Your Global Energy Partner. Annual Report Burmeister & Wain Scandinavian Contractor A/S Burmeister & Wain Scandinavian Contractor A/S

Transcription

1 Your Global Energy Partner Annual Report 2012 Burmeister & Wain Scandinavian Contractor A/S Burmeister & Wain Scandinavian Contractor A/S

2 Contents Company Information 3 Group Chart 4 Financial Highlights 5 Management s Report 6 Management s Statement 11 Independent Auditors Report 12 Profit and Loss Account 13 Balance Sheet 14 Statement of Changes in Equity 16 Cash Flow Statement 17 Accounting Policies 18 Notes 24 2 Delimara Power Station, Malta

3 Company Information Burmeister & Wain Scandinavian Contractor A/S Gydevang 35 DK-3450 Allerød Telephone: Telefax: Website: CVR no: Board of Directors: Torkil Bentzen, Chairman Katsuhisa Ohno, Deputy Chairman Yuji Kozai Michael Hedegaard Lyng Iain Miller Birgit Svensson *) Lars Ellegaard *) Willy S. Henriksen *) *) Elected by employees Executive Management: Anders H. Jensen, Chief Executive Officer Shareholders holding more than 5% of the share capital or the voting rights: MESCO Denmark A/S, which is owned by Mitsui Engineering & Shipbuilding Co., Ltd., Tokyo, Japan Auditors: KPMG Statsautoriseret Revisionspartnerselskab Bankers: Danske Bank A/S 33 rd Financial Year This is an English translation of the Danish Annual Report. In case of any discrepancy between these, the Danish Annual Report prevails. Front page: West Sunrise Plant, Grand Bahama 3

4 group chart Burmeister & Wain Scandinavian Contractor A/S * Subsidiaries Nominal DKK 150,000,000 BWSC Mindanao Inc. The Philippines Nominal PHP 50,000,000 BWSC Lanka (Private) Ltd. Sri Lanka Nominal LKR 5,000,000 BWCC Ltd. The Bahamas Nominal BSD 5,000 BWSC Panama S.A. Panama Nominal USD 10,000 BWSC Regional Services S.A. Panama Nominal USD 10, % 100% 100% 100% 100% 100% 100% 100% 100% 100% 51% BWSC Mauritius Ltd. Mauritius Nominal MUR 100,000 BWSC Cyprus Ltd. Cyprus Nominal EUR 10,000 BWSC Malta Ltd. Malta Nominal EUR 1,200 BWSC Generation ApS Denmark Nominal DKK 125,000 BWSC Kenya Ltd. Kenya Nominal KSH 200 Rabai Operation & Maintenance Ltd. Kenya Nominal KSH 200 Jointly controlled companies APOM Ltd. Jersey Nominal USD 35,000 Associated companies Rabai Power Holding Ltd. Great Britain Nominal EUR 18,483,000 Pedregal Power Company S.D.E.R.L Panama Nominal USD 8,151,133 50% 50% 25.5% 6.8% 7.6% Western Biomass Operating Company Ltd. Great Britain Nominal GBP 25,000 Asia Power (Private) Ltd. Sri Lanka Nominal USD 22,510,003 * The Parent Company BWSC A/S has branches in Great Britain and Greece. This Group overview does not include companies, which are without activity. 4

5 Financial Highlights (Group) KEY FIGURES *EUR DKK DKK DKK DKK DKK Profit and Loss Account (in millions): Net revenue 135 1,066 1,300 1,409 1,608 1,395 Gross profit Operating profit/loss Net financials Profit before tax Profit for the year Balance Sheet (in millions): Total assets 160 1,197 1,087 1, ,005 Cash, cash equivalents and securities Equity Interest-bearing debts Investments in assets per year Cash Flows (in millions): From operating activities From investing activities From financing activities Employees (Number): Average number of full-time employees Of which employed by the Parent Company FINANCIAL RATIOS % % % % % Gross margin Profit margin Return on investments Solidity Return on equity Except from the profit margin, which according to the custom of the sector has been calculated as the result before tax proportional to the turnover, the ratios have been prepared in accordance with the Recommendations and Financial Ratios 2010 issued by the Danish Society of Financial Analysts. * The key figures are translated at the year-end EUR exchange rate of 7,

6 Management S Report Financial Result The net revenue for the BWSC Group was DKK 1,066 million (DKK 1,300 million in 2011). The decrease in net revenue from 2011 is mainly a consequence of the order intake, which was significantly lower than in previous years and expected for the year. The revenue was divided between power plant contracts totalling DKK 630 million (DKK 934 million) and contracts for operation, service and maintenance, totalling DKK 436 million (DKK 366 million). The entire revenue is derived from export. The gross profit was DKK 186 million (DKK 175 million) and the operating profit increased by DKK 4 million to DKK 57 million. When adding the net financials and the result of capital shares in associated companies, the result before tax was DKK 71 million (DKK 75 million), while the result after tax was DKK 57 million (DKK 57 million). The order intake for BWSC in 2012 was lower than anticipated, which influences the result negatively. However, the execution of the already obtained EPC orders and service orders intake has contributed positively to the result, which is considered satisfactory. The profit ratio was 7% (6% in 2011), while the solidity ratio decreased to 50% compared to 53% the year before. The average return on equity yielded 10% against 10% in Activities in 2012 The BWSC Group is a leading supplier in the world market for construction of large turnkey power plants based on diesel and biomass fuels. In 2012 BWSC was successful in obtaining an EPC contract for construction of a 63 MW diesel power plant in Suriname. In addition, BWSC s service division has obtained a significant number of new orders. In addition to the work being initiated on the above orders, activities have continued on the existing orders, which include the construction of diesel power plants in Malta, Mauritius and the Bahamas. These projects have been delivered to the clients during Furthermore, work has continued on the Sleaford Biomass project in the United Kingdom and on a number of service orders. Rabai Power Station, Kenya 6

