Vow ASA — Interim / Quarterly Report 2014

Feb 25, 2015

SCANSHIP HOLDING ASA Quarterly Report – 4Q 2014

SCANSHIP HOLDING ASA

Quarterly report – 4th Quarter 2014

Key Financial Information 4Q14

	Unaudited	Unaudited	Unaudited	Audited
Consolidated, NOK 1 000	4Q14	Q413	FY 2014	FY 2013
Total Revenue	43 188	49 572	145 631	169 974
Gross margin %	30 %	38 %	32%	31 %
EBITDA bef. Non-rec.	747	9 520	4 408	20 982
Operating Profit (EBIT)	175	9 290	857	19 890
Profit before Tax	-14 120	5 732	-12 609	7 188
Total Assets	143 176	101 401	143 176	101 401

Overall revenue for the Scanship group was 13% lower in 4Q14 and 14% lower for the 2014 fullyear compared to the year-ago periods. The decline reflects lower Retrofit activity.

The gross margin in 4Q14 was NOK 12.8m (30%) compared to NOK 18.9m (38%) in 4Q13. The gross margin for 2014 was NOK 46.3m (32%) compared to NOK 53.0m (31%) in 2013. The company is not satisfied with 4Q14 margins. We expect stable gross margins in 2015 vs 2014.

The Group books revenues in EUR, NOK and USD, and reduces the currency exposure by applying financial instruments for hedging purposes. A majority of the project related revenues are in EUR. Due to the increase in the exchange rate between EUR and NOK these financial instruments incurred a 4Q14 decrease of fair value of NOK 9.9m, and a realised loss of NOK 4.9m. Approx. NOK 3.3m of the realised loss accounts from financial instruments of approx. EUR 2.5m that matured in late December 2014 and subsequently were renewed at an average exchange rate of EUR/NOK 9,055.

Scanship has according to plan increased its product development activities to NOK 2.7m in 4Q14 compared to NOK 1.4m in 4Q13.

New Contracts

During 4Q14 Scanship was awarded contracts at STX France for a new series of newbuilds for MSC Cruises. The contracts include the delivery of total clean ship systems for project E34 and F34, with options for G34 and H34. The E34 newbuild is scheduled to enter service in 2017, while F34 will be delivered in 2019. The optional vessels are planned for 2020 and 2022. The contracts represent the largest to date for Scanship AS, and are large Scanship Total Clean Ship systems with advanced wastewater purification (AWP), vacuum foodwaste processing, garbage handling and bio residue treatment.

In addition, Scanship received the orders for AWP systems on the B34 at STX France, the second Oasis newbuild to enter service in 2018, and on the fourth Viking Ocean Cruises newbuild to enter service in 2016. Both contracts were originally options in earlier contracts.

The large order intake in 4Q14 increased the backlog to NOK 185m, which represents an increase of 83% from 3Q14.

Scanship has in 1Q15 been awarded a contract for delivery of a Total Clean Ship System on a newbuild at Fincantieri. The vessel, which will service the ultra-luxury market with worldwide itinerary, will enter the market in 2016.

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. 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), Victoria (Canada) and Gdynia (Poland). Scanship has warehouse facilities in Tønsberg and Miami. The office in Gdynia was established 2H14 to follow up local production.

In 4Q14 Scanship delivered the remaining equipment for the newbuild Viking Sky, the third new vessel for Viking Ocean Cruises being built by Fincantieri in Italy.

Product Development

Scanship's main development project during 2014 has been Microwave Assisted Pyrolysis ("MAP"). MAP design, test equipment purchases and small scale testing has been performed during 2014. A test facility is under construction in Norway and larger-scale testing are scheduled to start in 1H15.

In 4Q14 Scanship completed six projects in its product development portfolio. Of the completed projects the two largest are:

• Project to reduce operational and maintenance cost on the AWP systems
• Project to develop a new nutrient removal system for AWP system according to the most stringent regulation in the business

We see that the results of the product developments are having positive effects on operations.

Financing

During 4Q14 Scanship increased the bank overdraft facility by NOK 20.0m. The funds have been used to repay a loan of NOK 20.0m.

In 2Q14 Scanship Holding ASA completed an IPO, raising NOK 80.0m in gross proceeds from new equity. The company's shares were listed the company on Oslo Axess. The total cost amounts to approx. NOK 8.8m, of which NOK 2.4m have been identified as listing costs on existing shares and therefore recorded as a non-recurring item in 2Q14.

