annual report 2011
STX France STX Finland STX Florø STX OSV
Oasis of the Seas
Contents
5 This is STX Europe
7 Key financial figures
9 Cruise & Ferries
11 Offshore & Spesialized Vessels
13 Other
15 Board of Directors report
27 STX Europe Group Financial Statements/notes
64 STX Europe AS Financial Statements/notes
78 executive Management Team
79 BOD Members/Ownership structure/IR contact
80 This is STX Business Group
This is STX Europe
STX Europe is an international shipbuilding group renewable energy. STX France has approximately with a world leading position in the production of 2600 employees and operates two shipyards in Saint- cruise ships, ferries, offshore and other specialized Nazaire and Lorient. STX Finland has approximately vessels. Renowned for its ability to develop innovative 2500 employees and operates three shipyards in solutions tailor-made to customers’ needs, STX Turku, Rauma and Helsinki (50%). Europe draws on experience from centuries of design and production of advanced vessels. The Offshore and Specialized area comprises STX OSV Holdings Limited (‘STX OSV’) where STX Europe Providing both standardized and customized vessels, AS is the majority shareholder. STX OSV is listed on STX Europe works in close cooperation with the the Singapore Exchange (SGX). The company is one world’s leading ship owners. The right new building of the major global designers and shipbuilders of concept and the right price, delivered on time and offshore and specialized vessels used in the offshore within budget, is vital to customers’ success and oil and gas exploration and production and oil STX Europe Annual Report 2011 STX Europe therefore crucial to STX Europe’s results. services industries. STX OSV has approximately 9200 employees worldwide and operates nine strategically STX Europe is part of the Korea based international located shipbuilding facilities, comprising five in 5 industrial group of STX Business Group. STX Europe’s Norway, two in Romania, one in Brazil and one headquarter is located in Oslo, Norway. in Vietnam. The experience and expertise of the employees is crucial to the development of new STX Europe consists of three business areas: Cruise construction methods, technologies, and solutions for & Ferries, Offshore & Specialized Vessels, and Other. demanding customers worldwide. With 15 shipyards on several continents, the Group is able to provide the right combination of technology, The STX Norway Florø AS is part of business area capability, capacity and market proximity to meet the Other. The yard in Florø performs ship and rig repairs needs of diverse customers with cost-competitive in addition to conversions and maintenance work. STX solutions. Norway Florø AS has approximately 120 employees. Situated at the yard is also STX Norway Design Florø a The Cruise & Ferries business area consist of STX subsidiary of STX Europe. France and STX Finland. For years they have made the impossible possible by creating some of the In 2011, STX Europe had operating revenues of NOK most innovative vessels in the market. In addition 20.8 billion. During the year, the Group delivered 26 these yards have over the past years increased vessels; one car passenger ferry, one offshore patrol their presence into other areas such as vessels for vessel and one helicopter carrier in addition to 23 naval operations, offshore related constructions and offshore and other specialized vessels.
Key financial figures
Amounts in NOK million 2009 2010 2011
Key financial figures Operating revenues 29 141 20 868 20 804 EBITDA 133 912 2 391 Net Profit -782 -313 1 361
Balance Total assets 29 356 20 802 23 159 Equity 5 718 6 393 8 754 Equity ratio 19,5 % 30,7 % 37,8 % Interest bearing debt excl. Construction loans 2 657 2 129 2 098 Cash and bank deposits 3 339 6 470 4 903 STX Europe Annual Report 2011 STX Europe
Net Cash Flow Net cash flow from operating activitites 502 3 089 -55 7 Net cash flow from investing activities -334 -571 -2 459 Net cash flow from financing activities 232 730 991
Other Order intake 8 219 26 833 21 562 Order backlog 25 475 31 160 33 226 Number of Employees 15 937 14 752 14 516
EBITDA Order intake Order backlog Amounts in NOK million Amounts in NOK million Amounts in NOK million
33 225 2 800 30 000 35 000 26 833 31 160 2 391 2 400 25 000 30 000 25 475 2 000 21 562 25 000 20 000 1 600 20 000 15 000 1 200 15 000 912 10 000 800 8 219 10 000
400 5 000 5 000 133 0 0 0 2009 2010 2011 2009 2010 2011 2009 2010 2011
Cruise & Ferries
STX Europe is one of the world's largest builders of cruise such as production of vessels for naval operations, offshore ships and one of Europe's top ferry builders. The Cruise related constructions and windenergy. & Ferries business area is a leading player within its field; large and medium size passenger vessels. STX Finland's subsidiaries are Aker Arctic Technology Oy, STX Finland Cabins Oy, Shipbuilding Completion Oy and The business area is divided into STX Finland Oy and STX ENG´n´D Oy. The number of personnel in STX Finland France SA, both well known for its modern shipyards, amounts to some 2500 employees. advanced design capabilities and efficient construction facilities. Advanced manufacturing technologies are STX Finland delivered one car passenger ferry in January patented and include extensively automated welding, 2011. During the first half of 2011 STX Finland secured forming, machining and inspection processes. three new contracts for the construction of one multi- The inherent knowledge of passenger ship construction purpose fisheries research vessel, one double-ended ferry can be experienced where ever modern ships sail. and one multi-functional special cargo vessel. In addition Precision project management allows STX Europe to STX Finland was awarded a contract with Saipem for the incorporate innovative design features while meeting the overhaul and maintenance for the semi-submersible pipe- tight construction schedules required for on-time delivery laying vessel “Castoro Sei”. In September 2011, STX Finland of unique cruise ships and ferries. Understanding the and TUI Cruises signed an agreement for one large cruise
customers' needs makes STX Europe a preferred partner in vessel with an option for TUI Cruises to order another ship Annual Report 2011 STX Europe shipbuilding industry. subject to the decision of TUI Cruises shareholders. In October 2011 a contract for two large offshore modules for STX France comprises two shipyards located in Saint- the North Sea was secured and at the end of the year, the 9 Nazaire and Lorient that offer a wide range of complex Finish Border Guard and STX Finland signed an agreement vessels such as cruise ships, ferries and naval vessels. for the construction of a next generation offshore patrol STX France also include subsidiaries STX France Cabins vessel. STX Finland and Eide Marine Semi AS signed a specializing in design, production and turnkey delivery of contract for the outfitting, completion and delivery of two prefabricated modular cabins aboard cruise ships and highly sophisticated well intervention vessels. The contract STX France Solutions an engineering design company for the two vessels is however subject to certain conditions operating on the shipbuilding market as well as on offshore being fulfilled, and hence is not included in the orderbook at and land contracts. STX France has a solid reputation on year end 2011. STX Finland orderbook at the end of the year the passenger ship market and is establishing itself in the consisted of one advanced polar research vessel, one large offshore sector, after sales services (ASS) and engineering ferry and a cruise ferry, in addition to the above mentioned sectors, underpinned by its tremendous engineering firm contracts secured in 2011. capacity and the cutting-edge expertise of its teams. There are approximately 2600 people employed within STX France. The 50/50 joint venture company Arctech Helsinki Shipyard Oy (“AHS”), continues to focus on arctic maritime In June 2011 STX France chose to rescind the contract technology and shipbuilding. At the end of 2011 the order with state owned GNMTC of Libya for the construction of book for AHS consisted of one Multipurpose emergency and a 140 000 GT cruise vessels, the reason being a default rescue vessel and two multifunctional icebreaking supply of payment from GNMTC. In March 2012 MCS Croisières vessels. These vessels are not included in the order book of confirmed the acquisition of the rescinded vessel, she is to STX Finland since AHS is a 50/50 joint-venture. be named MSC Preziosa and be included in the MSC cruise fleet. STX France delivered one offshore patrol vessel, one helicopter carrier and one Marin Renewable Energy platform intended to lay tidal turbines and one foundation of jacket type to Alstom Wind.
During 2011 a contract for two Mistral class helicopter carriers was secured and at the end of 2011 the orderbook of STX France consisted of two helicopter carriers, three cruise vessels and one sand dredge.
STX Finland has three shipyards in Finland: Turku Shipyard, Rauma Shipyard and Arctech Helsinki Shipyard Oy, in which STX Finland owns 50 percent. The Turku Shipyard is the experienced builder of cruise ships and other technically demanding specialized ships and offshore units. The STX France STX Finland Rauma Shipyard is known for ferries, research vessels, naval ships and multipurpose vessels. The shipyard in Helsinki specializes in ice-breaking and ice-going offshore and arctic vessels. STX Finland is an experienced builder of technologically demanding projects and it is known for innovative and ecologically friendly solutions. Over the past few years STX Finland have made a move into other areas Skandi Gamma Offshore & Specialized Vessels
STX OSV is one of the major global designers and Other milestones during the year included the shipbuilders of offshore and specialized vessels used establishment in June of a new company for the in the offshore oil and gas exploration and production development of offshore handling systems in and oil services industries. Headquartered in Norway, cooperation with Industrial Control Design (ICD), a listed on the Singapore Exchange (SGX) and with specialist ship automation systems company. Named approximately 9,200 employees worldwide. STX OSV “Seaonics”, the new company will expand STX OSV’s operates nine strategically located shipbuilding research and development capabilities, and is expected facilities, including five in Norway, two in Romania, to strengthen its ability to develop and introduce vessels one in Brazil and one in Vietnam. A second shipyard equipped with cutting-edge technology. In September, in Brazil is currently under construction. STX Europe a contract for three ultramodern, energy-efficient stern holds 50.75% of the shares in STX OSV, after investment trawlers for Aker Seafoods was awarded to STX OSV. funds affiliated with OZ Management LP (Och-Ziff) This series of ultramodern trawlers was the result bought 18.27% of STX OSV shares from STX Europe in of a long development project utilizing design and July 2011. shipbuilding competence from offshore shipbuilding to branch out into another segment of specialized vessels.
STX OSV’s core business is the design and construction The diesel electric trawler design is a first for the Annual Report 2011 STX Europe of complex and highly customized offshore vessels, European trawler fleet, resulting in greatly increased including platform supply vessels (PSV), anchor fuel efficiency and environmental performance. handling tug supply vessels (AHTS) and advanced In November, a contract for the construction of a 11 offshore subsea construction vessels (OSCV). The research vessel for the Norwegian Defence Logistics company also designs and builds other specialized Organisation (“NDLO”) was secured. vessels such as research and coast guard vessels, seismic vessels, fishing vessels like stern trawlers and As of 31 December 2011, STX OSV had 54 vessels in the long liners, icebreakers, as well as conventional and order book, 32 of which will be of STX OSV’s own design. LNG-powered car and passenger ferries. The order intake for the year was for 28 vessels and a total of NOK 11.1 billion. STX OSV delivered 23 vessels With a diverse range of production capabilities, STX in 2011 and recorded all time high revenues exceeding OSV is strategically present in key offshore oil and gas NOK 12.4 billion. market worldwide. The company has the necessary expertise to design and construct complex OSVs to support their clients’ various requirements. Most vessels feature highly advanced technologies and innovative designs, with significant client-specific adaptations, targeted for use in challenging sea- and weather conditions and in deepwater exploration, and built to comply with strict environmental regulations. STX OSV also develops own electrical solutions such as power management and automation systems for its vessels, and sells design and equipment packages to other shipyards.
2011 was an eventful year for STX OSV. Following the decision the previous year to invest in the development of a second yard in Brazil in order to capture growth opportunities from the strong demand for locally built vessels, the development of the new yard gained momentum in 2011. The environmental license for construction of the yard, located at Suape in the state of Pernambuco, Brazil, was obtained, and planning, permitting and financing were completed. A major milestone was reached in November 2011, when STX OSV the contracts for eight LPG carriers for Petrobras Transportes S.A. (Transpetro) became effective. Yard construction is now under way. Deep Energy Other
This area consists of STX Norway Florø AS together of 2011 to 123 at the end of 2011 as a result of the with certain other units and corporate services. increased workload. At the end of 2011 a total number STX Europe’s yard in Florø is a well-established of approximately 500 people have their workplace in shipyard with a strong heritage. Founded in 1949 and the yard as either direct employees or employed by recognized as a shipyard producing a high number of subcontractors. chemical and juice tankers to a worldwide market. The operations of the Florø shipyard are today mainly During 2011 the yard completed 30 repair and focused on the market for repair and maintenance for maintenance assignments. With its attractive location, the offshore- and costal fleet, and with a new future the market outlook for the services provided by the focus on maintenance and upgrading in the offshore STX Florø shipyard is believed to have good potential. area, including rigs. Situated at the yard in Florø is STX Norway Design In September 2011 STX Offshore & Shipbuilding Florø AS a wholly owned subsidiary of STX Europe announced that Technip and STX Offshore & AS. The company was founded in 1985 and provides Shipbuilding had completed the first stage of its services within ship and maritime constructions for
first Offshore Pipelay vessel in Dalian, China and the whole maritime sector. Annual Report 2011 STX Europe the vessel was being moved to STX Europe’s yard in Florø, for outfitting and completion. The vessel arrived During the year 2011 STX Norway Design Florø AS has in October 2011 and is expected to be completed in performed engineering services for STX OSV, other 13 the second half of 2012. STX Norway Florø AS has STX yards, and other companies. increased its workforce from 63 at the beginning
STX FLORØ
Board of Directors report 2011
The year of 2011 was a year marked by uncertainties shares of STX OSV. The sales generated proceeds of both in relation to the global economic situation and approximately NOK 1.3 billion. As a part of the sale, a challenging climate for the funding of newbuilding STX Europe entered into a lock-up agreement with projects. The shipbuilding industry is still affected OZ Management LP where STX Europe agreed to not by the previous years of decline in orders and the dispose of any additional shares in STX OSV until 12 challenges on the financing side. However, STX November 2012, with certain limited exceptions. After Europe sees that the industry fundamentals are the sale STX Europe holds 50.75% of the shares. moving in the right direction and slowly improving, STX Business Group have played an important with several potential projects within the market. role in securing necessary financing for STX Europe Year end result for STX Europe showed strong in the past couple of years through STX Norway AS by performance and record high earnings for STX providing working capital through loans and equity, and OSV and improving results for STX France and STX other support. The shareholder loans provided by STX Finland. In 2011 all units have experienced a higher Norway AS of NOK 650 million were repaid in full in level of activity than previous year and increased third quarter 2011. Proceeds from the sale of shares in performance with the delivery of 26 vessels during STX OSV were used to repay the shareholder loans as
the year. well as to repay the Oslo listed corporate bond STX 01 Annual Report 2011 STX Europe of NOK 250 million, and further used to provide loans to HIGHLIGHTS FOR 2011 shareholder STX Norway AS totaling NOK 678 million. • EBITDA of NOK 2 391 million for 2011 compared In addition, STX Europe AS entered into a loan 15 with NOK 912 million in 2010. agreement with Standard Chartered Bank for a USD • Profit before tax of NOK 1 993 million for 2011 200 million senior secured facility in late 2011, and this (2010: NOK 241 million). loan was used for onward lending to shareholder STX • Orderbook situation: Norway AS. - Order intake NOK 21 562 million for 2011 In November 2011, a merger between STX Europe (2010: NOK 26 833 million). AS and STX Europe Holding AS was made effective, - 26 vessels successfully delivered in 2011. whereas STX Europe AS is the surviving entity. - Order backlog of 69 vessels totaling NOK 33 226 The merger was carried out for the purpose of a million (2010: NOK 31 160 million). simplification of the holding company structure of the • Full year result shows strong performance with STX Europe Group. STX Europe AS holds now a direct record high revenue and earnings for STX OSV ownership in STX France, STX Finland, STX Norway Holdings Ltd ("STX OSV")and improving results for Florø and STX OSV Holdings Ltd respectively. Cruise and Ferries, whereby both STX Finland and The re-position of STX Norway Florø shipyard STX France generated positive net profit in 2011. is proceeding according to plan and during 2011 • Reduced shareholding in STX OSV by 18.27% to approximately 30 projects within the business ship 50.75% in third quarter. repair and maintenance have been performed. The new • New loan agreement with Standard Chartered Bank and latest project for STX Norway Florø, the outfitting for a USD 200 million senior secured facility. and completion of Deep Energy for Technip, is a key • Consolidated interest bearing liabilities NOK 2 098 project, also creating a need for more employees. The million as of 31 December 2011, a NOK 31 million Deep Energy will be an important part of the activity at decrease compared to 31 December 2010. the yard in 2012. Within health, safety, and environment (HSE), the STX Europe Group successfully delivered 26 vessels company has enjoyed long-term gradual improvement during 2011. The order intake for the year was NOK in HSE performance. This is one of STX Europe’s 21 562 million. strategic priorities as continuous HSE achievements STX France and STX Finland entered into seven new are important in all aspects of the Group’s work. shipbuilding contracts, STX OSV entered into twenty STX Europe Group’s total operating revenues eight contracts during 2011, and STX Norway Florø amounted to NOK 20 804 million in 2011 (2010: NOK 20 secured one significant shipbuilding contract in addition 868 million). The revenues reflect a fairly reasonable to several assignments within the ship repair and activity level and good operational performance despite maintenance segment. The order backlog at year-end challenging market conditions. The earnings before 2011 consisted of 69 vessels for a total amount interest, taxes, depreciation, amortization, write-downs of NOK 33 226 million, which is an increase from and restructuring items (EBITDA) amounted to NOK NOK 31 160 million at the end of 2010. 2 391 million in 2011 (2010: NOK 912 million). The In July 2011 STX Europe sold 215,590,000 shares EBITDA margin was 11.5 percent, up from 4.4 percent in STX OSV to investment funds associated with OZ in 2010. The 2011 Group results were mainly driven by Management LP. This represented 18.27% of the record high earnings in STX OSV. Meanwhile the Cruise & Ferries business area is improving, and net result Strategic priorities was marginally positive in 2011 compared to losses Leverage on market position & improve in previous years. Both STX France and STX Finland competitiveness generated positive net results for 2011. This is a result A major priority for STX Europe is further development of the persistent work with the improvement programs of its strong market position; to be the leading builder initiated in 2009 and increased activities at the yards. of cruise ships, high-end ferries and advanced offshore Net financial items amounted to NOK -52 million service vessels. This requires continuous strengthening (2010: NOK -90 million). The Group’s share of profit in of the business areas by developing new solutions in associated companies and joint ventures totaled NOK cooperation with customers’ needs using the latest -2 million (2010: NOK -132 million). The Group had a environmental and technological requirements. The NOK 632 million tax expense in 2011, compared with a successful STX-developed designs continue to be a key NOK 480 million tax expense in 2010. No profit or loss focus area. was incurred from discontinued operations in 2011, In 2012, STX Europe will continue to focus STX Europe Annual Report 2011 STX Europe compared with NOK -74 million in 2010. on securing contracts and to further improve On the basis of the factors described above, STX competitiveness in order to remain among the 16 Europe Group recorded a net profit of NOK 1 361 million world leaders in its segments. A competitive cost (2010: NOK -313 million). At year-end 2011, STX Europe structure, together with deliverability and client trust, Group had an equity ratio of 37.8 percent (2010: 30.7 differentiates STX Europe and puts STX Europe at the percent). high-end of the market. This includes productivity gains and innovations, such as “green technologies”, design STX Europe AS and technology developments. The impact of increased STX Europe Group is part of the Korea based cooperation and synergies with the STX Business Group international industrial conglemarate of STX Business in Korea is important in this regard. Group. STX Europe’s headquarter is located in Oslo, Norway. STX Europe AS (former Aker Yards ASA), the Synergies with STX parent company, was established on 30 March 2004. Being a member of the STX Business Group, STX STX Europe Group operates within three business Europe continues to take advantage of potential areas: Cruise & Ferries, Offshore & Specialized Vessels, synergies to enhance the company’s competitive and Other. The operating businesses are organized advantages and further develop its market position. and managed separately according to the nature of the Specific synergies have already been identified, and products provided, with each business area or segment objectives established for implementing them in representing a strategic business unit that offers sourcing, input-factor acquisition, use of engineering different products and serves different markets. services, and shipbuilding expertise across Group Cruise & Ferries consists of STX France and STX organizational borders, in addition to management Finland. In addition to focusing on cruise and ferries, expertise, best practices, market know-how, and these business units are also diversifing into other networking. market segments, such as renewable energy/wind and offshore related constructions and other specialized Operational Excellence products/vessels. The Offshore & Specialized vessels One of STX Europe’s most important objectives is to business area consists of STX OSV Holdings Limited execute every project with high quality, on-time delivery group only. STX Europe AS is the majority shareholder and within established budgets. These objectives are in STX OSV Holdings Limited ("STX OSV") listed on achieved by streamlining key areas such as; production the Singapore Exchange (SGX) with a 50.75% share processes, quality, purchasing, and efficient use of ownership. STX OSV is one of the major global designers input factors. Operational risk is reduced by following and shipbuilders of such tonnage used in the offshore each project closely. Through improved operations the and oil and gas exploration and production and service Group will continue to enhance productivity and cost- industries. The business area Other includes STX effectiveness. Norway Florø together with certain other units, holding companies and corporate services. Health, Safety and Environment (HSE) performance improvement Health, safety and environment continue to be a strategic priority within STX Europe. Measures to avoid, reduce and eliminate personnel injury, environmental Our vision "Our vision is to be the leading builder of cruise, ferries and offshore vessels. A company that people want to work for, and customers seek to work with".
harm as well as damage to property or equipment are influenced the market for shipbuilding. However, there on-going continuously. Since the implementation of the was an increase in the number of newbuilding projects group HSE reporting and follow-up system in 2007, the in the market, especially within the Cruise & Ferries number of safety observations recorded continued to segment, a business area which has been challenging increase in 2011 with a total of 9588 – an increase of for many years now. There are still uncertainties for 44 percent from 2010. Simultaneously the number of the coming year, but STX Europe sees that the industry accidents continued its positive trend from 2010 and fundamentals are moving in the right direction and decreased further. HSE remains a key focus area in slowly improving. The current challenges in relation to daily operations. the general economic climate, continues to influence customers’ decisions especially in relation to new building Other short term priorities projects. Both STX France and STX Finland will continue Other short term priorities include maintaining and to focus on current improvement programmes including strengthening the financial platform, and further diversification into other market segments where the STX Europe Annual Report 2011 STX Europe securing new financing arrangement and/or renewing yards have considerable technological background, existing financing arrangements as required in STX expertise and other potential competitive advantages. Europe AS, as well as in the Cruise & Ferries business As a result of the complex global economic market 17 area. In addition, there is a need to further improve situation, there are uncertainties within the cruise results within the Cruise & Ferries business area; to market, however there are indications that growth is reduce costs, increase margins and secure profitable expected both in Europe and “new markets” such as contracts. China, Asia and South America. Both the cruise and the ferries market will be influenced by the need for new Global competition environment friendly solutions, fuel efficiency and safety The business environment is changing rapidly systems. In addition the market for refurbishment is and global competition continues to be influenced expected to increase due to the age of the fleet, an and affected by Asian shipyards with their rapid increased focus on ship emissions and safety and the expansion of shipyard capacity over the past years. current uncertainty within the market for financing. Competition is fierce, especially within the traditional Within the offshore market there are signs of vessels market such as dry cargo carriers, tanker increasing demand for anchor handlers and offshore and containerships where their market share has construction vessels in addition to opportunities in increased rapidly. Their main competitive advantage specialized vessel segments, but there are concerns is high production volumes and cost-effectiveness. regarding the timing for sustained upturn in order Within this extremely competitive and volatile activities as that remains uncertain. The rate of order environment STX Europe have chosen to focus on the conversion is hampered by constraints in shipowners’ highly specialized market for cruise ships, ferries, ability to finance new vessel projects. STX Europe offshore vessels and other specialized vessels, in believes STX OSV will continue to be fundamentally well addition to certain other segments where the expertise positioned to seize opportunities in the markets. (For of the yards is a competitive advantage. With this further information please refer to STX OSV Ltd. Annual specialized focus the yards are able to stay competitive. Report 2011 available on www.stxosv.com Creating newbuildings within these segments are not main–stream and requires tailor made solutions. In Prestigious awards the market segments that the group operates, the In July 2011, STX OSV was bestowed with the “Gold competition is largely from other shipyards in Norway Award for Best Annual Report” in the category of First- and Europe but there is a shift as the Asian shipyards year Listed Companies at the Singapore Corporate are entering the market for more complex vessels. This Awards, and awarded a “Merit Award for Best Investor will continue to influence the business environment in Relations” for First-year Listed Companies. (For further which the group is operating, thus focus on maintaining information concerning the award, please refer to STX and improving the competitive edge in the high-end OSV Holdings Ltd. Annual Report 2011 or www.stxosv.com). of the market continues to be of utmost importance going-forward. Risk Market risk Markets Shipbuilding is subject to risk related to economic During 2011 market conditions were tough and the fluctuations and has historically been a cyclical financial market experienced volatility, which in turn industry. STX Europe is exposed to market risk in several areas, such as the global economic climate, must therefore find available financing necessary world trade, consumer- and business spending, for both ongoing and new projects, which may be oil field explorations and developments. These and challenging due to the state of the financial markets, other market risk factors may influence STX Europe’s the Company’s weak financial performance in recent customers’ willingness and ability to order new vessels. years, and relatively high leverage. STX Europe is also exposed to strong competition In order to secure the on-going needs of its in the shipbuilding industry, which may adversely business, both STX Europe AS and the Group needs affect the company’s ability to secure new shipbuilding access to new and/or replacement of existing credit contracts. In order to reduce market risk the business and guarantee facilities in 2012. While no guarantee model is based on having resources available for use can be given, STX Europe expects that its on-going across the Group’s organizational borders. This allows financing needs will be secured in the ordinary course resource allocation to the market segments with the of business. most favorable terms. As mentioned in ‘Highlights for 2011’, STX Europe STX Europe Annual Report 2011 STX Europe AS entered into a loan agreement with Standard Operational risk Chartered Bank for a USD 200 million in late 2011. 18 STX Europe’s business operations involve significant The loan is secured with shares in STX OSV Holdings risk related to the production and deliveries of complex Ltd., and matures end of November 2012. STX Europe and advanced vessels. As of year-end 2011, the expects that the loan is either to be refinanced until its Company has 69 vessels in the orderbook. STX Europe maturity or to be repaid in full with various sources of has a high number of technically advanced vessels on cash, including but not limited to, such as repayment order for delivery over the next two to three years. This of the shareholder loans from shareholder STX Norway implies an inherent risk related to project execution. and proceeds from sale of the shares in STX OSV Failure to meet schedule or increases in contract costs Holdings Ltd and/or a combination of any of the above, can result in non-recoverable costs, which could exceed which decision is to be taken in due course. revenues from the applicable project. Even though the Group’s customers generally STX Europe’s operations are subject to long-term are financially sound and many projects already have contracts, many of which are fixed-price, turnkey secured financing, the current economic environment contracts awarded on a competitive bidding basis. A amplifies the importance of closely following up all significant proportion of the Group’s input factors are aspects of each project. There will always be a certain purchased from subcontractors. Although larger-sized counterparty risk of business partners not being able to purchases to a certain extent are made at the time of manage and carry through on their commitments. With contract signing, subcontractors’ cost increases may uncertain market prospects, payment default risk for negatively affect projects. project deliveries cannot be ruled out. Project execution is also an intrinsic risk for STX For some clients, there may also be a certain Europe in relation to its sub-contractors. Spill-over political risk in that they are based in more exotic effects from delays or quality problems associated countries with a more unstable political and economic with deliveries from our subcontractors also present situation. a significant part of the Company’s operational risk. Each project within STX Europe involves a significant Consequences may include project delays and further number of subcontractors. As the company has modifications to the overall delivery program. This experienced financial difficulties among some of again could increase research consumption and cost them, the follow-up of suppliers is highly prioritized as overruns. Having a continuous and open dialogue with problems can delay the overall project progress. suppliers is important to avoid misunderstandings and Please see note 34 of the consolidated annual accounts detect problems early. for further details on the company’s risk exposure.
