2017
ANNUAL
REPORT
2
KEY FIGURES (CONTINUING OPERATIONS)
2017
2016
Results and orders (NOK million)
Operating revenues and other income
EBITDA
EBITDA margin (percent)
Net profit (loss)
Net profit (loss) incl discontinued operations
Cash flow from operating activities
Net debt
Equity ratio (percent)
Order intake
Order backlog
Share (NOK)
Share price December 31
Basic/Diluted earnings per share
Employees (Full time equivalents)
Employees including hired-ins
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)
4 348
293
6.7
(1 106)
(58)
(630)
2 364
51
3 841
6 865
4 975
91
1.8
(1 953)
(1 282)
(98)
2 567
43
3 586
7 624
16.4
(0.21)
16.2
(4.73)
2 015
2 244
0.8
1.3
3.0
1.4
2.2
3.2
Net capital employed
NOK million
Revenue
NOK million
EBITDA
NOK million
Other
628
MHWirth
2 783
1500
1200
900
600
300
0
AKOFS
Offshore
4 154
1 288
1 433
943
873
200
193
1 098
150
167
100
50
0
53
54
18
Q4 16
Q1 17
Q2 17
Q3 17
Q4 17
Q4 16
Q1 17
Q2 17
Q3 17
Q4 17
Annual Report 2017 3
TABLE OF CONTENTS
01. BOARD OF DIRECTORS' REPORT
02. DECLARATION BY THE BOARD
OF DIRECTORS AND CEO
03. CORPORATE GOVERNANCE STATEMENT
04. FINANCIALS AND NOTES
a. Akastor Group
b. Akastor ASA
05. AUDITOR'S REPORT
4
10
11
20
20
77
89
06. ALTERNATIVE PERFORMANCE MEASURES
95
07. BOARD OF DIRECTORS
08. MANAGEMENT
09. COMPANY INFORMATION
97
100
101
Annual Report 2017
4
01. 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, and 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
8.52 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 7.6 billion
at the end of 2017.
Highlights 2017
In line with Akastor’s focus on active investment, several
portfolio companies were either divested or merged in 2017. In
January, the merger of Frontica Advantage and NES Global
Talent was completed, giving Akastor a 15.2 percent economic
interest in NES Global Talent. In July, KOP Surface Products
was divested to The Weir Group for USD 114 million. In October,
Akastor and Mitsui signed a MoU with the intention to expand
its existing partnership by forming a new 50-50 joint venture
for AKOFS Offshore. The offshore drilling market, which has
been very challenging over the last years, continues to be weak
but has shown some signs of recovery in the second half of
2017. In October, MHWirth signed the first contract in more
than three years for a new complete drilling package, to be
delivered to the West White Rose Project offshore Canada. In
December, it was announced that Karl Erik Kjelstad was
appointed new CEO of Akastor, following Kristian Røkke who
is proposed by Aker to be nominated as new Chairman of the
Board of Akastor ASA in the spring of 2018. On January 1,
2018, the vessel Aker Wayfarer started operations under the
5+5 year contract with Petrobras. The vessel will provide
subsea well installation and other types of offshore installation
work offshore Brazil.
Akastor’s total revenue from continuing operations was NOK
4.3 billion in 2017, a decrease of 13 percent from 2016. The
decline is mainly due to slow market conditions and low order
intake the last three years. The order backlog amounted to
NOK 6.9 billion at the end of 2017 compared to NOK 7.6 billion
a year earlier. The order intake for 2017 was NOK 3.8 billion.
Company Overview
Akastor is primarily focused on the oilfield services sector. The
portfolio in 2017 covers a range of industrial holdings in this
sector, all in varying stages of maturity, including:
MHWirth, which provides drilling systems and lifecycle
services. Ownership interest 100 percent.
AKOFS Offshore, a subsea well installation and interven-
tion services provider. Ownership interest 100 percent.
Step Oiltools, a drilling waste management company.
Ownership interest 76 percent.
First Geo, which delivers subsurface advice and prod-
ucts to E&P companies. Ownership interest 100 per-
cent.
Cool Sorption, a supplier of vapour recovery units and
systems. Ownership interest 100 percent.
DOF Deepwater, owns and operates five offshore ves-
sels. Ownership interest 50 percent.
NES Global Talent, a technical and engineering staffing
company. Economic interest 15 percent.
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.
The Akastor corporate organization is based in Norway, at
Fornebu, with a team of 16 employees, working closely with
the boards and management of its portfolio companies.
Akastor has a total of 2 015 employees with presence in
approximately 20 countries at year end 2017.
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.
Annual Report 2017 | Board of Directors' ReportBoard of Directors’ Report 5
Akastor seeks to maximize value by combining strategic,
operational and financial measures.
conditions are made when determining the value in use of the
vessel, which requires a high degree of judgement.
The business models of the portfolio companies are
decentralized, but as part of the Akastor portfolio, all
companies share a common foundation based on Akastor’s
values, governing documents 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 mainly in the
oilfield services industry. While Akastor is positive toward the
longer-term outlook for the oil and gas sector, sub segments
like offshore drilling, subsea installation and subsea intervention
are still struggling from over-capacity. This will continue to
impact the activities of the portfolio companies in 2018, with
regards to both new orders for equipment and service
activities.
During the downturn the last few years, a lot of focus has been
on reducing costs and developing more efficient technological
solutions. Several of Akastor’s portfolio companies are working
closely with key clients to develop new solutions for the future
and optimize the operations of today’s equipment. As an active
owner, Akastor will work with the portfolio companies to
position them for growth in current and new markets, and
ensure financial capacity for potential business opportunities.
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 2017 decreased by 13
percent to NOK 4 348 million due to slow market conditions
and low order intake the last three years. Operating profit before
interest, tax, depreciation and amortization (EBITDA) increased
by NOK 202 million to NOK 293 million. EBITDA was impacted
by several items during the year, including positive effects from
a settlement agreement of three projects in MHWirth, reversal
of onerous lease provision in Other Holdings, offset by
restructuring costs and impairment of inventories in MHWirth.
Depreciation and amortization was NOK 612 million in 2017,
compared to NOK 688 million in the previous year. In addition,
impairment losses of NOK 118 million were recognized in 2017,
which were mainly related to internally developed intangible
assets and testing facilities that were no longer expected to be
fully utilized in MHWirth. No further impairment was made on
the AKOFS Seafarer vessel in 2017. However, due to the fact
that the vessel is not on firm contract, assumptions of market
Net financial expenses were NOK 774 million in 2017 compared
to NOK 1 174 million in the previous year. It includes an
impairment of the shareholding in DOF Deepwater AS of NOK
176 million as well as hedging loss from projects in MHWirth.
The pre-tax loss for the year was NOK 1 212 million, compared
to a loss of NOK 2 245 million the previous year.
The income tax benefit for 2017 was NOK 106 million,
compared to a tax benefit of NOK 293 million in 2016. The
effective tax rate of 9 percent is influenced by several items,
such as impairment of deferred tax assets, non-tax deductible
items, 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.
The group had an operating loss of NOK 58 million for the
year. Earnings per share were negative NOK 0.21 in 2017,
compared with negative NOK 4.73 a year earlier. Net loss from
continuing operations was NOK 1 106 million, while net profit
from discontinued operations was NOK 1 049 million. The net
profit from discontinued operations was mainly related to the
gains from the divestments of KOP Surface Products and
Frontica Advantage.
The board of directors has resolved to propose to the annual
general meeting that no dividend is distributed for 2017.
Financial Position
Total assets of Akastor amounted to NOK 10.3 billion as of
December 31, 2017, compared with NOK 12.9 billion at year-
end 2016. The decrease reflects reductions in Property, plant
and equipment of NOK 0.7 billion, current operating assets of
NOK 0.9 billion as well as sale of assets of NOK 0.7 billion as a
result of divestments.
Total operating liabilities in portfolio companies decreased by
NOK 1.1 billion, mainly explained by decreased activity levels.
Gross debt decreased by NOK 0.5 billion as a result of the
divestment of KOP Surface Products during the year.
Total equity amounted to NOK 5.3 billion at year-end 2017,
compared to NOK 5.6 billion the year before. The equity ratio
was 51 percent as of December 31, 2017, increased from 43
percent in 2016.
Cash flow
As of December 31, 2017, Akastor had cash of NOK 168 million,
compared to NOK 487 million in 2016. The net cash flow from
operating activities was negative NOK 673 million, comprising
of net cash outflow from operating activities of NOK 242
million and payments of NOK 431 million for income tax and
interest costs including finance leases.
Net cash flow from investing activities was NOK 737 million
compared NOK 2 720 million in 2016. The cash flow from
Annual Report 2017 | Board of Directors' Report 6
investing activities was mainly related to the proceeds from the
divestment of KOP Surface Products in 2017. Capex investments
were NOK 97 million compared to NOK 202 million in 2016. No
new business acquisitions were carried out in 2017.
Net cash flow from financing activities amounted to negative
NOK 391 million and reflected reduced borrowings in 2017.
Going Concern
The board of directors confirms that the going concern
assumption, on which the consolidated financial statements
have been prepared, is appropriate.
The Akastor Portfolio
MHWirth
MHWirth is a global provider of drilling solutions, engineering,
projects, equipment and services. MHWirth has activities on
five continents with presence in 14 countries. At year-end
2017, the company employs 1 456 people; 52 percent of the
workforce is 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 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 (FTE)
2017
3 030
118
(189)
46
995
2 783
3 212
1 718
1 456
2016
3 548
71
(552)
36
1 091
3 200
2 936
1 481
1 738
The revenue for 2017 of NOK 3 030 million was down 15
percent from 2016, mainly impacted by weak new build market
and low order intake the last few years. The Drilling Lifecycle
Services business had revenues of NOK 1 676 million, a
reduction of 9 percent from 2016, which can be explained by
fewer rigs in operation and reduced overhaul related work.
The number of active rigs with complete drilling package from
MHWirth increased slightly to 53 rigs in 2017. The EBITDA
increased from NOK 71 million in 2016 to NOK 118 million in
2017. This includes NOK 77 million of restructuring costs, NOK
311 million of impairment of inventory, as well as a positive
effect of NOK 225 million from settlement agreement of three
projects.
The offshore drilling market has continued to be challenging in
2017, which has impacted both number of rigs in operation as
well as new build orders. In October, MHWirth signed the first
contract for a complete drilling package in several years, to be
delivered to the West White Rose Project offshore Canada.
This had a positive effect on the order intake for the year,
which ended on NOK 3.2 billion. The order backlog increased
from NOK 1.5 billion to NOK 1.7 billion during 2017.
In response to the market slowdown the last years, MHWirth
has worked systematically to adjust the cost base to a lower
level than in previous years. During 2017, the workforce has
been reduced from 1 738 to 1 456 employees. Total
restructuring costs of NOK 77 million were booked during
2017 for these capacity adjustments. Going forward, focus will
still be to reduce the costs of the products and ensure
efficiency in all parts of the organization, but it is not expected
further major redundancies in 2018.
Since the down turn started in 2014, there has been a lot of
focus from the customers on making the drilling equipment
more efficient and reducing the service costs of the equipment,
for example by condition based rather than time based lifecycle
services. MHWirth is committed to assist its customers on this
journey and is working closely with several clients on different
types of initiatives. In October, MHWirth signed a 10 year
agreement with Transocean concerning maintenance and
repair of MHWirth produced drilling equipment on nine
semisubmersible offshore rigs and deepwater drillships. The
agreement is based on a new service model with strong
incentives for both parties to reduce the service costs and
increase operational time of the equipment.
AKOFS Offshore
AKOFS Offshore is a provider of vessel-based subsea well
installation and intervention services to the oil and gas industry.
The company operates three specialized offshore vessels,
Skandi Santos, Aker Wayfarer and AKOFS Seafarer, and
employs 180 people at the end of 2017.
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 (FTE)
2017
778
213
(121)
40
186
4 154
22
4 917
180
2016
835
316
(134)
108
121
4 378
106
5 900
113
The company’s revenue decreased by 7 percent to NOK 778
million, and EBITDA decreased by NOK 103 million to NOK 213
million in 2017. The reduction in revenue and earnings is due to
the sale of the Skandi Santos topside equipment to the joint
venture Avium Subsea AS, which had a positive effect on the
financials in 2016.
During 2016, the company created a 50/50 joint venture,
Avium Subsea AS, 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
Annual Report 2017 | Board of Directors' Report 7
with AKOFS Offshore corresponding to the remaining Skandi
Santos contract duration between AKOFS Offshore and
Petrobras. In October 2017, a Memorandum of Understanding
was signed between the parties to expand the partnership to
include AKOFS Offshore. Mitsui will invest in AKOFS Offshore
by purchasing 50 percent of the shares in the company for
USD 142 million.
Skandi Santos continued in its third 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.
During 2017, Aker Wayfarer has been stand-by with a reduced
day-rate preparing for commencement of the 5+5 year
contract with Petrobras in Brazil. The vessel started operations
in Brazil on January 1, 2018, doing similar type of subsea
installation work as Skandi Santos.
The third vessel in the AKOFS Offshore portfolio, AKOFS
Seafarer, was idle throughout the whole year 2017. The vessel
is currently stacked in Norway, being marketed for work in the
subsea construction and service market as well as for Light
Well Intervention.
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 15.2 percent economic interest of NES Global
Talent. In addition, this segment includes corporate functions
and several long term office lease contracts that remained in
Akastor after the demerger from Aker Solutions in 2014.
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 (FTE)
2017
596
(38)
(127)
9
2016
674
(296)
(385)
5
(138)
(258)
628
626
231
379
104
621
224
393
Total EBITDA for Other Holdings for the year was a loss of
NOK 38 million. The three businesses Step Oiltools, First Geo
and Cool Sorption delivered an EBITDA of negative NOK 1
million in 2017. Reversal of onerous lease provisions of NOK 52
million due to subletting during 2017 had a positive effect on
the EBITDA, while the remaining negative EBITDA in this
segment can be explained by corporate overhead costs and
some legacy costs.
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
and management of all 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 has a net profit of NOK 664 million
in 2017, including income of NOK 800 million from investments
in subsidiaries.
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:
Risk Management
0
664
664
Akastor and 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.
Akastor’s risk management model is designed on the basis that
Akastor is an investment company with an overall objective of
securing its shareholders’ investments and developing the
group’s assets in order to provide the shareholders with a solid
return. Akastor’s current investment portfolio is focused on
the oilfield services industry. This focus is mainly driven by the
company’s experience, expertise and track-record within this
industry. Although Akastor has a flexible mandate, it has
traditionally not sought to spread risk by investing in different
industries. Instead, Akastor has focused on mitigating its
vulnerability to the risk environment inherent to the oilfield
services industry through sound risk management systems.
Although the oil price has seen a partial recovery in 2017, the
market situation for the oilfield services industry remains
challenging, with modest level of activity and capital spending.
The 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). Akastor’s main strategy for mitigating adverse
effects of challenging market conditions
is continuous
monitoring and focus on rightsizing with a view to maintaining
Annual Report 2017 | Board of Directors' Report 8
a robust balance sheet with headroom for contingencies (see
also the description of financial risks below).
well-established principles for overall risk management, as well
as policies for the use of derivatives and financial instruments.
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.
In 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. The overall responsibility for
ensuring sound internal control and an appropriate framework
for risk management in Akastor lies with its board of directors.
A risk review is presented to and reviewed by the audit
committee and the board of directors of Akastor on an annual
basis.
Financial Risks
Akastor is exposed to a variety of financial market risks such as
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
income statement. Risk
financial
the
management
is the
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
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 employees
must complete a yearly Code of Conduct training program. In
addition, all Akastor managers and office-based staff are
required to conduct integrity e-learning training and participate
in classroom courses. For employees in specific functions,
where chance of facing integrity risk is considered higher than
normal, additional training has been tailored for their role and
responsibilities. 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.
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
responsibility
risks and expectations
Akastor’s operating model reflects the fact that the portfolio
companies are
independent companies which operate
different business models and therefore face different
corporate
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 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 also focuses on 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.
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
is continuously
encompassing these priorities. Akastor
Annual Report 2017 | Board of Directors' Report 9
monitoring the 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 each portfolio company’s corporate responsibility
work, including their HSE work, refer to the Akastor Corporate
Responsibility Report for 2017. The full report is available on
our website www.akastor.com.
Research, Innovation and Technology Development
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
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 three out of five shareholder elected directors are
women.
NOK 27 million was capitalized in 2017, compared to NOK 49
million in 2016, related to development activities. In addition,
research and development costs of NOK 16 million were
expensed during the year because the criteria for capitalization
were not met (NOK 62 million in 2016).
Aggregated sick leave in Akastor was 3.0 percent in 2017.
There were no fatal injuries in any of the portfolio companies,
and the total recordable incident frequency was low. See
figures below for details.
All research,
initiatives are
innovation and development
performed by the Akastor portfolio companies. Akastor ASA
and Akastor AS performed no such activity in 2017.
People and teams
Akastor
is committed to equal opportunity and non-
discrimination. This commitment is described in Akastor’s
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 2010 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 2 015
employees as of December 31, 2017. The male/female ratio
(excluding hired-ins) in the major portfolio companies and
Akastor Group were as follows:
Female
Male
MHWirth AKOFS Offshore
Akastor Group
18%
82%
10%
90%
18%
82%
Lost time incident Frequency
(LTIF) *
Total Recordable Incident
Frequency *
Fatalities incl subcontractors
Sick leave (percent)
MHWirth
AKOFS
Offshore
Akastor
Group
1.1
1.4
-
3.8
-
2.5
-
1.1
0.8
1.3
-
3.0
* 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 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 designed to secure the shareholders’ investment through
value creation and to ensure good control with the portfolio
companies. The corporate governance principles are included
in this annual report and available on the company’s website
www.akastor.com.
Fornebu, March 9, 2018 I 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
Henning Jensen | Director
Asle Christian Halvorsen | Director
Stian Sjølund | Director
Karl Erik Kjelstad | CEO
Annual Report 2017 | Board of Directors' Report 10
02. 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, 2017. 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 2017 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 its parent company’s
assets, liabilities, profit and overall financial position as of December 31, 2017.
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 9, 2018 I 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
Henning Jensen | Director
Asle Christian Halvorsen | Director
Stian Sjølund | Director
Karl Erik Kjelstad | CEO
Annual Report 2017 | Declaration by the Board of Directors and CEODeclaration by the Board of Directors and CEO 11
03. 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. 1)
Governance Structure
Akastor is an oilfield services investment company with a
portfolio of industrial holdings and other investments. The
company has a flexible mandate for active ownership and long-
term value creation. Completed transactions in 2017 include
the combination of Frontica Advantage and NES Global Talent
in January and the sale of KOP Surface Products to Weir in
July. Akastor currently has an active investment portfolio
within the oilfield services industry consisting of MHWirth,
AKOFS Offshore, 76 percent of the shares in STEP Oiltools,
Cool Sorption, First Geo and a 15.2 percent economic
ownership position in NES Global Talent in addition to other
holdings and investments (see below), with a total net capital
employed of approximately NOK 7.6 billion. MHWirth is a
global provider of drilling solutions, engineering, projects,
equipment and services. AKOFS Offshore is a provider of
subsea well installation and intervention services. NES Global
Talent is a global technical and engineering staff provider.
STEP Oiltools is a global provider of solids control and drilling
waste management services. First Geo is an operation and
wellsite geology services company. Cool Sorption is a provider
of vapour recovery units and systems. Other investments
mainly include 50 percent of DOF Deepwater, a subletting
portfolio through Akastor Real Estate and an investment in
Aker Pensjonskasse.
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.
Annual Report 2017 | Corporate Governance StatementCorporate Governance Statement
12
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.
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. In 2017, Akastor
launched an updated version of the Code of Conduct with
increased scope and four new chapters added.
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
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 and
we believe our approach to corporate responsibility supports
several of the UN Sustainable Development Goals.
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
in respect of the corporate social
Further
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
2017.
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.
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.
Annual Report 2017 | Corporate Governance Statement 13
3. Equity and Dividends
Equity
The management and the board regularly monitor that the
group’s equity and liquidity are appropriate for its objectives,
strategy and risk profile. The book equity of the group as per
December 31, 2017 is NOK 5 277 million, which represents an
equity ratio of 51 percent. The management of financial risk is
further described in the annual report.
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 authorizations
for share capital increases, share buy-backs or similar shall be
for defined purposes, such as share purchase programs and
acquisitions of companies, and shall remain in effect until the
next annual general meeting.
The company’s annual general meeting on April 6, 2017 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 2018, however in no circumstances beyond June
30, 2018. No shares were bought by the company in 2017
pursuant to the authorizations to the board of directors. As of
December 31, 2017, the company holds 2 776 376 own shares.
In addition, the annual general meeting in 2017 granted the
board of directors the mandate to approve the distribution of
dividends based on the company’s annual accounts for 2016 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 2018.
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.
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 2017.
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, 2017, Aker ASA holds 70 percent of the
shares of Aker Kværner Holding AS which holds 40.27 percent
of the shares of Akastor. As of 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
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
information from
distribution of unpublished accounting
IFRS 10. Akastor
Annual Report 2017 | Corporate Governance Statement 14
Akastor to Aker ASA is executed under strict confidentiality
and in accordance with applicable regulations on handling of
inside information.
If grounds for legal incapacity are established, the relevant
board member will, as a ground rule, not be granted access to
any documentation prepared to the board of directors for the
deliberation of the agenda item in question.
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.
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;
election of the external auditor and approval of the
auditor’s fee;
Annual Report 2017 | Corporate Governance Statement 15
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 preparations
for the general meetings significantly.
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.
Shareholders will have the opportunity to cast votes
electronically in advance of general meetings (however, not
during the meeting).
the
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. Gerhard Heiberg is elected up
until the annual general meeting 2018, while Leif-Arne Langøy,
Arild S. Frick and Georg Fr. Rabl are elected up until the annual
general meeting 2019. 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.
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.
Annual Report 2017 | Corporate Governance Statement 16
8. Composition and Independence of the Board of
Directors
at its disposal. Among the five shareholder-elected directors,
the majority are deemed independent from the company’s
largest indirect shareholder, Aker ASA.
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, 2017, 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, 2017 will be set out in the «Management
remunerations» note to the consolidated financial statements
in the annual report for 2017. 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 and Sarah Ryan 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 2017.
The appointment of employee representatives to the board of
directors is conducted as prescribed by the Public Limited
Liability 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
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 in
2017. The aggregate attendance rate at the board meetings
was 93.7 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. Endeavours are made to prepare and present matters 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 itself
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 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.
Annual Report 2017 | Corporate Governance Statement 17
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 Henning Jensen. 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, 2017, there are no other
board committees than the audit committee. The board does
not envisage appointing any further board committees in 2018.
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
governance, effective
internal controls and proper risk
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.
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.
Risk Management
Akastor and its portfolio companies are exposed to a variety of
market, operational and financial risks. 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.
Being an investment company, the main objective of Akastor is
to create value for its shareholders. Potential impacts on the
net asset value, share price or predictability of earnings are
therefore key parameters in the board’s risk evaluation. Sound
risk management throughout the organization is recognized
by Akastor as an invaluable tool in the process of achieving
strategic, financial and operational goals while at the same
time ensuring compliance with regulatory requirements and
adherence to high integrity standards.
Risk evaluation is an integral part of all business activities and
Akastor employs a decentralized 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 authorization 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
although Akastor acts as an active driver through
its
involvement in the boards and through support and follow-up
by the various Akastor corporate functions towards relevant
functions in the portfolio companies.
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
risk management, market conditions,
Annual Report 2017 | Corporate Governance Statement 18
provide a solid foundation for Akastor’s assessment of its
overall financial and operational risk.
