KVÆRNER ASA THIRD QUARTER RESULTS 2013

Transcription

1 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 KVÆRNER ASA THIRD QUARTER RESULTS 2013 HIGHLIGHTS High operational activity Continued focus on competitiveness and delivery models Order backlog of NOK 26.9 billion 2 SUBSEQUENT EVENTS New office opened in Moscow to strengthen presence in Russia Proposed dividend of NOK 0.58 per share approved by the Extraordinary General Meeting Nordsee Ost wind jacket project delivered FINANCIAL HIGHLIGHTS Operating revenue 1 EBITDA Order backlog 2 NOK million NOK million NOK million Excluding scope of work of jointly controlled entities closely related to Kvaerner s operating activities. 2 Including scope of work of jointly controlled entities closely related to Kvaerner s operating activities. 3 Including a net positive effect of NOK 42 million from divestment of EPC Center Houston operations Kværner ASA 1 3rd quarter 2013 report

2 FINANCIAL KEY FIGURES Amounts in NOK million Q Q YTD 2013 YTD Excluding scope of work of jointly controlled entities closely related to Kvaerner s operating activities. ² EBITDA definition: Earnings before Interest (net financial items), Taxes, Depreciation and Amortisation. 3 Including scope of work of jointly controlled entities closely related to Kvaerner s operating activities. Please refer to note 8 for details related to restated figures for previous periods. Restated Total revenue and other income 1) EBITDA 2) EBITDA margin 4.9 % 4.5 % 4.4 % 4.5 % 4.5 % EBIT Net profit Basic and diluted earnings per share (NOK) Order intake 3) Order backlog 3) Net current operating assets (30) (840) (30) (840) (514) Net interest bearing deposits and loans FINANCIAL REVIEW Income statement Operating revenues in the third quarter 2013 amounted to NOK million, compared with NOK million for third quarter The increase from last year is mainly due to high activity on projects for the North Sea. Kvaerner reported operating revenues of NOK million for the first nine months of 2013, compared with NOK million for the same period in Earnings before Interest, Taxes, Depreciation and Amortisation (EBITDA) for the quarter were NOK 166 million, compared with NOK 109 million in the same period last year. The EBITDA margin for the third quarter 2013 was 4.9 percent, up from 4.5 percent in the corresponding period in EBITDA for the first nine months of 2013 was NOK 432 million, compared with NOK 354 million for the same period in Net financial expense for the quarter was NOK 13 million, mainly comprising net interest expense of NOK 13 million. Net financial expense for the same period in 2012 was NOK 11 million. Net financial expense for the first nine months was NOK 41 million, compared to NOK 14 million in The increased net financial expense is due to significantly lower net interest bearing deposits and loans during 2013 compared to Net result from associated companies and jointly controlled entities presented below EBITDA was negative NOK 3 million for third quarter 2013 and negative NOK 25 million for the first nine months of 2013, compared to NOK nil million and negative NOK 1 million in equivalent periods in Year to date result is impacted by impairment charge of investment in associated company. Profit before tax for the third quarter 2013 was NOK 132 million compared to NOK 82 million for the same period last year. For the first nine months of 2013, profit before tax was NOK 315 million compared to NOK 292 million for the same period in Total income tax expense in the period was NOK 48 million compared to NOK 33 million for the same quarter previous year. Tax expense for the first nine months amounted to NOK 118 million, compared to NOK 110 million in The tax expense reflects an effective tax rate of 38 percent for the first nine months of 2013, the same as for the equivalent period in The relatively high tax rate reflects unrecognised deferred tax assets on losses in some jurisdictions, but also negative results from associated companies with no corresponding tax income, and withholding taxes. Net profit in third quarter 2013 was NOK 84 million compared to NOK 48 million in the corresponding quarter last year. Basic and diluted earnings per share for the third quarter 2013 were NOK 0.31 compared to NOK 0.18 in third quarter Net profit for the first nine months of 2013 was NOK 197 million compared to NOK 182 million in the same period last year. Basic and diluted earnings per share for the first nine months of 2013 were NOK 0.73 compared to NOK 0.68 for the first nine months in Kværner ASA 2 3rd quarter 2013 report

