Find out more at reachsubsea.no 2021 Annual Report Everything is within Reach Reflecting the impacts our operations have on economic, environmental and social factors.
Contents CEO Letter 03 Our Business 05 The Teams 07 Directors Report 08 The Board of Directors 32 Corporate Governance & Management 33 Featured Projects 42 Financial Statements Group 46 Notes Group 52 Financial Statements Parent Company 99 Notes Parent Company 104 Auditor’s Report 115 2021 was an exceptional year for Reach Subsea, marked by record results, high levels of market activity and a value-accretive acquisition. The improvement in the market conditions as the impact of the global pandemic started to subside translated into Reach Subsea delivering the best annual results in its 14-year history, driven by high vessel utilization and successful project execution. Reach Subsea | Annual Report 2021 2
Reach Subsea | Annual Report 2021 3 Contents 2021 was an exceptional year for Reach Subsea, marked by record results, high levels of market activity and a value-accretive acquisition. The improvement in the market conditions as the impact of the global pandemic started to subside translated into Reach Subsea delivering the best annual results in its 14-year history, driven by high vessel utilization and successful project execution. The fact that these results were achieved with zero work incidents makes me even prouder. The health and safety of our employees and partners is, and will remain, our top priority. Record results We posted a 9% annual revenue advance year- on-year to NOK 687 million, and a 70% increase in pre-tax profit, bringing 12M profit before taxes to NOK 73 million, compared to NOK 43 million in 2020. This is a record result for Reach and is a true testimony to the excellent project execution capabilities, unwavering commitment to quality and agility of our organization in the face of market volatility and the restrictions posed by the pandemic. ROV utilization was at a solid 70 % for the full year of 2021, reflecting the increasing activity levels in the market. After a long period of volatility and limited market visibility, the market is stabilizing and we’re seeing healthy demand across sectors. High commodity prices, led by record-high oil and gas prices, are driving up activity levels in the petroleum sector. On the Norwegian Continental Shelf alone, several additional fields are in the pipeline, with eight development plans submitted in 2021 and dozens expected this year, according to the Norwegian Petroleum Directorate. The emergence of new industries is also gathering pace, as reflected by the “ScotWind” seabed tender in early 2022 that auctioned 8,600 km2 of sea space, which could host almost 25 GW of offshore wind, and record carbon capture project pipeline growth globally. Norway’s first tender for bottom-fixed offshore wind turbines in the southern North Sea, scheduled for this year, may also offer attractive opportunities for Reach in its home market. Our long-lasting business relations with the world’s largest energy companies, coupled with experience and technology from offshore oil and gas, means that we are well positioned to take part in this structural growth. Renewables and other emerging market seg- ments accounted for 45% of our project days for 2021, and we expect the share to grow further. At the same time, oil and gas revenues should prove resilient, as ageing offshore installations require more maintenance. Our services will also be needed for decommissioning when that time comes. Developing into a full-service provider of subsea data and solutions In December 2021, we announced the acqui- sition of the geophysical monitoring solutions provider OCTIO and the associated company Monviro. We’ve worked with OCTIO for many years, so we knew the team was a good cultural fit for us. The same goes for iSURVEY Holding, the acquisition of which we announced in February 2022. iSURVEY is a provider of offshore high-quality survey services. OCTIO’s cost-efficient and highly accurate survey and monitoring technology enhances data value for clients and provides optimal solutions for monitoring of future CO2 reservoir storage. This enables us to expand our services portfolio into the carbon capture and storage (CCS) segment, which we anticipate will gen- erate significant activity in the coming years. iSURVEY’s services cover all phases required to convert geophysical data into value. Marrying expert technical knowledge with state-of-the art technology, the company offers a whole range of offshore services. These include seabed survey/ IRM services, offshore cable installations, rig moves and mooring, and marine construction. With the acquisition of both OCTIO and iSURVEY, we’re deepening Reach’s technol- ogy competence, data management and data analytics capabilities and expanding our value chain, thereby accelerating our strategy to be- come a full-service provider of subsea data and solutions for clients globally. It will enable us to take on larger subsea projects on a global scale and fast-track our expansion into emerging new industry verticals. In addition, OCTIO’s patented technologies and competence will strengthen the data gathering, data processing, and data analytics capabili- ties of the Reach Remote Unmanned Surface Vehicles (USVs). Key strategic partner for Reach Remote I am happy to report that we are on track for the delivery of our first two Reach Remote USVs next year and that we have now onboarded a key strategic partner in this project. In February 2022, we announced that Wilhelmsen New Energy will become a 21% shareholder in Reach through subscribing for NOK 150 million in a di- rected private placement. The investment agree- ment forms part of a broader partnership, which will include collaborating on Reach Remote. We are very pleased to welcome an established industry player such as Wilhelmsen as a strategic partner. Wilhelmsen has been a pioneer in driv- ing autonomous and remote marine operations and represents the ideal global partner needed for Reach to commercialize Reach Remote. By combining our core maritime competencies, global footprints, and wide-ranging networks, we will scale the Reach Remote project and future-proof the marine subsea services through safe and sustainable solutions that will dramati- cally lower operational costs and the environ- mental footprint of our operations. CEO letter
Reach Subsea | Annual Report 2021 4 Contents Reach Remote will build on framework agree- ments already in place to position Reach as a pre- ferred supplier of survey-, inspection-, and light repair services to the existing subsea market and the offshore wind industry. Reach Remote will also be key to providing services to emerging markets, such as deep-sea mining, carbon stor - age, offshore aquaculture and environmental surveillance and data gathering. As it stands, we are firmly on the path of achiev- ing our ambition of providing a full portfolio of subsea services from a low-emission, cost-effec- tive remote and autonomous fleet by 2025. Well-positioned for profitable growth Taken together, the events of 2021 and early 2022 marked the start of a new and exciting chapter for Reach, propelling us forward in our vision of taking a global leadership position as a full-service provider of subsea data and solutions. Going forward, Reach will keep growing both organically and inorganically. We are actively recruiting both in Haugesund, the UK and the U.S. At the same time, Reach’s robust financial platform, with limited debt and a strong cash flow, permits us to consider additional accretive bolt-on acquisitions to deepen our technology base, expand our value chain and strengthen our revenue potential and margins. And while we’ll continue to grow, we will also keep working on improving our operations, enhancing efficiency and reducing emissions, thereby creating sustainable value for all our stakeholders. As part of the journey, I am pleased to announce that Reach Subsea met 13 of its 15 sustainability goals it set for 2021. The war in Ukraine and sanctions related to the conflict are not expected to have a material direct impact on Reach in the foreseeable future. However, the tragedy of war and the desperate humanitarian crisis it creates affects us all. We continue to keep all our affected colleagues, business partners and the people of Ukraine in our thoughts. Lastly, I would like to thank our customers, part - ners, employees and shareholders, who have put their trust in Reach Subsea and provided us with so many exciting new opportunities. We will work hard every day to prove that we are worthy of the support we have been given. Jostein Alendal CEO, Reach Subsea ASA
To find out more about what we can offer, request information about our assets and operations or arrange a meeting, please don’t hesitate to get in touch. Garpeskjærveien 2 5527 Haugesund +47 40 00 77 10 [email protected] R eliable E ffective A daptable Committed Honest We are Reach Subsea | Annual Report 2021 5 Contents
Our vision is to be the preferred operator by those who need the best possible subsea partner, one that will always perform above expectations. Corporate Structure Octio AS (100 %) Reach Subsea AS Trinidad & Tobago branch (100 %) Reach Subsea International AS (100 %) Monviro AS (100 %) Reach Subsea UK Ltd. (100 %) Gravitude AS (100 %) Monviro CCS AS (100 %) Surveyor AS (100 %) Reach Subsea Inc. (100 %) Reach Subsea AS (100 %) Reach Subsea ASA Connect Offshore (100 %) Reach Subsea | Annual Report 2021 6 Contents
Reach Subsea | Annual Report 2021 7 Contents 07 Jostein Alendal Managing Director Education: Automation Engineer. Experience: Technical Manager and co-founder of DeepOcean with group responsibility of all ROV operations. Stolt Comex Seaway AS, Seateam AS and DSND. 25 years in subsea Birgitte W. Johansen Chief Financial Officer / HR Manager Education: The Blue MBA and Master of Business and Economics. Experience: Account Manager in BNP Paribas, Shipping department. Analyst and Project Manager in Oceanlink Management. Relationship Manager in SpareBank 1 SR-Bank, Energy and Maritime department. 22 years in finance Inge Grutle Chief Operations Officer Education: Master of Science degree in Marine and Subsea Technology. Experience: IMR Engineering Manager and Business Development in DeepOcean and has experience in planning and execution of offshore and subsea operations. 15 years in subsea Bård Thuen Høgheim Chief Commercial Officer Education: Master in Finance from Imperial College Business School. Experience: Project Broker in the subsea and renewables market in RS Platou and has experience in offshore industry analysis. 15 years in offshore Meet the Management Team
Reach Subsea | Annual Report 2021 8 Contents The Reach Subsea Group’s business concept is to offer high quality services and solutions to any client in need of installing, inspecting, maintaining or removing assets and equipment from the seabed. Directors Report
The Reach Subsea Group’s business concept is to offer high quality services and solutions to any client in need of installing, inspecting, maintaining or removing assets and equipment from the seabed. Business concept The core business of the Reach Subsea Group (“Reach Subsea”, “REACH” or “the Group”)’ is based on modern, high spec Work ROVs operated by highly qualified offshore personnel and supported by our competent onshore project management and engineering resources. Through targeted acquisitions and technology development Reach Subsea broadens its offering into surveying and collecting seabed data, as well as analyzing such data. As a platform for performing the subsea services, Reach Subsea aims to utilize modern high specification subsea vessels, which is reflected in the vessels chartered in from various ship owners. The Group’s objective is to be a preferred subsea partner and full-service provider of subsea operations for clients, among others by having high focus on safety, environment, financial solidity and profitability. Contracts in the oil & gas, renewables, and utilities sectors are being targeted, securing cash flow and laying the foundation for prudently growing the fleet, asset base and organization in a sustainable manner. Total turnover Million NOK Equity share % Operating result Net profit Million NOK 0 200 400 600 800 0 20 40 60 80 100 -40 -30 -20 -10 0 10 20 30 40 50 60 70 80 360 56% 675 43% 509 37% 687 628 58% 38% 2017 2017 2018 2019 2019 2020 2021 2020 2020 2021 2021 2017 2018 2018 2019 Directors Report Reach Subsea | Annual Report 2021 9 Contents
Assets Million NOK Equity & Debt Million NOK 0 200 400 600 800 0 200 400 600 800 389 389 495 494 445 444 747 363 363 747 2017 2017 2019 2019 2021 2020 2020 2020 2018 2018 Financial • Record strong annual result driven by high utilization and successful project execution supported by stabilized and improving market conditions. • Operating result for the year was NOK 79.1 million compared to NOK 51.3 million in 2020. Pre-tax result ended at NOK 73.0 million (NOK 43.1million in 2020). • Strong balance sheet with 38% equity share (58% in at 2020 year-end). • The Board proposes a dividend of NOK 0.18 (0.15) per share, in accordance with the company’s dividend policy, to be resolved at the AGM on 30 May 2022. • Net cash flow for the year was NOK 41.0 million compared to NOK 66.4 million in 2020. Operation • High client satisfaction (based on post-job surveys) • High growth in renewables segment during 2021 with 45% (25% in 2020) of project days generated from non-oil & gas clients, driven by major survey projects in the offshore wind sector. • On track for the delivery of first Reach Remote USVs in 2023, which will significantly reduce cost and carbon footprint of subsea operations. • After year end, entered into a partnership with Wilhelmsen New Energy to further develop and co-operate on the commercialization of Reach Remote, and completed the acquisition of offshore survey specialist iSURVEY Group. • Purchased all shares in Surveyor AS (prev. owned 50 %). • Acquired the OCTIO group, adding proprietary offshore monitoring tools and specialist data management capabilities. HSEQ • Despite high activity Reach Subsea has maintained its perfect reputation through 2021. • All HSEQ goals achieved in 2021 • No serious accidents or incidents. • No major spills since commencement of offshore operations in 2013. • 13 of 15 sustainability goals achieved. EBITDA Million NOK 0 175 350 525 700 0 175 350 525 700 275 171 267 319 27 2018 2020 2021 2017 2019 2021 Highlights Directors Report Non-current assets Current assets Turnover EBITDA Current liabilities Non-current liabilities Equity Reach Subsea | Annual Report 2021 10 Contents
Revenue Sector Directors Report 93 % 7 % 2019 • Oil & Gas • Renewable & Other 78 % 22 % 2017 62 % 38 % 2016 89 % 11 % 2018 70 % 30 % 2021 75 % 25 % 2020 Reach Subsea | Annual Report 2021 11 Contents
Reach Subsea | Annual Report 2021 12 Contents 2021 Market Highlights General Reach Subsea is now an established subsea service provider. Busy tendering activity through the year for projects in 2021 and 2022. Oil & Gas Norway Secured several call-offs under the frame agreements awarded. Renewables Awarded several contracts within survey in the renewables market together with cooperation partner MMT Sweden AB. The two in-house developed Surveyor Interceptor ROVs had high utilization with high satisfaction score from clients. Other business High activity in “emerging sectors”, such as offshore fish farm, subsea mining and decommissioning projects. International activity International expansion somewhat limited by the COVID 19 pandemic, however several projects executed in other regions than Europe (hereunder US and Trinidad and Tobago). Directors Report Balancing growth & flexibility Vessels marketed 0 1 2 3 4 5 6 7 8 9 2021 2020 2019 2018 2017 2016 Fixed terms Flexible terms ROV Systems 0 2 4 6 8 10 12 14 16 2021 2021 2020 2020 2019 2019 2018 2018 2017 2017 2016 2016 Owned Hired in Offshore personnel 0 20 40 60 80 100 120 Own staff Contracting staff
Reach Subsea | Annual Report 2021 13 Contents Trinidad & Tobago Trinidad & Tobago Harstad Bergen Haugesund Stavanger Harstad Bergen Haugesund Stavanger Houston Houston UK UK North Sea North Sea Mediterranean Mediterranean West Africa West Africa Black Sea Black Sea Balc Balc Arcc Arcc South East Asia South East Asia Atlanc Atlanc Directors Report Performance = Utilisation = Profits Vessels 0 800 1600 2400 3200 4000 0 20 40 60 80 100 2021 2020 2019 2018 Vessel capacity Vessel days sold Utilisation % ROV capacity ROV days sold Utilisation % ROVs 0 800 1600 2400 3200 4000 0% 20% 40% 60% 80% 100% 2021 2020 2019 2018 Global operations This map shows the areas we have operated during the last couple of years along with our current office locations. This illustrates that we REACH further and are recognized in other markets than the home market. Firstly by being invited to tender for work in other areas of the world, but also by performing at a level that met or exceeded our clients expectations. Examples of areas of operation in 2021: North Sea, Baltic, Atlantic Ocean, Arctic area, Mediterranean, US Gulf of Mexico and Caribbean. Renewables Offices Oil & Gas
Reach Subsea | Annual Report 2021 14 Contents Directors Report 2021 Review REACH had per year end ten WROV-systems available in addition to two “Surveyor Interceptor” available for subsea operations. REACH had 3,830 available ROV-days in 2021 (3,250 in 2020 with a utilization of 70 % (73 % in 2020). Furthermore, number of vessel days that passed through our P&L was 1,098 (956). The increase compared to last year is largely explained by higher operational activity and an increased number of project days. A flexible cost base secured strong project results and a positive cash flow. REACH offshore personnel contracting business, Connect Offshore, continued sourcing highly skilled offshore personnel during the year. This personnel base is highly important in peak seasons, when the number of man hours in operation normally doubles compared to Reach Subsea’s own staff. REACH has not had any serious incidents during the year, which support our objective that the right procedures, well trained personnel and high-quality equipment generate operational success. REACH had 129 full-time equivalent employees in 2022, of which 14% were female. The sick leave was 5,7%, whereof 3 % short term. There was no work-related injuries leading to absence from work registered during the year. At 2021 year-end 43 % of the Board of Directors and 25 % of the Management were women. REACH has per 31th March 2022 a firm order book of NOK 300 million for work in 1Q2022 and beyond, with the vast majority related to work in 2022. The order book figures do not include expected volumes from the frame agreements. Close cooperation with MMT Sweden AB (“MMT”) was an important factor in securing business, as the two companies together have a strong track record in the survey, light construction and IMR (inspection, maintenance and repair) market. Included in the cooperation agreement are joint projects related to the subsea spreads (vessel/WROV/survey equipment) Stril Explorer and Havila Subsea. In February 2022 Reach Subsea entered into an agreement to acquire iSURVEY, which implies a further strengthening of Reach Subsea’s capabilities to offer high-quality survey services. Offshore operations performed by the Reach Subsea spreads received high client scores in all segments and on all sectors. Our high attention to HSEQ is illustrated by the fact that we have had no serious accidents or incidents since commencement of offshore operations in 2013. Q1 Q2 Q3 Q4 Year 2020 2021 2020 2021 2020 2021 2020 2021 2020 2021 Number of ROV days sold 254 405 734 608 822 861 578 793 2 388 2 667 Number of ROV days available 770 749 875 946 838 1 107 767 1 028 3 250 3 830 Technical uptime on ROV 99 % 98 % 99 % 99 % 99 % 100 % 99 % 100 % 99 % 99 % Number of offshore personnel days sold 2 522 2 397 5 549 3 121 5 166 4 421 2 543 3 436 15 780 13 402 LTIs 0 0 0 0 0 0 0 0 0 0 Number of Vessel days sold 96 209 268 296 340 306 252 287 956 1 098
Reach Subsea | Annual Report 2021 15 Contents Viking Neptune REACH has one Supporter WROV and one Constructor WROV and delivers all ROV- services onboard Viking Neptun, a construction vessel owned by Eidesvik Offshore. The vessel has performed very well with excellent feedback reports from end clients. In 2020 the vessel was equipped with a battery pack, supporting our strategy towards a greener profile. The subsea spread worked a contract between Eidesvik and Havfram in 2021, and is further signed for contracts with Reach as ROV service provider for at least 180 days in 2022, with start-up early in 1Q2022. Eidesvik recently announced that the vessel has been sold to Deme with expected delivery late 2022. There are various opportunities for further work for the WROVs given the current market situation. Havila Subsea REACH has Havila Subsea on a time charter agreement from owners Havila Shipping. The vessel is equipped with two owned Schilling WROVs and one Surveyor Interceptor and offshore personnel from Reach Subsea’s offshore pool and is scheduled for projects by Reach Subsea and the cooperation between Reach Subsea and MMT. Havila Subsea had high utilization in 2021 and continued to meet our clients’ high expectations, amongst other due to excellent performance by Surveyor Interceptor. Havila Subsea is, after some idle time in the winter months, scheduled for a project in the Mediterranean expected to last throughout the second quarter 2022. Olympic Artemis REACH mobilized one Supporter WROV on the vessel Olympic Artemis in 2020. The subsea spread is set up for projects in survey and light construction within the renewables and oil and gas sector. The subsea spread worked in the oil and gas segment in Europe until November 2021, whereafter she started a project for Magseis in the US Gulf lasting well into the third quarter 2022. Directors Report
Reach Subsea | Annual Report 2021 16 Contents Stril Explorer REACH provided ROV services consisting of one Supporter WROV and one Surveyor Interceptor and offshore personnel to the vessel Stril Explorer in 2021. Stril Explorer is a survey vessel on a charter contract from Simon Møkster Shipping to MMT. Projects performed by the Stril Explorer spread are to a large extent ROV/ Survey work handled as a cooperation between Reach Subsea and MMT, where Reach Subsea is responsible for ROV operations. The subsea spread is currently located in Europe, after projects in Trinidad and US for large oil companies in the second half of 2021. The Surveyor Interceptor had high utilization in 2021, proving its excellent quality survey data and cost efficiency. Directors Report Olympic Delta REACH has Olympic Delta on a time charter agreement from owners Olympic Shipping. The vessel is currently mobilized with two hired-in WROVs. The subsea spread worked on various projects in both the oil and gas and renewables segment in Europe in 2021 and currently has, after some idle time in the winter months, a schedule lasting throughout the second quarter 2022, whereafter she will operate in the spot market. Olympic Challenger REACH mobilized the Light construction vessel Olympic Challenger with two chartered-in WROVs and offshore personnel from Reach Subsea’s offshore pool in March 2018. The vessel is on a time charter agreement between Reach Subsea and owner Olympic Shipping. Olympic Challenger has the IMR (inspection, maintenance and repair) market in the North Sea region as main area of operation. The projects have international clients with high satisfaction score, mainly in the oil and gas sector. In 2021 the vessel worked on a project in US Gulf of Mexico lasting through the second quarter, whereafter she exited Reach Subsea’s marketed fleet for the rest of the year. Olympic Challenger was further signed for a new contract between Reach and Olympic starting early 2022 and has currently a project schedule lasting throughout the second quarter after some idle time in the winter months.
