CECON ASA

Interim Financial Report

First Quarter

2007


HIGHLIGHTS AND SIGNIFICANT EVENTS IN Q1 - 2007

·  Project performance in line with budget

·  Revenue MNOK 57.2 (60.0)

·  EBIT excluding one-time items MNOK 6.9

·  Net profit MNOK (0.1)

The current market situation remains strong, and demand for the services provided by the company seems to be increasing.

Work Performance

Work performed during the 1st quarter, primarily consisting of cable- and umbilical laying on the seafloor outside Angola, has been performed according to plan and budget. All field work is completed and the remaining demobilization is not anticipated to create any problems. The start up of engineering on the next project has commenced. Scope of work on this project includes laying of flexible and rigid pipelines on the seafloor outside Nigeria to connect a FPSO to several oil producing units. This project will be finalized during Q4 -2007. Preparation for the next project outside Angola has been initiated on a planning level.

Investments

During early January the final part of a complete under roller system for handling of cable reels where finalized. The whole set up was successfully utilised for the work performed in Angola during Q1. The investment covers four main units and investment costs are approx. MNOK 10, included in the company’s non-current assets. The equipment will be utilised again on the next project outside Nigeria. The equipment can be used on several reel diameters and is therefore applicable to be rented out to 3rd parties during idle periods in the company’s project work.

Change of strategy

The basic strategy for the company’s project performance was to utilise different idle ships to perform the pipe laying operations, mainly performing work during the low activity season in the North Sea Basin, this being based on ordinary TCs. After a thorough work through on future availability of suitable ships with the necessary deck area capacity, the company realized that future limitations in ship availability could be crucial for project performance. As a consequence, the company decided to take a strategic position in one or more suitable newbuildings of suitable ships. This change of strategy led to the company’s contracting of two ships (with four additional options) at the Davie shipyard in Canada.

Private placement and introduction to the Oslo Stock exchange

The major consequence of the strategy was the need for financing of the new and increased activity represented by the newbuilding orders. The Directors and shareholders decided to make a private placement to increase the company’s capital base and thereafter introduce the company to Oslo Stock exchange, and during February, Cecon successfully executed a MNOK 475 equity private placement directed towards Norwegian and international institutional investors. Pareto Securities ASA has been engaged as the Company’s manager for the stock exchange introduction.

Share options

One of the company’s employees was granted a share option during Q3 – 2006 for release end 2008 and 2008. The share option was between the main shareholder and the employee thus not affecting the share capital of the company – only owner structure. This option was released during Q1 to avoid the share option having an effect on the planned private placement and introduction to the stock exchange. The financial and cost consequence of this pre-release of the share option is included in Q1 financial statement.

EVENTS AFTER THE END OF THE FINANCIAL QUARTER

Bond issue

In order to secure 12 months liquidity as required for a stock exchange introduction, the Company on April 13th successfully completed a MUSD 100 bond issue directed towards Norwegian and international institutional investors.

Stock exchange application

On April 23rd, the Company submitted its application for listing to the Oslo Stock Exchange.

Charter contract and strategic alliance with Deepflex

On April 23rd, Cecon announced it has entered into an Agreement with Deepflex Inc. Houston, whereby Deepflex have chartered both the two Cecon Newbuildings for 150 days per year each for a firm period of 5 years, plus 3 yearly options.
The agreement furthermore states an intent for Cecon and Deepflex to cooperate through a utilisation by Deepflex of Cecon's installation services, and promotion by Cecon of Deepflex' products.
Deepflex will as part of the agreement provide a 2.500 ton carousel for under deck installation in both vessels.
Contract value for the firm period is estimated at USD 112 million (NOK 675 million).
With this agreement, Cecon expects to have secured full utilization of its two newbuild vessels for the duration of the contract, as the remaining vessel days will be utilized by Cecon in its own subsea installation business.

COMMENTS TO THE CONDENSED FINANCIAL STATEMENTS

Revenues are presented at NOK 57.1 million compared to NOK 59.9 million in 1Q 2006. Operating profit and net result are presented to be zero.

