Annual Report 2008

Transcription

Annual Report 2008

DEEP SEA SUPPLY Plc
ANNUAL REPORT 2008
KEY FIGURES
2008
2007
Sales - freight revenue
190,405
146,660
Gross profit margin
53%
61%
Figures in USD 1000
PROFIT AND LOSS ACCOUNT
Gross profit
99,977
Operating profit
92,668
Operating profit margin
49%
EBITDA
122,237
EBITDA margin
64%
Profit before tax
50,294
Profit margin before tax
26%
Profit
53,404
Profit margin
28%
SOLVENCY AND LIQUIDITY
Cash
Book equity
Book equity margin
1)
Value adjusted equity margin
2)
Value adjusted equity
PROFITABILITY
89,928
92,346
63%
100,532
69%
70,549
48%
57,705
39%
33,799
31,396
14%
23%
112,221
404,000
41%
163,254
601,000
56%
Average number of shares
126,864
125,608
Earnings per share
0.42
0.43
Share price 31.12.
Earnings per share diluted
Cash flow per share
VESSELS AND NEWBUILDINGS
Vessels in operation
Newbuildings
Definitions:
1) Total equity / Total assets
2)Value adjusted equity / Total value adjusted assets
7.04
0.42
0.73
20
9
24.7
0.42
0.64
15
16
DEEP SEA SUPPLY AT A GLANCE
•
ANNUAL REPORT 2008
CONTENTS
left
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54
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Key figures
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Deep Sea Supply at a glance
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Highlights
. . . . . . . . . Fleet
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list
Existing Vessels
Newbuilding delivery
.........
Board of Directors
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Report from the Board
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Consolidated Financial Statements
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Consolidated balance sheet
Consolidated income statement
Consolidated statement of changes in equity
Consolidated cash flow statement
Notes to the consolidated financial statements
Auditor´s report
56
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The largest shareholders
59
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Corporate governance
65
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Parent Company Financial Statements
1
DEEP SEA SUPPLY Plc (“DESSC” or the “Company” on
a consolidated basis) is a company listed on the Oslo Børs.
The company is incorporated in Cyprus.
Deep Sea Supply ASA was established for the purpose of
building up an offshore support vessel business. In July 2005,
the company acquired six 15,000 BHP AHTS (Anchor
Handling Tug Supply vessels) from Tidewater Marine Inc.
(Tidewater) of the KMAR 404 design.The vessels are built in
Norway and are ideally suited for operations in the North
Sea and internationally.
In April 2006 the Company acquired 22 new-building
contracts from Seatankers Management Co. Ltd. (the “Seller”)
at a price of USD 394 mill. Such acquisition increased the size
of the Company significantly.
Following this acquisition, the Company has acquired
additional shipbuilding contracts at shipyards in Norway and
Singapore.
DESSC was established on 7 November 2006 for the
purpose of acquiring all shares of Deep Sea Supply ASA.The
Board of Deep Sea Supply ASA concluded in 2006 that the
tax regime in Cyprus is expected to afford more stable,
attractive and competitive conditions over time compared to
the Norwegian regime under which Deep Sea Supply ASA
used to operate.
2
Strategy
The Company intends to become one of the leading owners
and operators of supply vessels on a global basis.The
Company will primarily seek to obtain and maintain a
chartering profile with emphasis on the spot, medium and
long term contract markets for the medium and large AHTS
and medium to long term employment contracts for the small
AHTS and the PSVs (Platform Supply Vessel).The Company’s
primary aims are to meet the demand from the markets that
require modern and advanced offshore vessels.
The Company will focus on acknowledged Safety
Standards developed during recent years within the Offshore
Marine Industry world wide, and in particular in the North
Sea area.The top management is dedicated to supervise that
all personnel are well acquainted with HSEQ standards and
procedures, and all efforts will be made to ensure that each
individual has the preferred attitude and behaviour with
respect to safety matters and is carrying out the operations in
accordance with best practices.
DESSC will actively consider investments in the
perspective of providing financial returns to its shareholders.
The Company will actively consider possibilities to
participate in industry consolidation, mergers and
acquisitions, and will position itself to be part of such
consolidation.
The Company will actively use the capital market when
doing investments, and does not intend to hold significant
liquid reserves for investments. Retained earnings will, to
the extent permitted under operational constraints,
financial covenants and with due regard to appropriate
working capital requirements, be paid out as dividends.
Vessel operation
The Company has per 31 December 2008 a fleet consisting
of 12 AHTS and 8 PSVs. At year-end the vessels operated in
Africa, Asia, South America and Europe.
In 2008, 7 newbuildings have been delivered; 1 AHTS from
Havyard Leirvik, Norway, 1 AHTS from ABG Shipyard, India
(sold later same year), 4 PSVs from Cochin Shipyard Ltd., India
and 1 PSV from Karmsund Maritime, Norway.
Management and employees
The Company was established with the aim to employ and
maintain a small, focused and qualified management within the
following predefined core activities;
• Chartering
• Finance, Accounts and Investor Relations
• Business Development
• Monitoring and control of external suppliers
The Company intends to focus its in-house resources on key
competence within the above activities and purchase other
services, such as technical management, crew management,
construction supervision and accounting services, from third
party providers.
The Company is incorporated in Limassol, Cyprus.The
Company has one management company in Limassol, Cyprus,
one management company in Arendal, Norway and one
representative office in Singapore. As of year-end the current
staff of the Company is 14 persons. During 2008 staff has
increased with 3 persons.
•
ANNUAL REPORT 2008
The Management team of the Company is
as follows:
Odd Brevik, CEO – Chief Executive Officer;
Mr. Brevik has nearly 25 years experience from the offshore
supply business. From 1982-85, he worked as Director with
Balder Management and from 1985 -1988 with Supply
Service Management. In 1988 he joined Viking Supply Ships
AS as managing director where he worked until 2000. During
this period,Viking Supply Ships was actively investing,
operating and divesting ships and other equipment. At the
peak,Viking Supply Ships operated 61 vessels and had more
than 1,700 employees. It was listed on Oslo Børs for a three
years period.
Finn Amund Norbye, CFO – Chief Financial Officer:
Finn Amund Norbye has a long and international career
within shipping and finance. From 2001-2006 he was CFO of
Bergshav Management AS and from 1999-2001 he was
Director and Head of Fortis Bank’s Shipping Division in
Rotterdam. Prior to that, he worked 12 years with Christiania
Bank’s Shipping department. From 1996-1999 he was head of
the bank’s Shipping department in Singapore and from 19931996 he was Head of the bank’s Shipping department in
London. Prior to joining Christiania Bank, Mr. Norbye has
worked with Storebrand Finans, Norges Eksportråd
(Stockholm), Electrolux (Bangkok). Mr. Norbye holds a
Masters degree (Siviløkonom) from Norges Handelshøyskole
(NHH) and Handelshögskolan in Stockholm.
Olaf Hafredal, CCO – Chief Chartering Officer:
Olaf Hafredal has a long and extensive experience from the
offshore supply chartering business. From 1971 to 1990, he
worked as shipbroker with Johan G. Olsen Shipbrokers AS,
most of the time with the offshore department which he
managed from 1982. In 1990 he joined Viking Supply Ships AS
as chartering manager. When Viking Supply Ships sold its
supply fleet to Sævik Supply ASA at the end of 1996, he
followed the fleet and worked as chartering manager for
Sævik Supply until the same fleet was sold on to Trico Supply
ASA. Mr. Hafredal then started as chartering manager for
Trico Supply, a position he held until 2004. Before joining
Deep Sea Supply ASA, Mr. Hafredal worked as chartering
manager for Havila Shipping.
3
4
HIGHLIGHTS
•
ANNUAL REPORT 2008
HIGHLIGHTS
08
January 2008
• Second sale and leaseback transaction with SFI for “Sea
Leopard” and “Sea Bear”. Gross sales proceeds are $126
mill. (net $104 mill.).The transaction improves the Company’s cash position with $63 mill. 12 years term with
several purchase options.
• Sale of “Sea Trout”, the first PSV delivered from Cochin.
Sales price $36,5 mill.
• Delivery of “Sea Bass”, the fifth PSV from Cochin.
2 years t/c entered into with Melittah Gas (ENI) Libya
for “Sea Bass” and “Sea Cheetah”.
April 2008
• Delivery of “Sea Pollock”, the sixth PSV from Cochin.
May 2008
• Sale of “Sea Wolverine”, the second AHTS from ABG,
following delivery. Sales price $21,9 mill.
• 4 years time charters from August 2008 entered into
with Exxon Exploration Inc for “Sea Pollock” and
“Sea Turbot”.
September 2008
• 1 year bareboat charter contract entered into for the
PSV “Sea Witch” with commencement from delivery of
the vessel at Cochin Shipyard in December 2008.
October 2008
• The Company obtained GBP 160,000 per day in the
North Sea spot market for the vessel “Sea Tiger”, the
highest freight rates in the Company’s history.
• After finishing a 12 month bareboat charter that commenced directly upon delivery from Jaya Shipyard, the
option to purchase “Sea Ocelot” was exercised.
November 2008
• Delivery of ”Sea Lion”, a Havyard 842 design with 17,520
BHP, from Havyard Leirvik.
December 2008
• Delivery of “Sea Witch”, the 8th and last in a series of 8
newbuilding PSVs delivered to Deep Sea Supply from
Cochin Shipyard.
June 2008
• Refinancing the Senior Bank Loan by a USD240 mill. and
NOK970 mill. Loan facility.
• Delivery of “Sea Trout”, a PSV design VS470 from Karmsund Maritime Services AS in Norway.The vessel is chartered to Petrofac for operations in North Sea.
• 1 year time charter with option for another 2 years
entered into with ENI North Africa for the AHTS vessel
“Sea Jaguar”.
July 2008
• Prepayment of the NOK200 mill. Bond Loan facility for
the purposes of facilitating further growth and enhanced
financial flexibility.
March 2009
• Cancelled the contract with Jaya Shipbuilding and Engineering Pte. Ltd. ("Jaya") pursuant to which Deep Sea
Supply was to take delivery of "Sea Hawk 1".The cancellation was based on substantial delays beyond the
revised, contractual delivery date.
• Entered into settlement agreement with Scan Geophysical ASA (“Scan”), whereby Scan shall pay USD 1,0 mill
to Deep Sea Supply.The claim was related to a contract entered into between Deep Sea Supply Management AS (DESS) and SCAN Geophysical ASA (SCAN)
on 2 June 2006 whereby SCAN acquired
three of DESS's shipbuilding contracts with
ABG Shipyard in India.
09
August 2008
• Delivery of “Sea Turbot”, the 7th PSV from Cochin.
Deep Sea Supply
Distribution
to shareholders
2006*
30,0
Share price
25,0
Q1 2007*
Q2 2007*
Q3 2007*
Q4 2007*
Q1 2008**
Q2 2008**
20,0
15,0
10,0
5,0
0,0
sep. 05
jan. 06
mai. 06
sep. 06
jan. 07
mai. 07
sep. 07
jan. 08
mai. 08
sep. 08
jan. 09
Amount per share
NOK 0,80
NOK 0,20
USD 0,85 (NOK 4,62)
USD 0,40 (NOK 2,18)
USD 0,40 (NOK 2,00)
USD 0,13 (NOK 0,68)
NOK 1,00
Ex. dividend date
08-05-07
22-06-07
24-09-07
11-12-07
26-03-08
14-05-08
02-09-08
Payment date
28-06-07
04-10-07
29-10-07
31-01-08
29-05-08
16-06-08
17-09-08
* Dividend by way of reducing the share premium account
** Ordinary dividend from profit
5
FLEET LIST AS PER 24 MARCH 2009
Existing Vessels
AHTS VESSELS
Sea Lion
Sea Tiger
Sea Leopard
Sea Lynx
Sea Panther
Sea Wolf 1
Sea Bear
Sea Cougar
Sea Cheetah
Sea Jaguar
Sea Ocelot
Sea Otter
PSVs
Sea Halibut
Sea Angler
Sea Pike
Sea Bass
Sea Pollock
Sea Trout
Sea Turbot
Sea Witch
6
Yard
Built
Type
BHP/DWT
Havyard Leirvik
04.11.08
AHTS Havyard 842
17520 BHP
Kværner Kleven
1998
Kværner Leirvik
1999
Kværner Kleven
1999
Jaya Shipbuilding
25.01.07
Jaya Shipbuilding
01.10.07
17.08.07
AHTS Seatech P-729
6500 BHP
Cochin Shipyard Ltd
27.04.07
PSV UT 755 L
3250 DWT
Cochin Shipyard Ltd
10.10.07
Cochin Shipyard Ltd
30.04.08
Cochin Shipyard Ltd
20.08.08
Kværner Leirvik
Kværner Leirvik
Kværner Leirvik
Kværner Leirvik
Jaya Shipbuilding
ABG Shipyard Ltd
Cochin Shipyard Ltd
Cochin Shipyard Ltd
1998
1999
1999
1999
06.07.07
19.07.07
18.01.08
Karmsund Maritime Services 18.06.08
Cochin Shipyard Ltd
17.12.08
AHTS KMAR 404
AHTS KMAR 404
AHTS KMAR 404
AHTS KMAR 404
AHTS KMAR 404
AHTS KMAR 404
AHTS KMAR 404
AHTS Khiam Chuang
AHTS Khiam Chuang
AHTS Khiam Chuang
PSV UT 755 L
PSV UT 755 L
PSV UT 755 L
PSV UT 755 L
VS 470 MK II
PSV UT 755 L
PSV UT 755 L
15000 BHP
15000 BHP
15000 BHP
15000 BHP
15000 BHP
15000 BHP
16000 BHP
15000 BHP
15000 BHP
10800 BHP
3250 DWT
3250 DWT
3250 DWT
3250 DWT
3300 DWT
3250 DWT
3250 DWT
FLEET LIST
•
ANNUAL REPORT 2008
NEWBUILDING DELIVERY
2009
Vessel no Vessel
Yard
AHTS VESSELS
Type
Date
878 Sea Eagle 1
Jaya
AHTS Khiam Chuang
Apr 09
270 Sea Marten
ABG
AHTS Seatech P-729
Oct 09
258 Sea Weasel
271 Sea Fox
272 Sea Jackal
273 Sea Badger
274 Sea Vixen
275 Sea Stoat
ABG
ABG
ABG
ABG
ABG
ABG
AHTS Seatech P-729
AHTS Seatech P-729
AHTS Seatech P-729
AHTS Seatech P-729
AHTS Seatech P-729
AHTS Seatech P-729
1Q
2Q 3Q 4Q
2010
1Q 2Q
3Q 4Q
June 09
Dec 09
Feb 10
Apr 10
June 10
Aug 10
Deep Sea Supply Plc secured a purchase option at the end of the bareboat charter.
7
BOARD OF DIRECTORS
Svein Aaser
Born 1946
Chairman since 2007
Bjørn Giæver
Born 1967
Director since 2007
Other board assignments:
Marine Harvest (chairman)
VM-2011, Holmenkollen (chairman)
National Museum of Norway (chairman)
Aktiv Kapital (director)
J.P. Morgan, European Advisory Council
Laerdal Medical AS (director)
None
Education:
Master of business administration
Norges Handelshøyskole (NHH),
Bergen and IMEDE, Lausanne.
Education:
Bachelor of Science in International
Business from Norway and Japan
Shares in Deep Sea Supply Plc per
31.12.2008: None
31.12.2008: 65 000
Frixos Savvides
Born 1951
Director since 2007
Anna Cecilie Holst
Born 1954
Director since 2004
Frontline Ltd.
Golar LNG Ltd.
Vassiliko Cement Works Public Co., Ltd.
3D Global Financial Services Ltd.
Other current board assignments:
Poly Display ASA
Optimum ASA
Education:
Fellow of the Institute of Chartered
Accountants in England and Wales.
31.12.2008: None
8
Education:
Lic.Oec.HSG (University of St. Gallen)
CEFA (Norwegian School of Economics
and Business Administration)
31.12.2008: 64,628
ANNUAL REPORT 2008
REPORT FROM THE BOARD– the financial year 2008
Deep Sea Supply PLC (“Deep Sea Supply”,
“DESSC” or the “Company” on a consolidated basis) achieved
in 2008 operating revenues of USD 190,4 mill., EBITDA of
USD 122,2 mill., EBIT of USD 104,6 mill. and a pre-tax profit
of USD 50,3 mill. Net result after taxes was USD 53,4 mill. or
USD 0.42 per share.The book equity at the turn of the year
was USD 112,2 mill..
Company background
Deep Sea Supply is a Cyprus based offshore supply company
with a modern fleet of anchor handling tug and supply vessels
(“AHTS”) and platform supply vessels (“PSVs”) operating
world-wide.The Company owned as per 31st December
2008 a fleet of 12 AHTS and 8 PSVs in operation and 9 newbuilding contracts for AHTS.The newbuildings are expected
to be delivered in 2009 and 2010.
The parent company is domiciled in Limassol, Cyprus and
the Company has management companies in Cyprus and
Norway and a representative office in Singapore.The total
number of employees at year-end was 14.
Deep Sea Supply is listed on Oslo Stock Exchange with
the ticker code “DESSC”.
Company strategy and operations
The Company’s vision is to become one of the leading
offshore supply vessel companies on a global basis.
The business model is to maintain a small staff and to outsource technical and crew management to external professional ship management companies.The crew on board the
vessels is hence employed by the management companies
and are not employees of the Company.
The Company focuses on the following main activities;
• Chartering of the vessels
• Business development
• Investor relations / finance / accounting
• Monitoring of the external technical/crew management
companies
Growth through acquisition of yard contracts
The Company became operational in July 2005 through the
acquisition of 6 second hand AHTS, all built in 1998/1999 at
Norwegian shipyards.
In April 2006, the Company acquired 22 new-building contracts from Seatankers Management Co. Ltd. of which 2 large
AHTS, 8 medium sized PSVs and 12 smaller AHTS. In 2006,
the Company furthermore acquired a large 1999-built second
hand AHTS and late 2006, Deep Sea Supply acquired a newbuilding contract for one AHTS vessel from Havyard, Norway.
Three contracts at ABG Shipyard Ltd. were sold in 2006.
In March 2007 the Company agreed to bareboat an
AHTS newbuilding from Jaya Shipbuilding Engineering, Singapore (“Jaya”), from delivery in September 2007.The agreement included a purchase option which was exercised in
October 2008.
In September 2007, the Company acquired three shipbuilding contracts; one PSV from Karmsund Yard, Norway and
10
two AHTS from Jaya (of which one was cancelled in March
2009 due to delayed delivery).
Early 2008, DESSC sold the first PSV delivered from Cochin
Shipyard and the first AHTS delivered from ABG.
Delivery of new-buildings
In 2007, Deep Sea Supply took delivery of 8 vessels and the
Fleet expanded from 7 to 15 vessels as per 31st December
2007.
In 2008, Deep Sea Supply took delivery of 7 vessels, sold 2
vessels and the Fleet expanded from 15 to 20 vessels as per
31st December 2008.
Vessels under construction / on order:
By year-end 2008, the Company owned 9 new-building contracts for deliveries in 2009 and 2010 at one Singaporean and
one Indian shipyard.
From ABG Shipyard, India, 7 small AHTS are expected to
be delivered in 2009 and in 2010.This delivery schedule
reflects a delay compared to the original delivery schedule in
excess of 12 months.
DESSC cancelled one of the Jaya newbuildings in March
2009 due to delays.The remaining AHTS vessel from Jaya is
expected to be delivered on schedule in April 2009.
Vessel operation, technical and crew management and
construction supervision
The vessels have been employed worldwide throughout 2008
and by year end the vessels operated in the following geographical areas;
North Sea:
West Africa:
Mediterranean:
Asia/Middle East:
Australia:
3 vessels
3 vessels
9 vessels
4 vessels
1 vessel
During 2008, major surveys were performed on 3 vessels.
Of the 20 vessels in operation as per 31 December 2008,
14 vessels had Cyprus flag and 6 vessels had Norwegian flag
(NOR).
The NOR flagged vessels are primarily crewed with Norwegians, however, we also have some few seafarers from EU
on these vessels.
The Cyprus’ flagged vessels have either a full Filipino crew,
a combination of Filipino crew and East European officers or a
combination of Filipinos and Indonesians.
The vessels are managed by the external ship management
companies Thome Offshore Ltd., Singapore, OSM Ship management AS, Norway and Tidewater International Inc., New
Orleans.The Company’s Fleet Managers supervise the technical and cost performance of the ship management companies.
Construction supervision at the Singaporean and Indian
shipyards is performed by Thome Offshore Ltd., Singapore.
The Company’s two Fleet Managers supervise the external
ship management companies’ performance and perform
cost control.
REPORT FROM THE BOARD
The 2008 financial statements and
certain main risk factors
The financial accounts are presented on a consolidated basis.
The Board is of the opinion that the financial accounts present
a true and fair view about the development, profit and financial condition of DESSC and consolidated at year end.
Revenue and profit
The Company recorded freight revenues of USD190,4 mill.
and vessels’ operating expenses of USD60,2 mill. Other operating expenses (mainly general and administrative expenses
for the offices in Cyprus, Singapore and Norway) were USD
7,9 mill.The Company’s revenues in 2008 were in USD,
EURO, NOK and GBP and the operating expenses were
mainly in USD and NOK.The Company’s EBITDA was USD
122,2 mill.
Normal depreciation of the vessels was USD 30,3 mill.The
vessels’ book values are depreciated to zero when the vessels
are 30 years old.The Vessels’ intermediate and major surveys
are balanced and depreciated until the time for the next intermediate or major survey (every approximately 2,5 years).
Other losses consisted of the following;
(i) Allocation for loss on shares; DESSC has throughout
1H08 acquired shares in an offshore supply company
booked as financial assets at fair value through profit and
loss.The shares have reduced in value and caused an unrealized loss of -USD8,2 mill. in 2008 and;
(ii) Loss on “other short term receivables” related to Scan
Geophysical ASA (“Scan”) of USD 11,0 mill. See more
information below (“Important events after the year end”).