Financial risk Corporate Governance STX Europe has an on-going need for financing STX Europe's corporate governance principles are through loans, guarantees, construction financing, etc. intended to ensure an appropriate division of roles Shipbuilding is a cyclical industry and the developments and responsibilities among the Company's owners, in the world’s financial markets affect the operations of its Board of Directors, and its executive management. the Group. The shipbuilding industry is also very capital An appropriate division of roles promotes the intensive and financing of working capital is important establishment of goals and strategies and the when undertaking shipbuilding contracts. The Company implementation of adopted strategies, while ensuring Our values "All STX Europe's employees are committed to our six corporate values; HSE mindset – Open and direct dialogue – Hands-on management – Cooperative – Customer driven- Delivering on promise".
that performance is subject to measurement and the management of the Company, while the President follow-up. & CEO is responsible for day-to-day management. STX Europe complies with the Norwegian Code The Board’s responsibility includes ensuring that of Practice for Corporate Governance (NUES) revised the Company’s activities are soundly organized and in October 2011. However, as a result of STX Europe approval of all strategic plans and budgets for the AS having listed bonds, only parts of the NUES are activities of the Company. The Board shall also ensure applicable, which are item 4,7 and 8 ref. Norwegian that the Company has satisfactory internal control Accounting Act §3-3b. A description of the Company’s systems and is responsible for the overall governance policies for corporate governance is available at www. structure, values and main policies. stxeurope.com. Some key elements of this policy are also described 5. Board of Directors authority / Power of Attorney further below, to provide explanations as to how STX regarding treasury shares Europe AS has addressed the various issues covered by As of today, STX Europe AS is a wholly owned subsidiary STX Europe Annual Report 2011 STX Europe the Norwegian Code. of STX Norway AS, and as such this is not applicable.
1. Business 6. Audit committee 19 The Board is of the opinion that the Group’s business The Board constituted an Audit Committee in 2011 is satisfactorily described in the Company’s Articles of with all Board members as members also of the Audit Association. Article 3 defines the company’s business Committee. A separate mandate is established for the and says that; the company’s purpose is owning and/ committee. The responsibility of the Audit Committee or operating industrial and other related activities, is to monitor the Company’s financial reporting process including those associated with shipbuilding, capital and the effectiveness of its systems for internal control management and group functions, and participation in and risk management. The Audit Committee shall also acquisition of other business activities. keep in regular contact with the Company’s auditor regarding the auditing of the annual accounts and 2. Equity and dividends and other distributions evaluate and oversee the auditor’s independence. The STX Europe AS’s objective is to maintain its equity at a Audit Committee reviews ethics and compliance issues. level that is appropriate in relation to the Company’s The Audit Committee reports to the Board. strategy and risk profile. The Board is of the opinion that this objective is met today. 7. Risk management and internal control Main intention is to minimize risk through guiding 3. Board of Directors behavior and decisions that are the most appropriate According to the Articles of Association, article 5, the for the company. Company shall have a Board consisting of a minimum of Risk management and internal control systems are 3 and a maximum of 10 members, of whom one-third will important for the Group in order to meet its strategic be elected by and from employees of the companies in targets. These systems form an integrated part of the STX Europe Group. Up to three shareholder-elected management’s decision-making processes and are a alternate board members may be elected each year. central element in the organization of the Company and STX Europe AS is a wholly owned subsidiary of the development of its routines and systems. STX Norway AS and the shareholders elect Board of STX Europe’s decentralized structure assumes that Directors that act as their representatives in governing all parts of the group meet the principal financial and the company. non-financial requirements set, and that the operations At present, the Board consists of 7 members, are performed according to the Group’s overall norms, whereof 3 are employee representatives. standards and values. Management in each individual The Board is of the opinion that it has sufficient sub-group has the responsibility for risk management expertise and capacity to carry out its duties in a and internal control related to its companies and the satisfactory manner. The Company believes that the project execution. criteria set out in the Norwegian Code for the Board’s An ongoing risk management process, including independence are met. analyses, management and follow-up of significant risks, is performed to ensure that the Group is 4. The work of the Board of Directors managed in accordance with the risk profile and According to Norwegian Public Limited Liability strategies approved by the Board. This process Companies Act, the Board has overall responsibility for encompasses the Group’s corporate values and ethical AMC Connector
guidelines. The Board reviews the Group’s overall the Group amounted to NOK 327 million in 2011 (2010: risk profile in relation to strategic, operational and NOK 354 million). Total depreciation, write-downs, and transaction-related circumstances at least once every amortization amounted to NOK 359 million in 2011. The year. The status of the overall risk situation is reported corresponding 2010 figure was NOK 381 million. The periodically to the Board. Group operating profit amounted to NOK 2 047 million STX Europe is strongly focused on frequent and (2010: NOK 463 million). relevant management reporting of both operational Net financial items, including share of profit from and financial matters, in order to both ensure adequate associated companies and joint ventures, amounted information for decision making and to respond quickly to NOK -54 million in 2011 ( 2010 : NOK -222 million). to changing conditions. Financial items associated with construction financing Management carries out Business units and are recorded as a component of project costs; thus, Business area reviews regularly whereby the financial such construction loans are not recorded as financial status and the status on the various projects, including items. For 2011, the Group had a tax expense of NOK STX Europe Annual Report 2011 STX Europe risks, are addressed. 632 million, compared with NOK 480 million in 2010. There was no profit or loss incurred from 20 8. Financial reporting process discontinued operations in 2011, compared with NOK The Group financial statements of STX Europe are -74 million in 2010. STX Europe’s profit after tax for prepared in accordance with International Accounting 2011 was NOK 1 361 million, up from NOK -313 million Standards/International Financial Reporting Standards in 2010. (IAS/IFRS). Separate Group guidelines and routines have been established in order to ensure that such Cash flow financial information is as consistent, accurate and Net cash flow from operating activities amounted to complete as possible. Financial reporting takes place NOK -55 million in 2011, compared with NOK 3 089 via the Group’s reporting systems, Business Planning million in 2010. STX Europe’s cash flow from operations and Consolidation (BPC) and Enterprise Reporting (ER). is highly volatile as it depends on the degree of STX Europe prepares interim quarterly financial completion of vessels under construction and delivery reports that are published at Oslo Stock Exchange. settlement. Net cash flow from investing activities amounted Presentation of accounts to NOK -2 459 million in 2011, compared to NOK -571 STX Europe AS’ financial statements are prepared million in 2010. according to Norwegian Generally Accepted Accounting Net cash flow from financing activities amounted Principles (NGAAP), while the Group accounts are to NOK 991 million in 2011, up from NOK 730 million in prepared in accordance with IFRS and associated 2010. The increase is mainly a result of the sale of parts interpretations as adopted by the European Union. of STX OSV.
Profit and loss account Balance sheet and liquidity STX Europe Group had operating revenues of NOK 20 At the year end of 2011, STX Europe had cash and cash 804 million in 2011, which is close to the level as in 2010 equivalents totaling NOK 4 903 million, down from NOK (NOK 20 868 million). The Group’s 2011 earnings before 6 470 million at year-end 2010. Of the year-end 2011 interest, taxes, depreciation, amortization, write-downs amount, NOK 283 million is on fully restricted escrow and restructuring (EBITDA) amounted to NOK 2 391 accounts, mainly as security for guarantees (2010: million (NOK 912 million in 2010). The corresponding NOK 1 234 million). There is also an additional item EBITDA margin was 11.5 percent in 2011 as compared on escrow accounts for STX France classified as long- to 4.4 percent in 2010. term, which amounts to NOK 439 million. The Offshore & Specialized Vessels business area Net working capital reflects funds tied to ongoing achieved a record high EBITDA result for 2011, and projects. Upon completion and delivery of a vessel, the Cruise & Ferries business area made a significant the capital tied up in the project is released, and net improvement compared to the year before. However working capital decreases accordingly. Consequently, the Cruise & Ferry business area is still facing some of the Group’s net working capital level may vary to a great the same challenges as previously with lower capacity extent depending on construction projects. At year-end utilization and thereby high capacity costs. Overall, the 2011, net working capital was NOK -1 576 million (2010: 2011 result was marked by significant improvement -2 952 million) and total working capital amounted to across all business areas. Ordinary depreciation for NOK 4 582 million (2010: NOK 3 533 million). "STX Europe secured 36 new contracts for a total value of NOK 21 562 million in 2011".
Gross interest-bearing debt exclusive of STX Finland signed a conditional contract with Eide construction loans was NOK 2 098 million (2010: NOK Marine Services AS for the outfitting works on two 2 129 million). Net interest-bearing debt (exclusive well intervention vessels, which is not included in the of construction loans, for which costs are charged to orderbook as of year-end 2011. projects and project-related bank deposits) totaled The Cruise & Ferries business area had an order NOK - 4 685 million as of 31 December 2011. The backlog of NOK 16 290 million, an increase from NOK corresponding figure for 2010 was NOK - 2 690 million. 14 126 million in 2010. The order backlog, including The Group’s interest bearing debt was reduced by NOK vessels in production, consisted of 14 vessels, in 31 million during 2011. addition to one smaller electrical ferry at STX France Total shareholders’ equity, including non-controlling Lorient shipyard. All ongoing projects are currently interest, amounted to NOK 8 754 million as of 31 proceeding according to plan. The business area has a December 2011. The equity ratio was 37.8 percent. Non- strong focus to secure more orders and to improve its controlling interest amounted to NOK 2 342 million, cost base and long term competitiveness. STX Europe Annual Report 2011 STX Europe which largely relates to STX OSV Holdings Limited in During 2011 market conditions improved with an which non-controlling shareholders owns 49.25 percent increase in the number of newbuilding projects. Despite and STX France SA in which the French government increasing ordering activity among the cruise and ferry 21 owns 33.34 percent. operators and others, the market conditions remain challenging. STX Europe is committed to remaining a Business areas world leading shipbuilder of cruise vessels and ferries. Cruise & Ferries At the same time, the business area is diversifying its The Cruise & Ferries business area had total operating focus into other market segments where the yards have revenues of NOK 8 234 million in 2011, compared to considerable technological background and expertise. NOK 8 835 million in 2010. EBITDA amounted to NOK This includes vessels for naval operations, offshore 137 million (2010: NOK - 473 million). The positive related constructions and renewable energy/wind. The improvement in EBITDA is largely attributable to focus in ice-breaking/arctic tonnage remains a key improved cost base and higher utilization of the yards’ strategic focus, predominantly in Finland. capacities in both STX France and STX Finland. Both STX France and STX Finland generated positive net Offshore & Specialized Vessels results for 2011. However, the financial performance in The Offshore & Specialized Vessels business area the business area is still not satisfactory and measures consists of the shareholding in STX OSV which was are to be taken in order to further improve this. listed on the Singapore Exchange (SGX) in November The Cruise & Ferries business area delivered a total 2010.STX Europe currently holds 50.75% of the shares of three vessels, two conversion/maintenance projects in STX OSV. and one windmill foundation jacket type in 2011. STX STX OSV reported total operating revenues of NOK France delivered the helicopter carrier constructed for 12 401 million, as compared with NOK 11 881 million in the French Navy, an offshore patrol vessel to Raidco 2010. The EBITDA result amounted to 2 355 million for Marine for the Moroccan Royal Navy, in addition to a 2011, compared with NOK 1 330 million in 2010. foundation jacket type to Alstom Wind. STX Finland Overall, there has been high activity throughout delivered “Spirit of Britain” a passenger ferry for P&O, the whole year and STX OSV delivered 23 vessels in one large conversion projects the Color Super Speed 2011, with a majority of the deliveries from Norway. and a maintenance project on Castoro Sei for Saipem. Order intake during the year was NOK 11 117 million The Cruise & Ferries business area secured seven comprising 28 vessels of which a large part of these new shipbuilding contracts and other projects for a orders were within the other specialized vessels total value of NOK 10 003 million in 2011. The vessel segment. The number of ordered PSV’s also increased contracts consist of one cruise ship for TUI Cruises, two reflecting a strong demand within this segment. At the helicopter carriers, one multipurpose fisheries vessel, end of 2011, the order backlog consisted of 54 vessels, one multi-functional special cargo vessel, one offshore including the 8 LPG carriers to be produced in Brazil. patrol vessel and a double-ended ferry. Regarding the Total order backlog amounted to NOK 16 676 million, cruise ship order, TUI Cruises has an option to order slightly down from NOK 17 031 million in 2010. another ship subject to the decision of TUI Cruises 2012 utilization levels at all the yards are expected shareholders. In September STX Finland secured a to remain high with an orderbook of 54 vessels contract for the delivery of two large offshore modules stretching well into 2013 and beyond. The demand for for the North Sea to be built at the Rauma shipyard. offshore and specialized vessels is set to improve as MSC Magnifica
the global offshore market is experiencing increased clarification announcement on the 18th of January. STX activity and this together with increased focus on Europe AS confirmed that we as part of our ordinary environmental performance and safety standards is course assessment of available strategies are exploring expected to drive demand for new vessels. However the viability of a sale of shares in STX OSV Holdings new projects and market activity is dependent on the Ltd, and that we have retained JPMorgan Chase Bank, shipowners capacity to invest and secure financing of N.A., Hong Kong Branch and Standard Chartered vessel projects. Industry expectations are positive and Securities Korea Limited in connection therewith. STX order momentum for vessels is expected to rise when Europe emphasized that there is no certainty that a the financial situation eases. Despite a volatile market sale of shares in the Company would take place and situation, the Group believes STX OSV is recognized in that information will be updated in the event of any the market as an innovative, competent and reliable significant developments. partner and will be able to benefit from its market In January 2012 Mr. Laurent Castaing was appointed position to obtain new orders in 2012. President of STX France, replacing Mr. Jacques STX Europe Annual Report 2011 STX Europe During 2011 STX OSV paid dividends twice whereby Hardelay. STX Europe AS received NOK 241 million in total. The On the 13th of March 2012 STX France entered into 22 first dividend of NOK 107 million was received based on a contract with MSC for construction of the 140,000 GT 2010 results while the second one of NOK 134 million cruise vessel previously contracted with state-owned was received based on interim results of STX OSV. GNMTC of Libya (General National Maritime Transport For further details on the full year 2011 results of Company) that is currently being built by Saint-Nazaire STX, please refer to STX OSV’s website www.stxosv.com. shipyard. On the 4th of April 2012 STX Europe announced that Other (eliminations and not distributed) STX France was informed by Viking River Cruise that Other includes STX Norway Florø AS together with they had decided to withdraw from further discussions certain other units and corporate services. concerning the previously announced project for two The Other business area’s revenues amounted to luxury cruise vessels. NOK 170 million in 2011, up from NOK 152 million last year. The EBITDA for the business area was NOK -101 Going concern million in 2011, compared with NOK 55 million in 2010. As required by section 3-3a) of the Norwegian The Florø shipyard has been re-positioned and is mainly Accounting Act, the Board of Directors confirms that focused on the market for ship repair and maintenance the going concern assumption has been fulfilled. In for both commercial and offshore vessels and with a reaching this decision, the Board has assessed the new future focus on maintenance and upgrading in various risk factors described in this report. The STX the offshore area, including rigs. During 2011 the yard Europe Group has a sufficient order backlog and most completed 30 repair and maintenance projects. In of the projects have secured construction financing. June 2011 STX Norway Florø AS signed a contract for The challenging market conditions have made it more the completion of Deep Energy for Technip, which also difficult to assess how the financial institutions will resulted in an increase in the number of employees and respond to the needs of our business. The Group will activity at the yard. need access to new and/or replacement of existing The transformation and re-position of the Florø credit facilities and loans during 2012 to secure the yard that started in 2010 is proceeding according to ongoing needs of the business. It is expected that plan. With its attractive location, the market outlook for the Group by its own means will be able to secure the services provided by the Florø shipyard is believed new financing arrangements. The accounts for 2011 to have good potential. The operational responsibility have been prepared on the going concern basis which of the Florø yard is managed by STX OSV under a implies realization of assets and discharge of liabilities management agreement, while STX Europe AS remains in the normal course of business. A forced realization the legal parent company. of assets in today’s market position would likely imply significant losses compared to book values. Events after the balance sheet date The going concern confirmation includes and In January 2012, STX Europe AS renewed a guarantee applies also the parent company STX Europe AS. facility of EUR 70 million with an international credit insurance company. Parent company accounts and allocation of Due to several references in the media during profit for the year January 2012 STX Europe chose to publish a The profit and loss account of STX Europe AS shows a "Record high earnings in STX OSV, and strong improvements in STX France and STX Finland – despite challenging market conditions".
profit for the year 2011 of NOK 355 million (2010: employees, recorded 9 087 safety observations in 2011 NOK 364 million). The company’s distribution policy is and 413 accidents. The Cruise & Ferries business area, to pay, over several years, a proportion of net profit as with approximately 5100 employees, recorded 368 safety dividends or group contribution. Based on the results in observations and 658 accidents in 2011. Other reported 2011, the Board of Directors proposed that the profit for 7 accidents and 133 safety observations. the year will be covered as follows: As far as the parent company STX Europe AS is concerned, there were no accidents during 2011. Group contribution NOK -1 050 million Other equity NOK 695 million Working environment and sick leaves Total allocated NOK 355 million In the past, the frequency of lost time incidents in the shipbuilding industry has been high. STX Europe is The Board of Directors proposes to pay group continuously working to further reduce the frequency contribution, and not dividend, for 2011. Unrestricted of injuries at the yards. STX Europe’s ambition is to STX Europe Annual Report 2011 STX Europe equity amounts to NOK 2 385 million, before group have the lowest frequency of injuries in the worldwide contribution for 2011, amounting to NOK 1 050 million. shipbuilding industry. In 2011, the lost-time incidents frequency (LTI: 23 Health, safety and the environment incidents resulting in absence from work per one STX Europe maintains a zero-tolerance policy towards million working hours) was 7,45 for the year as a whole. lapses in the Group’s health, safety, or environmental This is an reduction compared to the previous two years efforts. All accidents can and must be avoided, whether (9.0) and significantly lower than prior to implementing personal injury, damage to property, or harm to the the Synergi system. The fire incident ratio is down 87 environment. The Company continuously works to raise percent from 2010. awareness about and improve performance in HSE- Absence due to illness at STX Europe Group related matters. STX Europe will continue its focus on corresponds to an average sick-leave rate of 3 percent behavior, sick leave, environment and waste handling in 2011, which is at the same level as in 2010. Identifying as well as HSE related to subcontractors. ways to lower sick leave rates is important and benefits STX Europe has experienced an improvement in the company as a whole and each employee, hence management of safety-related data. This is much such efforts will continue in 2012. attributable to the implementation of a common Absence due to illness in the parent company, STX reporting system for safety-related observations. Europe AS, was 2 percent in 2011. This system, known as Synergi, has improved analysis capabilities and created new ways to identify trends and Environmental issues reports on hazardous tools, equipment, and working STX Europe takes its environmental responsibilities procedures. Additionally, the program has created seriously. The Group is aware of the effects of its unique opportunities for precision evaluations and activities on the environment and thus makes necessary recommendations. Synergi has been a prime mover in efforts to limit the impact. The main environmental the shift from reactive to proactive safety efforts. impacts are related to the use of resources, energy and The HSE key performance indicator (KPI) program transportation. STX Europe continuously evaluates and is important for our yards, here they record observed makes necessary adjustments needed to improve the safety-related incidents. Reporting and handling safety environmental impact of the industry. observations and executing preventive actions are Waste management, noise abatement, minimal a good tool to prevent accidents. As the number of emissions, and the construction of environmentally recorded safety observations has increased, STX Europe friendly vessels are among the areas STX Europe has seen an inverse relationship between the number focuses on. of safety observations and the number of accidents at STX Europe’s shipyards collect and sort their waste the yards. For the 2011 full year, the number of safety to ensure that it is handled, disposed of, and, where observations were 9 588 up from 6 654 observations possible, recycled in an environmentally appropriate in 2010. Simultaneously, the number of accidents has way. Hazardous waste and other sorted waste are dropped from 1 195 incidents in 2010 to 1078 incidents collected by approved waste management companies. in 2011. This is a decrease of 10 percent and proves that STX Europe keeps track of environmental performance measures to improve health, safety and environmental by means of an Environmental Performance System related issues at the yards are giving results. (EPS), in which the shipyards record their consumption Offshore & Specialized Vessels, with some 9200 of chemicals, disposal of waste, and other metrics. Various types of metal, including steel and aluminum, In March 2012 STX Finland chose to reinforce its account for the bulk of the waste that is sent for management in order to achieve its strategic and recycling. Other recycled waste fractions include financial targets with a set goal to promote achievement electro waste, wood, paint residues, oil-based waste, of the financial targets and establish solid foundations plastic, paper and cardboard. STX Europe’s objective for the development of business operations in the is to send as much sorted waste for recycling, in order coming years. A consolidation of sales and marketing to minimize the amount of unsorted waste delivered to into a corporate level activity was done in order to landfills and incineration plants. strengthen and increase the efficiency of its strategic As a globally leading shipbuilder, STX Europe is targets; diversification, differentiation and customer in a position to drive development towards more eco- relationship management. friendly maritime solutions. The Group’s strategic initiative Ecorizon aims to pool our latest innovations Recruitment and training with ongoing R&D, to provide customers with innovative There were fluctuations in the workload at the yards STX Europe Annual Report 2011 STX Europe solutions that are good for the environment – and and temporary lay-offs have been carried out both also good business. Ecorizon’s mission is to solve the in Finland and in France. The restructuring program 24 maritime industry’s current environmental challenges implemented in late 2009 through early 2010 was with regards to water and waste management, energy conducted and focus on maintaining the right level of and emission management, and sustainable solutions. personnel is a key issue which will be important going Ecorizon is STX Europe’s approach to further, concrete forward. action to render the maritime industry more sustainable The Group recruited a total of 1787 new employees – and more profitable. in 2011, of whom 48 percent were administrative The operations of the parent company STX Europe personnel and 52 percent were skilled workers/ AS do not harm the environment. operators. Average staff turnover in 2011 was 10.8 percent. Organization STX Europe had 14 516 employees at the end of 2011 Equal opportunity employer (14 752 in 2010), of whom 1725 were working in Norway, STX Europe Group seeks to be an attractive employer 2506 in Finland, 2642 in France, 5461 in Romania, 1495 and to maintain a human resources policy that is open in Brazil, 670 in Vietnam, 6 in Singapore and 11 in India. and fair. The Group seeks to be a good workplace with Mr. Ju-Won Park and Mr. Lars Ivar Bøe (employee the ability to attract the highest caliber of employees. representative) were appointed Board members of STX The Company maintains a policy for human resource Europe AS in July 2011, replacing Mr. Sang-Ho Shin and based on equal opportunity, regardless of ethnic Mr. Øyvind Bjerke (employee representative). During background, gender, religion, or age. The human third quarter Mr. Gustav Johan Nydal was appointed resource policy of STX Europe Group features measures new yard director of STX Norway Florø AS. Mr. Nydal to prevent discriminatory treatment of employees replaced Mr. Oddvar Saunes which held the position on based on gender with regard to salary and wages, a temporary basis. advancement, recruitment, and other work-related At the end of 2011, the Board of Directors consisted issues. STX Europe Group recruits from professional of Chairman Mr In-Sung Lee, Deputy Chairman, environments in which both women and men are President and CEO Mr. Su-Jou Kim, Board Members represented. Diversity strengthens the Group’s overall Mr. Ju-Won Park, Mr. Kang-Sik Rhee, Mr. Lars Ivar expertise. Bøe, Mr. Arne Otto Rogne and Mr. Audun Grønnevik. Maritime businesses tend to be male-dominated. The Executive Management Team at the end of 2011 The entire industry faces the challenge of increasing consisted of CEO & President of both STX Europe and the proportion of female employees, in light of the few STX Finland, Mr. Su-Jou Kim, President of STX France women choosing to study maritime-related subjects in Mr. Jacques Hardelay and Mr. Jürgen Kennemann, colleges and universities. At year-end 2011, 13 percent Head of Group Synergies. of STX Europe’s employees were women. This share is on a par with comparable companies in the industry Organizational changes after year-end 2011 and has not changed dramatically over the past couple In February 2012 Mr. Laurent Castaing was appointed of years. President of STX France, replacing Mr. Jacques Hardelay. STX Europe categorizes their employees into skilled workers/operators (66 percent) and administrative growing and that there are expectations for further personnel (34 percent). Women constitute 9 percent development and growth, especially within new of the skilled workers/operators; and 21 percent of markets. The demand for further new buildings are administrative personnel. The Group has worked to expected to slowly improve but at a slower pace than increase the number of women in leadership positions, previously anticipated due to the previously mentioned both in individual companies and among corporate staff. uncertainty in the global economy. The demand for Average salary levels in the Group are somewhat more advanced and innovative technology is increasing higher for men than for women. On average, however, especially in relation to fuel efficiency, safety and male employees have greater seniority than women environmental friendliness. Market conditions, however, do, and proportionately more men than women have are expected to remain challenging thus STX Finland management positions. For the same type of position, and STX France will continue to focus on improving however, overall there are no significant differences in effectiveness and reducing costs in order to keep its salary paid to male and female STX Europe employees. competitive edge. A total of 81 (2010: 166) women holds leading positions Diversification into other market segments where in the Group. The Group management team has no the yards have considerable technological background, female members. expertise and other potential competitive advantages STX Europe AS, the parent company, has a total will continue to be important. There is a strong focus of 11 employees, whereof 4 (36 percent) are women. to secure more orders and to improve its cost base and The Board of Directors of STX Europe AS consists of long term competitiveness. STX Europe is committed to men only. However, the Board is aware of the society’s remaining a world leading shipbuilder of cruise vessels, expectations regarding measures to promote equal ferries and other specialized vessels at its yards in opportunity related to both its business activities and Finland and France. the Board. The activity level within STX OSV during 2011 has been high despite volatile market conditions. Offshore Outlook market is still unstable but STX Europe believes Year 2011 showed that STX Europe was able to further that the Company’s longstanding traditions, solid improve and strengthen its financial performance. market position, leading-edge technology and solid Annual Report 2011 STX Europe STX OSV reported record high earnings whilst Cruise relationships will create strength to further develop its & Ferries area reported positive net profit for the year potential during the year ahead, and weather any short- 25 after several years with losses. The orderbook situation term market upheavals. There are strong fundamentals is improving and during 2011 all units received new in the offshore market that offer exciting opportunities, orders. However the shipping market in general is and this is expected to be able to strengthen their experiencing uncertainties especially in relation to the position as a preferred supplier of advanced technology challenging climate for the funding of new buildings solutions for demanding offshore environments. (For due to a volatile financial market. There is an increased further information please refer to STX OSV Ltd. Annual activity among the cruise and ferry operators and Report 2011 available at www.stxosv.com) reports indicates that the traditional cruise market is