Annual HSEQ Report Directors Report Reach Subsea consider HSEQ as a core value in our day-to-day operations. Our goal is zero harm to personnel, environment, and equipment. We benchmark our HSEQ performance towards ISO 9001:2015, ISO 45001:2018, ISO 31000:2018 and ISO 14001:2015. Risk Management For us, Risk Management is a key tool for monitoring and controlling the rapid changes which our business is exposed to. On a corporate level, formal risk and opportunity reviews are performed every month to identify any major changes and the associated risk reducing actions. All projects require a risk/opportunity evaluation of both operational, commercial and HSE, whereas the associated risk reducing actions are monitored by the HSEQ Department. Employee Involvement & Competence As well as participating in risk assessments, employees are involved in HSEQ meetings, audits, inspections, and the Working Environment Committee meetings. All employees are provided with HSEQ training, adjusted to their respective work tasks and adjacent risk exposure. Managing personnel onshore and offshore are gathered once a year for sharing lessons learned, discuss, and agree on strategies for the upcoming year. Reach Subsea has an own E-learning system – REACHED. This gives us a brilliant opportunity to provide internal courses specially made for our industry. Reach Subsea also provides training to our suppliers. HSEQ Results The HSEQ results for 2021 have been positive, with no major incidents or injuries. A highlight in 2021 was achieving certifications in ISO 14001 and ISO 45001 in addition to the existing ISO 9001! There has been a positive trend in the reporting level of safety observations, both negative and positive. 2021 has been another extraordinary year, with very high utilization and mitigating the spread of the Corona virus. This has been challenging for the whole world and has been a major focus for the HSEQ department throughout the year. Core Values Reach Subsea launched a set of core values - decided by our employees: 95 % Our goal of achieving at least 95 % customer satisfaction has been met. 5.7 % Sickness absence has been higher than normal du to a combination of long-term absence and short time CV-19 absence. R- Reliable E – Effective A – Adaptable C – Committed H - Honest Long-term 3.31 % Short-term offshore 1.52 % Short-term onshore 0.95 % COVID 19 related 0.18 % Reach Subsea | Annual Report 2021 17 Contents
Environmental Management Reach Subsea continuously work to have a sustainable business strategy. Our target is 0 spills to the environment. We emphasize the use of environmentally friendly solutions, both technically and operationally, choosing modern assets and technology. We also work constantly on reducing the amount of chemicals onboard. Suppliers are encouraged to reduce their environmental footprint and are committed to achieve energy efficiency. Any impact on the environment is reported and followed up to prevent reoccurrence. Security Our operations are expanding geographically and by this we are exposed to changes in the global risk situation. At present, Reach Subsea has no operations in areas with high risk. Reportable incidents HSEQ Trends Total Man Hours 0 125000 250000 375000 500000 428 646 315 660 361 405 384 834 303 680 2018 2020 2021 2017 2019 2017 2018 2019 2020 2021 Man hours 315 660 361 405 303 680 428 646 384 834 Improvement reports 185 280 231 213 181 Recordable cases 1 2 2 0 0 Sick leave 0.9 % 0.85 % 2.8 % 5.2 % 5.7 % 2019 2020 2021 Fatalities 0 0 0 Lost-Time Injuries 1 0 0 Medical Treatment Injuries 0 0 0 Restricted Work Injuries 0 0 0 Directors Report Reach Subsea | Annual Report 2021 18 Contents
Reach Subsea | Annual Report 2021 19 Contents Directors Report Share information REACH Subsea ASA is listed on Oslo Stock Exchange (Euronext). The Company had per 31.12.2021 issued 144,580,708 shares, of which the majority is owned by Norwegian shareholders. The increased number of shares compared with 31.12.2020 is related to purchase of the companies Octio AS, Gravitude AS, Monviro AS and Monviro CCS AS, which was partly settled in shares. In addition, a share incentive program for employees was effectuated in December 2021. 360,000 shares were purchased under the program, but were not registered until after year end. Total number of shares after this issuance was 144,940,708. Reach Subsea announced 17.02.2022 the acquisition of iSurvey Group as well as announcing Wilhelmsen New Energy as a new strategic partner and shareholder. The iSurvey Group transaction is partly settled in shares. The total number of shares following completion of these transactions is 224,913,428. Further, Wilhelmsen New Energy has been granted the right to subscribe for and be allocated an additional 44,766,684 new Reach shares at NOK 4.00 per share. The warrants have a duration of three years and can be exercised at any time. The Board proposes a dividend of NOK 0.18 per share, to be resolved at the AGM on 30 May 2022. This is in line with the Board of Directors’ dividend policy stating that the company aim to distribute a dividend of around 50 % of adjusted net profit. Adjusted net profit is defined as reported net profit, adjusted for items the Board regard as transitory. The Group consisted at the end if 2021 of ten companies; Reach Subsea ASA and the fully owned subsidiaries Reach Subsea AS, Connect Offshore AS, Surveyor AS, Reach Subsea International AS, Reach Subsea UK Ltd, Reach Subsea Inc, Octio AS, Gravitude AS, Monviro AS and Monviro CCS AS. The main activity of the Group is conducted in Reach Subsea AS. Reach Subsea AS has a branch in Trinidad & Tobago. Connect Offshore AS provides hired offshore personnel to Reach Subsea and other clients. Reach Subsea International is an owning entity for Reach Subsea UK Ltd and Reach Subsea Inc. Surveyor AS’ purpose is to own the “Surveyor Interceptor” and “Surveyor II” as well as holding the rights for the first five Surveyor Interceptor deliveries from Kystdesign AS (main manufacturer based in Haugesund. Octio AS, Gravitude AS, Monviro AS and Monviro CCS as were acquired in December 2021. Investor relations Reach Subsea essentially follows the recommendation for reporting of IR-information issued by the Oslo Stock Exchange’s and publishes all the news releases on www.newsweb.no, a service provided by Oslo Stock Exchange. REACH makes every effort to ensure that accurate, relevant and timely information is disclosed about the Group’s performance and results in order to maintain confidence in the capital market. Reach Subsea aims to have a high level on content and frequency of information to its investors. Our quarterly financial reports include financial details to increase the transparency of our business. Monthly operating statistics are released within 15 days after month end and are also enclosed in the quarterly reports. In addition, presentations are made to partners, lenders, analysts and investors regularly and upon request. It is in Reach Subsea’s own interest that financial analysis of the highest possible quality is published by the analyst community. All analysts are treated equally regardless of their recommendations and views on the Reach Subsea share. An overview of analysts covering the share can be found at www.reachsubsea.com/investors/shareinfo. Financial reports, General Meeting Minutes, Share price information, Corporate Governance, Operational figures and presentation of the Board and Management can be found on the company’s web page www.reachsubsea.no as well as the full Sustainability Report covering initiatives and measures on Corporate Social Responsibility.
Reach Subsea | Annual Report 2021 20 Contents Corporate, Social Responsibility The Group has established a CSR policy based on Human Resources, Environment, Financial and Society, further described under “Sustainability” in this report. A broader presentation of CSR activities performed by the Group can be found in “Reach Subsea Sustainability Report”. People, our employees, is the cornerstone of our business. We are committed to performing safe operations, with the health and safety of our people as our utmost priority. All employees are provided with training, adjusted to their respective work tasks and adjacent risk exposure in our educational program REACHED, to ensure safe operations and that all employees return home safely. We are committed to treating our employees with respect and have a zero tolerance for all forms of discrimination. All employees are given the same rights and possibilities, regardless of gender, background, religion, nationality or disability, and recruitment processes do not exclude any applicant based on these factors. REACH is proud to have employees with different backgrounds. The nationality of our employees includes Norwegian, British, Danish, Polish, Algerian, Trinidadian, Indian, Spanish and American. The age range is 18-73 with education levels from trainee to phd degree. We have employees with different disabilities and religions and intend to facilitate to avoid any challenges. Notification routines have been established, where employees can choose whether they want to remain anonymous if they wish to notify of an unwanted incident. The offshore industry has historically been dominated by male workers. We aim for a more gender-balanced offshore workforce and work continuously to recruit women through our trainee program, and this is one of our Sustainability KPIs. Reach Subsea has performed an in-depth review of salary differences by employment categories and found that when adjusting for seniority, education levels and level of responsibility there are no major difference in female to male salaries. The salary of offshore personnel is fully based on an agreed matrix with the trade union SAFE, taking into account seniority and employment category. As such, all offshore workers have equal salary terms regardless of gender and nationality. To monitor the working environment, surveys and annual appraisals are being conducted for all employees. A Working Environment Committee is established with representatives from offshore and onshore positions, and the Management holds meetings with the SAFE club on a quarterly basis. Managers encourage employees to seek opportunities internally by participating in projects, trainee programs and act in higher positions. Read more about our work towards equal possibilities in our Sustainability Report. Sustainability in REACH “Reach Subsea Sustainability Report” can be found in full on the company’s web page. Reach Subsea strives to be an industry-leading subsea operator within sustainability based on a long-term goal of zero harm to personnel, environment and equipment. The management and Board believe that sustainability and long-term profitability go hand in hand. By continuing to focus on sustainable solutions risk will be reduced, transparency increased, and the use of our resources will be more efficient. In turn, profitability and financial solidity strengthens Reach Subsea as a reliable employer and service provider. Reach Subsea takes a proactive stance to safeguard and integrate the consideration of human rights, labor rights and social and environmental conditions. Reach Subsea’s priorities within sustainability are defined based on an evaluation of stakeholders’ expectations and interests. Stakeholders are defined as entities or individuals that can reasonably be expected to be significantly affected by our activities and services, such as employees, customers, suppliers, business partners and society at large. The report includes the Group’s Key Performance Indicators and goals defined by the Board and Management as well as an overview of certifications, such as ISO 9001, ISO 45001 and ISO 14001, and activities done to reduce the footprint of operations. Directors Report
Reach Subsea | Annual Report 2021 21 Contents Climate risk Reach Subsea’s goal is to have zero impact to the environment. As with most companies within the offshore industry, CO2 emissions from fuel oil consumption is the most significant environmental impact. Reach Subsea works actively to mitigate this risk by choosing fuel efficient tonnage and develop new technology that will reduce the Group’s footprint. Examples of this work, including statistics of fuel emission, energy consumption and spills can be found in the Sustainability Report. Physical risks Reach Subsea is exposed to the expected changes in weather conditions. More extreme weather could result in challenging offshore working conditions. In turn, this may impact the project cycle, shortening the seasons where subsea services can be performed, resulting in possible adverse financial impact. An increase in sea level may also have adverse impacts, such as less availability of docking locations and may make crew changes and vessel and project mobilizations more difficult to perform. Regulatory risks In the effort to drive society towards lower emissions there is a risk of regulatory changes that may have financial impacts for Reach Subsea. Such changes may include scenarios with increased fees and taxes related to CO2 emissions or other changes in framework that may have negative economic impacts on the industry. Changes in demand Targeted implementation of regulatory frameworks to reduce CO2 emission may create shifts in demand for hydrocarbons, which in turn may affect future investment levels for the petroleum sector and increase competition between subsea suppliers. Directors Report
Responsible business • Profitability and financial solidity • Quality services • Anti-corruption and business ethics • Sustainability in the supply chain Environment • Transition to renewable energy segments • Preparing for climate change • Reducing our emissions • Reducing our impact on the sea Employees • The safety and well-being of our people • Development of skills and competences • Equal opportunities Based on the dialogue with stakeholder groups, REACH has identified the following material topics for sustainability reporting: Directors Report Reach Subsea | Annual Report 2021 22 Contents
Reach Subsea | Annual Report 2021 23 Contents Directors Report UN Sustainability Goals In 2015, the UN General Assembly adopted the 2030 Agenda for Sustainable Development, which includes 17 Sustainable Development Goals (SDGs). The 17 SDGs provide a blueprint to achieve a better and more sustainable future for all. These are equally important in meeting the broad range of targets set by the UN. The most material SDGs for Reach Subsea are selected based on the global challenges the world is facing and how the Group can provide impact on these. The four selected SDGs are closely linked to Reach Subsea’s vision and values. 4. Quality education Obtaining a quality education is the foundation to improving people’s lives and sustainable development. The competence of each individual working for us represents the backbone for performing safe subsea operations and providing quality in everything we do. We have implemented training procedures for our employees as well as local training programs in communities where we have a long-term local presence. Reach Subsea hires 2-4 trainees each year, of which 95 % have been offered a full-time position and 2 have worked as Supervisors as per March 2022. 8. Decent work and economic growth Sustainable economic growth requires societies to create the conditions that allow people to have quality jobs. We believe that sustainability and long- term profitability go hand in hand. By continuing to focus on sustainable solutions we minimize risk, increase transparency, and facilitate more efficient use of our resources – increasing our value and competitiveness. In turn, profitability and financial strength helps to secure Reach Subsea as a reliable employer by providing workers with a secure and meaningful place to work. Our Quality Assurance system, including the personnel handbook, covers employees worldwide. Reach Subsea has a strong focus on HSEQ and risk management, ensuring the safety of the people who work for us. We believe that a good HSEQ culture arises from a respectful and positive dialogue between people and by giving support to our people in search for the safest and most optimal solutions. 13. Climate action Climate change is a global challenge that affects everyone, everywhere. Our goal is zero harm to the environment. We work towards reducing emissions and climate impact by chartering fuel-efficient vessels, promoting environmentally friendly ways of travel, extending use of video conferencing and waste management on both onshore and offshore sites. Any impact on the environment is reported and followed up to prevent re-occurrence. Our suppliers are encouraged to reduce their environmental footprint and improve energy efficiency. A positive effect of the COVID 19 pandemic is the increased possibilities to participate digitally in meetings and conferences, reducing travel and emissions. 14. Life below water Careful management of this essential global resource is a key feature for a sustainable future. The sea is our workplace, and we understand the importance of preserving the sea as a shared resource. We aim to minimize our environmental impact by using environmental-friendly degradable hydraulic oil in our subsea operations and strive to leave the seabed unharmed in the same condition as we found it. We cooperate closely with vessel owners on waste management and water discharge plans. One of our Key Performance Indicators is “No major spills”.
Risk Factors market situation may change this radically on relatively short notice. Reach Subsea has the intention to invest in a series of remotely operated vessels (“Reach Remote”). The Reach Remote is a USV (Unmanned Service Vessel) mobilized with a eROV (Remotely Operated Vehicle) that is operated through a moonpool with an umbilical. The USV and the eROV will be operated from an onshore location. Per March 31st the committed investment related to the USV is limited to a Feed study and internal project management and engineering with a total cost below NOK 10 million. Two eROVs have been ordered with a total commitment of NOK 80 million. The building contract for two USVs are still under negotiation. Reach Subsea has a fully financed business plan for the investment, consisting of equity, bank financing and leasing. Upon a decision to invest in Reach Remote there will be a thorough evaluation of risk factors, hereunder governmental regulations, market risk, technical risk and financial risk. The project is planned together with renowned partners with relevant experience and knowledge such as Kongsberg and Massterly. The Group’s liquidity situation as per 31st March 2022 is satisfactory based on the current financial position and project schedule. Vessel commitment is limited to four vessels on a full time charterparty contract of 360 days each. The vessels have a market adjusted cost level and firm project days scheduled for about 50 % of the 2022-season. The Board emphasizes that there is considerable uncertainty about future events, especially concerning the development in the COVID 19 pandemic and the subsea market in general. Market- and operational risk is related to changes in demand for and prices of services provided by the Group, and potential adverse effects of the provision of such services. Reach Subsea is currently not directly affected by the political instability and war in Ukraine. There have been few projects in this region and outstanding amounts from clients such as Nordstream is limited. The demand in the oil and gas sector is currently not expected to decrease, and foreign exchange rates not expected to move in a negative direction for Reach Subsea. The Group is exposed to commercial, operational and financial risk by the nature of the business. Freight rates, currency exchange rates and interest rates may impact the value of the Group’s assets, liabilities and future cash flows. To reduce and manage these risk factors management regularly reviews and reassesses the main market risks. Whenever a major risk factor is identified, action to reduce the specific threat is considered. The Board conducts a SWOT (strengths, weaknesses, opportunities and threats) analysis as part of their yearly strategy meeting in order to be prepared for current and future risk factors. Also, the Board monitors risk by identifying the key overall risk factors to the business, evaluates the probability and impact of adverse negative changes to these risk factors, and ensures that risk mitigating actions are in place. The Board members and the CEO are covered by liability insurance. The policy has worldwide coverage, and in addition to financial loss, it provides cover for aggravated, punitive and exemplary damages imposed on the insured, where these are insurable by law. The limit of liability is NOK 50 million per claim. Technological innovation occurs as an important factor, which the Group mitigates by holding a strong focus on the matter by participating in various fora and conferences and discussing with suppliers and clients. The Group is exposed to interest rate risk and exchange rate risk through financing and contracts with clients. The Management is continuously considering hedging and other risk reducing methods as well as aiming to have expenses and income in the same currency. The Group is further exposed to tax risk, when working on projects in various countries, hereunder sales tax, withholding tax, environmental tax and corporate tax. The tax risk is partly mitigated by establishing a branch or reporting on a Permanent Establishment basis. Risk assessments are being performed on each tender and before start-up of projects. Larger tenders are being reviewed by a Tender Board consisting of members from the Board of Directors and Management before submitted. The Group has no major loan instalments to financial institutions or maturities the next five years. No uncovered need for financing has been recognized in the near future, however the challenging Directors Report Reach Subsea | Annual Report 2021 24 Contents
Reach Subsea | Annual Report 2021 25 Contents Directors Report The Group continually evaluates measures to reduce risk exposure as mentioned above. The oil price- and market volatility has increased the last four years. This has resulted in increased uncertainty in the oil and gas sector, which affects the Group and counterparties. Handling of such risks has become increasingly important. Risk factors are further described in the notes. Reference is also made to the Outlook statement in this report. The Annual Results In accordance with IAS 1.25, the Board of Directors confirms that the financial statements have been prepared under the assumption of going concern. This assumption is based on the Group’s budget for the year 2022 including the Business Plan, the cash flow forecast and the contract backlog. Reference is also made to the Outlook statement in this report. Figures for 2020 are presented in brackets. Reach Subsea purchased cooperation partner MMT’s shares in our jointly owned entity Surveyor AS at book value 31.03.2021. Surveyor AS owns the two “Surveyor Interceptor” high-speed survey ROVs. The transaction was closed in the second quarter 2021. Thus, Surveyor AS is fully consolidated into our Group accounts as from 31.03.2021. In the figures for 2020 (in brackets) Surveyor AS is presented as an associated company based on the equity method. The financial effects of the transaction are further described in the Notes. Reach Subsea purchased Octio AS, a provider of monitoring solutions for hydrocarbon producing fields and CO2 storage reservoirs, including daughter company Gravitude AS and associated companies Monviro AS and Monviro CCS AS (jointly referred to as “Octio”). Closing took place 8.12.2021, hence profit and loss figures are consolidated as from that date. Consolidated balance sheet as per 31.12.2021 includes the acquired entities. The financial effects of the transaction are further described in the Notes. Reach Subsea ASA serves as parent company for the Group. In 2020 the parent company turnover was NOK 9.9 million (NOK 72.0 million in 2020). The decrease is related to an operational project flowthrough of turnover and expenses in 2020, whilst in 2021 activity was limited to consultancy services to the Group companies. Profit for the year was NOK 96.0 million (NOK 28.0 million) and is related to financial income including contribution from Group companies. The parent company has an equity of NOK 279.5 million (NOK 220.2 million), representing 86.3 % (86.2 %) of the total balance sheet. Reach Subsea Group revenue for the full year 2021 was NOK 686.6 million (NOK 628.0 million). The increased revenue is primarily explained by a higher project activity level as well as more complex projects. We had revenue from 1,098 vessel days through our P&L in 2021 (956 days) and the total number of ROV days sold in 2021 was 2,667 (2,388). In addition the purchase of Octio and Monviro in December resulted in NOK 13.3 million in a one-off bargain purchase gain recognized as Other income. Operating expense for 2021 was NOK 607.5 million (NOK 576.7 million). Project-related expense represents the majority of the operating expense for the group. As already mentioned, activity levels were higher, explaining the year-over-year increase in operating expense. Depreciation for the full year 2021 was NOK 239.8 million (NOK 208.4 million). The year-on-year increase is primarily a result of higher project activity levels, giving rise to increased charter hires under our pay-as-use charter agreements as expenses under IFRS 16 rules are classified as depreciation of right of use assets. There was no impairment in 2021 (NOK 7.5 million in 2020). See further evaluation of impairment sensitivity in the Notes. Operating result, EBIT, for 2021 was NOK 79.1 million (NOK 51.3 million. Good project margins underpinned by sound operations are the primary explanations for the improved EBIT. In addition, Octio contributed NOK 10 million to EBIT, including NOK 13.3 million in a one-off bargain purchase gain (recognized as Other income). Project expenses related to Reach Remote are not capitalized and amounted to NOK 2.0 million in 2021. 2021 projects had an estimated extra cost related to the COVID 19 pandemic of NOK 13.9 million (NOK 16.5 million), of which NOK 7.2 million (NOK 7.7 million) was covered by our clients. EBITDA is a financial alternative performance measure (APM) to illustrate earnings before interest, tax, depreciation and amortization. EBITDA for the full year 2021 was NOK 318.9 million (NOK 267.2 million). The increase is primarily a result of improved utilization of assets in 2021 compared to 2020 as well as the one-off effect from the purchase of Octio as described above. Net financial items was NOK -6.2 million (NOK -9.7 million)..
