STRENGTH THROUGH TRANSITION

Transcription

1 ANNUAL REPORT 2015 STRENGTH THROUGH TRANSITION

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3 DOF Subsea Annual Report 2015 Contents Building our subsea future Global presence 6 Highlights year review from our Chairman 10 Adapting CEO statement 12 Aligning CFO statement 14 Flexible solutions 16 Adjusting for dynamic operations HR 18 Engaging our organisation HSEQ 20 Atlantic region 24 Asia Pacific region 26 North America region 28 Brazil region 30 Our assets and market Ship of the Year years vessel management 34 Subsea Market 36 Financial Market 38 DOF Subsea fleet 40 DOF Subsea ROVs 42 Our performance The Board 44 Corporate Governance 46 Board of Directors report 50 DOF Subsea Group financial statements 60 DOF Subsea AS financial statements 98 Auditors report 120 Contacts 124 5

4 DO F S u b s e a An n u a l Rep ort BU IL DIN G O U R S U B SEA FUTURE Global presence BERGEN (HQ) ABERDEEN ST. JOHN S ATLANTIC REGION NORTH AMERICAN REGION HOUSTON LUANDA MACAÉ RIO DE JANEIRO BRAZIL REGION BUENOS AIRES Our Values 8 Safe Above all we are SAFE. Respect Respect for people: our colleagues, our customers, and our business partners. Integrity Recognised adaptive organisation with diverse assets and a history of prompt, efficient and safe project execution. Teamwork Everything we achieve is as a result of teamwork. Excellence In everything we do

5 D OF Subsea Annual Report Our vision To be a world class integrated offshore company, delivering marine services and subsea solutions responsibly, balancing risk and opportunity in a sustainable way, together, every day. MANILA SINGAPORE JAKARTA ASIA-PACIFIC REGION PERTH owned vessels in operation New buildings vessels on charter value adjusted average age of fleet ROVs 5 on order Offices worldwide employees 7

6 DOF Subsea Annual Report HIGHLIGHTS Highlights 2015 As reported to the Oslo Stock Exchange Q1 Contract awards in excess of NOK 3 billion Q2 Contracts Awarded two strategic long-term IMR frame agreements in Asia Pacific for Chevron and Shell Philippines Exploration Chevron extended the IMR contract for Skandi Salvador in Brazil Awarded several subsea contracts in the North America region, increasing the utilization of the vessels Harvey Deep-Sea, Chloe Candies and Ross Candies Several contracts awarded in Asia Pacific, including subsea installation and IMR services, increasing the utilization of Skandi Hercules, Skandi Singapore and Skandi Hawk Total contract awards during Q in excess of NOK million Contracts Technip extended the charter for Skandi Achiever In Asia Pacific Skandi Singapore and Skandi Hercules was called-out under the Chevron IMR frame agreement Fleet Acquired Skandi Hawk Sale of 50 per cent share in joint venture owning Skandi Arctic Fleet Skandi Aker delivered to new owners Delivery of Skandi Africa (Newbuild 800) Finance Skandi Africa (Newbuild 800) financed Financing secured for the two Brazilian built PLSVs in joint venture with Technip Financing secured for Skandi Hawk 8

7 DOF Subsea Annual Report 2015 Q3 Contract awards in excess of NOK 4.5 billion Q4 Contracts Husky Energy awarded DOF Subsea with a 10 year firm IMR contract Awarded 6 months IMR contract with Freeport McMoRan in North America Awarded term contract on Skandi Seven in the North America region Extension of Skandi Acergy with Subsea 7 for a period of 3 years Subsea 7 called option on Skandi Skansen Extension of Geoholm with Petrobras In Asia Pacific both Skandi Singapore and Skandi Hercules was called-out under the Chevron IMR frame agreement Total contract award of NOK million during Q Contracts Several subsea projects awarded in the Asia Pacific and the Atlantic regions Fleet Skandi Africa commenced the long-term charter with Technip Sale of Skandi Inspector Sale of Skandi Protector Finance Financing secured for Skandi Acu in joint venture with Technip Refinancing of 6 vessels Finance Several bond repurchases in the quarter of approx. NOK 500 million Skandi Acergy refinanced 9

8 DOF Subsea Annual Report CHAIRMAN'S STATEMENT Chairman Helge Møgster In May 2015, it was 10 years since DOF started its subsea adventure, leading to the establishment of DOF Subsea. The development of the company has been impressive, from being a survey focused organization of about 70 employees to become a global subsea service provider with a world class high-end subsea fleet. Despite facing the toughest market in many decades, I am confident that DOF Subsea will take the opportunity to strengthen through the downturn and continue its development when the market recovers. In May 2005, the subsea adventure started for the DOF Group when the company Geoconsult was acquired and what is now DOF Subsea was established. The first years saw rapid expansion through acquisition of several companies in Australia, the UK and USA, in addition DOF ASA transferred its subsea vessels to DOF Subsea. The company was listed on the Oslo Stock Exchange in November 2005, and the aim was to establish a global subsea service provider. Starting out as a small subsea company in Bergen, with about 70 employees and 3 vessels, DOF Subsea expanded to become a global subsea service provider. At the beginning of 2008, DOF Subsea had more than 800 employees and had established offices in the main offshore oil and gas regions worldwide. The operational subsea fleet had grown to 13 vessels plus newbuild contracts for 9 subsea vessels, while the ROV fleet counted 25 with 16 ROVs on order. The foundation for meeting the company s vision was in place. In 2008, DOF ASA entered into a cooperation with First Reserve Corporation (FRC), and acquired DOF Subsea and de-listed the company. FRC had a long history of investing within the global energy sector, with a very competent investment team and deep industry knowledge, while DOF had almost 30 years of offshore industry experience and vessel knowledge. Coupled with strong relationships in the Norwegian maritime cluster, particularly within the financing sector, these complementary backgrounds proved to be valuable when DOF Subsea faced the turmoil of the financial crisis with an extensive newbuild program. It was a turbulent situation to start the relationship between FRC and DOF, but over the following years a strong cooperation evolved. DOF Subsea was given the mandate to continue to develop the organization within business acquisition and project execution, and the company implemented a sound financial control program and a robust corporate governance, monitoring and reporting regime. Looking back, the development of DOF Subsea is impressive. The Group has continuously invested in its employees and its business management system, and today has a strong business model consisting of chartering of vessels and subsea projects. The client base has developed into several major national and international oil companies and tier 1 subsea contractors, and the organization has delivered increasingly complex subsea projects over the years. Today DOF Subsea is recognized as a global IMR provider, holding several important IMR contracts. The fleet stands as one of the largest and most advanced fleet of high-end subsea vessels in the world, and the 2005 Start of the subsea adventure 2008 DOF and FRC acquires DOF Subsea 2012 Consolidation and continuous improvement Rapid expansion through investments, organic growth, acquisition and newbuilds and establishing a global subsea service provider Ownership structure combines experience and knowledge to further develop DOF Subsea, as a subsea service provider and build a world class fleet 10

9 DOF Subsea Annual Report 2015 Our effort over the years to come will create opportunities for DOF Subsea to continue its development and strengthen as a global subsea service provider. Helge Møgster, Chairman company has seen two Ship of the Year awards for the Skandi Aker and the Skandi Africa. In 2013, DOF Subsea was awarded the biggest contract in its history, through the joint venture with Technip, delivering four state-of-the-art PLSVs to Petrobras in Brazil. I am confident that the ability to develop both the subsea project and the chartering business has created value for the Group and its clients. Today we face the toughest offshore market we have seen in many decades, and we are expecting these challenges to continue for some time. However, DOF is a long-term industrial player with a 35-year history and we are committed to strengthening the Group through the downturn. While the Group is adapting to the reduced activity level, the long-term fundamentals for the industry are sound. Our effort over the years to come will create opportunities for DOF Subsea to continue its development and strengthen as a global subsea services provider Strengthening our position through the downturn Becoming a global IMR provider and delivering world class subsea vessels on time-charter 11

10 DOF Subsea Annual Report CEO STATEMENT Adapting Mons S. Aase, CEO We entered 2015 expecting a challenging market. During the year we have seen reduced demand and increased competition in several markets. Consequently, we have adapted the Group s capacity and cost level and seen a reduction in activity compared to our record-year The Group delivered an operating income of NOK million compared to NOK million in 2014, with and EBITDA of NOK million, including a profit from sale of non-current assets of NOK 210 million, compared to NOK million in 2014 and a profit from sale of non-current assets of NOK 465 million. During the year, we have strengthened our position as a global IMR provider, and won several important IMR contracts with a total value in excess of NOK 6.5 billion. We expect the challenging market to continue, however we are determined to continue developing DOF Subsea and strengthening our position over the years to come. Adapting to a challenging market We expected a weak market in 2015, but the market downturn has been worse than most could foresee, with a decline in E&P spending of 25 %. The continued downturn for the global oil and gas community is challenging the entire industry on costs and there has been and will be a need to scale down for most companies. Unfortunately, more than 290 valued employees have had to leave DOF Subsea in the past year. In addition, we have sold Skandi Aker, Skandi Arctic, Skandi Inspector and Skandi Protector and redelivered chartered-in vessels to third-party owners, and at year-end we had an operational fleet of 24 vessels. The vessel sales have strengthened the balance sheet and reduced our exposure to the market. We have also taken delivery of the two vessels, Skandi Hawk and Skandi Africa, both employed on long-term contracts. In addition, we have repaid bond debt of approximately NOK 1 billion and refinanced several vessels. This has been necessary in order to adjust the operational and financial risk for the Group. In 2015, we continued to develop DOF Subsea, and won several important IMR contracts in Asia Pacific, Gulf of Mexico, Canada and Brazil with a total value in excess of NOK 6.5 billion, strengthening our position as a global IMR provider. Additionally, we experienced repeat business with our key clients, especially within survey, IMR, diving, light construction and FPSO mooring and installation. During the year, we have achieved increased activity and contract awards in the Canadian market, and we have increased our efforts in the West-African market, strengthening our position. Confirming our position as a global subsea company, the Group achieved IMCA International Contractor membership last year, as one of six companies. Several time-charter contracts were extended in 2015, and a highlight was the extension of the Skandi Acergy with three years. In October, the Ship of the Year 2015 Skandi Africa commenced the long-term charter contract with Technip. The Ship of the Year award is a testimony to the vessel knowledge within the Group and to the cooperation with our main suppliers and clients. The on-going newbuild program of four PLSVs in the joint venture with Technip will further strengthen our time charter business in the years to come. We have continuously worked on developing a global organization and a strong business model consisting of chartering of vessels and subsea projects. I strongly believe that our global presence and our business model will give us greater flexibility and opportunities going forward has been a challenging year. The tragic fatal injury on-board Skandi Skansen in February has brought the Group back to basics within HSE, and we have reinforced and strengthened several HSE initiatives during the year. Our safety culture is key for our operations and our future and my aim for 2016 is to establish a more unified safety culture through our Safe the RITE way program, as well as a stronger safety cooperation with our clients and suppliers. Quality of our work and cost efficiency will be key in securing work and delivering according to our clients expectations. Several improvement projects have been ongoing during the past years in order to achieve a more streamlined and efficient organization, and we need to continue this effort in the years to come in order to be competitive. Defining and measuring sustainability aspects associated with business operations is an important activity for the Group, and as a part of our improvement 12

11 DOF Subsea Annual Report 2015 We will continue to adapt to the challenging market, and continue to strengthen our position globally within IMR and strengthen our chartering business by delivering on our newbuild program. Our focus is; win and execute contracts, safely, and get repeat business with our clients. The key to our success remains unchanged our people. Mons S. Aase CEO projects, the Group delivered its first Sustainability report last year. Our reporting on the Group s carbon footprint improved last year, ranking us as a leading company within our industry with regards to driving transparency on this important topic. Improving through the downturn Despite the current weak market, I am confident that we will rise to the occasion, and strengthen our position through the downturn. Currently we face increased competition and aggressive tendering, in the combination of increased negotiation power for our clients. However, there are also opportunities where there are a limited number of bidders due to market entry barriers or technical qualifications, and where client relationships provides a more balanced contract negotiation. Utilizing the full breadth of our competence, as well as our global presence and local knowledge, will be vital going forward. My expectations for the coming year is that we need to continue to adapt to the challenging market, however we shall also strengthen our global position within IMR and our chartering business by delivering on our newbuild program. Our focus is; to win and execute contracts, safely, and get repeat business with our clients. The key to our success remains unchanged our people.

12 DOF Subsea Annual Report CFO STATEMENT Aligning Jan Nore, CFO The past year have had two main focus areas; the financing program for the Group, and cost control and adapting the cost base to the market conditions. The Group sold four vessels, repaid approximately NOK 1 billion in bond debt, secured financing for the two new vessels Skandi Hawk and Skandi Africa, as well as securing refinancing for several other vessels. In the joint venture with Technip, financing was secured for three of the four PLSV newbuilds. In 2015, the Group experienced a decrease in activity, and a key focus has been cost control and adapting the Group s capacity and cost level to the market. The subsea project business delivered an operating income of NOK million with an EBITDA of NOK 509 million, compared to an operating income of NOK million and an EBITDA of NOK 668 million in The chartering business delivered an operating income of NOK million with an EBITDA of NOK million, compared to an operating income of NOK million and an EBITDA of NOK million in We expect the challenging market to continue in 2016 with a further decrease in activity, redelivery of chartered-in vessels and a continued need for adapting the Group s capacity and improve efficiency. We continued to focus on strengthening the balance sheet in The sale of four vessels has reduced the market exposure, reduced debt and improved the liquidity has been an active year for DOF Subsea with regards to financing, where 11 vessels have been financed. The delivery of Skandi Africa and the acquisition of Skandi Hawk provides earning visibility, as both are on long-term contracts. Refinancing of two vessels was drawn during the year, while refinancing of additional five vessels are signed and will be drawn during first half The Group has a normal debt amortization profile of approximately NOK 1 billion, and in addition the Group repaid bond debt of NOK 1 billion last year. Financing the newbuild program in the joint venture with Technip is progressing, and signed loan agreements are in place for three out of four vessels. In total, these actions support financing our newbuild program and they are in line with our plan to reduce our bond debt and aligning operational and financial risk for the Group. The Group has developed a transparent reporting and monitoring regime used on all levels in the organization. This has proven to be vital in the extraordinarily challenging Interest Coverage (EBIT / Interest cost) NIBD/EBITDA NIBD/Total assets 14

13 DOF Subsea Annual Report 2015 A global organization combining subsea projects and chartering of vessels, offering a wide range of services, and with a modern high-end fleet provides access to more market opportunities. Jan Nore, CFO market. Going forward, cost control and utilizing our toolbox to forecast and proactively adapt our cost base will be important. There is also a push from our clients to cut costs, which impacts the entire value chain. During 2015, negotiations have been focusing more and more on price and we see increased negotiations on terms and conditions, and we expect this to continue. We also see increased value in managing counterparty risk across our value chain. Maintaining a proactive approach to adapt our cost base, managing counterparty risk and strong, but fair, contract negotiations will be key success factors going forward. DOF Subsea is well positioned when facing a challenging market. A strong backlog of NOK 39 billion with diversified clients, consisting mostly of international and national oil companies, provides earning visibility and acceptable counterparty risk. A global organization combining subsea projects and chartering of vessels, offering a wide range of services, and with a modern high-end fleet provides access to more market opportunities. Spare leveraging capacity on the existing fleet, as well as recent vessel sales confirming vessel market values, and strong bank and investor relationships provides flexibility in financing of the Group. In addition, the lower oil price and increased uncertainty in the Norwegian economy has put continued pressure on the NOK exchange rate, and as a portion of the Group s costs are nominated in NOK and income in USD this has to some extent increased the competitiveness of the Group Debt/Total assets 15

14 DOF Subsea Annual Report SUBSEA SERVICES Flexible solutions Meeting client requirements Supply Services Engineering / Construction and Mobilization Marine Operations Our business Our business model The combination of subsea project execution and chartering of vessels provides access to more opportunities. Proven ability to adapt A history of meeting challenges in the rapidly changing, dynamic, energy sector. Modern, high-end fleet Regionally-based vessels can be deployed immediately to assist with projects. Our global fleet provides flexibility and depth of capability. Skilled workforce With experienced professionals in all subsea disciplines in-house, we manage assets and logistics, so we can offer integrated subsea solutions. 16

15 DOF Subsea Annual Report 2015 Geotechnical and Geophysical Surveys Wellhead intervention Decommissioning Pipelay Pipeline Survey ROV Operations Diver Assisted Intervention 17

16 DOF Subsea Annual Report HUMAN RESOURCES Adjusting Since 2010 DOF Subsea has focused on growth and developing the organization, increasing the number of employees by 50 per cent to a peak of last year was the first year since the Group was established that our headcount decreased due to a down-manning initiative in order to adapt to the market conditions. Kathleen Offman Mathisen VP HR Adapting to the market conditions, the Group s workforce was reduced by 292 employees in 2015, from to The down-manning is a demanding process for the affected individuals and our organization. Despite the challenging market conditions, the Group s ambition to maintain a competent and flexible organization remains unchanged. Our success has been based on our people, their motivation and skills. Maintaining a positive can-do spirit will be a competitive advantage going forward. To achieve this, promoting an open-minded and collaborative working environment will be key and this is aligned with the current focus on our safety culture through Safe the RITE Way programs. HRIS key strengths Increased standardization Aligning our processes provides continuity for our global workforce. Increased control A robust modelling and forecasting platform gives us the ability to adapt to market changes. Enhanced risk and quality management Greater alignment between HR and Finance functions. Accuracy and visibility of data deliver effective decision-making. Improved efficiency Improved resource planning and resource allocation across our value chain. Committed to further development In 2014, we improved our global employee survey through cooperation with the Great Place to Work Institute (GPTW). This survey provided great insight into the workforce, coupled with a standardized benchmark with relevant peers through GPTW. DOF Subsea achieved a score of 78 per cent compared to the leading organization s per cent. Although the Group face a challenging market, our focus will be on closing the gap between DOF Subsea's results and those of global high-performing organizations over time. Since our last survey, we have continued to focus on local actions to bring the initiative to life for all our employees. This work is driven through local management teams with support from HR. One such local initiative is the Leadership Alignment program aimed at improving leadership skills, knowledge and capability within DOF Subsea, this will be rolled out in our Asia Pacific region in As a part of the Human Resource Information System (HRIS) project, the HR-function has been standardized and the processes improved. In 2015 a main focus area has been the implementation of the processes and system, and training of our employees. The implementation and use of HRIS will be vital in order to improve our risk management and quality control. The system is an enabler for Performance Management and Human Capital Management that increases efficiency by improving resource planning and resource allocation within our operations. The HRIS will constitute a large part of the Group's ERP system, which enables a closer link between operations and the HR and Finance functions, improving our decision-making. Outlook Despite a challenging market, DOF Subsea will continue the efforts to develop our workforce, and aim for our 18

17 Human Resources Information System (HRIS) supporting our value chain DOF Subsea Annual Report 2015 Business acquisition long-term goal to improve the Group's score within the GPTW survey. The approach is simple: we aim to build on our existing strengths and do what we do, better than last year. We will continue our efforts to realize the efficiency gains from the HRIS project. Our people remain our most important resource, and our ability to retain and develop the core competence will be vital going forward. However, we also expect challenges ahead, with continued market uncertainty. The Group expects to further adjust capacity and continue our cost reduction program. These measures are necessary in order to maintain our competitiveness and meet the expectations of our clients. and learning Experience, feedback Installation and subsea operations Finance HRIS HR I m prove d efficiency, visibility, m od ellin g an d forecastin g Procurement, construction and engineering execution Project 19

18 DOF Subsea Annual Report HSEQ Engaging Stig Clementsen CSO / SVP HSEQ Back to basic within HSE Safe the RITE way On February 21, 2015, a member of the marine crew on board Skandi Skansen suffered fatal injuries after a routine work operation. The official investigation has been completed and shared within the IMCA community, and in further response to the accident we have taken the organisation back-to-basics with the introduction of Safe the RITE way programme. During the year, Safe the RITE Way has been embedded as the tool to make the Group a reliable partner in safety. Safe the RITE way enhances our behaviour-based programme, integrating three main elements: Values, Safe Behaviours and Rules - processes and procedures. Our Values Safe Above all we are SAFE. Respect Respect for people: our colleagues, our customers, and our business partners. Integrity Recognised adaptive organisation with diverse assets and a history of prompt, efficient and safe project execution. Teamwork Everything we achieve is as a result of teamwork. Excellence In everything we do. Living Safe the RITE way DOF Subsea is a value-driven organisation. However, we know that a value set alone cannot run an organization or determine success within HSE. Using our Values and our Safe Behaviours as a framework, we have identified key actions that relate directly to deploying DOF s Life Saving Rules, processes and procedures on the worksites. Combining our values and behavioural barriers we have in close dialogue with our employees defined our critical behaviours Living Safe the RITE way. Living Safe the RITE way was launched in 2015, and the slogan integrates our core values with safe behaviour. Using this framework, we have identified behaviour central in our operations, and all our worksites and vessels have had engagement sessions the past year. These key behaviours can be found in the Prioritised Critical Behaviours. The integration of these elements promotes a culture which reflects our core value above all, we are SAFE. Most important of all, the goal is to ensure that all employees go home safely, unharmed, always. Interaction between on- and offshore has increased by regular management visits and safety dialogues. During the year, the safety dialogue between our CEO and all our Captains and Offshore Managers has been focusing on the fact that we all are safety leaders. Taking the responsibility and intervening when observing a risk is not just an authority we all have, it is about caring and encapsulates all our values. The increased interaction is regarded as a key factor for enabling all employees to use the stop-work authority. Quality improvement in the value chain Through major improvements of the Business Management System the past years, DOF Subsea has been able to streamline and simplify its operations. Based on the review conducted in 2014, improvement projects have been carried out through our value chain, focusing on standardization and improve efficiency. Building on these improvements, the focus the past year has been on interaction between 20

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20 DOF Subsea Annual Report HSEQ Total hours worked - Total recordable incidents HSE performance 2015 Total recordable incidents 3.0 Man-hours: LTIs: Recordable 4, 737, Fatalities: Safety Observations: Hours worked 5,153,024 hours 4, 737,988 hours Audits: 164 3,640,335 hours 3,720,332 hours Management visits: 160 3,325,614 hours Lesson Learned: Reportable environmental discharge 0 worksites and organizational units to established stronger teams globally and realize efficiency gains. Two key initiatives have been strengthened in 2015 in order to enhance risk management. A risk and opportunity approach across the value chain ensures that risk and complexity is taken into account in our work processes, while a new risk management tool provides structure and standardization. Establishment of robust risk and opportunity registers early in our value chain allow good overview of required risk mitigation as well as opportunity in the lifespan of subsea projects. During the year, the Group has expanded the area of Supply Chain Management (SCM) within the Business Management System. The way going forward is to ensure effective implementation of supply chain activities, to improve deliveries to existing clients and establish a more robust SCM organization. Within engineering the Group has continued the efforts to work for global alignment and transfer of experience between regions, and this will continue in the years to come. Reliable and cost efficient engineering solutions are the backbone of a successful subsea project. Sharing experiences and solutions is of vital important to be able to deliver cost efficient solutions to all our clients. Leadership in environmental transparency Participating among 260 Nordic companies in the Carbon Disclosure Project (CDP), the Group achieved a score of 99 B in the reporting year This is a significant improvement from the previous score of 89 C reported in Showing an impressive improvement from 2013, for 2014 DOF has been placed on the Nordic Climate Disclosure Leadership Index (CDLI) with the exceptional rating of 99 B. This rating places DOF in the top 10 per cent of 260 Nordic companies participating in the CDP. Our efforts toward achieving an improved score have increased our internal competence level, awareness and transparency on environmental issues. The Environmental Impact Policy sets out clear aspirations, ensuring that our operations have a minimal impact on the environment. This requires the DOF Group to calculate and anticipate potential challenges before activities take place through a risk identification processes, to ensure that the environmental impacts are understood and reflected in our activities. Sustainability reporting towards Global Reporting Index, GRI Within the DOF Group, sustainability is important. This refers to the ability of the organisation to endure in the long term within its external environment. The successful balance of social, environmental and economic elements ensures that the DOF Group remains commercially feasible, socially acceptable and within the capacity of the external environment. This is known as Sustainable Operations. DOF has published its second stand-alone Sustainability report according to the GRI guideline. The report is structured in accordance with our values allowing us to present our efforts and results within our obligations towards sustainable operations. The report is available at 22

21 DOF Subsea Annual Report 2015 Sustainability report available at 23

22 DOF Subsea Annual Report ATLANTIC Atlantic region We anticipated a challenging market as oil companies and operators began reducing investments, cutting cost, and in general reducing the activity level. In adapting to market conditions, the Atlantic region adjusted the capacity of the organization and decreased our cost-base. Our focus is to remain competitive for available projects in the North Sea, increase our efforts to develop our position in Africa and secure utilization for our organization and vessels. Jan Kristian Haukeland EVP Atlantic Overview Our priorities have been to successfully deliver projects and adapt to the market trends while maintaining a competent and flexible organisation. We have proactively implemented cost reduction programs and anticipate a continued focus on improving efficiency and adapting to the market for the year ahead. In response to the reduction in activity in the North-Sea, we decreased our workforce by 200 employees, mainly in Norway and the UK, in The team delivered operational highlights and built backlog into 2016 and An important component of future success is building long-term relationships with clients, as this is an important differentiator in winning repeat business in a competitive market place. A good example of a solid reputation established over a number of years and based on a high standard of service Key strengths An adaptive organisation Recognised adaptive organisation with diverse assets and a history of prompt, efficient and safe project execution. Solid relationships and standard of services, A high percentage of our contract awards are repeat business. Maximizing Opportunities Maintaining core competence in the workforce and built in flexibility to respond to changes in demand. delivery has been the successful execution of a range of projects on the Goliat Field for ENI, in the Barents Sea. In Q we undertook the FPSO tow-out and hook-up phase, which included five tugs, two anchor handlers/csvs and more than 100 people on-board vessels and the FPSO. The Atlantic team has since gone on to assist with the field start-up in first half Another example of building strong relationships is the continued delivery of survey and light construction services to Statoil utilising the Geosund. The successful conclusion of the contract demonstrated that over four years the region continuously improved performance across HSE and other key metrics. We have established a strong track record in the survey and positioning segment. The renewal of the frame agreement with Heerema is recognition of the services we have delivered. There are various projects to be executed in 2016 using Geosund, including an environmental inspection campaign for Statoil. In 2015 the Shell Corib project commenced, a flexible flowline installation project, with the offshore phase planned for execution in Q The life-cycle of projects often spans years and relationships we build reflect this. People We grew rapidly over the last five years as we increased assets and complexity of project executed. In 2015 we adjusted the capacity of the organisation and our strategy will continue to focus on maintaining core competence and capability in the workforce and built in flexibility to respond to changes in demand. We have a strong and professional team which is an important competitive advantage for the future. 24

