Prosafe Offshore Pte Ltd Annual Report 2017

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FY2017 Annual Report · Prosafe Offshore Pte Ltd

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A N N U A L R E P O R T
2 0 1 7

The annual report
is only made in
electronical format,
but can easily be
printed.

The annual report comprises the directors' report, the declaration

by the members of the Board of Directors, the consolidated

accounts, the parent company accounts for Prosafe SE and the

independent auditors' report.

Information about HSEQA, corporate governance, social

responsibility, additional financial and analytical information,

executive management and the board of directors can be found

on www.prosafe.com

CONTENT

Financial calendar and key figures

About Prosafe

Directors’ report

Declaration by the members of
the Board of Directors and the
company officials

Consolidated accounts

Parent company accounts Prosafe SE

Independent auditors’ report

FINANCIAL CALENDAR

QUARTERLY REPORTING
The following dates have been set for quarterly reporting in 2018:

1st quarter
2nd quarter
3rd quarter
4th quarter

4 May 2018
23 August 2018
7 November 2018
5 February 2019

ANNUAL GENERAL MEETING
The AGM for Prosafe SE will be held 3 May 2018.

KEY FIGURES

Note

2017

2016

2015

2014

2013

Profit

Operating revenues

USD million

EBITDA

USD million 1

Operating (loss) / profit

USD million

Net (loss) / profit

USD million

283.0

122.9

(578.2)

(647.1)

474.0

253.2

52.8

172.6

474.7

262.9

30.8

(50.6)

548.7

312.6

248.3

178.8

523.5

306.6

245.1

199.1

Earnings per share

USD 2

(8.98)

8.36

(21.00)

76.00

85.00

Balance sheet

Total assets

Interest-bearing debt

USD million

Net interest-bearing debt USD million 3

1 115.8

1 185.1

1 189.9

USD million

497.6

1 129.5

715.2

1 947.0

2 686.9

2 187.2

1 816.8 1 619.9

1 347.7

1 390.8

1 247.0

830.1

707.7

748.5

779.6

666.2

739.7

26.0 %

42.0 %

32.6 %

41.2%

45.7%

Book equity

Book equity ratio

Valuation

Market capitalisation

USD million

118.1

306.0

Share price

NOK 5

619.0

2 100

725.0 1 816.0

2 300

4 680

1. Operating profit before depreciation
2. Net profit / Average number of outstanding and potential shares. EPS restated to reflect reverse split in 2016.
3. Interest-bearing debt - Cash and deposits
4. (Book equity / Total assets) * 100
5. Restated to reflect reverse split in 2016

ABOUT PROSAFE

Prosafe is a leading owner and operator of semi-submersible
accommodation vessels.

Accommodation vessels offer additional
accommodation, engineering, construction or
storage capacity offshore. Prosafe’s vessels have
accommodation capacity for 306-500 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.

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.

Prosafe has a strong track record
from demanding operations
worldwide, 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 owns/operates eight semi-submersible
accommodation, safety and support vessels
and one Tender Support Vessel (TSV) that
is providing drilling support services on the
Norwegian Continental Shelf.

Furthermore, Prosafe has an option to
take delivery of three complete, new
build harsh environment vessels
which are kept in a preserved
mode at COSCO Shipping
(Qidong) Offshore Co. Ltd in
China.

Prosafe's fleet consists of a
combination of dynamically
positioned and anchored
vessels. Thereby, the fleet is
versatile and able to operate in
nearly all offshore environments.

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.

Prosafe is listed on the Oslo Stock Exchange
with ticker code PRS.

HIGHLIGHTS 2017

•

In January, Prosafe was awarded a contract
for the provision of Safe Caledonia for a
period of 134-days with a 30-day option at
the Elgin-Franklin Facility in the UK sector of
the North Sea by Total E & P UK Limited.

•

Prosafe was awarded a contract for the
provision of the Safe Zephyrus for Phase
1 of Statoil’s Johan Sverdrup hook-up and
commissioning project in the Norwegian
sector of the North Sea for a duration of 12
months with start-up in Q2 2018.

In early August, the Safe Boreas successfully
commenced a 13-month contract with
Statoil at the Mariner installation in the UK.

Safe Lancia and Safe Regency were sold for
recycling/scrap. Following this, Prosafe has
scrapped five vessels as part of its strategy to
high grade the fleet and protect cash-flow.

•

Prosafe has continued to deliver on cost

and capex reductions and the focus on
continuous improvement remains.

Post balance sheet
On 8 March 2018, the Stavanger City Court
issued its judgement in favour of Prosafe
in respect of the dispute between Westcon
Yards AS (Westcon) and Prosafe Rigs Pte. Ltd.
relating to the conversion of the Safe
Scandinavia into a tender support vessel.

The Court ordered Westcon to repay NOK 344
million plus interest and NOK 10.6 million
legal costs. There is a deadline of four weeks
within which Westcon may file an appeal
against this judgement.

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 2017.

This report shall be deemed to be the
management report for the purposes of the
Cyprus Companies law.

PRINCIPAL ACTIVITY
Prosafe is a leading owner and operator of
semi-submersible accommodation support
vessels whose objective is to strengthen its
competitive position globally. The Parent
Company is managed and controlled in Cyprus
and is the ultimate owner of all group
companies.

FINANCIAL RESULTS,
FINANCING AND
FINANCIAL POSITION
OF THE GROUP

(The figures in brackets correspond to the 2016
comparatives)

INCOME STATEMENT
Operating revenues totalled USD 283.0 million in
2017 (2016: USD 474.0 million), with utilisation1)
of the fleet dropping to 38.4 per cent (43 per cent).
The reduction reflects the soft market conditions.

The significant drop in operating revenues
compared to the modest reduction in utilisation
is due to lower average day rates as a result of
the current market conditions. In addition, the
operating revenues in 2016 included a re-phasing
charge of USD 30 million relating to the contract
with Statoil for the Mariner project, as well as a
mobilisation fee of USD 17 million relating to the
Safe Notos contract in Brazil.

The main markets for the Prosafe vessels are
currently the North Sea and Brazil, serving
primarily oil and gas operating companies
as end clients on projects typically related to
installation or maintenance and modification
of offshore oil and gas fields. The vessels are
normally provided on a time charter basis where

Prosafe man and operate the vessels directly.

Despite the fact that the total 2017 operating
expenses comprise the full year costs for four
additional vessels which were delivered or
re-built/built during 2016, specifically Safe
Zephyrus, Safe Notos, Safe Scandinavia and Safe
Eurus, the costs decreased to USD 160 million
(USD 220.8 million) as a result of lower utilisa-
tion and cost reductions.

Depreciation increased to USD 127.2 million
(USD 115.7 million) as a result of the full year
effect of the new build vessels Safe Zephyrus
and Safe Notos that were delivered in Q3 and
Q4 2016, respectively. In addition, there was
an impairment charge of USD 573.9 million
related to goodwill and Safe Scandinavia, Safe
Caledonia, Safe Bristolia, Safe Concordia and
Regalia. In 2016, impairment charges amounted
to USD 84.7 million for Safe Astoria.

The resulting operating loss amounts to USD
578.2 million (USD 52.8 million operating
profit).

Interest expenses totalled USD 74.9 million
(USD 88.6 million). This decrease is mainly a
consequence of 2016 being impacted by a
one-off cost of USD 14.7 million relating to
the impact of the discontinuation of hedge
accounting attributable to the bonds. Interest
costs totalling USD 1.1 million (USD 1.6 million)
have been allocated to new build and refurbish-
ment projects and consequently capitalised as
part of the vessel investment costs.

Other financial items amounted to USD 15.5
million (USD 225.2 million). The figure for 2016
includes a gain on forgiveness of bond debt of
USD 197.6 million which was recognised as a
result of the refinancing which took place in
the third quarter 2016.

Taxes for 2017 mainly relating to operations
in Norway, UK and Brazil were USD 7.8 million
(USD 17.1 million). This decrease is primarily

1) Utilisation = actual vessel days in operation in the period / possible vessel days in the period x 100

FINANCIAL RESULTS AND FINANCIAL
POSITION OF THE PARENT COMPANY
The operating loss for the year amounted to
USD 738.9 million (operating loss of USD 411.4
million) and includes impairment charges
relating to investments in subsidiaries of
USD 745.2 million (USD 396.5 million). Net
financial loss amounted to USD 45.9 million
(net financial income of USD 158.1million). The
gain last year included a gain on forgiveness of
debt USD 197.6 million. Net loss for the year
equalled USD 785.5 million (net loss of USD
253.3 million).

Total net assets for the year amounted to USD
582.9 million (USD 1,355.2 million).

EXECUTIVE MANAGEMENT
Jesper Kragh Andresen was appointed as CEO
with effect from 1 March 2017. He holds an
Executive MBA from INSEAD, France/Singapore
and a Masters degree in law from University
of Copenhagen. Prior to joining Prosafe, Mr.
Andresen has held various positions including
CEO in Axis Offshore, President of Lauritzen
Offshore (Singapore) Pte. and Managing
Director of J. Lauritzen Singapore.

Stig H. Christiansen was appointed as Deputy
CEO & CFO with effect from 1 March 2017. Mr.
Christiansen joined Prosafe as CFO in August
2015 and was Acting CEO from April 2016
until 1 March 2017. Prior to this he was CEO in
Add Energy group since 2008. Mr. Christiansen
holds an MBA from Aalborg in Denmark, and a
BCom from University of Birmingham, England.

due to lower taxation on UK operations as a
consequence of lower activity.

Net loss amounted to USD 647.1 million (net
profit of USD 172.6 million), resulting in diluted
earnings per share of USD -7.35 (USD 8.10).

ASSETS
Total assets amounted to USD 1,947.0 million
(USD 2,686.9 million) at the end of 2017.
Investments in tangible assets totalled USD
10.1 million (USD 543.7 million). The invest-
ments in 2017 mainly relate to steel
strengthening works on the Safe Boreas and a
special periodic survey on the Safe Caledonia.

As at year-end 2017, the Group had total liquid
assets (cash and deposits) of USD 231.9 million
(USD 205.7 million). The liquidity reserve (liquid
assets plus undrawn credit facilities) totalled
USD 231.9 million (USD 205.7million).

FINANCING
Total shareholders’ equity amounted to USD
497.6 million (USD 1,129.5 million), resulting in
an equity ratio of 26 per cent (42 per cent). The
main reason for the reduction in the equity ratio
is the impairment charge of USD 573.9 million.

Interest-bearing debt amounted to USD 1,347.7
million (USD 1,391 million) at year-end. Repay-
ments of debt totalled USD 47.4 million (USD
112.5 million) including USD 30 million sellers
credit repayment to Jurong Shipyard in Singa-
pore.

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).

OPERATIONS AND
PROJECTS

As at year-end, the fleet comprised nine vessels
and an option to take delivery of three new
builds. Five old vessels have been scrapped
since mid-2016.

Specifications for each of the vessels and
details of the current vessel contracts can be
found on the Company’s website http://www.
prosafe.com/accommodation-vessels/.

Safe Scandinavia commenced the TSV contract
with Statoil at Oseberg in mid-March 2016. This
contract has a firm period until the end of June
2018.

Safe Zephyrus was on contract with Aker BP in
Norway until the end of January 2017.

Safe Notos commenced its three-year and
222-day contract for Petrobras on 7 December
2016.

Safe Boreas was on contract with Repsol
Sinopec at Montrose in the UK until 24 April
2017 and commenced a 13-month contract
with Statoil at the Mariner field in early August
2017.

Safe Concordia was on contract with Petrobras
until late July 2017 and is currently laid up in
Curaçao.

Safe Caledonia completed a contract for Total
in the UK in late October 2017 and is currently
laid up in Scapa Flow in the Orkney Islands.

Regalia has been idle throughout the year and
is currently laid up in Averøy in Norway.

Safe Bristolia has been idle throughout the year
and is cold-stacked in Norway.

Safe Astoria has been off-hire throughout 2017
and is cold-stacked in Batam, Indonesia.

In December 2016 following an audit by the
Petroleum Safety Authority Norway (PSA), the
PSA issued an order in relation to non-conform-
ances. The next scheduled offshore audit is
planned for April 2018 and the target is for the
non-conformances to be closed out. Prosafe
remains committed to safe and compliant
operations at all times.

Safe Eurus is in a preserved, strategic stacking
mode, and negotiations continue with COSCO
to find a workable commercial solution.
Consistent with previous quarters, the Company
has accrued for lay-up cost for Safe Eurus. In
accordance with the agreement with COSCO, 50
percent of these costs are to be paid on delivery
and the remaining 50 percent after delivery.

