annual report 2012 - vard centre/vard_annual... · in a highly competitive and constantly changing...

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02 / about us / vard / Annual Report 2012

Contents 02 About Us

10 CEO Letter

12 Chairmans Statement

14 Board of Directors

16 Executive Management

18 Shareholding and Corporate Structure

20 Financial Highlights

24 Core Products and Services

34 Operational Review

40 Significant Events

42 Deliveries

44 Order Book

46 Risk Management

48 Sustainability and Social Responsibility

52 Investor Relations

54 Outlook

56 Corporate Governance Report

64 Corporate Information

66 Statutory Financial Reports

134 Statistics of Shareholdings

136 Notice of Annual General Meeting

142 Contact Information

vard is the new brand name adopted by the STX OSV group of companies. Following the sale by STX Europe of its 50.75% stake in the shares of STX OSV Holdings Limited, the Company is no longer part of STX Business Group. Following a rebranding and renaming process that is currently ongoing, VARD will also replace STX OSV in the names of all subsidiaries of STX OSV Holdings Limited. A resolution to rename the Company itself to Vard Holdings Limited will be tabled at the Annual General Meeting on 23 April 2013.

The new brand name VARD is used in this report wherever applicable. Only in the Statutory Financial Reports, the names valid as of 31 December 2012 have been retained.

This is the Annual Report of STX OSV Holdings Limited.

VArD has always been built on trust. For generations, trust has been the very foundation of our business, and it has always been the key to our success.

A continuous line of people, working together, handing down experience from one to the next is the root of our culture.

our craftsmanship and determination to always look for new horizons is what will carry this heritage onwards for generations to come.

the future lies with our people, and our core values:

Craftsmanship Fellowship Salesmanship

about us / vard / Annual report 2012 / 0302 / about us / vard / Annual report 2012

04 / about us / vard / Annual report 2012


As a leading global shipbuilder, innovation and close cooperation with our customers is core to our business. We continuously seek improvements

and share best practices in order to keep pushing the boundaries. We aim to empower our employees to deliver groundbreaking technological

solutions to our customers, thereby enabling them to stay ahead in a highly competitive and constantly changing market.


our local strength builds global competitiveness. Small but important learnings made each and every day accumulate to become our collective experience.

the exchange of know-how builds the competence of our organization and strengthens our fellowship. no matter where in the world our over 9,500

employees are located, we are one team that shares the same goals.

our global presence provides us with great opportunities to serve our customers, but also commits us to deliver according to consistently high standards of products and services. For each and every one of us, in any department, in any shipyard, in any country, true salesmanship

means focusing on customer needs in everything we do.

VArD built on trust


Dear shareholDers,

>> We remain committed to our core values and customer promise - Built on trust.

roy reiteChief executive officer and executive Director

10 / ceo letter / vard / Annual report 2012

the past year has been an eventful and rewarding one for VarD. Despite the various challenges brought about by rapidly shifting market conditions and a demanding operating environment in parts of the organization, I am pleased to report that we have delivered a stable performance for 2012, both financially and operationally.

Year in review

the year started out with a record first-half in terms of order intake, most importantly driven by a burgeoning demand for offshore subsea Construction Vessels (osCV), but also expectations for a rebound in the market for anchor handling tug supply vessels (ahts). as expectations for the latter dissipated in the second half, the offshore vessel market became increasingly competitive, not in the

Dear shareholDers,

10 / ceo letter / vard / Annual report 2012 ceo letter / vard / Annual report 2012 / 11

least as a result of low activity in other parts of the global shipbuilding industry. still, we were able to secure new orders for 16 vessels, and a combined order intake value of noK 9.5 billion. With 48 vessels scheduled for delivery between 2013 and 2016, the Company has a solid order reserve for the coming years.

In 2012 the majority of our yards experienced continued stable operations and efficient project execution. only Brazil faced a very challenging operational environment. Demonstrating our resilience, we successfully delivered 22 vessels, recorded revenues in excess of noK 11 billion and achieved a respectable eBItDa margin of 13.2%, the second best in the Companys history after an exceptional 2011.

also in 2012, we saw good progress in the development of our new shipyard in Brazil, which will assume operations this summer. We laid the foundations for continued competitiveness through investments in romania, and invested in r&D and new technology that will help us maintain our position as a preferred partner for clients seeking technologically advanced solutions for their shipbuilding needs. these investments are beginning to bear fruit, as demonstrated by a strong start into the new year in terms of order intake in the first quarter of 2013.

Foundations built on trust

our healthy results against the backdrop of a volatile environment serve as testament to the dedication of our people across the Company, from the naval architects in our design center in norway to steel workers, pipe fitters and electricians in Vietnam, from engineers in romania to the team developing our new yard in Brazil. notwithstanding the complexity of our global presence across ten yards in three continents, we remain indebted to our strong traditions and heritage, to which we owe our solid foundation, current success and future opportunities. Indeed, we have come a long way from what began as a builder of fishing vessels for the needs of the local community to what is today one of the worlds major designers and shipbuilders of advanced and complex offshore and specialized vessels.

although VarD has experienced its fair share of transformation, we have stayed the course and remained steadfast in our core values of Craftsmanship, Fellowship and salesmanship. they represent a focus on delivering quality products and developing new solutions, respect for people and the societies in which we operate, and on always putting the customer first. this has served us well in our approach to business. echoing our customer promise

Built on trust, we are proud to saythat many of our clients have chosen to stay with us through countless market cycles, by virtue of the strength of our long-term relationships.

acknowledgements

as we look back on 2012, I would like to extend, on behalf of the Company, my gratitude to those who have pledged their commitment and channeled their unwavering support towards all that we have achieved in the past 12 months.

and as we have moved into a new year, I look forward to working constructively with our new majority shareholder Fincantieri in continuing to develop VarD. though still early in the process, I am excited about discovering the opportunities that this new strategic owner may bring, and convinced that it will be to the benefit of all stakeholders.

sincerely,

roy reiteChief executive officer and executive Director

Dear ValueD shareholDers,

12 / chairmans statement / vard / Annual report 2012

the year just ended has been marked

by significant changes in our Company.

on 23rd January 2013, following the

agreement signed on 21st December

2012, Fincantieri - Cantieri navali

Italiani s.p.a., through its wholly

owned subsidiary Fincantieri oil & Gas

s.p.a., has successfully completed the

acquisition of the majority stake in the

Company from stX europe as.

this acquisition, which represents

a strategic long-term investment

for the Fincantieri Group, marks

Fincantieris entry into a market

segment complementary to its current

ones and enhances the position of

the Fincantieri Group as a leading

international player. With 21 shipyards

in 3 different continents and nearly

20,000 employees, the enlarged

Fincantieri Group becomes one of the

top five shipbuilders worldwide and the

leading western producer capable of

competing with its asian peers.

Compared with the other four top

producers, the enlarged Fincantieri

Group boasts a leadership position in

all the maritime high-tech sectors,

pursuing a strategy of diversification,

both in terms of the geographical

footprint and network specialization,

and development in order to retain a

long-term competitiveness.

leveraging on the constant

commitment of the management

team and all employees, we are

keen to develop further the strong

relationships we enjoy with our key

customers and build equally strong

relationship with new clients, aiming

to maintain a leading position in the

global competitive landscape and

striving to satisfy our customers with

cutting edge solutions.

on behalf of the Board of Directors,

I would like to express my sincere

appreciation to our shareholders

and customers for the confidence

and support given to us, and our

commitment to carry on the existing

business of VarD continuing to work

for the interest of all our shareholders.

sincerely,

giuseppe bono

Chairman of the Board

chairmans statement / vard / Annual report 2012 / 13

Dear ValueD shareholDers,

12 / chairmans statement / vard / Annual report 2012

giuseppe bonoChairman of the Board

>> this acquisition represents a strategic long-term investment for the Fincantieri Group.

I would like to express my sincere appreciation to our shareholdersand customers for the confidence and support given to us.

Mr. roy reite is the chief executive officer and serves as executive director of the Company. Mr. reite has served as the president of VarD since 2001.

Prior to that, he was yard director at Vard sviknes from 1999 to 2001, and assumed various positions as project manager, production manager and technical manager from 1990 to 1995. Mr. reite was also a business consultant at Intentia International as from 1995 to 1999.

he is presently a non-executive director of sparebanken Mre, a norway-based regional bank.

Mr. reite holds a Master of science degree from the norwegian university of science and technology.

Mr. sung hyon sok serves as an independent director of the Company. Mr. sok is also chief executiveofficer of summerstone lsl Pte. ltd.,and executive director of aon 21singapore Pte. ltd.