Gain on sale;The USD 29,4 mill. gain on sale relates to the sale
of the vessels “Sea Trout” and “Sea Wolverine”, both sold early
2008 and to deferred gain on the sale of vessels to Ship
Finance International in 2007 and 2008 where the gain on
sale is recorded as revenue over a period of 12 years.
Net currency items were negative USD 3,0 mill. mainly
due to customers/trade payables mainly due to changes in the
USD/NOK currency exchange rate.
Changes in value of financial derivatives were negative –
USD 9 mill. In order to provide more reliable and relevant
information, DESSC has changed its accounting policies related to two 5 years interest rate swaps entered into in relation
to the sale and leaseback transaction with Ship Finance International Ltd.The two mentioned interest rate swaps are
removed from the 2008 accounts and hence the changes in
derivatives are limited to other derivatives entered into for
hedging purposes. Corresponding changes have been made
also for the 2007 financials. (Note 2.32).
Net income before taxes was USD 50,3 mill.
The former tax liability of USD 3,3 million has been derecognised at 31 December 2008.This is the remaining one
third of the untaxed profits which will be waived by the tax
authorities, unless distributed, if an amount equal to the related tax is spent on qualifying environmental investments within 15 years.The Norwegian Government had stated its
intention that this arrangement should not create a tax liability,
but the legislation and the secondary regulations issued by the
Finance Ministry were not clear and the Company recognized
a liability of USD 12,9 million at 31 December 2007.The Nor-
•
ANNUAL REPORT 2008
wegian Parliament and Government further clarified the interpretation of the legislation during 2008 and based on this the
Ministry of Finance acknowledged that there was a conflict
between the transition rules enacted by the Parliament and
secondary regulations issued by the Ministry of Finance. As a
consequence of this, the Ministry of Finance announced on 20
January 2009 that the 15 year time limit would be withdrawn
so that no tax liability exists at 2008.This clarification means
that the remaining one third of untaxed equity will not be
taxed unless it is distributed.The liability of USD 3,3 million
has hence been derecognised at 31 December 2008.
Net income after taxes was USD 53,4 mill.
Dividend policy and distributions made in 2008
The Company intends to actively use the capital market when
doing investments, and does not intend to hold liquid reserves
for significant investments. Retained earnings will, to the
extent permitted under operational constraints, financial
covenants and with due regard to appropriate working capital
requirements, be distributed to shareholders as dividend.
The following distributions to shareholders were made
in 2008;
•Dividend Q4 2007
USD 0,40 (NOK 2.00) Ex. Dividend date 26.03.2008
•Dividend Q1 2008
USD 0,13 (NOK 0.68) Ex. dividend date 14.05.2008
•Dividend Q2 2008
NOK 1,00 Ex. dividend date 02.09.2008
The distribution from Q407 was made by way of reducing the
share premium account. Distributions from Q108 and Q208
were from retained earnings.
For Q308 and Q408, no dividend payments were made
due to the recent international financial crises and the possible negative impacts on the market for offshore supply vessels and the lack of visibility in the financial markets.
Vessel revenues and net result –
development during the year
Vessel revenues and EBITDA increased each quarter as can
be illustrated below.The main reasons for this positive development was growth in the number of vessels in operation,
improved utilization of the Fleet and a strong international
market throughout the year and an improved North Sea Market in the 4th quarter of 2008.
Rate levels for AHTS have improved significantly in 2008
compared to 2007. Rate levels for PSVs have been fairly stable
during this period.
Daily operating expenses for the Vessels have increased
for most vessels during 2007 and from 2007 to 2008. However Vessels’ operating expenses have shown a reducing trend
from 1st to 4th quarter of 2008.
11
Balance sheet
Total assets were USD 830,5 mill. consisting mainly of (i) the
book value of vessels which includes the 6 vessels in the mentioned sale & leaseback transactions with Ship Finance International and (ii) construction contracts (new-buildings) which
include all payments made to the shipyards on the 7 new-building contracts.
Bank deposits at year end were USD33,8 mill.
Book value of vessels and newbuildings - impairments
The market values of vessels have reduced in 4Q08.The Company has obtained independent assessments from external
brokers, however, no impairment has been found necessary.
Trade and other receivables
The Company has recognized losses on trade receivables of
GBP 374,000 (USD 546,000). No further provisions have
been deemed necessary, except for Scan. Freight income not
received of USD47,8 mill. is equivalent to average outstanding
payment from charterers of approximately 2.5 months.The
Company has experienced earlier payments from charterers
in 2008 compared to 2007.
CIRR Loans
During the period ended 31 December 2008 the Group has
applied for Commercial Interest Reference Rate (CIRR) loans
from the Norwegian Export Credit Agency.The total loan
amount was USD 48,9 mill.The duration of the loans is 12
years and the cash proceeds from the loans have been deposited in fixed deposit account with a Norwegian bank at a higher interest rate than that of the loans.The agreed period of
the deposits is identical with the one of the loans.The loans
and the interest thereof will be repaid from that account and
the difference has been recognized as deferred gain and will
be amortized over the period of the life of the loans.
Deferred gain
A gain from the sale of the vessels to Ship Finance International Ltd. (in 2007 and 2008) of currently approx. USD 100,0
mill has been deferred in the balance as liabilities (long and
90 000
short term), and will be amortized over the lease term which is
12 years. In the balance, the seller’s credit is deducted from the
gross long term debt related to the leasing transaction.
Financing – bank facility
14 vessels are financed by a senior loan facility of which USD
295,4 mill. was outstanding by the end of 2008.The loan has a 15
years repayment profile for the new vessels and 10 year repayment profile for the 1998/1999-built vessels. Interests on the loan
facility are NIBOR / LIBOR plus a margin of 1.30% p.a.The senior
loan facility is secured with a 1st priority mortgage in the financed
vessels.
Financing - bond loan:
The Company’s NOK 200 mill. bond loan was repaid in July with
a call premium of 5%.
Financing – bareboat charter:
The vessel “Sea Ocelot” was on a one year bareboat agreement
with Java Marine Lines PTE Ltd, Singapore until the vessel was
acquired on 6 October 2008 and financed by the Senior Bank
Loan and included in “Vessels” together with the other owned
vessels.
Financing - Sale and leaseback transactions
In August 2007, DESSC entered into a heads of agreement with
Ship Finance International Ltd. for a sale and leaseback transaction which now include the vessels “Sea Cheetah”,
“Sea Jaguar”, “Sea Halibut” and “Sea Pike”.
In November 2007, DESSC entered another heads of agreement
with Ship Finance International for a sale and leaseback transaction of the AHTS vessels “Sea Bear” and “Sea Leopard”.The
transaction was concluded in January, 2008.
The gain from the sale of the above vessels to Ship Finance International Ltd., currently of approximately USD 100 mill. (“deferred
gain on sale”), has been deferred in the balance sheet as long
term liability, and will be amortized over the lease term which is
12 years. In the balance sheet, long term debt shows the outstanding lease obligations net of the seller’s credit.
60 000
85 000
55 000
80 000
75 000
50 000
70 000
45 000
65 000
60 000
40 000
55 000
35 000
45 000
30 000
40 000
25 000
35 000
30 000
20 000
25 000
15 000
20 000
15 000
10 000
10 000
5 000
5 000
0
0
12
1st Quarter 08
Operating revenue
2nd Quarter 08
EBITDA
3rd Quarter 08
4rd Quarter 08
Gross income per AHTS vessel per day
USD 1000
USD per day
50 000
Capital expenditure
Below are presented the future expected contractual yard
payments (after cancellation of “Sea Hawk 1” from Jaya) and
committed borrowings for the remaining new-building program (all numbers in USD1,000):
2009
2010
Total
36,600
79,500
116,100
Committed bank borrowings
from delivery
36,600
48,800
85,400
Contractual yard payments
Equity
Shareholders’ equity at the start of 2008 was USD 159,3 mill.
At the end of 2008 the Company’s equity was USD 112,2
mill.The reduction in equity is mainly caused by dividend distributions of USD 90,2 mill.
Shareholders
Hemen Holding Limited is the Company’s largest shareholder
and holds just below 34.3% of the Company’s shares.
Liquidity
Total current assets at year end were USD 99,2 mill and short
term debt (including short term portion of long term debt)
was USD 83,8 mill.
Cash flow
Net cash generated from operating activities were USD 88,8
mill., net cash generated from investment activities were a
negative - USD 75,1 mill., net cash from financing activities
were a negative - USD 11,2mill.
•
ANNUAL REPORT 2008
Main risk factors and uncertainties
A number of the Company’s vessels are on short or medium
term charters and the earnings on these vessels are hence
sensitive to changes in the charter rates. Charterer’s payments
are normally 30 days after end of months which expose the
Company to credit risk from its charterers. By end of 4Q08,
the Company had 9 newbuildings remaining and DESSC is
hence exposed to delays in delivery which may postpone
future revenues.The Company is furthermore sensitive to
changes in exchange rates and interest rates.The current
financial turmoil can cause changes in the number of delivered
offshore supply vessels and rigs and floaters and hence affect
the supply and demand situation for the offshore supply sector. The financial turmoil can furthermore influence negatively
on the banking market and the Company’s ability to obtain
financing.
Going concern
The financial accounts are prepared on the going
concern basis.
Financial risks
Liquidity and risk
In a long lasting and depressed freight market, the freight revenues can be lower than the Company’s operating and financial
/ bareboat expenses and hence reduce the liquid means of
the Company.The current financial turmoil and a lower oil
price create uncertainty with respect to the future offshore
activity and hence the future rate levels for the offshore supply vessels.
The value of the Company’s assets
The value of the Company’s Vessels can reduce due to
changes in the demand and supply for offshore supply vessels.
This can impact on the equity and the financing of the Company. The current international financial turmoil creates uncertainties about future market values and possible distressed
sales can intensify this process.
13
Market risks
Some of the Company’s vessels will be either in the spot or
short term charter markets. Reduced market rates may
hence reduce and negatively impact the Company’s freight
revenues and net profit.
Credit risks
The Company has entered into charter contracts and is hence
subject to counterpart risks if some of the charterers do not
honour their charter obligations.The Company is focused on
entering into charter parties with financially solid charterers.
Yard risk
The Company has currently 8 vessels on order/under construction at two shipyards, one in India and one in Singapore.
The Company is hence exposed to late or no delivery from
shipyards.The Company has guarantees from the Seller of 7
of the newbuilding contracts that cover most of its exposure
in the case of non delivery from the shipyards.
Health, safety and environment
By year end 2008, the Company’s staff increased to 14
employees world-wide.The working environment is considered good and all employees are encouraged to participate in
the development of his/her position and in the development
of the Company.
12 of the employees are male and 2 female.The Company
treats men and women equal in the recruitment processes.
Technical management and crewing are outsourced to
ISM certified companies.
Emphasis is made on professionalism and adherence to
national and international laws and regulations by the suppliers delivering services to the Company. Efforts and initiatives
to reduced accidents and pollution to the environment are
compulsory.
The Company’s vessels are engaged in sea transportation
and hence at risk related to pollution of the environment. All
the vessels are in compliance with requirements issued by
regulatory bodies and the risk of pollution is hence viewed as
limited.The Company has in 2008 taken several initiatives
towards more environmentally friendly vessels and made significant investments to the benefit of the environment.
The Company’s shore based activities are considered environmental friendly and normal for this type (office) activity.
In 2008, the Company recruited a HSE Manager for
the purpose of enhancing its focus on health, safety and the
environment.
Changes in the Board of Directors in 2008
There have been no changes to the composition of
the Board.
In accordance with the Company’s Articles of Association
the members of the Board of Directors retire at 08 May 2009
and, being eligible, offer themselves for re-election.
Future outlook
The World is currently experiencing a financial turmoil which
creates a level of general uncertainty. A lower oil price provides weaker market fundamentals for the offshore supply
industry. DESSC has secured financing for all 7 newbuildings
14
from ABG Shipyard and the newbuilding “Sea Eagle 1” (with
expected delivery in April 2009) will be delivered from Jaya
Shipyard on a 15 months bareboat after which DESSC needs
to obtain long term financing if the purchase option for the
vessel is declared.
The contract situation for the remainder of 2009 is considered good.The markets for AHTS and PSVs still remain
active with good rates with the exception of a volatile and
currently weak North Sea spot market.
The financial turmoil has resulted in an unrealized loss on
–USD 8 mill. on shares acquired in a listed offshore supply
company and a –USD 11 mill. loss on “other short term receivables” to Scan Geophysical ASA (see “other losses” above).
The longer term consequences of a continued financial
turmoil on the AHTS and PSV markets and the market values
remains to be seen.Vessel sales concluded in January 09 have
however been done at strong levels.
We remain cautiously optimistic on the future market
outlook for AHTS and PSV markets for 2009.
Transaction between related parties
DESSC has entered into two sale and leaseback transactions
with Ship Finance International Limited (“SFI”) in 2007 and
2008. SFI’s largest shareholder is Hemen Holding Ltd. who is
also DESSC’s largest shareholder.The sale and leaseback
transactions are done on fully competitive terms. In 2008,
DESSC exercised a purchase option for the vessel “Sea Trout”
which was included in the first transaction with SFI, and the
vessel was thereafter sold outright.The Company borrowed
USD 12 mill. short term from Metrogas Holdings Ltd., a company controlled by the Company’s main shareholder, and fully
repaid the loan prior to year-end.
Tax issue 2006
The Norwegian tax authorities have raised questions about
the 2006 tax return for the subsidiary Deep Sea Supply ASA
related to the sales price of the shipbuilding contracts that
were sold to Cyprus subsidiaries later the same year and claiming that the sales price should have been higher.The Company has explained and provided background for the terms of
the sale and strongly disagree with the Tax Authorities’ view.
Change of control
The share options for the board and the share options and certain other benefits for the management will come into effect at
a change of control in the Company (in excess of 33%).
Corporate Governance
DESSC`s principles for Corporate Governance is based
on the “Norwegian Recommendation for Corporate Governance” issued on 4 December 2007. Listed companies are
expected to practice Corporate Governance that regulates
the division of roles between Shareholders, the Board of
Directors and the Executive Management more comprehensively than is required by applicable legislation.The code of
practice intends to strengthen the confidence in listed companies in order to provide the highest possible value creation
benefiting shareholders, employees and others. As long as
DESSC remains listed in the Oslo Stock Exchange, the "Nor-
wegian Recommendation for Corporate Governance" can be
applicable to the Company as long as the recommendations
do not contravene Cyprus Companies law. DESSC’s Corporate Governance report is included in the Annual Report.
In accordance with new principles for good corporate
governance, DESSC has established an Audit Committee.The
Audit Committee has had its first meeting related to the
4Q08 financials and the meeting was conducted together
with Management of DESSC and the Company’s auditors.
•
ANNUAL REPORT 2008
Responsibility statement:
In accordance with Article 9, sections (3)(c) and (7) of the
Transparency Requirements (Securities for Trading on Regulated Market) Law of 2007 (“Law”), we the members of the
Board of Directors and the other responsible persons for the
financial statements of the Company for the year ended
31 December 2008 we confirm that, to the best of our
knowledge:
a)
The annual consolidated financial statements that
are presented on pages 18 to 53:
Important events after the year end
On 2 March 2009, the Company cancelled the newbulding
contract for the “Sea Hawk 1” from Jaya Shipbuilding & Engineering Ltd., Singapore due to an announced delay in the delivery of the vessel. As a consequence of the cancellation, the
Shipyard will repay USD 3,6 mill. to the Company and the
Company’s future capital expenditures will reduce by USD
32,5 mill.
In 2006 Deep Sea Supply Management AS sold three
shipbuilding contracts at ABG Shipyard to SCAN Geophysical
ASA (SCAN). DESSC had a claim on outstanding payments
of USD 12,4 million upon delivery of the vessels.The claim
was to be settled upon delivery of the three vessels. As it is
unlikely that Scan would take delivery of all vessels, DESSC
made an allocation for losses of USD8 mill. in 4Q08 accounts
anticipating that Scan will take delivery of 1 vessel from ABG.
Scan has later cancelled all deliveries from ABG Shipyard. On
16 March 2009, Scan and DESSC settled the issues by an
agreement whereby SCAN shall pay USD 1 million to DESSC
and hence, in the 2008 financial statements, the allocation for
losses increased from USD 8 mill. to USD 11 mill.
i. were prepared in accordance with the International
Financial Reporting Standards as adopted by the European Union, and in accordance with the provisions of Article 9, section (4) of the Law, and
ii. give a true and fair view of the assets and liabilities, the
financial position and the profit or losses of the Company,
and
b)
the director’s report gives a fair view of the developments and performance of the business as well as the
financial position of the Company, together with a
description of the principal risks and uncertainties that
they are facing.
Limassol, Cyprus
30 March 2009
The Board of Deep Sea Supply Plc
Svein Aaser
Chairman
Bjørn Giæver
Frixos Savvides
Anna Cecilie Holst
Odd Brevik
Chief Executive Officer
Finn Amund Norbye
Chief Financial Officer
15
16
17
CONSOLIDATED BALANCE SHEET
(all amounts in thousands of United States Dollars). Year ended 31 December
Note
ASSETS
Non-Current Assets
Property,plant and equipment
Vessels
6
Vessels under finance lease contracts
6
Vessels under construction
6
Equipment and vehicle
6
Total property, plant and equipment
2008
2007
369 404
285 285
31 735
95
686 520
280 498
233 328
83 871
88
597 785
Pension schemes
CIRR Deposit
Total non-current assets
7
14
0
44,799
731,319
103
0
597,888
Current assets
Financial derivatives
CIRR Deposit short term portion
Inventories
Other short term receivables
Financial assets at fair value through profit and loss
Cash and cash equivalents
Total current assets
Total assets
8
14
10
9
26
8
11
0
4,144
878
47 866
6,172
6,335
33,799
99,195
830,515
6,003
0
1,767
41 631
18,981
0
31,396
99,778
697,666
EQUITY
Capital and reserves attributable to equity holders of the company
Share capital
12
Share premium
Treasury shares
Other paid in capital
Retained earnings and currency translation reserves
Total equity
2,599
16,203
-9,787
1,242
101,965
112,221
2,639
66,948
-9,787
231
103,223
163,254
LIABILITIES
Non-current liabilities
Bank borrowings
Finance lease liability
CIRR Loan
Deferred gain on sale and finance leaseback
Deferred gain on CIRR Loan
Long term tax liability
Pension scheme
Total non-current liabilities
266,998
225,199
44,799
90,752
1,426
5,336
30
634,541
179,012
169,707
0
56,087
0
11,565
0
416,371
25,039
667
23,724
15,495
4,144
9,201
229
5,254
0
83,752
718,294
830,515
12,928
1,338
13,453
39,578
0
0
0
0
50,745
118,041
534,411
697,666
Current liabilities
Trade and other payables
Current income tax liabilities
Bank borrowings
Finance lease liability
CIRR Loan
Deferred gain on sale and finance leaseback
Deferred gain on CIRR Loan
Dividends payable
Total current liabilities
Total liabilities
Total equity and liabilities
18
14
14
14
7
13
14
14
14
14
8
CONSOLIDATED FINANCIAL STATEMENTS
•
ANNUAL REPORT 2008
CONSOLIDATED INCOME STATEMENT
(all amounts in thousands of United States Dollars)
Note
Sales - freight revenue
Operating expenses vessels
Depreciation related to vessels
Gross profit
6
2008
2007
190,405
-60,199
146,660
-7,971
-5,952
92,668
2,122
92,346
-44,496
50,294
-24,413
70,549
-30,230
-40,176
-16,556
Other depreciation
6
99,977
-47
89,928
Other (losses)/gains - net
17
708
8,375
Operating profit
21
Administrative expenses
Finance income
Finance costs
Profit before income tax
Income tax expenses
21
15
Profit for the year
Attributable to:
-Equity holders for the company
-Minority interest
3,110
-12,843
57,705
53,404
57,705
53,404
57,705
0
-Diluted
22
22
2,616
53,404
Earnings per share for profit attributable to the equity holders of the company, expressed in USD per share
-Basic
-5
0
USD per share
USD per share
0,42
0,45
0,42
0,46
19
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Deep Sea Supply Plc
Share
Capital
Balance at 1 January 2007
Currency translation differences
2,487
Reverse
acquisition
reserves
Share
premium
reserves
Treasury
shares
Other paid
-in-equiy
Retained
earnings
Minority
interest
-123,386
349,753
0
496
37,380
17,472
Net income recognised
directly in equity
Result for the year
Total income recognised for the
year ended 31 December 2007
Issuance of new shares in January 2007
from mandatory offering
116
16,856
36
3,644
Issuance of new shares in August 2007
relating to exercise of share
warrant agreement
Value of share option scheme,
issued in December 2007
Buy back of own shares
Payment of dividend
-179,919
Balance at 31 December 2007 2 599
Currency translation differences
2,639
-123,386
-123,386
190,334
189,407
8,138
0
284,202
57,705
8,138
57,705
57,705
8,138
65,843
-9,787
-9,787
-9,787
231
231
231
-9,787
-179,919
95,085
95,085
0
0
53,404
Value of share option scheme, issued in December 2007
-123,386
1,011
-50,746
139,589
-9,787
-500
231
Payment of dividend
8,138
3,184
53,404
Cancelation of own shares (non traded) -40
8,138
-496
Result for the year
20
Total
-17,472
Net income recognised directly in equity
Balance at 31 December 2007 2,599
Currency
translation
differences
1,242
8,138
9,065
163,254
-15,259
-15,259
-15,259
-15,259
-15,259
53,404
38,145
-40
1,011
-39,404
109,085
163,254
-90,150
0
-7,120
112,221
CONSOLIDATED FINANCIAL STATEMENTS
•
ANNUAL REPORT 2008
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December
Note
Cash flows from operating activities
Cash generated from operations
Interest paid
23
2008
126,463
2007
79,221
-38,351
-11,823
88,112
67,398
Acquisitions of vessels and constructions contracts
-133,756
-159,329
Net Cash used in investing activities
-75,145
-159,329
Cash flows from financing activities
Payment of dividend to shareholders
-140,896
-125,898
Repayments of borrowings
-300,435
-93,194
Net cash generated from operating activities
Cash flows from investing activities
Disposals of vessels and construction contracts
Proceeds from borrowings
Cash flow from acquisition of own shares
Cash flow from acquisition of shares in Deep Sea Supply ASA / Change in domicile
Net cash from financing activities
Total changes in liquidity in the year
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of the year
58,611
430,099
0
0
0
307,300
-9,787
-6,539
-11,232
71,882
1,735
-20,049
31,396
51,445
33,799
31,396
21
22
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
•
ANNUAL REPORT 2008
Notes to the consolidated financial statements
1. General information
Deep Sea Supply PLC‘s (“the Company”) and subsidiaries,
hereinafter collectively (“the Group”), principal activities are
to engage and invest, directly or indirectly, by itself or through
subsidiaries or part-owned companies, partnerships or other
forms of entities, in the international offshore supply vessel
business.