The standstill agreement between Prosafe and
COSCO relating to Safe Nova and Safe Vega
has recently been extended until early April
2018. Prosafe remains in negotiations with
COSCO and related parties for these vessels. If
no agreement is reached, Prosafe has the right
to cancel the new build contracts for Safe Nova
and Safe Vega due to delay, and claim repay-
ment of the instalments paid including interest
of approx. USD 60 million in total. The repay-
ment claim is secured by a refund guarantee
from Bank of China.

WESTCON DISPUTE

On 8 March 2018, the Stavanger City Court
issued its judgement in favour of Prosafe in
respect of the dispute between Westcon Yards
AS (Westcon) and Prosafe Rigs Pte. Ltd. relating
to the conversion of the Safe Scandinavia into
a tender support vessel. The Court ordered
Westcon to repay NOK 344 million plus interest
and NOK 10.6 million legal costs. There is a
deadline of four weeks within which Westcon
may file an appeal.

OUTLOOK

The accommodation support segment is late
cyclical by nature. Historically, a majority of the
work has been related to existing producing fields
(‘brownfield’), whereas the remainder has been
related to hook-up and commissioning of new
developments (‘greenfield’). Accommodation
support vessels are also used during decommis-
sioning of offshore installations. During the down-
cycle in recent years, many service segments have
seen a significant reduction in activity and that
includes demand for offshore accommodation
vessels.

The North Sea market has been severely
impacted by the downturn. The Company
expects activity in the North Sea to remain
volatile in the near term.

International markets, including Brazil and
Mexico, will be increasingly important when
activity recovers.

The supply side has experienced sizable growth
during the period from 2012 to 2016 with the
entry into the market of a number of
accommodation support vessels. However, the
growth has been lower than earlier anticipated
as a result of the extended down-cycle leading
to both scrapping of existing vessels and delays
in completion of new builds. More scrapping
is anticipated, as well as further consolidation

activities, and therefore the Company foresees
a continued rebalancing of the market towards
2020 during which period there will generally be
adequate supply in most or all regions.

As all providers of oil production support
services are dependent on oilfield operators’
cash flow, reductions in spending plans have led
to a substantial decrease in demand for oilfield
services, including accommodation support
vessels. The year 2017 saw a continued slow-down
in contracting activity with the gross value of
charter contracts, including clients’ extension
options, reducing by approximately 68.5 per cent
to USD 304 million (USD 967 million). Total order
backlog2) as of 31 December 2017 amounted to
USD 340 million of which USD 304 million related
to firm contracts and USD 36 million related to
options. Secured utilisation for 2018 is 31.1%. For
2019, secured utilisation is currently 15.2%.

Positive developments during 2017 include
a new contract secured for Safe Zephyrus
for Statoil at the Johan Sverdrup field in the
Norwegian sector of the North Sea. Safe
Scandinavia TSV (‘Tender Support Vessel’)
continued strong technical performance
delivering drilling support services on the
Norwegian Continental Shelf.

Although macro indicators continue to show
positive development, this is yet to materialise
in activity pick-up in the offshore
accommodation market. Consequently, Prosafe
continues to anticipate a volatile market for the
foreseeable future.

Positioning for upcoming tenders remains a
near term priority. Further, Prosafe continues to
pursue efficiencies and intends to be proactive
in fleet enhancement and industry
restructuring.

2) Order backlog = amount of contracted revenue not recognised in income statement yet

RISK

Prosafe categorises its primary risks under the
following headings: strategic, operational,
financial and compliance related. The Company’s
board and senior officers manage these risk
factors through continuous risk assessments,
reporting and periodic reviews in management
and board meetings, and as part of rolling
strategy and planning processes.

The Company aims to create shareholder
value by allocating capital and resources to the
business opportunities that yield the best return
relative to the risk involved within its specified
strategic direction.

Prosafe seeks to reduce its exposure to opera-
tional, financial and compliance related risk
through proper operating routines, the use of
financial instruments and insurance policies.

Market risk comprises of macro factors such
as oil price and industry specific factors such
as supply/demand balance and competitive
position. Demand for accommodation units is

sensitive to oil price fluctuations and changes
in exploration and production spending.

The Company is exposed to financial risks such
as currency risk, interest rate risk, financing and
liquidity risk and credit and counterparty risk.
The continued negative development in the
offshore market involves risk that low activity
and reduced charter revenues will continue in
the short and medium term.

The Company reports in USD and generates
income in USD, whereas a large part of its
operating costs are in other currencies such as
NOK and GBP. This exposure as identified based
on rolling forecasts is hedged on a 50-75%
basis of estimated currency exposure on a
12-month basis using currency forward instru-
ments. The interest rate risk is largely hedged
by the use of interest swaps for 75-100% of
the debt. The Company carries out credit
checks on clients as part
of its tendering
processes
and

generally and as implemented in Prosafe over
several years. The risk register forms the basis
for the action plan which further represents
a main and continuous agenda item for both
management and the board to ensure that all
key risks and opportunities are appropriately
discussed and followed up by management
and the board in the form of strategies and
mitigating actions.

The Company is committed to attract, develop,
and retain competent individuals in alignment
with its objectives. The Company holds indi-
viduals accountable for their internal control
responsibilities in the pursuit of its objectives.

The Company identifies and analyses risks
which may potentially affect the achievement
of its objectives and how these should be
managed. It also considers the potential for
fraud, and identifies and assesses changes that
could significantly affect the system of internal
control.

The Company selects, develops and deploys
controls for the mitigation of risks related to
the achievement of its financial reporting
objectives, including controls over technology.
It deploys these controls through policies that
establish what is expected and its procedures.

Prosafe carries out regular reviews to ascertain
whether the internal controls are present and
functioning, and evaluates and communicates
any internal control deficiencies in a timely
manner to those parties responsible for taking
corrective action, including senior management
and the board of directors, as appropriate.
Audits carried out by external parties like the
financial auditor, clients and regulatory authori-
ties and the reporting and follow-up of these
are important elements to ensure continuous
focus on and improvement of internal controls.

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
risk management process is available on its
website at http://www.prosafe.com/risk-
management/category894.html

INTERNAL CONTROLS

Internal control is ensured in accordance with
Prosafe’s policies and procedures which aim to
ensure the effectiveness and efficiency of its
operations, reliability of its financial reporting
and compliance with applicable laws and
regulations. These policies and procedures are
designed, inter alia, to safeguard assets and
protect from accidental loss or fraud.

In addition, the policies and procedures are
reinforced inter alia, by the organisation and
the competence of its personnel, segregation
of duties, regular risk assessments and internal
reporting, management meetings, board meet-
ings and internal audit committee, together
with external audit and public reporting and
communication.

In respect of internal controls relating to the
preparation of financial statements, the board
of directors demonstrates independence from
management and exercises oversight of the
development and performance of internal
control. Management establishes, with board
oversight, structures, reporting lines, and
appropriate authorities and responsibilities in
the pursuit of objectives.

In addition to the ongoing reviews by the senior
officers, annual reviews and assessments are
carried out which are approved by the board
in respect of risk management and internal
controls. The risk management methodology
applied by management and the board are in
accordance with industry and market practices

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.

In 2017, Prosafe recorded two incidents classi-
fied as a Lost Time Injury (LTI), i.e. those injuries
resulting in an employee being absent from the
next work shift due to the injury.

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. In 2017, the
LTI frequency was 1.52, as compared to 0.0 in 2016.

Prosafe operates a zero accident mind-set
philosophy which means that no accidents or
serious incidents are acceptable. Over the past
years, it has focused on preventive measures and
a number of initiatives have been implemented
in order to further strengthen the safety culture.
These initiatives will be continuously developed in
order to improve safety performance further.

Sick leave decreased from 3.3 percent in 2016 to
2.53 percent in 2017.

Prosafe had no accidental discharges to the natural
environment in 2017 and continues to actively
reduce emissions by investment in more modern
and fuel efficient equipment and continuous
improvement in operating procedures.

HUMAN RESOURCES AND
DIVERSITY

Prosafe had 430 employees at the end of
2017 (average 517), compared with 608 in the
previous year (average 665). Prosafe’s global
presence was reflected in the fact that its
employees came from 25 countries around the
world. The overall employee turnover in the
group was 5.9 per cent in 2017, compared with
8.8 per cent in 2016.

Prosafe operates an equal opportunity policy
including gender equality. Men have, however,
traditionally made up a greater proportion
of the recruitment base for offshore opera-
tions, and this is reflected in Prosafe’s gender
breakdown. As of 31 December 2017, women
accounted for 14.2 per cent of all employees,
compared with 11.3 per cent in 2016. Onshore
the proportion of women was 43.2 per cent, as
opposed to 36.7 per cent in 2016.

Women constituted 16.7 per cent of the
managers as at 31 December 2017, compared
with 11.6 per cent at the end of 2016.

Prosafe aims to offer the same opportunities to
all and there is no discrimination with respect
to recruitment, remuneration or promotion,
due to age, disability, gender reassignment,
marriage and civil partnership, pregnancy and
maternity, nationality, religion or belief, sex,
and sexual orientation.

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

deviations between the code of practice and
the way it has been implemented during 2017.
The Company’s full corporate governance
report is set out on the Company’s website at
http://www.prosafe.com/norwegian-code-of-
practice/category32.html.

Significant shareholdings are presented in
note 14 to the financial statements and on the
Company’s website at http://www.prosafe.
com/largest-shareholders/category160.html

Corporate governance is a key focus for the
Company in order to strengthen confidence
in Prosafe among shareholders, the capital
market and other interested parties, and
to help ensure maximum value creation

over time in the best interest of

shareholders, employees
and other stake-
holders.

The members of the board of directors at 31
December 2017 and at the date of this report
are set out on page 19.

With the exception of Birgit Aagaard-Svendsen
and Kristian Johansen, all the remaining
members of the board were directors
throughout the year. There were no significant
changes in the assignment of the responsibili-
ties of the members of the board of directors.
The remuneration of the members of the
board of directors is disclosed in note 6 to the
financial statements.

The Articles of Association of the Company
provide for all directors to serve for a period of
two years unless the general meeting decides
that a director shall serve for a specified period
shorter than two years. Currently the directors
are appointed for only one year.

At the following general meetings in 2017,
the directors set out below were appointed or
reappointed (as the case may be) for one year
and are due for re-election in 2018:

will be submitted at the forthcoming annual
general meeting. Reference to auditors’ fee is
made in note 6 to the consolidated accounts.

22 March: General meeting.
Kristian Johansen and Birgit
Aagaard-Svendsen

10 May: Annual General meeting
Glen Ole Rødland, Roger Cornish
and Nancy Erotocritou

As at 31 December 2017 the directors (including
associated parties) who held shares in the
Company were Roger Cornish (70 shares) and
Birgit Aagaard-Svendsen (3,000 shares).

There have been no changes to the holdings after
31 December 2017, except for Roger Cornish who
sold his shareholding on 26 February 2018.

Information on the remuneration of the directors
is provided in note 6 to the financial statements.
There is no significant change in the assignment
of responsibilities of the directors.

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 results for the year and the
Prosafe Group’s long-term forecasts for the
following years. Based on the successful
completion of the comprehensive refinancing
in 2016, the board of directors concludes that
the going concern assumption is justified.

AUDITOR

The auditors of the Company, Messrs KPMG
Limited, have expressed their willingness to
continue in office. A resolution for authorising
the board of directors to fix their remuneration

SHAREHOLDERS AND
SHARE CAPITAL

According to the shareholder register as at 31
December 2017, the 20 largest shareholders
held a total of 73.30 per cent of the issued
shares. The number of shareholders was 5,427.
North Sea Strategic Investments AS was the
largest shareholder with a holding of 19.18 per
cent of the issued shares.

As at 31 December 2017, Prosafe had an issued
share capital of 80,725,809 ordinary shares at a
nominal value of EUR 0.10 each.

Further information on the share capital and
changes thereon are shown in note 14 to the
consolidated financial statements.

DIVIDENDS

Prosafe’s longer term 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.

In November 2015, the board decided to
temporarily suspend dividend payments. The
board believes that this will be beneficial for
the Company from a commercial, financial and
strategic perspective, and that it will improve the
Company’s financial robustness and optionality. In
addition, as part of the agreed amendments to its
credit facilities, Prosafe has agreed that it will not
issue any dividends, unless all deferred instalments
have been prepaid or cancelled and a 12-month
financial forecast has been provided which
confirms compliance with the financial covenants.

At 31 December 2017, Prosafe SE had a distribut-
able equity of USD 0.

EVENTS AFTER THE
BALANCE SHEET DATE

Reference is made to note 24 to the consolidated
accounts, and note 17 to the Parent Company’s
separate accounts for a description of events
after the balance sheet date.