Mr. sok started his career in Goodmorning shinhan securities Co. ltd. between 1987 and 1998. thereafter, he was vice president of ICaP (singapore) Pte. ltd. before joining reFCo (singapore) Pte. ltd. in 2005. additionally, Mr. sok was president of World hawk eyes advisor Pte. ltd. from 2005 to 2007 and senior vice president of aM Fraser securities Pte. ltd. from 2007 to 2009.

Mr. sok holds a Master of science in Finance degree from the university of lancaster, united Kingdom, and a Master of Business administration degree from the university of hull, united Kingdom.

Mr. Fabrizio Palermo serves as non-executive director of the Company. Mr. Palermo is deputy general manager and chief financial officer of Fincantieri s.p.a and also serves as director of Fincantieri usa Inc.

Mr. Palermo joined the Fincantieri Group in 2005 as head of business development and corporate finance and was appointed chief financial officer in 2006 and deputy general manager in 2011.

Prior to that, he was a strategic consultant with McKinsey & Co. in Milan from 1998 to 2005, specializing in business combinations, restructuring and reorganizations for major Italian and european industrial and financial groups.

Mr. Palermo started his career in 1995 as a financial analyst in london in the Investment Banking Division of Morgan stanley.

Mr. Palermo graduated in Businesseconomics with honors at la sapienzauniversity of rome, Italy.

roY reite Chief executive officer and executive Director

sung hYon sok Independent Director

Fabrizio Palermo non-executive Director

14 / board oF directors / vard / Annual report 2012

board oF directors / vard / Annual report 2012 / 15

giusePPe bono Chairman of the Board and non-executive Director

keen whYe lee Independent Director

Pier Francesco ragni non-executive Director

14 / board oF directors / vard / Annual report 2012

Mr. Giuseppe Bono serves as chairman of the board and non-executive director of the Company. Mr. Bono has been chief executive officer of Fincantieri s.p.a. since 2002.

From 1993 to 2002 Mr. Bono held senior positions at Finmeccanica, where he was appointed general manager and interim head of alenia Difesa and ansaldo (Finmeccanica Group) in 1997. In 2000 he was appointed Ceo and general manager of the group.

From 1971 to 1993 he worked in eFIM where he held a number of key-roles with increased responsibility until his appointment as general manager in 1991. From 1963 to 1971, he worked in omeca (Fiat Finmeccanica Group; taken over by eFIM in 1968) as head ofadministration, planning and control.

since 2012 he has been president of Confindustria Gorizia.

Mr. Bono holds a degree in Business and economics, and an honorary degree in naval engineering.

Mr. Keen Whye lee serves as an independent director of the Company. Mr. lee is the managing director of strategic alliance Capital Pte. ltd., a venture capital and investment management advisory company.

Prior to joining strategic alliance Capital Pte. ltd. in 1997, Mr. lee was managing director of rothschild Venture asia Pte. ltd. from 1990 to 1997, and associate director of Kay hian James Capel Pte. ltd. from 1987 to 1990.

Mr. lee is also a director of various companies, including public companies listed on the sGX-st such as aFor limited, oniontech limited and santak holdings limited.

Mr. lee holds a Master in Business administration degree from the harvard Graduate school of Business administration.

Mr. Pier Francesco ragni serves as non-executive director of the Company. Mr. ragni is deputy chief financial officer and head of business development of Fincantieri s.p.a. and also serves as director of several subsidiaries of Fincantieri s.p.a.

Mr. ragni joined the Fincantieri Group in 2005 and was appointed head of business development in 2006 and deputy chief financial officer in 2011.

Prior to joining the Fincantieri Group he was an investment banker with Banca nazionale del lavoro and Banca IMI, focusing on mergers & acquisitions and equity capital market transactions, and a financial analyst in the corporate finance department of PricewaterhouseCoopers, Milan.

Mr. ragni graduated in Business economics at l. Bocconi university of Milan, Italy.

roY reite Chief executive officer and executive Director

Mr. roy reite is the chief executive officer and serves as executive directorof VarD. he has served as president of the Company since 2001.

Prior to that, he was yard director at Vard sviknes from 1999 to 2001, and assumed various positions as project manager, production manager and technical manager from 1990 to 1995. Mr. reite was also a business consultant at Intentia International as from 1995 to 1999.

he is presently a non-executive director of sparebanken Mre, a norway-based regional bank.

Mr. reite holds a Master of science degree from the norwegian university of science and technology.

stig bjrkedal head of Business Development and strategy

Mr. stig Bjrkedal serves as the head of business development and strategy of VarD. he has held this position since 2006. Prior to that, he was the vice president of deck machinery at rolls-royce Marine as in norway, from 2001 to 2006.

Mr. Bjrkedal has extensive project management experience, having served in this position in various maritime companies from 1993 to 2000, including at Vard Piping, skipsteknisk as and ulstein Brattvaag as.

Mr. Bjrkedal holds a Bachelors degree in naval architecture from university of Mre og romsdal in lesund, norway, and a Master of Management degree from BI executive school in oslo, norway.

jan ivar nielsen Chief Financial officer

Mr. Jan Ivar nielsen is the chief financial officer of VarD. he joined the Company in 2007 as vice president of finance for the VarDs operations in Brazil.

Previously, Mr. nielsen was chief financial officer and head of investor relations for aker american shipping asa from 2005 to 2007, and its predecessor aker Philadelphia shipyard Inc. from 2002 to 2005. From 1998 to 2002 he was CFo for Kvrner shipbuilding in london, and had CFo assignments for Kvrner Masa Yards In Finland and Warnow Werft in Germany. Mr. nielsen held various finance positions in the process industry from 1990 to 1997.

Mr. nielsen holds a Master of science in Business degree from Bod Graduate school of Business and an executive MBa degree from temple university in the united states.

16 / executive management / vard / Annual report 2012

magne hberg head of Marketing and sales

Mr. Magne hberg heads marketing and sales in VarD. Mr. hberg first joined as a project manager at Vard langsten in 2001, and became senior vice president overseeing the sales and marketing department in VarD in 2004. Between 1995 and 2001, Mr. hberg held several positions as senior project engineer at aker Maritime, where he was responsible for different projects within the offshore oil and gas industry.

Prior to that, Mr. hberg acquired a wealth of experience within the offshore oil and gas business, having taken on key engineering roles in smedvig Drilling as from 1990 to 1994, and with Wilh. Wilhelmsen from 1982 to 1989.

Mr. hberg holds a diploma in engineering from the lesund Maritime College.

knut ola tverdal head of strategy Implementation

Mr. Knut ola tverdal is the head of strategy implementation at VarD. he also oversees the shipyard operation in Brazil. he joined the Company in 2000 and has extensive experience in the shipbuilding industry having served as yard director at Vard aukra from 2005 to 2010.

Prior to that, Mr. tverdal was vice president of production at aker Philadelphia shipyard from 2003 to 2005, as well as project manager from 2002 to 2003 and production manager from 2000 to 2002 at VarD.

Mr. tverdal holds a Master of science degree from the norwegian university of science and technology in trondheim.

magne o. bakke Chief operating officer

Mr. Magne Bakke is the head of shipyard operations at VarD and oversees the norway, romania and Vietnam operations. Previously, Mr. Bakke was director at the Vard sviknes yard from 2005 to 2009. Between 1984 and 2005, Mr. Bakke gained in-depth and broad experience in different positions in the aker Group including offshore oil and Gas Field Development Project and Drilling.

Mr. Bakke holds a Bachelor of science in Marine technology degree from the aust-agder state College of engineering in norway.

ceo letter / stx osv / Annual report 2012 / 17executive management / vard / Annual report 2012 / 1716 / executive management / vard / Annual report 2012

shareholDInG anD CorPorate struCture

18 / shareholding and corPorate structure / vard / Annual report 2012

44.37%

100% 55.63%Fincantieri oil & Gas S.p.A.

Fincantieri - Cantieri navali

Italiani S.p.A.

other shareholders

Fintecna S.p.A.99.36%

70%

30%

other shareholders

0.64%

Cassa Depositi e prestiti S.p.A.

Italian Bank Foundations

Ministry of the economy and Finance of the republic of Italy 100%

Vard Niteri SA (Brazil)

Vard Electro AS (Norway)

Vard Piping AS (Norway)

Vard Accommodation AS

(Norway)

Vard Brevik Holding AS (Norway)

Seaonics AS(Norway)

Vard Promar SA

(Brazil)

100%

100%

100%

100%

51%

100%

VardVung Tau Ltd.

