A N N U A L R E P O R T
2 0 1 8
1
The annual report
is only made in
electronical format,
but can easily be
printed.
The annual report comprises the directors' report, the
consolidated accounts, the parent company accounts and
the independent auditors' report.
Information about HSEQA, corporate governance, social
responsibility, financial and analytical information, executive
management and the board of directors can be found on
www.prosafe.com
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CONTENT
4
6
7
9
About Prosafe
Highlights
Key figures
Directors’ report
22
Statement of the members of
the Board of Directors and other
responsible persons
24
Consolidated accounts
69
Parent company accounts
88
Independent auditor’s report
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ABOUT PROSAFE
Prosafe is a leading owner and operator of semi-submersible
accommodation vessels.
4
Prosafe’s operations are among others 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.
Accommodation vessels offer additional
accommodation, engineering, construction or
storage capacity offshore. Prosafe’s vessels have
accommodation capacity for 200-500 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.
Prosafe has a strong track record
from demanding operations
world wide, with first class
operational performance
and good safety results. The
company has extensive
experience from operating
gangway connected to fixed
installations, FPSOs, TLPs,
Semis and Spars.
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.
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.
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Prosafe owns and operates seven semi-
submersible accommodation vessels and one
Tender Support Vessel (TSV) that is currently
providing accommodation support services on
the Norwegian Continental Shelf. Prosafe
is also the manager and operator
of an accommodation monohull
that is 25% owned by the
company.
Furthermore, Prosafe has
an agreement with COSCO
shipyard for flexible delivery
and long-term financing
of three new build harsh
environment vessels: Safe
Eurus, Safe Nova and Safe Vega.
These vessels are completed and
ready for worldwide operations.
Prosafe's fleet consists of dynamically
positioned vessels and two anchored vessels.
Thereby, the fleet is versatile and able to
operate in all offshore environments globally.
• The fleet utilisation for the year was 47.3 %
(2017: 38.4 %).
• Safe Astoria was sold for recycling/scrap.
Following this, Prosafe has scrapped six
vessels as part of its strategy to high grade
the fleet and protect cash-flow.
In January 2019, Prosafe came first in an online
auction for the supply of an accommodation
vessel towards a three-year contract in Brazil.
The auction is followed by a compliance process
before a contract will be formally awarded,
expectedly during Q2 2019. Prosafe will
mobilize the Safe Eurus if a contract is awarded.
HIGHLIGHTS
• Prosafe reached transforming agreements
with COSCO and its lenders, which will
significantly enhance Prosafe’s fleet and
market position, as well as provide addi-
tional financial flexibility and runway.
• The Stavanger City Court issued its judge-
ment in favour of Prosafe in the dispute
between Westcon and Prosafe 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 legal costs. Westcon
filed an appeal and Prosafe filed a counter
appeal. The next court hearing is likely to
be held in 1H2020. Meanwhile Prosafe is
pursuing the best possible security for the
claim.
• The market for accommodation services
improved and Prosafe increased its order
backlog by securing a number of contracts
throughout the year for the
Safe Scandinavia, Safe Concordia,
Safe Caledonia, Safe Boreas, Safe
Zephyrus and Regalia in Norway,
UK and Brazil.
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KEY FIGURES
Note
2018
2017
2016 2015
2014
Profit
Operating revenues
USD million
EBITDA
USD million 1
330.8
166.6
283.0
122.9
53.0
(578.2)
474.0
253.2
52.8
474.7
262.9
30.8
(114.5)
(647.1)
172.6
(50.6)
548.7
312.6
248.3
178.8
USD million
USD million
Operating profit
Net profit
Earnings per share
(fully diluted)
Balance sheet
Total assets
USD
2
(1.30)
(7.35)
8.36
(21.00)
76.00
USD million
1 736.8
1 947.0
2 686.9
2 187.2
1 816.8
Interest-bearing debt
USD million
1 243.0
1 347.7
1 390.8
1 247.0
Net interest-bearing debt USD million 3
1 102.7
1 115.8
1 185.1
1 189.9
Book equity
USD million
400.2
497.6
1 129.5
715.2
830.1
707.7
748.5
Book equity ratio
4
23.0 %
26.0 %
42.0 %
32.6 %
41.2 %
Liquidity reserve
USD million 5
Net cash flow
USD million
277.3
(91.6)
231.9
26.2
205.7
148.6
57.1
(65.3)
Net working capital
USD million
58.7
221.3
142.5
(157.1)
122.4
9
63
Valuation
Market Capitalisation
at year-end
USD million
126.7
118.1
Share Price
NOK
6
13.4
12
306
37
619
725
2 100
2 300
Operations
Fleet utilisation rate
47.3 %
38.4 %
43.2 %
70.1 %
86.7 %
Notes
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. Cash and deposits + available liquidity reserve balance under a committed revolving credit facility
6. Restated to reflect reverse split in 2016
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DIRECTORS’ REPORT
The directors present their annual report 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 2018.
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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 for offshore projects.
The Parent Company is legally domiciled in
Cyprus and is the ultimate owner of all group
companies. On 3 May 2018, the company
moved tax domicile to Norway. The company is
in process of moving legal domicile to Norway
and this is expected to occur during 2019
pending approval by a General Meeting in May
2019.
Prosafe’s vessels are primarily serving oil and
gas operating companies as end clients on
various offshore projects in key offshore oil and
gas provinces. In recent history, the 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’). Accom-
modation support vessels may also be used for
decommissioning of offshore installations.
The main geographical markets for the Prosafe
vessels are currently the North Sea and Brazil,
while historically Mexico has also been an
important market and is anticipated to again
become a market in the future.
The vessels are normally provided on a time
charter basis where Prosafe mans and operates
the vessels directly.
FINANCIAL RESULTS,
FINANCING AND
FINANCIAL POSITION
OF THE GROUP
(The figures in brackets correspond to the 2017
comparatives)
INCOME STATEMENT
Operating revenues totalled USD 330.8 million
in 2018 (2017: USD 283.0 million), with
utilisation1) of the fleet increasing to 47.3%
(38.4%). The increase in utilisation reflects
higher activity in the North Sea market.
The increase in operating revenues is due
to higher utilisation, although partly offset
by lower average day rates as a result of the
industry recession over the last few years.
In addition, the operating revenues in 2018
includes a total of USD 23.1 million relating to
IFRS 15 adjustment which was mainly resulted
from the restatement of revenues previously
recognised relating to 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.
Operating expenses increased to USD 164.2
million (USD 152.1 million) as a result of higher
utilisation.
Depreciation and impairment amounted to
USD 113.6 million (USD 709.1 million including
1) Utilisation = actual vessel days in operation in the period / possible vessel days in the period x 100
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an impairment charge of USD 573.9 million).
Lower depreciation is due to the lower carrying
value of the assets following the impairments
carried out in Q3 2017.
8.7 million (USD 10.1 million). The investments
in 2018 mainly relate to the five-yearly special
periodic survey for Safe Scandinavia and main
engines overhaul for Safe Concordia.
The operating profit amounted to USD 53.0
million (USD 578.2 million operating loss).
Interest expenses totalled USD 173.3 million
(USD 74.9 million). The increase in 2018 is
mainly due to non-cash and one-off effects
totalling USD 105.1 million relating to the
re-financing in August and amortisation and
discontinuation of the cashflow hedge reserve
balance (for further information, refer to note
15 of the consolidated accounts relating to
re-financing and note 19 of the consolidated
accounts for amortisation and discontinuation
of the cashflow hedge reserve). The modifi-
cation of amortised cost resulted from a
reduction of the annual amortizations until
final maturity for the USD 1300 million loan
facility and the increased margin under the
new financing terms agreed in August 2018.
Financial items other than interest expenses
amounted to USD 13.4 million positive (USD
16.9 million positive).
Share of loss from the associated company
(25% of share interests) amounted to USD 1.7
million (USD 3.1 million)
Taxes for 2018 in the amount of USD 5.9
million (USD 7.8 million) were mainly relating
to operations in UK and Brazil, partially offset
by a full reduction of deferred taxes in Norway
as a consequence of the tax relocation from
Cyprus to Norway.
Net loss amounted to USD 114.5 million (net
loss of USD 647.1 million), resulting in diluted
earnings per share of USD 1.3 negative (USD
7.35 negative).
ASSETS
Total assets amounted to 1,736.8 million
(USD 1,947.0 million) at the end of 2018.
Investments in tangible assets totalled USD
As of year-end 2018, the Group had total liquid
assets (cash and deposits) of USD 140.3 million
(USD 231.9 million). In addition, the Group had
USD 137 million available under a committed
credit facility. The total liquidity reserve (liquid
assets plus undrawn credit facilities) totalled
USD 277.3 million (USD 231.9 million). Total
restricted cash at year-end 2018 was USD 8.8
million (USD 5.3 million).
FINANCING
In August 2018 Prosafe agreed certain
amendments of the loan facilities to
support the strategic transformation of
the Company and to significantly improve
its financial position in the years ahead by
way of continued covenant relief, continued
reduced amortizations and additional financial
flexibility to support the continued renewal of
its fleet.
Total shareholders’ equity amounted to USD
400.2 million (USD 497.6 million), resulting in
an equity ratio of 23% (26%).
Interest-bearing debt amounted to USD 1,243.0
million (USD 1,347.7 million) at year-end.
Repayments of debt totalled USD 155.2 million
(USD 47.4 million).
The interest-bearing debt agreements are
subject to termination, repayment or buy back
clauses in the event of a change of control
of the Company (as control is defined in the
relevant agreements).
Net cash-flow in 2018 was USD 91.6 million
negative (USD 26.2 million negative). The key
reason for a negative net cash flow was mainly
due to the repayment of USD 137 million into
a committed credit facility. Net cash-flow
from operating activities amounted to USD
147.1 million positive. The difference between
the operating profit before depreciation and
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impairment of USD 166.6 million and cash flow
from operating activities of USD 147.1 million
mainly relates to IFRS 15 adjustment this year.
Total net investment in 2018 amounted to only
USD 3.2 million. Gross investment was USD 8.7
million, which was mostly related to normal
vessel maintenance works including Special
Periodic Survey (SPS) for the Safe Scandinavia,
and partially offset by proceeds from sale of
tangible assets – mainly the Safe Astoria that
was sold for scrap for USD 2.1 million.
FINANCIAL RESULTS AND FINANCIAL
POSITION OF THE PARENT COMPANY
The operating profit for the year amounted
to USD 31.1 million (loss of USD 738.9 million
which included impairment charges relating
to investments in subsidiaries of USD 745.2
million). Net financial loss amounted to USD
161.4 million (USD 45.9 million). Net loss for
the year equalled USD 131.2 million which
includes other comprehensive loss of USD 0.8
million relating to pension re-measurement
(net loss of USD 785.5 million).
Total net assets for the year amounted to USD
506.1 million (USD 582.9 million).
OPERATIONS AND
PROJECTS
As at year-end, the fleet comprised eight
fully owned vessels plus three new builds in
progress. Six old vessels have been scrapped
since mid-2016. In addition Prosafe owns 25%
in Dan Swift Pte. Ltd. which owns the DP-2
accommodation monohull Safe Swift.
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/.
In August 2018 Prosafe reached an agreement
with Cosco allowing for flexible delivery and
long-term financing of Safe Eurus, Safe Nova
and Safe Vega. This agreement, combined with
Prosafe’s scrapping of six vessels over the
last three years, transforms
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its fleet in to a modern and competitive fleet
with improved earnings potential for the long
term. The Safe Eurus, Safe Nova and Safe Vega
remain in strategic stacking mode with Cosco
in China until Prosafe takes delivery.
Safe Scandinavia completed a TSV contract
with Equinor at Oseberg at the end of
June 2018. Following a yard stay the Safe
Scandinavia has been operating at Aker BP’s
Ula platform on the Norwegian Continental
Shelf since 1 September 2018, and was in full
operation throughout the year. The contract
has a duration of seven months with eight
one-month options.
Safe Zephyrus commenced a 12-month
contract for Equinor at Johan Sverdrup in
Norway in early May 2018 and was in opera-
tion throughout the year. On 11 October 2018,
Safe Zephyrus was awarded a contract by BP
to provide gangway connected operations at
the Clair Ridge platform West of Shetland in
the UK sector of the North Sea. The duration
of the contract is five months with a one-
month option, and is scheduled to commence
mid-May 2019 directly following the comple-
tion of the Johan Sverdrup contract.
Safe Notos commenced its three-year and
222-day contract for Petrobras on 7 December
2016 and was fully contracted in the year.
Safe Boreas commenced a 13-month contract
for Statoil at the Mariner installation in the
UK in early August 2017 and was in operation
throughout 2018. On 24 September 2018,
Equinor and Prosafe agreed an addendum to
the contract which extends the firm period
through June 2019 with additional six one-
month options.
Safe Concordia commenced a 200-day contract
with MODEC to support FPSO maintenance in
Brazil on 24 October 2018.
at Scapa Flow in the UK. She is scheduled
to commence work for a major oil and gas oper-
ator in the UK sector from mid-April 2019 with
a firm duration of four months and up to two
months of options. On 24 December 2018, Safe
Caledonia was awarded an 80-day contract in
the UK sector of the North Sea commencing
June 2020 with 30 days of options.
Regalia has been idle throughout 2018. On 24
December 2018, Regalia was chartered for a
60-day contract in the UK sector of the North
Sea commencing June 2019 with 30 days of
options. Regalia will be reactivated to perform
gangway connected DP operations. The re activa-
tion period will commence within Q1 2019 and
include her five yearly special periodic survey in
line with classification society requirements.
Safe Bristolia has been idle throughout the year
and is cold-stacked in Norway.
Safe Astoria was sold for scrap in late 2018.
In November 2018 the PSA issued an order
in relation to non-conformances on the Safe
Zephyrus. The company submitted a plan for
close out and to ensure subsequent compliance
in January 2019.
Safe Caledonia completed a six-month contract
for BP at the Clair Ridge platform in the UK
in late November 2018 and is now laid-up
Prosafe remains committed to safe and
compliant operations at all times.
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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 decided that
Westcon must pay Prosafe NOK 344 million
plus interest and NOK 10.6 million legal costs.
Westcon filed an appeal, and Prosafe filed a
counter appeal on 28 May 2018. Prosafe will
continue to pursue its case in order to improve
on the result in the first instance. The timing for
next court hearing is uncertain, but the first half
of 2020 is likely. Meanwhile, Prosafe is pursuing
the best possible security for the claim.
OUTLOOK
The oil and gas industry is characterized by
high cyclicality and continuous changes which
impact activity levels, price levels and planning
horizons, requiring continuous risk and oppor-
tunity management and adaptability.
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
Mexican market which used to be a key market
for many years dropped all requirements for
non-Mexican accommodation equipment
in early 2016. Also the Brazilian market has
been quiet until the end of 2018, while the
company’s activity through the down cycle has
been primarily upheld by hook-up contracts
related to the support of new field installation
in the North Sea that were entered into before
the down cycle.
