.9 million NOK 446.1 million GOING CONCERN The market situation in the beginning of 2020 has been impacted by the COVID-19 pandemic. Grieg Seafood's operations are currently running as normal. Although there has been a shift in the market, the demand is still there, while marked prices have been impacted. 17 9 Read further in the "Outlook" section. The Group will follow the market situation closely, and measures will be taken to ensure continued shareholder value. The Board is of the opinion that the financial statements give a true and fair presentation of the Group’s assets and liabilities, financial position, and financial results. Based on the above presentation of the Group’s results and financial 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 have been met. RISK AND RISK MANAGEMENT The Group is exposed to risks in numerous areas, such as biological production, the effects of climate change, compliance risk, the risk of accidents, changes in salmon prices, the risk of political trade barriers, etc. The current coronavirus outbreak poses a material risk, affecting most of our operational areas, and is classified as a market risk. The Group’s internal controls and risk exposure are subject to continuous monitoring and improvement, and efforts to reduce risk in different areas have a high priority. Manage- ment has established a framework for managing and eliminating most of the risks that could prevent the Group from attaining its goals. For further information, see the corpo- rate governance section in this Annual Report. In the following, only some of Grieg Seafood´s risks will be discussed. FIN A NCI A L RISK The Group operates within an industry characterized by high volatility, which entails greater financial risk. 2019 provided a good financial market for the aquaculture industry, with good access to liquidity. The Group renegotiated its syndicated bank loan agreement in 2018, which will secure the working capital needed to achieve its growth targets. The agreement matures in 2023. Financial and contractual hedging is a matter of constant consideration, in combination with operational measures. Management draws up rolling liquidity forecasts, extending over five years. These forecasts are based on conservative assumptions for salmon prices and form the basis for calculating liquidity requirements. This forecast also forms the basis for financing needs. At the end of 2019, the Group had NOK 955 million in available liquidity. During the year, the Group increased the limit on its revolving credit facility by NOK 300 million. The revolving credit is flexible, as it can be drawn upon within a month, or for a longer period, depending on the Group´s need for liquidity. Currency risk In translating the operating income and balance sheet items of foreign subsidiaries, the Group’s major currency exposure is to CAD and GBP. The strategy is to reduce the currency risk by funding the businesses in their local currencies. All long-term loans from the parent company to subsidiaries are in the local currency. Such loans are regarded as a net investment, as they are not repayable to the parent company. The subsidiaries will always require long-term funding. The currency effect of this net investment is included 18 0 ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 3 O U R R E S U LT S B O A R D O F D I R E C T O R S ' R E P O R T in the Group’s consolidated statement of other comprehensive income (OCI). Income and currency risk have been transferred to the sales company, Ocean Quality. The production companies sell in local currencies to the sales company, which hedges its transactions against currency fluctuations related to CAD/USD, EUR/NOK, GBP/EUR, and USD/NOK, and, if required, other currencies. At year-end, contracts had been concluded up until the first quarter of 2021. Long-term foreign currency contracts are hedging instruments, where unrealized currency gains or losses are recognized through other comprehensive income (OCI) in the financial statements. The currency situation is continuously assessed against the volatility of the currencies. The remaining net exposure is frequently monitored. Interest rate risk The Group is exposed to interest rate risk through its borrowing activities, and to fluc- tuating interest rate levels in connection with the financing of its activities in the various regions. The Group's existing loans are at floating interest rates, but separate fixed-rate contracts have been entered into to reduce interest rate risk. It is the Group´s policy to have 20–50% of its interest-bearing debt hedged through interest rate swap agreements. A given proportion shall be at floating rates, while consideration will be given to enter- ing and exiting hedging contracts for the remainder. The interest rate swap agreement changes with the three months NIBOR. Liquidity risk In line with the Group's growth strategy, to harvest 100 000 tonnes in 2020 and ensure sustainable growth, interest-bearing liabilities have increased. The Group has invested substantial amounts during the year and built up its biomass, as well as paid out a divi- dend. This year’s refinancing has made the Group financially equipped to carry out further investments in increased smolt stocking and new locations for sea production. At year end, the Group had a good level of free liquidity. Ocean Quality in Norway and the UK each have factoring agreements that cover the financing of outstanding receiv- ables. The agreement for Ocean Quality UK means that any significant risk and control of trade receivables remains with Ocean Quality UK. Ocean Quality AS entered into a new factoring agreement in 2019. Under this agreement, the factoring company purchases all credit-insured trade receivables from Ocean Quality AS. The factoring agreement is a financial arrangement, as the factoring company does not assume any credit risk. Management monitors the Group’s liquidity reserve, which comprises a loan facility, bank deposits, and cash equivalents, based on expected cash flows. This is carried out at Group level in collaboration with the operating companies. Management and the Board seek to maintain a high equity ratio, to be well positioned to meet financial and operational challenges. Considering the dynamic nature of the industry, the Group aims to maintain funding flexibility. OPER ATION A L RISK The greatest operational risk relates to biological developments within the Group’s smolt and aquaculture operations. The book value of live fish in the balance sheet at year-end was NOK 3 438 million. To reduce this risk, the Group focuses on the production of Atlantic salmon as its main product. Employee training and the establishment of good internal 18 1 routines to reduce operational risk is a priority. The aquaculture industry has experienced major issues with sea lice and algae in recent years. The Group collaborates actively with the authorities and other aquaculture players to implement measures and initiate activities to reduce biological risk. One of the initia- tives is joint fallowing and zoning. A digitalization process has been initiated across the Group to facilitate operational improvements. Through the utilization of sensor technol- ogy, the Group aims to reduce the algae challenges in BC and Shetland. The introduction of sensor technology to monitor algal blooms enables the Group to determine at an early stage the type of algae and the appropriate feeding response. This is of vital importance as different types of algae have different effects on the salmon. Salmon price developments are highly volatile, with major fluctuations within relatively short time spans. However, there has been a stable rise in demand for salmon over recent years, while the growth in supply has been limited. This development is expected to continue going forward. Supply is also impacted by other factors, such as government regulations, sea temperatures, sea lice, outbreaks of disease, and other indirect and direct factors, which affect production and hence also supply. CLIM ATE RISK The climate plays an important role in Grieg Seafood’s operations. The Company recog- nizes that climate change is likely to present a range of challenges to the aquaculture industry. Without proactive adaptation, salmon farming may become more vulnerable to physical risks such as damages caused by extreme weather, disease due to higher seawater temperature, in addition to regulatory risk, technology risk, market risk and reputational risk. However, climate change may also offer opportunities, including the adoption of resource efficiencies and waste management initiatives. Grieg Seafood is currently developing policies to ensure adequate management of climate change, and its impact on the business. This includes the disclosure of climate-related information based on Task Force on Climate-related Financial Disclosures (TCFD) recom- mendations, which can be found in the Appendix to this Annual Report. M A RK E T RISK There are several issues that could affect the sale of salmon in 2020. After the outbreak of the COVID-19 pandemic, authorities worldwide have implemented strict measures to reduce and slow its spread. These measures are likely to impact global economic activity, which might also affect global demand for salmon. Furthermore, Grieg Seafood might experience disruptions to its supply chain upstream or downstream. Air traffic restrictions may impact the aquaculture industry’s capacity to transport products to end-markets globally, which may have different impacts on salmon prices in different markets, and on Grieg Seafood’s operations in Norway, Shetland, and British Columbia. The outcome of the UK’s departure from the European Union (Brexit) represents an uncer- tainty for the Scottish salmon farming industry and for Norwegian exporters. Once the Brexit transition period comes to an end, the salmon industry will experience operational and economic changes in trade between the UK and the rest of the world. Approximately 68% of farmed Scottish salmon was destined for markets outside the UK in 2019. For 18 2 ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 3 O U R R E S U LT S B O A R D O F D I R E C T O R S ' R E P O R T Grieg Seafood Shetland, 20% of the volume in 2019 went to other markets. Although the Board believes the potential post-exit problems will be temporary, some challenges will have to be resolved and adapted to. CORPORATE AND SOCIAL RESPONSIBILITY Sustainability underpins Grieg Seafood’s operations – it is our license to operate and our motivation to perform. Sustainability is also core business, driving results and generating value for all stakeholders. Grieg Seafood’s overarching goal is to sustainably produce food in the ocean, expressed in the Company’s vision "Rooted in nature – farming the ocean for a better future". The vision demonstrates the commitment to corporate responsibility by operating prof- itably and sustainably in a manner that conforms with fundamental ethical norms and respect for the individual, the society and the environment. This sustainability strategy is built on the five pillars: Healthy ocean, Sustainable food, Profit & innovation, People and Local Communities. These pillars define our focus areas. They are founded on external expectations, based on dialogues with stakeholders, and the Company’s own goals and ambitions. The Company’s reporting on corporate social responsibility is based on several stan- dards, such as the Euronext guidance on ESG reporting, OECD guidelines for multinational enterprises, the Global Reporting Initiative (GRI), the Global Salmon Initiative (GSI), Task Force on Climate-related Financial Disclosures (TCFD) amongst other. Grieg Seafood is also committed to the UN Global Compact as part of the Grieg Group, and has signed the Sustainable Ocean Principles. Our sustainability strategy is described in Part 1, while our activities and results are presented in Part 2 of this Annual Report. RE SE A RCH A ND DE V ELOPMENT – ACHIE V ING SUS TA IN A BLE GROW TH Innovation and research in the areas of biology and technology are a prerequisite for sustainable farming, maintaining healthy oceans, and farming profitability going forward. Grieg Seafood continuously allocates resources for research and development. Through active participation in national research projects and local tests and trial projects in the various regions, the Group contributes to the industry’s advancement. Active projects report on their progress throughout the year. The project plan is reviewed annually, summarizing completed projects and prioritizing new ones. The Group's R&D focus is on operational projects that contribute to short and long-term solutions to biological and technical challenges, and improved operational efficiency. The projects are numerous and span a wide area, ranging from fish health and fish welfare to effective use of large units, feeding control, and the optimization of smolt production in large recir- culation units. Please refer to Part 2 for an introduction to some of the collaborations. 18 3 EMPLOY EE S To reach goals and to solve challenges, Grieg Seafood needs the best people, regardless of gender or background. The majority of the Group’s employees, including managers, are men. In total (including Ocean Quality), 861 people were employed in the Group at 31 December 2019, of whom 202 were women and 659 were men. The Group’s employment policy facilitates the recruitment and retention of qualified employees of both genders. A good working environment is key to attracting and retaining the best talent. Human resources are managed locally in compliance with local rules and instructions, and in accordance with the Group’s guidelines. We are working continuously to strengthen global routines and guidelines for HR and HSE throughout the Group, and actively seek to reduce sick leave and the number of HSE incidents. Our working environment is good. The Company’s employee policy is described in detail under the “People” section in this Annual Report. Business integrity is essential for the Group, and we have no tolerance for fraud, corrup- tions and other misconduct. In 2019, two employees in Ocean Quality UK were asked to resign due to breach of our Code of Conduct. To strengthen our corporate culture and encourage employee loyalty, Grieg Seafood continues to give its employees the opportunity to become shareholders in the Company. The Board wishes to thank all our employees for their dedication, efforts and contribu- tions in 2019. CORP OR ATE GOV ERN A NCE Grieg Seafood ASA seeks to comply, where applicable, with the Norwegian Code of Prac- tice for Corporate Governance, last revised on 17 October 2018. The Company’s corporate governance policies and practices are disclosed in the "Corporate governance" section in this Annual Report, and on the website www.griegseafood.com. POST-BALANCE SHEET EVENTS In January 2018, Ocean Quality AS was suspected of exporting salmon with pancreas disease (PD) to China. The case was dismissed in January 2020 after the Norwegian Authorities concluded that Ocean Quality had done nothing wrong. 14 January 2020, Grieg Seafood notified the Norwegian Food Safety Authority (FSA) of the possibility of an outbreak of infectious salmon anemia (ISA) in fish at our Laholmen site in Nordkapp. The suspicion was confirmed by the FSA on 23 January. The fish were of harvestable size, and have now been harvested out in accordance with the procedures and requirements set by the FSA. In February 2020, Norway’s Ministry of Trade, Industry and Fisheries presented its updated “traffic light” scheme, allowing a net national increase in the production of 18 4 ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 3 O U R R E S U LT S B O A R D O F D I R E C T O R S ' R E P O R T salmon and trout of approximately 23 000 tonnes per year. The classification of Grieg Seafood Rogaland’s sites has been amended from yellow to green. In February 2020, Grieg Seafood signed a Share Purchase Agreement (SPA) for the acquisition of Grieg Newfoundland AS in Newfoundland, Canada. Grieg Seafood aims to harvest at least 150 000 tonnes of Atlantic salmon by 2025. Growth will be achieved through post-smolt investments, M&A activity, and organic growth. The acquisition of Grieg Newfoundland AS is an important step towards realization of the 2025 strategy because it includes exclusivity for salmon farming in Placentia Bay, which has a farmable area bigger than the Faroe Islands. The project currently comprises licenses for 11 sea sites, of which three have been approved, three are expected to be approved in 2020, and the rest are in various stages of application. The project has a long-term annual harvest potential of 30 000–45 000 tonnes of Atlantic salmon. The first phase targets an annual harvested volume of 15 000 tonnes, to be reached by 2025, with the first harvest in 2022/2023. The project includes a high-end Recirculating Aquaculture System (RAS) facility, which is currently under construction. The freshwater RAS facility is planned to include a hatchery, a smolt facility, and three post-smolt modules with a potential annual capacity of 7 000 tonnes upon completion. OUTLOOK The market situation in the beginning of 2020 has been impacted by the COVID-19 pandemic, which is spreading rapidly globally. The escalation of both spread and measurements taken is currently causing high uncertainties for producers and proces- sors, as well as for end consumers. M A RK E T Although market demand remains, there has been a significant decrease in demand from hotel, restaurants and catering (HoReCa) and increased demand from retail. Airfreight is a challenge, but the transport of goods between countries on trucks remains relatively good. With farming operations located in close proximity to both the European and the US market, Grieg Seafood's dependence on cross-Atlantic distribution is limited. PRODUCTION Grieg Seafood's operations are currently running as normal, and the salmon is harvested according to plan. As food producers, the industry is recognized as an essential func- tion in Norway, Canada and the UK. The Governments want production to continue and have signaled that they are willing to facilitate that where necessary. The Company is maintaining a good dialogue with the authorities in Norway, the UK and Canada through industry organizations, discussing possible arrangements to safeguard salmon farming operations in various scenarios. On a broader scale, initiatives implemented by author- ities to avoid contamination in the general population reduce the risk of supply chain disturbances. 18 5 EMPLOY EE S Grieg Seafood's priority is the wellbeing of its employees, their families and the local communities where we operate, and the Company complies fully with the authorities' recommendations in all locations. The Company has implemented measures to limit contamination, with crises management teams operating in the head office and in each region. The regions have conducted local risk assessments and implemented measures accordingly, such as limiting contact between shifts, hygiene measures and home office where possible. Companies in our supply chain have also implemented measures to avoid contamination and keep operations running safely. FIN A NCI A L P OSITION Grieg Seafood has a solid financial position. The loan agreement includes two term loans of NOK 600 million and EUR 60 million, with maturation in 2023. During the third quarter of 2019, the revolving credit facility was increased by NOK 300 million, to NOK 1.3 billion. The Company also has an overdraft facility of NOK 100 million. At 31 December 2019, the cash and credit facilities totaled NOK 955 million. Net interest-bearing liabilities, excl. factoring and IFRS 16, were NOK 1.9 billion. NIBD/EBITDA was 1.4 and the equity ratio was 46%. The Company´s dividend policy states that the average dividend should correspond to 30-40% of profit after tax, before fair value adjustment of biological assets. At the same time, the net-interest bearing debt per kg harvested salmon should be NOK 20, with possibilities to increase during period of growth investments. Dividends will be adjusted to satisfy the targeted level of debt. We might reassess or postpone some of the investments scheduled for 2020 to ensure a solid financial position. However, we aim to continue with our 2020 and 2025 strategy, including the integration of Grieg Newfoundland into our operations. GUIDING 2020 For 2020, Grieg Seafood has guided on a total harvest of 100 000 tonnes GWT with cost at or below industry average. The full medium- and long-term implications of the coronavi- rus pandemic remain uncertain. However, based on the current situation, the Company will harvest according to the Q1 guiding of 16 800 tonnes, and the Company's volume target for 2020 remains in place. 18 6 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S B O A R D O F D I R E C T O R S ' R E P O R T STATEMENT FROM THE BOARD OF DIRECTORS AND CEO We hereby confirm that, to the best of our knowledge, the financial statements for the period from 1 January to 31 December 2019 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 Board of 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. Bergen, 8 April 2020 The Board of Directors of Grieg Seafood ASA ASBJØRN REINKIND Vice Chair PER GRIEG JR. Chair KARIN BING ORGLAND Board Member SOLVEIG M.R. NYGAARD Board Member TORE HOLAND Board Member SIRINE FODSTAD Board Member ANDREAS KVAME CEO 18 7 Corporate governance 18 8 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S C O R P O R AT E G O V E R N A N C E With our vision of farming the ocean for a better future, Grieg RISK S REL ATED TO CLIM ATE CH A NGE Seafood demonstrates its commitment to corporate responsi- One of the many factors that could materially and adversely bility by operating profitably and sustainably in a manner that affect our business and financial results, is the long-term conforms with fundamental ethical norms and respect for the effect of climate change on general economic conditions and individual, society as a whole, and the environment. In pursuit the salmon farming industry in particular, along with changes of this vision while protecting our core values, we will face risks in the supply of feed raw materials and requirements to cut to our business strategy, operational risks, and risks associated carbon emissions. More information on our risk management with the protection of our employees, other assets, and reputa- procedures, and risks related to climate change in particular, tion. Because our risk management is clearly connected with a is included in the Board of Directors report in Part 3 of this multitude of stakeholder expectations, this approach includes Annual Report. maintaining a regular dialogue with our stakeholders, as they are the basis for our license to operate. Transparency and dis- closure are vital in building trust, and by engaging in a dialogue COMPLI A NCE with our stakeholders we are able to better understand the role As salmon farming is a highly regulated industry, we are subject we play in local communities and in society as a whole. to strict standards for fish welfare, environmental impact, food GOV ERN A NCE S TRUCTURE production and production equipment. We must also comply with operational requirements related to the use of medicines and chemicals, biomass levels, sea lice levels, density and water Grieg Seafood believes that strong corporate governance is an quality, etc. We report regularly to authorities, for instance, on essential element in achieving our overall objectives and acting biomass levels, sea lice levels, disease outbreaks and mortal- as a responsible organization. The Board of Directors is commit- ity for salmon and cleaner fish. We are also subject to regular ted to sound corporate governance, and our governance struc- inspections and audited from local, national and international ture helps enable the Board to fulfill its fiduciary duties to our stakeholder groups and authorities. For more information of our shareholders and helps ensure our long-term success. The Board ASC certificates, see www.griegseafood.com. exercises oversight of strategic, operational and financial matters, including the elements and dimensions of our major risks. The Audit Committee, which consists of two members of the Board of CODE OF CONDUCT A ND BUSINE S S BEH AV IOR Directors, has been given a particular responsibility to monitor Our Values and Code of Conduct underpin the way we conduct critical business risks and address the quality and effectiveness ourselves and our approach to corporate social responsibility. of relevant risk-reducing measures. The Audit Committee reviews Our Code of Conduct sets out the ethical principles and standards our policies at least annually and assesses our risk management that must be upheld by each and every employee, and any agent quarterly. As our group management team, consisting of 11 senior that acts on our behalf, including our Board of Directors. Through executives, represents all aspects of our farming operations, we our Supplier Code of Conduct, we demonstrate that we expect have not set up a committee to deal specifically with economic, no less from our value chain. As part of our risk management, environmental and social issues. The Board of Directors holds the we continuously assess all our operations for risks related to group management team accountable for following its strategies, corruption. Corruption is not considered a significant risk and we maintaining a high standard of ethical and responsible business have controls in place to minimize exposure to it. conduct, taking care of our employees and safeguarding human rights, and for assessing risks related climate change and the Grieg Seafood refrains from anti-competitive behavior, anti-trust environment. The group management team convenes quarterly. and monopolistic practices, as this can severely affect consumer We have a dedicated, cross-functional Sustainability Team, led by choice, pricing and other factors that are essential to efficient the Chief Sustainability Officer, consisting of members of the group salmon markets. For more information, see the People section management team and employees with particular functional in this Annual Report. responsibilities. Day-to-day implementation and assessment are, however, a line management responsibility. This means that corporate social responsibility is an integral component of all our operations, for all management teams, units, and departments. 18 9 Principles of Corporate Governance Adopted by the Company’s Board of Directors on 20 April 2007 and updated on 8 April 2020. FIGURE 3.1 GRIEG SE A FOOD´S COMPLI A NCE W ITH THE NOR W EGI A N CODE OF PR ACTICE FOR CORP OR ATE GOV ERN A NCE Section of the Norwegian Code of Practice for Corporate Governance Deviation from the Code of Practice 1. Statement of corporate governance 2. Activities 3. Share capital and dividends 4. Equal treatment of shareholders and transactions with related parties 5. Negotiablility 6. General Meeting 7. Nomination Committee 8. Corporate Assembly and Board of Directors - composition and independence 9. Work of the Board of Directors 10. Risk management and internal control 11. Directors' fees 12. Remuneration of executive personnel 13. Information and communication 14. Company takeover 15. Auditor 19 0 No deviation No deviation No deviation No deviation No deviation Two deviations, see the text below Two deviations, see the text below No deviation No deviation No deviation No deviation No deviation No deviation No deviation No deviation ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S C O R P O R AT E G O V E R N A N C E 1. IMPLEMENTATION AND REPORTING ON CORPORATE GOVERNANCE PRE SENTATION OF CORP OR ATE GOV ERN A NCE Responsibility for ensuring that the Company has good corporate governance rests with the Board of Directors. The Board and management annually review Grieg Seafood Group’s principles and code of practice for corporate governance. The Company abides by the Norwegian Code of Practice for Corporate Governance as recommended by the Norwegian Corporate Governance Board (NUES) on 17 October 2018. The Grieg Seafood Group follows NUES’s latest recommendations and has updated its existing rules and defined values in accordance with changes to the Norwegian Code of Practice published in 2014. The Company has adopted the “follow or explain principle” with respect to the Code’s application. This means that the Company provides an explanation whenever it deviates from the Code. This Annual Report offers a full account of the Company's principles for corporate gover- nance and it is also available on www.griegseafood.com. Deviations from the Norwegian Code of Practice: None 2. BUSINESS GRIEG SE A FOOD A SA The Company's business is defined in Article 3 of its Articles of Association: “The object of the company is to engage in the production and sale of seafood and in naturally related activities, including investment in companies engaged in the production and sale of seafood and in other naturally related activities”. 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. GRIEG SE A FOOD A SA’S V ISION A ND OV ER A LL OBJECTI V E S Grieg Seafood’s vision is “Rooted in nature - farming the ocean for a better future”, creating long-term value for shareholders and other stakeholders through sustainable and cost-efficient growth. Operationally, Grieg Seafood strives to find the right balance between environmental, social and economic impacts. Through our five pillars, Grieg Seafood is committed to creating sustainable and long-term value. Sustainability is core to the industry and strongly impacts our financial performance. Our strategy for 2020 – 2025 is rooted in its desire for sustainable salmon farming. Focus areas are global growth, cost leadership and value chain repositioning. 19 1 The Board of Directors has established objectives, strategies, and risk profiles for the Company’s defined business scope, in order to create value for its shareholders. The Board has an annual plan for its endeavors and follows a five-year cycle in its strategy work. This includes a review of risk areas and internal controls, as well as approving the strategy, objectives and risks relating to sustainable development. The Company aims to comply with all relevant laws and regulations, and with the Norwe- gian Code of Practice for Corporate Governance. This also applies to all companies controlled by the Group. In as far as it goes, this statement of principle therefore applies to all companies within the Group. The Company has its own Code of Conduct, which all employees and contract workers must abide by. M A N AGEMENT OF THE GROUP Control and management of the Group is divided between the shareholders, represented by the General Meeting, the Board of Directors, and the Group CEO, and is exercised in accordance with prevailing company legislation. Deviations from the Norwegian Code of Practice: None 3. EQUITY AND DIVIDENDS EQUIT Y At any given time, the Group shall have a level of equity and a capital structure that are appropriate to the Group’s cyclical activities. The Board requires that, as a minimum, equity consistently complies with current loan covenants. As at 31 December 2019, the Company's consolidated equity was NOK 4 141 million, equivalent to 46% of total assets, and a debt-to-equity ratio of 1.16. The Board of Directors considers the current capital structure to be satisfactory in relation to the Company’s objectives, strategy, and risk profile. DI V IDEND The Group’s objective is to give shareholders a competitive return on invested capital through dividend payments and appreciation in the value of the share, at a level at least equivalent to other companies with comparable risk. Any 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 line with the Group’s profit growth, while at the same time ensuring that equity remains at a healthy and optimal level. In addition, the Board must ensure that there are adequate financial resources to prepare the way for future growth and investment, and meet its desire to minimize capital cost. 19 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S C O R P O R AT E G O V E R N A N C E The Board of Directors at Grieg Seafood has adopted a dividend policy whereby the average dividend, over a period of several years, should correspond to 30 – 40% of profit after tax before fair value adjustment of biological assets. Furthermore, a net interest-bearing debt per harvested kg of NOK 20 is considered reasonable. Based on this, the size of the dividend could be corrected both up and down to stay within the margin as per above. During the year, the Company has paid out a dividend of NOK 4.00 per share. This corre- sponds to a pay-out ratio of 55% of net profit after tax, adjusted for fair value adjustments with respect to the previous year’s accounts. BOA RD AUTHORIZ ATION The Board can request the AGM to grant a general mandate to pay out dividends in the period until the next AGM. An explanation must be given for the Board´s proposal. The dividend will be based on the Group's current policy. Dividends should be paid on the basis of the last financial statements approved within the scope of the Norwegian Public Limited Companies Act. Upon authorization being granted, the Board determines from which date the shares are to be traded ex-dividend. The Board has a general authorization to increase the Company’s share capital through share subscription for a total amount not exceeding NOK 44 664 800, divided into not more than 11 166 200 shares at the nominal value of NOK 4.00 each. The authorization covers merger decisions as provided for in Section 13-5 of the Norwegian Public Limited Companies Act. The Board is entitled to increase the share capital on several occasions and to itself determine the amount of the share capital increase in each case. As at 31 December 2019, no shares have been issued pursuant to this authorization. This authorization remains in effect until 30 June 2020. The Board has a general authorization to acquire the Company’s own (treasury) shares in accordance with the provisions of Chapter 9 of the Norwegian Public Limited Compa- nies Act for an aggregate nominal amount not exceeding NOK 44 664 800. The Company shall pay not less than NOK 4.00 per share and not more than NOK 180.00 per share when acquiring treasury shares. As at 31 December 2019, no shares have been acquired pursuant to this authorization. This authorization remains in effect until the next AGM, but not later than 30 June 2020. The Company will observe the Norwegian Code of Practice in respect of new proposals to authorize the Board to implement capital increases and acquire the Company’s own shares. Deviations from the Norwegian Code of Practice: None 19 3 4. EQUAL TREATMENT OF SHAREHOLDERS AND TRANSACTIONS WITH RELATED PARTIES SH A RE CL A S S The Company has one class of shares, and all shares carry the same rights. As at 31 December 2019, the Company had 111 662 000 outstanding shares, including treasury shares. TRE A SURY SH A RE S If the Company trades in its own (treasury) shares, the Norwegian Code of Practice’s provisions relating to the equal treatment of shareholders and transactions with close associates shall be observed. As at 31 December 2019, the Company held 1 213 687 treasury shares. A PPROVA L OF AGREEMENT S W ITH SH A REHOLDER S A ND OTHER REL ATED PA RTIE S All non-immaterial transactions between the Company and a shareholder, board member, or a senior employee or their related parties, shall be subject to a valuation by an inde- pendent third party. If the consideration exceeds one-twentieth of the Company’s share capital, transactions of this kind shall be approved by a General Meeting of Shareholders, in so far as this is required under Section 3-8 of the Norwegian Public Limited Companies Act. There were no transactions with related parties in 2019 pursuant to the requirement above. For further details see Notes 14, 17, and 22 to the Group Accounts in this Annual Report. CA PITA L INCRE A SE S Should shareholders’ preferential subscription right be waived, the Norwegian Code of Practice shall be observed. There were no capital increases in 2019. Deviations from the Norwegian Code of Practice: None 5. SHARES AND NEGOTIABILITY There are no limitations with regards to owning, trading, or voting for the Company’s shares. All shares are freely negotiable to all parties. Deviations from the Norwegian Code of Practice: None 194 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S C O R P O R AT E G O V E R N A N C E 6. GENERAL MEETINGS The Company’s highest decision-making body is the General Meeting of shareholders. With respect to the timing and facilitation of General Meetings, the Board of Directors will do its best to ensure that as many shareholders as possible may attend and exercise their rights, thereby making the General Meeting an effective forum for the views of shareholders and the Board of Directors. The Company’s Annual General Meeting (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 proposed 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 must give at least 21 days’ notice that a General Meeting is to be held. During this period, the notice and documents pertaining to matters to be considered at the General Meeting shall be accessible on the Company’s website. The same applies to the Nomination Committee’s recommendations. When documents are made available in this manner, the statutory requirements for distribution to shareholders do not apply. Nevertheless, a shareholder may ask to be sent physical documents concerning matters to be considered at the General Meeting. The deadline to register for attendance at the General Meeting is set by the Board in the notice, normally five days prior to the meeting’s scheduled date. Shareholders can vote on each individual matter, including on each individual candidate nominated for election. Shareholders unable to attend may vote by proxy. An authoriza- tion form containing a vote option for each agenda item will be enclosed with the notice of meeting. Shareholders may also authorize the Board’s chair or the Group CEO to vote on their behalf. The Company will publish the minutes of General Meetings in accordance with the stock exchange regulations, in addition to making them available for inspection at the Compa- ny’s registered offices. The Board’s chair, a member of the Nomination Committee and the Group CEO will be represented at the General Meeting. The Board’s chair will normally chair the General Meeting. The Board of Directors will ensure that, if it so requests, the General Meeting also is able to appoint an independent chair. The Board shall not contact the Company’s shareholders outside the General Meeting in a manner which could be deemed to constitute preferential treatment or which could be in conflict with current laws or regulations. 19 5 The Nomination Committee proposes candidates for election to the Board by the AGM. In 2019, Grieg Seafood Group held its AGM on 13 June. Deviations from the Norwegian Code of Practice: GSF Group deviates from the code of practice in two ways. 1. The AGM is not led by an independent chair, but by the Board’s chair. This is in accor- dance with its Articles of Association. Given the matters considered by the AGM, an independent chair has not been considered necessary. In cases that involve related parties, the AGM is chaired by an independent board member. 2. Not all members of the Board or the Nomination Committee attend the AGM. The Board of Directors considers it sufficient that the Board’s chair and the chair of the Audit Committee, are present. Other board members and members of the Nomina- tion Committee attend as needed. 7. NOMINATION COMMITTEE On 13 February 2009, the AGM approved a resolution to establish a Nomination Commit- tee. This is described in Article 8 of the Articles of Association. At the same time, the AGM adopted instructions for the Nomination Committee. According to these instructions, the Nomination Committee should safeguard the interests currently embodied in the Norwegian Code of Practice for Corporate Governance. The present Nomination Committee was elected at the AGM on 13 June 2019. Nomination Committee Elisabeth Grieg Yngve Myhre Helge Nielsen Role Chair Member Member Considered independent Served since Term expires No Yes No 12.06.2018 07.06.2017 18.06.2012 AGM 2020 AGM 2021 AGM 2021 The members of the nomination committee are elected for two years. At least 2/3 of the members of the Nomination Committee shall be independent of the Board and may not be members of the Board. The Group CEO cannot be a member of the Nomination Committee. The Nomination Committee shall have meetings with the directors, Group CEO, and relevant shareholders. Details about the Nomination Committee members are available on the Company´s website. The Nomination Committee´s recommendation to the AGM should be submitted well ahead of time and accompany the notice of the AGM, no later than 21 days before the meeting. The Nomination Committee’s recommendations must include information about 196 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S C O R P O R AT E G O V E R N A N C E the candidate´s impartiality, competence, age, education, and professional experience. Upon proposal for re-election, the recommendation should include additional informa- tion about how long the candidate has been a board member, as well as details about attendance at board meetings. All shareholders are entitled to submit proposals to the Nomination Committee for candi- dates to the Board of Directors and other appointments. Proposals must be submitted to the Nomination Committee no later than two months prior to the AGM. Information on how to propose candidates can be found on the Company’s website. When the recommendation comprises candidates for the Nomination Committee itself, it should include relevant information about these candidates. Deviations from the Norwegian Code of Practice: GSF Group deviates from the Norwegian Code of Practice in two ways. 1. The Code of Practice recommends that all shareholders should be able to submit proposals to the Nomination Committee for candidates to the Board of Directors and other appointments in a simple and easy manner. Today, shareholders must contact the Nomination Committee directly. The Company will observe the Norwegian Code of Practice in respect of new proposals to facilitate that all shareholders can propose candidates to the Board and Nomination Committee. 2. The majority of Nomination Committee’s members are not independent of the Board. 8. BOARD OF DIRECTORS: COMPOSITION AND INDEPENDENCE NUMBER OF BOA RD MEMBER S Pursuant to Article 6 of its Articles of Association, the Company’s Board of Directors comprises up to seven members elected by the General Meeting. The Board’s chair is elected by board members. In the event of a tied vote, the Board’s chair has the casting vote. The CEO is appointed by the Board and has both a right and a duty to attend board meetings. The CEO is only entitled to vote on board decisions if he or she is an elected member of the Board. ELECTION PERIOD All board members are elected by the AGM for a period of two years. Board members may be re-elected. 19 7 Name Per Grieg jr. Role Chair Asbjørn Reinkind Vice chair Karin Bing Orgland Board member Tore Holand Board member Solveig M.R. Nygaard Board member Sirine Fodstad Board member *Per Grieg jr. and indirectly via the Grieg Group. INDEPENDENT BOA RD MEMBER S As at 31 December 2019, the Board of Directors consisted of the following members: Considered independent Served since Term expires 2019 Meeting attendance % of shares in GSF per 31.12.2019 No Yes Yes Yes Yes No 20.05.2009 27.05.2011 12.06.2013 12.06.2018 12.06.2018 13.06.2019 AGM 2021 AGM 2021 AGM 2021 AGM 2020 AGM 2020 AGM 2021 100 % 100 % 100 % 100 % 100 % 100 % 52.80%* 0.11% 0.0% 0.0% 0.0% 0.0% The Company's annual report and the website provide information on board members’ background and expertise. An overview of board members’ shareholdings in the Company appears in Note 17 to the Group Accounts in this Annual Report. Deviations from the Norwegian Code of Practice: None. 9. THE WORK OF THE BOARD OF DIRECTORS DUTIE S A ND A NNUA L PL A N The Norwegian Public Limited Liability Companies Act regulates the duties and workings of the Board of Directors. In addition, the Board of Directors has adopted supplementary rules of procedure covering the duties of the Board of Directors and the chief execu- tive officer (CEO), the division of labor between the Board and the CEO, the annual plan for the Board of Directors, notices of board proceedings, administrative procedures, minutes, board committees, transactions between the Company and the shareholders, and confidentiality. The Board has overall responsibility for the Group and for overseeing its day-to-day management and business activities. The Company shall be managed by an effective Board of Directors (the Board) which is jointly responsible for the success of the Company. The Board represents and is accountable to the Company’s shareholders. The Board’s duties include drawing up the Group’s strategy and ensuring that the adopted strategy is implemented, effective supervision of the Group CEO, control and supervision of the Group’s financial situation, internal control, anti-corruption, and the Company’s responsibility to and communication with the shareholders. The Board shall initiate any investigations it considers necessary to perform its duties. The Board shall also initiate such investigations requested by one or more board members. To ensure all matters are given unbiased and satisfactory consideration, members of the Board and executive management cannot consider matters in which they have a special and prominent interest. The Board of Directors jointly assess each board member´s impartiality with respect to matters under consideration. 