(Vietnam)

Vard Holdings Limited1)(Singapore)

Vard Group AS(Norway)

100%

100%

50.50%

Vard Braila SA (Romania)

Vard Tulcea SA (Romania)

5.88%

99.99%

94.12%

100%

100%

100%

Vard Design Liburna Ltd.

(Croatia)

Vard RO Holding SRL (Romania)

Vard Singapore Pte Ltd.

(Singapore)

Vard Design AS (Norway)

51%

shareholding and corPorate structure / vard / Annual report 2012 / 1918 / shareholding and corPorate structure / vard / Annual report 2012

1) Tentative name. As of 18 March 2013, the rebranding and renaming process from STX OSV to VARD is still ongoing.The above names have been reserved and or applied for, but confirmation of formal registration is still outstanding for some entities and jurisdictions. A resolution to rename the Company itself to Vard Holdings Limited will be tabled at the Annual General Meeting on 23 April 2013.

Shareholding structure as of 18 March 2013.

VarD reported revenues of noK 11.1 billion for the 2012 financial year, a decrease of 10% from noK 12.4 billion in 2011, predominantly due to temporarily lower activity at some yards.

our full-year eBItDa margin was down from an exceptionally high base of 19% in FY2011 to a still healthy 13.2% despite some challenges in 2012, in particular in the fourth quarter.

this good margin reflects generally stable operations, particularly in norway, romania and Vietnam.

operating margin (operating profit to total revenues) came in at 11.7% for the full year 2012, two-thirds of what was registered the year before. against a superior FY2011 performance, this margin is considered healthy.

Vietnam saw excellent project execution for most of 2012, but too low activity levels in the fourth quarter. norway experienced temporarily lower utilization levels at some yards during 2012. the niteri shipyard in Brazil was still affecting group performance negatively by the end of 2012.

amounts in nok million 2012 2011

revenue 11,129 12,401

Materials, subcontract costs and others (7,154) (7,597)

Salaries and related costs (1,953) (1,899)

other operating expenses (549) (550)

ebitda 1,473 2,355

Depreciation, impairment and amortization (168) (148)

operating profit 1,305 2,207

Financial income 129 123

Financial costs (111) (127)

Share of results of associates , net of tax - 10

Profit before tax 1,323 2,213

Income tax expense (434) (611)

Profit for the year 889 1,602

Year ended 31 December 2012

stateMent oF InCoMe

suMMarY stateMent oF InCoMe

20 / Financial highlights / vard / Annual report 2012

ebitda and ebitda marginrevenue (nok million)

2011

12,401

2008

11,370

2009

11,895

2010

11,881

2,000

4,000

6,000

8,000

10,000

12,000

14,000

02012

11,129

300

600

900

1,200

1,500

0

-300

2%

4%

6%

8%

10%

0%

-2%

12%1,800

2011

-1.8%-201

2009 2010

EBITDA (NOK million) EBITDA margin (%)

2,400

2,700

2,100 14%

16%

18%

648

2008

5.4%

11.2%1,330

2,355

2012

13.2%1,473

19%

suMMarY stateMent oF InCoMe

Financial highlights / vard / Annual report 2012 / 2120 / Financial highlights / vard / Annual report 2012

total assets of noK 12.8 billion at year end 2012 were at the same level as at year end 2011 at noK 12.8 billion.

Mainly as a result of dividend payments of 23 singapore cents in total during the second and third quarter of 2012, total equity decreased by 9.2% year-on-year to noK 3.2 billion. the special interim dividend of 13 singapore cents paid out in FY2012 represented a dividend payout ratio of about 77.5% of distributable profits for the full year. Construction loans are taken on in lieu of progress payment from our customers, and represent the majority financing of the vessel under

construction until vessel delivery.We ended FY2011 with a low level of construction loans due to the delivery of ten vessels in the fourth quarter alone. With just three vessel deliveries in the fourth quarter of 2012, we saw construction loans increase by 40.9% year-on-year to noK 3.4 billion in FY2012.

trade and other payables decreased by 17.4% to noK 2.8 billion. total interest-bearing liabilities, excluding construction loans, amounted to noK 579 million at 31 December 2012, around twice the level at year end 2011. this increase is related to the ongoing construction of the new shipyard in Brazil.

our cash position remained strong, with cash and cash equivalents of noK 2.4 billion as at 31 December 2012, which is after a total dividend pay-out of 23 singapore cents per share during the year, as well as increased investments in plant, property and equipment in romania, for the construction of the new yard in Brazil and other investments. of the total cash and bank deposits as of 31 December 2012, noK 19 million relates to restricted bank accounts for employees tax deduction compared to noK 29 million a year before.

BalanCe sheet

suMMarY BalanCe sheet

Cash flows from operating activities decreased by about 18% year-on-year, to noK 992 million for the full year 2012.

Cash flows used for investing activities amounted to noK 630 million for the year, up from noK 220 million a year before. Major contributors to this increase were higher investments

in property, plant and equipment for productivity enhancements in romania and the construction of the new yard in Brazil. additional equity participation in other investments amounted to noK 129 million, and the issuance of non-current interest bearing receivables amounted to noK 81 million.

Cash flows from financing activities for the year amounted to noK 956 million. this was mainly related to dividend payments of noK 1.3 billion and net proceeds from loans and borrowings of noK 321 million.

Cash FloWs

As at 31 December 2012

amounts in nok million 2012 2011assets property, plant and equipment 1,384 1,011Intangible assets 374 415Interest-bearing receivables 82 1other non-current assets 570 361total non-current assets 2,410 1,788Inventories 380 356Construction work in progress 5,587 5,768trade and other receivables 1,920 1,830Interest-bearing receivables 80 1Cash and cash equivalents 2,437 3,064total current assets 10,404 11,019total assets 12,814 12,807

equity and liabilities total equity 3,227 3,553loans and borrowings 545 231other non-current liabilities 242 209total non-current liabilities 787 440loans and borrowings 3,385 2,407Construction work in progress 1,518 1,480trade and other payables 2,801 3,391other current liabilities 1,096 1,536total current liabilities 8,800 8,814total liabilities 9,587 9,254total equity and liabilities 12,814 12,807

22 / Financial highlights / vard / Annual report 2012

suMMarY BalanCe sheet

Cash FloWs

amounts in nok million 2012 2011 Cash flows from operating activites 992 1,210

Cash flows used in investing activities (630) (220)

Cash flows from financing activities (956) (506)

net change in cash and cash equivalents (594) 484 Cash and cash equivalents at the beginning of financial year 3,035 2,551

effects of currency translation differences (23) -

Cash and cash equivalents excluding restricted cash

at the end of financial year 2,418 3,035

restricted cash at the end of financial year 19 29

cash and cash equivalents at the end of financial year 2,437 3,064

Year ended 31 December 2012

2,000

1,500

500

1,000

0

2,500

3,000

2011

3,064

2008

809

2009

1,393

2010

2,851

Restricted cash Non-restricted cash

2012

2,437

cash and cash equivalents (nok million)

2,000

1,500

500

1,000

0

2,500

2012

1,858

3,000

2010

2,541

2009

987

2011

2,805

2008

74

net cash1) (nok million)

1) Cash and cash equivalents less sum of short-term and long-term interest bearing liabilities, excluding construction financing.

suMMarY stateMent oF Cash FloWs

Financial highlights / vard / Annual report 2012 / 2322 / Financial highlights / vard / Annual report 2012

AHTS24 / c ore Products and services / vard / Annual report 2012

AHTS for Iceman

Skandi Iguau

anChor hanDlInG tuG suPPlY Vessels

We design and build technologically advanced anchor handling tug supply vessels (ahts) that are capable of operations in the harshest environments. ahts vessels mainly perform anchor handling duties and towage of offshore drilling units and floating production units. as ahts vessels generally have free deck area, and some of them have tanks under deck, they can also supply cargo and bulk. Due to their large and heavy duty deck area, the ahts vessels can be used to transport large chains, anchors and other equipment. some ahts vessels are equipped with additional equipment such as launch and recovery systems for remote operated Vehicles (roV), and cranes for light construction work. additionally, if equipped for, ahts vessels can do firefighting, rescue operations and oil recovery.

designed For arctic challenges

In 2012, we secured a contract for the design and construction of a unique ahts for Iceman. this ahts is of ah 12 design, and is one of few that is highly equipped for multi role operations in harsh

environments and arctic regions. the vessel will be built according to ice class, and will have a wide beam measuring 24 meters and an overall length of 94 meters. Delivery is scheduled in mid-2013.

