Second quarter and half year results August 2012

Transcription

1 Second quarter and half year results August 2012

2 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 KVÆRNER ASA SECOND QUARTER AND HALF YEAR RESULTS 2012 DIVIDEND 1 New dividend policy to balance out underlying volatility of earnings Payment of semi-annual dividends with ambition to increase by 10 percent annually The Board has proposed to start with a dividend of NOK 0.53 per share paid in October 2012 HIGHLIGHTS New employee share purchase programmes reinforcing the performance culture Sakhalin-1 successfully towed out and installed at the field Strong order intake of NOK million Order backlog reflecting improved market conditions Liquidity buffer totalling NOK 3.8 billion Active market with high tendering activity FINANCIAL HIGHLIGHTS Operating revenue EBITDA Order backlog NOK million NOK million NOK million Subsequent events 2012 Kværner ASA 1 2nd quarter and half year 2012 report

3 FINANCIAL KEY FIGURES Amounts in NOK million Q Q2 YTD 2012 YTD ¹ EBITDA definition: Earnings before Interest, Taxes, Depreciation and Amortisation FINANCIAL REVIEW Income statement Operating revenue EBITDA 1) EBITDA margin 2.8 % 4.9 % 4.5 % 8.6 % 8.1 % EBIT Net profit Basic and diluted earnings per share (NOK) Order intake Order backlog Net current operating assets (432) (1 264) (432) (1 264) (1 235) Net interest bearing deposits and loans Operating revenues in the second quarter 2012 amounted to NOK million, compared with NOK million for the second quarter. The reduction from last year s comparative period is due to significant decrease in operating revenue from international business. Kvaerner reported operating revenues of NOK million for the first six months of 2012, compared with NOK for the same period in. Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA) for the second quarter 2012 were NOK 85 million. The EBITDA margin for the second quarter 2012 was 2.8 percent compared to 4.9 percent in the corresponding period in. The EBITDA was influenced by phasing of projects, as some projects are in the process of closing down, and others are in an early phase prior to recognition of margin. EBITDA for the first six months of 2012 was NOK 244 million, compared with NOK 656 million for the same period last year. Net financial expense for the second quarter was NOK 2 million, comprising net interest expense of NOK 3 million, gain on foreign currency forward contracts (hedges not qualifying for hedge accounting) of NOK 2 million and foreign exchange loss of NOK 3 million. Net financial expense for the same period in amounted to NOK 3 million. Net financial expenses for the first six months of 2012 were NOK 3 million which is on the same level as for the same period in. Profit before tax for the second quarter was NOK 68 million compared to NOK 177 million for the same period last year. For the first six months 2012, profit before tax was NOK 210 million compared with NOK 628 million for the same period last year. The total income tax expense in second quarter 2012 was NOK 26 million, reflecting an effective tax rate of 39 percent in the quarter. Tax expense in second quarter amounted to NOK 155 million. First half year tax expense was NOK 76 million, compared to NOK 285 million last year. The nominal corporate tax rate is 28 percent and 40 percent in Norway and the US respectively. The net profit in the second quarter 2012 was NOK 42 million compared to NOK 22 million in the corresponding quarter last year. The basic and diluted earnings per share for the second quarter 2012 were NOK 0.15 compared to NOK 0.08 in second quarter. Net profit for the first six months 2012 was NOK 134 million compared to NOK 343 million in the same period last year. Cash flow Net cash outflow from operating activities was NOK 387 million in the second quarter The net current operating assets (NCOA) at the end of second quarter was negative NOK 432 million compared to negative NOK 717 million at 31 March Customer pre-payments 2 were NOK 354 million at the end of second quarter compared to NOK 248 million at the end of the previous quarter. The increase in NCOA in second quarter 2012 is mainly due to phasing of the projects in the Upstream segment. Net cash outflow from operating 2 Invoicing in excess of cost and estimated earnings less amounts billed in advanced but not received (on a project by project basis) Kværner ASA 2 2nd quarter and half year 2012 report