Adjusted for one-time expenses, operating profit is NOK 6,875 thousands, compared to NOK 10,515 thousands in 1Q 2006. Excluding these set offs the operating profit is according to budget.

One-time expenses include anticipated one-time cost for the process of private placement and stock exchange introduction, MNOK 5, which is set off as part of other expenses in the interim statement, and MNOK 1,94 as a as a tax consequence of the premature release of the share option to one employee set of in Employee benefit expenses.

The increase and change on the interim balance sheet as opposed to Q1 – 2006 is mainly the increase in equity based on the events in Q1 – 2007. The increase in Tangible and intangible assets is mainly the final investment in the under roller system mentioned above.

The project performed in Angola went according to plan and budget. The contribution level from the project was lower than a similar, but larger project performed during Q1 -2006 hence lower operating profits.

The Company maintains its guidance of a revenue for the year of USD 40 million.

Interim balance sheet
(All figures in TNOK)
31 March 2007 / 31 December 2006
ASSETS
Non-current assets
Tangible and intangible assets / 11 294 / 8 481
Investments in joint ventures / 394 / 346
Deferred income tax assets / 735 / 0
Available-for-sale financial assets / 126 / 126
Trade and other receivables / 3 698 / 3 705
Total non-current assets / 16 247 / 12 658
Current assets
Trade and other receivables / 262 683 / 28 418
Cash and cash equivalents / 221848 / 34 295
Total current assets / 484 531 / 62 712
Total assets / 500 778 / 75 370
EQUITY
Capital and reserves attributable to equity holders of the company
Share capital / 2 583 / 1 000
share premium / 462 210 / 0
Retained earnings / 13 144 / 12 875
Total equity / 477 937 / 13 875
LIABILITIES
Non-current liabilities
Deferred income tax liabilities / 0 / 1 317
Total non-current liabilities / 0 / 1 317
Current liabilities
Trade and other payables / 15 620 / 51 971
Current income tax liabilities / 7 221 / 8 207
Total current liabilities / 22 841 / 60 178
Total liabilities / 22 841 / 61 495
Total equity and liabilities / 500 778 / 75 370
Interim income statement
(All figures in TNOK)
1 Quarter ended 31 March
Q1 2007 / Q1 2006 / 31.12.2006
Revenues / 57 154 / 59 978 / 82 260
Project costs / -45 529 / -46 616 / -59 373
Employee benefit expenses / -4 616 / -2 504 / -6 459
Depreciation and amortisation / -614 / -34 / -183
Other expenses / -6 460 / -309 / -2 507
Operating profit / -65 / 10 515 / 13 738
Finance income / 1 642 / 566 / 1 432
Finance costs / 1 637 / 3 / 4 034
Share of (loss)/profit of associates / 47 / 14 / 186
Finance costs - net / 52 / 577 / -2 416
Profit before income tax / -13 / 11 092 / 11 322
Income tax expense / 72 / 3 102 / 3 339
Net result / -85 / 7 990 / 7 983
Attributable to:
Equity holders of the company / -85 / 7 990 / 7 983
Attributable to equity holders of
the Company
(All figures in TNOK) / Share
capital / Share premium / Retained earnings / Total equity
Balance at 1 January 2007 / 1 000 / 0 / 12 875 / 13 875
Profit for the quarter / 0 / 0 / -86 / -86
Total recognised income for the quarter / 1 000 / 0 / 12 789 / 13 789
Employees share option scheme:
Value of employee services / 0 / 0 / 355 / 355
Private placement / 1006 / 300 734 / 0 / 301 740
Issuing costs – net / 0 / -5 463 / 0 / -5 463
Private placement / 577 / 166 939 / 0 / 167 516
1 583 / 462 210 / 355 / 464 148
Balance at 31 March 2007 / 2 583 / 462 210 / 13 144 / 477 937
Interim cash flow statement
(All figures in TNOK) / Q1 ended 31 March
Q1 2007 / Q1 2006
Cash flows from operating activities:
Result before income tax / -13 / 11 092
Ordinary depreciation / 614 / 34
Income from joint ventures / -47 / -14
Changes in trade and other receivables / -234 265 / 1 786
Changes in trade and other payables / -37 326 / -39 434
Other operating cash flows - net / -2 124 / 0
Cash flows from operating activities – net / -273161 / -26 536
Cash flows from investing activities:
Acquisition of joint venture, net of cash acquired / 0 / -50
Purchases of property, plant and equipment / -3 427 / 0
Proceeds on disposal of property, plant and equipment / 0 / 0
Other investing cash flow – net / -7 / 13
Discontinued operations / 0 / 0
Cash flows from investing activities – net / -3 434 / -37
Cash flows from financing activities:
Private placements – net / 463 793 / 0
Other finance cash flows – net / 355 / 0
Cash flows from financing activities – net / 464 148 / 0
Net increase in cash equivalent and bank overdraft / 187 553 / -26 573
Cash and cash equivalent and bank overdraft at start of period / 34 295 / 81 006

