Nekkar — Interim / Quarterly Report 2014

Aug 20, 2014

Q2 Results 2014 Oslo, 20 August 2014

Björn Andersson, CEO Henrik Solberg-Johansen, CFO

• Breakthrough Peruvian market
• 2 nd quarter headlines
• Order intake and order backlog
• Business segments
• Market development
• 2 nd quarter consolidated accounts
• Shareholder structure
• The way ahead and summary

TTS entering Peruvian market

• Signed contract for delivery of ship lift and ship transfer system worth 100 MNOK through subsidiary TTS Handling Systems AS
• Customer SIMA Peru:
• leading state-owned company
• 7 th ship lift contracts in succession:

• South Korea, Vietnam, Brazil and Peru

• Breakthrough Peruvian market

• 2 nd quarter headlines

2 nd quarter 2014 Summary

• EPS for the quarter was NOK -0.41 and YTD NOK -0.95.
• Turnover in the quarter was MNOK 617. While it is 19 % below 2nd quarter 2013, it is up 11 % from 1 st quarter 2014 due to higher activity in the Marine division.
• EBITDA in the quarter was negative MNOK 10. The negative EBITDA is mainly due to low margins on ongoing projects in the Offshore & Heavy Lift Division.
• The improvement process in TTS continues. Downsizing in Offshore & Heavy lift has to a large extent been finalized in the 1st half of the year, while other initiatives are still in the implementation process.
• Order intake was MNOK 691 excluding joint ventures, up 7 % compared to previous quarter. Heavy lift cranes and additional car carrier orders are the most notable orders in the quarter.
• Gross order intake in the joint venture companies continues to develop well with more than MNOK 350 in the quarter. The order intake is mainly related to hatch covers, cargo and marine cranes for the Chinese market.
• Order backlog at the end of second quarter 2014 was MNOK 3 377*), an increase of 14 % from year end and 42 % compared to 2nd quarter 2013. Cancellations in the quarter were MNOK 0.

EBITDA development

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

• Breakthrough Peruvian market
• 2 nd quarter headlines
• Order intake and order backlog

Order intake

MNOK

Order backlog Q2 2014

Order intake and backlog Q2 2014

MNOK	Q2 2014		Backlog*
	Order-intake	Cancelled	Q2 2014	Q2 2013
Marine	324	0	2 508	1 569
Offshore & Heavy Lift	223	0	869	807
Services	143	0	0	0
Total	691	0	3 377	2 376

Order backlog per Q2 2014 by year of delivery.

MNOK

Order backlog* - per 30.06.2014

• Breakthrough Peruvian market
• 2 nd quarter headlines
• Order intake and order backlog
• Business segments

Group structure - division and business units

Marine

Cranes, winches and hatch covers for car carriers, cargo ships, cruise ships and specialized vessels. Production lines and systems for cargo handling.

• Turnover for 2nd quarter 2014 in line with last year.
• High activity for PCTCs is offset by lower activity and margins within deck equipment and within port and terminals.
• Order intake is still good with MNOK 324 in the quarter and MNOK 688 YTD.
• Order backlog is MNOK 2 508, which is a 60 % increase compared to last year, influenced by the strong market positions for the JVs in China.
• Market outlook for the marine division remains positive in most segments.

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, especially in the bulk and container segment, results in high order intake during the period both for cranes and hatch covers.
• Order intake in the joint ventures in 2 nd quarter 2014 was MNOK 359 (100% basis).
• The joint ventures are seeing a strong market for its products. The market share is in a positive development.

Turnover Joint Ventures China YTD

Numbers are on a 100% basis and in MNOK.

Offshore & Heavy Lift

All types of cranes for offshore vessels and offshore installations.

• The division again reports weak results in the 2 nd quarter with a loss of MNOK 41.6.
• The result is mainly related to restructuring cost, low margins on several ongoing projects and delay of certain projects.
• Cost reduction efforts have been implemented, resulting in a reduction of workforce of approx. 100 persons. This effort has to a large extent been finalized in 1 st half of 2014 and is expected to provide improvement in profitability in the 2nd half of 2014.
• Order intake in the quarter was MNOK 223. Order backlog has increased by MNOK 62 from 2 nd quarter 2013.
• There are signs of increased activity in both offshore and heavy lift markets.

Services

Spare parts, service and maintenance.

• Turnover in the quarter has increased by 40% compared to 2nd quarter 2013.
• The market has been reasonable during the 2 nd quarter.

• Services base in Brazil has been established in Q2. Start up in Houston expected to be finalized in Q3.

• Breakthrough Peruvian market

• 2 nd quarter headlines
• Order intake and order backlog
• Business segments
• Market development

Outlook Offshore Vessels & Drill ship

Global market 2005-2015

• For large PSVs we have seen a fairly stable market over the last 7 quarters. Increased number of requests lately indicates potential for stronger market.
• For drillship, jack up and semi subs the mid term prospect is weaker due to oversupply and low rates, however the longer term still is expected to improve.
• Still optimistic with regards to Chinese shipyard market share expansion.

