!kerå+v rnerå!3!bib.kuleuven.be/files/ebib/jaarverslagen/akerkvaerner_2004.pdf · amounts in nok...

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200420032002

Pro forma EBITDAAmounts in NOK million

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Pro forma earnings per shareAmounts in NOK

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Order backlogAmounts in NOK million

Financial calendar 2005

Tuesday 15 February 2005: Preliminary Year-End and 4th Quarter Results 2004

Friday 18 March 2005: Annual General Meeting 2005

Tuesday 26 April 2005: 1st Quarter Results 2005

Thursday 28 July 2005: 2nd Quarter Results 2005

Wednesday 26 October 2005: 3rd Quarter Results 2005

Pro forma key financial figures

Amounts in NOK million 2002 2003 2004

Operating revenues 34 140 31 327 35 553

EBITDA 573 1 003 1 401

Operating profit -395 -97 775

Profit (+) / loss (-) before tax -54 -338 379

Amounts in NOK 2002 2003 2004

Earnings per share 1) 9) -3.33 -6.41 4.20

Cashflow per share 8) 9) -3.13 13.59 29.93

Financial expenses cover 2) 0.08 0.74 2.77

Liquidity ratio 3) 1.26 1.36 1.23

Debt to equity ratio 4) 2.09 1.55 1.26

Return on total capital 5) 3.3 % 0.7 % 9.1 %

Return on equity 6) -9.3 % -17.5 % 12.1 %

Operating profit / Net operating assets 7) -6.1 % -1.8 % 18.0 %

Definitions:1) Profit (+) / loss (-) after tax and minority interests / Average number of shares2) (Operating profit + financial income + depreciation) / Interest expenses3) Current assets / Current liabilities4) (Interest-bearing short-term debt + interest-bearing long-term debt (exclusive subordinated debt)) /

Equity including minority interest5) Profit before interest expenses / Average (debt + equity)6) Profit (+) / loss (-) after tax / Average equity (inc. minority interest)7) Net operating assets is defined in note 78) Net cashflow from operating activities / Average number of shares9) Earnings per share is calculated using the average number of shares outstanding

ContentsAnnual Report 2004

Proforma key financial figures .................... 2

Letter from the President & CEO ............. 5

Board of Directors ................................................... 6

Board of Directors´ report 2004............... 8

Accounts and notes - contents .............. 23

Accounts and notes -

group consolidated.............................................. 24

Accounts and notes -

Parent company ...................................................... 53

Auditor's report......................................................... 60

Quarterly key figures.......................................... 62

Formation of the new group ...................... 64

Corporate governance and

corporate management .................................. 66

Executive management ................................... 67

Shareholder issues............................................... 68

Articles of association...................................... 70

Aker Kvaerner is aiming for providing customers,

shareholders, analysts, employees and society in

general with precise and relevant information about the

company. The objective is to create improved

knowledge and understanding of our business. For this

reason, Aker Kvaerner issues two reports in addition to

the Annual Report 2004: Powered to Perform™ 2005and People and Values 2005.

� The Annual Report 2004 is primarily directed at

shareholders and the financial market, and contains

the Board of Directors’ report, the group’s consolidated

financial statements, shareholder information and the

annual accounts for the parent company Aker

Kværner ASA.

� What we do - Powered to Perform™ 2005 presents Aker

Kvaerner´s core capabilities and selected projects,

technologies, products and solutions. Powered to

Perform™ provides useful information for customers,

shareholders and other stakeholders who seek an in-

depth understanding of Aker Kvaerner’s activities.

� Who we are - People and Values 2005 presents Aker

Kvaerner’s set of core values and leadership principles

and shows how we through our corporate values work to

create value for customers, shareholders, employees

and the society in general. People and Values aims at

providing all our stakeholders with an understanding of

the people in Aker Kvaerner.

The Annual Report 2004 and People and Values 2005

are available in both Norwegian and English, while

Powered to Perform™ 2005 is only available in English.

All reports can be downloaded from the company´s

website, www.akerkvaerner.com.

Aker Kværner ASA is a leading global provider of

engineering and construction services, technology

products and integrated solutions. The business

within Aker Kvaerner comprises several industries,

including Oil & Gas, Refining & Chemicals,

Pharmaceuticals & Biotechnology, Mining & Metals,

Power Generation and Pulp & Paper.

The Aker Kvaerner group consists of a number of

separate legal entities. Aker Kvaerner is used as the

common brand/trademark for most of these entities.

The parent company of the group is Aker Kværner ASA.

Aker Kvaerner has aggregated annual revenues

of approximately NOK 35.6 billion and employs

approximately 21 000 people in more than 30

countries.

This is Aker Kvaerner

Aker Kvaerner engages in an open and continuous

dialogue with the financial market for the purpose of

creating a solid basis for the correct pricing of the

share. The dialogue with the market takes the form

primarily of annual and quarterly reports and

presentations, press releases, meetings with

investors and analysts, participation in conferences

and use of the company’s website.

Executive management actively participates in

dialogue with the market, while daily communication

is handled by the investor relations department.

Important information of significance to investors and

other market players is communicated through the

Oslo Stock Exchange (www.newsweb.no) and the

company’s web pages (www.akerkvaerner.com).

Investor communication

Aker Kvaerner-group

MAIN

SECTORS

SEGMENTS

Maintenance,

Modifications

and Operations

Subsea and

Products &

Technologies

Field

DevelopmentProcess

Pulping

& Power

Other/Corporate

Financial reporting structure

Engineering & ConstructionOil & Gas

5Letter from the President & CEO �

Dear fellow shareholder

2004 was a year to celebrate for the shareholders in Aker Kvaerner. We had a record order

intake and order backlog, EBITDA improved and several improvement programmes have taken

effect to form a solid foundation for the future.

A long-term sustainable financial platform was created as part of the restructuring in April. Long-

term debt was refinanced, new equity was secured and we have a more focused group structure,

without most of the major legacy issues that in the past limited our flexibility and ability to focus on

operations.

• HSE results improved, the Lost Time Incident Frequency per million hours worked was reduced

from 2.0 in 2003 to 1.2 in 2004

• Over the nine-month period from April 2004, when the new Aker Kvaerner was established, to

year-end, some NOK 2.8 billion in value was created for shareholders and lenders through

strong improvement in share and bond prices

• Pro forma EBITDA was NOK 1 401 million, an increase from NOK 1 003 million in 2003

• The order intake was NOK 41.6 billion, an increase from NOK 36.9 billion in 2003

• The order backlog was NOK 35.9 billion at year-end 2004, an increase from NOK 31.5 billion at

year-end 2003

• Many of the new orders represent milestones that position Aker Kvaerner for future assignments

• Client relationships have been strengthened through successful completion of key projects and

by a strong focus on better coordination of business development

• Internal improvement programmes yield progress within project execution, best value sourcing

and risk management

• Feedback from the internal “People Survey 2004” shows that we are moving in the right direction.

The survey also points to areas where we need to further develop the organisation and the

management.

The group has regained strength through internal improvements, in addition to taking advantage of

improving global markets. A stronger focus on selected technologies and services, combined with

a selective approach to bidding for prospective work, have contributed significantly to improved

performance in 2004. These efforts will continue in 2005.

Aker Kvaerner is a global business with activities in more than 30 countries and on all continents.

Increasingly, the group leveraged expertise and resources across business units and geographical

boundaries, and thereby strengthened its competitive position. Going forward, Aker Kvaerner will

continue to develop a common group culture and to achieve synergies.

Aker Kvaerner enjoys the trust of customers, investors, employees and the communities in which

we operate. We recognise the responsibility we have to live up to that trust, in terms of perfor-

mance and the values we have as a foundation for our operations. We will strive to be transparent

and predictable. We aim to create value for our customers, shareholders, employees, business

partners and the society in general.

Inge K. Hansen

President, CEO and shareholder

6 � Board of Directors

Board of Directors

Leif-Arne Langøy

Chairman of the BoardMr. Langøy has been President and CEO of Aker ASA, formerly Aker RGI, since 2003.

He previously served as President and CEO of the Aker Kvaerner Yards group, and prior

to this he was CEO of Aker Brattvaag for 13 years. Mr. Langøy is a graduate from the

Norwegian School of Economics and Business Administration.

Reidar Lund

Vice ChairmanMr. Lund is Chairman of the Board of Prosafe ASA, and holds in addition a number of director-

ships in offshore related enterprises. Mr. Lund was the CEO of Prosafe ASA until 1999. He

previously served as President of Transocean ASA from 1985 to 1997. Mr. Lund is a graduate

from Chalmers University of Technology, Gothenburg.

Helge Midttun

DirectorMr. Midttun has been President and CEO of Fjord Seafood ASA since 2003. Between 2000 and

2002 he was President and CEO of Det Norske Veritas, after holding the same position in

Zenitel/Stento from 1996 to 2000. Mr. Midttun has previously also worked for Schlumberger and

Rieber & Søn. Mr. Midttun is a graduate from the Norwegian School of Economics and

Business Administration.

Bjørn Flatgård

DirectorMr. Flatgård has been President and CEO of Elopak AS since 1996. He previously served as

President and CEO for Nycomed Pharma and Executive Vice President for Hafslund Nycomed

and Nycomed AS. He holds several board positions. Mr. Flatgård is a graduate from the

Norwegian University of Science and Technology and from the Norwegian School of

Management.

Jon Fredrik Baksaas

DirectorMr. Baksaas has been President and CEO of Telenor ASA since 2002. He joined Telenor in 1989

and was appointed Deputy CEO in 1997. Mr. Baksaas previously held positions as Finance

Director, Executive Vice President and CEO of TBK AS. Earlier, he held finance-related positions

in Aker AS, Stolt-Nielsen Seaway and Det Norske Veritas. Mr. Baksaas is a graduate from the

Norwegian School of Economics and Business Administration.

7Board of Directors �

Atle Teigland

Employee representativeMr. Teigland was elected by the employees to the Board of Directors in October

2004. He has served on the board of Aker RGI for several years. Mr. Teigland is a

group union representative for Aker Kvaerner on a full-time basis, and has been

employed by Aker Kvaerner Elektro since 1978. Mr. Teigland is a certified electrician.

Åsmund Knutsen

Employee representativeMr. Knutsen was elected by the employees to the Board of Directors in October

2004. He has held various positions in Aker Kvaerner Engineering & Technology

since 1991, and is now a group union representative for white-collar employees on

a full-time basis. Mr. Knutsen holds a Master of Science in Hydrodynamics.

Eldar Myhre

Employee representativeMr. Myhre has been an employee-elected Board member since 1989. He previously

acted as a local union representative for 13 years, and has since 1996 been a group

union representative. He has been employed by Aker Kvaerner since 1974, and has

been full-time occupied as employee representative since 1983. Mr. Myhre is a

trained plater.

Bernt Harald Kilnes

Employee representative

Mr. Kilnes was elected by the employees to the Board of Directors in 2002. He has

been employed by Aker Verdal since 1989 as Project Procurement Manager, and he

is also on the board of Aker Verdal. Mr. Kilnes is a graduate in Telecommunications

Engineering and Economics and Business Administration.

The Audit Committee in Aker Kværner ASA consists of:• Reidar Lund (chairman)

• Helge Midttun

• Atle Teigland

The Reward Committee in Aker Kværner ASA consists of:• Leif-Arne Langøy (chairman)

• Bjørn Flatgård

• Reidar Lund

8 � Board of Directors’ Report 2004

Aker Kvaerner experienced solid progress in 2004. Pro forma

earnings (EBITDA) grew by 40 per cent compared with pro

forma figures for 2003, confirming Aker Kvaerner’s steady

course towards its stated targets. Main markets developed

positively and several large orders were secured by the group

in 2004, resulting in a record-high order backlog. A strong

focus on health, safety and the environment resulted in a

further reduction in number of accidents. The 2004 results are

reflected in a positive share price development and significant

value creation for shareholders.

The group restructuring in April

2004 and the format of the

Annual Report

The Kvaerner group was restructured in

early 2004, and the new Aker Kvaerner,

with its current board, was established

on 1 April and listed on the Oslo Stock

Exchange on 2 April 2004. The restruc-

turing is further described on pages 64

and 65, and also in note 3 to the conso-

lidated accounts.

The accounts in this annual report

include both the period April through

December 2004, and the pro forma

figures for the full years 2002 to 2004.

All comments in this Board of Directors´

report refer to the full year 2004 unless

explicitly stated differently.

Strengthened order intake, order

backlog and financial position

The total order intake through 2004 was

a record high NOK 41.6 billion, an

increase over NOK 36.9 billion in 2003.

The group’s total order backlog amoun-

ted to a historic high NOK 35.9 billion at

the end of 2004. This is an increase

over the NOK 31.5 billion figure on 31

December 2003.

Earnings before interest, tax, deprecia-

tion and amortisation (EBITDA) for the

period April through December 2004

was NOK 1.1 billion, and order intake

for the same period was NOK 34.3 billion.

Cashflow from operating activities from

April through December 2004 was

NOK 1.5 billion.

The 2004 pro forma accounts report

earnings before interest, tax, deprecia-

tion and amortisation (EBITDA) of NOK

1.4 billion for the Aker Kvaerner group.

This is a 40 per cent increase over NOK

1.0 billion in 2003. Earnings after

depreciation and amortisation, and

before interest and taxes (EBIT) amoun-

ted to NOK 775 million in 2004, compa-

red with NOK -97 million for 2003.

Financial position and cashflow were

strengthened throughout the year. Cash

and bank deposits at the end of

December grew to a comfortable

NOK 3.7 billion, compared with NOK

3.6 billion at the end of 2003. 2004

numbers include repayment of debt of

NOK 560 million. Cashflow from opera-

ting activities was NOK 1.6 billion in

2004, reflecting a NOK 894 million

decrease in net current operating

assets.

Aker Kværner ASA

Board of Directors’

Report 2004

0

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10 000

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20 000

25 000

30 000

35 000

40 000

45 000

50 000

200420032002

■ Order intake Order backlog

Order intake /

Order backlog – groupAmounts in NOK million

0

500

1 000

1 500

2 000

200420032002

Pro forma EBITDA – groupAmounts in NOK million

Board of Directors’ Report 2004 � 9

Description of operations

The Aker Kvaerner group is one of the

world’s leading providers of enginee-

ring and construction services to both

large and small industrial facilities off-

shore and onshore. Contracts relating

to the maintenance, modification and

operation of such facilities represent an

important and growing area of operati-

ons. The group also provides advanced

technology products for special purpo-

ses, which may be either stand-alone

or part of an integrated solution. Within

many niches, Aker Kvaerner is the

market leader or one of the top three

suppliers.

The parent company in the group is

Aker Kværner ASA, which is headquar-

tered in Bærum outside Oslo, Norway.

The Aker Kvaerner group consists of

many separate legal entities. “Aker

Kvaerner” is used as the common

brand/trademark for most of these

entities.

The Aker Kvaerner group operates

within three areas:

1) New facilities projects

2) Maintenance, modification and

operations for existing facilities

3) Products and niche technologies.

There are clear synergies between and

among the areas. Typically, new deve-

lopment projects may later lead to

maintenance contracts or future upgra-

des. The specialised products may be

utilised both in development projects

and in the operations phase.

It is Aker Kvaerner’s objective as an

international contractor with a strong

presence in all three core areas to leve-

rage these synergies further. One main

goal is to increase the share of mainte-

nance, modifications, and operations

from the current approximately 40 per

cent of the group’s overall revenues to

about 50 per cent. The increase in ser-

vice-oriented products will further

reduce Aker Kvaerner’s exposure to

cyclical up- and downturns in the market

for new development projects.

The Aker Kvaerner group’s activities

are divided into two main sectors: Oil &

Gas and Engineering & Construction.

Oil & Gas

In 2004, the Oil & Gas sector repre-

sented 65 per cent of the group’s reve-

nues and consisted of three reporting

segments: Field Development, Main-

tenance, Modifications and Operations,

Subsea, Products & Technologies.

Within Oil & Gas, Aker Kvaerner is a

leading global provider of products,

services, and solutions, principally to

the offshore upstream oil and gas

industry. Oil & Gas is involved in each

stage in the life cycle of an offshore oil

and gas field, from initial planning to

removal and decommissioning of the

installations. Oil & Gas provides a wide

range of products, services, and soluti-

ons, including fixed, floating and subsea

0,0

2,5

5,0

7,5

10,0

12,5

15,0

200420032002

Equity ratio – groupPer cent

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

200420032002

Revenues – group

(based upon the location of group operations)

Amounts in NOK million

■ Norway

■ United Kingdom

■ North America

■ Rest of the world


production systems; design enginee-

ring, project management and procure-

ment; and offshore drilling and produc-

tion facilities. Oil & Gas is also involved

in the maintenance, modification, ope-

ration, upgrade, and decommissioning

of customers' installations. Oil & Gas

provides after-sales service and sup-

port, including supplying spare parts

and refurbishments to its installed base

of products worldwide.

Aker Kvaerner offers its customers a

complete set of services and a com-

plete value chain throughout the lifecy-

cle of a project. The group’s various oil

and gas activities complement each

other, providing oppor tunities for

enhanced efficiency via cooperation

on both cost reductions and market

activities.

Aker Kvaerner’s Oil & Gas operations

are located in more than 20 countries

with principal activities in Norway, the

United Kingdom, and the United States.

The group has extensive international

activities in the Gulf of Mexico, Atlantic

Canada, Brazil, Western Africa, South-

East Asia, Russia, and the Middle East.

Customers include a number of major

international oil and gas companies,

and the group has operated in the

North Sea region for almost 40 years

Engineering & Construction

In 2004, the Engineering &

Construction (E&C) sector represented

35 per cent of the group’s revenues

and consisted of two reporting seg-

ments: Process and Pulping & Power.

Aker Kvaerner’s E&C businesses focus

on a small number of highly speciali-

sed industries and technologies. The

overall, average market share of those

target markets is currently assessed to

be in the 15-20 per cent range. Several

units hold leading positions within their

markets, for instance the Power unit in

recovery boilers, the Pulping unit in

fiberlines (chemical pulping), AK

Engineering Services in local markets

for maintenance and modification servi-

ces, and the Metals unit with a leading

market share in the copper market.

There are significant market share dif-

ferences among the market segments

and technology areas in which the

group is operating.

26% ■■ Field Development

17% ■ Maintenance, Modifications and Operations

21% ■ Subsea, Products & Technologies

22% ■ Process

13% ■ Pulping & Power

Operating revenues

by segment




7% ■ Process


EBITDA by

segment

�Aker Kvaerner offers design, engineering and

construction of process facilities onshore and

offshore, as well as services for the following

maintenance and operations support.


Operating profits for the full

year 2004

Consolidated 2004 revenues amounted

to NOK 35 553 million, which was a 13

per cent increase over NOK 31 327

million in 2003. Earnings in 2004 were

significantly better than in 2003.

EBITDA for 2004 was NOK 1 401 million,

compared with NOK 1 003 million for

2003 - an increase of around 40 per

cent.

The main factors contributing to the

substantial EBITDA increase were a

general market improvement, a strong

focus on improving operational effici-

ency, and the impact of various

change programmes that have been

implemented throughout the Aker

Kvaerner group.

Goodwill amor tisation in the consolida-

ted accounts in 2004 amounted to

NOK 318 million. Goodwill recorded in

the balance sheet has been tested for

impairment by comparing the carrying

amount with the net present value of

future cashflows. The test did not

identify any impairment losses.

Order intake and order backlog

The total order intake for the group in

2004 was a record-high NOK 41.6 bil-

lion, a substantial growth from NOK

36.9 billion in 2003. The group’s total

order backlog amounted to a record-

high NOK 35.9 billion at the end of

2004. This is an increase from NOK

31.5 billion as of 31 December 2003.

Cash deposits and financial

position

Cash and bank deposits at the end of

December 2004 were a comfortable

NOK 3.7 billion after a NOK 560 million

repayment of debt in the last two quar-

ters. The cash position at year-end is

positively impacted by advances from

customers, and will be partly offset by

corresponding outflows in the next

quarters.

At year-end, undrawn committed long-

term bank revolving facilities amounted

to NOK 960 million in the Oil & Gas

business, and short-term revolving faci-

lities of NOK 410 million in the

Engineering & Construction business,

giving ample additional liquidity buffers.

Cashflow from operating activities in

2004 was NOK 1 646 million, reflecting

a NOK 894 million decrease in net cur-

rent operating assets.

The equity ratio on 31 December 2004

was 9.8 per cent. This figure was impac-

ted by accounting effects from currency

fluctuations. The subordinated debt and

equity yielded a combined ratio of 29.1

per cent at the end of December.

Based on the availability of cash and

the favourable financial position, the

accounts have been prepared based

on the assumption of a going concern.

