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Vow ASA — Annual Report 2016
Apr 30, 2017
3785_10-k_2017-04-30_59068c56-dfd2-46fd-968f-6a6a5cca3a66.pdf
Annual Report
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Scanship Holding ASA ANNUAL REPORT 2016
| Corporate Governance in Scanship Holding ASA 2 | |
|---|---|
| Corporate Social Responsibility Guidelines 6 | |
| Scanship Holding ASA Board of Directors Report 2016 7 | |
| Consolidated Financial Statement 2016 12 | |
| Notes to the Consolidated Financial Statement Scanship Holding Group 17 | |
| Financial Statement 2016 – Parent Company 44 | |
| Directors Responsibility Statement 2016 54 | |
| Auditors Report 55 | |
| Contact details 59 |
Scanship Holding ASA ("Scanship" or the "Company") is a Norwegian public limited company. The company is listed on Oslo Axess and is subject to Norwegian corporate, securities and stock exchange law. The Company seeks to comply with the applicable legal framework, and endorses the Norwegian Code of Practice for Corporate Governance (Norwegian: "Norsk anbefaling for eierstyring og selskapsledelse"), issued by the Norwegian Corporate Governance Board, most recently revised on 30 October 2014, (the "Code").
This Corporate Governance Policy for the Company is reviewed and revised by the board of directors of the Company (the "Board") on 27 April 2017 and is based on the Code.
The Board shall ensure that the Company at all times has sound corporate governance. The Company emphasizes independence and integrity in all matters between the Company and members of the Board, management and shareholders. The Company is required to report annually on the principles and practices related to corporate governance. The report will be published as a part of the annual report and will also be available at the Company's website. The report is built on a «comply or explain» principle, pursuant to which deviations from the Code will be explained.
Main objectives for corporate governance in Scanship
This Corporate Governance Policy is based on the Code, and shall establish a basis for good corporate governance, profitability and long-term value creation for the shareholders of the Company. The manner in which the Company is managed is vital to the development of the Company's value over time.
Through good governance of its business, the Company intends to create profitability and increased shareholder value. This Corporate Governance Policy contains measures that are, and will be, implemented to ensure effective management and control over the Company's activities. The primary objective is to have systems for communication, monitoring and allocation of responsibility, as well as appropriate incentives, which contribute to increasing the Company's financial results, long-term success and returns to shareholders on their investments in the Company. The Company aims to have good control and governance procedures to ensure equal treatment of all shareholders, thereby providing a foundation for trust.
The development of, and improvements in, this Corporate Governance Policy is an on-going and important process that the Board will focus on.
The Business
Scanship is a maritime industry leader in advanced technologies for processing and purifying waste water, food waste, solid waste and bio sludge. Scanship is a supplier to most major cruise liners, and the products are increasingly being requested from the merchant fleet and off-shore industry. Modern cruise ships generate substantial amount of wet and dry waste which should be properly treated. Scanship's technology processes this into recyclables, clean flue gas and treated waste water which meets the highest international effluent discharge standards. Scanship has main office at Lysaker (Norway) as well as offices in Tønsberg (Norway), Gdynia (Poland), Miami (USA) and Victoria (Canada).
Equity and dividend
The Board and the management of Scanship shall at all times aim at keeping the Company's equity capital suitable for the Company's objectives, strategy and risk profile. The Board shall immediately take adequate steps should it be apparent at any time that the Company's equity or liquidity is less than adequate.
The Board shall establish a clear and predictable dividend policy as the basis for the proposals on dividend payments that it makes to the General Meeting. The dividend policy approved by the Board states that the Company's goal is to provide shareholders with a high return over time through a combination of increasing value of the Company's shares and payment of dividends.
The Board will not propose any payment of dividend if the Company is not in a sufficient financial position. The background for any proposal to authorise the Board to resolve distribution of dividends should be explained.
Authorisations granted to the Board to increase the Company's share capital shall be restricted to defined purposes. If the General Meeting is to consider authorisations to the Board for the issue of shares for different purposes, the General Meeting shall consider each authorisation separately. Authorisations granted to the Board shall be limited in time to no longer than until the next Annual General Meeting. Authorisations granted to the Board to purchase of the Company's own shares shall be valid until the next Annual General Meeting.
Equal treatments of shareholders and transactions with related parties
The Company has one share class. All shares carry equal rights. One share gives one vote at the General Meeting. The Board puts emphasis on disclosing and describing the topics on the agenda and the proposed resolutions in the notice of the General Meeting to allow the shareholders adequate time to prepare for the meeting.
Any decision to deviate from the preemption rights of existing shareholders to subscribe for shares in the event of an increase in share capital shall be justified. Where the Board resolves to carry out an increase in share capital and deviate from the pre-emption rights of existing shareholders on the basis of an authorisation granted to the Board, the justification shall be publicly disclosed in a stock exchange announcement issued in connection with the increase in share capital. If such transactions will find place, they will be carried out at market prices.
In the event of not immaterial transactions between the Company and its shareholders, a shareholder's parent company, members of the Board, executive personnel or close associates of any such parties, the Board shall arrange for a valuation to be obtained from an independent third party. This will not apply if the transaction requires the approval of the General Meeting pursuant to the requirements of the Norwegian Public Limited Liability Companies Act (the "PLC Act"). Independent valuations shall also be arranged in respect of transactions between companies in the same group where any of the companies involved have minority shareholder. Members of the Board and executive personnel must notify the Board if they have any significant, direct or indirect, interest in a transaction carried out by the Company.
Any transactions with related parties will be conducted on market terms. Transactions with related parties will be enclosed in note to the Financial Statements.
Freely Negotiable Shares
All shares in the Company carry equal rights and are freely negotiable. No restriction on negotiability is included in the Articles of Association.
General Meetings
The General Meeting is the Company's ultimate corporate body. The Board shall facilitate that the General Meeting shall be an effective forum for communication between the Board and the Shareholders. The Chairman of the Board, the Chief Executive Officer and the External Auditor shall be present at the Annual General Meeting.
The notice calling the Annual General Meeting and Extraordinary General Meetings and all supporting documentation shall be made available on the Company's website (www.scanship.no). Notice and supporting documentation shall include the information necessary for shareholders to form a view of matters to be considered.
Each General Meeting appoints a chairperson for the meeting. If significant and unusual topics is on the agenda an independent chairperson will be appointed.
The General Meeting is open for all shareholders, and all shareholders not in attendance can give proxy to vote on his/her behalf. Forms of proxy are sent to the shareholders together with the notice of the meeting. The proceeding in the meeting follow the agenda outlined in the notice. Shareholders can raise a topic in the General Meeting, but must notify the Board of this in writing and in reasonable time before the notice of the General Meeting is dispatched. The General Meeting cannot decide for a higher dividend than the Board has proposed.
The Annual General Meeting is required to decide on the annual Financial Statement, the Board's report and the distribution of dividends. The Annual Meeting should also deal with the Board's declaration regarding compensation to executive personnel.
Nomination Committee
Pursuant to the Company's Article of Association, the Nomination Committee is responsible for the nomination of members to the Board, members of the Nomination Committee and for proposing remuneration to the Board members. The nomination committee shall justify its recommendations. The Annual General Meeting stipulates guidelines for the Nomination Committee in a code of conduct. The Nomination Committee consists of a chairman and one or two additional member(s) elected by the General Meeting. The General Meeting shall also determine the Nomination Committee's remuneration. The members of the Nomination Committee serve for a period of two years unless otherwise determined by the General Meeting. All members of the Nomination Committee shall be independent of Board and executive personnel. The Company shall provide information of the Nomination Committee and any deadlines for submitting proposals to the committee.
The Nomination Committee shall have contact with shareholders, the Board and the Company's executive personnel as part of its work on proposing candidates for election to the Board.
Board of Directors
The composition of the Board shall ensure that the Board can attend to the common interests of all shareholders and meets Scanship's need for expertise, capacity and diversity. Attention shall be paid to ensuring that the Board can function effectively as a collegiate body.
The composition of the Board shall ensure that it can act independently of any special interests. The majority of the shareholder elected members of the Board shall be independent of the Company's executive personnel and material business connections. In addition, at least two of the members of the Board must be independent of the Company's major shareholder(s). For the purposes of this Corporate Governance Policy, a major shareholder shall mean a shareholder that controls 10% or more of the Company's shares or votes, and independence shall entail that there are no circumstances or relations that may be expected to be able to influence independent assessments of the person in question. The Board currently consists of three members of which two are independent.
The Board members are elected by the General Meeting for a term of two years unless otherwise determined by the General Meeting. The members of the Board are proposed by the Nomination Committee and elected by the General Meeting. The Chairman of the Board is appointed by the General Meeting.
The constitution of the Board reflects a strong background that balances specific industry experience with a combination of financial background, management experience and industrial experience.
The work of the Board
The Board's tasks include the overall management and supervision of the Company. The Board prepares an annual plan for its work, emphasising goals, strategies and execution.
The Board normally schedules at least four regular meetings each year, but typically holds additional meetings as circumstances dictate. Two of the scheduled board meetings deals with strategic Company issues and all the scheduled meetings are dealing with quarterly financial statement. The Board operates according to applicable Norwegian law, and adopts guidelines for the CEO's work and duties to the Board.
The Board shall provide details in the annual report of any Board committees appointed. The Board has not appointed an Audit Committee as smaller companies are exempted from the Audit Committee requirements of the PLC Act, and the Company fulfils the requirements to be exempted.
Risk Management and Internal Control
The Board monitors the Company's risk exposure and the Company constantly strives to maintain and improve its internal control processes.
The executive management will make an annual risk evaluation process to evaluate a number of strategic, operational and financial risk factors. The key risk factors and action plans are part of the annual Board presentation on risk management and internal control by the CEO and CFO. The Board shall carry out an annual review of the Company's most important areas of exposure to risk and its internal control arrangements
Remuneration of Board
The remuneration payable to the members of the Board is proposed by the Nomination Committee and determined by the shareholders at the Annual General Meeting. The remuneration to the Board should be designed to attract and retain an optimal Board structure in a competitive environment. The remuneration of the Board shall not be linked to the Company's performance. The Company shall not grant share options to members of the Board. Details of the remuneration are disclosed in the Notes to the Financial Statement.
Members of the Board and/or companies with whom the members are associated shall not take on specific assignments for the Company in addition to their appointments as members of the Board. If they, nonetheless, do take on such assignments this must be reported to the Board and the remuneration for such additional duties must be approved by the Board.
Any remuneration in addition to normal fees to the members of the Board shall be specifically identified in the annual report.
Remuneration of Executive Personnel
It is critical for Scanship to attract and retain engaged executives with highly experience and strong drive for results. A competitive compensation package is primary tool to attract and retain the Executive Personnel as Scanship needs to succeed. The Board shall establish guidelines for the remuneration of the executive personnel setting out the main principles applied in determining the salary and other remuneration of the executive personnel. These guidelines shall be communicated to the Annual General Meeting.
Scanship has a base salary today, but will consider a compensation package also consisting of a limited amount of share options. Share options will be issued each year upon approval of an authorisation by the Annual General Meeting. The number of options granted will be linked to Company's and the individual's performance. As a general policy, share options are granted with a strike price equal to the market price at the time of grant, vest over a four-year period starting on third anniversary of the grant and expire after five years after the grant. The Company may issue warrants that secure the rights of the option holders.
Information and Communications
The Board shall establish guidelines for the Company's reporting of financial and other information, based on openness and taking into account the requirement for equal treatment of all participants in the securities market. The Company's information and communication policy is designed to inform the stock market and all shareholders of the Company's activities and status in a timely and accurate manner. A financial calendar displaying the dates for the coming years' interim reports and General Meetings for shareholders is posted at www.scanship.no. The Company submits quarterly and annual financial reports to Oslo Axess. In addition, significant information will be distributed at www.newsweb.no and the Company's web-site.
The Company places great emphasis on complying with applicable stock exchange rules by providing the same information to all investors. All press releases and news are published in English. The Company has been granted exemption from the Norwegian Tax Authority to publish its Annual Report in English only.
The Company shall ensure that the management becomes aware of important information without undue delay. Information which shall be published on Oslo Børs Newsweb shall with undue delay be communicated to
the management who shall publish such information pursuant to the Oslo Børs Continuing Obligations.
Take-overs
The Board has established guiding principles for how it will act in the event of a take-over bid received: During the course of a take-over process, the Board and the management of both the party making offer and the target company are held responsible to ensure that the shareholders in the target company are treated equally, the target company's business activities are not disrupted unnecessarily and that shareholders are given sufficient information and time to form a view of the offer.
The Board shall not attempt to prevent or impede the take-over bid unless this has been decided by the General Meeting in accordance with applicable laws. The main underlying principles shall be that the Company's shares shall be kept freely transferable and that the Company shall not establish any mechanisms which can prevent or deter take-over offers unless this has been decided by the General Meeting in accordance with applicable law.
If an offer is made for the Company's
shares, the Board shall issue a statement evaluating the offer and making a recommendation as to whether shareholders should or should not accept the offer. If the Board finds itself unable to give a recommendation to the shareholders on whether or not to accept the offer, it should explain the reasons for this. The Board's statement on a bid shall make it clear whether the views expressed are unanimous, and if this is not the case, it shall explain the reasons why specific members of the Board have excluded themselves from the statement.
The Board shall consider whether to arrange a valuation from an independent expert. If any member of the Board, or close associates of such member, or anyone who has recently held a position but has ceased to hold such a position as a member of the Board, is either the bidder or has a particular personal interest in the bid, the Board shall arrange an independent valuation. This shall also apply if the bidder is a major shareholder (as defined as shareholder that controls 10% or more of the Company's shares or votes). Any such valuation should either be enclosed with the Board's statement, or reproduced or referred to in the statement.
Auditor
The auditor shall annually submit the main features of the plan for the audit of the Company to the Board.
The Board has determined the procedures for the external auditor regular reporting to the Board. The Auditor attends at least one meeting each year with the Board which the Company's management is not represented. The Auditor will present to the Board any significant internal control weaknesses and improvement opportunities. Scanship has established guidelines for the right of the management to use the external auditor for services other than auditing. According to the procedure, all assignments shall be approved by the CEO and all significant assessments shall in addition be subject to approval by two board members in advance. The Board of Directors shall receive an annual statement from the external auditor of services other than auditing provided to Scanship. The Auditors fee is determined at the Annual General Meeting and disclosed in the Financial Statement.
Objective
Scanship defines corporate responsibility as achieving commercial profitability in a way that is consistent with fundamental ethical values and with respect for individuals, the environment and society. The Scanship group shall respect human and labour rights, establish good environmental, health and safety (EHS) standards, facilitate good dialogue with stakeholders and generally operate in accordance with applicable regulatory frameworks and good business practice.
The Group's business depends on the trust of consumers, contractual parties, the authorities, shareholders, employees and society in general. In order to gain trust, the Group is dependent upon professionalism, expertise and high ethical standards in all aspects of the Company's work. These ethical and corporate social responsibility rules (the CSR Guidelines") set forth the basic principles for business practices and personal behaviour for Scanship, apply to all employees of the Group, as well as persons/entities holding a position of trust with the Company, and hired consultants acting on behalf of the Company. The Company has developed separate conduct principles that apply to the Company's suppliers.
These CSR Guidelines do not give customers, suppliers, competitors, shareholders or other persons or entities any legal rights beyond those that follow from applicable legal regulatory frameworks.
