Prosafe Offshore Pte Ltd
Annual Report 2015

Plain-text annual report

A N N U A L R E P O R T 2 0 1 5 1 This report is a short version of the annual report. For a full report, including a presentation of executive management and board of directors, information about HSEQA, corporate governance, social responsibility, risk management and financial and analytical information, please refer to the Download centre on Prosafe’s website www.prosafe.com. In order to present updated and correct information at all times, we will endeavour to update the information on the website whenever required throughout the year. 2 CONTENT 5 6 8 24 Financial calendar and key figures About Prosafe Directors’ report Statement of the member of the board of directors and other responsible persons 26 Consolidated accounts 70 Accounts Prosafe SE 88 Independent auditors’ report 92 Fleet overview 3 4 FINANCIAL CALENDAR REPORTING RESULTS The following dates have been set for quarterly interim reporting and presentations in 2016: 1st quarter 2nd quarter 3rd quarter 4th quarter 12 May 2016 24 August 2016 3 November 2016 9 February 2017 ANNUAL GENERAL MEETING The AGM for Prosafe SE will be held in the company’s premises at Stadiou 126, CY-6020 Larnaca, Cyprus on 25 May 2016. KEY FIGURES Profit Operating revenues EBITDA Operating profit Net profit Earnings per share Balance sheet Total assets Interest-bearing debt USD million USD million USD million USD million USD USD million USD million Note 2015 2014 2013 2012 2011 474.7 262.9 30.8 (50.6) 548.7 312.6 248.3 178.8 523.5 306.6 245.1 199.1 510.4 280.1 222.4 177.5 449.6 257.6 192.3 158.0 0.21 0.76 0.85 0.80 0.71 1 2 2 187.2 1 816.8 1 619.9 1 487.2 1 376.1 1 107.5 830.1 707.7 748.5 779.6 666.2 739.7 810.4 706.8 516.3 760.5 667.1 461.8 4 32.6 % 41.2 % 45.7 % 34.7 % 33.6 % Net interest-bearing debt USD million 3 1 150.4 USD million 715.2 Book equity Book equity ratio Valuation Market capitalisation USD million Share price NOK 619 725 21.00 23.00 1 816 46.80 1 894 47.32 1 529 40.99 1. Operating profit before depreciation 2. Net profit / Average number of outstanding and potential shares 3. Interest-bearing debt - Cash and deposits 4. (Book equity / Total assets) * 100 5 ABOUT PROSAFE Prosafe is the world’s leading owner and operator of semi- submersible accommodation vessels. The company operates globally and employed 851 people at year-end. 6 With eight dynamically positioned, one POSMOOR passive position moored and five anchored vessels, our fleet is versatile and able to operate in nearly all offshore environments. At present, Prosafe is the leader in the provision of offshore accommodation vessels in harsh and semi-harsh environments and in hurricane regions such as the Gulf of Mexico. The company’s track record comprises operations offshore In addition, one new harsh environment semi-submersible is under construction at COSCO (Qidong) Offshore Co. Ltd. Norway, UK, Mexico, USA, Brazil, Denmark, Tunisia, West Africa, North-West and South Australia, the Philippines and Russia. storage capacity offshore. Prosafe’s vessels have accommodation capacity for 306-812 people and offer high quality welfare and catering facilities, storage, workshops, offices, medical services, deck cranes and lifesaving and fire fighting equipment. The vessels are positioned alongside the host installation and are connected by means of a telescopic gangway so that personnel can walk to work. Prosafe has a strong track record from demanding operations world wide, with first class operational performance and good safety results. The company has extensive experience from operating gangway connected to fixed installations, FPSOs, TLPs, Semis and Spars. Prosafe’s operations are amongst other related to maintenance and modification of installations on fields already in production, hook-up and commissioning of new fields, tie-backs to existing infrastructure and decommissioning. The company’s track record comprises operations offshore Norway, UK, Mexico, USA, Brazil, Denmark, Tunisia, West Africa, North- west and South Australia, the Philippines and Russia. Accommodation vessels offer additional accommodation, engineering, construction or Prosafe is listed on the Oslo Stock Exchange with ticker code PRS. 7 DIRECTORS’ REPORT The Directors present their annual report on the affairs of Prosafe SE (the “Company” or the “parent company”) and its subsidiaries (the Company and its subsidiaries referred to as the “Group” or “Prosafe”) together with the Group’s and the parent company’s audited financial statements for the year ended 31 December 2015. 8 PRINCIPAL ACTIVITY the yard stay for the Safe Scandinavia where Prosafe is the world’s leading owner and she was undergoing conversion to a tender operator of semi-submersible accommodation support vessel (TSV) at Ølensvåg in Norway. The support vessels, and is currently in process of vessel is now on contract for Statoil Petroleum completing its fleet renewal strategy which AS at the Oseberg Øst field on the Norwegian further aims at strengthening its competitive Continental Shelf. The main markets for the position globally. The parent company, Prosafe Prosafe vessels are currently the North Sea and SE, is managed and controlled in Cyprus and is Brazil, serving primarily oil and gas operating the ultimate owner of all group companies. companies as end clients on projects typically Financial results, financing and financial position of the Group (The figures in brackets correspond to the 2014 comparatives) related to installation or maintenance and modification of offshore oil and gas fields. The vessels are either provided on a time charter basis where Prosafe man and operate the vessels directly, or on a bareboat basis where Prosafe provides only the vessel to a third party who is then responsible to man and operate the vessel. Total operating expenses decreased to USD 211.8 million (USD 236.1 million), largely as a result of the lower fleet utilisation. INCOME STATEMENT Depreciation increased to USD 86.5 million Operating revenues totalled USD 474.7 million (USD 64.3 million) as a result of life extension in 2015 (2014: USD 548.7 million), with investments of several vessels, as well as the utilisation of the fleet dropping to 70 per cent delivery of the new build Safe Boreas in Q1 (87 per cent). Charter revenues and non-charter 2015. In addition, there was an impairment revenues reached USD 425.4 million (USD charge of USD 145.6 million in the 2015 481.2 million) and USD 49.3 million (USD 67.5 accounts related to Jasminia, Safe Hibernia, million), respectively. Safe Britannia, Safe Regency, Safe Lancia, Safe Bristolia, Safe Astoria and Safe Concordia. Revenues in 2015 were lower than in 2014 as Compared to the Q4 2015 report published on a consequence of fleet utilisation of 70% in 4 February 2016, the final accounts for 2015 2015 compared to 87% in 2014. This compares contain an additional impairment charge of to an average fleet utilisation of just over 80% USD 136.2 million. over the last few years. The main reason for the reduction in utilisation was non-extension of The resulting operating profit amounts to USD the contract relating to Jasminia in Mexico and 30.8 million (USD 248.3 million). 9 Net interest expenses totalled USD 41.6 million the Safe Concordia. (USD 37.3 million). This increase is mainly due to higher interest-bearing debt following As at year-end 2015, the Group had total the delivery and financing of the new build liquid assets of USD 57.1 million (USD 122.4 Safe Boreas in 2015. In accordance with IFRS, million). The liquidity reserve (liquid assets plus interest costs totalling USD 12.8 million (USD undrawn credit facilities) totalled USD 157.1 7.9 million) have been allocated to new build million (USD 337.4 million). and refurbishment projects and consequently capitalised as part of the vessel investment costs. Other financial items amounted to USD -29.5 million (USD -20.0 million). This figure includes changes in value of financial currency hedging instruments and currency gains and losses. The figure also includes USD 12.8 million in amor- tised borrowing costs related to the new builds. Taxes for 2015 were USD 10.5 million (USD 12.5 million). Net loss amounted to USD 50.6 million (net profit of USD 178.8 million), resulting in basic and diluted earnings per share of USD -0.21 (USD 0.76). ASSETS Total assets amounted to USD 2,187.2 million (USD 1,816.8 million) at the end of 2015. Investments in tangible assets totalled USD 700.7 million (USD 211.0 million). The investments in 2015 mainly relate to the delivery of the new build Safe Boreas, upgrade of the Safe Scandinavia to a tender support vessel (TSV), project expenses related to three new build vessels and the five-year special periodic survey (SPS) for the Safe Bristolia and FINANCING Total shareholders’ equity amounted to USD 715.2 million (USD 748.5 million), resulting in a book equity ratio of 32.7 per cent (41.2 per cent). Interest-bearing debt amounted to USD 1,247 million (USD 830.1 million) at year-end. Repayments of debt totalled USD 816.5 million (USD 198.0 million) and gross increase in borrowing amounted to USD 1,290.0 million (USD 332.2 million). The interest-bearing debt agreements are subject to termination, repayment or buy back clauses in the event of a change of control of the Company (as control is defined in the relevant agreements). In February 2015, the Company secured a new credit facility of USD 1,300 million for the refinancing of the existing USD 1,100 million and USD 420 million credit facilities. The credit facility, which has a maturity of seven years with semi-annual amortisations of USD 65 million, consists of two term loan tranches totalling USD 800 million (drawn on closing) and USD 200 million and a revolver loan tranche of USD 300 million. The USD 200 10 million tranche was drawn on delivery of the Safe Britannia came off contract at the end of Safe Zephyrus in January 2016. 2015. Safe Hibernia came off contract on 15 February 2016, whereas the contracts for Safe In December 2015, Prosafe raised NOK 590 Regency and Safe Lancia were suspended from million in a private placement of shares. The mid-March 2016. private placement was over-subscribed and supported by existing shareholders. Safe Concordia operated on a three-year contract in Brazil throughout the year. The contract, which is an extension of the initial contract awarded in December 2013, commenced in July 2014 with a three-year term. Safe Astoria was on an 11-month contract with Shell Philippines Exploration B.V. until early September 2015, after which she relocated to Batam, Indonesia, for lay-up. Safe Caledonia was contracted to Nexen Petroleum U.K. Limited until the end of April 2015. In early July 2015 the vessel commenced a contract for BP Exploration Operating Company Limited for support at the ETAP field in the UK. The vessel is scheduled to complete this contract in early August 2016. Safe Scandinavia was on contract with Premier Oil UK Limited at the Solan field in the UK until the end of February 2015. In March the vessel arrived at the Westcon shipyard in Ølensvåg, Norway, where she has been undergoing conversion to a tender support vessel (TSV) to carry out a contract for Statoil Petroleum AS at the Oseberg Øst field in Norway. The contract commencement which was originally expected during the third quarter 2015 was considerably delayed until 17 March 2016. As a result the cost for the TSV conversion has increased. 11 Operations and projects As at year-end, the fleet comprised 12 vessels in operation plus three new builds in progress. Specifications for each of the vessels and details of the current vessel contracts can be found on the Company’s website at www.prosafe.com/accommodation-vessels Safe Hibernia, Safe Britannia, Safe Lancia and Safe Regency operated on bareboat charters in Mexico throughout 2015. Jasminia was off-hire as from the end of February 2015 and Regalia was on a 450-day contract for Talisman Ivar Aasen in late July 2016. Sinopec Energy UK Limited in the UK until late November 2015 and was sub-let to Shell In 2013 a turnkey contract was entered into U.K. Limited at Shearwater and Premier Oil UK with COSCO (Qidong) Offshore Co., Ltd. in China Limited at Solan during the 450 days period. for the delivery of two accommodation support In late May 2016, the vessel will commence a vessels, Safe Notos and Safe Eurus, for use 150-day contract with Shell at Brent C/Gannet. worldwide, excluding Norway. The vessels are designed and equipped to meet the Safe Bristolia completed repair work at the requirements of the accommodation industry Hanøytangen shipyard in Norway during the and will be the leading vessels in their sector. second quarter 2015 and was on contract for Safe Notos was delivered in February 2016, and BG International Limited at the Everest field in is currently in transit to Indonesia for lay-up. the UK from the beginning of June 2015 until Her first contract is yet to be awarded. the end of the third quarter 2015. The vessel is currently undergoing a special periodic survey In addition to the new builds, the Group has in Gdansk, Poland. also invested substantially in the renewal of the existing fleet over the past years. Prosafe had two vessels under construction in Singapore during 2015, Safe Boreas and Safe Zephyrus, which were ordered from Jurong Shipyard Pte. Ltd in December 2011 and November 2012, respectively. The vessels were constructed in accordance with strict Norwegian regulations and are the most well-equipped and sophisticated offshore accommodation support vessels in the world. Safe Boreas was delivered from the yard in mid January 2015 and has completed its first contract for Lundin Petroleum Norway AS in Norway. The vessel commenced an 8-month contract with Talisman Sinopec at Montrose in mid-March 2016. Safe Zephyrus was delivered in January 2016, and is currently in transit from Singapore to Norway. The vessel is scheduled to commence the contract with Det Norske Oljeselskap at OUTLOOK The accommodation support segment is late cyclical by nature. Historically, more than three quarters of the work has been related to producing fields, whereas the remainder has been related to hook-up and commissioning of new fields. Accommodation support vessels are also used during decommissioning of offshore installations. The supply side is seeing significant growth in size during the period from 2012 to 2016 with the entry into the market of a number of new semi-submersible accommodation support vessels. However the growth is expected to be lower than earlier anticipated as a result of the extended down-cycle which may lead to both scrapping and delays or even cancellations of new builds. 12 2015 saw a continued slow-down in Despite the current down-turn and the supply contracting activity and the gross value of side growth, the longer term prospects are charter contracts, including clients’ extension promising as it is expected that field life options, was reduced by approximately 13 per extensions continue through enhanced oil cent to USD 1,595 million (USD 1,843 million). recovery efforts. Further, in the years ahead A continued fall in oil price has led to further new fields will come on stream in parallel with negative revisions of spending plans, which decommissioning of old platforms gradually again results in deferral of several projects, becoming an interesting source of demand. as well as focus on cash preservation by way of contract renegotiations and contract In Mexico, Prosafe’s ultimate client Pemex has cancellations. been cutting spending in order to adjust its budget to an oil price of USD 25 per barrel. As all providers of oil services are dependent This development has considerably increased on oil companies’ cash flow, reductions of uncertainty spending plans have led to a substantial decrease in demand for oilfield services, including accommodation support vessels. This has increasingly been evident in all geographical markets. 13 for the near and medium term outlook in this combined with in particular the non-extension region. It is still expected that maintenance and of contracts in Mexico has led to reduced fleet modification services will be needed to support utilisation and consequently reduced charter extended production from current fields. In revenues for Prosafe. addition, further demand may result from new fields being developed in deeper waters offshore Mexico. The near and medium term outlook is also uncertain in Brazil. Even though accommodation support vessels are mostly Total order backlog as of 31 December 2015 amounted to USD 997 million of which USD 598 million related to firm contracts and USD 399 million related to options. Secured utilisation for 2016 is 37%. For 2017 and 2018, secured utilisation is currently 19% and 16%, used for safety and maintenance purposes on respectively. fields that are already producing, the financial situation of Petrobras has inevitably resulted in reduced activity and as a result cancellation or renegotiation by Petrobras of contracts to preserve liquidity. The longer term outlook is, however, expected to present further opportunities. Outside the three core markets for semi-submersible accommodation vessels i.e. the North Sea, Mexico and Brazil, Australia and the US Gulf of Mexico appear to be the most promising markets. Although in the past, demand in both these markets has mostly been related to hook-up and commissioning of new platforms or larger re-developments, in the longer term as the industry normalises there should be potential for growth related to maintenance and modification. Accordingly, Prosafe remains cautious about the near and medium term, and will continue to work proactively to ensure the best possible long-term outcome for Prosafe and its employees, shareholders, clients and lenders. The general down-turn in the market FINANCIAL RESTRUCTURING In 2015 and in early 2016, various measures have been taken to improve the Company's financial situation and continuous efforts are ongoing. As described in the Financing section above a share issue was implemented late 2015 and in January 2016 the Company achieved i.a. additional headroom to financial covenants in bank facilities and bond loans and the option to voluntarily skip two scheduled amortisations in 2016 and/or 2017. Further information on the revised set of covenants is provided in note 15 to the consolidated financial statements. As of the date of the accounts, the Company is not in breach of any of its financial obligations. Since the publication of the Q4 2015 report in February 2016, the offshore market has continued to develop negatively, leading to the sudden suspension of two contracts in Mexico. As a result, some of Prosafe’s financial covenants have been put under pressure. Specifically, there was a material risk that the 14 Company would breach the minimum liquidity Group’s management. covenant of USD 65 million in the second quarter of 2016. On 22 