Akastor ASA Annual Report 2016

Plain-text annual report

2016 ANNUAL REPORT 2 Annual Report 2016 TABLE OF CONTENTS 01. THIS IS AKASTOR 02. BOARD OF DIRECTORS' REPORT 03. DECLARATION BY THE BOARD OF DIRECTORS AND CEO 04. CORPORATE GOVERNANCE STATEMENT 05. FINANCIALS AND NOTES a. Akastor Group b. Akastor ASA 06. AUDITORS REPORT 4 6 13 14 23 23 80 92 07. ALTERNATIVE PERFORMANCE MEASURES 99 08. BOARD OF DIRECTORS 09. MANAGEMENT 10. COMPANY INFORMATION 101 103 104 Annual Report 2016 3 KEY FIGURES (CONTINUING) Results and orders (NOK million) Total revenue and other income EBITDA EBITDA margin (percent) Net profit (loss) Net profit (loss) incl discontinued operations Cash flow from operating activities Borrowings Equity ratio (percent) Order intake Order backlog December 31 Share (NOK) Share price December 31 Basic/Diluted earnings per share Employees (Full time equivalents) 2016 2015 5 310 69 1.3 (2 017) (1 282) (56) 3 054 43 3 907 7 753 9 983 567 5.7 (1 844) (2 587) (289) 5 637 36 5 368 12 702 16.2 (4.73) 12.0 (9.54) Employees including hired-ins per December 31 2 702 4 069 Health and Safety Lost time incident frequency (per million worked hours) Total recordable incident frequency (per million worked hours) Sick leave rate (percent of worked hours) 1.2 1.9 2.8 0.7 1.6 2.4 Net capital employed NOK million Revenue NOK million EBITDA NOK million Other 104 KOP Surface 396 MHWirth 3 200 3000 2500 2000 1500 1000 500 0 AKOFS Offshore 4 378 Total 8 078 2 544 1 353 1 392 1 370 1 196 495 500 400 300 200 100 0 Q4 15 Q1 16 Q2 16 Q3 16 Q4 16 Q4 15 -100 -200 166 91 (48) (140) Q1 16 Q2 16 Q3 16 Q4 16 4 Annual Report 2016 | This is Akastor 01. THIS IS AKASTOR Akastor ASA, hereinafter referred to as Akastor, was the surviving entity in the demerger of Aker Solutions in September 2014. Akastor is a Norway-based oil-services investment company with a portfolio of industrial holdings, real estate and other investments. The company has a flexible mandate for active ownership and long-term value creation. Business Model Per 31 December 2016, the portfolio comprises: drilling systems and lifecycle services supplier MHWirth; vessel-based subsea well construction and intervention services provider AKOFS Offshore; surface oil and gas equipment supplier KOP Surface Products; and other smaller sized holdings. The portfolio businesses are developed as stand-alone entities under the Akastor umbrella and represent the Company’s four reporting segments. Akastor operates globally and has a number of subsidiaries located worldwide. Akastor has a range of strategic, operational and financial value-creating measures at its disposal, including operational improvements and organic growth, acquisitions and divestments, and financial measures. The aim is to maximize value potential of each entity by clarifying the portfolio companies’ business models, capitalize on their market positions, and strengthen underdeveloped areas of value creation. Highlights During the Year In 2016, Akastor carried out several transactions. In July, Managed Pressure Operations was sold to AF Global. In November, Akastor and Mitsui/MOL created a joint venture, Avium Subsea, with 50/50 ownership between AKOFS Offshore AS ("AKOFS") and Mitsui/MOL. Later in November, Akastor sold Frontica Business Solutions to Cognizant. Further, Akastor sold Fjords Processing to National Oilwell Varco in December 2016. Akastor also announced the merger of Frontica Advantage and NES Global Talent in 2016. Initially, Akastor received a 15.2% ownership position in the combined entity with potential to increase its ownership depending on the growth of Advantage over the next three years. The transaction was closed in January 2017. Holding and Earnings Aker Kværner Holding AS, which is owned 70 percent by Aker ASA and 30 percent by the Norwegian government, is the largest shareholder of Akastor owning 40.27 percent of the shares. Aker ASA also has a direct shareholding in Akastor of 8.5 percent. Akastor shares are traded on the Oslo Stock Exchange under the ticker AKA. Akastor’s portfolio companies generated 2016 revenues of NOK 5.3 billion, EBITDA of NOK 69 million and employ 2 702 people worldwide. Akastor operates a corporate centre with 22 employees situated at Fornebu, Norway. r o t s a k A s i s i h T Annual Report 2016 | This is Akastor 5 Current Portfolio MHWirth MHWirth is a leading global provider of first-class drilling solutions and services. The company’s knowledge and technologies span from reservoir to production and through the life of the field. With a legacy founded more than a century ago, MHWirth’s reputation is preserved through a combination of values, people and innovative technologies. The company vision drives a strong commitment to quality and yielding economic advantages for its customers and stakeholders. Today, MHWirth has a strong regional presence covering five continents with offices in more than 16 countries. Proven by a respected track record and a vast collection of customer success stories, MHWirth’s 1 700 dedicated professionals consistently strive to enhance customer satisfaction and form meaningful collaborations. MHWirth had revenues of NOK 3.5 billion and an EBITDA of NOK 71 million in 2016. AKOFS Offshore AKOFS Offshore is a provider of vessel-based subsea well construction and intervention services to the oil and gas industry. The company has a highly competent and diverse organization, covering all phases from conceptual development to project execution and offshore operations. The company currently operates three state-of-the-art vessels, the AKOFS Seafarer, the Skandi Santos and the Aker Wayfarer, which are designed to perform operations in up to 3 000 meters (9 800 feet) of water. The Skandi Santos began operating in 2010, the Aker Wayfarer in 2011 and the AKOFS Seafarer in 2013, making AKOFS Offshore’s fleet one of the most modern of its kind. AKOFS Offshore has the competence and equipment needed to provide offshore oilfield services to leading oil and gas producers and subsea service providers around the globe. AKOFS offshore had revenues of NOK 835 million, EBITDA of NOK 316 million in 2016 and employs 113 people. In November 2016 AKOFS Offshore entered into a 50/50 joint venture with Mitsui O.S.K. Lines, Ltd (MOL) and Mitsui & Co., Ltd. (Mitsui) to create Avium Subsea AS. Avium Subsea AS has acquired the high-end subsea vessel Skandi Santos, which is on hire and operated by AKOFS Offshore on contract to Brazil’s national oil company, Petrobras. KOP Surface Products KOP Surface Products is an international supplier of surface wellheads, trees, valves and actuators to the oil and gas industry. KOP has been providing engineering, manufacturing, installation and life-of field support services customized to its customers’ needs since 1934. As a one-stop solutions provider, KOP develops reliable and cost-effective products and solutions in cooperation with its customers, with focus not only on products and tools, but also on optimization of jacket design, drilling and operational cost. KOP has grown rapidly in recent years by expanding its footprint and market share on a global scale. The company is headquartered in Singapore and with its main manufacturing operations in Batam, Indonesia. Highly qualified employees provides worldwide installation and operational assistance for all products through a global network of service centres. KOP had revenues of NOK 335 million and EBIDTA of negative NOK 22 million in 2016, employs 488 people. Other Holdings In addition to the portfolio companies, Akastor has invested in other smaller sized holdings which include 100 percent ownership of First Geo and Cool Sorption, a 76 percent stake in STEP Oiltools and a 50 percent stake in DOF Deepwater. Other holdings reported revenues of NOK 674 million and EBITDA of NOK negative NOK 296 million in 2016. 6 Annual Report 2016 | BOD Report 02. BOARD OF DIRECTORS’ REPORT Akastor ASA (hereinafter referred to as Akastor) is an investment company based in Norway with a portfolio of companies in the oilfield services sector with a flexible mandate for active ownership and long-term value creation. Aker Kværner Holding AS, which is 70 percent owned by Aker ASA and 30 percent by the Norwegian government, is the largest shareholder of Akastor with a shareholding of 40.27 percent. Aker ASA also has a direct shareholding in Akastor of 8.5 percent. The shares of Akastor are traded on the Oslo Stock Exchange under the ticker AKA. The Akastor portfolio of companies had a total net capital employed of NOK 8.1 billion at the end of 2016. Highlights 2016 In 2016, Akastor announced and concluded several transactions, releasing approximately NOK 2.6 billion in cash. At the end of the year, the company had reduced its net debt by NOK 2.5 billion to NOK 2.6 billion, and had a liquidity reserve including bank facilities of approximately NOK 3.1 billion. During 2016, Akastor sold the portfolio companies Frontica Business Solutions, Fjords Processing and Managed Pressure Operations (MPO). In January 2017, the transaction involving Frontica Advantage was completed. Following the above mentioned transactions, these operations have been classified as discontinued operations and excluded from the group’s key figures. The figures and operations referred to in this report are related to continuing operations and historical comparative figures have been restated accordingly. Net profit from these discontinued operations ended at NOK 734 million. Akastor’s total revenue from continuing operations was NOK 5.3 billion in 2016, a decrease of 47 percent from 2015. EBITDA ended at NOK 69 million, down 88 percent from 2015. The decline is mainly due to tougher market conditions for all portfolio companies during 2016. The order backlog amounted to NOK 7.8 billion at the end of 2016 compared to NOK 12.7 billion a year earlier. The order intake for 2016 was NOK 3.9 billion. Company Overview Akastor is primarily focused on the oilfield services sector. The portfolio in 2016 covers a range of industrial holdings in this sector, all in varying stages of maturity, including: MHWirth, which provides drilling systems and lifecycle services. AKOFS Offshore, a vessel-based subsea well instal- lation and intervention services provider. KOP Surface Products, which delivers surface oil and gas equipment. Step Oiltools, a drilling waste management company, in which Akastor owns 76 percent. First Geo, which delivers subsurface advice and pro- ducts to E&P companies. Cool Sorption, a supplier of vapour recovery units and systems. In addition, Akastor owns a number of financial investments such as a 50 percent stake in DOF Deepwater AS, which are reported in the reporting segment Other Holdings. Following the divestment of Frontica Advantage in January 2017, Akastor also has a minority holding of 15.2 percent of NES Global Talent (see note 37 Subsequent events in the consolidated accounts). Each Akastor portfolio company is organized as an independent business with its own dedicated management team, which together with the company’s board, is fully responsible for all aspects of its operations. All portfolio companies have separate boards of directors, which consist of dedicated Akastor investment managers, and in some of the boards, external board representatives and employee representatives. This lays the foundation for close cooperation between Akastor, the portfolio companies and their employees. Akastor is based in Norway, at Fornebu, with a team of 22 employees, working closely with the boards and management of its portfolio companies. Akastor’s portfolio companies have a total of 2 702 employees with presence in 27 countries at year end 2016. Strategy Akastor is an investment company, advocating an independent approach for each portfolio company to optimize its development potential. Akastor aims to create long-term value for its shareholders through active development of its portfolio companies as stand-alone businesses, while maintaining the flexibility to be opportunistic. Akastor works closely with each portfolio company’s management to make decisions on business development, acquisitions and divestments to maximize the value of the company. Each portfolio company develops and executes independent value creation plans in close cooperation with the Akastor investment team. As an owner, Akastor emphasizes understanding the portfolio companies’ markets and challenges in depth, in order to evaluate current valuation versus future potential. Akastor seeks to maximize value by combining strategic, operational and financial measures. The business models of the portfolio companies are decentralized, but as part of the Akastor portfolio, all t r o p e R ’ s r o t c e r i D f o d r a o B 7 companies share a common foundation based on Akastor’s values and compliance structure. Capital discipline is a key focus. Akastor will only pursue new investments generating returns above the cost of equity. Market Outlook All of Akastor’s portfolio companies operate in the oilfield services industry. The market outlook for 2017 is affected by reduced levels of E&P spending seen in recent years. While Akastor is positive toward the longer-term outlook for the oil and gas sector, Akastor still expects market conditions to be demanding for all its portfolio companies in 2017, and will as an active owner work closely with the portfolio companies to position them for growth in current and new markets. Akastor’s order backlog was down 39 percent, or NOK 5 billion, at year end 2016 compared to 2015. Akastor has a sufficient liquidity reserve, giving the opportunity to provide support to the portfolio companies in case it is needed in periods with challenging markets. As an active owner, Akastor will in the near-term continue to focus on adjusting its businesses to the current market conditions. Group Financial Performance Akastor presents its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. All amounts below refer to the consolidated financial statements for the group, unless otherwise stated. the Income Statement Operating revenue and other income for 2016 decreased by 47 percent to NOK 5.3 billion due to lower activity and weaker market conditions in the oil service industry in general, and in the offshore drilling market in particular. Earnings before interest, (EBITDA) tax, depreciation and amortization decreased by 498 million to NOK 69 million. Earnings in 2016 were impacted by reduced revenues for MHWirth and KOP Surface Products. EBITDA was also impacted by onerous offices leases in “Other holdings”, a gain from realization of Skandi Santos vessel in AKOFS Offshore and restructuring costs in MHWirth. Depreciation and amortization was NOK 746 million in 2016, compared to NOK 829 million in the previous year. In addition, impairment losses of NOK 473 million were recognized in 2016. The vessel AKOFS Seafarer was impaired by NOK 118 million, mainly triggered by an increase in the applied discount rate used in impairment testing. Further, an impairment of NOK 299 million was recognized related to the plant of MHWirth in Brazil and planned closing of a manufacturing plant in Malaysia. The impairment was triggered by current weak market conditions for project related work which are expected to continue in the short to medium term. The group had an operating loss of NOK 1.2 billion. Net financial items ended at NOK -1 174 million in 2016 compared to NOK -678 million in the previous year and includes an impairment of the shareholding in DOF Deepwater AS of NOK 214 million, impairment of receivable from EZRA Holding Ltd. of NOK 56 million as well as hedge loss from projects in MHWirth that no longer meet requirements for hedge accounting due to cancellation risk. The pre-tax loss for the year was NOK 2.3 billion, compared to a loss of NOK 2.2 billion the previous year. The income tax benefit for 2016 was NOK 307 million, compared to a tax benefit of NOK 351 in 2015. The effective tax rate of 13 percent is influenced by several items, such as impairment of deferred tax assets, mix of revenue generated in various jurisdictions, as well as tax effects from currency fluctuations in entities that are taxable in a currency other than the functional currency. Earnings per share for continuing operations were negative NOK 7.44 in 2016, compared with negative NOK 6.80 a year earlier. Profit from discontinued operations ended at NOK 734 million, giving earnings per share for discontinued operations of NOK 2.71 compared with negative NOK 2.74 in 2015. The board of directors has resolved to propose to the annual general meeting that no dividend is distributed for 2016. Financial Position Total assets of Akastor amounted to NOK 12.9 billion as of December 31, 2016, compared with NOK 20.5 billion at year- end 2015. The decrease reflects reduction in current operating assets of NOK 2.0 billion, impairments of NOK 0.5 billion as well as sale of assets of NOK 2.7 billion as result of divestments. Total operating liabilities in portfolio companies decreased by NOK 0.6 billion, mainly explained by decreased activity levels. Gross debt decreased by NOK 2.6 billion as a result of divestments carried out during the year as well as reduction in net working capital (NCOA). Total equity amounted to NOK 5.6 billion at yearend 2016, compared to NOK 7.4 billion the year before. The equity ratio was 43 percent as of December 31, 2016, increased from 36 percent in 2015. Cash Flow As of December 31, 2016, Akastor had cash of NOK 487 million, a reduction from NOK 563 million in 2015. The net cash flow from operating activities for all operations was NOK -129 million, and reflects changes in working capital of NOK 508 million offset by negative effects from interest costs, financial leases and paid tax. Net cash flow from investing activities was NOK 2.7 billion compared to negative NOK 216 million in 2015. Net cash Annual Report 2016 | BOD Report8 proceeds from divestments of businesses in 2016 were NOK 2.4 billion, compared to NOK 1.2 billion in 2015. In addition, sale of fixed assets increased cash by NOK 667 million, mainly related to the sale of Skandi Santos topside equipment to Avium Subsea, in which AKOFS Offshore owns 50%. Investing activities also include capex investments of NOK 153 million compared to NOK 1.5 billion in 2015. No new business acquisitions were carried out in 2016. Net cash flow from financing activities amounted to negative NOK 2.6 billion and reflected reduced borrowings in 2016. Going Concern As of December 31, 2016, the interest coverage ratio (ICR) was below the minimum level of 1.5 as defined in the bank facility agreement dated March 11, 2016. NOK 1.2 billion of the debt will mature in July 2019, and was therefore reclassified from non-current to current borrowings in the consolidated accounts. On March 1, 2017, Akastor signed an agreement with its bank syndicate to i) replace its ICR covenant with a nominal EBITDA amount until Q2 2018; and ii) to be allowed to use the existing Revolving Credit Facilities to make acquisitions under certain conditions. The board of directors confirms that the company is a going concern and that the 2016 financial statements have been prepared on a going concern basis. The Akastor Portfolio MHWirth MHWirth is a global provider of drilling solutions, engineering, projects, equipment and services. MHWirth has activity on five continents with presence in 15 countries. At year-end 2016, the company employed 1 738 people; 47% of the workforce was employed in Norway. The company’s business is divided in four core areas: Large Projects, Engineering Services, Drilling Equipment and Drilling Lifecycle Services. MHWirth is the largest Akastor portfolio company by both sales and employees. Key Figures Amounts in NOK million Operating revenue and Other income EBITDA EBIT CAPEX and R&D capitalization NCOA Net capital employed Order intake Order backlog Employees ex discontinued (FTE) 2016 3 548 71 (552) 36 1 091 3 200 2 936 1 481 1 738 2015 6 527 18 (349) 360 2 133 4 285 3 475 5 654 2 894 The revenue for 2016 of NOK 3 548 million was down 46 percent from 2015 which is mainly driven by reduction in Large Projects activity level which was impacted by the current down cycle in the offshore drilling market with no new orders in 2016. Also the Drilling Lifecycle Services business experienced reduced activity level throughout 2016 and saw a total revenue reduction of NOK 1 013 million from 2015 activity levels. Activity level was driven by reduced level of spare parts sales and overhaul related work to operating rigs which started with 62 active rigs in the first quarter and ended with 49 active full package rigs in the fourth quarter of 2016. The EBITDA increased from NOK 18 million in 2015 to NOK 71 million in 2016. The improved profitability was driven by in contribution reduced margins in all segments. Total restructuring cost of NOK 220 million was included in the result. indirect cost and improvement Working capital (NCOA) was reduced by NOK 1 043 million compared to the level at year-end 2015 and ended at NOK 1 091 million. The main driver of the reduction was collection of receivables from customers. A significant part of the working capital is tied up in inventory. The offshore drilling market has continued to decline in 2016, which has impacted both number of rigs in operation as well as new build orders. MHWirth has not signed any new build orders for high-end floaters or jack-ups during 2016. Overall order intake was down 16 percent from 2015 and the order backlog was reduced by 74 percent during the year. In the second quarter of 2016, MHWirth decided to remove the remaining backlog (NOK 3 554 million) for three of the seven drilling packages to Jurong Shipyard in Singapore due to the financial uncertainty of Jurong’s client, Sete Brazil. At the end of 2016, MHWirth has NOK 886 million (unaudited) in backlog related to the remaining four drilling packages to Jurong. In response to the market slowdown, MHWirth has throughout 2016 reduced organizational capacity by approximately 1 150 employees, corresponding to a reduction of around 40 percent compared to year-end 2015. In 2016, it was decided to close down the sites in Port Klang, Malaysia (manufacturing and Drilling Lifecycle Services for the Riser product line) and Okpo, South Korea (Large Projects administration). Both sites will be closed mid-2017. As a result of the workforce reduction and close-downs, MHWirth has recognized restructuring costs of NOK 220 million in 2016. The indirect cost base is reduced by around NOK 630 million. MHWirth will continue to make necessary adjustments to its cost base in accordance with market conditions to ensure profitability of the company at lower activity levels. In addition to making adjustments to the organization and cost base to face lower activity levels, MHWirth has in 2016 also been through a strategy update in response to the market conditions and customer priorities. The updated strategy has set a clear direction for MHWirth in relation to markets and customers, product offering and technology, Drilling Lifecycle Services offerings and operational improvements. AKOFS Offshore AKOFS Offshore is a provider of vessel-based subsea well installation and intervention services to the oil and gas industry. The companycovers all phases of the value chain from conceptual development to project execution and offshore Annual Report 2016 | BOD Report9 operations. AKOFS Offshore operates three specialized offshore vessels, Skandi Santos, Aker Wayfarer and AKOFS Seafarer, employing 113 people (FTE, incl. hired-ins). The company’s revenue increased by 7 percent in 2016 to NOK 835 million, and EBITDA increased by NOK 212 million to NOK 316 million, mainly due to the sale of the Skandi Santos topside equipment to a new joint venture as described below. During 2016, the company created a 50/50 joint venture with Mitsui & Co. Ltd. and Mitsui O.S.K. Lines Ltd., which acquired both the Skandi Santos hull from DOF Subsea Rederi AS and the Skandi Santos topside equipment from AKOFS Offshore. The joint venture has a lease agreement with AKOFS Offshore corresponding to the remaining Skandi Santos contract duration between AKOFS Offshore and Petrobras. As a result of the transaction, AKOFS Offshore realized a cash gain of NOK 542 million (USD 66 million), net of investments in the joint venture, and an accounting gain of approximately NOK 172 million (USD 20 million). Skandi Santos continued in its second year of the five-year extension of the contract with Petrobras in Brazil for subsea equipment installation work. The vessel has operated at close to full utilisation and continues to build on its strong track record in Brazil. Key Figures Amounts in NOK million Operating revenue and Other income EBITDA EBIT CAPEX and R&D capitalization NCOA Net capital employed Order intake Order backlog Employees ex discontinued (FTE) 2016 835 316 2015 781 104 (134) (1 288) 108 121 4 378 106 5 900 113 1 057 69 5 183 305 6 430 91 Aker Wayfarer completed its conversion project according to plan, including the five-year special periodical survey in the third quarter 2016 in preparation for the 5+5 year contract with Petrobras in Brazil. The vessel is currently on stand-by in Norway as per agreement with Petrobras. With regards to the 5+5 year contract for the Aker Wayfarer vessel, AKOFS Offshore reached an agreement with Petrobras for an extended contract period (approximately 1 year). The contract is effective with a reduced day-rate until commencement of operations, which is expected to take place in the fourth quarterly of 2017. Operating expenses for the vessel while on stand-by are at a lower level than while in operation. AKOFS Offshore and Petrobras have further agreed to certain contract amendments for both the Aker Wayfarer contract and the Skandi Santos contract, including more robust downtime provisions. The contract rate and duration for Skandi Santos remains unchanged. The company‘s results reflect that AKOFS Seafarer was idle parts of 2016, and operating expenses for the vessel have been kept at a minimal level as planned. In the fourth quarter, an impairment loss of NOK 118 million related to AKOFS Seafarer was recognized mainly as a result of increased discount rate used in the impairment testing. The vessel is currently being marketed for work in the subsea construction and service market as well as for Light Well Intervention. AKOFS Offshore had an order intake of NOK 106 million for the full year of 2016, compared to NOK 305 million in 2015. Looking ahead, due to the current weak market conditions in the E&P sector, both the subsea construction fleet and offshore drilling segment are in structural oversupply. Decline in Petrobras’ activity level in Brazil seems to have levelled out, with an indication of stable to a gradual increase over the coming years. Installation of x-mas trees as well as related subsea production equipment will continue to be essential to Brazilian oil and gas production. KOP Surface Products KOP Surface Products is a supplier of surface wellheads and trees, providing engineering, manufacturing, and installation and life-of-field support services to the oil and gas industry. KOP Surface Products offers a complete range of surface wellheads, X-mas trees, gate valves, actuators, casing heads, hangers and spools, tubing hangers, spools and adaptors, bushing and annulus seal, tees and crosses, tree caps and other miscellaneous equipment and tools required for surface well completions. KOP Surface Products has its headquarters in Singapore and its main manufacturing facility in Batam, Indonesia which is comprised of a manufacturing plant, warehouse and office complex. Globally, KOP Surface Products employed 488 people at year- end 2016. Key Figures Amounts in NOK million Operating revenue and Other income EBITDA EBIT CAPEX and R&D capitalization NCOA Net capital employed Order intake Order backlog Employees ex discontinued (FTE) 2016 335 (22) (80) 13 119 396 321 133 488 2015 1 131 242 177 31 240 555 553 149 682 Worldwide installation and operational assistance for all KOP’s products are supported through its network of global service centres, located in Singapore, Malaysia, India, Indonesia, Thailand, United Arab Emirates, Qatar, Saudi Arabia, Vietnam and Nigeria. Annual Report 2016 | BOD Report10 As KOP Surface Products has their functional currency in USD, the foreign currency exchange development affects the financial results in NOK. In USD terms revenue declined by 72 percent in 2016, whereas cost discipline limited the EBITDA loss to USD 2.6 million (NOK 22 million). Order intake was NOK 321 million in 2016, giving a backlog of NOK 133 million at year end. KOP Surface Products is exposed to the cyclicality in the oil and energy sector, seeing softening in demand and increased competition, and will need to have a continued strong focus on cost reduction in 2017, in order to maintain its competitive position. Other Holdings Other holdings mainly include a 100 percent ownership of First Geo and Cool Sorption, a 76 percent stake in the drilling waste products and services company Step Oiltools, 50 percent of DOF Deepwater AS which is a joint venture with DOF ASA, and an investment in Aker Pensjonskasse. Key Figures Amounts in NOK million Operating revenue and Other income EBITDA EBIT CAPEX and R&D capitalization NCOA Net capital employed Order intake Order backlog Employees ex discontinued (FTE) 2016 674 (296) (385) 5 (258) 104 621 224 363 2015 1 769 203 (57) 99 (20) 694 1 270 448 402 Total EBITDA for Other holdings for the year was a loss of NOK 296 million. The three businesses Step Oiltools, First Geo and Cool Sorption delivered an EBITDA of negative NOK 38 million in 2016. The negative result can also be explained by relatively high corporate costs due to high M&A activities in 2016, and an onerous office lease provision of NOK 110 million. Parent Company Results and Allocation of Net Profit The parent company Akastor ASA is the ultimate parent company in the Akastor group and its business is the ownership of all companies and the management of the subsidiaries. Akastor ASA has outsourced all management functions to other companies within the group, mainly Akastor AS. However, assets and liabilities related to the Akastor Treasury function are held by Akastor ASA. Akastor ASA had total assets of NOK 10.2 billion at December 31, 2016, primarily consisting of investment in group companies of NOK 5.4 billion and interest- bearing receivables on group companies of NOK 3.3 billion. Total liabilities amounts to NOK 6.2 billion including external borrowings of NOK 1.2 billion and borrowings from group companies of NOK 4.5 billion. Akastor ASA has a net profit of NOK 790 million in 2016, including net interest income of NOK 71 million, income of NOK 1.0 billion from investments in subsidiaries and impairment of receivables on NOK 356 million. The parent company’s dividend policy states that Akastor’s shareholders shall receive a competitive return on their investment either through cash dividends or increases in the share price, or both. The company does not intend to distribute regular or annual dividends, but will consider dividends on an ongoing basis taking into consideration the company’s M&A activities, expected cash flow, capital expenditure plans, financing requirements and appropriate financial flexibility. The board thereby proposes the following allocation of net profit (amounts in NOK million): Dividends: To other equity: Total allocated: Subsequent Events 0 790 790 On January 6, 2017, Akastor completed the transaction to join Frontica’s staffing business (Frontica Advantage) into NES Global Talent to create a combined company as a global provider in staffing services to the oil and gas industry. Initially Akastor is holding a 15.2 percent economic ownership position in the combined entity with potential to increase its ownership depending on the growth in business with Aker controlled entities over the next three years. The estimated accounting gain is approximately NOK 385 million to be recognized in the first quarter of 2017. On March 1, 2017, Akastor signed an agreement with its bank syndicate to i) replace its ICR covenant with a nominal EBITDA amount until Q2 2018; and ii) to be allowed to use the existing RCF to make acquisitions for up to NOK 1.0 billion under certain conditions. Risk Management Akastor and each of its portfolio companies are exposed to various forms of market, operational and financial risks that may affect the companies’ performance, their ability to meet strategic goals and the companies’ reputations. The market situation for the oil services industry is very challenging with low activity and weak market conditions, and market developments may lead to further cost adjustments and changes in the valuation of the Akastor portfolio’s assets and liabilities (which could include further restructuring costs, onerous leases, impairments etc. and increased credit risk impacting the valuation of trade and interest-bearing receivables). On the operational side, sound project execution by the portfolio companies without cost overruns as well as securing new orders are key factors affecting the companies’ financial performance. Results also depend on costs, both the portfolio companies’ own costs and those charged by suppliers. Akastor and its portfolio companies are also exposed to financial risk under performance guarantees and financial guarantees issued, and financial market risks as further detailed below. Annual Report 2016 | BOD ReportIn addition, the portfolio companies, through their business activities within their respective sectors and countries, are also exposed to legal/compliance and regulatory/political risks, e.g. political decisions on international sanctions that impact supply and demand of the services offered by the portfolio companies, as well as environmental regulations. As an investment company, Akastor and its portfolio companies from time to time engage in mergers and acquisitions and other transactions that could expose the companies to financial and other non-operational risks, such as warranty and indemnity claims and price adjustment mechanisms. To manage and mitigate risks within Akastor, risk evaluation is an integral part of all business activities. As an owner, Akastor actively supervises risk management in its portfolio companies through participation on the board of directors of each portfolio company, and by defining a clear set of risk management and mitigation processes and procedures that all portfolio companies must adhere to. The current and revised governing documents defined by Akastor were rolled out during the first half of 2016. Financial Risks Akastor is exposed to a variety of financial market risks: currency risk, interest rate risk, tax risk, price risk, credit and counterparty risk, liquidity risk and capital risk as well as risks associated with access to and terms of financing. The financial risks affect the group’s income and the value of any financial instruments held. The objective of financial risk management is to manage and control financial risk exposures and thereby increase the predictability of earnings and minimize potential adverse effects on Akastor’s financial performance. Akastor and its portfolio companies use financial derivative instruments to hedge certain risk exposures and aim to apply hedge accounting whenever possible in order to reduce the volatility resulting from the periodic market-to-market revaluation of financial income statement. Risk the is the management responsibility of the project managers, in cooperation with Akastor Treasury, to identify, evaluate and hedge financial risks under policies approved by the Board of Directors. Akastor has well-established principles for overall risk management, as well as policies for the use of derivatives and financial instruments. in every project. is performed instruments in It Integrity Risks All Akastor portfolio companies use education and awareness training to manage and mitigate integrity risks. All new employees must complete a Code of Conduct e-learning program. All Akastor managers and office-based staff are required to participate in classroom based integrity training. Hired-ins in high risk roles are also required to undertake integrity training, just as third party representatives receive integrity training specially prepared for them. The requirement for all portfolio companies is to complete and report on the training within six months from employment or publication of a new training session. 