23 DOF Subsea Annual Report 2015 Outlook We anticipate lower activity level in the North Sea and West Africa; however, the market will remain focused around existing infrastructure and IMR activities for the short to midterm. We anticipate less project visibility, shorter lead times in the tender process and increased competition. This is the key driver for a proactive response, building operational flexibility and competitiveness in our organisation. Our assets and capabilities are well suited for the IMR segment and we have a reputation for delivering cost effective solutions. The construction market, and associated activities, was one of the first segments affected by a reduction in investment, and no immediate change in this trend is expected. However, in West Africa there are existing projects under execution by contractors, which may present subcontracting opportunities. HSEQ Safety is always a priority and our safety culture has been strengthened through greater management involvement. We increased site visits, lessons learned and risk analysis reviews. Other key metrics are strong with reductions in Non-Conformance Reports and increases in safety observations recorded. We have launched the Safe the RITE way program which has generated more uniformity in the way we work and lead to further integration of the marine and the project crew, which in turn allow us to realize safety and efficiency gains. We maintain a high level of satisfaction with our clients and we regularly receive positive feedback from both the audits and post project surveys. Our focus is to remain competitive for available projects in the North Sea, increase efforts to develop our position in Africa and secure utilization of our organization and assets. 25

24 DOF Subsea Annual Report ASIA PACIFIC Asia Pacific region The region continues to leverage core capabilities, geographical footprint and capitalise on changes in the market. One of the stand-out achievements of the year was the award of the highly sought after Chevron IMR contract. The three year contract, plus options, utilised Skandi Singapore and Skandi Hercules for much of John Loughridge EVP Asia Pacific Overview The region s opportunities have come from changes in the composition of our market over recent years. With the completion of major construction projects and the shift from field development to the production phase, the Australian market has become more IMR focused. DOF Subsea has built a reputation and a strong track-record with global clients in the IMR segment over the last decade. There are three highly anticipated long-term IMR contracts for oil and gas majors scheduled for award in 2016 in Australia. The size and specification of our regional vessels, assets and our people are ideally suited for these contracts. Key strengths Recognised long-term IMR Partner Recent awards for long-term IMR contracts indicate our assets, capabilities and reputation are a good fit for future IMR contract awards. Maximising regional opportunities Across the region we are well positioned for a number of IMR, Light Well Intervention, Commissioning and Brownfield projects in Adaptive organization with diverse assets Recognised adaptive organisation with diverse assets and a history of prompt, efficient and safe project execution. Solid relationships and standard of services A high percentage of our contracts awards are repeat business. The Asian IMR market is less mature and presents fewer opportunities; however, DOF Subsea reported in 2014 the award of the Shell Philippines Exploration (SPEX) seven year IMR contract, effectively extending a commercial relationship which dates back to The contracting model where Skandi Hawk undertakes a combination of PSV (Platform Supply Vessel) and subsea activities - has proved interesting to other operators as it offers significant efficiencies at a time of increased cost focus. The Australian market presents a number of light well intervention (LWI) opportunities in We have developed core capabilities and marketed cost-effective solutions in preparation for an expected increase in activity. We continue to build experience and reputation in the FPSO installation and repair segment across the region, winning contracts for execution in Q1 and Q in Indonesia and New Zealand. DOF Subsea continues to execute the majority of work in the New Zealand market. People Sustained organisational performance is a priority. We have focused on realising the safety and flexibility benefits of our Employment Resourcing Strategy, retaining a highly competent and capable core workforce and built in flexibility to man up or down quickly. We have, over time, developed relationships with cohort of skilled casual contractors, who supplement the core team, preserving safety and project knowledge. A harmonious industrial relations environment is important and is maintained through our long-term relationships in the region. Continued development of competence for the future has been balanced with fiscal strategy. This has been achieved by enhancing key internal programs: Graduate Development, Mentoring and our Leadership Alignment 26

25 DOF Subsea Annual Report 2015 HSEQ programs. We have introduced Continuous Employee Performance Feedback and Objective setting initiatives to further align employee performance and have partnered with our local communities to provide career and upskilling opportunities for indigenous and local workers. Outlook The number of competitor vessels will continue to be reduced as major construction projects complete. Major investment decisions in the region continue to be deferred as operators focus on return on investment. We are tracking a number of decommission projects and whilst some are going ahead, others continue to be deferred. Three long term IMR contracts will be awarded in DOF Subsea vessels and capability are ideally suited for these IMR contracts, but the market is more competitive. We expect to see a continued downturn in medium to heavy construction, and low level of investment activity in Asia compared to Australia. Our strategy to support these opportunities and the LWI segment activities anticipated 2016 and 2017 is in place and robust. Safety Case legislation in Australia continues to be a significant barrier to entry for new companies in market. In the light of the Macondo and Montara disasters, the Australian regulatory body - NOPSEMA has tightened requirements. DOF Subsea recently secured a safety case for one of the APAC vessels under this new regime and is in the process of securing safety cases for other vessels. To reinforce Safety Behaviours in our people, processes and systems the region has undertaken a number of initiatives including training, employee consultation sessions, increased management visits and creation of Safe the RITE Way leadership team. All of which have assisted in strengthening the Region s safety culture. In 2015, the region obtained an A Rating within the Chevron Contractor HSE Management program. The rating was achieved through the close working relationship the region has developed during the Chevron IMR contract. 27

26 DOF Subsea Annual Report NORTH AMERICA North America region The North America region s growth and increased capability over the last years is the result of the Group's strategic plan. DOF Subsea has established itself as one of the leaders in the Gulf of Mexico IMR and light construction segment. In 2015 the region strengthened its operational footprint in Canada, an important market going forward, with the award of the Husky 10-year IMR vessel, ROV, survey and metrology services contract. Marco Sclocchi EVP North America Overview The region delivered the first fully managed subsea project in Canada for Nalcor in With the award of the long-term Husky contract we firmly established our market position in Canada. We also extended our contracting model, combining the Group s core capabilities vessel knowledge and subsea services. A custom built IMR vessel, with integrated third generation ROV systems, is scheduled for mobilization in Canada in Survey and metrology services are also included in the contract. In the interim, two new ROVs were mobilized on a third party vessel in December Key strengths One of the leaders in the Gulf of Mexico IMR segment The region secured a two year IMR frame agreement with Chevron and has secured master service agreements with the key operators in the region. Future market footprint Strengthening market position in Canada with the award the Husky 10 Year IMR Vessel, ROV, Survey and Metrology Services contract. Organic growth strategy for an adaptive organisation Growth and increased capability resulting from incremental implementation of a carefully executed strategic plan. Recognised adaptive organisation with diverse assets and a history of prompt, efficient and safe project execution. The region entered into the long-term charter of the Jones Act complaint vessel Harvey Deep-Sea in 2013, to meet operational requirements in the Gulf of Mexico. The vessel continues to provide a platform to develop our organization and services. As evidenced by the award of the Freeport McMoRan vessel charter and construction support contract, utilizing Harvey Deep-Sea for 10 months, and which has been extended to Q The Freeport McMoRan contract included the fabrication of six Jumpers in DOF Subsea s yard in Fourchon. The fabrication service was launched in 2014 and has proved to be an important addition to our in-house capability and one which benefits operators with efficiency gains. The service has also been used by Chevron under the two year IMR frame agreement which was awarded in Currently DOF Subsea is responsible for the IMR activities and subsea wells tieback to the Tahiti, Blind faith and Jack and St. Malo fields, and this includes fabrication of the Jack and St. Malo jumpers. Another highlight was the award of the Harvey Williams support to the GS1 Spar vessel contract. The Skandi Seven was mobilized in Q for a 10-month charter replacing the vessel Chloe Candies. People Our organisation remained stable over the year; we grew rapidly in 2014 to accommodate the increase in assets, projects and operational activity. In 2015 we consolidated the growth. We have, over time, established a strong project management and engineering team. In 2015 we further strengthened the engineering and fabrication competence in Houston and the number of employees increased in Canada, targeting ROV and vessel competence to deliver services to Husky. 28

27 DOF Subsea Annual Report 2015 Outlook As experienced in the offshore oil and gas industry globally, major investment decisions are being deferred, and operators are cancelling or stretching lead times on uncommitted projects. This is reflected in a reduction in rig, construction support vessels and geophysical and geological survey projects due to delay of the major capital projects. Across the region we expect to see operator s investigating opportunities to maintain or increase production with minimum capital cost, in an increasingly competitive market with downward pressure on rates. The market for DOF Subsea in the Gulf of Mexico is predominantly focused on the IMR and light construction activities. DOF Subsea s recent awards for long-term IMR contracts indicate our assets, capabilities and reputation are a good fit for future IMR contract awards. Vessel based subsea well stimulation and intervention is becoming a more valuable solution in this market, which may lead to opportunities in a segment where we have solid knowledge. HSEQ Safety is always a priority and our safety culture has been strengthened through greater management involvement. We increased site visits, lessons learned and risk analysis reviews. Our region performed over 800,000 man hours in 2015 without any recordable incidents. Other key metrics are strong with reductions in non-conformance reports and increases in safety observations recorded. We have also focused on HSEQ training launching Safe the RITE way program with in lunch and learn forums and dedicated visits to vessels and yard. We maintain a high level of satisfaction with our clients, who audit the region extensively, and we regularly receive positive feedback from both the audits and post project surveys. These insights are supplemented by our own extensive internal audit program. 29

28 DOF Subsea Annual Report BRAZIL Brazil region DOF Subsea Brazil is built on a solid foundation. Over the last decade, the region has continued to progressively expand subsea execution capability, customer relationships and improve the competitive position. In 2015 we saw an improved performance, benefiting from increased vessel utilisation and reduction in our cost-base. Mario Fuzetti EVP Brazil Overview The region delivered an all-time high performance in 2015, driven by a number of significant contract awards and charter extensions. We maximised the results through the implementation of improved operational efficiency and cost reduction programs. Highlights include developing opportunities with several operators in the region. From Q onwards Skandi Salvador was under contract to BWO Singapore to support repairs, maintenance and logistics activities of the FPSO Cidade de São Mateus, an arrangement which originated from an existing Chevron Contract. Petrobras extended two vessel charters early in 2015; Geoholm, which is under contract for a further 18 months into and Skandi Santos for a further five years. Key strengths Trusted brand in Brazil DOF Subsea has a solid reputation and fosters close cooperation with sister company Norskan Offshore. Organic growth strategy, building local capability Building on the region s capability, services and reputation to continue expansion of the subsea project business and support more advanced subsea construction, IMR and survey projects across the life-of-field of the Brazilian oil and gas industry. Diversified fleet and services A modern, locally flagged fleet and an established range of services to maximise market opportunities. Skandi Santos was specifically selected for the five-year term as the vessel s crane capacity, ROVs and overall good performance was ideally suited to a methodology to deploy subsea equipment. DOF Subsea Brazil delivers ROV services and survey services on-board several DOF and third party vessels. This has proved to be a successful business line in the market and we secured a fourth ROV services contract with Petrobras in In addition, an ROV and survey services contract was awarded to DOF Subsea Brazil on-board DOF s Skandi Chieftain for ENAP Sipetrol, in Argentina. There are several features in play for the Brazilian market. In addition to the challenges experienced globally, major National Oil Corporation (NOC) Petrobras revaluation and operators deferring investment decisions had an impact on vessel numbers and spend over the year. We responded to the challenging market conditions by generating the most efficient organisation possible and reducing the cost-base in all areas of our business. People The region s workforce planning, training and development are an ongoing priority, as well as diversity and inclusion, they form the basis of our Human Resources KPIs. Several initiatives aligning corporate goals and values driven behaviours to promote productivity and safe outcomes were implemented. They included a new Performance Appraisal model, the Induction Program and we launched the Technical Qualification Program and the Leadership Development Program to train and develop onshore and offshore employees. We have built a level of expertise and skills so that many of the programs were facilitated by our own internal resources. 30

29 DOF Subsea Annual Report 2015 To meet the challenges in the market and to ensure competitiveness our Employment Resourcing Strategy focused on delivering workforce flexibility, maintaining core competence and the ability to man-up and down quickly as the business require. We also merged a number of departments to optimise project execution capabilities. Outlook In the short to medium term, the Brazilian market has challenges. Petrobras has reduced its investment forecast into 2020 and decreased its fleet and spend. This is expected to flow-on to a reduction in FPSO production facilities and the associated subsea facilities, flexible risers and umbilical opportunities. International Oil Corporations (Chevron and Shell) are delaying new developments and exploration plans. There are opportunities in the region; existing facilities and a number of major developments are underway. Statoil is still maintaining Peregrino Phase II development with production forecast to start in Two major EPCI projects are ongoing with offshore construction planned for 2016 and the first half of 2017, Saipem for Lula Norte and Sul and Allseas for Rota 3. Other national oil companies such as Queiroz Galvão E&P and PetroRio are looking to strengthen their positions, and for them proper delivery and start of production of their current developments are essential drivers. These are all opportunities we are tracking. HSEQ Safety is always a priority, and as a result of continuous focus on safety the region achieved another year without an LTI (Lost Time Incident). Our HSE culture was reinforced through significant training, including SIPAT (Brazilian Mandatory Annual Accidents Prevention Week) and HSEQ workbook sessions for managers. We maintain the focus on strengthening the HSEQ culture through Safe the RITE way which was has delivered to 100 per cent of our workforce. Audits are another important tool in strengthening the HSEQ culture. We improved management involvement and the number of site visits and audits. Our Lessons Learnt program was also enhanced and improvements carried into the year ahead. The audit for DNV Certification for the updated standard ISO and ISO and OHSAS 18001, is scheduled in Q

30 DOF Subsea Annual Report SHIP OF THE YEAR One of the most sophisticated vessels ever built DOF s largest and most advanced vessel, Skandi Africa, is a newbuild DP class 3 construction support vessel, designed for harsh environment and deep water, subsea construction and flexlay operations, up to 3,000m depth. She is fully equipped with a 900 Te active-heave compensated main crane, 650Te tiltable lay system, large 2,700m2 deck area, under-deck storage capacity of 3,500Te and two work-class ROVs rated for 4,000m water depth. This latest addition to our fleet is purpose built to meet challenges of subsea project organizations. 140 personnel 3 DP3 system 32

31 2015 SKANDI AFRICA 3000 metres operating depth 650 Te TLS system 900 ton offshore crane 2700 m Te/m 2 deck space and load 2 work class ROVs 3 moonpools working and 2 ROV

32 DOF Subsea Annual Report PURPOSE-BUILT FLEET 35 years of vessel management DOF Subsea draws on 35 years experience building and managing purpose-built vessels. DOF's in-house new build, conversion and operational teams combine technology and experience to bring award-winning capability to the subsea sector. Our vessels DOF Subsea owns and operates a versatile fleet of 21 high power and environmentally friendly vessels with broad offshore capabilities. DOF's new build, conversion and operational teams manage and deliver all aspects of cutting edge shipbuilding and management to meet subsea operators challenges. The DOF Group have established working relationships with recognised yards to design and build for safety, efficiency, operability and environmental performance. In-house technical management, maintenance and dedicated crews add another dimension to the retained knowledge and experience transfer within our organization. DOF Subsea s next generation ROV fleet has the capability of working down to 4,000 metres water depth with active heave compensated launch and recovery systems (LARS). Key strengths Ship of the Year Awarded in 2010 and Diverse and interchangeable DOF Subsea s fleet is purpose built to match the challenges of the offshore sector and designed for operations across a wide range of water depths and environmental conditions. Sister-ships Can be re-engineered in-house for work-scope where more than one vessel optimizes up-time. Skilled workforce In-house new-build, operations and modification teams design and build world-class assets Contract Awarded Signed Contract with appendices Build Specification General Arrangement 2013 Building commences 34

33 DOF Subsea Annual Report 2015 Purpose-built Manned and maintained Our fleet is manned with a pool of experienced, vesselfamiliar marine and construction personnel so we can realize the safety and flexibility benefits of retaining a highly competent and capable core workforce. Undergoes Sea trials Delivery of Vessel - Søviknes, Norway: Topside installation - Schiedam Awarded Ship of the Year Commenced five year charter with Technip Q Q Q Q Q4 2015

34 DOF Subsea Annual Report SUBSEA MARKET Subsea market The industry is braced for a challenging year ahead. The development of the oil price during 2015 has increased the uncertainty and this is expected to drive the market in Continued oil price uncertainty, reducing activity levels and a focus on cost cutting, coupled with a further increase in supply of subsea vessels will lead to a more competitive market going forward. Market dynamics which may affect oil supply fundamentals in the near-term include a reported fall in the seven largest western energy companies hydrocarbon reserve replacements (which reached 75 per cent of their target the lowest in ten years) and negotiations between non-opec and OPEC members for a possible agreement to freeze production. Uncertainty in the oil price over the last 18 months and the corresponding pressure on operators profits has led to an inevitable delay in investment decisions in the short to mid-term. Given this environment, the market expects fewer subsea developments will be sanctioned in the short term. Some governments have granted tax concessions to make field development economic and encourage operators to invest, especially in marginal fields. Of those projects already sanctioned many are being deferred but not cancelled and some still moving ahead, such as; ENI s Cape Three Points in Ghana and Woodside Energy s Greater Western Flank 2, a significant construction project in Australia. In Brazil, Statoil is maintaining Peregrino Phase II development with production forecast to commence in Globally, existing major field developments continue, for example, in West Africa with tier one contractors such as Saipem, Technip and Hereema and in Brazil, ultradeep-water Libra Field development is ongoing with EPCI projects, Saipem s Lula Norte and Sul and Allseas Rota 3, also underway with offshore construction planned for 2016 and the first half of Construction projects in the Asia Pacific region are tending towards rigid pipelay and small platform installation. These major construction projects offer DOF Subsea sub-contracting opportunities. Activity is anticipated in the life-of-field segment. There are a number of long-term IMR contracts currently out to tender, as periods of major development have moved into production. IMR programs will be essential to ensure the operation and maintenance of existing subsea infrastructure. The moorings installation and repair or replacement is another segment which is anticipated to be active as floating systems in the regions reach their design lives. Both segments are ideally suited to DOF Subsea s track record, vessels and core capability. In the long-term analysts see growth in the subsea market as the development of mature basins, deep water fields and marginal fields will be necessary to meet future global energy needs. It is frontier wells, in deeper waters and more remote locations that are projected to be likely to hold the conventional oil and gas resources needed in the future. DOF Subsea s strategy will remain focused on investing over the long term in a high-end fleet of differentiated assets, with the provision of additional life-of-field integrated services as required. Our business model is suited to a dynamic operating environment and more resilient to weather the range of market conditions ahead. 36

35 DOF Subsea Annual Report

36 DOF Subsea Annual Report FINANCIAL MARKET Financial market The foreign exchange and interest rate markets has been volatile during the year, and the Norwegian krone (NOK) has depreciated against all major currencies. Despite an increase in the US dollar (USD) interest rates, the rate level is still low, and combined with a weakening of NOK interest rates, the Group benefits from low interest rates. The changes in the financial market the last year has had a positive impact on the Group's competitiveness and cash flow. Foreign Exchange The Norwegian krone (NOK) have been volatile during the year and depreciated against all major currencies, such as USD and GBP. Against the AUD the NOK has been in a sideway range, whilst the NOK has appreciated against the BRL. The NOK has during the year depreciated towards the USD. The USDNOK exchange rate was 7.51 in the beginning of 2015 and 8.81 at the end of 2015, whilst the average USDNOK exchange rate was 8.07 for the year. The NOK has during the year depreciated towards the GBP. The GBPNOK exchange rate was in the beginning of 2015 and at the end of 2015, whilst the average GBPNOK exchange rate for the year was The NOK exchange rate was sideways ranging towards the AUD during the year. The AUDNOK exchange rate was 6.09 in the beginning of 2015 and 6.45 at the end of 2015, whilst the average AUDNOK exchange rate for the year was The NOK was gradually strengthening towards the BRL during the 9 first months of the year, with a low of 2.20 in September, and then gradually weakened toward the end of the year. The BRLNOK exchange rate was 2.78 in the beginning of 2015 and 2.22 at the end of 2014, whilst the average BRLNOK exchange rate for the year was Interest rates The 6 months NIBOR has weakened through The 6 months interest rate was 1.38 % at the beginning of the year and reached a low of 1.04 % before we saw minor increase to 1.13 % at the end of the year. The 6 months US LIBOR has gradually increased during The 6 month interest rate was 0.36 % at the beginning of the year and increased to 0.85 % towards the end of the year. 38

37 DOF Subsea Annual Report 2015 USDNOK Development GBPNOK Development AUDNOK Development BRLNOK Development NOK Interest Rates USD Interest Rates 39

38 DOF Subsea Annual Report FLEET DOF Subsea fleet owned vessels DOF Subsea currently owns and operate one of the largest fleet of high-end construction vessels (including new builds) in the world. Offering a versatile, new generation of high power and environmentally friendly vessels with broad offshore capabilities. SKANDI ACERGY SKANDI CARLA SKANDI INSPECTOR (SOLD) SKANDI ACHIEVER SKANDI CONSTRUCTOR SKANDI NEPTUNE SKANDI AFRICA SKANDI HAWK SKANDI NITERÓI SKANDI ARCTIC (SOLD) SKANDI HERCULES SKANDI SALVADOR 40

39 DOF Subsea Annual Report 2015 SKANDI SANTOS SKANDI PATAGONIA GEOHOLM SKANDI SEVEN SKANDI PROTECTOR (SOLD) GEOSEA SKANDI SINGAPORE SKANDI VITÓRIA. GEOSUND SKANDI SKANSEN GEOGRAPH 41

40 DOF Subsea Annual Report FLEET DOF Subsea fleet New Build and Chartered Vessels New Build DOF Subsea invests in the next generation of vessels. An ambitious new build program utilises new technology and smart engineering to ensure efficient and environmental friendly vessels. EP-9 EP-10 All newbuilds are fixed on long-term charters. SKANDI ACU NB-824 Chartered vessels DOF Subsea expanded the fleet with a number of chartered-in vessels, building greater flexibility for managing risk and a complementary fleet mix to meet our clients needs. NORMAND REACH HARVEY DEEP-SEA 42

41 DOF Subsea Annual Report 2015 DOF Subsea ROVS DOF Subsea s next generation ROV fleet, designed and manufactured to our own specifications, accommodates an extensive range of operational requirements. The ROV fleet has the capability of working down to 4,000 metres water depth with active heave compensated launch and recovery systems (LARS). SCHILLING UHD SCHILLING HD TRITON XL 150 TRITON XLS 150 TRITON XLX 150 SEAEYE MARINE TIGER HUGIN AUV KYSTDESIGN SUPPORTER COUGAR XTi FOCUS II ROTV MOHICAN INSPECTION 43

42 DOF Subsea Annual Report THE BOARD The Board Helge Møgster Chairman Helge Møgster is the founder, majority owner and Chairman of LACO AS, the main shareholder of DOF ASA and Austevoll Seafood ASA. Mr. Møgster has long experience from both the offshore supply and fishing industry, and is holding board positions in several companies, including being chairman of DOF ASA. Helge Singelstad Board member Helge Singelstad is CEO of Laco AS and deputy chairman of the Board of DOF ASA, and Chairman of Austevoll Seafood ASA and Lerøy Seafood Group ASA. Mr. Singelstad holds a degree in engineering from Bergen Engineering College, he holds a MSc from the Norwegian School of Economics and Business Administration (NHH), and he has a first year degree from the law school at the University of Bergen (UiB). Mr. Singelstad has extensive experience from various types of businesses: oil companies, ship equipment and the seafood sector. Mons Svendal Aase Board member / CEO Mons S. Aase joined DOF ASA in 1998 and became CEO in 2005 having held a number of positions including CFO and Deputy CEO. Mr. Aase was previously Chairman of DOF Subsea and sits on the board of a number of DOF companies. Mr. Aase holds a MSc from the Norwegian Institute of Technology, and a Cand. Merc from the Norwegian School of Economics and Business Administration in Bergen. Hilde Drønen Board member Hilde Drønen has worked as CFO in DOF ASA since Mrs. Drønen has experience from acting as director of finance with Bergen Yards AS from 2003 to 2004 and group controller for the Møgster Group from 1995 to Mrs. Drønen holds a business administration degree and a business management degree from the Norwegian School of Management (BI). Mrs. Drønen has served on numerous boards and currently is member of the Board of Statkraft. 44

43 DOF Subsea Annual Report 2015 Alex Townsend Krueger Board member Alex T. Krueger, Co-Chief Executive Officer, President and Co-Head of Buyout Funds, joined First Reserve in He is jointly responsible for supervision of the firm s investment program and strategy, as well as overall management of the firm. Mr. Krueger also is responsible for the development and management of the buyout investment team and sits on both the buyout and infrastructure funds investment committees. In addition, Mr. Krueger maintains responsibilities for origination, structuring, execution, monitoring and exiting investments across the global energy industry, with particular expertise in the natural resources upstream sector. Prior to joining First Reserve, Mr. Krueger worked in the Energy group of Donaldson, Lufkin & Jenrette in Houston. Mr. Krueger holds two B.S. degrees from the University of Pennsylvania. Neil John Hartley Board member Neil J. Hartley, Managing Director, joined First Reserve in His responsibilities include investment origination, structuring, execution, monitoring and exit strategy, with particular emphasis on the energy equipment, manufacturing and services sector. Prior to joining First Reserve, Mr. Hartley spent six years in Investment Banking with Simmons & Company International, most recently as a Director, where he focused on corporate finance advisory work in the energy sector. Prior to joining Simmons & Company, he was a Management Consultant at McKinsey & Company, Inc. He also spent seven years with Schlumberger, most recently as a Field Service Manager and Field Engineer. Mr. Hartley holds an M.A. from Worcester College, University of Oxford and an M.B.A. from Harvard Business School. John Mogford Board member John Mogford, Non-Executive Director, appointed as a Board Member of Weir Group in Most recently Mr. Mogford was a Managing Director of First Reserve, which he joined in Prior to joining First Reserve, Mr. Mogford spent 32 years at BP, mainly in upstream, most recently as the Executive Vice President for Refining. He served as one of 10 members of BP s Executive Committee. Mr. Mogford received a B.Eng. from Sheffield University and business qualifications from INSEAD and Stanford Universities. Ryan Zafereo Board member Ryan N. Zafereo, Director, joined First Reserve in His responsibilities range from deal origination and structuring to due diligence, execution and monitoring, with a particular emphasis on the natural resources industry and energy equipment and services. Prior to joining First Reserve, he was an Investment Banking Analyst for Simmons & Company International, a premier investment banking firm specializing in the energy services market. He also spent time as a Private Wealth Management Analyst for Goldman, Sachs & Co. Mr. Zafereo holds a B.B.A. from the University of Texas. 45

