MODEC, Inc.
Consolidated Financial Statements
Years ended December 31, 2023 and 2022
Independent auditor's report
To the Board of Directors of MODEC, Inc.:
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the accompanying consolidated financial statements of MODEC, Inc. ("the Company") and its consolidated subsidiaries (collectively referred to as "the Group"), which comprise the consolidated statement of financial position as at December 31, 2023, and the consolidated statements of profit or loss, comprehensive income, changes in net assets and cash flows for the year then ended, and notes, comprising material accounting policies and other explanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2023, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board (IFRS Accounting Standards).
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Reasonableness of the estimated total costs used in recognizing revenue from construction contracts related to the floating production, storage and offloading system | |
The key audit matter | How the matter was addressed in our audit |
MODEC, Inc. and its consolidated subsidiaries provide construction services related to the floating production, storage and | We performed the audit procedures to assess the reasonableness of the estimated total costs used in recognizing revenue from construction contracts |
offloading system (hereinafter referred to as "FPSO"). As described in Note 23, "Revenue" to the consolidated financial statements, the revenues related to these construction contracts amounted to US dollar 2,488,995 thousand, representing approximately 69.6% of total revenue in the consolidated financial statements. As described in Note 3, "Material accounting policies, (14) Revenue from contracts with customers" to the consolidated financial statements, MODEC, Inc. and its consolidated subsidiaries recognize revenue from a long-term construction contract over time as the related performance obligations are satisfied by transferring control over goods promised in the contract to a customer. For performance obligations satisfied over time, the estimated progress is calculated as a percentage of accumulated costs incurred to date against the estimated total costs (input method). Contracts for construction services related to the FPSOs that MODEC, Inc. and its consolidated subsidiaries provide are individually significant in contract amounts and estimated total costs, and each project has detailed terms and conditions and specifications, in addition to a long construction period. Therefore, the preparation of the project budget, which provided the basis for estimating total costs of each construction contract related to the FPSO, involved a high degree of uncertainty. Specifically, management's determination on the following key assumptions in preparing the project budget primarily related to the work performed by the consolidated subsidiaries to which the construction work was assigned had a significant effect on the estimated total costs at the end of the fiscal year;
| related to the FPSOs. These procedures included requesting the component auditors of the relevant consolidated subsidiaries, the assignees of the construction work, to perform an audit and then evaluating the reports of the component auditors to conclude on whether sufficient and appropriate audit evidence was obtained from the procedures. The primary procedures performed by us and the component auditors of the relevant consolidated subsidiaries include the following: (1) Internal control testing Test of the design and operating effectiveness of certain of MODEC, Inc.'s internal controls relevant to the process of preparing a project budget, focusing on the controls related to estimating a construction period, the controls to update the estimated construction period and the related costs in a timely manner in accordance with changes in circumstances that occurred after the start of construction, and the controls to reflect the risk that these estimates may change within the project budget. (2) Assessment of the reasonableness of the estimated total costs The procedures including the following to assess whether key assumptions adopted in preparing the project budget for the construction contract, which were used as the basis for estimating the total costs of each construction contract, were appropriate;
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specifications and the status of compliance with contract terms and conditions, due to changes in circumstances that occurred subsequent to the start of construction needed to be reflected within the project budget in a timely and appropriate manner. We, therefore, determined that our assessment of the reasonableness of the estimated total costs used in recognizing revenue from construction contracts related to the FPSOs was one of the most significant matters in our audit of the consolidated financial statements for the current fiscal year, and accordingly, a key audit matter. | the construction contracts and comparison of the progress calculated based on the performance of the construction work confirmed by the customer with the progress measured by using the input method; and inquiry of the project manager and other relevant personnel, including the head of accounting, about any changes in circumstances that occurred after the start of construction and their judgment on whether the project budget needed updating for the changes, and inspection of relevant materials supporting their responses to the inquiry, such as the contracts and the minutes of negotiations with customers, key local subcontractors or other relevant parties. |
Reasonableness of the estimate of provisions for onerous contracts related to the operation services of the floating production, storage and offloading system | |
The key audit matter | How the matter was addressed in our audit |
