Viking Supply Ships

Quarterly Report • Aug 7, 2014

Viking Supply Ships A/S Financial Report Q2 2014

FINANCIAL REPORT Q2

Contents Page

Summary of events	3
Operational highlights	3
Financial highlights	4
Financing and capital structure	4
Subsequent events	4
Contract backlog	5
Employment overview	5
Outlook	5
Condensed consolidated profit and loss account	7
Condensed consolidated statement of comprehensive income	7
Condensed consolidated cash flow statement	7
Condensed consolidated balance sheet	8
Notes to the condensed consolidated financial statements	9

Viking Supply Ships (VSS) conducts operations in the North Sea, Arctic and in the global offshore sector. The fleet comprises of 14 offshore vessels that are equipped for and have the capacity to operate in areas with harsh environment, further 7 of the AHTS vessels are equipped to operate in Arctic areas. The AHTS fleet, combined with crew and ice management competence, is tailor-made to operate in ice conditions. There has been an increased contract activity in this niche. VSS is committed to have a substantial part of the fleet on longer term contracts, and have a focus on increasing the contract backlog.

For further information, please contact CEO, Christian W. Berg, ph: +45 41 77 83 80.

The interim financial statements have not been subject to audit or review.

Front picture: AHTS Brage Viking operating on the Grand Banks during May 2012.

FINANCIAL REPORT Q2

SUMMARY OF EVENTS Q2

Total revenue for Q2 2014 was MNOK 365 (MNOK 260), of which vessel operations contribute with MNOK 262 (MNOK 231) and Services and Ship Management segments contribute with MNOK 103 (MNOK 29). The EBITDA for Q2 was MNOK 115 (MNOK 87).

The operating result (EBIT) for Q2 was MNOK 69 (MNOK 45). The net result for Q2 was MNOK 38 (MNOK 23).

The political situation in Ukraine and the sanctions against Russia has to date not impacted VSS. An escalated situation could cause negative implications on the company's activities in Russia; however, it is difficult to substantiate the probability and consequences of this threat. VSS is monitoring the situation closely in order to secure its interests in the region.

The average fixture rate for the VSS AHTS fleet in Q2 was NOK 413,000 (NOK 343,000) and GBP 10,360 (GBP 11,000) for the VSS PSV fleet. The average utilization for the VSS AHTS fleet for Q2 was 72 % (73 %) and 82 % (88 %) for the VSS PSV fleet.

As communicated in the Q1 2014 Financial Report, VSS will receive a compensation fee due to the cancellation by a major oil company of the 2014 drilling season for AHTS Icebreaker Tor Viking. The final fee is still to be resolved, hence VSS has booked conservatively and only included a limited amount in Q2 2014.

Following the above cancellation, the AHTS Icebreaker Tor Viking was awarded a contract with another major oil company for a period of 11 months in the Far East, commencing in June 2014. The charterer has the option to extend the contract with 2x6 months, subject to vessel availability. The total value of the firm contract period is MUSD 34.5.

Sakhalin Energy has exercised the first of three 4 months options on AHTS Icebreaker Vidar Viking. The vessel is now on firm contract until April 2015.

As communicated in the Q3 2013 financial report, VSS has signed a contract with a major oil company for four of its AHTS vessels. All four AHTS vessels started performing under the contract at the end of May.

VSS has refinanced the secured bank loan financing the PSV fleet, by signing a new secured bank loan agreement of MNOK 445 maturing in 2016. The purpose of the refinancing was to extend the existing loan agreement and to facilitate the purchase of the PSV vessels SBS Typhoon and Freyja Viking which have been on long term bareboat charters to VSS. SBS Typhoon was purchased in connection with the refinancing and Freyja Viking will be purchased in October.

Further, VSS has secured a firm commitment regarding refinancing of the existing bank loan on the three AHTS Icebreakers Tor, Balder and Vidar Viking. The new secured bank loan agreement of MNOK 617 will mature in 2019, and draw-down is expected to take place in Q3 2014. The refinancing will result in a free cash flow of about MNOK 100 and provide a better repayment structure going forward (see debt maturity on page 10).

OPERATIONAL HIGHLIGHTS FOR Q2

Anchor Handling Tug Supply vessels (AHTS)

Despite a reduced AHTS fleet size in the North Sea spot market during the second quarter, the market has been weak due to low activity and therefore low demand in the period. Both utilization and rates have been below normal levels.

