MagSeis AS
Annual report 31 December 2013
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For the year ended 31 December 2013
CONTENTS
Photo: Talisman
Introduction to MagSeis
Page 1-6
Board of Directors report
Page 7-10 Page 11-15
Corporate Governance Report Statements of comprehensive income
Page 17
Statements of financial position
Page 18
Statements of changes in equity
Page 19
Statements of cash flows
Page 20
Notes to the financial statements
Page 21-41
Independent auditor’s report
Page 42-43
Dicksvei 10B, N-1366 Lysaker NORWAY, Phone: +47 23 36 80 20
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For the year ended 31 December 2013
MAGSEIS AT A GLANCE
• MagSeis is a Norwegian geophysical company established in 2009 by founders with extensive industry experience. • Our goal is to create the industry leading seabed seismic company using our proprietary MASS Ocean Bottom Seismic system. • 2013 was a break-through year for MagSeis with the award of a five-year frame agreement with Statoil for OBS work, with an estimated initial contract value in excess of USD 50 million. • MagSeis has one crew in operation, Artemis Athene, with 75 kilometres of cable and plans to increase to 110 kilometres by the fourth quarter 2014. MagSeis has a targeted strategic growth plan, which includes additional crew expansion in 2015 and 2016. • Our headquarters are in Oslo, with additional offices in Bergen and Stockholm.
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For the year ended 31 December 2013
CEO COMMENT
2014 sets out to be a milestone year for MagSeis with the start of the Statoil frame agreement, the upcoming listing on Oslo Axess as well as the continued expansion aboard Artemis Athene and preparations for start-up of the second crew.
With our unique and proprietary system, I believe MagSeis has a competitive advantage that will enable us to drive the continued adoption of OBS and provide the basis for profitable growth in the years to come. MagSeis has secured a healthy backlog for 2014, and we see the 5-year frame agreement with Statoil as a clear confirmation of the commercial benefits of our technology to the oil companies.
During 2013 we successfully delivered on our strategic plan to produce our first 75 km MASS system and start operations aboard our vessel, Artemis Athene. With the Statoil frame agreement and recent financing we are now well-positioned to deliver profitable growth in 2014 and beyond. We firmly believe that in a rapidly growing market for production related seismic services Ocean Bottom Seismic will capture an increasingly larger market share due to the significant advantages in data quality. This continues a trend seen over the last 5 – 10 years and is supported by the current tender activity, which suggests that there will not be enough capacity to fill demand during 2014. Against this backdrop, it is very interesting to see that survey sizes continue to increase, and 500 – 1000 km2 surveys now having become common. We see this as a clear indication that OBS is steadily gaining attention from the oil companies.
Thanks to the recently completed equity issue during March 2014, we are in the position to continue our expansion through an upgrade of the equipment capacity on Artemis Athene, which will enable an increase in efficiency and profitability going forward. We will also prepare for the start-up of our second crew during 2015 as well as to continue our work towards adapting MagSeis’ technology for deeper water 4D. I want to take the opportunity to thank all the existing shareholders for their continuing support, and at the same time welcome our new investors to a company set for rapid growth.
Ivar Gimse CEO MagSeis
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Introduction to MagSeis For the year ended 31 December 2013
THIS IS MAGSEIS Company overview
During 2013, MagSeis established its first commercial-scale crew using the vessel Artemis Athene. The vessel was significantly refurbished by its owner, Artemis Athene AS (a wholly owned subsidiary of Westcon Group AS), and was rebuilt to enable MagSeis’ operations. A fully automated handling system has been developed and installed on-board the vessel. This handling system uses well-established industrial robot technology to automate the handling of the cable and sensors as well as the extraction of the geophysical data collected.
MagSeis AS (the “Company” or “Parent”) is a Norwegian geophysical company founded in 2009. The Company commenced its first commercial project for Statoil ASA in October 2013 on the Albatross and Snøhvit fields in the Barents Sea. During 2013, MagSeis entered into a five-year frame agreement with Statoil under which two surveys were awarded for 2014, providing a solid foundation for continued development and growth. MagSeis’ management team and employees, led by its founders Ivar Gimse and Jan B. Gateman, have significant experience within geology, geophysics as well as marine seismic operations. The Company has developed a proprietary system, which will significantly improve the efficiency of OBS operations. OBS data is widely recognised as the highest quality seismic data available today. Exploration and Production companies have over the past few years, started to adopt the OBS technology to cope with increasingly challenging geology. Where exploration seismic traditionally has had the majority of the total 3D volume, production related seismic is now the fastest growing segment, and OBS is expected to capture an increasing share of 4D work relative to streamer in the future.
Currently Artemis Athene operates a MASS cable inventory of 75km with 3,000 sensor capsules, but following the successful equity issue in March 2014 MagSeis will increase this to 110 kilometers and 4500 sensor capsules by the fourth quarter of 2014. Additionally, MagSeis has commenced preparations for the start-up of a second crew during 2014.
Technology MagSeis’ OBS acquisition system is based on the principles of small, autonomous sensor capsules that can be integrated in an optimized steel cable. It can be deployed and recovered at high speed and in much larger quantities than existing equipment in the market (the MASS system).
MagSeis’ technology allows an Ocean Bottom Cable to be deployed in much greater lengths than what has previously been possible. Through this technology, MagSeis aims to reduce the time required to conduct OBS surveys and consequently the cost. The vision is that OBS costs can be reduced to a level where it becomes a widely used tool for not only field development but also for exploration.
The sensor capsules have been designed as autonomous units where each capsule contains, hydrophone, geophones, batteries and electronics with dedicated software all of which is assembled inside a watertight, duplex-steel casing. On-board the vessel, the sensor capsules are handled by a fully-automated system based on well-established industrial robot technology as well as in-house developed software. The system has been designed to handle large numbers of sensor capsules in a safe and efficient manner while also reducing the amount of manual labour required.
MagSeis’ business model is to deliver OBS acquisition services to oil and gas companies world-wide. The Company provides survey design and planning as well as offshore acquisition services. The subsequent data processing and interpretation services will be conducted by third parties selected by the clients themselves.
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Introduction to MagSeis For the year ended 31 December 2013
DIRECTORS Name and Qualifications
Experience and Special Responsibilities Anders Farestveit has 45 years’ experience from the seismic and oil exploration industry. Anders founded GECO in 1972 and served as CEO until 1987 when Schlumberger acquired 50% of the Group. Anders served as Working Chairman of Schlumberger Norge until 1999 when he retired. Anders was one of the founders of the seismic company Wavefield InSeis ASA which as listed at the Oslo Stock Exchange in 2007. Wavefield Inseis was subsequently acquired by CGG in 2008.
Anders Farestveit M.Sc. in Geophysics Chairman Non-Executive Director
He has been recognised for his contribution to the seismic industry and has received several awards, as Honorary Doctor University of Bergen, Honorary member SEG and 1993 Oilman of the year by Society of Petroleum Engineers (SPE) International.
Noralf Matre has 40 years’ of experience from the shipyard and offshore industries as CEO and in different senior management positions. Noralf is one of three main shareholders and board member of Westcon Group. Noralf is presently chairman for Maritim Management AS which is the group’s seismic ship operation company.
Noralf Matre Non-Executive Director
As shipyard manager and ship owner Noralf has been involved with all aspects of ship building and operation of ships. Noralf is a College graduate from the University of Stavanger in 1973 within shipping economics.
Mr. Jan Gateman has 30 years seismic industry experience, with particular focus on the Multi Client seismic business segment, and has held various senior management positions with companies such as Geco (1983- 1987), Nopec (1987-1993), Compagnie Generale de Geophysique (CGG) (19931998), GeoInnova, Inseis and Wavefield Inseis. He was one of the persons pioneering the Multi Client 3D seismic industry in North West Europe and is also one of the founders of both GeoInnova and InSeis.
Jan B Gateman M.Sc. in Marine Geology Executive Director Senior Vice President
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Introduction to MagSeis For the year ended 31 December 2013
Elisabet Malmquist worked in Saga Petroleum for 16 years, where among other things she played a central role in discovery of the Borg Field in the Tampen area. She has experience from most of the Norwegian licensing rounds, TFO applications, data analysis and G&G work in partner as well as operator licences. She has also worked as an independent G&G consultant, in which capacity she had long-term contracts with Norwegian and international oil companies. Elisabet is currently employed as a Geological Advisor by Concedo AS.
Ellen Ingeborg Elisabet Malmquist M.Sc. in Geology Non-Executive Director
On 3 March 2014, Mrs. Elisabeth Malquist resigned from the Board of Directors in order to focus on her work at Concedo AS.
EXECUTIVE MANAGEMENT Mr. Gimse has more than 25 years seismic industry experience, with particular focus on data processing, multi-client seismic project development, Ocean Bottom Cable operations and technical marketing. Ivar held various senior management positions with Geco-Prakla (1983-1998) and PGS (1998-2006) before joining InSeis in 2006 as Vice President, Business Development.
Ivar Gimse M.Sc. in Geophysics CEO
Mr Ektvedt graduated from Simon Fraser University in Canada in 2000 with a Bachelor of Business Administration. From 2000 to 2008 Mikkel worked for the corporate finance division of SEB Enskilda in London and Oslo. From 2008 to 2010 Mikkel worked for FLEX LNG as VP of corporate development. Prior to joining MagSeis, Mikkel spent six months as CFO of Bergen Oilfield Services.
Mikkel Ektvedt BA in Business Administration CFO
COMPANY SECRETARY Mikkel Ektvedt was appointed to the position of company secretary as part of his duties as CFO of the Group.
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For the year ended 31 December 2013
BOARD OF DIRECTORS REPORT HIGHLIGHTS quisition services for Statoil ASA during the period from 2014 – 2018. The frame agreement covers work that has been awarded for the 2014 season and is anticipated to be awarded for the 2015 season, as well as for future tenders during the term of the agreement. Under the agreement, MagSeis has been awarded 4D OBS work on the Oseberg and Gullfaks fields during 2014 and is anticipated to be awarded the Kvitebjørn field during 2015. The expected duration of the work is approximately 200 days depending on weather and interference.
During March 2013, MagSeis AS acquired 100 percent of the shares in MagSeis Operations AS. The two companies together are referred to as the “Group” or “MagSeis”. In October 2013, the Group entered into a time charter (“TC”) agreement with Westcon Group (related party) for a 5-year lease for the provision of the combined source and cable vessel Artemis Athene. The lease includes an option to extend the lease with 24 months. Refer to note 17 Leases and 19 Related parties for further information.
