annual report 2013 - vard...testimonials vard annual report 2013 7. 8 2013 has been an eventful...

ANNUAL REPORT 2013B U S I N E S S R E V I E W

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VARD is present in Norway, Romania, Brazil, Vietnam, Singapore, India, Croatia and Poland.

Shipyards located in four countries10 Vard Aukra

Vard BrattvaagVard BrevikVard LangstenVard Søviknes

Norway Vard BrailaVard Tulcea

Romania

Vietnam Vard Vung TauVard NiteróiVard Promar

Brazil

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Contents 04 About VARD

06 Testimonials

08 CEO Letter

10 Chairman’s Statement

12 Board of Directors

14 Executive Management

16 Shareholding and Corporate Structure

18 Financial Highlights

22 Signifi cant Events

24 Operational Review

32 Core Products and Services

44 Vessels Delivered

46 Order Book

48 Sustainability and

Social Responsibility

54 Risk Management

56 Investor Relations

58 Outlook

62 Contact Information

VARD has a number of subsidiary companies in the areas of design, electro, piping, accommodation and handling systems.

10 696 employees globally

Norway 1,743 Romania 6,151 Brazil 2,064 Vietnam 691 Singapore 10 Other 37

VARD’s Annual Report 2013 consists of two sections: Business Review and Financial and Statutory Report.

This is the Business Review section.

ANNUAL REPORT 2013B U S I N E S S R E V I E W

ANNUAL REPORT 2013F I N A N C I A L A N D S TAT U T O R Y R E P O R T

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All VARD employees are shipbuilders at heart – regardless of our role or title, skill or location. Our maritime heritage has taught us to think creatively and seek new solutions. VARD takes pride in the innovation and technological development we put into the advanced vessels we build. The majority of our customers work in the offshore industry, which enters ever-deeper waters and operates in ever-harsher environments.

As the expectations towards solid shipbuilding grow, VARD remains focused on building specialized vessels and long-term relationships with our customers.

Every year, we build more than 20 offshore and specialized vessels.

We are proud that many of our customers return to VARD as their preferred shipbuilder:

During the past decade, the vast majority of our customers have returned to VARD to build another vessel.

Three ship owners have each built more than 30 vessels

with us.

As a leading global designer and shipbuilder, close cooperation with our customers is core to our business. We take our promise to deliver cutting-edge innovation and technology seriously. In all projects, we strive to have an open and trust-based dialogue with our customers to fi nd suitable and satisfactory solutions.

Every day, we go to work to earn our customers’ trust through hard work and dedication. We deliver on our promises, and our track record of repeat business is proof of this.

We know that one of the main reasons customers return to VARD is the fact that they can trust us. Our ten yards have one team of employees sharing the same values, goals and quality standards across three continents.

Everything that we are can be summarized in one simple statement:

Our company is built on trust!

We are shipbuilders

Deliveries last fi ve years

2013 .........................232012 .........................222011 .........................232010 .........................212009 .........................26

New orders 2013

PSV ............................4 AHTS .........................0OSCV .........................9Other .........................20

5

10

15

20

25

30

About VARD VA R D A N N U A L R E P O R T 2 0 1 3

Large share of own design - new orders 2013

VARD .......................11Other .........................4

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An integral part of our promise to customers is our values, which embody the essence of who we are and why we are. Our common set of values lies at the heart of everything we do.

10,000 VARD employees are joined in a common goal to earn customer satisfaction and build advanced vessels. Our customers are facing growing challenges regarding demanding operations and deeper waters. Craftsmanship is self-evident across the company, from our proud history, through to the recruitment of the best engineers and workers, to dedication, skills and the sharing of best practice with our customers. No details are overlooked. We take pride in delivering high quality products and services. Forever improving our

products and perfecting our vessels is what our customers have come to expect from VARD.

Fellowship is the appreciation and respect we have for our colleagues, customers and the local communities in which our shipyards are located. We care about each individual, and we value diversity. Health, safety and environment are our fi rst priority - every employee has the right to work in a safe environment, and every community has the right to exist in a safe and hazard-free environment. VARD is located in Norway, Romania, Brazil, Vietnam, Singapore, India, Croatia, and Poland. The diversity of these cultures is what makes us one – one team sharing knowledge, goals and interests, because we are all shipbuilders at heart.

Our values guide us

Craftsmanship

We take pride in delivering high quality products and services

Salesmanship

Customers satisfaction is everyone’s responsibility

Fellowship

We truly care about the individual, team and society

About VARD VA R D A N N U A L R E P O R T 2 0 1 3

Salesmanship is about fulfi lling our customers’ needs by delivering the best solution in an optimal and cost-effective way. Customer satisfaction is everyone’s responsibility. At all levels of VARD, customer satisfaction gets full attention. Only satisfi ed customers can secure our future. We constantly strive to be fl exible and agile, to deliver on time, within budget and to the level of quality promised. Identifying the best solution to every task requires an open mind towards new ways of problem solving. It also requires trust and belief in our employees to make the necessary decisions to solve customers’ needs quickly. Shipbuilding is a competitive industry, and our customers appreciate the quality, cooperation and trust-based dialogue we offer – as demonstrated by the repeat orders they place with VARD.

Every second week a new VARD vessel is delivered

Each of our vessels is developed in partnership with our customers, and is built to meet their specifi c needs. Together, we make important choices relating to design, outfi tting, systems and solutions. Jointly, we push boundaries, and in close cooperation, we create sustainable operations and jobs – both at sea and onshore.

Far Spica for Farstad Shipping A Platform Supply Vessel (PSV) especially designed and developed according to Farstad’s requirement.

Our values are at the core of everything we do at Farstad.Safety, Value creation, Reliability and a strong focus on the Environmental Challenge are at the forefront of the long-term relationship we have with VARD. A relationship which has strengthened our joint performance, both in regard to creating safe jobs and in becoming solid global players.

Karl-Johan BakkenCEOFarstad Shipping

Troms Lyrafor Troms OffshoreA Platform Supply Vessel (PSV) built and equipped for operations in the North Sea and in the Barents Sea.

I am very happy with the level of cooperation and fl exibility VARD showed through the entire building process – from design to outfi tting.

VARD has a professional project organization which delivered a complex project on time and on budget.

Østen MortvedtManaging DirectorTroms Offshore Management

Testimonials VA R D A N N U A L R E P O R T 2 0 1 3

66

Skandi Icemanfor DOF / Iceman A highly Anchor Handling Tug Supply vessel (AHTS). Built to ice-class and equipped for multi-role operations in harsh arctic areas.

I see VARD as DOF’s preferredpartner - one of the closest we have. Together, we have built a range of state-of-the-art vessels for the offshore market. Our customers need the most advanced vessels.

Mons AaseCEODOF ASA

Gadus Poseidonfor Havfi sk Gadus Poseidon, the fi rst advanced fi shing vessel in a series of three.

After six successful months, the new trawlers have enabled us to increase our yields and work more effi ciently.

With a clean design and a green passport, these new vessels have been built for the future as well as the environment. Meanwhile, the crews are reporting improved onboard comfort levels.

Olav Holst-DyrnesCEOHAVFISK ASA

Island Duchess for Island OffshoreThe second vessel in a series of four modern Platform Supply Vessels (PSV).

We look forward to adding yet another magnifi cent vessel to our fl eet, and are eager to see Island Duchess in operation.

This is the 20th vessel to be built for us by Vard Brevik. We are therefore confi dent that quality has been a top priority throughout the construction process.

Håvard UlsteinCEOIsland Offshore

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Testimonials VA R D A N N U A L R E P O R T 2 0 1 3

7

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2013 has been an eventful year: We recorded the highest new order intake in more than fi ve years, and had 41 vessels in the order book at year end. We signed our largest contract ever, with a total value of NOK 6.5 billion. And we now are 10,000 employees at VARD. At the same time, we have encountered more profound challenges in our operations than in recent years.

Containing rising costs Over the past twelve months, the rising cost of operations has been a common theme across the offshore industry and a key focus for us here at VARD. Clearly, steadily growing costs for the oil and gas industry are not sustainable. At VARD, we are committed to helping our customers, the ship owners, serve the offshore

industry with new technology and smarter solutions that can offset rising cost levels. New design, technology and smarter solutions are important areas in which VARD work to reduce vessel operating costs.

Rising demand for construction vessels During 2013, we saw continuing shifts in the advanced vessel market. Of the 22 vessels we delivered during the year, twelve were Platform Supply Vessels (PSVs). Over the past two years, the share of PSVs in VARD’s order book has more than halved. In 2013, we signed contracts for only four PSVs, but an impressive nine Offshore Subsea Construction Vessels (OSCVs).

The OSCVs cater to a subsea industry operating in ever more demanding waters, both in terms of depth and challenging weather conditions. This segment is exciting and during 2013 VARD signifi cantly strengthened our presence in this high-end market. Our ability to adjust to the changing market demand demonstrates the dynamic nature of our organization as well as its fl exibility.

Investments, challenges and opportunities During 2013, we made several investments that are critical for the strategy, success and future competitive position of the company. We made large investments at the Vard Tulcea yard in Romania, upgrading the facilities to a state-of-the-art shipyard. At our new shipyard

We build vessels and solutions with our customers – not just for them.

Mr. Roy ReiteChief Executive Offi cer and Executive Director

Dear Shareholders,

CEO Letter VA R D A N N U A L R E P O R T 2 0 1 3

9

in Brazil, we started operation as planned and at year-end we had more than 700 employees. We also increased the capacity of our Vietnamese operations.

The challenges we have seen develop over the year at the Niterói shipyard in Brazil are receiving full management focus. The booming Brazilian economy has led to high employee turnover, which has been challenging for VARD and its subcontractors. The level of turnover has lowered in 2013, but remains higher than what we see in other markets.

We are reaping the benefi ts from integrated project teams and a high degree of manufacturing automation, especially in Norway

and Romania. All of the 19 vessels delivered from shipyards in Norway in 2013 had their hulls built in Romania. The yards in Romania also provided initial stages of outfi tting, with the more complex outfi tting taking place in Norway.

An increasingly international customer baseOur daily focus is set on building the optimal organization in terms of safety, quality, effi ciency, innovation and fi nancial stability. These qualities are the foundation of VARD, and are important to our customers. The combination of our long-term client base and the new international customers is exciting and promising.

Built on trustVARD’s customer promise is “Built on trust”. This is refl ected in all we do. We build vessels and solutions with our customers – not just for them. We truly care for our customers, our employees, the communities in which we operate, and our investors. Creating value and protecting the interests of all our stakeholders is our main task. To succeed with this task, we ask for your continued trust.

Sincerely,

Mr. Roy ReiteChief Executive Offi cer and Executive Director

CEO Letter VA R D A N N U A L R E P O R T 2 0 1 3

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The focus going forward will be for VARD and FINCANTIERI to work side-by-side to realize synergies.

My fi rst year working with VARD has come to a close. Following FINCANTIERI’s acquisition of the majority of shares in VARD, and my appointment as Chairman in March 2013, I have spent the fi rst year getting to know a highly competent organization operating in an innovative and dynamic but also challenging segment of the shipbuilding industry.