19 8 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S C O R P O R AT E G O V E R N A N C E INS TRUCTIONS The Board has drawn up a set of instructions for its members and executive management, which contain a more detailed description of the Board’s duties, meetings, the Group CEO’s duties in relation to the Board, the meeting schedule for the Board, participation, separate entries in the minutes and duty of confidentiality. The Board and the Group CEO have separate roles, and there is a clear division of respon- sibility between the two. The Group CEO is responsible for the Company’s group manage- ment team. The Board underlines that special care must be exercised in matters relating to financial reporting and the remuneration of the group management team. In matters of importance where the Board’s chair is or has been actively involved, the Board’s discussions shall be chaired by the vice chair. Board members and the group management team shall inform the Board if they have any significant interest in a transaction to which the Company is a party. For further informa- tion, please refer to Note 22 in the Group Accounts in this Annual Report. The Instructions for the Board and management were last revised by the Board on 20 September 2017. A NNUA L A S SE S SMENT Each year, the Board shall carry out an assessment of its work in the previous year. The assessment is based on the results of a questionnaire completed anonymously by each member of the Board and the group management team. AUDIT COMMIT TEE 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 responsibil- ity 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. As at 31 December 2019, the Audit Committee consisted of: Board´s Audit Committee Karin Bing Orgland Tore Holand Role Chair Member Considered independent Yes Yes 19 9 REMUNER ATION COMMIT TEE The Remuneration Committee is governed by a separate set of instructions adopted by the Board of Directors. The members of the Remuneration Committee are appointed by and from among the members of the Board of Directors and shall be independent of the Company's executive management. As at 31 December 2019, the Remuneration Committee consisted of: Board's Compensation Committee Role Considered independent Per Grieg jr Asbjørn Reinkind Sirine Fodstad Chair Member Member No Yes No The primary purpose of the Remuneration Committee is to assist and facilitate the Board’s decision-making in matters related to the remuneration of the group manage- ment team, review recruitment policies, career planning and management development plans, and prepare matters relating to other material employment issues with respect to executive management. The committee shall hold discussions with the Group CEO concerning his/her finan- cial terms of employment. The committee shall submit a recommendation to the Board concerning all matters relating to the Group CEO’s financial terms of employment. The committee shall also keep itself updated on and propose guidelines for the determi- nation of remuneration to group management team. The committee is also the advisory body for the Group CEO 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 Remuneration Committee reports and makes recommendations to the Board of Directors, but the Board retains responsibility for implementing such recommendations. The composition of the committee is subject to assessment each year. Deviations from the Norwegian Code of Practice: None. RISK M A N AGEMENT A ND INTERN A L CONTROL The Board has a responsibility to ensure that the Group has proper risk management and such internal control as is required by statute. The Audit Committee has been given a particular responsibility to monitor critical business risks and address the quality and effectiveness of relevant risk-reducing measures. Management performs a risk assess- ment quarterly, which is reviewed by the Audit Committee in connection with quarterly reporting. The Audit Committee updates the Board after each meeting. Each year the external auditor carries out a review of the internal control which is an element of finan- cial reporting. The auditor’s review is submitted to the Audit Committee. 2 0 0 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S C O R P O R AT E G O V E R N A N C E Internal control means activities carried out by the Group to organize its business activ- ities and procedures in order to safeguard its resource and those of its customers, and to realize its goals through appropriate operations. The achievement of these goals also requires systematic strategy development 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 consti- tute the external framework for internal control. The Group is decentralized, and consid- erable responsibility and authority are therefore delegated to the regional operating units. Day-to-day implementation and assessment are a line management responsibility. This means that corporate social responsibility is an integral component of all our opera- tions, for all management teams, units, and departments. 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 Group´s Board of Directors, management and other employees. Internal control is designed to provide reasonable assurance that the Group’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 Group has implemented the 2017 COSO Enterprise Risk Management (COSO ERM) scheme as the main framework for risk management, where risks and opportunities are positioned in the context of objectives and performance. The framework includes a description of the Group’s risk management policy, as well as all financial control processes. There is an ongoing risk assessment of the main transaction processes. Descriptions of the transaction processes are currently in preparation, with the aim of clarifying key controls and ensuring that these controls are in place. This means assess- ing all processes to determine the probability of non-conformity arising, and how serious the economic consequences would be of any such non-conformity. The establishment of controls in each region is aimed at reducing the likelihood of non-conformities with major economic consequences arising. The Group categorizes its main risks as: strategic risk, operational risk, financial risk, compliance risk and climate risk. The Group’s greatest risk relates to biological devel- opment during the production of smolt and sea farming. The Group therefore works continuously and systematically to develop processes that safeguard animal welfare and reduce disease and mortality, and ensure that "best practices" are implemented at all levels. Control routines have been prepared for employee working conditions, as well as escape prevention, animal welfare, pollution, water resources, and food safety. The long-term effect of climate change on general economic conditions can also have a material impact on the Group. The Groups climate risk management is been mapped in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). 2 0 1 Amongst the financial risks the Group is exposed to, are: market risk (including foreign exchange risk, interest rate risk, and price risk), contract risk, credit risk and liquidity risk. The Group’s overall risk management plan focuses on the unpredictability of the capital markets and seeks to minimize any potentially negative effects on the Group’s financial results. 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, price 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. Deviations from the budget are reported on a monthly basis. Forecasts are drawn up for the next five years and updated every month. Every month, each region submits a report containing given Key Performance Indicators (KPIs). The main KPIs are: EBIT/kg, feed factor, number of smolt transferred to the sea, production, production cost, harvest volume, harvest cost, and level of sea lice. Analyses are made and measured against budget figures and KPIs. Generational accounts for harvested generations will be updated on a monthly basis. Each region’s performance data is summarized in a report submitted to the Board. Each quarter, the Group management holds meetings with the management of each region. The aim of the meeting is to follow up the strategies and goals that have been set. Deviations from the Norwegian Code of Practice: None. 11. REMUNERATION OF THE BOARD OF DIRECTORS Proposals concerning the remuneration of the Board are submitted by the Nomination Committee. Remuneration to Board members is not linked to the Company’s results. No board member has any special duties in relation to the Company over and above those they have as a board member. No board members participate in any incentive or share programs. Board remuneration is shown in the financial statements of both the Company and the Group. Deviations from the Norwegian Code of Practice: None. 2 0 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S C O R P O R AT E G O V E R N A N C E 12. REMUNERATION OF THE GROUP MANAGEMENT TEAM Group management consists of the Group CEO, the Chief Operating Officer (COO), the Chief Financial Officer (CFO), and the Chief Human Resource Officer (CHRO). The objective of the guidelines for salary and other remuneration payable to senior employees within the Group is both to attract people with the required competence and retain key personnel. The guidelines should also motivate the employees to work with a long-term perspective to achieve the Group´s 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, 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 group management team consists of a fixed and a variable element. Under the bonus scheme, the variable salary cannot exceed six times the monthly salary. Each year, information about the provisions of the bonus scheme is included in the Group statement on the determination of salary to senior employees, and appears in the financial statements for the Group, Note 14. The Company´s Board approved the allocation of cash options based on the AGM´s reso- lution on the share and cash options program. The last approval granted by the AGM dates from 13 June 2019. The Group CEO, CFO, COO, CHRO, and the four regional manag- ers are included in the synthetic options program. The options agreements have been entered within the scope of the resolution adopted by the AGM. Minutes of this AGM can be accessed from the Company’s web page. The remuneration payable to the Group CEO is determined at a meeting of the Board of Directors. The salary payable to the other members of the management group is deter- mined by the Group CEO. The Group CEO shall discuss the remuneration which he/she proposes with the Board’s chair before the amount of remuneration is determined. General schemes for the allocation of variable benefits, including bonus schemes and options programs, 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 AGM. The Board´s statement on management remuneration is a separate item on the AGM’s agenda. The AGM votes separately on guidelines to the Board and remuneration comprising the synthetic options program. 2 0 3 SE V ER A NCE PAY The Group CEO is entitled to 12 months’ severance pay after termination of the employ- ment relationship by the Company. The Group CEO is further entitled to full salary during sick leave of up to 12 months’ duration. A severance pay agreement has also been established for the CFO and COO providing for 12 months’ severance pay after termination of the employment relationship by the Company. Deviations from the Norwegian Code of Practice: None. 13. INFORMATION AND COMMUNICATION FIN A NCI A L INFORM ATION The guidelines for reporting financial and other information to the stock market are defined within the framework established by securities and accounting legislation and the rules and regulations of the stock exchange. The Company also complies with the Oslo Stock Exchange Code of Practice for IR, of 1 March 2017. The Board of Directors has adopted an investor relations policy to clarify roles and responsibilities related to financial reporting and regulate contact with shareholders and the investor market. This policy is based upon the key principles of openness and equal treatment of market participants to ensure they receive correct, clear, relevant, and up-to-date information in a timely manner. The IR policy is available on the Compa- ny’s website. In addition, the Board has adopted a separate manual on the disclosure of information, which sets forth the Company's disclosure obligations and procedures. The Company shall at all times provide its shareholders, the Oslo Stock Exchange, and other stakeholders (through the Oslo Stock Exchange information system) with timely and accurate information. The Board shall ensure that the Company’s quarterly reports 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 realistic forecasts for its commercial and performance-re- lated development. The Company publishes all information on its own website and through stock exchange/ press releases. Quarterly reports, annual reports and stock exchange/press releases are presented on an ongoing basis on the Company’s website in accordance with the Company’s financial calendar. The presentation of each quarter’s results is available as a webcast. The Company shall be open and active with respect to investor relations, and shall hold regular presentations in connection with the annual and interim results. 2 0 4 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S C O R P O R AT E G O V E R N A N C E SH A REHOLDER INFORM ATION 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. Publi- cation shall take place in a reliable and comprehensive manner, and by using information channels which ensure that everyone has equal access to the information. All information shall be provided in English. The Company has procedures to ensure that this is done. The Board of Directors’ communication with shareholders and other stakeholders is delegated to the Board’s chair, or other appointed persons in specific cases. The Board’s chair shall ensure that the shareholders’ views are communicated to the entire Board. Deviations from the Norwegian Code of Practice: None. 14. TAKEOVERS CH A NGE OF CONTROL A ND TA K EOV ER S The Company has no established mechanisms which can prevent or avert takeover bids, unless this has been resolved at a General Meeting of Shareholders by a majority of two-thirds of the votes cast and of the share capital represented. After a takeover bid has become known, the Board will not use its authorization to prevent it without the approval of the General Meeting. If a takeover bid is received, management and the Board will ensure that all shareholders are treated equally. The Board will obtain a valuation from a competent independent party and advise the shareholders whether to accept or reject the bid. Shareholders will be advised of any difference of views among board members in the Board’s statements on the takeover bid. At its meeting of 13 October 2015, the Board adopted some core principles for how it will act in the event of any takeover bid. These core principles are in accordance with the Norwegian Code of Practice. Deviations from the Norwegian Code of Practice: None. 15. AUDITOR Through its Audit Committee, the Board seeks to collaborate fully and transparently with the Company’s auditor. Each year, the Audit Committee obtains confirmation that the auditor meets the requirements of the Norwegian Auditing Act concerning the inde- pendence and objectivity of the auditor. The Board of Directors ensures that the auditor’s auditing plan is submitted to the Audit Committee once a year. In particular, the Audit Committee considers whether the auditor is performing a satisfactory control function. 2 0 5 Both the Company’s 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 Board invites the auditor to 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 the auditor when neither the Group CEO nor anyone else from company management is present. The auditor also attends meetings of the Audit Committee to consider quarterly reports and other relevant matters. The auditor’s fee appears in the relevant note in this Annual Report, showing the breakdown of the fee between auditing and other services. Deviations from the Norwegian Code of Practice: None. Bergen, 8 April 2020 Grieg Seafood ASA ASBJØRN REINKIND Vice Chair PER GRIEG JR. Chair KARIN BING ORGLAND Board Member SOLVEIG M.R. NYGAARD Board Member TORE HOLAND Board Member SIRINE FODSTAD Board Member ANDREAS KVAME CEO 2 0 6 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 3 O U R R E S U LT S C O R P O R AT E G O V E R N A N C E 2 0 7 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 Grieg Seafood Group Accounts 2 0 8 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S GROUP AC C OUN T S 210 211 212 214 216 Income statement Comprehensive income statement Statement of financial position Statement of changes in equity Cash flow statement NOT E S 218 220 231 238 240 242 244 247 251 252 256 261 263 266 268 270 273 275 275 276 277 278 279 280 281 282 284 285 NOT E 1 NOT E 2 NOT E 3 NOT E 4 NOT E 5 NOT E 6 NOT E 7 NOT E 8 NOT E 9 General information Accounting policies Financial risk management Critical accounting estimates and judgements Investment in associates Segment information Biological assets and other inventories Intangible assets Property, plant and equipment incl. Right-of-use assets NOT E 10 Borrowings NOT E 11 Leases NOT E 12 NOT E 13 NOT E 14 NOT E 15 NOT E 16 NOT E 17 NOT E 18 NOT E 19 NOT E 2 0 NOT E 21 NOT E 2 2 NOT E 2 3 NOT E 24 NOT E 25 NOT E 26 NOT E 27 NOT E 2 8 Classifications of financial instruments Taxes Declaration of salary and other remuneration to group management Salaries and personnel expenses Cash-based remuneration Share capital and shareholder information Earnings per share and dividend per share Cash and cash equivalents Trade receivables Other current receivables Related parties Financial income and financial expenses Other operating expenses Other current liabilities New accounting policies Contingent liabilities Post-balance sheet events 2 0 9 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 INC OME S TAT EMEN T GRIEG SEAFOOD GROUP NOK 1 000 NOTE 2019 2018 Sales revenues Other income Other gains and losses Share of profit from associates Raw materials and consumables used Salaries and personnel expenses Other operating expenses EBITDA before fair value adjustments of biological assets Depreciation property, plant and equipment Amortization licenses and other intangible assets EBIT before fair value adjustments of biological assets Fair value adjustment of biological assets EBIT after fair value adjustments of biological assets Financial income Financial expenses Net financial items Profit before tax Income tax expense Net profit for the year ALLOCATED TO Controlling interests Non-controlling interests PROFIT AVAILABLE TO SHAREHOLDERS IN PARENT COMPANY Earnings per share (NOK) Diluted earnings per share (NOK) 6 6 6 5 7 15/16 11/20/24 9 8 3/7 23 23 13 18 18 8 273 592 7 500 316 26 519 3 612 211 -4 181 971 -610 803 -2 013 002 1 498 157 -404 895 -5 688 1 087 574 -220 714 866 860 51 309 -77 542 -26 234 25 853 26 157 -2 328 -3 852 855 -541 047 -1 821 623 1 334 473 -230 262 -5 393 1 098 818 256 097 1 354 916 18 874 -96 865 -77 991 840 626 1 276 925 -195 718 644 908 619 510 25 398 5.61 5.61 -279 805 997 120 972 506 24 615 8.81 8.81 2 10 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S C OMPREHEN SI V E INC OME S TAT EMEN T GRIEG SEAFOOD GROUP NOK 1 000 NOTE Net profit for the year NET OTHER COMPREHENSIVE INCOME TO BE RECLASSIFIED TO PROFIT/LOSS IN SUBSEQUENT PERIODS Currency effect on investment in subsidiaries Currency effect on loans to subsidiaries Cash flow hedges Tax effect 3 3 NET OTHER COMPREHENSIVE INCOME NOT TO BE RECLASSIFIED TO PROFIT/LOSS IN SUBSEQUENT PERIODS Change in fair value of equity instruments Other comprehensive income for the period, net of tax 2019 644 908 52 826 29 819 -4 529 -5 564 -107 72 446 2018 997 120 -5 889 -4 193 15 026 -2 571 11 2 383 Total comprehensive income for the period 717 354 999 503 ALLOCATED TO Controlling interests Non-controlling interests 689 916 27 438 968 766 30 738 2 11 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 S TAT EMEN T OF FIN A NCI A L P O SI T ION GRIEG SEAFOOD GROUP NOK 1 000 NOTE 2019 2018 ASSETS Goodwill Deferred tax assets Licenses Other intangible assets Property, plant and equipment incl. Right-of-use assets Investments in associates Equity instruments Other non-current receivables Total non-current assets Inventories Biological assets Trade receivables Other current receivables Derivatives and other financial instruments Cash and cash equivalents Total current assets Total assets 8 13 8/10 8/10 9/11 5 5 7/10 7/10 3/10/20 21 3/12 3/19 109 526 998 1 133 630 16 205 2 957 942 81 071 1 053 2 077 109 013 1 718 1 121 662 25 175 2 292 912 37 122 1 160 167 4 302 503 3 588 929 177 847 3 437 948 459 897 334 625 7 368 214 497 126 092 3 195 142 925 232 166 432 2 743 137 920 4 632 181 4 553 561 8 934 684 8 142 490 2 12 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S GRIEG SEAFOOD GROUP NOK 1 000 NOTE 2019 2018 EQUITY AND LIABILITIES Share capital Treasury shares Other equity Retained earnings Total controlling interests Non-controlling interests Total equity Deferred tax liabilities Cash-settled share options Borrowings Other non-current borrowings Lease liabilities Total non-current liabilities Overdraft facility Current portion of borrowings Current portion of lease liabilities Factoring liabilities Cash-settled share options Trade payables Tax payable Public tax payable Derivatives and other financial instruments Other current liabilities Total current liabilities Total liabilities Total equity and liabilities BERGEN, 8 APRIL 2020 GRIEG SEAFOOD ASA 17 17 13 16 10 10 10/11 10 10 10/11 3/10 16 3 13 3/12 25 446 648 -4 855 154 559 3 487 859 4 084 211 56 632 4 140 843 874 664 8 379 1 563 935 13 240 632 666 3 092 883 - 98 212 199 327 86 122 11 270 855 061 211 569 50 570 9 321 179 507 1 700 958 446 648 -4 914 84 152 3 308 166 3 834 053 49 458 3 883 511 877 639 8 493 1 298 713 14 047 292 358 2 491 251 46 597 107 109 68 083 573 377 9 010 649 352 130 287 29 346 5 905 148 663 1 767 729 4 793 840 4 258 979 8 934 684 8 142 490 ASBJØRN REINKIND Vice Chair PER GRIEG JR. Chair KARIN BING ORGLAND Board Member SOLVEIG NYGAARD Board Member TORE HOLAND Board Member SIRINE FODSTAD Board Member ANDREAS KVAME CEO 2 13 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 S TAT EMEN T OF CH A NGE S IN EQUI T Y GRIEG SEAFOOD GROUP NOK 1 000 SHARE CAPITAL TREASURY SHARES* OTHER EQUITY** RETAINED EQUITY NON- CONTROLLING INTERESTS TOTAL Equity at 01.01.2018 446 648 -5 000 87 892 2 774 824 43 541 3 347 905 PROFIT FOR 2018 Other comprehensive income Total comprehensive income 2018 Sale of treasury shares Dividend paid Transactions with owners [in their capacity as owners] 2018 Total change in equity 2018 Equity at 31.12.2018 PROFIT FOR 2019 Other comprehensive income Total comprehensive income 2019 Sale of treasury shares Dividend paid Transactions with owners [in their capacity as owners] 2019 Total change in equity 2019 Equity at 31.12.2019 - - - - - - - 446 648 - - - - - - - 446 648 - - - 86 - 86 - 972 506 -3 740 -3 740 - 972 506 - - - 2 528 -441 691 -439 163 24 615 6 123 30 738 997 120 2 383 999 503 - 2 614 -24 821 -24 821 -466 512 -463 898 86 -4 914 -3 740 84 152 533 342 3 308 166 5 917 535 605 49 458 3 883 511 - - - 59 - 59 - 619 510 70 406 70 406 - 619 510 25 398 2 040 27 438 644 908 72 446 717 354 - - - 1 946 -441 764 -439 818 - 2 005 -20 263 -462 027 -20 263 -460 022 59 -4 855 70 406 179 692 154 559 3 487 859 7 175 257 332 56 632 4 140 843 * The recognized amount equals the nominal value of the parent company's holding of treasury shares ** Other equity, reclassified through OCI 2 14 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S SPECIFICATION OF RETAINED EQUITY NOK 1 000 Book value at 01.01.2018 Changes in 2018 Changes in 2019 Book value at 31.12.2019 EFFECT OF SHARE-BASED REMUNERATION PURCHASE/ SALES OF TREASURY SHARES * ACCUMULATED INCOME LESS ACCUMULATED DIVIDEND TOTAL 1 094 - - 1 094 -13 036 2 528 1 946 -8 562 2 786 766 2 774 824 530 814 177 746 533 342 179 692 3 495 326 3 487 859 * The amount classified under "purchase of treasury shares" equals the cost price in excess of nominal value. See also Note 1. SPECIFICATION OF ACCUMULATED OTHER COMPREHENSIVE INCOME NOK 1 000 CHANGES IN FAIR VALUE OF EQUITY INSTRUMENTS CURRENCY EFFECT ON LOANS TO SUBSIDIARIES CURRENCY EFFECT ON INVESTMENT IN SUBSIDIARIES CASH FLOW HEDGES TOTAL Book value at 01.01.2018 Changes in 2018 Changes in 2019 Book value at 31.12.2019 492 11 -107 396 64 373 -3 271 23 259 84 361 29 592 -5 889 52 826 76 529 -6 565 5 409 -5 572 -6 728 87 892 -3 740 70 406 154 559 2 15 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 C A SH FLOW S TAT EMEN T GRIEG SEAFOOD GROUP NOK 1 000 NOTE 8/9 5 7 16 13 8/9 9 8 5 10 10 10 10 10/11 10 23 23 EBIT after fair value adjustment of biological assets Depreciation and amortization (Gain)/loss on sale of property, plant and equipment Share of profit from companies applying equity method of accounting Fair value adjustment of biological assets Change in inventories and biological assets excl. fair value Change in trade and other receivables Change in trade payables Change in other accruals Change in non-current, cash-settled share option liability Taxes paid for the period Net cash flow from operating activities Proceeds from sale of property, plant and equipment Payments on purchase of property, plant and equipment * Payments on purchase of intangible assets Investment in associates Dividend from other investments Net cash flow from investing activities Draw-down/repayment of non-current revolver credit facility Repayment of non-current syndicate loan Repayment other current loan and overdraft facility Draw-down non-current syndicate loan (refinancing) Other changes from finacing activities Repayment lease liabilities Change in factoring liability Other financial items Dividend incl. allocation to non-controlling interests Interest received Interest paid Net cash flow from financing activities Net change in cash and cash equivalents Cash and cash equivalents at 01.01. Currency translation of cash and cash equivalents Cash and cash equivalents at 31.12. * Net amount of investments (excluding investments financed by leasing) 2 16 2019 866 860 410 583 -6 339 -211 220 714 -497 707 297 143 205 710 92 337 -114 -132 982 1 455 994 2 121 -367 828 -1 635 -14 163 - -381 505 369 319 -98 346 -55 494 - - -205 025 -487 255 -5 971 -462 027 14 100 -69 333 -1 000 031 74 458 137 920 2 119 214 497 2018 1 354 916 235 655 4 992 2 328 -256 097 -241 400 -131 731 63 974 -78 542 -355 -147 833 805 906 1 295 -495 976 -67 842 -30 000 10 -592 513 -40 000 -985 000 - 1 180 284 11 809 -69 053 72 401 6 951 -466 512 13 935 -71 449 -346 634 -133 241 271 715 -554 137 920 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S 2 17 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 1 GENER A L INFORM AT ION Grieg Seafood ASA is an integrated Norwegian seafood company engaged in salmon farming and processing. Grieg Seafood ASA is a public limited company registered in Norway. The head office is located at C. Sundtsgt. 17/19, Bergen. The Company was listed on the Oslo Stock Exchange on 21 June 2007 and has operations in Norway, the UK and Canada. The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by EU, and were approved by the Board of Directors on 8 April 2020. In the following, "Group" describes information relating to the Grieg Seafood Group, while "Company" refers to the parent company, Grieg Seafood ASA. The Group owns the company Ocean Quality AS together with Bremnes Fryseri AS on a 60%/40% basis. Grieg Seafood does not receive any of the profit from the sale of fish from Bremnes Fryseri AS, as earnings are based on a skewed distribution of profit based on the delivered volume from each shareholder. The share of profit and share of equity in Ocean Quality AS attributable to Bremnes Fryseri AS are presented as non-controlling interests. Inc.) and Ocean Quality USA Inc. (new company, established in 2018) are domiciled in the USA. Ocean Quality (Shanghai) International Trading Company is domiciled in China with office in Beijing. The remaining companies are domiciled in Norway. Grieg Seafood Hjaltland UK Ltd. and Grieg Seafood Canada AS are holding companies, which wholly own the production companies Grieg Seafood Shetland Ltd. and Grieg Seafood BC Ltd., respectively. Grieg Seafood ASA has a 60% stake in Ocean Quality AS and the other subsidiaries are wholly owned. Grieg Seafood Shetland Ltd ows the following, dormant companies (no activities in these companies): Grieg Seafood Isle of Sky Ltd, Collafirth Salmon Ltd, Hjaltland Hatcheries Ltd, Fish Holm Ltd, Lerwich Fish Traders Ltd, Shetland Product, Skelda Salmon Farms Limited and Vidlin Seafarms Ltd. Ocean Quality AS wholly owns Ocean Quality UK Ltd, Ocean Quality USA Inc., Ocean Quality (Shanghai) and Ocean Quality North America Inc., while the latter wholly owns Ocean Quality Premium Brands, Inc. Grieg Seafood Group comprised the following entities at 31 December 2019: All amounts are stated in NOK thousand unless otherwise specified. Grieg Seafood Hjaltland UK Ltd, including all subsidiaries, and Ocean Quality UK Ltd are domiciled in the UK. Grieg Seafood BC Ltd and Ocean Quality North America Inc. are domiciled in Canada. Ocean Quality Premium Brands, Inc. (formerly named Ocean Quality USA 2 18 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S G R O U P S T R U C T U R E GRIEG SEAFOOD ASA 60% OCEAN QUALITY AS 100% 100% 100% 100% GRIEG SEAFOOD ROGALAND AS GRIEG SEAFOOD FINNMARK AS GRIEG SEAFOOD HJALTLAND UK LTD GRIEG SEAFOOD CANADA AS OCEAN QUALITY UK LIMITED OCEAN QUALITY USA INC. OCEAN QUALITY (SHANGHAI) INTERNATIONAL TRADING COMPANY OCEAN QUALITY NORTH AMERICA INC. GRIEG SEAFOOD SHETLAND LTD GRIEG SEAFOOD B.C. LTD OCEAN QUALITY PREMIUM BRANDS INC. S E G M E N T S T R U C T U R E GRIEG SEAFOOD NOR NOR UK CAN ROGALAND FINNMARK SHETLAND BRITISH COLUMBIA GRIEG SEAFOOD ROGALAND AS OCEAN QUALITY AS OCEAN QUALITY USA INC OCEAN QUALITY (SHANGHAI) GRIEG SEAFOOD FINNMARK AS OCEAN QUALITY AS OCEAN QUALITY USA INC OCEAN QUALITY (SHANGHAI) GRIEG SEAFOOD SHETLAND LTD OCEAN QUALITY UK LTD OCEAN QUALITY USA INC OCEAN QUALITY (SHANGHAI) GRIEG SEAFOOD B.C. LTD OCEAN QUALITY NORTH AMERICA INC. OCEAN QUALITY PREMIUM BRANDS INC. OCEAN QUALITY (SHANGHAI) 2 19 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 2 A C C OUN T ING P OL ICIE S 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 otherwise indicated. BASIS OF PREPARATION The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. The consolidated financial statements have been prepared under the historical cost convention, modified for biological assets, equity instruments, and financial assets/liabilities (including derivative instruments) at fair value through profit or loss (the income statement). The preparation of financial statements in accordance with IFRSs requires the use of estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. Areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are material to the consolidated financial statements are described in Note 4. NEW STANDARDS ADOPTED BY THE GROUP The Group has applied the following standards for the first time for the annual reporting period commencing 1 January 2019 • IFRS 16 Leases Implementation of IFRS 16 Leases had a significant effect on the consolidated financial statement of the Group, where leased vessels and office buildings had the greatest impact. Please refer to Note 11 for the Group’s lease arrangements and refer to Note 26 for further information about the implementation effects of IFRS 16 Leases. CONSOLIDATION PRINCIPLES SUBSIDIARIES Subsidiaries are all entities (including structured entities) over which the Group exercises control. Control over an entity arises when the Group is exposed to variability in the return from the entity and has the ability to impact this return by virtue of its influence over the entity. Subsidiaries are consolidated from the day control arises and deconsolidated when control ceases. The acquisition method of accounting is applied for acquisitions. The consideration is measured as the fair value of any transferred assets, liabilities or issued equity instruments. The fair value of all the assets or liabilities resulting from contingent consideration agreements is included in the consideration. Identifiable assets and liabilities and contingent liabilities assumed in a business combination are initially measured at fair value at the acquisition date. Non-controlling interests in the acquired entity are measured from time to time either at fair value, or at their proportionate share of net assets of the acquired entity. 2 2 0 Costs relating to business combinations are expensed as they are incurred. In the case of multi-stage acquisitions, the proportion of ownership from any earlier purchases is restated at fair value at the date of control, with changes in value recognized in the income statement. Contingent consideration classified as equity shall not be remeasured and its subsequent settlement shall be accounted for within equity. Other contingent considerations shall be measured at fair value at each reporting date and changes in fair value shall be recognized in the income statement. Intragroup transactions, intercompany balances, and unrealized profits and losses between Group companies are eliminated. Reported figures from the subsidiaries are restated when this is necessary to achieve consistency with the Group's accounting policies. CHANGES IN SHAREHOLDINGS IN SUBSIDIARIES WITHOUT LOSS OF CONTROL Transactions with non-controlling owners of subsidiaries that do not involve loss of control are treated as equity transactions. When shares are purchased from non-controlling owners, the difference between the consideration and the proportionate percentage of net assets recognized in the subsidiary’s statement of financial position relating to such shares is recognized in the parent company’s owners’ equity. Gains or losses on disposals of non- controlling owners are similarly recognized in equity. DIVESTMENT OF SUBSIDIARIES When the Group no longer has control, any residual ownership interest is measured at fair value with changes in value recognized through profit or loss (the income statement). Thereafter the fair value is deemed to equate to cost, and the interest is recognized either as an investment in associates or as a financial asset. Amounts previously recognized in other comprehensive income relating to this company are treated as if the Group had disposed of the underlying assets and liabilities. This could mean that amounts that were previously recognized in other comprehensive income are reclassified through profit or loss (the income statement). ASSOCIATES Associates are entities over which the Group exercises significant influence, but not control. Significant influence will generally exist when the Group has a shareholding of between 20% and 50% of the voting rights. Investments are recognized at cost at the time of acquisition, and the Group’s share of the results in subsequent periods is recognized through profit or loss (the income statement). The amount recognized in the statement of financial position includes any implicit goodwill identified at the date of purchase. Shares of the income statement of associates that are closely PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S linked to the Group´s operations and are thus part of the Group’s value chain, are classified on a separate line before the Group’s EBIT. In the event of a reduction in a shareholding in an associate where the Group exercises significant influence, only a proportionate share of amounts previously recognized in other comprehensive income is reclassified through profit or loss (the income statement). Foreign exchange gains resulting from the settlement of such transactions that are not denominated in the entity´s functional currency, are recognized through profit or loss (the income statement). Translation differences on monetary items (assets and liabilities), that are not denominated in the entity´s functional currency, are also recognized through profit or loss (the income statement). The Group’s share of its associates’ post-acquisition profits or losses is recognized in the income statement and added to the value of the investment in the statement of financial position. The Group’s share of other comprehensive income of the associate is recognized in the consolidated statement of comprehensive income plus the amount of the investment in the statement of financial position. When the Group’s share of losses in an associate equal or exceeds its interest in the associate, including any other unsecured receivables for the entity, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. If necessary, the subsidiaries’ financial statements are restated to achieve consistency with the Group’s accounting policies. At the end of each accounting period, the Group determines whether there is any need to recognize an impairment of the investment in the associate. In such cases, the impairment amount is measured as the difference between the recoverable amount of the investment and its carrying value, and the difference is recognized in the income statement on a separate line together with the item “Share of profit from associates”. In the event of any gains or losses on transactions between the Group and its associates, only the proportionate share relating to external shareholders is recognized. Unrealized losses are eliminated unless there is a need to recognize an impairment for the asset that was the subject of the transaction. Accounting policies of associates are changed when necessary to ensure consistency with the accounting policies adopted by the Group. Dilution gains and losses arising on investments in associates are recognized in the income statement. SEGMENT REPORTING Operating segments are reported in a manner consistent with internal reporting 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 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 in force at the transaction date. Group companies The income statements and statements of financial positions 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: The statement of financial position is translated using the closing rate at the balance sheet date. • 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). Translation differences are recognized in other comprehensive income and specified separately. • When a foreign operation is sold, the exchange difference, which in previous periods was recognized in other comprehensive income, is not accrued. The accumulated exchange difference on the sale of the foreign operation is hence reversed in other comprehensive income. Gains or losses on the sale are recognized on a basis of zero exchange difference in the net profit on ordinary activities. 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 using the closing currency rate at the balance sheet date. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at historical cost less depreciation and impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the asset. 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 recognized in the asset’s carrying amount or 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 recognized in the income statement during the financial period in which they are incurred. Land and buildings mainly comprise factories and offices. Land is not depreciated. Other operating assets are depreciated in accordance with the straight-line method so that the cost, or remeasured value, is written down to residual value over its expected useful economic life as follows: • Buildings/real estate 10–50 years • Plants, barges, onshore power supply 5–30 years 2 2 1 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 2 C O N T I N U E D • Nets/cages/moorings 5–25 years • Other equipment 3–35 years The assets’ useful lives and residual values are estimated at each balance sheet date and adjusted if necessary. An asset’s carrying value is written down to its recoverable amount if the carrying value is greater than its estimated recoverable amount. Gains and losses on disposals are recognized on a net basis and represent the difference between the sales price and the carrying value. INTANGIBLE ASSETS Intangible assets that arise internally within the Group are not recognized. Goodwill and licenses with an indefinite economic life are subject to annual impairment tests. Impairment tests are performed more frequently if indications of impairment exist. Amortized licenses are tested for impairment only if there are indications that future earnings do not justify the asset’s carrying 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 associate 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. NORWAY The licensing regime for the production of salmon in Norway is enacted by the Norwegian Parliament through the Aquaculture Act. The Ministry of Trade, Industry and Fisheries grants permits for aquaculture (licenses). All aquaculture operations are subject to licensing and no one can produce salmon without permission from the authorities, see Aquaculture Act § 4. The aquaculture permit allows the production of salmon in limited geographic areas within 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 jointly manage full administrative and supervisory authorities 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 licensing matters. Seawater licenses Each license for salmon in the sea is subject to a production limit in the form of “maximum allowed biomass” (MAB). MAB does not directly limit the tonnes of fish produced within a year, but rather limits the biomass that can be kept in the sea at any time. Normally, a license has a limit of 780 tonnes MAB, while in Troms and Finnmark counties, a standard license has a limit of 945 tonnes MAB (provided all associated locations are situated in Troms and Finnmark), but in conjunction with the new traffic light system, Finnmark acquire additional production capacity and have now 964 tonnes MAB. See the Salmon Allocation Regulation § 15 (“laksetildelingsforskriften”). Such licenses are limited in number and only subject to application, following politically determined licensing rounds. For the purpose of impairment testing, goodwill is allocated 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. LICENSES Fish-farming licenses with an indefinite useful life are not amortized but reviewed for impairment annually, or more frequently if there are indications that the carrying value may have decreased. Hatchery licenses Young salmon are defined as eggs, juveniles, parr or smolt to be released in another location, see Salmon Allocation Regulation § 4 f. Such licenses are not limited and thus subject to continuous application for new licenses or changes to existing licenses. In essence, it is not permitted to produce smolt over 250 grams; however, the regulations allow for applications to produce a certain percentage of fish up to 1 kg. Grieg Seafood has authorization up to 1 kg. The Group considers the following licenses to have indefinite useful lives: Licenses granted with an indefinite useful life, where the company has no other contractual restrictions relating to the use of the license. Licenses granted with a finite useful life, but where the license holders can renew the licenses without incurring considerable expenses. Licenses with a finite useful life are amortized over their useful lives. These relate to water licenses for hatcheries and some specific seawater licenses. The following sections provide a description of licenses relating to the Norway, UK (Shetland) and Canada (BC) segments. Please refer to Note 8 Intangible assets for an overview of the number and types of licenses, as well as impairment testing. R&D and broodstock licenses These licenses are not limited in number. Permits are meanstested, meaning that the applicant must demonstrate a need for the production of eggs, specific research projects or for educational purposes. Broodstock licenses include both a land and sea phase, i.e. the broodfish and egg production are covered by the same licensing process. Harvesting cage licenses Licenses utilized for 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 content of aquaculture licenses, including 2 2 2 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S relating to scope, time limitations, etc., see the Aquaculture Act § 5, second paragraph. Nonetheless, the preparatory work for the Aquaculture Act specifies that licenses are normally granted without a time limit. BC Grieg Seafood BC Ltd (GSF BC) has farms on both the west and east coasts of Vancouver Island. In order to operate farms in British Columbia, Canada, the following three licenses must be in place: Grieg Seafood’s general food fish licenses and hatchery licenses are not time-limited under current regulations. After the reform in 2009, a number of licenses were time-limited, mainly for 15 years. As no government practices have been established relating to the renewal of broodstock licenses, the current understanding is that expiration of licenses allows for application for renewal based on demand. A license for harvesting cages is valid for ten years and must be renewed on expiration, provided that the license is still connected to an approved harvesting facility. Disposal and withdrawal All licenses can be transferred and mortgaged in accordance with the Aquaculture Act § 19. Transfers and mortgages must be recorded in a separate register (the Aquaculture Register). It is not permitted to rent out licenses or license capacity. The Aquaculture Act § 9 reviews the basis for withdrawal of an aquaculture license. This states that there must be significant breaches of the terms of an aquaculture license before it can be revoked. UK Grieg Seafood Shetland Ltd (GSF UK) has farms on both the west and east coasts of Shetland, as well as the west coast of Scotland. In order to operate farms in Scotland, the following five licenses must be in place: 1. Water Environment (Controlled activities) “CAR” license – issued by the Scottish Environment Protection Agency (SEPA) 2. Planning permission – issued by the local authorities (Town and Country Planning Act) 3. Crown Estate Lease/Permission (The Crown Estate Act 1961) 4. Aquaculture Production Business License (APB) – issued by Aqua Animal Health 5. Marine License (Navigation) – issued by the Scottish government For restrictions regarding production quantity, see table in Note 8. Duration and renewal 1. Requires periodic inspection and monitoring. If a substantial negative impact on the environment can be proven as a consequence of the operation, the production volume can be reduced or, as in a worst-case scenario, revoked. 2. Planning Permission – indefinite duration; however, if the plant is left unused for three consecutive years, the license may be withdrawn 3. Crown Estate Lease/Permission – 25 years’ duration. The normal procedure is to renew the licenses on expiration. 4. APB – indefinite duration subject to compliance with the licence’s conditions. 5. Marine License – application for renewal required every six years. Renewal is normally a formality. 1. Aquaculture license – issued by the Department of Fisheries and Oceans 2. License of Occupation (Tenures) – issued by the Ministry of Forest, Lands and Natural Resource Operations 3. Navigation Water Permit – issued by Transport Canada (Canadian public authorities) For restrictions regarding production quantity, see table in Note 8. Duration and renewal 1. Aquaculture license – duration of one year, renewal each year is a formality. 2. License of Occupation – duration of 2–20 years. Renewal is applied for on expiration. 