Main principles of corporate responsibility
Scanship has identified nine main corporate responsibility topics. The general principles underlying the Group's approach to these topics are described below. Priorities shall be based on an assessment of the needs of both the business and its stakeholders, and as an integral part of day-to-day operations.
Strong corporate culture
Scanship shall strive to promote an open corporate culture that fosters interaction and is based on Scanship's values. In promoting Scanship's principles for good business operations, we shall respect local values and norms, and achieve success by bridging the divide between different cultures and interests. Scanship companies shall always comply with local regulatory requirements in the countries in which we operate.
Responsible operations require vigilance and the exercise of good judgement on the part of management and employees.
Respect for human and labour rights
Scanship companies shall promote corporate conduct that reflects respect and consideration for others. In its operations, the Company shall respect fundamental human rights as described in international human rights conventions such as the UN Convention on Human Rights and the labour rights conventions of the International Labour Organization (ILO). Scanship is committed to respecting fundamental human and labour rights, both in our own internal business and in our relations with business partners, suppliers, customers and others who are directly affected by the Company's activities. The Group shall work systematically with important issues as nondiscrimination, the right to privacy, the right to negotiate, employment contracts, protection against harassment and managementemployee collaboration.
Environment, health and safety (EHS)
Scanship shall strive to achieve a vision of zero harm to people, the
environment and society, and work purposefully and systematically to reduce the environmental impact. The Group's products and services shall always be subject to strict requirements in terms of quality, product safety and impacts on personal health and the environment.
Anti-corruption
Corruption is the abuse of a position of trust to acquire personal or business benefits. Scanship does not tolerate corruption, and expects that all managers and procurement officers promote a strong anti-corruption culture in their department.
The companies shall make active efforts to prevent undesirable conduct, and ensure that their employees are capable of dealing with difficult situations.
Responsible marketing practices
Scanship gains business and builds long-term customer relationships by providing the best technical solutions at competitive prices as well as by demonstrating honesty and integrity in all our interactions. Our marketing and advertising materials and other representations we make to current or prospective customers must be accurate, truthful and in compliance with applicable laws.
Scanship does not tolerate any agreement on price fixing, market sharing or other activities that limit free competition.
Scanship attaches great importance to product safety, good customer service and responsible marketing, and is committed to exercising due diligence with regard to consumer interests.
Responsible sourcing
Scanship shall actively promote good work and standards in the supply chains. This means setting ethical standards for its suppliers, assessing
the risk of potential supplier violations of these standards, and engaging in dialogue with risk suppliers concerning necessary improvements. Efforts to influence suppliers should be based on an ambition of continuous improvement, and should focus on the suppliers and product categories where the risk is deemed greatest.
Money laundering
Money laundering is the process of creating the appearance that assets obtained from criminal activity, originate from a legitimate source. Scanship shall avoid any involvement with assets resulting from criminal activity.
Whistleblowing
Notification or whistleblowing is to pass information about a censurable or possible censurable incident to someone who is in a position to initiate corrective measures. A censurable incident is an illegal, dangerous or any other act in breach of company regulations. Anyone who becomes aware of an incident/situation that appears to contravene rules and guidelines that apply to the Company's operations is encouraged to report this.
Every employee has the right to report possible censurable incidents. Each employee is encouraged to report on possible censurable incidents but is not normally obliged to do so. However, every employee has an obligation to report on criminal activity and on incidents that could endanger life or health, or the assets of the Company.
Notification is beneficiary for each employee, for the Company and the society as a whole because it offers an opportunity to implement corrective action. A colleague willing to make a report is an important resource to the Company.
Compliance with legislation and regulation
The Company is subject to Norwegian and international legislation and regulations.
Some Norwegian legislation also applies outside the country's boarder, e.g. the provisions of the penal code that refer to corruption.
The Company's employees, representatives and anyone who acts on behalf of the Company must comply with all legislation and regulations that apply, directly or indirectly, to the work performed for the Company.
External resources and references
International Labour Organization: www.ilo.org
UN Convention on Human Rights: www.un.org.
Scanship Holding ASA Board of Directors Report 2016
The operations
The vision of Scanship Holding ASA (the "Company") and its subsidiaries (together "Scanship" or the "Group") is to be a maritime industry leader in advanced technologies for processing and purifying waste water, food waste, solid waste and bio sludge. Scanship is a supplier to most major cruise liners. Modern cruise ships generate substantial amount of wet and dry waste which needs to be properly treated. Scanship's technology processes this into recyclables, clean flue gas and treated waste water which meets the highest international effluent discharge standards. The Company has its head office at Lysaker, Norway, and the Group has offices in Tønsberg (Norway), Davie in Florida (USA) and Gdynia (Poland). Scanship has warehouse facilities in Tønsberg and Davie.
Scanship's main activities within system sales consists of project sales, project development, engineering, production planning, procurement, project management and commissioning. Systems are either sold to shipyards for newbuild constructions, where the yard is installing, or to ship-owners where Scanship is delivering the system as a turn-key project with subcontractors for shipboard installation. Production of Scanship systems is outsourced to mechanical workshops mainly located in eastern part of Europe. The Group's activities within the Aftersales segment include sales of chemicals, spare parts and services within operational assistance, maintenance and repairs.
2016 Highlights
During 1Q16 Scanship delivered equipment to Meyer Werft for the newbuild constructions Norwegian Bliss and Genting Dream. In the same period, equipment was delivered to the Mein Schiff 6 at Meyer Turku, and to the Viking Sea and the second newbuild construction in the Carnival Vista class at Fincantieri. Scanship completed the installation of the sludge dryer system for Marin Harvest at Steinsvik and commenced the retrofit installation aboard Oceania Sirena.
During 2Q16 Scanship delivered equipment to Meyer Werft for the second newbuild construction for Dream Cruises, a subsidiary of Genting Group. During the same period, Scanship completed the retrofit installation aboard Oceania Sirena, a subsidiary of NCL Holding.
In the first two quarters of the year there was a high activity within commissioning. The company commissioned the AWP systems aboard Harmony of the Sea at STX
France and Ovation of the Seas at Meyer Werft. At Fincantieri, Scanship completed the commissioning of the total Scanship system aboard Viking Sea in Ancona, the AWP on the Carnival Vista in Monfalcone and the AWP system on Mein Schiff 5 at Meyer Turku.
In 3Q16, Scanship's quality management system was certified by Lloyds Register according to ISO9001 2015. During the same period, Scanship delivered equipment to Meyer Werft for the second Dream Cruise and the fourth Norwegian Cruise Line, to Fincantieri for the third and fourth Viking Ocean and to Meyer Turku for the seventh Mein Schiff. In total five main equipment deliveries were made in the period. Scanship further handed over to the ship-owner the certified Scanship AWP system on Oceania Sirena, a subsidiary of NCL Holding. Scanship commissioned the AWP systems aboard Genting Dream for Dream Cruises and handed over both the certified AWP and the Waste Management system on Viking Sea for Viking Ocean Cruises.
In 4Q16, Scanship delivered equipment to the following newbuilds; to Fincantieri for the fifth and the sixth Viking Ocean Cruises vessels, to Fincantieri for the first Costa Asia newbuild for Carnival Corporation & PLC, and to Meyer Turku for the seventh newbuild in the Mein Schiff class and to Norwegian Joy. In total five equipment deliveries to shipyards were made in the period. Scanship has in the same period done commissioning of the total clean ship systems aboard MSC Meraviglia at STX France, the Viking Sky at Fincantieri and Silver Muse at the same yard.
In September 2016 Scanship announced that it had initiated a cost reduction program. The aim of the program was to reduce operating cost by 20%, approx. NOK 1m per month at 3Q16 level of operation. The program has combined layoffs and reduction in other operating costs. As of end 4Q16 the program did not have any significant effect on the reported numbers. The program would have had full effect from beginning of 2017, however part of the program has been reversed due to higher activity from a larger order intake in 2017.
During the 4Q16 the 70th IMO meeting in London ratified the 2020 global Sulphur requirement. The enforcement of this new legislation is expected to have a significant impact on Scanship's forward growth with its newly developed offerings within exhaust gas management.
In November 2016 Scanship announced that it had initiated a process to evaluate strategic alternatives with the purpose of enhancing shareholder values. Arkwright Corporate Finance AS was hired in as financial and strategic advisors for this process.
The order backlog at 31 December 2016 was NOK 250m compared to NOK 226m at the end of 2015. The project order intake in 2016 were contracts with Fincantieri for delivery of total clean ship systems for two Viking Ocean Cruises newbuilds, with Fincantieri for delivery of AWP for three Carnival Corporation newbuilds, and with Kleven Verft for total clean ship systems to two Hurtigruten newbuilds. The total project order intake amounted to approx. NOK 100m.
Product development
Scanship's three main development projects during 2016 have been Microwave Assisted Pyrolysis ("MAP"), Scrubber water treatment system and Oil heated dryer development (for fish farms/ aquaculture systems).
Scanship has invested NOK 5.9m in 2016 on its product development activities compared to NOK 6.9m in
2015.
Scanship has during 2016 worked on a total of seven product development projects, which are included as intangible assets in the balance sheet. All of these projects are ongoing into 2017. One project was stopped during 2016 as the future value was assessed to be insignificant, and the activated intangible asset on this project was impaired with NOK 0,1m in 2016. In addition, Scanship has worked on three development projects that, based on evaluation of commercial feasibility at this stage, have been recognised in profit and loss as incurred.
Intangible assets from product development activities were as of 31.12.2016 NOK 28.8m compared to NOK 24.2m as of 31.12.2015. A significant part of the product development cost consists of working hours performed by Scanship's own employees.
Going concern
At the end of 2016 the Group had a record-high order backlog of NOK 250.0m, up from NOK 225.8m at the beginning of the year. After year-end 2016, new contracts have also been signed with a contract value of NOK 160m. The order backlog consists of remaining revenue on ongoing projects and projects signed but not started. The cruise newbuilding market continues to grow, and includes a total of 41 firm orders by April 2017 between shipyards and ship-owners for deliveries between 2017 and 2019. In addition, there are approximately 20 additional options and newbuilds pending to be signed for ship deliveries between 2019 and 2021. The majority of these 20 are sister vessels in newbuild series where Scanship already has supplied systems to the first vessel. Out of the 41 firm contracted newbuilds, Scanship has ongoing orders with yards for 24 newbuilds.
Underlying the high cruise newbuilding and tendering activity is a strong global cruise passenger growth, which has seen an annual growth rate of 7,2%
from 1990 until today, and is foreseen by market participants to grow at the same or even higher rate in the years to come. The US is still important for the cruise passenger demand, but the customer base has become more diversified in recent years, with the APAC and EMEA regions growing significantly in importance in the recent years. The growth of the APAC and EMEA regions in relation to cruise passengers is expected to be particularly strong in the coming years.
In addition to the cruise newbuilding tendering, Scanship is experiencing larger tendering activity towards passenger ships in the expedition market, river cruises and ferries. Scanship has also signed two contracts within the aquaculture market, and are presently tendering for additional new contracts within this market.
Scanship is also experiencing a higher tendering activity within AWP retrofit projects. This is believed to be driven by a higher industry focus on wastewater treatment and that the industry is starting to adapt to future discharge standards.
Based on the Group's financial status, order backlog and the market position for the Group for the years to come, we, pursuant to the Norwegian Accounting Act § 3-3a, confirm the assumption of going concern. See also the section on Outlook and Events after the reporting period below.
The financial statements
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and in accordance with the additional requirements following the Norwegian Accounting Act.
The Group's revenues in 2016 (2015) amounted to NOK 171.6m (NOK 200.3m). The reduction in the revenue level from 2015 is primarily due to reduction in revenue from the newbuild projects. This reduction is mainly due to a temporary shift in project revenues as a consequence of having a larger proportion of projects as sister ships, where revenues are recognised relatively later in the project cycle. The revenue from the Aftersales segment increased from 2015 to 2016, see also further details on the revenue development in note 4.
EBITDA (operating profit before depreciation) for the Group constituted NOK -3.4m (NOK 11.3m). The Gross Margin was reduced from 32% in 2015 to 28% in 2016. The reduction in Gross margin is primarily caused by changes in project cost estimates and a writedown of part of the book value of inventory done in 2016. The reduction in EBITDA from 2015 is due to the combined effect of the reduction in revenue and reduction in gross margin level.
The Projects segment had an income of NOK 89.2m (NOK 131.7m). The EBITDA for the segment was NOK -5.8m (NOK 5.1m).
The Aftersales segment had an income of NOK 104.0m, (NOK 81.3m). The EBITDA for the segment was NOK 9.6m (NOK 9.5m).
Operating profit for the Group in 2016 (2015) was NOK -5.8m (NOK 8.6m). The Company had an operating result of NOK -2.6m (NOK -2.5m).
Profit after tax in the Group in 2016 (2015) amounted to NOK -4.8m (NOK 4.4m), and NOK -2.0m (NOK -128.3m) for the Company. The result of the Company in 2015 included a write down of the fair value of the shares in Scanship AS due to lower market valuation of the group at that time.
The Group's net cash flow for 2016 (2015) was negative with NOK -16.0m (NOK 15.7m).
The Company had in 2016 (2015) total assets of NOK 117.8m (NOK 119.6), mainly consisting of shares in subsidiary.
Allocation of the profit for the year
The Board recommends the following allocation of the loss of the year in the Company (Scanship Holding ASA): Retained Earnings NOK -2.0m.
Financing
The Group had as of 31.12.2016 a bank overdraft facility with a limit of NOK 29.1m with DNB. NOK 23.9m of the bank overdraft facility was utilised at year end. Subsequent to year-end the limit on the overdraft facility has been increased to NOK 30.0m. The overdraft facility is subject to annual renewal, and has been renewed.
The operations in Scanship Americas in the US are financed through their own bank accounts, and their own net positive cash flow operations.
The Board is of the opinion that the Group has adequate funds in order to meet the Group's financing needs for further growth in the next 12 months.
Financial risk
The Group is exposed to financial risks in various areas. Among these the key risks being related to market, currency, credit and liquidity risks.
Market risk
There is a risk for Scanship that increased competition in the market space for supplies of AWP and Waste Management systems may have a negative effect on forward revenues. If the cruise industry will experience overcapacity and pressure on consumer pricing, the newbuilding activity may slow down. If the overall financial markets would slow down, ship-owners may have reduced capacity to finance newbuilds with the effect of lowering newbuild constructions.
Currency risk
The Group has earnings mainly in NOK, EUR and USD. The operatingand administration expenses are mainly in NOK, EUR and USD. The Group is reducing the currency
exposure by applying instruments for hedging the net foreign currency exposure in connection with major projects. The Group has bank deposits, receivables and short-term liabilities in foreign currencies.
Credit risk
The Group is mainly exposed to credit risk related to trade receivables. The customers are basically large cruise ship owners and shipyards in Europe with satisfactory credit history. The credit risk is mainly related to newbuilding contracts where a few yards are counterpart. This is increasing the credit risk. However, due to nature of newbuilding financing, the management considers the overall risk of loss on receivables to be relatively low. The Group has not provided any guarantees for third parties' liabilities. The actual losses on trade receivables have historically been very low, and no losses were incurred on trade receivables either in 2015 or in 2016. The Group has with effect from 1 April 2017 also entered into a credit risk insurance agreement (kredittforsikring) on its trade receivables. This agreement with a Nordic insurance company covers the potential losses incurred by Scanship AS on its trade receivables, subject to certain restrictions, and reduces the ultimate credit risk for the Group substantially. This insurance agreement is entered into as an additional risk-mitigating factor.
