!KERå+VRNERå!3!
0 150 300 450 600 750 900 1 050 1 200 1 350 1 500 2004 2003 2002
Pro forma EBITDA
Amounts in NOK million
-10 -8 -6 -4 -2 0 2 4 6 8 10 2004 2003 2002
Pro forma earnings per share
Amounts in NOK 0 4 000 8 000 12 000 16 000 20 000 24 000 28 000 32 000 36 000 40 000 2004 2003 2002
Order backlog
Amounts in NOK million
Financial calendar 2005
Tuesday 15 February 2005: Preliminary Year-End and 4th Quarter Results 2004 Friday 18 March 2005: Annual General Meeting 2005
Tuesday 26 April 2005: 1st Quarter Results 2005 Thursday 28 July 2005: 2nd Quarter Results 2005 Wednesday 26 October 2005: 3rd Quarter Results 2005
Pro forma key financial figures
Amounts in NOK million 2002 2003 2004
Operating revenues 34 140 31 327 35 553
EBITDA 573 1 003 1 401
Operating profit -395 -97 775
Profit (+) / loss (-) before tax -54 -338 379
Amounts in NOK 2002 2003 2004
Earnings per share 1) 9) -3.33 -6.41 4.20
Cashflow per share 8) 9) -3.13 13.59 29.93
Financial expenses cover 2) 0.08 0.74 2.77
Liquidity ratio 3) 1.26 1.36 1.23
Debt to equity ratio 4) 2.09 1.55 1.26
Return on total capital 5) 3.3 % 0.7 % 9.1 %
Return on equity 6) -9.3 % -17.5 % 12.1 %
Operating profit / Net operating assets 7) -6.1 % -1.8 % 18.0 %
Definitions:
1) Profit (+) / loss (-) after tax and minority interests / Average number of shares 2) (Operating profit + financial income + depreciation) / Interest expenses 3) Current assets / Current liabilities
4) (Interest-bearing short-term debt + interest-bearing long-term debt (exclusive subordinated debt)) / Equity including minority interest
5) Profit before interest expenses / Average (debt + equity) 6) Profit (+) / loss (-) after tax / Average equity (inc. minority interest) 7) Net operating assets is defined in note 7
8) Net cashflow from operating activities / Average number of shares
Contents
Annual Report 2004
Proforma key financial figures
...2
Letter from the President & CEO
...5
Board of Directors
...6
Board of Directors´ report 2004
...8
Accounts and notes - contents
...23
Accounts and notes -
group consolidated
...24
Accounts and notes -
Parent company
...53
Auditor's report
...60
Quarterly key figures
...62
Formation of the new group
...64
Corporate governance and
corporate management
...66
Executive management
...67
Shareholder issues
...68
Articles of association
...70
Aker Kvaerner is aiming for providing customers,shareholders, analysts, employees and society in general with precise and relevant information about the company. The objective is to create improved
knowledge and understanding of our business. For this reason, Aker Kvaerner issues two reports in addition to the Annual Report 2004: Powered to Perform™2005 and People and Values 2005.
The Annual Report 2004is primarily directed at shareholders and the financial market, and contains the Board of Directors’ report, the group’s consolidated financial statements, shareholder information and the annual accounts for the parent company Aker Kværner ASA.
What we do - Powered to Perform™2005presents Aker
Kvaerner´s core capabilities and selected projects, technologies, products and solutions.Powered to Perform™provides useful information for customers, shareholders and other stakeholders who seek an in-depth understanding of Aker Kvaerner’s activities.
Who we are - People and Values 2005presents Aker Kvaerner’s set of core values and leadership principles and shows how we through our corporate values work to create value for customers, shareholders, employees and the society in general.People and Valuesaims at providing all our stakeholders with an understanding of the people in Aker Kvaerner.
The Annual Report 2004and People and Values 2005
are available in both Norwegian and English, while
Powered to Perform™2005is only available in English.
All reports can be downloaded from the company´s website, www.akerkvaerner.com.
Aker Kværner ASA is a leading global provider of
engineering and construction services, technology
products and integrated solutions. The business
within Aker Kvaerner comprises several industries,
including Oil & Gas, Refining & Chemicals,
Pharmaceuticals & Biotechnology, Mining & Metals,
Power Generation and Pulp & Paper.
The Aker Kvaerner group consists of a number of
separate legal entities. Aker Kvaerner is used as the
common brand/trademark for most of these entities.
The parent company of the group is Aker Kværner ASA.
Aker Kvaerner has aggregated annual revenues
of approximately NOK 35.6 billion and employs
approximately 21 000 people in more than 30
countries.
This is Aker Kvaerner
Aker Kvaerner engages in an open and continuous
dialogue with the financial market for the purpose of
creating a solid basis for the correct pricing of the
share. The dialogue with the market takes the form
primarily of annual and quarterly reports and
presentations, press releases, meetings with
investors and analysts, participation in conferences
and use of the company’s website.
Executive management actively participates in
dialogue with the market, while daily communication
is handled by the investor relations department.
Important information of significance to investors and
other market players is communicated through the
Oslo Stock Exchange (www.newsweb.no) and the
company’s web pages (www.akerkvaerner.com).
Investor communication
Aker Kvaerner-group
MAIN
SECTORS
SEGMENTS
Maintenance,
Modifications
and Operations
Subsea and
Products &
Technologies
Field
Development
Process
Pulping
& Power
Other/Corporate
Financial reporting structure
Engineering & Construction
Oil & Gas
5 Letter from the President & CEO
Dear fellow shareholder
2004 was a year to celebrate for the shareholders in Aker Kvaerner. We had a record order intake and order backlog, EBITDA improved and several improvement programmes have taken effect to form a solid foundation for the future.
A long-term sustainable financial platform was created as part of the restructuring in April. Long-term debt was refinanced, new equity was secured and we have a more focused group structure, without most of the major legacy issues that in the past limited our flexibility and ability to focus on operations.
• HSE results improved, the Lost Time Incident Frequency per million hours worked was reduced from 2.0 in 2003 to 1.2 in 2004
• Over the nine-month period from April 2004, when the new Aker Kvaerner was established, to year-end, some NOK 2.8 billion in value was created for shareholders and lenders through strong improvement in share and bond prices
• Pro forma EBITDA was NOK 1 401 million, an increase from NOK 1 003 million in 2003 • The order intake was NOK 41.6 billion, an increase from NOK 36.9 billion in 2003
• The order backlog was NOK 35.9 billion at year-end 2004, an increase from NOK 31.5 billion at year-end 2003
• Many of the new orders represent milestones that position Aker Kvaerner for future assignments • Client relationships have been strengthened through successful completion of key projects and
by a strong focus on better coordination of business development
• Internal improvement programmes yield progress within project execution, best value sourcing and risk management
• Feedback from the internal “People Survey 2004” shows that we are moving in the right direction. The survey also points to areas where we need to further develop the organisation and the management.
The group has regained strength through internal improvements, in addition to taking advantage of improving global markets. A stronger focus on selected technologies and services, combined with a selective approach to bidding for prospective work, have contributed significantly to improved performance in 2004. These efforts will continue in 2005.
Aker Kvaerner is a global business with activities in more than 30 countries and on all continents. Increasingly, the group leveraged expertise and resources across business units and geographical boundaries, and thereby strengthened its competitive position. Going forward, Aker Kvaerner will continue to develop a common group culture and to achieve synergies.
Aker Kvaerner enjoys the trust of customers, investors, employees and the communities in which we operate. We recognise the responsibility we have to live up to that trust, in terms of perfor-mance and the values we have as a foundation for our operations. We will strive to be transparent and predictable. We aim to create value for our customers, shareholders, employees, business partners and the society in general.