Investments and financing

Net financial items for the full year 2004

amounted to NOK -396 million. Finance

costs in 2004 were impacted by some

The 2004 accounts




18% ■ Process


Order backlog

by segment




20% ■ Process


Order intake

by segment

�The decommissioning, removal and recycling of

installations at Total’s depleted Frigg field will be

handled by Aker Kvaerner, based on experience

from similar previous projects.

� Board of Directors’ Report 200412

NOK 34 million in currency losses.

These losses are mainly due to exposu-

res not being fully hedged against the

sharp fall in the USD.

Interest-bearing long-term debt amoun-

ted to NOK 2.4 billion at the end of

December 2004. The corresponding

number for 2003 was NOK 3.1 billion.

In addition, the subordinated loan,

which is interest free until the fourth

quarter of 2006, is booked in the

balance sheet at a nominal value of

NOK 3.8 billion.

Net interest-bearing receivables at

year-end 2004 amounted to NOK 1 370

million, an increase from NOK 449 mil-

lion one year ago.

The group’s long-term investments in

2004 amounted to NOK 418 million, in

line with NOK 427 million in 2003.

Net profit

Profit after financial items for 2004 was

NOK 379 million, compared with a loss

of NOK 338 million in 2003. The tax

expense for the full year of NOK 139

million represents 20 per cent of profit

before tax adjusted for non-deductible

goodwill amortisation. Net profit for the

year 2004 was NOK 240 million, and

net profit per share was NOK 4.20.

Reporting segments:

Strong progress

Most business segments improved

results compared with 2003, and all

business segments had a solid order

backlog at the end of 2004. The finan-

cial performance in AK Engineering

Services, which is part of the reporting

segment Process, was an exception.

This unit showed weak results in the

third and fourth quarter of 2004.

Special attention will be given in 2005

to improve performance in this unit.

Field Development

Field Development reported operating

revenues of NOK 9 646 million, an

increase over NOK 8 244 million in

2003. EBITDA for 2004 amounted to

NOK 424 million, a 2.7 times increase

from NOK 158 million last year.

The 2004 order intake was NOK 13 955

million and the year-end order backlog

was NOK 11 565 million, compared

with NOK 8 516 million and NOK 7 701

million in 2003, respectively. A conside-

rable part of Field Development´s order

intake in 2004 was growth from existing

contracts.

In 2003 and 2004, Aker Kvaerner was

awarded contracts worth NOK 7.8 bil-

lion for onshore facilities for Norway’s

Ormen Lange offshore gas develop-

ment project. Hydro is the field’s deve-

lopment-phase operator. Several upco-

ming projects around the world are

considering a field development con-

cept similar to that of Ormen Lange,

with subsea production systems sup-

plying an onshore receiving and pro-

cessing facility.

In December 2004, Sempra Energy

awarded Aker Kvaerner and

Field Development



EBITDA 345 158 424

Operating profit before

exceptional items 161 -1 292

Order intake 10 706 8 516 13 955

Order backlog 7 091 7 701 11 565

Net operating assets 739 1 012 641

Number of employees 5 997 5 200 4 566

�Aker Kvaerner is recognised as the market leader

in concrete gravity based substructures for

offshore platforms like these two for the Russian

Sakhalin development.


Ishikawajima-Harima (IHI) a USD 500

million contract for the engineering,

procurement, and construction of the

Cameron LNG (Liquefied Natural Gas)

regasification terminal in the US state

of Louisiana. The award recognises

both Aker Kvaerner’s lead position wit-

hin the oil, gas and LNG regasification

industry, and the partnership with IHI

for excellence in delivering LNG tanks

and terminals.

Maintenance, Modifications and

Operations

Maintenance, Modifications and

Operations (MMO) reported stable

2004 operating revenues of NOK 6 327

million, on par with 2003 operating

revenues of NOK 6 311 million. The

2004 EBITDA amounted to NOK 248

million, which is in line with the EBITDA

for 2003 of NOK 241 million. A special

gain of NOK 30 million from property

sales was recorded in 2003.

Order intake amounted to NOK 7 859

million in 2004, compared with NOK

6 510 million in 2003. Higher order

intake resulted in an 18 per cent incre-

ase in year-end order backlog to NOK

9 765 million, compared with NOK

8 283 million in 2003. The market is

positive and tendering activity is high.

In October 2004, MMO was awarded a

NOK 3.0 billion contract from Total for

engineering, preparation, removal and

disposal of the Frigg field installations.

The contract is a joint venture among

MMO, Field Development, and Subsea,

Products & Technologies. This contract

award recognises Aker Kvaerner’s

competence, technology and facilities

for decommissioning of offshore instal-

lations.

In December 2004, MMO signed a let-

ter of intent with Hydro for modifica-

tion and upgrading of the Oseberg

East platform in the Nor th Sea. The

contract value is estimated at more

than NOK 300 million, and several

Aker Kvaerner companies will be

involved in the project.

Subsea,

Products & Technologies

Operating revenues for Subsea,

Products & Technologies increased to

NOK 7 630 million in 2004 from NOK

6 741 million in 2003. EBITDA was 24

per cent higher for the full year 2004

compared with 2003, amounting to

NOK 495 million and NOK 399 million

respectively. EBITDA in 2003 included a

special gain of NOK 37 million related

to property sale.

The order intake was NOK 8 332 million

and NOK 7 436 million for 2004 and

2003 respectively, representing an

increase in order backlog from NOK

4 897 million to NOK 5 462 million in

2004. The order intake has been strong

in 2004 with a number of small and

mid-size contract awards.

Process

Process had operating revenues of

NOK 8 123 million in 2004, compared

with NOK 7 163 million in 2003. EBITDA

decreased from NOK 129 million in

2003 to NOK 110 million in 2004.

Maintenance, Modifications and Operations



EBITDA 127 241 248


exceptional items 16 132 149

Order intake 7 882 6 510 7 859

Order backlog 8 029 8 283 9 765

Net operating assets 1 831 1 783 1 198


Subsea, Products & Technologies



EBITDA 548 399 495


exceptional items 351 224 324

Order intake 7 442 7 436 8 332

Order backlog 3 965 4 897 5 462

Net operating assets 2 286 1 964 1 846


�Aker Kvaerner is a leader within design,

manufacturing and installation of complete

subsea developments, even for the most

demanding reservoirs.


The NOK 6 667 million order backlog at

year-end 2004 was down from NOK

7 310 million at the end of 2003. The

2004 order intake of NOK 8 465 million,

a decrease from NOK 9 190 million in

2003, remains satisfactory, with a ste-

ady flow of contract awards throughout

the year.

The Process Onshore business benefits

from growth in China and large capital

expenditure projects in Europe and the

Middle East. Chemetics had signifi-

cantly higher activity in 2004 than in

2003. In the United States, the high

new-building activity for power plants

has continued.

The weak performance in AK

Engineering Services is disappointing.

The previous management was repla-

ced in the third quarter of 2004. The

new management is initiating a number

of comprehensive programmes to

reduce costs and focus on the operati-

ons. The programmes are expected to

gradually take effect during the first

half of 2005.

Pulping & Power

In 2004, Pulping & Power reported ope-

rating revenues of NOK 4 815 million,

compared with NOK 3 682 million in

2003. EBITDA increased to NOK 264

million in 2004 from NOK 209 million in

2003. Full year 2004 EBITDA is 26 per

cent higher than in 2003, due to impro-

ved performance in Power. Earnings

from Power and Pulping service mar-

kets continue to grow.

The 2004 order intake of NOK 4 198

million is regarded as satisfactory. The

order backlog at the end of 2004 was

NOK 3 442 million, compared with

NOK 4 178 million one year earlier.

Pulping & Power



EBITDA 14 209 264


exceptional items -57 140 191

Order intake 2 631 6 230 4 198

Order backlog 1 301 4 178 3 442

Net operating assets 319 -116 -543


�Aker Kvaerner is a leader in products and

complete solutions for the pulping and paper

industry, with advanced, environmentally friendly

and cost effective technologies.

Process



EBITDA -378 129 110


exceptional items -503 21 18

Order intake 6 374 9 190 8 465

Order backlog 6 002 7 310 6 667

Net operating assets 1 188 631 916



Aker Kvaerner has continued to imple-

ment a number of measures aimed at

further improving the group’s competiti-

veness and profitability. Focus has

been, and will continue to be, on more

efficient and strengthened risk mana-

gement, and better project execution.

These initiatives were launched in 2002

and have yielded positive results

through 2004, both in financial perfor-

mance and in client satisfaction.

Aker Kvaerner’s deliveries are largely

based on technology and know-how

either held by the individual group units

or licensed from other technology com-

panies. Focus on project execution, risk

management and best value sourcing

continued through 2004 as a group ini-

tiative under the umbrella name Gxx™;

Global Execution Excellence.

Aker Kvaerner has developed a Project

Execution Model (PEM) where the

emphasis is on reliability and quality.

Using the same execution model

throughout the group allows for coope-

ration and sharing of resources, and

also provides a continuous, improved

overview in order to monitor and control

performance and risks. Best practices

from current and previous projects pro-

vide valuable input for the continuous

development of the model.

An important part of the group’s stra-

tegy is to develop a more flexible cost

base, and substantial results have alre-

ady been achieved. Aker Kvaerner has

organised most of its employees who

provide staff and administrative sup-

port functions into internal shared ser-

vices business units. Pooling of sup-

port services has resulted in improved

utilisation of resources and provides a

clearer overview of the cost structure.

The group’s best value engineering

center in Mumbai in India (49 per cent

owned by Aker Kvaerner) was increa-

singly utilised by more business units

and projects, thereby improving Aker

Kvaerner’s competitiveness. The new

low-cost engineering and sourcing

center in China has also played an

important part in securing and execu-

ting new projects.

Risk exposure

The group is engaged in numerous

projects around the world. The financial

outcome of the projects is subject to

uncertainty with the outcome being

contingent upon the contractual terms,

productivity, actual costs and quality.

Comprehensive policies and procedu-

res have been implemented to prevent

the business units from entering into

contracts with unacceptable risk expo-

sures. Furthermore, considerable

resources have been devoted in recent

years to standardise and improve con-

trol and predictability as well as redu-

cing risks and exploit opportunities.

Major projects are subject to reviews at

the completion of the various phases

over the life of a project. The results of

the reviews are periodically consolida-

ted and reported to management at

higher levels. Management reviews are

conducted each month with participa-

tion from group and business area

management to monitor performance

and risk exposures, and to initiate cor-

rective actions when needed.

Technology development

Technology is a key value creator for

Aker Kvaerner and its customers, hel-

ping to drive down costs, improve effici-

ency and product yield. Technology

improvements often contribute to impro-

ved HSE performance. The development

of new technologies is imperative for the

financial and practical realisation of

many projects. Technology is a key diffe-

rentiator for Aker Kvaerner, and the tech-

nical expertise of Aker Kvaerner staff is

a competitive advantage and a key to

reduced risks for Aker Kvaerner and its

customers.

Technology development takes place in

the business units. Aker Kvaerner's

efforts within defined technology deve-

lopment projects amounted in 2004 to

approximately NOK 180 million. This

amount was augmented with some addi-

tional NOK 80 million in funding from

customers and government sources.

The Board is pleased to see an increase

of spending and external funding in

technology development. Further details

about such programs are found in the

paragraph “Customer relations.”

In Oil & Gas, improvements to existing

solutions and development of new tech-

nology for floating production, subsea

technology, concrete-structure solutions,

and selected gas chain technologies

are ongoing. Units in the Subsea,

Products & Technologies reporting seg-

ment are developing solutions to assist

customers achieve increased recovery

from oil and gas fields.

In the E&C sector, new technology for

pulping and power recovery systems is

helping customers produce more with

greater efficiency. In the process and

petrochemical industries, Aker Kvaerner

continues to access world-class tech-

nologies via license and cooperation

agreements. As an example, the ”One

Synergy” methanol/syngas collabora-

tion was formed in December 2004

between Johnson Matthey, Davy

Process Technology, and Aker Kvaerner.

Operational improvements

�The high-tech self-propelled well tractor developed

by Aker Kvaerner can move into the wells and conduct

operations to enhance oil and gas production.


Trust is essential for Aker Kvaerner.

Building trust with the company’s stake-

holders is of fundamental importance,

and can only be achieved over time. A

business aiming to be sustainable must

balance its short-term priorities against

its long-term objectives.

Obviously, it is a priority to adhere to

regional and national rules and regula-

tions. Aker Kvaerner and its employees

will conduct business in a way that will

make people proud to be working with

– or for – Aker Kvaerner.

The group recognises the challenges of

working in a variety of cultures and busi-

ness climates around the world. Aker

Kvaerner updated its group policies in

2004. The policies are based on the

group’s core values guiding business

conduct and operations. Aker Kvaerner

builds trust based on the core values of

Customer drive, Hands-on execution,

HSE mindset, Openness and honesty,

Commercial edge and Developing peo-

ple. These core values supplement our

ethical policy and other policies that act

as guidelines wherever on the globe

business is undertaken.

Health, Safety and

Environment (HSE)

Aker Kvaerner’s HSE mindset, founded

on the belief that all accidents can be

prevented, is the key to the group’s

work on health, safety, and environ-

ment. Aker Kvaerner continuously stri-

ves for zero accidents involving person-

nel, property, or affecting other

resources and assets.

In spite of the strong focus on HSE, the

Board of Directors regrets to inform

that one fatality related to Aker

Kvaerner’s activities occurred in 2004,

and another occurred in January 2005.

In December 2004, while work was

being done related to the Sakhalin pro-

ject in Russia, one of the project’s mini-

vans was hit by an oncoming car and

the driver later died from his injuries. In

January 2005, a worker employed by a

subcontractor was severely injured and

later died while working on the Kristin

FPS project in Norway. Both accidents

are under investigation, and internal

groups are also investigating in coope-

ration with customers.

The HSE Step Change improvement

programme was lunched in 2004. The

“Just Care” theme was introduced to

emphasise the personal element of

HSE, while a group-wide HSE opera-

ting system, HSE training, and focus on

leading indicators, are all elements of

Aker Kvaerner’s systematic efforts to

achieve world-class HSE performance.

The positive trend in lost time incidents

(incidents resulting in absence from

work) continued in 2004. The total num-

ber of such incidents in 2004 was 95,

compared with 133 the previous year.

The lost time incident frequency (the

number of such incidents per one mil-

lion hours worked) in 2004 was 1.2,

substantially reduced from 2.0 in 2003.

These figures include subcontractors

working for Aker Kvaerner.

The corporate citizen

0,0

0,5

1,0

1,5

2,0

2,5

3,0

200420032002

Lost Time Incident FrequencyLTI / million hours

0

1

2

3

4

5

6

200420032002

Sick leaveIn per cent

�Just Care is the common theme for Aker

Kvaerner’s focus to create a culture of personal

HSE commitment and becoming best in class

within this area.


The group-wide sick leave rate decrea-

sed from 4.0 to 2.9 per cent from 2003

to 2004. The trend is positive, although

inherent differences in local laws and

regulations lead to inaccuracies in the

consolidation and comparison of sick

leave rates across different countries.

Aker Kvaerner’s activities have only a

limited direct detrimental effect on the

environment. No major inadvertent

emissions to the environment were

reported in 2004.

Aker Kvaerner seeks to minimise waste

deposits to landfill to ensure proper

and environmentally friendly handling

of residual waste. In 2004, out of a

total of 17 900 tons of waste, 14 300

tons were recycled and 3 600 tons

were deposited in accordance with

regulations.

Energy consumption by the group in

2004 amounted to 241 000 megawatt

hours. Electric power accounted for 64

per cent of the total consumption, while

gas accounted for 24 per cent, and oil

for 11 per cent.

People

At the end of 2004, Aker Kvaerner had

a total of 20 667 employees, 1 581

fewer than at the end of 2003. In addi-

tion to its own employees, Aker

Kvaerner had 5 683 hired agency per-

sonnel at the end of 2004. Approximately

49 per cent of the total workforce

(26 350) worked in Norway, 22 per cent

worked in North America, and 21 per

cent worked in various European Union

countries.

The group continued the systematic

work begun in 2003 on improving its

procedures relating to the international

assignment of personnel. The objective

is to support the group’s global activi-

ties and the exchange of knowledge

between units.

Aker Kvaerner is a knowledge- and

skills-based enterprise. The individual

knowledge and skills of employees and

the group’s ability to combine and

employ such expertise constitute the

foundation for the company’s activities.

As part of the update of the group’s

policies, the group has reinforced a

People Policy which covers the respon-

sibilities of each individual employee

and each manager. The policy also

addresses the responsibility of the

employer in relation to employees.

The People Policy contains guidelines

relating to Aker Kvaerner’s activities,

with a special focus on ethics and

equal opportunity, preservation of

diversity, and open and honest commu-

nication. The policy describes the

employee’s right to enjoy a safe and

secure place of work, prohibiting any

form of harassment. The policy calls for

a healthy balance between work and

private life.

49% ■■ Norway

20% ■ North America

11% ■ EU

10% ■ UK

3% ■ Asia

7% ■ Rest of the world

Employees by

geographical location




24% ■ Process


4% ■ Other

Employees

by segment

�The multicultural Aker Kvaerner organisation

works in all continents and encourages diversity

in gender, age and ethnic background.


Equal opportunities

Diversity strengthens the group’s col-

lective capacity. Aker Kvaerner is there-

fore keen to be seen as an attractive

employer for all groups of people,

irrespective of ethnic background,

gender, religion, and age.

Aker Kvaerner’s policy is to pay the

same salary for the same job, irrespec-

tive of gender, ethnic background,

religion, or age. Salaries are defined by

the level of responsibility, job content,

and the employee’s competence/per-

formance.

Aker Kvaerner’s Norwegian workforce

consists of approximately 15 per cent

female and 85 per cent male employ-

ees. Both in Norway and globally, it is

the responsibility of each local busi-

ness unit, where the employer respon-

sibilities reside, to make sure that Aker

Kvaerner’s equal opportunity policy is

followed. The Board of Directors recog-

nises that women are under-represen-

ted in management positions and

encourages a better balance.

In Norway, the group is participating in

an initiative entitled Female Future, set

up by the Norwegian Confederation of

Business and Industry. The programme

focuses primarily on helping Norwegian

companies to increase the percentage

of female managers and board members

by year-end 2005. 14 Aker Kvaerner

employees have participated so far.

Developing people

The People Policy also covers the grou-

p’s principles for attracting and develo-

ping people.

The group has implemented programs

to increase the competence of executi-

ves and other employees. Leadership

development takes place both in general

management disciplines and through

specific courses related to project

management.

The Project Academy was established

in 2004. The Project Academy is a pro-

gram focusing on developing skills in

project management, risk manage-

ment, and global sourcing, and suppor-

ting the implementation of a common

project execution model. In 2005, the

Project Academy will evolve into the

Aker Kvaerner Academy, which will

target corporate focus and ownership

of developing core competences.

Aker Kvaerner executives are assessed

at regular intervals on the basis of

results achieved, with systematic feed-

back from superiors, peers and subor-

dinates - or “360 degree feedback.”

The 360 degree feedback is based

on the group’s values and leadership

approach.

People survey

In 2004, as in 2003, the group carried

out a global people survey. Around

87 percent – or approximately 18 000

employees – responded to the survey.

The responses were closely analysed

and compiled in separate reports for all

individual units and departments.

The survey showed that the majority of

employees have a positive attitude

towards Aker Kvaerner, and that most

units have a good working environment.

The survey’s findings provide the basis

for a number of initiatives for further

improvements that are now being

implemented, both for the group as

a whole and in local units.

European Works Council

The group has established European

Works Council (EWC) in cooperation

with the employees. The EWC provides

a meeting forum where the employees

from the European subsidiaries and

management meet twice a year to

discuss the group's financial position

and business plans.

Incentive plans

A number of executives participate in

salary programmes with variable pay

based on performance. Executives who

meet or exceed agreed targets receive

a competitive remuneration package.

These targets are linked to financial

performance indicators, non-financial

objectives, and alignment with group

values and leadership approach.

Apart from base salary and variable

pay, the executives participate in the

standard pension plan. The compensa-

tion and variable pay programmes for

group executives and leading employees

are described in greater detail in note

16 to the consolidated accounts.

�Aker Kvaerner participates in Female Future, an

industry programme aimed at increasing the

percentage of female managers and board members.

19Board of Directors’ Report 2004 �

Shareholder policy

Aker Kvaerner aims to create value for

shareholders, customers, employees,

and society. A shareholder’s investment

should provide a competitive return

over time in the form of dividend pay-

ments and increasing share value. Aker

Kvaerner aims to serve the financial

market with accurate, impartial, and

relevant information about the company

to ensure that the share price reflects

the underlying values and future pro-

spects.

