Akastor ASA Annual Report 2020

Plain-text annual report

2020 ANNUAL REPORT 2 KEY FIGURES Results and orders (NOK million) Revenue and other income EBITDA EBITDA margin (percent) Net profit (loss) from continuing operations Net profit (loss) NIBD 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) 2020 2019 4 577 331 7.2 (469) (584) 1 357 40 3 789 2 375 5 361 492 9.2 147 93 692 41 5 250 3 166 7.08 (2.14) 9.94 0.37 1 947 2 272 1.0 1.7 2.7 0.8 1.5 2.4 Net capital employed NOK million Revenue NOK million EBITDA NOK million Other 990 MHWirth 2 801 2000 AGR 148 AKOFS Offshore 1 063 1500 1000 500 0 1 557 1 424 1 254 200 150 153 137 926 973 100 50 0 71 66 57 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Annual Report 20203 TABLE OF CONTENTS 01. BOARD OF DIRECTORS' REPORT 02. DECLARATION BY THE BOARD OF DIRECTORS AND CEO 03. CORPORATE GOVERNANCE STATEMENT – AKASTOR ASA 04. FINANCIALS AND NOTES a. Akastor Group b. Akastor ASA 05. AUDITOR'S REPORT 06. ALTERNATIVE PERFORMANCE MEASURES 07. BOARD OF DIRECTORS 08. MANAGEMENT 09. COMPANY INFORMATION 4 13 14 23 23 86 98 102 104 107 108 Annual Report 2020 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, with a flexible mandate for active ownership and long-term value creation. The shares of Akastor are traded on the Oslo Stock Exchange under the ticker AKAST. The Akastor portfolio of companies had a total net capital employed of NOK 5.0 billion at the end of 2020. Highlights 2020 2020 was dominated by the outbreak of the COVID-19 virus, and the following turmoil in the oil and gas markets. Akastor has focused on mitigating operational effects and minimizing negative financial consequences for its portfolio companies while preserving liquidity and assuring financial flexibility. In the first quarter, Step Oiltools (wholly owned by Akastor) was integrated with MHWirth to strengthen MHWirth’s solids control offering and increase its footprint in Russia and Asia- Pacific. This follows the growth strategy of MHWirth announced in 2019. In August, Akastor announced that it would assume full ownership of a restructured DOF Deepwater AS. As part of this transaction, DOF Deepwater AS changed its name to DDW Offshore AS (DDW). The restructuring involved conversion of 50 percent of the debt into shares in the company, with remaining debt maturing in Q4 2023. As part of the restructuring agreement, DDW will target to realize vessel values at or around maturity date, with sales proceeds to be shared 50/50 between the lenders and DDW. Closing of the transaction was completed in October 2020. From that date, DDW is consolidated into Akastor as a subsidiary. In September, NES Global Talent, in which Akastor held an economic interest of around 17 percent, joined forces with the Fircroft Group (Fircroft) to create NES Fircroft (NES), a leading human capital solutions business for engineering and technical talent globally. Following the transaction, Akastor’s economic interest in the combined entity was reduced to 15.6 percent. In December, MHWirth received notification of a contract award for delivery of topside drilling equipment to be installed onboard a research drillship operated by Guangzhou Marine Geological Survey (GMGS) with delivery in December 2023. The contract value is around USD 80 million and signing of the contract is expected in Q1 2021. The award is strategically important for MHWirth to secure activity within its project department and confirms the company’s competitiveness and technical competence within drilling topside equipment. completed. Following this, Aker Holdings AS and the Norwegian government controlled 36.7 percent and 12.1 percent of the shares outstanding in Akastor respectively through separate accounts. Akastor’s total revenue was reduced from NOK 5.4 billion in 2019 to NOK 4.6 billion in 2020, a decrease of 15 percent. The drop in revenues was primarily a result of lower activity in MHWirth following the challenging market situation especially affecting equipment sales. The year-on-year reduction in revenues for MHWirth’s life cycle service and digital technology segment, DLS & Digital Technology, was only 5 percent, reflecting the resilience of this business segment through a very challenging year. Company Overview Aker Holdings AS (previously Aker Kværner Holding AS), wholly owned by Aker ASA, is the largest shareholder of Akastor with a shareholding of 36.7 percent. Akastor is primarily focused on the oilfield services sector. The portfolio per 2020 covers several industrial holdings in this sector, including: MHWirth, which provides drilling systems and lifecycle services. Ownership interest is 100 percent (see infor- mation under “Subsequent Events”). AKOFS Offshore, a subsea well installation and inter- vention services provider. Ownership interest is 50 percent. AGR, which delivers well-, reservoir- and software ser- vices to the offshore drilling industry. Economic inter- est is 64 percent. Cool Sorption, a supplier of vapour recovery units and systems. Ownership interest is 100 percent. Each above-mentioned Akastor portfolio company is organized as an independent business which is self-sufficient and with its own dedicated management team fully responsible for all aspects of its operational activities. All portfolio companies have separate boards of directors, consisting of appointed Akastor investment managers, including, for some companies, external board members and employee representatives. This governance model provides for strong management of operational activities and a good foundation for close cooperation between Akastor, the portfolio companies and their employees. Also in December, Aker ASA announced that the dissolution of the joint ownership with the Norwegian government of Aker Holdings AS (previously Aker Kværner Holding AS) was In addition to its portfolio of industrial holdings, Akastor has several financial investments, including: Annual Report 2020 | Board of Directors' ReportBoard of Directors’ Report5 DDW Offshore, which owns and operates five offshore vessels. Ownership interest is 100 percent. NES Fircroft, a technical and engineering staffing com- pany. Economic interest is 15.6 percent. Odfjell Drilling, preferred equity instrument with carry- ing amount of USD 85.2 million plus a warrant struc- ture of up to 5.9 million shares. Awilco Drilling, ownership interest is 5.6 percent. The Akastor corporate organization is based at Fornebu, just outside of Oslo in Norway, with a team of 15 employees, working closely with the boards and management of its portfolio companies. Akastor has a total of 1 947 employees (including hired-ins) with presence in approximately 20 countries at year-end 2020. Strategy Akastor is an investment company, employing an independent its approach for each portfolio company to optimize 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 operational activity, 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. The business models of the portfolio companies are decentralized with each entity being self-sufficient, but as part of the Akastor portfolio, all companies share a common foundation based on Akastor’s values, governing documents and compliance structure. Akastor seeks to maximize value by combining strategic, operational and financial measures. Akastor’s strategy as an investment company is to generate an acceptable return on existing investments. Further investments may be made in the existing portfolio companies in order to strengthen the companies and prepare for a future exit. The ultimate goal is to return the capital to the shareholders of Akastor upon divestments of assets, but at the same time ensure that Akastor has a solid capital structure. Market Outlook global pandemic by World Health Organization. This outbreak caused significant disruption to the global economy through reduced industrial activity, extensive travel restrictions and mandatory quarantines. The oil and gas market was strongly affected by negative demand development following lower global activity as well as turmoil on the supply side, resulting in a sharp decline in oil prices in the beginning of 2020. This added additional pressure on the global economy, with direct effects on the investment level of oil companies and following consequences for the oilfield services industry. For Akastor, these events have especially affected the capital equipment segment of MHWirth through a lower demand for single equipment as well as a muted rig newbuilding market. The service and digital technology segments of MHWirth which together accounted for 58 percent of revenues in 2020, up from 50 percent in 2019, has proven resilient through the market turmoil with a relatively low decline in nominal revenues. In 2021, Akastor will continue to focus strongly on minimizing the spread of the virus and mitigate substantial disruptions to operations throughout the portfolio. Akastor management is cautiously optimistic that market situation will improve through 2021 as a result of increased rate of COVID-19 vaccination, which in turn should lead to increased global activity and thus increased demand for products and services offered by the Akastor group of companies. Still, it is expected that the COVID-19 virus will have negative impact on the global economy and the operational activities in Akastor’s portfolio companies also in 2021. The financial impact as a result of this remains uncertain as it still is difficult to predict the duration of the virus outbreak and the long-term impact on the financial markets and the industrial activity level. From an accounting perspective, these factors could impact future assessments of recoverable amounts of Akastor’s assets if the current volatility results in a negative long-term market outlook. Since the last downturn started in 2014, Akastor has focused on reducing costs and maintaining a flexible cost base. During 2020, Akastor has carried out cost reduction programs across all portfolio companies to preserve earnings and reduce impact of the market turmoil. At the same time, Akastor has focused on preserving key competencies to remain relevant when markets improve. Technology development remains a clear strategic target for Akastor for all portfolio companies. In recent years, MHWirth has, through its business segment Digital Technology, developed new solutions optimizing operations of the drilling equipment and reducing energy consumption and today has several systems successfully installed and in operation onboard drilling rigs. The solutions receive good feedback from customers and Digital Technology continues to be a key priority for MHWirth going forward. Akastor’s portfolio companies operate mainly in the oilfield services industry. During 2020, this industry was heavily affected by the outbreak of the COVID-19 virus, declared as a Based on the current footprint of the portfolio, the oilfield services industry will remain the primary market for Akastor for some time. However, Akastor will, as an active owner, in parallel focus on developing its offering within non-oil markets and the Annual Report 2020 | Board of Directors' Report6 renewable space to further diversify the portfolio. Akastor is also targeting to support the industry’s transition to more energy-efficient operations for its clients through development of new solutions. As an example, MHWirth is working to optimize and reduce fuel consumption and carbon footprint for its clients through delivering more efficient drilling solutions while both the engineering division and Digital Technology are seeking opportunities within industries outside of oil and gas. Group Financial Performance Akastor presents its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union. the All amounts below refer to the consolidated financial statements for the group, unless otherwise stated. Income Statement Revenue and other income for 2020 decreased by 15 percent to NOK 4 577 million. Operating profit before interest, tax, depreciation and amortization (EBITDA) decreased by NOK 161 million to NOK 331 million. Depreciation, amortization and impairment was NOK 278 million in 2020, compared to NOK 270 million in the previous year. Net financial expenses were NOK 436 million in 2020 compared to NOK 30 million in the previous year. The net financial expenses included Akastor’s share of net loss of NOK 256 million from the equity-accounted investees DOF Deepwater (DDW Offshore prior to consolidation) and AKOFS Offshore, dividend income of NOK 77 million from equity investment, unrealized loss of NOK 94 million in fair value changes of financial investments, as well as impairment of NOK 120 million related to receivables. In addition, net financial items in 2020 included net financial charges on leases of NOK 36 million. The board of directors has resolved to propose to the annual general meeting that no dividend is distributed for 2020. Financial Position Total assets of Akastor amounted to NOK 9.1 billion as of December 31, 2020, compared with NOK 10.6 billion at year- end 2019. The decrease is mainly related to changes in current operating assets, partly mitigated by the consolidation of DDW Offshore AS as a subsidiary. Net debt (excluding lease liabilities) was NOK 1.5 billion at the end of the period, while net interest-bearing debt (NIBD) was NOK 1.4 billion. NIBD increased through the year, primarily explained by the consolidation of DDW Offshore including its net debt of NOK 426 million per year end 2020. Total equity amounted to NOK 3.7 billion at year-end 2020, of which non-controlling interests were NOK 11 million. The equity ratio was 40 percent as of December 31, 2020, slightly decreased from 41 percent in 2019. Cash Flow As of December 31, 2020, Akastor had cash of NOK 275 million, compared to NOK 555 million in 2019. The net cash flow from operating activities was positive NOK 211 million, compared to operating cash flow of NOK 406 million in the previous year. The positive net cash flow from operating activities comprises of cash inflow generated from operating activities of NOK 369 million offset by net payments of NOK 158 million for interest costs and income tax. Net cash flow from investing activities was negative NOK 219 million, compared to negative NOK 555 million in 2019. The cash flow from investing activities included payments related to contingent considerations from divestments in previous years. Capex investments were NOK 67 million compared to NOK 127 million in 2019. The pre-tax loss for the year was NOK 383 million, compared to a gain of NOK 191 million the previous year. Net cash flow from financing activities amounted to negative NOK 227 million and included payment of lease liabilities of NOK 139 million. The income tax expenses for 2020 were NOK 86 million, compared to a tax expense of NOK 44 million in 2019. The effective tax rate is impacted by several items, such as impairment of deferred tax assets, non-tax deductible items as well as mix of revenue generated in various jurisdictions with different tax rates. Net loss from continuing operations was NOK 469 million, while net loss from discontinued operations was NOK 115 million. The net loss from discontinued operations was mainly related to negative effects on re-assessment of the provision for guaranteed preferred return to our joint venture partners in AKOFS Offshore as well as contingent considerations related to previously divested Managed Pressure Operations Ltd (MPO). The group had an operating loss of NOK 584 million for the year. Going Concern The world is currently in the middle of the COVID-19 outbreak, and how this will unfold remain uncertain. Akastor is continuously monitoring the development and will continue to take measures to mitigate the negative impacts for the company, including measures required to meet restrictions from governmental authorities. However, there is a risk that the COVID-19 outbreak may have substantial negative effects on the global economy which are worse than current estimates, in which case this will also have increased negative effects on Akastor. The COVID-19 outbreak gives higher uncertainty for the going concern assumption for most companies. This is also the case for Akastor. Based on current financial forecasts, there is a risk Annual Report 2020 | Board of Directors' Report7 for breaching the ICR covenant in the first quarter of 2021. This is driven by lower earnings following the COVID-19 outbreak as well as the consolidation of DDW which from Q4 2020 has contributed negative EBITDA and increased interest cost in Akastor’s consolidated financial statements. To mitigate this risk, Akastor has obtained a waiver of the ICR covenant in March 2021 for the remaining period of the current financing. The waiver is contingent on closing of the refinancing of Akastor following the creation of a joint venture between MHWirth AS and Baker Hughes’ Subsea Drilling Systems business as described below. On March 2, 2021, Akastor announced an agreement with Baker Hughes to create a joint venture company that will bring together Akastor’s wholly owned subsidiary, MHWirth AS and Baker Hughes’ Subsea Drilling Systems business. The transaction will require refinancing of Akastor’s existing corporate credit facility. Akastor has received commitments for a total of NOK 1 250 million in revolving credit facilities that will be entered into prior to closing of the transaction, which is expected to take place in the second half of 2021. Please see “Subsequent events” below for more information of the transaction. Based on the received ICR covenant waiver and committed refinancing of the group following the MHWirth transaction, management believes that the risk of additional covenant breach is low and that the group will continue as a going concern for the foreseeable future. Therefore, in accordance with the Norwegian Accounting Act, the board of directors confirms that the going concern assumption, on which the consolidated financial statements have been prepared, is appropriate. Subsequent events On March 2, 2021, Akastor announced an agreement with Baker Hughes to create a joint venture company (Company) that will bring together Akastor’s wholly owned subsidiary, MHWirth AS (MHWirth) and Baker Hughes’ Subsea Drilling Systems (SDS) business. The Company will deliver a global full- service offshore drilling equipment offering that will provide customers with a broad portfolio of products and services. The Company shall be owned 50/50 by Akastor and Baker Hughes. Akastor shall contribute its shares in MHWirth to the Company in return for 50% of the shares of the Company and USD 120 million in consideration, of which USD 100 million is payable in cash at closing. Baker Hughes shall contribute the SDS business to the Company in return for the other 50% of the shares and USD 200 million in consideration, of which USD 120 million is payable in cash at closing. The Company shall issue notes to Akastor and Baker Hughes representing the balance of the consideration owed to them. The notes shall be subordinated to the Company’s external debt financing. The Company will finance the cash consideration payable to Baker Hughes and Akastor by way of a USD 220 million bank facility. In addition, the Company will be financed by a USD 80 million working capital facility. The transaction agreement entered into by Akastor and Baker Hughes provides for customary terms for agreements of this nature, including representations and warranties relating to the businesses being contributed as well as an agreed form shareholders agreement customary for a 50/50 joint venture, including governance and exit provisions. Completion of the transaction is subject to customary conditions, including regulatory approval. Closing of the transaction is expected to take place in the second half of 2021. Following completion of the transaction, it is expected that Akastor shall account for the Company as a joint venture using the equity method. The transaction will require the refinancing of Akastor’s existing corporate credit facility. Akastor has received commitments for a total of NOK 1 250 million in revolving credit facilities that will be entered into prior to closing of the transaction. 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 18 countries. At year-end 2020, the company employed 1 581 people; 46 percent of the workforce is employed in Norway. The company’s operations are divided in five main business areas: Projects, Products, Drilling Lifecycle Services, Digital Technology and Engineering Services (Frontica Engineering). MHWirth is Akastor’s largest portfolio company both in terms of sales revenue and employees. Key Figures 1) Amounts in NOK million Revenue and other income EBITDA EBIT CAPEX and R&D capitalization NCOA Net capital employed Order intake Order backlog Employees (FTE) 2020 3 760 2019 4 442 401 184 94 692 2 801 3 029 1 849 1 581 497 287 121 736 2 908 4 540 2 582 1 766 1) Step Oiltools, previously part of “Other holdings”, is included in “MHWirth”. Comparable figures in 2019 have been restated The revenue for 2020 of NOK 3 760 million was down 15 percent from 2019. Step Oiltools, which was consolidated with MHWirth in 2020, contributed with NOK 245 million in revenues this year. Revenues from Projects and Products combined decreased with around 27 percent to NOK 1 522 million in 2020, largely due to lower order intake from single equipment sales to offshore market, as well as lower revenues from the Project segment following the schedule of ongoing projects without any significant new order intake having been booked within this segment in 2020. Revenues from Drilling Annual Report 2020 | Board of Directors' Report8 Lifecycle Services (DLS) was NOK 2 169 million in 2020, at same level as in 2019. The number of active rigs with complete drilling packages from MHWirth decreased from 53 rigs on average through 2019 to 46 in 2020, however revenues remained on par with 2019 driven by higher spend per unit, highlighting the resilience of this business area. EBITDA decreased from NOK 497 million in 2019 to NOK 401 million in 2020. The EBITDA margin ended at 10.7 percent for 2020, only slightly down from 11.2 percent in 2019, highlighting the importance of the service segment and flexible cost base of the company. The offshore drilling market was strongly affected by the decrease in oil price and global turmoil during 2020 and continues to be suffering from overcapacity of offshore drilling rigs. Order intake within Projects and Products declined significantly in 2020, driven by lower investment levels and delayed investment decisions from clients especially within the offshore markets. No significant order intake was booked within Projects in 2020. However, MHWirth in December 2020 received notification of a contract award for delivery of a drilling equipment package which is expected to be converted to order intake in 2021. The contract value is around USD 80 million. Total order intake in MHWirth ended at NOK 3.0 billion, compared with NOK 4.5 billion in 2019. The order backlog was NOK 1.8 billion as per end of 2020. Since the downturn started in 2014, the number of employees has been reduced substantially and other cost cuts have also been made in order to adjust capacity and costs to a new activity level. In 2020, the workforce decreased from 1 766 to 1 581 employees, as a result of adjustments in light of decreased activity level. Despite lower investment level in 2020 compared to 2019 also within Digital Technology, focus from customers on making the drilling equipment more efficient, thereby reducing energy consumption and the costs of drilling a well, continues to be strong. MHWirth focused on rolling out existing solutions as well as developing new interfaces and software applications for the automation of operations onboard the rigs and is receiving good feedback from clients. MHWirth has a strong pipeline of opportunities within this area per end of 2020. Following the announced agreement to create a joint venture which will combine MHWirth with Baker Hughes’ SDS business (see Subsequent events for more details), a main focus area for MHWirth through 2021 will be to secure a successful integration with SDS following completion of this transaction. A strategy and business plan for the combined company will be established together with Baker Hughes. It is expected that the new company will focus on growth through both organic initiatives as well as M&A. The new company will mainly focus on the global offshore and onshore drilling markets, but it will also seek to pursue opportunities within the renewable sector and further expand its offering to non-oil markets. It is expected that the company’s broader scope of services will provide a more solid foundation for participating in the oil and gas industry’s transition towards more energy-efficient solutions, and this will form a key area in the strategy of the new combined company. 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 294 people at the end of 2020. Akastor owns 50 percent of the shares in AKOFS Offshore, with the remaining shares owned by Mitsui & Co and Mitsui O.S.K. Lines, each with 25 percent. AKOFS Offshore is classified as a joint venture and consolidated using equity method in the consolidated financial statements. Key Figures 1) Amounts in NOK million Revenue and other income EBITDA EBIT CAPEX and R&D capitalization NCOA Net capital employed Order intake Order backlog Employees (FTE) 2020 1 000 414 (134) 213 344 3 744 263 3 827 294 2019 1 093 560 237 618 49 3 734 - 5 013 311 1) The figures are presented at 100 percent basis. The company’s revenue was NOK 1 000 million in 2020, around 9 percent lower than previous year, driven by adjusted terms on the Skandi Santos contract extension. The EBITDA decreased by NOK 146 million to NOK 414 million in 2020. AKOFS Offshore has, through 2020, focused strongly on mitigating operational effects of the ongoing COVID-19 pandemic through strict regulations regarding crew handling. Despite these efforts, AKOFS has been directly affected through reduced utilization because of two virus outbreaks on board one of its vessels. Also, the market situation for AKOFS has been negatively affected through reduced oil price following lowered investment levels among oil companies. This is affecting longer term prospects and opportunities for the company. Both of the vessels Skandi Santos and Aker Wayfarer operate on contracts with Petrobras in Brazil for subsea equipment installation work. In March 2020, the contract of Skandi Santos expired after ten years of operations in Brazil. The contract was first extended to November 2020, and later to November 2021. However, terms for the extension reflect that the vessel is currently doing mostly ROV work and revenues from Santos were thus lower than in 2019. Utilization for both vessels in Brazil has in general been high throughout the year, however negatively affected by two separate outbreaks of COVID-19 onboard Aker Wayfarer as well as an engine issue causing some downtime for Skandi Santos in November. Annual Report 2020 | Board of Directors' ReportIn October, AKOFS Seafarer commenced its five-year contract with Equinor for Light Well Intervention services in the North Sea. The vessel and the subsea workover system have been upgraded through substantial investments, financed by a separate non-recourse bank loan that was established in October 2019. The commencement was somewhat delayed due to the pandemic as well as certain specific challenges related to equipment, with effect on 2020 financials for the company. Going forward, AKOFS will continue to focus on delivering high uptime/utilization on its existing contracts. Further, evaluation of options regarding the Skandi Santos vessel, for which the contract expires in 2021, will be a key focus area in 2021. The company is continuously evaluating opportunities to grow through further leveraging its competencies within subsea well construction and intervention services. AGR AGR is the result of the merger of First GEO AS (previously owned 100 percent by Akastor) and AGR AS which was completed in April 2019. At year-end 2020, Akastor held 100 percent of the shares and 64 percent of the economic interest in the company (55 percent in 2019). Nordea and DNB held the remaining 36 percent economic interest. Key Figures 1) Amounts in NOK million Revenue and other income EBITDA EBIT CAPEX and R&D capitalization NCOA Net capital employed Order intake Order backlog Employees (FTE) 2020 637 2019 573 31 13 10 (7) 148 618 483 319 14 (1) 6 12 170 434 502 438 1) Prior to the acquisition of AGR in April 2019, the figures include First Geo only. AGR had total revenues of NOK 637 million in 2020, while the revenues in 2019 were NOK 573 million for the periods after the acquisition in April 2019. EBITDA in 2020 ended at NOK 31 million, up from 14 million in 2019. During 2020, the activity level in AGR was affected by the market turmoil through lower activity within the consultancy business segment. The Norwegian market remains the largest area in AGR, constituting around 60 percent of revenues in 2020. The company managed to deliver positive earnings despite lower activity level driven by cost cutting programs across all segments, however especially targeting to mitigate effects and international segments. Due to the market situation, profitability in certain segments outside of Norway remains weak. Going forward, the focus is to make all geographical segments profitable. Also, the company is aiming to further develop its software business which is providing solutions to enhance the efficiency of logistics and planning of drilling and well operations for oil improve profitability within its 9 companies. These solutions are receiving good feedback and increasing attention in the market. Other Holdings Other Holdings mainly include 100 percent ownership of Cool Sorption, 100 percent ownership of DDW Offshore AS from October 2020, 15.6 percent economic interest of NES Fircroft, 5.6 percent shareholding in Awilco Drilling, and a preferred equity instrument of USD 85.2 million in Odfjell Drilling. In addition, this segment includes corporate functions and certain long-term office lease contracts that remained in Akastor after the demerger from Aker Solutions in 2014. Key Figures 1) Amounts in NOK million Revenue and other income EBITDA EBIT CAPEX and R&D capitalization NCOA Net capital employed Order intake Order backlog Employees (FTE) 2020 2019 186 (102) (145) 1 (158) 990 142 43 47 354 (20) (64) - (137) 957 275 82 68 1) Step Oiltools, previously part of “Other holdings”, is included in “MHWirth”. Comparable figures in 2019 have been restated. Total EBITDA for Other Holdings for the year was negative NOK 102 million. Cool Sorption delivered an EBITDA of NOK 6 million in 2020, down from NOK 19 million in 2019. DDW Offshore contributed negatively with NOK 11 million in 2020, after consolidation of this business as from October 2020. The remaining negative EBITDA in this segment is mainly related to corporate overhead costs, as well as some legacy costs. In 2020, corporate overhead costs included around NOK 60 million in M&A costs related to the creation of a joint venture involving MHWirth announced in March 2021 (see details on this transaction under Subsequent Events). Parent Company 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 724 million in 2020, including dividend and financial income of NOK 750 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 Annual Report 2020 | Board of Directors' Report10 activities, expected cash flow, capital expenditure plans, financing requirements and appropriate financial flexibility. The board thereby proposes the following allocation of the net profit (amounts in NOK million): Dividends: To other equity: Total allocated: Risk Management 0 724 724 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. As expected, the covid-19 pandemic continued throughout 2020, causing a challenging situation for the entire group. The pandemic impacted the group on a global scale, resulting in necessary cost reductions such as temporary layoffs as well as substantial hindrances to markets and operations. In spite of the difficult situation, the portfolio companies managed the situation well and several delivered fairly solid results for 2020. However, the situation remains a significant risk as it is unclear when and to which extent the situation will normalize. Following the initiatives taken in 2019 to improve the climate risk awareness throughout the group, Akastor has in 2020 further developed this work by performing a more detailed assessment of climate risks and opportunities, as described below. Such assessment will, in the future, be an integrated part of the annual risk assessment. On the operational side, risks are primarily mitigated by a combination of technology developments that support a transition towards more sustainable operations as well as securing new orders and sound project execution by the portfolio companies. 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. Moreover, the entire transaction process, including the process from signing to closing as well as proper integration of new business operations, entails a set of risks for Akastor that will need to be managed and mitigated. in its portfolio companies To manage and mitigate risks within Akastor, risk evaluation is an integral part of all business activities, including when making decisions regarding mergers and acquisitions and other investment matters. As an owner, Akastor actively supervises risk management 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 and are reviewed annually. 