Inge K. Hansen
6 Board of Directors
Board of Directors
Leif-Arne Langøy
Chairman of the Board
Mr. Langøy has been President and CEO of Aker ASA, formerly Aker RGI, since 2003. He previously served as President and CEO of the Aker Kvaerner Yards group, and prior to this he was CEO of Aker Brattvaag for 13 years. Mr. Langøy is a graduate from the Norwegian School of Economics and Business Administration.
Reidar Lund
Vice Chairman
Mr. Lund is Chairman of the Board of Prosafe ASA, and holds in addition a number of director-ships in offshore related enterprises. Mr. Lund was the CEO of Prosafe ASA until 1999. He previously served as President of Transocean ASA from 1985 to 1997. Mr. Lund is a graduate from Chalmers University of Technology, Gothenburg.
Helge Midttun
Director
Mr. Midttun has been President and CEO of Fjord Seafood ASA since 2003. Between 2000 and 2002 he was President and CEO of Det Norske Veritas, after holding the same position in Zenitel/Stento from 1996 to 2000. Mr. Midttun has previously also worked for Schlumberger and Rieber & Søn. Mr. Midttun is a graduate from the Norwegian School of Economics and Business Administration.
Bjørn Flatgård
Director
Mr. Flatgård has been President and CEO of Elopak AS since 1996. He previously served as President and CEO for Nycomed Pharma and Executive Vice President for Hafslund Nycomed and Nycomed AS. He holds several board positions. Mr. Flatgård is a graduate from the Norwegian University of Science and Technology and from the Norwegian School of Management.
Jon Fredrik Baksaas
Director
Mr. Baksaas has been President and CEO of Telenor ASA since 2002. He joined Telenor in 1989 and was appointed Deputy CEO in 1997. Mr. Baksaas previously held positions as Finance Director, Executive Vice President and CEO of TBK AS. Earlier, he held finance-related positions in Aker AS, Stolt-Nielsen Seaway and Det Norske Veritas. Mr. Baksaas is a graduate from the Norwegian School of Economics and Business Administration.
7 Board of Directors
Atle Teigland
Employee representative
Mr. Teigland was elected by the employees to the Board of Directors in October 2004. He has served on the board of Aker RGI for several years. Mr. Teigland is a group union representative for Aker Kvaerner on a full-time basis, and has been employed by Aker Kvaerner Elektro since 1978. Mr. Teigland is a certified electrician.
Åsmund Knutsen
Employee representative
Mr. Knutsen was elected by the employees to the Board of Directors in October 2004. He has held various positions in Aker Kvaerner Engineering & Technology since 1991, and is now a group union representative for white-collar employees on a full-time basis. Mr. Knutsen holds a Master of Science in Hydrodynamics.
Eldar Myhre
Employee representative
Mr. Myhre has been an employee-elected Board member since 1989. He previously acted as a local union representative for 13 years, and has since 1996 been a group union representative. He has been employed by Aker Kvaerner since 1974, and has been full-time occupied as employee representative since 1983. Mr. Myhre is a trained plater.
Bernt Harald Kilnes
Employee representative
Mr. Kilnes was elected by the employees to the Board of Directors in 2002. He has been employed by Aker Verdal since 1989 as Project Procurement Manager, and he is also on the board of Aker Verdal. Mr. Kilnes is a graduate in Telecommunications Engineering and Economics and Business Administration.
The Audit Committee in Aker Kværner ASA consists of:
• Reidar Lund (chairman) • Helge Midttun • Atle Teigland
The Reward Committee in Aker Kværner ASA consists of:
• Leif-Arne Langøy (chairman) • Bjørn Flatgård
8 Board of Directors’ Report 2004
Aker Kvaerner experienced solid progress in 2004. Pro forma
earnings (EBITDA) grew by 40 per cent compared with pro
forma figures for 2003, confirming Aker Kvaerner’s steady
course towards its stated targets. Main markets developed
positively and several large orders were secured by the group
in 2004, resulting in a record-high order backlog. A strong
focus on health, safety and the environment resulted in a
further reduction in number of accidents. The 2004 results are
reflected in a positive share price development and significant
value creation for shareholders.
The group restructuring in April
2004 and the format of the
Annual Report
The Kvaerner group was restructured in early 2004, and the new Aker Kvaerner, with its current board, was established on 1 April and listed on the Oslo Stock Exchange on 2 April 2004. The restruc-turing is further described on pages 64 and 65, and also in note 3 to the conso-lidated accounts.
The accounts in this annual report include both the period April through December 2004, and the pro forma figures for the full years 2002 to 2004. All comments in this Board of Directors´ report refer to the full year 2004 unless explicitly stated differently.
Strengthened order intake, order
backlog and financial position
The total order intake through 2004 was a record high NOK 41.6 billion, an increase over NOK 36.9 billion in 2003. The group’s total order backlog amoun-ted to a historic high NOK 35.9 billion at the end of 2004. This is an increase over the NOK 31.5 billion figure on 31 December 2003.
Earnings before interest, tax, deprecia-tion and amortisadeprecia-tion (EBITDA) for the period April through December 2004 was NOK 1.1 billion, and order intake for the same period was NOK 34.3 billion. Cashflow from operating activities from April through December 2004 was NOK 1.5 billion.
The 2004 pro forma accounts report earnings before interest, tax, deprecia-tion and amortisadeprecia-tion (EBITDA) of NOK 1.4 billion for the Aker Kvaerner group. This is a 40 per cent increase over NOK 1.0 billion in 2003. Earnings after depreciation and amortisation, and before interest and taxes (EBIT) amoun-ted to NOK 775 million in 2004, compa-red with NOK -97 million for 2003. Financial position and cashflow were strengthened throughout the year. Cash and bank deposits at the end of December grew to a comfortable NOK 3.7 billion, compared with NOK 3.6 billion at the end of 2003. 2004 numbers include repayment of debt of NOK 560 million. Cashflow from opera-ting activities was NOK 1.6 billion in 2004, reflecting a NOK 894 million decrease in net current operating assets.
Aker Kværner ASA
Board of Directors’
Report 2004
0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 45 000 50 000 2004 2003 2002■Order intake Order backlog
Order intake /
Order backlog – group
Amounts in NOK million 0 500 1 000 1 500 2 000 2004 2003 2002
Pro forma EBITDA – group
Board of Directors’ Report 2004 9
Description of operations
The Aker Kvaerner group is one of theworld’s leading providers of enginee-ring and construction services to both large and small industrial facilities off-shore and onoff-shore. Contracts relating to the maintenance, modification and operation of such facilities represent an important and growing area of operati-ons. The group also provides advanced technology products for special purpo-ses, which may be either stand-alone or part of an integrated solution. Within many niches, Aker Kvaerner is the market leader or one of the top three suppliers.
The parent company in the group is Aker Kværner ASA, which is headquar-tered in Bærum outside Oslo, Norway. The Aker Kvaerner group consists of many separate legal entities. “Aker Kvaerner” is used as the common brand/trademark for most of these entities.
The Aker Kvaerner group operates within three areas:
1) New facilities projects 2) Maintenance, modification and
operations for existing facilities 3) Products and niche technologies. There are clear synergies between and among the areas. Typically, new deve-lopment projects may later lead to maintenance contracts or future upgra-des. The specialised products may be utilised both in development projects and in the operations phase. It is Aker Kvaerner’s objective as an international contractor with a strong presence in all three core areas to leve-rage these synergies further. One main goal is to increase the share of mainte-nance, modifications, and operations from the current approximately 40 per cent of the group’s overall revenues to about 50 per cent. The increase in ser-vice-oriented products will further reduce Aker Kvaerner’s exposure to
cyclical up- and downturns in the market for new development projects.