Going forward, the Group will continue working towards developing an industry leading OBS service provider. The short to medium-term strategy is to increase the size of our proprietary system on board Artemis Athene and to prepare for the introduction of a second, larger crew. In addition, the Group is working to secure a stock exchange listing on Oslo Axess during the first half of 2014.
On 30 September, the Group finalized the production of its seismic equipment and the equipment was installed on Artemis Athene. Subsequently, the Group started operations on the Albatross and Snøhvit fields. Due to weather conditions, the survey has taken longer than first expected and will therefore continue into 2014. The initial results have shown that the system delivers very high quality data, which has been confirmed by the client, Statoil.
The Group’s head office is located in Lysaker, Norway with additional offices in Bergen, Norway and Kista, Sweden.
During December 2013, the Group entered into a frame agreement to provide global Ocean Bottom Seismic ac-
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Photo: Eldri Bøhn, Magseis
Board of Directors report For the year ended 31 December 2013
FINANCIAL REVIEW
FUNDING AND GOING CONCERN
Group
After a successful start of operations during October 2013, the Group was awarded a frame agreement to provide global Ocean Bottom Seismic (OBS) acquisition services for Statoil ASA during the period from 2014 – 2018. The frame agreement regulates work that has been awarded for the 2014 and is anticipated to be awarded for the 2015 season, as well as for future tenders during the term of the agreement. This provides the Group with significant contract coverage for 2014 and starts to build the potential 2015 backlog.
The Group’s revenue was NOK 74.1 million and relates to seismic operations starting in the fourth quarter. In 2012, the revenue amounted to NOK 3 million, which related to testing of the Group’s OBS equipment. Cost of sales amounted to NOK 59.9 million compared to NOK 1.9 million in 2012. Net loss after tax for the financial year was NOK 51.8 million (-12.0). The loss results primarily from work related to the development and testing of the Group’s proprietary MASS system as well as costs related to the gradual development of the organisation. The loss for the year has been transferred to retained earnings.
MagSeis is continuing the work to secure employment for Q4 2014 and beyond, and discussions with several potential clients are initiated. The oil industry has planned several surveys for 2014 and MagSeis does not believe that the available market capacity will be sufficient to meet demand, enabling MagSeis to be in a good position to secure further work. Part of the reason for this is that MagSeis operates its crew from a combined vessel and thereby enjoys a lower cost base than most of our OBS competitors. This makes MagSeis highly competitive with regard to the pricing of their tenders.
As at 31 December 2013, the Group’s total assets amounted to NOK 356.9 million (329.1). Equipment and intangibles represented NOK 240.6 million (53.6). At the end of the period, the Group’s equity amounted to NOK 268.8 million (315.2) which gives an equity ratio of 75.3 percent (95.8 percent). The cash balance at 31 December 2013 was NOK 41.8 million compared to NOK 257.6m in 2012. Operating cash outflow was NOK 57.6 million explained by growth and development costs. In 2012, the operating cash outflow was NOK 23.7 million. Outflow from investments was NOK 182.7 million (44.0) due to acquisition of equipment and development of the proprietary MASS system. Financing activities inflow was NOK 24.4 million. This was mainly due to a sale and leaseback transaction, which represented financing of parts of the Group’s equipment. In 2012, NOK 318.5 million was received through finance activities (mainly proceeds from issuance of shares and a shareholder loan).
The Group’s ability to conduct its marine seismic operations and fund the development and production of equipment, is dependent on the Group continuing to secure future binding work orders under new or existing agreements with customers. Subsequent to year-end the Group has completed a private placement of NOK 120 million primarily to fund the further development of operations and equipment. Following this capital raising and with backlog through Q3 2014, the Board is confident that the operations and expansion of the Group has sufficient funding for the coming year. The Company has been successful in generating work orders under existing frame agreements, and has a history of being able to raise capital to fund its development and operating activities. In addition, the Company has the capacity to delay or cancel payments that are discretionary in nature, including administrative costs and equipment development programs that are not contractually binding.
Parent Net loss after tax for the financial year was NOK 51.8 million (-12.0). The loss for the year has been transferred to retained earnings. The cash balance at 31 December 2013 was NOK 41.6 million compared to NOK 257.6m in 2012. During the twelve months through December 2013, the operating cash outflow was NOK 57.7 million. In 2012, the operating cash outflow was NOK 23.7 million. The outflow from investments was NOK 182.8 million (44.0). Financing activities inflow was NOK 24.4 million. In 2012, NOK 318.5 million was received through finance activities (mainly proceeds from issuance of shares and a shareholder loan).
Pursuant to section 3-3a of the Norwegian Accounting Act, the Board confirms that the 2013 financial statements have been prepared based on the assumption of a going concern.
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Board of Directors report For the year ended 31 December 2013
RISKS The revenue and cash flow from operations gives the Group access to working capital for on-going operations. Furthermore, revenue is dependent on the financial position of the customers and the willingness of these customers to honour their obligations towards MagSeis in a timely manner. The inability of one or more of the contractual parties to make payment under the contracts might have a significant adverse effect on the Group’s financial position. The Group’s revenue is primarily from large multi-international oil and gas companies, including companies owned whole or in part by governments, and the Board deems the Group’s exposure to credit risk as relatively limited due to the nature of the Group’s customer base.
The Group is exposed to risk factors including, but not limited to, the ones described below and in note 3 Financial risk management of the annual accounts. The Group’s current focus is to gain back-log for our first crew as well as start production of equipment for our second crew and vessel, which exposes the Group to a variety of commercial, operational and financial risks, including market risks, credit risks and liquidity risks. MagSeis is exposed to the economic cycle and macro-economic fluctuations, since changes in the general economic situation could affect the demand for seismic technology and services. Although there are strong drivers supporting the anticipated growth of OBS acquisition, no assurance can be provided with regard to future market development. MagSeis’ business and operations will depend particularly upon development and production spending by oil and gas companies. Any significant reduction of their activity may result in decreased demand for OBS acquisition services. However, historically, in times of low oil price, it is the exploration spending which is reduced, as opposed to production related spending, where Magseis is active.
The Group may require additional capital in the future, due to unforeseen events or in order to take advantage of opportunities such as acquisitions, joint ventures or other business opportunities that may be identified. Any negative development in sales, gross margins or sales processes, may lead to a strained liquidity position and a potential need for additional funding through equity financing, debt financing or other means. Any additional equity financing may be dilutive to existing shareholders.
WORKING ENVIRONMENT AND PERSONNEL
The Group has historically funded its operations through equity financing. Obtaining such financing may be subject to market risks and other risks that influence the availability, structure and terms of financing. The willingness of investors depends on the outlook for the OBS market and the demand for oil products, which again is dependent on the oil price. MagSeis is continuously working with finance institutions and potential investors to obtain the necessary knowledge to create an advantageous capital structure.
At the end of 2013, MagSeis had in total of 55 employees and 13 full time consultants, 60 men and 8 women. There have not been any serious injuries or accidents in the current or prior year. The average number of work days recorded as sick for the office population was zero days per person for the current year. The Group’s policy prohibits unlawful discrimination against employees, on account of ethnic or national origin, age, sex or religion. Respect for the individual is the cornerstone of this policy and the Group also aims to treat its employees with dignity and respect.
The Group’s revenue and purchases are denominated in various currencies. This involves risks for variations in currency rates.
Photo: Susan Penty, Magseis
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Board of Directors report For the year ended 31 December 2013
POST BALANCE SHEET EVENTS
While employee association practices may vary in different countries in accordance with local standards, MagSeis endeavours to involve employees and appropriate representatives in the development of the Company.
In April 2014 the Group received work orders for providing 4D OBS acquisition services for Statoil ASA on the Oseberg and Gullfaks fields during 2014. The work is based on a frame agreement entered into with Statoil ASA in December 2013. The expected duration of the work is approximately 200 days depending on weather and interference.
Environment MagSeis recognises that their activities have an impact on the environment in the use of raw materials, emissions to air and water, waste generation, and interaction with marine life and habitat. MagSeis is committed to minimising this impact as far reasonably achievable for both offshore and office based activities. This is conducted through maintaining a programme of continual improvement in environmental performance incorporating suitable measurement and monitoring. MagSeis has developed and implemented an Environmental Management System (EMS) in order to document best practice within the Company, and delivers high quality seafloor data in a manner that meets the Group’s environmental objectives. The EMS meets the requirements of ISO 14001:2004, the internationally recognised standard for management of environmental impact.
As of 31 December 2013, the Group has approximately NOK 41.5 million in capital commitments. Refer to note 18 Capital commitments for further information.
CORPORATE SOCIAL RESPONSIBILITY MagSeis attaches great importance to corporate social responsibility. Our business is dependent on the quality of our internal routines for quality, health, safety and environment (“QHSE”). We have established a QHSE department, which works full time on integration of policies, principles, procedures and standards.
Human rights and labour MagSeis’ employees originate from around the world, and there may be situations where MagSeis is hiring employees from, or execute operations in, countries where human rights may be at risk. The Group continuously strives to prevent potential situations where the Company contributes to breaching internationally acknowledged human rights.
Anti-corruption MagSeis’ operations may in the future be executed in parts of the world where corruption and bribery is common. To prevent contributing to companies and individuals gaining an unfair advantage, MagSeis has established bribery and anti-corruption guidelines. The guidelines are incorporated in the Group’s Code of Conduct, which is mandatory for all new employees to read and sign-off. Where the Code of Conduct or company guidelines differ from local laws or regulations, the highest standard applies.
In operations and in the supply chain, MagSeis respects fundamental labour rights and labour standards, such as non-discrimination, freedom of association and collective bargaining, decent wages and regulated working hours. Where local law set a lower standard than international standards, MagSeis makes their best effort to meet international standards.
Board of Directors of MagSeis AS, Lysaker, 22 April 2014
Anders Farestveit Chairman
Noralf Matre Director
Jan Gateman Senior Vice President
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Ivar Gimse CEO
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For the year ended 31 December 2013
CORPORATE GOVERNANCE REPORT General principles, implementation and re- currently expect to pay ordinary dividends to shareholders. Any future dividend payment will be subject to deterporting on Corporate Governance mination based on the Group’s results and other factors the Board of Directors find relevant. Dividend payments will be subject to approval by the shareholders at the Group’s Annual General Meetings.