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 is the management responsibility of the project managers, in cooperation with Akastor Treasury, to identify, evaluate and hedge financial risks under policies approved by the board of directors. Akastor has well-established principles for overall risk management, as well as policies for the use of derivatives and financial instruments. in every project. is performed instruments in It Integrity Risks All Akastor portfolio companies use education and awareness training to manage and mitigate integrity risks. All employees Annual Report 2020 | Board of Directors' Report11 Even though Akastor and the portfolio companies managed the COVID-19 situation during 2020 well, it still remains uncertain when the situation will normalize. Restrictions with regard to operations and travel will most likely continue until at least Q3 2021. The risk of full suspension of operations is however limited as vaccinations have started and the companies have adapted well to the new “normal” showing that they are capable to work under severe restrictions. Environmental, Social and Governance Akastor’s operating model reflects the fact that the portfolio companies are independent companies which operate different business models and therefore face different Environmental, Social and Governance (ESG) risks and expectations from stakeholders. As a holding company, Akastor is responsible for setting the overall ESG priorities and providing the appropriate risk management framework and policies applicable for the portfolio. Akastor Sustainability Policy describes how Akastor aims to integrate sustainability in its in the governance of its organisation. The policy includes the investment policy and how Akastor engages with the portfolio companies. In turn, and based on these expectations, each portfolio company is responsible for defining their own ESG strategy with relevant activities and, where necessary, supporting policies. investment processes, own operations, and 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 ESG efforts, Akastor is focused on areas that build financial and non-financial value in the portfolio companies. Akastor’s ESG strategy is based on four main priorities: working against corruption, respecting human rights, addressing health and safety and minimizing adverse impact on the environment. Particularly the latter priority has seen an increased focus in 2020, where Akastor wants to take part in the industry’s transition towards more sustainable operations. All the portfolio companies have completed climate risk and opportunities assessments and are responsible for working these possibilities and systematically and managing consequences. The portfolio companies are defining their own ESG strategies encompassing these priorities. Akastor is continuously monitoring the implementation and integration of the priorities of the ESG strategy, Code of Conduct, Sustainability Policy and Integrity Policy across all the portfolio companies. For in-depth reporting on each portfolio company’s approach to ESG, including their Health, Safety and Environment work, refer to the Akastor ESG Report for 2020. The full report is available on our website www.akastor.com. must complete an annual 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-in personnel 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. Climate risks The main climate-related risks in Akastor are with our industrial investments due to the fact that the industry is in a state of accelerated transition to a lower-carbon intensive industry. Governmental regulation of GHG emissions is expected to increase and it will continue to be challenging to get necessary financing with potential lenders electing not to invest in the oil and gas market but rather move capital to new green markets. Unless these risks are met with mitigating measures, we could face a scenario where many of Akastor’s portfolio companies lose its market positions and/or are left with product lines that are obsolete and replaced by more energy efficient/green alternatives. However, this transition to low carbon intensive industry will also create several opportunities, which the portfolio companies are addressing, for example MHWirth’s deliveries to offshore windfarms and AGR’s Carbon Capture and management services. Each portfolio company addresses climate-related risks and opportunities within its yearly risk assessment. In 2020, the assessment related to climate change has been facilitated by external consultants. It has been a bottom-up exercise where all industrial portfolio companies have done its assessment in consultation with the external consultant, who in turn has summarized the results for Akastor. COVID-19 impacts A key element of Akastor’s risk management in 2021 will be to continue to monitor the development of the COVID-19 outbreak and continuously seek to implement necessary mitigating measures. This 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). Annual Report 2020 | Board of Directors' Report12 Research, Innovation and Technology Development NOK 38 million was capitalized in 2020, compared to NOK 71 million in 2019, related to development activities. In addition, research and development costs of NOK 12 million were expensed during the year because the criteria for capitalization were not met (NOK 31 million in 2019). All research, initiatives are innovation and development performed by the Akastor portfolio companies. Akastor ASA and Akastor AS performed no such activity in 2020. 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 2012 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. In 2020, as in previous years, no events violating these agreements were reported. As of year-end 2020, Akastor ASA’s board comprised eight directors inclusive three employee elected directors, of whom three shareholders elected directors are female directors. Akastor and the portfolio companies had a total of 1 947 employees (FTE) as of December 31, 2020. AKOFS Offshore had a total of 294 employees (FTE) as of December 31, 2020. In Akastor AS, the male/female ratio was 63/27. The male/ female ratio (excluding hired ins) in the major portfolio companies and Akastor Group were as follows: MHWirth 17% 83% AKOFS Offshore 11% 89% Female Male Akastor Group (incl. AKOFS Offshore) 18% 82% AGR 30% 70% 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 and its portfolio companies are not aware of any employees that work involuntary part time. 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. Aggregated sick leave in Akastor was 2.7 percent in 2020. There were no fatal injuries in any of the portfolio companies. The total recordable incident frequency was low, and Akastor has thoroughly analysed all incidents and taken actions to avoid similar situations going forward. Caring for employee’s health and safety is an integrated part of the group’s culture. See figures below for details. MH- Wirth AKOFS Offshore AGR Akastor Group (incl. AKOFS Offshore) Lost time Incident Frequency (LTIF)* Total Recordable Incident Frequency (TRIF)* Fatalities incl. subcontractors Sick leave (percent) 1.4 2.1 - 2.9 - 1.4 - 3.1 - - - 1.6 1.0 1.7 - 2.7 * 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 18, 2021 I Board of Directors of Akastor ASA Kristian Røkke | Chairman Lone Fønss Schrøder | Deputy Chairman Svein Oskar Stoknes | Director Kathryn M. Baker | Director Sarah Ryan | Director Henning Jensen | Director Asle Christian Halvorsen | Director Stian Sjølund | Director Karl Erik Kjelstad | CEO Annual Report 2020 | Board of Directors' Report13 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, 2020. 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 2020 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, 2020. 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 18, 2021 I Board of Directors of Akastor ASA Kristian Røkke | Chairman Lone Fønss Schrøder | Deputy Chairman Svein Oskar Stoknes | Director Kathryn M. Baker | Director Sarah Ryan | Director Henning Jensen | Director Asle Christian Halvorsen | Director Stian Sjølund | Director Karl Erik Kjelstad | CEO Annual Report 2020 | Declaration by the Board of Directors and CEODeclaration by the Board of Directors and CEO14 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 17 October 2018 (the «Code of Practice»), the regulations set out in the Rulebook II of 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 Oslo Børs Rulebook II may be found at www.euronext.com. 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 statement1) 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 2020 include in addition to internal reorganisations, Akastor’s takeover of DDW Offshore AS (previously known as DOF Deepwater AS) in October 2020, with Akastor becoming the sole owner of the company. Akastor currently has an active investment portfolio within the oilfield services industry consisting of MHWirth including STEP Oiltools, AGR, Cool Sorption, DDW Offshore, 50 percent of the shares in AKOFS Offshore, a 15.6 percent economic ownership in NES Fircroft, in addition to other holdings and investments (see below), with a total net capital employed of NOK 5.0 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. AGR is a leading provider of well and reservoir consultancy services as well as software and technical manpower for its clients. Cool Sorption is a provider of vapour recovery units and systems. DDW Offshore operates five offshore vessels. NES Fircroft is a global technical and engineering staff provider. Other investments mainly 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 2020 | Corporate Governance StatementCorporate Governance Statement include investments in Odfjell Drilling and Awilco Drilling, a subletting portfolio through Akastor Real Estate and an investment in Aker Pensjonskasse. It is the responsibility of the board of directors of Akastor ASA to ensure that Akastor and its portfolio of companies implement 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 eleven corporate policies providing business practice guidance within a number of key areas, all of which are reviewed and updated on an annual basis. These policy documents express the overall position of the group with regard to for 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. instance compliance, 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 provides a framework of core corporate values which reflects Akastor’s prudent business practice and shall be reflected in every aspect of our operations. The ethical guidelines and other governing documents of the group have been drafted on the basis of these core corporate values. 15 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. To ensure value creation for its shareholders, the board of directors annually performs a designated strategy process where it sets objectives and targets for the company, assesses risk, evaluates the existing strategy and approves any significant changes. Information concerning the financial position and principal strategies of the company, and any changes thereto is disclosed to the market in the context of the company’s quarterly reporting and in designated market presentations as well as at www.akastor.com. Corporate Responsibility Akastor takes an active approach to corporate responsibility. Corporate responsibility in Akastor is about making prudent 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. In the Akastor Sustainability Policy it is described how Akastor aims to integrate sustainability in its investment processes and engages with the portfolio companies. Akastor’s primary stakeholders are the shareholders (existing and potential), customers of its portfolio companies and employees of the Akastor group. Akastor has an ongoing stakeholder dialogue, media analysis and investor presentations, which provide important input to Akastor’s work on corporate responsibility topics. All our portfolio companies are expected to ensure integration of stakeholder engagement and a strong corporate responsibility in their operations. Akastor recognizes and respects the United Nations’ 17 Sustainable Development Goals (SDGs), and has identified four SDGs that Akastor positively impacts. A self-assessment is used to identify where Akastor has the most opportunity to contribute to the SDGs. Akastor identified 8, 12, 13 and 17 as priority SDGs and encourages the portfolio companies to identify and work towards relevant SDGs in their work and strategy. Akastor is 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. Annual Report 2020 | Corporate Governance Statement16 Akastor also aligns with the principles of the UN Global Compact, the United Nations Convention against Corruption, the Universal Declaration of Human Rights, the UN Guiding Principles for Business and Human Rights and the ILO Declaration on Fundamental Principles and Rights at Work. These international principles guide our Code of Conduct and Integrity Policy and provide the overall framework for the corporate responsibility efforts in the Akastor group. information Further in respect of the corporate social responsibility work of Akastor and its portfolio of companies can be found in the separate Environmental, Social and Governance (ESG) report published simultaneously as the company’s annual report for 2020. 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, 2020 is NOK 3 669million, which represents an equity ratio of 40 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 increase 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. treasury shares are valid for the period until the date of the annual general meeting of 2021. No shares were bought by the company in 2020 pursuant to the authorizations to the board of directors. As of December 31, 2020, the company holds 2 390 215 own shares. In addition, the annual general meeting in 2020 granted the board of directors the mandate to approve the distribution of dividends based on the company’s annual accounts for 2019 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 2021. 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). 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. In December 2020, the joint ownership in Aker Kværner Holding AS between Aker ASA and the Norwegian state was dissolved. As of December 31, 2020, Aker ASA therefore holds 100 percent of the shares of Aker Holdings AS (previously Aker Kværner Holding AS) which holds 36,7 percent of the shares of Akastor. Aker ASA no longer holds any shares directly in Akstor, while the Norwegian state holds 12.08 percent of the shares in Akastor directly. Due to this restructuring, Akastor is no longer a subsidiary, but an associated company of Aker ASA. The company’s annual general meeting on 15 April 2020 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 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 Annual Report 2020 | Corporate Governance Statement17 context is subject to confidentiality undertakings and disclosure regulations in compliance with applicable laws. Aker ASA and Aker Solutions ASA (or their subsidiaries) are 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. In respect of the above, 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. There are no restrictions on the party’s ability to own, trade or vote for shares in the company. 6. General Meetings Attendance, Agenda and Voting The company normally encourages shareholders to attend the general meetings. However, due to the public health requirements following the ongoing COVID-19 outbreak, the company will also this year urge its shareholders to not meet and rather use the available means of voting by proxy. For the same reason, it is also the intention for this year’s general meeting that only the minimum representatives required by law will attend the general meeting. Notices convening general meetings, including comprehensive documentation relating to the items on the agenda, including the recommendation of the nomination committee, shall be sought 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; 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. As mentioned above, shareholders are this year urged to 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. However, as already mentioned above, due to the COVID-19 Annual Report 2020 | Corporate Governance Statement18 outbreak and in order to meet public health recommendations, the company will consider the possibility of introducing such arrangements, but will in any event urge its shareholders to cast votes electronically in advance of general meetings (however, not during the meeting) or by proxy. Minutes Minutes of general meetings will be published as soon as practicable on the announcement system of Oslo Børs, www. newsweb.no (ticker: AKAST), 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), Georg Fr. Rabl, Ingebret Hisdal and Ove A. Taklo. The two members Leif-Arne Langøy and Georg Fr. Rabl are up for election at the annual general meeting 2021, while Ingebret Hisdal and Ove Taklo will be up for election at the annual general meeting 2022. Langøy is deputy chairman of the board in TRG Holding AS and The Resource Group TRG AS. Ove A. Taklo is Group Corporate Controller of Aker ASA. 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 in 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. 8. Composition and Independence of the Board of Directors Composition It has been agreed with the employees that the company shall have no corporate assembly. Hence, the board appoints its own chairman, cf. the Public Limited Liability Companies Act section 6-1(2), unless the chairman is appointed by the general meeting. The proposal of the nomination committee will normally include a proposed candidate for appointment as chairman of the board of directors. The board of directors appoints its own deputy chairman. According to the Public Limited Liability Companies Act, the directors are appointed for a term of two years at a time unless otherwise stated in the company’s articles of association. The articles of association of Akastor ASA stipulate that directors may be elected for a period of one to three years. The right of the employees to be represented and participate in decision making is safeguarded through expanded employee representation on the board of directors of both Akastor ASA and in a number of the group’s portfolio companies. The articles of association stipulate that the board of directors shall comprise six to twelve persons, one third of whom shall be elected by and amongst the employees of the group. In addition, up to three shareholder-appointed alternates may be appointed. As per December 31, 2020, 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, 2020 will be set out in the «Management remunerations» note to the consolidated financial statements in the annual report for 2020. The chairman Kristian M. Røkke and the directors Lone Fønss Schrøder, Kathryn M. Baker,Sarah Ryan and Svein Oskar Stoknes 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 2020. 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. Annual Report 2020 | Corporate Governance Statement19 The composition of the board of directors aims to ensure that the interests of all shareholders are attended to, and that the company has the know-how, resources, and diversity it needs at its disposal. Among the five shareholder-elected directors, the majority are deemed independent from the company’s largest indirect shareholder, Aker ASA. 9. The Work of the Board of Directors Procedures For each calendar year, the board plans for its work and meetings. 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. 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 each director is the primary responsible for adopting the correct decision as to whether he or she should step down from participating in the discussion of the matter at hand. In general, as further stipulated in Akastor’s principles for related party transactions, directors of Akastor should be cautious in participating in the consideration of issues where a potential conflict of interest or conflict of role may arise, undermining the confidence in the decision process. Such person may not participate in board discussions of more than one company that is part of the same agreement, unless the companies have common interests. These assessments will be carried out on a case-by-case basis; in most events, and as a starting point, by the relevant directors themselves, but often also in cooperation with internal and/or external legal counsel. The above principles will normally also be applied if Akastor contracts with other companies in which said board members hold direct or indirect ownership interests that exceed, in relative terms, their ownership interests in Akastor. If grounds for legal incapacity 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. 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. 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 six ordinary board meetings in 2020. The aggregate attendance rate at the board meetings was close to 100 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. 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 Annual Report 2020 | Corporate Governance Statement20 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, 2020, there are no other board committees than the audit committee. The board does not envisage appointing any further board committees in 2021. The board evaluate its performance and qualification annually. A summary of the evaluation was made available to the nomination committee. 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, stakeholder engagement, 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. Management of operational risk primarily rests with the underlying portfolio companies, although Akastor acts as an active driver through its involvement on 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 2020 | Corporate Governance Statement21 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 2020 financial year, clearing meetings with the portfolio companies were held in October 2020 and January 2021. 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. 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 contains 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 2020. 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, 2018. The board of directors’ policy on the remuneration of executive personnel for 2021 will be a separate item on the agenda for the annual general meeting on April 15, 2021 and will be updated based on new legal requirements to such guidelines. 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. Regular reports for Akastor ASA and the portfolio companies The company’s reporting of financial and other information is based on openness and the equal treatment of all securities Annual Report 2020 | Corporate Governance StatementThe 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. 22 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 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. 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 Aker Holdings AS 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. Annual Report 2020 | Corporate Governance Statementa.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 | Business combinations | Operating segments | 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 | Non-current interest-bearing receivables Note 20 | Inventories Note 21 | Trade and other receivables Note 22 | Cash and cash equivalents Equity 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 | Leases Note 34 | Group companies Note 35 | Related parties Note 36 | Management remunerations Note 37 | Events after the reporting date 23 23 24 25 26 27 28 28 29 36 38 41 44 48 48 49 49 52 53 54 55 56 57 58 58 58 59 60 60 61 62 63 66 66 67 68 72 74 77 78 80 82 84 Annual Report 2020 | Financials and Notes | Akastor GroupFinancials and Notes | Akastor Group 24 Akastor Group | Consolidated income statement For the year ended December 31 Amounts in NOK million Revenue and other income Materials, goods and services Salaries, wages and social security costs Other operating expenses Operating expenses Operating profit before depreciation, amortization and impairment Depreciation, amortization and impairment Operating profit (loss) Finance income Finance expenses Profit (loss) from equity-accounted investees Impairment loss on external receivables 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 Non-controlling interests Basic / diluted earnings (loss) per share (NOK) Basic / diluted earnings (loss) per share continuing operations (NOK) Basic / diluted earnings (loss) per share discontinued operations (NOK) Note 6, 7 8 9 2020 2019 4 577 5 361 (1 938) (1 668) (640) (4 246) 331 (2 586) (1 719) (564) (4 870) 492 13, 14, 33 (278) (270) 53 222 222 (282) 321 (192) (256) (160) (120) (436) - (30) (383) 191 (86) (469) (115) (584) (44) 147 (54) 93 (581) 100 (3) (7) (2.14) (1.72) (0.42) 0.37 0.57 (0.20) 16 10 11 12 12 12 Annual Report 2020 | Financials and Notes | Akastor Group 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 change 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 Share of OCI from equity-accounted investees Total change in currency translation reserve, net of tax 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 26 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 Non-controlling interests 25 Note 2020 2019 93 20 (4) 41 (9) 48 17 34 (99) (2) (11) (78) (13) (46) 9 (36) (49) 44 51 (7) (584) 48 (10) (2) 1 38 (42) (60) (7) - (20) (86) (90) (37) 7 (30) (120) (704) (701) (3) Annual Report 2020 | Financials and Notes | Akastor Group 26 Akastor Group | Consolidated statement of financial position For the year ended December 31 Amounts in NOK million Deferred tax assets Property, plant and equipment Intangible assets Right-of-use assets Equity-accounted investees Other investments Non-current interest-bearing receivables Non-current finance lease receivables Other non-current assets Total non-current assets Current tax assets Inventories Trade and other receivables Derivative financial instruments Current finance lease receivables Cash and cash equivalents Total current assets Total assets Issued capital incl. treasury shares Other capital paid in Reserves Retained earnings Equity attributable to equity holders of the parent company Non-controlling interests Total equity Non-current borrowings Non-current lease liabilities Employee benefit obligations Deferred tax liabilities Other non-current liabilities Provisions, non-current Total non-current liabilities Current borrowings Current lease liabilities Current tax liabilities Provisions, current Trade and other payables Derivative financial instruments Total current liabilities Total liabilities Total equity and liabilities Note 2020 11 13 14 33 16 18 19 33 17 20 21 31 33 22 23 24 33 26 11 25 27 24 33 27 28 31 2019 388 760 1 593 537 1 051 1 643 201 16 65 329 1 017 1 595 468 1 064 1 469 115 15 29 6 100 6 256 28 485 10 528 2 191 3 177 61 7 43 9 275 555 3 047 9 147 4 322 10 578 161 1 538 151 1 808 3 657 11 3 669 628 433 388 10 478 50 1 986 1 119 159 8 109 161 1 538 240 2 415 4 353 18 4 371 1 444 516 359 11 491 51 2 873 3 160 11 119 2 060 2 974 37 65 3 492 5 479 9 147 3 333 6 206 10 578 Fornebu, March 18, 2021 I Board of Directors of Akastor ASA Kristian Røkke | Chairman Lone Fønss Schrøder | Deputy Chairman Svein Oskar Stoknes | Director Kathryn M. Baker | Director Sarah Ryan | Director Henning Jensen | Director Asle Christian Halvorsen | Director Stian Sjølund | Director Karl Erik Kjelstad | CEO Annual Report 2020 | Financials and Notes | Akastor Group Akastor Group | Consolidated statement of changes in equity Share capital Treasury shares Other capital paid in Hedging reserve 1) Fair value reserve 1) Currency translation reserve 1) Retained earnings Amounts in NOK million 2019 27 Equity attributable to equity holders of the parent company Non- controlling interests (NCI) Total equity Equity as of January 1, 2019 162 (2) 1 534 - - - - - - - - - - - - - - - 4 - - (65) - 48 48 - - - (28) 346 2 362 - 17 17 - - - - (78) (78) - - - 100 (36) 64 - (11) - 4 310 100 (49) 51 4 (11) - - 4 310 (7) - (7) - 27 (3) 93 (49) 44 4 16 (3) 162 (2) 1 538 (17) (10) 268 2 415 4 353 18 4 371 - - - - - - - - - - - - - - - 162 (2) 1 538 - 38 38 - - 21 - (42) (42) - - - (86) (86) - - (581) (30) (612) 2 4 (581) (120) (701) 2 4 (3) (584) - (120) (3) (704) - (4) 2 - (52) 182 1 808 3 657 11 3 669 Profit (loss) for the period Other comprehensive income Total comprehensive income Sale of treasury shares Acquisition of subsidiaries with NCI 2) Acquisition of NCI Equity as of December 31, 2019 2020 Profit (loss) for the period Other comprehensive income Total comprehensive income Repayment of dividend Acquisition of NCI Equity as of December 31, 2020 1) See Note 23 Capital and reserves 2) See Note 5 Business combinations Annual Report 2020 | Financials and Notes | Akastor Group28 Akastor Group | Consolidated statement of cash flow For the year ended December 31 Amounts in NOK million Note 2020 2019 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 Depreciation, amortization and impairment (Gain) loss on disposal of subsidiaries (Gain) 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 Net Interest paid for leases Income taxes paid Net cash from operating activities Cash flow from investing activities Acquisition of property, plant and equipment Payments for capitalized development Proceeds from sale of property, plant and equipment Acquisition of subsidiaries, net of cash acquired Payments of contingent considerations for previous divestments Acquisition of other investments Proceeds of receivables from equity-accounted investees Payments to equity-accounted investees Other changes in interest-bearing receivables Net cash from investing activities Cash flow from financing activities Proceeds from borrowings Repayment of borrowings Payment of lease liabilities Repayment of dividends/Proceeds from sale of treasury shares Acquisition of non-controlling interests 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 restricted cash The statement included cash flows from discontinued operations prior to the disposal. (469) (115) (584) 86 45 278 120 (2) 256 106 305 63 369 (122) 45 (34) (47) 211 (29) (38) 9 37 (77) - - (120) (1) (219) 227 (316) (139) 2 - (227) (45) (280) 555 275 6 13, 14, 33 16 13 14 24 24 33 23 22 147 (54) 93 44 141 270 54 (2) 160 (244) 516 24 541 (131) 76 (34) (47) 406 (56) (71) 3 (236) (209) (11) 560 (556) 20 (555) 1 135 (469) (151) 4 (3) 517 (11) 357 198 555 11 Annual Report 2020 | Financials and Notes | Akastor Group 29 Note 1 | Corporate information Akastor ASA is a limited liability company incorporated and domiciled in Functional and presentation currency Norway and whose shares are publicly traded. The registered office is The consolidated financial statements are presented in NOK, which is located at Oksenøyveien 10, Bærum, Norway. The largest shareholder is Akastor ASA’s functional currency. All financial information presented in Aker Holdings AS (previously Aker Kværner Holding AS) which is wholly NOK has been rounded to the nearest million (NOK million), except when owned by Aker ASA as of December 31, 2020. otherwise stated. The subtotals and totals in some of the tables in these consolidated financial statements may not equal the sum of the amounts The consolidated financial statements of Akastor ASA and its subsidiaries shown due to rounding. (collectively referred as Akastor or the group, and separately as group companies) for the year ended December 31, 2020 were approved by the When the functional currency in a reporting unit is changed, the effect of board of directors and CEO on March 18, 2021. The consolidated financial the change is accounted for prospectively. statements will be authorized by the Annual General Meeting on April 15, 2021. Use of estimates and judgements The group is an oilfield services investment company with a portfolio of management to make judgements, estimates and assumptions that affect industrial holdings and other investments. Akastor is listed on the Oslo the application of policies and reported amounts of assets and liabilities, Stock Exchange under the ticker AKAST. Information on the group’s income and expenses. Although management believes these assumptions structure is provided in Note 34 Group companies. Information on other to be reasonable, given historical experience, actual amounts and results related party relationships of the group is provided in Note 35 Related could differ from these estimates. The items involving a higher degree of The preparation of financial statements in conformity with IFRS requires parties. Note 2 | Basis for preparation Basis of accounting judgement or complexity, and items where assumptions and estimates are material to the consolidated financial statements, are disclosed in Note 4 Significant accounting estimates and judgements. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in The consolidated financial statements have been prepared in accordance which the estimate is revised and in any future periods affected. with International Financial Reporting Standards as adopted by the European Union (IFRS), their interpretations adopted by the International Adoption of new and revised standards and interpretations Accounting Standards Board (IASB) and the additional requirements of The accounting policies adopted are consistent with those of the previous the Norwegian Accounting Act as of December 31, 2020. financial year. The following standards and interpretations were adopted with effect from January 1, 2020, with no implementation impact on the Going concern basis of accounting group’s consolidated financial statements: The consolidated financial statements have been prepared on a going concern basis, which assumes that the group will be able to meet the mandatory terms and conditions of the banking facilities as disclosed in Note 29 Capital management. Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following material items, which are measured on Amendments to References to Conceptual Framework. Definition of Material (Amendments to IAS 1 and IAS 8). Definition of a Business (Amendments to IFRS 3). Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS an alternative basis on each reporting date: 39 and IFRS 7). Derivative financial instruments are measured at fair value. Standards issued but not yet effective Non-derivative financial instruments at Fair Value through Profit annual periods beginning after January 1, 2020. The group has not early or Loss (FVTPL) are measured at fair value. adopted any new or amended standards and they are not expected to The following amended standards and interpretations are effective for have a significant impact on the group’s consolidated financial statements. Debt instrument at Fair Value through Other Comprehensive Income (FVOCI) are measured at fair value. Contingent considerations assumed in business disposals are COVID-19-Related Rent Concessions (Amendment to IFRS 16). Interest Rate Benchmark Reform – Phase 2 (Amendments to measured at fair value. IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16). Net defined benefit (asset) liability is recognized at fair value Onerous Contracts – Cost of Fulfilling a Contract (Amendments of plan assets less the present value of the defined benefit to IAS 37). obligation. Annual Report 2020 | Financials and Notes | Akastor Group30 Annual Improvements to IFRS Standards 2018–2020. accounted investee or as an available-for-sale financial asset depending on the level of influence retained. Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16). Any contingent consideration receivable is measured at fair value at the disposal date. Changes in the fair value of the contingent consideration Classification of Liabilities as Current or Non-current from divestment of a subsidiary for transactions will be recognized in (Amendments to IAS 1). Other income as gain or loss. IFRS 17 Insurance Contracts and amendments to IFRS 17 Investments in joint ventures and associates Insurance Contract. The group’s interests in equity-accounted investees comprise interests in joint ventures and associates. Note 3 | Significant accounting policies A joint venture is an arrangement in which the group has joint control, whereby the group has rights to the net assets of the arrangement, rather Summary of significant accounting policies to its assets and obligations for its liabilities. Joint control is established The principal accounting policies applied in the preparation of these by contractual agreement requiring unanimous consent of the ventures consolidated financial statements are set out below. These policies have for strategic, financial and operating decisions. An associate is an entity in been consistently applied to all the years presented, unless otherwise stated. which the group has significant influence, but not control or joint control, Basis of consolidation Subsidiaries over the financial and operating policies. Interests in joint ventures and associates are accounted for using the Subsidiaries are entities controlled by the group. The group controls an equity method. They are initially recognized at cost, which includes entity when it is exposed to, or has rights to, variable returns from its transaction costs. Subsequent to initial recognition, the consolidated involvement with the entity and has the ability to affect those returns financial statements include the group’s share of the profit and loss and through its power over the entity. The financial statements of subsidiaries other comprehensive income of the equity-accounted investees. The are included in the consolidated financial statements from the date on group’s investment includes goodwill identified on acquisition, net of which control commences until the date of which control ceases. any accumulated impairment losses. When the group’s share of losses Business combinations exceeds its interest in an equity-accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to zero, Business combinations are accounted for using the acquisition method and further losses are not recognized except to the extent that the group as of the acquisition date, which is the date when control is transferred incurs legal or constructive obligations or has made payments on behalf to the group. The consideration transferred in the acquisition is generally of the investee. measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. The purpose of the investment determines the presentation of the group’s share of profit and loss of the equity-accounted investee in the income Transaction costs, other than those associated with the issue of debt or statement. When the entity is established to share risk in executing a equity securities incurred in connection with a business combination are project or is closely related to Akastor’s operating activities, the share expensed as incurred. of profit or loss is reported as part of Other income in Operating Profit. Share of the profit or loss of a financial investment is reported as part of Any contingent consideration payable is measured at fair value at the Net finance expenses. acquisition date. Changes in the fair value of the contingent consideration from acquisition of a subsidiary or non-controlling interest for transactions Transactions eliminated on consolidation will be recognized in Other income as gain or loss, except for the obligation Intra-group balances and transactions, and any unrealized gains and that is classified as equity. Non-controlling interests losses or income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with associates and joint ventures are Non-controlling interests are measured initially at their fair value at eliminated to the extent of the group’s interest in the entity. Unrealized the date of acquisition. Changes in the group’s ownership interest in a losses are eliminated in the same way as unrealized gains, but only to the subsidiary that do not result in a loss of control are accounted for as equity extent that there is no evidence of impairment. transactions. Loss of control Assets held for sale Non-current assets, or disposal groups comprising assets and liabilities, On the loss of control, the group derecognizes the assets and liabilities of that are expected to be recovered primarily through sale rather than the subsidiary, any non-controlling interests and the other components of through continuing use, are classified as held for sale. This condition is equity. Any resulting gain or loss is recognized in the income statement. regarded as met only when the sale is highly probable and the asset or Any interest retained in the former subsidiary is measured at fair value disposal group is available for immediate sale in its present condition. when control is lost. Subsequently it is accounted for as an equity- Management must be committed to the sale, which should be expected Annual Report 2020 | Financials and Notes | Akastor Group31 to qualify for recognition as a completed sale within one year from the Assets and liabilities, including goodwill and fair value adjustments, date of classification. are translated at the closing exchange rate at the reporting date. Non-current assets and disposal groups classified as held for sale are Income statements are translated at average exchange rate for measured at the lower of their carrying amount and fair value less costs to the year, calculated on the basis of 12 monthly end rates. sell. Property, plant and equipment and intangible assets once classified as held for sale are not depreciated or amortized, but are considered in Exchange differences arising from the translation of the net investment the overall impairment testing of the disposal group. in foreign operations, and of related hedges, are included in other comprehensive income as currency translation reserve. These translation No reclassifications are made for years prior to the year when non-current differences are reclassified to the income statement upon disposal of the assets or disposal groups are classified as a held for sale. related operations or when settlement is likely to occur in the near future. Discontinued operations Monetary items that are receivable from or payable to a foreign operation A discontinued operation is a component of the group’s business that are considered as part of the net investment in that foreign operation, represents a separate major line of business or geographical area when the settlement is neither planned nor likely to occur in the of operations that has been disposed of or is held for sale, or is a foreseeable future. Exchange differences arising from these monetary subsidiary acquired exclusively with a view to resale. Classification as items are recognized in other comprehensive income. a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. Current/non-current classification In the consolidated income statement, income and expenses from intended for sale or consumption in the group’s normal operating cycle, discontinued operations are reported separately from income and it is held primarily for the purpose of being traded, or it is expected/due expenses from continuing operations, down to the level of profit after to be realized or settled within twelve months after the reporting date. An asset is classified as current when it is expected to be realized or is taxes. When an operation is classified as a discontinued operation, the Other assets are classified as non-current. comparative income statement is restated as if the operation had been discontinued from the start of the comparative year. A liability is classified as current when it is expected to be settled in the The statement of cash flow includes the cash flow from discontinued traded, the liability is due to be settled within twelve months after the operations prior to the disposal. Cash flows attributable to the reporting period, or if the group does not have an unconditional right operating, investing and financing activities of discontinued operations to defer settlement of the liability for at least twelve months after the are presented in the notes to the extent these represent cash flows reporting period. All other liabilities are classified as non-current. group’s normal operating cycle, is held primarily for the purpose of being with third parties. Foreign currency Financial assets, financial liabilities and equity On initial recognition, a financial asset is classified as measured at Foreign currency transactions and balances amortized costs, FVOCI or FVTPL. The classification depends on the Transactions in foreign currencies are translated at the exchange group’s business model for managing the financial assets and the rate at the date of the transaction. Monetary assets and liabilities contractual terms of the cash flows. denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate on that date. Foreign A financial asset is measured at amortized costs if the business exchange differences arising on translation are recognized in the model is to hold the asset to collect contractual cash flows, and income statement. Non-monetary assets and liabilities measured in the contractual cash flows are solely payments of principal and terms of historical cost in a foreign currency are translated using the interests (SPPI criterion). exchange rate on the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair A debt instrument is classified at FVOCI if the business model is value are translated to the functional currency at the exchange rates on both collecting contractual cash flows and selling the financial the date the fair value is determined. asset, and it meets the SPPI criterion. Investments in foreign operations All financial assets not classified as measured at amortized cost Items included in the financial statements of each of the group’s entities or FVOCI are measured at FVTPL. are measured using the currency of the primary economic environment in which the entity operates. The results and financial positions of all Financial assets are not reclassified subsequent to their initial the group entities that have a functional currency different from the recognition unless the group changes its business model for managing group’s presentation currency are translated into the presentation financial assets. currency as follows: Annual Report 2020 | Financials and Notes | Akastor Group32 Other investments Derivative financial instruments Other investments include equity and debt investments in companies The group uses derivative financial instruments such as currency forward where the group has neither control nor significant influence, usually contracts and currency swaps to hedge its exposure to foreign exchange represented by less than 20 percent of the voting power. The risks arising from operational, financial and investment activities. investments are categorized as financial assets measured at FVTPL or These derivative financial instruments are accounted for as cash flow FVOCI and recognized at fair value at the reporting date. Subsequent hedges since highly probable future cash flows are hedged (rather than to initial recognition, changes in financial assets measured at FVTPL are committed revenues and expenses). The group also has embedded recognized in profit and loss. foreign exchange derivatives which have been separated from their ordinary commercial contracts. Derivative financial instruments are When a debt instrument is classified as financial asset measured at recognized initially at fair value. Derivatives are subsequently measured FVOCI, interest income calculated using the effective interest method, at fair value, and changes in fair value are accounted for as described foreign exchange gains and losses and impairment losses are recognized below. in profit and loss. Other changes in fair value are recognized in other comprehensive income and presented as part of fair value reserve. When Cash flow hedge financial asset measured at FVOCI is derecognized, the gain or loss Hedging of the exposure to variability in cash flows that is attributable accumulated in other comprehensive income is reclassified to profit and to a particular risk or a highly probable future cash flow is defined as a loss. Trade and other receivables cash flow hedge. The effective portion of changes in the fair value is recognized in other comprehensive income as a hedge reserve. All foreign exchange exposure is hedged. Any gain or loss relating to the ineffective Trade and other receivables are generally classified as financial assets portion of derivative hedging instruments is recognized immediately in measured at amortized costs. They are recognized at the original the income statement as finance income or expense. invoiced amount, less loss allowance made for credit losses. The interest rate element is disregarded if insignificant, which is the case for the Hedge accounting is discontinued when the hedge no longer qualifies for majority of the group’s trade receivables. hedge accounting. Disqualification occurs when the hedging instrument Interest-bearing receivables expires, is sold, terminated or exercised, or when a forecast transaction is no longer expected or the hedge is no longer effective. When a hedge Interest-bearing receivables include loans to related parties and are is disqualified, the cumulative gain or loss that was recognized in the generally classified as financial assets measured at amortized costs. hedge reserve is recognized immediately in the income statement unless Such financial assets are recognized initially at fair value and subsequent it relates to a future cash flow that is likely to occur, but don’t qualify for measurement at amortized cost using the effective interest method, less hedge accounting, in which the accumulated hedge reserve remains in any impairment losses. Cash and cash equivalents other comprehensive income until the hedged cash flow is recognized in income statement. For cash flow hedges associated with forecast transactions that subsequently result in recognition of a non-financial Cash and cash equivalents include cash on hand, demand deposits held asset, the amounts accumulated in the cash flow hedge reserve and the at banks and other short-term highly liquid investments with original cost of hedging reserve are included directly in the initial cost of the non- maturity of three months or less. financial asset when recognized. Trade and other payables Net investment hedge Trade payables are recognized at the original invoiced amount. Other Hedge of net investment in a foreign operation is accounted for payables are recognized initially at fair value. Trade and other payables similarly to cash flow hedges. Gains or losses arising from the hedging are valued at amortized cost using the effective interest rate method. instruments relating to the effective portions of the net investment The interest rate element is disregarded if it is insignificant, which is the hedge are recognized in other comprehensive income as currency case for the majority of the group’s trade payables. translation reserves. These translation reserves are reclassified to Interest-bearing borrowings the income statement upon disposal of the hedged net investments, offsetting the translation differences from these net investments. Any Interest-bearing borrowings are recognized initially at fair value less ineffective portion is recognized immediately in the income statement attributable transaction costs. Subsequent to initial recognition, interest- as finance income or expenses. Gains and losses accumulated in other bearing borrowings are measured at amortized cost with any difference comprehensive income are reclassified to the income statement when between cost and redemption value being recognized in the income the foreign operation is partially disposed of or sold. statement over the period of the borrowings on an effective interest basis. Share capital Embedded derivatives Embedded derivatives are derivatives that are embedded in other financial instruments or other non-financial host contracts. Under certain Ordinary shares are classified as equity. Repurchase of share capital is conditions, the embedded derivative must be separated from its host recognized as a reduction in equity and is classified as treasury shares. contract and the derivative is then to be recognized and measured as Annual Report 2020 | Financials and Notes | Akastor Group33 any other derivative in the financial statements. Embedded derivatives Deferred tax assets and liabilities are offset if there is a legally enforceable must be separated when the settlement for a commercial contract is right to offset current tax liabilities and assets, and they relate to income denominated in a currency different from any of the major contract taxes levied by the same tax authority on the same taxable entity, or on parties’ own functional currency, or that the contract currency is not different taxable entities which intend either to settle current tax liabilities considered to be commonly used for the relevant economic environment and assets on a net basis, or to realize the tax assets and settle the defined as the countries involved in the cross-border transaction. liabilities simultaneously. Changes in the fair value of separated embedded derivatives are recognized immediately in the income statement. All foreign currency Deferred tax assets are recognized for unused tax losses, tax credits and exposure is hedged, so the hedging instrument to the embedded deductible temporary differences, to the extent that it is probable that derivative will also have corresponding opposite fair value changes in the future taxable profits will be available against which they can be utilized. income statement. Measurement of deferred tax assets are reviewed at each reporting date. Finance income and expense Inventories Finance income and expense include interest income and expense, Inventories are stated at the lower of cost or net realizable value. Net foreign exchange gains and losses, dividend income, gains and losses on realizable value is the estimated selling price in the ordinary course of derivatives, as well as change in fair value of financial assets measured business, less the estimated costs of completion and selling expenses. at FVTPL. Interest income and expenses include calculated interest using the effective interest method, in addition to discounting effects from The cost of inventories is based on the weighted average cost principle and assets and liabilities measured at fair value. Gains and losses on derivatives includes expenditures incurred in acquiring the inventories and bringing include effects from derivatives that do not qualify for hedge accounting them to their present location and condition. In the case of manufactured and embedded derivatives, in addition to the ineffective portion of inventories and work in progress, cost includes an appropriate share of qualifying hedges. overheads based on normal operating capacity. Revenue from contract with customers Impairment The significant accounting policies relating to revenue recognition from Trade receivables and contract assets contracts with customers are described in Note 7 Revenue and other Loss allowance is recognized in profit or loss and measured at lifetime income. Income tax ECLs. ECLs are a probability-weighted estimate of credit losses. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial asset. The group considers a Income tax recognized in the income statement comprises current and financial asset to be in default when the group is unlikely to receive deferred tax. Income tax is recognized in the income statement except its outstanding contractual amount in full, or the contractual payments to the extent that it relates to items recognized directly in equity or other are more than 90 days past due. When estimating ECLs, the group comprehensive income. considers reasonable and supportable information that is relevant and available without undue cost or effort, based on the group’s historical Current tax is the expected tax payable or receivable on the taxable income experience including forward-looking information. The loss allowance or loss for the year, using tax rates enacted or substantially enacted at the is recognized in financial items to the extent that impairment is caused reporting date, and any adjustment to tax payable in respect of previous by the insolvency of the customer. years. Current tax payable also includes any tax liability arising from the declaration of dividends, recognized at the same time as the liability to pay The gross carrying amount of trade receivable is written off when the the related dividend. group has no reasonable expectations of recovering a trade receivable in its entirety or a portion thereof. The group individually makes an Deferred tax is recognized in respect of temporary differences between assessment with respect to the timing and amount of write-off based the carrying amounts of assets and liabilities for financial reporting and the on whether there is a reasonable expectation of recovery. Trade amounts used for taxation purposes. Deferred tax is not recognized for: receivables that are written off could still be subject to enforcement activities in order to comply with the group’s procedures for recovery Goodwill not deductible for tax purposes. of amounts due. The initial recognition of assets or liabilities that affects neither Debt instruments measured at amortized cost or at FVOCI accounting nor taxable profit. Debt instruments measured at amortized cost or at FVOCI are Temporary differences relating to investments in subsidiaries to difficulty of the borrower or it is probable that the borrower will enter the extent that they will not reverse in the foreseeable future. bankruptcy or other financial reorganization. The loss allowance is considered to be “credit-impaired” when there is significant financial charged to profit and loss. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the tax rates that have been enacted or substantively enacted at the reporting date. Annual Report 2020 | Financials and Notes | Akastor Group34 Non-financial assets the contract and the expected net cost of continuing with the contract. The carrying amounts of the group’s non-financial assets (other than Before a provision is recognized, the group recognizes any impairment employee benefit assets, inventories and deferred tax assets) are loss on the assets associated with the contract. reviewed at the end of each reporting period to determine whether there is any indication of impairment. If an indication of impairment Restructuring exists, the asset’s recoverable amount is estimated. Cash-generating A restructuring provision is recognized when the group has developed units (CGU) containing goodwill, intangible assets with an indefinite a detailed formal plan for the restructuring and has raised a valid useful life and intangible assets that are not yet available for use are expectation in those affected that the entity will carry out the tested for impairment annually. restructuring by starting to implement the plan or announcing its main features to those affected by it. The measurement of a restructuring The recoverable amount is the greater of fair value less costs to sell provision includes only the direct expenditures arising from the and value in use. In assessing value in use, the estimated future cash restructuring, which are those amounts that are both necessarily flows are discounted to their present value using a pre-tax discount entailed by the restructuring and not associated with the ongoing rate that reflects current market assessments of the time value of activities of the entity. money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is Leases determined for the CGU to which the asset belongs. As a lessee Right-of-use assets An impairment loss is recognized whenever the carrying amount of an The group recognizes right-of-use asset at the lease commencement asset or a CGU exceeds its recoverable amount. Impairment losses are date. The right-of-use asset is initially measured at cost, which recognized in the income statement. comprises the initial amount of the lease liability adjusted for any An impairment loss recognized in respect of a CGU (or a group of plus any initial direct costs. Subsequently, the right-of-use asset is CGUs) containing goodwill is allocated first to goodwill and then to the depreciated on a straight-line basis over the shorter of its estimated other assets in the CGU(s) on a pro rata basis. useful life and the lease term. In addition, the right-of-asset is subject prepaid lease payments made at or before the commencement date, to impairment assessment of non-financial assets and adjusted for An impairment loss on goodwill is not reversed. An impairment loss on certain remeasurement of the lease liability. other assets is reversed if there has been a change in the estimates used to determine the recoverable amount, and the change can Lease liabilities be objectively related to an event occurring after the impairment is At the lease commencement date, the group recognizes lease liability recognized. An impairment loss is reversed only to the extent that the measured at the present value of the lease payments over the lease asset’s carrying amount does not exceed the carrying amount that term, discounted using the group's incremental interest rate. Generally, would have been determined, net of depreciation or amortization, if no the lease payments include fixed payments and variable lease payments impairment loss had been recognized. that depend on an index or rate. Provisions The lease liability is subsequently increased by the interest cost on the A provision is recognized when the group has a present obligation as a lease liability and decreased by lease payment made. It is remeasured result of a past event that can be estimated reliably and it is probable when there is a change in future lease payments arising from a change that the group will be required to settle the obligation. If the effect is in an index or rate, or as appropriate, changes in the assessment of material, provisions are determined by discounting the expected future whether an extension option is reasonably certain to be exercised or a cash flows at a market based pre-tax rate that reflects current market termination option is reasonably certain not to be exercised . assessments of the time value of money and, where appropriate, the liability-specific risks. The unwinding of the discount is recognized as Short term leases and leases of low-value assets finance expense. Warranties The group applies the recognition exemption to its leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option (short-term leases). The group Provision for warranties is recognized when the underlying products also applies recognition exemption to leases that are considered of or services are sold. The provision is based on historical warranty low-value assets, mainly IT equipment and office equipment. Lease data and a weighting of all possible outcomes against their associated payments associated with the short -term leases and leases of low probabilities. Onerous contracts -value assets are recognized as expenses on a straight -line basis over the lease term. Provision for onerous contracts is recognized when the expected Lease term benefits to be derived by the group from a contract are lower than the The group determines the lease term as the non-cancellable term of unavoidable costs of meeting the obligations under the contract. The the lease, together with any periods covered by an option to extend the provision is measured at the lower of the expected cost of terminating lease if it is reasonably certain to be exercised, or any period covered Annual Report 2020 | Financials and Notes | Akastor Group35 by an option to terminate the lease if it is reasonably certain not to any impairment loss is allocated to the carrying amount of the equity- be exercised. The group applies judgment in evaluating whether it is accounted investee as a whole. reasonably certain to exercise extension option, considering all relevant factors that create economic incentive to exercise the extension option. When the group disposes of an operation within a CGU or group of As a lessor CGUs to which goodwill has been allocated, a portion of the goodwill is included in the carrying amount of the operation when determining When the group acts as a lessor, it determines at lease inception the gain or loss on disposal. The portion of the goodwill allocated is whether each lease is a finance lease or an operating lease. measured based on the relative values of the operation disposed of and To classify each lease, the group makes an overall assessment of can be demonstrated that another method better reflects the goodwill whether the lease transfers substantially all of the risks and rewards associated with the operation disposed of. The same principle is used incidental to ownership of the underlying asset. If this is the case, then for allocation of goodwill when the group reorganizes its businesses. the portion of the CGU retained at the date of partial disposal, unless it the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the group considers certain indicators such as Research and development whether the lease is for the major part of the economic life of the asset. Expenditures on research activities undertaken with the prospect of obtaining new scientific or technical knowledge and understanding is When the group is an intermediate lessor, it accounts for its interests recognized in the income statement as incurred. in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset Development activities involve a plan or design for the production of arising from the head lease, not with reference to the underlying asset. new or substantially improved products or processes. Development expenditure is capitalized only if development costs can be measured The group recognizes lease payments received under operating leases reliably, the product or process is technically and commercially feasible, as income on a straight line basis over the lease term as part of “Lease future economic benefits are probable and the group intends to and revenue”. Property, plant and equipment has sufficient resources to complete development and to use or sell the asset. The capitalized expenditure includes cost of materials, direct labour overhead costs that are directly attributable to preparing the Property, plant and equipment are measured at cost less accumulated asset for it intended use and capitalized interest on qualifying assets. depreciation and impairment losses. The cost of self-constructed Other development expenditures are recognized in the income assets includes the cost of materials, direct labour, borrowing costs statement as an expense as incurred. on qualifying assets, production overheads and the estimated costs of dismantling and removing the assets and restoring the site on which Capitalized development expenditure is measured at cost less they are located. accumulated amortization and accumulated impairment losses. If the components of property, plant and equipment have different Other intangible assets useful lives, they are accounted for as separate components. Acquired intangible assets are measured at cost less accumulated amortization and impairment losses. Subsequent costs The group capitalizes the cost of a replacement part or a component Subsequent expenditures of property, plant and equipment when that cost is incurred if it is Subsequent expenditures on intangible assets are capitalized only probable that the future economic benefits embodied with the item when they increase the future economic benefits embodied in the will flow to the group and the cost of the item can be measured reliably. specific asset to which they relate. All other expenditures are expensed All other costs are expensed as incurred. Depreciation as incurred. Amortization Depreciation is normally recognized on a straight-line basis over the Amortization is recognized in the income statement on a straight-line estimated useful lives of property, plant and equipment. basis over the estimated useful lives of intangible assets unless such Intangible assets Goodwill useful lives are indefinite. Intangible assets are amortized from the date they are available for use. Goodwill that arises from the acquisition of subsidiaries is presented as Employee benefits intangible asset. For the measurement of goodwill at initial recognition, Defined contribution plans see Business combinations. Obligations for contributions to defined contribution pension plans are recognized as an expense in the income statement as incurred. Goodwill is measured at cost less accumulated impairment losses. In respect of equity-accounted investees, the carrying amount of goodwill is included in the carrying amount of the investment, and Annual Report 2020 | Financials and Notes | Akastor Group36 Defined benefit plans Fair value measurement The group’s net obligation in respect of defined benefit pension plans is When available, the group measures the fair value of a financial calculated separately for each plan by estimating the amount of future instrument using the quoted price in an active market for that benefit that employees have earned in the current and prior periods; instrument. If there is no quoted price in an active market, then the discounting that amount and deducting the fair value of any plan assets. group uses valuation techniques that maximize the use of relevant The calculation of defined benefit obligations is performed annually by chosen valuation technique incorporates all of the factors that market a qualified actuary using the projected unit credit method. The discount participants would take into account in pricing a transaction. observable inputs and minimize the use of unobservable inputs. The rate is the yield at the reporting date on government bonds or high- quality corporate bonds with maturities consistent with the terms of The best evidence of the fair value of a financial instrument on initial the obligations. recognition is normally the transaction price. If the group determines that the fair value on initial recognition differs from the transaction Remeasurement of the net defined benefit liability, which comprises price and the fair value is evidenced neither by a quoted price in an actuarial gains and losses, the return on plan assets (excluding interest) active market for an identical asset or liability nor based on a valuation and the effect of the asset ceiling (if any, excluding interest), are technique that uses only data from observable markets, the financial recognized immediately in other comprehensive income. The group instrument is initially measured at fair value, and the difference determines the net interest expense (income) on the net defined between the fair value on initial recognition and the transaction price is benefit liability (asset) for the period by applying the discount rate recognized as a deferred gain or loss. Subsequently, the deferred gain used to measure the defined benefit obligation at the beginning of the or loss is recognized in profit or loss on an appropriate basis over the annual period to the then-net defined benefit liability (asset), taking life of the instrument. into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in the income statement. When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in the income statement. The group recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs. Annual Report 2020 | Financials and Notes | Akastor Group37 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 12-30 months as one operating cycle. Based on results, but are based on the best estimate at the time. Estimates and experience, the provision is often estimated at one percent of the contract assumptions that have a significant risk of causing material adjustments to value, but can also be a higher or lower amount following a specific the carrying amounts of assets and liabilities within the next financial year evaluation of the actual circumstances for each contract. Both the general are discussed below. Revenue recognition one percent 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 Revenue from performance obligations satisfied over time, typically in execution model. Reference is made to Note 27 Provisions for further construction contracts and service contracts, are recognized according information about provisions for warranty expenditures on delivered to progress. This requires estimates of the final revenue and costs of the projects. performance obligations, 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 highly probable financial asset or liability, it is subsequently remeasured at fair value at the that they will not result in a significant reversal of revenue. 