44 DOF Subsea Annual Report CORPORATE GOVERNANCE Corporate Governance Introduction Background DOF Subsea AS ( DOF Subsea or the Company ) is a private limited company established and registered in Norway and subject to Norwegian law, hereunder corporate and other laws and regulations. The Company is 100% owned by DOF Subsea Holding AS (through DOF Subsea Holding 2 AS), and it is the parent company in the DOF Subsea Group (the Group ). DOF Subsea Holding AS is a Norwegian private limited company owned by DOF ASA (51 %) and First Reserve Corporation (49 %). DOF ASA is a public limited company listed on the Oslo Stock Exchange and First Reserve Corporation is a global private equity and infrastructure investment company focused on energy. The Corporate Governance Policy of DOF Subsea is based on the latest revision of the Norwegian Code of Practice for Corporate Governance ( the Code ) which was published by the Norwegian Committee for Corporate Governance (NUES) on 30 October The Company has two listed bonds on the Oslo Stock Exchange. The Company is at all times obliged to act in compliance with laws and regulations as applicable from time to time in respect of handling and control of insider trading rules and information to the shareholders and the investors of the listed bonds and the market in general. 1. Implementation and reporting on Corporate Governance The Corporate Governance Policy of the Company is a governing document containing measures which are continuously implemented to secure efficient management and control of the activities of the Company. The main objective is to ensure that the business is operated in an equitable and profitable manner for the benefit of its stakeholders, including shareholders, employees, customers, suppliers, and society. The development and improvement of the Company s Corporate Governance is a continuous and important process which the Board of Directors and the Executive Management keep a keen focus on. The Corporate Governance Policy is considered and approved by the Board, and it describes DOF Subsea s approach to corporate governance based on the 15 chapters in the Code. More detailed information about the Company s corporate governance can be found in the Board of Director s report 2015, the Annual Report 2015, the Code of Business Conduct and the Sustainability Report The Company s business DOF Subsea was founded in Since its inception, the Group has developed into a worldwide supplier of subsea project services and subsea vessels, and is present in all major offshore regions in the world. During the ten years of operations the Group has grown from about 70 employees to about employees, excluding seafarers. The subsea vessel fleet owned by the Group has grown from 3 to 25 vessels including 4 new buildings, and in addition the Group had by year-end 2015 three subsea vessels chartered in from external companies. The Company s objective is clearly defined in its Articles of Association. DOF Subsea s business is to carry out shipping- and ship owning activities, hereunder contracting, purchasing, selling, possessing and letting of ships, and geotechnical surveys and work below the waterline, inspection, maintenance and repair (IMR) activities on offshore installations, and anything connected thereto. The Company may engage in other companies with the same or similar objectives, hereunder to participate as general partner in limited partnerships. The DOF Subsea Group s two business segments are long term chartering of vessels and subsea projects. The business model is reflected in the Group s Vision: To be a world class integrated offshore company, delivering marine services and subsea solutions responsibly, balancing risk and opportunity in a sustainable way, together, every day. The Management regularly revise the corporate strategy and underlying business areas strategies and targets to ensure that the business develops in accordance with the overall objective, to the benefit of its stakeholders. 3. Equity and dividends The Group has a capital strategy to align operational and financial risk in accordance with the two business segments, and has an objective to achieve a good overall credit rating in order to obtain favourable terms and conditions for the long-term funding of the Group s operations. The Board of Directors considers the Company s consolidated equity to be satisfactory and the need for financial flexibility is considered at any time in the light of its overall objective, strategy and risk profile. The Company does not have a defined dividend policy since it has been through a growth phase and in addition have an 46

45 DOF Subsea Annual Report 2015 investment program ongoing. In 2015, the Company paid out a dividend of NOK 225 million, after sale of a vessel and further improved financial position. In line with the capital strategy defined above, the Company does not plan to define a dividend policy at current time. Any mandates granted to the Board of Directors to increase the Company s share capital are subject to defined purposes and frames and are limited in time to no later than the date of the next ordinary General Meeting. If a General Meeting is to consider mandates to the Board of Directors for the issue of shares for different purposes, each mandate will be considered separately by the meeting. This also applies to mandates granted to the Board of Directors for the Company to purchase own shares. 4. Equal treatment of shareholders and transactions with close associates The Company has only one class of shares. Transactions between related parties In the event of any non-immaterial transaction between the Company and shareholders, related parties to the shareholders, Board members, Executive management and related parties, transactions are presented in notes to the Financial Statement for the Company. The same applies to transactions with subsidiaries of the Company with minority shareholders. Executive management has a register for non-immaterial transactions and the Audit Committee has arranged for valuation from an independent third party for all non-immaterial transactions in The Board of Directors has listed all non-immaterial transactions in the Financial Statement for Non-immaterial transactions are defined as transactions that will be material for one of the parties in the transaction. In the event that it is related to successive deliveries or major class of transactions, materiality shall be assessed for the full year. As part of ongoing operations, the Company has had the following type of non-immaterial transactions with related parties: Equipment and asset hire Management services Asset transfer Loans and guarantees Members of the Board of Directors and the Executive management are obliged to notify the Board if they have any material direct or indirect interest in any transaction entered into by the Company. There have not been reported any other transactions in 2015 than those listed in note 23 in the Financial Statements for References Learn more about shareholders in note 31 and transactions with related parties in note 23 in the Financial Statements for Freely negotiable shares This section of the Code is not applicable, as DOF Subsea is a privately owned company. 6. General meetings The Board of Directors ensures that the Company is acting in accordance with applicable Norwegian law with regards to General meetings. 7. Nomination Committee Due to the ownership structure of the Group (two shareholders) the Company has decided not to establish a Nomination Committee. 8. Board of Directors composition The Board of Directors consist of equal members representing the two shareholders. The Chairman of the Board of Directors is elected by the General Meeting and members of the Board of Directors are not elected for more than two years at a time. The Chief Executive Officer (CEO) in the Company also holds the position as CEO in the majority shareholder, DOF ASA, and serves as a member of the Board of Directors in the Company. With a view to effective group management, representatives from the Executive management may serve as Directors in Group subsidiaries. References Further information on each Board member is provided in the Annual Report

46 DOF Subsea Annual Report CORPORATE GOVERNANCE 9. The work of the Board of Directors The Board of Directors agrees on an annual schedule for its work, with particular emphasis on objectives, strategy and implementation. From time to time the Board of Directors issues instructions for its own work as well as for the Executive management with particular emphasis on clear internal allocation of responsibilities and duties. The Chief Executive Officer (CEO) is obliged to participate in the meetings of the Board of Directors and the Chief Financial Officer (CFO) are authorised to participate in the meetings of the Board of Directors as long as nothing to the contrary has been decided. The Board of Directors have appointed an Audit Committee for the Group. The primary purpose of the Audit Committee is to assist the Board of Directors in monitoring the Group`s internal control of the risk management and financial reporting. This includes: All critical accounting policies and practices, Quality and integrity of the Group s financial statements, reports, and the Group s related internal control over financial reporting, Compliance with legal and regulatory requirements, Qualifications and independence of the external auditors, and Performance of the internal audit function and external auditors. 10. Risk management and internal control The Board of Directors ensures that the Company has sound internal control and systems for risk management that are appropriate in relation to the extent and nature of the Company s activities. Internal control and the systems also encompass the Company s corporate values and ethical guidelines. The internal control of financial reporting has been based on methodology prepared by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Board of Directors carries out an annual review of the Company s most important areas of exposure to risk and its internal control arrangements. The Board of Directors regularly receives weekly, monthly, quarterly and annual reports that cover financial status and important Key Performance Indicators for the operating companies within the Group. The quarterly financial statements, management reports and operational reports are also subject to detailed review at quarterly meetings of the Board of Directors. The Board of Directors has annual meetings with the Company s auditor where the auditor gives an assessment on important internal control areas. The Board of Directors present a review of the Company s financial status in the annual report. Internal audit reports has been presented to the Audit Committee on regular basis. References: Further information about internal control and risk management is provided in the Report of the Board of Directors and notes to the Financial Statements in the Annual Report for Remuneration of the Board of Directors None of the members of the Board of Directors have during 2015 received remuneration from the Company for holding the position as Directors. The Board of Directors consist of equal members representing the two shareholders. In general, any remuneration to the Board of Directors is not linked to the Company s performance. The Company shall not grant share options to members of the Board of Directors. Members of the Board of Directors and/or companies with which they are associated will normally not take on or be given specific assignments for the Company. If they nevertheless are requested to take on such assignments this will be disclosed to and discussed by the full Board. The remuneration for such additional duties must in any case be approved by the Board. The annual report provides information on remuneration paid to each member of the Board of Directors. Remuneration, if any, in addition to normal directors fees will be specifically identified. The Directors fees are decided by the annual General Meeting. The Directors fees are not linked to the Company s performance. 12. Remuneration of the Executive Management The Board of Directors has established guidelines for the remuneration of the members of the Executive management. To execute these guidelines the Board of Directors has establish a Compensation Committee. More 48

47 DOF Subsea Annual Report 2015 information about the Compensation Committee is given in notes to the Financial Statements in the Annual Report for These guidelines are communicated to and approved by the annual General Meeting. The Remuneration Committee s statement on the remuneration of Executive management is communicated to the Board of Directors. The guidelines for the remuneration of the Executive management set out the main principles applied in determining the salary and other remuneration of the Executive management. The guidelines help ensure convergence of the financial interests of the Executive management and the shareholders. Performance-related remuneration of the Executive management in the form of bonus programmes or the like are linked to value creation for shareholders or the Company s earnings performance over time. Such arrangements emphasise performance and are based on quantifiable factors over which the employee in question can have influence. Guidelines for remuneration of Executive management and other information about compensations is included in notes to the Financial Statements. The existing remuneration policy allows performance related remuneration. The Executive management currently have no share option programs. 13. Information and communication The Board of Directors has established guidelines for the Company s reporting of financial and other information based on openness and taking into account the requirement for equal treatment of all participants in securities markets. The purpose of the guideline is to ensure that timely and correct information about the Company is made available to our shareholders, bond investors and society in general. The Company follows the financial calendar as published by the parent company DOF ASA, and is published at The Chief Executive Officer is responsible for coordinating the Group s communication with investors and the capital market in general, and regularly arranges meetings with investors and potential investors. All information distributed by the Company is published at the Oslo Stock Exchange and on the Company s websites simultaneously. The Chief Executive Office is responsible to ensure that the Company publishes information in accordance with legislation and regulation applicable. 14. Take-overs The Code Chapter 14 addresses governing principles for how a company should act in the event of take-over bids. As the shares in the Company are not publicly traded and the Company has only two shareholders any take-over bids will be subject to discussions by both shareholders. On this basis there is no purpose in adopting the governing principles for take-over bids under the Code Chapter Auditor The Auditor participate in meetings with the Board of Directors where the annual accounts are addressed. At these meetings the Auditor reviews any material changes in the Company s accounting principles, comments on material estimated accounting figures and reports material matters on which there has been disagreement between the Auditor and the Executive management of the Company. The Board of Directors holds a meeting with the Auditor at least once a year at which neither the CEO nor any other member of the Executive management is present. Once a year the Auditor presents to the Audit Committee a review of the Company s internal control procedures, including identified weaknesses and proposals for improvement. The Board of Directors reviews guidelines in respect of the use of the Auditor by the Company s Executive management for services other than the audit of the Company. The Board of Directors reports the remuneration paid to the auditor at each annual General Meeting, including details of the fee paid for audit work and any fees paid for other specific assignments, provided such information is available at the time of the annual General Meeting. The Auditor prepares a plan each autumn for auditing activities in the subsequent year. In addition to ordinary audit, the auditing company might provide consultancy services related to accounting. Reference is made to the notes to the Financial Statements. References: Learn more about external auditor in note 24 to the Financial Statements for

48 DOF Subsea Annual Report BOARD OF DIRECTORS REPORT Board of Directors report DOF Subsea AS (the Company) was founded in Since its inception, the Company, its subsidiaries and affiliates (the Group), has developed into a global supplier of subsea services and high-end subsea vessels to third-party charterers, covering all major offshore regions of the world. During the ten years since inception the Group has grown from about 70 employees to employees, excluding seafarers. The owned subsea fleet has grown from 3 to 25 vessels including 4 new buildings, and in addition to the owned vessels the Group had by year-end 3 subsea vessels on charter contracts. The Group also owns 62 ROVs and has 5 ROVs on order. In 2015, the operating income reached NOK million with an EBITDA of NOK million and an EBIT of NOK million. The total assets amounted to NOK million with an equity of NOK million and a net interest-bearing debt of NOK million. Business model and Vision The DOF Subsea Group s two business segments are chartering of vessels and subsea projects. The business model is reflected in the Group s Vision, To be a world class integrated offshore company, delivering marine services and subsea solutions responsibly, balancing risk and opportunity in a sustainable way, together, every day. The DOF Subsea Group owns a large and modern fleet of subsea vessels, enabling the Group to offer a wide range of services. The vessel ownership creates a solid base for long-term relationships with our clients, enhancing service delivery and reducing overall risk. The Group s subsea fleet comprise 21 owned vessels, 3 vessels on term charter from third parties and 4 new buildings, whilst the ROV fleet counts 62 units with 5 ROVs on order, including 1 AUV in operation and 1 AUV on order. By year-end 2015, 14 vessels were on time charter contracts to third party charterers and 10 vessels were operating in the subsea project segment through charter contracts to the Group s four regions. Of the 10 vessels operating in the subsea project segment, 3 vessels were chartered in from third party owners. The 4 newbuildings will be operated in the chartering of vessels segment under long-term contracts. The subsea project segment includes survey and positioning, project management, engineering, supply chain management and consultancy. The subsea project segment is further organized in four regions; the Asia Pacific region, the Atlantic region, the Brazil region and the North America region. During 2015 the Group saw reduced activity within the subsea project segment, however several long term IMR contracts were won and the complexity and quality of the services provided to our clients have increased. The Company s subsidiaries are located in Perth, Singapore, Manila, Oslo, Bergen, Aberdeen, Luanda, Rio de Janeiro, Houston and St. Johns. The Group is also represented in Indonesia, Malaysia, Brunei, and Brazil (Macaé). The Group s headquarters is located in Bergen, Norway. Operational events 2015 Tragically, on February 21st 2015, a member of the marine crew suffered a fatal injury on-board Skandi Skansen alongside quay in Stavanger, Norway. The Group extended support to his family. The Board and the Management initiated immediate actions to reinforce the safety culture in Group in close collaboration with our marine suppliers and clients, to ensure that an incident like this is never repeated on any of our vessels or at any of our worksites. During 2015 several HSE initiatives have been reinforced with additional resources and this work will continue in Chartering of vessels In 2015 several time charter contracts were extended. Technip extended the contract on Skandi Achiever until first quarter Subsea 7 extended the Skandi Acergy for 3 years in direct continuation with the existing contract. Subsea 7 also committed to using the Skandi Skansen during the 2016 summer season in the North Sea, in addition Helix extended the contract for Skandi Constructor through In October, the Ship of the Year 2015 Skandi Africa commencement the long-term charter contract with Technip. Subsea projects Within the subsea project segment the Group faced an overall reduced activity compared to the record-year

49 DOF Subsea Annual Report 2015 In the Asia Pacific region, DOF Subsea won two important IMR contracts for Shell Philippines Exploration (SPEX) and Chevron Australia in This has strengthened the Group s reputation as a global IMR service provider. During 2015, the region successfully delivered IMR services to SPEX and Chevron Australia. In addition, IMR services have been delivered to PT Newmont offshore Indonesia, to Shell offshore New Zealand and to Noumea in New Caledonian. At the start of the year, DOF Subsea successfully completed mooring installation and installation of umbilicals for Apache and Woodside in Australia and completed an FPSO installation in Malaysia. In the Atlantic region, DOF Subsea has strengthened its reputation for FPSO installation, completing the tow-out and mooring of the Goliat FPSO for Eni and installation of turret and riser system for the Gina Krog FSO for Teekay. In addition, completed the fifth annual campaign under the Technip frame agreement and the fourth annual survey and light construction campaign for Statoil. During the year, DOF Subsea has delivered survey and light construction services to Statoil, Shell, Total, OMV, Technip, Allseas and Maersk, conducted mooring and installation work for Shell and delivered ROV and survey and positioning services to BP, EMAS, Statoil and HMC among others. In the Brazil region Chevron extended IMR and field support services using Skandi Salvador throughout 2015, however most of the year the vessel was under contract with BW Offshore supporting the FPSO Cidade de São Mateus. Petrobras extended the ROV support services delivered from the vessel Geoholm. In addition, DOF Subsea provided ROV services on board several third party vessels. In the North America region the Group has won an important long-term IMR contract for Husky Energy in Canada. The contract commenced late 2015 by delivering two ROVs on board a third party vessel. Another IMR contract award was for Freeport McMoRan, utilizing the Harvey Deep-Sea in the Gulf of Mexico. During 2015, DOF Subsea North America has strengthened the position as an IMR provider in both the Gulf of Mexico and Canada, as well as continuing to deliver survey and positioning services to key clients. The Board of Directors is pleased with the development of the subsea project business during 2015 and the contract awards during the year, further strengthening the track record and reputation as a global IMR provider. During the year the Group was awarded multiple contracts and the Group s contract backlog reached a record high level of NOK 39 billion by year-end, of which NOK 21 billion is firm contracts and NOK 18 billion is options. Fleet utilization During the 1st and 4th quarter of 2015 the utilization of the Group s vessels has been below average. The main reasons for the low utilization were maintenance, upgrade, mobilizations and demobilizations, redelivery of vessels, transit, idle time between projects and seasonality in the subsea project segment. The total average utilization for the fleet during 2015 was 86 per cent. Utilization 1Q2015 2Q2015 3Q2015 4Q2015 Project vessels 53 % 78 % 76 % 74 % TC Vessels 98 % 98 % 97 % 91 % Fleet 81 % 90 % 88 % 85 % All utilization numbers are based on actual available days not excluding days at yard for dry-docking or repair / upgrading or transit idle time between projects. Apart from the 1st quarter and 4th quarter the Board of Directors are satisfied with the utilization of the fleet during Assets The Group has bought the vessel Skandi Hawk and taken delivery of the Ship of the Year 2015, Skandi Africa. In addition, three vessels were sold and the DOF Subsea owned shares in DOFTech, owner of the vessel Skandi Arctic, was sold to Technip. In the 1st quarter Skandi Aker was delivered to the new owners and in the 4th quarter Skandi Inspector was delivered to the new owners. Skandi Protector was sold to the Commonwealth of Australia, and delivered to new owners in January At year-end 2015 the Group owned 21 vessels and 62 ROVs and had 4 vessels under construction. The four vessels under construction are owned 50/50 % in a joint venture with Technip and fixed on 8 years contracts with Petrobras. 51

50 DOF Subsea Annual Report BOARD OF DIRECTORS REPORT The first vessel Skandi Acu was delivered to the owners in January At year-end the Group had 5 ROVs on order to be used on the newbuilds and on third party vessels. Financing In 2015 the Group has continued the focus on strengthening the balance sheet and repay debt. Sale of tangible assets has reduced the debt and further strengthened the Group s balance sheet. During 2015 the Group has financed Skandi Africa and the Skandi Hawk, completed refinancing of Skandi Acergy and Skandi Achiever and entered into agreement for refinancing of Skandi Hercules, Skandi Neptune, Skandi Patagonia, Geograph and Geoholm. The refinancing has been done by international shipping banks at terms standard for offshore vessel financing and with covenants standard for the Group. In 2015 the Group has paid ordinary installments on outstanding bank debt and in addition repaid outstanding bond debt of approx. NOK 1 billion. The Group has a new build program of 4 vessels. Financing is secured for the two PLSVs under construction in Brazil, Skandi Olinda and Skandi Recife, and the Norwegian built PLSV Skandi Acu, while financing for the second Norwegian built PLSV is in progress. All newbuilds are fixed on long-term time charters, starting after mobilization of the vessels. The Group has entered into several long term lease arrangements with Norwegian and international lease providers on ROV systems and equipment. The leases have been done at market terms and with covenants standard for the Group. Subsea market risk The oil price is the main driver for the exploration and production (E&P) spending in the subsea market. The oil price has been under pressure. Dated Brent started the year at a price of USD per barrel and reached a peak of USD per barrel in May, falling towards the end of the year and reaching a low of USD per barrel. The average Dated Brent price for the year was USD per barrel. The global E&P spending decreased by about 25 % during 2015, and the fall in oil price have led to an increased cost focus in the industry and the oil analyst expectation for 2016 is a further decrease in E&P spending. The subsea market has been mixed during 2015, with regional differences. In the 1st and 4th quarter of 2015, the activity level in the North Sea was weak due to seasonality. However, the Group saw increased activity levels during the summer season. In the Asia Pacific region the activity within field development and construction is declining, but increasing within the IMR segment. The activity level in Brazil is challenged, however the Group sees the local strategy in Brazil paying off and the tendering activity increased slightly towards the end of the year. The Group saw a mixed to weak market in the Gulf of Mexico during 2015, with lower vessel utilization. The Group has a record high backlog and the Board of Directors expects the activity level in 2016 to be slightly lower than in 2015, but with regional differences. Financial risk Foreign exchange The Group has a global operation and income and costs are nominated mainly in NOK, USD, AUD, GBP and BRL. Fluctuations in foreign exchange rates have an impact on the Group s financial results. The Norwegian krone (NOK) have been volatile during the year and depreciated against all major currencies such as USD and GBP. Against the AUD the NOK has been in a sideway range, whilst the NOK has appreciated against the BRL. The NOK has during the year depreciated toward the USD. The USDNOK exchange rate was 7.51 in the beginning of 2015 and 8.81 at the end of 2015, whilst the average USDNOK exchange rate was 8.07 for the year. The NOK has during the year depreciated toward the GBP. The GBPNOK exchange rate was in the beginning of 2015 and at the end of 2015, whilst the average GBPNOK exchange rate for the year was The NOK was sideways ranging towards the AUD during the year. The AUDNOK exchange rate was 6.09 in the 52

51 DOF Subsea Annual Report 2015 beginning of 2015 and 6.45 at the end of 2015, whilst the average AUDNOK exchange rate for the year was The NOK was gradually strengthening towards the BRL during the 9 first months of the year, with a low of 2.20 in September, and then gradually weakening toward the end of the year. The BRLNOK exchange rate was 2.78 in the beginning of 2015 and 2.22 at the end of 2014, whilst the average BRLNOK exchange rate for the year was The Group aims to match the costs towards the income for the relevant currency (natural hedging). In addition, the Group has an active hedging strategy, using financial derivatives in order to reduce the financial risk exposure. Interest rates The Group s debt is nominated mainly in NOK and USD. The Group is exposed to interest rate risk on less than 40 per cent of all outstanding debt for 2016, however all USD debt are hedged either through fixed interest rates or interest derivatives. The 6 months US LIBOR has gradually increased during The 6 month interest rate was 0.36 % at the beginning of the year and we saw an increase to 0.85 % toward the end of the year. The 6 months NIBOR has weakened through The 6 months interest rate was 1.38 % at the beginning of the year and reached a low of 1.04 % before we saw minor increase to 1.13 % at the end of the year. The Group has adopted an active hedging strategy where the interest rate exposure is partly hedged through use of derivatives with duration up to five years or fixed interest rate loans. Interest periods for the floating interests are from one to six months. The fixing of interest rates for longer periods or changing of loan currency is continuously evaluated. The Group use hedge accounting in accordance with IAS 39 for some of the interest swaps related to hedging of interest cost on long-term debt. Counterpart risk The majority of the Group s contracts are with major international oil companies and other large international subsea contractors. The portion of receivables that has been uncollectable has historically been low and the Group evaluates that our customers have the financial strength to meet their obligations. There are established policies and guidelines for follow-up and collection of trade receivables. Other financial risk The Group has limited direct financial exposure to the changes in the raw materials market for such products as oil and refined-oil products. To the extent the Group has direct exposure to such risk it is minimized through clauses in the contracts. The oil price is an important driver for the global demand for vessels and services within our industry. The recent development of the oil price has reduced the demand for both vessels and services. Since most of the Group s fleet and operations are outside Norway, the Group is exposed to local regulation and taxation. The Group has established reporting routines and procedures in order to manage this exposure. Sustainability For DOF Subsea sustainability is important. This refers to the ability of an organisation to endure in the long term within its external environment, and focuses on the balance between social, environmental and economic elements. The successful balance of the three elements ensures that DOF Subsea remain commercially feasible, socially acceptable and within the capacity of the external environment. This is known as Sustainable Operations. Sustainable Operations take into account risks and opportunities associated with our social and environmental performance, whilst ensuring that mitigation of risks and realisation of opportunities remains economically feasible. The values of the Group further support this by promoting the following core ideals for all personnel and throughout all Group activities: Respect - Integrity - Teamwork - Excellence Above all we are SAFE. Our slogan is Safe the RITE Way. Regardless of where DOF Subsea operates in the world, safety is held as the highest priority, and DOF Subsea strives to be a leader in the fields of health, safety and working environment. 53

52 DOF Subsea Annual Report BOARD OF DIRECTORS REPORT The most important document in the Group is the Code of Business Conduct, and through the combination of the Group s policies and how they frame our management systems, we operate taking into account all of our stakeholders. The Group promotes transparency and standard disclosure of information relating to key sustainability aspects. As part of this, the Group reports according to the Carbon Disclosure Project and the Global Reporting Initiative. For detailed reporting on these matters please find the Group s Sustainability Report on Employees It is the Board of Directors view that the employees are the Group s most important resource. Human Resources is recognized as the key business enabler, and the Group is committed to continuously improve the processes which support managing the Group s human capital. The current downturn for the global oil and gas community has become worse in Demand has decreased in all regions and the entire industry is challenged on costs, leading to scale down for most companies. The circumstances require organizations to adapt to the reduced demand while at the same time threatening the human capital in the industry. Adapting to these market challenges, the Group s workforce was reduced by 292 employees in 2015, from to 1 566, excluding marine crew on board the vessels. The downturn will continue in 2016, and with a high degree of uncertainty surrounding the following years, the Board of Directors are continuously monitoring the need for the Group to further adapt to the market. The aim going forward will be to maintain a flexible organization and maintaining the core competencies. Equal opportunities and anti-discrimination The Group has a high focus on diversity and equal opportunities. The Board of Directors supports the promotion of diversity among the Group s employees and has a clear goal of employing the best employees based on their skills and competence. The Group strives to create equal opportunities for all employees, regardless of their ethnic background, nationality, descent, colour, language, religion, lifestyle or gender. The Group has a zero tolerance policy for workplace harassment. Human rights and labour standards The Group embraces practices consistent with international human rights and operate its business in compliance with fundamental and local labour standards. The Group s policies and standards are based on International Labour Organization (ILO) conventions and they prohibit any use of forced or child labour. The Group recognizes and respect employees right to freely associate, organize and bargain collectively and the policies are compliant with working hour requirements as established by local laws. Health, Safety and Working Environment The Group strives to improve safety and environmental performance across all worksites, globally. DOF Subsea has increased man-hours by approx. 100 per cent since 2010, and delivered close to five million man-hours in Despite the substantial increase in activity level, DOF Subsea s recordable incident frequency has improved significantly over the same time period from 3.8 in 2010 to 1.1 in DOF Subsea experienced two lost time incidents (LTI) during 2015, both of them with low risk factor. This gave an LTI frequency of 0.4 per million man-hours. Despite improved performance, our ambition is to be an incident free organization. In 2014 work started on reinforcing the Group s safety culture by increasing focus on HSE training sessions and by rolling out a new safety campaign, Safe the RITE way. As a consequence of the fatal accident on-board Skandi Skansen in February 2015, several HSE initiatives have been reinforced with additional resources. The aim for 2016 is to establish a more unified safety culture through the Safe the RITE way program, as well as a stronger safety cooperation with our clients, industrial partners and suppliers. The Group launched a global incident notification system in The system allow all managers active involvement at the point of First Alert when an incident occurs, and increases HSE awareness across the organization, every day. To strengthen learning and proactive prevention initiatives, incidents are used as basis for regular safety communication and training. 54