Both FINCANTIERI and VARD cater to highly specialized sectors, and each boasts a leadership position in the major markets we serve,

whether it be cruise ships, naval vessels or high-end offshore support vessels. Thanks to such wide range of experiences developed over the years we can now leverage on a variety of know-how and best practices which is unique and represents our main competitive advantage and a key asset for the future.

In this context, the focus going forward will be for VARD and FINCANTIERI to work side-by-side to realize synergies and generate value for all our Shareholders. For

example, I see opportunities for closer cooperation and exchange of best practices in areas such as design and engineering, procurement, production, power and automation systems, and interior outfi tting of the vessels we build. Both in terms of geographical footprint, product range, and skills, we will strengthen our combined competitiveness. During these fi rst months of cooperation, we have worked hard and mobilized our organizations, and we have already seen the fi rst benefi ts of working together.

Mr. Giuseppe BonoChairman of the Board

Valued Shareholders,

Chairman’s Statement VA R D A N N U A L R E P O R T 2 0 1 3

I have strong confi dence in the VARD management team, who take a long-term perspective in their goals for the company, and have proven to be persistent in following through. I am confi dent that we will overcome the operational challenges we have experienced at one of our shipyards in Brazil. And I am confi dent that we will develop new business opportunities to strengthen and grow the company.

On behalf of the Board of Directors, I would like to express my sincere appreciation to our Customers

and Shareholders for the trust and commitment you invest in us. Rest assured that our dedication to continuing to serve you remains high.

Sincerely,

Mr. Giuseppe BonoChairman of the Board

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Chairman’s Statement VA R D A N N U A L R E P O R T 2 0 1 3

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1 Mr. Roy Reite Chief Executive Offi cer and Executive Director 2 Mr. Sung Hyon Sok Independent Director 3 Mr. Fabrizio Palermo Non-Executive Director 4 Mr. Giuseppe Bono Chairman of the Board and Non-Executive Director 5 Mr. Keen whye Lee Independent Director 6 Mr. Pier Francesco Ragni Non-Executive Director

MR. ROY REITE is the chief executiveoffi cer and serves as executive director of VARD. He has served as president of the Company since 2001.

Prior to that, he was yard director at Vard Søviknes 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 the vice chairman of the board of Sparebanken Møre, a Norway-based 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 the managing director of Money Werks Capital 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 fi nancial offi cer 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 fi nance and was appointed chief fi nancial offi cer 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 fi nancial groups.

Mr. Palermo started his career in 1995 as a fi nancial analyst in London in the Investment Banking Division of Morgan Stanley. Mr. Palermo graduated in Business Economics with honors at La Sapienza University of Rome, Italy.

Board of Directors

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Board of Directors VA R D A N N U A L R E P O R T 2 0 1 3

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MR. GIUSEPPE BONO serves as chairman of the board and non-executive director of the Company. Mr. Bono has been chief executive offi cer 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 of administration, planning and control.

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 founding 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. He was also an Investment Manager of the Government of Singapore Investment Corporation from 1981 to 1985.

Mr. Lee is also a director of various companies, including public companies listed on the SGX-ST such as Ntegrator International Ltd and Santak Holdings Limited.

Mr. Lee holds a Master in Business Administration degree from the Harvard Graduate School of Business Administration in the U.S.

MR. PIER FRANCESCO RAGNI serves as non-executive director of the Company. Mr. Ragni is 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.

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 fi nancial analyst in the corporate fi nance department of PricewaterhouseCoopers, Milan.

Mr. Ragni graduated in Business Economics at L. Bocconi University of Milan, Italy.

653

Board of Directors VA R D A N N U A L R E P O R T 2 0 1 3

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Executive Management

MR. ROY REITE is the chief executive offi cer and serves as executive director of VARD. He has served as president of the Company since 2001.

Prior to that, Mr. Reite was yard director at Vard Søviknes 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 from 1995 to 1999.

Mr. Reite is presently the vice chairman of the board of Sparebanken Møre, a Norway-based bank.

Mr. Reite holds a Master of Science degree from the Norwegian University of Science and Technology.

Roy Reite Chief Executive Offi cer and Executive Director

MR. STIG BJØRKEDAL serves as the head of business development and strategy of VARD.

Mr. Bjørkedal has held this position since 2006. Prior to that, he was the vice president of deck machinery at Rolls-Royce Marine in Norway, from 2001 to 2006.

Mr. Bjørkedal has extensive management experience, having served

in different positions in various maritime companies from 1993 to 2000, including Vard Piping, Skipsteknisk and Ulstein Brattvaag.

Mr. Bjørkedal holds a Bachelor’s degree in Naval Architecture from University of Møre og Romsdal in Ålesund, Norway, and a Master of Management degree from BI Executive School in Oslo, Norway.

MR. JAN IVAR NIELSEN is the chief fi nancial offi cer of VARD. He joined the Company in 2007 as vice president of fi nance for VARD’s operations in Brazil.

Previously, Mr. Nielsen was chief fi nancial offi cer and head of investor relations for Aker American Shipping from 2005 to 2007, and its predecessor Aker Philadelphia Shipyard from 2002 to 2005. From 1998 to 2002 he was CFO for Kværner Shipbuilding in London,

and had CFO assignments for Kværner Masa Yards In Finland and Warnow Werft in Germany. Mr. Nielsen held various fi nance positions in the process industry from 1990 to 1997.

Mr. Nielsen holds a Master of Science in Business degree from Bodø Graduate School of Business and an Executive MBA degree from Temple University in the U.S.A.

Stig Bjørkedal Executive Vice President Business Development and Strategy

Jan Ivar Nielsen Executive Vice President and Chief Financial Offi cer

Executive Management VA R D A N N U A L R E P O R T 2 0 1 3

1 5

MR. MAGNE HÅBERG heads marketing and sales in VARD. Mr. Håberg fi rst joined VARD as a project manager at Vard Langsten in 2001, and became senior vice president overseeing the sales and marketing department at VARD in 2004. Between 1995 and 2001, Mr. Håberg 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. Håberg acquired a wealth of experience within the offshore oil and gas business, having taken on key engineering roles in Smedvig Drilling from 1990 to 1994, and with Wilh. Wilhelmsen from 1982 to 1989.

Mr. Håberg holds a diploma in Engineering from the Ålesund Maritime College in Norway.

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.

Knut Ola Tverdal Executive Vice President Strategy Implementation

MR. MAGNE O. 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 Søviknes yard from 2005 to 2009. Between 1984 and 2005, Mr. Bakke gained in-depth and broad experience in different business areas in the

Aker Group, including Offshore Oil and Gas Field Development and Drilling.

Mr. Bakke holds a Bachelor of Science in Marine Technology degree from the Aust-Agder State College of Engineering in Norway.

Magne O. Bakke Executive Vice President and Chief Operating Offi cer

MR. HOLGER DILLING is responsible for investor relations at VARD, having held that role since the time of the Company’s listing in Singapore. He joined VARD from STX Europe, where he had worked as vice president for business development since 2008, overseeing the IPO of VARD in 2010.

Prior to joining STX Europe, Mr. Dilling has worked in the areas of market analysis, business development and

strategy in industrial and energy related companies in Norway, including Statkraft, Dyno Nobel and Elkem.

Mr. Dilling started his career in management consulting, working for The Boston Consulting Group in Germany and Norway from 1997 to 2001. Mr. Dilling holds a Master of Science in Economics degree from University of Würzburg, Germany. Holger Dilling

Executive Vice PresidentInvestor Relations

Magne HåbergExecutive Vice President Marketing and Sales

Executive Management VA R D A N N U A L R E P O R T 2 0 1 3

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Shareholding and Corporate Structure

44.37%

55.63%Fincantieri Oil & Gas S.p.A.

FINCANTIERI S.p.A.

Other shareholders

Note: Simplifi ed shareholding structure. Does not include dormant subsidiaries, minority shareholdings and non-core businesses. In case of split ownership within the group, only major shareholders are shown. Shareholding structure as of 13 March 2014.

Shareholding and Corporate Structure VA R D A N N U A L R E P O R T 2 0 1 3

100%

100%

Vard Holdings Limited

(Singapore)

Vard Group AS(Norway)

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Shareholding and Corporate Structure VA R D A N N U A L R E P O R T 2 0 1 3

Vard Piping AS (Norway)

Vard Design Liburna Ltd.

(Croatia)

Vard Design AS (Norway)

51%

50.5%

Vard Accommodation

Tulcea SRL (Romania)

Vard Accommodation

AS (Norway)

Vard Niterói SA (Brazil)

Seaonics AS(Norway)

51% Seaonics Polska sp. z o.o.(Poland)

Vard Electro AS (Norway)

Vard Electro Braila SRL (Romania)

Vard Electro Brazil (Instalações

Elétricas) Ltda.(Brazil)

Vard Electrical Installation and

Engineering (India) Pte. Ltd.

Vard Offshore Brevik AS(Norway)

Vard EngineeringBrevik AS(Norway)

Vard Promar SA

(Brazil)

Vard Electro Tulcea SRL (Romania)

VardVung Tau Ltd.

(Vietnam)

Vard Singapore Pte Ltd.

(Singapore)

Vard RO Holding SRL (Romania)

Vard Braila SA (Romania)

Vard Tulcea SA (Romania)

Vard Brevik Holding AS(Norway)

Vard Engineering Constanta (Romania)

Vard Ship Repair Braila SA (Romania)

1 8

VARD reported consolidated revenues of NOK 11.16 billion for the fi nancial year 2013, in line with the NOK 11.13 billion in 2012.

The FY2013 EBITDA margin was down from 13.2% in FY2012 to 6.1%, mainly due to operational challenges at the Vard Niterói shipyard. Operating margin (operating profi t to total revenues) came in at 4.3%, down

from 11.7% for the full year 2012. The decrease in profi t also includes a NOK 70 million write-down of goodwill related to Vard Niterói SA in second quarter of 2013. The goodwill is now fully written off. Profi t before tax decreased from NOK 1.23 billion in 2012 to NOK 497 million in 2013.

While results towards the end of the year showed an improvement

compared to the fi rst six months, the fi nancial performance of the Group was negatively impacted by delays and cost overruns at Vard Niterói SA also in the second half of 2013. Operations at the Group’s European shipyards were generally stable, with recent investments in Romania contributing to productivity improvements.

