Akastor ASA Annual Report 2017

Plain-text annual report

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 20173 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’ Report5 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' Report6 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' Report7 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' Report8 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' Report9 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' Report10 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 CEO11 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 Statement13 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 Statement14 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 Statement15 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 Statement16 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 Statement17 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 Statement18 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 Statement19 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 Statement20 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 GroupAkastor 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 Group27 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 Group28 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 Group29 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 Group30 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 Group31 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 Group32 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 Group33 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 Group34 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 Group35 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 Group36 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 Group37 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 Group38 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 Group39 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 Group43 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 Group44 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 Group45 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 Group46 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 Group48 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 Group49 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 Group50 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 Group51 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 Group54 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 Group56 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 Group57 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 GroupYears 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 Group60 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 Group62 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 Group63 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 Group64 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 Group66 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 GroupGroup 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 Group70 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 Group73 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 Group74 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 Group04.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 ASA82 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 ASANote 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 ASA87 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 ASA88 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 ASA05. AUDITOR'S REPORT 89 Annual Report 2017 | Auditor's ReportAuditor's Report90 Annual Report 2017 | Auditor's Report91 Annual Report 2017 | Auditor's Report92 Annual Report 2017 | Auditor's Report93 Annual Report 2017 | Auditor's Report94 Annual Report 2017 | Auditor's Report95 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 Measures96 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 Directors98 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 Directors99 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 Directors100 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 | ManagementManagement101 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 Informationi o n . n o i t a c n u m m o c t l o b • S A n o i t a c n u m m o C i t l o B • 5 6 2 1 7 1 2

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