3 Cash flow Net cash outflow from operating activities was NOK 386 million in third quarter 2013 compared to cash inflow of NOK 317 million in the same period last year. Net current operating assets (NCOA) at the end of third quarter was negative NOK 30 million compared to negative NOK 579 million at 30 June Customer pre-payments 1 were NOK 212 million at the end of third quarter compared to NOK 188 million at the end of the previous quarter. The increase in NCOA in third quarter 2013 is mainly due to reversal of the improvements in second quarter in the Upstream segment. Further, the NCOA is expected to be weak until early cycle projects have been completed, including resolution of the Nordsee Ost project arbitration. Net cash outflow from operating activities for the first nine months of 2013, was NOK 88 million, compared to cash outflow of NOK 455 million for the first nine months of Net cash outflow from investing activities in third quarter 2013 was NOK 72 million. In third quarter last year, net cash outflow was NOK 10 million. Year to date cash outflow from investing activities amounted to NOK 133 million compared to NOK 68 million in Capital expenditure in the quarter and year to date amounted to NOK 69 million and 130 million respectively. The capital expenditure is mainly related to the facility upgrades at the Stord yard. Net cash outflow from financing activities was NOK 7 million in the quarter and NOK 189 million year to date compared to an inflow of NOK 3 million for third quarter 2012 and an outflow of NOK 292 million year to date Year to date outflow mainly relates to dividend payment of NOK 148 million and payment of interest of NOK 37 million. Net decrease in cash and bank deposits during the quarter amounted to NOK 465 million, resulting in cash and bank deposits at the end of the quarter at NOK 681 million. Undrawn committed long-term credit facilities of NOK 2.5 billion, provides access to capital totalling NOK 3.2 billion. Balance sheet Net cash was NOK 256 million at the end of third quarter, compared to NOK 723 million reported at the end of second quarter Net current operating assets (NCOA) were negative NOK 30 million at the end of third quarter, compared to negative NOK 579 million at the end of previous quarter. Equity ratio at 30 September 2013 was 34.1 percent, down from 35.5 percent at 30 June Order intake and backlog Order intake in third quarter 2013 totalled NOK million, including the scope of work of jointly controlled entities, compared to NOK million in third quarter As of 30 September 2013 the order backlog, including the scope of work of jointly controlled entities, amounted to NOK million. The estimated scheduling for order backlog as of 30 September 2013 is approximately 15 percent for execution in 2013, approximately 50 percent for execution in 2014 and approximately 35 percent for execution in 2015 and later. Transactions in treasury shares Kværner ASA has sold treasury shares in relation with the company's share purchase programmes for employees and managers. The price was based on the average volume weighted share price on the Oslo Børs (the stock exchange in Oslo) over the 5 days period from 19 August to 24 August 2013 giving a price per share of NOK In September, the company acquired treasury shares in the open market at an average price of NOK per share. A total of own shares were awarded as bonus shares to 359 qualifying employees as part of Aker Solutions' 2010 share purchase programme. The share price of NOK equalled the volumeweighted average share price of Kværner ASA s shares on the Oslo Børs Friday 13 September Following the above-mentioned transactions, Kværner ASA holds no treasury shares at the end of third quarter. 1 Invoicing in excess of cost and estimated earnings less amounts billed in advanced but not received (on a project by project basis) Kværner ASA 3 3rd quarter 2013 report

4 The Kvaerner share Indexed share price development last 12 months Kværner ASA Oslo Børs Benchmark Index The share price increased from NOK 9.71 at the end of second quarter 2013 to NOK 9.91 at the end of third quarter The highest traded share price during third quarter was NOK 10.65, the lowest traded share price was NOK 9.17 and the average share price during the quarter was NOK The average daily turnover during second quarter was shares compared to shares during second quarter The market capitalisation was NOK 2.67 billion at the end of third quarter 2013 compared to NOK 2.61 billion at the end of second quarter OPERATIONAL REVIEW Health, Safety, Security and Environment (HSSE) Sick leave TRIF LTIF Status During third quarter 2013 Kvaerner had a total of 19 recordable Incidents. In the same period there were four Lost Time incidents, tree serious incidents and two serious near miss incidents. Initiatives As part of the continuous review and improvement process a half day session with EVPs and global HSSE network was arranged in September All serious incident during the first nine months of 2013 falls within the Kvaerner Just Rules categories, reinforcing the need to focus on compliance with existing safety rules and procedures Kværner ASA 4 3rd quarter 2013 report