The Company was incorporated as a public limited liability company on 7 November 2006 in Cyprus in accordance
with the provisions of the Companies Law, Cap. 113.
The Company was established for the purpose of acquiring all shares of Deep Sea Supply ASA.
Deep Sea Supply PLC presented on the 4 December
2006 a voluntary exchange offer to acquire all issued and
outstanding shares in Deep Sea Supply ASA.The offer price
presented was 1 Deep Sea Supply PLC share for each
owned share in Deep Sea Supply ASA, and the offer period
was from 5 December 2006 until 18 December 2006. Regarding the exchange offer Deep Sea Supply PLC received
acceptances representing approximately 93.8% of the total
issued shares in Deep Sea Supply ASA. Settlement under the
exchange offer was completed on the 22 December 2006.
The shares in Deep Sea Supply PLC were delivered to the
tendering shareholders of Deep Sea Supply ASA on the 27
December 2006, and the first trading day of Deep Sea Supply PLC shares on Oslo Børs was on the 28 December 2006.
Following the voluntary exchange offer, the Board presented on 4 January 2007 a mandatory offer for purchase of
the remaining 6.2% of the shares of Deep Sea Supply ASA.
At the same time, the Board of Directors resolved to exercise Deep Sea Supply PLC‘s right of compulsory acquisition
of all remaining shares of Deep Sea Supply ASA.The offer
period under the mandatory offer was from 5 January 2007
to 2 February 2007.The rights to the shareholders of Deep
Sea Supply ASA in relation to the mandatory offer and compulsory acquisition were 1 share in Deep Sea Supply PLC, for
each owned share in Deep Sea Supply ASA, or to receive a
cash consideration of NOK 18 per share in Deep Sea Supply
ASA. Under the mandatory offer, Deep Sea Supply PLC
received acceptance representing approximately 4.9% of the
issued shares in Deep Sea Supply ASA, whereof approximately 4.5% were tendered under the share alternative and
0.4% under the cash alternative.
The shareholders of Deep Sea Supply ASA, who remained passive, or did not take any action, representing approximately 1.2% of the total number of outstanding shares of
Deep Sea Supply ASA, were treated as bound to receive the
offered redemption amount (i.e. NOK 18 per share in Deep
Sea Supply ASA). Settlement did take place in mid March, and
after that, Deep Sea Supply PLC owns 100% of the issued
and outstanding shares in Deep Sea Supply ASA.
The Company has its primary and only listing on the Oslo
Stock Exchange.
These consolidated financial statements have been approved for issue by the Board of Directors on 30 March 2009
2. Summary of significant accounting policies
2.1 Statement of Compliance and
Basis for preparation
These financial statements have been prepared in accordance
with, and comply with, International Financial Reporting
Standards as adopted by the EU and the requirements of the
Cyprus Companies Law, Cap. 113.
The financial statements have been prepared under the
historical cost convention, as modified by the revaluation of
financial assets and liabilities, including derivative instruments
at fair value through profit or loss. The financial statement has
been prepared under the assumption that the company is a
going concern. A summary of the principal accounting
policies applied in the preparation of these financial
statements are set out below. These policies have been
consistently applied to all the years presented, unless
otherwise stated.
The preparation of financial statements in conformity with
IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise its judgement in the
process applying the Company’s accounting policies. There
are no areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are
significant to the financial statements.
All International Financial Reporting Standards issued by
the International Standards Board (IASB) and effective as of 1
January 2008 have been adopted by the EU through the
endorsement procedure established by the European
Commission, with the exception of certain provisions of
IAS39 "Financial Instruments: Recognition and Measurement"
relating to portfolio hedge accounting. IFRIC 12 "Service
Concession Arrangements" has been endorsed by the EU on
26 March 2009 and its mandatory effective date was changed
from annual periods beginning on or after 1 January 2008 in
IFRIC 12 to an entity's first financial year starting after 29
March 2009 in the EU-endorsed version, but with earlier
adoption permitted.
23
Standards issued not yet effective:
“At the date of approval of these financial statements the following accounting standards were issued by the International
Accounting Standards Board but were not yet effective”:
Standard / Interpretation
(i) Adopted by the European Union
Improvements to IFRSs – 2008
Amendments to IFRS 1 and International Accounting Standard (IAS) 27
“Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate”
Amendment to IFRS 2 “Share Based Payment:Vesting Conditions and Cancellations”
IFRS 8 “Operating Segments”
IAS 1 (Revised)”Presentation of Financial Statements”
Effective for annual
periods beginning
on or after
1 January 2009
1 January 2009
1 January 2009
1 January 2009
1 January 2009
IAS 23 (Revised) “Borrowing Costs”
1 January 2009
“Puttable Financial Instruments and Obligations arising on Liquidation”
1 January 2009
“Service Concession Arrangement”
29 March 2009
Amendments to IAS 32 and IAS 1
International Financial Reporting Interpretation Committee (IFRIC) 12
International Financial Reporting Interpretation Committee (IFRIC) 13
“Customer Loyalty Programmes”
(ii) Not adopted by the European Union
1 July 2008
IFRS 1 (Revised) “First Time Adoption of International Financial Reporting Standards”
1 January 2009
Improving disclosures about financial instruments"
1 January 2009
IFRS 7 (Amendments) - Financial Instruments: Disclosures:
IFRS 3 (Revised) “Business Combinations”
IAS 27 (Revised) “Consolidated and Separate Financial Statements”
Amendment to IAS 39 “Eligible Hedged Items”
Amendment to IAS 39 “Reclassification of Financial Assets: Effective date and Transition”
IFRIC 15 “Agreements for the Construction of Real Estate”
IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”
IFRIC 17 “Distributions of Non cash Assets to Owners”
IFRIC 18 “Transfers of Assets from Customers”
1 July 2009
1 July 2009
1 July 2009
1 July 2008
1 January 2009
1 October 2008
1 July 2009
1 July 2009
The Board of Directors expects that the adoption of these accounting standards in future periods will not have a material effect
on the financial statements of the Company except from the application of IAS 1 (Revised) “Presentation of Financial Statements”
which will have a material effect on the presentation of the financial statements and the application of IFRS 7 (Amendments) Financial Instruments: Disclosures: Improving disclosures about financial instruments which will enhance disclosures about fair
value measurements and liquidity risk and IAS 23 whereby the borrowing costs for qualifying assets will be capitalized.
24
2.2 Consolidation
Subsidiaries are those companies and other entities in which
the Group, directly or indirectly, has an interest of more than
one half of the voting rights or otherwise has power to govern
the financial and operating policies so as to obtain economic
benefits.The existence and effect of potential voting rights that
are presently exercisable or presently convertible are
considered when assessing whether the Group controls
another entity. Subsidiaries are consolidated from the date on
which control is transferred to the Group (acquisition date)
and are de-consolidated from the date that control ceases.
These consolidated financial statements are prepared following
the provisions of IFRS 3 “Business combination” for reverse
acquisition. Deep Sea Supply PLC (“legal parent”) issued shares
to acquire 93,8% of Deep Sea Supply ASA (“legal subsidiary”).
For consolidation purposes, Deep Sea Supply ASA, is the
acquirer and Deep Sea Supply PLC, is the acquiree.
The cost of the business combination is deemed to have been
incurred by the legal subsidiary and is determined by the
number of equity instruments Deep Sea Supply ASA would
have had to issue to provide the same percentage ownership
interest of the combined entity to the owners of the Company
as they have in the combined entity as a result of the reverse
acquisition.
These consolidated financial statements reflect the fair
values of the assets, liabilities and contingent liabilities of the
legal parent.The cost of the combination is allocated by
measuring the identifiable assets, liabilities and contingent
liabilities of the legal parent at their fair values at the acquisition
date. Any excess of the cost of the combination over the
acquirer‘s interest in the net fair value of these items is
accounted for as goodwill. If the cost of the combination is less
than the fair value of the net assets of the subsidiary acquired,
the difference is recognised directly in the income statement.
The owners of the legal subsidiary who do not exchange their
equity instruments for equity instruments of the legal parent
are treated as a minority interest.The minority shareholders
have an interest only in the results and net assets of the legal
subsidiary.
The consolidated financial statements are issued under the
name of the legal parent, the “Company” and are a
continuation of the financial statements of the legal subsidiary.
As a result:
- The assets and liabilities of the legal subsidiary are
recognised and measured at their pre-combination carrying
amounts;
- The retained earnings and other equity balances are the
retained earnings and other equity balances of the legal
subsidiary immediately before the business combination;
- The amount of issued equity instruments is determined by
adding to the issued equity of the legal subsidiary immediately
before the business combination the cost of the combination
determined as described in the paragraph above; and
- Comparative information presented is that of the legal
subsidiary.
All intercompany transactions, balances and unrealised
gains on transactions between group companies are
eliminated; unrealised losses are also eliminated unless cost
cannot be recovered. Where necessary, accounting policies for
subsidiaries have been changed to ensure consistency with the
policies adopted by the Group.
•
ANNUAL REPORT 2008
The minority interest in equity as well as net income is
reported separately in the consolidated financial statement.
Transactions with minority interests
The group applies a policy of treating transactions with
minority interests as transactions with equity owners of the
group. For purchases from minority interests, the difference
between any consideration paid and the relevant share
acquired of the carrying value of net assets of the subsidiary is
recorded in equity. Gains or losses on disposals to minority
interests are also recorded in equity.
2.3. Underlying concepts
The financial statements are prepared on the going concern
basis using accrual accounting.
Assets and liabilities and income and expenses are not
offset unless specifically permitted by an accounting standard.
Financial assets and financial liabilities are offset and the
net amount reported only when a legally enforceable right to
set off exists and the intention is either to settle on a net basis
or to realize the asset and settle the liability simultaneously.
Changes in accounting policies are accounted for in
accordance with the transitional provisions in the IFRS
standards. If no such guidance is given, they are applied
retrospectively, unless it is impracticable to do so, in which
case they are applied prospectively.
There have been prior year adjustments in 2008. Please
see note 2.32 for explanations.
2.4. Recognition of assets and liabilities
Assets are only recognized if they meet the definition of an
asset, it is probable that future economic benefits associated
with the asset will flow to the group and the cost or fair value
can be measured reliably.
Liabilities are only recognized, if they meet the definition of
a liability, it is probable that future economic benefits
associated with the liability will flow from the entity and the
cost or fair value can be measured reliably.
2.5.Valuation and classification of assets
and liabilities
Assets intended for long-term ownership or use is classified as
non-current. Other assets are classified as current. Receivables
due to be repaid within one year are classified as current assets.
Non-current assets are stated at historic cost price, but
written down to recoverable amount when the fall in value is
considered to be permanent. Such write-downs are reversed
when the reason for the write-down no longer applies. Fixed
assets with a limited economic life are depreciated on a straight
line basis.
2.6. Use of estimates
generally accepted accounting principles under IFRS requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities. Actual results
could differ from such estimates. In the current market for
supply vessels, the fair value of the Company‘s vessels is
25
significantly higher than the balance sheet value.The Company
makes use of the cost model according to IAS 16 “Property,
Plant and Equipment”ǁ, and subsequently depreciates the
fixed assets over their estimated useful life, irrespective of the
extent to which there has been a genuine increase in value of
the Company‘s fixed assets. When calculating annual
depreciation, the estimated period of use for the vessel and
the estimated outstanding value at the end of the period of
use is significant estimates.
The key sources of estimation of uncertainty at the
balance sheet date, that have a significant risk for causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year are discussed below
under section 4.
2.7. Impairment of assets
Non-current assets are reviewed for potential impairment at
each reporting date, and whenever events of changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. For the purpose of assessing an
impairment, assets are grouped at the lowest levels of which
there are separately identifiable cash flows. An impairment
loss is the amount by which the carrying amount of the assets
exceeds the recoverable amount.The recoverable amount is
the higher of the asset‘s fair value less cost to sell and its value
in use.The value in use is determined by reference to the
discounted future net cash flows expected to be generated
by the asset. When the asset is considered to be impaired, it is
written down to its recoverable amount, and recognized in
the income statement in those expense categories consistent
with the function of the impaired asset.
2.8. Segment reporting
A business segment is a group of assets and operations
engaged in providing products or services that are subject to
risks and returns that are different from those of other
business segments. A geographical segment is engaged in
providing products or services within a particular economic
environment that is subject to risks and returns that are
different from those of segments operating in other economic
environments.
The Company is organized into main geographic regions
which are the primary business segments; North Sea,
Mediterranean, Africa, Australia/Far East and North & South
America.The geographical segments are based on the location
of the vessels.
Secondary segment is the type of vessel – AHTS and PSV.
Depreciation is allocated between the different segments
based on number of days the vessels have been operated
within the different segments.
The segment split of assets and liabilities at year end are
based on the location of the actual vessels on the balance
sheet date.
2.9. Foreign currency translation
(a) Functional and presentation currency
Deep Sea Supply Plc, located in Cyprus, became the parent
company of the Group with effect from 28 December 2006.
As of 1 January 2007 the functional currency changed from
26
Norwegian Kroner (NOK) to USD as a lot of the underlying
transactions changed from NOK to USD.The effect of the
change in functional currency is accounted for prospectively. In
other words the Group translates all items into the new
functional currency (USD) using the exchange rate at the
date of the change which was NOK/USD 6,25.
Items included in the financial statements of each of the
Company‘s entities are measured using the currency of the
primary economic environment in which the entity operates
( the functional currency‘).The consolidated financial
statements are presented in USD, which is the Company‘s
functional and presentation currency.
All amounts in these financial statements are in USD 1.000
unless otherwise stated.
(b) Transactions and balances
Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing at the
dates of the
transactions. Foreign exchange gains and losses resulting
from the settlement of such transactions and from the
translation at year end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in
the income statement,
The exchange rate used throughout the Company at the
balance sheet date, compared to the USD, were as follows;
NOK
EUR
GBP
Average
6.26
0.69
0.54
31.12.2008
7.00
0.71
0.69
NOK
EUR
GBP
Average
5.44
0.73
0.50
31.12.2007
5.42
0.68
0.50
(c) Group companies
The results and financial position of all the group entities
(none of which has the currency of a hyperinflationary
economy) that have a functional currency different from the
presentation currency are translated into the presentation
currency as follows:
(i) Assets and liabilities for each balance sheet presented are
translated at the closing rate at the date of that balance
sheet;
(ii) income and expenses for each income statement are
translated at average exchange rates (unless this average is
not a reasonable approximation of the cumulative effect
of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates of
the transactions).
2.10. Non-current Assets and
Maintenance Costs
Property, plant and equipment are stated at historical cost,
less subsequent depreciation and impairment. For vessels
purchased, these costs include expenditures that are directly
attributable to the acquisition of the items. Depreciation is
calculated on a straightline basis, taking residual values into
consideration, and adjusted for impairment charges, if any.The
carrying value of the fixed assets on the balance sheet
represents the cost less accumulated depreciation and any
impairment charges.
Subsequent costs are included in the asset‘s carrying
amount or recognised as a separate asset, as appropriate, only
when it is probable that future economic benefits associated
with the item will flow to the Group and the cost of the item
can be measured reliably. All other repairs and maintenance
are charged to the income statement during the financial
period in which they are incurred.
In accordance with IFRS, each component of the vessels,
with a cost significant to the total cost, is separately identified
and depreciated, on a straight-line basis, over that
component‘s economic life.Vessels and related equipment
have expected useful life of approximately 30 years. Fixed
assets are depreciated to their residual values, which are
reviewed at each balance sheet date.
Future depreciations are based on depreciation schedules
including residual values. Expected useful lives of long-lived
assets, and residual values, are reviewed at each balance sheet
date and, where they differ significantly from previous
estimates, depreciation periods are changed accordingly.
Day-to-day maintenance costs are charged to the income
statement during the financial period in which they are
incurred.The cost of major renovations and periodic
maintenance of vessels are capitalized and depreciated over
the useful lifetime of the parts replaced.The useful lifetime of
regular vessels docking expenses will normally be the period
until next docking.
Maintenance and classification costs for ships are
capitalized and charged to expenses over the period up to
the next occasion when maintenance is carried out, normally
30 months. When ships are acquired, a proportion of the
acquisition cost is capitalized as periodic maintenance.
Depreciation on vessels and other assets (equipment) is
calculated using the straight-line method to allocate their cost
or re-valued amounts to their residual values over their
estimated useful lives, as follows:
–Vessels
–Vehicles
–Furniture, fittings and equipment
30 years
5 years
3 years
The assets‘ residual values and useful lifetime assumptions of
fixed-assets are reviewed at each balance sheet date, and
where they differ significantly from previous estimates,
depreciation charges are changed accordingly.
Gains and losses on disposals are determined by
comparing the disposal proceeds with the carrying amount
and are included in operating profit. For vessels under finance
sale and leaseback disposals the deferred gain is recognised
fully into the profit and loss.
2.11. Newbuild contracts
Installments on new build contracts are posted in the balance
sheet as non-current assets. Costs related to the on-site
supervision and other pre-delivery construction costs are
capitalized per vessel.
•
ANNUAL REPORT 2008
2.13. Lease agreements
The determination of whether an arrangement is, or contains
a lease, is based on the substance of the arrangement and
requires an assessment of whether the fulfilment of the
arrangement is dependent on the use of a specific asset or
assets and the arrangement conveys a right to use the asset.
Leases in which a significant portion of the risks and
rewards of ownership are retained by the lessor are classified
as operating leases. Payments made under operating leases
(net of any incentives received from the lessor) are charged
to the income statement on a straight-line basis over the
period of the lease.
Financial leases, which transfer to the Company substantially
all the risks and benefits incidental to ownership of the leased
item, are capitalised at the inception of the lease at fair value
of the leased asset or, if lower, at the present value of the
minimum lease payments. Lease payments are apportioned
between the 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 charged
directly to financial expenses.
Capitalised leased assets are depreciated over the shorter
of the estimated useful life of the asset and the lease term, if
there is no reasonable certainty that the Company will obtain
ownership by the end of the lease term.
2.13. Impairment of non-current assets
The Company determines whether there are indications that
fixed assets are impaired at least on a quarterly basis.The
carrying value of vessels are reviewed for impairment when
events or changes in circumstances indicate that the carrying
value may not be recoverable .The asset‘s cash generating
ability either through use or sale is reviewed and compared to
the asset‘s carrying value in the balance sheet. If the carrying
value is higher, the difference must be written off as an
impairment loss. Fair value reduced by estimated sales costs is
the amount achievable on an arm‘s length sale to an
independent third party.The recoverable amount is
established individually for all assets. In assessing value in use,
the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects
current market assessments of the time and the risk specific
to the asset that is considered impaired.
A previously recognised impairment loss is reversed if
there has been a change in the estimates used to determine
the recoverable amount. Reversal of previously recognised
impairment is limited to the amount the carrying value of the
asset would have been, had the initial impairment charge not
taken place.
2.14. Financial assets
The Group classifies its financial assets in the following
categories: at fair value through profit or loss, loans and
receivables, and available for sale.The classification depends on
the purpose for which the financial assets were acquired.
Management determines the classification of its financial assets
at initial recognition and re-evaluates this designation at every
reporting date.
27
(a) Financial assets at fair value through
profit or loss
This category has two sub-categories: financial assets held for
trading, and those designated at fair value through profit or
loss at inception. A financial asset is classified in this category if
acquired principally for the purpose of selling in the short
term or if so designated by management, and they meet
certain criteria (IAS 39.9).Derivatives are also categorized as
held for trading unless they are designated as hedges. Assets in
this category are classified as current assets if they are either
held for trading or are expected to be realized within 12
months of the balance sheet date.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an
active market.They are included in current assets, except for
maturities greater than 12 months after the balance sheet
date.These are classified as non-current assets. Loans and
receivables are classified as ‘trade and other receivables’ in the
balance sheet.
(c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that are
either designated in this category or not classified in any of the
other categories.They are included in non-current assets
unless management intends to dispose of the investment
within 12 months of the balance sheet date.
Purchases and sales of financial assets are recognized on
the trade-date, the date on which the Company commits to
purchase or sell the asset. Investments are initially recognised
at fair value plus transaction costs for all financial assets not
carried at fair value through profit or loss. Financial assets
carried at fair value through profit or loss, are initially
recognised at fair value, and transaction costs are expensed in
the income statement. Financial assets are derecognised when
the rights to receive cash flows from the investments have
expired or have been transferred and the Company has
transferred substantially all risks and rewards of ownership.
Available-for-sale financial assets and financial assets at fair
value through profit or loss are subsequently carried at fair
value. Loans and receivables are carried at amortised cost
using the effective interest method. Gains or losses arising
from changes in the fair value of the “financial assets at fair
value through profit or loss” category are presented in the
income statement within other (losses)/gains – net, in the
period in which they arise. Dividend income from financial
assets at fair value through profit or loss is recognised in the
income statement as part of other income when the
Company‘s right to receive payment is established.
The Company assesses at each balance sheet date
whether there is objective evidence that a financial asset or a
group of financial assets is impaired.