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. In of meeting each performance target and the discount factor. Deferred and contingent considerations resulting from business many contracts, there are frequent changes in scope of work resulting in a number of variation orders. The contracts with customers normally Impairment of non-financial assets include procedures for issuing and approval of variation orders. There Property, plant and equipment and intangible assets can be unapproved variation orders and claims included in the contract The group has significant non-current assets recognized in the revenue where recovery is assessed as highly probable and other criteria consolidated statement of financial position related to Property, plant and are met. Even though management has extensive experience in assessing equipment and intangible assets. The value in use of some of these assets the outcome of such negotiations, uncertainties exist. can be significantly impacted by changes of market conditions. The group considers whether there are indications of impairment on the carrying One of the key uncertainties related to revenue recognition arises in the amounts of such non-current assets. If such indications exist, an impairment final stages of the completion of long term contracts which can involve test is performed to assess whether or not the assets should be impaired. renegotiations with customers. The estimates of the likely outcome of The valuations, often determined by value in use calculations, will often these renegotiations are based on management’s assessments subject to be performed based on estimates of future cash flows discounted by an complex interpretations of contractual, engineering, design and project appropriate discount rate. Significant estimates and judgments are made execution issues. There can be a wide range of reasonably possible by the management, including determining appropriated cash-generating outcomes from such renegotiations and the estimates made require a high units and discount rate, projections for future cash flows and assumptions degree of judgment. of future market conditions. References are made to Note 13 Property, plant and equipment and Note 14 Intangible assets. Estimate of the remaining contract costs depends on productivity factors and the cost of inputs. Weather conditions, the performance of Goodwill subcontractors and others with an impact on schedules, commodity prices The group performs impairment testing of goodwill annually or more and currency rates can affect cost estimates. Experience, systematic use frequently if any impairment indicators are identified. The recoverable of the project execution model and focus on core competencies reduce, amounts of cash-generating units to which goodwill is allocated have but do not eliminate, the risk that estimates may change significantly. A been determined based on value-in-use calculations. These calculations risk contingency is included in estimated contract costs based on the risk require management to estimate future cash flows expected to arise from register for identified significant risks. these cash-generating units and an appropriate discount rate to reflect Progress measurement based on costs incurred has an inherent risk related include also assumptions for future market conditions, which require a to the cost estimate as described above. The estimation uncertainty high degree of judgment. Further details about goodwill allocation and during the early stages of a contract is mitigated by a policy of normally impairment testing are included in Note 15 Impairment testing of goodwill. the time value of the money. Key assumptions made by the management not recognizing revenue in excess of costs on large lump sum projects before the contract reaches 20 percent of completion. Earlier recognition Income taxes can be made on a project-by-project basis if cost estimates are certain, The group is subject to income taxes in numerous jurisdictions. Significant typically in situations of repeat projects, proven technology or proven judgement is required to determine the worldwide provision for income execution model. taxes. There are many transactions and calculations for which the ultimate Annual Report 2020 | Financials and Notes | Akastor Group38 tax determination is uncertain during the ordinary course of business. Lease terms Provisions for anticipated tax audit issues are based on estimates of Some of the property leases, in which the group is a lessee, contain eventual additional taxes. extension or termination options exercisable before the end of the non- cancellable period. These options are used to provide operational flexibility Income tax expense is calculated based on reported income in the different for the group. In determining the lease term, the group considers all facts legal entities. Deferred income tax expense is calculated based on the and circumstances that create an economic incentive to exercise an temporary differences between the assets’ carrying amount for financial extension option, or not exercise a termination option. Extension options reporting purposes and their respective tax basis. The total amount (or periods after termination options) are only included in the lease term of income tax expense and allocation between current and deferred if the lease is reasonably certain to be extended (or not terminated). The income tax requires management’s interpretation of complex tax laws and most relevant factors to be considered as “creating economic incentive” regulations in the many tax jurisdictions where the group operates. include significant leasehold improvement, alternatives for the leased Valuation of deferred tax assets is dependent on management’s assessment leased assets. Most extension options in offices leases have not been of future recoverability of the deferred tax benefit. Expected recoverability included in the lease term, because the group expects to be able to may result from expected taxable income in the near future, planned replace the assets without significant cost or business disruption. Most of transactions or planned tax optimizing measures. Economic conditions the early termination options are not considered in the lease term either may change and lead to a different conclusion regarding recoverability, as the group assesses it as reasonably certain that the leases will not be and such change may affect the results for each future reporting period. terminated early. property and the costs and business disruption required to replace the Tax authorities in different jurisdictions may challenge calculation of The lease term assessment requires management’s judgment and is made income taxes from prior periods. Such processes may lead to changes to at the commencement of the leases. The lease term is reassessed if an prior periods’ taxable income, resulting in changes to income tax expense. option is actually exercised or the group becomes obliged to exercise When tax authorities challenge income tax calculations, management is it. The assessment of reasonable certainty is only revised if a significant required to make estimates of the probability and amount of possible event or a significant change in circumstances occurs, which affects this tax adjustments. Such estimates may change as additional information assessment, and that is within the group’s control. Please see Note 33 becomes known. Further details about income taxes are included in Note Leases for more information about the leases where the group is a lessee. 11 Income tax. Pension benefits Legal disputes and contingent liabilities Given the scope of the group’s worldwide operations, group companies The present value of the pension obligations depends on a number are inevitably involved in legal disputes in the course of their business of factors determined on the basis of actuarial assumptions. These activities. In addition, as an investment company, Akastor and its portfolio assumptions include financial factors such as the discount rate, expected companies from time to time engage in mergers, acquisitions and other salary growth, inflation and return on assets as well as demographical transactions that could expose the companies to financial and other factors concerning mortality, employee turnover, disability and early non-operational risks, such as indemnity claims and price adjustment retirement. Assumptions about all these factors are based on the mechanisms resulting in recognition of deferred settlement obligations. situation at the time the assessment is made. However, it is reasonably certain that such factors will change over the very long periods for which Provisions have been made to cover the expected outcome of the legal pension calculations are made. Any changes in these assumptions will claims and disputes to the extent negative outcomes are likely and reliable affect the calculated pension obligations with immediate recognition in estimates can be made. However, the final outcomes of these cases are other comprehensive income. Further information about the pension subject to uncertainties, and resulting liabilities may exceed provisions obligations and the assumptions used are included in Note 26 Employee recognized. The group follows the development of these disputes on benefits - pension. case-by-case basis and makes assessment based on all available evidence as at the reporting date. Fair value measurement The group has invested in significant financial assets that require the measurement of fair value. If there is no quoted price in an active market, then the group uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The fair value measurement requires a high degree of judgment. Judgements include considerations of inputs such as cash flow projection, discount rate and volatility. Further information about the fair value measurement using level 3 inputs is included in Note 32 Financial Instruments. Annual Report 2020 | Financials and Notes | Akastor Group39 Note 5 | Business combinations Business combinations in 2020 Acquisition of DDW Offshore AS Trade and other receivables comprise gross contractual amounts due of NOK 66 million in DDW Offshore, of which NOK 57 million was expected DDW Offshore AS (previously DOF Deepwater AS) was a joint venture to be uncollectable at the date of acquisition. between Akastor and DOF ASA (“DOF”). On October 9, 2020, DDW Offshore completed a restructuring of its debt with its lenders. The If new information obtained within one year of the date of acquisition restructuring involved DOF transferring all of its shares in DDW Offshore about facts and circumstances that existed at the date of acquisition to Akastor for a nominal amount, and Akastor hence assuming 100 identifies adjustments to the above amounts, the accounting for the percent ownership in the company. Further, 50 percent of the debt in acquisition will be revised. DDW Offshore was converted to equity and the remaining 50 percent remains on existing terms, including a parent company guarantee from Business combinations in 2019 Akastor ASA, albeit with certain adjustments that include i.a. no fixed Acquisition of AGR instalments except an upfront repayment of NOK 20 million. The maturity On April 2, 2019, Akastor completed the transaction to merge First Geo AS date of the debts is in October 2023. The company is obliged to divest (First Geo) and AGR AS (AGR). The transaction was carried out primarily all its five vessels on or around the maturity date of the debts and the as an asset deal, whereby assets in the old AGR legal structure and three sales proceeds after transaction costs shall be shared 50/50 between the legal entities were transferred to a new legal structure AGR AS. Akastor lenders and DDW Offshore. contributed 100 percent of its shares in First Geo AS to AGR AS to form the combined AGR/ First Geo group (referred as a new portfolio company DDW Offshore AS owns five modern Anchor Handling Tug Supply (AHTS) AGR). After the transaction, Akastor holds 100 percent of the shares vessels with capability to operate and support clients on a world-wide and held 55 percent of the economic interest in the merged company basis. The vessels are specially designed to perform anchor-handling, AGR. Silver fleet Capital, DNB Bank ASA and Nordea Bank Abp, Norway towing, and supply services at offshore oil and gas fields. branch, held the remaining 45 percent economic interest. In February 2020, Akastor increased its economic interest in AGR to 64 percent after The group expects that the restructuring will give the company a acquiring the equity interest previously held by Silverfleet. In addition, AGR predictable and viable financial structure for the coming three years. DDW AS has rolled over NOK 180 million of the debt, of which DNB and Nordea Offshore operates in a market which remains challenging, but with this holds NOK 90 million each. financial structure and the relative modern and versatile fleet, the company should be well positioned to remain as a market player and thereby secure The group expects that the merged company AGR will be a world leading revenue in a more normalized market in the future. provider of well management-, reservoir- and subsurface services, ranging from consultancy services to fully outsourced well and rig management The acquired DDW Offshore contributed revenues of NOK 8 million and projects. The company’s service offering covers the entire value chain net loss of NOK 18 million for the period from the acquisition date to from qualifications to plugging and abandonment. December 31, 2020. If the acquisition of DDW Offshore had occurred on January 1, 2020, the group estimates that consolidated revenue would The acquired AGR business contributed revenues of NOK 478 million have been NOK 4 693 million and net loss after tax would have been and net loss of NOK 15 million for the period from the acquisition date NOK 881 million for the year ended December 31, 2020. In determining to December 31, 2019. If the acquisition of AGR had occurred on January these amounts, management has assumed that the fair value adjustments, 1, 2019, the group estimates that consolidated revenue and profit after determined provisionally, that arose on the date of acquisition would have tax for the year ended December 31, 2019 would have been NOK 5 493 been the same if the acquisition had occurred on January 1, 2020. million and NOK 86 million respectively. In determining these amounts, management has assumed that the fair value adjustments, determined Details of the net assets acquired are as follows. No goodwill is identified provisionally, that arose on the date of acquisition would have been the in the transaction. same if the acquisition had occurred on January 1, 2019. Identifiable assets and liabilities acquired Acquisition of Bronco Amounts in NOK million DDW Offshore On June 7, 2019, Akastor, through its portfolio company MHWirth, acquired Property, plant and equipment Inventories Trade and other receivables Cash and cash equivalents External borrowings Trade and other payables Other liabilities Total net identifiable assets acquired 100 percent ownership interest in Bronco Manufacturing LLC (Bronco) for a cash consideration of USD 31.5 million at a cash-free and debt-free basis. Bronco is consolidated as part of MHWirth. By utilizing the competencies and supply chain of Bronco, Akastor sees potential on current MHWirth equipment, as well as the potential to re-engineer relevant equipment to make it more suitable for onshore applications. In addition, Akastor expects that Bronco will strengthen MHWirth's presence in North America and increase local manufacturing capabilities in the Houston region. 397 12 9 37 (493) (24) (198) (262) The acquired Bronco business contributed revenues of NOK 123 million Annual Report 2020 | Financials and Notes | Akastor Group40 and net profit of NOK 8 million for the period from the acquisition date to provisionally, that arose on the date of acquisition would have been the December 31, 2019. If the acquisition of Bronco had occurred on January same if the acquisition had occurred on January 1, 2019. 1, 2019, the group estimates that consolidated revenue and profit after tax for the year ended December 31, 2019 would have been NOK 5 472 Details of the net asset acquired, purchase consideration and goodwill are million and NOK 105 million respectively. In determining these amounts, as follows. management has assumed that the fair value adjustments, determined Amounts in NOK million Property, plant and equipment Intangible assets Right-of-use assets Deferred tax assets Inventories Trade and other receivables Cash and cash equivalents Other assets External borrowings Lease liabilities Deferred tax liabilities Trade and other payables Other liabilities Total net identifiable assets acquired AGR Bronco 2 38 43 12 2 101 33 2 (152) (43) (8) (111) (1) (82) 4 111 9 15 59 44 2 - (5) (9) - (23) - 207 Acquisition-related costs of NOK 5 million are included in "other operating The group measured the acquired lease liabilities using the present value expenses" in the consolidated income statement. of the remaining lease payments at the date of acquisition. The right-of- use assets were measured at an amount equal to the lease liabilities. Trade and other receivables comprise gross contractual amounts due of NOK 104 million and NOK 48 million in AGR and Bronco, respectively, of which NOK 3 million in AGR and NOK 4 million in Bronco was expected to be uncollectable at the date of acquisition. Consideration transferred and goodwill Amounts in NOK million Cash consideration Fair value of non-cash consideration Total consideration transferred Non-controlling interests (NCI) measured at fair value Fair value of net identifiable assets Goodwill AGR Bronco - 6 6 10 82 98 270 - 270 - (207) 63 Annual Report 2020 | Financials and Notes | Akastor Group41 The goodwill resulting from the acquisitions is mainly attributable to the Acquisition of subsidiaries with NCI value of the assembled workforce in AGR and Bronco as well as expected In April 2019, Akastor contributed 100 percent of its shares in First Geo AS synergies arising from the acquisitions. NOK 43 million of the goodwill to AGR AS to form the combined AGR/ First Geo group (AGR). After the recognized in AGR is expected to be tax deductible for tax purposes. transaction, Akastor holds 55 percent of the economic interest in AGR, and non-controlling interests (NCI) in AGR were recognized. As a result of the The fair value of the non-controlling interests in AGR, a non-listed company, transaction, the ownership interest in First Geo has decreased from 100 has been estimated by applying a discounted cash flow analysis, an income percent to 55 percent without a loss of control. The change in ownership based approach. The fair value measurement is based on significant inputs interest in First Geo was treated as equity transaction and resulted in a that are not observable in the market: loss directly to equity. An assumed discount rate of 12%. Explicit forecast period of 10 years. Terminal growth rate of 1.0%. Amounts in NOK million NCI in acquired AGR business NCI in First Geo Total NCI in AGR Fair value of consideration received Carrying amount of NCI in First Geo Loss in equity attributable to equity holders of the parent company 2019 10 17 27 6 (17) (11) Annual Report 2020 | Financials and Notes | Akastor Group42 Note 6 | Operating segments Basis for segmentation Measurement of segment performance As of December 31, 2020, Akastor has three reportable segments which Segment performance is measured by operating profit before depreciation, are the strategic business units of the group. The strategic business units amortization and impairment (EBITDA) which is reviewed by the group’s are managed separately and offer different products and services due Executive Management Group (the chief operating decision maker). to different market segments and different strategies for their projects, Segment profit, together with key financial information as described below, products and services: gives the Executive Management Group relevant information in evaluating the results of the operating segments and is relevant in evaluating the MHWirth is a supplier of drilling systems and drilling lifecycle results of the segments relative to other entities operating within these services globally. The company offers a full range of drilling industries. Inter-segment pricing is determined on an arm’s length basis. equipment, drilling riser solutions and related products and services for the drilling market, primarily the offshore sector. The accounting policies of the reportable segments are the same as described in Note 2 Basis of preparation and Note 3 Significant accounting AKOFS Offshore is a global provider of vessel-based subsea well principles. construction and intervention services to the oil and gas industry, covering all phases from conceptual development to project execution and offshore operations. AGR is a well design and drilling project management, HSEQ, reservoir and field management service company delivering solutions for the entire field life cycle. The company also provides rig procurement, tailored training, software and technical manpower for clients globally. As a result of divestment of 50 percent ownership in AKOFS Offshore in September 2018, AKOFS Offshore is classified as a joint venture and consolidated using the equity method, see Note 16 Equity-accounted investees. Further, Akastor holds 100 percent ownership in Cool Sorption, 100 percent in DDW Offshore AS, 15.6 percent economic interest in NES Fircroft and 93 percent of Aker Pensjonskasse, as well as equity instruments in Odfjell Drilling and Awilco Drilling. These are included in “Other holdings”. Step Oiltools, previously part of “Other holdings”, is included in the segment MHWirth. Historical figures have been restated. Annual Report 2020 | Financials and Notes | Akastor Group43 Information about reportable segments Amounts in NOK million Note MHWirth AKOFS Offshore AGR Other holdings Total operating segments Adjust- ment of AKOFS Offshore Elim- inations Total Akastor 2020 Income statement External revenue and other income Inter-segment revenue Total revenue and other income Operating profit before de- preciation, amortization and impairment (EBITDA) Depreciation and amortization 13,14,33 Impairment 33 Operating profit (loss) (EBIT) Assets Current operating assets Non-current operating assets Finance lease receivables 33 Segment assets Liabilities Current operating liabilities Non-current operating liabilities Lease liabilities Segment liabilities 33 Net current operating assets Net capital employed 3 758 1 000 2 - 3 760 1 000 401 (217) - 184 414 (333) (215) (134) 2 537 2 799 1 677 4 609 - 5 336 5 286 1 845 307 384 2 535 692 2 801 332 6 1 203 1 542 344 3 744 637 - 637 31 (18) - 13 115 178 - 294 122 14 10 146 (7) 148 182 3 5 577 (1 000) 5 - 186 5 582 (1 000) (102) (39) (4) (145) 745 (436) (4) (81) (414) 333 215 134 58 1 929 22 3 386 9 516 23 (677) (3 546) - 2 009 12 925 (4 223) 216 605 199 1 019 (158) 990 2 515 932 1 795 5 242 872 7 683 (332) (6) (1 203) (1 542) (344) (2 681) - (5) (5) - - - - (5) - - (5) (5) - 4 577 - 4 577 331 (274) (4) 53 2 704 5 970 23 8 697 2 177 926 592 (5) 3 695 - - 527 5 002 Annual Report 2020 | Financials and Notes | Akastor Group 44 Amounts in NOK million Note MHWirth AKOFS Offshore AGR Other holdings Total operating segments Adjust- ment of AKOFS Offshore Elimi- nations Total Akastor 2019 Income statement External revenue and other income Inter-segment revenue Total revenue and other income Operating profit before de- preciation, amortization and impairment (EBITDA) Depreciation and amortization 13,14,33 Impairment 33 Operating profit (loss) (EBIT) Assets Current operating assets Non-current operating assets Finance lease receivables 33 Segment assets Liabilities Current operating liabilities Non-current operating liabilities Lease liabilities Segment liabilities 33 Net current operating assets Net capital employed 4 186 1 093 1 - 4 187 1 093 476 (161) - 315 560 (323) - 237 3 238 2 648 3 360 5 076 - 5 889 5 437 2 609 275 397 3 281 629 2 608 312 6 1 385 1 703 49 3 734 573 - 573 14 (15) - (1) 191 191 - 382 178 16 17 211 12 170 602 7 6 454 (1 093) 8 - 609 6 462 (1 093) - (8) (8) 2 (85) (9) (92) 1 052 (584) (9) 459 (560) 323 - (237) 288 2 150 22 2 460 4 078 10 065 25 (362) (4 026) - 14 168 (4 389) 319 621 263 1 203 (31) 1 257 3 418 918 2 062 6 399 660 7 769 (314) (6) (1 385) (1 705) (49) (2 684) - - - - - - - - - - - - - 5 361 - 5 361 492 (261) (9) 222 3 716 6 039 25 9 779 3 105 912 677 4 694 611 5 085 Reconciliations of information on reportable segments to IFRS measures Amounts in NOK million Assets Total segment assets Derivative financial instruments Cash and cash equivalents Non-current interest-bearing receivables Consolidated assets Liabilities Total segment liabilities Derivative financial instruments Current borrowings Non-current borrowings Consolidated liabilities Note 2020 2019 31 22 19 31 24 24 8 697 9 779 61 275 115 43 555 201 9 147 10 578 3 695 4 694 37 1 119 628 5 479 65 3 1 444 6 206 Annual Report 2020 | Financials and Notes | Akastor Group Geographical information Geographical revenue is presented on the basis of geographical location of the group companies selling to the customers. Non-current segment assets and capital expenditures are based on the geographical location of the assets. 45 Amounts in NOK million Norway Germany United States Brazil Asia Other Europe Middle East Other countries Total Major customer Revenue and other income 2020 2019 2 269 2 755 668 254 127 368 433 222 236 745 316 135 464 475 253 218 Non-current assets excluding deferred tax assets and financial instruments 2020 2 482 770 430 254 91 73 5 39 2019 2 179 762 441 306 122 87 5 41 4 577 5 361 4 144 3 944 Revenues from one customer of MHWirth represents approximately NOK 870 million (NOK 580 million in 2019) of the group’s total revenue. Note 7 | Revenue and other income Revenue types Amounts in NOK million Revenue from contracts with customers Other revenue and income Lease revenue Other revenue Gain (loss) on disposal of subsidiaries Gain on disposals of assets Total revenue and other income Note 33 2020 4 434 102 44 (5) 2 2019 5 184 148 28 - 2 4 577 5 361 Annual Report 2020 | Financials and Notes | Akastor Group 46 Disaggregation of revenue from contracts with customers Revenue from contracts with customer is disaggregated in the following table by major contract and revenue types and timing of revenue recognition. The table also includes a reconciliation of the disaggregated revenue with revenue information as shown in Note 6 Operating segments. MHWirth AKOFS Offshore AGR Other holdings Adjustment of AKOFS Offshore Total Akastor Amounts in NOK million 2020 Major contract/revenue types Construction revenue Sale of standard products Service revenue Total Revenue from contracts with customers Timing of revenue recognition Transferred over time Transferred at point in time Total Revenue from contracts with customers Other revenue and income 971 1 364 1 306 3 642 2 278 1 364 3 642 116 - - 316 316 316 - 316 684 1 000 - 6 631 636 631 6 636 - 637 105 - 51 156 156 - 156 26 182 Total external revenue and other income in segment reporting 3 758 Amounts in NOK million 2019 Major contract/revenue types Construction revenue Sale of standard products Service revenue Total Revenue from contracts with customers Timing of revenue recognition Transferred over time Transferred at point in time Total Revenue from contracts with customers Other revenue and income Total external revenue and other income in segment reporting MHWirth AKOFS Offshore AGR Other holdings 1 338 1 301 1 513 4 153 2 851 1 301 4 153 33 4 186 - - 335 335 335 - 335 757 1 093 - 36 537 573 537 36 573 - 573 217 128 112 458 329 128 458 144 602 - - (316) (316) (316) - (316) (684) (1 000) Adjust- ment of AKOFS Offshore - - (335) (335) (335) - (335) (757) (1 093) 1 076 1 370 1 988 4 434 3 064 1 370 4 434 143 4 577 Total Akastor 1 555 1 466 2 162 5 184 3 717 1 466 5 184 178 5 361 Annual Report 2020 | Financials and Notes | Akastor GroupContract balances Amounts in NOK million Receivables, which are included in “trade and other receivables” Contract assets Contract liabilities 47 Note 2020 21 28 1 070 764 344 2019 1 136 1 468 609 Contract assets relate to the group’s rights to consideration for work was included in contract liabilities in the beginning of the year is NOK 560 completed, but not yet invoiced at the reporting date. The contract million (NOK 354 million in 2019). There was an increase of NOK 15 million assets are transferred to receivables when the rights to payment become of the contract liability due to acquisition of subsidiaries in 2019. unconditional, which usually occurs when invoices are issued to the customers. No impairment has been recognized on contract assets in The amount of revenue recognized in 2020 from performance obligation 2020 or 2019. satisfied (or partially satisfied) in previous period is NOK 95 million (NOK 66 million in 2019). This is mainly due to changes in the estimates of Contract liabilities relate to advance consideration received from progress measurement for performance obligations satisfied over time customer for work not yet performed. Revenue recognized in 2020 that and changes in estimates relating to the constraining of revenues. Transaction price allocated to the remaining performance obligations The following table includes revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially satisfied) 2021 Later Total 2 231 352 2 583 as of December 31, 2020. Amounts in NOK million Transaction price allocated The amounts disclosed above do not include variable consideration which is constrained. The group applies the practical expedient under IFRS 15 and does not disclose information about remaining performance obligation when revenue is recognized in the amount to which the group has right to invoice. The group applies the practical expedient and does not adjust the transaction price allocated to performance obligations for the effects of a significant financing component if the group expects, at contract inception, that the period between when the group transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. The following provides information about nature of performance obligations, including significant payment terms, and related significant revenue recognition policies. Annual Report 2020 | Financials and Notes | Akastor Group48 Type of contract/revenue Nature of performance obligations, including significant payment terms Significant revenue recognition policies Construction contracts Under construction contracts, specialized products are built to a customer's specifications and the assets have no alternative use to the group. If a construction contract is terminated by the customer, the group has an enforceable right to payment for the work complet- ed to date. The contracts usually establish a milestone payment schedule. The group has assessed that these performance obligations are satisfied over time. Each of the construction contracts normally includes a single, combined output for the customer, such as an integrated drilling equipment package. One single performance obligation is usually identified in each contract. Assurance-type warranty for a period of 12-30 months is normally included in construction contracts. Sale of standard products Service revenue This revenue type involves sale of products or equip- ment that are of a standard nature, not made to the customer's specifications. Customers obtain control of these products usually when the goods are delivered to the customers according to the contract terms. Invoices are usually generated when the products are delivered. The group has assessed that these perfor- mance obligations are satisfied at a point of time. Assurance-type warranty for a period of 12-18 months is normally included in these contracts. Service revenue is generated from rendering of services to customers. The customers simultane- ously receive and consume the benefits provided by these services. The invoicing is usually based on the service provided at regular basis. Under some service contracts, the invoices are based on hours or days per- formed at agreed rates. The group has assessed that these performance obligations are satisfied over time. Revenue from the construction performance obliga- tions is recognized according to progress. The progress is measured using an input method that best depicts the group's performance. The input method used to measure progress is determined by reference to the costs incurred to date relative to the total estimated contract costs. Revenue in excess of costs is not recog- nized until the outcome of the performance obligation can be measured reliably, usually at 15-20 percent of completion. Variable considerations, such as incentive bonus or penalties, are included in construction revenue when it is highly probable that a significant revenue reversal will not occur. Potential penalty for Liquidated Damag- es is recognized as a reduction of the transaction price unless it is highly probable that it will not be incurred. Disputed amounts and claims are only recognized when negotiations have reached an advanced stage, customer acceptance is highly likely and the amounts can be measured reliably. Contract modifications, usually in form of variation orders, are only accounted for when they are approved by the customers. Revenue from these performance obligations is recognized when the customers obtain control of the goods, which is essentially similar to the timing when the goods are delivered to the customers. Service revenue is recognized over time as the services are provided. The revenue is recognized according to progress, or using the invoiced amounts when the invoiced amounts directly correspond with the value of the services that are transferred to the customers. The progress is normally measured using an input method, by the reference of costs incurred to date relative to the total estimated costs. Annual Report 2020 | Financials and Notes | Akastor GroupNote 8 | Salaries, wages and social security costs Amounts in NOK million Note 2020 Salaries and wages including holiday allowance Social security tax/ national insurance contribution Pension cost Other employee costs Salaries, wages and social security costs Note 9 | Other operating expenses Amounts in NOK million External consultants and hired-ins inclusive audit fees Rental and other costs for premises and equipment Office supplies Travel expenses Insurance Other Total other operating expenses Fees to the auditors 49 2019 1 411 175 66 68 1 719 26 1 387 179 66 36 1 668 2020 2019 266 162 26 22 15 150 640 235 178 25 47 16 62 564 The table below summarizes audit fees, as well as fees for audit related services, tax services and other services incurred by the group during 2020 and 2019. Amounts in NOK million 2020 2019 2020 2019 2020 2019 Akastor ASA Subsidiaries Total Audit Other assurance services Total 2 - 3 3 - 3 8 1 9 7 1 9 10 1 11 10 1 11 Annual Report 2020 | Financials and Notes | Akastor Group50 Note 10 | Net finance expenses Amounts in NOK million Profit (loss) from equity-accounted investees Interest income on bank deposits measured at amortized cost Interest income on debt instruments at FVOCI Interest income on finance lease receivables Net foreign exchange gain Dividend income from equity instrument Net changes in fair value of financial assets at FVTPL Liquidation of foreign entity 1) Other finance income Finance income Interest expense on financial liabilities measured at amortized cost Interest expense on financial liabilities measured at fair value Interest expense on lease liabilities Net foreign exchange loss Net changes in fair value of financial assets at FVTPL Impairment loss on receivables 2) Other financial expenses Financial expenses Net finance expenses recognized in profit and loss Note 16 33 33 2020 2019 (256) (160) 20 86 1 27 77 - 7 4 34 77 3 - 69 37 99 2 222 321 (94) (20) (36) - (94) (120) (39) (402) (436) (101) (10) (37) (30) - - (13) (192) (30) 1) Relates to currency translation differences that were reclassified from Other Comprehensive Income to the income statement as result of liquidation. 