53 DOF Subsea Annual Report 2015 The Group s working environment is continuously being monitored, also by regular working environment surveys. The global survey conducted in December 2014 has during the year been the basis for local initiatives, with the aim of becoming a better workplace. Absence due to sickness has been below 3 per cent during During the year, the Group has been preparing for DNV-GL re-certification of the Group s ISO certifications within ISO as well as ISO The re-certification will take place early Business Integrity and Ethics Integrity embraces multiple aspects of DOF s business model, both from an internal and an external perspective. As one of our governing core values, we mean to establish integrity permanently throughout our organization. This ensures sound business practices and that decisions are determined and executed in accordance with DOF s Code of Business Conduct, promoting everyone to display professional competence, due-diligence, confidentiality and professional behaviour at all times and in everything they do on behalf of DOF. Anti-corruption and anti-bribery The Group has a zero tolerance for bribery and corruption, and the Group s policy is to conduct all business in an honest and ethical manner. The Code of Conduct sets clear expectations on all employees, and is supplemented by internal training. It is the Board of Directors intention that DOF Subsea shall be recognized by a high ethical standard. The Group s anti-corruption and anti-bribery measures are regularly evaluated in order to ensure that sufficient measures are in place. During 2015, improvements have been made on the Group s approach to suppliers through an overall improvement project, which aims to establish more robust supply chain management. Compliance to Law The Group acknowledges the importance for its internal and external stakeholders of a reliable partner and that is why compliance is a key topic for us. For the Group, complying with law and to industry standards is of strategic priority. In 2015, under the jurisdictions where the DOF Subsea Group operates there were no cases of fines or nonmonetary sanctions related to fraud, corruption, bribe or workplace discrimination. External environment The Group s environmental management system ensure that the Group's operations are effectively managed and that continuous improvement of environmental performance is achieved. The energy efficiency program in the Group is continuously challenged, with the aim of improving the environmental performance. During 2015, the focus on energy efficiency has increased by implementing key performance indicators on the operations of our vessels, reflecting environmental performance. Onshore the focus has increased by introducing KPIs on energy consumption and CO2 emissions. During the year, there have been no spills from the vessels to the external environment recorded that require reporting to local government or international bodies. Climate change and emissions to air DOF Subsea has a number of processes which ensures that direct and indirect activities that influence climate change are consistent with the Group s overall approach to climate change. Defining and measuring environmental sustainability and risks associated with our business activities is important for the Group. Investments in systems and equipment have been made in order to record, understand and improve environmental performance. This has been achieved through SEEMP, ISO and Carbon Disclosure Project. The Group has reported its environmental performance since 2010, in coordination with the DOF Group. For the year 2014, the Group achieved a score of 99B which is a significant improvement compared to the previous score of 89C reported in The Group is now ranked as one of the leaders within the oil & gas industry with regards to driving transparency on this important topic, being listed on the Nordic Climate Disclosure Leadership Index (CDLI). Through continued focus on technologically advanced vessels and an improved environmental culture on all levels of the organization, we will strive to achieve our objective of 55

54 DOF Subsea Annual Report BOARD OF DIRECTORS REPORT a reduction in CO2 emissions through reduced fuel consumption. Continuous improvement of our operations The Board of Directors view is that continuous improvement of the Group s operations in a systematic manner is a necessity in order to manage risks and realize opportunities, ensuring cost efficient operations in line with our stakeholders expectations. The Group has continued its effort to strengthen the Business Management System (BMS). During the year, the Group has focused on simplifying the BMS in order to improve both quality and efficiency. The Group has achieved a step change by improving processes within the entire value chain, including execution of projects and subsea operation of vessels and assets. As part of the improvement initiative, the Group have effectively enabled global alignment of our technical solutions and further development as a more streamlined, global organization. The Group is committed to continuously improve the processes and systems which constitutes the Group s organizational capital. Shareholders The Company is owned 100 per cent by DOF Subsea Holding 2 AS, which is owned indirectly by DOF ASA (51 per cent) and First Reserve Corporation (49 per cent). During 2015 there has not been any changes to the ownership structure. The total number of shares outstanding at year-end 2015 was Corporate Governance The Group s Corporate Governance standard is based on principles established in the Norwegian Code of Practice for Corporate Governance, available at The Board of Directors are responsible for ensuring a satisfactory monitoring of risk and internal control. This includes focus on business opportunities and establishing cost-efficient solutions. In addition, focus on operational and financial reporting provides comprehensive information for decision-making and risk assessment. Both operational and financial processes are standardized and the same reporting- and control structures are in use for all companies in the Group. These processes are integrated in the Group s ERP system and supported by Group policies, guidelines and standards in the Business Management System. Every year, the Management carries out a detailed and thorough budgeting process at all levels of the organization. The next year s budget and a five-year forecast are submitted to the Board of Directors for approval. The Board of Directors receives weekly, monthly and quarterly operating and financial reports, including information on investments, financing, cash flow, HSE and HR performance, along with information on market development. The Board of Directors is of the opinion that the Group s reporting procedures are at a high standard and are sufficient to fulfil the requirement for risk management and financial control. The Board of Directors have appointed an Audit Committee for the Group. The primary purpose of the Audit Committee is to assist the Board of Directors in monitoring the Group`s internal control of the risk management and financial reporting. This includes: All critical accounting policies and practices Quality and integrity of the Group s financial statements, reports, and the Group s related internal control over financial reporting, Compliance with legal and regulatory requirements, Qualifications and independence of the external auditors, and Performance of the internal audit function and external auditors The Group`s internal audit function cover all aspects of the Group s value chain, including business support functions. Purpose of the internal audit is to make sure that the Group follows internal policies, processes, guidelines, standards and statutory requirements. Internal audit of the Group`s operations is carried out on regular basis. For 2015, internal audit was carried out in two regions. Results of the internal audits are reported to the Audit Committee and the Board of Directors. For further details on corporate governance, see the Corporate Governance Policy published in the DOF Subsea Annual Report 2015 on page

55 DOF Subsea Annual Report 2015 Presentation of Group and Parent company financial statements DOF Subsea AS has prepared the consolidated financial statement in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. Going concern In accordance with the Norwegian Accounting Act 3-3a, the Board of Directors confirm that the financial statements has been prepared under the assumption of going concern. This assumption is based on the budget for the year 2016 and the Group s long-term forecast. The Group s economic and financial position is sound. Group financial statement For 2015, the Group achieved an operating income of NOK million compared to an operating income of NOK million for Operating profit before depreciation (EBITDA) was NOK million, including a profit from sale of non-current assets of NOK 210 million (NOK million including a profit from sale of non-current assets of NOK 465 million) and the operating profit after depreciation (EBIT) was NOK million (NOK 1 817). The depreciation and write-down amounted to NOK 703 million (NOK 577 million). NOK million Change Operating income % Operating expenses % EBITDA % Net financial loss was NOK million (NOK million), whereas NOK 592 million (NOK 375 million) of the net financial loss was unrealized currency loss and unrealized loss on hedging instruments. The profit before tax was NOK 221 million (NOK 709 million) and the profit for the year was NOK 177 million compared with NOK 734 million in The Group s total assets was NOK million (NOK million) where non-current assets amounted to NOK million (NOK million), including NOK 478 million (NOK 477 million) in intangible assets. Current assets were NOK million (NOK million) of which NOK million (NOK million) were cash and cash equivalents. This amount includes restricted cash of NOK 390 million (NOK 485 million). The total equity was NOK million (NOK million), including non-controlling interests of NOK 269 million (NOK 265 million). Non-current liabilities, including non-current provision for commitments, was NOK million (NOK million). Current liabilities was NOK million (NOK million) of which NOK million (NOK million) was short portion of debt to credit institutions. At year end the net interest-bearing debt (NIBD) was NOK million (NOK million). NOK million Change Tangible assets % Cash and cash equivalents % NIBD % Total equity % Cash flow from operating activities during the year was NOK million (NOK million). Cash flow from investing activities during the year was NOK million (NOK million) of which NOK million is from investment in assets that increase or will increase capacity and NOK 992 million is from sales of vessels that reduce capacity for the Group. Cash flow from financing activities was NOK 228 million (NOK million). At year-end the Group s cash and cash equivalents was NOK million (NOK million). Impairment tests are carried out for each individual cash generated unit related to the Group`s non-current assets. If any indications of impairment are identified, impairment tests are carried out. Impairment test for goodwill is carried out on annually basis. Based on impairment tests, goodwill is written down with NOK 20 million. Parent company financial statement For 2015, the Company`s operating income was NOK 119 million compared to an operating income of NOK 105 million in Operating profit before depreciation (EBITDA) was NOK 18 million (NOK 14 million) and the operating profit (EBIT) was NOK 1 million (NOK 0 million). The depreciation amounted to NOK 17 million (NOK 14 million). 57

56 DOF Subsea Annual Report BOARD OF DIRECTORS REPORT NOK million Change Operating income % Operating expenses % EBITDA % The net financial income was NOK 890 million (NOK 136 million loss). The profit before tax was NOK 891 million (NOK 136 million loss) and the profit for the year was NOK 889 million (NOK 44 million loss). The Company s total assets were NOK million (NOK million) where non-current assets amounted to NOK million (NOK million) including NOK 293 million (NOK 299 million) in deferred tax assets. The current assets were NOK 1285 million (NOK million) of which NOK 517 million (NOK million) were cash and cash equivalent. Total equity was NOK million (NOK million). Non-current liabilities, including non-current provisions for commitments, were NOK million (NOK million). Current liabilities were NOK million (NOK million). The Company`s book equity ratio was 53 per cent (44 per cent) at the end of NOK million Change Non-current assets % Cash and cash equivalents % NIBD % Total equity % Allocation of profits The Company s net result for 2015 was NOK 889 million. The Board of Directors recommends that the net result is allocated to retained earnings. Outlook and events after balance date The Board of Directors, to the best of its knowledge, considers that the information contained in the Annual Report, provides an accurate presentation of the Group s results, financial position, assets and liabilities. The Group s economic and financial position has improved significantly over the past 5 years, and the Board of Directors has focused on deleveraging the Group and improving operations. This has prepared the Group relatively well for the challenging market, however adjustments has been necessary in order to adapt to the market conditions. In order to adjust the Group s capacity to the challenging market, needed cost cutting measures have been implemented in 2015 and the cost cutting measures will continue in The organization has been reduced by approximately 290 employees since the start of the year, vessels have been re-allocated between regions in order to secure utilization and chartered-in vessels from 3rd parties have been redelivered. In January 2016, the Group delivered the vessel Skandi Protector to the new owners, improving the Group's cash position. The joint venture with Technip took partial delivery of the Skandi Acu, and final delivery was in April DOF Subsea AS has purchased NOK 62 million in its bond loan DOFSUB05, and the net outstanding amount after the transaction is NOK million. DOF Subsea has been awarded several IMR and subsea installation contracts during the first months of 2015, with a total contract value in excess of NOK 500 million. The contracts secure utilization of the subsea project fleet in the regions. In the Asia Pacific region DOF Subsea has been awarded an LOI from a key client for a EPCI project with the offshore phase during first half The scope of work includes supply chain management services for the fabrication and supply of mooring chains, replacement of eight mooring legs and PM&E. In the Atlantic region, DOF Subsea has been awarded several contracts during the first months of A highlight was the award of an FPSO mooring installation and hook-up contract by Yinson Production offshore Ghana, on the Eni operated OCTP field. The contract will secure utilization of the Atlantic organization and regional subsea vessels in Q and Q1 2017, and the project will increase DOF Subsea s presence in West Africa. Other highlights were the award of a 5-year pipeline inspection 58

57 DOF Subsea Annual Report 2015 frame agreement for Maersk, and survey work for Nexans relating to the NordLink cable, connecting the Norwegian and German electricity markets. DOF Subsea also won repeat subsea work for Statoil, Maersk and other clients in the region. In the North America region, DOF Subsea has been awarded several contracts with key clients in the Gulf of Mexico and offshore Canada. The scope of work includes survey, IMR and light construction. To service the contracts offshore Canada, DOF Subsea will charter the DOF-vessel Skandi Chieftain for a 100-day job, in addition to increasing the number of ROV systems deployed in the region. The contract backlog including options amounted to NOK 39 billion as per 31st of December 2015, and a large portion of the Group s vessels is fixed on long-term contracts with solid counterparts. The Group is exposed to the short-term market in the subsea project segment. However, the management is working to increase the contract backlog within the subsea project segment, and the long-term IMR contract awards during 2015 reduces this exposure. The Board of Directors expects a lower activity level for the Group in It is the Board of Directors view that 2016 will be a challenging year for the industry and the continued cost focus from the main oil companies will lead to a weaker subsea market, with regional differences. It is the Board of Directors' opinion that the risk of renegotiation of contract terms and cancellation of contracts has increased with the current market situation. The Group s global presence and flexible business model in combination with a high backlog and a strong position within IMR globally gives a sound position for the Group. The Board is pleased with the development of the Group and is thankful for the effort from all employees. Bergen, 19 April 2016 The Board of DOF Subsea AS Helge Møgster Helge Singelstad Mons S. Aase Hilde Drønen Chairman Board member Board member/ CEO Board member Alex Townsend Krueger Neil John Hartley John Mogford Ryan N. Zafereo Board member Board member Board member Board member 59

58 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS Financial statements DOF Subsea Group 60

59 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million Consolidated statement of comprehensive income Note Operating income 4, Payroll expenses Other operating expenses Share of net income from associates and joint ventures Profit from sale of non-current assets Total operating expenses Operating profit before depreciation (EBITDA) Depreciation and write-down 10, Operating profit (EBIT) Financial income Financial expenses Realized net gain / loss on derivative instruments and currency position Unrealized net gain / loss on derivative instruments and currency position Net financial income / loss Profit / loss before tax Tax expense Profit / loss for the year Other comprehensive income Items that may be subsequently reclassified to profit / loss Currency translation difference (CTA) Cash flow hedges Share of other comprehensive income of associates and joint ventures Items that will not be reclassified to profit / loss Defined benefit plan actuarial gains / losses - 3 Other comprehensive income / loss net of tax Total comprehensive income / loss for the year net of tax Profit / loss attributable to Non-controlling interests Owners of the parent Total comprehensive income / loss attributable to Non-controlling interests Owners of the parent Earnings per share Earnings and diluted earnings per share (NOK) 30, The notes on pages 66 to 97 are an integral part of the consolidated financial statements. 61

60 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million Consolidated statement of financial position Assets Note Goodwill Intangible assets Vessels ROVs Machinery and other equipment Newbuilds incl. equipment Tangible assets Investments in associates and joint ventures Non-current receivables Financial assets Deferred tax asset Non-current assets Trade receivables Other current receivables 15, Total current receivables Restricted cash Unrestricted cash and cash equivalents Cash and cash equivalents Asset held for sale 11, Current assets including assets held for sale Total assets The notes on pages 66 to 97 are an integral part of the consolidated financial statements. 62

61 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million Consolidate statement of financial position Equity and liabilities Note Paid-in equity Other equity Non-controlling interests Total equity Deferred tax Pension Non-current provisions for commitments Bond loan Debt to credit institutions Financial non-current derivatives 21, Other non-current liabilities Non-current liabilities Short portion of debt Trade payables Other current liabilities 9, 19, Current liabilities Liabilities held for sale 11, 17, Current liabilities including liabilities held for sale Total liabilities Total equity and liabilities The notes on pages 66 to 97 are an integral part of the consolidated financial statements. Bergen, 19 April 2016 The Board of DOF Subsea AS Helge Møgster Helge Singelstad Mons S. Aase Hilde Drønen Chairman Board member Board member/ CEO Board member Alex Townsend Krueger Neil John Hartley John Mogford Ryan N. Zafereo Board member Board member Board member Board member 63

62 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million Statement of changes in equity Changes in equity Share capital Share premium Other paid-in capital Paid-in equity Retained earnings Currency translation differences Cash flow hedges Other equity Noncontrolling interests Total equity Equity at Profit / loss for the year Other comprehensive income for the year Total comprehensive income for the year Changes in non-controlling interests -3-3 Equity at Equity at Profit / loss for the year Other comprehensive income for the year Total comprehensive income for the year Dividends Changes in non-controlling interests Equity at Cash flow hedges and changes in defined benefit actuarial gains / losses are presented after tax. Tax rate used is 27-34%. Cash flow hedges are described in note 21, tax effects are described in note 9. 64

63 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million Consolidated statement of cash flows Note Operating profit (EBIT) Depreciation and write-down Profit from sale of non-current assets Share of net income of associates and joint ventures Change in trade receivables Change in trade payables 41 9 Changes in other working capital Exchange rate effect on operating activities Cash flow from operating activities Interest received Interest paid Tax paid Net cash flow from operating activities Sale of tangible assets Purchase of tangible assets Sale of shares Dividends received 3 - Changes in other receivables and liabilities Cash flow from investing activities Proceeds of non-current debt Installments on non-current debt Dividend / Group contributions paid Payments to non-controlling interests Cash flow from financing activities Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the period Exchange rate effect on cash and cash equivalents Cash and cash equivalents at the end of the period The notes on pages 66 to 97 are an integral part of the consolidated financial statements. 65

64 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Contents 1 Corporate information Financial risk management Accounting estimates and assessments Segment information Operating income Payroll expenses Other operating expenses Financial income and expenses Tax Intangible assets Tangible assets (incl. commitments) Leases Non-current receivables Trade receivables Other current receivables Cash and cash equivalents Interest-bearing debt Trade payables Other current liabilities Fair value estimation Financial instruments and hedging activities Financial instruments - by category Related parties Remuneration to Board of Directors, Executives and Auditor Companies within the Group Investments in associates and joint ventures Contingencies Accounting policies A. Summary of significant accounting principles B. Going concern C. Group D. Segment reporting E. Conversion of foreign currency F. Classification of assets and liabilities G. Cash and cash equivalents H. Trade receivables I. Tangible assets J. Leases L. Debt M. Provisions N. Contingent assets and liabilities O. Equity P. Transactions with non-controlling interests Q. Revenue recognition R. Current and deferred income tax S. Employee benefits...96 T. Financial assets...96 U. Derivative financial instruments and hedging activities...96 V. Events after the consolidated statement of financial position date W. Use of estimates X. Consolidated statement of cash flows Y. New standards, amendments and interpretations adopted by the Group Z. New standards, amendments and interpretations not yet adopted Guarantees Earnings per share Share capital and share information Events occurring after the consolidated statement of financial position date

65 DOF Subsea Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS 1 Corporate information DOF Subsea AS, the Company, is a limited liability company registered in Norway. The Company s head office is located at Thormøhlensgate 53 C, 5006 Bergen, Norway. The Company is owned by DOF Subsea Holding 2 AS, a company jointly owned by DOF ASA and First Reserve Corporation, through DOF Subsea Holding AS. DOF ASA holds 51% ownership stake while First Reserve Corporation holds a 49% ownership stake. DOF Subsea AS serves as the parent company in the DOF Subsea Group exercising control over a number of subsidiaries. The Company further holds a number of investments in associates and joint arrangements. The DOF Subsea Group s two business segments are chartering of vessels and subsea projects. The Group provides these services to the global offshore oil and gas industry. The Group owns a large, modern fleet that enables the Group to offer differentiated services to clients and create long-term relationships, which enhance service delivery and reduce overall risk. The financial report is divided into the Group financial statements and the Parent Company financial statements. The Board of Directors approved the financial statements for publication on the 19 April Financial risk management The Group s operations includes various types of financial risk: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Group s governing risk management strategy focuses on the predictability of the capital markets and seeks to minimise the potential negative effects on the Group s financial results. The Group uses financial derivatives to hedge against certain types of risk. Please see note 32 accounting policies, paragraph U, for information on derivative financial instruments and hedging activities. Please also see note 21 Financial instruments and hedging activities. The Group s risk management is conducted in line with policies and guidelines approved by the Board of Directors. Accordingly, financial risk is identified, evaluated and hedged if appropriate. The Board issues written policies for governing risk management and defines principles for specific areas such as the foreign exchange risk, interest risk, credit risk, use of financial derivatives and other financial instruments, as well as investment of surplus liquidity. Financial derivatives The Group is exposed to interest rate and currency fluctuations. The Group uses financial derivatives to reduce these risks. However, the Group does not use financial derivatives linked to exposures related to statement of financial position items such as trade receivables, trade payables and similar. Foreign exchange risk Foreign exchange risk arises when future commercial transactions, contractual obligations and investments are in different currencies. The Group s presentation currency is NOK. The Group aims to achieve a natural hedge between cash inflows and cash outflows, and manages remaining foreign exchange risk arising from commercial transactions, assets and liabilities by forward contracts, derivatives and similar instruments as appropriate. Hedging of foreign exchange exposures is executed on a net basis and foreign exchange contracts with third parties are generated at Group level. Currency changes in receivables, liabilities and currency swaps are recognized as a financial income/expense in the consolidated statement of comprehensive income. Fluctuations in foreign exchange rates will therefore have an effect on the Group s statement of comprehensive income and statement of financial position. Interest risk The Group s existing debt arrangements are long-term loans at floating and fixed interest rates. Movements in interest rates will have an effect on the Group s financial statements. The Group s policy is to maintain part of its debt at fixed rates and part of the remaining debt with a hedge from floating rates to fixed rates. Of the total debt portfolio, 75% is subject to a fixed interest rate as per The Group manages its interest rate risk by using floating-to-fixed interest rate swaps. There is a continuous evaluation of the mix of funding currencies and the ratio of fixed vs. floating rate debt. The Group has no interest earning assets of significance, except of bank deposits and other non-current receivables, see notes 17 interestbearing debt and 22 financial instruments - by category. For some of the fixed interest rate contracts, hedge accounting is applied, see note 21 financial instruments and hedging activities. Sensitivity analysis In accordance with IFRS 7 financial instruments: disclosures, the DOF Subsea Group provides information about the potential impacts of market risk and hypothetical gain / loss from its use of derivative financial instruments and other financial instruments through a sensitivity analysis disclosure. The sensitivity analysis reflects the hypothetical gain / loss in fair values which would occur assuming a change in currency or interest rates. Only effects which would ultimately be accounted for in the consolidated statement of comprehensive income, as a result of a change in rates or prices, are included. All changes are before tax. Foreign exchange sensitivity Changes in foreign currency rates against subsidiaries functional currencies as of 31 December 2015 would have affected the measurement of financial instruments denominated in foreign currency by the amounts described below. Effects on the Group s statement of financial position resulting from changes in currency rates is due to changes in the NOK value of assets and liabilities denominated in currencies other than NOK. The Group has no such material assets nor liabilities denominated in foreign currencies apart from USD. The Group has a significant amount of debt denominated in USD. In conducting the foreign exchange sensitivity analysis, a hypothetical 5% decrease / increase in USD/NOK rates would affect the value of USD debt as of 31 December 2015, and increase / decrease the consolidated statement of comprehensive income by NOK 236 million. The Group has USD 56 million debt in subsidiary with functional currency BRL. The effect of change in BRL to USD is included in the sensitivity results above. The Group s exposure to other foreign exchange movements is not material. The Group aims to achieve a natural hedge between cash inflows and cash outflows on Group level. Current receivables and liabilities excl. short portion of debt are often in the same currency and are normally due within 30 days. Currency effects on current items excl. short portion of debt are not included in the figures above. Changes in foreign currency rates against each subsidiary s functional currency will have limited effect on the Group s consolidated statement of comprehensive income. 67

66 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group A significant portion of the Group s operating income is denominated in USD. A depreciation of NOK against USD will over a longer period have a positive net effect on the consolidated statement of comprehensive income. Interest rates sensitivity A parallel shift of 100 basis points in interest rates as of 31 December would have increased / decreased equity and profit and loss by the amounts shown in the table below. The analysis assumes that all other variables, in particular foreign currency rates remain constant. Amounts in NOK million 2015 figures 100bp decrease 100bp increase NOK Derivatives financial instruments USD Derivatives financial instruments -7 7 Credit and liquidity risk Credit and liquidity risk arises from cash and cash equivalents, financial derivative instruments and deposits with banks as well as credit exposures to clients. The Group has a policy of limiting the credit exposure to any single financial institution and bank, and actively manages its exposure in order to achieve this. Credit exposures are mainly to clients that traditionally have good financial position to meet their obligations. The Group s credit risk to clients is therefore considered low and historical losses have been low. Other non-current receivables are mainly to DOF ASA companies and joint ventures. The Group is well informed about credit risks related to these positions. Latest changes in the market condition increase these risks, but they are still considered to be acceptable. Payment profile of debt Amounts in NOK million At 31 December Thereafter Borrowings (ex. finance lease liabilities) Finance lease liabilities Trading and net settled derivative financial instruments (interest rate swaps and foreign exchange instruments) Trade and other payables Total payables See also note 12 leases regarding future cash inflows based on the Group s backlog. Liquidity risk management implies maintaining sufficient cash and marketable securities, the available funding through committed and uncommitted credit facilities and the ability to close market positions. The Group aims to maintain flexibility in its liquidity by keeping committed credit lines available. The Group s business is capital intensive and the Group may need to raise additional funds through public or private debt or equity financing to execute the Group s strategy and fund capital expenditure. The Group s loan agreements include terms, conditions and covenants. 1 Change in fair value of interest rate swaps The Group has routines to report cash flow forecasts on a regular basis in order to monitor the Group s future cash positions. Fair values The fair value of forward exchange contracts is calculated based on the midpoint of the relevant yield and forward curves. The fair value of interest rate contracts is expressed as the present value of the estimated future cash flows based on observable yield curves. Price risk The Group is exposed to price risk at two main levels: The demand for the Group s vessels and services is sensitive to changes in the oil industry, for example, oil price movements, exploration and general activity level within the oil industry. This can affect both the pricing and utilization of the Group s assets. The cost of construction of new assets and replacement of assets are sensitive to changes in market prices. The Group aims to reduce the price risk through long-term contracts. All newbuilding contracts are based on fixed prices of the assets, and the vessels are fixed on long-term charter contracts at delivery. Capital structure and equity The main objective in managing the Group s capital structure is to ensure that the Group maintains a good credit rating, thereby achieving favourable terms and conditions for the long-term funding of the Group s operations and investments. The Group manages its capital structure and carries out all necessary amendments to it, based on continuous assessments of the economic conditions under which the operations take place. The Group has established similar financial covenants on all longterm funding which imply minimum consolidated cash and minimum value adjusted equity for the Group. On a quarterly basis, the Group measures its value adjusted equity by receiving fair market valuations of the total fleet from several independent brokers. See also note 17 interest-bearing debt. The Group monitors its capital structure by evaluating the debt ratio, which is defined as net interest-bearing debt divided by equity plus net interest-bearing debt. The Group policy is to maintain debt financing corresponding to approximately 80% funding of the new vessels and to continue to have high long-term contractual coverage, either through IMR contracts in the subsea project segment or time charter or bareboat contracts in the chartering of vessels segment. Tax risk Changes in tax regimes may adversely affect the Group s cash flows and financial condition. Certain companies in the Group are subject to special tax rules for ship owners in the Norwegian Taxation Act ( ). There have been, and still are, political discussions to modify these tax rules. Further, such special tax rules stipulate certain requirements which will have to be met. No assurance can be given that the Group will meet such requirements in the future. A failure to meet such requirements may have an adverse effect on the effective tax rate of the Group. 3 Accounting estimates and assessments Valuations, estimates and assumptions with a significant effect on the financial statements are summarised below: 68

