fourth quarter results 2018 - kvaerner · results reflect phasing of projects and projects in early...

Fourth quarter results 201812 February 2019

© Kvaerner 2019 12.02.2019

Fourth quarter 2018

2

Highlights

Johan Sverdrup Phase 2 process platform jacket contract

Construction start for Johan Castberg FPSO

Outfitting and roll-up for Valhall Flank West topside &

jacket

Construction start for the RP-module in phase 2 of Johan

Sverdrup

Aasta Hansteen on stream

Dividend of NOK 1.00 per share proposed to AGM

Minister Kjell-Børge Freiberg starts construction for Johan Castberg FPSO

© Kvaerner 2019 12.02.2019

HSSE results are business critical

LTIF

TRIF

Lost time injury frequency (LTIF) & total recordable injury

frequency (TRIF) Per million worked hours (12 months average)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2011 2012 2013 2014 2015 2016 2017 2018

0.5

2.9

÷

+

Too many medical treatment cases

Too many unwanted incidents

High HSSE attention throughout org.

Training in reduction of sick leave

Joint HSSE campaign with clients

3

© Kvaerner 2019 12.02.2019

Globally recognised for predictable deliveries:

All current projects on track™

4

Johan Sverdrup Riser Platform

hook-up and modification

Johan Sverdrup utility and living quarter topside

Njord A upgrade

Nord Stream 2 onshore facility

Johan Castberg FPSO

West White Rose

marine operations

Johan Sverdrup Phase 2

Process platform jacket

Valhall Flank West

normally unmanned WHP

© Kvaerner 2019 12.02.2019

8 077

11 118 11 20410 638

0

3 000

6 000

9 000

12 000

Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

Order intake and backlog

5

1 703

5 014

1 941

1 149

0

1 000

2 000

3 000

4 000

5 000

6 000

Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

Note: All figures include scope of work of jointly controlled entities.

1 723

10 625

Order backlog

NOK million

Order intake

NOK million

63%

Estimated scheduling as of 30.12.2018:

For execution in 2020+For execution in 2019

37%

Fourth quarter financialsIdar Eikrem, Chief Financial Officer

© Kvaerner 2019 12.02.2019

Field Development review

7

EBITDA margin for 2018 was 6.7 percent

Results reflect phasing of projects and projects in early phase not yet recognising margin

1 8431 944

1 8461 709 1 755

0

500

1 000

1 500

2 000

Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

Revenues

NOK million234

205

118

9075

0

50

100

150

200

250

Q4'17 Q1'18 Q2'18 Q3'18 Q4'18

EBITDA

NOK million

EBITDA-% 12.7% 10.6% 6.4% 5.2% 4.3%

Note: All figures include Kvaerner’s scope of work of jointly controlled entities

© Kvaerner 2019 12.02.2019

(2 000)

(1 500)

(1 000)

(500)

-

Q4'1

4

Q1'1

5

Q2'1

5

Q3'1

5

Q4'1

5

Q1'1

6

Q2'1

6

Q3'1

6

Q4'1

6

Q1'1

7

Q2'1

7

Q3'1

7

Q4'1

7

Q1'1

8

Q2'1

8

Q3'1

8

Q4'1

8

Cash flow and working capital development

8

Negative working capital of

NOK 949 million

Fluctuations in working capital

must be expected

Capital tied up in the Nordsee

Ost project

Net current operating assets (NCOA) – Continuing operations

(NOK million)

Amounts in NOK million Q4 2018 Q3 2018 Q4 2017 FY 2018 FY 2017

Cash flow from operating activities 370 27 297 719 (113)

Cash flow from investing activities (126) (103) (67) (335) (93)

Cash flow from financing activities (15) (2) (15) (29) (27)

Translation adjustments 7 (4) 2 (4) (1)

Net increase/(decrease) in cash and bank deposits 236 (82) 217 352 (234)

