Main figures
(Figures in brackets refer to the same period last year)
Operating profit for 2004 came to USD 88.1 million (USD 56.5 million). Costs of USD 2.0 million relating to change-out of equipment on Safe Caledonia were expensed in the fourth quarter. Operating profit before goodwill amortisation amounted to USD 95.7 million (USD 64.1 million). The improvement is attributable to higher fleet utilisation within Offshore Support Services and good operations within Floating Production, including a full operational year for Abo FPSO.
Net financial items for 2004 equalled USD -15.1 million (USD - 19.2 million), whilst taxes for the year amounted to USD 7.5 million (USD 17.6 million). The reason for lower net financial costs for 2004 is mainly realisation of forward exchange contracts in the fourth quarter. The change in taxes is due to particularly high costs in 2003 following a currency gain in connection with a refinancing.
Net profit for 2004 came to USD 65.6 million (USD 21.3 million), and fully diluted earnings per share (EPS) equalled USD 1.93 (0.63). Adjusted for goodwill amortisation, fully diluted EPS were USD 2.15 (0.85).
Operating profit for the fourth quarter came to USD 19.4 million (USD 8.7 million). Operating profit before goodwill amortisation equalled USD 21.3 million (USD 10.6 million).
Net profit for the fourth quarter amounted to USD 18.0 million (USD 6.8 million), and fully diluted EPS equalled USD 0.53 (0.20). Adjusted for goodwill amortisation, fully diluted EPS equalled USD 0.58 (0.26).
In line with the company's dividend policy, the board proposes a dividend for 2004 of NOK 5.00 per share (4.00). This corresponds to 43% of the group's net profit for 2004.
Total assets amounted to USD 969.9 million (USD 975.1 million) at the end of the period, whilst the equity ratio after provision for dividend was 44.7% (42.9%).
Accounting policies
The accounts have been prepared in accordance with the Norwegian Accounting Standard no. 11 regarding interim reporting. With effect from 1 January 2004, Prosafe has changed its reporting currency to USD. The accounts have been prepared applying the same accounting policies as for the annual accounts for 2003. As from 1 January 2005, the company will report its financial figures in accordance with IFRS.
Implementation of IFRS is expected to increase book equity as at 1 January 2004 by USD 4.2 million, versus a previously estimated reduction of USD 63.0 million. The reason for the changed estimate is a revised interpretation of accounting for deferred tax within the Norwegian tonnage tax regime. The revised interpretation implies also that no provision for deferred tax should be made for the business within the Norwegian tonnage tax regime, which is in line with the current practice.
The impact of USD 4.2 million can be broken down as follows:
EU and the Norwegian tonnage tax regime
Since 1997, Prosafe's rig business has been organised within the Norwegian tonnage tax regime, in which tax on operating profit is deferred until dividends are paid or until the company decides to exit the regime.
EUs state aid guidelines (SAG) put constraints on the Norwegian tonnage tax regime via the EEA-agreement. These guidelines have now been revised, and the changes are planned to be implemented in the national legislation by 30 June 2005.
A key element in the revised guidelines is a specification of applicable businesses that can be defined as "maritime transport". This may mean that Prosafe's rig business, which is currently included in the Norwegian tonnage tax regime, will have to discontinue its operations within this regime.
Prosafe is aware that the authorities are working on the issue. The industry is simultaneously preparing for an argumentation about best possible transitional rules in the event that this materialises.
Offshore Support Services
In 2004, operating revenues from Offshore Support Services amounted to USD 168.8 million (USD 129.3 million), whilst the operating profit came to USD 56.5 million (USD 30.8 million). Fleet utilisation for 2004 was 87% (73%), which is the highest utilisation ratio achieved to date.
Operating profit for the fourth quarter equalled USD 9.7 million (USD 5.3 million). Utilisation ratio was 86% (82%).
The reason for the increased profit, both for the full year and for the fourth quarter, is higher fleet utilisation plus improved earnings from MSV Regalia.
Safe Caledonia has operated off west Africa throughout the fourth quarter, whilst Safe Scandinavia and MSV Regalia operated on Sleipner until mid October and on Troll until early December, respectively.
Floating Production
In 2004, the business within Floating Production generated revenues of USD 89.3 million (USD 83.1 million), and the operating profit amounted to USD 24.5 million (USD 15.1 million). The improvement is attributable to a full year operation of Abo FPSO in 2004, high operational uptime, plus lower depreciation of FSO Endeavor and FPSO Petróleo Nautipa following contract extensions. In addition, the 2003 accounts were charged USD 3.3 million relating to lay-up costs and write-down of M/T Serene Sky.
The operating profit for the fourth quarter equalled USD 7.6 million (USD 2.4 million). The reasons for the improvement are high operational uptime and lower depreciation. In addition, USD 2.6 million relating to lay-up costs and write-down of M/T Serene Sky was charged to the accounts in the fourth quarter 2003.
Drilling Services
In 2004, operating revenues from Drilling Services amounted to USD 212.7 million (USD 205.0 million). The operating profit for 2004 equalled USD 11.1 million (USD 14.5 million). The reason for the decrease is mainly that Rubicon has been off-hire throughout 2004.
Operating profit for the fourth quarter was USD 3.4 million (USD 2.3 million). The good result for the period is attributable to one-off effects in connection with the closing of the Tampen-contracts and better operational performance.
Outlook
Within Offshore Support Services, the company has been awarded contracts in 2004/2005 totalling a value of USD 168 million. After this, the rig fleet has been secured a utilisation of 82 % in 2005, 82 % in 2006, 62 % in 2007 and 34 % in 2008.
Market prospects for offshore support rigs are promising, both in the short and longer term. In addition to an already high contract coverage, several new contract opportunities have been identified. The company has therefore an optimistic view on the opportunities for future profitable growth of this division.
Within Floating Production, all units are on contract, and operations are going well with a high operational uptime. The company sees good opportunities for extensions for the units which have contracts expiring in 2005. On the marketing side, the number of prospective awards of new FPSO projects is substantially higher compared to the previous two years. An effective cost base and high operational uptime, secure good financial results in periods without new conversion projects.
Within Drilling Services, underlying operations have improved compared to the previous quarter. With a lower cost base and Rubicon in operation from February 2005, there is a good foundation for profitability from this division in 2005, despite the loss of the Tampen-contracts. In a longer term there are interesting opportunities for continued profitable development, for instance from increased volume within technical services, equipment rental and underbalanced operations.