3. Navigation Water Permit – duration of five years, but possible to apply for renewal. New renewal process in Canada West In June 2018, the Government of British Columbia announced a new policy regarding renewal of aquaculture licenses in the Broughton area. The new policy requires agreement with the local First Nations prior to applying for license renewal from Fisheries and Ocean Canada (DFO). The new policy will be affected from 2022. The authorities want to cooperate with companies that have licenses where the production might conflict with the wild salmon and find alternative solutions such as moving the licenses to new areas. For Grieg Seafood BC, this is not a challenge due to location. OTHER INTANGIBLE ASSETS Acquired customer portfolios and computer software licenses are recognized in the statement of financial position at cost and amortized over their estimated useful lives. Customer portfolios are recognized in the statement of financial position at cost at the date of purchase. Amortization is calculated using the straight- line method over the estimated useful life, as follows: • Customer portfolios 6 years • Computer software 3–10 years IMPAIRMENT OF NON-FINANCIAL ASSETS Assets with an indefinite useful life are not amortized but are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever there are indications that future earnings do not justify the carrying value. An impairment loss is recognized for the amount by which the asset’s carrying value 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). Nonfinancial assets, other than goodwill, that have suffered an impairment are reviewed for indicators of possible reversal of the impairment at each reporting date. 2 2 3 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 2 C O N T I N U E D FINANCIAL INSTRUMENTS A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. The classification is performed in accordance with the substance of the contractual arrangement, and in line with the definitions of a financial asset, a financial liability and an equity instrument. Ordinary purchases and sales of investments are recognized on the trade-date – the date on which the Group commits to purchase or sell the asset. All financial assets that are not stated at fair value through profit or loss (the income statement) are initially recognized at fair value plus transaction costs. FINANCIAL ASSETS Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income (OCI), and fair value through profit or loss (the income statement). The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss (the income statement), transaction costs. The Group has financial assets classified as follows: • Financial assets at amortized cost (debt instruments) • Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) • Financial assets at fair value through profit or loss (the income statement) Financial assets measured at amortized cost The Group measures financial assets at amortized cost if both of the following conditions are met: • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows and, • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding Financial assets at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognized in profit or loss (the income statement) when the asset is derecognized, modified or impaired. The Group's financial assets at amortized cost includes trade receivables and other short-term deposit. Trade receivables that do not contain a significant financing component are measured at the transaction price determined under IFRS 15 Revenue from contracts with customers. 2 2 4 Equity instruments designated at fair value through OCI Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments designated at fair value through OCI when they meet the definition of equity under IAS 32. The classification is determined on an instrument-by- instrument basis. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Gains and losses on these financial assets are never recycled to profit or loss (the income statement). Dividends are recognized as other income in the income statement when the right of payment has been established, except when the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to impairment assessment. The Group elected to classify irrevocably its equity investments under this category. Financial assets at fair value through profit or loss (the income statement) Financial assets at fair value through profit or loss (the income statement) are carried in the statement of financial position at fair value with net changes in fair value recognized in the income statement. This category includes derivative instruments and listed equity investments which the Group had not irrevocably elected to classify at fair value through OCI. Dividends on listed equity investments are recognized as other income in the income statement when the right of payment has been established. Derivatives are initially recognized at fair value on the date a derivative contract is entered into, and are subsequently stated at fair value on an ongoing basis. Derecognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Group’s consolidated statement of financial position) when: • The rights to receive cash flows from the asset have expired, or • The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either — the Group has transferred substantially all the risks and rewards of the asset, or — the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. — Impairment on financial assets The Group recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S all the cash flows that the Group expects to receive, discounted at an approximation of the original effective interest rate. ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). See the “Trade receivable”-section in this Note for specific accounting principles on expected credit loss on trade receivables. FINANCIAL LIABILITIES Financial liabilities are classified, at initial recognition, as amortized cost (loans and borrowings), or as financial liabilities at fair value through profit or loss (the income statement). Financial liabilities at amortized cost (loans and borrowings) After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the income statement. Financial liabilities at fair value through profit or loss (the income statement) Financial liabilities at fair value through profit or loss (the income statement) include financial derivative contracts. Derivatives are initially recognized at fair value on the date a derivative contract is entered into, and are subsequently stated at fair value on an ongoing basis. Derecognition of financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the income statement. HEDGING Hedge accounting The Group applies hedge accounting according to IFRS 9 for non- current foreign currency forward contracts entered into in connection with contracts of future physical delivery of fish to customers. Changes in value of foreign currency forward contracts which meet the hedging criteria are recognized in other comprehensive income. Changes in the fair value of derivatives entered into to hedge operating revenues are recognized in revenues. Non-hedge accounting The Group do not utilize hedge accounting for its short-term foreign currency forward contracts. Such contracts are recognized at fair value through profit or loss (the income statement) and presented as financial income/financial expenses. NASDAQ FISH POOL SALE AND PURCHASE AGREEMENTS With regard to financial contracts relating to sale and purchase agreements on Nasdaq Fish Pool, changes in unrealized gains and losses on the sale and purchase agreements are recognized net in the income statement as a value adjustment of biological assets, while the carrying value is reported as a derivative in the statement of financial position at the gross carrying amount of sales and contracts, respectively. Assets/liabilities in this category are classified as current assets/ current liabilities when they are 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 realizable value. Cost is determined using the first-in, first-out (FIFO) method. The net realizable value is the estimated sales price less the estimated costs of completion and sale. BIOLOGICAL ASSETS The accounting treatment of live fish by enterprises applying IFRS is regulated by IAS 41 Agriculture. IAS 41 comprises a hierarchy of methods for accounting measurement of biological assets at level 3. The basic principle is that such assets shall be measured at fair value less costs to sell. Fair value is defined in IFRS 13 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. According to IFRS 13, the highest and best use of the biological asset establishes the valuation premises. Considering the industry’s common goal to harmonize the model, Grieg Seafood made adaptations to the model during Q4 2018. The previous calculation was based on a growth model which has been the standard model in the salmon industry, while the new calculation is cash-flow based (present value model). Changes to the model involve calculation techniques and do not represent a change in accounting policy. The changes in the new model affected the income statement by NOK -45.4 million in Q4 2018. Biological assets comprise of live fish, smolt and fish in sea. The fish are divided into two main groups, depending on the stage of the life cycle. At the earliest stage of the life cycle, the fish are classified in group 1) roe, fry and smolt. Group 1 biological assets is disclosed as “biological assets onshore” in Note 7, see the tables “Status of biological assets” and “abnormal mortality – write down”. Roe, fry and smolt are kept onshore. When the fish is large enough to be released to sea, they are classified in group 2) biomass in sea. The group 2 biological assets classification is further decomposed in Note 7 as “immature fish in sea, round weight < 4.76 kg” and “mature fish in sea, round weight > 4.76 kg” – see the tables “Status of biological assets” and “abnormal mortality – write down”. 2 2 5 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 2 C O N T I N U E D • Fish onshore (smolt) are recognized at accumulated cost. The best estimate of fair value is considered to be the accumulated cost because of very little biological transformation. This assessment must be seen in the light of the fact that smolt are currently released to sea at a stage when their weight is still relatively low. • For fish in sea, the fair value is calculated by applying a cash- flow based present value model. The volume (biomass) is based on the actual number of individuals in the sea at the balance sheet date, adjusted to cover estimated mortality up to harvest date and multiplied by the estimated harvest weight per individual at the time of harvest. The fish in sea is adjusted for gutting waste, as the price is measured for gutted weight. Budgeted harvesting and freight costs are applied. Foreign currency forward contracts associated with the date of harvesting are applied when translating the price into CAD and GBP. The fair value of fish in the sea is estimated for each location. In accordance with the principle for highest and best use, the Industry Group considers that the fish have optimal harvest weight when they have a live weight of 4.76 kg, which corresponds to 4 kg gutted weight. Fish with a live weight of 4.76 kg or more are classified as ready for harvest (mature fish), while fish that have still not achieved this weight are classified as not ready for harvest (immature fish). The cash-flow based present value model does not rely on historical and company specific factors. In a hypothetical market with perfect competition, a hypothetical buyer of live fish would maximum be willing to pay the present value of the estimated future profit from the sale of the fish when it is ready for harvest. The estimated future profit, considering all price adjustments and payable fees for completion, constitutes the cash flow. No deductions are made for sales expenses, as these are not observable on the market. Such expenses are also deemed immaterial. Incoming cash flow is calculated as a function of estimated volume multiplied by estimated price. For fish not ready for harvest, a deduction is made to cover estimated residual costs to grow the fish to harvest weight. The cash flow is discounted monthly by a discount rate. The discount rate comprises three main components: 1) the risk of incidents that influence cash flow, 2) hypothetical license lease and 3) the time value of money. Please refer to the Note 4 on significant accounting estimates for more detailed information. When estimating the actual accumulated cost at the respective seawater facility, direct costs (fish feed and similar) are allocated to each group of fish, set into sea at the same location. Financial costs are not included in the costs of production. The sales price for fish in the sea are based on the forward price from Fish Pool. Fish Pool is a marketplace for financial purchase and sale agreements for superior Norwegian Salmon size 3-6 kg gutted weight. The volume on Fish Pool is limited, but Grieg Seafood’s opinion is that the observable forward prices must be seen as the best approach to a price for the sale of salmon. With regard to foreign countries, the most relevant price information available for the expected harvesting period is applied. For fish in the sea, the forward price in Norway is adjusted for historical differences in achieved prices between Norway and Canada/the UK. The price/net sales value is adjusted for quality differences (superior, ordinary and prod.), and for logistics expenses and sales commissions. Estimated harvesting expenses are deducted. The change in the fair value of biological assets is recognized through profit or loss (the income statement) and presented as “fair value adjustment of biological assets”. Onerous contracts are contracts where the expenses of fulfilling the contracts are higher than the economic yield the company expects to gain by fulfilling the contracts. The Group enters into contracts related to future deliveries of salmon. As biological assets are recognized at fair value, the fair value adjustments of the biological assets will be included into the estimated expenses required to fulfil the contract. This implies that the Group may experience loss-making (onerous) contracts according to IAS 37 even if the contract price for physical delivery contracts is higher than the actual production cost for the products. If that occurs, a provision is made for the estimated negative value. Changes arising from physical delivery contracts are recognized as “fair value adjustment of biological assets”. The liability in the statement of financial position is recognized as other current liabilities (see Note 7). Fish farming naturally comes with a certain level of loss of fish along the production cycle, and our budgets are typically produced with an inherent assumption of a 0.5-1% monthly mortality. The losses associated with normal levels of survival are not directly recognized in the income statement. In periods where specific abnormal incidents lead to reduced survival, we immediately recognize write-downs of the biomass inventory, to better reflect the actual biomass in sea or on land. The write-down cost is recorded as they arise under raw materials and consumables used in the income statement. TRADE RECEIVABLES Trade receivables arise from the trading of goods or services within the ordinary operating cycle, and under normal terms of payment are initially recognized at nominal value. Trade receivables with longer terms of payment are discounted to present value. EXPECTED CREDIT LOSS ON TRADE RECEIVABLES For trade receivables, the Group applies a simplified approach in calculating ECLs. Therefore, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. For receivables where the credit risk has increased substantially after the establishment, a write-down shall be made for the expected credit loss over the maturity of the receivables. The model for calculating loss allowance classifies the trade receivables into two groups: normal risk and high-risk, based on their country of origin. Furthermore, the trade receivables are classified as credit-insured receivable or 2 2 6 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S not. According to internal policy, 85% of all trade receivables must be credit insured. 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. Loss allowance is recognized as “other operating expenses” in the income statement. FACTORING AGREEMENTS The Group is engaged in factoring agreements that compromises financing of outstanding receivables for the Ocean Quality entities in Norway and in UK. See the section “Derecognition of financial assets“ in this Note for accounting principle disclosure for derecognition of financial assets and Note 3 and 10 for further information on the Group’s factoring agreements. The majority of the receivables sold under the factoring agreements are derecognized as of 31 December 2019. 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. The overdraft facility is included in current borrowings in the statement of financial position. 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 initially recognized at fair value when the funds are received, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost applying the effective interest method. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized 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 value, 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 substantively enacted by the balance sheet date and that are expected to apply when the related deferred tax asset is realized, or the deferred income liability is settled. Deferred tax assets are recognized 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 The company pays premiums to local, defined-contribution schemes for all employees. The company's pension schemes meet the requirements in the Mandatory Occupational Pension Act. Pension premiums are recognized in the income statement through operations on an ongoing basis. Employer’s social security contributions are expensed based on paid pension premiums. The Group companies 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 expenses. The AFP early retirement scheme follows the rules for public sector AFP, and both companies are members of the Norwegian Confederation of Trade Unions (LO)/the Confederation of Norwegian Enterprise (NHO) scheme. The pension payment calculations are based on standard assumptions relating to the development of mortality and disability as well as other factors such as age, years of service and remuneration. Pension premiums are recognized in the income statement through operations as they arise. SHARE-BASED REMUNERATION The Group operates a share-based management remuneration scheme with settlement in cash, where individual employees are obliged to buy shares proportionate to their annual salary. The fair value of the employee services received in exchange for the grant of the options is recognized 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 be vested and recognizes the impact of the revision relative to original estimates, if any, in the income statement. The Black and Scholes option pricing model is used for valuation. The company´s obligations are recognized under non-current liabilities if the latest possible redemption date is more than one year into the future. SHARE SAVINGS PROGRAM Grieg Seafood established a share savings program for its employees in 2018 and it was continued in 2019. It is the Board's intention that the plan shall be a continuing part of the company's employee incentive scheme. The Board shall, however, have the right to decide, in its sole discretion, whether the plan will be extended in the future, and the terms of the plan. Employees may invest up to NOK 20 000 per year. There is a 3 years lock-up period. The saved amount is deducted from the monthly net salary and used to purchase Grieg Seafood shares on behalf of the employees. The purchase will be made from transfer of Grieg Seafood's treasury shares or bought in the market. The purchase price and the number of shares acquired by the company will be reported in accordance with the applicable regulations. 2 2 7 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 2 C O N T I N U E D 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 recognizes 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 SCHEMES The Group recognizes 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 recognized 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 recognized for future operating losses. Where there are 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 recognized 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 as 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 recognized as a financial expense. REVENUE RECOGNITION Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. For the Group, this is when • the Group has delivered its products to, and performed its services for, the customer • the customer has accepted the products and collectability of the related receivables, and • the risks and rewards have been transferred to the customer. The Group’s revenue streams are primarily the sale of fresh and frozen salmon, and processed fish. The main sale each week is settled with the customer, and fixed delivery contracts are entered into with customers, specifying per-week volume. In addition, the Group also sells roe, smolt and ensilage, together historically making up about 1 % of the total sales. The Group furthermore 2 2 8 offers harvest services to other aquaculture companies in the case of surplus capacity (however these services constitute less than 1 % of total revenues). This is presented as other operating income in the income statement. For the Group’s revenue streams, each contract is considered as one performance obligation, as they are related to the delivery of fish. The sales price is determined upon contract settlement and is based on available market price (hereof Nasdaq prices including transport and margin, and the price is per kilogram). The price varies according to the quality of the fish and its size, and the fish is mainly sold Delivery Duty Paid (DDP) to customer. The payment is settled upon delivery, and all of the Group’s performance obligations towards its customers is satisfied at point in time of delivery. That also applies to the fulfillment of physical delivery contracts. Revenue is shown net of value added tax, returns, rebates and discounts and after eliminating intragroup sales. The Group has generally concluded that it is the principal in its revenue arrangements, because it typically controls the goods or services before transferring them to the customer. INTEREST INCOME Interest income is recognized in the income statement based on the effective interest rate (EIR) method. DIVIDEND INCOME Dividend income from investments or equity instruments, is recognized when the right to receive payment is established. Dividend income from entities recognized under the equity method are not recognized but recorded as a reduction in the carrying value of the investment. LEASES IDENTIFYING A LEASE At the inception of a contract, The Group assesses whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. SEPARATING COMPONENTS IN THE LEASE CONTRACT For contracts that constitute, or contain a lease, the Group separates lease components if it benefits from the use of each underlying asset either on its own or together with other resources that are readily available, and the underlying asset is neither highly dependent on, nor highly interrelated with, the other underlying assets in the contract. The Group then accounts for each lease component within the contract as a lease separately from non- lease components of the contract. RECOGNITION OF LEASES AND EXEMPTIONS At the lease commencement date, the Group recognizes a lease liability and corresponding right-of-use asset for all lease agreements in which it is the lessee, except for short term leases (defined as 12 months or less) and lease agreements where the leased asset is of low value. For leases that meet these two exceptions as elaborated on above, the Group recognizes the lease PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S payments as other operating expenses in the income statement when they incur. Lease liabilities The lease liability is recognized at the commencement date of the lease. The Group measures the lease liability at the present value of the lease payments for the right to use the underlying asset during the lease term that are not paid at the commencement date. The lease term represents the non-cancellable period of the lease, together with periods covered by an option either to extend or to terminate the lease when the Group is reasonably certain to exercise this option. remaining useful life of the right-of-use asset. The Group applies IAS 36 Impairment of Assets to determine whether the right-of- use asset is impaired and to account for any impairment loss identified. ACCOUNTING POLICIES FOR THE COMPARABLE FIGURES- THE GROUP AS LESSEE The Group has applied IFRS 16 using the modified retrospective approach, and as such the comparable information for 2018 has not been restated. The comparable figures for 2018 has been prepared according to IAS 17 Leases. Accounting policies for the comparable figures are as follows: The lease payments included in the measurement comprise of: • Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable • Variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date. Lease payments generally also include any exercise price of a purchase option/payments of penalties for terminating a lease, provided that the Group is reasonably certain to exercise such an option. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability, reducing the carrying amount to reflect the lease payments made and remeasuring the carrying amount to reflect any reassessment or lease modifications, or to reflect adjustments in lease payments due to an adjustment in an index or rate. The Group does not include variable lease payments in the lease liability. Instead, the Group recognizes these variable lease expenses in the income statement. The Group presents its lease liabilities as separate line items in the statement of financial position. Right-of-use assets The Group measures the right-of use asset at cost, less any accumulated depreciation and impairment losses, adjusted for any remeasurement of lease liabilities. The cost of the right-of- use asset comprise: • The amount of the initial measurement of the lease liability recognized, • Any lease payments made at or before the commencement date, less any incentives received, and • Any initial direct costs incurred by the Group. The Group presents its right-of-use asset included on the financial statement line item “Property, plant and equipment incl. Right-of- use assets”. 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 recognized in the statement of financial position 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. Accounting treatment of finance leases according to IAS 17 is consistent with IFRS 16, with reference to accounting policies for IFRS 16 provided in the previous section of this Note. Operating leases Leases, or other arrangements described in IFRIC 4, of which more than an insignificant 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 term of the lease. DIVIDENDS Dividends payable to the company’s shareholders are recognized 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 capitalized during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed in the income statement. CONTINGENT ASSETS AND LIABILITIES Contingent liabilities are defined as: • possible obligations resulting from past events whose existence depends on future events; • obligations that are not recognized because it is not probable that they will lead to an outflow of resources entailing financial benefits from the company. • obligations that cannot be measured with sufficient reliability. The Group applies the depreciation requirements in IAS 16 Property, Plant and Equipment in depreciating the right-of-use asset, except that the right-of-use asset is depreciated from the commencement date to the earlier of the lease term and the Contingent liabilities are not recognized in the annual financial statements apart from contingent liabilities resulting from the acquisition of an entity. Material contingent liabilities are disclosed, with the exception of contingent liabilities where the probability of 2 2 9 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 effect such as acquisitions, sales, calculated interest rates and unrealized currency translation differences. Changes in financial assets are disclosed if cash flows have been, or will be, included in the cash flow from financing activities. This may be the case for instance for assets pledged as security for financial liabilities. EARNINGS PER SHARE Earnings per share are calculated by allocating the profit for the year to the company’s shareholders based on 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. the liability crystalizing is remote. Contingent liabilities acquired through the purchase of operations (an acquisition) are recognized at fair value even if it is not probable that the liability will become unconditional. The assessment of probability and fair value is subject to constant review. Subsequent measurement is at the higher of the amount initially recognized (less any amount recognized as revenue) and the amount according to the general provision measurement rules. Contingent assets are not recognized in the statement of financial position, but are 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 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 divestment of operations are presented under investing activities. The Group has prepared an overview of changes in the Group’s liabilities in accordance with IAS 7, Statement of Cash Flows (see Note 10). This includes changes due to cash flow (e.g. utilization and repayments of loans) and changes without cash flow 2 3 0 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S NOT E 3 F IN A NCI A L RISK M A N A GEMEN T CAPITAL MANAGEMENT The Group aims to ensure sufficient access to capital to enable the business to develop in accordance with adopted strategies and thus continue to be one of the leading players in the sector. Historically, the industry has always been vulnerable to price fluctuations in the market. For this reason, accounting results may fluctuate considerably from year to year. Consequently, the Group also strives to ensure that the business maintains an appropriate level of disposable liquidity. The Group aims to provide a competitive return on invested capital to shareholders, by distributing dividends and increasing the share price. The Board aims to achieve an average long-term dividend corresponding to 30–40% of the Company's profit after tax, allowing for the effects of fair value adjustments of biomass on profits. However, all dividends must be assessed in the light of what is deemed to be a healthy and optimal level of equity. At 31 December 2019, the Group had interest-bearing liabilities, including lease liabilities and factoring, of NOK 2 590 million, see Note 10. Funding mainly constitutes of bank loans. The level of liabilities and alternative forms of funding are subject to constant evaluation. FINANCIAL RISK FACTORS The Group is exposed to a number of financial risks; market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the volatility of the financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. The Group uses financial derivatives to reduce certain 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 use of the Group´s financial instruments. I) MARKET RISKS (i) Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk from various currency exposures, primarily CAD, USD, GBP and EUR. Foreign exchange risk arises from future commercial transactions, recognized assets, and liabilities and net investments in foreign operations. The Group enters into foreign currency forward contracts to manage this risk. TRADE RECEIVABLES AND TRADE PAYABLES CURRENCY IN NOK 1 000 2019 Trade receivables Trade payables 2018 Trade receivables Trade payables NOK USD EUR GBP CAD JPY OTHER CURRENCIES TOTAL 28 521 147 185 134 953 116 987 649 551 -48 18 096 88 795 25 744 92 279 5 615 - 892 459 897 6 389 855 061 131 760 470 931 164 470 437 337 153 281 16 894 16 566 825 17 403 69 716 86 096 - 4 923 4 380 925 232 649 352 2 31 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 3 C O N T I N U E D NET INTEREST-BEARING LIABILITIES CURRENCY IN NOK 1 000 2019 Cash and cash equivalents* Interest-bearing liabilities** Net interest-bearing liabilities 2018 Cash and cash equivalents* Interest-bearing liabilities** Net interest-bearing liabilities NOK USD EUR GBP CAD JPY OTHER TOTAL 384 665 21 300 -124 398 -92 791 1 716 376 -474 568 114 270 260 1 331 711 -21 774 692 512 363 051 20 897 36 007 15 110 4 205 618 214 497 - - 2 590 283 -4 205 -618 2 375 786 81 372 10 418 1 320 16 683 29 013 -1 594 707 137 920 1 871 412 106 755 316 193 88 903 -5 075 1 790 040 96 336 314 872 72 221 -34 088 12 900 14 494 5 252 2 396 340 4 544 2 258 419 * The Group has set up a group account scheme (cash pool agreement), in which Grieg Seafood ASA, the parent company, is the legal account holder. All subsidiaries can make overdrafts on individual bank accounts as long as the Group's total bank deposit is positive. All subsidiaries participating in the group account scheme are jointly and severally liable for the entire amount of the commitment under the scheme. Cash and cash equivalents include the currency exposure in the group account scheme. For 2018 comparable figures, the currency exposure in the group account scheme is included in interest-bearing liability, as it was a net liability. the At 31 December 2019, the net amount of bank deposits in the group account scheme amounted to NOK 3 million (2018: NOK -47 million) ** Overview of interest-bearing liabilities, see Note 10 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 was previously primarily managed through borrowings denominated in the relevant foreign currencies. The base currency of the syndicated bank loan was previously solely in NOK, however after the renegotiation of the syndicate agreement in February 2018, the term loan was split into NOK 600 million and EUR 60 million. This was carried forward as a great proportion of the sales revenues are denominated in EUR, and hence the EUR loan would act as a hedge against currency fluctuation. Further, converting to EUR loan would reduce the interest cost. The parent company extends current and non-current loans to the subsidiaries denominated in these companies’ functional currency. All non-current loans are considered to be equity in these companies, as they will not be repaid. The currency effect of loans is recognized under "currency effect of net investments" in consolidated comprehensive income. The numerical effects for 2019 and 2018 are presented below. CURRENCY EFFECTS ON LOANS TO SUBSIDIARIES NOK 1 000 Currency effect Tax effect (22 %) Net effect recognized in equity through OCI 2019 29 819 -6 560 23 259 2018 -4 193 923 -3 271 Sensitivity analysis A 10% appreciation of NOK against USD, CAD, GBP and EUR at the balance sheet date would be expected to have the following effects on net interest-bearing liabilities (in NOK 1 000). 10% APPRECIATION AGAINST NOK 1 000 (Gain)/loss before tax in profit or loss on net interest-bearing liabilities USD 2 177 EUR GBP -69 251 -36 306 CAD -1 511 2 3 2 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S FORWARD CURRENCY CONTRACTS Hedge accounting has been applied to foreign currency forward contracts relating to non-current physical delivery contracts. The effect on profit is recorded in other comprehensive income. Current forward currency contracts are not subject to hedge accounting. Value changes in current forward contracts affect profit or loss, as these contracts are recognized at fair value through profit or loss, see accounting policies (Note 2). FORWARD CURRENCY CONTRACTS AT FAIR VALUE THROUGH PROFIT OR LOSS SOLD CHF CAD EUR EUR GBP JPY USD USD Total AMOUNT CURRENCY IN 1 000 BOUGHT AMOUNT CURRENCY IN 1 000 WEIGHTED HEDGING RATE MARKET RATE MATURITY INTERVAL * MARKET VALUE NOK 1 000 31.12.2019 16 631 113 7 784 445 83 400 2 419 9 995 NOK USD GBP NOK NOK NOK NOK CAD 149 475 96 77 191 5 184 6 773 21 633 13 173 9.1118 0.7528 0.8531 9.9169 11.6492 0.0812 8.9446 1.3177 9.0877 0.7696 0.8508 9.8638 07.01.2020 09.01.2020 05.05.2020 02.01.2020-04.01.2021 11.5936 06.01.2020-17.01.2020 0.0809 8.7803 1.2994 06.01.2020-10.01.2020 02.01.2020-07.02.2020 03.01.2020-14.02.2020 0 -90 -1 348 18 23 387 1 204 1 891 *Maturity specified as an interval for multiple contracts HEDGING CONTRACTS THROUGH COMPREHENSIVE INCOME AT FAIR VALUE SOLD EUR GBP JPY NOK USD Total AMOUNT CURRENCY IN 1 000 1 260 2 211 369 000 92 522 525 BOUGHT AMOUNT CURRENCY IN 1 000 WEIGHTED HEDGING RATE MARKET RATE MATURITY INTERVAL * NOK EUR NOK EUR NOK 12 574 2 588 27 961 9 010 4 767 9.9760 1.1704 0.0758 10.2695 9.0747 9.8638 1.1754 0.0809 9.8638 8.7803 02.01.2020-06.03.2020 17.01.2020-26.10.2020 06.01.2020-08.01.2021 06.01.2020-04.01.2021 02.01.2020-10.01.2020 MARKET VALUE NOK 1 000 31.12.2019 160 -17 -2 144 2 627 160 786 *Maturity specified as an interval for multiple contracts FORWARD CURRENCY CONTRACTS AT FAIR VALUE THROUGH PROFIT OR LOSS AMOUNT CURRENCY IN 1 000 BOUGHT AMOUNT CURRENCY IN 1 000 WEIGHTED HEDGING RATE MARKET RATE MATURITY INTERVAL * MARKET VALUE NOK 1 000 31.12.2018 SOLD USD EUR GBP JPY NOK USD Total *Maturity specified as an interval for multiple contracts 222 366 214 7 380 7 644 6 550 NOK NOK NOK NOK GBP CAD 1 756 3 515 22 866 546 700 8 781 7.9283 9.6164 10.6900 0.0740 10.9259 1.3410 8.6885 09.01.2019 9.9483 02.01.2019 - 07.01.2019 11.1213 02.01.2019 - 09.01.2019 0.0790 04.01.2019 - 09.01.2019 11.1213 02.01.2019 - 09.01.2019 1.3636 09.01.2019 - 01.02.2019 -171 -121 -952 -98 146 -967 -2 162 2 3 3 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 3 C O N T I N U E D HEDGING CONTRACTS THROUGH COMPREHENSIVE INCOME AT FAIR VALUE SOLD USD EUR JPY SEK CHF NOK Total AMOUNT CURRENCY IN 1 000 BOUGHT AMOUNT CURRENCY IN 1 000 WEIGHTED HEDGING RATE MARKET RATE MATURITY INTERVAL * MARKET VALUE NOK 1 000 31.12.2018 1 900 6 706 774 691 135 12 3 047 NOK NOK NOK NOK NOK GBP 16 583 66 926 58 437 131 107 275 8.7277 9.9806 0.0754 0.9727 8.8827 8.6885 9.9483 0.0790 0.9701 8.8280 02.01.2019 - 04.01.2019 02.01.2019 - 06.03.2020 04.01.2019 - 08.01.2021 02.01.2019 - 04.01.2019 03.01.2019 11.0810 11.1213 02.01.2019 - 04.01.2019 55 -72 -3 741 0 1 15 -3 743 *Maturity specified as an interval for multiple contracts (ii) Interest rate risk Since the Group has no significant interest-bearing assets apart from bank deposits, its income and operating cash flows are largely independent of changes in market interest 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 Group continuously monitors its interest rate exposure. The Group calculates the impact on profit or loss of a defined interest rate change. The same change in the interest rate is used for all currencies in each simulation. The scenarios are only run for liabilities that represent major interest-bearing positions. Sensitivity calculations show the following expected values: If the interest rate had been 1% higher (lower) throughout the year, all other factors remaining unchanged, the pre-tax profit would have decreased (increased) by NOK 21 million in 2019 and NOK 20 million in 2018 due to the floating rate of interest on loans and deposits. The sensitivity analysis is based on average net interest-bearing liabilities during 2019 and 2018, irrespective of concluded interest rate swap agreements. SENSITIVITY NOK 1 000 CHANGE IN INTEREST RATE POINTS 2019 2018 Effect on profit before income tax -/+ 1% -/+ 20 688 -/+ 20 025 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 provide more time to adapt to relevant developments. To this end, the Group has chosen to employ interest rate swap agreements to establish greater stability for the Group’s variable-rate loan interest expenses. The Group has decided that at any given time, a certain percentage of its variable interest-bearing liabilities should be hedged using interest rate swap agreements. A given proportion will always be at a floating rate, while the remainder will be subject to potential hedging. This situation is constantly reviewed in light of the market situation. The interest rate swap agreements have a duration of four years. The Company constantly evaluates whether these periods should be rolled over. AGREEMENT PRINCIPAL NOK 1 000 FIXED RATE (%) BASIS OF FLOATING RATE MATURITY MARKET VALUE NOK 1 000 31.12.2019 MARKET VALUE NOK 1 000 31.12.2018 Fixed rate paid - floating rate received Fixed rate paid - floating rate received Fixed rate paid - floating rate received Fixed rate paid - floating rate received Total 400 000 260 000 200 000 200 000 Interest rate swap contracts assessed at market value excl. accrued interest 1.69 Nibor 3 months 27.03.2019 1.28 Nibor 3 months 20.10.2021 1.64 1.61 Nibor 3 months Nibor 3 months 05.07.2022 28.08.2023 - 2 641 1 016 1 820 5 477 -394 1 252 - - 858 2 3 4 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S (iii) Price risk Financial salmon price contracts allow the buyer and seller to agree prices and volumes for future delivery. As at 31 December 2019, 19% of the estimated harvest volumes in 2020 in Norway and 8% of the estimated harvest volumes in the UK are hedged under fixed price contracts. The total share of fixed price contracts in 2019 was 22% and 24% for Norway and the UK, respectively. The financial contracts are presented gross in the balance sheet with changes in value recognized through profit/loss as part of the fair value adjustment of biological assets. As biological assets are recognized at fair value, the expected costs to meet contract terms will be included in the fair value adjustment. As at 31 December 2019, the Group had financial salmon contracts for 2019 totalling NOK -10 million, of which all were sales contracts, and physical delivery contracts recognized as liability, totalling NOK -2 million. Fair value of financial derivatives The carrying value of derivatives and other financial instruments as at 31 December is shown below. The carrying value equals fair value. Positive values are classified as an asset, while negative values are classified as a liability in the balance sheet. FAIR VALUE OF FINANCIAL DERIVATIVES NOK 1 000 Forward currency contracts at fair value through profit or loss Forward currency hedging contracts at fair value through comprehensive income Interest rate swap agreements Financial salmon contract - purchase contracts Financial salmon contract - sales contracts Total financial instruments at fair value 2019 2018 ASSETS CURRENT LIABILITIES ASSETS CURRENT LIABILITIES 1 891 - 5 477 - - 7 368 - 786 - - -10 107 -9 321 - - 858 - 1 885 2 743 -2 162 -3 743 - - - -5 905 II) CREDIT RISK Credit risk is managed at Group level. Credit risk arises from transactions involving derivatives and deposits in banks and financial institutions, transactions with customers, including trade receivables, and fixed contracts as well as loans to associates. The Group has procedures to ensure that products are only sold to customers with satisfactory creditworthiness. The company normally sells to new customers solely against presentation of a letter of credit or against advance payment. Credit insurance is used when deemed necessary. For customers who have a reliable track record with the Group, sales up to certain previously agreed levels are permitted without any security. Factoring agreements have been concluded with Ocean Quality AS and Ocean Quality UK Ltd. regarding trade receivables. See further information about the factoring agreement in Note 10. All fish produced in the Group is sold to Ocean Quality Group, which in turn sells to external customers. The Ocean Quality Group secures the bulk of its sales through credit insurance and bank guarantees. The book value of financial assets represents the maximum credit exposure. For further information about loss allowance, please refer to Note 20. MAXIMUM CREDIT RISK EXPOSURE NOK 1 000 Trade receivables Other receivables Cash and cash equivalents Total NOTE 20 21 19 2019 278 391 60 000 214 497 552 888 2018 262 015 22 100 137 920 422 036 2 3 5 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 3 C O N T I N U E D III) LIQUIDITY RISK The Group adopts a prudent approach to liquidity risk management, which includes maintaining sufficient cash and marketable securities, securing funding through sufficient credit facilities and maintaining the ability to close market positions when considered appropriate. Due to the dynamic underlying nature of the business, the Group aims to secure flexibility through available credit lines. The Group maintains a financing agreement through a 50/50 syndicate with DNB and Nordea. The agreement includes a non-current credit facility of NOK 1 300 million and a bank overdraft facility of NOK 100 million. For further information about the agreement and other non-current liabilities, see Note 10. Management monitors the Group’s liquidity reserve, which comprises credit facilities (see Note 10) and cash and cash equivalents (Note 19), based on expected cash flows. This is generally carried out at Group level in cooperation with the operating companies. At 31 December 2019, the Group had a good level of free liquidity and unutilized credit facilities, with available cash and credit facilities of NOK 955 million. The following table shows a breakdown of the Group’s non-derivative financial liabilities, classified by maturity structure. The amounts in the table are undiscounted contractual cash flows. Note 10 shows the payment profile for the Group’s non-current liabilities. 31.12.2019 NOK 1 000 < 3 M 3 M - 1 Y Y 2 Y 3 Y 4 Y 5 Y 6 Y 7 Y 8 Y 9 Y 10 > 10 YRS TOTAL Non-current loan instalments 49 106 49 106 98 212 98 212 748 215 Loan interest - floating 5 068 14 941 18 129 16 096 2 563 - - - - 629 319 4 304 13 412 17 844 17 844 2 999 - - - - - - - - - - - - - - - - - - - - - - - - - 1 042 850 - 56 797 - 629 319 - 56 402 19 080 54 495 69 040 62 852 56 068 46 423 37 296 35 257 32 688 24 067 14 009 878 452 152 3 670 9 985 11 229 9 009 7 046 5 471 4 188 3 029 2 029 960 237 3 56 855 34 595 91 157 90 347 72 193 34 918 22 192 5 394 5 423 5 608 2 594 1 097 14 323 379 841 2 651 6 527 6 087 3 790 2 229 1 407 1 036 857 672 530 464 14 377 40 626 Trade payables Factoring liabilities 855 061 86 122 - - - - - - - - - - - - - - - - - - - - - - 855 061 86 122 Total liabilities 1 059 658 239 622 310 887 279 995 1 483 355 75 493 47 913 44 566 40 997 28 151 15 807 29 581 3 656 026 KEY FOR TABLE M = Months Y = Year YRS = Years 2 3 6 Non-current credit facility Interest non-current credit facility Lease liabilities (prior IAS 17 finance leases) Interest on lease liabilities (prior IAS 17 finance leases) Lease liabilities (prior IAS 17 operational leases) Interest on lease liabilities (prior IAS 17 operational leases) PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S 31.12.2018 NOK 1 000 < 3 M 3 M - 1 Y Y 2 Y 3 Y 4 Y 5 Y 6 Y 7 Y 8 Y 9 Y 10 > 10 YRS TOTAL Non-current loan instalments 49 106 49 106 98 212 98 212 98 212 754 181 Loan interest - floating 5 442 14 395 17 728 15 896 14 113 2 247 Non-current credit facility Interest non-current credit facility - - - - - 260 000 1 540 4 791 6 412 6 394 6 394 1 074 - - - - - - - - - - - - - - - - - - - - - 1 147 027 - 69 821 - 260 000 - 26 605 Finance leases 18 266 49 817 54 458 48 267 41 396 35 556 27 669 24 317 22 116 20 203 11 217 7 160 360 442 Interest finance leases 2 629 7 113 7 898 6 284 4 881 3 702 2 849 2 134 1 457 907 349 109 40 311 Trade payables Export credits 649 352 - - 8 897 Factoring liabilities 573 377 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 649 352 8 897 573 377 Total liabilities 1 299 712 134 119 184 706 175 052 164 995 1 056 761 30 518 26 451 23 574 21 110 11 566 7 269 3 135 832 KEY FOR TABLE M = Months Y = Year YRS = Years Available liquidity, available drawdowns on the credit facility, as well as positive cash flows from operations, are deemed to be sufficient to cover current and non-current liabilities. FAIR VALUE ESTIMATION (I) FINANCIAL INSTRUMENTS The fair value of financial instruments that are not traded in an active market is determined using valuation techniques (see Note 12). The Group uses different methods and makes assumptions based on market conditions at each balance sheet date. The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the balance sheet date. The fair value of financial salmon contracts is determined using forward prices from Fish Pool. (II) TRADE RECEIVABLES AND TRADE PAYABLES The nominal value less write-downs for realized losses on trade receivables and trade payables is assumed to correspond to the fair value of these items. The fair value of financial liabilities is assumed to approximate to the book value, as virtually all these items are exposed to floating interest rates. (III) BIOLOGICAL INVENTORIES Fish in sea is measured at estimated fair value. Consequently, the value of biological inventories is likely to vary more than the value of inventories based on cost. The estimated fair value varies for a number of reasons, including volatility in the price of Atlantic salmon, factors relating to production, changes in harvesting schedules, and changes in the composition of inventories. Grieg Seafood considers three components to be key parameters for valuation; price, estimated harvest biomass volume and the applied monthly discount rate. The monthly discount rate is applied to expected future cash flows, to account for risk, time value of money and the cost of contributory assets. In the following table is a sensitivity analysis, showing the change in the fair value of the biological assets, and hence the Group profit before tax, in the event of changes in these parameters. SENSITIVITY ANALYSIS OF BIOMASS - EFFECT ON PRE-TAX PROFIT NOK 1 000 Change in discount rate +1% Change in discount rate -1% Changes in sales price +1 NOK/kg Changes in sales price -1 NOK/kg Changes in biomass volume +1% kg Changes in biomass volume -1% kg 2019 -127 246 138 808 59 411 -59 411 35 207 -35 207 2018 -139 099 155 255 57 516 -57 516 33 009 -33 009 Note that changes in sales price or harvest volume have a linear effect on the fair value of biological assets. Therefore any change in price or harvest volume as a multiple of the numbers in the above table, will have the similar multiple effect on the fair value of biological assets. 