© Kvaerner 2019 12.02.2019

Market and outlook

9

© Kvaerner 2019 12.02.2019

Market

10

Traditional segments Growth segments

TOPSIDESFLOATERS

CONCRETE JACKETSDECOMMISSIONING& RE-USE / RECYCLING

UPGRADING & MODIFICATION

ONSHOREPROCESS PLANTS

MARINE OPERATIONS

OFFSHORE WIND

Improved market outlook, several new prospects both within traditional and growth segments

Several prospects expected to pass key gates in 2019 and move on towards project start-up

© Kvaerner 2019 12.02.2019

Exciting market opportunities for a contractor with competitive power

2019 – 2023: NCS, international and growth segment prospects Kvaerner can compete for

=

= > NOK 3 bn contract = NOK 750 mill – NOK 3 bn contract = < NOK 750 mill contract

Annualadressable

market2019 - 2023

~ NOK

30 – 50 bn

Offshore and onshore

oil and gas prospects,

Norway

Growth segment prospects

and

international oil and gas prospects

Offshore and onshore

oil and gas prospects,

Norway

Growth segment prospects

and

international oil and gas

prospects

Sm

alle

r p

rosp

ects

, in

cl. W

HP

/ S

oS

,

Deco

m.,

Ma

rin

e o

ps.,

etc

.

>16 prospects

Source: Kvaerner

>17 prospects

© Kvaerner 2019 12.02.201912

2.12.22.0

2.6

2.2

3.1

3.4

3.94.1

4.7

4.2

3.8

5.0

4.6

4.2

3.83.6

3.3

2.8

2.52.7

2.4

2.12.0

1.71.81.91.8

1.71.8

0

2

4

6

8

10

12

14

16

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

Q3'1

1

Q4'1

1

Q1'1

2

Q2'1

2

Q3'1

2

Q4'1

2

Q1'1

3

Q2'1

3

Q3'1

3

Q4'1

3

Q1'1

4

Q2'1

4

Q3'1

4

Q4'1

4

Q1'1

5

Q2'1

5

Q3'1

5

Q4'1

5

Q1'1

6

Q2'1

6

Q3'1

6

Q4'1

6

Q1'1

7

Q2'1

7

Q3'1

7

Q4'1

7

Q1'1

8

Q2'1

8

Q3'1

8

Q4'1

8

Revenue Field Development

Adjusted EBITDA margin

NOK billionMargin %

The 7 years behind us:

Market opportunities transformed to predictable deliveries 30 quarters in a row

© Kvaerner 2019 12.02.2019

A clear strategic direction for growth

13

Increased

market share at NCS

1 2Growth in selected

international markets

3Increased business in

growth segments

Fundamentals for success: a) HSSE: best in class

b) Increased productivity, reduced costs

c) Effective delivery models

d) Competence profile fit for upcoming market

© Kvaerner 2019 12.02.2019

Q4 summary

14

Operations and results on track

Improved market outlook,

positioning for key prospects

Robust financial platform

Dividend of NOK 1.00 per share proposed to AGM

Execute projects safely and

predictably

Further improve

competitiveness

Maintain home markets,

develop growth segments and

increase international business

Develop products and consider

structural growth opportunities

Way forward

© Kvaerner 2019 12.02.2019

Outlook 2019 per 4Q18

15

Compared to 12 months ago, Kvaerner sees an improved market and more customers considering new projects. During 2019, it is expected that several key prospects will pass important decision gates and move further towards project sanctioning and project execution. The company anticipates that potential contract awards for near term larger contracts will mostly come in 2020 and 2021.

The market in and around Norway will continue to be important, but several key prospects are also in international regions.

For 2019, the full year gross revenue is expected to be above NOK 7 billion. CAPEX level for 2019 is expected to be about NOK 300 million.

The working capital level is expected to increase somewhat during 2019.

Appendix fourth quarter results 2018

© Kvaerner 2019 12.02.2019

Income statement

18

1 Revenues excluding Kvaerner’s scope of work of jointly controlled entities.

² Adjusting impact related to embedded derivatives in jointly controlled entities closely related to Kvaerner’s operating activities.