Liquidity risk
Liquidity risk is the risk of being unable to pay financial liabilities as they fall due. The liquidity risk for the Group is primarily related to the timing of the payments on its trade receivables from the shipyards in Europe on the Newbuild projects. Certain of the shipyards exercises longer payment terms than other shipyards. Scanship has a close and on-going contact with all its shipyard customers, and have had so for many years. Managing this relationship is one of the key factors for Scanship in the daily management of its liquidity risk. Historically Scanship has had very limited losses on its accounts receivable. So even though the payments from the shipyards in certain periods have been delayed beyond the agreed credit term, they have historically always paid their liabilities. Scanship also has a certain flexibility in its own supplier base, whereby longer payment terms sometimes are agreed with suppliers in periods were the payments are delayed from the customers. Management of the liquidity risk is a prioritized task by Scanship management.
The Group also has relatively higher liquidity risk on Newbuild projects as Scanship receives payments late in the projects, as compared to retrofit projects, where the company receives payments after meeting certain milestones. Although the milestones are set up to enable a positive net cash flow on the projects, a delay in the retrofit projects will naturally also increase the liquidity risk. The Newbuild-activity has increased during 2015 and 2016, while the Retrofitactivity has been reduced.
This has increased somewhat the need for working capital and the liquidity risk for the Group.
Estimation risk
The preparation of the financial statements in accordance with IFRS requires management to make judgements, use estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses.
The uncertainty is highest in relation to the project evaluations and the following factors:
- Total hours estimated
- Total estimated costs
- Technical complexity that may have impact on the total costs
These estimates have a direct influence over the amount of revenue recognised.
Working environment and personnel
The level of short-term absence in the
group is insignificant, and was less than 2% in 2016.
The Group has a strong focus on HSE (Health, Security and Environment) and is subject to strict HSE- routines from its customers. No injuries or accidents causing material damages or personal injuries were reported during the year.
Human resources, diversity and corporate responsibility
The Company has a Board of Directors consisting of 3 persons, of which one is a woman. The Group with subsidiaries has 49 employees whereas 7 are women.
The Group is an organization with a diversified working environment in which employment, promotions, responsibility and job enrichment are based on qualifications and abilities, and not on gender, age, race and political or religious views. Scanship believes in equal opportunity for men and women in the workplace. Please see the separate guidelines for Corporate Social Responsibility that appears as a section of the Annual Report. The guidelines can also be found on the Group's website www.scanship.no.
Please see the separate statement of Corporate Governance that appears as a section of the Annual Report. The statement can also be found on the Group's website www.scanship.no.
Environmental issues
The Group's activities are causing a minimum of pollution or waste that can be harmful to the environment. The Group's products are rather contributing in increased recycling and reduced pollution on a global scale.
Outlook and Events after the reporting period Market and Order backlog
The Group is developing futureoriented technology among the best in the world regarding complete waste solutions, and is a leading supplier in
the industry. The increased focus on environment from both new regulations and conscious consumers are helping to increase the demand for the Group's products.
The Group had a record high order backlog of NOK 250m per 31.12.16, and after year-end 2016 new contracts have been signed with a contract value of NOK 160m.
Exclusive negotiation to sell 100 % of the shares in Scanship AS and subsidiaries
The Company has in April 2017 entered into an exclusive negotiation to sell 100% of its shares in Scanship AS (with subsidiaries).
Based on the strategic alternatives that the Board of the Company has explored, and the interest received, the Board has decided to pursue exclusive negotiations based on a binding offer (the "Offer") to buy all outstanding shares in Scanship AS (with its subsidiaries in the US and Poland, together the "Scanship AS Group" in this context). The Offer is inter alia conditional on agreement of a Share Purchase Agreement, approval in a shareholders meeting of the Company and approval by the board of directors of the bidder. The Offer represents an enterprise value of the Scanship AS Group in the range NOK 193m to NOK 197m (i.e. on a debt and cash free basis).
The enterprise value range is dependent on Scanship AS Group reaching certain operational targets. The total purchase price of the Offer, payable in cash at a potential closing of a transaction, is in the range of approx. NOK 166m to NOK 173m.
Consolidated Financial Statement 2016
Consolidated income statement
| (NOK million) | Note | 2016 | 2015 |
|---|---|---|---|
| Sales | 4 | 171.6 | 200.3 |
| Total operating revenue | 171.6 | 200.3 | |
| Cost of goods sold | 4,15 | -123.6 | -136.4 |
| Employee expenses | 5, 23 | -28.1 | -28.1 |
| Other operating expenses | 6, 22 | -22.5 | -24.5 |
| EBITDA before restructuring cost | -2.6 | 11.3 | |
| Restructuring cost | 6 | -0.8 | - |
| EBITDA | -3.4 | 11.3 | |
| Depreciation | 17 | -1.1 | -1.2 |
| Amortisation | 18 | -1.2 | -0.7 |
| Impairment | 18 | -0.1 | -0.8 |
| Operating profit (EBIT) | -5.8 | 8.6 | |
| - | |||
| Finance income Fair value change FX derivatives |
19 21 |
1.8 7.6 |
6.4 1.1 |
| Finance costs | 19 | -8.7 | -9.1 |
| Net financial items | 0.7 | -1.6 | |
| Result before tax | -5.0 | 7.0 | |
| Income tax expenses | 16 | 0.2 | -2.6 |
| Result for the year | -4.8 | 4.4 | |
| Attributable to: | |||
| Owners of the parent | -4.8 | 4.4 | |
| Earnings per share (NOK 1 000 per share) | |||
| - Basic | 14 | -0.05 | 0.05 |
| - Diluted | 14 | -0.05 | 0.05 |
| Consolidated statement of comprehensive income |
|||
| (NOK 1 000) | 2016 | 2015 | |
| Result for the year | -4.8 | 4.4 | |
| Other comprehensive income: Exchange differences on translation of foreign operations |
0.8 | -0.1 |
| Total other comprehensive income, net of tax | 0.8 | -0.1 |
|---|---|---|
| Total comprehensive income for the year | -4.0 | 4.3 |
| Attributable to: | ||
| Owners of the parent | -4.0 | 4.3 |
Consolidated statement of financial position
| (NOK million) | Note | 31.12.2016 | 31.12.2015 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Property, plant and equipment | 17 | 3.8 | 3.3 |
| Intangible assets | 18 | 28.8 | 24.2 |
| Total non-current assets | 32.6 | 27.5 | |
| Current assets Inventories |
7 | 3.5 | 5.7 |
| Trade receivables | 8,12,15 | 57.8 | 61.2 |
| Contracts in progress | 4 | 14.2 | 42.4 |
| Other receivables | 9 | 13.9 | 12.2 |
| Cash and cash equivalents | 10 | 3.6 | 19.5 |
| Total current assets | 93.0 | 140.9 | |
| Total assets | 125.6 | 168.4 |
EQUITY AND LIABILITIES
| Equity | |||
|---|---|---|---|
| (NOK million) | Note | 31.12.2016 | 31.12.2015 |
| Share capital | 11 | 9,6 | 9,6 |
| Share premium | 77,5 | 77,5 | |
| Other capital reserves | 0,5 | 0,4 | |
| Translation differences | 0,8 | 0,0 | |
| Retained earnings | -42,9 | -37,6 | |
| Equity attributable to owners of the parent | 45,4 | 49,8 | |
| Total equity | 26 | 45,4 | 49,8 |
| Liabilities | |||
| Non-current liabilities | |||
| Deferred tax liability | 16 | 2,8 | 3,6 |
| Long term borrowings | 12 | 1,3 | 0,7 |
| Total non-current liabilities | 4,1 | 4,3 | |
| Current liabilities | |||
| Trade creditors | 31,5 | 36,7 | |
| Contract accruals | 4 | 8,2 | 27,7 |
| Unrealised change fair value FX derivatives | 19, 20, 21 | 1,8 | 9,4 |
| Income tax payable | 16 | 0,5 | 0,7 |
| Bank overdraft | 12 | 23,9 | 27,3 |
| Other current liabilities | 13, 15 | 10,2 | 12,5 |
| Total current liabilities | 76,1 | 114,3 | |
| Total liabilities | 80,2 | 118,6 | |
| Total equity and liabilities | 125,6 | 168,4 |
Consolidated statement of changes in equity
| 31.12.2016 | Share | Share | Other cap. | Translation | Retained | Non | Total | ||
|---|---|---|---|---|---|---|---|---|---|
| controlling | |||||||||
| (NOK million) | Note | capital | premium | Reserves | differences | earnings | Total | interest | Equity |
| Equity at 1 January 2016 | 9,6 | 77,5 | 0,4 | 0,0 | -37,6 | 49,8 | 0,0 | 49,8 | |
| Result for the year | -4,8 | -4,8 | -4,8 | ||||||
| Other comprehensive income 1) | 0,8 | -0,6 | 0,2 | 0,2 | |||||
| Total comprehensive income | - | - | - | 0,8 | -5,4 | -4,6 | 0,0 | -4,6 | |
| Stock options | 5 | 0,1 | 0,1 | 0,1 | |||||
| Equity at 31 December 2016 | 9,6 | 77,5 | 0,5 | 0,8 | -42,9 | 45,4 | 0,0 | 45,4 |
1) Correction of prior years calculation of translatin differences.
| 31.12.2015 | Share | Share | Other cap. | Translation | Retained | Non controlling |
Total | |
|---|---|---|---|---|---|---|---|---|
| (NOK million) | capital | premium | Reserves | differences | earnings | Total | interest | Equity |
| Equity at 1 January 2015 | 9,6 | 77,5 | - | 0,1 | -42,0 | 45,1 | - | 45,1 |
| Result for the year | 4,4 | 4,4 | 4,4 | |||||
| Other comprehensive income | -0,1 | - | -0,1 | -0,1 | ||||
| Total comprehensive income | - | - | - | -0,1 | 4,4 | 4,3 | - | 4,3 |
| Stock options | 0,4 | 0,4 | 0,4 | |||||
| Equity at 31 December 2015 | 9,6 | 77,5 | 0,4 | 0,0 | -37,6 | 49,8 | - | 49,8 |
Consolidated cash flow statement
| (NOK million) | Note | 2016 | 2015 |
|---|---|---|---|
| Cash flow from operating activities | |||
| Result before income tax | -5.0 | 7.0 | |
| Adjustments: | |||
| Stock option | 0.1 | 0.4 | |
| Income tax paid | 16 | -0.7 | -0.1 |
| Changes in work in progress | 4 | 8.7 | 25.0 |
| Depreciation, amortisation and impairment | 17 | 2.4 | 2.7 |
| Changes in Fair value FX derivatives | 19, 21 | -7.6 | -1.1 |
| Changes in inventories, trade receivables and trade creditors | 0.4 | -8.5 | |
| Interest paid to trade creditors | -0.2 | -0.1 | |
| Changes in other accruals | -3.8 | -0.5 | |
| Net cash flow from operating activities | -5.8 | 24.7 | |
| Cash flow from investing activities | |||
| Purchase of property, plant and equipment | 17 | -1.6 | -2.5 |
| Investment in intangible assets | 18 | -5.9 | -6.9 |
| Net cash flow from investing activities | -7.4 | -9.4 | |
| Cash flow from financing activities | |||
| Proceeds from borrowings | 12 | 0.5 | 0.7 |
| Bank Overdraft facility | 12 | -2.6 | 0.3 |
| Interest paid | -0.8 | -0.6 | |
| Repayment of loans | 12 | 0.2 | -0.1 |
| Net cash flow from financing activities | -2.8 | 0.3 | |
| Net change in cash and cash equivalents | -16.0 | 15.7 | |
| Cash and cash equivalents at 1 January | 19.5 | 3.8 | |
| Cash and cash equivalents at 31 December | 3.6 | 19.5 | |
| Non restricted cash, 31.12 | 2.4 | 18.3 | |
| Restricted cash, 31.12 | 1.2 | 1.2 | |
| Cash 31.12 | 10 | 3.6 | 19.5 |
Notes to the Consolidated Financial Statement Scanship Holding Group
Note 1 - General information
Scanship Holding ASA which is the parent company of the Scanship Group (the Group), is a limited liability company incorporated and domiciled in Norway, with its Head Office at Lysaker Torg 12, 1366 Lysaker - Norway. Scanship Holding AS was incorporated as a new parent company of the Group during 2011. The Group's business is manufacturing and supplying advanced systems for processing and cleaning drainage water, food waste, residual waste and biological mud to the maritime industry throughout the world. In addition, the Group offers chemical products used in the waste management systems, and provides service and operational assistance related to these products.
The financial statements were approved by the Company's board on 27 April 2017.
Note 2 - Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
2.1 Basis for preparation
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and in accordance with the additional requirements following the Norwegian Accounting Act.
The financial statements have been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value.
2.2 Basis of consolidation
The Group's consolidated financial statements comprise Scanship Holding ASA and its subsidiaries. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtained control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intragroup balances, income and expenses, unrealised gains and losses and dividends resulting from intra-group transactions are eliminated in full. A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction.
2.3 Foreign currency
Functional currency, presentation currency and consolidation:
The Group's presentation currency is Norwegian kroner (NOK). This is also the Parent company's functional currency. The functional currency for the subsidiaries are; Scanship AS: NOK, Scanship Americas Inc.: USD, Scanship Canada Inc.: CAD, Scanship Poland Sp.z.o.o: PLN and CHX Maritime Inc.: USD.
For consolidation purposes, the balance sheet figures for subsidiaries with a different functional currency, are translated into the presentation currency (NOK) at the rate applicable at the balance sheet date and their income statements are translated at the exchange rate prevailing at the date of transaction. As an approximation, average exchange rates for each quarter are applied in translating the income statements. If the exchange rates do not change much, an average rate for the year is used. A shorter period is used if the exchange rate fluctuates much. Exchange differences are recognised in other comprehensive income.
Transactions in foreign currency
Foreign currency transactions are translated into the functional currency using the exchange rates at the transaction date. Monetary balances in foreign currencies are translated into the functional currency at the exchange rates on the date of the balance sheet. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
2.4 Property, plant and equipment
Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment charges. Depreciations are calculated on a straight-line basis over the assets expected useful life and adjusted for any impairment charges. Expected useful lives of long-lived assets are reviewed annually and where they differ significantly from previous estimates, depreciation periods are changed accordingly. Ordinary repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in operating profit.
Property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. Assessment is made at least once a year. The difference between the assets` carrying amount and its recoverable amount is recognised in the income statement as impairment.
2.5 Intangible assets
Intangible assets acquired separately that have a finite useful life are carried at cost less accumulated amortisation and any impairment charges. Amortisation is calculated on a straightline basis over the assets` expected useful life and adjusted for any impairment charges.
Internally generated intangible assets Expenditures on research activities, undertaken with the prospects of
gaining new technical knowledge and understanding, are recognised in profit or loss as incurred.
The Group is constantly working with activities to optimize the total cleaning systems. In 2010, the Group started a product development project which will have a significant contribution to the line of products the Group offers. Development projects involve a plan or design for the production of new or substantially improved products and processes. The cost related to the project will be capitalised if the criteria for capitalisation is met. If costs for development shall be capitalised, the Group must demonstrate, amongst others, that the technical feasibility is available, that the Group has the intention to complete the asset and its ability to sell it. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. The intangible assets are amortised from the time it is available for use.