During late 2017 and 2018, the offshore market
has, however, started to show signs of gradual
recovery, and Prosafe has secured a number of
new contracts and contract extensions during
2018. The result is that all fully owned vessels
other than the Safe Bristolia and the three
undelivered new builds in China have secured
contracts for all or parts of 2019.
The most important feature for the North
Sea market is the return of activity related to
maintenance and modification which tradition-
ally has been the main activity driver.
Brazil is an important market. In January 2019,
Prosafe came first in an online auction for the
supply of safety and maintenance support
vessels towards three-year contracts in Brazil.
There now follows a compliance evaluation
process before a contract will be formally
awarded. Prosafe will mobilize the Safe Eurus
if a contract is awarded. Total contract value is
estimated to be above USD 80 million. Another
long-term contract for Safe Eurus in Brazil
would be in line with Prosafe’s strategy and
guidance, and it would create synergies with
the Safe Notos and Safe Concordia already on
charter offshore Brazil.
The production ambitions of the new Mexican
administration are high, and it is positive that
tender activity is ongoing in other segments.
Prosafe continues its efforts in Mexico to be
well positioned when opportunities arise again
in the accommodation segment.
Total order backlog2) as of 31 December 2018
amounted to USD 287.4 million (USD 340
million) of which USD 209.3 million related to
firm contracts and USD 78.1 million related to
options. Secured utilisation for 2019 is 42%.
For 2020, secured utilisation is currently 9.5%.
The supply side has seen a positive develop-
ment since 2016 with a reduction in the
number of available units, largely supported by
Prosafe which has scrapped six vessels to date.
In addition, one competitor has scrapped one
unit. More scrapping is anticipated over the
coming years, as well as further consolidation
activities.
2) Order backlog = amount of contracted revenue not recognised in income statement yet
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Tendering activity has continued to pick up
with opportunities arising both in the North
Sea and internationally. A main driver for this
increase is maintenance and modification work
being sanctioned as a result of higher oil prices.
While the current pricing and backlog do not
support earnings growth in 2019, the company
anticipates that utilisation will continue to
improve in 2020 with an improvement in day
rates to follow.
Against this backdrop, Prosafe will focus on
opportunities that will allow the company
to continue taking delivery of its new builds.
In addition, Prosafe continues to pursue
efficiencies and intends to be proactive in fleet
enhancement and industry restructuring.
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.
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15
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 by the organisation and the compe-
tence of its personnel, segregation of duties,
regular risk assessments and internal reporting,
management meetings, board meetings and
the audit committee, together with external
audit and public reporting and communication.
In respect of internal controls relating to the
preparation of financial statements,
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 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 according
to the Company’s approved Finance Policy. The
interest rate risk is largely hedged by the use
of interest rate swaps or cap structures for
normally 70 – 100% of the debt.
The Company carries out credit checks on
clients as part of its tendering processes and
has a history of minimal loss from debtors.
There are no material overdue receivables as
of year-end. Further information on financial
risk management is provided in note 19 to the
consolidated financial statements.
An account of the main features of
Prosafe’s risk management process
is available on its website at
http://www.prosafe.com/
risk-management/
category894.html
16
ties and the reporting and follow-up of these
are important elements to ensure continuous
focus on and improvement of internal controls.
CORPORATE SOCIAL
RESPONSIBILITY
A detailed presentation of what the Company
does to integrate considerations relating
to human rights, labour rights and social
conditions, the external environment and
anti-corruption efforts in its business
strategies, daily operations and in relation to
its stakeholders is given in Prosafe’s annual
Communication on progress to UN Global
Compact. The report can be found on the
Company’s website with direct link
https://www.prosafe.com/communication-
on-progress/category495.html
the board of directors demonstrates inde-
pendence 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 responsi-
bilities 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 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 and
procedures and reporting.
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-
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 absence.
17
In 2018, Prosafe recorded one incident 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 2018, the LTI frequency was 0.85, as
compared to 1.52 in 2017.
Prosafe operates a zero accident mind-set
philosophy which means that no accidents or
serious incidents are acceptable. A number
of initiatives have been implemented over
the years in order to further strengthen the
safety culture. These and new initiatives will
be continuously developed in order to improve
safety performance further.
Sick leave was 2.07% in 2018, a decrease from
2.53% in 2017.
Prosafe had no accidental discharges to the
natural environment in 2018 and continues
to actively reduce emissions by investing in
modernizing its fleet and fuel efficient equip-
ment and by pursuing continuous improve-
ment in operating procedures and practices.
HUMAN RESOURCES
AND DIVERSITY
Prosafe had 417 employees at the end of
2018 (average 401), compared with 430 in the
previous year (average 517). Prosafe’s global
presence was reflected in the fact that its
employees came from 24 countries around the
world. The overall voluntary employee turnover
in the group was 8.5% in 2018, compared with
5.9% in 2017.
Prosafe operates an equal opportunity policy
including gender equality. Men have, however,
traditionally made up a greater propor-
tion of the recruitment base for offshore
operations, and this is reflected in Prosafe’s
18
gender breakdown. As of 31 December 2018,
women accounted for 11.3% of all employees,
compared with 14.2% in 2017. Onshore the
proportion of women was 40.6%, as compared
to 43.2% in 2017.
Women constituted 25.0% of the managers as
at 31 December 2018, compared with 16.7% at
the end of 2017.
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 17
October 2018. There are no significant devia-
tions between the code of practice and the
way it has been implemented during 2018. 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 stakeholders.
The members of the board of directors at 31
December 2018 and at the date of this report
are set out on page 21.
Apart from Nancy Eroticritou, who resigned on
27 April 2018, all members of the board were
directors throughout the year. There were no
significant changes in the assignment of the
responsibilities 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. All directors are
due for re-election in 2019.
As at 31 December 2018, the only director
(including associated parties) who held shares
in the Company was Birgit Aagaard-Svendsen,
owning 3,000 shares. Glen Ole Rødland has an
indirect ownership interest in Prosafe through
his ownership interest in HitecVision VII, L.P.
19
SHAREHOLDERS AND
SHARE CAPITAL
According to the shareholder register as at 31
December 2018, the 20 largest shareholders
held a total of 74% of the issued shares. The
number of shareholders was 4,929. North
Sea Strategic Investments AS was the largest
shareholder with a holding of 18.93% of the
issued shares.
As at 31 December 2018, Prosafe had an issued
share capital of 81,784,212 ordinary shares at a
nominal value of EUR 0.10 each.
There are no restrictions in the articles of
association related to the right to trade in
the shares of the company. The company has
well established and communicated internal
procedures related to insider trading.
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 amendments of the loan facilities in August
2018, the board of directors concludes that the
going concern assumption is justified.
AUDITOR
The auditors of the Company, KPMG Limited,
have expressed their willingness to continue
in office. A resolution for authorising
the board of directors to fix their
remuneration will be submitted
at the forthcoming annual
general meeting. Refer-
ence to auditors’ fee is
made in note 6 to
the consolidated
accounts.
20
There are no share incentive schemes or share-
holder agreements in place in the company.
The company’s loan agreements include
change of control clauses.
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 share-
holders 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
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.
.
EVENTS AFTER THE
BALANCE SHEET DATE
Reference is made to note 26 to the
consolidated accounts for a description
of events after the balance sheet date.
Oslo, 13 March 2019
The Board of Directors of Prosafe SE
Glen Ole Rødland
Non-executive Chairman
Birgit Aagaard-Svendsen
Kristian Johansen
Non-executive Director
Non-executive Director
Svend Anton Maier
Non-executive Director
Roger Cornish
Non-executive Director
Jesper K. Andresen
Chief Executive Officer
21
DECLARATION
BY THE MEMBERS OF THE BOARD
OF DIRECTORS AND THE COMPANY
OFFICIALS RESPONSIBLE FOR THE
DRAFTING OF THE CONSOLIDATED AND
SEPARATE FINANCIAL STATEMENTS
(In accordance with the provisions of Law 190(I)/2007 on
Transparency Requirements)
22
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 Executive Officer and the Deputy CEO&CFO
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 2018, that are presented on pages 24 to 87:
(i)
(ii)
have been prepared in accordance with the International Financial Reporting
Standards 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.
Oslo, 13 March 2019
The Board of Directors of Prosafe SE
Glen Ole Rødland
Non-executive Chairman
Birgit Aagaard-Svendsen
Kristian Johansen
Non-executive Director
Non-executive Director
Svend Anton Maier
Non-executive Director
Roger Cornish
Non-executive Director
Jesper K. Andresen
Chief Executive Officer
Stig H. Christiansen
Deputy CEO&CFO
23
CONSOLIDATED ACCOUNTS
24
CONSOLIDATED INCOME STATEMENT
(USD million)
Charter revenues
Other operating revenues
Operating revenues
Employee benefits
Other operating expenses
Operating profit before depreciation and impairment
Depreciation
Impairment
Operating profit/(loss)
Interest income
Interest expenses
Other financial income
Other financial expenses
Net financial items
Share of loss of equity accounted investees
Loss before taxes
Taxes
Net loss
Attributable to equity holders of the parent
Earnings per share (USD)
Diluted earnings per share (USD)
Note
4
4, 5
6
7, 25
25
8, 25
8
10
10
9
9
10
13
11
12
12
2018
293.2
37.6
330.8
(76.7)
(87.5)
166.6
(113.0)
(0.6)
53.0
2.9
(173.3)
13.4
(2.9)
(159.9)
(1.7)
(108.6)
(5.9)
(114.5)
2017
256.0
27.0
283.0
(76.9)
(75.1)
130.9
(135.2)
(573.9)
(578.2)
1.4
(74.9)
19.8
(4.3)
(58.0)
(3.1)
(639.3)
(7.8)
(647.1)
(114.5)
(647.1)
(1.30)
(1.30)
(8.98)
(7.35)
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(USD million)
Net loss for the year
Note
2018
(114.5)
2017
(647.1)
Other comprehensive income to be reclassified to profit or
loss in subsequent periods
Foreign currency translation
Net gain on cash flow hedges
Net other comprehensive income to be reclassified to
profit or loss in subsequent periods
Other comprehensive loss that will not be reclassified to
profit or loss in subsequent periods
Pension remeasurement
Net comprehensive loss that will not be reclassified to profit
or loss in subsequent periods
19
(5.1)
48.3
2.0
13.2
43.2
15.2
(0.8)
(0.8)
0.0
0.0
Total comprehensive loss for the year, net of tax
(72.1)
(631.9)
Attributable to equity holders of the parent
(72.1)
(631.9)
25
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
(USD million)
Note
capital
bonds
rants
equity
hedges
Share
vertible
War-
Other
flow
trans-
lation
Total
equity
Con-
Foreign
Cash
currency
Equity at 31 December 2016
Net loss
Other comprehensive income
7.9
0.0
0.0
0.0
0.0
0.0
(647.1)
0.0
0.0
Total comprehensive income
0.0
0.0
0.0
(647.1)
0.0
13.2
13.2
0.0
2.0
2.0
(647.1)
15.2
(631.9)
57.0
0.0
1 093.0
(61.5)
33.1
1 129.5
Conversion of
convertible bonds
Equity at 31 December 2017
Adoption of IFRS 15
Equity at 1 January 2018
Net loss
Other comprehensive income
Total comprehensive income
Conversion of
convertible bonds
Issue of warrants
Equity at 31 December 2018
14
2
14
14
1.0
8.9
0.0
8.9
0.0
0.0
0.0
(33.0)
0.0
32.0
0.0
0.0
0.0
24.0
-
477.9
(48.3)
35.1
497.6
0.0
0.0
(31.8)
0.0
0.0
(31.8)
24.0
-
446.1
(48.3)
35.1
465.8
0.0
0.0
0.0
0.0
(114.5)
(0.8)
0.0
0.0
(115.3)
0.1
0.0
9.0
(3.2)
0.0
20.8
0.0
6.4
6.4
3.2
0.0
334.0
0.0
48.3
48.3
0.0
0.0
0.0
0.0
(114.5)
(5.1)
(5.1)
42.4
(72.1)
0.0
0.0
0.1
6.4
30.0
400.2
The legal form of the share capital and the share premium accounts are reflected in the statement
of changes in equity of the accompanying parent financial statements. Other equity includes share
premium reserve, capital reduction reserve and retained earnings.
26
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(USD million)
ASSETS
Vessels
New builds
Other tangible assets
Investments in associated companies
Derivatives
Total non-current assets
Cash and deposits
Debtors
Other current assets
Total current assets
Total assets
EQUITY AND LIABILITIES
Share capital
Convertible bonds
Warrants
Other equity
Total equity
Note
31/12/2018
31/12/2017
8
8, 23
8
13
18, 19
18, 20
18, 19
18, 21
14
14
14
1 422.6
125.8
2.5
5.2
2.4
1 558.5
140.3
25.2
12.8
178.3
1 736.8
9.0
20.8
6.4
364.0
400.2
1 527.2
125.2
3.6
6.9
0.0
1 662.9
231.9
45.5
6.7
284.1
1 947.0
8.9
24.0
0.0
464.7
497.6
Interest-bearing non-current liabilities
15, 18, 19
1 198.5
1 329.1
Deferred tax
Derivatives
Other non current liabilities
Total non-current liabilities
Interest-bearing current debt
Accounts payable
Taxes payable
Other current liabilities
Total current liabilities
Total equity and liabilities
11
18, 19
15, 18, 19
18
11
16, 18
0.0
16.1
2.4
4.1
39.4
14.0
1 217.0
1 386.6
44.5
2.2
14.7
58.2
119.6
1 736.8
18.6
3.5
18.2
22.5
62.8
1 947.0
On 13 March 2019 the Board of Directors of Prosafe SE approved and authorised these financial
statements for issue.
Glen Ole Rødland
Non-executive Chairman
Birgit Aagaard-Svendsen
Kristian Johansen
Non-executive Director
Non-executive Director
Svend Anton Maier
Non-executive Director
Roger Cornish
Non-executive Director
Jesper K. Andresen
Chief Executive Officer
27
CONSOLIDATED CASH FLOW STATEMENT
(USD million)
Note
2018
2017
CASH FLOW FROM OPERATING ACTIVITIES
Loss before taxes
Gain on sale of non-current assets
Depreciation and impairment
Interest income
Interest expenses
Share of loss of equity accounted investee
Taxes paid
Change in working capital
8, 25
Other items from operating activities
25
Net cash provided by operating activities
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of tangible assets
Acquisition of tangible assets
Interest received
Net cash used in investing activities
CASH FLOW FROM FINANCING ACTIVITIES
Repayments of interest-bearing debt
Refinancing cost
Interest paid
Net cash used in financing activities
Net cash flow
Cash and deposits at 1 January
Cash and deposits at 31 December
8, 23
20
(108.6)
(2.1)
113.6
(2.9)
173.3
1.7
(13.4)
16.6
(31.1)
147.1
2.6
(8.7)
2.9
(3.2)
(155.2)
(4.2)
(76.1)
(235.5)
(91.6)
231.9
140.3
(639.3)
(1.1)
709.1
(1.4)
74.9
3.1
(14.4)
11.8
13.4
156.1
1.1
(10.1)
1.4
(7.6)
(47.4)
0.0
(74.9)
(122.3)
26.2
205.7
231.9
28
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: CORPORATE INFORMATION AND PRINCIPAL ACTIVITY
Prosafe SE (the 'Company') is a public limited company domiciled in Nicosia, Cyprus. The registered
office of the Company is 73 Metochiou Street, Engomi, CY-2407 Nicosia, Cyprus. The Company is a
leading owner and operator of offshore accommodation vessels. 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 2018 were approved and authorised for issue in
accordance with a resolution of the board of directors on 13 March 2019.
