Annual Report • Mar 19, 2014
Annual Report
Open in ViewerOpens in native device viewer
EMGS, the marine EM market leader, uses its proprietary electromagnetic (EM) technology to support oil and gas companies in their search for offshore hydrocarbons. EMGS supports each stage in the workflow, from survey design and data acquisition to processing and interpretation. The company's services enable the integration of EM data with seismic and other geophysical and geological information to give explorationists a clearer and more complete understanding of the subsurface. This improves exploration efficiency and reduces risks and the finding costs per barrel.
EMGS operates on a worldwide basis with main offices in Trondheim and Oslo, Norway; Houston, USA; and Kuala Lumpur, Malaysia.
For more information, visit www.emgs.com
| Board of Directors' report | 5 |
|---|---|
| Responsibility statement | 13 |
| Corporate governance | 14 |
| Report on sustainability and corporate social responsibility 2013 | 21 |
| Determination of salary statement | 24 |
| Electromagnetic Geoservices Group | |
| Consolidated income statement | 27 |
| Consolidated statement of comprehensive income | 28 |
| Consolidated statement of financial position | 29 |
| Consolidated statement of cash flows | 30 |
| Consolidated statement of changes in equity | 31 |
| Notes | 32 |
| Electromagnetic Geoservices ASA | |
| Income statement | 66 |
| Balance sheet | 67 |
| Balance sheet | 68 |
| Cash flow statement | 69 |
| Notes | 70 |
| Auditor's report for 2013 | 86 |
2013 was a year of transition and investments in EMGS. While the Company's total revenues were reduced from 2012, the Company made major investments in multi-client libraries in the Barents Sea and Brazil and could show significant progress on its most important task; to accelerate adoption of the EM technology. The Company completed major campaigns in Brunei and Malaysia and started operating on another large long-term contract for Pemex. In addition, the Company's technology track-record in the Barents Sea, as well as important new strategic agreements with both customers and seismic players contributes to strengthen the market's awareness, adoption and integration of the EMGS services.
Electromagnetic Geoservices ASA ("EMGS" or the "Company"), with its subsidiaries (together the "Group"), is recognised as the world leader in the use of electromagnetic ("EM") surveying technology in the offshore oil and gas exploration industry.
The integration of EM methods into exploration workflows provides oil and gas companies with a more efficient derisking and appraisal tool than using traditional exploration techniques alone. The use of EM data is complementary to the use of seismic data, as it provides oil companies with more information about the subsurface before drilling. Integrating EM data into the exploration workflow reduces exploration risk and costs and reduces environmental impact as the number of wells can be reduced through the use of EM.
EMGS remains a global leader in the planning, acquisition, processing, modelling, interpretation and integration of EM data. The Company has extensive experience, well-established routines and leading-edge processing, modelling and inversion software.
EMGS has conducted more than 700 surveys to reduce exploration risk and improve drilling success rates across the world's mature and frontier basins in water depths ranging from 30 to 3500 metres for more than 50 clients.
EM surveys have been conducted under a wide variety of operating conditions and in virtually every major basin around the world.
In line with its strategy, EMGS has a flexible and scalable business without undue exposure. The combination of the fixed time charters on the vessels named BOA Thalassa, BOA Galatea and Atlantic Guardian, and the pay-per-use charters on the vessels named EM Leader and EM Express provides EMGS with capacity to quickly respond to market demand in Europe, Africa, Americas and the Asia Pacific region with limited financial risk.
EMGS coordinates its activities from its headquarters in Trondheim (Norway) and has business centres in Oslo (Norway), Houston (USA) and Kuala Lumpur (Malaysia). The Group also has offices in Rio de Janeiro (Brazil), Mumbai (India), Cape Town (South Africa), Aberdeen (UK) and Villahermosa (Mexico).
The EMGS share was listed on the Oslo Stock Exchange in March 2007. At the end of 2013, the Company had a total of 199,739,555 shares outstanding.
In 2013, EMGS generated revenues of USD 145 million, a decrease of 28% from the USD 201 million reported in 2012. The operating expenses related to charter of the vessels, fuel and crew were reduced correspondingly, as the main reason for the lower revenues were lower activity and utilisation on the vessels. Total operating expenses were reduced by 9% in 2013 from the previous year. The Company had an EBITDA of USD 18 million for the full year 2013, compared with USD 56 million for 2012.
In 2013, EMGS continued to work in accordance with the three-year strategy implemented in 2011. The Company's overall objective is to build the EM market and to retain its number-one position through technology leadership. EMGS' strategy for achieving this is to increase the customer adoption (persuade more customers to use EM data regularly), broaden the scope of its services through expanding the application of 3D EM services beyond traditional de-risking of drilling decisions and to increase penetration (convince existing customers to use EM data more often).
Through the year, several activities have been carried out to accomplish the strategy.
In 2013, the Company made use of the new Shelf Xpress technology, a high-current source for shallow waters, on a large regional survey in Brunei. Also, the Deep Xpress technology, a high bandwidth source for deeper waters, was used on the Barents Sea multi-client campaign. In both cases the technical differentiation of these two new products, those being a higher output current and therefore a better signal to noise ratio, as well as a better frequency response were recognized compared to the traditional sources. In addition, the new sources allow a significant towing speed increase, in the order of 20-25%.
The Company further strengthened its technical cooperation with an industry partner through an agreement to collaborate on the development of the next generation of inversion software, to complement its work on the next generation of EM hardware. The projects are expected to come to fruition in 2015.
Delivering quality projects is crucial to secure customer satisfaction and build confidence in the EM data. EMGS also strongly believe in having a tailored strategy and longterm dedication to each customer/ potential customer.
In 2013, EMGS completed an extensive contract, worth USD 50 million, in the mature basin of Brunei – on the back of a successful USD 20 million project for the same customer in Malaysia in 2012. The survey was the first major regional exploration 3D EM survey, providing the customer with data to improve the understanding of the region, including a regional prospect de-risking and use of EM to identify new leads and stratigraphic plays.
Further, EMGS signed a new long-term contract with PEMEX in June, worth USD 99.8 million. This was the second large contract with PEMEX, a company who has really implemented 3D EM technology into their exploration workflow. The campaign covered an extensive area of 3D EM data in the Gulf of Mexico and the drilling results from the campaign confirmed EM's ability to improve prospect evaluation at a portfolio scale.
EMGS started operating on the new contract for PEMEX with the vessel BOA Galatea in September 2013 and added another vessel, the Atlantic Guardian, from the beginning of December. The vessels are expected to work on the PEMEX contract well into 2014 and the contract is expected to be the single most important contract for the 2014 revenues.
EMGS also completed a range of other surveys for both new and existing customers throughout 2013.
Over the past years, the Company has invested in a growing
multi-client data library. The Company considers the multiclient part of its business to play an important role in the customer adoption process as more companies can test the use of EM data. In addition, the multi-client EM data provides good "showcases" for the Company.
In March 2013, the Company entered into a cooperation agreement with the seismic company Spectrum ASA covering the Foz de Amazonas basin in Brazil. The agreement gave EMGS access to Spectrum's data over the area to plan its multi-client campaign covering approximately 8,000km2 in the Foz de Amazonas basin. The vessel BOA Galatea acquired about 4,400km2 (~55%) of the campaign before commencing on the PEMEX contract in September. In addition, the vessel acquired data in the Ceara basin prior to this.
In April, the vessel Atlantic Guardian, started on a new multi-client 3D EM campaign in the Barents Sea, expanding EMGS' already extensive library in the area. The campaign was completed in mid-October and the Company now has more than 30,000km2 of EM data in the Barents Sea. During the year 2013, the Barents Sea has proven to be an important "showcase" for EMGS. The results of approximately 20 wells show consistency between the EM data and the actual drilling results.
In May, EMGS and TGS announced that the two companies had entered into a collaboration agreement to develop joint multi-client projects. The agreement gave EMGS access to TGS' 2D seismic data, while TGS was given access to EMGS' 3D EM data. The two companies then announced in June that they had agreed to jointly invest in a specific multiclient survey in the Barents Sea covering 11 blocks. In December, the agreement was expanded to cover 17 blocks and TGS also increased its investment in the blocks from 20 to 30%.
The agreements with the seismic players Spectrum and TGS underpin EMGS' strategy to integrate 3D EM with seismic data in the exploration workflow and provide further evidence of increased industry recognition of the Company's technology.
In 2013, the Company made investments in sub-basalt and sub-salt proof-of-concept surveys to demonstrate that the combination of CSEM, MT and seismic data can be used to improve imaging in areas of complex geology, called Structural imaging.
The surveys were designed to map the thickness and distribution of salt/basalt layers and, ultimately, help to assess the hydrocarbon prospectivety of sediments below these layers.
The basalt mapping program was done west of Shetland and in the Norwegian Sea and included about 3 months acquisition. The project had good industry pre-funding and experienced satisfactory late-sales.
The sub-salt structural imaging project, the "Sunshine" project in the US Gulf of Mexico, was a joint project with Schlumberger for the integration of 3D EM data with wide-azimuth seismic data. The project has not been made available for sale yet.
Both the projects have shown good results and are expected to contribute to increasing the Company's addressable market going forward.
All of the abovementioned investments aim to expand the addressable market and increase future revenues.
In June 2013, EMGS completed a new unsecured bond issue of NOK 350 million with maturity in June 2016. The new bond loan, having a coupon rate of 3 months NIBOR + 6%, replaced the NOK 250 million bond loan which had coupon of 3 months NIBOR +7% and maturity in May 2014.
On 18 December EMGS announced that the Company had issued claims against Petroleum Geo-Services (PGS) in the High Court of Justice, Patent Court, in London, UK. The basis for the claims was the evaluation by EMGS that PGS has used the Towed Streamer EM in the United Kingdom and Ireland in violation of an EMGS patent. EMGS also sent a warning letter to PGS that similar claims will be filed in Norwegian courts based on PGS' use of the Towed Streamer EM in Norwegian territory infringing EMGS' Norwegian patent.
On 21 January 2014, EMGS announced that the Company had signed an agreement with North Energy ASA (listed at the Oslo Stock Exchange) worth NOK 100 million (USD 16.1 million). The agreement included a sale of EMGS' full 3D EM multi-client data library in the Barents Sea for NOK 75 million and sale of services related to EM inversion and integrated interpretation for NOK 15 million. In addition, North Energy committed to pre-funding of NOK 10 million for a 2014 Barents Sea program.
The payment for the 3D EM data was completed in February in the form of a convertible bond issued by North Energy with a strike price of NOK 4.15, coupon of 6% and with a maturity of 6 months. At maturity, unless converted, EMGS will receive NOK 75 million plus interest. If the convertible bond is fully converted at a conversion price of NOK 4.15, EMGS would be entitled to shares in North Energy equalling 16.1% of the total outstanding shares
and votes in North Energy after the Private Placement. The remaining part of the payment of NOK 25 million will be settled in cash.
In addition, EMGS participated with NOK 20 million in North Energy's private placement, resulting in 5 million shares and an ownership of 4.46% of the shares. The strategic partnership provides EMGS with a unique opportunity to implement EM in North Energy's exploration workflow.
In February, EMGS announced that it would commence acquisition of a 3D EM multi-client survey called Daybreak, covering approximately 1850 km2 in the Alaminos Canyon area in the southern US Gulf Mexico. The project is the first phase in a planned multiphase program in this area for EMGS. It builds on and extends EMGS' extensive acquisition and integration efforts for Pemex in the northern offshore Mexican waters. The EM data will aid oil and gas exploration companies in assessing acreage for the upcoming western Gulf of Mexico lease round the fall of 2014.
The vessel EM Leader will perform the survey. EMGS entered into a new 3 months charter for the vessel in February 2014.
23rd licensing round and acquisition permit for the Barents Sea In January 2014, the Norwegian Ministry of Petroleum and Energy received nominations for the 23rd licensing round. Of the 25 blocks nominated by two or more companies in the Fingerdjupet sub basin and Hoop Fault Complex, EMGS has 3D EM data covering 18.
The round reflected particular interest for the formerly disputed southeastern area of the Barents Sea. EMGS expects to expand its 3D EM library in the Barents Sea in 2014, with special focus on the southeastern area and blocks in the vicinity of the Hoop Fault Complex. EMGS has received acquisition permits for the areas.
In January 2014, EMGS announced that it had received a signed contract for 3D EM data acquisition in North West Australia with the repeat customer Apache worth approximately USD 5 million. The survey was completed in February, after which the vessel BOA Thalassa headed towards Africa to perform a 3D EM survey in Morocco worth USD 8.3 million, announced in February.
EMGS also announced that it had received industry funding for around 4 months of work in Norway.
In January, EMGS signed a global framework agreement
with Shell International Exploration and Production B.V. for the provision of consultancy services including survey planning/modeling, EM processing, EM inversion and integrated interpretation.
The Group's operational results depend on several factors, where the most important ones are considered to be; demand for EM services, including contract sales and multi-client sales, fleet status and vessel utilisation and the charter terms of the Company's vessel fleet.
The overall demand for EMGS's services is dependent, in part, on offshore exploration and development trends, and the amount of spending by oil and gas companies. In recent years, the Company's customers and large oil and gas consuming nations have perceived a growing and potentially lasting imbalance between the supply of and demand for hydrocarbons.
However, the Company considers the "adoption rate" of the EM technology to be the crucial factor for the demand for EM services. The "adoption rate" is defined as how fast the oil companies accept the EM technology and approve their acceptance by regularly use the EM data in their exploration workflow to improve their exploration result.
The Company has two main sources of revenue; Contract sales and multi-client sales.
As per the end of 2013, the Company had three long-term time charters for the two purpose-built 3D EM vessels, the BOA Thalassa and the BOA Galatea, and the vessel Atlantic Guardian. The vessels have firm charters until December 2015, July 2015 and March 2016 respectively. In addition, the Company hired the vessel EM Leader from January to mid-June and from 3 September to 3 December in 2013.
The vessels operated in Brunei, Malaysia, Norway, Brazil, Mexico, Malaysia, Myanmar and Angola throughout 2013.
In total, EMGS recorded a total of 42.5 vessel months in 2013, an average of 10.6 per quarter, compared to 42.9 vessel months in 2012, an average of 10.7 per quarter. The Company had a vessel utilisation of 67% in 2013, compared with a utilisation of 76% in 2012, which was the main reason for the drop in revenues.
EMGS' ability to optimise the performance of its vessels through maximising commercial utilisation and minimising unpaid activities are key factors for the Group's longer-term operating performance. Technical downtime, steaming time between surveys and unpaid standby time all negatively affect the Group's operating results.
Adverse weather conditions can result in lost time when vessels are forced to relocate and reduce their activity. In addition, the Group's operational results fluctuate from quarter to quarter because of oil and gas companies' spending patterns.
The Group conducts operations in several countries around the world. Previously, contracts were entered into by wholly owned subsidiaries of the Company. From late 2012, nearly all of the Group's business has been transacted through EMGS ASA and in USD. The Company has seen this as a trend continuing in 2013. As a consequence of these changes, management has assessed the functional currency of the parent company to be USD from 1 January 2013.
Currency transaction exposure occurs to some extent during the ordinary course of business and when the relevant exchange rates alter between the date of a transaction and the date of the final payment for the transaction. The Group records such gains or losses in the financial income and expenses line item of its consolidated income statement.
The Group has prepared its accounts on the going concern assumption, and the Board confirms in accordance with Section 3-3 of the Norwegian Accounting Act that the going concern assumption is applicable. The Group's reported results, its business strategy, its current budgets and financing, as well as its long-term strategic forecasts provide the basis for the going concern assumption.
As of 31 December 2013, the carrying value of equity was USD 102.2 million, down from USD 114.0 million at the end of 2012.
The year ending 31 December 2013 is compared below with the year ending 31 December 2012.
The Group prepares its accounts in accordance with International Financial Reporting Standards ("IFRS"), as adopted by the EU.
In February 2013, EMGS announced that the Company expected full year revenues for 2013 of USD 210 to 230 million and an EBITDA margin in the range 25 to 30%. The guidance was revised downwards during the year and the Company informed the market about its revised expectations. The main reason for the lower than previously guided revenues was lower demand for EM services than expected consequently yielding lower than expected utilisation throughout the year for the Company's vessels. The Company also invested more in its multi-client libraries, resulting in a higher allocation of the vessels to multi-client programs, but with lower pre-funding levels than expected.
The Group recorded revenues of USD 144.6 million in 2013, down from the USD 200.8 million reported for the year 2012. Contract sales totalled USD 111.3 million while multi-client sales came in at USD 33.3 million in 2013, including EMGS' share of the joint project with TGS. This compares to contract sales of USD 176.1 million and multiclient sales of USD 24.7 million in 2012.
The Group recorded 3.5 vessel years in 2013 as opposed to 3.6 in 2012. The main reason for the lower revenues was that the vessel utilisation for the full year 2013 came in at 67%, compared with 76% for 2012.
Charter hire, fuel and crew expenses ended at USD 51.2 million in 2013, 26% lower than the USD 68.8 million reported in 2012. The decrease mainly reflects the lower operational activity. In addition, the Company capitalised multi-client costs of USD 26.3 million in 2013, up from USD 21.4 million in 2012.
Employee expenses amounted to USD 54.3 million in 2013, which was in line with the USD 55.1 million reported for the full year 2012. The expenses decreased although the number of employees increased from 272 in 2012 to 289 in 2013. The main reason for the decrease is that the Group, due to the shortfall of revenues in 2013 compared with expectations, accrued for lower bonuses than in the previous year.
For the full year 2013, other operating expenses came in at USD 21.5 million, up from USD 21.1 million.
Depreciation and ordinary amortisation totalled USD 17.5 million in 2013, up from USD 13.9 million in 2012. The increase is due to investment in equipment.
Multi-client amortisation came in at USD 12.3 million in 2013, in line with the USD 12.7 million reported in 2012. The amortisation expense only includes amortisation of costs directly linked to production, such as acquisition costs, processing costs, and direct project costs. No impairment has been recorded in 2013 or 2012.
Financial items and result for the year before and after taxes Interest expenses increased from USD 5.4 million in 2012 to USD 7.2 million this year. The Group recorded a gain on net foreign currency of USD 5.8 million this year, while a loss of USD 6.1 million was recorded in 2012. Net financial items ended at a negative USD 0.9 million, up from a negative USD 11.3 million in 2012.
For 2013, the Group recorded a loss before income taxes of USD 13.2 million, compared to an income of USD 17.9 million in 2012.
Income tax expenses of USD 1.9 million were recorded in 2013, compared with an income tax expense of USD 6.0 million in 2012. These taxes relate to results in foreign jurisdictions.
The Group therefore reported a net loss for the year 2013 of USD 15.1 million, down from a net income of USD 11.9 million in 2012.
Cash flow from operating, investing and financing activities For 2013, net cash flow from operating activities was USD 51.9 million, an increase from the USD 28.7 million reported in 2012, although the income before tax reported was reduced from USD 17.9 million to a loss of USD 13.2 million. The increase is mainly a result of a positive change in trade receivables of USD 15.5 million, compared with a negative change of USD 19.2 in 2012. Also, there was a positive change in trade payables of USD 6.3 million, compared with a negative change of USD 4.7 million in 2012, in addition to a reduction in taxed paid of USD 16.4 million.
The Group applied USD 45.3 million in investing activities in 2013. The investments consist of USD 26.3 million in multi-client libraries mainly in Brazil and the Barents Sea, USD 10.7 million in property, plant and equipment and USD 8.3 million in intangible assets. In 2012, cash applied in investing activities amounted to USD 42.8 million.
Cash flow from financial activities was USD 9.5 million in 2013, compared with negative USD 4.5 million in 2012. The main components of the cash flow from financial activities were a USD 41.9 million payment of bond and a USD 56.6 million proceeds from bonds. This relates to the Company's issuance of a new bond loan of NOK 350 million in June 2013. Proceeds from the new loan were used to pay the former bond loan of NOK 250 million.
Cash increased by USD 16.0 million in 2013. At 31 December 2013, cash and cash equivalents totalled USD 56.5 million, including USD 1.2 million restricted cash.
The Group's total assets amounted to USD 214.2 million on 31 December 2013, up from USD 199.2 million on 31 December 2012. The increase is largely due to increase
in the ending multi-client library balance, which was at USD 28.1 million at the end of 2013, up from USD 14.1 million at the end of 2012. The carrying value of the library balance is net of the contribution from TGS of a total of USD 5.9 million during 2013 from the joint project in the Barents Sea.
As explained above, the trade receivables decreased by USD 15.5 million during 2013, from USD 47.0 million to USD 31.5 million.
Total borrowings were USD 56.8 million at 31 December 2013, compared with USD 46.9 million at 31 December 2012.
EMGS' cash flow budget indicates that the Group will meet its liquidity requirements for 2014.
The Group's liquidity needs fluctuate from quarter to quarter depending on income, capital expenditures and changes in the number of vessels in operation and cash balance.
Cash and cash equivalents, excluding restricted cash, totalled USD 55.3 million as of 31 December 2013, compared to USD 39.3 million at 31 December 2012.
EMGS has one bond loan totalling USD 56.4 million as of 31 December 2013. In addition, EMGS has financial lease obligations of USD 0.4 million.
The Group's financial position is sound. With total borrowings of USD 56.8 million and a cash position of USD 56.5 million, the Group has a Net Interest Bearing Debt of USD 0.3 million.
Research and development ("R&D") is part of the Company's foundation. EMGS is fully committed to improving its products and developing new applications, which will, in turn, provide its customers with further improvements in EM surveying results.
In 2013, the Group's R&D expenditure was USD 3.3 million, down from USD 4.1 million in 2012.