Amounts in NOK million Q4 2018 Q3 2018 Q4 2017 FY 2018 FY 2017

Total revenue and other income 1

1 715 1 764 1 797 7 220 6 536

Operating expenses (1 638) (1 687) (1 570) (6 783) (5 737)

EBITDA 77 76 227 437 799

Adjusted EBITDA 2

60 75 220 427 786

Depreciation and amortisation (29) (28) (28) (110) (106)

EBIT 49 48 199 327 693

Net financial income/(expense) 33 4 13 11 4

Profit/(loss) before tax 81 53 211 338 697

Income tax expense 6 (15) (59) (60) (186)

Profit/(loss) from continuing operations 87 37 152 278 511

Profit/(loss) from discontinued operations (2) (2) (3) 0 31

Net profit/(loss) 86 35 149 278 542

Adjusted EBITDA margin 3.5 % 4.2 % 12.2 % 5.9 % 12.0 %

Earnings per share (NOK)

Basic and diluted EPS continuing operations 0.33 0.14 0.57 1.04 1.92

Basic and diluted EPS discontinued operations (0.01) (0.01) (0.01) 0.00 0.12

Basic and diluted EPS total operations 0.32 0.13 0.56 1.04 2.04

© Kvaerner 2019 12.02.2019

Segment information fourth quarter

19

Following sale of Kvaerner’s onshore construction business in North America in 2013, Kvaerner only has one

reportable segment; Field Development

The Field Development segment reporting includes Kvaerner’s share (proportionate consolidation) of jointly

controlled entities closely related to Kvaerner’s activities

1 Adjusting impact related to embedded derivatives in jointly controlled entities closely related to Kvaerner’s operating activities.

Amounts in NOK million Q4 2018 Q4 2017 Q4 2018 Q4 2017 Q4 2018 Q4 2017

Construction contracts 1 051 1 126 - - 1 051 1 126

Services revenue 496 220 - - 496 220

Revenue/share of result from joint ventures 216 369 (166) (320) 50 49

Other revenue (13) 128 123 274 110 401

Revenue from contracts with customers 1 749 1 843 (43) (47) 1 706 1 796

Lease revenue - - 4 - 4 -

Gain on sale of assets 6 1 - - 6 1

Internal revenue 0 (0) (0) 0 - -

Total revenue and other income 1 755 1 843 (40) (47) 1 715 1 797

Adjusted EBITDA 1

75 234 (15) (15) 60 220

EBITDA 75 234 2 (8) 77 227

Depreciation and amortisation (29) (28) - - (29) (28)

EBIT 46 207 2 (8) 49 199

Net current operating assets (885) (915) (64) 266 (949) (650)

Field Development

Group activities and

eliminations Consolidated

© Kvaerner 2019 12.02.2019

Segment information full year

20

Following sale of Kvaerner’s onshore construction business in North America in 2013, Kvaerner only has one

reportable segment; Field Development

The Field Development segment reporting includes Kvaerner’s share (proportionate consolidation) of jointly

controlled entities closely related to Kvaerner’s activities

1 Adjusting impact related to embedded derivatives in jointly controlled entities closely related to Kvaerner’s operating activities.

Amounts in NOK million FY 2018 FY 2017 FY 2018 FY 2017 FY 2018 FY 2017

Construction contracts 4 811 4 812 - - 4 811 4 812

Services revenue 1 272 425 - - 1 272 425

Revenue/share of result from joint ventures 898 2 055 (706) (1 888) 192 167

Other revenue 267 306 658 825 925 1 131

Revenue from contracts with customers 7 248 7 597 (48) (1 062) 7 200 6 535

Lease revenue - - 14 - 14 -

Gain on sale of assets 6 1 - - 6 1

Internal revenue 0 27 (0) (27) - -

Total revenue and other income 7 253 7 625 (34) (1 089) 7 220 6 536

Adjusted EBITDA 1

487 846 (60) (60) 427 786

EBITDA 487 846 (51) (48) 437 799

Depreciation and amortisation (110) (106) - - (110) (106)