7 BWSC s activities in 2012 follow the Company s general strategy, which includes: Construction and delivery of turnkey power plants and renewable energy power plants Services in connection with long-term operation and maintenance contracts for power plants, delivery of trans mission lines, and services such as spare parts, extended training programs and power plant rehabilitation Development of new Power Plant and Independent Power Producer (IPP) companies, which is anticipated to be followed by capital investments in the companies. This development includes all commercial and financial agreements as well as agreements with local authorities. In 2012, 59% (72%) of the turnover came from construction of power plants, and 41% (28%) came from operation, service and maintenance contracts, etc., including service contracts in Panama, the Bahamas, Bermuda, Cyprus, and Barbados and operation contracts in the UK, Kenya and Sri Lanka. Contracts and Orders in Hand During 2012, the Group entered into contracts worth DKK 616 million (DKK 1,942 million) and the order backlog by the end of 2012 was DKK 1,426 million (DKK 1,735 million). receivables of the Group were DKK 196 million (DKK 191 million). The major part of the Company s cash funds are placed in short-term deposits. A smaller part is placed in Danish government bonds. The cash reserves for the Group are considered sound. In 2012, cash flows from operating activities amounted to DKK 135 million (DKK 40 million), while cash flows from investment activities amounted to DKK 12 million (DKK -2 million). Cash flows from financing activities amounted to DKK - 29 million (DKK -58 million) mainly from dividend payment of DKK 27 million (DKK 55 million). Events after Balance Sheet Date No important events have taken place after the close of the financial year, which may have a significant impact on the position of the Company. Western Wood Biomass Plant, UK BWSC s order intake is cyclical by nature, and Management has focus on the decrease in the volume of orders. In view of the anticipated order intake in 2013, it is expected that the volume of orders will increase to a satisfactory level at year end Capital Structure BWSC s capital structure is unchanged compared to 2011, as the share capital at 31 December 2012 totalled DKK 150 million. The equity amounts to DKK 603 million (DKK 574 million), corresponding to a solidity ratio of 50% (53%). BWSC s Japanese parent company Mitsui Engineering & Shipbuilding Co., Ltd. (MES) owns the total share capital through its Danish subsidiary MESCO Denmark A/S. Capital Resources In 2012, the cash funds and securities of the BWSC Group increased by DKK 112 million to DKK 831 million, while the 7

8 Knowledge Resources BWSC has continuous focus on attracting qualified employees who can support the company s growth in general, not least in areas within renewable energy plants and project development. Internally, BWSC concentrates on developing employees through job rotation and education. In 2012, the average number of full-time employees in the Group was 424, which is 12 employees less than the year before. 251 persons were employed by the Parent Company compared to 254 in 2011, while 173 persons were employed by subsidiaries, compared to 182 in The average age of the employees of the Parent Company is 46 years. 35% of these have worked with BWSC for more than 10 years. 43% of the employees of the Parent Company hold a Bachelor s degree or similar, while 19% have an academic degree, such as a Master s or PhD degree. 85 employees are engineers and 44 are marine engineers. Sickness absence in 2012 was 1.7% (2.0%) of the standard time (excluding employees on long-term sick leave), and the rate of employee revenue was 11% (16%). CSR Policy BWSC is constantly striving to integrate its responsibilities towards employees, customers and coorperation partners with the implementation of the company s projects in all countries and regions. BWSC has a major focus on securing a safe working environment for the company s employees and local employees. In order to meet the high demands for health and safety, BWSC has established policies for these areas, which are adhered to in all areas of the company s activities. Specific statements of Lost Time Accidents (LTA) for ongoing projects in 2012 display that BWSC s LTA by the end of 2012 was 0.13%. BWSC has an ambition to reduce the LTA %. It is important to BWSC, that the utmost consideration of the environment is included when carrying out the company s activities. BWSC has constant focus on developing exhaust gas cleaning facilities, which remove dangerous and malicious particles from the power plant exhaust gas. In 2012 BWSC has delivered a power plant in Malta, which included exhaust gas cleaning facilities. Furthermore, BWSC is working with construction of power plants based on renewable energy sources, such as woodchips and straw and construction of a straw fired power plant in the UK has continued in fighting corruption and bribery. BWSC s employees, suppliers, local advisors, etc. are informed of the Code of Conduct and must confirm that it will be adhered to. BWSC s adherence to the Code of Conduct is verified periodically by an external independent party. Special Risks BWSC s earnings derive from three main areas: Construction contracts for power plants Service, spare parts sale and full operational responsibility contracts for power plants Development of power plant projects and related capital investments. Sale and construction contracts for power plants are individual orders with possibility for later repeats. The Company s dedicated efforts in the market for service and maintenance contracts have successfully reduced the effects of the usually uneven order intake and revenue recognition for power plant contracts. Due to the worldwide activities of the Company, the results, cash flow and equity positions are affected by the development of exchange and interest rates of a number of currencies. It is company policy to hedge commercial currency risks for contracts, while currency risks for investments in subsidiaries and associated companies abroad are normally not hedged. The Parent Company undertakes this task as well as the Group s cash management. In respect of the project supplies, the hedging of the net cash flow of each project is covered per currency. The Company views the EUR as a stable currency against DKK, for which reason EUR net positions are not hedged, cf. note 13 of the Financial Statements. The mortgage loan obtained in DKK is the only significant interest-bearing debt.. BWSC has established a Code of Conduct, which aims at 8

9 BWSC has many years of experience of conducting business in markets outside Europe, in developing countries of varying political stability as well as in developed countries - and usually of small geographical sizes, including island societies. The comprehensive experience of the Group and its employees with engineering, construction and servicing of power plants in the export markets contributes to reducing the risks of the Group considerably when implementing contracts. Nevertheless, large construction contracts and related contracts with sub suppliers do from time to time give rise to disputes, etc. Through a careful evaluation, contingencies are allocated to close such disputes when calculating the contribution margin for work and progress and obligations in relation to completed contracts. In connection with BWSC s global activities, the Company is focused on establishing the correct tax and VAT setup for the local activities, and this is always performed in coorperation with local advisers within audit and legal. The local company establishments and the local tax- and VAT treatment is from time to time subject to ordinary tax audits from local tax authorities. Such tax audits are normally carried out in coorporation with both advisers and the local tax authority. In 2012 a tax case in Portugal was closed following a ruling in favour of BWSC. As per 31 December 2012 a number of enquiries are ongoing, which are not expected to have a material effect for the Group. Development Activities Via the role of turnkey supplier, BWSC has developed from an engineering company supplying parts for power plants into a company developing and investing in power plant companies and IPP companies as well, also in connection with privatization and/or power plant extensions. BWSC has developed Combined Heat and Power, Biomass and Biogas Plants in Europe and continuously assesses market possibilities and technology development within renewable energy and small waste incineration plants. In addition to these activities, BWSC conducts a constant technical and conceptual development program together with ongoing improvement of all operations and business areas. This also includes continued development of an ERP system, which was implemented in BWSC in Specific ERP modules or separate systems are integrated into the ERP system in order to secure further efficiency gains. Depreciation of the ERP system is done over seven years. Installation of underground piping, Suriname The External Environment It is BWSC s policy to comply with all relevant standards and regulations relating to the tasks solved in the countries and societies in which the Group conducts its business. Diesel engines installed by BWSC can be adapted to use a large variety of alternative fuels, such as natural gas and vegetable oils. The Company also participates in environmental protection projects, for instance the reduction of NOx- (nitrogen oxides), SOx- (sulphur oxides) and particle emission, besides further improvement of the plants efficiency leading to corresponding lower CO2 emissions. The domestic activities of the Company are of a knowledgebased nature with no traditional production of goods, and it is considered that these activities do not have an impact on the external environment. 9