April 2016, Prosafe was The Company aims to create shareholder value granted a waiver of this liquidity covenant. by allocating capital and resources to the The temporary minimum liquidity covenant is business opportunities that yield the best now USD 20 million until the end of the third return relative to the risk involved within its quarter of 2016, and is applicable to both the specified strategic direction. USD 1.3 billion facility and the USD 288 million new build facility. Prosafe has initiated a review Prosafe seeks to reduce its exposure to of the Company’s funding situation and has operational, financial and compliance related engaged financial and legal advisors to assist risk through proper operating routines, the use with this process. of financial instruments and insurance policies. A dialogue has been commenced with the Market risk comprises of macro factors such Company’s key stakeholders, including the as oil price and industry specific factors such senior lenders, and the Company is currently as supply/demand balance and competitive working with stakeholders and advisors to position. Demand for accommodation units is evaluate alternatives to improve the financial sensitive to oil price fluctuations and changes situation of the Company. Amendments to the in exploration and production spending. bank and bond agreements will be required in order to secure a robust financial The Gulf of Mexico contracts contain a foundation and to safeguard and further cancellation clause allowing the ultimate strengthen Prosafe’s market leading position in customer, Pemex, to cancel the contract upon the industry. The Company intends to 30 days notice, without compensation, if the communicate its financial plan during the financing of the project is cancelled. These second quarter of 2016. clauses reflect the crisis that arose in Mexico RISK during the 1980s. In March 2016, the two remaining contracts in Mexico were suspended, and accordingly, may be cancelled due to the Prosafe categorises its primary risks under ongoing downturn. the following headings: strategic, operational, financial and compliance related. The The Company is exposed to financial risks such Company’s Board and senior officers manage as currency risk, interest rate risk, financing these risk factors through continuous reporting, board meetings, periodic reviews of the business and tenders, and rolling strategy and planning processes. This is supplemented by dialogue and exchange of views with the and liquidity risk and credit and counterparty risk. The continued negative development in the offshore market involves risk that reduced charter revenues will continue in the short and medium term. This development has increased 15 the liquidity risk significantly. The Company has Financial restructuring section above and the significant debt maturities in 2016 and 2017, Going concern section below. though as mentioned in the Financing section above, in January 2016, the Company agreed The maturity of the Group’s liabilities and with its banking syndicate on an option to capital commitments related to the new builds voluntarily skip two scheduled amortisations can be summarised as follows. (Figures in USD arising in 2016 and/or 2017. Please refer to the million). Q1 2016 Q2 2016 Q3 2016 Q4 2016 84.5 19.9 17.8 122.2 410.0 0.0 17.5 0.0 17.5 0.0 55.0 17.5 0.0 72.5 180.0 0.0 19.6 0.0 19.6 0.0 2016 Debt repayments Interests Current liabilities Total 2016 Capital commitments 2017 Debt repayments Interests Current liabilities Total 2017 2018 Debt repayments Interests Current liabilities Total 2018 2019 Debt repayments Interests Current liabilities Total 2019 2020 onwards Debt repayments Interests Current liabilities Total 2020 onwards 16 139.5 74.5 17.8 231.8 590.0 210.8 84.4 0.0 295.2 233.5 85.0 0.0 317.4 233.5 81.3 0.0 318.5 429.7 146.4 0.0 576.1 The Company reports in USD and generates reinforced inter alia, by the organisation and income in USD, whereas parts of its operating the competence of its personnel, segregation costs are in other currencies such as NOK and of duties, regular risk assessments and internal GBP. This exposure is hedged on a 50-75% basis reporting, management meetings, board of estimated currency exposure on a 12-month meetings, internal audit committee and basis using currency forward instruments. The internal audits together with external audit interest rate risk is partly hedged by the use of and public reporting and communication. interest swaps for 75-100% of the debt. This is carried out on the basis of a perfect match and hedge accounting basis so that any mark-to-market effects are accounted for via comprehensive income and straight to equity. The Company carries out credit checks on clients as part of its tendering processes and has a history of minimal loss from debtors. There are no material overdue receivables as of year-end. Further information on financial risk management is provided in note 19 to the consolidated financial statements. An account of the main features of Prosafe’s internal control and risk management systems is available on its website www.prosafe. com/risk-management/risk-management- article1496-894.html. INTERNAL CONTROLS Internal control is effected in accordance with HEALTH, SAFETY AND THE ENVIRONMENT (HSE) Robust HSE performance is fundamental to all of Prosafe’s operations and is therefore reflected in its core values. As a consequence, Prosafe works proactively and systematically to reduce injuries and sickness absence. During 2015, Prosafe recorded four lost time injuries (LTI) (i.e. an incident that resulted in the employee being absent from the next work shift). This translates into an LTI frequency rate of 3.3 for 2015, compared to 2.6 in 2014. The LTI frequency is calculated by multiplying the number of LTIs by 1 million and dividing this by the total number of man-hours worked. Prosafe operates a zero accident mind-set philosophy which means that no accidents or serious incidents are acceptable. Over the past Prosafe’s policies and procedures which aim to years, it has focused on preventive measures ensure the effectiveness and efficiency of its and a number of initiatives have been operations, reliability of its financial reporting implemented in order to further strengthen the and compliance with applicable laws and safety culture. These initiatives will be regulations. These policies and procedures are continuously developed in order to improve designed, inter alia, to safeguard assets and safety performance further. protect from accidental loss or fraud. Sick leave decreased from 3.0 percent in 2014 In addition, the policies and procedures are to 2.45 per cent in 2015. 17 Prosafe had no accidental discharges to the orientation, with respect to recruitment, natural environment in 2015 and continues remuneration or promotion. to actively reduce emissions by investment in more modern and fuel efficient equipment and continuous improvement in operating procedures. HUMAN RESOURCES AND DIVERSITY CORPORATE GOVERNANCE Corporate governance in the Company is based on the principles contained in the Norwegian Code of Practice for Corporate Governance of 30 October 2014. There are no significant Prosafe’s workforce consisted of 851 individuals deviations between the Code of Practice at the end of 2015, compared with 796 in the and the way it has been implemented. The previous year. Prosafe’s global presence was reflected in the fact that its employees came from 28 countries around the world. The Company’s full corporate governance report is set out on Prosafe’s website www.prosafe.com/ norwegian-code-of-practice/category32.html. overall workforce turnover in the group was 7.8 Significant shareholdings are presented in note per cent in 2015, as compared to 8.0 percent 14 to the financial statements and on www. in 2014. prosafe.com/largest-shareholders/category160. Prosafe operates an equal opportunity policy html. including gender equality. Men have, however, By displaying robust corporate governance, traditionally made up a greater proportion of the recruitment base for offshore operations, and this is reflected in Prosafe’s gender breakdown. As of 31 December 2015, women accounted for 13.0 per cent of the the Company aims to strengthen confidence in Prosafe among shareholders, the capital market and other interested parties, and will help ensure maximum value creation over time in the best interest of shareholders, employees overall workforce, compared to 12.9 per cent in and other stakeholders. 2014. Onshore the proportion of women was 43.4 per cent, as opposed to 44.1 per cent in 2014. Women constituted 12.0 per cent of the managers as at 31 December 2015, as opposed to 14.6 per cent at the end of 2014. The members of the Board of Directors at 31 December 2015 and at the date of this report are set out on page 25. Except for Harald Espedal and Glen Ole Rødland, referred to below they were all members of the Board of Directors throughout the year. There were no significant changes in the assignment of the Prosafe aims to offer the same opportunities responsibilities of the members of the Board of to all and there is no discrimination due to age, Directors. The remuneration of the members of disability, gender reassignment, marriage and the Board of Directors is disclosed in note 6 to civil partnership, pregnancy and maternity, the financial statements. nationality, religion or belief, sex, and sexual 18 All directors serve for a period of two years Directors of the Company be increased from unless the general meeting decides that a six to up to seven non-executive Directors. It director shall serve for a specified period was further resolved that Glen Ole Rødland was shorter than two years. At the annual general elected as an additional non-executive Director meeting (AGM) on 13 May 2015, Christian and as a result the Board of Directors now Brinch, Roger Cornish and Carine Smith comprises seven Directors. Ihenacho were re-elected as Directors for a one-year period. As at 31 December 2015 the only Director holding shares in the Company (including At the extraordinary general meeting on 23 associated parties), was Roger Cornish who October 2015 Ronny Langeland resigned and is the registered shareholder and beneficial Harald Espedal was elected as Director and owner of 7,000 shares (approximately 0.0027% Chairman of the Board until the AGM of 2017. of the issued share capital of the Company). At the extraordinary general meeting on 15 March 2016, it was resolved that the Board of 19 There have been no changes to the holdings Group’s long-term forecasts for the following after 31 December 2015. years. As a result of the suspension of the two CORPORATE SOCIAL RESPONSIBILITY Prosafe aims to be a socially responsible Group and to further develop its business in a sustainable manner. In order to ensure long-term, viable development and profit, contracts in Mexico and the increased liquidity risk, a material uncertainty around the going concern assumption has arisen. The Board of Directors has evaluated the financial forecasts including the assumptions for utilisation of the vessels and the charter day rates. These Prosafe balances economic, environmental and assumptions are based on prudent estimates social objectives and integrates them into its compared to historical actuals. In the daily business activities and decisions. Prosafe’s objectives for corporate social evaluation of the financial forecasts, factors such as the order backlog and cost saving initiatives have been considered. As referred to responsibility are based on the Group’s strategy, in the financial presentation of the Q4 2015 core values, Code of Conduct and principles for result, the Group has already achieved annual corporate governance, in addition to international recognised principles and cost savings amounting to USD 15 million. There is a target to double these annual guidelines. In order to advance its commitment savings. Cost savings to date and going forward to sustainability and corporate citizenship, Prosafe signed up as a member of the United Nations Global Compact in October 2008. Going forward, Prosafe will continue to aim for include many cost categories, e.g. offshore, travel and salaries. Activity level is forecasted to rebound from 2018 as industry cost reductions are taking full effect. continuous improvement of internal standards, Moreover, the Board of Directors has evaluated the way it works with partners and suppliers, and to manage the impact of its operations. the Company’s ability to reach a solution in the ongoing dialogue with the Company’s key stakeholders, and concluded that it is likely/ Further information is available on Prosafe’s realistic to achieve a favourable outcome of this website www.prosafe.com/ corporate-responsibility GOING CONCERN The Board of Directors confirms that the accounts have been prepared under the assumption that the Company is a going concern and that this assumption is realistic at the date of the accounts. This assumption is based on the budgets for the year and the process. This conclusion is an important factor in the going concern assumption. The Board of Directors intends to announce a plan to secure financing of the Company shortly. As of today, such a plan is likely to involve a combination of one or more different alternatives including but not limited to, renegotiated restrictive covenants and debt restructuring. The Board of Directors refers to the Risk section for additional comments i.a. on liquidity risk. 20 AUDITOR In December 2015, the Company issued The auditors of the Company, Messrs KPMG 23,597,300 additional shares of nominal Limited, have expressed their willingness to value of €0.25 at a premium of €2.48. As at 31 continue in office. A resolution for authorising December 2015 Prosafe had an issued share the Board of Directors to fix their remuneration capital of 259,570,359 ordinary shares at a will be submitted at the forthcoming annual nominal value of EUR 0.25 each. general meeting. Reference to auditors’ fee is made in note 6 to the consolidated accounts. Further information is shown in note 14 to the consolidated financial statements. DIVIDENDS AND PROPOSED DIVIDENDS In 2015, the Company declared and paid interim dividends of USD 34 million (USD 125.8 million), corresponding to NOK 1.12 per share (NOK 3.29). The Board of directors does not propose the payment of a final dividend. Prosafe’s aim is that its shareholders receive a competitive return on their shares through a combination of share price appreciation and a direct return in the form of dividends. SHAREHOLDERS AND SHARE CAPITAL Prosafe’s long-term dividend policy remains According to the shareholder register as at 31 as described in the Q3 2014 report. However, December 2015, the twenty largest in light of the reduction in industry activity shareholders held a total of 71.2 per cent of the levels, the Board decided in November 2015 to issued shares. The number of shareholders was temporarily suspend dividend payments. The 3,961. A nominee account in the name of State Board believes that this will be beneficial for Street Bank was the largest shareholder with a the Company from a commercial, financial and holding of 18.1 per cent of the issued shares. strategic perspective, and that it will improve the Company’s financial robustness and Prosafe carries out a quarterly survey optionality. In addition, as part of the agreed attempting to identify the underlying owners amendments to its credit facilities, Prosafe of shares held in nominee accounts. This has agreed that it will not issue any dividends, survey can be found at the Prosafe web complete any bond- or equity buy-back from site: www.prosafe.com/getfile.php/PDF%20 31 December 2015 unless all voluntary skipped Filer/2016-02%20RDIR%20Report.pdf. amortisations have been prepaid or cancelled 21 and a 12-month financial forecast has been EVENTS AFTER THE BALANCE SHEET DATE provided which confirms compliance with Reference is made to note 24 to the original financial covenants (except for the consolidated accounts, and note 16 to the equity ratio which must be a minimum of 35 parent company’s separate accounts for a per cent). description of events after the balance sheet At 31 December 2015, Prosafe SE had a date. distributable equity of USD 491.1 million. The In January 2016, the Company agreed with parent company showed a net loss of USD its banking syndicate to amend its USD 1,300 418.2 million for 2015. million banking facility agreement. The amendment includes the option to voluntarily skip two scheduled amortisations amounting up to USD 130 million in total under this facility in 2016 and/or 2017. In addition, the annual interest rate on the credit facilities was revised according to a grid pricing system based on leverage ratio. 