11 Akastor has established a whistleblowing system in line with the company’s Governance Policy. The whistleblowing channel is open for all external and internal stakeholders who wish to report a breach of the Code of Conduct, other internal guidelines or governing policies. Akastor employees are required to report breaches of the Code of Conduct, and Akastor encourages reporting of any concerns pertaining to compliance with law or ethical standards. Corporate Responsibility Akastor’s operating model reflects the fact that each of the portfolio companies are independent companies which operate different business models and therefore face different corporate responsibility risks and expectations from stakeholders. As a holding company, Akastor is responsible for setting the overall corporate responsibility priorities and providing the appropriate risk management framework and policies applicable for all holdings in the portfolio. In turn, each portfolio company is responsible for defining their own corporate responsibility strategy with relevant activities and, where necessary, supporting policies. Akastor is also responsible for the maintenance and development of industrial relations and collaboration with unions. Historically, good industrial relations have played an important role, and maintaining these strong relations have proven to be one of the success criteria in developing the company over the years. This work will thus continue in Akastor going forward. Within the corporate responsibility efforts, Akastor is focused on the environmental, social and governance areas that build financial and non-financial value in the portfolio companies. Akastor’s corporate responsibility strategy is based on four main priorities: working against corruption, respecting human rights, caring for health and safety and minimizing adverse impact on the environment. All the portfolio companies are responsible for working systematically with these priorities and defining their own corporate responsibility strategies encompassing these priorities. The task for Akastor going forward is therefore to ensure the systematic implementation and integration of the priorities of the corporate responsibility strategy, Code of Conduct and Integrity policy across all the portfolio companies. For in-depth reporting on Akastor and its portfolio company’s corporate responsibility work, including their HSE work, refer to the Akastor Corporate Responsibility Report for 2016. The full report is available on our website www.akastor.com. Research, Innovation and Technology Development NOK 49 million was capitalized in 2016, compared to NOK 176 million in 2015, related to development activities. In addition, research and development costs of NOK 62 million were expensed during the year because the criteria for capitalization were not met (NOK 60 million in 2015). Annual Report 2016 | BOD Report12 All research, initiatives are innovation and development performed by the Akastor portfolio companies. Akastor ASA and Akastor AS performed no such activity in 2016. supporting programs dedicated to equal opportunity. Akastor ASA fulfils the requirements of the Norwegian Companies Act with regards to gender representation on the board of directors, as four out of eight directors are women. People and Teams Akastor AS had a total of 22 employees as of December 31, 2016, of which 57 percent of the employees are women. Akastor is committed to equal opportunity and non- discrimination. This commitment is described in Akastors Code of Conduct, as well as Akastor’s policies and agreements, and builds on a frame agreement signed with national and international trade unions in 2008. This agreement was renewed in 2014 and sets out fundamental labour rights and standards for general employment terms and employee relations, with specific focus on non-discrimination. Equal opportunities are fundamental for Akastor and its portfolio companies. Akastor and the portfolio companies had a total of 2 702 employees as of December 31, 2016. The male/female ratio in the portfolio companies were as follows: Female Male MHWirth AKOFS 18% 82% 15% 85% KOP 16% 84% Whilst the male/female ratio is more balanced in Akastor AS, the portfolio companies have a predominantly male workforce. All portfolio companies regularly assess whether they live up to the principle of equal pay for equal work and no significant differences have been identified. Each portfolio company promotes equal opportunities by setting specific requirements for diversity in recruitment and people development, and by Sick leave in Akastor AS amounted to 0.9 percent of total working hours in 2016. Aggregated sick leave in the Akastor portfolio companies was 2.8 percent. There were no fatal injuries in any of the portfolio companies, and the total recordable incident frequency was low. See figure below for details. MHWirth AKOFS KOP Lost time incident Frequency (LTIF) * Total Recordable Incident Frequency * Fatalities incl subcontractors Sick leave (percent) 1.3 2.1 0.0 3.7 0.0 2.6 0.0 1.2 0.0 0.0 0.0 1.1 * Per million hours worked. Includes subcontractors Corporate Governance Corporate governance is a framework of values, responsibilities and governing documents to control the business and ensure sustainable value creation for shareholders over time. It is the responsibility of the board of directors of Akastor to ensure that the company implements sound corporate governance. The audit committee supports the board of directors in safeguarding that the company has internal procedures and systems in place to ensure that corporate governance processes are effective. Akastor’s corporate governance principles are based on the Norwegian Code of Practice for Corporate Governance and are included in this annual report and available on the company’s website www.akastor.com. Fornebu, March 7, 2017 | Board of Directors of Akastor ASA Frank O. Reite | Chairman Lone Fønss Schrøder | Deputy Chairman Øyvind Eriksen | Director Kathryn M. Baker | Director Sarah Ryan | Director Jannicke Sommer-Ekelund | Director Stian Sjølund | Director Asbjørn Michailoff Pettersen | Director Kristian Monsen Røkke | CEO Annual Report 2016 | BOD ReportAnnual Report 2016 | Declaration by the Board of Directors and CEO 13 03. DECLARATION BY THE BOARD OF DIRECTORS AND CEO The board and CEO have today considered and approved the annual report and financial statements for the Akastor group and its parent company Akastor ASA for the year ended on December 31, 2016. The board has based this declaration on reports and statements from the group’s CEO and/or on the results of the group’s activities, as well as other information that is essential to assess the group’s position which has been provided to the board of directors. To the best of our knowledge: The financial statements for 2016 for Akastor group and its parent company have been prepared in accordance with all applicable accounting standards. The information provided in the financial statements gives a true and fair portrayal of the group and parent company’s assets, liabilities, profit and overall financial position as of December 31, 2016. The annual report provides a true and fair overview of the development, profit and financial position of Akastor group and its parent company, as well as the most significant risks and uncertainties facing the group and the parent company. Fornebu, March 7, 2017 | Board of Directors of Akastor ASA Frank O. Reite | Chairman Lone Fønss Schrøder | Deputy Chairman Øyvind Eriksen | Director Kathryn M. Baker | Director Sarah Ryan | Director Jannicke Sommer-Ekelund | Director Stian Sjølund | Director Asbjørn Michailoff Pettersen | Director Kristian Monsen Røkke | CEO O E C d n a s r o t c e r i D f o d r a o B e h t y b n o i t a r a c e D l 14 Annual Report 2016 | Corporate Governance Statement 04. CORPORATE GOVERNANCE STATEMENT – AKASTOR ASA Corporate governance is a framework of values, responsibilities and governing documents to control the business and ensure sustainable value creation for shareholders over time. Sound corporate governance shall ensure that appropriate goals and strategies are adopted, that the strategies are implemented in a good manner and that the results achieved are subject to measurement and follow-up. 1. The Corporate Governance Report Basis for this Report The corporate governance principles of the group are laid down by the board of directors of Akastor ASA. The principles are based on the Norwegian Code of Practice for Corporate Governance dated October 30, 2014 (the «Code of Practice»), the regulations set out in the Continuing Obligations of stock exchange listed companies from Oslo Børs (the stock exchange in Oslo) and the relevant Norwegian background law such as the Norwegian Accounting Act and the Norwegian Public Limited Liability Companies Act. The Code of Practice may be found at www.nues.no and the Continuing Obligations of stock exchange listed companies may be found at www.oslobors.no. Norwegian laws and regulations are available at www.lovdata.no. This report outlines how Akastor has implemented the Code of Practice. Deviations from the Code of Practice are addressed under the relevant sections. In general, the Akastor board only approves deviations that the board believes contributes to value creation for its stakeholders. In addition to the Code of Practice, the Norwegian Accounting Act section 3-3b stipulates that companies must provide a report on their policies and practices for corporate governance either in the annual report or in a document referred to in the annual report. Such report is integrated in the below corporate governance statement. Governance Structure Akastor is an oil-services investment company with a portfolio of companies in the oilfield services industry. The company has a flexible mandate for active ownership and long-term value creation. During 2016 several transactions were concluded, including the divestments of Managed Pressure Operations, Frontica Business Solutions and Fjords Processing in addition to the creation of a joint venture between AKOFS Offshore and Mitsui. In January 2017, the combination of Frontica Advantage and NES Global Talent was completed. The current portfolio consists of MHWirth, AKOFS Offshore, KOP Surface Products and Other Holdings (as detailed below) with a total capital employed value of approximately NOK 8.1 billion. MHWirth is a leading supplier of drilling systems and drilling lifecycle services globally. AKOFS Offshore is a global provider of vessel based subsea well construction and intervention services to the oil and gas industry. KOP Surface Products offers a complete range of products for offshore and including surface wellheads, Christmas trees, valves and actuators. Other holdings include the Norwegian operation and wellsite geology services company First Geo AS, the Danish Cool Sorption A/S which is a leading provider of vapour recovery technology for the downstream oil & gas segment, 76 percent of the shares in STEP Oiltools, 50 percent of DOF Deepwater and 15.2 percent of the staffing service provider NES Global Talent. land-based surface production, 1) Below, the items in respect of which information must be disclosed according to section 3–3b of the Norwegian Accounting Act are specified, together with references to where such required information may be found: 1. “A statement of the recommendations and regulations concerning corporate governance that the enterprise is subject to or otherwise chooses to comply with” can be found in the introduction section of this corporate governance statement. 2. “Information on where the recommendations and regulations mentioned in no. 1 are available to the public” can be found in the introduction section of this corporate governance statement. 3. “The reason for any non-conformance with recommendations and regulations mentioned in no. 1”. The non-conformances are described in the relevant section where there are non-conformances, which are sections 6 and 14 respectively. 4. “A description of the main elements in the enterprise’s, and for entities that prepare consolidated financial statements, if relevant also the Group’s internal control and risk management systems linked to the financial reporting process” can be found in Section 10 of this corporate governance statement. 5. “Articles of Association which entirely or partly expand or depart from provisions of Chapter 5 of the Public Limited Liability Companies Act” can be found in Section 6 of this corporate governance statement. 6. “The composition of the board of directors, the corporate assembly, the committee of shareholders’ representatives and the control committee and any working committees related to these bodies, as well as a description of the main instructions and guidelines that apply to the work of the bodies and any committees” can be found in Section 8 and 9 of this corporate governance statement. 7. “Articles of Association governing the appointment and replacement of directors” can be found in Section 8 of this corporate governance statement. 8. “Articles of Association and authorizations empowering the board of directors to decide that the enterprise is to buy back or issue its own shares or equity certificates” can be found in Section 3 of this corporate governance statement. t n e m e t a t S e c n a n r e v o G e t a r o p r o C 15 It is the responsibility of the board of directors of Akastor ASA to ensure that Akastor and its portfolio of companies implements sound corporate governance. The board of directors evaluates this corporate governance statement on an annual basis. The board’s audit committee also evaluates the corporate governance statement as well as other key policies and procedures pertaining to compliance and governance. Compliance with, and implementation of these corporate governance guidelines are continuously evaluated by the board and said committee; inter alia by way of the board being the decisive body for the company’s defined management and reporting structure, which include regular reporting. Policies and Procedures Akastor has a total of ten corporate policies providing business practice guidance within a number of key areas, all of which were revised and re-issued during the first half of 2015 and updated on an annual basis. These policy documents express the overall position of the group with regard to for instance compliance, integrity and governance. The policies provide instructions and guidelines that apply to the portfolio companies and to individual employees in order to ensure that the group’s operations are in compliance with internal and external regulatory framework. In addition, the portfolio companies are requested to implement their own policies specific to their business within areas like project execution, HSE and tendering. Values and Code of Conduct Akastor aims to develop and refine its portfolio of companies as stand-alone enterprises, with the goal of maximizing the value potential of each entity. The company works to develop the business models of the portfolio companies, capitalize on their market positions and promote aftersales services for the equipment and systems delivered. The current investments are within the oilfield services sector, but the company has a flexible mandate for active ownership and long-term value creation. Akastor has an opportunistic approach and will continue to own the portfolio companies as long as Akastor creates more value than alternative owners. corporate responsibility activities in Akastor, defined in our group-wide integrity policy, is to work against corruption, to respect human rights and to care for health, safety and the environment. All our portfolio companies are expected to ensure strong corporate responsibility in their operations. Akastor is a member of Trace International, which supports our work against corruption. Akastor is also committed to follow the Global Framework Agreement (GFA) entered into by Aker with the trade unions Fellesforbundet, IndustriALL Global Union, NITO and Tekna on December 17, 2012. The GFA builds on and continues the commitment from the previous framework agreements signed in 2008 and 2010, and outlines key responsibilities in relation to human and trade union rights. The parties commit themselves to achieving continuous improvements within the areas of working conditions, industrial relations with the employees of the Aker group of companies, health and safety standards at the workplace and environmental performance. Akastor also aligns with the principles of the UN Global Compact, the United Nations Convention against Corruption, the Universal Declaration of Human Rights, the UN Guiding Principles for Business and Human Rights and the ILO Declaration on Fundamental Principles and Rights at Work. These international principles guide our Code of Conduct and Integrity Policy and provide the overall framework for the corporate responsibility efforts in the Akastor group. information Further in respect of the corporate social responsibility work of Akastor and its portfolio of companies can be found in the separate Corporate Responsibility report published simultaneously as the company’s annual report for 2016. 2. Business The objectives of the company, as defined in its articles of association, are «to own or carry out industrial and other associated businesses, management of capital, and other functions for the group, and to participate in or acquire other businesses». The articles of association are available at www. akastor.com. Akastor wishes to contribute to sustainable social development through responsible business practices. The company’s Code of Conduct is a handbook that applies to all employees and provides guiding on what Akastor considers to be responsible ethical conduct. The Code of Conduct gives a framework for what is acceptable behaviour that shall be reflected in every aspect of how business is conducted. The ethical guidelines and other policy documents of the group have been drafted on the basis of these basic corporate values. The principal strategies of the group are presented in the annual report. Each year, the board of directors evaluates the existing strategy and approves any significant changes to such, as well as goals and guidelines of the company, through a designated strategy process. Information concerning the financial position and principal strategies of the company, and any changes thereto is disclosed to the market in the context of the company’s quarterly reporting and in designated market presentations as well as at www.akastor.com. Corporate Responsibility Akastor takes an active approach to corporate responsibility. Corporate responsibility in Akastor is about making robust business decisions, with minimum risk to reputation, brand and the future sustainability of our business. The main focus of 3. Equity and Dividends Equity The management and the board regularly monitor that the group’s equity and liquidity are appropriate for its objectives, Annual Report 2016 | Corporate Governance Statement16 strategy and risk profile. The book equity of the group as per December 31, 2016 is NOK 5 580 million, which represents an equity ratio of 43 percent. The management of financial risk is further described in the annual report. Share Purchase Programs Share purchase programs in Akastor include Akastor ASA and Akastor AS (and not the portfolio companies). The company has not carried out any standard share purchase programs for employees of Akastor ASA or Akastor AS in 2016. Dividend Policy The board proposes the level of dividend payment to the general meeting who in turn is the decisive corporate body for dividend decisions. Over time, the aim is that Akastor’s shareholders shall receive a competitive return on their investment either through cash dividends or increases in the share price, or both. The company does not intend to distribute regular or annual dividends, but will consider dividends on an ongoing basis taking into consideration the company’s M&A activities, expected cash flow, capital expenditure plans, financing requirements and appropriate financial flexibility. Authorizations for the Board of Directors Proposals from the board of directors for future authorisations for share capital increases, share buy-backs or similar shall be for defined purposes, such as share purchase programmes and acquisitions of companies, and shall remain in effect until the next annual general meeting. The company’s annual general meeting on April 12, 2016 resolved to authorize the board to purchase treasury shares for three purposes for utilization, all of which were subject to separate voting under the general meeting: (i) purchase of treasury shares to be used as transaction currency in connection with acquisitions, mergers, demergers and other transactions, (ii) purchase of treasury shares to be sold and/or transferred to employees and directors under share purchase programs and (iii) purchase of treasury shares for the purpose of investment or for subsequent sale or deletion of such shares. The authorizations were all limited to ten percent of the share capital. The board’s authorizations to purchase treasury shares are valid for the period until the date of the annual general meeting of 2017, however in no circumstances beyond June 30, 2017. No shares were bought by the company in 2016 pursuant to the authorizations to the board of directors. As of December 31, 2016, the company holds 2 776 376 own shares. In addition, the annual general meeting in 2016 granted the board of directors the mandate to approve the distribution of dividends based on the company’s annual accounts for 2015 as set out in the Public Limited Liability Companies Act § 8-2, second paragraph. The mandate is valid for the period until the date of the annual general meeting of 2017. There are no current provisions in the Articles of Association of the company or power of attorney from the general meeting which grant the board of directors the mandate to issue or buy back of shares in the company for the purposes of capital increases. As announced in a stock exchange release on July 16, 2015, the board of directors of Akastor ASA resolved that Kristian Røkke, Chief Executive Officer of Akastor ASA (either personally or through his wholly-owned subsidiaries) could purchase up to 200 000 treasury shares yearly from the company under the regular share purchase program of Akastor. However, as there were no share purchase program in Akastor ASA or Akastor AS in 2016, no such share purchase was completed. 4. Equal Treatment of Shareholders and Transactions with Related Parties The company has only one class of shares, and all shares carry equal rights. Existing shareholders shall have pre-emptive rights to subscribe for shares in the event of share capital increases, unless otherwise indicated by special circumstances. If the pre-emptive rights of existing shareholders are waived in respect of a share capital increase, the reasons for such waiver shall be explained by the board of directors. Transactions in own shares are effected via Oslo Børs. As of December 31, 2016, Aker ASA holds 70 percent of the shares of Aker Kværner Holding AS which holds 40.27 percent of the shares of Akastor. As per the same date, Aker ASA directly held 23 331 762 shares of Akastor, equivalent to ~8.5 percent of the shares. Proposition No. 88 (2006–2007) to Stortinget (the Norwegian Parliament) contains more detailed information concerning the establishment of Aker Kværner Holding AS and the agreement between Aker ASA and the other shareholder of Aker Kværner Holding AS. The board of directors is of the view that it is positive for Akastor that Aker ASA assumes the role of an active owner and is actively involved in matters of importance to Akastor and to all shareholders. The cooperation with Aker ASA offers Akastor access to special know-how and resources within strategy, transactions and funding. Moreover, Aker ASA offers network and negotiation resources from which Akastor benefits in various contexts. This complements and strengthens Akastor without curtailing the autonomy of the group. It may be necessary to offer Aker ASA special access to commercial information in connection with such cooperation. Any information disclosed to Aker ASA’s representatives in such a context will be disclosed in compliance with applicable laws. Applicable accounting standards and regulations require Aker ASA to prepare its consolidated financial statements to include accounting information of Akastor. As of January 1, 2014, Aker ASA is deemed to have control of Akastor pursuant to the revised accounting standard is thus consolidated as a subsidiary in Aker ASA’s accounts from this date. Subsequently, Aker Solutions ASA and Kværner ASA are IFRS 10. Akastor Annual Report 2016 | Corporate Governance Statement17 deemed as related parties to Akastor for accounting purposes. In order to comply with these accounting standards, Aker ASA has in the past received, and will going forward receive, information of Akastor. Such unpublished accounting distribution of unpublished accounting information from Akastor to Aker ASA is executed under strict confidentiality and in accordance with applicable regulations on handling of inside information. Aker ASA, Kværner ASA and Aker Solutions ASA (or their subsidiaries) are however not deemed, within the meaning of the Public Limited Liability Companies Act, to be a related party of Akastor. The board of directors and the executive management team of Akastor are nevertheless conscious that all relations with these companies shall be premised on commercial terms and structured in line with arm’s length principles. In the event of any material transactions between the company and shareholders, directors, senior executives, or related parties thereof, which do not form part of the ordinary course of the company’s business, the board of directors shall arrange for an independent assessment. The same shall, generally speaking, apply to the relationship between Akastor and Aker ASA related companies. Akastor has prepared guidelines as part of its rules of procedure for the Chief Executive Officer and board of directors ensuring that directors and the Chief Executive Officer notify the board of directors if they have any material direct or indirect personal interest in any agreement concluded by the group. The guidelines stipulate that the directors and the Chief Executive Officer shall not participate in the preparation, deliberation, or resolution of any matters that are of such special importance to themselves, or any of their related parties, so that the person in question must be deemed to have a prominent personal or financial interest in such matters. The relevant board member or the Chief Executive Officer shall raise the issue of his or her competence whenever there may be cause to question it, and are the primary responsible for adopting the correct decision as to whether he or she should step down from participating in the discussion of the matter at hand. In general, as further stipulated in Akastor’s principles for related party transactions, directors of Akastor should be cautious in participating in the consideration of issues where a potential conflict of interest or conflict of role may arise, undermining the confidence in the decision process. Such person may not participate in board discussions of more than one company that is part of the same agreement, unless the companies have common interests. These assessments will be carried out on a case-by-case basis; in most events, and as a starting point, by the relevant directors themselves, but often also in cooperation with internal and/or external legal counsel. The above principles will normally also be applied if Akastor contracts with other companies in which said board members hold direct or indirect ownership interests that exceed, in relative terms, their ownership interests in Akastor. If grounds for legal incapacity is concluded, the relevant board member will, as a ground rule, prior to the relevant director, not be granted access to any documentation prepared to the board of directors for the deliberation of the agenda item in question. In general, Akastor applies a strict norm as far as competence assessments are concerned. In cases where the chairman of the board of directors does not participate in the deliberations, the deputy chairman of the board of directors chairs the meeting. As far as the other officers and employees of Akastor are concerned, transactions with related parties and conflicts of interest are comprehensively addressed and regulated in the group’s Code of Conduct. The «Related parties» note to the consolidated financial statements contains information on the most significant transactions between Akastor and companies within the Aker ASA group. 5. Freely Negotiable Shares The shares are listed on the Oslo Børs and are freely transferable. No transferability restrictions are laid down in the articles of association. 6. General Meetings Attendance, Agenda and Voting The company encourages shareholders to attend the general meetings. It is also the intention to have representatives of the board of directors as well as the chairman of the nomination committee and the company’s auditor to attend the general meetings. Notices convening general meetings, including comprehensive documentation relating to the items on the agenda, including the recommendation of the nomination committee, are made available on the company’s website no later than 21 days prior to the general meeting. The articles of association of the company stipulate that documents pertaining to matters to be deliberated by the general meeting shall only be made available on the company’s website, and not normally be sent physically by post to the shareholders unless required by statute. The following matters are typically decided at the annual general meeting, in accordance with the articles of association of Akastor ASA and Norwegian background law: election of the nomination committee and stipulation of the nomination committee’s fees; election of shareholder representatives to the board of directors as well as stipulation of fees to the board of directors; Annual Report 2016 | Corporate Governance Statement18 election of the external auditor and stipulation of the auditor’s fee; approval of the annual accounts and the board of directors’ report, including distribution of dividend; and other matters which, by law or under the articles of association, are the business of the annual general meeting. The deadline for registering intended attendance is as close to the general meeting as possible, but not shorter than two days before the meeting. Shareholders who are unable to attend may vote by proxy. Moreover, information concerning both the registration procedure and the filing of proxies is included in the notice convening the general meeting and on the registration form. The company also aims to structure, to the extent practicable, the proxy form such as to enable the shareholders to vote on each individual item on the agenda. Chairman The articles of association stipulate that the general meetings shall be chaired by the chairman of the board of directors or a person appointed by said chairman. According to the Code of Practice the board should however «make arrangements to ensure an independent chairman for the general meeting». Thus, the articles of Akastor ASA deviate from the Code of Practice in this respect. This has its background in a long-lasting tradition in Akastor. Having the chairman of the board chairing the general meeting also simplifies the general meetings significantly. the preparations for Election of Directors It is a priority for the nomination committee that the board of directors shall work in the best possible manner as a team, and that the background and competence of the directors shall complement each other. As a consequence, the nomination committee will propose that the shareholders are invited to vote on the full board composition proposed by the nomination committee as a group, and not on each director separately. Hence, Akastor deviates from the Code of Practice stipulating that one should make «appropriate arrangements for the general meeting to vote separately on each candidate nominated for election to the company’s corporate bodies». Physical Attendance and Electronic Voting It is a priority for the general meeting to be conducted in a sound manner, with all shareholder votes to be cast, to the extent possible, on the basis of the same information. The company has thus far not deemed it advisable to recommend the introduction of an electronic attendance, i.e. arranging for general meetings to be held as physical meetings with online coverage allowing for shareholders to participate via web. The company will contemplate introduction of such arrangements on an on-going basis in view of; inter alia, the security and ease of use offered by available systems. the Shareholders will have the opportunity to cast votes electronically in advance of general meetings (however, not during the meeting). Minutes Minutes of general meetings will be published as soon as practicable on the announcement system of Oslo Børs, www. newsweb.no (ticker: AKA), and at www.akastor.com. 7. Nomination Committee The articles of association stipulate that the company shall have a nomination committee. The nomination committee shall have no less than three members, who shall normally serve for a term of two years. The current members of the nomination committee are Leif-Arne Langøy (chairman), Gerhard Heiberg, Arild S. Frick and Georg Fr. Rabl. The members Leif-Arne Langøy, Arild S. Frick and Georg Fr. Rabl are elected up until the annual general meeting 2017, while Gerhard Heiberg is elected up until the annual general meeting 2018. Langøy is deputy chairman of the board in TRG Holding AS and The Resource Group TRG AS, as well as chairman of the board of Kværner ASA. Arild S. Frick is General Counsel of Aker ASA and managing director of Aker Kværner Holding AS. No members of the nomination committee are employed by, or directors of, Akastor. The majority of the members of the nomination committee are independent of both Akastor’s board of directors and the executive management of the company. The committee’s recommendations (relating to particularly the board of directors and their remuneration) shall address how the new board candidates will attend to the interests of the shareholders in general and fill the requirements of the company, including with respect to competence, capacity and independence. The composition of the nomination committee shall reflect the interests of all shareholders and ensure independence from the board of directors and the executive management. The members and the chairman of the nomination committee are appointed by the general meeting, which also determines the remuneration of the committee. The annual general meeting 2010 adopted guidelines governing the duties of the nomination committee. According to these guidelines, the committee shall emphasize that candidates for the board have the necessary experience, competence, and capacity to perform their duties in a satisfactory manner. A reasonable representation with regard to gender and background should also be emphasized. The chairman of the nomination committee has the overall responsibility for the work of the committee. In the exercise of its duties, the nomination committee may contact, among others, shareholders, the board, management, and external advisors. The nomination committee shall also ensure that its recommendations are endorsed by the largest shareholders. Annual Report 2016 | Corporate Governance Statement19 Information concerning the nomination committee and deadlines for making suggestions or proposing candidates for directorships will be made available on the company’s website, www.akastor.com when there are candidates up for election. 8. Composition and Independence of the Board of Directors Composition It has been agreed with the employees that the company shall have no corporate assembly. Hence, the board appoints its own chairman, cf. the Public Limited Liability Companies Act section 6-1(2), unless the chairman is appointed by the general meeting. The proposal of the nomination committee will normally include a proposed candidate for appointment as chairman of the board of directors. The board of directors appoints its own deputy chairman. According to the Public Limited Liability Companies Act, the directors are appointed for a term of two years at a time unless otherwise stated in the company’s articles of association. The articles of association of Akastor ASA stipulate that directors may be elected for a period of one to three years. The right of the employees to be represented and participate in decision making is safeguarded through expanded employee representation on the board of directors of both Akastor ASA and in a number of the group’s portfolio companies. The articles of association stipulate that the board of directors shall comprise six to twelve persons, one third of whom shall be elected by and amongst the employees of the group. In addition, up to three shareholder-appointed alternates may be appointed. As per December 31, 2016, the board of directors comprised eight directors, five of whom were elected by the shareholders and three of whom were elected by and amongst the employees. The company encourages the directors to hold shares in the company. The shareholdings of the directors as of December, 31 2016 will be set out in the «Salaries, wages, and social security costs» note to the consolidated annual statements in the annual report for 2016. In addition to Øyvind Eriksen’s indirect ownership of shares in the company through Aker ASA, also the chairman Frank O. Reite and the directors Lone Fønss Schrøder, Kathryn M. Baker, Sarah Ryan, Jannicke Sommer-Ekelund and Asbjørn Michailoff Pettersen are currently shareholders in Akastor ASA. The board composition, including information about the directors’ background and expertise will be detailed in the annual report for 2016. The appointment of employee representatives to the board of directors is conducted as prescribed by the Public Limited Companies Act and the Representation Regulations. The board of directors has appointed a designated election committee charged with implementing the appointment of such employee representatives. Independence A majority of the directors elected by the shareholders are independent of the executive personnel and important business associates of Akastor ASA. None of the executive personnel of the company are members of the board of directors. The composition of the board of directors aims to ensure that the interests of all shareholders are attended to, and that the company has the know-how, resources, and diversity it needs at its disposal. Among the five shareholder-elected directors, the majority are deemed independent from the company’s largest indirect shareholder, Aker ASA. 9. The Work of the Board of Directors Procedures The board adopts an annual plan for its work. Furthermore, there are rules of procedure for the board of directors and Chief Executive Officer, which govern areas of responsibility, duties and the distribution of roles between the board of directors, the chairman of the board of directors and the Chief Executive Officer. The rules of procedure for the board of directors also include provisions on convening and chairing board meetings, decision making, the duty and right of the Chief Executive Officer to disclose information to the board of directors, the duty of confidentiality, etc. According to the company’s articles of association, each of the directors elected by the shareholders will serve for a period of one to three years pursuant to further decision by the general meeting. This to provide the nomination committee with the flexibility to propose varying terms of service for the candidates. Meetings The board of directors will hold board meetings whenever needed, but normally six to twelve times a year. The need for extraordinary board meetings may typically arise because the internal authorization structure of the company requires the board of directors to deliberate and approve material tenders to be submitted by the company or in relation to M&A transactions. Whilst the deadlines for such submission often change, it is difficult to fit this into the calendar of ordinary board meetings. The board of directors held eight ordinary board meetings and one extraordinary board meeting in 2016. The aggregate attendance rate at the board meetings was 86.1 percent. The Matters Discussed by the Board of Directors The Chief Executive Officer prepares cases for deliberation by the board of directors in cooperation with the chairman of the board. Weight is attached to having matters prepared and presented in such a way that the board of directors is provided with an adequate basis for its deliberations. The board of directors has overall responsibility for the management of Akastor and shall, through the Chief Executive Officer, ensure that its activities are organized in a sound manner. The board of directors shall adopt plans and budgets for the business, and keep informed of the financial position of, and development within, the company. This encompasses the annual planning process of Akastor, with the adoption of overall goals and strategic choices for the group, as well as itself Annual Report 2016 | Corporate Governance Statement20 financial plans, budgets, and forecasts for the group and the portfolio companies. The board of directors performs annual evaluations of its work and its know-how. Akastor has implemented an internal system for reporting serious matters such as breaches of ethical guidelines and violations of the law, which is also available to external parties at www.akastor.com. Audit Committee Akastor will have an audit committee comprising two to four of the directors. The audit committee currently comprises the directors Lone Fønss Schrøder (chairman), Kathryn M. Baker and Asbjørn Michailoff Pettersen. The audit committee is independent from the management. At least one of the members of the audit committee shall have either formal qualifications within accounting or auditing, or relevant experience and skills within the same. Both members Fønss Schrøder and Baker have such relevant experience and skills. The audit committee has a mandate and a working method that complies with statutory requirements. The audit committee mandate forms an integrated part of the rules of procedures for the board of directors. The committee will participate, on behalf of the board of directors, in the quality assurance of guidelines, policies, and other governing instruments in Akastor. The audit committee performs a qualitative review of the quarterly and annual reports of Akastor. Significant judgment calls (uncertain estimates) made in the financial statements in the quarter are reviewed by the audit committee. The audit committee further supports the board of directors in safeguarding that the company has sound risk management and internal controls. The audit committee reviews the status on internal controls on an annual basis. In order to safeguard appropriate processes and assessments, the board’s audit committee shall also review major M&A transactions as well as related party transactions which are not part of the company’s ordinary course of business, unless such related party transactions are immaterial. Akastor currently has no remuneration committee as the experiences from having such showed more merit in discussing matters comprised by this committee’s mandate with all directors present. As of December 31, 2016, there are no other board committees than the audit committee. The board does not envisage appointing any further board committees in 2017. 