Amounts in NOK million 2013 2012

Revenue 11,155 11,129

Materials, subcontract costs and others (7,778) (7,154)

Salaries and related costs (2,129) (1,953)

Other operating expenses (562) (549)

EBITDA* 686 1,473

Depreciation, impairment and amortization (206) (168)

Operating profi t 480 1,305

Financial income 123 129

Financial costs (115) (111)

Share of results of associates , net of tax 9 98

Profi t before tax 497 1,225

Income tax expense (197) (434)

Profi t for the year 300 791

Year ended 31 December 2013

Statement of Income

Summary Statement of Income

Financial Highlights VA R D A N N U A L R E P O R T 2 0 1 3

* Earnings Before Interest (but including interest on construction loans), Tax, Depreciation and Amortization

1 9

EBITDA and EBITDA marginRevenue (NOK million)

2011

12,401

2013

11,155

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

1,800

20112009 2010

EBITDA (NOK million) EBITDA margin (%)

2,400

2,700

2,100

648

1,330

2,355

2012

1,473

2013

686

3%

6%

9%

12%

15%

0%

18%

21%

24%

27%

5.4%

11.2%13.2%

19%

6.1%

Total assets increased by 7.5% from NOK 12.72 billion at the end of 2012 to NOK 13.67 billion at year- end 2013. This was mainly due to an increase in property, plant and equipment as well as in projects under construction.

Non-current interest-bearing receivables saw an increase from NOK 82 million in 2012 to NOK 201 million in 2013 representing increase in seller credits to clients.

Our cash position is at a healthy level of NOK 1.75 billion despite being down from NOK 2.44 billion at the end of the preceding year.

The reduction is mainly due to the investments in Romania and at the new shipyard in Brazil, as well as the negative contribution from operating activities in the period.

Total equity increased by 15.3% year-on-year to NOK 3.71 billion, mainly due to the profi t for the year of NOK 300 million and a positive effect from translation of foreign operations of NOK 181 million.

Construction loans taken on in lieu of progress payments from our customers represent the major part of fi nancing of vessels under construction. As we saw a shift

towards larger and more complex projects including turn-key delivery of advanced topside equipment, construction loans increased by 40.5% year-on-year to NOK 4.71 billion in FY2013. Constructions loans, together with other current loans and borrowings of NOK 305 million, make up the total of “loans and borrowings, current” of NOK 5.01 billion.

Balance Sheet


2 0

Summary Balance Sheet

Cash fl ows from operating activities decreased by NOK 1.33 billion year-on-year, to negative NOK 341 million for the full year 2013. The main reason for the decrease is the negative contribution to profi t from Brazilian operations, as well as more capital tied up in ongoing projects compared to the previous year.

Cash fl ows used for investing activities amounted to NOK 853 million for the year, up from NOK 631 million in 2012. Major contributors to this increase were higher investments in property, plant and equipment for productivity enhancements in Romania and the construction of the new shipyard in Brazil.

Cash fl ows from fi nancing activities increased from NOK negative 956 million in 2012 to NOK 419 million in 2013. While VARD in 2012 paid dividends to its shareholders in the amount of NOK 1.28 billion, no dividends where paid in 2013, thus explaining the signifi cant increase.

Cash Flows

As at 31 December 2013

Amounts in NOK million 2013 2012ASSETS Property, plant and equipment 2,167 1,384Intangible assets 305 374Interest-bearing receivables , non-current 201 82Other non-current assets 608 569Total non-current assets 3,281 2,409Inventories 382 380Construction WIP in excess of prepayments 6,136 5,491Trade and other receivables 2,076 1,920Interest-bearing receivables, current 51 80Cash and cash equivalents 1,745 2,437Total current assets 10,390 10,308Total assets 13,671 12,717

EQUITY AND LIABILITIES Total equity 3,708 3,216Loans and borrowings, non-current 673 545Other non-current liabilities 210 252Total non-current liabilities 883 797Loans and borrowings, current 5,012 3,385Prepayments in excess of construction WIP 991 1,518Trade and other payables 2,625 2,801Other current liabilities 452 1,000Total current liabilities 9,080 8,704Total liabilities 9,963 9,501Total equity and liabilities 13,671 12,717


2 1

Amounts in NOK million 2013 2012 Cash fl ows from operating activites (341) 993

Cash fl ows used in investing activities (853) (631)

Cash fl ows from fi nancing activities 419 (956)

Net change in cash and cash equivalents (775) (594) Cash and cash equivalents at the beginning of fi nancial year 2,418 3,035

Effects of currency translation differences 20 (23)

Cash and cash equivalents excluding restricted cash

at the end of fi nancial year 1,663 2,418

Restricted cash at the end of fi nancial year 82 19

Cash and cash equivalents at the end of fi nancial year 1,745 2,437

Year ended 31 December 2013

2,000

1,500

500

1,000

0

2,500

3,000

2011

3,064

2013

1,745

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

2013

767

Net Cash1) (NOK million)

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

Summary Statement of Cash Flows


Signifi cant Events VA R D A N N U A L R E P O R T 2 0 1 3

2 22 2

1

2 3 4

5 6

MARCH The new Chairman of the VARD Board, Mr. Guiseppe Bono, was appointed. As Chief Executive Offi cer of FINCANTIERI S.p.A, one of the world’s largest shipbuilding groups, Mr. Bono brings a wealth of experience and a truly global perspective to the VARD Board.

The VARD name was introduced. This name change – from STX OSV to VARD – was the fi nal step in the company’s acquisition by Fincantieri. With the name change, we also introduced a new company profi le and new brand.

VARD’s yard in Tulcea, Romania, has seen a signifi cant investment during the year. Already in March, fi ve new facilities for sandblasting and painting were completed. A new pipe workshop, equipped with state-of-the-art machines and robots, began operations in November.

JUNE VARD reached 10,000 employees. This important milestone represents an increase of almost 15 % in employee numbers since 2010.

Vard Promar, the new VARD yard located in northeast Brazil, began to ramp-up production. This modern yard, featuring the latest facilities, is the foundation for VARD’s sustainable operations and future growth in Brazil. The yard started operations with building a series of eight LPG carriers for Transpetro, Brazil’s largest oil and gas transportation company. Over the coming three

years, Vard Promar will also be building two of the four pipe lay support vessels commissioned by DOF Subsea and Technip.

Also in June, at the Nor-Shipping 2013 conference, VARD launched its new brand for the range of marine products and solutions – the SeaQ Flexible Solutions.

JULY VARD delivered the fi rst of three fi shing vessels for Havfi sk. The second vessel was delivered towards the end of the year and the third was delivered in early 2014. Our yards in Romania and Norway have worked closely together, sharing experiences, opinions and skills on these projects.

AUGUSTVARD signed its biggest contract ever for four pipe lay support vessels. With a total value of some USD 1.1 billion (NOK 6.5 billion), the four vessels have been commissioned by DOF Subsea and Technip. Two of the vessels will be built at the new Vard Promar yard in Brazil. The hulls of the other two will be built at Vard Tulcea in Romania, ready for outfi tting at Vard Søviknes in Norway.

SEPTEMBERVARD delivered one of the most sophisticated Anchor Handling Tug Supply vessels (AHTS) ever built, the Skandi Iceman. Built to ice class and equipped for multi-role operations in harsh and arctic areas, it has a bollard pull capacity of 300 tonnes, and an overall length of 94 metres with a 24-metre beam.

DECEMBER Vard Brattvaag was honoured by a visit from Norwegian Minister of Trade and Industry Monica Mæland. The Minister was given a tour of Siem Daya 2, an offshore subsea construction vessel built for Siem Offshore that was also delivered in December. Mæland said: “I am impressed that VARD is in the lead in the global market despite the fact that Norway is a high-cost country.”

We have world class employees. VARD is a value-driven company with a focus on taking care of each other. This year, we invited current employees and their families to Christmas and New Year Parties. The biggest party served 2,000 people with a 600 metre self-serve buffet!At Vard Vung Tau in Vietnam, a number of employees received awards, primarily in the area of quality, innovation and safety. The celebration took place at the year-end party in January 2014.

2 3

Signifi cant Events VA R D A N N U A L R E P O R T 2 0 1 3

2 3

1 Naming ceremony of the trawler Gadus Poseidon in Ålesund

2 Vard Tulcea has been equipped with a high degree of automation

3 Vessel for Transpetro under construction at Vard Promar

4 Christmas party for employees and families in Norway

5 Norwegian Minister of Trade and Industry, Monica Mæland, visiting a vessel under construction at Vard Brattvaag

6 The new offi ce building at Vard Søviknes was completed in 2013

Signifi cant Events

CEO letter VA R D A N N U A L R E P O R T 2 0 1 3

2 4

10 696employees*

Across three continents, in four countries, VARD has a total of ten modern shipyards building advanced offshore vessels. In addition, several specialized subsidiaries provide a range of products and services globally.

Five of our yards, as well as the company headquarters, are based in Norway. The others are located in Romania, Vietnam and Brazil. All of our subsidiary companies also operate both in Norway and in several countries. This geographic spread ensures that our customers get consistent high quality in all markets we serve.

Even though VARD is geographically dispersed, the company has an integrated project management organization. A dedicated project team – often structured across several countries, runs every shipbuilding project. All teams operate globally, and benefi t from a free fl ow of know-how, skills and information. The production systems at each of our yards are set up in a similar fashion, enabling VARD to operate as a cohesive, integrated multinational business, able to understand and tap into the strengths of each yard and location.

Our Global Operations

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N O R W AY - R O M A N I A - B R A Z I L - V I E T N A M - S I N G A P O R E - I N D I A - C R O AT I A - P O L A N D

Operational Review VA R D A N N U A L R E P O R T 2 0 1 3

Several specialized subsidiaries providing a range of products and services globally

modern shipyards building advanced

offshore vessels in 4 countries10

* Number of employees as of 31 December 2013

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NORWAY Vard Group (HQ)

Shipyards: Vard Aukra Vard Brattvaag Vard Brevik

Vard Langsten Vard Søviknes

Other operations: Vard Design Vard Electro

Vard Piping Vard Accommodation Vard Trading Vard Engineering Vard Offshore Brevik Seaonics

During 2013, the yards in Norway delivered 19 specialized vessels. The majority of these are advanced vessels built for the very active offshore industry. It includes highly challenging projects such as the new Skandi Iceman – a modern deep sea anchor handling vessel, designed to deliver versatility and reliability in the harshest of environments.

A decade had passed since VARD last built any fi shing trawlers. This year, however, we delivered three new trawlers, which has renewed our credentials in this market, and takes us back to our roots. The owners of these new fi shing trawlers selected VARD because we build vessels with an optimal hull design, securing speed yet minimizing fuel consumption. All three trawlers were delivered with a fully automated fi shing factory onboard and are,

or will soon be, operating in Norwegian waters.

Four of the fi ve Norwegian yards are located along the country’s north-western coastline, within a 50-kilometer radius of the VARD headquarters in the city of Ålesund. The fi fth yard is only 160 kilometers from Oslo, southwest of the outer Oslofjord.

The area around the city of Ålesund is a traditional maritime stronghold of Norway. A number of leading shipowners and world-class offshore marine service companies, vessel equipment manufacturers and oil service companies have their operations in the nearby fjords. VARD’s history and reputation help us compete to hire the best and most skilled workers. Although the number of engineers and skilled

workers in the area is relatively high, the country faces an estimated shortage of 16,000 engineers. Consequently a record number of engineers are now being educated and trained, and VARD has a number of training programmes in place.