22 On 7 March 2016 Prosafe announced that The Group has decided to scrap three of its it had been informed by its Mexican client oldest units, the Jasminia, Safe Hibernia and Cotemar Group ("Cotemar"), that Safe Regency Safe Britannia, and to cold stack other units would be suspended by Petróleos Mexicanos starting with the Safe Astoria. ("Pemex") from mid-March 2016 and that it was likely that Safe Lancia would also be As referred to in the Financial restructuring suspended by Pemex by mid-March 2016. On section above, Prosafe was granted a waiver 16 March 2016, Prosafe confirmed that it had of the liquidity covenant on 22 April 2016. been informed by Cotemar that the Safe Lancia The temporary minimum liquidity covenant is will be suspended by Pemex from mid-March now USD 20 million until the end of the third 2016. This was in response to the fact that quarter of 2016. Pemex is cutting spending in order to adjust its budget to reflect an oil price of USD 25 per barrel. Larnaca, 27th April 2016 Board of Directors of Prosafe SE Harald Espedal Christian Brinch Roger Cornish Non-executive Chairman Non-executive Deputy Chairman Non-executive Director Nancy Ch. Erotocritou Carine Smith Ihenacho Anastasis Ziziros Non-executive Director Non-executive Director Non-executive Director Glen Ole Rødland Non-executive Director 23 STATEMENT OF THE MEMBERS OF THE BOARD OF DIRECTORS AND OTHER RESPONSIBLE PERSONS Statement of the members of the Board of Directors and other responsible persons of Prosafe SE for the financial statements in the Annual Report for the year ending December 2015 24 In accordance with Sections 9 (3) (c) and 9 (7) of the Cyprus Transparency Requirements (Securities for Trading on Regulated Market) Law of 2007 (“Law”) and Cyprus Companies Law Cap. 113, we the members of the Board of Directors and the other responsible persons for the consolidated financial statements of Prosafe SE and the other companies included in the consolidated accounts (“the Group") and the financial statements of Prosafe SE, for the year ended 31 December 2015, confirm that, to the best of our knowledge: (a) the annual consolidated and financial statements that are presented on pages 28 to 70 (i) were prepared in accordance with the International Financial Reporting Standards as adopted by the European Union, and in accordance with the provisions of Section 9 (4), of the Law; and give a true and fair view of the assets, liabilities, the financial position, and the profit or losses of Prosafe SE and the Group included in the consolidated accounts taken as a whole; and (ii) (b) the Directors’ Report gives a fair review of the development and performance of the business and the financial position of Prosafe SE and the consolidated accounts of the Group as a whole, together with a description of the principal risks and uncertainties that they face. Larnaca, Cyprus, 27th April 2016 Harald Espedal Christian Brinch Roger Cornish Non-executive Chairman Non-executive Director Non-executive Director Carine Smith Ihenacho Anastasis Ziziros Nancy Ch. Erotocritou Non-executive Director Non-executive Director Non-executive Director Glen Ole Rødland Non-executive Director Stig Harry Christiansen Chief Financial Officer Prosafe Management AS 25 CONSOLIDATED ACCOUNTS 26 CONSOLIDATED INCOME STATEMENT (USD million) Charter revenues Other operating revenues Operating revenues Employee benefits Other operating expenses Operating profit before depreciation and impairment Depreciation Impairment Operating profit Interest income Interest expenses Other financial income Other financial expenses Net financial items Profit before taxes Taxes Net (loss)/profit Attributable to equity holders of the parent Earnings per share (USD) Diluted earnings per share (USD) Note 4 4, 5 6 7 8 8 10 10 9, 10 9, 10 11 12 12 2015 425.4 49.3 474.7 (98.9) (112.9) 262.9 (86.5) (145.6) 30.8 0.2 (41.6) 44.1 (73.6) (70.9) (40.1) (10.5) (50.6) 2014 481.2 67.5 548.7 (110.6) (125.5) 312.6 (64.3) 0.0 248.3 0.3 (37.3) 76.4 (96.4) (57.0) 191.3 (12.5) 178.8 (50.6) 178.8 (0.21) (0.21) 0.76 0.76 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (USD million) Net profit for the year Note 2015 (50.6) 2014 178.8 Other comprehensive income to be reclassified to profit or loss in subsequent periods Foreign currency translation Net gain/loss on cash flow hedges Net other comprehensive income to be reclassified to profit or loss in subsequent periods 19 (5.0) (9.5) (14.5) (6.2) (38.0) (44.2) Total comprehensive income for the year, net of tax (65.1) 134.6 Attributable to equity holders of the parent (65.1) 134.6 27 CONSOLIDATED STATEMENT OF FINANCIAL POSITION (USD million) ASSETS Goodwill Vessels New builds Other tangible assets Total non-current assets Cash and deposits Debtors Other current assets Total current assets Total assets EQUITY AND LIABILITIES Share capital Other equity Total equity Deferred tax Derivatives Other provisions Total non-current liabilities Interest-bearing current debt Accounts payable Taxes payable Derivatives Other current liabilities Total current liabilities Total equity and liabilities Larnaca, 27 April 2016 Note 31.12.2015 31.12.2014 8 8 8, 23 8 18, 20 18, 19 18, 21 14 226.7 1 578.6 228.5 4.9 2 038.7 57.1 60.0 31.4 148.5 2 187.2 72.1 643.1 715.2 11 17, 18 15, 18, 19 17, 18 11 18, 19 16, 18, 19 7.8 48.5 2.6 1 166.4 139.5 17.8 13.7 40.7 93.9 226.7 1 027.3 311.8 5.7 1 571.5 122.4 83.9 39.0 245.3 1 816.8 65.9 682.6 748.5 830.1 13.4 39.0 3.5 886.0 0.0 18.6 17.3 87.9 58.5 305.6 2 187.2 182.3 1 816.8 Interest-bearing non-current liabilities 15, 18, 19 1 107.5 Harald Espedal Christian Brinch Roger Cornish Nancy Ch. Erotocritou Non-executive Chairman Non-executive Deputy Chairman Non-executive Director Non-executive Director Carine Smith Ihenacho Anastasis Ziziros Glen Ole Rødland Non-executive Director Non-executive Director Non-executive Director 28 CONSOLIDATED CASH FLOW STATEMENT (USD million) Note 2015 2014 CASH FLOW FROM OPERATING ACTIVITIES (Loss)/Profit before taxes Unrealised currency (gain)/loss on long-term debt Loss/(gain) on sale of tangible assets Depreciation and impairment Interest income Interest expenses Taxes paid Change in working capital Other items from operating activities Net cash flow from operating activities CASH FLOW FROM INVESTING ACTIVITIES Proceeds from sale of tangible assets Acquisition of tangible assets Interest received Net cash flow from investing activities CASH FLOW FROM FINANCING ACTIVITIES 15 8 5 8, 23 (40.1) (56.6) 1.4 232.1 (0.2) 41.6 (16.8) 15.3 (5.2) 171.5 0.0 (700.7) 0.2 (700.5) Proceeds from new interest-bearing debt Repayments of interest-bearing debt 15, 18, 19 15, 18, 19 1 290.0 (816.5) Share issue Dividends paid Interest paid Net cash flow from financing activities Net cash flow Cash and deposits at 1 January Cash and deposits at 31 December 14 13 20 65.8 (34.0) (41.6) 463.7 (65.3) 122.4 57.1 191.3 (83.7) 2.3 64.3 (0.3) 37.3 (11.5) 63.0 (14.4) 248.3 0.3 (211.0) 0.3 (210.4) 332.2 (198.0) 0.0 (125.8) (37.3) (28.9) 9.0 113.4 122.4 29 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (USD million) Share capital Other equity Cash flow currency hedges translation Total equity Foreign Equity at 31 December 2013 65.9 Net profit Other comprehensive income Total comprehensive income Dividend (note 13) 0.0 0.0 0.0 0.0 Equity at 31 December 2014 65.9 Net loss Other comprehensive income Total comprehensive income Share issue Dividend (note 13) 0.0 0.0 0.0 6.2 0.0 Equity at 31 December 2015 72.1 623.1 178.8 0.0 178.8 (125.8) 676.1 (50.6) 0.0 (50.6) 59.6 (34.0) 651.1 8.2 0.0 (38.0) (38.0) 0.0 (29.8) 0.0 (9.5) (9.5) 0.0 0.0 (39.3) 42.6 0.0 (6.2) (6.2) 0.0 36.4 0.0 (5.0) (5.0) 0.0 0.0 31.4 739.7 178.8 (44.2) 134.6 (125.8) 748.5 (50.6) (14.5) (65.1) 65.8 (34.0) 715.2 The legal form of the share capital and the share premium accounts are reflected in the statement of changes in equity of the accompanying parent financial statements. Other equity includes share premium reserve and retained earnings. 30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1: CORPORATE INFORMATION AND PRINCIPAL ACTIVITY Prosafe SE (the 'Company') is a public limited company domiciled in Larnaca, Cyprus. The registered office of the Company is Stadiou 126, 6020 Larnaca, Cyprus. The Company is listed on the Oslo Stock Exchange with ticker code PRS. The consolidated financial statements comprise the financial statements of the Company and its subsidiaries (together referred to as the 'Group'). The consolidated financial statements for the year ended 31 December 2015 were approved and authorised for issue in accordance with a resolution of the board of directors on 27 April 2016. The Group is the world's leading owner and operator of semi-submersible accommodation vessels. NOTE 2: BASIS OF PREPARATION The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) endorsed by the European Union (EU) and the requirements of the Cyprus Companies Law, Cap 113. The accounts have been prepared on a historical cost basis, except for derivative financial instruments which are stated at fair value. The consolidated financial statements are presented in US dollars (USD), and all values are presented in USD million unless otherwise stated. The accounting principles adopted are consistent with those of the previous financial year. JUDGMENTS. The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the disclosure of contingent liabilities at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods. ESTIMATES AND ASSUMPTIONS. The estimates and assumptions are assessed on a continuous basis. The estimates and assumptions which have the most significant effect on the amounts recognised in the financial statements relate to the going concern assumption, depreciation of fixed assets and impairment assessment of non-financial assets. Estimated useful life of the Group's semi-submersible accommodation/service vessels is 30 to 50 years dependent on the age at the time of acquisition and subsequent refurbishments. The management determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated, which requires management to estimate the future cash flow from the cash- generating units and to apply a suitable discount rate. Further details are given in note 8. NEW AND AMENDED STANDARDS The accounting policies adopted are consistent with those of the previous financial year. The following new and amended standards are relevant to the Group and have been adopted for the first time in these financial statements. IFRIC 21 – Levies IFRIC 21 clarifies when to recognise a liability to pay a levy that falls within the scope of IAS 37. The interpretation was issued by IASB in May 2013 and endorsed by the EU in June 2014. The amendments do not have a material impact on the Group's consolidated financial statements. 31 Annual Improvements to IFRS 2011-2013 Cycle In December 2013 IASB issued "Annual Improvements to IFRS 2011-2013 Cycle" and was endorsed by the EU in December 2014. The improvements amended four standards and mainly aim to provide clarifications. The amendments do not have a material impact on the Group's consolidated financial statements. Standards issued but not yet effective, which the Group has not early adopted IASB has issued multiple new standards and interpretations that may impact the Group, which are described below. These standards are not yet effective, and the Group has not early adopted these standards. The Group has not yet finalised the full analysis of the impact on the Group's consolidated financial statements of the standards below/and the effect the standards is expected to have on the consolidated financial statements is currently unknown. IFRS 9 Financial Instruments IFRS 9 will eventually replace IAS 39 Financial instruments: Recognition and Measurement and is effective from 1 January 2018 with earlier adoption allowed. The standard was issued July 2014, but is not yet endorsed by the EU. The standard deals with classification, measurement, hedge accounting and impairment of financial instruments, and will replace IAS 39 on these topics. IFRS 15 Revenue from Contracts with Customers IFRS 15 is a joint revenue recognition standard issued from IASB and FASB and is effective from 1 January 2018, with earlier adoption allowed. The standard presents a single, principles-based five-step model for determination and recognition of revenue to be applied to all contracts with customers. The standard replaces existing IFRS requirements in IAS 11 Construction Contracts and IAS 18 Revenue, as well as supplemental IFRIC guidance. The standard is not yet endorsed by the EU. IFRS 16 Leases IFRS 16 was issued by IASB in January 2016. The standard principally requires lessees to recognize assets and liabilities for all leases and to present the rights and obligations associated with these leases in the statement of financial position, and is effective from 1 January 2019. Going forward, lessees will therefore no longer be required to make the distinction between finance and operating leases that was required in the past in accordance with IAS 17. The standard is not yet endorsed by the EU. NOTE 3: SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION. The consolidated financial statements comprise the financial statements of the parent company and its subsidiaries. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, income and expenses, unrealised gains and losses and dividends resulting from intra-group transactions are eliminated in full. BUSINESS COMBINATIONS AND GOODWILL. Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration 32 transferred, measured at acquisition date fair value. Acquisition related costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit and loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash generating unit retained. FOREIGN CURRENCY TRANSLATION. The presentation currency is USD. This is also the functional currency for the parent company. Transactions in other currencies than the functional currency are translated at the exchange rate prevailing at the transaction date. Monetary items in other currencies than the functional currency are translated to the functional currency at the exchange rate on the reporting date, and the currency difference is recognised in the profit and loss account. Non-monetary items in other currencies than the functional currency are translated at the exchange rate at the transaction date. When consolidating companies with a functional currency other than the USD, profit and loss items are translated at the monthly average exchange rate, while balance sheet items are translated at the exchange rate on the reporting date. Translation differences are taken to other comprehensive income. On disposal of a foreign operation, the deferred cumulative amount recognised in other comprehensive income, relating to that particular operation, is recognised in the income statement. SEGMENT REPORTING. For management and monitoring purposes, the Group is organised into one segment; chartering and operation of accommodation/service vessels. For geographical information, reference is made to note 4. REVENUE RECOGNITION. Some of the Group's vessels operate on time charters, and others on bareboat charters. Revenue is recognised to the extent that it is probable that the economic benefits will flow to Prosafe and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received. Charter income is recognised on a straight line basis over the period the vessel has operated. Mobilisation and demobilisation fees are recognised in the period in which the mobilisation or demobilisation takes place. Prosafe does not transfer the risks or benefits of ownership of the asset to the customers and none of the contracts are accounted for as a financial lease. Management, crew services and other related income are recognised in the period the services 33 are rendered. Interest income is recognised on an accrual basis. Interest income is included in financial items in the income statement. Dividends are recognised when Prosafe’s right to receive the payment is established. Proceeds from customers for catering and other services that is provided by sub-contractors of Prosafe is recognised as reimbursement revenue. These services are recognised in the period when the services are rendered. PROVISIONS are recognised when, and only when, the Group has a present obligation as a result of events that have taken place, and it can be proven probable that a financial settlement will take place as a result of this liability, and that the size of the amount can be measured reliably. Provisions are reviewed on each balance sheet date and their level reflects the best estimate of the liability. When Prosafe expects some or all of a provision to be reimbursed, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense relating to any provision is presented in the income statement net of any reimbursement. TANGIBLE ASSETS are stated at acquisition cost less cumulative depreciation and accumulated impairment losses, if any. Assets are depreciated on a straight-line basis over their estimated economically useful lives, with account taken of their estimated residual value. Management makes annual assessments of residual value, methods of depreciation and the remaining economic life of the assets. Components of an asset which have an estimated shorter life than the main component of the asset are accordingly depreciated over this shorter period. Acquisition cost includes costs directly attributable to the acquisition of the assets. Subsequent expenditures are added to the book value of the asset or accounted for on a separate basis, when it is likely that future benefits would derive from the expenditures. The vessels are subject to a periodic survey every five years, and associated costs are amortised over the five-year period to the next survey. Other repair and maintenance costs are expensed in the period they are incurred. Expenditures for new builds are capitalised, including instalments paid to the yard, project management costs, and costs relating to the initial preparation, mobilisation and commissioning until the vessel is placed into service. In accordance with IAS 23, borrowing costs are capitalised on qualifying assets. Tangible fixed assets are depreciated on a straight line basis over their useful lifetime as follows: • Semi-submersible vessels – 5 to 50 years dependent on the age at the time of the acquisition and subsequent refurbishments • Buildings – 20 to 30 years • Equipment – 3 to 5 years IMPAIRMENT OF NON-FINANCIAL ASSETS. The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset's recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or cash generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risks specific to the asset. In determining fair value less costs to sell, recent market transactions are taken into account, if available. 34 If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples. The Group bases its impairment calculation on a detailed forecast calculation which is prepared for the Group’s cash generating units. The forecast calculation is generally covering a period of five years. For longer periods, a long term growth rate is calculated and applied to project future cash flows after the fifth year. For non-financial assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, Prosafe estimates the asset’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. IMPAIRMENT OF GOODWILL. Goodwill is tested for impairment annually, and when circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cash generating units to which the goodwill relates. When the recoverable amount is lower than the carrying amount, the impairment loss is recognised in the income statement. Impairment losses related to goodwill cannot be reversed in future periods. FINANCIAL ASSETS Initial recognition Financial assets are classified as financial assets at fair value through profit or loss, loans and receivables or as derivatives designated as hedging instruments in an effective hedge, as appropriate. Prosafe determines the classification of its financial assets at initial recognition. Financial assets are recognised initially at fair value plus directly attributable costs, with the exception of assets measured at fair value through profit and loss. Prosafe’s financial assets include cash and short-term deposits, trade and other receivables and financial derivatives. Financial assets at fair value through profit and loss Financial assets at fair value through profit and loss include financial assets held for trading. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near future. This category also includes derivative instruments entered into that do not meet the hedge accounting criteria as defined by IAS 39. Financial assets at fair value through profit and loss are carried in the balance sheet at fair value with gains and losses recognised in the income statement. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such financial assets are carried at amortised cost using the effective interest rate method. Gains and losses are recognised in the consolidated income statement when the loans and receivables are derecognised or impaired, as well as through the amortisation process. 