At each year end, the Group assess whether there is any indication that the asset may be impaired. If there is any indication of impairment, an impairment test is performed, and the assets or the cash generating unit's recoverable amount is calculated. Before the intangible asset is available for use, an impairment is performed each year. When the recoverable amount is less than the carrying amount, an impairment loss is recognised in the income statement.
The Group has in the period 2013 to 2016 received refundable tax credits ("Skattefunn"). This is recognised in the financial statement as a reduction of book value in the intangible assets and as a current receivable.
2.6 Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method and includes the costs incurred in acquiring the goods and the costs of bringing the goods to their current location. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.
2.7 Trade receivables and other current receivables
Trade receivables and other current receivables are initially recognised at fair value plus any transaction costs. The receivables are subsequently measured at amortised cost using the effective interest method, if the amortisation effect is material, less provision for impairment. Other current receivables include prepayments and receivables from related parties.
2.8 Cash and cash equivalents
Cash and the equivalents include cash on hand, deposits with banks and other short-term highly liquid investments with original maturities of three months or less.
2.9 Trade creditors
Trade creditors are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, if the amortisation effect is material.
2.10 Taxes
Income tax expense for the period comprises current tax expense and deferred tax expense.
Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity.
Deferred tax assets and liabilities are calculated on the basis of existing temporary differences between the carrying amounts of assets and liabilities in the financial statement and their tax bases, together with tax losses carried forward at the balance sheet date. Deferred tax assets and liabilities are calculated based on the tax rates and tax legislation that are expected to apply when the assets are realised or the liabilities are settled, based on the tax rates and tax legislation that have been enacted or substantially enacted on the balance sheet date. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that is no longer probable that the deferred tax asset can be utilised. Deferred tax assets and liabilities are not discounted. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.
The companies included in the consolidated financial statement are subject to income tax in the countries where they are domiciled.
2.11 Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group's activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue when the amount of revenues is reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group's activities as described below.
Sale of goods
Revenue from the sale of goods is recognised in the income statement when the significant risk and rewards of ownership has been transferred to the buyer, usually once delivery has taken place. Sales of goods are not long-term construction contracts.
Sale of services
Revenue from a contract to provide services as a stand-alone service is recognised by reference to the labour hours delivered and direct expenses that have incurred.
Project sale (Construction contract) Revenue from the sale of services and
long-term manufacturing projects are recognised under the percentage-ofcompletion method. The project sales consist of newbuilding and retrofit contracts.
The project sales are mainly deliverables to cruise vessels that are being built at ship yards. The contracts will typically have project duration from one to three years. The company estimates the progress of these contracts with the number of hours spent on the projects. A construction contract consists of a design-phase (2- 6 months), a procurement-phase (2-6 months), an installation phase (1-2 months) and a commission phase (1-2 months). The revenues will "typically" be recognised mainly in the design and procurement phase.
When the outcome cannot be reliably estimated, only revenues equaling the project costs incurred can be recognised as revenue.
Contract costs include costs that relate directly to the specific contract such as direct wages and direct materials. Precontract costs are expensed unless it is probable that the Group receives a contract. Costs that cannot be attributed to contract activity are expensed. Contract revenue includes the agreed amount under the contract, adjusted for any changes or additional work related to the contract. For most of its contracts, the Group provides a guarantee for a specific period, and the customers are not required to pay a certain percentage of the total contract amount until the end of the guarantee period. The Group does not recognise the revenue from the guarantee before the expiration of the guarantee period.
If circumstances arise that may change the original estimates of revenues, costs or extent of progress toward completion, estimates are revised. These revisions may result in increases or decreases in estimated revenues or costs and are reflected in income in the period in which the circumstances that give rise to the revision become known by management. An expected loss on a construction contract will be recognised as an expense as soon as such loss is probable.
"Contracts in progress" reported in the balance sheet represents the gross value of construction work performed less payment by customers. If payments from customers exceed the net amount earned, this is presented under "Contract accruals".
2.12 Derivative financial instruments that are not hedging instruments
Derivative financial instruments that are not classified as hedging instruments are categorised as held for trading, i.e. they are classified in category at fair value through profit or loss. These instruments are measured at fair value with changes in fair value charged to the income statement. The Group does not apply hedge accounting. All derivatives are measured at fair value with changes in fair value charged to the income statement.
2.13 Pension plans
The Group has a defined contribution plan for its employees. The Group's payments are recognised in the income statement as employee benefits expense for the year to which the contribution applies.
2.14 Provisions
A provision is recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable (i.e. more likely than not) that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation. The increase in the provision due to passage of time is recognised as finance cost.
2.15 Leases (as lessee)
Financial leases
Finance leases which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in the income statement.
Operating leases
All leases that are not classified as financial leases are classified as operating leases. Operating lease payments are recognised as an operating expense in the income statement on a straight-line basis over the lease term.
2.16 Equity-settled transactions
The cost of equity-settled transactions is determined by the fair value at the date when the grant is made using an appropriate valuation model. The Group has a share option program covering certain employees in senior positions. The options granted may be settled either by issuing new shares to the option holder, sale of treasury shares to the option holder by the company, or a transfer of a NOK amount for each exercised option. Further details are given in in Note 5.
2.17 Contingent liabilities
Contingent liabilities are not recognised in the financial statement. Significant contingent liabilities are disclosed, with the exception of contingent liabilities where the probability of the liability occurring is remote.
2.18 Earnings per Share
The calculation of basic earnings per share is based on the profit attributable to ordinary shares, using the weighted average number of ordinary shares outstanding during the year after deduction of the average number of treasury shares held over the period.
The calculation of diluted earnings per share is consistent with the calculation of the basic earnings per share, but gives at the same time effect to all
dilutive potential ordinary shares that were outstanding during the period, by adjusting the profit/loss and the weighted average number of shares outstanding for the effects of all dilutive potential shares, i.e.:
- The profit/loss for the period attributable to ordinary shares is adjusted for changes in profit/loss that would result from the conversion of the dilutive potential ordinary shares.
- The weighted average number of ordinary shares is increased by the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares.
2.19 Reserves
Exchange differences relating to the translation of the net assets of the Group's foreign operations from their functional currency to the Group's presentation currency is recognised directly in other comprehensive income and presented as "translation differences" in the statement of changes in equity.
2.20 Cost of equity transactions
Transaction costs directly attributable to an equity transaction are recognised directly in equity, net after deducting tax.
2.21 Cash flow statement
The cash flow statement is prepared by using the indirect method.
2.22 Events after the balance sheet date
The financial statements are adjusted to reflect events after the balance sheet date that provides evidence of conditions that existed at the date of the balance sheet (adjusting events). The financial statements are not adjusted to reflect events after the balance sheet date that are indicative of conditions that arose after the date of the balance sheet (non-adjusting events). Nonadjusting events are disclosed if significant.
2.23 Changes in accounting policy and disclosures
New and amended standards and interpretations that have become effective for accounting periods starting on 1 January 2017 did not have any impact on the Group's financial statements.
2.24 IFRS and IFRIC issued but not adopted by the Group
Standards and interpretations that are issued up to the date of issuance of the consolidated financial statements, but not yet effective, are disclosed below. The Group's intention is to adopt the relevant new and amended standards and interpretations when they become effective, subject to EU approval before the consolidated financial statements are issued.
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments that replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted. Except for hedge accounting, retrospective application is required but providing comparative information is not compulsory. For hedge accounting, the requirements are generally applied prospectively, with some limited exceptions. The latter will not apply for the Group, as The Group do not have hedge accounting.
The Group plans to adopt the new standard on the required effective date. During 2016, the CompanGroup has performed a high-level impact assessment of all three aspects of IFRS 9. This preliminary assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional reasonable and supportable information being made available to the Group in the future. Overall, the Group expects no significant impact on its balance sheet and equity, but will perform a detailed assessment in the future to determine the extent.
(a) Classification and measurement
The Group does not expect a significant impact on its balance sheet or equity on applying the classification and measurement requirements of IFRS 9. It expects to continue measuring at fair value all financial assets currently held at fair value.
2.25 Impairment
IFRS 9 requires the Group to record expected credit losses on all its debt securities, loans and trade receivables, either on a 12-month or lifetime basis. The Group expects to record expected losses on a 12-months basis. The Group has had very limited losses on its trade receivables in recent years, and expects no significant impact in relation to this, but will perform a more detailed analysis which considers all reasonable and supportable information, including forward-looking elements to determine the extent of the impact.
(b) Hedge accounting
The Group believes that any future hedge relationships that are currently designated in effective hedging relationships will still qualify for hedge accounting under IFRS 9. As IFRS 9 does not change the general principles of how an entity accounts for effective hedges, the Group does not expect a significant impact as a result of applying IFRS 9. The Group will assess possible changes related to the accounting for the time value of options, forward points or the currency basis spread in more detail in the future.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model to account for revenue arising from contracts with customers. Under IFRS 15, revenue is recognised at an amount that reflects the consideration to which
an entity expects to be entitled in exchange for transferring goods or services to a customer.
Either a full retrospective application or a modified retrospective application is required for annual periods beginning on or after 1 January 2018. Early adoption is permitted. Scanship plans to adopt the new standard on the required effective date using the full retrospective method.
The Group is mainly in the business of waste management for the cruise industry. The equipment and services are sold both on its own in separate identified contracts and together as a bundled package of goods and/or services.
(a) Sale of goods
Contracts with customers in which the sale of equipment is generally expected to be the only performance obligation are not expected to have any impact on the Group's profit or loss. The Group expects the
revenue recognition to occur at a point in time when control of the asset is transferred to the customer, generally on delivery of the goods.
(b) Rendering of services
The Group provides installation services. These services are sold on their own in contracts with the customers The Group recognises service revenue by reference to the stage of completion. Under IFRS 15, allocation will be made based on relative stand-alone selling prices. As a result, the allocation of the consideration and, consequently, the timing of the amount of revenue recognised in relation to these sales may be impacted. The Group has preliminarily assessed that the services are satisfied over time given that the customer simultaneously receives and consumes the benefits provided by the Group. Consequently, the Group would continue to recognise revenue for these service contracts/service components of bundled contracts over time rather than at a point of time.
(c) Presentation and disclosure requirements
IFRS 15 provides presentation and disclosure requirements, which are more detailed than under current IFRS. The presentation requirements represent a significant change from current practice and significantly increases the volume of disclosures required in Group's financial statements. In 2016, the Group developed and started testing of appropriate systems, internal controls, policies and procedures necessary to collect and disclose the required information.
IAS 7 Disclosure Initiative – Amendments to IAS 7
The amendments to IAS 7 Statement of Cash Flows are part of the IASB's Disclosure Initiative and require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. On initial application of the amendment, entities are not required to provide comparative information for preceding periods. These amendments are effective for annual periods beginning on or after 1 January 2017, with early application permitted. Application of amendments will result in additional disclosure provided by the Group. This is not approved by EU.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4. At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-ofuse asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset.
IFRS 16 also requires lessees and lessors to make more extensive
disclosures than under IAS 17.
IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard's transition provisions permit certain reliefs. In 2017, the Group plans to assess the potential effect of IFRS 16 on its consolidated financial statements. This is not approved by EU.
This or other approved IFRSs and IFRICs with future effective dates have been assessed and not found to have material effect.
There are no other changes in accounting policy and disclosures that is relevant for the Group.
Note 3 - Critical accounting estimates and assumptions
The preparation of the financial statements in accordance with IFRS requires management to make judgements, use estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are considered reasonable under the circumstances. The estimates and underlying assumptions are reviewed on an on-going basis.
Estimates and assumptions which represent a significant risk of resulting in material adjustments to the carrying amounts of assets and liabilities within the next financial year are presented below.
Revenue recognition for contracts under the percentage-ofcompletion method:
Project revenue is recognised based on estimated progress under the contracts. Several estimates are made to calculate the stage of completion. These estimates have a direct
influence over the amount of revenue that has been recognised. The uncertainty is highest in relation to the following factors:
Project – sales:
- Total hours estimated
- Total estimated costs
- Percentage of completion estimates
Projects are reviewed periodically to reduce the risk of material deviations in the estimates. A change in estimates may impact assets through Contracts in progress, and/ or liabilities through Contract accruals.
Intangible assets
Intangible assets are capitalised in the balance sheet when the positive future economic value, either through increase in revenue or cost savings, for the respective asset are assessed as probable. When the outcome cannot be reliably estimated, the cost incurred for such asset will be recognised in the income statement. At each year end the Group assesses whether there is any indication that the asset may be impaired. To estimate the recoverable, the Group prepare a discounted cash flow analysis for each intangible asset which is under development. The cash flow analysis contains the expected increase in revenue and expected cost to develop the asset. This cash flow is discounted and the discounted value is compared with the booked value.
The uncertainty is highest to the following estimates:
- Expected increase in revenue
- Expected total cost to complete the development of the intangible asset - Expected date of completion of the
intangible asset. As of 31.12.16, the Group found that
one of the intangible assets indicated no future positive value, and subsequently was impaired.
Deferred tax assets
Deferred tax assets are recognised when it is likely that the company will have sufficient profit for tax purposes in subsequent periods that will enable the company to utilise the tax asset. Similarly, the Group will reduce the deferred tax assets to the extent the company no longer regards it as being likely that it can utilise the deferred tax asset. At each year end the Group assesses whether there are any indications that the asset may be impaired. To estimate the recoverable, the Group prepares a discounted cash flow analysis for taxable revenue.
The uncertainty is highest to the following estimates:
- Expected taxable revenue
Note 4 – Segments, sales and contracts in progress
All amounts in NOK million
The majority of the revenue is generated through project sales and aftersales delivered to vessels. Retrofit and Newbuild are two separate operating segments and is aggregated to one reporting segment named Project. The Aftersales segment comprise sales of spare parts, consumables and services toward ship owners. The Company's management uses each segment's operating profit when assessing earnings in the segments.
The figures for each segment include transactions between segments. Transactions within the various segments are eliminated. All transactions between business units are based on market terms.
| Admin & | |||||
|---|---|---|---|---|---|
| 01.01. - 31.12.16 | Projects | Aftersales | other | Elimination | Total |
| Revenue 1) | 89.2 | 104.0 | - | -21.6 | 171.6 |
| Total revenue | 89.2 | 104.0 | - | -21.6 | 171.6 |
| Cost of sales | -70.9 | -67.9 | - | 15.2 | -123.6 |
| Employee expenses | -13.7 | -12.4 | -4.7 | 2.6 | -28.1 |
| Other Operating expenses | -10.0 | -14.1 | -2.2 | 3.8 | -22.5 |
| EBITDA before restructuring cost | -5.4 | 9.6 | -6.9 | - | -2.6 |
| Restructuring cost | -0.4 | - | -0.4 | - | -0.8 |
| EBITDA | -5.8 | 9.6 | -7.3 | - | -3.4 |
| Depreciation and amortisation | -2.2 | -0.0 | - | - | -2.2 |
| Impairment | -0.1 | -0.1 | |||
| OPERATING PROFIT | -8.1 | 9.6 | -7.3 | - | -5.8 |
| Net Contracts in progress | 6.0 | - | - | - | 6.0 |
| Total assets 2) | 118.6 | 41.5 | 117.4 | -152.0 | 125.4 |
| Investments in non-current assets | 7.2 | - | 1.6 | - | 8.7 |
1) 78.5% of the Project revenue originates from customers within Europe with more than 10% share of the total sales. Approx. 12% originates from retrofit. There are no significant customers in the segment of Aftersale.