The Aker Kvaerner group’s activities are divided into two main sectors: Oil & Gas and Engineering & Construction.
Oil & Gas
In 2004, the Oil & Gas sector repre-sented 65 per cent of the group’s reve-nues and consisted of three reporting segments: Field Development, Main-tenance, Modifications and Operations, Subsea, Products & Technologies. Within Oil & Gas, Aker Kvaerner is a leading global provider of products, services, and solutions, principally to the offshore upstream oil and gas industry. Oil & Gas is involved in each stage in the life cycle of an offshore oil and gas field, from initial planning to removal and decommissioning of the installations. Oil & Gas provides a wide range of products, services, and soluti-ons, including fixed, floating and subsea
0,0 2,5 5,0 7,5 10,0 12,5 15,0 2004 2003 2002
Equity ratio – group
Per cent 0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 2004 2003 2002
Revenues – group
(based upon the location of group operations) Amounts in NOK million
■Norway
■United Kingdom
■North America
10 Board of Directors’ Report 2004
production systems; design enginee-ring, project management and procure-ment; and offshore drilling and produc-tion facilities. Oil & Gas is also involved in the maintenance, modification, ope-ration, upgrade, and decommissioning of customers' installations. Oil & Gas provides after-sales service and sup-port, including supplying spare parts and refurbishments to its installed base of products worldwide.
Aker Kvaerner offers its customers a complete set of services and a com-plete value chain throughout the lifecy-cle of a project. The group’s various oil and gas activities complement each other, providing opportunities for enhanced efficiency via cooperation on both cost reductions and market activities.
Aker Kvaerner’s Oil & Gas operations are located in more than 20 countries with principal activities in Norway, the United Kingdom, and the United States. The group has extensive international
activities in the Gulf of Mexico, Atlantic Canada, Brazil, Western Africa, South-East Asia, Russia, and the Middle South-East. Customers include a number of major international oil and gas companies, and the group has operated in the North Sea region for almost 40 years
Engineering & Construction
In 2004, the Engineering &
Construction (E&C) sector represented 35 per cent of the group’s revenues and consisted of two reporting seg-ments: Process and Pulping & Power. Aker Kvaerner’s E&C businesses focus on a small number of highly speciali-sed industries and technologies. The overall, average market share of those target markets is currently assessed to be in the 15-20 per cent range. Several units hold leading positions within their markets, for instance the Power unit in recovery boilers, the Pulping unit in fiberlines (chemical pulping), AK Engineering Services in local markets for maintenance and modification
servi-ces, and the Metals unit with a leading market share in the copper market. There are significant market share dif-ferences among the market segments and technology areas in which the group is operating.
26% ■■ Field Development
17% ■ Maintenance, Modifications and Operations 21% ■ Subsea, Products & Technologies
22% ■ Process
13% ■ Pulping & Power
Operating revenues by segment
28% ■■ Field Development
16% ■ Maintenance, Modifications and Operations 32% ■ Subsea, Products & Technologies
7% ■ Process
17% ■ Pulping & Power
EBITDA by segment
Aker Kvaerner offers design, engineering and construction of process facilities onshore and offshore, as well as services for the following maintenance and operations support.
Board of Directors’ Report 2004 11
Operating profits for the full
year 2004
Consolidated 2004 revenues amounted to NOK 35 553 million, which was a 13 per cent increase over NOK 31 327 million in 2003. Earnings in 2004 were significantly better than in 2003. EBITDA for 2004 was NOK 1 401 million, compared with NOK 1 003 million for 2003 - an increase of around 40 per cent.
The main factors contributing to the substantial EBITDA increase were a general market improvement, a strong focus on improving operational effici-ency, and the impact of various change programmes that have been implemented throughout the Aker Kvaerner group.
Goodwill amortisation in the consolida-ted accounts in 2004 amounconsolida-ted to NOK 318 million. Goodwill recorded in the balance sheet has been tested for impairment by comparing the carrying amount with the net present value of
future cashflows. The test did not identify any impairment losses.
Order intake and order backlog
The total order intake for the group in 2004 was a record-high NOK 41.6 bil-lion, a substantial growth from NOK 36.9 billion in 2003. The group’s total order backlog amounted to a record-high NOK 35.9 billion at the end of 2004. This is an increase from NOK 31.5 billion as of 31 December 2003.
Cash deposits and financial
position
Cash and bank deposits at the end of December 2004 were a comfortable NOK 3.7 billion after a NOK 560 million repayment of debt in the last two quar-ters. The cash position at year-end is positively impacted by advances from customers, and will be partly offset by corresponding outflows in the next quarters.
At year-end, undrawn committed long-term bank revolving facilities amounted
to NOK 960 million in the Oil & Gas business, and short-term revolving faci-lities of NOK 410 million in the Engineering & Construction business, giving ample additional liquidity buffers. Cashflow from operating activities in 2004 was NOK 1 646 million, reflecting a NOK 894 million decrease in net cur-rent operating assets.
The equity ratio on 31 December 2004 was 9.8 per cent. This figure was impac-ted by accounting effects from currency fluctuations. The subordinated debt and equity yielded a combined ratio of 29.1 per cent at the end of December. Based on the availability of cash and the favourable financial position, the accounts have been prepared based on the assumption of a going concern.
Investments and financing
Net financial items for the full year 2004 amounted to NOK -396 million. Finance costs in 2004 were impacted by some
The 2004 accounts
31% ■■ Field Development
26% ■ Maintenance, Modifications and Operations 15% ■ Subsea, Products & Technologies
18% ■ Process
9% ■ Pulping & Power
Order backlog by segment
33% ■■ Field Development
18% ■ Maintenance, Modifications and Operations 19% ■ Subsea, Products & Technologies
20% ■ Process
10% ■ Pulping & Power
Order intake by segment
The decommissioning, removal and recycling of installations at Total’s depleted Frigg field will be handled by Aker Kvaerner, based on experience from similar previous projects.
Board of Directors’ Report 2004 12
NOK 34 million in currency losses. These losses are mainly due to exposu-res not being fully hedged against the sharp fall in the USD.
Interest-bearing long-term debt amoun-ted to NOK 2.4 billion at the end of December 2004. The corresponding number for 2003 was NOK 3.1 billion. In addition, the subordinated loan, which is interest free until the fourth quarter of 2006, is booked in the balance sheet at a nominal value of NOK 3.8 billion.
Net interest-bearing receivables at year-end 2004 amounted to NOK 1 370 million, an increase from NOK 449 mil-lion one year ago.
The group’s long-term investments in 2004 amounted to NOK 418 million, in line with NOK 427 million in 2003.
Net profit
Profit after financial items for 2004 was NOK 379 million, compared with a loss
of NOK 338 million in 2003. The tax expense for the full year of NOK 139 million represents 20 per cent of profit before tax adjusted for non-deductible goodwill amortisation. Net profit for the year 2004 was NOK 240 million, and net profit per share was NOK 4.20.
Reporting segments:
Strong progress
Most business segments improved results compared with 2003, and all business segments had a solid order backlog at the end of 2004. The finan-cial performance in AK Engineering Services, which is part of the reporting segment Process, was an exception. This unit showed weak results in the third and fourth quarter of 2004. Special attention will be given in 2005 to improve performance in this unit.
Field Development
Field Development reported operating revenues of NOK 9 646 million, an increase over NOK 8 244 million in 2003. EBITDA for 2004 amounted to
NOK 424 million, a 2.7 times increase from NOK 158 million last year. The 2004 order intake was NOK 13 955 million and the year-end order backlog was NOK 11 565 million, compared with NOK 8 516 million and NOK 7 701 million in 2003, respectively. A conside-rable part of Field Development´s order intake in 2004 was growth from existing contracts.