Oslo, 16th April 2012 STX Europe AS Board of Directors
In-Sung Lee Su-Jou Kim Chairman of the Board Deputy Chairman and President & CEO
Ju-Won Park Kang-Sik Rhee Board member Board member
Lars-Ivar Bøe Audun Grønnevik Arne Otto Rogne Board member Board member Board member Declaration by the Board of Directors and President & CEO
The Board of Directors and the President & CEO confirms that the 2011 annual accounts, to the best of our knowledge, have been prepared in accordance with current accounting standards and that the information disclosed in the accounts give a true and fair portrayal of the assets, liabilities, financial position, and profit as a whole for the parent company STX Europe AS and the STX Europe Group. Further, the Board confirms that the Board of Directors’ report provides a true and fair overview of developments, profit, and financial position of the company and Group along with a description of the most important risks and uncertainties facing the businesses. STX Europe Annual Report 2011 STX Europe
Oslo, 16th April 2012 26 STX Europe AS Board of Directors
In-Sung Lee Su-Jou Kim Chairman of the Board Deputy Chairman and President & CEO
Ju-Won Park Kang-Sik Rhee Board member Board member
Lars-Ivar Bøe Audun Grønnevik Arne Otto Rogne Board member Board member Board member STX Europe AS Group Consolidated income statements
Amounts in NOK million Note 2011 2010
Operating revenues 4 20 804 20 868 Cost of goods and changes in inventory 5 -13 194 -14 630 Wages and other personnel expenses 6 -3 766 -3 849 Other operating expenses 7 -1 438 -1 545 Depreciation, impairment charges and amortization 11,12 -359 -381 Operating profit 2 047 463
Financial income 9 100 326 Financial expenses 9 -152 -416 Share of profit in associated companies and joint ventures 13 -2 -132 Profit before tax 4 1 993 241
Tax 10 -632 -480 Profit of the year continued business 1 361 -239
Profit of the year discontinued business 3 0 -74 Profit for the year 1 361 -313
Attributable to: Equity holders of the parent 811 -200 Annual Report 2011 STX Europe Non-controlling interest 550 -113 27 Average number of shares 22 113 607 085 113 607 085 Earnings per share continued business 22 7.14 -1.11 Diluted earnings per share continued business 22 7.14 -1.11
Comprehensive income
Amounts in NOK million 2011 2010
Profit for the year 1 361 -313
Exchange differences on translation of foreign operations -47 -238 Tax on translation exchange difference considered as part of the Group's net investment in the foreign subsidiary 0 1 Net (loss) / gain on available-for-sale financial assets 0 0 Change in non-controlling interest 0 0 Other comprehensive income -47 -237
Comprehensive income for the year, net of tax 1 314 -550 Non-controlling interest 544 -162 Equity holders of the parent 770 -388 STX Europe AS Group Consolidated balance sheet as of 31 December
Amounts in NOK million Note 2011 2010
ASSETS Property, plant and equipment 11 2 437 2 439 Intangible assets 12 1 390 1 320 Deferred tax assets 10 911 1 007 Investments in associated companies and joint ventures 13 280 171 Other shares 14 258 253 Interest-bearing long-term receivables 15 1 434 226 Pension assets 28 1 3 Other financial assets 16 54 56 Total non-current assets 6 766 5 477
Inventories 17 680 587 Projects under construction 18, 29 7 263 6 009 Trade and other interest-free short-term receivables 19 2 293 2 244 Interest-bearing short-term receivables 20 1 255 15 Cash and cash equivalents 21 4 903 6 470 Total current assets 16 394 15 325
Total assets 23 159 20 802 STX Europe Annual Report 2011 STX Europe
EQUITY AND LIABILITIES Paid in capital 23 722 722 28 Other paid in capital 23 3 190 3 190 Translation and other reserve 24 -186 -145 Retained earnings 2 686 1 058 Total equity attributable to equity holders of the parent 6 412 4 825 Non-controlling interest 2 342 1 567 Total equity 8 754 6 393
Subordinated loans 26 0 400 Interest-bearing long-term liabilities 26 867 1 385 Deferred tax liabilities 10 54 157 Pension liability 28 129 122 Other long term liabiliites 31 147 0 Non-current provisions 30 166 209 Total non-current liabilities 1 362 2 272
Construction loans 33 2 379 4 398 Interest-bearing short-term liabilities 26, 32 1 231 345 Trade and other payables 31 7 812 6 492 Income tax payable 10 641 368 Current provisions and accruals 30 981 535 Total current liabilities 13 043 12 137 Total liabilities 14 405 14 409
Total equity and liabilities 23 159 20 802
Oslo, 16th April 2012 STX Europe AS Board of Directors
In-Sung Lee Su-Jou Kim Chairman of the Board Deputy Chairman and President & CEO
Ju-Won Park Kang-Sik Rhee Board member Board member
Lars-Ivar Bøe Audun Grønnevik Arne Otto Rogne Board member Board member Board member STX Europe AS Group Consolidated statement of changes in equity
Fair Non- Paid-in Other paid Translation value Retained controlling Total Amounts in NOK million Note capital in capital reserve reserve earnings Total interest equity
Balance as of 31 December 2009 23-24 722 3 190 43 0 776 4 731 986 5 718
Profit for the year 0 0 0 0 -200 -200 -113 -313 Other comprehensive income 0 0 -188 0 0 -188 -49 -237 Total comprehensive income 0 0 -188 0 -200 -388 -162 -550 Change in non-controlling interest 0 0 0 0 0 0 0 0 Total recognized income and expense 0 0 -188 0 -200 -388 -162 -550 Dividend to shareholders 0 0 0 0 0 0 0 0 Convertible debt 0 0 0 0 0 0 0 0 Change in non-controlling interest 0 0 0 0 482 482 743 1 225 Balance as of 31 December 2010 23-24 722 3 190 -145 0 1 058 4 825 1 568 6 393
Profit for the year 0 0 0 0 811 811 550 1 361 Other comprehensive income 0 0 -41 0 0 -41 -6 -47 Total comprehensive income 0 0 -41 0 811 770 544 1 314 Change in non-controlling interest 0 0 0 0 0 0 0 0
Total recognized income Annual Report 2011 STX Europe and expense 0 0 -41 0 811 770 544 1 314 Dividend to shareholders 0 0 0 0 0 0 -228 -228 Convertible debt 0 0 0 0 0 0 0 0 29 Change in non-controlling interest 0 0 0 0 817 817 458 1 275 Balance as of 31 December 2011 23-24 722 3 190 -186 0 2 686 6 412 2 342 8 754 STX Europe AS Group Cash flow statement
Amounts in NOK million Note 2011 2010
Profit before tax including profit/loss from discontinued operations* 1 993 241 Net interest 128 129 Interest paid -165 -318 Interest received 97 129 Sales losses/gains (-) and write-downs 25 -316 Unrealized foreign exchange gain/loss and other non-cash items 12 32 Ordinary depreciation 327 354 Amortisations and impairments / recognition of negative goodwill 10 27 Share of earnings and impairment of associated companies 2 132 Taxes paid -436 -70 Change in working capital, including change in construction financing -2 047 2 749 Net cash flow from operating activities -55 3 089
Proceeds from sales of property, plant and equipment 101 1 Proceeds from sales of shares in subsidiares, net of cash acquired 3 0 49 Acquisition of shares and other equity investments -143 -322 Purchase of property, plant and equipment -453 -149 Purchase of intangible assets -12 -3 Net cash flow from changes in interest bearing receivables and other investments -1 952 -146 STX Europe Annual Report 2011 STX Europe Net cash flow from investing activities -2 459 -571
Proceeds from issuance of long-term interest-bearing debt 0 304 30 Proceeds from issuance of short-term interest-bearing debt excluding construction financing 1 150 128 Repayment of long-term interest-bearing debt -56 -383 Repayment of short-term interest-bearing debt excluding construction financing -1 175 -565 Proceeds from dispositions (payments) for acquisitions of non-controlling interest 3 1 301 640 Proceeds from issuance of new shares during public offering 3 0 605 Dividends paid -228 0 Net cash flow from financing activities 991 730
Net change in cash and cash equivalents -1 522 3 248 Effects of currency translation differences on cash -45 -117 Cash and cash equivalents as of 1 January 6 470 3 339 Cash and cash equivalents as of 31 December 21 4 903 6 470
The statement includes discontinued operations prior to their disposal.
* Profit before tax from continued business as presented in the income statement and profit before tax from discontinued business as presented in note 3. NoteS TO THE ACCOUNTS
comprehensive income. The corridor method and the NOTE 1 Corporate information recognition of actuarial gains and losses in profit or loss are no longer permitted. The standard also requires STX Europe AS (the company) is incorporated and that past service costs as well as gains and losses on domiciled in Norway. The address of the main office is curtailments / settlements are recognised in profit or Karenslyst allé 57, 0278 Oslo, Norway. The shares in STX loss. Expected returns on plan assets are calculated Europe AS have been delisted from Oslo Stock Exchange. based on the rates used to discount the defined benefit Last day of listing was 10 February 2009. obligation. The definitions of short-term and other long- The establishment of STX Europe AS took effect for term employee benefits have been amended and the accounting purposes on 1 April 2004 as a combination of distinction between the two depends on when the entity Kvaerner and Aker RGI’s shipbuilding activities. expects the benefit to be settled. The group will apply IAS The principal activity of the business is building 19 (revised) from 1 January 2013). vessels within the segments Cruise & Ferries, and Offshore & Specialized Vessels. The yards are placed in IAS 28 (revised) Investments in Associates and Joint Finland, France, Romania, Vietnam, Brazil and several Ventures (effective from 1 January 2013) places in Norway. The revised standard requires that IFRS 5 is applicable The financial statement of 2011 was approved by the to an investment, or a portion of an investment, in an Board at 16 April 2012. associate or a joint venture that meets the criteria to be classified as held-for-sale. The standard also requires that on cessation of significant influence or joint control,
even if an investment in an associate becomes an Annual Report 2011 STX Europe investment in a joint venture or vice versa, the company does not re-measure the retained interest. The group will NOTE 2 Accounting principles apply IAS 28 (revised) from 1 January 2013). 31
Statement of compliance IFRS 10 Consolidated Financial Statements (effective from 1 January 2013) The consolidated financial statements of STX Europe and IFRS 10 introduces a single control model to assess all its subsidiaries have been prepared in accordance with whether an investee should be consolidated. This control International Financial Reporting Standards (IFRS), as model requires entities to perform the following in adopted by the EU. determining whether control exists: New and amended standards adopted by the - Identify how decisions about the relevant activities are Group made - Assess whether the entity has power over the relevant The Group has not adopted any new or amended IFRS activities by considering only the entity’s substantive standards in these financial statements. rights Standards, amendments and interpretations - Assess whether the entity is exposed to variability in to existing standards that are not yet returns effective and have not been early adopted by - Assess whether the entity is able to use its power over the group the investee to affect returns for its own benefit Control should be assessed on a continuous basis The following standards and amendments to existing and should be reassessed as facts and circumstances standards have been published and are mandatory for change. The group will apply IFRS 10 from 1 January the group’s accounting periods beginning on or after 2013. The standard will be applied retrospectively if there 1 January 2012 or later periods, but the group has not is a change in the control conclusion between IAS 27/SIC early adopted them: 12 and IFRS 10.
IFRS 9 Financial Instruments IFRS 11 Joint Arrangements (effective from 1 January 2013) (effective from 1 January 2013) The standard requires that financial assets are classified IFRS 11 establishes that classification of the joint as subsequently measured at either amortised cost or arrangement depends on whether parties have rights to fair value depending on the business model for managing and obligations for the underlying assets and liabilities. the financial assets and the contractual cash flow According to IFRS 11, joint arrangements are divided into characteristics of the financial assets. The standard has two types, each having its own accounting model: not been early adopted by the group. The group will apply - Joint operations whereby the jointly controlling IFRS 9 from 1 January 2013. It is not expected to have a parties, known as joint operators, have rights to material impact on the group’s financial statements. assets and obligations for the liabilities, relating to the arrangement. IAS 19 (revised) Employee Benefits: Defined benefit plans - Joint ventures whereby the joint controlling parties, (effective from 1 January 2013) known as joint venturers, have rights to the net assets of The revised standard requires that actuarial gains the arrangement. and losses are recognised immediately in other In terms of IFRS 11, all joint ventures will have to be equity reported amounts of revenues and expenses during the accounted. The group will apply IFRS 11 from 1 January reporting periods. Estimates are based on management’s 2013. The standard will be applied retrospectively, subject best knowledge of current events and actions, experiences to certain transitional provisions. and other factors that are reasonable under the circumstances. Actual results may ultimately differ from IFRS 12 Disclosure of Interests in Other Entities (effective those estimates. from 1 January 2013) Estimates and underlying assumptions are evaluated IFRS 12 combines, in a single standard, the disclosure on a running basis. Changes in accounting estimates are requirements for subsidiaries, associates and joint accounted for in the period when the changes have arisen. arrangements, as well as unconsolidated structured Critical accounting estimates and assumptions for STX entities. The required disclosures aim to provide Europe are as following: information to enable user to evaluate: - The nature of, and risks associated with, an entity’s Revenue recognition interests in other entities The Group uses percentage of completion method - The effects of those interests on the entity’s financial for projects in progress. The use of percentage of position, financial performance and cash flows completion method requires the Group to estimate stage The adoption of the new standard will increase the of completion of contract activity at balance sheet date level of disclosure provided for the entity’s interests and also estimate the outcome of a contract. Revenue in subsidiaries, joint arrangements, associates and recognition depends on variables as development in steel structured entities. The group will apply IFRS 12 from prices, cost of other factor inputs, extent of calculated 1 January 2013. contingencies, developments in projects and shipyard capacity. IFRS 13 Fair Value Measurement The scope of variation order and accept of claims (effective from 1 January 2013) may affect revenue estimates. Uncertainties about IFRS 13 introduces a single source of guidance on fair revenue estimates will also be affected by the Group’s value measurement for both financial and non-financial previous experience from similar construction projects. assets and liabilities by defining fair value, establishing Generally there are greater uncertainties related to a framework for measuring fair value and setting out revenue estimates of new constructions compared STX Europe Annual Report 2011 STX Europe disclosures requirements for fair value measurements. with construction of sister vessels. Events, changes in The key principles in IFRS 13 are as follows: assumptions and the management’s judgement will affect 32 - Fair value is an exit price recognition of revenue in the current period. - Measurement considers characteristics of the asset or liability and not entity-specific characteristics Estimated impairment of goodwill - Measurement assumes a transaction in the entity’s In accordance with IFRS goodwill are annually tested principle (or most advantageous) market between for impairment. The value of cash generating units are market participants valuated to estimated recoverable amount, that is the - Price is not adjusted for transaction costs higher of fair value less costs to sell and value in use. - Measurement maximises the use of relevant observable Estimated recoverable amount is calculated based inputs and minimises the use of unobservable inputs on net present value of budgeted cash flow for the - The three-level fair value hierarchy is extended to all fair cash generating units. The calculations require use of value measurements estimates and assumptions that is relevant for the Group. The group will apply IFRS 13 from 1 January 2013. The The valuation depends on budgets that are reflecting standard will be applied prospectively and comparatives actual circumstances and that used discount rate is will not be restated. relevant to the businesses. Generally there will be uncertainties related to cash Basis for preparation flow estimates. The degree of uncertainties will depend on The accounting principles described below are applied certainty of the order backlog and market development, consistently for all periods presented in the Group uncertainties in prices related to different factor inputs accounts. and to what extent the prices are hedged. Events, changes The consolidated financial statements are presented in assumptions and the management’s judgement will in NOK million, except where otherwise indicated. affect evaluation of impairment in the current period. Norwegian Kroner (NOK) is the functional currency of the parent company. These consolidated financial statements Income taxes have been prepared on a historical cost basis, except The Group is subject to income tax in several jurisdictions. for derivative financial instruments, available-for-sale Considerable judgements are required when determining investment securities and financial assets and financial the global allocation to income taxes. In our operational liabilities held-for-trading that have been measured at business there are many transactions and calculations fair value. The carrying values of recognized assets and where final outcome may be uncertain. The Group liabilities that are hedged and meet the criteria for hedge accounts for allocation to expected tax liabilities based accounting are adjusted to record changes in the fair on estimates. When final outcome differ from this, the values attributable to the risks that are being hedged. deviations will affect the tax expense and provision in the period of settlement. Use of estimates Deferred tax asset related to loss carried forward The preparation of financial statements in accordance with is recognized when it is probable that the loss carried IFRS requires the management to make estimates and forward may be utilized. Evaluating of probability is based judgements that affect the reported amounts of assets on historical earnings, expected future margins and the and liabilities, the disclosure of contingent assets and size of order backlog. liabilities at the date of the financial statements, and the Post-employment benefits Investment in an associate Present value of defined benefit pension plans depends The Group’s investment in an associate is accounted for on several factors which include actuarial and financial under the equity method of accounting. This is an entity in assumptions. Any changes in assumptions affects which the Group generally holds between 20 percent and calculations of the present value of the obligations and 50 percent of the voting rights and over which the Group future pension costs. has significant influence but not overall control. Share The Group decides the discount rate at the end of options, convertibles and other equity instruments are each year. The rate is used to discount future cash flows considered when assessing whether an entity is under related to future defined benefit obligations. The discount significant influence. rate is determined by reference to government bonds or The investment in an associate is carried in the market yields on high quality corporate bonds at balance balance sheet at cost plus post-acquisition changes in sheet date. The currency and term of the bonds shall be the Group’s share of net assets of the associate, less any consistent with the currency and estimated term of the impairment in value. The income statement reflects the postemployment benefit obligations. Other assumptions share of profit after tax of the associate as part of financial when calculation present value of defined benefit plans is items. Where there has been a change recognized directly based on market values and best estimates. Assumptions in the associate’s equity, the Group recognizes its share related to turnover and salary increase reflect the of any changes and discloses this, when applicable in the operations. statement of changes in equity. Equity accounting is discontinued when the The accounting principles carrying amount of the investment in an associated Group accounting and consolidation principles company reaches zero, unless the Group has incurred Subsidiaries or guaranteed obligations in respect of the associated The consolidated financial statements of 2011 of STX company. Europe include the financial statements of the parent company, STX Europe AS, and its subsidiaries. Intercompany transactions and eliminations Subsidiaries are those entities in which STX Europe All intercompany transactions, receivables, liabilities either owns, directly or indirectly, over fifty per cent of and unrealised profits, as well as intragroup profit the voting rights, or otherwise has the power to govern distributions, are eliminated. In addition unrealized gains their operating and financial policies. Share options, related to transactions with associated companies or joint Annual Report 2011 STX Europe convertibles and other equity instruments are considered ventures are eliminated in respect of the Group share part when assessing whether an entity is controlled. of that company. Unrealized loss is eliminated in same 33 Acquisitions of subsidiaries are accounted for using manner, but only to the extent that there is no impairment the purchase method of accounting. The compensation of loss. an acquisition is measured as the fair value of the assets acquired, shares issued or liabilities undertaken at the Non-controlling interest date of acquisition plus costs directly attributable to the Non-controlling interest have been disclosed separately acquisition. Terms of an acquired in-process revenue from the consolidated shareholders’ equity and liabilities contract may be less favourable than the terms that and are recorded as a separate deduction on the would have been realized in a current market transaction. consolidated income statement. An in-process revenue contract is considered to be an executor contract (that is, a contract that remains Foreign currency translation and wholly unperformed or for which there are remaining transactions performance obligations by either or both parties to the Functional currency contract). In the purchase price allocation, an unfavourable The consolidated financial statements are presented in contract liability is recorded to the extent that an Norwegian Kroner (NOK), which is the functional currency in-process revenue contract contains terms that are not of the parent company. equivalent to market terms on the date of acquisition. As a Items included in the financial statements of each result, the rate of return recognized in the post-acquisition subsidiary in the Group are initially recorded in the results of operations equals a market return for the functional currency, i.e. the currency that best reflects remaining legal performance obligation on the acquisition the economic substance of the underlying events and date. In addition intangibles assets and liabilities that arise circumstances relevant to that subsidiary. from the combination of businesses are identified at fair value. The excess cost of acquisition over the fair value Transactions and balances of the net assets of the subsidiary acquired and other Foreign currency transactions are translated into intangible assets and liabilities related to the acquisition, functional currency using the exchange rates prevailing at measured at the date of change of control, is recorded the dates of the transactions. Monetary items in foreign as goodwill (see “Intangible Assets” for the accounting currencies are translated into functional currency at the policy on goodwill). If, after reassessment, the fair value closing rate at the balance sheet date. Foreign exchange of net assets acquired exceeds the cost, the excess will be gains and losses resulting from the settlement of such recognized immediately in profit and loss. transactions and from the translation of monetary assets Subsidiaries acquired during the year are included and liabilities denominated in foreign currencies are in the consolidated financial statements from the recognized in the income statement. Foreign exchange date on which control is transferred to the Group, and differences arising in respect of operating business subsidiaries sold are included up to the date that control is items are included in operating profit in the appropriate relinquished. income statement account, and those arising in respect Where necessary, the accounting policies of of financial assets and liabilities are recorded net as a subsidiaries have been adjusted to ensure consistency financial item. with the policies adopted by the Group. Group companies on acquisitions of associates is included in investments in Income statements and cash flows of subsidiaries, whose associates. If the acquirer’s interest in the net fair value of functional currency is not NOK, are translated into NOK the identifiable assets, liabilities and contingent liabilities at weighted average exchange rates for the period. Their recognized exceeds the cost, the difference is recognized balance sheets are translated at the mid exchange rates immediately in the income statement. ruling on the balance sheet date and the translation differences are taken to shareholders’ equity. Research and development costs When a foreign entity is sold, such translation Research costs are expensed as incurred. An intangible differences are recognized on the income statement as asset arising from development expenditures on an part of the gain or loss on sale. individual project is recognized only when the Group Exchange differences arising on a receivables from can demonstrate the technical feasibility of completing or payable to a foreign subsidiary, where settlement is the intangible asset so that it will be available for use or neither planned nor likely to occur in the foreseeable sale, its intention to complete and its ability to use or sell future, is recognized directly to equity as translation the asset, how the asset will generate future economic exchange difference, as these items are considered part of benefits, the availability of resources to complete the asset the Group's net investment in the foreign subsidiary. and the ability to measure reliably the expenditure during the development. Property, plant and equipment During the period of development, the asset is Property, plant and equipment acquired by Group tested for impairment annually. Following the initial companies are stated at cost, except the assets of recognition of the development expenditure, the cost acquired subsidiaries that were stated at the fair values at model is applied requiring the asset to be carried at cost the date of acquisition. less any accumulated amortisation and accumulated The carrying value of the property, plant and impairment losses. Amortisation of the asset begins when equipment on the balance sheet represents the development is complete and the asset is available for accumulated cost less accumulated depreciation and use. It is amortised over the period of expected future life. any impairment charges. Interest costs on borrowings to finance the construction of property, plant and equipment Other intangible assets are capitalized during the period of time that is required to Other intangible assets (patents, trademarks and licenses) STX Europe Annual Report 2011 STX Europe complete and prepare the asset for its intended use. Other acquired are recognized at cost less accumulated borrowing costs are expensed. amortizations and impairments losses. 