Nekkar — Interim / Quarterly Report 2014

May 15, 2014

Q1 Results 2014

Oslo, 15 May 2014 Björn Andersson, CEO Arild Apelthun, CFO

• 1 st quarter headlines
• Order intake and order backlog
• Business segments
• Market development
• 1st quarter consolidated accounts
• Shareholder structure
• The way ahead and summary

• 1 st quarter headlines

1 st quarter 2014 Summary

• EPS for the quarter was NOK -0,54
• Turnover in the quarter was MNOK 554. This is 24 % lower than last year mainly due to lower activity within Offshore and Heavy lift division.
• EBITDA in the quarter was MNOK -28, mainly due to low utilization in the Offshore & Heavy Lift division.
• Order intake was MNOK 645 excluding joint ventures, a 30% increase from same quarter last year. The largest orders are relating to car carriers, port equipment and side loading systems. Gross order intake in the joint venture companies reached the same level and is mainly related to hatch covers, cargo and marine cranes for China.
• Order backlog at the end of 1st quarter 2014 was MNOK 3 109. Cancellations in the quarter were MNOK 47 relating to the heavy lift cranes.

Turnover and EBITDA – 1 st quarter

EBITDA development

Notes

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

Historical turnover development 2000-2013 MNOK

• 1 st quarter headlines
• Order intake and order backlog

Order intake

MNOK

Order backlog Q1 2014

Order intake and backlog Q1 2014

Cancellation of order in Offshore & Heavy Lift relates to heavy lift cranes.

MNOK	Q1 2014		Backlog*
	Order-intake	Cancelled	Q1 2014	Q1 2013
Marine	364	0	2 304	1 544
Offshore & Heavy Lift	160	47	804	944
Services	120	0	0	0
Total	645	47	3 109	2 488

*Order reserve includes 50% of Joint Ventures.

Order backlog per Q1 2014 By year of delivery.

MNOK

Order cancellation Q4 2011 – Q1 2014 MNOK

Q4 2013 consists of termination of the STX drillship contract.

Order backlog* - per 31.03.2014 MNOK

Order backlog* by division Q4 2011 – Q1 2014 MNOK

• 1 st quarter headlines
• Order intake and order backlog
• Business segments

New group structure - division and business units

Marine

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

• High activity in car carriers during the period and additional options on similar vessels are secured.
• Somewhat lower activity and margin within deck equipment, but the order intake has been positive for this quarter. Cost cutting measures are being implemented.
• Low activity and profitability within port business for the first quarter. Structural changes initiated in Sweden.
• Market outlook for the marine division is positive with high activity.

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 improved order intake during the period both for cranes and hatch covers.
• Order intake in the joint ventures in Q1 was MNOK 605 (100% basis).
• The joint ventures are seeing a strong market for its products. The market share is in a positive development.

Offshore & Heavy Lift

Offshore and Heavy lift cranes, Hangar and watertight doors

• The division reports again weak results in the 1 st quarter with a loss of MNOK 39.
• The main reason for the losses are weak margins on ongoing work (provisions for loss making projects cover project costs but not overhead) and low utilization of our operations in Norway, China and Germany due to cancellations (STX) and delays.
• Cost reduction efforts have been implemented, resulting in a reduction of workforce of approx. 100 persons. This effort is expected to be finalized in Q2.
• Order intake for the quarter was MNOK160. Low activity in the market, specially for offshore cranes in the quarter. However there are signs of increased activity in both heavy lift and offshore and 2 pipe handler cranes was signed in May.

Services

Spare parts, Service and Maintenance

• Services reports a quarter in line with last year.
• The earnings are still influenced by the market where low volume per order is affecting profitability.

• Services base establishment in Brazil and Houston is well underway and expected to be finalized in Q2.

• 1 st quarter headlines

• Order intake and order backlog
• Business segments
• Market development

Outlook Offshore Vessels & Drill ship Global market 2005-2015

For OSV we have seen a weaker market over the last 6 months but there are signs of increased activity.

• For Drillship the mid term prospect looks to be weaker due to oversupply, however the longer term still looks promising.
• Still optimistic with regards to Chinese ship yard market share.

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 World Fleet

Number of new Ship Orders

Source: Maritime Strategies International

• 1 st quarter headlines
• Order intake and order backlog
• Business segments
• Market development
• 1 st quarter consolidated accounts

Profit and loss statement

	1st quarter Year
MNOK	2014	2013	2013
Turnover	554	732	2 693
EBITDA	-28	25	-130
Operating profit	-38	18	-164
Net financial items	-9	-4	-37
Profit/loss before tax	-47	14	-201
Net result	-47	9	-227

Turnover as per 31.03.2014 MNOK

EBITDA as per 31.03.2014

MNOK

Balance Sheet

MNOK	31.03.2014	31.03.2013
Non-current assets	931	925
Current assets	1 161	1 259
TOTAL ASSETS	2 092	2 184
Equity	503	836
Interest bearing liabilities	372	114
Other liabilities and provisions	1 217	1 233
TOTAL EQUITY AND LIABILITIES	2 092	2 184

There have been no conversions of convertible bond during Q1 2014.