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 policies adopted are consistent with those in the previous financial years except IFRS 15
Revenue from Contracts with Customers and IFRS 9 Financial Instruments. This is the first set of the
Group's annual financial statements in which both IFRS 15 and IFRS 9 have been applied. The changes
to significant accounting policies are described in detail below.
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, impairment assessment of non-financial assets
and the modification of amortised cost. Estimated useful life of the Group's accommodation/
service vessels is 30 to 50 years dependent on the age at the time of acquisition and subsequent
refurbishments and as the economic life varies for the various components on a rig. Management
performs an impairment assessment of the fixed asset and whether the accumulated impairments
need to be reversed in accordance with IFRS at least on an annual basis. The goodwill related to
acquisition of Consafe Offshore AB has been fully impaired in 2017. However, impairment of shares
in subsidiaries is a significant estimate required for the preparation of the parent company accounts.
As the consequence of refinancing this year, the carrying value of the loan under the new term
needs to be adjusted by applying the revised cash flows with a revised effective interest rate so to
reflect the new net present value of the loan. Estimates and assumptions are used in calculating the
modification of amortised cost which was added into the carrying value of the loan with the same
amount of financial costs were recognised.
29
CHANGES IN SIGNIFICANT ACCOUNTING POLICIES
As mentioned, the accounting policies adopted are consistent with those of the previous financial
year except IFRS 15 Revenue from Contracts with Customers and IFRS 9 Financial Instruments. Other
standard amendments and interpretations are also effective from 1 January 2018, but they do not
have a material effect on the Group's financial statements. Due to the transition methods chosen
by the Group in applying these standards, comparative information throughout these financial
statements has not been restated to reflect the requirements of the new standards.
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 Group has applied IFRS 15 using the
cumulative effect method – i.e. by recognising the cumulative effect of initially applying IFRS 15
as an adjustment to the opening balance of equity at 1 January 2018. Therefore, the comparative
information has not been restated and continues to be reported under IAS 18 and IAS 11. The details
of the significant changes and quantitative impact of the changes are set out below.
Lump sum fee, mobilisation and demobilisation fees
Under IAS 18, revenue arising from the re-scheduling, mobilisation and demobilisation income are
recognised when the re-scheduling, mobilisation and demobilisation are completed. Revenue is
recognised at which the customer acknowledged the completion of the re-scheduling, mobilisation
and demobilisation, provided that all other criterias for revenue recognition are met. Under IFRS 15,
revenue arising from the re-scheduling, mobilisation and demobilisation income are considered as
part of one performance obligation with main charter income and is recognized over the charter
period. Therefore, the lump sum from re-scheduling and mobilisation revenue are deferred under
IFRS 15 as opposed to under IAS 18. The demobilisation revenue is recognised earlier under IFRS 15
than under IAS 18.
A cumulative adjustment of USD 31.8 million is made in the 2018 opening balance of other equity
with a corresponding increase in deferred income (other current liabilities). The adjustment was
due to deferred recognition of mobilisation and re-scheduling fees as well as earlier recognition of
demobilisation fees.
As reported as at
31 December 2017
Adjustments due to
adoption of IFRS 15
As at
01 January 2018
Other equity
464.7
(31.8)
432.9
IFRS 15 did not have a significant impact on the Group's accounting policies with respect to other
revenue streams. For additional information about the Group's accounting policies relating to revenue
recognition, see note 3 - Revenue Recognition.
The following tables summarise the impacts of adopting IFRS 15 on the Group's statement of financial
position as at 31 December 2018 and its statement of profit or loss, other comprehensive income "OCI"
and cash flow for the year ended for each of the line items affected. The impact to the respective notes
are also shown for each of the line items affected.
30
Impact on the consolidated statement of financial position
As at 31 December 2018
As reported
Adjustments
of IFRS 15
Amounts with -
out adoption
EQUITY AND LIABILITIES
Other equity
Total equity
Other current liabilities
Total current liabilities
364.0
400.2
58.2
119.6
8.7
8.7
(8.7)
(8.7)
372.8
409.0
49.5
110.9
Impact on the consolidated statement of income statement
Amounts with -
out adoption
31 December 2018
As reported
Adjustments
of IFRS 15
Charter revenues
Operating revenues
Operating profit before depreciation
and impairment
Operating profit
Loss before taxes
Net loss
293.2
330.8
166.6
53.0
(108.6)
(114.5)
(23.1)
(23.1)
(23.1)
(23.1)
(23.1)
(23.1)
270.1
307.7
143.5
29.9
(131.6)
(137.5)
Impact on the consolidated statement of comprehensive income
31 December 2018
As reported
Adjustments
of IFRS 15
Net loss for the year
Total comprehensive loss for the year, net of tax
(114.5)
(72.1)
(23.1)
(23.1)
(137.5)
(95.1)
Amounts with -
out adoption
Impact on the consolidated cash flow statement
Amounts with -
out adoption
31 December 2018
As reported
Adjustments
of IFRS 15
Cash flow from operating activities
Loss before taxes
Change in working capital
(108.6)
16.6
(23.1)
23.1
(131.7)
39.7
There are no impact to Cash flow from investing and financing activities, and net cash flow activities.
31
Impact on the segment reporting
The Group has one segment, which is chartering and operation of accommodation/service vessels.
Amounts with -
out adoption
31 December 2018
As reported
Adjustments
of IFRS 15
Operating revenues by geographical location
Europe
Americas
Total operating revenues
There are no impact to other geographical location.
272.4
56.3
330.8
(18.3)
(4.7)
(23.1)
254.1
51.6
305.7
The revenue allocation is based on place of operation of the vessel.
Operating revenues from major customers situated in:
Europe 1
Americas 1
156.3
50.5
(18.3)
(4.7)
138.0
45.8
There are no impact to other major customers.
Impact on the note to Other Operating Revenues
31 December 2018
As reported
Adjustments
of IFRS 15
Mobilisation/demobilisation income
Total other operating revenues
0.0
37.6
4.0
4.0
4.0
41.6
Amounts with -
out adoption
There are no impact to other operating revenues.
IFRS 9 Financial Instruments
Classification and measurement of financial assets and financial liabilities
IFRS 9 contains three principal classification categories for financial assets: measured at amortised
cost, fair value through other comprehensive income "FVOCI" and fair value through profit or loss
"FVTPL". The classification of financial assets under IFRS 9 is generally based on the business model in
which a financial asset is managed and its contractual cash flow characteristics. IFRS 9 eliminates the
previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS
9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard
are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification.
IFRS 9 largely retains the existing requirements in IAS 39 for the classification and measurement of
financial liabilities.
32
For financial assets held by the Group on 1 January 2018, management has assessed the business
models that are applicable on that date to these assets so as to classify them into the appropriate
categories under IFRS 9. Material reclassifications resulting from management’s assessment are
disclosed below. The adoption of IFRS 9 has not had a significant effect on the Group's accounting
policies related to financial liabilities and derivative financial instruments.
Impairment of financial asset
IFRS 9 replaces the 'incurred loss' model in IAS 39 with an 'expected credit loss' (ECL) model. The
new impairment model applies to financial assets measured at amortised cost, contract assets and
debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses
are recognised earlier than under IAS 39. For assets in the scope of the IFRS 9 impairment model,
impairment losses are generally expected to increase and become more volatile.
The Group has the following financial assets subject to the ECL impairment model under IFRS 9:
loans and receivables at amortised cost. The Group has determined that the application of IFRS 9's
impairment requirements at 1 January 2018 does not result in material changes.
Classification and measurement of financial assets and financial liabilities
The following table and the accompanying notes below explain the original measurement categories
under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group's financial
assets and financial liabilities as at 1 January 2018.
The Group has used an exemption not to restate comparative information for prior periods with
respect to classification and measurement (including impairment) requirements. Accordingly, the
information presented for 2017 does not generally reflect the requirement of IFRS 9, but rather those
of IAS 39.
As at 1 January 2018
under IAS 39
under IFRS 9
under IAS 39
under IFRS 9
Original
New
Classification
Classification
Carrying
amount
Carrying
amount
Cash and deposits
Loan and
Amortised
Accounts receivable
Other current assets
Total financial assets
receivables
Loan and
receivables
Loan and
receivables
cost
231.9
231.9
Amortised
cost
Amortised
cost
45.5
45.5
6.7
284.1
6.7
284.1
There is no impact to the carrying value of the financial assets and financial liabilities under IFRS 9 as
at 1 January 2018.
33
Standards issued but not yet effective, which the Group has not yet adopted
Certain new accounting standards and interpretations have been published that are not mandatory
for 31 December 2018 reporting periods and have not been early adopted by the Group. The Group’s
assessment of the impact of these new standards and interpretations is set out below.
IFRS 16 LEASES
The new accounting standard IFRS 16 Leases is effective from 1 January 2019. IFRS 16 sets out the
principles for recognition, measurement, presentation and disclosure of leases and replaces the
existing IAS 17 and other guidance on lease accounting within IFRS. The new standard represents a
significant change in lessees’ accounting for leases but keeps the accounting model for lessors mainly
unchanged.
IFRS 16 defines a lease as a contract that conveys the right to control the use of an identified asset
for a period of time in exchange for consideration. For each contract that meets this definition, IFRS
16 requires lessees to recognize a right-of-use asset and a lease liability in the balance sheet with
certain exemptions for short term and low value leases. Lease payments are to be reflected as interest
expense and a reduction of lease liabilities, while the right-of-use assets are to be depreciated over
the shorter of the lease term and the assets useful life. The portion of lease payments representing
payments of lease liabilities and interest expense shall be classified as cash flows used in financing
activities in the statement of cash flows.
The following policies and practical approach are applied by the Group upon transition:
• For contracts already assessed under IAS 17, there will be no reassessment of whether a contract is
or contains a lease.
• The opening balance of equity 1 January 2019 will be adjusted with the cumulative implementation
effect (“the modified retrospective method”).
• Prior year comparatives will not be restated.
• Lease liabilities will be measured at the present value of remaining lease payments, discounted
using the incremental borrowing rate 1 January 2019.
• Right-of-use assets will be measured at an amount equal to the lease liability.
• Leases for which the lease term ends during 2019 will be expensed as short term leases.
• Major lease liabilities for the Group comprise of leases of chartered-in vessels, office buildings,
warehouses, transportation, logistics assets and other IT infrastructure and office equipment.
The Group will separately expense variable expense services and other non-lease components
embedded in lease contracts for office buildings and warehouses.
• For leases of other assets, the Group will capitalise non-lease components subject to fixed payments
as part of the lease. All the leases in the Group will expire during 2019 except certain office
buildings leases that will expire after 2019.
• The Group will apply the standard from its mandatory adoption date of 1 January 2019. The Group
intends to apply the modified retrospective method and will not restate comparative amounts for
the year prior to first adoption. The Group will apply the short term exemption, which means that
all leases with a lease term that ends in 2019 will be expensed as before and not capitalized upon
transition. Subsequently, the Group will also apply the general short term exemption in IFRS 16 for
leases of chartered-in vessels, office buildings, warehouses, transportation, logistics assets and other
IT infrastructure and office equipment.
• The Group will apply the general low value exemption in IFRS 16 for leases of office and other
equipment. This means that no low value leases of such assets will be capitalized and that lease
payments will be expensed in profit or loss.
34
The effect on the adoption of the IFRS 16 on the consolidated financial statements is considered not to
be material to the Group's financial statement.
There are no other standards that are not yet effective and that would be expected to have a material
impact on the Group in the current or future reporting periods and on foreseeable future transactions.
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. Associates are those entities
in which the Group has significant influence, but not control or joint control, over the financial and
operating policies. Interests in associates are accounted for using the equity method and are initially
recognised at cost. Subsequent to initial recognition, the consolidated financial statements include the
Group’s share of the profit or loss and other comprehensive income of equity-accounted investees, until
the date on which significant influence ceases.
All intra-group balances, income and expenses, unrealised gains and losses and dividends resulting
from intra-group transactions are eliminated in full. The Group’s interest in equity-accounted investees
comprise interests in an associate. Unrealised gain arising from transactions with equity-accounted
investees are eliminated against the investment to the extent of the Group’s interest in the investee.
Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is
no evidence of impairment.
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
35
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 currencies other 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
Type of
Product/
Service
Charter
Income/
Bareboat
Income/
Mobilisation
Income /
Demobili-
sation
Income /
Lump
Sum Fee
Nature and timing
of satisfaction of
performance, including
significant payment
terms
The Group charters
the accommodation
rigs to customers on
an agreed period. The
Group 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.
The invoices are issued
on a monthly basis or
based on the contractual
terms and are normally
payable within 30 days.
Revenue recognition under
IFRS 15 (applicable from
1 January 2018)
The activities giving rise to
mobilisation, demobilisation
and rephasing do not transfer
goods or service to the
customer. These activities
are necessary for the Group
to perform its service in
providing the accommodation
rigs to the customer. These
incomes, together with charter
income and bareboat income,
are considered as a single
performance obligation and
the revenue are collectively
recognised over the charter
period. The deferred revenue
is included in the contract
liabilities.
Revenue recognition
under IAS 18
(applicable before
1 January 2018)
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
completed. Lump
sum fee is recognised
upon completion of
the agreed term with
customer is met.
36
Management,
crew services,
catering and
other related
income
The Group provides
optional services upon
request from the
customer. The invoices
are issued on a monthly
basis or based on the
contractual terms and
are payable normally
within 30 days.
These income are recognised
over time as the services are
provided. The related costs
are recognised in profit or loss
when they are incurred.
These income are
recognised over time
as the services are
provided. The related
costs are recognised
in profit or loss when
they are incurred.
Interest income is recognised on an accrual basis. Interest income is included in financial items in
the income statement. Dividends are recognised when the Group’s right to receive the payment is
established.
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
the Group 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 (other than rigs) are depreciated on a straight line basis over their useful lifetime
as follows:
• Semi-submersible vessels – 30 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
37
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 terminal 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, the Group estimates the asset’s recoverable amount. A previously
recognised impairment loss is reversed only if there has been a significant change in the assumptions
used to determine the asset’s recoverable amount since the last impairment loss was recognised.
The impairment loss is reversed only to the extent that the asset's carrying amount does not exceed
the carrying amount that would have been determined, net of depreciation or amortisation, if no
impairment loss had been 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
Trade receivables are initially recognised when they are originated. All other financial assets are
initially recognised when the Group become a party to the contractual provision of the instrument.
A financial asset (unless it is a trade receivable without a significant financing component) or is
initially measured at fair value plus, for an item not at fair value through profit or loss ("FVTPL"),
transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a
significant financing component is initially measured at the transaction price.