10 Ownership Originally, BWSC was a part of the Burmeister & Wain Group, and the Company was established as an independent company in Since 1990, BWSC has been a wholly-owned subsidiary of Mitsui Engineering & Shipbuilding Co., Ltd. (MES) through its Danish subsidiary MESCO Denmark A/S. The cooperation between MES and the B&W Group dates back to 1926, when MES entered into its first license agreement with Burmeister & Wain A/S as the first of now many global manufacturers of MAN diesel engines. MES is listed on the Tokyo stock exchange, and the Group s activities include the manufacture of industrial plants, ships, diesel engines and gas and steam turbines and cranes. Furthermore, through ownership of MODEC, MES activities also include development and production of highly specialised offshore equipment for use in the oil and gas industry. In the fiscal year of 2011/2012, the MES Group, which BWSC is a part of, had a revenue corresponding to approximately USD 7,000 million. The MES Group employs approximately 10,000 persons. Expectations to the future BWSC is confident that a number of project opportunities will turn into effective contracts during 2013 and in combination with the order backlog, the result for 2013 will be positive, however at an expected level lower than the result for Closing Remarks The Board of Directors and the Management express their thanks to customers, cooperation partners and employees, who through good teamwork and dedicated efforts have all contributed to an efficient project execution and to the result for the Company in Miraflores Power Station, Panama 10

11 Management s Statement Today, the Executive Management and Board of Directors have discussed and adopted the Annual Report for 2012 of Burmeister & Wain Scandinavian Contractor A/S. The Annual Report has been prepared in accordance with the Danish Financial Statements Act. In our opinion, the Financial Statements give a true and fair view of the Group s assets, liabilities and financial position at 31 December 2012, as well as of the results of the Group s and the Company s operations and the Group s consolidated cash flows for the financial year ended 31 December gives a true and fair view of the development in the Group s and the Company s operations and economic conditions, the year s result and of the Group s and the Company s financial position. It is recommended that the Annual Report be approved at the Annual General Meeting. Allerød, 28 February 2013 In addition, it is our opinion, that the Management Report executive Management Anders H. Jensen Chief Executive Officer Board of Directors Torkil Bentzen Katsuhisa Ohno Yuji Kozai (Chairman) (Deputy Chairman) Michael Hedegaard Lyng Iain Miller Birgit Svensson*) Lars Ellegaard*) Willy S. Henriksen*) The Annual Report is adopted at the Annual General Meeting of Shareholders on 28 February Chairman *) Elected by employees 11

12 INDEPENDENT Auditors Report To the Shareholders of Burmeister & Wain Scandinavian Contractor A/S Independent auditors report on the consolidated financial statements and the parent company financial statements We have audited the consolidated financial statements and the parent company financial statements of Burmeister & Wain Scandinavian Contractor A/S for the financial year 1 January 31 December The consolidated financial statements and the parent company financial statements comprise accounting policies, profit and loss account, balance sheet, statement of changes in equity and notes for the Group as well as for the parent company and consolidated cash flow statement. The consolidated financial statements and the parent company financial statements are prepared in accordance with the Danish Financial Statements Act. Management s responsibility for the consolidated financial statements and the parent company financial statements Management is responsible for the preparation of consolidated financial statements and parent company financial statements that give a true and fair view in accordance with the Danish Financial Statements Act and for such internal control that Management determines is necessary to enable the preparation of consolidated financial statements and parent company financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on the consolidated financial statements and the parent company financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing and additional requirements under Danish audit regulation. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the consolidated financial statements and the parent company financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements and the parent company financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements and the parent company financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the Company s preparation of consolidated financial statements and parent company financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the consolidated financial statements and the parent company financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our audit has not resulted in any qualification. Opinion In our opinion, the consolidated financial statements and the parent company financial statements give a true and fair view of the Group s and the parent company s financial position at 31 December 2012 and of the results of the Group s and the parent company s operations and consolidated cash flows for the financial year 1 January 31 December 2012 in accordance with the Danish Financial Statements Act. Statement on the Management s Review Pursuant to the Danish Financial Statements Act, we have read the Management s review. We have not performed any further procedures in addition to the audit of the consolidated financial statements and the parent company financial statements. On this basis, it is our opinion that the information provided in the Management s review is consistent with the consolidated financial statements and the parent company financial statements. Copenhagen, 28 February 2013 KPMG Statsautoriseret Revisionspartnerselskab Lars Rhod Søndergaard State Authorised Public Accountant Niels Vendelbo State Authorised Public Accountant 12

