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ANNUAL REPORT 2016

Product catalog summary

Marine Opportunities
VARD is focusing on marine opportunities by collaborating with ship owners and operators, emphasizing innovation in design, equipment, and shipbuilding to enhance safety, sustainability, and performance. The company is expanding in Adventure, Security, and Seafood sectors while maintaining its leadership in the Energy sector.

Financial and Statutory Report
This section provides corporate information, governance reports, financial statements, and auditor's reports, detailing VARD's financial health and shareholder statistics.

Business Review

Testimonials: Successful projects like the Deep Explorer and Normand Maximus highlight VARD's expertise in specialized vessels.
CEO Letter: Discusses challenges in the offshore market and VARD's diversification strategy.
Chairman's Statement: Focuses on strategic repositioning and collaboration with Fincantieri for sustainable growth.
Board of Directors: Profiles key board members and their roles.

Operational Review
Details VARD's operational strategies, sustainability efforts, risk management, and investor relations, with insights into future market opportunities.

Key Financials
Summarizes VARD's financial performance, including order book development and significant events impacting operations.

Conclusion
VARD's 2016 Annual Report outlines strategic adaptation and diversification, focusing on new market opportunities and strengthening partnerships, particularly with Fincantieri.

Executive Management Team

Mr. Roy Reite: Former yard director with a background in project and technical management.
Mr. Geir Ingebrigtsen: CFO with prior finance roles.
Mr. Stig Bjørkedal: Oversees Equipment and Solutions.
Mr. Vittorio Zane: Executive Director responsible for cruise vessel segment.
Mr. Magne Håberg: Heads sales and marketing.
Mr. Knut Ola Tverdal: Responsible for Brazil operations.
Mr. Magne O. Bakke: COO overseeing shipyard operations.
Mr. Holger Dilling: Responsible for investor relations and business development in Asia.

Shareholding and Corporate Structure
Includes major stakeholders like Fincantieri Oil & Gas S.p.A. and MVN Asset Management Limited.

Key Financials

Revenue: NOK 7.89 billion in 2016, a 30% decrease from 2015.
EBITDA: Positive NOK 168 million in 2016.
Net Loss: NOK 197 million in 2016.
Balance Sheet: Total assets decreased by 35% to NOK 13.52 billion in 2016.
Cash Flow: Positive cash flow from operating activities of NOK 764 million in 2016.

Order Book Development
At the end of 2016, the order book was valued at NOK 12.65 billion, comprising 41 vessels.

Order Intake and Market Diversification
In 2016, VARD secured new orders worth NOK 10.57 billion, marking the highest number of vessels ordered in five years.

Geographical and Sectoral Distribution
There was a shift in client geography, with a decrease in Norwegian clients and an increase in orders from Europe, the Middle East, and Asia.

Vessel Deliveries
VARD delivered 13 vessels in 2016 from shipyards in Norway, Romania, Vietnam, and Brazil.

Significant Events and Business Development
VARD expanded into new markets and achieved significant milestones, such as the delivery of the Barbosa Lima Sobrinho LPG carrier.

New Contracts and Innovations
VARD secured contracts for various specialized vessels, including luxury expedition cruise vessels and an Antarctic icebreaking vessel.

Marine Opportunities and Strategic Focus
VARD identified four focus areas: Energy, Adventure, Security, and Seafood.

Vessel Types and Capabilities
VARD's portfolio includes Platform Supply Vessels, Anchor Handling Tug Supply Vessels, and Offshore Subsea Construction Vessels.

Overview: The document is an excerpt from the VARD Annual Report 2016, focusing on the company's shipbuilding operations and strategic initiatives.

Key Sections:

Offshore Renewables: VARD offers vessel solutions supporting offshore wind, tidal, and wave power.
The VARD Series: Includes a diverse range of ship designs such as adventure, security, seafood, and passenger vessels.
Operational Review: VARD operates nine shipbuilding facilities across Europe, Asia, and South America.
Regional Operations:
- Norway: Faced a downturn due to low order intake.
- Romania: Experienced a positive turnaround with significant order intake.
- Vietnam: Improved fortunes with new orders for multi-carrying vessels.
- Brazil: Ceased operations at Vard Niterói but continued at Vard Promar.
Equipment and Solutions: VARD's subsidiaries offer specialized products and services.

Conclusion: Despite challenges, VARD's strategic initiatives and diversification efforts in 2016 positioned the company for future growth.