In addition, the Group capitalises certain R&D expenses in accordance with IFRS. In 2013, the Group capitalised USD 2.4 million of its employee costs as development, up from USD 1.1 million in 2012.
The Board of Directors proposes that the net income of EMGS, the parent company, shall be attributed to
| Other equity | KNOK 223 635 |
|---|---|
| Net income allocated | KNOK 223 635 |
The Company does not have distributable equity as of 31 December 2013.
The Group's principal financial liabilities comprise trade and other payables, financial liabilities at amortised cost, and derivative financial instruments. The Group has various financial assets such as trade receivables, cash and shortterm deposit which arise directly from its operations. The Group has not entered into any hedging transactions in 2013 or 2012.
EMGS is exposed to market risk, credit risk and liquidity risk. The Board reviews and agrees policies for managing each of these risks which are summarised below. For further details see note 3 to the financial statements.
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise two types of risk for the Group: interest rate risk and currency risk. Please see sensitivity analysis in note 3.
The Company has limited exposure to interest rate risk, as the interest risk exposure as a result of the bond loan has limited effects on the total financial risk.
The Group operates internationally and therefore has exposure to foreign exchange risk arising from transactions executed in other currencies than the functional currency of each company. EMGS ASA changed its functional currency from NOK to USD in 2013, hence the foreign currency risks is primarily with respect to NOK in EMGS ASA.
For 2013, approximately 97% of the Group's sales are denominated in USD, whilst approximately 40% of costs are denominated in – or directly linked to USD, including most of the vessel, fuel and operational crew costs. Foreign exchange risk arises from future commercial transactions, recognised as assets and liabilities.
The Group's sources of liquidity include cash balances, cash flow from operations, borrowings; including its existing and new bank facilities and further debt and equity issues. The primary sources of funds for its shortterm liquidity needs will be cash flow from operations, whereas the long-term sources of funds will be cash from operations and other debt or equity financings.
As per 31 December 2013, the Company has Net Interest
Bearing Debt of USD 0.3 million. EMGS feels confident in reaching the revenue forecast necessary for a sufficient liquidity.
The Group considers that it has no significant concentration of credit risk. Its clients are major international, national and independent oil and gas companies, mostly with impeccable credit standings and histories. However, occasionally, a smaller oil and gas company may be on the client list and, in these cases, extraordinary caution is conducted in the credit evaluation. In 2013, EMGS did not experience any significant defaults in payments from customers.
Receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debt is not significant. In 2013, EMGS had two major customers who amounted to a significant part of sales. These customers were however large international oil companies and considered creditworthy.
EMGS is committed to healthy corporate governance practices The objective of corporate governance is to regulate the division of roles between shareholders, the Board and executive management more comprehensively than is required by legislation.
EMGS general corporate governance principles are based on maintaining open and reliable lines of communication, having a Board that is autonomous and independent of the executive management, having a clear division of responsibility between the Board and the executive management, and treating all shareholders equally.
The Company applies the Norwegian Code of Practice ("the Code") for Corporate Governance issued on 23 October 2012. The Code was not revised by the Norwegian Corporate Governance Board during 2013.
The Company complies with the Code, with no material deviations from the Code's recommendations. EMGS is a Norwegian public limited company and is listed on the Oslo Stock exchange, and complies with Section 3-3b of the Norwegian Accounting Act in respect of corporate governance. In addition, the Company implements other corporate governance guidelines beneficial to its business.
The Company does not have provisions in its articles of association that restrict the right to trade in the shares of EMGS. EMGS is not aware of agreements between shareholders that restrict the possibilities of trading in or exercising the voting rights attached to shares or
agreements, the terms of which take effect, alter or terminate as a result of a takeover bid.
The Company produces a comprehensive annual report on corporate governance as part of its annual report. For further details, please see the section entitled Corporate Governance in this annual report. The information is also available on the Company's homepage.
EMGS has adopted a policy for sustainability and corporate social responsibility ("CSR"). The principles in the policy cover the areas labour rights, anti-corruption, the environment and human rights.
All work in the Group related to sustainability and CSR (together "the CSR work") is based on the CSR Policy.
As the Company is a Norwegian public limited company listed on the Oslo Stock exchange, it complies with Section 3-3c of the Norwegian Accounting Act in respect of corporate social responsibility.
The Company produces an annual statement on its CSR work in the annual report, also including information about the working environment in the Group, equal opportunities and discrimination statement, the external environment and human rights. For further details, please see the section entitled Sustainability and corporate social responsibility in this annual report. The information is also available on the Company's homepage.
In February 2013, EMGS announced that the Company expected full year revenues for 2013 of USD 210 to 230 million and an EBITDA margin in the range 25 to 30%. The guidance was reduced during the year and the Company informed the market about its revised expectations. The main reason for the shortfall of revenues was that the demand for EM services was lower than expected and consequently the Company's vessels had a lower utilisation than expected throughout the year. The Company also invested more in its multi-client libraries, resulting in a higher allocation of the vessels to multi-client programs, as well as lower pre-funding levels than expected.
Going into the 2014, the Board is of the opinion that EMGS is in a better position compared to the same time last year. The Company's backlog has improved, and the Company's strong technology track record is continuously creating increased market awareness.
EMGS acknowledges that the rate of industry adoption remain challenging to predict. As per 31 December 2013, EMGS had approximately USD 79 million in backlog, compared to USD 21 million at the end of 2012. In addition, the Company had secured an additional USD 15 million in revenues by the end of January 2014.
The Company expects to deliver 2014 revenues of more than USD 200 million. Further, the Company expects future multi-client projects to be fully pre-funded and capital expenditure of less than USD 15 million in 2014.
The Company expects to expand its multi-client library in the Barents Sea, Norway, during 2014, in addition to investing in new multi-client projects in the US Gulf of Mexico and Canada. The long-term contract with Pemex in Mexico is considered a key project to complete during 2014.
EMGS' long-term outlook remains positive, and the Company reiterates its strategy to achieve industry-wide integration of EM into the exploration workflow. Company reiterates its strategy to achieve industry-wide integration of EM into the exploration workflow.
Oslo, 19 March 2014
Bjarte H. Bruheim Chairman of the Board
Jeffrey Alan Harris Svein Ellingsrud
Maria Moræus Hanssen Roar Bekker
Stig Eide Sivertsen Berit Svendsen
Christel Brønstad
CEO
Today the Board of Directors and the Chief Executive Officer reviewed and approved the Directors' Report and the consolidated and separated annual financial statements for Electromagnetic Geoservices ASA ("EMGS" or the "Company"), for the year ended 31 December 2013.
EMGS' consolidated financial statements have been prepared in accordance with IFRSs and IFRICs as adopted by the EU and additional disclosure requirements in the Norwegian Accounting Act. The separate financial statements for EMGS ASA have been prepared in accordance with Norwegian Accounting Act and Norwegian accounting standards. The Directors' report is in accordance with the requirements in the Norwegian Accounting standard no 16.
To the best of our knowledge:
Oslo, 19 March 2014
Bjarte H. Bruheim Chairman of the Board
Jeffrey Alan Harris Svein Ellingsrud
Maria Moræus Hanssen Roar Bekker
Stig Eide Sivertsen Berit Svendsen
Christel Brønstad
CEO
EMGS is committed to healthy corporate governance practices that will strengthen confidence in the Company and thereby contribute to optimal value creation over time. The objective of corporate governance is to regulate the division of roles between shareholders, the Board and executive management more comprehensively than is required by legislation.
EMGS' principles for corporate governance are based on the following elements:
The Board of Directors (the "Board") of Electromagnetic Geoservices ASA ("EMGS" or "the Company") has the ultimate responsibility for ensuring that the Company practices good corporate governance. The Company, through its Board and executive management, carries out a thorough review and evaluation of its principles for corporate governance on an annual basis.
EMGS is a Norwegian public limited Company and is listed on the Oslo Stock Exchange (Oslo Børs). The Norwegian Accounting Act includes provisions on corporate governance at Section 3-3b which impose a duty on the Company to issue an annual report on its principles and practice for corporate governance. These provisions also stipulate minimum requirements for the content of this report.
The Norwegian Corporate Governance Board (NCGB) has issued the Norwegian Code of Practice for Corporate Governance (the "Code"). Adherence to the Code is based on the "comply or explain" principle, which means that a Company must comply with all the recommendations of the Code or explain why it has chosen an alternative approach to specific recommendations.
The Code imposes more comprehensive requirements than the Accounting Act in respect of the information that the Company must provide.
The Oslo Stock Exchange requires listed companies to publish an annual statement of their policy on corporate governance in accordance with the Code in force at the time. The rules on the Continuing Obligations of listed companies are available at www.oslobors.no.
EMGS complies with the current Code, issued on 23 October 2012. The Company provides a report on its principles for corporate governance in its annual report, and this information is also available on its website at www.emgs.com. EMGS' objective is to comply with all sections of the Code, but the Company may deviate from principles in the Code if required for special purposes. Deviations will be explained in the relevant sections.
The following sets out how the Code is accommodated through the financial year 2013.
Confidence in EMGS as a company and in its business activities is essential for the Company's continuing competitiveness.
EMGS is committed to openness about its systems and procedures for the management of the Company. This strengthens value creation, builds internal and external confidence and promotes an ethical and sustainable approach to business.
The Board has high priority on implementing high standards of corporate governance and this is therefore reflected in the Company's corporate documents, Articles of Association, policies and business strategy.
The Board has established a Code of Conduct and a set of policies, including on ethics, corporate social responsibility (see separate report in Annual Report), health, safety and environment, drug, smoking and alcohol, as well as on quality. The policies are evaluated at least once a year and updated accordingly. The Company has adopted an anticorruption compliance programme including mandatory training of all employees.
EMGS' website, www.emgs.com, provides more information about the Company's business activities, Code of Conduct,
EMGS is the market leader in electromagnetic (EM) imaging. Pursuant to Section 3 of the Company's Articles of Association, the Company's purpose is as follows:
"The Company's activity is to engage, by itself or through proprietary interests in other companies, in the prospecting for hydrocarbon deposits in connection with the exploration, development and production of hydrocarbons."
The Company has clear objectives and strategies for its business within the scope of the definition of the business purpose in its Articles of Association.
The Board of Directors' report in the Company's annual report includes a description of the Company's objectives and principal strategies according to the business activities clause from the Articles of Association. EMGS' Articles of Association is available at the Company's website, www.emgs.com
As of 31 December 2013, the Company's equity is deemed to be satisfactory by the Board based on a going concern evaluation based on its objective, strategy and risk profile. The Company's equity position is subject to continuing evaluation to ensure that it corresponds to the applicable regulations and the Articles of Association.
As of 31 December 2013, the Company had an equity of USD 102.2 million, representing an equity ratio of 48%.
The Company's objective is to generate a long term return for its shareholders through dividends and increases in the share price that is at least in line with the return available on similar investment opportunities of comparable risk. Currently, the Company is investing in opportunitites for growth and does therefore not intend to pay dividends. The Board will establish a clear dividend policy when relevant.
Increases in share capital and buy-back of own shares In the annual general meeting held in 2013, the Board was given authorisations, as described below, regarding share capital increases:
The Board was given authorisation to increase the share capital by up to NOK 4,972,001.25 through one or more subscriptions equal to an issuance of up to 19,888,005
new shares each with a par value of NOK 0.25. Further details are set out in a resolution by the annual general meeting that states that the authorisation will be utilised in connection with potential acquisitions of companies or businesses within the oil and energy sector, including the oil service sector, and/or to finance general corporate purposes. The authorisation is valid until 30 June 2014.
The Board was also given authorisation to increase the share capital by up to NOK 2,000,000 equal to an issuance of up to 8,000,000 new shares each with a par value of NOK 0.25. Further details are set out in a resolution by the annual general meeting that states that the authorisation will be utilised for fulfilling the Company's obligations towards holders of options, should such options be exercised. All options are based on the Employee Option Program. The authorisation is valid until 30 June 2014.
At the general meeting, the Board's proposal on power of attorney to acquire own shares was not resolved. As a result, the Board did not hold any authorisation to acquire shares as of 31 December 2013.
As of 31 December 2013, the Board had not used the authorisation to increase the share capital for the purpose related to acquisitions and the Company did not own any treasury shares.
Equal treatment of shareholders is a main principle for corporate governance in EMGS. The Company has only one class of shares, and any purchases or sales of own shares are carried out through the stock exchange.
The Articles of Association do not impose any restrictions on voting rights. All shares have equal rights.
Pursuant to the Norwegian Public Limited Liability Companies Act, existing shareholders have pre-emption rights in connection with share capital increases; however, this right can be waived. Any decision to waive the preemption right must be justified by the Board. Where the Board resolves to carry out an increase in the share capital and waive the pre-emption rights of the existing shareholders on the basis of a mandate granted to the Board, an explanation will normally be publicly disclosed in a stock exchange announcement issued in connection with the increase of the capital.
The Board of EMGS will waive the pre-emption of existing shareholders in connection with share capital increases following the Company's obligations towards holders of options if and when such options are exercised.
In the event of any material transaction between the Company and its shareholders, a shareholder's parent Company, members of the Board, members of the executive personnel or close associates of any such parties, the Board will, as a general rule, arrange for a valuation by an independent third party.
EMGS has implemented procedures for the Board, the board committees and the executive personnel to ensure that any conflicts of interest connected to agreements entered into by the Company are reported to the Board.
The Company has agreements with Companies in which the Chairman of the Board, Mr. Bjarte Bruheim, and the CEO of the Group is related to. EMGS' Board and management are satisfied that all agreements entered into between the Company and its main shareholders (including related companies), as well as all other business transactions and contracts, are on an "arm's length" basis.
The transactions are further described in the note 32 to the annual accounts.
The shares in EMGS are freely negotiable and the Articles of Association do not contain any restrictions on negotiability.
EMGS is listed on the Oslo Stock Exchange, and the Company works actively to attract the interest of new shareholders. Strong liquidity in the Company's shares is essential if the Company is to be viewed as an attractive investment and thus achieve a low cost of capital.
The Annual General Meeting ("AGM") is the Company's ultimate corporate body. EMGS encourages all shareholders to participate in general meetings. The Board endeavours to organise the general meeting to ensure that as many shareholders as possible may exercise their rights by participating, and that such meetings are an effective forum for the views of shareholders and the Board.
The AGM is normally held in June each year, and in any case no later than 30 June, which is the latest date permitted by company law. The 2013 AGM was held on 21 June 2013. The 2014 AGM is scheduled to be held on 10 June 2014.
The notice calling the AGM and any Extraordinary General Meeting is made available on the Company's website and
sent to shareholders by post no later than three weeks in advance of the meeting.
According to the Company's article 8 in the Articles of Association and provided that the shareholders may participate in General Meetings electronically, ref. article 9 in the articles, the AGM may, with the majority required to amend the Articles of Association and with effect until the next AGM, decide that the calling notice for Extraordinary General Meetings shall be sent at least two weeks before the date of the meeting.
Shareholders who wish to take part in the general meeting must give notice to the Company by the date stated in the notice of meeting, which date must be at least two business days before the general meeting.
Each share carries one vote in the Company's general meeting.
Article 10 of the Articles of Association stipulates that the supporting documents dealing with matters to be considered by the AGM can be made available on the Company's website rather than being sent to shareholders by post. However, shareholders are still entitled to receive the documents by post upon request if they so wish.
The notice calling the general meeting along with a form for appointing a proxy and sufficiently detailed supporting information, including proposals for resolutions and comments on matters where no resolution is proposed, are disclosed on the Company's website www.emgs.com. Resolutions and supporting information are sufficiently detailed and comprehensive to enable shareholders to form a view on all matters to be considered in the meeting. The Company will make appropriate arrangements for the general meeting to vote separately on each candidate nominated for the Company's corporate bodies.
The date of the next AGM is included in the company's financial calendar. The financial calendar for the coming year is published no later than 31 December in the form of a stock exchange announcement and is also made available on the company's website.
Shareholders that cannot attend the general meeting may be represented and exercise their voting rights through proxy. A person will be nominated to be available to vote as a proxy on behalf of shareholders. Proxy forms will enable the proxy holder to cast votes for each item separately. The final deadline for shareholders to give notice of their intention to attend the meeting or to vote by proxy will be set in the notice for the meeting. According to article 9 of the Articles of Association, the Board may decide that the shareholders can participate in the general meeting by mean of an electronic aid, including that they may exercise their rights as shareholders electronically.
Board members will, if possible, attend the general meetings. The auditor will be present at the AGM, as will the Chief Executive Officer and the Chief Financial Officer.
The Board decides the agenda for the AGM. The main agenda items are determined by the requirements of the Public Limited Liability Companies Act.
The Code stipulates that the Board should have arrangements to ensure an independent Chairman for the general meeting. The Company has evaluated the recommendation but decided that it was in the interest of the Company and the shareholders that the general meeting is chaired by the Chairman of the Board. This is also laid down in the Articles of Associations, section 11.
The AGM minutes are published by issuing a stock exchange announcement, and are also made available on the Company's homepage, www.emgs.com
EMGS has a nomination committee elected by the AGM. According to article 12 in the Company's Articles of Association, the committee shall consist of 2 to 3 members who shall be elected by the AGM for a period of 2 years, unless the AGM decides a shorter period.
As per 31 December 2013, the nomination committee consists of 3 members;
All members of the committee are considered independent of the Board and the executive management.
The nomination committee prepares proposals for the AGM regarding the shareholder elected board and the Chairman of the Board. Also, the committee shall prepare proposals regarding election of members to – and Chairman of the nomination committee, remuneration to the members of the Board, and suggest changes to the mandate or guidelines for the nomination committee.
The recommendation to the general meeting relating to the election will be available in time to be sent with the notice of the general meeting, so that the shareholders have the opportunity to submit their views on the recommendation to the nomination committee ahead of the meeting. Further details are set out in article 12 of the Articles of Association and in the guidelines for the nomination committee, which were approved by the annual general meeting in 2012.
EMGS does not have a corporate assembly.
In accordance with the Articles of Association, the Board shall consist of 5–10 board members. At the end of 2013, there are seven members of the Board, including two employee representatives. Three of the members are women.
The shareholder-elected members represent varied and broad experience from relevant industries and areas of speciality, and the members bring experience from both Norwegian and international companies. Any proposal for the election of shareholder-appointed board members are made with a view to ensuring that the Board can attend to the shareholders' common interest and the Company's need for competence, capacity and diversity. That the Board should function well as a collegial body is taken into consideration when proposing and electing board members. The Chairman of the Board will be elected by the general meeting. Board members are encouraged to own shares in the Company.
As of 31 December 2013, the Board consists of the following:
Board members are elected for a period of two years.
The Board does not include any members from the Company's executive management.
Four of the seven current board members are independent of the Company's executive personnel, substantial business associations and major shareholders. The Chairman of the Board performs services for the Company beyond the work directly related to his directorship, and consequently, may not be considered independent of the executive personnel. The Chairman is also among the Company's 20 largest shareholders. In order to ensure a more independent consideration of matters of a material character in which the Chairman of the Board is or has been personally involved, such matters will be chaired by another member of the Board.
The Board has the ultimate responsibility for the management of the Company and for supervising its dayto-day management and activities in general. This includes developing the Company's strategy and monitoring its implementation. In addition, the Board exercises supervision responsibilities to ensure that the Company manages its business and assets and carries out risk management in a prudent and satisfactory manner. The Board is responsible for the appointment of the CEO. The Board prepares an annual plan for its work.
In accordance with the provisions of Norwegian company law, the terms of reference for the Board are set out in a formal mandate that includes specific rules and guidelines on the work of the Board and decision making. The Chairman of the Board is responsible for ensuring that the work of the Board is carried out in an effective and proper manner in accordance with legislation.
The Board issues a mandate for the work of the CEO. There is a clear division of responsibilities between the Board and the CEO. The CEO is responsible for the operational management of the Company.
The Board receives periodic reports on the Company's commercial and financial status. The Company follows the timetable laid down by the Oslo Stock Exchange for the publication of interim and annual reports.
The Board holds regular meetings and a strategy meeting each year. Extraordinary Board meetings are held as and when required, to consider matters that cannot wait until the next regular meeting. In addition, the Board has appointed an audit committee and a remuneration committee to work on matters in these areas.
The Board has established and stipulated instructions for an audit committee and a compensation committee to assist them. These committees are composed of board members. The Board provide details in the annual report on the committees appointed.
The audit committee is appointed by the Board. Its main responsibilities are to supervise the Company's systems for internal control, to ensure that the auditor is independent and that the annual accounts give a fair picture of the Company's financial results and financial condition in accordance with generally accepted accounting practice.
The audit committee has reviewed the procedures for risk management and financial controls in the major areas of the Company's business activities.
The audit committee receives reports on the work of the external auditor and the results of the audit. In addition.
As per 31 December 2013, the audit committee consists of the following:
The remuneration committee makes proposals to the Board on the employment terms, as well as conditions and total remuneration of the CEO and other executive personnel.
As per 31 December 2013, the compensation committee consists of the following:
The Board' working methods and interactions are subject to annual revision.
The Board ensures that the Company has sound risk management and an internal control system that is appropriate to its activities. The risk management and internal control systems in EMGS are based on its corporate values, ethics guidelines and principles for sustainability and corporate social responsibility ("CSR"). The Board reviews the Company's internal control system and the main areas of risk annually.
EMGS' management conducts day-to-day follow-up of financial management and reporting. Management reports to the audit committee before the publication of the quarterly and annual reports. The audit committee assess the integrity of EMGS' accounts. It also inquires into, on behalf of the Board, issues related to financial review and internal control, and the external audit of EMGS' accounts. The Board ensures that EMGS is capable of producing reliable annual reports and that the external auditor's recommendations are given thorough consideration. A description of the Company's internal control and risk assessment systems for financial reporting is included in the annual report.