Cash and cash equivalents and bank overdrafts at end of period

/ 221 848 / 54 433
Bank overdrafts / 0 / 0
Cash and cash equivalents / 221 848 / 54 433


Selected notes and disclosures

A general description of the Company, and the principal accounting policies applied in the preparation of these IFRS Financial statements and interim financial statements, are presented in the Annual IFRS Financial Statements for 2006. These Interim Financial Statements should be read in conjunction with the Annual IFRS Financial Statements for the year ended 31 December 2006 as they provide an update of previously reported information.

Newbuilding program

The Company entered into the construction contracts for hulls 717 and 718 with Davie Quebec Inc. (“Davie”) on 4 February 2007. The contract price per vessel is USD 132,600,000 and is a fixed price. Hull 717 shall be delivered on 10 April 2009 and hull 178 on 14 August 2009. The vessels are of a Vik-Sandvik vs. 4220 design which is easily adaptable during construction for use as, e.g., Pipelay, ROV, Subsea construction, Seismic vessel, etc

The company has an option with Davie Quebec INC for 4 construction vessels, of a Vik-Sandvik vs. 4220 design, on fixed price contracts between MUSD 132,6 to MUSD 137,8 per vessel, with delivery in 2009-2010. The first option must bee exercised during May 2007.

Refund Guaranty

Davie Yards ASA, a holding company holding approx. 75% of the shares in Davie Quebec, Inc., shall provide the Company with a refund guarantee in the amount of USD 18,500,000 to secure the payment obligation of the Davie in the event the contract is lawfully cancelled. The same refund guarantee shall secure both hulls 717, 718 and, if exercised, hulls 719 and 720.

In addition, as part of the contract, Davie and the Company have agreed that subject to a recapitalization of Davie, which is expected during the first half of 2007, Davie shall establish a revolving escrowed cash guarantee of USD 10,000,000 per vessel for each of the hulls 717 and 718, and, if exercised, hulls 719 and 720.

The vessels will pursuant to the construction contracts at all times be the property of the Company in all stages of construction, and all materials, components, machinery and equipment purchased and/or delivered at Davie for the fitting or affixing to the Vessels or for use in the construction or equipping of the Vessel (or any part thereof) or appropriated for its construction shall become the Company’s property.

Davie will have the risk of loss for the items specified above until delivery and acceptance of the vessels. Davie shall arrange for and pay building insurance. The insured amount shall not be less than the contract price, plus the value of certain items.

Cash and cash equivalents

Cash and Cash equivalents consist of cash at bank on hand on TNOK 221.848. As of 31. March 2007 the Company had an unrealised foreign exchange gains on cash at bank on hand on TNOK 2.305.

Other receivables

Other receivables include instalment relating to newbulding contracts on TNOK 242.648. The instalments are classified as other receivables as the production of the vessels will not start before August 2007.

Share options

One employee exercised his purchase rights equivalent to 5 % of the total shares as of 2 February 2007, 1.000.000 shares was purchased at a price of NOK 1,25 per share. The market price of the shares on the exercise date was NOK 15. The shares were purchased from a Company owned by Odd W. Werner.

According to Norwegian Tax laws the company has to pay social security on the gain made by the employee. The company has mad a provision for social security costs on TNOK 1.938 in the first quarter of 2007.