Vow ASA — Interim / Quarterly Report 2014

Aug 15, 2014

SCANSHIP HOLDING ASA

Quarterly Report – Q2 2014

SCANSHIP HOLDING ASA

Quarterly report – 2 nd Quarter 2014

"Lower revenues, but "all set" for forward growth"

Financial Information Q2 2014

Key financial figures

Consolidated in TNOK	Q2 2014	Q2 2013	YTD 2014	YTD 2013	FY 2013
Total Revenue	31 822	35 852	66 707	74 577	169 974
Grossmargin %	32 %	29 %	34 %	28 %	31 %
EBITDA bef. Non-rec.	527	3 830	2 954	5 807	20 982
Operating Profit (EBIT)	-2 076	3 534	165	5 253	19 890
Profit before Tax	-3 873	-862	-1 457	- 1 077	7 188
Total Assets	147 928	73 794	147 928	73 794	101 401

During Q2 2014, Scanship was awarded, by Fincantieri S.p.A, contract for delivery of Total Clean Ship Solution to Viking Sea, the third in the series. Equipment deliveries will take place in the third and fourth quarter of 2014. The contract includes options for equipment deliveries in 2015, 2016 and 2017.

Overall the revenue for the group was lower in Q2 2014 and YTD 2014 compared to the same period in 2013. The Newbuild segment per YTD 2014 has increased while Retrofit and Aftersales are behind compared to YTD 2013.

The gross margin in Q2 2014 was TNOK 10 216 (32%) compared to TNOK 10 434 (29%) in Q2 2013. The gross margin YTD 2014 was TNOK 22 695 (34%) compared to TNOK 20 632 (28%) in YTD 2013, which confirms the improvement in gross margins shown in Q1 2014.

In Q2 Scanship Holding ASA completed an IPO, whereas the company raised TNOK 80 000 in gross proceeds from new equity, and listed the company on Oslo Axess. The total cost amounts to approx. TNOK 8 810, whereas TNOK 2 361 has been identified as listing cost on existing shares and therefore recorded as a non-recurring item in Q2.

The Group has revenue in NOK, EUR and USD, and is reducing the currency exposure by applying financial instruments for hedging foreign currency. These financial instruments had a decrease of fair value in Q2 2014 of TNOK 273, and a realized loss of TNOK 610.

Scanship has increased its research and development (R&D) activities to TNOK 914 in Q2 2014 compared to TNOK 597 in Q2 2013. This is scheduled to further increase in Q3 and Q4, as the funding for additional R&D has been secured through the successful IPO in April 2014.

Operations

Scanship is a maritime industry leader in advanced technologies for processing and purifying waste water, food waste, solid waste and bio sludge. Scanship is a supplier to most major cruise liners, and the products are increasingly being requested from the merchant fleet and off-shore industry. Modern cruise ships generate substantial amount of wet and dry waste which needs be properly treated. Scanship's technology processes this into recyclables, clean flue gas and treated waste water which meets the highest international effluent discharge standards. Scanship Holding has its main office at Lysaker, Norway as well as offices in Tønsberg, Norway, Miami, USA and Victoria, Canada. Scanship also has warehouse facilities in Tønsberg, Norway and Miami, USA.

During Q2 2014, Scanship did the majority of the commissioning of the advanced wastewater purification system on Mein Schiff 3 owned by TUI Cruises. Mein Schiff 3 was delivered from STX Finland Turku shipyard on 22 May 2014 and will be followed by an identical sister ship, Mein Schiff 4, in 2015. Both ships are built with environmentally friendly power plants, energy efficient solutions that reduce emissions by 30 percent, and advanced wastewater treatment system from Scanship to treat all grey and black water streams to meet the Alaska continuous discharge standard. The Scanship AWP system is also prepared to meet the new IMO Marpol MEPC 227(64) standard for special area Baltic Sea.

Financing

Scanship Holding ASA, had per 30.06.2014 a loan with DNB of TNOK 30 000, and the subsidiary, Scanship AS, had per 30.06.2013 a bank overdraft facility of TNOK 9 100. An instalment of TNOK 10.000 was paid in August 2014.

The share issue in connection with the IPO has strengthened the working capital, and will enable Scanship to meet the increased demand as well as fund the planned research & development projects.

Market Outlook

Scanship has a positive view on the market outlook. Ship-owners are continuing to place orders to build new ships, and the potential revenue opportunities have increased with new ship contracts in Italy, France, Germany and Finland.

The company is working with several larger ship owners on feasibility studies to upgrade existing vessels to meet the new standard to be enforced in the Baltic Sea.

Scanship has increased its capacity within commercial activities and sales and it is expected that this will drive forward top revenue line.