13 Profit and loss account (In DKK thousands) Parent Company note ,001, ,887 1 Net revenue 1,065,692 1,299, , ,169 Costs of production -879,252-1,124, , ,718 gross profit 186, ,022-34,754-39,535 Sales costs -39,499-33,179-78,847-78,801 Administrative costs -89,781-89,154 14,747 23,382 operating profit/loss 57,160 52,689 Profit on investments 22,995 21,413 5 in subsidiaries 0 0 Profit on investments 15,241 15,840 5 in associated companies 15,840 15,241 Profit before 52,983 60,635 non-operating items 73,000 67,930 15,309 7,422 Financial income 9,277 18,611-6,194-7,229 Financial costs -10,834-11,069 62,098 60,828 profit before tax 71,443 75,472-8,925-7,215 2 Tax on profit for the year -14,405-18,562 53,173 53,613 profit for the year 57,038 56,910 Minority interests -3,425-3,737 The Parent Company s share of profit for the year 53,613 53,173 It is recommended that the profit for the year, DKK 53,613 thousands, is appropriated as follows: Parent Company Proposed dividend 26,500 Transferred to net revaluation reserves 37,919 Retained profit -10,806 53,613 Pointe Monnier Power Station, Mauritius 13

14 Balance Sheet Assets (In DKK thousands) Parent Company note ,183 24,190 Software 24,190 27,183 27,183 24,190 3 Intangible assets 24,190 27,183 75,420 72,908 Land and buildings 72,908 75,420 Fixtures and fittings, 3,705 3,917 tools and equipment 4,424 4,956 79,125 76,825 4 Tangible fixed assets 77,332 80,376 39,878 49,360 Investments in subsidiaries 0 0 Investments in 66,368 61,977 associated companies 61,977 66,368 1,499 1,499 Other securities 1,499 1, , ,836 5 Financial fixed assets 63,476 67, , ,851 total fixed assets 164, , ,934 Raw materials and consumables 4, ,934 Inventories 4, ,000 94,306 Trade debtors 109,894 75,903 58,024 33,169 6 Contract work in progress 34,835 57,354 Amounts owed by 94,813 9,406 related companies 2,298 17,265 Amounts owed by 6,567 2,943 associated companies 6,990 7, Receivable corporate taxes , Receivable joint taxation contribution 274 8,806 9,558 34,852 Other debtors 39,548 21,330 2,615 1,390 Prepayments 1,690 2, , ,496 Debtors 196, , ,736 73,125 Bonds 73, , ,736 73,125 securities 73, , , ,812 Cash and cash equivalents 757, , , ,367 total current assets 1,031, ,081 1,060,588 1,194,218 TOTAL ASSETS 1,196,611 1,086,507 14

15 Balance Sheet EQUITY AND Liabilities (In DKK thousands) Parent Company note , ,000 Share capital 150, ,000 Net revaluation reserve 33,378 52,114 acc. to the equity method 7, ,903-5,287 Reserves for financial instruments -5,287-12, , ,843 Retained earnings 422, ,167 26,500 26,500 Proposed dividend 26,500 26,500 equity owned by shareholders of 572, ,170 BWSC A/S 601, ,764 Minority interests 1,831 1,719 Equity 603, ,483 35,563 26,495 7 Deferred tax 26,124 35,164 20,872 34,365 Warranty provisions 34,365 20,872 16,253 78,391 8 Other provisions 89,055 16,253 72, ,251 provisions 149,544 72,289 34,358 31,288 9 Mortgage debt 31,288 34,358 34,358 31,288 long-term liabilities 31,288 34,358 2,905 3,042 Mortgage debt, short-term 3,042 2, , ,584 6 Prepayments received from customers 279, , ,929 70,259 Trade creditors 72, ,886 4,373 24,656 Payables to related companies 3, Payables to associated companies Corporate tax 2,815 2,199 67,312 46, Other creditors 50,440 72, , ,509 Current liabilities 412, ,377 total long-term and 415, ,797 current liabilities 444, ,735 1,060,588 1,194,218 TOTAL EQUITY AND LIABILITIES 1,196,611 1,086,507 Engine room, West Sunrise Plant, Grand Bahama 15

16 statement OF CHANGES IN EQUITY (In DKK thousands) Parent Company Net revalua- Financial share tion instru- Retained Dividend capital reserve ments earnings proposed Total Balance at 1 January ,000 33,378-12, ,789 26, ,764 Dividends paid ,500-26,500 Profit for the year 0 37, , ,613 Proposed dividend for ,500 26,500 0 Changes in financial instruments , ,155 Tax on changes in equity 0 0-2, ,539 Changes in equity related to subsidiaries and associated companies 0-17, , ,991 Exchange rate differences related to subsidiaries and associated companies 0-1, ,332 Equity at 31 December ,000 52,114-5, ,843 26, ,170 There have been no changes in the share capital during the last 5 years. Balance at 1 January , , ,167 26, ,764 Dividends paid ,500-26,500 Profit for the year 0 12, , ,613 Proposed dividend for ,500 26,500 0 Changes in financial instruments , ,155 Tax on changes in equity 0 0-2, ,539 Changes in equity related to subsidiaries and associated companies 0-4, ,991 Exchange rate differences related to subsidiaries and associated companies ,332 Equity owned by shareholders of BWSC A/S at 31 December ,000 7,420-5, ,537 26, ,170 Minority interests , ,831 Equity at 31 December ,000 7,420-5, ,368 26, ,001 16

17 Cash flow statement (In DKK thousands) Note Operating profit 57,160 52,689 Adjustments 16 92,624-11,991 Changes in working capital 17 3,720 2,279 Cash flows from operating activities before net financials 153,504 42,977 Financial income 9,277 18,611 Financial costs -10,692-9,091 Cash flows from ordinary activities 152,089 52,497 Taxes paid -16,684-12,982 Cash flows from operating activities 135,405 39,515 Additions of tangible assets -2,415-2,223 Additions of intangible assets -2,098-8,764 Dividends received from associated companies 3,627 3,545 Disposals of investments in associated companies 13,200 5,136 Cash flows from investing activities 12,314-2,306 Repayment of mortgage debt -2,933-2,792 Dividends distributed -26,500-55,000 Cash flows from financing activities -29,433-57,792 Cash and cash equivalents at beginning of year 719, ,975 Exchange rate adjustments -6,668-2,246 Changes in cash and cash equivalents 118,286-20,583 Cash and cash equivalents at year-end 830, ,146 The cash flow statement cannot be derived directly from the Profit and Loss and Balance Sheets. Cash and equivalents at year-end can be specified as follows: Bonds 73, ,736 Cash and cash equivalents 757, ,410 Cash and cash equivalents at year-end 830, ,146 17

