Nekkar — Earnings Release 2013

Feb 14, 2014

Q4 Results 2013

Oslo, 14 February 2014 Björn Andersson, CEO Arild Apelthun, CFO

Agenda

• 4th quarter headlines
• Order intake and order backlog
• Business segments
• Market development
• 4th quarter consolidated accounts
• Shareholder structure
• The way ahead and summary

Agenda

• 4th quarter headlines

4th quarter 2013 Summary

• EPS for the quarter was NOK -1,59 for continued business and NOK -1,32 in total.
• Turnover in the quarter was MNOK 638.
• EBITDA in the quarter was MNOK -20, mainly due to restructuring cost, additional provisions and write down in addition to cost overruns on projects.
• Mixed results as the losses in Offshore & Heavy lift and within parts of the Marine division more than offset good results elsewhere in Marine and Service Divisions.
• Order intake was MNOK 775, an increase from same quarter last year. The main order intake in the quarter relates to cargo access products, winches and offshore cranes.
• Order cancellation of MNOK 116 in Q4, mainly relates to the drillship order where TTS has terminated the contract with STX.

Turnover and EBITDA – 4th quarter

* Restated 2012 due to changes in IAS 19, recognition of actuarial gain/loss on pension liabilities.

Historical turnover development 2000-2013 MNOK

Agenda

• 4th quarter headlines
• Order intake and order backlog

Order intake

MNOK

Order backlog Q4 2013

Order intake and backlog Q4 2013

Cancellation of order in Offshore & Heavy Lift relates to the STX contract terminated by TTS. The cancellations in the Marine Division relates to winch contracts.

Order backlog per Q4 2013 By year of delivery.

MNOK	Q4 2013		Backlog*
	Order-intake	Cancelled	Q4 2013	Q3 2013
Marine	239	15	1 692	1 683
Offshore & Heavy Lift	311	100	846	779
Port	112	2	433	391
Services	113	0	0	0
Total	775	116	2 971	2 853

Order cancellation Q4 2011 - Q4 2013 MNOK

Order backlog* - per 31.12.2013 MNOK

Order backlog* by division Q4 2011 – Q4 2013 MNOK

Agenda

• 4th quarter headlines
• Order intake and order backlog
• Business segments

Marine

RoRo equipment, Hatch covers, Side doors, Cruise and Mega Yachts, Winches and Deck equipment, Cranes and Davits for ships.

• High activity and earnings related to cargo access business (car carriers). Continued high activity and order intake where TTS has improved its market share over the last 12 months.
• Joint ventures in China shows increased order intake and increased activity in line with the market improvement on bulkers.
• While market activity and order intake picks up also for the deck equipment (winch and Hatch covers) business, restructuring of the business, loss on a large yacht project and low margins on new orders contribute to the result in 2013.

TTS Joint Venture operations in China

• Joint Ventures are recognized in the financial statements according to the equity method. TTS Group includes only its share (50%) of profit after tax in financial reports.
• The increased contracting in especially the bulk and container segment results in improved order intake in the period, mainly related to hatch covers.
• Order intake in the joint ventures in Q4 was MNOK 323 (100% basis).
• Market share in China for our Joint ventures
• TTS Hua Hai: > 50 %
• TTS Bo Hai : 25- 30%

Turnover Joint Ventures China

Backlog Joint Ventures China

Offshore & Heavy Lift

Offshore and Heavy lift cranes, Hangar and watertight doors

• The Offshore & Heavy lift division reports a weak result also for Q4.
• For the offshore handling business, provisions related to cancelled projects, stock in addition to further cost increase on certain projects explains the significant loss for the quarter.
• For the heavy lift business, a significant restructuring were completed in Q4 and low activity during the quarter results in losses.
• The market for offshore cranes has weakened somewhat during the quarter and first part of 2014, although there is still a number of cranes being tendered.
• Within the heavy lift business the activity has increased and a number of orders were signed during the quarter.