Location is one of the main reasons so many maritime innovations originate from Norway. The Gulf Stream warms the waters and ensures that marinas remain ice-free all year round. Researchers have discovered that it is, in fact, the chaos of the seas that warms the country. If the waters were to fl ow smoothly northwards along the Norwegian coastline, far less warmth would be delivered, and the harbours would be frozen and less accessible during winter months. For centuries, shipbuilding has been a way of life in this coastal area

1,743 employees

1 Testing and mounting of Vard Electro products

2 Vessels under construction at Vard Søviknes

1 2

2 6



VARD IN NORWAYKey events in 2013

19 deliveries Delivered our fi rst fi shing

trawlers in a decade Focus on effi ciency improve-

ments and cost reductions to meet market demand

– and access to specialist skills is the reason we choose to carry out many of the more advanced stages of the shipbuilding process at VARD’s Norwegian yards.

There is a tendency in the market for vessels to become progressively larger. To meet this new demand, we recently completed the extension of the outfi tting quay at the Vard Langsten yard – and can now outfi t vessels of up to 200 metres in length. At another yard, Vard Søviknes, we increased capacity and

fully refurbished the offi ce building. This upgrade improves standards for everyone, customers and employees alike – and accommodates a 20% increase in the number of engineering staff during the year.

ROMANIA

6,151 employees

For more than a decade, our Romanian yards have been part of VARD. Our two Romanian yards specialize in hull manufacturing and early stage outfi tting. Upon completion, the hulls are typically towed – over a three-to-four week period – to one of our Norwegian yards for completion. However, certain vessel types can also be delivered, fully outfi tted from Romania.

The integration of the Romanian and Norwegian yards is a defi nite benefi t for VARD and our customers. It means that for man-hour-intensive operations we enjoy defi nite cost-effi ciencies. Also, the Romanian yards are closely involved in the planning and engineering work prior to contract awards.

One of our subsidiary specialist companies, Vard Electro, manufactures electrical components and provides

1

VARD IN ROMANIAKey events in 2013

Production started at our new facilities: three blasting and painting halls, pipe workshop, two assembly lines and two quay cranes

2 7

Shipyards: Vard Tulcea Vard Braila

Other operations: Vard Electro Tulcea Vard Electro Braila Vard Accommodation Tulcea

Vard Ship Repair Braila Vard Engineering Constanta

installation services through its own subsidiary companies in Romania. Similarly, both Vard Piping and Vard Accommodation have operations in Romania.

During 2013, the engineering division of the VARD Tulcea yard was restructured and merged with the piping department. As part of this change, 34 engineers were transferred to a newly established company called Vard Engineering Constanta – allowing them to develop their specialism in detail engineering.

At Vard Tulcea yard, we also built fi ve new facilities for sandblasting and painting. By moving these work procedures indoors, we have signifi cantly reduced our emissions and our energy consumption, and have been able to begin recycling abrasives. This has had a positive impact on our employees and the

local community in Tulcea whilst also increasing our productivity and improving our quality.

The new pipe workshop at Vard Tulcea began operations in November 2013. Equipped with state-of-the-art machines (robots), VARD enjoys enhanced production effi ciencies throughout the value chain, from assembly lines to micro panel lines. The upgrades include pipe-bending machines, welding machines, cutting machines, sand blasting machines, automated pipe storage racks and automated conveyor belts. All of this equipment is operated from an advanced computer-based control system. All pipe production will be moved, phase-by-phase, from the old pipe production facilities to the new workshop. The investment in new machines has been signifi cant, and will ensure higher levels of precision with greater consistency

and increased effi ciency. The integration of production at our yards in Romania and Norway is also refl ected in the close cooperation among our engineering teams. The training of our Romanian engineers includes exchange programmes both in Norway and Brazil, which leads to many joint projects.

Our subsidiary, Vard Design, also benefi ts from close integration between the Norwegian and the Romanian teams. The Norwegians, for example, work on the cost estimates while the Romanians develop the 3D models. When the classifi cation drawings are approved, the Romanians then develop the production drawings. This exchange of capacity and competencies is determined according to the order intake and time schedules at each location.


1 Effi cient team work at Vard Søviknes

2 Pipe workshop with a high degree of automation at Vard Tulcea

3 Precision cutting in the prefabrication hall at Vard Tulcea

32

2 8



BRAZIL Shipyards: Vard Niterói Vard Promar

Other operations: Vard Electro Brazil

2,064 employees

1 The new Vard Promar yard under construction

2 First LPG carrier being built at Vard Promar

Over the past decade, Brazil has experienced a booming oil and gas market. VARD has had shipbuilding operations in the country for the past 13 years, and we have a strong position in this market.

Vard NiteróiVard Niterói, located in the vicinity of Rio de Janeiro, became part of VARD in 2001. The yard delivered one vessel in 2013 with four more currently under construction. Two of these are scheduled to be delivered in fi rst half of 2014, one in the second half of the year and the fourth vessel in the fi rst quarter of 2015. The main focus at Vard Niterói is completion of the vessels under contract, which have experienced delays. To resolve the situation, we have strengthened the project organization and the management team has been revitalized. Employee

turnover has been relatively high at Niterói in the last years. This fi gure was signifi cantly reduced in 2013, but the level is still considered to be high and is a constant focus for the local management. However, the employment market in and around Rio is stretched, especially for skilled workers.

Vard PromarDuring 2013, the new yard Vard Promar in Suape has been ramping up towards full production. This is a modern yard with all new facilities and, as per our plans, production commenced in June 2013. The yard will have a three hundred tonne gantry crane installed in mid-2014. Ultimately, it will become a full-scale yard capable of operating independently of subcontractors. We will however use subcontractors if and when that is considered to

be the best solution. Once it is fully ramped up, Vard Promar will be the foundation for sustainable operations and future growth in Brazil.

In 2011, Vard Promar entered into a contract for the building of a series of eight LPG carriers for Transpetro, Brazil’s largest oil and gas transportation company. In 2013, VARD signed the largest contract in the group’s history to build four Pipe Laying Support Vessels (PLSV) for DOF Subsea and Technip – a project that strengthens our long-term relationships with both clients. Two of these PLSVs will also be built at Vard Promar and are due for delivery before the end of 2017. The other two vessels will have their hulls built by Vard Tulcea in Romania and will be outfi tted by Vard Søviknes in Norway. Given that all four vessels

1

are of a similar type, there is close cooperation and we expect to see strong synergies between VARD’s Brazilian and Norwegian operations.

By the end of 2013, Vard Promar had 700 employees in place, and we expect this fi gure to increase to around 1,200-1,300 employees by the end of 2014, as the organization is put in place. This means that about 50 new employees will be recruited, trained and integrated each month.

Vard Promar is located near Recife, in the north east of Brazil, where the employment market is more stable than in the Rio area. Consequently, we do not expect to see the same high levels of turnover even though it is a challenge to fi nd qualifi ed shipbuilding engineers in Brazil – but easier to recruit blue-collar workers.

VARD does not have plans for further large new investments in Brazil in the forthcoming years. However, there could be some investments related to further optimization of Vard Promar, such as extensions of production halls to move more production undercover.

2 9


VARD IN BRAZILKey events in 2013

Delivered one PSV for Siem Offshore Operational ramp-up at

Vard Promar Vard Promar extends

order book with two PLSVs

2

The Vard Vung Tau yard in Vietnam is a fully integrated shipyard, which takes projects from hull construction all the way through to delivery. VARD has has operated this yard since 2008, and during these six years, nine vessels have been delivered. Today, the yard possesses a strong core team with local competence in most key disciplines.

Vard Vung Tau is well-equipped to undertake complex project management which fully conforms with the same standards as the rest of the VARD family. During 2013, the yard enjoyed a signifi cant increase in the numbers of engineers – indeed, the engineering division almost doubled in size during the year.

In contrast to Norway and Brazil, there is no shortage of skilled workforce in Vietnam, be it engineers or other skilled workers.

The engineers working at VARD are also used for projects at other VARD yards. Shared IT system as well as common Quality Assurance procedures strengthen the group integration and cooperation across borders. Transfer of knowledge is a key asset when using common systems for common operations, independent of location.

VARD also sees that the local work force enjoys working at a yard that is part of an international group. There is high focus on compliance with Health, Safety and Environment (HSE). Conditions such as overtime compensation, holidays, are areas of focus. The Vietnam yard also serves as a positive role model for execution of internal routines and HSE measures – and the low level of sick leave suggests that employees are well looked after.

In fact, the Vard Vung Tau yard enjoys the lowest levels of sick-leave of any VARD operation – with 2.2% sick leave in 2013 compared to the company average of 2.7%.

During 2013, the fl oating dock at Vard Vung Tau was expanded to accommodate the launch of vessels of up to 120 metres (compared with a previous limit of 100 metres). Additionally, new offi ce buildings were completed during last year to house the increased number of new engineers.

VIETNAM Shipyards: Vard Vung Tau

691 employees

1 Naming ceremony of Far Starling in Singapore

2 The recently expanded fl oating dock at Vard Vung Tau

VARD IN VIETNAMKey events in 2013

2 deliveries Increase of newly hired

engineers Floating dock expanded

1 2



3 0


VARD’s Singaporean operations are mainly fi nancial and administrative.

Our holding company is listed on the Singapore Stock Exchange and a sales offi ce is in place to support the Asia-Pacifi c market. Some of our toughest competitors are Asian shipyards, and it is important to have a presence in this region. Our employees at this offi ce aim to build relationships with offshore vessel owners to ensure we take advantage of the growth potential in this area. Our subsidiary in Singapore also functions as a holding company for Vard Vung Tau, our shipyard in Vietnam.

In the city of Cochin, we have a specialist subsidiary, Vard Electrical Installation & Engineering. This company provides a foothold for the supervision and services for our customers in India and other Asian countries. The team has extensive experience in the fi elds of electrical installation, power and automation. We combine innovative concepts and cutting-edge technologies with design and engineering, and we install performance-enhancing, environmentally responsible and cost-effective solutions.

Vard Design Liburna was acquired in 2012. The company, which is based in Rijeka, offers design and engineering capacity in the area of offshore ship design. The company currently employs 17 engineers.

SINGAPORE

Registered offi ce: Vard HoldingsSales offi ce: Vard Singapore

10 employees

INDIA

Other operations: Vard Electrical Installation & Engineering

10 employees

CROATIA

Other operations: Vard Design Liburna

20 employees

1 System testing onboard a VARD vessel

1

POLAND

Other operations: Seaonics Polska

7 employees

VARD’s subsidiary Seaonics established Seaonics Polska in May 2013. Seaonics is a high-end provider of integrated equipment and solutions for subsea construction. Seaonics Polska employs seven engineers who provide engineering services. The company is located in the maritime cluster of Poland situated in Gdansk.

3 1


3 2

Over generations, VARD has built ever-more advanced vessels featuring high-tech marine solutions. Refl ecting our commitment to better serve the needs of our customers, we have acquired and established several specialist product and solution companies. Each of these have a deep understanding and broad experience within their segments, and a strong focus on developing advanced, tailor-made solutions. These solutions are developed and sold by VARD’s specialist companies.