Design and Construction Projects
Outlines the design and construction of an Antarctic icebreaking vessel for the Chilean Navy.

Employee Distribution
As of December 31, 2016, VARD employed 772 people in Asia, 1,770 in South America, and 96 in North America.

Operational Review
VARD increased its stake in Seaonics, a subsidiary providing equipment for subsea construction and research vessels.

Sustainability and Social Responsibility
VARD emphasizes safety and environmental sustainability, adhering to international best practices.

Employee Management
Due to low oil prices, VARD reduced its workforce, closing the Niterói shipyard in Brazil.

Training and Development
VARD focused on mandatory training and e-learning tools to manage costs.

Ethics and Compliance
VARD complies with international standards SA 8000 and OHSAS 18001.

ISO 9001 Certification: VARD's global shipyards and associated companies are ISO 9001 certified.

Corporate Responsibility: VARD Vung Tau provided financial aid to local communities in Vietnam.

Annual HSE Contest: Vard Braila organizes an annual HSE contest to promote safety awareness.

Risk Management: VARD's risk management framework addresses market, operational, financial, regulatory, and human resources risks.

Market Risk: VARD faced challenges due to a downturn in the offshore vessel market.

Operational Risk: Fixed-price contracts require careful management of costs and resources.

Financial and Regulatory Risk: VARD relies on financing and guarantees, managing currency risks.

Human Resources Risk: VARD aims to retain skilled personnel and manage workforce fluctuations.

Investor Relations: VARD focused on transparent communication to rebuild investor trust.

Shareholder Composition: As of December 2016, Fincantieri Oil & Gas held a majority stake in VARD.

Investor Relations
VARD emphasizes the importance of shareholder support and commits to transparent communication and corporate governance.

Outlook
VARD has diversified its market segments, reducing reliance on the cyclical offshore sector.

Corporate Governance
The Board of Directors is committed to high standards of corporate governance.

Board of Directors
The Board includes Giuseppe Coronella (Chairman), Roy Reite (CEO), and others.

Remuneration
Remuneration details for directors and top executives are provided.

Accountability
VARD provides regular updates on performance and financial positions to shareholders.

Audit Committee
The Audit Committee oversees the nomination and compensation of external auditors.

Audit Committee Responsibilities
The Audit Committee is responsible for reviewing the scope and results of audits.

Internal Controls and Audit
The Board emphasizes maintaining robust internal controls to protect shareholder interests.

Whistle-Blowing Policy
A whistle-blowing policy allows confidential reporting of financial or other improprieties.

Communication with Shareholders
Major developments are communicated via SGXNET and the company website.

Financial Performance and Transactions
No dividend was proposed for FY2016 due to financial performance.

Use of Proceeds
The company raised NOK 606 million from an IPO, with proceeds used for yard expansions.

Directors and Audit Committee
The directors' statement confirms the financial statements give a true view of the company's position.

Audit Communication and Independence
The document outlines the communication process with governance regarding audit scope.

Legal and Regulatory Compliance
The report confirms that the company and its Singapore subsidiaries have maintained proper accounting records.

Consolidated Financial Position
The financial position as of 2016 shows total assets of NOK 13,518 million.

Comprehensive Income
The group reported a revenue of NOK 7,894 million in 2016.

Cash Flow Statement
Operating activities generated NOK 764 million.

Corporate Information and Basis of Preparation
The company is incorporated in Singapore, with financial statements prepared under Singapore Financial Reporting Standards.

Revenue Recognition and Project Risk Management
The document discusses the recognition of revenue from construction contracts.

Impairment Assessment
Goodwill and property, plant, and equipment are assessed for impairment.

Key Assumptions for Value in Use Calculations
- Assumed margin: 6.7%
- Terminal growth rate: 4.7%
- WACC: 11.6%

Income Taxes
The Group faces complexities in global income tax allocation.

Provisions and Inventory Management
Provisions for warranties and legal proceedings are based on estimates.

Changes in Accounting Policies
The Group adopted new FRSs and INT FRSs from 1 January 2016.

Significant Accounting Policies
The document outlines the basis of consolidation, including business combinations.

Property, Plant, and Equipment
The gain or loss on disposal of property, plant, and equipment is calculated by comparing disposal proceeds with the carrying amount.

Depreciation
Depreciation is based on the asset's cost less residual value.

Intangible Assets
Goodwill from acquisitions is included in intangible assets.

