POSITIONED TO DELIVER DOF SUBSEA ANNUAL REPORT

Transcription

1 POSITIONED TO DELIVER DOF SUBSEA ANNUAL REPORT 2013

2 A nnual Report DOF S ub s e a 2013 An n ual Re p ort D O F S u b s ea A GLOBAL FOOTPRINT Execution of complex subsea operations, to depths of 4,000 meters, using owned and operated world-class, 12 purpose built vessels, BERGEN (HQ) AUSTEVOLL ROVs and subsea equipment. ABERDEEN 763 MOSCOW ATLANTIC REGION ST. JOHN S HOUSTON NORTH AMERICAN REGION 2 MANILA KUALA LUMPUR 3 LUANDA 413 BRUNEI SINGAPORE ASIA-PACIFIC REGION JAKARTA DARWIN 6 MACAÉ RIO DE JANEIRO 349 BUENOS AIRES 1 PERTH BRAZIL REGION MELBOURNE new builds on order subsea personnel 24 3 vessels on charter owned vessels dive spreads ROVs 7 ROVs on order DOF SUBSEA HIGHLIGHTS AUV NOK million total assets NOK million total operating income in NOK million EBITDA in NOK million profit in NOK million total equity

3 OUR VISION OUR VALUES To be a world class integrated offshore company, delivering marine services and subsea solutions responsibly, without risk, together, every day. RESPECT INTEGRITY TEAMWORK SUSTAINABILITY building our future Building a global company 8 Our commitments 8 Challenges and opportunities 9 World class solutions 10 Meeting client expectations 12 A record year 14 Strengthening our financial position in figures 16 Sustainability 16 A balanced management system 18 Increasing transparency and monitoring performance 19 Continuous improvement 20 A fair return for everyone 20 OUR TEAM working together Recognising the potential of our employees 22 Protecting people and the environment 24 Executive management team 26 Atlantic Region 28 Asia Pacific Region 30 Brazil Region 32 North America region 34 Survey and Positioning 36 Historic Contract Awards 38 Collaborating to provide outstanding services 40 EXCELLENCE ABOVE ALL WE ARE SAFE OUR PERFORMANCE a record year Subsea Market 42 Financial Market 44 DOF Subsea fleet 46 DOF Subsea New Build and Chartered vessels 48 DOF Subsea ROVs 50 INTEGRITY responsible reporting The Board Corporate Governance DOF Subsea AS Directors report DOF Subsea Group P&L, BS and notes to accounts DOF Subsea AS P&L, BS and notes to accounts Auditors report Key to Images Contacts 132

4 BUILDING OUR SUBSEA FUTURE Mons Aase, CEO In 2014, we will continue to develop DOF Subsea towards the achievement of our vision, and we will strive to reach our goals, each and every day. The key to our success remains unchanged our employees has been a record year for the DOF Subsea Group, with a turnover of NOK million compared to NOK million in The main growth contributor was our subsea project business, achieving a growth in revenues of 32 per cent. The Group s EBITDA grew by 9 per cent to NOK million compared to NOK million in 2012, excluding gain on sale of assets. During the year we were awarded several important contracts, especially within our time charter business, and our backlog reached a record-high level of NOK 34 billion at year-end. 8 Building a global company Since the inception of DOF Subsea nine years ago, the Group has grown from around 70 to employees. We have invested heavily in state-of-the-art vessels, ROVs and in building a global organization. Today we have a strong business model consisting of two segments; time charter business and subsea project business. The combination of our two business segments provide flexibility and will be a crucial factor for achieving good utilization of our vessels going forward. During 2013 DOF Subsea has taken another step towards achieving our vision - To be a world class integrated offshore company, delivering marine services and subsea solutions responsibly, without risk, together, every day. Within our time charter business we secured the largest contract award in the Group s history through a joint venture with Technip, delivering four PLSV new builds for Petrobras, each with an 8+8 year contract. We also secured a 5+5 year time charter with Technip for the new build Vard 800, ensuring that our new build program is fully committed on long term contracts. The contract awards will improve the earnings visibility for the Group and the investments will contribute significant value increase for the Group. Within our subsea project business, we have continued to develop our capabilities and we have executed several EPIC and complex installation projects. Over the past years, we have developed our mooring installation capabilities, where we are now among the market leaders in the Atlantic and Asia Pacific regions. In the Gulf of Mexico, we have increased our activity level and are operating the first longterm third party chartered in vessel in the Group s history. In 2014, we will see more third party long term chartered in vessels joining our fleet in several of our regions, enabling our subsea project business to grow without substantial capital expenditures. Our commitments DOF Subsea aims at being the employer of choice. Over 300 new employees have joined the DOF Subsea team during 2013, growing our workforce by more than 23 per cent. This is a confirmation of our ability to attract and retain employees. DOF Subsea has a clear commitment towards our employees to support them to reach their full potential. The global rollout of the DOF Academy will help us in fulfilling this commitment, and I am confident our global HR-team s efforts will further improve DOF Subsea s performance. We have revised our Code of Business Conduct and relaunched our most important document accompanied with a training module in Business ethics and Code of Conduct, mandatory for all employees. This important initiative will help ensure we execute our business the right way. The DOF Subsea Group is committed to achieving the highest standards of safety at all our worksites and ensuring Subsea project business DOF SUBSEA BUSINESS MODEL Flexibility Time charter business that our activities have minimal impact on the environment. During 2013 we implemented several initiatives in order to ensure protection of our people and the environment. We have seen an improvement in the Group s Carbon Disclosure Project score, we have improved our Environmental Management System and we aim to be certified according to ISO: Energy management in the near term. A comprehensive HSEQ-training module has been rolled out globally, which will enhance our robust HSEQ culture. Our customers value our solid performance within HSEQ and with the commitment from all our employees; we will continue to be a leading Group within this area. Challenges and opportunities As a global company, we face both significant challenges and opportunities going forward. Improving transparency and further developing our Business Management System to take into account the complex nature of our business will be an important focus area in the near term. We recognize our obligations to a wide range of stakeholders, and the reputation of the DOF Subsea Group and the trust and confidence of those whom we deal with are our most valuable resources. The cost focus in the oil and gas industry has increased and the signals from our customers vary, from reduction in capital expenditure and focus on cash flow to no change in growth forecasts. We expect the demand for our subsea services will grow, but at a lower growth rate than we have seen over the last few years. At the same time, several mid-size subsea new builds will be delivered over the next couple of years, which will put pressure on the supply/ demand balance for these vessels. Going forward we will seek to optimize our operated fleet mix between owned and chartered in vessels. Knowing that our opportunity to continue growing our subsea business and increase our profitability is linked with the challenge of increasing cost control without compromising the quality of our operations. 9 Flexibility In 2014, we will continue to develop DOF Subsea towards the achievement of our vision, and we will strive to reach our goals, each and every day. The key to our success remains unchanged our employees. Mons S. Aase CEO

5 WORLD CLASS SOLUTIONS to meet the challenges of our clients WELLHEAD INTERVENTION ENGINEERING / CONSTRUCTION AND MOBILIZATION GEOTECHNICAL AND GEOPHYSICAL SURVEYS DECOMMISSIONING MARINE OPERATIONS PIPELAY PIPELINE SURVEY SUPPLY SERVICES ROV OPERATIONS DIVER ASSISTED INTERVENTION VESSELS, VESSEL MANAGEMENT, OPERATIONS AND SUPPLY SERVICES Highly skilled professionals Technically diversified fleet High-end ROVs FIELD DEVELOPMENT PHASE Front-end engineering, design, survey Subsea construction and installation PRODUCTION PHASE Inspection, maintenance and repair Field enhancement FIELD ABANDONMENT/ DECOMMISSIONING Removal and disposal SUBSEA SERVICES INTEGRATED SUBSEA SOLUTIONS ACROSS LIFE-OF-FIELD

6 MEETING CLIENT EXPECTATIONS with our knowledge and expertise Tiltable Lay System 650mT Hangar - 2 x ROV Moonpool 5.6 x 5.25m 2 x Work ROV Client Operation Room Helideck - Helideck m Pedestal Mounted Crane - 900mT Knuckle Boom Crane - 150mT Work Moonpool - 9.4m x 7.0m Product Basket mT 3 x Propulsion Thrusters 2 x Retractable Thrusters INVITATION TO TENDER Possibility study Define both ship-owner and client needs Outline specifications PRE-PROJECT PHASE Selecting yards Design review Review specifications Design freeze Price offer from yard CONTRACT AWARDED Signed contract with appendixes Build specification General arrangement Maker s list PROJECT MANAGEMENT Assign project manager Establish cost control budget Reporting to owner company Start-up drawing approval DELIVERY OF VESSEL Make sure all outstanding items are closed. Ensure the vessel is ready for operations Ensure the vessel is safe in all HSE aspects Hand over vessel to operational department EXPERIENCE TRANSFER Write final report including critical review, transfer experience to new projects Support operational department in claims, knowledge and further studies of the vessel CHARTER VESSELS FROM POSSIBILITY STUDIES TO REALIZATION

7 A RECORD YEAR 2013 operational highlights as reported to the Oslo Stock Exchange Contract awards in the Asia Pacific and Atlantic regions with a total contract value of USD 130 million. Contract awards in the Asia Pacific region with a total contract value of approx. USD 100 million. The scope of work included FPSO installation, subsea structure installation and IMR campaigns. Awarded contract by Statoil for mooring installation services on the Njord B FSU and Norne FPSO installations. Contract awards in the Atlantic region, including increased work scope on the Banff re-instatement project and installation of Teekay s new FPSO on the Knarr field offshore Norway. Awarded a subsea construction project for Shell on the Corrib field. Contract extension on Geoholm by Technip and extension of the Statoil contract on Geosund. BritNed extended contract by 2 years for work offshore UK and the Netherlands Several IMR campaigns awarded in the Asia Pacific region with a total contract value of USD 45 million. OMV awarded DOF Subsea a contract for subsea installation services on the Raroa FPSO, Maari field offshore New Zealand. Several contracts awarded in the North American region for the chartered in vessel Harvey Deep-Sea. The Norwegian Costal Administration awarded DOF Subsea a contract for keel inspection of the WW2 submarine U864 offshore Fedje, Norway. In the North American region, DOF Subsea secured a 2 year frame agreement with a key client. Several contracts awarded in the Asia Pacific region, including IMR campaigns and FPSO installation services. Petrobras awarded DOF Subsea an RSV contract with a firm period of 18 months. DOF Subsea awarded 2 contracts for IMR services in the Atlantic region. Petrobras awarded DOF Subsea 5 ROV contracts on board 3rd party vessels. The contracts have a period of 4 years firm and 4 years option. SUBSEA PROJECTS Q1 Q2 Q3 Q4 14 DOF Subsea entered into a time charter agreement with Technip for the new build VARD 800. The time charter contract starts at delivery of the vessel and has a period of 5 years firm with 5 x 1 year options. 15 Subsea 7 extended the charter contract for Skandi Seven for 1 year from April Subsea 7 extended the charter contract for Skandi Neptune for 1 year from March Chevron extended the charter contract including ROV services on Skandi Salvador to year-end Petrobras awarded the joint venture owned by DOF Subsea and Technip 4 PLSV contracts with a period of years, representing the largest contract award in DOF Subsea s history. Petrobras extended the charter contract for Skandi Vitória for 2 years from September The extension of the charter was inline with market terms. CHARTER VESSELS Q1 Q2 Q3 Q4 The Group chartered in the new build Jones Act vessel Harvey Deep- Sea on a 4 year charter agreement. The Group entered into an agreement where the vessel Geobay was sold. The Group entered into a contract with VARD for building of an OSCV with delivery first half The Group entered into an agreement to sell the vessel Skandi Bergen, with delivery to new owners early A joint venture owned by DOF Subsea and Technip entered into a contract with VARD for building of 4 x PLSVs in connection with the contract award from Petrobras. The Group chartered in the new build Normand Reach for a period of 2 years firm and 2 x 1 year options. FLEET Q1 Q2 Q3 Q4

8 STRENGTHENING OUR FINANCIAL POSITION Jan Nore, CFO After a period of high growth, we enter a period where our focus is strengthening the Group s financial position and maximising the performance of our operations. DOF Subsea has grown substantially since 2007, we have taken delivery of 17 vessels and at the same time, built a global organization. After a period of high growth, both in number of personnel and assets, we now enter a period where our focus is strengthening the Group s financial position and maximising the performance of our operations. With the combination of a new, high-end fleet and a strong financial position, DOF Subsea is well positioned for future development in the global subsea market in figures Improving our key credit metrics Global organization and efficiency gains 2013 has been another year of healthy growth for the DOF Subsea Group, despite only taking delivery of one vessel. The subsea project business revenue was NOK million, and the time charter business revenue was NOK million, a growth of 32 per cent and 9 per cent respectively. At the beginning of the year we successfully issued a bond of NOK million, securing the Group improved liquidity. Following a relatively slow start in the 1st quarter, our fleet has achieved high utilization Overall, the Group s financial position has improved during the year. At year-end 2013, our fleet had an average valueadjusted age of 5 years and a combined market value of NOK 17 billion. In combination with a robust back-log of NOK 34 billion and improving performance within our operations, we expect a strengthening of our earnings and balance sheet going forward. The sale of Skandi Bergen alone substantially improved Several improvement projects have been implemented during the year, standardizing our Business Management System and streamlining the global organization. Standardization within engineering and project execution has improved the experience transfer between our regions and has resulted in efficiency gains. In addition, we have continued developing our ERP-system in 2013 and invested in training and competence to increase cost control and transparency. throughout the year, with a total average utilization of the liquidity and key credit metrics of the Group. The per cent. Although 2013 has been a record year for vessel was delivered to new owners in January In the We are realising the benefits of our integrated management DOF Subsea, we see a potential uplift in our profitability financial market, we have experienced increased interest systems and in 2014 will continue our efforts in 17 as we further develop our organization and the margins within our subsea project business should continue to improve through efficiency gains and cost control. from bond investors and banks, as a consequence of the high order intake, improved credit metrics and our focus on deleveraging the Group. The management has a target of net interest bearing debt to EBITDA of below 5 on a rolling 12-month basis. streamlining the global organization. Several improvement projects are already underway. The size and the global footprint of our operations in combination with a strong backlog will enable us to materialize economies of scale over the next years. DOF Subsea therefore expects both increased quality of our services and improved profitability going forward. DOF SUBSEA GROUP OPERATING INCOME DOF SUBSEA GROUP EBITDA DOF SUBSEA BACKLOG CAGR 23% CAGR 20% NOK million NOK million CFO Jan Nore

9 SUSTAINABILITY our sustainable business strategy The Group s objective is to reduce CO 2 emissions by 10 per cent over the next three to five years, through reduced fuel consumption. For DOF Subsea, sustainability is a key concept. The successful balance of environmental, social and economic elements ensures that DOF Subsea will remain commercially feasible, socially acceptable and in compliance with the capacity of the external environment. We call this sustainable operations. 18 A balanced management system Sustainability as a concept is integrated into our Business Management System (BMS) and in our policies. It is a prerequisite for all DOF Subsea employees to do business the right way, and it is vital for the Group to be recognized by our stakeholders as a dependable, reliable and competent partner. The most important document in the DOF Subsea Group is our Code of Business Conduct, and through the combination of all our policies and how they frame our management systems, we operate taking into account all of our stakeholders. Our policy on Environmental Impact sets clear aspirations for ensuring that our operations have a minimal impact on the environment. Our Environmental Management System (EMS) ensures that the Group effectively manage our operations and strive for continual improvement of our environmental performance. No severe spills to the external environment has been recorded during the Group s history. The Group has a modern fleet and several of the vessels are fitted with technology reducing fuel consumption and emissions. The diesel electric hybrid propulsion system allows greater operational flexibility and reduces both energy consumption, CO 2 emissions and maintenance costs. This propulsion system is ideal for the Group s combined anchor handlers and offshore construction vessels. Through close industrial cooperation with our main yard, VARD, improvements has been made particularly on hull design. This experience transfer is vital in continuing enhancement of technology going forward. A vital part of our EMS is the Ship Energy Efficiency Management Plan (SEEMP). Developed in partnership with DNV GL and aligned to the guidelines set out by SOCIAL 2009 Common policies and Code of Conduct Implemented ERP system ECONOMIC ENVIRONM ENTAL SUSTAINABILITY the IMO marine environmental protection committee; SEEMP was implemented in 2012 for the entire Group s fleet to plan, implement and monitor measures required to maximise vessel efficiency. Based on the experience from SEEMP, the Group will increase focus on competence building offshore to ensure efficient use of the technology implemented on board our vessels. Through continued focus on technologically advanced vessels and an improved environmental culture on all levels 2010 Global Business Management System Global DNV ISO 9000, ISO 14000, OHSAS certification Carbon Disclosure Project reporting Offshore diving, ROV & survey competency scheme Implemented Treasury system Implemented DPR of our organization, we will achieve our objective of 10 % reduction in CO 2 emissions over the next three to five years, through reduced fuel consumption. The DOF Subsea Group operates an international business across a diverse geographic, ethnic, cultural, political and financial landscape, and we have a role to play in sustainable development through our actions. The Group is committed to being a great place to work, encouraging and supporting all our employees to reach their full potential and ensuring that all employees exemplify our vision and values. DOF Academy was established in 2012, and already this initiative has proven to be important for the Group to deliver on its commitments to our employees. Our Exchange program, a part of DOF Academy, enables employees to seek career opportunities within different regions. The program is a supports experience transfer and bridging between cultures, and has proven to be a catalyst for transferring best practice between our regions. We conduct our business embracing international human rights standards and base our policies and management system on conventions from the International Labour Organization. The Group has a zero tolerance for bribery and corruption, and our policy is to conduct all our business in an honest and ethical manner people completed our new Business ethics and Code of Conduct e-learn module during Global HSEQ training system Key Performance Indicators for reliable vessel and ROV operations Graduate Development Program 2012 Established DOF Academy SEEMP implemented for entire fleet First global internal audit program HSEQ training program and workbook Increasing transparency and monitoring performance Since 2010, the Group has reported key environmental performance through the Carbon Disclosure Project (CDP). This has directly influenced the development of our Business Management System. Our efforts towards achieving an improved score has increased our internal competence level and awareness on environmental issues. To increase the transparency of our operations and to improve the evaluation process of our sustainability performance, the Group aims at reporting according to the Global Reporting Initiative (GRI G4) on our 2014 performance. Based on our positive experience from implementing the CDP reporting and work towards improved results, we expect that reporting according to GRI G4 will be an important step towards operating in a more sustainable manner. DOF Subsea has over the past years developed quite advanced reporting and monitoring systems capturing all aspects of its operations. This secure accuracy within safety and environmental reporting as well within our plan maintenance systems to ensure reliability and sustainability in our operations. These management systems ensure accuracy in our CDP and GRI G4 reporting Business ethics and Code of Conduct e-learn module Enhanced anti-bribery and anti-corruption initiatives Global re-certification from DNV GL ISO evaluation by DNV GL Human Resource policy Implemented new standards for global audits 19 SUSTAINABILITY INITIATIVES

10 Annual Report 2013 SUSTAINABILITY a fair return for our stakeholders 20 Continuous improvement Continuous improvement is crucial for sustainable development of our operations. The high number of safety observations reported is an important knowledge base for assessing and identifying improvement areas within our operations. The Group has seen a very positive development in numbers reported over the past five years, and this is a result of our focus on safety culture and shows our employees commitment to HSEQ. Another positive effect of our focus on HSEQ is a significant reduction in the recordable incident frequency of over 50 per cent over the past five years. Still we experience lost time incidents, however during the past five years all the employees represented in these figures were back at work after a short period, and we have not experienced any permanent disabilities. The Group aims to be an incident free organization, and will continue to focus on HSEQimprovements going forward SAFETY OBSERVATIONS A fair return When we commit to undertake business in a region, the commitment extends to the development and support of the communities in which we work. A principle of our business model is to train and maintain a dedicated core crew on all our vessels. This ensures valuable operational and vessel knowledge is not lost between charter or project changes and leads to a higher level of safety, efficiency and quality services, benefiting all our stakeholders. We invest in training and career development in all regions. Our global cadetship program builds a skilled and sustainable workforce giving employees structured paths to gain qualifications. Around 90 maritime cadets, primarily from Norway, Philippines and the UK, participate annually in our extensive training and career program. Norway and the Philippines, both seafaring nations with a long history in the Maritime industry, have been linked for many years and 25 per cent of the Group s maritime personnel are Philippine nationals (employed by the joint venture company DOF OSM Marine Services ). Relevant industry training, beyond mandatory requirements, is provided to the Philippine nationals, either by Norwegian Training Centre - Manila (NTC-M) established by Norwegian Ship owner s Association s or by the Groups main manning agency provider in the Philippines The NTC-M cadet program is part of our strategy to provide highly qualified officers to the fleet. We train seafarers to the highest standard of safety and quality and promote excellence in maritime operations throughout the world. Our courses extend across the complete spectrum of vessel operations. DOF Subsea has also established an ROV simulator training program to build local capability and the Company works within the community to fund education and care for underprivileged children and families Number of lost time incidents FLEET Recordable incident frequency Similarly in Brazil, the Group joined other Norwegian ship-owners who founded AEPM to provide opportunities for young adults to start maritime careers via ordinary seamen courses. Community support is focused on promoting education, culture and sports through a number of specialist organisation s structured programs which give underprivileged children and young Brazilians a chance for a better future. We sponsor Renascer foster institute, an organisation which cares children of one to five years old, presenting them new life perspectives through sports, art and music, providing them a home, food and shelter. We believe our responsibly is to ensure future growth ethically and offer a fair return for stakeholders. Long term aid projects include funding schools in the Philippines, Africa and New Guinea. Supporting Save the Children since 2008 LOCAL INITIATIVES, EMPOWERING EMPLOYEES, A FAIR RETURN Following Typhoon Haiyan in November, employees aboard DOF vessels in the region were able to provide food, water, shelter and first aid.