Lysaker, 14 August 2014

The Board of Directors for Scanship Holding ASA

Consolidated income statement

		Unaudited	Unaudited	Unaudited	Unaudited	Audited
(NOK 1000)		Q2 2014	Q2 2013	YTD 2014	YTD 2013	2013
	Note	Apr - Jun	Apr - Jun	Jan - Jun	Jan - Jun	Jan-Dec
Revenue	2	31 822	35 852	66 707	74 577	169 974
Total operating revenue		31 822	35 852	66 707	74 577	169 974
Cost of goods sold		-21 606	-25 418	-44 012	-53 945	-116 979
Gross Margin		10 217	10 434	22 695	20 632	52 995
Gross Margin		32 %	29 %	34 %	28 %	31 %
Employee expenses		-4 400	-3 223	-9 607	-7 472	-16 278
Other operating expenses		-5 289	-3 381	-10 134	-7 353	-15 735
EBITDA before non-recurring items		527	3 830	2 954	5 807	20 982
				4,4 %	7,8 %
Non-recurring items	3	-2 361	-	-2 361	-	-
EBITDA		-1 834	3 830	593	5 807	20 982
Depriciation and amortisation		-242	-296	-428	-554	-1 092
Operating profit (EBIT)		-2 076	3 534	165	5 253	19 890
Finance income	4	261	1 451	2 891	1 691	3 042
Finance costs	4	-2 058	-5 847	-4 513	-8 021	-15 744
Profit before tax		-3 873	-862	-1 457	-1 077	7 188
Income tax revenue (+) /expense (-)		905	245	674	306	-2 043
Profit for the period		-2 968	-617	-783	-771	5 146

Consolidated statement of comprehensive income

	Unaudited	Unaudited	Unaudited	Unaudited	Audited
	Q2 2014	Q2 2013	YTD 2014	YTD 2013	2013
	Apr - Jun	Apr - Jun	Jan - Jun	Jan - Jun	Jan-Dec
Net profit for the period	-2 968	-617	-783	-771	5 146
Items to be reclassified to profit or loss:	-	-	-	-	-
Exchange differances or trans. Of foreign op.	-75	-	-133	-	19
Net items to be reclassifies to profit or loss	-75	-	-133	-	19
Items not be reclassified to profit or loss	-	-	-	-	-
Other comprehensive income net of tax	-	-	-	-	-
Total comprehensive income, net of tax	-3 044	-617	-916	-771	5 165
Attribute to
Owners of the parent	-3 044	-494	-916	-617	5 165
Non controlling interest	-	-123	-	-154	-
	-3 044	-617	-916	-771	5 165
Earnings per share 1 )	-0,03	-257,08	-0,01	-321,25	2,14
Diluted earnings per share 1)	-0,03	-257,08	-0,01	-321,25	2,14

1) Total shares 2013: 2400. Total shares as of 30.06.2014: 95 505 525

Consolidated statement of financial position

		Unaudited	Unaudited	Audited
(NOK 1000)	Note	30.06.2014	30.06.2013	31.12.2013
ASSETS:
Non-current assets:
Property, plany and equipment		1 862	2 035	1 574
Intangible assets	5	15 335	10 220	12 503
Total non-current assets		17 197	12 255	14 077
Current assets:
Inventories		6 916	4 318	5 109
Trade receivables		15 285	19 873	23 809
Contracts in progress	2	68 174	24 777	52 195
Other Receivables		4 116	9 299	5 035
Cash and cash equivalents		36 242	3 272	1 177
Total current assets		130 732	61 539	87 325
Total assets		147 928	73 794	101 401
EQUITY AND LIABILITIES
Equity:
Share capital	3	9 551	202	202
Share premium	3	77 450	-	-
Translation difference		-567	-	-434
Retained earnings		-33 520	-27 044	-21 127
Total equity		52 913	-26 842	-21 360
Liabilities
Deferred tax liabilities		4 656	6 669	6 817
Long term borrowings	6	-	29 900	19 967
Total non-current liabilities		4 656	36 569	26 783
Current liabilities
Current borrowings	6	30 000	-	10 000
Trade creditors	7	12 541	19 365	30 931
Contract accruals	2	30 704	15 181	22 058
Financial instruments	4	4 832	4 476	7 114
Income tax payable		-	849	823
Bank overdraft		7 831	16 849	14 290
Other Current liabilities		4 451	7 347	10 762
Total Current Liabilities		90 359	64 067	95 978
Total liabilities		95 015	100 636	122 761
Total equity and liabilities		147 928	73 794	101 401