EBIT 377 741 (51) (48) 327 693

Field Development

Group activities and

eliminations Consolidated

© Kvaerner 2019 12.02.2019

Discontinued operations

21

Full year results reflecting insurance settlements in Q2 2018 and Q1 2017

Amounts in NOK million Q4 2018 Q4 2017 FY 2018 FY 2017

Total revenue and other income - 3 - 4

Administrative and legal expenses (3) (5) (1) 11

EBIT (3) (2) (1) 16

Net financial income/(expense) 2 2 2 (1)

Profit/(loss) before tax (1) (0) 1 15

Income tax income/(expense) (1) (3) (1) 16

Profit/(loss) from discontinued operations (2) (3) 0 31

Basic and diluted earnings/(losses) per share (NOK) (0.01) (0.01) 0.00 0.12

Net assets (34) (37) (34) (37)


Cash flow from operating activities (4) 18 (6) 20

Cash transferred (to)/from parent 3 (0) 1 (22)

Translation adjustments 2 0 2 (2)

Net increase/(decrease) in cash and bank deposits 0 18 (3) (3)

Cash at the beginning of the period 28 13 31 35

Cash at the end of the period 28 31 28 31

© Kvaerner 2019 12.02.2019

Financial items

22


Net interest income/(expense) 3 (0) 6 2

Profit/(loss) on foreign currency contracts - (2) (0) (0)

Foreign currency embedded derivatives impact 32 7 7 (2)

Net foreign exchange gain/(loss) 2 7 2 6

Other financial items, net (3) 1 (4) (2)

Net financial income/(expense) 33 13 11 4

© Kvaerner 2019 12.02.2019

Cash flow

23


Profit before tax continuing operations 81 211 338 697

Profit before tax discontinued operations (1) (0) 1 15

Profit/(loss) before tax total operations 80 211 339 712

Depreciation, amortisation and impairment 29 28 110 106

Taxes (paid)/refund (2) 2 (10) (65)

Other cash flow from operating activities 263 56 281 (865)

Cash flow from operating activities 370 297 719 (113)

Capital expenditure (132) (65) (334) (91)

Other cash flow from investing activities 6 (2) (1) (2)

Cash flow from investing activities (126) (67) (335) (93)

Other cash flow from financing activities (15) (15) (29) (27)

Cash flow from financing activities (15) (15) (29) (27)

Translation adjustments 7 2 (4) (1)

Net increase/(decrease) in cash and bank deposits 236 217 352 (234)

Cash at the beginning of the period 2 929 2 596 2 812 3 047

Cash at the end of the period 3 165 2 812 3 165 2 812

© Kvaerner 2019 12.02.2019

Balance sheet - Assets

24

Amounts in NOK million 31.12.2018 31.12.2017

Assets

Non-current assets

Property, plant and equipment 967 800

Intangible assets 710 649

Investments in associates and jointly controlled entities 69 17

Other non-current assets 7 7

Total non-current assets 1 753 1 474

Current assets

Trade and other receivables 1 402 1 531

Prepaid company tax - 6

Total cash and bank 3 165 2 812

Retained assets of business sold 0 0

Total current assets 4 567 4 350

Total assets 6 320 5 823

Trade and other receivables at year-end 2018 includes contract assets of NOK 427 million

© Kvaerner 2019 12.02.2019

Balance sheet – Equity and liabilities

25

Amounts in NOK million 31.12.2018 31.12.2017

Equity and liabilities

Equity

Share capital 91 91

Share premium 729 729

Retained earnings 2 710 2 431

Other reserves (91) (75)