Positioning TTS in the Offshore segment

Offshore projects

• 2x cranes for Cosco/Axis
• 4x large offshore cranes + riser handling to Vantage
• 150t AHC crane to Ulstein/Eidesvik/Subsea 7
• 4x250t AHC crane to Rem& Olympic Kleven
• 60t AHC crane to Olympic Kleven

Positioning TTS in the Offshore segment

Offshore projects – Pictures show projects

• 1x 900t offshore crane for Van Oord
• 1x 20t AHC offshore crane for Gaiamare
• 2x 85t offshore cranes for Caspian Drilling Company
• 1x 8t crane for Global Tech 1

Port & Logistics

Equipment for Shipyards, Terminals and Industry

• The Port & Logistics division has seen a relatively stable quarter in Q4.
• Activity continues to be high within the ship lift segment for projects to be delivered in 2014.
• Order backlog and turnover has more than doubled from last year. In Q4 an order for terminal equipment was signed with Port of Stockholm of MNOK 90 in the quarter.
• The market activity remains relatively unchanged.

Services

Spare parts, Service and Maintenance

• The service division reports an improved result for the quarter, mainly due to improved activity in the offshore segment.
• Service revenue has increased by approx.13 % in 2013.
• The market in Q4 is mixed. Opportunities within conversion market is seen while the market for spare parts especially in the marine segment has not improved materially.

Agenda

• 4th quarter headlines
• Order intake and order backlog
• Business segments
• Market development

Outlook World Fleet

Orders, Deliveries and Removals of Ships

Outlook World Fleet

Number of new Ship Orders

Outlook Offshore Vessels

Global market 2005-2015

Ship newbuilding prices are on the move

Shipbuilding prices are trending upwards for all segments, impact on equipment prices likely to follow in 6- 9 months.

Outlook Rig Market

The market looks a bit softer going forward, but we believe an UDW drillship will be ordered at a Chinese yard during 2014

Agenda

• 4th quarter headlines
• Order intake and order backlog
• Business segments
• Market development
• 4th quarter consolidated accounts

Profit and loss statement

	4th quarter		Full Year
MNOK	2013	2012	2013	2012
Turnover	638	810	2 693	2 370
EBITDA	-20	32	-40	157
Operating profit	-30	25	-74	110
Net financial items	-22	-12	-37	-66
Profit/loss before tax	-52	13	-111	44
Net result continued business	-65	-3	-137	37
Total net result included divested business			23	418

* Restated 2012 due to changes in IAS 19, recognition of actuarial gain/loss on pension liabilities.

Turnover as per 31.12.2013 MNOK

Change in Joint Venture structure accounts for MNOK 215 for the year.

EBITDA as per 31.12.2013

MNOK

* Restated 2012 due to changes in IAS 19, recognition of actuarial gain/loss on pension liabilities.

Balance Sheet

MNOK	31.12.2013	31.12.2012
Non-current assets	914	870
Current assets	1 265	1 481
TOTAL ASSETS	2 178	2 350
Equity	660	795
Interest bearing liabilities	233	111
Other liabilities and provisions	1 285	1 445
TOTAL EQUITY AND LIABILITIES	2 178	2 350

There have been no conversions of convertible bond during Q4 2013.

Equity ratio at end of 4th quarter 2013 is 30,3%.

Equity share development

* Restated from Q4 2011 due to changes in IAS 19, recognition of actuarial gain/loss on pension liabilities.

Net working capital development

Working capital has developed positively during fourth quarter related to payments on large marine and offshore projects.

Working capital still being influenced by the delays of heavy lift cranes.

Consolidated cash flow and net interest bearing debt

	YTD	YTD
MNOK	2013	2012
Net cash flow from operations	-138	-53
Net cash flow from investments	14	1 065
Net cash flow from financial activities	-3	-1 295
Net change in cash	-127	-284
Cash and bank deposits at the start of the period	228	511
Effect of exchange rate changes in bank/cash	55	0
Cash and bank deposits at the end of the period	156	227
Net cash continued business	156	227

• Cash flow from operations influenced by working capital increase during the year.
• Capital expenditure in 2013 was MNOK 49, however the net cash flow from investments are influenced by earn-out and dividends from Joint Venture.