In 2003 and 2004, Aker Kvaerner was awarded contracts worth NOK 7.8 bil-lion for onshore facilities for Norway’s Ormen Lange offshore gas develop-ment project. Hydro is the field’s deve-lopment-phase operator. Several upco-ming projects around the world are considering a field development con-cept similar to that of Ormen Lange, with subsea production systems sup-plying an onshore receiving and pro-cessing facility.
In December 2004, Sempra Energy awarded Aker Kvaerner and
Field Development
Amounts in NOK million 2002 2003 2004
Operating revenues 8 998 8 244 9 646
EBITDA 345 158 424
Operating profit before
exceptional items 161 -1 292
Order intake 10 706 8 516 13 955
Order backlog 7 091 7 701 11 565
Net operating assets 739 1 012 641
Number of employees 5 997 5 200 4 566
Aker Kvaerner is recognised as the market leader in concrete gravity based substructures for offshore platforms like these two for the Russian Sakhalin development.
Board of Directors’ Report 2004 13
Ishikawajima-Harima (IHI) a USD 500 million contract for the engineering, procurement, and construction of the Cameron LNG (Liquefied Natural Gas) regasification terminal in the US state of Louisiana. The award recognises both Aker Kvaerner’s lead position wit-hin the oil, gas and LNG regasification industry, and the partnership with IHI for excellence in delivering LNG tanks and terminals.
Maintenance, Modifications and
Operations
Maintenance, Modifications and Operations (MMO) reported stable 2004 operating revenues of NOK 6 327 million, on par with 2003 operating revenues of NOK 6 311 million. The 2004 EBITDA amounted to NOK 248 million, which is in line with the EBITDA for 2003 of NOK 241 million. A special gain of NOK 30 million from property sales was recorded in 2003. Order intake amounted to NOK 7 859 million in 2004, compared with NOK
6 510 million in 2003. Higher order intake resulted in an 18 per cent incre-ase in year-end order backlog to NOK 9 765 million, compared with NOK 8 283 million in 2003. The market is positive and tendering activity is high. In October 2004, MMO was awarded a NOK 3.0 billion contract from Total for engineering, preparation, removal and disposal of the Frigg field installations. The contract is a joint venture among MMO, Field Development, and Subsea, Products & Technologies. This contract award recognises Aker Kvaerner’s competence, technology and facilities for decommissioning of offshore instal-lations.
In December 2004, MMO signed a let-ter of intent with Hydro for modifica-tion and upgrading of the Oseberg East platform in the Nor th Sea. The contract value is estimated at more than NOK 300 million, and several Aker Kvaerner companies will be involved in the project.
Subsea,
Products & Technologies
Operating revenues for Subsea, Products & Technologies increased to NOK 7 630 million in 2004 from NOK 6 741 million in 2003. EBITDA was 24 per cent higher for the full year 2004 compared with 2003, amounting to NOK 495 million and NOK 399 million respectively. EBITDA in 2003 included a special gain of NOK 37 million related to property sale.
The order intake was NOK 8 332 million and NOK 7 436 million for 2004 and 2003 respectively, representing an increase in order backlog from NOK 4 897 million to NOK 5 462 million in 2004. The order intake has been strong in 2004 with a number of small and mid-size contract awards.
Process
Process had operating revenues of NOK 8 123 million in 2004, compared with NOK 7 163 million in 2003. EBITDA decreased from NOK 129 million in 2003 to NOK 110 million in 2004.
Maintenance, Modifications and Operations
Amounts in NOK million 2002 2003 2004
Operating revenues 6 073 6 311 6 327
EBITDA 127 241 248
Operating profit before
exceptional items 16 132 149
Order intake 7 882 6 510 7 859
Order backlog 8 029 8 283 9 765
Net operating assets 1 831 1 783 1 198
Number of employees 5 683 5 224 4 867
Subsea, Products & Technologies
Amounts in NOK million 2002 2003 2004
Operating revenues 7 485 6 741 7 630
EBITDA 548 399 495
Operating profit before
exceptional items 351 224 324
Order intake 7 442 7 436 8 332
Order backlog 3 965 4 897 5 462
Net operating assets 2 286 1 964 1 846
Number of employees 4 012 3 468 3 411
Aker Kvaerner is a leader within design, manufacturing and installation of complete subsea developments, even for the most demanding reservoirs.
Board of Directors’ Report 2004 14
The NOK 6 667 million order backlog at year-end 2004 was down from NOK 7 310 million at the end of 2003. The 2004 order intake of NOK 8 465 million, a decrease from NOK 9 190 million in 2003, remains satisfactory, with a ste-ady flow of contract awards throughout the year.
The Process Onshore business benefits from growth in China and large capital expenditure projects in Europe and the Middle East. Chemetics had signifi-cantly higher activity in 2004 than in 2003. In the United States, the high new-building activity for power plants has continued.
The weak performance in AK
Engineering Services is disappointing. The previous management was repla-ced in the third quarter of 2004. The new management is initiating a number of comprehensive programmes to reduce costs and focus on the operati-ons. The programmes are expected to gradually take effect during the first half of 2005.
Pulping & Power
In 2004, Pulping & Power reported ope-rating revenues of NOK 4 815 million, compared with NOK 3 682 million in 2003. EBITDA increased to NOK 264 million in 2004 from NOK 209 million in 2003. Full year 2004 EBITDA is 26 per cent higher than in 2003, due to impro-ved performance in Power. Earnings from Power and Pulping service mar-kets continue to grow.
The 2004 order intake of NOK 4 198 million is regarded as satisfactory. The order backlog at the end of 2004 was NOK 3 442 million, compared with NOK 4 178 million one year earlier.
Pulping & Power
Amounts in NOK million 2002 2003 2004
Operating revenues 3 010 3 682 4 815
EBITDA 14 209 264
Operating profit before
exceptional items -57 140 191
Order intake 2 631 6 230 4 198
Order backlog 1 301 4 178 3 442
Net operating assets 319 -116 -543
Number of employees 1 915 1 938 2 005
Aker Kvaerner is a leader in products and complete solutions for the pulping and paper industry, with advanced, environmentally friendly and cost effective technologies.
Process
Amounts in NOK million 2002 2003 2004
Operating revenues 9 697 7 163 8 123
EBITDA -378 129 110
Operating profit before
exceptional items -503 21 18
Order intake 6 374 9 190 8 465
Order backlog 6 002 7 310 6 667
Net operating assets 1 188 631 916
Board of Directors’ Report 2004 15
Aker Kvaerner has continued to imple-ment a number of measures aimed at further improving the group’s competiti-veness and profitability. Focus has been, and will continue to be, on more efficient and strengthened risk mana-gement, and better project execution. These initiatives were launched in 2002 and have yielded positive results through 2004, both in financial perfor-mance and in client satisfaction. Aker Kvaerner’s deliveries are largely based on technology and know-how either held by the individual group units or licensed from other technology com-panies. Focus on project execution, risk management and best value sourcing continued through 2004 as a group ini-tiative under the umbrella name Gxx™; Global Execution Excellence.
Aker Kvaerner has developed a Project Execution Model (PEM) where the emphasis is on reliability and quality. Using the same execution model throughout the group allows for coope-ration and sharing of resources, and also provides a continuous, improved overview in order to monitor and control performance and risks. Best practices from current and previous projects pro-vide valuable input for the continuous development of the model.
An important part of the group’s stra-tegy is to develop a more flexible cost base, and substantial results have alre-ady been achieved. Aker Kvaerner has organised most of its employees who provide staff and administrative sup-port functions into internal shared ser-vices business units. Pooling of sup-port services has resulted in improved utilisation of resources and provides a clearer overview of the cost structure.