Market Outlook

There is high activity in the newbuilding market. In 4Q14 RCCL signed an agreement with STX France for a new class of vessels to be built for the Celebrity brand. The agreements includes two firm orders for ship deliveries in 2018 and 2020. Carnival Cruise Line ordered a second ship following the Carnival Vista, to enter service in 2017. Scanship is working on several tenders for future newbuilds that the company believes will fill up available newbuild slots from 2017.

The company is working with several clients for potential future retrofit projects. The upcoming IMO meeting in 2Q15 may set an implementation date for MEPC 227(64) with nutrient removal requirements. A firm date of implementation is expected to drive the market for AWP retrofits.

Continued focus on commercial activities is expected to improve revenue in the Aftersales segment.

Lysaker, 24 February 2015

The Board of Directors for Scanship Holding ASA

Consolidated income statement

		Unaudited	Unaudited	Unaudited	Audited
(NOK 1000)		4Q14	4Q13	2014	2013
	Note	Oct - Dec	Oct - Dec	Jan - Dec	Jan - Dec
Revenue	2	43 188	49 572	145 631	169 974
Total operating revenue		43 188	49 572	145 631	169 974
Cost of goods sold		-30 373	-30 682	-99 308	-116 979
Gross Margin		12 815	18 890	46 323	52 995
Gross Margin		30 %	38 %	32 %	31 %
Employee expenses		-7 153	-5 110	-23 201	-16 278
Other operating expenses		-4 916	-4 260	-18 713	-15 735
EBITDA before non-recurring items		747	9 520	4 408	20 982
Non-recurring items	3	-	-	-2 361	0
EBITDA		747	9 520	2 047	20 982
Depriciation and amortisation		-572	-230	-1 191	-1 092
Operating profit (EBIT)		175	9 290	857	19 890
Finance income	4	1 745	1 073	9 318	3 042
Finance costs	4	-16 040	-4 631	-22 783	-15 744
Profit before tax		-14 120	5 732	-12 609	7 188
Income tax revenue (+) /expense (-)		3 789	-1 629	3 396	-2 043
Profit for the period		-10 331	4 103	-9 212	5 146

Consolidated statement of comprehensive income

	Unaudited	Unaudited	Unaudited	Unaudited
(NOK 1000)	4Q14	4Q13	2014	2013
	Oct - Dec	Oct - Dec	Jan - Dec	Jan - Dec
Net profit for the period	-10 331	4 103	-9 212	5 145
Items to be reclassified to profit or loss:	-	-	-	-
Exchange differances or trans. Of foreign op.	625	-	674	-
Net items to be reclassifies to profit or loss	625	-	674	-
Items not be reclassified to profit or loss	-	-	-	-
Other comprehensive income net of tax	-	-	-	-
Total comprehensive income, net of tax	-9 706	4 103	-8 538	5 145
Attribute to
Owners of the parent	-9 706	3 282	-8 538	4 116
Non controlling interest	-	821	-	1 029
	-9 706	4 103	-8 538	5 145
Earnings per share 1 )	-0,10	1709,58	-0,09	2143,75
Diluted earnings per share 1)	-0,10	1709,58	-0,09	2143,75

1) Total shares 2013: 2400. Total shares as of 31.12.2014: 95 505 525

Consolidated statement of financial position

(NOK 1000)	Note	Unaudited 31.12.2014	Audited 31.12.2013
ASSETS:
Non-current assets:
Property, plany and equipment		1 957	1 574
Intangible assets	5	19 859	12 503
Total non-current assets		21 816	14 077
Current assets:
Inventories		5 684	5 109
Trade receivables		32 621	23 809
Contracts in progress	2	75 064	52 195
Other Receivables		4 170	5 035
Cash and cash equivalents		3 821	1 177
Total current assets		121 360	87 325
Total assets		143 176	101 401

		Unaudited	Audited
(NOK 1000)	Note	31.12.2014	31.12.2013
EQUITY AND LIABILITIES
Equity:
Share capital	3	9 551	202
Share premium	3	77 450	-
Translation difference		133	-434
Retained earnings		-41 949	-21 127
Total equity		45 185	-21 360
Liabilities
Deferred tax liabilities		1 667	6 817
Long term borrowings	6	-	19 967
Total non-current liabilities		1 667	26 783
Current liabilities
Current borrowings	6	-	10 000
Trade creditors		16 669	30 931
Contract accruals	2	35 379	22 058
Financial instruments	4	10 536	7 114
Income tax payable		-112	823
Bank overdraft		27 674	14 290
Other Current liabilities		6 179	10 762
Total Current Liabilities		96 325	95 978
Total liabilities		97 991	122 761
Total equity and liabilities		143 176	101 401