2 3 7 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 4 CRI T IC A L A CCOUN T ING E S T IM AT E S A ND JUDGEMEN T S CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS 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 in accordance with IFRS. Estimates 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 probable under the present circumstances. The final outcomes may deviate from these estimates. Changes in accounting estimates are recognized in the period in which the estimates are changed. The Group is involved in claims and complaints related to the sale of goods on a continuous basis. As of year-end there were no material ongoing issues. ESTIMATED IMPAIRMENT OF GOODWILL, LICENSES AND PROPERTY, PLANT AND EQUIPMENT The Group tests whether goodwill and licenses have suffered any impairment on an annual basis, in accordance with the accounting policy stated in Note 2. The recoverable amounts of cash-generating units are 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 losses due to future value decreases. The value of long-term growth in demand, changes in market competition, the strength of the production stage in the value chain and thus also expectations of the long-term profit margin are also of significance. The different parameters could variously affect the value of the licenses over time. Any change in these critical assumptions will result in related write-downs, or the reversal of write-downs of the value of licenses in accordance with the accounting policies described in Note 2. Please also refer to Note 8 for further comments on tests relating to value impairment. CLASSIFICATION OF LICENSES All licenses where the Group has no other contractual restrictions relating to the use of the licenses have indefinite lives and, as such are not amortized. Also, licenses granted with a finite useful life, but where the license holders can renew the licenses without incurring considerable expenses are assessed as indefinite lives. However, the Group’s licenses in each country are subject to certain requirements and the Group risks penalties, sanctions or even license revocation if the Group fails to comply with license requirements or related regulations. Also, local government may change the way licenses are renewed. In June 2018, B.C government announced a new approach to salmon farm tenures 2 3 8 in BC, Canada. The new regulation will be effective from June 2022, where the licenses must be approved by both Fisheries and Oceans Canada (DFO) and the local First Nations in the area where the company has its licenses. The DFO wants to cooperate with companies that have licenses where the production might conflict with the wild salmon and find alternative solutions such as moving the licenses to new areas. As per today Grieg Seafood BC does not have any licenses in areas where this is an issue. The government in Canada also has a high focus on sustainable utilization of ocean resources, and is following up that the farming industry is complying with the requirements. The agreements with First Nations are set to varying durations of 5 to 25 years, but there are continuous meetings where the parties review how the collaboration has worked and agree to extend the duration of the agreement beyond 25 years or longer. This is part of the agreements. Even though the agreements cannot be said to be everlasting, the Group has nevertheless classified the licenses as indefinite lives, as finding the right depreciation profiles is very difficult. Given that it is desirable for both First Nations and the Group to have a close and good working relationship and that they want the Group to operate in the area, the Group’s best estimate is that the licenses will still be classified as indefinite lives. This will be continuously assessed. If the situation changes and the Group agrees not to use the option to extend the duration of the agreement, the estimate of the remaining depreciation period must be re-evaluated. For further information, please see Note 8. BIOLOGICAL ASSETS The Group’s biological assets comprise smolt and fish in the sea. Biological assets are measured at fair values less costs to sell. The measurement unit is the individual fish, however, for practical reasons, cash flows and estimates are carried out per locality. The fair value model assessed by the Group calculates the net present value of expected cash flow. Valuation is based on a different premise, many of which are non-observable. The premises are divided into the four following categories: 1. Sales price 2. Production cost 3. Volume 4. Discount rate For mature fish (ready for harvesting) at the balance sheet date, uncertainty mainly involves realized prices and volume. For immature fish (not ready for harvesting), level of uncertainty is higher. Price, volume, discount rate, and remaining production costs are the main uncertainty factors; however, uncertainty is also related to biological transformation and mortality prior to harvest date for the fish. PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S Sales price Salmon sales prices are volatile. The sales price is based on forward prices and/or the most relevant pricing information available for the period in which the fish is expected to be mature (ready for harvesting). Changes in price assumptions have the greatest impact on the fair-value estimate. The market price constitutes the basis for calculating fair value for both mature and immature fish. The forward prices for superior Norwegian salmon weighing 3-6 kg gutted weight from Nasdaq Fish Pool are applied. For fish ready for harvest, the forward price for the following month is applied. For fish not ready for harvest the forward price for the month when the fish is expected to be harvested is applied. Fish harvested before optimal harvest weight of 4.0 kg gutted weight (4.76 kg live weight) an additional price adjustment is required. The price is adjusted for export margin and clearing costs. This accounts for both fish ready for harvest and not ready for harvest. Production cost The planned point of harvesting is assumed to be when the fish reaches a live weight of 4.76 kg, however, there may be uncertainty regarding the estimated growth rate. For immature fish the fair value is adjusted by the estimated remaining cost necessary to grow the fish to optimal harvest weight. Forecasted production costs include provisions for estimated feed prices, costs of treatment of lice and other costs to prevent biological accidents. Here, estimations are affected by uncertainty regarding the number of lice treatments to be carried out, the sea temperature and other conditions affecting growth and costs. Volume Estimated harvest volume is based on estimated number of fish at the balance sheet date less estimated future mortality multiplied by optimal harvest weight (4.76 kg). Actual harvest volume may differ from the estimated volume due to changes in biological conditions or due to special events, such as a mass mortality. Estimated number of fish is based on the number of smolt released to sea, and mortality is a given percentage of the fish in sea. The normal estimated harvest weight is assessed to be the live weight of fish that results in gutted weight of 4.0 kg. If there are any specific conditions at the balance sheet date resulting in the fish being harvested before they reach optimal weight, the estimated harvest weight is adjusted. Mortality during the period from the balance sheet date to the date when the fish reach harvest weight is estimated to be 1% of the number of incoming fish per month. Discount rate The sales income and remaining expenses are allocated to the same period as the fish is harvested. The cash flows from all localities where the Group has fish in the sea will then be distributed over the entire period it takes to farm the fish in the sea. With the current size of the smolt released and the frequency of the smolt releases, this period may be up to 18 months. The estimated future cash flow is discounted by a monthly rate, which was 6% at 31 December 2019. The discount rate takes into account both risk adjustment (risk related to volume, cost and price), compensation for the value of the licenses (hypothetical rent) and time value (tying up capital). The risk adjustment shall reflect the price discount a hypothetical buyer would demand as compensation for the risk assumed by investing in live fish rather than a different investment. The longer it takes to reach harvest date, the higher the risk that something may occur that will affect the cash flow. Three significant factors could have an impact on the cash flow; volume, costs and prices. The one thing all three factors have in common is that the sample space is asymmetrical. Due to limited access to licenses for farming fish, the license value is currently considered to be very high. For a hypothetical buyer of live fish to take over and continue to farm the fish, the buyer needs a license, locality and other permits required for such production. However, in a hypothetical market for the purchase and sale of live fish, one must assume that this would be possible. In that scenario, a hypothetical buyer would claim a significant discount to allocate a sufficient share of the returns to the buyer's own licenses. It is difficult to create a model that would allow a hypothetical annual lease cost to be derived from prices for sold licenses as the curve in the model would be based on projections of future profit performance in the industry. A discount must be made for the time value of the tied-up capital linked to the share of the present value of the cash flow allocated to the biomass. The buyer who is investing in live fish rather than some other type of investment, would claim compensation for the alternative cost. The production cycle for salmon in the sea currently takes up to 18 months. The cash flow will therefore extend over a similar period. Assuming a constant sales price throughout the period, the cash flow would decrease for each month, as costs are incurred to farm the fish to harvested weight. The cost increase for every month the fish are in the sea. As such, the effect of deferred cash flow is lower than what would be the case if the cash flow had been constant. This component is however deemed important due to the major values the stock of fish represents. Please refer to Note 2 and Note 7 for further information on estimation and calculation of fish values. Significant assumptions sensitivity The estimate of fair value of biomass will always be based on uncertain assumptions, even though the Group has built expertise in assessing these factors. There are three components that acts as key parameters for valuation; average price, estimated biomass volume and monthly discount rate. Please refer to Note 3 for a sensitivity analysis of these factors. 2 3 9 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 5 IN V E S T MEN T IN A S S OCI AT E S Associates that are closely related to the Group's operations and included in the Group´s value chain are classified on a separate line in EBIT when the relevant associates operate in the same position in the value chain as the Group. For 2018 and 2019, no investments were classified on a separate line after EBIT. In 2019, the Group, through Grieg Seafood Finnmark AS, has invested NOK 1.2 million in Nordnorsk Smolt AS to acquire 50% of the company's shares. The remaining shareholdings are held by Norway Royal Salmon ASA (50%). The expansion of the smolt facility of Nordnorsk Smolt AS has been financed by loan from the shareholders during the development and expansion period. The loan has been converted to equity at the end of 2019, to strengthen the balance. Planned production is approximately 800 tonnes of smolt per year. At 31 December 2019, Grieg Seafood Finnmark has provided a long-term loan to Nordnorsk Smolt AS, amounting to 1.9 million, which is included in other non-current receivables. In 2018, the Group, through Grieg Seafood Rogaland AS, invested NOK 30 million in Tytlandsvik Aqua AS to acquire 33.33% of the company's shares. The remaining shareholdings are held by Bremnes Seashore AS (33.33%) and Vest Havbruk AS (33.33%). Through Tytlandsvik Aqua AS, the partners will secure increased and improved access to post smolt and are planning for an annual production capacity of 3 000 tonnes, of which Grieg Seafood's share of the volume is 50%. A total of approximately NOK 300 million has been invested in the facility, which was completed according to plan at the end of 2018. The production started at the beginning of 2019. The investment in Tytlandsvik Aqua AS and Nordnorsk Smolt AS are classified on a separate line in the balance sheet, and the share of profit is included in EBIT. Total recognized share of profit/loss from associates in 2019 was NOK 0.2 million and the total book value was NOK 81 million at 31 December 2019. ASSOCIATES CLASSIFIED AS OPERATIONS EQUITY INTEREST AT 31.12.2019 BOOK VALUE AT 01.01.2019 NOK 1 000 PROFIT/LOSS 2019 NOK 1 000 CHANGES IN THE PERIOD, INCLUD. REPAID CAPITAL NOK 1 000 BOOK VALUE AT 31.12.2019 NOK 1 000 Nordnorsk Smolt AS Tytlandsvik Aqua AS Total associates classified as operations 50.00% 33.33% - 37 122 37 122 -1 304 1 516 211 43 737 - 43 737 42 433 38 638 81 071 The share issue and shareholder agreement for Nordnorsk Smolt were signed on 30 June 2019. Value added relating to the investment has been allocated to hatcheries under construction, based on provisional accounting figures from Nordnorsk Smolt AS at the acquisition time. AT 31.12.2019 Nordnorsk Smolt AS Tytlandsvik Aqua AS Total ownership TIME OF INVESTMENT EQUITY INTERST 01.07.2019 01.06.2017 50.00% 33.33% FAIR VALUE ADJUSTMENT HATCHERY NOK 1 000 17 022 14 600 31 623 DEPRECIATION OF VALUE ADDED NOK 1 000 BOOK VALUE OF VALUD ADDED NOK 1 000 851 294 1 145 16 171 14 307 30 478 Value added of Tytlandsvik Aqua is amortized from the time the facility was commissioned. The value added allocated to Nordnorsk Smolt is amortized from the date of acquisition. Tytlandsvik Aqua AS and Nordnorsk Smolt have the same financial year as the Group. The following table displays provisional financial information at 31 December 2019 (100%). 2 4 0 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S AT 31.12.2019 NOK 1 000 TOTAL ASSETS TOTAL LIABILITIES TOTAL EQUITY OPERATING INCOME PRE-TAX PROFIT/LOSS Nordnorsk Smolt AS Tytlandsvik Aqua AS 113 495 322 747 60 973 249 746 52 523 73 001 32 925 101 107 -6 783 6 711 ASSOCIATES CLASSIFIED AS OPERATIONS EQUITY INTEREST AT 31.12.2018 BOOK VALUE AT 01.01.2018 NOK 1 000 PROFIT/LOSS 2018 NOK 1 000 CHANGES IN THE PERIOD, REPAID CAPITAL NOK 1 000 BOOK VALUE AT 31.12.2018 NOK 1 000 Tytlandsvik Aqua AS 33.33% Total associates classified as operations 9 450 9 450 -2 328 -2 328 30 000 30 000 37 122 37 122 The share issue and shareholder agreement were signed on 1 June 2017. Value added relating to the investment has been allocated to hatcheries under construction, based on provisional accounting figures from Tytlandsvik Aqua as at 31 December 2018. AT 31.12.2018 TIME OF INVESTMENT EQUITY INTERST FAIR VALUE ADJUSTMENT HATCHERY NOK 1 000 Tytlandsvik Aqua AS Completed share issue through the year Total ownership 01.06.2017 2018 16.67% 16.66% 33.33% Value added will be written down when the facility is completed and commissioned. 14 600 Tytlandsvik Aqua AS has the same financial year as the Group. The following table displays abridged, provisional financial information at 31 December 2018 (100 %). AT 31.12.2018 NOK 1 000 TOTAL ASSETS TOTAL LIABILITIES TOTAL EQUITY OPERATING INCOME PRE-TAX PROFIT/LOSS Tytlandsvik Aqua AS 260 973 189 251 71 722 210 -4 128 2 41 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 6 SEGMEN T INFORM AT ION The operating segments are identified on the basis of the reports which Group management (the chief decision-maker) uses to assess performance and profitability at a strategic level. Group management assesses business activities from a geographical perspective, based on the location of assets. The Group has only one production segment: Production of farmed salmon. Geographically, management assesses the results of production in Rogaland – Norway, Finnmark – Norway, BC – Canada and Shetland - UK. Group management evaluates the results from the segments based on EBIT before value adjustments of biological assets. 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 attributable to an isolated event which is not expected to recur. The measurement method also excludes the effect of cash-settled share options, as well as unrealised gains and losses on financial instruments. The Group’s customers are divided into different geographical markets. All sales from Norway, the UK and Canada go through the sales company Ocean Quality AS, which is also partly owned by Bremnes Fryseri AS. Grieg Seafood ASA owns 60% of Ocean Quality AS (see Note 1 for further information). Norway therefore shows the aggregate figures for the Norwegian market. Ocean Quality is fully consolidated and is part of the associated segment. The Group's revenues mainly comprise revenues from sale of whole and processed fish and some ensilage. Furthermore, the Group also generates revenues from sale of roe and harvest services to external parties. Sales revenues are recognized when the goods are delivered and both title and risk have been transferred to the customer. This will normally be upon delivery. In 2019, sale of whole fish (fresh and frozen) constituted 92% (2018: 93%) of the Group's total sales revenues, while processed fish constituted 7% (2018: 7%). GEOGRAPHICAL MARKET NOK 1 000 UK NORWAY BC ELIM. SALES REVENUES 2019 SALES REVENUES 2018 EU UK USA Canada Russia Asia Other markets Total 156 325 4 224 795 510 853 131 814 462 414 6 893 1 679 182 338 - - - - 645 282 251 319 - 13 910 1 242 241 66 403 492 376 834 - 815 073 6 495 515 963 004 - - - - - - - - 4 381 121 973 267 783 988 435 336 - 1 322 554 377 326 8 273 592 53% 12% 9% 5% - 16% 5% 100% 3 792 747 1 301 892 792 002 252 606 - 1 048 755 312 313 7 500 316 51% 17% 11% 3% - 14% 4% 100% SALES REVENUES DISTRIBUTED BY PRODUCTS NOK 1 000 NORWAY BC UK TOTAL 2019 2018 2019 2018 2019 2018 2019 2018 6 014 749 5 287 188 790 465 910 697 802 201 767 753 7 607 415 6 965 638 650 21 253 - - - 4 777 650 337 366 279 321 172 169 164 411 38 587 104 162 11 421 25 957 38 332 - 164 6 220 1 337 5 315 24 478 515 755 2 530 366 39 963 109 809 26 030 468 210 13 951 26 487 6 495 515 5 625 140 963 004 1 075 272 815 073 799 904 8 273 592 7 500 316 Fresh whole fish Frozen whole fish Fresh processed fish Frozen processed fish Other products Total 2 4 2 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S Information reported to Group management from the reporting segments. GEOGRAPHICAL SEGMENTS NOK 1 000 Sales revenues Other income ** NORWAY ROGALAND NORWAY FINNMARK CANADA BC UK SHETLAND OTHERS/ ELIMINATIONS * GRIEG SEAFOOD GROUP 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 1 538 871 959 604 1 815 257 1 671 334 861 361 1 075 272 731 583 799 904 3 326 519 2 994 204 8 273 592 7 500 316 Other gain/losses ** 185 464 6 401 -1 615 53 234 24 005 - - 3 488 -756 15 878 -2 719 12 779 10 065 -42 983 -24 095 134 295 -2 352 29 732 26 519 3 612 25 853 26 157 Share of profit from associates Operating costs before depreciation and amortisation EBITDA before fair value adjustment of biological assets Depreciation, amortization and reversals EBIT before fair value adjustment of biological assets Harvesting volume (tonnes GWT) EBIT/kg (NOK) Assets Total assets 1 516 -2 328 -1 304 - - - - - - - 211 -2 328 -935 367 -714 119 -1 104 887 -984 074 -718 193 -752 703 -708 873 -730 113 -3 338 457 -3 034 517 -6 805 777 -6 215 526 658 440 267 626 715 467 685 645 145 900 335 728 35 623 80 151 -57 272 -34 677 1 498 157 1 334 473 -90 210 -47 989 -135 310 -90 728 -72 585 -44 864 -102 857 -46 400 -9 621 -5 673 -410 583 -235 655 568 229 219 637 580 157 594 917 73 315 290 864 -67 235 33 752 -66 893 -40 350 1 087 574 1 098 818 25 217 22.53 16 293 13.48 32 362 17.93 29 774 14 120 16 632 11 273 11 924 19.98 5.19 17.49 -5.96 2.83 82 973 13.11 74 623 14.72 1 965 193 1 799 591 2 703 202 2 454 923 1 558 627 1 293 051 1 608 545 1 141 181 1 099 116 1 453 744 8 934 683 8 142 490 1 965 193 1 799 591 2 703 202 2 454 923 1 558 627 1 293 051 1 608 545 1 141 181 1 099 116 1 453 744 8 934 683 8 142 490 Liabilities 598 593 661 483 1 101 732 851 729 729 498 520 559 1 470 327 956 532 893 689 1 268 676 4 793 839 4 258 979 Total liabilities 598 593 661 483 1 101 732 851 729 729 498 520 559 1 470 327 956 532 893 689 1 268 676 4 793 839 4 258 979 * Others/ eliminations A proportion of non-controlling interests (Bremnes Fryseri AS) is reported with ownership expenses and other posts as an elimination. A share of sales revenue and other operational expenses from non-controlling interests is eliminated on subordinated account lines in the column "Others/eliminations". Sales revenue from sales for Bremnes Fryseri AS amount to appr. NOK 2 581 million, while other operational expenses including cost of goods sold amounts to appr. NOK 2 274 million. Other items comprise the profit/loss from activities conducted by the parent company or other Group companies not geared for production. Internal transactions between the subsidiary and the parent company, as well as other posts relating to the parent company, are eliminated. ** Other income/gains/losses Other gains/losses include foreign currency, as well as sale of fixed assets and other equipment. Other income mainly relates to the settlement of insurance and other services not directly related to production. GROUP EBIT NOK 1 000 2019 2018 EBIT before fair value adjustment of biological assets Fair value adjustment of biological assets (Note 7) EBIT after fair value adjustment of biological assets Net financial items (Note 23) Profit before tax Estimated taxes Profit for the year 1 087 574 -220 714 866 860 -26 234 840 626 -195 718 644 908 1 098 818 256 097 1 354 916 -77 991 1 276 925 -279 805 997 120 2 4 3 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 7 BIOLOGIC A L A S SE T S A ND OT HER IN V EN TORIE S Biological assets at 01.01. Currency translation differences Increase due to production Decrease due to abnormal mortality/loss Decrease due to sales Fair value adjustment at 01.01. Fair value adjustment at 31.12. TONNES 2019 56 399 N/A 109 993 -4 559 -94 218 N/A N/A 2018 54 677 N/A 90 683 -5 061 -83 900 N/A N/A NOK 1 000 2019 3 195 142 57 178 3 717 490 -191 694 2018 2 698 352 -11 446 3 154 824 -207 716 -3 137 022 -2 728 092 -971 309 768 163 -682 089 971 309 Book value of biological assets at 31.12. 67 615 56 399 3 437 948 3 195 142 RECOGNIZED FAIR VALUE ADJUSTMENT Change in fair value adjustment of biological assets (1) Currency adjustment of fair value adjustment of biological assets Change in physical delivery contracts relating to fair value adjustment of biological assets (2) (Note 25) Change in fair value of financial derivatives from salmon (Fish Pool contracts) (3) Total recognition of fair value adjustment of biological assets -203 146 -3 998 -1 577 -11 993 -220 714 289 220 8 363 -458 -41 028 256 097 The biological assets are, in accordance with IAS 41, measured at fair value, unless the fair value cannot be measured reliably. Broodstock and smolt are measured at cost less impairment losses. Fair value of biological assets is calculated on a discounted cash flow based present value model, which does not rely on historical cost. Please refer to Note 2 for further information Recognized value adjustments of biological assets include: 1. Fair value adjustments of biological assets 2. Fair value (liability) change in loss contracts 3. Change in unrealized gains/losses from financial purchases/sales contracts (derivatives) from fish at Nasdaq Fish Pool Provisions allocated to future physical delivery contracts that require fair value adjustments are recognized as other current liabilities in the balance sheet. The contracts are calculated based on the same forward prices used for fair value calculation of biological assets. Value adjustment of financial derivatives from salmon are recognized in the balance sheet as derivatives and other financial instruments. Financial derivatives are calculated at market value. Please refer to Note 3 for further information. For further information on accounting policies for biological assets, please refer to Note 2 and Note 4. BASIS FOR VALUES 31.12.2019 Weighted price per kg GWT Source BC CAD 9.57 SHETLAND GBP 5.74 NORWAY NOK 60.83 Nasdaq Fish Pool Nasdaq Fish Pool Nasdaq Fish Pool 2 4 4 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S Forward prices from Nasdaq Fish Pool as stated above are adjusted for expected quality reductions and stated before logistics expenses. The standard deduction for quality reduction is considered. Forward prices are weighted in relation to the intended harvesting period. The price for BC is based on the forward price in Norway adjusted for historical differences in price levels between Norway and Canada. The same principle applies to Shetland. Self-budgeted harvesting and logistics expenses are assumed. Forward exchange rates are used to translate prices into CAD and GBP in relation to the harvesting period. STATUS OF BIOLOGICAL ASSETS 2019 Biological assets onshore * Immature fish in sea, round weight < 4.76 kg Mature fish in sea, round weight > 4.76 kg Total 2018 Biological assets onshore * Immature fish in sea, round weight < 4.76 kg Mature fish in sea, round weight > 4.76 kg Total * Smolt production NUMBER OF FISH 1 000 BIOLOGICAL ASSETS TONNES ACCRUED COST OF PRODUCTION NOK 1 000 FAIR VALUE ADJUSTMENT NOK 1 000 BOOK VALUE NOK 1 000 23 746 34 374 40 58 160 23 668 33 409 351 57 428 893 66 518 202 67 613 712 53 624 2 063 56 399 189 019 2 472 663 8 103 2 669 785 153 451 2 006 654 63 728 2 223 833 - 766 717 1 446 768 163 - 944 047 27 262 971 309 189 019 3 239 380 9 549 3 437 948 153 451 2 950 701 90 990 3 195 142 Abnormal mortality - write-down Cost related to abnormal mortality will be immediately recognized in profit or loss and presented as "decrease due to abnormal mortality/ loss" in the table above. Normal mortality is classified as part of the production cost. The classification of mortality only affects the note presentation, and hence not the fair-value calculation. The main causes of abnormal mortality during 2019, were harmful algal bloom, yellow mouth, environmental issues in BC, gill disease and furunculosis in Shetland, and treatment losses in Rogaland. ABNORMAL MORTALITY - WRITE-DOWN 2019 Biological assets onshore * Immature fish in sea, round weight < 4.76 kg Mature fish in sea, round weight > 4.76 kg Total 2018 Biological assets onshore Immature fish in sea, round weight < 4.76 kg Mature fish in sea, round weight > 4.76 kg Total * The mortality is related to roe NUMBER OF FISH 1 000 BIOLOGICAL ASSETS TONNES AVERAGE SIZE KG ACCRUED COST OF PRODUCTION NOK 1 000 1 000 1 449 266 2 715 961 1 027 427 2 415 - 3 226 1 332 4 559 214 2 951 1 895 5 061 0.01 2.23 5.01 0.45 0.22 2.88 4.43 2.10 3 982 139 072 48 640 191 694 23 602 112 926 70 109 206 638 2 4 5 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 7 C O N T I N U E D OTHER INVENTORIES NOK 1 000 Raw materials (feed) at cost price Roe Other (goods in transit, frozen fish, supplementary products) Total inventories Impairment of inventories recognized at year-end COST OF RAW MATERIALS AND CONSUMABLES USED NOK 1 000 Inventories at 01.01. (inverted number) Raw materials and consumables used Inventories at 31.12. Total 2019 92 135 19 760 65 947 177 841 - 2019 -126 092 -4 233 720 177 841 -4 181 971 2018 63 453 10 090 52 549 126 092 205 2018 -92 262 -3 886 685 126 092 -3 852 855 Raw materials and consumables used mainly comprises feed, roe, recognition of extraordinary mortality, and external purchase of fish in the sales company, Ocean Quality. 2 4 6 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S NOT E 8 IN TA NGIBL E A S SE T S 2019 NOK 1 000 GOODWILL FISH FARMING LICENSES – INDEFINITE LIVES FISH FARMING LICENSES – FINITE LIVES OTHER INTANGIBLE ASSETS* Book value at 01.01. Currency translation differences Additions Disposals Amortization 109 013 512 - - - 1 099 744 12 392 - - - Book value at 31.12. 109 526 1 112 136 ACCUMULATED VALUES Acquisition cost Accumulated amortization Accumulated impairments Book value at 31.12. * Other intangible assets mainly comprise software. 199 128 - -89 602 109 526 1 112 149 -13 - 1 112 136 21 917 996 - - -1 418 21 495 52 903 -31 408 - 21 495 25 175 - 1 636 -6 337 -4 269 16 205 46 183 -29 978 - 16 205 2018 NOK 1 000 GOODWILL FISH FARMING LICENSES – INDEFINITE LIVES FISH FARMING LICENSES – FINITE LIVES OTHER INTANGIBLE ASSETS* Book value at 01.01. Currency translation differences Additions Disposals Amortization 109 038 -25 - - - 1 044 786 -2 042 57 000 - - Book value at 31.12. 109 013 1 099 744 ACCUMULATED VALUES Acquisition cost Accumulated amortization Accumulated impairments Book value at 31.12. * Other intangible assets mainly comprise software. 198 615 - -89 602 109 013 1 099 757 -13 - 1 099 744 23 766 -506 - - -1 342 21 917 51 907 -29 990 - 21 917 18 384 1 10 843 - -4 051 25 175 50 885 -25 709 - 25 175 TOTAL 1 255 850 13 899 1 635 -6 337 -5 687 1 259 360 1 410 363 -61 400 -89 602 1 259 360 TOTAL 1 195 975 -2 573 67 842 - -5 393 1 255 850 1 401 166 -55 713 -89 602 1 255 850 2 47 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 8 C O N T I N U E D LICENSES The tables below provide an overview of the Group’s licenses. See Note 2 for further information on licenses. Canada - BC All owners of industrial open net pens must be approved by the the Department of Fisheries and Oceans Canada (DFO), who has regulated the industry since 2009. From 2022, a company need to obtain support from local First Nations in the area where the company has its licenses, together with the DFO. Grieg Seafood BC already got a number of licenses approved by First Nations, however the company needs to apply for more. Each local First Nations establishes its own protocol and procedures for engaging with companies operating in its territory. Grieg Seafood BC are working with all local First Nations in their area of its operations and have positively engaged with all of them. The new regulation will contribute to a more sustainable future for local communities and workers. We expect that the changes will not affect the definition of indefinite useful life of licenses in Canada. See Note 4 for further information. CAPACITY PER LOCATION NORWAY TONNES LICENSE CATEGORY TOTAL NUMBER 2 100 Seawater licences 0 R&D permit 41 1 3 2 2 2 1 UK* FARM/AREA Bight of Foraness Boatsroom Voe Cole Deep Coleness Collafirth Delting Site 3 Corlarach East of Langa East of Papa Little Easter Score Holm Fish Holm Geo of Valladale (Urafirth) Gob na Hoe Hamar Sound Hamnavoe, Lunnaness Laxfirth Voe East (Site 2) Leinish Bay Linga (South of Linga) Muckle Roe East (Heights) North Havra North of Papa North Voe Olnafirth North (Site 2) Olnafirth South (Site 1) Papa, East Head of Scalloway Punds Voe Roe Sound Setter Voe Setterness North Setterness South Snizort South Voe of Gletness Spoose Holm (Oxna) Swining Voe Site 3 (Collafirth Ness) Taing of Railsborough Wadbister Inshore West of Burwick Total 2 4 8 Broodstock Smolt Harvesting cage Education** Smolt CANADA* FARM/AREA Ahlstrom Atrevida Barnes bay Bennet Point Conception Culloden Esperanza Gore Hecate Kunechin Muchalat N. Muchalat S. Newcomb Salten Site 13 Site 9 Streamer Point Tsa-ya Vantage Williamson Wa-kwa Total 2 178 752 1 200 1 602 1 643 1 750 2 500 1 910 809 2 215 738 1 910 942 1 700 2 299 350 1 496 1 332 1 920 300 1 000 1 500 960 350 987 2 500 2 358 2 125 750 1 500 1 920 1 043 800 1 923 51 362 CAPACITY TONNES 37 706 780 2 340 2 815 1 106 1 560 2 500 000 pcs. CAPACITY PER LOCATION TONNES 1 100 3 300 3 000 4 400 4 100 1 500 3 600 4 100 4 000 1 500 4 100 3 900 1 000 1 500 900 1 500 3 600 3 000 1 500 3 900 2 500 58 000 * The total capacity of UK and BC is merely a theoretical capacity, as all locations cannot be utilized simultaneously. **Finnmark and Rogaland are renting education licenses from the Finnmark and Rogaland counties respectively. PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S IMPAIRMENT TESTING OF GOODWILL AND LICENSES No impairments were recognized for goodwill or licenses in 2019 or 2018. Goodwill and licenses with indefinite economic lives are subject to an annual impairment test. Tests are performed more frequently where indications of impairment exist. Licenses with finite useful lives are tested for impairment only if there are indications of a decline in value. The estimated value in use is used as a basis for calculating the recoverable amount. An impairment is deemed to exist when the carrying value is higher than the recoverable amount. CASH-GENERATING UNIT NOK 1 000 LOCATION BOOK VALUE OF RELATED GOODWILL BOOK VALUE OF LICENSES British Columbia (BC) Finnmark Shetland Rogaland Total value Canada Norway UK Norway 10 283 - 78 780 20 463 109 526 163 975 356 814 477 867 134 974 TOTAL 174 258 356 814 556 647 155 437 1 133 630 1 243 156 Goodwill arises on the acquisition of the subsidiaries and is allocated to the Group’s cash-generating units (CGUs), which are identified by operating segment. An annual impairment test is carried out for goodwill and licenses. 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 over 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 to expected inflation. ASSUMPTIONS USED FOR VALUE-IN-USE CALCULATIONS BC FINNMARK SHETLAND ROGALAND Budget period Increase in revenues in budget period EBITDA margin 1) EBITDA margin in terminal period Harvest growth – tonnes 2) Required rate of return 3) Growth rate 4) 3 years 100% 3 years 18 % 3 years 48% 3 years -2% 17% - 23% 41% - 42% 14% -19% 35% - 37% 26% 99% 7% 1% 41% 20% 7% 1% 22% 56% 7% 1% 35% 7% 7% 1% As stated above, the budget period/explicit period is three years. Impairment tests are initially based on the Group´s rolling four- year projections, with another two years added on in less detail, which are also used in connection with the Group's liquidity planning. Consequently, it is important to apply conservative assumptions. The estimated increase future price level is calculated using Nasdaq Fish Pool projections for future prices, taking into account quality reductions and shipping. Other comments/explanations on assumptions applied in impairment testing are presented below. 1. Budgeted EBITDA margin. The margin remains stable for the Norwegian regions, and is assumed to increase for our overseas regions 2. during the budget period. Increase in harvest volume is assumed in all regions towards 2025. The growth rate in the harvested volume in the budget period (nominal growth rate) is measured against the 2020 volume. A corresponding increase in output is assumed over time. 3. Weighted required return on capital employed before tax. Cash flow forecasts are thus estimated before tax. 4. Weighted average growth rate used to extrapolate cash flows beyond the budget period. In the years after 2022, the annual reinvestment is assumed to be equal to annual depreciation 2 49 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 8 C O N T I N U E D EBITDA MARGIN IN THE BUDGET AND TERMINAL PERIOD The budgeted EBITDA margin is based on past performance, expected cost of production and expected market developments. An increase in gutted weight output is assumed towards 2022. The increased harvest volume assumes an increase in utilization of existing production capacity and licenses, reflecting the Group's post-smolt strategy and operational improvement. Over the past few years the group has expanded its smolt capacity for more and larger smolt, and further expansions are underway. A higher number and larger average weight of smolt will contribute to both higher growth and harvesting volumes. Larger smolt will also reduce the production time in the sea, which in turn will reduce the biological risk level, including mortality. An increase in smolt numbers will also improve overall utilization of locations and licenses. Rogaland, Finnmark and BC have received new locations in recent years, helping better utilize their licenses and increasing production volumes. In BC, Canada, an increase in harvesting volumes is based on improved production of smolt, more efficient monitoring of algae, and recirculation of fresh water from the deeper sea. Measures to secure the intake water have been successful. The company is constantly striving to increase utilization of its favorable locations in Shetland in order to secure improved production. Measures being taken include delivering larger smolt with a lower number of days in the sea. Monitoring of algae, as well as recirculation of fresh water from the deeper sea, represent further important measures for Shetland. Along with prolonged fallowing and utilization of the best locations, modification of the production cycle in the sea from 24 to 18 months will reduce biological risk. Together, the combined measures will help to reduce the company's cost as measured per kilogram. The assumptions in the terminal year are based on the budget for 2022, 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 of which are return and EBIT/kg requirements. A sensitivity analysis has been carried out based on these assumptions for all CGUs. An isolated requirement to increase the return rate by two percentage point would result in a need to recognize impairments for the Shetland CGU of NOK 89 million, while a NOK 3 reduction in EBIT/kg would require an recognized impairment for the Shetland CGU of NOK 308 million. The other CGUs are not sensitive to equivalent changes in the same assumptions. 2 5 0 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S NOT E 9 P R OP ER T Y, P L A N T A ND EQUIP MEN T INCL . RIGH T- OF-USE-A S SE T S BUILDINGS/ PROPERTY PROD. PLANTS AND BARGES NETS, CAGES AND MOORINGS OTHER EQUIPMENT 2019 NOK 1 000 Book value at 01.01. Initial application effect of IFRS 16 Currency translation differences Reclassification asset under construction * Reclassification of non-current assets Additions ** Disposals Depreciation Book value at 31.12. ACCUMULATED VALUES Acquisition cost Accumulated depreciation Accumulated impairments Book value at 31.12. RIGHT-OF-USE ASSETS Book value at 31.12 of right-of-use assets (see separate specification in Note 11) Of which book value of non-depreciable property 477 168 65 248 9 648 106 968 -373 42 522 -365 -37 646 663 171 946 472 -283 301 - 663 171 70 016 41 167 1 042 385 - 17 056 -112 679 - 233 585 -1 438 -109 857 1 069 051 2 085 633 -976 690 -39 891 1 069 051 534 869 - 15 106 - - 149 348 -1 619 -111 485 586 218 1 409 435 -823 217 - 586 218 238 491 253 806 9 480 5 711 - 279 255 -1 335 -145 906 639 502 985 007 -345 672 168 639 502 TOTAL 2 292 912 319 054 51 290 - -373 704 710 -4 756 -404 895 2 957 942 5 426 547 -2 428 881 -39 723 2 957 942 282 764 95 503 417 224 865 507 * Reclassification assets under construction relates to hatchery in Adamselv. The asset under construction has been recognised as "Prod. plants and barges" until commissioning of the completed facility. Acquisition cost of the constructed asset not related to "prod.plant and barges" has been reclassified to "Buildings/property" and "other equipment". ** Investments in 2019 related to expansion of smolt plant in BC, new locations, operations center in Rogaland, digitalization, new equipment such as aeration systems, algal monitoring and general maintenance. See Note 11 for specification of the Group's right-of-use assets and further information on its leases. 2018 NOK 1 000 Book value at 01.01. Currency translation differences Reclassification of non-current assets Additions * Disposals Depreciation Book value at 31.12. ACCUMULATED VALUES Acquisition cost Accumulated depreciation Accumulated impairments Book value at 31.12. Book value of finance leases included above** Depreciation of finance leases included above** BUILDINGS/ PROPERTY PROD. PLANTS AND BARGES NETS, CAGES AND MOORINGS OTHER EQUIPMENT 459 618 -433 - 40 576 -79 -22 515 477 168 722 823 -245 655 - 477 168 - - 767 920 -416 22 378 343 932 -3 969 -87 461 1 042 385 1 949 109 -866 833 -39 891 1 042 385 193 463 -14 821 459 139 -2 294 2 038 170 660 -2 481 -92 193 534 869 1 246 601 -711 732 - 534 869 105 648 -15 504 185 126 -905 -24 417 110 024 -3 243 -28 094 238 491 438 089 -199 766 168 238 491 113 201 -8 558 TOTAL 1 871 804 -4 048 - 665 192 -9 771 -230 262 2 292 912 4 356 622 -2 023 986 -39 723 2 292 912 412 312 -38 882 Of which book value of non-depreciable property 40 015 * Investments in 2018 related to expansion of the hatcheries in Rogaland and Finnmark, operations center in Rogaland, digitalization, new equipment such as aeration systems, algal monitoring and general maintenance. Expansion of the hatchery in Finnmark is at year end treated as an asset under construction recognized in "prod.plant and barges". **As of 1 January 2019 the Group apply IFRS 16 on its leases. See Note 11 and 26 for further information on the transition from IAS 17 to IFRS 16 for the Group's leases classified as finance leases according to IAS 17. 2 51 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 10 BORR O W ING S The company has a syndicated loan provided 50/50 by DNB and Nordea.The financing agreement includes (among other things) two term loans of NOK 600 million and EUR 60 million, a revolving credit facility of NOK 1 300 million, alongside overdraft facilities of NOK 100 million. Repayments of NOK 50 million and EUR 5 million will be made for term loans of respectively NOK 600 million and EUR 60 million, split into half-yearly instalments. The drawdown rate of the EUR loan is 9.6691. The agreement has a term of five years and matures on 28 February 2023. The agreement includes covenants, stipulating consolidated equity of 35% (in the Group, excluding Ocean Quality), 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 December 2019, the NIBD/EBITDA for the Group excluding Ocean Quality was 1.4 and the equity ratio was 51%. Consequently, the Group fully complied with all covenants at the year-end. The Group applied IFRS 16 leases as from 1 January 2019, and consequently recognized all its leases, with certain exceptions, in its statement of financial position. The initial application effect of IFRS 16 as of 1 January 2019 relates to the recognition of leases classified as operating leases under IAS 17, which were the rental costs were expensed as incurred. According to the financing agreement, Net interest- bearing debt (NIBD) in the covenant calculation should not include effects of IFRS 16. For more information about the new standard, please refer to Note 11 and 26. Ocean Quality in Norway and the UK each have a factoring agreement that comprises financing of outstanding receivables. The agreement for Ocean Quality UK entails that any significant risk and control of trade receivables remain with Ocean Quality UK. Prepayments/financing from factoring are included in net interest-bearing liabilities. Factoring is recognized as financing in the balance sheet. Ocean Quality AS has had similar terms in their agreement. However, in Q3 2019, Ocean Quality AS entered into a new factoring agreement, in which the factoring company purchases all credit-insured trade receivables from Ocean Quality AS, and the risk of trade receivables is transferred to the factoring company. Trade receivables bought by the factoring company from Ocean Quality AS is hence deducted from the total amount of trade receivables. NON-CURRENT LIABILITIES AND FINANCE LEASE OBLIGATIONS (INTEREST-BEARING) NOK 1 000 Non-current syndicated loan Non-current credit facility Non-current lease liabilities (prior IAS 17 finance leases) Non-current lease liabilities (prior IAS 17 operational leases) Total NON-CURRENT LIABILITIES (NON-INTEREST BEARING) Subordinate loan Total Amortization effect of loans Total non-current liabilities 2019 944 638 629 319 378 577 254 090 2 206 624 13 240 13 240 -10 022 2 211 945 2018 1 048 816 260 000 292 358 - 1 601 174 14 047 14 047 -10 102 1 605 119 2 5 2 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S CURRENT LIABILITIES (INTEREST-BEARING) NOK 1 000 Current portion of borrowings Current portion lease liabilities (prior IAS 17 finance leases) Current portion lease liabilities (prior IAS 17 operational leases) Overdraft facility Factoring liabilities Export loan Total current liabilities (interest-bearing) 2019 98 212 73 575 125 752 - 86 122 - 383 660 2018 98 212 68 083 - 46 597 573 377 8 897 795 165 NET INTEREST-BEARING LIABILITIES NOK 1 000 2019 2018 Total non-current interest-bearing liabilities Total current interest-bearing liabilities Gross interest-bearing liabilities Cash and cash equivalents Loans to associates Net interest-bearing liabilities Factoring liabilities Quote of Bremnes' share of cash OQ AS (40%) Lease liabilities (prior IAS 17 operational leases) Net interest-bearing liabilities according to covenants 2 206 624 383 660 2 590 283 214 497 - 2 375 786 -86 122 28 849 -379 841 1 938 672 1 601 174 795 165 2 396 340 137 920 22 100 2 236 320 -573 377 26 595 - 1 689 537 At the end of 2019, the Group had a good level of free liquidity. Please refer to Note 3 for further information. PAYMENT PROFILE NON-CURRENT LIABILITIES NOK 1 000 2020 2021 2022 2023 2024 LATER TOTAL Non-current syndicated loan Non-current credit facility Subordinate loan Lease liabilities (prior IAS 17 finance leases) Lease liabilities (prior IAS 17 operational leases) Total NOK 1 000 Liabilities secured by mortgages/charges on assets 98 212 98 212 98 212 - - 73 575 125 752 297 539 - - - - 69 040 90 347 62 852 72 193 748 215 629 319 - 56 068 34 918 257 598 233 256 1 468 520 - - - 46 423 22 192 68 615 - - 13 240 144 195 34 440 1 042 850 629 319 13 240 452 152 379 841 191 874 2 517 402 2019 2018 2 590 283 2 396 340 ASSETS PLEDGED AS SECURITY NOK 1 000 2019 2018 Licences Property, plant and equipment Trade receivables Inventories and biological assets excluded fair value of biological assets Total assets pledged as security Pledges include shares in subsidiaries. The book value of these shares in the consolidated financial statements is NOK 0. 