The group’s best value engineering center in Mumbai in India (49 per cent owned by Aker Kvaerner) was increa-singly utilised by more business units and projects, thereby improving Aker Kvaerner’s competitiveness. The new low-cost engineering and sourcing center in China has also played an important part in securing and execu-ting new projects.
Risk exposure
The group is engaged in numerous projects around the world. The financial outcome of the projects is subject to uncertainty with the outcome being contingent upon the contractual terms, productivity, actual costs and quality. Comprehensive policies and procedu-res have been implemented to prevent the business units from entering into contracts with unacceptable risk expo-sures. Furthermore, considerable resources have been devoted in recent years to standardise and improve con-trol and predictability as well as redu-cing risks and exploit opportunities. Major projects are subject to reviews at the completion of the various phases over the life of a project. The results of the reviews are periodically consolida-ted and reporconsolida-ted to management at higher levels. Management reviews are conducted each month with participa-tion from group and business area management to monitor performance and risk exposures, and to initiate cor-rective actions when needed.
Technology development
Technology is a key value creator for Aker Kvaerner and its customers, hel-ping to drive down costs, improve effici-ency and product yield. Technology improvements often contribute to impro-ved HSE performance. The development
of new technologies is imperative for the financial and practical realisation of many projects. Technology is a key diffe-rentiator for Aker Kvaerner, and the tech-nical expertise of Aker Kvaerner staff is a competitive advantage and a key to reduced risks for Aker Kvaerner and its customers.
Technology development takes place in the business units. Aker Kvaerner's efforts within defined technology deve-lopment projects amounted in 2004 to approximately NOK 180 million. This amount was augmented with some addi-tional NOK 80 million in funding from customers and government sources. The Board is pleased to see an increase of spending and external funding in technology development. Further details about such programs are found in the paragraph “Customer relations.” In Oil & Gas, improvements to existing solutions and development of new tech-nology for floating production, subsea technology, concrete-structure solutions, and selected gas chain technologies are ongoing. Units in the Subsea, Products & Technologies reporting seg-ment are developing solutions to assist customers achieve increased recovery from oil and gas fields.
In the E&C sector, new technology for pulping and power recovery systems is helping customers produce more with greater efficiency. In the process and petrochemical industries, Aker Kvaerner continues to access world-class tech-nologies via license and cooperation agreements. As an example, the ”One Synergy” methanol/syngas collabora-tion was formed in December 2004 between Johnson Matthey, Davy Process Technology, and Aker Kvaerner.
Operational improvements
The high-tech self-propelled well tractor developed by Aker Kvaerner can move into the wells and conduct operations to enhance oil and gas production.
Board of Directors’ Report 2004 16
Trust is essential for Aker Kvaerner. Building trust with the company’s stake-holders is of fundamental importance, and can only be achieved over time. A business aiming to be sustainable must balance its short-term priorities against its long-term objectives.
Obviously, it is a priority to adhere to regional and national rules and regula-tions. Aker Kvaerner and its employees will conduct business in a way that will make people proud to be working with – or for – Aker Kvaerner.
The group recognises the challenges of working in a variety of cultures and busi-ness climates around the world. Aker Kvaerner updated its group policies in 2004. The policies are based on the group’s core values guiding business conduct and operations. Aker Kvaerner builds trust based on the core values of Customer drive, Hands-on execution, HSE mindset, Openness and honesty, Commercial edge and Developing peo-ple.These core values supplement our
ethical policy and other policies that act as guidelines wherever on the globe business is undertaken.
Health, Safety and
Environment (HSE)
Aker Kvaerner’s HSE mindset, founded on the belief that all accidents can be prevented, is the key to the group’s work on health, safety, and environ-ment. Aker Kvaerner continuously stri-ves for zero accidents involving person-nel, property, or affecting other resources and assets.
In spite of the strong focus on HSE, the Board of Directors regrets to inform that one fatality related to Aker Kvaerner’s activities occurred in 2004, and another occurred in January 2005. In December 2004, while work was being done related to the Sakhalin pro-ject in Russia, one of the propro-ject’s mini-vans was hit by an oncoming car and the driver later died from his injuries. In January 2005, a worker employed by a subcontractor was severely injured and
later died while working on the Kristin FPS project in Norway. Both accidents are under investigation, and internal groups are also investigating in coope-ration with customers.
The HSE Step Change improvement programme was lunched in 2004. The “Just Care” theme was introduced to emphasise the personal element of HSE, while a group-wide HSE opera-ting system, HSE training, and focus on leading indicators, are all elements of Aker Kvaerner’s systematic efforts to achieve world-class HSE performance. The positive trend in lost time incidents (incidents resulting in absence from work) continued in 2004. The total num-ber of such incidents in 2004 was 95, compared with 133 the previous year. The lost time incident frequency (the number of such incidents per one mil-lion hours worked) in 2004 was 1.2, substantially reduced from 2.0 in 2003. These figures include subcontractors working for Aker Kvaerner.
The corporate citizen
0,0 0,5 1,0 1,5 2,0 2,5 3,0 2004 2003 2002
Lost Time Incident Frequency
LTI / million hours
0 1 2 3 4 5 6 2004 2003 2002
Sick leave
In per centJust Care is the common theme for Aker Kvaerner’s focus to create a culture of personal HSE commitment and becoming best in class within this area.
Board of Directors’ Report 2004 17
The group-wide sick leave rate decrea-sed from 4.0 to 2.9 per cent from 2003 to 2004. The trend is positive, although inherent differences in local laws and regulations lead to inaccuracies in the consolidation and comparison of sick leave rates across different countries. Aker Kvaerner’s activities have only a limited direct detrimental effect on the environment. No major inadvertent emissions to the environment were reported in 2004.
Aker Kvaerner seeks to minimise waste deposits to landfill to ensure proper and environmentally friendly handling of residual waste. In 2004, out of a total of 17 900 tons of waste, 14 300 tons were recycled and 3 600 tons were deposited in accordance with regulations.
Energy consumption by the group in 2004 amounted to 241 000 megawatt hours. Electric power accounted for 64
per cent of the total consumption, while gas accounted for 24 per cent, and oil for 11 per cent.
People
At the end of 2004, Aker Kvaerner had a total of 20 667 employees, 1 581 fewer than at the end of 2003. In addi-tion to its own employees, Aker Kvaerner had 5 683 hired agency per-sonnel at the end of 2004. Approximately 49 per cent of the total workforce (26 350) worked in Norway, 22 per cent worked in North America, and 21 per cent worked in various European Union countries.
The group continued the systematic work begun in 2003 on improving its procedures relating to the international assignment of personnel. The objective is to support the group’s global activi-ties and the exchange of knowledge between units.
Aker Kvaerner is a knowledge- and skills-based enterprise. The individual knowledge and skills of employees and the group’s ability to combine and employ such expertise constitute the foundation for the company’s activities. As part of the update of the group’s policies, the group has reinforced a
People Policywhich covers the
respon-sibilities of each individual employee and each manager. The policy also addresses the responsibility of the employer in relation to employees. The People Policycontains guidelines relating to Aker Kvaerner’s activities, with a special focus on ethics and equal opportunity, preservation of diversity, and open and honest commu-nication. The policy describes the employee’s right to enjoy a safe and secure place of work, prohibiting any form of harassment. The policy calls for a healthy balance between work and private life. 49% ■■ Norway 20% ■ North America 11% ■ EU 10% ■ UK 3% ■ Asia
7% ■ Rest of the world
Employees by geographical location
22% ■■ Field Development
24% ■ Maintenance, Modifications and Operations 16% ■ Subsea, Products & Technologies
24% ■ Process
10% ■ Pulping & Power
4% ■ Other
Employees by segment
The multicultural Aker Kvaerner organisation works in all continents and encourages diversity in gender, age and ethnic background.