Dividend policy

The Board of Directors considers that

the dividend on average, over time,

should be approximately 30 per cent of

net profit. Priority will be given over the

next years to strengthening the compa-

ny’s financial position. Dividend pay-

ment will thus be contingent upon the

company exceeding certain financial

targets, an EBITDA in the first half of

2005 of approximately NOK 1 500 mil-

lion on an annualised basis, and an

EBITDA for 2006 as a whole of NOK

1 750 million.

Share price development

Aker Kvaerner was listed on the Oslo

Stock Exchange on 2 April 2004. The

share price increased by 24 per cent

between listing and year-end 2004,

creating value for shareholders of NOK

1.7 billion in the same period. The

share price has further increased from

NOK 161 to NOK 200 from year-end to

17 February 2005.

Ownership structure

Aker Kværner ASA is a listed company

whose shares are traded on the Oslo

Stock Exchange. The company has

issued 55 029 234 shares.

As of 31 December, 2004 Aker

Kværner ASA had 4 072 registered

shareholders. The 20 largest sharehol-

ders owned a total of 78 per cent of

the company’s shares. As of 31

December 2004, the company’s princi-

pal shareholder, Aker ASA, owned a

total of 58 per cent of the shares in

Aker Kværner ASA. Aker ASA reduced

its ownership to 50.01 per cent of the

shares in January 2005.


corporate management

Good corporate governance and

management are prerequisites for

building trust. Aker Kvaerner emphasi-

ses the building of trust with its share-

holders, lenders, customers and other

stakeholders. For this reason, it is

important to ensure professional inde-

pendence between the company’s

Board and Management.

A new Norwegian code of practice for

corporate governance was published in

2004. With 2004 being a transition year,

Aker Kvaerner has decided to report

according to the recommendations set

out in the new code of practice, effec-

tive for 2004.

For further information regarding

corporate governance in Aker Kvaerner,

please see page 66.

Shareholder issues


In most cases Aker Kvaerner’s contri-

bution to such joint programmes is

based on its technical expertise and

experience. In technology-driven indus-

tries, customer involvement in techno-

logy development is imperative, not

only for funding reasons, but also to

achieve the focus and alignment

necessary to ensure faster commercia-

lisation.

Final pro & contra settlement

with Kvaerner

Aker Kværner ASA and Kværner ASA

have agreed on a post-restructuring

pro & contra settlement which conclu-

des all issues still outstanding after the

demerger in 2004. As part of the settle-

ment, the parties transferred Kvaerner

Metals in Pittsburgh, USA, valued at

NOK 50 million, to Aker Kvaerner in the

fourth quarter 2004.

Also, as announced on 28 December

2004, Aker Kvaerner has acquired the

company Ellayess from Kvaerner. The

Ellayess business, a provider of tempo-

rary personnel has been valued at NOK

284 million. The acquisition transacti-

ons were finalised in 2004, except for a

final cash settlement of NOK 32 million

to be made in early 2005.

The Metals unit in Pittsburgh has clear

synergies with the other Metals busi-

nesses in Aker Kvaerner. Before the

takeover of Ellayess, Aker Kvaerner

was the agency’s single largest client.

Using hired staff from the agency in

peak periods is an important element in

Aker Kvaerner’s strategy to achieve a

more flexible cost base.

New CEO

In March 2004, Mr. Inge K. Hansen was

appointed President & CEO of Aker

Kværner ASA, succeeding Mr. Helge

Lund, who was appointed President &

CEO of the Norwegian oil company

Statoil. Inge K. Hansen, previously

Statoil’s Acting President & CEO, has

extensive industrial and financial expe-

rience on a top management level from

a number of companies.

Implementing IFRS

Aker Kvaerner’s accounts will be pre-

sented in accordance with International

Financial Reporting Standards (IFRS)

from the first quarter of 2005. The diffe-

rences between IFRS and Norwegian

Generally Accepted Accounting

Principles (NGAAP) identified to date

as having a significant effect on the

consolidated financial statements are

described in note 2 to the consolidated

accounts.

Customer relations

Aker Kvaerner emphasises solid and

long-term customer relations. In many

cases, relations date back several

decades. Relations are continuously

being maintained through close inter-

action with customers during follow-up,

servicing, modernisation, and expan-

sion of previously installed plants and

equipment.

Throughout 2004, the group has contin-

ued to work on further strengthening

relations with key customers. There has

been systematic customer follow-up on

many levels, including high-level custo-

mer meetings and customer surveys.

Valuable input from customers ensures

competitiveness and responsiveness to

current and future business needs.

Through the close relationship Aker

Kvaerner has with many customers,

opportunities arise for following existing

customers to new geographic regions,

or establishing new Aker Kvaerner part-

nerships through existing customers.

The benefits of good customer relati-

onships significantly reduce new-custo-

mer and market establishment costs

and risks.

Complementing Aker Kvaerner’s own

technology development, a number of

agreements are in place with custo-

mers for joint development and com-

mercialisation of new solutions. An

example of this is Maritime Well

Service´s tractor technology, used for

maintenance of oil wells. This techno-

logy, developed together with Statoil,

has saved the customer annual costs in

2003 of NOK 500 million, together with

an additional NOK 300 million in increa-

sed revenues due to bringing wells

back on stream faster.

Other matters

21Board of Directors’ Report 2004 �

Key markets

Most of the main markets of Aker

Kvaerner improved through 2004,

and an overall continuous strong

market for most business segments is

expected in 2005. Bidding activity is

already high at the start of the New

Year.

The main geographic markets for Aker

Kvaerner in 2005 will be Norway and

the EU, North and South America, Asia-

Pacific, and Russia. Aker Kvaerner’s

activities in the Middle East are expec-

ted to grow at a moderate rate.

Oil & Gas

Aker Kvaerner’s markets within the oil

and gas industry in Norway are in

general expected to remain positive,

and several long-term contracts stret-

ching through 2005 and beyond form a

strong basis for further growth.

Within the MMO business, several

important long-term contracts were

added to the order backlog in 2004.

There is an increasing number of

offshore installations in operation, and

Aker Kvaerner is one of the leading

suppliers of maintenance, modifications

and operations’ services to the oil and

gas operators in the North Sea. The

strategy is to leverage this expertise

in other regions with similar market

conditions and requirements, primarily

in North America and in selected areas

of the Asia-Pacific.

The MMO business has gradually built

up experience in operations support,

partly from operating installations on

behalf of oil companies. On the AH001

platform offshore Scotland, Aker

Kvaerner was approved as duty holder

for the platform in 2004 in a contract

with Amerada Hess. Aker Kvaerner

regards this as a growing niche where

the company can leverage its special

capabilities. More contracts of similar

nature are expected.

The markets for oil and gas projects in

Russia and in the Caspian region are

expected to develop positively through

2005. Aker Kvaerner will leverage its

experience from the Sakhalin II deve-

lopment at the Russian Pacific coast

and the Ormen Lange subsea to

beach project in Norway.

In February 2005, Aker Kvaerner made

a strategic investments of a substantial

par t of the Finnish contractor RR

Offshore Oy, the majority owner of the

CJSC Astrakhan Korabel yard located

in Astrakhan, Russia. The investment

ensures Aker Kvaerner’s competence

and yard capacity, as well as essential

local content for projects in the region.

Through 2004, Aker Kvaerner contin-

ued to position itself in the growing

market for new LNG terminals both in

the USA and elsewhere by executing

early-phase engineering for several

potential projects. An impor tant break-

through came in late 2004 with the

award of the EPC contract for

Sempra’s Cameron LNG terminal in

Louisiana, USA.

Aker Kvaerner remains one of the

world’s leading contractors for deep-

water floating production platforms,

with leading exper tise on several con-

cepts. Deliveries in 2005 of the Kristin

semi-submersible production platform

(offshore Norway) and the White Rose

FPSO production ship (offshore

Canada) will fur ther strengthen this

position.

The units comprising the Subsea,

Products & Technologies business

experienced a growing interest in the

market towards year-end. Markets are

expected to improve within most

niches in 2005. Subsea experienced

a strong year in 2004 and is well

positioned for 2005.

E&C

Within the EU region, the market for

upgrading and service of various exis-

ting process-related facilities is expec-

ted to remain an important market for

Process, Pulping, and Power, with

somewhat increased activity in several

of the group’s target niches. The group

has also improved its market position in

the growing economies in the Asia-

Pacific. Activities in China now

accounts for more than 5 per cent of

the group’s total revenues, and the

Chinese market will continue to be

important for Aker Kvaerner in 2005.

The markets for new Process- and

Power-related facilities in North America

generally remained stable in 2004.

Moderate growth is expected in 2005.

The Metals segment profited from the

internationally growing market for

metals industry facilities, supported by

increasing commodity prices. Also, a

substantial part of the Process busi-

ness managed from North America is

engaged in projects in the growing

markets in South America and Asia-

Pacific. This trend is expected to

continue in 2005.

Uncertainties and risk

exposures reduced

Although significantly reduced as a

result of the restructuring in April 2004,

Aker Kvaerner’s balance sheet and pro-

ject portfolio contain a number of

uncertainties and risk elements, most

of which are normal for Aker Kvaerner’s

business and industry.

Outlook for 2005

�Aker Kvaerner offers extensive services for

maintenance, modification and operation services,

such as operating the AH 001 platform on behalf

of Amerada Hess.


Aker Kvaerner has worked systemati-

cally to establish risk management sys-

tems and procedures, as well as a risk

awareness culture throughout the orga-

nisation. There is a strong focus on

hands-on management from top to bot-

tom of the organisation, where risk is

contained through frequent reviews of

business processes, from the early bid

phase, through evaluation of project

execution and performance, to comple-

tion. All major bids are also processed

through a systematic tool for risk mana-

gement, Aker Kvaerner’s Risk

Dashboard, and are subject to review

and approval of the group´s risk-mana-

gement committee.

Aker Kvaerner has in place policies

and systems to handle risks and expo-

sures in the financial markets, covering

currency, interest, and counterparty

risk. The group operates a centralised

treasury function, which operates as an

internal bank towards all the operating

units. All interest and currency expo-

sure is managed centrally. The group

has established a group finance com-

mittee, with top management as mem-

bers. This committee makes decisions

and recommendations to the Board on

important financial issues.

Uncertainties and contingent events

are explained in greater detail in note

15 to the consolidated accounts.

Financial targets

The 2004 results show that Aker

Kvaerner continues on a steady course

towards its stated financial targets: An

EBITDA in the first half of 2005 of

approximately NOK 1 500 million on an

annualised basis, and an EBITDA for

2006 as a whole of NOK 1 750 million.

Aker Kvaerner intends to use a positive

cash flow to repay debt and strengthen

the balance sheet.

The 2004 profit and loss account for

the parent company Aker Kværner ASA

showed a net loss after tax of NOK 187

million.

Under the terms of the subordinated

loans that fall due in 2011, Aker Kværner

ASA is not permitted to pay dividends

exceeding 50 per cent of profit.

Lysaker, 23 February 2005

Board of Directors of Aker Kværner ASA

Leif-Arne Langøy Reidar Lund Jon Fredrik Baksaas Helge Midttun Bjørn Flatgård

Chairman Vice Chairman

Atle Teigland Åsmund Knutsen Bernt Harald Kilnes Eldar Myhre Inge K. Hansen

President & CEO

Parent company accounts and allocation of profit

The Board of Directors has established

a financial policy stipulating that divi-

dends are not to be paid before the

Aker Kvaerner group has reached its

target of an EBITDA in 2006 in the

amount of NOK 1 750 million. The

Board of Directors proposes to charge

the loss for 2004 to other equity.

The Board of Directors extends its

appreciation to management and

employees for their performance in

2004 and their ability to bring Aker

Kvaerner closer to the company’s

stated targets.

�Aker Kvaerner offers design, engineering and

construction for process facilities with experience

and leading expertise within a number of process

technologies.

23Accounts and notes – Contents �

Group Consolidated

Consolidated profit and loss account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Consolidated balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Consolidated statement of cashflow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Notes to consolidated accounts

Note 1 Statement of accounting principles . . . . . . . . . . . . . . . . . . . . 27

Note 2 Transition to IFRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Note 3 Pro forma financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Note 4 Significant transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Note 4.1 Acquisitions and disposals . . . . . . . . . . . . . . . . . . . . 31

Note 4.2 Related party transactions . . . . . . . . . . . . . . . . . . . . 31

Note 5 Shareholders´ equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Note 6 Segment information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Note 6.1 Business segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Note 6.2 Geographic segments . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Note 6.3 Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Note 6.4 Order intake / order reserve . . . . . . . . . . . . . . . . . . 36

Note 7 Net operating assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Note 8 Current operating assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Note 9 Current operating liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Note 10 Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Note 11 Property, plant & equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Note 12 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Note 13 Goodwill by business segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Note 14 Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Note 15 Contingent events. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Note 16 Salaries, wages and social security costs . . . . . . . . . . . . . . 42

Note 17 Number of employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Note 18 Pension costs and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Note 19 Net financial items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Note 20 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Note 21 Investments accounted for

under the equity method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Note 22 Net interest-bearing items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Note 23 Interest-bearing long-term receivables. . . . . . . . . . . . . . . . . . 47

Note 24 Long-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Note 25 Borrowings by currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Note 26 Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Note 27 Guarantee liabilities, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Note 28 Financial market exposures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Note 29 Group companies as of 31 December 2004 . . . . . . . . . . 50

Parent company

Parent company profit and loss account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Parent company balance sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Parent company statement of cashflow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Notes to parent company accounts

Note 1 Statement of accounting principles . . . . . . . . . . . . . . . . . . . . 56

Note 2 Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Note 3 Financial items. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Note 4 Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Note 5 Investments as of 31 December 2004 . . . . . . . . . . . . . . . . . . 57

Note 6 Current operating assets and liabilities . . . . . . . . . . . . . . . . 57

Note 7 Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

Note 8 Interest-bearing items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Note 9 Long-term borrowings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Note 10 Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Note 11 RISK-regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

Note 12 Contingent events and related parties . . . . . . . . . . . . . . . . . . 58

Accounts and notes

Contents

24 � Consolidated profit and loss account

Accounts Pro forma 1)

Apr. 2004-

Dec. 2004 Amounts in NOK million Note 2004 2003 2002

27 838 Operating revenues 6 35 553 31 327 34 140

16 105 Materials, goods and services 20 147 17 226 18 626

7 460 Salaries, wages and social security costs 16, 18 10 043 10 494 11 641

3 196 Other operating expenses 3 962 2 604 3 300

26 761 Total operating expenses 34 152 30 324 33 567

1 077 Operating profit before depreciation and amortisation 6 1 401 1 003 573

- 234 Depreciation 11 -308 -333 -377

843 Operating profit before amortisation 1 093 670 196

- 229 Goodwill amortisation 12, 13 -318 -315 -320

614 Operating profit / loss before exceptionals 6 775 355 -124

- Exceptional items - -452 -271

614 Operating profit / loss 6 775 -97 -395

- 326 Net financial items 19, 22 - 396 -241 341

288 Profit / loss before tax 6 379 -338 -54

- 114 Tax 14 -139 -10 -127

174 Net profit / loss 240 -348 -181

11 Minority interests 9 5 2

163 Majority share 5 231 -353 -183

55 029 234 Average number of shares 2) 5 55 029 234 55 029 234 55 029 234

2.96 Earnings per share 3) 4.20 -6.41 -3.33

1) 2002, 2003 and 1st quarter 2004 are pro forma, as the Aker Kværner ASA group was formed 1 April 2004 (see note 3).

2) Earnings per share in pro forma periods were calculated using the weighted average number of shares outstanding for the nine month period ending 31

December 2004

3) Majority share of net profit / loss / average number of shares. There was no potentially dilutive securities outstanding.

Consolidated profit and loss account

25Consolidated balance sheet �

Accounts Pro forma

2004 Amounts in NOK million Note 2003 2002

Assets

Fixed assets:

361 Deferred tax assets 7, 14 241 151

4 200 Goodwill and patents 7, 12, 13 4 386 4 637

4 561 Total intangible fixed assets 4 627 4 788

1 403 Property, plant and equipment 7, 11 1 422 1 873

87 Other long-term operating assets 7, 18 106 135

103 Interest-bearing long-term receivables 22, 23 30 60

95 Long-term investments 20, 21 106 107

285 Total other long-term assets 242 302

6 249 Total fixed assets 6 291 6 963

Current assets:

9 828 Current operating assets 7, 8 8 924 8 977

3 703 Cash and bank deposits 22 3 558 3 337

13 531 Total current assets 12 482 12 314

19 780 Total assets 18 773 19 277

Liabilities and shareholders' equity

Equity:

2 084 Capital paid in 5 2 084 2 084

- 197 Other equity 5 - 113 - 191

48 Minority interests 60 60

1 935 Total equity incl. minority interests 6 2 031 1 953

Liabilities:

131 Deferred tax liabilities 7, 14 7 4

474 Other long-term operating liabilities 7, 18 454 561

605 Total long-term liabilities 461 565

3 826 Subordinated debt 24, 25 3 946 3 901

2 435 Interest-bearing long-term debt 22, 24, 25 3 133 3 075

6 261 Total long-term borrowings 7 079 6 976

1 Interest-bearing short-term debt 22 6 1 000

10 978 Current operating liabilities 7, 9, 10, 15 9 196 8 783

10 979 Total current liabilities and short-term borrowings 9 202 9 783

17 845 Total liabilities 16 742 17 324

19 780 Total liabilities and shareholders' equity 18 773 19 277

Consolidated balance sheet






President & CEO

26 � Consolidated statement of cashflow

Consolidated statement of cashflow

Accounts Pro forma

Apr. 2004-


Cashflow from operating activities

279 Profit(+) / loss(-) before tax 370 -338 -54

-93 Tax paid -130 -51 -98

463 Depreciation and amortisation 626 648 697

-2 Profit(-) / loss (+) on disposals / non cash effects 5 -74 -600

99 Interest accrued on subordinated debt 132 132 132

9 Profit(-) / loss(+) from associated companies 5 -10 -

793 Changes in other net operating assets 638 441 -249

1 548 Net cashflow from operating activities 1 646 748 - 172

Cashflow from investing activities

-281 Acquisition of businesses (-) net of net cash acquired (+) 4 -281 - -

-19 Cash sale of businesses -19 - -

-340 Purchase of fixed assets 6, 11 -418 -427 -410

23 Disposal of fixed assets 68 360 314

-42 Changes in other assets -12 59 37

-659 Net cashflow from investing activities -662 -8 -59

Cashflow from financing activities

- Proceeds from long-term loans - - 80

-25 Repayment of short-term loans -46 -757 -381

-560 Repayment of long-term loans 24 -560 - -

-585 Net cashflow from financing activities - 606 -757 -301

-301 Translation adjustments - 233 238 57

3 Net decrease(-) / increase (+) in cash and bank deposits 145 221 - 475

3 700 Cash and bank deposits as at beginning of period 22 3 558 3 337 3 812

3 703 Cash and bank deposits as at 31 December 22 3 703 3 558 3 337

27Statement of Accounting Principles �

Associated companies

Associated companies are undertakings in which the group

holds between 20 and 50 per cent of the voting shares and is in

a position to exercise considerable influence. Associated com-

panies are incorporated in the financial statements using the

equity method of accounting. The group’s investments in asso-

ciates include goodwill identified on acquisition. The group's

share of the results are based on the acquired company's profit

after tax less amortisation of acquisition costs in excess of the

book value of equity. Profits in associated companies are inclu-

ded within the financial income caption in the consolidated

accounts and included in the balance sheet under long-term

investments.

Joint ventures

Joint ventures are those entities over whose activities the group

has joint control, established by contractual agreement. The

consolidated financial statements include the group’s proportio-

nate share of entities assets, liabilities, revenue and expenses.

Valuation and classification principles

Current assets and liabilities

Items in the operating cycle and items falling due within one

year are classified as current assets and liabilities.

Shares

Investments in shares are valued at the lower of the acquisition

cost and the market value.

Contracts

Engineering and construction contract revenues are recognised

using the percentage of completion method, based primarily on

contract cost incurred to date compared to estimated contract

costs. When the final outcome of a contract cannot be reliably

estimated, contract revenue is recognised only to the extent of

costs incurred that are expected to be recoverable. Losses on

contracts are fully recognised when identified. Contract revenues

include variation orders and incentive bonuses are recognised

when their realisation is probable and the amount can be mea-

sured reliably. Disputed amounts are recognised when their

realisation is reasonably certain and can be measured reliably.