Larnaca, 20 March 2018
Board of Directors of Prosafe SE

Glen Ole Rødland

Non-executive Chairman

Roger Cornish

Svend Anton Maier

Non-executive Deputy Chairman

Non-executive Director

Nancy Ch. Erotocritou

Non-executive Director

Birgit Aagaard-Svendsen

Kristian Johansen

Non-executive Director

DECLARATION BY THE
MEMBERS OF THE BOARD
OF DIRECTORS AND THE
COMPANY OFFICIALS

Responsible for the drafting of the consolidated and seperate
finacial statements (In accordance with the provisions of Law
190(I)/2007 on Transparency Requirements)

In accordance with sections (3)(c) and (7) of Article 9 of the Transparency Requirements (Traded
Securities in Regulated Markets) Law 190(I)/2007, as amended from time to time (the “Law”), we,
the members of the Board of Directors, the Chief Financial Officer and the Chief Executive Officer
responsible for the drafting of the separate financial statements of Prosafe SE (the “Company”) and
the consolidated financial statements of the Company and its subsidiaries (the “Group"), confirm, to
the best of our knowledge, that:

(a)

the financial statements of the Company and the consolidated financial statements
of the Group for the year ended 31 December 2017, that are presented on pages 22
to 58:

(i)

(ii)

have been prepared in accordance with the International Financial Reporting Stand
ards as adopted by the European Union, and in accordance with the provisions of
section (4) of Article 9, of the Law; and
give a true and fair view of the assets, liabilities, financial position and profit or loss of
the Company and the Group; and

(b)

the Board of Directors’ Report provides a fair review of the developments and
performance of the business and the financial position of the Company and the
Group, together with a description of the principal risks and uncertainties that they
face.

Board of Directors

Glen Ole Rødland

Non-executive Chairman

Roger Cornish

Svend Anton Maier

Non-executive Deputy Chairman

Non-executive Director

Nancy Ch. Erotocritou

Non-executive Director

Birgit Aagaard-Svendsen

Kristian Johansen

Non-executive Director

Chief Executive Officer

Chief Financial Officer

Jesper Kragh Andresen

Prosafe Management AS

Stig Harry Christiansen
Officer Prosafe Managment AS

Larnaca, Cyprus
20 March 2018

CONSOLIDATED ACCOUNTS

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 (loss) / profit

Interest income

Interest expenses

Other financial income

Other financial expenses

Net financial items

Share of loss of equity accounted investees

(Loss)/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, 5

2017

256.0

27.0

283.0

(76.9)

(83.1)

122.9

(127.2)

(573.9)

(578.2)

1.4

(74.9)

19.8

(4.3)

(58.0)

(3.1)

(639.3)

(7.8)

(647.1)

2016

375.5

98.5

474.0

(91.6)

(129.2)

253.2

(115.7)

(84.7)

52.8

0.3

(88.6)

267.3

(42.1)

136.9

0.0

189.7

(17.1)

172.6

(647.1)

172.6

(8.98)

(7.35)

8.36

8.10

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(USD million)

Net (loss)/profit for the year

Note

2017

(647.1)

2016

172.6

Other comprehensive income to be reclassified to profit or
loss in subsequent periods

Foreign currency translation

Net (loss)/gain on cash flow hedges

Net other comprehensive (loss)/income to be reclassified to
profit or loss in subsequent periods

2.1

(13.2)

(15.3)

1.7)

(22.2)

(20.5)

Total comprehensive (loss)/income for the year, net of tax

(631.8)

(152.1)

Attributable to equity holders of the parent

(631.8)

(152.1)

Note

31/12/2016

31/12/2015

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(USD million)

ASSETS

Goodwill

Vessels

New builds

Other tangible assets

Investments in associated companies

Total non-current assets

Cash and deposits

Debtors

Other current assets

Total current assets

Total assets

EQUITY AND LIABILITIES

Share capital

Convertible bonds

Other equity

Total equity

8, 23

18, 20

18, 19

18, 21

0.0

1 527.2

125.2

3.6

6.9

1 662.9

231.9

45.5

6.7

284.1

1 947.0

8.9

24.0

464.7

497.6

Interest-bearing non-current liabilities

15, 18, 19

1 329.1

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

15, 18, 19

18, 19

16, 18, 19

4.1

39.4

14.0

1 386.6

1 405.1

18.6

3.5

18.2

0.0

22.5

62.8

1 947.0

47.9

16.9

22.8

7.9

56.8

152.3

2 686.9

226.7

2 029.3

122.2

3.9

10.0

2 392.1

205.7

60.0

29.1

294.8

2 686.9

7.9

57.0

1 064.6

1 129.5

1 342.9

6.0

51.3

4.9

On 20 March 2018 the Board of Directors of Prosafe SE approved and authorised these financial
statements for issue.

Glen Ole Rødland

Roger Cornish

Svend Anton Mayer

Non-executive Chairman

Non-executive deputy Chairman

Non-executive Director

Nancy Ch. Erotocritou

Non-executive Director

Kristian Johansen

Non-executive Director

Birgit Aagaard Svendsen

Non-executive director

CONSOLIDATED CASH FLOW STATEMENT

(USD million)

Note

2017

2016

CASH FLOW FROM OPERATING ACTIVITIES

Profit/(loss) before taxes

Unrealised currency (gain)/loss on long-term debt

Gain on forgiveness of bond debt

Loss/(gain) on sale of tangible assets

Depreciation and impairment

Interest income

Interest expenses

Share of loss of equity accounted investees

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

Proceeds from new interest-bearing debt

Repayments of interest-bearing debt

Share issue

Interest paid

Net cash flow from financing activities

Net cash flow

Cash and deposits at 1 January

Cash and deposits at 31 December

(639.3)

0.0

(1.1)

701.1

(1.4)

74.9

3.1

(14.4)

11.8

21.4

156.1

1.1

(10.1)

1.4

(7.6)

0.0

(47.4)

0.0

(74.9)

(122.3)

26.2

205.7

231.9

189.7

18.3

(197.6)

(0.6)

200.4

(0.3)

85.6

0.0

(10.0)

(59.4)

(40.2)

185.9

0.7

(483.9)

0.3

(482.9)

503.3

(112.5)

140.4

(85.6)

445.6

148.6

57.1

205.7

8, 23

15, 18, 19

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(USD million)

capital

bonds

equity

hedges

translation

Con-

Foreign

vertible

Other

Cash flow

currency

Equity at 31 December 2015

Net profit

Other comprehensive income

Total comprehensive income

Capital reduction

Share and bond issues

Conversion of convertible
bonds

Equity at 31 December 2016

Net loss

Other comprehensive income

Total comprehensive income

Conversion of convertible
bonds

72.1

0.0

(71.8)

7.6

0.0

7.9

0.0

1.0

Total

equity

715.3

172.6

(20.5)

152.1

0.0

262.1

0.0

57.3

(0.3)

651.1

172.6

0.0

172.6

71.8

197.2

0.3

(39.3)

0.0

(22.2)

0.0

31.4

0.0

1.7

0.0

57.0

1 093.0

(61.5)

33.1

1 129.5

0.0

(33.0)

(647.1)

0.0

(647.1)

32.0

0.0

13.2

0.0

2.1

0.0

(647.1)

15.3

(631.8)

0.0

Equity at 31 December 2017

8.9

24.0

477.9

(48.3)

35.2

497.6

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, capital reduction reserve and retained earnings.

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 2017 were approved and authorised for issue
in accordance with a resolution of the board of directors on 20 March 2018. The Group is a 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.
In adding up rounded figures and calculating percentage rate of changes, slight differences may result
compared with totals arrived at by adding up component figures which have not been rounded. 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 depreciation 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 group of 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. Impairment of shares in subsidiaries
is a significant estimate required for the preparation of the parent company accounts.

NEW AND AMENDED STANDARDS. The accounting policies adopted are consistent with those of the
previous financial year. The following standards and interpretations were adopted with effect from 1
January 2017 with no implementation impact on the group’s consolidated financial statements:

• Annual Improvement to IFRSs 2014-2016 Cycle – various standards (Amendments to IFRS 12)

• Disclosure Initiative (Amendents to IAS 7)

• Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12)

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 effect on the consolidated financial statements is not expected to be significant.

IFRS 9 Financial Instruments
IFRS 9 will replace IAS 39 Financial instruments: Recognition and Measurement and is effective from
1 January 2018 with earlier adoption allowed. The standard deals with classification, measurement,
hedge accounting and impairment of financial instruments. The Group's opening balance 1 January
2018 is not affected by the new standard.

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 new standard might occasionally result in deferred
recognition of mobilisation fees and/or earlier recognition of demobilisation fees. The estimated
impact of adoption of IFRS 15 would be as follows.

As reported
31.12.2017

Estimated adjustments due to

Estimated adjusted opening

adoption of IFRS 15

balance 01.01.2018

Other equity

464.7

(31.8)

432.9

The adjustment of USD 31.8 million relates to the mobilisation/demobilisation/re-phasing fees as per
the current contracts for Safe Scandinavia, Safe Notos and Safe Boreas. The effect of this adjustment
on the income statement for 2018 is an increase of operating revenues (and operating profit) of USD
24.6 million. The remaining USD 7.2 million will be recognised from 2019 and onwards.

IFRS 16 Leases.
IFRS 16 was issued by IASB in January 2016. The standard principally requires lessees to recognise 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.

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
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 recognised in
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. The Group's vessels may operate on time charters or 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 lease. Management, crew services
and other related income are recognised in the period the services 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 are 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 recognised at 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.
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 except 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.

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 instruments.

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 deter-
mined by reference to quoted market bid prices at the close of business on the balance sheet date. For
financial instruments where there is no active market, fair value is determined using valuation tech-
niques. 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.

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 applied hedge accounting for the interest rate swaps until 30 June 2016 when this practice
ceased. Hedges which met the strict criteria for hedge accounting were accounted for as follows:

Cash flow hedges
The effective portion of the gain and loss on the hedging instrument was recognised directly in other
comprehensive income, while any ineffective portion was recognised immediately in the income
statement. Amounts recognised as other comprehensive income were transferred to the income
statement when the hedged transaction affected profit and loss, such as when the hedged financial
income or financial expense was recognised.

Current versus non-current classification
Derivative instruments that were not a designated and effective hedging instrument were
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 held a derivative as an economic hedge for a period beyond 12 months after the
balance sheet date or a derivative instrument was designated as an effective hedging instrument, the
fair value of the derivative instrument was classified as current or non-current consistent with the
classification of the underlying item. Economic hedges were 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 statements on 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. Zero coupon contracts that will be settled by the Company by delivering a fixed
number of its own equity instruments in exchange for a fixed amount of cash are equity instruments
and recognised in equity.

ASSOCIATED COMPANIES. The equity method is applied for investments in associated companies.
Investments are initially recognised at cost, and subsequently adjusted for profit or loss, changes
arising from the proportionate interest in the associated company and other comprehensive income
and dividends received.

NOTE 4: SEGMENT REPORTING

Prosafe has one segment, which is chartering and operation of accommodation/service vessels.

Operating revenues by geographical location

2017

2016

Europe excl. Cyprus

Cyprus

Americas

Total operating revenues

224.8

0.0

58.2

283.0

389.2

0.0

84.8

474.0

The revenue allocation is based on place of operation of the vessel.

Operating revenues from major customers situated in:

Europe1

Europe2

Americas1

Europe3

Europe4

Europe5

1) Operating revenues in USD million
2) Percentage of total revenues

2017
1)

143.2

14.3

57.2

10.2

0.0

44.5

51 %

5 %

20 %

4 %

0 %

16 %

2016
1)

125.3

71.2

68.5

68.2

56.7

30.0

26 %

15 %

14 %

12 %

6 %

Total assets by geographical location

Europe excl. Cyprus

Cyprus

Americas

Australia/Asia

Total assets

NOTE 5: OTHER OPERATING REVENUES

Mobilisation/demobilisation income

Gain on sale of non-current assets

Reimbursement revenues

Total other operating revenues

2017

1 386.3

20.7

395.6

144.4

1 947.0

2017

3.9

1.1

22.0

27.0

2016

1 966.1

85.6

470.3

164.9

2 686.9

2016

34.0

0.6

63.0

98.5

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

Total employee benefits

Number of employees

2017

2016

48.4

11.5

6.3

5.5

3.4

1.8

76.9

58.0

13.8

9.1

4.9

3.8

2.0

91.6

The average number of employees in the Group for 2017 was 517 (2016: 665). The average number of
emloyees by legal entity was as follows.

Prosafe Offshore Employment Company Pte Ltd

Prosafe Offshore Ltd

Prosafe Services Maritimos Ltda

Prosafe AS

Prosafe Offshore Services Pte Ltd

Prosafe Rigs Pte Ltd

Prosafe SE

Prosafe Management AS

Prosafe Offshore Accommodation Ltd

2017

370

2016

478

Bonus scheme
The CEO and the deputy CEO and CFO hold bonus agreements. The bonus depends on achieving
defined results relating to earnings, onshore costs and HSE. The net proceeds from bonus payments
shall be used to buy shares in the Company.