10. Risk Management and Internal Control Governing Principles The board of directors shall ensure that Akastor has sound internal control and systems for risk management that are appropriate in relation to the extent and nature of the company’s activities. The audit committee supports the board of directors in safeguarding that the company has internal procedures and systems that ensure good corporate internal controls and proper risk governance, effective management, particularly in relation to financial reporting. The Chief Financial Officer reports directly to the audit committee on matters relating to financial reporting, financial risks and internal controls. Risk Management The board of directors carries out an annual review of the company’s most important areas of exposure to risk and its internal control arrangements. Akastor employs a decentralised model for allocating managerial responsibility under which the portfolio companies are required to establish their own risk management and internal control systems. Akastor’s representatives on boards of directors in the portfolio companies seek to ensure that the portfolio companies follow the principles of sound corporate governance. Akastor manages risk through an internal framework both on a corporate and portfolio company level comprising guidelines, policies and procedures intended to ensure good business operations and provide unified and reliable financial reporting. The board of directors has adopted an authorisation matrix that forms part of its governing documents where authority is delegated to the Akastor Chief Executive Officer. Furthermore, authorization matrices are adopted for each of the portfolio companies, pursuant to which the Akastor Chief Executive Officer delegates authority to the boards and Chief Executive Officers of the respective portfolio companies, which again adopts authorization matrices for the portfolio organizations. Special expenditure approval procedures have also been developed. The board receives and reviews risk reports prepared by the management. The management’s risk reporting is based on the total level of insight obtained through regular reporting and the close cooperation that Akastor has with the portfolio companies, including from Akastor’s investment directors and board representatives. The management of operational risk in the underlying portfolio companies, primarily occurs its although Akastor acts as an active driver through involvement in the boards. Akastor’s management holds review meetings with the management of the different portfolio companies. The purpose of the meetings is to conduct an in-depth review of the development of each portfolio company, focusing on operations, the competitive situation and strategic issues. These meetings provide a solid foundation for Akastor’s assessment of its overall financial and operational risk. risk management, market conditions, Prior to the board’s review of risk reporting, the audit committee reviews the reported risks and associated risk- reducing measures. The audit committee also reviews the company’s in-house reporting systems and internal control and risk management, and prepares the board’s review of financial reporting. Annual Report 2016 | Corporate Governance Statement21 Financial Reporting The Akastor financial reporting division reports to the Chief Financial Officer and is responsible for the external reporting process and the internal management financial reporting process. This also includes assessing financial reporting risks and internal controls over financial reporting in the group. The consolidated external financial statements are prepared in accordance with IFRS and IAS standards as approved by the EU. The existing policies and standards governing the annual and quarterly financial reporting in the group, including the Akastor accounting principles, are available on the Akastor intranet for Akastor employees. Clearing meetings are held with the management teams of the portfolio companies in connection with the annual closing of accounts and may also be held in connection with quarterly financial reporting. For the 2016 financial year, clearing meetings with the portfolio companies were held in October 2016 and January 2017. The main purpose is to ensure high- quality financial reporting. Such meetings focus on important items involving estimation and judgment, non-balance-sheet items, accounting for significant transactions, new or modified accounting principles and other topics relevant to the respective portfolio companies. The external auditor is present in the clearing meetings. Other Reporting In addition to the abovementioned financial reporting, there are regular business review and board meetings in the portfolio companies which ensure timely and high-quality reporting from the portfolio companies to the corporate management. Regular reports for Akastor ASA and the portfolio companies are submitted to the board of directors. The quarterly business update contains key financial numbers, M&A updates, financing, status of value creation plans, compliance, risk management and share price information for the Akastor group. Further, it contains key financial numbers, key operational topics, status on value drivers as well as key market information for the main portfolio companies. The monthly business update contain high level financial and operational information for the Akastor group, as well as key highlights for the main portfolio companies. 11. Remuneration of the Board of Directors The remuneration of the board of directors will reflect its responsibilities, know-how and time commitment, as well as the complexity of the business. The remuneration will be proposed by the nomination committee, and is not performance-related or linked to options in Akastor. More detailed information about the remuneration of individual directors will be provided in note 36 Management remunerations to the consolidated financial statements for the group in the annual report for 2016. Neither the directors, nor companies with whom they are affiliated, should accept specific paid duties for Akastor beyond their directorships. If they nevertheless do so, the board of directors shall be informed and the remuneration shall be approved by the board of directors. No remuneration shall be accepted from anyone other than the company or the relevant group company in connection with such duties. 12. Remuneration of Executive Personnel The board of directors has adopted designated guidelines for the remuneration of executive management pursuant to the provisions of Section 6-16a of the Public Limited Liability Companies Act. The guidelines were adopted by the general meeting April 12, 2016. The board of director’s statement on the remuneration of executive personnel for 2016/2017 will be a separate item on the agenda for the annual general meeting on April 6, 2017. Akastor has no option schemes or option programs for the allotment of shares to employees. The Chief Executive Officer determines the remuneration of executive management on the basis of the guidelines laid down by the board of directors. All performance-related remuneration within the group will be made subject to a cap. 13. Information and Communication The company has adopted a designated communications and investor relations policy which covers, among other things, guidelines for the company’s contact with shareholders other than through general meetings. The company’s reporting of financial and other information is based on openness and the equal treatment of all securities market players. The long-term purpose of the investor relations function is to ensure access for the company to capital on competitive terms, whilst at the same time ensuring that the shareholders are provided with the most correct pricing of the shares that can be achieved. This shall take place through the correct and timely distribution of price-sensitive information, whilst ensuring, at the same time, that the company is in compliance with applicable rules and market practices. Reference is also made to the above discussion concerning the flow of information between Akastor and Aker ASA in connection with their cooperation within, inter alia, strategy, transactions, and funding. All stock exchange announcements and press releases are made available on the company’s website, and stock exchange announcements are also available on www.newsweb.no. All information sent to the shareholders is posted on the company’s website at the same point of time. The company holds open presentations in connection with the reporting of financial performance, either by a physical meeting or by a conference call and webcast, and these presentations are broadcasted on the internet. The financial calendar of the company is available at www.akastor.com. Annual Report 2016 | Corporate Governance Statement22 14. Take-overs The overriding principle for Akastor is equal treatment of shareholders. In a bid situation, the board of directors and management have an independent responsibility to help ensure that shareholders are treated equally, and that the company’s business actitivities are not disrupted unnecessarily. In a take-over situation, the board will have a particular responsibility to ensure that shareholders are given sufficient information and time to form a view of the offer. Aker ASA has undertaken to retain control of Aker Kværner Holding AS for a minimum of ten years from June 2007. The board of directors has not deemed it appropriate to adopt specific guidelines for takeover situations for as long as the ownership cooperation context within Aker Kværner Holding AS remains intact. This is a deviation from the Code of Practice. 15. Auditors The external auditor annually presents a plan for the performance of the audit work to the audit committee. In addition, the auditor provides the board of directors with a written confirmation to the effect that the independence requirement is met annually. The auditor attends all audit committee meetings, and the auditor has reviewed any material changes to the accounting principles of the company, or to the internal controls of the company, with the audit committee. The external auditor also attends the board meeting where the annual financial statements are reviewed and approved, normally in March. The board of directors holds a minimum of one annual meeting with the auditor without any executive personnel being in attendance. The board’s audit committee stipulates guidelines on the scope for using the auditor for services other than auditing, and makes recommendations to the board of directors concerning the appointment of the external auditor and the approval of the auditor’s fees. Fees payable to the auditor, separated into those relating to auditing and those relating to other services, are specified in the «Other operating expenses» note to the consolidated financial statements for the group. The auditor’s fees relating to auditing are subject to approval by the the general meeting. The external auditor has issued a statement to the chair of the audit committee confirming their independence. Annual Report 2016 | Corporate Governance StatementAnnual Report 2016 | Financials and Notes 23 05. a. FINANCIALS AND NOTES AKASTOR GROUP Akastor Group | Consolidated income statement Akastor Group | Consolidated statement of comprehensive income Akastor Group | Consolidated statement of financial position Akastor Group | Consolidated statement of changes in equity Akastor Group | Consolidated statement of cash flow General Note 1 | Corporate information Note 2 | Basis for preparation Note 3 | Significant accounting principles Note 4 | Significant accounting estimates and judgements Performance of the year Note 5 | Discontinued operations Note 6 | Operating segments Note 7 | Operating revenue and other income Note 8 | Salaries, wages and social security costs Note 9 | Operating leases Note 10 | Other operating expenses Note 11 | Finance income and expenses Note 12 | Income tax Note 13 | Earnings per share Assets Note 14 | Property, plant and equipment Note 15 | Intangible assets Note 16 | Impairment testing of goodwill Note 17 | Interest-bearing receivables Note 18 | Equity-accounted investees Note 19 | Other investments Note 20 | Construction contracts Note 21 | Inventories Note 22 | Trade and other receivables Note 23 | Cash and cash equivalents Equities and liabilities Note 24 | Capital and reserves Note 25 | Borrowings Note 26 | Other non-current liabilities Note 27 | Employee benefits – pension Note 28 | Provisions Note 29 | Trade and other payables Financial risk management Note 30 | Capital management Note 31 | Financial risk management and exposures Note 32 | Derivative financial instruments Note 33 | Financial instruments Other Note 34 | Group companies Note 35 | Related parties Note 36 | Management remunerations Note 37 | Subsequent events 24 25 26 27 28 29 29 31 37 39 41 44 44 44 45 46 46 48 49 51 52 53 53 54 55 55 55 56 56 57 59 59 59 63 63 64 67 70 72 74 77 79 p u o r G r o t s a k A | s e t o N d n a s l a c n a n F i i 24 Akastor Group | Consolidated income statement For the year ended December 31 Amounts in NOK million Operating revenue Other income Total revenue and other income Materials, goods and services Salaries, wages and social security costs Other operating expenses Operating expenses before depreciation, amortization and impairment Operating profit before depreciation, amortization and impairment Depreciation and amortization Impairment Operating profit (loss) Finance income Finance expenses Profit (loss) on foreign currency forward contracts Profit (loss) from equity-accounted investees Profit (loss) before tax Income tax benefit (expense) Profit (loss) from continuing operations Profit (loss) from discontinued operations (net of income tax) Profit (loss) for the period Profit (loss) for the period attributable to: Equity holders of the parent company Basic/diluted earnings (loss) per share (NOK) Basic/diluted earnings (loss) per share continuing operations (NOK) *) See note 5. Note 6, 7 6, 7 8, 36 10 14, 15 14, 15 11 11 11 11, 18 12 5 13 13 2016 5 140 170 5 310 (2 115) (2 304) (823) (5 241) 69 (746) (473) (1 151) 40 (710) (289) (214) 2015 Restated *) 9 580 403 9 983 (4 908) (3 205) (1 303) (9 416) 567 (829) (1 256) (1 518) 87 (742) 50 (73) (2 324) (2 195) 307 (2 017) 734 (1 282) 351 (1 844) (743) (2 587) (1 282) (2 587) (4.73) (7.44) (9.54) (6.80) Annual Report 2016 | Financials and Notes Akastor Group | Consolidated statement of comprehensive income For the year ended December 31 Amounts in NOK million Profit (loss) for the period Other comprehensive income Cash flow hedges, effective portion of changes in fair value Deferred tax of cash flow hedges, effective portion of changes in fair value Cash flow hedges, reclassification to income statement Deferred tax of cash flow hedges, reclassification to income statement Total change in hedging reserve, net of tax Currency translation differences – foreign operations Currency translation differences, reclassification to income statement upon disposal Deferred tax of currency translation differences – foreign operations Total items that may be reclassified subsequently to profit or loss, net of tax Remeasurement gain (loss) net defined benefit liability Deferred tax of remeasurement gain (loss) net defined benefit liability Total items that will not be reclassified to profit or loss, net of tax 27 Total other comprehensive income, net of tax Total comprehensive income (loss) for the period, net of tax Attributable to: Equity holders of the parent company 25 Note 2016 2015 (1 282) (2 587) 180 (44) (537) 134 (267) (81) (105) (35) (488) (40) 4 (36) (172) 59 58 (20) (75) 640 - 10 575 25 (8) 18 (524) 593 (1 806) (1 994) (1 806) (1 994) Annual Report 2016 | Financials and Notes 26 Akastor Group | Consolidated statement of financial position For the year ended December 31 Amounts in NOK million Assets Property, plant and equipment Deferred tax assets Intangible assets Non-current interest-bearing receivables Other non-current operating assets Equity-accounted investees Other investments Total non-current assets Current tax assets Inventories Trade and other receivables Derivative financial instruments Current interest-bearing receivables Cash and cash equivalents Assets classified as held for sale Total current assets Total assets Equity and liabilities Issued capital Treasury shares Other capital paid in Reserves Retained earnings Total equity attributable to the equity holders of the parent company Total equity Non-current borrowings Employee benefit obligations Deferred tax liabilities Other non-current liabilities Non-current provisions Total non-current liabilities Current borrowings Current tax liabilities Provisions Trade and other payables Derivative financial instruments Liabilities classified as held for sale Total current liabilities Total liabilities Total equity and liabilities Note 2016 2015 14 12 15 17 18 19 21 22 32 17 23 5 24 24 25 27 12 26 28 25 28 29 32 5 5 198 600 1 731 51 104 93 121 6 480 468 2 785 84 478 177 261 7 897 10 732 65 1 086 2 829 269 15 487 212 4 964 12 861 162 (2) 1 534 811 3 075 5 580 5 580 1 494 380 15 112 333 2 334 1 560 63 354 2 492 301 177 4 947 7 281 12 861 2 1 464 5 959 1 746 72 563 - 9 805 20 537 162 (2) 1 534 1 335 4 357 7 386 7 386 1 583 434 51 74 341 2 483 4 054 89 553 4 443 1 528 - 10 667 13 150 20 537 Fornebu, March 7, 2017 | Board of Directors of Akastor ASA Frank O. Reite | Chairman Lone Fønss Schrøder | Deputy Chairman Øyvind Eriksen | Director Kathryn M. Baker | Director Sarah Ryan | Director Jannicke Sommer-Ekelund | Director Stian Sjølund | Director Asbjørn Michailoff Pettersen | Director Kristian Monsen Røkke | CEO Annual Report 2016 | Financials and Notes27 Akastor Group | Consolidated statement of changes in equity Share capital Treasury shares Other capital paid in Retained earnings Hedging reserve 1) Currency translation reserve 1) Remeasure- ment gain (loss) net defined benefit obligations Total parent company equity holders Total equity Amounts in NOK million Note 2015 Equity as of January 1, 2015 162 (2) 1 534 Profit for the period Other comprehensive income Total comprehensive income Treasury shares 24 Total transactions with equity holders - - - - - - - - - - - - - - 6 942 (2 587) - (2 587) 2 2 357 - (75) (75) - - 646 - 650 650 - - (261) 9 378 9 378 - 18 18 - - (2 587) (2 587) 593 593 (1 994) (1 994) 2 2 2 2 Equity as of December 31, 2015 162 (2) 1 534 4 357 282 1 296 (243) 7 386 7 386 2016 Profit (loss) for the period Other comprehensive income Total comprehensive income - - - - - - - - - Equity as of December 31, 2016 162 (2) 1 534 1) See note 24 Capital and reserves for more information. (1 282) - (1 282) 3 075 - (267) (267) 15 - (220) (220) 1 075 - (1 282) (1 282) (36) (36) (524) (524) (1 806) (1 806) (278) 5 580 5 580 Annual Report 2016 | Financials and Notes 28 Akastor Group | Consolidated statement of cash flow For the year ended December 31 Amounts in NOK million Note 2016 2015 Cash flow from operating activities Profit (loss) for the period – continuing operations Profit (loss) for the period – discontinued operations Profit (loss) for the period Adjustments for: Income tax expense (benefit) Net interest cost and unrealized currency (income) loss (Profit) loss on foreign currency forward contracts Depreciation, amortization and impairment (Profit) loss on disposal of subsidiaries (Profit) loss on disposal of assets (Profit) loss from equity-accounted investees Other non-cash effects Profit (loss) for the period after adjustments Changes in operating assets Cash generated from operating activities Interest paid Interest received Income taxes paid Net cash from operating activities Cash flow from investing activities Acquisition of subsidiaries, net of cash acquired Acquisition of property, plant and equipment Payments for capitalized development Proceeds from sale of subsidiaries, net of cash Proceeds from sale of property, plant and equipment Proceeds from sale of equity-accounted investments Acquisition of/capital contribution to equity-accounted investments Proceeds from (acquisition of) other investments Proceeds from repayment of interest-bearing receivables Net cash from investing activities Cash flow from financing activities Proceeds from borrowings Repayment of borrowings Net cash from financing activities Effect of exchange rate changes on cash and bank deposits Net increase (decrease) in cash and bank deposits Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Of which is classified as held-for-sale Of which is restricted cash The statement included cash flows from discontinued operations prior to the disposal. (2 017) 734 (1 282) (1 844) (743) (2 587) (176) 504 289 1 558 (968) (170) 210 85 49 508 559 (599) 32 (121) (129) (7) (153) (49) 2 382 667 - (231) 112 - 2 720 421 (3 045) (2 624) 11 (22) 563 540 53 9 (286) 582 (44) 2 861 (303) (19) 31 176 411 (411) - (477) 36 (163) (603) (11) (1 460) (176) 1 150 152 50 - (110) 189 (216) 1 378 (1 193) 185 121 (512) 1 075 563 - 58 14, 15 18 14 15 5 14, 15 23 5 Annual Report 2016 | Financials and Notes 29 Note 1 | Corporate information Akastor ASA is a limited liability company incorporated and domiciled in board of directors and CEO on March 7, 2017. The consolidated financial Norway and whose shares are publicly traded. The registered office is statements will be authorized by the Annual General Meeting on April 6, located at Oksenøyveien 10, Bærum, Norway. The largest shareholder 2017. is Aker Kværner Holding AS and the ultimate parent company is The Resource Group TRG AS. The group is an oil-services investment company with a portfolio of industrial holdings and other investments. Akastor is listed on the Oslo The consolidated financial statements of Akastor ASA and its subsidiaries Stock Exchange under the ticker AKA. Information on the group’s structure (collectively referred as Akastor or the group, and separately as group is provided in note 34 Group companies. Information on other related companies) for the year ended December 31, 2016 were approved by the party relationships of the group is provided in note 35 Related parties. Note 2 | Basis for preparation Basis of accounting Functional and presentation currency The consolidated financial statements have been prepared in accordance The consolidated financial statements are presented in NOK, which is with International Financial Reporting Standards (IFRS) as approved by Akastor ASA’s functional currency. All financial information presented in the European Union, their interpretations adopted by the International NOK has been rounded to the nearest million (NOK million), except when Accounting Standards Board (IASB) and the additional requirements of otherwise stated. The subtotals and totals in some of the tables in these the Norwegian Accounting Act as of December 31, 2016. consolidated financial statements may not equal the sum of the amounts Going concern basis of accounting shown due to rounding. The consolidated financial statements have been prepared on a going When the functional currency in a reporting unit is changed, the effect of concern basis, which assumes that the group will be able to meet the the change is accounted for prospectively. mandatory terms and conditions of the banking facilities as disclosed in note 25 Borrowings. Use of estimates and judgements The preparation of financial statements in conformity with IFRS requires Akastor’s existing bank financing agreement has a covenant that interest management to make judgements, estimates and assumptions that affect coverage ratio (ICR) should not be less than 1.5 in the fourth quarter of the application of policies and reported amounts of assets and liabilities, 2016, calculated from the consolidated EBITDA to consolidated Net income and expenses. Although management believes these assumptions Interest Cost. As of December 31, 2016, the ICR was below the minimum to be reasonable, given historical experience, actual amounts and results level. Borrowings of NOK 1.2 billion, with maturity in 2019, were therefore could differ from these estimates. The items involving a higher degree of reclassified from non-current to current borrowings. On March 1, 2017, judgement or complexity, and items where assumptions and estimates are Akastor signed an agreement with its bank syndicate to amend covenants material to the consolidated financial statements, are disclosed in note 4 and some terms and conditions to provide greater flexibility in the Significant accounting estimates and judgements. financing. Management believes that the group will be able to meet its new funding requirements and to refinance or to repay its banking facilities as The estimates and underlying assumptions are reviewed on an ongoing they fall due. As of December 31, 2016, the group has a liquidity reserve of basis. Revisions to accounting estimates are recognized in the period in NOK 3.1 billion, comprised by cash and cash equivalents of NOK 0.5 billion which the estimate is revised and in any future periods affected. and undrawn committed bank revolving credit facilities of NOK 2.6 billion. Basis of measurement The accounting policies adopted are consistent with those of the previous The consolidated financial statements have been prepared on the historical financial year. The following standards and interpretations were adopted cost basis except for the following material items, which are measured on with effect from January 1, 2016, with no implementation impact on the an alternative basis on each reporting date: group’s consolidated financial statements: Adoption of new and revised standards and interpretations Derivative financial instruments are measured at fair value. Available-for-sale financial assets are measured at fair value. Annual Improvements to IFRSs 2012–2014 Cycle Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities: Applying the Consolidation Exception Contingent consideration assumed in business combinations are measured at fair value. Amendments to IAS 27: Equity Method in Separate Financial Net defined benefit (asset) liability is recognized at fair value of plan assets less the present value of the defined benefit Amendments to IAS 1: Disclosure Initiative Statements obligation. Annual Report 2016 | Financials and Notes30 Amendments to IAS 16 and IAS 38: Clarification of Acceptable IFRS 9 Financial Instruments (effective from January 1, 2018) Methods of Depreciation and Amortization The standard will replace IAS 39 Financial Instruments Recognition and Measurement. The standard includes revised guidance on classification Amendments to IFRS 11: Accounting for Acquisitions of Interests and measurement of financial instruments, including a new expected in Joint Operations credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. At the date of authorization of the group’s consolidated financial statements, the following standards and interpretations were issued but The actual impact of adopting IFRS 9 on the group’s consolidated financial not yet effective and could affect the group: statements in 2018 is not known and cannot be reliably estimated because it will be dependent on the financial instrumnets that the group holds and IFRS 15 Revenue from Contracts with Customers (effective from economic conditions at that time as well as judgments that it will make January 1, 2018), including Clarifications to IFRS 15 Revenue from in the future. The group has performed a preliminary assessment of the Contracts with Customers (not approved by EU) potential impact of adoption of IFRS 9 and a more detailed review of hedge The standard will supersede the current revenue recognition guidance accounting implications in particular will be carried out in 2017. Based on including IAS 18 Revenue, IAS 11 Construction contracts and the related preliminary assessments, the group does not anticipate significant impacts interpretations when it becomes effective. IFRS 15 introduces a new five- on its consolidated financial statements of initial application of the new step model that apples to revenue arising from contracts with customers. standard. The group has initiated an implementation process to systematically The following changes are expected to impact the reported figures upon analyze and evaluate the application impact. The analysis of the application transition to IFRS 9: of IFRS 15 is still ongoing and more detailed review of existing customer contracts will be carried out in 2017. Based on preliminary assessments, Around 80 percent of the group’s foreign currency hedges qualify the group does not anticipate significant impacts on its consolidated for hedge accounting under the current standard. The percentage financial statements of initial application of the new standard. However, of qualifying hedges is expected to increase under IFRS 9 as the the group has identified the following main impact of implementing IFRS hedge accounting model is more aligned with risk management, 15: The construction contracts currently in the scope of IAS 11 will be foreign currency effects reported under financial items. There is reassessed according to IFRS 15 to evaluate whether the revenue also a possible change in timing of recognition of currency effects from such contracts shall be recognized over time or at a point related to the settlement of embedded derivatives. The change in time. The group does not anticipate significant changes in is not expected to have material impact on net profit, however revenue recognition due to implementation of IFRS 15. assessment is on-going. including prospective testing and less restrictive requirements on qualifying hedging instruments. This is expected to result in less For revenue that is to be recognized over time, the group will The effect of classification of financial instruments and the assess an appropriate method of measuring progress according expected credit loss principle are not expected to have material to IFRS 15. The group does not anticipate significant changes in impact on the financial reporting, following the group’s customer the measurement of progress due to implementation of the new portfolio. standard. Disclosures: IFRS 9 requires more comprehensive disclosure than Constraint of variable considerations: To include variable the current disclosure requirements. considerations in the estimated contract revenue, the entity has to conclude that it is highly probably that a significant IFRS 16 Leases (effective from January 1, 2019, but not approved by the EU) revenue reversal will not occur when the uncertainties related The standard was issued in January 2016 and replaces IAS 17 Leases and to the variability are resolved. The threshold of including the related interpretations. variable considerations in revenue recognition is higher than the requirements under current standards. The group does not The new standard introduces a single, on-balance sheet lease anticipate significant changes in the measurement of revenue accounting model for lessees, with optional exemptions for short- due to implementation of the new standard. term leases and leases of low value items. A lessee recognizes Disclosures: IFRS 15 requires more comprehensive disclosure asset and a lease liability representing its obligation to make lease than the current disclosure required by IAS 18 and IAS 11. payments. a right-of-use asset representing its right to use the underlying On transition to IFRS 15, the group plans to apply the new standard Lessor accounting remains similar to current standard. retrospectively with the cumulative effect of initial application recognized as an adjustment to the opening balance of retained earnings as of January The group has started an initial assessment of the potential impact on its 1, 2018. Under this transition method, the new standard will be applied consolidated financial statements and has identified the following main retrospectively only to contracts that are not completed by January 1, impact: 2018, and the comparable information presented will not be restated. Annual Report 2016 | Financials and Notes31 The group anticipates that new assets and liabilities will be The group does not anticipate significant impact for the group’s recognized for its operating lease agreements where the group finance leases. is a lessee. In addition, the nature and timing of expenses related to these leases will change when the straight-line operating lease The group has not yet determined on the transition approach to apply expenses will be replaced by depreciation charge for lease assets IFRS 16, or quantified the impact on its consolidated financial statements. and interest expenses for lease liabilities under IFRS 16. The assessment of potential impact of implementation will be continued in 2017. Note 3 | Significant accounting policies Summary of significant accounting policies Acquisitions of non-controlling interests The principal accounting policies applied in the preparation of these Acquisitions of non-controlling interests are accounted for as transactions consolidated financial statements are set out below. These policies have with owners in their capacity as owners and therefore no goodwill is been consistently applied to all the years presented, unless otherwise stated. recognized as a result. Adjustments to non-controlling interests arising Basis of consolidation Subsidiaries from transactions that do not involve the loss of control are based on a proportionate amount of the net assets of the subsidiary. Subsidiaries are entities controlled by the group. The group controls Loss of control an entity when it is exposed to, or has rights to, variable returns from On the loss of control, the group derecognizes the assets and liabilities of its involvement with the entity and has the ability affect those returns the subsidiary, any non-controlling interests and the other components of through its power over the entity. The financial statements of subsidiaries equity. Any resulting gain or loss is recognized in the income statement. are included in the consolidated financial statements from the date on Any interest retained in the former subsidiary is measured at fair value which control commences until the date of which control ceases. when control is lost. Subsequently it is accounted for as an equity- accounted investee or as an available-for-sale financial asset depending Business combinations on the level of influence retained. Business combinations are accounted for using the acquisition method as of the acquisition date, which is the date when control is transferred to Any contingent consideration receivable is measured at fair value at the the group. disposal date. Changes in the fair value of the contingent consideration from divestment of a subsidiary for transactions will be recognized in The group measures goodwill at the acquisition date as: Other income as gain or loss. the fair value of the consideration transferred, plus Investments in joint ventures The group’s interests in equity-accounted investees comprise interests in the recognized amount of any non-controlling interests in the joint ventures. acquiree, plus if the business combination is achieved in stages, the fair value of whereby the group has rights to the net assets of the arrangement, rather the pre-existing equity interest in the acquiree, less to its assets and obligations for its liabilities. Joint control is established by contractual agreement requiring unanimous consent of the ventures for A joint venture is an arrangement in which the group has joint control, the net recognized amount (generally at fair value) of the strategic, financial and operating decisions. identifiable assets acquired and liabilities assumed. Transaction costs, other than those associated with the issue of debt or They are initially recognized at cost, which includes transaction costs. equity securities incurred in connection with a business combination are Subsequent to initial recognition, the consolidated financial statements Interests in joint ventures are accounted for using the equity method. expensed as incurred. include the group’s share of the profit and loss and other comprehensive income of the equity-accounted investees. The group’s investment Any contingent consideration payable is measured at fair value at the includes goodwill identified on acquisition, net of any accumulated acquisition date. Changes in the fair value of the contingent consideration impairment losses. When the group’s share of losses exceeds its interest from acquisition of a subsidiary or non-controlling interest for transactions in an equity-accounted investee, the carrying amount of that interest, will be recognized in Other income as gain or loss, except for the obligation including any long-term investments, is reduced to zero, and further losses that is classified as equity. are not recognized except to the extent that the group incurs legal or constructive obligations or has made payments on behalf of the investee. When the group has entered into put options with non-controlling shareholders on their shares in that subsidiary, the anticipated acquisition The purpose of the investment determines the presentation of the group’s method is used. The agreement is accounted for as if the put option had share of profits and losses of the equity-accounted investee in the income already been exercised. If the put option expires unexercised, then the statement. When the entity is established to share risk in executing a liability is derecognized and the non-controlling interest is recognized. project or is closely related to Akastor’s operating activities, the share of Annual Report 2016 | Financials and Notes32 profit or loss is reported as part of Other income in Operating Profit. Share in foreign currencies at the reporting date are translated to the functional of the profit or loss of a financial investment is reported as part of Finance currency at the exchange rate on that date. Foreign exchange differences income and expenses. arising on translation are recognized in the income statement. Non- monetary assets and liabilities measured in terms of historical cost in a Transactions eliminated on consolidation foreign currency are translated using the exchange rate on the date of the Intra-group balances and transactions, and any unrealized gains and transaction. Non-monetary assets and liabilities denominated in foreign losses or income and expenses arising from intra-group transactions, are currencies that are measured at fair value are translated to the functional eliminated in preparing the consolidated financial statements. Unrealized currency at the exchange rates on the date the fair value is determined. gains arising from transactions with associates and joint ventures are eliminated to the extent of the group’s interest in the entity. Unrealized Investments in foreign operations losses are eliminated in the same way as unrealized gains, but only to the Items included in the financial statements of each of the group’s entities extent that there is no evidence of impairment. are measured using the currency of the primary economic environment in which the entity operates. The results and financial positions of all the Assets held for sale or distribution group entities that have a functional currency different from the group’s Non-current assets, or disposal groups comprising assets and liabilities, presentation currency are translated into the presentation currency as that are expected to be recovered primarily through sale or distribution follows: rather than through continuing use, are classified as held for sale or distribution. This condition is regarded as met only when the sale is highly Assets and liabilities, including goodwill and fair value adjustments, probable and the asset or disposal group is available for immediate sale are translated at the closing exchange rate at the reporting date. or distribution in its present condition. Management must be committed to the sale or distribution, which should be expected to qualify for Income statements are translated at average exchange rate for recognition as a completed sale or distribution within one year from the the year, calculated on the basis of 12 monthly rates. date of classification. Non-current assets and disposal groups classified as held for sale or in foreign operations, and of related hedges, are included in other distribution are measured at the lower of their carrying amount and fair comprehensive income as currency translation reserve. These translation value less costs to sell. Property, plant and equipment and intangible differences are reclassified to the income statement upon disposal of the assets once classified as held for sale or distribution are not depreciated related operations or when settlement is likely to occur in the near future. Exchange differences arising from the translation of the net investment or amortized, but are considered in the overall impairment testing of the disposal group. Monetary items that are receivable from or payable to a foreign operation are considered as part of the net investment in that foreign operation, No reclassifications are made for years prior to the year when non-current when the settlement is neither planned nor likely to occur in the assets or disposal groups are classified as a held for sale or distribution. foreseeable future. Exchange differences arising from these monetary items are recognized in other comprehensive income. Discontinued operations A discontinued operation is a component of the group’s business that Current/non-current classification represents a separate major line of business or geographical area of An asset is classified as current when it is expected to be realized or is operations that has been disposed of or is held for sale or distribution, intended for sale or consumption in the group’s normal operating cycle, it or is a subsidiary acquired exclusively with a view to resale. Classification is held primarily for the purpose of being traded, or it is expected/due to as a discontinued operation occurs upon disposal or when the operation be realized or settled within twelve months after the reporting date. Other meets the criteria to be classified as held for sale, if earlier. assets are classified as non-current. In the consolidated income statement, income and expenses from A liability is classified as current when it is expected to be settled in the discontinued operations are reported separately from income and group’s normal operating cycle, is held primarily for the purpose of being expenses from continuing operations, down to the level of profit after traded, the liability is due to be settled within twelve months after the taxes. When an operation is classified as a discontinued operation, the reporting period, or if the group does not have an unconditional right comparative income statement is restated as if the operation had been to defer settlement of the liability for at least twelve months after the discontinued from the start of the comparative year. reporting period. All other liabilities are classified as non-current. The statement of cash flow includes the cash flow from discontinued Financial assets, financial liabilities and equity operations prior to the disposal. Cash flows attributable to the operating, Financial assets and liabilities in the group consist of investments in other investing and financing activities of discontinued operations are presented companies, trade and other receivables, interest-bearing receivables, in the notes to the extent these represent cash flows with third parties. cash and cash equivalents, trade and other payables and interest-bearing Foreign currency borrowing. Foreign currency transactions and balances The group initially recognizes borrowings and receivables on the date Transactions in foreign currencies