MNOK	Q4 13	Q3 13	Q2 13	Q1 13 Q4 12
Short term interest b. debt	50	150	32	32	24
Long term int. bearing debt	103	0	106	6	11
Convertible Bond(*)	95	95	95	95	95
Total	248	245	233	133	130
Cash	156	65	147	148	227
Net interest b. debt(**)	92	180	86	-15	-97

(*) Convertible loan included at nominal value

(**) Negative indicates net asset position

• Net interest bearing debt decreased with MNOK 88 in the quarter. The main change relates to improvement in working capital.
• Waiver to Q3 2014 (12 months rolling EBITDA forecast).

Agenda

• 4th quarter headlines
• Order intake and order backlog
• Business segments
• Market development
• 4th quarter consolidated accounts
• Shareholder structure

10 largest shareholders at February 5th 2014

Total	57.86%
Tamafe Holding AS	2.49%
Holberg Norge Verdipapirfondet	2.61%
Skeie Capital Invest	2.92%
Skagen Vekst	3.72%
Barrus Capital AS	3.99%
Stisk AS	6.13%
Lesk AS	6.13%
Skandinaviska Enskilda	6.29%
Skeie Technology AS	10.31%
Rasmussengruppen AS	13.29%

Agenda

• 4th quarter headlines
• Order intake and order backlog
• Business segments
• Market development
• 4th quarter consolidated accounts
• Shareholder structure
• The way ahead and summary

Main strategic initiatives - synergies

Mid-term profit improvement plan of MNOK 150

Internal production

Increase the TTS production volume to 150 MNOK per year with a saving compared to the external market of 15 MNOK 2014.

Strategic Sourcing

3–5 % savings on purchasing volume yearly.

Synergies

Utilizing the strengths in all entities to develop and sustain the group business

Technical Cooperation

5 to 10 MNOK reduced cost yearly.

KAM, CRM and Benchmarking

5% increased inquiries yearly and a higher hit rate. To be involved earlier in the projects to avoid quality problems and reduce guarantee cost.

Strategic target

TTS Goal of 5 BNOK in revenue by 2020

Organic Growth ambition 2012-2020

The way ahead

Re-engineering of Offshore Handling, Heavy Lift and Deck Equipment

2013	2014	2015
Phase 1
	Phase 2
		Phase 3
 Business strategies  GAP analysis  Adjust organization structure  Financial performance. Target set	 Organizational adjustments and merging units  Focus on efficient operation/process  Enhance market focus  Corporate driven controller structure  Momentum cost reduction projects  KAM structure	 Customer driven growth  Profitability through cost efficiencies  Closing gaps /product development  Lean and mean business

Improvement - actions

Q4/Q1 Q2/Q3 Q4/Q1 Q2/Q3

• Line organization reports to CEO
• Corporate support processes on
• Sourcing
• Product development
• KAM
• Production
• Merging of BU
• Replacement of BU mgt.
• Momentum sourcing structure started

• Business process evaluation

• Service organization roll out map

• Sourcing strategy roll-out
• Fabrication strategy rollout
• Key account set-up
• Q1 evaluation of implementation
• Further capacity adjustments (?)
• More aggressive cost reduction (?)

• Production /utilization

• Customer drive

• Organizational focus on customer demand
• Operation efficiency
• Market share drive expansion by lowest cost
• Sourcing structure transfer to where we produce
• Fabrication platform established
• Market foot print
• Further develop China market share
• Grow Korea market share
• Service network expansion

Summary

• We have a road map for the improvement processes going forward in 2014 and 2015
• Productivity
• Sourcing
• Lead time
• Restructuring costs incurred in 4th quarter improves cost base and competitiveness.
• Focus on profitable market segments where TTS is strong
• Outlook;
• The marine market remains good. Contracting of new vessels, especially bulkers continues to be at a high level and are mainly being built in China.
• We see some improvement in the market for heavy lift while we are seeing somewhat slower market for offshore cranes at the moment.

For further information, please visit us at www.ttsgroup.com