Consolidated statement of change in equity

(NOK 1000)
Unaudited	Share	Translation	Share	Retained		Non-Control.	Total
YTD 30 June 2014	Capital	Differences	Premium	Earnings	Total	Interest	Equity
Equity at 31 december 2013	202	-434	-	-21 128	-21 360	-	-21 360
Profit for the period	-	-133	-	-783	-916	-	-916
Stock issue	9 349	-	-	-11 609	-2 260	-	-2 260
Share premium	-	-	77 450	-	77 450	-	77 450
Other Comprehensive income	-	-	-	-	-	-	-
Total Comprehensive income	9 551	-567	77 450	-33 520	52 913	-	52 913
Dividends paid	-	-	-	-	-	-	-
Equity at end of period	9 551	-567	77 450	-33 520	52 913	-	52 913

Unaudited	Share	Translation	Share	Retained		Non-Control.	Total
YTD 30 June 2013	Capital	Differences	Premium	Earnings	Total	Interest	Equity
Equity at 31 December 2012	202	-453	-	-26 273	-26 525	-	-26 525
Profit for the period	-	-	-	-771	-771	-	-771
Stock issue	-	-	-	-	-	-	-
Share premium	-	-	-	-	-	-	-
Other Comprehensive income	-	-	-	-	-	-	-
Total Comprehensive income	202	-453	-	-27 044	-27 296	-	-27 296
Dividends paid	-	-	-	-	-	-	-
Equity at end of period	202	-453	-	-27 044	-27 296	-	-26 842

Consolidated cash flow statement

(NOK 1000)	Q2 2014	Q2 2013	2013
	Unaudited	Unaudited	Audited
Profit before income tax	-3 873	-862	7 188
Adjustments:
Net cash flow from operating activities	-26 037	4 650	4 371
Net cash flow from investing activities	-1 514	-652	-3 715
Net cash flow from financing activities	73 410	-	-
Net change in cash and cash equivalents	45 858	3 998	656
Cash and cash equivalents ingoing balance	-17 447	-17 575	-13 769
Cash and cash equivalents at end of period	28 412	-13 577	-13 113

Selected explanatory notes

Note 1 General information

This interim financial information for the second quarter, ended June 30 2014, has been prepared pursuant to IAS 34 "interim financial reporting". The interim Financial Reporting should be read in conjunction with the annual Financial Statements for the year ended 31 December 2013, which have been prepared in accordance with IFRS, as adopted by European Union. The accounting policies implemented are consistent with those of the annual financial statements for the year ended December 2013. The Board of Directors approved the Interim report 14 August 2014.

Note 2 Sales

	Unaudited	Unaudited	Unaudited	Unaudited	Audited
(NOK 1000)	Q2 2014	Q2 2013	YTD 2014	YTD 2013	2013
Project revenue	21 027	24 669	48 917	54 717	130 477
Aftersales	10 795	11 183	17 790	19 860	39 498
Sales	31 822	35 852	66 707	74 577	169 974

Revenue from long-term projects is recognized under the percentage-of-completion method. Several estimates are made to calculate the stage of completion such as accrued cost. Estimates on accrued cost have a direct influence over the amount of the revenue to recognize.

Project revenues:

All contracts: Revenue generated through projects on ongoing contracts are listed in the table above. Total accumulated revenue and cost from project start-up has incurred as shown in the table below

	Unaudited	Unaudited	Audited
(NOK 1000)	30.06.2014	31.03.2014	31.12.2013
Acc. Project contract revenue recognised as revenue	219 533	198 510	170 622
Acc. Related cost accrued	148 662	132 946	115 430
Acc. Recognised profit / loss from contracts in progress	70 871	65 564	55 192

Recognised and included in the financial statements:

	Unaudited	Unaudited	Audited
(NOK 1000)	30.06.2014	30.06.2013	31.12.2013
Due from customers	68 174	24 777	52 195
Due to suppliers for contract work	-30 704	-15 181	-22 058
Net work in progress	37 469	9 596	30 137

Scanship has back-to-back guarantees toward suppliers on both material and installation for construction contracts.

Note 3 Non-recurring items, IPO and share capital

Q2 2014 figures include non-recurring items in relation to the conducted IPO and listing on Oslo Stock Exchange (Axess) in April 2014. The total cost amounts to approx. TNOK 8 810, whereas TNOK 2 361 has been identified, according to IAS32, as listing cost on existing shares, and therefore recorded as a non-recurring item in Q2. The remaining TNOK 6 449 (net of taxes) has been recorded against equity.

The board decided to raise share capital by approx. 6.8 MNOK, transferred from other equity, while the stock issue raised share capital with another 2.5MOK. Share capital has therefore increased to 9.55 MNOK.

Note 4 Financial items

Liabilities – Financial Instruments

The company is exposed to foreign exchange rate risk related to the value of NOK relative to other currencies, mainly due to sales in different currencies. The Company entered into several derivative instruments to reduce exchange rate risk in cash flows nominated in EUR, associated with the sale in EUR in connection with several construction contracts.

The derivatives are not designated as hedging instruments, and are therefore recognised at fair value through profit and loss.