A key risk in one of the smaller portfolio companies may still be
negligible on the group level, whereas important risks in the
largest portfolio companies may have a serious impact on the
group as a whole. Akastor’s decentralized approach to
operational risk management, as described above, raises a
need for management to process and calibrate the insight
obtained through various
interfaces with the portfolio
companies prior to the board’s annual risk review. The objective
of such exercise is to ensure that risks are reported in a format
that allows the board to acquire a true and fair view of the
overall risk environment of the Akastor group in an efficient
manner and to focus its attention on risks that are material on
an aggregated group level.
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.
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 2017 financial year, clearing
meetings with the portfolio companies were held in October
2017 and January 2018. 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.
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 the «Management remunerations»
note to the consolidated financial statements for the group in
the annual report for 2017. 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 6, 2017. The board of directors’ statement on
the remuneration of executive personnel for 2018 will be a
separate item on the agenda for the annual general meeting
on April 6, 2018.
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
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.
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
Annual Report 2017 | Corporate Governance Statement 19
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 at 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.
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 activities 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.
The board of directors has not deemed it appropriate to adopt
specific guidelines for take-over situations as long as the
ownership cooperation context within Aker Kværner Holding
AS remains intact and this company continues to be the
dominant shareholder of Akastor ASA. This represents a
deviation from the Code of Practice.
15. Auditors
The external auditor presents a plan for the performance of
the audit work to the audit committee annually. In addition, the
auditor provides the audit committee with an annual written
confirmation to the effect that the independence requirement
is met. 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
and are also reported to the general meeting. The auditor’s
fees relating to auditing are subject to approval by the general
meeting.
Annual Report 2017 | Corporate Governance Statement 20
a.04. 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
Note 2
Note 3
Note 4
| Corporate information
| Basis for preparation
| Significant accounting principles
| Significant accounting estimates and judgements
Performance of the year
| Discontinued operations
| Operating segments
| Operating revenue and other income
| Salaries, wages and social security costs
| Other operating expenses
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10 | Net finance expenses
Note 11
| Income tax
Note 12 | Earnings per share
Assets
Note 13 | Property, plant and equipment
Note 14 | Intangible assets
Note 15 | Impairment testing of goodwill
Note 16 | Equity-accounted investees
Note 17 | Other non-current assets
Note 18 | Other investments
Note 19 | Construction contracts
Note 20 | Inventories
Note 21 | Trade and other receivables
Note 22 | Cash and cash equivalents
Equities and liabilities
Note 23 | Capital and reserves
Note 24 | Borrowings
Note 25 | Other non-current liabilities
Note 26 | Employee benefits - pension
Note 27 | Provisions
Note 28 | Trade and other payables
Financial risk management
Note 29 | Capital management
Note 30 | Financial risk management and exposures
Note 31 | Derivative financial instruments
Note 32 | Financial instruments
Other
Note 33 | Operating leases
Note 34 | Group companies
Note 35 | Related parties
Note 36 | Contingencies
Note 37 | Management remunerations
21
22
23
24
25
26
26
29
35
37
38
41
41
42
42
43
45
46
48
49
50
51
51
52
52
52
53
53
54
56
56
59
60
60
61
64
66
68
70
72
73
74
Annual Report 2017 | Financials and Notes | Akastor GroupFinancials and Notes | Akastor Group 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
Net finance expenses
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.
21
2016
Restated *)
4 805
170
4 975
(1 963)
(2 156)
(765)
(4 884)
91
(688)
(473)
(1 071)
13
(684)
(289)
(214)
(1 174)
2017
4 296
52
4 348
(1 865)
(1 657)
(533)
(4 055)
293
(612)
(118)
(438)
93
(545)
(111)
(212)
(774)
(1 212)
(2 245)
106
(1 106)
1 049
(58)
293
(1 953)
670
(1 282)
(58)
(1 282)
(0.21)
(4.08)
(4.73)
(7.20)
Note
6, 7
6, 7
8
9
13, 14
13, 14
16
10
11
5
12
12
Annual Report 2017 | Financials and Notes | Akastor Group
22
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
Total changes in fair value 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
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
Note
2017
2016
(58)
(1 282)
5
26
71
(17)
15
(5)
64
9
(60)
(227)
(13)
(227)
(7)
(11)
(17)
180
(44)
(537)
134
(267)
-
(81)
(105)
(35)
(488)
(40)
4
(36)
(245)
(524)
(303)
(1 806)
(303)
(1 806)
Annual Report 2017 | Financials and Notes | Akastor Group
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 receivables
Equity-accounted investees
Other investments
Total non-current assets
Current tax assets
Inventories
Trade and other receivables
Derivative financial instruments
Current interest-bearing receivables
Other current assets
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
Provisions, non-current
Total non-current liabilities
Current borrowings
Current tax liabilities
Provisions, current
Trade and other payables
Derivative financial instruments
Liabilities classified as held for sale
Total current liabilities
Total liabilities
Total equity and liabilities
23
Note
2017
2016
13
11
14
17
16
18
20
21
31
22
5
23
23
24
26
11
25
27
24
27
28
31
5
4 419
661
1 435
1
100
10
536
7 163
21
569
2 263
94
-
51
168
-
3 165
10 328
162
(2)
1 534
566
3 017
5 277
5 277
2 133
349
10
110
221
2 823
399
23
293
1 493
20
-
2 228
5 051
10 328
5 198
600
1 731
51
104
93
121
7 897
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
Fornebu, March 9, 2018 I 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
Henning Jensen | Director
Asle Christian Halvorsen | Director
Stian Sjølund | Director
Karl Erik Kjelstad | CEO
Annual Report 2017 | Financials and Notes | Akastor Group
24
Akastor Group | Consolidated statement of changes in equity
Amounts in NOK million
Share
capital
Treasury
shares
Other
capital
paid in
Retained
earnings
Hedging
reserve 1)
Fair value
reserve 1)
Remeasure-
ment gain
(loss) net
defined benefit
obligations
Total
parent
company
equity
holders
Currency
translation
reserve 1)
Total
equity
2016
Equity as of
January 1, 2016
Profit for the period
Other comprehensive
income
Total comprehensive
income
Equity as of
December 31, 2016
2017
Profit (loss) for the
period
Other comprehensive
income
Total comprehensive
income
Equity as of
December 31, 2017
162
(2)
1 534
-
-
-
-
-
-
-
-
4 357
(1 282)
282
-
-
(267)
(1 282)
(267)
162
(2)
1 534
3 075
15
-
-
-
-
-
-
-
-
-
(58)
-
(58)
162
(2)
1 534
3 017
-
64
64
79
-
-
-
-
-
-
9
9
9
1 296
-
(220)
(220)
(243)
7 386
7 386
-
(1 282)
(1 282)
(36)
(524)
(524)
(36)
(1 806)
(1 806)
1 075
(278)
5 580
5 580
-
-
(58)
(58)
(300)
(300)
(17)
(245)
(245)
(17)
(303)
(303)
775
(296)
5 277
5 277
1) See note 23 Capital and reserves for more information.
Annual Report 2017 | Financials and Notes | Akastor Group
25
Akastor Group | Consolidated statement of cash flow
For the year ended December 31
Amounts in NOK million
Note
2017
2016
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
Acquisition of/capital contribution to equity-accounted investments
Proceeds from (acquisition of) other investments
Net cash from investing activities
Cash flow from financing activities
Proceeds from borrowings
Repayment of borrowings
Payment of finance lease liabilities
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.
5
13, 14
16
13
14
5
24
22
5
(1 106)
1 049
(58)
(74)
394
111
752
(1 088)
(11)
176
(69)
134
(376)
(242)
(410)
38
(59)
(673)
-
(70)
(27)
868
4
(28)
(9)
737
(1 953)
670
(1 282)
(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
647
421
(942)
(3 045)
(95)
(391)
(45)
(371)
540
168
-
8
-
(2 624)
11
(22)
563
540
53
9
Annual Report 2017 | Financials and Notes | Akastor Group
26
Note 1 | Corporate information
Akastor ASA is a limited liability company incorporated and domiciled in
board of directors and CEO on March 9, 2018. 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
2018.
is Aker Kværner Holding AS and the ultimate parent company is The
Resource Group TRG AS.
The group is an oilfield 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, 2017 were approved by the
party relationships of the group is provided in note 35 Related parties.
Note 2 | Basis for preparation
Basis of accounting
Use of estimates and judgements
The consolidated financial statements have been prepared in accordance
The preparation of financial statements in conformity with IFRS requires
with International Financial Reporting Standards as adopted by the
management to make judgements, estimates and assumptions that affect
European Union (IFRS), their interpretations adopted by the International
the application of policies and reported amounts of assets and liabilities,
Accounting Standards Board (IASB) and the additional requirements of
income and expenses. Although management believes these assumptions
the Norwegian Accounting Act as of December 31, 2017.
to be reasonable, given historical experience, actual amounts and results
could differ from these estimates. The items involving a higher degree of
Going concern basis of accounting
judgement or complexity, and items where assumptions and estimates are
The consolidated financial statements have been prepared on a going
material to the consolidated financial statements, are disclosed in note 4
concern basis, which assumes that the group will be able to meet the
Significant accounting estimates and judgements.
mandatory terms and conditions of the banking facilities as disclosed in
note 29 Capital management.
The estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognized in the period in
Basis of measurement
which the estimate is revised and in any future periods affected.
The consolidated financial statements have been prepared on the historical
cost basis except for the following material items, which are measured on
Adoption of new and revised standards and interpretations
an alternative basis on each reporting date:
The accounting policies adopted are consistent with those of the previous
Derivative financial instruments are measured at fair value.
with effect from January 1, 2017, with no implementation impact on the
financial year. The following standards and interpretations were adopted
group’s consolidated financial statements:
Available-for-sale financial assets are measured at fair value.
Contingent consideration assumed in business combinations are
measured at fair value.
Disclosure Initiative (Amendments to IAS 7)
Recognition of Deferred Tax Assets for Unrealized Losses
(Amendments to IAS 12)
Net defined benefit (asset) liability is recognized at fair value
of plan assets less the present value of the defined benefit
Annual Improvement to IFRSs 2014-2016 Cycle – various
obligation.
standards (Amendments to IFRS 12)
Functional and presentation currency
Standards issued but not yet effective
The consolidated financial statements are presented in NOK, which is
At the date of authorization of the group’s consolidated financial
Akastor ASA’s functional currency. All financial information presented in
statements, a number of new standards and interpretations were issued
NOK has been rounded to the nearest million (NOK million), except when
but not yet effective. The group has not early adopted any new or amended
otherwise stated. The subtotals and totals in some of the tables in these
standards for the financial statements as of December 31, 2017.
consolidated financial statements may not equal the sum of the amounts
shown due to rounding.
The group is required to adopt IFRS 15 Revenue from Contracts with
Customers and IFRS 9 Financial Instruments from January 1, 2018. The
When the functional currency in a reporting unit is changed, the effect of
group has assessed the estimated impact of these two new standards.
the change is accounted for prospectively.
The estimated impact on the group’s financial statements as of January
1, 2018 is summarized below. The actual impacts may deviate from the
estimates.
Annual Report 2017 | Financials and Notes | Akastor Group 27
Estimated impact of adoption of IFRS 15 and IFRS 9
Amounts in NOK million
Estimated adjustments to opening balance at January 1, 2018
Deferred tax assets
Trade and other receivables
Derivative financial assets
Total assets
Reserves
Retained earnings
Total equity
IFRS 15
IFRS 9
Total
8
(34)
-
(26)
-
(26)
(26)
13
-
(58)
(45)
(45)
-
(45)
21
(34)
(58)
(71)
(45)
(26)
(71)
IFRS 15 Revenue from Contracts with Customers
Rending of services
(effective from January 1, 2018)
Revenue from services rendered is currently recognized in the
The standard will supersede the current revenue recognition guidance
income statement in proportion to the stage of completion of
including IAS 18 Revenue, IAS 11 Construction contracts and the related
the transaction or when the customer is invoiced based on hours
interpretations when it becomes effective. IFRS 15 introduces a new five-
performed at agreed rates. Based on its assessment, the group
step model that applies to revenue arising from contracts with customers.
does not expect significant impact on revenue recognition of
these services from the application of IFRS 15.
The group initiated an implementation process in 2016 to systematically
analyze and evaluate the application impact and more detailed review of
Constraint of variable considerations
existing customer contracts have been carried out in 2017.
To include variable considerations in the estimated contract
Construction contracts
revenue under IFRS 15, the entity has to conclude that it is highly
probable that a significant revenue reversal will not occur when the
The construction contracts currently in the scope of IAS 11 are
uncertainties related to the variability are resolved. The threshold
reassessed according to IFRS 15 to evaluate whether the revenue
of including variable considerations in revenue recognition is
from such contracts shall be recognized over time or at a point
higher than the requirements under current standards. Based on
in time. Based on its assessment, the group does not expect the
its assessment, the group does not anticipate significant changes
application of IFRS 15 to result in significant changes in the timing
in the measurement of revenue from the application of IFRS 15.
of revenue recognition for these contracts.
For revenue that is to be recognized over time, the group is
retrospectively with the cumulative effect of initial application recognized
currently using the percentage of completion method. The group
as an adjustment to the opening balance of retained earnings as of January
has assessed whether the current method of measuring progress
1, 2018. Under this transition method, the new standard will be applied
is consistent with the requirements of measuring progress
retrospectively only to contracts that are not completed by January 1,
according to IFRS 15. Based on its assessment, the group plans
2018, and the comparable information presented will not be restated.
On transition to IFRS 15, the group plans to apply the new standard
to implement the input method (cost incurred to date compared
to estimated total costs) to measure progress under IFRS 15. The
IFRS 9 Financial Instruments (effective from January 1, 2018)
changes in progress measurement will result in some changes in
The standard will replace IAS 39 Financial Instruments Recognition and
the revenue recognition of the construction contracts that are
Measurement. The standard includes revised guidance on classification
not completed as of January 1, 2018. The estimated impact is
and measurement of financial instruments, including a new expected
summarized in the table above.
credit loss model for calculating impairment on financial assets, and new
general hedge accounting requirements.
Sale of goods
Revenue from the sale of goods is currently recognized in the
Classification – Financial assets
income statement when the significant risks and rewards of
IFRS 9 contains a new classification and measurement approach
ownership have been transferred to the buyer, which is usually
for financial assets that reflects the business model in which
when goods are delivered to customers. Under IFRS 15, revenue
assets are managed and their cash flow characteristics. The
will be recognized when a customer obtains control of the goods.
standard contains three principal classification categories:
Based on the group’s assessment, the timing of the customers
measured at amortized costs, Fair value to Other Comprehensive
obtaining control of the goods is essentially similar to the timing
Income (FVOCI) and Fair value to Profit and Loss (FVTPL).
when the goods are delivered to the customers. The group does
not expect the application of IFRS 15 to result in significant
impact on revenue recognition of these customer contracts.
Annual Report 2017 | Financials and Notes | Akastor Group 28
Based on
its assessment, the group expects the current
The transition to IFRS 9 will generally be applied retrospectively, with the
classifications of the financial instruments held as of December
following exemptions:
31, 2017 (see note 32 Financial instruments) will be classified as
the following under IFRS 9. The group does not expect the new
The group will adopt the exemption allowing it not to restate
classifications will have a significant impact on the consolidated
comparative
information for prior years with respect to
financial statements as of January 1, 2018.
classification and measurement changes, including impairment
Currently under IAS 39
Under IFRS 9
recognized as an adjustment to the opening balance of the equity
measurement. Any impact from the adoption of IFRS 9 will be
Classifications
Measurement
Classification and
Measurement
as of January 1, 2018.
Loans and receivables
Amortized cost
Amortized cost
FVTPL
Available for sale
Fair value-hedging
instrument
FVTPL
FVOCI
FVTPL
FVTPL
FVOCI
Fair value-hedging
instrument
Impairment – Financial assets and contract assets
The new hedge accounting requirements will be applied
prospectively.
IFRS 9 is not applied to financial assets or financial liabilities that
have been derecognized at the initial application on January 1,
2018.
IFRS 9 replaces the “incurred loss” model in IAS 39 with a
IFRS 16 Leases (effective from January 1, 2019, but not approved
forward-looking “expected credit loss” (ECL) model. The new
by the EU)
impairment model will apply to financial assets measured at
The standard replaces IAS 17 Leases and the related interpretations. The
amortized costs or FVOCI and contract assets, except for equity
new standard introduces a single, on-balance sheet lease accounting model
instruments. Under IFRS 9, loss allowance will be measured
for lessees, with optional exemptions for short-term leases and leases of
based on either “12-month ECLs” or “lifetime ECLs”. The group
low value items. A lessee recognizes a right-of-use asset representing
will apply the simplified approach and apply “lifetime ECLs” for all
its right to use the underlying asset and a lease liability representing its
trade receivables and contract assets.
obligation to make lease payments. With regards to lessor accounting, the
Based on the group’s assessment, no significant changes in
loss allowance are deemed necessary in order to satisfy the
The group has started an initial assessment of the potential impact on its
impairment requirement under IFRS 9. The group does not expect
consolidated financial statements and has identified the following main
requirements remain similar to the current standard.
significant impact on the consolidated financial statements from
impact.
the adoption of the new impairment model.
Hedge accounting
The group anticipates that new assets and liabilities will be
recognized for its operating lease agreements where the group
The group uses forward foreign exchange contracts to hedge the
is a lessee. In addition, the nature and timing of expenses related
variability in cash flows arising from changes in foreign exchange
to these leases will change when the straight-line operating lease
rates relating to foreign currency borrowings, receivables, sales
expenses will be replaced by depreciation charge for lease assets
and inventory purchases. Under IAS 39, for all cash flow hedges,
and interest expenses for lease liabilities under IFRS 16.
the amounts accumulated in the cash flow hedge reserve are
reclassified to profit or loss as a reclassification adjustment in
The group does not anticipate significant impact for the group’s
the same period as the hedged transaction occurs and affects
finance leases.
profit or loss. However, under IFRS 9, for cash flow hedges
associated with forecast transactions that subsequently result in
The assessment of potential impact of implementation will be continued
recognition of a non-financial asset, the amounts accumulated in
in 2018. The group plans to apply IFRS 16 initially on January 1, 2019, using
the cash flow hedge reserve and the cost of hedging reserve will
the modified retrospective approach. Therefore, the cumulative effect
instead be included directly in the initial cost of the non-financial
of adopting IFRS 16 will be recognized as an adjustment to the opening
asset when recognised. This change will result in a reduction of
balance of retained earnings as of January 1, 2019, with no restatement of
the carrying amounts of Hedge reserve and Derivative financial
comparative information.
assets related to these cash flow hedges. The estimated impact
is summarized in the table above.
The new hedge accounting rules will align the accounting
for hedging
instruments more closely with the group’s
risk management practices. As a general rule, more hedge
relationships might be eligible for hedge accounting as the
standard introduces a more principles-based approach. The
group has concluded that its current hedge relationships will
qualify as hedges upon the adoption of IFRS 9.
Annual Report 2017 | Financials and Notes | Akastor Group 29
Note 3 | Significant accounting policies
Summary of significant accounting policies
A joint venture is an arrangement in which the group has joint control,
The principal accounting policies applied in the preparation of these
whereby the group has rights to the net assets of the arrangement, rather
consolidated financial statements are set out below. These policies have
to its assets and obligations for its liabilities. Joint control is established
been consistently applied to all the years presented, unless otherwise
by contractual agreement requiring unanimous consent of the ventures
stated.
Basis of consolidation
Subsidiaries
for strategic, financial and operating decisions. An associate is an entity
in which there group has significant influence, but not control or joint
control, over the financial and operating policies.
Subsidiaries are entities controlled by the group. The group controls
Interests in joint ventures and associates are accounted for using the
an entity when it is exposed to, or has rights to, variable returns from
equity method. They are initially recognized at cost, which includes
its involvement with the entity and has the ability affect those returns
transaction costs. Subsequent to initial recognition, the consolidated
through its power over the entity. The financial statements of subsidiaries
financial statements include the group’s share of the profit and loss and
are included in the consolidated financial statements from the date on
other comprehensive income of the equity-accounted investees. The
which control commences until the date of which control ceases.
group’s investment includes goodwill identified on acquisition, net of
Business combinations
any accumulated impairment losses. When the group’s share of losses
exceeds its interest in an equity-accounted investee, the carrying amount
Business combinations are accounted for using the acquisition method
of that interest, including any long-term investments, is reduced to zero,
as of the acquisition date, which is the date when control is transferred
and further losses are not recognized except to the extent that the group
to the group. The consideration transferred in the acquisition is generally
incurs legal or constructive obligations or has made payments on behalf
measured at fair value, as are the identifiable net assets acquired. Any
of the investee.
goodwill that arises is tested annually for impairment.
Transaction costs, other than those associated with the issue of debt or
share of profit and loss of the equity-accounted investee in the income
equity securities incurred in connection with a business combination are
statement. When the entity is established to share risk in executing a
The purpose of the investment determines the presentation of the group’s
expensed as incurred.
project or is closely related to Akastor’s operating activities, the share of
profit or loss is reported as part of Other income in Operating Profit. Share
Any contingent consideration payable is measured at fair value at the
of the profit or loss of a financial investment is reported as part of Net
acquisition date. Changes in the fair value of the contingent consideration
finance expenses.
from acquisition of a subsidiary or non-controlling interest for transactions
will be recognized in Other income as gain or loss, except for the obligation
Transactions eliminated on consolidation
that is classified as equity.
Intra-group balances and transactions, and any unrealized gains and
losses or income and expenses arising from intra-group transactions, are
When the group has entered into put options with non-controlling
eliminated in preparing the consolidated financial statements. Unrealized
shareholders on their shares in that subsidiary, the anticipated acquisition
gains arising from transactions with associates and joint ventures are
method is used. The agreement is accounted for as if the put option had
eliminated to the extent of the group’s interest in the entity. Unrealized
already been exercised. If the put option expires unexercised, then the
losses are eliminated in the same way as unrealized gains, but only to the
liability is derecognized and the non-controlling interest is recognized.
extent that there is no evidence of impairment.
Loss of control
Assets held for sale
On the loss of control, the group derecognizes the assets and liabilities of
Non-current assets, or disposal groups comprising assets and liabilities, that
the subsidiary, any non-controlling interests and the other components of
are expected to be recovered primarily through sale rather than through
equity. Any resulting gain or loss is recognized in the income statement.
continuing use, are classified as held for sale. This condition is regarded as
Any interest retained in the former subsidiary is measured at fair value
met only when the sale is highly probable and the asset or disposal group is
when control is lost. Subsequently it is accounted for as an equity-
available for immediate sale in its present condition. Management must be
accounted investee or as an available-for-sale financial asset depending
committed to the sale, which should be expected to qualify for recognition
on the level of influence retained.
as a completed sale within one year from the date of classification.
Any contingent consideration receivable is measured at fair value at the
Non-current assets and disposal groups classified as held for sale are
disposal date. Changes in the fair value of the contingent consideration
measured at the lower of their carrying amount and fair value less costs to
from divestment of a subsidiary for transactions will be recognized in
sell. Property, plant and equipment and intangible assets once classified as
Other income as gain or loss.
held for sale are not depreciated or amortized, but are considered in the
overall impairment testing of the disposal group.
Investments in joint ventures and associates
The group’s interests in equity-accounted investees comprise interests in
No reclassifications are made for years prior to the year when non-current
joint ventures and associates.
assets or disposal groups are classified as a held for sale.
