ENERGY FOR GROWTH and...ANNUAL REPORT 2005 ENERGY FOR GROWTH 04/06 Annul_Report_2006 07/04/06 10:17...

Burmeister & Wain Scandinavian Contractor A/S

A N N U A L R E P O R T 2 0 0 5

E N E R G Y F O RG R O W T H

04/06

Annul_Report_2006 07/04/06 10:17 Side 1

C O N T E N T S

Company Information 3

Group Chart 4

Financial Highlights 5

Management’s Report 6

Management’s Statement 9

Auditors’ Report 10

Profit and Loss Account 11

Balance Sheet 12

Equity Statement 14

Cash Flow Statement 15

Accounting Policies 16

Notes 20

Atherinolakkos 102 MW Diesel Power Station, Crete, Greece2


C O M P A N Y I N F O R M A T I O N

Executive Management:Sigurd Andersen, Managing DirectorSøren Barkholt, Executive Director

Shareholders holding more than 5% ofthe share capital or the voting rights:MESCO Denmark A/S, which is owned by Mitsui Engineering & Shipbuilding Co. Ltd., Tokyo, Japan

Auditors:KPMG C. JespersenStatsautoriseret Revisionsinteressentskab

Bankers:Danske Bank A/S

Burmeister & Wain

Scandinavian Contractor A/S

Gydevang 35

DK-3450 Allerød

Telephone: +45 4814 0022

Telefax: +45 4814 0150

E-mail: [email protected]

Homepage: www.bwsc.dk

Board of Directors:

Torkil Bentzen, Chairman

Katsuhisa Ohno, Deputy Chairman

Takamichi Kiyota

Sigurd Andersen

Lars Holmblad

Leif Juul Jørgensen

Willy S. Henriksen *)

John Berthin Jensen *)

Lars Ellegaard *)

*) Elected by employees

3Front page: St. Louis Power Station, Mauritius


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G R O U P C H A R T


Nominal DKK 150,000,000

BWSC Mindanao Inc.The Philippines

Nominal PHP 50,000,000

BWSC Lanka (Private) Ltd.Sri Lanka

Nominal LKR 5,000,000

BWSC (Sabah) Sdn.Bhd.Malaysia

Nominal MYR 500,000

BWCC Ltd.The Bahamas

Nominal BSD 5,000

BWSC El SalvadorEl Salvador

Nominal USD 10,000

BWSC Panama S.A.Panama

Nominal USD 10,000

BWSC Hellas S.A.Greece

Nominal EUR 60,000

BWSC Mauritius Ltd.Mauritius

Nominal MUR 100,000

BWSC Portugal Lda.Portugal

Nominal EUR 5,000

APOM Ltd.Jersey

Nominal USD 35,000

Asia Power (Private) Ltd.Sri Lanka

Nominal USD 22,000,000

Pedregal Power Company S.DE.R.LPanama

Nominal USD 25,262,000

100% 100%

100% 100%

100% 100%

100% 100%

100%

50%6,8%

7,6%

Subsidiary undertakings

Associated undertakings

This Group Chart does not include companies with no activity, nor companies which have been liquidated during the year 2005.


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F I N A N C I A L H I G H L I G H T S ( G R O U P )

KEY FIGURES 2005 2005 2004 2003 2002 2001

EUR DKK DKK DKK DKK DKK

Income Statement (in millions):

Net turnover 123 916 880 993 703 527

Gross profit 18 134 151 136 166 156

Operating profit 5 34 50 51 66 43

Net financials 2 12 -1 -6 4 9

Profit before tax 7 52 51 47 73 57

Profit for the year 5 39 35 34 51 41

Balance Sheet (in millions):

Total assets 94 703 611 670 523 483

Cash, cash equivalents and securities 54 403 347 140 326 281

Equity 37 273 265 250 227 181

Interest-bearing debts 7 51 53 0 23 25

Cash Flows (in millions):

From operating activities 12 87 192 -133 62 25

From investing activities -1 -4 -23 -27 -12 -12

From financing activities -4 -27 38 -26 -5 0

Employees (Number):

Average number of full-time employees 493 491 479 449 457

Of which employed by the Parent Company 257 247 252 259 265

FINANCIAL RATIOS % % % % %

Gross margin 15 17 14 24 30

Profit margin 6 6 5 10 11

Return on investments 7 8 7 13 11

Solidity 39 43 37 43 37

Return on equity 15 13 14 25 25

Except from the profit margin, which according to thecustom of the sector has been calculated as the resultbefore tax proportional to the turnover, the ratios havebeen prepared in accordance with the “Recommendationsand Guidelines 2005” issued by the Danish Society ofFinancial Analysts. For further definitions, see AccountingPolicies, page 19. Comparative figures have not been restatedaccording to the change in accounting policies for the year2001.


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The Annual Report for Burmeister & Wain ScandinavianContractor A/S has been prepared in accordance with theprovisions of the Danish Financial Statements Act for largereporting class C enterprises.

The accounting policies are consistent with those of lastyear.

Financial ResultIn 2005, BWSC’s net-turnover increased by 4% from DKK880 million to DKK 916 million. The turnover was dividedupon power plant enterprises totaling DKK 639 million(DKK 597 million in 2004) and contracts for operation, ser-vice and maintenance, totaling DKK 277 million (DKK 283million). The entire turnover derives from export.

The gross profit decreased by DKK 17 million to DKK 134 mil-lion, and the result of the operating profit fell correspondinglyto DKK 34 million.When adding the net financials of DKK 12million (DKK -1 million), which include exchange rate adjust-ments of foreign currency of DKK 5 million (DKK -2 million),and the improved share of result in associated companies,the result before tax was DKK 52 million (DKK 51 million),while the result after tax improved by DKK 4 million to DKK39 million. The result is considered satisfactory.

The profit ratio was 6% as the year before, while the solidi-ty ratio fell to 39% compared to 43% the year before, as aconsequence of an increase in assets by approx. DKK 92million to DKK 703 million among other reasons due toadvance payments from new orders. The average return onequity yielded 14.6%, which was better than the year be-fore (13.4%).