By the end of the second quarter of 2014 seven vessels were on term charters, while one was traded in the North Sea spot market.

Q2 2014	Fixture rate (NOK)	Utilization (%)
AHTS vessels on term charters	447,300 (360,000)	100 % (100 %)
AHTS vessels on spot market	355,100 (334,000)	49 % (64 %)
Total AHTS fleet	413,000 (343,000)	72 % (73 %)

Platform Supply Vessels (PSV)

The supply of PSV vessels in the North Sea has remained relatively stable over the quarter, but as demand has not increased as anticipated for the season, the market has remained weak in the second quarter.

By the end of the second quarter of 2014 three vessels were on term charters, while three were traded in the North Sea spot market.

Q2 2014	Fixture rate (GBP)	Utilization (%)
PSV vessels on term charters	11,220 (11,000)	100 % (100 %)
PSV vessels on spot market	8,600 (10,800)	59 % (43 %)
Total PSV fleet	10,360 (11,000)	82 % (88 %)
Services and Ship Management
In the Services segment the Kara Sea Consultancy Project is progressing according to the project plan. All seafarers
have finalised their education at the Viking Ice Academy and the Shore Operations Center in Moscow has been staffed
and equipped and is now fully operational. The Shore Operations Center in Moscow delivers valuable data such as weather forecast, information about ice conditions and general guidance to the vessels operating in the Kara Sea.
The Ship Management segment operated according to plan with no major events during the second quarter.
FINANCIAL HIGHLIGHTS
Results for Q2 2014
Total revenue was MNOK 365 (MNOK 260) for Q2. The operating costs were MNOK 250 (MNOK 173) and EBITDA MNOK 115 (MNOK 87). The operating result (EBIT) was MNOK 69 (MNOK 45).
Net financials were negative MNOK 31 (negative MNOK 22). Financial costs include unrealized currency gain of MNOK
3 (MNOK 10) and realized value adjustment on interest rate swaps of negative MNOK 4 (negative MNOK 1).
The net result for Q2 was MNOK 38 (MNOK 23).
Results for H1 2014
Total revenue was MNOK 705 (MNOK 448) for H1. The operating costs were MNOK 514 (MNOK 356) and EBITDA
MNOK 190 (MNOK 92). The operating result (EBIT) was MNOK 96 (MNOK 8).
Net financials were negative MNOK 72 (negative MNOK 73). Financial costs include unrealized currency loss of MNOK 7 (loss of MNOK 4) and realized value adjustment on interest rate swaps of negative MNOK 4 (negative MNOK 6).
The net result for H1 was MNOK 20 (negative MNOK 55).
FINANCING AND CAPITAL STRUCTURE
Viking Supply Ships A/S is a 100 % owned subsidiary of Rederi AB Transatlantic ("RABT"). RABT is a limited liability
company registered in Sweden, with its domicile in Gothenburg, and corporate registration number 556161-0113.
RABT is listed on the Small Cap list of the NASDAQ OMX Nordic Exchange in Stockholm.
VSS book equity amounted to MNOK 1,751 (MNOK 1,695) as of 30 June 2014 and was impacted by the H1 result for
the period of MNOK 20 (negative MNOK 55) and currency effects of MNOK 12 (MNOK 27). The value adjusted equity
ratio was 45 % (43 %).
SUBSEQUENT EVENTS
No material events have taken place after the balance date.

Services and Ship Management

In the Services segment the Kara Sea Consultancy Project is progressing according to the project plan. All seafarers have finalised their education at the Viking Ice Academy and the Shore Operations Center in Moscow has been staffed and equipped and is now fully operational. The Shore Operations Center in Moscow delivers valuable data such as weather forecast, information about ice conditions and general guidance to the vessels operating in the Kara Sea.

FINANCIAL HIGHLIGHTS

Results for Q2 2014

Total revenue was MNOK 365 (MNOK 260) for Q2. The operating costs were MNOK 250 (MNOK 173) and EBITDA MNOK 115 (MNOK 87). The operating result (EBIT) was MNOK 69 (MNOK 45).

Net financials were negative MNOK 31 (negative MNOK 22). Financial costs include unrealized currency gain of MNOK 3 (MNOK 10) and realized value adjustment on interest rate swaps of negative MNOK 4 (negative MNOK 1).