Annual Report 2017 | Financials and Notes | Akastor Group 30
Discontinued operations
Current/non-current classification
A discontinued operation is a component of the group’s business that
An asset is classified as current when it is expected to be realized or is
represents a separate major line of business or geographical area of
intended for sale or consumption in the group’s normal operating cycle, it
operations that has been disposed of or is held for sale, or is a subsidiary
is held primarily for the purpose of being traded, or it is expected/due to
acquired exclusively with a view to resale. Classification as a discontinued
be realized or settled within twelve months after the reporting date. Other
operation occurs upon disposal or when the operation meets the criteria
assets are classified as non-current.
to be classified as held for sale, if earlier.
In the consolidated income statement, income and expenses from
group’s normal operating cycle, is held primarily for the purpose of being
discontinued operations are reported separately from income and
traded, the liability is due to be settled within twelve months after the
expenses from continuing operations, down to the level of profit after
reporting period, or if the group does not have an unconditional right
taxes. When an operation is classified as a discontinued operation, the
to defer settlement of the liability for at least twelve months after the
comparative income statement is restated as if the operation had been
reporting period. All other liabilities are classified as non-current.
A liability is classified as current when it is expected to be settled in the
discontinued from the start of the comparative year.
The statement of cash flow includes the cash flow from discontinued
Financial assets and liabilities in the group consist of investments in other
operations prior to the disposal. Cash flows attributable to the operating,
companies, trade and other receivables, interest-bearing receivables,
investing and financing activities of discontinued operations are presented
cash and cash equivalents, trade and other payables and interest-bearing
in the notes to the extent these represent cash flows with third parties.
borrowing.
Financial assets, financial liabilities and equity
Foreign currency
The group initially recognizes borrowings and receivables on the date
Foreign currency transactions and balances
when they are originated. All other financial assets and financial liabilities
Transactions in foreign currencies are translated at the exchange rate at
are initially recognized on the trade date.
the date of the transaction. Monetary assets and liabilities denominated
in foreign currencies at the reporting date are translated to the functional
Other investments
currency at the exchange rate on that date. Foreign exchange differences
Other investments include equity and debt investments where the group
arising on translation are recognized in the income statement. Non-
has neither control nor significant influence, usually represented by less
monetary assets and liabilities measured in terms of historical cost in a
than 20 percent of the voting power. The investments are categorized as
foreign currency are translated using the exchange rate on the date of the
available-for-sale financial assets and are recognized initially at fair value.
transaction. Non-monetary assets and liabilities denominated in foreign
Subsequent to initial recognition, they are measured at fair value and
currencies that are measured at fair value are translated to the functional
changes therein, other than impairment losses, are recognized in other
currency at the exchange rates on the date the fair value is determined.
comprehensive income and presented as part of fair value reserve. When
Investments in foreign operations
comprehensive income is reclassified to profit and loss. Impairment losses
Items included in the financial statements of each of the group’s entities
are recognized in the income statement when the decrease in fair value is
an investment is derecognized, the gain or loss accumulated in other
are measured using the currency of the primary economic environment
significant or prolonged.
in which the entity operates. The results and financial positions of all the
group entities that have a functional currency different from the group’s
Trade and other receivables
presentation currency are translated into the presentation currency as
Trade receivables are recognized at the original invoiced amount, less an
follows:
allowance made for doubtful receivables. Other receivables are recognized
initially at fair value. Trade and other receivables are valued at amortized
Assets and liabilities, including goodwill and fair value adjustments,
cost using the effective interest rate method. The interest rate element is
are translated at the closing exchange rate at the reporting date.
disregarded if insignificant, which is the case for the majority of the group’s
Income statements are translated at average exchange rate for
the year, calculated on the basis of 12 monthly rates.
Interest-bearing receivables
trade receivables.
Exchange differences arising from the translation of the net investment
receivables with fixed or determinable payments that are not quoted in an
in foreign operations, and of related hedges, are included in other
active market. Such financial assets are recognized initially at fair value and
comprehensive income as currency translation reserve. These translation
subsequent measurement at amortized cost using the effective interest
Interest bearing receivables include loans to related parties and other
differences are reclassified to the income statement upon disposal of the
method, less any impairment losses.
related operations or when settlement is likely to occur in the near future.
Cash and cash equivalents
Monetary items that are receivable from or payable to a foreign operation
Cash and cash equivalents include cash on hand, demand deposits held
are considered as part of the net investment in that foreign operation,
at banks and other short-term highly liquid investments with original
when the settlement is neither planned nor likely to occur in the
maturity of three months or less.
foreseeable future. Exchange differences arising from these monetary
items are recognized in other comprehensive income.
Annual Report 2017 | Financials and Notes | Akastor Group 31
Trade and other payables
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
contracts and currency swaps to hedge its exposure to foreign exchange
immediately in the income statement. All foreign currency exposure is
risks arising from operational, financial and investment activities. These
hedged, so the hedging instrument to the embedded derivative will also
derivative financial instruments are accounted for as cash flow hedges
have corresponding opposite fair value changes in the income statement.
since highly probable future cash flows are hedged (rather than committed
revenues and expenses). The group also has embedded foreign exchange
Finance income and expense
derivatives which have been separated from their ordinary commercial
Finance income and expense include interest income and expense,
contracts. Derivative financial instruments are recognized initially at fair
foreign exchange gains and losses, dividend income and gains and losses
value. Derivatives are subsequently measured at fair value, and changes in
on derivatives. Interest income and expenses include calculated interest
fair value are accounted for as described below.
using the effective interest method, in addition to discounting effects from
Cash flow hedge
assets and liabilities measured at fair value. Gains and losses on derivatives
include effects from derivatives that do not qualify for hedge accounting
Hedging of the exposure to variability in cash flows that is attributable
and embedded derivatives, in addition to the ineffective portion of
to a particular risk or a highly probable future cash flow is defined as
qualifying hedges.
a cash flow hedge. The effective portion of changes in the fair value is
recognized in other comprehensive income as a hedge reserve. All foreign
Revenue recognition
exchange exposure is hedged, of which about 80 percent qualifies for
Construction contracts
hedge accounting. The gain or loss relating to the ineffective portion of
Construction contract revenues are recognized by reference to the stage
derivative hedging instruments is recognized immediately in the income
of completion of a contract, referred as the percentage of completion
statement as finance income or expense. Amounts accumulated in hedge
method. The stage of completion is determined by the method that
reserves are reclassified to the income statement in the periods when the
measures reliably the work performed. Depending on the nature of the
hedged item is recognized in the income statement.
contract, the two main methods used by Akastor to assess stage of
Hedge accounting is discontinued when the hedge no longer qualifies for
hedge accounting. Disqualification occurs when the hedging instrument
Technical completion, or
expires, is sold, terminated or exercised, or when a forecast transaction
completion are:
is no longer expected or the hedge is no longer effective. When a hedge
Contract costs incurred to date compared to estimated total
is disqualified, the cumulative gain or loss that was recognized in the
contract costs.
hedge reserve is recognized immediately in the income statement unless
it relates to a future cash flow that is likely to occur, but don’t qualify for
When the final outcome of a contract cannot be reliably estimated,
hedge accounting, in which the accumulated hedge reserve remains in
contract revenue is recognized only to the extent of costs incurred that are
other comprehensive income until the hedged cash flow is recognized in
expected to be recoverable. The revenue recognized in one period will be
income statement.
Net investment hedge
the revenues attributable to the period’s progress and adjustments related
to changes in the estimated final outcome, if any. Losses on contracts are
fully recognized when identified.
Hedge of net investment in a foreign operation is accounted for similarly
to cash flow hedges. Gains or losses arising from the hedging instruments
Contract revenues include variation orders and incentive bonuses when it
relating to the effective portions of the net investment hedge are
is probable that they will result in revenue that can be measured reliably.
recognized in other comprehensive income as currency translation
Disputed amounts and claims are only recognized when negotiations
Annual Report 2017 | Financials and Notes | Akastor Group 32
have reached an advanced stage, customer acceptance is highly likely and
deferred tax. Income tax is recognized in the income statement except
the amounts can be measured reliably. Options for additional assets are
to the extent that it relates to items recognized directly in equity or other
included in the contract when exercised by the customer.
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 customers, 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 when the customer is invoiced based on hours performed at
amounts used for taxation purposes. Deferred tax is not recognized for:
agreed rates. The stage of 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
Lease revenue
Lease revenue from time charters and bareboat charters is recognized
Temporary differences relating to investments in subsidiaries to
daily over the term of the charter. The company does not recognize
the extent that they will not reverse in the foreseeable future.
revenue during days when the vessel is off-hire. Lease revenue from
other operating leases, mainly related to office leases, is recognized on
Deferred tax is measured at the tax rates that are expected to be applied
a straight-line basis over the term of the relevant lease. Lease revenue is
to temporary differences when they reverse, based on the tax rates that
included in operating revenue as service revenue.
have been enacted or substantively enacted at the reporting date.
Other income
Deferred tax assets and liabilities are offset if there is a legally enforceable
Gains and losses resulting from acquisition and disposal of businesses
right to offset current tax liabilities and assets, and they relate to income
which do not represent discontinued operations are included in Other
taxes levied by the same tax authority on the same taxable entity, or on
income. Such gains may result from the remeasurement of a previously
different taxable entities which intend either to settle current tax liabilities
held interest in the acquired entity. Changes in the fair value of the
and assets on a net basis, or to realize the tax assets and settle the
contingent consideration from acquisition or disposal of a subsidiary are
liabilities simultaneously.
recognized as part of Other income.
Share of profit and loss from associated companies and joint ventures,
deductible temporary differences, to the extent that it is probable that
to the extent that these investments are related to the group’s operating
future taxable profits will be available against which they can be utilized.
activities, are included in Other income, as well as gains and losses related
Measurement of deferred tax assets are reviewed at each reporting date.
Deferred tax assets are recognized for unused tax losses, tax credits and
to the sale of operating assets.
Expenses
Construction contracts
Construction work in progress
Construction work in progress represents the aggregate amount of
costs incurred and recognized profits, less the sum of recognized losses
Contract costs include costs that relate directly to the specific contract
and progress billings. The presentation of construction work in progress
and allocated costs that are attributable to general contract activity.
in the statement of financial position depends on the financial status of
Costs that cannot be attributed to contract activity are expensed. Tender
the individual projects. All projects with net amounts due from customers
costs are capitalized when it is probable that the company will obtain the
are summarized and presented as an asset, and all projects with net
contract. All other bidding costs are expensed as incurred. See note 4
amounts due to customers are summarized and presented as a liability in
Significant accounting estimates and judgements for further description
the statement of financial position. Advances are presented separately as
of recognition of construction contract costs.
such advances represent payments from customers in excess of the work
Lease payments
Lease payments made under operating leases are recognized in the
Inventories
performed.
income statement on a straight-line basis over the lease term. Any lease
Inventories are stated at the lower of cost or net realizable value. Net
incentives received are recognized as an integral part of the total lease
realizable value is the estimated selling price in the ordinary course of
expense, over the lease term.
business, less the estimated costs of completion and selling expenses.
Income tax
The cost of inventories is based on the first-in first-out principle and
Income tax recognized in the income statement comprises current and
includes expenditures incurred in acquiring the inventories and bringing
Annual Report 2017 | Financials and Notes | Akastor Group 33
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 finance expense.
Financial assets 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
calculated as the present value of estimated future cash flows, discounted
to be derived by the group from a contract are lower than the unavoidable
at the original effective interest rate (the effective interest rate computed
costs of meeting the obligations under the contract. The provision is
at initial recognition of the financial assets). Impairment losses are
measured at the lower of the expected cost of terminating the contract
recognized only if there is objective evidence of impairment as a result of
and the expected net cost of continuing with the contract. Before a
one or more events that occur after the initial recognition of the asset (a
provision is recognized, the group recognizes any impairment loss on the
loss event) and the loss event has an impact on the estimated future cash
assets associated with the contract.
flows of the financial assets that can be reliably estimated.
Restructuring
Non-financial assets
A restructuring provision is recognized when the group has developed a
The carrying amounts of the group’s non-financial assets, other than
detailed formal plan for the restructuring and has raised a valid expectation
employee benefit assets, inventories, deferred tax assets are reviewed
in those affected that the entity will carry out the restructuring by starting
at the end of each reporting period to determine whether there is any
to implement the plan or announcing its main features to those affected by
indication of impairment. If an indication of impairment exists, the asset’s
it. The measurement of a restructuring provision includes only the direct
recoverable amount is estimated. Cash-generating units (CGU) containing
expenditures arising from the restructuring, which are those amounts that
goodwill, intangible assets with an indefinite useful life and intangible
are both necessarily entailed by the restructuring and not associated with
assets that are not yet available for use are tested for impairment annually.
the ongoing activities of the entity.
The recoverable amount is the greater of fair value less costs to sell and
Property, plant and equipment
value in use. In assessing value in use, the estimated future cash flows
Property, plant and equipment are measured at cost less accumulated
are discounted to their present value using a pre-tax discount rate that
depreciation and impairment losses. The cost of self-constructed assets
reflects current market assessments of the time value of money and the
includes the cost of materials, direct labour, borrowing costs on qualifying
risks specific to the asset. For an asset that does not generate largely
assets, production overheads and the estimated costs of dismantling and
independent cash inflows, the recoverable amount is determined for the
removing the assets and restoring the site on which they are located.
CGU to which the asset belongs.
If the components of property, plant and equipment have different useful
An impairment loss is recognized whenever the carrying amount of an
lives, they are accounted for as separate components.
asset or a CGU exceeds its recoverable amount. Impairment losses are
recognized in the income statement.
Subsequent costs
An impairment loss recognized in respect of CGU (or a group of CGUs)
property, plant and equipment when that cost is incurred if it is probable
containing goodwill is allocated first to goodwill and then to the other
that the future economic benefits embodied with the item will flow to the
assets in the CGU(s) on a pro rata basis.
group and the cost of the item can be measured reliably. All other costs
The group capitalizes the cost of a replacement part or a component of
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
Depreciation
are expensed as incurred.
to determine the recoverable amount, and the change can be objectively
Depreciation is normally recognized on a straight-line basis over the
related to an event occurring after the impairment is recognized. An
estimated useful lives of property, plant and equipment.
Annual Report 2017 | Financials and Notes | Akastor Group 34
Finance leases
Capitalized development expenditure is measured at cost less accumulated
Leases where the group assumes substantially all the risks and rewards
amortization and accumulated impairment losses.
of ownership are classified as finance leases. At initial recognition, finance
leases are recognized at the lower of the fair value of the leased asset
Other intangible assets
and the present value of the minimum lease payments. The corresponding
Acquired intangible assets are measured at cost less accumulated
liability to the lessor is included in the statement of financial position
amortization and impairment losses.
as other non-current liabilities except for first year instalment which is
recognized as current liabilities. Lease payments are apportioned between
Subsequent expenditures
finance charges and reduction of the lease obligation so as to achieve a
Subsequent expenditures on intangible assets are capitalized only when
constant rate of interest of the remaining balance of the liability. Leased
they increase the future economic benefits embodied in the specific asset
assets are depreciated over the shorter of the lease term and their useful
to which they relate. All other expenditures are expensed as incurred.
lives unless it is reasonably certain that the group will obtain ownership by
the end of the lease term.
Amortization
Intangible assets
Goodwill
Amortization is recognized in the income statement on a straight-line
basis over the estimated useful lives of intangible assets unless such useful
lives are indefinite. Intangible assets are amortized from the date they are
Goodwill that arises from the acquisition of subsidiaries is presented as
available for use.
intangible asset. For the measurement of goodwill at initial recognition,
see Business combinations.
Employee benefits
Defined contribution plans
Goodwill is measured at cost less accumulated impairment losses. In
Obligations for contributions to defined contribution pension plans are
respect of equity-accounted investees, the carrying amount of goodwill
recognized as an expense in the income statement as incurred.
is included in the carrying amount of the investment, and any impairment
loss is allocated to the carrying amount of the equity-accounted investee
Defined benefit plans
as a whole.
The group’s net obligation in respect of defined benefit pension plans is
calculated separately for each plan by estimating the amount of future
When the group disposes of an operation within a CGU or group of CGUs
benefit that employees have earned in the current and prior periods;
to which goodwill has been allocated, a portion of the goodwill is included
discounting that amount and deducting the fair value of any plan assets.
in the carrying amount of the operation when determining the gain or loss
on disposal. The portion of the goodwill allocated is measured based on
The calculation of defined benefit obligations is performed annually by
the relative values of the operation disposed of and the portion of the
a qualified actuary using the projected unit credit method. The discount
CGU retained at the date of partial disposal, unless it can be demonstrated
rate is the yield at the reporting date on government bonds or high-
that another method better reflects the goodwill associated with the
quality corporate bonds with maturities consistent with the terms of the
operation disposed of. The same principle is used for allocation of goodwill
obligations.
when the group reorganizes its businesses.
Research and development
Remeasurement of the net defined benefit liability, which comprises
actuarial gains and losses, the return on plan assets (excluding interest)
Expenditures on research activities undertaken with the prospect of
and the effect of the asset ceiling (if any, excluding interest), are recognized
obtaining new scientific or technical knowledge and understanding is
immediately in other comprehensive income. The group determines the
recognized in the income statement as incurred.
net interest expense (income) on the net defined benefit liability (asset)
for the period by applying the discount rate used to measure the defined
Development activities involve a plan or design for the production of
benefit obligation at the beginning of the annual period to the then-net
new or substantially improved products or processes. Development
defined benefit liability (asset), taking into account any changes in the net
expenditure is capitalized only if development costs can be measured
defined benefit liability (asset) during the period as a result of contributions
reliably, the product or process is technically and commercially feasible,
and benefit payments. Net interest expense and other expenses related to
future economic benefits are probable and the group intends to and
defined benefit plans are recognized in the income statement.
has sufficient resources to complete development and to use or sell
the asset. The capitalized expenditure includes cost of materials, direct
When the benefits of a plan are changed or when a plan is curtailed, the
labour overhead costs that are directly attributable to preparing the asset
resulting change in benefit that relates to past service or the gain or loss
for it intended use and capitalized interest on qualifying assets. Other
on curtailment is recognized immediately in the income statement. The
development expenditures are recognized in the income statement as an
group recognizes gains and losses on the settlement of a defined benefit
expense as incurred.
plan when the settlement occurs.
Annual Report 2017 | Financials and Notes | Akastor Group 35
Note 4 | Significant accounting estimates and judgements
Estimates and judgements are continually reviewed and are based on
Warranties
historical experiences and expectations of future events. The resulting
A provision is made for expected warranty expenditures. The warranty
accounting estimates will, by definition, seldom accurately match actual
period is normally two years as one operating cycle. Based on experience,
results, but are based on the best estimate at the time. Estimates and
the provision is often estimated at one percent of the contract value, but
assumptions that have a significant risk of causing material adjustments to
can also be a higher or lower amount following a specific evaluation of
the carrying amounts of assets and liabilities within the next financial year
the actual circumstances for each contract. Both the general one percent
are discussed below.
Revenue recognition
provision and the evaluation of project specific circumstances are based on
experience from earlier projects. Factors that could affect the estimated
warranty cost include the group’s quality initiatives and project execution
The percentage of completion method is used to account for construction
model. Reference is made to note 27 Provisions for further information
contracts. This method requires estimates of the final revenue and costs
about provisions for warranty expenditures on delivered projects.
of the contract, as well as measurement of progress achieved to date as a
proportion of the total work to be performed.
Deferred and contingent considerations
The main uncertainty when assessing contract revenue is related to
combinations and disposals are measured at fair value at transaction date.
recoverable amounts from variation orders, claims and incentive payments
When a deferred and contingent consideration meets the definition of a
which are recognized when, in the group’s judgement, it is probable
financial asset or liability, it is subsequently remeasured at fair value of the
that they will result in revenue and are measurable. This assessment
reporting date. The determination of fair value is based on discounted cash
is adjusted by management’s evaluation of liquidated damages to be
flows. Key assumptions made by the management include the probability
imposed by customers, typically relating to contractual delivery terms.
of meeting each performance target and the discount factor.
Deferred and contingent considerations resulting
from business
In many projects, there are frequent changes in scope of work resulting
in a number of variation orders. The contracts with customers normally
Leases
include procedures for issuing and approval of variation orders. There can
The determination of whether an arrangement is (or contains) a lease is
be unapproved variation orders and claims included in the project revenue
based on the substance of the arrangement at the inception date. The
where recovery is assessed as probable and other criteria are met. Even
arrangement is assessed for whether fulfilment of the arrangement is
though management has extensive experience in assessing the outcome
dependent on the use of a specific asset (or assets) or the arrangement
of such negotiations, uncertainties exist.
conveys a right to use the asset (or assets), even if that right is not explicitly
One of the key uncertainties related to revenue recognition arises in the
final stages of the completion of long term contracts which can involve
Leases are classified as finance leases when the terms of the lease transfer
renegotiations with customers. The estimates of the likely outcome of
substantially all the risks and rewards incidental to ownership to the lessee.
these renegotiations are based on management’s assessments subject to
All other leases are classified as operating leases. The assessment for the
complex interpretations of contractual, engineering, design and project
classification of leases is based on the substance of the transactions and
specified in an arrangement.
execution issues. There can be a wide range of reasonably possible
requires judgement.
outcomes from such renegotiations and the estimates made require a high
degree of judgment.
Impairment of non-financial assets
Property, plant and equipment and intangible assets
Remaining project costs depend on productivity factors and the cost of
The group has significant non-current assets recognized
in the
inputs. Weather conditions, the performance of subcontractors and others
consolidated statement of financial position related to Property, plant and
with an impact on schedules, commodity prices and currency rates can
equipment and intangible assts. The value in use of some of these assets
affect cost estimates. Experience, systematic use of the project execution
can be significantly impacted by changes of market conditions. The group
model and focus on core competencies reduce, but do not eliminate, the
considers whether there are indications of impairment on the carrying
risk that estimates may change significantly. A risk contingency is included
amounts of such non-current assets. If such indications exist, an impairment
in project cost based on the risk register for identified significant risks.
test is performed to assess whether or not the assets should be impaired.
The valuations, often determined by value in use calculations, will often
Progress measurement based on costs has an inherent risk related to the
have to be performed based on estimates of future cash flows discounted
cost estimate as described above. In situations where cost does not seem
by an appropriate discount rate. Significant estimates and judgments have
to properly reflect actual progress, alternative measures such as hours or
to be made by the management, including determining appropriated cash-
physical progress are used to achieve more precise revenue recognition.
generating units and discount rate, projections for future cash flows and
The estimation uncertainty during the early stages of a contract is
assumptions of future market conditions. References are made to note 13
mitigated by a policy of normally not recognizing revenue in excess of
Property, plant and equipment and note 14 Intangible assets.
costs on large lump sum projects before the contract reaches 20 percent
of completion. However, management can on a project-by-project basis
Goodwill
give approval of earlier recognition if cost estimates are certain, typically
The group performs impairment testing of goodwill annually or more
in situations of repeat projects, proven technology or proven execution
frequently if any impairment indicators are identified. The recoverable
model.
amounts of cash-generating units to which goodwill is allocated have
Annual Report 2017 | Financials and Notes | Akastor Group 36
been determined based on value-in-use calculations. These calculations
Onerous contracts
require management to estimate future cash flows expected to arise from
The group has entered into several non-cancellable lease contracts
these cash-generating units and an appropriate discount rate to reflect
for office premises which may result in vacant leased space. The group
the time value of the money. Key assumptions made by the management
recognizes a provision for such lease contracts when the leased property
include also assumptions for future market conditions, which require a
is or will be vacant during the non-cancellable lease period. The provision
high degree of judgment. Further details about goodwill allocation and
is made for the discounted future lease payments, net of expected
impairment testing are included in note 15 Impairment testing of goodwill.
sublease income, if any. Key assumptions in determining the provisions are
Income taxes
primarily related to expected sublease income, length of vacancy periods
and appropriate discount rates. Further information about provision for
The group is subject to income taxes in numerous jurisdictions. Significant
onerous contracts is included in note 27 Provisions.
judgement is required to determine the worldwide provision for income
taxes. There are many transactions and calculations for which the ultimate
Pension benefits
tax determination is uncertain during the ordinary course of business.