Activities in 2005BWSC is a leading supplier in the world market of largeturnkey diesel power plants. The strategy of the Company isunchanged compared to previous years, and the activitieshave comprised:

• Development of new Power Plant and Independent Power Producer (IPP) companies, which is anticipated tobe followed by capital investments in the companies.This development includes all commercial and legal agree-ments, including power purchase and fuel supply agree-ments, financing, insurance, leases, a.o.

• Delivery of turnkey power plants.

• Services in connection with long-term operation and maintenance contracts for power plants, delivery of transmission lines, and services such as spare parts,extended training programs and power plant rehabilitation.

In 2005, 70% (68%) of the turnover came from the con-struction of power plants and 30% (32%) from service con-tracts in a.o. the Bahamas, Bermuda, Barbados, Macau,Senegal and Greece and from operation and maintenancecontracts in the Philippines, Malaysia, Sri Lanka, andPanama.

From a geographical viewpoint, 28% (33%) of the turnovercame from countries in South and Central America, 16%(17%) from South East Asia, 47% (9%) from Africa and theMiddle East, and 9% (41%) from Europe.

Contracts and Orders in HandDuring 2005, the Group entered into contracts of DKK 813million, including contracts for delivery of new power plantsin Burkina Faso, Sudan, and on the Azores, and for extensionof a power plant in the Bahamas.

Furthermore, BWSC entered into major service and rehabil-itation contracts for existing power plants - among othersin the Bahamas and Barbados, and delivery of service andspare parts, etc.

At the year-end, the volume of orders totaled DKK 1,367million (DKK 1,404 million), which is a decrease of DKK 37million compared to the previous year, but still on a satis-factory level.

Capital StructureBWSC’s capital structure is unchanged compared to 2004,as the share capital at 31 December 2005 totaled DKK 150million.

BWSC’s Japanese parent company Mitsui Engineering &Shipbuilding Company Ltd. (MES) owns the total sharecapital through its Danish subsidiary MESCO Denmark A/S.

M A N A G E M E N T ’ S R E P O R T

Pipe penetration, East Power Station, Bermuda


7

Capital ResourcesIn 2005, the cash funds and securities of the Group increased by DKK 56 million to DKK 403 million, while the receivables of the Group increased by DKK 28 million - from DKK 142 million to DKK 170 million.

The major part of the cash funds and securities of theGroup has been invested in short-term deposits and inbonds with a term to maturity of less than 6 years.

The cash fund reserves of the Group are considered good.

In 2005, cash flows from operating activities amounted toDKK 87 million (DKK 192 million), while cash flows frominvestment activities amounted to DKK -4 million (DKK -23million), owing to the fact that the building extension wascompleted in 2004.

Cash flows from financing activities amounted to DKK -27 million (DKK 38 million) mainly from dividend paymentof DKK 25 million (DKK 15 million) and loan repayment.

Events after Balance Sheet DateAfter the close of the financial year, the Company has en-tered into a contract for delivery of a power plant worthapprox. DKK 365 million and a long-term operation contractat a contract value of approx. DKK 115 million. The latterwill begin to have financial effect from year 2009.

No important events have taken place after the close of thefinancial year, which may have a significant impact on theposition of the Company.

Knowledge ResourcesThe strong international competition is still placing anincreasing call for flexibility and competence of theemployees, and it is of essential importance to BWSC thatits core competencies are identified and developed. In2005, the focus of Human Resource efforts has thereforebeen to attract and keep qualified employees.

In 2005, the average number of full-time employees in theGroup was 493, which is an increase of 2 employees com-pared to 2004. 257 persons were employed by the ParentCompany, compared to 247 in 2004, while 236 personswere employed by subsidiary undertakings, compared to244 in 2004.

The average age of the employees of the Parent Companyis approx. 44 years. 34% of these have worked with BWSCfor more than 10 years. 46% of the employees of theParent Company hold a bachelor’s degree or similar, while14% have an academic degree, such as a master’s or PhDdegree. 89 employees are engineers and 38 are marine

engineers. Sickness absence in 2005 was 2.8% of the stan-dard time, and the rate of employee turnover was 12%.

Special RisksBWSC’s earnings derive from 3 main areas:

• Development of power plant projects and related capital investments.

• Construction contracts for power plants.

• Service and full operational responsibility contracts for power plants.

Sale and construction contracts for power plants are indivi-dual orders with a possibility for later repeats. However, thefocused sales efforts on service and operation contractshave successfully decreased the effect of the normally fluc-tuating order-intake for power plants.

Due to the worldwide activities of the Company, theprofit/loss, cash flow and equity positions are influenced bythe development of exchange and interest rates of a num-ber of currencies. It is company policy to hedge commercialcurrency risks for contracts, while currency risks for invest-ments in subsidiaries and associated undertakings abroadare normally not hedged.

The Parent Company undertakes this task as well as theGroup’s cash management. As regards project supplies, thehedging of the net cash flow of each project is covered percurrency. The Company regards the EUR as a stable currencyagainst DKK, for which reason EUR net positions are nothedged, cf. note 12 of the Annual Report.

The only significant interest-bearing debt is the mortgageloan obtained in DKK.

BWSC has a long experience of conducting business in mar-kets outside Europe, in developing countries of varying po-litical stability as well as in developed countries – and usual-ly of small geographical sizes, including island societies.

In connection with the activities in Portugal, the local taxauthorities have not approved BWSC’s tax return for thePortuguese activities in 1997 and 2000. According toBWSC’s calculations, the claims will not lead to additionaltax to be paid in Portugal, thus no further provisions havebeen made.

Likewise, the local tax authorities in the Philippines havemade a claim for payment of additional tax of BWSC’s localactivities, besides what has been taxed and paid for already.BWSC has rejected the claims as unwarranted, and the caseis now being dealt with by the Philippine tax court system.


8

BWSC has made a provision to cover legal and audit feesfor the Portuguese as well as Philippine cases.

The in-depth experience of the Group and its employeeswith engineering, construction and servicing of powerplants in the export markets contributes to reducing therisks of the Group considerably when implementing contracts.