2) Impairment loss on receivables related to loss allowance on debt instruments measured at FVOCI and impairment triggered by insolvency of certain customers. See Note 32 Financial instruments for information of the finance income and expense generating items. 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 Write down of tax loss and deferred tax assets Recognition of previously unrecognized deferred tax assets Total deferred tax income (expense) Total tax income (expense) 2020 2019 (32) 5 (27) 13 (136) 66 (59) (86) (45) 2 (44) 6 (22) 16 - (44) Annual Report 2020 | Financials and Notes | Akastor Group51 Effective tax rate The table below reconciles the reported income tax expense to the expected income tax expense according to the corporate income tax rate in Norway. Amounts in NOK million 2020 2019 Profit (loss) before tax, continuing operations Tax income (expense) using the company's domestic tax rate (383) 84 22.0% 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) Recognition of previously unrecognized deferred tax assets 2) Write down of tax loss or deferred tax assets 3) Other Total tax income (expenses) 7 (90) 5 (10) 66 (136) (12) (86) 1.8% (23.5%) 1.4% (2.7%) 17.3% (35.4%) (3.2%) (22.4%) 191 (42) 13 (9) 2 2 16 (22) (2) (44) 22.0% (6.5%) 4.5% (0.8%) (0.9%) (8.3%) 11.7% 1.2% 23.0% 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) Relates mainly to previously not recognized tax loss carry-forward in Norway that were utilized in 2020. 3) The impairment relates mainly to deferred tax assets in Akastor Corporate entities, MHWirth entities in USA and Brazil as well as Step Oiltools. Recognized deferred tax assets and liabilities Amounts in NOK million 2020 2019 2020 2019 2020 2019 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) 40 2 - 65 37 - 226 44 414 (85) 329 46 2 - 80 50 5 241 160 584 (196) 388 (5) (7) (50) - (9) (14) (9) - (95) 85 (10) (7) (10) (102) - (8) (70) (10) - (207) 196 (11) 35 (5) (50) 65 28 (14) 217 43 320 - 320 39 (8) (102) 80 42 (65) 231 160 377 - 377 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 group has made an evaluation of taxable profit 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 or deductible temporary differences can be utilized. Annual Report 2020 | Financials and Notes | Akastor Group52 Change in net recognized deferred tax assets (liabilities) Amounts in NOK million Balance as of December 31, 2018 Acquisition of subsidiaries Recognized in profit and loss Recognized in other comprehensive income Currency translation differences Balance as of December 31, 2019 Recognized in profit and loss Recognized in other comprehensive income Currency translation differences Balance as of December 31, 2020 Property, plant and equip- ment Intan- gible assets Projects under construc- tion Pen- sions Provi- sions Deriva- tives Other items Tax loss carry-for- wards 40 - (1) - - 39 (5) - 1 35 (10) (2) 4 - - (8) 3 - - (5) (248) 72 - 147 - (1) (102) 53 - - (50) - (1) 9 - 80 (23) 6 2 65 56 - (14) - - 42 (17) - 2 28 (19) (6) (25) (15) - (65) 59 (8) - 122 15 94 - - 231 (12) 1 (2) 352 12 (205) - 1 160 (117) - 1 Total 365 20 - (6) (1) 377 (59) (1) 3 (14) 217 43 320 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 benefits based on forecasts and realistic expectations. Expiry date of unrecognized tax loss carry-forwards Amounts in NOK million Expiry in 2021 Expiry in 2022 Expiry in 2023 and later Indefinite Total 2020 1 43 531 2 135 2 710 2019 1 41 448 2 182 2 671 Unrecognized other deductible temporary differences are NOK 1 105 million in 2020 (NOK 489 million in 2019). Annual Report 2020 | Financials and Notes | Akastor Group53 Note 12 | Earnings per share Akastor ASA holds 2 390 215 treasury shares at year end 2020 (2 390 215 in 2019). Treasury shares are not included in the weighted average number of ordinary shares. Amounts in NOK million Profit (loss) from continuing operations Non-controlling interests Profit (loss) attributable to ordinary shares from continuing operations Profit (loss) from discontinued operations Profit (loss) attributable to ordinary shares Basic/ diluted earnings per share 2020 (469) 3 (466) (115) (581) 2019 147 7 154 (54) 100 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) Basic/ diluted earnings (loss) per share for discontinued operations (NOK) 2020 2019 274 000 000 274 000 000 271 609 785 271 548 422 (2.14) (1.72) (0.42) 0.37 0.57 (0.20) Annual Report 2020 | Financials and Notes | Akastor Group54 Note 13 | Property, plant and equipment The table below includes discontinued operations until these met the criteria to be classified as held for sale. Note Buildings and land Vessels Machinery, equipment, software Under construction Amounts in NOK million Historical cost Balance as of January 1, 2019 Additions Additions through business combinations Reclassifications Transfer from assets under construction Disposals and scrapping Currency translation differences Balance as of December 31, 2019 Additions Additions through business combinations Reclassifications Transfer from assets under construction Disposals and scrapping Currency translation differences Balance as of December 31, 2020 Accumulated depreciation Balance as of January 1, 2019 Depreciation for the year Reclassifications Disposals and scrapping Currency translation differences Balance as of December 31, 2019 Depreciation for the year Reclassifications Disposals and scrapping Currency translation differences Balance as of December 31, 2020 Book value as of December 31, 2019 Book value as of December 31, 2020 Depreciation 5 5 743 - - - 12 - (14) 741 38 - 27 - (7) (128) 671 (328) (16) - - 6 (338) (15) (27) 7 63 - - - - - - - - - 397 - - - (31) 366 - - - - - - (8) - - 1 (310) (7) 404 361 - 359 Total 2 153 56 6 (19) - (10) (11) 1 377 49 6 (19) - (10) 3 33 7 - - (12) - - 1 407 28 2 175 30 - 8 17 (105) (14) 1 343 (990) (96) 13 8 (2) - - 6 (17) (11) (1) 4 68 397 41 - (123) (175) 2 384 (11) (1 328) - - - - (112) 13 8 4 (1 067) (11) (1 415) (78) (15) 98 12 (1 051) 339 292 - - 11 - - 17 4 (101) (43) 115 76 (1 368) 760 1 017 Estimates for useful life, depreciation method and residual values are reviewed annually. Assets are mainly depreciated on a straight-line basis over their expected economic lives as follows: Machinery, equipment and software Vessels Buildings Land 3–15 years 20–25 years 8–30 years No depreciation Annual Report 2020 | Financials and Notes | Akastor Group 55 Note 14 | Intangible assets Amounts in NOK million Note Development costs Goodwill Other Total Historical cost Balance as of January 1, 2019 Reclassification Capitalized development Acquisition through business combinations 5 Currency translation differences Balance as of December 31, 2019 Reclassification Capitalized development Currency translation differences Balance as of December 31, 2020 Accumulated amortization and impairment Balance as of January 1, 2019 Reclassification Amortization for the year Currency translation differences Balance as of December 31, 2019 Amortization for the year Currency translation differences Balance as of December 31, 2020 Book value as of December 31, 2019 Book value as of December 31, 2020 437 19 70 14 (1) 539 2 35 7 583 (325) (13) (33) 1 (370) (35) (6) (411) 169 172 1 211 - - 162 (1) 1 372 - - 20 1 392 (87) - - (1) (88) - 2 (86) 1 284 1 307 127 - 1 137 (1) 263 - 2 5 1 775 19 71 312 (3) 2 174 2 38 32 270 2 246 (104) - (21) 2 (123) (25) (5) (154) 140 116 (516) (13) (53) 2 (581) (60) (10) (651) 1 593 1 595 Research and development costs Amortization NOK 38 million has been capitalized in 2020 (NOK 71 million in 2019) Intangible assets all have finite useful lives and are amortized over the related to development activities. In addition, research and development expected economic life, ranging between 5-10 years. costs of NOK 12 million were expensed during the year because the criteria for capitalization are not met (NOK 31 million in 2019). Annual Report 2020 | Financials and Notes | Akastor Group56 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. Please see Note 5 Business combinations for information about the goodwill acquired in MHWirth and AGR during 2019. Amounts in NOK million MHWirth AGR Total goodwill 2020 1 190 116 1 306 2019 1 168 116 1 284 Impairment testing for cash-generating units containing significant goodwill The recoverable amounts of cash-generating units (portfolio companies) margins and other cost components based on historical experience as are determined based on value-in-use calculations. Discounted cash well as assessment of future market development and conditions. These flow models are applied to determine the value in use for the portfolio assumptions require a high degree of judgement, given the significant companies with goodwill. The management has made cash flow degree of uncertainty regarding oilfield service activities in the forecast projections based on budget and strategic forecast for the periods 2021- period. 2025. Beyond the explicit forecast period of five years, the cash flows are extrapolated using a constant growth rate. Terminal value growth rate The group uses a constant growth rate not exceeding 2% (including inflation) for periods beyond the management’s Key assumptions used in the calculation of value in use are discussed forecast period of five years. The growth rates used do not exceed the below. The values assigned to the key assumptions represent growth rates for the industry in which the portfolio company operates. management's assessment of future trends in the relevant industries as well as management’s expectations regarding margin, and have been Discount rates are estimated based on Weighted Average Cost of Capital based on historical data from both external and internal sources. (WACC) for the industry in which the portfolio company operates. The risk-free interest rates used in the discount rates are based on the 10 year EBITDA used in the value-in-use calculations represents the operating state treasury bond rate at the time of the impairment testing. Optimal earnings before depreciation and amortization and is estimated based debt leverage is estimated for each portfolio company. The discount rates on the expected future performance of the existing businesses in their are further adjusted to reflect any additional short to medium term market main markets. Assumptions are made regarding revenue growth, gross risk considering current industry conditions Discount rate assumptions used in impairment testing MHWirth AGR Discount rate after tax Discount rate pre tax 2020 12.2% 14.4% 2019 10.4% 12.5% 2020 14.7% 17.5% 2019 12.4% 15.0% Sensitivity to changes in assumptions growth in the forecast period were reduced by more than 12%, or the For the portfolio companies containing goodwill, the recoverable amounts average EBITDA margin in the forecast period were reduced by more than are higher than the carrying amounts based on the value in use analysis 6%, the estimated recoverable amount would be lower than the carrying and consequently no impairment loss of goodwill was recognized in 2020 amount and it would result in impairment in MHWirth. In AGR, if the or 2019. average revenue growth in the forecast period were reduced by more than 9%, or if the average EBITDA margin in the forecast period were reduced The group has performed sensitivity calculations to identify any reasonably by more than 2%, the estimated recoverable amount would be lower than possible change in key assumptions that could cause the carrying amount the carrying amount and it would result in impairment in AGR. to exceed the recoverable amount. In MHWirth, if the average revenue Annual Report 2020 | Financials and Notes | Akastor Group57 Note 16 | Equity-accounted investees Equity-accounted investees include joint ventures and associates. Such investments are defined as related parties to Akastor. See Note 35 Related parties for overview of transactions and balances with joint ventures and associates, and any guarantees provided on behalf of or from such entities. Amounts in NOK million DOF Deepwater AS 1) AKOFS Offshore Electrical Subsea & Drilling AS Total Business office Storebø, Norway Oslo, Norway Straume, Norway Percentage of voting rights and ownership 50% 50 % 20% 2020 Share of profit (loss) reported in Financial items Carrying amount of investments 2019 Share of profit (loss) reported in Financial items Carrying amount of investments (140) - (124) - (117) 1 064 (35) 1 050 - 1 (1) 1 (256) 1 064 (160) 1 051 1) DOF Deepwater AS was a joint venture with DOF ASA, which became a 100 percent owned subsidiary in October 2020. Please see Note 5 for more information. AKOFS Offshore Electrical Subsea & Drilling AS AKOFS Offshore is a joint venture where Akastor, MITSUI & CO., Ltd. MHWirth is a shareholder in Electrical Subsea & Drilling AS (ESD) with 20% ("Mitsui") and Mitsui O.S.K. Lines, Ltd. ("MOL") hold 50%, 25% and 25% of ownership. ESD is a privately owned Norwegian company and working on the shares respectively, and have joint control over the company. 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 2020 | Financials and Notes | Akastor Group58 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 liabilities 2) Goodwill Elimination of unrealized gain on downstream sales 3) Akastor's carrying amount of the investment Revenue Depreciation, amortization and impairment Interest expense Income tax expense Profit (loss) for the year Other comprehensive income (loss) Total comprehensive income (loss) (100%) Total comprehensive income (loss) (50%) Gain on disposal of equity accounted investees Elimination of unrealized gain on downstream sales Akastor's share of total comprehensive income (loss) DOF Deepwater AS 1) 2020 2019 AKOFS Offshore 2020 2019 - - - - - - - - - - - - - 116 (196) (47) - (290) - (290) (145) 5 - 142 32 592 (139) (30) (1 146) (1 146) (551) (275) 275 - - - 163 (148) (68) - (248) - (248) (124) - - (140) (124) 928 247 4 609 (1 379) (1 047) (2 219) (2 212) 1 939 969 - 125 (30) 638 272 5 076 (1 373) (1 061) (2 207) (2 201) 2 134 1 067 - 126 (143) 1 064 1 050 1 000 (548) (306) (18) (473) (39) (513) (256) - 120 (136) 1 093 (323) (343) (7) (94) (22) (117) (58) - 12 (46) 1) Income statement information for DOF Deepwater in 2020 is related to the period between January 1 – October 9, 2020 prior to the acquisition of the company. 2) In 2019, Akastor’s share of losses from DOF Deepwater AS was 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 Other non-current liabilities. 3) In 2016, Akastor sold the Skandi Santos topside equipment to Avium Subsea AS, a wholly owned subsidiary to AKOFS Offshore. 50% of the accounting gain from the sale was eliminated upon consolidation, reducing Akastor’s carrying amount of the investment. Note 17 | Other non-current assets Amounts in NOK million Deferred and contingent considerations Other assets Total other non-current assets Note 32 2020 2019 26 3 29 62 3 65 Deferred and contingent considerations relate to divestments of subsidiaries in previous years and are measured at fair value. Annual Report 2020 | Financials and Notes | Akastor GroupNote 18 | Other investments Amounts in NOK million Aker Pensjonskasse NES Fircroft investment 1) Awilco Drilling investment 2) Odfjell Drilling investment 3) Other equity securities Total other investments 59 Note 2020 2019 158 537 14 758 2 158 644 47 792 2 32 1 469 1 643 1) Akastor holds 15.6% economic ownership interest in NES Fircroft (previously NES Global Talent), a global oil and gas manpower provider. 2) Akastor holds 5.6% of the common shares in Awilco Drilling, which is listed on the Oslo Stock Exchange. 3) In May 2018, Akastor made an investment of USD 75 million in preferred equity in Odfjell Drilling, which generates 5% p.a. cash dividend and 5% p.a. payment-in-kind (PIK) dividend for the first six years, with step-up cash dividend after 6 years. In addition, Akastor has acquired warrants for 5 925 000 common shares in Odfjell Drilling, divided by six exercisable tranches until May 30, 2024. Odfjell Drilling is listed on the Oslo Stock Exchange. Other investments are measured at fair value. Note 19 | Interest-bearing receivables Amounts in NOK million Receivable from AKOFS Offshore Receivable from Aker Pensjonskasse Total non- current interest-bearing receivables 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 Reversal of write-down in the period The reversal of write down of inventory is due to change in estimate of the net realizable value. Note 2020 2019 35 35 94 21 115 191 10 201 2020 2019 141 53 291 485 140 91 297 528 (1 221) (1 604) (16) 6 (102) 14 Annual Report 2020 | Financials and Notes | Akastor Group60 Note 21 | Trade and other receivables Amounts in NOK million Trade receivables 1) Less provision for impairment Trade receivables, net of provision Other receivables Trade and other receivables Advances to suppliers Contract assets Prepaid expenses Public duty and tax refund Contingent considerations Total Note 2020 2019 1 226 (131) 1 094 25 1 120 94 764 167 46 - 2 191 32 7 32 1 231 (49) 1 182 42 1 224 98 1 468 297 83 7 3 177 2019 426 168 39 597 1 231 1) Trade receivables are financial instruments and an impairment loss of NOK 36 million was recognized in the income statement in 2020 (NOK 11 million in 2019). Book value of trade and other receivables is approximately equal to fair value. 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 2020 464 59 37 665 1 226 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, 2020, trade receivables of a face value of NOK 131 million (NOK 49 million in 2019) were impaired. 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 Acquisition of subsidiaries Currency translation differences Balance as of December 31 Note 2020 2019 49 36 (1) (4) 57 (6) 131 49 11 (7) (11) 7 - 49 5 Annual Report 2020 | Financials and Notes | Akastor Group Note 22 | Cash and cash equivalents Amounts in NOK million Restricted cash Interest-bearing deposits Total cash and cash equivalents 61 2020 2019 6 269 275 11 544 555 Additional undrawn committed current bank revolving credit facilities amount to NOK 1.5 billion, that together with cash and cash equivalents gives a total liquidity reserve of NOK 1.7 billion as of December 31, 2020. See also Note 24 Borrowings. Note 23 | Capital and reserves Share capital Fair value reserve Akastor ASA has one class of shares, ordinary shares, with equal rights The fair value reserve comprises the cumulative net changes in the fair for all shares. The holders of ordinary shares are entitled to receive value of financial assets classified as Fair Value to OCI (FVOCI) until these dividends and are entitled to one vote per share at General Meetings. Total assets are impaired or derecognized. outstanding shares are 274 000 000 at par value NOK 0.592 per share (NOK 0.592 in 2019). All issued shares are fully paid. Currency translation reserve Treasury shares The translation reserve comprises all foreign currency differences arising from the translation of the financial statements of foreign operations, At the Annual General Meeting in 2014, authorization was given to as well as the effective portion of any foreign currency differences from repurchase up to 27.4 million shares, representing 10 percent of the share hedges of net investments in foreign operations. capital of Akastor ASA. The group purchases treasury shares to meet the obligation under employee share purchase programs. As of December 31, The currency translation reserve includes exchange differences arising 2020, Akastor ASA holds 2 390 215 treasury shares (2 390 215 treasury from the translation of the net investments in foreign operations, and shares in 2019), representing 0.87 percent of total outstanding shares. foreign exchange gain or loss on loans defined as net investment hedge The Board of Directors has proposed no dividends for 2020 or 2019. of investments in foreign operations or liquidation of such entities, the or part of net investments in foreign operations. Upon the disposal Hedging reserve The hedging reserve relates to cash flow hedges of future revenues and accumulated currency translation differences related to these entities are reclassified from the currency translation reserve to the income statement. expenses against exchange rate fluctuations. The income statement Net investments in foreign operations have been hedged with a gain of effects of such instruments are recognized in accordance with the NOK 16 million in 2020 (loss NOK 9 million in 2019). Accumulated gain progress of the underlying construction contract as part of revenues or in equity on net investment hedges as of 2020 is a gain of NOK 11 million expenses as appropriate. The hedging reserve represents the value of such (gain of NOK 11 million in 2019) and relate to investments in the United hedging instruments that is not yet recognized in the income statement. States and Cyprus. The underlying nature of a hedge is that a positive value on a hedging instrument exists to cover a negative value on the hedged position, see Note 10 Net finance expenses and Note 31 Derivative financial instruments. Annual Report 2020 | Financials and Notes | Akastor Group 62 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. Amounts in million Currency Nominal currency value Carrying amount (NOK) Interest rate Fixed interest margin Interest coupon Maturity 2) Interest terms 2020 Revolving credit facility (NOK 1 250 million) Revolving credit facility (USD 155 million) Term loan facility AGR Term loan facility DDW Offshore Total borrowings Current borrowings Non-current borrowings Total borrowings 2019 Revolving credit facility (NOK 1 250 million) Revolving credit facility (USD 155 million) Term loan facility AGR Total borrowings Current borrowings Non-current borrowings Total borrowings NOK 350 347 0.39% 3.25% 1) 3.64% Dec 2021 NIBOR + margin 0.15% 1.88% 0.23% 3.25% 1) 2.12% 4.25% 3.40% 4.00% 4.48% Dec 2021 USD LIBOR + margin Apr 2027 Fixed rate Oct 2023 USD LIBOR + margin USD NOK USD 90 180 53 772 173 455 1 746 1 119 628 1 746 NOK 800 794 1.65% 3.25% 1) 4.90% Dec 2021 NIBOR + margin 1.71% 1.88% 3.25% 1) 2.12% 4.96% 4.00% Dec 2021 USD LIBOR + margin Apr 2027 Fixed rate USD NOK 56 180 494 161 1 448 3 1 444 1 448 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 35 percent of the margin (2019: 35 percent). 2) The maturity date reflects maturity date as defined in the loan agreements. For information about contractual maturities of borrowings including interest payments and the period in which they mature, see Note 30 Financial risk management and exposures. Bank debt (Norway) The revolving credit facilities are provided by a bank syndicate consisting of high-quality Nordic and international banks. The terms and conditions include restrictions which are customary for these kinds of facilities, including inter alia negative pledge provisions and restrictions on acquisitions, disposals and mergers, dividend distribution and change of control provisions. For information about financial covenants, see Note 29 Capital management. The revolving credit facilities are classified as current borrowings as of December 31, 2020 as the maturity date defined in the loan agreements is December 2021. The term loan facility of NOK 180 million term loan to AGR is provided by Nordea and DNB. The lenders have no recourse to Akastor ASA. This facility includes restrictions which are customary for these kinds of facilities. The term loan of USD 53 million to DDW Offshore is provided by GIEK, DNB and BNPParibas and matures in October 2023. The Facility is guaranteed by Akastor ASA and the lenders benefit from first priority mortgages in the vessels. This facility includes restrictions which are customary for these kinds of secured financing. Annual Report 2020 | Financials and Notes | Akastor Group 63 Reconciliation of liabilities arising from financing activities Amounts in NOK million Balance as of December 31, 2019 Foreign exchange movements Capitalized borrowing costs Accrued interest Acquisition of business Balance as of December 31, 2020 Cash flows Revolving credit facilities Term loan facility - AGR Term loan facility - DDW Offshore Total liabilities arising from financing activities 1 287 161 - (89) - - (81) - (38) 1 448 (89) (120) 4 - - 4 (2) 12 - 10 - - 493 497 1 119 173 455 1 746 Note 25 | Other non-current liabilities Amounts in NOK million Note 2020 2019 Deferred gain Deferred settlement obligations Guarantee obligation related to joint venture Liability for profit split Other liabilities Total other non-current liabilities 32 32 5, 32 32 72 197 - 185 24 478 93 195 177 - 26 491 Deferred gain Guarantee obligation related to joint venture In May 2018, Akastor invested in preferred equity and warrants in Odfjell Akastor’s share of losses in DOF Deepwater AS, as a joint venture, in excess Drilling. On initial recognition, the investment in the financial assets is of the carrying amount of Akastor’s investment interest in the joint venture recognized at fair value and the difference between the fair value and the was recognized as a liability as the group has provided guarantees for the transaction price, NOK 117 million, was recognized as “Deferred gain”. The funding of the vessels in the company. DOF Deepwater was acquired as deferred gain is subsequently amortized and recognized to profit and loss a 100 percent owned subsidiary in October 2020 and renamed to DDW at straight-line basis over six years. See Note 18 Other investments for Offshore AS. See Note 5 Business combination for more information. more information about the investment. Liability for profit split Deferred settlement obligations DDW Offshore AS has obligation to share 50 percent of the sale proceeds Deferred settlement obligations represent contingent considerations from disposal of its vessels with its lenders prior to the maturity of the resulting from disposal of subsidiaries. The obligations are mainly related debts. See Note 5 Business combination for more information. to provision for guaranteed preferred return to Mitsui and MOL in connection with the divestment of 50 percent shares in AKOFS Offshore. Other liabilities See Note 35 Related parties for more information. Other liabilities are mainly related to welfare fund. Annual Report 2020 | Financials and Notes | Akastor Group64 Note 26 | Employee benefits – pension Akastor’s pension costs represent the future pension entitlement earned Compensation plan by employees in the financial year. In a defined contribution plan the To ensure that the employees were treated fairly on the change over to company is responsible for paying an agreed contribution to the employee’s the contribution plan in 2008, the company introduced a compensation pension assets. In such a plan, this annual contribution is also the cost. plan. The basis for deciding the compensation amount is the difference In a defined benefit plan, it is the company’s responsibility to provide a between calculated pension capital in the defined benefit plan and the certain pension. The measurement of the cost and the pension liability value of the defined benefit plan at the age of 67 years. The compensation for such arrangements is subject to actuarial valuations. Akastor has over amount will be adjusted annually in accordance with the adjustment of the a long time period gradually moved from defined benefit arrangements employees’ pensionable income, and accrued interest according to market to defined contribution plans. Consequently, the impact of the remaining interest. If the employee leaves the company voluntarily before the age of defined benefit plans is gradually reduced. 