4 activities for the first half 2012, was NOK 772 million, compared to cash inflow of NOK 796 million in first half of. Net cash outflow from investing activities in the second quarter 2012 was NOK 19 million. Year to date cash outflow from investing activities amounted to NOK 58 million compared to NOK 106 million in. Capital expenditure in the quarter and year to date amounted to NOK 20 million and 55 million respectively. The capital expenditure is mainly related to the facility upgrades at the Kvaerner Verdal yard completed during first half Net cash outflow from financing activities was NOK 294 million in the quarter and year to date, compared with NOK million and NOK million in. This year s outflow mainly relates to dividend payment of NOK 269 million and acquisition of own shares of NOK 25 million in connection with the share purchase programmes for employees and managers. Last year s net outflow was mainly related to settlement of intercompany positions following the demerger from Aker Solutions. Net decrease in cash and bank deposits during the quarter amounted to NOK 699 million, resulting in cash and bank deposits at the end of the quarter at NOK million. Undrawn committed long-term credit facilities amounted to NOK 2.5 billion, providing access to capital totalling NOK 3.8 billion. Balance sheet Net cash was NOK 942 million at the end of second quarter, compared to NOK million reported at the end first quarter Net current operating assets (NCOA) were negative NOK 432 million at the end of second quarter. The equity ratio at the end of the second quarter 2012 was 36.6 percent compared to 37.5 percent at the end of first quarter. Order intake and backlog The order intake in the second quarter totalled NOK million compared to NOK million in second quarter. At 30 June 2012, the order backlog amounted to NOK million. This is an increase of NOK million in order backlog from 31 March Of the total backlog approximately 20 percent is for execution in 2012, approximately 35 percent for 2013, approximately 25 percent for 2014 and approximately 20 percent for 2015 and later. Investments In the Jackets business area, upgrades of the Verdal yard to reach the ambition of delivering tonnes of steel jackets every year from 2014 have been completed during second quarter In May Kvaerner announced the investment of approximately NOK 250 million in upgrades of its facilities at Stord (North Sea business area). The major investments will be increased lifting and trailing capacity, including a new goliath gantry crane increasing the lifting capacity from 350 tonnes to 800 tonnes. The existing Goliath crane is old and has become a limiting factor to fully exploit the potential at the Stord yard facilities. With the new crane, Kvaerner will be able to conduct two topside projects in parallel, compared to one today. In addition, the investment is preparing the company for further growth in the home market. Share purchase programme for employees and managers In June, employees in Norway were invited to participate in Kvaerner s first share purchase programme where they were offered to buy shares for up to NOK each. 19 percent of the invited signed up for an average purchase amount of NOK The participants in the employee share purchase programme were offered a discount of NOK in addition to a price reduction of 25 percent on the share price. In addition, Kvaerner offered certain managers the opportunity to buy shares through a separate manager share purchase programme where eligible managers could purchase shares for a maximum amount of 25 percent of their base salary. The discount of 25 percent has been offered against a three year lock-up period for the shares from the date of delivery. In connection with the share purchase programmes, Kvaerner has acquired shares in the open market during the second quarter. At the end of second quarter Kvaerner owned treasury shares, or 0.71 percent of the shares issued Kværner ASA 3 2nd quarter and half year 2012 report

5 The Kvaerner share Share price index 100 = 8 July (date of stock exchange listing) Kværner ASA Oslo Børs Benchmark Index The share price decreased from NOK at the end of first quarter 2012 to NOK at the end of second quarter The highest traded share price during second quarter was NOK 17.70, the lowest traded share price was NOK and the average share price during the quarter was NOK The average daily turnover during second quarter was shares compared to shares during first quarter The market capitalisation was NOK 3.56 million at the end of second quarter 2012 compared to NOK 4.55 million at the end of first quarter OPERATIONAL REVIEW Health, Safety and Environment 7,00 6,00 5,00 4,00 3,00 2,00 1,00 0, Sick leave (%) LTIF (per mill manhours) TRIF (per mill manhours) During the second quarter of 2012 ten incidents were recorded of which five were considered serious. This gives a Total Recordable Injuries Frequency (TRIF) of 3.1. Of the ten injuries, two resulted in lost time giving a Lost Time Incidents Frequency (LTIF) of 0.5. At the end of June, Kvaerner hosted its annual HSE summit with 64 representatives from key contractor partners. The theme from the summit was how Kvaerner and its partners could achieve the challenging HSE standards set forth by Kvaerner and its clients. A verification of implementation of actions following the crane accident at Verdal in February was carried out with overall positive results Kværner ASA 4 2nd quarter and half year 2012 report