The AGM decides the remuneration paid to members of the Board annually. The nomination committee prepare proposals for the AGM regarding remuneration for Board members. The remuneration of the Board reflect the Board's responsibility, expertise and time commitment, and the complexity of the Company's activities.
The Code recommends that remuneration of the Board should not be linked to the Company's performance and, further, that the Company should not grant options to members of its Board. The Company has not, except as described below, granted options to members of the Board after its shares were listed on the Oslo Stock Exchange.
The annual general meeting held in 2012 resolved that 250,000 options should be granted to the Chairman in connection with a grant of options to the employees in the Company. This grant was proposed on the basis that the Chairman performs services for the Company beyond the work directly related to his directorship. The 250,000 options have a strike price of NOK 19.30 and will expire on 14 February 2019.
The employee representatives on the Board hold options, but these have been granted to them as employees of the Company not as board members.
The Chairman of the Board has an agreement with the Company for services performed beyond the work directly relating to his directorship that has been approved by the general meeting. The remuneration set out in this agreement covers those services relating to his directorship and all other services he performs for the Company. Except for the Chairman, none of the shareholder-elected board members are engaged by the Company as other than board members.
Details on the remuneration to the Board can be found in notes to the financial statements of the Company. The employee representatives do not receive any compensation for their services as board members.
The Board determines salary and other remuneration systems for key management personnel pursuant to the provisions of the Norwegian Public Limited Liability Companies Act. The CEO's employment conditions and remuneration are determined by the Board and are presented to the AGM. The Board annually evaluates salary and other remuneration for the CEO. Details on the remuneration to the Company's executive personel is included in notes to the financial statements of the Company.
The guidelines of the remuneration system for the
executive personnel is determined by the Board and is presented to the general meeting through a declaration on principles for management remuneration, which is required by law. This declaration is also included in the Company's annual report.
Performance-related remuneration of the executive personnel is linked to value creation for shareholders or the Company's performance over time. The performancerelated remuneration to the executive personnel is subject to an absolute limit.
The Board' believes that the salary levels of executive personnel should be competitive.
EMGS maintains regular dialogue with analysts and investors. The Company considers it very important to inform shareholders and investors about the Company's commercial and financial performance.
The Company strives to continuously publish all relevant information to the market in a timely, effective and non-discriminatory manner. All stock exchange announcements are made available both on the company's website and on the Oslo Stock Exchange news website at www.newsweb.no, and are also distributed to news agencies (via Hugin).
EMGS normally publishes its provisional annual accounts early February. The complete annual report and accounts are made available to shareholders no later three weeks prior to the AGM and no later than by the end of April, as required by the Securities Trading Act (section 5-5 (1)). Quarterly interim reports are normally published within six weeks following the end of the quarter.
The Company's financial calendar for the coming year is published no later than 31 December in accordance with the rules of the Oslo Stock Exchange. The financial calendar is available on the Company's website and on the Oslo Stock Exchange website.
EMGS holds open presentations in connection with the publication of its interim results. These presentations review the published results, market conditions and the Company's future prospects. The presentations are given by the CEO and the CFO at a minimum, and are distributed by webcast so that anyone unable to attend can follow the presentation on the internet in real time or view it later. Quarterly reports, presentation material and webcasts are all available on the Company's website.
Following the publication of the interim results, the
Company travels to meet with shareholders and potential investors outside Norway.
In addition to the dialogue between the shareholders in the general meeting, the Board aspires to arrange contact with shareholders other than through general meetings. This takes place through the Chairman of the Board, the CEO and/or the CFO, and is subject to guidelines laid down by the Board.
The Company has a policy stating who is entitled to speak on behalf of the Company on various subjects, in particular, who should communicate with the media, investors and investment bankers.
The Board endorses the recommendation of the Code for corporate governance and takeover bids. EMGS' Articles of Association do not contain any restrictions, limitations or defence mechanisms on acquiring the Company's shares.
In accordance with the Securities Trading Act and the Code, the Board has adopted guidelines for possible takeovers.
In the event of a takeover bid, the Board will, in accordance with its overall responsibility for corporate governance, act for the benefit of all Company shareholders. The Board will not seek to hinder or obstruct takeover bids for EMGS' activities or shares, unless there are good reasons.
If an offer is made for EMGS' shares, the Board will make a recommendation on whether the shareholders should accept the offer and will normally arrange a valuation from an independent expert.
The external auditor presents an annual plan to the audit committee covering the main features for carrying out the audit. The external auditor participates in all meetings of the audit committee, the Board meeting that approves the annual financial statements and other meetings on request. The external auditor presents the result of the audit to the audit committee and the Board in the meeting dealing with the annual financial statements, including presenting any material changes in the Company's accounting principles and significant accounting estimates, and reporting any material matters on which there has been disagreement between the external auditor and EMGS's executive management.
The external auditor annually presents internal control weaknesses and improvement opportunities to the audit committee and, when appropriate, to the Board. The Board holds a meeting with the auditor at least once a year where no member of the executive management is present.
The Board has adopted instructions as to the executive personnel's access to the use of the external auditor for services other than auditing. The external auditor provides an overview of his remuneration divided into fee paid for audit work and any fees paid for other specific assignments, which are presented at the annual general meeting. This is also included in the annual report.
The external auditor has given the Board a written notification confirming that the requirements for independence are satisfied.
This report from the Board of Directors (the "Board) of Electromagnetic Geoservices ASA ("EMGS" or "the Company") with its subsidiaries (together the "Group") describes United Nations Global Compact ("UN") principles for sustainability and corporate social responsibility ("CSR") and EMGS' efforts, measures and results related to each of these in 2013. EMGS' policy for sustainability and CSR (the "CSR Policy") is based on these principles, and cover the areas labour rights, anti-corruption, the environment and human rights. The CSR policy is available on the Company's homepage, www.emgs.com
It is the intention of EMGS that the efforts within working environment issues, anti-corruption procedures and training, and the attitude encouraged from the employees shall contribute to improved understanding for human rights, working ethics and a cleaner environment.
The work related to sustainability and CSR (together "the CSR work") is based on three main pillars:
The statement is mainly based on feedback from management, the Ethics Committee, various other internal committees and reporting systems. During 2013, CSR issues were discussed in management meetings and by the Board.
Below is an overview EMGS' principles, a description of how the Company report's issues related to CSR, as well as actions and measures taken under each of the main CSR areas.
Principles for labour rights:
EMGS has implemented a strict regime for health, safety and environment ("HSE"). Reporting is done through the
internal quality control management system for HSE, called GEMS.
The EMGS HSE mission statement is: No harm!
In daily operations, a potential or actual breach is reported and tracked through a report-card system in the GEMS.
As of 31 December 2013, the Group had 294 employees. In Norway, 107 works at the Company's headquarter in Trondheim and 22 are employed at the regional office in Oslo. In addition, 34 are based in Houston, USA, 24 in Kuala Lumpur, Malaysia, 81 works offshore and the remaining 26 work in other locations. The Company closed down its regional office in Stavanger, Norway, in 2013.
The Board believes that the Group's general working environment is good. It is a prioritised goal for EMGS to maintain this status, and the management team had close contact with employee representatives throughout the year.
EMGS has an education and training centre, called the EMGS Training Centre. This Centre provides internal and external educational programs. As many employees are involved in offshore operations, a dedicated HSE training program has been implemented to ensure a safe working environment.
The Company sponsors and promotes various social and sporting activities, as management believes these to be beneficial in securing a good working environment.
The percentage of absences due to illness in 2013 was 1.7%, an increase from 1.0% in 2012. During 2013, the Company had no lost time injuries.
EMGS' 294 employees represent more than 28 different nations with various cultures.
EMGS has defined and implemented guidelines to protect against gender discrimination. At the end of 2013, 22% of the Group's employees were female, compared to 23% in 2012. The Group will continue to prioritise to improve the current imbalance by following its recruiting strategy to this effect.
EMGS recognises that the average compensation for its female employees is lower than the average workforce figure. This can be explained by high degree of representation of males at management level and among the technical professionals.
The Discrimination Act's objective is to promote gender equality, ensure equal opportunities and rights, and to prevent discrimination due to ethnicity, national origin, descent, skin colour, language, religion and faith. The Group is actively working to encourage the Act's purpose within its business. The activities include recruiting, salary, working conditions, promotion, development opportunities and protection against harassment. These are issues of importance for EMGS' working environment, in particular as the Group has employees from so many different nations. The Group uses English as the company language.
EMGS aim to have a workplace with no discrimination due to reduced functional ability. The Company therefore work to design and adjust the physical conditions of its workplaces according to this. For work offshore, there are limited possibilities for offering work to employees with reduced functional ability.
The Working Environment Committee shall participate in planning safety and environmental work and also the follow up of developments related. The Committee met 4 times in 2013.
The Forum for Employee Representatives meets with the CEO, the head of HR and the Chief Legal Counsel. The forum is regulated by the Norwegian Working Environment Act. The goal is to facilitate cooperation between the employee representatives and management related to the working environment and the general terms and conditions of all employees and conflicts. The forum met with management 6 times in 2013. One outcome of the cooperation in 2013 was a new system for offshore compensation implemented as of 1 January 2014.
EMGS management seeks to facilitate an effective dialogue with its employees. In doing so, visits to vessels, office meetings and offshore seminars are seen as important.
In 2013 management made 146 visits to vessels in the Company's fleet and had a number of visits to all regional offices. At the headquarters in Trondheim the Company has annual offshore seminars including all offshore employees and representatives of management and other departments within EMGS. The aim of these seminars is to facilitate training, exchange experience and improve cooperation between offshore and office personnel. Two seminars for offshore crew were arranged in 2013.
The annual HSE report for 2013 identifies KPI's, goals and objectives within HSE. During 2013, a total of 2.687 report cards were filed by EMGS personnel, of which 2.625 were filed on the vessels. In total, 338 HSE meetings were held. Most of the reports were on non-conformance.
The Company's General Terms for Offshore employees has been amended as a result of cooperation between the Employee Representatives and management. The new General Terms were effective from 1 January 2014. The Martitime Labour Convention, MLC 2006, and the Norwegian law implementing this convention, the Shipworker Act was in force from August 2013. The MLC 2006 is an ILO guideline ratified by 47 countries and implemented on 76% of the world gross tonnage of ships. EMGS' working environment and terms were already in line with the MLC 2006 and the Shipworker Act, but certain documentation was altered to reflect new reporting requirements.
The conclusion of the review is that EMGS has not experienced any reported breach of the four principles within Labour rights in 2013.
Principle for anti-corruption:
∙ Businesses should work against corruption in all its forms, including extortion and bribery
EMGS has zero tolerance for corruption and commits to follow the regulations given by FCPA, UK Bribery Act and the Norwegian penal code in this respect.
The Company has over the years given significant attention to prevent corruption and bribery. The efforts include a training and compliance program with a hot-line for reporting. In addition, employees can report concerns directly to the Ethics committee.
In 2013 a new web-based training course was launched for all employees. The course was completed by 96% of the employees. Management has attended and given several courses in anti-corruption compliance in 2013. All offices have received anti-corruption compliance training. EMGS has several policies and standards related to the anti-corruption compliance program, including but not limited to the Ethics Policy and Code of Conduct.
Management has given reports on anti-corruption compliance measures 6 times to the Board in 2013.
EMGS has experienced offers to engage in corrupt behaviour also in 2013. Such offers have been handled by employees in line with the Company's policies and been reported to the Chief Legal Counsel. The internal control has, as far as the Company's knows, stopped all attempts in 2013.
Principles related to environment:
EMGS shall act responsibly in regards to its impact on the climate and the environment.
EMGS has implemented an "Environmental policy and Environment Standard" which is the basis for the Company's work to ensure the development of environmental protective measures.
In 2013 EMGS took the initiative to upgrade one of its chartered vessels in order to reduce fuel consumption by up to 40%. The upgrade will be done in 2014.
EMGS is of the opinion that an increase in the use of its technology by oil companies will reduce the footprint of oil exploration on the environment.
Principles related to Human Rights:
Human rights abuses shall not occur at EMGS.
The reputation of the Company is created by the conduct of each individual employee. The employees are obligated to study the EMGS policies, including but not limited to Ethics Policy and Code of Conduct and perform their duties accordingly.
On an operating level, EMGS seeks to ensure that there is a good working environment without discrimination of any kind in the Group. The managers handle all minor issues. If/ when there are issues of broader magnitude, HR, legal and the Ethics Committee are involved.
No claim regarding Human Rights has been reported to the HR, QHSE, legal or the Ethics Committee in 2013.
Oslo, 19 March 2014
Bjarte H. Bruheim Chairman of the Board
Jeffrey Alan Harris Svein Ellingsrud
Maria Moræus Hanssen Roar Bekker
Stig Eide Sivertsen Berit Svendsen
Christel Brønstad
CEO
The Board of Directors of Electromagnetic Geoservices ASA ("EMGS" or the "Company") has prepared this declaration in accordance with the Norwegian Public Limited Liability Companies Act section 6-16a. This declaration shall be presented to the Annual General Meeting of EMGS to be held on 3 June 2014 in accordance with the Norwegian Public Limited Liability Companies Act section 5-6 subsection three.
The goal of the Company's policy on salary and compensation ("Remuneration") for executive management ("Management") is to recruit and retain world-class, skilled leaders who have the capacity to develop, manage and lead EMGS. The Remuneration shall consist of nonvariable compensation ("Basic Salary") and variable forms of compensation such as bonuses, options and special payments ("Additional Compensation").
The Basic Salary will be competitive, but not leading, and will be set based on the manager's skills, competence, capacity and level of responsibility in the organisation. When determining the Basic Salary, the Company takes into consideration competitor data for companies that operate within the same businesses area as EMGS and in the country in which the manager resides.
The main element of the management Remuneration shall be the Basic Salary. The Basic Salary should be motivational and aimed to encourage management to strive for constant improvement and development of the Company's operations and results.
Additional Compensation is used to motivate managers' efforts on behalf of the Company. The Board of Directors yearly evaluates the basis for awarding a performance bonus linked both to the performance of the Company and the manager's individual performance. The year-end performance bonus is capped to 40 percent of the Basic Salary, and the maximum is specified in the individual employment contract for each employee. In addition, the Board of Directors recognises the importance of having sufficient flexibility to allow for a total additional bonus capped to 100 percent of the total basic salary per year in particular circumstances. For instance, there may be a need for additional retention incentives to key employees in unexpected situations like mergers and acquisitions implying change of control.
A part of the total remuneration may also be in the form of shares and options in the Company. In the Annual General Meeting held in 2013, it was resolved to authorize the Board to issue a maximum of 10,000,000 options over two years under the employee option program to employees (not only management), and that the maximum outstanding options shall not at any time exceed 7.5% of the registered number of shares (equal to 14,980,466 options as at 31 December 2013) in the Company. The total number of outstanding options as at 31 December 2013 was 10,578,507.
As the Additional Compensation is designed to provide incentives for extraordinary performance, the criteria must be linked to factors which the individual manager is able to influence. EMGS aspires to have a Remuneration system based on teamwork which encourages efforts that bring results beyond the individual manager's sphere of responsibility.
The Remuneration system is simple, comprehensible and easy to administrate.
To achieve the stated goal of attracting and retaining top talent, the Remuneration system will be sufficiently flexible and allow for certain special solutions if required in particular circumstances. EMGS is involved in international businesses and it is important the Company attracts skilled managers resident in other countries than Norway. The Remuneration system will allow for special solutions to attract and retain such managers if considered to be in the best interest of the Company.
The Management of the Company will receive a Basic Salary and may in addition be granted Additional Compensation. The Basic Salary is the main element of a manager's Remuneration.
Total Remuneration is the aggregate of a manager's Basic Salary and Additional Compensation. This level is to be competitive and motivational, but not leading.
In the following, the Board of Directors has commented on the individual benefits that are embraced by the Additional Compensation in more detail. Unless specifically mentioned, no special terms, conditions or allocation criteria apply to the benefits mentioned.
Managers will ordinarily be offered the benefits in kind that are common for comparable positions, e.g. free telephone service, home PC, free broadband service, newspapers, company car/ car scheme and parking. No particular limitations apply on the type of benefits in kind that can be agreed.
The Company has a bonus programme for all employees, which has been established by the Board of Directors. The current bonus programme was adopted by the Board of Directors in 2009 and is reviewed annually. The Board of Directors intends to continue the programme through 2014 and until the Annual General Meeting for 2014 in 2015, although adjustments may be made.
In the current performance bonus system, the variable benefits are limited to a maximum of 40% of annual Basic Salary for the CEO and the other managers; however, the bonus is limited to a maximum of 100 percent of annual Basic Salary for the CEO and the other managers with respect to an additional bonus in extra-ordinary situations. The bonus is tied to the financial performance of the Company, events in the Company and other factors which the individual manager is able to influence. The level of bonus is tied to the achievement of agreed goals for the individual manager. The Board of Directors has maintained the flexibility to award additional bonuses in extra-ordinary events in addition to the performance bonus.
The Company operates a share option program for all employees with the aim to provide a long-term incentive. For new grants, minimum exercise price will be set at fair market value at the date of grant. The options may be exercised after a certain time, subject to still being in the Company's employment. Grants to Management will be at the discretion of the Board. The vesting period is 4 years. In the Annual General Meeting held in 2013, it was resolved to authorize the Board to issue a maximum of 10,000,000 options over three years under the employee option program to employees (not only management), and that the maximum outstanding options shall not at any time exceed 7.5% of the registered number of shares in the Company.
Early retirement agreements have not been entered into. However, the Company may sign early retirement agreements in the future.
Management personnel will normally belong to the Company's collective pension plan which will provide pensions that are proportional to final salary levels.
The CEO has a Severance Agreement which pays 18 months salary and benefits during the notice period if his employment is terminated. Other managers have
Severance Agreements which cover the payment of 12 months salary and benefits during the notice period if his/ her employment is terminated.
The severance scheme is structured to ensure that members of the executive management do not start working for a competitor shortly after leaving the Company.
The Company's CEO should ordinarily have an agreement that takes into account the Company's possible need to ask the CEO to leave immediately if this is considered to be in the Company's best interest. Consequently, the severance scheme must be sufficiently attractive for the CEO to accept an agreement involving a reduction in protection against dismissal.
Agreements may be signed regarding severance pay for other members of corporate management to attend to the Company's needs at all times to ensure that the selection of managers is in commensuration with the Company's needs. Pursuant to the Working Environment Act, such agreements may not have a binding effect on executives other than the CEO.
Efforts shall be made to devise severance schemes that are acceptable both internally and externally. In addition to salary and other benefits during the term of notice, such schemes will limit severance pay to 12 months.
Other companies in the Group are to follow the main principles of the Group's managerial salary policy as described in section 1. It is a goal to coordinate wage policy and the schemes used for variable benefits throughout the Group.
The remuneration policies set out in the declaration on determination of salary and other compensation to the CEO and other executive management for 2013 were followed in all respects for the year 2013. No member of the executive management received bonus above 40% of the annual Basic Salary.