35 Impairment of financial assets The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets are deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliable estimated. FINANCIAL LIABILITIES Initial recognition Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, financial liabilities measured at amortised cost or as derivatives designated as hedging instruments in an effective hedge, as appropriate. Prosafe determines the classification of its financial liabilities at initial recognition. Financial liabilities are recognised initially at fair value and, in case of loans and borrowings, net of directly attributable costs. Prosafe’s financial liabilities include non-derivative financial instruments (trade and other payables, bank overdraft, loans and borrowings, financial guarantee contracts) and derivative financial instru- ments. Non-derivative financial instruments Subsequent to initial recognition, these liabilities are measured at amortised cost using the effective interest method. Financial liabilities at fair value through profit and loss Financial liabilities at fair value through profit and loss include financial liabilities held for trading. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near future. This category also includes derivative instruments entered into that do not meet the hedge accounting criteria as defined by IAS 39. Gains and losses on liabilities held for trading are recognised in the income statement. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet 36 date. For financial instruments where there is no active market, fair value is determined using valuation techniques. Such techniques may include using recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis or other valuation models. EMPLOYEE BENEFITS. Companies within the Group make contributions to pension schemes that are defined contribution plans. The companies’ payments are recognised in the income statement for the year to which the contribution applies. SHARE-BASED PLANS. The Group has an option plan for key personnel which provides a cash settlement if an option is exercised. The fair value of the options is expensed over the period until vesting with recognition of a corresponding liability which also includes social security tax where relevant. This liability is remeasured at each balance sheet date up to and including the settlement date with changes in fair value recognised in the income statement. BORROWING COSTS. Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. Other borrowing costs are capitalised as calculated using the effective interest method. DERIVATIVE FINANCIAL INSTRUMENTS. Prosafe uses derivative financial instruments such as forward currency contracts and interest rate swaps to hedge its foreign currency risks and interest rate risks respectively. Such instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains and losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting and the ineffective portion of an effective hedge, are recognised in the income statement. The fair value of forward currency contracts is the discounted difference between the forward exchange rate and the contract price. The fair value of interest rate swap contracts is determined by reference to market price for similar instruments. At the inception of a hedge relationship, Prosafe formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows, and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Prosafe applies hedge accounting only for the interest rate swaps. Hedges which meet the strict criteria for hedge accounting are accounted for as follows: Cash flow hedges The effective portion of the gain and loss on the hedging instrument is recognised directly in other comprehensive income, while any ineffective portion is recognised immediately in the income statement. 37 Amounts recognised as other comprehensive income are transferred to the income statement when the hedged transaction affects profit and loss, such as when the hedged financial income or financial expense is recognised. Current versus non-current classification Derivative instruments that are not a designated and effective hedging instrument are classified as current or non-current or separated into a current and non-current portion based on an assessment of the facts and circumstances. When Prosafe holds a derivative as an economic hedge for a period beyond 12 months after the balance sheet date or a derivative instrument is designated as an effective hedging instrument, the fair value of the derivative instrument is classified as current or non-current consistent with the classification of the underlying item. Economic hedges are not treated as hedging for accounting purposes. INCOME TAXES in the income statement include taxes payable and changes in deferred tax. Deferred tax is calculated on the basis of temporary differences between book and tax values that exist at the end of the period. Deferred tax asset is recognised in the statement of financial position when it is probable that the tax benefit can be utilised. Deferred tax and deferred tax asset are measured at nominal value. Income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered or paid to the taxation authorities. Deferred tax liabilities are measured at the tax rates that are expected to apply in the year when the liability is settled, based on tax rates that have been enacted or substantively enacted at the reporting date. Deferred tax is provided using the liability method. Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. CASH AND DEPOSITS comprise cash at banks and short-term deposits with an original maturity of three months or less, which are subject to an insignificant risk of changes in value. DIVIDEND distribution to the shareholders is recognised in the financial statementson the date on which the shareholders' right to receive payment is established. SHAREHOLDER'S EQUITY. Any difference between the issue price of share capital and the nominal value is recognised as share premium. The costs incurred attributable to the issue of share capital are deducted from equity. OWN SHARES. Own equity instruments which are reacquired are recognised at cost and deducted from equity. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments. 38 NOTE 4: SEGMENT REPORTING Prosafe has one segment, which is chartering and operation of accommodation/service vessels. Operating revenues by geographical location 2015 2014 Europe excl. Cyprus Cyprus Americas Australia/Asia Total operating revenues 307.3 0.0 111.5 55.9 474.7 322.8 0.0 165.2 60.7 548.7 The revenue allocation is based on place of operation of the vessel. Operating revenues from major customers situated in: Europe1 Americas1 Australia/Asia1 Europe2 Americas2 Europe3 Europe4 1) Operating revenues in USD million 2) Percentage of total revenues 2015 1) 84.0 78.2 55.8 47.3 33.3 32.5 0.0 2) 18 % 16 % 12 % 10 % 7 % 7 % 0 % 2014 1) 0.0 110.9 39.4 25.9 54.3 60.3 113.4 2) 0 % 20 % 7 % 5 % 10 % 11 % 21 % Total assets by geographical location 2015 2014 Europe excl. Cyprus Cyprus Americas Australia/Asia Total assets NOTE 5: OTHER OPERATING REVENUES Mobilisation/demobilisation income Reimbursement revenues Total other operating revenues 1 603.2 1 031.8 31.2 198.6 354.2 58.7 266.5 459.8 2 187.2 1 816.8 2015 2014 5.4 43.9 49.3 8.8 58.7 67.5 39 NOTE 6: EMPLOYEE BENEFITS, MANAGEMENT REMUNERATION AND AUDIT FEE Wages and salaries Contract personnel Other personnel-related expenses Social security taxes Pension expenses Other remuneration Change in share option provision Total employee benefits 2015 2014 58.5 14.8 11.2 5.8 5.1 3.4 0.0 98.9 58.9 21.7 13.7 7.6 6.2 3.0 (0.4) 110.6 Bonus scheme The Company's bonus scheme embraces the executive management and other key employees. The bonus depends on achieving defined results relating to earnings, the attainment of strategic goals and HSE. Share options The executive management and other key employees (in total 12 persons) were included in a synthetic share option programme that expired in 2015. The outstanding options were granted in 2011. When a synthetic option was exercised, the option holder was paid a cash consideration corresponding to the difference between the share price at the exercise date adjusted for any dividends paid during the period, and the share price at grant date. All synthetic options were capped at two times strike price. Net proceeds after tax were to be used to purchase shares in the Company at market price. The options were valued by using the Black-Scholes option pricing model. The right to exercise was subject to the employee being employed during the vesting period. Share price at 31 December (NOK) Weighted average fair value (NOK) at 31 December Provision at 31 December (USD million) 2015 2014 N/A N/A 0.0 23.00 0.18 0.0 40 Options granted 2008 Options granted 2009 Options granted 2011 Forfeited in 2010 Exercised in 2011 Forfeited in 2011 Exercised in 2012 Forfeited in 2012 Exercised in 2013 Forfeited in 2013 Forfeited in 2014 Expired in 2014 Expired in 2015 Outstanding options at 31 December 2015 Exercisable at 31 December 2015 Pension and severance pay 2 768 829 910 000 770 000 (917 524) (70 000) (20 000) (673 000) (2 036 305) (32 000) (70 000) (30 000) (315 000) (285 000) 0 0 Certain members of the corporate management have agreements on severance pay. Under these agreements, the Company guarantees a remuneration corresponding to the base salary received at the time of departure for a period of up to two years after the normal six-month period of notice. With the exception of the agreement with the CEO, these agreements specify that benefits received from new employers are deducted from the remuneration due, unless the person concerned left as a result of an acquisition, sale or merger. The CEO has an agreement on early retirement pension after the age of 60 and until the age of 67. With full earning of pension entitlement, the annual early retirement pension will equal 24 times the Norwegian national insurance base rate. In accordance with the code of practice for corporate governance recommended by the Oslo Stock Exchange, remuneration for the corporate management and the board of directors is specified below. Senior officers (USD 1 000) Year Salary Bonus 1) Pension 2) benefits Other Karl Ronny Klungtvedt (CEO) Robin Laird (Deputy CEO) Stig Christiansen (CFO from Aug 2015) Sven Børre Larsen (CFO to Aug 2015) Karl Ronny Klungtvedt (CEO) Robin Laird (Deputy CEO) Sven Børre Larsen (CFO) 2015 2015 2015 2015 2014 2014 2014 498 523 117 227 619 561 381 213 251 0 127 354 329 220 159 79 18 29 181 84 44 28 189 10 25 36 264 58 1) Payment based on previous year's achievements 2) For the CEO, the figures include increase in early retirement pension liability 41 Board of directors (USD 1 000) Harald Espedal (chair from Oct 2015) Ronny Johan Langeland (chair to Oct 2015) Christian Brinch Roger Cornish Tasos Ziziros Nancy Ch. Erotocritou Carine Smith Ihenacho Ronny Johan Langeland (chair from May 2014) Michael Raymond Parker (chair to May 2014) Christian Brinch Roger Cornish Carine Smith Ihenacho Nancy Ch. Erotocritou (from May 2014) Tasos Ziziros (from May 2014) Christakis Pavlou (to May 2014) Year Board fees 1) 2015 2015 2015 2015 2015 2015 2015 2014 2014 2014 2014 2014 2014 2014 2014 25 113 119 101 87 85 81 159 68 122 112 95 59 59 38 1) If applicable, figures include compensation from audit committee and compensation committee. Auditors' fee (USD 1 000) Audit Fees for other services Total auditors' fee Auditor's fee is included in general and administrative expenses (note 7). NOTE 7: OTHER OPERATING EXPENSES Repair and maintenance Other vessel operating expenses General and administrative expenses Total other operating expenses 2015 2014 324 15 338 298 34 332 2015 2014 24.3 49.5 39.1 112.9 28.5 53.1 43.9 125.5 42 NOTE 8: TANGIBLE ASSETS AND GOODWILL New Vessels builds Equipment Buildings Goodwill Total Acquisition cost 31 December 2013 Additions Disposals Acquisition cost 31 December 2014 Additions Disposals Acquisition cost 31 December 2015 1 537.0 248.9 146.4 (4.0) 62.9 0.0 1 679.4 311.8 783.8 (2.1) 2 461.1 (83.3) 0.0 228.5 Accumulated depreciation 31 December 2013 590.1 Accumulated depreciation (1.4) on disposals Depreciation for the year Accumulated depreciation 31 December 2014 63.4 652.1 Accumulated depreciation (0.7) on disposals Depreciation for the year Impairment Accumulated depreciation 31 December 2015 85.5 145.6 882.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.7 1.2 0.0 5.9 0.2 0.0 6.1 3.5 0.0 0.1 3.6 0.0 0.4 0.0 4.0 7.4 226.7 2 024.8 0.5 0.0 7.9 0.0 0.0 7.9 3.6 0.0 0.9 4.5 0.0 0.5 0.0 5.0 0.0 0.0 211.0 (4.0) 226.7 2 231.6 0.0 0.0 700.7 (2.1) 226.7 2 930.2 0.0 597.2 0.0 (1.4) 0.0 0.0 64.3 660.2 0.0 (0.7) 0.0 0.0 0.0 86.5 145.6 891.5 Net carrying amount 31 December 2015 Net carrying amount 31 December 2014 Depreciation rate (%) Economically useful life (years) 1 578.6 228.5 2.1 2.9 226.7 2 038.7 1 027.3 311.8 2.2 3.4 226.7 1 571.5 2-20 5-50 - - 20-33 3-5 3-5 20-30 - - - - New builds include prepayment of 20 % of the yard cost for the new builds, owner-furnished equipment and other project costs incurred. For details, reference is made to note 24. Tangible fixed assets and goodwill are initially recorded at cost. Subsequent to recognition, tangible fixed assets are stated at cost less accumulated depreciation and any accumulated impairment losses. These assets are depreciated on a straight line basis. The costs of upgrades and modification of vessels are capitalised. 43 Borrowing costs are capitalised as part of the asset in accordance with revised IAS 23. As at 31 December 2015, capitalised borrowing costs amount to USD 28.4 million (31 December 2014: USD 15.8 million). The amount of borrowing costs capitalised in the period equalled USD 12.8 million (USD 7.5 million) and the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation was 2.7% (2.8%). Estimated useful life for the semi-submersible accommodation vessels is 30-50 years. Certain equipment on a vessel is depreciated over a shorter period than the life of the vessel itself. The estimated scrap value is USD 3 million per vessel. This estimate is based on steel prices and is reviewed on an annual basis. Management performed an annual impairment assessment of the fixed assets in line with IFRS. Management looked at each individual vessel as a cash generating unit, and concluded that there is an impairment relating to several of the accommodation vessels due to a weaker market outlook. On this basis, an impairment charge amounting to USD 145.6 million has been made in the accounts. The estimated recoverable amounts of the assets - the values in use - are as follows. Jasminia Safe Hibernia Safe Britannia Safe Regency Safe Lancia Safe Bristolia Safe Astoria Safe Concordia Impairment Recoverable amount 9.1 4.3 21.1 21.0 13.7 57.1 2.3 17.0 145.6 0.0 0.0 0.0 0.0 0.0 71.8 90.2 183.2 345.2 The goodwill of USD 226.7 million relates to the acquisition of Consafe Offshore AB in 2006. Prosafe has only one reporting segment comprising of all accommodation/service vessels which the goodwill has been allocated to. The recoverable amount has been identified by calculating the value in use. The calculation is based on the present value of the estimated cash flow. The discount rates applied reflect management's estimate of the risks specific to each unit. The present value of this cash flow exceeds the carrying value, and no need for a write-down is indicated. The present value of the estimated cash flows from the cash-generating units, is based on the following inputs: Revenues - Current contracts portfolio and contract renewals reflecting current market conditions, remaining life of asset, and historical utilisation rates Expenses - Operating expenses and overheads reflecting current market conditions and historical utilisation rates Capital expenditures - Capex reflecting long-term capex projections (excluding value enhancing investments) Pre-tax discount rate 8%. 44 - Sensitivity: a 1% increase in the pre-tax discount rate would have lead to an additional impairment of around USD 30 million on the cash generating units (vessels), and the goodwill would have been impaired by USD 100 million. - Sensitivity: a 2% increase in the pre-tax discount rate would have lead to an additional impairment of around USD 95 million on the cash generating units (vessels), and the goodwill would have been impaired by USD 175 million. NOTE 9: OTHER FINANCIAL ITEMS Currency gain Fair value adjustment currency forwards Total other financial income Currency loss Fair value adjustment currency forwards Amortisation of borrowing costs Other financial expenses Total other financial expenses 2015 2014 0.0 44.1 44.1 (55.7) 0.0 (12.8) (5.1) (73.6) 76.4 0.0 76.4 0.0 (83.4) (5.3) (7.7) (96.4) 45 NOTE 10: FINANCIAL ITEMS - IAS 39 CATEGORIES Fair value Financial liabilities Loans and through measured at Year ended 31 Dec 2015 receivables profit and loss amortised cost Total Interest income Fair value adjustment currency forwards Total financial income Interest expenses Amortisation of borrowing costs Other financial expenses Currency loss 1) Total financial expenses Net financial items 0.2 0.0 0.2 0.0 0.0 0.0 0.0 0.0 0.2 0.0 44.1 44.1 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (41.6) (12.8) (5.1) 0.0 0.2 44.1 44.3 (41.6) (12.8) (5.1) (55.7) (59.5) (115.2) 44.1 (59.5) (70.9) Fair value Financial liabilities Loans and through measured at Year ended 31 Dec 2014 receivables profit and loss amortised cost Total Interest income Currency gain 1) Total financial income Interest expenses Fair value adjustment currency forwards Amortisation of borrowing costs Other financial expenses Total financial expenses Net financial items 0.3 0.0 0.3 0.0 0.0 0.0 0.0 0.0 0.3 0.0 0.0 0.0 0.0 (83.4) 0.0 0.0 (83.4) 0.0 0.0 0.0 (37.3) 0.0 (5.3) (7.7) 0.3 76.4 76.7 (37.3) (83.4) (5.3) (7.7) (50.3) (133.7) (83.4) (50.3) (57.0) 1) Currency effects (gain/loss) are excluded from the category break-down, but added to the total for net effect. 46 NOTE 11: TAXES Taxes in income statement: Taxes payable Change in deferred tax Total taxes in income statement Temporary differences: Exit from Norwegian tonnage tax system Non-current assets Current assets Current liabilities Basis for deferred tax Recognised deferred tax Deferred tax 1 January Change in deferred tax in income statement Translation difference Deferred tax 31 December 2015 2014 13.2 (2.7) 10.5 32.8 (1.5) 0.0 0.0 31.3 7.8 13.4 (2.7) (2.9) 7.8 15.8 (3.3) 12.5 48.5 (2.2) 0.0 3.3 49.7 13.4 20.1 (3.3) (3.4) 13.4 Payable tax as at 31 December 13.7 17.3 The cumulated tax loss carried forward in Cyprus as at 31 December 2015 and 2014 amounts to USD 47 million and USD 63.1 million respectively. The tax rate in Cyprus is 12.5%. No deferred tax asset is recognised in respect of this tax loss carried forward as utilisation of this deferred tax asset is deemed not probable. The tax loss for each year may be carried forward for five years. The majority of the Group's vessels are subject to taxation based on the special rules for taxation of shipping and offshore companies in Singapore. Profit from these charters is not taxable to Singapore, but the company pays tax deducted at source in some of the countries in which it operates. The deferred tax liability related to the enforced departure of the vessel business from the Norwegian tonnage tax system effective 1 January 2006, was initially calculated to NOK 780 million equivalent to USD 115 million applying the exchange rate prevailing on this date. This liability is paid at a rate of 20 per cent annually on the outstanding balance. The tax rate in Norway was 27% in 2015, but effective 1 January 2016 the tax rate is 25%. 