Equity ratio at end of 1st quarter 2014 is 24.0%.

Equity share development

Percent

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

Net working capital development

Working capital is influenced by the significant provisions made in Q4.

Overall the Marine Division has negative working capital while the offshore and especially heavy lift projects ties up working capital.

Consolidated cash flow and net interest bearing debt

	YTD	YTD
MNOK	2014	2013
Net cash flow from operations	-157	-94
Net cash flow from investments	-7	-7
Net cash flow from financial activities	132	-1
Net change in cash	-32	-102
Cash and bank deposits at the start of the period	155	227
Effect of exchange rate changes in bank/cash	-6	23
Cash and bank deposits at the end of the period	117	148
Net cash continued business	117	148

Cash flow from operations was negative with MNOK 157, due to increased working capital related to ongoing offshore and deck equipment projects.

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

(*) Convertible loan included at nominal value

(**) Negative indicates net asset position

• Net interest bearing debt increased to MNOK 268.
• TTS is not in breach of its covenants at end of Q1.

• TTS has started discussions with the banks regarding its longer term financing following the significant losses over the last 6 months.

• 1 st quarter headlines

• Order intake and order backlog
• Business segments
• Market development
• 1 st quarter consolidated accounts
• Shareholder structure

10 largest shareholders at May 5th 2014

Total	57.23%
Tamafe Holding AS	2.49%
Holberg Norge Verdipapirfondet	2.59%
Skeie Capital Invest	2.92%
Skagen Vekst	3.72%
Barrus Capital AS	3.99%
Skandinaviska Enskilda	5.66%
Stisk AS	6.13%
Lesk AS	6.13%
Skeie Technology AS	10.31%
Rasmussengruppen AS	13.29%

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

Status on the initiatives

• The adjustment of the 2013/Q4 accounts additional loss of MNOK 90, was a consequence of worse problems than anticipated related to projects in offshore and yacht.
• As previously communicated, TTS has launched a group wide restructuring and cost optimization program. This program continue with high priority throughout 2014 and 2015

The immediate actions

• Cost cut and capacity adjustments, mainly in Offshore and Heavy lift
• Re-organization of Port & Logistics with Marine to get a better utilization and improve efficiencies.
• Adjustment in management

The medium term processes are ongoing, but has yet to be reflected in the financial figures

• Process improvement
• Market approach adjustments
• Momentum initiatives

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	Phase 3
 Business strategies  GAP analysis  Adjust organization structure  Financial performance. Target set	 Organizational adjustments and merging units  Port & Logistics first out  Staff reduction of 10% initiated  Focus on efficient operation/process  Offshore and Heavy lift downsizing and new work process  Enhance market focus  Key account structure implemented  Corporate driven controller structure  Momentum cost reduction projects  Product development plans in all units	 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 segments where higher productivity are achieved

A word related to the building blocks

The financial performance from last quarter must be radically improved. The following highlights are the building blocks:

• We are strong positioned with car carriers which will continue for years.
• Consolidating our strong market position in China and expanding cooperation partners. Order intake in JV (100%) exceeds 600 MNOK for 1st quarter.
• Our offshore products have high quality and satisfied customers.
• Our product range within offshore has been more expensive than anticipated to develop, but the repeat orders achieve profit.
• We will deliver our first drillship this year and we are in the process of finalizing delivery of our first 900t heavy lift crane, even with the termination of drillship to Sigma (STX) was a set-back.
• The impact of momentum initiatives will demonstrate in the new booked orders. Product development and product simplification actions.
• Our network of design hubs in Poland and Vietnam is set up to provide competitive cost and high quality.

Summary

• We have a road map for the improvement processes going forward in 2014 and 2015 and that has not changed;
• Productivity
• Sourcing, economy of scale and simplification of logistics
• Lead time reduction program
• Additional cost cutting to adjust capacity and increase synergies is well underway.
• The changes implemented will generate improved results. However, in near term the profitability is a challenge. We have a 2 year program.
• We start out with some strong building blocks but capitalizing on these will take time.

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 feeder size grow up and General cargo/Heavy lift have increased since the yearend. Offshore segments of OSV with heavy cranes are in the pipeline.

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