Reach Subsea | Annual Report 2021 26 Contents The Group had limited R&D activity in 2021. Financial costs in our 2020 accounts were influenced by the massive movements in the foreign exchange markets, causing fluctuating currency effects on charter hire in USD, which is the main reason for the year-over-year differences in net financial cost. During 2021, all our charter hires have been in NOK. Reach has made a new assessment of the probability of future use of unutilized tax losses, based on strong financial results the past two years as well as a positive business outlook. The new assessment concludes that the deferred tax benefit associated with unutilized tax losses should be capitalized, which gives a positive tax effect on our P&L of NOK 20.8 million in 2021 Total comprehensive income for 2021 was NOK 94.5 million compared to NOK 43.8 million in 2020. Tax effects as described above as well as a stronger operating performance are the main reasons for the improvement. The Group presents revenues, operating result and EBITDA for its two main segments; Oil & Gas and Renewable/Other. Oil & Gas entails revenues from survey, IMR and light construction projects where the end client is an oil & gas company. Renewable/ Other entails revenues from survey, IMR and light construction projects where the end client is a non-oil & gas company (typically a company in the renewable energy sector). For the full year 2021, Oil & Gas revenues constituted 70 % while Renewable/Other constituted 30 % of total revenues. By comparison, in 2020 Oil & Gas revenues were 75 % while Renewable/Other constituted 25 % of total revenues. Capital structure Total current assets at the end of 2021 were NOK 353.9 million (NOK 242.0 million per 31.12.2020), of which cash and cash equivalents amounted to NOK 149.0 million (NOK 105.4 million). Including the unutilized revolving credit facility, available liquidity was NOK 169.0 million. Receivables and inventories were NOK 204.9 million (NOK 136.6 million). Total non-interest-bearing current liabilities were NOK 147.2 million (NOK 111.5 million). This leaves a net working capital of NOK 57.7 million (NOK 25.1 million). The working capital level Directors Report The Annual Results is higher than normal for this part of the year and influenced by a high level of invoicing towards the end of the year. Total non-current assets at the end of the year were NOK 392.6 million (NOK 121.0 million). As mentioned above, an updated assessment of the probability of future use of unutilized tax losses has resulted in capitalization of a deferred tax benefit. Furthermore, the acquisition of Octio added NOK 11.2 million in capitalized deferred tax asset. Thus, the deferred tax asset increased from NOK 8.2 million per 31.12.20 to NOK 40.2 million per 31.12.21. Right of use assets represents NOK 277.2 million of leases capitalized under IFRS 16 (NOK 13.5 million). The increase is explained by the securing of vessel capacity as announced in the fourth quarter of 2021, resulting in an increased charter commitment, and inclusion of right of use of office facilities of NOK 5.1 million. Please see further details in the Notes. Net interest-bearing debt (total interest-bearing debt, including capitalized leases under IFRS 16, less cash) stood at NOK 163.5 million (NOK -64.0 million), with the increase explained by the increased charter commitment as described above an in the Notes. Net financial interest-bearing debt to credit institutions (i.e. excluding IFRS 16 leases) was NOK -118.3 million (NOK -79.8 million), i.e. a cash positive position. The Group’s equity as of 31.12.21 was NOK 286.8 million (NOK 210.0 million), which represents 38 % of the total balance sheet (58 % 31.12.20). Net cash flow from operating activities for 2021 was NOK 279.2 million (NOK 268.7 million). Net cash flow from Investments was NOK 7.0 million, compared to NOK -2.1 million. The negative cash flow from the purchase of shares in new subsidiaries (Octio AS, Monviro AS and Surveyor AS) was more than offset by the positive effect from the cash balance in the acquired companies. In addition two handling systems were sold in 2021 (at book value). There was limited investment in fixed assets in 2021. Net cash flow from financing activities was NOK -245.1 million (NOK -200.2 million) and includes vessel charter hire classified
Reach Subsea | Annual Report 2021 27 Contents Directors Report as “Repayment of borrowings and leases” according to IFRS 16. Details about cash outflow from leases can be found in the Notes. Net change in cash and cash equivalents was NOK 41.0 million (NOK 66.4 million) for the full year 2021, influenced by an increase in working capital, purchase of the shares in Surveyor AS, Octio Group and the NOK 21.5 million dividend payment. Reach has per 31.12. 2021 no major debt maturities to credit institutions or committed, unfinanced capital expenditure commitments for 2022 and onwards. Capital expenditure commitments for the Reach Remote project is expected to be incurred during the first half of 2022 (further described above under “Risk Factors”). Reach Remote will be financed with a combination of equity and bank financing, both secured in 1Q2022 News after year end In February 2022, Octio secured a multi-year geophysical monitoring contract with A/S Norske Shell for the Ormen Lange field. The contract is valid until January 2026, with two one- year extensions. OCTIO deploys proprietary gWatch service to deliver gravimetry and seabed subsidence measurements and has set an industry standard for accuracy and efficiency of gravimetry surveys. In 2020, OCTIO completed the 7th gWatch survey for A/S Norske Shell at the Ormen Lange field. A/S Norske Shell acquires these measurements every second year to refine field recovery strategy and increase gas production. In February 2022, REACH was awarded a contract in the Mediterranean Sea for start up early in Q2 2022, representing about 130 project days. The project involves support of an Ocean Bottom Node campaign and will be performed by the Havila Subsea spread. In February 2022, REACH announced that the Company has entered into an agreement with iSURVEY Holding AS to acquire ISURVEY Group AS (“iSURVEY”), a provider of offshore high- quality survey services, for NOK 135 million. The purchase was partly settled in shares, where iSurvey Holding AS will receive 33,846,153 shares. With the inclusion of iSURVEY in the group, Reach Subsea’s data management and data analytics capabilities are strengthened, providing the company with a platform to become a full-service provider of subsea data and solutions for clients globally. The transaction optimizes Reach’s project portfolio, improving earnings visibility and stability. Through the combined offerings of the two companies, REACH is able to operate full survey spreads on multiple vessels. Reach’s revenue potential and margins are increased through expanded service offerings to both existing and new client segments, and creates significant revenue synergies from the cross-selling of Reach and iSURVEY’s services to each other’s customer base. The transaction strengthens REACH’s inhouse software and competence for the Reach Remote unmanned surface vessels. The acquisition enhances Reach’s presence and offering to the renewable energy sector, which represents 50% of iSURVEY’s revenues. As a consequence of the acquisition, REACH gains a strategic pillar and operating team of over 100 world-leading offshore surveyors and project management specialists in their field to advance Reach’s broader strategy for technology and data processing, as well as adding key competence required for gathering and processing of seabed survey data. In conjunction with the acquisition iSURVEY, REACH announced that Wilhelmsen New Energy AS (“Wilhelmsen”) has entered into an investment agreement whereby Wilhelmsen has agreed to become a 21% shareholder in Reach through subscribing for NOK 150 million in a directed private placement. Wilhelmsen has also received warrants to subscribe for 44,766,864 additional shares (nominal price NOK 1.0, subscription price NOK 4.0). The investment agreement forms part of a broader partnership, which will underpin the launch of the Reach Remote Unmanned Surface Vehicles (USVs). The Reach Remote concept is on track for the delivery of its two first Reach Remote USVs in 2023. By 2025, the company’s ambition is to provide a full portfolio of subsea services from a low-emission, cost-effective remote and autonomous fleet. Reach now has a term sheet in place with Sparebank 1 SR-Bank and EksportFinans for a NOK 200 million debt facility for the first two USVs. Combined with the NOK 150 million private placement, the company will be able to embark on the construction and commercialization phase of Reach Remote. On 15 March 2022, the Extraordinary General Meeting of REACH approved the issuance of consideration shares for settlement of the iSURVEY transaction, as well as the NOK 150 million private Capital structure
Reach Subsea | Annual Report 2021 28 Contents Directors Report January February Year to date 2021 2022 2021 2022 2021 2022 Number of ROV days sold 109 215 114 208 223 423 Number of ROV days available 248 310 224 299 472 609 Technical uptime on ROV 100 % 98 % 99 % 100 % 100 % 99 % Number of offshore personnel days sold 663 454 700 885 13 363 1 339 LTIs 0 0 0 0 0 0 Number of vessel days sold 42 68 51 57 93 125 Definitions EBIT Earnings before interest and taxes (operating result) Liquidity Cash and cash equivalents Net working capital Receivables and inventories less non-interest-bearing current liabilities Net interest-bearing debt Interest bearing debt less cash and cash equivalents Number of ROV days sold (ROV days) Total number of ROV days sold in Reach Subea AS (incl. Surveyor AS from 1.4.2021) during a defined period Number of ROV days available Total number of ROVs owned by Reach Subsea AS (incl. Surveyor AS from 1.4.2021) multiplied with number of days in a defined period, plus total number of ROVs hired in (pay as use) by Reach Subsea AS multiplied with actual number of operational days in a defined period Project days Total number of days that a subsea spread is sold to projects, including ROV, personnel and/or vessel Technical uptime on ROVs 1-unpaid break down hours divided by total sold operation hours Number of offshore personnel days sold Total offshore manhours (offshore pool) sold to projects, including own and hired in resources LTIs Number of loss time incidents (number of incidents resulting in absence from work) Number of vessel days sold Vessel days sold by Reach Subsea AS (excl. JV Cooperation partners) that passes through our income statement placement and warrants towards Wilhelmsen New Energy. Both transactions were subsequently completed on 22 March 2022. In March 2022, REACH was awarded a contract in the North Sea renewable market, covering approximately 80 project days with start-up early in Q2 2022. The project involves the support of an offshore wind farm located in the North Sea and will be performed by the Olympic Challenger spread. REACH has per 31th March 2022 a firm order book of NOK 300 million for work in 1Q2022 and beyond, with the vast majority related to work in 2022. See further details under «Vessel Update» and «Outlook». The order book figures do not include option periods nor expected volumes from the frame agreements. Year to date Operation figures are presented in the table below. News after year end
Reach Subsea | Annual Report 2021 29 Contents 0 5000 10000 15000 20000 Technical uptime on ROVs 95 96 97 98 99 100 Vessel days sold 0 250 500 750 1000 1250 1500 Number of ROV days – Annually 0 800 1600 2400 3200 4000 2018 2018 2018 2018 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021 Offshore personnel days sold Directors Report Sold Available
Reach Subsea | Annual Report 2021 30 Contents REACH currently markets and operates six subsea spreads (vessel, ROVs, and personnel, alone or together with partners), which have an attractive cost structure. These subsea spreads are tailored to our target markets and are well suited to the scope of services that are at the core of our business. We are monitoring the market for opportunities to complement and strengthen our business, while at the same time progressing Reach Remote towards market launch in 2023. Looking ahead we see that the dramatic changes in global energy markets create a business environment with both challenges and opportunities. The challenges are evident as subsea services provided to the oil & gas sector will have lower activity levels in the long run. However, in the short to medium term we are witnessing the resurgence of oil & gas activity, driving increased utilization across the industry. The opportunities are that our core subsea service competence is being deployed in the growing offshore wind sector as well as new emerging sectors such as offshore fish farming and subsea mining. We have already in place frame agreements for subsea inspection services on Equinor’s existing offshore wind farms, where we have successfully executed remote services on parts of the scope. Our ambition is to build on this success and increase our footprint within IMR services to the offshore wind sector. Our response to both the challenges and opportunities we face is twofold. First, in the near term we will maintain a competitive cost structure and remain agile and flexible. To that end, our charter agreements secure competitive vessel capacity for the next couple of years, in a market that we see becoming tighter into 2022. Second, we will introduce Reach Remote to the market in 2023 and aim to provide our subsea services from a remote and autonomous platform from 2025. With Reach Remote fully deployed, we will be able to provide our clients with marine data and solutions from a virtually carbon neutral and personnel-friendly offshore operations platform. The combination of securing conventional vessel capacity for the next couple of years with the phasing in of Reach Remote from 2023 onwards, will provide a good foundation for generating good returns in our transition towards the new era. The progress on Reach Remote is on track for 2023. Together with our partners Kongsberg and Massterly we have established comfort in the technical supply chain and secured long lead time key components. The final commercial details of the USV building contract are expected to be in place shortly. With the acquisition of iSurvey and Wilhelmsen as our new, strategic partner we have secured new equity as well as a strong strategic partner for commercialization of Reach Remote. In our 2020 Sustainability Report we set 15 targets for 2021. We are pleased with the fact that we met 13 out of the 15 targets, and will double down on our efforts to meet the remaining two targets in 2022. The Board and management are very pleased with delivering record results for 2021 and will propose a dividend of NOK 0.18 per share for the upcoming Annual General Meeting. Outlook Directors Report
Reach Subsea | Annual Report 2021 31 Contents Statement by the Board of Directors and Managing Director We hereby confirm that, to the best of our knowledge, the Annual Accounts for the period 01.01 to 31.12.2021 have been prepared in compliance with applicable accounting standards; and that the information in the accounts offers a true and fair view of the Group’s and the parent company’s assets, liabilities, financial standing and overall performance. We further confirm that the Annual Report provides a true and fair view of the development, earnings and standing of the Group and the parent company; and sets out most important risk factors and uncertainties facing the Group. On the Board of Reach Subsea ASA - Haugesund 31st March 2022 Directors Report Haugesund, 31 March 2021 /s/ Rachid Bendriss Chairperson of the Board /s/ Ingunn Ø. Iveland Board member /s/ Martha Kold Bakkevig Board member /s/ Kåre Johannes Lie Deputy Chairperson of the Board /s/ Kristine Skeie Board member /s/ Jostein Alendal Managing Director /s/ Anders Onarheim Board member
Reach Subsea | Annual Report 2021 32 Contents Rachid Bendriss Chairperson of the Board Rachid Bendriss holds a Master of Management degree from BI – Norwegian Business School. He has more than 25 years of extensive capital markets and transaction experience through employment at firms like Morgan Stanley, Danske Bank and Carnegie, and as an independent strategic and financial advisors to various companies in the energy sector. Kåre Johannes Lie Deputy Chairperson of the Board Kåre Johannes Lie holds a Master of Science degree. He has broad experience from the subsea industry, both as founder of successful companies and as managing director and advisor. Anders Onarheim Board member Anders Onarheim holds an MBA from Washington University of St. Louis. He has broad experience from Capital Markets, both in Norway and internationally. Kristine Skeie Board member Kristine Skeie is Managing Director of HK Shipping Group AS which is a Shipping company trading in the shortsea bulk segment. Skeie has been the chairperson of the board in Karmsund Havn IKS since 2012 and is also a board member in Eidesvik Offshore ASA. She is a College graduate in Business administration from the Norwegian Business School and has attended a Maritime Executive Program directed by Norwegian Shipowners Association. Martha K. Bakkevig Board member Martha Kold Bakkevig is the founder and managing partner of MKOLD AS and a non- executive director of public listed companies as Hexagon Purus, Edda Wind and BW LPG. Prior to that Ms. Bakkevig served two years as Chief Executive Officer of Steinsvik Group, an equipment and service provider for fish farming industry worldwide and ten years as Chief Executive Officer of DeepWell, an oil service company operating in the North Sea. Ms Bakkevig has extensive experience in management, strategy and business development, and a broad academic background with a doctor’s degree in both technical and business strategical subjects. She holds a master’s degree and PhD from the Norwegian University of Science and Technology (NTNU) and a Doctorate in Economics from BI Norwegian Business School. Ingunn Ø. Iveland Board member Ingunn Øvereng Iveland holds a Master of Science degree from NTNU – Norwegian University of Science and Technology in physics and mathematics and a Master of Management degree from BI- Norwegian Business School. She has broad experience from positions in the subsea service and aquaculture industry. She is currently holding the position as Strategic Procurement Director in Knutsen OAS Shipping AS. The Board of Directors
Reach Subsea | Annual Report 2021 33 Contents Corporate Governance (CG) in Reach Subsea ASA shall increase trust towards the company and contribute to optimal value creation over time. The objective of corporate governance is to regulate the division of roles between shareholders, the Board and executive management more comprehensively than is required by legislation. Corporate Governance & Management
Reach Subsea | Annual Report 2021 34 Contents Implementation & Reporting on Corporate Governance Implementation & Regulations Reach Subsea ASA’s (“Reach Subsea” or “the Company”) Board of Directors (the “Board”) has the ultimate responsibility for ensuring that the company practices good corporate governance and has thus prepared and approved the Company’s policy for corporate governance. The Company, through its Board and executive management, carries out an annual review of its principles for corporate governance. Reach Subsea is a Norwegian public limited company listed on the Oslo Stock Exchange (Oslo Børs). The Norwegian Accounting Act includes provisions on corporate governance which impose a duty on the Company to issue an annual statement on its principles and practice for corporate governance. These provisions also stipulate minimum requirements for the content of this report. The Norwegian Corporate Governance Board (NCGB) has issued the Norwegian Code of Practice for Corporate Governance (the “Code”). Adherence to the Code is based on the “comply or explain” principle, which means that a Company must comply with the recommendations of the Code or explain why it has chosen an alternative approach to specific recommendations. The Code was last revised 14th October 2021. The Oslo Stock Exchange’s Continuous Obligations for listed companies requires publicly listed companies to publish an annual statement of their policy on corporate governance in accordance with the Code in force at the time. The Continuing Obligations of listed companies are available on www.oslobors. no Reach Subsea complies with the Norwegian Accounting Act § 3-3b and the Code, unless otherwise specifically stated. The Company provides a statement on its principles for corporate governance in its annual report, and this information is further available on the Company website, www.reachsubsea.no Corporate Governance & Management
Reach Subsea | Annual Report 2021 35 Contents Equity and dividend Business activity Equity The Board aims to maintain a satisfactory equity ratio and capital structure in the Company in light of the Company’s goals, objective, strategy and risk profile, thereby ensuring that there is an appropriate balance between equity and other sources of financing. The Board regularly assesses the Company’s capital requirements. Dividend The Company’s objective is to generate a return for its shareholders through dividends and increases in the share price that is at least in line with the return available on similar investment opportunities of comparable risk. The Board has a dividend policy stating that the Company aim to distribute a dividend of around 50 % of adjusted net profit. Adjusted net profit is defined as reported net profit, adjusted for items the Board regard as transitory. Authorizations to the Board The Board will in the outset not propose that authorizations to increase the share capital and to buy own shares are granted for periods longer than until the next Annual General Meeting of the Company. The Board will only propose authorizations with specific purposes and each proposed purpose will be treated as a matter for the Annual General Meeting. As per 31 December 2020, the Board had authorization to increase the share capital with NOK 2 721 932. The authorization is limited to defined purposes and expires 30th June 2022. The Board does not hold any rights to purchase own shares. Corporate Governance & Management Objective The Company’s business objective is, as set out in its articles of association § 1, to provide engineering, construction and related services to the offshore energy industry, shipping and other transport operations through ownership and / or operation, participation in such activity by other companies, and related activities. The Board establishes the Group’s overall goals and strategy. The main goal and strategy for the Company is to be a full service provider within the subsea sector. The Company’s vision is to be the preferred operator by those who need the best possible subsea partner, one that will always perform above expectations. Values, objectives and strategies Confidence in Reach Subsea as a Company and in its business activities as a whole is essential for the Company’s continuing competitiveness. The Company aims to maintain high ethical standards in its business concept and relations with customers, suppliers and employees. The Company has established their own guidelines for Corporate Social Responsibility (CSR). The Board of directors evaluates objectives, strategies and risk profiles yearly, with the goal to create value for shareholders in a sustainable way. The Company’s strategy and key metrics related to environment, social factors, and governance (ESG) are described in the Sustainability report.
Reach Subsea | Annual Report 2021 36 Contents Equal treatment of shareholders & transactions with close associates Rights The Company has one class of shares with equal rights. At capital increases where existing shareholders’ preferential rights are waived, this shall be justified. By waiver of rights based on authorizations, the reason for the waiver shall be stated in the press release/ announcement in connection with the capital increase. In the event that the Board is granted authorizations to buy own shares and decides to use this authorization, the transactions will be carried out through the stock exchange or at prevailing stock exchange prices if carried out in any other way. Transactions with related parties Any transactions, agreements or arrangements between the Company and its shareholders, members of the Board, members of the executive Management team or close associates of any such parties shall only be entered into as part of the ordinary course of business and on arm’s length market terms. All such transactions shall comply with the procedures set out in the Norwegian Public Limited Liability Companies Act or similar provisions, as applicable. The Board shall arrange for a valuation to be obtained from an independent third party unless the transaction, agreement or arrangement in question must be considered to be immaterial. The Company’s financial statements shall provide further information about transactions with related parties. Board members and members of the executive Management team shall immediately notify the Board if they have any material direct or indirect interest in any transaction entered into by the Company. Shares & negotiability Transfer of shares The Shares are freely transferable and there is no limit to own, trade or vote for shares in the Company. The Company’s Articles of Association do not contain any provisions imposing limitations on the ownership of the Shares and there are no limitations under Norwegian law on the rights of non- residents or foreign owners to hold or vote for the Shares. Corporate Governance & Management
Reach Subsea | Annual Report 2021 37 Contents The General Meeting The annual general meeting of Reach Subsea ASA The Annual General Meeting (“AGM”) is the Company’s highest authority. The Board strives to ensure that the AGM is an effective forum for communication between the shareholders and the Board, and encourages shareholders to participate in the meeting. Preparations for the AGM The Annual General Meeting is normally held before 31st May every year and at least by 30 June, which is the latest date permitted by Company law. The notice calling the AGM is made available on the Company’s website, www.reachsubsea.no and sent to shareholders no later than 21 days prior to the meeting. The same notice period applies for extraordinary meetings. The notices calling the general meetings shall provide information on the procedures shareholders must observe in order to participate in and vote at the general meeting. The notice will also set out • The procedure for representation at the meeting through a proxy, including a form to appoint a proxy, to allow for shareholders who are unable to attend in person will be able to vote by proxy and • The right for shareholders to propose resolutions in respect of matters to be dealt with by the general meeting. The Company shall appoint one person that can vote for the shareholders as a proxy. The Company’s articles of association stipulate that the supporting documents dealing with matters to be considered by the AGM can be made available on the Company’s website rather than being sent to shareholders by post. However, shareholders are still entitled to receive the documents by post upon request if they so wish. The supporting documentation provides all the necessary information for shareholders to form a view on the matters to be considered. The date of the next AGM is included in the Company’s financial calendar, as described in “Information and communication” below. Corporate Governance & Management Agenda and conduct of the AGM The Board decides the agenda for the AGM and the agenda shall be described in the notice. The main agenda items are determined by the requirements of the Public Limited Liability Companies Act § 5-6 and Article 5of the articles of association of Reach Subsea ASA. The Board may propose a person independent of the Company and the Board to chair the General Meetings, ensuring that the AGM has an independent chairperson in accordance with the recommendations of the Code. Members of the Board Nomination Committee and Auditors attend the Annual General Meeting, but normally the full Board has not participated. Matters on the agenda have so far not created a need for this. The Chairman of the Board and the Managing Director always attend to answer questions. The AGM minutes are published by issuing a stock exchange announcement, and are also made available on the Company’s website at www.reachsubsea.no. Nomination committee Reach Subsea has a board nomination committee consisting of three members elected for a period of 2 years, according to section 3 of the Company’s articles of association. The following three members form the nomination committee: • Rune Lande (Chairman) • Sverre Meling • Didrik Leikvang Pursuant to section 6 of the articles of associations, the nomination committee shall propose Board member candidates to the general meeting in connection with notices thereof. The nomination committee shall also make proposal for the remuneration of the Board.