2) Elimination includes NOK 99.3m. as value of the shares in the subsidiaries.
A Geographic area cannot be determined as deliveries are made to vessels in international trade.
| Admin & | |||||
|---|---|---|---|---|---|
| 01.01. - 31.12.15 | Projects | Aftersales | other | Elimination | Total |
| Revenue 1) | 131.7 | 81.3 | - | -12.7 | 200.3 |
| Total revenue | 131.7 | 81.3 | - | -12.7 | 200.3 |
| Cost of sales | -96.3 | -52.0 | - | 11.9 | -136.4 |
| Employee expenses | -18.3 | -8.3 | -0.9 | -0.6 | -28.1 |
| Other Operating expenses | -12.0 | -11.6 | -1.7 | 0.8 | -24.5 |
| EBITDA | 5.1 | 9.5 | -2.6 | -0.6 | 11.3 |
| Depreciation and amortisation | -1.4 | -0.5 | - | - | -1.9 |
| Impariment | -0.8 | - | -0.8 | ||
| OPERATING PROFIT | 2.9 | 9.0 | -2.6 | -0.6 | 8.6 |
| Net Contracts in progress | 14.7 | - | - | - | 14.7 |
| Total assets 2) | 161.3 | 21.2 | 119.4 | -133.4 | 168.4 |
| Investments in non-current assets | 6.9 | - | 2.5 | - | 9.4 |
Note 4 – Segments, sales and contracts in progress (continued)
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Revenue from Projects | 89.2 | 131.7 |
| Revenue from Aftersales | 82.5 | 68.6 |
| Sales | 171.6 | 200.3 |
Revenue from Projects All Contracts:
The table below shows revenue from ongoing projects 31.12 as is recognised in the "Consolidated Income Statement" in 2016 and 2015.
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Total construction contract revenue recognised as revenue | 70.3 | 131.7 |
Contracts in progress:
The table below shows total accumulated revenue and costs incurred from the ongoing contracts recognised in the Consolidated Financial Statement since the contracts were started.
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Acc. Construction contract revenue recognised as revenue | 234.2 | 323.4 |
| Acc. Related costs incurred | 159.0 | 218.3 |
| Acc. Recognised profit or loss on contracts in progress | 75.2 | 105.1 |
Recognised and included in the financial statements as amount due:
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Due from customers for contract work | 14.2 | 42.4 |
| Due to customers for contract work | -8.2 | -27.7 |
| Net work in progress | 6.0 | 14.7 |
The company has no contracts where the total of prepayment is higher than the total of incurred costs and recognised margin. None of the ongoing contracts are onerous contracts.
Note 5 – Employee expense, remuneration to management and Board of directors
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Salaries | 38.0 | 35.1 |
| Social security tax | 4.4 | 4.3 |
| Pension costs | 1.4 | 1.4 |
| Other benefits | 0.9 | 0.3 |
| Option Program | 0.1 | 0.4 |
| Total employee expenses | 44.8 | 41.1 |
| Employee expenses recognized within cost of goods sold | -16.7 | -13.0 |
| Total costs recognized as employee expenses | 28.1 | 28.1 |
Full Time Equivalents (årsverk) 55 54
Remuneration to management and Board of directors in 2016:
| Amounts in NOK 1000 | Salaries | Pension | Other 1) | Total | |
|---|---|---|---|---|---|
| CEO | 1 776.4 | 69.0 | 290.6 | 2 136.0 | |
| CFO | 1 520.9 | 68.0 | 112.9 | 1 701.8 | |
| CTO 2) | 1 139.7 | 69.0 | 42.2 | 1 250.9 | |
| CDO 2) | 1 228.5 | 68.0 | 117.1 | 1 413.6 | |
| COO | 1 365.1 | 67.0 | 18.7 | 1 450.7 | |
| MD Scanship Americas Inc. | 1 609.8 | - | 87.9 | 1 697.8 | |
| Board of directors 3) | - | - | 733.5 | 733.5 | |
| Tore Enger | Chairman of the Board | 300.00 | - | - | 300.0 |
| Susanne L.R. Schneider | Board member | 200.00 | - | - | 200.0 |
| John Herman Marcussen | Board member | 200.00 | - | - | 200.0 |
| Brita Eilertsen 4) | Board member | 67.00 | - | - | 67.0 |
| Total | 9 407.4 | 341.0 | 1 402.9 | 11 151.2 |
Management and board of directors have no agreements covering severance payment or bonus. No loans have been granted or guarantees pledged to management or Board of directors. One member of the management has a share based option plan.
1) Includes: company car if applicable, insurances, electronic communication, etc.
2) Reorganisation in October 2016 appointing new CTO and CDO positions
Yearly salary level included
3) Includes: fee invoiced by The Maritime Group AS for working chairman services of NOK 0.7m.
4) Resigned May 2016
Note 5 – (continued) Remuneration to management and Board of directors in 2015:
| Amounts in NOK 1000 | Salaries | Pension | Other 1) | Total | |
|---|---|---|---|---|---|
| CEO | 1 768.1 | 66.0 | 290.3 | 2 124.5 | |
| CFO | 1 403.0 | 66.0 | 142.9 | 1 611.9 | |
| CTO | 1 355.0 | 66.0 | 112.3 | 1 533.3 | |
| COO | 944.3 | 66.0 | 20.9 | 1 031.2 | |
| MD Scanship Americas Inc. | 1 517.3 | - | 82.4 | 1 599.6 | |
| Board of directors 2) | - | - | 684.0 | 684.0 | |
| Tore Enger | Chairman of the Board | 266.7 | - | - | 266.7 |
| Susanne L.R. Schneider | Board member | 183.3 | - | - | 183.3 |
| John Herman Marcussen | Board member | 183.3 | - | - | 183.3 |
| Brita Eilertsen 4) | Board member | 183.3 | - | - | 183.3 |
| Total | 7 804.3 | 264.0 | 1 332.9 | 9 401.2 |
Management and board of directors have no agreements covering severance payment or bonus. No loans have been granted or guarantees pledged to management or Board of directors. One member of the management has a share option plan. See further information below.
1) Includes: company car if applicable, insurances, electronic communication, etc.
2) Includes: fee invoiced by TECO Group AS for working chairman services of NOK 0.7m.
Share option plan:
The company has a share option program covering certain employees in senior positions.
As at 31.12.2016, 6 employees were included in the option program. The option vests yearly over 3 years.
The fair value of options granted in 2016 was NOK 0,00 per option. The share option program liability is NOK 0,1m as of 31.12.16
Method of settlement:
Options that have been exercised shall, in the discretion of the Company, be settled by either:
(i) the issuance by the Company of new shares to the Option Holder
(ii) the sale by the Company of treasury shares to the Option Holder; or
(iii) the transfer to the Option Holder of a NOK amount for each exercised Option equal to the market price of the shares in the Company less the Exercise Price.
Vesting requirements:
The Options granted shall vest with 1/3 on the first anniversary of the grant date (i.e. 31.03.2015), 1/3 on the second anniversary of the grant date (i.e. 31.03.2016) and 1/3 on the third anniversary of the grant date (i.e. 31.03.2017). Options held by an Option Holder do only vest if the Option Holder at the vesting Date is employed by a company in the Group and the employment is not in a notice period. Any Option not exercised on or prior to 31.03.2019 shall terminate without any compensation being payable to the Option Holder.
Overview of outstanding options:
| 2016 | 2015 | |
|---|---|---|
| Outstanding options 1.1 | 1 020 000 | 870 000 |
| Options granted | 300 000 | |
| Options forfeited | -150 000 | |
| Options exercised | - | |
| Options expired | - | |
| Outstanding options 31.12 | 1 020 000 | 1 020 000 |
| Of which exercisable | 580 000 | 240 000 |
Note 5 –(continued) Share option plan:
The outstanding options are subject to the following conditions:
| Expiry date | Average strike price | Number of share |
|---|---|---|
| options | ||
| 2019 | 3.20 | 1 020 000 |
| 1 020 000 |
The fair value of the options has been calculated using Black & Scholes option-pricing model. The average fair value of the options granted in 2016 is NOK 0,00.
The calculations are based on the following assumptions: Share price on the grant date: The share price is set to the stock exchange price on the grant date.
The strike price per option:
The strike price is the share price on the grant date.
Volatility
It is assumed that historic volatility of comparable shares is an indication of future volatility. The expected volatility is therefore stipulated to be the same as the historic volatility, which equals a volatility of 27,8 %.
The term of the option
It is assumed that 100 % of the employees will exercise the options once they are exercisable. The options are expected to have a term of 1-3 years.
Dividend
The estimated dividend per share is NOK 0 per annum.
Risk-free interest rate
The risk-free interest rate is set equal to the interest rate on government bonds during the term of the option.
Note 6 – Other operating expenses and remuneration to auditor and restructuring cost
Other operating expenses include:
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Travelling expenses | 4.1 | 3.8 |
| Lease expenses | 5.4 | 5.1 1) |
| Consultant's and other fees | 4.8 | 8.1 1) |
| Other office expenses | 3.1 | 3.1 |
| Other expenses | 5.2 | 4.5 |
| Total | 22.5 | 24.5 |
1) Some services purchased from related parties, see note 15.
Remuneration to auditor is allocated as specified below:
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Statutory audits | 0.6 | 0.6 |
| Tax consultancy | 0.4 | 0.6 |
| Total, excl. VAT | 1.0 | 1.2 |
Restructuring cost:
The Group has incurred restructuring costs of NOK 0.8m in 2016, which is related to the cost reduction program announced in September 2016 and the strategic review process announced in November 2016.
Note 7 – Inventories
Inventories include:
| 31. Dec | 31. Dec | |
|---|---|---|
| Amounts in NOK million | 2016 | 2015 |
| Cost of goods (at cost)1) | 3.5 | 5.7 |
| Total inventories at the lower of cost and net realizable value | 3.5 | 5.7 |
1) Inventory is used both for input in construction contracts (raw materials) and for separate sales.
In 2016 Scanship has written down the value of inventories by NOK 2.6m.
The inventory affected by the write down consists mainly of installation materials, PVC- and stainless steel pipes, left over from large retrofit projects finished in 2012.
The items have been kept on stock in anticipation of new retrofit projects, and it is expected that when new large retrofit project contracts again will be signed, that some of the installation material can be used.
Note 8 – Trade receivables
| 31. Dec | 31. Dec | |
|---|---|---|
| Amounts in NOK million | 2016 | 2015 |
| Gross trade receivables | 57.8 | 61.2 |
Trade receivables are non-interest bearing and generally on 30-90 day terms. The Group has no loss on trade receivables either in 2015 or 2016.
It is considered that there is no impairment on trade receivables in 2015 or 2016. Scanship has close on-going contact with and good knowledge of the customers. The trade receivables are reviewed regularly and evaluated for possible impairment.
As of 31 December, the aging analysis of trade receivables is as follows:
| Amounts in NOK million | Past due but not impaired | |||||
|---|---|---|---|---|---|---|
| Neither past | ||||||
| due nor | <30 | 30-60 | 61-90 | > 90 | ||
| Total | impaired | days | days | days | days | |
| 31.Dec 2016 | 57.8 | 27.4 | 10.2 | 4.8 | 2.1 | 13.3 |
| 31.Dec 2015 | 61.2 | 35.5 | 14.1 | 2.4 | 1.6 | 7.6 |
There are no disputes of the total amounts past due 60 days.
NOK 21.9m of the past due balance per 31.12.16 has been paid in subsequent to 31.12.16.
Note 9 – Other receivables
Other receivables include:
| 31. Dec | 31. Dec | |
|---|---|---|
| Amounts in NOK 1 000 | 2016 | 2015 |
| VAT receivable | 8.0 | 8.6 |
| Prepaid expenses and other items | 2.2 | 1.8 |
| Receivables "SkatteFUNN" | 1.3 | 0.8 |
| Receivable on related party | 0.1 | 0.2 |
| Other items | 2.3 | 0.8 |
| Total | 13.9 | 12.2 |
VAT receivables as of 31 December 2016 includes a receivable of NOK 6.3m related to German output VAT (where NOK 5.4m relates to 2012-2015). During 2015 Scanship AS was registered in the German VAT register and all transactions for the years 2012-2015 liable for German VAT was restated. The VAT refund is expected to be received during the 2nd quarter of 2017.
Note 10 – Cash and cash equivalents
| 31. Dec | 31. Dec | |
|---|---|---|
| Amounts in NOK million | 2016 | 2015 |
| Bank deposits | 3.6 | 19.5 |
| Total cash and cash equivalents | 3.6 | 19.5 |
| Of this: | ||
| Restricted cash for withheld taxes from employees salaries | 1.2 | 1.2 |
Note 11 – Share Capital and shareholder information
| 31. Dec | 31. Dec | |
|---|---|---|
| 2016 | 2015 | |
| Number of outstanding shares at 1 January | 95 505 525 | 95 505 525 |
| Number of outstanding shares at 31 December | 95 505 525 | 95 505 525 |
| Nominal value NOK per share at 31 December | 0.10 | 0.10 |
| Share capital NOK at 31 December | 9 550 552 | 9 550 552 |
Scanship Holding ASA has one class of shares with equal rights of all shares.
| Largest shareholders of Scanship Holding ASA > 1% : 31.12.16 | ||
|---|---|---|
| Name | Number | % Share |
| TECO GROUP AS | 35 000 000 | 36.6 % |
| BADIN INVEST LIMITED | 10 500 000 | 11.0 % |
| DALER INN LIMITED | 10 500 000 | 11.0 % |
| EXPROCO LIMITED | 10 500 000 | 11.0 % |
| TRETHOM AS | 3 566 111 | 3.7 % |
| MERRILL LYNCH, PIERCE, FENNER & SM | 3 500 000 | 3.7 % |
| GOLDMAN SACHS INTERNATIONAL | 3 133 666 | 3.3 % |
| BERGEN KOMMUNALE PENSJONSKASSE | 2 000 000 | 2.1 % |
| FONDSAVANSE AS | 1 562 500 | 1.6 % |
| THOM | 1 411 111 | 1.5 % |
| STORHAUGEN INVEST AS | 1 375 000 | 1.4 % |
| MP PENSJON PK | 1 000 000 | 1.0 % |
| Total | 84 048 388 | 88.0 % |
Number of shares owned by management and Board of directors:
| Number of | ||
|---|---|---|
| Name | shares in | % Share |
| Henrik Badin (CEO) | 10 500 000 | 11.0 % |
| Asgeir Wien (CTO ) | 10 500 000 | 11.0 % |
| Bettina Nowak (MD Scanship Americas Inc) | 3 500 000 | 3.7 % |
| Christian Fr. Thyholdt (CFO) 1) | 3 430 000 | 3.6 % |
| Per Stensli (COO) | 26 696 | 0.0 % |
| Tore Enger (Chairman) 2) | 27 440 000 | 28.7 % |
| Total | 55 396 696 | 58.0 % |
1) Christian Fr. Thyholdt has indirect ownership through his 9,8% ownership in TECO Group AS. 2 ) Tore Enger has indirect ownership through his 78,4 % ownership in TECO Group AS.