18 Accounting Policies General The Annual Report of Burmeister & Wain Scandinavian Contractor A/S has been presented in accordance with the provisions of the Danish Financial Statements Act for large reporting Class C enterprises. The accounting policies are consistent with those of last year. Significant management estimates and assumptions In preparing the Annual Report of the BWSC Group, Management has made a number of estimates and assumptions which affect the recognised assets and liabilities and Profit and Loss Account. The most significant management estimates and assumptions relate to: Calculation of the expected contribution margin relating to contract work in progress, including estimates of the potential financial impact of project risks, disputes, warranty costs, etc. Statement of percentage of completion for contract work in progress Warranty provisions and completion and settlement of completed contracts, including profit or loss on any outstanding claims from or against customers, partners and subcontractors. As part of the assessment of ongoing and completed contracts, a number of project-related risks are taken into account, including performance, quality, claims raised and delay of projects in respect of which assessments and provisions have been made based on Management s estimates. Management bases its estimates on historical experience, legal opinions and other assumptions as deemed appropriate at the given time. Actual results may differ from this over time, and deviations may be material. Recognition and measurement in general Assets are recognised at the balance sheet, when it is probable that future economic benefits associated with the assets will flow to the Company and the cost of the assets can be measured reliably. Liabilities are recognised at the balance sheet, when it is probable that future economic benefits associated with the liabilities will flow from the Company and the cost of the liabilities can be measured reliably. At initial recognition assets and liabilities are measured at cost. Assets and liabilities are afterwards measured as described below for each balance sheet item. Consolidation The consolidated financial statements are prepared on the basis of audited financial statements of the parent company and each subsidiary by aggregating items of a similar nature and by eliminating intra-group income, costs and balances. Furthermore, intra-group profits and losses are eliminated. Shares in jointly controlled companies are recognised using pro rata consolidation. Intra-group profits, losses and balances are eliminated relative to the Company s investment in such companies. Any remaining balances are stated under the items Investments in associated companies and Amounts owed by associated companies. The project financial statements of international contracting activities are translated into Danish kroner as follows: The items in the Profit and Loss Account and the Balance Sheet are translated according to weighted project rates, corresponding to the exchange rates according to forward exchange contracts entered into. As the exchange rates applied are the same during the entire project period, no exchange rate differences will arise. The financial statements of international subsidiaries that are independent entities are translated into Danish kroner as follows: The items in the Profit and Loss Account are translated at average rates that do not differ materially from the exchange rates ruling at the date of transaction. Balance sheet items are translated into closing exchange rates. Exchange rate differences are taken directly to equity. The financial statements of international subsidiaries that are integrated entities are translated into Danish kroner as follows: The items in the Profit and Loss Account are translated at average rates that do not differ materially from the exchange rates ruling at the date of transaction. Current assets and liabilities are translated at closing exchange rates, whereas fixed assets and long-term liabilities are translated at historical rates. Exchange rate differences are recognised in the Profit and Loss Account. The items from the subsidiaries are consolidated into the Group s Financial Statements 100%. The minority interest s proportional share of the results and equities from the subsidiaries is regulated every year and is included as separate items under the Profit and Loss Account and Balance Sheet. 18

19 Foreign Currency Translation Monetary items in foreign currency are translated at the exchange rate at the transaction date. Exchange rate differences arising between the exchange rate at the transaction date and the payment date are recognised in the Profit and Loss Account. Receivables, payables and other monetary items in foreign currency, which are not paid at the balance sheet date, are translated at the exchange rate at the balance sheet date. The difference between the exchange rate at the balance sheet date and the exchange rate at the time when the receivable or payable is incurred is recognised in the Profit and Loss Account. Derivative financial instruments Derivative financial instruments are initially recognised in the Balance Sheet at cost and subsequently measured according to fair value. The fair value of derivative financial instruments is included in other debtors (positive fair value) or other creditors (negative fair value) as the case may be. Contract work and operational contracts are recognised according to the percentage-of-completion method. Profits on contracts are recognised by reference to actual stage of completion, based on an estimate allowing for both known and expected additional costs. In connection with joint ventures, only the Group s share is taken into account. Stage of completion is determined on the basis of an assessment of the work carried out, evaluated on the basis of 6 indicators for the stage completion, including among others hours incurred in relation to the total budgeted hours, predisposed costs in the projects different phases compared to the total estimated costs of the relevant phases and final delivery of the project. Realised profits on completed contracts are recognised net of provisions for necessary warranties. Income from spare part contracts is recognised when invoiced. Changes in the fair value of derivative financial instruments that hedge the fair value of already recognised assets or liabilities are recognised in the profit and loss account under financial income or financial costs together with changes in the value of the assets and liabilities hedged. Derivative financial instruments used to hedge expected future transactions regarding specific projects or interest payments are measured at fair value on the balance sheet date, and value adjustments are recognised directly in the equity until the hedged item is realised. When the hedged item is realised, the changes in value are recognised in the same accounting entry as the hedged item, as stated above by transferring the changes in value from the equity to the Profit and Loss Account. Derivative financial instruments which are not held for hedging purposes regarding specific projects or interest payments are recognised in the Balance Sheet at fair value on the balance sheet date. Value adjustments are recognised in the Profit and Loss Account under financial income and financial costs. PROFIT AND LOSS ACCOUNT Net Revenue The Company s net revenue is derived from contract activities, service contracts etc. Cativá Power Station, Panama 19