The present value of the pension obligations depends on a number
Provisions for anticipated tax audit issues are based on estimates of
of factors determined on the basis of actuarial assumptions. These
eventual additional taxes.
assumptions include financial factors such as the discount rate, expected
salary growth, inflation and return on assets as well as demographical
Income tax expense is calculated based on reported income in the different
factors concerning mortality, employee turnover, disability and early
legal entities. Deferred income tax expense is calculated based on the
retirement. Assumptions about all these factors are based on the
temporary differences between the assets’ carrying amount for financial
situation at the time the assessment is made. However, it is reasonably
reporting purposes and their respective tax basis. The total amount
certain that such factors will change over the very long periods for which
of income tax expense and allocation between current and deferred
pension calculations are made. Any changes in these assumptions will
income tax requires management’s interpretation of complex tax laws and
affect the calculated pension obligations with immediate recognition in
regulations in the many tax jurisdictions where the group operates.
other comprehensive income. Further information about the pension
obligations and the assumptions used are included in note 26 Employee
Valuation of deferred tax assets is dependent on management’s assessment
benefits - pension.
of future recoverability of the deferred tax benefit. Expected recoverability
may result from expected taxable income in the near future, planned
Legal disputes and contingent liabilities
transactions or planned tax optimizing measures. Economic conditions
Given the scope of the group’s worldwide operations, group companies
may change and lead to a different conclusion regarding recoverability,
are inevitably involved in legal disputes in the course of their business
and such change may affect the results for each future reporting period.
activities. In addition, as an investment company, Akastor and its portfolio
companies from time to time engage in mergers, acquisitions and other
Tax authorities in different jurisdictions may challenge calculation of
transactions that could expose the companies to financial and other
income taxes from prior periods. Such processes may lead to changes to
non-operational risks, such as indemnity claims and price adjustment
prior periods’ taxable income, resulting in changes to income tax expense.
mechanisms resulting in recognition of deferred settlement obligations.
When tax authorities challenge income tax calculations, management is
required to make estimates of the probability and amount of possible
Provisions have been made to cover the expected outcome of the legal
tax adjustments. Such estimates may change as additional information
claims and disputes to the extent negative outcomes are likely and reliable
becomes known. Further details about income taxes are included in note
estimates can be made. However, the final outcomes of these cases are
11 Income tax.
subject to uncertainties, and resulting liabilities may exceed provisions
recognized. The group follows the development of these disputes on case-
by-case basis and makes assessment based on all available evidence as at
the reporting date. Further information about the contingent liabilities is
included in note 36 Contingencies.
Annual Report 2017 | Financials and Notes | Akastor Group 37
Note 5 | Discontinued operations
Disposal of Frontica Advantage
about 450 people and is a provider of wellheads, surface trees, valves,
On January 6, 2017, Akastor completed the transaction to sell Frontica's
actuators and aftermarket services for the oil and gas industry. The
staffing business (Frontica Advantage) to NES Global Talent (NES) in
business is headquartered in Singapore and has a manufacturing facility
exchange for a minority shareholding in the combined entity. Frontica
in Batam, Indonesia.
Advantage is a provider of quality workforce solutions with global
presence. The company has about 80 employees, with offices in Norway,
Frontica Advantage and KOP Surface Products are classified as
UK, USA, Brazil and Malaysia.
discontinued operations and the comparative consolidated
income
statement has been restated to show the discontinued operations
Akastor holds an initial 15.2% economic ownership interest in NES after
separately from continuing operations.
the transaction, which is presented as Other investments and measured
at fair value.
In 2016, Akastor completed the transactions to divest several portfolio
companies: Managed Pressure Operations (MPO), Frontica Business
Disposal of KOP Surface Products
Solutions and Fjords Processing. In addition, Frontica Advantage was
On July 27, 2017, Akastor completed the transaction to sell KOP Surface
classified as held for sale as of December, 31, 2016. MPO, Frontica and
Products to the Weir Group PLC (Weir). KOP Surface Products employs
Fjords Processing were classified as discontinued operations in 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)
2017
215
(223)
-
(7)
(13)
(20)
1 088
(19)
1 049
3.87
2016
Restated
4 951
(5 130)
(3)
(181)
(45)
(226)
968
(71)
670
2.47
1) Includes currency translation differences of NOK 227 million that were reclassified from Other Comprehensive Income to the income statement upon disposal in 2017 (NOK
105 million in 2016).
Gain before tax from the disposal in 2017 was NOK 383 million for Frontica
654 million for Fjords Processing, and a loss of NOK 127 million for MPO.
Advantage and NOK 728 million for KOP Surface Products. In 2016, gain
In addition, the net gain before tax in both 2017 and 2016 was negatively
before tax was NOK 507 million for Frontica Business Solutions and NOK
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
2017
2016
(43)
918
876
(31)
2 328
2 297
Annual Report 2017 | Financials and Notes | Akastor Group 38
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
Deferred tax liabilities
Pension 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 1)
1) Net cash flows from disposal in 2017 exclude the net cash outflow of NOK 30 million related to divestments made in prior years.
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
Note 6 | Operating segments
2017
(54)
(90)
(193)
-
(103)
(165)
(86)
(46)
29
23
62
148
227
(250)
1 362
984
(86)
898
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
Basis for segmentation
Further, Akastor owns other investments, mainly 76 percent in Step
As of December 31, 2017, Akastor has two reportable segments which
Oiltools, 50 percent of DOF Deepwater AS, 100 percent in First Geo AS
are the strategic business units of the group. The strategic business units
and Cool Sorption, 15.2 percent economic interest in NES Global Talent,
are managed separately and offer different products and services due
and 93 percent of Aker Pensjonskasse. These are included in “Other
to different market segments and different strategies for their projects,
holdings”.
products and services:
MHWirth is a supplier of drilling systems and drilling lifecycle
operations, the segment reporting has been reassessed in 2017 and the
services globally. The company offers a full range of drilling
historical comparative figures have been restated accordingly. See note 5
equipment, drilling riser solutions and related products and
for more information about the discontinued operations.
As a result of KOP Surface Products being classified as discontinued
services for the drilling market, primarily the offshore sector.
AKOFS Offshore is a global provider of vessel-based subsea well
Segment performance is measured by operating profit before depreciation,
construction and intervention services to the oil and gas industry,
amortization and impairment (EBITDA) which is reviewed by the group’s
covering all phases from conceptual development to project
Executive Management Group (the chief operating decision maker).
execution and offshore operations.
Segment profit, together with key financial information as described below,
Measurement of segment performance
Annual Report 2017 | Financials and Notes | Akastor Group 39
gives the Executive Management Group relevant information in evaluating
correction of the non-qualifying hedges to secure that the consolidated
the results of the operating segments and is relevant in evaluating the
financial statements are in accordance with IFRS is made as an adjustment
results of the segments relative to other entities operating within these
at corporate level. This means that the group’s segment reporting reflect
industries. Inter-segment pricing is determined on an arm’s length basis.
all hedges as qualifying even though they may not qualify in accordance
The accounting policies of the reportable segments are the same as
with IFRS.
described in note 2 Basis of preparation and note 3 Significant accounting
Hedge transactions not qualifying for hedge accounting represent an
principles, except for hedge accounting. When contract revenues and
accounting loss of NOK 5 million to EBITDA (loss of NOK 10 million in
contract costs are denominated in a foreign currency, the subsidiary
2016) and a loss under financial items of NOK 111 million (loss of NOK
hedges the exposure against the central treasury department (Akastor
289 million in 2016). This is recognized as group adjustment under Other
Treasury) and hedge accounting is applied independently of whether
holdings.
the hedge qualify for hedge accounting in accordance with IFRS. The
Information about reportable segments
Amounts in NOK million
Note
MHWirth
AKOFS
Offshore
Other
holdings
Eliminations
Total
segments
2017
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
13, 14
13, 14
3 000
30
3 030
118
(189)
(118)
(189)
2 238
2 093
4 332
1 244
304
1 548
995
2 783
46
(82)
778
-
778
213
(334)
-
(121)
301
3 986
4 287
115
18
133
186
4 154
40
(322)
570
26
596
(38)
(89)
-
(127)
315
1 133
1 448
452
367
819
(138)
628
9
(226)
-
(56)
(56)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4 348
-
4 348
293
(612)
(118)
(438)
2 854
7 213
10 067
1 811
690
2 501
1 043
7 566
95
(630)
Annual Report 2017 | Financials and Notes | Akastor Group
40
Amounts in NOK million
Note
MHWirth
AKOFS
Offshore
Other
holdings
Eliminations
Total
segments
2016 (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
13, 14
13, 14
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
836
-
835
316
(331)
(118)
(134)
277
4 315
4 593
156
58
214
121
4 378
108
(234)
629
44
674
(296)
(88)
(2)
(385)
425
785
1 210
683
422
1 106
(258)
104
5
(144)
-
(82)
(82)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4 975
-
4 975
91
(688)
(473)
(1 071)
3 763
7 548
11 311
2 809
820
3 629
954
7 682
150
(98)
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
Note
2017
2016
Restated
31
22
5
31
24
24
5
10 067
11 311
94
168
-
1
-
-
(2)
269
487
15
51
212
526
(10)
10 328
12 861
2 501
20
399
2 133
-
-
(2)
3 629
301
1 560
1 494
177
130
(10)
5 051
7 281
Major customer
Geographical information
Revenue from one customer in AKOFS Offshore represents approximately
Geographical revenue is presented on the basis of geographical location
NOK 730 million (NOK 600 million in 2016) of the group's total revenue.
of the group companies selling to the customers. Non-current segment
assets and capital expenditures are based on the geographical location of
the assets.
Annual Report 2017 | Financials and Notes | Akastor Group
41
Non-current assets excluding
deferred tax assets and
financial instruments
2017
4 195
366
61
751
289
84
64
25
17
14
2016
4 853
406
228
821
337
229
81
36
22
9
Operating revenue
and other income
2017
Restated
2016
2 406
2 963
328
316
299
263
330
188
109
92
17
270
297
357
322
334
198
129
89
15
4 348
4 975
5 865
7 022
Note
19
16
2017
1 164
2 105
679
348
4 296
5
36
11
52
2016
Restated
1 426
2 108
903
368
4 805
-
(1)
170
170
Amounts in NOK million
Norway
Brazil
Singapore
Germany
United States
Other Asia
Other Europe
Middle East
Australia
Other countries
Total
Note 7 | Operating revenue and other income
Amounts in NOK million
Construction revenue
Service revenue
Product revenue
Other operating revenue
Total operating revenue
Gain on disposal of subsidiaries
Profit (loss) from equity-accounted investees
Gain on disposals of assets
Total other income
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
26
2017
1 341
186
72
58
1 657
2016
Restated
1 719
249
88
100
2 156
Annual Report 2017 | Financials and Notes | Akastor Group
42
Note 9 | 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
2017
181
189
34
58
21
50
533
2016
Restated
258
229
21
58
29
171
765
The table below summarizes audit fees, as well as fees for audit related services, tax services and other services incurred by the group during 2017 and
2016.
Amounts in NOK million
2017
2016
2017
2016
2017
2016
Akastor ASA
Subsidiaries
Total
Audit
Other assurance services
Tax services
Other non-audit services
Total
3
-
-
-
3
3
-
-
-
3
7
4
-
-
11
10
3
1
1
15
Note 10 | Net finance expenses
Amounts in NOK million
Profit (loss) on foreign currency forward contracts
Profit (loss) from equity-accounted investees
Interest income on bank deposits measured at amortized cost
Net foreign exchange gain
Gain (loss) on available for sale financial assets
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
Net foreign exchange loss
Impairment loss on external receivables 2)
Other financial expenses
Financial expenses
Net finance expenses recognized in profit and loss
Note
16
10
4
-
-
14
2017
(111)
(212)
15
-
21
57
93
(122)
(265)
(22)
(92)
(9)
(36)
(545)
(774)
13
3
1
1
18
2016
Restated
(289)
(214)
10
28
(26)
1
13
(246)
(292)
(21)
-
(94)
(31)
(684)
(1 174)
1) Aker Wayfarer vessel in AKOFS Offshore was recognized as finance lease as of September 2014.
2) Impairment loss on external receivables was triggered by insolvency of certain customers as well as unrecoverability of interest-bearing receivables.
See note 32 Financial instruments for information of the finance income and expense generating items.
Foreign currency forward contracts
are established. These derivatives are mainly foreign exchange forward
Some foreign exchange hedge transactions do not qualify for hedge
contracts. The corresponding contracts to the derivatives are calculated
accounting under IFRS, primarily because a large number of internal hedge
to have an equal, but opposite effect, and both the derivatives and the
transactions are grouped and netted before external hedge transactions
hedged items are reported as financial items. The net amount therefore
Annual Report 2017 | Financials and Notes | Akastor Group 43
reflects the difference in timing between the non-qualifying hedging
The exposure from foreign currency embedded derivatives is economically
instrument and the future transaction (economically hedged item).
hedged, but cannot qualify for hedge accounting and is therefore included
in net foreign exchange gain/loss. Hedge accounting and embedded
Profit (loss) on foreign currency forward contracts reflects fair value on
derivatives are explained in note 31 Derivative financial instruments.
hedge contracts that don't qualify for hedge accounting. The losses in
2017 and 2016 were mainly related to hedge contracts in MHWirth.
Note 11 | 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)
Effective tax rate
2017
2016
Restated
(56)
11
(45)
330
(18)
(162)
150
106
(26)
(35)
(61)
549
(18)
(177)
354
293
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
2017
Profit (loss) before tax, continuing operations
Tax income (expense) using the company's domestic tax rate
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)
(1 212)
291
35
(57)
11
7
(162)
(18)
26
(28)
106
24.0%
2.9%
(4.7%)
0.9%
0.6%
(13.3%)
(1.5%)
2.1%
(2.3%)
8.8%
2016
Restated
(2 245)
561
44
(80)
(35)
12
(177)
(18)
(2)
(12)
293
25.0%
2.0%
(3.6%)
(1.5%)
0.5%
(7.9%)
(0.8%)
(0.1%)
(0.6%)
13.0%
1) Relates mainly to net profit and loss after tax from equity-accounted investees and profit and loss recognized on various tax-exempted investments.
2) The impairment relates mainly to the MHWirth entities in USA and Brazil as well as Step Oiltools. In 2016, an impairment of deferred tax asset of NOK 85 million was
recognized due to disallowance of tax loss carry-forward incurred in relation to the liquidation of AKOFS Singapore in 2014.
3) Relates mainly to changes in corporate income tax rate in Norway. The tax rate is changed from 24 percent to 23 percent effective as of January 1, 2018. In 2016,
the tax rate was changed from 25 percent to 24 percent effective as of January 1, 2017.
4) Relates to Norwegian legal entities in AKOFS Offshore with functional currency of USD.
Annual Report 2017 | Financials and Notes | Akastor Group 44
Recognized deferred tax assets and liabilities
Amounts in NOK million
2017
2016
2017
2016
2017
2016
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)
55
1
-
76
73
10
182
672
1 070
(409)
661
135
1
-
95
158
32
152
782
1 355
(756)
600
(109)
(19)
(212)
-
-
(64)
(16)
-
(421)
409
(10)
(207)
(42)
(326)
-
(1)
(102)
(91)
-
(770)
756
(15)
(54)
(17)
(212)
76
73
(54)
166
672
650
-
650
(72)
(41)
(326)
95
158
(70)
61
782
586
-
586
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.
Change in net recognized deferred tax assets (liabilities)
Amounts in NOK million
Property,
plant and
equipment
Intan-
gible
assets
Projects
under
construction
Pensions
Provisions
Derivatives
Other
items
Tax loss
carry-
forwards
Total
Balance as of December 31, 2015
(137)
(111)
(453)
122
195
(175)
148
829
418
Classified as held for sale as of
January 1, 2016
Disposal of subsidiaries as of
January 1, 2016
Recognized in profit and loss
(restated)
Recognized in other
comprehensive income
Discontinued operations
Currency translation differences
-
2
-
-
(20)
52
(14)
(13)
58
-
17
9
1
-
14
1
132
-
-
8
Balance as of December 31, 2016
(72)
(41)
(326)
Disposal of subsidiaries as of
January 1, 2017
Recognized in profit and loss
Recognized in other
comprehensive income
Effect of group contributions
Currency translation differences
9
3
-
-
5
Balance as of December 31, 2017
(54)
-
24
-
-
(1)
(17)
-
115
-
-
(1)
(212)
(7)
4
(9)
(2)
95
(4)
(5)
(11)
-
2
76
(6)
(23)
20
-
(8)
(22)
158
(6)
(78)
-
-
-
73
-
1
(1)
(37)
(41)
(128)
(66)
(211)
15
91
42
354
90
-
(2)
(70)
-
53
(36)
-
(1)
(35)
(25)
11
61
-
56
-
53
(4)
-
22
(8)
60
11
(3)
782
586
(21)
(17)
(22)
150
-
(46)
(53)
(19)
-
(19)
(54)
166
672
650
Annual Report 2017 | Financials and Notes | Akastor Group 45
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.
In 2016, Akastor ASA claimed tax deduction for a loss of NOK 951 million related to internal loans to a former subsidiary. The deduction is currently being
subject to inquiries from Norwegian Tax Authorities. Deferred tax assets for this loss will not be recognized until the inquiries have been concluded.
Expiry date of unrecognized tax loss carry-forwards
Amounts in NOK million
Expiry in 2020
Expiry in 2021 and later
Indefinite
Total
2017
-
541
1 228
1 768
2016
12
487
687
1 187
Unrecognized other deductible temporary differences are NOK 338 million in 2017 (NOK 287 million in 2016).
Note 12 | Earnings per share
Akastor ASA holds 2 776 376 treasury shares at year end 2017 (2 776 376 in 2016). 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
2017
(58)
(1 106)
2016
Restated
(1 282)
(1 953)
Basic/diluted earnings per share
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)
2017
2016
Restated
274 000 000
274 000 000
271 223 624
271 223 624
(0.21)
(4.08)
(4.73)
(7.20)
Annual Report 2017 | Financials and Notes | Akastor Group 46
Note 13 | Property, plant and equipment
The table below includes discontinued operations until these met the criteria to be classified as held for sale.
Amounts in NOK million
Historical cost
Balance as of January 1, 2016
Additions 1)
Reclassifications 2)
Transfer from assets under construction
Disposals and scrapping
Disposal of subsidiaries
Currency translation differences
Balance as of December 31, 2016
Additions
Reclassifications
Transfer from assets under construction
Disposals and scrapping
Disposal of subsidiaries
Currency translation differences
Balance as of December 31, 2017
Accumulated depreciation and impairment
Balance as of January 1, 2016
Depreciation for the year 3)
Impairment 4)
Disposals and scrapping
Disposal of subsidiaries
Currency translation differences
Balance as of December 31, 2016
Reclassifications
Depreciation for the year 3)
Impairment
Disposals and scrapping
Disposal of subsidiaries
Currency translation differences
Balance as of December 31, 2017
Book value as of December 31, 2016
Book value as of December 31, 2017
Of which finance lease as of December 31, 2016
Of which finance lease as of December 31, 2017
Note
Buildings
and land
Vessels
Machinery,
equipment, software
Under
construction
Total
661
7 444
1
-
436
(6)
(7)
(43)
-
(69)
747
(566)
-
(171)
1 042
7 384
1
20
4
(3)
(77)
(36)
951
-
(62)
40
-
-
(321)
7 040
3 399
45
69
44
(325)
(1 092)
62
2 202
12
41
39
(48)
(350)
(35)
1 861
872
107
395
(1 225)
(55)
12 376
153
395
-
(952)
(7)
(1 106)
19
105
57
-
(83)
(5)
-
(3)
70
(133)
10 733
70
-
-
(57)
(427)
(396)
9 922
(200)
(3 490)
(2 190)
(16)
(5 896)
(48)
(283)
2
2
34
(320)
(118)
304
-
62
(494)
(3 562)
-
43
(27)
(303)
-
2
40
21
-
-
-
155
(359)
(110)
320
887
(11)
-
-
-
-
-
(727)
(511)
626
889
85
(1 463)
(16)
(5 535)
(43)
(174)
(47)
46
298
17
-
-
-
5
-
-
-
(505)
(47)
54
337
194
(458)
(3 668)
(1 366)
(11)
(5 502)
548
493
3 822
3 373
-
-
1 618
1 448
739
495
-
-
89
59
-
-
5 198
4 419
1 618
1 448
5
5
1) Includes additions of NOK 22 million related to discontinued operations in 2016.
2) Includes reclassifications from Other non-current operating assets (related to Aker Wayfarer vessel) and Intangible assets.
3) Includes depreciation of NOK 16 million from discontinued operations in 2017 (NOK 126 million in 2016).
4) Includes impairment of NOK 93 million from discontinued operations in 2016.
Finance leased asset
Depreciation
The vessel under finance lease relates to the Aker Wayfarer vessel that
Estimates for useful life, depreciation method and residual values are
is under lease contract with Ocean Yield. Please refer to note 35 Related
reviewed annually. Assets are mainly depreciated on a straight-line basis
parties for more information of the agreement.
over their expected economic lives as follows:
Commitments
Machinery, equipment and software
As of December 31, 2017, Akastor entered into contractual commitments for
the acquisition of property, plant and equipment amounting to NOK 11 million
(NOK 11 million in 2016), mainly related to the Macae plant in MHWirth.
Vessels
Buildings
Land
3–15 years
20–25 years
80–30 years
No depreciation
Annual Report 2017 | Financials and Notes | Akastor Group
47
Impairment
Impairment in MHWirth
Impairment in AKOFS Offshore
An impairment loss of NOK 118 million was recognized in 2016 writing
In 2017, an impairment loss of NOK 47 million was recognized mainly
down the cash-generating unit AKOFS Seafarer to its recoverable amount
related to the testing facilities in Germany that is not expected to be
of NOK 2.1 billion based on value in use (discount rate of 10.0%). No further
utilized in full capacity. The recoverable amount of NOK 11 million was
impairment loss of AKOFS Seafarer was recognized in 2017. However,
determined based on value in use.
the estimated recoverable amount of AKOFS Seafarer is approximately
In 2016, an impairment loss of NOK 241 million was recognized related to
assumptions may result in further impairment. The recoverable amount
the Macae plant in Brazil. The impairment was triggered by current weak
analysis for AKOFS Seafarer has been made with different probability
market conditions for project related work which are expected to continue
weighted scenarios covering the variation in day rates and utilization
in the short to medium term. The recoverable amount of NOK 400 million
based on the management’s assessment of market conditions. See note
was determined based on value in use. In determining value in use for the
15 Impairment testing of goodwill for more information about the discount
the same as the carrying amount and hence, any adverse change in key
cash generating unit, the cash flows were discounted at a rate of 15.9%
rate and key assumptions.
on a pre-tax basis. In addition, an impairment loss of NOK 58 million was
recognized mainly related to the closing down of a manufacturing plant
Security
in Asia.
The AKOFS Seafarer vessel, with carrying amount of NOK 1.9 billion as
of December 31, 2017, is pledged as security for borrowings in the group.