67 years, the compensation amount will be reduced. Pension plans in Norway AFP – early retirement arrangement The main pension arrangement in Norway is a general pension plan organized AFP is an early retirement arrangement organized by Norwegian by the Norwegian Government. This arrangement provides the main employers, the main Labor Union organization in Norway (LO) and the general pension entitlement of all Norwegians. All pension arrangements by Norwegian Government. The AFP plan is providing additional lifelong employers consequently represent limited additional pension entitlements. pensions to employees that retire before the general retirement age, to Norwegian employers are obliged to provide an employment pension employees are given a choice of retirement age, with lower pension at compensate for the reduction of the ordinary pension entitlements. The plan, which can be organized as a defined benefit plan or as a defined earlier retirement. contribution plan. The Norwegian companies in Akastor have closed the earlier defined benefit plans in 2008 and are now providing defined The Norwegian Accounting Standards Board has issued a comment contribution plans for all employees. concluding that the AFP plan is a multi-employer defined benefit plan. The Defined benefit plan AFP plan exposes the participating entities to actuarial risk associated with employees of other entities with the result that there is no consistent Employees who were 58 years or older in 2008, when the change took and reliable basis for allocating the obligation, plan assets and costs to place, are still in the defined benefit plan, which is a funded plan. There are individual participating entities. Sufficient information is not available to no longer any active employees in this plan. The estimated contributions use defined benefit accounting and the AFP plan is accounted for as a expected to be paid to the Norwegian plan during 2021 amount to defined contribution plan. NOK 4 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 USA Defined benefit plans other countries Total employee benefit obligations Pension plans outside Norway Pension plans outside Norway are predominately defined contribution plans. Note 2020 2019 9 57 66 9 57 66 8 2020 2019 222 136 31 (2) 388 199 122 35 3 359 Annual Report 2020 | Financials and Notes | Akastor GroupMovement in net defined benefit (asset) liability Amounts in NOK million Balance as of January 1 Included in profit or loss Service cost Interest cost (income) Included in OCI Remeasurements (loss) gain: Actuarial loss (gain) arising from: - demographic assumptions - financial assumptions - experience adjustments Return on plan assets excluding interest income 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 Plan assets Amounts in NOK million Plan assets at fair value Norwegian plan 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 65 Pension obligation 2020 2019 Pension asset Net pension obligation 2020 2019 2020 2019 619 587 (260) (255) 359 332 9 8 17 7 35 (4) 6 44 (41) - (41) 639 9 11 20 5 40 9 2 55 (43) - (43) 619 - (3) (3) - - - 1 (1) 5 4 - (3) (3) - (1) - (1) (5) (1) (8) 26 (20) 7 (251) 26 (20) 6 (260) 9 5 14 7 35 (4) 1 (1) 11 49 (14) (20) (34) 388 9 7 16 5 39 9 (1) (5) 1 48 (16) (20) (37) 359 2020 2019 7 10 26 25 68 59 126 28 72 100 23 249 1 12 24 42 79 55 134 43 59 101 24 260 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. Annual Report 2020 | Financials and Notes | Akastor Group 66 Discount rate Asset return Salary progression Pension indexation Norway Germany USA 2020 2019 2020 2019 1.50% 1.50% 2.25% 2.20% 2.20% 2.75% 0 -1.75% 0 -2.25% 2.30% 2.30% n/a 1.60% 2.71% 2.71% n/a 1.75% 2020 1.91% 1.91% n/a n/a 2019 2.89% 2.89% n/a n/a Pri-2012 Total Dataset Mortality with Scale MP- 2020 Pri-2012 Total Dataset Mortality with Scale MP- 2019 Mortality table K2013 K2013 RT 2018 G RT 2018 G The information below relates only to Norwegian plans as these represent in the pension indexations. The total effect of fluctuations in economic the majority of the plans. assumptions is consequently unlikely to be very significant. The discount rates and other assumptions in 2020 and 2019 are based Assumptions regarding future mortality have been based on published on the Norwegian high quality corporate bond rate and recommendations statistics and mortality tables. The current life expectancy underlying the from the Norwegian Accounting Standards Board. It should be expected values of the defined benefit obligation at the reporting date is shown that fluctuations in the discount rates would also lead to fluctuations below. Years Life expectancy of male pensioners Life expectancy of female pensioners 2020 2019 22.5 25.8 22.4 25.7 As of December 31, 2020, the weighted-average duration of the defined benefit obligation was 9.6 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, 2020 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 (11) 1 13 14 (1) (4) 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. Annual Report 2020 | Financials and Notes | Akastor GroupNote 27 | Provisions Amounts in NOK million Provision, current Provision, non-current Total provisions 67 2020 2019 109 50 160 119 51 170 Development of significant provisions Amounts in NOK million Warranties Restructuring Onerous contracts Other Total Balance as of December 31, 2019 New provisions Provisions utilized Provisions reversed Unwind of discount Currency translation differences Balance as of December 31, 2020 Expected timing of payment Within the next twelve months After the next twelve months Total Warranties 65 30 (22) (1) - (1) 72 61 12 72 16 20 (4) (1) - - 30 21 9 30 57 - (17) - 7 - 47 8 39 47 32 - (16) (6) - - 10 8 2 10 170 50 (58) (8) 7 (1) 160 99 61 160 The provision for warranties relates mainly to the possibility that Akastor, reorganization in MHWirth due to the challenging rig market. The based on contractual agreements, needs to perform guarantee work provision includes provision for vacant office premises after the workforce related to products and services delivered to customers. Warranty reduction and is estimated based on the detailed restructuring plans for provision is presented as current as it is expected to be settled in the the businesses and locations affected. group’s normal operating cycle. See Note 4 Significant accounting estimates and judgments for further descriptions. Onerous contracts Restructuring Provision for onerous contracts relates mainly to unavoidable operational costs for vacant properties where the group has committed to under lease Restructuring mainly relates to significant workforce reduction and contracts. Note 28 | Trade and other payables Amounts in NOK million Trade creditors 1) Accrued expenses Trade and other payables Public duty and tax payables Contract liabilities Deferred settlement obligations Total trade and other payables 1) Trade creditors are due within one year. Book value of trade creditors and other current liabilities is approximately equal to fair value. Note 2020 32 7 32 305 1 232 1 537 101 344 77 2 060 2019 451 1 725 2 176 112 609 77 2 974 Annual Report 2020 | Financials and Notes | Akastor Group68 Note 29 | Capital management Akastor’s capital management is designed to ensure that the group These ratios are similar to covenants as defined in loan agreements for the has sufficient financial flexibility, short-term and long-term. One main revolving credit facilities which are shown below. See Note 24 Borrowings objective is to maintain a financial structure that, through solidity and cash for details about these loans. flow, secures the group’s strong long-term creditworthiness, as well as maximize value creation for its shareholders through: The company’s gearing ratio shall not exceed 1.0 times and is calculated from the consolidated total borrowings to the Investing in projects and business areas which will increase the consolidated Equity. company’s Return On Capital Employed (ROCE) over time. Optimizing the company’s capital structure to ensure both consolidated EBITDA to consolidated Net Finance Cost when sufficient and timely funding over time to finance its activities at gearing ratio is below 0.5 The ICR shall not be lower than 3.0, calculated from the the lowest cost. Investment policy The ICR shall not be lower than 4.0, calculated from the consolidated EBITDA to consolidated Net Finance Cost when Akastor’s capital management is based on a rigorous investment selection gearing ratio exceeds 0.5 process which considers not only Akastor’s weighted average cost of capital and strategic orientation but also external factors such as market Minimum liquidity amount shall exceed NOK 500 million on expectations. Funding policy Liquidity planning consolidated level. The ratios are calculated based on net debt including cash and borrowings as shown in Note 32 Financial instruments, EBITDA (earnings before Akastor has a strong focus on its liquidity situation in order to meet its interest, tax, depreciation, amortization) and net interest costs, however short-term working capital needs and to ensure solvency for its financial adjusted for certain items as defined in the loan agreement. Covenants obligations. Akastor had a liquidity reserve per year end 2020 of NOK ratios are based on accounting principles as of December 31, 2020. 1.7 billion, composed of an undrawn committed credit facility of NOK 1.5 billion and cash and cash equivalents of NOK 0.3 billion. The covenants are monitored on a regular basis by the Akastor Treasury Funding of operations department to ensure compliance with the loan agreements and are tested and reported on a quarterly basis. Akastor was in compliance with its Akastor’s group funding policy is that subsidiaries should finance their covenants as of December 31, 2020. Based on current financial forecasts, operations with the treasury department (Akastor Treasury). This ensures there is a risk of breaching the ICR covenant in the first quarter of 2021. optimal availability and transfer of cash within the group and better control This is driven by lower earnings post COVID-19 outbreak as well as the of the company’s overall debt as well as cheaper funding for its operations. consolidation of DDW Offshore which from October 2020 has contributed However, AGR is financed directly through a NOK 180 million Term Loan negative EBITDA and increased interest cost in Akastor’s consolidated maturing in 2027, and DDW Offshore is financed directly through a USD 53 financial statements. To mitigate this risk, the group has obtained a waiver million Term loan maturing in 2023. of the ICR covenant in March 2021 for the remaining period of the current Funding duration financing. The waiver is contingent on closing of the refinancing of Akastor following the creation of a joint venture between MHWirth AS and Baker Akastor emphasizes financial flexibility and steers its capital structure Hughes’ Subsea Drilling Systems business as described below. accordingly to limit its liquidity and refinancing risks. In this perspective, loans and other external borrowings are to be renegotiated well in advance On March 2, 2021, Akastor announced an agreement with Baker Hughes of their due date and generally for periods of 3 to 5 years. to create a joint venture company that will bring together Akastor’s wholly Funding cost owned subsidiary, MHWirth AS and Baker Hughes’ Subsea Drilling Systems business. The transaction will require refinancing of Akastor’s existing Akastor aims to have diversified funding sources in order to reach the corporate credit facility. Akastor has received commitments for a total of lowest possible cost of capital. These funding sources might include: NOK 1 250 million in revolving credit facilities that will be entered into The use of banks based on syndicated credit facilities. second half of 2021. Please see Note 37 Events after the reporting date prior to closing of the transaction, which is expected to take place in the for more information of the transaction. The issue of debt instruments in the Norwegian capital market. The issue of debt instruments in foreign capital markets. of the group following the MHWirth transaction, management believes that the risk of additional covenant breach is low and that the group will Based on the received ICR covenant waiver and committed refinancing Ratios used in monitoring of capital/Covenants continue as a going concern for the foreseeable future. Akastor monitors capital on the basis of a gearing ratio (net debt/equity) and interest coverage ratio (ICR) based on EBITDA/net interest costs. AGR’s external financing has one financial covenant the Liquidity shall be not less than NOK 20 million, applicable from 1 January 2021.. Annual Report 2020 | Financials and Notes | Akastor Group69 Note 30 | Financial risk management and exposures The group is exposed to a variety of financial risks: currency risk, interest amount of their respective cash flows. The group assesses whether the rate risk, price risk, credit risk, liquidity risk and capital risk. The capital derivative designated in each hedging relationship is expected to be and market risk affects the value of financial instruments held. The objective of has been effective in offsetting changes in cash flows of the hedged item financial risk management is to manage and control financial risk exposures using the hypothetical derivative method. In these hedge relationships, the and thereby increase the predictability of earnings and minimize potential main sources of ineffectiveness can arise from: adverse effects on the group’s financial performance. Akastor group uses financial derivative instruments to hedge certain risk exposures and Changes to the forecasted amount of cash flows of hedged items applies hedge accounting in order to reduce the profit or loss volatility. and hedging instruments. Risk management is present in every project. It is the responsibility of The counterparties’ credit risk differently impacting the fair value the project managers, with the support of Akastor Treasury, to identify, movements of the hedging instruments and hedged items. evaluate and hedge financial risks under policies approved by the Board of Directors. The group has well-established principles for overall risk Currency exposures from investments in foreign currencies are only management, as well as policies for the use of derivatives and financial hedged when specifically instructed by management. As of December 31, investments. There have not been any changes in these policies during 2020, Akastor had no net investment hedges. the year. Currency risk The change in hedge reserve in 2020 is related to hedges of forecast sales and purchases. The group operates internationally and is exposed to currency risk on commercial transactions, recognized assets and liabilities and net Exposure to currency risk investments in foreign operations. Commercial transactions and recognized Estimated forecasted receipts and payments in the table below are assets and liabilities are subject to currency risk when payments are calculated based on the group’s hedge transactions, adjusted for hedged denominated in a currency other than the respective functional currency balance sheet items. These are considered to be the best estimate of of the group company. The group’s exposure to currency risk is primarily the currency exposure, given that all currency exposure is hedged in to USD, EUR and BRL, but also other currencies. accordance with the group’s policy. The net exposure is managed by Akastor’s policy requires business units to mitigate currency exposure Akastor Treasury. in any project. Akastor manages exposures by entering into forward Changes in currency rates change the values of hedging derivatives, contracts or currency options with the financial marketplace. Akastor has embedded derivatives, borrowings, receivables and cash balances. Hedges a large number of contracts involving foreign currency exposures and the that qualify for hedge accounting are reported in the profit and loss currency risk policy has been well-established for many years. according to progress of projects, and deferred value of cash flow hedges is reported as hedging reserve in equity. Any changes to currency rates will The group determines the existence of an economic relationship between therefore affect equity. the hedging instrument and hedged item based on the currency and Amounts in million Bank Intercompany loans Loans and receivables Deferred settlement assets and obligations Balance sheet exposure Estimated forecast receipts from customers Estimated forecast payments to vendors Cash flow exposure Forward exchange contracts Net exposure 2020 USD EUR (59) 33 55 (29) - 108 (5) 104 (154) (50) 5 24 (3) - 26 - (7) (7) 12 31 BRL - - 127 - 127 - - - - 127 2019 USD EUR BRL (124) (29) 40 98 (23) (8) 185 (39) 146 (198) (60) 31 (9) - (7) - (17) (17) 28 4 - - 96 - 96 - - - - 96 Annual Report 2020 | Financials and Notes | Akastor Group70 Sensitivity analysis to be reasonably possible at the end of the reporting period. The analysis A strengthening of EUR, USD and BRL against NOK as of December assumes that all other variables, in particular interest rates, remain 31 would have affected the measurement of financial instruments constant and ignores any impact of forecast sales and purchases. Figures denominated in a foreign currency and increased (decreased) equity and in the table below only include the effect in income statement and equity income statement by the amounts shown below. This analysis is based for change in currency regarding financial instruments and do not include on foreign currency exchange rate variances that the group considered effect from operating cost and revenue. Effect of weakening of NOK against significant currencies: Amounts in NOK million USD (30%) EUR (25%) BRL (35%) 2020 Profit (loss) after tax Equity Increase (decrease) (101) 64 57 (296) USD (10%) 81 57 EUR (7%) BRL (15%) 2019 Profit (loss) before tax Equity Increase (decrease) (41) 2 11 (126) 15 11 A strengthening of the NOK against the above currencies as of December Interest rate risk 31 would have had the equal but opposite effect on the above amounts, on The group’s interest rate risk arises from cash balances, interest-bearing the basis that all other variables remain constant. The sensitivity analysis borrowings and interest-bearing receivables. Borrowings and receivables does not include effects on the consolidated result and equity from issued at variable rates as well as cash expose the group to cash flow changed exchange rates used for consolidation of foreign subsidiaries. interest rate risk. Borrowings and receivables issued at fixed rates expose the group to fair value interest rate risk. However, as these borrowings are The primary currency-related risk is the risk of reduced competitiveness measured at amortized cost, interest rate variations do not affect profit abroad in the case of a strengthened NOK. This risk relates to future and loss when held to maturity. commercial contracts and is not included in the sensitivity analysis above. An increase of 100 basis points in interest rates during 2020 would have increased (decreased) equity and profit and loss by the amounts shown on the table below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis as for 2019. Effect of increase of 100 basis points in interest rates on profit (loss) before tax Amounts in NOK million Cash and cash equivalents Current interest-bearing receivables Borrowings Net 2020 2019 3 2 (18) (14) 3 4 (14) (7) A decrease of 100 basis points in interest rates during 2020 would have had the equal but opposite effect on the above amounts, on the basis that all other variables remain constant. There are no effects on equity as there are no interest swaps. Annual Report 2020 | Financials and Notes | Akastor Group71 Guarantee obligations Based on estimates of incurred losses in respect of trade receivables The group has provided the following guarantees on behalf of subsidiaries and contract assets, the group establishes a provision for impairment and related parties as of December 31, 2020 (estimated remaining losses. Provisions for loss on debtors are based on individual assessments. exposure as of December 31, 2020): Provisions for loss on receivables were NOK 131 million in 2020 (NOK 49 Performance guarantees on behalf of group companies are NOK million in 2019). 0.7 billion (NOK 0.6 billion in 2019) The group evaluates that significant credit risk concentrations are related Performance guarantees on behalf of related parties NOK 2.6 exposure to credit risk at the reporting date equals the carrying amounts billion (NOK 3.4 million in 2019) of financial assets (see Note 32 Financial instruments) and contract assets (see Note 7 Revenue and other income). The group does not hold to trade receivables from major corporate customers. The maximum Parent company indemnity guarantees for fulfillment of lease collateral as security. obligations and finance obligations are NOK 3.4 billion (NOK 4.0 billion in 2019). Liquidity risk Financial guarantees including counter guarantees for bank/ the obligations associated with its financial liabilities. The group manages surety bonds and guarantees for pension obligations to its liquidity to ensure that it will always have sufficient liquidity reserves to employees are NOK 0.5 billion (NOK 0.7 billion in 2019). meet its liabilities when due. Liquidity risk is the risk that the group will encounter difficulty in meeting Although guarantees are financial instruments, they are considered Prudent liquidity risk management includes maintaining sufficient cash, contingent obligations and the notional amounts are not included in the the availability of funding from an adequate amount of committed credit financial statements. See more information about guarantees for related facilities and the ability to close out market positions. Due to the dynamic parties in Note 35 Related parties. nature of the underlying businesses, Akastor Treasury maintains flexibility in funding by maintaining availability under committed credit lines. Price risk The group is exposed to fluctuations in market prices in the operational The group policy for the purpose of optimizing availability and flexibility areas related to contracts, including changes in market prices for raw of cash within the group is to operate a centrally managed cash pooling materials, equipment and development in wages. These risks are to the arrangement. An important condition for the participants (business units) extent possible managed in bid processes by locking in committed prices in such cash pooling arrangements is that the group as an owner of such from vendors as a basis for offers to customer or through escalation pools is financially viable and is able to prove its capability to service its clauses with customers. Credit risk 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. Credit risk is the risk of financial losses to the group if customer or counterparty to financial investments/instruments fails to meet contractual obligations and arise principally from investment securities and receivables. Derivatives are only traded against approved banks. All approved banks have investment grade ratings. Credit risk related to investment securities and derivatives is therefore considered to be insignificant. Assessment of credit risk related to customers and subcontractors is an important requirement in the bid phase and throughout the contract period. Such assessments are based on credit ratings, income statement and balance sheet reviews and using credit assessment tools available (e.g. Dun & Bradstreet and Credit Watch). Sales to customers are settled in cash. Revenues are mainly related to large and long¬ term projects closely followed up in terms of payments up front and in accordance with agreed milestones. Normally, lack of payments is due to disagreements related to project deliveries and is solved together with the customer or escalated to the local authority. Annual Report 2020 | Financials and Notes | Akastor Group72 Financial liabilities and the period in which they mature The following is the remaining contractual maturities of financial liabilities at the reporting date. The amounts are gross and undiscounted and include contractual interest payments and exclude the impact of netting agreements. 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 2020 Borrowings 2) Lease liabilities Other non-current liabilities Derivative financial instruments Deferred settlement obligations Trade and other payables Total financial liabilities Financial guarantees 3) 2019 Borrowings 2) Lease liabilities Other non-current liabilities Derivative financial instruments Deferred settlement obligations Trade and other payables Total financial liabilities Financial guarantees 3) 24 33 25 31 25, 28 28 24 33 25 31 25, 28 28 1 746 1 895 592 210 37 274 1 537 4 396 732 239 37 274 1 537 4 714 37 84 2 28 11 1 266 1 429 1 172 76 2 1 68 272 54 125 5 8 67 - 568 219 227 - 128 - 64 228 2 - - - 1 590 258 7 175 294 5 382 1 448 1 639 677 203 22 272 2 176 4 798 847 203 22 272 2 176 5 159 8 538 39 84 23 (19) - 1 745 1 871 585 35 78 23 23 69 431 659 226 1 380 136 50 18 81 - 1 666 7 1 142 3 666 295 2 828 70 275 103 - 121 - 569 1 239 115 274 5 - - - 394 6480 1) Nominal currency value including interest. 2) The interest costs are calculated using the last fixing rate known by year end (plus applicable margin). 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 2020 | Financials and Notes | Akastor Group Note 31 | Derivative financial instruments The group uses derivative financial instruments such as currency forward contracts and currency options to hedge its exposure to foreign exchange arising from operational, financial and investment activities. In addition, there are embedded foreign exchange forward derivatives separated from ordinary commercial contracts. Further information regarding risk management policies in the group is available in Note 30 Financial risk management and exposures. Derivative financial instruments are classified as current assets or liabilities as they are a part of the operating cycle. The group is holding the following foreign exchange forward contracts: Amounts in NOK million 2020 Foreign exchanges forward contracts to hedge highly probable forecasted sales Notional amounts USD Average forward rate (USD/NOK) Foreign exchanges forward contracts to hedge highly probable forecasted purchases Notional amounts USD Average forward rate (USD/NOK) Notional amounts EUR Average forward rate (EUR/NOK) 2019 Foreign exchanges forward contracts to hedge highly probable forecasted sales Notional amounts USD Average forward rate (USD/NOK) Average forward rate (EUR/USD) Foreign exchanges forward contracts to hedge highly probable forecasted purchases Notional amounts USD Average forward rate (USD/NOK) Notional amounts EUR Average forward rate (EUR/NOK) 73 Maturity Total 6 months and less 6-12 months 1-2 years 8 9.05 22 9.13 153 36 12 243 46 28 123 8.72 36 8.91 9 - - 3 10.05 10.75 124 9.05 1.54 41 8.85 15 9.95 75 8.43 1.12 4 8.45 8 9.96 - - - - 45 8.37 - - - 4 10.05 Annual Report 2020 | Financials and Notes | Akastor Group74 Fair value of derivative instruments with maturity The table below presents the fair value of the derivative financial instruments and a maturity analysis of the derivatives cash flows. Amounts in NOK million 2020 Assets Cash flow hedges Embedded derivatives in ordinary commercial contracts Fair value adjustments to hedged assets Total forward foreign exchange contracts, assets Liabilities Cash flow hedges Fair value adjustments to hedged liabilities Total forward foreign exchange contracts, liabilities 2019 Assets Cash flow hedges Embedded derivatives in ordinary commercial contracts Fair value adjustments to hedged assets Total forward foreign exchange contracts, assets Liabilities Cash flow hedges Embedded derivatives in ordinary commercial contracts Fair value adjustments to hedged liabilities 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) 44 6 11 61 (27) (9) (37) 48 4 (10) 43 (55) (7) (3) (65) 44 6 11 61 (27) (9) (37) 48 4 (10) 43 (55) (7) (3) (65) 29 6 11 46 (19) (9) (28) 43 4 (10) 37 (9) (7) (3) (19) 4 - 4 (1) - (1) 4 - - 4 (27) - - (27) 11 - 11 (8) - (8) 1 - - 1 (19) - - (19) 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. Foreign exchange derivatives almost equal, opposite effect to profit and loss. In the table above, the Akastor entities hedge the group’s future transactions in foreign currencies derivatives hedging the embedded derivatives are included in Forward with external banks. The exposure to foreign exchange variations in future foreign exchange contracts - not hedge accounted. cash flows is hedged back-to-back in order to meet the requirements for hedge accounting. The foreign exchange derivatives are either subject to The hedged transactions in foreign currency that are subject to cash flow hedge accounting or separated embedded derivatives. Hedges qualifying hedge accounting are highly probable future transactions expected to for hedge accounting are classified as cash flow hedges (hedges of highly occur at various dates during the next one to four years, depending on probable future revenues and/or expenses). progress in the projects. Gains and losses on forward foreign exchange Embedded derivatives are foreign exchange derivatives separated from as hedging reserve in equity until they are recognized in the income construction contracts. The reason for separation is that the agreed statement in the period or periods during which the hedged transactions payment is in a currency different from any of the major contract parties’ affect the income statement. If the forward foreign exchange contract is own functional currency, or that the contract currency is not considered rolled due to change in timing of the forecasted cash flow, the settlement to be commonly used for the relevant economic environment defined as effect is included in Contract assets or Contract liabilities. contracts are recognized in other comprehensive income and reported the countries involved in the cross-border transaction. The embedded derivatives represent currency exposures, which is hedged against external banks. Since the embedded derivatives are measured and classified in the same way as their hedging derivatives, they will have an Annual Report 2020 | Financials and Notes | Akastor Group 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) 75 2020 8 (13) 21 2019 (6) 11 (17) The purpose of the hedging instrument is to secure a situation where of the value of the forward contracts have already affected the income the hedged item and the hedging instrument together represent a statement indirectly as revenues and expenses are recognized based on predetermined value independent of fluctuations of exchange rates. updated forecasts and progress. The positive NOK 21 million (negative Revenue and expense on the underlying construction contracts are NOK 17 million in 2019) that are currently recorded directly in the hedging recognized in the income statement in accordance with progress. reserve, will be reclassified to income statement over the next years. Consequently, negative NOK 13 million (positive NOK 11 million in 2019) Note 32 | Financial instruments Accounting classifications and fair values Level 2 - fair values are based on price inputs other than quoted prices The following table shows the carrying amounts and fair values of financial derived from observable market transactions in an active market for assets and financial liabilities, including their levels in the fair value identical assets or liabilities. Level 2 includes currency or interest hierarchy. It does not include fair value information for financial assets and derivatives and interest bonds, typically when the group uses forward financial liabilities not measured at fair value if the carrying amount is a prices on foreign exchange rates or interest rates as inputs to valuation reasonable approximation of fair value. For financial instruments measured models. at fair value, the levels in the fair value hierarchy are as shown below. Level 1 - fair values are based on prices quoted in an active market for internal assumptions used in the absence of quoted prices from an active identical assets or liabilitiess. market or other observable price inputs. Level 3 - Fair values are based on unobservable inputs, mainly based on Amounts in NOK million 2020 Financial assets measured at fair value Fair value – hedging instruments Derivative financial instruments Fair value through P&L (mandatorily at FVTPL) Equity securities Equity securities 1) Warrants Contingent considerations Fair value through Other comprehensive income Debt instruments 1) Financial assets not measured at fair value Financial assets at amortized cost Cash and cash equivalents Non-current interest-bearing receivables Trade and other receivables Financial assets Note Carrying amount Financial instruments measured at fair value Level in fair value hierarchy 31 18 18 18 17, 21 18 22 19 21 61 14 906 16 26 61 Level 2 14 906 16 26 Level 1 Level 3 Level 3 Level 3 533 533 Level 3 275 115 1 120 3 063 Annual Report 2020 | Financials and Notes | Akastor Group76 Amounts in NOK million Financial liabilities not measured at fair value Financial liabilities at amortized cost Borrowings 2) Other financial liabilities Other non-current liabilities Trade and other payables Financial liabilities measured at fair value Fair value – hedging instruments Derivative financial instruments Fair value through profit & loss Deferred settlement obligations Financial liabilities Amounts in NOK million 2019 Financial assets measured at fair value Fair value – hedging instruments Derivative financial instruments Fair value through P&L (mandatorily at FVTPL) Equity securities Equity securities 1) Warrants Contingent considerations Fair value through Other comprehensive income Debt instruments 1) Financial assets not measured at fair value Financial assets at amortized cost Cash and cash equivalents Current interest-bearing receivables Non-current interest-bearing receivables Trade and other receivables Financial assets Financial liabilities not measured at fair value Financial liabilities at amortized cost Borrowings 2) Other financial liabilities Other non-current liabilities Trade and other payables Financial liabilities measured at fair value Fair value – hedging instruments Derivative financial instruments Fair value through profit & loss Deferred settlement obligations Financial liabilities Note Carrying amount Financial instruments measured at fair value Level in fair value hierarchy 24 25 28 31 (1 746) (1 753) Level 2 (210) (1 537) (37) (37) Level 2 25, 28 (274) (3 804) (274) Level 3 Note Carrying amount Financial instruments measured at fair value Level in fair value hierarchy 31 18 18 18 17, 21 18 22 19 19 21 24 25 28 31 43 Level 2 47 904 79 69 Level 1 Level 3 Level 3 Level 3 613 Level 3 43 47 904 79 69 613 555 9 201 1 223 3 743 (1 448) (1 456) Level 2 (203) (2 176) (65) (65) Level 2 25, 28 (272) (4 164) (272) 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. 