There are no initial transaction costs. The Group receives the fair value in cash if exercised at maturity. Contracts has a maturity until 2016.

The group uses level 2 in the IFRS 13 - hierarchy for determining and disclosing the fair value of financial instruments by valuation techniques:

Level 2: Other techniques for which all inputs have a significant effect on the recorded fair value are observable, either directly or indirectly.

	30.06.2014	30.06.2013	31.12.2013
(NOK 1000)	Level 2	Level 2	Level 2
Forward contracts	-517	-150	-1 594
Forward option	-	-	-
Derivatives	-4 316	-4 326	-5 520
Net	-4 832	-4 476	-7 114

The company has derivative contracts with nominal amounts of MEUR 8.7, whereas MEUR 8.1 are due in Q3-Q4 2014, MEUR 0.1 in 2015 MEUR 0.5 in 2016. The derivatives are secured for a specific contract at contract date.

Note 5 Intangible assets, property plant and equipment

Intangible assets consists of several different development projects related to new technologies in waste handling. They are still under development and depreciation will start at completion of each project. Impairment tests for the intangible assets are performed in accordance with IAS 36. The

intangible assets are valued on estimated discounted cash flow. Based on this internal valuation no impairment needed.

Two projects has been finalized and will be depreciated over a period of 15 years, which is the expected life time of the products.

Note 6 Borrowings

(NOK 1000)	30.06.2014	30.06.2013	31.12.2013
Current portion of long-term debt	30 000	10 000	10 000
Other interest bearing short-term debt		-	-
Long term debt - non-current		19 967	19 967
Balance at the end of Period	30 000	29 967	29 967

The Group has per 30.06.2014 a loan with DNB of TNOK 30 000. The interest rate is floating currently 6,6 %. p.a. The Group has to pay an instalment of TNOK 10 000 in August 2014 and TNOK 20 000 in August 2015.

Note 7 Segment information

The main part of the revenues comes from project revenues and Aftersales that are deliveries to vessels. Retrofit and New building are two separate operating segments and is aggregated to one reporting segment named Project revenues .Transactions between units are based on market terms. The company's management uses each segments operating profit when assessing earnings in the segments.

The figures for each segment include transactions between segments. Transactions within the various segments are eliminated. All transactions between business units are based on market terms.

			Admin &
1. January - 30. June 2014	Projects	Aftersales	other	Elimination	Total
Revenue *1)	48 917	23 896	-196	-5 910	66 707
Total revenue	48 917	23 896	-196	-5 910	66 707
Cost of sales	-33 365	-14 912	-1 362	5 626	-44 013
Employee expenses	-6 848	-2 557	-202	-	-9 607
Other Operating expenses	-7 198	-3 023	-196	284	-10 133
EBITDA before non-recurring items	1 506	3 404	-1 956	0	2 954
Non- recurring items	-	-	-2 361	-	-2 361
EBITDA	1 506	3 404	-4 317	-	593
Depriciation and amortisation	-406	-22	-	-	-428
OPERATING PROFIT	1 100	3 382	-4 317	-	165
Net Contracts in progress	37 469	-	-	-	37 469
Total assets *2)	106 735	6 393	279 104	-244 304	147 928
Investments in non-current assets	1 918	-	-	-	1 918

			Admin &
1. January - 30. June 2013	Projects	Aftersales	other	Elimination	Total
Revenue *1)	54 717	21 721	991	-2 852	74 577
Total revenue	54 717	21 721	991	-2 852	74 577
Cost of sales	-42 104	-12 323	-1 857	2 339	-53 945
Employee expenses	-4 231	-3 241	-	-	-7 472
Other Operating expenses	-4 280	-3 587	-	513	-7 353
EBITDA before non-recurring items	4 102	2 570	-866	-	5 807
Non- recurring items	-	-	-	-	-
EBITDA	4 102	2 570	-866	-	5 807
Depriciation and amortisation	-502	-52	-	-	-554
OPERATING PROFIT	3 600	2 518	-866	-	5 253
Net Contracts in progress	9 596	-	-	-	9 596
Total assets *2)	66 620	6 153	222 021	-221 000	73 794
Investments in non-current assets	469	-	-	-	469

All revenues are external, except elimination entries which are Aftersales toward group companies. Revenue from New building activities is delivered on different yards throughout Europe. Other revenues are generated from projects and Aftersales. Geographic area cannot be determined as deliveries are made to vessels in international trade.

Note 8 Subsequent events

No material subsequent events occurred after reporting period.

Scanship Holding ASA Lysaker Torg 12 1366 Lysaker NORWAY E-mail: post@scanship.no IR Contact: Chief Financial Officer Sigurd Gaarder Lange Mobile: +47 90 79 81 55 E-mail: sigurd.lange@scanship.no