Board of Directors’ Report 2004 18
Equal opportunities
Diversity strengthens the group’s col-lective capacity. Aker Kvaerner is there-fore keen to be seen as an attractive employer for all groups of people, irrespective of ethnic background, gender, religion, and age. Aker Kvaerner’s policy is to pay the same salary for the same job, irrespec-tive of gender, ethnic background, religion, or age. Salaries are defined by the level of responsibility, job content, and the employee’s competence/per-formance.
Aker Kvaerner’s Norwegian workforce consists of approximately 15 per cent female and 85 per cent male employ-ees. Both in Norway and globally, it is the responsibility of each local busi-ness unit, where the employer respon-sibilities reside, to make sure that Aker Kvaerner’s equal opportunity policy is followed. The Board of Directors recog-nises that women are under-represen-ted in management positions and encourages a better balance. In Norway, the group is participating in an initiative entitled Female Future, set up by the Norwegian Confederation of Business and Industry. The programme focuses primarily on helping Norwegian companies to increase the percentage of female managers and board members by year-end 2005. 14 Aker Kvaerner employees have participated so far.
Developing people
The People Policyalso covers the grou-p’s principles for attracting and develo-ping people.
The group has implemented programs to increase the competence of
executi-ves and other employees. Leadership development takes place both in general management disciplines and through specific courses related to project management.
The Project Academywas established in 2004. The Project Academy is a pro-gram focusing on developing skills in project management, risk manage-ment, and global sourcing, and suppor-ting the implementation of a common project execution model. In 2005, the Project Academy will evolve into the Aker Kvaerner Academy, which will target corporate focus and ownership of developing core competences. Aker Kvaerner executives are assessed at regular intervals on the basis of results achieved, with systematic feed-back from superiors, peers and subor-dinates - or “360 degree feedback.” The 360 degree feedback is based on the group’s values and leadership approach.
People survey
In 2004, as in 2003, the group carried out a global people survey. Around 87 percent – or approximately 18 000 employees – responded to the survey. The responses were closely analysed and compiled in separate reports for all individual units and departments. The survey showed that the majority of employees have a positive attitude towards Aker Kvaerner, and that most units have a good working environment. The survey’s findings provide the basis for a number of initiatives for further improvements that are now being implemented, both for the group as a whole and in local units.
European Works Council
The group has established European Works Council (EWC) in cooperation with the employees. The EWC provides a meeting forum where the employees from the European subsidiaries and management meet twice a year to discuss the group's financial position and business plans.
Incentive plans
A number of executives participate in salary programmes with variable pay based on performance. Executives who meet or exceed agreed targets receive a competitive remuneration package. These targets are linked to financial performance indicators, non-financial objectives, and alignment with group values and leadership approach. Apart from base salary and variable pay, the executives participate in the standard pension plan. The compensa-tion and variable pay programmes for group executives and leading employees are described in greater detail in note 16 to the consolidated accounts.
Aker Kvaerner participates in Female Future, an industry programme aimed at increasing the percentage of female managers and board members.
19 Board of Directors’ Report 2004
Shareholder policy
Aker Kvaerner aims to create value for shareholders, customers, employees, and society. A shareholder’s investment should provide a competitive return over time in the form of dividend pay-ments and increasing share value. Aker Kvaerner aims to serve the financial market with accurate, impartial, and relevant information about the company to ensure that the share price reflects the underlying values and future pro-spects.
Dividend policy
The Board of Directors considers that the dividend on average, over time, should be approximately 30 per cent of net profit. Priority will be given over the next years to strengthening the compa-ny’s financial position. Dividend pay-ment will thus be contingent upon the company exceeding certain financial targets, an EBITDA in the first half of 2005 of approximately NOK 1 500 mil-lion on an annualised basis, and an EBITDA for 2006 as a whole of NOK 1 750 million.
Share price development
Aker Kvaerner was listed on the Oslo Stock Exchange on 2 April 2004. The share price increased by 24 per cent between listing and year-end 2004, creating value for shareholders of NOK 1.7 billion in the same period. The share price has further increased from NOK 161 to NOK 200 from year-end to 17 February 2005.
Ownership structure
Aker Kværner ASA is a listed company whose shares are traded on the Oslo Stock Exchange. The company has issued 55 029 234 shares. As of 31 December, 2004 Aker Kværner ASA had 4 072 registered shareholders. The 20 largest sharehol-ders owned a total of 78 per cent of the company’s shares. As of 31 December 2004, the company’s princi-pal shareholder, Aker ASA, owned a total of 58 per cent of the shares in Aker Kværner ASA. Aker ASA reduced its ownership to 50.01 per cent of the shares in January 2005.
Corporate governance and
corporate management
Good corporate governance and management are prerequisites for building trust. Aker Kvaerner emphasi-ses the building of trust with its share-holders, lenders, customers and other stakeholders. For this reason, it is important to ensure professional inde-pendence between the company’s Board and Management.
A new Norwegian code of practice for corporate governance was published in 2004. With 2004 being a transition year, Aker Kvaerner has decided to report according to the recommendations set out in the new code of practice, effec-tive for 2004.
For further information regarding corporate governance in Aker Kvaerner, please see page 66.
20 Board of Directors’ Report 2004
In most cases Aker Kvaerner’s contri-bution to such joint programmes is based on its technical expertise and experience. In technology-driven indus-tries, customer involvement in techno-logy development is imperative, not only for funding reasons, but also to achieve the focus and alignment necessary to ensure faster commercia-lisation.
Final pro & contra settlement
with Kvaerner
Aker Kværner ASA and Kværner ASA have agreed on a post-restructuring pro & contra settlement which conclu-des all issues still outstanding after the demerger in 2004. As part of the settle-ment, the parties transferred Kvaerner Metals in Pittsburgh, USA, valued at NOK 50 million, to Aker Kvaerner in the fourth quarter 2004.
Also, as announced on 28 December 2004, Aker Kvaerner has acquired the company Ellayess from Kvaerner. The Ellayess business, a provider of tempo-rary personnel has been valued at NOK 284 million. The acquisition transacti-ons were finalised in 2004, except for a final cash settlement of NOK 32 million to be made in early 2005.
The Metals unit in Pittsburgh has clear synergies with the other Metals busi-nesses in Aker Kvaerner. Before the takeover of Ellayess, Aker Kvaerner was the agency’s single largest client. Using hired staff from the agency in peak periods is an important element in Aker Kvaerner’s strategy to achieve a more flexible cost base.
New CEO
In March 2004, Mr. Inge K. Hansen was appointed President & CEO of Aker
Kværner ASA, succeeding Mr. Helge Lund, who was appointed President & CEO of the Norwegian oil company Statoil. Inge K. Hansen, previously Statoil’s Acting President & CEO, has extensive industrial and financial expe-rience on a top management level from a number of companies.
Implementing IFRS
Aker Kvaerner’s accounts will be pre-sented in accordance with International Financial Reporting Standards (IFRS) from the first quarter of 2005. The diffe-rences between IFRS and Norwegian Generally Accepted Accounting Principles (NGAAP) identified to date as having a significant effect on the consolidated financial statements are described in note 2 to the consolidated accounts.
Customer relations
Aker Kvaerner emphasises solid and long-term customer relations. In many cases, relations date back several decades. Relations are continuously being maintained through close inter-action with customers during follow-up, servicing, modernisation, and expan-sion of previously installed plants and equipment.