2) For credit facilities and other loans with floating interest, notional amounts are used as approximation of fair values. Annual Report 2020 | Financials and Notes | Akastor Group Reconciliation of Level 3 financial assets and financial liabilities Amounts in NOK million Balance as of December 31, 2018 Additions Settlements Net gain (loss) in the income statement Fair value through OCI Currency translation difference Balance as of December 31, 2019 Settlements Net gain (loss) in the income statement Fair value through OCI Currency translation difference Balance as of December 31, 2020 Measurement of fair values at level 3 Debt instruments at FVOCI 77 Assets Liabilities 1 458 2 (18) 207 17 (2) 1 665 (39) (96) (42) (8) 1 480 (408) - 204 (65) - (3) (271) 77 (78) - - (274) Contingent considerations and deferred settlement obligations Financial assets measured at FVOCI are related to debt instruments in NES These assets and liabilities relate to contingent considerations and Fircroft. The valuation model considers the present value of the expected obligations from business acquisitions and disposals. Final amounts cash flows from the ultimate disposal of the investments weighted with to be paid or received depend on future earnings in the acquired and different probabilities. The expected disposal value is determined by disposed companies or outcome of indemnity claims and price adjustment forecast EBITDA at the time of disposal and market multiples, adjusted by mechanisms. forecast net debt of the investee. The estimated fair value would increase (decrease) if: Assets and liabilities depending on future earnings: The recognized amounts are determined based on recent forecasts The forecast EBITDA were higher (lower); and strategy figures for these entities, thus the final realized values are sensitive to the above inputs as driven by market The market multiples applied were higher (lower); or conditions. The net debt of the investees at the date of disposal were lower Assets and liabilities depending of outcome of indemnity claims (higher). Financial assets at FVTPL and price adjustment mechanisms: Provisions are made based on all available evidence as at the reporting date. Financial assets measured using Level 3 inputs relate mainly to preferred The credit exposure on the Level 3 asset is limited to the amount equity and warrant investment in Odfjell Drilling. recognized and the credit risk is not considered to be significant due to the nature of the arrangement. Preferred equity: The valuation model considers the present value of the expected future payments, discounted using a risk- adjusted discount rate of 10%. The estimated fair value would increase (decrease) if the risk-adjusted discount rate were lower (higher). Warrants: The valuation is obtained from external valuation experts, using a Monte Carlo simulation model where the simulated stock prices are based on a lognormal stock price model assumed to follow a Geometric Brownian Motion. The key inputs to the valuation model consist of the stock price of Odfjell Drilling (listed on the Oslo Stock Exchange under ticker ODL) at the valuation date, as well as assumption of future volatility based on the share’s historical prices. The estimated fair value is mostly sensitive to the ODL share price and would increase (decrease) if the ODL share price were higher (lower). Annual Report 2020 | Financials and Notes | Akastor Group78 Note 33 | Leases Group as lessee The group applies the short-term lease recognition exemptions for leases The group has property leases on a number of locations worldwide. The of property or machinery with lease term of 12 months or less. Leases of leases typically run for a period of 3-10 years and some of the leases IT equipment and office equipment are considered as leases of low-value have extension options. The group has also lease agreements related to assets. The right-of-use assets and lease liabilities are not recognized for cars, machinery, IT equipment and office equipment. These leases have short-term leases or leases of low-value assets. an average lease period of 2-3 years, generally with no renewal options included. Right-of-use assets Amounts in NOK million Balance as of January 1 Additions Additions through business combinations Depreciation Impairment Remeasurement Currency translation differences Balance as of December 31 The right-of-assets are mainly related to leases of properties. Lease liabilities Amounts in NOK million Balance as of January 1 Cash payments Additions Additions through business combinations Remeasurement Currency translation differences Balance as of December 31 Current lease liabilities Non-current lease liabilities Lease payments recognized in the income statement Amounts in NOK million Expenses related to short term leases Expenses related to leases of low-value items Total Lease payments recognized in statement of cash flow Amounts in NOK million Total cash outflow for leases The lease agreements do not impose any covenants or restrictions. Note 2020 2019 537 43 - (113) (4) (1) 5 468 522 121 51 (96) (9) (53) 1 537 Note 2020 2019 29 677 (139) 43 - 707 (151) 121 51 6 (53) 5 592 159 433 1 677 160 516 2020 2019 11 104 115 81 103 184 2020 (279) 2019 (339) Some property leases contain extension or termination options exercisable Most extension options in offices leases have not been included in the lease before the end of the non-cancellable period. They are used to maximize liability, because the group expects to be able to replace the assets without operational flexibility in terms of managing the assets used in the group’s significant cost or business disruption. Most of the early termination operations. The extension and termination options held are exercisable options are not considered in the lease term either as the group assesses only by the group and not by the respective lessor. The group assesses at it as reasonably certain that the leases will not be terminated early. If the lease commencement date whether it is reasonably certain to exercise the group had exercised the extension options in significant property leases extension or termination options. as of December 31, 2020, the group estimates potential future lease Annual Report 2020 | Financials and Notes | Akastor Group79 payments (undiscounted) of approximately NOK 420 million, which are Finance leases not included in the lease liabilities. Some of the subleases of right-of-use assets are classified as finance lease, with reference to the right-of-use assets arising from the head leases. Group as lessor The group subleases out some of the property leases which are presented The following table sets out a maturity analysis of finance lease receivables, as part of the right-of-use assets as well as some machinery. showing the undiscounted lease payments to be received after the reporting date. Amounts in NOK million Due within one year Due in one to two years Due in two to three years Due in three to four years Due in four to five years Total undiscounted lease receivable Unearned interest income Total finance lease receivables Current finance lease receivables Non-current finance lease receivables Operating leases 2020 2019 7 7 7 5 - 25 2 23 7 15 9 5 5 5 5 28 4 25 9 16 Most of the subleases are classified as operating leases except for the finance leases identified above. The lease income from subleasing right-of-use assets in 2020 was NOK 30 million (NOK 73 million in 2019). The following table sets out future undiscounted sublease income under the non-cancellable lease periods. Amounts in NOK million Due within one year Due in one to two years Due in two to three years Due in three to four years Due in four to five years Due in more than five years Total Note 34 | Group companies 2020 2019 49 10 3 3 3 8 75 38 14 3 3 3 10 70 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 MHWirth Pty Ltd MHWirth do Brasil Equipamentos Ltda MHWirth Canada Inc MHWirth Offshore Petroleum Engineering (Shanghai) Co Ltd MHWirth GmbH MHWirth (India) Pvt Ltd MHWirth Sdn Bhd 1) Drilltech AS 2) Country Norway Australia Brazil Canada China Germany India Malaysia Norway Ownership (%) 2020 2019 100 100 100 100 100 100 - - 100 100 100 100 100 100 100 100 Annual Report 2020 | Financials and Notes | Akastor Group80 Maritime Promeco AS 2) MHWirth AS Frontica Engineering AS 3) MHWirth Singapore Engineering Management Pte Ltd MHWirth (Singapore) Pte Ltd MHWirth UK Ltd MHWirth FZE MHWirth Inc Bronco Manufacturing LLC Step Oiltools (Australia) Pty Ltd Step Oiltools GmbH PT Step Oiltools Step Oiltools LLP Step Oiltools (M) Sdn Bhd Step Oiltools BV Step Oiltools AS Step Oiltools Services LLC Step Oiltools LLC Step Oiltools Pte Ltd Step Oiltools (Thailand) Ltd Step Oiltools (UK) Ltd Step Oiltools FZE AGR4) AGR (Australia) Pty Ltd AGR AS AGR Petroleum Services AS AGR Software AS AGR Consultancy Services AS First Geo AS 5) AGR Mexico Well Management S. de R. L. de C. V AGR Well Management Ltd AGR Consultancy Solutions Ltd AGR Group Americas, Inc. OTHER COMPANIES Zoetermeer Process Belgium NV/SA 1) Frontica Global Employment Ltd Cool Sorption A/S Well Systems Servicing Ltd AKA SPH AS DDW Offshore AS Akastor AS Akastor Real Estate AS KOP Surface Products Singapore Pte Ltd Aker Cool Sorption Siam Ltd Frontica Business Solutions Ltd AK Pharmaceuticals LLC 1) AK Willfab Inc AKOFS Angola Limitada Norway Norway Norway Singapore Singapore UK UAE USA USA Australia Germany Indonesia Kazakhstan Malaysia Netherlands Norway Oman Russia Singapore Thailand UK UAE Australia Norway Norway Norway Norway Norway Mexico UK UK USA Belgium Cyprus Denmark Nigeria Norway Norway Norway Norway Singapore Thailand UK USA USA Angola - 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 67 100 100 100 100 100 64 64 64 58 64 - 64 64 64 64 - 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 67 100 100 100 100 100 55 55 55 43 55 100 54 55 55 55 100 100 100 100 100 50 100 100 100 100 100 100 100 100 1) Liquidated in 2020. 2) Merged into MHWirth AS in 2020. 3) Demerged from MHWirth AS in 2020. 4) Akastor holds 100 percent of the shares and 64 percent of the economic interests. 5) Merged into AGR Petroleum Services AS in 2020. 6) MHWirth UK Ltd. (registered number 01753931), STEP Oiltools (UK) Ltd. (registered number SC412738) and Frontica Business Solutions Ltd (registered number 4962691) are exempted from the requirements of the Companies Act 2006 relating to the audit of individual accounts by virtue of section 479A of the Companies Act 2006, UK. Annual Report 2020 | Financials and Notes | Akastor Group81 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 36 Management remunerations. position to enter into transactions with the company that would not be undertaken between unrelated parties. All transactions with related The largest shareholder of Akastor, Aker Holdings AS (previously Aker parties to Akastor have been based on arm’s length terms. Kværner Holding AS), is wholly-owned by Aker ASA, which in turn is controlled by Kjell Inge Røkke through TRG Holding AS and The Resource Akastor ASA is a parent company with control of around 50 companies Group TRG AS. In December 2020, the previous common ownership in around the world. These subsidiaries are listed in Note 34 Group Aker Holdings AS between Aker ASA and the Norwegian government companies. Any transactions between the parent company and the was dissolved. As a consequence of the dissolution, Aker ASA is no longer subsidiaries are shown line by line in the separate financial statements deemed to control Akastor or Aker Solutions. Akastor is an associate to of the parent company, and are eliminated in the consolidated financial Aker ASA as per year end 2020. statements. Joint ventures and associates are consolidated using the equity method, no longer related parties of Akastor as of December 31, 2020. These see Note 16 Equity-accounted investees. Transactions between the group companies were considered as related parties to Akastor in 2019 and and these entities are shown in the table below. referred as “Aker entities” in the table below. The entities controlled Aker Solutions and Aker BP, which are associates of Aker ASA, are directly by Kjell Inge Røkke through TRG Holding AS and The Resource Group TRG AS, are referred as “Related parties to Aker ASA”. Summary of transactions and balances with significant related parties Amounts in NOK million Income statement Revenue Operating expenses Depreciation and impairment (ROU assets) Net financial items Assets (liabilities) Right-of-use assets Finance lease receivables Interest-bearing receivables Trade receivables Trade payables Lease liabilities 2020 2019 Aker entities 1) Joint ventures Total Aker entities Joint ventures Total 146 (53) (26) (5) - - - - - - 8 - - 16 - 94 1 - 154 (53) (26) 11 - - 94 1 - - 210 (16) (26) (4) 49 22 - 32 (11) (87) 14 - - 29 - - 191 2 - - 224 (16) (26) 25 49 22 191 34 (11) (87) 1) Aker entities are not considered as related parties to the group as of December 31, 2020. The information shown is related to the periods prior to the date when Akastor became an associate to Aker ASA. Below are descriptions of significant related party agreements. a guarantee commission to Akastor. Related party transactions with Aker entities Several of the agreements addressing various separation issues Aker Solutions between Akastor and Aker Solutions are still valid after the Akastor has entered into a number of agreements and arrangements with demerger in 2014, including secondary joint liability for obligations Aker Solutions, including: existing in Aker Solutions at the time of the demerger, yet limited in amount to the net value allocated to Akastor in the demerger. Various lease agreements from Akastor Real Estate AS and other Akastor companies to subsidiaries of Aker Solutions. Aker BP Some parent company guarantees issued on behalf of Aker in Stavanger, Norway, to Aker BP. In 2017, Akastor Real Estate AS entered into agreement to sublease offices Solutions entities by Akastor (as their previous parent company) were not transferred in connection with the demerger of Aker Solutions in 2014. Aker Solutions is liable to indemnity Akastor for any rightful claim such parent company guarantees and to pay Annual Report 2020 | Financials and Notes | Akastor Group82 Agreements with related parties to Aker ASA The Resource Group TRG AS Other related parties Aker Pensjonskasse MHWirth AS, a wholly owned subsidiary of Akastor, entered into long-term Aker Pensjonskasse was established by Aker ASA to manage the lease agreements in 2015 with subsidiaries of The Resource Group TRG retirement plan for employees and retirees in Akastor as well as related AS, for properties in Kristiansand in Norway. The annual lease payment Aker companies. Akastor holds 93.4 percent of the paid-in capital in Aker is approximately NOK 22 million for a lease period of 19 years starting Pensjonskasse and Akastor’s share of paid-in equity was NOK 158 million October 1, 2015, with options for renewal. at the end of 2020 (NOK 158 million in 2019). Akastor’s premium paid to AK Wilfab Inc, a wholly owned subsidiary of Akastor, is together with Aker in 2019). Akastor also has an interest-bearing receivable against Aker Solutions Inc and The Resource Group TRG AS sponsoring the US pension Pensjonskasse of NOK 21 million and an additional financing commitment plan named the Kvaerner Consolidated Retirement Plan. Akastor holds NOK 10 million (3% interest of drawn amount and 1% interest of committed Aker Pensjonskasse amounts to NOK 7 million in 2020 (NOK 8 million one third of the liability of the sponsors for the underfunded element of amount). the plan and The Resource Group TRG AS holds two thirds of the ultimate liability. Aker ASA guarantees for The Resource Group TRG AS’ liability Even though Akastor owns 93.4 percent in Aker Pensjonskasse, the and covers for all its expenses related to the pension plan. ownership does not constitute control since Akastor does not have the power to govern the financial and operating policies so as to obtain Fornebuporten Næring 3 AS benefits from the activities in this entity. Akastor leases its headquarter offices at Fornebu from Fornebuporten Næring 3 AS, an associated company of The Resource Group TRG AS. Grants to employee representative’s collective fund The contract term is 10 years starting August 31, 2015, with two additional Aker ASA has signed an agreement with employee representatives five-year options. that regulate use of grants from Akastor ASA for activities related to professional development. The grant in 2020 was NOK 510 000 (NOK Related party transactions with joint ventures 521 250 in 2019). DOF Deepwater AS In October 2020, DDW Offshore AS (previously DOF Deepwater AS) became a wholly owned subsidiary of the group. See Note 5 Business Combinations for more information. AKOFS Offshore As of December 31, 2020, Akastor has interest-bearing receivables of NOK 94 million against AKOFS Offshore, including term loan of NOK 79 million (LIBOR 0.21 percent + margin 5.5 percent) and drawn working capital facility of NOK 15 million (NIBOR 0.53 percent + margin 5.5 percent). Akastor has made available a NOK 100 million working capital revolving facility to AKOFS Seafarer AS from contract commencement with Equinor. As part of the joint venture shareholders agreement, the other two investors, Mitsui and MOL, are entitled to a guaranteed preferred equity return, in respect of the operations of AKOFS Seafarer, amounting to a total of USD 46 million over a 6 year’s period. The payment of preferred return will be settled firstly by ordinary dividend from AKOFS Offshore, yet any shortfall is guaranteed by Akastor. Akastor ASA has issued a bank guarantee for payment of preferred return for a total amount of NOK 244 million. Akastor has issued a financial guarantee of NOK 127 million in favour of finance institutions for fulfilment of lease obligations related to Avium Subsea AS. Akastor has issued a financial parent company indemnity guarantee of NOK 1.6 billion in favour of OCY Wayfarer Limited for fulfilment of lease obligations related to AKOFS 3 AS. In addition, Akastor is guaranteeing the performance of AKOFS Norway Operations AS (operating AKOFS Seafarer) under the 5 year charter agreement with Equinor. The total contract value of this charter agreement is NOK 2.6 billion. Avium Subsea AS, AKOFS 3 AS and AKOFS Seafarer AS are wholly owned subsidiaries of AKOFS Offshore. Annual Report 2020 | Financials and Notes | Akastor Group 83 Note 36 | 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 Kristian Monsen Røkke Øyvind Eriksen (until April 15, 2020) Svein Oskar Stoknes (from April 15, 2020) Lone Fønss Schrøder1) Kathryn Baker Sarah Ryan 1) Stian Sjølund Henning Jensen Asle Christian Halvorsen Total 2020 Audit Committee fees - - 205 000 115 000 - - 115 000 - Board fees 600 000 97 808 242 192 452 500 340 000 372 300 170 000 170 000 170 000 2019 Audit Committee fees - - - 205 000 115 000 - - 115 000 - Board fees 600 000 340 000 - 490 000 340 000 395 600 170 000 170 000 170 000 435 000 2 614 800 435 000 2 675 600 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 are The main purpose of the executive remuneration is to encourage a strong paid to the Aker companies, not to the directors in person. Therefore, board and sustainable performance-based culture, which supports growth in fees for Kristian Monsen Røkke, Øyvind Eriksen and Svein Oskar Stoknes shareholder value. It is also considered important to provide competitive were paid to Aker ASA. Audit Committee terms that helps to retain key personnel and executive management and in turn mitigate the risk that core qualification and experience is lost by key people leaving the company. Compensation to the executive management Akastor has an audit committee comprising three of the directors, which has a fixed element which includes a base salary which pursuant to the held 9 meetings in 2020. As of December 31, 2020, the audit committee company’s benchmarking is competitive with other investment companies. comprises Lone Fønss Schrøder (chairperson), Kathryn M. Baker and In addition, the executive management has variable remuneration, as Henning Jensen. further described below. All variable pay shall be subject to a cap. Policy on remuneration to the members of the executive The remuneration to the CEO is recommended by the chairman of the management of Akastor board and approved by the board of directors on an annual basis. The As of December 31, 2020, the executive management of Akastor remuneration to the remaining executive management shall be approved comprised the company’s CEO Karl Erik Kjelstad and CFO Øyvind Paaske. by the CEO, in consultation with the chairman of the board, and informed All personnel are employed under standard employment contracts with to the board of directors of Akastor ASA on an annual basis. terms and conditions consistent with industry standard, including on issues such as notice period and severance pay in the event of termination. In The figures for the remuneration for the executive management represent accordance with statutory law, the company may request the resignation what has been expensed in the year. of the CEO at its own discretion, but will be obliged to pay severance payment in the amount of 6 months’ salary from the expiry of the notice period. Annual Report 2020 | Financials and Notes | Akastor Group84 Amounts in NOK 2020 Karl Erik Kjelstad Leif Borge 4) Øyvind Paaske 5) Total 2019 Karl Erik Kjelstad Leif Borge Total Job title Base salary Variable pay 1) Other benefits 2) Total taxable remuneration Pension benefit earned/ cost to company 3) CEO CFO CFO 4 692 123 2 336 040 694 902 1 651 315 - 840 000 27 715 4 504 22 415 7 055 878 699 406 2 513 731 7 038 340 3 176 040 54 634 10 269 014 CEO CFO 4 631 731 3 719 523 2 336 040 1 667 764 8 351 254 4 003 804 30 164 31 748 61 912 6 997 935 5 419 035 12 416 970 265 171 44 844 154 936 464 951 248 892 257 965 506 857 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 disability pension scheme and certain management pension rights related to the wound up schemes and early retirement schemes. 4) For the period between January 1 and February 29, 2020. 5) For the period between March 1 and December 31, 2020. Benefits Further, the executive management may be offered additional variable pay The executive management participates in the standard employee, arrangements going forward which differs from the ordinary variable pay pension and insurance plan applicable to all employees in the company. program described above. These variable pay arrangements offered to the No executive personnel in Akastor has performance based pension plans executive management may in its entirety be linked to the development and there are no current loans, prepayments or other forms of credit from of the company’s share price, the achievement of certain key targets and/ the company to its executive management. No members of the executive or long term employment with the company. Such agreements, including management are part of any option- or incentive programs other than any payments under them and/or material changes, are proposed by the what is described in this policy. chairman and approved by the board. Performance based remuneration Share purchase program In addition to receiving fixed compensation, the executive management The company had no share purchase program in 2020. The executive (as well as other members of the corporate organization) participates in management were invited to participate in Akastor’s share purchase a variable pay program. The objective of the program is to incentivize the programs in 2019. The ordinary employee share purchase program gave management to contribute to sound financial results for the company, the executive management the opportunity to purchase maximum 250 recruit and retain key personnel as well as executing leadership in 000 shares for CEO and CFO with a reduction of 25 percent in addition accordance with the company’s values and business ethics. The potential to NOK 3 000. Shares purchased under the programs is subject to a three payment under the variable pay program is set individually, with 100 year lock-up period during which the acquired shares may not be sold or percent of the annual base salary as the maximum. Payment under the otherwise disposed of. program is recommended by the CEO and approved by the board on an annual basis. The payments under the variable pay program are subject to a discretionary assessment based on three components: Development of Akastor ASA’s share price. Delivery of certain key financial, operational and strategic targets for Akastor. Delivery of personal performance objectives during the year. Annual Report 2020 | Financials and Notes | Akastor Group 85 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: Karl Erik Kjelstad Øyvind Paaske Kristian Monsen Røkke Lone Fønss Schrøder Svein Oskar Stoknes Kathryn Baker Sarah Ryan Asle Christian Halvorsen Stian Sjølund Job title CEO CFO Chairman Deputy chairman Director Director Director Director Director 2020 2019 400 000 5 083 200 000 4 400 1 297 45 683 5 000 10 000 10 000 300 000 - 200 000 4 400 - 45 683 5 000 10 000 10 000 Note 37 | Events after the reporting date On March 2, 2021, Akastor announced an agreement with Baker Hughes The transaction agreement entered into by Akastor and Baker Hughes to create a joint venture company (Company) that will bring together provides for customary terms for agreements of this nature, including Akastor’s wholly owned subsidiary, MHWirth AS (MHWirth) and Baker representations and warranties relating to the businesses being Hughes’ Subsea Drilling Systems (SDS) business. The Company will deliver contributed as well as an agreed form shareholders agreement customary a global full-service offshore drilling equipment offering that will provide for a 50/50 joint venture, including governance and exit provisions. customers with a broad portfolio of products and services. Completion of the transaction is subject to customary conditions, including The Company shall be owned 50/50 by Akastor and Baker Hughes. Akastor the second half year of 2021. Following completion of the transaction, it shall contribute its shares in MHWirth to the Company in return for 50% of is expected that Akastor shall account for the Company as a joint venture regulatory approval. Closing of the transaction is expected to take place in the shares of the Company and USD 120 million in consideration, of which using the equity method. USD 100 million is payable in cash at closing. Baker Hughes shall contribute the SDS business to the Company in return for the other 50% of the shares The transaction will require the refinancing of Akastor’s existing corporate and USD 200 million in consideration, of which USD 120 million is payable credit facility. Akastor has received commitments for a total of NOK 1 250 in cash at closing. The Company shall issue notes to Akastor and Baker million in revolving credit facilities that will be entered into prior to closing Hughes representing the balance of the consideration owed to them. The of the transaction. notes shall be subordinated to the Company’s external debt financing. The Company will finance the cash consideration payable to Baker Hughes and Akastor by way of a USD 220 million bank facility. In addition, the Company will also be financed by a USD 80 million working capital facility. Annual Report 2020 | Financials and Notes | Akastor Group86 04. FINANCIALS AND NOTES b. AKASTOR ASA Akastor ASA | Income statement Akastor ASA | Statement of financial position Akastor ASA | Statement of cash flow Note 1 | Accounting principles Note 2 | Operating revenue and expenses Note 3 | Net financial items Note 4 | Tax Note 5 | Investments in group companies Note 6 | Shareholders’ equity Note 7 | Receivables and borrowings from group companies Note 8 | Borrowings Note 9 | Guarantees Note 10 | Financial risk management and financial instruments Note 11 | Related parties Note 12 | Shareholders 86 87 88 89 90 90 91 91 92 92 93 94 95 95 96 Annual Report 2020 | Financials and Notes | Akastor ASAFinancials and Notes | Akastor ASA 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 87 Note 2020 2019 2 2 3 4 1 1 (36) (35) 780 745 (21) 724 724 724 (31) (30) (37) (67) (1) (67) (67) (67) Annual Report 2020 | Financials and Notes | Akastor ASA 88 Akastor ASA | Statement of financial position For the year ended December 31 Amounts in NOK million Assets Investments in group companies Non-current interest-bearing receivables on group companies Non-current interest-bearing receivables on related parties Other non-current interest-bearing receivables Total non-current assets Current interest-bearing receivables on group companies Other receivables on group companies 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 Other current liabilities Total current liabilities Total liabilities Total equity and liabilities Note 2020 2019 5 7 7 7 7 7 6 8 4 8 7 7 5 650 5 310 891 - 819 115 4 2 6 545 6 246 2 5 1 - - 3 316 321 6 549 6 567 162 162 (1) (1) 2 000 2 000 2 003 2 003 894 168 5 057 4 331 - - - 1 284 14 1 298 1 119 324 1 36 12 1 491 1 491 6 549 3 882 1 30 21 937 2 235 6 567 Fornebu, March 18, 2021 I Board of Directors of Akastor ASA Kristian Røkke | Chairman Lone Fønss Schrøder | Deputy Chairman Svein Oskar Stoknes | Director Kathryn M. Baker | Director Sarah Ryan | Director Henning Jensen | Director Asle Christian Halvorsen | Director Stian Sjølund | Director Karl Erik Kjelstad | CEO Annual Report 2020 | Financials and Notes | Akastor ASA Akastor ASA | Statement of cash flow For the year ended December 31 Amounts in NOK million Profit (loss) before tax Adjustments: Group contribution and dividend Net interest cost and unrealized currency (income) loss Profit (loss), net of adjustments Changes in net operating assets Net interest paid Net cash from operating activities Change in borrowings to related parties Net cash from investing activities Proceeds from borrowings Repayment of borrowings Changes in borrowings to group companies Change in overdraft cash pool Proceeds from employees share purchase programme Repayment of external dividends 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 1.5 billion as of December 31, 2020 (NOK 1.6 billion in 2019). 89 Note 2020 2019 745 (67) 3 (750) - 5 (1) (6) (43) (49) - - 227 (316) 430 (559) - 2 82 15 (24) (54) (63) 142 142 1 135 (450) (2) (436) 4 - (216) 251 (51) (14) (316) 316 7 316 - - 316 Annual Report 2020 | Financials and Notes | Akastor ASA 90 Note 1 | Accounting principles Akastor ASA (the parent company) is a company domiciled in Norway. Cash in cash pool system The financial statements are presented in conformity with Norwegian Akastor ASA has a cash pool that includes the parent company’s cash as Accounting Act and Norwegian generally accepted accounting principles well as net deposits from subsidiaries in the group cash pooling system (NGAAP). owned by the parent company. Correspondingly, Akastor ASA’s current debt to group companies will include their net deposit in the group’s cash Revenue recognition pool system. Operating revenue mainly comprise parent company guarantees (PCG) recharged to entities within the group. The revenue is recognized over the Share capital guarantee period. Investments in subsidiaries Costs for purchase of own shares including transaction costs are accounted for directly against equity. Sales of own shares are performed according to stock-exchange quotations at the time of award and accounted for as Investments in subsidiaries are measured at cost in the parent company increase in equity. accounts, less any impairment losses. The investments are impaired to fair value if the impairment is not considered temporary. Impairment losses Cash flow statement are reversed if the basis for the impairment loss is no longer present. The statement of cash flow is prepared according to the indirect method. Investments in subsidiaries and associates are reviewed for impairment Cash and cash equivalents include cash, bank deposits and other short- whenever events or changes in circumstances indicate that the carrying term liquid investments. amount may exceed the fair value of the investment. Dividends, group contributions and other distributions from subsidiaries The parent company’s financial statements are presented in NOK, which are recognized as income the same year as they are recognized in the is Akastor ASA’s functional currency. All financial information presented in financial statement of the provider. If the dividends or group contributions NOK has been rounded to the nearest million (NOK million), except when exceed withheld profits after the acquisition date, the excess amount otherwise stated. The subtotals and totals in some of the tables in these represents repayment of invested capital, and is recognized as a reduction financial statements may not equal the sum of the amounts shown due of carrying value of the investment. to rounding. Functional currency and presentation currency Classification Foreign currency Current assets and current liabilities include items due within one year or Transactions in foreign currencies are translated at the exchange rate items that are part of the operating cycle. Other balance sheet items are applicable at the date of the transaction. Monetary items in a foreign classified as non-current assets/debts. currency are translated to NOK using the exchange rate applicable on the balance sheet date. Foreign exchange differences arising on translation are Non-current borrowings are presented as current if a loan covenant recognized in the income statement as they occur. breach exists at balance date. If a covenant waiver is approved subsequent to year-end and before the approval of the financial statements, the Tax liability is presented as non-current debt to the extent maturity date is Tax income (expense) in the income statement comprises current tax, beyond one year. withholding tax and changes in deferred tax. Deferred tax is calculated as 22 percent of temporary differences between accounting and tax values Measurement of borrowings and receivables as well as any tax losses carry-forward at the year end. Net deferred tax Financial assets and liabilities consist of investments in other companies, assets are recognized only to the extent it is probable that they will be trade and other receivables, interest-bearing receivables, cash and cash utilized against future taxable profits. equivalents, trade and other payables and interest-bearing borrowing. Trade receivables and other receivables are recognized in the balance sheet at nominal value less provision for expected losses. Interest-bearing borrowings are initially recorded at transaction value less transaction costs. Subsequent to initial recognition, these borrowings are measured at amortized cost with any difference between cost and redemption value being recognized in the income statement over the period of the borrowings on an effective interest basis. Annual Report 2020 | Financials and Notes | Akastor ASA91 Note 2 | Operating revenue and expenses Operating revenue comprises NOK 1 million in income from parent NOK 3.0 million has been allocated to payable fees to the Board of Directors company guarantees (NOK 1 million in 2019). for 2020 (2019: NOK 3.2 million). Remuneration to and shareholding of the Board of directors and CEO is described in note 36 Management There are no employees in Akastor ASA and hence no salary or pension remunerations in Akastor’s consolidated financial statements. related costs and also no loan or guarantees related to the executive management team. Group management and corporate staff are employed Fees to the auditors by other Akastor companies and costs for their services as well as other Fees to KPMG for statutory audit amounted to NOK 2.5 million (2019: 2.5 parent company costs are recharged to Akastor ASA. million). Note 3 | Net financial items Amounts in NOK million Interest income from group companies Interest income from related parties Interest income, external Interest expense, external Income on investment in subsidiary (group contribution) Dividends from group companies Other financial expenses Foreign exchange gain (loss) Net financial items Note 2020 2019 43 4 37 (85) 250 500 (2) 33 780 44 24 31 (117) - - (2) (17) (37) Annual Report 2020 | Financials and Notes | Akastor ASA92 Note 4 | Tax Amounts in NOK million Calculation of taxable income Profit (loss) before tax Permanent differences 1) Changes in timing differences Group contribution without tax effect Generated (utilized) tax loss Taxable income Taxable (deductible) temporary differences Provisions Interest deduction carry-forward Tax loss carry-forward 2) Net temporary differences Tax rate Tax effects of temporary differences Not recognized deferred tax assets 3) Deferred tax assets (liability) Tax expense Origination and reversal of temporary differences in income statement Write down of deferred tax assets Income tax benefit (expense) 2020 2019 745 (500) 2 (160) (88) - (9) (5) - (15) 22% 3 (3) - (18) (3) (21) (67) 5 - - 61 - (7) - 72 66 22% (14) - (14) (1) - (1) 1) Permanent differences in 2020 relate to dividend income from group companies. 2) Akastor ASA has unrecognized tax loss carry forwards of NOK 440 million as of 2020 which is currently being subject to inquiries from Norwegian Tax Authorities. In 2019, the company had unrecognized tax loss carry-forwards of NOK 1.5 billion, of which NOK 1 015 million was subject to inquiries from Norwegian Tax Authorities. 3) Deferred tax assets are not recognized when the management assesses that it is not probable that future taxable profit will be available, against which the deductible temporary difference can be utilized. Note 5 | Investments in group companies Amounts in NOK million Akastor AS 1) Total Registered office Share capital Number of shares held Percentage owner- / voting share Fornebu, Norway 1 004 1 100% 2020 2019 5 650 5 650 5 310 5 310 1) Shareholding in Akastor AS was increased in 2020 by a contribution-in-kind of NOK 340 million. Akastor AS financial information (unaudited) Amounts in NOK million Profit (loss) for the period Equity as of December 31 2020 1 517 7 201 Annual Report 2020 | Financials and Notes | Akastor ASA 93 Note 6 | Shareholders’ equity Amounts in NOK million Share capital Treasury shares Share premium Other paid in capital Retained earnings Equity as of January 1, 2019 Employee share purchase programme Profit (loss) for the period Equity as of December 31, 2019 Repayment of dividends Profit (loss) for the period 162 - - 162 - - (2) 2 000 2 003 - - - - - - (1) 2 000 2 003 - - - - - - Equity as of December 31, 2020 162 (1) 2 000 2 003 231 4 (67) 168 2 724 894 Total 4 395 4 (67) 4 331 2 724 5 057 The share capital of Akastor ASA is divided into 274 000 000 shares with share purchase program for employees, as settlement in future corporate a nominal value of NOK 0.592. The shares can be freely traded. See note acquisitions or for other purpose as decided by the board of directors. 