2.15. Derivative financial instruments
Derivatives are initially recognised at fair value on the date a
derivative contract is entered into and are subsequently remeasured at their fair value.The method of recognising the
resulting gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the
item being hedged.The Company designates certain
28
derivatives as either: (1) hedges of the fair value of recognised
assets or liabilities or a firm commitment (fair value hedge);
(2) hedges of a particular risk associated with a recognised
asset or liability or a highly probable forecast transaction (cash
flow hedge); or (3) hedges of a net investment in a foreign
operation (net investment hedge).
As of 31 December 2008 and 2007, the Company did not
have any derivative transactions that qualified for hedge
accounting under IAS 39. Changes in the fair value of these
derivative instruments are recognized immediately in the
income statement.
When the Group provides guarantees for any losses
suffered in derivatives due to breach of contract, a provision is
made for the fair value of the derivative when the loss
becomes probable.
2.16. Inventories
Bunkers inventories are valued at the lower of historical cost
and net realisable value applying the FIFO (first-in, first-out)
principle.
2.17.Trade receivables
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment. A provision for
impairment of trade receivables is established when there is
objective evidence that the group will not be able to collect all
amounts due according to the original terms of the
receivables. Significant financial difficulties of the debtor,
probability that the debtor will enter bankruptcy or financial
reorganisation, and default or delinquency in payments (more
than 60 days overdue) are considered indicators that the
trade receivable is impaired.The amount of the provision is
the difference between the asset‘s carrying amount and the
present value of estimated future cash flows, discounted at
the original effective interest rate.The carrying amount of the
asset is reduced through the use of an allowance account.
2.18. Cash and cash equivalents
Cash and cash equivalents, includes cash in hand and deposits
held at call with banks.
2.19. Restricted cash
Restricted cash deposits comprise of funds held in separate
Group bank accounts, which will be used to settle accrued
taxation liabilities related to employee‘s tax deduction.
2.20. Share capital
Ordinary shares are classified as equity.
Costs directly attributable to the issue of new shares or
options are shown in equity as a deduction, net of tax, from
the proceeds.
2.21. Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently
stated at amortised cost; any difference between the
proceeds (net of transaction costs) and the redemption
amount is recognised in the income statement over the
period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Group
has an unconditional right to defer settlement of the liability
for at least 12 months after the balance sheet date.
2.22.Trade payables
Trade payables are recognised initially at fair value and
interest method.
2.23.Taxation
Tax expense/income includes current taxes and the change in
deferred taxes. Deferred income tax is provided for all
temporary differences between the book value and the tax
basis of assets and liabilities and for tax losses carried forward.
Deferred tax assets made probable through prospective
earnings that can be utilized against the tax reducing
temporary differences are recognized as deferred income tax.
Deferred tax asset and deferred tax liability are recognised
independently of when the differences will be reversed and, as
a rule, at nominal value. Deferred tax asset and tax liability are
measured on the basis of estimated future tax rate. Parts of
the Company‘s activities within the Norwegian subsidiaries
are structured within the regulations for the Norwegian
Tonnage Tax System for shipping companies.
Based on the fact that the companies organized within this
tax regime have, the Company has estimated a tax rate of 0%
for the Companies subject to the regulations of the shipping
company regime. For all companies under this regime, the
Company has estimated 0% deferred tax on temporary
differences when entering the regime. For companies not
included in the regime, and for
taxable financial revenues in companies under the regime,
the Company applies a tax rate of 28% for Norwegian
companies and 10% for Cyprus companies.Tax
expense/income includes current taxes and the change in
deferred taxes.
Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in the
consolidated financial statements. However, the deferred
income tax is not accounted for if it arises from initial
recognition of an asset or liability in a transaction other than a
business combination that at the time of the transaction
affects either accounting nor taxable profit or loss. Deferred
income tax is determined using tax rates (and laws) that have
been enacted or substantially enacted by the balance sheet
date and are expected to apply when the related deferred
income tax asset is realized or the deferred income tax
liability is settled.
Deferred income tax assets are recognised to the extent
that it is probable that future taxable profit will be available
against which the temporary differences can be utilized.
•
ANNUAL REPORT 2008
Deferred income tax is provided on temporary differences
arising on investments in subsidiaries and associates, except
where the timing of the reversal of the temporary difference
is controlled by the Company and its probable that the
temporary difference will not reverse in the foreseeable
future.
2.24. Profit-sharing and bonus plans
The Group recognizes a liability and an expense for bonuses
and profit-sharing to all employees, based on comparisons
with peer group companies.The Group recognizes a provision
where contractual obligations exists or where there is a past
practice that has created a constructive obligation.
2.25. Pension costs and obligations
The liability recognised in the balance sheet in respect of
defined benefit pension plans is the present value of the
defined benefit obligation in the balance sheet date less the
fair value of plan assets, adjusted for unrecognised actuarial
gains and losses.The present value of the defined benefit
obligations is determined by discounting the estimated future
cash outflows using interest rates for high-quality corporate
bonds which are denominated in the currency in which the
benefits will be paid, and which have terms to maturity
approximating to the terms of the related pension liability.
Actuarial gains and losses arising from new information or
changes in actuarial assumptions in excess of the higher of
10% of the value of the pension assets or 10% of the pension
obligations are recognised in the income statement over the
expected average remaining working live of the employees.
The net pension cost for the year (gross pension cost
minus estimated return on pension funds) is included in the
profit and loss account as salary-related expenses.The
estimated net obligations are included in provisions in the
balance sheet.
2.26. Provisions
Provisions represent liabilities of uncertain timing or amount.
Provisions are recognised when the group has a present
legal or constructive obligation, as a result of past event, for
which it is probable that an outflow of economic benefits will
be required to settle the obligation, and a reliable estimate can
be made for the amount of the obligation.
Provisions are measured at the present value of the
expenditures expected to be required to settle the obligation
using a pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the
obligation.The increase in the provision due to passage of
time is recognised as interest expense.
29
2.27. Revenue recognition
2.31. Comparatives
The group‘s activity is hiring out different kind of Anchor
Handling Tug Supply vessels (AHTS‘s) and Platform Supply
Vessels (PSV`s).
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, withholding tax, returns,
rebates and discounts and after eliminated sales within the
Group. Revenue is recognised as follows:
Where necessary, comparative figures have been adjusted to
conform with changes in presentation in the current
year.(please see notes 2.32)
Charter rate contracts
Charter contracts are classified as operating leases under IAS
17. Revenue derived from charter contracts is recognised in the
period over the lease term. Related services are recognised as
revenue in accordance with the services being rendered.
Vessels without signed contract in place at discharge have
no revenue before a new contract is signed. Charter related
expenses incurred for vessels in the idle time are expensed.
Revenues from time charters and bareboat charters accounted
for as operating leases are recognised rateably over the rental
periods of such charters, as service is performed on a straight
line basis.
Interest income
Interest income is recognised on a time-proportion basis
using the effective interest method. When a receivable is
impaired, the Group reduces the carrying amount to its
recoverable amount, being the estimated future cash flow
discounted at original effective interest rate of the instrument,
and continues unwinding the discount as interest income.
Interest income on impaired loans is recognised using the
original effective interest rate.
Dividend income
Dividend income is recognised when the right to receive
payment is established.
2.28. Dividend distribution
Dividend distribution to the Company‘s shareholders is
recognised as a liability in the Group‘s financial statements in
the period in which the dividends are approved by the
Company‘s shareholders until payment is made.
2.29. Earnings per share
Earnings per share are calculated by dividing the net profit/loss
for the Company by the average weighted number of
outstanding shares over the period in question. Diluted
earnings per share include the effect of the assumed
conversion of potentially dilutive instruments such as stock
options.The impact of share equivalents is computed using
the treasury stock method for share options.
2.30. Statement of cash flow
The statement of cash flow is presented in accordance with
the indirect method.
30
2.32. Changes in accounting policies
In September and October 2007 Deep Sea Supply Plc
entered into a sale and finance lease back transaction with
Ship Finance International Ltd. for five offshore supply vessels.
The classification of the leaseback as finance lease was
based mainly on the fact that the Group has various options
to acquire the vessel; and the last one at year 12 was
considered to be sufficiently lower than the fair value.
The general terms of the agreement are as follows: (1)
Option to acquire the vessels at year 3; 6; 9 and 12; (2) The
Group to pay fixed rental for years 1 to 4 and provide a
guarantee to the lessor for the four-year interest rate swap
agreement entered by the less or to pay fixed rate/ receive
variable rate; and (3) pay variable interest for years 5 to 12.
Deep Sea Supply Plc. guaranteed the lessor that any losses
suffered by the lessor on the derivative due to breach of the
contract from Deep Sea Supply, or execution of purchase
option, will be covered by Deep Sea Supply Plc. Possible
benefits would also accrue to the Group.
In the financial accounts for 2007 Deep Sea Supply Plc
booked the guarantee for the interest rate swap agreement as
being a separate interest rate swap (derivative) towards the
lessor, and recorded the fair value of this synthetic interest rate
swap agreement as a financial derivative. In financial statements
for the year ended 31 December 2007 (and the accounts for
the 4th quarter of 2007), a loss of USD 4.9 mill was recorded
as a financial expense in the income statement and a financial
derivative (liability) was recognised in the balance sheet.
The Group has revisited the accounting policy followed in
2007 and considers that the non recognition of the derivative
on the Company‘s balance sheet provides reliable and more
relevant information about the effects of the specific
transaction on the Group‘s financial position and financial
performance.
This is based on the fact that economically the Group will
not cancel the lease agreement before year 12 as this is the
most economical option to the Group except if it has an
opportunity to sell (as happened during 2008), in which case it
needs to obtain the approval of the lessor to break the lease
or exercise the option at year 3. In this case the Group will
take into consideration the value of the derivative/ purchase
option for the purpose of disposing the vessel and the gain/
loss on disposal of the vessel will be affected accordingly. If not
exercised the Group will not suffer any cash gains/losses.
During the year 2008 the Group has agreed to cancel one
of the sale and leaseback transactions and has disposed the
vessel on the same date recognising a gain of USD 14.3 million
(excluding USD 2.2m reimbursement for the derivative).
Based on the revised policy the Group will recognise the
derivative on its balance sheet only if it breaches the contract
with the lessor; or it is highly probable to dispose a vessel and
has agreed or has an option to break the lease agreement
with the lessor.
The comparable figures for 2007 have been restated.The
impact of the revised accounting policy is as follows:
Decrease in finance expenses
2008
2007
Decrease on financial liability
14,9
18,9
3,9
14,9
Increase in profits attributable to the Company‘s shareholders
Increase in EPS and diluted EPS
•
ANNUAL REPORT 2008
3,9
3,9
0.02
0.03
Interim unaudited figures have been amended accordingly; see table provided below
The company had recognised USD 4.9 million in the 2007 accounts.The USD 1m relates to the disposal and cancelation of a
vessel and therefore that amount (USD 1 million) has not been derecognised from the books of the Group.
1st quarter
Net profit
EPS
Equity
2nd quarter
3rd quarter
4th quarter
As
reported
As
adjusted
As
reported
As
adjusted
As
reported
As
adjusted
As
reported
As
adjusted *
0.09
0.14
0.16
0.11
0.08
0.09
0.10
0.10
11,296
127,736
17,424
137,793
19,935
132,635
14,571
137,328
9,764
108,182
11,966
115,077
12,452
96,578
9,442
112,222
* The adjusted result contains a provision for loss on other receivables of USD 3,010 (note 26).
2.33 Commercial Interest Reference
Rate (CIRR) loan
The Group has applied for two Commercial Interest Reference Rate (CIRR) loan from the Norwegian Export Credit
Agency.The duration of the loans may vary (DESSC 12 years)
and the cash proceeds from the loans have been deposited in
fixed deposit account with a Norwegian bank at a higher interest rate than that of the loans.The agreed period of the
deposits is identical with the one of the loans.The loans and
the interest thereof will be repaid from that account and the
difference has been recognised as deferred gain and will be
amortised over the period of the life of the asset.
31
3. Financial risk management
3.1 Financial risk factors
The Group‘s normal business activities expose it to a variety
of financial risks. Financial market risk is the possibility that fluctuations in currency exchange rates, interest rates and freight
rates in particular will affect the value of the Group‘s assets,
liabilities or future cash flow.The Group has formulated a
finance strategy where certain basic targets and policies are
made for value adjusted equity (note 3.2), required liquidity,
exchange rates, interest rates, funds management etc.
To reduce and manage these risks, management daily reviews and assesses its primary financial and market risks. Once
risks are identified, appropriate action is taken to mitigate the
specific risk. Financial derivatives are used for hedging purposes in order to mitigate financial risks and only well understood conventional derivatives are used. Financial derivatives
are entered into with our main banks which are highly rated
financial institutions.The Group use derivatives in order to
manage risks associated with interest rate and currency.
Foreign exchange risk:
The Group‘s functional currency is USD.The Group operates
internationally and is exposed to foreign exchange risks arising
from various currency exposures primarily with respect to
Euro (EUR), UK Pounds (GBP) and Norwegian kroner (NOK).
Foreign exchange risks arise from future commercial transactions and recognized assets and liabilities.The Group had in
2007 and 2008 mainly USD, EUR, GBP and NOK revenues
and mainly USD and NOK expenses. Imbalances between
revenues and costs are managed using forward currency contracts. The table below shows the impact on profit before tax
as a consequence of an increase/decrease in the NOK/USD
and GBP/USD exchange rates;
NOK
2008
2007
Increase
+/-10%
+/-10%
Effect
+/- 4,992
+/- 7,314
GBP
2008
2007
Increase
+/-10%
+/-10%
Effect
+/- 748
+/- 445
EUR
2008
2007
Increase
+/-10%
+/-10%
Effect
+/- 1,706
+/- 0
Credit risk
Concentration risk:
The Group trades only with recognized, creditworthy third
parties. Receivable balances are monitored on an ongoing
basis with the
result that the Group‘s exposure to bad debt is not significant.
Below, we present a table showing the concentration risks for
2007 and 2008;
Receivables at 31.12.2008:
1 to 5 largest
6 to 10 largest
11 to 15 largest
Others
Total
USD ‘000
32,187
8,479
4,782
2,418
47,866
% of total
67.2%
17.7%
10.0%
5.1%
100.0%
Receivables at 31.12.2007:
1 to 5 largest
6 to 10 largest
11 to 15 largest
Others
Total
USD ‘000
17,967
10,484
6,811
6,369
41,631
% of total
43.2%
25.2%
16.4%
15.3%
100.0%
Cash flow and fair value interest rate risk
The Group‘s exposure to the risk of market interest rates are
mainly related to the Group‘s long term debt obligations with
floating
interest rates. Depending on the development of and on
internal analyses of the interest rate market, the Group enters
into various
interest rate contracts to alter the ratio of fixed rate to floating rate debt.
The sale and leaseback transactions are based on 5 year fixed
interest rates from closing of the respective transactions and
are as
such not exposed to changes in LIBOR during the initial 5
year period.
As of 31 December 2008 and 2007, after taking into account
the effect of the interest rate swaps, approximately 51% and
61%
respectively of the interest bearing debt was fixed.
Interest rate risk table:
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables
held constant, of the Group‘s profit before tax.
GBP
2008:
2007:
32
Increase
+/-10%
+/-10%
Effect
+/-291
+/-156
•
ANNUAL REPORT 2008
Liquidity risk:
The Group monitors its risk to a shortage of funds by closely monitoring the projected cash flow from operations, financial
expenses, its capital expenditure program related, in particular and to commitments (Note 6) under its newbuilding program.
The Group maintains sufficient cash for its daily operations via short term cash deposits at banks.
The table below summarizes the maturity profile of the Group‘s financial liabilities; (all numbers in USD 1,000)
At 31 December 2008
Interest bearing loans and borrowings
At 31 December 2007
Interest bearing loans and borrowings
Less than
3 months
3 to 12
months
1 to 5
years
More than
5 years
Total
10,001
10,636
29,218
14,527
199,711
292,486
531,416
20,637
43,745
199,711
292,486
556,579
7,891
45,140
146,635
202,084
401,750
20,819
45,140
146,635
202,084
414,678
12,928
Future capital expenditure newbuilding contracts at 31 December 2008
0
0
0
0
0
25,163
12,928
0
36,600
79,500
0
116,100
28,797
163,203
123,800
0
315,800
Future capital expenditure newbuilding contracts at 31 December 2007
3.2 Capital risk management
The Company‘s objective is to actively pursue an optimal
financing of its fleet at any time for the purposes of providing
good return to shareholders and benefits for other stakeholders, to aim at low cost of capital and at the same time secure
the Company‘s ability to continue as a going concern.
The Company will actively use the capital markets when
doing investments, and does not intend to hold significant
liquid reserves for investments.The Company will aim at distributing retained earnings above a satisfactory working capital level as dividend.
In the shipping and offshore industry, emphasis in made on
Value Adjusted Equity. A certain minimum Value Adjusted
Equity is often used as one financial covenant by financial institutions.
Market values of the Company‘s vessels increased after
the vessels or newbuilding contracts were acquired and the
Company refinanced its fleet based on higher valuations in
2008 and increased its financial leverage. Part of the excess
proceeds was used to repay the NOK200 mill. Bond Facility
and part of the proceeds was distributed to shareholders as
dividend.Towards the end of 2008, market values of vessels
and newbuilding contracts have reduced slightly following the
international financial crises which creates some uncertainty
regarding the market values for offshore supply vessels.
Hence, the Company has seen a reduction in its Value Adjusted Equity.
The main source of financing of the Company is Senior
Bank Loans from international banks which are long term
players in the shipping and offshore business segments.The
Company believes in building and maintaining long term relationships with these financial institutions and has pursued this
strategy since the Company was founded.
Bank loan financing has been combined with two specially
structured sale and leaseback transactions for (currently) 6
vessels.The sale and leaseback transactions are designed to
withstand possible drops in the market by having fewer and
leaner financial covenants compared to the senior bank loan
facility.
We consider the combination of senior bank loans and
sale and the leaseback transaction as an effective and flexible
way to finance the Company‘s fleet at an acceptable cost.
The Value Adjusted Equity by year end 2008 and 2007 can be
seen in the below table;
(all numbers in USD million)
Year end 2008
991
586
404 or 41%
of total
value adjusted assets
Total value adjusted assets (*):
Total debt (**):
Value Adjusted Equity
Year end 2007
1,080
479
601 or 56%
of total
value adjusted assets
(*) Market values obtained from two independent brokers on a
charterfree basis including excess value of newbuilding contracts
(**) Excluding deferred gain.
Distributions to shareholders in Q108 and Q208 were financed from the Company‘s retained earnings. No distributions
of dividend were made in Q308 and Q408 due to the international financial crises which may impact the market for offshore supply vessels and due to the lower visibility in the
financial and equity markets.
The Company‘s newbuilding program consists of 9 vessels
by year end 2008 of which USD 31,7 mill. was paid to shipyards and/or sellers of contracts by year-end. Early 2008, the
Company cancelled the newbuilding contract for “Sea Hawk
1” due to a delay from the shipyard and hence reduced the
number of newbuildings from 9 to 8 vessels.
33
All the pre-delivery yard installments are financed with equity.
For 7 out of the 8 newbuilding contracts, the Company has
committed long term bank financing.The exception is “Sea
Eagle 1”, which is expected to be delivered in April 2009
when the Company will enter a 15 months bareboat
charter with a subsidiary of the Shipyard after which the
Company has an option to acquire the vessels in 2H10.The
Company expects to obtain long term financing for this vessel
in 2010 and to utilize the purchase option after the 15
months bareboat.
The Company‘s 3,1 mill of own shares acquired at an average
price of NOK 19,21 per share are still owned by the Company in accordance with Cyprus Law. Acquisition of more
own shares will be considered going forward and depends on
the Company‘s liquidity and level of dividend distributions and
other factors.
In 1H08, the Company acquired shares in a public listed
offshore supply company.The shares reduced in value in
3Q08 and 4Q08 and the Company hence incurred an unrealized loss on this investment.
4. Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that are believed to be reasonable under the circumstances.
4.1 Critical accounting estimates and
assumptions
The Group makes estimates and assumptions concerning the
future.The resulting accounting estimates will, by definition,
seldom equal the related actual results.The estimates and
assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.
a) Impairment of vessels
generally accepted accounting principles under IFRS requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and are accounted for when estimates are changed. Actual results could differ from such estimates. The balance sheet value of the
Company’s vessels, newbuild contract excluded, comprises
approximately 79 % (2007: 74 %) of the total balance sheet.
In the current market for supply vessels, the fair value of the
Company’s vessels at 31 December 2008 was higher than the
balance sheet value.
The Group reviews long-lived assets or groups of assets
for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
When the carrying amount of an asset does not yet include
all the cash outflows to be incurred before it is ready for use
or sale, the estimate of future cash outflows includes an estimate of any further cash outflow that is expected to be incurred before the asset is ready for use or sale. If the estimated
recoverable amount (being the higher of the fair value less
costs to sell and value in use) is less than the carrying amount
of the asset or group of assets, the asset is not recoverable
and we recognize an impairment loss for the difference between the estimated recoverable amount and the carrying
value of the asset or group of assets. We assess long-lived
assets for possible impairment upon the occurrence of a triggering event. Events that can trigger assessments for possible
impairments include, but are not limited to (a) significant
decreases in the market value of an asset, (b) significant
changes in the extent or manner of use of an asset, and (c) a
physical change in the asset.
34
Based on the current world-wide economic circumstances, the Group performed a test of the estimated recoverable
amount of the vessels by obtaining third party professional
valuations for all vessels and compared to the carrying value
of the vessels. No impairment was identified for any of the
Group's vessels as the fair value less costs to sell was in all
cases higher than the carrying amount. For vessels under sale
and finance lease back, the deferred gain on sale and finance
leaseback was deducted from the carrying amount of the vessel before comparing it to the fair value less costs to sell.
The Company makes use of the cost model according to
IAS 16, and subsequently depreciates non-current assets over
their estimated useful life, irrespective of the extent to which
there has been a genuine increase in value of the Group’s
non-current assets.
(b) Tax legislation
Tax legislation is subject to varying interpretations. Refer to
Note 30.