Ship new building 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 World Fleet

Number of new Ship Orders

Source: Maritime Strategies International

• Breakthrough Peruvian market
• 2 nd quarter headlines
• Order intake and order backlog
• Business segments
• Market development
• 2 nd quarter consolidated accounts

Profit and loss statement

	2nd quarter		Q2 YTD		Year
MNOK	2014	2013	2014	2013	2013
Turnover	617	758	1 171	1 489	2 693
EBITDA	-10	35	-39	60	-130
Operating profit	-20	27	-58	45	-164
Net financial items	-10	-5	-18	-9	-37
Profit/loss before tax	-30	22	-77	36	-201
Net result	-35	16	-82	24	-227

Turnover as per 30.06.2014

EBITDA as per 30.06.2014

Balance Sheet

MNOK	30.06.2014	30.06.2013
Non-current assets	899	913
Current assets	1 208	1 393
TOTAL ASSETS	2 107	2 306
Equity	473	774
Interest bearing liabilities	381	216
Other liabilities and provisions	1 253	1 316
TOTAL EQUITY AND LIABILITIES	2 107	2 306

There have been no conversions of convertible bond during Q2 2014.

Equity ratio at end of 2nd quarter 2014 is 22.5%.

Equity share development

Per cent

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

Net working capital development

Only minor changes in working capital during the 2nd quarter.

Consolidated cash flow and net interest bearing debt

	YTD	YTD
MNOK	2014	2013
Net cash flow from operations	-170	-100
Net cash flow from investments	-12	-15
Net cash flow from financial activities	127	8
Net change in cash	-55	-107
Cash and bank deposits at the start of the period	156	228
Effect of exchange rate changes in bank/cash	-12	26
Cash and bank deposits at the end of the period	88	147
Net cash continued business	88	147

Cash flow from operations was negative MNOK 170, due to increased working capital mainly related to ongoing offshore and deck equipment projects.

• Net interest bearing debt increased to MNOK 303.
• At 30 June 2014 TTS was in breach with loan covenants. In July 2014, TTS received waivers from the banks on the breach of covenants.
• TTS continues the dialogue with the banks to renegotiate the loan covenants following the significant losses over the last 12 months.

MNOK	Q2 14	Q1 14	Q4 13	Q3 13	Q2 13	Q1 13
Short term interest b. debt	295	187	50	150	32	32
Long term int. bearing debt	1	103	103	0	106	6
Convertible Bond(*)	95	95	95	95	95	95
Total	391	385	248	245	233	133
Cash	88	117	156	65	147	148
NIBD (**)	303	268	92	180	86	-15

(*) Convertible loan included at nominal value

(**) Negative indicates net asset position

• Breakthrough Peruvian market
• 2 nd quarter headlines
• Order intake and order backlog
• Business segments
• Market development
• 2 nd quarter consolidated accounts
• Shareholder structure

10 largest shareholders at August 18th 2014

Total	57.16%
Tamafe Holding AS	2.49%
Holberg Norge Verdipapirfondet	2.56%
Skeie Capital Invest	2.92%
Skagen Vekst	3.72%
Barrus Capital AS	3.99%
Skandinaviska Enskilda	5.62%
Stisk AS	6.13%
Lesk AS	6.13%
Skeie Technology AS	10.31%
Rasmussengruppen AS	13.29%

• Breakthrough Peruvian market
• 2 nd quarter headlines
• Order intake and order backlog
• Business segments
• Market development
• 2 nd quarter consolidated accounts
• Shareholder structure
• The way ahead and summary

Management changes

• Arild Apelthun (former CFO) has accepted a new position in another company. As a consequence, Henrik Solberg-Johansen, (former VP of Group Accounting and Control), has from the 20th of August been appointed as CFO of the TTS Group.
• Ivar K. Hanson (EVP Marine division) has decided to leave TTS in order to pursue other opportunities outside of TTS Group.

Operational excellence & Synergies – release total MNOK 150 in operational costs

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

2013	2014	2015
Phase 1	Phase 2
 Business strategies  GAP analysis  Adjust organization structure  Financial performance. Target set	 Organizational adjustments and merging units  Integration of Deck Equipment business unit initiated in Q2.  Focus on efficient operation/process  Offshore and Heavy lift downsizing finalized and new work process implemented  Enhance market focus  Key account structure implemented  Corporate driven controller structure implemented.	Phase 3  Customer driven growth  market shares to increase  Profitability through cost efficiencies  substantial lower sourcing costs  Closing gaps /product development  reinforced competitive position  Lean and mean business  substantial better focus on
	 Momentum cost reduction projects  Product development started in all divisions.	segments where higher productivity are achieved

Summary

• We have a road map for the improvement processes going forward in 2014 and 2015 that has not changed. Up to now we have
• Integrated Port business with the Marine division
• Finalized the cost cutting program in Offshore & Heavy Lift division.
• Initiated restructuring of the Deck Equipment business in Q3 2014 where more of the value chain is being moved closer to the customer.
• Productivity enhancement initiatives implemented in a number of businesses.
• The changes implemented will generate improved results. However, in near term the profitability is a challenge. We have a 2 year program.

Outlook

The marine market remains good. Contracting of new vessels, especially bulkers continues to be at a high level and Car carriers will continue with several repeats. Container ships, especially feedersize grow up and General cargo/Heavy lift have increased since yearend. Offshore segments of OSV with heavy cranes are in the pipeline.

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