20 PROFIT AND LOSS ACCOUNT Net Revenue The Company s net revenue is derived from contract activities, service contracts etc. Contract work and operational contracts are recognised according to the percentage-of-completion method. Profits on contracts are recognised by reference to actual stage of completion, based on an estimate allowing for both known and expected additional costs. In connection with joint ventures, only the Group s share is taken into account. Stage of completion is determined on the basis of an assessment of the work carried out, evaluated on the basis of 6 indicators for the stage completion, including among others hours incurred in relation to the total budgeted hours, predisposed costs in the projects different phases compared to the total estimated costs of the relevant phases and final delivery of the project. Realised profits on completed contracts are recognised net of provisions for necessary warranties. Income from spare part contracts is recognised when invoiced. Costs of Production Costs of production comprise expenses, including wages and salaries and depreciation made for purposes of generating the year s net revenue, including direct and indirect costs related to raw materials and consumables, wages and salaries, rent and leases and depreciation. Research costs, development costs that do not qualify for capitalisation and depreciation of capitalised development costs, are recognised under production costs. Write-downs in connection with expected losses on contract activities are recognised as costs of production. Sales Costs Costs related to offers and orders, etc. are recognised, including expenses related to sales personnel, marketing, including costs for IPP project development, and internal development projects. Administrative Costs Costs related to management and group administration, including costs related to administrative officers, management, office premises, office expenses, etc. and depreciation are recognised. The administrative costs that are included in production overheads are transferred to production overheads. Net Financials Financial income and costs include interest income and costs, realised and unrealised capital gains and losses, payables and transactions in foreign currency, amortisation of financial assets and liabilities and surcharges and allowances under the advance-payment-of-tax scheme, etc. financial income and costs are recognised at the amounts relating to the reporting period. Tax The estimated tax charge for the year is recognised in the profit and loss account and is recorded as a current liability in the Balance Sheet. Non-refunded dividend tax concerning dividends from foreign subsidiaries is expensed in the year in which the dividend is declared. The Company and the Parent Company are jointly taxed. The tax of the joint taxation income is fully allocated by payment of joint taxation contributions. Deferred tax resulting from timing differences between income and expenses in the financial statements and the statement of taxable income and from tax loss carry-forwards is provided for in the Balance Sheet at 25%. Changes in the deferred tax charge for the year are taken to the Profit and Loss Account. Actual and deferred tax related to equity movements is recognised directly in equity. Intangible Fixed Assets and Property, Plant and Equipment Intangible fixed assets and property, plant and equipment are measured at cost plus subsequent additions and revaluation and less accumulated amortisation/depreciation and write-downs. Amortisation/depreciation in the year is provided on a straight-line basis over the estimated useful lives of the individual assets, using the following periods: Office building Warehouse Installations Cars Plant and equipment Fixtures and fittings IT software IT hardware 100 years 25 years 10 years 5 years 5 years 3-10 years 3-7 years 3 years 20

21 Fort Victoria Power Station, Phases I and II, Mauritius. In total 6 units with a total output of 90 MW. Delivered to Central Electricity Board (CEB) at Mauritius by BWSC A/S. Phase I was handed over in October 2010, and Phase II was handed over in July Both plants are equipped with Diesel/HFO generation units, each with a capacity of 15 MW. 21

22 Investments Investments in Subsidiaries and Associated Companies Profit and Loss Account The Company s proportionate share of the after-tax profit or loss of subsidiaries is recognised in the Profit and Loss Account after full elimination of intra-group profits and losses. The Company s proportionate share of the after-tax profit or loss of associated companies is recognised in the Profit and Loss Account after elimination of the proportionate share of intra-group profits and losses. Balance Sheet Investments in subsidiaries and associated companies are recognised in the Balance Sheet at the Company s proportionate share of the net asset value of the enterprises, calculated by reference to the accounting polices applied by the Parent Company, less or plus unrealised intra-group profits and losses. Subsidiaries and associated companies whose net asset value is negative are recognised at DKK 0, and any receivables from these enterprises are written down by the Parent Company s share of the negative net asset value. If the net asset value exceeds the receivables, the residual amount is recognised under provisions provided that the Parent Company has a legal or actual obligation to cover the subsidiaries deficits. Net revaluation of investments in subsidiaries and associated companies is taken to equity as a net revaluation reserve according to the equity method to the extent that the carrying amount exceeds the cost. Newly acquired or newly established enterprises are recognised in the financial statements from the time of acquisition. Enterprises sold or otherwise disposed of are recognised until the time of sale. Profits or losses on the sale of subsidiaries and associated companies are stated as the difference between the selling price and the carrying amount of the net assets at the time of sale and expected costs related to the sale and/or disposal. Profits and losses are recognised in the Profit and Loss Accounts under net financials. The takeover method is applied to newly acquired subsidiaries and associated companies. Thus, the assets and liabilities of such enterprises are measured at fair value at the time of acquisition. Inventories Inventories, including prepayments for goods, are measured at cost according to the FIFO principle. However, inventories are written down to the lower of cost or net realisable value. Receivables Receivables, etc. are measured at amortised cost, which usually equals the nominal value. Write-downs for bad debts are based on individual assessments of high-risk accounts receivable. Securities Securities under Current assets comprise listed bonds and shares stated at the market price at the balance sheet date. Contract Work in Progress Contract work in progress is measured by reference to the stage of completion. The market price is based on the stage of completion at the balance sheet date and the total expected income on the individual work in progress. The individual work in progress is recognised in the Balance Sheet under receivables or liabilities other than provisions, dependent on the net value of the selling price less payments on account and prepayments. Costs related to sales work and contracts are recognised in the Profit and Loss Account as incurred. Prepayments Payments, made or received concerning costs or income in subsequent years are recognised under prepayments. Provisions Provisions comprise expected remaining costs relating to delivered contracts expected costs to performance guarantees. Performance guarantees comprise commitments to repair work within the guarantee period. Provisions are measured and recognised based on previous experience with guarantee work. When it is probable that the total costs will exceed the total income on contract work in progress, a provision is made for the total loss expected to be incurred on the work. The provision is recognised as an cost under production costs. 22

23 Proposed Dividend for the Year Proposed dividend for the year is included in equity. Financial Liabilities Financial liabilities are recognised from the raising of the loan at the proceeds received net of transaction costs incurred. The financial liability is subsequently measured at amortised cost, equalling the capitalised value, using the effective interest rate method. The difference between the proceeds and the nominal value is thus recognised in the Profit and Loss Account over the loan term. Other financial liabilities, which comprise trade payables, payables to subsidiaries and associated companies and other payables, are measured at amortised cost, which usually corresponds to the nominal value. Cash Flow Statement The cash flow statement shows the Group s net cash flows for the year, broken down by operating, investing and financing activities, changes in cash and cash equivalents and the Group s cash and cash equivalents at the beginning and at the end of the year. Cash and cash equivalents comprise cash and near money securities which immediately can be converted into cash. Cash Flows from Operating Activities Cash flows from operating activities are made up as the net profit or loss for the year, adjusted for non-cash operating items, changes in working capital and paid income taxes. Cash Flows from Investing Activities Cash flows from investing activities comprise payments related to additions and disposals of enterprises and activities and additions and disposals of intangible assets, property, plant and equipment and investments. Cash Flows from Financing Activities Cash flows from financing activities comprise changes in the size or composition of share capital and related costs, raising of loans and repayments of interest-bearing debt and dividends distributed to shareholders. Key Figures Except from the Profit margin, which according to the custom of the sector has been calculated as the result before tax proportional to the revenue, the ratios have been prepared in accordance with the Recommendations and Financial Ratios 2010 issued by the Danish Society of Financial Analysts. Analysis of the ratios included in the below financial highlights: Gross margin Gross profit x 100 Net revenue Profit margin Operating profit/loss before tax x 100 Net revenue Return on Operating p/l incl. net financials x 100 investments Assets at year-end Solidity ratio Equity at year-end x 100 Total equity and liabilities at year-end Return on equity Profit after tax x 100 Average equity West Sunrise Power Station, Grand Bahama 23