Oslo, 19 March 2014
Bjarte H. Bruheim for and on behalf of the Board of Directors of EMGS
Year ended 31 December
| Amounts in USD 1 000 | Note | 2013 | 2012 Restated* |
|---|---|---|---|
| Operating revenues | |||
| Contract sales | 6 | 111 284 | 176 118 |
| Multi-client pre-funding | 5, 6 | 30 387 | 15 960 |
| Multi-client late sales | 5. 6 | 2 927 | 8 753 |
| Total operating revenues | 144 598 | 200 831 | |
| Operating expenses | |||
| Charter hire, fuel and crew expenses | 7 | 51 219 | 68 822 |
| Employee expenses | 8 | 54 344 | 55 076 |
| Depreciation and ordinary amortisation | 16, 17 | 17 495 | 13 920 |
| Multi-client amortisation | 16 | 12 337 | 12 709 |
| Other operating expenses | 9, 10 | 21 488 | 21 080 |
| Total operating expenses | 156 883 | 171 607 | |
| Operating profit/(loss) | -12 285 | 29 224 | |
| Financial income and expenses | |||
| Interest income | 11 | 477 | 220 |
| Interest expenses | 11 | -7 204 | -5 377 |
| Net foreign currency income/(loss) | 11 | 5 782 | -6 125 |
| Net financial items | -945 | -11 282 | |
| Income/(loss) before income tax | -13 230 | 17 942 | |
| Income tax expense | 12 | 1 865 | 6 047 |
| Income/(loss) for the year | -15 095 | 11 895 | |
| Basic income/(loss) per share (result for the year/shares) in USD | 31 | -0.08 | 0.06 |
| Diluted income/(loss) per share (EPS) in USD | 31 | -0.08 | 0.06 |
* Certain amounts shown here do not correspond to the 2012 financial statements and reflect adjustment made, refer Note 2.22
Year ended 31 December
| Amounts in USD 1 000 | Note | 2013 | 2012 Restated* |
|---|---|---|---|
| Income/(loss) for the year | -15 095 | 11 895 | |
| Other comprehensive income to be reclassified to profit or loss in subsequent periods: |
|||
| Exchange differences on translation of foreign operations | -255 | 4 046 | |
| Items not to be reclassified to profit or loss in subsequent periods: | |||
| Actuarial gain/(losses) on defined benefit plans | 22 | -1 055 | 3 075 |
| Other comprehensive income | -1 310 | 7 121 | |
| Total comprehensive income/(loss) for the year | -16 405 | 19 016 |
* Certain amounts shown here do not correspond to the 2012 financial statements and reflect adjustment made, refer Note 2.22
As at 31 December
| Amounts in USD 1 000 | Note | 2013 | 2012 Restated* |
As at 1 January 2012 Restated* |
|---|---|---|---|---|
| ASSETS | ||||
| Non-current assets | ||||
| Goodwill | 16 | 14 422 | 14 422 | 14 422 |
| Deferred tax asset | 13 | 3 202 | - | - |
| Multi-client library | 16 | 28 108 | 14 126 | 5 065 |
| Other intangible assets | 16 | 3 352 | 4 877 | 5 587 |
| Property, plant and equipment | 17 | 27 683 | 32 233 | 20 615 |
| Assets under construction | 17 | 19 200 | 10 893 | 14 275 |
| Restricted cash | 21 | - | - | 590 |
| Total non-current assets | 95 967 | 76 551 | 60 554 | |
| Current assets | ||||
| Spare parts, fuel, anchors and batteries | 19 | 12 990 | 12 874 | 9 733 |
| Trade receivables | 20 | 31 520 | 47 000 | 27 761 |
| Other receivables | 18 | 17 138 | 14 961 | 6 207 |
| Cash and cash equivalents | 21 | 55 305 | 39 259 | 57 796 |
| Restricted cash | 21 | 1 240 | 8 543 | 16 553 |
| Total current assets | 118 193 | 122 637 | 118 050 | |
| Total assets | 214 160 | 199 188 | 178 604 | |
| EQUITY | ||||
| Capital and reserves attributable to equity holders of the Company | ||||
| Share capital, share premium and other paid in equity | 14 | 285 249 | 268 709 | 265 027 |
| Other reserves | -1 717 | -383 | -4 428 | |
| Actuarial gains(losses) | 22 | 2 508 | 3 563 | 488 |
| Retained earnings | -183 823 | -157 939 | -169 836 | |
| Total equity | 102 217 | 113 950 | 91 251 | |
| LIABILITIES | ||||
| Non-current liabilities | ||||
| Employee benefit obligations | 22 | 3 452 | 2 286 | 4 563 |
| Non-current tax liability | 35 | 351 | 580 | |
| Provisions | 25 | 7 164 | 3 811 | - |
| Borrowings | 23 | 56 628 | 45 590 | 43 022 |
| Total non-current liabilities | 67 279 | 52 038 | 48 165 | |
| Current liabilities | ||||
| Trade payables | 24 | 15 942 | 9 616 | 14 276 |
| Current tax liabilities | 13 | 2 299 | 2 383 | 7 082 |
| Other short term liabilities | 26 | 26 295 | 19 843 | 16 552 |
| Borrowings | 23 | 128 | 1 358 | 1 278 |
| Total current liabilities | 44 664 | 33 200 | 39 188 | |
| Total liabilities | 111 943 | 85 238 | 87 353 | |
| Total equity and liabilities | 214 160 | 199 188 | 178 604 |
* Certain amounts shown here do not correspond to the 2012 financial statements and reflect adjustment made, refer Note 2.22
Year ended 31 December
| Amounts in USD 1 000 Note |
2013 | 2012 |
|---|---|---|
| Net cash flow from operating activities: | ||
| Income/(loss) before income tax | -13 230 | 17 942 |
| Adjustments for: | ||
| Depreciation and ordinary amortisation 16, 17 |
17 495 | 13 920 |
| Multi-client amortisation 16 |
12 337 | 12 709 |
| Non-cash portion of pension expenses | 1 167 | -1 769 |
| Cost of share-based payments | 5 173 | 2 305 |
| Change in trade receivables | 15 480 | -19 239 |
| Change in inventories | -116 | -3 142 |
| Change in trade payables | 6 326 | -4 660 |
| Change in other working capital | 3 955 | 16 071 |
| Taxes paid | -5 180 | -21 594 |
| Withholding tax expenses | 3 231 | 10 847 |
| Amortisation of interest | 5 273 | 5 347 |
| Net cash flow from operating activities | 51 911 | 28 737 |
| Investing activities: | ||
| Purchases of property, plant and equipment | -10 707 | -21 171 |
| Purchases of intangible assets | -8 306 | -263 |
| Investment in multi-client library | -26 319 | -21 362 |
| Cash used in investing activities | -45 332 | -42 796 |
| Financial activities: | ||
| Financial lease payments-principal and interest | -1 753 | -1 159 |
| Proceeds from issuance of ordinary shares 14 |
792 | 1 377 |
| Payment of bond | -41 873 | - |
| Proceeds from bonds | 56 550 | - |
| Payment of interest on bonds | -4 249 | -4 696 |
| Cash provided by financial activities | 9 467 | -4 478 |
| Net change in cash | 16 046 | -18 537 |
| Cash balance beginning of period | 39 259 | 57 796 |
| Cash balance end of period | 55 305 | 39 259 |
| Net change in cash | 16 046 | -18 537 |
| Interest paid | -4 208 | -4 999 |
| Interest received | 477 | 220 |
Attributable to equity holders of the Company
| Amounts in USD 1 000 | Note | Share capital share premium and other paid-in equity |
Foreign currency translation reserves |
Actuarial gains/(losses) |
Retained earnings |
Total equity |
|---|---|---|---|---|---|---|
| Balance at 31 December 2011 | 265 027 | -4 428 | - | -169 836 | 90 764 | |
| Implementation of IAS 19R | - | - | 488 | - | 488 | |
| Balance at 1 January 2012 | 265 027 | -4 428 | 488 | -169 836 | 91 252 | |
| Income/(loss) for the year | - | - | - | 11 895 | 11 895 | |
| Other comprehensive income | - | 4 046 | 3 075 | - | 7 121 | |
| Total comprehensive income | - | 4 046 | 3 075 | 11 895 | 19 016 | |
| Proceeds from shares issued - options exercised Share-based payment |
14 14 |
1 377 2 305 |
- - |
- - |
- - |
1 377 2 305 |
| Balance at 31 December 2012 | 268 709 | -383 | 3 563 | -157 939 | 113 950 | |
| Change in functional currency | 10 574 | -1 078 | - | -10 789 | -1 293 | |
| Balance at 1 January 2013 | 279 283 | -1 461 | 3 563 | -168 728 | 112 657 | |
| Income/(loss) for the year | - | - | - | -15 095 | -15 095 | |
| Other comprehensive income | - | -255 | -1 055 | - | -1 310 | |
| Total comprehensive income | - | -255 | -1 055 | -15 095 | -16 405 | |
| Proceeds from shares issued - options exercised Share-based payment |
14 14 |
792 5 173 |
- - |
- - |
- - |
792 5 173 |
| Balance at 31 December 2013 | 285 249 | -1 717 | 2 508 | -183 823 | 102 217 |
Electromagnetic Geoservices ASA (EMGS/the Company) and its subsidiaries (together the Group) use EM, a patented electromagnetic survey method, to find hydrocarbons in offshore reservoirs. The Company's services help oil and gas companies to improve their exploration success rates. The Group has subsidiaries in Norway, Australia, Brazil, USA, Holland, Nigeria, Mexico, Malaysia, Cyprus, Canada and the United Kingdom.
The Company is a public limited liability company incorporated and domiciled in Norway whose shares are publicly traded. The address of its registered office is Stiklestadveien 1, 7041 Trondheim.
These consolidated financial statements have been approved for issue by the Board of Directors and the Chief Executive Officer on 19 March 2014.
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). IFRS as adopted by the EU differ in certain respects from IFRS as issued by the International Accounting Standards Board (IASB). However, the consolidated financial statements for the periods presented would not be materially different had the Group applied IFRS as issued by the IASB. References to IFRS hereafter should be construed as references to IFRS as adopted by the EU.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4.
The consolidated financial statements have been prepared on a historical cost basis and are presented in US dollars and all values are rounded to the nearest thousand except when otherwise indicated.
The consolidated financial statements provide comparative information in respect of the previous period. In addition, the Group presents an additional statement of financial position at the beginning of the earliest period presented when there is a retrospective application of an accounting policy. An additional statement of financial position as at 1 January 2012 is presented in these consolidated financial statements due to retrospective application of certain accounting policies, refer Note 2.22.
The consolidated financial statements incorporate the financial statements of EMGS and entities controlled by EMGS (subsidiaries). Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:
· Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee)
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. The results of subsidiaries acquired or disposed during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.
All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full.
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquire at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisitionrelated costs incurred are expensed and included in other operating expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether the assets or liabilities of the acquiree are assigned to those units.
A joint operations is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. The Group recognises the following in relation to its interest in a joint operation:
· its assets, including its share of any assets held jointly;
The assets, liabilities, revenues, and expenses are recognised in accordance with the applicable IFRS for the respective items.
The Group presents assets and liabilities in statement of financial position based on current/non-current classification. An asset as current when it is:
All other assets are classified as non-current.
A liability is current when:
The Group classifies all other liabilities as non-current.
Deferred tax liabilities are classified as non-current liabilities.
The financial statements of each entity within the Group reflect transactions recorded in the currency of the economic environment in which it operates (the functional currency). The functional currency of the Company is USD Dollars (USD).
The consolidated financial statements are presented in USD which is the Group's presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency.
Transactions in foreign currencies are initially recorded at the functional currency rate on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the currency rate at the balance sheet date. All differences are recorded in profit and loss. Non-monetary items that are measured in terms of historical costs in a foreign currency are translated using the exchange rates on the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates on the date when the fair value is determined.
The results and financial position of Group companies (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
All resulting exchange differences are recognised in other comprehensive income.
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue
can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable for services in the ordinary course of the Group's activities. Revenue is shown net of withholding and value-added taxes. Revenue is recognised as follows:
Revenue from contracts (whether priced as Lump Sum, Day Rate or Unit Price) is recognised based on the percentage of completion method, measured by reference to the percentage of vessel operational hours incurred to date versus the total estimated vessel operational hours for the project. Vessel operational hours are the actual amount of time incurred/ expected to be incurred in the productive acquisition of the electromagnetic data. Any amount received greater than that calculated as recognisable will be recorded on the balance sheet as deferred revenue and recognised in the applicable future periods. Conversely, any earned but unbilled revenue will be recognised as revenue in the current period and recorded as accrued revenue on the balance sheet.
Revenues for mobilisation are usually contracted with the customer and should cover the vessels transit to the actual area. Revenues and costs related to mobilisation are deferred and recognised over the acquisition period (which is the time from the first receiver is dropped to the last retrieval) of the contract, representing the acquisition period of the geological information, using the percentage of completion method. The deferral of mobilisation costs can only begin after a definitive contract has been executed between EMGS and the client. Until a contract is signed, costs are expensed as incurred.
Before an EM survey is completed, the Group secures funding from a group of customers. The advantages for prefunding customers are generally the possibility to influence the project specifications, early access to acquired data, and discounted prices.
The Group recognises pre-funded revenue using the percentage of completion method. Progress is measured by reference to the percentage of vessel operational hours incurred to date versus the total estimated vessel operational hours for the project, provided that all other revenue recognition criteria are satisfied.
Customers are granted a license from the Group which entitles them to access a specific part of the multi-client data library. The license payment is fixed and is required when the license is granted. The late sale revenue is recognised when a valid licensing agreement is signed and the multi-client library data made accessible to the customer.
Interest income is recognised on a time-proportion basis using the effective interest method. When a receivable is impaired, the carrying amount is reduced to the recoverable amount, calculated as the estimated future cash flows discounted using the original effective interest rate of the instrument. The discount continues to be unwound as interest income. Interest income on impaired loans is recognised using the original effective interest rate.
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recorded as a reduction of the asset up to the amount that covers the cost price.
When the Group receives grants of non-monetary assets, the asset and the grant are recorded at nominal amounts and released to profit or loss over the expected useful life in a pattern of consumption of the benefit of the underlying asset by equal annual installments.
Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes costs directly attributable to the acquisition of the item. Costs are included in the asset's carrying amount or recognised as a separate asset, if appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Costs of all repairs and maintenance are expensed as incurred.
Depreciation on assets is calculated using the straight-line method. The assets are depreciated over their estimated useful life, adjusted for any estimated residual values.
| Useful life: | |
|---|---|
| Machinery and equipment* | 3 - 8 years |
| Cluster ** | 5 years |
| Hardware equipment and furniture | 3 - 5 years |
*Machinery and equipment are mainly placed onboard the vessel. Parts of the equipment are underwater during operation and have a shorter useful life.
** A cluster consists of IT equipment comprising of large amount of processors for doing advanced data processing.
The assets' residual values, useful lives, and method of depreciation are reviewed at each balance sheet date and adjusted if appropriate. If an asset's carrying amount is greater than its estimated recoverable amount, the asset is immediately written down to the recoverable amount (Note 2.13).
The determination whether an arrangement is, or contains, a lease is based on the substance of the arrangement on inception date. The arrangement is assessed for whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.
The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the commencement of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments.
Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding.
Property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term.
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
The useful lives of intangible assets are assessed to be either finite or indefinite.
Intangible assets with finite useful lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and method are reviewed at least every financial year end.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level.
Patents have a finite useful life and are recorded at historical cost less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of patents over their estimated useful lives (10-15 years). Administrative costs associated with patents are expensed as incurred.
The cost of acquired computer software licenses is capitalised based on the expenses incurred to acquire and bring the specific software to use. These costs are amortised over the estimated useful life (3 years).
The costs of design of software interfaces, installing, testing, creating system and user documentation, defining user reports and data conversion are capitalised together with the software cost. These costs are directly related to developing the software application for the Group's use.
Costs associated with maintaining computer software are expensed as incurred. Costs directly associated with the production of identifiable and unique software products controlled by the Group, which are expected to generate economic benefits in excess of cost (beyond one year) are recognised as intangible assets. Direct costs include software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised over their estimated useful life, not to exceed three years.
Research costs are expensed as incurred. Development expenditure on individual projects is recognised as an intangible asset when the Group can demonstrate:
Following initial recognition of the development expenditure as an asset, the cost model is applied requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit (normally 3 years). During the period of development, the asset is tested for impairment annually.
Contributions from external customers and government grant in the development stage are recorded as a reduction of the intangible asset up to the amount that covers the cost price. Any surplus is recorded as revenues.
The multi-client library consists of surveys of electromagnetic data. The surveys can be licensed to customers on a nonexclusive basis. Directly attributable costs associated with the production and development of multi-client projects such as acquisition costs, processing costs, and direct project costs are capitalised.
The Group amortises its multi-client library primarily based on the ratio between the cost of the surveys and the total forecasted sales for such surveys. Surveys are categorised into four amortisation categories with amortisation rates of 90%, 75%, 60% or 45% of recognised revenue from the survey. Classification of a project into a rate category is based on the ratio of its remaining net carrying value to its remaining estimated revenues. Amortisation is recorded each time there has been a multi-client sale on surveys with a carrying value higher than zero.
The Group also applies minimum amortisation criteria for the library projects based on a three-year life. Under this policy, the book value of each survey is reduced to a specified percentage by each quarter end, based on the age of the survey. The calculated minimum linear amortisation is recorded quarterly after amortisation for sales.
Inventories are valued at the lower of cost or net realisable value. Cost is determined using the first-in, first-out (FIFO) method. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of
completion and the estimated costs necessary to make the sale.
The Group's inventory consists primarily of equipment components and parts, anchors, batteries, and fuel.
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, such as for goodwill and intangible assets with infinite useful life, the Group estimates the asset's recoverable amount. An asset's recoverable amount is the higher of an asset's or cash-generating unit's (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transaction can be identified, an appropriate valuation model is used.
Non-financial assets, other than goodwill previously impaired, are reviewed at each reporting date for possible reversal of the previously recorded impairment. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior periods.
Financial assets are classified at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. The Group determines the classification of its financial assets dependent on the financial assets nature and the purpose for the acquisition. The Group's financial assets include cash and short term deposits, trade and other receivables, and are classified as loan and receivables.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such financial assets are subsequently measured at amortised cost using the effective interest rate method, less impairment.
The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that has occurred after the initial recognition of the asset, has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default of payments, the probability that they will enter bankruptcy or other financial reorganization, and where observable data indicate that there is a measurable decrease in the estimated cash flows, such as changes in arrears or economic conditions that correlate with defaults.
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The subsequent measurement of the financial liabilities depends on its classification. The Group's financial liabilities include trade and other payables, loans and borrowings, and derivative financial instruments.
Loans and borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the borrowing period using the effective interest rate method.
Financial liabilities at fair value through profit or loss includes financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Derivatives, including separated embedded derivatives, are classified as held for trading unless they are designated as effective hedging instruments. Financial liabilities at fair value through profit or loss are carried in the income statement at fair value with changes in fair value recognised under financial items.
a) Financial assets
A financial asset is derecognised when:
A financial liability is derecognised when the obligation under the liability is discharged, cancelled, or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit and loss.
Current income tax assets and liabilities for the current and prior periods are measured using the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income.
Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred income tax is provided for using the liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted on the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Deferred income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.
Expenses and assets are recognised net of the amout of sales tax, except:
The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.
The Company operates a defined benefit plan. The scheme is funded through payments to an insurance company. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method.
Re-measurements, comprising of actuarial gains and losses and the return on plan assets, are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through OCI in the period they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset.
The net pension cost for the period is presented as an employee expense.
The Group operates an equity-settled, share-based compensation plan. The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by an external valuation expert using an appropriate pricing model, further details are given in Note 16.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting date). The cumulative expense recognised for equity- settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. When options are exercised, the proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium.
Social security tax on share-based compensation is recorded as a liability and recognised over the estimated option period. The social security tax is calculated using the appropriate tax rate on the difference between market price and the exercise price on the measurement date.
The Group recognises a provision for bonus expenses where contractually obliged or where there is a past practice that has created a constructive obligation.
Provisions are recognised when the Group has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
The cash flow statement is presented using the indirect method. Cash and cash equivalents includes cash at hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less.
The accounting principles adopted are consistent with those of the previous financial year, except for the following new and amended IFRS and IFRIC interpretations effective as of 1 January 2013:
The amendments to IAS 1 introduce a grouping of items presented in OCI. Items that will be reclassified ("recycled") to profit or loss at a future point in time have to be presented separately from items that will not be reclassified. The amendments affect presentation only and have no impact on the Group's financial position or performance.
The Group applied IAS 19R retrospectively in the current period in accordance with the transitional provisions set out in the revised standard. The opening statement of financial position of the earliest comparative period presented (1 January 2012) and the comparative figures have been accordingly restated.
IAS 19R includes a number of amendments to the accounting for defined benefit plans, including actuarial gains and losses that are now recognised in other comprehensive income (OCI) and permanently excluded from profit and loss. Expected returns on plan assets are no longer recognised in profit or loss, instead, there is a requirement to recognise interest on the net defined benefit liability (asset) in profit or loss, calculated using the discount rate used to measure the defined benefit obligation, and; unvested past service costs are now recognised in profit or loss at the earlier of when the amendment occurs or when the related restructuring or termination costs are recognised.
The Group has previously used the "corridor approach", which allowed the Group to not recognise changes resulting actuarial gains or losses as long as these were within in a pre-defined bandwidth when accounting for actuarial gains and losses. The removal of the corridor mechanism implies that actuarial gains and losses shall be recognised in OCI in the current period. The gain within the corridor stood at 488 as of 1 January 2012, and it has been dissolved, and the pension obligation decreased by the same amount, whereas equity increased by 488.
The amended standard impacts the net benefit expense as the expected return on plan assets are calculated using the same interest rate as applied for the purpose of discounting the benefit obligation. The difference between actual return of assets and the estimated return is recognised in OCI. The pension expense under previous standard was 2 253 in 2012. No changes are made in the 2012 pension expense, as the changes are immaterial. Under the new standard, changes in actuarial assumptions recognised under OCI in 2012 is 3 075. The pension obligation as of 31 Desember 2012 decreased from 5 849 to 2 286. Since the Group has unrecognised deferred tax assets, no tax obligation has been recognised as a result of the implementation which these will be deducted from the asset. The impact on equity for the year ended 31 December 2013 was -1 055.
IAS 19R also requires more extensive disclosures. These have been provided in Note 23.
IAS 19R has been applied retrospectively, with the following permitted exceptions:
· Sensitivity disclosures for the defined benefit obligation for comparative period (year ended 31 December 2012) have not been provided.
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS. IFRS 13 defines fair value as an exit price. As a result of the guidance in IFRS 13, the Group re-assessed its policies for measuring fair values. IFRS 13 also requires additional disclosures.
The financial statements have been prepared based on standards effective for the year ending 31 December 2013. The following issued standards, that are not yet effective, has been assessed not to have an impact of the financial statements:
The Group has not yet considered if IFRS 9 Financial Instrument will impact the financial statements. The mandatory effective date of IFRS 9 is not known, but is expected to be 1 January 2017, at earliest.
Other issued standards and interpretations, that are not yet effective, are not expected to be relevant for the Group, and will not have an impact on the financial statements.
The Group plans to implement the new standards, amendments and interpretations when they are effective and approved by EU.
The Group's principal financial liabilities comprise trade and other payables, financial liabilities at amortised cost, and derivative financial instruments. The main purpose of these financial liabilities is to raise finance for the Group's operations. The Group has various financial assets such as trade receivables, cash and short-term deposit which arise directly from its operations. The Group has not entered into any hedging transactions in 2013 or 2012.
The Group is exposed to market risk, credit risk and liquidity risk. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below.
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise two types of risk for the Group: interest rate risk and currency risk. Financial instruments affected by market risk include financial liabilities at amortised cost and derivative financial instruments.