Severance pay
Certain senior officers 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 12 months after the normal six-month period of notice.

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

Pen-

sion

Other

benefits

Jesper Kragh Andresen (CEO from March 2017)

Stig Harry Christiansen (Deputy CEO and CFO)

2017

333

404

121

On 8 February 2017 Jesper Kragh Andresen was appointed CEO and Stig Harry Christiansen was
appointed deputy CEO and CFO.

Senior officers
(USD 1 000)

Year

Salary

Bonus

Pen-

sion

Other

benefits

Stig Harry Christiansen (Acting CEO from April
2016)

Karl Ronny Klungtvedt (CEO until April 2016)

Robin Laird (Acting CFO)

2016

312

237

2016

218

485

1337

184

Other benefits to Mr Klungtvedt in 2016 include severance pay and accrued early retirement pension.

Board of directors
(USD 1 000)

Glen Ole Rødland (chair)

Roger Cornish

Nancy Ch. Erotocritou

Svend Anton Maier

Birgit Aagaard-Svendsen (from May 2017)

Kristian Johansen (from May 2017)

Carine Smith Ihenacho (until May 2017)

Anastasis Ziziros (until May 2017)

Total fees

Board of directors
(USD 1 000)

Glen Ole Rødland (chair from May 2016)

Roger Cornish

Nancy Ch. Erotocritou

Svend Anton Maier (from December 2016)

Harald Espedal (chair until May 2016)

Christian Brinch (until May 2016)

Carine Smith Ihenacho

Anastasis Ziziros

Total fees

Year

Board fees 1)

2017

137

112

603

Year

Board fees 1)

2016

103

101

568

1) If applicable, figures include compensation from audit committee and compensation committee.

Auditors' fees
(USD 1 000)

Audit

Fees for non-audit services

Total auditors' fees

2017

394

404

2016

352

431

Auditors' fees is included in general and administrative expenses (note 7). Other services include
USD5K in respect of tax compliance services (2016: USD32K in respect of tax compliance, corporate
finance and transaction related assurance services) offered to the group companies by the statutory
auditor

NOTE 7: OTHER OPERATING EXPENSES

Repair and maintenance

Other vessel operating expenses

General and administrative expenses

Total other operating expenses

2017

15.4

52.2

15.5

83.1

2016

12.8

82.8

33.6

129.2

NOTE 8: TANGIBLE ASSETS AND GOODWILL

New

Build-

Vessels

builds

Equipment

ings

Goodwill

Total

Acquisition cost
31 December 2015

Additions

Disposals

Acquisition cost
31 December 2016

Additions

Disposals

Acquisition cost
31 December 2017

Accumulated depreciation
31 December 2015

Accumulated depreciation
on disposals

Depreciation for the year

Impairment

Accumulated depreciation
31 December 2016

Accumulated depreciation
on disposals

Depreciation for the year

Impairment

Accumulated depreciation
31 December 2017

Net carrying amount
31 December 2017

Net carrying amount 31
December 2016

2 461.1

228.5

650.0

(106.3)

(5.6)

0.0

3 105.5

122.2

6.4

(120.5)

2 991.4

3.0

0.0

125.2

882.5

(5.7)

114.7

84.7

1 076.2

(85.5)

126.4

347.2

1 464.2

0.0

6.1

0.0

6.1

0.7

(1.7)

5.1

4.0

0.0

0.5

0.0

4.6

(1.7)

0.4

0.0

3.4

7.9

226.7 2 930.2

0.0

7.9

0.0

7.9

5.0

0.0

0.5

0.0

5.5

0.0

0.4

0.0

5.9

0.0

543.7

(5.6)

226.7 3 468.3

0.0

10.1

(122.2)

226.7 3 356.2

0.0

891.5

0.0

(5.6)

0.0

115.7

84.7

0.0 1 086.3

0.0

(87.1)

0.0

226.7

127.2

573.9

226.7 1 700.2

1 527.2

125.2

1.7

2.0

0.0 1 656.0

2 029.3

122.2

1.5

2.4

226.7 2 382.1

Depreciation rate (%)

Economically useful life (years)

2-20

5-50

20-33

3-5

20-30

New builds include prepayment to the yard cost, owner-furnished equipment and other project costs incurred.

Borrowing costs are capitalised as part of the asset in accordance with IAS 23. As at 31 December 2017,
capitalised borrowing costs amount to USD 21.9 million (31 December 2016: USD 29.0 million). The
amount of borrowing costs capitalised in the period equalled USD 1.1 million (USD 1.6 million) and the

capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation was
3.6% (3.1%).

Special periodic survey (SPS) costs are capitalised and amortised over the five-year period until the
next SPS takes place. As at 31 December 2017, capitalised SPS costs amount to USD 21.6 million (31
December 2016: USD 25.5 million). Capitalised SPS costs are included in 'Vessels' presented above.

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 per vessel is between USD 3 million and USD 6 million. This estimate is based
on steel prices and costs associated with scrapping and is reviewed on an annual basis.

Management performed an annual impairment assessment of the fixed assets in accordance
with IFRS. Management looked at each individual vessel as a cash generating unit, and concluded
that several of the vessels are impaired due to a continued weak market outlook. On this basis, the
following impairment charges have been made in the accounts for 2017.

(USD million)

Safe Scandinavia

Regalia

Safe Concordia

Safe Bristolia

Safe Caledonia

Total vessels

Impairment goodwill

Total impairment

Impairment

Recoverable amount

117.9

116.9

57.0

28.2

27.2

347.2

226.7

573.9

274.9

75.7

103.2

42.9

109.4

606.1

The goodwill of USD 226.7 million related to the acquisition of Consafe Offshore AB in 2006. Prosafe
has only one reporting segment comprising of all accommodation/service vessels to which the
goodwill was allocated. Due to a continuing weak market outlook, the slower than expected pick up
in activity, the anticipated continued market volatility, the supply side growth in recent years as well
as the fact that all the rigs that were in place when the goodwill was created are now either fully
or materially impaired and/or scrapped, management can no longer reasonably justify the carrying
amount of any goodwill. Consequently, goodwill has been fully impaired.

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
- Annual increase of operating revenues 3% (general sector inflation assumption)
- No mobilisation or demobilisation fees have been included

Expenses
- Operating expenses and overheads reflecting current market conditions and historical utilisation rates
- Annual increase of operating expenses and overheads 3% (general sector inflation assumption)

Capital expenditures
- Capex reflecting long-term capex projections (excluding value enhancing investments)
- Annual increase of capital expenditures 3% (general sector inflation assumption)

Pre-tax discount rate 8%.

Sensitivity:

- a 1% increase in the pre-tax discount rate would have lead to an additional impairment of
USD 50 million
- a 2% increase in the pre-tax discount rate would have lead to an additional impairment of
USD 140 million
- a 2% decrease in the utilisation rate would have lead to an additional impairment of USD 23 million
- a 2% decrease in the average day rate would have lead to an additional impairment of
USD 23 million

NOTE 9: OTHER FINANCIAL ITEMS

Gain on forgiveness of bond debt

Fair value adjustment currency forwards

Fair value adjustment interest rate swaps

Total other financial income

Currency loss

Other financial expenses

Total other financial expenses

2017

2016

0.0

7.9

11.9

19.8

(2.4)

(1.9)

(4.3)

197.6

32.8

36.9

267.3

(40.4)

(1.7)

(42.1)

NOTE 10: FINANCIAL ITEMS - IAS 39 CATEGORIES

Fair value

Financial

liabilities

Loans and

through

measured at

Year ended 31 Dec 2017

receivables

profit and loss

amortised cost

Total

Interest income

Fair value adjustment currency forwards

Fair value adjustment interest rate swaps

Total financial income

Amortisation of borrowing costs

Amortisation relating to abandonment
of hedge accounting

Other interest expenses

Other financial expenses

Total financial expenses

Net financial items

1.4

0.0

1.4

0.0

1.4

0.0

7.9

11.9

19.8

0.0

(3.0)

(13.2)

(58.7)

(4.3)

(79.2)

1.4

7.9

11.9

21.2

(3.0)

(13.2)

(58.7)

(4.3)

(79.2)

19.8

(79.2)

(58.0)

Fair value

Financial

liabilities

Loans and

through

measured at

Year ended 31 Dec 2016

receivables

profit and loss

amortised cost

Total

Interest income

Fair value adjustment currency forwards

Fair value adjustment interest rate
swaps

Gain on forgiveness of bond debt

Total financial income

Amortisation of borrowing costs

Amortisation relating to abandonment
of hedge accounting

Other interest expenses

Other financial expenses

Total financial expenses

Net financial items

0.3

0.0

0.3

0.0

0.3

0.0

32.8

36.9

0.0

69.7

0.0

0.3

32.8

36.9

197.6

267.6

(3.0)

(18.0)

(67.6)

(42.1)

(3.0)

(18.0)

(67.6)

(42.1)

(130.7)

69.7

66.9

136.9

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

Long-term liabilities

Non-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

2017

2016

9.8

(2.0)

7.8

22.5

(3.9)

(1.0)

0.1

17.7

4.1

6.0

(2.0)

0.1

4.1

19.1

(2.0)

17.1

26.8

(1.7)

(1.2)

0.1

24.0

6.0

7.8

(2.0)

0.2

6.0

Payable tax as at 31 December

18.2

22.8

The cumulated tax loss carried forward in Cyprus as at 31 December 2017 and 2016 amounted to USD
181 million and USD 128 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 rules for taxation of shipping
and offshore companies in Singapore.

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 24% in 2016, but effective 1
January 2018 the tax rate is 23%.

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. Diluted earnings per share are calculated by dividing net profit by
the weighted average number of ordinary shares plus the number of potential shares relating to the
convertible bonds.

Net (loss)/profit

Weighted average number of outstanding shares (1 000)

Basic earnings per share

Weighted average number of outstanding and potential shares (1 000)

Diluted earnings per share

2017

2016

(647.1)

72 052

(8.98)

87 987

(7.35)

172.6

20 643

8.36

21 319

8.10

NOTE 13: ASSOCIATED COMPANIES

This item relates to the 25% shareholding in Safe Swift Pte Ltd, a company incorporated in Singapore,
which was acquired in December 2016. The company owns one accommodation monohull. This
investment is measured using the equity method.

Ownership

Non-current assets

Current assets

Non-current liabilities

Current liabilities

Net assets (100%)

Group's share of net assets (25%)

Valuation adjustment non-current assets at acquisition

Carrying amount of interest in associate

Operating revenue (100%)

Net loss (100%)

Group's share of net loss (25% from 1 January 2017)

Valuation adjustment non-current assets at acquisition

Group's share of net loss in income statement

2017

2016

25 %

96.1

4.7

56.4

1.8

42.6

10.7

(3.8)

6.9

0.6

(37.2)

(9.3)

6.2

(3.1)

25 %

126.3

10.4

56.4

0.4

79.9

20.0

(10.0)

10.0

26.0

(43.9)

0.0

NOTE 14: SHARE CAPITAL, SHAREHOLDER INFORMATION AND CONVERTIBLE BONDS

Issued and paid up number of ordinary shares at 31
December

2017

2016

80 725 809

71 399 002

Authorised number of shares at 31 December

130 440 177

Nominal value at 31 December

Number of shareholders at 31 December

EUR 0.10

5 427

EUR 0.10

6 227

In August 2016 the share capital of the Company was reduced by cancelling paid up nominal capital
(in lieu and without cancelling any shares per se) amounting to EUR 64,633,019 (equivalent to USD
71,846,225), being EUR 0.249 per share on each of the 259,570,359 ordinary fully paid up shares,
reducing the nominal value of all such ordinary share from EUR 0.25 each to EUR 0.001 each with the
corresponding effect on authorised share capital; the entire amount of EUR 64,633,019 corresponding
to the amount cancelled was credited to the capital reduction reserve fund.

In September 2016 4,376,600,000 shares were issued in a private placement, 1,400,839,757 were
issued to the bond holders and 12,000,000 shares were issued to convertible bond holders.

In November 2016 504,000,000 shares were issued in a subsequent share offering. A 100:1 reverse
share split was completed on 30 November 2016. Prior to the reverse split, the share capital consisted
of 6,553,010,116 shares at face value of EUR 0.001 each. Subsequent to the reverse split, the share
capital consisted of 65,530,102 shares at face value of EUR 0.10 each.

In December 2016 5,868,900 shares were issued as a part of the consideration relating to the
acquisition of Axis Nova Singapore Pte Ltd and Axis Vega Singapore Pte Ltd. During 2017 a total of
9,326,807 shares of EUR 0.10 each were issued in connection with conversion of convertible bonds.

Largest shareholders/groups of shareholders at 31.12.2017

No of shares

Percentage

North Sea Strategic Investments AS

State Street Bank and Trust (nom.)