24 Notes (In DKK thousands) Note 1. Net revenue Parent Company ,009 1,970,745 Final invoicing 2,490, , ,631-1,127,858 Changes in contract work in progress -1,425, ,713 1,001, ,887 1,065,692 1,299,921 Revenue for the year is divided into the following geographical segments: , ,605 South and Central America 291, ,591 58,510 52,373 Southeast Asia 61,265 68, , ,035 Africa and Middle East 299, , , ,874 Europe 413, ,804 1,001, ,887 1,065,692 1,299,921 Note 2. Tax for the year Parent Company ,302 Income tax payable 25,451 7,692 3,627-9,041 Deferred tax -8,861 3,900 3,264-2,539 Tax on changes in equity -2,539 3,264 Adjustment of tax concerning previous years ,257 1, Paid dividend tax abroad 521 1,449 8,925 7,215 14,405 18,562 Specification of effective tax rate: 25.0% 25.0% Company tax rate in Denmark 25.0% 25.0% Tax on profit in subsidiaries -11.6% -13.0% and associated companies -3.6% -2.0% Adjustment of calculated tax in 0.0% 0.0% foreign companies compared to 25% -3.1% -3.0% 0.1% 0.0% Non-deductible costs 2.3% 1.6% 0.9% -0.1% Other adjustments -0.4% 3.0% 14.4% 11.9% Effective tax rate 20.2% 24.6% 24

25 Notes (In DKK thousands) Note 3. Intangible assets Parent Company Software Software 33,269 Costs at 1 January ,269 2,098 Additions in the year ,098 0 Disposals in the year 0 35,367 Costs at 31 December ,367 6,086 Depreciation at 1 January ,086 5,091 Depreciation for the year 5,091 0 Depreciation of disposals 0 11,177 Depreciation at 31 December ,177 24,190 Book value at 31 December ,190 27,183 Book value at 31 December ,183 Depreciation for the year DKK 5.1 million is included in the administrative costs (DKK 3.8 million in 2011). Western Wood Biomass Plant, UK 25

26 Notes (In DKK thousands) Note 4. Tangible fixed assets Parent Company Fixtures and F fixtures and fittings, tools land and fittings, tools land and and equipment buildings and equipment buildings 12, ,629 Costs at 1 January , , Adjustment at 1 January , Additions in the year 2, Disposals in the year -1, , ,744 Costs at 31 December , ,744 9,017 39,209 Depreciation at 1 January ,200 39, Adjustment at 1 January ,828 2,627 Depreciation for the year 2,617 2, Depreciation of disposals ,092 41,836 Depreciation at 31 December ,744 41,836 3,917 72,908 Book value at 31 December ,424 72,908 3,705 75,420 Book value at 31 December ,956 75,420 Depreciation for the year is included in: Parent Company Production costs 1,108 1, Sales costs ,364 3,610 Administrative costs 4,040 3,454 4,341 4,455 5,244 5,268 Engine room, Pointe Monnier Power Station, Mauritius 26

27 Notes (In DKK thousands) Note 5. Financial fixed assets Parent Company Subsidiaries Associated other Associated Other Companies securities Companies Securities 5,111 67,757 1,514 Costs at 1 January ,757 1, Additions in the year ,200 0 Disposals in the year -13, ,666 54,557 1,514 Costs at 31 December ,557 1,514 Revaluations/write-downs 34,767-1, at 1 January , ,413 15,840 0 Profit share in , Exchange rate differences Distribution of dividend to Parent -9,233-3,627 0 Company -3, , Transferred to other debt ,991 0 Financial instruments -4, ,925 0 Elimination intercompany profit 1,925 0 Revaluations/write-downs 44,694 7, at 31 December , ,360 61,977 1,499 Book value at 31 December ,977 1,499 39,878 66,368 1,499 Book value at 31 December ,368 1,499 As per 31 December 2012, elimination of the proportionate share of the intercompany profit of DKK 24.2 million before tax has been deducted from the investments in associated companies. Note 6. Work in progress Parent Company ,660, ,566 Market value of production in progress 546,849 1,972,020-1,755, ,981 Invoiced on account -791,368-2,067,542-95, ,415 Contract work in progress, net -244,519-95,522 Classified as follows: 58,024 33,169 Receivables 34,835 57, , ,584 Prepayments received from customers -279, ,876-95, , ,519-95,522 27

28 Notes (In DKK thousands) Note 7. Deferred tax Parent Company ,936 35,563 Deferred tax at 1 January ,164 31, Adjustment concering previous years ,627-9,041 Deferred tax -8,861 3,914 35,563 26,495 26,124 35,164 Deferred tax can be specified as follows: 16,241 15,520 Tangible fixed assets 15,429 16,133-6,536-6,055 Financial fixed assets -6,035-6,602 55,367 19,824 Contract work in progress a.o. 19,824 55,104-2,950-2,070 Current assets -2,070-2,950-1, Provisions , Liabilities other than provisions ,823 0 Tax deficit 0-24,646 35,563 26,495 26,124 35,164 Note 8. Other provisions Provisions cover estimated remaining liabilities in connection with finalized contracts, other than warranty provi sions. Note 9. Mortgage debt Long-term debt maturing after 5 years from the end of the fiscal year amounts to DKK 19.0 million. Sleaford Renewable Energy Plant, UK 28