The sensitivity analysis in the following sections relate to the position as at 31 December 2013 and 2012. The sensitivity analysis have been prepared on the basis that the amount of net debt and the portion of financial instruments in foreign currencies are all constant.
The analysis exclude the impact of movements in market variables on the carrying value of pension, provisions and on the non-financial assets and liabilities of foreign operations.
The sensitivity of the relevant income statement item is the effect of the assumed changes in respective market risk. This is based on the financial assets and financial liabilities held at 31 December 2013 and 2012.
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's long-term debt obligations with floating interest rates.
With all other variables held constant, for every one-percentage point hypothetical increase in NIBOR, the Group's annual net interest expense on variable debt, including finance leases, will increase by approximately 520 at 31 December 2013.
Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group operates internationally and therefore has exposure to foreign exchange risk arising from transactions executed in other currencies than the functional currency of each company. EMGS ASA changed its functional currency from NOK to USD in 2013, hence the foreign currency risks is primarily with respect to NOK in EMGS ASA. Approximately 97% of the Group's sales are denominated in USD, whilst approximately 40% of costs are denominated in USD in 2013. EMGS also has a NOK 350 million bond loan as of 31 December 2013. Foreign exchange risk arises from future commercial transactions, recognised as assets and liabilities.
The following table summarises the sensitivity to a reasonably possible change in the NOK exchange rate in 2013 and USD exchange rate in 2012, with all other variables held constant, of the Group's profit before tax (due to changes in the fair value of monetary assets and liabilities). The Company changed its functional currency from NOK to USD 1 January 2013, hence the sensitivity analysis are made on different currencies. The Group's exposure to foreign currency changes on equity and for all other currencies is not material.
| Increase/ decrease in NOK rate |
Effect on income/(loss) before tax |
|---|---|
| 2013 +20% |
8 064 |
| -20% | -10 878 |
| Increase/ decrease in USD rate |
Effect on income/(loss) before tax |
| 2012 +20% |
10 172 |
| -20% | -10 172 |
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables and cash and cash equivalents). See Note 20 for aging analysis of trade receivables.
The Group trades with recognised, creditworthy third parties. It is the Group's policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debt is not significant. Although 2 major customers amounted to a significant part of 2013 sales, these customers were large international oil companies, and considered creditworthy.
The requirement for an impairment charge is analysed at each reporting date on an individual basis for each customer. The calculation is based on actually incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets.
With respect to credit risk arising from the other financial assets of the Group such as cash and cash equivalents, the Group's exposure to credit risk arises from default of the counter party, with maximum exposure equal to the carrying amount of these instruments.
The Group's sources of liquidity include cash balances, cash flow from operations, borrowings, it's existing and new bank facilities and further debt and equity issues. It's the Group's objective to balance these sources of liquidity as well as the operational performance and current global capital markets will allow. The majority of customers are solid large companies, EMGS feels confident in reaching the revenue forecast necessary for a stable liquidity.
The table below summarises the maturity profile of the Group's financial liabilities 31 December based on contractual payments.
| Amounts in USD 1 000 | On demand | Less than 1 year |
1 to 2 years | 2 to 5 years | > 5 years | Total |
|---|---|---|---|---|---|---|
| Year ended 31 December 2013 | ||||||
| Interest bearing loans and borrowings | - | 4 546 | 4 615 | 59 517 | - | 68 678 |
| Trade and other payables | - | 44 536 | 35 | - | - | 44 571 |
| Other financial liabilities | - | 128 | 264 | - | - | 392 |
| Year ended 31 December 2012 | ||||||
| Interest bearing loans and borrowings | - | - | 44 803 | - | - | 44 803 |
| Trade and other payables | - | 31 842 | - | 351 | - | 32 193 |
| Other financial liabilities | - | 1 358 | 787 | - | - | 2 145 |
See Note 23 for interest bearing loans and borrowings.
Capital includes equity attributable to the equity holder of the parent.
The primary objective of the Group's capital management is to ensure healthy capital ratios to support its business and maximise shareholder value.
In order to achieve this overall objective, the Group's capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the lenders to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest bearing loans and borrowings in the current period.
The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. Due to the current market conditions, the Group considers a share issuance or a loan agreement to be potential sources for additional funding. No changes were made in the objectives, policies or processes during the years ended 31 December 2013 and 31 December 2012.
The Group monitors its capital structure on the basis of a total equity to total assets ratio. As of 31 December 2013 this ratio was 48% (2012:57%). It is the Group's policy that the said ratio shall be above 50% during its current growth phase.
The preparation of the Group's financial statements requires management to make estimates, judgements and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the assets or liabilities affected in the future. Estimates and judgements 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.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates could deviate from the actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
The Group's management determines the estimated useful lives and related depreciation and amortisation charges for its property, plant, and equipment and intangible assets. This estimate could change significantly as a result of technical innovations and increased competition. When remaining useful lives of assets are determined to be too high, management will make appropriate estimate revisions and adjust depreciation charges prospectively. Items determined to be technically obsolete or which have been abandoned will be written off completely.
The cost of defined benefit pension plans is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. The net pension obligation at 31 December 2013 is 3 452 (2012: 2 286). Additional information is disclosed in Note 22.
The Group measures the costs of share based options by the reference to the fair value of the equity instruments at the date at which they are granted. The fair value is calculated using the Black-Scholes option pricing model. Significant inputs in the model are share prices, standard deviation of share price returns, dividend yield and volatility. Changes in these estimates will influence the fair value calculated.
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. The Group is subject to income taxes in several jurisdictions. Given the wide range of international business relationships, differences arising between the actual results and the assumptions made, or future changes in such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible consequenses of audit by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on various factors, such as the experiense of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences in interpretation may arise for a wide variety of issues depending on the conditions prevailing in the respective domicile of the Group companies.
Unrecognised tax assets at 31 December 2013 are 69 175 (2012: 66 056).
The Group uses the percentage of completion method in accounting for its contracts to deliver survey services. Use of the percentage of completion method requires the Group to estimate the services performed to date as a proportion of the total services to be performed. The proportion of services performed to total services to be performed can differ from management's estimates, influencing the amount of revenue recognised in the period.
In determining the sales amortisation rates applied to the multi-client library, the Group considers expected future sales. The assumption regarding expected future sales includes consideration of geographic location, prospects, political risk and license periods.
It is difficult to make an assumption regarding future sales, hence the amortisation rate will fluctuate when the sales forecast is updated. To reduce the effect on changes in the amortisation amount caused by deviation in sales forecast from year to year, the Group has a maximum lifetime of 3 years on multi-client data.
The minimum amortisation policy is described in Note 2.11 d).
An impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal calculation is based on available data from binding sales transactions in an arm's length transaction of similar assets or observable market prices less incremental costs for disposing the asset.
Where the fair value of financial assets and financial liabilities recorded in the income statement cannot be derived from active markets, they are determined using valuation techniques including the discounted cash flow model. The inputs to this model are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. The judgement include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.
In the process of applying the Group's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements:
The Group has entered into lease contracts on its vessels. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a substantial portion of the economic life of the vessels, that the vessel owner retains all significant risks and rewards of ownership of these vessels and the Group accounts for the contracts as operating leases.
Development costs are capitalised in accordance with accounting policy in Note 2.11 c). Initial capitalisation of costs is
based on management's judgement that technological and economical feasibility is confirmed, usually when a product development project has reached a defined milestone according to established project management model. At 31 December 2013, the carrying amount of capitalised development costs is 1 298 (2012: 1 488).
Due to development in how the operations in the Group was organised, the transactions in EMGS was from 2013 mainly denominated in USD while historically the revenues and other transactions in the Company were mainly denominated in NOK. Based on an assessment of the economic environment EMGS operates as well as other factors to be considered, the functional currency of EMGS changed from NOK to USD as of 1 January 2012. The presentation currency for the Group is also USD.
The Company and TGS have in 2013 signed an agreement to jointly invest in a 3D EM multi-client survey programme covering 17 blocks in the Hoop area of the Barents Sea. EMGS' share of the investment is, according to the agreement, 70%.
The 3D EM data will be, according to the agreement, sold by both EMGS and TGS. Further, the two companies will split revenues according to their respective investments.
Under the terms of the agreement, EMGS has been given access to TGS' 2D seismic data for survey planning and integration purposes, while TGS has obtained access to 3D EM data to evaluate and plan subsequent multi-client work over the area.
The Group's value of the joint operation's multi-client library as of 31 December 2013 is:
| Net carrying value | - |
|---|---|
| Accumulated amortisation | -1 409 |
| Accumulated cost | 1 409 |
EMGS' share of the revenue from the sale of multi-client library of the joint operation in 2013 is 3 132. In additon, 1 409 is recorded as amortisation on this project in 2013.
For management purposes, the Group is organised into one reportable segment. The Group offers EM services, and the sale contracts and costs are incurred worldwide.
The Group uses a patented electromagnetic survey method to find hydrocarbons in offshore reservoirs. The Group's services help oil and gas companies to improve their exploration success rates.
Management monitors the operating result of the single reportable segment for the purpose of making decisions about resource allocation and performance assessment.
No operating segments have been aggregated to form the above reportable operating segment.
The customers are international oil companies and the risk and profitability are similar in the different geographical areas.
The Group's main property, plant and equipment are the survey equipment on the vessels. As the surveys are executed world wide, the Group is not able to allocate any assets to different geographical areas.
Revenues from external customers:
| Total | 144 598 | 200 831 |
|---|---|---|
| Asia and the Pacific Ocean | 74 857 | 30 210 |
| North and South America | 31 183 | 143 716 |
| Europe, Middle East and Africa | 38 558 | 26 905 |
| Amounts in USD 1 000 | 2013 | 2012 |
The revenue information above is based on the location of the survey.
Two single external customers amounted to 10% or more of the Group's total revenues in 2013 (three single external customers in 2012). Total revenues from these customers were in 2013 52 133 and 26 420 (for 2012: 79 616, 64 186 and 24 980).
| Total charter hire, fuel and crew expenses | 51 219 | 68 822 |
|---|---|---|
| Other external services | 20 951 | 23 767 |
| Capitalisation of multi-client costs | -32 056 | -21 269 |
| Withholding tax cost | 2 372 | 4 056 |
| Agent fee | 3 473 | 5 046 |
| Fuel | 13 282 | 12 265 |
| Charter hire and crew expenses | 43 197 | 44 957 |
| Amounts in USD 1 000 | 2013 | 2012 |
| Amounts in USD 1 000 | 2013 | 2012 |
|---|---|---|
| Employee expense | ||
| Salaries | 37 191 | 40 871 |
| Social security tax | 4 572 | 5 029 |
| Pension costs (Note 22) | 1 802 | 2 253 |
| Other payments | 5 605 | 4 633 |
| Cost of share based payment (Note 15) | 5 174 | 2 290 |
| Total employee expense | 54 344 | 55 076 |
| Compensation of key management personnel of the Group | ||
| Salary | 1 084 | 1 539 |
| Bonus paid in the year | 270 | 402 |
| Share options | 635 | 331 |
| Pension benefits | 81 | 95 |
| Other benefits | 352 | 643 |
| Total management remuneration | 2 422 | 3 010 |
The average number of man-years employed was 288 in 2013 (2012: 272).
See Note 6 in the Financial Statements of EMGS for Executive Management and Board of Directors remuneration.
| Amounts in USD 1 000 | 2013 | 2012 |
|---|---|---|
| Rental and housing expenses | 3 953 | 3 869 |
| Consumables and maintenance | 2 000 | 2 021 |
| Consultancy fees * | 5 314 | 4 683 |
| Travel expenses | 3 640 | 3 700 |
| Insurance | 1 087 | 1 459 |
| Loss on trade receivable | - | - |
| Marketing | 1 481 | 1 061 |
| Other operating expenses | 4 012 | 4 285 |
| Total other operating expenses | 21 488 | 21 079 |
| * Fees to auditor included in consultancy fees: | ||
| Statutory audit services | 236 | 237 |
| Further assurance services | 88 | 65 |
| Tax advisory services | 160 | 107 |
| Other non-audit services | - | 12 |
| Total fees to auditor | 484 | 421 |
Research and development costs consist of 3 292 (2012: 4 105) charged to the income statement as part of operating expenses.
Employee costs capitalised as development amounted to: 2 361 (2012: 1 112).
| Amounts in USD 1 000 | 2013 | 2012 |
|---|---|---|
| Financial income: | ||
| Interest income on short term bank deposits | 477 | 220 |
| Foreign exchange gains related to loans and receivables | 8 908 | 23 647 |
| Foreign exchange gains related to liabilities at amortised cost | 4 139 | - |
| Total financial income | 13 524 | 23 867 |
| Financial expenses: | ||
| Interest expense on financial leases and bank borrowings | -112 | 216 |
| Interest expense on bond | 4 989 | 4 811 |
| Foreign exchange losses related to loans and receivables | 7 265 | 25 315 |
| Foreign exchange losses related to liabilities at amortised cost | - | 4 457 |
| Other financial expenses | 2 327 | 350 |
| Total financial costs | 14 469 | 35 149 |
| Net financial items | -945 | -11 282 |
The exchange rate effects in 2013 are mainly related to bond loan, accounts receivables and trade payables in NOK in EMGS ASA, and accounts receivables and trade payables in NOK or other currencies than USD in other group companies.
| Total income tax expense | 1 865 | 6 047 |
|---|---|---|
| Current tax | 4 095 | 6 047 |
| Recognised deferred tax asset | -2 230 | - |
| Amounts in USD 1 000 | 2013 | 2012 |
The expense/(benefit) for income taxes from continuing operations differs from the amount computed when applying the Norwegian statutory tax rate to income/(loss) before taxes as the result of the following:
| Income before tax -13 230 Tax at the domestic rate of 28% -3 704 Non-deductible expenses and other 586 Change in deferred tax asset, not recognised 3 119 Foreign income taxes 1 865 |
1 865 | Tax charge | 6 047 |
|---|---|---|---|
| 6 047 | |||
| -7 404 | |||
| 2 380 | |||
| 5 024 | |||
| 17 942 | |||
| Amounts in USD 1 000 2013 |
2012 |
| Amounts in USD 1 000 | 2013 | 2012 |
|---|---|---|
| Deferred taxes detailed | ||
| Property, plant and equipment | -658 | -3 842 |
| Inventory | -57 | 0 |
| Pension obligations | -932 | -1 638 |
| Accrued foreign income taxes and other accruals | 620 | 1 770 |
| Loss carried forward | -71 350 | -62 346 |
| Total deferred tax (asset)/liability | -72 377 | -66 056 |
| Non-recognised deferred tax assets | 69 175 | 66 056 |
| Net deferred tax assets | -3 202 | - |
Deferred tax assets are recognised only to the extent that the realisation of the related tax benefit through the future taxable profits is probable.
The Group did not recognise any deferred income tax assets through year-end 2012. In 2013 , the Group has recognised deferred tax assets in Brazil and Mexico.
Unused tax losses are generated in Brazil, Norway, Mexico, Malaysia and the US. It can be carried forward indefinitely in Brazil, Mexico, Norway and Malaysia.
The unused tax loss in the US of 1 340 can be carried forward in 20 years. The unused tax loss in the US was generated in 2005, hence it will expire in 2025.
The Group's temporary differences associated to investment in subsidiaries, for which deferred tax liability has not been recognised is immaterial both for 2013 and 2012.
In 2013, the Group has made a reclassification of tax receivable in Mexico of 972, to deferred tax asset.
The current tax liabilities of 2 299 mainly consist of accruals for taxes in Mexico (1 092).
| Number | Ordinary | Share | Other | ||
|---|---|---|---|---|---|
| Amounts in USD 1 000 | of shares | share capital | premium | paid-in capital | Total |
| At 1 January 2012 | 197 441 562 | 7 319 | 249 303 | 8 405 | 265 027 |
| Proceeds from shares issued - options exercised | 1 438 493 | 63 | 1 314 | - | 1 377 |
| Share-based payment | - | - | - | 2 305 | 2 305 |
| At 31 December 2012 | 198 880 055 | 7 382 | 250 617 | 10 710 | 268 709 |
| Change in functional currency | - | 259 | 9 835 | 480 | 10 574 |
| At 1 January 2013 | 198 880 055 | 7 641 | 260 452 | 11 190 | 279 283 |
| Proceeds from shares issued - options exercised | 859 500 | 36 | 756 | - | 792 |
| Share-based payment | - | - | - | 5 173 | 5 173 |
| At 31 December 2013 | 199 739 555 | 7 677 | 261 209 | 16 364 | 285 249 |
The total authorised number of ordinary shares is 226 768 060 (2012: 225 724 660) with a par value of USD 0.04 (NOK 0.25) per share. All issued shares are denominated in NOK and fully paid.
The largest shareholders as of 31 December 2013:
| Number of | Percentage |
|---|---|
| 10 124 112 | 5.07% |
| 9 947 262 | 4.98% |
| 8 473 631 | 4.24% |
| 7 868 361 | 3.94% |
| 7 838 224 | 3.92% |
| 7 425 000 | 3.72% |
| 5 589 435 | 2.80% |
| 5 029 207 | 2.52% |
| 4 579 314 | 2.29% |
| 4 472 746 | 2.24% |
| 3 996 807 | 2.00% |
| 3 783 655 | 1.89% |
| 3 340 917 | 1.67% |
| 3 282 333 | 1.64% |
| 3 100 000 | 1.55% |
| 2 615 655 | 1.31% |
| 2 500 000 | 1.25% |
| 2 496 861 | 1.25% |
| 2 206 588 | 1.10% |
| 2 205 088 | 1.10% |
| 98 864 359 | 49.50% |
| 199 739 555 | 100.00% |
| ordinary shares |
Share options are granted to employees and Board of Directors.
The expense recognised for employee services during the year is:
| Amounts in USD 1 000 | 2013 | 2012 |
|---|---|---|
| Expense arising from share based payment transactions | 5 174 | 2 290 |
The vesting period is the period during which the conditions to obtain the right to exercise are to be satisfied. The options granted shall vest as follows:
The Grant expires seven years following the Grant Date. A condition to hold options within the Company is continued employment.
The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not be actual outcome.
The Group has no legal or constructive obligation to repurchase or settle the options in cash.
The cost of the options is calculated based on the Black Scholes option pricing model.
The following table lists the inputs to the model used for the plan for the years ended 31 December 2013 and 2012:
| 2013 | 2012 | |
|---|---|---|
| Expected volatility | 60% | 60% |
| Risk free interest rate | 1.45% | 1.87% |
| Expected life of options (years) | 4 | 4 |
| Weighted average share price (USD) | 1.50 | 3.43 |
Expected volatility was determined based on historic volatility on comparable listed companies.
Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:
| Exercisable at 31 December | 1.91 | 4 411 907 | 1.85 | 3 074 007 |
|---|---|---|---|---|
| At 31 December | 2.02 | 10 578 507 | 2.45 | 8 329 507 |
| Cancelled | - | - | - | - |
| Expired | 3.05 | 46 500 | - | - |
| Forfeited | 2.42 | 1 017 000 | 2.06 | 764 000 |
| Exercised | 0.94 | 859 500 | 0.98 | 1 438 493 |
| Granted | 1.52 | 4 172 000 | 3.04 | 5 425 000 |
| At 1 January | 2.45 | 8 329 507 | 1.00 | 5 107 000 |
| Average exercise price in USD per share |
Options | Average exercise price in USD per share |
Options | |
| 2013 |
Share options outstanding at the end of the year have the following expiry date and exercise prices:
2012
| In USD per share | Options |
|---|---|
| 2013 2.42 and 4.67 |
46 500 |
| 2014 1,04 |
537 000 |
| 2015 3.59, 5.39 and 7.19 |
40 000 |
| 2016 0.77 |
827 000 |
| 2017 1,04 |
1 600 000 |
| 2018 2.10 and 2.48 |
709 007 |
| 2019 2.80, 3.25 and 3.47 |
4 570 000 |
| 8 329 507 |
| In USD per share | Options |
|---|---|
| 2014 0.94 |
500 |
| 2015 4.90 |
20 000 |
| 2016 0.70 |
658 000 |
| 2017 0.94 |
1 359 000 |
| 2018 1.91 and 2.25 |
639 007 |
| 2019 2.55, 2.96 and 3.15 |
4 080 000 |
| 2020 1.26, 1.39 and 1.47 |
3 822 000 |
| 10 578 507 |
The weighted average remaining contractual life for the share options outstanding as at 31 December 2013 is 5.11 years (2012: 5.11 years).