67 DOF Subsea Annual Report 2015 DOF Subsea Group Vessels The carrying amount of the Group s vessels represents 63 % of the total consolidated statement of financial position. Consequently, policies and estimates linked to the vessels have a significant impact on the Group s financial statement. In the current market the estimated fair value of the Group s vessels is higher than the carrying amount. Depreciation is calculated on a modified straight-line basis over the estimated useful life of the asset. Depreciable amount equals historical cost less residual value. Please see note 32 accounting policies paragraph I, for information on tangible assets. Useful life of vessels The depreciation amount depends on the vessels estimated useful lives. Estimated useful life is 20 years based on strategy, past experience and knowledge of the types of vessels the Group owns. There will always be risk of events like breakdown and obsolescence which may result in a shorter useful life than anticipated. From time to time the Group may own vessels older than 20 years. The useful life will then be estimated individually. Residual value of vessels The level of depreciation depends on the calculated residual value. Residual value is determined based on the estimated fair value at the end of the asset s useful life. According to the Group s strategy, the policy is not to own vessels with an age above 20 years. Consequently, the residual value differs from salvage value, and the Group has to estimate the residual value of the vessels when they reach an age of 20 years. The estimate of residual value is based on a market valuation of a charter free vessel, and the current fair value forms a basis for the estimate. However, this fair value is discounted to reflect the fair value of the vessel as if it was of an age and in the condition expected at the end of its useful life (20 years). Useful life of investments related to periodic maintenance Periodic maintenance is related to major inspection and overhaul costs which occur at regular intervals over the life of an asset. The expenditure is capitalized and straight-line depreciated until the vessel enters the next periodic maintenance. When new vessels are acquired, a portion of the cost price is classified as periodic maintenance based on best estimates. Intervals between periodic maintenance are calculated on the basis of past experience. The estimated life of each periodic maintenance program is 5 years. Impairment of assets Vessels The vessels in the Group are reviewed for impairment every quarter or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell, and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units, CGU ). Each vessel is considered as a separate CGU. All vessels in the Group are assessed for indications of impairment by obtaining independent quarterly broker estimates from recognized brokers within the industry. The broker s estimates are based on the principal of willing buyer and willing seller. Estimates includes mounted equipment and assume that the vessels are without any charter contracts (i.e. charter-free basis), thus the fair value of each vessel has to be adjusted for the net present value of existing contracts. Sensitivity analysis or stress tests are applied to the main variables in the impairment indication assessment. This includes changes to key variables such as broker estimates, exchange rates, operating expenses and the discount rate. Where there are indication of impairment a full impairment test are carried out. Recoverable amount is in accordance with IAS 36 defined as the higher of the assumed fair value less cost of disposal (net sales value) and value in use. The Group use net sales value based on independent broker estimates as the recoverable amount. Estimates from the brokers are collected per vessel. Net sales value is calculated based on an average of the broker s values, taken into account sales commission. This is further adjusted for any excess values in the incumbent contract for each vessel. Due to a limited number of vessel transactions in the current market, there is a risk that the volatility in broker estimates are higher. For this reason, the Group has sought to substantiate the broker valuations, inter alia with value in use calculations or tests of reasonableness of implicit rates derived from the valuations. The Group has deemed it necessary to perform separate calculations to support the broker valuations. This has been done for vessels that have a net sales value below or close to book value. In addition conducted sales transactions during the year are reviewed and compared to broker estimates. Estimated cash flows are based on next year s budgets per vessel, and forecasted earnings going forward. The cash flows per vessels are calculated based on the vessels remaining useful lifetime. Historical income rates and forecasted market rates, operational and capital expenditure related to periodical maintenance, in addition to corresponding rate and expenditure levels for comparable vessels form the basis for the estimated cash flows. A weak market next 2-3 years is anticipated, with expected gradual normalisation thereafter. For vessels fixed on firm contracts during the period, the assumption is that the contracts run up until expiry. Options have not been assigned any added value, unless the options are at or below current market rates. The Weighted Average Cost of Capital (WACC) is used as a discount rate, and reflects a normalised capital structure for the industry. The WACC represents the rate of return the Group is expected to pay to its sources of finance for cash flows with similar risks. Cash flows are calculated after tax and discounted with an real after tax discount rate. ROVs Indicator tests for ROVs include evaluation of subsea/ oil market conditions, contract coverage and an evaluation of observable indications of impairment in consultation with the Group Asset Manager and the suppliers of the equipment. If indication of impairment is present, a value in use calculation is performed for ROVs as a pool of assets. Principles for calculation of future cash flows and WACC are the same as described for vessels. The WACC has been calculated in real terms, thus it has not been anticipated any expected inflation growth in the forecasted cash flows Goodwill Impairment testing of goodwill is carried out on an annual basis. Goodwill is allocated to the Group s cash generating units identified according to the operating segment, namely chartering of vessels and subsea projects. For goodwill in the subsea project segment, recoverable amount is calculated based discounted cash flow extracted from next year s budgets and forecasts covering 5 years. No growth element is expected after 5 years. Both budgets and forecasts covering 5 years, are approved by the Board of Directors. Revenue and margins reflects a weak subsea project market next 2-3 years. Cash flow thereafter is based on a gradual 69

68 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group normalization of revenue and margins. Management determines budgeted gross margin based on past performance, its expectations of market development and the utilization of the vessels. For goodwill in the chartering of vessels segment, recoverable amount is calculated based on excess values on vessels operating in the segment. Basis for calculation of excess values are contracts, budgets and forecasts approved by the Board, supported by broker values. If the test shows that the carrying amount of the unit exceeds the recoverable amount of the unit, the Group recognizes an impairment loss. The impairment loss is allocated against the carrying amount of the assets in the CGU in the following order: First, reduce the carrying amount of any goodwill allocated to the CGU; and then, reduce the carrying amounts of other assets of the CGU on a pro rata basis. Where there is an indication that impairment recognized in previous years no longer exists or has decreased, then reversals of impairment can be recorded except on goodwill. Project income and costs For lump sum projects, contract revenue and expenses are recognized in accordance with the stage of completion of a contract as set out in IAS 11 construction contracts. Please refer to note 32 accounting policies, paragraph Q (b), for discussion on revenue recognition. The stage of completion method is calculated by dividing contract costs incurred to date by total estimated contract costs. Revenue earned to date can then be calculated by allocating the percentage of completion based on cost to total contract revenue. Contract revenue comprises the set amount of revenue agreed by the client in the contract plus variation orders where applicable. Variation orders will only be included in contract revenue to the extent they will likely result in revenue, they are capable of being reliably measured and they have been reviewed and approved by the client. Cost forecasts are reviewed on a continuous basis and the project accounts are updated in a monthly project manager s report as a result of these reviews. As contract revenue, costs and the resulting profit are recognized as the work is performed, costs incurred relating to future activities are deferred and recognized as an asset in the consolidated statement of financial position. Conversely, where revenue is received in advance of costs being incurred, a deferred liability is recognized in the consolidated statement of financial position. Where the outcome of a project cannot be reliably measured, revenue will be recognized only to the extent that costs are recoverable. Where it is probable that contract costs will not be recovered, it is only costs incurred that are recognized in the consolidated statement of comprehensive income. In the event that it is probable total contract costs will exceed contract revenue, the anticipated loss is immediately recognized as an operating expense in the consolidated statement of comprehensive income. Expected losses are determined by reference to the latest estimate of project results at completion. Provisions A provision is recognized when there is a legal or constructive obligation arising from past events, or in cases of doubt as to the existence of an obligation, when it is more likely than not that a legal or constructive obligation has arisen from a past event and the amount can be estimated reliably. The amount recognized as provision is the best estimate of the expenditure to be incurred, see note 32 accounting policies, paragraph M. The best estimate of the expenditure required to settle the present obligation is the amount that rationally will have to be paid to settle the obligation at the consolidated statement of financial position date or to transfer it to a third party at that time. Deferred tax assets Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements per IAS 12 income taxes. Please refer to note 32 accounting policies, paragraph R. Deferred tax assets are recognized in the consolidated statement of financial position on the basis of unused tax losses carried forward or deductible temporary differences to the extent that it is probable there will be sufficient future earnings available against which the loss or deductible can be utilized. Deferred income tax is calculated on temporary differences related to investments in subsidiaries and associated companies, except when the company has control of the timing of the reversal of the temporary differences, and it is probable that reversal will not take place in the foreseeable future. 4 Segment information Members of the Board of Directors together with CEO and CFO are the Group s chief operating decision-makers. Management has determined operating segments based on the information given to the Group s operating decision-makers for the purposes of allocating resources and assessing performance. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit and loss in the consolidated financial statements. Presentation of segments includes information sorted by segments that are reported to the chief operating decision-makers on a regular basis. Corporate expenses and similar are allocated to the segments proportionately based on estimated split of services delivered to each segment. Please refer to note 32 accounting policies, paragraph D, for further information on segment reporting. Effective from 1st of January 2014, the Group changed its accounting of joint ventures to the equity method, based on the implementation of IFRS 11 joint arrangement. The segment reporting below is presented according to internal management reporting, based on the proportionate consolidation method of accounting for joint ventures. The bridge between the management reporting and the figures reported in the financial statements is presented below. Please refer to note 26 investment in associates and joint ventures for further information on joint arrangements. The operating segments reported below have no reporting of tax due to the fact that vessels in the Group are part of the Norwegian tonnage tax system which implies no taxation of net operating income. Net financial result, based on tax rules, is taxable. Normally taxable net financial result will not be positive for the Group. The Group divides its business activities into four geographical regions, based on the location of clients; Europe/West Africa, Australasia, Brazil and North America. As the clients operations are offshore and the operating equipment and employees used to service various geographical regions are often the same, no data is given on assets, liabilities, investments and employees as this would not provide any additional value. 70

69 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million Profit and loss 2015 Note Consistent with prior presentation "management reporting" Chartering of vessels Subsea projects Total Effect of IFRS Operating income Operating profit before depreciation (EBITDA) Depreciation and write-down (*) Operating profit (EBIT) Net financial income / loss excl. unrealized net gain / loss on derivative instruments and currency position (*) Unrealized net gain / loss on derivative instruments and currency position Profit / loss before tax Tangible assets Tangible assets jointly controlled companies Total tangible assets Consistent with prior presentation "management reporting" 2014 Note Chartering of vessels Subsea projects Total Effect of IFRS Operating income Operating profit before depreciation (EBITDA) Depreciation and write-down Operating profit (EBIT) Net financial income / loss excl. unrealized net gain / loss on derivative instruments and currency position Unrealized net gain / loss on derivative instruments and currency position Profit / loss before tax Tangible assets Tangible assets jointly controlled companies Total tangible assets (*) Cost allocation based on share of tangible assets at year-end 71

70 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million 5 Operating income Geographical distribution of operating income 2015 Norway Great Britain Brazil Australia Singapore USA Other Total Operating income Geographical distribution of operating income 2014 Norway Great Britain Brazil Australia Singapore USA Other Total Operating income Geographical distribution of operating income is based on the location of clients. No singular customer exceeds 10 % of total operating income. Please refer to note 32 accounting policies, paragraph Q, for information on revenue recognition. 6 Payroll expenses Payroll expenses Note Salaries and holiday pay Contract labour on vessels Employer s contributions Pension costs Other personnel costs Total payroll expenses Number of employees (at year-end) Pension costs above include defined benefit and defined contribution pension plans. Please refer to note 32 accounting policies, paragraph S, for information on employee benefits. As of December 31, 2015, the Group s defined pension plan benefit covered a total of 102 employees (145 in 2014) and 8 persons in retirement (6 in 2014). The Group`s defined pension plan benefit is invested with an insurance company, which manages the plan assets. The Group`s cost of defined pension plan for 2015 was NOK 4 million (NOK 4 million in 2014). Pension obligations as of December 31, 2015 was NOK 12 million ( NOK 12 million). 7 Other operating expenses Other operating expenses Vessel time charter hire Technical costs Hired personnel Other operating expenses Total other operating expenses

71 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million 8 Financial income and expenses Financial income and expenses Note Interest income Other financial income 9 10 Financial income Interest expenses Capitalization of interest Interest expenses payable to DOF ASA companies Other financial expenses Financial expenses Realized foreign currency net gain / loss on non-current debt Realized foreign currency net gain / loss on current receivables / liabilities Realized net gain / loss on financial derivatives Realized net gain / loss on derivative instruments and currency position Unrealized foreign currency net gain / loss on non-current debt Unrealized foreign currency net gain / loss on current receivables / liabilities Net change in unrealized gain / loss on financial derivatives Unrealized net gain / loss on derivative instruments and currency position Net financial income / loss Please refer to note 32 accounting policies, paragraph E, for information on conversion of foreign currency and note 32 accounting policies, paragraph U, for information on financial derivatives. 9 Tax For information on current and deferred tax, please refer to note 34 accounting policies, paragraph R. Tax expense Current tax on profits for the year Adjustments in respect to prior years 7-6 Change in deferred tax Impact on change in tax rate on deferred tax Total tax expense The tax on the Group s profit before tax differs from the theoretical amount, calculated by using domestic tax rates applicable to profits of each subsidiary as follows: Reconciliation of nominal and effective tax rate Profit before tax Tax calculated at domestic tax rates applicable to profits in the respective countries* Tax effect of: Expenses not deductable for tax purposes -4 3 Tax losses for which no deferred tax assets were recognized Adjustments in respect to prior years 10 3 Impact on change in tax rate Effect of different tax regimes Associates and joint ventures results reported net of tax Total tax expense * Domestic tax rates applicable to the Group vary between 0% and 35%. From 2015, a tax rate of 0% is applied for subsidiaries taxed under the Norwegian Tonnage tax regime. Tax calculated for 2014 are restated accordingly. 73

72 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million Tax effect comprehensive income 2015 Before tax Tax(charge)/ credit After tax Currency translation differences Cash flow hedges Share of other comprehensive income of associates and joint ventures Other comprehensive income Tax effect comprehensive income 2014 Before tax Tax(charge)/ credit After tax Currency translation differences Cash flow hedges Share of other comprehensive income of associates and joint ventures Re-measurement of post employment benefit liabilities Other comprehensive income The gross movement on the deferred tax in the statement of financial position At Tax related to comprehensive income Tax related to components of other comprehensive income 8-9 At Deferred tax The table below specifies the temporary differences between accounting and tax values, and the calculation of deferred tax/tax assets at year-end. The Group s deferred tax assets are reviewed for impairment. Deferred tax assets from tax loss carry-forwards is expected to be offset against taxable income within a period of 2-7 years. Please refer to note 32, Accounting policies, paragraph R for further details on deferred tax. Basis for deferred tax Non-current assets Current assets 15 3 Liabilities Tax position related to sold assets Other differences Total temporary differences Tax loss carry-forward* Tax loss not included as deferred tax asset Temporary differences not included as deferred tax asset Basis for calculating deferred tax / tax asset (-) * From 2015 Tax losses carried forward from subsidiaries taxed under the Norwegian Tonnage tax regime are excluded. Tax loss carry-forward for 2014 is restated accordingly.. Deferred tax / tax asset (-) calculated at domestic tax rates (20-35%) Deferred tax 2 11 Deferred tax asset Total deferred tax / tax asset (-) recognized in the statement of financial position Deferred tax / tax asset recovered 12+ months Deferred tax / tax asset recovered within 12 months

73 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million Tax-loss carried forward recognized as deferred tax asset per country Country Tax -loss carryforward Temporary differences Tax rate Deferred tax asset Norway % 190 Brasil % 61 Singapore % 25 Other countries % 44 Total Intangible assets Goodwill is allocated to the Group`s cash-generating units identified according to the operating segment. The Group operates in two segments, chartering of vessels and subsea projects. Please refer to note 32 accounting policies, paragraph K, for further information on goodwill Chartering of vessels Subsea projects Total Book value at Cost at Sale of DOFTech DA Cost at Write-down at Write-down Accumulated currency translation differences Total adjustments at Book value at Chartering of vessels Subsea projects Total Book value at Cost at Cost at Write-down at Write-down Accumulated currency translation differences Total adjustments at Book value at In 2015 there were no acquisitions of goodwill, however through the sale of DOFTech DA a disposal of NOK 14 million was recognized. Sensitivity analysis Goodwill in relation to the acquisition of DOF Subsea Angola has since acquisition been allocated to the cash generating unit Subsea projects. As a result of changes in 2015, goodwill related to DOF Subsea Angola will be defined as separate cash generating unit, and impairment for 2015 is based on this definition. Based on impairment tests, goodwill related to DOF Subsea Angola is impaired with NOK 20 million. Impairment testing of goodwill is carried out according to the description given in note 3 `Accounting estimates and assessments`. No additional impairment is required after impairment of NOK 20 million. Negative changes in EBITDA margin with 20 % or negative changes in WACC with 300 basis points will not result in impairment for the goodwill. The Group use an EBITDA margin in the range of 0-10 % and a real WACC after tax of 8.1 % in its impairment calculations. There is no growth element in the calculations. See also note 3 `Accounting estimates and assessments for further information about the impairment test and growth. Excess values related to operation of vessels, exceeds the book value of goodwill in chartering of vessels segment. For information of sensitivity analysis on vessels, see note 11 `Tangible assets`. 75

74 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million 11 Tangible assets (incl. commitments) 2015 Vessels Periodic maintenance ROVs Machinery & other equipments Newbuilds incl. equipment Total Cost at Additions Disposals Reallocation held for sale Vessel completed Reallocation Currency translation differences Cost at Depreciation at Depreciation for the year Depreciation eliminated on disposals Reallocation held for sale Reallocation Currency translation differences Depreciation at Write down at Write down for the year Write down at Book value at Asset lifetime (years) Depreciation schedule *) Linear Linear Linear Not applicable *) residual value varies based on market valuation of the vessel 2014 Vessels Periodic maintenance ROVs Machinery & other equipments Newbuilds incl. equipment Total Cost at Additions Disposals Reallocation Currency translation differences Cost at Depreciation at Depreciation for the year Depreciation eliminated on disposals Reallocation Currency translation differences Depreciation at Book value at Asset lifetime (years) Depreciation schedule *) Linear Linear Linear Not applicable *) residual value varies based on market valuation of the vessel Disposals Skandi Aker and Skandi Inspector were delivered to new owners during Newbuilds In 2015 DOF Subsea has taken delivery of Skandi Africa and other equipment. Year-end newbuild balance relates to other subsea equipment under construction. 76

75 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million Asset held for sale DOF Subsea has in 2015 entered into a sales agreement for the vessel Skandi Protector. At the vessel Skandi Protector is classified as asset held for sale. The vessel was delivered to the new owner in January Impairment Vessel Impairment Basis for recoverable amount Segment Geograph 15 Fair value minus sales expense Chartering of vessels Geosund 43 Fair value minus sales expense Subsea projects Skandi Inspector * 22 Fair value minus sales expense Chartering of vessels Total impairment to Vessels 80 *Skandi Inspector was delivered to new owners in December 2015 For further information see note 3 accounting estimates and assessments Sensitivity analysis of impairment A 10 % drop in broker estimates as per will bring broker value below book value for 9 of the Group s vessels. This effect might result in an additional impairment loss for the Group, however an impairment test will in addition consider possible positive contract values and other elements in a value in use calculation. The Group receives broker estimates in USD and NOK. All sales transactions of vessels in 2014 and 2015 have been conducted in USD. The broker estimates in USD has dropped significantly during At the same time the USDNOK exchange rate has moved from 7.43 to 8.81 during The change in the USDNOK exchange rate partly counteracts the drop in broker estimates. DOF Subsea has a new fleet of vessels and as a result, the future cash flows for the vessels are long. The key assumptions in a discounted cash flow calculation of vessels are utilization and vessel rates. Changes in these assumptions would have considerable effects on the net present value of the vessels. When testing the reasonableness of broker estimates, the Group has found that the implied rates and utilization in the broker estimates are within the range of budgets and forecasts. While testing the reasonableness of the broker estimates the Group has applied a real WACC after tax of 5.2 %. Finance leases of tangible assets The Group s assets held under finance leases include several ROVs. For further information on these, please refer to note 12 leases and note 32 accounting policies, paragraph I and J. 12 Leases Operating leases of tangible assets - the Group as lessee Overview of future minimum lease payments Within 1 year 2-5 years After 5 years Total Minimum operating lease payments falling due in the periods In 2015 the Group leased 5 vessels: Harvey Deep-Sea, Chloe Candies, Ross Candies, Polar King and Normand Reach. The vessels are leased on longterm contracts, however short-term contracts are also used depending on operational requirements. Leased in vessels operate in the subsea projects segment. Harvey Deep-Sea, Chloe Candies, Ross Candies are utilized in the Gulf of Mexico. Normand Reach and Polar King are utilized in the North Sea. Both Chloe Candies and Polar King has been returned to owners at year-end. The Group has entered into a Letter of Intent with Canadian Subsea Shipping Company, an associated company, to lease a subsea vessel on a bareboat charter from medio The figures stated above does not reflect this lease. For further information on this arrangement, please refer to note 26 Investments in associates and joint ventures. Within the subsea project segment, the Group from time to time leases third party vessels on short-term basis in order to service the Group s clients. The lease on the head office is described in note 23 related parties. Yearly lease fee for head office is NOK 10.7 million. For further information on leases, please refer to note 32 accounting policies, paragraph J. 77

76 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million Lease income - the Group as lessor DOF Subsea Group acts as a lessor in connection to operating leases. The leases relate to the time charter and bareboat contracts on vessels. Vessels on operating lease are recognized as tangible assets, see note 11 Tangible assets. Lease payments received are recognized in the statement of comprehensive income. Future minimum operating lease income arising from contracts on vessels at year-end All contracts in foreign currency are converted to NOK using the exchange rate at ; Overview of future minimum lease revenue Within 1 year 2-5 years After 5 years Total Minimum operating lease income amounts falling due in the periods Total minimum operation lease income including joint ventures falling due in the periods At year-end, 14 vessels (13 vessels in 2014) were on operating leases. Total future minimum operating lease income from firm contracts is NOK million and together with options amounts to NOK million. Total future minimum operating lease income includes firm contracts from DOF Subsea Group vessels and the Group s share of vessels in the joint ventures. Joint ventures are consolidated using equity method, see notes 26 Investments in associates and joint ventures for further information. Total future minimum operating lease income from firm contracts together with options amounts to a total of NOK 33 billion, and including contracts in the subsea projects segment the total backlog for the Group was NOK 39 billion at year-end Please refer to note 32 accounting policies, paragraph J, for further information on operating leases. Finance leases of tangible assets - the Group as lessee The Group s assets held under finance leases include several ROVs. In addition to the lease payments, the Group is also committed to maintaining and insuring the assets. The assets held under finance leases are as follows: Finance leases Cost at Additions Cost at Depreciation at Depreciation for the year Depreciation at Book value at ROVs under finance leases are recognized as part of tangible assets, please refer to note 11 tangible assets. Overview of future minimum lease payments Within 1 year 2-5 years After 5 years Total Minimum lease amounts falling due in the periods For information on repayment of lease debt please refer to note 17 interest-bearing debt. Some of the Group s ROVs held under finance leases are further directly subleased to external clients. Lease payments received are recognized in the statement of comprehensive income. Future minimum sublease income arising from these contracts at year-end 2015 is shown in the table below: Overview of future minimum sublease income Within 1 year 2-5 years Total Minimum sublease income falling due in the periods Non-current receivables Non-current receivables Note Non-current receivables from DOF ASA companies Non-current receivables from joint ventures Derivative financial instruments Other non-current receivables Total non-current receivables at

77 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million 14 Trade receivables Trade receivables Trade receivables at nominal value Accrued income not invoiced Impairment of trade receivables Total trade receivables at Accounting item at NOK USD GBP AUD OTHER TOTAL Trade receivables Aging profile Total Not matured < 30 d d d >90d Trade receivables at nominal value Accounting item at NOK USD GBP AUD OTHER TOTAL Trade receivables Aging profile Total Not matured < 30 d d d >90d Trade receivables at nominal value The majority of the Group s trade receivables are to major international oil companies and major subsea entrepreneurs. The Group historically has a low level of bad debts, and the credit risk is considered to be low. Within the subsea project segment, payment milestones in the contracts and variation orders impact the cash collection for the Group and potentially leads to short-term fluctuations in trade receivables. For further information on trade receivables, please see note 32 accounting policies, paragraph H. 15 Other current receivables Other current receivables Note Receivables from DOF companies Receivables from joint ventures Government taxes receivable (VAT) Prepaid expenses Insurance claims 8 57 Accrued interest income 8 10 Derivatives financial instruments 8 1 Fuel reserves and other inventory Other current receivables 1 12 Total other current receivables at Cash and cash equivalents Cash and cash equivalents Restricted cash Unrestricted cash and cash equivalents Total cash and cash equivalents A long-term loan has been provided by Eksportfinans and is invested as a restricted deposit. The repayment terms on the loan from Eksportfinans are equivalent to the reduction of the deposit, i.e. recognized in the financial statements on a gross basis. The loan will be fully repaid in The cash deposit is included in restricted deposits with a total of NOK 390 million (NOK 474 million in 2014). For further information on cash and cash equivalents, please refer to note 32 accounting policies, paragraph G. 79