Leased Assets
Finance leases transfer substantially all risks and rewards of ownership.

Inventories
Inventories are measured at the lower of cost or net realizable value.

Construction Contracts
Revenue and costs from construction contracts are recognized using the percentage-of-completion method.

Impairment
Financial assets are assessed for impairment at each reporting period.

Impairment Losses: Impairment losses on goodwill are not reversed.

Non-Current Assets Held for Sale: Assets expected to be sold rather than used are classified as held for sale.

Employee Benefits: Defined contribution plans involve fixed contributions with no further obligations.

Provisions: Provisions are recognized for obligations from past events.

Revenue: Revenue is recognized based on the fair value of consideration received.

Lease Payments: Operating lease payments are recognized on a straight-line basis.

Finance Income and Costs: Finance income includes interest and dividends.

Tax: Tax expense includes current and deferred tax.

Earnings Per Share: Basic and diluted earnings per share are calculated based on profit attributable to shareholders.

Segment Reporting: Operating segments are reported based on internal reporting to the CEO.

New Accounting Standards: FRS 115 and FRS 109 introduce new guidelines for revenue recognition and financial instruments.

Overview of FRS 116 Leases:
The new standard FRS 116 replaces FRS 17 and establishes principles for lease recognition.

Property, Plant, and Equipment (PPE):
The report details the cost, additions, disposals, and reclassifications of PPE.

Intangible Assets:
The cost of intangible assets increased from NOK 650 million in 2015 to NOK 706 million in 2016.

Investments in Subsidiaries and Associates:
Investments in subsidiaries increased from NOK 2,142 million in 2015 to NOK 2,983 million in 2016.

Other Investments and Receivables:
Non-current investments in equity securities decreased from NOK 39 million in 2015 to NOK 19 million in 2016.

Deferred Tax Assets and Liabilities:
Deferred tax assets and liabilities are offset when legally enforceable.

Tax Assets and Liabilities: The report indicates that tax assets have not been recognized for certain subsidiaries.

Non-controlling Interest: The report provides financial information for subsidiaries with significant non-controlling interests.

Restructuring Costs: The Group incurred restructuring costs totaling NOK 105 million in 2016.

Inventories: Inventories are detailed, with raw materials, work in progress, and finished goods listed.

Construction Work in Progress: The report outlines costs incurred and progress billings.

Trade and Other Receivables: The report lists trade receivables, advances to suppliers, and other receivables.

Cash and Cash Equivalents: Details on cash, bank deposits, and restricted cash are provided.

Capital and Reserves: Information on ordinary shares, restructuring reserves, currency translation reserves, and fair value reserves is included.

Loans and Borrowings: The report details current and non-current loans, including interest rates, facilities, and covenants.

Other Non-current Liabilities: Includes shareholder loans and slot reservation agreements.

Construction Loan Facilities: The construction loan facility with Sparebank 1 SMN can be extended to NOK 1.81 billion.

Provisions: As of December 31, 2016, total provisions were NOK 237 million.

Trade and Other Payables: Total trade payables for the group were NOK 1,636 million in 2016.

Revenue: The group reported a total revenue of NOK 7,894 million in 2016.

Salaries and Related Costs: Total salaries and related costs were NOK 2,162 million in 2016.

Other Operating Expenses: Total other operating expenses were NOK 515 million in 2016.

Financial Income and Costs: The group had a net financial income of NOK 41 million in 2016.

Income Tax Expenses: The total income tax expense was NOK 38 million in 2016.

Earnings Per Share: The basic and diluted earnings per share were NOK -0.14 in 2016.

Operating Segments: The group operates primarily in vessel design and construction.

Financial Risk Management: The group manages credit, market, and liquidity risks.

Interest Rate Sensitivity Analysis: The document provides an analysis of the impact of a 50 basis point change in interest rates.

Foreign Currency Risk: The Group's financial performance is influenced by currency movements.

Derivatives Overview: The document lists the fair value of forward foreign currency contracts.

Liquidity Risk: The Group manages liquidity risk by monitoring cash flows.

Fair Value Disclosures: The document details the fair values of financial assets and liabilities.

Acquisition of Subsidiary: In 2016, the Group acquired Storvik Aqua AS.

Transactions with Non-Controlling Interests: The Group increased its stake in Vard Promar to 95.15%.

Assets Held for Sale: The Group classified Multifag AS as held for sale.