5 Segments The business of Kvaerner is for reporting purposes organised in two reporting segments: Upstream and Downstream & Industrials. The Upstream segment includes the business areas Contractors, Jackets, Concrete Solutions and Contractors International. The Downstream & Industrials segment comprises the business area Onshore Americas. The Upstream segment 1 Amounts in NOK million Q Q Restated YTD 2013 YTD 2012 Restated Restated Total revenue and other income EBITDA EBITDA margin 4.8 % 4.6 % 4.5 % 6.1 % 5.6 % Net current operating assets (539) (1 401) (539) (1 401) (1 009) Order intake Order backlog Employees Please refer to note 8 for details related to restated figures for previous periods. The Upstream segment reporting further includes Kvaerner s share (proportionate consolidation) of jointly controlled entities closely related to Kvaerner s operating activities. Operating revenue from the Upstream segment totalled NOK million in third quarter 2013, compared to NOK million in third quarter The revenue increase is due to higher activity within Contractors Norway and Concrete Solutions. EBITDA amounted to NOK 197 million, resulting in an EBITDA margin for the quarter of 4.8 percent, compared to NOK 100 million and 4.6 percent EBITDA margin in third quarter EBITDA in the quarter reflects high activity on most projects. One major project is not yet recognising margin due to below 20 percent completion. The arbitration process for the commercially challenging Nordsee Ost project will take more time than earlier anticipated due to high complexity. Resolution has been delayed and the arbitration will not be finalised in NCOA at the end of third quarter 2013 was negative NOK 539 million, an increase of NOK 510 million during the quarter. The disputed Nordsee Ost project will be tying up working capital until arbitration is resolved. Order intake of NOK million in the quarter, reflects increased scope and growth in existing contracts. Order backlog was NOK million at the end of third quarter 2013, including the scope of work of jointly controlled entities. Operations Engineering, procurement and construction activities for the Hebron GBS project are progressing in Newfoundland and Labrador, Canada, with engineering in St. John's and construction at the Bull Arm fabrication site where concrete pouring of the major slip form up to an elevation of 27 meters was completed in September. In the Jackets business, there was high activity on assembly for the Martin Linge and Edvard Grieg projects in the quarter, with three roll-ups successfully completed. The last wind-jackets for the North Sea Ost project were delivered in October There will be continuous high assembly activity for the Martin Linge and Edvard Grieg jacket projects at the yard in Verdal for the coming two quarters. Contractors Norway sees high activity for the coming periods. Final assembly activities on Eldfisk are on-going and commissioning has started. For the Edvard Grieg topside, the main activities in the coming quarter are finalisation of detailed design and procurement work. The Nyhamna onshore project is progressing as planned with design engineering and procurement work Kværner ASA 5 3rd quarter 2013 report