Reach Subsea | Annual Report 2021 38 Contents The Board of directors - composition and independence The composition of the Board of directors ensures that the Board can attend to the common interests of all shareholders and meets the Company’s need for expertise, capacity and diversity. The Board of Reach Subsea is appointed by the General Meeting. According to section 3 of the Company’s articles of association, the Board shall consist of 3 to 7 members. The Board has the required competence to independently evaluate the cases presented by the management as well as the Company’s operations, and function well as a body of colleagues. The members of the Board represent varied and broad experience from relevant industries and areas of technical expertise, and the members bring experience from both Norwegian and international companies. More information about the Board members’ expertise and background, as well as their holdings of shares in the Company can be found on the Company’s website www.reachsubsea.no. The Board does not include any members from the Company’s executive Management team and all the members are considered independent of the Company’s material business contacts. 70 % of the members of the Board are considered independent of the Company’s main shareholder. The work of the board of directors Responsibilities and duties The Board plans for its work with special emphasis on the Company’s objectives, strategies and risk profiles. The Board’s primary responsibilities are: • Participating in the development and approval of the Company’s strategy, • Performing necessary monitoring functions and • Acting as an advisory body for the Executive Management Team. Corporate Governance & Management Its duties are not static, and the focus will depend on the Company’s ongoing needs. The Board is also responsible for ensuring that the operation of the Company is in compliance with the Company’s values and ethical guidelines. The Chairman of the Board is responsible for ensuring that the Board’s work is performed in an effective and correct manner. The Board shall ensure that the Company has a good management with clear internal distribution of responsibilities and duties. The CEO is responsible for the Executive Management and day- today operations of the Company. Further details on the duties of the Board are included in the instructions to the Board. All members of the Board receive information about the Company’s operational and financial development on a monthly basis. The Company’s strategies shall regularly be subject to review and evaluation by the Board. The Board evaluates its work on an annual basis. The Board of the Company has appointed an audit committee consisting of three Board members. The Board may from to time also appoint other sub-committees, as deemed necessary or appropriate. Related parties The Board of directors ensures that members of the Board and executive personnel make the Company aware of any material interest that may have in items to be considered by the Board of directors.
Reach Subsea | Annual Report 2021 39 Contents Risk management and internal control The Board shall seek to ensure that the Company has sound internal control and systems for risk management that are appropriate in relation to the extent and nature of the Company’s activities. The internal control and systems include the Company’s value creation and guidelines for ethics and corporate governance. The Board shall ensure that the Company’s internal control comprises guidelines, processes, duties, conduct and other matters that: • Facilitate targeted and effective operational arrangements for the Company and also make it possible to manage commercial risk, operational risk, the risk of reaching applicable legislation and regulations as well as all other forms of risk that may be material for achieving the Company’s commercial objectives; • Contribute to ensuring the quality of internal and external reporting; and • Contribute to ensuring that the Company operates in accordance with the relevant legislation and regulations as well as with its internal guidelines for its activities, including the Company’s ethical guidelines and corporate values. Routines The Board shall form its own opinion on the Company’s internal controls, based on the information presented to the Board. Reporting by Executive Management to the Board shall be prepared in a format that gives a balanced presentation of all risks of material significance, and of how the internal control system handles these risks. The Board has approved routines for internal control and risk management. The objective for the Company’s risk management and internal control is to manage, rather than eliminate, exposure to risks related to the successful conduct of the Company’s business and to support the quality of its financial reporting. Effective risk management and good internal control contribute to securing shareholders’ investment in the Company and the Company’s assets. The Board shall carry out an annual review of the Company’s most important areas of exposure to risk and its internal control arrangements and provide an account in the annual report of the main features of the Company’s internal control and risk management systems as they relate to the Company’s financial reporting. Audit committee Within risk management and internal control, the Audit Committee’s duties and responsibilities include monitoring the financial reporting process, focusing on the following main areas: • Changes in accounting principles • Critical accounting estimates or judgments • Material adjustments to the accounts requested or suggested by the statutory auditor • Areas where there is a difference of opinion between the Management and the statutory auditor • Monitoring the effectiveness of the Company’s financial reporting processes, internal control, and internal audit where applicable, and risk management systems. • Monitoring the statutory audit of the annual accounts. • Monitoring services provided by the auditors other than audit. • Establishing and evaluating procedures for the correct handling and registering of complaints relating to financial reporting, accounting, internal control and statutory audit. Corporate Governance & Management
Reach Subsea | Annual Report 2021 40 Contents Risk management and internal control Remuneration of the Board of directors The General Meeting annually determines the Board’s remuneration, based on proposal by the nomination committee. Remuneration of Board members shall be reasonable and based on the Board’s responsibilities, work, time invested and the complexity of the enterprise. The compensation shall be a fixed annual amount. The Chairman of the Board may receive a higher compensation than the other members. The Board shall be informed if individual board members perform other tasks for the Company than exercising their role as board members. Work in subcommittees may be compensated in addition to the remuneration received for board membership. This will be specified in the Annual Report. The Company’s annual accounts provide information about the Board’s compensation. Remuneration of executive personnel In accordance with §6-16a of the Norwegian Public Limited Liability Companies act, remuneration of the CEO and the Executive Management team is regulated by the Company’s Executive Remuneration Policy, which was approved by the AGM on 26 May 2021. The main purpose of the Company’s remuneration of executive management is to attract and retain executive, to align interests between executives and the Company’s shareholders, and to encourage a strong and sustainable performance-based culture which supports the Company’s overall strategic ambitions and goals over time. The Board decides the salary and other compensation to the CEO, however so that any compensation linked to the value of the Company’s shares shall be approved by the General Meeting in accordance with the Norwegian Public Limited Companies Act. The CEO’s salary and bonus shall be determined on the basis of an evaluation with emphasis on the following factors: financial results, business development, employee and customer satisfaction. Any fringe benefits shall be in line with market practice and should not be substantial in relation to the CEO’s basic salary. The Board annually carries out an assessment of the salary and other remuneration to the CEO and Executive Management team. The Company’s annual accounts provide information about salary and other compensation to the CEO and the Executive Management team. Furthermore, the Company has prepared a separate remuneration report for 2021, which will be put forth the AGM in 2022 and be made available on www.reachsubsea.no. The CEO determines the remuneration of executive employees based on the Executive Remuneration Policy, which lay down the main principles for the Company’s management remuneration policy. The salary levels should not be of a size that could harm the Company’s reputation, or above the norm in comparable companies. The salary levels should, however, ensure that the Company can attract and retain executive employees with the desired expertise and experience. Information & communication Reach Subsea maintains a proactive dialogue with analysts, investors and other stakeholders of the Company. The Company strives to continuously publish relevant information to the market in a timely, effective and non-discriminatory manner, and has a clear goal to attract both Norwegian and foreign investors and to promote higher stock liquidity. Emphasis is placed on ensuring that the shareholders receive identical and simultaneous information. All stock exchange announcements are made available on the Oslo Stock Exchange news website, www.newsweb.no as well as the Company’s website, www.reachsubsea.no. Reach Subsea publishes its preliminary annual results by the end of February and the complete annual report, including approved and final annual accounts and the Board of Directors report, is available no later than 30 April each year as required by the Securities Trading Act. The Company’s financial calendar for the coming year is published as a stock exchange announcement and made available on the Company’s website no later than 31 December each year. Reach Subsea ASA intends to hold open presentations in connection with the publication of the Company’s results. At the presentations, the Executive Management review and comment on the published results, Corporate Governance & Management
Reach Subsea | Annual Report 2021 41 Contents market conditions and the Company’s future prospects. The Company’s Management gives high priority to communication with the capital market. Individual meetings are organized for major investors, investment managers and analysts. The Company also attends investor conferences. The Board has issued guidelines for the investor relations function of the Company, including authorized spokespersons of the Company. Take-overs It is not considered necessary to develop explicit guidelines for how Reach Subsea will act in the event a takeover bid is presented to the Company. The Board supports the Recommendation on this issue. Auditor Reach Subsea is audited by PricewaterhouseCoopers in Stavanger, Norway. PricewaterhouseCoopers has been the Company’s auditor since the accounting year 2012. According to the Auditors Act, the Company is required to carry out a tender process for procurement of auditing services after ten years with the same auditor. The Audit Committee initiated this process in 2021, and will present its recommendation for election of auditor to the AGM in 2022. Each year the auditor present to the Board a plan for the audit work and confirm that the auditor satisfies established requirements as to independence and objectivity. The auditor shall be present at Board meetings where the annual accounts are on the agenda. Whenever necessary, the Board shall meet with the auditor to review the auditor’s view on the Company’s accounting principles, risk areas, internal control routines etc. At least one time per year, the Board and the auditor shall meet without the presence of anyone from the Executive Management. The use of the auditor as a financial advisor to the Company should be sought limited to cases where such use of the auditor does not have the ability to affect or question the auditors’ independence and objectiveness as auditor for the Company. Only the Board’s Audit Committee shall have the authority to enter into agreements in respect of such counselling assignments. The Audit Committee has delegated a limited authority to the Company’s CFO, where use of such limited authority is monitored by the Audit Committee. At the Annual General Meeting, the Board shall present a review of the auditor’s compensation as paid for auditory work required by law and remuneration associated with other assignments. In connection with the auditor’s presentation to the Board of the annual work plan, the Board should specifically consider if the auditor to a satisfactory degree also carries out a control function. The Board shall arrange for the auditor to attend General Meetings as and where appropriate. Corporate Governance & Management
Reach Subsea | Annual Report 2021 42 Contents Featured Project #1 Vessel Olympic Artemis Client Boskalis Location Sandbank Offshore Wind Farm Period 4Q 2021 Water Depth Various During 4Q 2021 Reach Subsea was contracted by Boskalis to assist with the installation of scour protection on the Sandbank Offshore Windfarm. The project scope included crane operations with high complexity in challenging operational conditions, however, it was safely and successfully completed, largely due to the offshore team’s strong operational experience. Installation of scour protection on offshore wind farm Sandbank Offshore Wind Farm Germany
Reach Subsea | Annual Report 2021 43 Contents Featured Project #2 Reach Subsea was contracted by Norwegian Royal Salmon to assist with mooring of the Arctic Fish Farming project outside Tromsø in Norway. The project was safely and effectively executed in collaboration with the Client, utilizing modern subsea technology in the emerging market of Offshore Fish Farming. Vessel Olympic Delta Client Norwegian Royal Salmon Location Norway Period 3Q 2021 Water depth Various Mooring of Offshore Fish Farm Offshore Fish Farm Norway
Reach Subsea | Annual Report 2021 44 Contents Equinor IMR Frame Agreement During Q2 of 2021 Reach Subsea was awarded the first ever call-off for Equinor under the Inspection, Maintenance and Repair Frame Agreement. The project included fast track planning and execution of a complex lifting operation with the use of new and innovative technology for remote disconnection of lifting rigging. Although the project was rather short it has proved to be an important showcase of Reach Subsea’s strong focus on embracing new technology and to deliver fast track projects to support urgent needs with solid and safe project execution. The vessel Olympic Zeus was chartered for this project. Featured Project #3 Vessel Olympic Zeus Client Equinor Location Norway Period 2Q 2021 Water depth 380 m Inspection, Maintenance and Repair Norway
Reach Subsea | Annual Report 2021 45 Contents Reach Subsea and MMT were contracted by Shell UK to perform pipeline inspection works using the Surveyor Interceptor during Q2 of 2021. The customer feedback included the remark “This has been another excellent year of data collection across all of our assets which has been conducted flawlessly” which speaks to the exceptional survey platform that the Surveyor Interceptor is and the strong cooperation that has been developed between Reach Subsea and MMT. Featured Project #4 Vessel Havila Subsea Client Shell Location UK Period 2Q 2021 Water depth Various Pipeline Inspection with Surveyor Interceptor Pipeline Inspection UK
Reach Subsea | Annual Report 2021 46 Contents Reach Subsea ASA Group Financial Statements
Reach Subsea | Annual Report 2021 47 Contents Consolidated statement of comprehensive income (NOK 1000) 2021 2020 NOTES Revenues 673 253 618 870 5, 27 Other income/losses 13 347 9 160 28 Operating income, in total 686 601 628 030 Operating expenses Procurement expenses (158 633) (169 972) 6 Depreciation (239 807) (208 386) 14, 26 Impairment - (7 505) 14 Personnel expenses (122 374) (111 422) 8 Other operating expenses (86 722) (79 429) 7, 8 Operating cost, in total (607 537) (576 714) Operating results 79 064 51 317 Financial income and financial costs Interest income 237 149 9 Interest expense (7 838) (6 576) 9 Other financial items 1 437 (3 274) 9 Finance items - net (6 164) (9 701) Share of profit of investments accounted for using the equity method 146 1 487 13 Profit (loss) before taxes 73 046 43 103 Taxes 20 760 - 10 Profit (loss) for the year 93 806 43 103 Other comprehensive income: Items that may be subsequently reclassified to profit or loss Translation differences 654 684 Cash flow hedges - net of tax - - Total comprehensive income for the year 94 460 43 787 Earnings (loss) per share 0.65 0.31 11 Diluted result (loss) per share 0.65 0.31 11 The notes on page 52 to 98 are an integral part of these financial statements. Profit & Loss
Reach Subsea | Annual Report 2021 48 Contents Consolidated statement of financial position (NOK 1000) 2021 2020 NOTES ASSETS Non-current assets Property, plant and equipment 73 761 76 569 14 Right-of-use assets 277 212 13 534 14,26 Research and development 1 457 - 15 Investments in joint ventures - 22 772 13 Deferred tax asset 40 151 8 161 10 Non-current assets, in total 392 582 121 036 Current assets Bunkers 8 130 1 376 Trade receivables 149 633 90 783 16, 21 Other current receivables 47 150 44 422 16 Cash and cash equivalents 149 035 105 396 17 Current assets, in total 353 948 241 978 Total assets 746 529 363 014 The notes on page 52 to 98 are an integral part of these financial statements. Financial Position
Reach Subsea | Annual Report 2021 49 Contents (NOK 1000) 2021 2020 NOTES EQUITY AND LIABILITIES Equity Share capital 144 941 143 606 18 Share premium 85 928 83 529 Proposed dividends 40 484 21 541 Other equity 15 454 (38 522) Equity, in total 286 806 210 154 Non-current liabilities Interest-bearing debt to credit institutions 14 497 12 731 21, 22 Interest-bearing debt, leases 105 171 - 26 Non-current liabilities, in total 119 668 12 731 Current liabilities Trade payables 63 467 65 055 21 Taxes, payables - - 10 Public duties a.o. 8 498 7 237 Interest-bearing debt to credit institutions 16 260 12 859 21, 22 Interest-bearing debt, leases 176 627 15 766 26 Other current liabilities 75 203 39 212 20, 22, 24 Current liabilities, in total 340 055 140 128 Total equity and liabilities 746 529 363 014 Consolidated statement of financial position, continued The notes on page 52 to 98 are an integral part of these financial statements. Financial Position Haugesund, 31 March 2021 /s/ Rachid Bendriss Chairperson of the Board /s/ Ingunn Ø. Iveland Board member /s/ Martha Kold Bakkevig Board member /s/ Kåre Johannes Lie Deputy Chairperson of the Board /s/ Kristine Skeie Board member /s/ Jostein Alendal Managing Director /s/ Anders Onarheim Board member
Reach Subsea | Annual Report 2021 50 Contents Consolidated statement of cash flow (NOK 1000) 2021 2020 NOTES Operations Profit before tax 73 046 43 103 Paid taxes - - 10 Gain sold assets - (9 160) 14 Gain on acquisitions (13 265) - 28 Depreciation and amortisation 239 807 208 386 14, 26 Impairment - 7 505 14, 26 Interest income (237) (149) 9 Interest expense 7 838 6 576 9 Change in trade debtors (41 164) (31 629) 16 Change in trade creditors (11 863) 11 071 21 Change in other provision 25 053 32 557 Share option cost employees - 432 19 Net cash flow from operating activities (1) 279 214 268 691 Investments Aquired cash balance from consolidation of Octio AS and Monviro AS 19 196 - 28 Aquired cash balance from consolidation of Surveyor AS 12 482 - 28 Sale of fixed assets 24 718 - 14 Purchase of fixed assets (1 561) (2 118) 14 Purchase of shares in subsidiary (47 872) - 28 Net cash flow from investment activitites (2) 6 963 (2 118) Financing Net interest paid (1 740) (2 176) Proceeds from issuance of ordinary shares 3 119 Payment of dividends (21 541) - Repayment of interest bearing liabilities including interest - leases (17 793) (15 648) 21, 26 Repayment of interest bearing debt, leases (207 185) (182 348) 21, 26 Net cash flow from financing activities (3) (245 139) (200 172) Net cash flow for the year (1+2+3) 41 037 66 401 Cash and cash equivalents 1/1 105 396 38 657 Translation differences 2 602 339 Cash and cash equivalents 31/12 149 035 105 396 The notes on page 52 to 98 are an integral part of these financial statements. Cash Flow
Reach Subsea | Annual Report 2021 51 Contents Consolidated statement of changes in equity Other Equity (NOK 1000) Share capital Share premium Proposed dividends Other reserves Retained earnings Total Equity 1 January 2021 143 606 83 529 21 541 6 657 (45 180) 210 154 Profit for the year - - - - 93 806 93 806 Other comprehensive income for the year - - - - 654 654 Total comprehensive income for the year - - - - 94 460 94 460 Proceeds from shares issued 975 1 948 2 923 Proceeds from shares issued, not registrered 360 450 - - - 810 Dividends paid (21 541) (21 541) Proposed dividends - 40 484 - (40 484) - Employee share options - - - - - - Equity 31 December 2021 144 941 85 927 40 484 6 657 8 795 286 806 Equity 1 January 2020 143 546 105 025 - 6 225 (88 966) 165 831 Profit for the year - - - - 43 103 43 103 Other comprehensive income for the year - - - - 684 684 Total comprehensive income for the year - - - - 43 787 43 787 Proceeds from shares issued, not registrered 60 45 - - - 105 Proposed dividends - (21 541) 21 541 - - - Employee share options - - - 432 - 432 Equity 31 December 2020 143 606 83 529 21 541 6 657 (45 180) 210 154 The notes on page 52 to 98 are an integral part of these financial statements. Equity
Reach Subsea | Annual Report 2021 52 Contents Note 1 General Information Reach Subsea ASA Group offers subsea services as a subcon- tractor and/or directly to end clients, based out of our head office in Haugesund. Reach Subsea ASA’s shares are listed on Oslo Stock Exchange (Oslo Børs) under the ticker REACH. Reach Subsea ASA is the parent company in the Group and is domiciled in Norway, with office address Garpeskjærvegen 2, 5527 Haugesund. The Group has a Branch in Trinidad & Tobago. The company’s consolidated financial statements for the 2021 financial year covers Reach Subsea ASA and its subsidiaries Reach Subsea AS, Connect Offshore AS, Reach International AS, Reach Subsea Inc, Reach Subsea UK Ltd, Surveyor AS, Octio AS, Gravitude AS, Monviro AS and Monviro Ccs AS. Note 2 Summary of significant accounting policies The principal accounting policies applied in the prepara- tion of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. Basis of preparation The consolidated financial statements of Reach Subsea ASA have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations, as adopted by the EU, and in accordance with the additional requirements following the Norwegian Accounting Act. The consolidated financial statements are prepared under the assumption of going concern and on a historical cost basis, with some exceptions as detailed under accounting policies set out below. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 4. The consolidated financial statements have been prepared on a going concern basis. Notes
Reach Subsea | Annual Report 2021 53 Contents New & amended standards adopted by the Group Certain new standards, amendments to standards, and annual improvements to standards and interpretations are effective for annual periods beginning after January 1, 2021 and have been applied in preparing these consolidated financial statements. These applications did not materially impact the Group’s consolidated financial statements. New standards & interpretations not yet adopted Certain new accounting standards, amendments to accounting standards and interpretations have been pub- lished that are not mandatory for 31 December 2021 reporting periods and have not been early adopted by the group. These standards, amendments or interpretations are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions. Basis of consolidation SUBSIDIARIES The consolidated financial statements incorporate the financial statements of Reach Subsea ASA, and entities con- trolled by Reach Subsea ASA. Control is achieved where Reach Subsea ASA is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. The Group uses the acquisition method of accounting to account for business combinations. Companies that are acquired during the year are consolidated from the date control was obtained. Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evi- dence of an impairment of the trans- ferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. ASSOCIATES Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20 and 50 % of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. The Group’s share of its associates’ income or other comprehensive income is recog- nized on separate lines in the consolidated statement of comprehensive income or the statement of other comprehensive income respectively. The cumulative post-acquisi- tion movements are adjusted against the carrying amount of the investment. When the group’s share of losses in an associ- ate equal or exceeds its interest in the associate, including any other unsecured receivables, the group does not recognize further losses, unless it has incurred obli- gations on behalf of the associate. In the statement of financial position associates are presented as non-current assets. Unrealised gains on transactions between the group and its associates are elimi- nated to the extent of the group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. When account- ing policies of associates are different from those of the group, the figures are amended to ensure consistency. JOINT ARRANGEMENTS The group has applied IFRS 11 to all joint arrangements as of 1 January 2012. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contrac- tual rights and obligations each investor. Reach Subsea ASA has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method. Under the equity method of accounting, interests in joint ventures are initially recognized at cost and adjusted there- after to recognize the group’s share of the post-acquisition profits or losses and movements in other comprehensive income. When the group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that, in substance, form part of the group’s net investment in the joint ventures), the group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the joint ventures. Unrealized gains on transactions between the group and its joint ventures are eliminated to the extent of the group’s interest in the joint ventures. Unrealized Notes
Reach Subsea | Annual Report 2021 54 Contents losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operat - ing decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic deci- sions. The group has two segments. Oil & Gas and Renewable/Other. Foreign currency translation FUNCTIONAL CURRENCY AND PRESENTATION CURRENCY The Group presents its financial state- ments in NOK. The functional currency of the consolidated entities in the Group is the currency of the primary economic environment in which the entity operates. All Norwegian compa- nies have NOK as functional currency. Reach Subsea AS’ branch in Trinidad and Reach Subsea Inc have USD as func- tional currency and Reach Subsea UK Ltd has GBP as functional currency. TRANSACTIONS AND BALANCES Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated state- ment of comprehensive income within financial income and financial costs. Property, plant and equipment Property, plant and other equipment are stated at historical cost less accumulated depreciation and accumulated impair - ment losses. Historical cost includes costs related to the purchase of the item. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecog- nized. All other repairs and maintenance are charged to the consolidated statement of comprehensive income during the financial period in which they are incurred. Upon acquisition, property, plant and equipment are decomposed for depre- ciation purposes if this is material for the determination of the depreciation expense. The components are depre- ciated on a straight-line basis over expected useful life to estimated residual value at the end of their useful life Depreciation of other assets is calcu- lated using the straight-line method to allocate their cost or revalued amounts less their residual values over their estimated useful lives, as follows: • Furniture, fittings and equipment 3-8 years • ROVs 3-8 years The assets’ residual values and useful lives are reviewed, and the deprecia- tion schedule adjusted, if appropriate, at the end of each reporting period. Impairment of non-financial assets At each reporting date the Group assesses whether there is an indication that an asset may be impaired. If any such indi- cation exists, or where annual testing for impairment is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. Where the carrying amount of an asset exceeds its recoverable amount, the asset is consid- ered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If, in a subsequent period, the amount of the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impair - ment was recognized, the previously recognized impairment loss is reversed. Onerous contracts Provisions for onerous contracts are recognized when the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract. Notes
Reach Subsea | Annual Report 2021 55 Contents Notes Leases ACCOUNTING AS LESSEE At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the contract includes the right to control the use of an identified asset for a period of time in exchange for consideration. Short term leases (lease term 12 month or less) and assets that are leased for more than 12 months, but where the lease terms do not contain any commitments (“pay-as-you-go”), are also capitalized as right-of-use assets and depreciated. The impact is that all cost in relation to leases of vessels and ROVs are classified as depreciation and interest expense. Vessels and ROVs with a “pay-as-you-go” lease structure are treated as short term leases, where the lease expenses are classified as depreciation, and where the lease is capitalized at the balance sheet date only to the extent a commit- ment is incurred at the reporting date. The Company recognizes a right- of-use asset and a lease liability at the lease commencement date. The lease liability is initially measured at the present value of lease payments that are not paid at the commence- ment date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. Lease payments included in the measure- ment of the lease liability comprise of: • Fixed lease payments • Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date • Payment of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease. The lease liability is subsequently meas- ured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying value to reflect the lease payments made. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right of use asset) whenever: • the lease term has changed. • the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value. • a lease contract is modified, and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. The right of use asset is initially meas- ured based on the initial amount of the lease liability adjusted for any lease payments made at or before the com- mencement date, plus any initial direct costs incurred. They are subsequently measured at cost less accumulated depreciation and impairment losses. The right of use assets are depreci- ated over the shorter period of lease term and useful life of the underlying asset. The depreciation starts at the commencement date of the lease. The Group applies IAS 36 to determine whether a right of use asset is impaired, and accounts for any identified impair - ment loss as described in the “Impairment of non-financial asset” section. Business combinations The acquisition method of accounting is used to account for all business combi- nations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the: • fair values of the assets transferred • liabilities incurred to the former owners of the acquired business • equity interests issued by the group • fair value of any asset or liability resulting from a contingent consideration arrangement, and • fair value of any pre-existing equity interest in the subsidiary. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The group recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets.