4.2 Critical judgements in applying the
group’s accounting policies
a) Classification of sale and leaseback transaction
The Group's management has recognised the sale and leaseback transaction for six of its vessels in accordance with IAS 17
"Leases" and SIC Interpretation 27 “Evaluating the Substance of
Transactions Involving the Legal Form of a Lease”. Management has considered that the provisions of SIC 27 are not
applicable however the Group has substantial risks and
rewards incidental to ownership and the exercise of the
option to purchase the vessels is considered to be almost certain. Following this analysis the Group's management has concluded that the leaseback is a finance lease since it considers
that the Group retains substantially all the risks and rewards
incidental to ownership since it is reasonably certain that the
Group will exercise the option to purchase the vessels.
As a result of the above the Group has derecognised the
vessels and has recognised them back at their fair value which
was higher than the carrying amount.The gain has been deferred and isbeing amortised to the income statement over the
lease term which is considered to be 12 years (refer to the
accounting policy on Lease agreements).
•
ANNUAL REPORT 2008
5. Segment information
The Company operates as per year end 2008 with two business segments (i) in relation to geographical area of operation and (ii) in relation
to vessel type, namely the AHTS (Anchor Handling Tug Supply Vessel) and the PSV (Platform Supply Vessel).
Primary Segment - Area of Operations. The segment results for the year ended 31 December 2008 is as follows:
North Sea
Africa
Australia /
Far East
North/South
America
Mediterranean
Unallocated
items
Total
Vessel operating expenses
33,832
-11,183
35,349
34,274
-2,572
0
190,405
-1,068
-21,922
0
-1,435
-9,179
61,438
-1,480
-8,272
25,512
-1,416
-9,643
0
-7,970
EBITDA per segment
21,233
24,226
24,567
15,265
36,944
0
0
0
0
21,614
0
-46
122,237
0
-3,738
6,411
-19,769
27
-19,769
29,440
33,142
28,652
-19,788
101,631
Segment revenues
Other operating expenses
Depreciation
Other gains/(losses)
Gain on sale
-4,455
-3,096
1,387
-4,240
-14,703
-60,199
-30,277
EBIT per segment /
Segment result
Net Financial Items
16,778
22,517
20,327
-51,336
Pre-tax result
Taxes
50,294
Net Result
53,404
3,110
The segment split on assets and liabilities at 31 December 2008 are as follows:
North Sea
Africa Australia / North/South
Far East
America
Assets
97,864
48,783
112,468
0
Liabilities
68,626
51,359
89,467
0
Mediterranean
396,358
420,495
Unallocated
items
175,042
88,347
Total
830,515
718,294
Segment assets allocated consist of vessels, deferred maintenance costs and stock. All the other assets are not allocated items.
Segment liabilities comprise of bank borrowings, sale and leaseback debt and deferred gain. All other liabilities are not allocated items.
The corresponding segment results for the year ended 31 December 2007 is as follows:
North Sea
Africa
Australia /
Far East
North/South
America
Mediterranean
Unallocated
items
Total
53,651
-15,043
29,314
-5,702
20,702
-5,031
42,993
-14,400
0
0
0
0
146,660
-1,745
0
0
EBITDA per segment
36,431
-5,808
22,422
0
844
675
0
0
0
100,532
0
0
0
0
-4,066
0
0
-3,975
26,848
0
-2,712
14,831
0
0
0
0
1,518
30,623
20,554
11,531
22,782
0
0
85,489
Segment revenues
Depreciation
Gain on sale
-2,177
-1,190
-840
-40,176
-5,952
-16,561
EBIT per segment /
Segment result
Net Financial Items
-14,940
Pre-tax result
Taxes
70,549
Net Result
57,705
-12,843
North Sea
Africa Australia / North/South
Far East
America
Assets
118,508
147,109
144,500
126,288
Liabilities
102,902
94,052
139,762
146,950
Mediterranean
0
0
Unallocated
items
161,261
50,745
Total
697,666
534,411
35
Continued from note 5. Segment information
Secondary Segment -Type ofVessel
The segment results for the operating period in 2007 is as follows:
Segment revenues
EBITDA per segment
AHTS
146,061
PSV
44,344
-6,114
-1,856
0
-46,907
-13,292
Depreciation
93,040
-24,657
29,196
Gain on sale
13,695
15,717
82,078
39,339
EBIT per segment / Segment result
Net Financial Items
-5,574
Unallocated items
Total
0
190,405
0
-60,199
-47
0
122,237
-19,769
27
-19,769
29,440
-7,970
-30,277
0
101,630
-51,336
Pre-tax result
Taxes
50,294
Net Result
53,404
3,110
Assets
Liabilities
AHTS
535,245
460,489
PSV
199,829
179,242
Unallocated items
Total
95,441
830,515
78,563
718,294
Segment assets allocated consist of vessels, deferred maintenance costs, stock and freight income not received. All the other
assets are not allocated items.
Segment liabilities comprise of bank borrowings, sale and leaseback debt, deferred gain and trade payables. All other liabilities
are not allocated items.
The corresponding segment results for the year ended 31 December 2007 is as follows:
AHTS
PSV
127,943
-35,552
18,717
0
-760
0
146,660
-5,192
-4,624
0
EBITDA per segment
87,199
-14,497
13,333
914
0
0
100,532
0
-2,064
0
604
0
0
1,518
73,616
11,873
0
85,489
Segment revenues
Depreciation
Gain on sale
EBIT per segment / Segment result
Net Financial Items
Unallocated items
Total
-40,176
-5,952
-16,561
0
-14,940
Pre-tax result
Taxes
70,549
Net Result
57,705
-12,843
Assets
Liabilities
36
AHTS
542,441
332,372
PSV
151,296
151,294
Unallocated
50,746
Total items
693,737
534,411
•
ANNUAL REPORT 2008
6. Property, plant and equipment – Vessels, finance lease vessels,
vessels in progress (construction contracts) and equipment
Vessels
Finance
lease vessls
Vessels in
progress
Vehicles &
equipment
Total
39,175
0
134,846
94
0
0
0
363,372
198,500
0
0
0
0
87,605
0
Opening net book value as at 1 January 2007
Additions
228,432
Disposals
0
Vessels leased
Delivered new buildings
Depreciation and amortisation
124,195
-110,895
50,975
-12,209
0
-50,975
0
-5
-16,561
233,328
83,871
88
597,785
-4,347
0
163,370
0
Closing net book value as at 31 December 2007
280,498
Opening net book value as at 1 January 2008
Additions
280,498
17,733
233,328
0
83,871
77,753
89
597,785
Disposals
0
-21,847
0
54
-15,731
0
0
-37,578
-14,534
-15,696
Vessels leased
-28,451
Delivered new buildings
114,158
Depreciation and amortisation
89,500
0
95,540
61,049
0
-114,158
0
-47
-30,277
0
285,285
31,735
95
686,520
Closing net book value as at 31 December 2008
369,404
Construction contracts (newbuildings) for investments in AHTS vessels and PSV‘s are entered in the balance sheet as vessels in
progress, as the installments are payable to the shipyards. Directly attributable costs such as on-site supervision and other
predelivery construction costs are also entered in the balance sheet as part of the purchase costs.
Contractual yard payments and debt – construction contracts
The newbuildings which will be delivered during 2009-2010 have the following payment- and funding profile:
(Unaudited figures in USD 1,000)
Future capital expenditure newbuilding contracts
Committed bank borrowings from delivery
2009
36,600
36,600
2010
Total
48,800
116,100
79,500
85,400
37
Sale and leaseback transaction and bareboat contract
Sale and leaseback transaction:
As per 31 December 2008 Deep Sea Supply has entered heads of agreement for a sale and leaseback transaction with Ship
Finance international Limited for 6 of its vessels (2007: 5 vessels)
Gross proceeds from the sale and lease back of the 6 vessels are USD 324.5 mill. A seller‘s credit of USD 39.5 mill has been
agreed and the sales proceeds net of such seller‘s credit are USD 285 mill. Net proceeds to Deep Sea Supply after repayment of
the existing debt related to the vessels are USD 159 mill. A gain from the sale of the vessels to Ship Finance International Ltd. of
approx. USD 120 mill has been deferred in the balance sheet as long term liability, and will be amortised over the lease term
which is 12 years. In the balance sheet, the seller‘s credit is deducted from the gross long term debt related to the leasing transaction and expensed using the effective interest rate.
Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance
balance outstanding.The corresponding rental obligations, net of finance charges, are included in other long-term payables.The
interest element of the finance cost is charged to the income statement over the leased period so as to produce a constant
periodic rate of interest on the remaining balance of the liability for each period. Finance leased vessels are capitalized at their
fair value, or if lower, the present value of the minimum lease payments, established in the sale and lease back transaction, and
subsequently depreciated on a linear basis of their remaining useful lifetime. (See also note 2.32)
During the year 2008 the Group has agreed to cancel one of the sale and leaseback transactions and has disposed the vessel
on the same date recognising a gain of USD 14.3 million.
Bareboat contract:
In March 2007 Deep Sea Supply PLC entered, through its subsidiary DESS Cyprus Limited, into an agreement with Java Marine
Lines Pte Ltd. for a 1 year firm bareboat charter of a 10.800 BHP Anchor Handling Tugs Supply vessel (Sea Ocelot).The vessel
was commissioned and delivered by Jaya Shipbuilding & Engineering Pte. Ltd. in Singapore in October 2007. Deep Sea Supply
PLC has secured a purchase option at the end of the 1 year BB charter which was exercised and the vessel is now recorded
under vessel cost.
38
•
ANNUAL REPORT 2008
7. Pensions
The Group went in to a defined benefit pension plan in the fourth quarter of 2006.The scheme is generally funded through payments to an insurance company. A defined benefit plan is a pension plan that is not a defined contribution plan.Typically, defined
benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or
more factors such as age, years of service and compensation.The pension plan includes per year end 9 employees.
The amount recognised in the balance sheet are determined as follows:
Present value of funded obligation
Fair value of plan assets
Estimated pension obligations at 31.12
Present value of unfunded obligation
Unrecognised actuarial losses
Unrecognised past service costs
Asset (liability) in the balance sheet
2008
-369
2007
280
236
-89
236
0
-142
59
0
0
9
0
-30
103
2008
2007
190
174
63
-51
The movement in the defined benefit obligation over the year is as follows:
Beginning of year
Service costs
Interest costs
Actuarial loss (gain)
Payroll tax of employer contribution, assets
Exchange differences
End of year
236
10
-31
-99
99
4
-14
25
369
236
2008
142
2007
Employer contribution
216
101
Exchange differences
-73
The movement in the fair value of plan assets of the year is as follows:
Beginning of year
Expected return on plan assets
Actuarial losses/(gains)
End of year
14
-19
65
6
-45
15
280
142
2008
0
2007
10
-14
4
-6
Past service costs
190
174
Total included in staff costs
186
172
Discount rate
4.30%
4.70%
Future salary increase
4.50%
4.50%
The amounts recognised in the income statement are as follows:
Net over funded penson liability
Interest cost
Net actuarial losses recognised during the year
Losses on curtaliment
The principal actuarial assumptions used were as follows:
Future pension increases
0
0
6.30%
2.00%
0
0
0
5.75%
2.00%
39
8. Derivative Financial Instruments
2008
Asset
Currency exchange rate swap
Interest rate swaps
Total
0
2007
Liability
2,836
Asset
Liability
2,418
6,003
0
5,254
6,003
0
Listed securities - held-for-trading
6,335
0
In the balance sheet the currency exchange rate swap and interest rate swap are presented as a net liability of 5,254.
(in 2007, a net asset of 6,003).
The financial derivatives are traded in an active market, and their fair value is based on general market assumptions.
The derivatives are used for economic hedging purposes.
The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged
itemis more than 12 months and, as a current asset or liability, if the maturity of the hedged item is less than 12 months.
The fair value of all equity securities is based on their current bid prices in an active market.
9.Trade and other receivables
Trade receivables
Less:Provision for impairment of receivables
Trade receivables -Net
Less non-current portion: loans to related parties
Current portion
As at 31 December 2008
47,866
As at 31December 2007
0
47,866
0
41,631
47,866
41,631
41,631
0
0
Trade receivables that are less than four months due are not considered impaired. As of 31 December 2008, trade
receivbles of USD 6.5 mill (2007: USD 16.4 mill) were past due but not impaired.These relate to a number of independent
customers for whom there has been one case of default amounting USD0.5 mill which the Group has written off as other
losses. None of the receivables due for more than four months are considered impaired.The aging analysis of these trade
receivables is as follows:
Aging
Up to one month
One to four months
More than four months
Total
6,525
16,392
40,690
22,502
651
2,737
47,866
41,631
The carrying amount of the group‘s trade and other receivables are denominated in the following currencies:
Currency
United State Dollars (USD)
Great British Pounds (GBP)
Norwegian Kroner (NOK)
Euro (EUR)
Total
23,328
7,482
0
9,733
3,029
17,056
47,866
28,869
0
41,631
The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivable mentioned
above.The Group does not hold any collateral as security.
40
•
ANNUAL REPORT 2008
10. Inventories
Bunkers
Total
2008
878
2007
878
1,767
1,767
11. Cash and cash equivalents
Cash at bank and in hand
Short-term bank deposits
Total bank deposits
Specification of restricted deposits
Bank deposits
2008
2007
33,799
31,396
33,799
31,396
81
99
0
0
The carrying amounts of cash approximate fair value. Currently, there is no credit facility for the Group. Restricted bank deposits
are for employee tax withholdings.
According to the loan agreement and corresponding covenants regulations, the Company have to maintain, at all times, a
minimum cash amount which equals 5% of the total debt (on the vessel accounts), or at least NOK 85 mill. (USD 12,1 mill.)
41
12. Share capital
Deep Sea Supply PLC, located in Cyprus, became the parent company of the Group with effect from 28 December 2006. Deep
Sea Supply ASA, located in Norway, was the parent company of the Group until 28. December 2006.The relocation of parent
company was conducted trough a 1:1 share swap offering. As per 31. December 2006, Deep Sea Supply PLC owned
122.374.287 of the shares in Deep Sea Supply ASA and the remaining 8.015.352 shares in Deep Sea Supply ASA were held by
other shareholders (minority interest).
Following the voluntary exchange offer, where 93,8% of the Deep Sea Supply ASA shareholders accepted to swap their
Deep Sea Supply ASA shares into Deep Sea Supply PLC shares, the Board presented 4 January 2007 a mandatory offer and a
compulsory acquisition to purchase the remaining 6,2% Deep Sea Supply ASA shares.Through the mentioned mandatory offer
and through the compulsory acquisition, Deep Sea Supply PLC has during February and March become a 100% owner of Deep
Sea Supply ASA.
In connection with the Group`s change of domicile from Norway to Cyprus, Metrogas Holdings Inc (a sistercompany of
Hemen Holding Ltd.) issued in January 2007 a short term loan facility to Deep Sea Supply PLC which amounted to USD 25,6
mill.The purpose of the loan was to provide security and to finance the mandatory bid for the remaining 6,2% shares in Deep
Sea Supply ASA.The loan was fully repaid in mid March.
Deep Sea Supply Plc
Number of
Shares
(thousands)
Share
capital
Share
premium
Other paid
-in equity
Total
124,374
2,487
226,367
496
229,350
5,799
116
0
0
Opening balance as at 1 January 2007
Issuance of new shares in January 2007
from mandatory offering
Reclassification of minority interest
0
16,856
116
16,856
Issuance of new shares in August 2007
relating to exercise of share warrant agreement
1,792
36
September 2007
0
0
Payment of dividend
0
3,644
-496
0
231
3,184
Valuation of share option scheme, issued in
At 31 December 2007
Payment of dividend from share premium
-179,919
131,965
2,639
66,948
231
69,819
131,965
2,639
66,021
231
68,891
0
-50,746
Valuation of share option scheme
Cancelation of own shares (non traded)
At 31 December 2008
231
-179,919
-2,000
-40
129,965
2,599
-50,746
1,011
1,011
1,242
20,044
-40
16,202
In August 2007 the Company received an exercise notice from the holders of warrants in Deep Sea Supply PLC, Drawbridge
Special Opportunities Fund LP of New York and DB Special Opportunities LLC of New York, by which the two funds request
that their warrants are converted into shares for an exercise price of NOK 10 per shares. Drawbridge Special Opportunities
Fund LP of New York is the holder of 1.156.324 warrants, and DB Special Opportunities LLC of New York is the holder of
635.343 warrants.
The total authorised number of ordinary shares as per 31 December 2007 is 131.964.860 shares with a par value of USD
0.02 per share, of which 3.101.000 shares are hold by the company. All issued shares are fully paid.
The equity structure (share capital and share premium) presented above reflects equity structure of the legal parent including the equity instruments issued to reflect the combination together with the issued equity of the legal subsidiary immediately
before the business combination and the cost of the business combination is settled.
42
•
ANNUAL REPORT 2008
Share options scheme
Employees:
The Board of Deep Sea Supply PLC has approved a share option scheme for all employees. By year-end 2007, 1,328,500 share
options were granted to management and employees of the Company.
Initial share options to the management and employees were granted at an exercise price equal to the closing price on June
11, 2007 increased by 5% or NOK 25.72 per share.These share options may be exercised with one third after one, two and
three years, respectively and all options must be exercised within 5 years.The strike price shall be reduced, on a USD for USD
basis, by the amount of all dividends declared by the Company in the period from the date of grant until the date the subsisting
options is exercised. Subsequent share options have been granted to new employees based on the same principle.
By year end 2008, a total of 1,412,500 options were granted at the following (December 2008) strike prices;
Strike price
No of options:
1,100,000
80,000
168,500
64,000
(as per 31.12.2008):
15.04
16.00
20.92
22.25
Board:
The Extraordinary General Meeting of Deep Sea Supply PLC awarded 300,000 stock options to the Chairman of the Board,
and 200,000 stock options to each of the Directors of the Company, totally 900,000 stock options were awarded.The exercise
price is the closing price on July 25 2007 increased by 5%, or NOK 27.72 per share.This stock option award is a part of the
Company`s incentive program and with the aim to attract qualified international directors.
By year end 2008, a total of 900,000 options were granted at the following (December 2008) strike prices;
Strike price
No of options:
900,000
(as per 31.12.2008):
17.24
Change of control:
The share options for the board and the share options an certain other benefits for the employees will come into effect at
change of control in the Company (in excess of 33%).
43
13.Trade and other payables
Trade payables
Amounts due to related parties
Social Security and other taxes
Accrued expenses
Other payables
Total
2008
7,274
2007
7,945
2006
571
686
202
0
5,380
0
0
2,666
4,297
3,486
25,039
12,928
9,068
14,527
0
0
Fair value of trade and other payables equal their carrying amounts.
14. Borrowings
266,998
179,012
Borrowings
Non-current
Current
23,724
13,453
290,721
192,465
225,199
169,707
Sale and leaseback and bareboat
Non-current
Current
15,495
39,578
240,694
209,285
44,799
0
CIRR Loan
Non-Current
Current
Total Borrowings
4,144
0
48,944
0
580,358
401,750
The outstanding loan of the Group's borrowings are denominated in the following currencies:
Borrowings
NOK
USD
245,793
44,928
118,771
240,694
209,285
USD
CIRR Loan
NOK
Total Borrowings
44
73,694
48,944
0
580,358
401,750
•
ANNUAL REPORT 2008
The maturity of non-current assets is as follows:
49,016
26,907
Borrowings
Between 1 and 2 years
Over 5 years
73,524
144,458
266,998
76,529
75,576
179,012
29,604
16,793
47,567
26,406
Over 5 years
148,028
126,508
225,199
169,707
4,144
0
8,574
0
CIRR Loan
Over 5 years
32,082
0
44,799
0
2008
6.44%
The effective interest rates at the balance sheet day were as follows:
Bank borrowings (NOK)
Bank borrowings (USD)
11.26%
5.32%
2007
6.99%
Fair values are not materially different from the carrying value for all the loans.
Borrowings
During the period ended 31 December 2008 the Group has replaced its existing senior loan facility with a NOK 783 mill (USD
154 mill) and a USD 102 mill 1st priority loan facility.
In November the group has converted part of its NOK (630m) facility to USD (90m).
The senior loan facility is secured with a first priority mortgage in the financed vessels.
The Group issued a 5 years NOK 200 mill (USD 39m) bond in January 2006.The Group has exercised the issuer‘s call option
for early settlement of the bond, in Quarter 3, 2008.The early call option included a 5% premium on the NOK 200 mill which
has been recognised in the financial expenses.
In January 2008 the Group has entered into the second sale and leaseback transaction with Ship Finance International Ltd. for
another two of its vessels. Gross sales proceeds were USD 126 mill. A seller‘s credit of USD 22 mill has been agreed and the net
sales proceeds are USD 104 mill. A gain from the sale of vessels to Ship Finance International Ltd. of USD 61 mill has been
deferred in the balance sheet as a long term liability and will amortised over the lease term which is 12 years. In the balance
sheet the seller‘s credit is deducted from the gross long term debt related to the leasing transaction.
The term is 12 years with several purchase options. In the event that a vessel is sold to a third party, then the Group will be
liable to pay the current balance of interest rate swaps entered into by Ship Finance International Ltd.
CIRR loan
During the year ended 31 December 2008 the Group has applied for two Commercial Interest Reference Rate (CIRR) loan
from the Norwegian Export Credit Agency.The amount of the loans was NOK 132 mill (USD 19 mill) and NOK 216 mill (USD
31 mill).The duration of the loans is 12 years and the cash proceeds from the loans have been deposited in fixed deposit
account with a Norwegian bank at a higher interest rate than that of the loans.The agreed period of the deposits is identical
with the one of the loans.The loans and the interest thereof will be repaid from that account and the difference has been recognised as deferred gain and will be amortised over the period of the life of the asset.