PSV

26 / c ore Products and services / vard / Annual report 2012

Far Scotsman

Normand Arctic

PlatForM suPPlY Vessels

We design and build a complete range of Platform supply Vessels (PsV). PsVs are commonly referred to as the trucks of the sea, as they are designed to transport cargo to and from offshore oil rigs and platforms. PsVs are able to perform a variety of tasks to support offshore operations; our PsVs are designed with focus on cargo-carrying capacity and excellent maneuvering capabilities combined with low fuel consumption. the design allows for flexible configuration with respect to liquid and bulk cargo. equally important to loading capacity and maneuverability are crew comfort, low noise levels and safe working environments. our designers have optimized the PsV Clean Design-hulls to a maximum cargo capacity-to-deadweight ratio.

eco-FriendlY vessels

In May 2012, we successfully delivered

the olympic energy from Vard aukra in

norway. this PsV was customized to be

environmentally friendly, with the hull

shape designed for high speed and low fuel

consumption. the vessel is of PsV 06 lnG

design, and is being used for worldwide

operations and transport of general cargo

for the offshore industry.


OSCV

OSCV for Ocean Installer /Solstad Offshore

OSCV for DOF

oFFshore suBsea ConstruCtIon Vessels

We design and build highly advanced offshore subsea Construction Vessels (osCV) for the oil and gas industry. these highly complex vessels perform subsea operations and maintenance work, and include pipelaying vessels, subsea construction vessels, diving support vessels, roV support vessels, well intervention vessels, as well as ice-classed offshore vessels designed to operate in arctic areas.

seven new orders secured

During 2012, we secured new contracts for seven osCVs, compared to only one in 2010 and none in 2011. the subsea construction vessel market is not only growing by numbers, but also by complexity of vessels. the range of osCVs currently under construction at VarD yards spans from a subsea support vessel of less than 100 meters length, to highly complex construction vessels of more than 150 meters length. siem offshore alone ordered four vessels during the year, with one each being contracted by Island offshore, DoF and ocean Installer / solstad offshore.

Other


leveraging our technologY

We are in the process of developing a

truly innovative vessel design called the

large extent oil recovery (leor). the

leor is specially designed for combating

oil spills several times more effectively

than existing ships, using revolutionary

oil-water separation technology

coupled with ergonomic design that is

characteristic of VarDs ships.

Stern trawler for Aker Seafoods

Large Extent Oil Recovery Vessel (LEOR)

We also design and build other special vessels like research and coast guard vessels, special purpose cable layers, seismic vessels, fishing vessels like stern trawlers, forrage carriers, icebreakers, as well as conventional and lnG-powered car and passenger ferries. We deliver different types of vessels and ship designs of both standardized and highly advanced vessels with significant customer-specific adaptations.

shiP design

Vard Design develops designs for both standard vessel types and one-offs with highly advanced adaptations according to customer requirements. Close cooperation with the yards, ship owners, operators, and suppliers is a key factor in the process of designing specialized vessels. the designs are developed with an emphasis on safety, cost optimization, functionality, fuel economy and environmental performance.

research and development is central to our business strategy. this has improved the vessels characteristics and has brought new and improved products to the market. We are constantly in search of new and improved solutions in partnership with our clients.

electrical engineering, Power and automation

Vard electro develops, produces and supports advanced marine electronics and turnkey electrical systems for the global maritime and offshore industries. the companys product portfolio includes a range of seamlessly integrated power, control and bridge systems, bespoke propulsion systems, a full range of switchboards, and navCom packages.

Vard electro also offers a comprehensive set of services during the entire lifetime of a vessel, from engineering through installation, integration testing and commissioning, to remote diagnostics, conversions and hands- on field services. service personnel are available around the clock for assignments at shipyards and on board en-route vessels worldwide.

PiPe sYstems and services

Vard Piping produces pipes and installs piping systems for shipbuilding projects. Modern offshore vessels can have up to ten kilometers of pipes installed on board for handling fuels, chemicals, gases, fresh and waste water, and liquid cargo.

the company specializes in turnkey solutions and innovative products in this important part of the shipbuilding process. It also delivers a wide range of special services, such as camera inspection, heating treatment and high pressure testing.

sPeCIalIzeD serVICes


design and equiPment Packages

Vard trading offers trading packages to third-party shipyards, bundling basic and detailed design with major equipment like main engines, propulsion systems, switchboards, deck machinery and other key components. In order to uphold a high standard of VarD-designed vessels, our own designs are only being offered as a trading package, and third-party yards are carefully selected to ensure high-quality implementation. We coordinate all activities and deliveries of components and services both in-house and from sub-suppliers.

oFFshore handling sYstems

established in 2011 and jointly owned between VarD (51%) and Industrial Control Design as (49%), seaonics is a high-end provider of integrated equipment and solutions for subsea construction and deck handling operations for the marine and offshore industry. seaonics focuses on development of systems in the segments of reservoir exploration, subsea construction, offshore supply, and ocean trawling. Its products, among others, include hydraulic and/or electric driven winches, active heave Compensated (ahC) cranes, Module handling systems (Mhs) with tower, and launch and recovery systems (lars).

interior solutions and technical sYstems

Vard accommodation is a turnkey contractor for delivery and installation of complete accommodation and hVaC packages for all types of vessels. the company also installs all forms of insulation on the vessels, from fire insulation, comfort and sound insulation to pipe and exhaust insulation. Vard accommodation was established in 2010 and has delivered several successful projects within VarD. It focuses on innovation and delivery of high quality services, in development according to the customers needs. high-quality accommodation is becoming increasingly important as standards for health, safety and well-being of the crew evolve constantly.

c ore Products and services / vard / Annual report 2012 / 3332 / c ore Products and services / vard / Annual report 2012

our GloBal oPeratIons

With ten strategically located shipyards across four countries and three continents, and various entities supporting the shipbuilding process with products and services along the value chain, VarD has developed integrated project management capabilities which enable us to operate as a truly global team and allow for cross-border sharing of knowledge and experience.

our yards have had much success functioning seamlessly as an integrated production system that taps into the strengths of each region, to deliver the best products to our customers with the greatest flexibility. every newbuilding project is run by a dedicated project management team responsible for the entire project across countries and disciplines.

During 2012, we demonstrated sustained strong operational performance in most parts of the organization, benefitting from improvements in productivity and quality as well as key health, safety and environment (hse) indicators.

norwaY

Vard Group (headquarters) Vard aukra Vard Brattvaag Vard Brevik Vard langsten Vard sviknes Vard Design Vard electro Vard Piping Vard accommodation Vard trading Vard engineering Vard offshore Brevik seaonics

our headquarters, design center and five outfitting yards are located in norway. In addition, our main specialized companies supplying products and services along the value chain are domiciled there, such as Vard electro for electrical engineering and power and automation systems, Vard Piping as a specialist supplier of pipe systems and services, and Vard accommodation for the interior outfitting of vessels, including heating, ventilation and air conditioning (hVaC) systems.

the Brevik yard is located approximately 160 kilometers southwest of norways capital oslo, while the remaining four yards are located along the northwestern coast of norway, all within an approximately 50 kilometers radius and close to VarD headquarters in lesund. the northwestern coast of norway is a well-known maritime

>> Helping customers innovate is always exciting. Seeing satisfied customers return is always rewarding.

svein arne rstadProject ManagerVard langsten

34 / oPerational review / vard / Annual report 2012

oPerational review / vard / Annual report 2012 / 35

norway1,598 employees

romania5,630 employees

brazil1,618 employees

india9 employees

vietnam650 employeessingapore

7 employees

croatia17 employees

9529employees

Number of employees as of 31 December 2012.

our GloBal oPeratIons

cluster, serving as the base of several leading shipowners as well as world-class companies in the offshore marine design, equipment manufacturing, shipbuilding, and oil services industries. all of our yards in norway have been in operation for over 60 years and have long traditions building various types of specialized vessels for customers worldwide.

Being located in the middle of the maritime cluster in the northwest is the main reason why many innovations originate from norway, and why we choose to carry out many of the more advanced stages of the shipbuilding process at our norwegian yards. the feedback from clients and technology partners, as well as from the production process itself, is directly fed back into the design and development of new and improved features and functions for the ships we build.

During 2012, 18 vessels were successfully delivered from our norwegian yards, including very challenging projects like an offshore subsea construction vessel that was delivered less than a year and a half from the date of contract signing. at the end of the year, we experienced periods of lower utilization at some of our norwegian yards, largely stemming from an uneven order intake in the preceding year, and resulting in fluctuations in work load.

over the last year, a trend towards fewer and larger vessels being contracted has manifested itself, and this will be a key theme for the norwegian yards and specialized subsidiaries going forward. Investments in r&D and new technologies and solutions are opening up new market opportunities, but place also high demands on the

organization to successfully implement and deliver. Projects become more and more complex, and as a shipbuilder we are increasingly taking over turnkey responsibility for projects, including highly specialized equipment. In this environment, more and more focus is also placed on design and engineering capabilities, an area where we are seeing growth in our norwegian operations.