are translated at the exchange rate at when they are originated. All other financial assets and financial liabilities the date of the transaction. Monetary assets and liabilities denominated are initially recognized on the trade date. Annual Report 2016 | Financials and Notes33 Other investments contracts and currency swaps to hedge its exposure to foreign exchange Other investments include equity securities where the group has risks arising from operational, financial and investment activities. These neither control nor significant influence, usually represented by less than derivative financial instruments are accounted for as cash flow hedges 20 percent of the voting power. The investments are categorized as since highly probable future cash flows are hedged (rather than committed available-for-sale financial assets and are recognized initially at fair value. revenues and expenses). The group also has embedded foreign exchange Subsequent to initial recognition, they are measured at fair value and derivatives which have been separated from their ordinary commercial changes therein, other than impairment losses, are recognized in other contracts. Derivative financial instruments are recognized initially at fair comprehensive income and presented as part of fair value reserve. When value. Derivatives are subsequently measured at fair value, and changes in an investment is derecognized, the gain or loss accumulated in other fair value are accounted for as described below. comprehensive income is reclassified to profit and loss. Impairment losses are recognized in the income statement when the decrease in fair value is Cash flow hedge significant or prolonged. Trade and other receivables Hedging of the exposure to variability in cash flows that is attributable to a particular risk or a highly probable future cash flow is defined as a cash flow hedge. The effective portion of changes in the fair value is Trade receivables are recognized at the original invoiced amount, less an recognized in other comprehensive income as a hedge reserve. All foreign allowance made for doubtful receivables. Other receivables are recognized exchange exposure is hedged, of which about 80 percent qualifies for initially at fair value. Trade and other receivables are valued at amortized hedge accounting. The gain or loss relating to the ineffective portion of cost using the effective interest rate method. The interest rate element is derivative hedging instruments is recognized immediately in the income disregarded if insignificant, which is the case for the majority of the group’s statement as finance income or expense. Amounts accumulated in hedge trade receivables. reserves are reclassified to the income statement in the periods when the hedged item is recognized in the income statement. Current interest-bearing receivables Current interest bearing receivables include bonds, securities and mutual Hedge accounting is discontinued when the hedge no longer qualifies for funds with short-term maturity. These assets are designated upon initial hedge accounting. Disqualification occurs when the hedging instrument recognition as at fair value through profit and loss. expires, is sold, terminated or exercised, or when a forecast transaction is no longer expected or the hedge is no longer effective. When a hedge Non-current interest-bearing receivables is disqualified, the cumulative gain or loss that was recognized in the Interest bearing receivables include loans to related parties and other hedge reserve is recognized immediately in the income statement unless receivables with fixed or determinable payments that are not quoted in an it relates to a future cash flow that is likely to occur, but don’t qualify for active market. Such financial assets are recognized initially at fair value and hedge accounting, in which the accumulated hedge reserve remains in subsequent measurement at amortized cost using the effective interest other comprehensive income until the hedged cash flow is recognized in method, less any impairment losses. income statement. Cash and cash equivalents Net investment hedge Cash and cash equivalents include cash on hand, demand deposits held Hedge of net investment in a foreign operation is accounted for similarly at banks and other short-term highly liquid investments with original to cash flow hedges. Gains or losses arising from the hedging instruments maturity of three months or less. Trade and other payables relating to the effective portions of the net investment hedge are recognized in other comprehensive income as currency translation reserves. These translation reserves are reclassified to the income Trade payables are recognized at the original invoiced amount. Other statement upon disposal of the hedged net investments, offsetting the payables are recognized initially at fair value. Trade and other payables translation differences from these net investments. Any ineffective portion are valued at amortized cost using the effective interest rate method. The is recognized immediately in the income statement as finance income or interest rate element is disregarded if it is insignificant, which is the case expenses. Gains and losses accumulated in other comprehensive income for the majority of the group’s trade payables. are reclassified to the income statement when the foreign operation is Interest-bearing borrowings Interest-bearing borrowings are recognized initially at fair value less Embedded derivatives partially disposed of or sold. attributable transaction costs. Subsequent to initial recognition, interest- Embedded derivatives are derivatives that are embedded in other bearing borrowings are measured at amortized cost with any difference financial instruments or other non-financial host contracts. Under certain between cost and redemption value being recognized in the income conditions, the embedded derivative must be separated from its host statement over the period of the borrowings on an effective interest basis. contract and the derivative is then to be recognized and measured as Share capital any other derivative in the financial statements. Embedded derivatives must be separated when the settlement for a commercial contract is Ordinary shares are classified as equity. Repurchase of share capital is denominated in a currency different from any of the major contract recognized as a reduction in equity and is classified as treasury shares. parties’ own functional currency, or that the contract currency is not considered to be commonly used for the relevant economic environment Derivative financial instruments defined as the countries involved in the cross-border transaction. Changes The group uses derivative financial instruments such as currency forward in the fair value of separated embedded derivatives are recognized Annual Report 2016 | Financials and Notes34 immediately in the income statement. All foreign currency exposure is Lease income hedged, so the hedging instrument to the embedded derivative will also Lease revenue from time charters and bareboat charters are recognized have corresponding opposite fair value changes in the income statement. daily over the term of the charter. The company does not recognize Finance income and expense revenue during days when the vessel is off-hire. Other lease income from operating leases, mainly related to office leases, is recognized as revenue Finance income and expense includes interest income and expense on on a straight-line basis over the term of the relevant lease. Lease income financial assets and liabilities, foreign exchange gains and losses, dividend is included in operating revenue as service revenue. income and gains and losses on derivatives. Interest income and expenses include calculated interest using the effective interest method, in addition Other income to discounting effects from assets and liabilities measured at fair value. Gains and losses resulting from acquisition and disposal of businesses Gains and losses on derivatives include effects from derivatives that do not which do not represent discontinued operations are included in Other qualify for hedge accounting and embedded derivatives, in addition to the income. Such gains may result from the remeasurement of a previously held ineffective portion of qualifying hedges. interest in the acquired entity. Changes in the fair value of the contingent Revenue recognition Construction contracts consideration from acquisition of a subsidiary or non-controlling interest are recognized as part of Other income. Construction contract revenues are recognized using the percentage of Share of profit and loss from associated companies and joint ventures, completion method. Stage of completion is determined by the method to the extent that these investments are related to the group’s operating that measures reliably the work performed. Depending on the nature of activities, are included in Other income, as well as gains and losses related the contract, the two main methods used by Akastor to assess stage of to the sale of operating assets. completion are: Technical completion, or Expenses Construction contracts Contract costs incurred to date compared to estimated total and allocated costs that are attributable to general contract activity. Contract costs include costs that relate directly to the specific contract contract costs. Costs that cannot be attributed to contract activity are expensed. Tender costs are capitalized when it is probable that the company will obtain the When the final outcome of a contract cannot be reliably estimated, contract. All other bidding costs are expensed as incurred. See note 4 contract revenue is recognized only to the extent of costs incurred that are Significant accounting estimates and judgements for further description expected to be recoverable. The revenue recognized in one period will be of recognition of construction contract costs. the revenues attributable to the period’s progress and adjustments related to changes in the estimated final outcome, if any. Losses on contracts are Lease payments fully recognized when identified. Lease payments made under operating leases are recognized in the income statement on a straight-line basis over the term of the lease. Any Contract revenues include variation orders and incentive bonuses when it lease incentives received are recognized as an integral part of the total is probable that they will result in revenue that can be measured reliably. lease expense, over the term of the lease. Disputed amounts and claims are only recognized when negotiations have reached an advanced stage, customer acceptance is highly likely Income tax and the amounts can be measured reliably. Options for additional Income tax recognized in the income statement comprises current and assets are included in the contract when exercised by the buyer. In the deferred tax. Income tax is recognized in the income statement except rare circumstances where the option is a loss contract, the full loss is to the extent that it relates to items recognized directly in equity or other recognized when it is probable that the options will be exercised. comprehensive income. See note 4 Significant accounting estimates and judgements for further Current tax is the expected tax payable or receivable on the taxable income description of recognition of construction contract revenue. or loss for the year, using tax rates enacted or substantially enacted at the Goods sold and services rendered years. Current tax payable also includes any tax liability arising from the Revenue from the sale of goods is recognized in the income statement declaration of dividends, recognized at the same time as the liability to pay reporting date, and any adjustment to tax payable in respect of previous when the significant risks and rewards of ownership have been transferred the related dividend. to the buyer, which is usually when goods are delivered to customers. Revenue from services rendered is recognized in the income statement in Deferred tax is recognized in respect of temporary differences between proportion to the stage of completion of the transaction at the reporting the carrying amounts of assets and liabilities for financial reporting and the date or is invoiced based on hours performed at agreed rates. The stage of amounts used for taxation purposes. Deferred tax is not recognized for: completion is normally assessed based on the proportion of costs incurred for work performed to date compared to the estimated total contract costs. No revenue is recognized if there is significant uncertainty regarding recovery of consideration due. Goodwill not deductible for tax purposes The initial recognition of assets or liabilities that affects neither accounting nor taxable profit Annual Report 2016 | Financials and Notes35 Temporary differences relating to investments in subsidiaries to calculated as the present value of estimated future cash flows, discounted the extent that they will not reverse in the foreseeable future. at the original effective interest rate (the effective interest rate computed at initial recognition of the financial assets). Impairment losses are Deferred tax is measured at the tax rates that are expected to be applied recognized only if there is objective evidence of impairment as a result of to temporary differences when they reverse, based on the laws that have one or more events that occur after the initial recognition of the asset (a been enacted or substantively enacted by the reporting date. loss event) and the loss event has an impact on the estimated future cash flows of the financial assets that can be reliably estimated. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income Non-financial assets taxes levied by the same tax authority on the same taxable entity, or on The carrying amounts of the group’s assets, other than employee benefit different taxable entities which intend either to settle current tax liabilities assets, inventories, deferred tax assets and derivatives are reviewed at the and assets on a net basis, or to realize the tax assets and settle the end of each reporting period to determine whether there is any indication liabilities simultaneously. of impairment. If an indication of impairment exists, the asset’s recoverable amount is estimated. Cash-generating units (CGU) containing goodwill, Deferred tax assets are recognized for unused tax losses, tax credits and intangible assets with an indefinite useful life and intangible assets that deductible temporary differences, to the extent that it is probable that are not yet available for use are tested for impairment annually. future taxable profits will be available against which they can be utilized. Measurement of deferred tax assets are reviewed at each reporting date. The recoverable amount is the greater of fair value less costs to sell and Construction work in progress value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that Construction work in progress represents the aggregate amount of costs reflects current market assessments of the time value of money and the incurred and recognized profits, less the sum of recognized losses and risks specific to the asset. For an asset that does not generate largely progress billings. The presentation of construction work in progress in independent cash inflows, the recoverable amount is determined for the the statement of financial position depends on the financial status of the CGU to which the asset belongs. individual projects. All projects with net amounts due from customers are summarized and presented as an asset, and all projects with net amounts due An impairment loss is recognized whenever the carrying amount of an to customers are summarized and presented as a liability in the statement asset or a CGU exceeds its recoverable amount. Impairment losses are of financial position. Advances are presented separately as such advances recognized in the income statement. represent payments from customers in excess of the work performed. Inventories An impairment loss recognized in respect of CGU ( or a group of CGUs) containing goodwill is allocated first to goodwill and then to the other Inventories are stated at the lower of cost or net realizable value. Net assets in the CGU(s) on a pro rata basis. realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. An impairment loss on goodwill is not reversed. An impairment loss on other assets is reversed if there has been a change in the estimates used The cost of inventories is based on the first-in first-out principle and to determine the recoverable amount, and the change can be objectively includes expenditures incurred in acquiring the inventories and bringing related to an event occurring after the impairment is recognized. An them to their present location and condition. In the case of manufactured impairment loss is reversed only to the extent that the asset’s carrying inventories and work in progress, cost includes an appropriate share of amount does not exceed the carrying amount that would have been overheads based on normal operating capacity. determined, net of depreciation or amortization, if no impairment loss had Impairment Trade and other receivables been recognized. Provisions Provision of doubtful debt is made when there is objective evidence that A provision is recognized when the group has a present obligation as a the group will be unable to recover receivables in full. Receivables are result of a past event that can be estimated reliably and it is probable that impaired when the probability of recovery is assessed as being remote. The the group will be required to settle the obligation. If the effect is material, impairment is recognized in financial items to the extent that impairment provisions are determined by discounting the expected future cash flows is caused by the insolvency of the customer. at a market based pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the liability-specific risks. Available-for-sale financial assets The unwinding of the discount is recognized as a finance cost. Equity investments classified as available-for-sale are considered to be impaired when there is a significant (more than 20 percent) or prolonged Warranties (more than 6 months) decline in fair value of the investment below its cost. Provision for warranties is recognized when the underlying products or Any subsequent increase in value on available-for-sale assets is considered services are sold. The provision is based on historical warranty data and a to be a revaluation and is recognized in other comprehensive income. weighting of all possible outcomes against their associated probabilities. Other financial assets Onerous contracts The recoverable amounts of receivables carried at amortized cost are Provision for onerous contracts is recognized when the expected benefits Annual Report 2016 | Financials and Notes36 to be derived by the group from a contract are lower than the unavoidable Goodwill is measured at cost less accumulated impairment losses. In costs of meeting the obligations under the contract. The provision is respect of equity-accounted investees, the carrying amount of goodwill measured at the lower of the expected cost of terminating the contract is included in the carrying amount of the investment, and any impairment and the expected net cost of continuing with the contract. Before a loss is allocated to the carrying amount of the equity-accounted investee provision is recognized, the group recognizes any impairment loss on the as a whole. assets associated with the contract. Restructuring When the group disposes of an operation within a CGU or group of CGUs to which goodwill has been allocated, a portion of the goodwill is included A restructuring provision is recognized when the group has developed a in the carrying amount of the operation when determining the gain or loss detailed formal plan for the restructuring and has raised a valid expectation on disposal. The portion of the goodwill allocated is measured based on in those affected that the entity will carry out the restructuring by starting the relative values of the operation disposed of and the portion of the to implement the plan or announcing its main features to those affected by CGU retained at the date of partial disposal, unless it can be demonstrated it. The measurement of a restructuring provision includes only the direct that another method better reflects the goodwill associated with the expenditures arising from the restructuring, which are those amounts that operation disposed of. The same principle is used for allocation of goodwill are both necessarily entailed by the restructuring and not associated with when the group reorganizes its businesses. the ongoing activities of the entity. Research and development Property, plant and equipment Expenditures on research activities undertaken with the prospect of Property, plant and equipment are measured at cost less accumulated obtaining new scientific or technical knowledge and understanding is depreciation and impairment losses. The cost of self-constructed assets recognized in the income statement as incurred. includes the cost of materials, direct labour, borrowing costs on qualifying assets, production overheads and the estimated costs of dismantling and Development activities involve a plan or design for the production of removing the assets and restoring the site on which they are located. new or substantially improved products or processes. Development If the components of property, plant and equipment have different useful reliably, the product or process is technically and commercially feasible, lives, they are accounted for as separate components. future economic benefits are probable and the group intends to and expenditure is capitalized only if development costs can be measured Subsequent costs has sufficient resources to complete development and to use or sell the asset. The capitalized expenditure includes cost of materials, direct The group capitalizes the cost of a replacement part or a component of labour overhead costs that are directly attributable to preparing the asset property, plant and equipment when that cost is incurred if it is probable for it intended use and capitalized interest on qualifying assets. Other that the future economic benefits embodied with the item will flow to the development expenditures are recognized in the income statement as an group and the cost of the item can be measured reliably. All other costs expense as incurred. are expensed as incurred. Capitalized development expenditure is measured at cost less accumulated Depreciation amortization and accumulated impairment losses. Depreciation is normally recognized on a straight-line basis over the estimated useful lives of property, plant and equipment. Other intangible assets Acquired intangible assets are measured at cost less accumulated Finance leases amortization and impairment losses. Leases where the group assumes substantially all the risks and rewards of ownership are classified as finance leases. At the beginning of the leasing Subsequent expenditures period, finance leases are recognized at the lower of the fair value of the Subsequent expenditures on intangible assets are capitalized only when leased asset and the present value of the minimum lease payments. The they increase the future economic benefits embodied in the specific asset corresponding liability to the lessor is included in the statement of financial to which they relate. All other expenditures are expensed as incurred. position as other non-current liabilities except for first year instalment which is recognized as current liabilities. Lease payments are apportioned Amortization between finance charges and reduction of the lease obligation so as to Amortization is recognized in the income statement on a straight-line achieve a constant rate of interest of the remaining balance of the liability. basis over the estimated useful lives of intangible assets unless such useful Leased assets are depreciated over the shorter of the lease term and lives are indefinite. Intangible assets are amortized from the date they are their useful lives unless it is reasonably certain that the group will obtain available for use. ownership by the end of the lease term. Intangible assets Goodwill Employee benefits Defined contribution plans Obligations for contributions to defined contribution pension plans are Goodwill that arises from the acquisition of subsidiaries is presented as recognized as an expense in the income statement as incurred. intangible asset. For the measurement of goodwill at initial recognition, see Business combinations. Defined benefit plans The group’s net obligation in respect of defined benefit pension plans is Annual Report 2016 | Financials and Notes37 calculated separately for each plan by estimating the amount of future net interest expense (income) on the net defined benefit liability (asset) benefit that employees have earned in the current and prior periods; for the period by applying the discount rate used to measure the defined discounting that amount and deducting the fair value of any plan assets. benefit obligation at the beginning of the annual period to the then-net The calculation of defined benefit obligations is performed annually by defined benefit liability (asset) during the period as a result of contributions a qualified actuary using the projected unit credit method. The discount and benefit payments. Net interest expense and other expenses related to rate is the yield at the reporting date on government bonds or high- defined benefit plans are recognized in the income statement. defined benefit liability (asset), taking into account any changes in the net quality corporate bonds with maturities consistent with the terms of the obligations. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss Remeasurement of the net defined benefit liability, which comprises on curtailment is recognized immediately in the income statement. The actuarial gains and losses, the return on plan assets (excluding interest) group recognizes gains and losses on the settlement of a defined benefit and the effect of the asset ceiling (if any, excluding interest), are recognized plan when the settlement occurs. immediately in other comprehensive income. The group determines the Note 4 | Significant accounting estimates and judgements Estimates and judgements are continually reviewed and are based on affect cost estimates. Experience, systematic use of the project execution historical experiences and expectations of future events. The resulting model and focus on core competencies reduce, but do not eliminate, the accounting estimates will, by definition, seldom accurately match actual risk that estimates may change significantly. A risk contingency is included results, but are based on the best estimate at the time. Estimates and in project cost based on the risk register for identified significant risks. assumptions that have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities within the next financial year Progress measurement based on costs has an inherent risk related to the are discussed below. Revenue recognition cost estimate as described above. In situations where cost does not seem to properly reflect actual progress, alternative measures such as hours or physical progress are used to achieve more precise revenue recognition. The percentage-of-completion method is used to account for construction The estimation uncertainty during the early stages of a contract is contracts. This method requires estimates of the final revenue and costs mitigated by a policy of normally not recognizing revenue in excess of of the contract, as well as measurement of progress achieved to date as a costs on large lump sum projects before the contract reaches 20 percent proportion of the total work to be performed. of completion. However, management can on a project-by-project basis The main uncertainty when assessing contract revenue is related to in situations of repeat projects, proven technology or proven execution give approval of earlier recognition if cost estimates are certain, typically recoverable amounts from variation orders, claims and incentive payments model. which are recognized when, in the group’s judgement, it is probable that they will result in revenue and are measurable. This assessment Warranties is adjusted by management’s evaluation of liquidated damages to be A provision is made for expected warranty expenditures. The warranty imposed by customers typically relating to contractual delivery terms. In period is normally two years as one operating cycle. Based on experience, many projects, there are frequent changes in scope of work resulting in a the provision is often estimated at one percent of the contract value, but number of variation orders. Normally the contracts with customers include can also be a higher or lower amount following a specific evaluation of procedures for presentation of and agreement of variation orders. At any the actual circumstances for each contract. Both the general one percent point in time, there will be unapproved variation orders and claims included provision and the evaluation of project specific circumstances are based on in the project revenue where recovery is assessed as probable and other experience from earlier projects. Factors that could affect the estimated criteria are met. Even though management has extensive experience in warranty cost include the group’s quality initiatives and project execution assessing the outcome of such negotiations, uncertainties exist. model. Reference is made to note 28 Provisions for further information about provisions for warranty expenditures on delivered projects. One of the key uncertainties related to revenue recognition arises in the final stages of the completion of long term contracts which can involve Deferred and contingent considerations renegociations with customers. The estimates of the likely outcome of Deferred and contingent considerations resulting from business these renegotiations are based on management’s assessments subject to combinations and disposals are measured at fair value at transaction date. complex interpretations of contractual, engineering, design and project When a deferred and contingent consideration meets the definition of a execution issues. There can be a wide range of reasonably possible financial asset or liability, it is subsequently remeasured at fair value of outcomes from such renegociations and the estimates made require a the reporting date. The determination of fair value is based on discounted high degree of judgment. cash flows. The key assumptions take into consideration the probability of meeting each performance target and the discount factor. Remaining project costs depend on productivity factors and the cost of inputs. Weather conditions, the performance of subcontractors and others Leases with an impact on schedules, commodity prices and currency rates can The determination of whether an arrangement is (or contains) a lease is Annual Report 2016 | Financials and Notes38 based on the substance of the arrangement at the inception date. The Valuation of deferred tax assets is dependent on management’s assessment arrangement is assessed for whether fulfilment of the arrangement is of future recoverability of the deferred tax benefit. Expected recoverability dependent on the use of a specific asset (or assets) or the arrangement may result from expected taxable income in the near future, planned conveys a right to use the asset (or assets), even if that right is not explicitly transactions or planned tax optimizing measures. Economic conditions specified in an arrangement. may change and lead to a different conclusion regarding recoverability, and such change may affect the results for each future reporting period. Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards incidental to ownership to the lessee. Tax authorities in different jurisdictions may challenge calculation of All other leases are classified as operating leases. The assessment for the income taxes from prior periods. Such processes may lead to changes to classification of leases is based on the substance of the transactions and prior periods’ taxable income, resulting in changes to income tax expense requires judgement. in the period of change. During the period when tax authorities challenge income tax calculations, management is required to make estimates of Impairment of non-financial assets the probability and size of possible tax adjustments. Such estimates may Property, plant and equipment and intangible assets change as additional information becomes known. Further details about The group has significant non-current assets recognized in the income taxes are included in note 12 Income tax. consolidated statement of financial position related to Property, plant and equipment and intangible assts. The value in use of some of these assets Onerous contracts can be significantly impacted by changes of market conditions. The group The group has entered into several non-cancellable lease contracts considers whether there are indications of impairment on the carrying for office premises which may result in vacant leased space. The group amounts of such non-current assets. If such indications exist, an impairment recognizes a provision for such lease contracts when the leased property test is performed to assess whether or not the assets should be impaired. is or will be vacant during the non-cancellable lease period. The provision The valuations, often determined by value-in-use calculations, will often is made for the discounted future lease payments, net of expected have to be performed based on estimates of future cash flows discounted sublease income, if any. Key assumptions in determining the provisions are by an appropriate discount rate. Significant estimates and judgments have primarily related to expected sublease income, length of vacancy periods to be made by the management, including determining appropriated cash- and appropriate discount rates. Further information about provision for generating units and discount rate, projections for future cash flows and onerous contracts is included in note 28 Provisions. assumptions of future market conditions. References are made to note 14 Property, plant and equipment and note 15 Intangible assets. Pension benefits Goodwill The present value of the pension obligations depends on a number of factors determined on the basis of actuarial assumptions. These The group performs impairment testing of goodwill annually or more assumptions include financial factors such as the discount rate, expected frequently if any impairment indicators are identified. The recoverable salary growth, inflation and return on assets as well as demographical amounts of cash-generating units to which goodwill is allocated have factors concerning mortality, employee turnover, disability and early been determined based on value-in-use calculations. These calculations retirement. Assumptions about all these factors are based on the require management to estimate future cash flows expected to arise from situation at the time the assessment is made. However, it is reasonably these cash-generating units and an appropriate discount rate to reflect certain that such factors will change over the very long periods for which the time value of the money. Key assumptions made by the management pension calculations are made. Any changes in these assumptions will include also assumptions for future market conditions, which require a affect the calculated pension obligations with immediate recognition in high degree of judgment. Further details about goodwill allocation and other comprehensive income. Further information about the pension impairment testing are included in note 16 Impairment testing of goodwill. obligations and the assumptions used are included in note 27 Employee Income taxes The group is subject to income taxes in numerous jurisdictions. Significant Legal claims benefits – pension. judgement is required to determine the worldwide provision for income Given the scope of the group’s worldwide operations, group companies taxes. There are many transactions and calculations for which the ultimate are inevitably involved in legal disputes in the course of their business tax determination is uncertain during the ordinary course of business. activities. In addition, as an investment company, Akastor and its portfolio Provisions for anticipated tax audit issues are based on estimates of companies from time to time engage in mergers, acquisitions and other eventual additional taxes. transactions that could expose the companies to financial and other non-operational risks, such as indemnity claims and price adjustment Income tax expense is calculated based on reported income in the different mechanisms resulting in recognition of deferred settlement obligations. legal entities. Deferred income tax expense is calculated based on the differences between the assets’ carrying amount for financial reporting Provisions have been made to cover the expected outcome of the legal purposes and their respective tax basis that are considered temporary in claims to the extent negative outcomes are likely and reliable estimates nature. The total amount of income tax expense and allocation between can be made. However, the final outcome of these cases is subject to current and deferred income tax requires management’s interpretation of uncertainties, and resulting liabilities may exceed provisions recognized. complex tax laws and regulations in the many tax jurisdictions where the group operates. Annual Report 2016 | Financials and Notes39 Note 5 | Discontinued operations Disposal of Managed Pressure Operations (MPO) Disposal of Fjords Processing In August 2016, Akastor sold Managed Pressure Operations in MHWirth In December 2016, Akastor completed the transaction to sell Fjords to AFGlobal, following the decision of evaluating strategic alternatives Processing segment to National Oilwell Varco (NOV). Fjords Processing for this operation. Managed Pressure Operations is an oilfield services provides world-class wellstream processing technology, systems and company supplying industry leading Managed Pressure Drilling equipment, services to the upstream oil and gas industry. The company delivers know how and experience. market-leading solutions for separation and treatment of oil and gas, based on innovative technology and extensive competence accumulated The consideration for the disposal includes an earn-out element which over the last 40 years. Fjords Processing is headquartered in Fornebu, potentially could reach USD 65 million over the next six years. The Norway, and has about 500 employees in 15 countries. contingent consideration was recognized at fair value as of December 31, 2016. Disposal of Frontica Advantage In December 2016, Akastor entered into a definitive agreement to sell Disposal of Frontica Business Solutions Frontica’s staffing business (Frontica Advantage) to NES Global Talent In November 2016, Akastor completed the transactions to sell Frontica's IT in exchange for a minority shareholding in the combined entity. Frontica business line (Frontica Business Solutions) , to Cognizant. Frontica Business Advantage is a provider of quality workforce solutions with global Solutions is a global provider of Information Technology Outsourcing presence. The company has about 80 employees, with offices in Norway, (ITO) and Business Process Outsourcing (BPO) services to the oil and UK, USA, Brazil and Malaysia. The transaction was completed on January gas sector. The ITO division delivers services for IT infrastructure and 6, 2017. See also note 37 Subsequent events for more information about workplace, application management and software development, as well the divestment of Frontica Advantage. as consulting services. The BPO division offers transaction finance, HR and payroll services. Frontica Business Solutions has about 570 employees, with offices in Norway, UK, USA, Brazil and Malaysia. MPO, Frontica (Frontica Business Solutions and Frontica Advantage) and Fjords Processing are classified as discontinued operations and the comparative consolidated income statement has been restated to show the discontinued operations separately from continuing operations. Frontica Advantage is classified as held for sale as of December 31, 2016. Results of discontinued operations Amounts in NOK million Revenue Expenses Net financial items Profit (loss) before tax Income tax Profit (loss) from operating activities, net of tax Gain (loss) on sale of discontinued operations 1) Income tax on gain (loss) on sale of discontinued operations Net profit (loss) from discontinued operations Basic/diluted earnings (loss) per share from discontinued operations (NOK) 2016 2015 4 616 (4 715) 5 832 (6 474) (4) (102) (58) (160) 968 (73) 734 2.71 (13) (655) (65) (720) (23) - (743) (2.74) 1) Includes currency translation differences of NOK 105 million that was reclassified from Other Comprehensive Income to the income statement upon disposal in 2016. Gain before tax from the disposal was NOK 507 million for Frontica Business Solutions and NOK 654 million for Fjords Processing, and loss before tax of NOK 127 million for MPO. The net gain before tax on sale of discontinued operations in 2016 was negatively affected by lower earn-out