Total equity 3 439 3 176

Non-current liabilities

Deferred tax liabilities 265 225

Employee benefit liabilities 229 204

Total non-current liabilities 494 430

Current liabilities

Trade and other payables 2 118 2 032

Tax liabilities 0 0

Provisions 233 148

Retained liabilities of business sold 35 37

Total current liabilities 2 386 2 218

Total equity and liabilities 6 320 5 823

Trade and other payables at year-end 2018 includes contract liabilities of NOK 343 million

© Kvaerner 2019 12.02.2019

Basis for preparation

26

Accounting principles▪ The accounting principles applied in these condensed consolidated interim financial

statements are the same as those applied in the Annual accounts 2017 except the implementation of new financial reporting standards as indicated below. Reference is also made to annual accounts 2017 note 2, discussing the new standards and potential impacts to the accounts

▪ IFRS 15 Revenue from contracts with customers– The group adopted IFRS 15 as from 1 January 2018. There were no significant transition

impacts on equity on transition date– If the requirements of IAS 11/18 had been applied to the 2018 financial statements,

revenue and profit before tax would have been NOK 11 million higher due to the higher threshold for including revenue from variable consideration under IFRS 15

▪ IFRS 9 Financial instruments – The group adopted IFRS 9 as from 1 January 2018. The implementation resulted in

changes to the accounting policies, including revised measurement categories under the new standard

– There were no transition adjustment against equity on transition date

© Kvaerner 2019 12.02.2019

IFRS – impact of new standards

27

IFRS 16

IFRS 16 Leases, effective from 1 January 2019, will significantly change how Kvaerner’s lease contracts are accounted for

Kvaerner has elected to apply the modified retrospective approach (with practical expedients) at the date of initial application; 1 January 2019, with no restatement of comparable periods

On transition date, 1 January 2019, the group will recognise NOK 248 million of right-of-use assets and NOK 283 million of lease liabilities. Right-of-use assets have been adjusted by the amounts of onerous lease provisions and provisions for required office upgrades. When measuring the lease liabilities, Kvaerner discounted lease payments using its incremental borrowing rate at 1 January 2019, adjusted for currency and length of lease terms. The weighted-average rate applied is 5 percent

Earnings before interest, taxes, depreciation and amortisation (EBITDA) for 2019 will increase by approximately NOK 58 million, as lease payments will be presented as depreciation and finance cost rather than operating expense

Interest expense for 2019 will increase by approximately NOK 13 million

Depreciation for 2019 will increase by approximately NOK 47 million

Amounts above are based on leases and assessments at transition date. New lease contracts, lease modifications and re-assessments of onerous leases and contract options could change the impacts before the group presents its first financial statements under the new standard

© Kvaerner 2019 12.02.2019

Alternative performance measures

28

Kvaerner discloses alternative performance

measures in addition to those normally

required by IFRS. Kvaerner believes that the

alternative performance measures provide

useful supplemental information to

management, investors, security analysts and

other stakeholders and are meant to provide

an enhanced insight into the financial

development of Kvaerner’s business

operations and to improve comparability

between periods. Order intake and backlog

are indicators of the company’s revenues and

operations in the future.

Profit measures

EBITDA is short for Earnings before

Interest, Taxes, Depreciation and

Amortisation and is term commonly used by

analysts and investors

Adjusted EBITDA Earnings before Interest,

Taxes, Depreciation and Amortisation

excluding impact of embedded foreign

currency derivatives reported in jointly

controlled entities closely related to

Kvaerner’s operating activities

Adjusted EBITDA margin is used to

compare relative profit between periods.