6 Segments The business of Kvaerner is for reporting purposes organised in two segments: Upstream and Downstream & Industrials. The Upstream segment includes the business areas: North Sea, Jackets, Concrete Solutions, and International. The Downstream & Industrials segment comprises the business area Engineering & Construction (E&C) Americas. The Upstream segment Amounts in NOK million Q Q2 YTD 2012 YTD Operating revenue EBITDA EBITDA margin 5.1 % 15.4 % 7.5 % 15.5 % 14.4 % Net current operating assets (1 113) (1 704) (1 113) (1 704) (1 837) Order intake Order backlog Employees Operating revenues from the Upstream segment totalled NOK million in second quarter The EBITDA amounted to NOK 119 million, resulting in an EBITDA margin for the quarter of 5.1 percent. Both revenues and EBITDA are impacted by the phasing of projects and the project portfolio mix. The revenues increased by NOK 426 million from first quarter 2012 due to increased activity within all business areas, most significantly within Concrete Solutions. The EBITDA in the quarter reflects a project portfolio with a relatively wide margin range and projects in an early phase prior to recognition of margin. Some of the projects were still positively influenced by release of contingencies while the on-going Nordsee Ost offshore wind jacket project have commercial challenges taken to arbitration. The NCOA end of second quarter 2012 was negative NOK million, an increase of NOK 260 million during the quarter mainly due to unfavourably development within the Jackets business. Order intake of NOK million in the quarter mainly reflects the awards of the Edvard Grieg topside EPC contract for Lundin and the onshore EPCM contract for Shell at Nyhamna in the North Sea business area. The order backlog stands at NOK million at the end of second quarter Operations The Sakhalin-1 gravity based structure (GBS) was successfully towed out and installed at the field end of June. The GBS work is in the final phase.the Hebron project continues to mobilise personnel and is progressing on detailed engineering, procurement and construction (EPC) related services. In the Jackets business area the activity remains high on several projects. 19 wind jackets including the transformer jacket for the Nordsee Ost project have been upended and two batches have been delivered during second quarter. The first row for the Clair Ridge project has successfully been rolled-up and there is high activity in all areas of construction. Engineering activities are progressing for the jackets Edvard Grieg and Martin Linge with major sub-contracts secured. In June, Nina Udnes Tronstad stepped down from her position as Executive Vice President for the Jackets business area and President of Kvaerner Verdal AS. Sverre Myklebust from the North Sea business area is acting in both positions until a successor has been recruited. The engagement in the wind industry will be discontinued. In the North Sea business area, the temporary lay-offs have decreased. Both the Edvard Grieg topside and the Nyhamna onshore projects are in start-up phase and will secure activity into Prefabrication for the Eldfisk topside is progressing on all fabrication sites, and multi-discipline fabrication has commenced at Stord. The test centre Mongstad project is progressing according to revised client schedule. The close down activities continued on the Kashagan Hook-up project during the second quarter, and is expected to be completed during fourth quarter The tender for Woodside s Browse project was submitted in early April Kværner ASA 5 2nd quarter and half year 2012 report