45
15. Income tax expense
Current tax
2008
2007
3,110
-12,843
The remaining one third of the untaxed profits will be waived by the tax authorities, unless distributed, if an amount equal to the
related tax is spent on qualifying environmental investments within 15 years.The Norwegian Government had stated its intention that this arrangement should not create a tax liability, but the legislation and the secondary regulations issued by the Finance
Ministry were not clear and the Company recognized a liability of USD 12.9 million at 31 December 2007.
The Norwegian Parliament and Government further clarified the interpretation of the legislation during 2008 and based on
this the Ministry of Finance acknowledged that there was a conflict between the transition rules enacted by the Parliament and
secondary regulations issued by the Ministry of Finance. As a consequence of this, the Ministry of Finance announced on 20
January 2009 that the 15 year time limit would be withdrawn so that no tax liability exists at 2008.This clarification means that
the remaining one third of untaxed equity will not be taxed unless it is distributed.The liability of USD 3.3 million has been derecognised at 31 December 2008.
The Group's uncertain tax positions are reassessed by management at every balance sheet date. Liabilities are recorded for
income tax positions that are determined by management as more likely than not to result in additional taxes being levied if the
positions were to be challenged by the tax authorities.The assessment is based on the interpretations of tax laws that have been
enacted or substantively enacted by the balance sheet date and any known court or other rulings on such issues. Liabilities for
penalties, interest and taxes other than on income are recognised based on management's best estimate of the expenditure
required to settle the obligations at the balance sheet date.
Tax issue 2006
The Norwegian tax authorities have raised questions about the 2006 tax return for the subsidiary Deep Sea Supply ASA related
to the sales price of the shipbuilding contracts that were sold to Cyprus subsidiaries later the same year and claiming that the
sales price should have been higher.The Company has explained and provided background for the terms of the sale and strongly
disagree with the Tax Authorities‘ view.
46
•
ANNUAL REPORT 2008
47
16. Provisions for other liabilities and charges
Bonus agreement
All employees of Deep Sea Supply Management AS and Deep Sea Supply Management (Cyprus) Ltd. have performance bonus
agreements with the Group based on comparison with peer group companies.The bonus is calculated annually with a maximum
payment equal to the annual salary for the CEO, 50% of the annual salary for the CFO and COO and 25% of the salary for
other employees.
The weighted average fair value of the bonus payment granted during the period determined using the multi dimensional
Geometrical Brownian Motion Monte Carlo valuation model was NOK 1,348,320 equivalent to 32% bonus payment.The significant inputs into the model were average volatility of the peer group of 41%, dividend yield of 2,5% and an expected correlation
matrix for the peer group between 0,57 and 1,00.The volatility of the peer group is measured at the standard deviation of continuously compounded share returns based on statistical analyses of daily share prices over the last two years.
17. Other (losses)/gains - net
Change in value of financials derivatives
-7,712
2008
2007
Change in financial assets at fair value through profit and loss
-1,250
-8,192
-982
0
Interest rate swap on sale and leaseback (Note 2.32)
Impairment of other receivables (Note 26)
Impairment of trade receivables
Gain on sale of vessels
Deferred gain amortized in the period
Total
-11,032
-546
20,225
7,839
0
0
0
9,215
1,518
708
8,375
2008
2,183
18. Employee benefit expense
Wages and salaries
Social security costs
Pension costs – defined contribution plans
Pension costs – defined benefit plans (Note 7)
Other benefits
Total
Number of employees as per year-end
2,316
319
0
186
2007
340
0
172
88
324
2,908
3,019
14
11
The above excludes crew payroll expenses which are included in operating expenses vessels (Note 20)
19. Expenses by nature
2008
2007
Depreciation, amortisation and impairment charges (Note 6)
30,277
16,561
Operating expenses vessels (specified below)
60,199
40,176
Payroll expenses administrative employees (Note 18)
2,908
3,019
Other administration costs
5,063
2,933
98,447
62,689
Total
48
•
ANNUAL REPORT 2008
20. Operating expenses vessels
Crew expenses
Insurance
Rep.&maintenance, provisions, stores, lubrication oil,
administration of operations and miscellaneous
Total
2008
34,264
3,715
2007
21,314
1,005
22,220
17,857
60,199
40,176
-41,545
2008
-19,878
536
-1,441
-42,374
-21,797
21. Finance costs
Financial expenses
Financial income
Realised exchange gain/(losses)
Unrealised currency exchange gains/(losses)
2,122
-3,487
2007
2,616
-3,094
22. Earnings per share
Basic
Basic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted
average number of ordinary shares in issue during the year. During 2007,The Company has acquired 3 101 000 own shares, and
these are not included in the weighted average number of shares. Also, in September 2007 all outstanding warrants were
exercised, and hence the total number of shares increased by 1 791 667.Total number of outstanding shares as per year-end
2008 was 129 964 861, including the 3 101 000 own shares.
Profit attributable to equity holders of the company
Weighted average number of ordinary shares (thousands)
Basic earnings per share (USD per share)
2008
53,404
126,864
0.42
2007
57,705
125,608
0.46
Diluted
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares.The Company‘s only category of dilutive potential to ordinary sharesis the
share options. Share options have been granted to Board of Directors and management, and per year-end 2008 there were
totall 2,382,500 share options outstanding.The share options are included in the diluted number of shares depending on
whether or not they were in the money per year-end 2008.
2008
Profit attributable to equity holders of the company
Weighted average number of ordinary shares diluted (thousands)
Diluted earnings per share (USD per share)
2007
53,404
57,705
126,864
127,707
0.42
0.45
49
23. Cash generated from operations
Profit for the period
2008
2007
53,404
57,705
Adjustments for:
-Tax
-Depreciation
-Gain from sale of assets
0
12,843
30,276
16,561
-20,225
-1,518
41,545
21,797
-Effect from financial derivatives
9,016
-10,773
-Effect from available for sale assets
8,192
0
-Effect from receivables impairment
11,578
0
-14,087
4,535
889
-1,181
-Trade and other receivables
-6,235
-24,608
-Trade and other payables
12,111
3,049
-Interest expense
-Exchange (gains)/losses on borrowings
Changes in working capital
(excluding the effects of acquisition and exchange
differences on consolidation)
-Inventories
-Other accruals
Cash generated from operations
0
811
126,463
79,221
24. Credit quality
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit
ratings (if available) or to historical information about counterparty default rates.
All trade receivables at year end are considered as not impaired based on historical information since they have had no previous cases of default.
The ratings for the banks where the Group holds it cash at bank and short-term bank deposits are as follows:
Credit Rating
A/A-1
50
Amount
24,267
AA-
8,090
A-1+
1,442
Total
33,799
50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS •
ANNUAL REPORT 2008
25. Related-party transactions
Key management compensation
An agreed upon salary to the Managing Director of the Group equals to USD 329 (NOK 2.06 mill) per year. In addition to the
agreed annual salary come a bonus scheme and a share options scheme approved by the Board and Annual general meeting in
May 2007. Salary and bonus to the Managing Director of the Group amounted to USD 633 thousand (NOK 3.96 million) as of
31 December 2008.The corresponding amount as of 31 December 2007 was USD 714 (NOK 2.4 million).The Managing
Director has no other form of compensation, except salary, share options scheme mentioned in note 12 and the bonus agreement mentioned in note 16.There are no loans to the employees of the Group as per 31 December 2007 and per 31 December 2006.
Borrowings
The company borrowed USD 12 mill from a company related to the main shareholder (Hemen Holding Ltd) and repaid the
loan in full before year-end.The interest charged and paid was USD 141 thousand.
Remuneration to the board
Suggested remuneration to the Board in 2008 is USD 152 (NOK 0.95 mill), whereof USD 56 (NOK 0.35 mill) is suggested to
the Chairman. In 2007 payment to the Board was USD 138 (NOK 0.75 mill), whereof USD 55 (NOK 0.3 mill.) was payment to
the Chairman.
Sale and leaseback
As per 31 December 2008 the Group has entered into the second sale and leaseback transaction with Ship Finance International Ltd for 2 of its supply vessels.The major shareholder of Ship Finance International Ltd is Hemen Holding Ltd who is also the
major shareholder of the Group. (Note 6).
51
26. Other short term receivables
Other short term receivables include USD 1,000 (2007: 12,405) as sellers credit from disposals of the shipbuilding contracts in
2nd quarter of 2006 to Scan Geophysical ASA ( ‘Scan‘‘).
In 2006 Deep Sea Supply Management AS sold three shipbuilding contracts at ABG Shipyard to SCAN Geophysical ASA
(SCAN). DESSC had a claim on outstanding payments of USD 12.4 million.The claim was to be settled upon delivery of the
three vessels. As it it unlikely that Scan would take delivery of all vessels, DESSC made an allocation for losses of USD8 mill. in
4Q08 accounts anticipating that Scan will take delivery of 1 vessel from ABG. Scan has later cancelled all deliveries from ABG
Shipyard. On 16 March 2009, Scan and DESSC settled the issues by an agreement whereby SCAN shall pay USD 1 million to
DESSC and hence, in the 2008 financial statements, the allocation for losses increased from USD 8 mill. to USD 11 mill.
27. Auditors remuneration
Remuneration to the auditors expenses in the financial statement for 2008 equals USD 160 thousand (2007: USD 163 thousand) for audit services and USD 321 thousand (2007: USD 262 thousand) for non-audit services.
28. Events after the balance sheet date
On 2nd March 2009, the Company cancelled the newbulding contract for the Sea Hawk 1 from Jaya Shipbuilding & Engineering Ltd., Singapore due to an announced delay in the delivery of the vessel. As a consequence of the cancellation, the Shipyard
will repay USD3,6 mill. to the Company and the Company‘s future capital expenditures will reduce by USD32,5 mill.
In 2006 Deep Sea Supply Management AS sold three shipbuilding contracts at ABG Shipyard to SCAN Geophysical ASA
(SCAN). DESSC had a claim on outstanding payments of USD 12.4 million upon delivery of the vessels.The claim was to be
settled upon delivery of the three vessels. As it is unlikely that Scan would take delivery of all vessels, DESSC made an allocation
for losses of USD8 mill. in 4Q08 accounts anticipating that Scan will take delivery of 1 vessel from ABG. Scan has later cancelled
all deliveries from ABG Shipyard. On 16 March 2009, Scan and DESSC settled the issues by an agreement whereby SCAN shall
pay USD 1 million to DESSC and hence, in the 2008 financial statements, the allocation for losses increased from USD 8 mill. to
USD 11 mill.
29. Financial instruments by category
Setting out below is a comparison by category for carrying amounts and fair values of all of the group‘s financial instruments that
are carried in the financial statements.
Group
31 December 2008
Assets as per balance sheet
Trade and other instruments
CIRR Deposits
Total
Liabilities as per balance sheet
Borrowings
CIRR Loans
Derivative financial instruments
Total
52
Assets at fair
Loans and value trough the
receivables profit and loss
57,173
48,943
33,799
139,915
Available
for sale
Total
-
6,335
57,173
48,943
33,799
146,250
6,335
6,335
Liabilities at fair
value trough the
profit and loss
5,522
5,522
Other
financial
liabilities
531,419
48,943
580,362
Total
531,419
48,943
5,522
585,884
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS •
Assets at fair
Loans and value trough the
receivables profit and loss
Group
31 December 2007
Trade and other instruments
Total
Available
for sale
Total
6,003
-
6,003
60,612
31,396
98,011
Liabilities at fair
value trough the
profit and loss
Other financial
liabilities
Total
6,003
60,612
31,396
92,008
Borrowings
Total
-
401,750
401,750
ANNUAL REPORT 2008
401,750
401,750
30. Contingencies
(a) Tax legislation
The Company is subject to taxes in several jurisdictions, where significant judgement is required in calculating the tax provision
for the Company. There are many transactions for which the ultimate tax determination is uncertain and for which the Company makes provisions based on an assessment of internal estimates, tax treaties and tax regulations in the different countries
where the Company is operating, and appropriate external advice. Where the final tax outcome of these matters is different
from the amounts that were initially recorded, such difference will impact the tax charge in the period in which the outcome is
determined.
(b) Recent volatility in global financial markets.
The ongoing global liquidity crisis which commenced in the middle of 2007 has resulted in, among other things, a lower level of
capital market funding and higher interbank lending rates.The uncertainties in the global financial market have also led to bank
failures and bank rescues in the United States of America, Western Europe and in Russia. Such circumstances could affect the
ability of the Company to obtain new borrowings or re-finance its existing borrowings at terms and conditions similar to those
applied to earlier transactions.The debtors or borrowers of the Company may also be affected by the lower liquidity situation
which could in turn impact their ability to repay their amounts owed. Deteriorating operating conditions for debtors or borrowers may also have an impact on Management's cash flow forecasts and assessment of the impairment of financial and nonfinancial assets.To the extent that information is available, Management has reflected revised estimates of expected future cash
flows in its impairment assessments. Management is unable to reliably estimate the effects on the Company's financial position of
any further deterioration in the liquidity of the financial markets and the increased volatility in the currency and equity markets.
Management believes it is taking all the necessary measures to support the sustainability and growth of the Company‘s business
in the current circumstances.
31. Sale and leaseback effect
The impact from the sale and leaseback
transactions (including the bareboat of
“Sea Ocelot” until acquired and
refinanced) on the profit and loss and
balance sheet is as follows:
Profit and loss impact (in USD millions) for the year ending 31 December:
Interest paid
Deferred gain recognized in profit and loss
Depreciation charge of leased vessels
2008
2007
-23.3
-4.1
9.2
1.5
-11.5
-2.0
Balance sheet value of assets and liabilities under sale and leaseback
324.0
233.3
Sale and leaseback debt - long term
Cost of leased vessels
-225.2
-169.7
Sale and leaseback debt - short term
-15.5
-39.6
Deferred gain - long term
-90.8
-56.0
Deferred gain - short term
-9.2
0.0
53
54
INDEPENDENT AUDITORS REPORT
•
ANNUAL REPORT 2008
55
SHAREHOLDERS REGISTERED IN VPS
THE LARGEST SHAREHOLDERS AS PER 31 DECEMBER 2008
Citizen
No. of shares:
%
HEMEN HOLDING LIMITED
CYP
44,583,853
34.30%
SVENSKA HANDELSBANKEN
SWE
4,876,415
3.75%
SKANDINAVISKA ENSKILDA BANKEN
SWE
4,000,000
3.08%
ORKLA ASA
NOR
3,779,000
2.91%
2.15%
J.P. MORGAN CHASE BANK
GBR
2,799,813
DNB NOR BANK ASA
NOR
2,387,000
1.84%
MLPF&S NORWEGIAN
USA
2,361,432
1.82%
SEB ENSKILDA ASA
NOR
2,318,000
1.78%
SEB LONDON
SWE
2,099,500
1.62%
CITIBANK
USA
1,858,792
1.43%
STICHTING SHELL PENSIOENFONDS
GBR
1,136,000
0.87%
GBR
1,069,526
0.82%
TERRA SPAR
NOR
1,030,000
0.79%
CARNEGIE
NOR
1,000,000
0.77%
CITIBANK
USA
926,863
0.71%
NOR
905,000
0.70%
DNB NOR SMB
BANK OF NEW YORK
BEL
782,427
0.60%
BANKENES SIKRINGSFOND
GBR
759,000
0.58%
GBR
754,200
0.58%
NOR
670,000
0.52%
80,096,821
61.63%
TERRA NORGE
Total 20 largest shareholders:
Total shares owned by Deep Sea Supply Plc
Total other shareholders:
Total number of shares:
56
3,101,000
2.39%
46,767,040
35.98%
129,964,861
100.00%
SHAREHOLDERS
•
ANNUAL REPORT 2008
SHAREHOLDERS REGISTERED IN VPS
THE LARGEST SHAREHOLDERS AS PER 24 MARCH 2009
Citizen
No of shares
%
HEMEN HOLDING LIMITED
CYP
44,583,853
34.30%
SVENSKA HANDELSBANKEN
SWE
4,795,415
3.69%
SKANDINAVISKA ENSKILDA BANKEN
SWE
4,000,000
3.08%
ORKLA ASA
NOR
3,779,000
2.91%
GBR
2,799,813
2.15%
DNB NOR MARKETS
NOR
2,653,000
2.04%
SEB ENSKILDA ASA
NOR
2,235,000
1.72%
USA
1,719,032
1.32%
CITIBANK
DNB NOR SMB
NOR
1,500,000
1.15%
MLPF&S NORWEGIAN
USA
1,487,315
1.14%
NATIXIS BLEICHROEDER INC.
USA
1,304,639
1.00%
GBR
1,241,304
0.96%
STICHTING SHELL PENSIOENFONDS
GBR
1,136,000
0.87%
TERRA SPAR
NOR
1,030,000
0.79%
CARNEGIE ASA
NOR
1,000,000
0.77%
BEL
782,427
0.60%
BANK OF NEW YORK
GBR
754,200
0.58%
STATE STREET BANK
USA
674,000
0.52%
CITIBANK
USA
665,000
0.51%
CITIBANK
GBR
661,500
0.51%
78,801,498
60.63%
Total 20 largest shareholders:
Total shares owned by Deep Sea Supply Plc
Total other shareholders:
Total number of shares:
3,101,000
2.39%
48,062,363
36.98%
129,964,861
100.00%
57
‘The Company’s vision is to
become one of the leading
offshore supply vessel
companies on a global basis’.
58
CORPORATE GOVERNANCE
•
ANNUAL REPORT 2008
Deep Sea Supply Plc (“DESSC” or the “Company”
on a consolidated basis) principles for Corporate Governance
are based on the “Norwegian Recommendation for Corporate Governance” issued on 28 November 2006, which is a
revised version of the recommendations issued on the 8th
December 2005. Listed companies are expected to practice
Corporate Governance that regulates the division of roles
between Shareholders, the Board of Directors and the Executive Management more comprehensively than is required by
the legislation.The code of practice intends to strengthen the
confidence in listed companies providing the highest possible
value creation benefiting shareholders, employees and others.
As long as DESSC is a Cyprus registered company, "Norwegian Recommendation for Corporate Governance" can only
be adopted as long as the recommendation is in accordance
with Cyprus Companies Act.The Board of the Company is
not aware of any differences between the content of the
"Norwegian Recommendation for Corporate Governance"
and Cyprus Companies Act.The Board will below present its
Corporate Governance.
DESSC’s management has presented ”The Norwegian Code
of practice for Corporate Governance” for the Board.
The following elements underpin the Company’s Corporate
Governance Policy:
• DESSC will maintain an open and reliable communication
with the public about its business activities and conditions
related to corporate governance.
• DESSC’s Board will be autonomous and independent of
the Company’s Management.
• DESSC will attach importance to avoid conflicts of interest between the owners, the Board and the Management.
• DESSC will have a clear division of responsibilities between the Board and the Management.
• All shareholders will be treated equally.
In 2006 the Company completed its own corporate Code of
Ethics. Compliance with and follow up of the Code of Ethics
have been discussed and presented thoroughly in-house. For
more detailed information about the Company’s Code of
Ethics, please see our corporate website at
www.deepseasupply.no.
Company background
Deep Sea Supply Plc was established on 7 November 2006
for the purpose of acquiring all shares of Deep Sea Supply
ASA following an initiative by the Board of Deep Sea Supply
ASA to change the domicile of the ultimate parent company
to Cyprus. Cyprus is expected to afford more stable, attractive and competitive conditions over time compared to the
Norwegian regime. It was also considered vital that Cyprus is
a member of the EU.
Business
The Company’s business objective is defined in Section 3 of
the Memorandum of Association, and includes, inter alia, the
following;
“To engage and invest, directly or indirectly, by itself or through
subsidiaries or part-owned companies, partnerships or other
forms of entities, in the international offshore anchor handling and
supply vessel business, and to do all such acts and things as are
related thereto, including without limitation the acquisition, construction, leasing, chartering, operation and manning of such vessels and everything incidental thereto.”
In 2005 the Company acquired a fleet of modern second
hand AHTS (Anchor Handling Tug Supply vessels) built in
Norway in 1998/99.The vessels are operating in the North
Sea and internationally. In April 2006 the Company entered
into a contract to purchase 22 newbuildings, whereof 8 PSVs
(Platform Supply Vessels) and 14 AHTS.The Company acquired in 2006 and 2007 another 4 shipbuilding contracts, one
second hand vessel and bareboat chartered in (and later
acquired) one vessel. In 2006, the Company furthermore sold
three shipbuilding contracts.
The Company intends to become one of the leading
owners and operators of supply vessels on a global basis.
DESSC will primarily seek to obtain and maintain a chartering
profile with a combination of spot, medium and long term
contracts for the large AHTS vessels operating in the North
Sea and in other areas of the world. For the PSVs and the
small AHTS vessels, DESSC will seek to obtain medium to
long term contracts.
The Company’s primary aims are to meet the demand
from markets that require modern and advanced supply
vessels.
DESSC seeks investments in the perspective of providing
financial returns to its shareholders.The Company will actively
consider possibilities to participate in industry consolidation,
mergers and acquisitions, and will position itself to be part of
such consolidation.
The Company has, and will continue to have, a small team
of dedicated staff focusing on core activities such as chartering, finance, investor relations, accounting and monitoring
external suppliers. Other services like technical management,
crew management, construction supervision are outsourced
to well-qualified professional suppliers of such services.
59
Equity and dividend
Equal treatment of shareholders and
transactions with related parties
Equity
The Company’s book equity as per 31 December 2008 was
USD 112,2 mill.The Board considers this to be an acceptable
level.The Board evaluates continuously the Company’s equity
in light of the overall goals, strategy, risk profile and market.
Class of shares
DESSC’s shares are all equal.The Articles of Association place
no restrictions on voting rights or rights of receiving dividends.
Dividend policy
The Company will actively use the capital market when doing
investments, and does not intend to hold significant liquid
reserves for investments. Retained earnings will, to the extent
permitted under operational constraints, financial covenants
and with due regard to appropriate working capital requirements and, more recently, the uncertainties deriving from the
current financial crises, be paid out as dividends.
The General Meetings stipulates the annual dividend,
based on the Board’s recommendation. Distributions to shareholders for 2008 have been evaluated quarterly.