78 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million 17 Interest-bearing debt Debt The DOF Subsea Group had as per year-end 2015 two bond loans, which mature in 2016 and The trustee on behalf of the bond holders is Nordic Trustee ASA, while the account manager is Nordea Bank Norge ASA. Interest rates are fixed and paid on a quarterly basis. No particular security has been provided for the loans and the Group is free to acquire its own bonds. Non-current interest-bearing debt Bond loan, floating rate Debt to credit institutions Total non-current interest-bearing debt Current interest-bearing debt Bond loan, floating rate Debt to credit institutions Total current interest-bearing debt Total non-current and current interest-bearing debt Net interest-bearing debt Cash and cash equivalent Other interest-bearing assets - non-current Total net interest-bearing debt Short portion of debt in the statement of financial position includes accrued interest expenses. Accrued interest expenses are excluded in the current interest-bearing debt above. Debt repayment profile Thereafter Total Bond loan Debt to credit institutions Total repayment Interest repayment profile Liabilities held for sale, NOK 260 million, are included in total repayment for Interest repayment is based on current repayment profile on existing debt and the yield curve for the underlying market interests rates from Reuters as of December Amortized costs are not included in the repayment profile above. Repayment profile for debt to credit institutions includes repayment of financial lease debt. Total liability on financial lease debt amounts to NOK 352 million as of 31 December Financial leases are repaid on a monthly basis with maturity from 3 till 10 years. The short portion of financial lease debt as of 31 December 2015 is NOK 75 million. For further information on financial leases, please refer to note 12 leases. Liabilities secured by mortgage Liabilities to credit institutions, incl. leases Book value of assets pledged as security Average rate of interest 5.55% 6.27% Currency distribution current liabilities NOK USD TOTAL Bond loan Debt to credit institutions Total Debt to credit institution in USD is revalued to NOK using USDNOK exchange rate as per 31 of December

79 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million A mortgage loan of NOK 390 million (NOK 474 million in 2014) is secured by a cash deposit, see note 16 cash and cash equivalents. Interest rate and derivative instruments on the cash deposit cover the debt repayment on the loan. The price of the Company s bond loans at was as follows: Loan Price Outstanding Price Outstanding DOF Subsea AS 11/16 FRN DOFSUB DOF Subsea AS 12/15 FRN DOFSUB DOF Subsea AS 13/18 FRN DOFSUB Other long-term liabilities, with the exception of long-term loans, have nominal value equivalent to fair value of the liability. Financial covenants The Group s long-term financing agreements include the following covenants: The Group shall have available cash of at least NOK 500 million at all times The Group shall have value-adjusted equity to value-adjusted assets of at least 30% The Group shall have book equity of at least NOK million at all times The Group shall have positive working capital at all times, excl. short portion of debt to credit institutions The fair value of the Group s vessels shall always be at least % of the outstanding loan amount In addition to the above-mentioned financial covenants, the loan agreements are also subject to the following conditions: The Group s assets shall be fully insured There shall not be any change to classification, management or ownership of the ships without the prior written approval of the lenders DOF ASA shall be the principal shareholder in DOF Subsea AS, and own a minimum of 50.1 % of the shares DOF Subsea AS shall not merge, demerge or divest activities without the prior written approval of the lenders DOF Subsea AS shall report financial information to the lenders and Oslo Stock Exchange on a regular basis The Group s vessels shall be operated in accordance with applicable laws and regulations The Group is in compliance with all covenants. For further information on interest-bearing debt, please refer to note 32 accounting policies, paragraph L. 18 Trade payables Accounting item at NOK USD GBP Other Total Trade payables Other currencies in the table above include Australian dollars (AUD) of NOK 91 million and Brazilian Real (BRL) of NOK 28 million. Accounting item at NOK USD GBP Other Total Trade payables Other currencies in the table above include Australian dollars (AUD) of NOK 46 million and Brazilian Real (BRL) of NOK 60 million. 81

80 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million 19 Other current liabilities Other current liabilities Note Current liabilities to DOF ASA companies Tax payables Public duties payables Prepayment from customers Financial current derivatives Other current liabilities Total other current liabilities at Fair value estimation Total measurement level 1 (Quoted, unadjusted prices in active markets for identical assets and liabilities) Fair value of interest-bearing debt is disclosed with face value of the bank loans and market value of bonds. Total measurement level 2 (Quoted techniques for which all inputs which have significant effect on the recorded fair value are observable, directly and indirectly) The fair value of forward exchange contracts is determined using the forward exchange rate at the statement of financial position date. The forward exchange rate is based on the relevant currency s interest rate curves. The fair value of interest swaps is determined by the present value of future cash flows, which is also dependent on the interest rate curves. Total measurement level 3 (Techniques which use inputs which have significant effect on the recorded fair value that are not based on observable market data). 21 Financial instruments and hedging activities As of December 31, 2015 the Group had 18 forward contracts, 18 option contracts and 2 foreign exchange swaps to hedge future sales to customers. Foreign exchange derivatives are utilized to hedge currency risk related to projected future sales. Interest rate swaps are utilised to manage interest rate risk by converting from floating to fixed interest rates. The Group has not applied hedge accounting for any of the interest rate swap agreements entered into in For further information on financial instruments, please refer to note 32 accounting policies, paragraph U. The following table displays the fair value of financial derivatives as of 31 December 2015: Non-current and current portion Measurement level Assets Liabilities Assets Liabilities Interest rate swaps - cash flow hedges Interest rate swaps - cash flow hedges under hedge accounting Foreign exchange contracts cash flow hedges Total non-current and current portion Non-current portion Interest rate swaps - cash flow hedges Interest rate swaps - cash flow hedges under hedge accounting Foreign exchange contracts cash flow hedges Total non-current portion Total current portion Derivatives are classified as current or non-current assets or liabilities. The full fair value of a hedging derivative is classified as non-current asset or liability if the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability, if the maturity of the hedged item is less than 12 months. Interest rate swaps - cash flow hedges under hedge accounting are presented before tax in the table above. For further information on derivative financial instruments, please see note 32 accounting policies, paragraph U. 82

81 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million As of the Group held the following interest rate derivatives Instruments Fixed rate Floating rate Notional amount Effective from Maturity date Interest rate swaps / swaptions - cash flow hedges USD 1.93% % LIBOR 3m -6m Interest rate swaps / swaptions - cash flow hedges NOK 1.90% % NIBOR 3m -6m Interest rate swaps / swaptions - cash flow hedges under hedge accounting USD Interest rate swaps / swaptions - cash flow hedges under hedge accounting NOK Interest rate swaps / swaptions - cash flow hedges USD 1.93% % LIBOR 3m - 6m Interest rate swaps / swaptions - cash flow hedges NOK 1.90% % NIBOR 3m - 6m Interest rate swaps / swaptions - cash flow hedges under hedge accounting USD 1.67% % LIBOR 3m - 6m Interest rate swaps / swaptions - cash flow hedges under hedge accounting NOK 2.99% % NIBOR 3m - 6m As of the Group held the following foreign exchange rate derivatives, not qualified for hedge accounting Committed Instrument Received Amount Remaining term to maturity Foreign exchange options, buy NOK NOK 849 < 1 Year Foreign exchange options, buy NOK NOK 257 > 1 Year Foreign exchange forwards, buy NOK NOK 911 < 1 Year Foreign exchange swaps NOK 456 < 1 Year Foreign exchange forwards, buy NOK NOK <1 year Foreign exchange swaps NOK 432 <1 year Effective portion of cash flow hedges recognized in other comprehensive income Interest rate derivatives, pre-tax - 31 Cash flow hedging ineffectiveness was not identified for interest rate derivatives, both prospective and retrospective. 83

82 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million 22 Financial instruments - by category This note gives an overview of the carrying value of the Group s financial instruments and the accounting treatment of these instruments. The table is the basis for further information regarding the Group s financial risk. For further information on financial instruments, please refer to note 32 accounting policies, paragraph T Financial instruments at fair value through comprehensive income Financial instruments as cash flow hedging instruments Financial instruments measured at amortized cost Loans and receivables Total Of this interest bearing Assets Non-current derivatives Other non-current receivables Trade receivables and other current receivables Current derivatives Restricted deposits Unrestricted cash Total financial assets Liabilities Derivatives non-current Interest-bearing non-current liabilities Short portion of debt Other non-current liabilities Current derivatives Trade payables and other current liabilities Total financial liabilities Financial instruments at fair value through comprehensive income Financial instruments as cash flow hedging instruments Financial instruments measured at amortized cost Loans and receivables Total Of this interest bearing Assets Non-current derivatives Other non-current receivables Trade receivables and other current receivables Current derivatives Restricted deposits Unrestricted cash Total financial assets Liabilities Derivatives non-current Interest-bearing non-current liabilities Short portion of debt Other non-current liabilities Current derivatives Trade payables and other current liabilities Total financial liabilities Prepayments and non-financial liabilities are excluded from the disclosures above. The following of the Group s financial instruments are measured at amortized cost: cash and cash equivalents, trade receivables, other current receivables, overdraft facilities and all interest-bearing debt. The carrying amount of cash and cash equivalents and overdraft facilities is approximately equal to fair value since these instruments have a short term to maturity. Similarly, the carrying amount of trade receivables and trade payables is approximately equal to fair value since they are entered into at standard terms and conditions. The fair value of the interest-bearing debt is the disclosed face value of the bank loans and market value of bonds. 84

83 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million 23 Related parties Description of related parties and the DOF Subsea Group s relationship to these: DOF ASA is the majority shareholder in DOF Subsea Holding AS with a 51% holding on December 31, DOF Subsea AS is 100% owned by DOF Subsea Holding 2 AS, which is in turn owned 100% by DOF Subsea Holding AS. First Reserve Corporation controls the minority share of 49 % in DOF Subsea Holding AS. DOF ASA controls companies which hire vessels, and deliver goods and services to companies in the Group. Furthermore, the Group has contracts covering leasing of assets and delivering of services to DOF ASA companies. Operating income from DOF ASA companies Vessel hire Hire of ROV equipment and services Other income 4 43 Total Operating expenses to DOF ASA companies Vessel hire Crew and other personnel hire Vessel technical costs Management fee vessels Other management services and IT costs Total DOF Subsea Brasil Serviços Ltda. DOF Subsea Brazil Serviços Ltda. purchases management services from Norskan Offshore Ltda. in Brazil. Norskan Offshore Ltda. is 100% owned by DOF ASA. Norskan Offshore Ltda. hires crew and equipment from DOF Subsea Brasil Serviços Ltda. Purchase of vessel Skandi Hawk was delivered to the Group in The vessel was acquired from DOF ASA. Purchase of vessel management services The Group purchases management services from DOF Management AS and Norskan Offshore Ltda. for its entire fleet of 21 vessels. The management fee in 2015 varied from NOK 3.3 million till NOK 6 million (NOK 3.7 million till NOK 6 million in 2014) per vessel. Other management services and IT costs Marin IT delivers IT support to the Group. Other management services (income and expenses) will include transactions like hire of onshore staff, rental of office space and other reimbursable expenses invoiced from or to DOF ASA companies. Rental of office space Part of the office space located at Thormøhlensgate 53 C, 5006 Bergen, rented by DOF Subsea AS, is used by DOF Management AS. The rental fee allocated to DOF Management AS, to be paid to the Company is determined at NOK 2.4 million per year. Leasing of premises The Company leases two cottages from Moco Eiendom AS, a company 100% owned by CEO Mons S. Aase. The total leasing cost in 2015 has been NOK 0.3 million (NOK 0.3 million). No adjustment to the agreement has been done since the inception in Financial income and expenses from / to DOF ASA companies Interest income - 1 Guarantee fees Total Guarantee agreement between DOF ASA and the Group The Group has in June 2010 entered into a guarantee agreement with DOF ASA. DOF ASA has provided a parent company guarantee for obligations of DOF Subsea Brasil Serviços Ltda. and DOFCON Navegação Ltda. The outstanding loans guaranteed by DOF ASA amounts to USD 330 million as of December 31, 2015 (USD 358 million as of 31 December 2014). The contract is subject to standard terms and done according to the Group s policies. 85

84 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million Year-end balances arising from sales / purchases of goods / services related to DOF ASA companies Current receivables Current liabilities Loans to DOF ASA companies Other non-current receivables Further information related to DOF ASA, see Financial Statements for DOF ASA. Loans to joint ventures Other non-current receivables Loans are given from DOF Subsea AS to joint ventures to finance the joint venture newbuilding program. DOF Subsea AS also guaranteed 40% of the purchase price of each newbuild vessel to the yard. For further information on joint ventures see note 26 investment in associates and joint venture. Year-end balances arising from sales / purchases of goods / services related to joint ventures Current receivables Remuneration to Board of Directors, Executives and Auditor Remuneration to Board of Directors, Executives, and Auditor CEO EVP CEO EVP Salaries Management fee Payment from DOF Subsea CEO=Mons Aase, EVP=Jan Nore Salaries include pension, bonuses and other compensations from the Company. Senior executives are included in the general Group s pension plan, see note 6 payroll expenses. For additional information on employee benefits, please refer to note 32 accounting policies, paragraph S. For 2015 Jan Nore held the position as EVP and CFO for the Group. The EVP is entitled to a bonus based on the result of the company and personal performance. The Group is part of the DOF ASA Group, see note 31 share capital and share information, and the CEO is entitled to a bonus of 0.5% of DOF ASA s profit for the year. The contract with the CEO includes a 6 month termination period and 12 months termination compensation. The CEO s retirement compensation is based on 70% salary and the retirement age is set at 67 years. Cost related to CEO Mons Aase is included in the management fee between DOF ASA and DOF Subsea AS for Please refer to the DOF ASA annual report for further information of salary to CEO Mons Aase. No loans have been given to or any security provided for the CEO/EVP, members of the Board of Directors, members of the Group management or other employees or close relatives of the same Group. The Board of Directors received no fees, nor compensation in fees in Specification of Auditor s fee (excl. VAT) Fee for audit of financial statements Fee for other attestation services Fee for other tax consultancy Fee for other services Total The Board has drawn up the following statement The Board of Directors prepares annually a separate statement regarding the remuneration of executives in accordance with the Norwegian Public Limited Companies Act, Allmennaksjeloven 6-16a. The following guideline is presented at the Annual General Meeting in May. 86

85 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million The Board of Directors has established a Compensation Committee. The responsibilities and duties of the Committee are as follows: Statement on guidelines for defining salaries and other payments for the CEO and other senior executives of the Group The following functions shall be the common recurring activities of the Committee in carrying out its responsibilities for establishing and reviewing the overall compensation philosophy of the Group. These functions should serve as a guide with the understanding that the Committee may carry out additional functions and adopt additional policies and procedures as may be appropriate in light of changing business, legislative, regulatory or other conditions. The Committee shall also carry out any other responsibilities and duties delegated to it by the Board of Directors from time to time related to the purposes of the Committee. The Committee, in discharging its oversight role, is empowered to study or investigate any matter of interest or concern that the Committee deems appropriate and shall have the sole authority to retain outside counsel or other experts for this purpose, including the authority to approve the fees payable to such counsel or experts and any other terms of retention. The main principles guiding the Group s executive remuneration policy is that senior executives shall be offered terms which are competitive in terms of salary, benefits in kind, bonus and pension plan taken as a whole. The Company offers a salary level which reflects a comparable level in equivalent companies and businesses, taking into account the Company s need for well qualified staff in all parts of the business. When it comes to setting salaries and other payments for senior executives, this must be in line with the principles outlined above at all times. Payments to senior executives over and above the basic salary shall be restricted to bonuses. Any bonus to the CEO is set by the Chairman of the Board. Bonuses to other senior executives are set by the CEO in conjunction with the Chairman of the Board. DOF Subsea AS does not have any schemes for granting options to purchase shares in the Company or in other companies within the Group. Senior executives are members of the Group s pension plan, which provides pension benefits not exceeding 12 G (G = national insurance basic amount) per year. Senior executives may have agreements concerning Company cars and phones, but do not receive any other benefits in kind. In the event of termination by the Company, there is no provision for senior executives to receive pay after termination of employment in excess of payment of salary for the period of notice equivalent to the number of months set down in the provisions of the Working Environment Act. 25 Companies within the Group Subsidiary Owner Registered office Proportion of ownership and votes DOF Installer ASA DOF Subsea AS Austevoll 83.7 DOF Subsea Angola Lda DOF Subsea AS Luanda, Angola 100 DOF Subsea Asia Pacific Pte Ltd DOF Subsea AS Singapore 100 DOF Subsea Asia Pacific Pte Ltd Philippine Branch DOF Subsea Asia Pacific Pte Ltd Muntinlupa City, Philippines 100 DOF Subsea Brasil Serviços Ltda DOF Subsea AS Macaé, Brasil 100 DOF Subsea Chartering AS DOF Subsea AS Bergen 100 DOF Subsea Congo S.A. DOF Subsea AS Pointe-Noire, Republice du Congo 55 DOF Subsea Norway AS DOF Subsea AS Bergen 100 DOF Subsea Atlantic AS DOF Subsea AS Bergen 100 DOF Subsea Rederi AS DOF Subsea AS Bergen 100 DOF Subsea Rederi II AS DOF Subsea AS Bergen 100 DOF Subsea Rederi III AS DOF Subsea AS Bergen 100 DOF Subsea ROV Holding AS DOF Subsea AS Bergen 100 DOF Subsea S&P UK Ltd DOF Subsea AS Aberdeen, UK 100 DOF Subsea UK Holding Ltd DOF Subsea AS Aberdeen, UK 100 DOF Subsea UK Ltd DOF Subsea AS Aberdeen, UK 100 DOF Subsea US Inc DOF Subsea AS Houston, USA 100 Semar AS DOF Subsea AS Oslo 50 PT DOF Subsea Indonesia DOF Subsea Asia/Pacific Pte Ltd Jakarta 95 DOF Subsea Labuan Bhd DOF Subsea Asia/Pacific Pte Ltd Labuan, Malaysia 100 DOF Subsea Australia PTY DOF Subsea Asia/Pacific Pte Ltd Perth, Australia 100 DOF Subsea Malaysia Sdn Bhd DOF Subsea Asia/Pacific Pte Ltd Kuala Lumpur, Malaysia 100 DOF Subsea Offshore Services Pte Ltd DOF Subsea Asia Pacific Pte Ltd Singapore 100 DOF Subsea ROV AS DOF Subsea ROV Holding AS Bergen 100 CSL UK Ltd DOF Subsea UK Holding Ltd Aberdeen, UK 100 CSL Norge AS CSL UK Ltd Bergen 100 Mashhor DOF Subsea Sdn DOF Subsea Australia Pty Ltd Negara Brunei Darussalam 50 NEXUS Energy Recruitment Services Ltd CSL UK Ltd Aberdeen, UK 100 DOF Subsea Canada Corp. DOF Subsea US Inc St. Johns, Canada 100 DOF Subsea S&P US LLP DOF Subsea US Inc Houston, USA 100 For further information, please refer to note 32 accounting policies, paragraph C for information on subsidiaries and to note 32 accounting policies, paragraph P for information on transactions with non-controlling interests. The profit or loss allocated to the non-controlling interest of subsidiaries is not material for the Group for

86 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million 26 Investments in associates and joint ventures Please refer to note 32 accounting policies, paragraph C, for discussion on joint arrangements DOFCON Brasil Group DOFTech DA Associated companies Book value of investments Adjustment opening balance Profit / loss for the period* Other comprehensive income Disposal of DOFTech Dividend Book value of investments * Includes sales gain on DOFTech DA of NOK 43 million DOFCON Brasil Group DOFTech DA Associated companies Book value of investments Profit / loss for the period Other comprehensive income Dividend received Book value of investments Total Total Name of entity Place of business/country of incorporation % of ownership interest Nature of the relationship Measurement method DOFCON Brasil Group Norway 50% Note 1 Equity DOF Management Group Norway 34% Note 3 Equity Marin IT AS Norway 35% Note 4 Equity Master and Commander AS Norway 20% Note 5 Equity Canadian Subsea Shipping Company AS Norway 45% Note 6 Equity Note 1: The Group has the following joint ventures with Technip: DOFCON Brasil Group and DOFTech DA. DOFTech DA was sold during DOFCON Brasil Group consists of DOFCON Brasil AS, TechDOF Brasil AS and DOFCON Navegação Ltda. DOFCON Brasil AS is a holding company located in Bergen. It is jointly owned by DOF Subsea AS and Technip Coflexip Norge AS with 50% each. The company owns TechDOF Brasil AS and controls DOFCON Navegação Ltda. DOFCON Brasil Group owns two vessels and has four vessels under construction. DOFCON Navegação Ltda owns and operates Skandi Niterói and Skandi Vitória. Both vessels are on contracts and there are added values to both existing contracts and the vessels. TechDOF Brasil AS is a company building two new pipeline support vessels (PLSVs) in Norway. Two other PLSVs are under construction in Brazil with high national content. All four PLSVs are contracted with Petrobras and expected delivery for the vessels is 2016 and Financing for three of the PLSVs is secured. Financing for the fourth PLSV is in progress. Newbuilds No vessels Completion Newbuilds under construction in Norway Newbuilds under construction in Brazil The Group has liability to pay its share of vessels purchase price. DOF Subsea AS guaranteed for 40% of the purchase price of each vessel to the yard, see also note 29 guarantees. DOFCON Brasil Group is not involved in any disputes or ongoing legal matters involving potential losses, and therefore no provision has been made for possible claims arising from the same. Note 2: During quarter , the investment in DOFTech DA was sold. The company was engaged in a long-term timecharter hire of Skandi Arctic with Technip UK, an affiliated company with Technip Norge AS. Note 3: DOF Management was established in The company performs ship management, ship operation and deliver services to customers. DOF Management Group of companies delivers marine management to the DOF Subsea Group s fleet. The remaining 66% in DOF Management is owned by DOF ASA. Note 4: Marin IT AS delivers IT support. DOF Subsea Group is a customer of Marin IT AS. The remaining shares in Marin IT AS are owned by DOF ASA and Austevoll Seafood ASA. Note 5: Master & Commander AS was established on 28 of December 2006, and owns two vessels Oceanic Phoenix and Geowave Commander. The vessels are on long term contracts. Note 6: Canadian Subsea Shipping Company has entered into an new building contract for one vessel. DOF Subsea Group has entered into a Letter of Intent to lease the vessel on a bareboat charter from medio The Group is committed to fund Canadian Subsea Shipping Company additional NOK 34 million. 88

87 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million Summarised financial information for joint ventures Statement of comprehensive income DOFCON Brasil Group DOFTech DA DOFCON Brasil Group DOFTech DA Total operating income Total operating expenses Operating profit before depreciation (EBITDA) Operating profit (EBIT) Net financial income / loss Profit / loss before tax Tax expenses Profit / loss for the year Other comprehensive income / loss, net of tax Total comprehensive income / loss for the year, net of tax Statement of financial position Assets Intangible assets Tangible assets Non-current assets Total receivables Cash and cash equivalents Total current assets Total assets Equity and liabilities Total equity Non-current liabilities Current liabilities Total liabilities Total equity and liabilities Financial statements of the joint ventures are not audited and based on figures consolidated in the DOF Subsea Group at year-end. The figures for DOFTech DA above reflect the amounts presented in the financial statements of the joint venture adjusted for differences in accounting policies between the Group and the joint ventures. The depreciation in the DOFTech DA financial statements is based on Technip depreciation rules which differ from the depreciation applied by the DOF Subsea Group. DOF Subsea Group has no excess values recognized related to investment in joint ventures or associates at year-end

88 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million Summarised financial information for associates 2015 Associated companies Assets at Liabilities at Share holders equity at Profit / loss for the year DOF Management Group Marin IT Canadian Subsea Shipping Company AS Master & Commander Group s carrying amount of the investment Associated companies Assets at Liabilities at Share holders equity at Profit / loss for the year DOF Management Group Marin IT Master & Commander Group s carrying amount of the investment 94-8 All amounts in the table above are DOF Subsea Group s share of asset, liabilities, shareholders equity and profit / loss for the year. Financial statements of the associated companies are not audited. 27 Contingencies The Group is not involved in any disputes or ongoing legal matters involving potential losses, and therefore no provision has been made for possible claims arising from the same. Please refer to note 32 accounting policies, paragraph N, for discussion on contingent liabilities. 28 Guarantees The Group has commitments to clients to ensure proper performance of construction contracts. These commitments are mainly parent company guarantees or counter guarantees given by banks. The guarantees are limited to fulfilment of the contract and are released after delivery of the project. In some cases, there is a warranty period after delivery of the project. Normally this warranty will have a duration of months. Furthermore, guarantees are given to suppliers for fulfilment of payment for deliveries of goods and services including vessels. Liabilities for these deliveries are recognized in the consolidated statement of financial position. See also note 26 investment in associates and joint venture for future commitments related to newbuilds as part of the joint venture with Technip. The Group is committed to fund Canadian Subsea Shipping Company additional NOK 34 million. See note 26 investment in associates and joint venture for further information about Canadian Subsea Shipping Company. 29 Earnings per share Basis for calculating earnings per share Profit / loss attributable to shareholders of the parent company Weighted average number of outstanding shares Weighted average number of outstanding shares, diluted Earnings and diluted earnings per share (NOK)

89 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million 30 Share capital and share information Share capital The share capital in DOF Subsea AS at was NOK million comprising 119,733,714 shares, each with a nominal value of NOK Shareholder overview The shareholders in the Company were as follows: Shareholders at / No. of shares Proportion of ownership Share capital DOF Subsea Holding 2 AS % Total % Senior executives and the Board members own shares in related companies, and thus have indirect ownership stakes in DOF Subsea Holding 2 AS. Board of Directors Helge Møgster Helge Singelstad Mons S. Aase Hilde Drønen Alex Townsend Krueger Neil John Hartley John Mogford Ryan Zafereo Title Chairman Board Member Board Member Board Member Board Member Board Member Board Member Board Member Management group Mons S. Aase Jan Nore Title CEO CFO/EVP The Company is a part of DOF ASA. Please refer to the DOF ASA annual report for shares held in DOF ASA by the management and the Board of Directors. The annual report is published at 31 Events occurring after the consolidated statement of financial position date In January 2016, the Group delivered the vessel Skandi Protector to the new owners, improving the Group s cash position. The joint venture with Technip took partial delivery of the Skandi Acu, and final delivery was in April DOF Subsea AS has purchased NOK 62 million in its bond loan DOFSUB05, and the net outstanding amount after the transaction is NOK million. DOF Subsea has been awarded several IMR and subsea installation contracts during the first months of 2015, with a total contract value in excess of NOK 500 million. The contracts secure utilization of the subsea project fleet in the regions. In the Asia Pacific region DOF Subsea has been awarded an LOI from a key client for a EPCI project with the offshore phase during first half The scope of work includes supply chain management services for the fabrication and supply of mooring chains, replacement of eight mooring legs and PM&E. In the Atlantic region, DOF Subsea has been awarded several contracts during the first months of A highlight was the award of an FPSO mooring installation and hook-up contract by Yinson Production offshore Ghana, on the Eni operated OCTP field. The contract will secure utilization of the Atlantic organization and regional subsea vessels in Q and Q1 2017, and the project will increase DOF Subsea s presence in West Africa. Other highlights were the award of a 5-year pipeline inspection frame agreement for Maersk, and survey work for Nexans relating to the NordLink cable, connecting the Norwegian and German electricity markets. DOF Subsea also won repeat subsea work for Statoil, Maersk and other clients in the region. In the North America region, DOF Subsea has been awarded several contracts with key clients in the Gulf of Mexico and offshore Canada. The scope of work includes survey, IMR and light construction. To service the contracts offshore Canada, DOF Subsea will charter the DOF-vessel Skandi Chieftain for a 100-day job, in addition to increasing the number of ROV systems deployed in the region. 91