HV VI Invest Sierra

Nordea Bank AB (nom.)

WF Wells Fargo/Non Repatriate

Pareto Aksje Norge

RBC Investor Services Trust (nom.)

Nordnet Bank AB (nom.)

Forsvarets Personellservice

Fondsfinans Norge

Verdipapirfondet DNB High Yield

Helmer AS

MP Pensjon PK

Danske Bank A/S (nom.)

15 479 410

12 602 690

8 657 609

6 764 759

2 806 111

2 526 178

1 714 933

1 581 008

896 088

750 000

669 689

600 000

585 625

555 915

19.2 %

15.6 %

10.7 %

8.4 %

3.5 %

3.1 %

2.1 %

2.0 %

1.1 %

0.9 %

0.8 %

0.7 %

Pictet & Cie (nom.)

Per Jacob Mørck

The Bank of New York (nom.)

BR Indstrier AS

JP Morgan Chase Bank (nom.)

Verdipapirfondet DNB Norden (III)

553 000

500 000

498 896

496 460

472 510

462 650

0.7 %

0.6 %

Total 20 largest shareholders/groups of shareholders

59 173 531

73.3 %

All ordinary shares rank equally. 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.

Convertible bonds
As part of the refinancing completed in September 2016, zero coupon convertible bonds amounting
to NOK 81,790,013 were issued. These bonds can be converted into Prosafe shares at a price of NOK
25 per share. In February 2017, 8,007 of these bonds were converted to shares. As of 31 December
2017 the remaining outstanding principal of this convertible bond loan was NOK 78,589,829 (31
December 2016: NOK 78,790,013).

In December 2016, as part consideration of the shares in Axis Vega Singapore Ltd, Axis Nova
Singapore Ltd and Dan Swift Singapore Pte Ltd, zero coupon convertible bonds of nominal value
NOK 403,092,000 were issued. These bonds can be converted into Prosafe shares at a price of
NOK 30 per share. In November 2017, 4,537,900 of these bonds were converted to shares and in
December 2017, another 4,780,900 bonds were converted. As of 31 December 2017 the remaining
outstanding principal of these convertible bonds loan was NOK 123,528,000 (31 December 2016:
NOK 403,092,000).

NOTE 15: INTEREST-BEARING DEBT

Credit facilities

Sellers' credits

Unamortised borrowing costs

Total interest-bearing debt

Non-current interest-bearing debt

Current interest-bearing debt

Total interest-bearing debt

2017

2016

1 337.1

22.8

(12.2)

1 347.7

1 329.1

18.6

1 347.7

1 350.0

56.0

(15.2)

1 390.8

1 342.9

47.9

1 390.8

USD 1,300 million credit facility
The credit facility of USD 1,300 million 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. In September 2016 the amortisation profile and covenants relating to this facility were amended.
Prior to the amendment, the term loan tranches were reduced semi-annually by USD 55 and USD 10
million, respectively. 90 per cent of the originally scheduled repayments in the period 1 January 2017 until
30 June 2019 have been postponed and are to be repaid on the final maturity date.

For the period 1 July 2019 until 31 December 2020, 70 per cent of the scheduled repayments have been
postponed until the final maturity date. As of 31 December 2017, there was no amount available under
the revolving credit facility.

USD 288 million credit facility
This credit facility, which has a maturity of seven years, consists of two tranches of USD 144 million
(USD 288 million in total). The first one was drawn upon delivery of Safe Notos in February 2016, and
the second one can be drawn upon delivery of Safe Eurus.

In September 2016 the amortisation profile and covenants relating to this facility were amended. Prior
to the amendment, the term loan tranches were reduced quarterly by USD 3 million, starting three
months after delivery of the tranche security. 90 per cent of the originally scheduled repayments for
the Safe Notos tranches in the period 1 January 2017 until 30 June 2019 have been postponed and
are to be repaid on the final maturity date. For the period 1 July 2019 until 31 December 2020, 70 per
cent of the scheduled repayments for the Safe Notos tranches have been postponed until the final
maturity date.

As part of the amendment in 2016, a cash sweep mechanism was included whereby the Company on
30 April annually (first time in 2018) shall make cash sweep payments to the banks based on excess
cash available. Any cash sweep payment shall only be made if the firm contract backlog represents no
less than USD 350 million of revenue for the next 12 months.

Financial covenants as per amendment in September 2016:

No dividends until repayments have been made equal to the deferred instalments.
USD 65 million

Dividend restrictions:
Minimum liquidity:
Interest coverage ratio:1) Minimum 1.0 until 31.12.19, thereafter minimum 1.5.
Leverage ratio:2)
Suspended until 31.12.20, thereafter to be negotiated.
Suspended until 31.12.18, thereafter minimum 110% of total outstanding
Market value vessels:
loans based on two consecutive market value test dates (31 March each
year). For the USD 288 million facility only, there is a step up in the minimum
market value covenants in March 2021 to 125%.

There is also a maximum capital expenditure covenant which is agreed before the start of each financial year.

1) Interest coverage ratio = adjusted EBITDA/net interest expenses
2) Leverage ratio = net borrowings/adjusted EBITDA

Interest on bank facilities

Interest is USD LIBOR plus margin. Margin on outstanding amounts are as follows.

Applicable leverage ratio

Until 30.06.2019

From 01.07.2019

Until 30.06.2019

From 01.07.2019

USD 1 300 million facility

USD 288 million facility

Less than or equal to
3.0:1

Above 3.0:1 and less
than 4.0:1

Above 4.0:1 and less
than 5.0:1

Above 5.0:1 and less
than 5.5:1

Above 5.5:1

Cash
margin

2.00 %

2.15 %

PIK
margin

Cash
margin

2.00 %

Cash
margin

PIK
margin

2.15 % 0.10 %

2.15 %

2.15 % 0.10 %

2.15 %

0.15 %

2.30 %

2.15 % 0.15 %

2.15 %

0.35 %

2.50 %

2.15 % 0.35 %

2.15 %

0.60 %

2.75 %

2.15 % 0.60 %

Cash
margin

2.25 %

2.30 %

2.50 %

2.75 %

Payment in kind (PIK) will be added to the final balloon payment.

Financial covenants as of 31 December 2017

Cash and deposits

Restricted cash

Amount available for utilisation, revolving credit facility (max USD 25 million)

Liquidity (minimum USD 65 million)

EBITDA

Net interest expenses excluding PIK interests

Interest coverage ratio (minimum 1.0)

231.9

(5.3)

0.0

226.6

122.9

72.2

1.7

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 was repaid in 2017.
The annual interest rate was 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. In August 2016, further amendment
was made to the existing payment schedule. It was agreed that the first instalment of USD 2.3 million
was to be paid in October 2016 and thereafter USD 0.3 million monthly until December 2019, except
August 2018 instalment of USD 0.7 million. The remaining balance of the sellers’ credit amount
together with the annual interest of 5.9% is due to be repaid in a single payment on or before
December 2019.

NOTE 16: OTHER CURRENT LIABILITIES

Various accrued costs

Accrued interest costs

Deferred income

Other interest-free current liabilities

Total interest-free current liabilities

2017

2016

12.6

6.9

3.0

0.0

22.5

42.0

4.2

4.3

6.3

56.8

NOTE 17: MORTGAGES AND GUARANTEES

2017
As of 31 December 2017, Prosafe’s interest-bearing debt secured by mortgages totalled USD 1,337.1
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, Safe Zephyrus and
Safe Notos (net carrying value USD 1,527.2 million). 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.

A bank guarantee has been issued on behalf of Prosafe Rigs Pte. Ltd. in favour of Westcon Yards AS,
amounting to NOK 245 million at 31 December 2017. This bank guarantee is secured by a cash
deposit of USD 5 million and a counter bank guarantee of USD 30 million issued under the USD 1.3
billion facility.

As at 31 December 2017, Prosafe had issued parent company guarantees to clients and vendors
on behalf of its subsidiaries in connection with the award and performance of contracts totalling
approximately USD 318 million and a parent company guarantee and indemnity relating to the bank
guarantee referred to above. The amounts specified with regard to parent company guarantees reflect
the sum of the capped liability under the relevant agreements.

2016
As of 31 December 2016, Prosafe’s interest-bearing debt secured by mortgages totalled USD 1,350
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, Safe Zephyrus and
Safe Notos (net carrying value USD 2,029 million). 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.

A bank guarantee has been issued on behalf of Prosafe Rigs Pte. Ltd. in favour of Westcon Yards AS,
amounting to NOK 245 million at 31 December 2016. This bank guarantee is secured by a cash
deposit of USD 5 million and a counter bank guarantee of USD 30 million issued under the USD 1.3
billion facility.

As at 31 December 2016, Prosafe had issued parent company guarantees to clients and vendors
on behalf of its subsidiaries in connection with the award and performance of contracts totalling
approximately USD 345 million and a parent company guarantee and indemnity relating to the bank

guarantee referred to above. The amounts specified with regard to parent company guarantees reflect
the sum of the capped liability under the relevant agreements.

NOTE 18: FINANCIAL ASSETS AND LIABILITIES

As of 31 December 2017, the group had financial assets and liabilities in the following categories:

Fair value

through

Financial

liabilities

Loans and

profit and

measured at

Year ended 31 Dec 2017

receivables

loss

amortised cost

Book

value

Fair

value

Cash and deposits

Accounts receivable

Other current assets

Total financial assets

Credit facilities 1)

Fair value interest swaps

Accounts payable

Other current liabilities

Total financial liabilities

231.9

45.5

6.7

284.1

0.0

39.4

0.0

39.4

0.0

231.9

45.5

6.7

45.5

6.7

284.1

1 337.1

1 297.1

0.0

3.5

22.5

39.4

3.5

22.5

39.4

3.5

22.5

1 363.1

1 402.5

1 362.5

1) Fair value reflects current market conditions with the assumption that the credit margin would
increase from the actual 215 basis points to 300 basis points. The net present value of the interest
advantage, discounted with USD 5-year swap rate, is around USD 40 million.

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 gradecredit 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.

Year ended 31 Dec 2017

Fair value currency forwards

Fair value interest swaps

Total financial assets/liabilities

Total

0.0

(39.4)

Level 1

0.0

Level 2

0.0

(39.4)

Level 3

0.0

As of 31 December 2016, the group had financial assets and liabilities in the following categories:

Fair value

Financial

liabilities

through

measured at

Year ended 31 Dec 2016

receivables

loss

cost

value

Loans and

profit and

amortised

Carrying

Fair

value

Cash and deposits

Accounts receivable

Other current assets

Total financial assets

Credit facilities

Fair value interest swaps

Fair value currency forwards

Accounts payable

Other current liabilities

Total financial liabilities

205.7

60.0

29.1

294.8

0.0

51.3

7.9

0.0

205.7

60.0

29.1

60.0

29.1

294.8

1 350.0

1 300.0

0.0

16.9

56.8

51.3

7.9

16.9

56.8

51.3

7.9

16.9

56.8

59.2

1 423.7

1 482.9

1 432.9

Year ended 31 Dec 2016

Fair value currency forwards

Fair value interest swaps

Total financial assets/liabilities

Total

(7.9)

(51.3)

(59.2)

Level 1

0.0

Level 2

(7.9)

(51.3)

(59.2)

Level 3

0.0

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.

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 instru-
ments 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
As of 31 December 2017, interest bearing debt consists of USD denominated liabilities only. 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.

Forward exchange contracts
Fair value of forward exchange contracts 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.

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.

As of 31 December 2017 there were no forward exchange contracts outstanding.

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

Total

USD - 10%

Re-valuation cash and deposits

Re-valuation currency forwards

Total

2017

2016

Income state-
ment effect

OCI effect

Income state-
ment effect

OCI effect

(10.9)

0.0

(10.9)

10.9

0.0

10.9

0.0

(2.6)

(8.9)

(11.5)

2.8

15.8

18.6

0.0

Interest rate risk
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.

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. Effective 1 July 2016, the Company decided, based on a cost-benefit evaluation, to abandon
hedge accounting of interest rate swaps. As from this date, any change in fair value of interest rate
swaps is taken through the income statement rather than via other comprehensive income. As a
result of the abandonment of hedge accounting, an amount of USD 13.2 million (2016: USD 36.9
million) has been expensed in the income statement.

As of 31 December 2017, Prosafe’s hedging agreements totalled USD 1,000 million :

Notional amount

USD 400 million

USD 225 million

USD 135 million

USD 120 million

Total

Fixed rate

Maturity

Swap type

Fair value

2,3150 %

2,4440 %

2,3630 %

1,5330 %

2,1280 %

2022

Bullet

(17.8)

(12.8)

(5.7)

0.5

(3.6)

(39.4)

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.

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.