34 Land is not depreciated, but otherwise other fixed assets in use are depreciated on a straight-line basis over Financial investments the useful life of the assets. Depreciations are based on All investments are initially recognized at cost, being expected useful lives of the assets after deducting the the fair value of the consideration given and including residual value of the assets. The assets’ residual values, acquisition charges associated with the investment. useful lives and methods are reviewed, and adjusted if After initial recognition, investments that are classified appropriate, at each financial year end. as available-for-sale are measured at fair value at each Ordinary repairs and maintenance costs are charged balance sheet date. Gains or losses on available-for-sale to the income statement during the financial period in investments are recognized as other comprehensive which they are incurred. The cost of major renovations income in equity until the investment is sold, collected is included in the asset’s carrying amount when it is or otherwise disposed of, or until the investment is probable that the Group will derive future economic determined to be impaired, at which time the cumulative benefits in excess of the originally assessed standard of gain or loss previously reported in equity is included in the performance of the existing asset, and are depreciated income statement. over the expected useful lives of the related assets. Other long-term investments that are intended to be Gains and losses on disposals are determined by held-to-maturity are subsequently measured at amortized comparing the net disposal proceeds with the carrying cost using the effective interest method. Amortized cost is amount in Group accounts and are included in operating calculated by taking into account any discount or premium profit. Assets for disposal are reported at the lower of the on acquisition, over the year to maturity. For investments carrying amount and the fair value less selling costs. carried at amortized cost, gains and losses are recognized The Company allocates the amount initially recognized in income when the investments are derecognized or in respect of an item of property, plant and equipment impaired, as well as through the amortization process. to its significant parts and depreciates separately each significant part over their useful lives. Impairment of long-lived assets Property, plant and equipment and other non-current Intangible assets assets, with exception of deferred tax assets (see separate Goodwill description) are reviewed for potential impairment All business combinations are accounted for using the whenever events or changes in circumstances indicate purchase method of accounting. Goodwill arises when that the carrying amount of an asset may not be subsidiaries, associated companies and joint ventures recoverable. When such circumstances are in place the are acquired. Goodwill represents the excess of the cost recoverable amount of the assets is estimated. of an acquisition over the fair value of the Group’s share Recoverable amount is assessed annually for goodwill, of the net assets of the acquired subsidiary/associate at assets with indefinite useful life and intangible assets the date of the acquisition, including intangible assets and not available for use. Independent of whether there are liabilities arising from the transaction. indications of impairment of goodwill, recoverable amount Following initial recognition, goodwill is measured shall be calculated annually. at cost less any accumulated impairment losses. An impairment loss is recognized whenever the Goodwill is allocated to cash generating units and not carrying amount of the assets or its cash generating units depreciated, but annually tested for impairment. Goodwill exceeds its recoverable amount. Impairment losses are recognized in the income statement. Impairment losses lessor is charged to the income statement on a straight- recognized in respect of cash generating unit are allo- line basis over the period of the lease. cated first to reduce the carrying amount of any goodwill allocated to the cash generating unit and then reduce the Other long-term receivables carrying amount of other assets in the unit on a pro rata Other long-term receivables are measured at net present basis. value when the expected payments are long due and these When a decline in the fair value of an available-for- are not interest bearing. sale financial asset has been recognized directly in equity and there is objective evidence that the asset is impaired, Inventories the cumulative loss that had been recognized directly Inventories are recognized at the lower of cost or net in equity is recognized in profit or loss even though the realizable value. Cost is determined by the first-in, first- financial asset has not been derecognized. The amount out (FIFO) method. The cost of finished goods and work of cumulative loss that is recognized in profit and loss is in progress comprises raw materials, direct labour, other the difference between the acquisition cost and current direct costs and related production overheads (based on fair value, less any impairment loss on that financial asset normal operating capacity) but excludes borrowing costs. previously recognized in profit or loss. Net realizable value is the estimated selling price in the ordinary course of business, less the costs of completion Calculation of recoverable amount and selling expenses. The recoverable amount of loan and receivables carried at amortised costs is calculated as the present value of Construction contracts estimated future cash flows, discounted at the original The Group’s business activities mainly involve deliveries effective interest rate. Receivables with a short duration of products and services under contract to customers. are not discounted. Revenue related to construction contracts is recognized The recoverable amount of other assets is the higher using the percentage of completion method, based of the asset’s fair value less costs to sell and its value primarily on contract costs incurred to date, compared to in use. The value in use is determined by reference to estimated overall contract costs. discounted future net cash flows expected to be generated The percentage of completion of a contract is closely by the asset. The discount rate used is a pre-tax discount related to the activity performed and risks assumed by the rate that reflects current market assessments of the management. Annual Report 2011 STX Europe time value of money and risks specific to the asset. For Revenue and margin are recognized by applying the an asset that does not generate largely independent cash progress measurement factor (POC) to the total forecast 35 inflows, the recoverable amount is determined for the margin. The total forecast margin represents the excess cash generating unit to which the asset belongs. of total forecast revenue over total forecasts costs. Uncertainty in project estimate is reflected by including a Reversals of impairment contingency as part of project costs. An impairment loss in respect of loan and receivables When the outcome of a contract cannot be estimated carried at amortised costs is reversed if the subsequent reliably, contract revenue is recognized only to the extent increase in recoverable amount can be related objectively of costs incurred that are expected to be recoverable. to an event occurring after the impairment loss was Any projected losses on future work done under existing recognized. contracts, are expensed and classified as accrued An impairment loss of an investment in equity costs/provisions in the balance sheet under short-term instrument classified as available for sale is not reversed liabilities. Losses on contracts are recognized in full through profit and loss. when identified. Recognized contract profit includes profit An impairment loss related to goodwill is not reversed. derived from variation orders and disputed amounts when, A previously recognized impairment loss on other in management’s assessment, realization is probable and assets is reversed only if there has been a change in the reasonable estimates can be made. estimates used to determine the recoverable amount. Project costs include costs directly related to the An impairment loss is reversed only to the extend that specific contract and indirect costs attributable to the the assets carrying amount does not exceed the carrying contract. STX Europe general principle to be applied amount that would have been determined, net of by the company is to allocate as much as possible of depreciation or amortization, if no impairment loss had costs directly to the projects. Costs that relate directly been previously recognized. to a specific contract includes site labour costs, cost of materials used, cost of design and technical assistance Leases that is directly related to the contract, estimated costs of Leases of property, plant and equipment where the Group rectification and guarantee work and financial expenses has substantially all the risks and rewards of ownership, related to the projects (building loan) netted against are classified as finance leases. Finance leases are financial income on projects (advance payments). The capitalized at the inception of the lease at the lower of project costs include also direct overhead costs as the fair value of the leased property or the present value project management, maintenance, insurance, cost of of the minimum lease payments. Lease payments are design and technical assistance not directly related to a apportioned between the finance charges and reduction of specific contract, costs of preparation and processing of a the lease liability. construction personnel payroll, purchases to the project, Property, plant and equipment acquired under finance invoicing on the project and depreciation. leases are depreciated over the shorter of the useful life of The percentage of completion methods is applied the asset or the lease term. on a cumulative basis in each accounting period to the Leases where a significant portion of the risks and current estimates of contract revenue and contract rewards of ownership are retained by the lessor are costs. Therefore, the effect of a change in the estimate classified as operating leases. Payment made under of contract revenue or contract costs, or the effect of a operating leases net of any incentives received from the change in the estimate of the outcome of a contract, is recognized in the income statement in the period in which change in the fair value of available for sale investments the change is made. until the investment is derecognized. Project revenue is classified as operating revenue in the profit and loss account. Work in progress is classified Treasury shares as short-term receivables in the balance sheet. Advances Own equity instruments which are reacquired (treasury from customers are deducted from the value of work shares) are deducted from equity. Share capital is in progress of the contract involved or, to the extent reduced by an amount according to number of treasury they exceed this value, recorded as customer advances. shares at par value, and remaining amount is deducted Customer advances that exceed said contract offsets are from Retained earnings. classified as short term debt. The management has entered into forward contracts Interest-bearing liabilities in order to hedge currency risk of contract revenue or All loans and borrowings are initially recognized at cost, costs. The risk is evaluated for each contract. The hedge is being the fair value of the consideration received less accounted for under the concept of firm commitment. This directly attributable transaction costs. implies that a POC-contract is a firm commitment until After initial recognition, interest-bearing loss and the asset under construction is completed and transferred borrowings are subsequently measured at amortized to the contractee. cost using the effective interest method; any difference between proceeds (net of transaction costs) and Other operating income the redemption value is recognized on the income Government grants are recognized at their fair value statement over the period of the interest bearing when there is certain that the grant will be received and liabilities. Amortized cost is calculated by taking into all attaching conditions will be complied with. account any issue costs, and any discount or premium Upon the sale of design and equipment packages, on settlement. an assessment is made of the accrued value creation Gains and losses are recognized in net profit or loss and the remaining work. If a significant proportion of when the liabilities are derecognized or impaired, as well the value creation has already taken place, income is as through the amortization process. recognized immediately, and the rest of the income is STX Europe is establishing substantial construction recognized over the period of the project’s completion. loans related to different projects. This is recognized as STX Europe Annual Report 2011 STX Europe In some cases, STX Europe reserves building short term interest bearing liabilities. Interest expenses capacity for customers. Normally, this is done in the directly related to projects are accounted for as part of 36 form of options on building contracts for sisterships. project costs. Other interest expenses are classified as Such options are recognized only if an actual building financial items. contract is signed. In cases where a firm contract is entered into with a customer for reservation of Income taxes construction capacity, income is recognized in relation Current tax to any commitments and the underlying construction Current tax assets and liabilities for the current and contract. If the contract for construction capacity is prior periods are measured at the amount expected to financially independent of any future building contract be recovered from or paid to the taxation authorities. The and there are no commitments beyond reservation tax rates and tax laws used to compute the amount are of construction capacity, the contract is recognized those that are enacted or substantively enacted by the immediately. balance sheet date.
Trade receivables Deferred tax Trade receivables are recognized and carried at original Deferred tax is provided, using the liability method, on all invoice amount less an allowance for any uncollectible temporary differences at the balance sheet date between amounts. Provision is made when there is objective the tax bases of assets and liabilities and their carrying evidence that the Group will not be able to collect the amounts for financial reporting purposes. debts. Bad debts are written off when identified. Deferred tax assets are recognized for all deductible temporary differences, carry-forward of tax losses to Cash and cash equivalents the extent that it is probable that taxable profit will Cash and cash equivalents comprise cash on hand, be available against which the deductible temporary deposits held at call with banks, other short-term highly differences, and the carry-forward of unused tax assets liquid investments with original maturities of three and unused tax losses can be utilized. The carrying months or less, and bank overdrafts. Bank overdrafts are amount of deferred tax assets is reviewed at each included within borrowings in current liabilities at the balance sheet date and reduced to the extent that it is balance sheet. no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset Share capital to be utilized. Expected utilization of tax losses are not Ordinary shares are classified as equity. Incremental discounted when calculating the deferred tax asset. costs directly attributable to the issue of new shares or Deferred tax assets and liabilities are measured at options are shown in equity as deduction, net of tax, from the tax rates that are expected to apply to the year when the proceeds. Where any Group company purchases the asset is realized or the liability is settled, based the Group's equity share capital (treasury shares), the on tax rates (and tax laws) that have been enacted or consideration paid, including any directly attributable substantively enacted at the balance sheet date. incremental costs, is deducted from equity. Income tax relating to items recognized directly The translation reserve comprises all foreign in equity is recognized in equity and not in the income exchange differences arising from translation of the statement. financial statements of foreign operations. Deferred tax and deferred tax liabilities are offset, The fair value reserve includes the cumulative net if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax as well as policies covering specific areas such as relate to the same taxation authority. foreign exchange risk, interest-rate risk, credit risk, use of derivative financial instruments and non-derivative Pension obligations financial instruments and investing excess liquidity. The Group has both defined benefit and contribution plans. The cost of providing benefits under defined benefit Accounting for derivative financial instruments and plans is determined separately for each plan using the hedging activities projected unit credit actuarial valuation method. Actuarial Derivative financial instruments are initially recognized gains and losses are caused by deviation between at fair value on the date of which a derivative contract is estimated and actual events, changes in actuarial and entered into and subsequently re-measured at fair value. financial assumptions and changes in plans. Actuarial The method of recognizing the resulting gain or loss is gains and losses are recognized as income or expense dependent on the nature of the item being hedged. when the cumulative unrecognized actuarial gains and On the date a derivative contract is entered into, the losses for each individual plan at the end of the previous Group designates the derivatives as either a hedge of reporting year exceeded 10% of the higher of the defined the fair value of a recognized asset or liability (fair value benefit obligation and the fair value of plan assets at hedge), or a hedge of a forecasted transaction (cash flow that date. These gains are recognized over the expected hedge) or of a firm commitment (fair value hedge). remaining working lives of the employees participating in Changes in the fair value of derivatives that are the plans. designated and qualified as fair value hedges, and that The defined benefit liability is the aggregate of the are highly effective both prospectively and retrospectively present value of the defined benefit obligation and are recorded on the income statement, along with any actuarial gains and losses not recognized reduced by the changes in the fair value of the hedged asset or liability fair value of plan assets out of which the obligations are to that is attributable to the hedged risk. Changes in the be settled directly. The benefit obligation is calculated by fair value of derivatives that are designated and qualify independent actuaries and measures present net present as cash flow hedges, and that are highly effective both value of estimated future cash flows. The pension cost is prospectively and retrospectively, are recognized in other recognized in profit and loss over the remaining working comprehensive income. life of the employees. Changes in the fair value of any derivative instruments STX Europe Annual Report 2011 STX Europe For defined contribution plans, contributions are paid that do not qualify for hedge accounting under IAS 39 are to pension insurance plans. Once the contributions have recognized immediately on the income statement. been paid, there are no further payment obligations. For hedging activities related to construction 37 Contributions to defined contribution plans are charged contracts, see description under Construction Contracts. to the income statement in the period to which the contributions relate. Related party transactions All transactions, agreements and business activities with Provisions related parties are conducted according on arm’s length A provision is recognized when the Group has a present according to ordinary business terms and conditions. obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an Dividends/group contribution outflow of resources embodying economic benefits will be Dividend and group contribution is recognized as debt required to settle the obligation, and a reliable estimate in the financial statement in the period of which it is can be made of the amount of the obligation. Provisions authorized by the Annual General Meeting. are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Earnings per share The amount of the provision is the present value of Calculation of earning per share is based on profit or loss the risk adjusted expenditures expected to be required to from continued business related to ordinary weighted settle the obligation, determined using the estimated risk average outstanding shares in the period, net after free interest rate as discount rate. Where discounting is weighted average own shares. Calculation of diluted used, the carrying amount of provision increases in each earnings per share corresponds with ordinary profit per period to reflect the unwinding of the discount by the share, but gives simultaneously effect on all potential passage of time. This increase is recognized as interest ordinary shares outstanding in the period: expense. • Profit related to ordinary shares increases with net after tax of dividend and interest income recognized in the period, when applicable to diluted potential ordinary Financial risk management shares, and is adjusted for other changes in income and The Group’s activities expose it to a variety of financial expenses that follows of converting the diluted potential risks: market risk (including currency risk, fair value ordinary shares. interest risk and price risk), credit risk, liquidity risk and • Weighted average number of extra ordinary outstanding cash-flow interest-rate risk. The Group’s overall risk shares that would have been outstanding under management programme focuses on the unpredictability assumptions that converting all diluted potential shares, of financial markets and seeks to minimise potential increases weighted average number of outstanding adverse effects on the Group’s financial performance. shares. The Group uses derivative financial instruments to hedge certain risk exposures. Comparable figures Risk-management is carried out under policies When it is necessary comparable figures are adjusted to approved by the Board of Directors. The Board of Directors harmonize with the changes in the present year financial provides principles for overall financial risk management presentation. NOTE 3 DISCONTINUED BUSINESS, IPO OF STX OSV HOLDINGS LTD AND NON-CONTROLLING INTEREST
Discontinued Business - Sale of yards in Germany and Ukraine Discontinued operations remain consolidated in the consolidated financial statements, which mean that any internal transactions between continued and discontinued operations are eliminated as usual in the consolidation. As a consequence, the amounts reclassified to discontinued operations are income and expense only from operations sold out of the group. This means that the results presented below will not represent the activities of the operations on a stand-alone basis. The profit and loss statements for prior period have been reclassified to be comparable. On 28 July 2008, two yards in Germany and one in Ukraine were sold to FLC West, a Russian owned investment company, for a cash consideration of NOK 1 825 million. These operations and effects related to the sale transaction have been presented as discontinued business since first quarter of 2008.
The result of STX Europe's discontinued operations are presented below: Amounts in NOK million 2011 2010
Revenues 0 0 Expenses 0 -103 Operating profit 0 -103 Net financial items incl. associated companies 0 0 Profit before tax 0 -103 Tax 0 29 Profit from operations 0 -74
STX Europe Annual Report 2011 STX Europe Gain/loss from sale of discontinued operation 0 0 Attributable income tax 0 0 38 Profit from discontinued operations 0 -74 Earnings per share in NOK from discontinued operations Basic 0.00 -0.65 Diluted 0.00 -0.65
Net cash flows related to STX Europe's discontinued operations are as follow: Amounts in NOK million 2011 2010 Net cash flow from operating activities 0 -62 Net cash flow from investing activities 0 0 Net cash flow from financing activities 0 0
STX Europe retained a 30 percent ownership in Wadan Yards Group AS, however on 8 July 2009, STX Europe sold its shareholding to Mandataria Finance S.A., a Luxembourg registered company. On the same date, STX Europe also entered into an agreement with FLC West to settle certain outstanding issues under the previous agreements concerning the sale of 70 percent of the shares. Wadan Yards MTW GmbH, an affiliate of Wadan Yards, filed for bankruptcy in June 2009 and in August 2009, the company was formally declared bankrupt. In March 2010, Wadan Yards Group AS, the holding company, was declared bankrupt. As a consequence of these bankruptcies, and other factors related to the sale of the German and Ukraine yards to FLC West in 2008, STX Europe recorded additional losses amounting to NOK 260 million during 2010. Out of this, a loss of NOK 103 million, linked to the original sale in 2008, was presented as discontinued operations. The remaining portion of the loss, NOK 147 million was presented under Share of profit in associated companies and NOK 10 million was presented as operating costs. Based on STX Europe's assessment, which considers all currently available information, STX Europe does not believe there are any additional exposure related to these issues.
French Republic shareholder of STX France S.A. The French Republic became shareholder of STX France and the shipyards in Saint-Nazaire and Lorient on 7th November 2008. STX Europe exercised their option to acquire Alstom’s shares in STX France S.A on 24 March 2010. The compensation to Alstom for the take-over of these shares was 0. Consequently, STX Europe has an ownership of 66.66 percent in STX France S.A. The French Republic's minority interest represents 33.34 percent. STX France S.A. is consolidated 100 percent and the non-controlling interest is presented as part of equity (see consolidated statement of changes in equity). Sale of STX Canada Marine Inc. STX Canada Marine Inc, owned by STX Europe AS, was sold to STX Offshore & Shipbuilding Co. Ltd. in July 2010, for a cash consideration of NOK 30.7 million (CAD$ 5 million). This transaction resulted in a sales gain amounting to NOK 6 million at group level, presented as part of other financial income in 2010.
Initial public offering (IPO) of STX OSV Holdings Limited 2010 and further reduction of shareholding in 2011 During the fall 2010, the offshore division of STX Europe group was listed at the stock exchange in Singapore (SGX). On 25th October 2010, STX Europe Holding AS transferred their 100 percent shareholding in STX OSV AS to a newly established holding company in Singapore, STX OSV Holdings Limited. On 12th November 2010, the initial public offering (IPO) of shares in STX OSV Holdings Limited was completed and the trading of the shares of STX OSV on the Main Board of the Singapore Exchange Securities Trading Limited (SGX) commenced. The Offering of 325,646,000 shares (the "Offering Shares") consist of the offering of 180,000,000 new shares by STX OSV and the offering of 145,646,000 existing shares in STX OSV by STX Europe Holding AS, a wholly-owned subsidiary of STX Europe AS. The total number of shares in the capital of STX OSV after the offering is 1,180,000,000, and the offering price was S$0.79 per Offering Share. Following the completion of the Offering, STX Europe Holding AS held 72.4 percent of the shares in STX OSV. On 3rd December 2010, Goldman Sachs (Singapore) Pte partially exercised the Over-Allotment Option in respect of 39,913,000 Shares granted by the STX Europe Holding AS (a wholly owned subsidiary of STX Europe AS) to Goldman Sachs (Singapore) Pte in connection with the IPO. Following the completion of the exercise of the Over- Allotment Option, STX Europe Holding AS hold 814,441,000 shares in STX OSV, equal to 69.02 percent of the share capital of STX OSV. On 8th July 2011, STX Europe sold 215,590,000 shares in STX OSV Holdings Limited to investment funds associated with OZ Management LP. This represented 18.27 percent of the shares of STX OSV. Following the sale, STX Europe AS hold 598,851,000 shares, representing 50.75 percent of the share capital of STX OSV. The non-controlling interest represents 49.25 percent. STX OSV Holdings Limited group is consolidated 100 percent and the non-controlling interest is presented as part of equity (see consolidated statement of changes in equity). Annual Report 2011 STX Europe
STX Finland in a joint venture with USC in Helsinki 39 STX Finland Oy and United Shipbuilding Corporation (USC) agreed in December 2010 to form a joint venture company, to specialize in arctic shipbuilding technology. The closing transaction took place end of March 2011. Arctech Helsinki Shipyard Oy is a 50/50 joint venture company owned by two of the largest shipbuilding corporations in the world. United Shipbuilding Corporation is the state owned Russian shipbuilding corporation, which was formed in 2007. The company has 42 shipyards in Russia and it focuses on developing the Russian civilian and military shipbuilding industry. Arctech acquired the Helsinki shipyard from STX Finland, and the joint venture will focus on arctic maritime technology and shipbuilding and will unify Russian and Finnish Maritime clusters. It will start building highly specialized vessels such as icebreakers and other icebreaking special vessels.
Group re-structuring, mergers and liquidation On 2 August 2011, Kramfors ASA, a wholly owned subsidiary of STX Europe Holding AS, was dissolved. On 10 August 2011, STX France Holding AS and STX Europe Technology AS were merged with STX Europe Holding AS, whereby all the assets, rights, liabilities and obligations of STX France Holding AS and STX Europe Technology have been transferred to STX Europe Holding AS as the surviving entity of the merger. On 23 November 2011, STX Europe AS and STX Europe Holding AS were merged, whereby all the assets, rights, liabilities and obligations of STX Europe Holding AS have been transferred to STX Europe AS as the surviving entity of the merger. The merger is a simplification of the company structure of the STX Europe Group.
Note 4: OPERATING SEGMENT INFORMATION
For management purposes, the operating businesses are organized and managed separately according to the nature of the products provided, with each segment representing a strategic business unit that offers different products and serves different markets.
The Group has the following operating segments: Cruise & Ferries STX Finland Group and STX France Group Offshore & Specialized vessels STX OSV Holdings Limited Group Other (incl eliminations and not distributed) STX Norway Florø, holding companies and eliminations
Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on profit before tax and is measured consistently with profit before tax in the consolidated financial statements. Inter-segment pricing are set on an arm's length basis according to the same principle as transactions with third parties. Financial income and financial expenses are reported net in the segment reporting, since management focus on net financial items to assess the financial performance. Business segments - Profit and loss 2011 Offshore & Other (incl Cruise & Specialized elim and not Amounts in NOK million Note Ferries Vessels distributed) Total
Internal operating revenues 0 0 0 0 External operating revenues 8 234 12 401 170 20 804 Total operating revenues 8 234 12 401 170 20 804
EBITDA 137 2 355 -101 2 391 Ordinary depreciation, impairment changes and amortization 11,12 -200 -148 -11 -359 Segment profit -63 2 207 -112 2 032 Impairment of goodwill / recognition of negative goodwill 12 0 0 0 0 Restrucuring 7 15 0 0 15 Operating profit -48 2 207 -112 2 047 Share of earnings in associated companies 13 -12 10 0 -2 Net financial items 9 92 -4 -140 -52 Profit before tax 32 2 213 -252 1 993
Total assets 6 797 12 807 3 555 23 159 Total liabilities 3 751 9 254 1 400 14 405 Total investments 11,12 308 140 17 465
Order intake 2011 10 003 11 117 441 21 562 Order backlog as of 31 December 2011 16 290 16 676 260 33 226
Business segments - Profit and loss 2010 Offshore & Other (incl
STX Europe Annual Report 2011 STX Europe Cruise & Specialized elim and not Amounts in NOK million Note Ferries Vessels distributed) Total 40 Internal operating revenues 11 2 -12 0 External operating revenues 8 824 11 879 165 20 868 Total operating revenues 8 835 11 881 152 20 868
EBITDA -473 1 330 55 912 Ordinary depreciation, impairment changes and amortization 11,12 -226 -124 -31 -381 Segment profit -699 1 206 24 531 Impairment of goodwill / recognition of negative goodwill 12 0 0 0 0 Restrucuring 7 -68 0 0 -68 Operating profit -767 1 206 24 463 Share of earnings in associated companies 13 - 7 -139 -132 Net financial items 9 -38 320 -372 -90 Profit before tax -805 1 533 -487 241
Total assets 6 493 12 253 2 056 20 802 Total liabilities 3 388 9 835 1 186 14 409 Total investments 11,12 66 83 5 154
Order intake 2010 14 225 12 555 54 26 833 Order backlog as of 31 December 2010 14 126 17 031 3 31 160
Geographical information Operating revenues Total assets Investments by customer location by company location by company location Amounts in NOK million 2011 2010 2011 2010 2011 2010
Norway 9 163 8 771 8 224 6 342 79 26 EU 4 863 3 812 7 990 7 426 339 88 Other non EU countries 2 612 1 118 0 0 0 0 North America 18 4 107 0 0 0 1 South America 1 685 1 750 3 282 3 532 41 30 Oceania 4 4 0 0 0 0 Asia 687 904 3 663 3 502 5 9 Africa 1 771 402 0 0 0 0 Total 20 804 20 868 23 159 20 802 465 154
Revenues by category Amounts in NOK million 2011 2010
Construction contract revenue 19 954 19 981 Sales of goods and gain on disposals 195 473 Revenue from services 656 406 Royalty income 0 8 Total 20 804 20 868
NOK 12 280 million of the total operating revenue of NOK 20 804 million in 2011 is related to four customers. Note 5 COST OF GOODS AND CHANGE IN INVENTORY Cost of goods and change in inventory consist of: Amounts in NOK million 2011 2010
Cost of raw material, goods and services 12 579 14 524 Sales of goods 615 106 Total 13 194 14 630
Note 6 WAGES AND OTHER PERSONNEL EXPENSES Wages and other personnel expenses consist of: Amounts in NOK million 2011 2010
Wages 2 742 2 940 Social security contributions 707 651 Pension costs (note 28) 134 140 Other expenses 184 119 Total 3 766 3 849 Average number of employees 14 422 15 268
For further information about the remuneration to the Board of Directors and Executive Management Team, see note 2 in the accounts of STX Europe AS.
STX Europe Annual Report 2011 STX Europe Number of employees at the end of the year have the following geographical allocation: 2011 2010
Norway 1 725 1 749 41 EU 10 609 10 937 North America 0 0 Other areas *) 2 182 2 066 Sum 14 516 14 752
Wages and other personnel expenses above relates to own employees only. The cost related to subcontract workers is part of cost of goods.
*) Other areas are mainly Brazil and Vietnam.