90 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million 32 Accounting policies A. Summary of significant accounting principles The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU. B. Going concern The Group has a satisfactory economical and financial position which provides the basis for the going concern assumption in accordance with the Norwegian Accounting Act section 3-3a. C. Group Consolidation principles Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date control is transferred to the Group. They are deconsolidated from the date control ceases. The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities assumed in a business combination, including contingent liabilities are measured initially at fair value as at the acquisition date. The Group recognizes any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the noncontrolling interest s proportionate share of the recognized amounts of the acquiree s identifiable net assets. Acquisition-related costs are expensed as incurred If the business combination is achieved in stages, the carrying value of previously held equity interests is re-measured to fair value at the acquisition date; any gain or loss arising from such re-measurement is recognized in the consolidated statement of comprehensive income. Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in accordance with IAS 39 either in the consolidated statement of comprehensive income or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within the consolidated statement of changes in equity. Goodwill is measured as the excess of consideration transferred over the fair value of the identifiable net assets acquired in the business combination. According to IFRS 3 business combinations, if a business combination is achieved in stages, the amount of previously held equity interests is re-measured to fair value as at the acquisition date. The goodwill calculation now becomes the excess of purchase consideration, the fair value of previously held equity interests over the fair value of identifiable net assets acquired. Where negative goodwill arises from this calculation, the difference is recorded directly in the consolidated statement of comprehensive income. Inter-company transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized losses are also eliminated when necessary amounts reported by subsidiaries have been adjusted to conform to the Group s accounting policies. Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in the consolidated statement of changes in equity. Gains or losses of disposals to non-controlling interests are also recorded in the consolidated statement of changes in equity DOF ASA companies DOF ASA companies are defined as DOF ASA and its subsidiaries excluding companies within the DOF Subsea Group. Joint arrangements Effective from 1st of January 2014, the Group applied IFRS 11 joint arrangements to all jointly controlled arrangements. Under IFRS 11 investments in jointly controlled companies are classified as either joint operations or joint ventures depending on the contractual rights and obligations for each investor. DOF Subsea Group has assessed the nature of its jointly controlled companies and determined them to be joint ventures. Joint ventures are accounted for using the equity method. The Group has historically applied the proportionate consolidation method when accounting for joint ventures. Under the equity method of accounting, interests in joint ventures are initially recognized at cost and adjusted thereafter to recognize the Group s share of post-acquisition profits or losses and movements in other comprehensive income. When the Group s share of losses in a joint venture equals or exceeds its interest in the joint venture (which includes any long-term interests that, in substance, form part of the Group s net investments in the joint ventures), the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the joint ventures. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group. Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognized at cost, and the carrying amount is increased or decreased to recognize the investor s share of profit or loss of the investee after the date of acquisition. The Group s investment in associates includes goodwill identified on acquisition. The Group s share of post-acquisition profit or loss is recognized in the consolidated statement of comprehensive income, and its share of postacquisition movements in other comprehensive income is recognized in other comprehensive income. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income is reclassified to the consolidated statement of comprehensive income where appropriate. When the Group s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. 92

91 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million The Group determines at each reporting date whether there is any objective evidence that the investment in the associate has been impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value, recognizing the amount in the consolidated statement of comprehensive income adjacent to share of net income of associates in the consolidated statement of comprehensive income. Profits and losses resulting from upstream and downstream transactions between the Group and its associates are recognized in the Group s financial statements only to the extent of unrelated investor s interests in the associates. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Dilution gains and losses arising in investments in associates are recognized in the consolidated statement of comprehensive income. D. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-makers, as defined in note 4 Segment information. The chief operating decision-makers are responsible for allocating resources and assessing performance of the operating segments. The Group s primary reporting is determined by business segment, and the Group operates within two business segments: Chartering of vessels Subsea projects E. Conversion of foreign currency Foreign currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The functional currency is mainly NOK, USD, AUD, GBP and BRL (Brazilian real). The consolidated financial statements are presented in Norwegian Krone (NOK). Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the transaction date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the conversion at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized as financial income or costs. Where assets and liabilities are settled at period end, this will give rise to a realized exchange gain or loss which will be carried to the consolidated statement of comprehensive income. Where accounting balances are reassessed at the period end but not settled, this will give rise to an unrealized exchange gain or loss also carried to the consolidated statement of comprehensive income. Group companies The results and financial position of all the Group entities that have a functional currency which differs from the presentation currency are converted into the presentation currency as follows: assets and liabilities presented at consolidation are converted to presentation currency using the foreign exchange rate on the date of the consolidated statement of financial position, income and expenses are converted using the average rate of exchange, and all resulting exchange differences are recognized in other comprehensive income and specified separately in the consolidated statement of changes in equity as a separate post. When the entire interest in a foreign entity is disposed of or control is lost, the cumulative exchange differences relating to that foreign entity are reclassified to the consolidated statement of comprehensive income. F. Classification of assets and liabilities Assets are classified as current assets when: the asset forms part of the entity s operating cycle, and is expected to be realized or consumed over the course of the entity s normal operations; or the asset is held for trading; or the asset is expected to be realized within 12 months of the consolidated statement of financial position date All other assets are classified as non-current assets. Liabilities are classified as current assets when: the liability forms part of the entity s service cycle, and is expected to be settled in the course of normal production time; or the liability is held for trading; or settlement of the liability has been agreed upon within 12 months of the consolidated statement of financial position date; or the entity does not have an unconditional right to postpone settlement of the liability until at least 12 months after the consolidated statement of financial position date. All other liabilities are classified as non-current liabilities Working capital The working capital position of the Group is equal to current assets less current liabilities. It is a measure of the Group s liquidity and efficiency, and demonstrates the Group s ability to pay their current liabilities. G. Cash and cash equivalents Cash and cash equivalents include cash in hand and deposits held on call with banks. Restricted deposits are classified separately from unrestricted bank deposits under cash and cash equivalents. Restricted deposits include deposits with restriction past twelve months. H. Trade receivables Trade receivables are amounts due from customers for services performed in the ordinary course of business. If collection is expected within one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Accrued, but not invoiced revenue is also classified as trade receivables. Work in progress is presented as part of accrued uninvoiced revenue. Trade receivables are recognized initially at fair value and subsequently measured at amortized cost. Discounting is ignored if insignificant. A provision for impairment of trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the asset s carrying value and the estimated recoverable value, which is the present value of estimated future cash flows, discounted at the original effective interest rate. 93

92 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS DOF Subsea Group Amounts in NOK million Changes to this provision are recognized in the consolidated statement of comprehensive income. I. Tangible assets Tangible assets are recognized at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment comprises its purchase price, borrowing costs and any directly attributable costs of bringing the asset to operating condition. If significant, the total expenditure is separated into separate components which have different expected useful lives. Depreciation is calculated on a modified straight-line basis over the useful life of the asset. Depreciable amount equals historical cost less residual value. Depreciation commences when the asset is ready for use. The useful lives of property, plant and equipment and the depreciation method are reviewed periodically in order to ensure that the method and period of depreciation are consistent with the expected pattern of financial benefits expected to be derived from the assets. When property, plant and equipment are sold or retired, their cost and accumulated depreciation and accumulated impairment loss are derecognized and any gain or loss resulting from their disposal is included in the consolidated statement of comprehensive income. For vessels, residual value is determined based on estimated fair value at the end of their useful lives. According to the Group s strategy, it intends not to own vessels with an age above 20 years. For further information on depreciation policy see note 3 accounting estimates and assessments. Ordinary contract costs and ordinary costs related to mobilization are capitalized and amortized on a systematic basis consistent with the contract period. Contract period is based on best estimates taken into consideration, the initial agreed period with probability for optional periods. A probability judgment is performed in assessing whether the option period shall be included in the contract period. Assets under construction Assets under construction are capitalized as tangible assets during construction as installments are paid to the yard. Building costs include contractual costs and costs related to monitoring the project during the construction period. Borrowing costs directly attributable to the construction of qualifying vessels are added to the cost of those vessels. The capitalization of borrowing costs will cease when the vessels are substantially ready for their intended use. Assets under construction are not depreciated before the tangible asset is ready for its intended use. Impairment of assets All assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized in the consolidated statement of comprehensive income. The recoverable amount is the higher of an asset s net selling price and value in use. For further information on the calculation see note 3 accounting estimates and assessments. Periodic maintenance Ordinary repairs and maintenance costs of assets are charged to the consolidated statement of comprehensive income as they are incurred. The cost of major modernization, upgrading and replacement of parts of property, plant and equipment is included in the asset s carrying amount, however only when it is probable that the Group will derive future financial benefits from upgrading the assets. See note 3 accounting estimates and assessments for further discussion on periodic maintenance. J. Leases Leases in which a significant proportion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the consolidated statement of comprehensive income on a straight-line basis over the period of the lease. The Group leases in external vessels on operating leases. At the same time, the Group leases out own vessels on bareboat and time charter contracts. Where the Group retains substantially all the risks and rewards of ownership, the leases are classified as finance leases. Finance leases are capitalized at the lease s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. The Group s assets held under finance leases include several ROVs. Each lease payment is allocated between the liability and finance charges. The corresponding lease obligations, net of finance charges, are included in other non-current payables. The interest element is charged to the consolidated statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. K. Goodwill Goodwill arises from the acquisition of subsidiaries and represents the excess of the purchase consideration transferred over the fair value of identifiable net assets acquired. Goodwill comprises the difference between nominal and discounted amounts in terms of deferred tax, synergy effects, organizational value and key personnel and their expertise. Goodwill from acquisitions of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Goodwill is allocated to cash generating units (CGU) for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose. The CGUs are identified according to operating segment. For further information on goodwill and CGUs, see note 3 accounting estimates and assessments and note 4 segment information. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. L. Debt Debt is recognized initially at fair value, net of incurred transaction costs. Debt is subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of comprehensive income over the period of the debt using the effective interest method. Fees paid on the establishment of debt are recognized as transaction costs of the debt to the extent that it is probable that some or all of the liability will be drawn down. In this case, the fee is deferred until the drawdown occurs. To the extent there is no evidence that it is probable that some or all of the liability will be drawn down, the fee is recognized as a prepayment for liquidity services and amortized over the period of the liability to which it relates. 94

93 DOF Subsea Annual Report 2015 DOF Subsea Group Amounts in NOK million Interest expenses related to debt are recognized as part of the cost of an asset when the borrowing costs accrue during the construction period of a qualifying asset. Borrowing costs are capitalized until the time the fixed asset has been delivered and is ready for its intended use. Debt is classified as a current liability unless it involves an unconditional right to postpone payment of the liability for more than 12 months from the consolidated statement of financial position date. The short portion of such debt includes undiscounted installments due within the next 12 months. M. Provisions Provisions are recognized when, and only when, the Group faces an obligation (legal or constructive) as a result of a past event, it is probable (more than 50%) that a settlement will be required and a reliable estimate can be made of the obligation amount. Provisions are reviewed at each consolidated statement of financial position date and adjusted to the best estimate. When timing is significant for the amount of the obligation, it is recognized at present value. Subsequent increases in the amount of the obligation due to interest accretion are reported as interest costs. N. Contingent assets and liabilities Contingent liabilities are defined as: possible liabilities resulting from past events, but where their existence relies on future events; liabilities which are not reported in the financial statements because it is improbable that the commitment will result in an outflow of resources; liabilities which cannot be measured with a sufficient degree of reliability. Contingent liabilities are not reported in the financial statements, with the exception of contingent liabilities which originate from business combinations. Significant contingent liabilities are presented in the notes to the financial statements, except for contingent liabilities with a very low probability of settlement. Contingent assets are not recognized in the financial statements, but are disclosed in the notes to the financial statements if it is probable that the Group will benefit economically. O. Equity Ordinary shares are classified as equity. Transaction costs related to equity transactions, including tax effects of transaction costs, are directly charged against equity. P. Transactions with non-controlling interests The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from noncontrolling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of the non-controlling interests is recorded in the consolidated statement of changes in equity. Gains or losses on disposals to non-controlling interests are also recorded in the consolidated statement of changes in equity. Q. Revenue recognition The Group recognizes income when it is probable that future economic benefits will flow to the entity and when the amount can be reliably measured. Sales income is shown net of discounts, value-added tax and other taxes on gross rates. Chartering of vessels The Group s vessels are mainly leased out on charter parties; that is bareboat charter or time charter. On time charter contracts, customers lease the vessels with crew included. The charterer determines (within the contractual limits) how the vessel is to be utilized. There is no time charter income when the vessels are off-hire. Lease income related to vessels is recorded on a linear basis over the lease period. The lease period starts from the time the vessel is made available to the customer and expires on the agreed return date. Crew and compensation for coverage of other operating expenses are recorded over the contract period on a linear basis. Subsea projects Some contracts are based on daily rates while others are lump sum/ fixed price contracts. Lump sum contract income is recognized in accordance with the stage of completion of the contract, see note 3. Income in projects may increase or decrease based on variations to the original contract. These variations will be recognized based on signed purchase /variation orders. Dividend income Dividend income is recognized when the right to receive payment is established. Interest income Interest income is recognized using the effective interest method. R. Current and deferred income tax The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the consolidated statement of financial position date in the countries where the Company s subsidiaries and associated companies operate and generate taxable income. Permanent establishment of the operation will be dependent on the Group s vessels operations in the period. Tax is calculated in accordance with the legal framework in those countries in which the Group s subsidiaries, associated companies or vessels with permanent establishment operate and generate taxable income. Management periodically evaluates positions taken in tax returns where applicable tax regulation is subject to interpretation and they establish provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the consolidated statement of financial position date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. For further information on deferred tax see note 3 accounting estimates and assessments. Both tax payable and deferred tax are recognized directly in the consolidated statement of changes in equity, to the extent they relate to items recognized directly in the consolidated statement of changes in equity. Similarly any tax related to items reported as other comprehensive income is presented together with the underlying item. Companies under the shipping tonnage tax regime The Group is organized in compliance with the tax regime for shipping companies in Norway. This scheme entails no tax on profits or tax on 95

94 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS dividends from companies within the scheme. Net finance, allowed for some special regulations, will continue to be taxed on an ongoing basis at a rate of 25 %. In addition tonnage tax is payable, which is determined based on the vessel s net weight. This tonnage tax is presented as an operating expense. S. Employee benefits The Group operates various post-employment schemes, including both defined benefit and defined contribution pension plans. Defined contribution plans For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions are recognized as an employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available. Defined benefit plans A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the consolidated statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Actuarial gains and losses arising from changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognized immediately in the consolidated statement of comprehensive income. T. Financial assets The Group classifies its financial assets in the following categories: at fair value through comprehensive income, loans and receivables, and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. Financial assets at fair value through comprehensive income Financial assets at fair value through comprehensive income are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of profiting from shortterm price fluctuations. Derivatives are also categorized as held for trading unless they are designated for hedge accounting. Assets in this category are classified as current assets. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the consolidated statement of financial position date. Loans and receivables are classified as trade receivable and other receivables, and as cash and cash equivalents in the consolidated statement of financial position. Those exceeding 12 months are classified as financial assets. Loans and receivables are carried at amortized cost. Regular purchases and sales of financial assets are recognized on the trade date, that is the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through comprehensive income. Financial assets carried at fair value through comprehensive income are initially recognized at fair value and transaction costs are expensed in the consolidated statement of comprehensive income. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through comprehensive income are subsequently carried at fair value. Gains or losses arising from changes in the fair value of the financial assets at fair value through comprehensive income category, including interest income and dividends, are presented in the consolidated statement of comprehensive income as financial income or expenses in the period in which they arise. Dividend income from financial assets at fair value through comprehensive income is recognized in the consolidated statement of comprehensive income as part of financial income when the Group s right to receive payment is established. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. The Group assesses at each consolidated statement of financial position date whether there is objective evidence that a financial asset or a Group of financial assets are impaired. See paragraph H regarding trade receivables. U. Derivative financial instruments and hedging activities Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured on a continuous basis at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group has various types of hedging relationships that are not documented as hedge accounting and measured at their fair value with the resulting gain or loss recognized immediately in the consolidated statement of comprehensive income. The Group designates certain derivatives and non-derivative financial instruments as hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge). The fair values of various derivative instruments used for hedging purposes are disclosed in note 21 financial instruments and hedgingactivities. Movements on the hedging reserve in other comprehensive income are shown in the consolidated statement of changes in equity. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability when the remaining maturity is less than 12 months. Trading derivatives are classified as current assets or liabilities. 96

95 DOF Subsea Annual Report 2015 The Group currently applies hedge accounting on one type of cash flow hedge; the hedging of interest rate risk on non-current debt. At the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the consolidated statement of comprehensive income. Amounts accumulated in equity are reclassified to the consolidated statement of comprehensive income in the periods when the hedged item affects profit or loss (for example, when a forecasted sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate debt is recognized in the consolidated statement of comprehensive income within finance income/expenses. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the consolidated statement of comprehensive income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated statement of comprehensive income. V. Events after the consolidated statement of financial position date New information regarding the Group s financial position at the consolidated statement of financial position date is included in the financial statements. Events occurring after the consolidated statement of financial position date, which do not impact the Group s financial position, but which have a significant impact on future periods, are presented in the notes to the financial statements. W. Use of estimates The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3 accounting estimates and assessments. Changes in accounting estimates are recognized for the period in which they occur. If the changes also apply to future periods, the effect of the change is distributed over current and future periods. X. Consolidated statement of cash flows The consolidated statement of cash flows is prepared in accordance with the indirect model. Y. New standards, amendments and interpretations adopted by the Group The Group has applied the following standards and amendments for the first time for the annual reporting period commencing 1 January 2015: Annual Improvements to IFRSs Cycle and Cycle Defined Benefit Plans: Employee Contributions Amendments to IAS 19 The adoption of these amendments did not have any impact on the current reporting period or any prior reporting period and is not likely to affect future periods. Z. New standards, amendments and interpretations not yet adopted Standards to be implemented in 2016 or later years: IFRS 9 Financial Instruments, effective date 1 January 2018 IFRS 15 Revenue from Contracts with Customers, effective date 1 January 2018 IFRS 9 Financial instruments addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July The standard is effective for accounting periods beginning on or after 1 January Early adoption is permitted, but adoption after 1 February 2015 requires that the new rules must be adopted in their entirety and that the standard has been adopted by the EU. EU adoption of FRS 9 is expected to be given in Following the changes approved by the International Accounting Standards Board (IASB) in July 2014, the Group no longer expects any impact from the new classification, measurement and derecognition rules on the Group s financial assets and financial liabilities. There will also be no impact on the Group s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss and the Group does not have any such liabilities. As a general rule it will be easier to apply hedge accounting going forward as the standard introduces a more principles-based approach. The new standard also introduces expanded disclosure requirements and changes in presentation. The new impairment model is an expected credit loss (ECL) model which may result in the earlier recognition of credit losses. Management has not yet assessed how the Group s hedging arrangements and impairment provisions would be affected by the new rules. IFRS 15 Revenue from Contracts with Customers deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity s contracts with customers. The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer so the notion of control replaces the existing notion of risks and rewards. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 Revenue and IAS 11 Construction contracts and related interpretations. The standard is effective for annual periods beginning on or after 1 January Earlier application is permitted, pending approval by the EU which is expected to occur in Management is currently assessing the impact of the new rules. There are no other IFRSs or IFRIC interpretations issued by the IASB as of 31 December 2015 that are not yet effective that would be expected to have a material impact on the Group. 97

96 DOF Subsea Annual Report DOF SUBSEA AS 2015 FINANCIAL STATEMENTS Financial statements DOF Subsea AS 98

97 DOF Subsea Annual Report 2015 DOF Subsea AS Amounts in NOK million Statement of comprehensive income Note Operating income Payroll expenses 4, Other operating expenses Total operating expenses Operating profit before depreciation (EBITDA) Depreciation and write-down Operating profit (EBIT) 1 - Income / loss from investments 5, Financial income Financial expenses Realized net gain / loss on derivative instruments and currency position Unrealized net gain / loss on derivative instruments and currency position Net financial income / loss Profit / loss before tax Tax expense Profit / loss for the period Other comprehensive income Items that may be subsequently reclassified to profit / loss Cash flow hedges 15-5 Items that will not be subsequently reclassified to profit / loss Defined benefit plan actuarial gains / losses -1 - Other comprehensive income / loss net of tax -1 5 Total comprehensive income / loss for the year net of tax The notes on pages 104 to 118 are an integral part of the financial statements. 99

98 DOF Subsea Annual Report DOF SUBSEA AS 2015 FINANCIAL STATEMENTS DOF Subsea AS Amounts in NOK million Statement of financial position Note Assets Machinery and other equipment Tangible assets Investments in subsidiaries Investments in associates and joint ventures Receivables from Group companies and joint ventures Financial non-current derivatives 8, 15, Financial assets Deferred tax asset Non-current assets Current receivables from Group companies and joint ventures Other current receivables 9, Financial current derivatives 8, 15, Total current receivables Restricted cash 10, Unrestricted cash and cash equivalents 10, Cash and cash equivalents Current assets Total assets The notes on pages 104 to 118 are an integral part of the financial statements. 100

99 DOF Subsea Annual Report 2015 DOF Subsea AS Amounts in NOK million Statement of financial position Note Equity and liabilities Paid-in equity Other equity Total equity Pension Non-current provisions for commitments 2 1 Bond loan 11, Debt to credit institutions 11, Financial non-current derivatives 15, Other non-current liabilities Non-current liabilities Short portion of debt 11, Trade payables Current liabilities to Group companies Financial current derivatives Other current liabilities Current liabilities Total liabilities Total equity and liabilities The notes on pages 104 to 118 are an integral part of the financial statements. Bergen, 19 April 2016 The Board of DOF Subsea AS Helge Møgster Helge Singelstad Mons S. Aase Hilde Drønen Chairman Board member Board member/ CEO Board member Alex Townsend Krueger Neil John Hartley John Mogford Ryan N. Zafereo Board member Board member Board member Board member 101

100 DOF Subsea Annual Report DOF SUBSEA AS 2015 FINANCIAL STATEMENTS DOF Subsea AS Amounts in NOK million Statement of changes in equity Share capital Share premium Other paid-in capital Paid-in equity Retained earnings Cash flow hedge Other equity Total equity Equity at Profit / loss for the year Other comprehensive income for the year Total comprehensive income for the year Equity at Equity at Profit / loss for the year Other comprehensive income for the year Total comprehensive income for the year Dividends Equity at Cash flow hedges and change in defined benefit actuarial gains / losses are presented after tax. Tax rate used is 25% (27%). Cash flow hedges are described in note 15 ' Financial instruments and hedging activities'. 102

101 DOF Subsea Annual Report 2015 DOF Subsea AS Amounts in NOK million Statement of cash flows Note Operating profit (EBIT) 1 - Depreciation and write-down Change in trade payables Changes in other working capital Exchange rate effect on operating activities 8 53 Cash flow from operating activities Interest received Interest paid 5, Net cash flow from operating activities Purchase of tangible assets Sale of shares 5, Investment in shares Dividends/ Group Contributions received Changes in other receivables* Cash flow from investing activities Installments on non-current debt Dividend / Group contributions paid Cash flow from financing activities Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the period Exchange rate effect on cash and cash equivalents Cash and cash equivalents at the end of the period * The statement of cash flows has been changed in From 2015 the statement of cash flows starts with operating profit (EBIT) figures are restated accordingly. Additional changes to 2014 figures are reclassification of NOK 468 million to operational activities from investing activities. The notes on pages 104 to 118 are an integral part of the financial statements. 103

102 DOF Subsea Annual Report DOF SUBSEA AS 2015 FINANCIAL STATEMENTS DOF Subsea AS Contents 1 Corporate information Financial risk management Accounting estimates and assessments Payroll, fees, number of employees Financial income and expenses Tax Tangible assets Receivables from Group companies and joint ventures Other current receivables Cash and cash equivalents Interest-bearing debt Trade payables Other current liabilities Fair value estimation Financial instruments and hedging activities Financial instruments - by category Related parties Remuneration to Board of Directors, Executives and Auditor Investments in subsidiaries Investments in associates and joint ventures Contingencies Guarantees Earnings per share Share capital and share information Events occurring after the statement of financial position date Accounting policies