Pre-tax effects

Forward curve +100bps

Re-valuation interest rate swaps

Total

Forward curve -100bps

Re-valuation interest rate swaps

Total

2017

2016

Income
statement effect

OCI
effect

Income
statement effect

OCI
effect

36.7

(38.3)

0.0

46.8

(49.5)

0.0

Changes in other comprehensive income related to financial instruments
As of 31 December 2017, the following changes in other comprehensive income were related to
financial instruments:

Re-valuation interest rate swaps

Total

2017

13.2

2016

(22.2)

Credit risk
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 2017, 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 2017

31 December 2016

Total

45.5

60.0

Not due

< 30 days 30 - 60 days

61-90 days

> 90 days

25.3

35.7

20.2

24.3

0.0

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.

As of 31 December 2017, Prosafe had an unrestricted liquidity reserve totalling USD 226.6 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. On the other hand, the refinancing which was completed
during 2016 and the spend reductions that have taken place have reduced the liquidity risk.

As of 31 December 2017, the Group's main financial liabilities had the following remaining
contractual maturities:

Per year

Interest-bearing debt (repayments)
Interests including interest rate swaps 1)

Taxes

Accounts payable and other current liabilities

Total

2018

18.6

68.9

18.2

26.0

2019

46.8

73.2

0.8

0.0

2020

42.6

66.9

0.7

0.0

2021

2022 →

256.7

61.6

0.5

0.0

995.2

7.1

2.1

0.0

131.7

120.8

110.2

318.8

1 004.4

1) Based on forecasted average debt, average LIBOR per 31 December 2017 and average weighted
margin.

As of 31 December 2017, the commitments under the USD 1,300 million credit facility were fully
utilised. As of year-end, available amount under the revolving credit facility was USD 0 million. At year-
end, 50% of the USD 288 milllion facility has been drawn (the tranche of USD 144 million relating to
Safe Eurus). Reference is made to note 15 for further information.

As of 31 December 2016, the Group's main financial liabilities had the following remaining
contractual maturities:

Per year

Interest-bearing debt (downpayments)
Interests including interest rate swaps 1)

Taxes

Accounts payable and other current liabilities

Total

2017

47.9

66.0

22.8

73.7

2018

18.3

65.0

1.2

0.0

2019

46.5

63.9

1.0

0.0

2020

2021 →

42.6

62.5

0.8

0.0

1 250.7

69.5

3.1

0.0

210.4

84.5

111.4

105.9

1 323.3

1) Based on forecasted average debt, average LIBOR per 31 December 2016 and average weighted
margin.

As of 31 December 2016, the commitments under the USD 1,300 million credit facility were fully utilised.
As of year-end, available amount under the revolving credit facility was USD 0 million. At year-end, 50%
of the USD 288 milllion facility has been drawn (the tranche of USD 144 million relating to Safe Eurus).
Reference is made to note 15 for further information.

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 shareholders' 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 including bank guarantees, by EBITDA
over the last 12 months.

NOTE 20: CASH AND DEPOSITS

Restricted cash deposits

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

2017

2016

5.3

226.6

231.9

0.2

205.5

205.7

2017

2016

1.9

3.1

1.0

0.7

6.7

24.7

3.0

0.9

0.5

29.1

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

Axis Vega Singapore Pte Ltd

Axis Nova Singapore Pte Ltd

Country

of incorporation Ownership

Norway

United Kingdom

Cyprus

Jersey

Singapore

Luxembourg

Poland

Netherlands

Brazil

Singapore

100 %

Transactions and outstanding balances within the Group have been eliminated in full.

Shares owned by senior officers and directors at 31 December 2017:
(includes shares owned by wholly-owned companies)

Senior officers:

Jesper Kragh Andresen - CEO

Stig Harry Christiansen - deputy CEO and CFO

Glen Ole Rødland - chairman

Svend Anton Mayer - director

Roger Cornish - director

Carine Smith Ihenacho - director

Nancy Ch. Erotocritou - director

Birgit Aagaard-Svendsen - director

Kristian Johansen - director

Voting

100 %

32 476

26 500

3 000

NOTE 23: CONTINGENT LIABILITIES AND CAPITAL COMMITMENTS

New builds
As at 31 December 2017 the Group had three completed new builds residing at COSCO's Qidong
shipyard in China; Safe Eurus, Safe Nova and Safe Vega. Prosafe continues to work with the yard to find
a workable commercial solution for the these vessels. Safe Eurus is in a preserved, strategic stacking
mode and the Group has accrued for lay-up cost for this vessel. In accordance with the agreement
with COSCO, 50 percent of these costs are to be paid on delivery and the remaining 50 percent after
delivery.

The standstill agreement with COSCO relating to Safe Nova and Safe Vega has recently been extended
until early April 2018 and Prosafe remains in negotiations with COSCO and related parties for these
vessels. If no agreement is reached, Prosafe has the right to cancel the new build contracts for Safe
Nova and Safe Vega due to delay, and claim repayment of the instalments paid including interest of
approx. USD 60 million in total. The repayment claim is secured by a refund guarantee from Bank of
China.

NOTE 24: EVENTS AFTER THE BALANCE SHEET DATE

Conversion of convertible bonds
With reference to the convertible bonds described in note 14 and issued as part consideration of
the shares in Axis Vega Singapore Ltd, Axis Nova Singapore Ltd and Dan Swift Singapore Pte Ltd in
December 2016, convertible bonds of nominal value NOK 692,000 were converted into 23,066 new
ordinary shares in the Company in February 2018. The conversion price was NOK 30 per share.

Westcon dispute - contingent asset
On 8 March 2018, Stavanger City Court made a favourable decision in the court case regarding the
dispute with Westcon Yards AS (Westcon). The dispute between Westcon and Prosafe was related to
a substantial cost overrun of Westcon's price estimate for the conversion of the Safe Scandinavia to a
tender support vessel. Westcon claimed an additional compensation of approx. NOK 306 million plus
interest, whereas Prosafe disputed Westcon's claim and claimed a substantial repayment. The Court
decided in favour of Prosafe that Westcon must repay Prosafe NOK 344 million plus interest and NOK
10.6 million of legal costs.

Awaiting the final outcome of the dispute, Prosafe considers the amount payable by Westcon to be
a contingent asset under IAS 37, and has therefore not recognised the amount per 31 December
2017. Provisions totalling USD 35.1 million related to the dispute has been released. As the provisions
were charged against the cost of the vessel, impairment charges equalling the provisions have been
reduced in the accounts. This represents a change compared to Q4 2017 report which was published
on 6 February 2018.

ACCOUNTS PROSAFE SE

INCOME STATEMENT - PROSAFE SE

(USD 1 000)

Note

2017

2016

Income from investments in subsidiaries

Impairment of shares in subsidiaries

Results of investing activities

Operating expenses

Depreciation

Operating loss

Other financial income

Other financial expenses

Net financial items

Loss before taxes

Taxes

Net loss

4, 5

12 600

(745 188)

(732 588)

(6 321)

(2)

(738 911)

49 245

(95 148)

(45 902)

(784 814)

(669)

11 397

(396 516)

(385 119)

(26 253)

(7)

(411 379)

332 148

(174 063)

158 085

(253 294)

(1)

(785 482)

(253 294)

Attributable to the owners of the company

(785 482)

(253 294)

STATEMENT OF COMPREHENSIVE INCOME - PROSAFE SE

(USD 1 000)

Net loss

2017

2016

(785 482)

(253 294)

Other comprehensive income to be reclassified to profit or loss in
subsequent periods

Net loss on cash flow hedges

13 200

(21 693)

Other comprehensive loss to be reclassified to profit or loss in
subsequent periods

13 200

(21 693)

Total comprehensive (loss)/income for the year, net of tax

(772 282)

(274 987)

Attributable to the owners of the company

(772 282)

(274 987)

STATEMENT OF FINANCIAL POSITION - PROSAFE SE

(USD 1 000)

ASSETS

Tangible assets

Shares in subsidiaries and associated companies

Note

31/12/17

31/12/16

1 828 292

2 572 565

Intra-group non-current receivables

12, 14

128 591

118 473

Total non-current assets

Cash and deposits

Other current assets

Total current assets

Total assets

EQUITY AND LIABILITIES

Share capital

Share premium reserve

Share capital reduction reserve

Total paid-in equity

Retained earnings

Total retained earnings

Convertible bonds

Total equity

Interest-bearing long-term debt

Derivatives

Interest-free long-term liabilities

Total long-term liabilities

Interest-bearing current debt

Derivatives

8, 14

1 956 892

2 691 049

18 373

162

18 534

83 751

140

83 891

1 975 427

2 774 940

8 906

7 914

14, 15

10, 15

1 034 280

1 002 282

71 846

1 115 032

1 082 043

(556 127)

23 997

582 902

1 310 701

39 399

1 770

216 155

56 987

1 355 184

1 320 595

51 286

1 742

1 351 869

1 373 624

14 200

17 968

8 486

40 654

14 200

7 886

15 104

8 941

46 131

1 975 427

2 774 940

Intra-group current liabilities

Other interest-free current liabilities

12, 14, 15

11, 14, 15

Total current liabilities

Total equity and liabilities

On 20 March 2018 the Board of Directors of Prosafe SE approved and authorised these financial
statements for issue.

Glen Ole Rødland

Non-executive Chair

Svend Anton Maier

Non-executive Director

Kristian Johansen

Non-executive Director

Roger Cornish

Nancy Ch. Erotocritou

Birgit Aagard-Svendsen

Non-executive Deputy Chair

Non-executive Director

CASH FLOW STATEMENT - PROSAFE SE

(USD 1 000)

Note

2017

2016

Cash flow from operating activities

Loss before taxes

Unrealised currency loss / (gain) on long-term debt

Gain on forgiveness of bond 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 shares

New interest-bearing long-term debt

Repayment of interest-bearing long-term debt

Interest paid

Net cash flow from financing activities

Net cash flow

Cash and deposits at 1 January

Cash and deposits at 31 December

(784 814)

(253 294)

4 306

745 188

(3 804)

70 141

(477)

(669)

(6 546)

23 328

(915)

(7 254)

3 804

(4 365)

(14 200)

(70 141)

(84 341)

(65 378)

83 751

18 373

763

(197 600)

396 516

(12 572)

77 586

23 317

(1)

(51 728)

(17 006)

(671 090)

347 804

12 572

(310 713)

140 394

444 008

(107 540)

(77 586)

399 277

71 557

12 194

83 751

STATEMENT OF CHANGES IN EQUITY - PROSAFE SE

capital re-

(USD 1 000)

Note

capital

demption

Retained

Convert-

Cash flow

premium

reserve

earnings

ible Bonds

hedges

Total

equity

Equity at 31
December 2015

Net loss

Other comprehen-
sive income

Total comprehen-
sive income1)

Share capital
reduction

Share and bond
issue

Conversion of
convertible bonds

Equity at 31
December 2016

Net loss

Other comprehen-
sive income

Total comprehen-
sive income 1)

Conversion of
convertible bonds

Equity at 31
December 2017

72 135

804 700

530 635

(39 492) 1 367 978

(253 294)

(21 693)

(253 294)

(21 693)

(274 987)

(71 846)

0 71 846

7 612

197 235

347

57 347

(360)

262 194

7 914

1 002 282 71 846

277 341

56 987

(61 185) 1 355 185

(785 482)

0 13 200

13 200

(785 482)

0 13 200

(772 282)

992

31 998

(32 990)

8 906

1 034 280 71 846

(508 142)

23 997

(47 985)

582 902

1) Total comprehensive income is attributable to the owners of the company

Nature and purpose of reserves
Share premium: The difference between the issue price of the shares and their nominal value. The
share premium account can only be resorted to for limited purposes, which do not include the distri-
bution of dividends, and is otherwise subject to the provisions of the Cyprus Companies Law, Cap. 113
on reduction of share capital.

Capital redemption reserve: This reserve was created pursuant to section 64(1)(e) of the Companies
Law, Cap. 113 following a capital reduction by the Company in previous years. The reserve is subject to
the same treatment as the share premium account.

Convertible bonds: The reserve for convertible bonds comprises the amount allocated to the equity
component for the convertible bonds. See note 9.

Cash flow hedges: The hedging reserve comprises the effective portion of the cumulative net change
in the fair value of hedging instruments used in cash flow hedges pending subsequent recognition in
profit or loss as the hedged cash flows or items affect profit or loss.

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.

