Island_Offshore_Subsea_UK - Accounts

The directors present their annual report and financial statements for the year ended 31 December 2016.

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company’s auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company’s auditor is aware of that information.

The directors confirm that the financial statements have been prepared under the assumption of going concern, which assumes that the Company will continue in operational existence for the foreseeable future and be able to meet its liabilities as they fall due. 

The Company is dependent on the financial support from its ultimate parent company, Island Offshore Shipholding L.P., and has received assurance from the parent company that it will provide the necessary financial support for at least 12 months from the date of approval of these financial statements.

The directors of Island Offshore Shipholding L.P. are involved in restructuring discussions and are working with its finance providers to reach a sustainable solution for the company. Noted below is an extract from the 31 December 2016 audited financial statements of Island Offshore Shipholding L.P and the unaudited 2nd Quarter 2017 financial report.

Due to the continued state of the market and the implications for cash flow, the Island Offshore Shipholding Group of Companies, initiated negotiations for a Standstill and Deferral Agreement with secured creditors effective 22.11.2016. The Island Offshore Shipholding Group of Companies are in breach with the current financial covenants, as agreed in the loan agreements, and have requested a waiver from the secured and unsecured lenders as part of the restructuring negotiations. Negotiations have been conducted with the secured bank lenders having provided loans to finance the vessels owned by the Group, the suppliers having provided secured and unsecured loans to various members of the Group, certain bondholders in each of the two outstanding bond issues and the principal owners of the Company.

Subject to satisfaction of certain conditions precedent final and/or in principle agreements have been reached with the secured lenders for a restructuring period commencing June 30th, 2017 and ending December 31st, 2020 involving

1. Contribution of new cash equity from the existing owners

2. Extension of maturities

3. Amended amortization profiles

4. Cash sweep provisions

5. Amendments to covenant structures

6. Additional measures

A majority of the bondholders in the two outstanding bond issues issued by Island Offshore Shipholding, L.P. have indicated their support for the proposed restructuring.

The Board of Directors confirms that the financial statements are prepared on the basis of a going concern assumption. The basis for this assumption is the financial position of the Company at 31.12.2016, the current backlog of contracts for its major customers, and the assumption that that an acceptable and sustainable restructuring of the Island Offshore Shipholding Group of Companies can be agreed with the lenders. Consequently, the annual accounts reflect a situation for the Company where no forced sale of the vessels is carried through with its major customers. While the Company is confident that such sustainable solution will be reached with the relevant stakeholders, there can be no assurance or guarantee that such final solution will be reached.

If these discussions referred to above are not concluded successfully within the next 12 months, there is a risk that Island Offshore Shipholding L.P. will no longer be able to provide the financial support that the Company is currently reliant on to safeguard its going concern basis.

The directors consider that this is a material uncertainty which may cast significant doubt on the Company’s ability to continue as a going concern.

In the event that the Company does not continue to receive the necessary financial support from, Island Offshore Shipholding L.P. the going concern basis may not be valid. In such circumstances, adjustments would have to be made to reduce the value of assets to their recoverable amount, to provide for any future liabilities which may arise and to reclassify fixed assets and long term liabilities as current.

This report has been prepared in accordance with the provisions applicable to companies entitled to the small companies exemption.

The directors are responsible for preparing the annual report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, the directors are required to:

• •    select suitable accounting policies and then apply them consistently;

• •    make judgements and accounting estimates that are reasonable and prudent;

• •    prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

We have audited the financial statements of Island Offshore Subsea UK Limited for the year ended 31 December 2016 which comprise the Profit And Loss Account, the Balance Sheet and the related notes 1 to 12. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice), including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland".

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

As explained more fully in the Directors' Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report and financial statements to identify material inconsistencies with the audited financial statements and to identify any information that is apparently, materially incorrect based on or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

In our opinion the financial statements:

• •    give a true and fair view of the state of the company's affairs as at 31 December 2016 and of its loss for the year then ended;

• •    have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• •    have been prepared in accordance with the requirements of the Companies Act 2006.

Emphasis of matter - Going concern

In forming our opinion, which is not modified, we have also considered the adequacy of the disclosures made in note 1.2 to the financial statements concerning the company's ability to continue as a going concern.  The conditions described in note 1.2 indicate the existence of a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern.  The financial statements do not include the adjustments that would result if the company was unable to continue as a going concern.