11 RECOGNISING THE POTENTIAL OF OUR EMPLOYEES Kathleen Offman Mathisen, head of Human Resources Our workforce increased by more than 23 per cent in Our ability to attract, retain and engage a team of highly-skilled employees is central to delivering excellent services and solutions to our clients. DOF Subsea has achieved significant growth in 2013 increasing our workforce by more than 23 per cent. Our ability to attract, retain and engage a team of highly-skilled employees is central in delivering excellent services and solutions to our clients. A key part of our long-term strategy which enables us to achieve this crucial objective is to provide our employees with the opportunity to develop and reach their full potential. 22 We have made substantial progress within all these areas, ensuring DOF Subsea is aligned with recruitment trends and accessing the widest possible candidate pool. We have been successful in increasing the number of women in key and managerial positions, which is a concern in our industry. Development and investment in our employees DOF Academy was established in January 2013 to facilitate the professional and personal development of our employees. It is the platform on which we build the strong learning culture that secures continuous development of DOF Subsea. In 2013, we focused on technical training programs for offshore personnel, as well as HSEQ and Leadership training, onshore and offshore. During 2013, over 600 participants received training in over 40 different courses within key areas. Our graduate programs offer the next generation intercompany development opportunities and career guidance. In parallel, our mentoring program gives graduates expert guidance in order to develop their knowledge, skills and experience in DOF Subsea s core activities. Focus going forward Developing the Group s capabilities and continuing the global rollout of DOF Academy will be among our main priorities going forward. In 2014 one of our focus areas will be on continuous learning by developing internal apprentice programs and we will work closer with selected universities, to achieve the set goals. At the end of 2013 we started to work on talent mobility, which means that we will need to identify and provide even more career opportunities within our organization. The talent acquisition market is, perhaps, the fastest-changing part of HR, which leads us to look at new areas such as: talent networks, Big Data and assessment science. In addition, new recruiting platforms are being launched, and our ability to recruit will depend on our engagement and retention strategy. To manage the changes HR will develop a global program within this area to strengthen our position as employer of choice. Our biggest challenge is also our most important resource our employees. DOF Subsea s success and ability to grow will depend on how well we are able to recruit and retain the right competence and integrate them in the Group. The industry s next generation coming through our graduate program Introduced our Leadership Principles Kathleen Mathisen received the Sunniva Award from the Bergen Chamber of Commerce Implemented our Human Resource Policy The launch of a global training platform which supports career development from graduate trainee to executive management 600 participants in DOF Academy 20% Female representation globally. - Corporate 46% and Asia Pacific 30.5%. 40 different courses arranged 23.1% increase in workforce Company followers on LinkedIn in nine months PROVIDING OUR EMPLOYEES WITH THE OPPORTUNITY TO DEVELOP AND REACH THEIR FULL POTENTIAL DEVELOPMENT AND INVESTMENT IN OUR EMPLOYEES

12 PROTECTING PEOPLE AND THE ENVIRONMENT Building a solid and robust Safety Culture has been our key success during Stig Clementsen, head of HSEQ 24 HSEQ is a constant deliverable, we continuously focus on improving safety performance across all worksites, worldwide. In 2013, initiatives which contributed to the achievement of this goal were focused in three key areas; HSEQ culture, Business Management System (BMS) and environmental performance. Reinforcing a robust HSE and Quality culture Training and development, as well as building competence and confidence within our teams, remain a principal activity. The aim is to empower people, to build a robust and resilient HSE and Quality culture that promotes a safety and quality mindset at all times. A keystone to enhancing a solid and robust HSE and Quality culture was the introduction and roll-out of a comprehensive training program. The training program comprises seven modules, focusing on the holistic understanding of key HSEQ areas and enhancing the way we conduct our operations both onshore and offshore. Centred on a dedicated HSEQ workbook, the program was delivered across the Group. The workbook received praise from both business partners and employees. Our unwavering commitment to Safety Management and Leadership received formal recognition in 2013 as our global systems were re-certified towards International Standard ISO 9001 : 2008, ISO : 2004 and OHSAS certification. In key areas of our business DNV GL recognized world-class performance. Environmental performance Identifying and managing hazards and environmental impacts remains a vital part of DOF Subsea s Management System. Offshore teams work in remote locations, often exposed to extreme conditions, surrounded by diverse and fragile ecosystems. Considerable progress has been made integrating environmental performance into broader strategic and business planning processes to identify and address improvement areas. Focus going forward DOF Subsea is committed to consistently delivering quality products and services, safely. Our employees combination of expertise and experience allows us to deliver according to customer expectations. We have made substantial progress in integration over the last three years. In 2014 we will focus on improving processes within our value chain - from tendering to project execution. Operating in a sustainable way is core to our business, and the Group scrutinized current risk management processes to ensure we minimise the risk in our operations. A new tool will be introduced to the organization to strengthen and increase the quality of our Risk Management Processes. Document management is a fundamental administrative system in our business. After researching software solutions, we identified a substantial cost saving and improvement potential in this function. A new tool will be implemented in 2014 to ensure a systematic structure and seamless interaction between DOF Subsea and our clients and suppliers globally. HSEQ Culture Safe is our core value. It is achieved not only by the Group providing the systems and environment in which personnel undertake activities, but also the behaviour of personnel. Based on our values, the Group will reinforce our Safety Culture with a structured behaviour based program built around the following elements; Safety Behavioural Program Just Culture Open Safety Dialogue Local Safety Rules Communicating the Group s Business ethics and Code of Conduct expectations was achieved through the introduction of a new e-learn training module. It proved to be another successful initiative, well received by our clients, subcontractors and employees. The training is publicly available at The Group s Ship Energy Efficiency Management Plan (SEEMP) has become a fundamental building block in our Environmental Management System, providing key energy usage data and allowing us to reduce vessel energy consumption worldwide. An audit performed early in 2014 by DNV-GL to evaluate ISO:50001 implementation within the Group identified SEEMP as a key element towards accreditation. As a global provider of EPIC projects, a major Supply Chain Management Project is underway to address client and Group requirements. Business Management System development We have launched a Business Management System Manual to support the achievement of the Group objectives in operations; quality, safety and external environment and to ensure we continuously improve our performance, onshore and offshore. The Carbon Disclosure Project (CDP) score for 2012 showed an encouraging improvement of eight per cent on previous years. We expect further improvement when the figures become available for Successful global recertification (ISO 9001, ISO and OHSAS standards). Successfully delivery of Global Risk manual Successful delivery of HSEQ workbook and historical high reporting of safety observations Delivering a new DOF Group Code of Business Conduct with supporting e-learn module 0.4 Lost time Injury Frequency (LTIFR) per million man-hours 2.4 Total Recordable Case Frequency Rate per million man-hours Safety Observations 110 Internal audits 13 Emergency Response Training exercises level 2 and 3 63 Executive HSE Management visits on vessels DOF SUBSEA AIM TO BE AN INCIDENT-FREE ORGANISATION SAFETY PERFORMANCE ENVIRONMENTAL PERFORMANCE TRAINING, LEADERSHIP, MANAGEMENT

13 EXECUTIVE MANAGEMENT TEAM Kathleen Offman Mathisen VP HR Stig Clementsen VP HSEQ Mons S. Aase CEO Jan Nore CFO John Loughridge EVP DOF Subsea Asia Pacific Eirik Torressen EVP DOF Subsea Brasil & Norskan Offshore SA Collin Cameron VP Survey & Positioning Jan Kristian Haukeland EVP DOF Subsea Atlantic Marco Sclocchi EVP DOF Subsea North America

14 4 Vessels 17 ROVS 464 Subsea personnel Onshore staff: 229 Offshore staff: 235 ATLANTIC REGION Jan-Kristian Haukeland, head of the Atlantic region The Atlantic Region has increased project awards, extended the client base with some significant project wins, and has continued to develop existing client relationships, winning repeat business. 28 The Atlantic region has experienced significant growth in The number of employees has increased by over 30 per cent during the year, reinforcing our capabilities. Recruiting will remain a focus for us in Our people are our main resource and we believe that we can bring out the best in each individual through training and coaching. DOF Academy is the platform on which we build the strong learning culture that will secure continuous development in the Region. During 2013, DOF Academy has seen over 600 participants, counting more than 1200 working days in total. The Region has taken a step-change in complexity of projects executed, with significant operations on projects such as the Banff FPSO re-instatement in the UK and the flexible jumper replacement on Tordis in Norway. Other important milestones include pre-installation of the Knarr FPSO in the North Sea and Goliat FPSO in the Barents Sea. In addition, the Region received a contract award from Shell for installation of flexible jumpers in We work to develop strong relationships with our clients through excellent project execution. The Region continues to grow in the IMR and subsea construction segment and has entered into a long-term charter for the new build MPSV Normand Reach. The vessel will be delivered in Q2 2014, and is an important contribution to our regional fleet. Normand Reach complies with the high standards of the Group and is delivered with the latest environmental solutions. The vessel will be equipped with two Kystdesign Supporter work ROVs and a 250Te offshore crane. HSEQ Summary We strive to reach our goal of zero harm to people, the environment and equipment. As a part of the continued focus on safe execution of operations, DOF Subsea s HSEQ Management Training program was implemented in A substantial number of the Regions employees, both onshore and offshore, attended the course with great success. We will continue to roll out this course in DOF Subsea has also focused on its document management system with the aim of enhancing our efficiency and quality of document handling. A pilot was executed in the Region and this was evaluated to be a great success. A global implementation project will commence in The Market In the Atlantic region the subsea market ranges from exploration areas and developing fields to mature brownfields. The different phases of field life comprise opportunities for DOF Subsea, with its aim to be a leading supplier of subsea survey, IMR and subsea construction services. In the North Sea and developed areas of West Africa we experience demand for IMR services as existing production facilities are aging. Steady increase in the demand for oil supports the continued exploration and development efforts in the entire region. Offshore Norway, the exploration activity is high, new field developments and re-developments are scheduled in the years to come, making the North Sea an interesting market for subsea construction. In West Africa, deep water discoveries in Angola and Nigeria evidence the potential of continued development and construction activity in the area. Both Mozambique and Tanzania have seen exploration activity increase and large gas discoveries pointing to growing potential for the subsea market in East Africa. Market outlook for 2014 and beyond Generally, there are several factors indicating that the subsea market in the North Sea continues to be of great importance. Large SURF projects, growth in installation of subsea trees and several subsea tie-back projects all support our assumptions of growth in the subsea construction market. For we expect to see higher spending on construction projects as several subsea tie-back projects are planned on Norwegian and UK sector. With aging subsea structures in both Norwegian and UK sector we expect increased IMR spend, which present an important opportunity for the Region to capture a greater share of this segment. With high exploration activity, especially in Norway, project opportunities also exist for survey and positioning services. Within the diverse subsea markets of Africa, we expect to see several large-scale subsea construction projects. Angola and Nigeria are still the major markets, but opportunities may emerge as new discoveries are developed from Cameroon in Western Africa to Tanzania in Eastern Africa. FPSO with related subsea tie-back appears to be the preferred concept selection for a range of the new developments. IMR is a growing market in Africa, with special focus on Angola and Nigeria where the subsea structures are aging. In general, we expect 2014 to be a year with high level of activity in both West Africa and in the North Sea. DOF Subsea has successfully undertaken a series of complex construction projects and Project management is at the core of our service provision. With our accumulated track record we are prepared to take on the various upcoming subsea projects. We expect continued growth in line with the market opportunities and seek to take on the challenges provided by our clients. 29 Replacement of mooring lines on Norne & Njord for Statoil Flexible installation on Corrib Field for Shell Third call-off on Statoil s seabed survey and light construction frame agreement Long term charter of the new build MPSV Normand Reach Training and development, 600 participants Reinforced our team of subsea experts Pre-installation of mooring system on Banff, Knarr and Goliat FPSO. Replacement of flexible jumpers on Tordis field for Statoil Knarr FPSO Installation for Teekay Delivery of Skandi Bergen Pilot test of document handling system 2013 HIGHLIGHTS FOR THE ATLANTIC REGION

15 3 Vessels 8 ROVS 409 Subsea personnel Onshore staff: 224 Offshore staff: 185 ASIA PACIFIC REGION 94 per cent of our employees feel they are treated with respect; 98.2 per cent were satisfied with their manager. In the key area of communication, 97 per cent understood their role in the organization and also what was expected of them. John Loughridge, head of the Asia Pacific region 30 The Asia Pacific region s employee engagement survey results proved that our initiatives within this crucial area have been very successful. Respect, one of our core values, featured highly, 94 per cent of our workforce feels they are treated with respect; 98.2 per cent were satisfied with their manager. In the key area of communication, 97 per cent understood their role in the organization and also what was expected of them. On the strength of the employee feedback around work-life balance we launched a flexible working arrangement - the condensed working week - which has been taken up by a high number of employees. The Region has also increased levels of training activity, with leadership development, HSEQ, knowledge sharing and graduate programs strengthening our capability. Offering competitive development opportunities is as central to attracting and retaining talented people as it is to workforce engagement. Our vessels, the Skandi Singapore, Skandi Hercules and Skandi Hawk all had high utilization, the result of intensive and visible business development initiatives. We completed a diverse range of construction and IMR projects for our clients throughout New Zealand, Australia, Thailand, Malaysia, Vietnam, India, Indonesia and the Philippines. The range of operations demonstrates the capability and resourcefulness of the global DOF Subsea Group both from a vessel perspective and our highly skilled employees who all contribute to successful execution. The management focus for 2013 has been performance improvement. Restructuring of the organisation, together with business process improvements have resulted in increased levels of control and management of risk. This focus has flowed through to improved vessel utilization, project and cost control, and improved financial numbers. HSEQ Summary The Region s priority for the year has been to improve HSE performance after recording our first LTI in over two years. At the end of December 2013 we saw the improvements in a significantly reduced and downward trending TRCFR. This was achieved through more focus on feedback of incidents, additional management visits and HSEQ training using as a basis the new HSEQ Workbook. On visiting the various vessels and sites we can see renewed vigor when it comes to HSE performance. Our clients audit DOF Subsea Asia Pacific extensively and we regularly receive positive feedback. These insights are supplemented by our own extensive internal auditing program. The Market The Asia Pacific region presents unique challenges due to its wide range of geographic and cultural diversity, including vast distances between each of the oil and gas precincts. The total addressable subsea market is not currently as large or mature as other regions. Client standards and risk management requirements are very high in Australia and New Zealand and ideally suited to our high quality service offering. In Asia s subsea construction segment we utilize our differentiated assets and capabilities to competitively complete EPIC and T&I construction projects directly for clients. In Australia and New Zealand DOF Subsea is now the market leader in the subsea IMR segment. Market outlook for 2014 and beyond Looking at 2014, Australia subsea activity will be particularly high, made up of large scale projects which were awarded to major EPIC contractors up to two years ago. With the current prevalence of very large projects and a short-term gap in mid-sized projects that suit our assets and capabilities, the forecast total addressable opportunities across Asia Pacific are smaller than the equivalent market in Longer term, while Asia Pacific only represents 10 per cent of the total global deep-water capital expenditure, it is currently forecast to attract the highest global compound annual growth rate of 27 per cent out to Australia is forecast to lead the region with 40 per cent of this capital expenditure. The bulk of this investment is in very large project developments, typically awarded many years in advance to major subsea EPIC contractors. Our market focus in Australia will continue to be with subcontract scopes, partnering with major contractors. There are many construction and brownfield projects in Australia predicted in the short to midterm outlook. All of these developments will require a high-quality IMR contractor to provide long-term post construction support services. Along with this activity, the highest global increase in FPSO numbers is forecast in Asia; these developments ideally suit our asset mix. Looking to the longer term, strong growth is expected in deep water developments in Asia Pacific and the Region is well positioned to capture these opportunities. Our high-quality assets and integrated service offering matches clients deep water subsea infrastructure development and IMR requirements. 31 Reduction in TRCFR (Total Recordable Case Frequency Rate) over the year with increased focus on reporting and feedback. All work linked to production shutdowns completed on time and ahead of schedule, ensuring we did not impact client critical path. Completion of DOF Subsea s first significant EPIC project for Otto Energy on the Galoc field in the Philippines. A number of IMR, subsea construction and saturation diving campaigns; starting in New Zealand but also in Australia, Thailand, Malaysia and the Philippines. Fast track emergency mooring repair for OMV in New Zealand, using custom designed diverless methodology and mobilizing the Skandi Skansen from Europe to substitute for Skandi Hercules which had been committed to Galoc at the time. Completion of combined FPSO/ SURF construction projects for clients in Vietnam and India. High utilization (average 90%) of all vessel assets in the region. 9 months usage of D300 mobile saturation dive system for Woodside on the Nor Australis HIGHLIGHTS FOR THE ASIA PACIFIC REGION

16 6 Vessels 14 ROVS 334 Subsea personnel Onshore staff:70 Offshore staff: 264 BRAZIL REGION A major initiative in the Region was the establishment of a subsea engineering department. Our employees are our main resource. We rely on their expertise and talent to be positioned as a leading subsea provider in the Brazilian market. Eirik Torressen, head of the Brazil region 32 The Brazil region continued to improve our capabilities and services offered to our clients, central for future expansion of our subsea project business in Brazil. The Region has been able to increase the complexity of our services, offering solutions from the surface to the seabed. In 2013 we started to develop a structure to undertake more advanced subsea construction, IMR and survey projects across life-of-field of the Brazilian oil and gas industry. A major initiative in the Region was the establishment of a subsea engineering department. The initiative will require recruitment of new employees with expertise and talent, in order to be positioned as a leading subsea provider in the Brazilian market. We enhanced training programs and company culture to provide sustainable careers, attract and retain personnel. We executed a climate survey to evaluate the Region s culture and launched a leadership program to enhance offshore leadership. This resulted in a project oriented organization which demonstrated positive results, better contract control and a higher degree of client satisfaction. The regional fleet of six vessels and 14 ROVs all achieved high utilisation. During Q five new ROVs were contracted by Petrobras, which will be allocated on third party AHTS vessels. HSEQ Summary Safety is top priority and will always be a driving focal point for the Region. Our HSE approach has been to reinforce safety culture and promote the safety commitment which gives every employee the authority and confidence to stop any unsafe work. The execution of the Human Safety Barrier Program became mandatory for all employees in In 2013 we executed two seminars reaching 90 per cent of the workforce. The Region finished the year with zero TRC (Total Recordable Cases) and a great decrease in the FAC (First Aid Cases Rate) compared to This outcome represents a thriving safety culture which is a result of a strong HSE approach. By mid of 2013 the Region was recognized by Chevron, who granted us the gold award for safety excellence of Skandi Salvador supporting the exploration and production activities on the Frade Field. The Region is also constantly improving quality standards through our management system and procedures in order to deliver better quality to our clients. External audits comprise part of the successful recertification DNV Global audit on October of 2013 (ISO 9001, ISO and OHSAS standards). In addition, several internal audits were conducted in the Region. The process involved the majority of the departments and brought positive insights to continuous improvement efforts. The Market Demand is primarily driven by deep-water offshore field development and operations, mainly due to pre-salt discoveries. This has shaped bidding activity with high impact on vessel specifications and subsea equipment. Deep and ultra-deep waters, greater distances from shore, higher pressure temperatures are demanding more advanced subsea technologies and services. State-of-the-art CSVs, new subsea systems, well and platform intervention/inspections and equipment integrity assurance are segments in high demand. The pre-salt development has also expanded the PLSV market, which is a crucial activity to ensure the installation of new production systems. Kilometers of pipelines are expected to be installed in the years to come. Another important market aspect is the increasing requirement of local content in order to ensure the domestic industry growth and technology transfer. In line with our values, the Region has, since inception, worked vigorously to develop skills and knowledge in a local workforce. Many of our ground-breaking vessels have been built in Brazil, and this is testimony to our belief in thinking globally and working locally. In our segment priority is given to Brazilian vessels, this regulatory advantage plays a significant role in terms of the Region s competitiveness. Market outlook for 2014 and beyond Market fundamentals remain strong and in the mediumterm, Brazil is expected to be a leading offshore oil region. Opportunities in Brazil are driven by Petrobras business plan, investments in exploration and production ( ) is estimated to USD billion. In addition, Petrobras expect to reach an oil production of 4.2 mbpd by 2020 (current production is aprx. 2 mbpd). Within the non-petrobras market some of the main operators are Statoil, Shell, Chevron, Repsol-Sinopec, Total, BP and the Brazilian company Queiroz Galvão O&G. In 2013 the Brazilian government recommenced the release of new oil blocks after a five year gap of investment in new oil exploration frontiers. This initiative offered areas in the equatorial margin, Northeast, and in the pre-salt Libra Field bringing several new international oil companies to the market. This represents a substantial increase on exploration and production investments boosting the entire oil and gas supply chain. The Region is well positioned to use our core competence, vessel knowledge and strategic partnerships to capitalize on this market and continue our growth-trend. 33 Four ROV contract awards with Petrobras (4+4 years) Skandi Ipanema with ROV contract award (4+4 years) Start-up of subsea engineering department Skandi Salvador new contract with Chevron (15 months) Geoholm contract award for 18 months. Vessel started operations Q Four PLSVs contract with Petrobras (8+8 years) 1000 days without LTI on Geograph Skandi Salvador received gold award from Chevron due to safety excellence on the Frade Field 2013 HIGHLIGHTS FOR THE BRAZIL REGION

17 2 Vessels 141 Subsea personnel Onshore staff:53 Offshore staff: 88 NORTH AMERICA REGION Marco Sclocchi, head of the North America region The long-term charter of Harvey Deep-Sea provides a platform to further develop our integrated services to include disciplines such as engineering, procurement, special tooling and planning. It has had an almost immediate impact for the Region, we have increased the number of subsea project awards and the complexity of project execution. 34 In North America the aim has always been to establish a permanent and sustainable subsea presence. A primary focus has been increasing visibility of the DOF Subsea brand as well as expanding project execution services along with our client portfolio. Two principle events have enabled us to make significant progress toward this goal in The first, saw the Region enter into the long-term charter of the Harvey Deep-Sea, a Jones Act compliant vessel. Regulatory tightening has seen more stringent control on compliance with the Jones Act, which effectively constrains vessel deployment in the region. For the Region a second, high specification, technologically advanced vessel under our control, is central to our ability to expand in the subsea construction and IMR market. This long-term charter has had an immediate impact for the Region, we have increased the number of subsea project awards and the complexity of the project execution. It also provides a platform to further develop our integrated services to include disciplines such as engineering, procurement, special tooling and planning. HSEQ Summary The Group s goal is to be incident free at all worksites. The Region finished the year with zero LTIs, operating seven vessels on multiple projects over It is a major achievement for the regional team and is testimony to our robust safety culture. As with all the Regions, our focus on safe execution of operations is unwavering, and in 2013 DOF Subsea s HSEQ Management Training program was implemented. A substantial number of the Region s employees, both onshore and offshore, attended the course with great success. We continue with the rollout of this course in The Region is also work to continuously improve quality standards through our management system and procedures in order to deliver better quality to our clients. External audits comprise part of the successful recertification DNV Global audit on October of 2013 (ISO 9001, ISO and OHSAS standards). In addition, several internal audits were conducted in the Region. The process involved the majority of the departments and brought positive insights to continuous improvement. The Market The Region focuses on the deep-water market arena, where demand for high specification equipment and competence is a constant. With large capital projects under construction in the Region, survey support, engineering support, IMR and light construction are the key services operators are concentrating on in order to maintain and increase planned production. The offshore industry is facing a more stringent control on the compliance with the Jones Act, foreign staff utilization and tax collection. This creates disadvantages to the foreign vessel owners and operators, now forced to incur extra costs and risk to cover logistics and administrations. Since inception DOF Subsea has had a global focus with a dedicated regional presence and we benefit from the fact that we are local to our regional market. Market outlook for 2014 and beyond The Gulf of Mexico market has completely recovered from the financial crisis and the post Macondo moratorium. Reported drilling activities are high and the activity level has bounced back to pre-2008 levels. have scheduled the start-up of new facilities with a concentration of activities between the 2nd and 3rd quarter of Planned tie-back projects will extend to In late 2016 another round of large capital projects has been sanctioned with pre-activities already planned early The outlook for the next three years is solid for survey, IMR and light construction services and the Region is in a positive position with a match to the upcoming demand. Other factors in play will be the requirement for higher vessel specifications in order to accommodate the heavier hardware to complete the subsea campaigns, (for example, 20, 000 PSI technologies, subsea pumping) as well as the deeper locations under development. The current conditions offer an important opportunity for DOF Subsea to capitalize on and gain a greater market share in this segment. Having anticipated the opportunities and challenges in the Region and developed the organization s capability in line with forecasted demand we are in a position to continue to deliver growth. 35 Secondly, to accommodate increased activity and growth the organisation moved to a new office location, signaling the next phase of expansion of the Region. For the Region expect to see higher capital expenditure on construction projects. Several operators Award and execution of the Saipem pre-lay and support contract, for the Geoholm, Skandi Inspector and a 3rd party vessel. Execution of the Leviathan geophysical and geotechnical survey with the Geobay and the Hugin 1000 AUV system Commenced the long-term charter in September of the Harvey Deep-Sea, Jones Act compliant vessel Harvey Deep-Sea utilized on 4 projects, including Freeport McMoran under a 2-year IMR Frame Agreement contract. Execution of the tie-back to Tahiti II production well. Harvey Deep-Sea with 2 XLX ROV system, survey and construction crew to transport and install the 35 meters long vertical jumper and flying leads, Q working in a water depth of approx.1300 meter HIGHLIGHTS FOR THE NORTH AMERICA REGION