The Group believes that good and sound corporate governance creates higher shareholder value. As a result, MagSeis is committed to developing high standards of Corporate Governance. MagSeis’ principles of Corporate Governance are being developed in light of the Norwegian Code of Practice for Corporate Governance (the “Code”), dated October 23, 2012, as required for all listed companies on the Oslo Stock Exchange. The Code is available on www.nues.no.
Equal treatment of shareholders and transactions with close associates MagSeis has one class of shares and all shares are freely transferable (with possible exceptions due to foreign law restrictions on sale and offering of securities). All shares in the Group carry equal voting rights. The shareholders exercise the highest authority in the Group through the General Meeting. All shareholders are entitled to submit items to the agenda, and to meet, speak, and vote at the General Meeting.
The principles are also in accordance with section 3-3b of the Norwegian Accounting Act, which can be found at www.lovdata.no/all/nl-19980717-056.html. MagSeis views the development of high standards of Corporate Governance as a continuous process and will continue to focus on improving the level of Corporate Governance.
Freely negotiable shares The Board of Directors has the overall responsibility for Corporate Governance at MagSeis and ensures that the Group implements sound Corporate Governance.
The Company’s shares are not subject to ownership restrictions pursuant to law, licensing conditions or the Articles of Association.
MagSeis’ activities
General Meetings
MagSeis’ vision is to continue the development of the proprietary system, which will significantly improve the efficiency and increase the use of OBS. This is reflected in Article 3 of the Articles of Association, which reads “The Group’s activities include the development of geophysical equipment and methods, generation, marketing and sales of exclusive and non-exclusive geophysical surveys and other business that fall within such activities.
Through the Company’s General Meeting, the shareholders exercise the highest authority in the Group. General Meetings are held in accordance with the Code. All shareholders are entitled to submit items to the agenda, meet, speak and vote at General Meetings. The Annual General Meeting is held each year before the end of June. Extraordinary General Meetings may be called by the Board of Directors at any time.
The Group’s core purpose is to significantly reduce the costs of OBS operations and broaden the applications for which it can be used. MagSeis wants to be their customers’ first choice within field development and the exploration industry. In fulfilling this purpose, MagSeis will create longterm value for their customers and shareholders.
General Meetings are convened by written notice to all shareholders with known addresses, no later than 21 days prior to the date of the meeting. Proposed resolutions and supporting information, including information on how to be represented at the meeting, vote by proxy and the right to propose items for the General Meeting, is generally made available to the shareholders no later than the date of the notice. Shareholders who wish to receive the attachments may request the Group to mail such attachments free of charge. Resolutions and the supporting information are sufficiently detailed and comprehensive to allow shareholders to form a view on all matters to be considered in the meeting.
Equity and dividends The Group’s equity is considered to be adequate relative to MagSeis’ financial objectives, overall strategy and risk profile. To achieve its ambitious long-term growth objectives, it is likely that MagSeis will need to raise additional capital in the years to come. It is MagSeis’ policy to maintain a high equity ratio during this growth phase. MagSeis has yet to generate steady profits, and does not
Shareholders who are unable to be present in the meet-
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Corporate governance report For the year ended 31 December 2013 ing are encouraged to participate by proxy, and a person who will be available to vote on behalf of shareholders as their proxy will be nominated. Proxy forms will allow the proxy-holder to cast votes for each item separately. A final deadline for shareholders to give notice of their intention to attend the meeting or vote by proxy will be set in the notice for the meeting. Such deadline will be set as close as possible to the date of the General Meeting, and under any circumstance in accordance with the principles of section 5-3 of the Public Limited Companies Act.
sentatives of the employees of the Group as warranted by Norwegian Law. The Board of Directors have overall responsibility for the management of the Group. This includes a responsibility to supervise and exercise control of the Group’s activities. As at the date of the Annual Report, the Board of Directors consists of four members, including one company representative. The proceedings and responsibilities of the Board of Directors are governed by a set of rules of procedure. It is the Group’s intention that the members of the Board of Directors will be selected in the light of an evaluation of the Group’s needs for expertise, capacity and balanced decision making, with the aim of ensuring that the Board of Directors can operate independently of any special interests and that the Board of Directors can function effectively as a collegial body.
The Chairman, CEO, and the CFO will, under normal circumstances, be present at the meeting in person. The Chairman for the meeting is independent. Notice, enclosures and protocol of meetings will be available on MagSeis’ Website. The General Meeting elects the members of the Board of Directors (excluding company representatives), determines the remuneration of the members of the Board of Directors, approves the annual accounts and decides such other matters, which by law, by separate proposal or according to the Group’s Articles of Association, are to be decided by the General Meeting. The General Meeting will normally vote separately on each candidate for election for the Board of Directors and any other corporate bodies to which members are elected by the General Meeting.
The directors are encouraged to hold shares in the Group, which the Board believes promotes a common financial interest between the members of the Board and the shareholders of the Group. Pursuant to the Code, at least half of the shareholder-elected members of the Board of Directors shall be independent of the Group’s management and its main business connections. At least two of the shareholder-elected members of the Board of Directors shall be independent of the Group’s main shareholders.
The minutes from General Meetings will be posted on the Group’s Website within 15 days after the General Meeting has been held. Information that a General Meeting has been held will be made public as soon as possible after the end of the meeting.
It is the Group’s view that none of the directors are considered independent of the Group’s main shareholders nor are any shareholder elected directors considered independent of the Group’s management and main business connections. Currently, one executive consultant is a director. The term of office for members of the Board of Directors is two years unless the General Meeting decides otherwise, but a director may be re-elected.
Nomination committee MagSeis has not established a nomination committee. A nomination committee will be established and incorporated in the Company’s Articles of Associations prior to the planned listing on Oslo Axess Exchange in 2014. The General Meeting will elect the chairman of the committee and approve the Nomination Committee Guidelines. The Board of Directors, in cooperation with the committee’s Chairman, will elect the remaining members. The Nomination Committee’s duties will be to propose candidates for election to the Board of Directors and to propose the fees to be paid to members.
A process has been initiated to change the composition of the Board and to elect new members that satisfy the criteria for independence as established by the Code. Such changes are expected to be put in place prior to a listing of the Group on Oslo Axess Exchange, which is planned to take place during the first half of 2014. One of the criteria that will be considered in making the selection of new Board members will be the suitability for participating in the audit committee, which will be established after the listing.
Corporate assembly and Board of Directors: Composition and independence MagSeis is not required to have and does not have a corporate assembly, as agreed by key management repre-
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Corporate governance report For the year ended 31 December 2013
The work of the Board of Directors
ment, evaluates the risks inherent in the operations of the Group. Principal among these risks currently are those relating to current operations as well as construction of the Group’s second proprietary system and crew, obtaining contractual counterparties, retaining key staff and general financial risk. In addition, the following risks inherent in the business plan are monitored: commodity prices, exchange rates, competition, the political and regulatory environment, counterparty performance, and the potential growth of the business and the application of new technology.
The Board of Directors meet a number of times within a year, including for strategy meetings, and will hold additional meetings under special circumstances. Its working methods are openly discussed. Between meetings, the Chairman and Chief Executive Officer update the Board members on current matters. There is frequent contact regarding the progress and affairs of the Group. Each Board meeting includes a briefing by one of the functional or department managers of the Group followed by Q&A. The Board meetings are a continuous center of attention for the Board of Directors, ensuring executive personnel maintain systems, procedures and a corporate culture that promote high ethical conduct and compliance with legal and regulatory requirements.
The Board, working with the finance department and through the annual audit process, ensures that the Group has reliable internal control and systems for risk management.
The Group is not required to establish an Audit Committee, but intends to do so after the planned listing on Oslo Axess.
The Board is presented an annual budget at the end of the preceding financial year. Thereafter, the Board is presented with regular updates and reports identifying material variations from the approved budget. Explanations are obtained for material variances. The Board is also presented with financial statements on a quarterly basis, which are reviewed with the executive management. The Group’s annual accounts provide information on internal control and risk management systems as they relate to its financial reporting.
Remuneration of the Board of Directors No remuneration has been taken by the Board since the establishment of the Group and no Remuneration Committee has been established.
Remuneration of the executive personnel The Group’s policy for management remuneration is that leading employees shall receive competitive salary in order to maintain continuity in the executive management. The Group shall offer a level of salary, which reflects the level of salary in equivalent companies in Norway and abroad. All executive personnel are included in the Group’s share option program.
Information and communications Communication with shareholders, investors and analysts is a high priority for MagSeis. The Group believes that objective and timely information to the market is a prerequisite for a fair valuation of the Group’s value and, in turn, the generation of shareholder value. The Group continually seeks ways to enhance its communication with the investment community.
Risk management and internal control The Board, in conjunction with the executive manage-
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Corporate governance report For the year ended 31 December 2013 If an offer is made for the shares of MagSeis, the Board of Directors will make a recommendation on whether the shareholders should or should not accept the offer, and will normally arrange for a valuation from an independent expert.
Take-overs The Board of Directors endorses the recommendation of the Code. The Articles of Association of MagSeis do not contain any restrictions, limitations or defense mechanisms on acquiring the Group’s shares.
Auditor
In accordance with the Securities Trading Act and the Code, the Board has adopted guidelines for possible takeovers. In the event of an offer, the Board of Directors will not seek to hinder or obstruct takeover bids for MagSeis’ activities or shares. Any agreement with the bidder that acts to limit the Group’s ability to arrange other bids for the Group’s shares will only be entered into where the Board believes it is in the common interest of the Group and its shareholders. Information about agreements entered into between the Group and the bidder that are material to the market’s evaluation of the bid will be publicly disclosed no later than at the same time as the announcement that the bid will be made is published.
The auditor is to participate in meetings of the Board of Directors that deal with the annual accounts. The auditor will present to the Board of Directors a report outlining the audit activities in the previous fiscal year and highlighting the areas that caused the most attention or discussions with management, and a plan for the work related to the Group’s audit. The auditor will make themself available upon request for meetings with the Board of Directors during which no member of the executive management is present, as will the Board of Directors upon the auditor’s request. The General Meeting is informed about the Group’s engagement and remuneration of the auditor and the fees paid to the auditor for services other than the annual audit, and details are given in notes to the Annual Report.