7 Market Kvaerner sees a strong market and expect awards of new development projects over the next year, both on the Norwegian Continental Shelf and internationally. Until 2010 the Norwegian Continental Shelf was considered mature, but new discoveries in and so far in 2012 have increased the optimism to discover new fields. The discoveries in are being developed into prospects with schedules and plans being firmed up. Kvaerner is well positioned to take part in developing these prospects. For fields already under development, the operators seem to follow their communicated schedules and there are no indications of significantly delayed decisions or contract awards. In addition, development of new and major upgrades of existing onshore upstream plants seems promising for the Norwegian markets. The two recent awarded contracts for the Edvard Grieg topside and the Nyhamna onshore project is the first confirmation of this strong market. Several tender processes are on-going and expected to be concluded around year-end. Within concrete substructures, there is demand due to new oil and gas developments in Arctic areas like the Kara Sea, Canada and Alaska. Several operators are increasing their Arctic activities. Kvaerner holds a unique position within this market on a global level. The Downstream & Industrials segment Amounts in NOK million Q Q2 YTD 2012 YTD Operating revenue EBITDA 6 (300) 9 (297) (351) EBITDA margin 0.9 % (87.1%) 0.7% (29.1%) (14.5%) Net current operating assets Order intake Order backlog Employees The figures above include EPC Center Houston. Please refer to note 8 for details regarding EPC Center Houston s financials. Downstream & Industrials had operating revenues of NOK 689 million in the second quarter. The EPC Centre in Houston had low activity level during the quarter due to no larger projects in the current portfolio. Union Construction is experiencing more normalised activity levels working on small and medium sized projects. Second quarter 2012 EBITDA was NOK 6 million resulting in an EBITDA margin for the quarter of 0.9 percent. The EBITDA in the quarter is affected by legal costs on disputed projects and limited results are expected from Union Construction as long as the Longview arbitration process is on-going. In second quarter, the EBITDA was negatively impacted by USD 50 million charges in the Longview project. The NCOA at the end of second quarter 2012 were NOK 677 million, an increase of NOK 60 million during the quarter. The NCOA level is still unusually high as a substantial amount of capital is tied up in the Longview project. Operations The installation of the mechanical equipment for the V&M seamless pipe mill in Youngstown, Ohio, US is nearing completion. Maintenance and small capital projects in the iron and steel sector remain on plan. Market In the Downstream & Industrials segment continued opportunities for new gas fired power plants are anticipated due to the retirement of coal fired plants and low cost of natural gas. In addition, opportunities are developing for environmental upgrades to existing power plants. The major steel producers in North America are planning several upgrades in the near term creating strong opportunities for both maintenance and capital projects. The steelmaking market is still relatively healthy in the US, but remains soft in Canada Kværner ASA 6 2nd quarter and half year 2012 report

8 Unallocated costs Unallocated costs, which are net corporate costs not directly attributable to the individual segments, amounted to NOK 39 million in second quarter 2012, same level as for first quarter Unallocated costs for second quarter amounted to NOK 62 million and for full year unallocated costs totalled NOK 147 million. Some of these costs were associated with the listing of Kværner ASA on Oslo Børs in July. It is expected that the recurring level of net corporate costs will be around NOK million annually. In addition, one-off unallocated costs related to the build-up of project execution capabilities is expected to amount to approximately NOK 60 million for SUBSEQUENT EVENTS New dividend policy resulting in proposed dividend of NOK 0.53 per share The Board of Directors has amended the company s dividend policy to increase the visibility and predictability of dividends going forward. The new policy will be implemented with immediate effect: Kværner ASA's dividend policy is based on visibility and predictability. The ambition is to pay semiannual dividends with increases, in order to give a stable and predictable dividend growth, balancing out the underlying volatility of earnings. The Board of Directors has according to the amended dividend policy proposed to pay a dividend of NOK 0.53 per share in October This will be the starting level for the semi-annual dividend intended from An Extraordinary General Meeting (EGM) is scheduled for 9 October 2012 at 09:00 CET. Subject to the decision of the Extraordinary General Meeting, the dividend payment will take place on or about 24 October 2012 to shareholders of record as per the date of the Extraordinary General Meeting. The share will then be traded exclusive dividend from and including 10 October Going forward, the Board of Directors intention is to announce the proposed semi-annual dividends in connection with the reporting of fourth quarter results and second quarter results respectively. Divestment of EPC Center Houston to IHI E&C International Corporation (IHI) On 16 July 2012 Kvaerner closed the transaction related to the sales of on-going downstream focussed operations and related assets of the entity known as EPC Center Houston to IHI. All rights and obligations under contracts for executed projects will be retained by Kvaerner. EPC Center Houston and IHI have since 2004 cooperated closely as joint venture partners, successfully developing a business focused on the delivery of LNG terminals and oil and gas processing facilities in North America. The new company comprises 170 employees including contract personnel and will continue to be based in Houston. Kvaerner retains and will further develop its other businesses in North America, both the Houston based business focusing on offshore field development projects and Kvaerner North American Construction providing construction services and maintenance in the unionised areas of North America. Sale of treasury shares In connection with the share purchase programmes, Kværner ASA sold own shares on 16 July The price was based on the average volume weighted share price on the Oslo Børs (the stock exchange in Oslo) over the five days period from 9 July to 13 July 2012 giving a price per share of NOK PRINCIPAL RISKS AND UNCERTAINTIES Operational risk is the ability to deliver existing contracts at the agreed time, quality, functionality and cost. Delivering projects and equipment in accordance with the contract terms and the anticipated cost framework represents a substantial risk element, which will be the most significant factor affecting Kvaerner s financial performance. Results also depend on costs, both Kvaerner s own and those charged by suppliers, and on interest expenses, exchange rates and customers ability to pay. For an overview of the major current legal disputes, please see the notes to the condensed consolidated interim accounts. Kvaerner has established guidelines and systems to manage its exposure in the financial markets. These systems cover currency, interest rate, counterparty and liquidity risks. Kvaerner works systematically with risk management in all its business areas, and has extensive systems and procedures in place. For a further description of other relevant risk factors, please refer to the annual report for Kværner ASA 7 2nd quarter and half year 2012 report