>> new technologieswill make us moreeffective and productive,but we still have to focuson training our employeesat all levels humanresources are at the endof the day our mostimportant resource.

romania

Vard tulcea Vard Braila Vard electro tulcea Vard electro Braila Vard Piping tulcea Vard accommodation tulcea Vard ship repair Braila

the tulcea and Braila yards in romania, which have been part of VarD since 2000 and 2003 respectively, specialize in hull manufacturing and early stage outfitting of vessels. upon completion of a partially outfitted hull, it is towed from romania to norway a process that takes about three to four weeks. Despite their current role as center of hull manufacturing for VarD, both romanian shipyards have long and proud shipbuilding traditions going back many decades. Building on this experience, certain vessel types are being delivered fully outfitted from romania.

the flexible allocation of activities between the yards in romania and norway allows VarD to realize the full benefit of cost-efficiency for man-hour intensive activities in romania, while at the same time operating an integrated project organization. the romanian shipyards are involved in the planning and engineering work prior to a contract being awarded, and the project is structured around the work allocation, focusing on the strengths of each location. Vard electro is present in romania with its own subsidiaries for the manufacture of electrical components and for electrical installation services, and Vard Piping and Vard accommodation also maintain own units operating in romania. an increasing share of engineering work is also performed in romania. as part of a significant investment program initiated in 2012 tulcea will gradually implement several productivity improvement measures with the introduction of a brand new

painting and sandblasting facility comprising five halls with capacity to handle blocks up to 1,200 tons. a fully automated production line is up and running, with welding robots and 28 brand new semiautomatic welding tractors installed. this equipment upgrade provides us with the potential of a significant increase in efficiency and quality compared to manual welding, in addition to improvements in hse.

these investments come at a time when our romanian operations have enjoyed overall stable operations, but face periods of lower activity and periods of peak load in rapid succession, reflecting a volatile market and order intake. Due to a relatively high activity level and limited availability of additional capacity in the entire region, swings in demand need to be absorbed internally, requiring flexible and efficient operations.

ivan FirsaVice President human resourcesVard tulcea


9529employees

Further investments are being made to continuously improve the quality and efficiency of the yard in tulcea, and position it for higher output. For example, plans for an automated pipe spool factory have already been approved. additionally, plans for a fully automated cutting center and two steel unit assembly lines are in the works, and these are scheduled to be rolled out during 2013.

brazil

Vard niteri Vard Promar Vard electro Brazil

We have operated in Brazil since 2001, and were one of the first foreign offshore shipbuilders to enter the market. our long track record has allowed us to build a strong position in Brazil. In addition to operating one wholly owned shipyard in niteri in the

vicinity of rio de Janeiro, together with local partners we are building a second shipyard further north in the country, in suape in the state of Pernambuco.

the existing shipyard in niteri is capable of manufacturing the most advanced vessels, from the construction of steel hulls to outfitting and final delivery to customers. It is supported by a local subsidiary of Vard electro, which manufactures electrical components and carries out electrical installation services. During 2012, the yard delivered two highly complex vessels one ultra-large ahts and one large PsV. at the end of the year, five vessels remained in the order book, for delivery between 2013 and 2014.Due to a challenging business environment and very high activity level, the niteri yard has been under pressure especially during the second half of 2012. Constraints in the sub-supplier market and high staff turnover have impacted productivity

at the yard and resulted in delays. We are closely monitoring the situation at the yard, and have taken measures to secure delivery of the projects in the orderbook. In order to alleviate operational pressure and mitigate the risk of further delays, we have, for instance, sub-contracted parts of the steel work and even complete hulls to other shipyards in the region, and we focus on securing more capacity from external suppliers. We are also strengthening our own organization in Brazil by tapping into our international competence base.

the construction of our second Brazilian yard, Vard Promar, is progressing as planned and was about 65% complete as at the end of 2012. the project has now moved from shipyard construction to building the permanent shipbuilding organization required to take up manufacturing operations in mid-2013.

ingebjrg klausenGeneral Director Vard accommodation

oPerational review / vard / Annual report 2012 / 3736 / oPerational review / vard / Annual report 2012

>> Always working in close cooperation with ship designers and our customers, we combine our expertise to create holistic solutions for insulation, accommodation, and HVAC systems.

runar vgnesVice PresidentVard electro

>> our international growth and client focus will also make us a better supplier for the Company.

recruitment and training enjoy a high priority in preparation of production start, and initiatives in this field are carried out in close cooperation with local, regional and federal authorities. the surrounding municipalities are supporting some of the basic training programs. the yard is also cooperating with the local technical schools and universities for development of relevant professional skills, and a trainee program for graduates is being established in cooperation with Vard niteri in rio de Janeiro.

VarD has a strong tradition of knowledge exchange between our yards. this ensures technical expertise in the initial launch phase and support for the new yard in delivering vessels of a level of quality and at an efficiency that is consistent with our other yards.

vietnam

Vard Vung tau

our Vietnam yard, located in Vung tau, is a fully integrated shipyard, capable of building complete vessels from hull construction to final delivery to customers. Between the start of manufacturing operations in 2008 and the end of last year, the yard has delivered seven vessels, including two during 2012. reflecting the excellent performance of the yard, both vessels were delivered ahead of the contractually agreed schedule.

Vard Vung tau is well-equipped to handle complex project management that lives up to the same standards as our more established yards within VarD. the adaptation of lean planning within our organization has resulted in a motivated workforce that is keen on learning. While the yard

enjoyed strong support from VarDs european operations initially, more and more responsibility has now been placed in the hands of locally-trained staff. During 2012, we focused on training and transferring knowledge within the technical department and amongst project coordinators. today, the yard possesses a strong core team with local competence in most key disciplines.

We continue to invest in and develop the Vietnam operations. Currently, the quay and floating dock are being lengthened in order to make the yard ready for larger projects. this is considered a crucial step towards securing a more steady order flow for the yard, which experienced a period of too low activity in the second half of 2012. With its ongoing good track record of timely vessel deliveries and supported by positive feedback from customers, Vard Vung tau is proving

>> the feedback from our customers has been very positive, but we always seek improvements.

roger vassdalGeneral DirectorVard Vung tau


its capability and is a case study for the successful implementation of VarDs high shipbuilding standards in a new environment.

singaPore

Vard holdings Vard singapore

our singapore companies include the holding company, listed on the singapore exchange, as well as a sales office to support the asia-Pacific market. through our presence in singapore, we aim to establish relations with offshore vessel owners in the region in order to take advantage of the growth potential in asia. Vard singapore also functions as a holding company for our shipyard in Vietnam, Vard Vung tau.

india

Vard electrical Installation & engineering

We maintain an electrical installation and engineering subsidiary in Cochin, to support our clients in India as well as other customers in the region. this company provides an important foothold for us in asia, providing supervision and services related to electrical engineering, power and automation.

croatia

Vard Design liburna early in 2012, in a move to strengthen our design and engineering capacity, we acquired a 51% interest in an engineering company located in rijeka, specializing in ship design with a main focus on offshore vessels. at the end of the year, the company, renamed Vard Design liburna, employed 17 people. the steady growth throughout 2012 is due to a constant high demand for design and engineering services within VarD and from external clients.