Throughout 2004, the group has contin-ued to work on further strengthening relations with key customers. There has been systematic customer follow-up on many levels, including high-level custo-mer meetings and custocusto-mer surveys. Valuable input from customers ensures competitiveness and responsiveness to current and future business needs. Through the close relationship Aker Kvaerner has with many customers, opportunities arise for following existing customers to new geographic regions, or establishing new Aker Kvaerner part-nerships through existing customers. The benefits of good customer relati-onships significantly reduce new-custo-mer and market establishment costs and risks.
Complementing Aker Kvaerner’s own technology development, a number of agreements are in place with custo-mers for joint development and com-mercialisation of new solutions. An example of this is Maritime Well Service´s tractor technology, used for maintenance of oil wells. This techno-logy, developed together with Statoil, has saved the customer annual costs in 2003 of NOK 500 million, together with an additional NOK 300 million in increa-sed revenues due to bringing wells back on stream faster.
21 Board of Directors’ Report 2004 I
Key markets
Most of the main markets of Aker Kvaerner improved through 2004, and an overall continuous strong market for most business segments is expected in 2005. Bidding activity is already high at the start of the New Year.
The main geographic markets for Aker Kvaerner in 2005 will be Norway and the EU, North and South America, Asia-Pacific, and Russia. Aker Kvaerner’s activities in the Middle East are expec-ted to grow at a moderate rate.
Oil & Gas
Aker Kvaerner’s markets within the oil and gas industry in Norway are in general expected to remain positive, and several long-term contracts stret-ching through 2005 and beyond form a strong basis for further growth. Within the MMO business, several important long-term contracts were added to the order backlog in 2004. There is an increasing number of offshore installations in operation, and Aker Kvaerner is one of the leading suppliers of maintenance, modifications and operations’ services to the oil and gas operators in the North Sea. The strategy is to leverage this expertise in other regions with similar market conditions and requirements, primarily in North America and in selected areas of the Asia-Pacific.
The MMO business has gradually built up experience in operations support, partly from operating installations on behalf of oil companies. On the AH001 platform offshore Scotland, Aker Kvaerner was approved as duty holder for the platform in 2004 in a contract with Amerada Hess. Aker Kvaerner regards this as a growing niche where
the company can leverage its special capabilities. More contracts of similar nature are expected.
The markets for oil and gas projects in Russia and in the Caspian region are expected to develop positively through 2005. Aker Kvaerner will leverage its experience from the Sakhalin II deve-lopment at the Russian Pacific coast and the Ormen Lange subsea to beach project in Norway.
In February 2005, Aker Kvaerner made a strategic investment of a substantial part of the Finnish contractor RR Offshore Oy, the majority owner of the CJSC Astrakhan Korabel yard located in Astrakhan, Russia. The investment ensures Aker Kvaerner’s competence and yard capacity, as well as essential local content for projects in the region. Through 2004, Aker Kvaerner contin-ued to position itself in the growing market for new LNG terminals both in the USA and elsewhere by executing early-phase engineering for several potential projects. An important break-through came in late 2004 with the award of the EPC contract for Sempra’s Cameron LNG terminal in Louisiana, USA.
Aker Kvaerner remains one of the world’s leading contractors for deep-water floating production platforms, with leading expertise on several con-cepts. Deliveries in 2005 of the Kristin semi-submersible production platform (offshore Norway) and the White Rose FPSO production ship (offshore Canada) will further strengthen this position.
The units comprising the Subsea, Products & Technologies business experienced a growing interest in the
market towards year-end. Markets are expected to improve within most niches in 2005. Subsea experienced a strong year in 2004 and is well positioned for 2005.
E&C
Within the EU region, the market for upgrading and service of various exis-ting process-related facilities is expec-ted to remain an important market for Process, Pulping, and Power, with somewhat increased activity in several of the group’s target niches. The group has also improved its market position in the growing economies in the Asia-Pacific. Activities in China now accounts for more than 5 per cent of the group’s total revenues, and the Chinese market will continue to be important for Aker Kvaerner in 2005. The markets for new Process- and Power-related facilities in North America generally remained stable in 2004. Moderate growth is expected in 2005. The Metals segment profited from the internationally growing market for metals industry facilities, supported by increasing commodity prices. Also, a substantial part of the Process busi-ness managed from North America is engaged in projects in the growing markets in South America and Asia-Pacific. This trend is expected to continue in 2005.
Uncertainties and risk
exposures reduced
Although significantly reduced as a result of the restructuring in April 2004, Aker Kvaerner’s balance sheet and pro-ject portfolio contain a number of uncertainties and risk elements, most of which are normal for Aker Kvaerner’s business and industry.
Outlook for 2005
L
Aker Kvaerner offers extensive services for maintenance, modification and operation services, such as operating the AH 001 platform on behalf of Amerada Hess.
22 Board of Directors’ Report 2004
Aker Kvaerner has worked systemati-cally to establish risk management sys-tems and procedures, as well as a risk awareness culture throughout the orga-nisation. There is a strong focus on hands-on management from top to bot-tom of the organisation, where risk is contained through frequent reviews of business processes, from the early bid phase, through evaluation of project execution and performance, to comple-tion. All major bids are also processed through a systematic tool for risk mana-gement, Aker Kvaerner’s Risk
Dashboard, and are subject to review and approval of the group´s risk-mana-gement committee.
Aker Kvaerner has in place policies and systems to handle risks and expo-sures in the financial markets, covering currency, interest, and counterparty risk. The group operates a centralised treasury function, which operates as an internal bank towards all the operating units. All interest and currency expo-sure is managed centrally. The group has established a group finance com-mittee, with top management as mem-bers. This committee makes decisions and recommendations to the Board on important financial issues.
Uncertainties and contingent events are explained in greater detail in note
15 to the consolidated accounts.
Financial targets
The 2004 results show that Aker Kvaerner continues on a steady course towards its stated financial targets: An EBITDA in the first half of 2005 of approximately NOK 1 500 million on an annualised basis, and an EBITDA for 2006 as a whole of NOK 1 750 million. Aker Kvaerner intends to use a positive cash flow to repay debt and strengthen the balance sheet.
The 2004 profit and loss account for the parent company Aker Kværner ASA showed a net loss after tax of NOK 187 million.
Under the terms of the subordinated loans that fall due in 2011, Aker Kværner ASA is not permitted to pay dividends exceeding 50 per cent of profit.
Lysaker, 23 February 2005 Board of Directors of Aker Kværner ASA
Leif-Arne Langøy Reidar Lund Jon Fredrik Baksaas Helge Midttun Bjørn Flatgård
Chairman Vice Chairman
Atle Teigland Åsmund Knutsen Bernt Harald Kilnes Eldar Myhre Inge K. Hansen
President & CEO
Parent company accounts and allocation of profit
The Board of Directors has established a financial policy stipulating that divi-dends are not to be paid before the Aker Kvaerner group has reached its target of an EBITDA in 2006 in the amount of NOK 1 750 million. The Board of Directors proposes to charge the loss for 2004 to other equity.
The Board of Directors extends its appreciation to management and employees for their performance in 2004 and their ability to bring Aker Kvaerner closer to the company’s stated targets.
Aker Kvaerner offers design, engineering and construction for process facilities with experience and leading expertise within a number of process technologies.