Consolidated statement of change in equity

Share	Translation	Share	Retained
Capital	Differences	Premium	Earnings	Total*
202	-434	-	-21 128	-21 360
-	568	-	-9 212	-8 645
9 349	-	77 450	-11 609	75 190
-	-	-	-	-
9 551	134	77 450	-41 949	45 185
-	-	-	-	-
9 551	134	77 450	-41 949	45 185

Audited	Share	Translation	Share	Retained
2013	Capital	Differences	Premium	Earnings	Total*
Equity at 31 December 2012	202	-	-	-26 273	-26 072
Profit for the period	-	-434	-	5 146	4 712
Stock issue	-	-	-	-	-
Other Comprehensive income	-	-	-	-	-
Total Comprehensive income	202	-434	-	-21 128	-21 360
Dividends paid	-	-	-	-	-
Equity at 31. December 2013	202	-434	-	-21 128	-21 360

*) There are no non-controlling interests in the Group

Consolidated cash flow statement

	Unaudited	Unaudited	Unaudited	Audited
(NOK 1000)	4Q14	4Q13	2014	2013
Profit before income tax	-14 120	5 732	-12 609	7 188
Adjustments:
Net cash flow from operating activities	-5 567	5 941	-45 112	4 371
Net cash flow from investing activities	-3 301	-1 509	-9 138	-3 715
Net cash flow from financing activities	7 775	14 290	56 894	14 290
Net change in cash and cash equivalents	-1 093	18 722	2 644	14 946
Cash and cash equivalents ingoing balance	4 915	-17 544	1 177	-13 769
Cash and cash equivalents at end of period	3 821	1 177	3 821	1 177

Late payments from a customer of approx. NOK 10m has reduced Cash at end of period and reduced Net cash flow from operating activities. The overdue payments were received in 1Q 2015.

Selected explanatory notes

Note 1 General information

This interim financial information for the fourth quarter, ended December 31 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 24 February 2015.

Note 2 Sales

	Unaudited	Unaudited	Unaudited	Audited
(NOK 1000)	4Q14	4Q13	2014	2013
Project revenue	31 814	41 693	106 767	130 476
Aftersales	11 374	6 880	38 865	39 498
Sales	43 188	48 573	145 632	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	Audited
(NOK 1000)	31.12.2014	31.12.2013
Acc. Project contract revenue recognised as revenue	277 384	170 622
Acc. Related cost accrued	190 640	115 430
Acc. Recognised profit / loss from contracts in progress	86 744	55 192

Recognised and included in the financial statements:

	Unaudited	Audited
(NOK 1000)	31.12.2014	31.12.2013
Due from customers	75 064	52 195
Due to suppliers for contract work	-35 379	-22 058
Net work in progress	39 685	30 137

Segment information

The main part of the revenues comes from project revenues and Aftersales that are deliveries to vessels. Retrofit and Newbuild 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.

Segment information - Continued

Unaudited			Admin &
1. January - 31. December 2014	Projects	Aftersales	other	Elimination	Total
Revenue	106 767	49 040	123	-10 299	145 631
Total revenue	106 767	49 040	123	-10 299	145 631
Cost of sales	-75 705	-33 650	- 1	10 047	-99 308
Employee expenses	-17 224	-5 404	-573	-	-23 201
Other Operating expenses	-13 279	-5 327	-709	603	-18 714
EBITDA before non-recurring items	559	4 659	-1 160	351	4 409
Non- recurring items	-	-	-2 361	-	-2 361
EBITDA	559	4 659	-3 521	-	2 047
Depriciation and amortisation	-1 016	-174	-	-	-1 190
OPERATING PROFIT	-457	4 485	-3 521	-	856
Net Contracts in progress	39 685	-	-	-	39 685
Total assets *	106 777	11 601	246 965	-222 166	143 176
Investments in non-current assets	7 421	-	-	-	7 421