expectations on divestments from prior years. Cash flows from (used in) discontinued operations Amounts in NOK million Net cash from operating activities Net cash from investing activities Net cash flow from discontinued operations 2016 2015 (73) 2 333 2 260 (314) (4) (318) Annual Report 2016 | Financials and Notes40 Effect of disposal on the financial position of the group Amounts in NOK million Deferred tax assets Property, plant and equipment Intangible assets Other non-current assets Inventories Trade and other receivables Cash and cash equivalents Other current assets Non-current liabilities Trade and other payables Other current liabilities Currency translation reserve Net assets and liabilities Total consideration at fair value Portion of consideration received in cash, net of transaction costs Cash and cash equivalents disposed of Cash inflows from disposal, net of cash disposed of Assets and liabilities held for sale Amounts in NOK million Deferred tax assets Intangible assets Current operating assets Cash and cash equivalents Assets classified as held for sale Deferred tax liabilities Trade payables Other current liabilities Liabilities classified as held for sale Net assets held for sale Disposal of subsidiaries in 2015 2016 (171) (218) (640) (24) (114) (1 163) (262) (111) 89 197 758 105 (1 554) 2 587 2 644 (262) 2 382 2016 33 48 78 53 212 (29) (54) (94) (177) 35 In July 2015, Akastor sold its shareholding in Pusnes Eiendom Invest AS and in December 2015, Akastor sold its entire real estate portfolio comprising of eight properties to Aker Maritime Finance AS, a related party of Aker ASA. The total consideration received was NOK 1 156 million and resulted in a gain of NOK 303 million recognized in Other income. See also note 35 Related parties. The table below shows the effects on the consolidated statement of financial position from disposals of subsidiaries during 2015: Amounts in NOK million Property, plant and equipment Investment property Intangible assets Trade and other receivables Cash and cash equivalents Deferred tax liabilities Other non-current liabilities Trade and other payables Other current liabilities Net assets and liabilities Consideration received, satisfied in cash Cash and cash equivalents disposed of Cash inflows from disposal of subsidiaries, net of cash disposed of 2015 (314) (696) (16) (30) (6) 144 20 13 32 (854) 1 156 (6) 1 150 Annual Report 2016 | Financials and Notes41 Note 6 | Operating segments Basis for segmentation Measurement of segment performance As of December 31, 2016, Akastor has three reportable segments which Segment performance is measured by operating profit before depreciation, are the strategic business units of the group. The strategic business units amortization and impairment (EBITDA) which is reviewed by the group’s are managed separately and offer different products and services due Executive Management Group (the chief operating decision maker). to different market segments and different strategies for their projects, Segment profit, together with key financial information as described below, products and services: gives the Executive Management Group relevant information in evaluating the results of the operating segments and is relevant in evaluating the MHWirth is a supplier of drilling systems and drilling lifecycle results of the segments relative to other entities operating within these services globally. The company offers a full range of drilling industries. Inter-segment pricing is determined on an arm’s length basis. equipment, drilling riser solutions and related products and services for the drilling market, primarily the offshore sector. The accounting policies of the reportable segments are the same as described in note 2 Basis of preparation and note 3 Significant accounting AKOFS Offshore is a global provider of vessel-based subsea well principles, except for hedge accounting. When contract revenues and construction and intervention services to the oil and gas industry, contract costs are denominated in a foreign currency, the subsidiary covering all phases from conceptual development to project hedges the exposure against the central treasury department (Akastor execution and offshore operations. Treasury) and hedge accounting is applied independently of whether KOP Surface Products is a supplier of flow control equipment to correction of the non-qualifying hedges to secure that the consolidated the oil and gas industry. The main products are valves, wellheads financial statements are in accordance with IFRS is made as an adjustment and trees for offshore and land-based surface production. at corporate level. This means that the group’s segment reporting reflect the hedge qualify for hedge accounting in accordance with IFRS. The all hedges as qualifying even though they may not qualify in accordance Further, Akastor owns other investments, mainly 76 percent in Step with IFRS. Oiltools, 50 percent of DOF Deepwater AS, 100 percent in First Geo AS and Cool Sorption, and 93 percent of Aker Pensjonskasse. These are Hedge transactions not qualifying for hedge accounting represent an included in “Other holdings”. accounting loss of NOK 10 million to EBITDA (gain of NOK 53 million in 2015) and a loss under financial items of NOK 289 million (gain of NOK As a result of Frontica and Fjords Processing being classified as discontinued 50 million in 2015). This is recognized as group adjustment under Other operations, the segment reporting has been reassessed in 2016 and the holdings. historical comparative figures have been restated accordingly. See note 5 for more information about the discontinued operations. Annual Report 2016 | Financials and Notes42 Information about reportable segments Amounts in NOK million Note MHWirth Offshore KOP Surface AKOFS Other holdings Eliminations Total segments 14, 15 14, 15 2016 Income statement External revenue and other income Inter-segment revenue Total operating revenue and other income Operating profit before depreciation, amortization and impairment (EBITDA) Depreciation and amortization Impairment Operating profit (loss) (EBIT) Assets Current operating assets Non-current operating assets Operating segment assets Liabilities Current operating liabilities Non-current operating liabilities Operating segment liabilities Net current operating assets Net capital employed Capital expenditure and R&D capitalization Cash flow from operating activities 3 510 38 3 548 71 (269) (353) (552) 3 060 2 448 5 509 1 970 339 2 309 1 091 3 200 36 280 835 - 835 316 (331) (118) (134) 277 4 306 4 583 156 58 214 121 4 378 108 (234) AKOFS 335 - 335 (22) (58) - (80) 228 298 526 109 20 130 119 396 13 42 629 44 674 (296) (88) (2) (385) 425 794 1 219 683 422 1 106 (258) 104 5 (144) - (82) (82) - - - - - - - - - - - - - - 5 310 - 5 310 69 (746) (473) (1 151) 3 991 7 846 11 837 2 919 840 3 758 1 072 8 078 162 (56) Real estate & Other holdings Eliminations Total segments Amounts in NOK million Note MHWirth Offshore KOP Surface 14, 15 14, 15 2015 (Restated) Income statement External revenue and other income Inter-segment revenue Total operating revenue and other income Operating profit before depreciation, amortization and impairment (EBITDA) Depreciation and amortization Impairment Operating profit (loss) (EBIT) Assets Current operating assets Non-current operating assets Operating segment assets Liabilities Current operating liabilities Non-current operating liabilities Operating segment liabilities Net current operating assets Net capital employed Capital expenditure and R&D capitalization Cash flow from operating activities 6 455 72 6 527 18 (264) (104) (349) 5 005 2 781 7 786 2 872 629 3 501 2 133 4 285 360 - 781 - 781 104 (355) (1 037) (1 288) 200 5 119 5 319 131 4 135 69 5 183 1 057 (193) 1 131 - 1 131 242 (57) (8) 177 374 341 715 135 25 160 240 555 31 400 1 616 153 1 769 203 (153) (107) (57) 412 841 1 253 432 127 559 (20) 694 99 (496) - (225) (225) - - - - - - - - - - - - - - 9 983 - 9 983 567 (829) (1 256) (1 518) 5 991 9 081 15 073 3 570 785 4 355 2 422 10 718 1 548 (289) Annual Report 2016 | Financials and Notes Reconciliations of information on reportable segments to IFRS measures Amounts in NOK million Assets Total segment assets Derivative financial instruments Cash and cash equivalents Current interest-bearing receivables Non-current interest-bearing receivables Assets classified as held for sale Operating assets related to discontinued operations Elimination of intra-group assets Consolidated assets Liabilities Total segment liabilities Derivative financial instruments Current borrowings Non-current borrowings Liabilities classified as held for sale Operating liabilities related to discontinued operations Elimination of intra-group liabilities Consolidated liabilities Major customers 43 Note 2016 2015 Restated 32 23 17 17 5 32 25 25 5 11 837 15 073 269 487 15 51 212 - (10) 1 746 563 72 84 - 3 087 (87) 12 861 20 537 3 758 301 1 560 1 494 177 - (10) 4 355 1 528 4 054 1 583 - 1 717 (87) 7 281 13 150 Revenue from two customers in MHWirth represents approximately NOK 1.5 billion (NOK 1.3 billion in 2015), and one customer in AKOFS Offshore represents approximately NOK 600 million (NOK 485 million in 2015) of the group’s total revenue. Geographical information Geographical revenue is presented on the basis of geographical location of the group companies selling to the customers. Non-current segment assets and capital expenditures are based on the geographical location of the assets. Norway has revenue and no-current assets higher than 10 percent of the group, while Singapore had revenue higher than 10 percent of the group in 2015. Amounts in NOK million Norway Singapore Other Europe North America South America Other Asia Australia Middle East Other Total Operating revenue and other income Non-current assets excluding deferred tax assets and financial instruments 2016 2 905 498 641 331 270 449 91 113 12 2015 Restated 5 759 1 424 934 824 339 406 107 168 22 2016 4 887 218 925 337 406 200 41 5 3 2015 6 451 626 1 485 514 579 176 57 29 2 5 310 9 983 7 022 9 919 Annual Report 2016 | Financials and Notes 44 Note 7 | Operating revenue and other income Amounts in NOK million Construction revenue Service revenue Product revenue Other operating revenue 1) Total operating revenue Decrease (increase) in contingent considerations from business combinations Gain on disposal of subsidiaries Deferred gain on disposal of real estate Gain on disposals of assets Total other income 1) Includes rental income from investment property of NOK 60 million in 2015. Note 20 5 2016 1 612 2 242 918 368 5 140 - - - 170 170 2015 Restated 4 257 3 292 1 628 402 9 580 44 303 37 19 403 Gain on disposal of assets in 2016 mainly relates to the sale of the Skandi Santos topside equipment from AKOFS Offshore to Avium Subsea AS, a joint venture where Akastor has 50 percent ownership. The sale resulted in an accounting gain of NOK 172 million, representing 50% of the total gain on sale. See note 35 Related parties for more information about the transaction with joint venture. Note 8 | Salaries, wages and social security costs Amounts in NOK million Salaries and wages including holiday allowance Social security tax/national insurance contribution Pension cost Other employee costs Salaries, wages and social security costs Note 9 | Operating leases Group as lessee Future minimum commitments under non-cancellable operating leases Amounts in NOK million Due within one year Due in one to five years Due in more than five years Total Note 27 2016 1 843 250 78 133 2015 Restated 2 604 313 92 197 2 304 3 205 2016 2015 568 1 287 443 2 298 678 1 756 567 3 001 Minimum sublease income to be received in the future amounts to NOK 26 million (NOK 29 million in 2015) and relates mainly to sublease of office buildings. Lease and sublease payments recognized in the income statement Amounts in NOK million Minimum lease payments Sublease income Total 2016 535 (9) 527 2015 Restated 891 (2) 889 Annual Report 2016 | Financials and Notes45 The group has operating lease costs for buildings on a large number of In addition, the group has vessel lease costs in AKOFS Offshore related to locations worldwide. The leases typically run for a period of 12–15 years, rental for the Skandi Santos vessel. In November 2016, AKOFS entered into with an option to renew the lease at market conditions. The group has a lease agreement for the Skandi Santos vessel with the 50 percent owned also operating lease costs related to cars and inventory. These leases have joint venture, Avium Subsea AS. The Skandi Santos lease contract expires an average lease period of 3-5 years with no renewal options included in in March 2020, with an option for renewal for 5 years. See note 35 Related the contracts. Group as lessor parties for more information about the transactions with joint ventures. The AKOFS Seafarer vessel was acquired in February 2015 and Aker Wayfarer vessel was recognized as finance lease as of September 2014. Future minimum lease income commitments under non-cancellable operating leases Amounts in NOK million Due within one year Due in one to five years Due in more than five years Total 2016 2015 726 4 223 581 5 530 965 4 903 403 6 272 Lease income recognized in the income statement Operating lease income relates mainly to the vessels Skandi Santos and Aker Wayfarer, offices leases to Aker Solutions and the rental business in Step Oiltools. Operating lease income of NOK 691 million is recognized in the income statement in 2016 (NOK 1 218 million in 2015). Note 10 | Other operating expenses Amounts in NOK million Rental and other costs for buildings and premises External consultants and hired-ins inclusive audit fees Office supplies Travel expenses Insurance Other Total other operating expenses Fees to the auditors 2016 290 242 23 71 32 165 823 2015 Restated 445 382 29 113 37 296 1 303 The table below summarizes audit fees, as well as fees for audit related services, tax services and other services incurred by the group during 2016 and 2015. Amounts in NOK million 2016 2015 2016 2015 Restated 2016 2015 Restated Akastor ASA Subsidiaries Total Audit Other assurance services Tax services Other non-audit services Total 3 - - - 3 2 - - - 2 10 3 1 1 15 10 2 - 1 13 13 3 1 1 18 12 2 - 1 15 Annual Report 2016 | Financials and Notes46 Note 11 | Finance income and expenses Amounts in NOK million Profit (loss) on foreign currency forward contracts Equity accounted investees Interest income on bank deposits measured at amortized cost Net foreign exchange gain Other finance income Finance income Interest expense on financial liabilities measured at amortized cost Finance charges under finance leases 1) Interest expense on financial liabilities measured at fair value Loss on sale of available-for sale-assets 2) Impairment loss on available-for sale-assets 2) Impairment loss on external receivables 3) Other financial expenses Financial expenses Net finance expenses recognized in profit and loss Note 18 2016 (289) (214) 10 28 2 40 (246) (292) (21) (26) - (94) (31) (710) (1 174) 2015 Restated 50 (73) 12 49 26 87 (205) (279) (21) - (202) - (35) (742) (678) 1) Aker Wayfarer vessel in AKOFS Offshore was recognized as finance lease as of September 2014. 2) Loss on sale in 2016 and impairment loss in 2015 on available-for-sale assets relate to the group’s shareholdings in EZRA Holdings Ltd. 3) Impairment loss on external receivables in 2016 was triggered by insolvency of certain customers as well as unrecoverability of interest-bearing receivables. See note 33 Financial instruments for information of the finance income and expense generating items. Foreign currency forward contracts Profit (Loss) on foreign currency forward contracts reflects fair value on Some foreign exchange hedge transactions do not qualify for hedge hedge contracts that don’t qualify for hedge accounting. The loss in 2016 accounting under IFRS, primarily because a large number of internal hedge is mainly related to hedge contracts in MHWirth. transactions are grouped and netted before external hedge transactions are established. These derivatives are mainly foreign exchange forward The exposure from foreign currency embedded derivatives is economically contracts. The corresponding contracts to the derivatives are calculated hedged, but cannot qualify for hedge accounting and is therefore included to have an equal, but opposite effect, and both the derivatives and the in net foreign exchange gain/loss. Hedge accounting and embedded hedged items are reported as financial items. The net amount therefore derivatives are explained in note 32 Derivative financial instruments. reflects the difference in timing between the non-qualifying hedging instrument and the future transaction (economically hedged item). Note 12 | Income tax Income tax expense Amounts in NOK million Current tax expense Current year Adjustments for prior years Total current tax expense Deferred tax expense Origination and reversal of temporary differences Change in tax rate Write down of tax loss and deferred tax assets Total deferred tax income (expense) Total tax income (expense) 2016 2015 Restated (35) (21) (57) 574 (18) (192) 364 307 (120) (2) (122) 627 (12) (140) 474 351 Annual Report 2016 | Financials and Notes47 Effective tax rate The table below reconciles the reported income tax expense to the expected income tax expense according to the corporate income tax rate in Norway. Amounts in NOK million Profit (loss) before tax, continuing operations Tax income (expense) using the company’s domestic tax rate 2016 (2 324) 581 Tax effects of: Difference between local tax rate and Norwegian tax rate Permanent differences 1) Prior year adjustments (current tax) Prior year adjustments (deferred tax) Write down of tax loss or deferred tax assets 2) Change in tax rates 3) Effect of functional currency different from currency in tax reporting 4) Other Total tax income (expenses) 45 (84) (21) 6 (192) (18) (2) (8) 307 25.0% 1.9% (3.6%) (0.9%) 0,3% (8.3%) (0.8%) (0.1%) (0.3%) 13.2% 2015 Restated (2 195) 593 (10) 44 (2) (6) (140) (12) (84) (31) 351 27.0% (0.4%) 2.0% (0.1%) (0.3%) (6.4%) (0.6%) (3.8%) (1.4%) 16.0% 1) Relates mainly to profit (loss) from equity accounted investees, profit (loss) recognized on various tax-exempted investments and impairment of goodwill in 2015. 2) In 2016, an impairment of deferred tax asset of NOK 85 million was recognized due to the preliminary decision from Central Tax office in Norway of disallowance of tax loss carry-forward incurred in relation to the liquidation of AKOFS Singapore in 2014. The remaining impairment relates mainly to MHWirth Inc in MHWirth, KOP Surface Nigeria and Step Oiltools. 3) Relates mainly to changes in corporate income tax rate in Norway. The tax rate is changed from 25 percent to 24 percent effective as of January 1, 2017. In 2015, the tax rate was changed from 27 percent to 25 percent effective as of January 1, 2016. 4) Relates to Norwegian legal entities in AKOFS Offshore with functional currency of USD. Recognized deferred tax assets and liabilities Amounts in NOK million 2016 2015 2016 2015 2016 2015 Assets Liabilities Net Property, plant and equipment Intangible assets Projects under construction Pensions Provisions Derivatives Other items Tax loss carry-forwards Total before set offs Set-off of tax Total deferred tax assets (liabilities) 135 1 - 95 158 32 152 782 1 355 (756) 600 68 35 - 122 198 89 179 829 1 521 (1 053) 468 (207) (42) (326) - (1) (102) (91) - (770) 756 (15) (205) (146) (453) - (3) (264) (31) - (1 103) 1 053 (51) (72) (41) (326) 95 158 (70) 61 782 586 - 586 (137) (111) (453) 122 195 (175) 148 829 418 - 418 Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available, against which the deductible temporary difference can be utilized. The deferred tax assets recognized for tax loss carry-forward are mainly related to the entities of the Norwegian tax group where tax losses can be carried forward without expiration. The group has made an evaluation of taxable profit in the Norwegian entities for the next five years based on management’s projection. The estimates indicate that it is probable that future tax profit will be available for which such tax losses can be utilized. Annual Report 2016 | Financials and Notes48 Change in net recognized deferred tax assets (liabilities) Amounts in NOK million Property, plant and equipment Intangible assets Projects under construction Pensions Provisions Derivatives Other items Tax loss carry- forwards Total Balance as of January 1, 2015 (368) (102) (552) 135 204 (151) 117 448 (269) Recognized in profit and loss (restated) Recognized in other comprehensive income Discontinued operations Disposal of subsidiaries Currency translation differences Balance as of December 31, 2015 Classified as held for sale as of January 1, 2016 Disposal of subsidiaries as of January 1, 2016 Recognized in profit and loss Recognized in other comprehensive income Currency translation differences 125 - 11 130 (34) (137) - (20) 75 - 9 5 - - - (14) (111) 2 52 14 - 1 Balance as of December 31, 2016 (72) (41) (326) 95 - 5 - - (6) (9) (1) - 3 (453) 122 123 (63) (30) 226 474 - (127) - (5) 195 39 - - 1 10 37 - 12 - 85 (2) 73 40 9 128 36 (175) 148 829 418 - - (6) (14) 132 - 8 (13) (16) 4 (2) 95 (23) 12 - (22) 158 - 1 15 90 (2) (70) (1) (37) (41) (128) 67 (35) 11 61 (66) (211) 64 364 - (8) 60 (3) 782 586 Tax loss carry-forwards and deductible temporary differences for which no deferred tax assets are recognized Deferred tax assets have not been recognized in respect of tax loss carry-forwards or deductible temporary differences when the group evaluates that it is not probable that future taxable profit will be available against which the group can utilize these benefit based on forecasts and realistic expectations. Expiry date of unrecognized tax loss carry-forwards Amounts in NOK million Expiry in 2018 Expiry in 2019 Expiry in 2020 Expiry in 2021 and later Indefinite Total 2016 2015 - - 12 487 687 1 187 168 - 13 431 216 828 Unrecognized other deductible temporary differences are NOK 287 million in 2016 (NOK 181 million in 2015). Note 13 | Earnings per share Akastor ASA holds 2 776 376 treasury shares at year end 2016 (2 776 376 in 2015). Treasury shares are not included in the weighted average number of ordinary shares. Amounts in NOK million Profit (loss) attributable to ordinary shares Profit (loss) attributable to ordinary shares from continuing operations Basic/diluted earnings per share 2016 (1 282) (2 017) 2015 Restated (2 587) (1 844) The calculation of basic/diluted earnings per share is based on the profit (loss) attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding. Issued ordinary shares as of January 1 Weighted average number of issued ordinary shares for the year adjusted for treasury shares Basic/diluted earnings (loss) per share (NOK) Basic/diluted earnings (loss) per share for continuing operations (NOK) 2016 2015 Restated 274 000 000 274 000 000 271 223 624 271 086 638 (4.73) (7.44) (9.54) (6.80) Annual Report 2016 | Financials and NotesNote 14 | Property, plant and equipment The table below includes discontinued operations until these met the criteria to be classified as held for sale or distribution. Note Buildings and land Vessels Machinery, equipment, software Under construction 49 Total 10 778 1 454 336 - (1 207) (374) 1 390 12 376 153 395 - (952) (1 107) (132) 10 733 (4 309) (859) (1 225) (47) 1 069 60 (584) (5 896) (727) (511) 626 889 85 974 9 - 49 (106) (291) 26 661 1 - 436 (6) (7) (43) 5 271 1 032 - 8 - - 1 133 7 444 - (69) 747 (566) - (171) 1 042 7 384 3 579 15 60 181 (594) (83) 241 3 399 45 69 44 (325) (1 092) 62 2 202 954 397 276 (239) (507) - (9) 872 107 395 (1 225) (55) (7) 19 105 (208) (44) (9) - 39 43 (22) (200) (48) (283) 2 2 34 (494) 461 548 - - (1 729) (342) (1 037) - - - (382) (3 490) (320) (118) 304 - 62 (1 910) (462) (474) (169) (47) 534 16 (140) (2 190) (359) (110) 320 887 (11) - (10) - 496 - (40) (16) - - - - - (3 562) (1 463) (16) (5 535) 3 954 3 822 1 313 1 618 1 208 739 - - 856 89 - - 6 480 5 198 1 313 1 618 Amounts in NOK million Historical cost Balance as of January 1, 2015 Additions 1) Reclassifications 3) Transfer from assets under construction Disposals and scrapping Disposal of subsidiaries Currency translation differences Balance as of December 31, 2015 Additions 2) Reclassifications 3) Transfer from assets under construction Disposals and scrapping Disposal of subsidiaries Currency translation differences Balance as of December 31, 2016 Accumulated depreciation and impairment Balance as of January 1, 2015 Depreciation for the year 4) Impairment 5) Reclassifications 3) Disposals and scrapping Disposal of subsidiaries Currency translation differences Balance as of December 31, 2015 Depreciation for the year 4) Impairment 5) Disposals and scrapping Disposal of subsidiaries Currency translation differences Balance as of December 31, 2016 Book value as of December 31, 2015 Book value as of December 31, 2016 Of which financial lease as of December 31, 2015 Of which financial lease as of December 31, 2016 5 5 5 5 1) Includes NOK 23 million of capitalized borrowing costs in 2015. The average capitalization rate is 6.8 percent. 2) Includes additions of NOK 22 million related to discontinued operations. 3) Includes reclassifications from Other non-current operating assets (relating to Aker Wayfarer vessel) and Intangible assets. 4) Includes depreciation of NOK 126 million from discontinued operations in 2016 (NOK 211 million in 2015). 5) Includes impairment of NOK 93 million from discontinued operations in 2016 (NOK 132 million in 2015). Annual Report 2016 | Financials and Notes 50 Finance leased asset In addition, an impairment loss of NOK 58 million was recognized mainly The vessel under finance lease relates to the Aker Wayfarer vessel that related to the closing down of a manufacturing plant in Asia in 2016. is under lease contract with Ocean Yield. Please refer to note 35 Related parties for more information of the agreement. Impairment in AKOFS Offshore Commitments An impairment loss of NOK 118 million was recognized in 2016 writing down the cash-generating unit AKOFS Seafarer to its recoverable amount As of December 31, 2016, Akastor entered into contractual commitments of NOK 2.1 billion based on value in use. The impairment was mainly a for the acquisition of property, plant and equipment amounting to NOK result of increased discount rate (10.0%) used in the impairment test. 11 million (NOK 16 million in 2015), mainly related to the Macae plant in The recoverable amount analysis for AKOFS Seafarer has been made MHWirth and offshore equipment in AKOFS Offshore. with different probability weighted scenarios covering the variation in day Depreciation rates and utilization based on the management’s assessment of market conditions. See note 16 for more information about the discount rate and Estimates for useful life, depreciation method and residual values are key assumptions. reviewed annually. Assets are mainly depreciated on a straight-line basis over their expected economic lives as follows: In 2015, an impairment loss of NOK 1 037 million related to AKOFS Machinery, equipment and software 3–15 years weak market conditions which are expected to continue in the short to Seafarer was recognized. The impairment was triggered by the current Vessels Buildings Land Impairment Impairment in MHWirth 20–25 years 8–30 years No depreciation medium term. Security The AKOFS Seafarer vessel, with carrying amount of NOK 2.2 billion as of December 31, 2016, is pledged as security for borrowings in the group. An impairment loss of NOK 241 million was recognized in 2016 related to the Macae plant in Brazil. The impairment was triggered by current weak market conditions for project related work which are expected to continue in the short to medium term. The recoverable amount of NOK 400 million was determined based on value in use. In determining value in use for the cash generating unit, the cash flows were discounted at a rate of 15.9% on a pre-tax basis. Annual Report 2016 | Financials and NotesNote 15 | Intangible assets Amounts in NOK million Note Development costs Goodwill Other Total 51 Historical cost Balance as of January 1, 2015 Reclassification 1) Capitalized development Disposal and scrapping Currency translation differences Balance as of December 31, 2015 Reclassification Capitalized development 2) Disposal and scrapping Disposal of subsidiaries Reclassification to asset held for sale Currency translation differences Balance as of December 31, 2016 Accumulated amortization and impairment Balance as of January 1, 2015 Reclassifications 1) Amortisation for the year 3) Impairment for the year 4) Disposal and scrapping Currency translation differences Balance as of December 31, 2015 Amortisation for the year 3) Impairment for the year 4) Disposal and scrapping Disposal of subsidiaries Currency translation differences Balance as of December 31, 2016 Book value as of December 31, 2015 Book value as of December 31, 2016 2 369 578 3 918 971 (60) 169 (189) 33 923 (9) 47 (103) (228) - (13) 618 (281) 47 (146) (96) 189 5 (281) (143) (49) 103 65 2 5 5 5 - - - 173 2 542 - - - (648) (48) (129) 1 718 (347) - - (280) - (26) (653) - - - 211 54 (304) (388) 642 314 1 889 1 330 - 7 (6) 72 652 9 2 - (403) - (25) 235 (167) - (59) (157) 6 (19) (397) (30) (97) - 363 14 (147) 254 88 (60) 176 (195) 277 4 117 - 49 (103) (1 278) (48) (168) 2 570 (795) 47 (205) (533) 195 (39) (1331) (173) (146) 103 638 70 (839) 2 785 1 731 1) Reclassifications to Property, Plant and Equipment in 2015. 2) Includes capitalized development costs of NOK 20 million from discontinued operations. 3) Includes amortization of NOK 28 million from discontinued operations in 2016 (NOK 63 million in 2015). 4) Includes impairment of NOK 91 million from discontinued operations in 2016 (NOK 370 million in 2015). Impairment loss of goodwill Research and development costs In 2015, the impairment loss of goodwill was mainly related to Step NOK 49 million has been capitalized in 2016 (NOK 176 million in 2015) Oiltools (NOK 65 million) and the discontinued operation, Managed related to development activities. In addition, research and development Pressure Operations in MHWirth (NOK 213 million). See note 16 for more costs of NOK 62 million were expensed during the year because the information about goodwill impairment. criteria for capitalization are not met (NOK 60 million in 2015). Impairment loss of other intangible assets than goodwill Amortization In 2016, an impairment loss of NOK 54 million was recognized mainly Intangible assets all have finite useful lives and are amortized over the related to intangible assets that were no longer expected to be utilized in expected economic life, ranging between 5-10 years. MHWirth. The impairment loss of intangible assets recognized in MHWirth in 2015 was NOK 87 million. The impairment loss of other intangible assets from discontinued operations was related to Managed Pressure Operations in MHWirth in both 2016 and 2015. Annual Report 2016 | Financials and Notes52 Note 16 | Impairment testing of goodwill Goodwill originates from a number of acquisitions. For the purpose of impairment testing, goodwill has been allocated to the group’s cash-generating units (portfolio companies) as shown in the table below, which represents the lowest level at which goodwill is monitored in management reporting. Amounts in NOK million MHWirth Frontica 1) AKOFS Offshore Fjords Processing 2) KOP Surface Products First Geo 3) Total goodwill 2016 2015 1 063 1 093 - 145 - 103 18 203 145 327 103 18 1 330 1 889 1) Following the divestment of Frontica Business Solutions, goodwill of NOK 48 million was allocated to Frontica Advantage which is classified as held for sale as of December 31, 2016 2) Sold in 2016. 3) This portfolio company is included in Other Holdings in segment reporting. Impairment testing for cash-generating units containing significant well as assessment of future market development and conditions. These goodwill assumptions require a high degree of judgement, given the significant The recoverable amounts of cash-generating units (portfolio companies) degree of uncertainty regarding oil price development and oilfield service are determined based on value-in-use calculations. Discounted cash activities in the forecast period. flow models are applied to determine the value in use for the portfolio companies with goodwill. For all portfolio companies except for AKOFS Terminal value growth rate. The group uses a constant growth rate not Offshore, management has made cash flow projections based on budget exceeding 2% (including inflation) for periods beyond the management’s and strategic forecast for the periods 2017-2021. Beyond the explicit forecast period of five years. The growth rates used do not exceed the forecast period of five years, the cash flows are extrapolated using a growth rates for the industry in which the portfolio company operates. constant growth rate. For AKOFS Offshore, the cash flow projections are made for the periods equal to estimated useful life of the vessels. Vessel-specific day rate. For AKOFS Offshore, the cash flow projections reflect vessel-specific rates as reflected in charter-agreements and, for Key assumptions used in the calculation of value in use are discussed periods when the vessels are operating in the spot market, rates achieved below. The values assigned to the key assumptions represent in most recent charter agreements. management’s assessment of future trends in the relevant industries as well as management’s expectations regarding margin, and have been Discount rates are estimated based on Weighted Average Cost of Capital based on historical data from both external and internal sources. (WACC) for the industry in which the portfolio company operates. The EBITDA used in the value-in-use calculations represents the operating state treasury bond rate at the time of the impairment testing. Optimal earnings before depreciation and amortization and is estimated based debt leverage is estimated for each portfolio company. The discount rates on the expected future performance of the existing businesses in their are further adjusted to reflect any additional short to medium term market risk free interest rates used in the discount rates are based on the 10 year main markets. Assumptions are made regarding revenue growth, gross risk considering current industry conditions. margins and other cost components based on historical experience as Discount rate assumptions used in impairment testing MHWirth AKOFS Offshore 1) KOP Surface Products Discount rate after tax Discount rate pre tax 2016 9.2% 10.0% 11.4% 2015 9.3% 7.8% 10.4% 2016 11.4% 10.0% 13.0% 2015 11.1% 7.8% 11.9% 1) Discount rate pre tax and Discount rate after tax for AKOFS Offshore are equal due to the assumption that AKOFS Offshore will enter into the tonnage tax regime in Norway. Sensitivity to changes in assumptions In AKOFS Offshore, an impairment testing was triggered by impairment For the portfolio companies containing goodwill, the recoverable amounts indicators in the fourth quarter of 2016 and an impairment loss of NOK are higher than the carrying amounts based on the value in use analysis 118 million was recognized related to AKOFS Seafarer, see also note and consequently no impairment loss of goodwill was recognized in 2016. 14 Property, plant and equipment for more information. Following the The group has performed sensitivity calculations to identify any reasonably impairment of AKOFS Seafarer, no impairment of goodwill was recognized possible change in key assumptions that could cause the carrying amount in AKOFS Offshore. The estimated recoverable amount of AKOFS to exceed the recoverable amount. Seafarer is equal to the carrying amount and hence, any adverse change Annual Report 2016 | Financials and Notes53 in key assumptions may result in further impairment in AKOFS Seafarer. Impairment loss recognized in 2015 However, as a result of impairment of AKOFS Seafarer, the group believes Due to challenging financial performance under current market conditions, that no reasonably possible change in any of the key assumptions used goodwill allocated to MPO and Step Oiltools was fully impaired in 2015 and for impairment testing would cause the carrying amount of the portfolio an impairment loss of NOK 213 million and NOK 65 million was recognized company to exceed its recoverable amount and trigger an impairment of in MPO and Step Oiltools, respectively. Further, a total impairment loss of goodwill. NOK 275 million was recognized in MPO related to Property, plant and equipment and intangible assets, see note 14 and 15 for more information. In KOP Surface Products, if the assumptions regarding cost level were changed (while the other assumptions remain unchanged) so that the In AKOFS Offshore, an impairment testing was triggered by impairment EBITDA margin was decreased by 3.1% for both the forecast period indicators in the third quarter of 2015 and an impairment loss of NOK 1 and terminal year when the cash flows are extrapolated into the future, 037 million was recognized related to AKOFS Seafarer vessel (see also the recoverable amount would be equal to the carrying amount of the note 14 Property, plant and equipment). The impairment was triggered portfolio company. by the current weak market conditions which are expected to continue in the short to medium term. The recoverable amount analysis for AKOFS In MHWirth, the group believes that no reasonably possible change in Seafarer was made with different probability weighted scenarios covering any of the key assumptions used for impairment testing would cause the variation in day rates and utilization. the carrying amount of the portfolio company to exceed its recoverable amount. Following the impairment of AKOFS Seafarer vessel, no impairment of goodwill was recognized in AKOFS Offshore. However, the estimated recoverable amount of AKOFS Offshore was equal to the carrying amount and hence, any adverse change in key assumptions may result in further impairment. Note 17 | Interest-bearing receivables Current interest-bearing receivables Amounts in NOK million Mutual fund Receivable from EZRA Holdings Ltd 1) Total current interest-bearing receivables 1) The receivable from EZRA Holdings Ltd was impaired in 2016, and the loss was recognized as Finance expenses. Current interest-bearing receivables are classified as financial assets at amortized cost. Non-current interest-bearing receivables Amounts in NOK million Receivable from DOF Deepwater AS Other receivables Total non-current interest-bearing receivables 2016 2015 15 - 15 16 56 72 Note 35 2016 2015 50 1 51 82 2 84 See note 31 Financial risk management and exposures for information regarding credit risk management in the group. Note 18 | Equity-accounted investees Equity-accounted investees include mainly joint ventures. Such investments are defined as related parties to Akastor. See note 35 Related parties for overview of transactions and balances with joint ventures and any guarantees provided on behalf of or from such entities. Amounts in NOK million DOF Deepwater AS 1) Avium Subsea AS 2) Total 2016 Business office Percentage of voting rights and ownership Share of profit (loss) reported in Financial items Carrying amount of investments Storebø, Norway Oslo, Norway 50% (214) 93 50% - - (214) 93 Annual Report 2016 | Financials and Notes54 Amounts in NOK million 2015 Business office Percentage of voting rights and ownership Share of profit (loss) reported in Other income Share of profit (loss) reported in Financial items Carrying amount of investments DOF Deepwater AS 1) Fjords Processing Korea Co Ltd 3) Other Total Storebø, Norway Gyeonggi, South Korea 50% - (74) 157 50% 5 - 19 - 1 1 5 (73) 177 1) DOF Deepwater is a joint venture with DOF ASA, which owns and operates five anchor handling tug supply (AHTS) vessels. 2) Avium Subsea is a joint venture with MITSUI &CO.,Ltd, newly established in 2016. The joint venture owns and operates the Skandi Santos vessel. 