Contract costs include costs that relate directly to the specific

contract and costs that are attributable to contract activity in

general and can be allocated to the contract. Costs that cannot

be attributed to contract activity are expensed. Bidding costs are

capitalised when it is probable that the company will be the pre-

ferred bidder. All other bidding costs are written-off as incurred.

Accumulated income is classified as operating income in the

profit and loss account. Contracts in progress are classified as

short-term receivables. Payments by customers are deducted

from the value of contracts under the same contract, or to the

extent they exceed this value, are disclosed as advances from

customers.

Basis of preparation

The accounts of Aker Kvaerner are presented in conformity with

Norwegian legislation and Norwegian generally accepted

accounting principles, including the transaction, accrual,

matching, prudence and congruency principles. In cases of

uncertainty, best estimates are utilised and the effects of hed-

ging are taken into consideration. The accounts are prepared

under consistent principles and in accordance with the going

concern assumption.

Formation of the new group

Kværner ASA formed a new subsidiary, Aker Kværner ASA and

transferred all of its oil and gas and engineering and construc-

tion businesses to the new subsidiary.

All transfers were recorded at the unchanged book amounts.

The accounts presented for 2002, 2003 and first quarter 2004

are prepared on a pro forma basis. The actual accounts for

2004 are presented for the period 1 April 2004 to 31 December

2004.

Consolidation principles

Consolidated companies

The consolidated accounts comprise the company and all the

subsidiaries in which the parent company directly or indirectly

has the ability to control the decision making process. The

results of companies acquired / sold during the year are inclu-

ded from/ to the date of acquisition / sale.

Elimination of intra-group transactions

All material transactions, profits and balances between compa-

nies in the group are eliminated.

Elimination of shares in subsidiaries

Shares in group companies are eliminated in the consolidated

accounts using the purchase method. The difference between

the purchase price of the shares and the book value of the net

assets acquired as at the acquisition date is analysed. Any

excess of the cost of the acquisition over fair value of net identi-

fiable assets is recognised as goodwill. Goodwill is amortised in

the income statement in accordance with the underlying

assumptions in the purchase consideration but with no less than

5 per cent annually.

Translation of foreign subsidiary accounts

Profit and loss accounts of non-Norwegian subsidiaries are

translated to Norwegian kroner (NOK) using the average

exchange rates for the year. The balance sheets of non-

Norwegian subsidiaries are translated to NOK at the year-end

exchange rates. Differences arising from varying rates of

exchange compared to exchange rates at the year-end are

taken to reserves. The same applies to the effect of exchange

rate fluctuations on loans in the subsidiaries' reporting curren-

cies which were raised to hedge the balance sheet value of the

group's investments in the subsidiaries.

Notes to consolidated accounts

Note 1 � Statement of Accounting Principles

28 � Statement of Accounting Principles

Inventories

Raw materials and components are valued at the lower of cost

or net realisable value. Work in progress and finished goods are

valued at the lower of production cost or net realisable value.

Net realisable value is the estimated selling price in the ordinary

course of business, less the estimated costs of completion and

selling expenses.

Provisions

A provision is recognised in the balance sheet when the group

has a current legal or constructive obligation as a result of a

past event, and it is probable that an outflow of economic bene-

fits will be required to settle the obligation. Any probable losses

for future work on construction contracts have been expensed

and are classified as accrued costs / provisions in the balance

sheet.

Maintenance

Maintenance costs are expensed as incurred. Upgrading and

replacements of fixed assets are capitalised.

Fixed assets / depreciation

Fixed assets are stated at historical cost net of accumulated

depreciation or at estimated fair value if less than book value

and the decline in book value is not perceived as temporary.

Depreciation is provided on a straight-line basis at rates calcu-

lated to amortise each asset over its expected economic life.

Profits or losses on the disposal of fixed assets in the ordinary

course of business are included in operating profit.

Impairment of long-lived assets

Goodwill and other tangible and intangible fixed assets are eva-

luated for impairment when events or circumstances indicate

that the carrying amounts may not be recoverable. These evalu-

ations are based on a comparison of the asset’s carrying

amount to fair value, which is generally based upon discounted

future cash flows. An asset’s carrying amount is written down to

its value in use amount if the asset’s carrying amount is greater

than its estimated recoverable amount.

Accounts receivable and payable in foreign currency

Assets and liabilities in foreign currency are valued at year-end

exchange rates. Customer contracts and subcontractor con-

tracts denominated in foreign currency result in currency risks.

Such risks are normally hedged by entering into forward con-

tracts to sell/purchase corresponding currency amounts. The

hedging instruments are not separately reflected in the

accounts but affect the accounting of the hedged positions.

Leasing

Leasing contracts are classified as financial or operational. A

finance lease is a leasing contract whereby the main risks and

rewards attributable to the ownership of an asset are transfer-

red to the lessee. A finance lease is accounted for as if the

asset is acquired and depreciated over its useful life, while the

lease obligation is accounted for as a long-term interest-bearing

liability.

Research and development costs

Research expenditures and costs associated with the develop-

ment of new products and production processes are recogni-

sed in the income statement as expenses are incurred.

Retirement benefit costs and provision for retirement benefits

Most group companies have retirement benefit plans that give

the employees a right to receive future benefits upon termina-

tion of service (Defined Benefit Plans). The benefits are deter-

mined by a formula based on the number of years of service

and the expected salary upon retirement. The retirement benefit

cost is derived from assumptions including the discount rate,

expected future salary increases and regulations of future

benefits. The effect of changes in assumptions and valuations

are taken into account when they exceed 10 % of the highest of

the gross pension liability and the pension assets. Profit and

loss effects of such changes are recognised over the expected

remaining average working lives of employees.

Some subsidiaries also have defined contribution plans.

Contributions to these plans are expensed as incurred.

Deferred tax

Deferred tax is calculated on timing differences affecting future

taxable profit. Deferred tax on operations is calculated using the

appropriate tax rate as of the balance sheet date. Tax assets

are calculated based on tax-deductible temporary differences

and tax losses carried forward, taking into account the probabi-

lity of sufficient future taxable income becoming available within

the various tax regimes in which the group operates. The tax

cost includes taxes payable and the change in deferred tax lia-

bilities / assets. Deferred tax assets are recognised to the extent

that it is probable that future taxable profits will be available

against which the asset can be utilised.

Segment Reporting

A segment is a distinguishable part of the group that is enga-

ged either in providing products or services (business seg-

ment), or in providing products or services within a particular

economic environment (geographical segment), which is sub-

ject to risks and rewards that are different from those of other

segments.

Exceptional items

Exceptional items comprise

• material gains / losses on sale of businesses,

• material restructuring expenses related to discontinuing busi-

nesses which are identifiable, quantifiable and based on firm

commitnents, and which are not covered by related revenues,

and

• other material special items which are either unusual or not

expected to recur frequently or regularly.

29Notes to consolidated accounts �

The consolidated accounts of Aker Kværner ASA will from 1 January 2005 comply with IFRS, with comparative figures for 2004.

Preliminary determination of the impact of conversion on consolidated group financial statements

Aker Kvaerner’s financial statements have been prepared in accordance with Norwegian legislation and generally accepted

accounting principles in Norway (NGAAP). Although, the Norwegian accounting standards have mainly focused on complying

with international accounting standards (IAS), the implementation of IFRS will bring forward certain significant differences mainly

from recent IFRS-changes. These differences between IFRS and NGAAP identified to date as having a significant effect on the

consolidated financial statements, are summarised below. As the process of transition to IFRS is ongoing, the summary is not

necessarily final.

Reconciliation of equity and profit and loss:

Amounts in NOK million Pro forma

Equity 31. Profit/loss after tax

Effect of transition to IFRS December 2004 Jan. 2004 - Dec. 2004

NGAAP 1 887 240

Pensions A -200 -

Deferred tax asset on pension differences 60 -

Goodwill B 318 318

Subordinated loan C 600 -100

Deferred tax on subordinated loan adjustments -170 28

IFRS 2 495 486

No impacts have been identified for the cash flow statement.

A Pensions – defined benefit plans

The accounting for defined benefit plans is similar under IFRS and N GAAP, although there are certain individual differences with

respect to discount rates and recognition of benefit changes. The main issue relates to the transition. For defined benefit plans it

is permitted to charge all unrecognised losses and gains against equity in the opening balance sheet. Aker Kvaerner will select

this option, and the impact is an increase in the pension liability of approximately NOK 200 million.

B Goodwill

The IFRS requirements with respect to amortisation of goodwill were changed in 2004. Goodwill shall no longer be amortised,

but at least annually be tested for impairment. On transition to IFRS, goodwill is restated to the value at the beginning of 2004

(reversal of 2004 amortisation) and has been subject to testing for impairment. The result is an increase in the goodwill value of

NOK 318 million.

C Subordinated loan

At the time of the refinancing of the Kvaerner Group in 2001-2002, some of the borrowings were converted to a loan with signifi-

cantly changed terms. It was concluded to carry the loan at nominal value in the books.

According to IAS 39 the subject loans shall be measured at fair value at the time of conversion. As of 1 January 2004 Aker

Kvaerner will reduce the book value by NOK 600 million. NOK 600 million will be charged to profit and loss as interest expense

over the period to redemption date in 2011.

D Financial instruments

IFRS has extensive regulations in respect of financial instruments in IAS 32 and 39. This framework has been under continuing

revision, and there are many differences between NGAAP and IFRS. The main consequence for Aker Kvaerner is that IFRS sets

stricter requirements for disclosures and recognition of derivative financial instruments. No material net profit or loss or equity

effect is expected as all derivatives are used for hedging.

IFRS conversion plan

An internal “transition to IFRS” project has been ongoing since 2003. The project will be completed during first quarter 2005 in

time for the first quarter reporting.

Note 2 � Transition to International Financial Reporting Standards (IFRS) (Unaudited)

30 � Notes to consolidated accounts

Pro forma financial statements presented are based on the

assumptions stated below. These pro forma financial state-

ments are provided for informational purposes only and are

not necessarily indicative of actual results that would have

been achieved had the transactions and assumptions des-

cribed below taken place during the periods presented.

Re-capitalisation

The re-capitalisation of the group completed as at 1 April

2004 was based on:

• refinancing the existing senior financial indebtedness of

Aker Kvaerner by (i) a second priority lien notes issue in the

amount of EUR 260 million, (ii) a bank term loan in the

amount of EUR 33 million and (iii) a bank revolving credit

facility in the amount of EUR 117 million.

• the bond- and noteholders under subordinated bullet loan

agreed to a change of debtor from Kværner ASA to Aker

Kværner ASA, subject to the completion of other elements

of the recapitalisation.

• issuance of new shares comprising an aggregate subscrip-

tion amount of approximately NOK 2 billion.

After the re-capitalisation, the group has gross debt of

approximately NOK 7 billion and owners' equity of approxima-

tely NOK 2 billion. The total debt in the pro forma balance

sheets consists of mainly two elements (i) subordinated loan,

and (ii) an intercompany loan which is reduced to NOK 2 979

million by the end of 2003. This equals the amount to be refi-

nanced by the notes issue, the term loan and the revolving

credit.

The pro forma accounts for 2002-2003 reflect these transacti-

ons. The shareholders' equity and financing at 31 December

have been rolled-back from the ending balance as of 31

December 2003 reflecting the effects of the pro forma adjust-

ments.

The results from operations of Aker Maritime’s oil and gas

business, which was acquired in a merger in March 2002,

have been reflected in the pro forma group financial state-

ments as if the merger took place effective 1 January 2002.

The acquisition of Aker Maritime’s oil and gas business was

accounted for as a purchase and acquired assets and liabili-

ties were stated at fair value. Historical information for the Aker

Maritime oil and gas business was derived from unaudited

financial statements for the two-month period ended 28

February 2002. The pro forma adjustments to include the

results from operations for businesses acquired from Aker

Maritime from 1 January 2002 increased pro forma operating

revenues and operating profit after exceptional items by NOK

1 362 million and NOK 23 million in 2002.

Management believes costs reflected in the 2002 pro forma

financial statements approximates those that would be incur-

red if the oil and gas businesses and the engineering and

construction businesses had operated on a stand-alone basis.

In 2003, a further NOK 100 million charge has been allocated

in the pro forma financial statements based on estimated utili-

sation of head office services.

Pro forma adjustments have been made to income tax

expense to reflect estimated expense as if the group had ope-

rated on a stand-alone basis for the periods presented.

Income tax for Norwegian operations has been normalised

based on the statutory rate in Norway of 28%. Income tax

expense for operations outside of Norway is as included in

historical accounts. Income tax expense has also been

adjusted for the effects of pro forma adjustments to the profit

and loss accounts.

Upon completion of the conversion of debt into equity, a loss

has arisen for tax purposes that will be available to offset

future taxable income in Norway. A portion of the potential tax

benefits totalling approximately NOK 320 million has been

included as an asset in the pro forma balance sheet at the

beginning of the pro forma period.

Note 3 � Pro forma financial statements

Kværner ASA established the new Aker Kvaerner group 1 April 2004 and transferred all of its oil and gas and engineering and

construction businesses to the new subsidiary.

The accounts presented for 2002, 2003 and first quarter 2004 are prepared on a pro forma basis. The company’s actual results

for 2004 cover the period 1 April 2004 to 31 December 2004.

Merger with Aker

Maritime`s oil and gas

business 8 March 2002

Aker Kvaerner group

formed 1 April 2004

2002 2003 2004 31.12

Accounts

Pro forma Pro forma Pro forma


Note 4 � Significant transactions

4.1 Acquisitions and disposals

Aker Kvaerner group was formed 1 April 2004. The impact of acquisitions and disposals in 2002 and 2003 have been reflected in the pro

forma financial statements for all periods presented. All acquisitions in 2004 have been accounted for in accordance with the acquisition

method.

Acquisitions: Disposals:

2004 2004

Pittsburgh There were no material disposals in 2004

Ellayess

4.2 Related party transactions

The main shareholder Aker ASA is controlled by TRG Holding AS

which is again controlled by Kjell Inge Røkke. All entities controlled

by Kjell Inge Røkke are considered related parties with regard to

the Aker Kvaerner group.

In accordance with recommended accounting practice, information

regarding significant related party transactions, benefits and agree-

ments should be disclosed where such information may assist

users of the financial statements in their understanding of the acti-

vities of the group.

At year-end, the group had NOK 67 million short-term payable to

Kværner ASA, net of interest bearing loans from Aker Kværner E&C

Group AS to Kværner ASA of NOK 45 million (two year loan with

interest rate 6.5 %)

Kvaerner – pro & contra settlement

Aker Kværner ASA and Kværner ASA have agreed on a post-

restructuring pro & contra settlement which concludes all issues

still outstanding after the restructuring in 2004. Aker Kvaerner has

been charged operating expenses and financial expenses in first

quarter as if the new group existed from 1 January 2004. As part of

the settlement, the parties transferred Kvaerner Metals in Pittsburgh

and the company Ellayess from Kvaerner to Aker Kvaerner in the

fourth quarter 2004.

Acquisition of Metals Pittsburgh

31 December 2004 Aker Kvaerner Metals Inc, a wholly owned sub-

sidiary of Aker Kværner ASA purchased the metals division of

Kvaerner US Inc, a wholly-owned subsidiary of Kværner ASA for a

consideration of approximately USD 8.1 million. Goodwill of USD

7.1 million arose from the transaction.

Acquisition of Ellayess

Aker Kværner AS, a subsidiary of Aker Kværner ASA purchased the

Ellayess business from Kvaerner E&C Plc, a wholly-owned subsidi-

ary of Kværner ASA, for a total consideration of NOK 284 million,

subject to certain adjustments e.g. changes in working capital.

Goodwill of NOK 136 million arose from the transaction. NOK 32

million is payable as of 31 December 2004 from Aker Kværner ASA

to Kværner ASA in connection with the acquisition.

Labour services

Kvaerner Oil & Gas Resources Ltd, Kvaerner E&C Resources Ltd

and Kvaerner Shared Resources Ltd, all of which are wholly-owned

subsidiaries of Kværner ASA, have entered into labour service

agreements with subsidiaries of Aker Kværner ASA whereby they

will provide services to the Aker Kvaerner companies. The services

are being provided on arm’s length terms.

Group Services

Aker Kværner ASA has agreed to provide Kværner ASA head office

services, such as accounting and treasury. These services will be

terminated as soon as Kværner ASA has established their own staff

functions.

Properties

Companies in the Aker Kvaerner group use certain properties,

which are formally leased by companies in the Kvaerner group and

vice versa. The parties have entered into lease agreements for such

properties. The terms and conditions of such leases, including

payment, are based on arm’s length principles.

Aker Arctic Technology Inc

Aker Kværner Engineering & Technology AS will invest EUR 1 million

in Aker Artic Technology Inc, which is equivalent to 12,5% of the

share capital. The investment is related to the development of an

ice laboratory and an arctic engineering company. As at 31

December 2004. Aker Kværner Engineering & Technology AS has

invested EUR 200 000. The remaining value has been paid 31

January 2005.


Note 5 � Shareholders` equity

Accounts

Total equity

excl. minority

Amounts in NOK million Number of shares Capital paid in Other equity interests

Equity contributed by Kværner ASA 38 875 388 62 - 62

Share issue 16 153 846 2 100 - 2 100

Issue cost -78 - - 78

1 April 2004 55 029 234 2 084 2 084

Net profit (+) / loss (-) 174 174

Minority interests - 11 - 11

Translation differences 1) - 360 - 360

31 December 2004 2) 55 029 234 2 084 - 197 1 887

1) Aker Kværner ASA and Kværner ASA have agreed on a post-restructuring pro and contra settlement which concludes all outstanding issues after the

restructuring in spring 2004. This has resulted in Aker Kværner absorbing NOK 106 million of translation effects, interest and fees in the first quarter 2004

related to the subordinated loan.

2) In the restructuring the internal transactions were accounted for in the consolidated accounts using unchanged book values whereas in the parent company

the transactions were accounted for using fair values resulting in a higher equity in the parent company accounts, than in the consolidated accounts. For

further information see parent company note 7.

Pro forma

Total equity

excl. minority

Amounts in NOK million Number of shares Capital paid in Other equity interests

1 January 2002 55 029 234 2 084 132 2 216

Net profit (+) / loss (-) - 183 - 183

Minority interests 2 2

Translation differences - 142 - 142

31 December 2002 55 029 234 2 084 - 191 1 893

Net profit (+) / loss (-) - 353 - 353

Minority interests 5 5

Translation differences 426 426

31 December 2003 55 029 234 2 084 - 113 1 971

Net profit (+) / loss (-) 240 240

Minority interests - 9 - 9

Translation differences 1) - 315 - 315

31 December 2004 55 029 234 2 084 - 197 1 887

1) Aker Kværner ASA and Kværner ASA have agreed on a post-restructuring pro and contra settlement which concludes all outstanding issues after the restructu-

ring in spring 2004. This has resulted in Aker Kværner absorbing NOK 106 million of translation effects, interest and fees in the first quarter 2004 related to the

subordinated loan.


Note 6 � Segment information

6.1 Business segments

Accounts

For Apr. 2004 - Dec. 2004 Operating EBITDA1) 2) Operating Capital Net Net Net

revenues profit (+) / expenditures short-term long-term operating

loss (-) operating operating assets

Amounts in NOK million assets assets

Field Development (FD) 7 613 330 230 29 - 697 1 338 641

Maintenance, Modifications and Operations (MMO) 4 802 194 120 6 - 86 1 284 1 198

Subsea, Products & Technologies (SPT) 6 017 401 282 135 653 1 193 1 846

Process (PRO) 6 516 83 - 36 23 - 125 1 041 916

Pulping & Power (P&P) 3 667 167 163 50 - 623 80 - 543

Other/Elim - 777 - 98 - 145 97 - 206 280 74

Total before exceptionals 27 838 1 077 614 340 -1 084 5 216 4 132

Tax - - - - - 45 230 185

Total 27 838 1 077 614 340 -1 129 5 446 4 317

Net profit on investments - 13 Investments 95

Net interest and foreign exchange results - 313 Net borrowings - 2 456

Profit before tax 288 Net assets 1 956

Dividends - 21

1) Goodwill per business segment see note 13. Total equity incl. minority interests 1 935

2) Operating profit before depreciation and amortisation.