Reach Subsea | Annual Report 2021 56 Contents Acquisition-related costs are expensed as incurred. The excess of the: • consideration transferred, • amount of any non-controlling interest in the acquired entity, and • acquisition-date fair value of any previous equity interest in the acquired entity over the fair value of the net identi- fiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifi- able assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial lia- bility are subsequently remeasured to fair value, with changes in fair value recognised in profit or loss. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date. Any gains or losses arising from such remeas- urement are recognised in profit or loss. Bunkers Bunkers comprise fuel and lube oil inventory and are valued at the lower of cost and net realisable value. Fuel and lube are expensed to the con- solidated statement of comprehensive income based on FIFO principle (First in, first out) as they are consumed. Financial assets The Group classifies its financial assets in the following categories: fair value through other comprehensive income (FVOCI), fair value through profit and loss (FVTPL), and amortized cost. The classification of finan- cial assets under IFRS 9 is generally based on the business model in which a financial instrument is managed and its contractual cash flow characteristics. Classification of financial assets is determined at initial recognition and is not reclassified subse- quently unless the Group changes its busi- ness model for managing financial assets. A financial asset shall be measured at amortized cost if both of the fol- lowing conditions are met and it is not designated at FVTPL: • the financial asset is held within a business model whose objective is to hold financial assets, in order to collect contractual cash flows and • the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A financial asset shall be measured at FVOCI if both of the following conditions are met and it is not designated at FVTPL: • the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and • the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. All financial assets not classified as measured at amortized cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortized cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. FINANCIAL ASSETS AT FVTPL The assets are subsequently meas- ured at fair value. Net gains and losses, including any interest or dividend income, are recognized in profit or loss. FINANCIAL ASSETS AT AMORTIZED COST These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses and impairment are recognized in profit or loss. Any gain or loss on derecogni- tion is recognized in profit or loss. Notes
Reach Subsea | Annual Report 2021 57 Contents Notes FINANCIAL ASSETS AT FVOCI These assets are subsequently measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are not reclassified to profit or loss. DERECOGNITION Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. IMPAIRMENT The Group assesses at the end of each reporting period the expected credit losses for a financial asset or a group of financial assets. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES Derivatives financial instruments are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at fair value through profit or loss. The Group has currently not applied hedge accounting for any hedging activities. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value through profit or loss. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group has currently not applied hedge accounting for any hedging activities. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability. Trade receivables Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. Government grants Grants from the government are recog- nized at their fair value where there is a reasonable assurance that the grant will be received and the group will comply with all attached conditions. Government grants relating to costs are deferred and recognized in the consolidated state- ment of comprehensive over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to prop- erty, plant and equipment are included in noncurrent liabilities as deferred government grants and are credited to the consolidated statement of comprehensive income on a straight- line basis over the expected lives of the related assets. Cash and cash equivalents Cash equivalents are short-term liquid investments that can be converted instantly into cash of a known amount and have a maximum maturity of three months. Share capital Ordinary shares are classified as equity. Incremental cost directly attributable to the issue of new shares is shown in equity as a deduction, net of tax, from the proceeds. Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabili- ties if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Trade payables are recognized ini- tially at fair value and subsequently measured at amortized cost using the effective interest method. Taxes The tax expense in the period comprises current tax and changes in deferred taxes. Tax expense is recognized in the consolidated statement of comprehensive income, except to the extent that it relates to items that are recognized in other com- prehensive income, or directly in equity. In such cases the relating tax expense is also recognized in other comprehensive
Reach Subsea | Annual Report 2021 58 Contents income or directly in equity, respectively. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income. Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are rec- ognized only to the extent that it is probable that future taxable profit will be available against which the tem- porary differences can be utilised. Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of comprehensive income over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquid- ity services and amortized over the period of the facility to which it relates. Share-based payments The group has an equity-settled, share- based compensation plan, under which the entity receives services from employees as consideration for equity instruments (options) of the group. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense. The total amount to be expensed is determined by reference to the fair value of the options granted: • including any market performance conditions (for example, an entity’s share price); • excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining an employee of the entity over a specified time period); and • including the impact of any non-vesting conditions (for example, the requirement for employees to save). Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the group revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognizes the impact of the revision to original estimates, if any, in the consolidated statement of comprehensive income, with a cor - responding adjustment to equity. When the options are exercised, the company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium. The grant by the company of options over its equity instruments to the employees of subsidiary undertakings in the group is treated as a capital contribution. The fair value of employee services received, meas- ured by reference to the grant date fair value, is recognized over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity in the parent entity accounts. The social security contributions payable in connection with the grant of the share options is considered an integral part of the grant itself, and the charge will be treated as a cash-settled transaction. Provisions, contingent liabilities and contingent assets Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an economic settlement will take place in conse- quence of this obligation, and a reliable estimate can be made of the amount. Provisions are based on best estimate. Contingent liabilities are not recognized in the financial statements. Significant contingent liabilities are disclosed, with the exception of contingent Notes
Reach Subsea | Annual Report 2021 59 Contents liabilities where the probability of the liability occurring is remote. A contingent asset is not recognized in the annual financial statements but is disclosed if it is probable that a benefit will accrue to the Group. Recognition of revenue GENERAL Revenue from sale of services is rec- ognized in accordance with IFRS 15. Revenues are shown net of value added tax and discounts. SALES OF SERVICES The Group revenue comprises revenue recognized from contracts with custom- ers for the provision of subsea services. Although scope of work varies from project to project, there are similarities in all projects, such as mobilisation and demobilisation of vessel, vessel hire, ROV crewing etc. These elements are highly related and comprise an integrated service negotiated as a whole with the customer. As such, all elements within a contract is normally considered to be one single performance obligation. Reach Subsea reviews all customer contracts to assess if there are elements that may indicate several performance obligations within one contract. Such elements may be use of several vessel spreads or project phases requiring separate mobilisation of vessels. For sales of services under fixed rate contracts, revenue is recognized in the accounting period in which the services are rendered, by reference to stage of completion of the specific transaction and assessed on the basis of the actual service provided as a proportion of the total services to be provided. For other services, revenue is recognized based on the agreed rate as the services are ren- dered. The transaction price for day-rate contracts is determined by the expected value approach being the number of scheduled days multiplied with dayrate. Where the contracts include multiple performance obligations, the transaction price is allocated to each performance obligation based on the stand-alone selling prices. For contracts with pricing elements that need to be estimated, revenue is recognised at best estimate only when it is highly probable that its inclusion will not result in a significant revenue reversal in the future when the uncer- tainty has been subsequently resolved. Revenue is recognized as control is passed, either over time or at a point in time. Control of an asset is defined as the ability to direct the use of and obtain substantially all of the remaining ben- efits from the asset. This includes the ability to prevent others from directing the use of and obtaining the benefits from the asset. The benefits related to the asset are the potential cash flows that may be obtained directly or indi- rectly. Reach Subsea has concluded that customers receive benefits from the subsea services as they are performed, and therefore recognize revenue over the time the subsea service is provided. Incremental costs of obtaining a contract is recognized as an asset if we expect to recover these costs. However, incre- mental costs are limited to the costs that would not have incurred if the contract had not been successfully obtained. No such cost has been recognized in 2021. REVENUE FROM LEASES Revenue from time-charter leases is recognized using a straight-line basis over the term of the contract. Cash flow statement The cash flow statement is prepared according to the indirect method. Going concern The annual accounts are prepared on the assumption of a going concern. This assumption is based on the Group’s budget for the year 2022 including the Business Plan, the cash flow forecast and the contract log. Refer to further information on going concern in Note 4. Note 3 - Financial Risk Management 3.1 Financial Risk Factors The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredicta- bility of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management for the Group is carried out by Management. Management identifies, evaluates and hedges finan- cial risks in close co-operation with the operating units within the Group. The Board approves the principles for overall risk management, as well as policies Notes
Reach Subsea | Annual Report 2021 60 Contents covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and investment of excess liquidity. 3.1.1 Market Risk FOREIGN EXCHANGE RISK The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the NOK, USD, GBP and EUR. Foreign exchange risk arises from future commercial transac- tions and recognized assets or liabilities. Potential currency fluctuations are taken into account during the tendering phase. Long term contracts in a foreign currency will be considered hedged to be consistent with the currency of costs. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not an entity’s functional currency. The Group aims at achieving a natural hedge between cash inflows and cash outflows and manages remaining foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, by forward contracts and similar instruments as appropriate. The Group’s risk management pol- icy is to hedge anticipated trans- actions in each major currency. The following table demonstrates the sensitivity to a reasonably possible change in USD, GBP and EUR, with all other variables held constant. The impact on the Group’s profit before tax is due to changes in the fair value of monetary assets and liabilities. Increase / decrease in USD Effect on profit before tax 2021 5 % 665 953 2020 5 % 1 703 073 Increase / decrease in EUR Effect on profit before tax 2021 5 % 1 509 462 2020 5 % 306 022 Increase / decrease in GBP Effect on profit before tax 2021 5 % 1 050 224 2020 5 % 1 484 104 PRICE RISK The Group is exposed to commod- ity price risk at two main levels: • The demand for ROV units is sensitive to changes in the offshore energy industry, for example oil price developments, fluctuation in production levels, exploration results and general activity levels. Market fluctuations may affect asset utilization and earnings. • The cost of construction of future units is sensitive to changes in market prices of the input factors. The risks are managed by having focus on targeting moderate risk contracts, signing contracts with suppliers with the necessary financial strength and using our expertise to complete projects in accord- ance with agreements. The Group also monitors commodity prices, evaluate the need for hedging activities, and consider commodity prices in our tender process. 3.1.2 Credit Risk Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers. The Group has no significant concentration of credit risk towards single financial institutions and has policies that limit the amount of credit exposure to any single financial institu- tion. Credit exposures to customers arise when entering into medium or short term contracts and are managed by performing a financial risk evaluation in the tendering process. The level of financial risk analysis performed in each case depends on the nature of the contract (including volume). Where the financial risk is substantial, bank guarantees are requested. 3.1.3 Liquidity Risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities, and the ability to close out market positions. The Group aims to maintain flexibility in its liquidity by keeping committed credit lines available. The need for working capital is continu- ously being considered based on payment terms and financial status of clients and the Group’s firm expenses (including loan instalments and interest). Please refer to note 21 for maturity analyses. The Group entered into a one year bank overdraft agreement in February 2021, securing access to NOK 20 million in excess funds. The agreement was extended for six months from February 2022. Further extensions will be considered based on liquidity Notes
Reach Subsea | Annual Report 2021 61 Contents position and needs at expiry date. As the Group’s business is capital intensive, the Group may need to raise additional funds in the future to execute the Group’s strategies. The Group’s loan agreement, and bank overdraft agreement include terms, conditions and covenants. The Group monitors its future liquidity positions on an ongoing basis, with monthly reports on cash flow forecasts and covenants. 3.1.4 Cash Flow and Fair Value Interest Rate Risk The Group’s interest rate risk arises from bank deposit held at floating rates, and the possible impact on the financial statement is estimated to be immaterial. 3.1.5 Capital Management The Group’s objectives when managing capital are to: • safeguard their ability to continue as a going concern, so that they can continue to provide returns for shareholders and benefits for other stakeholders, and • maintain an optimal capital structure to reduce the cost of capital. The Group has defined KPI levels for equity, liquidity and earning. The KPIs are consistent with loan covenants, and are being reported on a monthly basis as well as in budgets/forecasts. The development of the KPIs are being monitored closely. Breach of covenants request a waiver from the bank (measured quarterly) to avoid a formal breach of the loan agreement. If a breach of one or more KPI is dis- covered in the forecast, the Board will consider taking actions such as provision capital from existing and/or new owners. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Note 4 - Accounting Estimates and Judgments Estimates and judgments are con- tinually evaluated and are based on historical experience and other fac- tors, including expectations of future events that are assumed to be reason- able under current circumstances. 4.1 Critical Accounting Estimates and Assumptions The Group makes estimates and assump- tions concerning the future. The resulting accounting estimates will, by definition, seldom equal the actual results. The estimates and assumptions that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are disclosed below. Impairment of property, plant and equipment A review for indicators of impairment is performed at each reporting date. If there are indicators of impairment, a review for impairment is carried out by management. In order to determine an assets recovera- ble amount a value-in-use method is used, where management uses judgement in estimating future asset utilisation, cash flow and discount rate. For the purpose of assessing impairment of property, plant and equipment, management also use judgement to group assets at the lowest levels for which there are separately iden- tifiable cash flows (Cash Generating Units, “CGU’s”). Management has determined that each ROV and associated ROV equip- ment is considered as separate GCU’s. For right-of-use assets under IFRS 16, each vessel is considered as a separate CGU. Assessment of leases under IFRS 16 The application of IFRS 16 requires significant judgements and certain key estimations. Critical judgements required in application of IFRS 16 may include, among others, the following: • Identifying whether a contract includes a lease • Determination of whether variable payments are in substance fixed • Determining whether there are multiple leases in an arrangement. Key sources of estimation uncertainty in the application of IFRS 16 may include, among others, the following: • Estimation of lease term • Estimation of lease payments when the contract includes options to extent the lease period • Determination of the appropriate rate to discount the lease payments • Assessment of whether a right of use asset is impaired. Management uses judgement in evaluating each contract. At each balance sheet date management also assess if there are any impairment indicators for the right-of-use assets. For impairment see section above. Notes
Reach Subsea | Annual Report 2021 62 Contents Income taxes Judgment is required in determining the provision for income taxes, and the recognition of deferred tax assets. During the ordinary course of business, transactions and calculations occur for which the ultimate tax effect is uncer- tain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recognized, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The accounting for deferred income tax asset relies upon management’s judgment of the Group’s ability to generate future positive taxable income in each respective jurisdiction. Business combinations The acquisitions require the use of substantial judgement when assessing the fair value of net identifiable assets and liabilities in a business combination. Allocation of excess value relating to any business combinations is, amongst other, based on expected cash flows and results for certain items of the acquired assets. Refer to note 29 for further information. Notes
Reach Subsea | Annual Report 2021 63 Contents Note 5 - Segment information (NOK 1000) 2021 2020 Revenue Oil & Gas 471 917 473 389 Renewable / other 201 336 154 641 Total 673 253 628 030 Operating expense Oil & Gas (425 853) (434 708) Renewable / other (181 683) (142 005) Total (607 537) (576 714) Operating result Oil & Gas 46 064 38 681 Renewable / other 19 652 12 636 Total 65 716 51 317 EBITDA (Earnings before Interest, Taxes, Depreciation & Amortisation) Oil & Gas 214 157 201 412 Renewable / other 91 367 65 795 Total 305 523 267 207 Reconciliation of EBITDA in the financial statement: Revenues 673 253 628 030 Procurement expenses (158 633) (169 972) Personnel expenses (122 374) (111 422) Other operating expenses (86 722) (79 429) EBITDA 305 523 267 207 *) Please note that “Other income” is not related to a segment and therefore excluded from the table in 2021. All assets and liabilities are used jointly in all segments. Notes
Reach Subsea | Annual Report 2021 64 Contents (NOK 1000) 2021 2020 NOTES Project cost 66 189 54 828 Fuel 44 870 50 352 Victualling 19 937 19 201 Rental offshore equipment 17 154 15 899 Hire offshore personell 10 303 29 691 Other procurements 181 - Procurement expenses, in total 158 633 169 972 (NOK 1000) 2021 2020 NOTES Rental cost 4 041 3 046 24 Consultant cost 35 965 42 272 Operating equipment and maintenance 25 833 14 560 Administration costs 20 883 19 550 Other operating costs, in total 86 722 79 429 Note 6 - Procurement expenses specified Note 7 - Other operating costs specified Notes
Reach Subsea | Annual Report 2021 65 Contents Wages and social costs The company has a defined contribution plan that complies with the requirements of the Mandatory Occupational Pension Act. Total cost during the year is as specified above. COMPENSATION AND BENEFITS TO MANAGEMENT Guidelines for remuneration The company’s guideline for management compensation and benefits is to offer competitive conditions to secure continuity in the management group. Reach Subseas shall offer benefits as for comparable Norwegian companies. In accordance with Section 6-16 b. (2) of the Norwegian Public Limited Liability Companies Act and the Norwegian regulations on guidelines and report on remuneration for executives, the Group will publish a separate report on remuneration to executives for presentation at the Annual General Meeting on 30 May 2022. In addition to detailed information on paid and pending remuneration to directors for the 2021 accounting year, the report on remuneration for directors will contain an overview of performance targets that form the basis for variable remuneration. Shareholdings and allocated shares will also be included. Compensation to CEO, CFO, CCO and COO is specified below: (NOK 1000) 2021 2020 Salaries and wages including holiday allowance 98 363 91 263 Social security tax 14 525 12 368 Pensions 7 017 6 078 Other benefits 2 468 1 278 Option cost - 436 Wages and social costs, in total 122 374 111 422 Number of man-years 109 105 Notes (NOK 1000) Salary Pension costs Other comp Share options /granted 2021 Jostein Alendal, Managing Director CEO 1 780 90 300 450 Birgitte W. Johansen, CFO 1 559 82 300 450 Bård Thuen Høgheim, CCO 1 559 82 300 450 Inge Grutle, COO 1 559 89 300 450 Total 6 457 344 1 200 1 800 Note 8 - Personnel expenses
Reach Subsea | Annual Report 2021 66 Contents (NOK 1000) Position 2021 2020 Rachid Bendriss Chairman of the Board 361 180 Kåre Johannes Lie Vice-Chairman of the Board 183 423 Anders Onarheim Board member 183 263 Martha K. Bakkevig Board member (from May 2020) 183 100 Sverre B. Mikkelsen Board member 235 338 Kristine Skeie Board member 183 263 Ingunn Ø. Iveland Board member (from May 2020) 219 280 (NOK 1000) 2021 2020 Auditing 1 219 1 384 Attestation services 27 - Tax advice* 282 332 Other assistance* 374 836 Total 1 902 2 552 Notes Note 8 - Personnel expenses, continued (NOK 1000) Salary Pension costs Other comp Share options /granted 2020 Jostein Alendal, Managing Director CEO 1 531 87 100 - Birgitte W. Johansen, CFO 1 327 85 100 - Bård Thuen Høgheim, CCO 1 327 80 100 - Inge Grutle, COO 1 327 80 100 - Total 5 512 331 400 - Managing director has no agreement regarding early retirement. Managing director will receive 1 500 000 NOK in payment if employment is terminated. CFO has no agreement regarding early retirement and no agreement on payment in case of termination of employment. THE BOARD’S REMUNERATION Rachid Bendriss was elected as Chairman of the Board in May 2020. AUDITOR’S REMUNERATION All amounts are exclusive of value add tax. * Included in tax advice and other assistance are services from Advokatfirmaet PricewaterhouseCoopers AS with the amount of 134 354 (2020: 73 046).