38
Classification and measurement
Policy applicable from 1 January 2018
On initial recognition, a financial asset is classified as measured on following basis: i) financial assets
at amortised cost; ii) debt investments at fair value through other comprehensive income "FVOCI"; iii)
equity investments at FVOCI; and iv) financial assets at fair value through profit or loss "FVTPL".
Financial assets are not reclassified subsequent to their initial recognition unless the Group changes
its business model for managing financial assets, in which case all affected financial assets are
reclassified on the first day of the first reporting period following the changes in the business model.
Financial assets
at amortised cost
A financial asset is measured at amortised cost if it meets both of the following
conditions and is not designated as at FVTPL:
- It is held within a business model whose objective is to hold assets to collect
Debt investments
at FVOCI
contractual cash flows; and
- Its contractual terms give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
A debt investment is measured at FVOCI if it meets both of the following
conditions and is not designated as at FVTPL:
- It is held within a business model whose objective is achieved by both
collecting contractual cash flow and selling financial assets; and
- Its contractual terms give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Equity investments
at FVOCI
On initial recognition of an equity investment that is not held for trading, the
Group may irrevocably elect to present subsequent changes in the investment's
fair value in OCI. This election is made on the investment-by-investment basis.
Financial assets
at FVTPL
All financial assets not classified as measured at amortised cost or FVOCI as
described above are measured at FVTPL. This includes all derivative financial
assets. On initial recognition, the Group may irrevocably designate a financial
assets that otherwise meets the requirements to be measured at amortised
cost of a FVOCI as at FVTPL if doing so eliminates or significantly reduces an
accounting mismatch that would otherwise arise.
Derivative financial instruments
The Group uses derivative financial instruments such as forward currency contracts, interest rate cap,
and interest rate swaps to hedge its foreign currency risks and interest rate risks. 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.
Hedge accounting is not applied in the Group's financial statement. 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 caps and swap contracts is determined by reference to
market price for similar instruments.
39
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 the Group 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.
Policy applicable before 1 January 2018
In the comparative period, 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. The Group 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. The Group’s financial assets include cash and
short-term deposits, trade and other receivables and financial derivatives.
Subsequent measurement and gains and losses
Policy applicable from 1 January 2018
Financial assets
at amortised cost
These assets are subsequently measured at amortised cost using the effective
interest method. The amortised cost is reduced by impairment losses. Interest
income, foreign exchange gains and losses and impairment are recognised in
profit or loss. Any gain or loss on derecognition is recognised in profit or loss.
Debt investments
at FVOCI
These assets are subsequently measured at fair value. Interest income calculated
using the effective interest method, foreign exchange gains and losses and
impairment are recognised in profit or loss. Other net gains and losses are
recognised in OCI. On derecognition, gains and losses accumulated in OCI are
reclassified to profit or loss.
Equity investments
at FVOCI
These assets are subsequently measured at fair value. Dividends are recognised
as income in profit or loss unless the dividend clearly represents a recovery of
part of the cost of the investment. Other net gains and losses are recognised in
OCI and are never reclassified to profit or loss.
Financial assets
at FVTPL
These assets are subsequently measured at fair value. Net gains and losses,
including any interest or dividend income, are recognised in profit or loss.
40
Policy applicable before 1 January 2018
Financial assets
at FVTPL
Loans and
receivables
In the comparative period, 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.
In the comparative period, 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 income statement
when the loans and receivables are derecognised or impaired, as well as through
the amortisation process.
Derecognition
A financial asset is derecognised when the contractual rights to the cash flows from the financial
asset expire or it transfers the rights to receive the contractual cash flows in a transaction which
substantially all of the risks and rewards of ownership of the financial asset are transferred or in
which the Group neither transfers nor retains substantially all of the risks and rewards of ownership
and it does not retain control of the financial asset.
Impairment of financial assets
Policy applicable from 1 January 2018
The Group recognises loss allowances for expected credit losses on:
• financial assets measured at amortised cost
The Group measures loss allowances at an amount equal to lifetime expected credit losses, except for
the following, which are measured at 12 month expected credit loss:
• debt securities that are determined to have low credit risk at the reporting date; and
• other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over
the expected life of the financial instrument) has not increased significantly since initial recognition.
Loss allowances for trade receivables and assets are always measured at an amount equal to lifetime
expected credit losses.
When determining whether the credit risk of a financial asset has increased significantly since
initial recognition and when estimating expected credit losses, the Group considers reasonable and
supportable information that is relevant and available without undue cost of effort. This includes both
quantitative and qualitative information and analysis, based in the Group's historical experience and
informed credit assessment and including forward-looking information.
The Group assumes that the credit risk on a financial asset has increased significantly if it is more
than 30 days past due.
41
The Group considers a financial asset to be in default when:
• the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the
Group to actions such as realising security (if any is held); or
• the financial asset is more than 90 days past due.
Measurement of expected credit losses:
• Expected credit losses are a probability-weighted estimate of credit losses. Credit losses are
measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due
to the entity in accordance with the contract and the cash flows that the Group expects to receive).
• Expected credit losses are discounted at the effective interest rate of the financial asset.
At each reporting date, the Group assesses whether financial assets carried at amortised cost are
credit-impaired, which is when one or more events that have a detrimental impact on the estimated
future cash flow of the financial asset have occurred.
Evidence that a financial asset is credit-impaired includes the following observable data:
• significant financial difficulty of the borrower or issuer;
• a breach of contract such as default or being more than 90 days past due;
• the restructuring of a loan or advance by the Group on terms that the Group would not consider
otherwise;
• It is probable that the borrower will enter bankruptcy or other financial reorganisation; or
• the disappearance of an active market for a security because of financial difficulties.
Loss allowances of expected credit losses for financial assets measured at amortised cost are
deducted from the gross carrying amount of the assets as in the statement of financial position.
Policy applicable before 1 January 2018
In the comparative period, 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 reliably estimated.
Write-off of financial assets
The gross carrying amount of a financial asset is written off when the Group has no reasonable
expectations of recovering a financial asset in its entirety or a portion thereof. For customers, the
Group individually makes an assessment with respect to the timing and amount of write-off based
on whether there is reasonable expectation of recovery. The Group expects no significant recovery
from the amount written off. However, financial assets that are written off could still be subject to
enforcement activities in order to comply with the Group's procedures for recovery of amount due.
FINANCIAL LIABILITIES
.
Initial recognition
Financial liabilities within the scope of IFRS 9/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. The Group determines the classification
42
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. The Group’s financial liabilities
include non-derivative financial instruments (trade and other payables, 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 IFRS 9/IAS 39. Gains and losses on liabilities held for trading
are recognised in the income statement.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or
cancelled or expires. When an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the original liability
and the recognition of a new liability, and the difference in the respective carrying amounts is
recognised in the income statement.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The fair value of financial instruments that are actively
traded in organised financial markets is determined by reference to quoted market bid prices at the
close of business on the balance sheet date. For financial instruments where there is no active market,
fair value is determined using valuation techniques. Such techniques may include using recent arm’s
length market transactions, reference to the current fair value of another instrument that is substan-
tially 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.
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 tax 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
43
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 tax 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 convertible bonds and warrants 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.
NOTE 4: SEGMENT REPORTING
The Group has one segment, which is chartering and operation of accommodation/service vessels.
Operating revenues by geographical location
2018
2017
Europe
Americas
Asia
Total operating revenues
272.4
56.3
2.1
330.8
224.8
58.2
0.0
283.0
The revenue allocation is based on place of operation of the vessel.
Operating revenues from major customers situated in:
Europe 1
Europe 2
Europe 3
Europe 4
Americas 1
1) Operating revenues in USD million
2) Percentage of total revenues
2018
1)
76.5
38.9
0.0
156.3
50.5
2)
23.1%
11.8%
0.0%
47.2%
15.3%
2017
1)
2)
143.2
50.6%
14.3
10.2
44.5
57.2
5.1%
3.6%
15.7%
20.2%
44
Total assets by geographical location
2018
2017
Europe excl. Cyprus
Cyprus
Americas
Australia/Asia
Total assets
NOTE 5: OTHER OPERATING REVENUES
Mobilisation/demobilisation income
Gain on sale of non-current assets
Management, crew services, catering and other related income
Total other operating revenues
1 233.6
1 386.3
0.0
350.1
153.1
20.7
395.6
144.4
1 736.8
1 947.0
2018
2017
0.0
2.1
35.5
37.6
3.9
1.1
22.0
27.0
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
2018
2017
47.4
15.1
5.8
4.7
2.7
1.0
76.7
48.4
11.5
6.3
5.5
3.4
1.8
76.9
The average number of employees in the Group for 2018 was 401 (2017: 517). The average number of
employees by legal entity was as follows.
45
Prosafe Offshore Employment Company Pte Ltd
279
370
2018
2017
Prosafe Offshore Ltd
Prosafe Services Maritimos Ltda
Prosafe AS
Prosafe Offshore Services Pte Ltd 1)
Prosafe Rigs Pte Ltd
Prosafe SE
Prosafe Management AS
Prosafe Offshore Accommodation Ltd
60
35
9
0
12
4
0
2
61
52
13
0
11
5
3
2
1) Figures are shown in Prosafe Offshore Employment Company Pte. Limited.
Bonus scheme
The CEO, DCEO/CFO, COO and CCO hold incentive agreements which may lead to a bonus payment.
The bonus depends on achieving defined targets relating to stretch target for earnings, cost efficiency
targets, operational performance and HSE performance and compliance. A portion of 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 from 3 months up to 18 months including the normal notice period.
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
and in a separate report from the compensation committee.
Senior officers
(USD 1 000)
Year
Salary
Bonus Pension
benefits
Total
Other
Jesper Kragh Andresen -CEO
Stig Harry Christiansen - DCEO/ CFO
Jens Einar Opstad Berge - COO
Ryan Duncan Stewart - CCO
2018
2018
2018
2018
404
404
468
255
434
304
272
188
Jesper Kragh Andresen
(CEO from February 2017)
Stig Harry Christiansen
(Deputy CEO and CFO)
Jens Einar Opstad Berge
(COO from November 2017)
Ryan Duncan Stewart - CCO
2017
333
121
2017
404
2017
2017
39
255
0
0
0
46
46
47
26
42
50
4
26
21
21
71
93
19
23
6
93
905
775
858
562
515
477
49
374
On 8 February 2017 Jesper Kragh Andresen was appointed CEO and Stig Harry Christiansen was
appointed deputy CEO and CFO.
46
Board of directors
(USD 1 000)
Glen Ole Rødland (chairman)
Roger Cornish
Birgit Aagaard-Svendsen
Svend Anton Maier
Kristian Johansen
Nancy Ch. Erotocritou (until April 2018)
Total fees
Glen Ole Rødland (chairman)
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
Year
Board fees 1)
2018
2018
2018
2018
2018
2018
2017
2017
2017
2017
2017
2017
2017
2017
144
109
107
96
96
26
578
137
112
90
87
78
63
16
19
603
2017
394
10
404
1) If applicable, figures include compensation from audit committee, election committee and
compensation committee.
Auditors' fees
(USD 1 000)
Audit
Fees for non-audit services
Total auditors' fees
2018
321
17
338
Auditors' fees is included in general and administrative expenses (note 7). Other services include USD
17,000 (2017: USD 10,000) in respect of tax compliance and pre-liquidation stage services offered to
the group companies by the statutory auditor.
NOTE 7: OTHER OPERATING EXPENSES
Repair and maintenance
Other vessel operating expenses 1)
General and administrative expenses
Total other operating expenses 1)
1) Refer to note 25 for 2017 reclassification description.
2018
14.9
64.1
8.5
87.5
2017
15.4
44.2
15.5
75.1
47
NOTE 8: TANGIBLE ASSETS AND GOODWILL
New
Equip-
Vessels
builds
ment Buildings Goodwill
Total
Cost as at 31 December 2016
3 105.5
122.2
Additions
Disposals
6.4
(120.5)
3.0
Cost as at 31 December 2017
2 991.4
125.1
Additions
Disposals
7.1
(70.8)
0.7
Cost as at 31 December 2018
2 927.8
125.8
6.1
0.7
(1.7)
5.1
0.3
(1.6)
3.8
7.9
0.0
7.9
0.6
(0.7)
7.9
226.7
3 468.4
10.1
(122.2)
226.7
3 356.3
8.7
(73.0)
226.7
3 292.0
Accumulated depreciation
and impairment
31 December 2016
Accumulated depreciation on
disposals (reclassified)
- Note 25
Depreciation for the year
(reclassified) - Note 25
Impairment
Accumulated depreciation
and impairment
31 December 2017
Depreciation for the year
Disposals
Impairment
Accumulated depreciation
and impairment
31 December 2018
Net carrying amount
31 December 2018
Net carrying amount
31 December 2017
1 076.2
4.6
5.5
1 086.3
(93.5)
134.4
347.2
1 464.2
111.9
(70.7)
(0.2)
(1.7)
0.4
0.4
(95.1)
135.2
573.9
226.7
3.4
0.5
(1.4)
5.9
0.6
(0.6)
0.8
226.7
1 700.2
113.0
(72.7)
0.6
1 505.2
2.4
6.8
226.7
1 741.1
1 422.6
125.8
1.4
1.1
1 550.9
1 527.2
152.2
1.7
2.0
1 656.0
Depreciation rate (%)
Economically useful life (years)
2-20
5-50
20-33
3-5
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 2018,
the capitalised borrowing costs amount to USD 31.5 million (31 December 2017: USD 31.5 million).
48
Estimated useful life for the semi-submersible accommodation vessels is 30-50 years dependent on
the age at the time of the acquisition and subsequent refurbishments. 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. Although market outlook has gradually improved in 2018, management has assessed that this
is in the early phase of recovery and too early to conclude the market has permanently improved.
Management looked at each individual vessel (including New builds) as a cash generating unit, and
concluded that no impairment is required for the vessel and new builds based on the assumptions
below.
An impairment charge of USD 0.8 milion is charge to a property held in Aberdeen office based on the
latest market valuation.
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 2.5% (2017: 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 2.5% (2017: 3%) (general sector inflation
assumption)
Capital expenditures
• Capex reflecting long-term capex projections (excluding value enhancing investments)
• Annual increase of capital expenditures 2.5% (2017: 3%) (general sector inflation assumption)
Pre-tax discount rate 8% (2017: 8%)
Sensitivity
• a 1% increase in the pre-tax discount rate would not lead to additional impairment
• a 0.5 % decrease in the growth rate would not lead to additional impairment
49
In 2017, the following impairment charges have been made as follows:
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. The
Group has only one reporting segment comprising of all accommodation/service vessels to which the
goodwill was allocated. Goodwill has been fully impaired in 2017.