The weighted average fair value of options granted during the year was USD 0.71 (2012: 1.10).
| Amounts in USD 1 000 | Software and licenses |
Lease agreements EM Leader and EM Express |
Patents | Multi-client library |
Total | Goodwill |
|---|---|---|---|---|---|---|
| At 1 January 2012 | ||||||
| Accumulated cost | 9 022 | 2 321 | 3 578 | 29 609 | 44 530 | 14 422 |
| Translation differences accumulated cost | -316 | - | -172 | -626 | -1 114 | - |
| Accumulated amortisation | -7 085 | -251 | -1 730 | -24 647 | -33 713 | - |
| Translation differences accumulated amortisation | 159 | - | 61 | 729 | 949 | - |
| Net carrying value | 1 780 | 2 070 | 1 737 | 5 065 | 10 652 | 14 422 |
| Year ended 31 December 2012 | ||||||
| Opening carrying value | 1 780 | 2 070 | 1 737 | 5 065 | 10 652 | 14 422 |
| Additions | 109 | - | - | 22 034 | 22 143 | - |
| Transferred from assets under construction to intangible assets |
981 | - | - | - | 981 | - |
| Amortisation charge | -944 | -815 | -185 | -12 709 | -14 653 | - |
| Translation differences | -6 | - | 150 | -264 | -120 | - |
| Closing carrying value | 1 920 | 1 255 | 1 702 | 14 126 | 19 003 | 14 422 |
| At 31 December 2012 | ||||||
| Accumulated cost | 10 112 | 2 321 | 3 578 | 51 643 | 67 654 | 14 422 |
| Translation differences accumulated cost | 307 | - | 89 | 1 594 | 1 990 | - |
| Accumulated amortisation | -8 029 | -1 066 | -1 915 | -37 356 | -48 366 | - |
| Translation differences accumulated amortisation | -470 | - | -50 | -1 755 | -2 275 | - |
| Net carrying value | 1 920 | 1 255 | 1 702 | 14 126 | 19 003 | 14 422 |
| Year ended 31 December 2013 | ||||||
| Opening carrying value | 1 920 | 1 255 | 1 702 | 14 126 | 19 003 | 14 422 |
| Additions | 12 | - | - | 26 319 | 26 331 | - |
| Transferred from assets under construction to intangible assets |
721 | - | - | - | 721 | - |
| Amortisation charge | -1 113 | -940 | -205 | -12 337 | -14 595 | - |
| Closing carrying value | 1 540 | 315 | 1 497 | 28 108 | 31 460 | 14 422 |
| At 31 December 2013 | ||||||
| Accumulated cost | 11 152 | 2 321 | 3 667 | 79 556 | 96 696 | 14 422 |
| Accumulated amortisation | -9 612 | -2 006 | -2 170 | -51 448 | -65 236 | - |
| Net carrying value | 1 540 | 315 | 1 497 | 28 108 | 31 460 | 14 422 |
The amortisation expense on multi-client library only includes amortisation of costs directly linked to production, such as acquisition costs, processing costs, and direct project costs. No impairment has been recorded in 2013 or 2012, as no indication of impairment has been identified. Multi-client revenue recognised in 2013 amounted to 33 314 (2012: 24 713).
The patents are related to electromagnetic method, the Group's proprietary process which allows for the direct detection of hydrocarbons under the sea bed.
The lease agreements for the two vessels EM Leader and EM Express with Euro Trans Skips AS were a part of the acquistion of OHM in 2011. The vessels will, at no standby cost, be ready to mobilise on 3-, 6- or 12-month charters. These intangible assets are depreciated over the charter periods (42 and 30 months).
The goodwill that arose in the purchase price allocation in relation to the acquistion of OHM is attributed to expected synergies, competency, capacity and other benefits from combining the activities of OHM with those of the Company.
| Estimated useful lives | |
|---|---|
| Patents | 10-15 years |
| Software and licenses | 3 years |
| Lease agreements | 2.5-3.5 years |
The Group performed its annual impairment test as at 31 December 2013. Goodwill has not been allocated since there is only one CGU. The recoverable amount has been determined based on the fair value of the equity for the Group, which is based on the share price at 31 December 2013. The fair value of equity at 31 December is 256 854 , while the book value of equity is 102 217. No impairment charge has been made.
| Amounts in USD 1 000 | Machinery and equipment |
Hardware and furniture |
Cluster | Total | Assets under construction |
|---|---|---|---|---|---|
| At 1 January 2012 | |||||
| Accumulated cost | 79 234 | 16 413 | 9 951 | 105 598 | 14 275 |
| Translation differences accumulated cost | -1 563 | -822 | -227 | -2 612 | - |
| Accumulated depreciation | -63 683 | -13 575 | -7 763 | -85 021 | - |
| Translation differences accumulated depreciaton | 1 784 | 630 | 236 | 2 650 | - |
| Net carrying value | 15 772 | 2 646 | 2 197 | 20 615 | 14 275 |
| Year ended 31 December 2012 | |||||
| Opening carrying value | 15 772 | 2 646 | 2 197 | 20 615 | 14 275 |
| Additions | 1 006 | 1 088 | 219 | 2 313 | 18 364 |
| Accumulated costs on disposals | -116 | - | - | -116 | - |
| Transfer from asset under construction to property, plant and | |||||
| equipment | 19 038 | 65 | 1 371 | 20 474 | -21 455 |
| Depreciation charge | -8 866 | -1 585 | -1 525 | -11 976 | - |
| Accumulated depreciation on disposals | 116 | - | - | 116 | - |
| Translation differences | 497 | 303 | 7 | 807 | -291 |
| Closing carrying value | 27 447 | 2 517 | 2 269 | 32 233 | 10 893 |
| At 31 December 2012 | |||||
| Accumulated cost | 99 162 | 17 566 | 11 541 | 128 269 | 11 184 |
| Translation differences accumulated cost | 4 325 | 511 | 518 | 5 354 | -291 |
| Accumulated depreciation | -72 433 | -15 160 | -9 288 | -96 881 | - |
| Translation differences accumulated depreciaton | -3 607 | -400 | -502 | -4 509 | - |
| Net carrying value | 27 447 | 2 517 | 2 269 | 32 233 | 10 893 |
| Year ended 31 December 2013 | |||||
| Opening carrying value | 27 447 | 2 517 | 2 269 | 32 233 | 10 893 |
| Additions | 3 213 | 738 | 58 | 4 009 | 15 723 |
| Accumulated costs on disposals | -21 | - | - | -21 | - |
| Transfer from asset under construction to property, plant and | |||||
| equipment | 3 431 | 3 264 | - | 6 695 | -7 416 |
| Depreciation charge Accumulated depreciation on disposals |
-12 698 5 |
-1 808 - |
-732 - |
-15 238 5 |
- - |
| Translation differences | - | - | - | - | - |
| Closing carrying value | 21 377 | 4 711 | 1 595 | 27 683 | 19 200 |
| At 31 December 2013 | |||||
| Accumulated cost | 110 110 | 22 079 | 12 117 | 144 306 | 19 200 |
| Accumulated depreciation | -88 733 | -17 368 | -10 522 | -116 623 | - |
| Net carrying value | 21 377 | 4 711 | 1 595 | 27 683 | 19 200 |
Finance leasing included in property, plant and equipment:
| 5 641 | 46 | 675 | 6 362 |
|---|---|---|---|
| -4 513 | -15 | -113 | -4 641 |
| 1 128 | 31 | 562 | 1 721 |
| - | 721 | - | 721 |
| - | -481 | - | -481 |
| - | 240 | - | 240 |
The amount of property, plant & equipment pledged as security for liabilities has a net carrying value of 240 as of 31 December 2013 (2012: 1721).
| Estimated useful lives | |
|---|---|
| Machinery and equipment | 3-8 years |
| Hardware and furniture | 3-5 years |
| Cluster | 5 years |
| Total other receivables | 17 138 | 14 961 |
|---|---|---|
| Other receivables | 1 164 | 299 |
| Deferred mobilisation expenses | 2 978 | 1 669 |
| Receivables VAT and taxes | 7 679 | 8 161 |
| Prepayments | 5 317 | 4 832 |
| Amounts in USD 1 000 | 2013 | 2012 |
| Total spare parts, fuel, anchors and batteries | 12 990 | 12 874 |
|---|---|---|
| Fuel, at cost | 2 761 | 3 036 |
| Anchors and batteries, at cost | 1 824 | 2 562 |
| Equipment components and parts, at cost | 8 405 | 7 276 |
| Amounts in USD 1 000 | 2013 | 2012 |
| Total trade receivables | 31 520 | 47 000 |
|---|---|---|
| Accrued revenues | 3 803 | 21 815 |
| Accounts receivable | 27 717 | 25 185 |
| Amounts in USD 1 000 | 2013 | 2012 |
Trade receivables are non-interest bearing and are generally on 30 days payment terms.
Fair value of the receivables approximates the nominal values, less provision for doubtful receivables.
Generally, the Group trades with recognised, creditworthy customers. The customers are usually large oil companies with an appropriate credit history.
Only in a few instances services are performed for smaller companies with limited credit history.
At 31 December 2013 EMGS did not find it necessary to make any provision for doubtful trade receivables (2012: 0). The 771 that is more than 120 days due is taxes withheld from payment from a customer in India. The amount is expected to be paid from the tax authorities in India.
As at 31 December, the aging analysis of trade receivables is as follows:
| Amounts in USD 1 000 |
Total | Not due | < 30 days | 30-60 days | 60-90 days | 90-120 days | >120 |
|---|---|---|---|---|---|---|---|
| 2013 | 27 717 | 26 450 | 497 | - | - | - | 771 |
| Total cash and cash equivalents | 56 545 | 47 802 |
|---|---|---|
| Restricted cash current | 1 240 | 8 543 |
| Cash | 55 305 | 39 259 |
| Amounts in USD 1 000 | 2013 | 2012 |
Cash earns interest at floating rates based on daily bank deposit rates.
Short-term deposits are made for varying periods of between one day and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.
The Company is required to have an occupational pension scheme in accordance with the Norwegian law on required occupational pension ("lov om obligatorisk tjenestepensjon"). The Company's pension arrangements fulfill the requirements of the law.
The employees employed in Norway are covered by the Company's defined benefit scheme. Through this scheme the
member will be guaranteed a certain level on their pension payments based on their last salary. The scheme is insured by an insurance company. The level of the pension payment is dependent on the number of years the employee has been with the company and the obtained level of salary when working. Parts of the pension payment is paid by the National Insurance (Folketrygden) and is calculated based on the base amount (Folketrygdens grunnbeløp) which is endorsed yearly by the Norwegian Parliament.
As of 31 December 2013 there are 146 active and 1 retired people covered by the pension scheme (2012: 145 active and 1 retired).
| Amounts in USD 1 000 | 2013 | 2012 |
|---|---|---|
| Net employee defined benefit liability: | ||
| Employee benefit obligation | 3 452 | 2 286 |
The following tables summarise the components of net benefit expense recognised in the consolidated income statement and the funded status and amounts recognised in the consolidated statement of financial position:
| Net benefit expense | 1 802 | 2 253 |
|---|---|---|
| Social security tax | 223 | 278 |
| Administration costs | 15 | 41 |
| Interest cost | 54 | 18 |
| Current service cost | 1 509 | 1 915 |
| Net benefit expense (recognised as employee expenses in consolidated income statement): | ||
| Amounts in USD 1 000 | 2013 | 2012 |
Changes in the defined benefit obligation and fair value of plan assets:
| Amounts in USD 1 000 | 2013 | 2012 |
|---|---|---|
| Defined benefit obligation at 1 January | 7 819 | 8 335 |
| Service cost | 1 740 | 2 233 |
| Net interest | 62 | 20 |
| Sub-total included in profit or loss | 1 802 | 2 253 |
| Benefits paid | -20 | - |
| Actuarial changes arising from changes in demographic assumptions | 410 | -2 386 |
| Actuarial changes arising from changes in financial assumptions | 460 | 352 |
| Experience adjustments | -193 | -1 274 |
| Exchange differences | -98 | -401 |
| Sub-total included in OCI | 560 | -3 709 |
| Social security tax | -230 | 47 |
| Exchange differences | -502 | 635 |
| Defined benefit obligation at 31 December | 9 449 | 7 560 |
| Amounts in USD 1 000 2013 Fair value of plan assets at 1 January 5 124 Net interest 224 Sub-total included in profit or loss 224 Benefits paid -20 Return on plan assets (excluding amounts included in net interest expense) -68 Experience adjustments -428 Exchange differences 20 Sub-total included in OCI -496 Contributions by employer 1 933 Social security tax -239 |
|||
|---|---|---|---|
| 2012 | |||
| 3 738 | |||
| 188 | |||
| 188 | |||
| - | |||
| -58 | |||
| -622 | |||
| 45 | |||
| -635 | |||
| 1 630 | |||
| - | |||
| Exchange differences | -550 | 353 | |
| Fair value of plan assets at 31 December 5 997 |
5 274 |
| Employee benefit obligation at 31 December | 3 452 | 2 286 |
|---|---|---|
| Fair value of plan assets at 31 December | 5 997 | 5 274 |
| Defined benefit obligation at 31 December | 9 449 | 7 560 |
| Total included in OCI | 1 055 | -3 075 |
| Fair value of plan assets included in OCI | -496 | -635 |
| Defined benefit obligation included in OCI | 560 | -3 709 |
| Amounts in USD 1 000 | 2013 | 2012 |
The principal actuarial assumptions used are as follows:
| 2013 | 2012 | |
|---|---|---|
| Discount rate* | 4.00% | 3.90% |
| Expected future salary increases | 3.75% | 3.50% |
| Expected rate of pension increases | 3.50% | 3.25% |
| Expected rate of regulation of pensions under payment | 0.60% | 0.20% |
| Social security tax - rate | 14.10% | 14.10% |
| Life expectation for pensioners at the age of 65: | ||
| Male | 20.4 | 17.4 |
| Female | 23.2 | 20.7 |
*The Group has assessed that the OMF -rate on high quality corporate bonds can be used as discount rate in accordance with IAS 19 because the OMF-market represents a deep market on the relevant terms.
The change in actuarial assumptions in 2013 is in accordance with guidance published by the Norwegian Accounting Standards Board in January 2014.
Assumptions regarding future mortality experience are based on public statistics. The mortality table, K2013, is based on best estimates for the population in Norway.
| 2013 | 2012 | |
|---|---|---|
| Shares | 6.80% | 9.20% |
| Bonds and money market | 39.00% | 33.90% |
| Hold to maturity bonds | 35.20% | 36.80% |
| Real estate | 14.30% | 18.30% |
| Other | 4.70% | 1.80% |
| Total | 100.00% | 100.00% |
A quantitative sensitivity analysis for significant assumptions as at 31 December 2013 is as shown below:
| Assumptions | Discount rate | Expected salary increases | of pension increases | Expected rate | Average turnover | |||
|---|---|---|---|---|---|---|---|---|
| Sensitivity level | 1% increase 1% decrease | 1% increase 1% decrease | 1% increase 1% decrease | 1% increase 1% decrease | ||||
| Impact on defined benefit obligation | -2 514 | 2 490 | 1 766 | -2 439 | -1 069 | 735 | 596 | -951 |
| Impact on net pension cost | -793 | 376 | 368 | -890 | -344 | 174 | 164 | -258 |
The sensitivity analyses above have been determined based on a method that extrapolates the impact on the defined benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period.
Expected contributions to the defined benefit plan for the year ending 31 December 2014 are 1 689.
The average duration for the defined benefit plan obligation at the end of the reporting period is 20.2 years (2012: 20.4 years)
Employees not eligible for coverage under the defined benefit plan in Norway are eligible to participate in pension plans in accordance with local industrial, tax and social regulations. All of these plans are considered defined contribution plans. The contributions recognised as employee expenses equalled 1 343 and 991 in 2013 and 2012 respectively.
| Total borrowings | 56 756 | 46 948 | ||
|---|---|---|---|---|
| Total | 128 | 1 358 | ||
| Finance lease liabilities | 3 month NIBOR + 3.50% and 7.60% | Up to 1 year | 128 | 1 358 |
| Current | ||||
| Total | 56 628 | 45 590 | ||
| Finance lease liabilities | 3 month NIBOR + 3.50% and 7.60% | 2-3 years | 264 | 787 |
| NOK 250 000 000 bond | 3 month NIBOR + 7.00% | 26 May 2014 | - | 44 803 |
| NOK 350 000 000 bond | 3 month NIBOR + 6.00% | 27 June 2016 | 56 364 | - |
| Non-current | ||||
| Amounts in USD 1 000 | Interest rate | Maturity | 2013 | 2012 |
The finance lease liabilities relate to certain property, plant and equipment and are capitalised leases for financial reporting purposes. The related leased property, plant and equipment serve as the collateral under such leases.
On 26 May 2011, EMGS secured a NOK 250 million bond bearing an interest at 3 months NIBOR + 7.00% p.a. In connection with the issuing of the NOK 350 000 000 bond in June 2013, the Company repurchased the NOK 250 000 000 bond.
The bond was unsecured.
On 26 June 2013, EMGS secured a NOK 350 million bond bearing an interest at 3 months NIBOR + 6.00% p.a.
The bond is unsecured.
The exposure of the Group's borrowings to interest rate changes related to floating rate obligations and the contractual repricing dates of those obligations at the balance sheet dates are as follows:
| Total | 56 756 | 46 948 |
|---|---|---|
| Over 5 years | - | - |
| 1-5 years | - | - |
| 6-12 months | - | - |
| 6 months or less | 56 756 | 46 948 |
| Amounts in USD 1 000 | 2013 | 2012 |
The maturity of non-current borrowings is as follows:
| Total | 56 628 | 45 590 |
|---|---|---|
| Over 5 years | - | - |
| Between 4 and 5 years | - | 147 |
| Between 1 and 3 years | 56 628 | 45 443 |
| Amounts in USD 1 000 | 2013 | 2012 |
The carrying amounts and fair value of the non-current borrowings are as follows:
| Amounts in USD 1 000 | Carrying amounts | Fair values | |||
|---|---|---|---|---|---|
| 2013 | 2012 | 2013 | 2012 | ||
| NOK 350 000 000 bond | 56 364 | - | 56 364 | - | |
| NOK 250 000 000 bond | - | 44 803 | - | 44 803 | |
| Leasing liabilities | 264 | 787 | 264 | 787 |
The fair value measurements are calculated using observable inputs (level 2).
The carrying amount of the Group's borrowings are as follows:
| Total | 56 756 | 46 948 |
|---|---|---|
| NOK denominated | 56 756 | 46 948 |
| USD denominated | - | - |
| Amounts in USD 1 000 | 2013 | 2012 |
The effective interest rates at the balance sheet date were as follows:
| 2013 | 2012 | |
|---|---|---|
| NOK 350 000 000 bond | 8.97% | - |
| NOK 250 000 000 bond | - | 11.53% |
| Leasing liabilities | 7.58% | 7.80% |
Trade payables are generally non-interest bearing and on 30 days payment terms. Fair value of the payables equals the nominal value of 15 942 (2012: 9 616).
The Group recognises a provision for prepayments from two customers in a joint industry project. EMGS and the two customers have desired to collaborate on the development, construction, and testing of an advanced marine electromagnetic acquisition system. After the commercial launch date, the two customers will have a beneficial period with decreasing benefits over four years. The provision will be recorded as revenues during the beneficial period. The Group has recognised 7 164 as provision per 31 December 2013 (2012: 3 811).
| Total other short term liabilities | 26 295 | 19 843 |
|---|---|---|
| Other short term liabilities | 4 432 | 1 831 |
| Social security taxes and other public duties | 12 426 | 8 839 |
| Holiday pay | 2 809 | 3 264 |
| Accrued expenses | 6 628 | 5 909 |
| Amounts in USD 1 000 | 2013 | 2012 |
Accrued expenses are generally on 30 days payment terms.
The Company has finance lease agreements for winch & handling systems, hardware, furniture and cluster.
| Amounts in USD 1 000 | 2013 | 2012 |
|---|---|---|
| Finance lease liabilities – minimum lease payments: | ||
| No later than 1 year | 157 | 1 480 |
| After 1 year and no more than 5 years | 300 | 852 |
| After more than 5 years | - | - |
| Total minimum lease payments | 457 | 2 332 |
| Future finance charges on finance leases | -65 | -187 |
| Present value of finance lease liabilities | 392 | 2 145 |
| The present value of finance lease liabilities is as follows: | ||
| No later than 1 year | 128 | 1 358 |
| After 1 year and no more than 5 years | 264 | 787 |
| After more than 5 years | - | - |
| Total present value of finance lease liabilities | 392 | 2 145 |
| Contract terms regarding property rights at expiration of the contract: | ||
| The ownership will be negotiated at the end of the leasing period. | ||
The Group has contingent liabilities in respect of guarantees and matters arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities.
The Group has given guarantees in the ordinary course of business to third parties as specified below:
| Total guarantees | 20 082 | 17 102 |
|---|---|---|
| Guarantees on client contracts | 19 867 | 16 661 |
| Office premises rental guarantees | 215 | 441 |
| Amounts in USD 1 000 | 2013 | 2012 |
Guarantees on office premises are valid as long as the contracts are active. Guarantees on client contracts are due within one year. All guarantees are secured by bank guarantees.
Operating lease commitments:
The Group has operating leases on charter hires, office premises and IT infrastructure.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
| Total operating lease commitments | 70 608 | 52 258 |
|---|---|---|
| After more than 5 years | 2 909 | 3 878 |
| After 1 year and no more than 5 years | 33 915 | 21 856 |
| No later than 1 year | 33 784 | 26 524 |
| Amounts in USD 1 000 | 2013 | 2012 |
Contract terms on renewal of the leases are to be negotiated at or before the expiry of the contracts. The charter hire contracts have renewal options of different durations.
Operating leases recognised as expense in the period:
| Total | 40 130 | 41 589 |
|---|---|---|
| Office premises | 3 108 | 2 835 |
| Charter hire | 37 022 | 38 754 |
| Amounts in USD 1 000 | 2013 | 2012 |
EMGS is involved in the following legal processes:
A claim has been filed from a former contractual partner against the subsidiary Servicios Geologicos Electromagneticos do Brazil Ltda. The claim is from a former sales representative claiming the right to a commission for certain sales made by Servicios Geologicos Electromagneticos do Brazil Ltda. The parties are engaged in discussions to resolve the issue and it is therefore not appropriate to disclose more detailed information about the claims nor the solutions currently discussed. Based on an evaluation of the issue, the Group has made appropriate accruals.
EMGS has taken out patent infringement claims against PGS ASA and two of its subsidiaries for infringement of one of the EMGS patents in Norway, UK and Ireland. PGS has warned that they will file counterclaims against EMGS. The case in an early phase and the Group cannot indicate when it will be decided. No accruals are made for this.