Note 12 – Borrowing
Long-term borrowing:
The Group has long term borrowing of NOK 1.3m (DNB ASA), related to financing of company cars.
Bank overdraft facility:
The Group has a bank overdraft facility with a limit NOK 29.1m. The Group has drawn NOK 23,9 m. of the facility as of 31.12.2016. The facility is floating interest based, currently NIBOR + 1,95 % p.a.
| 31. Dec | 31. Dec | |
|---|---|---|
| Amounts in NOK million | 2016 | 2015 |
| Bank overdraft facility | 23.9 | 27.3 |
| Other long term debt | 1.3 | 0.7 |
| Balance 31 December | 25.2 | 28.0 |
Covenants:
The overdraft facility has the following financial covenants in Scanship AS:
- Minimum equity ratio of 8 % of the yearly gross sales, Equity ratio was 19% at 31.12.2016
- Minimum equity and/or subordinate loan of NOK 20 million. Equity NOK 24.0 at 31.12.2016
- Any additional borrowing must be pre-approved by DNB ASA.
- The utilisation of the bank overdraft facility lower than 50 % of receivables and contracts in progress combined. Utilisation at 31.12.2016 was 39%.
Scanship AS, and the Group, is not in breach with the covenants as of 31.12.2016.
Mortgages:
Book value of assets securing the bank loan and overdraft facility:
| 31. Dec | 31. Dec | |
|---|---|---|
| Amounts in NOK million | 2016 | 2015 |
| Property plant and equipment | 3.8 | 3.3 |
| Inventory | 3.5 | 5.7 |
| Trade receivables | 57.8 | 61.2 |
| Total value of assets pledged: | 65.1 | 70.2 |
Note 13 – Other current liabilities
| 31. Dec | 31. Dec | |
|---|---|---|
| Amounts in NOK million | 2016 | 2015 |
| Short term loan from shareholders | - | - |
| Other payables and accruals for incurred costs | 6.3 | 5.2 |
| Total | 10.2 | 12.5 |
Note 14 – Earnings per share
Basic EPS is calculated by dividing the profit for the year attributable to the ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.
Diluted EPS is calculated by dividing the profit attributable to the ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year, plus the weighted average number of ordinary shares that would be issued on exercise of the share options into ordinary shares.
The following table reflects the income and share data used in the basic and diluted EPS computations:
| 2016 | 2015 | |
|---|---|---|
| Profit for the year (NOK million) | -4.8 | 4.4 |
| Weighted average number of shares outstanding | 95 505 525 | 94 560 525 |
| Earnings per share (NOK per share) : | ||
| - Basic | -0.05 | 0.05 |
| - Diluted | -0.05 | 0.05 |
Note 15 – Related party disclosures
The Consolidated Financial Statement is prepared for Scanship Holding ASA as is the ultimate parent.
Scanship Holding ASA is the owner, direct or indirect, of 100 % of the shares in Scanship AS, Scanship Americas Inc., Scanship Canada Inc., Scanship Poland Sp z o.o and Scanship Italy Srl. The other companies in the table below are owned by TECO Group AS, which is the owner of 36,6 % of the shares in Scanship Holding ASA.
(a) Purchase of services:
Amounts in NOK million
| By | Purchase of services from | Description of services | 2016 | 2015 |
|---|---|---|---|---|
| Scanship AS | TECO Group AS 1) | Management/Consultancy | 0.2 | 0.7 |
| Scanship AS | Nordic Made Inc. | Goods | 0.1 | - |
| Scanship AS | Nordic Made Poland Sp. z o.o | Goods | 0.1 | - |
| Scanship AS | Nedre Langgate 19 AS | Office Rental | 0.8 | 1.2 |
| Scanship AS | 3D Scanning AS | Project Services | 0.1 | 0.1 |
| Scanship AS | The Maritime Group AS 2) | Management/Consultancy | 7.4 | 0.1 |
| Scanship Americas Inc | Nordic Made Inc. | Project Services | 1.4 | 0.0 |
| Scanship Americas Inc | TECO Maritime Group AS | Management/Consultancy | 0.1 | - |
1) The services purchased from TECO Group AS includes working chairman and services related to financial advisory. 2) Nordic Made AS, changed name to "The Maritime Group AS" in 2016
(b) Balance with related parties:
| Amounts in NOK 1 000 | 31. Dec 2016 |
31. Dec 2015 |
|
|---|---|---|---|
| Assets in | Assets | ||
| Scanship AS | Receivables TECO Management AS | 0.1 | 0.1 |
| Scanship AS | Receivables TECO Maritime Group AS | 0.1 | 0.0 |
| Scanship AS | Receivables TECO Solutions AS | 0.1 | 0.1 |
| Scanship AS | Receivables TECO Electronics AS | 0.1 | 0.1 |
| Scanship AS | Receivables The Maritime Group AS | 0.3 | - |
| Scanship Americas Inc. | Receivables The Maritime Group AS | - | 0.1 |
| Scanship Americas Inc. | Receivables 3D Scanning AS | 0.2 | 0.1 |
| Scanship Americas Inc. | Receivables 3D Scanning Inc. | - | 0.2 |
| Total receivables from related parties | 1.0 | 0.8 | |
| Liabilities in | Liabilities | ||
| Scanship AS | Nedre Langgate 19 AS | - | 0.3 |
| Scanship AS | Nordic Made Poland Sp. z o.o | 0.1 | - |
| Scanship AS | The Maritime Group AS | 0.7 | - |
| Scanship Americas Inc. | Nordic Made Inc. | 1.0 | 0.3 |
| Total liabilities to related parties | 1.8 | 0.7 |
Neither receivables, nor liabilities toward related parties are interest bearing.
Note 15 – Related party disclosures (continued)
(c) Overview of subsidiaries
The following subsidiaries are included in the consolidated financial statements:
| Company | Date of acquisition/ Incorporation |
Country of incorporation | % equity and |
|---|---|---|---|
| Scanship Americas Inc. | 01.12.2008 | USA | 100 % |
| Scanship Canada Inc. | 14.07.2011 | Canada | 100 % |
| Scanship AS | 01.03.2007 | Norway | 100 % |
| Scanship Poland Sp z o.o. | 12.08.2014 | Poland | 100 % |
| Scanship Italy s.r.l. 1) | 17.05.2015 | Italy | 100 % |
| CHX Maritime Inc. 2) | 06.07.2015 | USA | 70 % |
1) Scanship Italy is a subsidiary of Scanship Americas Inc.
2) The company's main objective is to develop an exhaust gas management system.
(d) Remuneration to management and Board of directors
See note 5.
Note 16 – Tax
Specification of income tax:
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Income tax payable | 0,5 | 0,7 |
| Change in deferred tax | -0,8 | 1,9 |
| Total income tax expenses | -0,2 | 2,6 |
Specification of temporary differences and deferred tax:
| 31. Dec | 31. Dec | |
|---|---|---|
| Amounts in NOK million | 2016 | 2015 |
| Property, plant and equipment | -5,9 | -4,7 |
| Construction contracts | 75,2 | 105,1 |
| Inventories | -2,6 | - |
| Financial instruments and other receivables | -1,8 | -9,4 |
| Tax loss carryforward | -44,7 | -65,1 |
| Prepaid taxes "Korreksjonsskatt" | -14,1 | -14,1 |
| Total temporary differences | 6,1 | 11,7 |
| Not recognized tax loss carry forward | 5,7 | 2,7 |
| Total basis for deferred tax | 11,8 | 14,4 |
| Net deferred tax liability 24% (25 %) | 2,8 | 3,6 |
Reconciliation of effective tax rate:
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Profit before income tax | -5,0 | 7,0 |
| Expected income tax assessed at the tax rate for the parent company 25 % (27%) | -1,2 | 1,9 |
| Adjusted for tax effect of the following items: | - | - |
| Permanent differences | 0,3 | 0,0 |
| Effect of other tax rate in subsidaries in the U.S and Canada | -0,2 | 0,9 |
| Effect of change of tax rate from 25 % (27 %) to 24 % (25 %) | -0,1 | - |
| Unrecognized deferred tax assets | 0,8 | - |
| Correction tax | 0,2 | - |
| Tax reduction of issue cost | - | -0,2 |
| Total income tax expenses | -0,2 | 2,6 |
| Office furniture | |
|---|---|
| Amounts in NOK million | and equipment |
| 2016 | |
| Cost: | |
| At 1.1.2016 | 8,4 |
| Additions | 1,6 |
| At 31.12.2016 | 10,0 |
| Depreciation and impairment: | |
| At 1.1.2016 | -5,1 |
| Depreciation this year | -1,1 |
| At 31.12.2016 | -6,2 |
| Carrying amount at 31.12.2016 | 3,8 |
| Useful life | 3-5 years |
| Depreciation method | linear |
| 2015 | |
| Cost: | |
| At 1.1.2015 | 5,9 |
| Additions | 2,5 |
| At 31.12.2015 | 8,4 |
| Depreciation and impairment: | |
| At 1.1.2015 | -4,0 |
| Depreciation this year | -1,2 |
| At 31.12.2015 | -5,1 |
| Carrying amount at 31.12.2015 | 3,3 |
| Useful life | 3-5 years |
| Depreciation method | linear |
Note 18 – Intangible assets
The Group has several different ongoing development projects developing waste to energy/ waste- and waste water solutions, in order to strengthen the competitiveness and meet the new and stricter requirements and new industry standards.
The Group assesses yearly each project whether there is any indication that the asset may be impaired. A discounted cash-flow analysis is prepared for each on-going project and compared with the asset's booked value.
In 2016, the Group has impaired one of the projects in the portfolio with a total amount of NOK 0,1m. No additional impairment was identified.
A significant part of the product development cost consists of working hours performed by Scanship's own employees.
| Amounts in NOK million | |
|---|---|
| Development | |
| 2016 | |
| Cost: | |
| At 1.1.2016 1) | 26,2 |
| Disposals | |
| At 31.12.2016 | 32,0 |
| Amortisation and impairment: | |
| At 1.1.2016 | -1,9 |
| Amortisation 2) | -1,2 |
| Disposals | 0,0 |
| At 31.12.2016 | -3,2 |
| Carrying amount at 31.12.2016 | 28,8 |
1) This consists of 7 different projects developing waste to energy. Funding from "Skattefunn" and "Innovasjon Norge" has reduced the total cost with NOK 4.6m and NOK 0.5m respectively.
2) Useful life is expected to be 3 to 15 years.
3) The company impaired NOK 0.1m, related to one project, as it was assessed to have no future value. The project has not been part of any refund arrangements. Such as e.g. "Skattefunn".
Additions consist of internally developed intangible assets and purchase of goods and services related to the internally developed intangible assets. No intangible assets are acquired through business combinations.
As of 31.12.16, approx. NOK 18.0m of carrying amount are still under development, while NOK 10.9m are related to finalised projects which are amortised.
Note 18 – Intangible assets (continued)
| 2015 | |
|---|---|
| Cost: | |
| At 1.1.2015 1) | 19,3 |
| Disposals | |
| At 31.12.2015 | 26,2 |
| Amortisation and impairment: | |
| At 1.1.2015 | -0,4 |
| Amortisation 2) | -0,7 |
| Disposals | 0,0 |
| At 31.12.2015 | -1,9 |
| Carrying amount at 31.12.2015 | 24,2 |
1) This consists of 19 different projects developing waste to energy. Six projects were finalized in 2015. Funding from "Skattefunn" has reduced the total cost with NOK 3.3m.
2) Useful life is expected to be 3 to 15 years.
3) The Group decided in 2015 to terminate six different development projects in order to have stronger focus on the remaining ongoing projects. The six projects terminated are in total impaired with an amount of NOK 0.8m, all charged to the operating segment for Projects. None of the projects has been part of any refund arrangements, such as e.g. "Skattefunn".
Note 19 – Finance income and costs
Finance income:
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Interest income | 0,0 | 0,0 |
| Foreign exchange gain | 1,8 | 6,4 |
| Total finance income | 1,8 | 6,4 |
Finance costs:
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Interest expense | 1,2 | 0,7 |
| Foreign exchange loss | 3,0 | 4,4 |
| Loss on FX derivatives | 4,3 | 3,9 |
| Other financial cost | 0,1 | 0,0 |
| Total finance costs | 8,7 | 9,1 |
Note 20 – Financial instruments
(a) Categories of financial instruments
| 31. Dec | 31. Dec | ||
|---|---|---|---|
| Amounts in NOK million | Category | 2016 | 2015 |
| Financial assets: | |||
| Trade receivables | Loans and receivables | 57,8 | 61,2 |
| Other receivables 1) | Loans and receivables | 1,4 | 1,1 |
| Cash and cash equivalents | Loans and receivables | 3,6 | 19,5 |
| Total financial assets | 62,8 | 81,7 | |
| Financial liabilities: | |||
| Non-current borrowings | Financial liabilities measured at amortised cost | 1,3 | 0,7 |
| Financial instruments (derivates) | Financial liabilities measured at amortised cost | 1,8 | 9,4 |
| Trade creditors | Financial liabilities measured at amortised cost | 31,5 | 36,7 |
| Bank overdraft facility | Financial liabilities measured at amortised cost | 23,9 | 27,3 |
| Total financial liabilities | 58,6 | 74,2 |
All amounts in the table are booked values.
1) VAT receivable and prepaid expenses are excluded since they are not defined as financial instruments.
(b) Fair value of financial instruments
The carrying amount of trade receivables, other receivables and cash and cash equivalents are approximately equal to fair value since these instruments have a short term to maturity. Similarly, the carrying amount of trade creditors and other current liabilities are approximately equal to fair value since the effect of discounting is not significant. Fair value of the bank overdraft facility with DNB ASA is equal to the book value since a floating interest is agreed.
(c) Financial risk
The most significant financial risks which affect the Group are listed below. The management performs a continuous evaluation of these risks and determines policies related to how these risks are to be handled within the Group.
(d) Credit risk:
Carrying amounts of financial assets presented above represents the maximum credit exposure. The Group is mainly exposed to credit risk related to trade receivables. The customers are basically large cruise ship owners and shipyards in Europe with satisfactory credit history. The credit risk is mainly related to newbuilding contracts where a few yards are counterpart. This is increasing the credit risk. However due to nature of newbuilding financing the management considers the overall risk of loss on receivables to be relatively low. The Group has not provided any guarantees for third parties' liabilities. See also note 8 for information about the aging analysis of trade receivables.
The Group has with effect from 1 April 2017 also entered into a credit risk insurance agreement (kredittforsikring) on its trade receivables. This agreement with a Nordic insurance company covers the potential losses incurred by Scanship AS on its trade receivables, subject to certain restrictions, and reduces the ultimate credit risk for the Group substantially. This insurance agreement is entered into as an additional risk-mitigating factor.
See note 8 for information about the aging analysis of trade receivables.
Note 20 – Financial instruments (continued)
(e) Liquidity risk:
Liquidity risk is the risk of being unable to pay financial liabilities as they fall due. The liquidity risk for the Group is primarily related to the timing of the payments on its trade receivables from the shipyards in Europe on the Newbuild projects. Certain of the shipyards exercises longer payment terms than other shipyards. Scanship has a close and on-going contact with all its shipyard customers, and have had so for many years. Managing this relationship is one of the key factors for Scanship in the daily management of its liquidity risk. Historically Scanship has had very limited losses on its accounts receivable, and no losses were incurred either in 2015 or in 2016. So even though the payments from the shipyards in certain periods have been delayed beyond the agreed credit term, they have historically always paid their liabilities. Scanship also has a certain flexibility in its own supplier base, whereby longer payment terms sometimes are agreed with suppliers in periods were the payments are delayed from the customers. Management of the liquidity risk is a prioritized task by Scanship management.