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FINANCIAL STATEMENTS
16
Statements of comprehensive income For the year ended 31 December 2013
in thousands of NOK REVENUE AND OTHER INCOME Revenue Other income Total revenue and other income OPERATING EXPENSES Cost of sales Research and development expenses Selling, general and administrative costs Depreciation and amortisation Total operating expenses
Group 2013
Group 2012
Parent 2013
Parent 2012
5 5
74 128 0 74 128
3 000 0 3 000
74 128 32 74 160
3 000 0 3 000
6 6 6 12, 13
59 868 8 243 46 435 11 968 126 514
1 870 7 959 5 690 430 15 949
59 868 8 243 46 447 11 968 126 526
1 870 7 959 5 690 430 15 949
-52 386
-12 949
-52 366
-12 949
3 803 -3 227 576
1 187 -269 918
3 803 -3 227 576
1 187 -269 918
-51 810
-12 031
-51 790
-12 031
0
0
0
0
-51 810
-12 031
-51 790
-12 031
0
0
0
0
-51 810
-12 031
-51 790
-12 031
-49,19 -49,19
-33,67 -33,67
Note
OPERATING PROFIT (LOSS) FINANCIAL INCOME AND EXPENSES Finance income Finance costs Net finance costs
7 7
NET PROFIT (LOSS) BEFORE TAX Income tax expense
10
NET PROFIT (LOSS) OTHER COMPREHENSIVE INCOME Other comprehensive income (loss) for the period Total comprehensive income (loss) for the period, attributable to Owners of the Company Basic earnings (loss) per share Diluted earnings (loss) per share
15 15
17
Statements of financial position For the year ended 31 December 2013
Note
in thousands of NOK ASSETS
Group 2013
Group 2012
Parent 2013
Parent 2012
Non-current assets Equipment Intangible assets Investments Total non-current assets
12 13 20
227 182 13 412 0 240 594
41 456 12 167 0 53 623
227 182 13 412 50 240 644
41 456 12 167 0 53 623
Current assets Cash and cash equivalents Trade receivables Other current assets Total current assets
8 3 9
41 780 55 973 18 540 116 293
257 645 0 17 788 275 433
41 627 55 973 18 578 116 178
257 645 0 17 788 275 433
356 887
329 056
356 822
329 056
Shareholders' equity Share capital 14 Share premium 14 Other equity 16 Retained earnings Total equity attributable to equity holders of the Company
1 053 338 504 6 177 -76 951 268 783
1 053 338 504 815 -25 141 315 231
1 053 338 504 6 177 -76 931 268 803
1 053 338 504 815 -25 141 315 231
TOTAL EQUITY
268 783
315 231
268 803
315 231
TOTAL ASSETS EQUITY AND LIABILITIES
LIABILITIES Non-current liabilities Obligation under finance lease Other non-current financial liabilities Total non-current liabilities
17 17
21 298 11 357 32 655
0 0 0
21 298 11 357 32 655
0 0 0
Current liabilities Trade payables Current tax payable Current portion of obligations under finance lease Other current liabilities Total current liabilities
3 10 17 11
26 372 208 4 170 24 699 55 449
10 260 208 0 3 357 13 825
26 372 208 4 170 24 614 55 364
10 260 208 0 3 357 13 825
88 104
13 825
88 019
13 825
356 887
329 056
356 822
329 056
TOTAL LIABILITIES TOTAL EQUITY AND LIABILITES
Board of Directors of MagSeis AS, Lysaker, 22 April 2014
Anders Farestveit Chairman
Noralf Matre Director
Jan Gateman Senior Vice President
18
Ivar Gimse CEO
Statements of changes in equity For the year ended 31 December 2013
Group Share capital
Share premium reserve
Share based payments reserve
Retained earnings
Total
234
20 818
0
-13 110
7 942
0 0 0 819 0 0 1 053
0 0 0 331 223 -13 537 0 338 504
0 0 0 0 0 815 815
-12 031 0 -12 031 0 0 0 -25 141
-12 031 0 -12 031 332 042 -13 537 815 315 231
Balance at 1 January 2013
1 053
338 504
815
-25 141
315 231
Profit / (loss) for the period Other comprehensive income Total comprehensive income for the period Share-based payments (options) Balance at 31 December 2013
0 0 0 0 1 053
0 0 0 0 338 504
0 0 0 5 362 6 177
-51 810 0 -51 810 0 -76 951
-51 810 0 -51 810 5 362 268 783
Share capital
Share premium reserve
Share based payments reserve
Retained earnings
Total
234
20 818
0
-13 110
7 942
0 0 0 819 0 0 1 053
0 0 0 331 223 -13 537 0 338 504
0 0 0 0 0 815 815
-12 031 0 -12 031 0 0 0 -25 141
-12 031 0 -12 031 332 042 -13 537 815 315 231
1 053
338 504
815
-25 141
315 231
0 0 0 0
0 0 0 0
0 0 0 5 362
-51 790 0 -51 790 0
-51 790 0 -51 790 5 362
1 053
338 504
6 177
-76 931
268 803
in thousands of NOK Note Balance at 1 January 2012 Profit / (loss) for the period Other comprehensive income Total comprehensive income for the period Share issuance Transaction costs on issuance of shares Share-based payments (options) Balance at 31 December 2012
14 14 16
16
Parent in thousands of NOK Note Balance at 1 January 2012 Profit / (loss) for the period Other comprehensive income Total comprehensive income for the period Share issuance Transaction costs on issuance of shares Share-based payments (options) Balance at 31 December 2012
14 14 16
Balance at 1 January 2013 Profit / (loss) for the period Other comprehensive income Total comprehensive income for the period Share-based payments (options) Balance at 31 December 2013
16
19
Statements of cash flows For the year ended 31 December 2013
in thousands of NOK Cash flows from operating activities Profit / (Loss) before tax Adjustment for: Depreciation and amortisation Deferred lease discount amortisation Share based payments expense Interest expense Interest income Revaluation of foreign currency exchange
Note
12, 13 17 16 7 7
Working capital adjustments: (Increase) / decrease in current assets Increase / (decrease) in trade and other payables and accruals Income taxes paid Net cash from operating activities Cash flows from investing activities Interest received Investment in subsidiary Acquisition of equipment Payments for capitalised development and intangibles Net cash used in investing activities
20 12 13
Cash flows from financing activities Proceeds from loan Proceeds from sale and leaseback Payment of finance lease obligation Proceeds from issuance of ordinary shares Transaction costs from issuance of shares Interest paid Net cash from financing activities
14 17 17 14 14
Net decrease in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December
8
20
Group 2013
Group 2012
Parent 2013
Parent 2012
-51 810
-12 031
-51 790
-12 031
11 968 13 509 5 362 689 -3 691 441
430 0 815 40 -925 0
11 968 13 509 5 362 689 -3 691 441
430 0 815 40 -925 0
-56 725 22 687 -34 038 0 -57 570
-13 313 1 313 -23 671 0 -23 671
-56 763 22 602 -34 161 0 -57 673
-13 313 1 313 -23 671 0 -23 671
3 691 0 -184 457 -1 951 -182 717
925 0 -32 801 -12 168 -44 044
3 691 -50 -184 457 -1 951 -182 767
925 0 -32 801 -12 168 -44 044
0 25 000 -334 0 0 -244 24 422
25 000 0 0 295 221 -1 715 -40 318 466
0 25 000 -334 0 0 -244 24 422
25 000 0 0 295 221 -1 715 -40 318 466
-215 865 257 645 41 780
250 751 6 894 257 645
-216 018 257 645 41 627
250 751 6 894 257 645
For the year ended 31 December 2013
NOTES TO THE FINANCIAL STATEMENTS 1
Reporting entity
2.3 Significant accounting judgements, estimates and assumptions
MagSeis AS (the “Company” or the “Parent”) is a limited liability company incorporated in Bærum, Norway. The address of the Group’s registered office is Fornebuveien 5, 1366 Lysaker. These consolidated financial statements as at and for the year ended 31 December 2013, comprise MagSeis AS and its subsidiary (together referred to as “the Group” or “MagSeis”). The Group is primarily involved in marine seismic operations and seismic-related activities.
2.1 (a)
The preparation of the Group’s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
Basis of preparation Statement of compliance
Judgements
The Parent and consolidated financial statements (together the “financial statements”) have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union and their interpretations adopted by the International Accounting Standards Board (IASB). The financial statements were authorised for issue by the Board of Directors on 22 April 2014.
(b)
In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements:
Going concern The financial statements have been prepared on a going concern basis, which assumes the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the normal course of business.
Basis of measurement
The financial statements have been prepared on the historical cost basis.
The Group has recognised a loss after tax of NOK 51.8 million for the year ended 31 December 2013 and, as at that date, current assets exceed current liabilities by NOK 60.8 million. Subsequent to year end, as described in note 21, the Group has completed a private placement of NOK 120 million and received confirmation of work orders through Q3 2014. Following this capital raising and with backlog through to Q3 2014, management is confident that the operations and expansion of the Group has sufficient funding.
The financial statements have been prepared on the going concern basis.
(c)
Functional and presentation currency
The financial statements are presented in Norwegian Kroner (NOK), which is also the Group’s functional currency. All financial information presented in NOK has been rounded to the nearest thousand unless otherwise stated.
2.2
Management continually evaluate the Group’s working capital based on information on future contracts and net cash flow. Management prepare the cash flow forecasts based on the Group’s contracted work orders and anticipated backlog. When concluding on the going concern assumption, management use cash flow forecasts for the next 12 months, from the release date of the financial report, as basis.
Basis for consolidation
The consolidated financial statements comprise the financial statements of the Company and its subsidiary as at 31 December 2013. Subsidiaries are entities controlled by the Group. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Intra-group balances and transactions, and any unrealised income and expense arising from intra-group transactions, are eliminated.
When assessing the appropriateness of the going concern assumption various assumptions are made by management, which depend on factors beyond the Group’s con-
21
Notes to the financial statements For the year ended 31 December 2013 trol, and are subject to certain risks and uncertainties. Accordingly, actual results may differ materially from those contained in forward looking statements.
nomic fluctuations, since changes in general economic changes could affect the demand for seismic technology and services. This may indicate the need for impairment. To assess whether one or more external indicators of impairment are present, the Group’s management continuously monitor the demand for the Group’s services. Management also considers any expected changes in regulations of the industry. When assessing external indicators, management assume that its perception of current and future expectations are correct.
Lease classification The Group has entered into several lease agreements. The Group determines the classification of the lease based on an evaluation of the terms and conditions of the arrangements. This includes among others, judgements of whether the lease term constitutes a major part of the economic life of the leased asset and whether the present value of lease payments amounts to all or substantially all of the fair value of the leased asset at inception of the lease. Refer to note 17 Leases for further information.