1 133 630 2 583 781 459 897 2 847 632 7 024 939 1 121 662 2 292 912 925 232 3 321 234 7 661 040 2 5 3 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 10 C O N T I N U E D DESCRIPTION OF LIABILITIES CURRENCY FIXED OR FLOATING INTEREST RATE EFFECTIVE INTEREST RATE FINAL MATURITY (MTH/YEAR) CURRENT PORTION NOK 1 000 NON- CURRENT PORTION NOK 1 000 CURRENT PORTION NOK 1 000 NON- CURRENT PORTION NOK 1 000 2019 2018 GRIEG SEAFOOD ASA Non-current syndicated loan Syndicated loan- credit facility OCEAN QUALITY Export loans Factoring liabilities GRIEG SEAFOOD GROUP Lease liability (prior IAS 17 finance leases) Lease liability (prior IAS 17 operational leases) Subordinate loan Total NOK Floating Price grid 02/2023 98 212 934 616 98 212 1 038 713 NOK Floating Price grid 02/2023 GBP Multiple Floating 5.5% - - 86 122 629 319 - 260 000 - - 8 897 573 377 - - Multiple Floating 73 575 378 577 68 083 292 358 Multiple Floating 125 752 - 254 090 13 240 - - - 14 047 383 660 2 209 841 748 569 1 605 119 BOOK VALUE OF GROUP LOANS BY CURRENCY NOK 1 000 Non-current syndicated loan Syndicated loan- credit facility Factoring Lease liability (prior IAS 17 finance leases) Lease liability (prior IAS 17 operational leases) Subordinate loan Total 31.12.2019 NOK GBP EUR USD CAD OTHER 1 032 827 629 319 86 122 452 152 379 841 13 240 514 978 580 000 - - - 85 650 446 699 164 670 - - 184 618 13 240 283 508 517 850 49 319 946 - - - - - -474 - - - - - - 5 453 30 554 - 568 114 -474 36 007 2 593 501 1 706 346 - - - - - - - 2018 2.20% 1.21% Average interest rate on syndicate loan and credit facility Average interest rate on EUR term loan The effect of interest rate swaps is not taken into account in calculating the average interest rate on loans and credit facilities. 2019 2.57% 1.10% 2 5 4 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S BOOK VALUE AND FAIR VALUE OF BORROWINGS NOK 1 000 Borrowings (non-current and credit facility) Total The book value of other loans closely approximates to the fair value. BOOK VALUE 2019 1 563 935 1 563 935 2018 1 298 713 1 298 713 FAIR VALUE 2019 1 563 935 1 563 935 2018 1 298 713 1 298 713 CHANGE IN LIABILITIES ARISING FROM FINANCING ACTIVITIES NOK 1 000 LEASE LIABILITY BORROWINGS TOTAL LIABILITIES ARISING FROM FINANCING ACTIVITIES At 31.31.2017 Non-cash movement in factoring liabilities Repayment finance lease liabilities Repayment non-current syndicated loan (former agreement) Draw-down non-current syndicated NOK term loan incl. credit facility Draw-down non-current syndicated EUR term loan Repayment non-current syndicated term loan (NOK and EUR) Draw-down overdraft facility Repayment non-current credit facility Draw-down finance leases Foreign currency adjustments At 31.12.2018 Recognized lease liabilities on adoption of IFRS 16 (see Note 11 and 26) At 01.01.2019 Non-cash movement in factoring liabilities Draw-down non-current syndicated NOK term loan incl. credit facility Repayment non-current syndicated term loan (NOK and EUR) Repayment overdraft facility Repayment export loan Draw-down lease liability (prior IAS 17 finance leases) Repayment lease liability (prior IAS 17 finance leases) Draw-down lease liability (prior IAS 17 operational leases) Repayment lease liability (prior IAS 17 operational leases) Foreign currency adjustments At 31.12.2019 260 252 - -69 053 - - - - - - 169 216 27 360 441 319 054 679 495 - - - - - 181 376 -90 136 165 807 -114 888 10 339 831 993 1 810 202 72 401 - 2 070 453 72 401 -69 053 -1 285 000 -1 285 000 900 000 580 146 -49 174 46 597 -40 000 - 14 773 2 049 944 - 2 049 944 -487 255 369 319 -98 346 -46 597 -8 897 - - - - -6 640 1 771 529 900 000 580 147 -49 174 46 597 -40 000 169 216 14 800 2 410 387 319 054 2 729 441 -487 255 369 319 -98 346 -46 597 -8 897 181 376 -90 136 165 807 -114 888 3 699 2 603 523 2 5 5 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 11 L E A SE S THE GROUP AS A LESSEE The Group has several lease arrangements. Prior to IFRS 16, the Group had both financial leases according to IAS 17 recognized on the statement of financial position, in addition to operating leases recognized in the "other operating expenses" as the lease cost incurred. As of 1 January 2019, the Group applied IFRS 16 using the modified retrospective approach. Please refer to Note 26 for further information on the impact of the initial application of IFRS 16. Leases previously classified as finance leases under IAS 17 Prior to 1 January 2019, the Group classified finance leases according to IAS 17 as property, plant & equipment. The carrying amount of the right-of-use asset and the lease liability at 1 January 2019 was determined to be the carrying amount of the lease asset and lease liability at the date if initial application of IFRS 16. The leases relate to barges, cage installations, plant, machinery and other equipment. The lease term for equipment of this kind is normally 7-8 years. The Group must give written notification if it wishes to terminate these agreements. Leases previously classified as operating leases under IAS 17 The Group leases offices, docks, berths, vessels, etc. with terms of 5–10 years. The Group also leases various well-boat services, as well as contracts for delousing and cleaning of nets. The term of the contracts is 2–5 years, whereof some of the contracts have extension options. On transition to IFRS 16 at 1 January 2019, the Group recognized right-of-use assets (ROU assets) corresponding to the present value of lease liabilities at a total amount of NOK 319 million on leases previously classified as operating leases under IAS 17. Equity effect of the transitioning was NOK 0. The right-of- use asset is classified as property, plant and equipment. The incremental borrowing rates applied to the lease liabilities at the date of initial recognition are in the interval of 3.1% - 4.1% for buildings and properties and 2.8% - 4.1% for other assets. Please refer to note 26 for information on the weighted average incremental borrowing rate applied when recognizing the lease liability for leases previously classified as operating leases under IAS 17, at initial application of IFRS 16 at 1 January 2019. CURRENCY The leases are recognized in the respective Group companies in local currencies, and translated to the Groups presentation currency at the balance sheet date. PRACTICAL EXPEDIENTS APPLIED The Group leases smaller office equipment, such as coffee machines with contract terms of 1-3 years. The Group has elected to apply the practical expedient of low-value assets for some of these leases. Leases that have a present value as new lower than USD 5 000, are considered low value leases. The Group has also applied the practical expedient for short-term leases. Short term is defined as a lease term of 12 month or less at the commencement date. For low-value leases and short-term leases, the Group does not recognize lease liabilities or right-of-use assets. The leases are instead expensed when they incur. EXTENSION OPTIONS Some of the Group's agreements have extension options which may by exercised during the last period of the lease term. The Group assesses at the commencement whether it is reasonably certain to exercise the renewal right. The Group's potential future lease payments not included in the lease liabilities related to extension options is NOK 235 million at 31 December 2019. VARIABLE LEASE PAYMENTS In addition to the lease liabilities, the Group is committed to pay variable payments for some of the leases. The variable lease payments are expensed as incurred, and not considered material for the Group. 2 5 6 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S SPECIFICATION OF FIXED ASSETS AND RIGHT-OF-USE ASSETS AT 1 JANUARY 2019 NOK 1 000 CLOSING BALANCE 31.12.2018 IMPLEMENTATION EFFECT IFRS 16** OPENING BALANCE 01.01.2019 Property, plant and equipment incl. Right-of-use-assets Lease liability 2 292 912 360 442 319 054 319 054 2 611 966 679 496 The "Implementation effect IFRS 16" refers to the initial application effect of IFRS 16, recognizing the lease liability and corresponding right-of-use assets of leases previously classified as operating leases under IAS 17, per 1 January 2019. Please refer to Note 26 for further information on the initial application of IFRS 16. Prior to 1 January 2019, the Group included its leases classified as finance leased assets under IAS 17 as property plant and equipment. Following the initial application of IFRS 16, the Group recognizes all its right-of-use assets on the same financial statement line item as property, plant and equipment. See Note 9 for further information. Comparable figures are not restated, as the modified retrospective approach is applied when implementing IFRS 16. IMPLEMENTATION EFFECT ON STATEMENT OF FINANCIAL POSITION NOK 1 000 CLOSING BALANCE 31.12.2018 IFRS 16 EFFECTS ON OPENING BALANCE ADJUSTED OPENING BALANCE AS OF 01.01.2019 IFRS 16 CHANGES YTD 2019 Non-current assets Current assets Total assets Equity Non-current liabilities Current liabilities Total liabilities Total equity and liabilities 3 588 929 4 553 561 8 142 490 3 883 511 2 491 251 1 767 729 4 258 979 8 142 490 319 054 - 319 054 - 236 580 82 474 319 054 319 054 3 907 983 4 553 561 8 461 544 3 883 511 2 727 831 1 850 203 4 578 033 8 461 544 EFFECT ON INCOME STATEMENT NOK 1 000 Total operating income Share of profit from associates Raw materials and consumables used incl. change in inventories Salaries and personnel expenses Other operating expenses EBITDA before fair value adjustment of biological assets Depreciation and amortization EBIT before fair value adjustment of biological assets Fair value adjustment of biological assets EBIT after fair value adjustment of biological assets Net financial items Profit before tax YTD 2019 BEFORE IFRS 16 EFFECT * IFRS 16 EFFECTS YTD 2019 8 303 723 211 -4 181 971 -610 803 -2 139 536 1 371 624 -289 917 1 081 707 -220 714 860 993 -14 790 846 203 - - - - 126 533 126 533 -120 666 5 868 - 5 868 -11 443 -5 576 *Figures are presented as if IAS 17 still applies (incl. IAS 17 finance leases recognized on the statement of financial position). 55 107 - 55 107 -5 680 17 510 43 277 60 787 55 107 YTD 2019 8 303 723 211 -4 181 971 -610 803 -2 013 003 1 498 157 -410 583 1 087 574 -220 714 866 860 -26 233 840 626 2 5 7 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 11 C O N T I N U E D SPECIFICATION OF RIGHT-OF-USE ASSETS The Group's right-of-use assets are included in the financial statement line item "Property, plant and equipment incl. Right-of-use-assets". 2019 NOK 1 000 BUILDINGS/ PROPERTY PROD. PLANTS AND BARGES NETS, CAGES AND MOORINGS OTHER EQUIPMENT Book value at 01.01.2019* Initial application effect of IFRS 16** Currency translation differences Additions Disposals Depreciation Book value at 31.12.2019 - 65 248 1 750 13 190 - -10 172 70 016 193 463 - 1 254 130 330 -24 827 -17 456 282 764 105 648 - 710 18 145 -12 142 -16 858 95 503 113 201 253 806 4 213 175 216 -10 059 -119 153 417 224 TOTAL 412 312 319 054 7 927 336 881 -47 028 -163 640 865 507 *For leases that as of 31 December 2018 were classified as finance leases under IAS 17, the carrying amount of the right-of-use asset and the lease liability at 1 January 2019 was determined to be the carrying amount of the lease asset and lease liability at the date if initial application of IFRS 16. **The intital applicaton effect of IFRS 16 relates to the recognition of leases classified as operational leases under IAS 17. See Note 26 for further information on the application of IFRS 16 for the Group. LEASE LIABILITY SUMMARY OF THE LEASE LIABILITIES NOK 1 000 At initial application 01.01.2019 New leases recognized during the year Cash payments for the principal portion of the lease liability Currency exchange differences Total lease liabilities at 31.12.2019 679 496 347 183 -205 025 10 339 831 993 MATURITY ANALYSIS - LEASE LIABILITIES NOK 1 000 FORMER IAS 17 FINANCIAL LEASE FORMER IAS 17 OPERATIONAL LEASE TOTAL LEASE LIABILITY 2019 Less than one year One to two years Two to three years Three to four years Four to five years More than five years Total undiscounted lease liabilities at 31.12.2019 Lease liabilities included in the statement of financial position at 31.12.2019 Current portion Non-current portion 87 230 80 269 71 861 63 113 51 894 154 641 509 008 452 152 134 931 96 434 75 983 37 146 23 599 52 374 420 467 379 841 222 160 176 702 147 844 100 260 75 493 207 015 929 475 831 994 199 327 632 666 2 5 8 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S AMOUNTS RECOGNIZED IN PROFIT OR LOSS NOK 1 000 Interest on lease liabilities Depreciation right-of-use assets Expenses relating to short-term leases Expenses relating to leases of low-value assets, excluding short-term leases of low-value assets Total AMOUNTS RECOGNIZED IN THE STATEMENT OF CASH FLOW NOK 1 000 Total cash outflow for leases 2019 25 729 163 640 52 559 8 241 963 2019 230 753 IAS 17 LEASES DISCLOSURES - COMPARABLE FIGURES The 2018 figures is prepared according to IAS 17. Please refer to the section above for characteristics of these leases as of 31 December 2018. The future aggregate minimum lease payments under operating leases are as follows: OPERATIONAL LEASES 2018 OVERVIEW OF FUTURE MINIMUM OPERATING LEASES NOK 1 000 FUTURE MINIMUM LEASE AMOUNT PRESENT VALUE OF FUTURE MINIMUM LEASE PAYMENTS (5% DISCOUNT RATE) Less than one year One to two years Two to three years Three to four years Four to five years More than five years Total lease liabilities at 31.12.2018 NOK 1 000 Lease payments charged in the year 177 079 107 162 69 488 46 933 39 087 79 140 518 888 168 647 97 199 60 026 38 612 30 626 53 630 448 739 2018 195 785 2 5 9 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 11 C O N T I N U E D FINANCE LEASE COMMITMENTS – GROUP COMPANY AS LESSEE The Group has signed finance leases for barges, pen installations, plant, machinery and other equipment. The lease term for equipment of this kind is normally 7-8 years. The Group must give written notification if it wishes to terminate these agreements. The future aggregate minimum lease payments relating to finance leases are as follows: FINANCE LEASES 2018 OVERVIEW OF FUTURE MINIMUM FINANCE LEASES NOK 1 000 FUTURE MINIMUM LEASE AMOUNT FUTURE FINANCIAL EXPENSES RELATED TO FINANCE LEASES PRESENT VALUE OF FINANCE LEASES Less than one year One to two years Two to three years Three to four years Four to five years More than five years Total lease liabilities at 31.12.2018 77 825 62 356 54 551 46 276 39 258 120 486 400 753 9 742 7 898 6 284 4 881 3 702 7 805 40 311 LEASED ASSETS RECOGNIZED AS FINANCE LEASES NOK 1 000 Carrying value of leased assets (equipment, vessels) Carrying value of lease commitment 68 083 54 458 48 268 41 395 35 556 112 682 360 441 2018 412 312 360 441 2 6 0 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S NOT E 12 CL A S SIF IC AT IONS OF F IN A NCI A L INS T RUMEN T S FINANCIAL INSTRUMENTS AT 31.12.2019 NOK 1 000 FVPL 1) AMORTIZED COST FVOCI 2) TOTAL FINANCIAL ASSETS Equity instruments Trade receivables Other receivables Derivatives 3) Cash and cash equivalents Total financial assets FINANCIAL LIABILITIES Borrowings Lease liability (prior IAS 17 finance leases) Lease liability (prior IAS 17 operational leases) Factoring liabilities Cash-settled options Derivatives 3) Trade payables Total financial liabilities - - - 7 368 - 7 368 - - - - 19 649 10 107 - 29 756 - 459 897 60 000 - 214 497 734 394 1 675 386 452 152 379 841 86 122 - - 855 061 3 448 562 1 053 - - - - 1 053 - - - - - -786 - -786 1 053 459 897 60 000 7 368 214 497 742 815 1 675 386 452 152 379 841 86 122 19 649 9 321 855 061 3 477 532 FINANCIAL INSTRUMENTS AT 31.12.2018 NOK 1 000 FVPL 1) AMORTIZED COST FVOCI 2) TOTAL FINANCIAL ASSETS Equity instruments Trade receivables Other receivables Derivatives 3) Cash and cash equivalents Total financial assets FINANCIAL LIABILITIES Borrowings Overdraft facility Finance lease liabilities Factoring liabilities Export loan 4) Cash-settled options Derivatives 3) Trade payables Total financial liabilities - - - 2 743 - 2 743 - - - - - 17 503 2 162 - 19 665 - 952 232 22 100 - 137 920 1 112 252 1 410 972 46 597 360 442 573 377 8 897 - - 649 352 3 049 637 1 160 - - - - 1 160 - - - - - - 3 743 - 3 743 1) FVPL: Fair value through profit or loss. 2) FVOCI: Fair value through other comprehensive income. 3) The purpose of the derivatives is to reduce the Group´s exposure to changes in floating interest rates and exchange rates. See Notes 2 and 3 for further details. 4) Export loan is reported in "Current portion of borrowings" in the balance sheet. 1 160 952 232 22 100 2 743 137 920 1 116 155 1 410 972 46 597 360 442 573 377 8 897 17 503 5 905 649 352 3 073 045 2 61 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 12 C O N T I N U E D CREDITWORTHINESS OF FINANCIAL ASSETS Credit risk attaching to financial instruments that have not matured or have not been written down is shown in accordance with the internal classification of historical information on breaches of credit covenants. Further information about credit risk is provided in Note 3. TRADE RECEIVABLES NOK 1 000 2019 2018 COUNTERPARTIES WITH NO EXTERNAL CREDIT RATING Group 1 Group 2 Group 3 Total trade receivables BANK DEPOSITS NOK 1 000 AAA AA A Total bank deposits 46 665 354 736 58 495 459 897 2019 - 214 497 - 214 497 1 204 838 932 85 096 925 232 2018 - 137 920 - 137 920 Group 1 - new customers/related parties (less than 6 months). Group 2 - existing customers/related parties (more than 6 months) with no history of credit covenant breaches. Group 3 - existing customers/related parties (more than 6 months) with a history of one or more credit covenant breaches. All amounts due have been paid in full following the breaches. 2 6 2 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S NOT E 13 TA X E S BREAKDOWN OF TAX EXPENSE NOK 1 000 Tax payable Norway Tax payable abroad Changes in assessment of taxes for prior years Change in deferred tax Norway Change in deferred tax abroad Taxes TAX RECONCILIATION Profit before tax Taxes calculated at nominal tax rate Withholding tax Change in deferred tax liabilities because of tax rate change Tax losses carried forward not recognized Other permanent differences Taxes CHANGE IN BOOK VALUE OF DEFERRED TAX Balance sheet value at 01.01. Currency conversion Effect of equity transaction and group contribution Tax effect of loans to subsidiaries (Note 3) Other effects Change in deferred tax recognized in income in period Deferred tax liability at balance sheet date 2019 209 797 4 235 9 806 -15 035 -13 085 195 718 840 626 187 744 1 016 1 994 - 4 964 195 718 877 639 15 295 -955 6 560 4 245 -28 120 874 664 2018 126 441 4 810 -4 065 85 450 67 170 279 805 1 276 925 301 823 1 012 -25 053 -148 2 171 279 805 721 689 -3 637 5 765 923 279 152 620 877 639 Weighted average tax rate 23.28% 21.91% The nominal tax rate in Norway is 22%. The nominal tax rate for 2019 in BC, Canada was 27% and on Shetland 19%. The significant tax effect is attributable to a change in the tax rate and other permanent differences. The following tables provide a breakdown of deferred tax. The tax effects of taxable and deductible temporary differences are shown separately. The Norwegian, Canadian and UK parts of the Group each have a net deferred tax position. Deferred tax liabilities and deferred tax assets within Norway, BC, Canada, and UK can be offset. 2 6 3 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 13 C O N T I N U E D DEFERRED TAX NOK 1 000 LICENSES NON- CURRENT ASSETS BIOLOGICAL ASSETS RECEIVABLES /PENSIONS INVENTORIES DEFERRED CAPITAL GAIN CURRENT LIABILITIES TOTAL 2018 Opening balance 01.01. 167 245 53 719 487 427 31 790 3 921 Recognized in income in the period Currency translation differences Other effects At 31.12. 2019 Recognized in income in the period Currency translation differences Other effects At 31.12. -1 925 9 411 153 813 -6 221 5 084 -385 - 12 - -2 226 -1 986 164 935 63 142 637 028 - 3 494 29 063 2 - 9 007 -105 31 379 -51 772 -558 187 2 405 -1 218 1 674 -360 10 992 -417 166 017 95 836 595 831 - 7 556 36 061 351 -3 193 6 352 348 -76 - - 271 -55 - - 217 0 - - - 0 - - - 0 744 450 160 085 -2 596 1 508 903 446 -20 923 15 422 2 369 900 313 DEFERRED TAX ASSET NOK 1 000 LOSS CARRY FORWARDS NON- CURRENT ASSETS PENSIONS RECEIVABLES /PENSIONS LEASE OBLIGATIONS TAX CREDITS OTHER LIABILITIES TOTAL 2018 Opening balance 01.01. -20 796 Recognized in income in the period Currency translation differences Other effects Effect of business combinations At 31.12. 2019 Recognized in income in the period Currency translation differences Other effects Effect of business combinations At 31.12. -3 869 -120 351 5 766 -18 669 -19 869 149 4 748 15 -33 626 -0 - - - - -0 - - - - -0 0 - 0 - - - - 0 - - - -2 125 -0 -1 374 -2 041 -26 336 701 -1 783 615 -3 130 -7 465 - - - -28 - - -1 424 -1 811 45 - - -714 361 -99 - -4 909 258 252 5 766 -27 526 5 898 1 396 -650 6 028 -7 197 105 - - 4 578 -120 5 382 - 4 848 -55 - - -205 -1 943 -126 8 187 - 15 -1 419 -1 028 -26 648 2 6 4 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S NOK 1 000 Net deferred tax Deferred tax classified as non-current assets Deferred tax classified as non-current liabilities Tax payable classified as current liabilities NET CHANGE IN DEFERRED TAX RECOGNIZED IN INCOME NOK 1 000 Change in deferred tax in Norway Change in deferred tax abroad Change in book value of deferred tax Change in the period for positions with net deferred tax Change in the period for positions with net deferred tax asset Change in book value of deferred tax 2019 2018 873 666 875 920 998 874 664 211 569 2019 -15 035 -13 085 -28 120 -20 923 -7 197 -28 120 1 719 877 639 130 287 2018 85 450 67 170 152 620 160 085 -7 465 152 620 Loss carried forward Deferred tax assets related to an allowable deficit are recognized in the balance sheet in so far as it is likely that these can be offset against future taxable profits. DEFERRED TAX ASSETS RELATING TO A TAX LOSS CARRIED FORWARD ARE DIVIDED AMONG THE FOLLOWING JURISDICTIONS Norway UK BC, Canada Total 2019 - -33 626 - -33 626 2018 -478 -18 191 - -18 669 There is no time limit on the utilization of tax losses carried forward in Norway or the UK. 2 6 5 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 14 DECL A R AT ION ON T HE DE T ERMIN AT ION OF S A L A R Y A ND OT HER REMUNER AT ION PA ID TO GR OUP M A N A GEMEN T THE BOARD’S DECLARATION The Board of Grieg Seafood ASA has appointed a dedicated Remuneration Committee, whose remit is to advise the Board on all matters pertaining the Company's compensation to the CEO and other incentive schemes for managers. The Board determines the salary and other remuneration paid to the CEO and approves remuneration schemes involving the granting of options to managers. The Board adopts guidelines and principles used to determine salaries and other remuneration paid to key personnel. MAIN PRINCIPLES OF THE GROUP’S REMUNERATION POLICY Grieg Seafood ASA’s performance is contingent on the Group´s ability to recruit and retain the highest qualified and most motivated employees. Grieg Seafood ASA´s remuneration policy is based on the principle that the Group shall offer its employees competitive compensation terms industry standards. Where appropriate, this may include incentive elements, where the basic salary shall reflect individual performance. in accordance with local The Group runs performance-related bonus schemes for its employees. The Remuneration committee determines the bonus basis each year. PRINCIPLES FOR REMUNERATION FIXED BASIC SALARY Remuneration for the management team must be competitive. The basic salary, which is determined by reference to job descriptions, competence levels, qualifications and seniority, comprises the main portion of management remuneration and consists of a fixed basic element and other fixed remuneration elements such as a fixed car allowance and similar benefits. ADDITIONAL BENEFITS Bonus scheme The Group has an annual bonus scheme based on a combination of earnings and personal performance targets. The bonus scheme incentivizes employees to make continuous improvements in operations and the Group's profitability. The CEO has an annual maximum bonus of six times the monthly salary, while other Group managers can earn a bonus up to a maximum of five times the monthly salary. Pension schemes All the Norwegian Group subsidiaries comply with the Act relating to mandatory occupational pensions. The Group only operates defined contribution pension schemes. Foreign subsidiaries comply with their respective jurisdictions pertaining to employee pension schemes. The Group managers are members of the Group´s collective defined contribution pension scheme. As well as participating in the Company’s ordinary defined contribution pension scheme, the CEO has a separate salary compensation agreement for pension benefits exceeding 12G. Options A synthetic option scheme (hereafter referred to as a "cash option") for the Company’s management group was established in 2009. The cash options scheme requires participants to directly own shares throughout the entire program period. Employees who are entitled to the options are required to use 50% of the net gain under the scheme to purchase shares until the ownership corresponds to 100% of their fixed annual salary. The gain under the cash 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 no later than 24 months after the initial exercise date. At the year-end, the cash option scheme corresponded to a total of 1 610 205 shares, after the awarding of 1 800 000 options in 2017. The final exercise date for options awarded in 2017 is 31 May 2021. Severance pays The Group limits the payment of severance pay, though has paid such remuneration in specific cases. The CEO is entitled to a separate severance pay agreement in case of termination of employment comprising 12 months’ rolling severance pay calculated from the termination date. The termination date is deemed to be end of the notice period. The CEO has a period of notice of six months. The CFO and COO are entitled to 12 months´ severance pay from the termination date or date of change of position/employment. For other employees, individual contracts of employment apply, essentially based on conditions in the Norwegian Working Environment Act. Benefits in kind Managers are normally granted benefits in kind typical for similar positions, such as a free newspaper, telephone and internet connection. 2 6 6 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S GUIDELINES FOR DETERMINATION OF REMUNERATION PAID TO THE GROUP MANAGEMENT INTRODUCTION For details about remuneration paid to individual employees, please refer to the notes to the financial statements. Other incentive schemes, including bonus schemes, are determined by the Board. The Remuneration committee determines the minimum performance level for the bonus each year and informs the Board accordingly. The CEO awards incentive schemes and other benefits to group management and regional managers within the framework of programs adopted by the Board. For information about remuneration paid to group management, see Note 15. For more information about options, see Note 16. DETERMINATION OF SALARY PAID TO THE CEO Remuneration paid to the CEO is determined each year by the Remuneration Committee on the mandate of the Board. DETERMINATION OF SALARY PAID TO GROUP MANAGEMENT AND REGIONAL MANAGERS Remuneration paid to other group managers and regional managers are determined by the CEO in consultation with the Remuneration Committee. The Board should be informed about the decision afterwards. DETERMINATION OF INCENTIVE SCHEMES The Remuneration Committee evaluates the options scheme and the exercise allocation within the framework of the AGM. DETERMINATION OF REMUNERATION PAID TO MANAGERS IN OTHER GROUP COMPANIES Subsidiaries of the Group must comply with the main principle of the Group´s management remuneration policy, as described under the main principles. BOARD REMUNERATION Compensation paid to Board members is not performance-related. The Board members have not been granted options. Compensation paid to the Board is determined by the Annual General Meeting. Bergen, 8 April 2020 The Board of Grieg Seafood ASA 2 67 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 15 S A L A RIE S A ND P ER S ONNEL E X P EN SE S SALARIES AND PERSONNEL EXPENSES NOK 1 000 Salaries Social security costs Share options granted to directors and key employees, incl. social security costs (Note 16) Pension costs Other personnel costs Total 2019 469 263 33 691 16 387 25 028 66 434 610 803 2018 412 680 32 545 15 173 20 402 60 247 541 047 Average number of employees 837 769 The Board´s guidelines and principles for determination of remuneration and other benefits paid to key personnel are described in Note 14. Share savings program Grieg Seafood established a share savings program for its employees in 2018 and this has continued in 2019. Employees may invest up to NOK 20 000 per year. There is a 3 years lock-up period. The saved amount is deducted from the monthly net salary and used to purchase Grieg Seafood shares on behalf of the employees. The purchase will be made from transfer of Grieg Seafood's treasury shares or bought in the market. The purchase price and the number of shares acquired by the company will be reported in accordance with the applicable regulations. At 31 December 2019, the equity effect of the share savings program was NOK 2.0 million (2018: NOK 2.6 million), of which loan to employees constitutes NOK 1.6 million (2018: NOK 2.1 million). The total shares sold to employees was 14 737 in 2019. REMUNERATION PAID TO GROUP MANAGEMENT IN 2019 NOK 1 000 SALARY BONUS RETAINED, NOT YET PAID OPTIONS EXERCISED DURING THE YEAR OTHER REMUNERATION Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Total remuneration paid to group management 3 009 1 954 2 091 1 637 8 691 347 184 133 280 945 601 383 345 265 1 594 2 592 1 652 1 787 1 645 7 677 101 101 101 103 406 Recognized expenses arising from synthetic options not declared throughout the year are not included in the above statement. TOTAL 6 650 4 276 4 458 3 930 19 314 2 6 8 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S REMUNERATION PAID TO BOARD MEMBERS IN 2019 NOK 1 000 Per Grieg jr. 1) Asbjørn Reinkind 1) Wenche Kjølås (until 13.06.2019) 2) Karin Bing Orgland 2) Solveig M.R. Nygaard Tore Holand 2) Sirine Fodstad (from 13.06.2019) 3) Total remuneration including social security costs TOTAL 456 319 140 311 257 285 154 1 923 Recognized expenses arising from synthetic options not declared throughout the year are not included in the above statement. 1) Payment for work performed on the Remuneration Committee of NOK 19 968 is included in the remuneration paid to Per Grieg jr. and Asbjørn Reinkind. 2) Payment for work performed on the Audit Committee is included in the remuneration paid to Wenche Kjølås, Karin Bing Orgland and Tore Holand, amounting to NOK 25 673, 54 198 and 28 525, respectively. 3) Payment for work performed on the Remuneration Committee of NOK 11 410 is included in the remuneration paid to Sirine Fodstad. The amounts include social security costs. REMUNERATION PAID TO GROUP MANAGEMENT IN 2018 NOK 1 000 SALARY BONUS RETAINED, NOT YET PAID OPTIONS EXERCISED DURING THE YEAR OTHER REMUNERATION Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Total remuneration paid to group management 2 685 1 748 1 748 1 466 7 647 630 335 195 347 1 508 389 207 149 314 1 058 2 522 1 607 1 607 1 448 7 184 90 97 97 92 376 Recognized expenses arising from synthetic options not declared throughout the year are not included in the above statement. REMUNERATION PAID TO BOARD MEMBERS IN 2018 NOK 1 000 Per Grieg jr. 1) Wenche Kjølås 2) Karin Bing Orgland 2) Asbjørn Reinkind 1) Ola Braanaas (until 12.06.2018 ) 3) Solveig M.R. Nygaard (from 12.06.2018) Tore Holand (from 12.06.2018) Total remuneration including social security costs Recognized expenses arising from synthetic options not declared throughout the year are not included in the above statement. 1) Payment for work performed on the Remuneration Committee of NOK 17 115 is included in the remuneration paid to Per Grieg jr. and Asbjørn Reinkind. 2) Payment for work performed on the Audit Committee of NOK 51 345 is included in the remuneration paid to Wenche Kjølås and Karin Bing Orgland. 3) Payment for work performed on the Remuneration Committee of NOK 8 558 is included in the remuneration paid to Ola Braanaas. The amounts include social security costs. TOTAL 6 316 3 993 3 796 3 667 17 772 TOTAL 434 280 280 302 123 114 114 1 646 2 69 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 16 C A SH-B A SED REMUNER AT ION (OP T ION S) 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, rising by 0.5% per month until the exercise date. As at 31 December 2019, no equity options were available for vestment. Since 2009, an option scheme with settlement in cash has been established for the management and regional directors. The most recent allocation was in 2017, totalling 1 800 000 options. The final exercise date is 31 May 2021. The options have a term of two years, where 50% is vested each year. Employees taken on after the initial allocation of options are 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 perform the calculations. The table below shows the movement in outstanding options during 2018 and 2019. OVERVIEW 2019 (TOTAL OPTIONS) OPTION CATEGORY OUTSTANDING OPTIONS AT 31.12.2018 EXERCISED OPTIONS EXPIRED OPTIONS OUTSTANDING OPTIONS AT 31.12.2019 OF WHICH CASH-SETTLED Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Others Total Cash settlement Cash settlement Cash settlement Cash settlement Cash settlement 600 000 276 044 300 000 200 000 999 999 2 376 044 29 530 18 826 20 364 67 288 157 238 293 246 170 470 57 218 79 636 - 165 269 472 593 400 000 200 000 200 000 132 712 677 492 400 000 200 000 200 000 132 712 677 492 1 610 205 1 610 205 OVERVIEW 2018 (TOTAL OPTIONS) OPTION CATEGORY OUTSTANDING OPTIONS AT 31.12.2017 EXERCISED OPTIONS EXPIRED OPTIONS OUTSTANDING OPTIONS AT 31.12.2018 OF WHICH CASH-SETTLED Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Others Total Cash settlement Cash settlement Cash settlement Cash settlement Cash settlement 658 272 311 274 352 366 300 000 1 329 634 2 951 547 55 275 35 230 35 230 100 000 262 677 488 412 2 997 - 17 136 - 66 958 87 091 600 000 276 044 300 000 200 000 999 999 600 000 276 044 300 000 200 000 999 999 2 376 044 2 376 044 ALLOCATION: YEAR - MONTH EXPIRY DATE: YEAR - MONTH STRIKE PRICE NOK PER SHARE AT 31.12.2019 STRIKE PRICE NOK PER SHARE AT 31.12.2018 2015–06 2017–11 2017–11 Total 2019–06 2020–05 2021–05 - 94.29 94.29 31.60 88.78 88.78 Cash-based options available for settlement Weighted average exercise price on outstanding options (NOK per option) 2 7 0 OPTIONS 2019 - 710 205 900 000 2018 576 044 900 000 900 000 1 610 205 2 376 044 2019 2018 1 610 205 83.00 1 476 044 66.49 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S NOK/OPTION AMOUNTS IN NOK 1 000 OPTION CATEGORY LISTED PRICE ON ALLOCATION CALCULATED VALUE PER OPTION ON ALLOCATION CALCULATED TOTAL VALUE ON ALLOCATION * TOTAL VALUE OF ALL OPTIONS AT 01.01.2019 CHANGE IN PROVISION CB-OB * EXERCISED OPTION 2019 ACC. COST RECOGNIZED IN EQUITY AT 31.12.2019 RECOGNIZED LIABILITY CASH SETTLEMENT AT 31.12.2019 2019 Former employees with expired options Equity option Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Other options allocated in 2015 Other options allocated in 2017 Total Cash Cash Cash Cash Cash Cash Cash Cash Cash Cash 25.50 25.50 25.50 79.00 83.00 83.00 83.00 83.00 25.50 83.00 3.36 3.97 3.97 3.63 2.26 2.79 2.79 2.38 3.60 2.35 1 342 2 575 -2 575 2 592 793 793 363 906 557 557 475 1 634 1 773 -1 634 -1 773 1 652 1 787 - - 1 645 1 709 2 298 1 057 1 130 1 448 1 558 898 994 - - - - 2 876 3 027 -3 027 3 267 1 880 10 543 3 699 17 503 4 858 2 145 2 995 13 939 *) Amounts exclude social security costs 6 887 - - - - - - - - - - 6 887 - - - - 4 007 2 505 2 688 1 891 - 8 557 19 649 NOK/OPTION AMOUNTS IN NOK 1 000 OPTION CATEGORY LISTED PRICE ON ALLOCATION CALCULATED VALUE PER OPTION ON ALLOCATION CALCULATED TOTAL VALUE ON ALLOCATION * TOTAL VALUE OF ALL OPTIONS AT 01.01.2018 CHANGE IN PROVISION CB-OB * EXERCISED OPTION 2018 ACC. COST RECOGNIZED IN EQUITY AT 31.12.2018 RECOGNIZED LIABILITY CASH SETTLEMENT AT 31.12.2018 2018 Former employees with expired options Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Other options allocated in 2015 Other options allocated in 2016 Other options allocated in 2017 Total Equity option Cash Cash Cash Cash Cash Cash Cash Cash Cash Cash Cash 25.50 25.50 25.50 79.00 83.00 83.00 83.00 83.00 25.50 79.00 83.00 3.36 3.97 3.97 3.63 2.26 2.79 2.79 2.38 3.60 3.34 2.35 1 342 4 255 -1 679 2 522 793 793 363 906 557 557 475 1 857 2 868 -223 -1 095 1 607 1 607 237 -237 1 448 147 1 563 90 90 77 967 1 040 821 - - - - 2 876 5 227 -2 200 2 859 669 441 -441 2 896 *) Amounts exclude social security costs 1 880 11 212 305 15 594 3 394 1 909 - 12 939 6 887 6 887 - - - - - - - - - - - 2 575 1 634 1 773 - 1 709 1 057 1 130 898 3 027 - 3 699 17 503 2 7 1 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 16 C O N T I N U E D ACCRUED COSTS RELATED TO CASH OPTIONS NOK 1 000 2019 2018 CLASSIFICATION IN FINANCIAL STATEMENTS Change in provisions Exercised options during the year Total costs excl. social security costs Social security costs Total costs incl. social security costs 2 145 13 939 16 085 303 16 387 1 909 Other provisions for liabilities 12 939 Salaries and personnel expense / cash 14 848 325 Public taxes payable 15 173 Salaries and personnel expense Cost relating to cash-based remuneration in 2019 totalled NOK 16 387 thousand. This is recognized in the income statement as a personnel cost. Social security contributions are provided for on an ongoing basis based on the fair value of the options. As at 31 December 2019, outstanding options with the right to cash settlement were stated at NOK 19 649 thousand, of which NOK 8 379 thousand were classified as non-current liabilities. Issued options are cancelled on termination of employment. ESTIMATES USED TO CALCULATE ALLOCATION OF OPTIONS 31.12.2019 31.12.2018 Anticipated volatility (%) Risk-free rate of interest (%) Estimated qualification period (years) 37.90% 1.39% 0.98 41.49% 1.07% 1.56 The estimated qualification period for the options is based on historical data, and does not necessarily represent future developments. In order to estimate volatility, management has applied historical volatility for comparable listed companies. 2 7 2 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S NOT E 17 SH A RE C A P I TA L A ND SH A REHOL DER INFORM AT ION As at 31 December 2019, 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 confer the same rights. In June 2011, the company purchased 1 250 000 treasury shares at NOK 14.40 per share. 21 November 2018, the company sold 21 576 shares to employees for use in the share savings program. The sales price was NOK 121.56 per share, which provided a gain of NOK 107.16 per share. Another 14 737 shares were sold to employees in November 2019 at a sales price of NOK 136.05 per share, providing a gain of NOK 121.65 per share. After the transactions the company has 1 213 687 treasury shares. SHARE CAPITAL AND NUMBER OF SHARES NOMINAL VALUE NOK TOTAL SHARE CAPITAL NOK 1 000 NO. OF ORDINARY SHARES Holdings of treasury shares Sale of treasury shares to employees 2018 Sale of treasury shares to employees 2019 Total at 31.12.2019 4.00 4.00 4.00 4.00 446 648 -5 000 86 59 441 793 111 662 000 -1 250 000 21 576 14 737 110 448 313 THE LARGEST SHAREHOLDERS IN GRIEG SEAFOOD ASA 31.12.2019 31.12.2019 31.12.2018 31.12.2018 NO. OF SHARES SHAREHOLDING NO. OF SHARES SHAREHOLDING Grieg Aqua AS OM Holding AS Folketrygdfondet Ystholmen Felles AS State Street Bank and Trust Comp Clearstream Banking S.A. Verdipapirfondet Pareto Investment Verdipapirfondet Alfred Berg Gamba Handelsbanken Nordiska Smabolag Grieg Seafood ASA State Street Bank and Trust Comp Swedbank Robur Smabolagsfond JPMorgan Chase Bank, N.A., London DPam Invest B Pictet & Cie (Europe) S.A. UBS Switzerland AG Arctic Funds PLC Citibank, N.A. State Street Bank and Trust Comp Verdipapirfondet Alfred Berg Norge Total –20 largest shareholders Other shareholders Total shares 56 018 799 50.17% 56 018 799 50.17% 6 169 379 5 100 130 2 928 197 2 166 080 1 745 002 1 701 000 1 500 796 1 332 190 1 213 687 1 057 400 940 000 915 596 888 362 878 324 780 949 706 424 619 195 597 876 562 479 5.53% 4.57% 2.62% 1.94% 1.56% 1.52% 1.34% 1.19% 1.09% 0.95% 0.84% 0.82% 0.80% 0.79% 0.70% 0.63% 0.55% 0.54% 0.50% 6 039 379 3 760 350 2 928 197 2 055 051 866 255 1 926 457 1 700 796 1 057 190 1 228 424 149 622 - 828 120 - - 566 035 234 349 - 404 867 380 000 87 821 865 23 840 135 111 662 000 78.65% 21.35% 100.00% 80 143 891 31 518 109 111 662 000 5.41% 3.37% 2.62% 1.84% 0.78% 1.73% 1.52% 0.95% 1.10% 0.13% - 0.74% - - 0.51% 0.21% - 0.36% 0.34% 71.77% 28.23% 100.00% 2 7 3 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 17 C O N T I N U E D SHARES CONTROLLED BY BOARD MEMBERS AND GROUP MANAGEMENT 31.12.2019 31.12.2019 31.12.2018 31.12.2018 NO. OF SHARES SHAREHOLDING NO. OF SHARES SHAREHOLDING BOARD OF DIRECTORS Per Grieg jr. * Asbjørn Reinkind (Reinkind AS) Wenche Kjølås (Jawendel AS) (Board member to 13 June 2019) Karin Bing Orgland Solveig Nygaard Tore Holand Sirine Fodstad (Board member from 13 June 2019) GROUP MANAGEMENT Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) 58 961 996 120 000 7 000 - - - - 39 165 24 208 23 507 3 456 52.80% 0.11% 0.01% - - - - 0.04% 0.02% 0.02% 0.00% 58 961 996 120 000 7 000 - - - - 39 165 24 208 23 507 3 456 * THE SHARES OWNED BY THE FOLLOWING COMPANIES ARE CONTROLLED BY PER GRIEG JR. AND FAMILY Grieg Aqua AS Nye Ystholmen AS Per Grieg jr. privately Total shares 56 018 799 2 928 197 15 000 58 961 996 50.17% 2.62% 0.01% 52.80% 56 018 799 2 928 197 15 000 58 961 996 52.80% 0.11% 0.01% - - - - 0.04% 0.02% 0.02% 0.00% 50.17% 2.62% 0.01% 52.80% 2 74 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S NOT E 18 E A RNING S P ER SH A RE A ND DI V IDEND P ER SH A RE CALCULATION OF EARNINGS PER SHARE Profit for the year (majority share) (NOK 1 000) Number of shares at 01.01 Effect of treasury shares (Note 17) Sale of treasury shares to employees (21.11.2018) Sale of treasury shares to employees (21.11.2019) Number of outstanding shares at 31.12 Adjustment for effect of share options Weighted average number of outstanding shares at 31.12 Diluted average number of outstanding shares at 31.12 Earnings per share (NOK) Diluted earnings per share (NOK) Proposed dividend per share (NOK) Proposed dividend 2018, paid out in 2019 Dividend paid out according to proxy approved at the AGM 13.06.2019 NOT E 19 C A SH A ND C A SH EQUI VA L EN T S CASH AND CASH EQUIVALENTS NOK 1 000 Restricted deposits relating to employee tax deductions Other cash and bank deposits Total The Group's currency and interest rate exposure is described in Note 3. 2019 619 510 111 662 000 -1 250 000 21 576 14 737 2018 972 506 111 662 000 -1 250 000 21 576 - 110 448 313 110 433 576 14 855 110 433 458 110 433 458 19 152 110 414 424 110 414 424 5.61 5.61 0.00 2019 14 515 199 981 214 497 8.81 8.81 2.00 2.00 2.00 2018 12 388 125 532 137 920 2 7 5 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 2 0 T R A DE RECEI VA BL E S TRADE RECEIVABLES NOK 1 000 Gross amount of trade receivables Trade receivables deducted* Loss allowance Trade receivables at 31.12. * Trade receivables bought by the factoring company RECOGNIZED LOSSES NOK 1 000 Change in loss allowance Confirmed losses in the year Amounts received for previously written off trade receivables Total recognized losses on receivables 2019 1 233 786 -764 034 -9 856 459 897 2019 -2 076 2 725 -1 698 -1 049 2018 937 163 - -11 931 925 232 2018 564 1 547 -7 246 -5 135 Losses on receivables are classified as other operating expenses in the income statements. In the Group's ECL (Expected credit loss) calculation model, customers are categorized as high or low risk, depending on their country of origin and as credit insured or unsecured. The group of unsecured receivables also consist of some receivables that have other type of securities and hence, the risk of loss is considered as low and no loss allowance is calculated for these receivables. The risk evaluation is based on own experience and input from Credit Insurance Companies. Loss allowance is further calculated on a %-basis of the aging distribution (days past due). The Group also makes manual accruals if significant information implies that there is a higher risk of losses. Some credit risk (10%) also remains for the factored trade receivables, thus the aging analysis given below is based on the total receivables rather than total receivables less the factored receivables. For more information about credit risk, refer to Note 3. NOK 1 000 GROSS AMOUNT EXPOSED AMOUNT NOT YET DUE OVERDUE 0-30 DAYS OVERDUE 31-60 DAYS OVERDUE 61-90 DAYS OVERDUE > 90 DAYS OVERDUE > 1 YEAR TOTAL AGING PROFILE OF TRADE RECEIVABLES (TR) 31.12.2019 TR Credit insured 921 822 89 656 613 675 285 868 12 606 2 835 5 412 1 426 921 822 Regular/ normal risk countries High risk countries Total TR Unsecured 211 395 149 887 177 279 TR Credit insured TR Unsecured 68 741 31 827 7 250 31 598 46 130 19 186 19 780 19 973 9 921 2 906 1 037 919 1 233 786 278 391 856 270 335 542 17 468 2 603 1 085 1 016 7 539 30 877 57 460 8 513 519 783 314 211 395 - - 68 741 31 827 15 226 1 740 1 233 786 368 2 213 3 016 3 274 23 435 610 - - 5 523 150 1 166 9 856 170 1 424 4 100 2 823 85 31 5 50 LOSS ALLOWANCE 31.12.2019 Regular/ normal risk countries High risk countries Total TR Credit insured TR Unsecured TR Credit insured TR Unsecured - - - - - 89 656 149 887 7 250 31 598 278 391 90 580 20 87 777 230 152 45 135 562 2 76 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S NOK 1 000 GROSS AMOUNT EXPOSED AMOUNT NOT YET DUE OVERDUE 0-30 DAYS OVERDUE 31-60 DAYS OVERDUE 61-90 DAYS OVERDUE > 90 DAYS OVERDUE > 1 YEAR TOTAL AGING PROFILE OF TRADE RECEIVABLES (TR) 31.12.2018 Regular/ normal risk countries High risk countries Total TR Credit insured 712 685 123 403 429 138 260 979 11 762 787 7 971 2 047 712 685 TR Unsecured 149 704 107 562 TR Credit insured TR Unsecured 45 944 28 830 4 930 26 121 99 774 29 127 15 290 44 521 15 551 9 655 2 061 912 1 569 937 163 262 015 573 330 330 707 16 303 - 92 1 253 2 132 3 122 - 932 226 262 128 149 704 45 944 28 830 12 026 2 664 937 163 LOSS ALLOWANCE 31.12.2018 Regular/ normal risk countries High risk countries Total TR Credit insured TR Unsecured TR Credit insured TR Unsecured - - - - - 123 403 215 393 107 562 1 000 4 930 26 121 58 611 262 015 1 885 1 343 93 1 159 2 988 77 281 22 565 945 24 107 5 751 887 628 2 047 3 384 1 096 - 838 226 262 128 4 054 441 4 052 2 562 2 664 11 931 NOT E 21 OT HER CURREN T RECEI VA BL E S OTHER CURRENT RECEIVABLES NOK 1 000 Vat receivable Prepaid expenses Loan extended to Nordnorsk Smolt AS Current loans extended to non-controlling interests Other current receivables Total 2019 120 847 77 421 - 60 000 76 357 334 625 2018 87 666 46 432 22 100 - 10 234 166 432 2 7 7 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 2 2 REL AT ED PA R T IE S 2019 NOK 1 000 OPERATING INCOME OPERATING EXPENSES NON-CURRENT BALANCES CURRENT BALANCES Total related parties as shareholders Total related parties as associates Total 40 340 - 40 340 277 257 72 535 349 791 - 1 910 1 910 -35 584 60 000 24 416 2018 NOK 1 000 OPERATING INCOME OPERATING EXPENSES NON-CURRENT BALANCES CURRENT BALANCES Total related parties as shareholders Total related parties as associates Total 38 110 - 38 110 259 786 338 260 125 - - - 4 113 - 4 113 The Group has transactions with companies controlled by Grieg Maturitas II AS, who is the parent company of Grieg Aqua AS, majority owner of Grieg Seafood. These services include: • ICT-related services and other functions such as catering, reception etc. are provided by Grieg Group Resources AS on an arm’s length basis. • Grieg Seafood ASA rents its offices from Grieg Gaarden AS on an arm’s length basis. • The regions purchased cleansing fish from Ryfylke Rensefisk AS, a company owned by Grieg Kapital AS. • Purchase of roe and other operating services from SalmoBreed AS, which is a related party of a board member. • Purchase of feed relating to operations from Biomar Group, which is a related party of a board member. • Purchase of veterinary services from Fomas AS and SLab AS, which are a related parties of a board member. • Purchase of equipment from Mørenot Group, which are a related parties of a board member. The Group also purchases services relating to operations from other related parties and associates. The board and management are related parties. See Note 16 on share-based options and Note 17 on shares controlled by board members and management. 