The Group also has relatively higher liquidity risk on Newbuild projects as the company receives payments late in the projects, as compared to Retrofit projects, where the company receives payments after meeting certain milestones. Although the milestones are setup to enable a positive net cashflow on the projects, a delay in the retrofit projects will naturally also increase the liquidity risk.
| Amounts in NOK million | 0-6 | 6 - 12 | 1-5 |
|---|---|---|---|
| 31. Dec 2016 | months | months | years |
| Payments on long term borrowings | 0,1 | 0,1 | 1,1 |
| Trade creditors | 31,5 | - | - |
| Bank overdraft facility | - | 23,9 | - |
| Leases 1) | 2,4 | 1,1 | 9,5 |
| Total | 34,0 | 25,1 | 10,6 |
1) See note 22
(f) Foreign exchange rate risk:
The Group is exposed to foreign exchange rate risk related to the value of NOK relative to other currencies, mainly due to sales in different currencies. The Group has from 2012 onwards entered into several derivative instruments to reduce the exchange rate risk in cash flows nominated in EUR, associated with the sale in EUR in connection with several construction contracts. See note 21 for information about these option contracts.
The cost is mainly in NOK, hence not secured.
1% change in the NOK/EUR exchange rate would had an effect of NOK 0.9m in revenue, and NOK 0.6m on result before tax.
(g) Interest rate risk:
The interest rate on the long-term bank loan and the overdraft facilities are floating, hence, the Group has an exposure to interest rate fluctuations. The Group does not have any interest rate derivatives.
A change in interest rate of 1% point would have an effect of NOK 0.2m on the income statement.
Capital Management:
For the purpose of the Group's capital management, capital includes issued capital, convertible preference shares, share premium and all other equity reserves attributable to the equity holders of the parent. The primary objective of the Group's capital management is to maximise the shareholder value.
The Group manages its capital structure and makes adjustments in light of changes in economic conditions and the requirements of the financial covenants. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.
Note 21 - Unrealised change fair value FX derivatives
| 31. Dec | 31.des | |
|---|---|---|
| Amounts in NOK million | 2016 | 2015 |
| Forward exchange option contracts | -1,8 | -9,4 |
The foreign currency options are mark to market, based on an external valuation provided by the contractual counterpart. The contracts are valued using option pricing techniques, which employ the use of various inputs including foreign exchange spot and forward rates, the time to maturity and volatility.
To some extent, the Group uses derivative contracts to reduce the currency exposure on sales in EUR. See note 20 for discussion of currency risk. The Group does not apply hedge accounting for its derivative contracts, hence the contracts are measured at fair value through profit and loss.
The Group has entered into several EUR FX European single barrier knock-in options to reduce currency risk as described above. An FX European single barrier knock-in option is an agreement giving the buyer (the holder) the right, but not the obligation, to buy (call) or sell (put) a given amount of one currency against another currency at a specified price (strike price) on a specified future date (expiry date), if and only if the underlying FX spot rate is trading at or beyond a specified barrier at the exact time of expiration of the option.
There are no initial transaction costs. At expiry, the Group receives the fair value in cash if exercised. Contracts has a maturity until 2017. In total these contracts have a nominal amount of EUR 4.3m.
Fair value measurements recognised in the statement of financial position:
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.
-
Level 1: fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.
-
Level 2: fair value measurements are those derived from inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
-
Level 3: fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
| Amounts in NOK million | Level 1 | Level 2 | Level 3 | |
|---|---|---|---|---|
| Derivative financial assets/(liabilities) | 31.12.2016 | - | -1,8 | - |
| Derivative financial assets/(liabilities) | 31.12.2015 | - | -9,4 | - |
The company has signed derivates of EUR 4.3m, all of which are due in 2017.
Note 22 – Leases
The Group has no finance leases.
The Group has entered into different operating leases for cars, office premises and other facilities, office furniture and office equipment. The major lease contract are contracts with related parties. These contracts are further described in note 15.
The leases do not contain any restrictions on the Group's dividend policy or financing opportunities.
The lease costs consist of ordinary lease payments and include:
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Lease cars | 0,6 | 0,8 |
| Lease office premises and other facilities (inclusive joint costs) | 3,8 | 3,6 |
| Lease office furniture and equipment | 0,8 | 0,7 |
| Total lease costs | 5,2 | 5,1 |
The future minimum rents related to non-cancellable leases fall due as follows:
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Within 1 year | 3,5 | 3,3 |
| 1 to 5 years | 9,5 | 9,0 |
| After 5 years | 0,0 | 0,0 |
| Total | 13,0 | 12,3 |
Note 23 – Pension
The companiesin the Group domiciled in Norway is required to have an occupational pension scheme in accordance with the Norwegian law of mandatory occupational pension (lov om obligatorisk tjenestepensjon). The Group's pension scheme fulfils the requirements of that law.
The Group's pension scheme covers all employees which are subject to these requirements. The scheme is based on a contribution plan.
The Group has no other pension arrangements in place.
| Amounts in NOK million | 2016 | 2015 |
|---|---|---|
| Service cost | 1,5 | 1,4 |
| Social security tax | 0,2 | 0,3 |
| Net pension costs | 1,7 | 1,7 |
Note 24 – Contingent liabilities
Contingent liabilities:
The Group has not received any claims nor is it involved in any disputes.
Guarantees:
For late deliveries, the customers can give Scanship penalties according to contract.
All customer contracts for system deliveries include 1-2 years limited guarantee against product failure.
Note 25 – Events after the reporting period
New Contracts signed:
Scanship has signed contracts after 31 December 2016 that amounts to approx. NOK 160m in revenue.
Exclusive negotiation to sell 100% of the shares in Scanship AS and subsidiaries:
Scanship Holding ASA has in April 2017 entered into an exclusive negotiation to sell 100% of its shares in Scanship AS and subsidiaries. Based on the strategic alternatives that the Board has explored, and the interest received, the Board has decided to pursue exclusive negotiations based on a binding Offer to buy all outstanding shares in Scanship AS and its subsidiaries in the US and Poland (together the "Scanship AS Group" in this context). The Offer is inter alia conditional on agreement of a Share Purchase Agreement, approval in a shareholder meeting of Scanship Holding ASA and approval by the board of directors of the bidder. The Offer represents an enterprise value of the Scanship AS Group in the range NOK 193m to NOK 197m (i.e. on a debt and cash free basis). The enterprise value range is dependent on the Scanship AS Group reaching certain operational targets. The total purchase price of the Offer, payable in cash at a potential closing of a transaction, is in the range NOK 166m to NOK 173m.
Note 26 – Going concern
Equity:
The consolidated Annual Accounts for 2016 show a positive equity of NOK 45.4 m. The Board assess the equity level to be sufficient for the operations of the Group.
Liquidity:
The Group has a positive working capital level, the current assets being higher than the current liabilities.
The aftersales operations in Scanship Americas are financed through their own bank accounts, and their own net positive cash flow operations. In addition, the operations in Norway are primarily financed through a bank overdraft facility (kassekreditt).
The liquidity risk for the Group is primarily related to the timing of the payments on its trade receivables from the shipyards in Europe on the Newbuild projects. Certain of the shipyards exercises longer payment terms than other shipyards. The Group has a close and on-going contact with all its shipyard customers, and have had so for many years. Managing this relationship is one of the key factors in the daily management of its liquidity risk. Historically the Group has had very limited losses on its account receivable, and no losses were incurred either in 2015 or in 2016. So even though the payments from the shipyards in certain periods have been delayed beyond the agreed credit term, they have historically always paid their liabilities. The Group also has a certain flexibility in its own supplier base, whereby longer payment terms sometimes are agreed with suppliers in periods were the payments are delayed from the customers. Management of the liquidity risk is a prioritized task by Scanship management.
The Group also has relatively higher liquidity risk on Newbuild projects as payments are received late in the projects, as compared to Retrofit projects, with much more condensed project cycle, and earlier payments. Although the milestones are setup to enable a positive net cashflow on the projects, a delay in the retrofit projects will naturally also increase the liquidity risk.
Outlook
The Group had a record high order backlog of NOK 250m per 31.12.16, and subsequent to year-end 2016 new contracts have been signed with a contract value of NOK 160m.
The market outlook for the industry is good and the Group has a strong position in the market.
Financial Statement 2016 – Parent Company
Income Statement
| (NOK million) | Note | 2016 | 2015 |
|---|---|---|---|
| Sales | - | - | |
| Total operating revenue | - | - | |
| Employee expenses | 4 | -0,9 | -0,9 |
| Other operating expenses | 4 | -1,3 | -1,6 |
| Operating profit (EBIT) before restructuring cost | -2,2 | -2,5 | |
| Restructuring cost | 4 | -0,4 | - |
| Operating profit (EBIT) | -2,6 | -2,5 | |
| Finance income | 0,3 | 0,9 | |
| Finance expenses | 6 | -0,0 | -126,7 |
| Net financial items | 0,3 | -125,8 | |
| Result before tax | -2,3 | -128,3 | |
| Income tax (expense)/ income | 5 | 0,3 | 0,0 |
| Result for the year | -2,0 | -128,3 | |
| Earnings per share (NOK per share) | |||
| - Basic | 12 | -0,02 | -1,34 |
| - Diluted | 12 | -0,02 | -1,34 |
Statement of comprehensive income
| (NOK million) | Note | 2016 | 2015 |
|---|---|---|---|
| Result for the year | -2,0 | -128,3 | |
| Other comprehensive income: | - | - | |
| Total other comprehensive income | - | - | |
| Total comprehensive income for the year | -2,0 | -128,3 |
Statement of financial position
| (NOK million) | Note | 31.12.2016 | 31.12.2015 |
|---|---|---|---|
| ASSETS | |||
| Non-current assets | |||
| Deferred tax asset | 5 | 5,4 | 5,1 |
| Investment in subsidiaries | 6 | 99,3 | 99,3 |
| Total non-current assets | 104,7 | 104,4 | |
| Current assets | |||
| Other receivables | 7 | 0,2 | 0,1 |
| Receivables intercompany | 13 | 12,8 | 15,1 |
| Cash and cash equivalents | 8 | 0,1 | 0,1 |
| Total current assets | 13,1 | 15,2 | |
| Total assets | 117,8 | 119,6 | |
| EQUITY AND LIABILITIES | |||
| Equity | |||
| Share capital | 9 | 9,6 | 9,6 |
| Share premium | 177,9 | 177,9 | |
| Retained earnings | -70,0 | -68,1 | |
| Total equity | 117,4 | 119,4 | |
| Liabilities | |||
| Non-current liabilities | |||
| Long term borrowing | 10 | - | - |
| Total non-current liabilities | - | - | |
| Current liabilities | |||
| Trade payables | 0,3 | 0,2 | |
| Income tax payable | 5 | - | - |
| Other short term liabilities | 11 | 0,1 | 0,1 |
| Total current liabilities | 0,4 | 0,3 | |
| Total liabilities | 0,4 | 0,3 | |
| Total equity and liabilities | 117,8 | 119,6 | |
Cash Flow Statement
| (Amount in NOK 1000) | Note | 2016 | 2015 |
|---|---|---|---|
| Cash flow from operating activities | |||
| Result before income tax | -2 306 | -128 337 | |
| Adjustments: | |||
| Change in trade payables | 137 | 185 | |
| Change in investment in subsidiaries | - | 126 674 | |
| Changes in other accruals | 2 | -11 | |
| Net cash flow from operating activities | -2 167 | -1 490 | |
| Cash flow from financing activities | |||
| Proceeds from borrowings | 2 211 | 369 | |
| Repayments | - | 772 | |
| Net cash flow from financing activities | 2 211 | 1 141 | |
| Net change in cash and cash equivalents | 45 | -349 | |
| Cash and cash equivalents at 1 January | 56 | 405 | |
| Cash and cash equivalents at 31 December | 8 | 101 | 56 |
| Non restricted cash, 31.12 | 69 | - | |
| Restricted cash, 31.12 | 32 | 56 | |
| Cash 31.12 | 101 | 56 |
Statement of changes in Equity
| 2016 | Share | Share | Other paid in | Retained | |
|---|---|---|---|---|---|
| (Amount in NOK 1000) | capital | premium | capital | earnings Total equity | |
| Equity at 31.12.2015 | 9 551 | 177 912 | - | -68 084 | 119 377 |
| Result for the year | -1 957 | -1 957 | |||
| Other comprehensive income | 0 | ||||
| Total comprehensive income | 0 | 0 | - | -1 957 | -1 957 |
| Equity at 31 December 2016 | 9 551 | 177 912 | - | -70 041 | 117 420 |
| 2015 | Share | Share | Other paid in | Retained | |
| (Amount in NOK 1000) | capital | premium | capital | earnings Total equity | |
| Equity at 31.12.2014 | 9 551 | 177 912 | - | 59 440 | 246 902 |
| Correction UB 31.12.14 | 772 | 772 | |||
| Equity at 1.1.2015 | 9 551 | 177 912 | - | 60 212 | 247 675 |
| Result for the year | -128 296 | -128 296 | |||
| Other comprehensive income | 0 | ||||
| Total comprehensive income | 0 | 0 | - | -128 296 | -128 296 |
| Equity at 31 December 2015 | 9 551 | 177 912 | - | -68 084 | 119 377 |
The correction of UB 31.12.14 is related to intercompany finance income which erroneously was omitted in the 2014 annual report.
Note 1 - General information
Scanship Holding ASA is a limited company incorporated 11 April 2011 and is domiciled in Norway, with its Head Office at Lysaker Torg 12, 1366 Lysaker. The Company was established as a part of a restructuring in the Scanship Group in 2011, and currently the Company's only business is ownership of shares in Scanship AS.
The company's board approved the financial statements on 27th April 2017.
Note 2 - Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below.
2.1 Basis for preparation
The financial statements of Scanship Holding ASA have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and in accordance with the additional requirements following the Norwegian Accounting Act.
The financial statements have been prepared on a historical cost basis.
2.2 Investment in subsidiaries
Investment in subsidiaries is recognised at cost, less any necessary impairment. Impairment 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. Impairments are reversed when the cause and basis of the initial impairment is no longer present.
2.3 Transactions in foreign currency
The functional currency and the presentation of the Company is Norske Kroner (NOK). Foreign currency
Notes to the Financial Statement Scanship Holding ASA
transactions are translated into the functional currency using the exchange rates at the transaction date. Monetary balances in foreign currencies are translated into the functional currency at the exchange rates on the date of the balance sheet. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.
2.4 Cash and cash equivalents
Cash and the equivalents include cash on hand, deposits with banks and other short-term highly liquid investments with original maturities of three months or less.
2.5 Trade receivables and trade creditors
Trade receivables and trade creditors are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, if the amortisation effect is material.
2.6 Borrowings
All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of transaction/issue costs associated with the borrowing. After initial recognition, interests-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method. Any difference between the consideration received net of transaction/issue costs associated with the borrowing and the redemption value, is recognised in the income statement over the term of the loan.