Note 7 OTHER OPERATING EXPENSES
Other operating expenses consist of: Amounts in NOK million 2011 2010
Restructuring -15 68 Research and development 1 23 Rent and leasing expenses (note 27) 127 205 Hired personnel 121 135 Other operating expenses 1 204 1 115 Total other operating expenses 1 438 1 545
For 2011, restructuring amounts to NOK -15 million (net income), which is mainly a result of release of restructuring provisions related to STX Finland and the Helsinki yard (See note 27 for further details).
Research and development costs, which amounted to net NOK 1 million in 2011 (2010: NOK 23 million) have been expensed as project costs as it is not possible to identify or quantify future revenue that can be direcly related to such expenses. Subsidies related to such activities have been received amounting to NOK 19 million (2010: 31 million) and has been booked against the costs (see also note 38).
Costs associated with in-sourced personnel comprise expenses associated with personnel who do not have regular employment contracts with STX Europe, are not subcontractors, or provide external management consulting services.
Other operating expenses mainly consist of adminstration costs, such as various office costs, electricity, repair and maintenance not capitalized, travel, audit and consultancy costs. Note 8 FEES TO THE AUDITORS
Below is a summary of fees to the auditors. The fees include both the fees to the Group auditor KPMG and other auditors of subsidiaries in the Group. Fees to auditors for STX Europe AS Group are included in Other operating expenses (note 7).
Audit Audit related services Tax services Other services Amounts in NOK thousand 2011 2010 2011 2010 2011 2010 2011 2010
STX Europe AS KPMG 740 890 0 0 0 101 476 52 Ernst & Young 0 0 0 0 0 0 0 0 Other auditors 0 0 0 0 0 0 0 0 Subsidiaries KPMG 8 045 4 961 569 11 863 269 239 77 0 Ernst & Young 1 831 2 051 0 24 0 80 0 38 Other auditors 163 16 7 288 39 0 17 502 Total 10 779 7 919 576 12 175 308 420 570 592
Note 9 FINANCIAL INCOME AND FINANCIAL EXPENSES
Recognized in the Income statement Amounts in NOK million 2011 2010
STX Europe Annual Report 2011 STX Europe Interest income 126 172 Dividend income (mainly corrections prior years) -32 0 42 Gain on disposal of financial investments 0 0 Net foreign exchange gain 0 0 Other financial income 7 153 Financial income 100 326 Interest expense -146 -302 Loss on disposal of financial investments 0 0 Net foreign exchange loss -6 -69 Other financial expenses 0 -45 Financial expenses -152 -416 Net financial items -52 -90
For 2010, fluctuations in the fair value of hedging transactions which did not qualify for hedge accounting positive NOK 120 million is booked under other financial income.
Recognized directly in equity: Amounts in NOK million 2011 2010
Foreign exchange in subsidiaries where loans is considered part of the net investment -10 -22 Investment recognized at fair value directly to equity 0 0 Total recognized directly to equity -10 -22
Note 10 TAX
Income tax expense Recognized in Profit & loss accounts Amounts in NOK million 2011 2010
Current tax expense: Current year -709 -392 Adjustments for prior years 10 0 Total current tax expense -699 -392
Deferred tax expense: Change in temporary differences -53 102 Change in recognized tax losses 120 -190 Reduction in tax rate 0 0 Total deferred tax expense 67 -88 Total income tax expense in income statement -632 -480 Reconciliation of effective tax rate Amounts in NOK million 2011 2010
Profit before tax 1 993 241 Nominal tax rate Norway 28% -28.0 % -558 -28.0 % -67 Tax differential in Norway and abroad -4.3 % -86 15.9 % 38 Reduction in tax rate 0.0 % 0 0.0 % 0 Recognition of negative goodwill 0.0 % 0 0.0 % 0 Income not subject to tax 3.9 % 78 7.7 % 19 Expenses not deductible for tax purposes -6.9 % -137 -18.9 % -46 Utilisation of previously unrecognized tax assets 2.7 % 53 11.4 % 27 Tax losses for which no deferred income tax asset was recognised 0.9 % 17 -187.3 % -451 Total income tax expense in income statement -31.7 % -632 -199.2 % -480
Deferred tax assets and deferred tax liabilities Deferred tax assets not recognized Amounts in NOK million 2011 2010
Tax losses 1 676 2 097 where not recognized deferred tax assets are 444 575
The unrecognized tax losses carried forward expire the following years Amounts in NOK million 2011 2010
2011 0 0 2012 3 2 2013 29 110
2014 11 6 Annual Report 2011 STX Europe 2015 7 0 2016 100 87 2017 499 0 43 2018 374 366 2019 0 7 2020 0 641 2021 69 0 Infinite (no due date) 584 878 Total 1 676 2 097
The gross movement on the deferred tax assets and liabilities Amounts in NOK million 2011 2010
As of 1 January 850 922 Acquisitions and disposal of subsidiaries (net) 74 29 Deferred tax charged directly to equity -62 -11 Currency translation differences -3 -25 Income statement charge 67 -88 Other -69 24 As of 31 December 857 850 Deferred tax assets (+) 911 1 007 Deferred tax liabilities (-) -54 -157 As of 31 December 857 850
Recognized deferred tax assets and deferred tax liabilities Deferred tax assets and deferred tax liabilities are related to following items: 2011 Amounts in NOK million Assets Liabilites Net
Property, plant and equipment 1 -11 -10 Pension 41 1 42 Projects under construction -82 -40 -122 Tax losses 953 5 958 Other -2 -9 -11 Total 911 -54 857
2010 Amounts in NOK million Assets Liabilites Net
Property, plant and equipment -29 0 -29 Pension 34 4 38 Projects under construction 20 -179 -158 Tax losses 990 0 990 Other -8 18 10 Total 1 007 -157 850 Change in deferred tax assets and deferred tax liabilities: Property, plant Projects under Amounts in NOK million and equipment Pension construction Tax losses Other Total 2011 As of 1 January 2011 -29 37 -158 990 10 850 Charged (-) / credited (+) to the income 19 5 39 120 -116 67 Charged (-) / credited (+) to the equity 0 0 0 -50 -11 -62 Acquisitions and disposal of subsidiaries 0 0 -3 -24 101 74 Currency translation differences 0 0 0 -3 0 -3 Other 0 0 0 -74 5 -69 As of 31 December 2011 -10 42 -122 958 -11 857
Property, plant Projects under Amounts in NOK million and equipment Pension construction Tax losses Other Total 2010 As of 1 January 2009 -44 42 -201 1 191 -67 921 Charged (-) / credited (+) to the income 13 -3 43 -190 49 -88 Charged (-) / credited (+) to the equity 0 0 0 -12 1 -11 Acquisitions and disposal of subsidiaries 0 0 0 29 0 29 Currency translation differences 2 -2 -1 -24 -1 -25 Other 0 0 0 -4 28 24 As of 31 December 2010 -29 37 -158 990 10 850
Deferred tax assets in the Group are allocated to the following companies: Amounts in NOK million 2011 2010
STX Europe Annual Report 2011 STX Europe STX Norway 540 645 STX France 141 130 44 STX Finland 230 233 Total 911 1 007
The STX Norway figures include the figures for STX OSV Holdings Limited Group, STX Norway Florø and the holding companies including STX Europe AS. Deferred tax assets in Norway have increased for a period of time due to mainly losses. As of year- end 2011, no addtional deferred tax assets have been recognized for STX Norway Florø and the holding companies. The deferred tax assets in STX Norway Florø were written down by NOK 56 million in 2010. It is expected that the tax losses carried forward will be used within approximately one to three years.
For STX France, deferred tax assets as a result of losses during 2011 has not been recognized. The change in book value is due to changes in the exchange rate. The current deferred tax assets in STX France is expected to be reversed within three to four years. With effect as of 31 December 2011, new rules with regards to the amount of tax losses that can be utlilized have been implemented in France. Tax losses that can be utilized in a given year are limited to EUR 1 million + (60 % (taxable results - EUR 1 million). This will have an impact on the tax losses’ utilization’s timeline.
Deferred tax asset in STX Finland is mainly related to operating losses/loss projects during the period 2007-2010. The deferred tax assets were written down by NOK 70 million in 2010. For 2011 STX Finland made a profit, and expect to improve their activity level and operations over the next years. The recognized losses is expected to be used within maximum of six to seven years from now onwards. There is time limit of ten years for utilizing the recognized tax assets of loss carry forward, whereby the first part will mature in 2017.
Income tax expenses and deferred tax items presented geographically 2011 Current Change in Total tax Net deferred Net tax Amounts in NOK million tax deferred tax expenses tax assets payable
Norway -694 8 -686 490 -689 EU -4 58 54 367 49 Other areas 0 0 0 0 0 Total -699 66 -632 857 -641
2010 Current Change in Total tax Net deferred Net tax Amounts in NOK million tax deferred tax expenses tax assets payable
Norway -394 8 -386 488 -368 EU 2 -96 -94 362 0 Other areas 0 0 0 0 0 Total -392 -88 -480 850 -368
The figures for 2011 above are based on preliminary estimates of income not subject to tax, non deductable items and periodic differences between the financial statement and the taxable statement. Final tax items will be calculated when preparing the tax scheme/return to the tax authority and may deviate from the estimates above. Note 11 PROPERTY, PLANT AND EQUIPMENT Movements in property plant and equipment for 2011: Machinery Buildings Other Under Amounts in NOK million Vehicles Housing Land assets contruction Total
Cost balance as of 1 January 2011 2 166 2 231 240 176 22 4 835 Additions 281 112 25 1 33 453 Acquisitions of subsidiaries 7 0 1 0 0 8 Disposals of subsidiaries -8 0 0 0 0 -8 Disposals -21 -101 0 0 0 -123 Other 0 0 0 0 -1 -1 Reclassifications -2 -1 0 0 3 0 Currency translation differences -29 -10 -2 -1 0 -41 Cost balance as of 31 December 2011 2 394 2 231 265 176 58 5 124
Depreciation and impairment losses at 1 January 2011 1 291 1 053 16 35 2 2 396 Depreciation charge for the year 207 113 0 6 0 327 Impairment losses recognized in profit or loss 0 0 0 0 0 0 Disposals of subsidiaries -3 0 0 0 0 -3 Disposals -12 1 0 0 0 -11 Other 0 -2 2 0 0 0 Currency translation differences -15 -7 0 -1 0 -23 Depreciation and impairment losses as of 31 December 2011 1 468 1 158 17 41 2 2 687 STX Europe Annual Report 2011 STX Europe Book value as of 31 December 2011 926 1 073 247 135 56 2 437
Depreciation period 3-20 years 20-50 years No depreciation 33-50 years 45 Depreciation method Linear Linear Linear
Movements in property plant and equipment for 2010: Machinery Buildings Other Under Amounts in NOK million Vehicles Housing Land assets contruction Total
Cost balance as of 1 January 2010 2 165 2 200 252 181 117 4 915 Additions 116 30 0 1 4 151 Acquisitions of subsidiaries 0 0 0 0 0 0 Disposals of subsidiaries -7 0 0 0 0 -7 Disposals -28 -3 0 0 0 -31 Other 0 0 0 0 0 0 Reclassifications -1 104 0 0 -103 0 Currency translation differences -79 -100 -12 -6 4 -193 Cost balance as of 31 December 2010 2 166 2 231 240 176 22 4 835
Depreciation and impairment losses at 1 January 2010 1 155 956 13 33 2 2 160 Depreciation charge for the year 212 135 0 6 0 354 Impairment losses recognized in profit or loss 0 14 0 0 0 14 Disposals of subsidiaries -5 0 0 0 0 -5 Disposals -27 -3 0 0 0 -30 Other 0 -3 3 0 0 0 Currency translation differences -44 -47 -1 -4 0 -95 Depreciation and impairment losses as of 31 December 2010 1 291 1 053 16 35 2 2 396
Book value as of 31 December 2010 876 1 178 224 141 20 2 439
Depreciation period 3-20 years 20-50 years No depreciation 33-50 years Depreciation method Linear Linear Linear
Pledged assets As of 31 December 2011 properties with a carrying amount of NOK 804 million (2010: NOK 773 million) are subject to a registered debenture to secure bank loans.
Property, plant and equipment under constructions Investments were made in 2011 at the facilities at many of the Group’s yards, but mainly STX France, STX Finland, STX OSV Tulcea, and STX OSV Niteroi. The investments are made to increase yard capacity, to enable the yards to deliver larger-sized vessels especially in the segment for offshore vessels, and to increase yard productivity. Note 12 INTANGIBLE ASSETS
Movements in intangible assets for 2011: Other Amounts in NOK million Goodwill intangibles Total
Cost balance as of 1 January 2011 1 388 115 1 503 Additions aquired seperately 0 11 12 Additions from internal development 0 0 0 Disposals of subsidiaries 0 0 0 Disposals 4 -3 1 Acquisitions of subsidiaries 88 1 89 Currency translation differences -1 -1 -2 Cost balance as of 31 December 2011 1 479 124 1 602
Amortization and impairment losses at 1 January 2011 90 92 182 Amortization for the year 1 8 10 Impairment losses recognized in profit or loss 23 0 23 Disposals 0 -1 -1 Currency translation differences 0 -1 -1 Depreciation and impairment losses as of 31 December 2011 115 98 213
Book value as of 31 December 2011 1 364 26 1 390
Depreciation period 3-5 years Depreciation method linear STX Europe Annual Report 2011 STX Europe Movements in intangible assets for 2010: Other 46 Amounts in NOK million Goodwill intangibles Total
Cost balance as of 1 January 2010 1 398 126 1 524 Additions aquired seperately 0 3 3 Additions from internal development 0 1 1 Disposals of subsidiaries -1 0 -1 Disposals 0 -9 -9 Acquisitions of subsidiaries 0 0 0 Currency translation differences -9 -5 -14 Cost balance as of 31 December 2010 1 388 115 1 503
Amortization and impairment losses at 1 January 2010 90 90 181 Amortization for the year 0 13 13 Impairment losses recognized in profit or loss 0 0 0 Disposals 0 -9 -9 Currency translation differences 0 -3 -3 Depreciation and impairment losses as of 31 December 2010 90 92 182
Book value as of 31 December 2010 1 297 24 1 321
Depreciation period 3-5 years Depreciation method linear
Book value Other intangibles as of 31 December 2011 consist mainly of software and design.
Impairment tests for cash-generating units containing goodwill STX Europe has defined the following cash generating units (CGUs) with goodwill: STX OSV and STX Finland whereby goodwill is assumed to be mainly related to the shipyards. As far as STX OSV is concerned, all yards are part of the same CGU. All yards have the same management, who is central in the allocation of contracts. Management's evaluation depends on what will be the optimal use of capacity for STX OSV as one group. The yards in Romania are not defined as separate CGUs but instead assessed jointly with the group they are part of. As these yards are mainly hull producers, there is a high degree of dependence between these yards and the outfitting yards in Norway, which makes a separate valuation challenging. An impairment test has been performed for each cash generating unit by 31 December 2011. Based on the calcuations performed, no CGU has been identified where there is an additional impairment need of goodwill. The impairment included in the financial statement relates to the subsidiaries Grenland Industrier and Scanyard in STX OSV, which are dissolved. The recoverable amount of the entities has been determined based on a value in use calculation. Value in use is calculated based on cash flow projections based on financial budgets, business plans and strategical figures approved by senior management covering the period of 2012 to 2016. Determining budget and strategical figures is based on long term construction contracts and their margins and expectations of new contracts. This is reflected in the budget and business plan figures. The discount rate, which is based on the Group's average cost of capital (WACC), applied to cash flow is on average 8.3 percent after tax and terminal value is based on long term strategical figures, however adjusted for cyclical fluctuations, and using a growth rate of 2.0 percent in the terminal year. Unless a long lasting situation will occur with low capacity utilisation or significantly lower margins than what has been assumed for the period after 2012, realistic sensitivity calculations will not imply any impairment need of goodwill. Allocation of goodwill: Amount in NOK million 2011 2010
STX Finland 155 156 STX OSV 1 209 1 141 Total carying amount of goodwill 1 364 1 297
The increase in goodwill during 2011 for STX OSV results from final settlement of purchasing the remaining 49 percent in STX OSV Niteroi SA. The share purchase agreement was entered into in February 2007, and the total consideration to be paid was determent on an earn-out agreement ending 31 December 2011. Initially the transaction resulted in goodwill of NOK 29 million, and after final settlement goodwill totals NOK 117 million. The reduction in goodwill during 2011 for STX OSV results from an impairment charge in goodwill of NOK 23 million. This goodwill relates to the subsidiaries Grenland Industrier and Scanyard (dissolved).
Note 13 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES
Movements of investments in associated companies and joint ventures Amounts in NOK million 2011 2010
As of 1 January 171 77 Acquisitions 111 83 Disposals -1 -3 Share of loss/profit -2 15 Fair value adjustement 1 -1 As of 31 December 280 171 STX Europe Annual Report 2011 STX Europe
Investment in associated companies and joint ventures – 2011 47 Balance as of Acquisitions Share of Fair value Balance as of Amounts in NOK million 1 January and disposals profit/loss adjustment 31 December
Bridge Eiendom AS 1 2 0 0 3 Olympic Subsea KS 84 0 12 0 96 Møkster Supply KS 11 14 0 0 25 Møkster Supply AS 5 0 0 0 5 REM Supply AS 51 53 -1 0 103 Island Offshore LNG KS 6 12 0 0 18 Island Offshore LNG AS 1 1 0 0 2 Olympic Green Energy KS 9 17 0 0 26 Arctech Helsinki Shiplyard OY 0 12 -12 0 0 Other 3 0 0 1 3 Total 171 110 -2 1 280
Investment in associated companies and joint ventures – 2010 Balance as of Acquisitions Share of Fair value Balance as of Amounts in NOK million 1 January and disposals profit/loss adjustment 31 December
Bridge Eiendom AS 1 0 0 0 1 Vest Industriselskap AS 3 -3 0 0 0 Olympic Subsea KS 69 0 15 0 84 Møkster Supply KS 0 11 0 0 11 Møkster Supply AS 0 5 0 0 5 REM Supply AS 0 51 0 0 51 Island Offshore LNG KS 0 6 0 0 6 Island Offshore LNG AS 0 1 0 0 1 Olympic Green Energy KS 0 9 0 0 9 Other 4 0 0 -1 3 Total 77 80 15 -1 171
Below is a summary of financial information related to the main associated companies and joint ventures (not the share of the Group) and overview of the share of the Group in main associated companies and joint ventures, of which all are unlisted. Investment in associated companies and joint ventures – 2011 Amounts in NOK million Country Assets Liabilities Revenues Profit /loss % interest held
Bridge Eiendom AS Norway 72 71 4 -2 50 % Olympic Subsea KS Norway 527 327 90 21 35 % Olympic Green Energy KS Norway 88 0 0 0 30 % Møkster Supply KS Norway 83 7 0 0 36 % Møkster Supply AS Norway 14 0 0 0 40 % Island Offshore LNG KS Norway 70 5 0 0 27 % Island Offshore LNG AS Norway 7 0 0 0 30 % REM Supply AS Norway 489 279 10 -2 49 % Arctech Helsinki Shiplyard OY Finland 553 607 205 -78 50 % Total 1 903 1 297 309 -62
The above financial information are preliminary and unaudited. Profit/loss share in the financial statement is based on the preliminary figures, when a signed and audited financial statement is received the correct profit/loss share for the previous year will be booked. Arctech Helsinki Shiplyard OY is defined as a joint venture. The Group's share of losses in Arctech Helsinki Shiplyard OY exceeds its book value of the company. The Group has hence discontinued recognizing its share of further losses (ref. IAS 28.29).
Investment in associated companies and joint ventures – 2010 Amounts in NOK million Country Assets Liabilities Revenues Profit /loss % interest held
Bridge Eiendom AS Norway 75 75 5 -1 50 % Olympic Subsea KS Norway 543 365 98 42 35 % Olympic Green Energy KS Norway 29 0 0 0 30 % Møkster Supply KS Norway 38 7 0 0 36 % Møkster Supply AS Norway 13 0 0 0 40 % Island Offshore LNG KS Norway 22 0 0 0 27 % STX Europe Annual Report 2011 STX Europe Island Offshore LNG AS Norway 2 0 0 0 30 % REM Supply AS Norway 104 0 0 0 49 % 48 Total 826 447 103 41
Note 14 SHARE INVESTMENTS
Other share investments comprise the following items: Amounts in NOK million Share % 2011 Share % 2010
Subsidiaries Kiinteistö Oy Saajopolku 4 88 % 3 88 % 3 STX USA Lifecycle Services Inc 100 % 0 100 % 0 Aker Brevik Philadelphia 100 % 1 100 % 1 Associated companies As Oy Minnalehto 47 % 2 47 % 2 Other companies Cruise Conglomerate Maritime Limited 15 % 240 15 % 233 AFS Elektro AS 0 % 0 20 % 0 Ullern Utvikling AS 10 % 1 9 % 1 Shares in other companies 12 13 Total 258 253
Other share investments are in total defined as available for sale.
Note 15 INTEREST-BEARING LONG-TERM ASSETS
Financial interest-bearing long-term receivables consist of the following items: Amounts in NOK million Interest rate 2011 Interest rate 2010
Interest-bearing long-term receivables related parties 5.0 % 760 2.1 % 4 Other interest-bearing long-term receivables 1.6 % 674 2.1 % 222 Total 1 434 226
The majority of the long-term receivable related parties relates to two loans provided to the shareholder STX Norway AS during 2011. Both loans matures in February 2013. Furthermore loans are provided to Arctech Helsinki Shipyard Oy and Gaiamare Oy. A major item included as a receivable per 31 December 2011 is related to restricted funds in STX France S.A. and a loan to Cruise Conglomerate Maritime Limited, which is owned 15% by STX France SA. This same loan represented the majority of the balance as per 31 December 2010 as well. Note 16 OTHER NON-CURRENT ASSETS
Other non-current assets consist of the following items: Amounts in NOK million 2011 2010
Interest-free long-term receivables related parties 5 8 Other interest-free long-term receivables 50 49 Total 54 56
The majority of the other interest free long-term receivables relates to a seller's credit to the buyer of a tanker vessel back in 2008.
Note 17 INVENTORIES
Inventory comprises the following items: Amounts in NOK million 2011 2010
Raw materials 468 386 Work in progress 56 77 Finished goods 156 124 Total 680 587
The carrying amount of inventories pledged as security for liabilities 0 2 STX Europe Annual Report 2011 STX Europe STX Europe Group had one tanker constructed for own account as per 31 December 2011. This vessel is owned by Scandinor AS. The vessel is presented as part of finished goods held for sale per 31 December 2011 and 31 December 2010. Inventories are recognized at the lower of cost or net realizable value. Cost is determined by the first-in, first-out (FIFO) 49 method. The cost of finished goods and work in progress comprises raw materials, direct labor, other direct costs and related production overheads (based on normal operating capacity) but excludes borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses.
Note 18 CONSTRUCTION CONTRACTS Activities in STX Europe are largely based on deliveries under contracts with customers. The order backlog represents an obligation to deliver goods not yet produced, and gives STX Europe contractual rights for future deliveries.
If projected costs are higher than projected income, the total projected loss on the contract is expensed immediately.
A summary of financial information related to construction contracts is presented below.
The recognized profit less losses and other key construction contracts figures divided by segments are as follows: 2011 Offshore Other (incl Cruise & & Specialized elim and not Amounts in NOK million Ferries Vessels distributed) Total
Contract revenue 7 493 12 280 180 19 954 Contract expenses -7 293 -9 802 -149 -17 244 Expected losses recognized -9 -92 0 -101 Recognized segment profit (EBITA) 191 2 386 32 2 609
The segment profit is excluding underrecovery (does not include costs which are not allocated to specific projects).
Other financial information related to construction contracts Contract costs incurred for projects under construction as of 31 December (project-to-date) 11 792 8 827 197 20 815 Contract costs incurred and recognized profits to date for projects under construction as of 31 December 11 992 8 992 217 21 200 Advances received 3 266 2 795 114 6 175 Gross amount due from customers for contract work 1 479 5 776 8 7 263 Gross amount due to customers for contract work 1 084 1 480 31 2 595 Provisions for loss contracts (see note 29) -43 -92 0 -135 2010 Offshore Other (incl Cruise & & Specialized elim and not Amounts in NOK million Ferries Vessels distributed) Total
Contract revenue 8 397 11 440 144 19 981 Contract expenses -8 246 -9 796 -128 -18 171 Expected losses recognized -63 -11 0 -73 Recognized segment profit (EBITA) 88 1 633 15 1 736
The segment profit is excluding underrecovery (does not include costs which are not allocated to specific projects). Other financial information related to construction contracts Contract costs incurred for projects under construction as of 31 December (project-to-date) 6 003 9 248 178 15 429 Contract costs incurred and recognized profits to date for projects under construction as of 31 December 6 142 9 625 162 15 930 Advances received 5 274 2 664 0 7 937 Gross amount due from customers for contract work 393 5 608 9 6 009 Gross amount due to customers for contract work 554 1 115 0 1 668 Provisions for loss contracts (see note 29) -61 -11 0 -72
Note 19 TRADE AND OTHER INTEREST-FREE SHORT-TERM RECEIVABLES Trade and other interest-free receivables consist of the following items: Amounts in NOK million 2011 2010
Trade receivables 762 371 Advances to suppliers 838 948
STX Europe Annual Report 2011 STX Europe Short-term investments 0 0 VAT and tax receivables 62 54 Other short-term interest-free receivables 630 871 50 Total 2 293 2 244 As per 31 December 2011 the group has recognised a loss of NOK 38 million (2010: NOK 34 million) for the impairment of trade receivables. These receivables relates mainly to non-shipbuilding activities.
Age analysis of trade receivables: Amounts in NOK million Face value Provision
Not due 208 0 0-30 days 273 0 31-120 days 215 0 121-365 days 65 -16 More than 365 days 39 -22 Total 800 -38
Note 20 INTEREST-BEARING SHORT-TERM RECEIVABLES Interest-bearing short-term receivables consist of the following items: Amounts in NOK million Interest rate 2011 Interest rate 2010
Interest-bearing short-term receivables related parties 4.8 % 1 255 3.2 % 15 Total 1 255 15
The receivables per 31 December 2011 are related to Arctech Helsinki Shipyard Oy and the parent company STX Norway AS. The loan provided to STX Norway AS is a USD 200 million facility, mainly back-to-back with the loan agreement STX Europe AS has entered into with Standard Chartered Bank (See note 26). The receivable per 31 December 2010 was related to Gaiamare Oy, which is owned 24,82% by STX Finland Oy.