In our world, nothing can be called an innovation until it has been tried and tested. Our SeaQ products and solutions are installed on several hundred vessels.

At this year’s Nor-Shipping conference in Oslo in June, we launched the SeaQ Flexible Solutions product line, encompassing design, integrated systems, marine electronics and electrical systems, and accommodation. The high quality SeaQ solutions conform to the highest industry standards, are scalable, and are compatible with

solutions from other providers.These solutions benefi t not only VARD’s customers, but also the customers of other shipbuilders. In fact, we already see healthy interest in them, demonstrating that they are competitive and fulfi ll market needs and expectations.

VARD has extensive experience supplying customers with equipment packages – based on our own quality solutions, or those from third-party suppliers. Every SeaQ solution can be delivered individually or as part of a larger, integrated package.

The SeaQ solutions cover fi ve main categories:

SeaQ Power SeaQ Power includes a complete set of intelligent power systems that generate, distribute and control power onboard vessels. Within this category, you will fi nd, among others, switchboards, propulsion systems, converters, electrical motors, generators, and transformers. Vard Electro has a long track record working with all elements of power

systems for vessels, developing reliable power system solutions and components adapted to various types of vessels and in line with customers’ preferences.

SeaQ ControlSeaQ Control is a set of seamlessly integrated control systems, designed to improve usability and enhance the vessel’s performance at sea. Systems in this product category include integrated automation systems, power management systems, energy management systems, blackout prevention systems and bridge and ECR consoles. Working closely with our customers, we select the optimal components for premium performance for each assignment – whilst overcoming all engineering and integration challenges.

We are proud to reveal that more than one hundred vessels currently in operation in various parts of the world are equipped with an Integrated Automation System from SeaQ Flexible Solutions. These solutions are also delivered by Vard Electro.

Core Products and Services VA R D A N N U A L R E P O R T 2 0 1 3

Launching SeaQ – Quality at Sea

1 Launch of the new brand SeaQ Flexible Solutions at Nor-Shipping 2013 in Oslo

3 2

3 3


SeaQ BridgeThe SeaQ Bridge products include a wide selection of navigation and communication products controlled and operated from the vessel’s bridge, such as navigation systems, bridge alert management systems, manoeuvering chairs, communication systems and infotainment centres. Our solutions are based on a strong understanding of industry standards and classi-fi cation requirements in the fi eld of bridge performance. An additional benefi t for our customers is the fact that Vard Electro acts as a single point of contact for the delivery, maintenance and service.

SeaQ Cabin Our vessels have custom-made cabins. The new and innovative SeaQ cabin system is fi t for today’s crew expectations. The focus is on silent cabins to ensure high-quality living while away from home. We can fi t two one-person cabins into the space of a traditional two-person cabin. The production and installation of these cabins is standardized and modulized. Our concept offers optimal utilization of space and has led to a more standardized cabin area layout, with a highly effi cient design and building process. These solutions are delivered by Vard Accomodation.

Handling systems Another solution category is our high-end integrated equipment and solutions for subsea construction are delivered by our VARD subsidiary company, Seaonics.

The products provide simplifi ed handling operations for the marineand offshore industry. They includemodule handling and well interventionsystems, deck cranes and AHC subsea construction cranes, launchand recovery systems, active heavecompensated winches, deckmachinery, and drilling and tensioning systems.


Flexible Solutionsby

3 3

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 designedto 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 capacity and excellent manoeuvering capabilities combined with low fuel consumption.


3 4

for Carlotta Offshore

Siem Atlas for Siem Offshore

>> SELECTED DELIVERIES 2013

>> ORDERS 2013

for Simon Møkster

Demarest Tide* for Tidewater Troms Lyra* for Troms Offshore

Far Spica for Farstad Shipping


65VARD has delivered ship designs in the VARD 1-SERIES*

* Ship designs sold in the period 2005 - 2013

*

3 5

Anchor Handling Tug Supply Vessels We design and build technologically advanced Anchor Handling Tug Supply vessels (AHTS) capable of operations in the harshest environments. AHTS vessels mainly perform anchor handling duties and towage of offshore drilling units and fl oating production units. AHTS vessels need free deck space to run necessary operations, but they have the fl exibility to carry cargo and bulk in tanks placed below deck.


3 6

for Iceman

>> DELIVERY 2013

>> SELECTED DESIGNS

Skandi Icemanfor Iceman




3 7

Offshore Subsea Construction Vessels We design and build highly advanced Offshore Subsea Construction Vessels (OSCV) for the oil and gas industry. These complex vessels perform subsea operations and maintenance work, and include pipelaying, subsea construction, diving support, ROV support, well intervention and well stimulation vessels.


3 8

Skandi Bergen* for DOFSiem Daya 1 for Siem Offshore Siem Daya 2 for Siem Offshore

>> SELECTED DELIVERIES 2013

>> SELECTED ORDERS 2013

for Farstad Shippingfor Solstad Offshore andOcean Installer

for Harkand Group

VARD 3 03 and VARD 3 16for DOF Subsea and Technip




3 9

* Vessels under construction / delivered with VARDs former design names

* *

Fishing Vessels We design and build advanced fi shing vessels like stern trawlers. These vessels are developed for the best balance between energy consumption and catch effi ciency. They are tailor-made for the fi sh species caught and may operate worldwide. With ice strengthened hull they may also catch species along the ice rim, both in Arctic and Antarctic waters.


4 0

Gadus Poseidon* for Havfi sk Gadus Njord* for Havfi sk

>> DELIVERIES 2013


* Ship designs sold in the period 2011 – 2013

>> SELECTED DESIGNS

Gadus Poseidonfor Havfi sk


4 1

* Vessel delivered with VARDs former design names

Other Specialized Vessels We design and build other specialized vessels, such as research and coast guard vessels, special purpose cable layers, seismic vessels and icebreakers.We deliver different types of vessels and ship designs, most of them adapted to customer-specifi c requirements.


4 2

Field Support Vessel Icebreaking Support Vessel Large Extent Oil Recovery Vessel

Seismic Research Vessel Seismic Research Vessel

>> SELECTED DESIGNS


* Ship designs sold in the period 2004 – 2013

VARD 9 01for Orange Marine


4 3

Platform Supply Vessels (PSV)Far Sitella 751 Farstad Shipping PSV 08 Vard Vung Tau Troms Lyra 756 Troms Offshore PSV 08 Vard Brevik Lundstrom Tide 761 Tidewater PSV 09 CD Vard Søviknes Fanning Tide 762 Tidewater PSV 09 CD Vard Søviknes Demarest Tide 763 Tidewater PSV 09 CD Vard Aukra Far Spica 769 Farstad Shipping PSV 08 CD Vard Langsten Far Starling 770 Farstad Shipping PSV 08 Vard Vung Tau Skandi Hugen 780 DOF MRV 05/ROV Vard Aukra Island Crown 784 Island Offshore UT 776 CD Vard Brevik Island Duke 795 Island Offshore UT 717 CD Vard Brevik Island Duchess 796 Island Offshore UT 717 CD Vard Brevik Siem Atlas PRO 29 Siem Offshore PSV 09 CD Vard Niterói

Vessels Delivered in 2013

L

S

S

S

MSkandi Iceman

VARD has ten shipyards on three continents. Our specialty is advanced offshore vessels which are always tailor-made. Each vessel is a unique combination of ship design, production and outfi tting. VARD’s focus is on innovative solutions, production effi ciency, integrated manufacturing systems and a strong and long-term customer base. We offer customers a wider variety of choices.

Troms Lyra

Island Duke Eidsvaag Pioner

Siem Daya 2

Fanning Tide

Vessels Delivered VA R D A N N U A L R E P O R T 2 0 1 3

4 4

M

Offshore Subsea Construction Vessel (OSCV)Skandi Bergen 776 DOF OSCV 11 Vard Søviknes Siem Daya 1 793 Siem Offshore VARD 3 11 Vard Brattvaag Siem Daya 2 794 Siem Offshore VARD 3 11 Vard Brattvaag

Anchor Handling Tug Supply Vessels (AHTS)Far Senator 786 Farstad Shipping UT 731 CD Vard Langsten Far Statesman 787 Farstad Shipping UT 731 CD Vard Langsten Skandi Iceman 799 Iceman VARD 2 12 Vard Søviknes

Other specialized vesselsEidsvaag Pioner 768 Eidsvaag NVC-401-LNG Vard Aukra Hopen 772 Remøy Fiskeriselskap ST-117 Vard Langsten Gadus Poseidon 788 Havfi sk FV 01 Vard Brattvaag Gadus Njord 789 Havfi sk FV 01 Vard Brattvaag

LS

S

SIsland Duchess

Skandi Hugen

HopenGadus Poseidon

Far Senator

Skandi Bergen

Vessels Delivered VA R D A N N U A L R E P O R T 2 0 1 3

4 5

5,000

10,000

15,000

02009

4,458

8vessels

2012

9,501

16vessels

2010

12,555

27vessels

11,117

2011

28vessels

2013

15vessels

14,174

Order intake (NOK million)

At the end of 2013, the VARD order book amounted to NOK 19.4 billion, compared to NOK 15.1 billion at the end of 2012. This includes contracts for 41 vessels scheduled for delivery between 2014 and 2017 – of which 23 will be VARD design.

During 2013, we delivered 22 vessels globally. 19 vessels delivered from our Norwegian yards, with two from Vietnam and one from Brazil. Vessels delivered from Norway had their hulls produced at one of our two Romanian shipyards.

Twelve of the vessels completed during 2013 were Platform Supply Vessels (PSVs). Although these accounted for more than half of

the total number of vessels, the mix was broader than in 2012 – as we also delivered three Anchor Handling Tug Supply vessels (AHTS), three Offshore Subsea Construction Vessels (OSCVs) and four other specialized vessels (one forage carrier and two fi shing trawlers).

Order intake for 2013 was the highest since 2007, with contracts signed for nine OSCVs, four PSVs and two other specialized vessels. Besides new vessels, the order intake for the year – amounting to a total of NOK 14.2 billion – includes the contract value of variation orders, as well as the sale of design and equipment packages to third parties. This success in the market

enabled VARD to extend its order book length year-on-year for the fi rst time in three years, and record the highest year-end order book since 2008.

The year’s order intake confi rms a trend observed since the end of 2012, with a shift to larger and more complex vessels, mainly driven by demand from the subsea construction market. While the number of contracted vessels decreased, the average value per vessel increased by more than fi fty percent – refl ecting the higher share of large and complex OSCV orders secured.