Results for H1 2014

Total revenue was MNOK 705 (MNOK 448) for H1. The operating costs were MNOK 514 (MNOK 356) and EBITDA MNOK 190 (MNOK 92). The operating result (EBIT) was MNOK 96 (MNOK 8).

Net financials were negative MNOK 72 (negative MNOK 73). Financial costs include unrealized currency loss of MNOK 7 (loss of MNOK 4) and realized value adjustment on interest rate swaps of negative MNOK 4 (negative MNOK 6).

FINANCING AND CAPITAL STRUCTURE

Viking Supply Ships A/S is a 100 % owned subsidiary of Rederi AB Transatlantic ("RABT"). RABT is a limited liability company registered in Sweden, with its domicile in Gothenburg, and corporate registration number 556161-0113. RABT is listed on the Small Cap list of the NASDAQ OMX Nordic Exchange in Stockholm.

VSS book equity amounted to MNOK 1,751 (MNOK 1,695) as of 30 June 2014 and was impacted by the H1 result for the period of MNOK 20 (negative MNOK 55) and currency effects of MNOK 12 (MNOK 27). The value adjusted equity ratio was 45 % (43 %).

SUBSEQUENT EVENTS

FINANCIAL REPORT Q2

CONTRACT BACKLOG

	2014	2015	2016
Total contract backlog (MNOK)	2,752	2,109	1,151
AHTS contract backlog (MNOK)	2,730	2,109	1,151
PSV contract backlog (MNOK)	2 2	-	-
Total contract coverage (%)	50%	36%	26%
AHTS contract coverage (%)	75%	64%	45%
PSV contract coverage (%)	16%	0 %	0 %
th

Table is basis 30 th June 2014. All figures above include firm period and options.

EMPLOYMENT OVERVIEW

		Firm contract	Option
AHTS	July	Augus	t September October November December		2014	2015	January February	March	April	Ma y	June
Tor Viking			Oil major, firm till 15th May 2015 + 2x6 months options							Oil major, firm 2015 + opt for 2016-17
Balder Viking			Oil major, firm season 2014-2015, options for 2016-2017			SMA stand by					Oil major
Vidar Viking			Sakhalin Energy, firm till 1st April 2015 + 2x4 months options
Odin Viking	Spot
Loke Viking			Oil major, firm season 2014-2015, options for 2016-2017								Oil major
Njord Viking			Eni Norge, firm till 29th July 2015 + 2x1 yearly options
Magne Viking			Oil major, firm season 2014-2015, options for 2016-2017								Oil major
Brage Viking			Oil major, firm season 2014-2015, options for 2016-2017								Oil major

		Firm contract	Option		2014	2015
PSV	July	Augus	t September October		November December		January February March	April	Ma y	June
Frigg Viking	Spot
Idun Viking	Spot
SBS Tempest	Spot
Freyja Viking			Nexen, firm till 1st October 2014 + 1 month option + 4x1 week options
SBS Typhoon	Enquest, 1 firm well
SBS Cirrus	Spot

Overviews are basis 30 th June 2014.

OUTLOOK

With the decreased AHTS fleet size available in the North Sea spot market, which we deem as an indication of both local and global drilling activity, we expect a moderate improvement of the AHTS market going forward. Activity levels have however been on the lower side recently, and the market would require even more underlying demand growth to improve.

For the PSV segment, we expect the demand to improve as more rigs go into operation or return from yard stays. The positive effect will be off-set by some new builds entering the market, and the market balance will most likely be determined by foreign demand.

VSS is continuing its effort to secure long term contracts within the arctic and harsh environment offshore market, and the company is optimistic of future opportunities within the segment.