The External EnvironmentIt is company policy to comply with all relevant standardsand regulations in those countries and societies in whichthe Group conducts its business.

Diesel engines installed by BWSC can be adapted to use alarge variety of alternative fuels, such as natural gas andvegetable oils. The Company also participates in environ-mental protection projects, for instance the reduction ofNOx and particle emission to further strengthen the position of the high-efficiency diesel engine, and thecorresponding low CO2 emissions.

The domestic activities of the Company are of a knowledge-based nature with no traditional production of goods, andit is considered that these activities do not have an impacton the external environment.

Development ActivitiesBWSC has developed from an engineering companysupplying parts for power plants – via the role of turnkeysupplier – to a company developing and investing in powerplant companies and IPP companies as well, also in connec-tion with privatization and/or power plant extensions. Thisincludes all commercial and legal agreements together withpower purchase and fuel supply agreements, financing,insurance, leases, a.o.

Power plant companies, IPP companies and self-generatingindustrial companies depend heavily on their ability tomaximize the yield from their investments. In addition tothis, the access to reliable and relatively low-cost energybecomes increasingly more significant to attain sustainableeconomic growth and to develop business, industry, andsociety.

BWSC has delivered Combined Heat and Power and BiogasPlants in Europe and Japan and stays constantly informedon the market possibilities and technology developmentwithin renewable energy and small waste incinerationplants.

BWSC also conducts a continuous technical and conceptualdevelopment program together with on-going improve-

ment of all operations and business areas. The developmentcosts are expensed in the year incurred.

OwnershipOriginally, BWSC was a part of the Burmeister & WainGroup, and the Company was established as an indepen-dent company in 1980.

Since 1990, BWSC has been a fully owned subsidiary ofMitsui Engineering & Shipbuilding Company Ltd. (MES)through its Danish subsidiary MESCO Denmark A/S. Thecooperation between MES and the B&W Group dates backto 1926 when MES entered into its first license agreementwith Burmeister & Wain A/S as the first of now many glo-bal manufacturers of MAN B&W diesel engines.

MES is listed on the Tokyo stock exchange, and the Group’scompany activities include the manufacture of industrialplants, ships, diesel engines, gas turbines and boilers. Groupactivities also include road making, bridge building, andtunnel construction, a.o.

In the fiscal year of 2004/2005, the MES Group, whichBWSC is a part of, had a turnover corresponding to approx-imately USD 4,809 million. The MES Group employsapproximately 11,000 persons.

Closing RemarksBased on BWSC’s satisfactory level of orders in hand of DKK1,367 million, of which operation contracts are still sub-stantial, and with the obtained and worked up order possi-bilities for new projects, a satisfactory level of activity andcorresponding result are expected for the fiscal year 2006.

The Board of Directors and the Executive Managementhereby express their sincere gratitude to customers, coop-eration partners and employees, who through good team-work and dedicated efforts have all contributed to the goodresults for the BWSC Group.

Control Room, East Power Station, Bermuda


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Executive Management

Sigurd Andersen Søren BarkholtManaging Director Executive Director

Board of Directors

Torkil Bentzen Katsuhisa Ohno Takamichi Kiyota(Chairman) (Deputy Chairman)

Sigurd Andersen Leif Juul Jørgensen Lars Holmblad

Willy S. Henriksen*) John Berthin Jensen*) Lars Ellegaard*)

The Annual Report is adopted at the Annual General Meeting of shareholders on 1 March 2006.

Chairman *) Elected by employees

The Board of Directors and the Executive Managementhave today presented and adopted the Annual Report ofBurmeister & Wain Scandinavian Contractor A/S for thefinancial year ended 31 December 2005.

The Annual Report has been presented in accordance withthe Danish Financial Statements Act.

We consider the accounting policies applied appropriateand the accounting estimates made reasonable. To the best of our belief, the Annual Report includes the information, which is relevant for an assessment of theCompany’s financial position.

Against this background, it is our opinion that the AnnualReport gives a true and fair view of the Company’s assetsand liabilities, financial position, results of operations andcash flows for the year ended 31 December 2005.

We recommend that the Annual Report be adopted at theAnnual General Meeting.

Allerød, 1 March 2006

M A N A G E M E N T ’ S S T A T E M E N T

Note: This Annual Report 2005 is an English translation of the official Annual Report prepared for the Danish Authorities.

Inauguration Ceremony, Units E7/E8, East Power Station, Bermuda


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C O M P A N Y P R O F I L E

A U D I T O R S ’ R E P O R T

To the Shareholders of Burmeister & Wain ScandinavianContractor A/S

We have audited the Annual Report of Burmeister & WainScandinavian Contractor A/S for the financial year ended 31December 2005. The Annual Report is prepared in accordance with the Danish Financial Statements Act.

The Annual Report is the responsibility of the Company’sBoard of Directors and the Executive Management. Our responsibility is to express an opinion on the Annual Reportbased on our audit.

Basis of OpinionWe conducted our audit in accordance with DanishAuditing Standards. These standards require that we planand perform the audit to obtain reasonable assurance thatthe Annual Report is free of material misstatement. Anaudit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the Annual Report. An auditalso includes assessing the accounting policies applied andsignificant estimates made by the Board of Directors andthe Executive Management, as well as evaluating the overallAnnual Report presentation. We believe that our audit pro-vides a reasonable basis for our opinion.

Our audit has not resulted in any qualification.

OpinionIn our opinion, the Annual Report gives a true and fair viewof the Group’s and the Parent Company’s financial positionat 31 December 2005 and of the results of their operationsand cash flows for the financial year then ended in accordance with the Danish Financial Statements Act.