5,000

10,000

15,000

20,000

020122009 20112010 2013

15,09616,411 16,67517,031

19,356

Order book (NOK million)

Order Book Development

Order Book VA R D A N N U A L R E P O R T 2 0 1 3

4 6

0 5

2016

2015

2014

2013

10

7

10

23

22 Delivered

2017 1

2515 20

ORDER BOOK DEVELOPMENT

Order book Deliveries Order intake Order book

By country 31 Dec. 2012 2013 2013 31 Dec. 2013

Norway/Romania 32 19 12 25

Brazil 13 1 2 14

Vietnam 3 2 1 2

Total 48 22 15 41

Order book Deliveries Order intake Order book

By vessel type 31 Dec. 2012 2013 2013 31 Dec. 2013

AHTS 8 3 - 5

PSV 18 12 4 10

OSCV 7 3 9 13

Other 15 4 2 13

Total 48 22 15 41

Order book delivery schedule as of 31 December 2013 (number of vessels)

Order Book VA R D A N N U A L R E P O R T 2 0 1 3

4 7

Sustainability and social responsibility in our daily operations At VARD, sustainability and corporate responsibility are closely integrated with the way we run our company.

VARD’s new name was launched at the start of 2013. And, at the same time, we clearly articulated our values of “Craftsmanship,” “Fellowship” and “Salesmanship.” This work was positively received, but there is still work to do in integrating these values into the daily routines of every VARD employee. The values link the history of our company with the new VARD. They show that we care deeply about our employees, our customers and the communities in which we operate.

Our ongoing focus on safety andsecurity, encompassing the reductionof accidents, sick leave and

environmental damage, is keeping us on a steady course towards a more sustainable business.

Our ultimate goal is that VARD should bring tangible benefi ts to our employees and local communities, as well as our investors and owners – and that the company should leave a minimal environmental footprint. We therefore have a long-term perspective on maintaining and steadily improving the integrity of our company.

Although we acknowledge that our business has a direct impact on the environment, the entire management team recognizes the importance of environmental conservation. And, across the company, we have a formal programme to sustain and protect the environment.

We also recognize that we have a responsibility towards our employees, suppliers, customers, partners and to the communities in which we operate – indeed, we are as dependent on them as they are on us. Our sustainability and social responsibility work is governed by our Health Safety & the Environment (HSE) handbook. Within this, all of our related initiatives and guidelines are clearly outlined, helping the entire company to contribute to the goal of zero accidents – for our employees, the environment, and any of VARD’s assets.

Our ultimate aspiration is summed up by the term “Vision Zero” – whereby we aim to avoid all fatal accidents, personal injuries, unplanned incidents and damage to the environment.

Towards Vision Zero

Sustainability and Social Responsibility VA R D A N N U A L R E P O R T 2 0 1 3

4 8

The international standardsAs part of our proactive HSE initiatives, VARD is on course to comply with the four international standards that we deem important for our business. These ISO standards are not specifi c to our sector, but we see them as relevant to our sustainability focus and a useful framework to address quality, social accountability, health, safety and environmental management.

They also correspond to our ambition to operate in a way that exceeds social, ethical, fi nancial and legal expectations. A large proportion of our business is linked to the offshore exploration industry, and this has a particular focus of HSE attention. For example, we see a tendency among offshore companies to prefer certifi ed suppliers. Increasingly, fi nancial institutions also prefer certifi cation.

In other words, there are both internal and external factors motivating us to prioritize sustainability and social responsibility.

The ISO standards also refl ect the three core values at VARD, namely: Craftsmanship, Fellowship and Salesmanship. Craftsmanship is about the quality of our products and services. Fellowship is about truly caring for the individual, the team and society. Salesmanship is about our responsibility to the customer and ensuring that customer expectations are met.

ISO 9001 – qualityAll ten VARD yards, plus our largest specialist subsidiary companies, are certifi ed according to ISO 9001:2008. Four of the yards received this certifi cation during 2013. When it comes to quality, VARD has

consistently demonstrated our ability to provide vessels that meet customer requirements and expectations. We aim to enhance customer satisfaction through the effective application of this ISO standard, including processes for continual improvement and conformity with customer and regulatory requirements.

We innovate, create and seek new solutions to ensure customer satisfaction – which is every employee’s responsibility at VARD.

ISO 26000 – social accountabilitySA 8000 was implemented at Vard Vung Tau in Vietnam during 2013, and we are on track to achieve certifi cation for our Brazilian operations in 2014. This ISO standard, also referred to as SA 8000, is founded on guidelines from the International Labor Organization, and


4 9

draws on various international human rights declarations. It therefore concerns our relationship with the societies and environments in which we operate – covering issues such as child labour, discrimination, working hours and remuneration. A major oil company is currently undertaking an audit related to this standard at one of our customers. This audit also extends to VARD as a supplier, and its results will be useful to our ongoing compliance work – as today’s ship owners prefer to do business with fully certifi ed suppliers.

OHSAS 18001 – Occupational health and safetyOHSAS 18001:2007 was implemented across three of VARD’s operations in 2012, demonstrating our commitment to a safe and healthy working environment. We continually identify and control health and safety risks to

reduce the potential for accidents and to improve our overall performance.

The combination of ISO 26000 and OHSAS 18001 is increasingly used to measure the overall performance of our company. We are therefore committed to operating in an ethical and transparent way in order to safeguard the health and welfare of our employees and other stakeholders. We have a range of evidence to demonstrate the success of our HSE initiatives in reducing reported accidents and levels of absenteeism.

So far, three of our yards have been certifi ed to OHSAS 18001. Our ambition is for all of our yards to achieve this certifi cation.

During 2013, we were subject to fi ve audits conducted by customers, with positive results.

ISO 14001 – environmental managementIn order to improve our internal processes and minimize any harmful effects on the environment, VARD has implemented ISO 14001:2004 – the world’s most recognized standard for environmental management. We have established a long-term programme towards full certifi cation. As part of being certifi ed, our environmental management systems will be audited by an acknowledged certifi cation society.

Over a number of years, VARD has implemented a range of proactive and tangible HSE initiatives. Our most important allies in this have been our trade union partners and, judging from employee and society feedback, our efforts have been noticed in the regions where we operate.


1

5 0

Emergency response During 2013, we substantially updated our emergency response plans, and this work will continue into 2014. In order to align and simplify emergency response processes across all locations, VARD recently selected a new IT solution. One

tabletop emergency exercise has been conducted. We have also entered into an agreement with a mutual marine insurance company, the Norwegian Hull Club in Bergen, Norway, who will engage in a review of our emergency response plans.The guidelines for our “Code of Conduct” have also been revised, and this was one of the main topics on the agenda of our Annual Executive Management Meeting in October 2013. This is work in progress, and is tightly integrated with the revision of our emergency response plans. A steady decline in sick leaveOver the past fi ve years, VARD has enjoyed a steady decline in levels of sick leave which runs contrary to broad industry trends.

More specifi cally, sick leave fell from 4.5 % in 2007 to 3.0 % in 2012. During 2013 the fi gure fell yet further to reach 2.7 %. We are encouraged by this positive performance, and hope to see the trend continue into 2014 and beyond.

One of the success factors is ourcontinued effort to handle absente-eism on an individual basis and to engage in wider initiatives to promote employee health and wellbeing.

We see the same positive trend in the area of personal injuries. In 2007, our lost time injury rate was at 6.8 (down from 8.9 only the year before). By 2012, the fi gure had fallen sharply to 2.1, and stands at 1.8 for 2013.

One of the main reasons for this improvement is our focus on HSE and quality management. Management constantly monitors proactive HSE initiatives across all our yards, and has motivated employees to report incidents.

During 2013, the number of reported incidents almost doubled, whereas the number of accidents almost halved. This parallel development in two important HSE indicators suggests that the improvements we have put in place have had a tangible impact in reducing the actual number of accidents.


LTI rate (number of Lost Time Injuries per million hours work)

2009

2

4

0201220112010 2013

2.12.2

3.2

3.9

1.8

Sick leave

4%

3%

1%

2%

02012201120102009 2013

3.0%3.0%3.1%

3.8%

2.7%

1 Year-end party at Vard Vung Tau

2 In 2013, VARD exceeded more than 10,000 employees

2

5 1

A new registration software has been launched, which should improve and share best practices across all yards.

Management is actively using a range of formal processes and systems to address sustainability and corporate responsibility issues. These issues lie at the core of our business planning process – as refl ected by their inclusion in our monthly reporting processes and by scrutiny in regular business reviews.

Motivation secures successAt the heart of VARD’s success are our employees. Engaged, motivated and skilled employees are a prerequisite for continued growth and satisfi ed customers. Our management is determined to improve existing employee policies and to ensure that all employees, regardless of their location, are given equal opportunities for career development and success. Our policy of transparency, openness and fairness has given VARD the “employer of choice” accolade at many locations.

In Norway and Brazil, we experience tough competition for talent. Despite this, VARD has recruited

the employees we need and want. We work with local and national authorities to provide education and training – something that young and more experienced employees alike value when deciding to change employer.

Some examples of this work include: 50 students were selected by VARD to undergo training at Senai (a network of local colleges for vocational training) in Brazil.

After the training is complete, the selected students are offered employment with VARD, mainly in the production area. VARD funds the initiative.

Also in Brazil, VARD participated in a network run by government agencies (Dream Learn Work) to help students attain qualifi cations for employment. VARD hires a number of students from the DLW programme each year.

Between August and November 2013, 70 leaders at our new yard in Promar, Brazil, underwent a leadership training programme to further their skills and attain management qualifi cations.

In Norway, VARD trains around 60 apprentices annually, and organizes the largest such programme in the region. We train new workers in order to strengthen the quality of operations at our yards. We also offer an attractive stipend for certifi ed workers to continue their studies towards a bachelor’s degree. We develop shipbuilders from the ground up because we rely on these people to further build our company.

VARD also hosts a two-year management trainee programme for recent graduates. The trainees are part of a national trainee programme run by the Norwegian

Shipowners’ Association (Rederiforbundet).

Together with Olympic Shipping, VARD funds three university lecturers. These academics aim to make education more practical and convey to the students the realities of the shipbuilding profession. It is important for VARD to improve the quality of the engineering education at local universities on the west coast of Norway where our yards are located.


5 2

According to our estimates, for each person employed at any of our ten yards, an additional fi ve jobs in the local community depend indirectly on VARD. We take this responsibility seriously, and engage in sponsorship activities in sports, education and other community activities.

During the past year, we hosted a series of “Open Vessel” events, in which we invited our neighbours in our local communities for a complete tour of our new vessels. These events have proved very popular. Local communities typically watch each new vessel take shape over a period of maybe three-to-four years – and welcome the opportunity to see the fi nal result before the fi nished ship sails off to new waters.

Also in special circumstances affecting the countries where we operate, VARD tries to help. Following the fl oods in Vietnam in November, VARD contributed USD 25,000 to local relief work. This was donated in cooperation with the local trade union, which also collected additional aid from our employees.

Environmental sustainabilityOver many generations, we have

been aware of how the environment and our business co-exist – and we continually strive to improve procedures and routines in order to minimize our environmental impact. Waste management, noise abatement, minimal emissions, and the construction of eco-friendly vessels are among the areas where we focus. We also promote an open dialogue on environmental issues with employees, authorities, our local communities, and other interested parties.