6 Market Kvaerner sees an active market and expects new development projects to be awarded over the next few years both on the Norwegian Continental Shelf and internationally. However, the competition is fierce both from South East Asia and Europe. In 2013, FEEDs for new development projects will be executed. These projects are expected to be tendered for in 2014 and beyond. There are also opportunities for completion and hook-up projects. Within concrete substructures, there are prospects in Arctic areas of Greenland, Kara Sea, Russia, Canada and Alaska. Kvaerner holds a unique position within this market on a global level. The interest in all Arctic regions is strong and the recent discovery in the Flemish Pass Basin supports the future potential in the Arctic area offshore Canada. In October, a permanent office in Moscow was opened to strengthen the presence in Russia where there are future opportunities in the Russian Sub-arctic and Arctic regions. The Downstream & Industrials segment Amounts in NOK million Q Q YTD 2013 YTD 2012 Total revenue and other income EBITDA (14) 46 (24) EBITDA margin (4.7%) 10.4% (2.7%) 3.4% 3.3% Net current operating assets Order intake Order backlog Employees The figures above include EPC Center Houston operations, including a net positive EBITDA effect of NOK 42 million following the divestment in third quarter Downstream & Industrials had operating revenues of NOK 302 million in third quarter 2013, compared to NOK 442 million in third quarter The reduction in revenue is both due to sale of EPC Center Houston operations last year and lower activity. The EBITDA was negative NOK 14 million, giving an EBITDA margin of negative 4.7 percent. EBITDA in the quarter is affected by legal costs on disputed projects and limited results are expected as long as the Longview arbitration process is on-going. As previously communicated, the increase in activity seems to take longer than earlier anticipated this year and the EBITDA for the full year 2013 is expected to end up in the range of negative NOK million due to scope of work reductions and higher legal costs. NCOA at the end of third quarter 2013 were NOK 539 million, a reduction of NOK 46 million during the quarter. The NCOA level is still unusually high as a substantial amount of capital is tied up in the Longview project. Order intake of NOK 97 million in the quarter relates to growth in existing contracts and various small orders. Order backlog totalled NOK million at the end of third quarter Operations The Calpine Garrison project s focus remains on engineering and construction of foundations and underground electrical and piping. Maintenance and small capital projects in the iron and steel sector remain on plan. Market In the Downstream & Industrials segment, new gas fired power plant tender opportunities continue to develop due to low cost of natural gas and retirement of coal fired plants. A large number of these opportunities are in union labour markets where Kvaerner operates. The North American Steel market is historically cyclical and some of the major steel producers in North America have slowed upgrades in the primary and finishing areas but the long term market dynamics are strong. Other Longview Power LLC, the owner of the Longview Power Plant in Maidsville, West Virginia, filed for protection under Chapter 11 of the United States Bankruptcy Code in August The initiated Chapter 11 process will interfere with Kvaerner s claims and will lead to subsequent delays in the cost recovery Kværner ASA 6 3rd quarter 2013 report

7 Unallocated costs Unallocated costs, which are net corporate costs not directly attributable to the individual segments, amounted to NOK 17 million in third quarter 2013, slightly down from NOK 18 million in second quarter It is expected that the recurring level of net corporate costs will be approximately NOK million annually, a reduction from previous levels following re-organisation effects and cost savings. SUBSEQUENT EVENTS Proposed dividend of NOK 0.58 per share approved by the Extraordinary General Meeting The Extraordinary General Meeting EGM held 10 October approved the proposed dividend of NOK 0.58 per share. The dividend was paid 24 October 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 major current legal disputes, please see note 6 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. Other relevant risk factors are further described in the annual report for OUTLOOK The market continues to be promising for Kvaerner s industry segments in macro terms. Kvaerner see caution in regions or projects where the commerciality is challenged and efforts and priorities are continuously adjusted to reflect market developments. The Norwegian Continental Shelf continues to be very important for Kvaerner and Johan Sverdrup is a key target. Globally, 2013 provides another year of FEEDs that opens up for new rounds of contract awards expected to be tendered for in 2014 and beyond. In addition, there are opportunities for hookup and inshore/offshore completion projects. Kvaerner experiences high activity on studies for Arctic areas and the recent discovery in the Flemish Pass Basin supports the future potential in the Arctic area offshore Canada. For 2013 Kvaerner still expects potential revenues in excess of NOK 16 billion including revenue from jointly controlled entities. Secured revenues for the rest of 2013 is approximately NOK 4 billion including contribution from jointly controlled entities. Kvaerner also has secured revenues of about NOK 13 billion for 2014 and more than NOK 9 billion for 2015 and onwards reflecting an order backlog still on a high level. In the Upstream segment, Jackets and Contractors International experience a declining order backlog. However, based on the project portfolio mix and expected project performance, gradual margin improvements should bring the segment back within the normalised EBITDA margin range in Kvaerner s main focus continues to be project execution of the current portfolio and to improve the company s competitiveness and delivery models. Oslo, 24 October 2013 The Board of Directors and President & CEO Kværner ASA 2013 Kværner ASA 7 3rd quarter 2013 report

8 FURTHER INFORMATION Investor relations: Ingrid Aarsnes, SVP Investor Relations, Kvaerner, Tel: , Mob: Media: Odd Naustdal, VP Communications, Kvaerner, Tel: , Mob: About Kvaerner: With approximately HSSE-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 2012, the Kvaerner group had consolidated annual revenues of close to NOK 11 billion and the company had an order backlog at 30 September of almost NOK 27 billion. Kvaerner was publicly listed with the ticker "KVAER" at the Oslo Stock Exchange on 8 July For further information, please visit FINANCIAL CALENDAR 2014 Fourth quarter results February 2014 Annual General Meeting April 2014 First quarter results May 2014 Second quarter results July 2014 Third quarter results October Kværner ASA 8 3rd quarter 2013 report