18 1 AUV 68 Subsea personnel Onshore staff: 25 Offshore staff: 43 SURVEY AND POSITIONING In our first year the business unit has seen great results with significant projects undertaken on behalf of clients including Nobel Energy and GSP Romania/Exxon Mobil. And we have seen the all-important client confidence in the quality of service delivery with repeat contract awards. Colin Cameron, VP Survey and Positioning 36 DOF Subsea Survey and Positioning is a new business unit within the Group. Formed on 1 January 2013, the strategic purpose is to capitalize on the market and delivery of global survey and positioning services to third parties. The management team has been established to focus on the expansion of an existing product line to capture a larger share of the growing survey and positioning market. Our commercial emphasis has been simply Earnings, Quality and Growth. It was a natural fit to assign the AUV permanently to the business unit with the responsibility to deliver a managed AUV service to the survey and positioning market. The team is working to develop a sustainable backlog and delivery of what has proved to be a leading global service. Delivering a robust management framework in 2013 laid the foundation for us to realize the economies of scale and benefits of shared control and governance as outlined by DOF Subsea s vision and values, and Business Management System (BMS). In our first year the business unit has seen significant projects undertaken on behalf of clients including Nobel Energy and GSP Romania / Exxon Mobil. We have seen the all-important client confidence in the quality of service delivery with repeat contract awards. HSEQ Summary DOF Subsea Survey and Positioning has achieved the HSEQ performance objectives on all projects. However, we work with the Group to build and maintain a robust safety culture. We have successfully trialed a competence scheme for offshore personnel, which is ready to be expanded. Our onshore management personnel and senior offshore staff are trained and qualified as assessors in order to undertake the assessment of onshore on offshore personnel in line with IMCA guidelines. Management site visits have increased during 2013 and this trend will be followed in 2014, with annual targets. DOF Subsea Survey and Positioning s first global management review was undertaken during 2013 in the Atlantic and North America regions. The Market The global market for survey & positioning services shows significant potential for growth in all geographical areas. Focus areas for DOF Subsea Survey and Positioning s growth include the provision of existing and proven survey services to new markets, and the expansion of the current survey services portfolio within prevailing markets, including Atlantic and North America. DOF Subsea has deep water AUV experience and a portfolio of successfully completed AUV projects on a global basis. Increased demand is anticipated as AUV technology matures and new applications for AUVs are developed, especially within the IMR market. Our core business is focused on the provision of survey and positioning services to the marine construction sector. These existing services have a solid track record in Atlantic and North America, are highly portable, and in conjunction with DOF Subsea s global footprint will allow growth into currently untapped markets, including Brazil, Asia Pacific and Caspian. Market outlook for 2014 and beyond Activity within the global survey and positioning market remains high with no decrease in activity envisaged within the next three to five years. This is supported by evidence of new building within the fleets of main EPIC contractors, and also emerging contractors. Changes within supply chain for procurement of survey and positioning services is ensuring more projects are tendered, as contractors are increasingly unable to single source with traditional suppliers. A key sensitivity with the survey supply chain is the increased competition for resources. This is especially evident in the Atlantic Region where new survey companies are emerging. Our key to commercial success is offering market differentiated services, safely. In DOF Subsea Survey and Positioning this is evident in the continued expansion of the technology portfolio and growth of the AUV division. It is anticipated that the AUV market will experience significant growth in all geographic regions over the next five years. Advances in technology and growing contractor confidence in AUV s for survey work will see increased utilization. DOF Subsea is one of three companies with experience in the deep water AUV sector, and combined with our global footprint DOF Subsea is well positioned to capitalize on this and other sector growth. 37 Master Services Agreements with Heerema Marine Contractors, Seaway Heavy Lifting, BP America, Encana, Statoil Canada, Technip Canada, and Red 7 Marine. AUV Projects for Noble Energy and GSP Romania / Exxon Mobil. The setup of the new business unit DOF Subsea Survey and Positioning. Several projects executed, Technip Girri Project, Anadarko survey services, BP Angola well positioning and verification, and EMAS AMC. Assignment of Survey Applications to DOF Subsea Survey and Positioning. Development of Competence Assurance scheme for UK based survey personnel, and participation in DOF Academy for training and development HIGHLIGHTS FOR SURVEY AND POSITIONING

19 HISTORIC CONTRACT AWARDS building our fleet capability PLSV 1+2 PLSV 3+4 To be built in Brazil To be built in Norway, Søviknes Delivered Q and Q Delivered Q and Q Design 316 Design 305 Type Pipe Lay support Type Pipe Lay support LOA 140 m LOA 150 m Beam 28 m Beam 30 m VLS 340 t VLS 650 t 2 ROVs 2 ROVs DWT t DWT t Largest single contact in our Group s history DOF Subsea s strategy to establish a strong position in the growing Brazilian market has been recognised with the award of the largest single contract in the Group s history. The Joint Venture between DOF Subsea and Technip has been awarded four ground-breaking contracts by Petrobras. The contracts cover the construction of four new pipelay support vessels (PLSVs) and their operation, in Brazilian waters, to install flexible pipes. The value of the contracts for the DOF Subsea Group is approximately NOK 14 billion, including options. Building the Group s position in the region by delivering purpose built quality vessels has given us a good reputation with operators and partners. DOF Subsea and Technip have a history of successful collaboration on the Skandi Vitória and Skandi Niterói. However, this recent and significant win reinforces DOF Subsea s position as a leading provider of offshore vessels to the Brazilian oil and gas industry. It is testimony to the Group s long-term focus on the Brazilian market and the expertise of our employees. 39 The vessels will be delivered by VARD. Two will be built in Norway and two in Brazil. The contract confirms DOF Subsea s strong relationship with Petrobras. 2 PLSVs 300 ton laying capacity 2 PLSVs 650 ton laying capacity contracts 14 NOK billion backlog 1 outstanding team Two of the PLSVs will have a 340-ton laying tension capacity and will be fabricated in Brazil with a high national content. The other two vessels will be designed to achieve a 650-ton laying tension capacity, thus enabling the installation of large diameter flexible pipes in ultra-deepwater environments, such as the Brazilian pre-salt. Vard Holdings Limited ( VARD ), one of the major global designers and shipbuilders of offshore and specialized vessels, will be in charge of the design and construction of the four PLSVs. Under the DOF Subsea/Technip joint venture agreement, Technip will manage flexible pipelay and Norskan S.A., a sister company of DOF Subsea, will be responsible for marine services. Delivery of the PLSVs is scheduled for The contracts will last eight years from start of operations, and could be renewed for another eight-year period. RECORD CONTRACTS

20 D O F S u b s ea An n ual Re p ort SUCCESSFUL TEAMWORK working together to win and execute projects Teamwork plays a crucial role in the Group s success. Innovation DOF Subsea and DOF Management teams operate across business units and geographical borders. We work together to win and execute projects, to transition projects through the onshore - offshore phases and we partner with our clients to deliver safe, successful results. This highlight project is an example of what we accomplish, together with our partners. Demonstrating how great teamwork builds on existing relationships and, in turn, builds on our reputation. Our global abilities and the innovation we have in-house to solve problems allows us to provide safe and successful services. New system for diverless mooring line repair 41 In 2012 three key New Zealand operators issued a joint tender in order to charter a larger, high-specification vessel, able to cope with the region s harsh weather conditions. DOF Subsea won the IMR, light construction campaign. The campaign was successful. In the 2013 program tender a fourth major operator joined the original group, adding their IMR and light construction work-scope. DOF Subsea won this contract and undertook the campaign in Q The DOF Group s brand recognition and reputation grew in the region. Operators planned a collective drilling campaign in 2013 (spearheaded by Origin Energy). DOF Group term-chartered two AHTS vessels, Skandi Atlantic and Skandi Emerald to support the drilling campaign. In Q2 2013, two mooring wires on the Raroa FPSO parted. Skandi Atlantic and Skandi Emerald were immediately deployed to assist with controlling the FPSO. In the meantime, the Skandi Hercules was considered to undertake the repair the of mooring system. 2 years 5 operators BUILDING A WINNING TEAM 5 vessels As the Skandi Hercules was already committed, a solution was to substitute sister ship Skandi Skansen which was just completing a phase of work in the North Sea. Being a sister ship, re-engineering required for the work-scope was minimised. 3 regions 1 outstanding team The solution for the FPSO moorings which required a diverless solution for something which was not designed for diverless operations there were significant loads involved. The project team developed and built the necessary equipment by the time Skandi Hercules arrived in New Zealand, and the project was delivered safely and successfully.

21 THE SUBSEA MARKET Fundamental indicators and industry analysts continue to forecast demand growth throughout the global subsea offshore Exploration and Production (E&P) market, as operators seek to replenish depleting offshore reserves. Further offshore production will come from higher cost, more technological intensive infrastructure in harsh and deep water environments. 42 The deep water segment is forecast to have a 10 per cent share of offshore reserves by 2017, however, this should represent about 53 per cent of global offshore capital expenditure at this time. 70 per cent of this investment program will be in Brazil, West Africa & North America, while Asia Pacific should see the highest growth rate of 27 per cent CAGR through the period. The current leading indicators of deep water drilling rig activity, plus numbers of awards for trees and Floating Production Units are consistent with expected continued growth in demand for DOF Subsea s service offerings. While there is an increasing supply of mid-sized vessels in the broader subsea market, our strategy is investing over the long term in a high-end fleet of differentiated assets to suit deep water requirements and the ever increasing standards of operators and regulatory bodies. The strategy has placed us in a strong position to service a growing market, with the provision of vessels and a range of additional integrated life-of-field services as required. DOF Subsea s IMR (Inspection, Maintenance & Repair) service segment is well established in the Atlantic, Asia Pacific and North America regions, where we target opportunities that best suit our integrated assets and core capabilities. There is growth prospects globally, dove tailing behind the growing infrastructure developments in deep water. Short term growth is expected to be strongest in Australia, Atlantic, Brazil and North America, with stronger medium term growth opportunities in Africa, following planned investments and market development. DOF Subsea Survey & Positioning has recently been developed as a business unit globally. The global survey market is steadily growing and by leveraging off existing integrated service centres, this relatively small business unit should experience healthy growth. The Group s SURF (Subsea, Umbilical, Riser and Flowlines) service segment is strongest in Atlantic and Asia Pacific. FPSO (Floating, Production, Storage & Offloading) project developments are forecast to continue experiencing high growth and we have developed a successful track record, as these developments ideally suit our particular vessels and core capability. We continue to see operators placing emphasis on safety and reliability of services. Subsea contractor costs are coming under closer scrutiny as historically strong operator margins are diminishing. A number of operators have recently indicated rising subsea contractor costs may result in the postponement of a number of subsea projects. Increasing contractor costs are primarily flowing through from industry consolidation reducing competition among the major contractors and a shortage of skilled people is of concern. In terms of consolidation over recent years, it is a clear that fewer major subsea contractors are currently available with the capabilities and resources to deliver large and complex EPIC deep water projects. Limited competition may lead to operators unbundling more of the traditional large EPIC contracts down the supply chain. This will favour our capabilities and market position, creating additional growth opportunities in our SURF segment. Looking to our growth prospects, our prime focus has been our established geographical markets of Atlantic, Asia Pacific, Brazil and North America. We will continue to strengthen our presence in these markets to support clients and opportunities that best suit our differentiated capabilities.

22 FINANCIAL MARKET Increased global liquidity and higher risk appetite among investors led to a substantial gain in value globally in The global financial conditions stabilized in 2013 as new policy initiatives in developed economies, including a further expansion of unconventional monetary policies, reduced the near-term tail risks for the world economy. Increased global liquidity and higher risk appetite among investors led to a substantial gain in value globally in Among several large financial events during 2013, the most important was perhaps the US Federal Reserve decision to start unwinding (tapering) the massive monthly bond-buying program (QE) in December. Foreign exchange 44 At the beginning of February 2013, the US Dollar (USD) exchange rate against the Norwegian kroner (NOK) dropped to From February the NOK depreciated against most currencies, and the USD/NOK rate spiked to 6.22 in beginning of July. The USD/NOK exchange rates remained volatile the rest of 2013, and at year end the exchange rate was 6.08 The British pound (GBP) also experienced a lot of volatility in The GBP exchange rate against NOK was highly correlated to USD/NOK during most of The year started with an exchange rate of GBP/NOK around 9.08, and at year end the exchange rate was The large movement was partly due to the weakening of NOK, but there was also a turnaround in the UK economy with increasing activity due to the government s responsive and fiscal monetary policies. Similar to GBP/NOK, the Australian dollar (AUD) against NOK also moved in tandem with the USD/NOK for most of The AUD/NOK peaked at 6.12 at the end of March and depreciated to 5.44 at year end. This was partly in line with the central bank s intention of lowering the exchange rate to ease pressure on exporters, and help achieve a more balanced economic growth. The Brazilian Real (BRL), together with other key emerging market currencies were the losers in the currency markets during the second half of These countries saw the value of their currencies fall as foreign investors withdrew funds from their economies. The Fed decision to start tapering got much of the blame, but also coupled with low economic growth and a current account deficit, the BRL started to depreciate against NOK in April despite the weakening of the NOK. BRL/NOK depreciated from a high of 2.95 in March to 2.47 in August. The exchange rate closed at 2.57 at year-end. Interest rates Norwegian interest swap rates experienced several fluctuations throughout the year although the difference between the start and the end of the year was minimal. The five-year NOK swap rate began 2013 at 2.48 per cent and closed at 2.62 per cent at year end. On the other hand, the USD interest swap rates were on an upward trend with the five-year USD swap rate increasing from 0.82 per cent at the start of January to 1.75 per cent in December. Short-term money market rates for both markets were on a general decline. The 3 month NIBOR and USDLIBOR rates dropped from 1.83 and 0.31 at the start of the year to 1.69 and 0.25 at the end of the year respectively. USD/NOK DEVELOPMENT AUD/NOK DEVELOPMENT GBP/NOK DEVELOPMENT BRL/NOK DEVELOPMENT 45 NOK INTEREST RATES USD INTEREST RATES

23 DOF SUBSEA FLEET owned vessels At year-end 2013, our high-end fleet had an average value-adjusted age of five years and a combined market value of NOK 17 billion. DOF Subsea currently own 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. OCEAN PROTECTOR SKANDI BERGEN (SOLD) SKANDI NEPTUNE SKANDI SINGAPORE SKANDI ACERGY SKANDI CONSTRUCTOR SKANDI NITEROI SKANDI SKANSEN GEOGRAPH SKANDI ACHIEVER SKANDI HERCULES SKANDI SALVADOR SKANDI SKOLTEN GEOHOLM SKANDI AKER SKANDI INSPECTOR SKANDI SANTOS SKANDI PATAGONIA GEOSEA SKANDI ARCTIC SKANDI CARLA SKANDI SEVEN SKANDI VITORIA. GEOSUND

24 DOF SUBSEA FLEET new build and chartered vessels New Build Lady Sponsor; Leander Colton Grayson NB-800 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 operations in the future. SKANDI HAWK Chartered vessels 48 EP-9 DOF Subsea expanded the fleet with a number of Chartered vessels, building greater flexibility and a complementary fleet mix to meet our clients subsea challenges. HARVEY DEEP-SEA EP-10 ROSS CANDIES NB-823 CHLOE CANDIES NB-824 NORMAND REACH Skandi Bergen was delivered from Vard in June The naming ceremony took place in Bergen and the lady sponsor was Leander Colton Grayson. The vessel has been operated in the Atlantic region during 2013.

25 DOF SUBSEA ROVS The ROV fleet has the capability of working down to 4,000 metres water depth with active heave compensated launch and recovery systems 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). TRITON XLS TRITON XLX 150 TRITON XL 150 COUGAR XTi SCHILLING UHD SEAEYE MARINE TIGER HUGIN AUV KYSTDESIGN SUPPORTER SCHILLING HD FOCUS II ROTV MOHICAN INSPECTION

26 THE BOARD 2013 Helge Møgster Helge Singelstad Alex Townsend Krueger Neil John Hartley Board member Chairman Board member Board member 52 Helge Møgster is the 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 board member of DOF ASA. Helge Singelstad is CEO of Laco AS and Chairman of the Board of DOF ASA, 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. Alex T. Krueger, President and Co-Head of Buyout, joined First Reserve in Mr. Krueger 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 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 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. 53 Mons Svendal Aase Board member / CEO Hilde Drønen Board member John Mogford Board member Doug J. Musicaro Board member Mons S. Aase joined DOF ASA in 1998 and became CEO in 2005 having held a number of positions including CFO and Deputy Managing Director. 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 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). John Mogford, Managing Director, joined First Reserve as Operating Partner in He provides direct operational support and guidance to First Reserve s portfolio company executives as well as strategic advice to First Reserve investment teams. 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. Doug Musicaro is a Vice President of First Reserve. After joining the firm in 2009 as an associate, Mr. Musicaro returned to First Reserve in January 2014 after earning his MBA from Columbia Business School. His responsibilities range from deal origination and structuring to due diligence, execution and monitoring, with a particular emphasis on the equipment, manufacturing and services sector. Prior to joining First Reserve, Mr. Musicaro worked at Goldman Sachs where he worked on a variety of M&A transactions in the E&P and oilfield service sectors. Mr. Musicaro holds a B.B.A. from Georgetown University.

27 2013 CORPORATE GOVERNANCE 54 Introduction Background Our parent company, DOF ASA, is a listed public limited company approved and adopted a Corporate Governance Policy as a governing document. In the preamble to the CGP it is stated that the document shall also be applicable for subsidiaries as may be appropriate. DOF Subsea AS expresses that the company endorses and adopts the current CGP in DOF ASA, with such exceptions as are natural given the company s organisation and activities. DOF ASA ( DOF or the Company ), is the parent company in DOF s Group of companies ( The Group ), is established and registered in Norway and subject to Norwegian law, hereunder corporate and other laws and regulations. The Company s aim is to observe all relevant laws and regulations, and the Norwegian recommendation for corporate governance. This also applies for all other companies within the Group, and consequently this document applies to the extent reasonable for all companies therein. The Company s Board of Directors originally adopted in 2006 a document which largely and in principle adhered to the then applicable Corporate Governance standard, with a few deviations. The Board of Directors has later examined all revised recommendations of the Corporate Governance standard, published by the Norwegian Committee for Corporate Governance (NUES). The Company s later revised and adopted Corporate Governance Policy reflects the will of DOF to fully comply with the current corporate governance standards recommendations from NUES. The Company will 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 market. On 21 October, 2010, new Corporate Governance guidelines from NUES were published, and on 20 October, 2011 and latest on 23 October 2012 NUES has resolved to make some minor changes and clarifications in these guidelines. This document reflects fully the recommendations and guidelines published in the current Corporate Governance guidelines from NUES with amendments of 20 October 2011 and 23 October, 2012, and shall with effect from 23 October, 2012, constitute the Company s new Corporate Governance Policy document. Objective This governing document contains measures which have been and will be implemented to secure efficient management and control of the activities of the Company. The main objective is to establish and maintain systems for communication, surveillance and incentives which will increase and maximize the financial results of the Company, its long term soundness and overall success, and investment return for its shareholders. 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. Rules and regulations The Company is a Norwegian public limited company listed on the Oslo Stock Exchange. In that respect the Company is subject to the corporate governance regulations contained in the Public Limited Companies Act 1997 (asal.), the Securities Trading Act 2007 (vhpl), the Stock Exchange Act with regulations (børsreg) and other applicable legislation. Management of the Company Management of and control over the Company is divided between the shareholders, represented through the general meeting of the shareholders, the Board of Directors and the Managing Director (CEO) in accordance with applicable legislation. The Company has an external and independent auditor. Implementation and reporting on Corporate Governance The Board of Directors must ensure that the Company implements sound corporate governance. The Board of Directors must provide a report on the Company s corporate governance in the directors report or in a document that is referred to in the directors report. The report on the company s corporate governance must cover every section of the Corporate Governance Code of Practice. If the Company does not fully comply with this Code of Practice, the Company must provide an explanation of the reason for the deviation and what alternative solution it has selected. The Board of Directors should define the Company s basic corporate values and formulate guidelines for ethics and social responsibility. The Company s business The Company s business shall be clarified in its Articles of Association. Within the framework of its Articles of Association, the Company shall have clear goals and strategies. The annual report should include the main objectives provisions from the Articles of Association and contain descriptions of the Company s principal objectives and strategies. Equity and dividends The company shall have an equity capital at a level appropriate to its objectives, strategy and risk profile. The Company s Board of Directors shall develop a clear and predictable dividend policy as grounds for proposals for dividends proposed to the General Meeting of shareholders. The Company s dividend policy shall be made known. Mandates granted to the Board of Directors to increase the Company s share capital shall be subject to defined purposes and shall be limited in time to no later than the date of the next annual General Meeting. If the General Meeting is to consider mandates to the Board of Directors for the issue of shares for different purposes, each mandate should be considered separately by the meeting. This should also apply to mandates granted to the Board for the Company to purchase own shares. Equal treatment of shareholders and transactions with close associates The Company shall only have one class of shares. Any decision to waive the pre-emption right of existing shareholders to subscribe for shares in the event of an increase in share capital must be justified. If the Board of Directors decides on a share capital increase, including a deviation from the principle of equal preference among the shareholders, and based on a mandate from the General Meeting, the grounds shall be made public in a Stock Exchange announcement in connection with the increase of the share capital. Any transactions the Company carries out in its own shares shall be carried out either through the stock exchange or at prevailing stock exchange prices if carried out in any other way. If there is limited liquidity in the shares, the Company should consider other ways to ensure equal treatment of all shareholders. In the event of any not immaterial transactions between the Company and shareholders, members of the Board of Directors, members of the Executive Management or close associates of any such parties, the Board shall arrange for valuation to be obtained from an independent third party. This will not apply if the transaction requires the approval of the general meeting pursuant to the requirements of the Public Limited Companies Act. Independent valuation should also be arranged in respect of transactions between companies in the same Group where any of the companies involved have minority shareholders. The Company shall adopt guidelines to ensure that the Members of the Board of Directors and the Executive Management notify the Board if they have any material direct or indirect interest in any transaction entered into by the Company. Freely negotiable shares Shares in listed companies must, in principle, be freely negotiable. Therefore, no form of restriction on negotiability of the Company s shares shall be included in the Company s Articles of Association. 55

28 56 General meetings The Board of Directors should take steps to ensure that as many shareholders as possible may exercise their rights by participating in general meetings of the company, and that general meetings are an effective forum for the views of shareholders and the board. Such steps should include: making the notice calling the meeting and the support information on the resolutions to be considered at the general meeting, including the recommendations of the nomination committee, available on the Company s website no later than 21 days prior to the date of the general meeting. ensuring that the resolutions and supporting information distributed are sufficiently detailed and comprehensive to allow shareholders to form a view on all matters to be considered at the meeting. setting any deadline for shareholders to give notice of their intention to attend the meeting as close to the date of the meeting as possible. if the general meeting is to consider mandates to the Board of Directors for the issue of shares for different purposes, each mandate should be considered separately by the meeting. proposals for resolutions to be considered by the general meeting, alternatively comments on matters where no resolution is proposed a form for appointing a proxy. Nomination Committee The Company shall have a nomination committee, and the general meeting should elect the chairperson and members of the nomination committee and should determine the committee s remuneration. The nomination committee shall be included in the Company s Articles of Association. The General Meeting of Shareholders shall adopt guidelines for the Nomination Committee. The members of the nomination committee should be selected to take into account the interest of shareholders in general. The majority of the committee should be independent of the Board of Directors and the Executive Management. No more than one member of the nomination committee should be a member of the Board of Directors, and any such member should not offer him/herself for re-election. The nomination committee should not include the Company s CEO or any other member of the Company s Executive Management. executive personnel and material business contacts. At least two of the members of the Board of Directors elected by shareholders should be independent of the Company s main shareholder(s). In the assessment of independency the following criteria shall inter alia be considered: whether the relevant person has been employed in a senior position with the Company during the foregoing five years, whether the relevant person has received or is receiving other kinds of remuneration from the Company other than the Director s remuneration or pension payments, or participates in a share option program or result based remuneration arrangement, whether the relevant person has or represents business relation with the Company. The Board of Directors shall not include representatives of the Company s Executive Management. With a view to effective Group management, representatives from the Executive Management may however serve as Directors in Group subsidiaries. The Chairman of the Board of Directors shall be elected by the general meeting. shall have an obligation and a right to participate in the meetings of the Board of Directors as long as anything to the contrary has been decided. In order to ensure a more independent consideration of matters of a material character in which the chairman of the board is, or has been, personally involved, the Board of Directors consideration of such matters should be chaired by some other member of the Board. A deputy chairman should be elected for the purpose of chairing the Board in the event that the chairman cannot or should not lead the work of the Board. The Company shall have an audit committee. The entire board of directors should not act as an audit committee. The majority of the members of the committee shall be independent. The Board of Directors should also consider appointing a remuneration committee in order to help ensure thorough and independent preparation of matters relating to compensation paid to the executive personnel. Membership of such a committee should be restricted to members of the Board who are independent of the Company s executive personnel. 57 ensuring that the members of the Board of Directors and the nomination committee and the auditor are present at the general meeting. Shareholders who cannot attend the meeting in person should be given the opportunity to vote. The Company shall provide information on the procedure for representation at the meeting through a proxy. nominate a person who will be available to vote on behalf of shareholders as their proxy. to the extent possible prepare a form for the appointment of a proxy, which allows separate voting instructions to be given for each matter to be considered by the meeting and for each of the candidates nominated for election. The Company should, at the earliest possible opportunity, make available on its website: information on the right of shareholders to propose matters to be considered by the general meeting The nomination committee s duties are to propose candidates for election to the Board of Directors and to propose remuneration to be paid to members of these bodies. The nominations committee shall give arguments for its recommendations. The Company should provide information on the membership of the committee and any deadlines for submitting proposals to the committee. Board of Directors: composition and independence The composition of the Board of Directors shall ensure that the Board can attend to the common interests of all shareholders and meets the Company s need for expertise, capacity and diversity. Attention should be paid to ensuring that the Board can function effectively as a collegiate body. The composition of the Board of Directors should ensure that it can operate independently of any special interest. The majority of the shareholder-elected members of the Board of Directors should be independent of the Company s Members of the Board of Directors shall not be elected for more than two years at a time. The annual report shall provide information on participation in the meetings of the Board of Directors and on issues which may illustrate the competence of the members of the Board of Directors. In addition, information shall be provided on which members are considered to be independent. Members of the Board of Directors shall be encouraged to own shares in the Company. The work of the Board of Directors The Board of Directors shall produce an annual schedule for its work, with particular emphasis on objectives, strategy and implementation. The Board of Directors shall from time to time issue instructions for its own work as well as for the Executive Management with particular emphasis on clear internal allocation of responsibilities and duties. The CEO, CFO and Director of Legal Affairs/Counsel of the Company The Board of Directors shall provide details in the annual report of any board committees appointed. The Board of Directors shall evaluate its performance and expertise annually. Risk management and internal control The Board of Directors must ensure 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 should also encompass the Company s corporate values and guidelines for ethics and social responsibility. The Board of Directors should carry out an annual review of the Company s most important areas of exposure to risk and its internal control arrangements. Remuneration of the Board of Directors The remuneration of the Board of Directors shall reflect the Board s responsibility, expertise, time commitment and the complexity of the Company s activities.