Reach Subsea | Annual Report 2021 67 Contents Shares owned by members of the Board and by the management at year-end, including shares owned by immediate family members and/ or controlled companies are as follows: Notes Note 8 - Personnel expenses, continued 2021 Number of shares Ownership NORTH ENERGY ASA Partly owned by Rachid Bendriss (COB) and Anders Onarheim (Board member) 46 126 567 31.8 % JOSO INVEST AS Owned by Kåre Johannes Lie (Board member) 7 564 589 5.2 % JT INVEST AS Partly owned by Jostein Alendal (CEO) 5 529 539 3.8 % A-Å INVEST AS Owned by Åge Nilsen (management) 1 948 725 1.3 % SMS INVESTERING AS Owned by Svein Magne Storesund (management) 1 662 366 1.1 % INVICTA INVEST AS Partly owned by Inge Grutle (management) 919 179 0.6 % KOLD INVEST AS Owned by Martha Kold Bakkevig (Board member) 867 181 0.6 % TYRIHANS MANAGEMENT Owned by Sverre B Mikkelsen (Board member) 376 250 0.3 % BIRGITTE WENDELBO JOHANSEN Management 149 050 0.1 % BÅRD THUEN HØGHEIM Management 460 625 0.3 % SVERRE B. MIKKELSEN Board Member 85 925 0.1 % JOSTEIN ALENDAL CEO 60 000 0.0 % INGUNN ØVERENG IVELAND Board Member 30 000 0.0 % AB INVESTMENT AS Owned by Anders Onarheim (Board member) 500 000 0.3 % VEST-NORSK HANDELSKOMPANI AS Owned by Kristine Skeie (Board member) 35 000 0.0 % ASKIL RØDESEIKE LOSNEGÅRD Management 10 000 0.0 % KRISTINE SKEIE Board Member 5 0.0 % Total 66 325 001 45.8 %
Reach Subsea | Annual Report 2021 68 Contents (NOK 1000) 2021 2020 Interest income on short term bank deposits 237 149 Total interest income 237 149 Interest expense on bank borrowings (1 223) (1 410) IFRS 16 interest expense (5 861) (4 252) Other interest expense (763) (915) Total interest expense (7 838) (6 576) Foreign exchange income 7 714 12 464 Foreign exchange expense (6 167) (14 532) Other finance costs (102) (1 205) Total Other finance items 1 437 (3 274) Net finance items (6 164) (9 701) Notes Note 9 - Financial income and expenses
Reach Subsea | Annual Report 2021 69 Contents Notes Note 10 - Taxes (NOK 1000) 2021 2020 Taxes payable - - Changes in deferred taxes (20 760) - Taxes, in total (20 760) - DEFERRED TAXES / (DEFERRED TAX ASSETS) Other fixed assets (17 537) (9 288) Financial leases 2 943 13 268 Fixed-price contracts - - Inventories (4 790) Accruals (3 669) (3 761) Tax loss carried forward (159 469) (167 180) Temporary differences, in total (182 521) (166 961) Deferred tax assets (40 151) (36 731) Not recognized deferred tax assets - (28 570) Deferred tax assets in balance sheet* 40 151 8 161 * In March 2021 Reach Subsea acquired Surveyor AS. The transaction was completed in end March 2021. Deferred tax assets incorporated at closing was NOK 0. Refer to note 28 for further details. * In december 2021 Reach Subsea acquired Octio AS, Gravitude AS, Monviro AS and Monviro Ccs AS (“”Octio Group)””. The transaction was completed in December 2021. Deferred tax assets incorporated at closing was NOK 11.2 million. Refer to note 28 for further details. “ Deferred tax assets are recognized in the balance sheet based on expected utilization of tax losses carried forward and temporary differences. The carrying amount of deferred income tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet dateand are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Reach Subsea | Annual Report 2021 70 Contents Notes Note 10 - Taxes, continued Note 11 - Earnings per share Profit (loss) per share is calculated on the consolidated profit (loss) divided by the average number of shares outstanding. (NOK 1000) 31.12.2021 31.12.2020 Reconciliation from nominal to actual tax rate: Profit & loss before taxes 73 046 43 103 Nominal tax rate 22 % 22 % Anticipated income tax due to nominal tax rate 16 070 9 483 Actual tax cost (20 760) - Deviation (36 830) (9 483) Tax effects of: Permanent differences 3 878 604 Carry forward tax loss not recognized - 8 878 Changes in deferred tax assets, previously not recognized 32 952 - Explanation 36 830 9 483 Effective tax rate -28 % 0 % 2021 2020 Profit (loss) - attributable to the owners (NOK 1000) 93 806 43 103 Basic profit (loss) per share (NOK) 0.65 0.31 Diluted profit (loss) per share (NOK) 0.65 0.31 Average numbers of shares 143 677 290 143 546 172 Average diluted number of shares for EPS 143 677 290 143 546 172 Number of shares 1/1 143 606 008 143 546 008 Number of shares 31/12 144 940 708 143 606 008
Reach Subsea | Annual Report 2021 71 Contents Company Business office Voting rights and ownership Reach Subsea AS Haugesund 100 % Connect Offshore AS (100 % owned by Reach Subsea AS) Haugesund 100 % Reach Subsea International AS (100% owned by Reach Subsea AS) Haugesund 100 % Reach Subsea Inc (100% owned by Reach Subsea International AS) Delaware, USA 100 % Reach Subsea UK Ltd (100% owned by Reach Subsea International AS) Scotland, UK 100 % Surveyor AS (100% owned by Reach Subsea AS) Haugesund 100 % Octio AS (100% owned by Reach Subsea AS) Bergen 100 % Gravitude AS (100% owned by Octio AS) Bergen 100 % Monviro AS (100% owned by Reach Subsea AS) Bergen 100 % Monviro Ccs AS (100% owned by Monviro AS) Bergen 100 % Note 12 - Shares in subsidiaries Note 13 - Investments in joint ventures Notes NATURE OF INVESTMENT IN ASSOCIATES 2021 In March 2021 our joint venture partner MMT Sweden AB (“MMT”) was purchased by Ocean Infinity. This transaction triggered an option for Reach Subsea to purchase MMT’s shares in our jointly owned entity Surveyor AS at book value. This option was exercised 31.03.2021 with the effect that the balance sheet for Surveyor AS is consolidated into our Group accounts as per end March 2021. The transaction was closed in June 2021. Refer to note 28 for further information. Surveyor AS owns the ROV “Surveyor” and leases the ROV to the owners Reach Subsea AS and former co-owner MMT Sweden AB.
Reach Subsea | Annual Report 2021 72 Contents Notes Note 13 - Investments in joint ventures, continued SUMMARISED BALANCE SHEET (NOK 1000) 2020 Cash and cash equivalents 9 946 Other current assets 20 279 Total current assets 30 224 Non-current assets 46 814 Other current liabilities 6 479 Total current liabilities 6 479 Financial liabilities 24 607 Total non-current liabilities 24 607 Net assets 45 952 RECONSILIATION TO CARRYING AMOUNTS (NOK 1000) 2020 Opening net assets 1 January 42 569 Foundation - Capital increase - Profit/(loss) for the period 3 383 Closing net assets 45 952 Group's share in % 50 % Group's share in NOK 22 976 Eliminated profit on transactions with joint venture (204) Carrying amount 22 772
Reach Subsea | Annual Report 2021 73 Contents Notes Note 13 - Investments in joint ventures, continued SUMMARISED STATEMENT OF COMPREHENSIVE INCOME (NOK 1000) 2021 2020 Revenue 4 669 21 890 Interest income 62 547 Depreciation and amortisation (3 187) (12 331) Other operating expenses (877) (5 107) Interest expense (272) (1 616) Income tax expense - - Profit for the period 394 3 383 The amounts recognised in the income statement are as follows: Share of profit of investments accounted for using the equity method 197 1 691 Eliminated profit on transactions with joint venture (51) (204) At 31 December 146 1 487
Reach Subsea | Annual Report 2021 74 Contents (NOK 1000) ROV & ROV equipment Right of use asset ROV, leased from financial institutions Right of use asset Vessels and other equipments* Equipment & office machinery Total Year ended 31 December 2021 Opening net book amount 51 547 23 976 13 533 1 046 90 103 Additions** 44 672 - 467 107 13 589 525 369 Disposals (22 856) (1 862) - - (24 715) Adjustment of commitment - - - - - Other reclassification - - - - - Depreciation (26 681) (8 774) (203 435) (915) (239 807) Impairment - - - - - Closing net book value 46 709 13 340 277 212 13 720 350 974 At 31 december 2021 Cost 1.1.21 133 253 115 746 134 029 12 084 395 112 Additions 44 672 - 467 107 13 589 525 369 Other reclassification - - - - - Disposals at cost (22 856) (1 862) - - (24 718) Adjustment fully depreciated items - - - - - Cost 31.12.21 155 068 113 884 601 143 25 673 895 767 Accumulated depreciation 1.1.21 (81 706) (91 770) (112 991) (11 038) (297 505) Depreciation (26 681) (8 774) (203 435) (915) (239 807) Depreciation disposed assets - - - - Accumulated depreciation 31.12.21 (108 387) (100 544) (316 426) (11 953) (537 312) Accumulated impairment 1.1.21 - - (7 505) - (7 505) Impairment - - - - - Accumulated depreciation 31.12.21 - - (7 505) - (7 505) Book value 46 701 13 340 277 212 13 720 350 974 Depreciation plan/useful life 3 - 8 years 3 - 8 years 1-3 years 3 years Depreciation method linear linear linear linear * See note 26 for further information for Right of use asset Vessels and other equipments and note 22 for Right of use asset ROV, leased from financial institutions, ** Refer to note 28 for ROV, ROV Equipment and other equipment acquired in the Surveyor AS and Octio AS / Monviro AS transactions. Notes Note 14 - Property, plant & equipment
Reach Subsea | Annual Report 2021 75 Contents Notes (NOK 1000) ROV & ROV equipment Right of use asset ROV, leased from financial institutions Right of use asset Vessels and other equipments* Equipment & office machinery Total Year ended 31 December 2020 Opening net book amount 71 421 37 306 133 203 5 976 247 802 Additions 2 118 - 133 666 - 135 785 Disposals at cost (3 781) (138) (71 028) (2 750) (77 694) Adustjment of commitment - - - - - Other reclassification - - - - - Depreciation (18 211) (13 193) (174 802) (2 180) (208 386) Impairment - - (7 505) - (7 505) Closing net book value 51 547 23 976 13 533 1 046 90 103 At 31 december 2020 Cost 133 253 115 746 134 029 12 084 395 111 Accumulated depreciation (81 706) (91 770) (112 991) (11 038) (297 505) Accumulated impairment 1.1.20 - - - - - Impairment - - (7 505) - (7 505) Accumulated impairment 31.12.20 - - (7 505) - (7 505) Book value 51 547 23 976 13 534 1 046 90 103 Depreciation plan/useful life 3 - 8 years 3 - 8 years 1-3 years 3 years Depreciation method linear linear linear linear Bank borrowings are secured on fixed assets for the value of NOK 61.0 million (2020: 76.6 million). See also note 22 Borrowings. Impairment SUMMARY Impairment testing has been performed in accordance with IAS 36. The impairment testing for 2021 did not result in any impairment. DISCOUNT RATE The discount rate is based on the Weighted Cost of Capital (WACC) pre tax for the Group. The discount rate is 9.0 %. Note 14 - Property, plant & equipment, continued
Reach Subsea | Annual Report 2021 76 Contents Notes REVENUE ASSUMPTIONS The revenue assumption in the cash flow forecast is based on a combination of utilisation for assets and selling price. Utilisation is based on firm contractual days on a short to medium term and estimated future selling on a medium to longer term. Forecasted utilisation on a longer term is based on historical data, as well as managements expectations of market development. Forecasted selling rates are based on historical data. No inflation adjustments have been made to revenue assumptions. Future change in how the world will react in light of the goals set in the Paris-agreement could, depending on the characteristics of the change, have a negative effect on the demand for the companys services. RIGHT-OF USE-ASSETS - VESSELS: “The right-of-use assets at 31 December 2021 represents the remaining committed vessel days on charter agreements with ves- sel owners. The impairment testing demonstrated that the recov- erable amount is larger than book value, and as such no impair - ment charge is required. The recoverable amount is sensitive to estimated utilisation and selling rate assumptions. Sensitivity analysis show that a 20% drop in estimated future revenue would result in an impairment of NOK 13 million. An increase in WACC of 2 percentage points will not result in any additional impairment due to the short remaining lifetime of the assets. See note 26 for further information on Right-of-use assets. ROV AND ROV EQUIPMENT Impairment testing has been performed on each ROVs CGU, i.e. both owned and leased ROVs. Other assets, such as activated mobilisation costs and other ROV equipment is not included in the impairment test as these assets do not have impairment indica- tors. The recoverable amount is based on estimated future cash flows, which is based on estimated selling price, budgeted mainte- nance cost and utilisation. The impairment testing demonstrated that the assets recoverable amount is larger than book value, and as such no impairment charge is required. The recoverable amount is sensitive to utilisation and selling rate assumptions. Sensitivity analysis show that a 20% drop in revenue for all ROV CGU’s would result in an impairment charge of NOK 1.7 million. SENSITIVITY ON TOTAL FIXED ASSETS Drop in estimated utilisation Impairment charge on fixed assets (NOK 1000) 10% - 20% 14 769 30% 52 938 Note 14 - Property, plant & equipment, continued
Reach Subsea | Annual Report 2021 77 Contents Notes Note 15 - Intangible assets (NOK 1000) Research & development Total Year ended 31 December 2021 Opening net book amount - - Additions* 1 457 1 457 Depreciation - - Impairment - - Closing net book value 1 457 1 457 At 31 december 2021 Cost 1.1.21 - - Additions 1 457 1 457 Other reclassification - - Disposals at cost - - Cost 31.12.21 1 457 1 457 Accumulated depreciation 1.1.21 - - Depreciation - - Accumulated depreciation 31.12.21 - - Accumulated impairment 1.1.21 - - Impairment - - Accumulated impairment 31.12.21 - - Book value 1 457 1 457 * Additions are related to the acquisition of Octio group, refer to note 28 for further information. Please note that the addition from the acquisition of Monviro is presented as the net value of capital costs and government support related to the project. As of December 31. 2021 Monviro has net book values for R&D totaling NOK 1.46 million that apply to development of soft - ware/equipment related to the company’s ASUMO project. Hours spent have been capitalized for Monviro personnel, hired personnel from OCTIO as well as other external consultants related to the development of equipment and software.
Reach Subsea | Annual Report 2021 78 Contents Notes Note 16 - Trade and other receivables (NOK 1000) 2021 2020 Trade receivables 149 633 90 783 Less: provision for impairment of trade receivables - - Current portion trade receivables 149 633 90 783 Prepayments 7 619 3 780 Revenue recognised, not billed 31 747 40 529 Other receivable 7 781 114 Current portion other receivables 47 150 44 422 Non-current positions - - The fair values of trade and other receivables are as follows: (NOK 1000) 2021 2020 Trade receivable 149 633 90 167 Receivables from related parties - 616 Loans to related parties - - Total trade receivables 149 633 90 783 Transactions with subsidiaries have been eliminated in the Group’s financial statements and do not represent related party transactions. CHANGES IN ALLOCATION FOR LOSSES OF ACCOUNT RECEIVABLES There has been no losses or provisions for impairment of recievables in 2020 and 2021 As of 31.12., the Group had the following trade receivables which was due, but not been paid: Trade receivables Total Not due < 30 d 30-90 d 90 - 360 d > 361 d 2021 149 633 89 452 48 472 11 673 36 - 2020 90 783 48 537 16 961 25 710 145 (570) Based on previous experience with customers and assessment of intial credit risk and expected credit losses as at 31 December 2021, there is no allowance for bad debt on receivables in 2021. The main portion of overdue receivables has been paid after balance sheet date.
Reach Subsea | Annual Report 2021 79 Contents Notes Note 16 - Trade and other receivables, continued TRADE RECEIVABLES - COUNTERPARTY WITHOUT EXTERNAL CREDIT RATING (NOK 1000) 2021 2020 Group 1 34 101 10 944 Group 2 115 532 79 839 Group 3 - - Total trade receivables 149 633 90 783 Group 1 - New customers (less than 6 months customer relationship) Group 2 - Existing customers (more than 6 months customer relationship) with no defaults in the past Group 3 - Existing customers (more than 6 months customer relationship) with some defaults in the past The carrying amounts of the group’s trade and other receivables are denominated in the following currencies: (NOK 1000) 2021 2020 NOK 73 858 64 827 EUR 19 250 564 USD 44 523 12 840 GBP 11 614 12 552 AUD 388 Sum 149 633 90 783
Reach Subsea | Annual Report 2021 80 Contents Notes Note 17 - Cash and cash equivalents (NOK 1000) 2021 2020 Cash and cash equivalents in NOK 111 211 61 990 Cash and cash equivalents in USD 16 551 33 133 Cash and cash equivalents in EUR 11 141 233 Cash and cash equivalents in GBP 10 132 10 041 Restricted cash equivalence hereof - - Cash and cash equivalents, in total 149 035 105 396 The company also has restricted cash related to withheld tax of NOK 6 337 in 2021 (2020: NOK 4 438). The Group entered into a bank overdraft agreement in 2019. As at 31.12.21 the Group had NOK 20 million in unused drawing rights. The agreement expires in August 2022. RATING ON BANKS FOR CASH AA+ 28 - AA- 17 540 - A+ 131 453 105 348 BBB- 14 48 Total cash and cash equivalents 149 035 105 396
Reach Subsea | Annual Report 2021 81 Contents Reach Subsea’s share capital amounts to NOK 144 940 708 divided into 144 940 708 shares, each with a nominal value of NOK 1. This includes 360 000 shares not yet registered. The 20 largest shareholders as of 31.12. 2021 Number of shares Ownership in per cent 1. NORTH ENERGY ASA 46 126 567 31.8% 2. JOSO INVEST AS 7 564 589 5.2% 3. HOLME HOLDING AS 6 206 000 4.3% 4. JT INVEST AS 5 529 539 3.8% 5. SOBER AS 5 200 000 3.6% 6. NORMAND DRIFT AS 5 000 000 3.4% 7. VERDIPAPIRFONDET EIKA NORGE 4 418 418 3.0% 8. Danske Invest Norge Vekst 2 820 462 1.9% 9. CORUNA AS 2 500 000 1.7% 10. LION INVEST AS 2 400 000 1.7% 11. STAVA INVEST AS 2 300 000 1.6% 12. RMS INVEST AS 2 000 000 1.4% 13. TEOMAR AS 2 000 000 1.4% 14. A-Å INVEST AS 1 948 725 1.3% 15. SMS INVESTERING AS 1 662 366 1.1% 16. NÆRINGSLIVETS HOVEDORGANISASJON 1 517 532 1.0% 17. BARRUS CAPITAL AS 1 510 090 1.0% 18. FREEMAN SHIPPING & OFFSHORE AS 1 510 053 1.0% 19. TEM INVEST AS 1 250 000 0.9% 20. CASTEL AS 1 248 517 0.9% Sum 20 largest 104 712 858 72.2% The rest of shareholders 40 227 850 27.8% Total number of shares 144 940 708 100.0% Notes Note 18 - Share capital and information about shareholders After year end the Group announced the acquisition of 100% of the shares in iSurvey Group AS from iSurvey Holding AS for NOK 135 million. The transaction was settled through the issuance of 33,846,153 shares in Reach, valued at NOK 3.25 per share, and NOK 25 million in cash. In addition, new equity was raised by entering into a strategic partnership with Wilhelmsen New Energy AS, by issuing 46,126,567 new shares in Reach Subsea ASA at a subscription price of NOK 3.25 per share. Wilhelmsen has also received warrants to subscribe for 44,766,864 additional shares (nominal price NOK 1.0, subscription price NOK 4.0). The transactions were subsequently completed on 22 March 2022. The Company’s new share capital is NOK 224,913,428, divided into 224,913,428 shares, each with a nominal value of NOK 1.
Reach Subsea | Annual Report 2021 82 Contents Notes In 2021 the Board of directors of Reach Subsea ASA approved a stock option scheme to further align the interests of the participating employees in Reach Subsea with those of the shareholders. The stock option scheme was finalised with a signed agreement between the company and Management and certain key employees 15.12.2021. Management and cer - tain key employees of the Reach Subsea-group is granted the right to acquire up to a certain maximum number of shares in the Company at a fixed strike price (“the Option”). The strike price is set equal to the volume weighted average share price of the Company´s stock traded on the Oslo Stock Exchange 10 days prior to the finalization of the option scheme. The options are vested with 1/3 each year, over a period of three years until 31.12.2024. The options are non-trad- able and conditional upon the participant being employed by the Reach Subsea-group at the vesting date. The stock option plan constitued a maximum of 3.000.000 options equivalent to a similar number of Reach Subsea ASA shares. No cost have been recognized related to the options in 2021. The fair value at grant date was determined using a Black Scholes Model. The most significant inputs and assumptions in determining fair value at grant date was: Excercise price: NOK 3.0 Share price at grant date: NOK 3.0 Expected volatility: NOK 56.14% Risk free interest rate: NOK 1.092% Term of options: 3 years Movements in the number of share options and their related weighted average exercise prices were as follows: The group has no legal or constructive obligation to repurchase or settle the options in cash. Note 19 - Sharebased payments 2021 2020 Average exercise price per share option Number of options Average exercise price per share option Number of options At 1 January - - 1.88 1 164 944 Granted 3.00 3 000 000 - - Forfeited - - - - Exercised - - 1.75 60 000 Expired - - - 1 104 944 At 31 December 3.00 3 000 000 - -
Reach Subsea | Annual Report 2021 83 Contents Notes Note 20 - Other current liabilities (NOK 1000) 2021 2020 Other current liabilities 7 168 6 430 Accruals 45 279 26 332 Accrued salaries and benefits 16 807 8 249 Witholding taxes 586 0 Other taxes payable 5 190 (1 913) Accrued interests 174 114 Other current liabilities, in total 75 203 39 212 Other current liabilities consist mainly of incurred operational expenses and performed planned periodic maintenance not yet invoiced at year end.