9 FINANCIAL STATEMENTS INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT Amounts in NOK million Q Q YTD 2013 YTD 2012 Restated 1) Total revenue and other income Operating expenses (3 216) (2 321) (9 474) (7 464) (10 269) EBITDA Depreciation and amortisation (18) (17) (51) (47) (66) Operating profit Net financial income/(expense) (13) (11) (41) (14) (39) Profit from associated companies and jointly controlled entities (3) (0) (25) (1) (7) Profit before tax Income tax expense (48) (33) (118) (110) (130) Net profit Attributable to: Equity holders of the parent company - Kværner ASA Basic and diluted earnings per share (NOK) ) Restated figures for previous periods are reflecting impacts from implementing IAS 19R Employee Benefits. Please refer to note 8 for details. INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Amounts in NOK million Q Q YTD 2013 YTD 2012 Restated 1) Net profit/(loss) for the period Items that may be reclassified to profit or loss in subsequent periods: Cash flow hedges, net of tax - Fair value adjustment recognised in equity (2) (8) 16 (16) (10) - Reclassified to profit or loss (6) Translation differences, foreign operations (18) (45) 84 (19) (50) Items that may be reclassified to profit or loss in subsequent periods (17) (53) 110 (33) (65) Items not to be reclassified to profit or loss in subsequent periods: Actuarial gains/(losses) on defined benefit pension plans, net of tax Items not to be reclassified to profit or loss in subsequent periods Total other comprehensive income, net of tax (17) (53) 110 (33) (22) Total comprehensive income 67 (5) Attributable to Equity holders of the parent company - Kværner ASA 67 (5) ) Restated figures for previous periods are reflecting impacts from implementing IAS 19R Employee Benefits. Please refer to note 8 for details Kværner ASA 9 3rd quarter 2013 report

10 INTERIM CONDENSED CONSOLIDATED BALANCE SHEET Amounts in NOK million Restated 1) Restated 1) 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 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 (94) (215) (204) 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 Provisions Total current liabilities Total equity and liabilities ) Restated figures for previous periods are reflecting impacts from implementing IAS 19R Employee Benefits. Please refer to note 8 for details Kværner ASA 10 3rd quarter 2013 report

11 INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY Amounts in NOK million Total paid in capital Retained earnings Other reserves Total equity Equity as of 31 December 2011, as previously reported (133) Impact of implementing IAS 19R, net of tax 1) - - (49) (49) Equity as of 1 January 2012, restated (182) Profit for the period Other comprehensive income - - (33) (33) Total comprehensive income (33) 149 Change in treasury shares Employee share purchase programme - (5) - (5) Dividend - (269) - (269) Equity as of 30 September 2012, restated 1) (215) Profit for the period 1 October to 31 December 1) Other comprehensive income 1) Total comprehensive income Employee share purchase programme - (1) - (1) Dividend - (142) - (142) Equity as of 31 December 2012, restated 1) (204) Profit for the period Other comprehensive income Total comprehensive income Change in treasury shares - (1) - (1) Employee share purchase programme - (3) (3) Dividend - (148) - (148) Equity as of 30 September (94) ) Restated figures for previous periods are reflecting impacts from implementing IAS 19R Employee Benefits. Please refer to note 8 for details. INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Amounts in NOK million Q Q YTD 2013 YTD 2012 Restated 1) EBITDA Taxes paid (11) (1) (89) (165) (284) Changes in other operating assets and liabilities (542) 209 (431) (644) (943) Cash flow from operating activities (386) 317 (88) (455) (748) Capital expenditure (69) (120) (130) (175) (217) Proceeds from sale of assets and operations Cash flow from other investing activities (2) 13 (4) 9 16 Cash flow from investing activities (72) (10) (133) (68) (91) Dividends 0 - (148) (269) (412) Cash flow from other financing activities (7) 3 (41) (23) (69) Cash flow from financing activities (7) 3 (189) (292) (481) Translation adjustments 1 (4) (29) Net increase/(decrease) in cash and bank deposits (465) 306 (388) (769) (1 349) Cash at the beginning of the period Cash at the end of the period ) Restated figures for previous periods are reflecting impacts from implementing IAS 19R Employee Benefits. Please refer to note 8 for details Kværner ASA 11 3rd quarter 2013 report