Intangible Assets and Goodwill
The document outlines the financial details related to intangible assets and goodwill.

Operational Lease Commitments
The Group's operating lease commitments for 2016 include payments within one year, between one and five years, and more than five years.

Capital Management
The Group aims to maintain healthy capital ratios.

Related Party Transactions
Transactions with related parties include sales of goods and services.

Group of Companies
The document lists subsidiaries within the Vard Holdings Limited Group.

Contingencies and Capital Commitments
The Group issues completion and refundment guarantees as part of its operations.

Contingent Assets and Legal Proceedings
The document discusses a contingent asset related to a main claim nearing the technical hearing phase.

Tax Claim in Brazil
VARD is involved in a tax claim in Brazil.

Capital and Other Commitments
The Group has commitments related to minority stakes in shipbuilding projects.

Environmental Regulations and Clean-up Costs
VARD complies with environmental regulations.

Post Balance Sheet Events
Vard Promar S.A. received a tax assessment notice.

IPT Mandate Renewal
The document includes an appendix on the proposed renewal of the Interested Person Transactions (IPT) Mandate.

Definitions and Corporate Information
The appendix provides definitions of terms used in the document.

Introduction
The document outlines the Interested Person Transactions (IPT) Mandate for VARD.

1. Background
Fincantieri O&G is a controlling shareholder and thus an interested person under Chapter 9 of the Listing Manual.

2. Categories of Transactions
The IPT Mandate includes various categories of transactions essential for day-to-day operations.

3. Rationale and Benefits
The IPT Mandate facilitates recurring transactions, reducing the need for frequent shareholder meetings.

4. Guidelines and Review Procedures
To ensure fairness, the Group has established procedures for reviewing and approving transactions.

Conclusion
The IPT Mandate is designed to streamline operations while safeguarding the interests of the Company and its minority shareholders.

1. Interested Person Transactions (IPT) Mandate:
The annual report will disclose the aggregate value of all interested person transactions conducted under the IPT Mandate.

2. Director’s Recommendations:
Independent directors recommend the renewal of the IPT Mandate.

3. Directors’ and Substantial Shareholders’ Interests:
Details of directors’ and substantial shareholders’ interests in shares are provided.

4. Voting Abstentions:
Mandated Interested Persons and their associates will abstain from voting on resolutions involving themselves.

5. Annual General Meeting (AGM):
The AGM is scheduled for 20 April 2017.

6. Director’s Responsibility Statement:
Directors accept responsibility for the accuracy of the information in the appendix.

7. Documents Available for Inspection:
The company’s constitution and annual report are available for inspection.

8. Shareholding Statistics:
Details of share distribution and substantial shareholders are provided.

9. Notice of AGM:
The notice outlines the agenda for the AGM.

Shareholders' Mandate: The Shareholders' Mandate allows the company to engage in mandated transactions until the next AGM.

Share Issuance Authority: The company is empowered to issue shares up to specified limits.

Resolution Details: Ordinary Resolution 5 allows share issuance under specified limits.

Proxy Appointment: Members can appoint up to two proxies to attend and vote at the AGM.

Data Privacy: By appointing proxies, members consent to the use of their personal data for meeting administration purposes.

Dress Code: Attendees are requested to adhere to a dress code.

Contact Information: The document provides extensive contact details for Vard's various offices and subsidiaries.

Catalog excerpts

VARD a Fincantieri company

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MARINE OPPORTUNITIES CONTENT MARINE OPPORTUNITIES As the world changes, demand for products and services evolves with it. VARD has both contributed and adapted to such changes. We see that also in the future, opportunities will be profoundly connected to the sea that covers two-thirds of our planet. As before, we will take advantage of these opportunities, in close cooperation with ship owners, operators and business partners. VARD’s research and development, innovative design, equipment and solutions, and shipbuilding of the highest quality, contribute to significant improvements in safety,...

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BUSINESS REVIEW 04 Testimonials 10 Executive Management Team 12 Shareholding and Corporate Structure 17 Order Book Development 24 The VARD Series 31 Sustainability and Social Responsibility 42 Corporate Governance Report 53 Independent Auditor's Report 58 Consolidated Statement of Financial Position 59 Consolidated Statement of Comprehensive Income 60 Consolidated Statement of Changes in Equity 61 Consolidated Statement of Cash Flows 132 Notice of Annual General Meeting

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TESTIMONIALS VARD has delivered a broad range of highly specialized vessels in 2016. Together with our customers we have developed and built state-of-the-art vessels and solutions for the oil and gas industry, fisheries and the aquaculture business. Deep Explorer An offshore subsea and diving support vessel of VARD 3 06 design, delivered from Vard Langsten to TechnipFMC. TechnipFMC is proud to welcome this impressive new ship - Deep Explorer - to our fleet, after a three-year build project. As we continue to innovate and support our clients’ evolving needs, this vessel, which is arguably one...