NOTE 9: OTHER FINANCIAL ITEMS
Fair value adjustment currency forwards
Fair value adjustment interest rate swaps
Fair value adjustment interest rate caps
Total other financial income
Currency loss
Other financial expenses
Total other financial expenses
2018
2017
0.0
11.3
2.1
13.4
(0.3)
(2.7)
(2.9)
7.9
11.9
0.0
19.8
(2.4)
(1.9)
(4.3)
50
NOTE 10: FINANCIAL ITEMS
Financial
Financial
assets
Fair value
liabilities
measured at
through
measured at
amortised
profit and
amortised
Year ended 31 December 2018
cost
loss
cost
Total
Interest income
Fair value adjustment - interest rate swaps
Fair value adjustment - interest rate caps
Total financial income
Amortisation of borrowing costs
Modification of amortised cost 1)
Amortisation relating to abandonment
of hedge accounting 1)
Interest expenses
Other financial expenses
Total financial expenses
Net financial items
2.9
0.0
0.0
2.9
0.0
0.0
0.0
0.0
0.0
0.0
2.9
0.0
11.3
2.1
13.4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(4.2)
(56.8)
(48.3)
(64.0)
(173.3)
(2.9)
(176.2)
2.9
11.3
2.1
16.3
(4.2)
(56.8)
(48.3)
(64.0)
(173.3)
(2.9)
(176.2)
13.4
(176.2)
(159.9)
1) Refer to note 15 relating to the modification of amortised cost and note 19 for amortisation relating
to abandonment of hedge accounting.
Financial
Fair value
liabilities
through
measured at
Loans and
profit and
amortised
Year ended 31 December 2017
receivables
loss
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
Interest expenses
Other financial expenses
Total financial expenses
Net financial items
1.4
0.0
0.0
1.4
0.0
0.0
0.0
0.0
0.0
1.4
0.0
7.9
11.9
19.8
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.4
7.9
11.9
21.2
(3.0)
(3.0)
(13.2)
(58.7)
(74.9)
(4.3)
(79.2)
(13.2)
(58.7)
(74.9)
(4.3)
(79.2)
19.8
(79.2)
(58.0)
51
NOTE 11: TAXES
Income tax expenses
Taxes in income statement:
Taxes payable
Change in deferred tax
Total taxes in income statement
Reconciliation of effective tax rate (IAS 12.81)
Tax rate
Loss before taxes
Tax based on applicable tax rate
Tax effect of non-deductible expenses
Tax effect due to unrecognized deferred tax assets
Effect of tax in other jurisdictions
Tax charge
2018
2017
9.8
(2.0)
7.8
9.7
(3.8)
5.9
23.0%
(108.6)
(25.0)
11.1
10.1
9.7
5.9
Deferred tax - Specification and movements
2018
2017
Temporary differences:
Exit from Norwegian tonnage tax system
Long-term liabilities
Vessel tax base exceeds net book value
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
17.4
(100.8)
(211.6)
0.0
(295.0)
0.0
4.1
(3.8)
(0.3)
0.0
22.5
(3.9)
(1.0)
0.1
17.7
4.1
6.0
(2.0)
0.1
4.1
Tax payable as at 31 December
14.7
18.2
Following an assessment of our legal structure to ensure an optimal organisation of the company, the
Group decided to relocate the tax residency of 5 legal entities from respectively Cyprus and Singapore (3
legal entities which were tax residents in Cyprus, including parent company Prosafe SE, and 2 vessel-owning
legal entities which were tax residents in Singapore) to Norway in Q2 2018. The corporate tax rate in
Norway for 2018 is 23% (2017 Cyprus tax rate is 12.5%). The corporate tax rate is 22% in Norway for 2019.
As a result of the relocation, there are deferred tax assets arising from the temporary timing differences
between the carrying value of the vessels for accounting purpose and the value of the tax base in Norway.
The value of the deferred tax assets are not recognized in the accounts as the probability of having
sufficient future taxable profit to utilize the deferred tax assets as tax deductions cannot be established.
52
The deferred tax liability at the beginning of the year was carried forward from the past enforced
departure of the vessel business from the Norwegian tonnage tax system. Following the relocation of
the tax residency to Norway, there is no longer a basis for this deferred tax liability for the Group.
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 and warrants.
Net loss
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
2018
2017
(114.5)
87 987
(1.30)
87 987
(1.30)
(647.1)
72 052
(8.98)
87 987
(7.35)
NOTE 13: INVESTMENTS IN ASSOCIATED COMPANIES
The investment relates to the 25% shareholding in Dan Swift (Singapore) Pte. Ltd., a company
incorporated in Singapore, which was acquired in December 2016. The registered office of the
Company is 1 Harbourfront Avenue, #16-08, Keppel Bay Tower, Singapore 098632. The company owns
one accommodation monohull. This investment is measured using the equity method.
The following table summarises the financial information of Dan Swift (Singapore) Pte. Ltd., adjusted
for valuation adjustments at acquisition. The table also reconciles the summarised financial
information to the carrying amount of the Group’s interest in Dan Swift (Singapore) Pte. Ltd.
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%)
Valuation adjustment non-current assets at acquisition
Group's share of net loss in income statement
2018
2017
25 %
89.9
4.6
56.4
2.0
36.1
9.0
(3.8)
5.2
10.5
(6.6)
(1.7)
0.0
(1.7)
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)
53
NOTE 14: SHARE CAPITAL, SHAREHOLDER INFORMATION CONVERTIBLE BONDS AND WARRANTS
2018
2017
Issued and paid up number of ordinary shares at 31 December
81 784 212
80 725 809
Authorised number of shares at 31 December
140 247 177
130 440 177
Nominal value at 31 December
Number of shareholders at 31 December
EUR 0.10
EUR 0.10
4 929
5 427
Largest shareholders/groups of shareholders at 31.12.2018
No of shares
Percentage
North Sea Strategic Investments AS
HV VI Invest Sierra Malta Ltd
State Street Bank and Trust Comp
Nordea Bank ABP
State Street Bank and Trust Comp
WF Wells Fargo/Non-Repatriate
Pareto Aksje Norge Verdipapirfond
Nordnet Bank AB
Catella Hedgefond
Invesco Global Balanced Fund
Skandinaviska Enskilda Banken S.A.
UBS Switzerland AG
Forsvarets Personellservice
MP Pensjon PK
Morgan Stanley & Co. International
Helmer AS
Verdipapirfondet DNB High Yield
Invesco Global Balanced Class
Pictet & Cie (Europe) S.A.
Mørck
15 479 410
8 657 609
8 368 582
6 620 205
4 234 108
2 806 111
2 765 660
1 457 166
1 273 596
1 058 374
926 081
904 303
896 088
874 371
846 533
808 000
669 689
666 459
604 000
600 000
18.9 %
10.6 %
10.2 %
8.1 %
5.2 %
3.4 %
3.4 %
1.8 %
1.6 %
1.3 %
1.1 %
1.1 %
1.1 %
1.1 %
1.0 %
1.0 %
0.8 %
0.8 %
0.7 %
0.7 %
Total 20 largest shareholders/groups of shareholders
60 516 345
74.0 %
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
2018
2017
No. of conver-
tible bonds
Value
No. of conver-
tible bonds
Value
Opening balance as at
31 December
Conversion of convertible bonds
Closing balance as at
31 December
7 261 194
(1 058 404)
24.0
(3.2)
16 588 001
(9 326 807)
57.0
(33.0)
6 202 790
20.8
7 261 194
24.0
54
Warrants
As part of the USD 1 300 million credit facility refinancing concluded during the year, the Group has
issued the warrants to those lenders having elected to receive such instead of increased margins. In
total, 9,779,993 warrants have been issued, each of which gives right to subscribe for one new share
in the company at a subscription price of NOK 21.37. Of these, 5,141,021 warrants are conditional
inter alia on the Group taking delivery of Safe Nova and/or Safe Vega, and the remaining 4,638,972
warrants on the Group taking delivery of both Safe Nova and Safe Vega. As a result, the Group has
recognised USD 6.4 million in the equity as the warrants will be settled by delivering a fixed number
of its own equity instruments in exchange for a fixed amount of cash.
The warrants will be exercisable any time from and subject inter alia to the Group taking delivery of
Safe Nova and/or Safe Vega and the next 3 years from such respective delivery dates, however so that
any duration exceeding 5 years from the date of the Extraordinary General Meeting will be subject to
approval of such extension by a subsequent general meeting. The Warrants are expected to be subject
to certain customary adjustment mechanisms, including upon a failure to timely provide extension
approval in which case the subscription price will be set to nominal value.
NOTE 15: INTEREST-BEARING DEBT
Credit facilities
Sellers' credits
Modifcation of the amortised cost - credit facilities
Unamortised borrowing costs
Total interest-bearing debt
Non-current interest-bearing debt
Current interest-bearing debt
Total interest-bearing debt
2018
2017
1 192.0
1 337.1
19.0
50.6
(18.6)
22.8
0.0
(12.2)
1 243.0
1 347.7
1 198.5
44.5
1 243.0
1 329.1
18.6
1 347.7
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 and a revolving credit facility of USD 300 million. Initially the term loan tranches were reduced
semi-annually by USD 55 and USD 10 million, respectively. In August 2018 the amortisation profile and
covenants relating to this facility were amended. 90 per cent of the originally scheduled repayments in the
period 1 January 2017 through 2021 have been postponed and are to be repaid on the final maturity date.
The Group secured an option to extend the final maturity by one year, from February 2022 to February
2023. Assuming the extension option is exercised, for the additional year to maturity for the USD 1 300
million facility – from February 2022 to February 2023 - Prosafe will pay an additional 1.2% p.a. margin in
the extension year (instead of the increase of 0.6% p.a.). If the extension option is exercised, all interest
from February 2022 onwards is payable in cash with the exception of any additional margin relating to Safe
Nova and Safe Vega. USD 19.5 million semi-annual instalments in 2022 in the event the extension option is
exercised. As of 31 December 2018, there was USD 137 million available under the revolving credit facility.
55
Under IFRS 9, when a debt instrument is restructured or refinanced and the terms have been
modified, it is necessary to assess whether the new terms are considered to have been substantially
modified, and thereby conclude on the accounting treatment relating to the loan recognition.
Based on qualitative and quantitive tests proformed under IFRS 9, the Group has assessed that the
refinancing as a non-substantial loan modification and it does not require in de-recognition of loan.
Under a non-substantial loan modification that does not require in de-recognition of the financial
liability, the carrying values of the financial liability under the new terms needs to be recalculated by
using revised cash flows and a revised effective interest rate so to reflect the new net present value
of the loan. The modifcation of amortised cost of USD 56.8 million is estimated and has been added
into the carrying value of the loan and the same amount of financial costs is being recognised in the
profit and loss in this year. The modifcation of the amortised cost carried in the loan amount is mainly
the effect from the reduction of the USD 1300 million facility amortization and the increased margin
under the new financing term, and will be amortized over the remaining loan periods. See note 10 on
modifcation of the amortised cost - loan recognised as financial expenses.
USD 144 million credit facility (2017: USD 288 million credit facility)
This credit facility, which has a maturity of seven years, consists of one tranche of USD 144 million.
The first one was drawn upon delivery of Safe Notos in February 2016, and initially there were a
second available tranche (Safe Eurus), this tranche was cancelled in 2018, when financing for Eurus
were agreed with Cosco. In September 2016 the amortisation profile 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.
There is a cash sweep mechanism with testing 31 March and 30 September. Any excess cash over
USD 155 million threshold shall be shared between lenders (90%) and the company (10%). Once Safe
Eurus, Safe Nova and Safe Vega are delivered, the excess cash will be reduced with the initial cash
payment for the three new builds (Safe Eurus USD 50 million, Safe Nova USD 25 million, Safe Vega
USD 25 million). Any new shareholder contributions shall be subtracted from excess cash, and not
swept.
Financial covenants as per amendment in August 2018:
Minimum liquidity:
Minimum value:
USD 65 million
On the USD 1300 million facility, no minimum market value requirement
shall apply until 1 January 2022; thereafter 100% minimum market value on
at least one out of every two consecutive annual test dates.
On the USD 144 million (Safe Notos) facility, no minimum market value
requirement shall apply until 1 January 2019. Covenant will in 2019 be set
at 110% (in respect of 2 consecutive annual test dates), and there will be a
step up in market value covenant in March 2021 to 125%.
Leverage ratio to be negotiated, with first testing date on 31 March 2021.
No interest coverage ratio until 30 June 2020; 1.00x from 1 July 2020 until
31 March 2021; 1.50x from 1 April 2021 thereafter
Leverage ratio:1)
Interest coverage:2)
There is also a maximum capital expenditure covenant which is agreed before the start of each
financial year.
1) Leverage ratio = net borrowings/adjusted EBITDA
2) Interest coverage ratio = adjusted EBITDA/net interest expenses
56
Interest on bank facilities
Interest is USD LIBOR plus margin. Margin on outstanding amounts are as follows.
USD 288
million facility
USD 144 million facility
Until 30.06.2019
01.07.2019
From
Applicable leverage ratio
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
2.60 %
2.75 %
2.90 %
3.10 %
3.35 %
Cash
margin
2.15 %
2.15 %
2.15 %
2.15 %
2.15 %
PIK
margin
0.10 %
0.10 %
0.15 %
0.35 %
0.60 %
Cash
margin
2.25 %
2.25 %
2.30 %
2.50 %
2.75 %
Payment in kind ("PIK") margin as stated above will be added to the final balloon payment.
For the USD 1300 million facility, there was an increase in margin from the refinancing in August
2018 compared to the previous margin under the USD 1300 million facility agreement by 0.6%
p.a. This additional 0.6% margin will be cash interest if minimum liquidity remains above USD 155
million. However, to protect liquidity if cash falls below USD 155 million, the additional interest will be
payment-in-kind (PIK) and added to the final maturity instalment (“PIK toggle”).
In addition and as part of the amendments agreed in August 2018, subject to delivery of the Safe
Nova and Safe Vega,and the USD 1300 million facility being outstanding at the time of delivery, the
USD 1300 million facility lenders (only) may elect to receive either:
i. An additional margin of 0.225% p.a. for each of Safe Nova and Safe Vega from when they are
delivered. The increase in margin in connection with delivery will also be subject to the PIK toggle
mechanism, which also apply from February 2022 to February 2023 (assuming the extension option is
exercised); or
ii. Warrants for up to 6.52 million shares per vessel, and up to a maximum of 9.78 million shares in
aggregate.
For delivery of the first rig (either Safe Nova or Safe Vega), 21.2% of lenders will get margin uplift.
For the delivery of the second rig (either Safe Nova or Safe Vega), 28.8% of lenders will get margin
uplift.
57
Financial covenants as of 31 December 2018
Cash and deposits
Restricted cash
Amount available for utilisation, revolving credit facility (max USD 25 million)
Liquidity 1) (minimum USD 65 million)
1) The liquidity stated above is for the purpose of calculation of financial covenants.
140.3
(8.8)
25.0
156.5
Sellers' credits
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
Accrued layup costs 1)
Total interest-free current liabilities
1) Refer to note 23 and 26 for details on accrued layup costs.