2 7 8 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S NOT E 2 3 F IN A NCI A L INCOME A ND F IN A NCI A L E X P EN SE S FINANCIAL ITEMS NOK 1 000 2019 2018 FINANCIAL INCOME Other interest income * Dividend Net currency gains Total FINANCIAL EXPENSE Interest expense on external borrowings and leases ** Amortized establishment cost Other interest expenses *** Net change in fair value of derivatives Net currency losses Other financial expenses Total 18 719 - 32 590 51 309 59 153 2 750 9 911 2 690 - 3 038 77 542 18 864 10 - 18 874 48 773 5 304 11 873 5 490 23 199 2 226 96 865 Net financial items decreased by NOK 52 million compared to last year, mainly driven by currency gains on loans and receivables. * The Group sells fish on behalf of non-controlling interests. The majority of other interest income comprises cash discounts from non-controlling interests, based on settlement of trade payables with shorter-than-normal credit terms. ** Interest expenses on bank borrowings and leases includes recognized gains/losses from realized interest rate swaps. In addition, IFRS 16 was implemented from 1 January 2019. The effect on interest expenses in 2019 amounted to NOK 11 million. *** Interest expenses relating to the factoring agreement at Ocean Quality are included in other interest expenses. 2 7 9 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 2 4 OT HER OP ER AT ING E X P EN SE S OTHER OPERATING EXPENSES NOK 1 000 Transportation costs Maintenance costs Electricity and fuel Lease expenses 1) Outsourced services 2) Insurance IT expenses Marketing costs Other operating expenses 3) Other production-related costs 1, 4) Total other operating expenses 2019 612 272 289 029 125 139 52 567 103 412 61 931 54 369 10 415 110 184 593 684 2 013 002 2018 521 659 265 461 101 499 97 764 51 774 54 092 37 124 8 996 104 735 578 520 1 821 623 1) IFRS 16 was implemented 1 January 2019, reducing recognized lease expenses by NOK 89 million and other production-related costs by NOK 38 million (YTD 2019 IFRS 16 compared with IAS 17). See Note 11 for further information. 2) Outsourced services include auditor´s fees. See more detailed information below. 3) Includes equipment, telephony/postage, office supplies, fees, travel costs etc. 4) Production-related costs comprise harvesting costs including expenses for well-boat services, packaging material, diving services, vaccination, de-lousing, oxygen, and analyses etc. BREAKDOWN OF AUDITOR'S FEES NOK 1 000 AUDITOR'S FEES Group auditor Other auditors OTHER CERTIFICATION SERVICES Group auditor Other auditors TAX ADVICE Group auditor Other auditors OTHER SERVICES Group auditor Other auditors Total Group auditor Total other auditors Total auditor's fees 2 8 0 2019 3 414 628 574 - 578 460 179 157 4 745 1 245 5 990 2018 2 504 542 323 - 350 195 121 119 3 298 857 4 154 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S NOT E 25 OT HER CURREN T L I A BIL I T IE S OTHER CURRENT LIABILITIES NOK 1 000 Accrued expenses * Other current liabilities ** Other current liabilities 2019 169 895 9 612 179 507 2018 139 803 8 859 148 663 * Accrued expenses relate to other operating expenses, including accrued purchases, transportation costs, bonuses/discounts for buyers, accrued salaries, and insurance. ** At year-end 2019, the Group had physical delivery contracts recognized as liability, totalling NOK 2 million. 2 8 1 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 26 NE W A CCOUN T ING S TA NDA RD S CHANGES IN ACCOUNTING POLICIES AND DISCLOSURE OF NEW STANDARDS A) NEW AND AMENDED STANDARDS, AND INTERPRETATIONS - ADOPTED IN 2019 IFRS 16 LEASES IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The Group as a lessee IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model. At the commencement date of a lease, a lessee will recognize a liability to make lease payments and an asset representing the right to use the underlying asset during the lease term ("right-of- use asset"). The standard includes a number of optional practical expedients related to recognition and initial application. Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Effective 1 January 2019 the Group adopted IFRS 16 using the modified retrospective approach and accordingly comparative information has not been restated. Determining whether a contract is or contains a lease For contracts entered into before 1 January 2019, on the transition to IFRS 16, the Group elected to not reassess whether a contract is, or contains a lease, as a practical expedient. As such, the Group rely on the assessment made applying IAS 17 and IFRIC 4, on whether the contract is, or contains, a lease. Leases previously classified as operating leases under IAS 17 At the date of initial application of IFRS 16, the Group measured lease liabilities at the present value of the remaining lease payments, discounted using the Group's incremental borrowing rate at 1 January 2019. Further, the Group recognized right-of-use assets at an amount equal to the lease liability adjusted by the amount of any prepaid or accrued lease payments. At the initial application date of IFRS 16, there were no onerous lease contracts that would have required an adjustment to the right-of-use asset at 1 January 2019. The Group has applied the following practical expedients to leases previously classified as operating leases at the date on initial application: 2 8 2 • Exemption for short-term leases (defined as 12 months or less) • Exemption for low value assets • Excluded any initial direct costs from the measurement of the right-of-use asset • Use of a single discount rate to a portfolio of leases with similar characteristics • Applied hindsight when determining the lease term for contracts containing options. Leases previously classified as finance leases under IAS 17 For leases that were classified as finance leases under IAS 17, the carrying amount of the right-of-use asset and the lease liability at 1 January 2019 was determined to be the carrying amount of the lease asset and lease liability at the date of initial application of IFRS 16. IFRS 16 IMPACT ON THE CONSOLIDATED FINANCIAL STATEMENTS On transition to IFRS 16, the Group recognized NOK 319 million in right-of-use assets and NOK 319 million as lease liabilities. The initial application of IFRS 16 did not impact the opening balance of retained earnings. The impact on the date of initial application is further presented below: RECONCILIATION OF LEASE COMMITMENTS TO LEASE LIABILITIES NOK 1 000 01.01.2019 Operating lease commitments 31 December 2018 - Estimation adjustment of the operating lease commitment + Extension options reasonably certain to be exercised - Termination options reasonably certain to be exercised - Non-lease component of vessel charter hire - Practical expedient related to short term leases - Practical expedient related to low value leases - Discounting using the incremental borrowing rate Lease liabilities recognized at initial application The weighted average incremental borrowing rate applied: Right-of-use assets recognized at initial application 518 888 54 955 - - 46 071 56 995 61 41 751 319 054 3.04% 319 054 Refer to note 11 for a summary of the implementation effect on the opening balance at 1 January 2019 (hereof information on the current- and non-current classification of the lease liability at initial application of IFRS 16), in addition to a 2019 full year comparison of the consolidated income statement, comparing IFRS 16 with the superseded IAS 17. PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S AMENDED STANDARDS AND INTERPRETATIONS IFRIC 23 Uncertainty over Income Tax Treatments The interpretation clarifies how to consider uncertain tax treatment within the scope of IAS 12 Income Taxes. Uncertainty over income tax treatments arises when it is unclear how the applicable tax regulations should be understood for a specific transaction or event, and when it is uncertain whether taxation authorities will approve an entity's tax treatment. The interpretation specifically addresses the following: • Whether an entity considers uncertain treatments tax separately or together • The assumptions an entity makes about the examination of tax treatments by taxation authorities Amendments to IFRS 9, IAS 39 and IFRS 7 due to the IBOR reform The amendments provide companies with temporary reliefs to certain requirements related to hedge accounting in the period of uncertainty before the replacement of an existing interest rate benchmark with an alternative nearly risk-free interest rate (an RFR). For the hedging relationships where the reliefs are applied, companies are required to disclose additional qualitative and quantitative information. However, the amendments also provide an exemption from the disclosure requirements in IAS 8.28 related to the adjustment amounts in the current and prior period. • How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates (how to reflect uncertainty in these positions) • How an entity considers changes in facts and circumstances The effective date of the amendments is for annual periods beginning on or after 1 January 2020, with early application permitted. The requirements must be applied retrospectively. The Group does not intend to early adopt the amendments. The interpretation is effective for annual reporting periods beginning on or after 1 January 2019, but certain transition reliefs are available. The interpretation has not had material effect on the Group as per 31 December 2019, however, could affect the Group in the future. Other amended standards and new interpretations, other than IFRIC 23, has not had material effect on the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective. B) NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS - NOT YET ADOPTED Standards, amendments and interpretations that are issued up to the date of issuance of the consolidated financial statement, but not yet effective, are disclosed below. The Group’s intention is to adopt the relevant new and amended standards and interpretations when they become effective, subject to EU approval before the consolidated financial statement are issued. Amendments to IAS 1 on classification of liabilities as current or non-current IASB has on the 23 January 2020 issued amendments to IAS 1 to clarify the requirements for classifying liabilities as current or non-current. The amendment clarifies • The interpretation of the right to defer settlement of a liability • That a right to defer must exist at the end of the reporting period • That classification is unaffected by the likelihood that an entity will exercise its deferral right • That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification. The new guidance will be effective for annual periods starting on or after 1 January 2022. OTHER STANDARDS, AMENDMENTS AND INTERPRETATIONS No other new standards, amendments and interpretations, not yet adopted at 31 December 2019, is expected to have material impact on the consolidated financial statement of the Group. 2 8 3 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 2 7 C ON T INGEN T L I A BIL I T IE S In February 2019, the European Commission launched an investigation to explore potential anti-competitive behavior in the Norwegian salmon industry. Grieg Seafood is one of the companies under investigation. Based on the EU investigation, US competition authorities launched their own investigation into the matter in November 2019. By the end of the year, four class-action lawsuits had been filed by minor customers in the USA and two in Canada. Grieg Seafood is not aware of any anti-competitive behavior within the Group, not in Norway, the EU, the USA, or in Canada. We are fully collaborating with European and American authorities in this matter and will follow up the lawsuits in the USA and Canada accordingly. Approximately NOK 20 million was spent on lawyer fees related to the EU commission investigation during the year. There is no new information regarding the EU investigation, and Grieg Seafood considers it to be probable that the investigation will be in its favor, which also is supported by legal advice. Furthermore, the amount of the contingent liability related to a negative outcome of this matter cannot be reasonable estimated, due to the lack of information. Consequently, no provision has been recognized in relation to both the EU and the US investigation, nor to any of the civil lawsuits. 2 8 4 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D G R O U P A C C O U N T S NOT E 2 8 P O S T-B A L A NCE SHEE T E V EN T S In January 2018, Ocean Quality AS was suspected of exporting salmon with PD (Pancreas Disease) to China. The case was dismissed in January 2020. Norwegian Authorities concluded that Ocean Quality had not done anything wrong. 14 January 2020, Grieg Seafood notified the Norwegian Food Safety Authority (FSA) of the possibility of an ISA (Infectious Salmon Anemia) outbreak on fish at the Laholmen site in Nordkapp. The suspicion was confirmed by the FSA 23 January. The fish was of harvest size and has now been completely harvested according to procedures and requirements set by the FSA. In February 2020, Norway`s Ministry of Trade, Industry and Fisheries presented the updated “traffic lights”, allowing a net national production increase of salmon and trout of approximately 23 000 tonnes per year. The sites of Grieg Seafood Rogaland have been amended from yellow to green light. On 7 February 2020, Grieg Seafood announced that it had signed Sales and Purchase Agreements (SPA) for the acquisition of Grieg Newfoundland AS in Newfoundland, Canada. The project currently comprises licenses for 11 sea sites across four areas in Placentia Bay, Newfoundland. Three licenses are approved, three are expected to be approved in 2020 and the rest are in different stages of application. The project also includes a high-end Recirculating Aquaculture System (RAS) facility currently under construction. The first harvest will be in 2022/23, and the region is expected to contribute 15 000 tonnes harvest in 2025. The project has a long- term annual harvest potential of 30 000 - 45 000 tonnes Atlantic salmon. For more information, see the notification to the Oslo Stock Exchange on www.griegseafood.com. On 25 March 2020, the Extraordinary General Meeting approved the Sales and Purchase Agreements for the acquisition of Grieg Newfoundland AS. The Group has accordingly renegotiated the syndicate loan agreement and hence the financing of the acquisition is secured. The parties have agreed to prolong the long stop date for the transaction until 14 April 2020. After the balance sheet date and until the date of the release of the Annual report, the world has been severely affected by the coronavirus pandemic, and the salmon marked makes no exemption. Although the demand for salmon currently remains, there has been a shift from demand from hotels, restaurants and catering to demand from the retail sector. Airfreight is making the distribution more challenging for the sales teams, however transport on trucks remains relatively good. The production is currently running as normal. Grieg Seafood is constantly monitoring the situation and fully complies with the authorities’ recommendations in all locations. The employees’ wellbeing is highly prioritized. As food producers, critical employees in the salmon farming industry are recognized as essential workers in Norway, Canada and the UK. The governments want production to continue and have signaled that they are willing to facilitate that where necessary. For further details, please refer to the Outlook section in the Board of Director’s report and in the profit & innovation section in part 2 of the Annual report. Since 31 December 2019, the NOK has been depreciating significantly against the Group’s other transaction currencies. The most significant change has been NOK against USD, with a 20% depreciation as of 31 December 2019 until 31 March 2020. The NOK has furthermore been depreciating 17% against the EUR during the same period. As such, a depreciation of the NOK will have a positive effect on the Group’s sales revenues, as approximately 50% of the sales revenues are denominated in EUR. The Group also carries out purchases denominated in EUR and USD, which will be negatively impacted by a depreciation of the NOK. This will significantly increase the feed cost for all our production companies. Otherwise, the Group companies mainly have cost denominated in local currencies, except Grieg Seafood UK, which has deliveries from Norway, and can hence be positively affected by a depreciation of the NOK. In order to reduce some of the currency fluctuation risk, the Group has a portion of the syndicate term loan denominated in EUR, which was carried out in 2018 as a part of the Group’s hedging strategy. The production companies carry out sales to the sales company (Ocean Quality) in their local currencies. Ocean Quality hedges transactions against currency fluctuations related to CAD/USD, EUR/NOK, GBP/EUR and USD/NOK, and other currencies if necessary. Hence, the depreciation of the NOK will most likely have a positive effect on the Group’s EBIT. Please refer to Note 3 and the board of directors’ report for further information about currency risk. No other significant events have been recorded after the balance sheet date. 2 8 5 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 Grieg Seafood ASA Accounts 2 8 6 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D A S A A C C O U N T S A S A AC C OUN T S 289 290 292 293 Income statement Statement of financial position Statement of changes in equity Cash flow statement NOT E S 294 296 296 299 302 303 303 304 304 305 305 306 307 308 309 310 311 312 NOT E 1 NOT E 2 NOT E 3 NOT E 4 NOT E 5 NOT E 6 NOT E 7 NOT E 8 NOT E 9 Accounting policies Operating income Salaries, personnel and other operating expenses Cash-based remuneration Financial income and expenses Other current receivables/other liabilities Bank deposits Financial instruments Investments in subsidiaries NOT E 10 Investments in shares NOT E 11 NOT E 12 NOT E 13 NOT E 14 NOT E 15 NOT E 16 NOT E 17 NOT E 18 Intangible assets Property, plant and equipment Share capital and shareholder information Taxes Guarantees Related parties Net interest-bearing liabilities and pledges Post-balance sheet events 2 8 7 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 2 8 8 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D A S A A C C O U N T S INC OME S TAT EMEN T GRIEG SEAFOOD ASA NOK 1 000 Other operating income Total operating income Salaries and personnel expenses Depreciation and amortization Other operating expenses Total operating expenses Operating loss Financial income Financial expenses Net financial items Profit before tax Income tax expense Net profit for the year APPROPRIATION OF PROFIT FOR THE YEAR Proposed dividend Additional dividend paid-out, not accrued previous year Transferred to other equity Total appropriations NOTE 2/16 3/4 11/12 3/16 5/16 5/16 14 2019 79 264 79 264 -61 186 -5 840 -99 620 -166 646 -87 382 982 858 -42 171 940 687 2018 72 136 72 136 -56 652 -5 528 -71 661 -133 841 -61 704 673 851 -78 431 595 420 853 305 533 716 -186 345 666 960 - 220 897 446 064 666 960 -118 343 415 373 220 867 220 867 -26 361 415 373 2 8 9 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 S TAT EMEN T OF FIN A NCI A L P O SI T ION GRIEG SEAFOOD ASA NOK 1 000 NOTE 31.12.2019 31.12.2018 ASSETS Software Property, plant and equipment Investments in subsidiaries Loan to Group companies Other non-current receivables Investment in shares Total non-current assets Trade receivables from Group companies Other receivables from Group companies Other current receivables Bank deposits Total current assets Total assets 11 12/17 9/17 16/17 10 16/17 16/17 6/17 7 15 238 3 379 1 385 840 648 991 167 677 18 739 4 488 1 385 840 619 171 167 676 2 054 291 2 029 082 21 217 1 806 443 17 961 6 395 466 1 112 619 34 840 5 790 1 852 016 1 153 715 3 906 306 3 182 797 2 9 0 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D A S A A C C O U N T S GRIEG SEAFOOD ASA NOK 1 000 NOTE 31.12.2019 31.12.2018 EQUITY AND LIABILITIES Share capital Treasury shares Other paid-in equity Other retained earnings Total equity Deferred tax Cash-settled share options Total provisions Non-current loan Total non-current liabilities Current portion of non-current loan Overdraft facility Cash-settled share options Proposed dividend Trade payables Trade payables to Group companies Current liabilities to Group companies Tax payable Public tax payable Other current liabilities Total current liabilities Total liabilities Total equity and liabilities BERGEN, 8 APRIL 2020 GRIEG SEAFOOD ASA 13 13 14 4 17 17 17 4 16 16/17 14 6/8 446 648 -4 855 39 627 1 279 034 1 760 455 23 083 8 379 31 461 1 563 935 1 563 935 98 212 - 11 270 - 11 415 1 625 216 868 180 394 2 808 27 865 550 455 446 648 -4 914 13 877 856 775 1 312 386 18 147 8 493 26 641 1 298 713 1 298 713 98 212 46 597 9 010 220 867 5 715 16 068 11 476 115 816 2 568 18 728 545 057 2 145 851 1 870 411 3 906 306 3 182 797 ASBJØRN REINKIND Vice Chair PER GRIEG JR. Chair KARIN BING ORGLAND Board Member SOLVEIG NYGAARD Board Member TORE HOLAND Board Member SIRINE FODSTAD Board Member ANDREAS KVAME CEO 2 9 1 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 S TAT EMEN T OF CH A NGE S IN EQUI T Y GRIEG SEAFOOD ASA NOK 1 000 SHARE CAPITAL TREASURY SHARES OTHER PAID-IN EQUITY OTHER EQUITY TOTAL EQUITY 446 648 -5 000 13 652 - - 225 - - 13 877 - 25 597 153 - 39 627 880 823 415 373 10 2 304 -220 867 -220 867 856 775 666 960 -25 597 1 793 -220 897 1 279 034 1 336 123 415 373 10 2 615 -220 867 -220 867 1 312 386 666 960 - 2 005 -220 897 1 760 455 Equity at 01.01.2018 PROFIT FOR THE YEAR 2018 Other gains and losses recognized in equity Sale of treasury shares to employees Dividend paid-out 2018, not accrued 2017 Proposed dividend, to be paid in 2019 - - - - - - - 86 - - Equity at 31.12.2018 446 648 -4 914 PROFIT FOR THE YEAR 2019 Reclassification of equity Sale of treasury shares to employees Dividend paid-out 2019, not accrued 2018 - - - - - - 59 - Equity at 31.12.2019 446 648 -4 855 2 9 2 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D A S A A C C O U N T S C A SH FLOW S TAT EMEN T GRIEG SEAFOOD ASA NOK 1 000 Profit before tax Recognized, not paid Group contribution Taxes paid Depreciation and amortization Change in trade receivables Change in trade payables Change in other accruals Items classified as investing or financing activities Currency translation differences Net cash flow from operating activities Dividend income Purchase of property, plant and equipment Purchase of intangible assets Payments/proceeds, loans to/from Group companies Payment of shares in Group companies Group contribution from subsidiaries Payments/proceeds, loans to/from associates Net cash flow from investing activities Change in overdraft facility Change in non-current interest-bearing liabilities Change in loans to/from Group companies Change in non-current liabilities Interest paid Dividends paid Net cash flow from financing activities Net change in cash and cash equivalents Cash and cash equivalents at 01.01. Cash and cash equivalents at 31.12. NOTE 14 11/12 5 12 11 17 2019 853 305 -862 390 -115 816 5 840 -20 752 -8 742 6 450 19 157 -36 919 -159 867 14 737 -534 -695 -297 964 - 610 982 22 940 349 465 -46 597 -98 346 60 939 370 667 -33 893 -441 764 -188 993 604 5 790 6 395 2018 533 716 -610 981 -122 802 5 528 41 140 -21 085 -9 830 17 141 20 247 -146 925 20 189 -576 -4 505 -47 904 -158 860 534 522 -9 840 333 026 46 597 -49 173 -4 528 148 356 -37 330 -441 691 -337 770 -151 670 157 460 5 790 2 9 3 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 1 A C C OUN T ING P OL ICIE S The annual financial statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway. All amounts are stated in NOK thousand, unless otherwise indicated. REVENUE RECOGNITION Revenue from the sale of goods is recognized at the time of delivery. Revenue from the sale of services is recognized when the services are delivered. The share of sales revenue associated with future service is recognized in the balance sheet as accrued sales revenues and is transferred to income at the time of execution. CLASSIFICATION AND VALUATION OF BALANCE SHEET ITEMS Assets intended for long-term ownership or use are classified as non-current 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 of the transaction date. Similar criteria are applied to liabilities. Current assets are valued at the lower of cost and fair value. Current liabilities are recognized in the balance sheet at nominal value. Non-current assets are valued at historical cost. Property, plant and equipment whose value will deteriorate is depreciated on a straight-line basis over the asset’s estimated useful life. Non-current assets are written down to fair value where this is required by accounting rules. Nominal amounts are discounted if the interest rate element is material. INTANGIBLE ASSETS Expenditure on intangible assets is recognized in the balance sheet to the extent that a future economic benefit can be identified as deriving from the development of an identifiable intangible asset and cost can be measured reliably. Otherwise, the cost is expensed as it arises. Capitalized development costs are amortized over their useful life. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is recognized in the balance sheet and depreciated on a straight-line basis over its estimated useful life, providing the asset has an expected useful life of more than 3 years and a cost price of more than NOK 15 thousand. Maintenance costs are recognized in income as operating expenses as they arise, while improvements and additions are added to the acquisition cost of the asset and depreciated at the same rate as the asset. The distinction between maintenance and improvements is made based on the asset’s relative condition at the original purchase date. SUBSIDIARIES Subsidiaries are valued at cost in the single-entity financial 2 94 statements. Investments are recognized as the cost of the shares adjusted for any minor impairments where necessary. Group contributions paid to subsidiaries, net of tax, are recognized as an increase in the cost of the shares. Dividends and Group contributions are recognized in the same year as they are proposed in the subsidiary’s financial statements. If dividends/ Group contributions materially exceed retained earnings after acquisition, the excess amount is regarded as a reimbursement of invested capital and is deducted from the recorded cost in the balance sheet. Group contributions received are recognized as other financial income. IMPAIRMENT OF NON-CURRENT ASSETS Impairment tests are performed upon indication that the carrying amount of a non-current asset exceeds its estimated fair value. The test is performed at the lowest level of non-current assets at which independent cash flows can be identified. If the carrying amount is higher than both the fair value less costs to sell and the recoverable amount (net present value of future use/ownership), the asset is written down to the higher of fair value less costs to sell and the recoverable amount. Previous impairment charges are reversed in a later period if the prerequisites for impairment are no longer present (except for impairment of goodwill). TRADE AND OTHER RECEIVABLES Trade and other receivables are recognized in the balance sheet at nominal value after a provision for bad debts. The provision for bad debts is estimated based on an individual assessment of each material receivable. An additional general provision is recognized for minor receivables based on estimated expected losses. (shares and CURRENT INVESTMENTS investments which are investments Current considered current assets) are carried at the lower of average purchase cost and net realizable value at the balance sheet date. Dividends and other distributions received are recognized as other financial income. PENSIONS The company’s pension schemes meet the requirements of the Mandatory Occupational Pensions Act. The company operates a defined contribution pensions scheme for its employees. The premium is paid through operations and is expensed on an ongoing basis. Social security costs are charged based on the pension premium paid. GROUP ACCOUNT SCHEME – DEPOSITS AND LOANS Grieg Seafood ASA operates as an internal bank for its subsidiaries. Grieg Seafood ASA borrows funds under the agreement from financial institutions and then lends these funds to its subsidiaries. The company has set up a group account scheme (multi-account scheme) in which Grieg Seafood ASA is the legal account holder. PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D A S A A C C O U N T S Deposits and loans are recognized as intercompany transactions. All subsidiaries are jointly and severally liable to the financial institutions for the entire amount of the commitment under the scheme. FOREIGN CURRENCY The company’s functional and presentational currency is NOK. All foreign currency transactions are translated into NOK at the transaction date. Exchange rate and translation differences are recognized under other financial income or expenses. All monetary items denominated in foreign currency are translated using the balance sheet rate. Derivatives are recognized at fair value with changes in value recognized in the income statement. CASH-BASED REMUNERATION The company operates a share-based remuneration scheme with settlement in cash, where each employee is obliged to purchase shares relative to their annual salary. The company’s estimated liability is recognized under current or non-current liabilities based on the estimated settlement date. The cost for the year is recognized in the income statement. DERIVATIVES FORWARD CURRENCY CONTRACTS Realized gains are recognized in the income statement as financial income. The fair value of the contracts is measured based on the exchange rate at the balance sheet date. 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. Deferred tax is calculated at the relevant rate on temporary differences between the value of assets and liabilities for tax purposes and any allowable loss to be carried forward at the year-end in the financial statements. Temporary differences, both positive and negative, are offset within the same period. Deferred tax assets are recognized in the balance sheet when it is likely on the balance of probabilities that the tax assets will be utilized. Deferred tax assets and deferred tax liabilities are presented net in the balance sheet. Tax on paid Group contributions recognized as an increase in the purchase price of shares in other companies, and tax on received Group contribution recognized directly in equity, are recognized directly against tax items in the balance sheet (offset against tax payable if the Group contribution affects tax payable and offset against deferred taxes if the Group contribution affects 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 which mature within three months of the purchase date. 2 9 5 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 2 OP ER AT ING INC OME OPERATING INCOME NOK 1 000 Administrative services – Group companies (Note 16) Other operating income Total operating income 2019 79 394 -130 79 264 2018 71 516 620 72 136 NOT E 3 SAL ARIES, PERSONNEL AND OTHER OPERATING EXPENSES SALARIES AND PERSONNEL EXPENSES NOK 1 000 Wages and salaries Social security costs Share options for directors and key personnel (Note 4) Pension costs – defined contribution scheme Other personnel costs Total Average number of employees 2019 30 013 5 912 16 387 1 424 7 450 61 186 25 2018 29 020 5 667 15 173 1 282 5 510 56 652 24 The Company has a pension scheme covering all employees at 31 December 2019. The pension scheme is funded and managed through an insurance company. Grieg Seafood established a share savings program for its employees and has been continued in 2019. See the consolidated financial statements Note 15 for further information. The board's guidelines and principles for the determination of salaries and other remuneration paid to the management group are disclosed in the consolidated financial statements Note 14. 2 96 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D A S A A C C O U N T S REMUNERATION PAID TO GROUP MANAGEMENT IN 2019 NOK 1 000 SALARY BONUS RETAINED, NOT YET PAID OPTIONS EXERCISED DURING THE YEAR OTHER BENEFITS Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Total remuneration incl. social security costs 3 009 1 954 2 091 1 637 8 691 347 184 133 280 945 601 383 345 265 1 594 2 592 1 652 1 787 1 645 7 677 101 101 101 103 406 Recognized expenses arising from synthetic options not declared throughout the year are not included in the above statement. REMUNERATION PAID TO BOARD MEMBERS IN 2019 NOK 1 000 Per Grieg jr. 1) Asbjørn Reinkind 1) Wenche Kjølås (until 13.06.2019) 2) Karin Bing Orgland 2) Solveig M.R. Nygaard Tore Holand 2) Sirine Fodstad (from 13.06.2019) 3) Total remuneration including social security costs TOTAL 6 650 4 276 4 458 3 930 19 314 TOTAL 456 319 140 311 257 285 154 1 923 1) Payment for work performed on the Remuneration Committee of NOK 19 968 is included in the remuneration paid to Per Grieg jr. and Asbjørn Reinkind. 2) Payment for work performed on the Audit Committee is included in the remuneration paid to Wenche Kjølås, Karin Bing Orgland and Tore Holand, amounting to NOK 25 673, 54 198 and 28 525, respectively. 3) Payment for work performed on the Remuneration Committee of NOK 11 410 is included in the remuneration paid to Sirine Fodstad. The amounts include social security costs. REMUNERATION PAID TO GROUP MANAGEMENT IN 2018 NOK 1 000 SALARY BONUS RETAINED, NOT YET PAID OPTIONS EXERCISED DURING THE YEAR OTHER BENEFITS Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Total remuneration incl. social security costs 2 685 1 748 1 748 1 466 7 647 630 335 195 347 389 207 149 314 1 508 1 058 2 522 1 607 1 607 1 448 7 184 90 97 97 92 376 Recognized expenses arising from synthetic options not declared throughout the year are not included in the above statement. TOTAL 6 316 3 993 3 796 3 667 17 772 2 9 7 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 REMUNERATION PAID TO BOARD MEMBERS IN 2018 NOK 1 000 Per Grieg jr. 1) Wenche Kjølås 2) Karin Bing Orgland 2) Asbjørn Reinkind 1) Ola Braanaas (until 12.06.2018 ) 3) Solveig M.R. Nygaard (from 12.06.2018) Tore Holand (from 12.06.2018) Total remuneration including social security costs 1) Payment for work performed on the Remuneration Committee of NOK 17 115 is included in the remuneration paid to Per Grieg jr. and Asbjørn Reinkind. 2) Payment for work performed on the Audit Committee of NOK 51 345 is included in the remuneration paid to Wenche Kjølås and Karin Bing Orgland. 3) Payment for work performed on the Remuneration Committee of NOK 8 558 is included in the remuneration paid to Ola Braanaas. The amounts include social security costs. BREAKDOWN OF AUDITOR'S FEES NOK 1 000 Statutory audit Other certification services Tax advisory fee Other services Total 2019 994 514 302 173 1 983 TOTAL 434 280 280 302 123 114 114 1 646 2018 808 291 144 56 1 299 In February 2019, the European Commission launched an investigation to explore potential anti-competitive behavior in the Norwegian salmon industry. Grieg Seafood is one of the companies under investigation. Based on the EU investigation, US competition authorities launched their own investigation into the matter in November 2019. By the end of the year, four action-class lawsuits had been filed in the USA, and two in Canada. Grieg Seafood is not aware of any anti-competitive behavior within the Group, not in Norway, the EU, the USA, or in Canada. We are fully collaborating with European and American authorities in this matter and will follow up the lawsuits in the USA and Canada accordingly. Approximately NOK 20 million was spent on lawyer fees related to the EU commission investigation during the year. There is no new information regarding the EU investigation, and Grieg Seafood considers it to be probable that the investigation will be in its favor, which also is supported by legal advice. Furthermore, the amount of the contingent liability related to a negative outcome of this matter cannot be reasonable estimated, due to the lack of information. Consequently, no provision has been recognized in relation to both the EU and the US investigation, nor to any of the civil lawsuits. 2 9 8 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D A S A A C C O U N T S NOT E 4 C A SH-B A SED REMUNER AT ION (OP T ION S) 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, rising by 0.5% per month until the exercise date. As at 31 December 2019, no equity options were available for vestment. Since 2009, an option scheme with settlement in cash has been established for the management and regional directors. The most recent allocation was in 2017, totalling 1 800 000 options. The final exercise date is 31 May 2021. The options have a term of two years, where 50% is vested each year. Employees taken on after the initial allocation of options are 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 perform the calculations. The table below shows the movement in outstanding options during 2018 and 2019. OVERVIEW 2019 (TOTAL OPTIONS) OPTION CATEGORY OUTSTANDING OPTIONS AT 31.12.2018 EXERCISED OPTIONS EXPIRED OPTIONS OUTSTANDING OPTIONS AT 31.12.2019 OF WHICH CASH-SETTLED Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Others Total Cash settlement Cash settlement Cash settlement Cash settlement Cash settlement 600 000 276 044 300 000 200 000 999 999 2 376 044 29 530 18 826 20 364 67 288 157 238 293 246 170 470 57 218 79 636 - 165 269 472 593 400 000 200 000 200 000 132 712 677 492 400 000 200 000 200 000 132 712 677 492 1 610 205 1 610 205 OVERVIEW 2018 (TOTAL OPTIONS) OPTION CATEGORY OUTSTANDING OPTIONS AT 31.12.2017 EXERCISED OPTIONS EXPIRED OPTIONS OUTSTANDING OPTIONS AT 31.12.2018 OF WHICH CASH-SETTLED Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Others Total Cash settlement Cash settlement Cash settlement Cash settlement Cash settlement 658 272 311 274 352 366 300 000 1 329 634 2 951 547 55 275 35 230 35 230 100 000 262 677 488 412 2 997 - 17 136 - 66 958 87 091 600 000 276 044 300 000 200 000 999 999 600 000 276 044 300 000 200 000 999 999 2 376 044 2 376 044 ALLOCATION: YEAR - MONTH EXPIRY DATE: YEAR - MONTH STRIKE PRICE NOK PER SHARE AT 31.12.2019 STRIKE PRICE NOK PER SHARE AT 31.12.2018 2015–06 2017–11 2017–11 Total 2019–06 2020–05 2021–05 - 94.29 94.29 31.60 88.78 88.78 Cash-based options available for settlement Weighted average exercise price on outstanding options (NOK per option) OPTIONS 2019 - 710 205 900 000 1 610 205 2018 576 044 900 000 900 000 2 376 044 2019 2018 1 610 205 83.00 1 476 044 66.49 2 9 9 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 4 C O N T I N U E D NOK/OPTION AMOUNTS IN NOK 1 000 OPTION CATEGORY LISTED PRICE ON ALLOCATION CALCULATED VALUE PER OPTION ON ALLOCATION CALCULATED TOTAL VALUE ON ALLOCATION * TOTAL VALUE OF ALL OPTIONS AT 01.01.2019 CHANGE IN PROVISION CB-OB * EXERCISED OPTION 2019 ACC. COST RECOGNIZED IN EQUITY AT 31.12.2019 RECOGNIZED LIABILITY CASH SETTLEMENT AT 31.12.2019 2019 Former employees with expired options Equity option Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Other options allocated in 2015 Other options allocated in 2017 Total Cash Cash Cash Cash Cash Cash Cash Cash Cash Cash 25.50 25.50 25.50 79.00 83.00 83.00 83.00 83.00 25.50 83.00 3.36 3.97 3.97 3.63 2.26 2.79 2.79 2.38 3.60 2.35 1 342 2 575 -2 575 2 592 793 793 363 906 557 557 475 1 634 1 773 -1 634 -1 773 1 652 1 787 - - 1 645 1 709 2 298 1 057 1 130 1 448 1 558 898 994 - - - - 2 876 3 027 -3 027 3 267 1 880 10 543 3 699 17 503 4 858 2 145 2 995 13 939 *Amounts exclude social security costs 6 887 - - - - - - - - - - 6 887 - - - - 4 007 2 505 2 688 1 891 - 8 557 19 649 NOK/OPTION AMOUNTS IN NOK 1 000 OPTION CATEGORY LISTED PRICE ON ALLOCATION CALCULATED VALUE PER OPTION ON ALLOCATION CALCULATED TOTAL VALUE ON ALLOCATION * TOTAL VALUE OF ALL OPTIONS AT 01.01.2018 CHANGE IN PROVISION CB-OB * EXERCISED OPTION 2018 ACC. COST RECOGNIZED IN EQUITY AT 31.12.2018 RECOGNIZED LIABILITY CASH SETTLEMENT AT 31.12.2018 2018 Former employees with expired options Equity option Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) Other options allocated in 2015 Other options allocated in 2016 Other options allocated in 2017 Total Cash Cash Cash Cash Cash Cash Cash Cash Cash Cash Cash 25.50 25.50 25.50 79.00 83.00 83.00 83.00 83.00 25.50 79.00 83.00 3.36 3.97 3.97 3.63 2.26 2.79 2.79 2.38 3.60 3.34 2.35 *Amounts exclude social security costs 3 0 0 1 342 4 255 -1 679 2 522 793 793 363 906 557 557 475 1 857 2 868 -223 -1 095 1 607 1 607 237 -237 1 448 147 1 563 90 90 77 967 1 040 821 - - - - 2 876 5 227 -2 200 2 859 669 441 -441 2 896 1 880 11 212 305 15 594 3 394 1 909 - 12 939 6 887 6 887 - - - - - - - - - - - 2 575 1 634 1 773 - 1 709 1 057 1 130 898 3 027 - 3 699 17 503 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D A S A A C C O U N T S ACCRUED COST RELATED TO CASH OPTIONS NOK 1 000 2019 2018 CLASSIFICATION IN FINANCIAL STATEMENTS Change in provisions Exercised options during the year Total cost excl. social security costs Social security costs Total cost incl. social security costs 2 145 13 939 16 085 303 16 387 1 909 Other provisions for liabilities 12 939 Salaries and personnel expense / cash 14 848 325 Public taxes payable 15 173 Salaries and personnel expense Cost relating to cash-based remuneration in 2019 totalled NOK 16 387 thousand. This is recognized in the income statement as a personnel cost. Social security contributions are provided for on an ongoing basis based on the fair value of the options. As at 31 December 2019, outstanding options with the right to cash settlement were stated at NOK 19 649 thousand, of which NOK 8 379 thousand were classified as non-current liabilities. Issued options are cancelled on termination of employment. ESTIMATES USED TO CALCULATE ALLOCATION OF OPTIONS 31.12.2019 31.12.2018 Anticipated volatility (%) Risk-free rate of interest (%) Estimated qualification period (years) 37.90% 1.39% 0.98 41.49% 1.07% 1.56 The estimated qualification period for the options is based on historical data, and does not necessarily represent future developments. In order to estimate volatility, management has applied historical volatility for comparable listed companies. 3 0 1 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 5 F IN A NCI A L INCOME A ND F IN A NCI A L E X P ENSE S FINANCIAL ITEMS NOK 1 000 FINANCIAL INCOME Interest income from Group companies Other interest income Group contributions from subsidiaries Dividend Unrealized value changes, derivatives (Note 8) Unrealized currency change, non-current EUR term loan Unrealized currency change, non-current loans from Group companies Net realized currency gains Net unrealized currency gains Total FINANCIAL EXPENSE Loan interest expenses Interest expenses to Group companies Other interest expenses Realized value changes, derivatives (Note 8) Unrealized currency change, non-current loans from Group companies Unrealized currency change, non-current EUR term loan Other financial expenses Net realized currency losses Net unrealized currency losses Total Net financial items 2019 2018 34 484 615 862 390 14 737 4 704 7 100 29 819 1 29 008 982 858 35 494 535 860 125 - - 2 381 2 776 - 42 171 31 640 840 610 982 20 189 9 723 - - 478 - 673 851 34 808 - 3 322 4 944 4 193 16 054 1 334 - 13 776 78 431 940 687 595 420 3 0 2 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D A S A A C C O U N T S NOT E 6 OT HER CURREN T RECEI VA BL E S / OT HER CURREN T L I A BIL I T IE S OTHER CURRENT RECEIVABLES NOK 1 000 Prepaid expenses VAT Loan to Nordnorsk Smolt AS * Unrealized gain on interest rate swap contracts (Note 8) Other current receivables Total other current receivables 2019 8 925 3 061 - 5 477 497 17 961 2018 8 028 2 492 22 940 858 523 34 840 *In 2018, GSF entered into a partnership with Norway Royal Salmon in order to secure additional smolt capacity in Finnmark. NRS and GSF each own 50% of Nordnorsk Smolt AS. As part of the agreement, GSF has extended loans to Nordnorsk Smolt AS to cover operations, investments and accumulation of working capital in connection with development of the facility. The loan was transferred from GSF ASA to GSF Finnmark in 2019. OTHER CURRENT LIABILITIES NOK 1 000 Accrued interest Other accrued expenses Unrealized loss on foreign currency contracts (Note 8) Other current liabilities Total other current liabilities NOT E 7 B A NK DEP O SI T S BANK DEPOSITS NOK 1 000 Restricted deposits relating to employees' tax deductions Other bank deposits Total 2019 4 984 20 090 - 2 791 27 865 2018 2 584 13 552 85 2 507 18 728 2019 1 591 4 804 6 395 2018 1 495 4 295 5 790 The company has an overdraft facility of NOK 100 million. Available credit on the overdraft facility was NOK 100 million at year-end 2019 (2018: NOK 53 million). 3 0 3 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 8 F IN A NCI A L IN S T RUMEN T S FINANCIAL INSTRUMENTS NOK 1 000 2019 2018 ASSETS CURRENT LIABILITIES ASSETS CURRENT LIABILITIES Interest rate swap contracts (three contracts of NOK 260 million, NOK 200 million and NOK 200 million maturing in 2021, 2022 and 2023, respectively)* Foreign currency contract EUR/NOK (one contract comprising 52 transactions maturing December 2018) Total financial instruments 5 477 - 5 477 - - - 858 - 858 *Booked as other current receivables, see Note 6. Amounts exclude accrued interest totalling NOK 399.9 thousand (2018: NOK -392.2 thousand) CHANGES IN FINANCIAL INSTRUMENTS RECOGNIZED AS FINANCIAL ITEMS NOK 1 000 Unrealized gain/loss on interest rate swaps Unrealized gain/loss on foreign currency contracts Net unrealized gain/(loss) on financial instruments 2019 4 619 85 4 704 - -85 -85 2018 4 929 4 795 9 723 The Company is exposed to a number of financial risks; market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the volatility of the financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. The Company uses financial derivatives to reduce certain risks. The Board has established written principles for the management of foreign exchange risk, interest rate risk and use of the Company´s financial instruments. NOT E 9 IN V E S T MEN T S IN S UB SIDI A RIE S SUBSIDIARY REGISTERED OFFICE COUNTRY REGISTERED OFFICE LOCATION OWNERSHIP/ VOTING SHARE Grieg Seafood Rogaland AS Grieg Seafood Canada AS Grieg Seafood Finnmark AS Grieg Seafood Shetland Ltd Ocean Quality AS Total Norway Norway Norway UK Norway Bergen Bergen Bergen Shetland Bergen 100% 100% 100% 100% 60% EQUITY AT 31.12.2019 NOK 1 000 PROFIT/ LOSS 2019 NOK 1 000 BOOK VALUE NOK 1 000 733 125 227 353 956 045 89 774 111 336 2 117 633 411 356 -42 416 021 -79 180 56 969 805 125 223 497 297 112 400 481 458 750 6 000 1 385 840 Equity and profit/loss are taken from provisional financial statements, which have been prepared in accordance with local accounting standards. 