For the financial year 2008 the Board has distributed quarterly dividend payments for 1st and 2nd quarter of USD 0,13
and NOK 1,00 respectively. For the 3rd and 4th quarter, no
dividend distributions were made due to possible impacts on
the market for AHTS and PSVs from the recent financial turmoil and the lack of visibility in the equity markets.
Purchase of treasury shares
The Board has been granted an authorization to acquire treasury shares, including acquisition of security rights ’s authorization to acquire treasury shares is based on the assumption that
acquisitions will be conducted at normal market conditions.
DESSC owns 3,101,000 own shares acquired in 2007.The
shares were acquired in the market.
International financial turmoil
Late 2008, the world experienced a financial turmoil with significant impact on the stock markets, the oil price, the banking
sector etc. Such financial turmoil has by year end 2008 had
limited impact on the offshore supply companies, but may
have a negative impact on the future rate levels achieved by
the vessels, the market values of the vessels, the ability for
companies to finance its vessels, newbuildings etc.The financial
turmoil may also impact the supply of vessels as owners may
cancel shipbuilding contracts and shipyards may have severe
financial problems. DESSC has financed all 7 newbuildings at
ABG and has a 15 months bareboat agreement for its newbuilding from Jaya from delivery of the vessel.
60
Trading in treasury shares
The Board’s authorization to acquire treasury shares is based
on the assumption that acquisitions will be conducted at normal market conditions.
Transactions between related parties
Related parties are considered to be the Board (including
associated companies) and the Management (including associated companies).
Ship Finance International Limited (“SFI”)
DESSC has entered a sale and leaseback transaction with SFI
for 5 offshore supply vessels in 2007 (of which one is now
sold) and another two AHTS vessels in 2008. SFI’s largest shareholders is Hemen Holding Ltd. who is also DESSC’s largest
shareholder.
Tidewater Marine
DESSC has an agreement related to technical management of
some of the offshore supply vessels with Tidewater Marine.
DESSC acquired 6 AHTS vessels from Tidewater in 2005.
Hemen Holding Limited / Metrogas Holdings Inc.
In connection with the Company’s change of domicile
from Norway to Cyprus, Metrogas Holdings Inc issued in
January 2007 a short term loan facility to DESSC which
amounted to USD 25,6 mill.The purpose of the loan was to
make relevant deposit for the purpose of conducting the
mandatory bid for all of the shares in Deep Sea Supply ASA.
Metrogas Holdings Inc is a Greenwich Holding Ltd subsidiary
and sister company of Hemen Holding Ltd, the owner of 99,9
percent of shares in Metrogas Holding Inc and the owner of
34,30% of the shares in the DESSC.The loan agreement is
entered into on an arms-length-basis.The loan was fully repaid
in mid March 2007. In 2008, DESSC borrowed USD 12 mill.
from Metrogas Holdings Inc (a company controlled by DESSC’s largest shareholder) and repaid the loan in full prior to
year-end 2008.
Freely negotiable
The shares are freely negotiable.
General meetings
Composition of the Board
Emphasis is made on selecting board members with relevant
competence. According to the Articles of Association, the
Board shall have from three to seven board members.The
Company’s CEO is not member of the Board.
By virtue of the Annual General Meeting (AGM), the shareholders are guaranteed participation in the Company’s
supreme governing body.The AGM adopts the Articles of
Association. Shareholders representing at least 10 per cent of
the shares can call for an extraordinary general meeting.The
AGM shall be held at the place of establishment of the Company (Cyprus).
The Board’s autonomy
The Board considers itself autonomous and independent of
the Company’s executive management and main shareholders. Emphasis is made that there should exist no conflicts
between owners, the Board, the Management and the Company’s shareholders.The corporate Code of Ethics discusses
the topic under the heading of conflict of interest.
Convening letter
The notifications to the AGM are distributed to all shareholders minimum 21 days in advance. It is considered important
that the documents contain all relevant documentation so
that the shareholders can take a position on all items up for
discussion.The Finance Calendar is published on the Company’s web page and distributed via Oslo Børs
Director’s ownership of shares
By year-end 2008, the members of the Board either owned
shares in the Company or represented significant shareholders. Reference is furthermore made to the separate presentation of the Board Members in the Annual Report.
Participation
It is possible to register for the AGM by post, telefax or e-mail.
The Board and at least one member of the Nomination
Committee will attend the AGM. As a minimum, the management is represented by the CEO and the CFO.
Board responsibilities
The Board bears the ultimate responsibility for running the
Company and supervising routine management and business
activities.The Board primarily looks after the interests of all
the shareholders, but is also responsible for the Company’s
other stakeholders.
The Board has made an annual plan for the board meetings. The Board’s main tasks are developing and determining
the Company’s strategy, performing the required control functions and advice the executive management.The Board is
responsible for employing the Company’s CEO and to draw
up his/her job description.The Board members receives a
fixed compensation and has a total of 900,000 stock options.
Stock options were deemed necessary in order to attract
good foreign board members. DESSC’s Board of Directors
consist of 1 Cyprus, 1 Norwegian and 2 UK Citizens.
Agenda and execution
The agenda is set by the Board, and the main items are specified in the Company’s Articles of Association.The Chairman of
the Board will chair the AGMs.
Nomination Committee
In accordance with the Articles of Association, the Company
shall have a nomination committee consisting of the Chairman of the Board and two members elected by the AGM. In
connection with the election of Directors and election of the
members to the Nomination Committee, the Nomination
Committee shall in connection with the summons for the
General Meeting provide its recommendations for candidates.
The nomination committee shall also propose the remuneration of the Board.
The Board has establishing an audit committee who had
its first meeting related to 4Q08 figures.The meeting was held
with the Management and the auditors.
Board of Directors
- composition and independence
The DESSC Board consists of four board members.
Election of the Board of Directors
The Board members are elected by the AGM based on a
recommendation prepared and presented by the Nomination
Committee.The recommendation is distributed to the shareholders along with the convening letter to the AGM. Decisions on the composition of the Board require a simple
majority. Directors are elected for two-year terms and can be
re-elected.
•
ANNUAL REPORT 2008
Board work
Remuneration to leading employees
The remuneration for the CEO is decided by the Board. Each
year, the Board undertakes a thorough review of salary and
other remuneration to the CEO. An incentive scheme for the
employees is established which is linked to a combination of
stock options and a bonus scheme.The bonus scheme is linked
to the development of the stock price of the Company based
on comparison with peer company companies.The terms are
described in the notes of the annual financial statements
Remuneration to the members of
the Board
The AGM stipulates the Board’s remuneration each year.
The suggested remuneration to the Board in 2008 breaks
down as follows: NOK 350,000 for the Chairman and NOK
200,000 for each Director. In addition, each board member
has stock options (300,000 for the chairman and 200,000 for
each Director).
No Director is engaged in any paid consultancy work or
other assignments for the Company.
61
Change of control
The share options for the board and the share options and certain other benefits for the management will come into effect at
a change of control in the Company (in excess of 33%).
Information and communication
The Company considers an open and frequent communication as important to its shareholders and other related parties. The Company’s Financial Calendar is published on the
Company’s website and communicated via Oslo Børs. Monthly information about vessel revenues, medium and long
term charters, delivery of vessels etc are provided via Oslo
Børs.The web-site contains financial and other information
relevant for its shareholders and related parties.
Open presentations are arranged to present quarterly
financial statements. Present at these presentations are the
CEO and the CFO.The presentations are simultaneously
made available on the Company’s web-site.
It is considered essential to keep owners and investors
informed about the Company’s progress and financial status.
Emphasis is made on presenting the same information to the
entire equity market at the same time.
Take-over
There are no defense mechanisms against take-over bids in
the Company’s Article of Associations, nor has the Company
implemented other measures to limit the opportunity to
acquire shares in the Company.
62
The Company’s Articles of Association includes takeover provisions under which a person who directly or indirectly becomes the owner of shares representing more than 40% of the
capital interest or the voting rights in the Company is required
to make an unconditional public offer at a fair price for all
issued and outstanding shares.The 40% is suggested to be
reduced to 33,33% in the Company’s AGM in May 2008 for
the purpose of adjusting to Norwegian rules as the Company
is listed on Oslo Stock Exchange.
Auditor
The Company emphasizes a frequent and open dialogue between the Company and its auditor.The Company’s auditor
participates in the board meetings where the annual financial
statements are discussed. At such meetings, the auditor is briefing the Board on the annual accounts and any other issues
of particular concern to the auditor. At least once a year the
auditor presents to the Board a written report of the Company’s accounting policies, risk areas and internal control routines.
The auditor submits the main features of the plan for the
audit of the Company to the Board annually.The auditor
annually presents for the Board a written confirmation that
the auditor continues to satisfy the requirements for independence.
At least one meeting a year will be held between the auditor
and the Board without the presence of the CEO or other
executive managers.
The Company’s auditor is Pricewaterhouse Coopers (PwC).
There has been no change in audit firm after the Company
was established in 2004.
‘The Company will focus on
acknowledged Safety Standards
developed during recent years within the
Offshore Marine Industry world wide,
and in particular in the North Sea area’.
‘The Company’s primary aims are
to meet the demand from the
markets that require modern and
advanced offshore vessels’.
64
DEEP SEA SUPPLY PLC
•
ANNUAL REPORT 2008
REPORT FROM THE BOARD OF DIRECTORS
The Board of Directors presents its report together with the audited financial statements of the Company for
the year ended 31 December 2008.
Principle activities
Deep Sea Supply PLC’s (“the Company”) principal activities is
the holding of investments.
Principle risks and uncertainties
As the Company’s main income is dividend received from its
subsidiaries, the Company is exposed to the performance of
those subsidiaries.The Company’s subsidiaries operate in the
international offshore supply vessel business and hence exposed to charter rate risk.
Results, review of developments, position and
performance of the Company’s business
The main income for the period was dividend received from
the subsidiaries of the Company (USD 59 million).
The other (losses)/gains comprises mainly from fair value
loss on financial assets at fair value through profit and loss;The
Company has throughout 2008 acquired shares in an offshore
supply company classified as financial assets at fair value
through profit and loss.The shares have reduced in value and
caused an unrealized loss of -USD8,2 mill. in 2008.
The Company’s net result for the year is set out at page 69.
Dividends
Dividend policy and distributions made in 2008
The Company intends to actively use the capital market when
doing investments, and does not intend to hold liquid reserves
for significant investments. Retained earnings will, to the
extent permitted under operational constraints, financial
covenants and with due regard to appropriate working capital
requirements, be distributed to shareholders as dividend.
Share capital
The share capital of the company was reduced from USD
2,639 thousand to USD 2,599 thousand.The reduction of
USD 40 thousand was due to the cancelation of shares held
by the Company and non traded.
Treasury shares
At year end 2008 the Company held 3,101,000 own shares,
all purchased during 2007 for a consideration of USD 9,787.
Board of directors
The members of the Board of Directors at 31 December
2008 and at the date of this report are shown on page 8.
All of them were members of the Board throughout the
year 2008.
In accordance with the Company’s Articles of Association
the members of the Board of Directors retire at 08 May 2009
and, being eligible, offer themselves for re-election.
Events after the balance sheet date
There were no material events which occurred after the end
of the financial year.
Auditors
The Independent Auditors, PricewaterhouseCoopers Limited,
have expressed their willingness to continue in office. A resolution giving authority to the Board of Directors to fix their remuneration will be proposed at the Annual General Meeting.
The following distributions to shareholders were made
in 2008;
• Dividend Q4 2007
USD 0,40 (NOK 2.00) Ex. Dividend date 26.03.2008
USD 0,13 (NOK 0.68) Ex. dividend date 14.05.2008
NOK 1,00 Ex. dividend date 02.09.2008
The distribution from Q407 was made by way of reducing the
share premium fund. Distributions from Q108 and Q208
were from retained earnings.
For Q308 and Q408, no dividend payments were made
due to the recent international financial crises and the possible negative impacts on the market for offshore supply vessels and the lack of visibility in the financial markets.
65
66
DEEP SEA SUPPLY PLC
Responsibility statement:
In accordance with Article 9, sections (3)(c) and (7) of the
Transparency Requirements (Securities for Trading on
Regulated Market) Law of 2007 (“Law”), we the members of
the Board of Directors and the other responsible persons
for the financial statements of the Company for the year
ended 31 December 2008 we confirm that, to the best of our
knowledge:
•
ANNUAL REPORT 2008
a)
The annual financial statements that are presented
on pages 68 to 83:
i.
were prepared in accordance with the International Financial Reporting Standards as adopted by the European Union, and in accordance with the provisions of
Article 9, section (4) of the Law, and
ii.
give a true and fair view of the assets and liabilities,
the financial position and the profit or losses of the Company, and
b)
the director’s report gives a fair view of the
developments and performance of the business as well as
the financial position of the Company, together with a
description of the principal risks and uncertainties that
they are facing.
Limassol, Cyprus
2 April 2009
The Board of Deep Sea Supply Plc
Svein Aaser
Chairman
Bjørn Giæver
Frixos Savvides
Anna Cecilie Holst
Odd Brevik
Chief Executive Officer
Finn Amund Norbye
Chief Financial Officer
67
BALANCE SHEET - Deep Sea Supply Plc (Parent Company)
31 December
31 December
2008
2007
Note
ASSETS
Non-Current Assets
Investments in subsidiaries
4
Total non current assets
116,598
116,584
116,598
116,584
Current assets
5
6,335
0
14
175,642
150,567
5
0
6,901
6
Amounts due from related parties
8,750
1,283
Total current assets
190,727
158,749
Total assets
307,326
275,333
EQUITY
Capital and reserves attributable to equity holders of the company
Share Capital
2,599
2,639
Share premium
7
139,589
190,334
Treasury shares
-9,787
-9,787
1,242
231
Other paid in capital
Retained earnings
Total equity
6,337
261
139,980
183,678
LIABILITIES
Borrowings
8
Total non current borrowings
0
36,168
0
36,169
Current Liabilities
14
152,807
3,853
Other short term payables
10
14,539
887
Dividends payable
Total current liabilities
68
0
50,746
167,346
55,487
Total liabilities
167,346
91,655
Total equity and liabilities
307,326
275,333
DEEP SEA SUPPLY PLC
•
ANNUAL REPORT 2008
INCOME STATEMENT - Deep Sea Supply Plc (Parent Company)
Note
Dividend income
Year ending 31
December 2008
Period from
7 November 2006
ending
31 December 2007
59,261
0
Administrative expenses
13
-3,782
-2,613
Other (losses)/gains - net
11
-11,549
7,463
Operating profit
43,930
4,850
Financial income
12
15,649
3,026
Financial expenses
12
-14,102
-7,615
1,547
-4,589
45,478
261
Finance costs - net
Profit before income tax
Income tax
Profit for the year / period
0
0
45,478
261
Earnings per share for profit attributable to the equity holders of the Company, expressed in USD per share
USD per share
USD per share
-Basic
0.36
0.00
-Diluted
0.36
0.00
69
STATEMENT OF CHANGES IN EQUITY - (Parent Company)
Share
Capital
Share
premium
reserves
Treasury Other paid-in
shares
equiy
Result for the period
Retained
earnings
Minority
interest
Total
261
261
261
261
Total income recognised for the period from
7 November 2006 ending 31 December 2007
Paid in capital from incorporation
in November 2006
40
40
Reclassification of equity related
to share swap
2,447
349,753
116
16,856
36
3,644
496
352,696
Issuance of new shares in
January 2007 from mandatory offering
16,972
Issuance of new shares in August 2007 relating
to exercise of share warrant agreement
-496
3,184
Value of share option scheme, issued in
December 2007
231
Buy back of own shares
231
-9,787
Payment of dividend
-9,787
-179,919
-179,919
Balance at 31 December 2007
2,639
190,334
-9,787
231
261
0
2,639
190,334
-9,787
231
45,478
261
0
Result for the year
183,678
1
45,478
45,478
45,478
-40
-40
Value of share option scheme, issued in
December 2007
1,011
Payment of dividend
Balance at 31 December 2008
70
-50,746
2,599
139,589
1,011
-39,404
-9,787
1,242
6,336
-90,150
0
139,980
DEEP SEA SUPPLY PLC
•
ANNUAL REPORT 2008
CASH FLOW STATEMENT - (Parent Company)
NOTE
Year ending 31
December 2008
Period from
7 November 2006
ending
31 December 2007
Cash flows from operating activities
Profit for the year
45,478
261
Fair value losses on financial derivatives
3,357
-7,463
Fair value losses on financial assets at fair value through profit and loss
8,192
0
-507
4,720
-31,410
-143,666
162,606
-4,740
187,715
-150,888
Acquisitions of shares in wholly owned subsidiaries
-14
-116,584
Cash flow from investing activities
-14
-116,584
-140,896
-129,173
Currency gains/(losses)
Changes in working capital
Cash genereated from operations
Cash flow from investing activities
Cash flows from financing activities
Payment of dividend to shareholders
Proceeds from issuance of shares
0
370,947
Proceeds from borrowings
0
36,768
Repayments of borrowings
-39,338
0
0
-9,787
-180,234
268,755
7,467
1,283
Cash flow from acquisition of own shares
Net cash from financing activities
Total changes in liquidity in the year
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of the year
6
1,283
0
8,750
1,283
71
1. General information
Deep Sea Supply PLC’s (“the Company”) principal activities
are to engage and invest, directly or indirectly, by itself or
through subsidiaries or part-owned companies, partnerships
or other forms of entities, in the international offshore supply
vessel business.
The Company was incorporated as a public limited liability
company on 7 November 2006 in Cyprus in accordance with
the provisions of the Companies Law, Cap. 113.
The Company was established for the purpose of acquiring all
shares of Deep Sea Supply ASA.
Deep Sea Supply PLC presented on the 4 December 2006 a
voluntary exchange offer to acquire all issued and outstanding
shares in Deep Sea Supply ASA.The offer price presented
was 1 Deep Sea Supply PLC share for each owned share in
Deep Sea Supply ASA, and the offer period was from 5
December 2006 until 18 December 2006. Regarding the
exchange offer Deep Sea Supply PLC received acceptances
representing approximately 93.8% of the total issued shares in
Deep Sea Supply ASA. Settlement under the exchange offer
was completed on the 22 December 2006.The shares in
Deep Sea Supply PLC were delivered to the tendering
shareholders of Deep Sea Supply ASA on the 27 December
2006, and the first trading day of Deep Sea Supply PLC shares
on Oslo Børs was on the 28 December 2006.
Following the voluntary exchange offer, the Board presented
on 4 January 2007 a mandatory offer for purchase of the
remaining 6.2% of the shares of Deep Sea Supply ASA. At the
same time, the Board of Directors resolved to exercise Deep
Sea Supply PLC’s right of compulsory acquisition of all
remaining shares of Deep Sea Supply ASA.The offer period
under the mandatory offer was from 5 January 2007 to 2
February 2007.The rights to the shareholders of Deep Sea
Supply ASA in relation to the mandatory offer and ompulsory
acquisition were 1 share in Deep Sea Supply PLC, for each
owned share in Deep Sea Supply ASA, or to receive a cash
consideration of NOK 18 per share in Deep Sea Supply ASA.
Under the mandatory offer, Deep Sea Supply PLC received
acceptance representing approximately 4.9% of the issued
shares in Deep Sea Supply ASA, whereof approximately 4.5%
were tendered under the share alternative and 0.4% under
the cash alternative.
The shareholders of Deep Sea Supply ASA, who remained
passive, or did not take any action, representing approximately
1.2% of the total number of outstanding shares of Deep Sea
Supply ASA, were treated as bound to receive the offered
redemption amount (i.e. NOK 18 per share in Deep Sea
Supply ASA). Settlement did take place in mid March, and
after that, Deep Sea Supply PLC owns 100% of the issued and
outstanding shares in Deep Sea Supply ASA.
The Company has its primary and only listing on the Oslo
Stock Exchange.
These financial statements have been approved for issue by
the Board of Directors on 2 April 2009.
The Company has also prepared consolidated financial
statements in accordance with International Financial
Reporting Standards as adopted by the EU for the Company
and its subsidiaries (the “Company”).The consolidated
financial statements can be obtained from the Company s
registered office.
Users of these parent’s separate financial statements should
read them together with the Company’s consolidated
financial statements as at and for the year ended 31
December 2008 in order to obtain a proper understanding of
the financial position, the financial performance and the cash
flows of the Company and the Company.
2. Accounting principles
2.1 Statement of compliance and basis
of preparation
These financial statements have been prepared in accordance
with, and comply with, International Financial Reporting
Standards as adopted by the EU and the requirements of the
Cyprus Companies Law, Cap. 113.
The financial statements have been prepared under the
historical cost convention, as modified by the revaluation of
financial assets and liabilities, including derivative instruments
at fair value through profit or loss.The financial statement has
been prepared under the assumption that the company is a
going concern. A summary of the principal accounting policies
applied in the preparation of these financial statements are set
out below.These policies have been consistently applied to all
the years presented, unless otherwise stated.
72
IFRS requires the use of certain critical accounting estimates. It
also requires management to exercise its judgement in the
process applying the Company’s accounting policies.There are
no areas involving a higher degree of judgement or
complexity, or areas where assumptions and estimates are
significant to the financial statements.
All International Financial Reporting Standards issued by the
International Standards Board (IASB) and effective as of 1
January 2008 have been adopted by the EU through the
endorsement procedure established by the European
Commission, with the exception of certain provisions of
IAS39 "Financial Instruments: Recognition and Measurement"
DEEP SEA SUPPLY PLC
•
ANNUAL REPORT 2008
relating to portfolio hedge accounting. IFRIC 12 "Service
Concession Arrangements" has been endorsed by the EU on
26 March 2009 and its mandatory effective date was changed
from annual periods beginning on or after 1 January 2008 in
IFRIC 12 to an entity's first financial year starting after 29
March 2009 in the EU-endorsed version, but with earlier
adoption permitted.
