Annual Report 2021

Dear shareholders.

The past three years have been eventful yet successful in Eimskip's operations.

In May 2018, Samherji reached an agreement with the US-based investment company Yucaipa on acquiring just over 25% share in Eimskip. The process leading up to the investment was not long, and we did all the analysis we felt needed within Samherji. We had some understanding of Eimskip's operations, of course, and we knew it was a well-established and respected company with a variety of qualified and experienced employees and a robust infrastructure. Nevertheless, we saw opportunities to do even better, which is a mentality we have tried to adopt. So even though things may be going well, it doesn't mean that there isn't room for improvement.

It is crucial to make well-thought-out decisions and not jump to conclusions when operating a company. But sometimes, owners and managers need to make decisions based on instinct or "a gut feeling." Perhaps Samherji's investment in Eimskip was partially based on such criteria.

The negotiations did not go smoothly due to the significant gap between the two parties. However, we stayed true to the belief that one should never want something too hard and decided to step away from the negotiations to see if time would work in our favor. Otherwise, leave it at that. After about a month, we reached an agreement where both sides waived some of their demands. In hindsight, our part seems to have been within reasonable limits.

I did not assume I would be elected Chairman of the Board even though I had led the investment process. Therefore, I was quite surprised when the shareholders trusted me with that role despite my young age. This had no precedent within Eimskip, a company with a significant history and deep roots in Icelandic society. But perhaps this trust was an indication of the shareholders wanting a new direction for the Company at that point. It gradually came to light that those changes were due, even though they weren't always easy or without challenges.

My priority as Chairman was to gain a comprehensive understanding of Eimskip and its operations as fast as possible. I traveled a lot and met many people, and I undeniably had to work for my credibility. My approach was not to step onboard, pretend to have full-fledged experience and knowledge, and start to tell people what to do. Instead, I listened and learned, and gradually, I connected with the management.

It took more than a few months to fully understand Eimskip's operations, but I soon realized what changes were needed. The opening words of the Chairman's Address in the Annual Report of 2018, before our investment, were: "Eimskip is a growth company." This statement described the problem quite well. Too much effort went into exploring new things and new opportunities. Success was measured in external and internal growth. The external environment had been favorable for Eimskip for some years, but that started to change at the end of 2018. Without a proper response, it would probably soon be revealed what the emperor's new clothes were made of.

My view was to lead these changes top-down. I reached an agreement with the CEO at the time, who returned to his former position at Eimskip USA. The appointment of a new CEO needed to reflect the journey of streamlining the Company and a change of the course ahead. It was clear that the new CEO's salary would be much more modest than it previously was. I also accepted reducing the compensation of the Chairman. Both actions were strong indicators of the changes ahead.

Before a new CEO was hired, streamlining measures had begun, and as is customary at this time of year, the lines were being drawn for next year, and new emphases needed to be in the foreground. I will not deny that those were challenging times. I did not have the full mandate to manage Eimskip's day-to-day operations as a CEO enjoys, but it still became my task to suggest and follow through with the changes that needed to be implemented. Maybe it would have been more efficient to have a full mandate from the Board, but it didn't happen that way. The process of hiring a new CEO went smoothly, and during that time, there was good cooperation between myself and Eimskip's management to follow urgent matters through.

In short, hiring a new CEO proved to be a very successful decision. The Board agreed on the appointment of Vilhelm Thorsteinsson, and some of the Board members were even more supportive of this hiring than I was. I must be grateful to the directors of that time for upholding those views. Thus, my second cousin Vilhelm did not get the job due to friendship and kinship. The truth is that we did not know each other very well even though we were closely related. I was still a child when Vilhelm moved from our hometown, Akureyri, and we had only been slightly acquainted through our work.

We both knew what to expect following his employment and were prepared for what was to come. Without hesitation, we exchanged views, engaged in debate when needed, and gradually got along well as we gained a better understanding of the changes that were required for the Company. We share the belief that having a temper and displaying feelings are beneficial when exchanging views. However, these qualities can become a weakness when you cannot accept criticism or rally behind the ideas of others. Vilhelm and I have been fortunate to work together constructively, as expected from a Chairman and CEO to the benefit of Eimskip. Still, two persons cannot carry a company's success; all management and employees need to know what the target is and work together towards it.

I hope that the values and methodology that have prevailed within Eimskip for the last few years will continue to be the basis for the Company's future success. It is often challenging to honor the implemented policy in the face of adversity, but managing can also be demanding when things are going well. The Board of Directors and Eimskip's management need to keep that in mind at all times. The Company stands strong today because it honors specific values and vision.

Finally, I would like to thank all Eimskip's employees for their effort and excellent cooperation. I would especially like to thank all the managers that welcomed me when I started this journey as a young and inexperienced Chairman with much ambition. Finally, I would like to thank the CEO, my cousin Vilhelm Thorsteinsson, from whom I have learned a great deal during the time we have worked together at Eimskip.

Respectfully,

Three pillars behind records results
I am very satisfied with the results for 2021 which were record high. Contribution from our employees was outstanding, and we managed to proactively maintain a high service level in a very challenging operational environment.

We undertook substantial streamlining and integration measures from 2018 through 2020 which is one of the pillars contributing to the good results in 2021. We managed to re-focus the company on the core operations surrounding our liner operations and international freight forwarding. We actively consolidated and integrated divisions and offices and reduced the number of employees during this period by more than 10%. We set out to change and modernize the corporate culture and as such shortened the lines of communication and vastly increased the flow and level of information to stakeholders, not least to our employees. We started to invest more in digital solutions and put focus on the digitalization journey which enabled efficiency gains and implemented active business performance monitoring and forecast which has proven to align management’s and employees’ course towards improved operational results.