Pro forma

For 2004 Operating EBITDA1)2) Operating Capital Net Net Net





Maintenance, Modifications and Operations (MMO) 6 327 248 149 12 - 86 1 284 1 198


Process (PRO) 8 123 110 18 27 - 125 1 041 916

Pulping & Power (P&P) 4 815 264 191 61 - 623 80 - 543

Other/Elim - 988 - 140 - 199 125 - 206 280 74

Total before exceptionals 35 553 1 401 775 418 -1 084 5 216 4 132

Tax - - - - - 45 230 185

Total 35 553 1 401 775 418 -1 129 5 446 4 317


Net interest and foreign exchange results - 392 Net borrowings - 2 456

Profit before tax 379 Net assets 1 956

Dividends - 21

1) Goodwill per business segment see note 13. Total equity incl. minority interests 1 935



Pro forma

For 2003 Operating EBITDA1)2) Operating Capital Net Net Net




Field Development (FD) 8 244 158 - 1 128 - 462 1 474 1 012

Maintenance, Modifications and Operations (MMO) 6 311 241 132 4 396 1 387 1 783


Process (PRO) 7 163 129 21 31 - 404 1 035 631

Pulping & Power (P&P) 3 682 209 140 50 - 314 198 - 116

Other/Elim - 814 - 133 - 161 29 - 85 81 - 4

Total before exceptionals 31 327 1 003 355 427 - 190 5 460 5 270

Exceptional items 3) - - - 452 - - - -

Tax - - - - - 82 234 152

Total 31 327 1 003 - 97 427 - 272 5 694 5 422


Net interest and foreign exchange results 88 Net borrowings - 3 497

Profit before tax - 338 Net assets 2 031

Dividends -

Total equity incl. minority interests 2 031

1) Goodwill per business segment see note 13.


3) Exceptional items include the settlements of Equatorial of NOK 330 million in Process, Advance Agro and other disputes in Power of NOK 90 million, a dispute in

Process of NOK 87 million and reversal of the remaining balance (NOK 55 million) of the Karbomont provision. All settlements relate to projects completed prior to

2003. The operations of Karbomont were closed in 2003 and the remaining obligations (environmental etc) were lifted after final site clearance.

For 2002 Operating EBITDA1)2)4) Operating Capital Net Net Net





Maintenance, Modifications and Operations (MMO) 6 073 127 16 16 293 1 538 1 831


Process (PRO) 9 697 - 378 - 503 16 62 1 126 1 188

Pulping & Power (P&P) 3 010 14 - 57 38 68 251 319

Other/Elim -1 124 - 83 - 92 7 - 134 87 - 47

Total before exceptionals 34 140 573 - 124 410 232 6 084 6 316

Exceptional items 3) - - - 271 - - - -

Tax - - - - - 38 147 109

Total 34 140 573 - 395 410 194 6 231 6 425


Net interest and foreign exchange results 683 Net borrowings - 4 579

Profit before tax - 54 Net assets 1 953

Dividends -

Total equity incl. minority interests 1 953

1) Goodwill per business segment see note 13.


3) NOK 56 million in FD, NOK 6 million in MMO, NOK 5 in SPT and NOK 42 million in Corporate for restructuring, onerous leases and write-downs were expensed

as exceptionals. NOK 118 million in PRO, NOK 38 million in PP and NOK 34 million in Corporate were expensed to cover capacity adjustments, closure of

offices and onerous leases.

4) NOK 292 million of costs related to the Cal Energy, Coastal and polypropylene projects were charged against operating result for the year.


6.2 Geographic segments

The tables below are based upon the location of group operations

Accounts

Norway United North Asia/ Rest of Aker Kvaerner

Amounts in NOK million Kingdom America Australia the world group

For Apr. 2004 - Dec. 2004

Total operating revenues 15 476 3 688 5 872 1 704 5 271 32 011

Sales to group companies 2 005 621 628 175 744 4 173

Sales to external customers 1) 13 471 3 067 5 244 1 529 4 527 27 838

Operating profit(+) / loss(-) 368 - 109 30 66 259 614

Profit(+) / loss(-) before tax 157 - 188 - 26 102 243 288

Net operating assets excl tax and dividend 2 163 993 717 399 - 140 4 132

1) Sales from operations in other European countries than Norway and United Kingdom were NOK 3 802 million.

Pro forma

Norway United North Asia/ Rest of Aker Kvaerner

Amounts in NOK million Kingdom America Australia the world group

For 2004


Sales to group companies 2 687 705 810 235 1 016 5 453

Sales to external customers 2) 17 166 3 919 6 721 1 871 5 876 35 553

Operating profit(+) / loss(-) 453 - 106 - 8 90 346 775

Profit(+) / loss(-) before tax 193 - 208 - 80 116 358 379

Net operating assets excl tax and dividend 2 163 993 717 399 - 140 4 132

2) Sales from operations in other European countries than Norway and United Kingdom were NOK 4 978 million.

For 2003



Sales to external customers 15 068 3 887 6 402 1 525 4 445 31 327

Operating profit(+) / loss(-) 287 - 24 - 511 100 51 - 97

Profit(+) / loss(-) before tax 23 20 - 562 55 126 - 338

Net operating assets excl tax and dividend 3 540 1 182 586 88 - 126 5 270

For 2002



Sales to external customers 14 514 4 722 8 535 1 876 4 493 34 140

Operating profit(+) / loss(-) 307 - 192 - 370 137 - 277 - 395

Profit(+) / loss(-) before tax 518 - 120 - 416 16 - 52 - 54

Net operating assets excl tax and dividend 3 795 867 1 363 - 30 321 6 316


6.3 Markets

The table below is based upon customer location

Accounts Pro forma

Apr. 2004-

Dec. 2004 Amounts in NOK million 2004 2003 2002

Operating revenues:

4 873 Norway 5 541 12 571 12 914

9 560 EU 12 577 6 983 7 504

6 150 North America 7 861 5 190 8 353

1 838 Asia 2 927 3 356 2 186

5 417 Other 6 647 3 227 3 183

27 838 Group total 35 553 31 327 34 140

6.4 Order intake / order reserve (unaudited)Order intake

Accounts Pro forma

Apr. 2004-


12 613 Field Development (FD) 13 955 8 516 10 706

6 794 Maintenance, Modifications and Operations (MMO) 7 859 6 510 7 882

6 426 Subsea, Products & Technologies (SPT) 8 332 7 436 7 442

6 062 Process (PRO) 8 465 9 190 6 374

3 324 Pulping & Power (P&P) 4 198 6 230 2 631

- 957 Other/ Elim -1 227 -980 -167

34 262 Total 41 582 36 902 34 868

Order reserve

Accounts Pro forma

2004 Amounts in NOK million 2003 2002

11 565 Field Development (FD) 7 701 7 091

9 765 Maintenance, Modifications and Operations (MMO) 8 283 8 029

5 462 Subsea, Products & Technologies (SPT) 4 897 3 965

6 667 Process (PRO) 7 310 6 002

3 442 Pulping & Power (P&P) 4 178 1 301

- 981 Other/ Elim -878 95

35 920 Total 31 491 26 483

Order reserve

In the ordinary course of business, the group enters into delivery commitments prior to commencement of production. The order reserve as

at 31 December 2004 amounted to NOK 35.9 billion. NOK 379 million related to certain major contracts which were not expected to yield

any profit, while expected losses on such contracts have been charged to operations in 2004 based on best estimates. See also contract

information in note 8.

Major projects in progressProject Customer Est. delivery

Oil & Gas

Kristin Semi EPCH Statoil 2005

Ormen Lange MIC Norsk Hydro 2007

LNG Regasification Terminal Sempra Energy 2008

Frigg Decommissioning Total E&P Norge 2008

Ekofisk 2/4M Conoco Phillips 2005

Sakhalin ll Sakhalin Energy Investment Company Ltd 2006

Adriatic LNG Terminal Ras Laffan Liquified Natural Gas Company Ltd 2005

Dalia Total E&P Angola 2007

White Rose Husky Oil Operations Ltd 2005

Kashagan EPF Agip 2007

E&C

Jiang Lin Hainan Changxiang Trading 2005

BDO Facility GACIC 2005

Skoghall Mill Stora Enso 2005

Veracell, Hybex & Recox Veracel Celulose S.A 2005

Hualian Sunshine PTA Phase II Zhejiang Hualian Sunshine 2006

Coal fired Power Plant Hitachi 2007


Note 7 � Net operating assets

Accounts Pro forma


9 828 Current operating assets 8 8 924 8 977

-10 912 Current operating liabilities excl payable tax and dividend 9 -9 114 -8 745

-1 084 Net current operating assets excl tax and dividend -190 232

80 Pension prepayment 18 30 9

4 200 Goodwill, etc 12, 13 4 386 4 637

7 Other long-term operating assets 76 126

1 403 Tangible fixed assets 11 1 422 1 873

-440 Pension liability 18 -406 - 521

-34 Other long-term operating liabilities -48 - 40

5 216 Net long-term operating assets excl tax 5 460 6 084

4 132 Net operating assets excl tax and dividend 5 270 6 316

-66 Tax payable and dividend -82 - 38

361 Deferred tax assets 14 241 151

-131 Deferred tax liabilities 14 -7 - 4

4 296 Net operating assets incl tax 5 422 6 425

Note 8 � Current operating assets

Accounts Pro forma


4 396 Trade debtors 1) 5 072 4 549

1 630 Other receivables 1) 988 1 458

2 788 Amounts recoverable on work in progress 2 043 2 094

548 Advances to suppliers 330 253

9 362 Non interest-bearing short-term receivables 8 433 8 354

415 Raw materials 387 342

51 Finished goods 104 281

9 828 Current operating assets 8 924 8 977

1) Trade debtors includes NOK 81.6 million falling due after one year and NOK 1.6 million of other receivables falling due after one year. The majority of this

amount relates to retained customer payments, due to be released at the end of the appropriate warranty periods.

At 31 December 2004, Aker Kvaerner was engaged in contracts with an estimated total value of NOK 74.7 billion, of which work to a value of

NOK 38.8 billion had already been recognised with accumulated contract cost of NOK 35.1 billion and a gross contract margin of NOK 3.7

billion, leaving a future work load (order reserve) of NOK 35,9 billion. In respect of the work already performed (NOK 38.8 billion), cash of

NOK 36.0 billion has been received, resulting in outstanding amounts recoverable on contracts of NOK 2.8 billion. Receivables where pay-

ment is withheld by customers based on non-fulfilled contract obligations amounted to NOK 19.8 million. Advance payments from custo-

mers, relating to the future work load, amounted to NOK 2.4 billion (see note 9)

Note 9 � Current operating liabilities

Accounts Pro forma


2 465 Trade creditors 2 391 2 362

2 352 Advances from customers 2 750 1 454

3 645 Accrued operating and financial costs 1 973 2 001

631 Provisions 10 832 980

1 819 Other current liabilities 1 168 1 948

10 912 Current operating liabilities excl payable tax and dividend 9 114 8 745


Note 10 � Provisions

Accounts

Contract

Amounts in NOK million losses Warranties Other Provisions

Balance 1 April 2004 258 368 119 745

Charged operations 93 242 58 393

Utilised - 208 -70 - 64 - 342

Released - 29 - 69 - 29 - 127

Translation effects - 8 - 25 - 5 - 38

Balance 31 December 2004 106 446 79 631

See also note 6.1 regarding exceptional items and note 15 Contingent events

Contract losses

Any foreseeable losses on signed construction contracts are expensed. Amounts recoverable on work in progress are written down before a

provision for contract losses is recognised.

Warranties

The provision for warranties relates mainly to the possibility that Aker Kvaerner, based on contractual agreements, needs to do guarantee

work related to products and services delivered to customers. The provision is based on estimates about occurence and cost of work that

needs to be done.

Pro forma

Contract

Amounts in NOK million losses Warranties Other Provisions

Balance 1 January 2004 253 416 163 832

Charged operations 108 261 64 433

Utilised - 218 - 127 - 86 - 431

Released - 33 - 82 - 58 - 173

Translation effects - 4 - 22 - 4 - 30

Balance 31 December 2004 106 446 79 631

Note 11 � Property, plant and equipment

Accounts

Buildings, quay Machinery and Construction

Amounts in NOK million Land works and sites equipment in progress Total

Accumulated value as at 1 April 2004

Historical cost 76 901 3 302 124 4 403

Depreciation - 6 - 486 -2 515 - -3 007

Book value as at 1 April 2004 70 415 787 124 1 396

Additions 2 128 327 -117 340

Disposals (historical cost) - 3 -38 - 239 - - 280

Disposals (accumulated depreciation) 1 4 221 - 226

Depreciation - 1 - 34 - 198 - 1 - 234

Translation differences - 3 - 12 - 28 - 2 - 45

Book value as at 31 December 2004 66 463 870 4 1 403

Of which capitalised leases - - 4 - 4

Assets are written down on a straight-line basis over their expected lives, as follows:

Machinery and equipment 3 - 15 years

Buildings and quay works 3 - 50 years

Houses, sites and land over the life of the lease

Bank borrowings are secured on machinery and equipment for the value of NOK 48 million (see note 26).

39Notes to consolidated accounts � 39

Leasing contracts

Annual rent due to operating lease contracts amounts to :

Amounts in NOK million Properties Other

Contracts due within one year 65 14

Contracts running for one to five years 317 64

Contracts running for more than five years 209 -

Total 591 78

Pro forma

Buildings, quay Machinery and Construction

Amounts in NOK million Land works and sites equipment in progress Total

Accumulated value as at 1 January 2004

Historical cost 75 935 3 240 117 4 367

Depreciation - 6 - 488 -2 451 - -2 945

Book value as at 1 January 2004 69 447 789 117 1 422

Additions (historical cost) 2 128 400 - 112 418

Disposals (historical cost) - 3 -75 - 258 - - 336

Disposals (accumulated depreciation) 1 16 221 - 238

Depreciation - 1 - 44 - 262 - 1 - 308

Translation differences - 2 - 9 - 20 - - 31

Book value as at 31 December 2004 66 463 870 4 1 403

Of which capitalised leases - - 4 - 4

Note 12 � Intangible assets

Accounts

Amounts in NOK million Goodwill etc.

Accumulated value as at 1 April 2004

Historical cost 6 813

Depreciation / amortisation -2 466

Book value as at 1 April 2004 4 347

Additions 193

Depreciation - 229

Translation differences - 111

Book value as at 31 December 2004 4 200

The acquisition of a company is based, inter alia, upon the strategic fit and anticipated profitability of that company, over a long time-scale.

As such it is Aker Kvaerner's policy to amortise the goodwill arising on acquisition over the expected economic life of the acquisition, subject

to a maximum of 20 years.

Research and development costs

No research and development costs were capitalised in 2004. Most of the research & development work in Aker Kvaerner is related to ong-

oing contracts and the costs are expensed as contract costs. Separate research and development costs of approximately NOK 159 million

(of which NOK 23 million were paid by customers) have been expensed during the year because it is not possible to identify and quantify

the future revenues that are directly linked to these costs.

Pro forma

Amounts in NOK million Goodwill etc.

Accumulated value as at 1 January 2004

Historical cost 6 763

Depreciation / amortisation -2 377

Book value as at 1 January 2004 4 386

Additions 193

Depreciation - 318

Translation differences - 61

Book value as at 31 December 2004 4 200


Note 13 � Goodwill by business segment

Amortisation

Accounts Pro forma

Apr. 2004-


50 Field Development (FD) 67 71 71

70 Maintenance, Modifications and Operations (MMO) 93 95 95

37 Subsea, Products & Technologies (SPT) 61 54 53

48 Process (PRO) 68 50 70

24 Pulping & Power (P&P) 28 45 31

229 Total 12 318 315 320

Book value

Accounts Pro forma




666 Subsea, Products & Technologies (SPT) 730 772

758 Process (PRO) 821 870

224 Pulping & Power (P&P) 262 250

136 Other activities 1) - -

4 192 Total 12 4 379 4 612

1) Goodwill of NOK 136 million relates to purchase of Ellayess in December 2004 and was therefore not amortised this year.

Note 14 � Tax

Accounts Pro forma

Apr. 2004-


Tax payable

3 Norway 4 5 -4

122 Other countries 136 81 121

125 Total tax payable 140 86 117

Deferred tax

68 Norway 78 -7 2

-79 Other countries -79 -69 8

-11 Total deferred tax - 1 -76 10

114 Total tax charge 139 10 127

Accounts Pro forma


Deferred tax assets

43 Short-term items 86 35

132 Long-term items 2 3

85 Pension liabilities 54 99

101 Loss carried forward 99 14

361 Deferred tax assets 241 151

Deferred tax liabilities

834 Short-term items 187 441

15 Long-term items -72 -46

-718 Loss carried forward -108 -391

131 Deferred tax liabilities 7 4


Total tax loss arising in Norway


Expiring in 2014 4 045

Total tax loss as at 31 December 20041) 4 045

1) NOK 2 295 million of this tax loss is used to offset the deferred tax liability in Norway. The tax effect of a tax loss of NOK 1 750 million is not included in the

balance sheet.

Deferred tax assets and liabilities are offset if they reverse in the same period and belong to the same tax regime.

Aker Kværner AS, a subsidiary of Aker Kværner ASA incurred a tax loss of NOK 2 940 million in respect of the settlement of a liability to

Kværner ASA in 2004. The nominal liability of NOK 2 800 million related shares in Kværner ASA that were used as a consideration in the

merger between Aker Kværner AS and Aker Oil & Gas Holding AS in 2002. There are, however, a number of ongoing discussions with

Norwegian tax authorities and a tax asset of NOK 320 million is recognised due to uncertainties 31 December 2004. Aker Kvaerner also has

a future tax deduction to a subordinated loan that was transferred from Kværner ASA in 2004. The future tax deduction is estimated at NOK

1 000 million based on the exchange rates at the end of 2004. No tax asset has been recognised in respect of this loan.

Reconciliation of Norwegian nominal statutory tax rate to effective tax rate

Pro forma

Amounts in NOK million 2004

Expected income taxes (28 %) of profit before tax and goodwill amortisation 195

Tax effect of prior year adjustments -42

Tax effect of items booked against equity -20

Tax effect of permanent differences -22

Tax effect of differences in tax rates from 28% 18

Other 10

Income tax expense 139

Effective tax rate 20 %

Tax effect of differences -56

Note 15 � Contingent events

Project risks and uncertainties

The group’s operations are to a large extent subject to long

term contracts, some of which are fixed-price, and turnkey

contracts that are awarded on a competitive bidding basis.

Failure to meet schedule or performance guarantees or

increases in contract costs can result in non-recoverable

costs, which could exceed revenues realised from the appli-

cable project. Where a project is identified as loss making,

provisions are made for expected losses. The accounting

treatment is based on the information and advice available.

Inevitably, such circumstances and information may be sub-

ject to change in subsequent periods and thus the eventual

outcome may be better or worse than the assessments made

in preparing up periodical financial reports.

Legal proceedings

With its extensive worldwide operations, companies included

in the group are in the course of their activities involved in

legal disputes. Provisions have been made to cover the

expected outcome of the disputes to the extent negative out-

comes are likely and reliable estimates can be made.

However, the final outcome of these cases will always be

subject to uncertainties and resulting liabilities may exceed

booked provisions.

Holborn

In 2000, Aker Kvaerner Netherlands B.V. and Holborn Europa

Raffinererie GmbH entered into contracts for delivery of a

steam reformer and a unit for removal of sulphur and conver-

sion of aromatics in refinery streams in order to produce ultra

low sulphur and low aromatics diesel in accordance with the

EU Fuel Directives.

Aker Kvaerner Netherlands B.V. has launched legal procee-

dings against Holborn Europa Raffinererie GmbH claiming

payment of outstanding invoices in the amount of approxima-

tely EUR 9.2 million and reimbursement of amounts drawn on

bank guarantees in the amount of approximately EUR 7 mil-

lion. Holborn Europa Raffinererie GmbH has rejected the

claim and raised counter claims of approximately EUR 35 mil-

lion based on alleged defects, delays and acts of gross negli-

gence and/or wilful misconduct in the execution of the project,

In addition, Holborn Europa Raffinererie GmbH has been

granted legal seizure in cash deposits and accounts receivable

in the Netherlands up to a total amount of EUR 10 million.

Aker Kvaerner Netherlands B.V. has rejected the counter

claims from Holborn Europa Raffinererie GmbH. Although

there can be no assurance regarding the outcome, the expec-

tation is that this will not have a material negative impact on

the financial position or results of operations.

Valhall

A subsidiary entered into a contract with BP for the procure-

ment and construction of the jacket for a water injection plat-

form on the Valhall field in the North Sea. The installation was

delayed due to pile refusal, and rectification work was neces-

sary to complete the installation. The jacket was successfully

installed in August 2003. BP has reserved the right to claim

back the additional costs related to rectification work if it is

determined that the pile refusal was caused by circumstances

falling under the group's scope of liability. In addition, BP has

reserved the right to claim penalty payments as a result of

delayed delivery.