23 Accounts and notes – Contents
Group Consolidated
Consolidated profit and loss account. . . 24
Consolidated balance sheet. . . 25 Consolidated statement of cashflow. . . 26 Notes to consolidated accounts
Note 1 Statement of accounting principles . . . 27 Note 2 Transition to IFRS. . . 29 Note 3 Pro forma financial statements. . . 30 Note 4 Significant transactions. . . 31
Note 4.1 Acquisitions and disposals. . . 31 Note 4.2 Related party transactions. . . 31 Note 5 Shareholders´ equity. . . 32 Note 6 Segment information. . . 33
Note 6.1 Business segments. . . 33 Note 6.2 Geographic segments. . . 35 Note 6.3 Markets. . . 36 Note 6.4 Order intake / order reserve. . . 36
Note 7 Net operating assets. . . 37 Note 8 Current operating assets. . . 37 Note 9 Current operating liabilities . . . 37 Note 10 Provisions. . . 38
Note 11 Property, plant & equipment. . . 38 Note 12 Intangible assets. . . 39 Note 13 Goodwill by business segment. . . 40 Note 14 Tax. . . 40
Note 15 Contingent events. . . 41 Note 16 Salaries, wages and social security costs. . . 42 Note 17 Number of employees. . . 44 Note 18 Pension costs and liabilities. . . 44
Note 19 Net financial items. . . 45 Note 20 Investments. . . 45 Note 21 Investments accounted for
under the equity method. . . 46
Note 22 Net interest-bearing items. . . 46 Note 23 Interest-bearing long-term receivables. . . 47 Note 24 Long-term borrowings. . . 47 Note 25 Borrowings by currency . . . 49
Note 26 Mortgages . . . 49 Note 27 Guarantee liabilities, etc . . . 49 Note 28 Financial market exposures. . . 49 Note 29 Group companies as of 31 December 2004. . . 50
Parent company
Parent company profit and loss account. . . 53
Parent company balance sheet. . . 54 Parent company statement of cashflow. . . 55 Notes to parent company accounts
Note 1 Statement of accounting principles . . . 56 Note 2 Operating expenses. . . 56 Note 3 Financial items. . . 56 Note 4 Tax. . . 56
Note 5 Investments as of 31 December 2004. . . 57 Note 6 Current operating assets and liabilities . . . 57 Note 7 Shareholders' equity. . . 57 Note 8 Interest-bearing items. . . 58
Note 9 Long-term borrowings. . . 58 Note 10 Guarantees. . . 58 Note 11 RISK-regulation. . . 58 Note 12 Contingent events and related parties . . . 58
Accounts and notes
Contents
24 Consolidated profit and loss account
Accounts Pro forma 1)
Apr.
2004-Dec. 2004 Amounts in NOK million Note 2004 2003 2002
27 838 Operating revenues 6 35 553 31 327 34 140
16 105 Materials, goods and services 20 147 17 226 18 626
7 460 Salaries, wages and social security costs 16, 18 10 043 10 494 11 641
3 196 Other operating expenses 3 962 2 604 3 300
26 761 Total operating expenses 34 152 30 324 33 567
1 077 Operating profit before depreciation and amortisation 6 1 401 1 003 573
- 234 Depreciation 11 -308 -333 -377
843 Operating profit before amortisation 1 093 670 196
- 229 Goodwill amortisation 12, 13 -318 -315 -320
614 Operating profit / loss before exceptionals 6 775 355 -124
- Exceptional items - -452 -271
614 Operating profit / loss 6 775 -97 -395
- 326 Net financial items 19, 22 - 396 -241 341
288 Profit / loss before tax 6 379 -338 -54
- 114 Tax 14 -139 -10 -127
174 Net profit / loss 240 -348 -181
11 Minority interests 9 5 2
163 Majority share 5 231 -353 -183
55 029 234 Average number of shares 2) 5 55 029 234 55 029 234 55 029 234
2.96 Earnings per share 3) 4.20 -6.41 -3.33
1) 2002, 2003 and 1st quarter 2004 are pro forma, as the Aker Kværner ASA group was formed 1 April 2004 (see note 3).
2) Earnings per share in pro forma periods were calculated using the weighted average number of shares outstanding for the nine month period ending 31 December 2004
3) Majority share of net profit / loss / average number of shares. There was no potentially dilutive securities outstanding.
25 Consolidated balance sheet
Accounts Pro forma
2004 Amounts in NOK million Note 2003 2002
Assets Fixed assets:
361 Deferred tax assets 7, 14 241 151
4 200 Goodwill and patents 7, 12, 13 4 386 4 637
4 561 Total intangible fixed assets 4 627 4 788
1 403 Property, plant and equipment 7, 11 1 422 1 873
87 Other long-term operating assets 7, 18 106 135
103 Interest-bearing long-term receivables 22, 23 30 60
95 Long-term investments 20, 21 106 107
285 Total other long-term assets 242 302
6 249 Total fixed assets 6 291 6 963
Current assets:
9 828 Current operating assets 7, 8 8 924 8 977
3 703 Cash and bank deposits 22 3 558 3 337
13 531 Total current assets 12 482 12 314
19 780 Total assets 18 773 19 277
Liabilities and shareholders' equity Equity:
2 084 Capital paid in 5 2 084 2 084
- 197 Other equity 5 - 113 - 191
48 Minority interests 60 60
1 935 Total equity incl. minority interests 6 2 031 1 953
Liabilities:
131 Deferred tax liabilities 7, 14 7 4
474 Other long-term operating liabilities 7, 18 454 561
605 Total long-term liabilities 461 565
3 826 Subordinated debt 24, 25 3 946 3 901
2 435 Interest-bearing long-term debt 22, 24, 25 3 133 3 075
6 261 Total long-term borrowings 7 079 6 976
1 Interest-bearing short-term debt 22 6 1 000
10 978 Current operating liabilities 7, 9, 10, 15 9 196 8 783
10 979 Total current liabilities and short-term borrowings 9 202 9 783
17 845 Total liabilities 16 742 17 324
19 780 Total liabilities and shareholders' equity 18 773 19 277
Consolidated balance sheet
Lysaker, 23 February 2005 Board of Directors of Aker Kværner ASA
Leif-Arne Langøy Reidar Lund Jon Fredrik Baksaas Helge Midttun Bjørn Flatgård
Chairman Vice Chairman
Atle Teigland Åsmund Knutsen Bernt Harald Kilnes Eldar Myhre Inge K. Hansen
26 Consolidated statement of cashflow
Consolidated statement of cashflow
Accounts Pro forma
Apr.
2004-Dec. 2004 Amounts in NOK million Note 2004 2003 2002
Cashflow from operating activities
279 Profit(+) / loss(-) before tax 370 -338 -54
-93 Tax paid -130 -51 -98
463 Depreciation and amortisation 626 648 697
-2 Profit(-) / loss (+) on disposals / non cash effects 5 -74 -600
99 Interest accrued on subordinated debt 132 132 132
9 Profit(-) / loss(+) from associated companies 5 -10
-793 Changes in other net operating assets 638 441 -249
1 548 Net cashflow from operating activities 1 646 748 - 172
Cashflow from investing activities
-281 Acquisition of businesses (-) net of net cash acquired (+) 4 -281 -
--19 Cash sale of businesses -19 -
--340 Purchase of fixed assets 6, 11 -418 -427 -410
23 Disposal of fixed assets 68 360 314
-42 Changes in other assets -12 59 37
-659 Net cashflow from investing activities -662 -8 -59
Cashflow from financing activities
- Proceeds from long-term loans - - 80
-25 Repayment of short-term loans -46 -757 -381
-560 Repayment of long-term loans 24 -560 -
--585 Net cashflow from financing activities - 606 -757 -301
-301 Translation adjustments - 233 238 57
3 Net decrease(-) / increase (+) in cash and bank deposits 145 221 - 475
3 700 Cash and bank deposits as at beginning of period 22 3 558 3 337 3 812
27 Statement of Accounting Principles
Associated companies
Associated companies are undertakings in which the group holds between 20 and 50 per cent of the voting shares and is in a position to exercise considerable influence. Associated com-panies are incorporated in the financial statements using the equity method of accounting. The group’s investments in asso-ciates include goodwill identified on acquisition. The group's share of the results are based on the acquired company's profit after tax less amortisation of acquisition costs in excess of the book value of equity. Profits in associated companies a