NOTE 2: OPERATING EXPENSES

Services from subsidiaries

Directors’ fees (see details below)

Salaries and management bonus

Other remuneration

Payroll taxes

Pension expenses

Auditors' audit fees

Auditors' other fees

Legal fees

Other operating expenses

Total operating expenses

Board of directors

Glen Ole Rødland (chair)

Roger Cornish

Nancy Ch. Erotocritou

Svend Anton Maier

Birgit Aagaard-Svendsen (from May 2017)

Kristian Johansen (from May 2017)

Carine Smith Ihenacho (until May 2017)

Anastasis Ziziros (until May 2017)

Total fees

2017

2016

4 043

5 592

603

468

(133)

112

(230)

1 379

6 321

Year

2017

568

417

(100)

155

17 551

1 926

26 253

Fees

137

112

603

Board of directors

Glen Ole Rødland (chair from May 2016)

Roger Cornish

Nancy Ch. Erotocritou

Svend Anton Maier (from Dec 2016)

Harald Espedal (chair until May 2016)

Christian Brinch (until May 2016)

Carine Smith Ihenacho

Anastasis Ziziros

Total fees

Number of employees

The average number of employees in the Company for 2017 was 5 (2016: 5).

NOTE 3: TANGIBLE ASSETS

Acquisition cost 31.12.15

Additions

Disposals at acquisition cost

Acquisition cost 31.12.16

Additions

Disposals at acquisition cost

Acquisition cost 31.12.17

Accumulated depreciation 31.12.15

Accumulated depreciation on disposals

Depreciation for the year

Accumulated depreciation 31.12.16

Accumulated depreciation on disposals

Depreciation for the year

Accumulated depreciation 31.12.17

Carrying value 31.12.17

Carrying value 31.12.16

Depreciation rate (%)

Year

2016

Fees

103

101

568

Equipment

Total

211

192

199

201

20-30

NOTE 4: OTHER FINANCIAL ITEMS

Interest receivable from subsidiaries

Other interest receivable

Gain on forgiveness of bond debt

Currency gain

Fair value adjustment currency forwards

Fair value adjustment interest rate swaps

Total other financial income

Interest expenses

Currency loss

Other financial expenses

Total other financial expenses

2017

2016

3 598

206

12 436

136

197 600

25 668

7 886

11 888

49 245

52 238

32 821

36 917

332 148

(70 141)

(77 586)

(20 536)

(86 320)

(4 471)

(10 157)

(95 148)

(174 063)

NOTE 5: FINANCIAL ITEMS - IAS 39 CATEGORIES

Fair value

Financial

liabilities

through

measured at

Loans and

profit and

amortised

Year ended 31 Dec 2017

receivables

loss

cost

Total

Interest income
Currency gain 1)

Fair value adjustment currency forwards

Fair value adjustment interest swaps

Total financial income

Interest expenses
Currency loss 1)

Other financial expenses

Total financial expenses

3 804

11 888

7 886

(70 141)

(4 471)

(74 612)

3 804

25 668

7 886

11 888

49 245

(70 141)

(20 536)

(4 471)

(95 148)

Net financial items

3 804

11 888

(66 726)

(45 902)

Financial

Fair value

liabilities

through

measured at

Loans and

profit

amortised

Year ended 31 Dec 2016

receivables

and loss

cost

Total

Interest income
Currency gain 1)

Fair value adjustment currency forwards

Fair value adjustment interest swaps

Gain on forgiveness of bond debt

12 572

36 917

Total financial income

12 572

36 917

Interest expenses
Currency loss 1)

Other financial expenses

Total financial expenses

32 821

197 600

230 421

(77 586)

(10 157)

(87 743)

12 572

52 238

32 821

36 917

197 600

332 148

(77 586)

(86 320)

(10 157)

(174 063)

Net financial items

12 572

36 917

142 678

158 085

1) Excluded from the category breakdown, but added to the total for net effect.

NOTE 6: TAXES

Tax base

Taxes

Temporary differences:

Loss carried forward

Basis for deferred tax liability (+)/benefit (-)

Deferred tax liability (+)/benefit (-)

Taxes payable at 31 December

2017

2016

669

(180 768)

(127 543)

(180 768)

(127 543)

No deferred tax asset has been recognised in 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%.

Reconciliation in accordance with IAS 12.81

Tax rate

Loss 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

Withholding tax

Tax charge

2017

2016

12,5 %

(784 814)

(253 294)

(98 102)

(31 662)

99 271

64 940

(7 302)

(41 165)

6 133

7 887

665

669

NOTE 7: SHARES IN SUBSIDIARIES AND ASSOCIATED COMPANIES

(Share capital and carrying value in 1 000)

Company

Prosafe AS

Prosafe Offshore AS

Prosafe Management AS

Prosafe (UK) Holdings Ltd

Prosafe Offshore Pte Ltd

Prosafe Offshore Services Pte Ltd

Prosafe Asia Pacific Pte Ltd

Prosafe Rigs Pte Ltd

Axis Nova Singapore Pte. Ltd

Axis Vega Singapore Pte. Ltd

Dan Swift Singapore Pte. Ltd

Total carrying value

Carrying

capital

value 2017

value 2016 Ownership

NOK

GBP

USD

SGD

USD

100

48 036

69 316

270

11 000

10 000

9 826

222 099

498 380

150

2 500 040

1 476 973

1 924 600

30 915

30 000

10 000

30 915

30 000

10 000

30 000

10 000

1 828 292

2 572 565

100 %

91 %

100 %

25 %

In December 2016, the Company acquired a 25% shareholding in Dan Swift Pte Ltd, a company
incorporated in Singapore. This company owns one accommodation monohull, the Safe Swift. This
investment is measured using the equity method.

In December 2016, the Company also acquired 100% of the shares in Axis Nova Singapore Pte Ltd and Axis
Vega Singapore Pte Ltd. Each of these companies owns a new build vessel under construction in China.

In the income statement for 2017, the following impairment charges were made:
Prosafe Rigs Pte Ltd USD 447.6 million, Prosafe Offshore Pte Ltd USD 276.3 million and Prosafe AS USD 21.3
million.

In the income statement for 2016, the following impairment charges were made:
Prosafe Rigs Pte Ltd USD 324.4 million and Prosafe Offshore Pte Ltd USD 72.2 million.

There are mortgages on the shares in Prosafe Rigs Pte Ltd and Prosafe Offshore Services Pte Ltd. Please refer to
note 13.

NOTE 8: OTHER CURRENT ASSETS

Current receivables from group companies

Other current assets

Total other current assets

NOTE 9: SHARE CAPITAL AND CONVERTIBLE BONDS

2017

2016

114

162

117

140

2017

2016

Issued and paid up number of ordinary shares at 31 December

80 725 809

71 399 002

Authorised number of shares at 31 December

130 440 177

Nominal value at 31 December

Number of shareholders at 31 December

EUR 0.10

5 427

EUR 0.10

6 227

Ordinary shares

In issue at 1 January

Issued for cash in private placement

Issued to bond holders

Issued in connection with conversion of convertible bonds

9 326 807

Issued for cash in subsequent share offering

100:1 share split

Issued as part of the consideration icw Axis acquisition

In issue at 31 December fully paid up

80 725 809

71 399 002

259 570 359

4 376 600 000

1 400 839 757

12 000 000

504 000 000

(6 487 480 014)

5 868 900

71 399 002

In November 2016 504,000,000 shares were issued in a subsequent share offering. A 100:1 reverse
share split was completed on 30 November 2016. Prior to the reverse split, the share capital consisted

of 6,553,010,116 shares at face value of EUR 0.001 each. Subsequent to the reverse split, the share
capital consisted of 65,530,102 shares at face value of EUR 0.10 each. In December 2016 5,868,900
shares were issued as a part of the consideration relating to the acquisition of Axis Nova Singapore
Pte Ltd and Axis Vega Singapore Pte Ltd. During 2017 a total of 9,326,807 shares of EUR 0.10 each
were issued in connection with conversion of convertible bonds.

NOTE 10: INTEREST-BEARING DEBT

Credit facility

Unamortised borrowing costs

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.

NOTE 11: OTHER INTEREST-FREE CURRENT LIABILITIES

Accrued interest costs

Other current liabilities

Total other interest-free current liabilities

2017

2016

1 337 099

1 350 008

(12 198)

(15 213)

1 324 901

1 334 795

1 310 701

1 320 595

14 200

1 324 901

1 334 795

2017

2016

6 877

1 609

8 486

4 162

4 779

8 941

NOTE 12: INTRA-GROUP BALANCES

NOK loan to Prosafe AS

Intra-group long-term receivables

2017

2016

128 591

118 473

128 591

118 473

Loan agreements with subsidiaries are made at market prices using 3M NIBOR (NOK loan) and 3M
LIBOR (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

2017

2016

Transactions

Administrative services from subsidiaries

Interest income

Dividend

(4 043)

3 598

12 600

(5 592)

12 436

11 397

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 6 to the consolidated accounts
for disclosure of remuneration to directors.

Year-end balances

Current receivables from group companies

Intra-group long-term receivables

Current payables from the ultimate parent to subsidiaries

128 591

118 473

17 968

15 104

Current receivables and payables are not subject to any interest calculation. The balances will be

settled on ordinary market terms.

NOTE 13: MORTGAGES AND GUARANTEES

2016
As of 31 December 2016, interest-bearing debt secured by mortgages totalled USD 1,320 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, Safe Zephyrus and Safe Notos
(net carrying value USD 1,971 million). 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 245 million at 31 December 2016. The guarantees were secured
by parent company guarantee and mortgages on the accommodation/service vessels Safe Regency
and Safe Lancia (net carrying value USD 0 million).

As of 31 December 2016, Prosafe had issued parent company guarantees to clients and vendors
on behalf of its subsidiaries in connection with the award and performance of contracts totalling
approximately USD 277 million.

NOTE 14: FINANCIAL ASSETS AND LIABILITIES

Financial

Fair value

liabilities

through

measured at

Year ended 31 Dec 2017

receivables

and loss

cost

value

Loans and

profit

amortised

Carrying

Intra-group long-term receivable

Cash and deposits

Other current assets

Total assets

Credit facility

Fair value derivatives

Interest-free long-term liabilities

Intra-group current liabilities

Other interest free current liabilities

Total liabilities

128 591

18 373

162

147 125

39 399

128 591

18 373

162

147 125

1 337 099

1 770

17 968

8 486

39 399

1 770

17 968

8 486

39 399

1 365 322

1 404 721

Fair value

Financial

liabilities

through

measured at

Year ended 31 Dec 2016

receivables

loss

cost

value

Loans and

profit and

amortised

Carrying

Intra-group long-term receivable

Cash and deposits

Other current assets

Total assets

Credit facility

Fair value derivatives

Interest-free long-term liabilities

Intra-group current liabilities

Other interest free current liabilities

Total liabilities

118 473

83 751

140

202 364

59 172

118 473

83 751

140

202 363

1 350 008

1 742

15 104

8 941

59 172

1 742

15 104

8 941

59 172

1 375 795

1 434 968

For further information, see note 18 of the consolidated accounts.

NOTE 15: MATURITY PROFILE LIABILITIES

Year ended 31 Dec 2017

2018

2019

2020

2021

2022 →

Interest-bearing debt (downpayments)

Interests incl interest swaps

Intra-group current liabilities

Other interest-free current liabilities

14 200

68 900

17 968

8 486

28 400

68 100

42 600

66 900

256 700

995 200

61 600

7 100

Total

109 554

96 500

109 500

318 300 1 002 300

Year ended 31 Dec 2016

2017

2018

2019

2020

2021 →

Interest-bearing debt (downpayments)

Interests incl interest swaps

Intra-group current liabilities

Other interest-free current liabilities

14 200

66 039

15 104

8 941

14 200

64 980

28 400

63 943

42 600 1 250 608

62 518

69 455

Total

104 284

79 180

92 343

105 118 1 320 063

NOTE 16: FINANCIAL RISKS

As of 31 December 2017, Prosafe’s hedging agreements totalled USD 1,000 million:

Notional amount

Fixed rate

Maturity

Swap type

(USDm)

Fair value

USD 400 million

USD 225 million

USD 135 million

USD 120 million

Total

2.3150 %

2.4440 %

2.3630 %

1.5330 %

2.1280 %

2022

Bullet

(17.8)

(12.8)

(5.7)

0.5

(3.6)

(39.4)

Pre-tax effects

Forward curve +100bps

Re-valuation interest rate swaps

Total

Forward curve -100bps

Re-valuation interest rate swaps

Total

2017

2016

Income state-
ment effect

OCI effect

Income state-
ment effect

OCI effect

(36 700)

(38 300)

46 800

(49 500)

Changes in other comprehensive income related to financial instruments
The following changes in other comprehensive income were related to financial instruments:

Re-valuation interest rate swaps

Total

2017

13 200

2016

(21 693)

Currency risk
The Company's operating expenses are primarily denominated in EUR and NOK, and the operating
result is therefore exposed to currency risk relating to fluctuations in the EUR and NOK exchange rates
versus the USD.

The Group 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. Currency forward contracts are entered into by the Company to hedge the currency
risk within the Group.

As of 31 December 2017 there were no forward exchange contracts outstanding.