The second pillar stands for various operational adjustments and iterations as well as initiation of active revenue management to secure sustainability of leaner operation, cultural changes and increased profitability. We reduced the number of reefer vessels in operation by selling three out of six vessels and reduced fixed cost in our trucking operation by shifting to variable cost. Furthermore, we have, with great effort and focus, successfully managed to turn the profitability of our container liner services around. We have changed and iterated the system number of times to align it towards more balanced cargo flow, partly renewed the container vessel fleet and shifted vessels between routes to maximize available capacity. The changes made to the Executive Management team and subsequent strategic direction have proven to be successful and we have aligned the group towards focus on healthy profitability and cash-flow above volume and market share.

The third pillar behind the record results in 2021 is the external environment which has been financially positive although operationally challenging. The developments in international transportation markets since start of COVID-19 in early 2020 has led to e.g. substantial increases in third-party expenses where Eimskip purchases logistic solutions on behalf of customers, and vessel time charter rates affecting our lease liabilities. Internationally the container market has dealt with shortage of equipment, available capacity and congestions in many locations all contributing to higher prices globally. Interestingly, these dynamic and volatile international market conditions have had positive financial impact on the container and freight forwarding businesses globally and stands as one of the three pillars behind the record results.

Well positioned with our niche focus
Our niche focus on transportation of frozen and chilled commodities has proven to be very fruitful and we are well positioned as a leading transportation company in the North Atlantic providing container- and reefer liner services and worldwide freight forwarding services. We have seen general consumer trend towards more fresh and chilled products such as seafood, farmed fish and fruits and vegetables and for environmentally friendly transportation solutions. We have met this demand by offering reliable and competitive liner services and value-added ancillary services such as efficient land transportation, warehouse and cold-store operations in key locations.

Overall, the volume in our container- and reefer liner services was strong during the year. We saw substantial volume growth in our Trans-Atlantic services and have had fully utilized vessels westbound to US and Canada since March 2021. The co-operation with Royal Arctic Line, which commenced in 2020, has proven to be successful and strengthen our container liner services on the Red line. As originally planned direct sailings to Aalborg will cease as of end of June this year which will streamline the service by calling only one port in Denmark. This might also potentially enable extension of the Red line to other markets.

Our international forwarding operations delivered very good results, especially in Asia, in a market characterized by very high global prices and capacity constraints. This unusual market situation resulted in lower volume than previous year however higher margins more than offset the volume effect.

We are pleased with the start of 2022 and are optimistic for the year despite uncertainty in the geopolitical landscape and how that will affect the global economy. Overall, the volume in the liner services remains strong and the forwarding operations are off to a good start.

Customer-Centric culture
We worked on securing the sustainability of the cultural changes and leaner operations and continued to increase flow and level of information to all stakeholders. We strive to provide our customers excellent services leveraging our position as a leading transportation company in the North-Atlantic. For the last three years we have been investing in our technology platforms to support our customer service e.g. Microsoft Customer Engagement solution, a new system for our liner and forwarding operations, container management system and a new financial reporting and planning platform. The Company will continue this digital journey to ensure excellent customer service leveraging on technical improvements and our business and employee adaptability to change.

Sustainability at the forefront
Sustainability continues to be in focus at Eimskip and we see growing demand from our customers in that direction. We continue to take steps towards using green energy in our operation with investments in e.g. electric harbor cranes and more environmentally friendly reach stackers, trucks and cars. It is good to see our new vessels Brúarfoss and Dettifoss contribute to reduced emission per transported unit and we are excited to finalize the project to electrically connect the vessels to shore in Sundahöfn terminal later this spring. We are however aware of the need for new energy source for vessels in coming years to help us meet reduction targets.

Employee development
We are thankful for the outstanding contribution and work of our employees especially given the extraordinary conditions in the global transportation market because of COVID-19 and Brexit to name a few. We have put additional focus on training and educating employees as well as on employee well-being. This is especially important after the past two years of social restrictions. Leadership training, development and succession planning play an important part in ensuring a diverse group of leaders ready to take on new roles and responsibilities within our organization.

Finally
I would like to thank the Board of Directors for the support and co-operation during the year and especially thank our Chairman, Mr. Baldvin Thorsteinsson, who will step down at the 2022 Annual General Meeting and take a seat as an alternate board member. Baldvin has been very supportive to the Executive Management Board over the last three and a half years and provided valuable leadership to the Company.

BALDVIN THORSTEINSSON
CHAIRMAN OF THE BOARD

Baldvin was born in 1983 and lives in the Netherlands. Previously he was the CEO of Iceland Drilling hf. from 2013 to 2016. He is currently a chairman of the board of Olíuverzlun Íslands hf., a board member of Iceland Drilling hf., and a board member of the Canadian fishing company Newfound Resources Limited Ltd. and the Norwegian fishing company Nergard A/S. He earned a BS degree in Industrial Engineering from the University of Iceland in 2007. Baldvin is currently the Chairman of the Board of Eimskipafélag Íslands hf. and is the Chairman of the Remuneration Committee. Baldvin owns 244,959 shares in the Company but does not have a share options agreement. He is not independent of Samherji Holding ehf., which holds 57.5 million shares in the Company at the year-end of 2021.