2018
2017
18.1
14.1
9.4
16.6
58.2
3.3
6.9
3.0
9.3
22.5
58
NOTE 17: MORTGAGES AND GUARANTEES
2018
As of 31 December 2018, the Group’s interest-bearing debt secured by mortgages totalled USD 1,192
million. The debt was secured by mortgages on the accommodation/service vessels Safe Bristolia,
Safe Caledonia, Safe Concordia, Safe Scandinavia, Regalia, Safe Boreas, Safe Zephyrus and Safe Notos
(net carrying value USD 1,422.6 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 2018. 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 2018, the Group 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 201 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.
2017
As of 31 December 2017, the Group’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.
59
NOTE 18: FINANCIAL ASSETS AND LIABILITIES
As of 31 December 2018, the group had financial assets and liabilities in the following categories:
Financial
Financial
assets
Fair value
liabilities
measured at
through
measured at
amortised
profit and
amortised
Carrying
Year ended 31 Dec 2018
cost
loss
cost
value
Fair value
Cash and deposits
Accounts receivable
Other current assets
Fair value interest rate caps
Fair value interest rate swaps
Total financial assets
Credit facilities 1)
Seller Credits
Fair value interest rate swaps
Accounts payable
Other current liabilities
Other non-current liabilities
Total financial liabilities
140.3
25.2
12.8
0.0
0.0
178.3
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
1.3
1.1
2.4
0.0
0.0
16.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
140.3
140.3
25.2
12.8
1.3
1.1
25.2
12.8
1.3
1.1
180.7
180.7
1 224.0
1 224.0
1 215.0
19.0
0.0
2.2
58.2
2.4
19.0
16.1
2.2
58.2
2.4
19.0
16.1
2.2
58.2
2.4
16.1
1 305.8
1 321.9
1 312.9
1) Fair value reflects current market conditions with the assumption that the credit margin would
increase from the actual 274 basis points to 299 basis points. The net present value of the interest
advantage, discounted with USD 5-year swap rate, is around USD 9 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 grade credit ratings. Derivatives valued using valuation
techniques with market observable inputs are mainly interest rate swaps and caps. 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 and
interest rate and forward rate curves. All derivative contracts are secured under the USD 1300 million
credit facility.
60
Year ended 31 Dec 2018
Fair value interest rate caps
Fair value interest rate swaps
Total financial assets
Fair value interest rate swaps
Total financial liabilities
Total
Level 1
Level 2
Level 3
1.3
1.1
2.4
(16.1)
(16.1)
0.0
0.0
0.0
0.0
0.0
1.3
1.1
2.4
(16.1)
(16.1)
0.0
0.0
0.0
0.0
0.0
As of 31 December 2017, the group had financial assets and liabilities in the following categories:
Financial
Fair value
liabilities
through
measured at
Year ended 31 Dec 2017
receivables
loss
cost
value
Fair value
Loans and
profit and
amortised
Carrying
Cash and deposits
Accounts receivable
Other current assets
Total financial assets
Credit facilities 1)
Seller credits
Fair value interest rate swaps
Accounts payable
Other current liabilities
Other non-current liabilities
Total financial liabilities
231.9
45.5
6.7
284.1
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
39.4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
231.9
45.5
6.7
284.1
231.9
45.5
6.7
284.1
1 324.9
1 324.9
1 284.9
22.8
0.0
3.5
22.5
14.0
22.8
39.4
3.5
22.5
14.0
22.8
39.4
3.5
22.5
14.0
39.4
1 387.7
1 427.1
1 387.1
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.
Year ended 31 Dec 2017
Fair value interest rate swaps
Total financial liabilities
Total
(39.4)
(39.4)
Level 1
Level 2
Level 3
0.0
0.0
(39.4)
(39.4)
0.0
0.0
Assets measured at fair value in the consolidated statement of financial position
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.
61
NOTE 19: FINANCIAL RISKS AND DERIVATIVE FINANCIAL INSTRUMENTS
The Group 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.
The Group's presentation currency is USD, and financial risk exposure is managed with financial
instruments in accordance with internal policies and standards approved by the board of directors.
Currency risk
The Group is exposed to currencies other than USD associated with operating expenditure, capital
expenditure, tax, cash and deposits. Cash and deposits are mainly denominated in USD, GBP and NOK.
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
Total
USD - 10%
Re-valuation cash and deposits
Total
2018
2017
Income state-
ment effect
OCI
effect
Income state-
ment effect
OCI
effect
(7.1)
(7.1)
(7.1)
(7.1)
0.0
0.0
0.0
0.0
(10.9)
(10.9)
(10.9)
(10.9)
0.0
0.0
0.0
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 swaps and caps agreements. The Group
evaluates the hedge profile in relation to the repayment schedule of its loans, the Group’s portfolio
of contracts, cash flow and cash in hand. The interest rate risk is largely hedged by the use of interest
rate swaps or cap structures for normally 70-100% of the debt.
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 ±50bps (2017: ±100bps) is applied in the analysis.
62
2018
2017
Income
statement effect
OCI
effect
Income
statement effect
OCI
effect
Pre-tax effects
Forward curve +50bps (2017: +100bps)
Re-valuation interest rate swaps
Re-valuation interest rate caps
Total
Forward curve -50bps (2017: -100bps)
Re-valuation interest rate swaps
Re-valuation interest rate caps
Total
8.3
2.2
10.5
(8.4)
(0.8)
(9.2)
0.0
0.0
0.0
0.0
0.0
0.0
36.7
0.0
36.7
(38.3)
0.0
(38.3)
Changes in other comprehensive income related to financial instruments
As of 31 December 2018, the following changes in other comprehensive income were related to
financial instruments:
Re-valuation interest rate swaps
Total
2018
48.3
48.3
0.0
0.0
0.0
0.0
0.0
0.0
2017
13.2
13.2
The Group ceased hedge accounting for its interest rate swaps on 30 June 2016. Under IFRS 9, when
an entity discontinues hedge accounting for a cashflow hedge and the amount accumulated in the
cashflow hedge reserve is a loss, this amount should be immediately reclassified from the reserve
into profit or loss if the entity does not expect the loss will be recovered in one or more future periods.
The Group has assessed the discontinued cashflow hedge reserve balance and concluded that the
amount is not expected to be recovered in the future periods due to the interest rate development
and forward curve. As a consequence of this assessment, the reserve balance of USD 48.3 million is
taken into profit or loss. See note 10 on amortisation relating to abandonment of hedge recognised as
financial expenses.
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 the Group 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 the Group a substantial part of the remaining contract value.
Credit assessment of financial institutions issuing guarantees in favour of the Group, yards, sub-
contractors and equipment suppliers is part of the Group’s project evaluations and risk analyses.
The counterparty risk is in general limited when it comes to the Group’s clients, since these are typi-
cally major oil companies and national oil companies.
63
As of 31 December 2018, 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 2018
31 December 2017
Total
25.2
45.5
Not due
< 30 days 30 - 60 days
61-90 days
> 90 days
25.1
25.3
0.0
20.2
0.0
0.0
0.1
0.0
0.0
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 2018, Prosafe had an unrestricted liquidity reserve totalling USD 268.5 million
(unrestricted cash of USD 131.5 million plus USD 137 million in liquidity reserve under a committed
revolving credit facility). 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 challenging environment 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 2018 and the spend reductions that have taken place have reduced the liquidity risk.
As of 31 December 2018, the Group's main financial liabilities had the following remaining
contractual maturities (assuming the extension option for the USD 1300 million facility is not
exercised):
Per year
Interest-bearing debt (repayments)
Interests including interest rate swaps 1)
Taxes
Accounts payable and other current liabilities
2019
34.0
69.3
14.7
60.4
2020
16.6
67.8
0.0
0.0
140.5
1 019.4
63.0
0.0
0.0
7.3
0.0
0.0
2021
2022
2023 →
Total
178.4
84.4
203.5
1 026.7
1) Based on average debt, 3m LIBOR as of mid February 2019 and expected credit margin.
0.0
0.0
0.0
0.0
0.0
As of 31 December 2018, the commitments under the USD 1,300 million credit facility were not fully
utilised. As of year-end, available amount under the revolving credit facility was USD 137 million. 50%
of the USD 288 million facility was drawn upon delivery of Safe Notos in February 2016. Initially there
was a second available tranche (Safe Eurus), which was cancelled in 2018 when financing for Eurus
was agreed with Cosco. Reference is made to note 15 for further information.
64
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 million 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. The Group manages the total of shareholders'
equity and long term debt as their capital. The Group'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
Group Gross profit before depreciation and impairment 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
2018
2017
8.8
131.5
140.3
5.3
226.6
231.9
2018
2017
8.2
1.7
2.0
0.9
12.8
1.9
3.1
1.0
0.7
6.7
65
NOTE 22: RELATED PARTY DISCLOSURES
The financial statements comprise the parent company, Prosafe SE, and the subsidiaries listed below.
Company name
Prosafe Services Maritimos Ltda
Prosafe Holding Limited
Prosafe Rigs (Cyprus) Limited
Prosafe Offshore Accommodation Ltd
Prosafe Offshore BV
Prosafe AS
Prosafe Management AS
Prosafe Offshore AS
Axis Nova Singapore Pte. Ltd.
Axis Vega Singapore Pte. Ltd.
Prosafe Offshore Asia Pacific Pte. Ltd.
Prosafe Offshore Employment Company Pte. Limited
Prosafe Offshore Holdings Pte. Ltd.
Prosafe Offshore Pte. Limited
Prosafe Offshore Services Pte. Ltd.
Prosafe Rigs Pte. Ltd.
Safe Eurus Singapore Pte. Ltd.
Prosafe (UK) Holdings Limited
Prosafe Offshore Limited
Prosafe Rigs Limited
Country
of incorporation Ownership
Brazil
Cyprus
Cyprus
Jersey
Netherlands
Norway
Norway
Norway
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
Singapore
United Kingdom
United Kingdom
United Kingdom
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
Transactions and outstanding balances within the Group have been eliminated in full.
Shares owned by senior officers and directors at 31 December 2018:
(includes shares owned by close family/relatives and wholly-owned companies)
Senior officers:
Jesper Kragh Andresen - CEO
Stig Harry Christiansen - DCEO and CFO
Jens Einar Opstad Berge - COO
Ryan Duncan Stewart - CCO
Directors:
Glen Ole Rødland - Chairman
Svend Anton Mayer - Director
Roger Cornish - Director
Birgit Aagaard-Svendsen - Director
Kristian Johansen - Director
Voting
share
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
100 %
Shares
32 476
26 500
13 000
260
0*
0
0
3 000
0
*Mr Rødland has an indirect ownership interest in Prosafe due to his ownership interest in HitecVision VII, L.P.
66
NOTE 23: CAPITAL COMMITMENTS
New builds
As at 31 December 2018, the Group had three undelivered completed new builds residing at COSCO's
Qidong shipyard in China; Safe Eurus, Safe Nova and Safe Vega.
Safe Eurus
Safe Eurus is in a preserved, strategic stacking mode and the Group has accrued lay-up cost for this
vessel. In accordance with the previous agreement with COSCO, 50 percent of these costs are to be
paid on delivery and the remaining 50 percent after delivery. During August 2018, Prosafe has re-nego-
tiated the terms of the agreements with COSCO. Under the new term, If the Group successfully take
delivery of the vessel by December 2019, COSCO will waive the accrued lay up cost incurred by the
Group previously. Although the Group intends to take delivery of the vessel by 31 December 2019, it is
probable that the Group may not have the contract firm up for Safe Eurus by the set timeline. In this
scenario, the Group may need to re-negotiate the terms with COSCO in which COSCO might expect
the lay up costs to be paid and with a similar level of lay-up costs to continue for any extended period.
As the result, the Group continues to recognise the liability of USD 16.6 million relating to lay-up cost
in the balance sheet as at 31 December 2018.
In addition, the Group is committed to pay USD 50 million to COSCO upon taking delivery of Safe
Eurus with the reminder of the cost to be be financed by COSCO. Repayment of yard finance and
interest rates linked to future earnings and day rate achieved. "
Safe Nova and Safe Vega
During the year, an agreement has been reached with COSCO. If the Group gives notice to COSCO
within 5 years from August 2018 to take delivery of the vessels, the Group is committed to pay USD
25 million each upon delivery of the vessel and the remainder of the costs will be financed by COSCO.
Similar to Safe Eurus, repayment of yard finance and interest rates linked to future earnings and day
rate achieved.
NOTE 24: CONTINGENT ASSETS
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 the Group 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 the Group disputed Westcon's claim and claimed a substantial repayment.
The Court decided in favour of the Group that Westcon must repay the Group NOK 344 million
plus interest and NOK 10.6 million of legal costs. In April 2018, Westcon has filed an appeal against
Stavanger City Court judgement and the Group has filed a counter appeal.
While awaiting the final outcome of the dispute, the Group 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 & 31 December 2018.
67
NOTE 25: RESTATEMENT OF COMPARATIVE FINANCIAL INFORMATION
To align with industry practice and purifying of operating expenses, the Group has reclassified special
periodic survey costs of the vessels from operating expenses to depreciation. There is no impact to the
net operating results, cash flow and tangible assets. The tables below show the effect to the income
statement, cash flow statement and tangible assets.
2017
Previously
Reclassified
reported
Adjustment
amount
CONSOLIDATED INCOME STATEMENT
Other operating expenses
Operating profit before depreciation and impairment
Depreciation
CONSOLIDATED CASH FLOW STATEMENT
Depreciation and impairment
Other items from operating activities
NOTE 7: OTHER OPERATING EXPENSES
Other vessel operating expenses
Total other operating expenses
NOTE 8 TANGIBLE ASSETS & GOODWILL
Accumulated depreciation on disposals
Depreciation for the year
(83.1)
122.9
(127.2)
701.1
21.4
52.2
83.1
(87.1)
127.2
8.0
8.0
(8.0)
8.0
(8.0)
(8.0)
(8.0)
(8.0)
8.0
(75.1)
130.9
(135.2)
709.1
13.4
44.2
75.1
(95.1)
135.2
NOTE 26: EVENTS AFTER THE BALANCE SHEET DATE
Safe Eurus Delivery
In January 2019, the Group was ranked first place in the Brazil auction and it is likely that Petrobras
will nominate a batch for Safe Eurus. However, before the contract can be formally awarded, there
is still a technical compliance evaluation process to be completed and the commercial terms to be
agreed upon between the Group and the client. Only upon the contract is officially awarded, the
Group will make a formal investment decision so to ensure the use of funds are in line with agree-
ments set with lenders in August 2018. In the situation where no suitable contract can be awarded
for Safe Eurus by December 2019, the Group will likely consider to extend terms with COSCO in which
COSCO might expect the lay up costs to be paid and with a similar level of lay-up costs to continue for
any extended period. As a result, the accrued lay up costs remain in the book as at December 2018
and further under IAS 37 until the conditions for COSCO to waive the legal obligation are met.