>> the purpose of our investment program is not only to dramatically improve productivity and quality, but also to find new ways to satisfy our customers ever-increasing requirements.

jan emblemsvgsenior Vice President Innovation and Process ManagementVarD

9529employees

oPerational review / vard / Annual report 2012 / 3938 / oPerational review / vard / Annual report 2012

40 / signiFicant events / vard / Annual report 2012

2012januarY - FebruarY the significant investment program at Vard tulcea started in January 2012 when the plan for new blasting and painting halls were finalized. the ground preparation started in February 2012, and operation in the new and modern facilities commenced in 2013. expected benefits are more efficient and cost saving operations, including a more environmentally friendly process with lower emissions.

aPrilWe witnessed the naming ceremony of the new lnG-powered vessel olympic energy, which was delivered from our yard Vard aukra in norway. the ceremony took place in lesund in the presence of olympic shipping, the training office of Maritime studies and VarD. More than 1,500 visitors took the opportunity to come onboard for a sightseeing on the vessel.

maYIsland Crusader, the first lnG-powered PsV with lean burn engines and ut 776 CDG design, was delivered to Island offshore from our yard in Brevik. another similar vessel was delivered in september.

julY Vard electro secured a new contract with universal shipbuilding Corporation for the delivery of six integrated diesel-electric propulsion packages for a series of ships under construction for swire Pacific offshore.

sePtemberthe Far solitaire, a ship built by Vard langsten in norway for owners Farstad shipping, was elected ship of the Year 2012 by major norwegian shipping magazine skipsrevyen. the technologically advanced vessel was the first PsV of its kind ever built, and was delivered in october.

the Vung tau yard in Vietnam delivered its first PsV, Far skimmer (PsV 08) to Farstad shipping. Including this vessel,

the yard in Vietnam had by end of 2012 delivered seven vessels, of which five were delivered ahead of time and two were delivered on time.

novemberVard langsten received the Inclusive Workplace award 2012 (IW award) for the county of Mre og romsdal in recognition of its commitments towards reducing sick leave and cultivating an inclusive workplace for its employees there. sick leave recorded in 2011 was more than halved to 3.1% from 6.8% in 2008, and Vard langsten was commended for working closely with employees during their sick leave and prioritize preventive initiatives. the IW concept originated from collaboration between the norwegian government and major labor market partners.

Vard niteri was awarded the 2nd shipping award of Quality and sustainability. this was in recognition of its recently implemented Career Plan for Production employees.

sIGnIFICant eVents

Olympic Energy in the harbour of lesund. VARD employees celebrating the new name.

signiFicant events / vard / Annual report 2012 / 4140 / signiFicant events / vard / Annual report 2012

december By the end of December 2012, the new shipyard in Brazil, Vard Promar, was approximately 65% complete, with all major buildings erected and civil construction works finished. a kick-off ceremony was hosted at the new yard, attended by officials such as Pernambuco state Governor eduardo Campos and transpetro President sergio Machado.

also undergoing infrastructure enhancements is Vard sviknes in norway, which is expanding the main building at the yard. this is expected to free up space for more offices, meeting rooms and the technical department.

We successfully set up a new engineering department in lesund, norway. the main purpose of this engineering department is to provide detailed engineering support to our yards and to ensure that consistent methods, procedures and technical drawings and deliverables are provided to the projects.

on 21 December Fincantieri oil & Gas announced that it had entered into an agreement with stX europe to acquire its majority stake of 50.75% in the Company.

during 2012Vard accommodation delivered 19 complete heating, ventilation and air conditioning (hVaC) systems.

Vard Vung tau in Vietnam received sa8000, ohsas18001 and Iso14001 certifications. these were attained in record time within six months, and all three certificates represent the yards high commitment towards keeping its employees motivated.

Vard Braila successfully completed conversions of two of the icebreaking tugs delivered in 2011. the conversion, performed in a short time period and under technically challenging conditions, ensured that the vessels fulfill requirements for operating at a normally unmanned Island as a support and escape vessel, and provide certified automated h2s response in relation to 0-500 PPM for up to 322 persons for a minimum of four hours.

2013januarYFincantieris acquisition of the majority stake in the Company was completed on 23 January.

march We announced our new brand name, VarD, on 5 March following the change in majority ownership.

a new Chairman of the Board of Directors, Mr. Giuseppe Bono, was appointed with effect from 15 March. Mr. Fabrizio Palermo and Mr. Pier Francesco ragni were appointed Directors.

the mandatory cash offer by Fincantieri was officially concluded on 13 March, resulting in Fincantieri controlling 55.63% of the shares of the Company.

VARD employees celebrating the new name. Far Solitaire - Ship of the year 2012. Naming ceremony of Skandi Hugen, delivered from Vard Aukra.

island contender

normand arctic

viking Fighter

ocean shield

stril Polar

skandi iguau

rem supporter

Far skimmer

42 / deliveries / vard / Annual report 2012

Far solitaire

PlatForm suPPlY vessels (Psv)

normand arctic Yard no. 755 solstad offshore PsV 12 lnG Vard langstenrem supporter Yard no. 754 rem offshore PsV 06 Vard langstenstril Polar Yard no. 748 simon Mkster shipping PsV 09l Vard sviknesisland captain Yard no. 721 Island offshore ut 776 CD Vard Brevikskandi kvitsy Yard no. 759 DoF PsV 09 Vard aukraolympic energy Yard no. 764 olympic shipping PsV 06 lnG Vard aukraisland crusader Yard no. 765 Island offshore ut 776 CDG (lnG) Vard Brevik troms sirius Yard no. 773 troms offshore PsV 09 Vard sviknesFar scotsman Yard no. 749 Farstad shipping PsV 08 Vard langstenviking Fighter Yard no. 783 norsea Group PsV 08 Vard Brattvaagskandi aukra Yard no. 775 DoF PsV 09 Vard aukrasea brasil Yard no. Pro 28 Deep sea supply PsV 09 Vard niteriFar skimmer Yard no. 750 Farstad shipping PsV 08 Vard Vung tauisland contender Yard no. 766 Island offshore ut 776 CDG (lnG) Vard BrevikFar solitaire Yard no. 767 Farstad shipping ut 754 WP Vard langstenskandi nova Yard no. 778 DoF MrV 05 Vard aukraskandi mary Yard no. 779 DoF MrV 05 Vard Brattvaag

oFFshore subsea construction vessels (oscv)

ocean shield Yard no. 771 sold from DoF subsea to osCV 11 Vard sviknes the Commonwealth of australia

anchor handling tug suPPlY vessels (ahts)

skandi atlantic Yard no. 6 aker DoF Deepwater ah 08 Vard Vung tauskandi iguau Yard no. Pro 27 DoF ah 12 Vard niteri

other sPecialized vessels

tbn Yard no. 746 undisclosed other Vard Brattvaag tbn Yard no. 747 undisclosed other Vard Brattvaag

Vessels DelIVereD In 2012

deliveries / vard / Annual report 2012 / 4342 / deliveries / vard / Annual report 2012

5,000

10,000

15,000

02009

4,458

8vessels

2012

9,501

16vessels

2010

12,555

27vessels

11,117

2011

28vessels

2008

5,692

4vessels

order intake (nok million)

at the end of 2012, our order book comprised 48 vessels for delivery between 2013 and 2016. More than half of these 27 will be of VarDs own design. the order book amounted to about noK 15.1 billion, compared with noK 16.7 billion at the end of 2011.

Following a record new order intake in the first half of 2012, order conversion slowed down towards the end of the year. the order intake for the year was for 16 vessels and a total of noK 9.5 billion. the order book and order intake values include the contract value of variation orders as well as the sale of design and equipment packages to third parties.

During 2012, we delivered 22 vessels globally, of which the large majority 18 were delivered from norway. two vessels each were delivered from Brazil and Vietnam. In terms of vessel types, deliveries were dominated by PsVs, which accounted for 17 of the 22 vessels, reflecting the previous years strong order intake in that segment. two ahts, one osCV and two other vessels were also delivered during the year.

the new order intake in 2012 was diversified, with three ahts vessels, five PsVs, seven osCVs and one other vessel coming new into the portfolio.

this development is also reflected in the year-end order book, which was less skewed towards PsVs than one year earlier. In addition to contracts for three large ahts secured during the first half of the year, seven osCVs contracted as a result of the robust subsea support and construction vessel market signaled a significant shift in the order book mix. While the total number of vessels contracted fell short of expectations, the average value per vessel in the order book increased during the year as a result of larger and more complex projects secured.

5,000

10,000

15,000

20,000

25,000

0

15,096

20122009

16,411 16,675

20112010

17,031

2008

22,389

order book (nok million)

orDer BooK DeVeloPMent

44 / order book / vard / Annual report 2012

order book develoPment

order book deliveries order intake order book

by country 31 dec. 2011 2012 2012 31 dec. 2012

norway/romania 35 18 15 32

Brazil 15 2 - 13

Vietnam 4 2 1 3

total 54 22 16 48

order book deliveries order intake order book

by vessel type 31 dec. 2011 2012 2012 31 dec. 2012

ahts 7 2 3 8

PsV (incl. MrV) 30 17 5 18

osCV 1 1 7 7

other 16 2 1 15

total 54 22 16 48

order book deliverY schedule as oF 31 december 2012 (number oF vessels)

0 10 20

2014-16

2014

2013

2012

30

8 LPG carriers to be delivered from new yard in Brazil

8

14

26

22 Delivered

order book / vard / Annual report 2012 / 4544 / order book / vard / Annual report 2012

risk manifests itself in many forms and managing them is a challenging and essential part of any business. at VarD, we continue to adopt a proactive approach to maintaining the Companys risk profile through constant monitoring, assessment and management of those risks associated with our business.