29 58 The remuneration of the Board of Directors should not be linked to the Company s performance. The Company should not grant share options to members of its Board. Members of the Board of Directors and/or companies with which they are associated should not take on specific assignments for the company in addition to their appointment as a member of the Board. If they do nonetheless take on such assignments this should be disclosed to the full Board. The remuneration for such additional duties should be approved by the Board. The annual report should provide information on all remuneration paid to each member of the Board of Directors. Any remuneration in addition to normal directors fees should be specifically identified. Remuneration of the Executive Management The Board of Directors shall compose guidelines for the remuneration of the members of the Executive Management. These guidelines shall be communicated to the annual meeting. The guidelines for the remuneration of the Executive Management shall set out the main principles applied in determining the salary and other remuneration of the Executive Management. The guidelines should help to ensure convergence of the financial interests of the Executive Management and the shareholders. publication of interim reports, public presentations, dividend payment date if appropriate etc. All information distributed to the Company s shareholders should be published on the Company s web site at the same time as it is sent to shareholders. The Board of Directors should establish guidelines for the Company s contact with shareholders other than through general meetings. Take-overs The Board of Directors should establish guiding principles for how it will act in the event of a take-over bid. During the course of a take-over process, the Board of Directors and Management of both the party making the offer and the target company have an independent responsibility to help ensure that shareholders in the target company are treated equally, and that the target company s business activities are not disrupted unnecessarily. The Board of the target company has a particular responsibility to ensure that shareholders are given sufficient information and time to form a view of the offer. The Board of Directors should not seek to hinder or obstruct take-over bids for the Company s activities or shares. If an offer is made for a Company s shares, the Company s Board of Directors shall issue a statement evaluating the offer and making a recommendation as to whether shareholders should or should not accept the offer. The Board s statement on a bid should make it clear whether the views expressed are unanimous, and if this is not the case it should explain the basis on which specific members of the Board have excluded themselves from the Board s statement. The Board shall arrange a valuation from an independent expert. The valuation shall be substantiated and made public no later than or simultaneously with the statement from the Board of Directors. Any transaction that is in effect a disposal of the Company s activities should be decided by a general meeting. Auditor The auditor should submit the main features of the plan for the audit of the company to the audit committee annually. The auditors should participate in meetings of the Board of Directors that deal with the annual accounts. At these meetings the auditor should review any material changes in the Company s account principles, comment on any material estimated accounting figures and report all material matters on which there has been disagreement between the auditor and the Executive Management of the Company. The auditor should at least once a year present to the audit committee a review of the Company s internal control procedures, including identified weaknesses and proposals for improvement. The Board of Directors shall hold 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. The Board of Directors shall establish guidelines in respect of the use of the auditor by the Company s Executive Management for services other than the audit. The Board of Directors must report the remuneration paid to the auditor at the 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 general meeting. 59 Performance-related remuneration of the Executive Management in the form of share options, bonus programs or the like should be linked to value creation for shareholders or the Company s earnings performance over time. Such arrangements, including share option arrangements, should incentivise performance and be based on quantifiable factors over which the employee in question can have influence. Performance related remuneration should be capped. Information and communication The Board of Directors shall establish 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 the securities market. The Company should publish an overview each year of the dates for major events such as its annual general meeting, Any agreement with the bidder that acts to limit the company s ability to arrange other bids for the company s shares should only be entered into where it is self-evident that such an agreement is in the common interest of the company and its shareholders. This provision shall also apply to any agreement on the payment of financial compensation to the bidder if the bid does not proceed. Any financial compensation should be limited to the costs the bidder has incurred in making the bid. Agreements entered into between the company and the bidder that are material to the market s evaluation of the bid should be publicly disclosed no later than or at the same time as the announcement that the bid will be made is published. In the event of a take-over bid for the Company s shares, the Company s Board of Directors should not exercise mandates or pass any resolutions with the intention of obstructing the take-over bid unless this is approved by the general meeting following announcement of the bid.

30 BOARD OF DIRECTORS REPORT DOF Subsea AS (the Company) was founded in the spring of Since its inception, the Company, its subsidiaries and affiliates (the Group), has developed into a worldwide supplier of subsea vessels and services, present in all major offshore regions of the world. During the nine years since inception the Group has grown from about 70 employees to 1667 employees and the owned fleet has grown from 3 to 29 subsea vessels including 5 new buildings, and in addition the Group had by year-end 3 subsea vessels on charter. Business concept and vision The Group s two core business segments are ownership and long term chartering of vessels and subsea projects. The Group owns a large and modern fleet of construction support vessels that enable the Group to offer a wide range of vessel services. This ownership creates a solid base for long-term relationships with our clients, enhancing service delivery and reducing overall risk. The Group s fleet comprise 29 vessels including 5 new buildings and had 3 vessels on charter. The ROV fleet counts 59 units including 7 ROVs on order. By year end vessels were on time charter contracts to third party charterers and 8 vessels were operating in the subsea project segment through subsidiaries. The subsea project segment includes survey and positioning, project management, engineering and consultancy. The segment is organized in four regions; the Asia Pacific region, the Atlantic region, the North America region and the Brazil region. During 2013 the Group has achieved growth in all regions and the complexity and quality of the services provided to our clients has increased. Within survey and positioning, project management and consultancy business unit the Group has also increased the focus and is planning to make this business unit into a global supplier, utilizing the network established in the subsea project segment. The Company s subsidiaries are located in Bergen, Perth, Singapore, Oslo, Aberdeen, Luanda, Houston, St. Johns, and Rio de Janeiro. The Group is also represented in Russia, Brazil (Macaé), Indonesia, The Philippines, Malaysia and Brunei. The Group s headquarters is located in Bergen, Norway. Activities during 2013 Contracts In the time charter segment, several contracts were extended. Subsea 7 exercised their option on both Skandi Skansen and Skandi Seven, Chevron Brazil extended the contract on Skandi Salvador and Skandi Constructor entered into a long term contract with Helix Well Ops. In August the Group was awarded its largest contract ever from Petrobras, when the JV owned by DOF Subsea and Technip was awarded four 8+8 years contracts. The value of the contracts for the Group is approximately NOK 14 billion, including options. In November, the Group was awarded a 5 years contract with 5 annual options from Technip on the new build Vard 800. The contract will commence when the vessel is delivered from the yard during 1st half of Towards the end of the year, the Group was awarded an 18 months contract with Petrobras utilizing the vessel Geoholm. The Group was also awarded five ROV contracts by Petrobras. The contracts has a firm period of 4 years with 4 years options. Planned start-up on the contracts is 1st and 2nd quarter of Within the subsea project segment the Group faced a significant increase in activities during 2013, both in the Asia Pacific, Atlantic and North America regions. Apart from a slow start during the 1st quarter the activity was very high in all regions. In the Asia Pacific region the Skandi Singapore executed diving work in New Zealand, Australia, Thailand and in Malaysia during the year. Skandi Hercules started the year installing D1 FPSO mooring system and hook-up in India, thereafter installing the Lam Son FPSO mooring system in Vietnam, executing IMR work in Malaysia and in Australia and toward the end of the year the vessel was engaged in an FPSO mooring line repair in New Zealand for OMV. The Skandi Hawk was working on IMR projects in the Philippines, in Indonesia and in Australia during the year. The Skandi Skansen was also working for the region on the Galoc project off the Philippines. In the Atlantic region the Geosund has been executing survey work for Statoil in the North Sea. The Skandi Skolten has been working on the Goliat field in the Barents Sea and on the Banff field executing FPSO mooring operations. In addition the vessel has been working on the Tordis field and on the Njord and Norne field. The Geoholm was in the Gulf of Mexico during the winter and thereafter the vessel was working for Technip in the North Sea. The Atlantic region has also chartered in several vessels on short term charters during the year. In North America, the Skandi Inspector was transferred from the North Sea to the Gulf of Mexico and started on a 1 year contract with Saipem. During the winter and the spring the region operated the vessels Skandi Constructor and Geoholm. The North America region has chartered in several vessels on short-term charters and the region also chartered in the Jones Act compliant vessel Harvey Deep- Sea on a long term charter. The vessel started the operations for the region medio September. The Group was awarded multiple contracts during the year, and the Group s contract back log reached a record high level by year end of NOK 34 billion, of which NOK 17 billion is firm contracts and NOK 17 billion is options. Fleet In February the Group entered into a new building contract with Vard Holdings Limited (Vard) for a subsea vessel to be delivered during first half 2015 (Vard 800). The vessel has a LOA of 162 m, 32 m beam, 900t crane and a 650t VLS. In February the Group sold the vessel Geobay, and chartered the Jones Act vessel Harvey Deep-Sea on a 4 years charter from delivery of the vessel in August During June the Group delivered Geobay to the new owner and took delivery of the new build Skandi Bergen from Vard. In August a joint venture (JV) owned by DOF Subsea and Technip was awarded four 8+8 years contracts with Petrobras. In connection with the award, the joint venture ordered four new Pipe Lay Support Vessels (PLSV). Two of the vessels will be delivered from Vard Norway (Vard 823/824) whilst the other two will be delivered from Vard in Brazil (EP 09/10). During September the Group sold the new build Skandi Bergen. In October the Group chartered in the vessel Normand Reach on a 2+2 years time charter. Finance The Company has been active in the bond market both issuing new bonds and trading of own bonds. During the 1st quarter the Company issued a new bond of NOK million (DOFSUB07) with maturity May In connection with the bond issue the Company bought back outstanding bonds in DOFSUB04, DOFSUB05 and DOFSUB06 with a total value of NOK million. During the 4th quarter the Company sold a volume of NOK 218 million in DOFSUB06 and a volume of NOK 82 million in DOFSUB05 held on own book. The Company also bought back NOK 64 million of the outstanding amount in DOFSUB04. In June the Group took delivery of the vessel Skandi Bergen. The vessel was financed by Swedbank, GIEK and Eksportkredit at market terms for offshore financing and with covenants standard for the Group. During the 4th quarter the Group entered into a long term lease arrangement on 7 ROV systems to be delivered during 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 2013 there have not been any changes to the ownership structure. The total number of shares outstanding at year-end 2013 was Health, Safety, Environment and Quality With a strong emphasis on improving the Group s safety performance in its global offshore operations, major safety measures were implemented in A keystone to reinforcing a solid and robust HSE and Quality culture was the introduction and roll-out of a comprehensive training program. The training program comprises seven modules, focusing on the holistic understanding of key HSEQ areas and enhancing the way we conduct our operations both onshore and offshore. Centred on a dedicated HSEQ workbook, the program was delivered across the Group. The workbook received praise from business partners and employees, alike. The Lost Time Incidents Frequencies, LTIF, was less than 0.5 per million working hours. The willingness to report HSE observations, positive as well as informative, is remarkable and reports were submitted during the year. This gives the Group a unique database for analysing 61

31 62 its workforce s suggestions for improvements, as well as adjusting procedures, to achieve a culture of continuous improvement. The Group s unwavering commitment to safety management and leadership received formal recognition in 2013 as its global systems were recertified towards International Standard ISO 9001 : 2008, ISO : 2004 and OHSAS certification with duration out Identifying and managing hazards and environmental impacts remains a vital component of the Group s management system. Offshore teams work in remote locations, often exposed to extreme conditions, surrounded by diverse and fragile ecosystems. Considerable progress has been made integrating environmental performance into broader strategic and business planning processes to address and manage improvement areas. During the year 12 minor discharges to external environment has been reported. All of them less than 100 liters and no charges by local governmental authorities have been recorded. The Group s Ship Energy Efficiency Management Plan (SEEMP) has become a fundamental building block in the Environmental Management System, providing key energy usage data and allowing a reduction in vessel energy consumption worldwide. The Carbon Disclosure Project (CDP) score for 2012 showed an encouraging improvement of eight per cent on previous years. The Board of Directors expect further improvement when the figures become available for Human resources In 2013 the Group has been focused on framework for professional and personal development for our employees. The Group has implemented a consistent standard of learning and assessment across the Group and introduced a new DOF Subsea Competence and Assurance Standard. This to ensure the Group s competency scheme provides a standardized approach globally (with no geographical boundaries) enabling staff to transfer more easily within the organization. The implementation of Kenexa (a recruiting tool) last year has been successful and the Group has this year also focused more on the use of social media for recruitment purpose. The Group has been investing in BigData and analytics tools to make our HR departments more datadriven and accurate. The new change in HR has given new measurement tools which enable better monitoring of the workforce and support the business in a more strategic way. In 2013 a new Human Resource Policy was released and Leadership Principles was introduced for the Group s managers. In 2014 the principles will be rolled out and implemented globally in all regions. The number of employees by year-end 2013 was 1 667, including hired contractors compared to in These numbers do not include marine crew on board the vessels that are hired from DOF Sjø AS and Norskan Offshore Ltd. All employees take part in a bi-yearly working environment survey and 3 of 4 regions held their bi-yearly survey`s in The surveys show improvement on several areas, and a stronger commitment to the Group s vision and values. Absence due to sickness has also this year been below the Group s KPI of 4 per cent. The long-term focus on training and development of the Group s employees will continue in 2014 and the launch of our DOF Academy has in 2013 been very successful with more than 600 participants receiving training in more than 40 different courses. Business management processes The Group has continued its effort to strengthen the Business Management Systems with focus on qualifications and competence, standardization, risk control and improved efficiency through use of the Group s integrated systems. During the year, the Group has strengthened the Business Management System in order to improve and manage the totality of its processes, in order to meet the organizations objectives and equitably satisfy our stakeholders. The Group has achieved a step change by launching improved processes within engineering, project execution and maintenance of its vessels and assets. A standardization of reporting and analysing the economic performance has also been implemented where the focus has been on utilization of the Group s resources. It is the Board of Directors intention to have a strong management team, a motivated workforce and an efficient business management system enabling the Group to deliver return to the shareholders. Code of Business Conduct and Anti-corruption The Group has a zero tolerance to bribery and corruption. The Group s policy is to conduct all business in an honest and ethical manner. In 2013, the Group improved the communication of the Business ethics and Code of Conduct expectations through a revision of our Code of Business Conduct and the introduction of a new e-learn training module. It proved to be another successful initiative, well received by our clients, subcontractors and employees. The training is also publicly available at and is mandatory for all DOF Subsea employees. Equal opportunities and anti-discrimination The Group has had a high focus on diversity and inclusion in From 2012 to 2013 the Group increased the female representation in the workforce. 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 labour standards. The Group s policies and standards are based on International Labour Organization conventions and they prohibit any use of forced or child labour. The Group recognises and respect employees right to freely associate, organise and bargain collectively and the policies are compliant with working hour requirements as established by local laws. Market The oil price is the main driver for the E&P investment level in the subsea market. The oil price is expected to remain at current levels in the year to come. In 2013 the oil price has been volatile, where the dated Brent has traded between USD 120 per barrel and USD 97 per barrel, while the average price has been about USD 109 per barrel. The subsea market has been strong during 2013 and the contract awards for the main contractors have been record high. In the 1st quarter of 2013, the activity level was weak, particularly in the North Sea due to seasonality. The activity level improved during the year and the Group saw healthy activity levels during the peak season. The activity level in Brazil remained strong throughout the year and the Group saw increased activity in the Gulf of Mexico during the year. In the Asia Pacific region the activity level was high. The global exploration and production spending increased by about 10 per cent in 2013 and a similar number is expected in The Board of Directors expect 2014 to be active, however the increased cost focus from the main oil companies may lead to a mixed market in the years to come, with regional differences. Utilization of the fleet during 2013 During the 1st and 4th quarter of 2013 the utilization of the Group s vessels has been below average. The main reasons for the low utilization were idle time between projects, maintenance and transit. In the 2nd quarter two project vessels were moved from the Gulf of Mexico to the North Sea and one vessel from the North Sea to the Gulf of Mexico. In the 4th quarter two project vessels were moved from the North Sea, one vessel to the APAC region and one vessel to Brazil. The total average utilization for the fleet during 2013 was 94 per cent. 1 st quarter 2 nd quarter 3 rd quarter 4 th quarter Project vessel 72 % 85 % 93 % 87 % TC vessels 96 % 99 % 97 % 97 % Total 91 % 95 % 96 % 94 % 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 the Board of Directors are satisfied with the utilization of the fleet during Presentation of Group accounts and Parent company accounts 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 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 2014 and the Group s long-term forecast. The Group s economic and financial position is sound and improving. 63

32 64 Group accounts For 2013, 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 (NOK million including a sale gain of NOK 210 million) and the operating profit after depreciation EBIT was NOK million (NOK million including a sales gain of NOK 210 million). The depreciation amounted to NOK 772 million (NOK 669 million). NOK million Change Operating income % Operating expenses % EBITDA % Net financial result was NOK -863 million (NOK -862 million), whereas NOK 170 million (NOK 101 million) of the negative financial result was unrealized currency loss and unrealized loss on hedging instruments. The profit before tax was NOK 317 million (NOK 466 million) and the profit for the year NOK 220 million compared with NOK 474 million in The Group s total assets were NOK million (NOK million) where non-current assets amounted to NOK million (NOK million), including NOK 681 million (NOK 678 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 568 million (NOK 708 million). The liquidity in the Group was satisfactory at year end. The total equity was NOK million (NOK million), including non-controlling interests of NOK 218 million (NOK 201 million). Non-current liabilities, including non-current provision for commitments, was NOK million (NOK million). Current liabilities were NOK million (NOK million) of which NOK million (NOK million) was short term portion of long term debt. At year end the net interest-bearing debt (NIBD) was NOK million (NOK million). NOK million Change Tangible fixed assets % Liquidity % NIBD % Total equity % Cash flow from the operational activities during the year was NOK million (NOK million). Cash flow from the investment activities during the year was NOK million (NOK -370 million), while the cash flow from financing activities was NOK 500 million (NOK -659 million). At year-end the Group s cash and cash equivalents was NOK million (NOK million). Parent company financial statement There have been no major internal restructuring transactions in As a part of internal restructuring of the DOF Subsea Group, DOF Subsea AS was the acquiring part in a number of mergers in The mergers were effective as of 1st January After the mergers, DOF Subsea AS sold all merged vessels to a subsidiary in the 1st quarter of In addition, to be an investment and a management company, DOF Subsea AS has, in some part of 2012, been a vessel-owning entity. The 2012 financial figures are reflecting these transactions. In 2013, the Company`s total operating income was NOK 96 million compared to an operating income of NOK 109 million in Operating profit before depreciation EBITDA was NOK -15 million (NOK 41 million) and the operating profit after depreciation EBIT was NOK -24 million (NOK 29 million). The depreciation amounted to NOK 9 million (NOK 12 million). NOK million Change Operating income % Operating expenses % EBITDA % Net financial results was NOK -206 million (NOK -64 million). The profit before tax was NOK -230 million (NOK -35 million) and the profit for the year was NOK -195 million (NOK -4 million). The Company s total assets were NOK million (NOK million) where non-current assets amounted to NOK million (NOK million) including NOK 210 million (NOK 170 million) in intangible assets. The current assets were NOK million (NOK million) of which NOK million (NOK 957 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 964 million (NOK 738 million). The Company`s book equity ratio was 47 per cent (52 per cent) at the end of NOK million Change Non-current assets % Liquidity % NIBD % Total equity % Allocation of profits The parent company s net result for 2013 was NOK -195 million. The Board of Directors recommends that the net result is allocated to retained earnings. Financial market risk The Norwegian kroner (NOK) have been volatile during the year against the major income currencies, such as USD, GBP, AUD and BRL. USDNOK; The NOK started to depreciate against the USD in the beginning of the year the end of first quarter and reached a peak in July at an exchange rate of USDNOK 6.19 before the currency continued ranging sideways for the rest of the year. The USD/NOK exchange rate was 5.52 in the beginning of 2013 and 6.08 at the end of 2013, whilst the average USDNOK exchange rate was 5.88 for the year. GBPNOK; the NOK started to depreciate against GBP in the beginning of the year and continued to weaken throughout the year. The GBPNOK exchange rate was 8.99 in the beginning of 2013 and at the end of 2013, whilst the average GBPNOK exchange rate for the year was AUDNOK; the NOK Depreciated against AUD in the first quarter thereafter the NOK appreciated against the AUD until August before the currency started to range sideways for the rest of the year. The AUDNOK exchange rate was 5.79 in the beginning of 2013 and at the end of 2013, whilst the average AUDNOK exchange rate for the year was BRLNOK; the NOK depreciated against BRL in the first quarter thereafter the NOK appreciated against the BRL until August before the currency started to range sideways for the rest of the year. The BRLNOK exchange rate was 2.70 in the beginning of 2013 and 2.58 at the end of 2013, 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). However, a significant portion of financial costs are payable in NOK. The Group is exposed to interest rate risk on 50 per cent of all outstanding debt and 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. The Group has limited financial exposure to the changes in the raw materials market for such products as oil and refined-oil products, and to the extent the Group has exposure to such risk it is minimized through escalation clauses in the contracts. The oil price is important for the global demand for the vessels within our industry. The high price of crude oil that we have seen over the last year has a positive impact on our industry through increase of the investments into Exploration and Production (E&P). The Group s trade receivable are primarily towards the large international oil companies and other large international subsea contractors. The portion of receivables that were uncollectable has historically been low and the Group evaluates that our customers have the financial strength to meet their obligations. There are established guidelines for follow up and collection of trade receivables. Since most of the Group s fleet operates outside Norway, the Group is exposed to local regulation and taxation. Corporate Governance The Group s risk management and internal control 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 include focus on business opportunities and establishing cost-efficient solutions. In addition, focus on financial reporting and budgeting that will provide comprehensive information for decision-making and risk assessment. Every year, the management carries out detailed and thorough budgeting processes in all levels of the organisation. The next year s budget and a five year forecast 65

33 66 are submitted to the Board of Directors for approval. Procedures have been established for weekly, monthly and quarterly reports on operations, investments, financing and liquidity. The Board of Directors receives weekly, monthly and quarterly operating reports, including information on HSE and personnel status, along with information on market development. The Board of Directors is of the opinion that the Group s reporting procedures are sufficient to fulfill the requirement for risk management and internal control. Outlook and events after balance date The Group s economic and financial position is sound and improving, which provides a good foundation for its continued operations, future development and growth. 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. During January, the Group was awarded 4 months work for Statoil under an existing frame agreement, and the bare boat contract on Ocean Protector was extended by 6 months. In addition DOF Subsea delivered the vessel Skandi Bergen to its new owners. In February the Group was awarded a call-off on an existing survey frame agreement for Statoil for 2015, securing 8 months work in the Atlantic region, and a contract award in the Asia Pacific region for mooring installation. In addition, AKOFS 2 AS exercised the purchase option for the vessel Skandi Aker. The transaction will take place February In March, the Group has chartered in two Jones Act compliant vessels in the North America region, the Chloe Candies for a period of one year firm plus one year option and the ROSS Candies for a period of one year firm. In addition, the Group was awarded several contracts in the North America region utilizing the chartered in vessels. Also, DOF Subsea Survey & Positioning was awarded a 2 extension of an existing master service agreement with Seaway Heavy Lifting. In April, the final extension option on the vessel Skandi Seven was exercised securing two more years of utilization, until end March The majority of the Group s vessels are fixed on long term contracts. The contract backlog including options amounted to NOK 34 billion as per 31st of December The Group is exposed to the short-term market in the project segment. However, the Board of Directors and the management are working to increase the contract backlog in the project segment. It is the Board of Directors view that the subsea market is in a positive development and that the subsea market in general will grow worldwide in the coming years, however at a lower pace than previous years. The Board of Directors expects growth in both revenue and profitability for the Group in The growth will come due to more vessels in operation, improved margins on the charter contracts and improved margin in the project segment. Bergen, 23 April 2014 The Board of DOF Subsea AS Helge Møgster Helge Singelstad Mons S Aase Hilde Drønen Chairman Board member CEO/Board member Board member Alex Townsend Krueger Neil John Hartley John Mogford Douglas J. Musicaro Board member Board member Board member Board member

34 DOF Subsea Group Amounts in NOK million Statement of comprehensive income Accounts DOF Subsea Group Note Operating income 5, Payroll expenses 7, Other operating expenses Profit from sale of non-current assets Total operating expenses Operating profit before depreciation (EBITDA) Depreciation 13, Operating profit (EBIT) Income / loss from associated companies 9, Financial income Financial expenses Realized gain / loss on financial instruments Unrealized gain / loss on financial instruments Net financial income / loss Profit / loss before tax Tax expenses Profit / loss for the year Other comprehensive income Items that may be subsequently reclassified to profit / loss Currency translation differences (CTA) Cash flow hedges Items that will not be subsequently reclassified to profit / loss Defined benefit plan actuarial gains / losses -8 - 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 parents Total comprehensive income / loss attributable to Non-controlling interests Owners of the parents Owners of the parents 11, Earnings per share diluted (NOK) 11, The notes on pages 75 to 104 are an integral part of the consolidated financial statements.