In our opinion, based on the work undertaken in the course of our audit, the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statementstrue, and the Directors' Report has been prepared in accordance with applicable legal requirements.

In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Directors' Report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• •    adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

• •    the financial statements are not in agreement with the accounting records and returns; or

• •    certain disclosures of directors' remuneration specified by law are not made; or

• •    we have not received all the information and explanations we require for our audit; or

• •    the directors were not entitled to prepare the financial statements in accordance with the small companies regime and take advantage of the small companies' exemption in preparing the directors' report and take advantage of the small companies exemption from the requirement to prepare a strategic report.

These financial statements have been prepared in accordance with the provisions applicable to companies subject to the small companies' regime.

Island Offshore Subsea UK Limited is a private company limited by shares incorporated in Scotland. The registered office is Unit 19 1st Floor Spires Business Centre, Mugiemoss Road, Bucksburn, Aberdeen, AB21 9BG.

These financial statements have been prepared in accordance with FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (“FRS 102”) and the requirements of the Companies Act 2006 as applicable to companies subject to the small companies regime. The disclosure requirements of section 1A of FRS 102 have been applied other than where additional disclosure is required to show a true and fair view.

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £.

The financial statements have been prepared under the historical cost convention. The principal accounting policies adopted are set out below.

These financial statements for the year ended 31 December 2016 are the first financial statements of Island Offshore Subsea UK Limited prepared in accordance with FRS 102, The Financial Reporting Standard applicable in the UK and Republic of Ireland. The date of transition to FRS 102 was 1 January 2015. An explanation of how transition to FRS 102 has affected the reported financial position and financial performance is given in note 12.

The directors confirm that the financial statements have been prepared under the assumption of going concern, which assumes that the Company will continue in operational existence for the foreseeable future and be able to meet its liabilities as they fall due. 

The Company is dependent on the financial support from its ultimate parent company, Island Offshore Shipholding L.P., and has received assurance from the parent company that it will provide the necessary financial support for at least 12 months from the date of approval of these financial statements.

The directors of Island Offshore Shipholding L.P. are involved in restructuring discussions and are working with its finance providers to reach a sustainable solution for the company. Noted below is an extract from the 31 December 2016 audited financial statements of Island Offshore Shipholding L.P and the unaudited 2nd Quarter 2017 financial report.

Due to the continued state of the market and the implications for cash flow, the Island Offshore Shipholding Group of Companies, initiated negotiations for a Standstill and Deferral Agreement with secured creditors effective 22.11.2016. The Island Offshore Shipholding Group of Companies are in breach with the current financial covenants, as agreed in the loan agreements, and have requested a waiver from the secured and unsecured lenders as part of the restructuring negotiations. Negotiations have been conducted with the secured bank lenders having provided loans to finance the vessels owned by the Group, the suppliers having provided secured and unsecured loans to various members of the Group, certain bondholders in each of the two outstanding bond issues and the principal owners of the Company.

Subject to satisfaction of certain conditions precedent final and/or in principle agreements have been reached with the secured lenders for a restructuring period commencing June 30th, 2017 and ending December 31st, 2020 involving

1. Contribution of new cash equity from the existing owners

2. Extension of maturities

3. Amended amortization profiles

4. Cash sweep provisions

5. Amendments to covenant structures

6. Additional measures

A majority of the bondholders in the two outstanding bond issues issued by Island Offshore Shipholding, L.P. have indicated their support for the proposed restructuring.

The Board of Directors confirms that the financial statements are prepared on the basis of a going concern assumption. The basis for this assumption is the financial position of the Company at 31.12.2016, the current backlog of contracts for its major customers, and the assumption that that an acceptable and sustainable restructuring of the Island Offshore Shipholding Group of Companies can be agreed with the lenders. Consequently, the annual accounts reflect a situation for the Company where no forced sale of the vessels is carried through with its major customers. While the Company is confident that such sustainable solution will be reached with the relevant stakeholders, there can be no assurance or guarantee that such final solution will be reached.

If these discussions referred to above are not concluded successfully within the next 12 months, there is a risk that Island Offshore Shipholding L.P. will no longer be able to provide the financial support that the Company is currently reliant on to safeguard its going concern basis.

The directors consider that this is a material uncertainty which may cast significant doubt on the Company’s ability to continue as a going concern.