Annual Report 2017 | Financials and Notes | Akastor Group 48
Note 14 | Intangible assets
Amounts in NOK million
Note
Development costs
Goodwill
Other
Total
Historical cost
Balance as of January 1, 2016
Reclassification
Capitalized development 1)
Disposal and scrapping
Disposal of subsidiaries
Reclassification to asset held for sale
Currency translation differences
Balance as of December 31, 2016
Reclassification
Capitalized development 1)
Disposal and scrapping
Disposal of subsidiaries 4)
Currency translation differences
Balance as of December 31, 2017
Accumulated amortization and impairment
Balance as of January 1, 2016
Amortization for the year 2)
Impairment for the year 3)
Disposal and scrapping
Disposal of subsidiaries
Currency translation differences
Balance as of December 31, 2016
Amortization for the year 2)
Impairment for the year
Disposal and scrapping
Disposal of subsidiaries
Currency translation differences
Balance as of December 31, 2017
Book value as of December 31, 2016
Book value as of December 31, 2017
923
(9)
47
(103)
(228)
-
(13)
618
(7)
27
(64)
(117)
-
456
(281)
(143)
(49)
103
65
2
(304)
(100)
(62)
64
73
(2)
(331)
314
125
2 542
652
4 117
-
-
-
(648)
(48)
(129)
1 718
-
-
-
(100)
29
1 646
(653)
-
-
-
211
54
(388)
-
-
-
-
(6)
(394)
1 330
1 252
9
2
-
(403)
-
(25)
235
7
-
-
-
6
248
(397)
(30)
(97)
-
363
14
(147)
(29)
(8)
-
-
(6)
(190)
88
58
-
49
(103)
(1 278)
(48)
(168)
2 570
-
27
(64)
(218)
35
2 351
(1 331)
(173)
(146)
103
638
70
(839)
(129)
(70)
64
73
(14)
(915)
1 731
1 435
5
5
1) Includes capitalized development costs of NOK 2 million from discontinued operations (NOK 20 million in 2016).
2) Includes amortization of NOK 5 million from discontinued operations in 2017 (NOK 28 million in 2016).
3) Includes impairment of NOK 91 million from discontinued operations in 2016.
4) Does not include the disposal of goodwill which was classified as held-for-sale in 2016.
Impairment loss of other intangible assets than goodwill
Research and development costs
In 2017, an impairment loss of NOK 70 million was recognized mainly
NOK 27 million has been capitalized in 2017 (NOK 49 million in 2016)
related to intangible assets that were no longer expected to be utilized in
related to development activities. In addition, research and development
MHWirth. The impairment loss of intangible assets recognized in MHWirth
costs of NOK 16 million were expensed during the year because the
in 2016 was NOK 54 million. The impairment loss of other intangible
criteria for capitalization are not met (NOK 62 million in 2016).
assets from discontinued operations was related to Managed Pressure
Operations in MHWirth in 2016.
Amortization
Intangible assets all have finite useful lives and are amortized over the
expected economic life, ranging between 5–10 years.
Annual Report 2017 | Financials and Notes | Akastor Group 49
Note 15 | 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
AKOFS Offshore
KOP Surface Products 1)
First Geo 2)
Total goodwill
1) Sold in 2017.
2) This portfolio company is included in Other Holdings in segment reporting.
2017
2016
1 089
145
-
18
1 252
1 063
145
103
18
1 330
Impairment testing for cash-generating units containing significant
Terminal value growth rate
goodwill
The group uses a constant growth rate not exceeding 2% (including
The recoverable amounts of cash-generating units (portfolio companies)
inflation) for periods beyond the management’s forecast period of five
are determined based on value-in-use calculations. Discounted cash
years. The growth rates used do not exceed the growth rates for the
flow models are applied to determine the value in use for the portfolio
industry in which the portfolio company operates.
companies with goodwill. For all portfolio companies except for AKOFS
Offshore, management has made cash flow projections based on budget
Vessel-specific day rate
and strategic forecast for the periods 2018-2022. Beyond the explicit
For AKOFS Offshore, the cash flow projections reflect vessel-specific
forecast period of five years, the cash flows are extrapolated using a
rates as reflected in most recent charter agreements, or at expected
constant growth rate. For AKOFS Offshore, goodwill is supported by the
market levels. For vessels on firm contracts, it is assumed that the vessels
sum of value in use for the vessels in the portfolio company. The cash flow
are employed on the specific rates until the expiry of the firm contracts
projections are made for the periods equal to estimated useful life of the
including options, and that rate and utilization levels thereafter are based
vessels and the cash flows from the ultimate disposal of the vessels.
on expected market levels. For the AKOFS Seafarer vessel that is not on
Key assumptions used in the calculation of value in use are discussed
weighted scenarios. Assumptions are made regarding variations in day
below. The values assigned to the key assumptions represent
rates and utilization as well as probabilities of different scenarios based
management's assessment of future trends in the relevant industries
on market conditions at the reporting date, which requires a high degree
firm contract, the estimated cash flows are based on different probability
as well as management’s expectations regarding margin, and have been
of judgement.
based on historical data from both external and internal sources.
EBITDA used in the value-in-use calculations represents the operating
(WACC) for the industry in which the portfolio company operates. The
earnings before depreciation and amortization and is estimated based on
risk free interest rates used in the discount rates are based on the 10 year
the expected future performance of the existing businesses in their main
state treasury bond rate at the time of the impairment testing. Optimal
markets. Assumptions are made regarding revenue growth, gross margins and
debt leverage is estimated for each portfolio company. The discount rates
other cost components based on historical experience as well as assessment
are further adjusted to reflect any additional short to medium term market
of future market development and conditions. These assumptions require
risk considering current industry conditions.
Discount rates are estimated based on Weighted Average Cost of Capital
a high degree of judgement, given the significant degree of uncertainty
regarding oilfield service activities in the forecast period.
Discount rate assumptions used in impairment testing
MHWirth
AKOFS Offshore 1)
Discount rate after tax
Discount rate pre tax
2017
9.3%
10.1%
2016
9.2%
10.0%
2017
11.2%
10.1%
2016
11.4%
10.0%
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
possible change in key assumptions that could cause the carrying amount
For the portfolio companies containing goodwill, the recoverable amounts
to exceed the recoverable amount.
are higher than the carrying amounts based on the value in use analysis
and consequently no impairment loss of goodwill was recognized in 2017.
In AKOFS Offshore, an impairment loss of NOK 118 million was recognized
The group has performed sensitivity calculations to identify any reasonably
related to AKOFS Seafarer in 2016, see also note 13 Property, plant and
Annual Report 2017 | Financials and Notes | Akastor Group 50
equipment for more information. No impairment was recognized related
company AKOFS Offshore to exceed its recoverable amount and trigger
to AKOFS Seafarer in 2017. However, the estimated recoverable amount
an impairment of goodwill in the portfolio company.
of AKOFS Seafarer is approximately the same as the carrying amount
and hence, any adverse change in key assumptions may result in further
In MHWirth, the group believes that no reasonably possible change in
impairment in AKOFS Seafarer. As the sensitivity to impairment is related
any of the key assumptions used for impairment testing would cause
to the carrying value of the AKOFS Seafarer vessel, the group believes
the carrying amount of the portfolio company to exceed its recoverable
that no reasonably possible change in any of the key assumptions used for
amount.
impairment testing would cause the total carrying amount of the portfolio
Note 16 | Equity-accounted investees
Equity-accounted investees include joint ventures and associates. Such
parties for overview of transactions and balances with joint ventures and
investments are defined as related parties to Akastor. See note 35 Related
associates, and any guarantees provided on behalf of or from such entities.
Amounts in NOK million
DOF Deepwater AS 1)
Avium Subsea AS 2)
Electrical Subsea &
Drilling AS 3)
Total
2017
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
Storebø, Norway
Oslo, Norway
Straume, Norway
50%
-
(212)
-
50%
36
-
-
20%
-
-
10
Amounts in NOK million
DOF Deepwater AS 1)
Avium Subsea AS 2)
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%
-
-
36
(212)
10
Total
(214)
93
1) DOF Deepwater AS is a joint venture with DOF ASA, which owns and operates five anchor handling tug supply (AHTS) vessels.
2) Avium Subsea AS is a joint venture with MITSUI &CO.,Ltd established in 2016. The joint venture owns and operates the Skandi Santos vessel.
3) In September 2017, MHWirth became a shareholder in Electrical Subsea & Drilling AS (ESD) with 20% ownership by transferring certain work-in-progress technologies for
new well barrier for BOP. ESD is a privately owned Norwegian company and working on the development and qualification of two drilling technologies; all electric control of
Blow Out Preventers (BOP) and a Rotating Control Device for Managed Pressure Drilling.
Annual Report 2017 | Financials and Notes | Akastor Group 51
Summary of financial information for significant equity-accounted investee (100 percent basis)
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%)
Recognized against non-current receivables and liability 1)
Recognized against deferred gain related to joint venture 2)
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
DOF Deepwater AS
2017
2016
Avium Subsea AS
2017
2016
147
47
857
(117)
(29)
(987)
(987)
(100)
(50)
50
-
-
149
(403)
(49)
3
(424)
(424)
195
101
1 221
(108)
(30)
(1 122)
(1 122)
186
93
-
-
93
204
(405)
(61)
(2)
(427)
(427)
52
49
1 475
(163)
(141)
(1 060)
(1 060)
304
152
-
(152)
-
241
(66)
(91)
(5)
72
72
56
28
1 602
(165)
(140)
(1 256)
(1 256)
237
118
-
(118)
-
26
(15)
(10)
(4)
(1)
(1)
1) Akastor’s share of losses from DOF Deepwater AS is recognized against the carrying amount of its interest including non-current receivables. Further losses were
recognized as a liability as the group has provided guarantees for the funding of the vessels in the company. See also note 25 and note 35.
2) See note 25 Other non-current liabilities and note 35 related parties for more information about the liability and deferred gain related to joint ventures.
For information about guarantees provided on behalf of equity-accounted investees, see note 35 Related parties.
Note 17 | Other non-current assets
Amounts in NOK million
Deferred and contingent considerations
Other assets
Total other non-current assets
Note
32
2017
2016
99
1
100
103
-
104
Deferred and contingent considerations relate to contingent considerations arising from divestments of subsidiaries and are measured at fair value.
Note 18 | Other investments
Amounts in NOK million
Aker Pensjonskasse
NES investment 1)
Other equity securities
Available-for-sale investments
Total other investments
Note
2017
35
5
32
128
405
2
536
536
2016
120
-
1
121
121
1) On January 6, 2017, Akastor completed the transaction to sell Frontica Advantage to NES Global Talent (NES) in exchange for 15.2% economic ownership interest in NES.
See note 5 for more information about the divestment.
Available-for-sale investments are measured at fair value.
Annual Report 2017 | Financials and Notes | Akastor Group
52
Note 19 | 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 20 | 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
Note 21 | 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
Prepaid expenses
Accrued revenue
Public duty and tax refund
Total
Note
2017
2016
Restated
7
21
28
1 164
1 426
246
(738)
(492)
262
(1 226)
(964)
2017
2016
5 805
(6 296)
178
8 472
(9 436)
364
2017
178
95
296
569
(1 347)
(336)
2016
Restated
507
74
506
1 086
(1 171)
(150)
Note
2017
2016
32
19
1 319
(71)
1 248
210
1 457
81
246
218
147
113
1 652
(107)
1 545
444
1 989
163
262
112
178
124
2 263
2 829
1) Trade receivables are financial instruments and an impairment loss of NOK 5 million was recognized as operating expenses in 2017. In 2016, the impairment loss was NOK
39 million, of which NOK 29 million was related to discontinued operations.
Book value of trade and other receivables is approximately equal to fair value.
Annual Report 2017 | Financials and Notes | Akastor Group
Aging of trade receivables
Amounts in NOK million
Not overdue
Past due 0–30 days
Past due 31–90 days
Past due more than 90 days
Total trade receivables
53
2017
485
79
54
700
1 319
2016
786
92
63
711
1 652
A majority of the trade receivables past due is related to major customers. These outstanding receivables are monitored regularly and impairment
analysis is performed on an individual basis for major customers. As of December 31, 2017, trade receivables of an initial value of NOK 71 million (NOK 107
million in 2016) 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 22 | Cash and cash equivalents
Amounts in NOK million
Restricted cash
Cash pool
Interest-bearing deposits
Total cash and cash equivalents
2017
2016
107
5
(3)
(3)
(33)
(2)
71
120
39
(7)
(29)
(1)
15
107
2017
2016
8
-
160
168
9
135
343
487
Additional undrawn committed current bank revolving credit facilities amount to NOK 1.4 billion, that together with cash and cash equivalents gives a total
liquidity reserve of NOK 1.6 billion as of December 31, 2017. See also note 24 Borrowings.
Note 23 | Capital and reserves
Share capital
Akastor ASA has one class of shares, ordinary shares, with equal rights
Hedging reserve
for all shares. The holders of ordinary shares are entitled to receive
The hedging reserve relates to cash flow hedges of future revenues and
dividends and are entitled to one vote per share at General Meetings. Total
expenses against exchange rate fluctuations. The income statement
outstanding shares are 274 000 000 at par value NOK 0.592 per share
effects of such instruments are recognized in accordance with the
(NOK 0.592 in 2016). All issued shares are fully paid.
progress of the underlying construction contract as part of revenues or
Treasury shares
expenses as appropriate. The hedging reserve represents the value of such
hedging instruments that is not yet recognized in the income statement.
At the Annual General Meeting in 2014, authorization was given to
The underlying nature of a hedge is that a positive value on a hedging
repurchase up to 27.4 million shares, representing 10 percent of the share
instrument exists to cover a negative value on the hedged position, see
capital of Akastor ASA. The group purchases treasury shares to meet the
note 10 Net finance expenses and note 31 Derivative financial instruments.
obligation under employee share purchase programs. No programs were
initiated in 2017 or 2016 and there is no purchase or sale of treasury shares
Fair value reserve
in 2017 or 2016. As of December 31, 2017, Akastor ASA holds 2 776 376
The fair value reserve comprises the cumulative net changes in the fair
treasury shares (2 776 376 treasury shares in 2016), representing 1.01
value of available-for-sale financial assets until these assets are impaired
percent of total outstanding shares.
or derecognized.
The Board of Directors has proposed no dividends for 2017 or 2016.
Annual Report 2017 | Financials and Notes | Akastor Group 54
Currency translation reserve
Net investments in foreign operations have been hedged with a gain of
The currency translation reserve includes exchange differences arising
NOK 26 million in 2017 (loss of NOK 71 million in 2016). Accumulated
from the translation of the net investments in foreign operations, and
loss on net investment hedges as of 2017 is NOK 15 million (loss of NOK
foreign exchange gain or loss on loans defined as net investment hedge
70 million in 2016). The net investment hedge as of December 31, 2017
or part of net investments in foreign operations. Upon the disposal of
relates to investments in the United States and Cyprus.
investments in foreign operations during 2017 and 2016, the accumulated
currency translation differences related to the disposed entities were
reclassified from the currency translation reserve to the income statement
in profit (loss) from discontinued operations.
Note 24 | Borrowings
Below are contractual terms of the 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 30 Financial risk management and exposures. For more information related
to the finance 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
2017
Revolving credit facility
(NOK 1 005 million)
Revolving credit facility
(USD 147 million)
BNDES loan (Brazil)
Finance lease obligation
Overdraft facility
Total borrowings
Current borrowings
Non-current borrowings
Total borrowings
NOK
350
348
0.76%
2.25%
3.01% July 2019 2)
NIBOR + margin 1)
1.49%
6.75%
2.25%
1.40%
3.74% July 2019 2)
8.15%
May 2022
USD LIBOR + margin 1)
TJLP + fixed margin 3)
USD
BRL
USD 4)
58
74
478
183
1 494
30
2 533
399
2 133
2 533
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
Finance 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% July 2019 2)
8.90%
May 2022
USD LIBOR + margin 1)
TJLP + fixed margin 3)
1 195
237
1 622
3 054
1 560
1 494
3 054
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.
3) 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.
4) All future payments under the finance lease starting from January 1, 2018 were converted to USD.
Annual Report 2017 | Financials and Notes | Akastor Group
55
Bank debt (Norway)
For
information about financial covenants, see note 29 Capital
All facilities are provided by a bank syndicate consisting of high quality
management.
Nordic and international banks. The terms and conditions include
restrictions which are customary for these kinds of facilities, including
Finance lease obligation
inter alia negative pledge provisions and restrictions on acquisitions,
A finance
lease obligation was recognized
in 2014 following the
disposals and mergers and change of control provisions. The facilities
renegotiation of the bareboat charter contract with OCY Wayfarer AS.
include no dividend restrictions. There is a stand-alone mortgage on the
The lease agreement includes purchase option on three different dates.
vessel AKOFS Seafarer as security for the facilities.
The finance lease liability is payable as follows as of December 31, 2017:
Amounts in NOK million
Less than one year
Between one and five years
More than five years
Total
Financial liabilities and the period in which they mature
Present value of
minimum lease payments
Interest
Future minimum
lease payments
296
721
476
1 494
30
400
1 148
1 578
326
1 122
1 625
3 072
Amounts in NOK million
2017
Revolving credit facility
(NOK 1 005 million)
Revolving credit facility
(USD 147 million)
BNDES loan (Brazil)
Finance lease obligation
Overdraft facility
Total borrowings
2016
Revolving credit facility
(USD 313 million) 2)
BNDES loan (Brazil)
Finance lease obligation
Total borrowings
Carrying
amount
Total undiscounted
cash flow 1)
6 months
and less
6–12
months
1–2 years
2–5 years
More than
5 years
348
478
183
1 494
30
2 533
1 195
237
1 622
3 054
365
505
212
3 072
30
4 183
1 209
282
3 155
4 646
7
9
27
163
30
236
1 209
30
173
1 412
5
9
26
163
-
203
-
29
175
204
353
487
50
328
-
1 218
-
56
702
758
-
-
109
793
-
902
-
149
861
1 010
-
-
-
1 625
-
1 625
-
19
1 244
1 262
1) The interest costs are calculated using the last fixing rate known by year end (plus applicable margin).
2) Maturity of the term loan in the 2016 table reflects that this loan was reclassified to current borrowings due to breach of covenant as of 31 December 2016. The facilities
were not terminated as a new agreement was reached with the Bank Syndicate in March 2017.
Reconciliation of liabilities arising from financing activities
Amounts in NOK million
Revolving credit facility (NOK 1 005 million)
Revolving credit facility (USD 147 million)
BNDES loan (Brazil)
Finance lease obligation
Overdraft facility
Balance as of
December 31, 2016
Cash
flows
Foreign
exchange
movements
Capitalized
borrowing
costs
Accrued
interest
Balance as of
December 31,
2017
-
1 195
237
1 622
-
348
(629)
(41)
(95)
26
-
(89)
(13)
(59)
4
(157)
-
3
-
-
-
3
-
(2)
-
26
-
24
348
478
183
1 494
30
2 533
Total liabilities arising from financing activities
3 054
(391)
Annual Report 2017 | Financials and Notes | Akastor Group 56
Note 25 | Other non-current liabilities
Amounts in NOK million
Deferred settlement obligations
Deferred gain related to joint venture
Guarantee obligation related to joint venture
Other liabilities
Total other non-current liabilities
Note
32
2017
2016
9
14
39
48
110
9
55
-
48
112
Deferred gain related to joint venture
Guarantee obligation related to joint venture
In 2016, AKOFS Offshore sold the Skandi Santos topside equipment to
Akastor’s share of losses from DOF Deepwater AS in excess of the carrying
Avium Subsea AS, a joint venture with 50 percent ownership. The sale
amount of Akastor’s investment interest in the joint venture is recognized
resulted in an accounting gain of NOK 172 million, after elimination of
as a liability as the group has provided guarantees for the funding of the
50% of the total gain on sale. The elimination of the gain in excess of the
vessels in the company. See also note 16 Equity-accounted investees and
carrying amount of the joint venture is presented as “Deferred gain related
note 35 Related parties for more information.
to joint venture”. The deferred gain was reduced by Akastor’s share of
net profit from Avium Subsea AS in 2017. See note 16 Equity-accounted
Other liabilities
investees and note 35 Related parties for more information about the
Other liabilities relate mainly to liabilities related to leasehold improvements
transaction with joint venture.
and welfare fund.
Note 26 | Employee benefits – pension
Akastor’s pension costs represent the future pension entitlement earned
below. The estimated contributions expected to be paid to the Norwegian
by employees in the financial year. In a defined contribution plan the
plan during 2018 amount to NOK 17 million.
company is responsible for paying an agreed contribution to the employee’s
pension assets. In such a plan this annual contribution is also the cost.
Compensation plan
In a defined benefit plan it is the company’s responsibility to provide a
To ensure that the employees were treated fairly on the change over
certain pension. The measurement of the cost and the pension liability
to the new plan, the company has introduced a compensation plan. The
for such arrangements is subject to actuarial valuations. Akastor has over
basis for deciding the compensation amount is the difference between
a long time period gradually moved from defined benefit arrangements
calculated pension capital in the defined benefit plan and the value of the
to defined contribution plans. Consequently, the impact of the remaining
defined benefit plan at the age of 67 years. The compensation amount will
defined benefit plans is gradually reduced.
be adjusted annually in accordance with the adjustment of the employees’
Pension plans in Norway
pensionable income, and accrued interest according to market interest. If
the employee leaves the company voluntarily before the age of 67 years,
The main pension arrangement in Norway is a general pension plan
the compensation amount will be reduced.
organized by the Norwegian Government. This arrangement provides
the main general pension entitlement of all Norwegians. All pension
AFP – early retirement arrangement
arrangements by employers consequently represent limited additional
AFP
is an early retirement arrangement organized by Norwegian
pension entitlements.
employers, the main Labor Union organization in Norway (LO) and the
Norwegian Government. The “old AFP” arrangement was established to
Norwegian employers are obliged to provide an employment pension
provide pension between the age of 62 to 67 for employees who retired
plan, which can be organized as a defined benefit plan or as a defined
before the general retirement age of 67. In a recent pension reform
contribution plan. The Norwegian companies in Akastor have closed
individual employees are given a choice of retirement age, but with
the earlier defined benefit plans in 2008 and are now providing defined
lower pension with earlier retirement. Estimated remaining employer
contribution plans for all of their employees under 61 years of age.
contributions to cover the plan deficit have been provided for.
Defined contribution plan
The AFP scheme which was newly established in 2011 is not considered
The annual contribution expensed for the new defined contribution plan
to be a defined benefit compensation scheme for early retirement, but a
for continuing operations was NOK 44 million (NOK 53 million in 2016).
lifelong contribution plan. The scheme is classified as a multi-employer
The estimated contributions expected to be paid in 2018 amount to NOK
benefit scheme. Akastor has taken the position that the information
41 million.
Defined benefit plan
available at the date of the financial statements is not sufficient to reliably
measure the allocation of pension cost and net pension liability/asset in
accordance with a cost/benefit approach. Akastor has therefore elected
Employees who were 58 years or older in 2008, when the change took
to treat the scheme as a defined contribution plan in which the annual
place, are still in the defined benefit plan. This is a funded plan and
paid premiums to the AFP scheme are expensed in the income statement
represents most of the funded pension liability reported in the tables
as they are incurred. The total liability is not recognized. Based on the
Annual Report 2017 | Financials and Notes | Akastor Group 57
current financing model for AFP, the annual premiums are expected to
Pension plans outside Norway
increase. When or if sufficient and reliable data is available and a liability
Pension plans outside Norway are predominately defined contribution
can be reliably measured, the recognized liability could be significant. The
plans.
estimated contributions expected to be paid in 2018 amount to NOK 12
million.