FINANCIAL REPORT Q2

Copenhagen, 7 August 2014

Board of Directors:

Chairman Vice chairman

Christen Sveaas Anders Folke Patriksson Tom Ruud

Lars Håkan Larsson Per Magnus Sonnorp

Managing Director:

Christian W. Berg

CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT

	Q2	H1	Q2	H1	FY
(MNOK) Note	2014	2014	2013	2013	2013
Total Revenue	365.3	704.6	259.9		447.5 1,006.9
Direct voyage costs	-11.6	-29.9	-11.6	-24.3	-43.6
Operating costs	-238.4	-484.3	-161.0	-331.4	-663.9
Total operating costs	-250.0	-514.2	-172.6	-355.7	-707.5
Operating profit before depreciation (EBITDA)	115.3	190.4	87.3	91.8	299.4
Depreciation 1	-46.0	-94.3	-42.3	-83.7	-175.6
Operating profit (EBIT)	69.3	96.1	45.0	8.1	43.8
Financial income	0.2	0.5	0.4	0.7	2.8
Financial costs	-30.7	-72.5	-22.7	-73.6	-105.7
Net financials	-30.5	-72.0	-22.3	-73.0	-102.8
Pre-tax result	38.8	24.1	22.7	-64.9	-59.0
Taxes	-0.6	-4.4	-	10.0	7.4
Result for the period	38.2	19.7	22.7	-54.9	-51.6

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

	Q2	H1	Q2	H1	FY
(MNOK)	2014	2014	2013	2013	2013
Result for the period	38.2	19.7	22.7	-54.9	-51.6
Translation effect foreign operations	15.0	12.3	7.2	27.3	48.0
Other comprehensive income net of tax	15.0	12.3	7.2	27.3	48.0
Total comprehensive income for the period	53.2	32.0	29.9	-27.6	-3.6

CONDENSED CONSOLIDATED CASHFLOW STATEMENT

	Q2	H1	Q2	H1	FY
(MNOK)	2014	2014	2013	2013	2013
Cash flow from operating activities	116.5	138.0	8.2	1.4	121.7
Cash flow from investing activities	-153.7	-163.4	-22.0	-34.4	-49.4
Cash flow from financing activities	82.6	47.2	17.9	46.9	-31.2
Net changes in cash and cash equivalents	45.4	21.8	4.1	13.9	41.1
Cash and cash equivalents at the start of period	214.7	238.2	207.0	197.1	197.1
Cash and cash equivalents at the end of the period	260.0	260.0	211.0	211.0	238.2

CONDENSED CONSOLIDATED BALANCE SHEET

	Note	H1	H1	FY
(MNOK)		2014	2013	2013
ASSETS
Vessels and equipment		3,762.7	3,772.9	3,669.8
Tangible fixed assets	1,2	3,762.7	3,772.9	3,669.8
Financial fixed assets	4	31.8	94.5	68.8
Total fixed assets		3,794.5	3,867.5	3,738.6
Inventories		13.2	18.2	24.2
Accounts receivables		170.7	148.8	118.7
Other current receivables		139.5	73.7	83.8
Cash and cash equivalents	4	260.0	211.0	238.2
Total current assets		583.4	451.7	464.9
Total assets		4,377.9	4,319.2	4,203.5

		H1	H1	FY
(MNOK)	Note	2014	2013	2013
EQUITY AND LIABILITIES
Share capital		0.5	0.5	0.5
Retained earnings and reserves		1,750.7	1,694.7	1,718.7
Total equity		1,751.2	1,695.3	1,719.2
Long-term bond loan	3	304.4	458.3	359.9
Long-term debt to credit institutions	3	1,726.8	1,736.6	1,647.4
Other non-current liabilities		28.5	49.6	33.1
Non-current liabilities		2,059.7	2,244.6	2,040.4
Short-term bond loan	3	99.6	-	98.8
Short-term debt to credit institutions	3	200.5	189.6	189.6
Accounts payable		65.6	69.4	38.4
Other current liabilities		201.3	120.3	117.1
Current liabilities		567.0	379.3	443.9
Total liabilities		2,626.7	2,623.9	2,484.3
Total equity and liabilities		4,377.9	4,319.2	4,203.5

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Depreciation

Tangible fixed assets are recognized at cost or after deductions for accumulated depreciation according to plan and possible impairment. Straight-line amortization according to plan is based on the following useful lives:

• Vessels 25–30 years with residual value
• Docking and major overhaul measures 2.5–5 years
• Other equipment 5–10 years

Impairment test as at 30 June shows no need for impairment.

2. Segment information

The segment information is presented in accordance with the internal reporting structure and includes four segments.