3) Fjords Processing Korea Co Ltd was a joint venture with Kolon Energy Co Ltd. The company was disposed in 2016. Summary of financial information for significant equity-accounted investee (100 percent basis) DOF Deepwater AS Avium Subsea AS Amounts in NOK million Current assets – Cash and cash equivalents Non-current assets Current liabilities – Current financial liabilities (excluding trade and other payables and provisions) Non-current liabilities – Non-current financial liabilities (excluding trade and other payables and provisions) Net assets (100%) Akastor’s share of net assets (50%) Elimination of gain from transaction with joint venture 1) Akastor’s carrying amount of the investment Revenue Depreciation, amortization and impairment Interest expense Income tax expense Profit (loss) for the year Total comprehensive income (loss) for the year 2016 2015 195 101 1 221 (108) (30) (1 122) (1 122) 186 93 - 93 204 (405) (61) (2) (427) (427) 149 32 1 604 (221) (120) (1 218) (1 215) 314 157 - 157 306 (133) (53) (1) (143) (143) 2016 56 28 1 602 (165) (140) (1 256) (1 256) 237 118 (118) - 26 (15) (10) (4) (1) (1) 1) See note 26 Other non-current liabilities and note 35 related parties for more information about the deferred gain related to the transaction with joint venture. For information about guarantees provided on behalf of equity-accounted investees, see note 35 Related parties. Note 19 | Other investments Amounts in NOK million EZRA Holdings Ltd 1) Aker Pensjonskasse Other equity securities Available-for-sale investments Total other investments Note 2016 2015 35 33 - 120 1 121 121 135 120 6 261 261 1) The shareholdings in EZRA Holdings Ltd were disposed in 2016 and a loss of NOK 26 million was recognized as financial expenses, see also note 11. Available-for-sale investments that do not have an active market are measured at cost as this is considered to be the best estimate of fair value. Annual Report 2016 | Financials and Notes Note 20 | Construction contracts Amounts in NOK million Construction revenue in the period Amounts due from customers for construction work Amounts due to customers for construction work 1) Construction contracts in progress, net position Construction contracts in progress at the end of the reporting period Amounts in NOK million Aggregate amount of cost incurred and recognized profits (less losses) to date Progress billings Advances from customers 1) 1) Advances are presented as part of Amounts due to customers for construction work. Note 21 | Inventories Amounts in NOK million Stock of raw materials Goods under production Finished goods Total inventories Inventories expensed in the period Write-down of inventories in the period Reversal of write-down of inventories in the period Note 22 | Trade and other receivables Amounts in NOK million Trade receivables 1) Less provision for impairment of receivables Trade receivables, net of provision Other receivables Trade and other receivables Advances to suppliers Amount due from customers for construction work 20 Prepaid expenses Accrued revenue Total 1) Trade receivables are financial instruments and an impairment loss of NOK 39 million (NOK 45 million in 2015) was recognized in operating expenses. Book value of trade and other receivables is approximately equal to fair value. 55 Note 2016 2015 Restated 7 22 29 1 612 4 257 262 (1 226) (964) 1 402 (1 795) (393) 2016 2015 8 472 (9 436) 364 15 214 (15 607) 520 2016 507 74 506 1 086 (1 353) (169) 45 2015 Restated 594 178 691 1 464 (3 517) (120) 2 Note 2016 2015 1 652 (107) 1 545 568 2 113 163 262 112 178 2 829 3 169 (120) 3 049 673 3 722 203 1 402 178 455 5 959 Annual Report 2016 | Financials and Notes 56 Aging of trade receivables Amounts in NOK million Not overdue Past due 0–30 days Past due 31–90 days Past due 91 days Total trade receivables 2016 2015 786 92 63 711 1 652 1 440 509 397 823 3 169 As of December 31, 2016, trade receivables of an initial value of NOK 107 million (NOK 120 million in 2015) were impaired and fully provided for. See below for the movements in the provision for impairment of receivables. Amounts in NOK million Balance as of January 1 New provisions Utilized Unused amounts reversed Disposal of subsidiaries Currency translation differences Balance as of December 31 Note 23 | Cash and cash equivalents Amounts in NOK million Restricted cash Cash pool Interest-bearing deposits Total cash and cash equivalents 2016 2015 120 39 (7) (29) (1) 15 107 118 45 (47) (8) - 13 120 2016 2015 9 135 343 487 58 195 311 563 Additional undrawn committed current bank revolving credit facilities amount to NOK 2.6 billion, that together with cash and cash equivalents gives a total liquidity reserve of NOK 3.1 billion as of December 31, 2016. See also note 25 Borrowings. Note 24 | Capital and reserves Share capital Share buy-back Akastor ASA has one class of shares, ordinary shares, with equal rights At the Annual General Meeting in 2014, authorization was given to for all shares. The holders of ordinary shares are entitled to receive repurchase up to 27.4 million shares, representing 10 percent of the share dividends and are entitled to one vote per share at General Meetings. Total capital of Akastor ASA. There is no purchase or sale of treasury shares in outstanding shares are 274 000 000 at par value NOK 0.592 per share 2016 and as of December 31, 2016 Akastor ASA holds 2 776 376 treasury (NOK 0.592 in 2015). All issued shares are fully paid. shares representing 1.01 percent of total outstanding shares. Summary of purchase and sale of treasury shares Treasury shares as of January 1, 2015 Sale Treasury shares as of December 31, 2015 Treasury shares as of December 31, 2016 Number of shares Consideration ( NOK million) 2 976 376 (200 000) 2 776 376 2 776 376 500 (2) 498 498 The group purchases treasury shares to meet the obligation under employee share purchase programs. No programs were initiated in 2016 or 2015. The Board of Directors has proposed no dividends for 2016 or 2015. Hedging reserve progress of the underlying construction contract as part of revenues or The hedging reserve relates to cash flow hedges of future revenues and expenses as appropriate. The hedging reserve represents the value of such expenses against exchange rate fluctuations. The income statement hedging instruments that is not yet recognized in the income statement. effects of such instruments are recognized in accordance with the The underlying nature of a hedge is that a positive value on a hedging Annual Report 2016 | Financials and Notes57 instrument exists to cover a negative value on the hedged position, see translation differences related to the disposed entities were reclassified note 11 Finance income and expenses and note 32 Derivative financial from the currency translation reserve to the income statement in profit instruments. (loss) from discontinued operations. Currency translation reserve Net investments in foreign operations have been hedged with a gain of The currency translation reserve includes exchange differences arising NOK 71 million in 2016 (loss of NOK 65 million in 2015). Accumulated from the translation of the net investments in foreign operations, and loss on net investment hedges as of 2016 is NOK 70 million (loss of NOK foreign exchange gain or loss on loans defined as net investment hedge 141 million in 2015). The net investment hedge as of December 31, 2016 or part of net investments in foreign operations. Upon the disposal of relates to investments in the United States, Brazil, Mauritius and Cyprus. investments in foreign operations during 2016, the accumulated currency Note 25 | Borrowings Contractual terms of group’s interest-bearing loans and borrowings which are measured at amortized cost. For more information about the group’s exposure to interest rates, foreign currency and liquidity risk, see note 31 Financial risk management and exposures. For more information related to the financial lease, see note 35 Related parties. Amounts in million Currency Nominal currency value Carrying amount (NOK) Interest rate Interest margin Interest coupon Maturity Interest terms 2016 Revolving credit facility (NOK 1 122 million) Revolving credit facility (USD 313 million) BNDES loan (Brazil) NOK USD BRL - 139 89 Financial lease obligation USD/NOK Total borrowings Current borrowings Non-current borrowings Total borrowings - - 2.75% - July 2019 2) NIBOR + margin 1) 0.67% 7.50% 2.75% 1.40% 3.42% 8.90% July 2019 2) May 2022 USD LIBOR + margin 1) TJLP + fixed margin 4) 1 195 237 1 622 3 054 1 560 1 494 3 054 Amounts in million Currency Nominal currency value Carrying amount (NOK) Interest rate Interest margin Interest coupon Maturity Interest terms 2015 Revolving credit facility (NOK 2 000 million) 3) Term loan Term loan BNDES loan (Brazil) EZRA – secured financing NOK NOK USD BRL SGD Finance lease obligation USD/NOK Other loans Total borrowings Current borrowings Non-current borrowings Total borrowings - (10) 1.00% 1.90% 2.90 % July 2017 2) July 2019 2) 2.08 % January 2017 2) 1.80 % 3.00 % 1.60 % 1.90 % 9.40 % May 2022 IBOR + variable margin 1) IBOR 3M +fixed margin IBOR 3M +fixed margin TJLP + fixed margin 4) 1.75 % 3.75 % March 2016 IBOR 3M+fixed margin 2 500 125 103 25 1.20% 0.48% 7.50% 2.00% 2 491 1 096 230 156 1 645 29 5 637 4 054 1 583 5 637 1) The margin applicable to the facilities is decided by a price grid based on the leverage ratio and level of utilization. Commitment fee is 40 percent of the margin. 2) The maturity date reflects maturity date as defined in the loan agreements. See below for further description of covenant breach as of December 31, 2016. 3) Carrying amount of negative NOK 10 million in 2015 relates to issue costs. 4) The loan in Brazil is allocated into three sub-credits. Interest terms disclosed above is for the sub-credit representing more than 90 percent of the total loan in Brazil. TJLP is the Brazilian Federal long term interest rate. Annual Report 2016 | Financials and Notes 58 Bank debt (Norway) a quarterly basis. At December 31, 2016, the ICR ended below the 1.5 All facilities are provided by a bank syndicate consisting of high quality minimum level and external borrowings of NOK 1.2 billion, with maturity Nordic and international banks. The terms and conditions include in 2019, have therefore been reclassified from non-current to current restrictions which are customary for these kinds of facilities, including borrowings. On March 1, 2017, Akastor signed an agreement with its bank inter alia negative pledge provisions and restrictions on acquisitions, syndicate to replace its ICR covenant with a nominal EBITDA amount until disposals and mergers and change of control provisions. The facilities Q2 2018. See more information in note 30 Capital management. include no dividend restrictions. There is a stand-alone mortgage on the vessel AKOFS Seafarer as security for the facilities. Finance lease obligation The financial covenants are a gearing ratio based on net debt/equity, renegotiation of the bareboat charter contract with OCY Wayfarer AS. an interest coverage ratio (ICR) based on EBITDA/net interest costs The lease agreement includes purchase option on three different dates. and a minimum liquidity amount. The financial covenants are tested on The finance lease liability is payable as follows as of December 31, 2016: A financial lease obligation was recognized in 2014 following the Amounts in NOK million Less than one year Between one and five years More than five years Total Present value of minimum lease payments 322 439 861 1 622 Interest 26 1 124 383 1 532 Future minimum lease payments 348 1 563 1 244 3 155 Financial liabilities and the period in which they mature Amounts in NOK million 2016 Revolving credit facility (USD 313 million) 2) BNDES loan (Brazil) Financial lease obligation Total borrowings 2015 Revolving credit facility (NOK 2 000 million) 2) Term loan (NOK 2 500 million) 2) Term loan (USD 125 million) 2) BNDES loan (Brazil) DNB – Singapore loan Finance lease obligation Other loans Total borrowings Carrying amount Total undis- counted cash flow 1) 6 months and less 6–12 months 1–2 years 2–5 years More than 5 years 1 195 237 1 622 3 054 (10) 2 491 1 096 230 156 1 645 29 5 637 1 209 282 3 155 4 646 - 2 512 1 103 282 157 3 508 32 1 209 30 173 1 412 - 2 512 1 103 25 157 119 13 - 29 175 204 - - - 25 - 177 3 7 594 3 930 206 - 56 702 758 - - - 94 - 709 8 812 - 149 861 1 010 - - - 123 - 967 8 - 19 1 244 1 262 - - - 14 - 1 535 - 1 098 1 548 1) The interest costs are calculated using the last fixing rate known by year end (plus applicable margin). 2) Maturity of the term loans in the table reflects that these loans have been reclassified to current borrowings due to breach of covenant. It should be noted that the facilities will not be terminated, see note 37 Subsequent events for information about the new agreement that has been made with the Bank Syndicate in March 2017. Annual Report 2016 | Financials and NotesNote 26 | Other non-current liabilities Amounts in NOK million Deferred settlement obligations Deferred gain related to joint venture Other liabilities Total other non-current liabilities 59 Note 33 2016 2015 9 55 48 112 - - 74 74 Deferred gain related to joint venture Other liabilities In 2016, AKOFS Offshore sold the Skandi Santos topside equipment to Other liabilities relate mainly to liabilities related to leasehold improvements Avium Subsea AS, a joint venture with 50 percent ownership. The sale and welfare fund. resulted in an accounting gain of NOK 172 million, after elimination of 50% of the total gain on sale. The elimination of the gain in excess of the carrying amount of the joint venture is presented as Deferred gain related to joint venture. See note 18 Equity-accounted investees and note 35 Related parties for more information about the transaction with joint venture. Note 27 | Employee benefits – pension Akastor’s pension costs represent the future pension entitlement earned Compensation plan by employees in the financial year. In a defined contribution plan the To ensure that the employees were treated fairly on the change over company is responsible for paying an agreed contribution to the employee’s to the new plan, the company has introduced a compensation plan. The pension assets. In such a plan this annual contribution is also the cost. basis for deciding the compensation amount is the difference between In a defined benefit plan it is the company’s responsibility to provide a calculated pension capital in the defined benefit plan and the value of the certain pension. The measurement of the cost and the pension liability defined benefit plan at the age of 67 years. The compensation amount will for such arrangements is subject to actuarial valuations. Akastor has over be adjusted annually in accordance with the adjustment of the employees’ a long time period gradually moved from defined benefit arrangements pensionable income, and accrued interest according to market interest. If to defined contribution plans. Consequently, the impact of the remaining the employee leaves the company voluntarily before the age of 67 years, defined benefit plans is gradually reduced. the compensation amount will be reduced. Pension plans in Norway AFP – early retirement arrangement The main pension arrangement in Norway is a general pension plan AFP is an early retirement arrangement organized by Norwegian organized by the Norwegian Government. This arrangement provides employers, the main Labor Union organization in Norway (LO) and the the main general pension entitlement of all Norwegians. All pension Norwegian Government. The “old AFP” arrangement was established to arrangements by employers consequently represent limited additional provide pension between the age of 62 to 67 for employees who retired pension entitlements. before the general retirement age of 67. In a recent pension reform individual employees are given a choice of retirement age, but with Norwegian employers are obliged to provide an employment pension lower pension with earlier retirement. Estimated remaining employer plan, which can be organized as a defined benefit plan or as a defined contributions to cover the plan deficit have been provided for. contribution plan. The Norwegian companies in Akastor have closed the earlier defined benefit plans in 2008 and are now providing defined The AFP scheme which was newly established in 2011 is not considered contribution plans for all of their employees under 61 years of age. to be a defined benefit compensation scheme for early retirement, but a Defined contribution plan lifelong contribution plan. The scheme is classified as a multi-employer benefit scheme. Akastor has taken the position that the information The annual contribution expensed for the new defined contribution plan available at the date of the financial statements is not sufficient to reliably for continuing operations was NOK 60 million (NOK 79 million in 2015). measure the allocation of pension cost and net pension liability/asset in The estimated contributions expected to be paid in 2017 amount to NOK accordance with a cost/benefit approach. Akastor has therefore elected 60 million including AFP premium (see below). to treat the scheme as a defined contribution plan in which the annual paid Defined benefit plan premiums to the AFP scheme are expensed in the income statement as they are incurred. The total liability is not recognized. Based on the current Employees who were 58 years or older in 2008, when the change took financing model for AFP, the annual premiums are expected to increase. place, are still in the defined benefit plan. This is a funded plan and When or if sufficient and reliable data is available and a liability can be represents most of the funded pension liability reported in the tables reliably measured, the recognized liability could be significant. below. The estimated contributions expected to be paid to the Norwegian plan during 2017 amount to NOK 18 million. Pension plans outside Norway Pension plans outside Norway are predominately defined contribution plans. Annual Report 2016 | Financials and Notes60 Pension cost Amounts in NOK million Defined benefit plans Defined contribution plans Total pension cost Net employee defined benefit obligations Amounts in NOK million Defined benefit plans Norway Defined benefit plans Germany Defined benefit plans US Defined benefit plans Indonesia Defined benefit plans other countries Total employee benefit obligations Movement in net defined benefit (asset) liability Amounts in NOK million Balance as of January 1 Adjustment for discontinued operations as of January 1 Included in profit or loss Service cost Interest cost (income) Included in OCI Remeasurements (loss) gain: Actuarial loss (gain) arising from: - demographic assumptions - financial assumptions - experience adjustments Return on plan assets excluding interest income Total remeasurement Effect of movements in exchange rates Other Benefits paid by the plan Contributions paid into the plan Balance as of December 31 Note 2016 18 60 78 8 2015 Restated 13 79 92 2016 2015 195 103 63 18 2 380 236 103 69 22 4 434 Pension obligation 2016 2015 Pension asset Net pension obligation 2016 2015 2016 2015 814 823 (380) (350) 434 473 (126) - 81 - (46) - 18 13 31 37 (11) 18 - 44 (16) 28 (78) - (78) 669 20 17 37 (1) (27) 7 - (19) 40 21 (66) - (66) 814 - (3) (3) - (4) - - (4) 4 - 34 (20) 14 - (5) (5) - (8) - 1 (7) (20) (26) 35 (34) 1 (288) (380) 18 10 28 37 (15) 18 - 40 (12) 28 (44) (20) (65) 380 20 12 32 (1) (35) 7 1 (25) 20 (5) (32) (34) (65) 434 Annual Report 2016 | Financials and Notes Plan assets Amounts in NOK million Plan assets at fair value Norwegian plan Equity securities Government Finance Private and Government enterprise Municipalities Bonds Fund/private equity Total plan assets Norway at fair value Equity securities Debt securities Total plan assets US at fair value Total plan assets Germany at fair value Total plan assets at fair value 61 2016 2015 5 2 26 30 77 136 11 152 43 67 110 26 288 5 2 40 43 138 223 8 236 50 66 116 28 380 The equity portfolio is invested globally. The fair value of the equities is Association. The Bond investments have on average a high credit rating. based on their quoted prices at the reporting date without any deduction Most of the investments are in Norwegian municipalities with a credit for estimated future selling cost. rating of AA. The investments in bonds are done in the Norwegian market and most of The investment in fund/private equity is mainly funds that invests in listed the bonds are not listed on any exchange. The market value as at year end securities and where the fund value is based on quoted prices. is based on official prices provided by the Norwegian Securities Dealers Defined benefit obligation – actuarial assumptions The group’s most significant defined benefit plans are in Norway, Germany and USA. The followings are the principal actuarial assumptions at the reporting date for the plans in these countries. Norway Germany USA 2016 2015 2016 2015 Discount rate Asset return Salary progression Pension indexation 2.50% 2.50% 2.25% 0–2.25% 2.60% 2.60% 2.50% 0.75% 4.01% 4.01% n/a 1.75% 3.89% 3.89% n/a 1.75% Mortality table K2013 K2013BE RT 2005 G RT 2005 G 2016 3.64% 3.64% n/a n/a 2015 3.81% 3.81% n/a n/a RP-2014 Adjusted to 2006 Total Dataset with Scale MP-2016 RP-2014 Adjusted to 2006 Total Dataset with Scale MP-2015 The information below relates only to Norwegian plans as these represent Assumptions regarding future mortality have been based on published the majority of the plans. statistics and mortality tables. The current life expectancy underlying the values of the defined benefit obligation at the reporting date is shown The discount rates and other assumptions in 2016 and 2015 are based below. on the Norwegian high quality corporate bond rate and recommendations from the Norwegian Accounting Standards Board. It should be expected that fluctuations in the discount rates would also lead to fluctuations in the pension indexations. The total effect of fluctuations in economic assumptions is consequently unlikely to be very significant. Annual Report 2016 | Financials and Notes 62 Years Life expectancy of male pensioners Life expectancy of female pensioners 2016 22.1 25.4 2015 21.3 24.4 As of December 31, 2016, the weighted-average duration of the defined benefit obligation was 10.8 years. Sensitivity analysis Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the defined benefit obligation as of December 31, 2016 by the amounts shown below. Amounts in NOK million Discount rate (1% movement) Future salary growth (1% movement) Future pension growth (1% movement) Increase Decrease (42) 8 28 34 (8) (34) The change in discount rate assumptions would affect plan assets in the income statement in next period as it would change the estimated asset return, but have no effect on pension assets as of year-end. Note 28 | Provisions Amounts in NOK million Provision, current Provision, non-current Total provisions 2016 2015 354 333 686 553 341 894 Development of significant provisions Amounts in NOK million Warranties Restructuring Onerous lease provision Other Total Balance as of January 1, 2016 New provisions Provisions utilized Provisions reversed Unwind of discount Disposal of subsidiaries Currency translation differences Balance as of December 31, 2016 Expected timing of payment Within the next twelve months After the next twelve months Total 207 37 (35) (22) - (76) (5) 106 101 4 106 179 227 (305) - - - 1 101 66 35 101 400 108 (84) - 30 - (19) 436 157 279 436 108 40 (91) - - (15) 3 44 25 19 44 894 413 (515) (22) 30 (92) (20) 686 349 337 686 Warranties Onerous lease provision The provision for warranties relates mainly to the possibility that Akastor, Provision for onerous leases represents provision for vacant properties based on contractual agreements, needs to perform guarantee work where the group has committed to future lease payments under operating related to products and services delivered to customers. See note 4 lease contracts. Significant accounting estimates and judgments for further descriptions. Restructuring Restructuring mainly relates to significant workforce reduction and reorganization in MHWirth in 2016 due to the very challenging rig market. The provision includes provision for vacant office premises after the workforce reduction and is estimated based on the detailed restructuring plans for the businesses and locations affected. Annual Report 2016 | Financials and Notes63 Note 33 20 33 2016 315 122 694 1 131 1 226 107 28 2015 950 232 1 355 2 537 1 795 14 97 2 492 4 443 Note 29 | Trade and other payables Amounts in NOK million Trade creditors 1) Public duty and tax payables Accrued operating costs Trade and other payables Amount due to customers for construction work and advances Deferred settlement obligations Other Total 1) Trade creditors are due in one year (NOK 19 million in 2015 is due after one year). Book value of trade creditors and other current liabilities is approximately equal to fair value. Note 30 | Capital management Akastor’s capital management is designed to ensure that the group Funding cost has sufficient financial flexibility, short-term and long-term. One main Akastor aims to have a diversified selection of funding sources in order objective is to maintain a financial structure that, through solidity and cash to reach the lowest possible cost of capital. These funding sources might flow, secures the group’s strong long-term creditworthiness, as well as include: maximize value creation for its shareholders through: Investing in projects and business areas which will increase the company’s Return On Capital Employed (ROCE) over time. Optimizing the company’s capital structure to ensure both sufficient and timely funding over time to finance its activities at the lowest cost. Investment policy The use of banks based on syndicated credit facilities. The issue of debt instruments on the Norwegian capital market. The issuance of debt in the foreign capital market. Ratios used in monitoring of capital Akastor monitors capital on the basis of a gearing ratio (net debt/equity) and interest coverage ratio (EBITDA/net interest costs). These ratios are Akastor’s capital management is based on a rigorous investment selection similar to covenants as defined in loan agreements for the revolving credit process which considers not only Akastor’s weighted average cost of facilities (see note 25 Borrowings for details about these loans) and are capital and strategic orientation but also external factors such as market shown below. Other borrowings in the group have no covenants. expectations. Funding policy Liquidity planning The company’s interest coverage ratio (ICR) shall not be lower than 1.5 in Q4 2016, 3.0 in Q1 2017 and 4.0 from Q2 2017 onwards, calculated from the consolidated EBITDA to consolidated net Akastor has a strong focus on its liquidity situation in order to meet its interest cost. short term working capital needs and to ensure solvency for its financial obligations. Akastor had a liquidity reserve per year end 2016 of NOK 3.1 The company’s gearing ratio shall not exceed 1.0 times and billion, composed of an undrawn committed credit facility of NOK 2.6 is calculated from the consolidated total borrowings to the billion and cash and cash equivalents of NOK 487 million. consolidated Equity. Total borrowings in this calculation shall not include the financial lease obligation. Funding of operations Akastor’s group funding policy is that all operations shall meet their Minimum liquidity level shall exceed NOK 750 million. funding needs directly via the central treasury department (Akastor Treasury) . This ensures optimal availability and transfer of cash within the The ratios are calculated based on net debt including cash and borrowings group and better control of the company’s overall debt as well as cheaper as shown in note 34 Financial instruments, adjusted EBITDA (earnings funding for its operations. before interest, tax, depreciation, amortization and adjusted for certain items as defined in the loan agreement) and net interest costs. Funding duration Akastor emphasizes financial flexibility and steers its capital structure accordingly to limit its liquidity and refinancing risks. In this perspective, loans and other external borrowings are to be renegotiated well in advance of their due date and generally for periods of 3 to 5 years. Annual Report 2016 | Financials and Notes 64 Covenants in existing borrowings as of December 31 Amounts in NOK million Gearing ratio Net debt Equity Net debt/Equity 1) Interest coverage ratio Adjusted EBITDA Net interest cost Adjusted EBITDA/Net interest cost 1) 2016 2015 1 479 5 580 0.26 (35) 178 (0.2) 4 061 7 386 0.55 562 201 2.8 1) Net intererst cost, net debt and EBITDA are adjusted for certain items as defined in the loan agreement. As shown above, Akastor was below the threshold level of 1.5 for Interest Coverage Ratio (ICR) covenant as of December 31, 2016. On March 1, 2017, Akastor signed an agreement with its bank syndicate to replace its ICR covenant with a nominal consolidated EBITDA amount until Q2 2018 and to be allowed to use the existing Revolving Credit Facilities to make acquisitions for up to NOK 1.0 billion under certain conditions. In addition, the minimum liquidity amount was reduced to NOK 500 million. The nominal consolidated EBITDA amount is adjusted for certain items as defined in the agreement; however does not share the same definition as ICR covenant. The nominal consolidated EBITDA covenant has been agreed as follows: Amounts in NOK million 2016 2017 2018 Q1 Q2 150 325 150 425 Q3 175 Q4 150 225 The actual nominal consolidated EBITDA as of Q4 2016 was above minimum covenant amount of NOK 150 million. The covenants are monitored on a regular basis by the Akastor Treasury department to ensure compliance with the loan agreements. On the basis of the new covenants and its forecasts, management believes that the risk of the new covenant being breached is low and that the group will continue as a going concern for the foreseeable future. Note 31 | Financial risk management and exposures The group is exposed to a variety of financial risks: currency risk, interest currency of the group company. The group’s exposure to currency risk is rate risk, price risk, credit risk, liquidity risk and capital risk. The market risks primarily to USD, EUR, GBP and BRL but also several other currencies. affect the group’s income or the value of financial instruments held. The Akastor’s policy requires business units to mitigate currency exposure in objective of financial risk management is to manage and control financial any project. Akastor Treasury department manages internal exposures risk exposures and thereby increase the predictability of earnings and by entering into forward contracts or currency options with the financial minimize potential adverse effects on the group’s financial performance. market place. Akastor has a large number of contracts involving foreign Akastor group uses financial derivative instruments to hedge certain currency exposures and the currency risk policy has been well-established risk exposures and aims to apply hedge accounting whenever possible for many years. in order to reduce the volatility resulting from the periodic mark-to- market revaluation of financial instruments in the income statement. Risk For segment reporting purposes, each business unit designates all management is performed in every project. It is the responsibility of the currency hedge contracts with Akastor Treasury as cash flow hedge, project managers, in cooperation with Akastor Treasury, to identify, evaluate fair value hedge, net investment hedge or identified and separated as an and hedge financial risks under policies approved by the Board of Directors. embedded derivative. External foreign exchange contracts are designated The group has well-established principles for overall risk management, as at group level as hedges of currency risk on a gross basis. More than 80 well as policies for the use of derivatives and financial investments. There percent of the exposure value either qualify for hedge accounting or are have not been any changes in these policies during the year. embedded derivatives. Non-qualifying hedges are adjusted at group level Currency risk and included in the “unallocated” part of the segment reporting. See note 33 Derivative financial instruments for information regarding the The group operates internationally and is exposed to currency risk accounting treatment of hedging and embedded derivatives. on commercial transactions, recognized assets and liabilities and net investments in foreign operations. Commercial transactions and Currency exposures from investments in foreign currencies are only recognized assets and liabilities are subject to currency risk when payments hedged when specifically instructed by management. As of December 31, are denominated in a currency other than the respective functional 2016, Akastor had no active net investment hedges. Annual Report 2016 | Financials and Notes65 Exposure to currency risk Estimated forecasted receipts and payments in the table below are calculated based on the group’s hedge transactions through the Akastor Treasury department. These are considered to be the best estimate of the currency exposure. The net exposure is managed by Akastor Treasury that is allowed to hold positions within an approved trading mandate. This mandate is closely monitored and reported on a daily basis to the management. Amounts in million Bank Intercompany loans External loans Balance sheet exposure Estimated forecast receipts from customers Estimated forecast payments to vendors Cash flow exposure Forward exchange contracts Net exposure Sensitivity analysis 2016 2015 USD EUR GBP BRL USD EUR GBP BRL (68) 178 (139) (29) 382 (171) 212 (271) (88) (21) (9) - (29) 4 (12) (8) 38 1 (6) (13) - (19) 5 (1) 4 14 - - 148 - 148 169 - 169 (169) 148 (106) 571 (125) 341 1 086 (471) 615 (952) 4 (23) (41) - (63) 22 (72) (50) 113 - (27) (15) - (42) 3 (12) (9) 50 - - 136 - 136 365 (15) 350 (350) 136 A strengthening of EUR, USD, GBP and BRL against NOK as of December 31 would have affected the measurement of financial instruments denominated in a foreign currency and increased (decreased) equity and income statement by the amounts shown below. This analysis is based on foreign currency exchange rate variances that the group considered to be reasonably possible at the end of the reporting period. The analysis assumes that all other variables, in particular interest rates, remain constant and ignores any impact of forecast sales and purchases. Figures in the table below only include the effect in income statement and equity for change in currency regarding financial instruments and do not include effect from operating cost and revenue. Amounts in NOK million USD (15 percent weakening of NOK) EUR (15 percent weakening of NOK) GBP (15 percent weakening of NOK) BRL (15 percent weakening of NOK) 2016 2015 Profit (loss) before tax Equity Increase (decrease) Profit (loss) before tax Equity Increase (decrease) (278) (209) - 1 (24) 15 (6) (24) (529) 56 17 (36) (448) 91 23 (36) A 15 percent strengthening of the NOK against the above currencies as of December 31 would have had the equal but opposite effect on the above amounts, on the basis that all other variables remain constant. The sensitivity analysis does not include effects on the consolidated result and equity from changed exchange rates used for consolidation of foreign subsidiaries. The primary currency-related risk is the risk of reduced competitiveness abroad in the case of a strengthened NOK. This risk relates to future commercial contracts and is not included in the sensitivity analysis above. Interest rate risk The group’s interest rate risk arises from interest-bearing borrowings. Borrowings issued at variable rates expose the group to cash flow interest rate risk. Borrowings issued at fixed rates expose the group to fair value interest rate risk. However, as these borrowings are measured at amortized cost, interest rate variations do not affect profit and loss when held to maturity. As the group has no significant interest-bearing operating assets, operating income and operating cash flows are substantially independent of changes in market interest rates. An increase of 100 basis points in interest rates during 2016 would have increased (decreased) equity and profit and loss by the amounts shown on the table below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Annual Report 2016 | Financials and Notes66 Effect of increase of 100 basis points in interest rates on profit (loss) before tax Amounts in NOK million Cash and cash equivalents Non-current interest-bearing receivables Current interest-bearing receivables Borrowings Cash flow sensitivity (net) 2016 2015 4 1 1 (38) (31) 9 1 1 (52) (41) A decrease of 100 basis points in interest rates during 2016 would have period. Such assessments are based on credit ratings, income statement had the equal but opposite effect on the above amounts, on the basis that and balance sheet reviews and using credit assessment tools available (e.g. all other variables remain constant. There are no effects on equity as there Dun & Bradstreet and Credit Watch). Sales to customers are settled in are no interest swaps. Guarantee obligations cash. Based on estimates of incurred losses in respect of trade and other The group has provided the following guarantees on behalf of wholly receivables, the group establishes a provision for impairment losses. owned subsidiaries as of December 31, 2016 (all obligations are per date Provisions for loss on debtors are based on individual assessments. of issue): Provisions for loss on receivables were NOK 107 million in 2016 (NOK 120 million in 2015). Revenues are mainly related to large and long- Financial guarantees related to project performance on behalf of term projects closely followed up in terms of payments up front and in group companies are NOK 16.2 billion (NOK 24 billion in 2015). accordance with agreed milestones. Normally, lack of payments is due to disagreements related to project deliveries and is solved together with the Financial parent company indemnity guarantees for fulfillment of customer or escalated to the local authority. lease obligations are NOK 5.4 billion (NOK 4.4 billion in 2015). Financial guarantees including counter guarantees for bank/ risk. The maximum exposure to credit risk at the reporting date equals surety bonds and guarantees for pension obligations to the book value of each category of financial assets, see carrying amounts employees are NOK 2.4 billion (NOK 3.5 billion in 2015). in note 34 Financial instruments. The group does not hold collateral as At the reporting date, there were no significant concentrations of credit Although guarantees are financial instruments, they are considered contingent obligations and the notional amounts are not included in the Liquidity risk security. financial statements. Some of the guarantee obligations are on behalf of Liquidity risk is the risk that the group will encounter difficulty in meeting related parties to Akastor, see more information in note 35 Related parties. the obligations associated with its financial liabilities. The group manages its liquidity to ensure that it will always have sufficient liquidity reserves to Price risk meet its liabilities when due. The group is exposed to fluctuations in market prices both in the investment portfolio used in the pension benefit plan and in the operating Prudent liquidity risk management includes maintaining sufficient cash, businesses related to individual contracts. The investment portfolio is the availability of funding from an adequate amount of committed credit limited. facilities and the ability to close out market positions. Due to the dynamic nature of the underlying businesses, Akastor Treasury maintains flexibility The businesses may be exposed to changes in market price for raw in funding by maintaining availability under committed credit lines. materials, equipment and development in wages. This is managed in the bid process by locking in committed prices from vendors as basis for offers The group policy for the purpose of optimizing availability and flexibility to customers or through escalation clauses with customers. of cash within the group is to operate centrally managed cash pooling Credit risk arrangements. Such arrangements are either organized with a bank as a service provider, or as a part of the operation of Akastor Treasury. An Credit risk is the risk of financial losses to the group if customer important condition for the participants (business units) in such cash or counterparty to financial investments/instruments fails to meet pooling arrangements is that the group as an owner of such pools is contractual obligations, and arise principally from investment securities financially viable and is able to prove its capability to service its obligations and receivables. Investment securities and derivatives are only traded concerning repayment of any net deposits made by business units. against approved banks. All approved banks are participants in the Akastor Management monitors rolling weekly and monthly forecasts of the group’s loan syndicate and have investment grade ratings. Credit risk related liquidity reserve on the basis of expected cash flow. to investment securities and derivatives is therefore considered to be insignificant. Assessment of credit risk related to customers and subcontractors is an important requirement in the bid phase and throughout the contract Annual Report 2016 | Financials and Notes67 Financial liabilities and the period in which they mature Amounts in NOK million Note Book value Total cash flow 1) 6 months and less 6–12 months 1–2 years 2–5 years More than 5 years 2016 Borrowings excl. financial lease 2) Financial lease Other non-current liabilities Net derivative financial instruments Trade and other payables Total financial liabilities Financial guarantees 3) 2015 Borrowings excl. financial lease 2) Financial lease Other non-current liabilities Net derivative financial instruments Trade and other payables Total financial liabilities Financial guarantees 3) 25 25 26 32 29 25 25 26 32 29 1 433 1 622 57 32 1 238 4 382 3 992 1 645 74 (218) 2 550 8 043 1 491 3 155 57 32 1 238 5 973 7 822 4 086 3 508 74 (218) 2 550 10 000 7 885 1 239 173 - 93 955 2 460 873 3 811 119 - 207 1 916 6 052 864 29 175 - (34) 283 453 927 28 177 - (313) 634 527 822 56 702 29 (26) - 761 197 102 709 24 (83) - 754 1 572 149 861 16 - - 19 1 244 12 - - 1 026 1 601 1 274 4 224 131 967 24 (29) - 1 093 482 14 1 535 25 - - 1 573 4 145 1) Nominal currency value including interest. 2) Maturity of the term loans in the table reflects that loans have been reclassified to current borrowings due to covenant breach. See note 25 Borrowings for more information. 