MARkET RiSk

We are exposed to market risk originating from the global economic climate, oil prices, and investment in oil and gas exploration and production.

these and other market risk factors influence our customers incentives and ability to order new offshore and specialized vessels. For several reasons, including the eurozone debt crisis, tightening of credit, and the generally uncertain economic climate, the global shipping and shipbuilding industries faced challenges in 2012. In spite of this, we experienced an acceptable order intake during the year, mainly credited to our strong fundamentals, innovative solutions,

strong client base and presence in new markets.

as part of our risk management strategy, we aim to stabilize the order book at a length that gives us sufficient visibility and take into account fluctuations in the business cycle.

OPERATiONAL RiSk

the majority of our shipbuilding projects are fixed price contracts, typically entered into up to three years prior to the scheduled delivery of a vessel. under these contracts, we are responsible for delivering according to specifications in the contract. While we make every effort to take into account estimated increases in costs of labor, materials, equipment and machinery in our bids on fixed price contracts, it is difficult to accurately gauge these, especially for contracts with prolonged delivery times. to mitigate such risks, we normally secure approximately 60% of procurement at the time of contract signing. this usually accounts for core components such as main engines, winch systems and propulsion

systems, which are procured on a fixed price basis at the time of entering into the contract.

From a project execution standpoint, we always strive to maintain flexibility in our cost structure by engaging our preferred subcontractors to cover periods of high activity in the production cycle of a vessel. Project risk management is an integrated and critical part of our project management and execution processes, where we have increased our focus and efforts over the last few years.

FiNANCE AND iNVESTMENT RiSk

We require significant working capital during the vessel construction phase. Going by standard european shipbuilding payment structures, customers generally only furnish about 20% of the full contract price during construction, and the remainder upon vessel delivery. Because of this, we take on a significant amount of construction loans with our main banks in order to offer our customers suitable financing solutions.

FoCus on rIsK ManaGeMent

46 / risk management / vard / Annual report 2012

each loan is approved on a project-by-project basis, drawn according to costs incurred, and matures upon delivery to the customer.

We evaluate all contracts and clients carefully before contract signing, and put in place mechanisms that minimize the risk of not receiving the contractual payments during construction and at delivery, and we monitor our exposure on an ongoing basis.

From time to time, we are involved in investments in special purpose entities and associates where we participate with minority stakes in our shipbuilding projects, and can also for specific projects offer sellers credit for a smaller portion of the takeout financing. We will typically have an exit option or an intention to exit such arrangements within one to three years from the time of delivery.

as a significant part of our operations take place in countries other than norway, such as romania, singapore, Vietnam and Brazil, our financial performance can be affected, especially by movements in the

eur/noK and usD/noK currency rates, as well as the local currency in each operating entity versus foreign currencies. Where contract prices and costs are in the same foreign currency, there is a natural economic hedge and the currency exposure of such contracts is relatively low. We utilize forward foreign currency contracts to hedge currency risk for contracts in foreign currencies where exposure is significant. these forward contracts are used purely as a hedging tool and never for trading purposes.

HuMAN RESOuRCE RiSk

our business depends greatly upon highly-skilled personnel with industry know-how. our human resource (hr) department closely monitors the business cycle in order to identify and handle any hr risk elements.

a strong employer brand in the geographical areas where we operate helps our ability to retain a skilled workforce and recruit personnel where needed. the industry in which we operate has experienced high activity

and impressive growth over the past years, which has put pressure on access to key competencies.

to ease the pressure and continually attract talent, we strive to strengthen our position as the employer-of-choice in the regions we operate in. the Company is also implementing a company-wide succession planning process with the aim to identify replacement candidates for all key positions as well as identify candidates with potential to grow into key positions.

We have a highly unionized workforce and the unions work proactively with management via formal and informal channels. through early involvement and open access to relevant information, we continually develop and maintain good relationships with the unions.

risk management / vard / Annual report 2012 / 4746 / risk management / vard / Annual report 2012

VarD has always kept a long-term perspective on preserving the integrity of our business and the places in which we operate. We believe it is not possible to separate a business from the spaces it inhabits, and in order to co-exist in a mutually beneficial way, development and adoption of sustainable business practices that benefits society and company alike, are crucial.

With a focus on the safety and well-being of our workforce, our goal is to run a sustainable operation with the ability to benefit the resident communities, and leave as light a footprint on the environment as possible. our commitment is articulated not only through consistent health, safety and environment (hse) assessments and reporting, but also in our purposeful support for talent and social causes, as well as providing opportunities for employee development.

OuR APPROACH

VarD is arguably as dependent on society and local communities as they are on us. sustainability for us is not just about maintaining our business as an entity in itself, but also striking the right balance between our needs and those of our stakeholders, so as to yield mutual benefits in the long-run.

our ambition is to operate in a manner that exceeds the financial, social, ethical, environmental and legal expectations society has towards

us. and through our experience, we believe there is much to be gained at both sides by honouring a shared responsibility and cultivating a meaningful two-way relationship.

as part of our sustainability framework, we have established a robust set of guidelines and principles to guide all our activities: We are in the process of

implementing the social accountability 8000 (sa 8000) throughout our company, which builds on the Ilo labour conventions as well as key international human rights declarations.

We are in the process of implementing the Iso 14001 (environmental Management) and Iso 9001 (Quality Management) standards across all major business units.

We have a robust code of conduct and recently renewed a set of corporate values.

We promote and actively participate in open dialogues with all key stakeholders and use the feedback to improve our practices.

above all, we have a culture, a process and a system that actively involves management in navigating key sustainability and corporate responsibility issues. such issues are at the core of our business planning process, are included in our monthly reporting and are subject to scrutiny in regular business reviews.

ENViRONMENTAL SuSTAiNABiLiTy

throughout our history, VarD has always been conscious of the environments role in our business, and how our business in turn impacts the environment.

With that in mind, our operations are grounded in minimizing impact and strain on the environment. We have invested substantial resources, and adopted policies and procedures to enhance our overall environmental performance.

this includes the voluntary aforementioned implementation of the internationally recognized Iso 14001:2004 and Iso 9001:2008 quality standards through which we aim to continually strengthen our resources efficiency and waste management efforts across the network.

recycling of waste from shipbuilding and maintenance is a key environmental priority. In 2011, we introduced a comprehensive waste management framework, involving all yards. this has increased the level of recycling. In 2012, the total recycling percentage across all yards increased from 63% to 66%.

a possible source of water pollution is the discharge of ballast water from foreign seas. Ballast water is used to stabilize hulls for towing. From an environmental point of view, it is better to use fresh water, as it has been documented that fresh water

our aPProaCh to sustaInaBIlItY anD soCIal resPonsIBIlItY

48 / sustainabilitY and social resPonsibilitY / vard / Annual report 2012

organisms do not survive when they are flushed out into the sea. Beginning from 2011, we have always used fresh water from the public water supply for this purpose.

the governmental initiative to map pollution at norwegian industrial sites and in coastal waters which we are a part of, will continue its progress with further actions and plans undertaken in close cooperation with the national authorities in 2013.

In tulcea, romania, we are in the midst of constructing a water treatment plant to continually monitor and process waste water from the activities at the shipyard. at the same time, we are working on reducing the impacts from use of chemicals. We have invested in five sandblasting and painting halls in tulcea. these would allow us to significantly cut down wastage by enabling us to recycle the abrasives used, but also further protect the environment by

confining the impact of sandblast dust within a reusable, isolated and man-made space.

HuMAN SuSTAiNABiLiTy

our employees are at the heart of our success, and we understand that our long-term success depends, to a large degree, on maintaining an engaged, skilled and motivated workforce. We continually strive to improve existing policies that protect the well-being of our employees. In addition, we are proud to uphold a culture of transparency, openness and fairness which has led us to be recognized as an employer of choice, enabling us to attract and pursue the best talents.

recognizing that much of the labor involved in manufacturing our vessels carries health and safety risks, it has always been our top priority to encourage a culture of

applicable knowledge about safe working practices and behaviors across all our yards. Coupled with a more proactive approach toward hse assessments in 2012, the number of safety observations reported and handled across our yards increased 13% from 2011. Compared against a 17% decrease in actual accidents from 2011, this reflects that VarD continues to step up efforts towards timely reporting of potential work-related accidents, and has improved on its ability to prevent more of them from happening. this improvement is reflected in the number of lost time Injuries (ltI), of which we recorded an all-time low of 2.1 for 2012. In addition to a continued focus on safety throughout our network, we aim to further reduce the number of injuries and lost time incidents through particular emphasis on implementing best practices at the lower performing sites and subsidiary companies.

lti FrequencY (number oF lost time injuries Per million hours work)

6

2

4

02012

2,1

2011

2,2

2010

3,2

2009

3,9

2008

4,8

sick leave

4%

3%

1%

2%

0

5%

2012

3,0%

2011

3,0%

2010

3,1%

2009

3,8%

2008

4,2%

sustainabilitY and social resPonsibilitY / vard / Annual report 2012 / 4948 / sustainabilitY and social resPonsibilitY / vard / Annual report 2012

In February 2012, a fatality occurredas a result of non-compliance with standard operating procedure relating to piping works. since the incident, routine procedural tests have been incorporated into the monthly hse induction to remind all workers of its importance.