12 SEGMENT INFORMATION For segment reporting, effective as from 1 January 2013, management receives financial information that includes activities of certain jointly controlled entities as if they were proportionately consolidated. Under IFRS as adopted by the European Union, Kvaerner accounts for jointly controlled entities using the equity method, presenting its share of the net results as a component of Other income when closely related to Kvaerner s operating activities. The historical segment information has been restated for this change. Upstream Downstream & Industrials Group activities and eliminations Consolidated Amounts in NOK million Q Q Restated 1) Q Q Q Q Restated 1) Q Q External revenue and other income (1 014) (187) Internal revenue (5) (17) - - Total revenue and other income (1 019) (203) EBITDA (14) 46 (17) (37) Depreciation and amortisation (16) (14) (2) (2) - (0) (18) (17) EBIT (16) 44 (17) (37) Upstream Downstream & Industrials Group activities and eliminations Consolidated Amounts in NOK million YTD 2013 YTD 2012 Restated 1) YTD 2013 YTD 2012 YTD 2013 YTD 2012 Restated 1) External revenue and other income (2 361) (519) Internal revenue (42) (55) - - Total revenue and other income (2 403) (574) EBITDA (24) 55 (55) (115) Depreciation and amortisation (45) (40) (6) (6) - (0) (51) (47) EBIT (30) 48 (55) (115) Net current operating assets (539) (1 401) (30) (45) (30) (840) YTD 2013 YTD 2012 Upstream Downstream & Industrials Group activities and eliminations Consolidated Amounts in NOK million Restated 1) Restated 1) Restated 1) External revenue (880) Internal revenue 72 6 (79) - Total revenue and other income (959) EBITDA (134) 479 Depreciation and amortisation (57) (8) (1) (66) EBIT (135) 413 Net current operating assets (1 009) 596 (101) (514) 1) Restated figures for previous periods are reflecting impacts from implementing IAS 19R Employee Benefits. Please refer to note 8 for details. Included in third quarter and full year 2012 EBITDA is a net positive effect of NOK 42 million from divestment of EPC Center Houston operations Kværner ASA 12 3rd quarter 2013 report

13 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 in the Annual accounts 2012, except for the adoption of new standards and interpretations effective as of 1 January The group has adopted revised IAS 19 Employee Benefits and amendments to IAS 1 Presentation of Financial Statements. Amended IAS 1 affects presentation of comprehensive income only, where items must be split between those that may be reclassified to profit or loss and those which will remain in equity. See note 8 for details related to adoption of revised IAS 19. 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 consolidated financial statements for Kværner ASA. The consolidated financial statements for Kvaerner for the year ended 31 December 2012 are available upon request from the company s registered office at Drammensveien 264, 0283 Oslo, Norway or at The interim financial statements have not been subject to audit. 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. In preparing these condensed consolidated interim financial statements, significant judgements made by management in applying the group's accounting policies and key sources of uncertainty in the estimates were consistent with those applied for the period ended 31 December Kværner ASA 13 3rd quarter 2013 report

14 Note 4 Financial items Amounts in NOK million Q Q YTD 2013 YTD 2012 Restated Net interest income/(expense) (13) (8) (41) (18) (28) Profit/(loss) on foreign currency contracts Net foreign exchange gain/(loss) (1) (2) (2) (0) (7) Other financial items, net 0 (1) 1 0 (8) Net financial income/(expense) (13) (11) (41) (14) (39) Note 5 Share capital and equity 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 Q YTD 2013 YTD 2012 Shares issued Effect of own shares held (1 141) (480) (520) (293) (220) 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 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 recognised provisions. The disputes and litigation proceedings are continuously monitored and reviewed, and recognised provisions are adjusted to reflect management s best assessment of most recent facts and circumstances. Litigation and arbitration costs are recognised as they occur. Significant, current disputes In 2011, arbitration was initiated against Longview and Foster Wheeler North America Corp. related to the Longview project delivered in Longview Power LLC, the owner of the Longview Power Plant in Maidsville, West Virginia, filed for protection under Chapter 11 of the United States Bankruptcy Code in August The initiated Chapter 11 process will interfere with Kvaerner s claims and will lead to subsequent delays in the cost recovery. In 2012, arbitration related to the on-going Nordsee Ost project was filed. The arbitration process for the project will take more time than earlier anticipated due to high complexity. Resolution has been delayed and the arbitration will not be finalised in Based on current status of both on-going proceedings there is no change in expected financial outcome. 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 parties The largest shareholder of Kværner ASA, Aker Kværner Holding as, is controlled by Aker ASA (70 percent) which in turn is controlled by Kjell Inge Røkke and his family through TRG Holding AS and The Resource Group AS. In accordance with IAS 24, 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 Kværner ASA 14 3rd quarter 2013 report