3) Financial guarantees are not recognized on the consolidated balance sheet. The undiscounted cash flows potentially payable under financial guarantees are classified on the basis of expiry date. Note 32 | Derivative financial instruments The group uses derivative financial instruments such as currency forward neutral, this table also indicates when the cash flows related to project contracts and currency options to hedge its exposure to foreign exchange expenses are expected to impact profit and loss. The majority of project arising from operational, financial and investment activities. In addition, revenues are recognized in accordance with IAS 11 using the percentage there are embedded foreign exchange forward derivatives separated of completion method. This may result in different timing of cash flows from ordinary commercial contracts. Further information regarding risk related to project revenues and revenue recognition. management policies in the group is available in note 31 Financial risk management and exposures. Derivative financial instruments are classified Instruments that do not qualify for hedge accounting include the external as current assets or liabilities as they are a part of the operating cycle. instruments used to price embedded derivatives as well as other derivative instruments used by Akastor Treasury to hedge the residual exposure of The table below presents the fair value of the derivative financial the group as part of its risk mandate. As of December 31, 2016, these instruments and a maturity analysis of the derivatives cash flows. Given instruments only include currency forwards. Akastor’s hedging policy and the assumption that the projects are cash Annual Report 2016 | Financials and Notes 68 Fair value of derivative instruments with maturity Amounts in NOK million 2016 Assets Cash flow hedges Embedded derivatives in ordinary commercial contracts Not hedge accounted Fair value adjustments to hedged assets 3) Total forward foreign exchange contracts, assets Liabilities Cash flow hedges Not hedge accounted Fair value adjustments to hedged liabilities Total forward foreign exchange contracts, liabilities 2015 Assets Cash flow hedges Embedded derivatives in ordinary commercial contracts Not hedge accounted Fair value adjustments to hedged assets 3) Total forward foreign exchange contracts, assets Liabilities Cash flow hedges Net investment hedges Embedded derivatives in ordinary commercial contracts Not hedge accounted Fair value adjustments to hedged liabilities Instruments at fair value Total cash flow 1) 6 months or less 6–12 months 1–2 years 2–5 years 2) 59 203 22 ( 15) 269 (127) (8) (166) (301) 411 707 29 600 1 746 (496) (17) (1) (234) (781) 59 203 22 (15) 269 (127) (8) (166) (301) 411 707 29 600 1 746 (496) (17) (1) (234) (781) 58 141 22 (15) 206 (123) (8) (167) (298) 223 459 29 593 1 304 (487) (17) (1) (234) (772) (1 510) 2 34 - - 35 (2) - 1 (1) 148 176 - 6 330 (8) - - - (9) (17) - 28 - - 28 (2) - - (2) 40 43 - 1 84 (1) - - - - (1) - - - - - - - - - - 29 - - 29 - - - - - - Total forward foreign exchange contracts, liabilities (1 528) (1 528) 1) Cash flows from matured derivatives are translated to NOK using the exchange rates on the balance sheet date. 2) No derivatives with maturity later than five years. 3) Fair value of settled derivatives not yet booked in the income statement are recognized in balance sheet and will be reclassified to the income statement over the next years as the projects progress. Annual Report 2016 | Financials and Notes 69 Foreign exchange derivatives the countries involved in the cross-border transaction. The embedded Akastor Treasury hedges the group’s future transactions in foreign derivatives represent currency exposures, which is hedged against currencies with external banks. Approximately 80 percent of the exposure external banks. Since the embedded derivatives are measured and to foreign exchange variations in future cash flows are related to a few classified in the same way as their hedging derivatives, they will have an large projects. The currency exposure in these projects has been hedged almost equal, opposite effect to profit and loss. In the table above, the back-to-back in order to meet the requirements for hedge accounting. derivatives hedging the embedded derivatives are included in Forward They are either subject to hedge accounting or separated embedded foreign exchange contracts - not hedge accounted. derivatives. All other hedges are not designated as IAS 39 hedges and will have an effect on profit or loss. Hedges qualifying for hedge accounting are The hedged transactions in foreign currency that are subject to cash flow classified as cash flow hedges (hedges of highly probable future revenues hedge accounting are highly probable future transactions expected to and/or expenses). occur at various dates during the next one to four years, depending on progress in the projects. Gains and losses on forward foreign exchange Embedded derivatives are foreign exchange derivatives separated from contracts are recognized in other comprehensive income and reported construction contracts. The reason for separation is that the agreed as hedging reserve in equity until they are recognized in the income payment is in a currency different from any of the major contract parties’ statement in the period or periods during which the hedged transactions own functional currency, or that the contract currency is not considered affect the income statement. to be commonly used for the relevant economic environment defined as Unsettled cash flow hedges’ impact on profit and loss and equity (not adjusted for tax) Amounts in NOK million 2016 Forward exchange contracts (cash flow hedges) 2015 Forward exchange contracts (cash flow hedges) Fair value of all hedging instruments Recognized in profit and loss Deferred in equity (the hedge reserve) (67) (85) 5 (104) (72) 19 The value of the hedge reserve is before tax to allow comparison with recognized in the income statement in accordance with progress. the value of the hedging derivatives; this value does not include deferred Consequently, NOK 5 million (negative NOK 104 million in 2015) of the settlements related to matured instruments. value of the forward contracts have already affected the income statement indirectly as revenues and expenses are recognized based on updated The purpose of the hedging instrument is to secure a situation where forecasts and progress. The negative NOK 72 million (positive NOK 19 the hedged item and the hedging instrument together represent a million in 2015) that are currently recorded directly in the hedging reserve, predetermined value independent of fluctuations of exchange rates. will be reclassified to income statement over the next years. Revenue and expense on the underlying construction contracts are Annual Report 2016 | Financials and Notes70 Note 33 | Financial instruments The table below lists the group’s financial instruments, both assets and Level 2 – fair values are based on price inputs other than quoted liabilities. Financial instruments measured at fair value are classified by prices derived from observable market transactions in an active market the levels in the fair value hierarchy. All other financial instruments are for identical assets or liabilities. Level 2 includes currency or interest classified by the main group of instruments as defined in IAS 39. It does derivatives and interest bonds, typically when the group uses forward not include fair value information for financial assets and financial liabilities prices on foreign exchange rates or interest rates as inputs to valuation not measured at fair value if the carrying amounts are a reasonable models. approximation of fair value. For financial instruments measured at fair value, the levels in the fair value hierarchy are as shown below. Level 3 - Fair values are based on unobservable inputs, mainly based on internal assumptions used in the absence of quoted prices from an active Level 1 – fair values are based on prices quoted in an active market for market or other observable price inputs. identical assets or liabilities. Amounts in NOK million 2016 Loans and receivables Cash and cash equivalents Current interest-bearing receivables Trade and other receivables Non-current interest-bearing receivables Available for sale Other investments – equity securities 1) Fair value – hedging instruments Derivative financial instruments Fair value through P&L Deferred and contingent consideration Financial assets Other financial liabilities Non-current borrowings 2) Credit facility and other current borrowings 3) Other non-current liabilities Trade and other payables Fair value – hedging instruments Derivative financial instruments Fair value through P&L Deferred settlement obligations Financial liabilities Note Book value Financial instruments measured at fair value Level in fair value hierarchy 23 17 22 17 487 15 2 113 51 121 121 Level 3 32 269 269 Level 2 103 3 159 103 493 Level 3 25 25 26 29 32 (1 494) (1 567) Level 2 Level 2 (1 494) (1 560) (48) (1 131) (301) (301) Level 2 26, 29 (116) (116) Level 3 (4 650) (3 377) Annual Report 2016 | Financials and Notes Amounts in NOK million 2015 Loans and receivables Cash and cash equivalents Non-current interest-bearing receivables Trade and other receivables Current interest-bearing receivables Available for sale Shares in EZRA Holding Ltd Other investments – equity securities 1) Fair value – hedging instruments Derivative financial instruments Fair value through P&L Deferred and contingent consideration Financial assets Other financial liabilities Non-current borrowings 2) Credit facility and other current borrowings 3) Other non-current liabilities Trade and other payables Deferred settlement obligations Fair value – hedging instruments Derivative financial instruments Fair value through P&L Deferred settlement obligations Financial liabilities 71 Note Book value Financial instruments measured at fair value Level in fair value hierarchy 23 17 22 17 19 19 32 25 25 26 29 29 32 29 563 84 3 722 72 141 120 141 120 Level 1 Level 3 1 746 1 746 Level 2 67 6 514 67 2 074 Level 3 (1 583) (4 076) Level 2 Level 2 (1 583) (4 054) (74) (2 537) (8) (1 528) (1 528) Level 2 (6) (6) Level 3 (9 789) (7 193) 1) Investments in level 3 in the hierarchy relate to equity securities with no active market. These investments are measured at cost since this is considered to be the best estimate of fair value. All available for sale investments are designated as such upon initial recognition. 2) For credit facilities and other short-term loans with floating interest, notional amounts are used as approximation of fair values. 3) Portfolio of bonds, obligations and certificates derived from observable market transactions in an active market for identical assets. There are no financial assets or liabilities held for trading. Reconciliation of Level 3 assets and liabilities Amounts in NOK million Balance as of January 1, 2015 Settlements Net gain (loss) in the income statement Balance as of December 31, 2015 Additions Unwind of discount Net gain (loss) in the income statement Currency translation difference Balance as of December 31, 2016 Assets Liabilities 210 - (23) 187 237 10 (216) 5 223 (56) 4 47 (6) (121) (1) 12 - (116) The assets and liabilities reported as Level 3 in the fair value hierarchy relate to contingent considerations from business acquisitions and disposals where the final amounts to be paid or received depend on future earnings in the acquired and disposed companies. The recognized amounts are determined based on recent forecasts and strategy figures for these entities, thus the final realized values are sensitive to the above inputs as driven by market conditions. The credit exposure on the Level 3 asset is limited to the amount recognized and due to the nature of the arrangement the credit risk is not considered to be significant. Annual Report 2016 | Financials and Notes 72 Note 34 | Group companies This note gives an overview of entities that are subsidiaries of Akastor ASA. For information about other investments in the group, refer to note 18 Equity- accounted investees and note 19 Other investments. If not stated otherwise, ownership equals share of voting rights. Group companies as of December 31 Company Akastor ASA MHWirth MHWirth Pty Ltd MHWirth Canada Inc MHWirth Offshore Petroleum Engineering (Shanghai) Co Ltd MHWirth GmbH MHWirth (India) Pvt Ltd MHWirth Sdn Bhd Drilltech AS Maritime Promeco AS MHWirth AS MHWirth Singapore Engineering Management Pte Ltd 1) MHWirth (Singapore) Pte Ltd MHWirth UK Ltd MHWirth FZE MHWirth Inc MHWirth Gas & Oil- Field Equipment & Services LLC 3) AKOFS Offshore AKOFS 1 AS AKOFS 2 AS AKOFS 3 AS AKOFS 2 Services AS AKOFS Offshore AS AKOFS Offshore Operations AS AKOFS 4 AS AKOFS Wayfarer AS 2) AKOFS Angola Limited KOP Surface Products PT KOP Surface Products KOP Surface Products Sdn Bhd KOP Surface Products Nigeria Ltd KOP Surface Products Singapore Pte Ltd KOP Surface Products (Services) Pte Ltd KOP Surface Products (Services) UK Ltd Step Oiltools 3) Step Oiltools (Australia) Pty Ltd Step Oiltools Limited Step Oiltools GmbH PT Step Oiltools Step Oiltools LLP Step Oiltools BV Step Oiltools AS Location Fornebu Country Norway Ownership (%) 2016 2015 Argenton Newfoundland Shanghai Erkelenz Mumbai Kuala Lumpur Kristiansand Kristiansand Kristiansand Singapore Singapore Aberdeen Dubai Houston Abu Dhabi Oslo Oslo Oslo Oslo Oslo Oslo Oslo Oslo Luanda Jakarta Kuala Lumpur Ikoyi - Lagos Singapore Singapore Aberdeen Australia Canada China Germany India Malaysia Norway Norway Norway Singapore Singapore UK UAE USA UAE Norway Norway Norway Norway Norway Norway Norway Norway Angola Indonesia Malaysia Nigeria Singapore Singapore UK Perth Australia Grand Cayman Cayman Islands Bad Fallingbostel Jakarta Aktau Amsterdam Stavanger Germany Indonesia Kazakhstan Netherlands Norway 100 100 100 100 100 100 100 100 100 100 100 100 100 100 49 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 76 76 76 76 76 76 76 100 100 100 100 100 100 100 100 100 - 100 100 100 100 49 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 76 76 76 76 76 76 76 Annual Report 2016 | Financials and Notes Company Location Country Step Oiltools (Myanmar) Ltd Step Oiltools Services LLC Step Oiltools (M) Sdn Bhd Step Oiltools LLC Step Oiltools Pte Ltd Step Oiltools (Thailand) Ltd Step Oiltools (UK) Ltd Step Oiltools FZE Other companies Zoetermeer Process Belgium NV/SA AK Operações do Brasil Ltda Aker Cool Sorption (Beijing) Technology Co Ltd Cool Sorption A/S Akastor Mauritius Ltd Zoetermeer Process BV BTA Technology AS Akastor AS Tromsøruffen AS 4) Akastor Real Estate AS Aker Cool Sorption Siam Ltd Frontica Business Solutions Ltd AK Pharmaceuticals LLC AK Willfab Inc Frontica Group AS Frontica Global Employment Ltd Fjords Processing AS First Geo AS Frontica Advantage 5) Frontica Advantage Pty Ltd 6) Frontica Advantage AS Frontica Advantage Group AS Frontica Advantage Ltd Frontica DC Trustees Ltd Frontica Advantage Inc Yangon Muscat Kuala Lumpur Moscow Singapore Bangkok Aberdeen Dubai Antwerp Rio de Janeiro Beijing Glostrup Port Louis Zoetermeer Fornebu Fornebu Fornebu Fornebu Rayong London Houston Williamsport Fornebu Limassol Fornebu Stavanger Melbourne Bergen Fornebu London London Houston Myanmar Oman Malaysia Russia Singapore Thailand UK UAE Belgium Brazil China Denmark Mauritius Netherlands Norway Norway Norway Norway Thailand UK USA USA Norway Cyprus Norway Norway Australia Norway Norway UK UK USA 1) New companies in 2016 2) Merged into AKOFS 3 AS 3) No non-controlling interest is recognized due to applying the anticipated acquisition method 4) Merged into Akastor AS 5) Frontica Advantage entities are classified as held for sale as of December 31, 2016 6) Liquidated in 2016 73 Ownership (%) 2016 2015 76 51 76 76 76 76 76 76 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 76 51 76 76 76 76 76 76 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 Annual Report 2016 | Financials and Notes74 Company Disposed Entities 7) MPO Austria Holding GmbH Managed Pressure Operations International Limited (Cyprus) PT Managed Pressure Operations (Indonesia) Managed Pressure Operations International AS Managed Pressure Operations Pte Ltd (Singapore) MPO Research Technologies Pte Ltd Managed Pressure Operations FZE (Dubai) Managed Pressure Operations LLC (USA – TX) Frontica Business Solutions Sdn Bhd Frontica Business Solutions AS Frontica Business Solutions Inc Fjords Processing Australia Pty Ltd Fjords Processing Canada Inc Aker Midsund Engineering s.r.o Fjords Processing France SAS Fjords Processing 1 AS Fjords Processing International AS Midsund Bruk AS Midsund Bruk 1 AS Fjords Processing UK Ltd Opus Maxim Ltd Opus Plus Ltd Fjords Processing Inc Fjords Processing Colombia SAS PT Aker Solution E & C Indonesia 7) Entities are referred to by company names before the disposals. Note 35 | Related parties Location Country Ownership (%) 2016 2015 Vienna Limassol Jakarta Kristiansand Singapore Singapore Dubai Houston Kuala Lumpur Fornebu Houston Welshpool Newfoundland Prague Vincennes Cedex Fornebu Fornebu Midsund Fornebu Aberdeen Guildford Orkney Houston Bogota Jakarta Austria Cyprus Indonesia Norway Singapore Singapore UAE USA Malaysia Norway USA Australia Canada Czech Republic France Norway Norway Norway Norway UK UK UK USA Colombia Indonesia - - - - - - - - - - - - - - - - - - - - - - - - - 100 100 100 100 100 100 100 100 100 100 100 100 100 98 100 100 100 100 100 100 100 100 100 100 100 Related party relationships are those involving control (either direct or Remunerations and transactions with directors and executive officers are indirect), joint control or significant influence. Related parties are in a summarized in note 36 Management remunerations. position to enter into transactions with the company that would not be undertaken between unrelated parties. All transactions with related The largest shareholder of Akastor, Aker Kværner Holding AS, is controlled parties in Akastor have been based on arm’s length terms. by Aker ASA (70 percent) which in turn is controlled by Kjell Inge Røkke and his family through TRG Holding AS and The Resource Group TRG Akastor ASA is a parent company with control of around 70 companies AS. The Chief Executive Officer of Akastor, Kristian Monsen Røkke, is a around the world. These subsidiaries are listed in note 34 Group companies. board member of Aker ASA and TRG Holding AS. Aker ASA also holds 8.5 Any transactions between the parent company and the subsidiaries are percent of the shares in Akastor ASA directly. All entities controlled by Aker shown line by line in the separate financial statements of the parent ASA, including Kvaerner and Aker Solutions, are considered related parties company, and are eliminated in the consolidated financial statements. to Akastor, referred as “Aker entities”. The entities controlled directly by Kjell Inge Røkke and his family through TRG Holding AS and The Resource Joint ventures are consolidated using the equity method, see note 18 Group TRG AS, are referred as “Related parties to Aker ASA”. Equity-accounted investees. Transactions between the group and these entities are shown in the table below. Annual Report 2016 | Financials and Notes Summary of transactions and balances with significant related parties Amounts in NOK million Income statement Operating revenues Other income Operating costs Net financial items Included in Net profit from discontinued operations 1) – Operating revenues – Operating costs Assets (liabilities) Trade receivables Interest-bearing receivables PPE under finance lease ( Aker Wayfarer) Non-current assets under finance lease (Aker Wayfarer) Assets held for sale Trade payables Financial lease liability (Aker Wayfarer) Liabilities held for sale 1) See note 5 for information about discontinued operations. 2016 Aker entities Joint ventures Total 2015 Aker entities Joint ventures 229 - (41) (292) 2 484 (22) 29 - 1 618 - 6 (16) (1 622) (1) - 172 - 7 - - - 50 - - - - - 229 172 (41) (285) 2 484 (22) 29 50 1 618 - 6 (16) (1 622) (1) 371 310 (200) (279) 3 851 (87) 154 - 1 313 410 - (51) (1 645) - - - 4 - 82 - - - - - - 75 Total 371 310 (200) (275) 3 851 (87) 154 82 1 313 410 - (51) (1 645) - Below are descriptions of significant related party agreements. Following commercial separation issues between subsidiaries of Aker the divestment of Frontica Business Solutions and Frontica Advantage, Solutions and Akastor. The parties also entered into an the agreements between Akastor’s related parties and Frontica will not agreement for provisioning of transitional services to and be addressed as related party transactions after the date of disposals. See from Aker Solutions following the demerger, of which most note 5 for more information about the divestment. of the services are finalized during 2016. Related party transactions with Aker entities Aker Solutions Financial guarantees: Some parent company guarantees issued on behalf of Aker Solutions entities by Akastor (as Akastor has entered into a number of agreements and arrangements with their previous parent company) were not transferred in Aker Solutions, including: connection with the demerger. Aker Solutions is liable to indemnity Akastor for any rightful claim such parent In February 2016, Aker Solutions signed five-year contracts for company guarantees and to pay a guarantee commission on delivery of staffing services, IT services and consultancy projects market terms until the guarantees are effectively transferred as well as business support services within HR, finance and to Aker Solutions or have lapsed. procurement from Frontica Advantage and Frontica Business Solutions. The amount charged for these services was NOK 2.2 Secondary joint liability: If an obligation that arose prior to the billion (NOK 3.5 billion in 2015) and is included in revenues from completion of the demerger is not satisfied by the party to discontinued operations following the divestment of Frontica which the obligation has been allocated under the demerger Business Solutions and Frontica Advantage. plan, be it Akastor or Aker Solutions, the other party will have secondary joint liability for such obligation. This statutory Various lease agreements from Akastor Real Estate AS and other liability is unlimited in time, but is limited in amount to the net Akastor companies to subsidiaries of Aker Solutions. value allocated to the non-defaulting party in the demerger. Following the demerger between Aker Solutions and Akastor in Kvaerner 2014, several arrangements are still valid: Some parent company guarantees issued on behalf of Kvaerner entities by Akastor (as their previous parent company) were not transferred in Agreements addressing separation issues: Aker Solutions connection with the demerger of Kvaerner in 2011. The parent company and Akastor entered into several agreements addressing guarantees provided by Akastor ASA on behalf of Kvaerner entities are various separation issues between the two parties, including NOK 5.5 billion as of December 31, 2016. Kvaerner is liable to indemnity but not limited to a main separation agreement, a technology Akastor for any rightful claim such parent company guarantees and to agreement concerning ownership and licensing rights to pay a guarantee commission on market terms until the guarantees are intellectual property and know-how as well as several bilateral effectively transferred to Kvaerner or have lapsed. license agreements and various agreements addressing Annual Report 2016 | Financials and Notes76 In November 2016, Kvaerner signed five-year contracts for delivery of the loan was converted to the equity of the company. The ownership of the staffing services, IT services and consultancy projects as well as business joint venture remains unchanged. As of December 31, 2016, the carrying support services within HR, finance and procurement from Frontica amount of the shareholder’s loan from Akastor to DOF Deepwater AS is Advantage and Frontica Business Solutions. The amount charged for NOK 50 million (NIBOR 6 months+ 3.6 percent). these services in 2016 was NOK 180 million (NOK 301 million in 2015) and is included in revenues from discontinued operations following the Akastor ASA has issued financial guarantees in favor of banks related to divestment of Frontica Business Solutions and Frontica Advantage. financing of the five vessels in DOF Deepwater. The liability is capped at 50 percent of drawn amount. The guarantee is NOK 533 million as of OCY Wayfarer AS (Ocean Yield) December 31, 2016 (NOK 589 million in 2015). OCY Wayfarer AS and AKOFS 3 AS, a wholly owned subsidiary in Akastor, have entered into a long term lease contract for the Aker Wayfarer Avium Subsea AS vessel until 2027 with purchase options on 3 different dates. This lease In November 2016, Akastor and Mitsui established a joint venture, Avium agreement is recognized as a finance lease and the finance lease obligation Subsea AS, with 50/50 ownership. The joint venture acquired both the as of December 31, 2016 amounts to NOK 1 622 million, of which NOK 322 Skandi Santos hull from DOF Subsea Rederi AS and the Skandi Santos million is presented as current liability, representing the lease payment to topside equipment from AKOFS Offshore. The sale of topside equipment OCY Wayfarer AS in the next twelve months. The carrying amount of the resulted in an accounting gain of NOK 172 mill, representing 50% of the vessel under finance lease is NOK 1 618 million as of December 31, 2016. total gain on sale. The joint venture then entered into a lease agreement with AKOFS Offshore corresponding to the remaining Skandi Santos Agreements with related parties to Aker ASA contract duration between AKOFS Offshore and Petrobras. Aker Maritime Finance AS In December 2015, Akastor sold its real estate portfolio comprising of eight Akastor AS has issued a financial parent company indemnity guarantee properties to Aker Maritime Finance AS, a company then owned by Aker of NOK 970 million and a financial guarantee of NOK 41 million in favor ASA and later sold to Kjell Inge Røkke and The Resource Group TRG AS in of finance institutions for fulfillment of lease obligations related to Avium 2016. Following the divestment, MHWirth AS, a wholly owned subsidiary Subsea AS. of Akastor, entered into long-term lease agreements with subsidiaries of Aker Maritime Finance AS for properties in Kristiansand in Norway. The Other related parties annual lease payment is approximately NOK 22 million for a lease period Aker Pensjonskasse of 19 years starting October 1, 2015, with options for renewal. Aker Pensjonskasse was established by Aker ASA to manage the retirement plan for employees and retirees in Akastor as well as related AK Wilfab Inc, a wholly owned subsidiary of Akastor, is together with Aker companies. Akastor holds 93.4 percent of the paid-in capital in Aker Aker Solutions Inc and Aker Maritime Finance AS sponsoring the US Pensjonskasse and Akastor’s share of paid-in equity was NOK 120 million pension plan named the Kvaerner Consolidated Retirement Plan. Aker at the end of 2016 (unchanged from 2015). Akastor’s premium paid to Maritime Finance AS holds two thirds of the liability of the sponsors for Aker Pensjonskasse amounts to NOK 13 million in 2016 (NOK 15 million the underfunded element of the plan, while the ultimate liability for the in 2015). remaining one third lies with Akastor. Fornebuporten AS Even though Akastor owns 93.4 percent in Aker Pensjonskasse, the ownership does not constitute control since Akastor does not have the Akastor has entered into a long-term lease agreement with Fornebuporten power to govern the financial and operating policies so as to obtain AS, an associated company of The Resource Group TRG AS, starting benefits from the activities in this entity. August 31, 2015 for headquarter offices at Fornebu. The duration of the contract is 10 years, with two additional five-year options. Grants to employee representative’s collective fund Related party transactions with joint ventures that regulate use of grants from Akastor ASA for activities related to DOF Deepwater AS professional development. The grant in 2016 was NOK 510 000 (NOK Aker ASA has signed an agreement with employee representatives During 2016, the shareholder’s loan to DOF Deepwater AS was increased 595 000 in 2015). by NOK 114 million to NOK 200 million and thereafter NOK 150 million of Annual Report 2016 | Financials and Notes77 Note 36 | Management remunerations Board of directors The board of directors did not receive any other fees than those listed in the table below in 2016 or 2015, except for employee representatives who had market based salaries. The members of the board of directors have no agreements that entitle them to any extraordinary remuneration. The fees in the table below represent what is recognized as expenses in the income statement based on assumptions about fees to be approved at the general assembly rather than what has been paid in the year. Amounts in NOK Kjell Inge Røkke Frank Ove Reite Øyvind Eriksen Lone Fønss Schrøder Kathryn Baker Sarah Ryan 1) Jannicke Sommer-Ekelund Stig Faraas Asbjørn Michailoff Pettersen Siv K. Hestad Stian Sjølund Total 2016 2015 Audit Committee Board fees Audit Committee Board fees - - - 205 000 115 000 - - - 115 000 - - - 600 000 340 000 440 000 340 000 434 800 170 000 63 750 170 000 85 000 21 250 - - - 205 000 115 000 - - - 115 000 - - 255 000 150 000 535 000 440 000 340 000 445 600 170 000 170 000 170 000 - - 435 000 2 664 800 435 000 2 675 600 1) Board fees in 2016 and 2015 include an allowance of NOK 12 500 per meeting per physical attendance for board members residing outside the Nordic countries. According to policy in Aker, fees to directors employed in Aker companies Akastor comprises the company’s CEO, Kristian Monsen Røkke, CFO Leif are paid to the Aker companies, not to the directors in person. Therefore, H. Borge, Investment Director Paal E. Johnsen and Investment Director board fees for Øyvind Eriksen were paid to Aker ASA. Board fee for Kjell Karl Erik Kjelstad. The company practices standard employment contracts Inge Røkke was paid to The Resource Group. and standard terms and conditions regarding notice period and severance Audit Committee pay for the Akastor management. Kristian Monsen Røkke and Paal E. Johnsen have a three months’ notice period as a part of their employment Akastor has an audit committee comprising three of the directors, which contracts, while Borge and Kjelstad both have six months’ notice periods. held 11 meetings in 2016. As of December 31, 2016, the audit committee comprises Lone Fønss Schrøder (chairperson), Kathryn M. Baker and Compensation to the executive management has a fixed element which Asbjørn Michailoff Pettersen. includes a base salary which pursuant to the company’s benchmarking is competitive with other investment companies. In addition, the executive Guidelines for remuneration to the members of the executive management has variable remuneration, as further described below. All management of Akastor variable pay shall be subject to a cap. The main purpose of the executive remuneration is to encourage a strong and sustainable performance-based culture, which supports growth in The salary figures for the remuneration for the executive management shareholder value. As of December 31, 2016, the executive management of represent what has been expensed in the year. Annual Report 2016 | Financials and Notes 78 Amounts in NOK Job title Base salary Variable pay 5) Other benefits 1), 2) Total taxable remuneration Pension benefit earned/ cost to company 3) 2016 Kristian Monsen Røkke Leif Hejø Borge 4) Karl Erik Kjelstad 4) CEO CFO 3 531 868 4 037 600 3 504 342 4 261 870 Investment director 3 640 699 4 316 900 Paal E. Johnsen Investment director 2 990 055 3 224 388 9 992 43 688 28 304 11 191 7 579 460 7 809 900 7 985 903 6 225 634 Total 13 666 965 15 840 758 93 175 29 600 897 2015 Frank Ove Reite 6) Kristian Monsen Røkke 7) Leif Hejø Borge 4) Karl Erik Kjelstad 4) Paal E. Johnsen 8) Total CEO CEO CFO 2 519 166 - 1 540 735 914 708 3 446 646 1 331 143 Investment director 3 581 353 1 524 044 Investment director 1 947 355 426 888 13 035 255 4 196 784 30 446 3 291 21 848 29 920 7 861 93 366 2 549 612 2 458 733 4 799 638 5 135 317 2 382 104 17 325 404 84 260 135 849 132 654 85 396 438 157 45 765 33 963 136 592 133 189 41 214 390 722 1) Other benefits include insurance agreements, such as membership in the standard employee scheme and an additional executive group life and disability insurance. 2) Other benefits include salary in notice period and severance pay for management where employment is terminated. 3) Pension benefits include the standard employee pension scheme, a pension compensation scheme (for transfer from benefit to contribution scheme), a disability pension scheme and certain management pension rights related to the wound up schemes and early retirement schemes. 4) Variable pay includes deferred variable payments from previous years, which are paid out on the condition of continued employment. 5) See below for further description of principles for performance based remuneration. 6) For the period between January 1 and August 9, 2015. 7) For the period between August 1 and December 31, 2015. 8) For the period between May 18 and December 31, 2015.. Benefits Further, the executive management may be offered additional variable pay The executive management participates in the standard employee, arrangements going forward which differs from the ordinary variable pay pension and insurance plan applicable to all employees in the company. program described above. The variable pay arrangements offered to the No executive personnel in Akastor has performance based pension plans executive management may in its entirety be linked to the development of and there are no current loans, prepayments or other forms of credit from the company’s share price. The executive management may from time to the company to its executive management. No members of the executive time be granted a discretionary variable pay. There was no discretionary management are part of any option- or incentive programs other than pay paid out for 2015 or 2016, but incentive bonuses for transactions what is described in this note. completed in 2016 may be granted later. Performance based remuneration Share purchase program for Akastor’s executive management team In addition to the fixed compensation set out above, the executive The company had no regular share purchase program in 2016. Should the management participates in a variable pay program. The objective of the board of directors decide to launch a share purchase program in 2017, program is to incentivize the management to contribute to sound financial the executive management will be invited to participate. Had a regular results for the company as well as executing leadership in accordance with share purchase program been executed in 2016, the CEO would have the company’s values and business ethics. The variable pay program potential been entitled to purchase up to 200 000 treasury shares, as informed in is maximized to 100 percent of the annual base salary. The payments under the stock exchange announcement on 16 July 2015. All shares purchased the variable pay program are determined based on three components: under the programs are subject to a three year lock-up period under Development of Akastor ASA’s share price executive management may also be offered to take part in separate share purchase programs, such as programs with a higher maximum purchase Delivery of certain key financial and operational targets for Akastor amount than for other managers. which the acquired shares may not be sold or otherwise disposed of. The Delivery of personal performance objectives during the year Directors’ and executive management’s shareholding For the CEO, payments under the variable pay program are determined members of the executive management (and their related parties) as of The following number of shares is owned by the directors and the based on development of Akastor ASA’s share price only. Since the December 31: variable pay program for the executive management is partly linked to the development of the Akastor ASA share price, it requires approval by the general meeting and the guidelines will thereafter be binding. Annual Report 2016 | Financials and Notes Kristian Monsen Røkke Leif Hejø Borge Karl Erik Kjelstad Paal E. Johnsen Frank Ove Reite Lone Fønss Schrøder Kathryn Baker Sarah Ryan Jannicke Sommer-Ekelund Asbjørn Michailoff Pettersen Stian Sjølund 79 2016 2015 200 000 250 000 123 074 - 200 000 4 400 45 683 5 000 839 3 050 - 200 000 142 775 123 074 - 200 000 4 400 - - 839 3 050 - Job title CEO CFO Investment Director Investment Director Chairman Deputy Chairman Director Director Director Director Director The overview includes only direct ownership of Akastor shares and does not include Øyvind Eriksen and Kjell Inge Røkke’s indirect ownership through their ownership in Aker ASA. Note 37 | Subsequent events On January 6, 2017, Akastor completed the transaction to sell Frontica’s On March 1, 2017, Akastor signed an agreement with its bank syndicate to: staffing business (Advantage) to NES Global Talent to create a combined i) replace its ICR covenant with a nominal EBITDA amount until Q2 2018; company as a global provider in staffing services to the oil and gas industry. and ii) to be allowed to use the existing RCF to make acquisitions for up Initially Akastor is holding a 15.2% economic ownership position in the to NOK 1.0 billion under certain conditions. See more information in note combined entity with potential to increase its ownership depending on 30 Capital Management. the growth in Aker controlled entities over the next three years. The estimated accounting gain is approximately NOK 385 million to be recognized in the first quarter of 2017. Frontica Advantage is presented as discontinued operations and held for sale as of December 31, 2016, see note 5 Discontinued operations. Annual Report 2016 | Financials and Notes80 Annual Report 2016 | Financials and Notes 05.b. FINANCIALS AND NOTES AKASTOR ASA Akastor ASA Akastor ASA Akastor ASA | Income statement | Statement of financial position | Statement of cash flow | Accounting principles Note 1 | Operating revenue and expenses Note 2 | Net financial items Note 3 | Tax Note 4 | Investments in group companies Note 5 | Shareholders’ equity Note 6 | Receivables and borrowings from group companies Note 7 | Other non-current interest-bearing receivables Note 8 Note 9 | Borrowings Note 10 | Guarantees Note 11 Note 12 | Related parties Note 13 | Shareholders Note 14 | Subsequent events | Financial risk management and financial instruments 81 82 83 84 85 85 86 86 86 87 87 88 89 90 90 91 91 A S A r o t s a k A | s e t o N d n a s l a c n a n F i i Akastor ASA | Income statement For the year ended December 31 Amounts in NOK million Operating revenue Operating expenses Operating profit (loss) Net financial items Profit (loss) before tax Income tax benefit (expense) Profit (loss) for the period Profit (loss) for the period distributed as follows Other equity Profit (loss) for the period 81 Note 2016 2015 2 2 3 4 15 (64) (49) 868 819 (29) 790 790 790 16 (67) (52) (1 386) (1 437) (23) (1 461) (1 461) (1 461) Annual Report 2016 | Financials and Notes82 Akastor ASA | Statement of financial position For the year ended December 31 Amounts in NOK million Assets Deferred tax asset Investments in group companies Non-current interest-bearing receivables on group companies Other non-current interest-bearing receivables Total non-current assets Current interest-bearing receivables on group companies Other receivables on group companies Derivative financial instruments Other current receivables Cash in cash pool system Total current assets Total assets Equity and liabilities Issued capital Treasury shares Share premium Other paid in capital Other equity Total equity Non-current borrowings, external Total non-current liabilities Current borrowings, external Current borrowings from group companies Group contribution, payable Other liabilities to group companies Derivative financial instruments Other current liabilities Total current liabilities Total liabilities Total equity and liabilities Note 2016 2015 4 5 7 8 7 7 11 7 6 9 9 7 11 4 5 396 2 951 2 8 353 300 1 004 453 - 135 1 892 10 245 162 (2) 2 000 2 003 (133) 4 031 1 191 1 191 4 4 499 - 61 430 29 5 023 6 214 10 245 31 4 754 2 021 84 6 890 4 150 - 1 939 38 195 6 322 13 212 162 (2) 2 000 2 003 (923) 3 241 3 577 3 577 10 4 183 42 55 2 032 72 5 903 9 971 13 212 Fornebu, March 7, 2017 | Board of Directors of Akastor ASA Frank O. Reite | Chairman Lone Fønss Schrøder | Deputy Chairman Øyvind Eriksen | Director Kathryn M. Baker | Director Sarah Ryan | Director Jannicke Sommer-Ekelund | Director Stian Sjølund | Director Asbjørn Michailoff Pettersen | Director Kristian Monsen Røkke | CEO Annual Report 2016 | Financials and Notes Akastor ASA | Statement of cash flow For the year ended December 31 Amounts in NOK million Profit (loss) before tax Adjustments for non-cash effects Impairment of receivables Group contribution Changes in other net operating assets Net cash from operating activities Payment related to increase in interest-bearing receivables Proceeds from repayment of interest-bearing receivables Net cash from investing activities Proceeds from borrowings Repayment of borrowings Changes in borrowings from group companies Changes in borrowings to group companies Proceeds from employees share purchase program Payment of group contribution Net cash from financing activities Effect of exchange rate changes on cash and cash deposits Net increase (decrease) in cash and bank deposits Cash in cash pool system at the beginning of the period Cash in cash pool system at the end of the period 1) 1) Unused credit facilities amounted to NOK 2.6 billion as of December 31, 2016 (NOK 2 billion in 2015). 