47 NOTE 12: EARNINGS PER SHARE Earnings per share are calculated by dividing net profit by the weighted average number of ordinary shares outstanding during the year. There are no dilutive share options. Net profit/(loss) Weighted average number of outstanding shares (1 000) Basic earnings per share 2015 2014 (50.6) 178.8 237 719 235 973 (0.21) 0.76 Weighted average number of outstanding and potential shares (1 000) 237 719 235 973 Diluted earnings per share (0.21) 0.76 NOTE 13: DIVIDENDS Dividend declared during the year Total dividends declared Dividends per share (NOK) 2015 2014 34.0 34.0 125.8 125.8 1.12 3.29 NOTE 14: SHARE CAPITAL AND SHAREHOLDER INFORMATION Issued and paid number of ordinary shares at 31 December Authorised number of shares at 31 December Nominal value at 31 December Number of shareholders at 31 December 2015 2014 259 570 359 275 924 148 EUR 0.25 3 961 235 973 059 275 924 148 EUR 0.25 4 335 During the year the Company issued 23,597,300 additional shares of nominal value of €0.25 at a premium of €2.48. 48 Largest shareholders/groups of shareholders at 31.12.2015 No of shares Percentage State Street Bank (nom.) North Sea Strategic Investments AS RBC Investor Services Trust (nom.) DNB State Street Bank (nom.) Folketrygdfondet Pareto Aksje Norge Odin Norge FLPS Six Sis AG (nom.) Swedbank Robur Småbolagsfond Norden State Street Bank (nom.) Schroder International Selection Pareto AS JP Morgan Chase Bank (nom.) Nordnet Bank AB (nom.) Statoil Pensjon Verdipapirfondet Alfred Berg Norge KLP AksjeNorge Indeks Swedbank Robur Nordenfond 47 071 218 31 526 403 20 175 567 16 452 694 11 643 537 8 615 958 6 717 697 6 058 000 5 374 600 4 369 896 3 969 484 3 503 573 2 922 040 2 752 292 2 591 036 2 587 560 2 335 927 2 067 232 2 058 031 2 000 057 18.1 % 12.1 % 7.8 % 6.3 % 4.5 % 3.3 % 2.6 % 2.3 % 2.1 % 1.7 % 1.5 % 1.3 % 1.1 % 1.1 % 1.0 % 1.0 % 0.9 % 0.8 % 0.8 % 0.8 % Total 20 largest shareholders/groups of shareholders 184 792 802 71.2 % All ordinary shares rank equally with regard to the Company's residual assets. Holders of these shares are entitled to dividends from time to time and are entitled to one vote per share at general meetings of the Company. 49 NOTE 15: INTEREST-BEARING DEBT As of 31 December 2015, Prosafe’s interest-bearing debt totalled USD 1 247 million. Loans secured by mortgages (credit facility) accounted for USD 945 million of this total and unsecured bond loans accounted for about USD 302 million. Cross default clauses apply in both bank and bond loan agreements. Credit facility Bond loans Total interest-bearing debt Debt in NOK Debt in USD Total interest-bearing debt Long-term interest-bearing debt Current interest-bearing debt Total interest-bearing debt USD 1,300 million credit facility 2015 945.0 302.0 1 247.0 302.0 945.0 1 247.0 1 107.5 139.5 1 247.0 2014 440.0 390.1 830.1 390.1 440.0 830.1 830.1 0.0 830.1 In February 2015, the USD 1,100 million and USD 420 million credit facilities were refinanced in a new credit facility of USD 1,300 million with a tenor of seven years. The credit facility consists of two term loan tranches of USD 800 million and USD 200 million (drawn on delivery of Safe Zephyrus in January 2016) and a revolving credit facility of USD 300 million. The term loan tranches are reduced semi- annually with USD 55 and USD 10 million, respectively. In January 2016, the syndicate banks granted voluntary options to skip two scheduled amortizations. As of 31 December 2015, USD 100 million was available under the revolving credit facility and the term loan for Safe Zephyrus was unutilised. The annual interest rate above 3-month LIBOR depends on leverage ratio; 2.00 per cent. per annum if below 3.00 2.15 per cent. per annum if above 3.00 and less than or equal to 4.00 2.30 per cent. per annum if above 4.00 and less than or equal to 5.00 2.50 per cent. per annum if above 5.00 and less than or equal to 5.50 2.75 per cent. per annum if above 5.50 Financial covenants as per amendment in December 2015 (ref note 24) Liquidity: Leverage ratio: Minimum USD 65 million 1) Net Debt 2) / EBITDA 3) must not exceed; 5.0 until 31 December 2015 6.0 1st January 2016 – 31 December 2018 5.0 1st January 2019 – maturity Minimum 25 per cent 4) Equity ratio: Collateral maintenance: Market value collateral vessels / facilities outstanding above 125 per cent until 31 December 2018, and 150 per cent thereafter 50 USD 288 million credit facility In May 2014, the company secured a new credit facility. The credit facility, which has a maturity of seven years, consists of two tranches of USD 144 million (USD 288 million in total) that can be drawn upon delivery of the two new builds, Safe Notos (delivered in February 2016 and Safe Eurus (to be delivered in 2016). The availability under each tranche is reduced quarterly with USD 3 million, starting 3 months after delivery of the tranche security. The annual interest rate above 3-month LIBOR depends on leverage ratio; 2.25 per cent. per annum if below 4.00 2.50 per cent. per annum if above 5.00 and less than or equal to 5.50 2.75 per cent. per annum if above 5.50 Financial covenants as per amendment in December 2015 (ref note 24) Liquidity: Leverage ratio: Minimum USD 65 million 1) Net Debt 2) / EBITDA 3) must not exceed; 5.0 until 31 December 2015 6.0 1st January 2016 – 31 December 2018 5.0 1st January 2019 – maturity" Minimum 25 per cent 4) Equity ratio: Collateral maintenance: Market value vessels/total outstanding loans above 125 per cent 1) Including up to USD 25 million of commitment available for utilization 2) Less cash and excluding debt related to new builds under construction 3) Annualisation of contribution from new vessels that have not been in operation for a full year 4) Book equity to total assets Financial covenants as of 31 December 2015 - Bank credit facilities Cash and deposits Amount available for utilisation, revolving credit facility (max USD 25 million) Liquidity (minimum USD 65 million) Credit facility Bond loan PRS07 Bond loan PRS08 Bond loan PRS09 Bond loan PRS10 Bond loan PRS11 Total interest-bearing debt Cash and deposits Interest-bearing debt related to new builds Bank guarantees EBITDA 1) last 12 months Leverage ratio (maximum 5.0) 57.1 25.0 82.1 945.0 29.5 56.8 56.8 79.5 79.5 1 247.0 57.1 228.5 32.9 391.0 2.5 1) Including annualisation of contribution from new builds and conversions that have not been in operation for a full year. 51 Equity Total assets Equity ratio (minimum 25%) Market value collateral vessels Facilities outstanding Collateral maintenance (minimum 125%) 715.2 2 187.2 33 % 1 707.5 945.0 181 % Bond loans The bond debt is divided into five loans of NOK 500 million maturing February 2016 (PRS07), NOK 500 million maturing February 2017 (PRS08), NOK 500 million maturing January 2020 (PRS09), NOK 700 million maturing October 2018 (PRS10) and NOK 700 million maturing September 2019 (PRS11). All bonds are listed on the Oslo Stock Exchange. Loan PRS07 PRS08 PRS09 PRS10 PRS11 Principal Outstanding NOK 260 million NOK 260 million NOK 500 million NOK 500 million NOK 500 million NOK 500 million NOK 700 million NOK 700 million NOK 700 million NOK 700 million Maturity Feb 2016 Feb 2017 Jan 2020 Oct 2018 Sep 2019 Interest Loan margin 3m Nibor 3m Nibor 3m Nibor 3m Nibor 3m Nibor 3.50 % 3.75 % 3.75 % 2.95 % 3.10 % Bond loans - Financial covenants Value adjusted equity ratio: Minimum 30 per cent Leverage Ratio: Debt / EBITDA 1) must not exceed; 5.0 1) Annualisation of contribution from new vessels and conversions that have not been in operation for a full year. As of 31 December 2015, the Group was in compliance with all covenants on interest-bearing debt. In February 2016, the bond holders approved to adjust the equity and leverage ratio covenants to be aligned with the covenants in the bank credit facilities. See note 24 for further information. The Group has on 22 April 2016 been granted a waiver of a liquidity covenant relating to the credit facilities. The new temporary minimum liquidity level is USD 20 million until the end of the third quarter of 2016. This is applicable to both the USD 1.3 billion facility and the USD 288 million new build financing facility. 52 Financial covenants as of 31 December 2015 - Bond loans Credit facility Bond loan PRS07 Bond loan PRS08 Bond loan PRS09 Bond loan PRS10 Bond loan PRS11 Total interest-bearing debt Bank guarantees EBITDA 1) last 12 months Leverage ratio (maximum 5.0) 945.0 29.5 56.8 56.8 79.5 79.5 1 247.0 32.9 446.3 2.9 1) For PRS08, PRS09, PRS10 and PRS11 EBITDA includes annualisation of contribution from new builds and conversions that have not been in operation for a full year. For PRS07, maturing February 2016, no EBITDA annualisation applies. As of 31 December 2015, Leverage Ratio for PRS07 was 4.87. Value adjusted total equity Value adjusted total assets Equity ratio (minimum 30%) 1 161.9 2 633.9 44 % As of 31 December 2015, the Group was in compliance with all covenants on interest-bearing debt. In February 2016, the bond holders approved to adjust the equity and leverage ratio covenants to be aligned with the covenants in the bank credit facilities. See note 24 for further information. 3 month LIBOR is the basis for interests on the loans denominated in USD, whereas 3 month NIBOR is the basis for interests on the loans denominated in NOK. On average, LIBOR interest fixings were higher and NIBOR interest fixings were lower in 2015 compared to 2014. Sellers credits In November 2015, Jurong Shipyard Pte Ltd. granted Prosafe a sellers’ credit of USD 30 million as a reduction on the final delivery instalment of the Safe Zephyus. The sellers’ credit is due to be repaid in a single payment on or before 15 June 2017, together with the annual interest rate of 6.7%. In January 2016, Cosco (Qidong) Offshore Co. Ltd. granted a sellers’ credit of around USD 29 million as a reduction on the final delivery instalment of the Safe Notos. The amount reduces the final delivery instalment for the vessel, and is due to be repaid in a single payment on or before 31 December 2016. The interest cost is estimated to be around 6%. 53 NOTE 16: OTHER CURRENT LIABILITIES Various accrued costs Accrued interest costs Deferred income Public taxes Provision share option costs Other interest-free current liabilities Total interest-free current liabilities 2015 2014 79.8 5.0 4.6 0.3 0.0 4.1 93.9 53.1 3.8 1.2 0.4 0.0 0.0 58.5 NOTE 17: MORTGAGES AND GUARANTEES As of 31 December 2015, Prosafe’s interest-bearing debt secured by mortgages totalled USD 945 million. The debt was secured by mortgages on the accommodation/service vessels Safe Astoria, Safe Bristolia, Safe Caledonia, Safe Concordia, Safe Scandinavia, Regalia, Safe Boreas (net carrying value USD 1,391 million) and Safe Zephyrus when delivered. Negative pledge clauses apply on shares in the vessel owning subsidiaries. Earnings accounts are pledged as security for the credit facilities, but cash will only be restricted if a continuing event of default occurs. Bank guarantees amounted to NOK 290 million at 31 December 2015 (no outstanding bank guarantees as at 31 December 2014). The guarantees were secured by parent company guarantee and mortgages on the accommodation/service vessels Safe Regency, Safe Lancia, Safe Hibernia, Safe Britannia and Jasminia (net carrying value USD 0 million). As of 31 December 2015, Prosafe had issued parent company guarantees to customers on behalf of its subsidiaries in connection with the award and performance of contracts totalling approximately USD 124 million. As of 31 December 2014, Prosafe’s interest-bearing debt secured by mortgages totalled USD 440 million. The debt was secured by mortgages on shares in Prosafe Rigs Pte Ltd and Prosafe Offshore Pte Ltd, and the accommodation/service vessels owned by these entities. The book value of the mortgaged fleet was USD 1 027.3 million. Prosafe had issued parent company guarantees to customers on behalf of its subsidiaries in connection with the award and performance of contracts. 54 NOTE 18: FINANCIAL ASSETS AND LIABILITIES As of 31 December 2015, the group had financial assets and liabilities in the following categories: Fair value Financial liabilities through measured at Year ended 31 Dec 2015 receivables loss cost Loans and profit and amortised Book value Fair value Cash and deposits Accounts receivable Other current assets Total financial assets Credit facility 1300 million 1) Bond loan PRS07 2) Bond loan PRS08 3) Bond loan PRS09 4) Bond loan PRS10 5) Bond loan PRS11 6) Fair value interest swaps 7) Fair value currency forwards Accounts payable Other current liabilities Total financial liabilities 57.1 60.0 26.3 143.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 48.5 40.7 0.0 0.0 89.2 0.0 0.0 0.0 0.0 57.1 60.0 26.3 57.1 60.0 26.3 143.4 143.4 945.0 945.0 905.0 29.5 56.8 56.8 79.5 79.5 0.0 0.0 17.8 84.8 29.5 56.8 56.8 79.5 79.5 48.5 40.7 17.8 84.8 29.6 55.4 46.6 69.0 65.1 48.5 40.7 17.8 84.8 1 349.7 1 438.9 1 362.4 1) Fair value reflects current market conditions with the assumption that the credit margin would increase from the actual 200 basis points to 275 basis points. The net present value of the interest advantage, discounted with USD 5-year swap rate, is around USD 40 million. 2,3,4,5,6) Fair value reflects current market conditions based on last trade prices as of 31 December 2015 (Bloomberg rates): PRS07 100.208, PRS08 97.487, PRS09 82.000, PRS10 86.757, PRS11 81.893 7) Interest swaps are treated as effective hedges (hedge accounting), and changes in fair value affect other comprehensive income, not profit and loss. Management assessed the cash and deposits, accounts receivables, other current assets, accounts payable and other current liabilities to approximate their carrying amounts largely due to the short- term maturities of these instruments. The Group enters into derivative financial instruments with various counterparties, principally financial institutions with investments grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate swaps and foreign exchange forward contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, interest rate and forward rate curves. All derivative contracts are secured under the USD 1,300 million credit facility. 55 Assets measured at fair value in the balance sheet The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2 - Inputs other than quoted prices included within level 1 that are observable for assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices) Inputs for assets or liabilities that are not based on observable market data (unobservable inputs). Level 3 - The currency forwards and interest swaps are valued based on current exchange rates and forward curves. Year ended 31 Dec 2015 Fair value currency forwards Fair value interest swaps Total financial assets/liabilities Total (40.7) (48.5) (89.2) Level 1 0.0 0.0 0.0 Level 2 (40.7) (48.5) (89.2) Level 3 0.0 0.0 0.0 56 As of 31 December 2014, the group had financial assets and liabilities in the following categories: Fair value Financial liabilities through measured at Year ended 31 Dec 2014 receivables loss cost Loans and profit and amortised Book value Fair value Cash and deposits Accounts receivable Other current assets Total financial assets Credit facility 1100 million 1) Bond loan PRS07 2) Bond loan PRS08 3) Bond loan PRS09 4) Bond loan PRS10 5) Bond loan PRS11 6) Fair value interest swaps Fair value currency forwards Accounts payable Other current liabilities Total financial liabilities 122.4 83.9 32.4 238.7 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 39.0 87.9 0.0 0.0 0.0 0.0 0.0 0.0 122.4 122.4 83.9 32.4 83.9 32.4 238.7 238.7 440.0 440.0 432.0 67.3 67.3 67.3 94.2 94.2 0.0 0.0 18.6 56.9 67.3 67.3 67.3 94.2 94.2 39.0 87.9 18.6 56.9 66.6 65.4 59.2 84.7 89.8 39.0 87.9 18.6 56.9 126.9 905.8 1 032.7 1 000.1 1) Fair value reflects current market conditions with the assumption that the credit margin would increase from the actual 187.5 basis points to 200 basis points. The net present value of the interest advantage, discounted with USD 5-year swap rate, is around USD 8 million. 2,3,4,5,6) Fair value reflects current market conditions based on prices estimated by the Norwegian Securities Dealers Association as of 31 December 2014: PRS07 99.000, PRS08 97.146, PRS09 87.955, PRS10 89.895, PRS11 95.313. Interest swaps are treated as effective hedges (hedge accounting), and changes in fair value affect other comprehensive income, not profit and loss. 7) Year ended 31 Dec 2014 Fair value currency forwards Fair value interest swaps Total financial assets/liabilities Total (87.9) (39.0) (126.9) Level 1 0.0 0.0 0.0 Level 2 (87.9) (39.0) (126.9) Level 3 0.0 0.0 0.0 57 NOTE 19: FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS Prosafe operates on a global basis with cash flows and financing in various currencies. This means that the Group is exposed to market risks related to fluctuations in exchange rates and interest rates. Prosafe's presentation currency is USD, and financial risk exposure is managed with financial instruments in accordance with internal policies and standards approved by the board of directors. Currency risk Prosafe is exposed to currencies other than USD associated with operating expenditure, capital expenditure, interest-bearing debt, tax, cash and deposits. Cash and deposits are mainly denominated in USD, GBP, EUR and NOK. Cash and deposits in currencies other than USD, are to a certain extent natural hedges for any GBP, EUR and NOK liabilities. The proportion of the total currency exposure hedged by use of financial derivatives will normally lie between 50 and 75 per cent for the next 12-month period, by using forward contracts. Operating expenditure Operating expenditure are mainly denominated in GBP and NOK, but depending on the country of operation and the nationality of the crew, operating expenses can also be in SGD, SEK, EUR, USD and BRL. Operating expenditure and maintenance related capital expenditure currencies other than USD is typically currency-hedged using forward contracts with a time horizon of 9-12 months. Capital expenditure Capital expenditure will, depending on the origin of equipment and the location of the yard, tend to be in USD, GBP, EUR and NOK. Planned capital expenditure in currencies other than USD is typically currency-hedged independent of time horizon, by using forward contracts. Interest bearing debt Interest bearing debt consists of both USD and NOK denominated liabilities. The principal amounts of liabilities denominated in other currencies than USD are fully hedged by using multiple forward contracts with different settlement dates with a time horizon of up to 12 months. At maturity, the forwards are rolled for further 12 months until debt maturity. Tax Tax liabilities predominantly consist of a NOK denominated deferred tax associated with the exit from the Norwegian tonnage tax system effective 1 January 2006. Payable tax related to the deferred tax liability is also currency-hedged. Fair value estimates the gain or loss that would have been realised if the contracts had been closed out at the balance sheet date. As of 31 December 2015, the fair value and maximum credit risk exposure of forward exchange contracts was USD 40.7 million negative. A negative fair market value on currency forwards will be associated with a positive effect on the fair market value of the underlying hedged item. For example, a NOK depreciation will cause a negative fair market value on currency forwards, but a positive effect on the fair market value of future operating expenses, capital expenditure, NOK denominated interest-bearing debt and NOK denominated tax liabilities. A NOK appreciation will have the opposite effects. 