Adjusted EBITDA margin is calculated as

Adjusted EBITDA divided by revenue

© Kvaerner 2019 12.02.2019

Alternative performance measures

29

Order intake measures

Order intake represents expected revenue from contracts entered into in period or growth in existing contracts

Order backlog represents remaining expected revenue from contracts entered into as per reporting date

Financing measures

Net current operation assets (NCOA) Kvaerner’s measure of net working capital, defined as Trade and other receivables less Trade and other payables and Provisions

Net interest bearing deposits and loansKvaerner’s measure of net interest bearing debt, defined as interest bearing receivables and cash and bank less interest bearing liabilities

Equity ratio is calculated as total equity divided by total assets

In the below tables it is shown how certain of the above measures are derived from the IFRS consolidated financial statements:

1 Excluding embedded derivatives’ impact reported


EBITDA 77 227 437 799

Adjustment for equity accounted investees 1

(17) (7) (9) (12)

Adjusted EBITDA 60 220 427 786

31.12.2018 31.12.2017

Trade and other receivables 1 402 1 531

Trade and other payables (2 118) (2 032)

Provisions (233) (148)

Net current operating assets (NCOA) (949) (650)

Total cash and bank 3 165 2 812

Net interest bearing deposits and loans 3 165 2 812

Amounts in NOK million

© Kvaerner 2019 12.02.2019

Copyright

Copyright of all published material including photographs, drawings and images in this document remains vested in Kvaerner and third party contributors as appropriate.

Accordingly, neither the whole nor any part of this document shall be reproduced in any form nor used in any manner without express prior permission and applicable

acknowledgements. No trademark, copyright or other notice shall be altered or removed from any reproduction.

Disclaimer

This Presentation includes and is based, inter alia, on forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to

differ. These statements and this Presentation are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the

regions and industries that are major markets for Kværner ASA and Kværner ASA’s (including subsidiaries and affiliates) lines of business. These expectations, estimates and

projections are generally identifiable by statements containing words such as “expects”, “believes”, “estimates” or similar expressions. Important factors that could cause actual

results to differ materially from those expectations include, among others, economic and market conditions in the geographic areas and industries that are or will be major markets

for Kvaerner’s businesses, oil prices, market acceptance of new products and services, changes in governmental regulations, interest rates, fluctuations in currency exchange

rates and such other factors as may be discussed from time to time in the Presentation. Although Kværner ASA believes that its expectations and the Presentation are based

upon reasonable assumptions, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in the Presentation. Kværner ASA is

making no representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the Presentation, and neither Kværner ASA nor any of its directors,

officers or employees will have any liability to you or any other persons resulting from your use.

Copyright and disclaimer

Copyright

Copyright of all published material including photographs, drawings and images in this document remains vested in Kvaerner and third party contributors as appropriate.

Accordingly, neither the whole nor any part of this document shall be reproduced in any form nor used in any manner without express prior permission and applicable

acknowledgements. No trademark, copyright or other notice shall be altered or removed from any reproduction.

Disclaimer

This Presentation includes and is based, inter alia, on forward-looking information and statements that are subject to risks and uncertainties that could cause actual results to

differ. These statements and this Presentation are based on current expectations, estimates and projections about global economic conditions, the economic conditions of the

regions and industries that are major markets for Kværner ASA and Kværner ASA’s (including subsidiaries and affiliates) lines of business. These expectations, estimates and

projections are generally identifiable by statements containing words such as “expects”, “believes”, “estimates” or similar expressions. Important factors that could cause actual

results to differ materially from those expectations include, among others, economic and market conditions in the geographic areas and industries that are or will be major markets

for Kvaerner’s businesses, oil prices, market acceptance of new products and services, changes in governmental regulations, interest rates, fluctuations in currency exchange

rates and such other factors as may be discussed from time to time in the Presentation. Although Kværner ASA believes that its expectations and the Presentation are based

upon reasonable assumptions, it can give no assurance that those expectations will be achieved or that the actual results will be as set out in the Presentation. Kværner ASA is

making no representation or warranty, expressed or implied, as to the accuracy, reliability or completeness of the Presentation, and neither Kværner ASA nor any of its directors,

officers or employees will have any liability to you or any other persons resulting from your use.

Copyright and disclaimer

30

fourth quarter results 2018 - kvaerner · results reflect phasing of projects and projects in early...

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