Useful lives of equipment and intangible assets When the Group recognise new equipment and intangibles, the management assess the useful life of the individual equipment and intangible. A significant part of the Group’s equipment and intangibles are considered unique, and management obtain information from specialist inside the organisation with the applicable expertise when assessing the useful lives. In cooperation with the specialists, management estimate the wear and other factors for different components before grouping them and determine their useful life.
Capitalisation of development costs Development costs are capitalised in accordance with the accounting policy. Initial capitalisation of costs is based on management’s judgement that technical and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to an established project management model. In determining the amounts capitalised, management makes assumptions regarding the expected future cash generation of the project, discount rates to be applied and the expected period of benefits.
Management uses its best estimates and assumptions when assessing the amounts that reflect the equipment’s or intangible’s value. Numerous internal and external factors impact the calculation. Hence a change in the assumptions may have a material impact on the Group’s financial position as well as profit and loss. Refer to note 12 and 13 for further information.
Estimates and assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.
Share-based payments The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which is dependent on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model including the expected life of the share option, volatility and dividend yield and making assumptions about them. The assumptions and models used for estimating fair value for share-based payment transactions are disclosed in Note 16 Share-based payments.
Impairment of non-financial assets When identifying internal indicators of impairment, the Group assess a number of key factors. The Group’s backlog, cash flow forecasts from operations and strategy will impact the value of an asset. Since MagSeis seismic equipment is based on new technology, the actual compared to the intended function of a specific asset will impact the value. Management also take into account the physical condition when estimating the value of an asset. MagSeis is exposed to the economic cycle and macro-eco-
Provisions Provisions are based on the management’s best estimate. Provisions are reviewed at each reporting date to reflect the best estimate of liabilities.
22
Notes to the financial statements For the year ended 31 December 2013
2.4 Summary of significant accounting A financial instrument is recognised if the Group becomes a party to the contractual provisions of the instrument. Fipolicies
nancial assets are derecognised if the Group’s contractual rights to the cash flows from the financial asset expire, or the Group transfers the financial asset to another party without retaining control of substantially all of the risks and rewards of the asset. Financial liabilities are derecognised if the Group’s obligation specified in the contract expire or are discharged or cancelled. Financial liabilities are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.
The accounting policies set out below have been applied consistently to all periods presented in the Group’s financial statements, unless otherwise indicated. (a) Revenue recognition The Group recognises revenue from rendering of services in proportion to the stage of completion of the transaction at the reporting date. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The stage of completion is assessed based on surveys of work performed. The Group performs seismic services under contract for a specific customer, whereby the seismic data is owned by that customer. Revenue is based on various parameters, such as length of cable deployed and acquisition of receiver lines. The Group recognises contract revenue as the services are performed and become chargeable to the customer on a proportionate performance basis over the term of each contract. Progress is measured in a manner generally consistent with the physical progress of the project, and revenue is recognised based on the ratio of the project’s progress to date, provided that all other revenue recognition criteria are satisfied.
(b)
Foreign currency
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Cash and cash equivalents comprise cash balances and call deposits with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.
(II) Share capital
Ordinary shares are classified as equity. All shares have equal voting rights and equal rights to dividends. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.
Transactions in foreign currencies are translated to the functional currency of the Group based on the average monthly exchange rate for the previous month. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at the reporting date. Foreign currency differences arising on retranslation are recognised in the profit or loss.
(d)
Property, plant and equipment Items of equipment are measured at cost less accumulated depreciation and any accumulated impairment losses.
(c) Financial instruments (I) Non-derivative financial instruments
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour and any other costs directly attributable to bringing the assets to a working condition for their intended use. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
Non-derivative financial instruments comprise trade and other receivables, cash and cash equivalents, restricted cash, trade and other payables and finance lease obligation. Non-derivative financial instruments are recognised initially at fair value, plus any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured at amortised cost using the effective interest rate method.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
23
Notes to the financial statements For the year ended 31 December 2013 sets, from the date that they are available for use, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.
Items of equipment are depreciated from the date they are available for use or, in respect of self-constructed assets, from the date that the asset is completed and ready for use.
The estimated useful lives for the current and comparative periods are as follows:
Depreciation is calculated over the depreciable amount, which is the cost of an asset less its residual value.
• Capitalised development costs 3 - 5.9 years Depreciation is recognised in profit or loss on a straightline basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The estimated useful lives for the current and comparative periods are as follows: • Seismic equipment 3 - 7 years • Fixtures and Fittings 3 years • IT Equipment 3 years
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
(f) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. The Group’s provisions comprise vacation pay to employees which will be settled 1 July the year after the reporting date. The provisions carrying amount is measured at cost.
Depreciation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
(e)
(g)
Intangible assets
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss as incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable, and the Group intends to and has sufficient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Other development expenditure is recognised in profit or loss as incurred. Capitalised development is considered to have a finite life and expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated over the cost of the asset less its residual value. Amortisation is recognised in profit or loss on a straightline basis over the estimated useful lives of intangible as-
Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. Finance leases that transfer to the Group substantially all of the risks and benefits incidental to ownership of the leased item, are recognised at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. For the purpose of calculating the present value, the interest rate implicit in the lease is used as the discount factor. Lease payments made under finance leases are apportioned between finance costs and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Leased assets are depreciated over the shorter of the lease term and their useful life, unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Assets held under other leases are classified as operating leases and are not recognised in the Group’s statement of financial position. Operating lease payments are recognised as an operating expense in the income statement on
24
Notes to the financial statements For the year ended 31 December 2013 a straight-line basis over the lease term. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.
(h) Impairment (I) Financial assets
(i) Employee benefits (I) Short-term employee benefits
Financial assets which are valued at amortised cost are written down when it is probable that the Group will not recover all the amounts relating to contractual receivables. The amount of the impairment loss is recognised in the profit or loss as a finance cost. Any reversal of previous impairment losses is recognised when a reduction in the need to write down the asset can be related to an event after the impairment loss has been recognised. The decrease in impairment loss is reversed through profit or loss. Provision is made where there is objective evidence that the Group will be unable to recover balances in full from trade and other receivables. Balances are written off when the probability of recovery is assessed as being remote.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
(II) Share-based payment transactions
The grant date fair value of share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity, over the period that the employees unconditionally become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service conditions at the vesting date. All grants given in 2013 include a total vesting period of up to three years. Management believes this gives the employees incentive to be part of the organisation for a longer period. The share based payments are equity settled.
(II) Non-financial assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or a cash-generating-unit’s (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. Impairment losses are recognised in the profit or loss.
(III) Defined contribution plan
Obligations for contributions to defined contributions plans are expensed as the related service provided. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available. The Group is required to maintain a pension plan in accordance with the Norwegian Pension Benefit Act. The pension plans of the Group comply with the requirements set forth in the Norwegian Pension Benefit Act.
(j)
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators. The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a
Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. Grants that compensate the Group for expenses incurred are offset in profit or loss in the same periods in which the expenses were originally recognised. Grants that compensate the Group for the cost of an asset are offset in balance sheet and then recognised in profit or loss as a reduced depreciation over the useful life of the assets.
(k)
Finance income and finance costs
Finance income comprises interest income on funds invested and gains on foreign currency transactions that are recognised in profit or loss. Interest income is recognised
25
Notes to the financial statements For the year ended 31 December 2013 as it accrues in profit or loss, using the effective interest method.
impact the entity in the period of initial application. They are available for early adoption at 1 January 2013, but have not been applied in preparing this financial report.
Finance costs comprise of interest expense, impairment losses recognised on financial assets, and losses on foreign currency transactions that are recognised in profit or loss.
(l)
IFRS 10 – Consolidated Financial Statements This standard replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore, are required to be consolidated by a parent, compared with the requirements that were in IAS 27. The application of this standard will not have an impact on the financial position of the Group. This standard becomes effective for annual periods beginning on or after 1 January 2014.
Income tax
Income tax expense comprises current and deferred tax. Current tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses.
IFRS 12 Disclosures of interest in other entities This standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The application of this standard will not have an impact on the financial position of the Group. This standard becomes effective for annual periods beginning on or after 1 January 2014.
Deferred tax assets are recognised to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised. The carrying amount of deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
The Group intends to adopt the standards when they become effective. Currently the Group estimates that the implementation will have no material impact on the Group, or are unable to determine the impact. There are no other IFRSs or IFRICs interpretations that are not yet effective that is expected to have a material impact on the Group
Deferred tax assets and liabilities are not recognised for temporary differences from the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting, nor taxable profit or loss. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority.
(n) New standards and interpretations adopted by the Group and Parent in 2013 The accounting standards and standard amendments applicable to the Group and Parent and listed below were implemented on 1 January 2013. None of these standards and amendments has materially impacted the financial statements upon implementation.
IFRS 13 Fair Value Measurement
This standard established a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted.
(m) New standards and interpretations not yet adopted
The following standards, amendments to standards and interpretations have been identified as those which may
26
Notes to the financial statements For the year ended 31 December 2013 When measuring the fair value of an asset or a liability, the standard requires management to use market observable data as far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
The Group has implemented the standard in its financial reporting, but the implementation of the standard did not have any material impact on the financial position of the Group nor the Parent.
bility of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Board of Directors has overall responsibility for the establishment and oversight of the risk management framework. Risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities. The Group, through their training and management standards and procedures, aim to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Board of Directors oversees how management monitors compliance with the Group’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Group.
3.
Credit risk
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2: Inputs other than quoted prices included within Level 1 that are, observable for the asset or liability either directly or indirectly. Level 3: Unobservable inputs for the asset or liability.
Financial risk management
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers.
The Group’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including currency risk and interest rate risk). The Group’s overall risk management programme considers the unpredicta-
Photo: Øyvind Sætre/Westcon
27
Notes to the financial statements For the year ended 31 December 2013 Credit exposure as of 31 December 2013:
in thousands of NOK Financial assets Cash and cash equivalents Trade receivables Other receivables Total
Group
Group
Parent
Parent
Carrying amount / fair value
Carrying amount / fair value
Carrying amount / fair value
Carrying amount / fair value
2013
2012
2013
2012
41 780 55 973 7 917 105 670
257 645 0 12 431 270 076
41 627 55 973 7 955 105 555
257 645 0 12 431 270 076
Cash and cash equivalents comprise bank deposits in financial institutions. The credit risk from bank deposits
are considered low due to the financial institutions high credit rating.