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Normand Maximus An offshore subsea construction vessel of VARD 3 19 design, delivered from Vard Brattvaag to Solstad Offshore. We successfully completed and received delivery of Solstad’s largest vessel to-date, Normand Maximus, in 2016. Tapping on VARD’s technical expertise in building highly specialized vessels, Solstad’s newbuilding team along with VARD’s designers and shipbuilders worked hand-inhand to overcome all challenges pertaining to the construction of the advanced vessel, which is capable of installing large-diameter flexible pipes in ultra-deepwater environments. The 180-meter long...

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CEO LETTER Dear Valued Shareholders, The maritime industry is well accustomed to cyclical changes, which we have experienced innumerable times throughout VARD's long shipbuilding history. Our strength is to adapt to these changes and transform them into new opportunities. Today's downturn in the offshore market is the worst we have experienced in recent times. It is tough to see our loyal customers and close relations struggling, and it is hard for us not having enough work for all our employees and locations. In 2016, each and every day has been a fight to achieve new contracts and to adjust...

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Dear Shareholders, Since undertaking the role of Chairman at VARD in October 2016, I have had the privilege of gaining deeper understanding of the Group's values and vision, its people and operations. I am respectful of the strengths of the organization, its unique shipbuilding know-how built over generations, and the recognition it receives from some of the most demanding clients in the industry. But I am also mindful of the challenges still ahead of us on the path back to sustainable, profitable growth. 2016 was a year of profound changes for VARD, during which great strides were made to reposition...

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Mr. Giuseppe CoroneUa Chairman of the Board and Non-Executive Director Mr. Roy Reite Chief Executive Officer and Executive Director Mr. Vittorio Zane EVP and Executive Director Mr. CoroneUa was appointed chairman of the board and non-executive director of the Company in 2016. He is head of the offshore business unit of FINCANTIERI S.p.A. Experience: Mr. CoroneUa joined Fincantieri in 1990 in the design/engineering department, and moved to the project management department in 1999, becoming project manager for cruise shipbuilding projects in 2001. From 2006, he ted the ship repair and conversion...

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Mr. Claudio Cisilino Non-Executive Director Mr. Sung Hyon Sok Independent Director Mr. Keen Whye Lee Independent Director Mr. Cisilino was appointed non-executive director of the company in 2016. He is vice president of fincancial planning and control of FINCANTIERI S.p.A. Experience: Mr. Cisilino joined Fincantieri in 2007 in the M&A and business development department and became head of financial controlling in 2009, before assuming his current role in 2011, where he is responsible for the group budgeting and multi-year financial planning activities, cost controlling and capital expenditure...

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10 EXECUTIVE MANAGEMENT TEAM Mr. Roy Reite Chief Executive Officer and Executive Director Mr. Geir Ingebrigtsen Mr. Stig Bjprkedal EVP and Chief Financial Officer EVP Equipment and Solutions Mr. Vittorio Zane EVP and Executive Director Mr. Reite is the chief executive officer and serves as executive director of VARD. He has served as president of the Company since 2001. Experience: Mr. Reite was yard director at Vard Spviknes from 1999 to 2001, and assumed various positions as project manager, production manager and technical manager from 1990 to 1995. He was also a business consultant at...

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EXECUTIVE MANAGEMENT TEAM 11 Mr. Knut Ola Tverdal EVP Brazil Mr. Magne O. Bakke EVP and Chief Operating Officer Mr. Magne Haberg EVP Sales and Marketing Mr. Holger Dilling EVP Investor Relations and Business Development Asia Mr. Haberg heads sales and marketing in VARD. In addition, he took on responsibility for the aquaculture business at the end of 2016. Experience: Mr. Haberg first joined VARD as a project manager at Vard Langsten in 2000, and became senior vice president overseeing the sales and marketing department at VARD in 2004. Between 1995 and 2001, Mr. Haberg held several positions...

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ANNUAL REPORT 2016

ANNUAL REPORT 2016

Catalog excerpts

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