35 DOF Subsea Group Amounts in NOK million DOF Subsea Group Amounts in NOK million Statement of financial position Statement of financial position Note Assets Deferred tax asset Goodwill Intangible assets Vessels 13, ROVs 13, Machinery and other equipment Newbuilds Tangible assets Note Equity and liabilities Share capital Other paid-in capital Share premium Retained earnings Non-controlling interests Total equity Deferred taxes Pensions Financial non-current derivatives Non-current provisions for commitments Investment in associated companies Other non-current receivables Financial assets Non-current assets Bond loans Debt to credit instistutions Other non-curent liabilities Non-current liabilities Fuel reserves and other inventory Trade receivables Current receivables from DOF ASA companies Other current receivables Total receivables Short term portion of debt to credit institutions Trade payables Current liabilities to DOF ASA companies Tax payables Public duties payables Other current liabilities Current liabilities Restricted cash Unrestricted cash and cash equivalents Cash and cash equivalents Total liabilities Total equity and liabilities Current assets The notes on pages 75 to 104 are an integral part of the consolidated financial statements. Total assets The notes on pages 75 to 104 are an integral part of the consolidated financial statements. Bergen, 23 April 2014 The Board of DOF Subsea AS Helge Møgster Helge Singelstad Mons S Aase Hilde Drønen Chairman Board member CEO/Board member Board member Alex Townsend Krueger Neil John Hartley John Mogford Douglas J. Musicaro Board member Board member Board member Board member

36 DOF Subsea Group Amounts in NOK million DOF Subsea Group Amounts in NOK million Statement of changes in equity Statement of cash flows Note Changes in equity Share capital Share premium Other paid-in capital Currency Retained translation earnings differences Cash flow hedges Total Noncontrolling interests Equity at Profit / loss for the year Other comprehensive income for the year Total comprehensive income for the year Equity at Total equity Profit before tax Depreciation Profit / loss from sale of non-current assets Income / loss from associated companies Change in trade receivables Change in trade payables Changes in other accruals Unrealized gain / loss on financial instruments Unrealized gain / loss on currencies Cash flow from operating activities Equity at Profit / loss for the year Other comprehensive income for the year Total comprehensive income for the year Equity at Net interest booked in P&L Interest received Interest paid Tax paid Net cash flow from operating activities (1) Changes in IAS 19 Employee benefits are applied from 1st of January The amendments are effective for the treatment of the Group`s benefit plans. The effect of these changes is that all actuarial gains and losses are recognised in other comprehensive income as they arise (no corridor). For the DOF Subsea Group these effects are immaterial. The prior year s figures are therefore not restated. In 2013 the change in defined benefit actuarial gains / losses was NOK 8 million is included in Retained earnings in the table above. Cash flow hedges and change in defined benefit actuarial gains / losses are presented after tax. Tax rate used is 28-34%. Cash flow hedges are described in note 23. Sale of tangible assets Purchase of tangible assets Purchases of intangible assets Change in DOF ASA companies receivables/debt Change in other long term receivables Cash flow from investing activities (2) Proceeds from non-current liabilities Instalments on non-current liabilities Minority interest -1 - Cash flow from financing activities (3) Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the period Exhange rate gain / loss on cash and cash equivalents Cash and cash equivalents at the end of the period

37 DOF Subsea Group NOTES TO THE ACCOUNTS Contents 1 Corporate information Acquisition-related costs are expensed as incurred Corporate information Accounting policies Financial risk management Accounting estimates and assessments Segment information Operating income Payroll expenses Other operating expenses Financial income and expenses Tax Earnings per share Intangible assets Leases Other non-current receivables Trade receivables Other current receivables Cash and cash equivalents Share capital and share information Interest bearing debt 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, First Reserve Corporation holds 49% ownership stake. The DOF Subsea Group s two core business segments are ownership and long term chartering of vessels and subsea projects. The Group offers survey and positioning, project management and consultancy services as part of subsea projects. The Group s clients are mainly operators and contractors within the global oil and gas industry. The Group owns a large and modern fleet of construction support vessels that enable the Group to offer a wide range of vessel services. This ownership creates a solid base for long-term relationships with the clients, enhancing service delivery and reducing overall risk. The Board of Directors approved the Financial Statements for publication on the 23 April The financial report is divided into the Group s account and the parent company accounts. 2 Accounting policies 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. The fiscal year is the same as the calander year. 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. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or loss arising from such re-measurement are recognised in profit or loss. Any contingent consideration to be transferred by the Group is recognised 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 recognised in accordance with IAS 39 either in profit or loss 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 equity. The excess of the consideration transferred the amount of any noncontrolling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the 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 with 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 equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. DOF ASA companies DOF ASA companies consist of sister companies for the DOF Subsea Group controlled by the parent company DOF ASA Trade payables Other current liabilities Financial instruments and hedging activities Financial instruments - balance 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 on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Jointly controlled companies Jointly controlled companies are economic activities regulated by an agreement between two or more parties, so that these parties have joint control over the activities. Participation in jointly controlled companies is recognised using proportionate consolidation (line by line). According to this method, each participant reports in their accounts their share of income, costs, assets and liabilities. 25 Related parties Companies within the Group Investments in associated and jointly controlled companies Contingencies Events occurring after the balance date Exchange rates used The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree 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 and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisitionby-acquisition basis, either at fair value or at the non-controlling interest s proportionate share of the recognised amounts of acquiree s identifiable net assets. Associated companies Associated companies 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 associated companies are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor s share of the profit or loss of the investee after the date of acquisition. The Group s investment in associated companies includes goodwill identified on acquisition. If the ownership interest in an associated company is reduced but significant influence is retained, only a proportionate share of the

38 DOF Subsea Group DOF Subsea Group 76 amounts previously recognised in other comprehensive income is reclassified to profit or loss where appropriate. The Group s share of post-acquisition profit or loss is recognised in the statement of comprehensive income, and its share of postacquisition movements in other comprehensive income is recognised in other comprehensive income with a corresponding adjustment to the carrying amount of the investment. When the Group s share of losses in an associated company equals or exceeds its interest in the associated company, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associated company. The Group determines at each reporting date whether there is any objective evidence that the investment in the associated company is impaired. If this is the case, the Group calculates the amount of impairment as the difference between the recoverable amount of the associated company and its carrying value and recognises the amount adjacent to income / loss from associated companies in the statement of comprehensive income. Profits and losses resulting from upstream and downstream transactions between the Group and its associated companies are recognised in the Group s financial statements only to the extent of unrelated investor s interests in the associated companies. Unrealized losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associated companies have been changed where necessary to ensure consistency with the policies adopted by the Group. Dilution gains and losses arising in investments in associated companies are recognised in the statement of comprehensive income. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-makers. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified by the Board of Directors that makes strategic decisions. The Group s primary reporting format is determined by business segment, and the Group operates within two business segments: Chartering of vessels Subsea projects Conversion of foreign currency a) 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. The consolidated financial statements are presented in NOK. b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. 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 recognised in the statement of comprehensive income as financial income or costs. c) 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 balance sheet, income and expenses are converted using the average rate of exchange, and all resulting exchange differences are recognised in other comprehensive income and specified separately 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 statement of comprehensive income. 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 balance sheet date All other assets are classified as non-current assets. Liabilities are classified as current liabilities 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 balance sheet date; or the entity does not have an unconditional right to postpone settlement of the liability until at least 12 months after balance sheet date. All other liabilities are classified as non-current. Cash and cash equivalents Cash and cash equivalents include cash in hand and deposits held on call accounts with banks. Restricted deposits are classified separate from unrestricted bank deposits under cash and cash equivalents. Restricted deposits include deposits with restriction past twelve months. 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, are also classified as trade receivables. Trade receivables are recognised initially at fair value and subsequently measured at amortized cost. Discounting is ignored if insignificant. A provision for loss 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. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the accounts receivable are impaired. The amount of the provision is the difference between the asset s nominal value and the recoverable value, which is the present value of estimated future cash flows, discounted at the original effective interest rate. Changes to this provision are recognised under other operating costs. When a trade receivable is uncollectible, it is written off against the provision for trade receivables. Tangible assets Tangible assets are recognised at cost less accumulated depreciation and accumulated impairment loss. The cost of tangible assets comprises its purchase price and any directly attributable costs of bringing the asset to working condition, and borrowing costs. The carrying amount of an asset in the statement of financial position represents the cost less accumulated depreciation and any impairment charges. If significant, the total expenditures are separated into separate groups of components which have different expected useful lives. Depreciation is calculated on a 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 tangible assets 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 from the assets. When tangible assets are sold or retired, their cost and accumulated depreciation and accumulated impairment loss are derecognised and any gain or loss resulting from their disposal is included in the 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. Consequently, the residual value differs from a 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 today s fair value forms a basis for the estimate. However, today s fair value is adjusted to reflect the fair value of the vessel as if it had been of an age and in the condition expected at the end of the useful life (20 years). Ordinary contract costs and ordinary costs related to mobilization are capitalized and amortized on a systematic basis consistent with the contract period. Contracts costs and mobilization costs are capitalized and depreciated over the contract period. Contract period is based on best estimates taken into consideration normally initial agreed period and probability for optional periods. A probability judgment is performed in assessing whether the option period shall be included in the contract period. The probability of whether the customer will utilize the option period will be based on past experience with the client, nature of the contract and marked conditions in general. Tangible assets under construction Tangible assets under construction are capitalized as newbuilds during construction in progress as installments are paid to the yard. Building costs include contractual costs and costs related to monitoring the project during the construction period. General and specific borrowing costs directly attributable to the construction of qualifying vessels, are added to the cost of those vessels, until such time as the vessels are substantially ready for their intended use. Assets under construction are not depreciated before the tangible asset is in use. Impairment of tangible assets All tangible 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 recognised in the statement of comprehensive income. The recoverable amount is the higher of an asset s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm s length transaction less the costs of disposal, while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if this is not possible, for the cash-generating unit. The value in use is determined on the basis of the total estimated discounted cash flow, excluding financing expenses and taxes. In determining impairment of vessels and other non-current assets, the management must make material judgments and estimates to determine whether the discounted cash flows generated by those assets are less than their carrying values, including determining the appropriate discount rate to use. The data necessary for the execution of the impairment test are based on management s estimates of future cash flows, which require estimates to be made for e.g. future day rates, utilization rates and profit margins. The assumptions used in these cash flows are consistent with internal forecasts. Market valuations of vessels provided by independent third parties will be used to support management s estimates related to vessels. Reversals of impairment losses recognised in previous years, except on goodwill, are recorded when there is an indication that the impairment losses recognised for the asset no longer exist or have decreased. The reversal is recorded in the statement of comprehensive income. Periodic maintenance of tangible assets Subsequent costs, such as ordinary repairs and maintenance costs are charged to the statement of comprehensive income during the financial period in which they are incurred. However, the cost of major modernization, upgrading and replacement of parts of tangible assets are included in the asset s carrying amount when it is probable that the Group will derive future financial benefits in excess of the originally assessed standard of performance of the existing asset. Major modernization, upgrading and replacement of parts of the asset are depreciated over the useful life of the related assets. Periodic maintenance is reported on the balance sheet as a part of the vessel, and straight line depreciated over the period until the next periodic maintenance, normally after months. When new vessels are acquired, a portion of the cost price is classified as periodic maintenance. Leases of tangible assets Leases in which a significant portion 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 statement of comprehensive income on a straight-line basis over the period of the lease. The Group leases certain vessels and equipment. Leases of tangible assets where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are 77

39 DOF Subsea Group DOF Subsea Group 78 capitalized at the lease s commencement at the lower of the fair value of the leased asset and the present value of the minimum lease payments. Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the 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. The tangible assets acquired under finance leases are depreciated over the useful life of the asset. Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on 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. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segment. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates. Interest expenses related to the borrowing are recognised as part of 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 tangible asset has been delivered and is ready for its intended use. Borrowing is classified as current liabilities unless the borrowing involves an unconditional right to postpone payment of the liabilities for more than 12 months from balance sheet date. The short-term portion of such borrowings includes undiscounted installments due the next 12 months. Provisions Provisions are recognised when, and only when, a company faces an obligation (legal or constructive) as a result of a past event and it is probable (more than 50%) that a settlement will be required for the obligation, and that a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to the best estimate. When timing is insignificant, the liability is reported at the estimated cost of release from the liability. Otherwise, when timing is significant for the amount of the obligation, it is recognised at present value. Subsequent increase in the amount of the obligation due to interest accretion is reported as interest costs. Contingent 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 on the accounts because it is improbable that the commitment will result in an outflow of resources; liabilities which cannot be measured to a sufficient degree of reliability. Contingent liabilities are not reported in the accounts, with the exception of contingent liabilities which originate from business combinations. Significant contingent liabilities are presented in the notes to the accounts, except for contingent liabilities with a very low probability of settlement. Contingent asset is not recognised in the accounts, but is disclosed in the notes to the accounts if it is probable that the Group will benefit economically. Equity Share capital is classified as equity. Transaction costs directly related to equity transactions, including tax effect of transaction costs, are directly charged against equity. Transactions with non-controlling interests The Group recognises transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of the noncontrolling interests is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. Income recognition The Group recognises income when it is probable that future economic benefits will flow to the entity and when the amount of income can be reliably measured. a) Chartering of vessels The Group s operational vessels are mainly leased out on charter parties, bare-boat charter or time charter, based on day-rates. At time charter, 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. Income from lease of 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. Lease of crew and compensation for coverage of other operating costs, are recorded over the contract period on a linear basis. Opearting income is shown net of discounts, value-added tax and other taxes on gross rates. b) Subsea projects Some subsea project contracts are based on daily rates while others are lump sum or fixed price contracts. Contract income is recognised in accordance with the stage of completion of the contract. Under the stage of completion method, contract costs, income and the resulting profit are recognised in the period that the work is performed. Contract costs incurred that relate to future activities are deferred and recognised as an asset in the statement of financial position. The basis for the estimates is monthly updated forecasts for projects. Income on projects may increase or decrease based on variations to the original contract. These variations will be recognised based on purchase order/ variation order if it is probable that they will result in income and they can be reliably measured. A provision is recognised 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 recognised as provision is the best estimate of the expenditure to be incurred. The best estimate of the expenditure required to settle the present obligation is the amount that rationally have to be paid to settle the obligation at the balance sheet date or to transfer it to a third party at that time. c) Dividend income Dividend income is recognised when the right to receive payment is established. d) Interest income Interest income is recognised using the effective interest method. 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 balance sheet 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 of 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 with respect to situations in which applicable tax regulation is subject to interpretation and establishes 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 accounts. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised on the balance sheet to the extent it is probable that the future taxable profit will be available against which the temporary differences can be utilized. Deferred tax is calculated on the basis of 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. Both tax payable and deferred tax are recognised directly in equity, to the extent they relate to items recognised directly 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 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 28%. In addition tonnage tax is payable, which is determined based on a vessel s net weight. This tonnage tax is presented as an operating expense. Employee benefits The Group has adopted IAS 19R in The Group operates various post-employment schemes, including both defined benefit and defined contribution pension plans. a) 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 recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. b) Defined benefit plans 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 recognised in the balance sheet 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 experience adjustments and 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 recognised immediately in the statement of comprehensive income. Financial assets The Group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, and available-forsale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of 79

40 DOF Subsea Group DOF Subsea Group 80 its financial assets at initial recognition. The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. See separate paragraph regarding trade receivables. a) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of profiting from short-term 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. Gain or loss arising from changes in the fair value of the financial assets at fair value through profit or loss category, including interest income and dividends, are presented in profit or loss as financial income or loss in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognised in profit or loss 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. b) Financial assets classified as 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 balance sheet date. These are classified as tangible assets. Loans and receivables are classified as other current receivables, and as cash and cash equivalents in the statement of financial position. Loans and receivables are carried at amortized cost. c) Financial assets classified as available-for-sale Regular purchases and sales of financial assets are recognised on the trade date the date on which the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss is initially recognised at fair value and transaction costs are expensed in profit or loss. Financial assets are derecognised 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 profit or loss are subsequently carried at fair value. Derivative financial instruments and hedging activities Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured on a continuous basis at their fair value. The method of recognising 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 gain or loss recognised immediately in the statement of comprehensive income. The Group designates certain derivatives and non-derivative financial instruments as hedges of a particular risk associated with a recognised 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 23, and the principal amounts and the carrying amount of the non-derivative financial hedging instruments are disclosed in note 23. Movements on the hedging reserve in other comprehensive income are shown in the statement of changes in equity. The full fair value of a hedging derivative is classified as a non-current asset or non-current liability when the remaining maturity of the hedged item is more than 12 months, and as a current asset or current liability when the remaining maturity is less than 12 months. Trading derivatives are classified as a current asset or current liability. The Group currently applies hedge accounting on two types of cash flow hedges; the hedging of interest rate risk on long term debt and the hedging of USD/BRL spot exchange rate risk arising from highly probable income denominated in USD The Group documents at the inception of the transaction 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 recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the statement of comprehensive income. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the statement of comprehensive income within financial income/expenses. The gain or loss relating to the effective portion of the hedge of highly probable income is recognised in the statement of comprehensive income within operating income. 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 recognised when the forecast transaction is ultimately recognised in the 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 statement of comprehensive income. Events after the balance sheet date New information regarding the Group s financial standing on the balance sheet date is included in the accounts. Events occurring after balance sheet date, which do not impact the Group s financial standing on balance sheet date, but which have a significant impact on future periods, are presented in the notes to the accounts. 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 4. Changes in accounting estimates are recognised for the period in which they occurred. If the changes also apply to future periods, the effect of the change is distributed over current and future periods. Statement of cash flows The statement of cash flows is prepared in accordance with the indirect model. New standards and amendments Below is a list of standards/interpretations that have been issued and are effective for periods starting on or after 1 January Amendment to IAS 1, Financial statement presentation, regarding other comprehensive income The main change resulting from these amendments is a requirement for entities to group items presented in other comprehensive income (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI. The Company has classified amounts recorded in other comprehensive income based on these classifications. Amendment to IAS 19, Employee benefits These amendments eliminate the corridor approach and calculate finance costs on a net funding basis. The Company has adopted IAS 19. Amendment to IFRS 7, Financial instruments: Disclosures, on asset and liability offsetting This amendment includes new disclosures to facilitate comparison between those entities that prepare IFRS financial statements to those that prepare financial statements in accordance with US GAAP. It is not expected to affect the Group s accounts when implemented for the calendar year IFRS 13, Fair value measurement IFRS 13 aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRS and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS or US GAAP. Adoption of IFRS 13 did not have an impact on the financial statements. Forthcoming requirements Below is a list of standards/interpretations that have been issued and are effective for periods on or after 1 January IAS 27 (revised 2011), Separate financial statements IAS 27 (revised 2011) includes the requirements relating to separate financial statements. The revised standard will not be adopted before the calendar year The implementation will have no significant effect on the historical financial statements of the Group. IAS 28 (revised 2011), Associates and joint ventures IAS 28 (revised 2011) includes the requirements for associates and joint ventures that have to be equity accounted following the issue of IFRS 11. The revised standard will not be adopted before the calendar year The implementation will have no significant effect on the historical financial statements of the Group. Amendment to IAS 32, Financial instruments: Presentation, on asset and liability offsetting These amendments are to the application guidance in IAS 32, Financial instruments: Presentation, and clarify some of the requirements for offsetting financial assets and financial liabilities on the balance sheet. The Group will apply this presentation format from The implementation will have no significant effect on the historical financial statements of the Group. Amendment to IAS 36, Impairment of assets on recoverable amount disclosures This amendment addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The Group will apply this presentation format from The implementation will have no significant effect on the historical financial statements of the Group. Financial Instruments: Recognition and Measurement Amendment to IAS 39 Novation of derivatives This amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument to a central counter party meets specified criteria. The Group will apply this presentation format from The implementation will have no significant effect on the historical financial statements of the Group. IFRS 9, Financial instruments IFRS 9 Financial Instruments addresses the classification, measurement, and recognition of financial assets, financial liabilities and hedge accounting. IFRS 9 was issued in November 2009, October 2010 and November It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortized cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for a financial liability, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the statement of comprehensive income, unless this creates an accounting mismatch. IFRS 9 includes a number of changes and simplifications that increase the possibilities for employing hedge accounting. The Group is yet to assess IFRS 9 s full impact. The Group will also consider the impact of the remaining phases of IFRS 9 when completed by the Board. The implementation date for IFRS 9 is not yet decided, but will be earliest 1 January Amendment to IFRS 10, 11 and 12 on transition guidance These amendments provide additional transition relief to IFRS 10, 11 and 12, limiting the requirement to provide adjusted comparative information to only the preceding comparative period. For disclosures related to unconsolidated structured entities, the amendments will remove the requirement to present comparative information for periods before IFRS 12 is first applied. The standards will not be adopted before the calendar year IFRS 10, Consolidated financial statements The objective of IFRS 10 is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entity (an entity that controls one or more other entities) to present consolidated financial statements. It 81