Note 16 � Salaries, wages and social security costs

Accounts Pro forma

Apr. 2004-


5 995 Salaries and wages including holiday allowance 7 984 8 325 9 140

939 Social security tax / National insurance contribution 1 229 1 272 1 271

222 Pension costs 296 329 390

304 Other employee costs 534 568 890

7 460 Salaries, wages and social security costs 10 043 10 494 11 641

Directors' fees

Fees paid to the Board of Directors from 2 April 2004 to 31

December 2004 amounted to NOK 1 392 424. In addition, the

Chairman of Board of Directors' fee (NOK 300 000) was paid

to his employer - Aker ASA. The Chairman of Board of

Directors and current Directors did not receive any other pay-

ments.

President & chief executive officer's and senior

managers' renumeration

The Reward Committee of the Board of Directors

The Reward Committee of the Board of Directors (the Reward

Committee) makes recommendations on the remuneration of

the President and Chief Executive Officer (CEO) for approval

by the Board of Directors. Based on proposal from CEO the

Reward Committee approves remuneration to the members of

the Executive Team and Senior Managers reporting directly to

CEO.

The Reward Committee makes regular assessments of the

CEO’s terms of employment and remuneration and where

appropriate the Reward Committee puts forward proposals for

changes to the Board of Directors. The Reward Committee

also approves changes in remuneration programmes and the

general terms of employment for members of the Executive

Team and Senior Managers. The Reward Committee has three

independent members chosen by and from the Directors.

Basis of remuneration of the President and CEO, the

members of the Executive Team and Senior Managers

The basis of the remuneration of the CEO, members of the

Executive Team and Senior Managers has been developed in

order to create a performance-based system which is founded

on the group’s values and leadership approach. This system

of reward is designed to contribute to good financial results

and increase in shareholder value.

Each executive receives a base salary. In addition, a variable

pay element is awarded. This variable pay is based on the

achievement of financial and personal performance targets,

leadership performance in accordance with the company’s

values and leadership approach and the development of the

company's share price. The CEO does not participate in the

variable pay system.

The CEO, Executives and Senior Managers participate in the

standard pension and insurance schemes, applicable to all

employees. In addition, a total of 8 executives, including the

CEO and the Executive Management Team, have membership

in an executive group life- and disability insurance with a

cover of maximum NOK 4 746 660.

President and CEO’s remuneration

The President and CEO, Inge K. Hansen, was employed 15

March 2004 and his annual base salary is NOK 4 100 000. In

2004, the company paid the CEO salary and allowances

amounting to NOK 2 949 665.

The CEO’s employment agreement can be terminated with six

months’ notice. If the company terminates the employment

with Inge K. Hansen, he is entitled to receive 6 months’ salary

from the expiry of the period of notice. This amount is not

paid if he continues to be employed as President & CEO of

another company in the Aker Kvaerner Group.

Inge K. Hansen is entitled to a retirement pension equivalent

to 66% of a pensionable salary of NOK 2 750 000 with addi-

tion of annual adjustments equivalent to the increase of the

Norwegian base amount. Payments from the company's

standard pension scheme, including state pension and all

other pension benefits (that are not financed through the

CEO's own payments) shall be deducted from the retirement

pension paid by the company. Inge K. Hansen's net pension

costs amounted to NOK 4 739 327 (including company

standard pension scheme and top hat scheme) for 2004.

The company and Inge K. Hansen may mutually require that

the CEO retire when he turns the age of 62. From such retire-

ment until the age of 67, the CEO is entitled to early retire-

ment pension equivalent to 66% of pensionable salary.

Payments from the company's standard pension scheme,

including state pension and all other pension benefits (that are

not financed through the CEO's own payments) shall be

deducted from the early retirement pension paid by the com-

pany. If the company terminates the CEO's employment

before he reaches the age of 62, the CEO is entitled to early

retirement pension according to the above description. Such

payment will start from the day after the expiry of the period of

which the CEO has received severance pay.

The previous CEO, Helge Lund, terminated his employment

with Aker Kvaerner effective from 16 March 2004. He received

from 1 January to 15 August 2004 salary and allowances

amounting to NOK 3 278 274. Helge Lund was covered by the

company’s standard pension scheme for that proportion of his

salary which does not exceed 12 times the Norwegian base

amount. Helge Lund's pension costs amounted to

NOK 20 813 for 2004.

Senior Executives’ remuneration

Executive Vice President Jon Erik Reinhardsen, who is statio-

ned in Houston, received in 2004 net salary and allowances

amounting to USD 195 308 and had his accommodation costs

paid by the company. Jon Erik Reinhardsen’s employment

agreement can be terminated with six months’ notice. If the


company terminates the employment, Jon Erik Reinhardsen is

entitled to receive six months’ salary from the expiry of the

period of notice. He is covered by the company’s standard

pension scheme for that proportion of his salary which does

not exceed 12 times the Norwegian base amount, and has a

variable pay programme dependent on the achievement of

defined short-term and long-term results. A variable pay

amounting to USD 115 665 was paid to him in 2004. Prior to

the merger of Aker Maritime and Kvaerner, Jon Erik

Reinhardsen was included in a pension scheme for executives

in Aker Maritime. The scheme was wound up following the

merger and Aker Kvaerner has assumed the responsibility for

the accrued rights in the scheme. According to this scheme,

Jon Erik Reinhardsen has acquired the right to early retire-

ment from age 60 and a pension based on the part of his

salary which exceeds 12 times the Norwegian base amount

from the official retirement age of 67. His historically accrued

rights are per 31 December 2004 equivalent to a capitalised

value of NOK 13 164 835.

Executive Vice President & Chief Financial Officer, Bjørn Erik

Næss, was employed 1 October 2004 and he received

NOK 1 293 032 in salary and allowances in 2004. His employ-

ment agreement can be terminated with six months’ notice. If

the company terminates the employment, he is entitled to

receive six months’ salary from the expiry of the period of

notice. He is covered by the company’s standard pension

scheme for that proportion of his salary which does not

exceed 12 times the Norwegian base amount, and has a


defined short-term and long-term results.

Executive Vice President Finn Berg Jacobsen received

NOK 2 176 752 in salary and allowances in 2004. His employ-

ment agreement can be terminated with six months’ notice

and he is not entitled to any further salary on leaving the com-

pany. He is covered by the company’s standard pension

scheme for that proportion of his salary which does not

exceed 12 times the Norwegian base amount, and has a


defined short-term and long-term results. A variable pay

amounting to NOK 1 023 750 was paid to him in 2004.

Executive Vice Presidents and Senior Managers

The Executive Vice Presidents' and the Senior Managers'

remuneration package includes a base salary, standard

employee pension and insurance scheme and a variable pay.

A total of 48 managers were entitled to this remuneration pac-

kage in 2004. The variable pay programme for Executive Vice

Presidents and Senior Managers represents a potential for an

additional variable pay up to the value of 60 per cent of base

salary depending on the achievement of financial targets

(profit and working capital) and personal targets (project tar-

gets, development of commercial solutions, values and lea-

dership approach). The first half of the variable pay is paid

the following year. After a further two years, the following is

paid:

(a) the remaining half of the earned amount, plus interest

(b) a corresponding amount (exclusive of interest) to encourage

executives to maintain their employment in Aker Kvaerner

(c) an amount which corresponds to the sum of (a) and (b)

multiplied by the percentage by which the Aker Kvaerner

share price on 1 January 2007 exceeds a share price of

NOK 127.39.

The employment agreement for Executive Vice Presidents and

Senior Managers can be terminated with six months’ notice. If

the company terminates the employment, six months’ salary is

payable on expiry of the period of notice. Any salary received

from other employers during these six months is deductible.

A separate agreement for Executive Vice Presidents and

Senior Managers in Norway implies that once they reach the

age of 60, salary and working time are gradually reduced until

they reach the retirement age of 67.

Directors' and Senior Management's shareholding

The following number of shares were owned by the Directors and the members of the Senior Management group (and their related parties)

as at 31 December 2004:

Shares

Leif-Arne Langøy, Chairman 10 000

Reidar Lund, Vice Chairman -

Helge Midttun, Director -

Bjørn Flatgård, Director 1 107

Jon Fredrik Baksaas, Director 400

Atle Teigland, Employee representative -

Åsmund Knutsen, Employee representative 201

Eldar Myhre, Employee representative -

Bernt Kilnes, Employee representative -

Inge K. Hansen, President & CEO 7 200

Simen Lieungh, Executive Vice President 14

Mads Andersen, Executive Vice President 479


Note 17 � Number of employees

2004 2003 2002



3 411 Subsea, Products & Technologies (SPT) 3 468 4 012

4 896 Process (PRO) 5 528 6 357

2 005 Pulping & Power (P&P) 1 938 1 915

922 Other 1) 890 950

20 667 Total Aker Kvaerner employees 22 248 24 914

5 683 Total agency 2 974 2 645

26 350 Group total 25 222 27 559

10 034 Employees in Norway 10 689 11 011

10 633 Employees in other countries 11 559 13 903

1 122 Total associates 819 820

1) In 2002, Aker Kværner Business Partner AS, Aker Kværner Services AS and Aker Kvaerner Business Partner Ltd were established as service companies to

provide shared services to operating companies. Employees that were previously part of operating businesses were transferred to these companies.

Note 18 � Pension cost and liabilities

Most group companies have retirement benefit plans that give the employees a right to future benefits (defined benefits plans). The number

of employees that are covered by such plans is 9 874 active and 1 993 others.

Normally, retirement benefits are based on the number of years of service and the expected salary upon retirement. Retirement plans are

either organised by independent pension funds, through insurance companies, in collective co-operations or directly by the company.

Contributions to the pension funds are made in accordance with local laws and accounting rules based on standard actuarial assumptions

in the applicable country.

Some foreign subsidiaries have retirement plans where the employer only contributes an agreed amount that is separately administered

(defined contribution plan) or contributes to retirement plans that are co-ordinated with other employers (multi-employer plan).

Net pension cost / return

Accounts Pro forma

Apr. 2004-


109 Service cost 145 153 200

116 Interest on projected benefit obligation 155 168 178

- 106 Expected return on plan assets - 141 - 138 - 160

14 Net amortisations and deferrals 18 21 14

133 Defined benefit plans 177 204 232

89 Defined contribution plans 119 125 158

222 Net pension cost 296 329 390


Status of pension plans reconciled with the balance sheet

Accounts Pro forma

2004 2003 2002

Assets Assets less Assets Assets less Assets Assets less

exceed PBO than PBO exceed PBO than PBO exceed PBO than PBO

(funded) (unfunded) Total Amounts in NOK million (funded) (unfunded) Total (funded) (unfunded) Total

Defined benefit plans:

1 893 492 2 385 Accumulated benefit obligation (ABO) 1 572 434 2 006 1 869 394 2 263

338 42 380 Effect of projected future compensation levels 378 59 437 408 118 526

2 231 534 2 765 Projected benefit obligation (PBO) 1 950 493 2 443 2 277 512 2 789

2 046 - 2 046 Plan assets at fair value 1 843 - 1 843 2 093 - 2 093

- 185 - 534 - 719 Plan assets in excess of (+)/less (-) that PBO - 107 - 493 - 600 - 184 - 512 - 696

265 94 359 Unrecognised net gain (-)/loss (+) 137 87 224 87 97 184

80 - 440 - 360 Net prepaid pension (+)/accrued pension liability (-) 30 - 406 - 376 - 97 - 415 - 512

Assets/liabilities

80 - 80 Pension prepayment 30 - 30 9 - 9

- - 440 - 440 Accrued pension liability - - 406 - 406 -106 - 415 -521

Economic assumptions

6.0 % 6.0 % 6.0 % Discount rate 6.5 % 6.5 % 6.5 % 7.0 % 7.0 % 7.0 %

7.0 % 7.0 % 7.0 % Asset return 7.5 % 7.5 % 7.5 % 8.0 % 8.0 % 8.0 %

3.0 % 3.0 % 3.0 % Salary progression 3.3 % 3.3 % 3.3 % 3.3 % 3.3 % 3.3 %

2.5 % 2.5 % 2.5 % Pension indexation 2.5 % 2.5 % 2.5 % 2.5 % 2.5 % 2.5 %

8.5 % 8.5 % 8.5 % Employee turnover age < 50 years 8.5 % 8.5 % 8.5 % 8.5 % 8.5 % 8.5 %

2.0 % 2.0 % 2.0 % Employee turnover age > 50 years 2.0 % 2.0 % 2.0 % 2.0 % 2.0 % 2.0 %

Note 19 � Net financial items

Accounts Pro forma

Apr. 2004-


- 14 Profit(+)/loss(-) from associated companies and limited partnerships - 5 10 -

- Profit on sale of associates - 1 - - 6

- 14 Net profit (+)/loss (-) on investments - 6 10 - 6

48 Interest income 55 62 50

-336 Interest expense -411 -401 - 386

- 288 Net interest - 356 - 339 - 336

- 25 Net foreign exchange gain (+) / loss (-) - 34 88 683

- 326 Net financial items -396 -241 341

Note 20 � Investments

Accounts Pro forma


21 Investments in other companies 22 24

74 Investment in associated companies 21 84 83

95 Long-term investments 106 107


Note 21 � Investments accounted for under the equity method

Accounts

Associated companies Book value Currency & Book value

as at 1 Additions / Profit Write- Dividends other as at 31

Amounts in NOK million April 2004 disposals after tax downs received adjustments December 2004

Kvaerner Powergas India Pvt Ltd 54 - 12 - - 7 - 3 56

Simas 12 - - - 12 - - -

Siva Verdal Eiendom 13 - - - - - 13

Other companies 11 3 - 14 - - 5 5

Total 90 3 - 2 - 12 - 7 2 74

Pro forma

Associated companies Book value Currency & Book value

as at 1 Additions / Profit Write- Dividends other as at 31

Amounts in NOK million January 2004 disposals after tax downs received adjustments December 2004

Kvaerner Powergas India Pvt Ltd 44 - 22 - - 7 - 3 56

Simas 12 - - - 12 - - -

Siva Verdal Eiendom 13 - - - - - 13

Other companies 15 3 - 15 - - 2 5

Total 84 3 7 - 12 - 7 - 1 74

The group's interest in its principal associates, were as follows:

Percentage

of voting Percentage Net Profit/

Amounts in NOK million Business office rights held Assets Liabilities Equity Revenues (Loss)

Kvaerner Powergas India Pvt Ltd Mumbai, India 49.00 49.00 175 58 117 153 31

Note 22 � Net interest-bearing items

Accounts Pro forma


3 703 Cash and bank deposits 3 558 3 337

103 Interest-bearing long-term receivables 23 30 60

-1 Interest-bearing short-term borrowings 1) -6 -1 000

-2 435 Interest-bearing long-term borrowings -3 133 -3 075

1 370 Net interest-bearing assets (+)/liabilities (-) 449 - 678

Accounts Pro forma

Apr. 2004-


48 Interest income 55 62 50

-336 Interest expense 2) -411 -401 -386

- 288 Net interest - 356 - 339 - 336

1) All short-term borrowings are due for payment within one year.

2) Includes NOK 132 million in accrued interest on the subordinated debt in 2004, 2003 and 2002.

Group Cash Pool Systems

For the purpose of optimising availability and flexibility of cash within the group, cash-pooling arrangements have been established. Today, the

group has two cash-pooling systems; one system for Aker Kværner ASA (excluding all subsidiaries within oil and gas) and one system for Aker

Kværner AS (oil and gas). The two systems are a result of the refinancing of the group, which took place at the beginning of 2004, and

according to which the cash within the oil and gas entities must be ring-fenced.

Such arrangements are either organised with a bank as a service provider, or as a part of the operation of the internal treasury function. An

important condition for the participants (business units) in such cash pooling arrangements, is that the group as an owner of such pools is

financially viable and able to service its obligations concerning repayment of any net deposits made by business units.


Note 23 � Interest-bearing long-term receivables

Accounts Pro forma


1 Restricted deposits 18 1

17 Loans to employees 10 57

85 Other interest-bearing long-term receivables 1) 2 2

103 Interest-bearing long-term receivables 30 60

1) As described in note 4.2 Aker Kværner E&C Group AS has given Kværner ASA a loan of NOK 45 million.

Note 24 � Long-term borrowings

Original Book Interest Maturity Interest

Loan description currency value value coupon date terms

Aker Kværner ASA

Subordinated debt Non-interest-bearing

ISIN NO 0010128838 NOK 1 119 million 1 119 0.00 % 30.10.11 until 30.10.06 and fixed

ISIN NO 0010128846 USD 338 million 2 040 0.00 % 30.10.11 5.00 % pa thereafter with

ISIN NO 0010128853 EUR 13 million 107 0.00 % 30.10.11 back end fee of up to

US Notes Issue USD 29 million 178 0.00 % 30.10.11 4.44 % of the principal

Accrued interest 382 payable at maturity.

Total subordinated debt 3 826

Aker Kvaerner O&G group

Second priority lien notes EUR 260 million 2 141 8.375 % 15.06.11 Fixed

Senior bank debt - amortising term loan EUR 33 million 242 3.954 % 19.03.09 IBOR + 1,75 %1)

Senior bank debt - revolving credit facility EUR 117 million - - 19.03.09 IBOR + 1,75 %1)

Project loan, Alabama USA USD 8 million 48 8.000 % 01.04.12 Fixed

Total debt in Aker Kvaerner O&G group 2 431

Aker Kværner E&C Group AS

Senior bank debt - revolving credit facility EUR 50 million - - 29.12.05 IBOR + 1,25%

Total debt in Aker Kværner E&C Group AS -

Other long-term loans 4

Total long-term borrowings 6 261

1) The margin applicable to the facilities is decided by a price grid based on the gearing ratio.

Only significant undertakings are disclosed below.

Aker Kværner ASA

Description of subordinated debt

The terms and conditions of the subordinated debt contain certain restrictions and covenants of the group, including but not

limited to (a) a restriction on carrying out a demerger (within the meaning of chapter 14 of the Norwegian Public Limited

Companies Act), (b) a restriction on certain mergers, disposals of operations or assets and changes to the nature of the busi-

ness and (c) a restriction on borrowings.

In addition the company shall not (a) within a calendar year, make a dividend payment to the shareholders that constitutes more

than 50 per cent of accumulated net profits (after taxes) available for distribution (excluding any profits to the extent arising from

(i) disposals of assets other than in the ordinary course of business or (ii) the repurchase of subordinated debt) and (b) reduce

its share capital or equity through a payment to its shareholders, other than under (a).

The debt, excluding the US Note issue, is listed on the Oslo Stock Exchange.


Aker Kvaerner O&G group

Description of senior debt facility

The senior debt is split into two tranches of a) an amortising multicurrency term loan of EUR 33 million and b) a bullet revolving

multicurrency credit of EUR 117 million both with final maturity 19 March 2009. The term loan is amortising with EUR 8,25 million

each year from 2006. The revolving facility is undrawn at year-end 2004. The terms and conditions of the facility contain inter

alia, restrictions incurrence of further indebtedness, restrictions on payment of dividends and disposals, restrictions on trans-

actions with affiliates and restrictions on mergers and acquisitions. Further, there are certain changes of control provisions in the

facilities.

The financial covenants are based on two sets of key financial ratios; a gearing ratio based on total gross debt / EBITDA and an

interest coverage ratio based on EBITDA / interest costs. The financial covenants are measured on a quarterly basis. The margin

applicable to the facility is based on a price grid determined by the gearing ratio.

The facility is secured by pledge of shares in certain Aker Kværner AS direct subsidiaries and a guarantee from Aker Kværner

ASA. This security package is subject to intercreditor arrangements between certain other creditors within the Aker Kvaerner

group.

The financial covenants and description outlined above also applies to other main credit agreements within the O&G group, e.g.

bonding agreements.

Description of second priority lien notes

The terms and conditions of the second priority lien notes is primarily an incumbrance test that the consolidated coverage ratio

(EBITDA / interest expense) shall exceed 2.1 for the first two years of the facility and 2,5 thereafter.

Aker Kværner E&C Group AS

Description of senior debt facility

The 364 day facility is provided under bilateral agreements with two banks and matures 29 December 2005. The facility is

undrawn year end. The terms and conditions of the facility contain restrictions to the Aker Kvaerner E&C group similar to the

senior debt facility in Aker Kvaerner O&G group.

The financial covenants are based on two sets of key financial ratios; a gearing ratio based on total gross debt / EBITDA for Aker

Kværner E&C Group AS and Aker Kværner ASA and an interest coverage ratio based on EBITDA / interest costs for Aker

Kværner E&C Group AS. The financial covenants are measured on a quarterly basis.

The facility is secured by pledge of shares in certain of the E&C group's direct subsidiaries and a guarantee from Aker Kværner

ASA. This security package is subject to intercreditor arrangements between certain other creditors within the Aker Kvaerner group.