Basic earnings/(loss) per share is calculated by dividing net profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year.
| 2013 | 2012 |
|---|---|
| -15 095 | 11 895 |
| -0.08 | 0.06 |
| -0.08 | 0.06 |
| 199 047 | 198 317 |
| - | 833 |
| 199 047 | 199 150 |
The Company has one category of dilutive potential ordinary shares; share options.
The Company has an agreement with BKCCA Oilfield Services de Mexico S.A. de C.V. (BKCCA). BKCCA will provide marketing services on behalf of the Company relating to work for PEMEX.
Under the terms of the agreement, BKCCA is entitled to receive 5% (2012: 7%) commission on each PEMEX contract obtained by the Company. EMGS' Charman of the Board, Bjarte H. Bruheim, holds 24.5% of the shares in BKCCA.
The Company also buys services from Fedem Technology AS (Fedem) where EMGS' CEO, Roar Bekker, holds the position as Chairman of the Board. Fedem offers a.o. engineering services to the oil and gas industry.
The following transactions were carried out with related parties:
| Amounts in USD 1 000 | 2013 | 2012 |
|---|---|---|
| Purchases of goods and services | ||
| BKCCA | 1 321 | 4 764 |
| Fedem | 76 | - |
Year end balances arising from purchases of goods:
| Amounts in USD 1 000 | 2013 | 2012 |
|---|---|---|
| Payables to related parties: | ||
| BKCCA | 747 | 90 |
| Fedem | - | - |
| Company | Share ownership/ voting rights 2013 |
Share ownership/ voting rights 2012 |
Equity 31 Dec 2013 |
Equity 31 Dec 2012 |
Location |
|---|---|---|---|---|---|
| EMGS Americas 1 AS | 100% | 100% | -144 | -216 | Trondheim, Norway |
| EMGS Americas 2 AS | 100% | 100% | 10 | 14 | Trondheim, Norway |
| Sea Bed Logging - Data Storage Company AS |
100% | 100% | 184 | 23 | Trondheim, Norway |
| Servicos Geologicos Electromagneticos Do Brasil LTDA |
100% | 100% | 5 423 | 5 720 | Rio de Janeiro, Brasil |
| EMGS Americas Inc | 100% | 100% | -1 690 | -1 699 | Delaware, USA |
| EMGS International B.V. | 100% | 100% | -115 | -83 | Amsterdam, Holland |
| Electromagnetic Geoservices Malaysia Sdn Bhd | 1%/100% | 1%/100% | 56 | -738 | Kuala Lumpur, Malaysia |
| EMGS Asia Pacific Sdn Bhd | 100% | 100% | -19 | 251 | Kuala Lumpur, Malaysia |
| Global EMGS Nigeria Ltd | 35%/100% | 35%/100% | -288 | -278 | Lagos, Nigeria |
| EMGS Australia Pty Ltd | 100% | 100% | 101 | 86 | Perth, Australia |
| EMGS Global AS | 100% | 100% | 1 849 | 464 | Trondheim, Norway |
| EMGS Sea Bed Logging Mexico S.A. de C.V. |
100% | 100% | 20 | 7 655 | Col. Del Valle, Mexico |
| EMGS Shipping Mexico S. de R.L. de C.V. | 49%/100% | 49%/100% | -85 | -426 | Col. Del Valle, Mexico |
| EMGS Services Mexico S.A. de C.V. | 99% | 99% | 51 | -80 | Col. Del Valle, Mexico |
| EMGS Labuan Ltd | 100% | 100% | 714 | 487 | Labuan, Malaysia |
| EMGS Asia Pacific Labuan Ltd | 100% | 0% | (296) | - | Labuan, Malaysia |
| EMGS Geophysical Limited | 100% | 100% | - | - | Nicosia, Cyprus |
| EMGS Global Services (Cyprus) Limited | 100% | 100% | - | - | Nicosia, Cyprus |
| EMGS MCL Limited | 100% | 100% | - | - | Nicosia, Cyprus |
| EMGS Surveys AS | 100% | 100% | 12 567 | 13 884 | Trondheim, Norway |
| Ohm Ltd | 100% | 100% | 2 707 | 2 434 | Aberdeen, Great Britain |
| Ohm Surveys SDN BHD | 100% | 100% | -296 | 163 | Kuala Lumpur, Malaysia |
| EM Multi-client AS | 100% | - | 5 | Trondheim, Norway | |
| Electromagnetic Geoservices Canada Inc | 100% | - | - | - | British Columbia, Canada |
The Group consolidates Electromagnetic Geoservices Malaysia Sdn Bhd, Global EMGS Nigeria Ltd and EMGS Shipping Mexico S. de R.L. de C.V. at 100 % as the Company has control over these companies. Side agreements shows that EMGS has all the rights and obligations of 100 % ownership.
On 21 January, EMGS announced that the Company signed an agreement with North Energy worth NOK 100 million. The agreement includes a sale of EMGS' full 3D EM multi-client data library in the Barents Sea for approximately KUSD 12 097 and sale of services related to EM inversion and integrated interpretation for approximately KUSD 2 419. In addition, North Energy has committed to pre-funding of approximately KUSD 1 613 for a 2014 Barents Sea program. The payment for the 3D EM data will be in the form of a convertible bond issued by North Energy with a strike price of NOK 4.15, coupon of 6% and with a maturity of 6 months. At maturity, unless converted, EMGS will receive NOK 75 million plus interest. The remaining part of the payment of NOK 25 million will be settled in cash.
EMGS will participate with NOK 20 million in North Energy's private placement totaling NOK 285 million.
The agreement confirms the substantial value in EMGS' 3D EM library in the Barents Sea. Further, the strategic partnership with North Energy, strengthened by EMGS' investment, provides EMGS with a unique opportunity to implement EM in North Energy's exploration workflow.
Year ended 31 December
| Amounts in NOK 1 000 Note |
2013 | 2012 |
|---|---|---|
| Operating revenues | ||
| Contract sales 1, 11 |
849 996 | 845 866 |
| Multi-client sales | 176 949 | 135 475 |
| Total operating revenues | 1 026 945 | 981 340 |
| Operating expenses | ||
| Charter hire, fuel and crew expenses 4 |
259 812 | 349 005 |
| Employee expenses 5, 6 |
291 995 | 283 127 |
| Depreciation and ordinary amortisation 7 |
94 577 | 77 255 |
| Multi-client amortisation 7 |
73 328 | 74 375 |
| Other operating expenses | 122 181 | 130 763 |
| Total operating expenses | 841 894 | 914 525 |
| Operating income | 185 051 | 66 816 |
| Financial income and expenses | ||
| Financial income 16 |
83 633 | 137 234 |
| Financial expenses 16 |
45 049 | 93 205 |
| Net financial items | 38 584 | 44 029 |
| Income (loss) before tax | 223 635 | 110 845 |
| Income tax expenses 8 |
- | 458 |
| Net income (loss) for the year | 223 635 | 110 387 |
As at 31 December
| Amounts in NOK 1 000 | Note | 2013 | 2012 |
|---|---|---|---|
| Non-current assets | |||
| Intangible assets | 7 | 120 082 | 75 350 |
| Property, plant and equipment | 7, 9 | 153 636 | 177 681 |
| Assets under construction | 108 970 | 58 943 | |
| Investments in subsidiaries | 10 | 118 137 | 118 137 |
| Total non-current assets | 500 825 | 430 111 | |
| Current assets | |||
| Spareparts, fuel, anchors and batteries | 3 | 62 251 | 66 643 |
| Trade receivables | 9, 11, 12 | 45 616 | 188 411 |
| Receivables group companies | 12 | 504 072 | 98 914 |
| Other receivables | 61 373 | 19 846 | |
| Cash and cash equivalents | 13 | 258 119 | 161 113 |
| Restricted cash | 13 | 7 588 | 47 581 |
| Total current assets | 939 019 | 582 508 | |
| Total assets | 1 439 844 | 1 012 619 | |
As at 31 December
| Amounts in NOK 1 000 | Note | 2013 | 2012 |
|---|---|---|---|
| Equity | |||
| Paid-in capital | |||
| Share capital | 14,15 | 49 934 | 49 720 |
| Share premium | 14,15 | 886 563 | 882 031 |
| Other paid-in capital | 14,15 | 94 552 | 63 583 |
| Total paid-in capital | 1 031 049 | 995 334 | |
| Retained earnings | |||
| Other equity (uncovered loss) | 15 | -185 541 | -402 278 |
| Total retained earnings | -185 541 | -402 278 | |
| Total equity | 845 508 | 593 056 | |
| Liabilities | |||
| Non-current liabilities | |||
| Employee benefit obligations | 5 | 21 126 | 12 283 |
| Provisions | 18 | 43 843 | 21 214 |
| Borrowings | 7,17 | 346 559 | 253 771 |
| Total non-current liabilities | 411 528 | 287 268 | |
| Current liabilities | |||
| Trade payable | 92 562 | 46 891 | |
| Current tax liability | 8 | 11 910 | 4 155 |
| Public taxes and duties payable | 18 849 | 26 330 | |
| Other current liabilities | 58 701 | 47 359 | |
| Borrowings | 786 | 7 561 | |
| Total current liabilities | 182 808 | 132 295 | |
| Total liabilities | 594 336 | 419 563 | |
| Total equity and liabilities | 1 439 844 | 1 012 619 | |
Year ended 31 December
| Amounts in NOK 1 000 | 2013 | 2012 |
|---|---|---|
| A) Cash flow from operating activities | ||
| Funds sourced from operations *) | 443 952 | 303 110 |
| Changes in inventories, accounts receivable and accounts payable | 192 858 | -205 960 |
| Changes in other accrual items | -403 597 | 36 612 |
| Net cash flow from operating activities | 233 213 | 133 762 |
| B) Cash flow from investing activities | ||
| Purchase of property, plant and equipment | -238 618 | -201 473 |
| Investment in subsidiaries | - | -30 |
| Net cash flow from investing activities | -238 618 | -201 503 |
| C) Cash flow from financial activities | ||
| Proceeds from equity paid-in | 4 746 | 7 853 |
| Proceeds from bond offering | 343 350 | - |
| Settlement of bond loan | -250 811 | - |
| Payment of interest on bonds and financial leases | -34 868 | -32 039 |
| Net cash flow from financial activities | 62 417 | -24 186 |
| A+B+C) Net change in cash and cash equivalents | 57 012 | -91 928 |
| Cash and cash equivalents at 01.01 | 208 694 | 300 622 |
| Cash and cash equivalents at 31.12 | 265 706 | 208 694 |
| Calculation of cash and cash equivalents | ||
| Cash and cash equivalents | 258 119 | 161 113 |
| Restricted cash | 7 588 | 47 581 |
| Cash and cash equivalents at 31.12 | 265 707 | 208 694 |
| *) Calculation of funds sourced from operations | ||
| Net profit (loss) before income taxes | 223 635 | 110 845 |
| Depreciation and amortisation | 167 906 | 151 629 |
| Income tax expense | - | -458 |
| Option cost | 30 969 | 13 200 |
| Actuarial gains/(losses) | -6 899 | - |
| Amortisation of interest | 28 342 | 27 894 |
| Profit (loss) disposal property, plant and equipment | - | - |
| Funds sourced from operations | 443 952 | 303 110 |
The annual report is prepared according to the Norwegian Accounting Act and generally accepted accounting principles in Norway.
The management has used estimates and assumptions that have affected assets, liabilities, income, expenses and information on potential liabilities in accordance with generally accepted accounting principles in Norway.
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value. Acquisition costs incurred are expensed and included in other operating expenses.
When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the net identifiable assets acquired and liabilities assumed.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group's cash-generating units that are expected to benefit from the combination, irrespective of whether the assets or liabilities of the acquire are assigned to those units.
Revenue is recognised as follows:
Revenue from contracts (whether priced as Lump Sum, Day Rate or Unit Price) is recognised based on the percentage of completion method, measured by reference to the percentage of vessel operational hours incurred to date versus the total estimated vessel operational hours for the project. Vessel operational hours are the actual amount of time incurred/ expected to be incurred in the productive acquisition of the electromagnetic data. Any amount received greater than that calculated as recognisable will be recorded on the balance sheet as deferred revenue and recognised in the applicable future periods. Conversely, any earned but unbilled revenue will be recognised as revenue in the current period and recorded as accrued revenue on the balance sheet.
Revenues for mobilisation are usually contracted with the customer and should cover the vessels transit to the actual area. Revenues and costs related to mobilisation are deferred and recognised over the acquisition period (which is the time from the first receiver is dropped to the last retrieval) of the contract, representing the acquisition period of the geological information, using the percentage of completion method. The deferral of mobilisation costs can only begin after a definitive contract has been executed between EMGS and the client. Until a contract is signed, costs are expensed as incurred.
Before an EM survey is completed, the Company secures funding from a group of customers. The advantages for prefunding customers are generally the possibility to influence the project specifications, early access to acquired data, and discounted prices. The Company recognises pre-funded revenue using the percentage of completion method. Progress is measured by reference to the percentage of vessel operational hours incurred to date versus the total estimated vessel operational hours for the project, provided that all other revenue recognition criteria are satisfied.
Customers are granted a license from EMGS which entitles them to access a specific part of the multi-client data library. The license payment is fixed and is required when the license is granted. The late sale revenue is recognised when a valid licensing agreement is signed and the multi-client library data made accessible to the customer.
Net current assets and current liabilites are comprised of accounts due within one year, and entries related to goods in circulation. Current assets are valued at the lower of acquisition cost and fair value. Current liabilities are recognised at nominal value.
Non-current assets are comprised of assets held for permanent possession and use. The assets are valued at the cost of acquisition. Non-current assets are capitalised and depreciated over it's estimated useful economic life. Costs for maintenance are expensed as incurred, whereas costs for improving and upgrading are added to the acquisition cost and depreciated with the related asset. A write down to fair value will be carried out if the reduction in value is caused by circumstances which may not be regarded as incidental, and deemed necessary by generally accepted accounting principles. Write downs will be reversed when the cause of the initial write down is no longer present. Long term-liabilities are recognised at nominal value less transaction costs.
Leases that provide EMGS with substantially all the rights and obligations of ownership are accounted for as finance leases. Such leases are valued at the present value of minimum lease payment, and recorded as assets under tangible assets. The assets are subsequently depreciated and the related liabilities are reduced by the amount of the lease payments less the effective interest expense. Other leases are accounted for as operating leases with lease payments recognised as an expense over the lease term.
Subsidiaries are valued at cost in the Company's accounts. The investments are valued at the cost of acquiring shares in the subsidiary or joint venture, provided that no write down is required. A write down to fair value will be carried out if the reduction in value is caused by circumstances which may not be regarded as incidental, and deemed necessary by generally accepted accounting principles. Write downs will be reversed when the cause of the initial write down is no longer present.
Transactions in foreign currency are translated at the rate applicable on the transaction date.
Monetary items in a foreign currency are translated into NOK using the exchange rate applicable on the balance sheet date. Non-monetary items that are measured at their historical price expressed in a foreign currency are translated into NOK using the exchange rate applicable on the transaction date. Non-monetary items that are measured at their fair value expressed in a foreign currency are translated at the exchange rate applicable on the balance sheet date. Changes to exchange rates are recognised in the income statement as they occur during the accounting period.
Development costs are capitalised providing that a future economic benefit associated with development of the intangible asset can be established and costs can be measured reliably. Otherwise, the costs are expensed as incurred. Capitalised development costs are amortised linearly over its useful life.
Research costs are expensed as they are incurred.
The multi-client library consists of surveys of electromagnetic data. The surveys can be licensed to customers on a nonexclusive basis. Directly attributable costs associated with the production and development of multi-client projects such as acquisition costs, processing costs and other direct project costs are capitalised as incurred.
The Company recognises pre-funded revenue after the percentage of completion method. Late sale revenue is recognised when a valid licensing agreement is signed and the multi-client library data made accessible to the customer.
The Company amortises its multi-client library primarily based on the ratio between the cost of the surveys and the total forecasted sales for such surveys. Surveys are categorised into four amortisation categories with amortisation rates of 90%, 75%, 60% or 45% of sales amount. Classification of a project into a rate category is based on the ratio of its remaining net carrying value to its remaining sales estimate. Amortisation is recorded each time there has been a multiclient sale on surveys with a carrying value higher than zero.
The Company also applies minimum amortisation criteria for the library projects based on a three-year life. The three-year period is starting in the year after data delivery (year after completion). Under this policy, the book value of each survey is reduced to a specified percentage by each quarter end, based on the age of the survey. The calculation of minimum amortisation is recorded quarterly after amortisation of sales.
Inventories are valued at the lower of cost or net selling price. The selling price is the estimated selling price in the case of ordinary operations minus the estimated completion, marketing and distribution costs. The cost is arrived at using the FIFO method and included the costs incurred in acquiring the goods and the costs of bringing the goods to their current state and location.
Trade receivables and other current receivables are recorded in the balance sheet at nominal value less provisions for doubtful accounts. Provisions for doubtful accounts are based on an individual assessment of the different receivables.
Tax expenses in the profit and loss accounts comprise of both tax payable for the accounting period and changes in deferred tax. Deferred tax/tax assets are calculated on all differences between the book value and tax value of assets and liabilities. Deferred tax is calculated at 28 percent on the basis of existing temporary differences and the tax effect of tax losses carried forward. Temporary differences, both positive and negative, that will reverse within the same period, are recorded net. Deferred tax assets are recorded in the balance sheet when it is more likely than not that the tax assets will be utilised.
Taxes payable and deferred taxes are recognised directly in equity to the extent that they relate to equity transactions.
The Company operates a defined benefit plan. The scheme is funded through payments to an insurance company. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method.
Re-measurements, comprising of actuarial gains and losses and the return on plan assets, are recognised immediately in the statement of financial position with a corresponding debit or credit to retained earnings through equity in the period they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The net pension cost for the period is classified as an employee expense.
Options for employees are valued at the fair value of the option at the time the option plan is adopted. The Black -Scholes model is used for valuation of options. The cost of the options is allocated over the period during which the employees earn the right to receive the option. This arrangement is reported as other paid-in capital in the balance sheet. Provisions are made for the employers national insurance contributions in connection with share option plan, which are related to the difference between the issue price and the market price of the share at year-end, on the basis of the vesting period of the program.
Provisions are recognised when the Company has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions for loss on contracts are recognised when it is clear that the contract will result in a loss. The calculation is made by comparing the contracted revenues to the expected direct operating costs for the contract period.
The cash flow statement is presented using the indirect method. Cash and cash equivalents includes cash, bank deposits and other-short term investments.
| Total | 1 026 945 | 981 340 |
|---|---|---|
| Asia and Pacific Ocean | 422 090 | 162 454 |
| North and South America | 391 291 | 684 940 |
| Europe, Middle East and Africa | 213 563 | 133 946 |
| Geographical distribution | ||
| Amounts in NOK 1 000 | 2013 | 2012 |
The Company consists of one business area only. EMGS operates globally.
The Company and TGS have in 2013 signed an agreement to jointly invest in a 3D EM multi-client survey programme covering 17 blocks in the Hoop area of the Barents Sea.
The 3D EM data will be, according to the agreement, sold by both EMGS and TGS. Further, the two companies will split revenues according to their respective investments.
Under the terms of the agreement, EMGS has been given access to TGS' 2D seismic data for survey planning and integration purposes, while TGS has obtained access to 3D EM data to evaluate and plan subsequent multi-client work over the area.
The Company's value of the joint operation's multi-client library as of 31 December 2013 is:
| - |
|---|
| -8 284 |
| 8 284 |
EMGS' share of the revenue from the sale of multi-client library of the joint operation in 2013 is 18 414. In additon, 8 284 is recorded as amortisation on this project in 2013.
| Total | 62 251 | 66 643 |
|---|---|---|
| Fuel | 7 038 | 12 876 |
| Anchors and batteries | 7 989 | 13 265 |
| Equipment, components and parts | 47 223 | 40 502 |
| Inventory type | ||
| Amounts in NOK 1 000 | 2013 | 2012 |
| Total | 230 117 | 234 824 |
|---|---|---|
| Office premises | 11 291 | 9 729 |
| Charter hire | 218 826 | 225 095 |
| Operating leases recognised as expense in the period | ||
| Amounts in NOK 1 000 | 2013 | 2012 |
The Company is required to have an occupational pension scheme in accordance with the Norwegian law on required occupational pension ("lov om obligatorisk tjenestepensjon"). The Company's pension arrangements fulfil the requirements of the law.
The employees employed in Norway are covered by the Company's defined benefit scheme. Through this scheme the member will be guaranteed a certain level on their pension payments based on their last salary. The scheme is insured by an insurance company. The level of the pension payment is dependent on the number of years the employee has been with the company and the obtained level of salary when working. Parts of the pension payment is paid by the National Insurance (Folketrygden) and is calculated based on the base amount (Folketrygdens grunnbeløp) which is endorsed yearly by the Norwegian Parliament. As of 31 December 2013 there are 146 active and 1 retired people covered by the pension scheme (2012: 145 active and 1 retired).
The Company applied IAS 19R retrospectively in the current period in accordance with the transitional provisions set out in the revised standard. The opening statement of financial position of the earliest comparative period presented (1 January 2012) and the comparative figures have been accordingly restated.