41 DOF Subsea Group DOF Subsea Group 82 defines the principle of control, and establishes controls as the basis for consolidation. It sets out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the investee. It also sets out the accounting requirements for the preparation of consolidated financial statements. The implementation of IFRS 10 has no effect on the historical financial statements of the Group. IFRS 11, Joint arrangements IFRS 11 focuses on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and therefore accounts for its share of assets, liabilities, income and expenses. Joint ventures arise where the joint venturer has rights to the net assets of the arrangement and therefore equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. The standards will be adopted in the calendar year The Group has historical applied the proportional consolidation method when accounting for joint ventures. As a consequence of the new standard, the Group will have to change their accounting of joint ventures to the equity method. Had the equity method been applied in 2013, the operating income, EBITDA and EBIT would be reduced with NOK 289 million, NOK 167 million and NOK 106 million respectively. Profit/loss for the year would not be affected. Total assets would be reduced with NOK million. The equity ratio (total equity/ total assets) would have been increased from 26% to 28%, see note 28. IFRS 12, Disclosures of interests in other entities IFRS 12 includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associated companies, special purpose vehicles and other off balance sheet vehicles. The standards will be adopted in the calendar year The implementation will have no significant effect on the historical financial statements of the Group. 3 Financial risk management The Group s activities entail various kinds of financial risks: market risk (including foreign exchange risk, actual interest rate risk, floating 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. The Group s risk management is exercised in line with guidelines approved by the Board of Directors. Accordingly, financial risk is identified, evaluated and hedged if appropriate. The Board of Directors issues written principles for the governing risk management strategy and sets out written guidelines 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. The Group does not have any material direct exposure to changes in raw material prices. Financial derivatives The Group is exposed to fluctuations in interest rates and currency rates. To some extent the Group uses financial derivatives to reduce these risks. However, the Group does not use financial derivatives linked to ordinary activities such as trade receivables, trade payables and similar. Foreign exchange risk The Group operates globally and is exposed to foreign exchange risk arising from various currency exposures, basically with respect to USD, NOK, BRL, AUD and GBP. Foreign exchange risk arises from future commercial transactions, contractual obligations (assets), liabilities and investments in foreign operations. A substantial portion of expenses is in the same currency as income, but a greater proportion of expenses payable is denominated in NOK. The Group s reporting currency is NOK. Foreign exchange risk arises when future commercial transactions, contractual obligations (assets) and liabilities are denominated in a currency that is not a subsidiaries functional currency. 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 and similar instrument as appropriate. Hedging of foreign exchange exposures are executed on a gross basis and foreign exchange contracts with third parties are generated at Group level. The Group s risk management policy is to hedge anticipated transactions in each major currency. Currency changes in receivables, liabilities and currency swaps are recognised as a financial income/ expense in the statement of comprehensive income. Fluctuations in foreign exchange rates will therefore have an effect on the future results and balances. Interest risk The Group s existing debt arrangements are long term loans partly with floating and fixed interest rates. Movements in interest rates will have effects on the Group s cash flow and financial condition. The Group s policy is to maintain part of its debt at fixed rates. The Group manages its cash flow interest risk by using floating-tofixed interest rate swaps. Such interest rate swaps have the economic effect of conversion from floating interest rates to fixed interest rates. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals the difference between fixed interest rates and floating interest rates calculated by reference to the agreed amounts. Of the total debt portfolio, 50% are subject to fixed interest rate. This implies that the Group is taking advantage of the global low interest rate regime, but at the same time the Group is exposed to future interest rate changes. There is an ongoing 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 note 20 and 23. For some of the fixed interest rate contracts, hedge accounting is applied, see note 23. Sensitivity analysis In accordance with IFRS, 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 sensitivity analysis disclosures. 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 profit and loss, or equity, as a result of a change in rates or prices are included. All changes are before tax. Foreign exchange sensitivity A change in USD rates against other currencies as of 31 December 2013 would have affected the measurement of financial instruments denominated in a foreign currency by the amounts described below. The analysis only includes the effect on equity, profit and loss for changes in currency regarding financial instruments and ignores the effect on operational sales and purchases. A significant portion of the Group s operating income is denominated in USD. An appreciation of USD against other currencies will over a period have a positive net effect on the statement of comprehensive income. A hypothetical 5% increase / decrease in USD rates would have affected the fair value of derivative financial instruments 1, and decreased / increased profit and loss statements by NOK 67.4 million / NOK 67.9 million. Other financial instruments 2 would have decreased/ increased profit and loss by NOK 49.0 million, and a loss / gain of NOK 48 million would have been booked against other comprehensive income through hedge accounting. 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. The analysis also assumes that market interest rates cannot be lower than zero sensitivity Amounts in NOK million 100bp decrease 100bp increase NOK Derivatives financial instruments Financial instruments directly to equity USD Derivatives financial instruments ,3 Financial instruments directly to equity Credit and liquidity risk Credit and liquidity risk arises from cash and cash equivalents, derivative financial instruments and deposit with banks as well as credit exposures to clients. The Group has a policy that limits the amount of credit exposure to any single financial institution and bank and has limited concentration of credit risk towards single financial institutions. Credit exposures are mainly to customers that traditionally have good financial capability to meet their obligations and high credit rating. Other non-current receivables is mainly to other companies in the DOF ASA Group and joint venture partner. The Group has very close cooperation and is well informed about credit risks related to these positions. Based on this credit risk is considered to be low, and historical losses have been neglectable. 1 Includes FX forwards and FX option contracts 2 Includes cash and cash equivalents, receivables, payables, bank loans and other interest bearing current and non-current liabilities 3 Change in fair value of interest rate swaps 4 Change in fair value of interest rate swaps booked directly against equity Liquidity forecast 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 973 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 Interest amounts in the table above are based on average interest rate for the previous year 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 Group aims to maintain flexibility in its liquidity by keeping 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 growth strategy and to fund capital expenditures. The Group s loan agreements include terms, conditions and covenants. 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 Fair value of forward exchange contracts is calculated based on the midpoint of the relevant yield curve. Fair value of interest rate contracts is calculated 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 costs of construction of new assets, replacements of assets are sensitive to changes in market prices. The demand for the Group s vessels is sensitive to changes in the oil price, exploration and general activity within the oil industry. This can affect both the pricing and the utilization of the Group s assets. The Group aims to reduce any price risk and has the main part of its vessels on long term charter contracts. All new building contracts are based on fixed prices of the assets. Capital structure and equity The main objectives of the Group s management of its capital structure is to ensure that the Group is able to sustain a good credit rating and thereby achieve good terms and conditions for long term funding which are suitable for the Group s operations and growth. The Group manages 83

42 DOF Subsea Group DOF Subsea Group Amounts in NOK million 84 its own capital structure and carries out all necessary amendments to the capital structure, based on continuous assessments of the economic conditions under which the operations take place and the short and medium to long term outlook. The Group has established similar financial covenants on all long term 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 two independent brokers. See also note 20. 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 70-80% funding of the new vessels and to continue to have high long term contractual coverage of the fleet in the Chartering of vessels segment. Tax risk Changes in tax regimes and taxation may adversely affect the Group s cash flows and financial condition. Certain of the companies in the Group are subject to the special tax rules for ship owners in the Norwegian Taxation Act ( ). There have been, and still are, political discussion to modify these tax rules. Further, such special tax rules stipulate certain requirements which will have to be met in order to qualify for taxation pursuant to such rules. 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. 4 Accounting estimates and assessments Valuations, estimates and assumptions with a significant effect on the financial statements are summarised below: Vessels The carrying amount of the Group s vessels represents 70% of the total statement of financial position. Consequently, policies and estimates linked to the vessels have a significant impact on the Group s financial statements. In the current market the total fair value of the Group s vessels is higher than the carrying amount. Depreciation is calculated on a modified straight-line basis over the useful life of the asset. Depreciable amount equals historical cost less residual value. Residual value is determined based on estimated fair value at the end of its useful lives. According to the Group s strategy, it intends not to own vessels with an age above 20 years. Consequently, the residual value differs from a 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 today s fair value forms a basis for the estimate. However, today s fair value is adjusted to reflect the fair value of the vessel as if it had been of an age and in the condition expected at the end of the useful life (20 years). Useful life of vessels The level of depreciation depends on the vessels estimated useful lives. Estimated useful life is based on strategy, past experience and knowledge of the types of vessels the Group owns. Useful life of older vessels is individually assessed. There will always be a certain risk of events like breakdown, obsoleteness e.g. with older vessels, which may result in a shorter useful life than estimated. From time to time the Group may own vessels older than 20 years. The depreciation rate will then be estimated individually. Residual value of vessels The level of depreciation depends on the calculated residual value at the balance sheet date. Assumptions concerning residual value are made on the basis of knowledge of the market for used vessels. Basis for residual value is a fair value assessment of charter free vessel. Fair values are adjusted to reflect the value of the vessels as if it had been of an age and in the condition expected at the end of the useful life (20 years). Useful life of investments related to periodic maintenance Periodic maintenance is related to major inspections and overhaul costs. Component accounting for inspection or overhaul costs is intended to be used only for major expenditures which occur at regular intervals over the life of an asset. Investments made in connection with periodical maintenance are depreciated until the vessel enteres into next periodical maintenance. Intervals are calculated on the basis of past experience and best estimates for when future periodical maintenance will be done. There will be two types of docking programs at the same time. Estimated life of each periodical maintenance program is 5 years. When new vessels are acquired, a portion of the cost price is classified as periodic maintenance based on best estimates. Component accounting for inspection or overhaul costs is intended to be used only for major expenditure that occurs at regular intervals over the life of an asset. 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 recognised in the statement of comprehensive income. The recoverable amount is the higher of an asset s net selling price and value in use. The net selling price is the amount obtainable from the sale of an asset in an arm s length transaction less the costs of disposal, while value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. Recoverable amounts are estimated for individual assets or, if this is not possible, for the cash-generating unit. The value in use is determined on the basis of the total estimated discounted cash flow, excluding financing expenses and taxes. In determining impairment of vessels and other tangible assets, the management must make material judgments and estimates to determine whether the discounted cash flows generated by those assets are less than their carrying values, including determining the appropriate discount rate to use. The data necessary for the execution of the impairment test are based on management s estimates of future cash flows, which require estimates to be made for e.g. future day rates, utilization rates and profit margins. The assumptions used in these cash flows are consistent with internal forecasts. Market valuations of vessels provided by independent third parties will be used to support management s estimates related to vessels. Reversals of impairment losses recognised in previous years, except on goodwill, are recorded when there is an indication that the impairment losses recognised for the asset no longer exist or have decreased. The reversal is recorded in the statement of comprehensive income. Project income and costs / provisions Contract income and expenses are recognised in accordance with the stage of completion of the contract. Under the stage of completion method, contract costs, income and the resulting profit are recognised in the period that the work is performed. Contract costs incurred that relate to future activities are deferred and recognised as an asset in the statement of financial position. The basis for the estimates is monthly updated forecasts for projects. Income in projects may increase or decrease based on variations to the original contract. These variations will be recognised based on purchase order/variation order if it is probable that they will result in income and they can be reliably measured. A provision is recognised when there is a legal or constructive obligation arising from past events, or in cases of doubt as to the existence of an 5 Segment information 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 recognised as provision is the best estimate of the expenditure to be incurred. The best estimate of the expenditure required to settle the present obligation is the amount that rationally have to be paid to settle the obligation at the balance sheet date or to transfer it to a third party at that time. Deferred tax assets Deferred tax assets are recognised in the statement of financial position on the basis of expected utilisation of tax-loss carry-forwards by reversing tax-increasing temporary differences and considering future earnings. See also note 10. Members of Board of Directors together with the CEO and the CFO are the Group s chief operating decision - makers. Management has determined the operating segments based on the information given to the Group s operating decision-maker 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 being reported to chief operating decision-makers on a regular basis. Information regarding the Group s reportable segments is presented below. The operating segments reporting have no reporting of tax sorted on different segments due to the fact that vessel in the Group are a 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 in 4 geographical regions, based on the location of customers; Europe/West Africa, Australasia, Brazil and North America. As the clients locations are offshore and the operating equipment and employees used to service the various geographical regions are often the same, no data is given on assets, liabilities, investments and employees as this would not provide any meaningful information. Profit and loss accounts 2013 Note Chartering of vessels Subsea projects Total Operating income Operating profit before depreciation (EBITDA)* Depreciation Operating profit (EBIT)** Net financial income / loss Profit / loss before tax Tangible assets Tangible assets jointly controlled companies Total tangible assets

43 DOF Subsea Group Amounts in NOK million DOF Subsea Group Amounts in NOK million 2012 Note Chartering of vessels Subsea projects Total 8 Other operating expenses Operating income Operating profit before depreciation (EBITDA)* Depreciation Operating profit (EBIT)** Net financial income / loss Profit / loss before tax Other operating expenses Vessel hire TC Technical costs Hired personnel Other operating expenses Total other operating expenses Tangible assets Tangible assets jointly controlled companies Total tangible assets Financial income and expenses * EBITDA is short for Earnings Before Interest, Tax, Depreciation and Amortization ** EBIT is short for Earnings Before Interest and Tax Financial income and expenses Note Income / loss from associated companies Interest income Operating income Other financial income 6 1 Financial income Geographical distribution of operating income 2013 Norway Australia Singapore USA UK Brazil Other Total Interest expenses Interest expenses payable to DOF ASA companies Other financial expenses Distribution of operating income Financial expenses Geographical distribution of operating income 2012 Norway Australia Singapore USA UK Brazil Other Total Distribution of operating income Realized gain / loss on derivative financial instruments 5-16 Realized gain / loss on currencies Realized gain / loss on financial instruments Unrealized gain / loss on derivative financial instruments Unrealized gain / loss on currencies Unrealized gain / loss on financial instruments Payroll expenses Net financial income / loss Payroll expenses Note Salaries and holiday pay Contract labour In 2012 realization of interest rate swaps was included in realized gain / loss on derivative financial instruments. In 2013 realization of interest rate swaps is included in interest expenses with a net loss of NOK 95.7 million (loss of NOK 28 million in 2012) figures are restated accordingly. A loss of NOK 32.2 million out of NOK 95.7 million relates to instruments which are recognised as hedge accounting according to IFRS, see note 23. Employer s contributions In 2013, no interest costs were capitalized on newbuilds (NOK 0.6 million in 2012), see note 13. Pension costs Other personnel costs Total payroll expenses Tax Number of employees Tax expenses The Group has done some changes in classification between other operating expenses and payroll expenses figures for other personnel costs have been restated for presentation purposes. Tax payable, ordinary taxation Norway -1-1 Tax payable, foreign activitites Pension costs above include defined benefit pension plan and defined contribution pension plan. As of 31 December 2013, the Group s defined benefit pension plan covered a total of 103 employees and 6 persons in retirement. The Group`s defined benefit pension plan is invested with an insurance company, which manages the plan assets. The Group`s cost of defined benefit pension plan for 2013 was NOK 3 million (NOK 3 million for 2012). Pension obligations as of 31 December 2013, was NOK 16 million (NOK 3 million). Change in deferred tax Adjustments in repect of prior years 3 - Effect from change in Norwegian tax rate from 28% to 27% -4 - Tax expenses -98 8

44 DOF Subsea Group Amounts in NOK million DOF Subsea Group Amounts in NOK million Reconciliation of nominal and effective tax rate Profit before tax Expected tax expenses (28%) Difference between actual and expected tax expenses Intangible assets Goodwill relates to acquisition of subsidiaries. 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 is allocated to the Group`s cash-generating units (CGUs) identified according to the operating segment. The Group operates in two segments, chartering of vessels and subsea projects. In 2013 there were no acquisitions or disposals of goodwill. Explanation on the difference between actual and expected tax expenses Tax effect of non-deductible expenses -3-4 Tax effect from tax exemption method -3 - Tax effect from items not included in deferred tax -0 - Estimation differences, previous years Effect from change in Norwegian tax rate from 28% to 27% -4 - Effect of shipping tax regime Tax effect from items not included in deferred tax - 20 Difference between foreign and Norwegian tax rates Difference from expected tax expenses Deferred tax The table below specifies the temporary differences between accounting and tax values, and calculation of deferred tax / tax assets at year-end. The Group assumes that all tax-loss carry-forwards will be used to offset taxable income within the next few years Chartering of vessels Subsea projects Total Booked value at Cost at Cost at Impairment charge at Purchase price adjustment* Depreciation of excess values Accumulated currency translation differences Total adjustments at Book value at Chartering of vessels Subsea projects Total 88 Basis for deferred tax Non-current assets Current assets - 24 Liabilities Gain / loss account Differances related to participation interest Other differences 9 4 Total temporary differences Booked value at Cost at Acquisitions during the year ** Cost at Impairment charge at Depreciation of excess values Accumulated currency translation differences Total adjustments at Tax-loss carry forward Tax loss not included as deferred tax asset Basis for calculating deferred tax / tax asset (-) Book value at * Adjustment of last year s acquisition of goodwill ** Hereof NOK 9 million with cash effect Recognised deferred tax / tax asset in the statement of financial position Deferred tax asset (27-35%) Deferred tax (27-35%) Total deferred tax / tax asset (-) Deferred tax / tax asset - recovered after more than 12 months Deferred tax / tax asset - recovered within 12 months Sensitivity analysis Goodwill is not depreciated, but the Group performs annual impairment test to identify write-down requirements. The Group has estimated recoverable amount based on value in use in cash generating units by discounting expected cash flows from operations with weighted average cost of capital (WACC). Cash flows are based on budgets approved by the Board of Directors covering five years, and does not include any investments unless the investment is committed. Cash flows beyond the budget period is expected to grow in line with inflation rates estimated to 2 %. Management determined budgeted gross margin based on past performance, its expectations of market development and the utilization of the vessels. Sensitivity analyses are presented below. Total deferred tax / tax asset recognised in the statement of financial position includes tax effect on components of other comprehensive income. The tax effect on the components of other comprehensive income is NOK 42 million. See statement of changes in equity. Based on the impairment test performed on vessels, excess values of the vessels in the subsea projects segment, which are identified by using estimates provided by independent brokers, exceed booked goodwill. No impairment is required. 11 Earnings per share Basis for calculating earnings per share Chartering of vessels segment EBITDA margin *) % % Growth rate **) 2.0 % 2.5 % WACC, real after tax 5.9 % 5.2 % Profit / loss attributable to owners of the parent company Weighted average number of outstanding shares Weighted average number of outstanding shares, diluted Earnings per share (NOK) Earnings per share, diluted (NOK) *) Budgeted EBITDA- margin. The margin varies in the budget period **) Average growth rate used to extrapolate cash flows beyond the budget period. Growth in nominal values. Negative changes in EBITDA margin with 20% or negative changes in WACC with 300 basis points will not result in impairment for the goodwill.

45 DOF Subsea Group Amounts in NOK million DOF Subsea Group Amounts in NOK million Subsea projects segment Capitalized interests EBITDA margin *) 15-20% 15-20% In 2013, no interest costs was capitalized as newbuilds (NOK 0.6 million in 2012). Growth rate **) WACC, real after tax *) Budgeted EBITDA- margin. The margin varies in the budget period 2.0 % 2.5 % 8.1 % 5.2 % Newbuild program - vessels At year-end, the Group has contract on delivery of four new vessels in cooperation with Technip. Delivery of the vessels is scheduled for See also note 32 for contracts after balance sheet date. In addition, one vessel will be delivered in first half **) Average growth rate used to extrapolate cash flows beyond the budget period. Growth in nominal values. 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 has 5 vessels under construction as of 31 December Commitments related to future investments in vessels amount to NOK million. Financing is partly committed as of 31 December The down payment structure for future commitments related to these newbuildings is as follows: 13 Tangible assets (incl. commitments) Thereafter Total Newbuildings Vessels Periodic maintenance ROV s Machinery & other equipments Newbuilds Total Cost at Vessels under construction as of are listed below: Additions Disposals Design vessel Hull no. No vessels Completion Reallocation OSCV 12 NB Currency translation differences NB 823 and Cost at EP-09 and EP Depreciation at Depreciation for the year Depreciation eliminated on disposals Reallocation Currency translation differences Leases 91 Depreciation at Book value at Operating leases of tangible assets - the Group as lessee Asset lifetime (years) Overview of future minimum lease payments Within 1 year 2-5 years After 5 years Total Depreciation schedule *) Linear Linear Linear Not applicable Minimum operating lease payments falling due in the periods Vessels Periodic maintenance ROV s Machinery & other equipments Newbuilds Total Cost at Additions Disposals Reallocation At year end, 3 vessels were on operational leases. The lease on the head office is described in note 25. Yearly lease fee for the head office is NOK 8 million. 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: Currency translation differences Cost at Finance leases Depreciation at Depreciation for the year Depreciation eliminated on disposals Reallocation Cost at Additions 9 - Disposals Cost at Currency translation differences Depreciation at Depreciation at Depreciation for the year 5 6 Book value at Asset lifetime (years) Depreciation schedule *) Linear Linear Linear Not applicable Depreciation eliminated on disposals -1 - Depreciation at Net value recognised in the statement of financial position *) residual value varies based on market valuation of the vessel Impairment assessment Total cost, depreciations and net value of leased ROVs is included in the financial statements, see note 13. Impairment assessments have been carried out for all vessels and newbuildings as of 31 December The Group has independent broker Overview of future minimum leases Within 1 year 2-5 years Total valuations and adjusted these to include estimated added / decreased value in time charter and bareboat contracts. The current value calculations are based on projected future earnings, cost levels and discount rate. There is a certain level of uncertainty connected with these estimates. Changes Minimum lease amounts falling due in the periods in parameters will result in amended results for the impairment assessment. WACC (weighted average cost of capital) of 5.86 %, real after tax, was applied as discount rate in the calculations. Each vessel is considered as a separate unit capable of generating cash flow.