Copenhagen, 1 March 2006

KPMG C. JespersenStatsautoriseret Revisionsinteressentskab

Jesper KoefoedState Authorized Public Accountant

Lars Rhod SøndergaardState Authorized Public Accountant

East Power Station, Bermuda, May 2005


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P R O F I T A N D L O S S A C C O U N T ( I N D K K T H O U S A N D S )

Parent Company The Group

2004 2005 Note 2005 2004

809,248 856,536 1 Net turnover 915,744 879,865

-683,774 -735,333 Costs of production -781,831 -728,404

125,474 121,203 Gross profit 133,913 151,461

-30,133 -26,509 Sales costs -26,639 -30,133

-65,695 -64,759 Administrative expenses -72,979 -71,685

29,646 29,935 Operating profit/loss 34,295 49,643

Profit on investments

11,594 3,867 4 in subsidiary undertakings 0 0

Profit on investments

2,937 5,140 4 in associated undertakings 5,140 2,937

Profit before

44,177 38,942 non-operating items 39,435 52,580

6,308 15,579 Financial income 18,254 6,694

-6,304 -4,598 Financial costs -5,868 - 8,064

44,181 49,923 Profit before tax 51,821 51,210

-9,588 -10,560 2 Tax on profit on ordinary activities -12,458 - 16,617

34,593 39,363 PROFIT FOR THE YEAR 39,363 34,593

It is recommended that the profit for the year, DKK 39,363 thousand, is appropriated as follows:


Proposed dividend 18,000 18,000

Transferred to net revaluation reserves 3,983 2,336

Retained profit 17,380 19,027

39,363 39,363

Engine hall, Unit 33, Grand BahamaPower Plant, the Bahamas


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B A L A N C E S H E E T A S S E T S ( I N D K K T H O U S A N D S )


2004 2005 Note 2005 2004

88,026 88,722 Land and buildings 88,722 88,026

Fixtures and fittings,

4,607 4,449 tools and equipment 5,707 5,972

92,633 93,171 3 Tangible fixed assets 94,429 93,998

Investments in

20,902 23,558 subsidiary undertakings 0 0

Investments in

23,349 29,182 associated undertakings 29,182 23,349

2,480 2,446 Other securities 2,446 2,480

46,731 55,186 4 Financial fixed assets 31,628 25,829

139,364 148,357 Total fixed assets 126,057 119,827

0 0 Inventories 3,256 1,960

73,915 117,648 Trade debtors 123,311 77,989

13,512 8,935 5 Contract work in progress 18,032 13,512

Amounts owed by subsidiary

7,936 22,946 undertakings 0 0

Amounts owed by associated

1,292 1,200 undertakings 1,201 1,292

7,328 0 Receivable corporate tax 0 7,328

24,075 5,124 Other debtors 17,197 29,979

10,517 8,078 Prepayments 10,321 12,144

138,575 163,931 Debtors 170,062 142,244

35,809 38,257 Securities 38,257 35,809

285,952 345,188 Cash and cash equivalents 364,937 311,574

460,336 547,376 Total current assets 576,512 491,587

599,700 695,733 TOTAL ASSETS 702,569 611,414

Inauguration Ceremony, Unit 33,Grand Bahama Power Plant,the Bahamas, October 2005


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B A L A N C E S H E E T E Q U I T Y A N D L I A B I L I T I E S ( I N D K K T H O U S A N D S )


2004 2005 Note 2005 2004

150,000 150,000 Share capital 150,000 150,000

Net revaluation reserve

11,804 19,284 acc. to the equity method 5,833 0

1,763 -7,965 Reserve for financial instruments -7,965 1,763

76,695 94,075 Retained earnings 107,526 88,499

25,000 18,000 Proposed dividend 18,000 25,000

265,262 273,394 Equity 273,394 265,262

28,588 15,797 6 Deferred tax 15,571 28,253

11,532 15,520 Warranty provisions 15,520 11,532

20,111 14,626 7 Other provisions 14,626 20,111

60,231 45,943 Provisions 45,717 59,896

51,107 48,976 8 Mortgage debt 48,976 51,107

51,107 48,976 Long-term liabilities 48,976 51,107

2,233 2,253 Mortgage debt, maturing in 2006 2,253 2,233

81,701 150,327 5 Prepayments received from customers 150,762 81,701

49,879 55,287 Trade creditors 56,734 51,209

11,362 11,212 Amounts owed to related undertakings 10,470 10,894

0 1,133 Corporate tax 1,358 4,712

77,925 107,208 9 Other creditors 112,905 84,400

223,100 327,420 Current liabilities 334,482 235,149

Total long-term and

274,207 376,396 current liabilities 383,458 286,256

599,700 695,733 TOTAL EQUITY AND LIABILITIES 702,569 611,414

Foundation work,Pico Power Station,

the Azores, Portugal


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E Q U I T Y S T A T E M E N T ( I N D K K T H O U S A N D S )

Parent Company

The share capital is divided into 150 shares of DKK 1 million each. In 2003, the share capital was increased by

DKK 130 million to a total of DKK 150 million.

Netrevalua- Financial

Share tion instru- Retained Dividend capital reserve ments earnings proposed Total

Balance at 1 January 2005 150,000 11,804 1,763 76,695 25,000 265,262

Dividends paid 0 0 0 0 -25,000 -25,000

Profit for the year 0 3,983 0 35,380 0 39,363

Proposed dividend for 2005 0 0 0 -18,000 18,000 0

Changes in financial instruments 0 0 -13,580 0 0 -13,580

Tax on changes in equity 0 0 3,852 0 0 3,852

Currency retranslation

adjustment of opening net assets

and currency translation of the

accounts of associated undertakings 0 3,497 0 0 0 3,497

Equity at 31 December 2005 150,000 19,284 -7,965 94,075 18,000 273,394

The Group

Balance at 1 January 2005 150,000 0 1,763 88,499 25,000 265,262

Dividends paid 0 0 0 0 -25,000 -25,000

Profit for the year 0 2,336 0 37,027 0 39,363

Proposed dividend for 2005 0 0 0 -18,000 18,000 0

Changes in financial instruments 0 0 -13,580 0 0 -13,580

Tax on changes in equity 0 0 3,852 0 0 3,852

Currency retranslation

adjustment of opening net assets

and currency translation of the

accounts of associated undertakings 0 3,497 0 0 0 3,497

Equity at 31 December 2005 150,000 5,833 -7,965 107,526 18,000 273,394


C A S H F L O W S T A T E M E N T ( I N D K K T H O U S A N D S )