MODEC, Inc. and its consolidated subsidiaries provide operation services related to the floating production, storage and offloading system (hereinafter referred to as "FPSO"). As described in Note 18, "Provisions" to the consolidated financial statements, provisions for onerous contracts amounted to US dollar 5,161 thousand at the end of the current fiscal year, which were all related to the contracts for the operation services of the FSPO. As described in Note 3, "Material accounting policies, (12) Provisions" to the consolidated financial statements, MODEC, Inc. and its consolidated subsidiaries recognize a provision for onerous contracts when the expected benefits to be derived from a contract are less than the unavoidable costs of meeting the obligations under the contract. The provisions are measured as the excess of the expected costs over the expected benefits from continuing with the contract. The estimates of the expected benefits to be derived from the contracts for the operation services of the FSPO and the unavoidable costs of meeting the obligations under the | We performed the audit procedures to assess the reasonableness of the estimate of provisions for onerous contracts related to the operation services of the FSPO. These procedures included requesting the component auditors of the relevant consolidated subsidiaries, the responsible parties to the contracts, to perform an audit and then evaluating the reports of the component auditors to conclude on whether sufficient and appropriate audit evidence was obtained from the procedures. The primary procedures performed by us and the component auditors of the relevant consolidated subsidiaries include the following: (1) Internal control testing Test of the design and operating effectiveness of certain of MODEC, Inc.'s internal controls relevant to the process of preparing project budgets, focusing on controls related to the future forecasts of the FPSOs' operating status, which were used as the basis for estimating the future costs expected to be unavoidable and the expected benefits to be derived from the contract. (2) Assessment of the reasonableness of the estimate of provisions for onerous contracts The procedures including the following to assess whether key assumptions adopted in preparing the |
contract, which are estimated based on the project budget prepared for each FPSO in the scope of the service contract, involved uncertainty due to the long-term nature of the contract period. In addition, especially for contracts on the FPSOs which were experiencing troubles with the operation, the estimate of future repair costs to address any troubles besides the costs of the operation services contract incurred on a constant basis involved a high degree of uncertainty. Specifically, management's determination on the following key assumptions in preparing the project budget had a significant effect on the estimate of provisions for onerous contracts at the end of the fiscal year;
We, therefore, determined that our assessment of the reasonableness of the estimate of provisions for onerous contracts related to the operation services of the FPSO was one of the most significant matters in our audit of the consolidated financial statements for the current fiscal year, and accordingly, a key audit matter. | project budgets were appropriate;
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Other Information |
The other information comprises the information included in the disclosure documents that contain or accompany the audited consolidated financial statements, but does not include the consolidated financial statements and our auditor's report thereon.
We do not perform any work on the other information as we determine such information does not exist.
Responsibilities of Management and Corporate Auditors and the Board of Corporate Auditors for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern in accordance with IFRS Accounting Standards and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Corporate auditors and the board of corporate auditors are responsible for overseeing the directors' performance of their duties with regard to the design, implementation and maintenance of the Group's financial reporting process.
Auditor's Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with auditing standards generally accepted in Japan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, while the objective of the audit is not to express an opinion on the effectiveness of the Group's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management's use of the going concern basis of accounting and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate whether the presentation and disclosures in the consolidated financial statements are in accordance with IFRS Accounting Standards, the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with corporate auditors and the board of corporate auditors regarding, among other matters, the planned scope and timing of the audit, significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide corporate auditors and the board of corporate auditors with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated with corporate auditors and the board of corporate auditors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
Fee-related Information
Fees paid or payable to our firm and to other firms within the same network as our firm for audit and non-audit services provided to the Company and its subsidiaries for the current year are US dollar 3,300 thousand and US dollar 239 thousand, respectively.
Interest required to be disclosed by the Certified Public Accountants Act of Japan
We do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan.
Makoto Yamada
Designated Engagement Partner
Certified Public Accountant
Fumitaka Otani
Designated Engagement Partner
Certified Public Accountant
KPMG AZSA LLC
Tokyo Office, Japan March 27, 2024
Notes to the Reader of Independent Auditor's Report:
This is a copy of the Independent Auditor's Report and the original copies are kept separately by the Company and KPMG AZSA LLC.
