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Restatement and reformulation of the historical income statements

In document Strategic analysis (Sider 62-65)

6. Restatement and reformulation of financial statements

6.2 Restatement and reformulation of the financial statements

6.2.1 Restatement and reformulation of the historical income statements

Deconsolidation and withdrawal from offshore drilling (Dolphin Drilling ASA, previously named Fred Olsen Energy ASA)

In the notes of the annual reports, it is specified some financial measures by operating segment within the group, enabling adjustments in the financial statements regarding the discontinued operations in offshore drilling. The reported numbers have been illustrated in figure 16.

Figure 16: Reported income items related to offshore drilling. Numbers collected from Bonheurs Annual Reports

The annual report of 2018 includes re-presented accounts for 2017 with the effects of deconsolidation and liquidation of their offshore drilling operations. Comparing the differences in 2017 numbers will provide the basis of which the restatements for the previous years will be allocated, following the presented information on segment basis in the group’s annual reports. The related reported numbers can be found in appendix 4. After finding the different line items in the income statement related to offshore drilling, the reported key income items in the annual reports have been allocated in accordance with the distributions found for the 2017 income statement. This gives an estimation of the historical income items related to the discontinued operations in offshore drilling. Further clarifications regarding the historical income statement related to operations in Offshore Drilling can be found in appendix 5. Subtracting items related to offshore drilling from the income statement gives the historical income statements, without the discontinued income statement items related to Offshore Drilling.

Numbers in million NOK

Offshore Drilling OD2015 OD2016 OD2017

Operating income - external 8 976 6 932 -Operating income - internal 0 0 -Operating costs - 3 845 - 2 746 -EBITDA 5 131 4 186 -Depreciation - 2 855 - 2 448 -Impairment - 4 903 - 1 914 -EBIT - 2 627 - 175 -Interest income 11 17 -Interest expenses - 328 - 324 -Tax income / expense (-) - 12 - 219 -Net result from continuing operations - 2 820 - 870 -Net result from discontinued operations - - - 2 144 Profit for the year - 2 820 - 870 - 2 144

Page 62 of 148 Other Restatements:

Loss and Profit from sale of PP&E:

Profit and loss from sale of PP&E is considered as a non-recurring item and has thus been removed from the reformulated income statement.

Leases:

Lease liabilities regarding right to use assets have been capitalized and are depreciated on a straight-line basis over the duration of the lease, unless it is considered likely that the group of companies will obtain ownership by the end of the lease term (Bonheur, 2020ar). As such, the leases have not been restated as the presentation of leased assets and the corresponding liabilities already have been included in the financial statements as part of assets and interest-bearing debt.

Revenue from leasing of assets where the group acts as the lessor are recognized as operating revenue in the consolidated reports. The operational leases where the group acts as the lessor mostly relates to the rental of ships and other assets in Offshore Wind (Ibid.). Historically, the group has not differentiated between revenue originating from rentals and leasing, and revenue originating from services performed. As income from leases and rental of ships are short term contracts directly related to the group's operations and their ability to perform services, the classification of income from leasing as operating revenue has been deemed fair.

Pensions:

According to Kaldestad and Møller (2016), the treatment of pensions and pension plans in valuation is a difficult subject, as there is not an established universal methodology that all professionals seem to agree on. Fred. Olsen & Co. related individuals are members of Fred. Olsen & Co.’s Pension Fund. Individuals employed after June 2012 are covered by contribution plans, and the risk related to changes in pension obligations are transferred to the employer. The pension obligations and assets related on Bonheurs balance sheet is thus related to the employees that were hired pre-2012.

Therefore, it is assumed that Bonheurs own calculations of the value of future obligations related to pensions are at least as accurate as what the authors could calculate themself based on the information available. Future pension costs will be treated aligned with the standard of the company after 2012, with most of the pension cost included in operating costs as it is assumed that this standard best replicate the actual costs and risks for the company. No restatements have been made regarding pension costs and employee benefits.

Profit or loss from associates:

As Bonheur agreed to sell their only reported associate investment with operations in 2020, historical income from the associate has been deducted in the reformulated income statement. The asset item of investment from associates remaining on the balance sheet is then only linked to the development of Codling Bank, where no final investment decision has been made. The item has no effect on the historical income statement as there has not been any activity for the item that has been allocated to the historical income statements, and all costs related to the project have been capitalized.

Page 63 of 148 Tax on operating income or loss:

This paper assumes that that over time, Bonheur ASA will pay taxes equal to the Norwegian corporate tax rate on operational income as proposed by Kaldestad & Møller (2016). The actual paid taxes depend on a variety of factors such as differences between taxable and accounting standards for depreciation of assets, previous losses giving the right to tax loss carry forwards, and tax shield from debt. In the reformulated income statement, the tax related to operating income and losses is based on the historical corporate tax rate in Norway (KPMG, 2021).

Trailing numbers for the financial year of 2020:

In the quarterly report of Q4 of 2020, major annual items have been estimated and presented. In the restated income statement, the allocation of total operating expenses has been distributed with the same percentage allocation of the items in the previous year. Profit and loss on sale of PP&E have been assumed to be 0 as no information regarding the item has been published in the quarterly report of the fourth quarter in 2020. Financial expenses and financial income have been allocated to interest items or other financial items with the same percentage distribution as the previous year.

The reformulated income statement:

Given the information and adjustments described above, the reformulated historical income statement is illustrated below.

Figure 17: The reformulated income statements 2015-2020

Numbers in Million NOK FY2015 FY2016 FY2017 FY2018 FY2019 FY2020*

Revenues 5 653 5 471 6 323 6 785 7 835 6 175

Cost of sales - 637 - 677 - 804 - 877 - 816 - 722 Salaries and other personnel expenses - 1 399 - 981 - 913 - 988 - 1 032 - 914 Other operating expenses - 2 516 - 2 934 - 3 039 - 3 441 - 4 513 - 3 995 Total operating expenses - 4 552 - 4 592 - 4 755 - 5 307 - 6 361 - 5 631 EBITDA 1 101 879 1 568 1 478 1 474 544 Depreciation and amortisation - 846 - 882 - 880 - 1 027 - 962 - 1 138 Impairment of PP&E and intangible assets - 1 - 123 - 32 - 20 - 243 - 288 Total depreciation and impairment lossess - 846 - 1 005 - 912 - 1 046 - 1 205 - 1 426 EBIT 255 - 126 657 432 269 - 882 Indicated Operating Taxes - 69 32 - 158 - 99 - 59 194 NOPAT 186 - 95 499 333 210 - 688 Interest income 68 38 28 53 64 193 Other finance income 992 1 073 330 228 187 566 Financial income 1 060 1 112 357 281 250 759 Interest expenses - 453 - 397 - 333 - 363 - 422 - 531 Other finance expenses - 826 - 649 - 144 - 280 - 371 - 467 Financial expenses - 1 279 - 1 045 - 477 - 643 - 793 - 998 Net financial income / expense (-) - 219 66 - 120 - 362 - 543 - 239 Non-operating tax effects 175 - 129 3 6 5 - 273 Profit / loss(-) before tax 36 - 60 537 70 - 273 - 1 121 Total Tax income / expense (-) 107 - 98 - 154 - 93 - 55 - 79 Profit / (loss-) for the year 142 - 158 382 - 23 - 328 - 1 200 -->Allocated to non-controlling interests - 196 - 99 111 - 40 46 - 3 -->Allocated to shareholders of parent 348 - 35 256 11 - 389 - 1 199

Corporate Tax Rate Norway: 27% 25% 24% 23% 22% 22%

Page 64 of 148

In document Strategic analysis (Sider 62-65)