Pension cost
Amounts in NOK million
Defined benefit plans
Defined contribution plans including AFP
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
Note
2017
11
61
72
8
2016
Restated
14
74
88
2017
2016
187
113
47
-
2
349
195
103
63
18
2
380
Movement in net defined benefit (asset) liability
Amounts in NOK million
Balance as of January 1
Adjustment for discontinued operations as of January 1
Pension obligation
2017
2016
Pension asset
Net pension obligation
2017
2016
2017
2016
669
(18)
814
(126)
(288)
-
(380)
81
380
(18)
434
(46)
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
Changes in asset ceiling
Effect of movements in exchange rates
Other
Benefits paid by the plan
Contributions paid into the plan
Balance as of December 31
11
10
22
5
12
(3)
-
-
5
20
18
13
31
37
(11)
18
-
-
(16)
28
-
(3)
(3)
-
(2)
-
(7)
2
3
(5)
-
(3)
(3)
-
(4)
-
-
-
4
-
11
7
19
5
10
(3)
(7)
2
8
15
18
10
28
37
(15)
18
-
-
(12)
28
(69)
-
(69)
623
(78)
-
(78)
669
45
(23)
22
34
(20)
14
(275)
(288)
(24)
(23)
(47)
349
(44)
(20)
(65)
380
Annual Report 2017 | Financials and Notes | Akastor Group
58
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
2017
2016
4
1
19
33
73
127
20
150
42
56
98
27
275
5
2
26
30
77
136
11
152
43
67
110
26
288
The equity portfolio is invested globally. The fair value of the equities is
The investment in fund/private equity is mainly funds that invests in listed
based on their quoted prices at the reporting date without any deduction
securities and where the fund value is based on quoted prices.
for estimated future selling cost.
The investments in bonds are done in the Norwegian market and most of
The group’s most significant defined benefit plans are in Norway, Germany
the bonds are not listed on any exchange. The market value as at year end
and USA. The followings are the principal actuarial assumptions at the
is based on official prices provided by the Norwegian Securities Dealers
reporting date for the plans in these countries.
Defined benefit obligation – actuarial assumptions
Association. The Bond investments have on average a high credit rating.
Most of the investments are in Norwegian municipalities with a credit
rating of AA.
Norway
Germany
USA
Discount rate
Asset return
Salary progression
Pension indexation
2017
2016
2017
2016
2.40%
2.40%
2.50%
2.50%
2.50%
2.25%
0-2.25%
0-2.25%
3.68%
3.68%
n/a
1.75%
4.01%
4.01%
n/a
1.75%
Mortality table
K2013
K2013
RT 2005 G RT 2005 G
2017
3.29%
3.29%
n/a
n/a
2016
3.64%
3.64%
n/a
n/a
RP-2014 Adjusted
to 2006 Total
Dataset with
Scale MP-2017
RP-2014 Adjusted
to 2006 Total
Dataset with
Scale MP-2016
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 2017 and 2016 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 2017 | Financials and Notes | Akastor Group Years
Life expectancy of male pensioners
Life expectancy of female pensioners
59
2017
22.2
25.5
2016
22.1
25.4
As of December 31, 2017, the weighted-average duration of the defined benefit obligation was 10.9 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, 2017 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
(41)
1
27
33
(1)
(32)
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 27 | Provisions
Amounts in NOK million
Provision, current
Provision, non-current
Total provisions
Development of significant provisions
Amounts in NOK million
Balance as of January 1, 2017
Reclassification from other liabilities
New provisions
Provisions utilized
Provisions reversed
Unwind of discount
Disposal of subsidiaries
Currency translation differences
Balance as of December 31, 2017
Expected timing of payment
Within the next twelve months
After the next twelve months
Total
2017
293
221
514
2016
354
333
686
Warranties Restructuring
Onerous lease
provision
Other
Total
106
-
27
(21)
(26)
-
-
1
86
73
13
86
101
-
91
(100)
(14)
-
-
-
77
48
29
77
436
-
31
(141)
(83)
26
-
-
269
78
192
269
44
29
26
(9)
(2)
-
(8)
1
81
81
-
81
686
29
175
(271)
(125)
26
(8)
2
514
280
233
514
Warranties
provision includes provision for vacant office premises after the workforce
The provision for warranties relates mainly to the possibility that Akastor,
reduction and is estimated based on the detailed restructuring plans for
based on contractual agreements, needs to perform guarantee work
the businesses and locations affected.
related to products and services delivered to customers. Warranty
provision is presented as current as it is expected to be settled in the
Onerous lease provision
group’s normal operating cycle. See note 4 Significant accounting
Provision for onerous leases represents provision for vacant properties
estimates and judgments for further descriptions.
where the group has committed to future lease payments under operating
Restructuring
Restructuring mainly relates to significant workforce reduction and
reorganization in MHWirth due to the challenging rig market. The
lease contracts.
Annual Report 2017 | Financials and Notes | Akastor Group 60
Note 28 | Trade and other payables
Amounts in NOK million
Trade creditors 1)
Accrued operating costs
Trade and other payables
Public duty and tax payables
Amount due to customers for construction work and advances
Deferred settlement obligations
Other
Total
1) Trade creditors are due within one year.
Note
32
19
32
2017
239
334
573
2016
315
694
1 009
77
122
738
1 226
75
107
30
28
1 493
2 492
Book value of trade creditors and other current liabilities is approximately equal to fair value.
Note 29 | 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/Covenants
Akastor monitors capital on the basis of a gearing ratio (net debt/equity)
and interest coverage ratio (ICR) based on EBITDA/net interest costs.
Akastor’s capital management is based on a rigorous investment selection
These ratios are similar to covenants as defined in loan agreements for
process which considers not only Akastor’s weighted average cost of
the revolving credit facilities (see note 24 Borrowings for details about
capital and strategic orientation but also external factors such as market
these loans) which are shown below.
expectations.
Funding policy
Liquidity planning
The company’s minimum consolidated EBITDA shall not be lower
than NOK 225 million in Q4 2017, NOK 325 million in Q1 2018 and
NOK 425 million in Q2 2018.
Akastor has a strong focus on its liquidity situation in order to meet its
short term working capital needs and to ensure solvency for its financial
The ICR shall not be lower than 4.0 from Q3 2018 onwards,
obligations. Akastor had a liquidity reserve per year end 2017 of NOK 1.6
calculated from the consolidated EBITDA to consolidated Net
billion, composed of an undrawn committed credit facility of NOK 1.4
Finance Cost.
billion and cash and cash equivalents of NOK 0.2 billion.
Funding of operations
The company’s gearing ratio shall not exceed 1.0 times and
is calculated from the consolidated total borrowings to the
Akastor’s group funding policy is that all operations shall meet their
consolidated Equity.
funding needs directly via the central treasury department (Akastor
Treasury). This ensures optimal availability and transfer of cash within the
Minimum liquidity amount shall exceed NOK 500 million on
group and better control of the company’s overall debt as well as cheaper
consolidated level.
funding for its operations.
Funding duration
The ratios are calculated based on net debt including cash and borrowings
as shown in note 32 Financial instruments, adjusted EBITDA (earnings
Akastor emphasizes financial flexibility and steers its capital structure
before interest, tax, depreciation, amortization and adjusted for certain
accordingly to limit its liquidity and refinancing risks. In this perspective,
items as defined in the loan agreement) and net interest costs.
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 2017 | Financials and Notes | Akastor Group
61
The covenants are monitored on a regular basis by the Akastor Treasury
breached is low and that the group will continue as a going concern for the
department to ensure compliance with the loan agreements, and are
foreseeable future.
tested and reported on a quarterly basis. Akastor was not in breach with
any covenants as of 31 December 2017, and on the basis of the covenants
Other borrowings in the group have no covenants.
and its forecasts, management believes that the risk of covenant being
Note 30 | Financial risk management and exposures
The group is exposed to a variety of financial risks: currency risk, interest
options with the financial market place. Akastor has a large number of
rate risk, price risk, credit risk, liquidity risk and capital risk. The market risks
contracts involving foreign currency exposures and the currency risk policy
affect the group’s income or the value of financial instruments held. The
has been well-established for many years.
objective of financial risk management is to manage and control financial
risk exposures and thereby increase the predictability of earnings and
For segment reporting purposes, each business unit designates all
minimize potential adverse effects on the group’s financial performance.
currency hedge contracts with Akastor Treasury as cash flow hedge,
Akastor group uses financial derivative instruments to hedge certain
fair value hedge, net investment hedge or identified and separated as an
risk exposures and aims to apply hedge accounting whenever possible
embedded derivative. External foreign exchange contracts are designated
in order to reduce the volatility resulting from the periodic mark-to-
at group level as hedges of currency risk on a gross basis. Most of the
market revaluation of financial instruments in the income statement.
currency hedge contracts qualify for hedge accounting or are embedded
Risk management is performed in every project. It is the responsibility of
derivatives. Non-qualifying hedges are adjusted at group level and included
the project managers, in cooperation with Akastor Treasury, to identify,
in the “unallocated” part of the segment reporting. See note 31 Derivative
evaluate and hedge financial risks under policies approved by the Board
financial instruments for information regarding the accounting treatment
of Directors. The group has well-established principles for overall risk
of hedging and embedded derivatives.
management, as well as policies for the use of derivatives and financial
investments. There have not been any changes in these policies during
Currency exposures from investments in foreign currencies are only
the year.
Currency risk
hedged when specifically instructed by management. As of December 31,
2017, Akastor had no active net investment hedges.
The group operates internationally and is exposed to currency risk
Exposure to currency risk
on commercial transactions, recognized assets and liabilities and net
Estimated forecasted receipts and payments in the table below are
investments in foreign operations. Commercial transactions and recognized
calculated based on the group’s hedge transactions through the Akastor
assets and liabilities are subject to currency risk when payments are
Treasury department. These are considered to be the best estimate of
denominated in a currency other than the respective functional currency
the currency exposure. The net exposure is managed by Akastor Treasury
of the group company. The group’s exposure to currency risk is primarily
that is allowed to hold positions within an approved trading mandate.
to USD, EUR and BRL but also several other currencies. Akastor’s policy
This mandate is closely monitored and reported on a daily basis to the
requires business units to mitigate currency exposure in any project.
management.
Akastor manages exposures by entering into forward contracts or currency
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
2017
2016
USD
EUR
BRL
USD
EUR
(151)
200
(58)
(9)
244
(135)
109
(108)
(8)
(35)
33
-
(2)
1
(12)
(12)
15
2
-
114
-
114
-
-
-
-
114
(68)
178
(139)
(29)
382
(171)
212
(271)
(88)
(21)
(9)
-
(29)
4
(12)
(8)
38
1
BRL
-
148
-
148
169
-
169
(169)
148
Sensitivity analysis
assumes that all other variables, in particular interest rates, remain
A strengthening of EUR, USD and BRL against NOK as of December
constant and ignores any impact of forecast sales and purchases. Figures
31 would have affected the measurement of financial instruments
in the table below only include the effect in income statement and equity
denominated in a foreign currency and increased (decreased) equity and
for change in currency regarding financial instruments and do not include
income statement by the amounts shown below. This analysis is based
effect from operating cost and revenue.
on foreign currency exchange rate variances that the group considered
to be reasonably possible at the end of the reporting period. The analysis
Annual Report 2017 | Financials and Notes | Akastor Group 62
Amounts in NOK million
USD (15 percent weakening of NOK)
EUR (15 percent weakening of NOK)
BRL (15 percent weakening of NOK)
2017
2016
Profit (loss)
before tax
Equity
Increase
(decrease)
Profit (loss)
before tax
Equity
Increase
(decrease)
(23)
2
75
(21)
21
75
(278)
-
(24)
(209)
15
(24)
A 15 percent strengthening of the NOK against the above currencies as
interest rate risk. Borrowings issued at fixed rates expose the group to
of December 31 would have had the equal but opposite effect on the
fair value interest rate risk. However, as these borrowings are measured at
above amounts, on the basis that all other variables remain constant. The
amortized cost, interest rate variations do not affect profit and loss when
sensitivity analysis does not include effects on the consolidated result and
held to maturity.
equity from changed exchange rates used for consolidation of foreign
subsidiaries.
As the group has no significant interest-bearing operating assets, operating
income and operating cash flows are substantially independent of changes
The primary currency-related risk is the risk of reduced competitiveness
in market interest rates.
abroad in the case of a strengthened NOK. This risk relates to future
commercial contracts and is not included in the sensitivity analysis above.
An increase of 100 basis points in interest rates during 2017 would have
Interest rate risk
increased (decreased) equity and profit and loss by the amounts shown on
the table below. This analysis assumes that all other variables, in particular
The group’s interest rate risk arises from interest-bearing borrowings.
foreign currency rates, remain constant.
Borrowings issued at variable rates expose the group to cash flow
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)
2017
2016
3
-
-
(15)
(12)
4
1
1
(38)
(31)
A decrease of 100 basis points in interest rates during 2017 would have
Price risk
had the equal but opposite effect on the above amounts, on the basis that
The group is exposed to fluctuations in market prices both in the
all other variables remain constant. There are no effects on equity as there
investment portfolio used in the pension benefit plan and in the operating
are no interest swaps.
Guarantee obligations
businesses related to individual contracts. The investment portfolio is
limited.
The group has provided the following guarantees on behalf of wholly
The businesses may be exposed to changes in market price for raw
owned subsidiaries as of December 31, 2017 (all obligations are per date
materials, equipment and development in wages. This is managed in the
of issue):
bid process by locking in committed prices from vendors as basis for offers
to customers or through escalation clauses with customers.
Financial guarantees related to project performance on behalf of
group companies are NOK 0 billion (NOK 16.2 billion in 2016).
Credit risk
Financial parent company indemnity guarantees for fulfillment of
or counterparty to financial investments/instruments fails to meet
lease obligations are NOK 4.7 billion (NOK 5.4 billion in 2016).
contractual obligations, and arise principally from investment securities
Credit risk is the risk of financial losses to the group if customer
Financial guarantees including counter guarantees for bank/
against approved banks. All approved banks are participants in the Akastor
surety bonds and guarantees for pension obligations to
loan syndicate and have investment grade ratings. Credit risk related
employees are NOK 1 billion (NOK 2.4 billion in 2016).
to investment securities and derivatives is therefore considered to be
and receivables. Investment securities and derivatives are only traded
Although guarantees are financial instruments, they are considered
insignificant.
contingent obligations and the notional amounts are not included in the
Assessment of credit risk related to customers and subcontractors is
financial statements. Some of the guarantee obligations are on behalf of
an important requirement in the bid phase and throughout the contract
related parties to Akastor, see more information in note 35 Related parties.
period. Such assessments are based on credit ratings, income statement
and balance sheet reviews and using credit assessment tools available (e.g.
Annual Report 2017 | Financials and Notes | Akastor Group 63
Dun & Bradstreet and Credit Watch). Sales to customers are settled in
Liquidity risk
cash.
Liquidity risk is the risk that the group will encounter difficulty in meeting
the obligations associated with its financial liabilities. The group manages
Based on estimates of incurred losses in respect of trade and other
its liquidity to ensure that it will always have sufficient liquidity reserves to
receivables, the group establishes a provision for impairment losses.
meet its liabilities when due.
Provisions for loss on debtors are based on individual assessments.
Provisions for loss on receivables were NOK 71 million in 2017 (NOK
Prudent liquidity risk management includes maintaining sufficient cash,
107 million in 2016). Revenues are mainly related to large and long¬
the availability of funding from an adequate amount of committed credit
term projects closely followed up in terms of payments up front and in
facilities and the ability to close out market positions. Due to the dynamic
accordance with agreed milestones. Normally, lack of payments is due to
nature of the underlying businesses, Akastor Treasury maintains flexibility
disagreements related to project deliveries and is solved together with the
in funding by maintaining availability under committed credit lines.
customer or escalated to the local authority.
At the reporting date, there were no significant concentrations of credit
of cash within the group is to operate a centrally managed cash pooling
risk. The maximum exposure to credit risk at the reporting date equals
arrangement. An important condition for the participants (business units)
the book value of each category of financial assets, see carrying amounts
in such cash pooling arrangements is that the group as an owner of such
in note 32 Financial instruments. The group does not hold collateral as
pools is financially viable and is able to prove its capability to service its
The group policy for the purpose of optimizing availability and flexibility
security.
obligations concerning repayment of any net deposits made by business
units. Management monitors rolling weekly and monthly forecasts of the
group’s liquidity reserve on the basis of expected cash flow.
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
2017
Borrowings excl. finance lease 2)
Finance lease
Other non-current liabilities
Net derivative financial instruments
Trade and other payables
Total financial liabilities
Financial guarantees 3)
2016
Borrowings excl. finance lease 2)
Finance lease
Other non-current liabilities
Net derivative financial instruments
Trade and other payables
Total financial liabilities
Financial guarantees 3)
24
24
25
31
28
24
24
25
31
28
1 039
1 494
96
(74)
573
3 127
1 433
1 622
57
32
1 238
4 382
1 112
3 072
96
(74)
573
4 778
5 626
1 491
3 155
57
32
1 238
5 973
7 822
73
163
-
(54)
449
630
244
1 239
173
-
93
955
2 460
873
40
163
-
(20)
125
307
52
29
175
-
(34)
283
453
927
890
328
39
-
-
1 256
403
56
702
29
(26)
-
761
197
109
793
33
-
-
935
1 141
149
861
16
-
-
-
1 625
24
-
-
1 649
3 786
19
1 244
12
-
-
1 026
1 601
1 274
4 224
1) Nominal currency value including interest.
2) Maturity of the term loans in the table reflects that loans were reclassified to current borrowings due to covenant breach in 2016. See note 24 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.
Annual Report 2017 | Financials and Notes | Akastor Group 64
Note 31 | 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 Construction contracts
there are embedded foreign exchange forward derivatives separated
using the percentage of completion method. This may result in different
from ordinary commercial contracts. Further information regarding risk
timing of cash flows related to project revenues and revenue recognition.
management policies in the group is available in note 30 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, 2017, 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
Fair value of derivative instruments with maturity
Amounts in NOK million
2017
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 3)
Total forward foreign exchange contracts, liabilities
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 3)
Total forward foreign exchange contracts, liabilities
Instruments
at fair value
Total
cash flow 1)
6 months
or less
6–12 months
1–2 years 2)
12
29
19
35
94
(7)
(20)
6
(20)
59
203
22
(15)
269
(127)
(8)
(166)
(301)
12
29
19
35
94
(7)
(20)
6
(20)
59
203
22
(15)
269
(127)
(8)
(166)
(301)
12
6
19
35
71
(7)
(17)
6
(17)
58
141
22
(15)
206
(123)
(8)
(167)
(298)
-
23
-
-
23
-
(3)
-
(3)
2
34
-
-
35
(2)
-
1
(1)
-
-
-
-
-
-
-
-
-
-
28
-
-
28
(2)
-
-
(2)
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 2 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 2017 | Financials and Notes | Akastor Group
65
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. A significant portion of the exposure to
external banks. Since the embedded derivatives are measured and
foreign exchange variations in future cash flows are have been hedged
classified in the same way as their hedging derivatives, they will have an
back-to-back in order to meet the requirements for hedge accounting.
almost equal, opposite effect to profit and loss. In the table above, the
They are either subject to hedge accounting or separated embedded
derivatives hedging the embedded derivatives are included in Forward
derivatives. All other hedges are not designated as IAS 39 hedges and will
foreign exchange contracts - not hedge accounted.
have an effect on profit or loss. Hedges qualifying for hedge accounting are
classified as cash flow hedges (hedges of highly probable future revenues
The hedged transactions in foreign currency that are subject to cash flow
and/or expenses).
hedge accounting are highly probable future transactions expected to
occur at various dates during the next one to four years, depending on
Embedded derivatives are foreign exchange derivatives separated from
progress in the projects. Gains and losses on forward foreign exchange
construction contracts. The reason for separation is that the agreed
contracts are recognized in other comprehensive income and reported
payment is in a currency different from any of the major contract parties’
as hedging reserve in equity until they are recognized in the income
own functional currency, or that the contract currency is not considered
statement in the period or periods during which the hedged transactions
to be commonly used for the relevant economic environment defined as
affect the income statement.
Unsettled cash flow hedges’ impact on profit and loss and equity (not adjusted for tax)
Amounts in NOK million
Fair value of all hedging instruments
Recognized in profit and loss
Deferred in equity (the hedge reserve)
2017
5
2
3
2016
(67)
5
(72)
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 2 million (NOK 5 million in 2016) of the value of the
settlements related to matured instruments.
forward contracts have already affected the income statement indirectly
The purpose of the hedging instrument is to secure a situation where
progress. The NOK 3 million (negative NOK 72 million in 2016) that are
the hedged item and the hedging instrument together represent a
currently recorded directly in the hedging reserve, will be reclassified to
as revenues and expenses are recognized based on updated forecasts and
predetermined value independent of fluctuations of exchange rates.
income statement over the next years.
Revenue and expense on the underlying construction contracts are
Annual Report 2017 | Financials and Notes | Akastor Group 66
Note 32 | 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 prices
liabilities. Financial instruments measured at fair value are classified by
derived from observable market transactions in an active market for
the levels in the fair value hierarchy. All other financial instruments are
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
2017
Loans and receivables
Cash and cash equivalents
Trade and other receivables
Non-current interest-bearing receivables
Available for sale
Other investments 1)
Mutual fund
Fair value – hedging instruments
Derivative financial instruments
Fair value through P&L
Deferred and contingent considerations
Financial assets
Other financial liabilities
Credit facilities and other non-current borrowings 2)
Current borrowings 2)
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
22
21
18
31
17
24
24
25
28
31
25, 28
168
1 457
1
536
12
94
99
2 368
(2 133)
(399)
(87)
(573)
(20)
(84)
(3 296)
536
12
94
99
741
Level 3
Level 1
Level 2
Level 3
(2 138)
(399)
Level 2
Level 2
(20)
Level 2
(84)
(2 641)
Level 3
Annual Report 2017 | Financials and Notes | Akastor Group
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 2)
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
67
Note
Book value
Financial instruments
measured at fair value
Level in fair
value hierarchy
22
21
18
31
17
24
24
25
28
31
25, 28
487
15
1 989
51
121
269
103
3 034
(1 494)
(1 560)
(48)
(1 009)
(301)
(116)
(4 528)
121
269
103
493
Level 3
Level 2
Level 3
(1 494)
(1 567)
Level 2
Level 2
(301)
Level 2
(116)
(3 378)
Level 3
1) Investments in level 3 in the hierarchy relate to equity securities and debt securities with no active market. These investments are measured at the best estimate of fair
value. All available for sale investments are designated as such upon initial recognition.
2) For credit facilities and other 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 financial assets and financial liabilities
Amounts in NOK million
Balance as of January 1, 2016
Additions
Unwind of discount
Net gain (loss) in the income statement
Currency translation difference
Balance as of December 31, 2016
Additions
Settlements
Net gain (loss) in the income statement 1)
Fair value through OCI
Currency translation difference
Balance as of December 31, 2017
1) Negative NOK 50 million in discontinued operations and NOK 59 million in financial items.
Assets
Liabilities
187
237
10
(216)
5
223
411
-
9
6
(14)
634
(6)
(121)
(1)
12
-
(116)
(30)
60
-
2
(84)
Annual Report 2017 | Financials and Notes | Akastor Group
68
Other investment
Contingent considerations and deferred settlement obligations
Investments in NES Global Talent (as part of Other investments) are
These assets and liabilities relate to contingent considerations and
classified as available-for-sale financial assets measured at fair value.
obligations from business acquisitions and disposals where the final
The valuation model considers the present value of the expected cash
amounts to be paid or received depend on future earnings in the acquired
flows from the ultimate disposal of the investments weighted with
and disposed companies. The recognized amounts are determined based
different probabilities. The expected disposal value is determined by
on recent forecasts and strategy figures for these entities, thus the final
forecast EBITDA at the time of disposal and market multiples, adjusted by
realized values are sensitive to the above inputs as driven by market
forecast net debt of the investee. The estimated fair value would increase
conditions.