58 As of 31 December 2015, Prosafe had entered into the following forward exchange contracts: Maturity 14.01.2016 20.01.2016 28.01.2016 03.02.2016 11.02.2016 29.02.2016 04.03.2016 31.03.2016 13.04.2016 13.04.2016 04.05.2016 13.05.2016 31.05.2016 08.06.2016 16.06.2016 02.07.2016 07.07.2016 11.07.2016 03.08.2016 08.08.2016 17.08.2016 03.09.2016 07.09.2016 09.09.2016 15.09.2016 05.10.2016 17.10.2016 17.10.2016 04.11.2016 09.11.2016 16.11.2016 07.12.2016 09.12.2016 15.12.2016 20.01.2017 08.02.2017 08.03.2017 Prosafe buy NOK Amount Rate Prosafe sell USD Amount 125 000 000 30 000 000 150 000 000 50 000 000 150 000 000 150 000 000 30 000 000 150 000 000 150 000 000 50 000 000 30 000 000 150 000 000 150 000 000 30 000 000 150 000 000 150 000 000 30 000 000 150 000 000 30 000 000 150 000 000 150 000 000 100 000 000 30 000 000 100 000 000 150 000 000 30 000 000 150 000 000 50 000 000 50 000 000 30 000 000 150 000 000 30 000 000 50 000 000 150 000 000 30 000 000 30 000 000 30 000 000 7.77 8.46 7.79 7.83 7.64 7.62 8.74 8.04 8.12 8.13 7.40 7.61 7.73 7.49 7.83 7.91 7.50 8.24 7.49 8.28 8.19 8.32 7.49 8.30 8.24 7.51 8.17 8.17 8.48 7.51 8.70 7.54 8.64 8.64 8.46 8.46 8.45 16 089 229 3 546 377 19 251 390 6 383 881 19 634 004 19 689 561 3 434 336 18 653 655 18 472 204 6 153 683 4 053 914 19 704 577 19 393 250 4 002 768 19 159 780 18 951 598 4 000 962 18 211 597 4 003 614 18 126 100 18 326 206 12 019 086 4 003 433 12 055 019 18 201 895 3 994 837 18 363 449 6 123 256 5 898 918 3 995 012 17 248 893 3 980 004 5 788 042 17 362 116 3 547 171 3 545 419 3 550 691 59 Maturity 11.02.2016 04.03.2016 13.04.2016 05.05.2016 10.06.2016 08.07.2016 12.08.2016 09.09.2016 05.10.2016 09.11.2016 07.12.2016 Prosafe buy GBP Amount Rate Prosafe sell USD Amount 6 000 000 6 000 000 6 000 000 6 000 000 6 000 000 4 000 000 4 000 000 4 000 000 4 000 000 4 000 000 4 000 000 1.52 1.54 1.48 1.54 1.52 1.55 1.55 1.52 1.49 1.49 1.49 9 134 668 9 228 572 8 869 770 9 217 471 9 128 850 6 210 440 6 193 440 6 098 000 5 957 116 5 964 692 5 967 028 Currency risk - sensitivity The sensitivity analysis is based on a reasonably possible change in the relevant exchange rates and reflects the main effects on profit or loss and equity assuming that the change had occurred at the balance sheet date. A 10% strengthening/weakening of the USD against NOK and GBP will have the following effects. Exposures to foreign currency changes for all other currencies are not material. Pre-tax effects USD +10% Re-valuation cash and deposits Re-valuation currency forwards Re-valuation NOK bonds Total USD -10% Re-valuation cash and deposits Re-valuation currency forwards Re-valuation NOK bonds Total Interest rate risk 2015 2014 Income statement effect OCI effect Income statement effect OCI effect (3.2) (40.0) 27.5 (15.7) 3.7 52.0 (33.5) 22.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (5.0) (60.0) 29.0 (36.0) 5.0 71.0 (35.0) 41.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Interest on debt is in principle floating, but has been hedged to reduce the variability of cash flows in the interest payments through the use of interest rate swap agreements. Prosafe evaluates the hedge profile in relation to the repayment schedule of its loans, the company’s portfolio of contracts, cash flow and cash in hand. The proportion hedged will normally lie between 75 and 100 per cent for all loans. 60 Hedge accounting The objective of the interest rate hedging is to reduce the variability of cash flows in the interest payments for the floating-rate debt (i.e. cash flow hedging). Changes in the cash flows of the interest rate swaps are expected to offset the changes in cash flows (i.e. changes in interest payments) attributable to fluctuations in the benchmark interest rate on the part of the floating-rate debt that is hedged. At the inception of the hedge and in subsequent periods, expected effectiveness during the subsequent quarter is demonstrated based on a comparison of the change in fair value of the actual swap designated as the hedging instrument and the change in fair value of a hypothetical swap (dollar offset). If the terms of the swap and debt differ (notional amount, interest rate reset dates, maturity/expiration date, underlying index) or the counterparty's ability to honour its obligation under the swap change during the life of the hedge, the measurement of hedge ineffectiveness will be based on a comparison of the change in fair value of the actual swap designated as the hedging instrument and the change in fair value of a hypothetical swap (dollar offset). Changes in fair value for interest swaps treated as effective hedges (hedge accounting) will affect other comprehensive income, while interest swaps not treated as effective hedges (not hedge accounting) will affect equity through the income statement. Interest swaps treated as effective hedges have been highly effective, and no ineffectiveness has been recognised in the income statement. As of 31 December 2015, Prosafe’s hedging agreements totalled USD 1 600 million (including USD 300 million with forward start): Notional amount rate Maturity type value Fixed Swap Fair USD 100 million 1.2650 % USD 150 million 1.7780 % USD 150 million 2.1000 % USD 150 million 1.6120 % USD 150 million 1.6624 % USD 150 million 1.3625 % USD 150 million 2.2325 % USD 150 million 2.7195 % USD 150 million 2.3265 % USD 150 million 3.6865 % USD 150 million 3.8620 % Total 2016 2017 2017 2017 2019 2018 2020 2020 2020 2021 2022 Bullet Bullet Bullet Bullet Bullet Bullet Bullet Bullet Bullet Bullet Bullet (0.4) hedge accounting (1.6) hedge accounting (2.7) hedge accounting (1.4) hedge accounting (0.7) hedge accounting (0.1) hedge accounting (4.0) hedge accounting (7.4) hedge accounting (4.6) hedge accounting Started Started Started Started Started Started Started Started Started (12.6) hedge accounting Forward start (13.1) hedge accounting Forward start (48.5) Fair value of interest rate swap agreements are estimated using quoted market prices. The fair value estimates the gain or loss that would have been realised if the contracts had been closed out at the balance sheet date. As of 31 December 2015, the fair value and maximum credit risk exposure of interest rate swap agreements was USD 48.5 million negative. Interest rate risk - sensitivity The sensitivity analysis is based on a reasonably possible change in the relevant forward curves and reflects the main effects on profit or loss and equity assuming that the change had occurred at the balance sheet date. A forward curve shift of ±100bps is applied in the analysis. 61 Pre-tax effects Forward curve +100bps Re-valuation interest rate swaps Total Forward curve -100bps Re-valuation interest rate swaps Total 2015 2014 Income statement effect OCI effect Income statement effect OCI effect 0.0 0.0 39.2 39.2 0.0 0.0 60.1 60.1 0.0 0.0 (70.7) (70.7) 0.0 0.0 (60.1) (60.1) Changes in other comprehensive income related to financial instruments As of 31 December 2015, the following changes in other comprehensive income were related to financial instruments: Re-valuation interest rate swaps Ineffectiveness Total Change 28.5 0.0 28.5 2015 (9.5) 0.0 (9.5) 2014 (38.0) 0.0 (38.0) Credit risk The Gulf of Mexico contracts contain a cancellation clause allowing the ultimate customer, Pemex, to cancel the contract with 30 days notice without compensation, if the financing of the project is cancelled. These clauses reflect the crisis that Mexico saw during the 1980s. Prosafe experienced in March 2016 that the two remaining contracts in Mexico were suspended, and the company is prepared that these contracts may be cancelled due to the ongoing crises. In line with industry practice, other contracts normally contain clauses which give the customer an opportunity for early cancellation under specified conditions. Providing Prosafe has not acted negligently, however, the effect on results in such cases will normally be wholly or partly offset by a financial settlement in the company’s favour. Following a potential notice of convenience termination, the customer will have to pay Prosafe a substantial part of the remaining contract value. Credit assessment of financial institutions issuing guarantees in favour of Prosafe, yards, sub-contractors and equipment suppliers is part of Prosafe’s project evaluations and risk analyses. The counterparty risk is in general limited when it comes to Prosafe’s clients, since these are typically major oil companies and national oil companies. As of 31 December 2015, there is no objective evidence that accounts receivable is impaired, and no impairment loss has been recognised in the income statement. Accounts receivables 31 December 2015 31 December 2014 Total 60.0 83.9 Not due < 30 days 30 - 60 days 61-90 days > 90 days 59.5 60.0 0.3 15.8 0.2 8.1 0.0 0.1 0.0 0.0 62 Liquidity risk Prosafe is exposed to liquidity risk in a scenario when the Group’s cash flow from operations is insufficient to cover payments of financial liabilities. Prosafe manages liquidity and funding on a group level. In order to mitigate the liquidity risk, Prosafe makes active use of a system for planning and forecasting the development of its liquidity, and utilises scenario analyses to secure stable and sound development in order to maintain sufficient cash to cover its financial and operational obligations. In February 2015, Prosafe completed the refinancing of two bank facilities. In Q3 2015, the Board of Directors decided to suspend dividend payments in light of the near term reduction in industry activity levels. As of 31 December 2015, Prosafe had a liquidity reserve totalling USD 157.1 million (cash and deposits of USD 57.1 million and undrawn portion of revolving credit facility of USD 100 million). Under the existing credit facility agreements, the Group is required to maintain minimum liquidity of USD 65 million (including up to USD 25 million of total commitments available for utilisation). The continued negative development in the oil and gas industry has increased the risk of reduced charter revenues in the short and mid term. This development has increased the liquidity risk compared to prior years. The Company has significant debt maturities in 2016 and 2017. Although the Company views the longer term prospects as positive, the Company has taken measures to improve the situation. This includes an agreement with its banking syndicate on an option to voluntarily skip two scheduled amortisations amounting in 2016 and/or 2017. As of 31 December 2015, the Group's main financial liabilities had the following remaining contractual maturities: Per year Interest-bearing debt (downpayments) 1) Interest-bearing debt (interest including interest swaps) 2) Accounts payable and other current liabilities Total Per quarter 2016 Interest-bearing debt (downpayments) 1) Interest-bearing debt (interest including interest swaps) 2) Accounts payable and other current liabilities 2016 139.5 2017 210.8 2018 233.5 2019 2020 → 233.5 429.7 74.5 84.4 85.0 86.3 146.4 17.8 0.0 0.0 0.0 0.0 231.8 295.2 318.5 319.8 576.1 Q1 2016 Q2 2016 Q3 2016 Q4 2016 84.5 0.0 55.0 0.0 Total 139.5 19.9 17.5 17.5 19.6 74.5 17.8 0.0 0.0 0.0 17.8 Total 122.2 17.5 72.5 19.6 231.8 1) In January 2016, the syndicate banks granted two voluntary skip options in an aggregate amount of USD 130 million for the USD 1,300 million credit facilities. Prosafe has the right to exercise the options until and including 31 December 2017. 2) Based on forecasted average debt, average LIBOR per 31 December 2015 and average weighted margin. 63 As of 31 December 2015, the commitments under the USD 1,300 million credit facility totalled USD 1,245 million (including the USD 200 million term loan for financing of Safe Zephyrus), of which USD 945 was utilised. As of year-end, available amount under the revolving credit facility was USD 100 million, meaning that scheduled downpayment for 2016 amounted to USD 10 million. Following delivery of Safe Zephyrus, scheduled semi-annual amortisations amount to USD 65 million. At year-end, the USD 288 facility was unutilised and consists of two tranches of USD 144 million each. Following delivery of Safe Notos and Safe Eurus, each tranche which will be reduced quarterly with USD 3 million. Reference is made to note 15 for further information. As of 31 December 2014, the Group's main financial liabilities had the following remaining contractual maturities: Interest-bearing debt (downpayments) 1) Interest-bearing debt (interest including interest swaps) 2) Accounts payable and other current liabilities Total 2015 2016 2017 2018 2019 → 0.0 67.3 382.3 56.9 18.6 68.3 70.5 0.0 0.0 94.2 67.0 0.0 286.3 100.0 0.0 75.5 135.6 452.8 161.2 386.3 As of 31 December 2014, the availability under the credit facility secured in 2011 totalled USD 655 million (USD 215 million undrawn credit lines), meaning that the first actual downpayment on the credit facility will not occur until 2016. Capital management The primary objective of the Group's capital management is to ensure that it maintains a healthy capital structure in line with economic conditions. Prosafe manages the total of shareholder's equity and long term debt as their capital. Prosafe's main tool to assess its capital structure is the leverage ratio, which is calculated by dividing net interest-bearing debt (excluding debt related to newbuilds) including bank guarantees, by EBITDA over the last 12 months. To stay in compliance with financial covenants, the leverage ratio is not allowed to exceed 5.0 up to and including 31 December 2015, and 6.0 thereafter. At 31 December 2015 (2014), the leverage ratio was 2.5 (1.7). NOTE 20: CASH AND DEPOSITS Restricted cash deposits (withholding personal income tax) Free cash and short-term deposits Total cash and deposits NOTE 21: OTHER CURRENT ASSETS Receivables Prepayments Stock Other current assets Total other current assets 64 2015 2014 0.2 56.9 57.1 0.2 122.2 122.4 2015 2014 7.2 4.2 0.9 19.1 31.4 16.7 5.8 0.8 15.7 39.0 NOTE 22: RELATED PARTY DISCLOSURES The financial statements comprise the parent company, Prosafe SE, and the subsidiaries listed below. Company name Prosafe AS Prosafe Management AS Prosafe Offshore AS Prosafe (UK) Holdings Limited Prosafe Rigs Limited Prosafe Offshore Limited Prosafe Rigs (Cyprus) Limited Prosafe Holding Limited Prosafe Offshore Accommodation Ltd Prosafe Rigs Pte. Ltd. Prosafe Offshore Pte. Limited Prosafe Offshore Employment Company Pte. Limited Prosafe Offshore Services Pte. Ltd. Prosafe Offshore Asia Pacific Pte. Ltd. Prosafe Offshore S.a.r.l. Prosafe Offshore Sp.zo.o. Prosafe Offshore BV Prosafe Services Maritimos Ltda Country of incorporation Ownership Norway Norway Norway United Kingdom United Kingdom United Kingdom Cyprus Cyprus Jersey Singapore Singapore Singapore Singapore Singapore Luxembourg Poland Netherlands Brazil 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Voting share 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % Transactions and outstanding balances within the Group have been eliminated in full. Shares owned by senior officers and directors at 31 December 2015: (includes shares owned by wholly-owned companies) Senior officers: Karl Ronny Klungtvedt - CEO Robin Laird - Deputy CEO Stig Christiansen - CFO Harald Espedal - chair Christian Brinch - deputy chair Roger Cornish - director Carine Smith Ihenacho - director Nancy Ch. Erotocritou - director Tasos Ziziros - director Shares 72 500 58 000 0 0 0 7 000 0 0 0 65 NOTE 23: CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS As at 31 December the Group had three new builds under construction. Safe Zephyrus was delivered in January 2016. The amount paid on delivery equalled USD 230 million. Safe Notos was delivered in February 2016. The amount paid on delivery equalled USD 180 million. Sellers' credits were given for these two vessels. (See more details in note 24). The estimated final instalment on the third new build, the Safe Eurus, is USD 180 million. This vessel is scheduled to be delivered in Q3 2016. NOTE 24: EVENTS AFTER THE BALANCE SHEET DATE Amended credit facilities In December 2015/January 2016, the company agreed with its bank syndicates to amend the USD 1,300 million and USD 288 million credit facilities. The additional liquidity, flexibility and headroom created by the amendments, which cover both covenant headroom and voluntary option to skip two scheduled amortisations, provides Prosafe with increased operational and financial flexibility and makes the company more robust in a challenging market. The amendments to the credit facilities include: Leverage ratio (ratio of net borrowings divided by adjusted EBITDA): 1 January 2016 - 31 December 2018: Net debt/EBITDA < 6.0 1 January 2019 and thereafter: Net debt//EBITDA < 5.0 "Net debt" is excluding debt related to new builds under construction and conversions, and "EBITDA" includes the annualisation of contribution from such vessels that have not been in operation for a full year. Equity ratio to be minimum 25 per cent from 31 December 2015 until 31 December 2017, and 30 per cent thereafter. Prosafe has secured an option to voluntary skip scheduled amortisations amounting to two instalments of USD 65 million under the USD 1,300 million facility, in total amounting to USD 130 million. These voluntary amortisations options will be available to the company immediately and until 31 December 2017, subject to completion of formal documentation. Other conditions: No dividends, bond- or equity buy-backs from 31 December 2015 unless; i) all voluntary skipped