15 Kvaerner believes that all transactions with related parties have been based on arm's length terms. The table below gives an overview of aggregated transactions and balances with related parties. Amounts in NOK million YTD 2013 YTD 2012 Revenue Operating expenses (94) (61) Net interest income/(expense) 2 - Interest bearing loans Trade and other receivables Trade and other payables 11 1 On 23 April 2013 Kvaerner signed an agreement with Fornebuporten AS for a long term lease for Kvaerner s new headquarters at Fornebu, scheduled for completion in second quarter The lease contract is for approximately square metres at market terms. The term of the agreement is 12 years with options for five plus five years. Fornebuporten AS is owned by Aker ASA, and the lease agreement is therefore a related party transaction. Note 8 Implementation of revised IAS 19 Employee Benefits As of 1 January 2013 Kvaerner has adopted the revised IAS 19 Employee Benefits with retrospective application. The revised standard requires immediate recognition of actuarial gains and losses in other comprehensive income and the corridor method can no longer be used. Expected return on plan assets will be calculated using the same interest rate as applied for discounting the pension obligation. In addition, net interest for plan assets and liabilities are recognised within financial items. Following the revised accounting standard the financial statements for 2012 have been restated as follows (impacted reported lines only): Amounts in NOK million YTD 2012 Reported Effect of restatement YTD 2012 Restated Reported Effect of restatement Restated CONDENSED CONSOLIDATED INCOME STATEMENT Operating expenses (7 464) - (7 464) (10 275) 6 (10 269) EBITDA Net financial income/(expense) (14) - (14) (31) (8) (39) Profit before tax (2) 367 Income tax expense (110) - (110) (131) 1 (130) Net profit (1) 237 Basic and diluted earnings per share (NOK) (0.01) 0.88 CONDENSED CONSOLIDATED STATEMENT OF COMRPREHENSIVE INCOME Net profit/(loss) for the period (1) 237 Actuarial gains/(losses) on defined benefit pension plans Total other comprehensive income, net of tax (33) - (33) (65) 43 (22) Total comprehensive income CONDENSED CONSOLIDATED BALANCE SHEET Deferred tax assets Other non-current assets (including pension funds) 34 (13) (16) 31 Total assets (13) Total equity (49) (8) Employee benefit liabilities (6) 171 Total equity and liabilities (13) Kværner ASA 15 3rd quarter 2013 report

16 Note 9 Quarterly historical information Amounts in NOK million Q Q Q Q ) Q ) Q ) Total revenue and other income Upstream Downstream & Industrials EBITDA Upstream Downstream & Industrials (14) (2) (8) EBITDA margin 4.9 % 4.5 % 3.5 % 4.3 % 4.5 % 2.8 % Upstream 4.8 % 4.7 % 3.8 % 4.5 % 4.6 % 4.6 % Downstream & Industrials (4.7%) (0.7%) (3.1%) 2.7% 10.4% 0.9% Net profit Basic and diluted earnings per share (NOK) Order intake 2) Upstream Downstream & Industrials Order backlog 2) Upstream Downstream & Industrials NCOA (30) (579) (85) (514) (840) (432) Upstream (539) (1 049) (633) (1 009) (1 401) (1 113) Downstream & Industrials Net interest bearing deposits and loans ) Please refer to note 8 for details related to restated figures for previous periods. 2) Including scope of work of jointly controlled entities closely related to Kvaerner s operating activities Kværner ASA 16 3rd quarter 2013 report