Note 21 CASH AND CASH EQUIVALENTS Of the total cash and bank deposits as of 31 December 2011 an amount of NOK 283 million is fully restricted escrow accounts, mainly as security for guarantees made to customers on prepaid installments (2010: NOK 1 234 million).
Cash and cash equivalents comprises the following components: Amounts in NOK million 2011 2010
Short-term investments with terms less than three months 381 822 Cash and bank deposists 4 521 5 648 Total 4 903 6 470
The short-term investments per 31 December 2011 and 31 December 2010 mainly relates to STX OSV Niteroi SA. NOK 2 683 million of the total cash and bank deposists of NOK 4 521 million in 2011 is related to STX OSV and NOK 1 273 million is related to STX France. Note 22 EARNINGS PER SHARE AND DIVIDEND PER SHARE Earnings per share Treasury shares are not included in the weighted average number of ordinary shares and ordinary shares (diluted). STX Europe AS had no treasury shares as per year end 2010 and 2011.
Basic earnings per share Basic earnings per share are calculated by dividing the profit from continued business attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year:
Amounts in NOK million 2011 2010
Profit attributable to equity holders of the Company 811 -126 Number of ordinary shares issued as of 1 January 113 607 085 113 607 085 Weighted average number of ordinary shares in issue for the year 113 607 085 113 607 085 Basic earnings per share (NOK per share) 7.14 -1.11
Diluted Diluted earnings per share are calculated adjusting the weighted average number of ordinary shares outstanding:
Amounts in NOK million 2011 2010
Profit attributable to equity holders of the Company 811 -126 Profit used to determine diluted earnings per share 811 -126
Weighted average number of ordinary shares in issue (thousands) 113 607 085 113 607 085 Weighted average number of ordinary shares (diluted) in issue for the year 113 607 085 113 607 085 Diluted earnings per share (NOK per share) 7.14 -1.11
Dividends per share Annual Report 2011 STX Europe On the annual shareholders meeting on 30 April 2012 it will be proposed not to pay dividends for 2011. However, it will be proposed to pay group contribution amounting to NOK 1 050 million to the sole shareholder STX Norway AS. 51
Note 23 PAID IN CAPITAL The total authorized and issued number is 113 607 085. All issued shares are fully paid. Par value of NOK 4 per share. Share Other paid Total Amounts in NOK million Share Capital premium in capital paid in capital
As of 1 January 2009 434 268 3 000 3 702 Convertion of convertible bond 0 0 190 190 Treasury shares 20 0 0 20 As of 31 December 2009 454 268 3 190 3 912
Conversion of convertible bond 0 0 0 0 As of 31 December 2010 454 268 3 190 3 912
Conversion of convertible bond 0 0 0 0 As of 31 December 2011 454 268 3 190 3 912
STX Europe AS had no treasury shares as per year end 2010 and 2011.
Note 24 TRANSLATION AND OTHER RESERVES Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations that are not integral to the operations of the Company. Exchange differences arising on a monetary item that forms part of the Group's net investment in a foreign subsidiary is recognized directly to equity as a separate item. Subsidiaries with another functional currency than presentation currency are translated.
Fair value reserve The fair value reserve includes the cumulative net change in the fair value of available-for-sale investments until the investment is derecognized.
Translation Fair value Amounts in NOK million reserve reserve Total
As of 1 January 2009 765 1 766 Investments availble-for-sale - -1 -1 Currency translation differences -722 0 -722 As of 31 December 2009 43 0 43
Currency translation differences -188 0 -188 As of 31 December 2010 -145 0 -145
Currency translation differences -41 0 -41 As of 31 December 2011 -186 0 -186 Note 25 GROUP COMPANIES The subsidiaries included in the STX Europe Group account were as follows. Companies owned directly by STX Europe AS are highlighted.
The The Group's Group's voting Registered holding share office Belongs to: Primary segment: in % in % City Country
STX OSV Holdings Limited STX OSV Offshore & Specialized vessels 50.75 50.75 Singapore Singapore STX OSV AS STX OSV Offshore & Specialized vessels 50.75 50.75 Ålesund Norway STX OSV Electro AS STX OSV Offshore & Specialized vessels 50.75 50.75 Søviknes Norway STX OSV Electro Tulcea SRL STX OSV Offshore & Specialized vessels 50.75 50.75 Tulcea Romania STX OSV Electrical Installation & Engineering India STX OSV Offshore & Specialized vessels 50.75 50.75 Kochi India STX OSV Electro Niteroi Ltd STX OSV Offshore & Specialized vessels 50.75 50.75 Rio de Janeiro Brazil STX OSV Electro Braila SRL STX OSV Offshore & Specialized vessels 50.75 50.75 Braila Romania Emil Langva AS STX OSV Offshore & Specialized vessels 50.75 50.75 Ålesund Norway STX Brevik Philadelphia STX OSV Offshore & Specialized vessels 50.75 50.75 Philadelphia USA STX OSV RO Holding SRL STX OSV Offshore & Specialized vessels 50.75 50.75 Tulcea Romania STX OSV Tulcea SA STX OSV Offshore & Specialized vessels 48.43 48.43 Tulcea Romania STX OSV Scanyards SRL STX OSV Offshore & Specialized vessels 50.75 50.75 Tulcea Romania STX OSV Braila SA STX OSV Offshore & Specialized vessels 50.75 50.75 Braila Romania Braila Ship Repair SA STX OSV Offshore & Specialized vessels 50.75 50.75 Braila Romania Drobeta- AJA Ship Design SA STX OSV Offshore & Specialized vessels 30.45 30.45 Turnu Severin Romania
STX Europe Annual Report 2011 STX Europe STX OSV Niteroi SA STX OSV Offshore & Specialized vessels 50.75 50.75 Rio de Janeiro Brazil Estaleiro Promar SA STX OSV Offshore & Specialized vessels 25.63 25.63 Ipojuca Brazil STX OSV Accommodation AS STX OSV Offshore & Specialized vessels 50.75 50.75 Brattvåg Norway 52 STX OSV Accommodation Tulcea SRL STX OSV Offshore & Specialized vessels 50.75 50.75 Tulcea Romania STX OSV Singapore Pte Ltd STX OSV Offshore & Specialized vessels 50.75 50.75 Singapore Singapore STX OSV Vung Tau Ltd STX OSV Offshore & Specialized vessels 50.75 50.75 Vung Tao Vietnam STX OSV Design AS STX OSV Offshore & Specialized vessels 50.75 50.75 Ålesund Norway Aakre Eigendom AS STX OSV Offshore & Specialized vessels 50.75 50.75 Ålesund Norway STX OSV Representação Ltda STX OSV Offshore & Specialized vessels 50.75 50.75 Rio de Janeiro Brazil Seaonics AS STX OSV Offshore & Specialized vessels 25.88 25.88 Ålesund Norway STX OSV Piping AS STX OSV Offshore & Specialized vessels 50.75 50.75 Brattvåg Norway STX OSV Piping SRL STX OSV Offshore & Specialized vessels 50.75 50.75 Tulcea Romania STX OSV Brevik Holding AS STX OSV Brevik Offshore & Specialized vessels 50.75 50.75 Brevik Norway STX Brevik Support AS STX OSV Brevik Offshore & Specialized vessels 50.75 50.75 Brevik Norway STX Grenland Industri AS STX OSV Brevik Offshore & Specialized vessels 50.75 50.75 Skien Norway Hjallum AS STX OSV Brevik Offshore & Specialized vessels 50.75 50.75 Kragerø Norway Ronor AS STX OSV Brevik Offshore & Specialized vessels 50.75 50.75 Brevik Norway Noryard AS STX OSV Brevik Offshore & Specialized vessels 50.75 50.75 Brevik Norway Scanrom SRL STX OSV Brevik Offshore & Specialized vessels 35.53 35.53 Craiova Romania
Scandinor AS STX Europe Other 100.00 100.00 Oslo Norway
STX France SA STX France Cruise & Ferries 66.66 66.66 St. Nazaire France STX France Lorient SAS STX France Cruise & Ferries 66.66 66.66 Lorient France STX France Solutions SAS STX France Cruise & Ferries 66.66 66.66 St. Nazaire France STX France LNG Technology SAS STX France Cruise & Ferries 66.66 66.66 St. Nazaire France STX France Cabins SAS STX France Cruise & Ferries 66.66 66.66 Lanester France
STX Norway Florø AS STX Norway Florø Other 100.00 100.00 Florø Norway STX Norway Design Florø AS STX Norway Florø Other 100.00 100.00 Florø Norway
STX Finland Oy STX Finland Cruise & Ferries 100.00 100.00 Turku Finland STX Finland Cabins Oy STX Finland Cruise & Ferries 100.00 100.00 Piikkio Finland Fort STX USA Lifecycle Services Inc STX Finland Cruise & Ferries 100.00 100.00 Lauderdale USA Shipbuilding Completion Oy STX Finland Cruise & Ferries 100.00 100.00 Turku Finland Technology Design and Engineering Eng'nD Oy STX Finland Cruise & Ferries 100.00 100.00 Rauma Finland Arctech Helsinki Shipyard Oy STX Finland Cruise & Ferries 50.00 50.00 Helsinki Finland Aker Arctic Technology Oy STX Finland Cruise & Ferries 71.40 71.40 Helsinki Finland
As far as acquisitions and sales of group companies are concerned, see also note 3.
Companies in the STX OSV Holdings Limited group included in the consolidated figures where the sub group holding in % is less than 100 may be presented with a holding in % lower than 50 as the Group owns 50.75% of STX OSV Holdings Limited. Exchange rates in translation In the consolidated accounts of STX Europe Group, the following exchange rates have been used in translating the accounts of foreign subsidiaries and associated companies:
Average rate Rate at Average rate Rate at Average rate Rate at Country Currency 2011 31 Dec. 2011 2010 31 Dec. 2010 2009 31 Dec. 2009
Canada CAD 5.67 5.87 5.87 5.86 5.51 5.48 Romania RON 1.85 1.79 1.90 1.82 2.08 1.96 Brazil BRL 3.35 3.21 3.44 3.53 3.20 3.36 USA USD 5.61 5.99 6.04 5.86 6.29 5.75 The European Union (EU) EUR 7.79 7.75 8.01 7.81 8.74 8.28
In translating profit and loss account and balance sheet items, the average rate and rate as of 31 December, respectively, have been used.
Note 26 INTEREST BEARING LOANS AND BORROWINGS
This note provides information about the contractual terms of the Group's interest-bearing loans and borrowings, except building financing which is described in note 33. For more information about the Group's exposure to interest rate and foreign currency risk, see note 34.
Interest bearing loans and borrowings: Fair value Book value Fair value Book value Amounts in NOK million 2011 2011 2010 2010 Annual Report 2011 STX Europe
Non-current liabilities Unsecured bond issues 597 625 756 852 53 STX Norway loan 0 0 232 250 Other loans 207 242 241 283 Total interest-bearing long-term liabilities 804 867 1 228 1 385
Current liabilities Current portion of long-term loans 24 24 48 48 Bank loan (MRCF) 0 0 286 296 SCB loan 1 124 1 180 0 0 Other loans 27 27 1 1 Total short-term interest-bearing liablilities 1 175 1 231 335 345 Total interest-bearing liabilities 1 979 2 098 1 563 1 729
Subordinated loans (Non-current) STX Norway loan 0 0 370 400 Total subordinated loans 0 0 370 400
Below is a description of the main interest bearing loans and borrowings.
Multi currency revolving credit facility (Nordea, Woori Bank) - NOK 300 million ("MRCF") This loan was repaid in full by STX Europe AS in January 2011. The loan was a multicurrency facility with Nordea, guaranteed 100% by Woori Bank, with a borrowing limit at NOK 300 millions. The drawdown of the loan was NOK 300 million as of 31 December 2010.
Corporate Bonds The bonds will have no installments during the borrowing period and will be repaid in full at maturity. All bonds are listed at Oslo Stock Exchange, and fair value is calculated using the last traded rate in 2011 for each bond. The bond loan of NOK 250 million issued in March 2010 (STX01), whereby STX Europe held NOK 23 millon of the bond, was redeemed in 2011. This corporate bond matured originally in March 2012, however the loan was repaid with proceeds from the sale of STX OSV shares in July 2011 by utilizing the call-option mechanism. The corporate bond with maturity in 2013 (AKY03 and AKY04) was drawned in 2006, and has a borrowing limit of NOK 600 + NOK 600 million whereof the NOK 625 million is drawn. The rate is fixed at 6.65 percent for NOK 145 million, and for the remaining NOK 480 million the interest rate is floating based on NIBOR + 2.50 percent. The bond is unsecured.
Standard Chartered Bank (SCB) loan In November 2011 STX Europe AS entered into a loan agreement with Standard Chartered Bank (SCB) for a USD 200 million senior secured facility. The proceeds from this loan were used for onward lending to the shareholder STX Norway AS (See also note 20). The loan is guaranteed by STX Engine Co., Ltd. and secured by a pledge of STX Europe AS's 50.75% shareholding in STX OSV Holdings Limited. The loan matures end of November 2012. STX Europe AS expects that the loan is either to be refinanced until its maturity or to be repaid in full with proceeds from sale of the shares in STX OSV Holdings Ltd, which decision is to be taken in due course. STX Norway loans All three loans provided by the sole shareholder STX Norway AS to STX Europe AS amounting to NOK 650 million in total were repaid in full in 2011, by use of proceeds from the sale of STX OSV shares in July 2011.
Security Interest bearing loan (excluding construction loan) is secured with NOK 229 million (2010: NOK 289 million). The book value of the assets subject to those securities is NOK 804 million.
Currency of interest bearing loans Amounts in NOK million Currency NOK
NOK 0 876 USD 205 1 180 EUR 5 42 Total 2 098
Note 27 OPERATIONAL AND FINANCIAL LEASING
OPERATIONAL LEASING Non-cancelable operating lease rentals (leases as a lessee) are payable as follows: Amounts in NOK million 2011 2010
Less than one year 43 62
STX Europe Annual Report 2011 STX Europe Between one and five year 125 146 More than five years 31 68 Total 199 277 54 Regarding the lease of land related to Helsinki Yard in Finland, the main part of these contracts have been re-negotiated with Helsinki City. Arctech Helsinki Shipyard Oy has entered into new contracts with Helsinki City regarding the area they need for shipbuilding. STX Finland and Helsinki City agreed that the remaining lease contracts to be terminated 31.12.2011 and STX Finland to be released from the liabilities. At the same time Arcthech was given an option to rent areas /buildings from Helsinki City in the future when necessary. Only minor area now remains within STX Finland’s responsibility as per the former lease contracts. Correspondingly to above arrangement EUR 3.9 million in re-structuring reservations were released in 2011 accounts due to STX Finland no longer responsible of building demolition and cleaning the land on previously leased areas. During 2011 NOK 47 million was recognized as an expense in the income statement in respect of operating leases (2010: NOK 58 milion).
FINANCIAL LEASING Non-cancellable financial lease rentals (leases as a lessee) are payable as follows: Amounts in NOK million 2011 2010
Less than one year 5 5 Between one and five year 3 8 More than five years 0 0 Total 8 13
The financial leasing agreements relate to IT equipment in STX France. During 2011 NOK 4 million was recognized as an expense in the income statement in respect of financial leases (2010: NOK 5 milion). Note 28 PENSION EXPENSES AND PENSION LIABILITIES
The STX Europe Group's Norwegian companies mainly cover their pensions through group pension plans in life insurance companies. Under IAS 19 Employee Benefits, the plans have been treated for accounting purposes as defined benefit plans. The STX Europe Group's Norwegian companies have defined benefit plans. STX Finland and STX France have defined contribution plans. The Group's companies outside Norway have pension plans based on local practice and regulations. STX France has pension plans for which the employer provides an agreed-upon contribution that is managed in separate pension savings plan (defined contribution plans). STX Finland makes contributions that are included in joint plans with other employers (multi-employer plans). The contributions are recorded as pension expenses for the period. The Group also has uninsured pension liabilities for which provisions have been made. Actuarial calculations have been made to determine pension liabilities and pension expenses in connection with the Group's defined benefit plans.
The following assumptions have been used in the calculations: Assumptions in Norway: 2011 2010 Expected return 4.10 % 4.60 % Discount rate 2.60 % 3.20 % Wage growth 3.50 % 4.00 % Social security base adjustment 3.25 % 3.75 % Pension adjustment 0.10 % 0.50 %
Expected remaining lifetime: Age Man Woman 20 62 65 40 42 45 60 24 26
80 9 10 Annual Report 2011 STX Europe
Pension expense recognized in the income statement: 55 Amounts in NOK million 2011 2010
Current service cost 15 23 Interest cost 7 9 Expected return on pension funds -2 -2 Amortization of actuarial gains and losses 1 0 Curtailment / Settlement -2 -22 Amortization of past service cost 1 0 Net pension expenses 20 8 Contribution plans (employer's contribution) 114 132 Total net pension expenses 134 140
Net pension funds and liabilities: Amounts in NOK million 2011 2010
Defined benefit obligation funded plans 56 44 Defined benefit obligation unfunded plans 115 110 Fair value of plan assets -41 -42 Present value of net obligations 130 112 Unrecognized net actuarial gains and losses -4 4 Social security tax 3 3 Net liability recognized in the balance sheet 129 119 Which is recognized as pension assets -1 -3 Which is recognized as pension liabilities 129 122
Changes in the present value of the defined benefit obligations: Amounts in NOK million 2011 2010
Fair value of plan assets as of 1 January 42 48 Expected return 1 2 Paid in premium -1 4 Actuarial gains and losses -3 -1 Effect of settlement 0 -4 Benefits paid 2 -6 Currency translation differences -1 -1 Fair Value plan assets as of 31 december 41 42 Changes in net liability recognized in the balance sheet are as follows: Amounts in NOK million 2011 2010
Net liability as of 1 January 119 132 Net expense recognized 20 8 Pension contribution -7 -12 Acquisitions and disposals 0 0 Currency translation difference -3 -9 Net liability as of 31 december 129 119
Actual return on plan assets in 2011 was positive with NOK 1 million (2010 was positive with NOK 2 million).
The major categories of plan assets as a percentage of total plan assets are as follows: Percent 2011 2010
Bonds 48 % 49 % Money market 22 % 19 % Equity instruments and shares 10 % 12 % Property 19 % 19 % Other 1 % 2 % Total 100 % 100 %
The Group expects to contribute approximately NOK 3 million to the pension funds in 2012.
STX Europe Annual Report 2011 STX Europe Note 29 PROVISIONS FOR LOSS CONTRACTS
56 Amounts in NOK million 2011 2010
Balance as of 1 January 72 184 Additional provisions 101 73 Amounts used -37 -185 Unused amounts reversed during the period -1 0 Balance as of 31 December 135 72 - amount recorded as reduction of Project under construction 92 4 - amount recorded as short-term provision 43 68
Provisions for loss contracts are partly recorded as reduction of Projects under construction in the balance sheet, and partly as short term provisions in the balance sheet, depending on the amount recorded as Project under construction for each project.
The provisions as of 31 December 2011 is mainly related to ongoing projects in STX OSV Holdings Limited Group and STX France. It is assumed that these projects are completed during one year.
Note 30 OTHER PROVISIONS AND ACCRUALS
Provisions and accruals as of 31 December 2011 Loss on Amounts in NOK million projects Warranties Restructuring Other Total
Balance as of 1 January 68 536 77 62 743 Acquisition of subsidiaries -7 7 0 0 0 Provisions made during the year 9 320 1 454 784 Provisions used during the year -26 -170 -7 -40 -242 Provisions reversed during the year -1 -102 -35 -4 -142 Currency translation differences 0 0 0 4 4 Balance as of 31 December 43 592 35 476 1 146
Non-current 0 41 35 89 166 Current 43 551 0 387 981 Balance as of 31 December 43 592 35 476 1 146
Expected timing of payment 2012 43 551 0 387 981 2013 0 41 35 87 163 After 2013 0 0 0 2 2 Total 43 592 35 476 1 146 Provisions and accruals as of 31 December 2010 Loss on Amounts in NOK million projects Warranties Restructuring Other Total
Balance as of 1 January 27 220 70 127 445 Acquisition of subsidiaries 0 0 0 0 0 Provisions made during the year 69 417 24 34 544 Provisions used during the year -25 -83 -13 -25 -147 Provisions reversed during the year 0 -4 0 -70 -75 Currency translation differences -2 -14 -4 -3 -24 Balance as of 31 December 68 536 77 62 743
Non-current 71 77 60 209 Current 68 465 0 2 534 Balance as of 31 December 68 536 77 62 743
Expected timing of payment 2011 68 465 0 2 534 2012 0 71 77 47 195 After 2012 0 0 0 13 14 Total 68 536 77 62 743
Warranties Provisions for warranties are related to completion of contracts and possible guarantee work afterwards. The warranty period is normally one to two years, but some of the provisions may be related to a longer period. Provisions for warranties are made based on historical data for corresponding projects and experience analysis. In relation to the sale of a tanker back in late 2008, STX Europe AS has given a minimum charter hire guarantee to the buyer for a duration of 7 years, whereof 4 years remaining. The guaranteed rate is a function of a fixed bareboat rate plus operating expenses. If the actual hire rate is lower than the guaranteed rate, seller will compensate for the shortfall. Such shortfall has Annual Report 2011 STX Europe been accrued for based on estimated earnings for the vessel in the contracted period. The estimated earnings are based on various analysis and market reports. The markets for such tonnage tend to fluctuate somewhat and these changes may affect the outcome to be better or worse than the assessments made and which the provisions are based upon. The estimates are 57 made for one year ahead.
Restructuring Provisions for restructuring costs in 2011 relates to STX France and STX Finland.
Other Legal claims are included with NOK 66 million (2010: NOK 14 million). In addition provisions for environmental clean-up in STX OSV Holdings Limited Group and STX France is included with NOK 81 million (2010: NOK 6 million). Other provisions mainly constitute of gasket repairs on two delivered vessels and group contingencies related to different yards. The group contingencies have earlier years been stated as trade and other payables.
Note 31 TRADE AND OTHER INTEREST-FREE LIABILITIES AND WORKING CAPITAL
Trade and other liabilities comprise the following items: Amounts in NOK million 2011 2010
Advances from customers 2 595 1 668 Trade accounts payable 3 069 2 614 Accrual of operating- and financial costs 1 292 1 396 Other short-term interest free liabilities 856 813 Total trade and other interest-free liabilities 7 812 6 492
Working capital Amounts in NOK million Note 2011 2010
Inventories, project under construction, trade and other interest-free receivables 10 236 8 840 -Current operating liabilities and provisions -9 433 -7 394 -Construction loans -2 379 -4 398 =Net working capital -1 576 -2 952 + Cash and cash equivalents 4 903 6 470 + Short-term interest bearing debt 1 255 15 =Total working capital 4 582 3 533 Of which restricted cash 21 283 1 234 Adjusted net working Capital -1 293 -1 719 Other long term liabilities Amounts in NOK million 2011 2010
Other long term liabilities 147 0 Total other long term liabilities 147 0
The other long term liabilities as of 31 December 2011 mainly relates to an earn-out agreement for STX OSV Niteroi in Brazil.
Note 32 NET INTEREST-BEARING DEBT
Net interest-bearing debt comprise the following items: Amounts in NOK million 2011 2010
Long-term interest-bearing debt 867 1 785 + Short-term interest-bearing debt (excl. construction loans) 1 231 345 Total interest-bearing liabilities 2 098 2 129 - Long-term interest-bearing receivable -1 434 -226 - Short-term interest-bearing receivable -1 255 -15 - Cash and bank deposits -4 903 -6 470 + Project related cash 809 1 892 Total interest-bearing assets -6 783 -4 820 Net interest-bearing debt(+)/asset(-) -4 685 -2 690
STX Europe Annual Report 2011 STX Europe Note 33 CONSTRUCTION FINANCING
58 This note describes the construction financing in the Group. Other interest-bearing loans are described in note 26. STX Europe Group has construction loans amounting to NOK 2 379 million as of 31 December 2011 (2010: NOK 4 398 million). Construction loans relate to specific projects and are established on a project-by-project basis. Typically, the lending bank for the construction loan has a security interest in the vessel under construction. The various Group shipyards structure their construction loans in different ways. Generally, construction loan funds can be drawn upon once the yard has committed its own project financing. Subsequent drawing on loan funds is done in step with the capital tied up in the project. The loan is repaid as part of the vessel’s delivery and receipt of final settlement from the customer. The projects are to a certain extent also financed by advance payments from customers. Normally, the customer will demand a parent company guarantee or a bank guarantee as security for the advance payments. Such guarantees will be given by parent company or banks. A financial package is prepared for some projects comprising construction financing and advance payment guarantees with security interest in the vessel under construction. Construction loans typically feature floating interest rates. Accordingly, interest-rate changes will affect project costs, as all costs associated with a construction loan are recorded as ordinary project expenses. Overall loan terms and conditions include a combination of origination fees, commission fees, and the like, and the applicable interbank rate margin on drawn funds. Effective margins on construction loans can vary a great deal, depending, for example, on whether a project draws down the maximum allowed by the construction loan. The effective margin on a construction loan is typically 1.10 percent to 2.00 percent over Nibor/Euribor/Libor. It is continuously considered to commit the whole or part of the loan to fixed rate for all bigger construction loan projects. As STX Europe Group had at year-end 2011 an order backlog comprising 69 vessels, it is not practical to present all established construction loan contracts in this note. STX OSV Holdings Ltd Group's Norwegian shipyards have established framework agreements with a Norwegian bank stipulating loan terms, conditions, and structures. Construction financing for projects is established on a project-by-project basis within the agreed-upon frameworks. The Romanian yards are largely financed via the Group’s Norwegian yards in the form of partial payments on hull building contracts. Nordea Bank Norge ASA was per year end 2011 the provider of construction financing to the Norwegian shipyards. As of 31.12.11, the Nordea facility consisted of a construction facility, a guarantee facility and another special purpose facility of NOK 4 392, NOK 500 and NOK 150 million, respectively. In addition to the maximum drawdown within the NOK 5 042 million frame, restrictions to minimum working capital of NOK 900 million and minimum equity of NOK 1 800 million apply per 31.12.2011. Each construction loans are due at delivery of the vessel. STX OSV Niteroi SA has construction financing with BNDES and Banco do Brasil on a project-by-project basis. STX Europe AS and STX OSV Holdings LT provide guarantees related to this agreement. As of 31.12.2011, the BNDES construction financing applies to the shipbuilding projects 27, 30, 31 and 33 in addition to shipyard modernization. Also and correspondingly, another facilities regarding shipbuilding project number 28, 29 and 32 in addition to shipyard investment, is entered into with Banco do Brasil and Banco Itau. The construction loans are due at delivery of the vessel. Per 31.12.2011, the BNDES and Banco do Brasil project financing facilities were limited to USD 381.0 million and USD 179,7 million respectively. Estaleiro Promar S.A. has construction financing with Banco do Brasil on a project-by-project basis. STX OSV Holdings LT will provide guarantees related to this agreement. As of 31.12.2011, the Banco do Brasil construction financing applies to the shipbuilding of 8 vessels (EP-01 to EP-08). Per 31.12.2011, Banco do Brasil project financing facilities were limited to USD 237.7 million. STX OSV Vung Tau Ltd. has construction financing agreement with Nordea Bank in Singapore established by the holding company STX OSV Singapore Pte. Ltd. STX Europe AS and STX OSV AS provides guarantees related to this agreement. This construction facility works more like a working capital facility and for specific projects being the shipbuilding projects in STX OSV Vung Tau Ltd. This is a revolving multi-currency facility subject to approval by Nordea and limited to USD 90 million per 31.12.2011. As per year-end 2011, there were no construction loans drawn in STX Finland, STX France or STX Norway Florø AS. The fair values of the loans and borrowings are disclosed in Note 34. The carrying amounts of current borrowings, and non- current borrowings which are at variable market rates, approximate their fair values. Note 34 FINANCIAL RISKS AND FINANCIAL INSTRUMENTS
Financial Risk Factors The STX Europe Group's financial liabilities comprise bank loans and overdrafts, trade payables and loans given. The main purpose of these financial liabilities is to raise finance for the Group's operations. The Group has various financial assets such as trade receivables, cash and short and long term loans which arise directly from its operations. The Group enters into derivative transactions, primarily interest rate swaps and forward currency contracts. The purpose is to manage the interest rate and currency risks arising from the Group's operations and its sources of finance. It is the Group's policy that no trading of derivatives shall be undertaken. The main risks arising from the Group's financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk. The management of these risks is part of the yards procedures and follow-up of the construction contracts.