The aging of trade receivables at the reporting date was (equal for Group and Parent): in thousands of NOK
Carrying amount
Impairment
Carrying amount
Impairment
2013 55 973 0 0 55 973
2013 0 0 0 0
2012 0 0 0 0
2012 0 0 0 0
Past due 0-30 days Past due 31-120 days More than 120 days Total
During 2013, the Group has had no loss on receivables. As at 31 December 2013, the Group’s trade receivables comprise only receivables from the Group’s one client, Statoil ASA. Statoil ASA is an international oil company with good credit history, thus no provision has been made for the receivables.
The Group uses cash flow forecasts, which assists it in monitoring cash flow requirements and optimising its cash return on investments. Typically the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 2-3 months. This excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. If the Group were to be unemployed for a longer period, it would need to manage its cost base and would, inter alia, seek to reduce costs or negotiate a grace period from some of its largest cost sources such as the time charter lease for Artemis Athene. Management believes this, in addition to the Group’s cash on demand and ability to raise additional financing, lowers the liquidity risk to a satisfying level.
Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
28
Notes to the financial statements For the year ended 31 December 2013 The following are remaining contractual maturities at the end of the reporting period of financial liabilities including interest payments:
Group in thousands of NOK
Carrying amount
Contractual 3 months or 3-12 months cash flow less
1-2 years
2-5 years
At 31 December 2013 Non-derivative financial liabilities Trade payables Non-trade payables Accrued expenses Finance lease obligations Total
26 372 3 842 18 294 25 468 73 976
26 372 3 842 18 294 32 761 81 269
26 372 2 192 18 294 1 643 48 501
0 1 650 0 5 019 6 669
0 0 0 6 662 6 662
0 0 0 19 437 19 437
At 31 December 2012 Non-derivative financial liabilities Trade payables Non-trade payables Accrued expenses Total
10 260 729 2 278 13 267
10 260 729 2 278 13 267
10 260 729 2 083 13 072
0 0 100 100
0 0 95 95
0 0 0 0
Contractual 3 months or cash flow less 3-12 months
1-2 years
2-5 years
Parent in thousands of NOK At 31 December 2013 Non-derivative financial liabilities Trade payables Non-trade payables Accrued expenses Finance lease obligations Total At 31 December 2012 Non-derivative financial liabilities Trade payables Non-trade payables Accrued expenses Total
Carrying amount
26 372 3 757 18 294 25 468 73 891
26 372 3 757 18 294 32 761 81 184
26 372 2 107 18 294 1 643 48 416
0 1 650 0 5 019 6 669
0 0 0 6 662 6 662
0 0 0 19 437 19 437
10 260 729 2 278 13 267
10 260 729 2 278 13 267
10 260 729 2 083 13 072
0 0 100 100
0 0 95 95
0 0 0 0
Currency risk
In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.
The Group is exposed to currency risk on sales and purchases that are denominated in a currency other than the respective functional currency of the Group, the Norwegian Krone (NOK). The currencies in which these transactions primarily are denominated are Norwegian Krone (NOK), United States Dollar (USD), Euro (EUR), Great British Pound (GBP) and Swedish Krona (SEK).
29
Notes to the financial statements For the year ended 31 December 2013 The table below shows the Group’s exposure to currency risk from contractual cash flow in denominated currencies at the reporting date: in thousands
SEK
At 31 December 2013 Trade payables Accruals Finance lease obligations Deferred lease discount Financial statement position exposure
GBP
USD
EUR
563 784 0 0 1 347
82 756 0 0 838
1 205 170 4 186 2 234 7 795
4 0 0 0 4
0 0 0
0 0 0
54 513 6 507 61 020
0 227 227
Total
1 347
838
68 815
231
At 31 December 2012 Trade payables Accruals Financial statement position exposure
1 313 262 1 575
0 0 0
0 0 0
3 0 3
Capital commitments Forecast transaction exposure
12 667 12 667
0 0
1 311 1 311
359 359
Total
14 242
0
1 311
362
Time charter lease commitments Capital commitments Forecast transaction exposure
The table below shows a sensitivity of exposure to currency risk at the reporting date was. This analysis assumes
Change in rate in thousands of NOK
that all other variables remain constant and ignores any impact of forecast transactions.
Effect on P&L before tax SEK
Effect on P&L before tax GBP
Effect on P&L before tax USD
Effect on P&L before tax EUR
2013
(+) 5% -5%
-64 64
-421 421
-2,371 2,371
-2 2
2012
(+) 5% -5%
-67 67
0 0
0 0
-1 1
Interest rate risk
Financial instruments
The Group currently has interest bearing assets. Amounts are placed on deposit for periods to secure higher returns, while balancing the need to access funds as required.
At 31 December 2013 and 2012 there are no differences between the carrying amount and fair value upon initial recognition for any financial assets or financial liabilities. The financial lease obligation of NOK 24.5 million (2012: NOK 0) (equal for both Group and Parent) is measured under Level 2 in the fair value hierarchy which and is defined as, assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly.
Capital management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain the future development of the business. The Group manages its capital to ensure it will be able to continue as a going concern while maximising shareholder wealth and financial stability. The Group defines its capital as equity, share capital and reserves.
30
Notes to the financial statements For the year ended 31 December 2013
4.
Operating segments this segment are equivalent to the financial statements of the Group as a whole. In 2013 the Group’s operating revenue relates to OBS acquisition for Statoil on the “Snøhvit” and “Albatross” fields.
The Group is operating in one segment being geophysical surveys with respect to products and services. Accordingly, all significant operating decisions are based upon analysis of the Group as one segment. The financial results from
5.
Revenue and other income Group 2013
Group 2012
Parent 2013
Parent 2012
Group 3,000 2012 0
Parent 74,128 2013 32 74,160 74,128 32 Parent 74,160 2013
Parent 3,000 2012 0
Cost of sales in thousands Charter hire of NOK Crew cost Cost of sales Fuel costs Charter hire Consultants Crew cost Other cost of sales Fuel costs Total Consultants Other cost and of sales Research development expenses Total Corporate and consultant costs
Group 74,128 2013 0 74,128 74,128 0 Group 74,128 2013
Group 25 073 172013 361 7 135 25 3 073 702 17 6 361 597 7 868 135 59 3 702 6 597 59 868 8 243
Group 1 500 2012 0
Parent 1 500 2012 0
305 1 500 0 0 65 305 1 870 0 65 1 775 870 3
Parent 25 073 172013 361 7 135 25 3 073 702 17 6 361 597 7 868 135 59 3 702 6 597 59 868 8 243
Other research and development costs Research and development expenses Total Corporate and consultant costs Other research development costscosts Selling, generaland and administrative Total Salary and social expenses
0 8 243 8 243 0 8 765 243 18
4 184 7 959 3 775 4 184 7 367 959 2
0 8 243 8 243 0 8 765 243 18
4 184 7 959 3 775 4 184 7 367 959 2
Administrative expenses Selling, general and administrative costs Other expenses Salary Total and social expenses Administrative expenses Other expenses Salary and social expenses Total Salary
19 109 8 561 18 46 765 435 19 109 8 561 46 9 435 955
2 062 1 261 2 5 367 690 2 062 1 261 5 4 690 654
19 096 8 586 18 46 765 447 19 096 8 586 46 9 447 955
2 062 1 261 2 5 367 690 2 062 1 261 5 4 690 654
Social security tax Salary Pensionand social expenses Salary Equity-settled share-based payment transactions Social security tax Other payments Pension Total Equity-settled share-based payment transactions Other payments Total
2 299 889 9 362 955 5 2 260 299 18 889 765 5 362 260 18 765
785 296 4 815 654 785 653 7 296 203 815 653 7 203
2 299 889 9 362 955 5 2 260 299 18 889 765 5 362 260 18 765
785 296 4 815 654 785 653 7 296 203 815 653 7 203
in thousands of NOK Revenue and other income in thousandsrevenue of NOK Operational Other income Revenue and other income Total revenue and other income Operational revenue Other income in thousands NOK Total revenueofand other income
6.
Operating expenses
The Group has not been awarded any grants in 2013, but were awarded two grants in 2012. The two grants received in 2012 amounted to NOK 9,100 thousand and were given to further develop the Group’s proprietary system and organisation. Some of the related costs qualified for capitalisation whereas other costs were recognised in the profit or loss, and the grant income has been offset on a propor-
3,000 3,000 0 Group 3,000 2012
3,000 3,000 0 Parent 3,000 2012
305 1 500 0 0 65 305 1 870 0 65 1 775 870 3
tionally allocated basis. NOK 7,300 thousand was offset against Group’s intangible value and NOK 1,800 thousand was offset against research and development costs. The average number of employees during 2013 and 2012 were 23 and 6, respectively.
31
Notes to the financial statements For the year ended 31 December 2013 Details of the expenses to the auditor of the Group, KPMG, and its related practices for audit and non-audit services provided during the year are set out below. KPMG Auditors' remuneration in thousands of NOK Audit services Audit of annual financial statements Audit of 2011 and 2010 financial statements
Group 2013
Group 2012
Parent 2013
Parent 2012
764 0
400 230
764 0
400 230
225 989
342 972
225 989
342 972
in thousands of NOK
Group 2013
Group 2012
Parent 2013
Parent 2012
Interest income Currency gains Total finance income
3,691 112 3,803
925 262 1,187
3,691 112 3,803
925 262 1,187
in thousands of NOK
Group 2013
Group 2012
Parent 2013
Parent 2012
Interest expense Currency losses Finance charges payable under finance lease Total finance cost
12 2,538 677 3,227
40 229 0 269
12 2,538 677 3,227
40 229 0 269
in thousands of NOK
Group 2013
Group 2012
Parent 2013
Parent 2012
Unrestricted cash balances Restricted cash balances * Cash and cash equivalents
40,738 1,042 41,780
257,368 277 257,645
40,585 1,042 41,627
257,368 277 257,645
in thousands of NOK
Group 2013
Group 2012
Parent 2013
Parent 2012
Prepayments Deposits VAT receivable Government grants Intercompany receivables Fuel stock Other stock Total other current assets
2,856 875 4,186 0 0 6,890 3,733 18,540
4,963 394 3,331 9,100
2,831 875 4,178 0 71 6,890 3,733 18,578
4,963 394 3,331 9,100 0 0 0 17,788
Other services Other assurance services Total
7.