Reach Subsea | Annual Report 2021 84 Contents Notes 2021 (NOK 1000) Financial instruments measured at amortised cost Financial instruments at fair value through profit or loss Financial instruments measured at fair value through other comprehensive income Fair value Financial assets Trade receivables 149 633 - - 149 633 Other receivables 47 150 - - 47 150 Cash and cash equivalents 149 035 - - 149 035 Assets, in total 345 818 - - 345 818 2020 (NOK 1000) Financial instruments measured at amortised cost Financial instruments at fair value through profit or loss Financial instruments measured at fair value through other comprehensive income Fair value Financial assets Trade receivables 90 783 - - 90 783 Other receivables 44 422 - - 44 422 Cash and cash equivalents 105 396 - - 105 396 Assets, in total 240 602 - - 240 602 Financial liabilites Borrowings (long & short term interest bearing debt) 312 556 - - 312 556 Trade payables 63 467 - - 63 467 Public duties 8 498 - - 8 498 Other current liabilities 75 203 - - 75 203 Liabilites, in total 459 723 - - 459 723 Financial liabilites Borrowings(long & short term interest bearing debt) 41 356 - - 41 356 Trade payables 65 055 - - 65 055 Public duties 7 237 - - 7 237 Other current liabilities 39 212 - - 39 212 Liabilites, in total 152 859 - - 152 859 Note 21 - Classification of financial assets and liabilities The following of the Group’s financial instruments are measured at amortised cost: cash and cash equivalents, trade receivables, other current receivables, trade payables, other current liabilities and all interest bearing debt.
Reach Subsea | Annual Report 2021 85 Contents Notes The carrying amount of cash and cash equivalens is approximately similar to fair value since these instruments have a short term to maturity. Similarly, the carrying amount of trade receivables, trade payables and other receivables/liabilities is approximately equal to fair value since they are entered into at standard terms and conditions. The fair value of the interest-bearing debt is the disclosed face value of the loans. The tables below provides an analysis of the maturity of financial liabilities Remaining contractual maturities Financial liabilities 2021 0-180 days 180 d-1 year 1-3 years > 3 years Total Trade payables 63 467 63 467 Other financial liabilities 83 700 83 700 Interest-bearing debt to credit institutions 8 290 7 471 14 997 30 757 Interest-bearing debt, leases 85 800 90 827 103 732 1 439 281 798 Interest on interest-bearing debt to credit institutions 620 444 596 1 660 Interest on interest-bearing debt, leases 6 407 4 301 3 047 43 13 798 Financial liabilities, in total 248 284 103 043 122 372 1 482 475 181 Remaining contractual maturities Financial liabilities 2020 0-180 days 180 d-1 year 1-3 years > 3 years Total Trade payables 65 055 65 055 Other financial liabilities 46 448 46 448 Interest-bearing debt to credit institutions 6 860 5 999 12 731 25 590 Interest-bearing debt, leases 15 766 - - 15 766 Interest on interest-bearing debt to credit institutions 445 311 453 1 209 Interest on interest-bearing debt, leases 0 - - 0 Financial liabilities, in total 134 574 6 310 13 184 - 154 068 Note 21 - Classification of financial assets and liabilities, continued
Reach Subsea | Annual Report 2021 86 Contents Notes Note 21 - Classification of financial assets and liabilities, continued 2021 2020 Interest bearing debt, leases Interest bearing debt to credit institutions Interest bearing debt, leases Interest bearing debt to credit institutions Opening balance 15 766 25 590 141 280 41 239 Drawdowns - - - - Repayment incl interest (207 185) (17 793) (182 348) (15 648) Addition IFRS 16 lease liability opening balance - - - - Addition IFRS 16 lease liability throughout the year 467 226 - 133 748 - Interest-bearing debt from acquisition of Surveyor AS* - 22 961 - - Non-cash changes: - - - - Adjustment IFRS 16 lease liability - - (86 892) - Currency adjustment 131 - 5 725 - Accrued interest 5 861 - 4 252 - Closing balance 281 798 30 757 15 766 25 590 * Refer to note 28 for debt acquired in the Surveyor AS transaction. DISTRIBUTION NON-CURRENT AND CURRENT DEBT (NOK 1000) 2021 2020 Non-current interest-bearing debt to credit institutions 14 497 12 731 Non-current interest-bearing debt, leases 105 171 - Current interest-bearing debt to credit institutions 16 260 12 859 Current interest-bearing debt, leases 176 627 15 766 Closing balance 312 556 41 356
Reach Subsea | Annual Report 2021 87 Contents Notes Note 22 - Borrowings (NOK 1000) 2021 2020 Non-current Bank borrowings 13 938 7 500 Lease liabilities to credit institutions(IFRS 16) 559 5 231 Other lease liabilities ( IFRS 16) 105 171 - Total non-current 119 668 12 731 Current Bank borrowings 11 584 5 000 Lease liabilities to credit institutions(IFRS 16) 4 676 7 859 Other lease liabilities ( IFRS 16) 176 627 15 766 Total current 192 887 28 625 Total borrowings 312 556 41 356 Bank borrowings Bank borrowings mature until 2024 and bear average coupons of 4.5 % annually. The bank borrowings are subject to industry relevant covenants. The financial covenants are as follows: • Net Working Capital Ratio: current assets (excluding capitalised termination fee) divided by cur - rent liabilities (less current lease liabilities acc. to IFRS 16) shall be minimum 1.30 • Booked Equity shall be minimum NOK 110 million and Booked Equity Ratio shall be minimum 40%. • LTM EBITDA (before amortized termination fee & including cash outflow from leases) shall, on a 12 months rolling basis at all times be minimum NOK 10 mill. As of 31 December 2021 the Net Working Capital ratio are 2.17, Booked equity NOK 289 million/61.6%, and the LTM EBITDA NOK 111.7 million. All financial covenants are well within the thresholds mentioned above. Please note that the financial covenants in the groups debt facilities exclude the effects from IFRS 16, and therefore can not be directly derived from the groups financial statements. Total borrowings to bank and financial institutions includes secured liabilities (bank and collateralised borrowings) of NOK 30,8 million (2020: NOK 25.6 million). Bank borrowings are secured by equipment and receivables of the group (note 14).
Reach Subsea | Annual Report 2021 88 Contents Notes The carrying amounts and fair value of the interest-bearing debts are as follows: Carrying amount Fair value (NOK 1000) 2021 2020 2021 2020 Bank borrowings 25 522 12 500 25 522 12 500 Lease liabilities to credit institutions(IFRS 16) 5 235 13 090 5 235 13 090 Other lease liabilities (IFRS 16) 281 798 15 766 281 798 15 766 Sum 312 556 41 356 312 556 41 356 The fair value of Bank borrowings equals their carrying amount, as the impact of discounting is not significant. The fair values are based on cash flows discounted using a rate based on the borrowing rate of 4.5 % and are within level 3 of the fair value hierarchy. The carrying amounts of the group’s borrowings are all denominated in Norwegian kroner. Lease liabilities to credit institutions Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. (NOK 1000) 2021 2020 Gross lease liabilities - minimum lease payments No later than 1 year 4 676 7 859 Later than 1 year and no later than 5 years 559 5 231 Later than 5 years - - Total instalments on lease liabilities 5 235 13 090 Future finance charges on finance lease liabilities 82 334 Total instalments and finance charges on lease liabilities 5 317 13 424 There are no new covenants in 2021. Refer to note 14 Property, plant and equiptment for secured assets. For other lease liabilities under IFRS 16 please see note 26. Note 22 - Borrowings, continued
Reach Subsea | Annual Report 2021 89 Contents Notes The following transactions were carried out with related parties: (NOK 1000) 2021 2020 Revenue From MMT 240 466 233 262 From Surveyor AS (see note 13 for more information) 200 800 Cost To MMT (16 162) (37 935) To other related parties - (720) Total 224 504 195 407 MMT Sweden AB is considered as a related party through joint ownership of Surveyor AS. In March 2021 the Group acquired the remaining 50% of Surveyor AS from MMT Sweden AB with the effect that Surveyor AS is consolidated into our Group accounts as per end March 2021. Revenue from Surveyor AS in the table above reflects the transactions up until consol- idation into our group accounts. Refer to note 29 for further information regarding the acquisition of Surveyor AS. All transactions were part of the general activity and the agreements have been concluded on marked term principles in accordance with Limited Liabililty Companies Act § 3-8 and § 3-9. Transactions with the management and the Board (salaries) can be found in note 8 SHORT TERM LEASES Costs relating to operational leases recognized in the income statement for 2021 is NOK 4.0 million, whereof NOK 1.6 million in real estate rental. The real estate rental is short term with 3 months termination notice. As of December 2021, the group has recognized a right-of-use asset related to a long-term rental agreement for offices in the acquired company Octio AS. The effect of this is that NOK 0.1 million of the recognized rental cost is classi- fied as depreciation of right-of-use assets in 2021. Refer to note 26 and note 28 for further information. Note 23 - Related parties Note 24 - Commitments
Reach Subsea | Annual Report 2021 90 Contents Notes No fixed-price contracts was entered into in 2021. (NOK 1000) 2021 2020 Revenue recognised from fixed-price contract - - Cost recognised for fixed-price contract - - Net - - Long and short term leases (commited lease term 12 months or less) of vessels and ROV’s are capitalized as right- of use assets and depreciated under IFRS 16. The impact is that all cost in relation to leases of vessels/ROV’s are presented as depreciation and inter - est expenses. No other short term leases, except for vessels and ROV’s, are capitalized as right- of use assets and depreciated. As of December 1 2021, the group has recognized a right-of-use asset related to a long-term rental agreement for offices in the acquired company Octio AS. Capitalized addition related to the rental agreement was NOK 5.2 million, with an ending balance December 31. 2021 of NOK 5.1 million (right-of-use) and NOK 5.1 million (lease liability), and is included in the numbers presented in this note. As of December 31 2021, Right of use assets in the balance sheet consist of contractual commitments for vessels and the offices. Short term leases with no contractual commitment (pay as you go contracts), are not capitalized. At inception of a contract the lease liability and the corresponding Right-of-use assets is measured at the present value of the estimated lease payments. Short term hired in vessels and ROV’s are treated as short term leases under IFRS 16 and are also recognized as depreciations. The calculated lease liability is calculated with a discount rate of 5%. For leases towards credit institutions please see note 22. The following tables are related to leases, except for leases towards credit institutions. Note 25 - Fixed-price contracts Note 26 - Leases (Group as a lease)
Reach Subsea | Annual Report 2021 91 Contents Notes Note 26 - Leases (Group as a lease), continued Movement schedule for right of use assets and lease liabilities (NOK 1000) Right of use asset Interest-bearing debt non-current Interest-bearing debt, current Opening balance 01.01.2021 13 534 - 15 766 Additions 409 648 - 409 648 Disposals - - - Adjusted commitment - - (368) Depreciation (145 975) - - Impairment - - - Interests - - 5 861 Reclassed from short to long term - 105 171 (105 171) Currency adjustments - - 131 Payments - - (149 239) Ending balance 31.12.2021 277 212 105 171 176 627 Movement schedule for right of use assets and lease liabilities (NOK 1000) Right of use asset Interest-bearing debt non-current Interest-bearing debt, current Opening balance 01.01.2020 133 203 58 783 82 497 Additions 62 721 - 62 721 Disposals - - - Adjusted commitment (71 027) - (86 892) Depreciation (103 857) - - Impairment (7 505) - - Interests - - 4 252 Reclassed from long to short term - (58 783) 58 783 Currency adjustments - - 5 725 Payments - - (111 320) Ending balance 31.12.2020 13 534 - 15 766
Reach Subsea | Annual Report 2021 92 Contents Lease liabilities (NOK 1000) 2021 2020 Amounts due for settlement within 12 months (shown under current liabilities) 176 627 15 766 Amounts due for settlement after 12 months (present value) 105 171 - Total 281 798 15 766 Maturity analysis (NOK 1000) 2021 2020 Not later than 1 year 176 627 15 766 Later than 1 year and not later than 5 years 105 171 - Later than 5 years - - Total instalments 281 798 15 766 Future finance charges 13 798 0 Total instaltments and finance charges 295 596 15 766 Other Information related to leases: For information related to leases to credit institutions, see note 22. For information related to cost of short term leases (except for Vessels and ROV’s), see note 7. For information related to righ-of-use assets, see note 14. Reconciliation of depreciation (NOK 1000) 2021 2020 Depreciations of long term right- of use assets 145 975 103 857 Depreciations of short term right- of use assets (Pay as you go contracts) 57 459 70 945 Depreciations of other assets (Note 14) 36 370 33 584 Total depreciations 239 807 208 386 Notes Note 26 - Leases (Group as a lease), continued
Reach Subsea | Annual Report 2021 93 Contents Notes 2021 (NOK 1000) Oil and gas Renewable/Other Total Revenue from contracts with customers 296 823 135 963 432 786 Revenue from contracts with customers in cooperation with MMT 175 094 65 373 240 467 Segment revenue 471 917 201 336 673 253 2020 (NOK 1000) Oil and gas Renewable/Other Total Revenue from contracts with customers 330 013 64 755 394 768 Revenue from contracts with customers in cooperation with MMT 143 376 89 886 233 262 Segment revenue 473 389 154 641 628 030 Timing of revenue recognition Oil and gas Renewable/Other Total At a point in time - - - Over time 471 917 201 336 673 253 Sum 471 917 201 336 673 253 Timing of revenue recognition Oil and gas Renewable/Other Total At a point in time 9 160 - 9 160 Over time 464 229 154 641 618 870 Sum 473 389 154 641 628 030 Note 27 - Contract with customers The Groups revenue comprises of revenue recognized from contract with customers for the provision of subsea services. Reach Subsea has assessed its contracts with customers and concluded that these fall under the definition of customer contracts in IFRS 15.
Reach Subsea | Annual Report 2021 94 Contents Notes Note 27 - Contract with customers, continued REVENUE BY REGION (NOK 1000) 2021 2020 Norway 232 074 160 306 United Kingdom 133 942 101 915 USA 92 740 30 773 Germany 63 464 - Trinidad og Tobago 57 307 80 178 Spain 34 847 - Sweden 34 800 221 469 Denmark 8 575 - BRAZIL 8 406 - France 7 098 - OTHER - 7 497 Turkey 25 892 Total 673 253 628 030 ASSETS AND LIABILITIES RELATED TO CONTRACTS WITH CUSTOMERS The group has recognized the following assets and liabilities related to contracts with customers: (NOK 1000) 31.12.2021 31.12.2020 Current contract assets 31 747 40 529 Loss allowance - - Total contract assets 31 747 40 529 Contract liabilities - - Total current contract liabilities - - Revenue recognised that was included in contract liability balance at beginning of period - - Revenue recognised from performance obligations satisfied in previous periods 75 502 The group has not recognised any assets from costs incurred to fulfil a contract at 31 December 2021 (2020: 0).
Reach Subsea | Annual Report 2021 95 Contents Notes Note 28 - Business combinations ACQUISITION OF SURVEYOR AS In March 2021 our joint venture partner MMT Sweden AB (“MMT”) was acquired by Ocean Infinity. This transaction triggered an option for Reach Subsea to purchase MMT’s shares (50%) in our jointly owned entity Surveyor AS at book value. This option was exercised 31.03.2021 with the effect that the balance sheet for Surveyor AS is consolidated into our Group accounts as per end March 2021. The transaction was closed in June 2021. After the transaction Reach Subsea holds 100% of the shares in Surveyor AS. A purchase price allocation (PPA) has been performed and all identified assets and liabilities have been measured at their acquisition date fair values in accordance with the requirements of IFRS 3. The agreed purchase price for MMT’s share was NOK 22.8 million. The fair values of the identifiable assets and liabilities in the transaction as at the date of the acquisition have been estimated as follows: Purchase price allocation (NOK 1000) Property, plant and equipment 44 855 Trade receivables 8 778 Other receivables 8 250 Cash and cash equivalents 12 482 Total assets 74 365 Interest-bearing debt to credit institutions 22 961 Trade payables 5 601 Other current liabilities 246 Total liabilities 28 807 Total identifiable net assets at fair value 45 558 Whereof 50 % aquired 22 779 Total consideration 22 779 Goodwill - SUMMARY No goodwill or gain from a bargain purchase were recognized as a result of the transaction. ACQUIRED RECEIVABLES The fair value of the aquired trade recievebles equals the book value of recievables in the acquired company. REVENUE AND PROFIT CONTRIBUTION The acquired business contributed revenues of NOK 11.58 million and net profit of NOK -6.10 million to the group for the period from 1 April to 31 December 2021.
Reach Subsea | Annual Report 2021 96 Contents Notes Note 28 - Business combinations, continued If the acquisition had occurred on 1 January 2021, consolidated pro-forma revenue and profit for the year ended 31 December 2021 would have been NOK 691.27 million and NOK 93.97 million respectively. These amounts have been calculated using the subsidiary’s results and adjusting them for: • differences in the accounting policies between the group and the subsidiary, and • the additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had applied from 1 January 2021, together with the consequential tax effects. ACQUSITION OF OCTIO AS, GRAVITUDE AS, MONVIRO AS AND MONVIRO CCS AS (“OCTIO GROUP”) In December 2021 Reach Subsea acquired Octio AS, Gravitude AS, Monviro AS and Monviro Ccs AS, “Octio Group”. The agree- ment was finalized 30.11.2021 with the effect that the balance sheet for Octio Group is consolidated into our Group accounts as per end November 2021. The transaction was closed on 08.12.2021. After the transaction Reach Subsea holds 100% of the shares. A purchase price allocation (PPA) has been performed and all identified assets and liabilities have been measured at their acquisition date fair values in accordance with the requirements of IFRS 3. The total agreed purchase price for the shares is NOK 32.6 million. The fair values of the identifiable assets and liabilities in the transaction as at the date of the acquisition have been estimated as follows: Purchase price allocation (NOK 1000) Deferred tax assets 11 231 Research and development 2 825 Property, plant and equipment 13 385 Trade receivables 6 016 Other receivables 2 352 Cash and cash equivalents 19 196 Total assets 55 004 Other long term liabilities 2 840 Trade payables 2 017 Other current liabilities 4 316 Total liabilities 9 172 Total identifiable net assets at fair value 45 832 Total consideration* 32 567 Goodwill (13 265) * Of the total consideration of NOK 32.6 million, NOK 25.0 million was transfered to the seller in December 2021, and NOK 7.6 million of the consideration was transferred to the seller in January 2022
Reach Subsea | Annual Report 2021 97 Contents Notes Note 28 - Business combinations, continued SUMMARY The Group’s share of the fair value of the identifiable net assets of the aquired associates exceeds the cost of acquisi- tion paid by the group. The main reason why the transaction resulted in a gain is related to the recognition of deferred tax asset in the purchase price allocation. The gain from the bargain purchase is recognized in other income. ACQUIRED RECEIVABLES The fair value of the aquired trade receivables equals the book value of recievables in the acquired company. REVENUE AND PROFIT CONTRIBUTION The acquired business contributed revenues of NOK 0.87 million and net profit of NOK -3.45 million to the group for the period from 1 December to 31 December 2021. If the acquisition had occurred on 1 January 2021, consolidated pro-forma revenue and profit for the year ended 31 December 2021 would have been NOK 712.54 million and NOK 75.76 million respectively These amounts have been calculated using the subsidiary’s results and adjusting them for: • differences in the accounting policies between the group and the subsidiary, and • the additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had applied from 1 January 2021, together with the consequential tax effects.
Reach Subsea | Annual Report 2021 98 Contents Notes Note 29 - Subsequent events NEW COMMITMENTS The Group has entered into new agreements valid from Q1 2022. Based on contractual commitments, NOK 69.9 million will be capitalized as additions to Right-of-use assets in Q1 2022. PROPOSED DIVIDENDS The Board proposed a dividend of NOK 0.18 per share, in accordance with the company’s dividend policy, to be resolved on the AGM on 30 May 2022. STRATEGIC PARTNER Wilhelmsen New Energy AS, a wholly owned subsidiary of Wilh. Wilhelmsen Holding ASA, has on 17 February 2022 agreed to subscribe for, and be allocated, 46,126,567 new shares in Reach Subsea ASA at a subscription price of NOK 3.25 per share. The shares will represent 21% of the shares and votes in Reach Subsea ASA following the issuance of 33,846,153 new shares to iSurvey Holding AS (as further described below). The agreement also includes the issuance of warrants, whereby Wilhelmsen New Energy AS will receive the right to subscribe for and be allocated an additional 44,766,864 new shares in Reach Subsea ASA at a subscription price of NOK 4.00 per share, corresponding to 20% of the shares in Reach Subsea ASA after the abovementioned issue of shares to iSurvey Holding AS. The warrants have a duration of three years and can be exercised at any time. The private placement and the issuance of the war - rants was approved on an extraordinary general meeting in Reach Subsea ASA, held on 15 March 2022. After the approval by the extraordinary general meeting, Wilhelmsen New Energy AS will have a combined holding of shares and warrants of 90,893,431, corresponding to 41% of the issued shares in Reach Subsea ASA following the share issue to iSurvey Holding AS (but not taking into account the new shares that would be issued upon an exercise of the warrants). Wilhelmsen New Energy AS’ ownership on a fully diluted basis (taking into account both the warrants and all outstanding stock options) will be 33%. ACQUISITION OF ISURVEY GROUP On February 17. 2022 Reach Subsea ASA has entered into an agreement with iSURVEY Holding AS to acquire ISURVEY Group AS for NOK 135 million on a neutral working capital and debt basis. The transaction will be settled through the issuance of 33.8 million shares in Reach, valued at NOK 3.25 per share, and NOK 25 million in cash. Following completion of the transaction, and completion of the NOK 150 million private placement towards Wilhelmsen New Energy AS, iSURVEY Holding AS will become a 15% shareholder in Reach. The transaction was approved at an extraordinary general meeting in Reach held on 15 March 2022. Both transactions were closed 22 March 2022.