9 OUTLOOK Based on the developments of key projects during the second quarter, there are no changes in Kvaerner s expectations for the activity level for the rest of As previously communicated, the financial results have been and will be influenced by uncertainties related to closing of major projects. These uncertainties represent both a potential upside as well as a downside. In addition, a high degree of uncertainty is still viable with regards to legacy projects. These risks and uncertainties are monitored and managed tightly. The solid order intake in second quarter provides a good foundation for growth over the next few years. The results in 2012 will be affected by several new projects being booked during the first half of the year. These projects are not likely to reach 20 percent completion before year-end and will therefore not contribute to the results in The market is strong with number of prospects higher than in decades. New awards are expected over the next 6-12 months both on the Norwegian Continental Shelf and internationally. FURTHER INFORMATION Investor relations: Ingrid Aarsnes, SVP Investor Relations, Kvaerner, Tel: , Mob: Media: Mariken Holter, SVP Corporate Communications, Kvaerner, Tel: , Mob: About Kvaerner: With more than HSE-focused and experienced employees, Kvaerner is a specialised provider of engineering, procurement and construction (EPC) services for offshore platforms and onshore plants. Kværner ASA, through its subsidiaries and affiliates ("Kvaerner"), is an international contractor that plans and realises some of the world's most demanding projects as a preferred partner for upstream and downstream oil and gas operators, industrial companies and other engineering and fabrication contractors. In, the Kvaerner group had aggregated annual revenues of more than NOK 13 billion and the company had an order backlog at 30 June 2012 of more than NOK 23 billion. Kvaerner was publicly listed with the ticker "KVAER" at the Oslo Stock Exchange on 8 July. For further information, please visit Kværner ASA 8 2nd quarter and half year 2012 report

10 DECLARATION BY THE BOARD OF DIRECTORS AND PRESIDENT & CEO The Board of Directors and the President of Kværner ASA have today considered and approved the condensed financial statements as at 30 June 2012 and for the six-month period ended 30 June The half year report has been prepared in accordance with IAS 34 Interim Financial Reporting as endorsed by the EU and additional Norwegian regulations. We confirm to the best of our knowledge that: the condensed financial statements for the six months ending 30 June 2012 have been prepared in accordance with applicable financial reporting standards the information provided in the financial statements gives a true and fair view of the group s assets, liabilities, financial position and result for the period the financial review includes a fair review of significant events during the first six months of the year and their impact on the financial statements, any major related party transactions, and a description of the principal risk and uncertainties for the remaining six months of the year Fornebu, 9 August 2012 The Board of Directors and the President & CEO of Kværner ASA Kjell Inge Røkke Chairman Tore Torvund Deputy Chairman Bruno Weymuller Director Lone Fønss Schrøder Director Vibeke Hammer Madsen Director Rune Rafdal Director Ståle Knoff Johansen Director Bernt Harald Kilnes Director Jan Arve Haugan President & CEO