103 DOF Subsea Annual Report 2015 NOTES TO THE FINANCIAL STATEMENTS 1 Corporate information DOF Subsea AS (the Company) is a limited liability company registered in Norway. The Company s head office is located at Thormøhlensgate 53 C, 5006 Bergen, Norway. The Company is owned by DOF Subsea Holding 2 AS, a company indirectly owned by DOF ASA and First Reserve Corporation, through DOF Subsea Holding AS. DOF ASA holds 51% ownership stake, and First Reserve Corporation holds 49% ownership stake. DOF Subsea AS provides management services to companies in the Group. The Company and it s subsidiaries (the Group) has two business segments; chartering of vessels and subsea projects. The Group provides these services to the global offshore oil and gas industry. The Company, through its subsidiaries, owns a large, modern fleet that enables the Group to offer differentiated services to clients and create long-term relationships, which enhance service delivery and reduce overall risk. This section of the financial statements covers the parent company accounts. The Board of Directors approved the financial statements for publication on the 19 April Financial risk management The Company s operation includes various types of financial risk: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Company s governing risk management strategy focuses on the predictability of the capital markets and seeks to minimise the potential negative effects on the Company s financial results. The Company uses financial derivatives to hedge against certain types of risk. Please see note 32 accounting policies, paragraph U, in the consolidated financial statements, for information on derivative financial instruments and hedging activities. See also note 15 Financial instruments and hedging activities. The Company s risk management is conducted in line with policies and guidelines approved by the Board of Directors. Accordingly, financial risk is identified, evaluated and hedged if appropriate. The Board of Directors issues written policies for governing risk management and defines principles for specific areas such as the foreign exchange risk, interest risk, credit risk, use of financial derivatives and other financial instruments, as well as investment of surplus liquidity. Financial derivatives The Company is exposed to interest rate and currency fluctuations. The Company uses financial derivatives to reduce these risks. However, the Company does not use financial derivatives linked to exposures related to statement of financial positions items such as trade receivables, trade payables and similar. Foreign exchange risk Foreign exchange risk arises when future commercial transactions, contractual obligations and investments are in different currencies. The Company s presentations currency is NOK. The Company aims to achieve a natural hedge between cash inflows and cash outflows, and manages remaining foreign exchange risk arising from commercial transactions, assets and liabilities by forward contracts, derivatives and similar instruments as appropriate. Hedging of foreign exchange exposures is executed on a net basis and foreign exchange contracts with third parties are generated at Group level. Currency changes in receivables, liabilities and currency swaps are recognized as a financial income/expense in the statement of comprehensive income. Fluctuations in foreign exchange rates will therefore have an effect on the Company s statement of comprehensive income and statement of financial position. Interest risk The Company s debt portfolio is subject to the floating interest rate. This implies that the Company is taking advantage of the global low interest rate regime, but at the same time the Company is exposed to future interest rate changes. The Company s debt is denominated in NOK. The Company evaluates the mix of fixed vs. floating rate debt on an ongoing basis. The Company has no interest earning assets of significance, except for bank deposits and receivables from Group companies and joint ventures. Credit risk Maximum credit exposure arises on the values of financial assets recognized in the statement of financial position. The Company s trade receivables balance is minimal and relates to subsidiaries, joint ventures and associated companies. The Company has guidelines for monitoring and recovering trade receivables. Historically, losses on trade receivables have been insignificant, and credit risk is considered acceptable. The forward contracts are entered into with banks, and the risk associated with these is considered insignificant. The same applies to bank deposits. Accordingly, the value of trade receivables recognized in the statement of financial position is considered to reflect the maximum credit risk. Liquidity risk Liquidity risk management implies maintaining sufficient cash and marketable securities, the available funding through committed credit facilities and the ability to close market positions. The Company and it s subsidiaries (the Group) aims to maintain flexibility in its liquidity by keeping committed credit lines available. The Company s business is capital intensive and the Company may need to raise additional funds through public or private debt or equity financing to execute the Company s strategy and fund capital expenditure. The Company s loan agreements include terms, conditions and covenants. The Company has routines to report cash flow forecasts on a regular basis in order to monitor the Company s future cash positions. The Company owns and controls cash pooling systems within the DOF Subsea Group. Liquidity is made available through the Cash polling systems for the Company to meet it s obligations. Furthermore the Company s strategy is to strengthen the liquidity using dividends from subsidiaries. Fair values The fair value of forward exchange contracts is calculated based on the midpoint of the relevant yield curve. The fair value of interest rate contracts is expressed as the present value of the estimated future cash flows based on observable yield curves. Capital structure and equity The main objective in managing the Company s capital structure is to ensure s a good credit rating, thereby achieving good terms and 105

104 DOF Subsea Annual Report DOF SUBSEA AS 2015 FINANCIAL STATEMENTS DOF Subsea AS Amounts in NOK million conditions for the long-term funding of the Company s operations and investments. The Company manages its capital structure and carries out all necessary amendments to it, based on continuous assessments of the economic conditions under which the operations take place. 3 Accounting estimates and assessments Valuations, estimates and assumptions with a significant effect on the financial statements are summarized below: Financial assets All financial assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognized in the statement of comprehensive income. The recoverable amount is the higher of an asset s net selling price and value in use. Deferred tax assets Deferred tax assets are recognized in the statement of financial position on the basis of unused tax losses carried forward or deductible temporary differences, to the extent that it is probable there will be sufficient future earnings available against which the loss or deductible can be utilized. For further information, reference is made to the consolidated financial statements and note 6 'Tax'. 4 Payroll, fees, number of employees Payroll expenses Note Salaries and holiday pay Employer s contributions -6-6 Pension costs -2-2 Other personnel costs -7-6 Total payroll expenses Number of employees (at year-end) Pension costs above include defined benefit pension plan and defined contribution pension plan. As of December 31, 2015, the Company s defined benefit pension plan covered a total of 2 employees. Defined benefit pension plan is invested with an insurance company, which manages the plan assets. The Company`s cost of defined pension plan for 2015 was NOK 0.4 million. (NOK 0.4 million in 2014). Pension obligation as of December 31, 2015 was NOK 1.8 million (NOK 1.1 million). 106

105 DOF Subsea Annual Report 2015 DOF Subsea AS Amounts in NOK million 5 Financial income and expenses Financial income and expenses Note Dividends from subsidiaries/group contributions Dividend from associated companies 3 2 Gain on sale of shares in joint ventures Interest income from Group companies* Interest income Other financial income from Group companies* 8 4 Other financial income 6 8 Financial income Write-down investments in subsidiaries Write-down loans to Group companies Interest expenses** Interest expenses payable to DOF ASA companies* Other financial expenses Financial expenses Realized foreign currency net gain / loss on loans Realized foreign currency net gain / loss on current receivables / liabilities Realized net gain / loss on financial derivatives Realized net gain / loss on derivative instruments and currency position Unrealized foreign currency net gain / loss on loans Unrealized foreign currency net gain / loss on current receivables / liabilities 2 - Net change in unrealized gain / loss on financial derivatives Unrealized net gain / loss on derivative instruments and currency position Net financial income / loss *Guarantee income / expenses related to financing of vessels are included in interest income / expenses. **In 2015 realization of interest rate swap is included in interest expenses with a net loss of NOK 111 million (loss of NOK 101 million in 2014). 6 Tax Tax expense Change in deferred tax Impact on change in tax rate on deferred tax Other business taxes 4 - Total tax expense Reconciliation of nominal and effective tax rate Profit before tax Tax calculated at domestic tax rate 27% Tax effect of: Write-down of financial assets Tax exemption method dividends Tax exemption method shares in joint ventures Adjustments in respect to prior years 4 - Impact on change in tax rate Other adjustments 4 4 Total tax expense

106 DOF Subsea Annual Report DOF SUBSEA AS 2015 FINANCIAL STATEMENTS DOF Subsea AS Amounts in NOK million The tax related to components of other comprehensive income is as follows: 2015 Before tax Tax After tax Re-measurements of post-employment benefit liabilities Other comprehensive income Before tax Tax After tax Cash flow hedges Other comprehensive income The gross movement on the deferred tax in the statement of financial position Deferred tax at Tax related to comprehensive income Tax related to components of other comprehensive income - -2 Deferred tax Deferred tax The table below specifies the temporary differences between accounting and tax values, and calculation of deferred tax / tax asset at year-end. The Company s deferred tax asset is reviewed for impairment. Deferred tax assets from tax loss carry-forward is expected to be offset against taxable income within a period of 7 years. Basis for deferred tax Non-current assets Liabilities Tax position related to sold assets Other differences 3 24 Total temporary differences Tax loss carryforward Basis for calculating deferred tax / tax asset (-) Deferred tax / tax asset (-) 25% Deferred tax asset Total deferred tax / tax asset (-) recognized in the statement of financial position Deferred tax / tax asset recovered 12+ months Deferred tax / tax asset recovered within 12 months

107 DOF Subsea Annual Report 2015 DOF Subsea AS Amounts in NOK million 7 Tangible assets Machinery & other equipments Cost at Additions Cost at Depreciation at Depreciation for the year Depreciation at Book value at Asset lifetime (years) Depreciation schedule Linear Linear 8 Receivables from Group companies and joint ventures Receivables from Group companies and joint ventures Note Non-current receivables from joint ventures Non-current receivables from Group companies 15 - Non-current receivables from associated companies Total receivables from Group companies and joint ventures at Other current receivables Other current receivables Government taxes receivable (value added tax) - 2 Prepaid expenses 1 2 Accrued interest income 8 10 Total other current receivables at Cash and cash equivalents Cash and cash equivalents Restricted deposits* Bank deposits Total cash and cash equivalents including restricted deposits at A long-term loan has been provided by Eksportfinans and is invested as a restricted deposit. The repayment terms on the loan from Eksportfinans are equivalent to the reduction in the deposit. The loan will be fully repaid in The cash deposit is included in restricted deposits with a total of NOK 390 million (NOK 474 million in 2014). The Company owns and controls two cash pooling systems within the DOF Subsea Group. Cash in the cash pooling systems are presented as cash in the financial statements. 109

108 DOF Subsea Annual Report DOF SUBSEA AS 2015 FINANCIAL STATEMENTS DOF Subsea AS Amounts in NOK million 11 Interest-bearing debt Debt DOF Subsea AS had as per year-end bond loans, which mature in The trustee on behalf of the bond holders is Nordic Trustee ASA, while the account manager is Nordea Bank Norge ASA. Interest rates are fixed and paid on a quarterly basis. No particular security has been provided for the loans and the Company is free to acquire its own bonds. Non-current interest-bearing debt Bond loan, floating rate Debt to credit institutions Total non-current interest-bearing debt Current interest-bearing debt Bond loan, floating rate Debt to credit institutions Current debt to Group companies - 48 Total current interest-bearing debt Total non-current and current interest-bearing debt Net interest-bearing debt Cash and cash equivalent Other interest bearing assets - non-current 12 - Total net interest-bearing debt Short portion of debt in the statement of financial position includes accrued interest expenses. Accrued interest expenses are excluded in the figures above. Debt repayment profile Thereafter Total Bond loans Debt to credit institutions Total repayment Interest repayment profile Interest repayment is based on current repayment profile and the yield curve for the underlying interests from Reuters as of December Amortized costs are not included in the repayment profile above. Liabilities secured by pledge Liabilities to credit institutions Book value of assets pledged as security for book debt Average rate of interest 12.4% 10.1 % Currency distribution non-current liabilities incl first year repayment NOK Bond loan Debt to credit institutions 390 Total A loan of NOK 390 million (NOK 474 million in 2014) is secured by a cash deposit, see note 10 ' Cash and cash equivalents'. Interest rate and derivative instruments on the cash deposit cover the debt repayment on the loan. 110

109 DOF Subsea Annual Report 2015 DOF Subsea AS Amounts in NOK million The price of the Company s bond loans at was as follows: Loan Price Outstanding Price Outstanding DOF Subsea AS 11/16 FRN DOFSUB DOF Subsea AS 12/15 FRN DOFSUB DOF Subsea AS 13/18 FRN DOFSUB Other non-current liabilities, with exception of non-current loans, have nominal value equivalent to fair value of the liability. Financial covenants The Company s long-term financing agreements include the following covenants: The Group shall have available cash of at least NOK 500 million at all times The Group shall have value-adjusted equity to value-adjusted assets of at least 30% The Company should not pay dividend exceeding 50% of the Group s net result In addition to the above-mentioned financial covenants, the loan agreements are also subject to the following conditions: DOF Subsea AS shall not merge, demerge or divest activities without the prior written approval of the lenders DOF Subsea AS shall report financial information to the lenders and Oslo Stock Exchange on a regular basis The Group s vessels shall be operated in accordance with applicable laws and regulations The Company is in compliance with all covenants. Please refer to the consolidated financial statement note 17 Interest-bearing debt. 12 Trade payables Trade payables Trade payables at nominal value 4 9 Accrued expenses 8 - Total trade payables Other current liabilities Other current liabilities Provision foreign tax Public duties payables 3 3 Other current liabilities 5 9 Total other current liabilities at

110 DOF Subsea Annual Report DOF SUBSEA AS 2015 FINANCIAL STATEMENTS DOF Subsea AS Amounts in NOK million 14 Fair value estimation Total measurement level 1 (Quoted, unadjusted prices in active markets for identical assets and liabilities) Fair value of interest-bearing debt is disclosed with face value of the bank loans and market value of bonds. Total measurement level 2 (Quoted techniques for which all inputs which have significant effect on the recorded fair value are observable, directly and indirectly) The fair value of forward exchange contracts is determined using the forward exchange rate at the statement of financial position date. The forward exchange rate is based on the relevant currency s interest rate curves. The fair value of interest swaps is determined by the present value of future cash flows, which is also dependent on the interest rate curves. Total measurement level 3 (Techniques which use inputs which have significant effect on the recorded fair value that are not based on observable market data). 15 Financial instruments and hedging activities As of December 31, 2015 the Company had 15 forward contracts and 2 foreign exchange swaps to hedge future sales to customers on behalf of subsidiaries. Foreign exchange derivatives are utilized to hedge currency risk related to project future sales and interest rate swaps are utilised to manage interest rate risk by converting from floating to fixed interest rates. The Company has not applied hedge accounting for any of the interest rate swap agreements entered into in The table below displays the fair value of financial derivatives as of December 31, 2015: Non-current and current portion Measurement level Assets Liabilities Assets Liabilities Interest rate swaps - cash flow hedges Foreign exchange contracts - cash flow hedges Total non-current and current portion Total non-current portion Interest rate swaps - cash flow hedges Foreign exchange contracts - cash flow hedges Total non-current portion Total current portion Derivatives are classified as current or non-current assets or liabilities. The full fair value of a hedging derivative is classified as non-current asset or liability if the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability, if the maturity of the hedged item is less than 12 months. As of the Company held the following interest rate derivatives Instruments Fixed rate Floating rate Notional amount Effective from Maturity date Interest rate swaps / swaptions - cash flow hedges USD 1.93% % LIBOR 3m -6m Interest rate swaps / swaptions - cash flow hedges NOK 1.90% % NIBOR 3m -6m Interest rate swaps / swaptions - cash flow hedges USD 1.67% % LIBOR 3m - 6m Interest rate swaps / swaptions - cash flow hedges NOK 1.90% % NIBOR 3m - 6m

111 DOF Subsea Annual Report 2015 DOF Subsea AS Amounts in NOK million As of the Company held the following foreign exchange rate derivatives, not qualified for hedge accounting. Instrument Committed Amount Remaining term to maturity Foreign exchange options, buy NOK NOK 337 <1 year Foreign exchange forwards, buy NOK NOK 31 <1 year Foreign exchange swaps, buy NOK NOK 456 <1 year Foreign exchange forwards, buy NOK NOK 420 <1 year Foreign exchange swaps, buy NOK NOK 432 <1 year Derivatives are expected to occur at various dates during the next 12 months. Gains and losses in the hedging reserve forward foreign exchange contracts and interest rates swaps as of December 31, 2015 are recognized in the statement of comprehensive income for the period or periods when the hedged forecast transaction affects the statement of comprehensive income. 16 Financial instruments - by category Financial instruments at fair value through comprehensive income Financial instruments as cash flow hedging instruments Financial instruments measured at amortized cost Loans and receivables Total Of this interest bearing Assets Non-current derivatives Other non-current receivables Trade receivables and other current receivables Current derivatives Restricted deposits Unrestricted cash Total financial assets Liabilities Derivatives non-current Interest-bearing non-current liabilities Short portion of debt Other non-current liabilities Current derivatives Trade payables and other current liabilities Total financial liabilities

112 DOF Subsea Annual Report DOF SUBSEA AS 2015 FINANCIAL STATEMENTS DOF Subsea AS Amounts in NOK million Financial instruments at fair value through comprehensive income Financial instruments as cash flow hedging instruments Financial instruments measured at amortized cost Loans and receivables Total Of this interest bearing Assets Non-current derivatives Other non-current receivables Trade receivables and other current receivables Current derivatives Restricted deposits Unrestricted cash Total financial assets Liabilities Derivatives non-current Interest-bearing non-current liabilities Short portion of debt Other non-current liabilities Current derivatives Trade payables and other current liabilities Total financial liabilities The following of the Company s financial instruments are measured at amortized cost: cash and cash equivalents, other current receivables and all interest-bearing debt. The carrying amount of cash and cash equivalents is approximately equal to fair value since these instruments have a short term to maturity. Similarly, the carrying amount of trade payables is approximately equal to fair value since they are entered into at standard terms and conditions. The fair value of the interest-bearing debt is the disclosed face value of the bank loans and market value of bonds. 17 Related parties Detailed description of related parties and DOF Subsea AS relationship to these: DOF ASA is the majority shareholder in DOF Subsea Holding AS with a 51% holding at year-end. DOF Subsea AS is 100% owned by DOF Subsea Holding 2 AS, which is owned 100% by DOF Subsea Holding AS. First Reserve Corporation holds the minority share of 49 % in DOF Subsea Holding AS. Rental of office space Part of the office space located at Thormøhlensgate 53 C, 5006 Bergen, rented by DOF Subsea AS, is used by DOF Management AS and DOF Subsea Norway AS. The rental fee charged to DOF Management AS and DOF Subsea Norway AS is determined at NOK 7 million per year. Management services on behalf of subsidiaries and sales transactions Management services and other deliveries on behalf of subsidiaries, see note 19 'Investment in subsidiaries', comprise NOK 83 million in 2015 (NOK 84 million in 2014). Revenue related to DOF ASA Group comprises NOK 12 million in 2015 (NOK 11 million). All sales transactions are carried out in accordance with DOF Subsea policy. Guarantee agreement between DOF ASA and the Company The Company has in June 2010 entered into a guarantee agreement with DOF ASA. DOF ASA has provided a parent company guarantee for obligations of DOFCON Navegação Ltda, a joint venture company of DOF Subsea AS, and DOF Subsea Brasil Serviços Ltda. The guarantees are limited to USD 275 million as of December 31, 2015 (USD 297 million). The contract is subject to standard terms. Please refer to note 23 Related parties in the consolidated financial statements. Non-current receivables against joint ventures For information on non-current receivables against joint ventures, please see note 8 'Receivables from Group Companies and joint ventures'. Please also see note 26 'Investments in associates and joint ventures' in the consolidated financial statements. 114

113 DOF Subsea Annual Report 2015 DOF Subsea AS Amounts in NOK million 18 Remuneration to Board of Directors, Executives and Auditor The Board of Directors received no fees, nor compensation in fees in Remuneration to Executives CEO EVP CEO EVP Salaries Management fee Payment from DOF Subsea CEO=Mons Aase, EVP=Jan Nore Salaries include pension, bonuses and other compensation from the Company. Senior executives are included in the general Group s pension plan, see note 4 'Payroll, fees, number of employees'. The Company is part of the DOF ASA Group, see note 25 'Share capital and share information', and the CEO is entitled to a bonus of 0.5% of DOF ASA s profit for the year. The contract with the CEO includes a 6 month termination period and 12 months termination compensation. The CEO s retirement compensation is based on 70% salary and the retirement age is set at 67 years. Cost related to CEO Mons Aase is included in the management fee between DOF ASA and DOF Subsea AS for Please refer to the DOF ASA annual report for further information of salary to CEO Mons Aase. For 2015 Jan Nore held the position as EVP and CFO for the Group. The EVP is entitled to a bonus based on the result of the company and personal performance. No loans have been given to or any security provided for the members of the Board of Directors, CEO/EVP, members of the Company's management or other employees or close relatives. Specification of Auditor s fee Fee for audit of financial statements Fee for other tax consultancy Fee for other services Total Investments in subsidiaries Subsidiary Owner Registered office Proportion of ownership and votes DOF Installer ASA DOF Subsea AS Austevoll 84% DOF Subsea Angola Lda DOF Subsea AS Luanda, Angola 100% DOF Subsea Asia Pacific Pte Ltd DOF Subsea AS Singapore 100% DOF Subsea Brasil Serviços Ltda DOF Subsea AS Macaé, Brasil 100% DOF Subsea Chartering AS DOF Subsea AS Bergen 100% DOF Subsea Congo S.A. DOF Subsea AS Pointe-Noire, Republice du Congo 55% DOF Subsea Norway AS DOF Subsea AS Bergen 100% DOF Subsea Atlantic AS DOF Subsea AS Bergen 100% DOF Subsea Rederi AS DOF Subsea AS Bergen 100% DOF Subsea Rederi II AS DOF Subsea AS Bergen 100% DOF Subsea Rederi III AS DOF Subsea AS Bergen 100% DOF Subsea ROV Holding AS DOF Subsea AS Bergen 100% DOF Subsea S&P UK Ltd DOF Subsea AS Aberdeen, UK 100% DOF Subsea UK Holding Ltd DOF Subsea AS Aberdeen, UK 100% DOF Subsea UK Ltd DOF Subsea AS Aberdeen, UK 100% DOF Subsea US Inc. DOF Subsea AS Houston 100% Semar AS DOF Subsea AS Oslo 50% Investments in subsidiaries are reviewed for impairment, and are written down to calculated value-in-use. DOF Subsea Rederi II AS is written down with NOK 70 million, DOF Subsea Rederi III with NOK 7 million, DOF Subsea UK Holding Ltd with NOK 11 million, and DOF Subsea US with NOK 92 million. A total impairment loss of NOK 180 million is recognized in the statement of comprehensive income as financial expenses. Please refer to note 5 Financial income and expenses. 115

114 DOF Subsea Annual Report DOF SUBSEA AS 2015 FINANCIAL STATEMENTS DOF Subsea AS Amounts in NOK million 20 Investments in associates and joint ventures Name of entity Place of business/ country of incorporation % ownership interest DOFCON Brasil AS Norway 50% 594 DOF Management AS Norway 34% 16 Marin IT AS Norway 35% 6 Master and Commander AS Norway 20% 30 Canadian Subsea Shipping Company AS Norway 45% 0,05 Total 645 Booked value Cost price of the investments above is the same as booked value. For further information on associates and joint ventures, please see note 26 in the consolidated financial statements. The Company s ownership in DOFTech DA (50%) was sold in 2015 with a gain on sale of shares of NOK 242 million. Dividend is received from Master and Commander AS of NOK 3 million (NOK 2 million). Gain on sale of shares and dividends are included in the statement of comprehensive income as financial income. Please refer to note 5 Financial income and expenses. 21 Contingencies The Company is not involved in any disputes or ongoing legal matters involving potential losses, and therefore no provision has been made for possible claims arising from the same. 22 Guarantees Guarantees Parent company guarantees finance of vessels Total Parent company guarantees are given to subsidiaries in the subsea project segment and the chartering of vessels segment. The guarantees in the subsea project segment are limited to the fulfilment of the construction contract and are released after delivery of the project. In some cases there is a warranty period after delivery of the project. Normally this warranty will have duration of months. In addition, the guarantees are given in relation to the finance of vessels. Furthermore, guarantees to suppliers are given for fulfilment of payments for deliveries of goods and services including vessels. Liabilities for these deliveries are recognized in the statement of financial position. See also note 11 in the consolidated financial statements for further information on guarantees on delivery of newbuilding in the Group and note 26 in the consolidated financial statements for future commitments related to newbuildings as part of joint venture between the Group and Technip. The Company is committed to fund Canadian Subsea Shipping Company with an additional NOK 34 million. See note 20 investment in associates and joint ventures for further information about Canadian Subsea Shipping Company. 116

115 DOF Subsea Annual Report 2015 DOF Subsea AS Amounts in NOK million 23 Earnings per share Basis for calculating earnings per share Profit / loss attributable to shareholders of the Company Weighted average number of outstanding shares Weighted average number of outstanding shares, diluted Earnings and diluted earnings per share (NOK) Share capital and share information Share capital The share capital in DOF Subsea AS at was NOK million comprising 119,733,714 shares, each with a nominal value of NOK Shareholder overview At 31 December 2015 the shareholders in the Company were as follows: Shareholders at / No. of shares Proportion of ownership Share capital DOF Subsea Holding 2 AS % Total % Senior executives and the Board members own shares in related companies, and thus have indirect ownership stakes in DOF Subsea Holding 2 AS. Board of Directors Helge Møgster Helge Singelstad Mons S. Aase Hilde Drønen Alex Townsend Krueger Neil John Hartley John Mogford Ryan N. Zafereo Title Chairman Board Member Board Member Board Member Board Member Board Member Board Member Board Member Management group Mons S Aase Jan Nore Title CEO CFO/EVP The Company is a part of DOF ASA. Please refer to DOF ASA annual report for shares held in DOF ASA by the management and the Board of Directors. The annual report is published at 25 Events occurring after the statement of financial position date The Board of Directors has decided to merge the Company with the fully owned subsidiary DOF Subsea ROV Holding AS. The process was started in February There have been no other material events after the statement of financial position date. 117

116 DOF Subsea Annual Report DOF SUBSEA AS 2015 FINANCIAL STATEMENTS DOF Subsea AS Amounts in NOK million 26 Accounting policies Summary of significant accounting principles The financial statements of the Company have been prepared in accordance with the Norwegian Accounting Act 3-9 and Finance Ministry s prescribed regulations from January 21, 2008 on simplified IFRS. Principally this means that recognition and measurement complies with the International Accounting Standards (IFRS) and presentation and note disclosures are in accordance with the Norwegian Accounting Act and generally accepted accounting principles. The financial statements have been prepared in accordance with the historical cost convention with the following exceptions: available-for-sale financial assets and financial instruments at fair value through profit or loss are subsequently carried at fair value. The fiscal year is the same as the calendar year. Going concern The Company has a satisfactory economical and financial position which provides the basis for the going concern assumption in accordance with the Norwegian Accounting Act 3-3a. Operating income Operating income from management services is recognized when it is probable that transactions will generate future economic benefits that will flow to the Company, and the amount can be reliably estimated. Operating income is presented net of value added tax and discounts. Investment in subsidiaries, joint ventures and associated companies Investments in shares are based on the cost method. Dividends Dividends and Group contributions are accounted for according to IFRS. Dividends and Group contributions are recognized when approved by the General Assembly. For further information a reference is made to the consolidated financial statements. 118

117 DOF Subsea Annual Report 2015 DOF Subsea AS Confirmation from the Board of Directors and CEO We confirm, to the best of our knowledge, that the financial statements for the period from 1 January to 31 December 2015 have been prepared in accordance with approved accounting standards, and give a true and fair view of the Company s consolidated assets, liabilities, financial position and result of operations and that the Report of the Board of Directors provides a true and fair view of the development and performance of the business and the position of the Group and the Company together with a description of the key risks and uncertainty factors that the Company is facing. Bergen, 19 April 2016 The Board of DOF Subsea AS Helge Møgster Helge Singelstad Mons S. Aase Hilde Drønen Chairman Board member Board member/ CEO Board member Alex Townsend Krueger Neil John Hartley John Mogford Ryan N. Zafereo Board member Board member Board member Board member 119

118 DOF Subsea Annual Report DOF SUBSEA GROUP 2015 FINANCIAL STATEMENTS Auditor s Report 120

119 DOF Subsea Annual Report 2015 Auditor s Report 121

120 DOF Subsea Annual Report Image references Cover Ship of the Year Skandi Africa Page 3 Mooring pile installation Page 7 Skandi Hawk Page 8 Skandi Africa is delivered Q4 Page 18 DOF Subsea crew at Hammerfest Page 20 Toolbox talks Page 24 ROV launch Atlantic Region Page 26 Drone s eye-view of vessel underway Page 28 Harvey Deep-sea fire-fighting test Page 30 Skandi Vitoria Page 34 DOF Subsea CEO Mons Aase accepts the award for 2015 Ship of the Year Page 36 Skandi Singapore and Skandi Hercules Opposite Skandi Africa 650Te tiltable lay system 122

121 DOF Subsea Annual Report