(decrease) if:
The forecast EBITDA were higher (lower);
recognized and due to the nature of the arrangement the credit risk is not
The credit exposure on the Level 3 asset is limited to the amount
considered to be significant.
The market multiples applied were higher (lower); or
The net debt of the investees at the date of disposal were lower
(higher).
Note 33 | 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
2017
516
892
324
1 732
2016
568
1 287
443
2 298
Minimum sublease income to be received in the future amounts to NOK 6 million (NOK 26 million in 2016) 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
2017
493
(9)
483
2016
Restated
522
(9)
514
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 3-10 years,
rental for the Skandi Santos vessel. In November 2016, AKOFS Offshore
with an option to renew the lease at market conditions. The group has
entered into a lease agreement for the Skandi Santos vessel with the 50
also operating lease costs related to cars and inventory. These leases have
percent owned joint venture, Avium Subsea AS. The Skandi Santos lease
an average lease period of 3–5 years with no renewal options included in
contract expires in March 2020, with an option for renewal for 5 years.
the contracts.
See note 35 Related 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.
Annual Report 2017 | Financials and Notes | Akastor Group Group as lessor
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
69
2017
2016
902
3 862
36
4 801
726
4 223
581
5 530
Lease income recognized in the income statement
Operating lease income relates mainly to the vessels Skandi Santos and Aker Wayfarer, offices leases and the rental business in Step Oiltools. Operating
lease income of NOK 747 million is recognized in the income statement in 2017 (NOK 691 million in 2016).
Annual Report 2017 | Financials and Notes | Akastor Group 70
Note 34 | Group companies
This note gives an overview of subsidiaries of Akastor ASA. For information about other investments in the group, refer to note 16 Equity-accounted
investees and note 18 Other investments. If not stated otherwise, ownership equals share of voting rights.
Group companies as of December 31
Company
Akastor ASA
MHWirth
Location
Country
2017
2016
Ownership (%)
Fornebu
Norway
MHWirth Pty Ltd
MHWirth do Brasil Equipamentos Ltda 1)
MHWirth Canada Inc
Argenton
Rio de Janeiro
Newfoundland
MHWirth Offshore Petroleum Engineering (Shanghai) Co Ltd
Shanghai
MHWirth GmbH
MHWirth (India) Pvt Ltd
MHWirth Sdn Bhd
Drilltech AS
Maritime Promeco AS
MHWirth AS
MHWirth 1 AS 1)
MHWirth Singapore Engineering Management Pte Ltd
MHWirth (Singapore) Pte Ltd
MHWirth UK Ltd
MHWirth Inc
MHWirth FZE
MHWirth Gas & Oil- Field Equipment & Services LLC
AKOFS Offshore
AK Operações do Brasil Ltda
AKOFS Brazil Operations AS 1)
AKOFS 1 AS
AKOFS 2 AS
AKOFS 3 AS
AKOFS 2 Services AS
AKOFS Offshore AS
AKOFS Offshore Operations AS
AKOFS 4 AS
AKOFS Angola Limited
Step Oiltools 2)
Step Oiltools (Australia) Pty Ltd
Step Oiltools Limited 3)
Step Oiltools GmbH
PT Step Oiltools
Step Oiltools LLP
Step Oiltools (M) Sdn Bhd
Step Oiltools (Myanmar) Ltd
Step Oiltools BV
Step Oiltools AS
Step Oiltools Services LLC
Step Oiltools LLC
Step Oiltools Pte Ltd
Step Oiltools (Thailand) Ltd
Australia
Brazil
Canada
China
Germany
India
Erkelenz
Mumbai
Kuala Lumpur
Malaysia
Kristiansand
Kristiansand
Kristiansand
Kristiansand
Singapore
Singapore
Aberdeen
Houston
Dubai
Abu Dhabi
Rio de Janeiro
Oslo
Oslo
Oslo
Oslo
Oslo
Oslo
Oslo
Oslo
Luanda
Norway
Norway
Norway
Norway
Singapore
Singapore
UK
USA
UAE
UAE
Brazil
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Angola
Perth
Australia
Grand Cayman
Cayman Islands
Bad Fallingbostel
Germany
Jakarta
Aktau
Kuala Lumpur
Yangon
Amsterdam
Stavanger
Muscat
Moscow
Singapore
Bangkok
Indonesia
Kazakhstan
Malaysia
Myanmar
Netherlands
Norway
Oman
Russia
Singapore
Thailand
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
76
-
76
76
76
76
76
76
76
51
76
76
76
100
-
100
100
100
100
100
100
100
100
-
100
100
100
100
100
49
100
-
100
100
100
100
100
100
100
100
76
76
76
76
76
76
76
76
76
51
76
76
76
Annual Report 2017 | Financials and Notes | Akastor Group
71
Ownership (%)
2017
76
76
100
100
100
100
-
100
100
100
100
100
100
100
100
100
100
100
100
100
100
Location
Country
Aberdeen
Dubai
UK
UAE
Antwerp
Beijing
Limassol
Glostrup
Port Louis
Zoetermeer
Ikoyi - Lagos
Fornebu
Fornebu
Fornebu
Fornebu
Stavanger
Fornebu
Fornebu
Singapore
Rayong
London
Houston
Williamsport
Belgium
China
Cyprus
Denmark
Mauritius
Netherlands
Nigeria
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Singapore
Thailand
UK
USA
USA
Melbourne
Australia
Bergen
Fornebu
London
London
Houston
Norway
Norway
UK
UK
USA
Jakarta
Indonesia
Kuala Lumpur Malaysia
Singapore
Singapore
Aberdeen
UK
-
-
-
-
-
-
-
-
-
-
2016
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
100
100
100
100
Company
Step Oiltools (UK) Ltd
Step Oiltools FZE
Other companies
Zoetermeer Process Belgium NV/SA
Aker Cool Sorption (Beijing) Technology Co Ltd
Frontica Global Employment Ltd
Cool Sorption A/S
Akastor Mauritius Ltd 3)
Zoetermeer Process BV
Well Systems Servicing Ltd 4)
AKA SPH AS 1)
Akastor AS
Akastor Real Estate AS
BTA Technology AS
First Geo AS
Fjords Processing AS
Frontica Group AS
KOP Surface Products Singapore Pte Ltd
Aker Cool Sorption Siam Ltd
Frontica Business Solutions Ltd
AK Pharmaceuticals LLC
AK Wilfab Inc
Disposed Entities 5)
Frontica Advantage Pty Ltd
Frontica Advantage AS
Frontica Advantage Group AS
Frontica Advantage Ltd
Frontica DC Trustees Ltd
Frontica Advantage Inc
PT KOP Surface Products
KOP Surface Products Sdn Bhd
KOP Surface Products (Services) Pte Ltd
KOP Surface Products (Services) UK Ltd
1) New companies in 2017
2) No non-controlling interest is recognized due to applying the anticipated acquisition method.
3) Liquidated in 2017
4) Changed name from KOP Surface Products Nigeria Ltd
5) Entities are referred to by company names before the disposals
Annual Report 2017 | Financials and Notes | Akastor Group
72
Note 35 | Related parties
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 37 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 to Akastor have been based on arm’s length terms.
by Aker ASA (70 percent) which in turn is controlled by Kjell Inge Røkke
through TRG Holding AS and The Resource Group TRG AS. Aker ASA also
Akastor ASA is a parent company with control of around 60 companies
holds 8.5 percent of the shares in Akastor ASA directly. All subsidiaries
around the world. These subsidiaries are listed in note 34 Group companies.
and associates of Aker ASA, including Kvaerner, Aker Solutions and Aker
Any transactions between the parent company and the subsidiaries are
BP, are considered related parties to Akastor, referred as “Aker entities”
shown line by line in the separate financial statements of the parent
in the table below. The entities controlled directly by Kjell Inge Røkke
company, and are eliminated in the consolidated financial statements.
through TRG Holding AS and The Resource Group TRG AS, are referred as
“Related parties to Aker ASA”.
Joint ventures and associates are consolidated using the equity method,
see note 16 Equity-accounted investees. Transactions between the group
and these entities are shown in the table below.
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
Prepaid expenses
Interest-bearing receivables
PPE under finance lease ( Aker Wayfarer)
Assets held for sale
Trade payables
Finance lease liability (Aker Wayfarer)
Liabilities held for sale
1) See note 5 for information about discontinued operations.
2017
2016
Aker
entities
Joint
ventures and
associates
137
-
(55)
(265)
3
(1)
29
-
-
1 448
-
(45)
(1 494)
-
3
-
(241)
2
-
-
1
21
-
-
-
-
-
Total
140
-
(295)
(262)
3
(1)
29
21
-
1 448
-
(45)
(1 494)
-
Aker
entities
Joint
ventures
219
-
(41)
(292)
2 495
(22)
29
-
-
1 618
6
(16)
(1 622)
(1)
-
172
-
7
-
-
-
-
50
-
-
-
-
Total
219
172
(41)
(285)
2 495
(22)
29
-
50
1 618
6
(16)
(1 622)
(1)
Below are descriptions of significant related party agreements.
Solutions in 2014. Aker Solutions is liable to indemnity Akastor
for any rightful claim such parent company guarantees and to pay
Related party transactions with Aker entities
a guarantee commission to Akastor.
Aker Solutions
Akastor has entered into a number of agreements and arrangements with
Several of the agreements addressing various separation issues
Aker Solutions, including:
between Akastor and Aker Solutions are still valid after the
demerger in 2014, including secondary joint liability for obligations
Various lease agreements from Akastor Real Estate AS and other
existing in Aker Solutions at the time of the demerger, yet limited
Akastor companies to subsidiaries of Aker Solutions.
in amount to the net value allocated to Akastor in the demerger.
Some parent company guarantees issued on behalf of Aker
Kvaerner
Solutions entities by Akastor (as their previous parent company)
Some parent company guarantees issued on behalf of Kvaerner entities
were not transferred in connection with the demerger of Aker
by Akastor (as their previous parent company) were not transferred in
Annual Report 2017 | Financials and Notes | Akastor Group 73
connection with the demerger of Kvaerner in 2011.The parent company
the equity of the company. The ownership of the joint venture remains
guarantees provided by Akastor ASA on behalf of Kvaerner entities are
unchanged. As of December 31, 2017, the balance of the shareholder’s loan
expired as of December 31, 2017 (NOK 5.5 billion in 2016).
from Akastor to DOF Deepwater AS is NOK 11 million (NIBOR 6 months+
OCY Wayfarer AS (Ocean Yield)
to recognition of Akastor’s share of losses in 2017.
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
Akastor ASA has issued financial guarantees in favor of banks related to
vessel until 2027 with purchase options on 3 different dates. This lease
financing of the five vessels in DOF Deepwater. The liability is capped at
agreement is recognized as a finance lease and the finance lease obligation
50 percent of drawn amount. The guarantee is NOK 502 million as of
as of December 31, 2017 amounts to NOK 1 494 million, of which NOK 326
December 31, 2017 (NOK 533 million in 2016).
3.6 percent). The carrying amount of the receivable is reduced to zero due
million is presented as current liability, representing the lease payment to
OCY Wayfarer AS in the next twelve months. The carrying amount of the
Avium Subsea AS
vessel under finance lease is NOK 1 448 million as of December 31, 2017.
AKOFS Offshore has a lease agreement with Avium Subsea AS for the
Aker BP
In 2017, Akastor Real Estate AS entered into agreement to sublease offices
in Stavanger, Norway, to Aker BP.
Skandi Santos vessel corresponding to the remaining Skandi Santos
contract duration between AKOFS Offshore and Petrobras.
In 2016, Avium Subsea AS acquired the Skandi Santos topside equipment
from AKOFS Offshore, which resulted in an accounting gain of NOK 172
Agreements with related parties to Aker ASA
million, representing 50 percent of the total gain on sale.
The Resource Group TRG AS (previously Aker Maritime Finance AS)
MHWirth AS, a wholly owned subsidiary of Akastor, entered into long-term
Akastor AS has issued a financial parent company indemnity guarantee
lease agreements in 2015 with subsidiaries of previously Aker Maritime
of NOK 713 million and a financial guarantee of NOK 28 million in favor
Finance AS, for properties in Kristiansand in Norway. Aker Maritime
of finance institutions for fulfillment of lease obligations related to Avium
Finance AS was merged with The Resource Group TRG AS in 2017. The
Subsea AS.
annual lease payment is approximately NOK 22 million for a lease period of
19 years starting October 1, 2015, with options for renewal.
Other related parties
Aker Pensjonskasse
AK Wilfab Inc, a wholly owned subsidiary of Akastor, is together with Aker
Aker Pensjonskasse was established by Aker ASA to manage the
Solutions Inc and The Resource Group TRG AS sponsoring the US pension
retirement plan for employees and retirees in Akastor as well as related
plan named the Kvaerner Consolidated Retirement Plan. Akastor holds
Aker companies. Akastor holds 93.4 percent of the paid-in capital in Aker
one third of the liability of the sponsors for the underfunded element of
Pensjonskasse and Akastor’s share of paid-in equity was NOK 128 million
the plan and The Resource Group TRG AS holds two thirds of the ultimate
at the end of 2017 (NOK 120 million in 2016). Akastor’s premium paid to
liability. Aker ASA guarantees for The Resource Group TRG AS’ liability
Aker Pensjonskasse amounts to NOK 8 million in 2017 (NOK 13 million in
and covers for all its expenses related to the pension plan.
2016).
Fornebuporten AS
Even though Akastor owns 93.4 percent in Aker Pensjonskasse, the
Akastor leases its headquarter offices at Fornebu from Fornebuporten
ownership does not constitute control since Akastor does not have the
AS, an associated company of The Resource Group TRG AS. The contract
power to govern the financial and operating policies so as to obtain
term is 10 years starting August 31, 2015, with two additional five-year
benefits from the activities in this entity.
options.
Related party transactions with joint ventures and associates
Aker ASA has signed an agreement with employee representatives
DOF Deepwater AS
that regulate use of grants from Akastor ASA for activities related to
During 2017, the shareholder's loan to DOF Deepwater AS was increased
professional development. The grant in 2017 was NOK 510 000 (NOK
by NOK 28 million and NOK 69 million of the loan was converted to
510 000 in 2016).
Grants to employee representative’s collective fund
Note 36 | Contingencies
In November 2017, the South Korea Branch of MHWirth AS received a Pre-assessment Notice from the Seoul Regional Tax Office (SRTO), claiming
Valued Added Tax (VAT) of KRW 26 billion (approximately USD 24 million) including penalties and interests. The tax authorities have claimed that eight
Derrick Equipment Packages delivered to the client outside Korea are subject to VAT in Korea. MHWirth AS disputes SRTO's position and has filed an
application for review of the Pre-assessment Notice. It is the management’s judgment, based on all available evidence as at the reporting date, that it is
more likely than not that the final outcome will be in favour of MHWirth's position. Hence, no provision has been recognized.
Annual Report 2017 | Financials and Notes | Akastor Group 74
Note 37 | Management remunerations
Board of directors
The board of directors did not receive any other fees than those listed in the table below, except for employee representatives who has 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 expenses recognized in the income statement based on assumptions about fees to be approved at the general
assembly rather than actual payments made in the year.
Amounts in NOK
Frank O. Reite
Øyvind Eriksen
Lone Fønss Schrøder
Kathryn Baker
Sarah Ryan 1)
Stian Sjølund
Jannicke Sommer-Ekelund
Asbjørn Michailoff Pettersen
Henning Jensen
Asle Christian Halvorsen
Stig Faraas
Siv K. Hestad
Total
2017
2016
Audit Committee
Board fees
Audit Committee
Board fees
-
-
205 000
115 000
-
-
-
57 500
57 500
-
-
-
600 000
340 000
440 000
340 000
432 536
170 000
85 000
85 000
85 000
85 000
-
-
-
-
205 000
115 000
-
-
-
115 000
-
-
-
-
600 000
340 000
440 000
340 000
434 800
21 250
170 000
170 000
-
-
63 750
85 000
435 000
2 662 536
435 000
2 664 800
1) Board fees 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
assumed the position as Chief Investment Officer of Aker ASA. The
are paid to the Aker companies, not to the directors in person. Therefore,
company practices standard employment contracts and standard terms
board fees for Frank O. Reite and Øyvind Eriksen were paid to Aker ASA.
and conditions regarding notice period and severance pay for the Akastor
Audit Committee
management. Karl Erik Kjelstad and Leif Borge both have a six months’
notice period as part of their employment contracts, while Paal E. Johnsen
Akastor has an audit committee comprising three of the directors, which
has a three months’ notice period.
held 6 meetings in 2017. As of December 31, 2017, the audit committee
comprises Lone Fønss Schrøder (chairperson), Kathryn M. Baker and
The main purpose of the executive remuneration is to encourage a strong
Henning Jensen.
and sustainable performance-based culture, which supports growth in
shareholder value. Compensation to the executive management has a fixed
Guidelines for remuneration to the members of the executive
element which includes a base salary which pursuant to the company’s
management of Akastor
benchmarking is competitive with other investment companies. In
As of December 31, 2017, the executive management of Akastor
addition, the executive management has variable remuneration, as further
comprised the company’s CEO Kristian Monsen Røkke, CFO Leif Borge,
described below. All variable pay shall be subject to a cap.
Investment Director Paal E. Johnsen and Investment Director Karl Erik
Kjelstad. Effective from January 1, 2018, Karl Erik Kjelstad was appointed
The salary figures for the remuneration for the executive management
CEO of the company, succeeding Kristian Monsen Røkke as Mr. Røkke
represent what has been expensed in the year.
Annual Report 2017 | Financials and Notes | Akastor Group
75
Amounts in NOK
Job title
Base salary
Variable pay 1)
Other
benefits 2)
Total taxable
remuneration
Pension benefit earned/
cost to company 3)
2017
Kristian Monsen Røkke
Leif Borge
Karl Erik Kjelstad
Paal E. Johnsen
Total
2016
Kristian Monsen Røkke
Leif Borge 4)
Karl Erik Kjelstad 4)
CEO
CFO
3 715 309
2 669 856
3 617 375
3 151 128
Investment director
3 757 822
3 273 929
Investment director
2 971 861
2 595 046
9 625
32 191
40 541
17 922
6 394 790
6 800 694
7 072 293
5 584 829
14 062 368
11 689 959
100 279
25 852 605
CEO
CFO
3 531 868
4 037 600
9 992
7 579 460
3 504 342
4 261 870
43 688
7 809 900
Investment director
3 640 699
4 316 900
28 304
7 985 903
Paal E. Johnsen
Investment director
2 990 055
3 224 388
11 191
6 225 634
Total
13 666 965
15 840 758
93 175
29 600 897
88 280
149 515
142 411
89 489
469 695
84 260
135 849
132 654
85 396
438 157
1) See below for further description of principles for performance based remuneration.
2) Other benefits include insurance agreements, such as membership in the standard employee scheme and an additional executive group life and disability insurance.
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.
Benefits
Since the variable pay program for the executive management is partly
The executive management participates in the standard employee,
linked to the development of the Akastor ASA share price, it requires
pension and insurance plan applicable to all employees in the company.
approval by the general meeting and the guidelines will thereafter be
No executive personnel in Akastor has performance based pension plans
binding.
and there are no current loans, prepayments or other forms of credit from
the company to its executive management. No members of the executive
Further, the executive management may be offered additional variable pay
management are part of any option- or incentive programs other than
arrangements going forward which differs from the ordinary variable pay
what is described in this statement.
program described above. The variable pay arrangements offered to the
Performance based remuneration
the company’s share price. The executive management may from time to
In addition to the fixed compensation set out above, the executive
time be granted a discretionary variable pay. There was no discretionary
executive management may in its entirety be linked to the development of
management (as well as other members of the corporate organization)
pay paid out for 2016 or 2017.
participates in a variable pay program. The objective of the program is
to incentivize the management to contribute to sound financial results
The CEO and CFO also participate in a long-term incentive bonus plan,
for the company as well as executing leadership in accordance with the
under which the maximum bonus amount is capped at two times of
company’s values and business ethics. The variable pay program potential
annual salary. Payments under the bonus scheme are determined based
is maximized to 100 percent of the annual base salary.
on delivery of certain key strategic targets for the company and/or
The payments under the variable pay program are determined based on
three components:
development of Akastor ASA’s share price for a time period of four years.
Share purchase program for Akastor’s executive management team
The company had no regular share purchase program in 2017. Should the
Development of Akastor ASA’s share price
board of directors decide to launch a share purchase program in 2018,
Delivery of certain key financial, operational and strategic targets
under any such programs will be subject to a three year lock-up period
for Akastor
during which the acquired shares may not be sold or otherwise disposed
the executive management will be invited to participate. Shares purchased
Delivery of personal performance objectives during the year
of.
Annual Report 2017 | Financials and Notes | Akastor Group
76
Directors’ and executive management’s shareholding
The following number of shares is owned by the directors and the members of the executive management (and their related parties) as of December 31:
Kristian Monsen Røkke
Leif Borge
Karl Erik Kjelstad
Paal E. Johnsen
Frank O. Reite
Lone Fønss Schrøder
Kathryn Baker
Sarah Ryan
Jannicke Sommer-Ekelund
Asbjørn Michailoff Pettersen
Øyvind Eriksen
Henning Jensen
Asle Christian Halvorsen
Stian Sjølund
Job title
CEO
CFO
Investment Director
Investment Director
Chairman
Deputy chairman
Director
Director
Director
Director
Director
Director
Director
Director
2017
2016
200 000
250 000
123 074
-
200 000
4 400
45 683
5 000
-
-
-
-
-
-
200 000
250 000
123 074
-
200 000
4 400
45 683
5 000
839
3 050
-
-
-
-
The overview includes only direct ownership of Akastor shares and does not include Frank O. Reite and Øyvind Eriksen’s indirect ownership through
ownership in Aker ASA.
Annual Report 2017 | Financials and Notes | Akastor Group 04.b. FINANCIALS AND NOTES
AKASTOR ASA
Akastor ASA | Income statement
Akastor ASA | Statement of financial position
Akastor ASA | Statement of cash flow
| Accounting principles
| Operating revenue and expenses
| Net financial items
Note 1
Note 2
Note 3
Note 4 | Tax
Note 5
Note 6
Note 7
Note 8
Note 9
Note 10 | Financial risk management and financial instruments
Note 11 | Related parties
Note 12 | Shareholders
| Investments in group companies
| Shareholders’ equity
| Receivables and borrowings from group companies
| Borrowings
| Guarantees
77
78
79
80
81
82
82
83
83
83
84
85
86
86
87
88
Annual Report 2017 | Financials and Notes | Akastor ASAFinancials and Notes | Akastor ASA
78
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
Note
2017
2016
2
2
3
4
27
(47)
(21)
726
706
(42)
664
664
664
15
(64)
(49)
868
819
(29)
790
790
790
Annual Report 2017 | Financials and Notes | Akastor ASA
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
Deferred tax liability
Total non-current liabilities
Current borrowings, external
Current borrowings from group companies
Current tax liabilities
Other liabilities to group companies
Derivative financial instruments
Other current liabilities
Total current liabilities
Total liabilities
Total equity and liabilities
79
Note
2017
2016
4
5
7
7
7
10
7
6
8
4
8
7
4
10
-
5 298
3 156
2
8 456
81
800
76
14
-
971
4
5 396
2 951
2
8 353
300
1 004
453
-
135
1 892
9 427
10 245
162
(2)
2 000
2 003
531
4 695
824
19
843
2
3 728
18
45
68
28
3 889
4 733
9 427
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
Fornebu, March 9, 2018 I 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
Henning Jensen | Director
Asle Christian Halvorsen | Director
Stian Sjølund | Director
Karl Erik Kjelstad | CEO
Annual Report 2017 | Financials and Notes | Akastor ASA
80
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
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
Change in overdraft cash pool
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 1.4 billion as of December 31, 2017 (NOK 2.6 billion in 2016).