The Group Note 2005 2004

Operating profit 34,295 49,643

Adjustments 15 12,021 12,592

Changes in working capital 16 44,816 133,538

Cash flows from operating activities before net financials 91,132 195,773

Interest received and similar income 18,254 5,167

Interest paid -5,691 -8,064

Cash flows from ordinary activities 103,695 192,876

Income taxes paid -16,843 -613

Cash flows from operating activities 86,852 192,263

Additions of new building, fixtures and fittings, tools and equipment -6,768 - 25,286

Disposals of fixtures and fittings, tools and equipment 0 667

Dividends received from associates 2,804 1,787

Additions of securities -323 224

Disposals of securities 357 -674

Cash flows from investing activities -3,930 - 23,282

Proceeds from refinancing of mortgage debt 122 55,000

Repayment of mortgage debt -2,233 -1,660

Dividends distributed -25,000 -15,000

Cash flows from financing activities -27,111 38,340

Changes in cash and cash equivalents 55,811 207,321

Cash and cash equivalents at beginning of year 347,383 140,062

Cash and cash equivalents at year-end 403,194 347,383

The cash flow statement cannot directly be derived from the Profit and Loss and Balance Sheets.

Power house erection, Pico Power Station,the Azores, Portugal

15


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GeneralThe Annual Report of Burmeister & Wain ScandinavianContractor A/S has been presented in accordance with theprovisions of the Danish Financial Statements Act for largereporting class C enterprises.

The accounting policies are consistent with those of lastyear.

ConsolidationThe consolidated financial statements are prepared on thebasis of audited Annual Report of the Parent Company andeach subsidiary by aggregating items of a uniform natureand by eliminating intra-group income, expenses andbalances. Furthermore, intra-group profits and losses areeliminated.

Shares in consortia are recognized using pro rata consolidation. Intra-group profits, losses and balances areeliminated relative to the Company's investment in suchconsortia. Any remaining balances are stated under theitems ”Investments in associated undertakings” and“Amounts owed by associated undertakings”.

The project financial statements of international contracting activities are translated into Danish kroner asfollows: The items in the Profit and Loss Account and theBalance Sheet are translated according to weighted projectrates, corresponding to the exchange rates according to for-ward exchange contracts entered into. As the exchangerates applied are the same during the entire project period,no exchange rate differences will arise.

The financial statements of international subsidiaries thatare independent entities are translated into Danish kroneras follows: The items in the Profit and Loss Account aretranslated at average rates that do not differ materiallyfrom the exchange rates ruling at the date of transaction.Balance sheet items are translated into closing exchangerates. Currency retranslation differences are taken directlyto equity.

The financial statements of international subsidiaries thatare integrated entities are translated into Danish kroner asfollows: The items in the Profit and Loss Account are translated at average rates that do not differ materiallyfrom the exchange rates ruling at the date of transaction.Current assets and liabilities are translated at closingexchange rates, whereas fixed assets and long-term liabilities are translated at historical rates. Exchange differences are recognized in the Profit and Loss Account.

Foreign Currency TranslationMonetary items in foreign currency are translated at theexchange rate at the transaction date. Exchange differencesarising between the exchange rate ruling at the transactiondate and the payment date are recognized in the Profit andLoss Account.

Receivables, payables and other monetary items in foreigncurrency, which are not paid at the balance sheet date, aretranslated at the exchange rate at the balance sheet date.The difference between the exchange rate at the balancesheet date and the exchange rate at the time when thereceivable or payable is incurred is recognized in the Profitand Loss Account.

Derivative Financial InstrumentsDerivative financial instruments are initially recognized inthe Balance Sheet at cost and subsequently measuredaccording to market value. The market value of derivativefinancial instruments is included in Other debtors (positivemarket value) or Other creditors (negative market value) asthe case may be.

Changes in the market value of derivative financial instruments that hedge the market value of already recognized assets or liabilities are recognized in the Profit and Loss Account under Financial income/costs together with changes in the value of the assets and liabilities hedged.

Derivative financial instruments used to hedge expectedfuture transactions are measured at market value on thebalance sheet date, and value adjustments are recognizeddirectly in the equity until the hedged item is realized.When the hedged item is realized, the changes in value arerecognized in the same accounting entry as the hedgeditem, as stated above by transferring the changes in valuefrom the equity to the Profit and Loss Account.

Derivative financial instruments which are not held forhedging purposes are recognized in the Balance Sheet atmarket value on the balance sheet date. Value adjustmentsare recognized in the Profit and Loss Account underFinancial income/costs.

PROFIT AND LOSS ACCOUNT

RevenueThe Company's revenue derives from contract activities, etc.

Contract work is recognized according to the percentage-of-completion method. Profits on contracts are recognized

A C C O U N T I N G P O L I C I E S


17

by reference to actual stage of completion, based on a con-servative estimate allowing for both known and expectedadditional expenses. In connection with joint ventures,only the Group’s share is taken into account.

Realized profits on completed contracts are recognized netof provisions for necessary warranties.

Income from operational and spare part contracts is recognized when invoiced.

Production CostsProduction costs comprise expenses, including wages andsalaries and depreciation made for purposes of generatingthe year's revenue, including direct and indirect expensesrelated to raw materials and consumables, wages and salaries, rent and leases and depreciation of plant.

Furthermore, research costs, development costs that donot qualify for capitalization and depreciation of capitalizeddevelopment costs, are recognized under production costs.

Write-downs in connection with expected losses on contract activities are, furthermore, recognized.

Sales CostsExpenses related to offers and orders, etc. are recognized,including expenses related to sales personnel, marketingand internal development projects.

Administrative ExpensesExpenses related to management and group admini-stration, including expenses related to administrative officers, management, office premises, office expenses, etc.and depreciation are recognized.

The administrative expenses that are included in productionoverheads are transferred to production overheads.

Net FinancialsFinancial income and expenses include interest incomeand expenses, realized and unrealized capital gains andlosses, payables and transactions in foreign currency,amortization of financial assets and liabilities and sur-charges and allowances under the advance-payment-of-tax scheme, etc. Financial income and expenses are recog-nized at the amounts relating to the reporting period.