Repayments of long-term borrowings:


Long-term borrowings as at 1 April 2004 7 164

Repayments - 560

New loans / reclassifications -

Sale of companies -

Foreign exchange effects - 442

Interest on subordinated debt 99

Long-term borrowings as at 31 December 2004 6 261

Accrued interest on subordinated debt - 382


Repayments of long-term loans:

2005 7

2006 67

2007 67

2008 67

2009 67

2010 and later 5 604

Total repayments 5 879


Note 25 � Borrowings by currency

In currency In NOK

Amounts in millions Long-term Long-term

NOK 1 237 1 237

USD 457 2 764

EUR 274 2 260

Total (NOK) 6 261

A substantial part of the borrowing in foreign currency is swapped to other currencies by use of short-term currency swaps. This is to

eliminate currency exposure deriving from changes in the currency composition of the working capital, and to hedge equity investments in

foreign currencies. See note 28 (Financial market exposures).

Note 26 � Mortgages

Accounts Pro forma


48 Long-term mortgage debt 1) 74 17

Which is secured by pledges on assets with the following book values:

48 Machinery and equipment 60 38

- Buildings and quay work 37 -

48 Total value of assets pledged as security 97 38

1) In addition, the loans in Aker Kværner AS and Aker Kværner E&C Group AS are secured as described in note 24.

Note 27 � Guarantee liabilities, etc

Accounts Pro forma


- Total guarantee liabilities - 110

Note 28 � Financial market exposures

Aker Kvaerner undertakes to manage large construction type contracts for customers. This includes to enter into both sales and purchase

contracts in foreign currencies. All such foreign exchange exposure related to contracts is hedged. Operating units in the group enter into

forward contracts with the central treasury function to sell or buy the relevant currency for delivery at future payment dates. During a year

there are approximately 7 000 such forward contracts of which approximately 1 000 will be outstanding at any time. At the end of 2004 the

operating units of the group had entered into contracts with the central treasury function for the following sale or purchase of foreign curren-

cies to hedge foreign exchange exposure on ongoing construction contracts.

These contracts between the central treasury function and the operating units imply that the corresponding foreign exchange exposure has

been moved from the operating units to the central treasury function. The central treasury function will also assist with new foreign exchange

contracts to move foreign currency payments forward or backwords in time.


Amounts in million Operating companies Operating companies

Currency net sale net purchase

AUD 21

CAD 67

CHF 2

DKK 23

EUR 39

GBP 34

JPY 51

NOK 1 076

NZD 1

SEK 348

SGD 1

USD 377

The forward contracts with the operating units represent foreign exchange exposures for the central treasury function and will be hedged

together with other foreign exchange positions following from deposits from group companies, loans to group companies, external cash

deposits and external borrowings. To hedge such exposures, the central treasury function has entered into the following forward foreign

exchange contracts with external banks.

Amounts in million Group Group

treasury treasury

Currency net sale net purchase

AUD 38

CAD 20

DKK 8

EUR 329

GBP 16

JPY 823

NOK 3984

SEK 1390

SGD 10

USD 69

With the activities referred to above, Aker Kvaerner has hedged its main balance sheet and contractual foreign exchange exposures.

Fluctuations in foreign currencies will consequently only have small profit and loss effects. The instruments in the table above are mainly with

major banks, and are consequently not subject to any significant credit risk.

Unhedged foreign exchange exposures relate mainly to the group's ability to secure new contracts in markets where foreign currencies are

the main economic measure for our customers. Such exposures remain unhedged and can influence future earnings.

As the extenal contracts may be for shorter time periods than the underlying exposure, it is standard practice to roll over forward contracts to

cover future time periods. At the date of roll over of forward contracts it is normal to pay or receive an amount corresponding to the move-

ment in the foreign exchange spot rate from the inception to roll over. This represents a potential liquidity risk, which remains unhedged.

In addition to the issues described above, the central treasury function also has some limited trading mandates, combined with strict stop

loss procedures.

Aker Kvaerner's long term loans are mainly subject to fixed interest rate agreements. Future results are consequently, not significantly

exposed for changes in interest rates. Currently, the group does not hold interest rate derivatives.

Note 29 � Group companies as of 31 December 2004

Company Location Ownership (%)

Aker Kværner ASA Norway

Aker Kværner Business Partner Ltd UK 100

Aker Kværner E&C Group AS Norway 100

Aker Kvaerner E&C Americas Holdings Ltd UK 100

Aker Kvaerner Australia Pty Ltd Australia 100

Aker Kvaerner E&C Americas Ltd UK 100

Aker Kvaerner Canada Inc Canada 100

11259 New foundland Ltd Canada 100

Aker Oil & Gas Technology Canada Canada 100

Chemetics Offshore Services Inc Canada 100

Aker Kvaerner E&C US Inc USA 100

Aker Kvaerner E&C Inc USA 100

Aker Kvaerner Bowen Inc USA 100

Aker Kvaerner Industrial Constructions Inc USA 100

Aker Kvaerner Metals Inc USA 100

Aker Kvaerner Pharma Inc USA 100

Aker Kvaerner Caribe LLP Puerto Rico 99



Kvaerner US LLP USA 98

Kvaerner E&C Worldwide Corp USA 100

Aker Kvaerner Chile S.A Chile 100

Aker Kvaerner Business Partner Inc USA 100

Aker Kvaerner Enviropower Inc USA 100

Aker Kvaerner Songer Inc USA 100

Kvaerner Power Inc USA 100

DSI Constructors USA 100

Kvaerner Jaddco US USA 100

Kvaerner Willfab USA 100

Kvaerner Constructors Ltd Canada 100

Kvaerner Peru SA Peru 100

Kvaerner E&C Thailand Thailand 100

Aker Kvaerner E&C Europe Ltd UK 100

Aker Kvaerner Engineering Services Ltd UK 100

Aker Kvaerner Europe BV Netherlands 100

Aker Kvaerner Belgium NV/SA Belgium 100

Aker Kvaerner Germany GmbH Germany 100

Aker Kvaerner Netherlands BV Netherlands 100

Aker Kvaerner Projects Ltd UK 100

AK Gulf Ltd Saudi Arabia 100

Kvaerner Construction Stevanage UK 100

Kvaerner Ireland Ireland 100

Aker Kvaerner Pulp & Paper Holdings Ltd UK 100

Kvaerner do Brasil Ltda Brasil 100

Kvaerner Power OY Finland 100

Enviropower OY Finland 100

Kvaerner Pulping AB Sweden 100

Energus AB Sweden 100

Kamyr AB Sweden 100

Kvaerner Chemetics AB Sweden 100

MC Engenharia Ltda Brasil 100

Linderpatent AB Sweden 100

Kvaerner Kamfab AB Sweden 100

Kvaerner Power AB Sweden 100

Kvaerner Pulping Ges mbH Austria 100

Kvaerner Pulping KK Japan 100

Kvaerner Pulping Pte Ltd Singapore 100

Kvaerner Pulping Pty Ltd South Africa 100

Kvaerner Pulping S.A France 100

Kvaerner Pulping SL Spain 100

Kvaerner Water AB Sweden 100

VEA AB Sweden 100

Aker Kværner O&G Group AS Norway 100

Aker Kværner AS Norway 100

Aker Kværner Business Partner AS Norway 100

Sireko AS Norway 100

Aker Kværner Carbon AS Norway 100

Aker Kværner Contracting AS Norway 100

Aker Kværner Contracting Intermational (Spain) AS Norway 100

Aker Kværner Geo AS Norway 100

Aker Geo Ltd UK 100

Aker Kværner Elektro AS Norway 100

Aker Kværner Power & Automation Systems AS Norway 100

Aker Kværner Industrielt Vedlikehold AS Norway 100

AKIV IPEC Norway 100

Aker Kværner Offshore Partner AS Norway 100

Aker Inspection and Consulting Norway 100

Aker Kværner Consultants AS Norway 100

Aker Møre Montasje AS Norway 100

Aker Offshore Partner Pty Australia 100

Aker Kvaerner Offshore Partner Canada Inc Canada 100

Aker Kvaerner Oil & Gas Brasil Ltda Brasil 79

Aker Kvaerner Oil & Gas Canada Inc Canada 100

Aker Kvaerner Oil & Gas US Inc USA 100

Aker Kvaerner Inc USA 100

Kvaerner Enercon USA 100

Aker Kvaerner Michigan Inc USA 100

Aker Kvaerner Ohio Inc USA 100

Aker Kvaerner Plant Services Group Inc USA 100

Kvaerner Oilfield Products Inc USA 100

Kvaerner Process Services Inc USA 100

Investigation y Evaluation Anbiental SA Panama 100

Kvaerner Process Systems US USA 100



Aker Kværner Oilfield Products Group AS Norway 100

Kværner Oilfield Products AS Norway 100

Kvaerner Oilfield Products Group Ltd UK 100

PT Kvaerner Oilfield Products Indonesia Indonesia 100

Kvaerner Oilfield Products Ltd UK 100

Aker Kværner Operations AS Norway 100

Aker Kvaerner Operations Ltd UK 100

Aker Kværner Process Systems Group AS Norway 100

Ellayess Ltd UK 100

Ellayess BV Netherlands 100

Ellayess Pty Ltd Australia 100

Kværner Process Systems AS Norway 100

Kvaerner Process Systems Asia Pacific Sdn Bhd Malaysia 100

Kvaerner Process Systems Australia Pty Ltd Australia 100

Kvaerner Process Systems SA France 100

Cool Sorption AS Denmark 67

Kvaerner Process Systems Canada Inc Canada 100

Zantec Canada 100

Kvaerner Process Systems Paladon Ltd UK 100

Aker Kværner Services AS Norway 100

Aker Kværner Engineering & Techn. AS Norway 100

KB eDesign AS Norway 100

Kværner Engineering AS Norway 100

Norwegian Contractors AS Norway 100

Aker Marine Contractors AS Norway 60

Aker Marine Contractors Pty Ltd Australia 100

Aker Marine Contractors US Inc USA 100

Aker Maritime US Inc. USA 100

Aker Offshore International Ltd UK 100

Aker Kvaerner Offshore Partner Ltd UK 100

Aker Oil & Gas Ltd UK 100

Aker Stord AS Norway 100

Stord Montasje AS Norway 100

Stord Verft AS Norway 100

Aker Valves Norway 100

Aker Verdal AS Norway 100

Aker Cold Bending AS Norway 100

Aker FDV AS Norway 100

Aker Industributikk AS Norway 100

Aker Rør & Utrustning AS Norway 100

Aker Verdal Eiendom AS Norway 100

Aker Verdal Technology AS Norway 100

Kogas AS Norway 100

Kværner Egersund AS Norway 100

Kværner Eureka AS Norway 100

Kvaerner Holdings Switzerland AG Switzerland 100

Kvaerner E&C Singapore Pte Ltd Singapore 100

Kvaerner Oilfield Products (Services) Pte Ltd Singapore 100

Kvaerner Oil & Gas Australia Pty Ltd Australia 100

Kvaerner International Angola Ltd UK 100

Kvaerner Nigeria Ltd. Nigeria 100

Kvaerner Process Overseas Holding Ltd UK 100

Aker Kvaerner E&C (Shanghai) Co Ltd China 100

Kvaerner Petrominco Malaysia 90

Kvaerner Process Mauritius Mauritius 100

Kvaerner (Thailand) Ltd Thailand 100

PT Kvaerner Indonesia Indonesia 100

Maritime Hydraulics AS Norway 100

Drilltech AS Norway 100

Maritime Hydraulics UK Ltd UK 100

Maritime Promeco AS Norway 100

MH India Pvt India 51

MH Pyramid Inc USA 100

RIG Specialities Inc USA 100

MH Singapore Pte Singapore 100

Woodfield Systems Co Ltd UK 100

Maritime Pusnes AS Norway 100

Maritime Nyland As Norway 100

Porsgrunn Steering Gear AS Norway 100

Pusnes Korea South Korea 80

Pusnes Produksjon AS Norway 100

Maritime Well Service AS Norway 100

Aker Kværner Shared Services AS Norway 100

53Parent company profit and loss account �

Amounts in NOK million Note 2004

Operating revenues 8

Operating expenses 1, 2 106

Operating profit / loss -98

Net interest expense 3 -205

Net foreign exchange gain 3 13

Profit / loss before tax - 290

Tax 4 103

Net profit / loss -187

Parent company profit and loss account

54 � Parent company balance sheet

Amounts in NOK million Note 2004

Assets

Fixed assets:

Deferred tax assets 4 103

Investments in group companies 5 7 831

Total fixed assets 7 934

Current assets:

Interest-bearing short-term receivables from group companies 8 1 340

Current operating assets 6 9

Cash and bank deposits 8 162

Total current assets 1 511

Total assets 9 445

Liabilities and shareholders' equity

Equity:

Capital paid in 7 5 892

Accumulated profit (+)/loss (-) - 187

Total equity 5 705

Liabilities:

Subordinated debt 9 2 700

Total long-term borrowings 2 700

Interest-bearing short-term debt to group companies 8 691

Current operating liabilities 6 349

Total current liabilities and short-term borrowings 1 040

Total liabilities 3 740

Total liabilities and shareholders' equity 9 445

Parent company balance sheet






President & CEO

55Parent company statement of cashflow �


Cashflow from operating activities

Profit(+) / loss(-) before tax - 290

Unrealised exchange gain -80

Accrued interest and discount on subordinated debt 225

Changes in other net operating assets 95

Net cashflow from operating activities - 50

Cashflow from investing activities

Acquisition of businesses - 214

Changes in net interest-bearing short-term receivables - 4 460

Net cashflow from investing activities - 4 674

Cashflow from financing activities

Change in external borrowings 2 800

Proceeds from issue of share capital (incl. share premium) 2 085

Net cashflow from financing activities 4 885

Net decrease (-) / increase (+) in cash and bank deposits 161

Cash and bank deposits as of beginning of period 1

Cash and bank deposits as at 31 December 162

Parent company statement of cashflow

56 � Notes to parent company accounts

Note 1 � Statement of Accounting Principles

Accounting principles described under the group's accounts are applied for Aker Kværner ASA's accounts.

Note 2 � Operating expenses

There are no employees in Aker Kværner ASA. Corporate staff are employed by other Aker Kvaerner companies and costs for their services

as well as other parent company costs are charged to Aker Kværner ASA. For information about directors´ and senior managers´

remuneration and shareholding see the note 16 to the Consolidated Accounts

Fees to KPMG in 2004 for audit related services of the parent company amounted to NOK 2.35 million. Consultancy fees to KPMG for the

parent company were NOK 1.3 million. The fee for audit related services of the Aker Kvaerner Group was NOK 19.8 million. Consultancy

fees for the group amounted to NOK 8.8 million.

Note 3 � Financial items


Interest income 92

Interest expense -297

Net interest expense -205

Net foreign exchange gain (+) / loss (-) 13

Net financial items -192

Note 4 � Tax


Net profit (+)/loss (-) -290

Permanent differences -78

Change in timing differences 137

Taxable income - 231

Positive / (Negative) timing differences:

Other current assets - 237

Long-term loans 100

Tax loss carry forward - 231

Total negative timing differences: - 368

Tax asset (28 % of negative timing differences): 103

The tax loss carried forward is assumed to be fully deductible against taxable income in the Norwegian group companies through year 2014.

Notes to parent company accounts

57Notes to parent company accounts �

Note 5 � Investments as at 31 December 2004

Share Number of Book Percentage

Amounts in NOK million Registered office capital shares held value owner- / voting share

Aker Kværner E&C Group AS Norway 1 500 1500 000 2 837 100 %

Aker Kværner Shared Services AS Norway 5 5 100 15 100 %

Aker Kværner O&G Group AS Norway 1 000 1 000 000 4 843 100 %

Aker Kvaerner Business Partner Ltd UK 163 14 000 000 136 100 %

Total shares recorded as investments in group companies 7 831

Investments in subsidiaries are held at the lower of cost and fair value.

Note 6 � Current operating assets and current operating liabilities


Other receivables 9

Current operating assets 9

Trade creditors – group companies -96

Other current liabilities 1) - 253

Current operating liabilities - 349

Net operating assets / (liabilities) - 340

1) Hereof NOK 245 million is short-term debt in relation to foreign exchange hedging carried out to eliminate exposure due to different currency mixture in the

company's borrowing and lending portfolio.

All current operating assets and liablities are due within one year.

Note 7 � Shareholders` equity

Amounts in NOK million Number of shares Share capital Share premium Other equity Total

1 January 2004

New paid in capital from Kværner ASA 38 875 388 659 3 148 63 3 870

Reduction in par value - - 270 - 730 1 000 -

New paid in capital from share issue 16 153 846 161 1 861 - 2 022

Net profit (+) / loss (-) - - - - 187 - 187

31 December 2004 55 029 234 550 4 279 876 5 705

The share capital of Aker Kværner ASA is divided into 55 029 234

shares with a nominal value of NOK 10. The shares are freely

traded.

Aker Kværner ASA was incorporated on 29 January 2004 with a

share capital of NOK 1 million. In the Extraordinary General Meeting

of the company on 8 March 2004 it was decided to increase the

capital by NOK 1 784 million through transfer of the shares in Aker

Kværner AS from Kværner ASA to Aker Kværner ASA as a contribu-

tion in kind. In the Extraordinary General Meeting of the company on

19 March 2004 it was further decided to increase the capital through

a right issue of minimum NOK 1 900 / maximum NOK 2 100 million.

The capital increase took place through a book building process

with 16 153 846 shares issued at an average price of NOK 130 per

share which resulted in a net capital increase of NOK 2 022 million

after reduction for issue costs of NOK 78 million. In the

Extraordinary General Meeting on 26 March 2004 it was decided to

increase the capital by NOK 1 023 million through a transfer of

receivables on Aker Kværner AS as contribution in kind from

Kværner ASA. In the same General Meeting it was decided to

reduce the capital by transferring NOK 1 000 million to other equity.

In the Extraordinary General Meeting on 1 April 2004 it was decided

to increase the capital by NOK 999 million through converting paya-

bles to Kværner ASA. An additional equity of NOK 63 million was

paid in cash from Kværner ASA to Aker Kværner ASA in order to

meet the equity level stated in the 19 March 2004 prospects. The

additional equity contribution does not give right to any new shares

and is therefore booked as other equity.

The company's largest shareholders are listed on page 69.

The company's financing agreements include certain financial

restrictions with respect to dividend payments. Further information

of this is included in note 24 to the consolidated financial state-

ments.

58 � Notes to parent company accounts

Note 8 � Interest-bearing items


Cash and bank deposits 162

Interest-bearing short-term receivables from group companies1) 1 340

Interest-bearing short-term borrowings from group companies -691

Interest-bearing long-term borrowings - 2 700

Net interest-bearing assets (+) / liabilities (-) - 1 889

Interest income 92

Interest expense - 297

Net result of financing - 205

1) Interest bearing short-term receivables from group companies include NOK 217 million in loans to Aker Kværner E&C Group AS which will be converted to

equity in February 2005.

For information on the group cash pooling system see note 22 in the Consolidated Accounts.

Note 9 � Long-term borrowings


Long-term borrowings as at 31 December 2003 -

New loans / reclassifications 2 800

Foreign exchange effects -325

Accrued interest on subordinated debt 225


Repayments of long-term loans in 2011 2 700

For information on interest rates, covenants and pledges, see note 24 to the Consolidated Accounts. In the parent company accounts the

subordinated loan was transferred from Kværner ASA at market value, while in the group accounts the continuity principle was applied. This

is also reflected in the related interest expenses.

Note 10 � Guarantees


Parent company guarantees to group companies 1) 39 384

Counter guarantees for bank / surety bonds 4 872

Total 44 256

1) Includes parent company guarantees issued by Kværner ASA on behalf of Aker Kvaerner entities. After the restructuring, these have been counter indemnified

by Aker Kværner ASA. In addition, Aker Kværner has issued counter indemnities in relation to office rental on behalf of various subsidiaries.

59Notes to parent company accounts �

Note 11 � RISK-regulation

The RISK-regulation details the movement in the tax value of shares to Norwegian shareholders, as at 1 January each year they are as

follows (amounts in NOK per share):

Risk per share Number of shares

2005 0.00 55 029 234

The RISK-regulation balance as at 1 January 2005 is estimated.