VARD is in close dialogue with public authorities on issues concerning the environment, and inspections are conducted on a regular basis. Remarks have been minor and have been handled locally as part of our everyday business.

Recycling of waste from shipbuilding and maintenance is a key priority. In 2011, a comprehensive waste management framework was put into place. By the end of 2013, the level of recycling was 73 %.

Another source of pollution in our industry is the discharge of foreign ballast water. From an environmental point of view, it is better to use fresh water as ballast. Organisms in fresh

water die when they are fl ushed into sea. For the past two years, VARD has only used fresh water.

Two examples of environmental initiatives in 2013:

RomaniaAt the Tulcea yard in Romania, we have built fi ve new indoor facilities for sandblasting and painting. By moving these procedures indoors, we have signifi cantly reduced our emissions and our energy consumption, and we have been able to recycle abrasives. This has had a positive impact on our employees and the local community in Tulcea, as well as the planet –whilst also increasing our productivity and improving our quality.

BrazilThe new Promar shipyard in Brazil started operations in June 2013, and the construction of its sewage treatment facility was completed. As we are acutely aware of its environmental impact, the entire facility is fully compliant with the strictest of local and international environmental codes. By the end of 2013, around 700 employees were working at the new yard. By the end of 2014, we expect it to employ around 1,200-1,300 people.


5 3

Human resource riskAs an industry, shipbuilding relies heavily on the availability of skilled personnel. Recruitment and retention are interrelated. Operating from ten shipyards on three continents, a strong and consistent employer brand enables us to attract and retain a healthy number of skilled personnel. By demonstrating that we live according to our value “Fellowship,“ we believe VARD will stand out as an attractive employer in the regions in which we operate, allowing us to recruit a growing number of highly qualifi ed employees. Our HR team monitors the business cycle to identify and mitigate all HR-related risks. For example, our industry faces tough competition for talent, and VARD continually strives to be the employer of choice in the regions where we operate. We have also implemented a company-wide succession project that has identifi ed replacement candidates for all key positions, and identifi ed those employees with the potential to excel and grow into key positions. This is important in order to ensure the stability of our operations and enable the transfer of know-how.

Most of our workers are members of trade unions. Our management aims

to maintain a healthy relationship with these unions. We have a continuous dialogue with all key stakeholders, and aim to secure their early involvement in all matters related to our workforce.

Given the complexity of the markets in which VARD operates, we recently saw the need to strengthen the management and improve the project organization at our Niterói yard in Brazil. We have also made signifi cant efforts to ensure that learnings can be transferred from project to project. For example, at Promar, our new shipyard in Brazil, an organizational ramp-up has been achieved by bringing in supervisors from elsewhere in the group – and the organization now consists of a strong mix of local and international talent.

Operational riskFixed price contracts are commonplace in shipbuilding. Typically, these contracts are agreed up to three years before a fi nished vessel is delivered, and it is our responsibility to ensure that all of the terms are met. Consequently, our contracts undergo a tough quality-screening process. While contract terms will always remain fi xed, the costs of labour,

materials, machinery and equipment may change. To mitigate the associated risks, VARD procures as many as 60 % of key components at the time the contract is signed. High on our priority list are vital parts such as engines, winches and propulsion systems.

As well as securing certain prices in order to mitigate fi nancial risks, we also need to remain agile and fl exible. We maintain cost fl exibility by engaging subcontractors in periods of high activity. Also, when it comes to procurement, our position as a global leader in building advanced vessels gives us certain economies of scale. All in all, risk management is an integral part of our wider project management disciplines.

Our group is reliant on the ability to calculate and manage the complexity of all project components and stages, including man-hours, scheduling, and workload at our yards. The group therefore has well-established processes and project management tools in place, and we aim to progressively refi ne the way that we work. Management’s full attention is now on strengthening these processes in our Brazilian operations, where we have experienced challenges during the past year.

Risk management is key

Risk Management VA R D A N N U A L R E P O R T 2 0 1 3

5 4

We are improving the way we operate through a tighter follow-up of existing risk management processes, and implement new routines where necessary.

Finance and investment riskBuilding an advanced vessel entails the commitment of signifi cant amounts of capital – yet standard European payment structures only allow for 10-20 % of a full contract price to be paid from contract signing and throughout the construction of the vessel, with the remainder being paid upon delivery. The contracts typically involve signifi cant guarantee requirements. From VARD’s side, this is related to advance payments received, suppliers and contractual performance. From the client’s side, this is related to payment of the vessel - typically a combination of corporate guarantees and bank guarantees. VARD is dependent on being able to arrange such guarantees.

This payment model exposes VARD to large loans from our main banks, which are approved on a project-by-project basis. Customers and contracts are carefully screened

before contracts are signed in order to minimize the associated risks, and VARD’s ongoing fi nancial exposure is constantly monitored.

Occasionally, VARD invests in special purpose companies. These enable us to have a minority stake in a shipbuilding project, or to offer seller’s credit for a smaller portion of the fi nancing. We would normally target exit from such arrangements one to three years after a vessel has been delivered.

VARD has invested signifi cantly in a new yard in Brazil as well as other major facility improvements in Romania and Vietnam, and is dependent on arranging long term fi nancing for these assets.

Exchange rate uncertainty is another facet of our fi nancial risk exposure. Where contract prices and costs are both in the same currency, our currency exposure is relatively limited. For those contracts with more signifi cant exchange rate exposure, we use forward foreign currency contracts. These forward contracts are only ever used as a hedging tool and never for trading purposes.

Market riskThe uncertain macro-economic environment, potentially lower demand for energy as a result of lower economic growth, fl uctuating oil and gas prices, and the threat of rising cost and lower E&P investment in the oil and gas industry are all market risk factors relevant to VARD’s operations.

In line with new regulations forcing them to strengthen their balance sheets, banks have become more conservative in their lending, which could reduce some of our clients’ access to bank loans. All these factors infl uence our customers’ incentives as well as their ability to place orders for new offshore and specialized vessels.

To meet these challenges, VARD is focusing on our strong fundamentals; innovative solutions, production effi ciency, integrated manufacturing system and a strong and long-term customer base. We have a constant focus on stabilizing our order book to ensure long-term visibility and avoid fl uctuations in our business cycle. VARD has enjoyed a record high order intake during 2013.

Risk Management VA R D A N N U A L R E P O R T 2 0 1 3

5 5

Commitment to high standards of investor communicationVARD’s work in investor relations is guided by two main principles: Timely and transparent information about the Company’s state of affairs, and strict adherence to high standards of corporate governance. Both are equally important in maintaining the trust and support of the investment community, which is a key element for the long-term success of VARD as a listed company.

As we saw the fi nancial results of the Company come under pressure from the middle of 2013, we stepped up efforts to communicate in more detail the diffi cult operating environment at one of our shipyards in Brazil, and other factors affecting performance. At the same time, we have aimed to provide a balanced picture, also highlighting the many positives seen throughout the year, such as the stable operations VARD has enjoyed elsewhere across our network, and the very strong order book development.

Reaching out to investorsIn communicating with investors also during challenging times, VARD can rely on a well-established network of relationships and communication channels.

The Company continues to enjoy broad coverage by equity research analysts, representing a mix of Singapore-based, regional and international brokerages and research houses. Good relations and frequent interaction with analysts enable us to reach out to institutional and private investors alike. We also arranged for analysts to visit our shipyards during the year, including those in Brazil, enabling them to deliver fi rst-hand impressions and insights for the benefi t of the wider investment community.

Non-deal roadshows and investor conferences again proved to be important meeting places for interaction with institutional shareholders and potential investors. In 2013, VARD arranged or participated in numerous meetings

in key locations such as Singapore, Hong Kong, Kuala Lumpur, London and New York.

Our communication to private investors focuses on the media in Singapore. Working with the local press in addition to international newswires and fi nancial media, we aim to make key information available to the many shareholders we have in Singapore. Corporate press releases and announcements are posted via Singapore Exchange’s online portal, SGXNET, before they are disseminated to our distribution list in a timely manner. Our company website, www.vard.com, is another channel used to disseminate information quickly and effi ciently. All our press releases, along with fi nancial reports, information on our order book and other useful facts are presented in a comprehensive and easily accessible format.

In addition to the Annual General Meeting held in April last year, VARD also held an Extraordinary General Meeting in October. Both meetings

Engaging the Investor Community

Investor Relations VA R D A N N U A L R E P O R T 2 0 1 3

In communicating with investors, VARD can rely on a well-established network of relationships and communication channels.

Mr. Holger DillingExecutive Vice PresidentInvestor Relations

5 6

presented excellent opportunities for shareholders to meet and discuss not only with management, but also members of the Board. Being the fi rst such VARD-related meetings for the then newly-appointed Chairman and Directors, the AGM and EGM also served as a forum for gathering useful feedback from shareholders and understanding their concerns. Furthermore, in putting to vote a proposal for an Interested Person Transactions (IPT) Mandate, the Company underlined the signifi cance of good corporate governance and transparency in its interaction with the new majority shareholder.

With a view to further emphasize and intensify our commitment to retail shareholders, we recently signed an agreement with the Securities Investors Association of Singapore (SIAS), opening up a new channel for shareholder communication. VARD also supports SIAS’ corporate governance initiatives.

In all our efforts, we are supported by a team of dedicated investor relations advisors in Singapore, who also act as a fi rst point of contact for any inquiries from investors, the media or other interested parties. We welcome and encourage you to get in touch.

Evolution of the shareholder base2013 saw signifi cant changes in the shareholder base. Most importantly, Fincantieri Oil & Gas acquired the majority of shares in VARD from STX Europe; following the mandatory general offer completed on 13 March 2013, Fincantieri holds 55.63% of the shares. At the same time, the second largest shareholder, still holding 11.9% of the share capital as at the end of 2012, also reduced its stake and ceased to be a substantial shareholder. With no other substantial shareholder present, free fl oat in the Company’s shares was more than 44% for most of last year.

Shareholdings of private and small shareholders continued to increase during the year, amounting to as

much as 21.8% of shares at the end of 2013. Most of these continue to be domiciled in Singapore. In addition, Singapore-based institutional investors have again taken the lead as the largest group among institutional shareholders with 32.3%, surpassing North American shareholders with 27.5%.

Taking a long-term perspectiveAs the market environment continues to evolve rapidly, we are especially grateful to those shareholders who have continued to put their faith in VARD even in turbulent times, and who share the management’s belief in the Company’s solid fundamentals and healthy long-term prospects. At the same time, we are keenly aware that trust needs to be rebuilt with the investment community. We are committed to doing so through continued focus on timely and transparent communication, high standards of governance, and active dialogue with all investors.