TaxThe estimated tax charge for the year is recognized in the Profit and Loss Account and is recorded as a current liability in the Balance Sheet. Non-refunded dividend tax concerning dividends from foreign subsidiaries is expensedin the year in which the dividend is declared.

The Company and the Parent Company are compulsoryjointly taxed. The tax of the joint taxation income is fullyallocated as of 2005, by payment of joint taxation contributions. The parent method was used previously.

Deferred tax resulting from timing differences betweenincome and expenses in the financial statements and thestatement of taxable income and from tax loss carry-forwards is provided for in the Balance Sheet at 28%.Changes in the deferred tax charge for the year are takento the Profit and Loss Account.

Intangible Fixed Assets and Property, Plant andEquipmentIntangible fixed assets and property, plant and equipmentare measured at cost plus subsequent additions and reval-uation and less accumulated amortization/depreciationand write-downs.

Fuel tank foundation, Pico Power Station,the Azores, Portugal


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Amortization/depreciation in the year is provided on astraight-line basis over the estimated useful lives of theindividual assets, using the following periods:

Leasehold improvements 5 yearsOffice building 100 yearsWarehouse 25 yearsInstallations 10 yearsCars 5 yearsPlant and equipment 2-5 yearsFixtures and fittings 3-10 yearsIT software 3 yearsIT hardware 3 years

Minor acquisitions not exceeding DKK 11,000 per unit areexpensed in the year of acquisition.

Investments

Investments in Subsidiary and Associated UndertakingsProfit and Loss AccountThe Company's proportionate share of the after-tax profitor loss of affiliated undertakings is recognized in the Profitand Loss Account after full elimination of intra-group profits and losses.

The Company's proportionate share of the pre-tax profit orloss of associated undertakings is recognized in the Profitand Loss Account after full elimination of intra-group profits and losses. The Company's share of associatedundertakings' tax charge and extraordinary items arerecognized under “Tax on profit or loss from ordinary activities” and “Extraordinary profit or loss after tax”, re-spectively.

Balance SheetInvestments in subsidiary and associated undertakings arerecognized in the Balance Sheet at the Company's proportionate share of the net asset value of the enterprises, calculated by reference to the accounting polices applied by the Parent Company, less or plus unrealized intra-group profits and losses.

Subsidiary and associated undertakings whose net assetvalue is negative are recognized at DKK 0, and any receivables from these enterprises are written down by theParent Company's share of the negative net asset value. Ifthe net asset value exceeds the receivables, the residualamount is recognized under provisions provided that theParent Company has a legal or actual obligation to coverthe subsidiaries' deficits.

Net revaluation of investments in subsidiary and associated undertakings is taken to equity as a net revaluation reserve according to the equity method to theextent that the carrying amount exceeds the cost.

Newly acquired or newly established enterprises are recognized in the financial statements from the time ofacquisition. Enterprises sold or otherwise disposed of arerecognized until the time of sale.

Profits or losses on the sale of subsidiary and associatedundertakings are stated as the difference between the selling price and the carrying amount of the net assets atthe time of sale and expected expenses related to the saleand/or disposal. Profits and losses are recognized in theProfit and Loss Accounts under net financials.

The takeover method is applied to newly acquired subsid-iary and associated undertakings. Thus, the assets and liabilities of such enterprises are measured at fair value atthe time of acquisition.

InventoriesInventories are measured at cost according to the FIFOprinciple. However, inventories are written down to thelower of cost and net realizable value.

ReceivablesReceivables, etc. are measured at amortized cost, whichusually equals the nominal value.

Provisions for bad debts are based on individual assessments of high-risk accounts receivable.

SecuritiesSecurities under “Current assets” comprise listed bondsstated at the market price at the balance sheet date.

Contract Work in ProgressContract work in progress is measured by reference to thestage of completion.

The market price is based on the stage of completion atthe balance sheet date and the total expected income onthe individual work in progress.

The individual work in progress is recognized in the BalanceSheet under receivables or liabilities other than provisions,dependent on the net value of the selling price less pay-ments on account and prepayments. Expenses related tosales work and contracts are recognized in the Profit andLoss Account as incurred.


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PrepaymentsPayments made or received concerning expenses or in-come in subsequent years are recognized under prepay-ments.

Cash and Cash EquivalentsCash and cash equivalents comprise cash and near moneysecurities in respect of which the risk of changes in value isinsignificant.

ProvisionsProvisions comprise expected expenses relating to per-formance guarantees and expected losses on work in pro-gress.

Performance guarantees comprise commitments to repairwork within the guarantee period. Provisions are measuredand recognized based on previous experience with guarantee work.

When it is probable that the total expenses will exceed thetotal income on contract work in progress, a provision ismade for the total loss expected to be incurred on thework. The provision is recognized as an expense under production costs.

Proposed Dividend for the YearProposed dividend for the year is included in the equity.

Financial LiabilitiesFinancial liabilities are recognized on the raising of the loanat the proceeds received net of transaction costs incurred.The financial liability is subsequently measured at amor-tized cost, equaling the capitalized value, using the effec-tive interest rate method. The difference between the pro-ceeds and the nominal value is thus recognized in theProfit and Loss Account over the loan term.

Other financial liabilities, which comprise trade payables,payables to subsidiary and associated undertakings andother payables are measured at amortized cost, which usually corresponds to the nominal value.

Cash Flow StatementThe cash flow statement shows the Group's net cash flowsfor the year, broken down by operating, investing andfinancing activities, changes in cash and cash equivalentsand the Group's cash and cash equivalents at the beginning and at the end of the year.

Cash Flows from Operating ActivitiesCash flows from operating activities are made up as the netprofit or loss for the year, adjusted for non-cash operatingitems, changes in working capital and paid income taxes.

Cash Flows from Investing ActivitiesCash flows from investing activities comprise paymentsrelated to additions and disposals of enterprises and ac-tivities and additions and disposals of intangible assets,property, plant and equipment and investments.

Cash Flows from Financing ActivitiesCash flows from financing activities comprise changes inthe size or composition of share capital and related ex-penses, raising of loans and repayments of interest-bearingdebt and dividends distributed to shareholders.