Audited	Admin &
1. January - 31. December 2013	Projects	Aftersales	other	Elimination	Total
Revenue	128 445	46 823	991	-6 286	169 973
Total revenue	128 445	46 823	991	-6 286	169 973
Cost of sales	-93 454	-26 543	-2 259	5 278	-116 978
Employee expenses	-10 554	-5 724	-	-	-16 278
Other Operating expenses	-11 723	-5 885	-68	1 940	-15 735
EBITDA before non-recurring items	12 714	8 671	-1 336	931	20 982
Non- recurring items	-	-	-	-	-
EBITDA	12 714	8 671	-1 336	931	20 982
Depriciation and amortisation	-988	-104	-	-	-1 092
OPERATING PROFIT	11 726	8 567	-1 336	931	19 890
Net Contracts in progress	30 137	-	-	-	30 137
Total assets *	128 534	11 660	222 021	-260 814	101 401
Investments in non-current assets	3 349	-	-	-	3 349

* Elimination includes NOK -221m as value of the shares in the subsidiaries.

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 3 Non-recurring items, IPO and share capital

FY 2014 figures include non-recurring items in relation to the conducted IPO and listing on Oslo Stock Exchange (Oslo Axess) in April 2014. The total cost amounts to approx. NOK 8.8m, whereas NOK 2.4m has been identified, according to IAS32, as listing cost on existing shares, and therefore recorded as a non-recurring item in 2Q14. The remaining NOK 6.5m (net of taxes) has been recorded against equity.

In 2Q14 the Board decided to raise share capital by approx. NOK 6.8m, transferred from other equity, while the stock issue raised share capital with another NOK 2.5m. Following the share capital increases the share capital is NOK 9.55m.

Note 4 Financial items

Finance income

	Unaudited	Unaudited	Unaudited	Audited
(NOK 1000)	4Q14	4Q13	2014	2013
Interest Income	43	65	43	67
Foreign exchange gain	1 702	1 007	2 555	2 975
Increase of fair value of derivates	-	-	6 718	-
Total Finance Income	1 745	1 072	9 318	3 042

Finance Cost

	Unaudited	Unaudited	Unaudited	Audited
(NOK 1000)	4Q14	4Q13	2014	2013
Interest Expense	430	1 048	2 604	4 405
Foreign exchange loss	795	1 176	2 204	2 036
Unrealized decrease in fair value of derivatives	9 868	2 190	10 141	8 203
Loss on derivatives	4 948	217	7 767	1 100
Fees Financial instruments		-	68
Total Finance costs	16 040	4 631	22 783	15 744

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 cost. The Group receives the fair value in cash if exercised at maturity. Contracts has a maturity until 2017.

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.

	31.12.2014	31.12.2013
(NOK 1000)	Level 2	Level 2
Forward contracts	-1 915	-1 594
Forward option	-3 047	-
Derivatives	-5 573	-5 520
Net	-10 536	-7 114

The company has derivative contracts with nominal amounts of EUR 17.6m, whereas EUR 3.8m are due in 1Q15, EUR 0.5m in 2Q15, EUR 6.5m are due during the 2H15, and EUR 2.9m and EUR 3.9m are due in 2016 and 2017 respectively. The derivatives are linked to specific project contracts.

Note 5 Intangible assets

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.

Six projects are finalized during 4Q14, and are depreciated over a period of 15 years, which is the expected life time of the products.

One additional project is assessed to no longer have any economic benefit and the whole value of approx. NOK 0.2m is therefore impaired.

Note 6 Borrowings

(NOK 1000)	31.12.2014	31.12.2013
Current portion of long-term debt	-	10 000
Other interest bearing short-term debt	-	-
Long term debt - non-current	-	19 967
Balance at the end of Period	-	29 967

The Group refinanced its long term loan with DNB into a bank overdraft facility. The overdraft facility was increased from NOK9.1m to NOK 29.1. The increase of the facility has been used to repay the long term loan of NOK 20.0m.

Note 7 Subsequent events

The Company has been awarded one newbuild contract with equipment delivery in 2015. The contract is for delivery of Scanship's Total Clean Ship Solution, supplying both Advanced Wastewater Purification system and Dry Waste System.

Scanship Holding ASA

Lysaker Torg 12 1366 Lysaker NORWAY E-mail: post@scanship.no

IR Contact

Chief Financial Officer Christian Fr. Thyholdt Mobile: +47 90 74 37 93 E-mail: cft@scanship.no

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