3 0 4 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D A S A A C C O U N T S NOT E 10 IN V E S T MEN T S IN SH A RE S INVESTMENTS IN SHARES REGISTERED OFFICE COUNTRY REGISTERED OFFICE LOCATION OWNERSHIP/ VOTING SHARE NUMBER OF SHARES ACQUISITION COST NOK 1 000 BOOK VALUE NOK 1 000 Finnøy Næringspark AS DNB Global Allokering Norsk Villaksforvaltning The Seafood Innovation Cluster AS Book value of shares at 31.12 Norway Norway Norway Norway Finnøy Oslo Førde Bergen 7.14% 0.00% 15.15% 25.00% 100 3 038 5 25 103 630 50 41 103 483 50 41 677 NOT E 11 IN TA NGIBL E A S SE T S 2019 NOK 1 000 Book value at 01.01 Additions Amortization Book value at 31.12 ACCUMULATED VALUES Acquisition cost Accumulated amortization Book value at 31.12 Economic life/amortization schedule 2018 NOK 1 000 Book value at 01.01 Additions Amortization Book value at 31.12 ACCUMULATED VALUES Acquisition cost Accumulated amortization Book value at 31.12 Economic life/amortization schedule SOFTWARE 18 739 695 -4 196 15 238 46 492 -31 254 15 238 3–10 years SOFTWARE 18 196 4 505 -3 962 18 739 45 797 -27 058 18 739 3–10 years 3 0 5 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 12 P R OP ER T Y, P L A N T A ND EQUIP MEN T 2019 NOK 1 000 Book value at 01.01 Additions Depreciation Book value at 31.12 ACCUMULATED VALUES Acquisition cost Accumulated depreciation Book value at 31.12 Economic life/depreciation schedule 2018 NOK 1 000 Book value at 01.01 Additions Depreciation Book value at 31.12 ACCUMULATED VALUES Acquisition cost Accumulated depreciation Book value at 31.12 Economic life/depreciation schedule PLANT, EQUIPMENT AND OTHER FIXTURES ETC. 4 488 534 -1 643 3 379 17 665 -14 286 3 379 3–5 years PLANT, EQUIPMENT AND OTHER FIXTURES ETC. 5 478 576 -1 566 4 488 17 131 -12 643 4 488 3–5 years The company has operating lease agreements, which are not recognized in the balance sheet: 2019 ASSETS Buildings Other equipment Total lease amount charged 3 0 6 DURATION OPERATING LEASE EXPENSE Until 2028 3-5 years 2 598 494 3 092 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D A S A A C C O U N T S NOT E 13 SH A RE C A P I TA L A ND SH A REHOL DER INFORM AT ION As at 31 December 2019, 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 confer the same rights. In June 2011, the company purchased 1 250 000 treasury shares at NOK 14.40 per share. 21 November 2018, the company sold 21 576 shares to employees for use in the share savings program. The sales price was NOK 121.56 per share, which provided a gain of NOK 107.16 per share. Another 14 737 shares were sold to employees in November 2019 at a sales price of NOK 136.05 per share, providing a gain of NOK 121.65 per share. After the transactions the company has 1 213 687 treasury shares. SHARE CAPITAL AND NUMBER OF SHARES NOMINAL VALUE (NOK) TOTAL SHARE CAPITAL NOK 1 000 NO. OF ORDINARY SHARES Holdings of treasury shares Sale of treasury shares to employees 2018 Sale of treasury shares to employees 2019 Total at 31.12.2019 4.00 4.00 4.00 4.00 446 648 -5 000 86 59 441 793 111 662 000 -1 250 000 21 576 14 737 110 448 313 THE 20 LARGEST SHAREHOLDERS IN GRIEG SEAFOOD ASA 31.12.2019 31.12.2019 31.12.2018 31.12.2018 NO. OF SHARES SHAREHOLDING NO. OF SHARES SHAREHOLDING Grieg Aqua AS OM Holding AS Folketrygdfondet Ystholmen Felles AS State Street Bank and Trust Comp Clearstream Banking S.A. Verdipapirfondet Pareto Investment Verdipapirfondet Alfred Berg Gamba Handelsbanken Nordiska Smabolag Grieg Seafood ASA State Street Bank and Trust Comp Swedbank Robur Smabolagsfond JPMorgan Chase Bank, N.A., London DPam Invest B Pictet & Cie (Europe) S.A. UBS Switzerland AG Arctic Funds PLC Citibank, N.A. State Street Bank and Trust Comp Verdipapirfondet Alfred Berg Norge Total –20 largest shareholders Other shareholders Total shares 56 018 799 50.17% 56 018 799 50.17% 6 169 379 5 100 130 2 928 197 2 166 080 1 745 002 1 701 000 1 500 796 1 332 190 1 213 687 1 057 400 940 000 915 596 888 362 878 324 780 949 706 424 619 195 597 876 562 479 5.53% 4.57% 2.62% 1.94% 1.56% 1.52% 1.34% 1.19% 1.09% 0.95% 0.84% 0.82% 0.80% 0.79% 0.70% 0.63% 0.55% 0.54% 0.50% 6 039 379 3 760 350 2 928 197 2 055 051 866 255 1 926 457 1 700 796 1 057 190 1 228 424 149 622 - 828 120 - - 566 035 234 349 - 404 867 380 000 87 821 865 23 840 135 111 662 000 78.65% 21.35% 100.00% 80 143 891 31 518 109 111 662 000 5.41% 3.37% 2.62% 1.84% 0.78% 1.73% 1.52% 0.95% 1.10% 0.13% - 0.74% - - 0.51% 0.21% - 0.36% 0.34% 71.77% 28.23% 100.00% 3 0 7 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 13 C O N T I N U E D SHARES CONTROLLED BY BOARD MEMBERS AND GROUP MANAGEMENT 31.12.2019 31.12.2019 31.12.2018 31.12.2018 NO. OF SHARES SHAREHOLDING NO. OF SHARES SHAREHOLDING BOARD OF DIRECTORS Per Grieg jr. * Asbjørn Reinkind (Reinkind AS) Wenche Kjølås (Jawendel AS) (Board member to 13 June 2019) Karin Bing Orgland Solveig Nygaard Tore Holand Sirine Fodstad (Board member from 13 June 2019) GROUP MANAGEMENT Andreas Kvame (CEO) Atle Harald Sandtorv (CFO) Knut Utheim (COO) Kathleen O. Mathisen (CHRO) 58 961 996 120 000 7 000 - - - - 39 165 24 208 23 507 3 456 52.80% 0.11% 0.01% - - - - 0.04% 0.02% 0.02% 0.00% 58 961 996 120 000 7 000 - - - - 39 165 24 208 23 507 3 456 * THE SHARES OWNED BY THE FOLLOWING COMPANIES ARE CONTROLLED BY PER GRIEG JR. AND FAMILY Grieg Aqua AS Nye Ystholmen AS Per Grieg jr. privately Total shares 56 018 799 2 928 197 15 000 58 961 996 50.17% 2.62% 0.01% 52.80% 56 018 799 2 928 197 15 000 58 961 996 NOT E 14 TA X E S BASIS FOR TAX PAYABLE NOK 1 000 Profit before tax Dividends recognized in profit or loss 3% dividend tax Net other permanent differences Change in financial derivatives Change in temporary differences Change in temporary differences from 2018 Group contribution received/provided Taxable loss Group contribution received Basis for tax expense for the year 22% (23%) tax payable Underprovision for tax previous year 22% (23%) tax payable 3 0 8 2019 853 305 -14 737 442 2 665 -5 104 -17 328 -16 054 -862 390 -59 200 862 390 803 190 176 702 3 692 180 394 52.80% 0.11% 0.01% - - - - 0.04% 0.02% 0.02% 0.00% 50.17% 2.62% 0.01% 52.80% 2018 533 716 -20 189 606 -410 -9 723 -451 - -610 982 -107 432 610 982 503 550 115 816 - 115 816 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D A S A A C C O U N T S BREAKDOWN OF DEFERRED TAX BASIS NOK 1 000 CHANGE 2019 2018 TEMPORARY DIFFERENCES Non-current assets Profit and loss account Cash-based options Non-current debt/amortized cost Revaluation account non-current liabilities Net temporary differences Financial instruments Basis for deferred tax in balance sheet 22% deferred tax Change in deferred tax assets due to change in tax rate 22% (23%) Deferred tax assets/deferred tax liabilities in the balance sheet BREAKDOWN OF TAX CHARGE Tax payable Change in deferred tax, previous rate 22% (23%) Change in deferred tax due to change of tax rate Tax effect of foreign tax not credited Norwegian tax Tax expense in income statement RECONCILIATION OF TAX EXPENSE Profit before tax Estimated tax 22% (23%) Tax expense in income statement Difference THE DIFFERENCE CONSISTS OF THE FOLLOWING: 22% of permanent differences Tax effect of foreign tax not credited Norwegian tax Change in tax/deferred tax due to change of tax rate Total reconciled difference NOT E 15 GUA R A N T EE S -810 -199 -2 448 -80 20 865 17 328 5 104 22 432 4 751 794 -22 419 10 022 105 895 99 044 5 877 104 921 23 083 - 23 083 180 394 4 935 - 1 016 186 345 853 305 -187 727 186 345 -1 382 -2 558 1 016 161 -1 382 5 561 993 -19 971 10 102 85 030 81 715 773 82 488 18 972 -825 18 147 115 816 2 340 -825 1 012 118 343 533 716 -122 755 118 343 -4 411 -4 598 1 012 -825 -4 411 Grieg Seafood ASA acted as a guarantor for Ocean Quality UK Limited and Ocean Quality North America Inc in connection with sales contracts with customers. The total guaranteed amounts are EUR 250 000 and USD 3 000 000. 3 0 9 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 NOT E 16 REL AT ED PA R T IE S 2019 NOK 1 000 OPERATING INCOME OPERATING EXPENSES FINANCIAL INCOME FINANCIAL EXPENSES NON- CURRENT RECEIVABLES TRADE RECEIVABLES CURRENT RECEIVABLES TRADE PAYABLES OTHER CURRENT LIABILITIES Total related parties – Group companies Total related parties – Shareholders Total 79 394 40 79 434 - 941 516 -535 648 991 21 217 1 806 443 -1 625 -216 868 -10 060 -10 060 - 941 516 - -535 - - - 648 991 21 217 1 806 443 -505 -2 130 - -216 868 2018 NOK 1 000 OPERATING INCOME OPERATING EXPENSES FINANCIAL INCOME FINANCIAL EXPENSES NON- CURRENT RECEIVABLES TRADE RECEIVABLES CURRENT RECEIVABLES TRADE PAYABLES OTHER CURRENT LIABILITIES Total related parties – Group companies Total related parties – Shareholders Total 71 516 -14 510 663 952 -5 336 619 171 466 1 112 619 -16 068 -11 476 126 71 643 -8 792 -23 301 - - - 663 952 -5 336 619 171 - 466 - - - 1 112 619 -16 068 -11 476 The company carries out transactions with companies controlled by Grieg Maturitas II AS, who is the parent company of Grieg Aqua AS, majority owner of Grieg Seafood ASA. The parent company, Grieg Maturitas II AS, is headquartered in C. Sundts gate 17/19, Bergen, Norway, where one can obtain consolidated financial statements, in which the Company is included. The services provided include: • ICT-related and other services such as catering, reception etc. are delivered by Grieg Group Resources AS. The services are provided on an arm's length basis. • Grieg Seafood ASA rents its offices from Grieg Garden AS on an arm’s length basis. The parent company provides a range of services to the subsidiaries. The services include administrative services and services relating to the provision of parent company non-current loans and current credit facilities to the subsidiaries. Interest is charged on an arm's length basis. Ocean Quality AS has been classified as a subsidiary of Grieg Seafood ASA since 2015. 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. In June 2019, Grieg Seafood ASA acquired 50% of the shares in Nordnorsk Smolt AS. The shares, together with all indebtedness, were immediately sold to Grieg Seafood Finnmark AS at a total amount of NOK 37.7 million. Grieg Seafood Finnmark AS is a wholly- owned subsidiary of Grieg Seafood ASA. The transaction between Grieg Seafood ASA and Grieg Seafood Finnmark AS was executed in accordance with the Norwegian Public Limited Liability Companies Act (Aksjeloven) §3-9. For further information about the investment, please see the consolidated financial statements Note 5. Grieg Seafood ASA has had transactions with related parties through the acquisition of shares in Grieg Newfoundland in 2020. Please refer to Note 18 and the consolidated financial statements Note 28 for further information. 310 PA R T 0 3 O U R R E S U LT S G R I E G S E A F O O D A S A A C C O U N T S NOT E 17 NE T IN T ERE S T-BE A RING L I A BIL I T IE S A ND P L EDGE S The company has a syndicated loan provided 50/50 by DNB and Nordea.The financing agreement includes (among other things) two term loans of NOK 600 million and EUR 60 million, a revolving credit facility of NOK 1 300 million, alongside overdraft facilities of NOK 100 million. Repayments of NOK 50 million and EUR 5 million will be made for term loans of respectively NOK 600 million and EUR 60 million, split into half-yearly instalments. The drawdown rate of the EUR loan is 9.6691. The agreement has a term of five years and matures on 28 February 2023. The agreement includes covenants, stipulating consolidated equity of 35% (in the Group, excluding Ocean Quality), 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 December 2019, the NIBD/EBITDA for the Group excluding Ocean Quality was 1.4 and the equity ratio was 51%. Consequently, the Group fully complied with all covenants at the year-end. NON-CURRENT LIABILITIES (INTEREST-BEARING) NOK 1 000 2019 2018 Non-current syndicated loan Non-current revolving credit facility * Amortized cost Total CURRENT LIABILITIES (INTEREST-BEARING) NOK 1 000 Current overdraft facility * Current portion of non-current borrowing Current liquidity loan from subsidiaries Total 944 638 629 319 -10 022 1 563 935 2019 - 98 212 60 000 158 212 1 048 816 260 000 -10 102 1 298 713 2018 46 597 98 212 - 144 808 NET INTEREST-BEARING LIABILITIES NOK 1 000 2019 2018 Gross interest-bearing liabilities Unrestricted bank deposits Loans to subsidiaries Loans to other companies Net interest-bearing liabilities 1 722 146 4 803 1 375 657 - 341 686 1 443 522 4 295 1 108 432 22 100 308 695 * At the end of 2019, the Company had a total revolving credit facility and overdraft facility of NOK 1 400 million, of which NOK 769 million was available for utilization at the reporting date. MATURITY PROFILE - NON-CURRENT LIABILITIES NOK 1 000 2020 2021 2022 2023 2024 LATER TOTAL Non-current loan Non-current credit facility Total 98 212 98 212 98 212 748 215 - - - 629 319 98 212 98 212 98 212 1 377 534 - - - - - - 1 042 850 629 319 1 672 169 311 G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 N O T E 17 C O N T I N U E D LIABILITIES SECURED BY MORTGAGE NOK 1 000 Liabilities to credit institutions Total liabilities BOOK VALUE OF ASSETS PLEDGED AS SECURITY Shares in subsidiaries Property, plant and equipment Trade receivables Loans to subsidiaries* Total assets pledged as security 2019 2018 1 662 146 1 662 146 1 443 522 1 443 522 1 385 840 3 379 21 217 1 375 657 2 786 093 1 385 840 4 488 466 1 108 432 2 499 226 * The subsidiaries and the parent company have a joint and several liability against the credit institutions. See the consolidated financial statements Note 10 for further information about liabilities secured by mortgage. TYPE OF LIABILITY NOK 1 000 CURRENCY INTEREST RATE MATURITY CURRENT PART NON-CURRENT PART CURRENT PART NON-CURRENT PART 2019 2018 Syndicated non-current loan Syndicated non-current loan Syndicated loan revolving credit Syndicated loan revolving credit Overdraft facility Total NOK EUR NOK EUR Multiple Floating Floating Floating Floating Floating 02/2023 02/2023 02/2023 02/2023 50 000 48 212 - - - 475 000 469 638 580 000 49 319 - 98 212 1 573 957 50 000 48 212 - - 46 597 144 808 514 898 523 816 260 000 - - 1 298 713 CURRENCY EXPOSURE ON LOANS TO CREDIT INSTITUTIONS NOK 1 000 31.12.2019 NOK GBP EUR USD OTHER Syndicated non-current loan (NOK) Syndicated non-current loan (EUR) Syndicated loan revolving credit (non-current) (NOK) Syndicated loan revolving credit (non-current) (EUR) Total 525 000 517 850 580 000 49 319 525 000 - 580 000 - 1 672 169 1 105 000 - - - - - - 517 850 - 49 319 567 169 - - - - - Average interest rate (NOK) Average interest rate (EUR) 2019 2.57 % 1.10 % - - - - - 2018 2.20% 1.21% NOT E 18 P O S T-B A L A NCE SHEE T E V EN T S On 7 February 2020, Grieg Seafood entered into Sales and Purchase agreements with Grieg Kapital AS, Kvasshøgdi AS, Knut Skeidsvoll and Canada Inc. for the purchase of the shares in Grieg Newfoundland AS. Grieg Kapital AS is wholly-owned by Grieg Maturitas II AS and Kvasshøgdi AS is wholly-owned by Per Grieg jr. Any material agreement between related parties should be approved by the General Meeting, according to the Norwegian Public Limited Liability Companies Act (Aksjeloven). The agreement was approved by Extraordinary General Meeting on 25 March 2020. Please refer to the consolidated financial statements Note 28 for further information. There has been no signifcant events after the reporting date that will materially affect the financial statement. 312 PA R T 0 3 O U R R E S U LT S A U D I T O R ' S R E P O R T 313 PricewaterhouseCoopers AS, Sandviksbodene 2A, Postboks 3984 - Sandviken, NO-5835 Bergen T: 02316, org. no.: 987 009 713 VAT, www.pwc.no State authorised public accountants, members of The Norwegian Institute of Public Accountants, and authorised accounting firm To the General Meeting of Grieg Seafood ASA Independent Auditor’s Report Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Grieg Seafood ASA, which comprise: • The financial statements of the parent company Grieg Seafood ASA (the Company), which comprise the Statement of financial position as at 31 December 2019, the Income statement, Statement of changes in equity and Cash flow statement for the year then ended, and notes to the financial statements, including a summary of significant accounting policies, and • The consolidated financial statements of Grieg Seafood ASA and its subsidiaries (the Group), which comprise the balance sheet as at 31 December 2019, the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion: • The financial statements are prepared in accordance with the law and regulations. • The accompanying financial statements give a true and fair view of the financial position of the Company as at 31 December 2019, 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. • The accompanying consolidated financial statements give a true and fair view of the financial position of the Group as at 31 December 2019, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU. Basis for Opinion We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group as required by laws and regulations, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. The activities of the group have in general been unchanged compared to previous year. We have not identified regulatory changes, transactions or other events that qualify as new Key audit matters for the 2019 audit. Consequently, our areas of focus are the same as previous year. G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 314 Independent Auditor's Report - Grieg Seafood ASA (2) Key Audit Matter How our audit addressed the Key Audit Matter Measuring of the amount of biological assets Biological assets include inventories of broodstock, smolt and live fish held for harvesting purposes. For audits of significant inventories, the international audit standards require that the auditor participate at inventory count, provided it is practicable. The biological assets are by nature difficult to count, observe and measure due to lack of sufficiently accurate measuring techniques that at the same time does not affect fish health. As a result, there is some uncertainty related to the number of fish and biomass in the sea. Therefore, we focused on measuring the inventory of biological assets (biomass), emphasizing live fish held for harvesting purposes, which constitute the major part of the Group’s biological assets. The amount of biomass in the sea has direct influence on the valuation; see more about this in the paragraph «Valuation of biological assets at fair value» below. See note 2 and 7 for further information about measuring of biological assets. The Group’s biomass system shows the number of fish, average weight and biomass per site. We directed our effort at the movement in biological inventory (in numbers) in the period. The movement is the total of smolt stocked, loss of fish and harvested fish for the period. We reviewed the Group’s processes for controlling the number of fish stocked. To assure accuracy of the number of fish registered in the biomass system, we tested a selection of smolt stocked, by tracing the number of fish stocked back to underlying documentation. Underlying documentation are e.g. vaccination documentation for internally produced smolt and invoices for purchase of external smolt. The growth in the period is connected to the total feed consumption and is closely associated with purchase of feed. We reviewed the Group’s internal controls of reconciliation of feed inventory and obtained external confirmation from feed suppliers in order to verify purchased volume. We also assessed recorded accumulated feed conversion rate for live fish held for harvesting purposes and obtained explanations from management and further documentation for sites with significantly either higher or lower feed conversion rate than expected. Our procedures substantiated that the growth for the year was reasonable. In order to challenge the historical accuracy of management’s biomass estimates we reviewed the harvest deviation for the period. By harvest deviation, we refer to the deviation between actual harvested biomass (in numbers and kilos) and the estimated biological inventory according to the group’s biomass system. We found the accumulated deviations to be reasonable. We satisfied ourselves that the disclosures in the notes about measuring of biological assets were reasonable and in accordance with the requirements in the accounting standards. PA R T 0 3 O U R R E S U LT S A U D I T O R ' S R E P O R T 315 Independent Auditor's Report - Grieg Seafood ASA (3) Valuation of biological assets at fair value The Group measures biological assets at fair value using the requirements in IAS 41. As per 31.12.2019, the book value of biological assets is MNOK 3 438, of which MNOK 2 670 is historical cost and MNOK 768 is value adjustment. Biological assets comprise about 40 % of total assets. The fluctuations in the fair value estimate that occur due to, for instance, changes in the market price, may have significant impact on the period’s operating result. The Group therefore shows the effect of fair value adjustments for biological assets as a separate line item before operating result (EBIT). We focused on the valuation of biological assets at fair value due to the size of the amount, the complexity of the calculation, because the estimate involves judgement and due to its significance on the financial result for the year. See note 2 and 7 for information about valuation of biological assets at fair value. We challenged management’s model for calculation of fair value of biological assets by assessing the model against the criteria in IAS 41 and IFRS 13. We found that the model includes the elements that the accounting standards require. We examined whether the biomass that formed the basis for the Group’s model corresponded with the Group’s biomass system and controlled that the model made the mathematical calculations as intended. After having assured that these fundamental elements were in place, we assessed whether the assumptions that management used in the model were reasonable. We assessed the price assumptions against observable forward prices from FishPool. We challenged the assumption made with regards to when the fish is considered to be ready for harvest and the expected monthly mortality rate. We found the management’s assumptions to be reasonable and consistent with industry norm. Further, we assessed whether information about fish health and harvest deviation after the balance sheet date is reflected in the valuation. We found that the calculation model adequately reflects available information. We satisfied ourselves that the disclosures in notes 2 and 7 to the financial statements referring to valuation of biological assets appropriately reflect the valuation method and that the disclosures are according to requirements in the accounting principles. Other information Management is responsible for the other information. The other information comprises information in the annual report, except the financial statements and our auditor's report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 316 Independent Auditor's Report - Grieg Seafood ASA (4) Responsibilities of the Board of Directors and the Managing Director for the Financial Statements The Board of Directors and the Managing Director (Management) are responsible for the preparation in accordance with law and regulations, including fair presentation of the financial statements of the Company in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway, and for the preparation and fair presentation of the consolidated financial statements of the Group in accordance with International Financial Reporting Standards as adopted by the EU, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern. The financial statements of the Company use the going concern basis of accounting insofar as it is not likely that the enterprise will cease operations. The consolidated financial statements of the Group use the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error. We design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • obtain an understanding of internal control relevant to the audit 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 Company's or the Group's internal control. • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company and the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company and the Group to cease to continue as a going concern. PA R T 0 3 O U R R E S U LT S A U D I T O R ' S R E P O R T 317 Independent Auditor's Report - Grieg Seafood ASA (5) • evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors’ report 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 statements on Corporate Governance and Corporate Social Responsibility concerning the financial statements, the going concern assumption and the proposed allocation of the result 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, 8. April 2020 PricewaterhouseCoopers AS Jon Haugervåg State Authorised Public Accountant G R I E G S E A F O O D A N N U A L R E P O R T 2 0 19 318 PricewaterhouseCoopers AS, Sandviksbodene 2A, Postboks 3984 - Sandviken, NO-5835 Bergen T: 02316, org. no.: 987 009 713 VAT, www.pwc.no State authorised public accountants, members of The Norwegian Institute of Public Accountants, and authorised accounting firm To the Board of Directors of Grieg Seafood ASA Independent statement regarding Grieg Seafood ASA’s sustainability reporting We have been engaged by Grieg Seafood ASA (Grieg Seafood) to examine whether the Group’s sustainability reporting is conducted in accordance with the Global Reporting Initiative (GRI) Standards Core Option, and to examine whether the sustainability KPIs is calculated, estimated and reported in accordance with the definitions and explanations provided in relation to each key performance indicator - Grieg Seafood’s GRI Index for 2019 is an overview of which principles, aspects and indicators from the GRI guidelines that Grieg Seafood use to measure and report on sustainability; together with a reference to where the material sustainability information is reported within the integrated annual report for 2019 (Annual Report 2019). We have examined whether Grieg Seafood has developed a GRI Index for 2019 and whether mandatory disclosures are presented in accordance with the Standards published by The Global Reporting Initiative (www.globalreporting.org/standards) (criteria). - Key performance indicators for sustainability are reported in “Our Scoreboard” on pages 18-19 in the Annual Report 2019. This table contains sustainability indicators that Grieg Seafood measures and controls. Grieg Seafood has defined the key performance indicators in the referenced pages in the Scoreboard, where they also explain how they are measured (criteria). We have examined the basis for the KPIs reported in “Our Scoreboard” and examined whether these are calculated, estimated and reported in accordance with the criteria. Tasks and responsibilities of management Management is responsible for Grieg Seafood’s Sustainability Reporting for 2019 and that the GRI Index for 2019 is developed in accordance with the Standards published by the GRI. Management is also responsible for key performance indicators for sustainability and that these are calculated, estimated and reported in accordance with the definitions given in the referenced pages in “Our Scoreboard”. Their responsibility includes to implement such internal control as management determines is necessary to enable development and reporting of the GRI Index and to enable correct calculation, estimation and reporting of the sustainability KPIs in the Annual Report 2019. Our independence and quality control We are independent of the company in accordance with applicable laws and regulations and the Code of Ethics for Professional Accountants (IESBA Code) and with the ethical requirements that are relevant to our independent statement, and we have fulfilled our ethical obligations in accordance with these requirements and IESBA Code. We use ISQC 1 - Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements and maintains a comprehensive quality control system including documented policies and procedures of the ethical standards, professional standards and applicable legal and regulatory requirements. The Auditors responsibilities Our responsibility is to express an opinion on Grieg Seafoods sustainability reporting based on our controls. We have performed our work in accordance with the Standard on Assurance Engagements ISAE 3000: “Assurance engagements other than audits or review of historical financial information". Our work involves performing procedures to obtain evidence that Grieg Seafood’s GRI Index 2019 and key performance indicators for sustainability are developed in accordance with GRI Standards Core PA R T 0 3 O U R R E S U LT S A U D I T O R ' S S U S TA I N A B I L I T Y R E P O R T 319 (2) Option and the criteria for reporting and measurement that are given in relation to “Our Scoreboard” containing key performance indicators. The procedures selected depend on our judgement, including assessments of the risks that the sustainability reporting as a whole are free from material misstatement, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the preparation of the GRI Index 2019 and sustainability KPIs. Therefore, we design procedures that are appropriate to the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control. Our control also includes an assessment of whether the applied criteria are appropriate and an assessment of the overall presentation of the GRI Index 2019 and sustainability KPIs. Our controls include meetings and interviews with representatives from Grieg Seafood that are responsible for the key areas covered by the sustainability reporting, evaluating internal controls and procedures for reporting key performance indicators for sustainability, collecting and reviewing relevant information that supports the calculation and estimation of key performance indicators, evaluating the completeness of the key performance indicators and controlling whether the calculation and estimation of the key performance indicators are accurate. We believe that the evidence we have obtained is sufficient and appropriate to provide basis for our conclusion. Conclusion In our opinion the GRI Index 2019 is, in all material respects, developed and presented in accordance with the requirements of the Global Reporting Initiative Standards Core Option. Based on the procedures performed and evidence obtained, nothing has come to our attention that causes us to believe that the calculation, estimation and reporting of the sustainability key performance indicators presented in “Our Scoreboard” in the Annual Report for 2019 are not prepared, in all material respects, in accordance with the definitions and explanations provided in relation to each key performance indicator presented in “Our Scoreboard”. Bergen, 8 April 2020 PricewaterhouseCoopers AS Jon Haugervåg State authorized public accountant 3 2 0 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 4 A P P E N D I X C O N T E N T PA R T 0 4 APPENDIX T C F D R E P O R T G R I I N D E X 3 2 2- 3 2 9 3 3 0 - 3 4 3 3 2 1 G R I E G S E A F O O D A PPENDI X TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURES (TCFD) REPORT Mapping of climate-related risk and opportunities in accordance with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD). The Task Force on Climate-Related Financial Disclosures (TCFD) was established by the Financial Stability Board to improve companies’ disclosure of climate-related financial information. The TCFD’s recommendations are summarized in a framework for disclos- ing clear, comparable and consistent information about the risks and opportunities presented by climate change. The recommended disclosure includes critical questions relating to how climate risks are addressed by companies’ boards and managements, and how climate-related risk management, strategy revisions, and targets are struc- tured. In preparing this report, we have disclosed our climate-related risks and oppor- tunities, including our corresponding climate-related risk management, and we have adhered to the TCFDs seven Principles for Effective Disclosures. We have worked systematically to reduce our environmental impact for many years, and we consider ourselves well positioned to manage stricter climate requirements. However, due to the increasing pace of change in climate-related expectations, there is a need for a more systematic and strategic approach to climate-related risk and opportu- nity management, and a better understanding of the possible financial impacts of climate change in different emission pathways and time horizons. We see this as a requirement to ensure our position as a future-proofed, sustainable, and circular company. 3 2 2 ANNUAL REPORT 2019PA R T 0 4 A P P E N D I X T C F D R E P O R T ACUTE PHYSICAL RISKS CHRONIC PHYSICAL RISKS REGULATORY RISKS OUR CLIMATE-RELATED RISKS AND OPPORTUNITIES Increase in accidents for employees. Increase in downtime due to harsh weather. Extreme weather events: More frequent extreme weather events, such as storms, waves, and ice, have several potential impacts on our fish production sites in the ocean: • Damage to production facilities and infrastructure. • • • Higher risk of fish escapes due to facility impairment. Relevant studies done by the Norwegian Environmental Agency (2017, M406 report) shows an increase in extreme weather events with storms and increased precipitation of snow and ice. We already experience extreme weather situations, amongst others in Finnmark, where severe wind, snow and ice can occur at the same time. The risk of extreme weather will increase, and future weather events will become more extreme. An example is that a massive amount of ice on our pens, which are already heavy, cause lack of the floating capacity and the pens may start to sink. Extreme wind and waves may cause challen- ges for our employees to enter our sites to care for the fish. We might have situations where the fish manage to escape due to damages on the constructions. Overall, these risks might result in decreased harvest due to loss of fish, or lost opportunity to farm in the most exposed areas. Availability and cost of raw materials from suppliers: Extreme weather in locations where our suppliers source feed raw materials may impact the price and availability of fish feed. For example, higher temperatures may impact supply of fish meal and fish oil in Peru, potentially increasing the cost of these raw materials globally, hence increasing the cost of our salmon fish feed. Droughts and floods may impact land-based inputs (soy, wheat, etc.) for fish feed. Corresponding cost increases will be passed on to Grieg Seafood. Increased water temperature: Higher average temperatures in sea water can cause damage to salmon health. Temperature increase can lead to elevated risk of algae bloom, which leads to lower oxygen levels, which can cause higher levels of fish disease and mortality. Carbon tax: Grieg Seafood is increasingly transporting products by air freight, particularly to new markets. Any carbon taxes may have a significant financial impact and make our products less competitive. In 2017, the Norwegian government approved the Norwegian Climate Act, which aims to reduce overall emissions by 40% in 2030 and 80-95% in 2050 (base year 2010). In January 2020, the Norwegian government increased their ambitions to reducing overall emissions by 50% by 2030. In order to reach these emission reductions, the government has established a series of taxation on fuels, including a consumption tax and a CO2 tax. This will increase our cost of consumption of fossil fuels in Norway, impacting our operating cost. We use diesel for feeding processes, lighting and other energy related activities. Even though we are testing out new technologies to reduce our overall carbon footprint from these sources, such as switching diesel engines used on sites with battery packs, electricity from grid or hybrid solutions, our largest direct source of emissions is still coming from the use of fuels for our boats, vehicles and on-site energy production from generators. Hence, if we do not substitute our fossil fuel consumption with renewable energy technologies, we will be taxed in the future. Increasing cost of carbon may change market dynamics in favor of local, land-based production or closed-containment techn- ologies, leaving us with an obsolete business model and mode of production. Our own resilience to emerging climate-related regulations is also dependent on our suppliers’ ability to adapt to new climate-related regulations that affect them. If they are not prepared to face these risks themselves it is highly likely that their increased operating cost would be passed on to us. Currently, our suppliers’ ability to quickly adapt to changing regulations or market demands may be limited. MARKET RISKS Supply: We rely heavily on access to good quality, sustainably sourced raw materials for our fish feed. If climate change causes acute or chronic physical changes, the availability of these raw materials may become scarcer and hence more expensive. We are also reliant on our suppliers as invested partners to find more sustainable production and transportation methods as these could become more heavily regulated in the future. Demand: Climate change and increased consumer attention to climate-related issues can have a multitude of effects on the demand for protein sources. One of the main changes we monitor closely, is the risk from shifts in consumer preferences of preferring certified fish. This could potentially have a substantive financial impact if we are not able to meet these demands. Increased demand from grocery stores for environmental/climate-related certified products can already be observed in the market, not just in Norway but in the rest of Europe and throughout North America. We have been contacted by clients who want or even demand this. Certified products, such as ASC certified fish, can become a common customer demand, and the risk of not receiving the certification may impact our revenues. However, we are committed to expand the number of ASC certified locations, and at year-end, a total of ten sites were ASC certified. 3 2 3 TECHNOLOGY RISKS Developments in land-based fish farming: If land-based fish farming increases in markets such as China and the US, we will be at a great disadvantage, particularly as we use air freight to reach consumer markets. R&D efforts in land-based farming technologies may increase as the cost of carbon rises, making land-based fish farming more competitive, and placing us at a competitive disadvantage. If the transport of fish could be accomplished at low carbon emission levels, however (i.e. via alter- native freezing methods), we would still be well positioned. Developments in alternative protein: Climate change and a growing awareness of the meat industry’s substantial carbon footprint is boosting efforts to develop alternative proteins, plant based or lab based. If alternative protein can be produced at a competitive cost and quality, it could affect demand for farmed fish. REPUTATIONAL RISKS Business models based on extensive use of air freight may see growing reputational pressure as climate awareness increases. This may impact our attractiveness to consumers, employees, and investors. Investor interest may decrease if we fail to develop a convincing narrative on our approach to sustainability (i.e. how we are going to cut emissions in line with the Paris Agreement). Consumer interest may also decrease if we fail to effectively communicate our dedication to sustainable and climate-friendly solutions. We provide certified fish as a part of our climate-related focus on offering more environmentally friendly and climate conscious products. With the growing focus on certified seafood from the public, this can be even more relevant for our future reputation. OPPORTUNITIES Low-emission protein source: Farmed salmon has a substantially better carbon footprint than meat-based protein, making it more resilient to climate-related regulations and shifts in consumer preference away from carbon-intensive protein sources. Renewable energy: Grieg Seafood sees opportunities in shifting from fossil fuels to electrical power at our locations in Norway in order to reduce emissions and lower our cost. Fuels from generators from on-site energy production is one of the largest direct sources of emissions in our sector, and we are testing new technologies to reduce the carbon footprint from these sources, such as switching diesel engines used on sites with battery packs or hybrid solutions. These are great opportunities which can also be beneficial economically in the long run. With the passing of the Norwegian Climate Act, there is a great opportunity for Grieg Seafood to reap the reputational benefits of eliminating fuel-related emissions because we still use fossil aggregates in several locations along the coastline of Norway. State-owned enterprises, such as Enova, are also distributing subsidies for switching to renewable energy, that we can apply for. By switching our locations from diesel to electricity, we will reduce emissions from these locations by 90%, and even more in the future with more renewable sources in the power grid in 2050 than in today's Nordic mix. We have already implemented initiatives to switch from diesel to electricity by installing off-grid electricity in some locations. Additionally, this activity is not only beneficial for the climate, but also has further environmental, pollution and water benefits. We have a policy that emphasizes our responsibility as to protect the biodiversity in the ocean. Early adaptation to climate changes: Grieg Seafood BC has adapted its operations to the consequences of a changing climate (i.e. increased amount and types of algae, and lower oxygen levels). This knowledge should be easily transferrable to other areas. Innovation: Grieg Seafood have tried to find more sustainable ways to store our fish for transportation. The opportunity to reduce the amount of ice in boxes that we transport fish in, can decrease both cost and emissions. Sub- chilling entails bringing the salmon to low temperatures without freezing more than 20% of its water. Approximately 10% of the overall weight in salmon transport is ice. Sub-chilling makes ice redundant, and reduces emissions and transportation cost. Sub-chilling does not just have economic benefits with a longer shelf life, but also gives the opportunity to transport the fish in shipping containers instead of airfreight, which is considerably cheaper and more environmentally friendly. Increased shelf life provides further market opportunities. This technology challenges existing regulations and definitions of fresh and frozen fish. New business regions due to ice cap melting. If the northern ice cap continues to melt, the North-East passage to China from Finnmark in northern Norway might open. In that case, Grieg Seafood Finnmark might benefit from transporting products to Asia with a low carbon footprint, given that appropriate freezing methods have been developed. 3 2 4 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 4 A P P E N D I X T C F D R E P O R T TCFD MATRIX: RESULTS 2019 # DISCLOSURE RESPONSE REFERENCE GOVERNANCE 1 2 Describe the board’s oversight of climate- related risks and opportunities. For more informa- tion about our risk management, see Part 3 – Corporate Gover- nance and the Board of Directors’ Report in the Annual Report 2019. The Board exercises oversight of strategic, operational and financial matters, including the nature and extent of major risks. Therefore, the Board also has the highest-level responsibility to oversee developments in climate-related risks and opportunities. On the Board, the Audit Committee has a particular responsibility to monitor critical business risks, and address the quality and effectiveness of relevant risk reducing measures. The Audit Committee receives a risk review quarterly, and significant risks are reported further to the Board. Climate-related risks have not yet been treated as a separate risk category, but rather as a part of the broader sustainability issues. However, climate-related risks and opportuni- ties are increasingly recognized as crucial considerations to ensure the success of Grieg’s business strategy, and there is consequently an ongoing effort to make these topics a prioritized agenda item. Going forward, we will ensure that climate-related risks are adequately assessed as a separate risk category, and that the Audit Committee and the Board regularly review these risks. A clear strategy to address both risks and opportunities will be developed. The Board of Directors holds the group management team accountable for pursuing our strategies and for assessing risks related to climate change and the environment. Describe management’s role in assessing and managing climate-related risks and opportunities. Grieg Seafood’s management level action on sustainability and climate change is led by the Chief Sustainability Officer (CSO). The CSO leads a team with one dedicated person in each region who is responsible for climate and sustainability issues in their own region. The CSO reports to the Chief Operational Officer, who is a member of the group management team. In mitigating and managing overall climate-related risks, we have a target to reduce emissions from our operations by 2030. For more informa- tion about our risk management, see Part 3 – Corporate Gover- nance and the Board of Directors’ Report in the Annual Report 2019. Going forward, we will ensure a coherent understanding of climate risks relevant to Grieg Seafood, and include these risks and opportunities as a separate issue in our strategy and risk management. STRATEGY 3 Describe the climate- related risks and opportunities the organization has identified over the short, medium and long term. See “Our risks and opportunities” as presented in the table above. Going forward, we will develop likelihood and impacts analyses for different emis- sion pathways and time horizons by using scenario analyses for climate-related risks. 