Except from the Profit margin, which according to thecustom of the sector has been calculated as the resultbefore tax proportional to the turnover, the ratios havebeen prepared in accordance with the “Recommendationsand Guidelines 2005” issued by the Danish Society ofFinancial Analysts.

Analysis of the ratios included in the below financial highlights:

Gross margin Gross profit x 100Net turnover

Profit margin Operating profit or loss before tax x 100Net turnover

Return on Operating profit or loss incl. net financials x 100investments Assets

Solidity ratio Equity at year-end x 100Total equity and liabilities at year-end

Return on equity Profit after tax x 100Average equity


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N O T E S ( I N D K K T H O U S A N D S )

Note 1. Net turnover


2004 2005 2005 2004

599,918 1,136,826 Final invoicing 1,171,210 700,875

209,330 -280,290 Changes in contract work in progress -255,466 178,990

809,248 856,536 915,744 879,865

Note 2. Tax for the year


2004 2005 2005 2004

1,020 19,087 Income tax payable 20,815 8,120

0 471 Payment of joint taxation contribution 471 0

10,047 -7,010 Deferred tax -6,840 9,976

0 -1,929 Change in tax rate -1,929 0

Adjustment of income tax

-1,479 -59 concerning previous years -59 -1,479

9,588 10,560 12,458 16,617

Specification of effective tax rate:

30,0% 28,0% Corporate tax rate in Denmark 28,0% 30,0%

0,0% -3,9% Effect of change in tax rate -3,7% 0,0%

Profit in subsidiary and associated

-9,1% -4,0% undertakings -1,8% -1,0%

0,0% 0,4% Non-deductible costs 0,8% 1,9%

0,0% 0,0% Variance in foreign tax rates 0,3% 1,4%

0,8% 0,7% Other adjustments 0,4% 0,1%

21,7% 21,2% Effective tax rate 24,0% 32,4%

Transport of engine, Pico Power Station,the Azores, Portugal


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Transport of diesel engine into site, St. Louis Power Station, Mauritius

Note 3. Tangible fixed assets


Fixtures and Fixtures and

fittings, tools Land and fittings, tools Land and

and equipment buildings and equipment buildings

36,060 108,785 Cost at 1 January 2005 39,584 108,785

2,593 3,457 Additions in the year 3,311 3,457

-153 0 Disposals in the year -660 0

38,500 112,242 Cost at 31 December 2005 42,235 112,242

31,453 20,759 Depreciation at 1 January 2005 33,612 20,759

2,685 2,761 Depreciation in the year 3,393 2,761

-87 0 Depreciation of disposals -477 0

34,051 23,520 Depreciation at 31 December 2005 36,528 23,520

4,449 88,722 Book value at 31 December 2005 5,707 88,722

4,607 88,026 Book value at 31 December 2004 5,972 88,026

Depreciation in the year is included in:


2004 2005 2005 2004

848 793 Production costs 1,254 1,191

112 164 Sales costs 164 112

4,499 4,489 Administrative expenses 4,736 4,768

5,459 5,446 6,154 6,071

According to the public assessment at 1 October 2004, the Group’s property was stated at DKK 50 million, of which theland value totals DKK 6.6 million.


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Note 4. Financial fixed assets

Parent Company The GroupInvestments Investments Other Investments Other

Subsidiary Associated securities Associated securities

undertakings undertakings undertakings

6,356 26,091 2,495 Costs at 1 January 2005 26,091 2,495

21 0 323 Additions in the year 0 323

-32 0 -357 Disposals in the year 0 -357

6,345 26,091 2,461 Costs at 31 December 2005 26,091 2,461

Revaluations/write-downs

14,546 -2,742 -15 at 1 January 2005 -2,742 -15

3,867 5,140 0 Profit share in 2005 5,140 0

Currency retranslation adjustments

0 3,497 0 in 2005 3,497 0

Distribution of dividend to Parent

-2,220 -2,804 0 Company -2,804 0

1,020 0 0 Transferred to receivables/payables 0 0

Revaluations/write-downs

17,213 3,091 -15 at 31 December 2005 3,091 -15

Book value

23,558 29,182 2,446 at 31 December 2005 29,182 2,446

Book value

20,902 23,349 2,480 at 31 December 2004 23,349 2,480

Note 5. Work in progress


2004 2005 2005 2004

928,703 648,414 Market value of production in progress 673,255 977,594

- 996,892 -789,806 Invoiced on account -805,985 -1,045,783

- 68,189 -141,392 Contract work in progress, net -132,730 -68,189

Classified as follows:

13,512 8,935 Receivables 18,032 13,512

- 81,701 -150,327 Prepayments received from customers -150,762 -81,701

- 68,189 -141,392 -132,730 -68,189


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Note 6. Deferred tax


2004 2005 2005 2004

19,299 28,588 Deferred tax at 1 January 2005 28,253 19,035

10,047 -7,010 Deferred tax -6,901 9,976

0 -1,929 Change in tax rate -1,929 0

-758 -3,852 Tax on changes in equity -3,852 -758

28,588 15,797 15,571 28,253

Deferred tax can be specified as follows:

4,555 5,576 Tangible fixed assets 5,576 4,555

32,141 18,035 Contract work in progress a. o. 18,035 32,141

- 2,381 -1,023 Current assets -1,249 -2,716

- 6,435 -4,573 Provisions -4,573 -6,435

- 1,294 -420 Liabilities other than provisions -420 -1,294

2,002 -1,798 Financial instruments -1,798 2,002

28,588 15,797 15,571 28,253

Note 7. Other provisions

Provisions made for debts are estimated remaining liabilities in connection with finalized contracts, other than provisions.

Note 8. Mortgage debt

Long-term debts maturing after 5 years from the end of the fiscal year amount to DKK 39.4 million.