amortisations have been prepaid or cancelled; and ii) a 12 month financial forecast has been provided which confirms compliance with original financial covenants, except for the equity ratio to be minimum 35 per cent of book equity. Amended covenants bond loans In February 2016, bondholders approved adjustments of the financial covenants in all outstanding bond issues, in order to align with the covenants in the bank facilities. The amendments include: Leverage ratio (ratio of net borrowings divided by adjusted EBITDA): 31 March 2016 - 31 December 2018: Net debt/EBITDA < 6.0 1 January 2019 and thereafter: Net debt//EBITDA < 5.0 "Net debt" is excluding debt related to new builds under construction and conversions, and "EBITDA" includes the annualisation of contribution from such vessels that have not been in operation for a full year. 66 Equity ratio to be minimum 25 per cent from 31 March 2016 until 31 December 2017, and 30 per cent thereafter. Delivery of new builds and seller credits The new build, Safe Zephyrus, was delivered from Jurong Shipyard in Singapore in January 2016. The final delivery instalment was reduced by USD 30 million, which represents a seller's credit from Jurong Shipyard Pte Ltd. This amount is to be repaid in a single payment on or before 15 June 2017.The company took delivery of Safe Notos in February 2016. The final delivery instalment will be reduced by USD 29 million, by way of a seller’s credit from Cosco (Qidong) Offshore Co., Ltd. This amount is repayable in a single payment by 31 December 2016. Mexico market update On 7 March 2016 Prosafe announced that it had been informed by its Mexican client Cotemar Group ("Cotemar"), that Safe Regency will be suspended by Petróleos Mexicanos ("Pemex") from mid-March 2016 and that it is likely that Safe Lancia will also be suspended by Pemex by mid-March 2016. On 16 March 2016, Prosafe confirmed that it had been informed by Cotemar that the Safe Lancia will be suspended by Pemex from mid-March 2016. This is in response to the fact that Pemex is cutting spending in order to adjust its budget to reflect an oil price of USD 25 per barrel. The Group has decided to scrap three of its oldest units, the Jasminia, Safe Hibernia and Safe Britannia, and to cold stack other units starting with the Safe Astoria. Temporary liquidity bank covenant In April 2016, the Company agreed with its lenders an amendment to the credit faciltites. A new bank covenant minimum liquidity level of USD 20 million was set until the end of the third quarter of 2016. The new temporary covenant are applicable to both the USD 1.3 billion facility and the USD 288 million new build financing facility. Financial restructuring plan A dialogue has been commenced with the Company’s key stakeholders, including the senior lenders, and the Company is currently working with stakeholders and advisors to evaluate alternatives to improve the financial situation of the Company. Amendments to the bank and bond agreements will be required in order to secure a robust financial foundation and to safeguard and further strengthen Prosafe’s market leading position in the industry. The Company intends to communicate its financial plan during the second quarter of 2016. NOTE 25: GOING CONCERN The Board of Directors confirms that the accounts have been prepared under the assumption that the Company is a going concern and that this assumption is realistic at the date of the accounts. This assumption is based on the budgets for the year and the Group’s long-term forecasts for the following years. As a result of the suspension of the two contracts in Mexico and the increased liquidity risk, a material uncertainty around the going concern assumption has arisen. The Board of Directors has evaluated the financial forecasts including the assumptions for utilisation of the vessels and the charter day rates. These assumptions are based on prudent estimates compared to historical actuals. In the evaluation of the financial forecasts, factors such as the order backlog and cost saving initiatives have been considered. As referred to in the financial presentation of the Q4 2015 result, the Group has already achieved annual cost savings amounting to USD 15 million. There is a target to double these annual savings. Cost savings to date and going forward include many cost categories, e.g. offshore, travel and salaries. Activity level is forecasted to rebound from 2018 as industry cost reductions are taking full effect. 67 Moreover, the Board of Directors has evaluated the Company’s ability to reach a solution in the ongoing dialogue with the Company’s key stakeholders, and concluded that it is likely to achieve a favourable outcome of this process. This conclusion is an important factor in the going concern assumption. The Board of Directors intends to announce a plan to secure financing of the Company shortly. As of today, such a plan is likely to involve a combination of one or more different alternatives including but not limited to, renegotiated restrictive covenants and debt restructuring. For additional comments on liquidity risk, please refer to note 19. 68 69 ACCOUNTS PROSAFE SE 70 INCOME STATEMENT - PROSAFE SE (USD 1 000) Note 2015 2014 Income from investments in subsidiaries Impairment of shares in subsidiaries Results of investing activities Operating expenses Depreciation Operating profit Other financial income Other financial expenses Net financial items (Loss)/profit before taxes Taxes Net (loss)/profit 7 2 3 4, 5 4, 5 5 6 9 670 (331 209) (321 539) (11 634) (8) (333 180) 167 061 (252 063) (85 002) (418 182) (1) 739 646 (483 609) 256 037 (11 950) (10) 244 077 140 817 (198 649) (57 832) 186 245 (1) (418 183) 186 244 Attributable to the owners of the company (418 183) 186 244 STATEMENT OF COMPREHENSIVE INCOME - PROSAFE SE (USD 1 000) Net (loss)/profit 2015 2014 (418 183) 186 244 Other comprehensive income to be reclassified to profit or loss in subsequent periods Net loss on cash flow hedges (9 530) (38 043) Other comprehensive loss to be reclassified to profit or loss in subsequent periods (9 530) (38 043) Total comprehensive (loss)/income for the year, net of tax (427 713) 148 201 Attributable to the owners of the company (427 713) 148 201 71 STATEMENT OF FINANCIAL POSITION - PROSAFE SE (USD 1 000) ASSETS Tangible assets Shares in subsidiaries Note 31/12/15 31/12/14 3 7 19 27 2 227 991 2 335 450 Intra-group long-term receivables 12, 14 556 225 547 320 Total non-current assets Cash and deposits Other current assets Total current assets Total assets EQUITY AND LIABILITIES Share capital Share premium reserve Total paid-in equity Retained earnings Total retained earnings Total equity Interest-bearing long-term debt Derivatives Interest-free long-term liabilities Total long-term liabilities Interest-bearing current debt Derivatives Intra-group current liabilities Other interest-free current liabilities Total current liabilities Total equity and liabilities 14 8, 14 9 10 14 14, 15 10, 15 14 12, 14, 15 11, 14, 15 2 784 235 2 882 797 12 194 22 557 34 751 17 285 13 747 31 032 2 818 986 2 913 829 72 135 804 700 876 835 491 143 491 143 1 367 978 1 107 464 48 510 1 733 1 157 707 139 500 40 707 105 053 8 041 293 301 65 894 745 109 811 003 952 836 952 836 1 763 839 830 142 38 980 2 081 871 203 0 74 675 197 838 6 275 278 787 2 818 986 2 913 829 On 27 April 2016 the Board of Directors of Prosafe SE approved and authorised these financial statements for issue. Larnaca, 27 April 2016 Harald Espedal Christian Brinch Roger Cornish Nancy Ch. Erotocritou Non-executive Chairman Non-executive Deputy Chairman Non-executive Director Non-executive Director Carine Smith Ihenacho Anastasis Ziziros Glen Ole Rødland Non-executive Director Non-executive Director Non-executive Director 72 CASH FLOW STATEMENT - PROSAFE SE (USD 1 000) Note 2015 2014 Cash flow from operating activities Profit/loss before taxes Unrealised currency loss / (gain) on long-term debt Depreciation Impairment shares in subsidiaries Interest income Interest expenses Change in working capital Taxes paid Other items from operating activities Net cash flow from operating activities Cash flow from investing activities Acquisition of shares Change in intra-group balances Interest received Net cash flow from investing activities Cash flow from financing activities Proceeds from issue of share capital New interest-bearing long-term debt Repayment of interest-bearing long-term debt Dividends paid Interest paid Net cash flow from financing activities Net cash flow Cash and deposits at 1 January Cash and deposits at 31 December 3 6 12 9 10 10 (418 182) (56 715) 8 331 209 (14 506) 54 381 (7 044) (1) (34 315) (145 165) (223 750) (101 690) 14 506 (310 933) 65 832 1 290 000 (816 463) (33 980) (54 381) 451 008 (5 090) 17 285 12 194 186 245 (83 701) 10 483 609 (5 974) 45 309 1 090 (1) 67 704 694 292 (320 018) (335 514) 5 974 (649 558) 0 332 220 (198 000) (125 774) (45 309) (36 863) 7 871 9 414 17 285 73 STATEMENT OF CHANGES IN EQUITY - PROSAFE SE (USD 1 000) Share Share Retained Cash flow capital premium earnings hedges Total equity Equity at 31 December 2013 65 894 745 109 922 328 8 081 1 741 412 Net profit Other comprehensive income Total comprehensive income 1) Dividends 0 0 0 0 0 0 0 0 186 244 0 186 244 (125 774) 0 186 244 (38 043) (38 043) (38 043) 148 201 0 (125 774) Equity at 31 December 2014 65 894 745 109 982 798 (29 962) 1 763 839 Net profit Other comprehensive income Total comprehensive income 1) Dividends Share issue 0 0 0 0 0 0 0 0 0 (418 183) (33 980) 6 241 59 591 0 (9 530) (9 530) 0 0 (9 530) (427 713) (33 980) 65 832 (418 183) 0 (418 183) Equity at 31 December 2015 72 135 804 700 530 635 (39 492) 1 367 978 1) Total comprehensive income is attributable to the owners of the company NOTES - PROSAFE SE All figures in USD 1 000 unless otherwise stated. NOTE 1: ACCOUNTING POLICIES The financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) endorsed by the European Union (EU) and the requirements of the Cyprus Companies Law, Cap 113. The accounting policies applied to the consolidated accounts have also been applied to the parent company, Prosafe SE. THe parent company financial statements should be read in conjunction with the consolidated accounts. The notes to the consolidated accounts provide additional information to the parent company's accounts which is not presented here separately. The Company's functional currency is US dollars (USD), and the financial statements are presented in USD. Investments in subsidiaries are measured at historic cost, unless there is any indication of impairment. In case of impairment, an investment is written down to recoverable amount. 74 NOTE 2: OPERATING EXPENSES Services from subsidiaries Directors’ fees Salaries and management bonus Other remuneration Payroll taxes Share option costs Pension expenses Auditors' audit fees Auditors' other fees Other operating expenses Total operating expenses NOTE 3: TANGIBLE ASSETS Acquisition cost 31.12.13 Additions Disposals at acquisition cost Acquisition cost 31.12.14 Additions Disposals at acquisition cost Acquisition cost 31.12.15 Accumulated depreciation 31.12.13 Accumulated depreciation on disposals Depreciation for the year Accumulated depreciation 31.12.14 Accumulated depreciation on disposals Depreciation for the year Accumulated depreciation 31.12.15 Carrying value 31.12.15 Carrying value 31.12.14 Depreciation rate (%) 2015 2014 6 692 8 203 574 453 37 34 (7) (92) 24 10 731 620 75 46 (403) (69) 270 6 3 909 11 634 2 471 11 950 Equipment Total 206 204 5 0 5 0 211 211 0 0 0 0 211 211 174 0 10 184 0 8 174 0 10 184 0 8 192 192 19 27 20-30 19 27 - 75 NOTE 4: OTHER FINANCIAL ITEMS Interest receivable from subsidiaries Other interest receivable Loan from subsidiary written off Currency gain Fair value adjustment currency forwards Other financial income Total other financial income Interest payable to subsidiaries Interest expenses Currency loss Fair value adjustment currency forwards Other financial expenses Total other financial expenses 2015 2014 14 436 70 0 5 917 57 8 407 108 254 126 437 44 123 178 0 0 167 061 140 817 0 (123) (54 381) (45 186) (178 280) (72 047) 0 (68 170) (19 402) (13 123) (252 063) (198 649) NOTE 5: FINANCIAL ITEMS - IAS 39 CATEGORIES Fair value Financial liabilities through measured at Loans and profit and amortised Year ended 31 Dec 2015 receivables loss cost Total Interest income Currency gain 1) Fair value adjustment currency forwards Other financial income Total financial income Interest expenses Currency loss 1) Other financial expenses Total financial expenses 14 506 0 0 0 14 506 0 0 0 0 Net financial items 14 506 0 0 0 0 0 0 0 0 0 0 0 0 44 123 178 14 506 108 254 44 123 178 44 301 167 061 (54 381) (54 381) 0 (178 280) (19 402) (73 783) (19 402) (252 063) (29 482) (85 002) 1) Excluded from the category breakdown, but added to the total for net effect. 76 Financial Fair value liabilities through measured at Loans and profit amortised Year ended 31 Dec 2014 receivables and loss cost Total Interest income Currency gain 1) Loan from subsidiary written off Total financial income Interest expenses Currency loss 1) Fair value adjustment derivatives Other financial expenses Total financial expenses 5 974 0 0 5 974 0 0 0 0 0 0 0 0 0 0 0 (68 170) 0 (68 170) 0 0 8 407 8 407 (45 309) 0 0 (13 123) (58 432) 5 974 126 437 8 407 140 818 (45 309) (72 047) (68 170) (13 123) (198 649) Net financial items 5 974 (68 170) (50 025) (57 832) 1) Excluded from the category breakdown, but added to the total for net effect. NOTE 6: TAXES (Loss)/profit before taxes Permanent differences Change in tax loss carried forward Tax base Taxes Temporary differences: Loss carried forward Basis for deferred tax liability (+)/benefit (-) Deferred tax liability (+)/benefit (-) Taxes payable at 31 December 2015 2014 (418 182) 532 245 399 962 (506 554) 18 220 (25 691) 0 1 0 1 (44 873) (63 093) (44 873) (63 093) 0 0 0 0 No deferred tax asset has been recognised 1:1048576 respect of the tax loss carried forward as utilisation of this deferred tax asset is deemed not probable. Tax losses for each year are carried forward for 5 years. The tax rate in Cyprus is 12.5%. 77 Reconciliation in accordance with IAS 12.81 (Loss)/profit before taxes Corporation tax thereon at the applicable tax rates Tax effect of expenses not deductible for tax purposes Tax on income not taxable in determining taxable profit Effect of unused current year tax losses Special contribution to defence fund Tax charge NOTE 7: SHARES IN SUBSIDIARIES (Share capital and carrying value in 1 000) 2015 2014 (418 182) 532 245 (52 273) 30 472 66 531 37 777 (20 280) (108 868) 680 4 560 1 1 1 1 Company Prosafe AS Prosafe Offshore AS Prosafe Management AS Prosafe (UK) Holdings Ltd Prosafe Offshore Pte Ltd Consafe Offshore AB Prosafe Offshore Services Pte Ltd Prosafe Asia Pacific Pte Ltd Prosafe Rigs Pte Ltd Total carrying value Share Carrying Carrying capital value 2015 value 2014 Ownership NOK NOK NOK GBP USD SEK USD SGD USD 100 100 100 11 000 10 000 27 786 10 10 69 316 69 316 270 15 270 15 9 826 9 826 244 533 320 037 0 150 7 4 371 150 0 2 500 040 1 903 873 1 931 464 2 227 991 2 335 450 100 % 100 % 100 % 100 % 100 % 100 % 100 % 100 % 91 % Consafe Offshore AB was liquidated in 2015. In the income statement for 2015, the following impairment charges were made: Prosafe Rigs Pte Ltd USD 255.7 million and Prosafe Offshore Pte Ltd USD 75.5 million. In the income statement for 2014, the following impairment charges were made: Consafe Offshore AB USD 137.6 million, Prosafe Rigs Pte Ltd USD 333 million and Prosafe (UK) Holdings Ltd USD 13 million. There are mortgages on the shares in Prosafe Rigs Pte Ltd and Prosafe Offshore Services Pte Ltd. Please refer to note 13. 78 NOTE 8: OTHER CURRENT ASSETS Current receivables from group companies Other current assets Total other current assets The main part of other current assets consists of capitalised borrowing costs. NOTE 9: SHARE CAPITAL 2015 2014 4 218 18 339 22 557 81 13 666 13 747 2015 2014 Authorised shares as of 31 December 275 924 148 275 924 148 Issued and paid number of ordinary shares as of 31 December 259 570 359 235 973 059 Nominal value EUR 0,25 EUR 0,25 On 8 December 2015, Prosafe completed a private placement of 23 597 300 new shares directed towards Norwegian and international institutional investors. The placement was made at a subscription price of NOK 25 per share. Net proceeds amounted to USD 65.8 million. NOTE 10: INTEREST-BEARING DEBT As of 31 December 2015, Prosafe SE's interest-bearing debt totalled about USD 1,247 million. Loans secured by mortgages (credit facility) accounted for USD 945 million of this total and unsecured bond loans accounted for about USD 302 million. Credit facility Bond loans Total interest-bearing debt Debt in NOK Debt in USD Total interest-bearing debt Long-term interest-bearing debt Current interest-bearing debt Total interest-bearing debt For further information, see note 15 of the consolidated accounts. 2015 2014 945 000 440 000 301 964 390 142 1 246 964 830 142 301 964 390 142 945 000 440 000 1 246 964 830 142 1 107 464 830 142 139 500 0 1 246 964 830 142 79 NOTE 11: OTHER INTEREST-FREE CURRENT LIABILITIES Accrued interest costs Other current liabilities Total other interest-free current liabilities NOTE 12: INTRA-GROUP BALANCES NOK loan to Prosafe AS USD loan to Prosafe Offshore Pte Ltd Intra-group long-term receivables 2015 2014 4 957 3 083 8 041 3 776 2 500 6 275 2015 2014 76 225 66 028 480 000 481 292 556 225 547 320 Loan agreements with subsidiaries are made at market prices using 3M NIBOR (NOK loan) and 3M LI- BOR (USD loan) interest rates and a margin of 2.00%. Outstanding balances at year-end are unsecured, and settlement normally occurs in cash. Transactions with related parties 2015 2014 Transactions Administrative services from subsidiaries Interest income Interest expenses Dividend (6 692) 14 436 0 (8 203) 5 917 (123) 9 670 739 646 Prosafe AS and Prosafe Management AS are performing services on behalf of Prosafe SE relating to management, corporate activities, investor relations, financing and insurance. The services are in- voiced on monthly basis and paid on market terms. Please refer to note 7 to the consolidated accounts for disclosure of remuneration to directors. Year-end balances Current receivables of the ultimate parent to subsidiaries Intra-group long-term receivables Current payables from the ultimate parent to subsidiaries 4 218 81 556 225 547 320 105 053 197 838 Current receivables and payables are not subject to any interest calculation. The balances will be set- tled on ordinary market terms. 