Interest rate risk Through construction financing and from various other borrowings, the company is exposed to fluctuations in interest rates for the non-interest hedged portion of financing. To mitigate some of the risk on interest fluctuation, the Group companies may fix the interest rate on some of its construction loans by entering into interest rate swaps with banks. The loans with floating interest or variable rates are also to some extent offset by the Group's bank deposits, whereby interest revenue on deposits offset interest expenses on borrowings, consequently interest rate risk is considered to be relatively limited.
At the reporting date the interest rate profile of the Group's interest bearing instruments was: Amounts in NOK million 2011 2010
Fixed rate instruments Financial assets 0 0 Financial liabilities 1) 292 1 185
Variable rate instruments Annual Report 2011 STX Europe Financial assets 6 158 6 485 Financial liabilities 1) 4 186 5 352 59
1) Financial liabilities where interest swaps are used are classified as instruments with floating rate.
The following table demonstrates the sensitivity to a reasonable possible change in interest rates, all other variables held constant, of the Group's profit before tax (through the impact on floating rate borrowings). Amounts in NOK million Increase / reduction in basis points 2011 2010
Impact on profit before tax +/- 50 +/- 10 +/- 6 Effect on equity +/- 50 +/- 7 +/- 4
Foreign currency risk As a result of significant part of operations taking place in the EU (Finland, France and Romania) the balance sheet can be affected significantly by movements in the EUR/NOK currency rates.
The table below demonstrates the sensitivity to changes in the EUR/NOK exchange rate, keeping all other variables fixed, of the Group's profit before tax. Amounts in NOK million Increase / reduction in basis points 2011 2010
Impact on profit before tax +/- 0,50 +/- 78 +/- 120
Hedging of construction contracts The Group has transactional currency exposure. Such exposure arises from sales or purchases by an operating unit in foreign currencies other than the functional currency. The Group requires all of its operating units to use forward currency contracts to eliminate the currency exposure on any individual transaction. When contract price is normally entered into in local currencies, and the costs of the project are in large extent in local currency, the currency exposure of the projects is relatively small. The FX hedging transactions are in some cases entered into with the parent STX Europe AS as counterparty to the bank with the corresponding back-to-back arrangement with the Group yard companies. In cases where the yards are hedging with local banks, the contractural obligation are mostly guaranteed by parent company STX Europe AS. When hedging the value of a construction contract or cost related to a contract in foreign currency, the part of hedging related to the percentage of completion in the contract adjusts the value of work in progress. The value related to unrecognized contractual commitment (firm commitment) is accounted for as short term interest bearing receivables or liabilities. The construction contracts or hedged related costs are recognized to hedged currency rate under assumptions that it is a perfect hedge relationship. This are treated as fair value hedging.
Liquidity risk STX Europe Group monitors its risk to a shortage in funds using a recurring liquidity planning tool. This tool considers the maturity of both its financial investments and financial assets and liabilities and projected cash flow from operations. The Group's objective is to maintain a balance between continuity of funding and flexibility through use of construction financing, bank overdrafts and trade payables. Approximately 60 percent of the Group's debt, excluding construction loans, matures in 2012, mainly related to the loan facility with Standard Chartered Bank (SCB) classified as short-term debt (see note 26).
The derivative financial liabilities, mainly foreign exchange derivatives used to hedge construction contracts, represent the gross contractual amounts to be settled and exchanged at maturity. The amount indicates the underlying value principal amount. The liquidity risk specifically related to these cash flows are considered to be limited, as it is linked to cash payments from solid customers, whereby the client's financing of the project is secured before contract signing.
The table below summarizes the contractual maturities of the Group's financial liabilities, including estimated interest payments and excluding trade payables, based on contractual undiscounted payments as of 31 December 2011. Amounts in NOK million Less than 1 year 2 years 3 years 4 years 5 years > 5 years Total
2011 Non-derivative financial liabilities Secured bank loan 1 227 0 0 0 0 0 1 227 Unsecured bond loans 34 636 0 0 0 0 671 STX Norway shareholder loans 0 0 0 0 0 0 0 Construction loans 2 379 0 0 0 0 0 2 379 Other loans 58 43 38 34 62 80 313 Total non-derivative financial liabilities 3 698 679 38 34 62 80 4 590
Derivative financial liabilities Forward exchange contracts used for hedging: Outflow 1 923 462 244 2 629 Inflow -1 847 -447 -242 -2 536 Total derivative financial liablities 76 15 2 0 0 0 93
2010 Non-derivative financial liabilities Secured bank loan 307 0 0 0 0 0 307 Bond issue 66 277 659 0 0 0 1 002 STX Europe Annual Report 2011 STX Europe Varma loan 0 0 0 0 0 0 0 STX Norway loan 47 697 0 0 0 0 744 60 Construction loans 4 398 0 0 0 0 0 4 398 Other loans 66 58 51 42 72 97 386 Total non-derivative financial liabilities 4 884 1 032 710 42 72 97 6 837
Derivative financial liabilities Forward exchange contracts used for hedging: Outflow 1 664 147 1 811 Inflow -564 -31 -595 Total derivative financial liablities 1 100 116 0 0 0 0 1 216
Credit risk Credit risk that arise from commercial contracts, are managed by the different business units. Some buyers may have the long term financing in place within signing and in some cases this will be arranged later. When arranged later, the yard has typically other vessels/installments with the respective customer as additional security. The Group's financial assets are in all material aspects placed in cash deposits. See also note 19 and 20 for additional overview of the Group's exposure for credit risk.
Credit risk is the loss that STX Europe would suffer if a counterparty fails to perform its financial obligations. In a hypothetical, unlikely scenario, the group considers its maximum exposure to credit risk as of 31 December 2011 to be as follows: Amounts in NOK million Note 2011 2010
Cash and cash equivalents 4 903 6 470 Trade and other receivables 19 2 251 2 217 Derivatives / Forward exchange contracts 148 366 Other receivables 20 1 255 15 Total 8 557 9 068
Capital Management The primary objective of the Group's capital management is to ensure that it maintains a strong credit rating and capital ratios in order to support its business and maintain the trust from shareholders, creditors and the market, and to support and develop operations. The objective is that all companies in the Group shall have net working capital and equity that is sufficient to finance its construction projects. Financing of new investments and acquisitions shall as far as possible be done by long term debt, with a maturity profile that corresponds to the useful life of the investment. Fair value and book value. Book value and deemed fair value financial assets and liabilities: Book value Fair value Book value Fair value Amounts in NOK million Note 2011 2011 2010 2010
Financial assets booked at fair value Financial assets available for sale 14 258 258 253 253 Forward exchange contracts 148 148 366 366 Total financial assets booked at fair value 406 406 619 619
Financial assets booked at amortized cost Loans given and receivables 15,16,19,20 5 036 5 036 2 541 2 541 Cash and cash equivalents 18 4 903 4 903 6 470 6 470 Total financial assets booked at amortized cost 9 939 9 939 9 011 9 011
Financial liabilities booked at fair value Interest rate swaps 1 1 1 1 Forward exchange contracts 112 112 70 70 Total financial liabilities booked at fair value 113 113 71 71
Financial liabilities booked at amortized cost Corporate bonds loans 26 625 597 852 756 Other interest bearing debt 26 1 473 1 382 1 277 1 177 Construction loans 33 2 379 2 379 4 398 4 398 Long term interest free financial liabilities 31 147 147 0 0 Short term interest free financial liabilities 31 7 812 7 812 6 492 6 492 Total financial liabilities booked at amortized cost 12 435 12 317 13 019 12 823
The method used to determine fair value of financial instruments is described in Note 1. STX Europe Annual Report 2011 STX Europe Fair value by hierarchy Amounts in NOK million Level 1 Level 2 Level 3 Total balance 61
2011 Assets Equity securities available-for-sale 258 258 Interest-bearing receivables, maturity 1-3 years 2 689 2 689 Non-interest-bearing receivables, maturity 1-3 years 2 213 2 213 Interest rate swaps 0 0 Forward exchange contracts 148 148 Total Assets 0 5 309 0 5 309
Liabilities Interest rate swaps 0 0 Forward exchange contracts 112 112 Total Liabilities 0 112 0 112
2010 Assets Equity securities available-for-sale 253 253 Interest-bearing receivables, maturity 1-3 years 282 282 Non-interest-bearing receivables, maturity 1-3 years 2 183 2 183 Interest rate swaps 0 0 Forward exchange contracts 366 366 Total Assets 0 3 084 0 3 084
Liabilities Interest rate swaps 1 1 Forward exchange contracts 70 70 Total Liabilities 0 71 0 71
The fair value of financial instruments traded in actrive markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm's length basis. The quoted market price used for financial assets and liabilities held by the group is the current bid price. These instruments are included in level 1. The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is incldued in level 2. If one or more of the significant inputs is not based on osbervable market data, the instrument is included in level 3.
Specific valuation methods used to value financial instruments include: - Quoted market prices or dealer quotes for similar instruments - The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. - The fair value of forward exchange contracts is determined using forward exchange rates at the balance sheet date, with the resulting value discounted back to present value. - Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments. Note 35 CONTINGENCIES AND CAPITAL COMMITMENTS
Guarantee obligations As part of its ordinary operations, completion guarantees and guarantees for advance payments from customers (refundment guarantees) are issued. Such guarantees typically involve a financial institution that writes the guarantee vis-à-vis the customer.
Project risks and uncertainties STX Europe Group operations are subject to long term contracts, many of which are fixed-price, turnkey contracts that are awarded on a competitive bidding basis. Failure to meet schedule or performance guarantees or increases in contract costs can result in non-recoverable costs, which could exceed revenues realized from the applicable project. Where a project is identified as loss making, forward loss provisions are made. The accounting treatment is based on experience, events and managements best judgment. Inevitably, such circumstances and information may be subject to change in subsequent periods and thus the eventual outcome may be better or worse than the assessments made in drawing up periodical financial reports.
Legal proceedings With its extensive worldwide operations, companies included in the Group are in the course of its activities involved in numerous legal disputes. Provisions have been made to cover the expected outcome of the disputes to the extent that negative outcomes are likely and reliable estimates can be made. However, the final outcome of these cases will always be subject to uncertainties and resulting liabilities may exceed booked provisions. As of balance sheet date, STX Europe AS group is not part in any major ongoing legal dispute, which could have a material impact on the financial statements.
Clean-up costs The Group’s operations are subject to numerous national and supra-national environmental regulations, including removal and cleanup of environmental contamination. Although there have to date been no indications that the Group have failed to comply with applicable environmental rules, regulations or permits, current concentration limits for hazardous material will apply to historical contamination, and any STX Europe Annual Report 2011 STX Europe further studies or changes in concentration limits may result in further clean-up operations or protective measures being imposed in the future. The costs related to such clean-up or protective measures may be significant and could have a material 62 adverse effect on our business, financial condition and results of operations. Although the cost related to this can be material, the company expect that the potential cost related to this can be covered within normal operations without any material negative impact
Note 36 TRANSACTIONS AND AGREEMENTS WITH RELATED PARTIES All subsidiaries of STX Europe AS are related parties. For more information about these, please refer to note 25. All transactions between STX Europe companies are done on the principle of arm's lengths at market prices. STX Norway AS controlled all of the shares in STX Europe AS as per year end 2010 and 2011. STX Norway AS is a related party as per 31.12.2010 and 31.12.2011. STX Norway AS has registered office Karenslyst allè 57, 0277 Oslo. STX Norway AS is owned 67 percent by STX Shipbuilding Co.LTD and 33 percent by STX Engine Co.LTD (both companies are registered in Korea). For description of transactions and agreements with board members and presidents of the group, please refer to note 2 in the financial statements of STX Europe AS. For further description of transactions and agreements with Board of Directors and the Executive Management Group see note 2 in the accounts of STX Europe AS.
Sales of goods and services Amounts in NOK million 2011 2010
Sales of construction contracts and engineering services 3 0 Other 21 0 Total sales of goods and services 24 0
Purchases of goods and services Amounts in NOK million 2011 2010
Cost of goods other related parties -71 -1 347 Other operating expenses other related parties -6 -8 Total purchases of goods and services -77 -1 355
The purchases are related to administration services.
Financial items Amounts in NOK million 2011 2010
Interest expense parent company -25 -47 Interest income parent company 18 0 Net financial items -7 -47 Year-end balances with related parties Amounts in NOK million 2011 2010
Interest bearing long-term receivables associated companies and joint ventures (ref. note 15) 80 0 Interest bearing long-term receivables to parent company (ref. note 15) 678 0 Interest bearing long-term receivables to other related parties (ref. note 15) 1 4 Interest-free long-term receivables associated companies (ref. note 16) 5 8 Interest bearing short-term receivables associated companies and joint ventures (ref. note 20) 56 15 Interest bearing short-term receivables parent company (ref. note 20) 1 199 0 Other interest free receivables to associated companies 8 0 Other interest free receivables to parent company 18 0 Other interest free receivables to other related parties 49 0 Total 2 094 27
Interest bearing long-term liabilities to parent company (ref. note 26) 0 650 Interest bearing short-term liabilities to other related parties 0 0 Other interest free debt to parent company 30 34 Other interest free debt to other related parties 35 13 Total 65 697
The loans totaling NOK 650 million as of 31 December 2010 from STX Norway AS were repaid in 2011. See also note 26. STX Europe AS has provided three loans to its parent STX Norway AS during 2011, whereof two loans of in total NOK 678 million are long-term and NOK 1 198 million is short-term. See also note 15 and 20. The parent company, STX Europe AS, has guaranteed for various corporate loans, construction loans, advance payment bonds and suppliers on behalf of the Group. These parent company guarantees amounts to NOK 9 828 million in 2011 (NOK 8 229 million in 2010). A portion of the FX hedge contracts are entered into by STX Europe AS on behalf of subsidiaries within the Group. A corresponding back-to-back agreement is made between STX Europe AS and the subsidiary. Therefore these are accounted for by the subsidiary in question. In some cases, where hedges entered into by the Group, the contractual obligations are Annual Report 2011 STX Europe guaranteed by STX Europe AS (see also note 34). 63
Note 37 SH ARES OWNED BY MEMBERS OF THE BOARD OF DIRECTORS
AND EXECUTIVE MANAGEMENT IN STX EUROPE
No shares were owned or controlled by members of the Board of Directors and Executive Management Team (and their related parties) as of 16 April 2012.
Note 38 GOVERNMENT GRANTS STX Group has received grants from public institutions related to research and development activities and yard business. The grants are grouped as follows: 2011 2010
Research and Development 19 31 Yard subsidies 0 0 Other 2 28 Total 20 60
Yard subsidies are presented as part of project revenues. Research and Development grants are presented as reduced project costs.
Note 39 EVENTS AFTER THE BALANCE SHEET DATE
In January 2012, STX Europe AS renewed a guarantee facility of EUR 70 million with an international credit insurance company. Due to several references in the media during the third week of January 2012 STX Europe chose to publish a clarification announcement on the 18th of January. This was done in order to ensure that consistent information is provided by the STX Europe group of companies. Within the statement STX Europe AS confirms that we as part of our ordinary course assessment of available strategies are exploring the viability of a sale of shares in STX OSV Holdings Ltd, and that we have retained JPMorgan Chase Bank, N.A., Hong Kong Branch and Standard Chartered Securities Korea Limited in connection therewith. However, at this juncture STX Europe emphasizes that there is no certainty that a sale of shares in the Company will take place. STX Europe will update this information in the event of any significant developments. On the 30th of January 2012 STX France's Board of Directors announced the nomination of Laurent Castaing as its new General Manager of STX France in replacement of Jacques Hardelay. On 13th of March 2012 STX France entered into a contract with MSC regarding the cruise vessel previously contracted with GNMTC (General National Maritime Transport Company). MSC is thereby the new buyer of the cruise vessel. On 4th April 2012 STX France was informed by Viking River Cruise that they had decided to withdraw from further discussions concerning the previously announced project for two luxury cruise vessels announced on 21 December 2011. The contract was subject to certain conditions being fulfilled and was not included in the orderbook as of 31 December 2011. STX Europe AS Income statement
Amounts in NOK million Note 2011 2010
Operating revenue 11 30 106
Wages and other personnel expenses 2,9 -23 -38 Depreciation 12 -2 -2 Other operating expenses 11 -76 -39 Operating profit -72 26
Interest income from Group companies 43 61 Dividend received from Group companies 241 0 Other interest income 51 58 Received group contribution from subsidiaries 0 510 Other financial income 546 28 Total financial income 13 881 657
Interest expenses to Group companies -35 -1 Other interest expenses -104 -226 Loss refundment guarantees and hedges 0 -67 Other financial expenses -243 -98 Total financial expenses 13 -383 -393 STX Europe Annual Report 2011 STX Europe Net financial items 13 498 264
64 Pre-tax profit 426 291 Tax 6 -71 73 Net profit 355 364
Allocation of net profit Group contribution to parent company -1 050 0 Allocated from retained earnings 695 364 Total 355 364 STX Europe AS Balance sheet
Amounts in NOK million Note 2011 2010
Assets Deferred tax asset 6 335 304 Property, plant and equipment 12 5 3 Total intangible and tangible assets 340 307
Shares in subsidiaries 3 5 441 4 172 Long-term receivables from Group companies 4 1 413 1 140 Long-term receivables from related parties 1 0 Other long-term receivables 14 3 Total financial fixed assets 6 870 5 314 Total fixed assets 7 210 5 622
Short-term receivables from Group companies 4 1 287 298 Trade receivables 0 2 Other short-term receivables 7 0 Cash and cash equivalents 10 170 460 Total current assets 1 465 760 Total assets 8 675 6 381
Equity and liabilities Annual Report 2011 STX Europe Share capital 454 454 Share premium reserve 271 268 Other paid-in capital 2 742 2 742 65 Total paid in equity 3 468 3 465 Other equity 1 937 -377 Total other equity 1 937 -377 Total equity 5 5 404 3 087
Subordinated loan 7 0 400 Pension liabilities 9 8 8 Bond loans 7 623 846 Long-term debt to Group companies 0 1 170 Other long-term debt 7 0 251 Total long-term liabilities 632 2 674
Short-term debt to Group companies 7 1 401 93 Credit facility 10 0 162 Short-term interest bearing debt 7 1 199 296 Trade payables 5 2 VAT and public taxes 3 6 Other short-term debt 31 60 Total short-term debt 2 638 620 Total equity and liabilities 8 675 6 381
Oslo, 16th April 2012 STX Europe AS Board of Directors
In-Sung Lee Su-Jou Kim Chairman of the Board Deputy Chairman and President & CEO
Ju-Won Park Kang-Sik Rhee Board member Board member
Lars-Ivar Bøe Audun Grønnevik Arne Otto Rogne Board member Board member Board member STX Europe AS Cash flow statement
Amounts in NOK million Note 2011 2010
Profit (loss) after financial items 426 291 Depreciation 12 2 2 Change in short-term receivables -994 83 Change in short-term liabilities 873 -646 Gain on sales of shares -540 -28 Dividend from subsidiaries 241 0 Unrealized currency gains/losses -3 31 Cash flow from operating activities 4 -268
Proceeds from sale of shares 3 1 300 31 Change in long-term financial investments -5 -1 Changes in shares in subsidiaries and other shares 3 0 0 Changes in other financial fixed assets -285 81 Cash flow from investing activities 1 010 110
Proceeds from issuance of long-term interest-bearing debt 0 1 394 Repayment of long-term debt 252 -302 Net change in other interest-bearing debt -1 554 -990 Received group contribution 0 510 STX Europe Annual Report 2011 STX Europe Proceeds from sale of treasury shares 5 0 0 Cash flow from financing activities -1 303 612
66 Cash flow for the year -289 454 Cash and cash equivalents as of 1 January 460 5 Cash and cash equivalents as of 31 December 10 170 460 Notes to the accounts
Note 1 Accounting principles
General information and loss carry-forward amounts and the probability of The financial statement comprises the profit and loss future taxable profits. account, the balance sheet, the cash flow statement, The profit and loss account presents tax expenses and notes to the account. The accounts of STX Europe as the sum total of taxes payable and change in AS are presented in conformity with the Norwegian deferred tax. Accounting Act and generally accepted accounting principles in Norway. Pension expenses Pension liabilities related to defined benefit plans are Description of accounting principles valued at the present value of future pension benefits The accounts are based on the fundamental principles earned at the balance sheet date, and calculated on the governing transaction, comparability, going concern, basis of assumptions as to number of service years, congruence, and prudence. Transactions are recorded discount rate, future yield on pension assets, expected to accounts at settlement value at the time of the future wage growth, and pension adjustments, as transaction. well as actuarial assumptions on mortality, voluntary If actual figures are not available at the time of the resignations, and so forth. closing of the accounts, generally accepted accounting Pension funds are valued at market value. Net principles require management to make estimates and pension obligations on under-financed contracts are assumptions that affect the profit and loss account as capitalized as long-term, interest-free liabilities, while Annual Report 2011 STX Europe well as the balance sheet. Actual results could differ the net value of overfunded contracts is presented as from these estimates. a long-term interest-free receivable if it is likely that 67 Costs are grouped and expensed at the same time overfunding will produce a benefit. The net pension as the income to which the costs relate is realized. cost, which is the gross pension cost less the estimated Costs that cannot be directly related to income are return on pension funds, adjusted for the allocated expensed as they are incurred. effect of changes in estimates and pension plans, Assets related to current business activities are is included in the item Wages, salaries and other classified as current assets. The same rule is applied personnel expenses. for short-term debt. Receivables and debt that are not Changes in pension liabilities resulting from related to current business activities are classified as changes in pension plans are distributed over the current assets/liabilities if payable within one year of expected remaining period of service. Changes in the closing date of the accounts. Shares that are not pension liabilities and pension assets attributable to considered permanent investments are recorded as changes or deviations in estimates are distributed over current assets. the estimated average remaining period of service if Other assets are classified as fixed assets and other the deviations at the beginning of the year exceed ten debt is classified as long-term debt. percent of the higher of gross pension liabilities or pension assets. Closely related parties According to NRS 6 companies within a Group that STX Europe has undertaken transactions with closely have implemented IAS 19 and taken not recognized related parties during the past accounting year. Parties actuarial gain and losses against equity, may do so in are classified as “closely related” if one party is able to their local accounts as well. This is implemented by STX influence the decisions of the other party. Europe AS. The transactions have taken place at arm’s length. Cash flow statement Investments in subsidiaries The indirect method is used in preparing the cash flow and other shares statement. Cash flows from investment and financing Investments in subsidiaries and other shares are activities are presented gross; the accounting profit is valuated to historical cost. If there is a decrease in value reconciled with net cash flow from operating activities. that is not temporary, the shares are written down. Previously recognized write downs are reversed if the Foreign currency translation reason for write downs no longer exists. and transactions The financial statements are presented in Norwegian Deferred tax and deferred tax benefit Kroner (NOK), which is the functional currency of the The deferred tax provision in the balance sheet reflects company. timing differences between book and tax values. In Foreign currency transactions are translated calculating deferred tax liabilities, the tax rate on the into functional currency using the exchange rates balance sheet date and non-downward discounted prevailing at the dates of the transactions. Receivables amounts are applied. Calculations of deferred tax and liabilities in foreign currencies are translated into benefits are based on tax-reducing timing differences functional currency at the exchange rates ruling on the balance sheet day. Foreign exchange gains and losses Leases resulting from the settlement of such transactions and Leases of property, plant and equipment where the from the translation of monetary assets and liabilities company has substantially all the risks and rewards of denominated in foreign currencies are recognized in the the ownership, are classified as finance leases. Finance income statement. Foreign exchange differences arising leases are capitalized at the inception of the lease at in respect of conversion of assets and liabilities are the lower of the fair value of the leased property or the recorded as financial items. present value of the minimum lease payments. Lease payments are apportioned between the finance charges Operating revenue and reduction of the lease liability. Revenue is recognized at the time of delivery. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the Property, plant and equipment useful life of the asset or the lease term. Property, plant and equipment acquired by the company Leases where a significant portion of the risks and are stated at cost. The carrying value of the property, rewards of ownership are retained by the lessor are plant and equipment on the balance sheet represents classified as operating leases. Payment made under the accumulated cost less accumulated depreciation operating leases net of any incentives received from and any impairment charges. the lessor is charged to the income statement on a Art is not depreciated, but otherwise other fixed straightline basis over the period of the lease. assets in use are depreciated on a straight-line basis over the useful life of the assets. Depreciations are Interest-bearing liabilities based on expected useful lives of the assets after All loans and borrowings are initially recognized at cost, deducting the residual value of the assets. The assets’ being the fair value of the consideration received less residual values, useful lives and methods are reviewed, directly attributable transaction costs. and adjusted if appropriate, at each financial year end. After initial recognition, interest-bearing loss and Ordinary repairs and maintenance costs are charged borrowings are subsequently measured at amortized to the income statement during the financial period in cost using the effective interest method; any difference STX Europe Annual Report 2011 STX Europe which they are incurred. The cost of major renovations between proceeds (net of transaction costs) and the is included in the asset’s carrying amount when it is redemption value is recognized on the income statement 68 probable that the company will derive future economic over the period of the interest bearing liabilities. benefits in excess of the originally assessed standard of Amortized cost is calculated by taking into account any performance of the existing asset, and are depreciated issue costs, and any discount or premium on settlement. over the expected useful lives of the related assets. Gains and losses are recognized in net profit or loss Gains and losses on disposals are determined by when the liabilities are derecognized or impaired, as comparing the net disposal proceeds with the carrying well as through the amortization process. amount in the accounts and are included in operating profit. Assets for disposal are reported at the lower Cash and cash equivalents of the carrying amount and the fair value less selling Cash and cash equivalents comprise cash on hand, costs. deposits held at call with banks, other short-term highly The company allocates the amount initially liquid investments with original maturities of three recognized in respect of an item of property, plant months or less, and bank overdrafts. Bank overdrafts and equipment to its significant parts and depreciates are included within borrowings in current liabilities at separately each significant part over their useful lives. the balance sheet. Note 2 Wages and other personnel expenses
Wages and other personnel expenses consists of the following: Amounts in NOK million 2011 2010
Wages and salary 19 30 Social security 2 4 Pension costs 2 3 Other benefits 0 0 Total 23 38 Average number of man-labour year 14 18
Remuneration to the Board of Directors The chairman and the members of the Board have not received other benefits than Directors' fee. According to decision by the employee representatives of the Board of Directors, 12 percent of the fee is paid directly from the company to the local labour union.