3 2 5 # 4 5 DISCLOSURE RESPONSE REFERENCE Describe the impact of climate-related risks and opportunities on the organization’s business strategy and financial planning. Examples of impact are described in the table “Our risk and opportunities” above. Overall, we expect the impacts of climate-related risks to be moderate in the short term, but these impacts could become more severe in the medium to long term. Any significant physical change is likely to interfere with our current busi- ness model or damage our facility infrastructure, both of which could be costly. Similarly, the transitional risks related to increased climate-change regulation or significant changes in consumer preferences could likely affect our bottom line and access to capital. On the other hand, we see Grieg Seafood as being uniquely placed to mitigate these risks and take advantage of climate-related opportunities. In order to get a full overview over how these climate-related risks and opportu- nities may evolve and affect us, we will develop likelihood and impacts analyses under different emission pathways and time horizons. Going forward, we will address climate-related risk as part of our strategy. We have already developed some cost estimates, but more detailed financial planning is necessary. Describe the resilience of the organization’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario. The resilience of our strategy under different emission pathways and time hori- zons is not currently known, and this will be an area of focus in our ongoing work on climate-related risks. Going forward, we will develop scenarios analyses to ensure adequate manage- ment of and a strategic approach to our climate-related risks. RISK MANAGEMENT 6 Describe the organization’s processes for identifying and assessing climate-related risks. On a quarterly basis we perform a risk analysis, which is reported to the Board’s Audit Committee. Climate-related risk has so far been treated as an integrated part of other risk categories. In the future, it will be separated as its own risk area. By preparing this report, we initiated a formal process for identifying and asses- sing climate-related risks as a separate risk category, which will be a part of our integrated risk identification, assessment, and management process. This is to ensure thorough monitoring of these risks and that proper actions are taken in our strategic and financial planning. The risk owner for climate-related risks will be the CSO who currently already monitors climate-related risks with the help of a team made up of sustainability heads in each region. The process for identifying and assessing climate-related risks will be similar to our general risk and opportunity assessment. First, we identify overall company targets, and then identify relevant risks linked to these targets. The risks are classified into risk categories in terms of which area of the company they are likely to affect. Each risk category has a risk owner, who is responsible for monitoring and assessing the risks that fall under their category of responsibility. Identified risks are subsequently assessed against the risk appetite for each risk category. Each risk is assessed in terms of likelihood and potential impact with regards to long-term value creation and achievement of strategic targets. 3 2 6 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 4 A P P E N D I X T C F D R E P O R T # 7 8 DISCLOSURE RESPONSE REFERENCE Describe the organization’s processes for managing climate- related risks. Describe how processes for identifying, assessing and managing climate- related risks are integrated into the organization’s overall risk management. The process for managing risk in general, is carried out by the group manage- ment team and overseen by the Board. The Finance Department is responsible for maintaining a risk register, based on discussions with the group management team and the CSO. The risk owners have the direct responsibility to manage risks in their risk category. They are mandated to initiate measures to mitigate risks that exceed the risk appetite for the category, i.e. that interfere with the company’s set targets and overall strategic goals. Risk management and mitigation progress is reported to the Audit Committee and further to the Board. High risk areas will be followed up closely until the risk is reduced to an acceptable level. So far, our process for managing climate-related risks has occurred under other risk categories or been manifested in the overall reduction of carbon emissi- ons. A formal process for managing climate-related risks as an independent risk category has recently been initiated. Going forward, we will include management of climate-related risks as a separate category of our risk framework. This will ensure regular assessment and risk management ownership at the correct level, particularly with regard to longer-term investments and strategic decisions. Climate-related risks have been integrated as part of other risk categories in the processes of identifying, assessing and managing company risks. We recognize integration of climate-related risk into the wider risk framework as a positive way for climate issues to be fully mainstreamed in our strategic operations. There is a need to understand the specific impact climate change will have on the resilience of our strategy and operations. Therefore, we see a need to establish an indepen- dent risk category, under which we can tailor our identification, assessment, and management processes specifically to climate-related risks and opportunities, for example by using scenario analyses. This will mean that climate-related risks will be included and integrated in the wider risk framework, but that it will also be possible to make individual climate-related risk judgements. Going forward, we will integrate climate-related risks into our risk framework as a fully integrated but independent risk category. Responsibility for climate risk is assigned to the CSO. 3 2 7 # DISCLOSURE RESPONSE REFERENCE We have estimated cost related to selected climate-related risks and opportunities. RISK / OPPORTUNIT Y T YPE OF FINANCIAL IMPACT ESTIMATED IMPACT FIGURE EXPL ANATION Regulatory risk Increased operating cost from pricing of GHG emissions MNOK 10 MNOK 33 Regulatory risk Reduced revenue from decreased demand due to shifts in consumer preferences MNK 200 Acute physical risk Reduced revenue from decreased production capacity due to extreme weather events Opportunity Reduced MNOK 610 exposure to future fossil fuel price increases by switching to lower-emission sources of energy If we substitute all use of fossil fuels for energy at our sites in Norway, we will save approx. MNOK 600 (over the installations lifetime of 20 years). With a 1.7% increase already regulated in 2019, this price will increase to MNOK 610. The potential financial impact figure of this risk is therefore MNOK 10. We base the calculation of the financial impact figure of this risk on the total harvested volume in 2019 of 82 873 tonnes GWT. Given a scenario where the common customer demand for ASC is 20% of our harvested volume, which pays NOK 2 more per kg ASC certified fish, we have calculated that this could represent a possible loss of income of MNOK 33. In a scenario where our pens are damaged, and 500 000 fish close to harvest weight of 5kg (and a market value of NOK 60 per kg) escape, the impact could be a loss of revenues of MNOK150. Damages on the constructions could possibly be up to MNOK 40 -50. The total cost of potential financial impact figure is approx. MNOK 200. If we substitute all use of fossil fuels on our sites in Norway, it will save us MNOK 600 (over the installations lifetime of 20 years). The total saving by realizing this opportunity is MNOK 610 MNOK, including 1.7% increase on the taxation of fuel. Going forward, we will continue developing key metrics to track risk management, including by developing scenario analyses. We will also consider the development of an internal carbon pricing scheme. We calculate our own emissions in Scope 1 and Scope 2. Our emissions in 2019 are: EMISSION SCOPE GREENHOUS GAS EMISSIONS (TCO2E) Scope 1 Scope 2 Total 39 363 3 304 42 667 We target a 30% reduction in emissions/tonnes GWT by 2030, compared to the base year 2017. Going forward, we will commit to the Science-Based Targets Initiative (SBTi). We will develop targets to track climate-related risks and opportunities. METRICS & TARGETS 9 Disclose the metrics used by the organization to assess climate-related risks and opportunities in line with its strategy and risk management process. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks. Describe the targets used by the organization to manage climate-related risks and opportunities and performance against targets. 10 11 3 2 8 See our Scope 1 and Scope 2 emissions in Part 2 – Sustainable Food – Reducing carbon Emissions, in the Annual Report 2019. ANNUAL REPORT 2019GRIEG SEAFOOD PA R T 0 4 A P P E N D I X T C F D R E P O R T 3 2 9 G R I E G S E A F O O D A PPENDI X GLOBAL REPORTING INITIATIVE INDEX This report has been prepared in accordance with the GRI Standards: Core option. We follow the GRI Standards to report our economic, environmental and social performance, allowing for greater transparency and accountability. For more information on our approach to corporate social responsibility and transparency, see Part 1. REP ORT QUA LIT Y The quantitative information provided in this report, is mainly data we have retrieved from our production, logistics and financial systems. Where data have been measured or estimated, this is indicated in footnotes. If we use external data, the source is specified. Our data is reported consistently, unless otherwise indicated. Any restatement of historical data is disclosed. All entities consolidated into the Grieg Seafood Group’s financial statement are included in our sustainability data. E X TERN A L V ERIFICATION To ensure the quality of our report and the information (both quantitative and qualitative) provided, it is reviewed and verified internally. To ensure high data quality and to enhance the credibility of our sustainability reporting, it has been verified by our independent auditor, PwC. The auditor´s opinion on sustainability reporting concludes that our Annual Report 2019 is presented according to the GRI Standards Core Option. In addition to assessing the extent to which our report complies with the GRI Standards Core Option, PwC has also examined selected metrics. These metrics include data reported to the Global Salmon Initiative and our greenhouse gas emissions. Reference is made to the auditor´s statement on sustainability reporting in the Annual Report 2019. M A N AGEMENT A PPROACH With our vision of farming the ocean for a better future, we demonstrate our commitment to corporate responsibility by operating profitably and sustainably in a manner that conforms with fundamental ethical norms and respect for the individual, the environment, and society as whole. We apply the precautionary principle as our strategy for approaching issues of potential harm when scientific knowledge is lacking. We aim to collaborate and take part in research to develop and test new solutions. In pursuit of our vision, we will face risks and opportunities. Our risk management is clearly connected with a multitude of stakeholder expectations, and the topics we have identified as material. The Board exercises oversight of strategic, operational and financial matters, including the nature and extent of major risks. The Board and the CEO have delegated responsibility to the various business areas and functions, ensuring that operational responsibility is an integral part for all management teams and units and departments. We have a whistleblower channel, operated by EY, available for our employees and external parties to report any unwanted behav- ior and breaches to our Code of Conduct. 3 3 0 PILLAR FOUNDATION HEALTHY OCEAN SUSTAINABLE FOOD Safe & We need to ensure that our fish meet rigorous food safety stan- We have procedures, including traceability and strict quality control, in place 3 healthy food dards, in some cases even above and beyond official regulations, to ensure that our salmon is safe. We operate according to standards and to meet customer expectations. certify our supply chain. Samples are taken by external laboratories to ensure our salmon is well below limits for environmental contaminants. PROFIT & INNOVATION PEOPLE LOCAL COMMUNITIES Respecting Indigenous rights is essential as we need their permi- We aim for good relations and dialogue, and recognize the special rights of 8, 16, 17 ssion to farm salmon on their land. Indigenous peoples. Respecting and supporting local communities are essential for our We have principles related to the use of local suppliers and service providers, 2, 5, 8, 17 license to operate. and we engage and support local projects. TOPIC DEFINITION AND BOUNDARIES MANAGEMENT APPROACH CHOSEN UN SDGs Strong corporate governance is essential in achieving our objecti- Our governance system consists of our culture, management principles, risk 16, 17 ves and acting as a responsible organization. We need to ensure and internal control framework, policies, procedures etc. We adhere to our that all employees practice sound ethics, care for the environment, Principles of Corporate Governance, and our Code of Conduct guides our and social wellbeing. We expect nothing less from our suppliers behavior. Training in our Code is performed regularly. External assurance and through our Supplier Code of Conduct. certifications are performed in several areas of our operations. Ensuring fish health and welfare is an ethical responsibility and We have policies and operational procedures to ensure good fish health and 14 important to ensure good growth, quality and lower cost. It includes welfare. We adhere to regulations, and report to authorities. KPIs to measure the full lifecycle of the salmon as well as our use of cleaner fish. fish health and welfare includes survival rate and causes for reduced survival. Sea lice control Sea lice control is important to ensure the health and welfare of our We have policies and several approaches to keep the sea lice level low. We 14 fish, as well as to protect wild salmon, in particular in Norway. In BC, adhere to local regulations, and report sea lice levels regularly to authorities. the wild salmon carries sea lice, impacting our farms each autumn. Main KPI is keeping the adult female sea lice level below national limits. Medicines & chemicals We aim to avoid using medicines to combat sea lice or diseases, as We have policies and procedures in place for the use of medicines and 3, 12, 14 it can impact the local environment, or in the case of antibiotics, chemicals. We also adhere to regulations. We track the use of medicines make the salmon resistant for further treatment. and chemicals, and the result of our measures is the survival rate and the quality of our fish. Avoiding fish escape incidents is important to minimize impact on We have procedures in place, as well as high technical standard on equip- 14 wild salmon, as well as to protect our values. ment to avoid escapes. Any escape incident is an indicator that our measures are not effective, and require an investigation of our procedures. We aim to keep emissions of feed and feces from the open-net We assess our sites and apply operating procedures to ensure that local 12, 14 pens in line with regulations to minimize local emissions and avoid emissions are below legal limits. Environmental monitoring programs and eutrophication. tests is the main approach to evaluate the effectiveness of our measures. We aim to avoid impact on wild mammals and birds. We have procedures and equipment in place to minimize the risk of injury 12 to wildlife. Any lethal incident is an indicator that we need to reassess our measures. Sustainable We need to ensure that marine and protein ingredients are sustainable. As we do not produce our own fish feed, we set requirements for our feed 12, 13, 17 suppliers to develop more sustainable feed. We comply with standards, and support and/or participate to develop new and higher standards for sustai- nable sourcing of feed raw materials. To ensure future competitiveness and do our part in reaching the We have set a target for reduction, and have improved our data collection 3, 12, 13 Paris Agreement, we must reduce our greenhouse gas emissi- for a more systematic assessment of our emissions. We are not satisfied ons, while also working with upstream suppliers and downstream with the increase in our GHG emissions, and will develop transition plans. transportation to reduce our own and our supply chain´s footprint. Plastic waste We aim not to pollute the environment where we farm our salmon, We work to reduce negative impacts of plastic waste, including using recycled 3, 12, 13, and to improve the circular economy. materials and recycling our materials. We work with suppliers to assess 14, 17 alternative materials. Economic performance our operations. We aim to create value for our stakeholders, in particular our We have a target for the return on capital employed, and strategies in place 5, 8 shareholders, by focusing on sustainable production and improve to ensure focus on particular areas. Human rights Respecting human rights is the basis for society, and also for our We have our own principles and Code of Conduct in place, and adhere to 8, 16 business and our value chain. various global principles and practices. We also require our suppliers to follow our Supplier Code of Conduct. We aim to prevent accidents, and offer workplace conditions and We work systematically to safeguard our employees, and have principles, 3, 4, 17 other support to help ensure the health and safety of our employ- systems, programs and risk assessment in place. ees. We expect the same from our value chain. Business integrity is essential for our business strategy. Our Code of Conduct and the Supplier Code of Conduct state the principles 8, 16 for anti-corruption. MATERIAL TOPIC Corporate governance & responsible business conduct Fish health & welfare Escape control Organic emission Wildlife interactions feed ingredients GHG emissions Workplace safety (HSE) Anti- corruption Indigenous relations Local value creation ANNUAL REPORT 2019PA R T 0 4 A P P E N D I X G R I I N D E X PILLAR FOUNDATION MATERIAL TOPIC TOPIC DEFINITION AND BOUNDARIES MANAGEMENT APPROACH Corporate governance & responsible business conduct Strong corporate governance is essential in achieving our objecti- ves and acting as a responsible organization. We need to ensure that all employees practice sound ethics, care for the environment, and social wellbeing. We expect nothing less from our suppliers through our Supplier Code of Conduct. Our governance system consists of our culture, management principles, risk and internal control framework, policies, procedures etc. We adhere to our Principles of Corporate Governance, and our Code of Conduct guides our behavior. Training in our Code is performed regularly. External assurance and certifications are performed in several areas of our operations. HEALTHY OCEAN Fish health & welfare Ensuring fish health and welfare is an ethical responsibility and important to ensure good growth, quality and lower cost. It includes the full lifecycle of the salmon as well as our use of cleaner fish. We have policies and operational procedures to ensure good fish health and welfare. We adhere to regulations, and report to authorities. KPIs to measure fish health and welfare includes survival rate and causes for reduced survival. Sea lice control Sea lice control is important to ensure the health and welfare of our fish, as well as to protect wild salmon, in particular in Norway. In BC, the wild salmon carries sea lice, impacting our farms each autumn. We have policies and several approaches to keep the sea lice level low. We adhere to local regulations, and report sea lice levels regularly to authorities. Main KPI is keeping the adult female sea lice level below national limits. CHOSEN UN SDGs 16, 17 14 14 Medicines & chemicals We aim to avoid using medicines to combat sea lice or diseases, as it can impact the local environment, or in the case of antibiotics, make the salmon resistant for further treatment. We have policies and procedures in place for the use of medicines and chemicals. We also adhere to regulations. We track the use of medicines and chemicals, and the result of our measures is the survival rate and the quality of our fish. 3, 12, 14 Escape control Avoiding fish escape incidents is important to minimize impact on wild salmon, as well as to protect our values. We have procedures in place, as well as high technical standard on equip- ment to avoid escapes. Any escape incident is an indicator that our measures are not effective, and require an investigation of our procedures. 14 Organic emission We aim to keep emissions of feed and feces from the open-net pens in line with regulations to minimize local emissions and avoid eutrophication. We assess our sites and apply operating procedures to ensure that local emissions are below legal limits. Environmental monitoring programs and tests is the main approach to evaluate the effectiveness of our measures. 12, 14 Wildlife interactions We aim to avoid impact on wild mammals and birds. We have procedures and equipment in place to minimize the risk of injury to wildlife. Any lethal incident is an indicator that we need to reassess our measures. SUSTAINABLE FOOD Safe & healthy food We need to ensure that our fish meet rigorous food safety stan- dards, in some cases even above and beyond official regulations, to meet customer expectations. We have procedures, including traceability and strict quality control, in place to ensure that our salmon is safe. We operate according to standards and certify our supply chain. Samples are taken by external laboratories to ensure our salmon is well below limits for environmental contaminants. 12 3 PROFIT & INNOVATION PEOPLE Sustainable feed ingredients GHG emissions We need to ensure that marine and protein ingredients are sustainable. As we do not produce our own fish feed, we set requirements for our feed suppliers to develop more sustainable feed. We comply with standards, and support and/or participate to develop new and higher standards for sustai- nable sourcing of feed raw materials. 12, 13, 17 To ensure future competitiveness and do our part in reaching the Paris Agreement, we must reduce our greenhouse gas emissi- ons, while also working with upstream suppliers and downstream transportation to reduce our own and our supply chain´s footprint. We have set a target for reduction, and have improved our data collection for a more systematic assessment of our emissions. We are not satisfied with the increase in our GHG emissions, and will develop transition plans. 3, 12, 13 Plastic waste We aim not to pollute the environment where we farm our salmon, and to improve the circular economy. We work to reduce negative impacts of plastic waste, including using recycled materials and recycling our materials. We work with suppliers to assess alternative materials. 3, 12, 13, 14, 17 Economic performance We aim to create value for our stakeholders, in particular our shareholders, by focusing on sustainable production and improve our operations. We have a target for the return on capital employed, and strategies in place to ensure focus on particular areas. 5, 8 Human rights Respecting human rights is the basis for society, and also for our business and our value chain. We have our own principles and Code of Conduct in place, and adhere to various global principles and practices. We also require our suppliers to follow our Supplier Code of Conduct. 8, 16 Workplace safety (HSE) We aim to prevent accidents, and offer workplace conditions and other support to help ensure the health and safety of our employ- ees. We expect the same from our value chain. We work systematically to safeguard our employees, and have principles, systems, programs and risk assessment in place. 3, 4, 17 Anti- corruption Business integrity is essential for our business strategy. Our Code of Conduct and the Supplier Code of Conduct state the principles for anti-corruption. 8, 16 LOCAL COMMUNITIES Indigenous relations Respecting Indigenous rights is essential as we need their permi- ssion to farm salmon on their land. We aim for good relations and dialogue, and recognize the special rights of Indigenous peoples. 8, 16, 17 Local value creation Respecting and supporting local communities are essential for our license to operate. We have principles related to the use of local suppliers and service providers, and we engage and support local projects. 2, 5, 8, 17 3 31 GRI 102: GENERAL DISCLOSURES 2019 # DISCLOSURE DESCRIPTION ORGANIZATIONAL PROFILE RESPONSE OMISSION CHAPTER REFERENCE PAGE 102-1 102-2 102-3 Name of the organi- zation Activities, brands, products, and services Location of headquar- ters Grieg Gaarden, C. Sundts gate 17/19, 5004 Bergen, Norway. 102-4 Location of operations 102-5 Ownership and legal form 102-6 Markets served 102-7 102-8 Scale of the organi- zation Information on employ- ees and other workers 102-9 Supply chain Feed was our main supply category in 2019, comprising 44% of our cost. Our main feed suppliers are Skretting, Cargill and BioMar. Other main suppliers include Sølvtrans and Egersund Net. 102-10 Significant changes to the organization and its supply chain There have not been any significant changes to the organization’s size, structure, ownership or supply chain in 2019. 102-11 Precautionary Princi- ple or approach We respect and adhere to the precau- tionary principle. 102-12 External initiatives 102-13 Membership of asso- ciations Membership in political organizations: Norwegian Seafood Federation, The Federation of European Aquacul- ture Producers, Scottish Salmon Producers Organisation, BC Salmon Farmers Association, Newfoundland Aquaculture Industry Association, and Canadian Aquaculture Industry Alliance. Front page Part 1: Our business model Part 2: Profit - Ocean Quality and our market 26-27 104-105 Part 1: Our organization 6 Part 3: Grieg Seafood Group accounts - Note 1 218 Part 2: Profit - Ocean Quality and our market 104-105 Part 1: Our organization; Key figures; Our business model 6; 14-15; 26-27 Part 2: People - Embracing diversity, Results; Creating attractive jobs, Results 140-141; 144-146 Part 1: Our business model 26-27 Part 4: Global Reporting Initiative Index - Management approach 330 Part 1: The UN Sustainable Development Goals; Transparent reporting on our progress 32-33; 40 No No No No No No No No No No No No 3 3 2 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 4 A P P E N D I X G R I I N D E X RESPONSE OMISSION CHAPTER REFERENCE PAGE # DISCLOSURE DESCRIPTION STRATEGY 102-14 Statement from senior decision-maker ETHICS AND INTEGRITY 102-16 Values, principles, and norms of behavior 102-17 Mechanisms for advice and concerns about ethics GOVERNANCE 102-18 Governance structure Decision-making on economic, envi- ronmental, and social topics lies with the Group management team. STAKEHOLDER ENGAGEMENT 102-40 102-41 102-42 102-43 102-44 List of stakeholder groups Collective bargaining agreements Identifying and select- ing stakeholders Approach to stake- holder engagement Key topics and concerns raised REPORTING PRACTICES 102-45 Entities included in the consolidated financial statements 102-46 Defining report content and topic boundaries 102-47 List of material topics No Part 1: CEO letter 16-17 No No No No No No No No Part 1: Our vision, Our values Part 2: People - Human rights and ethics; Anti-corruption 7 136-139; 150-151 Part 2: People - Human rights and ethics 136-139 Part 3: Board of Directors' report; Corporate Governance 168-187; 188-206 Part 1: Stakeholder dialogue 38-39 Part 2: People - Human rights and ethics 136-139 Part 1: Stakeholder dialogue Part 1: Stakeholder dialogue Part 1: Stakeholder dialogue Part 4: Global Reporting Initiative Index - Management approach 38-39 38-39 38-39 330 Part 3: Grieg Seafood Group accounts - Note 1 218 Part 1: Our materiality matrix for sustainable reporting Part 4: Global Reporting Initiative Index - Management approach Part 1: Our materiality matrix for sustainable reporting 36 330 36 330 3 3 3 102-48 Restatements of infor- mation No significant restatements are made. Part 4: Global Reporting Initiative Index - Report quality # DISCLOSURE DESCRIPTION 102-49 Changes in reporting RESPONSE OMISSION CHAPTER REFERENCE PAGE No No No No No No No No Part 4: Global Reporting Initiative Index 330 Part 4: Global Reporting Initiative Index 330-343 Part 4: Global Reporting Initiative Index - External verification 330 The topics defined as material in our matrix have changed in relation to the Annual Report 2018, based on feed- back from our stakeholders. More topics are categorized as material in 2019 than in 2018. New topics in 2019 include human rights and Indigenous relations. We have also renamed some topics, while others have been divided into subcategories. 102-50 Reporting period January 1 - December 31, 2019 102-51 Date of most recent report 102-52 Reporting cycle 102-53 Contact point for questions regarding the report The Annual Report 2018 is the previous most recent report of this kind but does not adhere to GRI Standards. This report was published April 8, 2020. We report annually according the GRI Standards. Our quarterly reports include some of our sustainability metrics. Chief Sustainability Officer: Tor Eirik Homme, tor.eirik.homme@griegsea- food.com. Group Communication Manager: Kristina Furnes, kristina.furnes@ griegseafood.com. Global Finance Officer: Renete Kaarvik, renete.kaarvik@griegsea- food.com. 102-54 Claims of reporting in accordance with the GRI standards This report has been prepared in accordance with the GRI Standards: Core option. 102-55 GRI content index 102-56 External assurance The Chief Sustainability Officer seeks external verification of sustainability reporting according to GRI Standards Core Option and selected sustainabil- ity KPIs. Our sustainability reporting has been verified by our independent auditor PwC. Reference is made to the auditor's statement according to ISAE 3000 at the end of the Annual Report 2019. 3 3 4 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 4 A P P E N D I X G R I I N D E X TOPIC-SPECIFIC DISCLOSURES # DISCLOSURE DESCRIPTION RESPONSE OMISSION CHAPTER REFERENCE PAGE CORPORATE GOVERNANCE AND RESPONSIBLE BUSINESS CONDUCT GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach GRI INDICATORS 206-1 307-1 419-1 Legal actions for anti-competitive behav- ior, anti-trust, and monopoly practices Non-compliance with environmental laws and regulations Non-compliance with laws and regulations in the social and economic area HEALTHY OCEAN FISH HEALTH & WELFARE GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach No No No Part 4: Global Reporting Initiative Index - Management approach 330 Part 3: Corporate governance Part 4: Global Reporting Initiative Index - Management approach Part 2: People - Anti-corruption, Results Part 4: Global Reporting Initiative Index - Management approach 188-206 330 150-151 330 No Part 2: People - Anti-corruption, Results 150-151 No No No No No Part 2: People - Anti-corruption, Results 150-151 Part 2: People - Anti-corruption, Results 150-151 Part 2: Healthy Ocean - Fish health and welfare Part 4: Global Reporting Initiative Index - Management approach Part 2: Healthy Ocean - Fish health and welfare Part 4: Global Reporting Initiative Index - Management approach Part 2: Healthy Ocean - Fish health and welfare, Results Part 4: Global Reporting Initiative Index - Management approach 56-65 330 56-65 330 64-65 330 3 3 5 # DISCLOSURE DESCRIPTION GRIEG SEAFOOD INDICATORS Survival in seawater Grieg Seafood indicator RESPONSE OMISSION CHAPTER REFERENCE PAGE No Part 2: Healthy Ocean - Fish health and welfare, Results 64 This Grieg Seafood indicator corre- sponds to the GSI indicator "Fish Mortality" which is defined as "12 months rolling mortality = (total # of mortalities in sea last 12 months - total # of culled fish due to illness or similar and not in harvest figures)/ (closing # of fish in sea + total # of mortalities in last 12 months + total # of harvested fish in last 12 months + total # of culled fish in sea) x 100". No No No No No No No No Part 2: Healthy Ocean - Fish health and welfare, Results 65 Part 2: Healthy Ocean - Sea lice control Part 4: Global Reporting Initiative Index - Management approach Part 2: Healthy Ocean - Sea lice control Part 4: Global Reporting Initiative Index - Management approach Part 2: Healthy Ocean - Sea lice control Part 4: Global Reporting Initiative Index - Management approach 66-71 330 66-71 330 66-71 330 Part 2: Healthy Ocean - Sea lice control, Results 70 Part 2: Healthy Ocean - Fish health and welfare, Sea lice control Part 4: Global Reporting Initiative Index - Management approach Part 2: Healthy Ocean - Fish health and welfare, Sea lice control Part 4: Global Reporting Initiative Index - Management approach Part 2: Healthy Ocean - Fish health and welfare, Results; Sea lice control, Results Part 4: Global Reporting Initiative Index - Management approach 56-65; 66-71 330 56-65; 66-71 330 64-65; 69-71 330 Grieg Seafood indicator Main causes for reduced survival List of the main cause of reduced survival, with loss stated in number and tonnes of fish. This Grieg Seafood indicator corre- sponds to the GSI indicator "Sea lice counts" which is defined as "sea lice according to local action levels set by the authorities" for Rogaland, Finnmark and Shetland. For BC, the sea lice levels are adjusted from "motile" to "adult females". SEA LICE CONTROL GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach GRIEG SEAFOOD INDICATOR Sea lice levels Grieg Seafood indicator MEDICINES & CHEMICALS GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach 3 3 6 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 4 A P P E N D I X G R I I N D E X # DISCLOSURE DESCRIPTION GRIEG SEAFOOD INDICATORS Use of antibiotics Grieg Seafood indicator Grieg Seafood indicator Hydrogen peroxide treatments Grieg Seafood indicator Active substances used for treatments ESCAPE CONTROL GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach GRIEG SEAFOOD INDICATOR Grieg Seafood indicator Number of escape inci- dents and fish escapes ORGANIC EMISSIONS GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components RESPONSE OMISSION CHAPTER REFERENCE PAGE This Grieg Seafood indicator corresponds to the GSI indicator "Antiobiotic Use" which is defined as "the amount of active pharmaceutical ingredients (API) used (in g) per tonne of fish produced (LWE)". This Grieg Seafood indicator equals the GSI indicator "Use of hydrogen peroxide", which is defined as "the amount of active pharmaceutical ingredients (API) used (in gr) per tonne of fish produced (LWE)", however we have chosen to recalcu- late to use kg instead of gr. This Grieg Seafood indicator corre- sponds to the GSI indicator "Sea lice treatments" which is defined as "the amount of active pharmaceutical ingredients (API) used (in kg) per tonne of fish produced (LWE)". This Grieg Seafood indicator corresponds to the GSI indicator "Fish escapes" which is defined as "number of fish escape incidents and number of fish escaped (after net recapturing)". No No No No No No No No No Part 2: Healthy Ocean - Fish health and welfare, Results Part 2: Healthy Ocean - Sea lice control, Results Part 2: Healthy Ocean - Sea lice control, Results Part 2: Healthy Ocean - Escape control Part 4: Global Reporting Initiative Index - Management approach Part 2: Healthy Ocean - Escape control Part 4: Global Reporting Initiative Index - Management approach Part 2: Healthy Ocean - Escape control, Results Part 4: Global Reporting Initiative Index - Management approach 65 69 69 72-73 330 72-73 330 73 330 Part 2: Healthy Ocean - Escape control, Results 73 Part 2: Healthy Ocean - Limiting local emissions Part 4: Global Reporting Initiative Index - Management approach Part 2: Healthy Ocean - Limiting local emissions Part 4: Global Reporting Initiative Index - Management approach 74-76 330 74-76 330 3 3 7 # DISCLOSURE DESCRIPTION 103-3 Evaluation of the management approach GRIEG SEAFOOD INDICATOR RESPONSE OMISSION CHAPTER REFERENCE No Part 2: Healthy Ocean - Limiting local emis- sions, Results Part 4: Global Reporting Initiative Index - Management approach PAGE 76 330 Grieg Seafood indicator Environmental status of our sites Result of benthic monitoring accord- ing to local regulations. No Part 2: Healthy Ocean - Limiting local emis- sions, Results 76 This Grieg Seafood indicator is based on the GSI indicator "Wildlife interactions" which is defined as "total number of lethal incidents by species divided by total number of sites" except that we report the total number of lethal incidents per region. No No No No No No No Part 2: Healthy Ocean - Interaction with wildlife Part 4: Global Reporting Initiative Index - Management approach Part 2: Healthy Ocean - Interaction with wildlife Part 4: Global Reporting Initiative Index - Management approach Part 2: Healthy Ocean - Interaction with wildlife, Results Part 4: Global Reporting Initiative Index - Management approach 78-79 330 78-79 330 79 330 Part 2: Healthy Ocean - Interaction with wildlife, Results 79 Part 2: Sustainable food - Safe and healthy food Part 4: Global Reporting Initiative Index - Management approach Part 2: Sustainable food - Safe and healthy food Part 4: Global Reporting Initiative Index - Management approach Part 2: Sustainable food - Safe and healthy food, Results Part 4: Global Reporting Initiative Index - Management approach 82-84 330 82-84 330 84 330 WILDLIFE INTERACTIONS GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach GRIEG SEAFOOD INDICATOR Grieg Seafood indicator Number of dead birds and marine mammals SUSTAINABLE FOOD SAFE & HEALTHY FOOD GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach 3 3 8 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 4 A P P E N D I X G R I I N D E X # DISCLOSURE DESCRIPTION RESPONSE OMISSION CHAPTER REFERENCE PAGE GRI 416 CUSTOMER HEALTH AND SAFETY 2016 & GRIEG SEAFOOD INDICATOR 416-2 Incidents of non- compliance concerning the health and safety impacts of products and services There have been no incidents of non-compliance concerning the health and safety impact of our salmon in 2019. Grieg Seafood indicator Level of environmental contaminants The level of the environmental contaminants PCB, PCB-like dioxins and heavy metal, based on samples of our salmon. SUSTAINABLE FEED INGREDIENTS GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach GRIEG SEAFOOD INDICATOR Grieg Seafood indicator Forage fish dependency ratio (FFDR) GHG EMISSIONS GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach GRI 305 EMISSIONS 2016 This Grieg Seafood indicator corre- sponds to the GSI indicator "Use of marine ingredients in feed", which is defined as "forage fish dependency ratio, calculated per calendar year". No Part 2: People - Anti-corruption, Results 150-151 No No No No No No No No Part 2: Sustainable food - Safe and healthy food, Results 84 Part 2: Sustainable food - Sustainable feed ingredients Part 4: Global Reporting Initiative Index - Management approach Part 2: Sustainable food - Sustainable feed ingredients Part 4: Global Reporting Initiative Index - Management approach Part 2: Sustainable food - Sustainable feed ingredients, Results Part 4: Global Reporting Initiative Index - Management approach 88-90 330 88-90 330 90 330 Part 2: Sustainable food - Sustainable feed ingredients, Results 90 Part 2: Sustainable food - Reducing carbon emissions Part 4: Global Reporting Initiative Index - Management approach Part 2: Sustainable food - Reducing carbon emissions Part 4: Global Reporting Initiative Index - Management approach Part 2: Sustainable food - Reducing carbon emissions, Results Part 4: Global Reporting Initiative Index - Management approach 92-95 330 92-95 330 94-95 330 305-1 Direct (Scope 1) GHG emissions Biogenic CO2 emissions (tCO2e) is not relevant for our operations. No Part 2: Sustainable food - Reducing carbon emissions, Results 94-95 3 3 9 # 305-2 305-4 DISCLOSURE DESCRIPTION Energy indirect (Scope 2) GHG emissions GHG emissions intensity 305-5 GHG emissions PLASTIC WASTE GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach GRIEG SEAFOOD INDICATOR Grieg Seafood indicator Measure taken to reduce the use of plastic in the produc- tion PROFIT & INNOVATION RESPONSE OMISSION CHAPTER REFERENCE No No No No No No Part 2: Sustainable food - Reducing carbon emissions, Results Part 2: Sustainable food - Reducing carbon emissions, Results Part 2: Sustainable food - Reducing carbon emissions, Results Part 2: Sustainable food - Waste manage- ment Part 4: Global Reporting Initiative Index - Management approach Part 2: Sustainable food - Waste manage- ment Part 4: Global Reporting Initiative Index - Management approach Part 2: Sustainable food - Waste manage- ment Part 4: Global Reporting Initiative Index - Management approach PAGE 94-95 94-95 94-95 98-99 330 98-99 330 98-99 330 We will work to develop and measure relevant KPI(s) regarding waste management going forward. No Part 2: Sustainable food - Waste manage- ment 98-99 ECONOMIC PERFORMANCE GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach GRI 201 ECONOMIC PERFORMANCE 2016 201-1 Direct economic value generated and distributed 3 4 0 No No No No Part 2: Profit & Innovation - Economic productivity Part 4: Global Reporting Initiative Index - Management approach Part 2: Profit & Innovation - Economic productivity Part 4: Global Reporting Initiative Index - Management approach Part 2: Profit & Innovation - Economic productivity Part 4: Global Reporting Initiative Index - Management approach 106-109 330 106-109 330 106-109 330 Part 2: Profit & Innovation - Economic productivity 109 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 4 A P P E N D I X G R I I N D E X RESPONSE OMISSION CHAPTER REFERENCE PAGE # DISCLOSURE DESCRIPTION PEOPLE HUMAN RIGHTS GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach GRI 412 HUMAN RIGHTS ASSESSMENT 2016 In 2019, we did not perform any human right reviews. 412-1 412-2 Operations that have been subject to human rights reviews or impact assessments Employee training on human rights policies or procedures WORKPLACE SAFETY (HSE) GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach GRI 403 OCCUPATIONAL HEALTH AND SAFETY 2018 403-1 Occupational health and safety management system Workers covered by this standard (workers who are not employees but whose work and/or workplace is controlled by the organization) are not a material part of Grieg Seafood's operations. Therefore, this part of the standard is not relevant. No No No No Yes No No No Part 2: People - Human rights and ethics Part 4: Global Reporting Initiative Index - Management approach Part 2: People - Human rights and ethics Part 4: Global Reporting Initiative Index - Management approach Part 2: People - Human rights and ethics, Results Part 4: Global Reporting Initiative Index - Management approach Part 2: People - Human rights and ethics, Results Part 4: Global Reporting Initiative Index - Management approach Part 2: People - Human rights and ethics, Results Part 4: Global Reporting Initiative Index - Management approach 136-139 330 136-139 330 138-139 330 138 330 138 330 Part 2: People - Keeping our employees safe Part 4: Global Reporting Initiative Index - Management approach 146-149 330 Part 2: People - Keeping our employees safe Part 4: Global Reporting Initiative Index - Management approach 146-149 330 Part 2: People - Keeping our employees safe, Results Part 4: Global Reporting Initiative Index - Management approach 148-149 330 No Part 2: People - Keeping our employees safe 146-149 403-2 Hazard identification, risk assessment, and incident investigation 403-3 Occupational health services No No Part 2: People - Keeping our employees safe 146-149 Part 2: People - Keeping our employees safe 146-149 3 41 RESPONSE OMISSION CHAPTER REFERENCE PAGE No Part 2: People - Keeping our employees safe 146-149 # 403-4 403-5 403-6 403-7 DISCLOSURE DESCRIPTION Worker participation, consultation, and communication on occupational health and safety Worker training on occupational health and safety Promotion of worker health Prevention and miti- gation of occupational health and safety impacts directly linked by business relation- ships 403-9 Work-related injuries Workers covered by this standard (workers who are not employees but whose work and/or workplace is controlled by the organization) are not a material part of Grieg Seafood's operations. Therefore, this part of the standard is not relevant. ANTI-CORRUPTION GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach GRI 205 ANTI-CORRUPTION 2016 205-1 205-3 Operations assessed for risks related to corruption Confirmed incidents of corruption and actions taken LOCAL COMMUNITIES INDIGENOUS RELATIONS GRI 103 MANAGEMENT APPROACH 2016 103-1 Explanation of the material topic and its Boundary 3 4 2 No No No No No No No No No No Part 2: People - Keeping our employees safe 146-149 Part 2: People - Keeping our employees safe 146-149 Part 2: People - Keeping our employees safe 146-149 Part 2: People - Keeping our employees safe, Results 148-149 Part 2: People - Anti-corruption Part 4: Global Reporting Initiative Index - Management approach Part 2: People - Anti-corruption Part 4: Global Reporting Initiative Index - Management approach Part 2: People - Anti-corruption, Results Part 4: Global Reporting Initiative Index - Management approach 150-151 330 150-151 330 150-151 330 Part 3: Corporate governance 188-206 Part 2: People - Anti-corruption, Results 150-151 Part 2: Local communities - Local value creation; Case story Part 4: Global Reporting Initiative Index - Management approach 154-159; 160-161 330 ANNUAL REPORT 2019GRIEG SEAFOODPA R T 0 4 A P P E N D I X G R I I N D E X # 103-2 DISCLOSURE DESCRIPTION The management approach and its components 103-3 Evaluation of the management approach RESPONSE OMISSION CHAPTER REFERENCE PAGE No No Part 2: Local communities - Local value creation; Case story Part 4: Global Reporting Initiative Index - Management approach Part 2: Local communities - Local value creation; Case story Part 4: Global Reporting Initiative Index - Management approach 154-159; 160-161 330 154-159; 160-161 330 GRI 411 RIGHTS OF INDIGENOUS PEOPLES 2016 411-1 Incidents of violations involving rights of Indigenous peoples In 2019, we did not have any incidents of violations involving rights of Indig- enous peoples. No LOCAL VALUE CREATION GRI 103 MANAGEMENT APPROACH 2016 103-1 103-2 Explanation of the material topic and its Boundary The management approach and its components 103-3 Evaluation of the management approach No No No Part 2: Local communities - Local value creation Part 4: Global Reporting Initiative Index - Management approach Part 2: Local communities - Local value creation Part 4: Global Reporting Initiative Index - Management approach Part 2: Local communities - Local value creation Part 4: Global Reporting Initiative Index - Management approach 154-159 330 154-159 330 154-159 330 GRI 203 INDIRECT ECONOMIC IMPACTS 2016 & GRI 204 PROCUREMENT PRACTICES 2016 203-1 Infrastructure invest- ments and services supported We did not support any infrastructure investments or services in Shetland in 2019. 204-1 Proportion of spending on local suppliers No No Part 2: Local communities - Local value creation 154-159 Part 2: Local communities - Local value creation 154-159 3 4 3 GRIEG SE A FOOD PRODUCTION Visiting Grieg Gaarden Grieg Seafood's annual report 2019 has been produced by Group Finance and C. Sundts gate 17-19 Group Communication Design and layout: Mission AS N-5004 Bergen Norway Post Postbox 234 Sentrum 5804 Bergen Contact Tlf: +47 55 57 66 00 Fax: +47 55 57 69 70 info@griegseafood.com www.griegseafood.com A N N U A L R E P O R T 2 019 

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