8.
9.
Finance income and costs
Cash and cash equivalents
Other current assets
32
0 0 17,788
Notes to the financial statements For the year ended 31 December 2013
Please refer to note 6 Operating expenses for further information about grants received in 2012.
10.
Income tax expense
in thousands of NOK
Group 2013
Group 2012
Parent 2013
Parent 2012
0 0
0 0
0 0
0 0
-2,643
-126
-2,643
-126
2,643
126
2,643
126
0
0
0
0
Numerical reconciliation between tax expense and pre-tax accounting profit Profit / (loss) before tax
-51,810
-12,031
-51,790
-12,031
Income tax at rate of 28% (2012: 28%) Non-deductible expenses Non-assessable income Losses (recognised) / not recognised Total income tax expenses / (benefit)
-14,507 53 -10 14,464 0
-3,369 5 -310 3,674 0
-14,501 53 -10 14,458 0
-3,369 5 -310 3,674 0
Current tax expense Current period Total Deferred tax expense Origination and reversal of temporary differences Benefit of tax losses and other deferred tax benefits not recognised Total
The Group and Parent have estimated unutilised tax losses of NOK 89,786 thousands (2012: NOK 28,349 thousands) available to be offset against future taxable income. The deductible temporary difference and tax losses do not expire under current tax legislation. The net deferred tax asset for the Group and Parent has not been recognised on the basis that it is not probable that there will be future taxable income available against which the tax losses can
be utilised. Effective from 1 January 2014 the Norwegian corporate income tax rate was reduced from 28 percent to 27 percent.
Deferred tax assets and liabilities Deferred tax assets and liabilities are attributable to the following, and none have been recognised:
in thousands of NOK
Group 2013 13,603 0 -10,691 -160 -24,248 -21,496 21,496 0
Non-current assets Current assets Non-current liabilities Current liabilities Tax loss carry-forwards Tax (assets) liabilities Set off of tax Net tax (assets) liabilities
33
Group 2012 143 0 0 -17 3,674 -3,800 3,800 0
Parent 2013 13,603 0 -10,691 -160 -24,242 -21,490 21,490 0
Parent 2012 143 0 0 -17 3,674 -3,800 3,800 0
Notes to the financial statements For the year ended 31 December 2013 in thousands of NOK
11.
Group 2013 1,984 18,294 Group 109 2013 2,662 1,984 1,650 18,294 24,699 109 2,662 1,650 24,699
Other current liabilities
Other payables Accrued expenses in thousands of NOK Current portion of deferred gain on sale and leaseback Current portion of deferred lease discount Other payables Provisions Accrued expenses Total other current liabilities Current portion of deferred gain on sale and leaseback Current portion of deferred lease discount Provisions Total other current liabilities
Group 2012 1,079 2,278 Group 0 2012 0 1,079 0 2,278 3,357 0 0 0 3,357
Parent 2013 1,899 18,294 Parent 109 2013 2,662 1,899 1,650 18,294 24,614 109 2,662 1,650 24,614
Parent 2012 1,079 2,278 Parent 0 2012 0 1,079 0 2,278 3,357 0 0 0 3,357
12. Equipment All equipment is recognised in the Parent, thus, there are no differences between the Group and the Parent. in thousands of NOK
Office machines
Seismic equipment
Seismic equipment under finance lease
Cost in thousands of NOK 2012 Balance at 1 January Additions Disposals Cost Balance at131 December Balance at January 2012 2012
Office machines0 684 0 684 0
Seismic Seismic equipment equipment66 under finance lease0 3,635 0 0 0 3,701 0 66 0
Under construction
Total
Under construction 0 37,510 0 37,510 0
Total 66 41,829 0 41,895 66
Additions Balance Disposalsat 1 January 2013 Assets and ready for intended use Balancecompleted at 31 December 2012 Additions Disposals Balance at 1 January 2013 Balance at 31 December 2013 Assets completed and ready for intended use
684 684 0 0 684 546 0 684 1,230 0
3,635 3,701 0 217,267 3,701 0 -28,635 3,701 192,333 217,267
0 0 0 0 0 25,000 0 0 25,000 0
37,510 37,510 0 -217,267 37,510 199,318 0 37,510 19,561 -217,267
41,829 41,895 0 0 41,895 224,864 -28,635 41,895 238,124 0
Additions Depreciation and impairment losses Disposals Balance January 2012 2013 Balanceat at131 December Depreciation for the year Disposals Depreciation and impairment losses Balance at131 December Balance at January 2012 2012
546 0 0 1,230 188 0 188 0
0 -28,635 9 192,333 242 0 251 9
25,000 0 0 25,000 0 0 0 0
199,318 0 0 19,561 0 0 0 0
224,864 -28,635 9 238,124 430 0 439 9
Depreciation for the year Balance Disposalsat 1 January 2013 Depreciation forDecember the year 2012 Balance at 31 Disposals Balance at131 December Balance at January 2013 2013
188 188 0 345 188 0 533 188
242 251 0 9,707 251 -759 9,199 251
0 0 0 1,210 0 0 1,210 0
0 0 0 0 0 0 0 0
430 439 0 11,262 439 -759 10,942 439
Depreciation for the year Carrying Disposals amounts at 1 January 2012 Balance at 31 December 2013 at 31 December 2012
345 0 0 533 496
9,707 -759 57 9,199 3,450
1,210 0 0 1,210 0
0 0 0 0 37,510
11,262 -759 57 10,942 41,456
Carrying amounts at at 1 1 January January 2013 2012 at 31 at 31 December December 2013 2012
496 0 697 496
3,450 57 183,134 3,450
0 0 23,790 0
37,510 0 19,561 37,510
41,456 57 227,182 41,456
at 1 January 2013 Seismic equipment under financial lease at 31 December 2013
496 697
0 years 3,450 and 2 months which equals the 37,510 lease term.41,456 Refer 183,134 23,790 19,561 227,182 to note 17 Leases for further disclosures of the sale and leaseback agreement.
The Group entered into a sale and leaseback agreement for some of its seismic equipment in October 2013. The lease is classified as finance lease and the initial recognition is based on the present value of the minimum lease payments at the inception of the lease agreement. The equipment is depreciated on a straight-line basis over 5
Other equipment Useful life of seismic equipment and office machines are 3-7 years.
34
Notes to the financial statements For the year ended 31 December 2013
13.
Intangible assets
Intangibles are recognised in the Parent, thus, there are no differences between the Group and the Parent. in thousands of NOK Cost
2013
Balance at 1 January
12,167
0
1,951
12,167
Additions Disposals Balance at 31 December
2012
0
0
14,118
12,167
Amortisation and impairment losses Balance at 1 January
0
0
Amortisation for the year
706
0
Disposals Balance at 31 December
0
0
706
0
at 1 January
12,167
0
at 31 December
13,412
12,167
Carrying amounts
Development costs
The Parent finalised the development of its equipment and software in 2013. Intangibles comprise of prototypes and MagSeis software which are amortised on a straight-line basis over 5.9 and 3 years respectively. The useful life of prototypes is based on the weighted average useful lives of the capsule nodes.
MagSeis distinguishes between research activities and development activities. Costs relating to design, prototyping and testing of the final product are treated as development and capitalised as intangible assets. Other reseach and development costs are expensed in the profit and loss.
14.
Share capital and reserves
Share Shares premium Number of capital NOK reserve NOK shares '000 '000
Share capital issued
Ordinary shares - Issued and fully paid At 1 January 2012 28-Jun-12
25 million NOK loan converted for 71,388 at 350 NOK per share
234,118
234
20,818
71,388
71
24,929
28-Jun-12
Placement of 125,783 at 374 NOK per share
125,783
126
46,917
20-Dec-12
Placement of 622,010 at 418 NOK per share
622,010
622
259,378
Capital raising costs
0
0
-13,537
1,053,299
1,053
338,504
At 1 January 2013
1,053,299
1,053
338,504
At 31 December 2013
1,053,299
1,053
338,504
At 31 December 2012 Ordinary shares - Issued and fully paid
No dividends were paid during the year ended 31 December 2013 (2012: NOK 0).
35
Notes to the financial statements For the year ended 31 December 2013
Substantial shareholders Name
Number of shares held 201,675 174,737 Number of shares held 157,853 201,675 61,925 174,737 60,412 157,853 50,661 61,925 44,793 60,412 26,740 50,661 24,201 44,793 20,000 26,740 16,748 24,201 14,470 20,000 14,142 16,748 14,141 14,470 13,445 14,142 157,356 14,141 1,053,299 13,445 157,356 1,053,299
Fifteen largest shareholders WESTCON GROUP AS
GEO INNOVA AS Name ANFAR INVEST AS WESTCON GROUP ASASA1 ARCTIC SECURITIES GEO INNOVA CLIPPER A/S AS ANFAR ASAS BARRUSINVEST CAPITAL ARCTICAS SECURITIES ASA1 GNEIS CLIPPER A/S AS APM INVEST BARRUS CAPITAL MP PENSJON PK AS GNEIS AS BNYBE - INVESCO PERP EUR SMALL COM APM INVEST ASVEKST STOREBRAND MP PENSJON PK STOREBRAND NORGE I 1 BNYBE - INVESCO PERP EUR SMALL COM PARETO SECURITIES ASA 1 STOREBRAND VEKSTASA ARCTIC SECURITIES STOREBRAND NORGE STRØMSTANGEN AS I PARETO SECURITIES ASA1 OTHER 1 ARCTIC TOTAL SECURITIES ASA STRØMSTANGEN AS Note1 - Nominee account OTHER TOTAL Note1 - Nominee account
15.