46 DOF Subsea Group Amounts in NOK million DOF Subsea Group Amounts in NOK million Operating leases - lease revenue - the Group as lessor The 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 recognised as tangible fixed assets, see note 13. Lease payments received are recognised through profit and loss. At year-end, 18 vessels were on operating leases. Future minimum operating lease revenues arising from contracts on vessels at year-end 2013 are shown in the table below. Overview of future minimum lease revenue Withing 1 year 2-5 years After 5 years Total 18 Cash and cash equivalents Cash and cash equivalents Restricted cash* Unrestricted cash and cash equivalents Cash and cash equivalents Minimum operating lease revenue amounts falling due in the periods Other non-current receivables * A long-term loan has been provided by Eksportfinans and is invested as a restricted deposit in DNB. The repayment terms on the loan from Eksportfinans is equivalent with the reduction on the deposit. The loan will be fully repaid in The cash deposit is included in restricted deposits with a total of NOK 558 million (NOK 643 million in 2012). Other non-current receivables Note Non-current receivables from DOF ASA Group companies Derivative financial instruments Other non-current receivables Other non-current receivables at Share capital and share information Share capital The share capital in the Company at was NOK million comprising shares, each with a nominal value of NOK Shareholder overview 16 Trade receivables At 31 December 2013 the shareholders in the Company were as follows: Shareholders at / No. of shares Proportion of ownership 92 Trade receivables Trade receivables at nominal value Accrued revenue not invoiced Provision for bad debts -1-8 Trade receivables at DOF Subsea Holding 2 AS % Total % Board members and the Senior Executives own shares in related companies, and thus have indirect ownership stakes in DOF Subsea Holding 2 AS. Board of directors Title 93 Accounting item at NOK USD GBP AUD OTHER TOTAL Trade receivables Aging profile Total Not matured < 30 d d 60-90d > 90 d Helge Arvid Møgster Helge Singelstad Mons Svendal Aase Hilde Drønen Alex Townsend Krueger Neil John Hartley John Mogford Douglas John Musicaro Management group Chairman Board Member Board Member Board Member Board Member Board Member Board Member Board Member Title Accounting item at NOK USD GBP AUD OTHER TOTAL Trade receivables The Group s trade receivables are mainly to major international oil companies and major subsea entrepreneurs. The Group has historically low level of bad debts, and the credit risk is considered to be minor. Other currencies in the table above include BRL of NOK 130 million (NOK 154 million in 2012). 17 Other current receivables Mons Svendal Aase Jan Nore CEO CFO/EVP The Company is a part of the DOF ASA Group. The annual report is published at Please refer to the DOF ASA annual report for shares held in DOF ASA by the Board of Directors and the Management. Share capital No. of shares Share capital Share capital Share capital Other current receivables Government taxes receivable (Value Added Tax) Prepaid expenses Accrued interest income Derivatives financial instruments 5 15 Other current receivables Other current receivables at

47 DOF Subsea Group Amounts in NOK million DOF Subsea Group Amounts in NOK million 20 Interest bearing debt A mortgage loan of NOK 558 millions is secured by a cash deposit, see note 18. Interest rate and derivative instrument on the cash deposit cover the debt repayment on the loan. Bond loans The DOF Subsea Group had as per year-end 2013 four bond loans, which matures in The trustee on behalf of the bond holders is Norsk Tillitsmann 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. The price of the Company s bond loans at was as follows: Loan Price Outstanding Price Outstanding DOF Subsea AS 10/14 FRN DOFSUB DOF Subsea AS 11/16 FRN DOFSUB DOF Subsea AS 12/15 FRN DOFSUB DOF Subsea AS 13/18 FRN DOFSUB 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 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 400 million at all times The Group shall have value-adjusted equity to value-adjusted assets varying from 25-30% The Group shall have equity of at least NOK million at all times. The Group shall have positive working capital at all times. Working capital does not include short term portion of debt to credit institutions. The fair value of the Group s vessels shall always be at least % of the outstanding amount. Total non-current and current interest bearing debt Net interest-bearing debt Cash and cash equivalent Other interest bearing assets - non-current Net interest-bearing debt Non-current interest bearing debt in the statement of financial position includes amortized cost. Amortized costs and accrued interest expenses are excluded in the figures above. See also note 2 accounting policies regarding amortized costs. Debt repayment profile Thereafter Total Bond loans Debt to credit institutions Total In addition to the above-mentioned financial covenants, the loan agreements are also subject to the following covenants: 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 banks. DOF ASA shall be the principal shareholder in DOF Subsea AS, and own a minimum of 50% of the shares. DOF Subsea AS shall not merge, demerge or divest activities without the prior written approval of the banks. DOF Subsea AS shall report financial information to the banks and Oslo Stock Exchange on a regular basis. The Group s ships shall be operated in accordance with current laws and regulations. 95 NOK 963 million of the Group s debt in USD is designated as a hedging instrument in a hedge of highly probable income in USD. For more information, see note 23. Liabilities secured by mortgage The Group is in compliance with all covenants. Liabilities to credit institutions, incl. leases Book value of assets pledged as security for book debt Trade payables Average rate of interest 5.87% 5.75% Accounting item at NOK USD GBP OTHER TOTAL Trade payables Parent company guarantees Guarantees to clients Total Other currencies in the table above include BRL of NOK 134 million. The Group has provided guarantees to clients and suppliers in connection with procurements and services. Accounting item at NOK USD GBP OTHER TOTAL Trade payables Currency distribution non-current liabilities incl. first year repayment NOK USD GBP TOTAL Bond loans Debt to credit institutions Total Other currencies in the table above include AUD of NOK 104 million. Debt to credit institution in USD is revaluated to NOK using USD/NOK exchange rate as of 31 December 2013.

48 DOF Subsea Group Amounts in NOK million DOF Subsea Group Amounts in NOK million 22 Other current liabilities Other current liabilities Pre-paid income 3 79 Accrued interest expenses Other current liabilities Other current liabilities at Interest rate swaps / swaptions - cash flow hedges USD 1.93% % Libor 3m Interest rate swaps / swaptions - cash flow hedges NOK 4.10% % Nibor 3m - 6m Interest rate swaps / swaptions- cash flow hegdes under hedge accounting USD 1.67% % Libor 3m Interest rate swaps / swaptions- cash flow hegdes under hedge accounting NOK 2.99% % Nibor 3m - 6m As of the Group held the following committed foreign exchange rate derivatives, not qualified for hedge accounting: In 2013 accrued interest expenses of NOK 160 million (NOK 168 million in 2012) were reclassified from other current liabilities to short term portion of debt to credit institutions, 2012 figures are restated accordingly. Instrument Received Amount Remaining term to maturity Foreign exchange forwards, buy BRL BRL 6 <1 year Foreign exchange forwards, buy NOK NOK <1 year Foreign exchange options, buy NOK NOK 96 <1 year 23 Financial instruments and hedging activities As of 31 December 2013 the Group had 31 forward contracts and 6 options to hedge future sales to customers in USD, GBP and EUR, and the purchase of BRL. Forward contracts are utilised to hedge currency risk related to estimated future sales and 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 Foreign exchange options, buy BRL BRL 5 <1 year 96 The Group started in 2013 to apply cash flow hedge accounting related to foreign exchange rate risk on expected highly probable income in USD, using a non-derivative financial hedging instrument. This hedging relationship is described below. The table below displays the fair value of derivative financial instruments as of 31 December Non-current and current portion Assets Liabilities Assets Liabilities Interest rate swaps - cash flow hedges Interest rate swaps - cash flow hegdes under hedge accounting Foregin exchange contracts cash flow hedges Total 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 31 December 2013 are recognised in the statement of comprehensive income in the period or periods when the hedged forecast transaction affects the statement of comprehensive income. The Group started in 2013 to apply cash flow hedge accounting related to foreign exchange rate risk on expected highly probable income in USD, using a non-derivative financial hedging instrument. This hedging relationship is described below. The table below displays the hedges of highly probable income in USD using a non-derivative financial instrument. 97 Hedging instrument Hedge items Nature of the risk Maturity Non-derivative financial iinstruments Portion of expected monthly highly probable Income in USD Carrying amount of the hedging instrument BRL/USD spot exchange-rate risk January March Non-current portion Interest rate swaps - cash flow hedges Interest rate swaps - cash flow hegdes under hedge accounting Non-current portion Current portion Derivatives are classified as current or non-current assets or liabilities. The 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 is presented before tax in the table above. As of the Group held the following interest rate derivatives Cash flow hedge involving future highly probable income In 2013 the Group started applying hedge accounting related to the cash flow hedging of expected highly probable income in USD. The cash flow hedges hedge a portion of the foreign currency risk arising from highly probable income in USD. The value of the hedge items as at was NOK million, including fixed and optional periods. The hedging instruments are portions of the Group s long-term debt denominated in USD. The risk being hedged in each hedging relationship is the spot element of the forward currency rate of USD/BRL. The future highly probable income has a significant exposure to the spot element, as the spot element is the main part of the forward rate. The long-term debt is translated from USD to BRL at spot rate on the balance sheet date every reporting period. The effective portion of changes in the fair value of the instruments that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the statement of comprehensive income. Amounts accumulated in equity are reclassified to profit or loss in the periods when the expected income is recognised. Instruments Fixed rate Floating rate Notional amount Effective from Maturity date Interest rate swaps / swaptions - cash flow hedges USD 1.93% % Libor 3m Interest rate swaps / swaptions - cash flow hedges NOK 4.10% % Nibor 3m - 6m Interest rate swaps / swaptions- cash flow hegdes under hedge accounting USD 1.67% % Libor 3m Interest rate swaps / swaptions- cash flow hegdes under hedge accounting NOK 2.99% % Nibor 3m - 6m Cash flow hedges Effective portion of cash flow hedges recognised in other comprehensive income Interest rate derivatives, pre-tax Non-derivative financial instruments, pre-tax There has not been identified inefficiencies in cash flow hedging for interest rate derivatives and non-derivative financial instruments, both prospective and retrospective.

49 DOF Subsea Group Amounts in NOK million DOF Subsea Group Amounts in NOK million Financial instruments - balance This note gives an overview of the carrying and fair 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. The table also shows the level of objectivity in the measurement hierarchy of each method of measuring the fair value of the Group s financial instruments Assets Measurement level Financial instruments at fair value through profit and loss Financial assets at fair value through comprehensive income Financial liabilities measured at amortised cost Deposits and receivables Total Of this interest bearing Fair value Non-current derivatives Other non-current receivables Trade receivables Current derivatives Other current receivables Restricted deposits Unrestricted cash Total financial assets Liabilities Non-current derivatives Interest-bearing non-current liabilities 1, Short term portion of debt to credit 1, institutions Other non-current liabilities Current derivatives Trade payables and other current liabilities Total financial liabilities Measurement level Financial instruments at fair value through profit and loss Financial assets at fair value through other comprehensive income Financial liabilities measured at amortized cost Deposits and receivables Total Of this interest bearing Fair value Assets Non-current derivatives Other non-current receivables Trade receivables Current derivatives Other current receivables Restricted deposits Unrestricted cash Total financial assets Liabilities Non-current derivatives Interest-bearing non-current liabilities 1, Short term portion of debt to credit institutions 1, Other non-current liabilities Current derivatives Trade payables and other current liabilities Total financial liabilities Total financial instruments Total measurement level 1: quoted, unadjusted prices in active markets for identical assets and liabilities. Total measurement level 2: quoted techniques for which all inputs which have significant effect on the recorded fair value are observable, directly and indirectly 99 Total financial instruments Total measurement level 3: techniques that use input which have significant effect on the recorded fair value that are not based on observable market data. Total measurement level 1: quoted, unadjusted prices in active markets for identical assets and liabilities. Total measurement level 2: quoted techniques for which all inputs which have significant effect on the recorded fair value are observable, directly and indirectly 25 Related parties Total measurement level 3: techniques that use input which have significant effect on the recorded fair value that are not based on observable market data. The fair value of forward exchange contracts is determined using the forward exchange rate at the balance sheet date. The fair value of currency swaps is determined by the present value of future cash flows. The fair value of options is determined using option pricing models. 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 at 31 December DOF Subsea AS is 100% owned by DOF Subsea Holding 2 AS, in turn owned 100% by DOF Subsea Holding AS. First Reserve Corporation controls the minority share of 49 % in DOF Subsea Holding AS. The following of the Group s financial instruments are measured at amortised cost: cash and cash equivalents, trade receivables, other current receivables, overdraft facilities and long-term debts. DOF ASA controls companies that hire vessels, deliver goods and services to companies in the DOF Subsea Group. Furthermore, the DOF Subsea Group has contracts covering hiring of assets and delivering of services to DOF ASA companies. 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 normal terms and conditions. Fair value of interest-bearing debt is disclosed face value of the bank loans and market value of bonds. In 2013 accrued interest expenses of NOK 160 million (NOK 168 million in 2012) were reclassified from other current liabilities to short term portion of debt to credit institutions, 2012 figures are restated accordingly. Operating income from DOF ASA companies Vessel hire Hire of ROV equipment and services Management services and other income Total

50 DOF Subsea Group Amounts in NOK million DOF Subsea Group Amounts in NOK million Operating Expenses to DOF ASA companies Vessel hire Crew and other personnel hire Vessel technical costs Management fee vessels Other managment services and IT costs Total Remuneration to Executives, Board of Directors and Auditor CEO EVP CEO EVP Salaries Other payments / management fee Payment from DOF Subsea EVP=Jan Nore, CEO=Mons Aase DOF Subsea Brasil Servicos Ltda. DOF Subsea Brazil Servicos 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 Servicos Ltda. Purchase of vessel management services The Group purchases management services from DOF Management AS and Norskan Offshore Ltda. for its entire owned fleet of 24 vessels. In addition to the figures above, the Group purchases management services for vessels under construction. Other management services and IT costs Marin IT delivers IT support to the DOF Subsea 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, Marin IT AS and Hordafor AS. The rental fee is allocated these companies based on square metres rented on a quarterly basis. Other payments include company phone and car, etc. Senior executives are included in the general Group pension plan, see note 7. For 2013 the EVP Jan Nore held the position as EVP and CFO for the DOF Subsea Group. The Group is part of the DOF ASA Group, see note 19, 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 S. 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 S. Aase. EVP Jan Nore is entitled to a bonus based on the result of the Group and personal performance. No loans have been given to or any security provided for the CEO/EVP, members of the Board of Directors, members of Group Management or other employees or close relatives of the same group. The Board of Directors received no compensation in fees in Leasing of premises The DOF Subsea Group leases two cottages from Moco Eiendom AS, a company 100% owned by CEO Mons S. Aase. The total leasing cost in 2013 has been NOK 0.3 million. Specification of auditor s fee (excl. VAT) Skandi Hawk hired from DOF ASA companies DOF Subsea Asia Pacific Pte Ltd, a company in the DOF Subsea Group, entered into a one-year bareboat contract with DOF Rederi II AS for Skandi Hawk from April During 2013, the contract has been extended from April 2013 to the end of 2014 plus one year option. Fee for audit of financial statements Fee for other attestation services Fee for other tax consultancy Fee for other services Total Financial income and expenses from / to DOF ASA companies Interest income 1 - Guarantee expenses 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. Guarantee Agreement between DOF ASA and the DOF Subsea Group 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 DOF Subsea Brasil Servicos Ltda. and DOFCON Navegacao Ltda., a joint venture company of DOF Subsea AS. The guarantees are limited to USD 237 million as of 31 December The contract is subject to standard terms. The Board of Directors has established a compensation committee. The responsibilities and duties of the committee are as follows Statement on guidelines for setting salaries and other payments for the CEO and other Senior Executives of the DOF Subsea Group. Year-end balances arising from sales/purchases of goods/services related to DOF ASA companies Current receivables Current liabilities 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 corporation. 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, legal 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 outlined in Section I of this Charter. Loans to DOF ASA companies Other non-current receivables 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. Further information related to DOF ASA, see Financial Statement for DOF ASA. 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 in conjunction with the compensation committee. Bonuses to other senior executives are set by the Chairman of the Board in conjunction with the compensation committee. 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 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.

51 DOF Subsea Group Amounts in NOK million DOF Subsea Group Amounts in NOK million 27 Companies within the Group Proportion of ownership Assets (100%) Liabilities Shareholders (100%) equity (100%) Operating Profit / loss for income the year Booked value of investment 102 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 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 Rederi AS DOF Subsea AS Bergen 100 DOF Subsea Rederi II 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 Singapore 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 Arctic DOF Subsea Norway AS Moscow, Russia 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 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 Investments in associated and jointly controlled companies Jointly controlled companies DOFTech DA 50 % TechDOF DA 50 % DOFCON Brasil AS 50 % DOFCON Navegacao Ltda. 50 % Associated companies DOF Management* 34 % DOF Sjø** 34 % Marin IT 35 % Master & Commander *** 20 % Total booked value of accociated companies 96 *) Values for DOF Management AS and DOF Sjø AS are based on unaudited financial statements **) Value of DOF Sjø is included in the line "DOF Management" in "booked value of investments". ***) Is based on Q2 2013(Balance) and forecast for Booked value of investment is only relevant for associated companies. Joint ventures are recognised using proportionate consolidation, see note 2. TechDOF DA The Company is liquidated with effect from December The profit / loss for the year was NOK 4 million. DOFTech DA The Company is a jointly controlled company together with Technip. Assets at 31 December 2013 are connected to operation of the vessel Skandi Arctic. Skandi Arctic is operated by DOF Management AS. DOFCON Brasil AS, DOFCON Nacegacao Ltda. and TechDOF Brasil AS These companies are jointly controlled companies with Technip. DOFCON Brasil AS owns 100% of DOFCON Navegacao Ltda. and TechDOF Brasil AS. DOFCON Navegacao Ltda. owns and operates Skandi Niteroi and Skandi Vitoria. Both vessels are on long-term contract with Petrobras in Brazil. TechDOF Brasil AS is a company building two new PLSVs in Norway and is part of a joint venture with Technip. Two other PLSVs are under construction in Brazil with a high national content. All four PLSVs are contracted for long-term contracts with Petrobras. DOF Management AS and DOF Sjø AS These are vessel management companies, which also deliver management services to companies in the DOF Subsea Group, see note Investments in associated companies Booked value of investments in associated companies Share of profit 4 10 Other equity movements (reclassification to subsidiary, dividens, etc) - 23 Booked value of investments in associated companies Marin IT AS Marin IT AS delivers IT support. The DOF Subsea Group is also a customer of Marin IT AS. The rest of the shares in Marin IT AS are owned by DOF ASA and Austevoll Seafood ASA. Master & Commander AS The Company was established on 28 December 2006, and owns two vessels Oceanic Phoenix and Geowave Commander Proportion of ownership Assets (100%) Liabilities Shareholders (100%) equity (100%) Operating Profit / loss for income the year Jointly controlled companies DOFTech DA 50 % DOFCON Brasil AS 50 % TechDOF Brasil AS 50 % DOFCON Navegacao Ltda 50 % Booked value of investment Associated companies DOF Management* 34 % DOF Sjø** 34 % Marin IT 35 % Master & Commander *** 20 % Total booked value of associated companies 101 Figures presented are from the official financial statements where NOK is the functional currency. It is DOF Subsea AS opinion that functional currency should be USD, and for the purpose of DOF Subsea AS consolidated accounts, the financial statement has been reassessed with USD as functional currency. Changes in IFRS 11 joint arrangements Effective from 1 January 2014, the Company will implement changes in IFRS 11, see note 2. Effects of changes on 2013 figures are reduction in the operating income, EBITDA and EBIT with NOK 289 million, NOK 167 million and NOK 106 million respectively. Profit / loss for the year would not be affected. Total assets would be reduced with NOK million. The equity ratio (total equity / total assets) would have been increased from 26% to 28%. Equity for 2013 would be unchanged.

52 29 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. 30 Events occurring after the balance date During January, the Group was awarded 4 months work for Statoil under an existing frame agreement, and the bare boat contract on Ocean Protector was extended by 6 months. In addition DOF Subsea delivered the vessel Skandi Bergen to its new owners. In February the Group was awarded a call-off on an existing survey frame agreement for Statoil for 2015, securing 8 months work in the Atlantic region, and a contract award in the Asia Pacific region for mooring installation. In addition, AKOFS 2 AS exercised the purchase option for the vessel Skandi Aker. The transaction will take place February In March, the Group has chartered in two Jones Act compliant vessels in the North America region, the Chloe Candies for a period of one year firm plus one year option and the ROSS Candies for a period of one year firm. In addition, the Group was awarded several contracts in the North America region utilizing the chartered in vessels. Also, DOF Subsea Survey & Positioning was awarded a 2 extension of an existing master service agreement with Seaway Heavy Lifting. In April, the final extension option on the vessel Skandi Seven was exercised securing two more years of utilization, until end March Exchange rates used 104 Specification of exchange rates used US Dollar Euro Great British Pound Australian Dollar Brazilian Real Singapore Dollar

53 DOF Subsea AS Amounts in NOK million Statement of comprehensive income Accounts DOF Subsea AS Note Operating income Payroll expenses 6, Other operating expenses Total operating expenses Operating profit before depreciation (EBITDA) Depreciation Operating profit (EBIT) Income / loss from subsidiaries Financial income Financial expenses Realized gain / loss on financial instruments Unrealized gain / loss on financial instruments Net financial income / loss Profit / loss before tax Tax expenses Profit / loss for the year Other comprehensive income Items that may be subsequently reclassified to profit / loss Cash flow hedges Items that will not be subsequently reclassified to profit / loss Defined benefit plan actuarial gains / losses -1 - Other comprehensive income / loss net of tax 5 21 Total comprehensive income / loss for the year net of tax The notes on pages 113 to 126 are an integral part of the consolidated financial statements.

54 DOF Subsea AS Amounts in NOK million DOF Subsea AS Amounts in NOK million Statement of financial position Statement of financial position Note Note Assets Equity and liabilities Deferred tax asset Intangible assets Machinery and other equipment Tangible assets Share capital Other paid-in capital Share premium Retained earnings Total equity Investments in subsidiaries Investments in associated companies and joint ventures Receivables from DOF Subsea Group companies Other non-current receivables 11, 19, Financial assets Non-current assets Trade receivables 12-1 Current receivables from DOF Subsea Group companies Other current receivables 13, Total receivables Restricted cash 14, Unrestricted cash and cash equivalents 14, Cash and cash equivalents Pensions Financial non-current derivatives 19, Non-current provisions for commitments Bond loans 16, Debt to credit instistutions 16, Non-current debt to DOF Subsea Group companies 41 - Other non-curent liabilities Non-current liabilities Short term portion of debt to credit institutions 16, Trade payables Current liabilities to DOF Subsea Group companies Public duties payables 3 2 Other current liabilities Current liabilities Current assets Total liabilities Total assets Total equity and liabilities The notes on pages 113 to 126 are an integral part of the consolidated financial statements. The notes on pages 113 to 126 are an integral part of the consolidated financial statements. Bergen, 23 April 2014 The Board of DOF Subsea AS Helge Møgster Helge Singelstad Mons S Aase Hilde Drønen Chairman Board member CEO/Board member Board member Alex Townsend Krueger Neil John Hartley John Mogford Douglas J. Musicaro Board member Board member Board member Board member

55 DOF Subsea AS Amounts in NOK million DOF Subsea AS Amounts in NOK million Statement of changes in equity Statement of cash flows Changes in equity Share capital Share premium Other paid-in capital Retained earnings Cash flow hedges Total equity Note Equity at Profit / loss for the year Other comprehensive income for the year Total comprehensive income for the year Equity at Mergers 5 5 Equity at Profit before tax Depreciation Write-down Investment in shares 26 - Gain / loss Investments in shares Change in trade receivables 1 8 Change in trade payables 15-7 Changes in other accruals Unrealised gain / loss financial assets Unrealised foreign exchange gain / loss Cash flow from operating activities Profit / loss for the year Other comprehensive income for the year Total comprehensive income for the year Equity at Net interest booked in P&L Interest received Interest paid Tax paid - -1 Net cash from operating activities (1) Changes in IAS 19 Employee benefits are applied from 1 January The amendments are effective for the treatment of the Company s benefit plans. The effect of these changes is that all actuarial gains / losses are recognised in other comprehensive income as they arise (no corridor). For DOF Subsea AS these effects are immaterial. The prior year s figures are therefore not restated. In 2013 the change in defined benefit actuarial gains / losses was NOK 0.9 million and is included in the column Retained earnings in the table above. DOF Subsea AS has merged with Anoma AS in 2013 with effect from The comparative figures have not been prepared. The cost related to the merger has been charged against the income statement. Cash flow hedges and change in defined benefit actuarial gains / losses are presented after tax. Tax rate used is 28%. Cash flow hedges are described in note 19. Sale of tangible assets Purchase of tangible assets Proceeds from sale of shares Investments in shares Change in intercompany receivables / debt Change in other long term receivables Other investing activities Cash flow from investing activities (2) Proceeds from non-current liabilities Instalments on non-current liabilities Cash flow from financing activities (3) Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the period Exhange rate gain / loss on cash and cash equivalents -8 6 Cash and cash equivalents at the end of the period