Reach Subsea | Annual Report 2021 99 Contents Reach Subsea ASA Parent Company Financial Statements
Reach Subsea | Annual Report 2021 100 Contents (NOK 1000) 2021 2020 NOTES Operating income and cost Revenue 9 911 72 046 10,13 Total operating income 9 911 72 046 Payroll expenses 11 081 9 242 7,9 Other operating expenses 2 917 67 778 9,10,13 Operating expenses 13 999 77 020 Operating profit (4 088) (4 974) Financial income and costs Other interest income 0 0 Interest income from group companies 792 7 768 Other financial income 84 642 25 691 12 Financial income 85 434 33 459 Other Interest expenses - - Other financial expenses 329 448 Financial cost 329 448 Profit (loss) before tax 81 016 28 037 Taxes 15 024 - 8 Profit (loss) for the year 96 040 28 037 Brought forward Proposed dividend 40 484 21 541 To other equity 55 556 6 496 Total brought forward 96 040 28 037 Income statement Reach Subsea ASA
Reach Subsea | Annual Report 2021 101 Contents (NOK 1000) 2021 2020 NOTES ASSETS Non-current assets Deferred tax asset 18 947 3 923 8 18 947 3 923 Financial fixed assets Investments in subsidiaries 196 040 196 040 1 Total financial fixed assets 196 040 196 040 Total non-current assets 214 987 199 964 Current assets Accounts receivables - 11 823 Receivables from group companies 102 935 39 003 2,3 Other receivables 1 023 188 Total debtors 103 958 51 014 Cash and bank deposits 5 074 4 636 4 Total current assets 109 032 55 650 Total assets 324 019 255 614 Balance sheet Reach Subsea ASA
Reach Subsea | Annual Report 2021 102 Contents (NOK 1000) 2021 2020 NOTES EQUITY & LIABILITIES Restricted equity Share capital 144 941 143 606 5,6 Share premium 63 979 61 581 5 Total restricted equity 208 920 205 187 Other equity 70 603 15 048 5 Total retained earnings 70 603 15 048 Total equity 279 524 220 235 Short term liabilities Accounts payable 191 12 043 3 Public duties payable 1 653 859 Proposed dividend 40 484 21 541 Other short term liabilities 2 167 935 Total short term liabilities 44 496 35 378 Total liabilities 44 496 35 378 Total equity and liabilities 324 019 255 614 Balance sheet, continued Reach Subsea ASA Haugesund, 31 March 2021 /s/ Rachid Bendriss Chairperson of the Board /s/ Ingunn Ø. Iveland Board member /s/ Martha Kold Bakkevig Board member /s/ Kåre Johannes Lie Deputy Chairperson of the Board /s/ Kristine Skeie Board member /s/ Jostein Alendal Managing Director /s/ Anders Onarheim Board member
Reach Subsea | Annual Report 2021 103 Contents (NOK 1000) 2021 2020 Cash flow from operating activities Profit (loss) before taxes 81 016 28 037 Paid taxes - - Change in trade debtors (11 852) 11 885 Change in trade creditors 11 823 (11 823) Change in other provisions (62 353) (25 077) Net cash flow from operations 18 634 3 022 Cash flow from investments Investment in shares and loans to subsidiaries - - Net cash flow from investments - - Financing Loans Repayment of loan - - Paid dividend (21 541) - Share issues 3 119 - Net cash flow from financing activities (18 422) - Net cash flow for the year 212 3 022 Profit (loss) due to exchange rate fluctuations on cash 226 Cash and cash equivalent 1/1 4 636 1 614 Cash and cash equivalent 31/12 5 074 4 636 Cash flow Reach Subsea ASA
Reach Subsea | Annual Report 2021 104 Contents Notes Reach Subsea ASA Accounting principles The annual accounts have been prepared in compliance with the Accounting Act and accounting princi- ples generally accepted in Norway. Use of estimates The preparation of financial statements in compliance with the Accounting Act requires the use of estimates. The appli- cation of the company’s accounting prin- ciples also require management to apply assessments. Areas which to a great extent contain such assessments, a high degree of complexity, or areas in which assumptions and estimates are significant for the finan- cial statements, are described in the notes. Revenues Income from sale of services are recog- nised at fair value of the consideration, net after deduction of VAT, returns, discounts and reductions. Historical data is applied to estimate and recognise provisions for quantity rebates and returns at the sales date. Provisions for expected guarantee work are recognised as expenses and pro- visions for liabilities. Services are recog- nised in proportion to the work performed. Classification of balance sheet items Assets intended for long term ownership or use have been classified as fixed assets. Assets relating to the trading cycle have been classified as current assets. Other receivables are classified as current assets if they are to be repaid within one year after the transaction date. Similar criteria apply to liabilities. First year’s instalment on long term liabilities and long term receivables are, however, not classified as short term liabilities and current assets. Purchase costs The purchase cost of assets includes the cost price for the asset, adjusted for bonuses, discounts and other rebates received, and purchase costs (freight, cus- toms fees, public fees which are non-re- fundable and any other direct purchase costs). Purchases in foreign currencies are reflected in the balance sheet at the exchange rate at the transaction date. For fixed assets and intangible assets purchase cost also includes direct expenses to prepare the asset for use, such as expenses for testing of the asset. Investments in other companies Except for short term investments in listed shares, the cost method is applied to investments in other companies. The cost price is increased when funds are added through capital increases or when group contributions are made to subsid- iaries. Dividends received are initially taken to income. Dividends exceeding the portion of retained equity after the purchase are reflected as a reduction in purchase cost. Dividend/group contri- bution from subsidiaries are reflected in the same year as the subsidiary makes a provision for the amount. Dividend from other companies are reflected as financial income when it has been approved. Asset impairments Impairment tests are carried out if there is indication that the carrying amount of an asset exceeds the estimated recover- able amount. The test is performed on the lowest level of fixed assets at which independent cashflows can be identified. If the carrying amount is higher than both the fair value less cost to sell and recoverable amount (net present value of future use/ownership), the asset is written down to the highest of fair value less cost to sell and the recoverable amount. Previous impairment charges, except writedown of goodwill, are reversed in later periods if the conditions causing the write-down are no longer present.
Reach Subsea | Annual Report 2021 105 Contents Debtors Trade debtors are recognised in the bal- ance sheet after provision for bad debts. The bad debts provision is made on basis of an individual assessment of each debtor and an additional provision is made for other debtors to cover expected losses. Foreign currencies Assets and liabilities in foreign currencies are valued at the exchange rate on the balance sheet date. Exchange gains and losses relating to sales and purchases in foreign currencies are recognised as operating income and cost of goods sold. Liabilities Liabilities, with the exception of certain liability provisions, are recognised in the balance sheet at nominal amount. Pensions The company has defined contribution plans. With a defined contribution plan the company pays contributions to an insurance company. After the contri- bution has been made the company has no further commitment to pay. The contribution is recognised as payroll expenses. Prepaid contributions are reflected as an asset (pension fund) to the degree the contribution can be refunded or will reduce future payments. Taxes The tax charge in the income statement includes both payable taxes for the period and changes in deferred tax. Deferred tax is calculated at relevant tax rates on the basis of the temporary differences which exist between accounting and tax values, and any carryforward losses for tax purposes at the year-end. Tax enhancing or tax reducing temporary differences, which are reversed or may be reversed in the same period, have been eliminated. The disclosure of deferred tax benefits on net tax reducing differ - ences which have not been eliminated, and carryforward losses, is based on estimated future earnings. Deferred tax and tax benefits which may be shown in the balance sheet are presented net. Tax reduction on group contributions given and tax on group contribution received, booked as a reduction of cost price or taken directly to equity, are booked directly against tax in the balance sheet (offset against payable taxes if the group contribution has affected payable taxes, and offset against deferred taxes if the group contribu- tion has affected deferred taxes). Deferred tax is reflected at nominal value. Cash flow statement The cash flow statement has been prepared according to the indirect method. Cash and cash equivalents include cash, bank deposits, and other short term investments which imme- diately and with minimal exchange risk can be converted into known cash amounts, with due date less than three months from purchase date. Options The Company has established a option program. The option cost are based on a Black & Scholes model, and the cost are amortized over the vesting periode. Notes Reach Subsea ASA
Reach Subsea | Annual Report 2021 106 Contents Subsidiaries Location Ownership/ voting right Equity (100 %) Result (100 %) Balance sheet value Reach Subsea AS Haugesund 100 % 157 703 58 401 196 040 Trade debtors (NOK 1000) 2021 2020 Trade debtors at nominal value from external parties - 11 823 Receivables at nominal value from group companies 102 935 39 003 Bad debts provision - - Trade debtors in the balance sheet 102 935 50 826 Debtors which fall due later than one year 2021 2020 Loans to employees - - Other non current assets - - Total - - Long term liabilities which fall due later than 5 years 2021 2020 Liabilities to credit institution - - Other long term liabilities (specify) - - Total - - Guarantees 2021 2020 Mortgage loan guarantees Notes Reach Subsea ASA Note 1 - Subsidiaries, associated companies and joint ventures Note 2 - Debtors and liabilities Investments in subsidiaries, associated companies and joint ventures are booked according to the cost method.
Reach Subsea | Annual Report 2021 107 Contents Equity changes in the year (NOK 1000) Share capital Share premium reserve Other equity Total Equity 01.01. 143 606 61 581 15 048 220 235 Profit for the year - - 96 040 96 040 Share issue 975 1 948 2 923 Share issue, not registrered 360 450 810 Proposed dividend - - (40 484) (40 484) Equity 31.12. 144 941 63 979 70 604 279 524 Note 4 - Restricted bank deposits, overdraft facilities Note 5 - Shareholder’s equity Restricted bank deposits (NOK 1000) 2021 2020 Withheld employee taxes 1 284 662 Current assets Non-current assets (NOK 1000) 2021 2020 2021 2020 Group companies 102 935 39 003 - - Associated companies - - - - Joint ventures - - - - Total 102 935 39 003 - - The balance as of 31.12.21 includes group contributions of NOK 84.4 million. Current liabilities Non-current liabilities (NOK 1000) 2021 2020 2021 2020 Group companies 63 11 972 - - Associated companies - - - - Joint ventures - - - - Total 63 11 972 - - Notes Reach Subsea ASA Note 3 - Balance with group companies, etc.
Reach Subsea | Annual Report 2021 108 Contents List of (20) major shareholders at 31.12.2021 Number of shares Ownership 1. NORTH ENERGY ASA 46 126 567 32 % 2. JOSO INVEST AS 7 564 589 5 % 3. HOLME HOLDING AS 6 206 000 4 % 4. JT INVEST AS 5 529 539 4 % 5. SOBER AS 5 200 000 4 % 6. NORMAND DRIFT AS 5 000 000 3 % 7. VERDIPAPIRFONDET EIKA NORGE 4 418 418 3 % 8. Danske Invest Norge Vekst 2 820 462 2 % 9. CORUNA AS 2 500 000 2 % 10. LION INVEST AS 2 400 000 2 % 11. STAVA INVEST AS 2 300 000 2 % 12. RMS INVEST AS 2 000 000 1 % 13. TEOMAR AS 2 000 000 1 % 14. A-Å INVEST AS 1 938 725 1 % 15. SMS INVESTERING AS 1 652 366 1 % 16. NÆRINGSLIVETS HOVEDORGANISASJON 1 517 532 1 % 17. BARRUS CAPITAL AS 1 510 090 1 % 18. FREEMAN SHIPPING & OFFSHORE AS 1 510 053 1 % 19. TEM INVEST AS 1 250 000 1 % 20. CASTEL AS 1 248 517 1 % 20 largest 104 692 858 72 % The rest of shareholders 40 247 850 28 % Total number of shares 144 940 708 100 % Notes Reach Subsea ASA Note 6 - Share capital and shareholder information The companys share capital amounts to NOK 144 940 708 divided into 144 940 708 shares, each with a nominal value of NOK 1.00. This includes 360,000 shares not yet registered. After year end the Group announced the acquisition of 100% of the shares in iSurvey Group AS from iSurvey Holding AS for NOK 135 million. The transaction was settled through the issuance of 33,846,153 shares in Reach, valued at NOK 3.25 per share, and NOK 25 million in cash. In addition, new equity was raised by entering into a strategic partnership with Wilhelmsen New Energy AS, by issuing 46,126,567 new shares in Reach Subsea ASA at a subscription price of NOK 3.25 per share. Wilhelmsen has also received warrants to subscribe for 44,766,864 additional shares (nominal price NOK 1.0, subscription price NOK 4.0). The transactions were subsequently completed on 22 March 2022. The Company’s new share capital is NOK 224,913,428, divided into 224,913,428 shares, each with a nominal value of NOK 1.
Reach Subsea | Annual Report 2021 109 Contents Notes Reach Subsea ASA Note 7 - Options In 2021 the Board of directors of Reach Subsea ASA approved a stock option scheme to further align the interests of the participating employees in Reach Subsea with those of the shareholders. The stock option scheme was finalised with a signed agreement between the company and Management and certain key employees 15.12.2021. Management and certain key employees of the Reach Subsea-group is granted the right to acquire up to a certain maximum number of shares in the Company at a fixed strike price (“the Option”). The strike price is set equal to the volume weighted average share price of the Company´s stock traded on the Oslo Stock Exchange 10 days prior to the finalization of the option scheme. The options are vested with 1/3 each year, over a period of three years until 31.12.2024. The options are non-tradable and conditional upon the participant being employed by the Reach Subsea-group at the vesting date. The stock option plan constitued a maximum of 3.000.000 options equivalent to a similar number of Reach Subsea ASA shares. No cost have been recognized related to the options in 2021. The fair value at grant date was determined using a Black Scholes Model. The most significant inputs and assumptions in determining fair value at grant date was: Excercise price: NOK 3.0 Share price at grant date: NOK 3.0 Expected volatility: NOK 56.14% Risk free interest rate: NOK 1.092% Term of options: 3 years
Reach Subsea | Annual Report 2021 110 Contents Calculation of deferred tax/deferred tax benefit (NOK 1000) 2021 2020 Temporary differences Non-current assets (73 ) (73) Other temporary differences - - Net temporary differences (73) (73) Tax losses carried forward (86 047) (167 049) Basis for deferred tax (86 120) (167 122) Deferred tax asset (18 947) (36 767) Deferred tax asset not shown in the balance sheet - 32 844 Deferred tax in the balance sheet (18 947) (3 923) Deferred tax assets are recognized in the balance sheet based on expected utilization of tax losses carried forward and temporary differences. The carrying amount of deferred income tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Notes Reach Subsea ASA 2021 2020 (NOK 1000) Average exercise price per share option Number of options Average exercise price per share option Number of options At 1 January - - 1.88 1 164 944 Granted 3.00 3 000 000 - - Forfeited - - - - Exercised - - 1.75 60 000 Expired - - - 1 104 944 At 31 December 3.00 3 000 000 0 0 Note 7 - Options, continued Note 8 - Taxes Movements in the number of share options and their related weighted average exercise prices were as follows: The group has no legal or constructive obligation to repurchase or settle the options in cash.
Reach Subsea | Annual Report 2021 111 Contents Basis for income tax expense, changes in deferred tax and tax payable (NOK 1000) 2021 2020 Result before taxes 81 016 28 037 Group contribution recognised (84 408) (23 716) Basis for the tax expense for the year (3 391) 4 321 Change in temporary differences (15) (18) Basis for payable taxes in the income statement (3 406) 4 303 +/- Group contributions received/given 84 408 23 716 Use of tax losses carried forward (81 002) (28 018) Taxable income (basis for payable taxes in the balance sheet) - - Components of the income tax expense (NOK 1000) 2021 2020 Payable tax on this year's result - - Adjustment in respect of priors - - Total payable tax - - Change in deferred tax (15 024) - Tax expense (15 024) - Payable taxes in the balance sheet 2021 2020 Payable tax in the tax charge - - Tax effect of group contribution - - Payable tax in the balance sheet - - Notes Reach Subsea ASA Note 8 - Taxes, continued
Reach Subsea | Annual Report 2021 112 Contents Payroll expenses (NOK 1000) 2021 2020 Salaries and wages including holiday allowance 8 147 7 383 Social security fees 1 375 1 115 Pension expenses 360 344 Other remuneration 1 200 400 Total 11 081 9 242 Number of man-year 4 4 The company has a defined contribution pension scheem which cover all employees. The company’s pension schemes met the requirements of the law on compulsory occupational pension. Remuneration to executives General manager Board Salaries/board fee 1 780 1 545 Pension expenses 90 - Other remuneration 300 - Share options granted 450 - Expensed audit fee (NOK 1000) 2021 2020 Statutory audit (incl. technical assistance with financial statements) 600 605 Other assurance services - - Tax advisory fee (incl. technical assistance with tax return) - 75 Other assistance 275 199 Advisory fee booked to equity - - Total audit fees 875 879 VAT is not included in the audit fee. Notes Reach Subsea ASA Note 9 - Payroll expenses, number of employees, remuneration, loans to employees, etc.
Reach Subsea | Annual Report 2021 113 Contents Note 12 - Other financial income Notes Reach Subsea ASA Payroll expenses (NOK 1000) 2021 2020 Foreign exchange income 234 1 976 Group contribution from Reach Subsea AS 84 040 21 588 Group contribution from Connect Offshore AS 368 2 127 Other financial income 84 642 25 691 2021 2020 Profit (loss) 96 040 28 037 Profit (loss) per share (NOK) 0.67 0.20 Diluted profit (loss) per share (NOK) 0.67 0.20 Average number of shares 143 677 290 143 546 172 Average diluted number of shares 143 677 290 143 546 172 Number of shares 1/1 143 606 008 143 546 008 Number of shares 31/12 144 940 708 143 606 008 Note 10 - Related-party transactions Note 11 - Profit (loss) per share The company has undertaken various transactions with related parties consisting of brokerage of management fee, vessels and leasing av office premises for the year. All transactions are carried out as part of the normal course of business and carried out on commercial terms in accordance with Companies Act §§ 3-8 and 3-9. Transactions with the management and the Board (salaries) can be found in note 9. Profit (loss) per share is calculated on the profit (loss) divided by the average number of shares issued.
Reach Subsea | Annual Report 2021 114 Contents Notes Reach Subsea ASA Note 13 - Revenue and operating expenses Note 14 - Subsequent events In 2021 the Company’s turnover was NOK 9.9 million (NOK 72.0 million in 2020). The decrease is related to an operational project flow through of turnover and expenses in 2020, whilst in 2021 activity was limited to consultancy services to the Group companies. PROPOSED DIVIDENDS The Board proposed a dividend of NOK 0.18 per share, in accordance with the company’s dividend policy, to be resolved on the AGM on 30 May 2022. STRATEGIC PARTNER “Wilhelmsen New Energy AS, a wholly owned subsidiary of Wilh. Wilhelmsen Holding ASA, has on 17 February 2022 agreed to subscribe for, and be allocated, 46,126,567 new shares in Reach Subsea ASA at a subscription price of NOK 3.25 per share. The shares will repre- sent 21% of the shares and votes in Reach Subsea ASA following the issuance of 33,846,153 new shares to iSurvey Holding AS (as further described below). The agreement also includes the issuance of warrants, whereby Wilhelmsen New Energy AS will receive the right to subscribe for and be allocated an additional 44,766,864 new shares in Reach Subsea ASA at a subscription price of NOK 4.00 per share, corresponding to 20% of the shares in Reach Subsea ASA after the abovementioned issue of shares to iSurvey Holding AS. The warrants have a duration of three years and can be exercised at any time. The private placement and the issuance of the war - rants was approved on an extraordinary general meeting in Reach Subsea ASA, held on 15 March 2022. After the approval by the extraordinary general meeting, Wilhelmsen New Energy AS will have a combined holding of shares and warrants of 90,893,431, corresponding to 41% of the issued shares in Reach Subsea ASA following the share issue to iSurvey Holding AS (but not taking into account the new shares that would be issued upon an exercise of the warrants). Wilhelmsen New Energy AS’ ownership on a fully diluted basis (taking into account both the warrants and all outstanding stock options) will be 33%. ACQUISITION OF ISURVEY GROUP AS On February 17. 2022 Reach Subsea ASA has entered into an agreement with iSURVEY Holding AS to acquire ISURVEY Group AS for NOK 135 million on a neutral working capital and debt basis. The transaction will be settled through the issuance of 33.8 million shares in Reach, valued at NOK 3.25 per share, and NOK 25 million in cash. Following completion of the transaction, and completion of the NOK 150 million private placement towards Wilhelmsen New Energy AS, iSURVEY Holding AS will become a 15% shareholder in Reach. The transaction was approved at an extraordinary general meeting in Reach held on 15 March 2022. The transaction was closed in March 2022.
Reach Subsea | Annual Report 2021 115 Contents
Reach Subsea | Annual Report 2021 116 Contents
Reach Subsea | Annual Report 2021 117 Contents
Reach Subsea | Annual Report 2021 118 Contents
Reach Subsea | Annual Report 2021 119 Contents
Jostein Alendal Garpeskjærveien 2, 5527 Haugesund, Norway +47 40 00 77 10 [email protected] reachsubsea.no Reach Subsea | Annual Report 2021 Contents