	H1	H1	H1	H1
(MNOK)	AHTS	PSV	Services	Ship Mgmt.
Total Revenue	409.3	91.5	142.2	61.6
Direct voyage costs	-25.8	-4.1	-	-
Operating costs	-219.4	-80.3	-123.0	-61.6
Total operating costs	-245.2	-84.4	-123.0	-61.6
Operating profit before depreciation (EBITDA)	164.1	7.1	19.2	-
Depreciation	-76.0	-18.3	-	-
Operating profit (EBIT)	88.1	-11.2	19.2	-
Financial income	0.5	-	-	-
Financial costs	-66.9	-5.6	-	-
Net financials	-66.4	-5.6	-	-
Pre-tax result	21.7	-16.8	19.2	-
Taxes	-4.4	-	-	-
Result for the period	17.3	-16.8	19.2	-

	H1	H1	H1	H1
(MNOK)	AHTS	PSV	Services	Ship Mgmt.
Total tangible fixed assets	3,054.3	708.4	-	-
Total interest bearing debt	1,973.2	358.1	-	-

There are no significant revenue transactions between the segments.

3. Interest bearing liabilities

The vessels owned by the Company are primarily financed through bank loans with pledge in the vessels. Further securities have been given in the form of pledge in revenue and insurance policies. The interest-bearing debt in VSS per Q2 2014 is MNOK 2,331 (MNOK 2,385).

VSS' loan agreements have a number of financial and other covenants, according to which VSS must fulfill certain key data. At the balance date all covenants were in compliance.

FINANCIAL REPORT Q2

In March 2012 VSS issued a 5 year senior unsecured bond loan in the Norwegian capital market, with maturity in March 2017, totaling MNOK 300. The bond agreement has a limit of MNOK 750. The net proceeds from the bond shall be employed for investments, capital expenditures related to fleet expansion and general corporate purposes. The bond was listed on Nordic ABM in Oslo on 28 June, 2012. In March 2013 an additional MNOK 85 was drawn in a tap issue. As at balance data VSS is holding nominal MNOK 72 MNOK of this bond, consequently 313 MNOK is outstanding.

In June 2013 VSS issued a 15 month senior unsecured bond loan in the Norwegian capital market, with maturity on 24 September 2014, totaling MNOK 100. The bond was listed on Nordic ABM in Oslo on 25 June, 2013.

VSS has 26 % (11 %) of its interest bearing debt in USD and 15 % (0 %) in GBP. The remaining loans are denominated in NOK. VSS has 11 % (37 %) of the total loan portfolio swapped into fixed interest rate.

3.1. Classification by type of debt

	H1	H1	FY
(MNOK)	2014	2013	2013
Long-term bond loan	304.4	458.3	359.9
Short-term bond loan	99.6	-	98.8
Long-term debt to credit institutions	1,726.8	1,736.6	1,647.4
Short-term debt to credit institutions	200.5	189.6	189.6
Total interest bearing liabilities	2,331.3	2,384.6	2,295.7

3.2. Debt maturity

Figures basis 30 th

June 2014 Figures after refinancing of AHTS icebreakers Tor, Balder and Vidar Viking which is expected to be completed during Q3 2014

4. Cash and cash equivalents

	H1	H1	FY
(MNOK)	2014	2013	2013
Restricted cash *	-	61.6	37.2
Free cash and cash equivalents	260.0	211.0	238.2
Cash and cash equivalents	260.0	272.7	275.4

* The amount is included in the item "Financial fixed assets" in the balance-sheet

FINANCIAL REPORT Q2

5. Operational and financial risk

VSS is characterized by a high degree of international operations and is thus exposed to a number of operational and financial risks. VSS works actively to identify, assess and manage these risks.

VSS is exposed to changes in the freight rates. To mitigate this operational risk, VSS has a clear focus on increasing the number of vessels on term contracts.

Long-term loans are the principal form of financing. Accordingly, interest rate fluctuations have an impact on VSS' earnings and cash flow. To reduce this risk the Group aims to actively manage the interest exposure through various types of hedging instruments.

Part of the VSS' cash flow is generated in currencies other than NOK which is VSS' functional currency. This means that currency fluctuations have an impact on VSS' earnings and cash flows. The foreign exchange risk is primarily reduced by matching the exposure to revenues in various currencies with costs in the corresponding currency. In the same manner, assets in a certain currency are primarily matched with liabilities in the same currency.

6. Basis of preparation

These condensed interim financial statements for the six months ended 30 June 2014 have been prepared in accordance with the accounting principles as described in the VSS Annual Report for 2013.