29 Notes (In DKK thousands) Note 10. Other creditors Parent Company ,079 24,763 Payable payroll related costs 26,860 30,282 21,129 7,901 Financial instruments 7,901 21,129 15,518 10,211 VAT payable 10,816 15,518 3,586 3,315 Other accrued costs, etc. 4,863 5,582 67,312 46,190 50,440 72,511 Note 11. Audit Fees Parent Company Audit fee Other declaration assignments Tax advisory fee Other fees ,356 1,508 2,433 2,590 Note 12. Staff costs etc. Parent Company , ,118 Wages and salaries 216, ,152 1,713 1,692 Social security costs 2,231 2, , , , ,403 Including remuneration for: Executive Management of Parent 8,063 2,612 Company 2,612 8,063 Board of Directors of Parent 1,062 1,173 Company 1,173 1,062 9,125 3,785 3,785 9, Average number of employees A bonus scheme for the Executive Management and Management Team is established in the Parent Company. The bonus scheme is based on individual goals and the Company s overall result. 29

30 Notes (In DKK thousands) Note 13. Derivative financial instruments It is company policy to account for a net cash flow hedge per currency of individual projects, primarily through forward contracting. The net cash flow per currency is made up as the difference between the total foreign exchange earnings and the foreign exchange losses during the life of a project. Open foreign exchange transactions and options as of 31 December 2012: Principal amount USD GBP Sold Bought Net market value Maturity 17, ,258 1, months 3 months The Company has made interest swaps to hedge payment of interest on a mortgage loan with variable interest. The principal of the loan at 31 December 2012 is DKK 34.3 million with a maturity of 11 years. The market value of the interest swaps as per 31 December 2012, amounted to DKK -7.0 million which has been accounted for in the equity. Note 14. Transactions between related parties Purchase of diesel engines, spare parts, guarantees etc. from Mitsui Engineering & Shipbuilding Co., Ltd., Japan and purchase of diesel engines and spare parts etc. from MAN Diesel & Turbo SE in Germany and Denmark have taken place at market conditions. The sale of goods to associated companies has also taken place at market conditions. Apart from intercompany transactions which have been eliminated in the Group accounts, plus usual management fee, no transactions have been made with the Board, Executive Management, Senior Executives, subsidiaries and associated companies or other related parties during the year. Group relationships BWSC s ultimate Parent Company is Mitsui Engineering & Shipbuilding Co., Ltd., which prepares the accounts for the group in which BWSC is included. Group accounts for the Parent Company can be obtained from: Mitsui Engineering & Shipbuilding Co., Ltd., 6-4, Tsukiji 5-chome, Chuo-ku, Tokyo , Japan. 30

31 Notes (In DKK thousands) Note 15. Contingency liabilities, security for loans, etc. Guarantees totalling DKK 552 million (DKK 795 million) have been provided for ongoing and completed projects, including DKK 125 million (DKK 166 million) by way of prepayment guarantees. In addition, guarantees totalling DKK 507 million (DKK 495 million) are issued by the Parent Company in Japan. No other warranty commitments exist apart from service and guarantee commitments customary in the industry. In 2012, a tax case in Portugal was completed without triggering additional tax payments for the Company. Ongoing inquiries and discussions with other foreign tax authorities are not expected to have a material financial impact on the Group. is party to disputes and litigation from time to time which is normal for the Group s business. It is not estimated that the outcome of such disputes or litigation will have a material impact on the Group s financial position. Note 16. Adjustments Amortisation/depreciation 10,335 9,094 Changes in provisions 86,295-23,102 Profit/loss on the sale of fixed assets Derivative financial instruments -4,171 1,801 92,624-11,991 Note 17. Changes in working capital Changes in inventories -3, Changes in contract work in progress 148,997-65,832 Changes in trade receivables -34,133-26,462 Changes in receivables from group companies and associates 15,315 22,419 Changes in other receivables -17,120 6,350 Changes in prepayments and deferred income 1,185 1,021 Changes in trade payables -102,111 69,221 Changes in payables to group companies and associates 4,352-9,436 Changes in other payables -8,843 4,931 3,720 2,279 31

32 BWSC group Burmeister & Wain Scandinavian Contractor A/S Burmeister & Wain Scandinavian Contractor A/S Gydevang 35, P.O. Box 235, DK-3450 Allerød, Denmark Telephone: Telefax: Website: BWSC Generation ApS Gydevang 35, P.O. Box 235, DK-3450 Allerød, Denmark Telephone: Telefax: Website: BWCC Ltd. P.O. Box CB Hibiscus Beach Apt. 13, Cable Beach Nassau, the Bahamas Telephone: Telefax: bwcc@bwsc.dk BWSC Cyprus Ltd. c/o KPMG 14 Esperidon Street 1087 Nicosia, Cyprus Telephone: Telefax: bwsc@bwsc.dk BWSC Kenya Ltd. c/o Scribe Services 20th Floor, Lonrho House Standard Street P.O. Box Nairobi, Kenya Telephone: Telefax: bwsc@bwsc.dk Rabai Operation and Maintenance Ltd. c/o Scribe Services 20th Floor, Lonrho House Standard Street P.O. Box Nairobi, Kenya Telephone: /7/8 bwsc@bwsc.dk BWSC Malta Ltd. Delimara Power Station Power Station Road Marsaxlokk, MXK1320, Malta Telephone: malta@pop.bwsc.dk BWSC Lanka (Private) Ltd. 103/8 Galle Road Colombo 3, Sri Lanka Telephone: Telefax: bwsc@bwsclanka.dk BWSC Mindanao Inc. Daruma Industries Corp Building, KM7 Lanang 8000 Davao City, P.O. Box 81142, the Philippines Telephone: Telefax: davao@bwsc.com.ph BWSC Mauritius Ltd. c/o KPMG 31, Cybercity Ebene, Mauritius Telephone: Telefax: bwsc@bwsc.dk BWSC Panama S.A. Representative Office P.O. Box World Trade Center, 6th Floor, Office 602 Calle 53 este, Urb. Marbella Panama City, Rep. of Panama Telephone: Telefax: salespanama@bwsc.dk Western Biomass Operating Company Ltd. Western Wood Energy Plant 1 Longlands Lane, Margam Port Talbot, SA13 2NR, United Kingdom Telephone: Telefax: coj@wboc.eu