Note
2017
706
2016
819
195
(800)
356
(1 000)
-
101
-
-
620
(901)
(1 899)
52
-
931
1 000
(197)
(40)
(135)
135
-
(262)
(88)
(114)
(114)
421
(2 853)
514
1 986
2
-
(42)
27
115
(60)
195
135
7
Annual Report 2017 | Financials and Notes | Akastor ASA
81
Note 1 | Accounting principles
Akastor ASA (the parent company) is a company domiciled in Norway.
Trade receivables and other receivables are recognized at nominal
The financial statements are presented in conformity with Norwegian
value less provision for expected losses. Provision for expected losses is
Accounting Act and Norwegian generally accepted accounting principles
considered on an individual basis.
(NGAAP).
Revenue recognition
Non-current borrowings are initially recorded at transaction value less
attributable transaction costs. Subsequent to initial recognition, interest-
Revenue is recognized when the service is delivered. Operating revenue
bearing non-current borrowings are measured at amortized cost with
is comprised mainly of income from parent company guarantees (PCG).
any difference between cost and redemption value being recognized in
The PCGs are invoiced when the guarantee is issued and the income is
the income statement over the period of the borrowings on an effective
recognized on a straight line basis over the lifetime of the guarantee.
interest basis.
Insurance commissions are recognized the year the
insurance
is
established.
Cash in cash pool system
Investments in subsidiaries and associates
deposits from subsidiaries in the group’s cash pooling systems owned by
Investments in subsidiaries and associates are accounted for using the
the parent company. Correspondingly, the parent company’s current debt
cost method in the parent company’s accounts. The investments are
to group companies will include the same net deposits in the group’s cash
Cash in cash pool system is the parent company’s cash as well as net
valued at cost less impairment losses. Investments in subsidiaries and
pooling system.
associates are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may exceed the fair value
The statement of cash flow is prepared according to the indirect method.
of the investment.
Share capital
Dividends and other distributions are recognized as income the same
Costs for purchase of own shares including transaction costs are accounted
year as they are allocated from the subsidiary. If the dividend exceeds
for directly against equity. Sales of own shares are performed according
accumulated profits in the subsidiary after the acquisition, the payment is
to stock-exchange quotations at the time of award and accounted for as
treated as a reduction of the carrying amount of the investment.
increase in equity.
Classification
Foreign currency
An asset is classified as current when it is expected to be realized or is
Transactions in foreign currencies are translated at the exchange rate at
intended for sale or consumption as part of the operating cycle or is
the date of the transaction. Monetary assets and liabilities denominated
expected/due to be realized or settled within twelve months after the
in foreign currencies at the reporting date are translated to the functional
reporting date. Other assets are classified as non-current.
currency at the exchange rate on that date. Foreign exchange differences
arising on translation are recognized in the income statement.
A liability is classified as current when it is expected to be settled as
part of the operating cycle, the liability is due to be settled within twelve
Derivative financial instruments
months after the reporting period, or if Akastor ASA does not have an
Subsidiaries have entered into financial derivative agreements with
unconditional right to defer settlement of the liability for at least twelve
the parent company to hedge their foreign exchange exposure. The
months after the reporting period. All other liabilities are classified as non-
parent company does not engage in hedging activities other than as a
current.
counterparty in financial derivative agreements with the subsidiaries. In
the parent company, derivatives from external banks are used to mitigate
Non-current borrowings are presented as current if a loan covenant
the foreign exchange exposure from the financial derivative agreements
breach exists at balance date. If a covenant waiver is approved subsequent
with the subsidiaries.
to year-end and before the approval of the financial statements, the
liability is presented as non-current debt to the extent maturity date is
Hedge accounting is performed at Akastor group level. Refer to note 3 in
beyond one year.
Akastor’s consolidated financial statements for the description of hedge
accounting at group level.
Financial assets and liabilities
Financial assets and liabilities consist of investments in other companies,
All financial assets and liabilities related to foreign exchange contracts are
trade and other receivables, interest-bearing receivables, cash and cash
remeasured at fair value in respect to exchange rates at reporting date and
equivalents, trade and other payables and interest-bearing borrowing.
resulting gains or losses are recorded in the income statement.
The company initially recognizes borrowings and receivables on the date
Tax
when they are originated. All other financial assets and financial liabilities
Tax expense in the income statement comprises current tax and changes in
are initially recognized on the trade date.
deferred tax. Deferred tax is calculated as 23 percent of temporary differences
between accounting and tax values as well as any tax losses carry-forward at
the year end. Net deferred tax assets are recognized only to the extent it is
probable that they will be utilized against future taxable profits.
Annual Report 2017 | Financials and Notes | Akastor ASA 82
Note 2 | Operating revenue and expenses
Operating revenue comprises mainly NOK 25 million in income from
There are no employees in Akastor ASA and hence no salary or pension
parent company guarantees (NOK 12 million in 2016) and NOK 2 million
related costs and also no loan or guarantees related to the executive
in insurance commissions from group companies (NOK 3 million in 2016).
management team. Group management and corporate staff are employed
Income from parent company guarantees includes NOK 12 million from
by other Akastor companies and costs for their services as well as other
external companies and related parties (NOK 1 million in 2016).
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 services other than audit services were provided in the period.
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
Impairment of shares
Other financial income
Other financial expense
Foreign exchange gain
Foreign exchange loss
Net other financial items
Net financial items
2017
2016
3
3
3
3
Note
2017
2016
223
(4)
219
-
-
12
(117)
(105)
800
(98)
-
(98)
-
-
52
(43)
612
726
293
(8)
285
7
7
15
(237)
(221)
1 000
(292)
(64)
-
72
(4)
214
(129)
797
868
Annual Report 2017 | Financials and Notes | Akastor ASA 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
Group contribution without tax effect
Generated (utilized) tax loss
Taxable income
Taxable (deductible) temporary differences
Unrealized gain (loss) on forward exchange contracts
Other temporary differences
Tax loss carry-forward 1)
Basis for deferred tax
Tax rate
Deferred tax assets (liability)
Tax expense
Origination and reversal of temporary differences in income statement
Withholding tax paid
Income tax benefit (expense)
83
2017
2016
706
195
(1)
8
(800)
(107)
-
8
(20)
96
84
23%
(19)
(23)
(19)
(42)
819
292
(3)
(119)
(1 000)
-
(11)
23
(27)
(11)
(15)
24%
4
(27)
(2)
(29)
1) In 2016, Akastor ASA claimed tax deduction for a loss of NOK 951 million related to internal loans to a former subsidiary. The deduction is currently being subject to
inquiries from Norwegian Tax Authorities. Akastor ASA will not recognize a deferred tax asset for this tax loss until the inquiries have been concluded. In the tax calculation,
it is assumed that taxable profit in 2017 is offset against parts of this tax loss. This results in a negative deferred tax position for tax loss carry-forwards in 2017.
Note 5 | Investments in group companies
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
27 129 519
55.49%
2017
2016
4 191
1 107
5 298
4 191
1 205
5 396
1) 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, 2016
Profit (loss) for the period
Equity as of December 31, 2016
Profit (loss) for the period
Equity as of December 31, 2017
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
(923)
790
(133)
664
531
Total
3 241
790
4 031
664
4 695
The share capital of Akastor ASA is divided into 274 000 000 shares
The number of treasury shares held by the end of 2017 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 12
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 2017 | Financials and Notes | Akastor ASA
84
Note 7 | Receivables and borrowings from group companies
Amounts in NOK million
2017
2016
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
3 653
(31)
(3 622)
-
81
3 156
(3 728)
(491)
800
-
800
2 702
(13)
(2 554)
135
300
2 951
(4 499)
(1 248)
1000
4
1 004
Interest-bearing receivables on and borrowings from group
The cash pool systems cover a majority of the group geographically and
companies
assure good control and access to the group’s cash. Participation in the
Akastor ASA is the group’s central treasury function (Akastor Treasury) and
cash pool is vested in the group’s policy and decided by each company’s
enters into borrowings and deposit agreements with group companies.
board of directors and confirmed by a statement of participation. The
Deposits and borrowings are done at market terms and are dependent
participants in the cash pool system are jointly and severally liable and it
of the group companies’ credit rating and the duration of the borrowings.
is therefore important that Akastor as a group is financially viable and can
In 2017, an impairment of NOK 98 million (NOK 292 billion in 2016) is
account can be set-off against any credit balance. Hence, a debit balance
recognized related to interest-bearing receivables on group companies.
represents a claim on Akastor ASA and a credit balance a borrowing from
The impairment is mainly related to receivables on Step Oiltools.
Akastor ASA.
repay deposits and carry out transactions. Any debit balance on a sub
All current receivables and borrowings are due within one year.
The cash pool systems were showing a net cash balance of NOK 0
Cash pool arrangement
million as of December 31, 2017 (NOK 135 million in 2016). This amount is
reported in Akastor ASA’s accounts as short term borrowings from group
Akastor ASA is the owner of the cash pool system arrangements with DNB.
companies and as cash in cash pool system.
Annual Report 2017 | Financials and Notes | Akastor ASA
85
Note 8 | Borrowings
Amounts in million
Currency
Nominal
currency
value
Carrying
amount
(NOK)
Interest
rate
Interest
margin
Interest
coupon
Maturity
Interest terms
2017
Revolving credit facility
(NOK 1 005 million)
Revolving credit facility
(USD 147 million)
Total borrowings
Current borrowings
Non-current borrowings
Total
2016
Revolving credit facility
(NOK 1 122 million)
Revolving credit facility
(USD 313 million)
Total borrowings
Current borrowings
Non-current borrowings
Total
NOK
350
348
0.76%
2.25%
3.01% July 2019 2)
NIBOR + margin 1)
1.49%
2.25%
3.74% July 2019 2)
USD LIBOR + margin 1)
USD
58
478
826
2
824
826
NOK
-
-
2.75%
July 2019 2)
NIBOR + margin 1)
0.67%
2.75%
3.42% July 2019 2)
USD LIBOR + margin 1)
USD
139
1 195
1 195
4
1 191
1 195
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.
All facilities are provided by a bank syndicate consisting of high quality
The ICR shall not be lower than 4.0 from Q3 2018 onwards,
Nordic and international banks. The terms and conditions include
calculated from the consolidated EBITDA to consolidated Net
restrictions which are customary for these kinds of facilities, including
Finance Cost.
inter alia negative pledge provisions and restrictions on acquisitions,
disposals and mergers and change of control provisions. The facilities
The company’s gearing ratio shall not exceed 1.0 times and is
include no dividend restrictions. There is a stand-alone mortgage on the
calculated from the consolidated net total borrowings to the
vessel AKOFS Seafarer as security for the facilities.
consolidated equity.
The financial covenants are a gearing ratio based on net debt/equity, a
Minimum liquidity amount shall exceed NOK 500 million on
minimum consolidated EBITDA, an interest coverage ratio (ICR) based on
consolidated level.
EBITDA/net interest costs and a minimum liquidity amount. The financial
covenants are tested on a quarterly basis.
The covenants are monitored on a regular basis by the Akastor Treasury
The company’s minimum consolidated EBITDA shall not be lower
tested and reported on a quarterly basis. Akastor was not in breach with
than NOK 225 million in Q4 2017, NOK 325 million in Q1 2018
any covenants as of December 31, 2017, and on the basis of the covenants
and NOK 425 in Q2 2018. The nominal consolidated EBITDA
and its forecasts, management believes that the risk of covenant being
amount is adjusted for certain items as defined in the agreement;
breached is low and that the group will continue as a going concern for the
however does not share the same definition as ICR covenant.
foreseeable future. See more information in note 29 Capital management
department to ensure compliance with the loan agreements, and are
in the Akastor Group consolidated accounts.
Annual Report 2017 | Financials and Notes | Akastor ASA
86
Financial liabilities and the period in which they mature
Amounts in NOK million
2017
Revolving credit facility (NOK 1 005 million)
Revolving credit facility (USD 147 million)
Total borrowings
2016
Revolving credit facility (USD 313 million)
Total borrowings
Carrying
amount
Total
undiscounted
cash flow 1)
6 months
and less
6–12 months
1–2 years
2–5 years 2)
348
478
826
1 195
1 195
365
505
870
1 345
1 345
7
9
16
24
24
5
9
14
20
20
353
487
840
-
-
-
41
41
1 260
1 260
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 9 | 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
2017
2016
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
3 940
-
973
-
4 913
244
52
403
428
3 786
13 719
5 455
2 425
501
22 100
6 596
2 534
6 543
2 216
4 211
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; within Cognizant Oil and Gas Consulting Services group (former Frontica Business Solutions group) 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.
Note 10 | Financial risk management and financial instruments
Akastor ASA has entered into forward exchange contracts with subsidiaries
while minor contracts are hedged based on internal matching principles.
in 2017. Large contracts are hedged back-to-back with external banks,
All instruments are measured at fair value as of December 31.
Amounts in NOK million
Forward exchange contracts with group companies
Forward exchange contracts with external counterparts
Total
2017
2016
Assets
Liabilities
Assets
Liabilities
57
19
76
(20)
(48)
(68)
367
86
453
(139)
(291)
(430)
Annual Report 2017 | Financials and Notes | Akastor ASA 87
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
against approved banks. All approved banks are participants in the Akastor
as a service provider, or as a part of the operation of Akastor Treasury.
loan syndicate and have investment grade ratings. Credit risk related
An important condition for the participants (business units) in such
to investment securities and derivatives is therefore considered to be
cash pooling arrangements is that Akastor ASA as an owner of such
insignificant. The existence of netting agreements between Akastor ASA
pools is financially viable and is able to prove its capability to service its
and the banks reduces the credit risk.
obligations concerning repayment of any net deposits made by business
Loss provisions for
interest-bearing receivables are recognized
in
group’s liquidity reserve on the basis of expected cash flow. Liquidity risk
situations of negative equity if the company is not expected to be able
relates to the risk that the company will not be able to meet its debt and
to fulfil its loan obligations from future earnings. NOK 98 million was
guarantee obligations and is managed through maintaining sufficient cash
impaired in 2017 (NOK 292 million in 2016), see also note 7 Receivables
and available credit facilities. The development in the group’s and thereby
and borrowings from group companies.
Akastor ASA’s available liquidity is continuously monitored through weekly
units. Management monitors rolling weekly and monthly forecasts of the
and monthly cash forecasts, annual budgets and long term planning.
Note 11 | 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
Note 9
Note 10
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.
All transactions with related parties are carried out at market terms and in accordance with the arm’s lengths principle.
Annual Report 2017 | Financials and Notes | Akastor ASA 88
Note 12 | Shareholders
Shareholders with more than 1 percent shareholding
Company
2017
Aker Kværner Holding AS
Goldman Sachs & Co
Aker ASA
Morgan Stanley & Co. LLC
Euroclear Bank S.A./N.V.('BA')
Jefferies LLC SP. RES. A/C FBO CUS
ODIN Norge
Skandinaviska Enskil SEB STO, SFMA1
Akastor ASA
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
Note
Nominee
Number of shares held
Ownership
Nominee
Nominee
Nominee
Nominee
6
110 333 615
44 283 961
23 331 762
12 000 000
11 685 711
9 693 000
7 840 060
3 227 697
2 776 376
40.27%
16.16%
8.52%
4.38%
4.26%
3.54%
2.86%
1.18%
1.01%
Note
Nominee
Number of shares held
Ownership
Nominee
Nominee
Nominee
Nominee
6
110 333 615
40 714 852
35 124 259
23 331 762
9 930 418
7 840 060
3 638 779
2 776 376
40.27%
14.86%
12.82%
8.52%
3.62%
2.86%
1.33%
1.01%
Annual Report 2017 | Financials and Notes | Akastor ASA 05. AUDITOR'S REPORT
89
Annual Report 2017 | Auditor's ReportAuditor's Report 90
Annual Report 2017 | Auditor's Report 91
Annual Report 2017 | Auditor's Report 92
Annual Report 2017 | Auditor's Report 93
Annual Report 2017 | Auditor's Report 94
Annual Report 2017 | Auditor's Report 95
06. ALTERNATIVE PERFORMANCE
MEASURES
Akastor discloses alternative performance measures as a supplement to
Net capital employed - a measure of all assets employed in the
the consolidated financial statements prepared in accordance with IFRS.
operation of a business. It is calculated by non-current assets (excluding
Such performance measures are used to provide an enhanced insight
non-current interest bearing receivables) added by net current operating
into the operating performance, financing abilities and future prospects
assets minus non-current operating liabilities (deferred tax liabilities,
of the group. These measures are calculated in a consistent and
employee benefit obligations and other non-current liabilities).
transparent manner and are intended to provide enhanced comparability
of the performance from period to period. It is Akastor's experience that
Gross debt – sum of current and non-current borrowings.
these measures are frequently used by securities analysts, investors and
other interested parties.
Net debt – gross interest-bearing debt minus cash and cash equivalents.
The definitions of these measures are as follows:
Net interest-bearing debt (NIBD) – net debt minus non-current and
EBITDA – earnings before interest, tax, depreciation and amortization,
corresponding to "Operating profit before depreciation, amortization and
Equity ratio – a measure of investment leverage, calculated as total
impairment" in the consolidated income statement.
equity divided by total assets at the reporting date.
current interest bearing receivables.
EBIT – earnings before interest and tax, corresponding to "Operating
Liquidity reserve – comprises cash and cash equivalents and undrawn
profit (loss)" in the consolidated income statement.
committed credit facilities.
Capex and R&D capitalization – a measure of expenditure on PPE or
Order intake – represents the estimated contract value from the
intangible assets that qualify for capitalization.
contracts or orders that are entered into or committed in the reporting
Net current operating assets (NCOA) – a measure of working capital.
period.
It is calculated by current operating assets minus current operating
Order backlog – represents the remaining unearned contract value from
liabilities, excluding financial assets or financial liabilities related to
the contracts or orders that are already entered into or committed at the
hedging activities.
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, current
Trade and other payables
Current operating liabilities
Adjusted by NCOA related to discontinued operations
Net current operating assets (NCOA) (continuing operations)
2017
21
569
2 263
2 853
(23)
(293)
(1 493)
(1 809)
-
1 043
2016
65
1 086
2 829
3 980
(63)
(354)
(2 492)
(2 909)
(117)
954
Annual Report 2017 | Alternative Performance MeasuresAlternative Performance Measures 96
Net capital employed (NCE)
Amounts in NOK million
Total non-current assets
Net current operating assets (NCOA)
Other current assets
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
Liquidity reserve
Amounts in NOK million
Cash and cash equivalents
Undrawn committed credit facilities
Liquidity reserve
2017
2016
7 163
1 043
51
(1)
(10)
(349)
(110)
(221)
-
7 897
954
-
(51)
(15)
(380)
(112)
(333)
(278)
7 566
7 682
2017
2 133
399
2 533
168
2 364
1
-
2016
1 494
1 560
3 054
487
2 567
51
15
2 363
2 501
2017
2016
5 277
10 328
51%
5 580
12 861
43%
2017
2016
168
1 400
1 568
487
2 600
3 087
Annual Report 2017 | Alternative Performance Measures
97
07. 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. Mr. Reite also has experience from banking and served as Operating Director
at Paine & Partners, a New York-based private equity firm. Mr. Reite has different board positions
within Aker and is currently chairman of Ocean Yield ASA and Akastor ASA.
As of December 31, 2017, Mr. Reite holds 200 000 shares in Akastor ASA and 64 781 shares in
Aker ASA, and has no stock options. Mr. Reite is a Norwegian citizen and has been elected for
the period 2017–2019.
Lone Fønss 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 Executive Director of Geely Financials
Denmark, Director and Chairperson for the audit committee at Volvo Cars and Valmet Oy, and
Director of Ikea Group. Ms. Fønss Schrøder has a fintech portfolio of her own.
Ms. Fønss Schrøder has a law degree from the University of Copenhagen and of economics from
Copenhagen Business School. As of December 31, 2017, she holds 4 400 shares in the company
and has 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 December 31, 2017, Mr. Eriksen holds no shares or stock options in Akastor directly; he has
an ownership interest through his holding of 219 027 shares in Aker ASA. He also holds, through
a privately owned company, 0.2 percent of the B-shares 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.
Annual Report 2017 | Board of DirectorsBoard of Directors 98
Kathryn M. Baker | Director
Kathryn M. Baker has 30 over 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 the risk and investment committees. Other current
board positions include Chairman of Catena Media Plc and Navamedic ASA, and board member
of Sevan Marine and DOF. Ms. Baker also serves on the European Advisory Board of the Tuck
School of Business 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 & 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.
Sarah Ryan | Director
Dr. Sarah Ryan has 30 years of experience in the global oil&gas and oilfield services industries.
She currently serves as Non-Executive Director of Woodside Petroleum, where she is also a
member of the audit and risk and sustainability committees. Other current board positions
include Central Petroleum and Kinetic Energy Services, and previous board positions include
Aker Solutions and Vautron. Dr Ryan also serves as chair of the Advisory Board of Unearthed
Solutions and is a Fellow of the Australian Academy of Technological Sciences and Engineering.
Dr. Ryan was energy advisor, Investment director and equity analyst at Earnest Partners, a US-
based investment management firm. Prior to that, she 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, 2017, 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.
Henning Jensen | Director
Henning Jensen currently works as a specialist engineer in project control department at
MHWirth AS. Mr. Jensen joined MHWirth in 2005. He has since then held various positions in the
company.
Mr. Jensen holds a bachelor degree in Marine Technology and a Master in Industrial Economy
and Technology from Agder University College in Grimstad.
As of December 31, 2017, Mr. Jensen holds no shares or stock options in the company. Mr. Jensen
is a Norwegian citizen and has been elected for the period 2017–2019.
Annual Report 2017 | Board of Directors 99
Asle Christian Halvorsen | Director
Asle Christian Halvorsen currently works as Senior Engineer in Mud Products dept at MHWirth
AS. He began his career with the Aker group in 2011 when he joined STEP Offshore. Mr. Halvorsen
holds a BS c in mechanical engineering from Sør-Trøndelag University College. As of December
31, 2017, he holds no shares or stock options in the company.
Mr. Halvorsen is a Norwegian citizen. He has been elected for the period 2017–2019.
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, 2017, Mr. Sjølund holds no shares or stock options in the company.
Mr. Sjølund is a Norwegian citizen and has been elected for the period 2017–2019.
Annual Report 2017 | Board of Directors 100
08. MANAGEMENT
Karl Erik Kjelstad | Chief Executive Officer
Karl Erik Kjelstad joined the Aker group in 1998 and has held various CEO and executive positions
throughout the Aker group, including EVP of Aker Solutions, Aker ASA and CEO of Aker Yards.
Mr. Kjelstad holds an MSc in marine engineering from the Norwegian University of Science and
Technology (NTNU) and an AMP from Harvard Business School. As of December 31, 2017, he
holds, through a privately-owned company, 123 074 shares in the company and had no stock
options. Mr. Kjelstad is a Norwegian citizen.
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, 2017, Mr. Borge holds, directly and through a privately owned
company, 250 000 shares in the company, and had no stock options.
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 December 31, 2017, he holds no shares in the company
and had no stock options. Mr. Johnsen is a Norwegian citizen.
Annual Report 2017 | ManagementManagement 101
09. 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
First Geo
Jåttåvågveien 10, 4020 Stavanger, Norway
PO Box 289, 4066 Stavanger, Norway
+47 51 81 23 50
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
Annual Report 2017 | Company InformationCompany Information i
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