Earnings per share
Percentage of capital held 19.1% 16.6% Percentage of capital15.0% held 19.1% 5.9% 16.6% 5.7% 15.0% 4.8% 5.9% 4.3% 5.7% 2.5% 4.8% 2.3% 4.3% 1.9% 2.5% 1.6% 2.3% 1.4% 1.9% 1.3% 1.6% 1.3% 1.4% 1.3% 1.3% 14.9% 1.3% 100.0% 1.3% 14.9% 100.0%
2013 -49.19
2012 -33.67
2013 -49.19
2012 -33.67
-49.19
-33.67
-49.19
-33.67
in thousands Profit / (loss) for the year Basic earnings / (loss) per share Weighted average number of ordinary shares outstanding
-51,810 1,053
-12,031 357
Profit for the yearper share Diluted/ (loss) earnings / (loss) Weighted average number of ordinary shares outstanding
-51,810 1,053
-12,031 357
Profit / (loss) for the year Diluted earnings / (loss) perofshare Weighted average number ordinary shares outstanding (diluted)
-51,810 1,053
-12,031 357
Basic earnings / (loss) per share The calculation of basic earnings per share is based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding Basic earnings / (loss) per share The calculation of basic earnings per share is based on the profit attributable to Diluted earnings / (loss) per share ordinary shareholders andearnings a weighted of the ordinary outstanding The calculation of diluted peraverage share isnumber based on profit shares attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding Diluted earnings perofshare after adjustment for/ (loss) the effect all dilutive potential ordinary shares. The calculation of diluted earnings per share is based on the profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding Reconciliation of earnings used in calculating earnings / (loss) per share after adjustment for the effect of all dilutive potential ordinary shares. in thousands Reconciliation earnings used in calculating earnings / (loss) per share Basic earnings / of (loss) per share
Profit / (loss) for the year -51,810 At 31 December 2013, 74,126 share options (2012: 15,046 options) were excluded from the diluted weighted -12,031 average Weighted average number of ordinary shares outstanding (diluted) 1,053 357 number of ordinary shares calculation as their effect would be anti-dilutive.
36
Notes to the financial statements For the year ended 31 December 2013
16.
Share-based payments
Description of the share-based payment arrangements At 31 December 2013 the Group has the following share-based payment arrangements: Share based payment plan (equity-settled) In 2012 the Group established a share option programme that entitles key management personnel, senior employees and some members of the board to purchase shares in
Share option programs
the Company. In accordance with this programme options are exercisable at the market price of the share at the date of the grant and all options are equity settled.
Number of instruments
Grant date / employees entitled
Contractual life of options
Vesting conditions
0
As of 1 January 2012 Option grant to key management on 1 January 2012
2,318
Option grant to key management on 22 June 2012
12,728
As of 31 December 2012
15,046
Number of instruments
Grant date / employees entitled
100% vest on 1 January 2012
1.08
20% vest on 22 June 2013, 30% vest on 22 June 2014 and 50% vest on 22 June 2015
3.48
Contractual life of options
Vesting conditions
15,046
As of 1 January 2013
2.11
Option grant to key management on 13 March 2013
43,780
Option grant to key management on 16 July 2013
10,500
20% vest on 13 March 2014, 30% vest on 13 March 2015 and 50% vest on 13 March 2016 20% vest on 16 July 2014, 30% vest on 16 July 2015 and 50% vest on 16 July 2016
4,800
20% vest on 16 October 2014, 30% vest on 16 October 2015 and 50% vest on 16 October 2016
Option grant to key management on 16 October 2013 As of 31 December 2013
3.20
3.54
3.79
74,126
Reconciliation of outstanding share options The number and weighted average exercise prices of share options are as follows: Weighted average exercise price
Number of options
Weighted average exercise price
Number of options
2013
2013
2012
2012
346.27
15,046
0
0
Forfeited during the period
0
0
0
0
Exercised during the period
0
0
0
0
418.00
59,080
346.27
15,046
in thousands of NOK Outstanding at 1 January
Granted during the period Outstanding at 31 December Exercisable at 31 December
74,126 288.20
4,863
The options outstanding at 31 December 2013 have an exercise price in the range of NOK 194 to NOK 418 and a weighted average contractual life of 3.07 years.
15,046 194.00
2,318
The Group recognised a share-based payment expense of NOK 5,362 thousand in the period ended 31 December 2013 (2012: NOK 815 thousands) in relations to share options issued.
37
Notes to the financial statements For the year ended 31 December 2013
Inputs for measurement of grant date fair values
Expected volatility is estimated by considering historic average share price volatility of comparable listed entities. The inputs used in the measurement of the fair values at grant date of the 2013 share-based payment plans are the following:
The grant date fair value of all share-based payment plans was calculated using the Black-Scholes-Merton option pricing model.
16.10.2013
Fair value of share options and assumptions
16.07.2013
13.03.2013
Fair value at grant date (weighted average)
240.45
239.29
213.78
Share price at grant date
450.00
450.00
418.00
Exercise price
418.00
418.00
418.00
Expected volatility
75.00%
75.00%
75.00%
Option life (years)
4.00
4.00
4.00
0 2.04%
0 1.72%
0 1.49%
Expected dividends Risk-free interest rate (weighted average)
17. Leases Operating leases
lease term. The balance of this deferred lease discount is NOK 13.5 million at 31 December 2013. The Group has entered into two leases on commercial property. The leases are non-cancellable operating leases and have average remaining lives of 3.0 and 4.25 years. Future minimum lease payments under non-cancellable operating leases are as follows:
During 2013 the Group entered into a non-cancellable vessel lease with Westcon Group (related party). The lease term is 5.25 years with an option for a 2 year extension. At 31 December 2013 the remaining life of the lease is 5 years. For the first 3 months of the lease, the Group paid a discounted rate which is recognised as a reduction to the operating lease expense on a straight line basis over the in thousands of NOK
2013
in thousands ofyear NOK Less than one
2013 105 756
2012 875
Between one and five years Less than one year More than five years Between one and five years Totalthan five years More
422 079 67,681 0 269,677 527 835 0
3 130 875 0 3,130 4 0050
337,358
4,005
2013 2013
2012 2012
25 073 25,073 1 550 1,550
0 0 894 894
Total
2012
Operating lease cost expensed in profit and loss: in thousands of NOK in thousands of NOK Time charter leases Time charter leases Office leases Office leases Total Total
26 623 26,623
38
894 894
Notes to the financial statements For the year ended 31 December 2013
Finance lease In 2013, the Group entered into a sale & leaseback agreement with Westcon Group (related party) regarding some of its seismic equipment. The lease term is 5 years and 2 months which reflects the leased assets economic life. The interest rate implicit in the lease (yearly effective interest
rate) is 10.6%. The sale resulted in a gain of NOK 0.6m which is amortised on a straight-line basis over the lease term. Future minimum lease payments under finance leases together with the present value of the net minimum lease payments are as follows: 2013
in thousands of NOK Future minimum lease payments Less than one year Between one and five years More than five years Total minimum lease payments Less amounts representing finance charges Present value of minimum lease payments
2012
Present value of minimum lease payments
6,662 26,099 0 32,761 7,293 25,468
6,294 19,174 0 25,468 0 25,468
Present value of minimum lease payments
Future minimum lease payments 0 0 0 0 0 0
0 0 0 0 0 0
2013
2012
41,579 0 0 41,579
127,723 0 0 127,723
Refer to note 19 Related parties for further information about leases with related parties.
18.
Capital commitments
Future minimum payments relating to equipment are as follows: in thousands of NOK Equipment Contracted but not yet provided for and payable: Within one year One year later and no later than five years Later than five years Total
19.
Related parties
Shares and options held by members of the Board and management, as at 31 December Shares 2013 A Farestveit E Malmquist N Matre (Westcon Group) J B Gateman I Gimse M Ektvedt Total
157,853 38,442 201,675 136,295 44,793 0 579,058
39
2012 157,853 38,442 201,675 136,295 44,793 0 579,058
Share options 2013 2012 8,000 0 0 8,000 11,000 10,329 37,329
0 0 0 0 0 6,329 6,329
Notes to the financial statements For the year ended 31 December 2013
Key management personnel and director transactions
transactions with management persons, board members and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis.
A number of key management persons and board members, or their related parties, hold positions in other entities that result in them having control or significant influence over the financial or operating policies of those entities. A number of these entities transacted with the Group in the reporting period. The terms and conditions of the in thousands of NOK Name I Gimse J B Gateman N Matre/Westcon Group N Matre/Westcon Group Total
The aggregate value of transactions and outstanding balances related to key management personal, board members and entities over which they have control or significant influence were as follows:
Transactions Consultant costs Consultant costs Yard services Leases
Note (i) (ii) (iii) (iv)
(I) In 2012, I Gimse was engaged as an independent consultant as CEO. Mr I Gimse became an employee on 1 January 2013. (II) J B Gateman (Senior Vice President) is engaged as an independent consultant as Senior Vice President. (III) Westcon Yard provided shipyard services to Magseis in 2013 relating to the rigging of Artemis Athene. (IV) In Q4 2013, the Group entered into a TC agreement with Westcon Group regarding lease of seismic ves-
Transaction value 2013 2012 0 1,268 1,347 1,279 1,953 0 25,750 0 29,050 2,547
Balance outstanding 2013 2012 0 443 390 357 31 0 9,090 0 9,511 800
sel Artemis Athene. The lease term is 5.25 years with an option of extension for 2 years. Included in the TC agreement is a service arrangement made on the same terms. Of this amount NOK 633 thousands relates to this service component for marine brokerage costs. The Company has also entered into a sale & leaseback agreement with Westcon Group AS regarding some of its seismic equipment. For further information, refer to note 17 Leases.
Management remuneration in thousands of NOK 2013 Name I Gimse M Ektvedt J B Gateman Total
Position CEO CFO SVP
Remuneration 1,276 1,303 0 2,579
Options 837 648 674 2,159
Pension 70 67 0 137
Total 2,183 2,018 674 4,875
2012 Name M Ektvedt Total
Position CFO
Remuneration 1,100 1,100
Options 384 384
Pension 46 46
Total 1,530 1,530
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Notes to the financial statements For the year ended 31 December 2013
20.
Investment in subsidiary
In March 2013 MagSeis AS purchased 100% of the shares in MagSeis Operation AS for NOK 50 thousands. In 2013 MagSeis Operations AS has delivered crew services for MagSeis AS. The subsidiary shares offices with MagSeis AS at Lysaker, Norway.
21.
vate Placement will fund an increase of the equipment aboard Artemis Athene from the current 3,000 nodes to 4,500 nodes, purchase of long-lead items for a second crew and general corporate purposes. In April 2014 the Group received work orders for providing 4D OBS acquisition services for Statoil ASA on the Oseberg and Gullfaks fields during 2014. The work is based on a frame agreement entered into with Statoil ASA in December 2013. The expected duration of the work is approximately 200 days depending on weather and interference.
Subsequent events
During February and March 2014 MagSeis successfully conducted OBS acquisition on Varg field for Talisman. In March 2014 MagSeis initiated a new equity issue of up to NOK 120 million (the “Private Placement”) ahead of its planned listing on Oslo Axess during June 2014. The Pri-
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