Note 12 � Contingent events and related parties

For information on this please see notes 4 and 15 to the consolidated accounts

60 � Auditor´s report for 2004

61Auditor´s report for 2004 �

62 � Quarterly key figures

Operating revenues

Amounts in NOK million 1Q03 2Q03 3Q03 4Q03 2003 1Q04 2Q04 3Q04 4Q04 2004

Field Development 2 077 1 908 2 064 2 195 8 244 2 034 2 467 2 414 2 731 9 646

MMO 1 470 1 533 1 547 1 761 6 311 1 525 1 594 1 636 1 572 6 327

Subsea, Products & Technologies 1 514 1 779 1 507 1 941 6 741 1 614 1 779 1 900 2 337 7 630

Process 1 766 1 626 1 637 2 134 7 163 1 607 2 053 2 155 2 308 8 123

Pulping & Power 621 918 892 1 251 3 682 1 148 1 192 1 064 1 411 4 815

Other -209 -201 -188 -216 -814 -213 -228 -248 -299 -988

Total Group 7 239 7 563 7 459 9 066 31 327 7 715 8 857 8 921 10 060 35 553

EBITDA


Field Development 22 7 33 96 158 94 94 84 152 424

MMO 70 69 52 50 241 54 57 83 54 248

Subsea, Products & Technologies 94 93 111 101 399 94 102 168 131 495

Process 16 21 45 47 129 50 52 3 5 110

Pulping & Power 34 34 50 91 209 73 69 58 64 264

Other -27 -30 -34 -42 -133 -41 -39 -32 -28 -140

Total Group 209 194 257 343 1 003 324 335 364 378 1 401

EBIT before exceptional items


Field Development -15 -35 -5 54 -1 62 60 50 120 292

MMO 44 43 26 19 132 29 33 59 28 149

Subsea, Products & Technologies 55 50 67 52 224 42 61 133 88 324

Process -10 -8 18 21 21 28 33 -20 -23 18

Pulping & Power 17 17 32 74 140 54 51 40 46 191

Other -32 -36 -39 -54 -161 -54 -60 -45 -40 -199

Total Group 59 31 99 166 355 161 178 217 219 775

Quarterly key figures*

63Quarterly key figures �

Order intake


Field Development 2 543 1 003 2 406 2 564 8 516 1 343 2 864 5 098 4 650 13 955

MMO 2 289 1 323 1 169 1 729 6 510 1 065 1 039 3 131 2 624 7 859

Subsea, Products & Technologies 1 592 2 809 1 528 1 507 7 436 1 908 2 458 1 645 2 321 8 332

Process 3 143 2 638 1 249 2 160 9 190 2 403 2 581 1 961 1 520 8 465

Pulping & Power 1 099 2 138 1 043 1 950 6 230 874 1 485 932 907 4 198

Other -280 -240 -183 -277 -980 -270 -126 -130 -701 -1 227

Total Group 10 386 9 671 7 212 9 633 36 902 7 323 10 301 12 637 11 321 41 582

Order backlog

Amounts in NOK million 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04

Field Development 7 777 6 892 7 187 7 701 6 779 7 135 9 859 11 565

MMO 8 871 8 691 8 302 8 283 7 864 7 304 8 758 9 765

Subsea, Products & Technologies 4 038 5 101 5 149 4 897 5 213 5 790 5 543 5 462

Process 7 435 8 460 7 632 7 310 8 194 8 691 7 896 6 667

Pulping & Power 1 977 3 340 3 421 4 178 3 897 4 166 4 064 3 442

Other -819 -915 -893 -878 -842 -644 -558 -981

Total Group 29 279 31 569 30 798 31 491 31 105 32 442 35 562 35 920

* 2003 and 1st quarter 2004 are pro forma, as the Aker Kvaerner group was formed on 1 April 2004.

64 � Formation of the new group

Aker Kvaerner Aker Yards

Aker Kværner

O&G Group AS

Aker

Kværner

E&C Group AS

Other

Kvaerner

The legal structure of the Kvaerner group has in the past been complex, and it has been an objective to simplify and align the

group’s legal and operational structures. In 2004 the Kvaerner group completed an extensive restructuring. The timeline below

illustrates the key dates in the restructuring process.

The restructuring of Kvaerner

The restructuring of Kvaerner commenced with the organisational and legal integration of the oil and gas operations of Aker

Maritime ASA in March 2002, and has since then continued on a global level.

A three-way restructuring of the Kvaerner group was announced on 1 March 2004, resulting in two focused industrial groups,

Aker Kvaerner and Aker Yards, each being leading players within their fields, and one industrial holding company, Kværner ASA.

The main objective of the restructuring process was to create separate entities comprising (i) the Kvaerner group’s core oil &

General

Meeting

approved the

restructuring

Aker Kværner

ASA was listed

on the Oslo

Stock

Exchange

A three-way

restructuring of the

Kvaerner group

announced

Aker Kvaerner

group established

1 19 1 2

March March April April

2004

gas and engineering & construction

businesses and (ii) the shipbuilding

activities of Kværner ASA and Aker

Yards. Following the restructuring, Aker

Kvaerner became the owner of the oil &

gas and engineering & construction

businesses through a 100 per cent

ownership of Aker Kværner O&G

Group AS and Aker Kværner E&C

Group AS.

The restructuring plan was presented

to and approved by the General

Meeting of Kvaerner on 19 March

2004.

Formation of the new group

65Formation of the new group �

Euro50 mill

Revolver

Bonding Facilities

BondingFacilities

Sub Debt

Aker KværnerO&G Group AS

O&G Groupoperating companies

Aker Kværner AS

Aker KværnerE&C Group AS

E&C Groupoperating companies

Aker Kvaerner

Euro 260 mill.Second

Priority LienNotes

Euro 150 mill.Senior SecuredCredit Facility

100% owned100% owned

Guarantee

Guarantee

Guarantee

Guarantee

Guarantee

100% owned100% owned

Aker

Kvaerner

50.01%

Aker

Yards

55.6%

Aker

Seafoods

100%

Aker

Material

Handling

100%

Other

Aker ASAListed

Listed Listed

Aker Kværner ASA was established on

1 April 2004 and successfully listed on

the Oslo Stock Exchange on 2 April

2004. At the time of listing, Kvaerner

was the principal shareholder in Aker

Kvaerner. Following a later process

comprising Kvaerner and Aker, the

publicly listed company Aker ASA

became the principal shareholder of

Aker Kvaerner. As of January 2005,

Aker ASA controls 50.01 per cent of

the shares in Aker Kvaerner.

Refinancing

As part of the restructuring, the senior financial indebtedness of Kvaerner was refinanced in March 2004. The refinancing consi-

sted of (i) a second priority lien notes issue of EUR 260 million (the ‘Notes Issue’) and a EUR 150 million bank facility split into:

(ii) a senior bank term loan of EUR 33 million (the ‘Term Loan’) and (iii) a senior bank revolving credit facility of EUR 117 million

(the ‘Revolving Credit’), all three with Aker Kværner AS as issuer/borrower. In addition, the Aker Kvaerner group’s main bonding

facilities were renegotiated with new agreements being on the same basis as the senior secured credit facility in (ii) and (iii)

above.

As part of the refinancing, the bond- and note holders under Kværner ASA’s subordinated loan (2001/2011) agreed to a change

of borrower from Kværner ASA to Aker Kværner ASA, with minor amendments to the agreements.

At year-end 2004, a EUR 50 million bank revolver was established at Aker Kværner E&C Group AS.

Aker Kværner AS’s obligations under

the new financing and bonding facili-

ties are secured by a guarantee from

Aker Kværner O&G Group AS and

pledge of shares in certain subsidia-

ries of Aker Kværner AS. In addition,

the Term Loan, Revolving Credit and

the bonding facilities are supported by

a guarantee from Aker Kværner ASA,

secured by pledge of shares in Aker

Kværner O&G Group AS and Aker

Kværner E&C Group AS.

The chart illustrates the legal structure

and the financial debt and guarantee

obligations of the group following the

debt restructuring.

66 � Corporate governance and corporate management


corporate management

1. Implementation and reporting on corporate

governance

It is the opinion of the Board of Directors that Aker Kvaerner

complies with this section of the Code, except that the Board

has not yet formally approved the comprehensive set of Group

Policies implemented by the management, including ethical

guidelines and values.

2. Business


complies with this section of the Code. § 3 of the articles of

association of Aker Kværner ASA reads as follows;”The

objectives of the Company are to own or carry out industrial-

and other associated businesses, management of capital and

other functions for the group, and to participate in or acquire

other businesses.”

3. Equity and dividends

It is the Board of Directors view that Aker Kvaerner complies

with this section, except for that the existing mandates to incre-

ase the company’s share capital and to purchase own shares

are not limited to defined purposes and were granted for a time

period of 2 years and 18 months, respectively.

4. Equal treatment of shareholders and transactions

with close associates


complies with this section of the Code.

5. Freely negotiable shares

The Company complies with this section of the Code.

6. General Meetings


complies with this section, except that the 2004 annual report

will be sent to the shareholders one week before the annual

general meeting and that it follows from § 9 of the company’s

articles of association that the Chairman of the Board or his

appointee shall preside at the General Meeting.

7. Nomination Committee

The Company complies with this section.

8. Corporate Assembly and Board of Directors:

Composition and independence

It is the opinion of the Board of Directors that Aker

Kvaerner complies with this section to the extent permitted

by Norwegian law.

9. The work of the Board of Directors

It is the opinion of the Board of Directors that the company

in all material respects fulfils this section. The group risk

department conducts control reviews throughout the group.

In addition each business unit conducts self assessment.

The reports are distributed to the Board.

10. Remuneration of the Board of Directors



11. Remuneration of the Executive Management



12. Information and communications

It is the opinion of the Board of Directors that the company in

all material respects complies with this section of the Code.

However, the Board has not yet established formal written

guidelines for the company’s reporting of financial and other

information or for the company’s contact with shareholders.

13. Take-overs

Aker Kvaerner has not been subject to any take-over bids

in 2004.

14. Auditor


complies in all material respects with this section of the

Code. The Board of Directors has, however, not issued writ-

ten guidelines for the use of the auditor by the company for

services other than audit. The Board of Directors will

consider implementing such guidelines during 2005.

Aker Kvaerner has elected to repor t in accordance with the permanent Norwegian Code of Practice for

Corporate Governance issued 7 December 2004 (hereinafter referred to as the “Code”).

Set out below is the Board’s repor t with respect to corporate governance and the relationship to the Code.

In addition to the repor t set out below, reference is made to the repor t from the Board of Directors.

67Executive management �

Inge K. Hansen, President & CEO

Mr. Hansen has been President & CEO since April 2004. Prior to

this appointment, Mr. Hansen was Acting President & CEO of

Statoil ASA, where he also previously held the position of CFO &

EVP. Mr. Hansen served as Managing Director of Orkla Finans

ASA, and as General Manager of DnB NOR. Mr. Hansen is a gra-

duate from the Norwegian School of Economics and Business

Administration.

Finn Berg Jacobsen, EVP & Chief of Staff

Mr. Berg Jacobsen has been EVP & Chief of Staff since 2002. He

was also Acting CFO between January and October 2004. In 2001

and 2002, Mr. Berg Jacobsen acted as CFO of Kvaerner. Prior to

this, Mr. Berg Jacobsen spent 33 years with Arthur Andersen &

Co., where he served as Country Manager from 1977. In 1994 he

became member of Arthur Andersen’s Worldwide Executive

Committee. Mr. Berg Jacobsen is a graduate from the Norwegian

School of Economics and Business Administration and from

Harvard Business School.

Simen Lieungh, EVP Field Development Europe

Mr. Lieungh has been EVP since 2002. He joined Aker Kvaerner in

1988 and has 17 years of experience with large field development

projects, covering all phases from conceptual studies to comple-

tion and delivery of complete installations. Prior to this, Mr. Lieungh

was Research Scientist with the Norwegian Defense Research

Establishment. Mr. Lieungh is a graduate from the Norwegian

University of Science and Technology.

Raymond Carlsen, EVP Subsea

Mr. Carlsen has been EVP since 2003. Subsea includes the subsidi-

ary Kvaerner Oilfield Products which he has headed since 2002.

Mr. Carlsen has 24 years of broad international management back-

ground. He has been with Aker Kvaerner since 1989, with senior

management assignments in South-East Asia, Europe, and the

United States. Mr. Carlsen is a graduate from Florida Institute of

Technology.

Gary Mandel, EVP Oil, Gas, Process & Energy

Mr. Mandel has over 23 years of experience from the oil and gas

industry, with emphasis on engineering, procurement, construc-

tion, project management, maintenance, and operations for the

power, petrochemical, and hydrocarbon industries. Mr. Mandel

is a graduate from the University of Nuevo Leon, Mexico.

Bjørn Erik Næss, EVP & CFO

Mr. Næss has been EVP & CFO since October 2004. Prior to this

appointment, Mr. Næss was EVP & CFO of Carlsberg Breweries

A/S from 2000, where he also was member of the executive board.

From 1995, Mr. Næss was SVP & CFO of the Orkla group, and

before this he was Divisional Director in Denofa AS. Mr. Næss is a

graduate from the Norwegian School of Economics and Business

Administration.

Jon Erik Reinhardsen, EVP

Mr. Reinhardsen has been EVP since 2002. Prior to this appoint-

ment he was EVP of Aker Maritime ASA for five years. Mr.

Reinhardsen has nine years experience within executive manage-

ment and nine years within senior management from Aker Maritime

ASA, Maritime Group ASA, and Tentech International AS, among

other companies. In addition, he has ten years experience on 50

various boards and committees. Mr. Reinhardsen is a graduate

from the University of Bergen, Norway.

Torleif Gram, EVP MMO Europe

Mr. Gram has been EVP since 2002. Prior to this appointment Mr.

Gram was Managing Director of Aker Offshore Partner AS from

1994 and of Aker Contracting AS from 1991. He joined Aker

Kvaerner in 1976 and has extensive experience from both Aker

Engineering AS and Aker Stord AS where he held various positi-

ons. Mr. Gram is a graduate from the Norwegian University of

Science and Technology.

Mads Andersen, EVP Products & Technologies

Mr. Andersen has been EVP since 2003. Prior to this appointment he

was President of Maritime Well Service from 2002, where he previ-

ously was VP of Operations and Business Development. Mr.

Andersen also held various technical and managerial positions within

oilfield service, consulting, and oil companies. Mr. Andersen is a gra-

duate from Glasgow University.

Jarle Tautra, EVP E&C Europe

Mr. Tautra has been EVP since 2002. Mr. Tautra has 20 years of

experience from offshore-related activities. From 1997, he served

as President of Aker Oil & Gas and as EVP of EPC Norway in Aker

Maritime ASA. Prior to this, Mr. Tautra held various positions in

Norsk Hydro ASA. Mr. Tautra is a graduate from the Norwegian

University of Science and Technology.

Executive management

68 � Shareholder issues

Listing

The company’s shares are listed on

the Oslo Stock Exchange with ticker

AKVER.

Investor relations

Aker Kvaerner wishes to maintain a

good, open dialogue with its sharehol-

ders, analysts and the stock markets

in general. The company makes regu-

lar presentations in impor tant financial

centres in Europe and the USA, as

well as holding meetings with analysts

and investors. Visitors to the compa-

ny’s website can register to receive

news about the company by e-mail.

All the company’s press releases are

available on the website.

Presentations, repor ts, prospectus,

shareholder and dividend policies, the

company’s ar ticles of association,

updated financial calendar and other

information relevant to the financial

market can be downloaded from

www.akerkvaerner.com. Shareholders

can also contact the company’s inves-

tor relations depar tment – the e-mail

address is [email protected].

Receive the next annual report

electronically

Aker Kvaerner wishes to give its share-

holders the oppor tunity to receive the

annual repor t electronically. This requi-

res access to the Norwegian Central

Securities Depositary’s (VPS) investor

services, which is available at

www.vps.no/erappor t.html. At the VPS

site, all investors can get an overview

of securities and transactions registe-

red. In addition, tax assistance and

automatic statements of realisation are

available. Electronical change notifica-

tions are also available (applicable in

Norway only).

RISK adjustment

Norway’s tax regulations require

Norwegian shareholders to adjust their

tax basis cost upwards or downwards

by the so-called RISK amount (the

adjustment for tax purposes of share-

holders’ opening value by the change

in taxed capital) when calculating

taxable gains and losses. (See note 11

in the parent company accounts).

Shares and share capital

The company has 55 029 234 ordinary

shares with a par value of NOK 10

(see note 5 to the consolidated

accounts). On 31 December 2004 the

company had 4 072 shareholders.

A three-way restructuring of the

Kvaerner group was announced on

1 March 2004, resulting in two focused

industrial groups, Aker Kvaerner and

Aker Yards, each being leading players

within their fields, and one industrial

holding company, Kværner ASA. The

main objective of the restructuring

process was to create separate entities

comprising (i) the Kvaerner group’s

core oil & gas and engineering & con-

struction businesses and (ii) the ship-

building activities of Kværner ASA and

Aker Yards. Following the restructuring,

Aker Kvaerner became the owner of

the oil & gas and engineering & con-

struction businesses through a 100 per

cent ownership of Aker Kværner O&G

Group AS and Aker Kværner E&C

Group AS. On 2 April 2004, Aker

Kvaerner was successfully listed on

the Oslo Stock Exchange. As par t of

the restructuring, the existing senior

financial indebtedness of Kvaerner

was refinanced in March 2004. (see

note 3 to the consolidated accounts

and pages 64-65 for fur ther details).

Aker Kvaerner has one class of shares.

Each share carries the right to one

vote. The Aker Kvaerner share increa-

sed in value by 24 per cent from 2

April to 31 December 2004, while the

Oslo Stock Exchange rose by 19.5 per

cent in the same period.

Shareholder issues

69Shareholder issues �

Development of Aker Kværner ASA share price 2004NOK

100

110

120

130

140

150

160

170

180

190

200

Ap

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Shareholder Total shares Percentage

Aker ASA 27 520 930 50.01 %

JP Morgan Chase Bank 1 959 449 3.56 %

Morgan Stanley 1 807 889 3.29 %

Enskilda Securities 1 365 166 2.48 %

Skandinaviske Enskilda Banken 1 112 326 2.02 %

Bank of New York 969 531 1.76 %

JP Morgan Chase Bank 888 321 1.61 %

Goldman Sachs Intl. 870 121 1.58 %

Third Avenue Intl. 865 800 1.57 %

Citibank 825 900 1.50 %



Bank of New York 608 700 1.11 %

State Street Bank 576 102 1.05 %

Morgan Stanley 502 050 0.91 %


Mellon Bank AS 375 726 0.68 %

Nordea Bank PLC 323 400 0.59 %

Verdipapirfondet AVA 315 509 0.57 %

Vital Forsikring ASA 298 223 0.54 %

Other 12 001 792 21.82 %

Total 55 029 234 100 %

Aker Kværner ASA’s largest shareholders

According to the Norwegian Registry of Securities, the company’s 20 largest shareholders as of 15 February 2005 were as

follows.

Relative indexed shareprice performance 2004NOK

80

90

100

110

120

130

140

150

160

170

180

Ap

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■ Aker Kvaerner ■ Oslo SE (OSEBX) Index

■ United States, PHLX, Oil Service Sector Index

70 � Articles of association

Articles of association

§ 1

The Company is a public limited company. The name of the

Company is Aker Kværner ASA.

§ 2

The Company has its registered office in Bærum, Norway.

§ 3

The objectives of the Company are to own or carry out indus-

trial- and other associated businesses, management of capi-

tal and other functions for the Group, and to participate in or

acquire other businesses.

§ 4

The Company’s share capital is NOK 550 292 340, divided

into 55 029 234 shares, each having a par value of NOK 10.

The Company’s shares shall be registered with the Norwegian

Securities Register (Verdipapirsentralen).

§ 5

The Board of Directors consists of 6-10 members of whom

one – third shall be elected by and among the employees of

the companies within the Aker Kvaerner Group. Up to 3 sha-

reholder elected deputy members may be elected annually.

§ 6

The Company shall have a Nomination Committee consisting

of a minimum of 3 members elected by the shareholders at

the General Meeting. The Nomination Committee shall pre-

pare the election of board members. The General Meeting

can set out directives for the work of the Nomination

Committee.

§ 7

The Chairman alone, or two Directors jointly of whom at

least one shall have been elected by the shareholders, shall

have the right to sign on behalf of the Company.

§ 8

The Company shall have only one General Manager.

§ 9

Notice of the General Meeting shall be made by written noti-

fication to all shareholders with a known address giving at

least two (2) weeks notice. The notice of the General

Meeting shall be announced in at least one national new-

spaper as soon as practicable after the notification has

been posted. The company may set a deadline for registra-

tion to the General Meeting, which shall not fall earlier than

five (5) days prior to the General Meeting. The Chairman of

the Board or his appointee shall preside at the General

Meeting. The Annual General Meeting shall consider, and

decide on, the following issues:

a) Approval of the annual accounts and the annual

report, including distribution of dividend.

b) Other matters which, by law or under the Articles of

Association, are the businesses of the General

Meeting.

The General Meeting may be held in Oslo.

Last changed on 1 April 2004

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