We have done well to maintain our low sick leave statistic, at an average of 3% in 2012. this was achieved through our continued effort in handling sick leave individually and at an early stage. this includes the flexibility to adjust an employees work intensity and scope of work, as well as to adapt the work place as an alternative to sick leave.

our human sustainability efforts extend past ensuring the physical safety of our employees. We invest in the skills of our employees to help them realize their maximum potential. We work with local and national authorities and institutions to ensure development of adequate education and training. In Vietnam and Brazil we have established local schools and training schemes, where we train local staff from the ground up. these schemes, which were critical in the start-up phase of the yards, have now become permanent institutions, serving as models for how we will approach training and recruitment needs in other parts of the world.

In recognition of our compliance with best practice labor standards, in 2012 we were awarded the social accountability 8000 (sa 8000) certification for our shipyard in

Vung tau, Vietnam. some of the considerations for the certification include providing for a non-discriminating environment, fair working hours, fair remuneration and freedom of association. In tulcea, romania, we received 18001:2007 (occupational health and safety standard) certification in January 2012 in recognition of our compliance with this standard.

SOCiAL RESPONSiBiLiTy

VarD has a global footprint and is a major employer in most of the locations where we operate. according to estimates, for each person directly employed at our shipyards in norway, an additional five jobs directly or indirectly depend on us. In other words, we have a responsibility beyond our direct employees and customers in everything that we do.

aside from the economic impact through job creation and knowledge transfer, we are also purposefully engaged in supporting causes related to education, health, sports development and other community services.

In tulcea, romania, we sponsored the acquisition of special beds in the resuscitation department of the Country emergency hospital, which serves a population of about 250,000 within the vicinity of our shipyard. In promoting scholarly excellence, we have also granted scholarships for the top twelve final year university students belonging to faculties with shipbuilding profiles.

one example of our local initiatives is the Dream learn Work (DlW) program, of which we are a founder. Dream learn Work is an organization that offers technical education to underprivileged youths in rio de Janeiro. the organization cooperates with Bola Pra Frente in the neighborhood of Guadalupe, rio de Janeiro, and offers tailor-made support in education, sports, arts and other activities, thus enabling these young people to regularly attend school.after passing through this special schooling arrangement, the youngsters are offered a variety of technical courses, equipping them with qualifications in areas that Brazil has a huge demand for. the courses offer a diverse range of opportunities in being trained as electricians, crew members, web designers and welders. Following strong support from the DlW sponsors and other potential future employers, special courses for health, safety, environment, Quality (hseQ) technicians and safety courses have been arranged for future batches of students.

this, together with more focus on improved english skills, will hopefully increase the number of young people trained through Dream learn Work that will attain gainful employment. there are currently 72 students attending various DlW courses, and 64 DlW graduates who are currently working in companies like VarD, BW Group, Farstad shipping, estaleiro Maua, norskan offshore, solstad offshore and teekay shipping.


sustainabilitY and social resPonsibilitY / vard / Annual report 2012 / 51

PROMAR SuSTAiNABiLiTy iN PRACTiCE

In Brazil, we have been steadily developing a new yard, Vard Promar, which was approximately 65% completed by the end of 2012. this yard will employ 1,500 persons by the time it is fully operational by mid-2014.

the project serves as a good example of how we work with our stakeholders to ensure that we become a contributing force for sustainable development of the local community.

some activities we are undertaking include: training and recruiting the yards

workforce is ongoing, and we are in close cooperation with local and federal authorities. six surrounding municipalities are supporting some of our basic training programs.

We are cooperating with the local technical schools and tertiary institutions for the development of relevant professional skills for our employees.

a trainee program for graduates is being established in cooperation with Vard niteri in the state of rio de Janeiro.

as part of our Corporate social responsibility policy, Vard Promar is also participating in a tax Incentive Program with the host municipality Ipojuca, and funding some social activities in the area.

an attractive welfare program is being initiated to recruit and retain the best professionals to this new shipyard.

In line with our policy and environmental regulations, Vard Promar is developing a comprehensive program to comply with the strictest requirements in Brazil for environment protection.


Sandblasting and painting hall in Tulcea. New yard in Brazil, Vard Promar.

A CHALLENGiNG yEAR FOR iNVESTORS

For investors, 2012 was a year of uncertainty: uncertainty due to a volatile macroeconomic environment affected financial markets globally. uncertainty concerning the Companys market outlook was prompted by a record first half year - both in terms of financial results presented, new orders reported, and share price development - followed by a softer second half. and finally, uncertainty persisted throughout the year concerning a potential change in the Companys majority shareholder, following stX europes announcement in January that it was exploring a sale of its shares.

From an Investor relations perspective, our main objective during 2012 was

to provide timely communication and accurate information to the investment community about the Companys state of affairs and the factors affecting its business prospects, thereby providing a solid basis for investment decisions in the face of these uncertainties.

CONTiNuED PROFESSiONALizATiON OF OuR iR PLATFORM

In 2012, the number of equity research analysts covering the Company stabilized at 14, representing a broad range of singaporean, regional and international brokerages and research houses. Good relations and frequent contact with analysts enable the Company to smoothly and efficiently reach out to institutional and private investors alike.

serving the needs of the institutional investment community, we frequently met with investors on non-deal roadshows and investor conferences in singapore, hong Kong, Kuala lumpur, london, new York and oslo. In addition, during the year we hosted investors at our shipyards in Vietnam, Brazil and norway, in order to provide them with a first-hand impression of our operations. We actively encourage investors to make contact in order to better understand our business.

Working with the media to ensure coverage of important events in the life of the Company is one of the most important channels we employ in order to reach out to private investors. our retail shareholder base is primarily domiciled in singapore, where we focus on the local press in addition to international newswires and financial media. In this aspect, we are supported by a team of dedicated investor relations advisors in singapore, who also act as a first point of contact for any inquiries from investors, the media or other interested parties.our company website, www.vard.com, is another key channel used to disseminate information broadly. all our press releases, along with financial reports, information on our order book and other useful facts are presented in a compact and easily accessible format. all corporate press releases and announcements are also posted via singapore exchanges online portal, sGXnet.

52 / investor relations / vard / Annual report 2012

enGaGInG the InVestor CoMMunItY

>>our main objective is to provide timely communication and accurate information to the investment community.

holger dillinghead of Investor relations

52 / investor relations / vard / Annual report 2012 investor relations / vard / Annual report 2012 / 53

For investors wishing to meet representatives of the Company in person, the annual General Meeting is an important occasion, allowing shareholders to directly address their questions and concerns to management and the Board. In april 2012, we hosted a well-attended meeting, not only enabling investors to meet the Company but also providing the Company with valuable first-hand feedback from shareholders.

EVOLuTiON OF THE SHAREHOLDER BASE

as a result of the Company becoming more well-known and established during its second year as a listed company in singapore, we saw a further diversification and globalization of our institutional shareholder base. During the year, north america came to be the region with the highest concentration of professional investors, accounting for almost half of institutional shareholdings (excluding substantial shareholders). at the same time, free float in the Companys shares increased to over 37%, as a result of the second-largest shareholder, och-ziff, gradually reducing its stake during the second half. Finally, at the very end of the year, the uncertainty concerning stX europes shareholding was removed, with the announcement on 21 December 2012 that

Fincantieri oil & Gas had entered into an agreement to acquire the majority of shares in the Company.

CHANGE AND CONTiNuiTy

after the end of the financial year, Fincantieris acquisition of the majority stake in the Company was completed, triggering a mandatory general offer which was completed on 13 March 2013. Following the offer, Fincantieri oil & Gas controls 55.63% of the share capital, providing the Company with a strong and stable new major shareholder. at the same time, liquidity in the shares is improved, with the highest free float since the listing of the Company in 2010.

as a direct consequence of the stake sale to Fincantieri, the Company changed its brand name to VarD in March 2013. a resolution to rename the listed entity stX osV ho

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