83 Note 2016 2015 819 (1 437) 356 (1 000) (262) (88) (114) - (114) 421 (2 853) 514 1 986 2 (42) 27 115 (60) 195 135 1 505 - 141 209 - 29 29 1 178 (1 000) 215 (937) 2 2 (543) (304) 499 195 7 Annual Report 2016 | Financials and Notes 84 Note 1 | Accounting principles Akastor ASA (the parent company) is a company domiciled in Norway. Non-current borrowings are initially recorded at transaction value less The financial statements are presented in conformity with Norwegian attributable transaction costs. Subsequent to initial recognition, interest- Accounting Act and Norwegian generally accepted accounting principles bearing non-current borrowings are measured at amortized cost with (NGAAP). any difference between cost and redemption value being recognized in the income statement over the period of the borrowings on an effective Revenue recognition interest basis. Revenue is recognized when the service is delivered. Operating revenue is comprised mainly of income from parent company guarantees (PCG). Cash in cash pool system The PCGs are invoiced when the guarantee is issued and the income is Cash in cash pool system is the parent company’s cash as well as net recognized on a straight line basis over the lifetime of the guarantee. deposits from subsidiaries in the group’s cash pooling systems owned by Insurance commissions are recognized the year the insurance is the parent company. Correspondingly, the parent company’s current debt established. to group companies will include the same net deposits in the group’s cash Investments in subsidiaries and associates pooling system. Investments in subsidiaries and associates are accounted for using the The statement of cash flow is prepared according to the indirect method. cost method in the parent company’s accounts. The investments are valued at cost less impairment losses. Investments in subsidiaries and Share capital associates are reviewed for impairment whenever events or changes in Costs for purchase of own shares including transaction costs are accounted circumstances indicate that the carrying amount may exceed the fair value for directly against equity. Sales of own shares are performed according of the investment. to stock-exchange quotations at the time of award and accounted for as Dividends and other distributions are recognized as income the same year as they are allocated from the subsidiary. If the dividend exceeds Foreign currency increase in equity. accumulated profits in the subsidiary after the acquisition, the payment is Transactions in foreign currencies are translated at the exchange rate at treated as a reduction of the carrying amount of the investment. the date of the transaction. Monetary assets and liabilities denominated Classification in foreign currencies at the reporting date are translated to the functional currency at the exchange rate on that date. Foreign exchange differences An asset is classified as current when it is expected to be realized or is arising on translation are recognized in the income statement. intended for sale or consumption as part of the operating cycle or is expected/due to be realized or settled within twelve months after the Derivative financial instruments reporting date. Other assets are classified as non-current. Subsidiaries have entered into financial derivative agreements with the parent company to hedge their foreign exchange exposure. The A liability is classified as current when it is expected to be settled as part of parent company does not engage in hedging activities other than as a the operating cycle, the liability is due to be settled within twelve months counterparty in financial derivative agreements with the subsidiaries. In after the reporting period, or if Akastor ASA does not have an unconditional the parent company, derivatives from external banks are used to mitigate right to defer settlement of the liability for at least twelve months after the the foreign exchange exposure from the financial derivative agreements reporting period. All other liabilities are classified as non-current. with the subsidiaries. Non-current borrowings are presented as current if a loan covenant Hedge accounting is performed at Akastor group level. Refer to note 3 in breach exists at balance date. If a covenant waiver is approved subsequent Akastor’s consolidated financial statements for the description of hedge to year-end and before the approval of the financial statements, the accounting at group level. liability is presented as non-current debt to the extent maturity date is beyond one year. All financial assets and liabilities related to foreign exchange contracts are remeasured at fair value in respect to exchange rates at reporting date and Financial assets and liabilities resulting gains or losses are recorded in the income statement. Financial assets and liabilities consist of investments in other companies, trade and other receivables, interest-bearing receivables, cash and cash Tax equivalents, trade and other payables and interest-bearing borrowing. Tax expense in the income statement comprises current tax and changes The company initially recognizes borrowings and receivables on the date differences between accounting and tax values as well as any tax losses when they are originated. All other financial assets and financial liabilities carry-forward at the year end. Net deferred tax assets are recognized only are initially recognized on the trade date. to the extent it is probable that they will be utilized against future taxable in deferred tax. Deferred tax is calculated as 24 percent of temporary Trade receivables and other receivables are recognized at nominal value less provision for expected losses. Provision for expected losses is considered on an individual basis. profits. Annual Report 2016 | Financials and Notes85 Note 2 | Operating revenue and expenses Operating revenue comprises mainly NOK 12 million in income from There are no employees in Akastor ASA and hence no salary or pension parent company guarantees (NOK 12 million in 2015) and NOK 3 million related costs and also no loan or guarantees related to the executive in insurance commissions from group companies (NOK 4 million in 2015). management team. Group management and corporate staff are employed Income from parent company guarantees includes NOK 0.6 million from by other Akastor companies and costs for their services as well as other external companies and related parties (NOK 0.1 million in 2015). parent company costs are charged to Akastor ASA. Remuneration to and shareholding of managing director is described in note 36 Management remunerations in Akastor’s consolidated financial statements Fees to the auditors Amounts in NOK million Audit Total No fees related to other assurance services, tax services or non-audit services were provided. Note 3 | Net financial items Amounts in NOK million Interest income from group companies Interest expense to group companies Net interest group companies Interest income from related parties Net interest related parties Interest income Interest expense Net interest external Income on investment in subsidiary (group contribution) Impairment on receivables to group companies Impairment of receivables on related parties 7 8 Impairment of shares Other financial income Other financial expense Foreign exchange gain Foreign exchange loss Net other financial items Net financial items 2016 2015 3 3 2 2 Note 2016 2015 293 (8) 285 7 7 15 (237) (221) 1 000 (292) (64) - 72 (4) 214 (129) 797 868 336 (8) 328 4 4 12 (211) (199) - (1 265) - (240) 19 (1) 261 (294) (1 519) (1 386) Annual Report 2016 | Financials and Notes86 Note 4 | Tax Amounts in NOK million Calculation of taxable income Profit (loss) before tax Impairment of internal loans and shares Permanent differences Changes in timing differences Generated (utilized) tax loss Group contribution without tax effect Group contribution with tax effect Taxable income Taxable (deductible) temporary differences Unrealized gain (loss) on forward exchange contracts Other temporary differences Tax loss carry-forward Basis for deferred tax Tax rate Deferred tax assets Tax expense Origination and reversal of temporary differences in income statement Withholding tax paid Tax on group contribution Total tax in income statement Note 5 | Investments in group companies 2016 2015 819 292 (3) (119) - (1 000) - (11) 23 (27) (11) (15) 24% 4 (27) (2) - (29) (1 437) 1 505 (4) 60 (82) - (42) - (93) (30) - (123) 25% 31 (8) (4) (11) (23) Amounts in NOK million Akastor AS AKOFS Offshore AS 1) Total Registered office Share capital Number of shares held Percentage owner- / voting share Fornebu, Norway 1 004 1 100.00% Oslo, Norway 733 27 128 355 55.49% 2016 2015 4 191 1 205 5 396 4 191 563 4 754 1) Shareholding in AKOFS Offshore AS was increased in 2016 following conversion of loan of USD 75 million. The remaining 44.51 percent of the shares in AKOFS Offshore AS are held by Akastor AS. Accordingly, Akastor ASA owns 100 percent of the shares through direct and indirect ownership. Note 6 | Shareholders’ equity Amounts in NOK million Equity as of January 1, 2015 Profit (loss) for the period Equity as of December 31, 2015 Profit (loss) for the period Equity as of December 31, 2016 Share capital Treasury shares Share premium Other paid in capital Retained earnings 162 - 162 - 162 (2) - (2) - (2) 2 000 2 003 - - 2 000 2 003 - - 2 000 2 003 537 (1 461) (923) 790 (133) Total 4 700 (1 461) 3 241 790 4 031 The share capital of Akastor ASA is divided into 274 000 000 shares The number of treasury shares held by the end of 2016 are 2 776 376 with a nominal value of NOK 0.592. The shares can be freely traded. An and are held for the purpose of being used for future awards under any overview of the company’s largest shareholders is to be found in note 13 share purchase program for employees, as settlement in future corporate Shareholders. acquisitions or for other purpose as decided by the board of directors. Annual Report 2016 | Financials and Notes Note 7 | Receivables and borrowings from group companies Amounts in NOK million 2016 2015 87 Group companies deposits in the cash pool system Group companies borrowings in the cash pool system Akastor ASA’s net borrowings in the cash pool system Cash in cash pool system Current interest-bearing receivables on group companies Non-current interest-bearing receivables on group companies Current borrowings from group companies Net interest-bearing receivables on group companies Group contribution receivable Other receivables on group companies Total other receivables on group companies 2 702 (13) (2 554) 135 300 2 951 (4 499) (1 248) 1000 4 1 004 3 102 (410) (2 497) 195 4 150 2 021 (4 183) 1 988 - - - Interest-bearing receivables on and borrowings from group cover a majority of the group geographically and assure good control companies and access to the group’s cash. Participation in the cash pool is vested in Akastor ASA is the group’s central treasury function (Akastor Treasury) and the group’s policy and decided by each company’s board of directors and enters into borrowings and deposit agreements with group companies. confirmed by a statement of participation. The participants in the cash Deposits and borrowings are done at market terms and are dependent pool system are jointly and severally liable and it is therefore important of the group companies’ credit rating and the duration of the borrowings. that Akastor as a group is financially viable and can repay deposits and In 2016, an impairment of NOK 292 million (NOK 1.3 billion in 2015) is against any credit balance. A debit balance does hence represent a claim recognized related to interest-bearing receivables on group companies. on Akastor ASA and a credit balance a borrowing from Akastor ASA. The impairment is mainly related to receivables on Step Oiltools and MPO. All current receivables and borrowings are due within one year. December 31, 2016 (NOK 195 million in 2015). This amount is reported in The cash pool systems were showing a net balance of NOK 135 million per Akastor ASA’s accounts as short term borrowings from group companies carry out transactions. Any debit balance on a sub account can be set-off Cash pool arrangement and as cash in cash pool system. Akastor ASA is the owner of the cash pool system arrangements with DNB, Nordea and The Royal Bank of Scotland. The cash pool systems Note 8 | Other non-current interest-bearing receivables Amounts in NOK million Loan to DOF Deepwater AS (related party to Akastor) 1) Stiftelsen Akastor Kompensasjonsordning Total other non-current interest-bearing receivables 2016 2015 - 2 2 82 2 84 1) The loan to DOF Deepwater AS was increased by NOK 114 million during the year followed by a sale of the receivable to Akastor AS. An impairment of NOK 64 million was booked upon realization of the receivable. Annual Report 2016 | Financials and Notes88 Note 9 | Borrowings Amounts in million Currency Nominal currency value Carrying amount (NOK) Interest rate Interest margin Interest coupon Maturity Interest terms 2016 Revolving credit facility (NOK 1 122 million) Revolving credit facility (USD 313 million) Total borrowings Current borrowings Non-current borrowings Total 2015 Revolving credit facility (NOK 2 000 million) 3) Term loan Term loan Accrued interest Total borrowings Current borrowings Non-current borrowings Total borrowings NOK - - 2.75% July 2019 2) NIBOR + margin 1) 0.67% 2.75% 3.42% July 2019 2) USD LIBOR + margin 1) 1.00% 1.20% 0.48% 1.90% 1.80% 1.60% 2.90% July 2017 2) July 2019 2) 3.00% 2.08% January 2017 2) IBOR + variable margin 1) IBOR 3M+fixed margin IBOR 3M+fixed margin USD 139 1 195 1 195 4 1 191 1 195 NOK NOK USD - (10) 2 500 125 2 491 1 096 10 3 587 10 3 577 3 587 1) The margin applicable to the facility is decided by a price grid based on the leverage ratio and level of utilization. Commitment fee is 40 percent of the margin. 2) The maturity date reflects maturity date as defined in the loan agreements. See below for further description of covenant breach as of December 31, 2016. 3) Carrying amount of negative NOK 10 million in 2015 relates to issue costs. All facilities are provided by a bank syndicate consisting of high quality The company’s gearing ratio shall not exceed 1.0 times and Nordic and international banks. The terms and conditions include is calculated from the consolidated total borrowings to the restrictions which are customary for these kinds of facilities, including consolidated Equity. inter alia negative pledge provisions and restrictions on acquisitions, disposals and mergers and change of control provisions. The facilities Minimum liquidity amount shall exceed NOK 750 million on include no dividend restrictions. There is a stand-alone mortgage on the consolidated level. vessel AKOFS Seafarer as security for the facilities. The financial covenants are a gearing ratio based on net debt/equity, an 31, 2016, the ICR ended below the 1.5 minimum level. On March 1, 2017, interest coverage ratio (ICR) based on EBITDA/net interest costs and a Akastor signed an agreement with its bank syndicate to replace its ICR The financial covenants are tested on a quarterly basis and at December minimum liquidity amount: covenant with a nominal consolidated EBITDA amount until Q2 2018 and to be allowed to use the existing Revolving Credit Facilities to make The company’s interest coverage ratio (ICR) shall not be lower acquisitions for up to NOK 1.0 billion under certain conditions. In addition, than 1.5 in Q4 2016, 3.0 in Q1 2017 and 4.0 from Q2 2017 onwards, the minimum liquidity amount was reduced to NOK 500 million. calculated from the consolidated EBITDA to consolidated Net Finance Cost. Amounts in NOK million 2016 2017 2018 The nominal consolidated EBITDA amount is adjusted for certain items as defined in the agreement; however does not share the same definition as ICR covenant. The nominal consolidated EBITDA covenant has been agreed as follows: Q1 Q2 150 325 150 425 Q3 175 Q4 150 225 Annual Report 2016 | Financials and Notes 89 The actual nominal consolidated EBITDA as of Q4 2016 was above basis of the waiver agreed with the bank and its forecasts, management minimum covenant amount of NOK 150 million. believes that the risk of the new covenant being breached is low and that The covenants are monitored on a regular basis by the Akastor Treasury more information in note 30 Capital management in the Akastor Group department to ensure compliance with the loan agreements. On the consolidated accounts. the group will continue as a going concern for the foreseeable future. See Financial liabilities and the period in which they mature Amounts in NOK million 2016 Revolving credit facility (USD 313 million) Total borrowings 2015 Revolving credit facility (NOK 2 000 million) Term loan (NOK 2 500 million) 2) Term loan (USD 125 million) 2) Accrued interest Total borrowings Carrying amount Total undiscounted cash flow 1) 6 months and less 6–12 months 1–2 years 2–5 years 2) 1 195 1 195 (10) 2 491 1 096 10 3 587 1 345 1 345 - 2 765 1 124 10 3 899 24 24 - 38 11 10 59 20 20 - 38 11 - 49 41 41 - 75 1 101 - 1 176 1 260 1 260 - 2 615 - - 2 615 1) The interest costs are calculated using the last fixing rate known by year end (plus applicable margin). 2) Repayment of the loan in the table is according to maturity date of the facility in the loan agreement. Note 10 | Guarantees The group has provided the following guarantees on behalf of wholly owned subsidiaries as of December 31 (all obligations are per date of issue): Amounts in NOK million Parent Company Guarantees to group companies 1) Guarantees on behalf of Kværner companies Counter guarantees for bank/surety bonds 2) Guarantees on behalf of companies sold 3) Total guarantee liabilities Maturity of guarantee liabilities: 6 months and less 6–12 months 1–2 years 2–5 years 5 years and more 2016 2015 13 719 5 455 2 425 501 14 356 12 194 3 462 425 22 100 30 436 6 596 2 534 6 543 2 216 4 211 8 009 9 343 3 259 5 681 4 145 1) Parent Company Guarantees to support subsidiaries in contractual obligations towards clients. 2) Bank guarantees and surety bonds are issued on behalf of Akastor subsidiaries, and counter indemnified by Akastor ASA. 3) Guarantees to companies sold; Cognizant Oil and Gas Consulting Services (former Frontica Business Solutions) and McGregor Pusnes AS (former Aker Pusnes AS). Although guarantees are financial instruments, they are considered contingent obligations and the notional amounts are not included in the financial statements. Annual Report 2016 | Financials and Notes90 Note 11 | Financial risk management and financial instruments Akastor ASA has entered into forward exchange contracts with subsidiaries the total currency exposure. These contracts have no significant impact in 2016 with a total value of about NOK 32.8 billion (NOK 34.4 billion in on Akastor ASA’s income statement. 2015). Large contracts are hedged back-to-back with external banks, while minor contracts are hedged based on internal matching principles. All instruments are measured at fair value as of December 31. Contracts that are hedged back-to-back represent about 80 percent of Amounts in NOK million Forward exchange contracts with group companies Forward exchange contracts with external counterparts Total 2016 2015 Assets Liabilities Assets Liabilities 367 86 453 (139) (291) (430) 1 430 509 1 939 (612) (1 420) (2 032) Interest rate risk Liquidity risk The interest rate risk arises from interest-bearing borrowings. Borrowings Liquidity risk is the risk that the company will encounter difficulty in issued at variable rates expose the company to cash flow interest rate risk. meeting the obligations associated with its financial liabilities. Akastor Borrowings issued at fixed rates expose the group to fair value interest manages its liquidity to ensure that it will always have sufficient liquidity rate risk. However, as these borrowings are measured at amortized cost, reserves to meet its liabilities when due. interest rate variations do not affect profit and loss when held to maturity. Interest-bearing borrowings to group companies reflect the cost of the availability of funding from an adequate amount of committed credit external borrowing, reducing the interest risk exposure for Akastor ASA. facilities and the ability to close out market positions. Due to the dynamic Prudent liquidity risk management includes maintaining sufficient cash, Credit risk Credit risk is the risk of financial losses to the company if customer nature of the underlying businesses, Akastor Treasury maintains flexibility in funding by maintaining availability under committed credit lines. or counterparty to financial investments/instruments fails to meet The policy for the purpose of optimizing availability and flexibility of cash contractual obligations, and arise principally from investment securities within the Akastor group is to operate centrally managed cash pooling and receivables. Investment securities and derivatives are only traded arrangements. Such arrangements are either organized with a bank as against approved banks. All approved banks are participants in the Akastor a service provider, or as a part of the operation of Akastor Treasury. An loan syndicate and have investment grade ratings. Credit risk related important condition for the participants (business units) in such cash to investment securities and derivatives is therefore considered to be pooling arrangements is that Akastor ASA as an owner of such pools is insignificant. The existence of netting agreements between Akastor ASA financially viable and is able to prove its capability to service its obligations and the banks reduces the credit risk. concerning repayment of any net deposits made by business units. Loss provisions for interest-bearing receivables are recognized in liquidity reserve on the basis of expected cash flow. Liquidity risk relates to situations of negative equity if the company is not expected to be able the risk that the company will not be able to meet its debt and guarantee to fulfil its loan obligations from future earnings. NOK 292 million was obligations and are managed through maintaining sufficient cash and impaired in 2016 (NOK 1.3 billion in 2015), see also note 7 Receivables and available credit facilities. The development in the group’s and thereby borrowings from group companies. Akastor ASA’s available liquidity is continuously monitored through weekly Management monitors rolling weekly and monthly forecasts of the group’s and monthly cash forecasts, annual budgets and long term planning. Note 12 | Related parties Transactions with subsidiaries and related parties are described in the following notes: Transactions Other services Financial items Investments Cash pool Receivables and borrowings Guarantees Foreign exchange contracts Info in note Note 2 Note 3 Note 5 Note 7 Note 7, 8 Note 10 Note 11 Akastor ASA’s agreement with Aker ASA regarding pension obligation in US are described in note 35 Related parties in the consolidated financial statements. All transactions with related parties are done at market rates and in accordance with the arm’s lengths principle. Annual Report 2016 | Financials and NotesNote 13 | Shareholders Shareholders with more than 1 percent shareholding Company 2016 Aker Kværner Holding AS Goldman Sachs & Co Euroclear Bank S.A./N.V.(‘BA’) Aker ASA Morgan Stanley & Co. LLC ODIN Norge Credit Suisse Securities (USA) LLC Akastor ASA Company 2015 Aker Kværner Holding AS Goldman Sachs & Co Euroclear Bank S.A./N.V.(‘BA’) Aker ASA ODIN Norge Morgan Stanley & Co SIX SIS AG Akastor ASA Note 14 | Subsequent events 91 Note Nominee Number of shares held Ownership 110 333 615 Nominee 40 714 852 Nominee 35 124 259 23 331 762 Nominee 9 930 418 7 840 060 Nominee 3 638 779 6 2 776 376 40.27% 14.86% 12.82% 8.52% 3.62% 2.86% 1.33% 1.01% Note Nominee Number of shares held Ownership 110 333 615 Nominee 54 603 407 Nominee 30 067 853 Nominee Nominee 6 23 331 762 7 840 060 4 830 268 3 691 900 2 776 376 40.27% 19.93% 10.97% 8.52% 2.86% 1.76% 1.35% 1.01% On March 1, 2017, Akastor signed an agreement with its bank syndicate to: i) replace its ICR covenant with a nominal EBITDA amount until Q2 2018; and ii) to be allowed to use the existing RCF to make acquisitions for up to NOK 1.0 billion under certain conditions. See note 9 Borrowings for more information about covenant compliance at December 31, 2016. Annual Report 2016 | Financials and Notes92 Annual Report 2016 | Auditors Report 06. AUDITORS REPORT t r o p e R s r o t i d u A 93 Annual Report 2016 | Auditors Report94 Annual Report 2016 | Auditors Report95 Annual Report 2016 | Auditors Report96 Annual Report 2016 | Auditors Report97 Annual Report 2016 | Auditors Report98 Annual Report 2016 | Auditors ReportAnnual Report 2016 | Alternative Performance Measures 99 07. ALTERNATIVE PERFORMANCE MEASURES Akastor discloses alternative performance measures as a supplement Net capital employed – Refers to the value of all assets employed in the to the financial statements prepared in accordance with IFRS. Such operation of a business. It is calculated by non-current assets (excluding performance measures are used to provide an enhanced insight into the non-current interest bearing receivables) added by net current operating operating performance, financing and future prospects of the company assets minus non-current operating liabilities (deferred tax liabilities, and are frequently used by securities analysts, investors and other employee benefit obligations and other non-current liabilities). interested parties. The definitions of these measures are as follows: Gross debt – Sum of current and non-current borrowings. EBITDA – Operating profit or loss (earnings) before (i) income tax, (ii) net financial items, (iii) depreciation, amortization and impairment. Net interest-bearing debt (NIBD) – Net debt minus non-current and Net debt – Gross interest-bearing debt minus cash and cash equivalents. EBIT – Operating profit or loss (earnings) before net financial items and income tax. Equity ratio – Total equity divided by Total assets at the reporting date. current interest bearing receivables. Capex and R&D capitalization – Expenditure on PPE or intangible assets Order intake – Represents the estimated contract value from the that qualify for capitalization. contracts or orders that are entered into or committed in the reporting Net current operating assets (NCOA) – Current operating assets minus period. current operating liabilities, excluding current assets or liabilities related Order backlog – Represents the remaining unearned contract value from to hedging. the contracts or orders that are already entered into or committed at the reporting date. The tables below show reconciliation of alternative performance measures to the line items in the financial statements according to IFRS. Net current operating assets (NCOA) Amounts in NOK million Current tax assets Inventories Trade and other receivables Current operating assets Current tax liabilities Provisions Trade and other payables Current operating liabilities Adjusted by NCOA related to discontinued operations Net current operating assets (NCOA) (continuing operations) 2016 2015 65 1 086 2 829 3 980 (63) (354) (2 492) (2 909) - 1 072 2 1 464 5 959 7 425 (89) (553) (4 443) (5 085) 82 2 422 s e r u s a e M e c n a m r o f r e P e v i t a n r e t l A 100 Annual Report 2016 | Alternative Performance Measures Net capital employed (NCE) Amounts in NOK million Total non-current assets Net current operating assets (NCOA) Non-current interest-bearing receivables Deferred tax liabilities Employee benefit obligations Other non-current liabilities Non-current provisions Adjusted by NCE related to discontinued operations Net capital employed (NCE) (continuing operations) Gross debt/Net debt/NIBD Amounts in NOK million Non-current borrowings Current borrowings Gross debt Less: Cash and cash equivalents Net debt Less: Non-current interest-bearing receivables Current interest-bearing receivables Net interest-bearing debt (NIBD) Equity ratio Amounts in NOK million Total equity Divided by Total assets Equity ratio 2016 2015 7 897 1 072 (51) (15) (380) (112) (333) - 8 078 10 732 2 422 (84) (51) (434) (74) (341) (1 452) 10 718 2016 2015 1 494 1 560 3 054 487 2 567 51 15 1 583 4 054 5 637 563 5 074 84 72 2 501 4 918 2016 2015 5 580 12 861 43% 7 386 20 537 36% Annual Report 2016 | Board of Directors 101 08. BOARD OF DIRECTORS Frank O. Reite | Chairman Frank O. Reite first joined Aker in 1995, and became CFO in Aker ASA in August 2015. He holds a B.A. in business administration from Handelshøyskolen BI in Oslo. Mr. Reite came from the position of President & CEO of Akastor, and has previously held a variety of executive positions in the Aker group, including overseeing and developing Aker's investments in Converto Capital Fund AS, Norway Seafoods Group AS and Aker Yards ASA. Mr. Reite also has experience from banking and served as Operating Director at Paine & Partners, a New York-based private equity firm. Mr. Reite is chairman of Akastor ASA. Mr. Reite holds 200 000 shares in Akastor ASA, and has no stock options. Mr. Reite is a Norwegian citizen and has been elected for the period 2015–2017. Lone Fonss Schrøder | Deputy Chairman Lone Fønss Schrøder has experience from CEO and Senior Management positions at the Danish shipping and oil group A.P. Møller-Maersk A/S. She is Chairman of Saxo Bank, director and chairperson for the audit committee at Volvo Cars and Valmet Oy, Director of Ikea Group and senior advisor for Credit Suisse in London. Ms. Fønss Schrøder has a law degree from the University of Copenhagen and of economics from Copenhagen Business School. As of December 31, 2016, she held 4 400 shares in the company and had no stock options. She is a Danish citizen and has been elected for the period 2016–2018. Øyvind Eriksen | Director Øyvind Eriksen joined Aker ASA in January 2009. Mr. Eriksen holds a law degree from the University of Oslo. He joined Norwegian law firm BA-HR in 1990, where he became a partner in 1996 and a director/chairman from 2003. At BA-HR, Mr. Eriksen worked closely with Aker and Aker’s main shareholder, Kjell Inge Røkke. Mr. Eriksen is chairman of Aker BP, Aker Solutions ASA and Aker Kværner Holding AS, and a director of several companies, including The Resource Group TRG AS, TRG Holding AS and Reitangruppen AS. As of 31 December 2016, Mr. Eriksen holds no shares or stock options in Akastor directly; he has an ownership interest through his holding of 144 911 shares in Aker ASA, through Erøy AS. Erøy AS also owns 100 000 b-shares (0.2 per cent) in TRG Holding AS, the largest shareholder in Aker ASA. Mr. Eriksen is a Norwegian citizen and has been elected for the period 2016–2018. Kathryn M. Baker | Director Kathryn M. Baker has 30 years of business experience in a broad range of industries and roles. She currently serves on the Executive Board of the Central Bank of Norway (Norges Bank), where she is also a member of the audit and ownership committees. Other current board positions include Chairman of Catena Media Plc and Navamedic, and board member of Sevan Marine and DOF. Ms. Baker also serves on the European Advisory Boards of the Tuck School of Business and DLA Piper Norway and leads the Ethics Committee of the Norwegian Private Equity and Venture Capital Association (NVCA), where she previously served as Chairman. Ms. Baker was a partner at the Norwegian private equity firm Reiten & Co for 15 years. Prior to that, she was a management consultant at McKinsey and Company in Oslo and a financial analyst at Morgan Stanley in New York. Ms. Baker holds a bachelor degree in Economics from Wellesley College and an MBA from the Amos Tuck School of Business at Dartmouth College. She holds 45 683 shares in the company. Ms. Baker is an American citizen and has been elected for the period 2016–2018. s r o t c e r i D f o d r a o B 102 Annual Report 2016 | Board of Directors Sarah Ryan | Director Sarah Ryan is a non-executive director of Woodside Petroleum and Vautron Pty Ltd and Energy Advisor to Earnest Partners, a US investment management firm and she was previously a non- executive director of Aker Solutions. Dr Ryan was investment director and equity analyst with Earnest Partners, and previous to that held various senior management, technical and operational roles during her 15 years with Schlumberger. Dr. Ryan holds a BSc in geology from the University of Melbourne, a BSc (Hons) in geophysics and a PhD in petroleum geology and geophysics from the University of Adelaide. As of December 31, 2016, she held 5 000 shares in the company and had no stock options. Ms. Ryan is an Australian citizen. She has been elected for the period 2016–2018. Jannicke Sommer-Ekelund | Director Jannicke Sommer-Ekelund is Senior Consultant and Lead Auditor for supply chain support at MHWirth. Ms. Sommer-Ekelund joined Aker Solutions in 2006 and worked as a senior consultant in procurement until 2012 when she moved to her current role. She holds exams in Mechanical Engineering and Personnel Management and Organizational Development from the Technology Agder Maritime College. Her background is from mechanical engineering, fabrication and supply chain in marine industry, onshore and offshore. Jannicke was a crew member on board the MT/ Polytrader in 1980 when the second cargo from the Statfjord A loading buoy was picked up and delivered to Mongstad. As of December 31, 2016, she holds 839 shares in the company and no stock options. Ms. Sommer- Ekelund is a Norwegian citizen. She has been elected for the period 2014–2017. Stian Sjølund | Director Stian Sjølund currently works as Performance Optimization Engineer at MHWirth AS. Mr. Sjølund joined the Company in 1998 as an Engineer in Drilling Lifecycle Services department. He has since then held various positions in the company in Norway and abroad. Mr. Sjølund holds a technical college degree in electrical engineering from Grimstad Technical College. As of December 31, 2016, Mr. Sjølund holds no shares or stock options in the company. Mr. Sjølund is a Norwegian citizen and has been elected for the period 2016–2017. Asbjørn Michailoff Pettersen | Director Asbjørn Pettersen currently works as Package Responsible Engineer in global projects at MHWirth. He began his career with the Aker group in 1983 when he joined Aker Engineering where he held various positions until 1997. He joined Aker MH in 2007 after engagements with ABB Environment, including as project leader for one of the first steam power plants in the Norwegian sector of the North Sea, and at GE Healthcare’s Lindesnes plant. Mr. Pettersen holds a BSc in mechanical engineering from Trondheim College of Engineering. As of December 31, 2016, he held 3 050 shares in the company and had no stock options. Mr. Pettersen is a Norwegian citizen. He has been elected for the period 2014–2017. Annual Report 2016 | Management 103 09. MANAGEMENT Kristian Røkke | Chief Executive Officer Kristian Røkke joined Akastor ASA in August 2015 and has experience in offshore service and shipbuilding from several companies in the Aker group. He spent eight years at Philly Shipyard, most recently as Chairman of the Board and previously as President & CEO. Before then, Mr. Røkke served as SVP Operations and has held other production management positions at Philly Shipyard. The company is a leading U.S. commercial shipyard constructing vessels for operation in the Jones Act market and is listed on the Oslo Stock Exchange. In recent years, it has successfully expanded its business beyond traditional shipbuilding into investing in shipping assets and has, in addition to other shipping investments, established a stand-alone shipping company, Philly Tankers, together with financial sponsors. Mr. Røkke is a Board member of TRG Holding AS and Aker ASA. Mr. Røkke holds an MBA from The Wharton School, University of Pennsylvania and is both a Norwegian and United States citizen. As of December 31, 2016, Mr. Røkke holds, through a privately owned company, 200 000 shares in Akastor ASA. Leif Borge | Chief Financial Officer Before joining Akastor, Leif Borge served as CFO of Aker Solutions in 2008–2014. He was CFO of Aker Yards in 2002–2008, CFO of Stento ASA/ Zenitel NV in 1998–2001, CFO of Vitana (a subsidiary of Rieber & Søn ASA in the Czech Republic) in 1994–1997, and prior to that Financial Manager in Union Bank of Norway. Mr. Borge holds an MBA from Pacific Lutheran University in Washington State, and is a Norwegian citizen. As of December 31, 2016, Mr. Borge holds, directly and through a privately owned company, 250 000 shares in the company, and had no stock options. Karl Erik Kjelstad | Executive Vice President – Investment Director Karl Erik Kjelstad has held a variety of executive positions in the Aker group which he joined in 1998. He was EVP at Aker Solutions from 2009 and earlier served as Senior Partner and President of Maritime Technologies at Aker ASA. He was President and CEO of Aker Yards ASA in 2003–2007. Before joining Aker, Mr. Kjelstad was senior consultant at PA Consulting Group and in 1992–1996 held various management positions at the TTS Group. Mr. Kjelstad holds an MSc in marine engineering from the Norwegian University of Science and Technology (NTNU). As of December 31, 2016, he holds, through a privately-owned company, 123 074 shares in the company and had no stock options. Mr. Kjelstad is a Norwegian citizen. Paal E. Johnsen | Executive Vice President – Investment Director Paal E. Johnsen joined Akastor from a senior position within Investment Banking at DNB Bank ASA. From 2009 to 2014, he was CEO of an investment company and held several board positions in both public and private companies across several industries. From 1996 to 2008, Paal E. Johnsen held several executive positions in Carnegie Investment Banking, both on equity research and investment banking. Mr. Johnsen holds a Master of Science (MSc) in Economics and Business Administration from Norwegian School of Economics. As of 31. December 2016, he holds no shares in the company and had no stock options. Mr. Johnsen is a Norwegian citizen. t n e m e g a n a M 104 Annual Report 2016 | Company Information 10. COMPANY INFORMATION Reports on the Internet Copyright and Legal Notice The quarterly and annual reports of Akastor are available on the internet. Akastor encourages its shareholders to subscribe to the company’s annual reports via the electronic delivery system of the Norwegian Central securities Depository (VPS). Please note that VPS services (VPS Investortjenester) are designed primarily for Norwegian shareholders. Subscribers to this service receive annual reports in PDF format by email. VPS distribution takes place at the same time as distribution of the printed version of Akastor’s annual report to shareholders who have requested it. Quarterly reports, which are generally only distributed electronically, are available on the company’s website and other sources. Shareholders who are unable to receive the electronic version of interim reports may subscribe to the printed version by contacting Akastor’s investor relations staff. Copyright in all published material including photographs, drawings and images in this publication remains vested in Akastor and third party contributors to this publication as appropriate. Accordingly, neither the whole nor any part of this publication can be reproduced in any form without express prior permission. Articles and opinions appearing in this publication do not necessarily represent the views of Akastor. While all steps have been taken to ensure the accuracy of the published contents, Akastor does not accept any responsibility for any errors or resulting loss or damage whatsoever caused and readers have the responsibility to thoroughly check these aspects for themselves. Enquiries about reproduction of content from this publication should be directed to Akastor ASA. Contact details Akastor ASA Oksenøyveien 10, 1366 Lysaker, Norway PO Box 124, 1325 Lysaker, Norway +47 21 52 58 00 akastor.com MHWirth Butangen 20, 4639 Kristiansand, Norway PO Box 413 Lundsiden, 4604 Kristiansand, Norway +47 38 05 70 00 mhwirth.com AKOFS Offshore Karenslyst Allé 57, 0277 Oslo, Norway PO Box 244, 0213 Oslo, Norway +47 23 08 44 00 akofsoffshore.com KOP Surface Products 77 Science Park Drive #04-01/07 Cintech 3 Singapore Science Park, Singapore 118256 +65 68 80 97 40 kopsurfaceproducts.com First Geo Jåttåvågveien 10, 4020 Stavanger, Norway PO Box 289, 4066 Stavanger, Norway +47 51 81 23 80 first-geo.com Step Oiltools 7500A Beach Road # 16-307/312 The Plaza, Singapore, 199591, Singapore +65 6396 3872 stepoiltools.com Cool Sorption Smedeland 6, DK2600 Glostrup, Denmark +45 43 45 47 45 Coolsorption.com n o i t a m r o f n I y n a p m o C i o d e r f f o G a n a T / o n . n o i t a c n u m m o c t l o b i • S A n o i t a c n u m m o C i t l o B • 3 4 2 1 6 1 2

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