Investor Relations VA R D A N N U A L R E P O R T 2 0 1 3

80

60

31.12.2012 31.12.2013

20

40

0

100 2.7%

13.7%

20.9%

62.7% Private and small investorsInstitutional investorsSubstantial shareholders

Other

1)

2012: STX Europe and Och-Ziff 2013: Fincantieri Oil&Gas

1)

2.0%

21.8%

20.6%

55.6%

Total Shareholder Composition

Rest of worldNorth America

80

60

31.12.2012

20

40

0

100 1.9%

46.1%

10.7%

8.5%

12.0%

SingaporeHong Kong

Other Asia & Australia

United KingdomOther Europe

11.8%

9.0%

31.12.2013

0.0%

27.5%

6.7%8.0%

12.9%

32.3%

12.6%

Institutional Shares by Geography

5 7

Positive fundamentals for PSVs and AHTS “Better than expected” is how international ship and offshore broking fi rm RS Platou describes the development of the OSV market during the past year1). Increasing offshore activity in the North Sea, as evidenced by a rising rig count, helped boost PSV demand in 2013, only mitigated by a signifi cant growth in the PSV fl eet. Supply growth continues to be high, but demand – aided by a strong drilling order book – is also record high, and the market has absorbed the new deliveries surprisingly well so far. Rising offshore activity is not restricted to the North Sea. Discoveries in deep water have been especially bountiful, and signifi cant numbers of deep water mobile offshore drilling units coming to the market will require PSV support.

An increasing rig count, coupled with limited fl eet growth, is also the best indication that a long-awaited rebound in the market for large AHTS could fi nally materialize in 2014.

AHTS demand is further bolstered by an upswing in offshore construction activity as a result of high committed upstream investments, and by increased offshore activity in the Arctic regions, including drilling campaigns offshore Greenland and in the Kara Sea, all of which require modern, high-end tonnage suited to harsh environments.

Despite these positive fundamentals, there is some uncertainty surrounding oil companies’ continued willingness to grow their exploration and production spending, as cost in the oil and gas industry is on the rise and many players are refocusing their activities. For VARD, this means intensifying our efforts to help clients seek the most cost effective solutions, through innovative vessel designs that guarantee improved fuel effi ciency and high up-time in operations, as well as competitiveness in our own operations.

Burgeoning offshore subsea construction market2013 has been an active year in the subsea market in terms of number of newbuilding orders, and this trend is expected to continue. Increasing water depths and larger subsea structures require larger and more advanced vessels. A maturing subsea infrastructure requires more capacity for inspection, maintenance and repair. The large subsea contractors command record order books, while they are being challenged by newer, specialized players trying to partake in the growing business. In addition, several sub-segments of the market, such as pipe laying and diving support, face capacity constraints in light of the full subsea order books.

As in the markets for smaller offshore support tonnage, the focus in the subsea industry is on highly specifi ed vessels that help the oil companies curb cost by enabling particularly effi cient operations. Therefore, the outlook for offshore subsea construction vessels continues to be positive even as

Outlook

Outlook VA R D A N N U A L R E P O R T 2 0 1 3

1) RS Platou, “The Platou Report”, February 2014.

5 8

exploration and production spending growth slows down.

VARD has won a substantial part of the new subsea vessel orders world-wide last year, and has taken a leading position in this segment, with all new contracts for large OSCVs being based on own designs. Notably, this was achieved in the face of intense competition from yards in Asia and Europe. In doing so, the Group has demonstrated its fl exibility and adaptability to new market circumstances. Innovation power, a focus on customer needs, and delivery reliability are expected to continue to be key drivers of success in this industry.

Focus on strengthening profi tability and growthHaving laid the foundations with a solid order book based on strong relationships with an enlarged, diversifi ed global client base, VARD’s main objective in 2014 is to translate these opportunities into profi table growth.

In Europe, this means reaping the benefi ts of the recent investments into advanced production technology in Romania to reduce cost. Our yards in Norway are charged with mastering larger and more complex projects with an increasing share of turn-key delivery of advanced topside equipment, while still maintaining a leading edge also in the medium-sized vessel segments.

In Vietnam, a track record of superior project execution has fi nally been rewarded with a string of new orders, leading not only to better yard utilization, but asserting the shipyard’s own right as a bridgehead for VARD’s operations in the Asia Pacifi c region. In addition, through the investments made during the past year, Vard Vung Tau is ready to take on larger projects in the future.

In Brazil, all eyes will continue to be on the turnaround in Niterói, while the new shipyard Vard Promar is becoming increasingly important. A successful ramp-up of operations

at Promar during 2014 is crucial to VARD’s long-term ambitions in Brazil. While building a large organization from scratch – especially in a diffi cult operating environment such as Brazil – is no easy task, progress on the fi rst projects under construction is encouraging.

All over the world, our shipyard operations benefi t from our strengths in design, engineering and project management, understanding customers’ needs and working with them to develop innovative solutions. VARD is committed to further growing its presence in these high value-added areas, both in terms of products and services offered, and geographical reach.

Through the combined efforts of our dedicated staff and the trust put in us by our clients, VARD expects to reassert its leading position in the market for high-end vessels for the offshore industry while improving overall fi nancial performance in 2014.

Outlook VA R D A N N U A L R E P O R T 2 0 1 3

5 9

6 0

VA R D A N N U A L R E P O R T 2 0 1 3

6 1

VA R D A N N U A L R E P O R T 2 0 1 3

Newbuilding at sea trial

SHIPBUILDING

Vard AukraNerbøvegen 102NO-6480 Aukra, NorwayTel: + 47 70 21 06 [email protected]

Vard BrattvaagStrandgata 74NO-6270 Brattvåg, NorwayTel: + 47 70 21 06 [email protected]

Vard BrevikP.O. Box 15NO-3991 Brevik, NorwayTel: + 47 35 51 87 [email protected]

Visiting address:Strømtangveien 17 DNO-3950 Brevik, Norway

Vard LangstenNO-6393 Tomrefjord, NorwayTel: + 47 70 21 06 [email protected]

Vard SøviknesNO-6280 Søvik, NorwayTel: + 47 70 21 06 [email protected]

Vard Braila SACeluozei Street 1ARO-810282 Braila, RomaniaTel: + 40 239 607 [email protected]

Vard Tulcea SA22, Ing. Dumitru Ivanov StreetRO-820242 Tulcea, RomaniaTel: + 40 240 534 [email protected]

Vard Vung Tau Ltd.No. 6, Dong Xuyen IP, Rach Dua Ward,VN-76999 Vung Tau, VietnamTel: + 84 (0)64 3615 [email protected]

Vard Niterói SAPraça Alcides Pereira1 - Parte Ilha da Conceiçâo- Niterói - RJCEP: 24.050-350,BrazilTel: + 55 212 7189 [email protected]

Vard Promar SAAE Zona Industrial Portuária ZIPIlha de Tatuoca, SNIpojuca, PEBR- Zip: 55590-000BrazilTel: +55 81 [email protected]

ELECTRICAL ENGINEERING,INSTALLATION, POWER & AUTOMATION

Vard Electro ASKeiser Wilhelms gt. 22NO-6003 Ålesund, NorwayTel: + 47 70 21 06 [email protected]

Vard Electro ASNO-6280 Søvik, NorwayTel: + 47 70 21 07 [email protected]

Vard Electro BrazilInstalações Elétricas Ltda.Rua José Figueiredo, 5- Centro24030-055 Niterói-RJ, BrazilTel: + 5521 3628 [email protected]

Vard Electro Braila SRLCeluozei Street 1ARO-810282 Braila, RomaniaTel: + 40 239 607 [email protected]

Vard Electro Tulcea SRL22, Ing. Dumitru Ivanov StreetElectrical SectionRO-820242 Tulcea, RomaniaTel: + 40 240 534 [email protected]

Vard Electrical Installation and Engineering (India) Pte. Ltd.3-B, 3rd FloorK G Oxford Business Centre39/4609, Sreekandath RoadRavipuram, ErnakulamKochi-682 016, IndiaTel: + 91 484 2355 [email protected]

DESIGN & ENGINEERING

Vard Design ASP.O. Box 76NO-6001 Ålesund, NorwayTel: + 47 70 21 06 [email protected]

Visiting address:Brunholmgt. 1BNO-6004 Ålesund, Norway

Vard Design Liburna Ltd.Fiorella La Guardie51000 Rijeka, CroatiaTel: + 385 51 344 [email protected]

Vard Engineering ÅlesundP.O. Box 76NO-6001 Ålesund, NorwayTel: + 47 70 21 06 [email protected]

Visiting address:Molovn. 5NO-6004 Ålesund, Norway

Vard Engineering Brevik ASStrømtangvn. 19NO-3950 Brevik, NorwayTel: + 47 35 51 87 [email protected]

Vard Engineering Constanta SRL Mamaia Boulevard NO 243 – 245 900540 Constanta, RomaniaTel: +40 241 515 [email protected]

Contact Information

Contact Information VA R D A N N U A L R E P O R T 2 0 1 3

REGISTERED OFFICE

Vard Holdings Limited50 Raffl es Place#32-01 Singapore Land TowerSingapore 048623Tel: + 65 6536 5355Fax: + 65 6536 1360

HEAD OFFICE

Vard Group ASP.O. Box 76NO-6001 Ålesund, NorwayTel: + 47 70 21 06 [email protected]

Visiting address:Molovegen 6NO-6004 Ålesund, Norway

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ACCOMMODATION

Vard Accommodation ASJohangarden NæringsparkTennfjordvegen 113NO-6264 Tennfjord, NorwayTel: + 47 70 21 06 [email protected]

Vard Accommodation Tulcea SRL22, Ing. Dumitru Ivanov StreetRO-820 242 Tulcea, RomaniaTel: + 40 240 534 [email protected]

PIPE SYSTEMS AND SERVICES

Vard Piping ASJohangarden NæringsparkTennfjordvegen 113NO-6264 Tennfjord, NorwayTel: + 47 70 21 06 [email protected]

HANDLING SYSTEMS

Seaonics ASNedre Strandgt. 29NO-6004 Ålesund, NorwayTel: + 47 71 39 16 [email protected]

Seaonics Polska Sp. z o.o.ul. Trzy Lipy 3 80-172, Gdańsk, PolskaTel: +48 58 739 64 [email protected]

ADDITIONAL ACTIVITIES

Vard Singapore Pte. Ltd 3 Temasek Avenue#20-03 Centennial TowerSingapore 039190Tel: + 65 6836 [email protected]

Vard Brevik Holding ASP.O. Box 15NO-3991 Brevik, NorwayTel: + 47 35 51 87 00

Visiting address:Strømtangvn. 21NO-3950 Brevik, Norway

Vard Offshore Brevik ASIndustrivn. 12NO-3940 Porsgrunn, NorwayTel: + 47 35 93 20 [email protected]

Multifag ASFrednesøya 21 3933 PorsgrunnTelefon: +47 800 35 [email protected] www.multifag.no

Contact Information VA R D A N N U A L R E P O R T 2 0 1 3

Design: I&M Kommunikasjon AS Circulation: 10,000Printed by: Equal Brand Design

Photos/3D: VARD, Sigve Aspelund/Tinagent.no, Ocean Visuals, Harald M. Valderhaug, Johan Holmquist, Fincantieri, Ole Walter Jacobsen, Peder Otto Dybvik, Shutterstock, Solstad Offshore, EMAS,

JSC Circle Marine Invest.

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