56 DOF Subsea AS NOTES TO ACCOUNTS Contents 1 Corporate information Accounting policies 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. segment, and the Company operates within one business segment (two business segments in 2012): Chartering of vessels (relevant for 2012) Group Management and other services For further information, reference is made to the consolidated accounts Financial risk management Accounting estimates and assessments Income and segment information Payroll, fees, number of employees Financial income and expenses Tax Earnings per share Tangible assets Other non-current receivables Trade receivables Other current receivables Cash and cash equivalents Share capital and share information Interest bearing debt Trade payables Financial instruments and hedging activities Financial instruments - balance Related parties Remuneration to Board of Directors, Executives and Auditor Investments in subsidiaries Investments in associated and jointly controlled companies Events occurring after the balance sheet date Exchange rates used 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. The Company s and its subsidiaries (the Group) two business segments are ownership and long term chartering of vessels and subsea projects. The Group also offers survey and positioning, project management and consultancy services, as part of subsea projects. The Group s clients are mainly operators and contractors within the global oil and gas industry. The Company, through its subsidiaries, owns a large and modern fleet of construction support vessels that enable the Group to offer a wide range of vessel services. This ownership creates a solid base for longterm relationships with the clients, enhancing service delivery and reducing overall risk. The Board of Directors approved the Financial Statements for publication on the 23 April This section of the financial statement covers the parent company accounts. 2 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: availablefor-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. Operating income Operating income from management services is recognised 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. Investments in subsidiaries, joint venture and associated companies Investments are based on the cost method. Dividends Dividends and Group contributions are accounted for according to IFRS. Dividends and Group contributions are booked when approved by the General Assembly. Segment reporting The Company s primary reporting format is determined by business 3 Financial risk management The Company s activities entail various kinds of financial risk: market risk (including foreign exchange risk, actual interest rate risk, floating 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 minimize the potential negative effects of the Company s financial results. The Company uses financial derivatives to hedge against certain types of risk. The Company s risk management is exercised in line with guidelines approved by the Board of Directors. Accordingly, financial risk is identified, evaluated and hedged. The Board of Directors issues written principles for the governing risk management strategy and sets out written guidelines 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. The Company does not have any material direct exposure to changes in raw material prices. Financial derivatives The Company is exposed to fluctuations in interest rates and currency rates. To some extent the Company uses financial derivatives to reduce these risks. However, the Company does not use financial derivatives linked to ordinary activities such as trade receivables, trade payables and similar. Foreign exchange risk As a result of its international operations, the Company is exposed to changes in exchange rates. The Company s overall objective is to protect the economic NOK value of its free cash flow from adverse developments in future currency rates. This is handled by means of natural hedging and the use of foreign exchange derivatives. When implementing the foreign exchange hedging the Company differentiates between committed and uncommitted exposure by having a higher hedge ratio on what is considered committed exposure. A substantial amount of both the Company s income and expenses is denominated in NOK. By focusing on natural hedging the Company seeks to reduce its exposure to changes in exchange rates naturally by achieving the best possible balance between ingoing and outgoing payments in the same currency. Hedging of foreign exchange exposures are executed on a gross basis and foreign exchange contracts with third parties are generated at Group level. The Company s risk management policy is to hedge anticipated transactions in each major currency. Currency changes in receivables, liabilities and currency swaps are recognised as a financial income/ expense in the profit and loss statement. Fluctuation in foreign exchange rates will therefore have an effect on the future results and balances. 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 113

57 DOF Subsea AS Amounts in NOK million DOF Subsea AS Amounts in NOK million 114 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. Credit risk Maximum credit exposure arises on the values of financial assets recognised in the balance sheet. The Company s trade receivables is minimal and relates to subsidiaries, joint ventures and associated companies. The Company has guidelines for monitoring and recovering trade receivables. The counterparty for pension plan assets is a Norwegian insurance company. Historically, losses on trade receivables have been neglectible, and credit risk is considered low. The forward contracts are entered into with banks, and the risk associated with these is considered negligible. The same applies to bank deposits. Accordingly, the value of trade receivables recognised in the balance sheet is considered to reflect the maximum credit risk. Liquidity risk The Company s strategy is to have sufficient cash or credit facilities available at all times, not only to finance ongoing operations and planned investments but also to be able to make rapid purchases and acquisitions of vessels and businesses. The Company considers it likely that it will continue to renew existing loan agreements as they fall due, or negotiate alternative financing solutions. Surplus liquidity is deposited in banks at the best possible terms. Fair values Fair value of forward exchange contracts is calculated based on the midpoint of the relevant yield curve. 5 Income and segment information Previously, the Company has divided its activities in two, chartering of vessels and Group management and other services. The Company became a shipowning company as of 1 January 2012, as the companies Skandi Neptune AS and Geo Rederi AS were merged into the Company. All vessels were sold to subsidiaries in February Operating income related to chartering of vessels in 2012 is thus referring to income earned from 1 January 2012 until the time of disposal. As of 2013 the Company has only one activity, Group management and other services. Operating income Chartering of vessels - 13 Group management and other services Total operating income Payroll, fees, number of employees Payroll expenses Note Salaries and holiday pay Employer s contributions -6-5 Pension costs -2 1 Other personnel costs -6-5 Total Number of employees Increase in salary costs in 2013 is mainly associated with effects of prior year s merged vessel operations. 7 Financial income and expenses Financial income and expenses Note Income / loss from subsidiaries Interest income from DOF Subsea Group companies Interest income Other financial income Financial income Interest expenses Interest expenses payable to DOF ASA Group companies Other financial expenses Financial expenses Realized gain / loss on derivative financial instruments 4-16 Realized gain / loss on currencies Realized gain / loss on financial instruments 22-4 Unrealized gain / loss on derivative financial instruments Unrealized gain / loss on currencies Unrealized gain / loss on financial instruments Net financial income/ loss Guarantee income / expenses are included interest income / expenses. 2 Other financial income in 2012 of NOK 119 million include gain on sale of shares of NOK 115 million. 3 In 2013 realization of interest rate swaps is included in interest expenses with a net loss of NOK 84 million (loss of NOK 27 million in 2012) figures are restated accordingly. A loss of NOK 27 million out of NOK 84 million relates to instruments which are recognised as hedge accounting according to IFRS, see note 19. All other gain / loss on derivative financial instruments are related to instruments held to maturity. 4 Other financial expenses include loss / write-down of shares of NOK 63.7 million. 115 Liabilities to credit institutions, trade payables, other current/noncurrent liabilities, trade receivables and other bank deposits, cash and similar trade receivables are calculated using the exchange rate prevailing at the balance sheet date. 4 Accounting estimates and assessments Valuations, estimates and assumptions with a significant effect on the financial statements are summarized below: Pension costs above include defined benefit pension plan and defined contribution pension plan. As of 31 December 2013, the Company s defined benefit pension plan covered a total of 3 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 2013 was NOK 0.4 million. (NOK -1 million in 2012). Pension obligations as of 31 December 2013 was NOK 1.5 million (NOK 0.1 million in 2012). 8 Tax Tax expenses Change in deferred tax Tax expenses Reconciliation of nominal and effective tax rate Profit before tax Expected tax expenses (28%) Difference between actual and expected tax expenses Indication of impairment Assessments are made to determine whether the need for a writedown is indicated. If there are such indications, recoverable amount is estimated and the booked value is brought into line with the recoverable amount. Explanation on the difference between actual and expected tax expenses Tax effect of non-deductible expenses -1 - Tax effect of write-down financial assets -7 - Tax effect from tax exemption method Estimation differences, previous years Effect from change in Norwegian tax rate from 28% to 27% -8 - Difference from expected tax expenses Deferred tax assets Deferred tax assets are recognised in the balance sheet on the basis of utilization of tax-loss carry-forwards by reversing tax-increasing temporary differences and future earnings, see note 8. For further information, reference is made to the consolidated accounts.

58 DOF Subsea AS Amounts in NOK million DOF Subsea AS Amounts in NOK million Deferred tax The table below specifies the temporary differences between accounting and tax values, and calculation of deferred tax / tax assets at year-end. The Company assumes that all tax-loss carry-forwards will be used to offset taxable income within the next few years. Basis for deferred tax Non-current assets -2-1 Liabilities Gain/loss account Differances related to participation interest Other differences 11 7 Total temporary differences Vessels Periodical maintenance ROV s Machinery & other equipments Newbuilds Total Cost at prior year Merged companies Cost at Additions Disposals Cost at Depreciation at prior year Merged companies Depreciation at Depreciation for the year Tax-loss carry forward Basis for calculating deferred tax / tax asset (-) Depreciation eliminated on disposals Depreciation at Book value at Recognised deferred tax / tax asset in the statement of financial position Deferred tax asset (27-35%) Deferred taxes (27-35%) - - Total deferred tax / tax asset (-) Asset lifetime (years) Depreciation schedule *) Linear Linear Linear Not applicable *) residual value varies based on market valuation of the vessel Deferred tax / tax asset - recovered after more than 12 months Deferred tax / tax asset - recovered within 12 months Other non-current receivables 117 Total deferred tax / tax asset recognised in the statement of financial position includes tax effect on components of other comprehensive income. The tax effect on the components of other comprehensive income is NOK 1.5 million. See statement of changes in equity. Other non-current receivables Note Earnings per share Basis for calculating earnings per share Derivative financial instruments 19, Other non-current receivables - 15 Other non-current receivables at Profit / loss attributable to the owners Weighted average number of outstanding shares Weighted average number of outstanding shares, diluted Earnings per share (NOK) Trade receivables Earnings per share, diluted (NOK) Trade receivables Tangible assets 2013 Vessels Periodical maintenance ROV s Machinery & other equipments Newbuilds Total Trade receivables at nominal value - 2 Provision for bad debts - -1 Trade receivables at Cost at prior year Cost at Additions Cost at Depreciation at prior year Depreciation at Depreciation for the year Depreciation at Book value at Asset lifetime (years) Depreciation schedule *) Linear Linear Linear Not applicable 13 Other current receivables Other current receivables Note Government taxes receivable (Value Added Tax) 10 - Current receivables from DOF ASA group companies Accrued interest income Derivatives financial intruments Other current receivables - 1 Other current receivables at

59 DOF Subsea AS Amounts in NOK million DOF Subsea AS Amounts in NOK million 14 Cash and cash equivalents 16 Interest bearing debt Bond loans Cash and cash equivalents Restricted cash* Unrestricted cash and cash equivalents Cash and cash equivalents DOF Subsea AS had as per year-end 2013 four bond loans, which matures in The trustee on behalf of the bond holders is Norsk Tillitsmann 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 * A long-term loan has been provided by Eksportfinans and is invested as a restricted deposit in DNB. The repayment terms on the loan from Eksportfinans is equivalent with the reduction on the deposit. The loan will be fully repaid in The cash deposit is included in restricted deposits with a total of NOK 558 million (NOK 643 million in 2012). Debt to credit institutions Non-current debt to group companies 41 - Total non current interest bearing debt Share capital and share information Current interest bearing debt Bond loan, floating rate Share capital The share capital in the Company at was NOK million comprising shares, each with a nominal value of NOK Debt to credit institutions Total current interest bearing debt Shareholder overview Total non-current and current interest bearing debt At 31 December 2013 the shareholders in the Company were as follows: Net interest bearing debt 118 Shareholders at / No. of shares Proportion of ownership DOF Subsea Holding 2 AS % Total % Cash and cash equivalent Other interest bearing assets - non current Net interest bearing debt Members of the Board of Directors and Management group own shares in related companies, and thus have indirect ownership stakes in DOF Subsea Holding 2 AS. Debt repayment profile Thereafter Total Board of directors Helge Møgster Helge Singelstad Mons S. Aase Hilde Drønen Alex Townsend Krueger Neil John Hartley John Mogford Douglas John Musicaro Management group Mons Svendal Aase Jan Nore Title Chairman Board Member CEO / Board Member Board Member Board Member Board Member Board Member Board Member Title CEO CFO/EVP Bond loans Debt to credit institutions / group companies Total Non-current interest bearing debt in the statement of financial position includes amortized cost. Amortized costs and accrued interest expenses are excluded in the figures above. See also note 2 in the Group accounts, accounting policies regarding amortized costs. Liabilities secured by mortgage Liabilities to credit institutions, incl. leases Book value of assets pledged as security for book debt Average rate of interest 7.31% 7.27% The Company is a part of the DOF Group. The annual report is published at Please refer to the DOF ASA annual report for shares held in DOF ASA by Board of Directors and the Management group. Guarantees Parent company guarantees Total Share capital No. of shares Share capital Share capital Share capital Parent company guarantees are given to ship owning companies and subsidiaries in the subsea project segment of the Group. Currency distribution non-current liabilities incl. first year repayment NOK USD GBP TOTAL Bond loans Debt to credit institutions / group companies Total

60 DOF Subsea AS Amounts in NOK million DOF Subsea AS Amounts in NOK million A mortgage loan of NOK 558 million is secured by a cash deposit, see note 14. Interest rate and derivative instrument 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 10/14 FRN DOFSUB DOF Subsea AS 11/16 FRN DOFSUB DOF Subsea AS 12/15 FRN DOFSUB DOF Subsea AS 13/18 FRN DOFSUB Financial instruments and hedging activities As of 31 December 2013 the Company had 26 forward contracts and 6 options to hedge future sales in USD, GBP and EUR, and the purchase of NOK and BRL. Forward contracts are utilised to hedge currency risk related to estimated future sales and interest rate swaps are utilised to manage interest rate risk by converting from floating to fixed interest rates. The table below displays the fair value of derivative financial instruments as of 31 December Non-current and current portion Assets Liabilities Assets Liabilities Interest rate swaps - cash flow hedges Foregin exchange contracts cash flow hedges Total Other long-term liabilities, with the exception of long-term loans, have nominal value equivalent to fair value of the liability. Financial covenants The Company s long-term financing agreements include the following covenants: Non-current portion Interest rate swaps - cash flow hedges Non-current portion The Group shall have available cash of at least NOK 300 million at all times The Group shall have value-adjusted equity to value-adjusted assets varying from 25-30% The Company should not pay dividend exceeding 50% of net result Current portion 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 banks. DOF Subsea AS shall report financial information to the banks and Oslo Stock Exchange on a regular basis. Derivatives are classified as current asset or current liability. The fair value of a hedging derivative is classified as non-current asset or non-current liability if the remaining maturity of the hedged item is more than 12 months, and as a current asset or current liability, if the maturity of the hedged item is less than 12 months. Financial derivatives and cash flow hedging according to IAS 39 against equity: Effect on equity, loss on interest rate swap contracts: 7 15 The Company is in compliance with all covenants. Effect on equity, loss on interest swap contracts is presented gross (before tax). 17 Trade payables Fair market value of derivatives related to hedge accounting is presented and classified as part of the amount in non-current portion above. Trade payables Trade payables at nominal value 2 2 Accrued expenses 15 - Trade payables at Non-current derivatives are all related to interest rate swaps and swaptions on NOK loan (NOK million) and USD loan (NOK million). Gains and losses recognised in the hedging reserve in equity on interest rate swap contracts as of 31 December 2013 will be continuously released to the statement of comprehensive income within financial cost until the repayment of the bank borrowings, see note 16. There is no ineffectiveness to be recorded in profit and loss in 2013 related to hedging derivatives. As of the company held the following interest rate derivatives: 18 Other current liabilities Instruments Fixed rate Floating rate Notional amount Effective from Maturity date Other current liabilities Note Tax payable 8 8 Financial current derivatives 19, Current liabilities to DOF ASA Group companies 5 25 Other current liabilities 4 4 Other current liabilities at Interest rate swaps / swaptions - cash flow hedges USD 1.93% % Libor 3m Interest rate swaps / swaptions - cash flow hedges NOK 4.10% % Nibor 3m - 6m Interest rate swaps / swaptions- cash flow hegdes under hedge accounting USD 1.67% % Libor 3m 83 2, Interest rate swaps / swaptions- cash flow hegdes under hedge accounting NOK 2.99% % Nibor 3m - 6m In 2013 accrued interest expenses of NOK 72 million (NOK 57 million in 2012) were reclassified from other current liabilities to short term portion of debt to credit institutions, 2012 figures are restated accordingly Interest rate swaps / swaptions - cash flow hedges USD 1.93% % Libor 3m Interest rate swaps / swaptions - cash flow hedges NOK 4.10% % Nibor 3m - 6m Interest rate swaps / swaptions- cash flow hegdes under hedge accounting USD 1.67% % Libor 3m 92 2, Interest rate swaps / swaptions- cash flow hegdes under hedge accounting NOK 2.99% % Nibor 3m - 6m

61 DOF Subsea AS Amounts in NOK million DOF Subsea AS Amounts in NOK million As of the Company held the following foreign exchange rate derivatives, not qualified for hedge accounting Instrument Received Amount Remaining term to maturity Foreign exchange forwards, buy BRL BRL 6 <1 year Foreign exchange forwards, buy NOK NOK 580 <1 year Foreign exchange options, buy NOK NOK 96 <1 year 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 on normal terms and conditions. Fair value of interest bearing debt is disclosed face value of the bank loans and market value of bonds. In 2013 accrued interest expenses of NOK 72 million (NOK 57 million in 2012) were reclassified from other current liabilities to short term portion of debt to credit institutions, 2012 figures are restated accordingly. 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 31 December 2013 are recognised in the statement of comprehensive income in the period or periods when the hedged forecast transaction affects the statement of comprehensive income Assets Non-current derivatives Other non-current receivables Trade receivables Current derivatives Other current receivables Restricted deposits Unrestricted cash Total financial assets Measurement level Financial instruments at fair value through profit and loss Financial assets at fair value through comprehensive income Financial liabilities measured at amortised cost Deposits and receivables Total Of this interest bearing Fair value 20 Financial instruments - balance Measurement level Financial instruments at fair value through profit and loss Financial assets at fair value through comprehensive income Financial liabilities measured at amortised Deposits and cost receivables Total Of this interest bearing Fair value 123 Assets Liabilities Non-current derivatives Interest-bearing non-current liabilities 1, Short term portion of debt to credit institutions 1, Other non-current liabilities Current derivatives Trade payables and other current liabilities Total financial liabilities Non-current derivatives Other non-current receivables Trade receivables Current derivatives Other current receivables Restricted deposits Unrestricted cash Total financial assets Total financial instruments Liabilities Non-current derivatives Interest-bearing non-current liabilities 1, Short term portion of debt to credit institutions 1, Other non-current liabilities Current derivatives Trade payables and other current liabilities Total financial liabilities Total measurement level 1: quoted, unadjusted prices in active markets for identical assets and liabilities. Total measurement level 2: quoted techniques for which all inputs which have significant effect on the recorded fair value are observable, directly and indirectly Total measurement level 3: techniques that use input which have significant effect on the recorded fair value that are not based on observable market data. 21 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. Total financial instruments Total measurement level 1: quoted, unadjusted prices in active markets for identical assets and liabilities. 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, DOF Subsea Norway AS, Marin IT AS and Hordafor AS. The rental fee is allocated to these companies based on square metres rented on a quarterly basis. Total measurement level 2: quoted techniques for which all inputs which have significant effect on the recorded fair value are observable, directly and indirectly Total measurement level 3: techniques that use input which have significant effect on the recorded fair value that are not based on observable market data. Management services on behalf of subsidiaries and sales transactions Management services and other deliveries on behalf of subsidiaries, see note 23, comprise NOK 82 million. Revenue related to DOF ASA group comprise NOK 14 million in The following of the Company s financial instruments are measured at amortised cost: cash and cash equivalents, trade receivables, other current receivables, overdraft facilities and long-term debts. All sales transactions are carried out on market terms.

62 DOF Subsea AS Amounts in NOK million DOF Subsea AS Amounts in NOK million 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 DOF Subsea Brasil Servicos Ltda. and DOFCON Navegacao Ltda., a joint venture company of DOF Subsea AS. The guarantees are limited to USD 237 million as of 31 December The contract is subject to standard terms. 22 Remuneration to Board of Directors, Executives and Auditor CEO EVP CEO EVP Salaries Other payments / management fee Payment from DOF Subsea EVP=Jan Nore, CEO=Mons Aase Other payments include company phone and car, etc. Senior executives are included in the general Group pension plan, see note 7. For 2013 the EVP Jan Nore held the position as EVP and CFO for the DOF Subsea Group. 23 Investments in subsidiaries Subsidiary Owner Registered office Company's share capital Proportion of ownership and votes DOF Installer ASA DOF Subsea AS Austevoll 34 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 Servicos Ltda DOF Subsea AS Macaé, Brasil % DOF Subsea Chartering AS DOF Subsea AS Bergen % DOF Subsea Congo S.A. DOF Subsea AS Pointe-Noire, Republice du Congo - 55% DOF Subsea Norway AS DOF Subsea AS Bergen % DOF Subsea Rederi AS DOF Subsea AS Bergen % DOF Subsea Rederi II DOF Subsea AS Bergen % DOF Subsea ROV Holding AS DOF Subsea AS Bergen % DOF Subsea S&P UK Ltd DOF Subsea AS Aberdeen, UK - 100% DOF Subsea UK Holding Ltd DOF Subsea AS Aberdeen, UK % DOF Subsea UK Ltd DOF Subsea AS Aberdeen, UK % DOF Subsea US Inc. DOF Subsea AS Houston - 100% Semar AS DOF Subsea AS Oslo % 124 The Group is part of the DOF ASA Group, see note 19, 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 S. 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 S. Aase. EVP Jan Nore is entitled to a bonus based on the result of the Group and personal performance. No loans have been given to or any security provided for the CEO/EVP, members of the Board of Directors, members of Group Management or other employees or close relatives of the same group. The Board of Directors received no fees, nor compensation in fees in For further information regarding setting of salaries and bonuses for senior executives, see note 26 in the Group accounts. 24 Investments in associated and jointly controlled companies Proportion of ownership Assets (100%) Shareholders Liabilities equity (100%) (100%) Operating income Profit / loss Booked value for the year of investment Jointly controlled companies DOFTech DA 50% DOFCON Brasil AS 50% Total booked value of jointly controlled companies Specification of auditor s fee Associated companies Fee for audit of financial statements Fee for other tax consultancy Fee for other services Attestation Total DOF Management 1 34% Marin IT 35% Master & Commander 2 20% Total booked value of associated companies Proportion of ownership Assets (100%) Shareholders Liabilities equity (100%) (100%) Operating income Profit / loss Booked value for the year of investment Jointly controlled companies DOFTech DA 50% DOFCON Brasil AS 50% Total booked value of jointly controlled companies 713 Associated companies DOF Management 1 34% Marin IT 35% Master & Commander 2 20% Total booked value of associated companies 52 1 Value of DOF Sjø is included in the line "DOF Management" in "booked value of investments". 2 Is based on Q (Balance) and forecast for 2013.

63 DOF Subsea AS Amounts in NOK million DOF Subsea AS Information about balances and profit / loss in associated companies and jointly controlled companies are based on preliminary figures, not audited for Contingencies 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 2013 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. 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 araising from the same. 26 Events occurring after the balance sheet date There has been no material events after balance sheet date. 27 Exchange rates used DOF Subsea AS bases its accounting on the reference exchange rates applied by Norges Bank. As of 31.12, the following exchange rates were applied: 126 Specification of exchange rates used US Dollar Euro Great British Pound Australian Dollar Brazilian Real Singapore Dollar Bergen, 23 April 2014 The Board of DOF Subsea AS Helge Møgster Helge Singelstad Mons S Aase Hilde Drønen Chairman Board member CEO/Board member Board member Alex Townsend Krueger Neil John Hartley John Mogford Douglas J. Musicaro Board member Board member Board member Board member

64 Auditor s Report Auditor s Report

65 Pedestal Mounted Crane - 900mT Knuckle Boom Crane - 150mT Work Moonpool - 9.4m x 7.0m Product Basket mT 3 x Propulsion Thrusters Tiltable Lay System 650mT Hangar - 2 x ROV Moonpool 5.6 x 5.25m 2 x Work ROV Client Operation Room Helideck - Helideck m 2 x Retractable Thrusters IMAGE REFERENCES Cover Skandi Singapore Page 6 On the bridge of the Skandi Hercules: Courtesy of Aaron McGrail Page Newbuild the largest vessel on order in the Group. Designed for subsea construction and installation Page 31 D300 Saturation diving system Page 32 ROV launch Page 32 Skandi Salvador underway Page 13 Skandi Iceman naming ceremony, September 2013 in Søviknes: Courtesy of DOF ASA Page 15 Skandi Bergen naming ceremony, Bergen, Norway: Courtesy of Peder Otto Dybvik Page 21 Annabelle Blanco, DOF Subsea Manila Office Page 33 Four PLSVs: largest single contract in the Group s history Page 34 Flexlay installation Page 34 Chartered newbuild, Jones Act compliant, Harvey Deep-Sea on four year contract Page 22 Graduate engineer, Katrina Roso in Bergen, Norway, on the exchange program Page 23 Kathleen O Mathisen receiving Sunniva Award from Bergen Chamber of Commerce Page 28 Rosyth Reel load, part of the Banff and Kyle offshore project execution Page 36 Multibeam training course Survey and Positioning Page 40 Skandi Hercules loading components for FPSO Mooring Assembly: Courtesy of Guy Maclean Page 29 Mooring pile installation on the Goliat offshore project execution Page 30 Skandi Hercules loading HLV tie-ups (other vessels Deep Orient, Jumbo Fairlane and Lewek Avior) Page 30 Flexlay installation from Skandi Skansen Page 43 Port Taranki, New Zealand, Skandi Hercules, Skandi Pacific and Skandi Emerald Page 49 Skandi Bergen naming ceremony, Bergen, Norway: Courtesy of John Burnham Page 51 ROV pilot at work