11 FINANCIAL STATEMENTS INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT Amounts in NOK million Q Q2 YTD 2012 YTD Operating revenue Operating expenses (2 914) (3 755) (5 143) (7 013) (12 222) EBITDA Depreciation and amortisation (15) (12) (31) (24) (54) Operating profit Net financial income/(expense) (2) (3) (3) (3) (109) Profit from associated companies and jointly controlled entities 0 0 (0) (1) (6) Profit before tax Income tax expense (26) (155) (76) (285) (344) Net profit Attributable to: Equity holders of the parent company - Kværner ASA Basic and diluted earnings per share (NOK) INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Amounts in NOK million Q Q2 YTD 2012 YTD Net profit/(loss) for the period Other comprehensive income: Cash flow hedges, net of tax (6) (5) (6) (6) 1 Translation differences, foreign operations (18) (109) 26 (52) 15 Total comprehensive income 18 (92) Attributable to Equity holders of the parent company - Kværner ASA 18 (92) Kværner ASA 9 2nd quarter and half year 2012 report

12 INTERIM CONDENSED CONSOLIDATED BALANCE SHEET Amounts in NOK million YTD 2012 YTD Assets Non-current assets Property plant and equipment Intangible assets Deferred tax assets Investments in associates and jointly controlled entities Interest bearing receivables Other non-current assets Total non-current assets Current assets Trade and other receivables Interest bearing receivables Prepaid company tax Total cash and bank Total current assets Total assets Equity and liabilities Equity Share capital Share premium Retained earnings Other reserves (112) (197) (133) Total equity Non-current liabilities Interest-bearing loans Deferred tax liabilities Employee benefit liabilities Total non-current liabilities Current liabilities Trade and other payables Tax liabilities 180 (0) 257 Provisions Interest bearing liabilities Other non-interest bearing liabilities Total current liabilities Total equity and liabilities Kværner ASA 10 2nd quarter and half year 2012 report

13 INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY Amounts in NOK million Total paid in capital Retained earnings Hedging reserve Currency translation reserve Total equity Equity as of 1 January (8) (131) Profit for the period Other comprehensive income - - (6) (52) (58) Total comprehensive income (6) (52) 285 Proforma adjustments - (624) - - (624) Equity as of 30 June (14) (183) Profit for the period Other comprehensive income Total comprehensive income Changes in parent's investments Separation from Aker Solutions on 7 July 820 (820) Equity as of 31 December (6) (126) Profit for the period Other comprehensive income - - (6) Total comprehensive income (6) Change in treasury shares - (25) - - (25) Dividend - (269) - - (269) Equity as of 30 June (13) (99) INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Amounts in NOK million Q Q2 YTD 2012 YTD Cash flow from operating activities (387) (35) (772) Cash flow from investing activities (19) (64) (58) (106) (231) Cash flow from financing activities (294) (1 533) (294) (1 529) (1 105) Translation adjustments 2 (119) 49 (62) 8 Net increase/(decrease) in cash and bank deposits (699) (1 751) (1 075) (901) (259) Cash at the beginning of the period Cash at the end of the period Kværner ASA 11 2nd quarter and half year 2012 report

14 SEGMENT INFORMATION Upstream Downstream & Industrials Group activities and eliminations Consolidated Amounts in NOK million Q Q2 Q External revenue Internal revenue 21 (4) 4 2 (25) 1 (0) (0) Total revenue (6) EBITDA (300) (39) (62) Depreciation and amortisation (13) (10) (2) (2) (0) - (15) (12) EBIT (303) (40) (62) Net current operating assets (1 113) (1 704) (23) (432) (1 264) Q2 Q Q2 Q Q2 Upstream Downstream & Industrials Group activities and eliminations Consolidated Amounts in NOK million YTD 2012 YTD YTD 2012 External revenue Internal revenue (38) (8) - 0 Total revenue (4) (8) EBITDA (297) (79) (77) Depreciation and amortisation (26) (20) (4) (5) (0) - (31) (24) EBIT (303) (79) (77) YTD YTD 2012 YTD YTD 2012 YTD Upstream Downstream & Industrials Group activities and eliminations Consolidated Amounts in NOK million FY FY FY FY External revenue Internal revenue 35 5 (40) 0 Total revenue (9) EBITDA (351) (147) Depreciation and amortisation (45) (9) (0) (54) EBIT (360) (147) Net current operating assets (1 837) 619 (17) (1 235) 2012 Kværner ASA 12 2nd quarter and half year 2012 report