2.7 Taxes
Income tax expense for the period comprises current tax expense and deferred tax expense. The company i subject to 25% income tax in accordance with the Norwegian company tax.
Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity.
Deferred tax assets and liabilities are calculated on the basis of existing temporary differences between the carrying amounts of assets and liabilities in the financial statement and their tax bases, together with tax losses carried forward at the balance sheet date. Deferred tax assets and liabilities are calculated based on the tax rates and tax legislation that are expected to apply when the assets are realised or the liabilities are settled, based on the tax rates and tax legislation that have been enacted or substantially enacted on the balance sheet date. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the assets can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that is no longer probable that the deferred tax asset can be utilised. Deferred tax assets and liabilities are not discounted. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.
2.8 Cost of equity transactions
Transaction costs directly attributable to an equity transaction are recognised directly in equity, net after deducting tax.
2.9 Cash flow statement
The cash flow statement is prepared by using the indirect method.
2.10 Events after the balance sheet date
The financial statements are adjusted to reflect events after the balance sheet date that provide evidence of conditions that existed at the balance sheet date (adjusting events). The financial statements are not adjusted to reflect events after the balance sheet date that are indicative of conditions that arose after the balance sheet date (non -adjusting events). Non -adjusting events are disclosed if significant.
2.11 Changes in accounting policy and disclosures
New and amended standards and interpretations that has been effective for accounting periods starting on 1st January 2017 does not have any impact on the Company's financial statements. Information regarding new and amended standards and interpretations are provided in note 3 of the consolidated financial statements.
Note 3 – Critical accounting estimates and assumptions
The preparation of the financial statements in accordance with IFRS requires management to make judgements, use estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are considered to be reasonable under the circumstances. The estimates and underlying assumptions are reviewed on an on -going basis.
Estimates and assumptions which represent a significant risk of resulting in material adjustments to the carrying amounts of assets and liabilities relates mainly to the Company's investments in subsidiaries. The investment in subsidiaries is recognised at cost, less any necessary impairment. Each year the management apply judgement to assess if there are any indication that the carrying amount is higher than its
recoverable amount. If there are any indications of impairment, the management calculate the recoverable amount which implies assessments regarding future cash flows from its subsidiaries. These assessments require substantial judgements.
Discretionary valuation of shares in subsidiaries
The Company has a material investment in a subsidiary that represent the main part of the operations of the Scanship Holding ASA Group. The share price on Oslo Axess per 31 December 2016 and the subsequent development in the share price after this time is assumed to be the best estimate of fair value of the subsidiary.
Note 4 – Other operating expenses, remuneration and restructuring cost
Board remuneration:
| (Amount in NOK 1000) | 2016 | 2015 |
|---|---|---|
| Board remuneration | 767 | 817 |
| Social tax, expenses | 108 | 115 |
| Total | 875 | 932 |
Other operating expenses include:
| (Amount in NOK 1000) | 2016 | 2015 |
|---|---|---|
| Auditor remuneration | 199 | 185 |
| Consultancy | 142 | 344 |
| Cost related to own shares | 639 | 340 |
| Other operating expenses | 369 | 722 |
| Total | 1 349 | 1 592 |
Remuneration to auditor is allocated as specified below:
| (Amount in NOK 1000) | 2016 | 2015 |
|---|---|---|
| Statutory audits | 199 | 155 |
| Other assurance services | - | 30 |
| Total, excl. VAT | 199 | 185 |
Restructuring costs:
The Company has incurred restructuring costs of TNOK 400 in 2016, which is related to the strategic review process announced in November 2016.
Note 5 – Tax
Specification of income tax:
Specification of income tax:
| (Amount in NOK 1000) | 2016 | 2015 |
|---|---|---|
| Income tax payable | - | - |
| Change in deferred tax | -349 | -41 |
| Total income tax expense/(income) | -349 | -41 |
Specification of temporary differences and deferred tax asset:
| (Amount in NOK 1000) | 2016 | 2015 |
|---|---|---|
| Tax loss carry forward | -22 703 | -20 400 |
| Total basis for deferred tax | -22 703 | -20 400 |
| Deferred tax asset (24% / 25%) | -5 449 | -5 100 |
Specification of temporary differences and deferred tax liability:
There are no positive temporary differences as of 31 December 2016 and 31 December 2015.
Reconciliation of effective tax rate:
| (Amount in NOK 1000) | 2016 | 2015 |
|---|---|---|
| Result before income tax | -2 306 | -128 337 |
| Expected income tax | -577 | -34 651 |
| Adjusted for tax effect of the following items: | ||
| Effect of change in tax rate from 25% (27) % to 24% (25 %) | 227 | 407 |
| Permanent differences | 1 | 34 202 |
| Total income tax expense/(income) | -349 | -41 |
Note 6 – Investment in subsidiaries
| (Amount in NOK 1000) | ||||
|---|---|---|---|---|
| Company | Country of incorporation |
% equity and voting share |
Equity at 31. Dec. 2016 |
Result for the year 2016 |
| Scanship AS 1) | Tønsberg, Norway | 100 % | 24 022 | -4 947 |
| (Amount in NOK 1000) | ||||
| Company | Country of incorporation |
% equity and voting share |
Equity at 31. Dec. 2015 |
Result for the year 2015 |
| Scanship AS 1) | Tønsberg, Norway | 100 % | 28 657 | 5 840 |
1 ) Scanship AS was incorporated in 2007, and was the parent company in the Scanship Group before Scanship Holding AS in 2011 was established as the new Holding company.
The shares in Scanship AS is recorded at NOK 99,3m in the balance sheet per 31.12.16, in line with the similar balance sheet value per 31.12.15. This corresponds with the market value of the shares in Scanship Holding ASA per end December 2015, at NOK 1,04 per share. As of 31.12.16 the market value per share was NOK 0,95. From mid-January 2017 the share has been traded consistently above NOK 1,04 per share, which substantiates the book value at NOK 99,3m.
Note 7 – Other receivables
Other receivable include:
| (Amount in NOK 1000) | 31 Dec 2016 | 31 Dec 2015 |
|---|---|---|
| Receivables on M. Rasmussen 1 ) |
- | 24.0 |
| Prepaid expenses and other items | 153.3 | 68.6 |
| Total | 153.3 | 92.6 |
Note 8 – Cash and cash equivalents
| (Amount in NOK 1000) | 31 Dec 2016 | 31 Dec 2015 |
|---|---|---|
| Bank deposits | 100.5 | 55.8 |
| Total cash and cash equivalents | 100.5 | 55.8 |
Restricted cash at 31.12.16 is TNOK 32.
Note 9 – Share capital and shareholder information
See note 11 in the consolidated financial statements.
Note 10 – Long term borrowing
Scanship Holding ASA has per 31.12.16 no loan agreements.
Note 11 – Other short term borrowing
| 31.Dec | 31.Dec | |
|---|---|---|
| (Amount in NOK 1000) | 2016 | 2015 |
| Short term loan from shareholders | - | - |
| Public duties payable | -49.0 | 66.0 |
| Other payables and accruals for incurred costs | -79.9 | - |
| Total | -128.9 | 66.0 |
Note 12 – Earnings per share
| 2016 | 2015 | |
|---|---|---|
| Profit for the year (Amount in NOK 1000) | -1 957.3 | -128 296.3 |
| Weighted average number of shares outstanding | 95 505 525 | 95 505 525 |
| Earnings per share (NOK per share) : | ||
| - Basic | -0.02 | -1.34 |
| - Diluted | -0.02 | -1.34 |
Note 13 – Financial instruments
(a) Categories of financial instruments:
| 31 Dec | 31 Dec | ||
|---|---|---|---|
| (Amount in NOK 1000) | Category | 2016 | 2015 |
| Financial assets: | |||
| Other receivables | Loans and receivables | 153.3 | 92.6 |
| Receivables intercompany | Loans and receivables | 12 844.8 | 15 055.8 |
| Cash and cash equivalents | Loans and receivables | 100.5 | 55.8 |
| Receivables on M. Rasmussen 1) Loans and receivables | - | 24.0 | |
| Total financial assets | 13 098.5 | 15 228.2 | |
| Financial liabilities: | |||
| Other current liabilities | Financial liabilities at amortised cost | -128.9 | 66.0 |
| Total financial liabilities | -128.9 | 66.0 |
1) M. Rasmussen owns 15% of the shares in The Maritime Group (previous Nordic Made AS) 2) Accruals for incurred costs are excluded since they are not defined as financial instruments.
(b) Fair value of financial instruments
The carrying amount of other receivables, receivables intercompany and cash and cash equivalents is approximately equal to fair value since these instruments have a short term to maturity. Similarly, the carrying amount of other current liabilities is approximately equal to fair value since the effect of discounting is not significant.
Note 13 – Financial instruments (continued)
(c) Financial risk
The most significant financial risks which affect the company are listed below. The management performs a continuous evaluation of these risks and determines policies related to how these risks are to be handled.
(d) Credit risk:
Carrying amounts of financial assets presented above represents the maximum credit exposure. The credit risk related to cash and cash equivalents and other receivables is considered to be immaterial.
(e) Liquidity risk:
Liquidity risk is the risk of being unable to pay financial liabilities as they fall due. The company's approach to managing liquidity risk is to ensure that it will always have sufficient liquidity to meet its financial liabilities as they fall due, under normal as well as extraordinary circumstances, without incurring unacceptable losses or risking damage to the company's reputation. If the level of income from the subsidiaries is not sufficient, loans from group companies can be used to enable the Company to pay financial liabilities as they fall due.
| 0-6 | 6 - 12 | 1-5 |
|---|---|---|
| months | months | years |
| -128,9 | - | - |
| -128,9 | - | - |
See note 20 in the Consolidated Financial Statement for further information of the liquidity risk.
Foreign exchange rate risk:
The Company has no currency risk since all income and all major expenses are nominated in NOK.
Note 14 Contingent liabilities
Contingent liabilities:
The Company has not been involved in any legal or financial disputes in 2016.
Guarantees:
There are no guarantees issued at December 31, 2016.
Note 15 Events after the reporting period
Exclusive negotiation to sell 100% of the shares in Scanship AS and subsidiaries.
Scanship Holding ASA has in April 2017 entered into an exclusive negotiation to sell 100% of its shares in Scanship AS and subsidiaries. Based on the strategic alternatives that the Board has explored, and the interest received, the Board has decided to pursue exclusive negotiations based on a binding Offer to buy all outstanding shares in Scanship AS and its subsidiaries in the US and Poland (together the "Scanship AS Group" in this context). The Offer is inter alia conditional on agreement of a Share Purchase Agreement, approval in a shareholder meeting of Scanship Holding ASA and approval by the board of directors of the bidder.
The Offer represents an enterprise
value of the Scanship AS Group in the range NOK 193m to NOK 197m (i.e. on a debt and cash free basis). The enterprise value range is dependent on the Scanship AS Group reaching certain operational targets. The total purchase price of the Offer, payable in cash at a potential closing of a transaction, is in the range NOK 166m to NOK 173m.
Directors' responsibility statement 2016
We confirm to the best of our knowledge that the consolidated financial statements for 2016 have been prepared in accordance with IFRS as adopted by the European Union, as well as additional information requirements in accordance with the Norwegian Accounting Act, that the financial statements for the parent company for 2016 have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting practice in Norway, and that the information presented in the financial statements gives a true and fair view of the assets, liabilities, financial position and result of Scanship Holding ASA and the Scanship Holding Group for the period.
We also confirm to the best of our knowledge that the Board of Directors' Report includes a true and fair review of the development, performance and financial position of Scanship Holding ASA and the Scanship Holding Group, together with a description of the principal risks and uncertainties that they face.
Lysaker, 27 April 2017
Statsautoriserte revisorer Ernst & Younq AS
Dronning Eufemias gate 6, NO-0~ 91 Oslo Building a better Postboks 1156 Sentrum, NO-0107 Oslo
Foretaksregisteret: NO 976 389 387 MVA Tlf: +47 24 00 24 00 fax: +47 24 00 24 01 www.ey.no Medlemmer av Den norske revisorforening
INDEPENDENT AUDITOR'S REPORT
To the Annual Shareholders' Meeting of Scanship Holding ASA
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Scanship Holding ASA, which comprise the financial statements for the parent company and the Group. The financial statements for the parent company and the Group comprise the balance sheet as at 31 December 2016, income statement, statements of comprehensive income, the statements of cash flows and changes in equity for the year then ended and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the financial statements have been prepared in accordance with laws and regulations and present fairly, in all material respects, the financial position of the Company and the Group as at 31 December 2016 and their financial performance for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU.
Basis for opinion
We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that arg relevant to our audit of the financial statements in Norway, and we have fulfilled our ethical responsibilities as required by law and regulations. We have also complied with our other ethical obligations in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements for 2016. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the financial statements.
Revenue recognition on construction contracts involves significant judgment
The engineering and construction of new builds and retrofit projects is complex resulting in various business and financial reporting risks. These revenues are recognized using the percentage of completion method. Revenue arising from construction contracts represents 52 % of the Group's total revenue. Revenue recognition on a percentage of completion basis is a key audit matter based on the quantitative materiality and the degree of estimates for projects under contract at year end.
Our audit procedures included an evaluation of the significant judgements made by management, whereby we examined project documentation and discussed the status of projects under construction
with management, finance, and technical staff of the Company. We considered the accuracy of management's prior year assumptions by comparing the actual outcome of prior period estimatesa Furthermore, we hae~e evaluated the level of consistency applied in the estimation process. We have reviewed the Company's' process to record contract costs, hours and contract revenues and recalculated the calculation of the stage of completion. We also performed test of details e.g. vouching to invoices and hours incurred to assess the status of the project. We refer to the Group's disclosures included in note 4 in the consolidated financial statements for revenues on construction contracts.
Other information
Other information consists of the information included in the Company's annual report other than the financial statements and our auditor's report thereon. The Board and Chief Executive Officer (management) are responsible for the other information. Our opinion on the financial statements does not cover the other information, and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information, and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management for the financial statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards as adopted by the EU, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with law, regulations and generally accepted auditing principles in Norway, including ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:
- s identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;
- obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control;
- evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management;
- ► conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast
significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern;
- ~ evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
- obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Report on other legal and regulatory requirements
Opinion on the Board of Directors' report and on the statements on corporate governance and corporate social responsibility
Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors' report and in the statements on corporate governance and corporate social responsibility concerning the financial statements, the going concern assumption and proposal for the allocation of the result is consistent with the financial statements and complies with the law and regulations.
Opinion on registration and documentation
Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, Assurance Engagements Other than Audits or Reviews of Historical Financial Information, it is our opinion that management has fulfilled its duty to ensure that the Company's accounting information is properly recorded and documented as required by law and bookkeeping standards and practices accepted in Norway.
Oslo, 28 April 2017 ERNST \$c YOUNG AS
r ~~ ~'~,,
Asbjørn Rødal State Authorised Public Accountant (Norway)
Scanship Holding ASA Lysaker Torg 12 1366 Lysaker NORWAY E: [email protected]
Scanship AS
Contact details
Nedre Langgate 19 3126 Tønsberg NORWAY P: +47 33 01 64 00 F: +47 33 01 64 01 E: [email protected]
Scanship Americas Inc. 3711 SW47thAvenue, # 201 Davie, FL 33314 USA P: +1 954 651 6205 F: +1 954 651 6210 E: [email protected]