Installation of engine,St. Louis Power Station,

Mauritius


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Note 9. Other creditors


2004 2005 2005 2004

14,730 15,642 Due holiday pay 15,642 14,730

Forward contracts concerning

4,353 16,041 future cash flows 16,041 4,353

24,197 45,390 Residual cost, completed projects 45,390 24,197

34,645 30,135 Other accrued expenses, etc. 35,832 41,120

77,925 107,208 112,905 84,400

Note 10. Remuneration to the auditors of the Parent Company


2004 2005 2005 2004

435 435 Audit fee 471 435

246 787 Non-audit fee 957 308

681 1,222 1,428 743

Power house steel structure with overhead traveling crane,St. Louis Power Station, Mauritius

Chimney sections ready for erection,St. Louis Power Station, Mauritius


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Note 11. Staff

Analysis of staff costs:


2004 2005 2005 2004

136,473 145,294 Wages and salaries 166,039 155,068

507 485 Social security cost 3,000 2,886

136,980 145,779 169,039 157,954

Including remuneration for:

Executive Management of Parent

4,870 5,145 Company 5,145 4,870

Board of Directors of Parent

630 630 Company 630 630

5,500 5,775 5,775 5,500

247 257 Average number of employees 493 491

Note 12. Financial instruments

It is company policy to account for a net cash flow hedge per currency of individual projects, primarily through forward

contracting. The net cash flow per currency is made up as the difference between the total foreign exchange earnings and

the foreign exchange losses during the life of a project.

Open foreign exchange transactions and options as of 31 December 2005:

Principal amount in DKK ’000

Sold Bought Net market value Maturity

USD 167,990 9,459 -6,595 0-12 months

JPY 9,292 40,765 -3,699 0-12 months

The Company has made interest swaps to hedge payment of interest on a mortgage loan with variable interest. The prin-

cipal of the loan is DKK 51 million with a maturity of 18 years. The market value of the interest swaps as per 31 December

2005, amounted to DKK -5.7 million which has been accounted for in the equity.


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Chimney erection,St. Louis Power Station,Mauritius

Note 13. Transactions between related parties

Purchase of diesel engines, spare parts, guarantees etc. from Mitsui Engineering & Shipbuilding Company Limited, Japan

and purchase of diesel engines and spare parts etc. from MAN B&W A/S and MAN B&W A.G., Germany, have taken place

at market conditions.

The sale of goods to associated companies has also taken place at market conditions.

Apart from intercompany transactions which have been eliminated in the Group accounts, plus usual management fee,

no transactions have been made with Board, Executive Management, senior executives, affiliated companies or other

related parties during the year.

Group relationships

BWSC’s ultimate Parent Company is Mitsui Engineering & Shipbuilding Company Limited, which prepares the accounts

for the group in which BWSC is located.

Group accounts for the foreign Parent Company can be obtained from:

Mitsui Engineering & Shipbuilding Company Limited, 6-4, Tsukiji 5-chome, Chuo-ku, Tokyo 104-8439, Japan.

Note 14. Contingency lialibilities, security for loans, etc.

Guarantees totaling DKK 482 million have been provided for ongoing and completed projects, including DKK 147

million by way of prepayment guarantees.

Associates and joint ventures are jointly and severally liable. No other warranty commitments exist apart from service

and guarantee commitments customary in the industry.

In connection with a contract for a power plant project in Portugal, the Company has received a demand for payment

of local tax, and on behalf of a Consortium, the Company has also received a demand for payment of local tax in

connection with a maintenance contract in Asia – cf. remarks in Management’s report.


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Note 15. Adjustments

The Group

2005 2004

Amortization/depreciation 6,154 6,071

Changes in performance guarantee -1,497 5,844

Profit/loss on the sale of fixed assets 183 -191

Derivative financial instruments 7,181 868

12,021 12,592

Note 16. Changes in working capital

The Group

2005 2004

Changes in inventories -1,296 -302

Changes in contract work in progress 64,541 2,969

Changes in trade receivables -45,322 278,990

Changes in receivables from group enterprises and associates 91 219

Changes in other receivables 3,535 -9,537

Changes in prepayments and deferred income 1,823 -3,071

Changes in trade payables 5,525 -63,937

Changes in payables to group enterprises -895 -75,492

Changes in other payables 16,814 3,699

44,816 133,538


St. Louis Power Station, Mauritius


B W S C G R O U P

Burmeister & Wain Scandinavian Contractor A/SGydevang 35, P.O. Box 235, DK-3450 Allerød, DenmarkPhone: +45 48 14 00 22Fax: +45 48 14 01 50E-mail: [email protected]: www.bwsc.dk

BWSC Lanka (Private) Ltd., Sri Lanka103/8 Galle RoadColombo 3Sri lankaPhone: +94 114 721 900Fax.: +94 114 721 905E-mail: [email protected]

BWSC Panama S.A.P.O. Box 0832 - 2317World Trade CenterPanama City, Rep. of PanamaPhone: +507 296 1159Fax: +507 296 0858E-mail: [email protected]

BWSC Panama S.A. Representative OfficeP.O. Box 832 – 0147World Trade Center, 6th Floor, Office 602Calle 53 este, Urb. MarbellaPanama City, PanamaPhone: +507 264 2886Fax: +507 264 2884E-mail: [email protected]

BWCC (Burmeister & Wain Caribbean Contractors) Ltd.Post Office Box CB-13013Hibiscus Beach Apt. 13, Cable BeachNassau, the BahamasPhone: +1 242 327 6288Fax: +1 242 327 6288E-mail: [email protected]

BWSC (Sabah) Sdn. Bhd.SPC Power StationKM7, Jalan Batu SapiPPM 241, Elopura90000 Sandakan, Sabah, MalaysiaPhone: +60 89 613 111Fax: +60 89 618 126E-Mail: [email protected]

BWSC Hellas Power Resources S.A.284, El. Venizelou Avenue, 4th Floor176 75 AthensGreecePhone: +30 210 9483 440Fax.: +30 210 9483 320E-mail: [email protected]

BWSC Mindanao Inc., the PhilippinesDaruma Industries Corp Building, KM7 Lanang8000 Davao City, P.O. Box 81142, the PhilippinesPhone: +63 82 234 2247Fax: +63 82 234 2208E-mail: [email protected]

04/06



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