15 NOTES Note 1 General Kværner ASA (the company) is a company domiciled in Norway. The Kvaerner group consists of Kværner ASA and its subsidiaries. Note 2 Basis for preparation Statement of compliance The condensed consolidated interim financial statements have been prepared in accordance with the International Financing Reporting Standard ("IFRS") IAS 34 Interim Financial Reporting for interim reporting as adopted by the European Union and additional Norwegian regulations. Accounting principles The accounting principles applied in these condensed consolidated interim financial statements are the same as those applied by in the Annual accounts. The interim financial statements are condensed and do not include all the information required by IFRS for a complete set of financial statements and should be read in conjunction with the full year combined financial statements for Kværner ASA. The consolidated financial statements for Kvaerner for the year ended 31 December are available upon request from the company s registered office at Snarøyveien 30, Fornebu, Norway or at Amendment to IFRS 7 Financial Instruments is effective for annual reporting periods beginning after 1 July. Implementation of the revised standard has not impacted the group s condensed interim financial statements. IAS 19 Employee benefit amendments, effective for annual reporting periods beginning after 1 July 2012, require immediate recognition of actuarial gains and losses in other comprehensive income and eliminate the corridor method. Expected return on plan assets will be based on the rate used to discount the defined benefit obligation. Kvaerner expects to adopt the new standard as from 1 January Upon adoption of the revised standard Kvaerner will recognise unrecognised net actuarial losses in other comprehensive income. Although Kvaerner has not quantified all of the effects of implementing the new standard, the unrecognised actuarial losses as per 31 December were NOK 68 million. Review of impacts of other new and revised standards not yet effective has not been completed at this stage. On 1 January, Kvaerner adopted revised IAS 24 Related Party disclosures. Following the revised definition of related party in the standard, Aker Solutions is not a related party of Kvaerner. However, due to the relationship in, transactions and balances between Kvaerner entities and Aker Solutions entities were reported as related party transactions. As from 2012, transactions with Aker Solutions are not considered related party transactions under IAS 24 and are not reported as such in the financial statements. Significant volume of business will continue to take place between Kvaerner entities and Aker Solutions entities in the ordinary course of business as disclosed in the Annual report. The interim financial statements have not been subject to audit or review by independent accountants. The functional currency of the entities within Kvaerner is determined based on the nature of the economic environment in which it operates. The functional currency and presentation currency of Kværner ASA is NOK. Numbers are rounded to the nearest million, unless otherwise stated. As a result of rounding differences, numbers or percentages may not add up to the total. The condensed consolidated interim financial statements reflect all adjustments, consisting only of normal, recurring adjustments that, in the opinion of Kvaerner s management, are necessary for a fair presentation of the results of operations for the periods presented. Operating results for the periods presented are not necessarily indicative of the results that may be expected for any subsequent interim period or annual accounts. Note 3 Judgments, estimates and assumptions In applying the accounting policies, management makes judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. The estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revision to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods Kværner ASA 13 2nd quarter and half year 2012 report