Standards issued not yet effective: "At the date of approval of these financial statements the following accounting
standards were issued by the International Accounting Standards Board but were not yet effective:
Standard / Interpretation
(i) Adopted by the European Union
Effective for annual
periods beginning
on or after
Improvements to IFRSs – 2008
1 January 2009
27 “Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate”
1 January 2009
IFRS 8 “Operating Segments”
1 January 2009
Amendments to IFRS 1 and International Accounting Standard (IAS)
Amendment to IFRS 2 “Share Based Payment:Vesting Conditions and Cancellations”
IAS 1 (Revised) “Presentation of Financial Statements”
IAS 23 (Revised) “Borrowing Costs”
Amendments to IAS 32 and IAS 1 “Puttable Financial Instruments and
1 January 2009
1 January 2009
1 January 2009
Obligations arising on Liquidation”
1 January 2009
12 “Service Concession Arrangements”
29 March 2009
International Financial Reporting Interpretation Committee (IFRIC)
International Financial Reporting Interpretation Committee (IFRIC)
13 “Customer Loyalty Programmes”
(ii) Not adopted by the European Union
1 July 2008
IFRS 1 (Revised) “First Time Adoption of International Financial Reporting Standards”
1 January 2009
Disclosures: Improving disclosures about financial instruments"
1 January 2009
IFRS 7 (Amendments) - Financial Instruments:
IFRS 3 (Revised) “Business Combinations”
IAS 27 (Revised) “Consolidated and Separate Financial Statements”
Amendment to IAS 39 “Eligible Hedged Items”
Amendment to IAS 39 “Reclassification of Financial Assets: Effective date and Transition”
IFRIC 15 “Agreements for the Construction of Real Estate”
IFRIC 16 “Hedges of a Net Investment in a Foreign Operation”
IFRIC 17 “Distributions of Non cash Assets to Owners”
IFRIC 18 “Transfers of Assets from Customers”
1 July 2009
1 July 2009
1 July 2009
1 July 2008
1 January 2009
1 October 2008
1 July 2009
1 July 2009
The Board of Directors expects that the adoption of these accounting standards in future periods will not have a material effect
on the financial statements of the Company except from the application of IAS 1 (Revised) “Presentation of Financial Statements”
which will have a material effect on the presentation of the financial statements and the application of IFRS 7 (Amendments) Financial Instruments: Disclosures: Improving disclosures about financial instruments which will enhance disclosures about fair
value measurements and liquidity risk.
73
2.2 Underlying concepts
The financial statements are prepared on the going concern
basis using accrual accounting.
Assets and liabilities and income and expenses are not
offset unless specifically permitted by an accounting standard.
Financial assets and financial liabilities are offset and the
net amount reported only when a legally enforceable right to
set off exists and the intention is either to settle on a net basis
or to realize the asset and settle the liability simultaneously.
Changes in accounting policies are accounted for in
accordance with the transitional provisions in the IFRS
standards. If no such guidance is given, they are applied
retrospectively, unless it is impracticable to do so, in which
case they are applied prospectively.
2.3 Investments in subsidiary
undertakings
Subsidiaries are those entities in which the Company has an
interest of more than one half of the voting rights or
otherwise has power to govern the financial and operating
policies.
Investments in subsidiary undertakings are stated at cost
and provision is only made where, in the opinion of the
Directors, there is an impairment in their value.
2.4 Revenue recognition
Dividend income
Interest income
Interest income is recognised on a time-proportion basis
using the effective interest method. When a receivable is
impaired, the Company reduces the carrying amount to its
recoverable amount, being the estimated future cash flow
discounted at the original effective interest rate of the
instrument, and continues unwinding the discount as interest
income. Interest income on impaired loans is recognised using
the original effective interest rate.
2.5 Recognition of assets and liabilities
Assets are only recognized if they meet the definition of an
asset, it is probable that future economic benefits associated
with the asset will flow to the Company and the cost or fair
value can be measured reliably.
Liabilities are only recognized, if they meet the definition of
a liability, it is probable that future economic benefits
associated with the liability will flow from the entity and the
cost or fair value can be measured reliably.
74
2.6 Valuation and classification of assets
and liabilities
Assets intended for long-term ownership or use is classified as
non-current. Other assets are classified as current. Receivables
due to be repaid within one year are classified as current
assets.
Non-current assets are stated at historic cost price, but
written down to recoverable amount when the fall in value is
considered to be permanent. Such write-downs are reversed
when the reason for the write-down no longer applies.
2.7 Foreign exchange translation
Foreign currency translation
(i) Functional and presentation currency
Items included in the Company's financial statements are
measured using the currency of the primary economic
environment in which the entity operates (“the functional
currency”).The financial statements are presented in
United States dollars (US$), which is the Company's
functional and presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions
and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement.
2.8 Financial assets
The Company classifies its financial assets in the following
categories: at fair value through profit or loss, loans and
receivables, and available for sale.The classification depends on
the purpose for which the financial assets were acquired.
Management determines the classification of its financial assets
at initial recognition and re-evaluates this designation at every
reporting date.
(a) Financial assets at fair value through profit or loss
This category has two sub-categories: financial assets held for
trading, and those designated at fair value through profit or
loss at inception. A financial asset is classified in this category if
acquired principally for the purpose of selling in the short
term or if so designated by management, and they meet
certain criteria (IAS 39.9).Derivatives are also categorized as
held for trading unless they are designated as hedges. Assets in
this category are classified as current assets if they are either
held for trading or are expected to be realized within 12
months of the balance sheet date.
(b) Loans and receivables
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an
active market.They are included in current assets, except for
maturities greater than 12 months after the balance sheet
date.These are classified as non-current assets. Loans and
DEEP SEA SUPPLY PLC
receivables are classified as „trade and other receivables‟ in
the balance sheet.
(c) Available-for-sale financial assets
Available-for-sale financial assets are non-derivatives that
are either designated in this category or not classified in any of
the other categories.They are included in non-current assets
unless management intends to dispose of the investment
within 12 months of the balance sheet date.
Purchases and sales of financial assets are recognized on
the trade-date, the date on which the Company commits to
purchase or sell the asset. Investments are initially recognised
at fair value plus transaction costs for all financial assets not
carried at fair value through profit or loss. Financial assets
carried at fair value through profit or loss, are initially
recognised at fair value, and transaction costs are expensed in
the income statement. Financial assets are derecognised when
the rights to receive cash flows from the investments have
expired or have been transferred and the Company has
transferred substantially all risks and rewards of ownership.
Available-for-sale financial assets and financial assets at fair
value through profit or loss are subsequently carried at fair
value. Loans and receivables are carried at amortised cost
using the effective interest method. Gains or losses arising
from changes in the fair value of the “financial assets at fair
value through profit or loss” category are presented in the
income statement within other (losses)/gains – net, in the
period in which they arise. Dividend income from financial
assets at fair value through profit or loss is recognised in the
income statement as part of other income when the
Company‟s right to receive payment is established.
The Company assesses at each balance sheet date
whether there is objective evidence that a financial asset or a
group of financial assets is impaired.
income statement.
When the Company provides guarantees for any losses
made when the loss becomes probable.
2.9 Cash and cash equivalents
Cash and cash equivalents, includes cash in hand and deposits
held at call with banks.
•
ANNUAL REPORT 2008
2.10 Share capital
Ordinary shares are classified as equity.
Costs directly attributable to the issue of new shares or
options are shown in equity as a deduction, net of tax, from
the proceeds.
2.11 Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently
stated at amortised cost; any difference between the
proceeds (net of transaction costs) and the redemption
amount is recognised in the income statement over the
period of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the
Company has an unconditional right to defer settlement of
the liability for at least 12 months after the balance sheet date.
2.12 Trade payables
Trade payables are recognised initially at fair value and
interest method.
2.13 Taxation
The tax expense for the period comprises current and
deferred tax.Tax is recognised in the income statement,
except to the extent that it relates to items recognised
directly in equity. In this cases, the tax is also recognised in
equity.
The current income tax is calculated on the basis of the
tax laws enacted or substantively enacted at the balance sheet
date in the country where the Company operates and
generates taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in
which applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities.
Deferred income is recognised, using the liability method,
on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the financial
statements. However, the deferred income tax is not
accounted for if it arises from initial recognition of an asset or
liability in a transaction other than a business combination that
at the time of the transaction affects neither accounting nor
taxable profit or loss. Deferred income tax is determined
using tax rates (and laws) that have been enacted or
substantially enacted by the balance sheet date and are
expected to apply when the related deferred income tax
asset is realized or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the
extent that it is probable that future taxable profit will be
available against which the temporary differences can be
utilized.
75
2.14 Provisions
2.18 Statement of cash flow
Provisions represent liabilities of uncertain timing or amount.
Provisions are recognised when the Company has a
present legal or constructive obligation, as a result of past
event, for which it is probable that an outflow of economic
benefits will be required to settle the obligation, and a reliable
estimate can be made for the amount of the obligation.
Provisions are measured at the present value of the
expenditures expected to be required to settle the obligation
using a pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the
obligation.The increase in the provision due to passage of
time is recognised as interest expense.
The statement of cash flow is presented in accordance with
the indirect method.
2.15 Dividend income
2.16 Dividend distribution
Dividend distribution to the Company‟s shareholders is
recognised as a liability in the Company‟s financial statements
in the period in which the dividends are approved by the
Company‟s shareholders until payment is made.
2.17 Earnings per share
Earnings per share are calculated by dividing the net profit/loss
for the Company by the average weighted number of
outstanding shares over the period in question. Diluted
earnings per share include the effect of the assumed
conversion of potentially dilutive instruments such as stock
options.The impact of share equivalents is computed using
the treasury stock method for share options.
2.19 Derivative financial instruments
of assets
income statement.
When the Company provides guarantees for any losses
made for the fair value of the derivative when the loss
becomes probable.
2.20 Comparatives
Where necessary, comparative figures have been adjusted to
conform to changes in presentation in the current year.
3. Financial risk management
The Company’s normal business exposed it to various
financial risks.
Currency rate risk
The main risk is the currency rate risk.The Company is exposed to this risk mainly due to the amounts due to and form
related parties.The main currency that the company is exposed to Norwegian Kroner (NOK). A variation of +/- 10% in
the rate of exchange of USD/NOK would affect the Company by USD 250 thousand in 2008 (2007: USD 471 thousand).
76
Interest rate risk
The Company is exposed to interest rate risk but since the
Company does not intend to hold material liquid reserves
and has no borrowings the effect of interest rate movements
is immaterial.
4. Investments in subsidiaries
Cyprus based companies
DESS Cyprus Ltd
DESS PSV Ltd
Deep Sea Supply Management (Cyprus) Ltd
Norwegian companies
Deep Sea Supply AS
Total
2008
2
2007
15
2
2
0
2
116,580
116,580
116,598
116,584
The Company owns 100% of the share capital and voting rights for all of its subsidiaries.
5. Financial derivatives and assets at fair value through profit and loss
Currency exchange rate swap
2008
2007
6,335
0
Listed securities - held-for-trading
6,901
The fair value of all equity securities is based on their current bid prices in an active market.
6. Cash and cash equivalents
Cash at bank and in hand
2008
8,750
2007
Total bank deposits
8,750
1,283
Short-term bank deposits
0
1,283
0
The carrying amounts of cash approximate fair value. Currently, there is no credit facility for the Company.
7. Share capital
Deep Sea Supply PLC, located in Cyprus, became the parent company of the Company with effect from 28 December
2006. Deep Sea Supply ASA, located in Norway, was the parent company of the Company until 28. December 2006.The
relocation of parent company was conducted trough a 1:1 share swap offering. As per 31. December 2006, Deep Sea Supply
PLC owned 122.374.287 of the shares in Deep Sea Supply ASA and the remaining 8.015.352 shares in Deep Sea Supply
ASA were held by other shareholders (minority interest).
Following the voluntary exchange offer, where 93,8% of the Deep Sea Supply ASA shareholders accepted to swap their
Deep Sea Supply ASA shares into Deep Sea Supply PLC shares, the Board presented 4 January 2007 a mandatory offer and
a compulsory acquisition to purchase the remaining 6,2% Deep Sea Supply ASA shares.Through the mentioned mandatory
offer and through the compulsory acquisition, Deep Sea Supply PLC has during February and March become a 100% owner
of Deep Sea Supply ASA.
In connection with the Company`s change of domicile from Norway to Cyprus, Metrogas Holdings Inc (a sistercompany
of Hemen Holding Ltd.) issued in January 2007 a short term loan facility to Deep Sea Supply PLC which amounted to USD
25,6 mill.The purpose of the loan was to provide security and to finance the mandatory bid for the remaining 6,2% shares in
Deep Sea Supply ASA.The loan was fully repaid in mid March.
78
DEEP SEA SUPPLY PLC
Number of
Shares
(thousands)
Share
Capital
Share
premium
Other paid
in-equity
Total
2,000
40
0
0
40
122,374
2,447
349,753
496
352,696
5,799
116
0
0
Incorporation at 7 November 2006
•
ANNUAL REPORT 2008
Issuance of new shares relating to share swap
with Deep Sea Supply ASA
Issuance of new shares in January 2007 from
mandatory offering
Reclassification of minority interest
0
16,856
116
16,856
Issuance of new shares in August 2007 relating
to exercise of share warrant agreement
1,792
36
September 2007
0
0
Payment of dividend
0
3,644
-496
0
231
3,184
Valuation of share option scheme, issued in
At 31 December 2007
Payment of dividend from share premium
Valuation of share option scheme
At 31 December 2008
-179,919
231
-179,919
131,965
2,639
190,334
231
193,204
131,965
2,639
190,334
231
193,204
-2,000
-40
1,011
1,011
129,965
2,599
0
-50,746
139,589
1,242
-50,746
-40
143,431
In August 2007 the Company received an exercise notice from the holders of warrants in Deep Sea Supply PLC, Drawbridge
Special Opportunities Fund LP of New York and DB Special Opportunities LLC of New York, by which the two funds request
that their warrants are converted into shares for an exercise price of NOK 10 per shares. Drawbridge Special Opportunities
Fund LP of New York is the holder of 1.156.324 warrants, and DB Special Opportunities LLC of New York is the holder of
635.343 warrants.
The total authorised number of ordinary shares as per 31 December 2007 is 131.964.860 shares with a par value of USD
0.02 per share, of which 3.101.000 shares are hold by the company. All issued shares are fully paid.
The equity structure (share capital and share premium) presented above reflects equity structure of the legal parent including the equity instruments issued to reflect the combination together with the issued equity of the legal subsidiary immediately
before the business combination and the cost of the business combination is settled.
Share option scheme
EMPLOYEES:
The Board of Deep Sea Supply PLC has approved a share option scheme for all employees. By year-end 2007, 1,328,500 share
options were granted to management and employees of the Company.
Initial share options to the management and employees were granted at an exercise price equal to the closing price on June 11,
2007 increased by 5% or NOK 25.72 per share.These share options may be exercised with one third after one, two and
three years, respectively and all options must be exercised within 5 years.The strike price shall be reduced, on a USD for USD
basis, by the amount of all dividends declared by the Company in the period from the date of grant until the date the subsisting
options is exercised. Subsequent share options have been granted to new employees based on the same principle.
By year end 2008, a total of 1,412,500 options were granted at the following (December 2008) strike prices;
Strike price
No of options:
1,100,000
80,000
168,500
64,000
(as per 31.12.2008):
15.04
16.00
20.92
22.25
Board:
The Extraordinary General Meeting of Deep Sea Supply PLC awarded 300,000 stock options to the Chairman of the Board,
and 200,000 stock options to each of the Directors of the Company, totally 900,000 stock options were awarded.The exercise
price is the closing price on July 25 2007 increased by 5%, or NOK 27.72 per share.This stock option award is a part of the
Company`s incentive program and with the aim to attract qualified international directors.
By year end 2008, a total of 900,000 options were granted at the following (December 2008) strike prices;
Strike price
No of options:
900,000
(as per 31.12.2008):
17.24
Change of control
The share options for the board and the share options an certain other benefits for the employees will come into effect at
change of control in the Company (in excess of 33%).
79
8. Borrowings
As at 31
December
2008
As at 31
December
2007
Current
0
0
36,168
Total Borrowings
0
36,168
Borrowings
Non-current
0
The outstanding loan of the Company's borrowings are denominated in the following currencies
As at 31
December
2008
As at 31
December
2007
0
36,168
0
36,168
NOK
The outstanding loan of the Company's borrowings are denominated in the following currencies
As at 31
December
2008
Borrowings
0
Over 5 years
As at 31
December
2007
0
0
36,168
0
36,168
0
0
The Company issued a 5 years NOK 200 mill (USD 39m) bond in January 2006.The Company has exercised the issuer’s call
option for early settlement of the bond, in Quarter 3, 2008.The early call option included a 5% premium on the NOK 200
mill which has been recognised in the financial expenses.
9a. Credit quality of financial assets
The credit rating if financial assets that are neither past due nor impaired can be assessed by reference to external credit
ratings (if available) or to historical information and counterparty default rates.
The ratings for the banks where the Company holds its cash are as follows:
Credit Rating
80
Amount
AA-
8,090
A/A-
1 660
Total
8,750
DEEP SEA SUPPLY PLC
•
ANNUAL REPORT 2008
9b. Financial instruments by category
Company
Loans and
Receivables
Assets at
fair value
through
profit and
loss
Available for
sale
Total
31 December 2008
Total
175,642
6,335
184,392
8,750
6,335
Borrowings
Company
31 December 2007
-
Loans and
Receivables
Total
150,567
-
Other Financial
liabilities
-
151,849
-
167,346
-
167,346
167,346
Assets at
fair value
through
profit and
loss
Available for
sale
6,901
Total
6,901
150,567
1,283
6,901
-
Total
167,346
Liabilities
at fair value
through the
profit and
loss
Borrowings
190,727
-
1,283
Total
175,642
8,750
Liabilities
at fair value
through the
profit and
loss
Total
6,335
-
-
Other Financial
liabilities
158,749
Total
36,168
36,168
40,908
40,908
4,740
4,740
81
10. Other short term payables
Trade payables
Other payables
Accrued interest payable
Total
2008
12
2007
0
671
14,539
887
Year ending 31
December 2008
Period from 7
November 2006
ending 31
December 2007
-3,357
7,463
14,527
216
0
Fair value of trade and other payables equal their carrying amounts.
11. Other (losses)/gains – net
Change in value of financial derivatives
Change in financial assets at fair value through profit and loss
-8,192
0
-11,549
7,463
Year ending 31
December 2008
Period from 7
November 2006
ending 31
December 2007
Financial expenses
-4,955
-2,697
Financial expenses with related parties
-8,640
-198
12. Finance income and expenses
Financial income
Financial income with related parties
Unrealized exchange gains/(losses)
25
190
15,624
2,836
-507
-4,720
1,547
-4,589
Year ending 31
December 2008
Period from 7
November 2006
ending 31
December 2007
142
14
13. Administrative expenses
Audit fees
Consultancy fees
Management fees from subsidiaries
Other administration expenses
82
566
411
2,212
1,569
862
619
3,782
2,613
DEEP SEA SUPPLY PLC
•
ANNUAL REPORT 2008
14. Related party transactions
Amounts due from related parties
Deep Sea Supply AS
Deep Sea Supply Management AS
Deep Sea Supply Shipowning AS
DESS PSV Ltd
2008
172,126
714
2,506
2,802
31
0
6,187
175,642
150,567
Shareholders receivables
Total
2007
141,803
0
40
The amounts are payable on demand, not secured, carrying an in interest rate of 8%.
DESS Cyprus Ltd
DESS PSV Ltd
Total
72,027
2008
2007
147,349
3,853
3,853
75,322
0
The amounts are payable on demand, not secured, carrying an in interest rate of 8%.
Management fees
For 2008, the Company recognised management fees charged from subsidiaries that amounted to USD 2,212
(2007: USD 1,569)
Interest on intercompany balances
Year ending 31
December 2008
Period from 7
November 2006
ending 31
December 2007
Interest income
15,624
2,836
Interest expense
-8,640
-198
Total
6,984
2,638
15. Contingencies
Recent volatility in global financial markets.
The ongoing global liquidity crisis which commenced in the middle of 2007 has resulted in, among other things, a lower level
of capital market funding and higher interbank lending rates.The uncertainties in the global financial market have also led to
bank failures and bank rescues in the United States of America, Western Europe and in Russia. Such circumstances could
affect the ability of the Company to obtain new borrowings or re-finance its existing borrowings at terms and conditions
similar to those applied to earlier transactions.The debtors or borrowers of the Company may also be affected by the lower
liquidity situation which could in turn impact their ability to repay their amounts owed. Deteriorating operating conditions
for debtors or borrowers may also have an impact on Management's cash flow forecasts and assessment of the impairment
of financial and non-financial assets.To the extent that information is available, Management has reflected revised estimates of
expected future cash flows in its impairment assessments. Management is unable to reliably estimate the effects on the Company's financial position of any further deterioration in the liquidity of the financial markets and the increased volatility in the
currency and equity markets. Management believes it is taking all the necessary measures to support the sustainability and
growth of the Company‟s business in the current circumstances
16. Events after the balance sheet date
There were no material events which occurred after the end of the financial year.
83
84
DEEP SEA SUPPLY PLC
•
ANNUAL REPORT 2008
85
‘The Company has in 2008
taken several initiatives
towards more environmentally
friendly vessels and made
significant investments to the
benefit of the environment’.
I NNO V E NT I
Deep Sea Supply Group
Contact information
www.deepseasupply.no
Cyprus
Deep Sea Supply Plc
John Kennedy Ave.
Iris House
7th Floor
Office no.740B
Limassol 3100
Cyprus
Deep Sea Supply Management (Cyprus) Ltd
Deana Beach Apts, Block 1, Flat 411
Promachon Elefterias Street Agios Athanasios 4013
Limassol
Cyprus
Postal address:
P.O. Box 53340
CY-3302 Limassol
Cyprus
Norway
Deep Sea Supply Management AS
Tromøyveien 22
4841 Arendal
Norway
Singapore
Deep Sea Supply
16 Raffles Quay
# 43-01 Hong Leong Building
Singapore 048581
Postal address:
PO Box 2844
Singapore 904844
90

Annual Report 2008

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