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, EUR 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

Total

USD -10%

Re-valuation cash and deposits

Re-valuation currency forwards

Total

2017

2016

Income state-
ment effect

OCI effect

Income state-
ment effect

OCI effect

(968)

1 065

(762)

(8 900)

(9 662)

838

15 800

16 638

Credit risk
The Company is exposed to credit risk in relation to the inter-company loan to one of its subsidiaries,
Prosafe AS (ref note 12 for details about the loan).

As of 31 December 2017, the Group had an unrestricted liquidity reserve totalling USD 226.6 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).

NOTE 17: EVENTS AFTER THE BALANCE SHEET DATE

Conversion of convertible bonds
With reference to the convertible bonds described in note 9 and issued as part consideration of
the shares in Axis Vega Singapore Ltd, Axis Nova Singapore Ltd and Dan Swift Singapore Pte Ltd in
December 2016, convertible bonds of nominal value NOK 692,000 were converted into 23,066 new
ordinary shares in the Company in February 2018. The conversion price was NOK 30 per share.

INDEPENDENT
AUDITORS' REPORT

To the members of
Prosafe SE

REPORT ON THE AUDIT OF THE
CONSOLIDATED AND SEPARATE
FINANCIAL STATEMENTS

Opinion
We have audited the accompanying
consolidated and separate financial
statements of Prosafe SE (the “Company”),
and its subsidiaries (“the Group”), which are
presented on pages 15 to 53 and comprise the
consolidated statement of financial position of
the Group and the statement of financial posi-
tion of the Company as at 31 December 2017,
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 notes to the consolidated and
separate financial statements, including a
summary of significant accounting policies.

In our opinion, the accompanying 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 2017, and of their financial
performance and cash flows for the year then
ended in accordance with International Financial
Reporting Standards as adopted by the European
Union ("IFRS-EU”) and the requirements of the
Cyprus Companies Law, Cap. 113 as amended from
time to time (the “Companies Law, Cap. 113”).

Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(“ISAs”). Our responsibilities under those
standards are further described in the
“Auditors’ responsibilities for the audit of
the consolidated and separate financial

statements” section of our report. We are
independent of the Group in accordance
with the Code of Ethics for Professional
Accountants of the International Ethics
Standards Board for Accountants (“IESBA
Code”), and the ethical requirements in
Cyprus that are relevant to our audit of the
consolidated and the separate financial
statements, and we have fulfilled our other
ethical responsibilities in accordance with
these requirements and the IESBA Code.
We believe that the audit evidence we have
obtained is sufficient and appropriate to
provide a basis for our opinion.

Key audit matters
Key audit matters are those matters that, in
our professional judgement, were of most
significance in our audit of the consolidated
and the separate financial statements of the
current period. These matters were addressed
in the context of our audit of the consolidated
and the separate financial statements, as a
whole, and in forming our opinion thereon and
we do not provide a separate opinion on these
matters.

KEY AUDIT MATTER 1 - VALUATION OF
GOODWILL AND RIGS
Refer to Notes 3 and 8 to the consolidated
financial statements.

The key audit matter
There is a risk of irrecoverability of the
Group’s carrying amount of Property Plant
and Equipment, specifically rigs (“PPE”),
and goodwill due to the continued weak
demand in key markets. An impairment
assessment of PPE and goodwill was
carried out by the Group by assessing the
value in use of the Group’s cash generating
units (“CGUs”) which requires significant
assumptions about future developments. Due
to the inherent uncertainty and subjectivity
involved in forecasting and discounting
future cash flows, which are the basis of the
assessment of recoverability, this is one of

the key judgmental areas that our audit is
concentrated on.

tion to key inputs, taking also into considera-
tion the results of our audit procedures on key
audit matter 1.

How the matter was addressed in our audit
Our audit procedures included testing of the
Group’s budgeting procedures and principles
on which the forecasts are based and the
integrity of the Group’s discounted cash flow
(“DCF”) model. This included comparison of
the key assumptions to external data as well
as our own assessments in relation to key
inputs and calculations such as utilization
rates, operating revenues/expenses, expected
lifetime of the rigs, annual capital expenditure
and terminal value, based on our knowledge
of the industry. We considered the historical
accuracy of the Group’s assumptions and used
external data and our own valuation special-
ists when assessing the discount rate applied.
We assessed whether the DCF valuation is
performed at the appropriate level of CGU. We
also assessed whether the Group’s disclosures
about the sensitivity of the outcome of the
impairment assessment to changes in key
assumptions reflects the risks inherent in the
valuation of rigs.

KEY AUDIT MATTER 2 - INVESTMENTS IN
SUBSIDARIES
Refer to Note 7 to the separate financial state-
ments and note 3 to the consolidated financial
statements.

The key audit matter
As a consequence of the risk of impairment
of rigs (detailed above), the Company’s invest-
ments in the rig owning entities are exposed to
impairment risk.

How the matter was addressed in our audit
Our audit procedures included testing of the
principles and integrity of the Company’s
valuation model. These included evaluating
the methodology and assumptions used by
the Company and comparing the Company’s
assumptions to our own assessments in rela-

OTHER INFORMATION
The Board of Directors is responsible for the
other information. The other information
comprises the following:

•

the financial calendar and key figures
(page 5);

about Prosafe (page 6); and the
management report (designated as
“Directors’ report” in the Annual Report)

(page 9 to 19)

but does not include the consolidated and the
separate financial statements and our auditor’s
report thereon.

Our opinion on the consolidated and separate
financial statements does not cover the other
information and we do not express any form
of assurance conclusion thereon, except as
required by the Companies Law, Cap.113.

In connection with our audit of the consoli-
dated and separate financial statements, our
responsibility is to read the other information
and, in doing so, consider whether the other
information is materially inconsistent with
the consolidated and separate financial
statements or our knowledge obtained in the
audit or otherwise appears to be materially
misstated. If, based on the work we have
performed, we conclude that there is a material
misstatement of this other information, we are
required to report that fact. We have nothing to
report in this respect.

With regards to the ‘financial calendar’ and ‘key
figures’ and ‘about Prosafe’ we have nothing to
report.

With regards to the ‘management report’, our
report is presented in the “Report on other legal
and regulatory requirements” section.

expected to influence the economic decisions of
users taken on the basis of these consolidated
and separate financial statements.

Responsibilities of the Board of Directors for the
consolidated and separate financial statements
The Board of Directors is responsible for the
preparation of consolidated and separate finan-
cial statements that give a true and fair view in
accordance with IFRS-EU and the requirements
of the Companies Law, Cap. 113, and for such
internal control as the Board of Directors deter-
mines is necessary to enable the preparation of
consolidated and separate financial statements
that are free from material misstatement,
whether due to fraud or error.

In preparing the consolidated and separate
financial statements, the Board of Directors
is responsible for assessing the Group’s and
the Company’s ability to continue as a going
concern, disclosing, as applicable, matters
related to going concern and using the going
concern basis of accounting unless there is an
intention to either liquidate the Group or the
Company or to cease operations, or there is no
realistic alternative but to do so.

The Board of Directors is responsible for over-
seeing the Group’s and the Company’s financial
reporting process.

Auditor’s responsibilities for the audit of the
consolidated and separate financial statements
Our objectives are to obtain reasonable assurance
about whether the consolidated and separate
financial statements as a whole are free from
material misstatement, whether due to fraud
or error, and to issue an auditors’ report that
includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee
that an audit conducted in accordance with ISAs
will always detect a material misstatement when
it exists. Misstatements can arise from fraud or
error and are considered material if, individually
or in the aggregate, they could reasonably be

As part of an audit in accordance with ISAs, we
exercise professional judgment and maintain
professional skepticism throughout the audit.
We also:

•
Identify and assess the risks of material
misstatement of the consolidated and

separate financial statements, whether due
to fraud or error, design and perform
audit procedures responsive to those risks,
and obtain audit evidence that is sufficient
and appropriate to provide a basis for our
opinion. The risk of not detecting a material
misstatement resulting from fraud is higher
than for one resulting from error, as fraud
may involve collusion, forgery, intentional
omissions, misrepresentations, or the
override of internal control.

• Obtain an understanding of internal

control relevant to the audit in order to
design audit procedures that are
appropriate in the circumstances, but not
for the purpose of expressing an opinion
on the effectiveness of the Group’s and the
Company’s internal control.

• Evaluate the appropriateness of accounting
policies used and the reasonableness of
accounting estimates and related
disclosures made by the Board of Directors.

• Conclude on the appropriateness of the
Board of Directors’ use of the going
concern basis of accounting and, based
on the audit evidence obtained, whether
a material uncertainty exists related to
events or conditions that may cast
significant doubt on the Group’s and the
Company’s ability to continue as a going
concern. If we conclude that a material
uncertainty exists, we are required to draw
attention in our auditors’ report to the
related disclosures in the consolidated
and separate financial statements or, if

such disclosures are inadequate, to modify
our opinion. Our conclusions are based
on the audit evidence obtained up to the
date of our auditors’ report. However, future
events or conditions may cause the Group
or the Company to cease to continue as a
going concern.

• Evaluate the overall presentation, structure

and content of the consolidated and
separate financial statements, including
the disclosures, and whether the
consolidated and separate financial
statements represent the underlying
transactions and events in a manner that
achieves a true and fair view.

• Obtain sufficient appropriate audit evidence
regarding the financial information of the
entities or business activities within
the Group to express an opinion on the
consolidated financial statements. We are
responsible for the direction, supervision
and performance of the Group audit. We
remain solely responsible for our audit
opinion.

We communicate with the Board of Directors
regarding, among other matters, the planned
scope and timing of the audit and significant
audit findings, including any significant
deficiencies in internal control that we identify
during our audit.

We also provide those charged with
governance with a statement that we have
complied with relevant ethical requirements
regarding independence, and to communicate
with them all relationships and other matters
that may reasonably be thought to bear on our
independence, and where applicable, related
safeguards.

From the matters communicated with those
charged with governance, we determine those
matters that were of most significance in
the audit of the consolidated and separate
financial statements of the current period and

are therefore the key audit matters.

REPORT ON OTHER REGULATORY AND
LEGAL REQUIREMENTS

Other regulatory requirements
Pursuant to the requirements of Article 10(2)
of EU Regulation 537/2014, we provide the
following information, which is required in
addition to the requirements of ISAs.

Date of our appointment and period of
engagement

We were first appointed auditors by the
General Meeting of the Company’s members
on 13 May 2015 to audit the consolidated and
separate financial statements of the Group
and the Company, respectively. Our total
uninterrupted period of engagement is 3 years
covering the periods ending 31 December 2015
to 31 December 2017.

Consistency of the additional report to the
Audit Committee

Our audit opinion is consistent with the
additional report presented to the Audit
Committee dated 13 March 2018.

Provision of non-audit services (“NAS”)

We have not provided any prohibited NAS
referred to in Article 5 of EU Regulation
537/2014 as applied by Section 72 of the
Auditors Law of 2017, L.53(I)2017, as amended
from time to time (“Law L53(I)/2017”).

Other legal requirements

Pursuant to the additional requirements of law
L.53(I)2017, and based on the work undertaken
in the course of our audit, we report the
following:

•

In our opinion, the management report, the
preparation of which is the responsibility of
the Board of Directors, has been prepared
in accordance with the requirements of
the Companies Law, Cap. 113, and the
information given is consistent with

the consolidated and separate financial
statements.

OTHER MATTER

•

In the light of the knowledge and
understanding of the business and the
Group’s and the Company’s environment
obtained in the course of the audit, we
have not identified material misstatements
in the management report.

In our opinion, the information included
in the corporate governance statement
in accordance with the requirements of
subparagraphs (iv) and (v) of paragraph 2(a)
of Article 151 of the Companies Law, Cap.
113, and which is also published in full on
the Company’s website, has been prepared
in accordance with the requirements of the
Companies Law, Cap, 113, and is consistent
with the consolidated financial statements.

in our opinion, the corporate governance
statement includes all information referred
to in subparagraphs (i), (ii), (iii), (vi) and
(vii) of paragraph 2(a) of Article 151 of the
Companies Law, Cap. 113.

This report, including the opinion, has been
prepared for and only for the Company’s
members as a body in accordance with Section
69 of Law L53(I)/2017 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.

The engagement partner on the audit resulting
in this independent auditors’ report is Sylvia A.
Loizides.

Sylvia A. Loizides
Certified Public Accountant and Registered

Auditor for and on behalf of

KPMG Limited
Certified Public Accountants and Registered
Auditors

KPMG Center,
No.11, 16th June 1943 Street,
3022 Limassol,
Cyprus.

Limassol, 20 March 2018

Accommodating
the Offshore
Industry

Stadiou 126
CY-6020 Larnaca, Cyprus

Phone: +357 2462 2450
Fax: +357 2462 2480

mail@prosafe.com
www.prosafe.com

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