68
PARENT COMPANY ACCOUNTS
69
INCOME STATEMENT - PROSAFE SE
(USD 1 000)
Note
2018
2017
Income from investments in subsidiaries
Impairment of shares in subsidiaries
Results of investing activities
Operating expenses
Depreciation
Operating profit/(loss)
Interest income
Interest expenses
Other financial income
Other financial expenses
Net financial items
Loss before taxes
Taxes
Net loss
7
2
3
4
4
5
6
40 396
0
40 396
(9 324)
(10)
31 062
7 633
(172 683)
13 438
(9 847)
(161 459)
(130 397)
(35)
12 600
(745 188)
(732 588)
(6 321)
(2)
(738 911)
3 804
(70 141)
45 442
(25 007)
(45 902)
(784 813)
(669)
(130 432)
(785 482)
Attributable to equity holders of the company
(130 432)
(785 482)
STATEMENT OF COMPREHENSIVE INCOME - PROSAFE SE
(USD 1 000)
Net loss
2018
2017
(130 432)
(785 482)
Other comprehensive income to be reclassified to profit or loss in
subsequent periods
Net gain on cash flow hedges
47 985
13 200
Other comprehensive income that will not be reclassified to
profit or loss in subsequent periods
Pension remeasurement
(822)
0
Total comprehensive loss for the year, net of tax
(83 269)
(772 282)
Attributable to equity holders of the company
(83 269)
(772 282)
70
STATEMENT OF FINANCIAL POSITION - PROSAFE SE
(USD 1 000)
ASSETS
Tangible assets
Shares in subsidiaries and in an associate
Intra-group receivables
Derivatives
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
Convertible bonds
Warrants
Total equity
Intra-group non-current liabilities
Interest-bearing long-term debt
Derivatives
Interest-free long-term liabilities
Total long-term liabilities
Interest-bearing current debt
Accounts payable
Intra-group current liabilities
Other interest-free current liabilities
Total current liabilities
Total equity and liabilities
Note
31/12/18
31/12/17
3
7
12, 14
14
14
8, 14
9
9
9
12, 14
0
10
1 553 203
1 828 292
248 525
2 452
128 591
0
1 804 180
1 956 892
16 024
261
16 285
18 373
162
18 534
1 820 465
1 975 427
9 021
8 906
1 037 353
1 034 280
71 846
71 846
1 118 220
1 115 032
(639 395)
(556 127)
20 809
6 461
506 095
60 037
23 997
0
582 902
0
10 , 14, 15
1 198 269
1 310 701
14
14, 15
10, 15
14, 15
12, 14, 15
11, 14, 15
16 136
2 311
39 399
1 770
1 276 753
1 351 869
25 728
14 200
491
853
10 545
37 617
0
17 968
8 486
40 654
1 820 465
1 975 427
On 13 March 2019, the Board of Directors of Prosafe SE approved and authorised these financial
statements for issue.
Glen Ole Rødland
Non-executive Chairman
Birgit Aagaard-Svendsen
Kristian Johansen
Non-executive Director
Non-executive Director
Svend Anton Maier
Non-executive Director
Roger Cornish
Non-executive Director
Jesper K. Andresen
Chief Executive Officer
Oslo, 13 March 2019
71
CASH FLOW STATEMENT - PROSAFE SE
(USD 1 000)
Note
2018
2017
Cash flow from operating activities
Loss before taxes
Unrealised currency loss on long-term debt
Depreciation
Impairment shares in subsidiaries
Interest income
Interest expenses
Change in working capital
Taxes paid
Other items from operating activities
Net cash flow from operating activities
Cash flow from investing activities
Proceeds from sale of shares in subsidiaries
Acquisition of shares in subsidiaries
Change in intra-group balances
Interest received
Net cash flow from (used in) investing activities
Cash flow from financing activities
Repayment of interest-bearing long-term debt
Interest paid
Net cash flow used in financing activities
Net cash flow
Cash and deposits at 1 January
Cash and deposits at 31 December
3
(130 397)
(784 814)
7 547
10
0
(7 633)
172 683
(53)
(35)
(25 716)
16 406
217 374
(3 200)
(23 645)
7 633
198 162
(151 200)
(65 717)
(216 917)
(2 349)
18 373
16 024
4 306
2
745 188
(3 804)
70 141
(477)
(669)
(6 546)
23 328
0
(915)
(7 254)
3 804
(4 365)
(14 200)
(70 141)
(84 341)
(65 378)
83 751
18 373
72
STATEMENT OF CHANGES IN EQUITY - PROSAFE SE
(USD 1 000)
Note
Share
capital
Share
demption
Retained
Convert-
Cash flow
premium
reserve
earnings
ible Bonds
hedges
War-
rants
Total
equity
Capital re-
Equity at 31
December 2016
Net loss
Other comprehen-
sive income
Total comprehen-
sive income1)
Conversion of
convertible bonds
Equity at 31
December 2017
Net loss
Other comprehen-
sive income
Total comprehen-
sive income 1)
Conversion of
convertible bonds
Issue of warrants
Equity at 31
December 2018
7 914
1 002 282
71 846
277 341
56 987
(61 185)
0
(785 482)
0
0
0
0
1 355 185
(785 482)
0
0
0
13 200
0
13 200
0
(785 482)
0
13 200
0
(772 282)
9
992
31 998
0
0
(32 990)
0
8 906
1 034 280
71 846
(508 142)
23 997
(47 985)
0
(130 432)
0
0
0
0
0
0
582 902
(130 432)
0
0
0
0
0
0
0
0
0
0
0
0
0
(822)
0
47 985
0
47 163
0
(131 254)
0
47 985
0
(83 269)
9
9
115
0
3 073
0
0
0
0
0
(3 188)
0
0
0
0
0
6 461
6 461
9 021
1 037 353
71 846
(639 395)
20 809
0
6 461
506 095
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
distribution of dividends, and is otherwise subject to the provisions of the Cyprus Companies Law,
Cap. 113 on reduction of share capital.
73
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 accounting policies adopted are consistent
with those in the previous financial years except IFRS 9 Financial Instruments. This is the first set
of the parent company's financial statements in which IFRS 9 has been applied. The details of the
significant changes and quantitative impact of the changes are set out below. 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 and in an associate are measured at
historic cost, unless there is any indication of impairment. In case of impairment, an investment is
written down to recoverable amount.
IFRS 9 Financial Instruments
The Company's adoption of IFRS 9 is in line with the Group's adoption as stated in the notes to the
consolidated accounts.
The Company has used an exemption not to restate comparative information for prior periods with
respect to classification and measurement (including impairment) requirements. Accordingly, the
information presented for 2017 does not generally reflect the requirement of IFRS 9, but rather those
of IAS 39.
Original
New
Classification
Classification
Original
carrying
amount
New
Carrying
amount
As at 1 January 2018
under IAS 39
under IFRS 9
under IAS 39
under IFRS 9
Financial assets
Intra-group long-term receivable
Cash and deposits
Other current assets
Total financial assets
Loan and
Amortised
receivables
Loan and
receivables
Loan and
receivables
cost
128 591
128 591
Amortised
cost
Amortised
18 373
18 373
cost
162
162
147 125
147 125
There is no impact to the carrying value of the financial assets and financial liabilities under IFRS 9 as
at 1 January 2018.
74
NOTE 2: OPERATING EXPENSES
Services from subsidiaries
Directors’ fees
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 (Chairman)
Roger Cornish
Birgit Aagaard-Svendsen
Svend Anton Maier
Kristian Johansen
Nancy Ch. Erotocritou (until April 2018)
Total fees
Glen Ole Rødland (Chairman)
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
2018
2017
3 877
578
1 300
60
154
(104)
96
2
1 703
1 658
9 324
Year
2018
2018
2018
2018
2018
2018
2017
2017
2017
2017
2017
2017
2017
2017
4 043
603
468
40
34
(133)
112
5
(230)
1 379
6 321
Board fees 1)
144
109
107
96
96
26
578
137
112
90
87
78
63
16
19
603
1) If applicable, figures include compensation from audit committee, election committee and
compensation committee.
Number of employees
The average number of employees in the Company for 2018 was 4 (2017: 5).
75
Equipment
Total
211
211
0
(211)
0
199
2
201
211
211
0
(211)
0
199
2
201
(211)
(211)
10
0
0
10
20-30
10
0
0
10
-
2018
2017
0
41
11 266
2 130
13 438
(8 379)
(1 469)
(9 847)
25 668
7 886
11 888
0
45 442
(20 536)
(4 471)
(25 007)
NOTE 3: TANGIBLE ASSETS
Acquisition cost 31.12.16
Acquisition cost 31.12.17
Additions
Disposals at acquisition cost
Acquisition cost 31.12.18
Accumulated depreciation 31.12.16
Depreciation for the year
Accumulated depreciation 31.12.17
Accumulated depreciation on disposals
Depreciation for the year
Accumulated depreciation 31.12.18
Carrying value 31.12.18
Carrying value 31.12.17
Depreciation rate (%)
NOTE 4: OTHER FINANCIAL ITEMS
Currency gain
Fair value adjustment currency forwards
Fair value adjustment interest rate swaps
Fair value adjustment interest rate caps
Total other financial income
Currency loss
Other financial expenses
Total other financial expenses
76
NOTE 5: FINANCIAL ITEMS
Year ended 31 December 2018
Financial
assets
measured at
amortised
cost
Fair value
through
profit and
loss
Financial
liabilities
measured at
amortised
cost
Interest income
Fair value adjustment currency forwards
Fair value adjustment interest rate swaps
Fair value adjustment interest rate caps
Total financial income
7 633
0
0
0
7 633
0
41
11 266
2 130
13 438
Interest expenses
Currency loss 1)
Modification of amortised cost 2)
Amortisation relating to abandonment
of hedge accounting 2)
Other financial expenses excluding
currency loss
Total financial expenses
0
0
0
0
0
0
0
0
0
0
0
0
Total
7 633
41
11 266
2 130
21 071
(67 865)
(8 379)
(56 833)
0
0
0
0
0
(67 865)
0
(56 833)
(47 985)
(47 985)
(1 469)
(1 469)
(174 151)
(182 530)
Net financial items
7 633
13 438
(174 151)
(161 459)
Year ended 31 December 2017
Loans and
receivables
Interest income
Currency gain 1)
Fair value adjustment currency forwards
Fair value adjustment interest rate swaps
Total financial income
Interest expenses
Currency loss 1)
Other financial expenses excluding
currency loss
Total financial expenses
3 804
0
0
0
3 804
0
0
0
0
Fair value
through
profit
and loss
Financial
liabilities
measured at
amortised
cost
0
0
0
11 888
11 888
0
0
0
0
0
0
7 886
0
7 886
(70 141)
0
(4 471)
(74 612)
Total
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)
1) Excluded from the category breakdown, but added to the total for net effect.
2) For further information, see note 15 of the consolidated accounts relating to the modification of
amortised cost and note 19 of the consolidated accounts for amortisation relating to abandonment
of hedge accounting.
77
NOTE 6: TAXES
Taxes
Total taxes in income statement
Temporary differences:
Loss carried forward
Basis for deferred tax liability (+)/benefit (-)
Deferred tax liability (+)/benefit (-)
Taxes payable at 31 December
2018
2017
35
35
0
0
0
0
669
669
(180 768)
(180 768)
0
0
During Q2 2018, the company relocated its tax residency from Cyprus to Norway. The corporate tax
rate in Norway for 2018 is 23% (2017 and 2018 Cyprus tax rate is 12.5%). The corporate tax rate is 22%
in Norway for 2019.
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 losses
Tax effect due to unrecognized deferred tax assets
Special contribution to defence fund
Withholding tax
Tax charge
2018
2017
23,0 %
12,5 %
(130 397)
(784 813)
(29 991)
11 040
(9 291)
0
28 242
35
0
35
(98 102)
99 271
(7 302)
6 133
0
4
665
669
78
NOTE 7: SHARES IN SUBSIDIARIES AND IN ASSOCIATES
(Share capital, carrying value and total equity in 1 000)
2018
Ownership
Carrying
Equity at
Carrying
Companies
& Voting
No of
value at 31
Share
Shares
Dec. 2018
31 Dec.
2018 5)
value at 31
Dec. 2017
Prosafe AS1)
Prosafe Offshore AS1)
Prosafe Management AS1)
Prosafe (UK) Holdings Limited2)
Prosafe Offshore Pte. Limited3)
Prosafe Offshore Services Pte. Ltd.3)
Prosafe Offshore Asia Pacific Pte. Ltd.3)
Prosafe Rigs Pte. Ltd.3)
Prosafe Offshore Holdings Pte. Ltd.3)
Dan Swift (Singapore) Pte. Ltd.4)
Axis Nova Singapore Pte. Ltd.3)
Axis Vega Singapore Pte. Ltd.3)
Total
100 %
100 %
100 %
100 %
100 %
100 %
100 %
91 %
100 %
25 %
-
-
100
100
100
48 036
270
15
2 000
9 826
56 659
20 606
990
3 565
48 036
270
15
9 826
646 050
222 099
185 118
222 099
150
10
2 633
3 200
10 000
-
-
150
7
805
483
150
7
1 259 599
1 168 998
1 476 973
3 200
10 000
-
-
834
9 025
-
-
0
10 000
30 915
30 000
1 553 203
1 828 292
The registered address of the subsidiaries and associated company are as follows:
1) Forusparken 2, Postboks 39, Forus, 4064 Stavanger
2) Greenwell Road, East Tullos Industrial Estate, Aberdeen, AB12 3AX
3) 1 International Business Park, #09-03 The Synergy, Singapore 609917
4) 1 Harbourfront Avenue, #16-08, Keppel Bay Tower, Singapore 098632
5) The equity value represents only the parent company's interest in its subsidiaries.
In 2018, the Company acquired 100% of the shares in Prosafe Offshore Holdings Pte. Ltd., a company
incorporated in Singapore.
In 2018, the Company disposed 100% of the shares in Axis Nova Singapore Pte. Ltd. and Axis Vega
Singapore Pte. Ltd. to Prosafe Offshore Holdings Pte Ltd for USD 60.9 million.
In 2018, Prosafe Rigs Pte Ltd has returned USD 217 million to the company as a reduction in capital.
Based on management's assessment of indicators of impairment, there are no triggers which indicate that
investment in subsidiaries require impairment. Hence, there was no impairment of shares in subsidiaries
in 2018.
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.
There are mortgages on the shares in Prosafe Rigs Pte Ltd and Prosafe Offshore Pte Ltd. Please refer to note
13.
79
NOTE 8: OTHER CURRENT ASSETS
Current receivables due from subsidiaries
Other current assets
Total other current assets
NOTE 9: SHARE CAPITAL, CONVERTIBLE BONDS AND WARRANTS
2018
2017
7
254
261
48
114
162
2018
2017
Issued and paid up number of ordinary shares at 31 December
81 784 212
80 725 809
Authorised number of shares at 31 December
Nominal value at 31 December
Number of shareholders at 31 December
140 247 177
130 440 177
EUR 0.10
EUR 0.10
4 929
5 427
Ordinary shares
In issue at 1 January
80 725 809
71 399 002
Issued in connection with conversion of convertible bonds
1 058 403
9 326 807
In issue at 31 December fully paid up
81 784 212
80 725 809
Convertible bonds
2018
2017
No. of
convertible
bonds
No. of
convertible
bonds
Value
Opening balance as at 31 December
7 261 194
23 997
16 588 001
Conversion of convertible bonds
(1 058 404)
(3 188)
(9 326 807)
Ending balance as at 31 December
6 202 790
20 809
7 261 194
OCI effect
56 987
(32 990)
23 997
Warrants
As part of the USD 1300 million credit facility refinancing concluded during the year, the Company has
issued the warrants to those lenders having elected to receive such instead of increased margins. In
total, 9,779,993 warrants have been issued, each of which gives right to subscribe for one new share
in the company at a subscription price of NOK 21.37. Of these, 5,141,021 warrants are conditional
inter alia on the Group taking delivery of Safe Nova and/or Safe Vega, and the remaining 4,638,972
warrants on the Group taking delivery of both Safe Nova and Safe Vega. As a result, the Company has
recognised USD 6.4 million in the equity as the warrants will be settled by delivering a fixed number
of its own equity instruments in exchange for a fixed amount of cash.