In the event that the Company does not continue to receive the necessary financial support from, Island Offshore Shipholding L.P. the going concern basis may not be valid. In such circumstances, adjustments would have to be made to reduce the value of assets to their recoverable amount, to provide for any future liabilities which may arise and to reclassify fixed assets and long term liabilities as current.

Turnover is recognised at the fair value of the consideration received or receivable for goods and services provided in the normal course of business, and is shown net of VAT and other sales related taxes. The fair value of consideration takes into account trade discounts, settlement discounts and volume rebates.

When cash inflows are deferred and represent a financing arrangement, the fair value of the consideration is the present value of the future receipts. The difference between the fair value of the consideration and the nominal amount received is recognised as interest income.

Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer (usually on dispatch of the goods), the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the entity and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Revenue from contracts for the provision of services is recognised by reference to the stage of completion when the stage of completion, costs incurred and costs to complete can be estimated reliably. The stage of completion is calculated by comparing costs incurred, mainly in relation to contractual hourly staff rates and materials, as a proportion of total costs. Where the outcome cannot be estimated reliably, revenue is recognised only to the extent of the expenses recognised that are recoverable.

Tangible fixed assets are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is credited or charged to profit or loss.

At each reporting period end date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the higher of fair value less costs to sell and value in use. 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 for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Recognised impairment losses are reversed if, and only if, the reasons for the impairment loss have ceased to apply. Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Cash and cash equivalents are basic financial assets and include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

The company has elected to apply the provisions of Section 11 ‘Basic Financial Instruments’ and Section 12 ‘Other Financial Instruments Issues’ of FRS 102 to all of its financial instruments.

Financial instruments are recognised in the company's balance sheet when the company becomes party to the contractual provisions of the instrument.

Financial assets and liabilities are offset, with the net amounts presented in the financial statements, when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

Basic financial assets, which include debtors and cash and bank balances, are initially measured at transaction price including transaction costs and are subsequently carried at amortised cost using the effective interest method unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest. Financial assets classified as receivable within one year are not amortised.

Financial assets, other than those held at fair value through profit and loss, are assessed for indicators of impairment at each reporting end date.

Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows have been affected. If an asset is impaired, the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The reversal is such that the current carrying amount does not exceed what the carrying amount would have been, had the impairment not previously been recognised. The impairment reversal is recognised in profit or loss.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire or are settled, or when the company transfers the financial asset and substantially all the risks and rewards of ownership to another entity, or if some significant risks and rewards of ownership are retained but control of the asset has transferred to another party that is able to sell the asset in its entirety to an unrelated third party.

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the company after deducting all of its liabilities.

Basic financial liabilities, including creditors, bank loans, loans from fellow group companies and preference shares that are classified as debt, are initially recognised at transaction price unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of the future receipts discounted at a market rate of interest. Financial liabilities classified as payable within one year are not amortised.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Trade creditors are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Amounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Trade creditors are recognised initially at transaction price and subsequently measured at amortised cost using the effective interest method.

Financial liabilities are derecognised when the company’s contractual obligations expire or are discharged or cancelled.

Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the profit and loss account because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of stock or fixed assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.

Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

Rentals payable under operating leases, including any lease incentives received, are charged to income on a straight line basis over the term of the relevant lease except where another more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.

The average monthly number of persons (including directors) employed by the company during the year was 9 (2015 period - 9).

Profit and loss reserves include all current and prior years retained profit and losses.

The company is a subsidiary of Island Offshore UK Limited, a company incorporated in the UK.

The ultimate parent undertaking is Island Offshore Shipholding LP, incorporated in the Cayman Islands. The largest and smallest group in which the results of the company are consolidated is the Island Offshore Shipholding LP. Consolidated accounts of this company are available to the public and may be obtained from Island Offshore Shipholding LP, c/o Island Offshore Shipping AS, Stalhaugen 12, 6065 Ulsteinvik, Norway.

Reconciliations and descriptions of the effect of the transition to FRS 102 on; (i) equity at the date of transition to FRS 102; (ii) equity at the end of the comparative period; and (iii) profit or loss for the comparative period reported under previous UK GAAP are given below.

FRS 102 requires short term employee benefits to be charged to the profit and loss account as the employee service is received. Previously holiday pay accruals were not recognised and were charged to the profit and loss account as they were paid. In the year to 31 December 2015 a charge of £12,564 was recognised in the profit and loss account and the liability at 31 December 2015 was £12,564.

Due to the fact that 2015 was the first year of trading there is no opening transition adjustment required.