【Consolidated financial statements】
1. Consolidated statement of financial position
Notes | December 31, 2022 | December 31, 2023 | |
Assets Current assets Cash and cash equivalents Trade and other receivables Contract assets Loans receivable Other financial assets Other current assets | 5 6, 23, 31 23 11, 30, 31 12, 30, 32 13, 23 | 492,625 478,083 257,328 - 37,288 141,820 | 1,013,912 592,163 185,585 27,370 57,806 158,712 |
Total current assets | 1,407,147 | 2,035,550 | |
Non-current assets Property, plant and equipment Intangible assets Investments accounted for using equity method Loans receivable Other financial assets Deferred tax assets Other non-current assets | 4, 7, 9 4, 8 4, 10, 31 11, 30, 31 12, 30 27 4, 13, 23 | 64,314 70,213 1,114,066 365,032 13,603 65,016 36,819 | 50,042 49,483 1,374,188 348,636 13,163 16,489 367 |
Total non-current assets | 1,729,066 | 1,852,371 | |
Total assets | 3,136,213 | 3,887,921 |
in thousands of US dollars | |
492,625 | 1,013,912 |
478,083 | 592,163 |
257,328 | 185,585 |
27,370 | |
37,288 | 57,806 |
141,820 | 158,712 |
1,407,147 | 2,035,550 |
64,314 | 50,042 |
70,213 | 49,483 |
1,114,066 | 1,374,188 |
365,032 | 348,636 |
13,603 | 13,163 |
65,016 | 16,489 |
36,819 | 367 |
1,729,066 | 1,852,371 |
3,136,213 | 3,887,921 |
in thousands of US dollars
Notes | December 31, 2022 | December 31, 2023 | |
Liabilities and equity Liabilities Current liabilities Trade and other payables Contract liabilities Borrowings Income taxes payable Provisions Other financial liabilities Other current liabilities | 14, 30, 31 23 15, 30, 32 18 19, 30, 32 20 | 921,708 499,383 19,084 38,389 109,704 99,219 76,954 | 1,189,228 590,278 57,799 70,147 126,268 150,826 59,551 |
Total current liabilities | 1,764,443 | 2,244,101 | |
Non-current liabilities Bonds and borrowings Deferred tax liabilities Defined benefit liability Provisions Other financial liabilities Other non-current liabilities | 15, 30, 32 27 16 18 19, 30, 32 20 | 374,293 1,283 43,959 56,675 37,127 17,310 | 512,954 - 45,091 24,288 19,399 6,794 |
Total non-current liabilities | 530,649 | 608,529 | |
Total liabilities | 2,295,092 | 2,852,630 | |
Equity Share capital Capital surplus Retained earnings Treasury shares Other components of equity | 21 21, 31 21 21 | 282,292 280,686 131,004 (1,092) 118,748 | 190,495 187,112 522,260 (1,092) 94,042 |
Equity attributable to owners of parent | 811,640 | 992,817 | |
Non-controlling interests | 29,481 | 42,473 | |
Total equity | 841,121 | 1,035,291 | |
Total liabilities and equity | 3,136,213 | 3,887,921 |
2.
Consolidated statement of profit or loss in thousands of US dollars
Notes | 2022 | 2023 | |
Revenue Cost of sales | 4, 23, 31 7, 8, 16, 17, 24, 31 | 2,739,762 (2,671,503) | 3,574,924 (3,324,543) |
Gross profit | 68,259 | 250,380 | |
Selling, general and administrative expenses Share of profit of investments accounted for using equity method Other income Other expenses | 7, 8, 16, 17, 24, 31 10, 30 25 | (153,101) 126,845 33,384 (57) | (188,538) 128,677 2,513 (94) |
Operating profit | 75,330 | 192,938 | |
Finance income Finance costs | 26, 30 26, 30 | 64,389 (84,884) | 90,834 (69,104) |
Profit before tax | 54,835 | 214,668 | |
Income tax expense | 27 | (13,691) | (88,712) |
Profit for the period | 41,143 | 125,955 |
Profit attributable to Owners of parent Non-controlling interests | 37,377 3,766 | 96,536 29,419 |
Profit for the period | 41,143 | 125,955 |
in US dollars
Earnings per share Basic earnings per share Diluted earnings per share | 28 | 0.66 0.66 | 1.55 1.55 |
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MODEC Inc. published this content on 27 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 March 2024 07:24:07 UTC.