80
The warrants will be exercisable any time from and subject inter alia to the Group taking delivery of
Safe Nova and/or Safe Vega and the next 3 years from such respective delivery dates, however so that
any duration exceeding 5 years from the date of the Extraordinary General Meeting will be subject to
approval of such extension by a subsequent general meeting. The Warrants are expected to be subject
to certain customary adjustment mechanisms, including upon a failure to timely provide extension
approval in which case the subscription price will be set to nominal value.
NOTE 10: INTEREST-BEARING DEBT
Credit facility
Modifcation of the amortised cost - credit facilities
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
NOTE 12: INTRA-GROUP BALANCES
NOK loan to Prosafe AS
USD loan to Prosafe Offshore Holdings Pte. Ltd.
USD loan to Safe Eurus Singapore Pte. Ltd.
Intra-group long-term receivables
2018
2017
1 191 999
1 337 099
50 583
(18 585)
0
(12 198)
1 223 997
1 324 901
1 198 269
1 310 701
25 728
14 200
1 223 997
1 324 901
2018
2017
9 922
623
10 545
6 877
1 609
8 486
2018
2017
126 177
128 591
62 311
60 037
0
0
248 525
128 591
Loan agreements with subsidiaries are based on market prices using 3M NIBOR (NOK loan) and 3M
LIBOR (USD loan) interest rates plus a margin of 2.15% (2017: 2.00%) and 3.25-3.40% per annum
respectively. Outstanding balances at year-end are unsecured, and settlement normally occurs in cash.
81
USD loan from Prosafe Rigs Pte. Ltd.
Intra-group long-term payables
2018
2017
60 037
60 037
0
0
Loan agreements with a subsidiary are based on market prices using 3M LIBOR (USD loan) interest
rates plus a margin of 3.4% per annum. Outstanding balances at year-end are unsecured, and
settlement normally occurs in cash.
Transactions with related parties
2018
2017
Transactions
Sales of Investment in Subsidiaries to Prosafe Offshore
Holdings Pte. Ltd.
Administrative income from subsidiaries
Administrative expenses due to subsidiaries
Interest income
Interest expenses
Dividends
60 915
3
(3 880)
6 348
(271)
40 396
0
0
(4 043)
3 598
0
12 600
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
invoiced on a 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 due from subsidiaries
Intra-group long-term receivables
Intra-group long-term payables
Current payables due to subsidiaries
2018
2017
7
248 525
(60 037)
48
128 591
0
(853)
(17 968)
Current receivables are not subject to any interest calculation. The short term payables to subsidiaries
are subject to interest rates from 0% to 3M LIBOR (USD loan) interest rates plus a margin of 2.15% per
annum. 2017: (0% per annum). The balances will be settled on ordinary market terms.
82
NOTE 13: MORTGAGES AND GUARANTEES
2018
As of 31 December 2018,the company interest-bearing debt secured by mortgages totalled USD 1,192
million. The debt was secured by mortgages on the accommodation/service vessels Safe Bristolia,
Safe Caledonia, Safe Concordia, Safe Scandinavia, Regalia, Safe Boreas, Safe Zephyrus and Safe Notos
(net carrying value USD 1,422.6 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 2018. 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 1300
million facility.
As at 31 December 2018, 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 201 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.
2017
As of 31 December 2017, the company'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, the 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 the company guarantee and indemnity relating to the bank guarantee referred to above. The
amounts specified with regard to the company guarantees reflect the sum of the capped liability
under the relevant agreements.
83
NOTE 14: FINANCIAL ASSETS AND LIABILITIES
Financial
assets
Fair value
Financial
liabilities
measured at
through
measured at
amortised
profit
amortised
Carrying
Year ended 31 Dec 2018
cost
and loss
cost
value
Intra-group long-term receivables
Cash and deposits
Other current assets
Fair value interest rate caps
Fair value interest rate swaps
Total assets
Credit facility
Fair value interest rate swaps
Accounts payable
Interest-free long-term liabilities
Intra-group non-current liabilities
Intra-group current liabilities
Other interest free current liabilities
Total liabilities
248 525
16 024
261
0
0
264 810
0
0
0
1 310
1 142
2 452
0
0
0
0
0
0
248 525
16 024
261
1 310
1 142
267 262
0
0
0
0
0
0
0
0
0
1 223 997
1 223 997
16 136
0
0
0
0
0
0
491
2 311
60 037
853
16 136
491
2 311
60 037
853
10 545
10 545
16 136
1 298 233
1 314 369
Fair value
Financial
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
128 591
18 373
162
147 125
Credit facility
Fair value interest rate swaps
Interest-free long-term liabilities
Intra-group current liabilities
Other interest free current liabilities
Total liabilities
0
0
0
0
0
0
0
0
0
0
0
39 399
0
0
0
0
0
0
0
128 591
18 373
162
147 125
1 324 901
1 324 901
0
1 770
17 968
8 486
39 399
1 770
17 968
8 486
39 399
1 353 124
1 392 523
For further information, see note 18 of the consolidated accounts.
84
NOTE 15: MATURITY PROFILE LIABILITIES
Year ended 31 December 2018
2019
2020
2021
2022
2023
Interest-bearing debt (repayments)
Interests incl interest swaps
Intra-group non-current liabilities
Intra-group current liabilities
Accounts payable
Other interest-free current liabilities
Total
15 000
69 300
0
853
491
10 545
96 188
16 600
140 500
1 019 900
67 800
63 000
7 300
0
0
0
0
0
0
0
0
0
0
0
0
0
0
79 500
0
0
0
84 400
203 500
1 027 200
79 500
Year ended 31 December 2017
2018
2019
2020
2021
2022
Interest-bearing debt (repayments)
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
0
0
0
0
0
0
0
0
Total
109 554
96 500
109 500
318 300 1 002 300
NOTE 16: FINANCIAL RISKS
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 and interest rate cap agreements.
The company evaluates the hedge profile in relation to the repayment schedule of its loans, the
subsidiaries' portfolio of contracts, cash flow and cash in hand. The interest rate risk is largely hedged
by the use of interest rate swaps or cap structures for normally 70-100% of the debt.
As of 31 December 2018, the company's hedging agreements totalled USD 1,000 million:
Notional amount
USD 225 million
USD 135 million
USD 120 million
USD 120 million
Sub total
Notional amount
USD 160 million
USD 240 million
Sub total
Total
Fixed rate
Maturity
Swap type
(USD 1 000)
Fair value
2.4440 %
2.3630 %
1.5330 %
2.1280 %
2022
2022
2022
2022
Bullet
Bullet
Bullet
Bullet
Capped rate
Maturity
3.0000 %
3.0000 %
2021
2022
(9 793)
(3 960)
1 142
(2 360)
(14 971)
Fair value
(USD 1 000)
354
956
1 310
(13 661)
85
Fair value of interest rate swap and interest cap 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 ±50bps (2017: ±100bps) is applied in the analysis.
Pre-tax effects
Forward curve +50bps (2017: +100bps)
Re-valuation interest rate swaps
Re-valuation interest rate caps
Total
Forward curve -50bps (2017: -100bps)
Re-valuation interest rate swaps
Re-valuation interest rate caps
Total
2018
2017
Income
statement effect
OCI
effect
Income
statement effect
OCI
effect
8 276
2 227
10 503
(8 422)
(778)
(9 199)
0
0
0
0
0
0
36 700
0
36 700
(38 300)
0
(38 300)
0
0
0
0
0
0
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
2018
47 985
47 985
2017
13 200
13 200
The company ceased hedge accounting for its interest rate swaps on 30 June 2016. Under IFRS 9,
when an entity discontinues hedge accounting for a cashflow hedge and the amount accumulated in
the cashflow hedge reserve is a loss, this amount should be immediately reclassified from the reserve
into profit or loss if the entity does not expect the loss will be recovered in one or more future periods.
The company has assessed the discontinued cashflow hedge reserve balance and concluded that the
amount is not expected to be recovered in the future periods due to the interest rate development
and forward curve. As a consequence of this assessment, the reserve balance of USD 47,985,000 is
taken into profit or loss.
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 company is exposed to currencies other than USD associated with interest-bearing debt, cash
and deposits. Cash and deposits are mainly denominated in USD, GBP, EUR and NOK and the interest
bearing debt to Prosafe AS in NOK.
86
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 NOK Loan to Prosafe AS
Total
USD -10%
Re-valuation cash and deposits
Re-valuation NOK Loan to Prosafe AS
Total
2018
2017
Income
statement effect
OCI
effect
Income
statement effect
OCI
effect
(638)
11 720
11 082
638
(11 720)
(11 082)
0
0
0
0
0
0
(968)
0
(968)
1 065
0
1 065
0
0
0
0
0
0
Credit risk
The Company is exposed to credit risk in relation to the inter-company loan to three subsidiaries,
Prosafe AS, Prosafe Offshore Holdings Pte Ltd & Safe Eurus Singapore Pte Ltd. See note 12 for details
about the loan.
Liquidity risk
The Company is exposed to liquidity risk in a scenario when the Company’s cash flow from operations
is insufficient to cover payments of financial liabilities. The Company manages liquidity and funding
on a group level. In order to mitigate the liquidity risk, the Group 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 2018, the Group had an unrestricted liquidity reserve totalling USD 268.5 million
(unrestricted cash of USD 131.5 million plus USD 137 million in liquidity reserve under a committed
revolving credit facility). 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 challenging environment 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 2018 and the spend reductions that have taken place have reduced the liquidity risk.
Capital management
The primary objective of the Company's capital management is to ensure that it maintains a healthy
capital structure in line with economic conditions. The Company manages the total of shareholders'
equity and long term debt as their capital. The Company'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 the Group profit/loss before depreciation and impairment over the last 12 months.
87
INDEPENDENT
AUDITOR'S REPORT
88
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 65 and comprise the
consolidated statement of financial position
of the Group and the statement of financial
position of the Company as at 31 December
2018, 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 2018, 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
throughout the period of our appointment
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 RIGS
Refer to Notes 3 and 8 to the consolidated
financial statements.
The key audit matter
Despite signs of market recovery with increased
utilization rates, there is a risk of irrecoverability
of the Group’s carrying amount of Property
Plant and Equipment, specifically rigs (“PPE”).
An assessment whether there is an indication
of PPE impairment was carried out by the
Group at the year-end by considering key
indicators including comparing the value in use
of the Group’s cash generating units (“CGUs”),
which requires significant assumptions about
future developments, with their carrying
amounts (“trigger assessment”). Due to the
inherent uncertainty and subjectivity involved
in forecasting and discounting future cash
flows, which are the basis of the trigger
assessment, this is one of the key judgmental
areas that our audit is concentrated on.
89
How the matter was addressed in our audit
Our audit procedures included reviewing
management’s assessment of key indicators
and assessing the integrity of the Group’s
discounted cash flow (“DCF”) model. This
included comparison of the key assumptions
to 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, discussions with management
and comparisons with the prior year’s model.
We considered the historical accuracy of
the Group’s assumptions and used external
data and our own valuation specialists when
assessing the discount rate applied. We also
assessed whether the Group’s disclosures
about the sensitivity of the outcome of the
assessment to changes in key assumptions
reflects the risks inherent in the valuation of
rigs.
KEY AUDIT MATTER 2
- CONTINGENT ASSETS
Refer to Notes 3 and 24 to the consolidated
financial statements.
The key audit matter
The Group has an ongoing court case with
Westcon Yards AS (“Westcon”) pertaining to the
cost of conversion of one of the Group’s vessels
to a tender support vessel. The Group won the
case and was awarded NOK 344 million plus
interest and legal costs. Westcon appealed the
decision and the Group counter appealed.
Significant judgment is required in determining
the final outcome of the court hearings
and thus in determining whether or not a
contingent asset should be recognized.
How the matter was addressed in our audit
As part of our audit procedures we
•
reviewed and assessed the relevant
correspondence between the contract
parties;
•
requested and obtained a legal letter from
the Group’s external legal counsel and
assessed its content;
• monitored the developments of the
case through review and assessment of
subsequent events;
• assessed whether the related financial
statements disclosure was in line with the
requirements of IAS 37.
KEY AUDIT MATTER 3
- INVESTMENTS IN SUBSIDARIES
Refer to Note 7 to the separate financial
statements and note 3 to the consolidated
financial statements.
The key audit matter
As a consequence of the risk of impairment of
rigs in case of a trigger event (detailed under
key audit matter 1 above), the Company’s
investments in the rig owning entities may be
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. This included evaluating
the methodology used by the Company and
comparing the Company’s assumptions to our
own assessments in relation to key inputs,
taking also into consideration the results of our
audit procedures on key audit matter 1.
REPORTING ON OTHER INFORMATION
The Board of Directors is responsible for the
other information. The other information
comprises the following:
• about Prosafe (page 4);
• key figures (page 7);
•
the management report (designated as
“Directors’ report” in the Annual Report)
(pages 9 to 21)
but does not include the consolidated and the
separate financial statements and our auditor’s
report thereon.
90
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
consolidated 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.
With regards to ‘about Prosafe’ and ‘key figures’
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.
Responsibilities of the Board of Directors
and those charged with governance for the
consolidated and separate financial statements
The Board of Directors is responsible for the
preparation of consolidated and separate
financial 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 determines 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.
Those charged with governance are responsible
for overseeing 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 auditor’s
report that includes our opinion. Reasonable
assurance is a high level of assurance, but it
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 expected to influence the economic
decisions of users taken on the basis of
these consolidated and separate financial
statements.
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 over-
ride of internal control.
91
• 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 disclo-
sures 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 state-
ments 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 business
activities of the entities 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 those charged with
governance 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 govern-
ance with a statement that we have complied
with relevant ethical requirements regarding
independence, and communicate to 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 finan-
cial 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 4 years
covering the periods ending 31 December 2015
to 31 December 2018.
Consistency of the additional report to the Audit
Committee
Our audit opinion is consistent with the
additional report presented to the Audit
Committee dated 8 March 2019.
92
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”). In
addition, there are no non-audit services which
were provided by us to the Group and which
have not been disclosed in the consolidated
and separate financial statements.
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.
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.
OTHER MATTER
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.
13 March 2019
93
Accommodating
the Offshore
Industry
www.prosafe.com
94