IAS 19R includes a number of amendments to the accounting for defined benefit plans, including actuarial gains and losses that are now recognised in other comprehensive income (OCI) and permanently excluded from profit and loss. Expected returns on plan assets are no longer recognised in profit or loss, instead, there is a requirement to recognise interest on the net defined benefit liability (asset) in profit or loss, calculated using the discount rate used to measure the defined benefit obligation, and; unvested past service costs are now recognised in profit or loss at the earlier of when the amendment occurs or when the related restructuring or termination costs are recognised.
The Company has previously used the "corridor approach", which allowed the Company to not recognise changes resulting actuarial gains or losses as long as these were within in a pre-defined bandwidth when accounting for actuarial gains and losses. The removal of the "corridor mechanism" implies that actuarial gains and losses shall be recognised in OCI in the current period. The gain within the corridor stood at 2 718 as of 1 January 2012, and it has been dissolved, and the pension obligation decreased by the same amount, whereas equity increased by 2 718.
The amended standard impacts the net benefit expense as the expected return on plan assets are calculated using the same interest rate as applied for the purpose of discounting the benefit obligation. The difference between actual return of assets and the estimated return is recognised for in OCI. The pension expense under previous standard was 13 114 in 2012. No changes are made in the 2012 pension expense, as the changes are immaterial. Under the new standard, changes in actuarial assumptions recognised under OCI in 2012 is 17 557. The pension obligation as of 31 Desember 2012 decreased from 32 558 to 12 283. Since the Company has unrecognised deferred tax assets, no tax obligation has been recognised as a result of the implementation which these will be deducted from the asset. The impact on equity for the year ended 31 December 2013 was -6 899.
Components of net pension expense including social security tax:
| Net pension expense | 10 593 | 13 114 |
|---|---|---|
| Financial cost | 365 | 118 |
| Service cost and benefit changes cost | 10 228 | 12 996 |
| Amounts in NOK 1 000 | 2013 | 2012 |
Reconciliation of net employee benefit obligation recognised in the balance sheet including social security tax:
| Amounts in NOK 1 000 | 2013 | 2012 |
|---|---|---|
| Net employee benefit obligation 31 December last year | 12 283 | 30 267 |
| Effect of transition to IAS 19R | - | -2 718 |
| Net employee benefit obligation 1 January | 12 283 | 27 549 |
| Net pension expense | 10 593 | 13 114 |
| Employer contribution | -8 649 | -10 823 |
| Remeasurements loss/(gain) | 6 899 | -17 557 |
| Net employee benefit obligation 31 December | 21 126 | 12 283 |
| Principal assumptions: | ||
| Discount rate* | 4.00% | 3.90% |
| Expected future salary increases | 3.75% | 3.50% |
| Expected adjustment in National Insurance base rate | 3.50% | 3.25% |
| Expected rate of pension increases | 0.60% | 0.20% |
| Social security tax | 14.10% | 14.10% |
*The Company has assessed that the OMF -rate on high quality corporate bonds can be used as discount rate because the OMF-market represents a deep market on the relevant terms.
The average number of employees during 2013 was 190.
| Amounts in NOK 1 000 | 2013 | 2012 |
|---|---|---|
| Employee expenses: | ||
| Salaries | 214 529 | 223 831 |
| Payroll tax | 19 937 | 23 083 |
| Pension costs | 10 593 | 13 114 |
| Other payments | 46 936 | 23 099 |
| Total | 291 995 | 283 127 |
| Amounts in NOK 1 000 | Salaries | Bonus | Share options* |
Pension benefit |
Other benefits** |
Total remuneration |
|
|---|---|---|---|---|---|---|---|
| Executive Management | |||||||
| Roar Bekker, CEO | 2013 | 2 492 | 585 | 1 488 | 176 | 504 | 5 245 |
| Svein T. Knudsen, CFO | 2013 | 2 090 | 624 | 1 246 | 151 | 139 | 4 250 |
| David Neser, COO | 2013 | 1 731 | 376 | 999 | 130 | 1 496 | 4 732 |
| Ole A. Heggheim, Executive VP Strategic Development | 2013 | 1 212 | - | 382 | 82 | 6 | 1 682 |
*Share options are costs posted as an expense under the Company's option program in 2013.
**Other benefits includes car allowance, electronic communication, group life insurance, memberships and gain on share options.
Accrued bonuses for the Executive Management as of 31 December 2013 was 0.
The CEO has a severance agreement which pays 18 months salary and benefits after termination of the contract, while the other members of the Executive Management are entitled to 12 months pay after termination of contract.
All members of the Executive Management Group, including the CEO, have fixed salaries. In addition to the fixed salary, a bonus plan is in place. The bonus system is based on a combination of fulfillment of EMGS' goals and the individual goals. There are also car allowance agreements in place for most of the Executive Management Group and the Group is included in the Company's ordinary pension plan.
There are no other variable elements included in the remuneration for the Executive Management Group.
| Amounts in NOK 1 000 | Directors' fee |
Salaries | Bonus | Share options |
Pension benefit |
Other benefits |
Total remuneration |
|---|---|---|---|---|---|---|---|
| Board of Directors | |||||||
| Bjarte H. Bruheim, Chairman of the Board | 3 251 | - | - | 546 | - | - | 3 797 |
| Jeffrey Harris, Director | 200 | - | - | - | - | - | 200 |
| Maria Moræus Hanssen, Director | 121 | - | - | - | - | - | 121 |
| Berit Svendsen, Director | 207 | - | - | - | - | - | 207 |
| Stig Eide Sivertsen, Director | 338 | - | - | - | - | - | 338 |
| Christel Brønstad, Employee's representative | - | - | - | - | - | - | - |
| Svein Ellingsrud, Employee's representative | - | - | - | - | - | - | - |
The amounts listed under Directors' fee have been expensed in 2013.
The remuneration of the employee representatives as employees is not included above.
The Chairman of the Board is entitled to 1 year of pay after termination of contract.
The Company has an option program (please find more details about the program in the notes for the Group).
The Company uses Black Scholes model to estimate the value of the options.
| Number of options OB |
Granted options |
Forfeited options |
Terminated options |
Exercised options |
Weighted average exercise price -A |
Number of options CB |
Weighted average exercise price B |
Weighted average remaining contractual life |
|
|---|---|---|---|---|---|---|---|---|---|
| Executive Management | |||||||||
| Roar Bekker | 745 000 | 400 000 | - | - | 185 000 | 5.77 | 960 000 | 10.55 | 4.96 |
| Svein T. Knudsen | 335 000 | 300 000 | - | - | - | - | 635 000 | 12.56 | 5.37 |
| David Neser | 200 000 | 300 000 | - | - | - | - | 500 000 | 11.64 | 5.76 |
| Ole A. Heggheim | - | 200 000 | - | - | - | - | 200 000 | 8.50 | 6.32 |
| Board of Directors | |||||||||
| Bjarte H. Bruheim | 350 000 | - | - | - | 100 000 | 5.77 | 250 000 | 19.30 | 5.13 |
| Christel Brønstad | 10 000 | - | - | - | - | - | 10 000 | 12.24 | 4.08 |
| Svein Ellingsrud | 52 000 | 100 000 | - | - | - | - | 152 000 | 12.35 | 5.82 |
A - average exercise price for options exercied during 2013.
B - average exercise price for number of options by 31 December 2013.
No loans or loan guarantees have been granted to the Executive Management or the Board of Directors or other related parties.
| Total auditor expenses | 2 523 | 1 674 |
|---|---|---|
| Other non-audit services | - | 6 |
| Further assurance services | 519 | 377 |
| Tax advisory services (excl VAT) | 804 | 91 |
| Statutory audit services (excl VAT) | 1 200 | 1 200 |
| Auditor expenses | ||
| Amounts in NOK 1 000 | 2013 | 2012 |
| Amounts in NOK 1 000 | Property, plant and equipment |
Patents | Software licenses etc. |
Multi-client library |
Total |
|---|---|---|---|---|---|
| Acquisition cost at 1 January 2013 | 753 360 | 26 416 | 54 903 | 263 730 | 1 098 409 |
| Purchases | 63 291 | - | 4 074 | 121 321 | 188 686 |
| Disposals | -125 | - | - | - | -125 |
| Acquisition cost at 31 December 2013 | 816 526 | 26 416 | 58 977 | 385 051 | 1 286 970 |
| Accumulated depreciation 1 January 2013 | 575 679 | 16 142 | 44 437 | 209 120 | 845 378 |
| Depreciation/amortisation for the year | 87 242 | 1 142 | 6 193 | 73 328 | 167 905 |
| Disposals | -31 | - | - | - | -31 |
| Accumulated depreciation 31 December 2013 | 662 890 | 17 284 | 50 630 | 282 448 | 1 013 252 |
| Net carrying value at 31 December 2013 | 153 636 | 9 132 | 8 347 | 102 603 | 273 718 |
| Depreciation rate (%) | 13-33 | 7-10 | 33 |
Depreciation/amortisation of fixed assets is calculated using the straight-line method. The registered patents rights relates to electromagnetic surveys (EM).
Addition of self developed assets in 2013 amounted to 43 145 (2012: 119 425)
Finance leases are capitalised at the lease's commencement at the lower of the present value and cost.
The leasing contracts have a duration of 3 years and the asset will be depreciated over a 3-5 year period.
The terms of the agreements are 3 months NIBOR + 3.50% and 7.60%.
| Depreciation | 1 599 | 7 618 |
|---|---|---|
| Net carrying value | 1 338 | 9 584 |
| Accumulated depreciation | -2 677 | -25 832 |
| Capitalised in the balance sheet 31 December | 4 015 | 35 416 |
| Amounts in NOK 1 000 | 2013 | 2012 |
| 2013 | 2012 | ||||
|---|---|---|---|---|---|
| Amounts in NOK 1 000 | Nominal value |
Present value |
Nominal value |
Present value |
|
| Leases due within 12 months | 963 | 786 | 8 244 | 7 561 | |
| Leases due within the next 13 - 36 months | 1 838 | 1 617 | 4 820 | 4 381 | |
| Remaining debt on leasing contracts 31 December | 2 801 | 2 403 | 13 064 | 11 942 |
| Total R&D expenses | 16 500 | 23 875 |
|---|---|---|
| Internal time | 9 685 | 18 648 |
| Materials | 2 187 | 701 |
| External expenses | 4 628 | 4 526 |
| Specification of R&D expenses | ||
| Amounts in NOK 1 000 | 2013 | 2012 |
The expenses are related to the further development of the EM-technology and have been expensed as incurred.
| Amounts in NOK 1 000 | 2013 | 2012 |
|---|---|---|
| Taxes base specification | ||
| Profit before tax | 223 635 | 110 845 |
| Permanent differences | 31 164 | 11 984 |
| Changes in temporary differences | 7 290 | -7 360 |
| Tax expenses abroad, paid | - | 699 |
| Taxable profits before utilisation of unused tax losses | 262 089 | 116 168 |
| Tax losses carried forward | -262 089 | -116 168 |
| Taxable profit (this year tax base) | - | - |
| Income tax expenses | ||
| Non-creditable foreign income taxes | - | 458 |
| Total income tax expense | - | 458 |
| Temporary differences | ||
| Fixed assets | -141 819 | -132 151 |
| Inventory | -1 298 | - |
| Provisions tax liability abroad and other accruals | -11 910 | -4 155 |
| Pension obligations | -21 126 | -32 558 |
| Tax losses carried forward | -1 005 558 | -1 267 643 |
| Total temporary differences | -1 181 711 | -1 436 506 |
| Non-recognised deferred tax asset | -330 879 | -402 222 |
| Amounts in NOK 1 000 | Tax base | 28 % tax |
|---|---|---|
| Explanation why the tax is not 28% of income before tax | ||
| 28% tax of income before tax | 223 635 | 62 618 |
| Permanent difference | - | 8 725 |
| Change in deferred tax assets, not recognised | - | -71 343 |
| Non-creditable foreign income taxes | - | - |
| Calculated tax | - | - |
| Effective tax rate in % | - | 0.0 % |
| Amounts in NOK 1 000 | Amount | Applied | Remaining amount |
|---|---|---|---|
| Tax loss carry forward | |||
| 2002 | 29 285 | 29 285 | - |
| 2003 | 6 332 | 6 332 | - |
| 2004 | 80 154 | 26 721 | 53 433 |
| 2005 | 23 099 | - | 23 099 |
| 2007 | 294 380 | - | 294 380 |
| 2008 | 319 560 | - | 319 560 |
| 2009 | 418 459 | - | 418 459 |
| 2010 | 238 116 | - | 238 116 |
| 2011 | 36 764 | - | 36 764 |
| 2012 | - | 116 167 | -116 167 |
| 2013 | - | 262 085 | -262 085 |
| Total | 1 446 148 | 440 590 | 1 005 558 |
Unused tax losses can be carried forward indefinitely.
There are no long term liabilities due in more than five years from 31 December 2013.
| Amounts in NOK 1 000 | 2013 | 2012 |
|---|---|---|
| Collaterals | ||
| Debts secured by pledge | - | - |
| Total carrying value of pledged assets | 122 692 | 104 964 |
|---|---|---|
| Assets held under finance leases | 1 338 | 9 584 |
| Cash and equivalents | 1 317 | 40 794 |
| Accounts receivable | 120 037 | 54 586 |
| Pledged assets | ||
| Amounts in NOK 1 000 | 2013 | 2012 |
| Company | Share ownership/ voting rights 2013 |
Profit/Loss 2013 | Equity 31 Dec 2013 |
Location |
|---|---|---|---|---|
| EMGS Americas 1 AS | 100% | 598 | -880 | Trondheim, Norway |
| EMGS Americas 2 AS | 100% | -13 | 62 | Trondheim, Norway |
| Sea Bed Logging - Data Storage Company AS | 100% | 1 631 | 1 124 | Trondheim, Norway |
| Servicos Geologicos Electromagneticos Do Brazil LTDA | 99% | -1 879 | 33 268 | Rio de Janeiro, Brazil |
| Global emgs Nigeria Ltd | 35% | -60 | -1 762 | Lagos, Nigeria |
| EMGS Americas Inc | 100% | 54 | -10 347 | Delaware, USA |
| Electromagnetic Geoservices Malaysia Sdn Bhd | 1% | 4 620 | 152 | Kuala Lumpur, Malaysia |
| EMGS Asia Pacific Sdn Bhd | 100% | -1 505 | -46 | Kuala Lumpur, Malaysia |
| EMGS International BV | 100% | -158 | -695 Amsterdam, The Netherlands | |
| EMGS Australia Pty Ltd | 100% | 160 | 609 | Perth, Australia |
| EMGS Global AS | 100% | 15 192 | 11 613 | Trondheim, Norway |
| EMGS Shipping Mexico S. de R.L de C.V. | 49% | 2 004 | -603 | Col. Del Valle, Mexico |
| EMGS Sea Bed Logging Mexico S.A. de C.V. | 100% | -8 743 | 480 | Col. Del Valle, Mexico |
| EMGS Labuan Ltd | 100% | 1 337 | 4 314 | Labuan, Malaysia |
| EMGS Asia Pacific Labuan Ltd | 100% | -1 738 | -1 738 | Labuan, Malaysia |
| EMGS Geophysical Limited | 100% | - | - | Nicosia, Cyprus |
| EMGS Global Services (Cyprus) Limited | 100% | - | - | Nicosia, Cyprus |
| EMGS MCL Limited | 100% | - | - | Nicosia, Cyprus |
| EMGS Surveys AS | 100% | -17 | 75 755 | Trondheim, Norway |
| EM Multi-client AS | 100% | -5 | - | Trondheim, Norway |
| Total | 11 477 | 111 305 |
Part of accounts receivable which is recognised in 2013, but not invoiced per 31 December 2013 amounts to 6 189 (2012: 52 795). Deferred revenue as of 31 December 2013 amounts to 12 132 (2012: 467).
The Company does not expect any loss on contracts in 2013.
There has not been made any provision for doubtful receivables per 31 December 2013 (2012: 0)
The Company has no accounts receivables with due date later than 12 months.
| Total intercompany liabilities | - | - |
|---|---|---|
| Short term liabilities | - | - |
| Total intercompany receivables | 504 072 | 98 914 |
| Other receivables | 504 072 | 98 914 |
| Trade receivables | - | - |
| Intercompany balances with group companies | ||
| Amounts in NOK 1 000 | 2013 | 2012 |
Restricted cash as of 31 December 2013:
| Amounts in NOK 1 000 | Short term | Long term | Total |
|---|---|---|---|
| Employee tax | 6 271 | - | 6 271 |
| Guarantees | 1 317 | - | 1 317 |
| Total restricted cash | 7 588 | - | 7 588 |
The Company's share capital consists of 199 739 555 shares at a par value of NOK 0.25, giving a total share capital of 49 935.
The largest shareholders as of 31 December 2013:
| Number of ordinary shares |
Percentage | |
|---|---|---|
| Shareholders | ||
| Skagen Global | 10 124 112 | 5.07% |
| Fidelity Funds | 9 947 262 | 4.98% |
| Odin Offshore | 8 473 631 | 4.24% |
| Clearstream Banking S.A. | 7 868 361 | 3.94% |
| Odin Norge | 7 838 224 | 3.92% |
| Verdipapirfondet DNB Smb | 7 425 000 | 3.72% |
| Morgan Stanley & Co Llc | 5 589 435 | 2.80% |
| Skagen Vekst | 5 029 207 | 2.52% |
| J.P. Morgan Chase Bank N.A. London | 4 579 314 | 2.29% |
| Verdipapirfondet DNB Norge (IV) | 4 472 746 | 2.24% |
| JP Morgan Clearing Corp. | 3 996 807 | 2.00% |
| Statoil Pensjon | 3 783 655 | 1.89% |
| UBS AG | 3 340 917 | 1.67% |
| Skagen Global II | 3 282 333 | 1.64% |
| Sundt AS | 3 100 000 | 1.55% |
| VPF Nordea Kapital | 2 615 655 | 1.31% |
| Momentum Investments Inc | 2 500 000 | 1.25% |
| Euroclear Bank S.A./N.V. ('BA') | 2 496 861 | 1.25% |
| Sportsmagasinet AS | 2 206 588 | 1.10% |
| Bruheim | 2 205 088 | 1.10% |
| Other | 98 864 359 | 49.50% |
| Total | 199 739 555 | 100.00% |
| Shares | |
|---|---|
| Leading representatives of the Company hold the following shares | |
| CEO | 200 000 |
| Board of Directors | 2 924 897 |
| Amounts in NOK 1 000 | Share capital |
Share premium |
Other paid-in capital |
Actuarial gains/(losses) |
Other equity (uncovered loss) |
Total |
|---|---|---|---|---|---|---|
| Equity 31 December 2012 | 49 720 | 882 031 | 63 583 | - | -422 020 | 573 314 |
| Group contribution not recorded in 2012 | - | - | - | - | -533 | -533 |
| Implementation of IAS19R | - | - | - | 20 275 | - | 20 275 |
| Equity 1 January 2013 | 49 720 | 882 031 | 63 583 | 20 275 | -422 553 | 593 056 |
| Total comprehensive income | -6 899 | 223 635 | 216 736 | |||
| Cost of share-based payments | - | - | 30 969 | - | - | 30 969 |
| Proceeds from options execised | 215 | 4 531 | - | - | - | 4 746 |
| Equity 31 December 2013 | 49 934 | 886 563 | 94 552 | 13 377 | -198 918 | 845 508 |
| Amounts in NOK 1 000 | 2013 | 2012 |
|---|---|---|
| Financial income | ||
| Group contribution | 10 926 | - |
| Dividends | 35 608 | 97 498 |
| Interest income on short term bank deposits | 2 429 | 740 |
| Foreign exchange rate gains | 34 670 | 38 997 |
| Total financial income | 83 633 | 137 234 |
| Financial costs | ||
| Interest expense | 28 836 | 29 628 |
| Other financial expenses | 13 781 | 1 491 |
| Foreign exchange rate losses | 2 432 | 62 087 |
| Total financial costs | 45 049 | 93 205 |
| Net financial gain/(loss) | 38 584 | 44 029 |
On 26 June 2013, EMGS secured a NOK 350 million bond bearing an interest at 3 months NIBOR + 6.00% p.a. The bond is unsecured.
In connection with the issue of the NOK 350 000 000 bond in June 2013, the Company repurchased the NOK 250 000 000 bond maturing 26 May 2014.
| Amounts in NOK 1 000 | Currency | Carrying | Interest | Term to | Date of |
|---|---|---|---|---|---|
| amount | value liability | rate | maturity | payment | |
| Bond | NOK 350 million | 344 943 | 3 month NIBOR + 6.00% |
2.5 years | 27 June 2016 |
The Company recognises a provision for prepayments from two customers in a joint industry project. EMGS and the two customers have desired to collaborate on the development, construction, and testing of an advanced marine electromagnetic acquisition system. After the commercial launch date, the two customers will have a beneficial period with decreasing benefits over four years. The provision will be recorded as revenues during the beneficial period.
The Company has recognised 43 843 as provision per 31 December 2013 (2012: 21 214).
Oslo, 19 March 2014
Bjarte H. Bruheim Chairman of the Board
Jeffrey Alan Harris Svein Ellingsrud
Maria Moræus Hanssen Roar Bekker
Stig Eide Sivertsen Berit Svendsen
Christel Brønstad
CEO
Stiklestadveien 1 N-7041 Trondheim, Norway Telephone +47 911 41 149
7th floor Dronning Mauds gate 15 N-0250 Oslo, Norway Telephone +47 911 41 149
15021 Katy Freeway, Suite 500 Houston, TX 77094, USA Telephone +1 281 920 5601
Unit E-15.2-4, 15th Floor East Wing Rohas Perkasa No. 9 Jalan P. Ramlee 50250 Kuala Lumpur Telephone +603 21 66 06 13
www.emgs.com
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.