Amounts paid out in NOK thousand 2011 2010
In-Sung Lee, Chairman of the Board 1) 0 0 Kyung Jin Hong, Chairman of the Board 2) 0 0 Su-Jou Kim, Deputy Chairman of the Board 3) 0 0 Sang-Ho Shin 4) 0 0 Kang-Sik Rhee 5) 0 0 Jun-Pyo Chung 6) 0 0 Byung Ryoon Woo 7) 0 0 STX Europe Annual Report 2011 STX Europe Ju-Won Park 8) 0 0 Arne Otto Rogne 9) 173 245 Audun Grønnevik 10) 173 245 69 Øyvind Bjerke 11) 123 245 Bøe, Lars-Ivar 12) 50 0 518 735
The 2010 amounts have been amended with total NOK 169 thousand to reflect actual cost for the year
1) In the Board of Directors from 21 January 2010 2) In the Board of Directors from 12 March 2009 to 21 January 2010 3) In the Board of Directors from 21 May 2008 to 12 March 2009 and from 24 August 2010 4) In the Board of Directors from 12 March 2009 to 28 July 2011 5) In the Board of Directors from 17 December 2010 6) In the Board of Directors from 12 March 2009 to 17 December 2010 7) In the Board of Directors from 12 March 2009 to 24 August 2010 8) In the Board of Directors from 28 July 2011 9) In the Board of Directors from 2004 10) In the Board of Directors from 30 March 2009 11) In the Board of Directors from 1 October 2009 to 30 June 2011 12) In the Board of Directors from 1 July 2011
Underlying principles — remuneration paid to President and CEO and key executives The purpose of the principles relating to remuneration payable to the Group’s President and CEO, Executive management and key personnel is to cultivate a performance-based corporate culture based on the Group’s values, and to contribute to good financial performance and greater value creation for STX Europe’s owners. The key executive have been paid a fixed base salary and a variable salary. The President and CEO and the key executives participate in the pension plans that are maintained by the company in which they are employed.
Remuneration of the President and CEO and members ot the Executive Mangement Team The President and CEO and the CFO have expat contracts which can be terminated on 3 months notice. They are not entitled to any severance pay from the end of the termination period. The employment of the Executive Management Team may be terminated on 6 months notice. If the company terminates the employment, the Executive management is entitled to between 0 and 12 months severance pay from the end of the termination period. Norwegian members of Executive management participate in the company’s collective pension plan, under which employees are entitled to a pension from the time they turn 67 years of age; the pension amount corresponds to about 70 percent of base salary amount upon which the pension is based; the maximum pension amount is 12 times the social security base amount (G), with annual adjustments corresponding to the increase in such base amount, based on 30 years’ earnings. Pension payments are reduced by the amount of pension payments from Norway’s social security services. Non-Norwegian members of Executive management participate in group pension plans in the companies in which they are employed. The following remunerations have been paid to the Executive Management Team: Pension benefit earned/ Base Variable Other cost to 2011 2010 Amounts in NOK thousand salary pay benefits company Total Total
Board Chairman January - June 1 925 0 138 0 2 063 2 475 President & CEO 1) January - December 1 486 0 137 362 1 985 909 CFO January - June 1 005 0 223 0 1 228 2 029 SVP Finance & Organization January - December 2 564 0 15 154 2 733 3 257 SVP Head of Group Synergies January - December 1 915 0 12 206 2 133 2 788 President STX OSV January - December 3 587 4 000 175 160 7 922 3 607 President STX Finland January - April 739 0 41 174 954 1 427 President STX Finland 1) May - December 1 061 0 98 259 1 418 1 559 President STX France January - December 1 948 0 37 0 1 985 2 759 Total 16 230 4 000 876 1 315 22 420 20 810
1) Su-Jou Kim took over the position as President & CEO 1 September 2010, succeeding Sang-Ho Shin. From 1 May 2011 he additionally took over as president of STX Finland.
The President & CEO and the presidents for STX OSV, STX Finland and STX France are not employed by STX Europe AS; payments of their salaries are made by other Group companies.
Note 3 Shares in subsidiaries and other equity investments STX Europe Annual Report 2011 STX Europe Voting Business Amounts in NOK million Share % share in % location 2011 2010 70 Shares in subsidiaries STX Europe Holding AS 100.00 100.00 Oslo, Norway 0 1 686 Scandinor AS 100.00 100.00 Oslo, Norway 0 0 STX Norway Florø AS 100.00 100.00 Florø, Norway 150 0 STX OSV Holdings Limited 50.75 50.75 Singapore, Singapore 2 126 0 STX France SA 100.00 100.00 St. Nazaire, France 679 0 STX Finland Oy 100.00 100.00 Turku, Finland 2 486 2 486 Total subsidiaries 5 441 4 172
Equity Equity Net profit Net profit Amounts in NOK million 31.12.2011 31.12.2010 2011 2010
STX Europe Holding AS 0 5 053 0 1 616 Scandinor AS -45 0 -32 0 STX Norway Florø AS 284 0 -2 0 STX OSV Holdings Limited 3 623 0 1 594 0 STX France SA 2 163 0 13 0 STX Finland Oy 883 917 3 -397 Total subsidiaries 6 909 5 970 1 575 1 219
In 2011, STX Europe AS was merged with STX Europe Holding AS, which was the former holding company of the group investments in STX Norway Florø AS, Scandinor AS, STX OSV Holdings Ltd, STX France Holding AS and STX Europe Technology AS. See note 18. STX Europe AS reduced its shareholding in STX OSV Holdings Ltd from 69.02 % to 50.75 % in July 2011.
Note 4 Receivables from group companies Short and Long-term receivables group companies has the following installment plan: Amounts in NOK million 2011 2010
Due next 12 months 1 287 298 Due later than 12 months 1 413 1 140 Total 2 701 1 438
STX Norway AS and all subsidiaries of STX Europe AS are defined as Group companies. A major item included as a short-term receivable as of 31 December 2011 is the loan provided to the parent company STX Norway AS of USD 200 million or NOK 1 199 million end of 2011 (See also note 7). Furthermore the short term receivables mainly relates to Scandinor AS. The long-term receivables as per 31 December 2011 relates to STX Norway AS, Scandinor AS and STX Finland Oy, whereas the long-term balance of 31 December 2010 was related to STX Finland Oy, STX Norway Florø AS and STX France Holding AS. STX Europe AS provided STX Norway AS with two loans totalling NOK 678 million in 2011. The accrued interest on the loans provided to STX Finland was reversed in 2011 due to thin capitalization (See also note 6 and 13). These loans are now interest free. The receivable against Florø was transferred to STX Europe Holding AS in May 2011 and thereafter converted into new shares in STX Norway Florø AS. In this connection the receivable was written down with NOK 12 million in STX Europe AS and the shares in STX Norway Florø was written down by NOK 146 million in STX Europe Holding AS. As a result of the merger, described in note 18, total writedowns related to Florø therefore amounts to NOK 158 million in STX Europe AS for 2011. As a result of the merger the receivable against STX France Holding AS was eliminated in 2011.
Note 5 Equity and shareholder information Changes in equity are shown below: Share Other paid in Total paid in Retained Total Amounts in NOK million Share capital premium fund capital capital earnings equity
Shareholders equity as of 31 December 2009 454 268 2 742 3 464 -741 2 723
Net profit 0 0 364 364 Shareholders equity as of 31 December 2010 454 268 2 742 3 464 -377 3 087
Merger 3 3 3 009 3 012 Group contribution 0 -1 050 -1 050 Net profit 0 0 355 355 Shareholders equity as of 31 December 2011 454 271 2 742 3 467 1 937 5 404
The share capital in STX Europe AS as of 31 December 2011 consists of 113 607 085 class A shares with nominal value of NOK 4. STX Europe Annual Report 2011 STX Europe The articles of incorporation do not contain any special arrangements for voting rights. STX Norway AS controlled all of the shares in STX Europe AS as per year end 2010 and 2011. The registered office to STX Norway AS is in Karenslyst allè 57, 0277 Oslo. 71 See note 37 in the group accounts for information about shares owned by members of the Board of Directors and Executive Management.
Note 6 Tax The tables below show the difference between book and tax value and deferred tax as of end 2011, in addition to changes in deferred tax. Amounts in NOK million 2011 2010
Accruals 40 133 Fixed assets 1 2 Profit and loss account 2 -1 Pensions 8 8 Total differences 51 142 Loss carried forward 791 945 Loss carried forward merged companies 353 0 Basis for deferred tax 1 195 1 087 Deferred tax 335 304
Tax expense Amounts in NOK million 2011 2010
Profit before tax 426 291 Permanent differences -181 -42 Received group contribution 0 -510 Change in other differences -91 134 Utilization of tax loss carried forward -154 0 Taxable profit 0 -127
Calculated tax expense Amounts in NOK million 2011 2010
Payable tax 0 0 Tax regulation previous years -3 0 Tax effect loss carried forward merged companies (through equity) -99 0 Change in deferred tax 30 73 Total tax expense (-) / income (+) -71 73 Reconciliation of effective tax rate Amounts in NOK million 2011 2010
Profit before tax 426 291
Nominal tax rate (28%) -119 -81 Income not subject to tax 67 12 Expenses not deductible for tax purposes -17 0 Tax regulation previous years -3 0 Received group contribution 0 143 Total tax expense in income statement -71 73
Income not subject to tax in 2011 is the tax value of dividend from group companies (NOK 240 million) and expenses not deductible relates to reversed interest income from STX Finland due to thin capitalization (NOK 59 million). Tax regulation previous years consist of an additional tax related to 2009 (NOK 0.4 million) and a regulation of deferred tax asset in connection with the merger (NOK 2 million).
Note 7 Interest bearing debt
Amounts in NOK million 2011 2010
Long-term debt Subordinated loans 0 400 Bond loans 623 846 Other long-term debt 0 251 Interest-bearing long-term debt 623 1 496 STX Europe Annual Report 2011 STX Europe
Short-term debt Short-term debt 1 199 296 72 Interest-bearing short-term debt 1 199 296
Short-term debt to Group companies Short-term debt 351 93 Group contribution STX Norway AS 1 050 0 Interest-bearing short-term debt to Group companies 1 401 93
Capitalized borrowing costs, NOK 2 million as of 31 December 2011 (2010: NOK 6 million), will be amortized over the loan period for the related loans. For more details related to interest bearing debt, see note 26 in the Group accounts. Short-term debt of NOK 1 199 million is a new loan with SCB of USD 200 million entered into in November 2011. The loan has been used for onward lending to the sole shareholder STX Norway AS, and that receivable is reported as short-term receivable from group companies (see note 4). Short-term debt to group companies includes two elements. One is a short-term loan from STX France payable in 2012. The second item is group contribution of NOK 1 050 million to the parent STX Norway AS.
Note 8 Guarantee obligations
Amounts in NOK million 2011 2010
Guarantee obligations on behalf of subsidiaries 9 828 7 648 Total 9 828 7 648
Note 9 Pension STX Europe AS mainly covers its pensions through group pension plans in life insurance companies. Under the Norwegian Accounting Standard for pension expenses, the plan have been treated for accounting purposes as defined benefit plans. The company is obliged to have occupational pension arrangement according to law about mandatory occupational pension. The company has an occupational pension arrangement which fulfil the requirements. Social security dues are included in net pension liability. Actuarial calculations have been made to determine pension liabilities and pension expenses in connection with the Group's defined benefit plans. The following assumptions have been made when calculation liabilities and expenses in Norway:
2011 2010 Expected return 4.10 % 4.60 % Discount rate 2.60 % 3.20 % Wage growth 3.50 % 4.00 % Social security base adjustment 3.25 % 3.75 % Pension adjustment 0.10 % 0.50 % Pension expenses: Amounts in NOK million 2011 2010
Present value of this year's pension earnings -2 -3 Interest cost on accrued pension liabilities 0 0 Expected return on pension fund 0 0 Amortization of actuarial gains and losses 0 0 Net pension expenses (-) -2 -3
Net pension funds and liabilities Amounts in NOK million 2011 2010
Present value of accrued pension liabilities -8 -7 Value of pension funds 6 6 Estimated pension liabilities -2 -2 Amortization -6 -6 Net pension funds/(liabilities) -8 -8 Book value net pension fund/-(liabilities) -8 -8 Number of employees 10 10
Actual return on plan assets in 2011 was NOK 0 million (2010 was also NOK 0 million). The pension funds are invested in accordance with the general guidelines that apply to life insurance companies. The pension liabilities recorded are calculated on the basis of estimated pension liabilities and accrued in accordance with relevant accounting principles. The pension liability recorded is not identical to pension rights in a legal sense as of 31 December. STX Europe Annual Report 2011 STX Europe Note 10 Cash and cash equivalents 73 Total cash as of end 2011 amounts to NOK 170 million whereof NOK 2 million is restricted cash for payroll tax. Credit facility is related to STX Europe AS' corporate bank account system at holding level, and reflects STX Europe AS balance as of 31 December 2011. Credit limit of the credit facility is NOK 20 million at holding level. There is a postive bank deposit on the bank account system at holding level per 31 December 2011, which means that nothing of the credit limit is used. The companies at holding level have shared responsibility of the balances in the corporate bank account system. This means that the bank has a right to offset credit and debit amounts on all accounts in this system.
Note 11 Operating revenue and other operating expenses Operating revenue consists mainly of fees related to management services and parent company guarantees (2011: NOK 29 million and 2010: NOK 98 million).
Of other operating expenses NOK 7 million relates to rental costs (a part of the location is subleased), NOK 2 million relates to travel expenses, NOK 7 million relates to external services and NOK 55 million relates to corrections to royalty fee previous years.
Note 12 Property, plant and equipment
Machinery/ Amounts in NOK million Art equipment Total
Cost balance as of 1 January 2011 1 10 10 Additions including merger 0 5 5 Disposals 0 0 0 Cost balance as of 31 December 2011 1 15 15
Depreciation at 1 January 2011 0 8 8 Depreciation charge for the year 0 2 2 Disposals 0 0 0 Depreciation as of 31 December 2011 0 10 10
Book value as of 31 December 2011 1 5 5
Depreciation period No depreciation 3-5 years Depreciation method Linear Note 13 Financial income and financial expenses Recognized in the Income statement Amounts in NOK million 2011 2010
Interest income 94 119 Dividend from Group companies 241 0 Foreign exchange gain 7 0 Gain on disposal of financial investments 540 28 Received group contribution from STX Europe Holding AS 0 510 Financial income 881 657 Interest expense -140 -227 Foreign exchange loss 0 -27 Write down receivable refundment guarantees and hedges 0 -67 Other financial expenses -243 -71 Financial expenses -383 -393 Net financial items 498 264
Dividend from Group companies relates to STX OSV Holdings Limited in Singapore. Gain on disposal of financial investments is the gain from sales of shares in STX OSV Holdings Limited in July 2011. See also note 3 in the Group accounts. Other financial expenses include write down of receivable and shares in STX Norway Florø (NOK 158 milllion), amortized interest of NOK 22 million and reversal of intercompany interest expenses of NOK 59 million.
Note 14 Fees to the auditors Se note 8 in the Group accounts for specification of fees to the auditors. STX Europe Annual Report 2011 STX Europe
74 Note 15 Financial risks and financial instruments STX Europe AS has on behalf of subsidiaries entered into FX hedging arrangements. The company is the contract partner with the banks on these transactions and at the time of settlement the back-to-back settlement are made with the subsidiaries. All hedging arrangements have the purpose to reduce the FX risks in the shipbuilding projects. The market value of these hedging arrangements as of 31 December 2011 was a positive amount of NOK 12 million (positive amount of NOK 42 million in 2010). For more details related to financial risks and financial instruments, see note 34 in the Group accounts.
Note 16 Transactions and agreements with related parties Se note 36 in the Group accounts for specification of transactions and agreements with related parties.
Note 17 Events after the balance sheet date Se note 39 in the Group accounts for specification of events after the balance sheet date. Note 18 merger In 2011 STX Europe AS merged with other holding companies within the Group in order to streamline and simpflify the organisational structure. The following companies were merged:
STX Europe AS STX Europe Holding AS STX Europe Technology AS STX France Holding AS
The merger was handled as a vertical merger with continuity after NRS 9 Merger. The continuity principle was chosen as STX Europe AS took over all assets, liabilities and obligations from the merged companies according to the Norwegian Companies Act § 13-23 after which the merged companies were dissolved.
The merger was concluded on 1 July 2011 with effective date from 1 January 2011. The net effect on equity in STX Europe AS was NOK 3 009 million, ref. note 3.
Opening balanse Amount in '000 NOK 01.01.11
Assets Deferred tax asset 405 165 Property, plant and equipment 7 562 Total intangible and tangible assets 412 727 Shares in subsidiaries 6 197 651 Shares in associated companies 0 Shares and investments in other companies 469
Long-term receivables from group companies 872 220 Annual Report 2011 STX Europe Pension funds 0 Interest-bearing long-term receivables 16 910 Total financial fixed assets 7 087 250 75 Total fixed assets 7 499 977
Short-term receivables from group companies 199 802 Short-term receivables group contribution 0 VAT and public taxes, receivable 0 Other short-term receivables 6 017 Cash and cash equivalents 296 651 Total current assets 502 470 Total assets 8 002 447
Liabilities Share capital 454 428 Share premium reserve 268 113 Other paid-in capital 2 742 000 Total paid in equity 3 464 541 Other equity 2 635 071 Total other equity 2 635 071 Total equity 6 099 612
Pension liabilities 7 880 Other long-term debt 846 050 Long-term debt to group companies 650 000 Total long-term liabilities 1 503 930
Short-term debt to group companies 17 196 Short-term debt group contribution 0 Credit facility 0 Trade payables 15 115 Other short-term debt 366 594 Total short-term debt 398 905 Total equity and liabilities 8 002 447
The primary function of the merged companies was to serve as holding companies within the Group. Any cross holdings were eliminated at the merger and no goodwill was recognized, ref. note 12. STX Europe Annual Report 2011 STX Europe
76 STX Europe Annual Report 2011 STX Europe
77 Executive management team
Mr. Su-Jou Kim President & CEO of STX Europe AS President STX Finland OY Mr. Su-Jou Kim (b.1956) has held various management positions within the STX Business Group most recently as Head of Business Development and Deputy President of STX Corporation. Mr. Kim previously held the position as Chairman of STX Europe AS from September 2008 to March 2009. Mr. Kim has a degree in mechanical engineering from Seoul National University. Su-Jou Kim holds no shares in the company and has no stock options. Mr. Kim is a Korean citizen. STX Europe Annual Report 2011 STX Europe Mr. Jürgen Kennemann Senior Vice President, Head of Group Synergies 78 Mr. Kennemann (b.1953) has been with STX Europe since 2001. He has previously held positions within STX Europe (ex. Aker Yards) as President of the German shipyards in Wismar / Warnemünde and head of the merchant vessels business area. In total he has been in shipbuilding for more than 30 years. He holds a Masters of Ship Machine Engineering from Rostock University. He holds no shares in the company and has no stock options. Mr. Kennemann is a German citizen.
Laurent Castaing President, STX France Laurent Castaing (b. 1960) was appointed president for STX Europe's operations in France in February 2012. Laurent Castaing has a strong knowledge of the shipbuilding industry and he started his career at the Saint-Nazaire shipyard as a workshop manager (1985-1990) and Deputy General Manager (1998-2004). Laurent Castaing has since then been responsible for managing the Port of NantesSaint-Nazaire (2005-2008) and then the Grand Port Maritime du Havre as Executive Director (2008-2012). Mr. Castaing holds a degree from the Ecole Polytechnique (Polytechnics schools) and the Ecole Nationale Supérieure des Techniques Avancées (ENSTA) – Maritime Engineering section (1985). Laurent Castaing holds no shares in the company and has no stock options. Mr. Castaing is a French citizen. The Board of Directors of STX Europe consists of the following members:
In-Sung Lee Lars-Ivar Bøe Chairman of the Board Board member Employee representative Su-Jou Kim Deputy Chairman and President CEO Arne Otto Rogne Board member Kang-Sik Rhee Employee representative Board member Audun Grønnevik Ju-Won Park Board member Board member Employee representative
Ownership Structure of STX Europe
STX Offshore Listed & Shipbuilding STX Engine (Korea) (Korea) Annual Report 2011 STX Europe
66.7% 33.3% 79
STX Norway AS
(Norway)
STX Europe AS (Norway)
STX OSV STX Norway STX Finland OY STX France SA Holdings Ltd. Florø AS (Finland) (France) (Singapore) (Norway)
Singapore Listed 50.75%
IR & Media contacts
Investor Relations STX Europe Media & General enquiries Mr. Ju-Won Park Ms. Monica W. Eriksen Deputy CFO Corporate Communication Manager
Tel.: + 47 21 02 15 21 Tel.: +47 21 01 15 18 Mobile: + 47 916 13 018 Mobile: + 47 46 40 97 99 [email protected] [email protected]
Please visit www.stxeurope.com for further information and other publications. This is STX Business Group
STX Business Group ("STX") is a worldwide conglo- as merchant vessels, offshore vessels and specialized merate of industrial companies aiming to be a vessels, as well as diesel engines for vessels, core global top player in its core areas; Shipping & Trade, engine parts and engine modules. In the Shipping & Shipbuilding & Machinery, Plant & Construction, and Trading sector, STX is engaged primarily in the dry bulk Energy. As part of the STX Business Group, STX Europe shipping business and in the bunkering and resource has the industrial muscles to leverage its already trading in commodities such as coal and iron ore. In strong position into setting the industry standards for the Energy sector, STX operates cogeneration power innovation, process and product quality, and customer plants and solar power plants in Korea and develops orientation. renewable energy and resources such as oil, gas and coal. In the Plant & Construction sector, STX is engaged Established in 2001, STX has become a global business primarily in civil engineering, plant maintenance and group with 90% of its total sales being made overseas construction of industrial plants as well as housing. along with 170 global networks, with more than 63,000 STX Europe Annual Report 2011 STX Europe employees worldwide. STX has six listed companies With these core businesses at the centre of its growth (STX Corporation, STX Pan Ocean, STX Offshore & STX is able to maximize the synergistic effect between 80 Shipbuilding, STX Engine, STX Metal and STX OSV). Five its various sectors by branching into related industries of the companies are listed on the KRX KOSPI Market. such as plant, construction, energy, etc. The group STX OSV is listed on SGX-ST together with STX Pan has considerable research and development activities, Ocean1). and aims to harvest synergies by applying systems for vertical integration in shipbuilding and innovation In the Shipbuilding & Machinery sector, STX throughout the value chain of each business segment. manufactures various types of vessels such
1) STX Pan Ocean is dual listed.
WWW.STX.CO.KR
adDresses
STX Europe Norway Finland France
STX Europe AS STX Finland Oy STX France SA Karenslyst allé 57 Skøyen Turku Saint-Nazaire P.O. Box 453 Skøyen Telakkakatu 1, P.O. Box 666 Avenue Antoine Bourdelle NO-0213 OSLO, Norway FI-20101 Turku, Finland BP 90180 F-44613 Saint-Nazaire Cedex Tel: + 47 21 02 15 00 Tel:+ 358 (0)10 6700 France Fax: + 47 23 50 11 01 Fax:+ 358 (0)10 670 6700 [email protected] [email protected] Tel:+ 33 (0)2 51 10 91 00 Fax:+ 33 (0) 2 51 10 97 97 [email protected] STX OSV AS STX Finland Oy Molovegen 6 Rauma P.O. Box 76 Suojantie 5, P.O. Box 302 STX France Lorient SAS NO-6001 Ålesund FI-26101 Rauma, Finland Lorient Norway Z.I du Rohu Tel:+ 358 (0)10 6700 F-56607 Lanester cedex Tel: +47 70 21 06 00 Fax:+ 358 (0)10 670 4007 France [email protected] [email protected] Tel:+ 33 (0) 2 97 76 89 10 Fax:+ 33 (0)2 97 76 16 00 Design and production: JAA Design STX Norway Florø AS Arctech Helsinki Shipyard Oy [email protected] Ole Aasrudgate 7 Laivakatu 1, P.O. Box 132 P.O. Box 334 FI-00151 Helsinki, Finland NO-6902 Florø Tel:+ 358 (0)10 67 00 Tel: + 47 57 74 68 00 Fax:+ 358 (0)10 9650 051 Fax: + 47 57 74 69 00 [email protected] [email protected]
WWW.STXEUROPE.COM