80 NOTE 13: MORTGAGES AND GUARANTEES As of 31 December 2015, Prosafe’s interest-bearing debt secured by mortgages totalled USD 945 million. The debt was secured by mortgages on the accommodation/service vessels Safe Astoria, Safe Bristolia, Safe Caledonia, Safe Concordia, Safe Scandinavia, Regalia, Safe Boreas (net carrying value USD 1,391 million) and Safe Zephyrus when delivered. Negative pledge clauses apply on shares in the vessel owning subsidiaries. Earnings accounts are pledged as security for the credit facilities, but cash will only be restricted if a continuing event of default occurs. Bank guarantees amounted to NOK 290 million at 31 December 2015 (no outstanding bank guarantees as at 31 December 2014). The guarantees were secured by parent company guarantee and mortgages on the accommodation/service vessels Safe Regency, Safe Lancia, Safe Hibernia, Safe Britannia and Jasminia (net carrying value USD 0 million). As of 31 December 2015, Prosafe had issued parent company guarantees to customers on behalf of its subsidiaries in connection with the award and performance of contracts totalling approximately USD 124 million. As of 31 December 2014, Prosafe’s interest-bearing debt secured by mortgages totalled USD 440 million. The debt was secured by mortgages on shares in Prosafe Rigs Pte Ltd and Prosafe Offshore Pte Ltd, and the accommodation/service vessels owned by these entities. The book value of the mortgaged fleet was USD 1 027.3 million. Prosafe had issued parent company guarantees to customers on behalf of its subsidiaries in connection with the award and performance of contracts. 81 NOTE 14: FINANCIAL ASSETS AND LIABILITIES As of 31 December 2015, Prosafe SE had financial assets and liabilities in the following categories: Financial Fair value liabilities through measured at Loans and profit amortised Year ended 31 Dec 2015 receivables and loss cost Book value Intra-group long-term receivable Cash and deposits Other current assets Total assets 556 225 12 194 22 557 590 976 Credit facility Bond loan PRS07 Bond loan PRS08 Bond loan PRS09 Bond loan PRS10 Bond loan PRS11 Fair value derivatives Interest-free long-term liabilities Intra-group current liabilities Other interest free current liabilities Total liabilities 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 89 217 0 0 0 0 0 0 0 556 225 12 194 22 557 590 976 945 000 945 000 29 515 56 760 56 760 79 464 79 464 0 1 733 29 515 56 760 56 760 79 464 79 464 89 217 1 733 105 053 105 053 8 041 8 041 89 217 1 361 791 1 451 008 82 As of 31 December 2014, Prosafe SE had financial assets and liabilities in the following categories: Fair value Financial liabilities through measured at Loans and profit and amortised Year ended 31 Dec 2014 receivables loss cost Book value Intra-group long-term receivable Cash and deposits Other current assets Total assets 547 320 17 285 13 747 578 352 Credit facility Bond loan PRS07 Bond loan PRS08 Bond loan PRS09 Bond loan PRS10 Bond loan PRS11 Fair value derivatives Interest-free long-term liabilities Intra-group current liabilities Other interest free current liabilities Total liabilities 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 113 654 0 0 0 0 0 0 0 547 320 17 285 13 747 578 352 440 000 440 000 67 266 67 266 67 266 94 172 94 172 0 2 081 197 838 6 275 67 266 67 266 67 266 94 172 94 172 113 654 2 081 197 838 6 275 113 654 1 036 336 1 149 990 For further information, see note 18 of the consolidated accounts. NOTE 15: MATURITY PROFILE LIABILITIES As of 31 December 2015, Prosafe SE's main financial liabilities had the following remaining contractual maturities: Year ended 31 Dec 2015 2016 2017 2018 2019 2020 → Interest-bearing debt (downpayments) 139 500 210 800 233 500 233 500 429 700 Interests incl interest swaps 74 500 84 400 85 000 86 300 146 400 Intra-group current liabilities 105 053 0 Interest-free long-term liabilities 0 2 081 Other interest-free current liabilities 8 041 0 0 0 0 0 0 0 0 0 0 Total 327 094 297 281 318 500 319 800 576 100 83 As of 31 December 2014, Prosafe SE's main financial liabilities had the following remaining contractual maturities: Year ended 31 Dec 2014 2015 2016 2017 2018 2019 → Interest-bearing debt (downpayments) 0 67 300 382 300 94 200 286 300 Interests incl interest swaps 56 900 68 300 70 500 67 000 100 000 Intra-group current liabilities 197 838 0 Interest-free long-term liabilities 0 2 081 Other interest-free current liabilities 6 275 0 0 0 0 0 0 0 0 0 0 Total 261 013 137 681 452 800 161 200 386 300 NOTE 16: EVENTS AFTER THE BALANCE SHEET DATE Amended credit facilities In December 2015/January 2016, the company agreed with its bank syndicates to amend the USD 1,300 million and USD 288 million credit facilities. The additional liquidity, flexibility and headroom created by the amendments, which cover both covenant headroom and voluntary option to skip two scheduled amortisations, provides Prosafe with increased operational and financial flexibility and makes the company more robust in a challenging market. The amendments to the credit facilities include: Leverage ratio (ratio of net borrowings divided by adjusted EBITDA): 1 January 2016 - 31 December 2018: 1 January 2019 and thereafter: Net debt/EBITDA < 6.0 Net debt//EBITDA < 5.0 "Net debt" is excluding debt related to new builds under construction and conversions, and "EBITDA" includes the annualisation of contribution from such vessels that have not been in operation for a full year. Equity ratio to be minimum 25 per cent from 31 December 2015 until 31 December 2017, and 30 per cent thereafter. Prosafe has secured an option to voluntary skip scheduled amortisations amounting to two instalments of USD 65 million under the USD 1,300 million facility, in total amounting to USD 130 million. These voluntary amortisations options will be available to the company immediately and until 31 December 2017, subject to completion of formal documentation. Other conditions: No dividends, bond- or equity buy-backs from 31 December 2015 unless; i) all voluntary skipped amortizations have been prepaid or cancelled; and ii) a 12 month financial forecast has been provided which confirms compliance with original financial covenants, except for the equity ratio to be minimum 35 per cent of book equity. 84 Amended covenants, bond loans In February 2016, bond holders approved adjustments of the financial covenants in all outstanding bond issues, in order to align with the covenants in the bank facilities. The amendments include: Leverage ratio (ratio of net borrowings divided by adjusted EBITDA): 31 March 2016 - 31 December 2018: 1 January 2019 and thereafter: Net debt/EBITDA < 6.0 Net debt//EBITDA < 5.0 "Net debt" is excluding debt related to new builds under construction and conversions, and "EBITDA" includes the annualisation of contribution from such vessels that have not been in operation for a full year. Equity ratio to be minimum 25 per cent from 31 March 2016 until 31 December 2017, and 30 per cent thereafter. Temporary liquidity bank covenant In April 2016, the Company agreed with its lenders an amendment to the credit faciltites. A new bank covenant minimum liquidity level of USD 20 million was set until the end of the third quarter of 2016. The new temporary covenant are applicable to both the USD 1.3 billion facility and the USD 288 million new build financing facility. Financial restructuring plan A dialogue has been commenced with the Company’s key stakeholders, including the senior lenders, and the Company is currently working with stakeholders and advisors to evaluate alternatives to improve the financial situation of the Company. Amendments to the bank and bond agreements will be required in order to secure a robust financial foundation and to safeguard and further strengthen Prosafe’s market leading position in the industry. The Company intends to communicate its financial plan during the second quarter of 2016. 85 NOTE 17: GOING CONCERN The Board of Directors confirms that the accounts have been prepared under the assumption that the Company is a going concern and that this assumption is realistic at the date of the accounts. This assumption is based on the budgets for the year and the Group’s long-term forecasts for the following years. As a result of the suspension of the two contracts in Mexico and the increased liquidity risk, a material uncertainty around the going concern assumption has arisen. The Board of Directors has evaluated the financial forecasts including the assumptions for utilisation of the vessels and the charter day rates. These assumptions are based on prudent estimates compared to historical actuals. In the evaluation of the financial forecasts, factors such as the order backlog and cost saving initiatives have been considered. As referred to in the financial presentation of the Q4 2015 result, the Group has already achieved annual cost savings amounting to USD 15 million. There is a target to double these annual savings. Cost savings to date and going forward include many cost categories, e.g. offshore, travel and salaries. Activity level is forecasted to rebound from 2018 as industry cost reductions are taking full effect. Moreover, the Board of Directors has evaluated the Company’s ability to reach a solution in the ongoing dialogue with the Company’s key stakeholders, and concluded that it is likely to achieve a favourable outcome of this process. This conclusion is an important factor in the going concern assumption. The Board of Directors intends to announce a plan to secure financing of the Company shortly. As of today, such a plan is likely to involve a combination of one or more different alternatives including but not limited to, renegotiated restrictive covenants and debt restructuring. For additional comments on liquidity risk, please refer to note 19 to the consolidated accounts. 86 87 INDEPENDENT AUDITORS' REPORT 88 To the members of Prosafe SE REPORT ON THE CONSOLIDATED AND THE SEPARATE FINANCIAL STATEMENTS OF PROSAFE SE We have audited the accompanying consolidated financial statements of Prosafe SE (“the Company”) and its subsidiaries (together with the Company, the “Group”) and the separate financial statements of the Company, on pages 26 to 86, which comprise the consolidated statement of financial position of the Group and the statement of financial position of the Company as at 31 December 2015, and the consolidated income statement, and statements of other comprehensive income, changes in equity and cash flows of the Group, and the income statement, and statements of comprehensive income, changes in equity and cash flows of the Company for the year then ended, and a summary of significant accounting policies and other explanatory information. Board of Directors’ Responsibility for the Financial Statements The Board of Directors is responsible for the preparation of consolidated and separate financial statements of the Group and the Company that give a true and fair view in accordance with International Financial Reporting Standards as adopted by the European Union (EU) and the requirements of the Cyprus Companies Law, Cap. 113, as amended from time to time (the “Companies Law, Cap. 113”), and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatements, whether due to fraud or error. Independent Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated and separate financial statements of the Group and the Company based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider the internal control relevant to the entity's preparation of consolidated and separate financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements of the Group and the separate financial statements of the Company give a true and fair view of the financial position of the Group and the Company, respectively, as at 31 December 2015, and of their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and the requirements of the Companies Law, Cap. 113, as amended form time to time. Emphasis of Matter Without qualifying our opinion, we draw attention to the Group’s and the Company’s statement of financial position on pages 28 and 72 which indicate that the Group’s and the Company’s current liabili- ties as at 31 December 2015 exceeded current assets by USD157,1m and USD258,6m, respectively. This condition, along with other matters as set forth in notes 24 and 25 to the Group’s financial statements and notes 16 and 17 to the Company’s financial statements, indicate the existence of a material uncertainty which may cast significant doubt as to the Group’s and the Company’s ability to continue as a going concern. 89 OTHER MATTER Auditors’ Responsibility This report, including the opinion, has been prepared for and only for the Company’s members as a body in accordance with Section 34 of Law 42(I)/2009 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whose knowledge this report may come to. Comparative Figures The financial statements of the Company for the year ended 31 December 2014 were audited by another auditor who expressed an unmodified opinion on those financial statements on 17 March 2015. Sylvia A. Loizides Certified Public Accountant and Registered Auditor for and behalf of KPMG Limited Certified Public Accountants and Registered Auditors KPMG Center, No.11, 16th June 1943 Street, 3022 Limassol, Cyprus. Limassol, 27 April 2016 The financial statements have been prepared on a going concern basis which assumes that the financial restructuring referred to in the aforesaid notes will be concluded favourably. As explained in the notes, such financial restructuring will likely involve a combination of one or more different alternatives including, but not limited to, renegotiated restrictive covenants and debt restructuring. The financial statements do not include the adjustments that would result if the Group and the Company were unable to continue as a going concern. REPORT ON OTHER LEGAL REQUIREMENTS Pursuant to the additional requirements of the Auditors and Statutory Audits of Annual and Consolidated Accounts Law of 2009, L.42(I)/2009, as amended from time to time (“Law 42(I)/2009”), we report the following: • We have obtained all the information and explanations we considered necessary for the purposes of our audit. • In our opinion, proper books of account have been kept by the Company, so far as it appears from our examination of these books. • The consolidated and the separate financial statements are in agreement with the books of account. • • In our opinion and to the best of the information available to us and according to the explanations given to us, the consolidated and separate financial statements give the information required by the Companies Law, Cap. 113, as amended form time to time, in the manner so required. In our opinion, the information given in the report of the Board of Directors on pages 8 to 23 is consistent with the consolidated and the separate financial statements. Pursuant to the requirements of the Directive DI190- 2007-04 of the Cyprus Securities and Exchange Commission, we report that a corporate governance statement has been made for the information relating to paragraphs (a), (b), (c), (f) and (g) of article 5 of the said Directive, and it forms a special part of the Report of the Board of Directors. 90 91 FLEET OVERVIEW Prosafe is the leading player within the global market for semi- submersible accommodation vessels for the oil and gas industry. 92 SAFE NOTOS 2016 Built GustoMSC’s Ocean 500 Design 500 No of beds Gangway 38.0m +/- 7.5m Power generation 28 800 kW (6 diesel generator sets) Station keeping Thrusters Mooring system 10 x 612 t chain DP3 6 x 3 700 kW azimuth SAFE EURUS Ready for operations in 2016 Built GustoMSC’s Ocean 500 Design 500 No of beds Gangway 38.0m +/-7.5m Power generation 28 800 kW (6 diesel generator sets) Station keeping Thrusters Mooring system 10 x 612 t chain DP3 6 x 3 700 kW azimuth SAFE ZEPHYRUS 2016 Built GVA 3000 E Design 450 No of beds Gangway 38.0m +/- 7.5m Power generation 30 000 kW (6 diesel generator sets) DP3 Station keeping Thrusters 6 x 4 000 kW azimuth Mooring system 12-point wire winches SAFE BOREAS 2015 Built GVA 3000 E Design 450 No of beds 38.0m +/- 7.5m Gangway Power generation 30 000 kW (6 diesel generator sets) DP3 Station keeping Thrusters 6 x 4 000 kW azimuth Mooring system 12-point wire winches 93 1985 2003/2009/2014 GVA 3000 – enhanced REGALIA Built Upgraded Design No of beds Gangway 38.0m +/- 7.5m Power generation 19 560 kW (6 diesel generator sets) Station keeping Thrusters 6 x 2 640 kW azimuth Mooring system 4-point wire winches 306 (NCS: 282) NMD3 2003/2005/2014/TSV conversion 2016 1984 SAFE SCANDINAVIA Built Upgraded Design: No of beds: Gangway: Power generation: 9 339 kW (4 diesel generator sets) Station keeping : Moored Mooring system: 12-point chain winches 36.5m +/- 6.0m 583 (NCS: 292) Aker H-3.2E 1982 F+G Pacesetter 2004/2012 (refurbishment) SAFE CALEDONIA Built Upgraded Design No of beds Gangway 36.5m +/- 5.5m Power generation 15 900 KW (6 diesel generator sets) Station keeping Thrusters 4 x 2 400 kW azimuth Mooring system 10-point wire winches DP2, Posmoor ATA 454 2008 1983, 2006 SAFE BRISTOLIA Built, converted Upgraded Design No of beds Gangway 35m +/- 6.0m Power generation 6 240 kW (4 diesel generator sets) Station keeping Mooring system 8-point wire winches Earl & Wright Sedco 600 588 (UKCS: 316) Moored 94 SAFE CONCORDIA 2005 Built Keppel Deepwater Technology Group Design 461 No of beds Gangway 29.5m +/- 5.0m Power generation 17 950 kW (5 diesel generator sets) DP2 Station keeping Thrusters 4 x 2 500 kW azimuth Mooring system 4-point wire winches SAFE ASTORIA 1983, 2005 Built, converted 2012 Upgraded Earl & Wright Sedco 600 Design 349 No of beds Gangway 36.5m +/- 6.0m. Power generation 6 350 kW (4 diesel generator sets) Station keeping Moored Mooring system 8-point wire winches SAFE BRITANNIA 1980 Built 1987/2003 Upgraded F+G Pacesetter - enhanced Design 812 No of beds 36.5m +/- 6.0m Gangway Power generation: 13 895 kW (7 diesel generator sets) Station keeping Thrusters Mooring system 9-point wire winches DP2 4 x 2 400 kW azimuth, 2 x 1 500 kW fixed SAFE REFENCY 1982 Built 2003/2008 Upgraded F+G Pacesetter Design 780 No of beds Gangway 36.5m +/- 6.0m Power generation 12 960 kW (6 diesel generator sets) DP2 Station keeping Thrusters 4 x 2 400 kW azimuth Mooring system 8-point wire winches 95 SAFE LANCIA 1984 Built 2003 Upgraded GVA 2000 Design 605 No of beds 27.5m +/- 5.5m Gangway Power generation 14 500 kW (6 diesel generator sets) DP2 / Posmoor Station keeping Thrusters 4 x 2 400 kW azimuth Mooring system 7-point wire winches JASMINIA 1982 Built 2002 Upgraded GVA 2000 Design 535 No of beds Gangway Rigid, simple span 34.0m +/-3.0m Power generation 7 070 kW (3 diesel generator sets) Station keeping Moored Thrusters 2 x 2 400 kW azimuth Mooring system 8-point wire winches SAFE HIBERNIA 1977 Built 1991/1994/2006 Upgraded Aker H-3 (modified) Design 632 No of beds 36.0m +/- 6m Gangway Power generation 6 320 (4 diesel generator sets) Station keeping Moored Thrusters Mooring system 12-point wire winches 2 x 3 300 HP Propulsion (Aft) 96 Accommodating the Offshore Industry Stadiou 126 CY-6020 Larnaca, Cyprus Phone: +357 2462 2450 Fax: +357 2462 2480 mail@prosafe.com www.prosafe.com Design: Olavstoppen. Photo: Tom Haga 97 

Continue reading text version or see original annual report in PDF format above