16 In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the group's accounting policies and the key sources of uncertainty in the estimates were consistent with those applied to the full year combined financial statements as at and for the period ended 31 December. Note 4 Financial items Amounts in NOK million Q Q2 YTD 2012 YTD Net interest income/(expense) (3) 6 (9) 9 11 Profit/(loss) on foreign currency contracts (11) Net foreign exchange gain/(loss) (2) (12) 2 (16) (112) Other financial items, net Net financial income/(expense) (2) (3) (3) (3) (109) Note 5 Share capital and equity Kværner ASA was founded in January with a nominal share capital. The share capital of Kværner ASA after the demerger completed 7 July is NOK Kværner ASA has shares issued each with a nominal value of NOK Kvaerner currently has no share-based compensation that results in a dilutive effect on earnings per share. Basic and diluted earnings per share have been calculated based on the following average number of outstanding shares: NOK thousand Q Q2 YTD 2012 YTD Shares issued Effect of own shares held (396) - (198) - - Average number of outstanding shares Note 6 Contingent events Given the scope of the group s worldwide operations, group companies are inevitably involved in legal disputes in the course of their activities. Provisions have been recognised to cover the expected outcome of any disputes and litigation proceedings in accordance with applicable accounting rules. Such provisions will be based on the management's best evaluations and estimates of a likely outcome of the dispute and will be subject for review by in-house or external legal advisors. However, the final outcome of such disputes and litigation proceedings will always be subject to uncertainties, and resulting liabilities may exceed recorded provisions. The disputes and litigation proceedings are continuously monitored and reviewed, and recognised provisions are adjusted to reflect management s best estimates of most recent facts and circumstances. Litigation and arbitration costs are recognised as they occur. Significant, current disputes have resulted in initiated arbitration against Longview and Forster Wheeler North America Corp. in connection with the Longview project and filing of arbitration related to the Nordsee Ost project. Although some uncertainty surrounds the final outcome of these events, the expectation is that it will not have a material impact on Kvaerner's financial position or results. Due to uncertainties related to these events and to avoid prejudicing Kvaerner's position, no estimate of the expected final outcome is disclosed. Note 7 Related party The group has several related party relationships including with Aker Kværner Holding AS of which Kvaerner is an associated company, associates and joint ventures of Kvaerner and with certain of Kvaerner s directors and executive officers. Aker Kværner Holding AS owns 41 percent of Kværner ASA and is controlled by Aker ASA (70 percent) which in turn is controlled by Kjell Inge Røkke and his familiy through TRG Holding AS and The Resource Group AS. All entities controlled by Aker ASA, associated companies and joint ventures of Kvaerner and certain other related parties are reported as related parties to Kvaerner. As from 2012, Aker Solutions is not considered a related party to Kværner ASA under IAS Kværner ASA 14 2nd quarter and half year 2012 report

17 Kvaerner believes that all transactions with related parties have been based on arm's length terms. In first half 2012, approximately NOK 124 million was recognised as revenue from related parties. Interest bearing loans to related parties amounted to NOK 63 million as per June end. Note 8 Assets classified as held for sale On 16 July 2012, Kvaerner closed the transaction with IHI E&C International Corp, a US subsidiary of the Japanese company IHI Corporation ( IHI ) to sell the on-going operations and related assets of EPC Centre Houston. The related assets and liabilities are classified as held-for-sale at the end of second quarter. All completed contracts with related assets and liabilities, including warranties and legacies will be retained by Kvaerner. The assets held for sale is part of the Downstream & Industrials segment, but is not considered a separate major line of business and is consequently not classified and presented as a discontinued operation in the group accounts. Value of related assets and liabilities is immaterial and are mainly related to working capital The transaction is expected to result in an accounting gain for Kvaerner and this will be reflected in the third quarter reporting. Historical information related to EPC Center Houston Amounts in NOK million YTD 2012 FY FY 2010 FY 2009 Operating revenue EBITDA (10) (18) Note 9 Quarterly historical information Amounts in NOK million Q Q Q4 Q3 Q2 Q1 Operating revenue Upstream Downstream & Industrials EBITDA Upstream Downstream & Industrials 6 3 (15) (39) (300) 3 EBITDA margin 2.8 % 6.7 % 8.3 % 6.4 % 4.9 % 12.5 % Upstream 5.1 % 10.4 % 13.2 % 12.3 % 15.4 % 15.6 % Downstream & Industrials 0.9% 0.5% (1.8%) (7.1%) (87.1%) 0.4% Order intake Upstream Downstream & Industrials Order backlog Upstream Downstream & Industrials The figures above include EPC Center Houston. Please refer to note 8 for details regarding EPC Center Houston s financials Kværner ASA 15 2nd quarter and half year 2012 report