12 Shareholders for an overview of the company's largest shareholders. 386 161 treasury shares were sold during 2019 in relation to the Employee share purchase programme. The number of treasury shares held by the end of 2020 are 2 390 215 and are held for the purpose of being used for future awards under any Note 7 | Receivables and borrowings from group companies and related parties Amounts in NOK million Group companies deposits in the cash pool system Akastor ASA's net borrowings in the cash pool system Cash in cash pool system Non-current interest-bearing receivables on group companies Current interest-bearing receivables on group companies Current borrowings from group companies 1) Net interest-bearing receivables on group companies Other receivables on group companies Other liabilities to group companies Total other receivables on group companies Non-current interest-bearing receivables on related parties Total interest-bearing receivables on related parties 1) Includes Akastor ASA’s net borrowings in the cash pool system. 2020 2019 324 (324) 882 (566) - 316 891 2 (324) 569 1 (36) (35) - - 819 5 (882) (58) - (30) (30) 115 115 Interest-bearing receivables on and borrowings from group cash pool is vested in the group’s policy and decided by each company’s companies board of directors and confirmed by a statement of participation. The Akastor ASA is the group’s central treasury function (Akastor Treasury) and participants in the cash pool system are jointly and severally liable and it enters into borrowings and deposit agreements with group companies. is therefore important that Akastor as a group is financially viable and can Deposits and borrowings are done at market terms and are dependent repay deposits and carry out transactions. Any debit balance on a sub of the group companies’ credit rating and the duration of the borrowings. account can be set-off against any credit balance. Hence, a debit balance represents a claim on Akastor ASA and a credit balance a borrowing from Cash pool arrangement Akastor ASA. Akastor ASA is the owner of the cash pool system arrangements with DNB. The cash pool systems cover a majority of the group geographically The cash pool system has a net cash of NOK 0 million as of December 31, and assure good control and access to the group’s cash. Participation in 2020 (net cash of NOK 316 million in 2019). the Annual Report 2020 | Financials and Notes | Akastor ASA 94 Note 8 | Borrowings Amounts in million Currency Nominal currency value Carrying amount (NOK) Interest rate Interest margin 1) Interest coupon Maturity 2) Interest terms 2020 Revolving credit facility (NOK 1 250 million) Revolving credit facility (USD 155 million) Total borrowings Current borrowings Total 2019 Revolving credit facility (NOK 1 250 million) Revolving credit facility (USD 155 million) Total borrowings Current borrowings Non-current borrowings Total NOK 350 347 0.39% 3.25% 3.64% Dec 2021 NIBOR + margin 0.15% 3.25% 3.40% Dec 2021 USD LIBOR + margin USD 90 772 1 119 1 119 1 119 NOK 800 794 1.65% 3.25% 4,90% Dec 2021 NIBOR + margin 1.71% 3.25% 4.96% Dec 2021 USD LIBOR + margin USD 56 494 1 287 3 1 284 1 287 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 35 percent of the margin (2019: 35 percent). 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 covenants are monitored on a regular basis by the Akastor Treasury Nordic and international banks. The terms and conditions include department to ensure compliance with the loan agreements and are restrictions which are customary for these kinds of facilities, including inter tested and reported on a quarterly basis. Akastor was not in breach alia negative pledge provisions and restrictions on acquisitions, disposals with any covenants as of December 31, 2020. Based on current financial and mergers and change of control provisions. The facilities include no forecasts, there is a risk of breaching the ICR covenant in the first quarter dividend restrictions. of 2021. To mitigate this risk, Akastor has obtained a waiver of the ICR covenant in March 2021 for the remaining period of the current financing. The financial covenants are a gearing ratio based on net debt/equity, an The waiver is contingent on closing of the refinancing of Akastor following interest coverage ratio (ICR) based on EBITDA/net interest costs and the creation of a joint venture between MHWirth AS and Baker Hughes’ a minimum liquidity amount. The financial covenants are tested on a Subsea Drilling Systems business as described below. quarterly basis. The company’s gearing ratio shall not exceed 1.0 times and is to create a joint venture company that will bring together Akastor’s wholly calculated from the consolidated net total borrowings to the owned subsidiary, MHWirth AS and Baker Hughes’ Subsea Drilling Systems On March 2, 2021, Akastor announced an agreement with Baker Hughes consolidated equity. business. The transaction will require refinancing of Akastor’s existing credit facility. Akastor has received commitments for a total of NOK 1 250 The ICR shall not be lower than 3.0 when gearing ratio is below million in revolving credit facilities that will be entered into prior to closing 0.5, calculated from the consolidated EBITDA to consolidated of the transaction, which is expected to take place in the second half of Net Finance Cost. 2021. See more information about the transaction in Note 37 Events after the reporting date in Akastor Group consolidated financial statements. The ICR shall not be lower than 4.0 when gearing ratio exceeds 0.5, calculated from the consolidated EBITDA to consolidated Based on the received ICR covenant waiver and committed refinancing Net Finance Cost. following the MHWirth transaction, management believes that the risk of additional covenant breach is low and that Akastor will continue as a going Minimum liquidity amount shall exceed NOK 500 million on concern for the foreseeable future. See more information in note 29 consolidated level. Capital management in Akastor Group consolidated financial statements. Annual Report 2020 | Financials and Notes | Akastor ASA 95 Financial liabilities and the period in which they mature Amounts in NOK million 2020 Carrying amount Total undiscounted cash flow 1) 6 months and less 6–12 months 1–2 years 2) Revolving credit facility (NOK 1 250 million) 347 363 6 356 Revolving credit facility (USD 155 million) 772 798 13 785 Total borrowings 1 119 1 161 19 1 141 - - - 2019 Revolving credit facility (NOK 1 250 million) Revolving credit facility (USD 155 million) Total borrowings 794 494 1 288 882 541 23 12 1 423 35 20 12 32 839 517 1 356 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 Akastor has provided the following guarantees on behalf of wholly owned subsidiaries and related parties as of December 31 (all obligations are per date of issue): Amounts in NOK million Parent Company Guarantees to group companies1) Parent Company Guarantees to related companies2) Counter guarantees for bank/surety bonds, group companies3) Counter guarantees for bank/surety bonds, related parties3) Total guarantee liabilities Maturity of guarantee liabilities: 6 months and less 6-12 months 1-2 years 2-5 years 5 years and more 2020 1 907 4 226 497 - 6 630 113 5 18 2019 1 510 5 806 730 5 8 052 99 226 7 3 666 1 239 2 828 6 480 1) Parent Company Guarantees to support subsidiaries in contractual obligations towards clients. 2) Parent Company Guarantees to support related parties in contractual obligations towards clients, mainly AKOFS 1 AS, AKOFS 3 AS, AKOFS Norway Operations AS and DOF Deepwater AS (in 2019). 3) Bank guarantees and surety bonds are issued on behalf of Akastor subsidiaries and related parties, and counter indemnified by Akastor ASA. Although guarantees are financial instruments, they are considered contingent obligations and the notional amounts are not included in the financial statements. US pension plan AK Wilfab Inc, a wholly owned subsidiary of Akastor, is together The Resource Group TRG AS and Akastor ASA sponsoring the US pension plan named the Kvaerner Consolidated Retirement Plan. Akastor Group holds one third of the liability of the sponsors for the underfunded element of the plan and The Resource Group TRG AS holds two thirds of the ultimate liability. Aker ASA guarantees for The Resource Group TRG AS’ liability and covers for all its expenses related to the pension plan. Annual Report 2020 | Financials and Notes | Akastor ASA96 Note 10 | Financial risk management and financial instruments Currency risk Credit risk Subsidiaries may enter into financial derivative agreements with the Credit risk is the risk of financial losses to the company if a customer parent company to hedge their foreign exchange exposure. Accordingly, or counterparty fails to meet contractual obligations. Credit risk relates derivatives from external banks are used to mitigate the foreign exchange to loans to subsidiaries and associated companies, hedging contracts, exposure from the financial derivative agreements with the subsidiaries. In guarantees to subsidiaries and associated companies and deposits addition, Akastor ASA may have cash flow exposure towards its financial with external banks. External deposits and hedging contracts are done assets and liabilities. Akastor ASA may enter into financial derivative according to a list of approved banks and primarily with banks where the agreements to hedge these potential cash flow exposures. company also have a borrowing relationship. As of 31 December 2020 or 2019, Akastor ASA had not entered into any Loss provisions for interest-bearing receivables are made in situations of forward exchange contracts with subsidiaries. negative equity if the company is not expected to be able to fulfill its loan Interest rate risk obligations from future earnings. No impairment was booked in 2020 or 2019. See note 7 Receivables and borrowings from group companies for more information about receivables. The company is exposed to changes in interest rates because of floating interest rate on loan receivables and loan payables. The company does Liquidity risk not hedge transactions exposure in financial markets and does not have Liquidity risk relates to the risk that the company will not be able to meet any fixed interest rate loan receivables nor loan payables. The company is its debt and guarantee obligations and is managed through maintaining therefore not exposed to fair value risk on its outstanding loan receivables sufficient cash and available credit facilities. Due to the dynamic nature of or loan payables. Interest bearing loan receivables and loan payables the underlying businesses, Akastor Treasury maintains flexibility in funding expose the company to income statement and cash flow interest risk. by maintaining availability under committed credit lines. Development in Interest-bearing borrowings to group companies reflect the cost of monitored through weekly and monthly cash flow forecasts, annual external borrowing, reducing the interest risk exposure for Akastor ASA. budgets and long term planning. the group’s and thereby Akastor ASA’s available liquidity is continuously Note 11 | Related parties Transactions and balances with subsidiaries and related parties are described in the following notes: Transactions Other services Financial items Investments Cash pool, receivables and borrowings Guarantees Note Note 2 Note 3 Note 5 Note 7 Note 10 All transactions with related parties are carried out at market terms and in accordance with the arm’s lengths principle. Annual Report 2020 | Financials and Notes | Akastor ASA97 Note 12 | Shareholders Shareholders with more than 1 percent shareholding as per December 31 Company 2020 Aker Holdings AS (previously “Aker Kværner Holding AS”) Morgan Stanley & Co. LLC Ministry of Trade, Industry and Fisheries, Norway Goldman Sachs & Co Euroclear Bank S.A./N.V. ODIN Norge Company 2019 Aker Kværner Holding AS Goldman Sachs & Co Morgan Stanley & Co. LLC Aker ASA ODIN Norge Jefferies LLC SP. RES. A/C FBO CUS Fond Finans Norge Note Nominee Number of shares held Ownership Nominee Nominee Nominee 100 565 292 34 666 034 33 100 085 26 159 547 13 198 538 10 575 925 36.70% 12.65% 12.08% 9.55% 4.82% 3.86% Note Nominee Number of shares held Ownership Nominee Nominee Nominee 110 333 615 35 373 096 31 296 769 23 331 762 10 575 925 7 288 162 3 100 000 40.27% 12.91% 11.42% 8.52% 3.86% 2.66% 1.13% Annual Report 2020 | Financials and Notes | Akastor ASA98 05. AUDITOR'S REPORT KPMG AS Sørkedalsveien 6 Postboks 7000 Majorstuen 0306 Oslo Telephone +47 45 40 40 63 Fax Internet www.kpmg.no Enterprise 935 174 627 MVA To the General Meeting of Akastor ASA Independent auditor’s report Report on the Audit of the Financial Statements Opinion We have audited the f inancial statements of Akastor ASA, which comprise: • The f inancial statements of the parent company Akastor ASA (the Company), which comprise the statement of f inancial position as at 31 December 2020, the income statement and statement of cash f low f or the year then ended, and notes to the f inancial statements, including a summary of signif icant accounting policies, and • The consolidated f inancial statements of Akastor ASA and its subsidiaries (the Group), which comprise the statement of f inancial position as at 31 December 2020, the income statement, statement of comprehensive income, statement of changes in equity and statement of cash f low f or the year then ended, and notes to the f inancial statements, including a summary of signif icant accounting policies. In our opinion: • The f inancial statements are prepared in accordance with the law and regulations. • The accompanying f inancial statements give a true and f air view of the f inancial position of the Company as at 31 December 2020, and its f inancial perf ormance and its cash f lows f or the year then ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway. • The accompanying consolidated f inancial statements give a true and f air view of the f inancial position of the Group as at 31 December 2020, and its f inancial perf ormance and its cash f lows f or the year then ended in accordance with International Financial Reporting Standards as adopted by the EU. Basis f or Opinion We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are f urther described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company and the Group as required by laws and regulations, and we have f ulf illed our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is suf f icient and appropriate to provide a basis f or our opinion. Key Audit Matters Key audit matters are those matters that, in our prof essional judgment, were of most signif icance in our audit of the f inancial statements of the current period. These matters were addressed in the context of our audit of the f inancial statements as a whole, and in f orming our opinion thereon, and we do not provide a separate opinion on these matters. Annual Report 2020 | Auditor's ReportAuditor's Report 99 Independent Auditor's Report - 2020 Akastor ASA Construction contract accounting estimates Ref erence is made to Note 3 Signif icant accounting policies, Note 4 Signif icant accounting estimates and judgements, and Note 7 Revenue and other income. The key audit matter The majority of the Group's revenues and prof its are derived f rom long-term construction and service contracts. In IFRS 15 Revenue from contracts with customers there is a high degree of judgement in determining the number of perf ormance obligations which can impact the timing and amount of revenue recognition f or certain contracts. Accounting f or such contracts, where revenue f rom perf ormance obligations are satisf ied over time, is considered to be a risk area due to the signif icant judgement and estimation applied by management as well as the degree of complexity of the contracts currently in the portf olio. Furthermore, estimating the outcome of disputes and renegotiations on long-term projects is considered to be a risk area due to the signif icant judgment and estimation applied by management as well as the degree of complexity of the contracts, current market environment and challenges f aced by customers. These management estimates and judgments are of ten complex and involve assumptions regarding f uture events f or which there may be little or no external corroborative evidence available. There are typically a wide range of reasonably possible outcomes, and a high degree of uncertainty on the outcomes of negotiations and disputes linked to complex contract interpretations. As such, these contract accounting estimates also require signif icant attention during the audit and are subject to a high degree of auditor judgment. How the matter was addressed in our audit For f inancially signif icant contracts and any contracts with a reasonable possibility of being in a signif icant loss-making position, we applied prof essional scepticism and critically assessed the accounting estimates and judgments against the requirements of IFRS 15. Our audit procedures in this area included, among others: • Challenging management's measure of progress estimate and evaluated management's process f or assessing the measurement of progress and the method applied; • Updating our understanding of the project perf ormance, comparing changes to previous f orecasts, sensitivities and risks by reviewing management's project reporting and discussing with relevant management; • Assessing contractual revenue f orecasts including corroborating those f orecasts with ref erence to signed contracts and variation orders to assess the contractual basis of estimated f uture revenues; • Evaluating the calculation of project revenue and cost and contract assets and contract liabilities in relation to the stage of completion and f orecasts; • Analysing preliminary rulings or other relevant pronouncements f or items in arbitration and historical outcomes of negotiations with customers and other proceedings; • Challenging management on their assessment of probable settlement negotiations regarding liquidated damages and disputes; • Challenging management on the estimate of cost to complete, timing of the cost and the risk assessment related to f orecast cost; • Obtaining and reading a selection of correspondence between the Group and the customer and the Group's legal advisors; and • Considering events subsequent to reporting date and challenged management on their impact to the estimates made at year-end. Annual Report 2020 | Auditor's Report 100 Independent Auditor's Report - 2020 Akastor ASA Other inf ormation Management is responsible f or the other inf ormation. The other inf ormation comprises inf ormation in the annual report, except the f inancial statements and our auditor's report thereon. Our opinion on the f inancial statements does not cover the other inf ormation and we do not express any f orm of assurance conclusion thereon. In connection with our audit of the f inancial statements, our responsibility is to read the other inf ormation and, in doing so, consider whether the other inf ormation is materially inconsistent with the f inancial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If , based on the work we have perf ormed, we conclude that there is a material misstatement of this other inf ormation, we are required to report that f act. We have nothing to report in this regard. Responsibilities of the Board of Directors and the Managing Director f or the Financial Statements The Board of Directors and the Managing Director (Management) are responsible f or the preparation in accordance with law and regulations, including a true and f air view of the f inancial statements of the Company in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway, and f or the preparation and true and f air view of the consolidated f inancial statements of the Group in accordance with International Financial Reporting Standards as adopted by the EU, and f or such internal control as management determines is necessary to enable the preparation of f inancial statements that are f ree f rom material misstatement, whether due to f raud or error. In preparing the f inancial statements, management is responsible f or assessing the Company’s and the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern. The f inancial statements of the Company use the going concern basis of accounting insof ar as it is not likely that the enterprise will cease operations. The consolidated f inancial statements of the Group use the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities f or the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the f inancial statements as a whole are f ree f rom material misstatement, whether due to f raud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including ISAs will always detect a material misstatement when it exists. Misstatements can arise f rom f raud or error and are considered material if , individually or in aggregate, they could reasonably be expected to inf luence the economic decisions of users taken on the basis of these f inancial statements. As part of an audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including ISAs, we exercise prof essional judgment and maintain prof essional scepticism throughout the audit. We also: • identif y and assess the risks of material misstatement of the f inancial statements, whether due to f raud or error. We design and perf orm audit procedures responsive to those risks, and obtain audit evidence that is suf f icient and appropriate to provide a basis f or our opinion. The risk of not detecting a material misstatement resulting f rom f raud is higher than f or one resulting f rom error, as f raud may involve collusion, f orgery, intentional omissions, misrepresentations, or the override of internal control. • obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not f or the purpose of expressing an opinion on the ef f ectiveness of the Company's or the Group's internal control. • evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists Annual Report 2020 | Auditor's Report 101 Independent Auditor's Report - 2020 Akastor ASA related to events or conditions that may cast signif icant doubt on the Company and the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the f inancial statements or, if such disclosures are inadequate, to modif y our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, f uture events or conditions may cause the Company and the Group to cease to continue as a going concern. • evaluate the overall presentation, structure and content of the f inancial statements, including the disclosures, and whether the f inancial statements represent the underlying transactions and events in a manner that achieves a true and f air view. • obtain suf f icient appropriate audit evidence regarding the f inancial inf ormation of the entities or business activities within the Group to express an opinion on the consolidated f inancial statements. We are responsible f or the direction, supervision and perf ormance of the group audit. We remain solely responsible f or our audit opinion. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and signif icant audit f indings, including any signif icant def iciencies in internal con trol that we identif y during our audit. We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related saf eguards. From the matters communicated with the Board of Directors, we determine those matters that were of most signif icance in the audit of the f inancial statements of the current period and are theref ore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benef its of such communication. Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors’ report Based on our audit of the f inancial statements as described above, it is our opinion that the inf ormation presented in the Board of Directors’ report and in the statements on Corporate Governance and Corporate Social Responsibility concerning the f inancial statements, the going concern assumption and the proposed allocation of the result is consistent with the f inancial statements and complies with the law and regulations. Opinion on Registration and Documentation Based on our audit of the f inancial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, it is our opinion that management has f ulf illed its duty to produce a proper and clearly set out registration and documentation of the Company’s accounting inf ormation in accordance with the law and bookkeeping standards and practices generally accepted in Norway . Oslo, 18 March 2021 KPMG AS Vegard Tangerud State Authorised Public Accountant Annual Report 2020 | Auditor's Report 102 06. ALTERNATIVE PERFORMANCE MEASURES Akastor discloses alternative performance measures as a supplement to the consolidated financial statements prepared in accordance with IFRS. Such performance measures are used to provide an enhanced insight into the operating performance, financing abilities and future prospects of the group. These measures are calculated in a consistent and transparent manner and are intended to provide enhanced comparability of the performance from period to period. It is Akastor's experience that these measures are frequently used by securities analysts, investors and other interested parties. The definitions of these measures are as follows: EBITDA - earnings before interest, tax, depreciation and amortization, corresponding to "Operating profit before depreciation, amortization and impairment" in the consolidated income statement. EBIT - earnings before interest and tax, corresponding to "Operating profit (loss)" in the consolidated income statement. Capex and R&D capitalization - a measure of expenditure on PPE or intangible assets that qualify for capitalization. Net current operating assets (NCOA) - a measure of working capital. It is calculated by current operating assets minus current operating liabilities, excluding financial assets or financial liabilities related to hedging activities. Net capital employed - a measure of all assets employed in the operation of a business. It is calculated by non-current assets and finance lease receivables (excluding non-current interest-bearing receivables) added by net current operating assets minus non-current operating liabilities (deferred tax liabilities, employee benefit obligations, other non-current liabilities and lease liabilities). Gross debt - sum of current and non-current borrowings, excluding lease liabilities. Net debt - gross debt minus cash and cash equivalents. Net interest-bearing debt (NIBD) - net debt minus non-current and current interest-bearing receivables. Equity ratio - a measure of investment leverage, calculated as total equity divided by total assets at the reporting date. Liquidity reserve - comprises cash and cash equivalents and undrawn committed credit facilities. Order intake - represents the estimated contract value from the contracts or orders that are entered into or committed in the reporting period. Order backlog - represents the remaining unearned contract value from the contracts or orders that are entered into or committed at the reporting date. The backlog does not include options on existing contracts, or contract value from short-cycled service orders. 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 Net current operating assets (NCOA) 2020 2019 28 485 2 191 2 704 (8) (109) (2 060) (2 177) 527 10 528 3 177 3 716 (11) (119) (2 974) (3 105) 611 Annual Report 2020 | Alternative Performance MeasuresAlternative Performance MeasuresNet capital employed (NCE) Amounts in NOK million Total non-current assets Net current operating assets (NCOA) Current finance lease receivables Non-current interest-bearing receivables Deferred tax liabilities Employee benefit obligations Other non-current liabilities Non-current provisions Total lease liabilities Net capital employed (NCE) Gross debt/Net debt/NIBD Amounts in NOK million Non-current borrowings Current borrowings Gross debt Cash and cash equivalents Net debt Non-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 103 2020 2019 6 100 6 256 527 611 7 9 (115) (201) (10) (11) (388) (359) (478) (491) (50) (51) (592) (677) 5 002 5 085 2020 628 1 119 1 746 2019 1 444 3 1 448 (275) (555) 1 471 893 (115) (201) 1 357 692 2020 3 669 9 147 40% 2020 275 1 457 2019 4 371 10 578 41% 2019 555 1 320 1 732 1 875 Annual Report 2020 | Alternative Performance Measures104 07. BOARD OF DIRECTORS Kristian M. Røkke | Chairman Kristian Røkke is currently CEO of Aker Horizons AS and has extensive experience from offshore oil services, shipbuilding and M&A. Mr. Røkke was Chief Investment Officer of Aker ASA prior to Aker Horizons and CEO of Akastor ASA from August 2015 to December 2017. He is a board member of several companies, including such as TRG Holding AS, American Shipping Company ASA, Philly Shipyard ASA, Aker Offshore Wind AS, Aker Carbon Capture AS and Aker Clean Hydrogen AS. Mr. Røkke holds an MBA from The Wharton School, University of Pennsylvania. As of December 31, 2020, Mr. Røkke holds, through a privately owned company, 200,000 shares in Akastor ASA and has no stock options. Mr. Røkke is both a Norwegian and American citizen and has been elected for the period 2020-2022. Lone Fønss Schrøder | Deputy Chairman Lone Fønss Schrøder is CEO of Concordium AG, a global provider of blockchain technologies. She is vice-chair of Volvo Cars AB and chair of the audit committee, and director of Geely Sweden Holdings AB and Ingka Holding B.V. (Ikea Group). She has held several senior management and CEO positions in the A.P. Møller-Maersk group and became CEO and president of Wallenius Lines AB in 2005. Fønss Schrøder has board experience from Kværner ASA, Eukor Inc, Vattenfall AB, Yara ASA, Valmet OY and others. Fønss Schrøder holds an MSc in law from the University of Copenhagen and in economics from Copenhagen Business School in Denmark. As of December 31, 2020, 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 2020-2022. Svein Oskar Stoknes | Director Svein Oskar Stoknes has been CFO at Aker ASA since August 2019. Prior to this, he served as CFO at Aker Solutions, where he joined in 2007 and was named CFO in 2014. Previously, Mr. Stoknes held a range of senior positions within finance and advisory for organizations like Tandberg, Citigroup and ABB. He graduated from the Norwegian School of Management and has an MBA from Columbia Business School in New York. As of December 31, 2020, Mr. Stoknes owns 1,297 shares and no stock options in the company. He is a Norwegian citizen and has been elected for the period 2020-2022. Annual Report 2020 | Board of DirectorsBoard of Directors105 Kathryn M. Baker | Director Kathryn M. Baker has over 30 years of business experience in a broad range of industries and roles. She currently serves as Chairwoman of Fynd Ocean Ventures, Pensionera AB, Genetic Analysis AS and Terra Mater Renewable Investments. Other current positions include board member of DOF ASA and MPC Energy Solutions and member of the Investment Committee of the Norfund. Ms. Baker previously served on the Executive Board of the Central Bank of Norway (Norges Bank), the European Advisory Board of the Tuck School of Business and the Ethics Committee of the Norwegian Private Equity and Venture Capital Association (NVCA), where she also previously served as Chairwoman. 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’s degree in economics from Wellesley College and an MBA from the Amos Tuck School of Business at Dartmouth College. As of December 31, 2020, she holds 45,683 shares in the company. Ms. Baker is an American citizen and has been elected for the period 2020-2021. 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, 2020, she holds 5,000 shares in the company and has no stock options. Ms. Ryan is an Australian citizen. She has been elected for the period 2020-2021. Henning Jensen | Director, Elected by the employees 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’s degree in marine technology and a Master in Industrial Economy and Technology from Agder University College in Grimstad. As of December 31, 2020, Mr. Jensen holds no shares or stock options in the company. Mr. Jensen is a Norwegian citizen and has been elected for the period 2019-2021. Annual Report 2020 | Board of Directors106 Asle Christian Halvorsen | Director, Elected by the employees 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, 2020, he holds 10,000 shares in the company. Mr. Halvorsen is a Norwegian citizen. He has been elected for the period 2019-2021. Stian Sjølund | Director, Elected by the employees 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, 2020, he holds 10,000 shares in the company. Mr. Sjølund is a Norwegian citizen and has been elected for the period 2019-2021. Annual Report 2020 | Board of Directors107 08. MANAGEMENT Karl Erik Kjelstad | Chief Executive Officer Karl Erik Kjelstad joined Akastor in 2014. He has been part of the Aker group since 1998 and has numerous key positions including various CEO positions. Karl Erik has held several board positions in different industries, including oil service, offshore drilling, offshore and merchant shipping, shipbuilding, IT services, real estate and construction industry. Karl Erik 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, 2020, Kjelstad holds 400,000 shares in Akastor ASA through his company Byesvollen AS. Øyvind Paaske | Chief Financial Officer Øyvind Paaske joined the investment team in Akastor as Investment Manager in 2014 and was appointed CFO of Akastor from 1st March 2020. Prior to this he held the position as Investment Manager at Converto (Aker ASA). Øyvind holds an MSc in Financial Economics from the Norwegian School of Economics and Business Administration (NHH) and UNC Kenan-Flagler Business School. As of December 31, 2020, Paaske holds 5,083 shares in Akastor ASA. Annual Report 2020 | ManagementManagement108 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 DDW Offshore Oksenøyveien 10, 1366 Lysaker, Norway PO Box 124, 1325 Lysaker, Norway +47 21 52 58 00 ddwoffshore.com AGR Karenslyst allé 4, 0278 Oslo, Norway +47 24 06 10 00 agr.com Cool Sorption Smedeland 6, DK2600 Glostrup, Denmark +45 43 45 47 45 coolsorption.com Annual Report 2020 | Company InformationCompany Informations a . T L O B • 6 5 0 1 1 2 2

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