The Maritime Group AS Group

Transcription

1 The Maritime Group AS Group Financial Statement 2015

2 CONTENTS Board of Directors report....3 Consolidated Financial Statement...7 Notes consolidated Statement..12 Financial Statement Parent Company 29 Notes Parent Company

3 Board of Directors Report 2015 The Maritime Group AS 2015 Type of business and geographical location of the company The Maritime Group AS (formerly Nordic Made AS), hereafter referred to as the company or the parent company, is a technical installation company, providing mechanical and electrical services to vessels owners, shipyards and maritime technology suppliers worldwide. The company has its headquarter at Lysaker, in the Norwegian municipality Bærum. In addition, the company has fully owned subsidiaries in both USA (Davie, FL) and Poland (Gdynia). The company has warehouse facilities in both Gdynia and Davie. The company s main activity is to deliver cost effective and high quality marine system installations to all types of vessels. 18 th of December 2015, the company acquired 100% of the shares in the Norwegian company 3D Scanning AS and 90,55% of the shares in the Norwegian company TECO Maritime Group AS. The acquisitions were conducted as non-cash contribution, and shareholders were issued shares in The Maritime Group AS as settlement. Results from TECO Maritime Group AS and 3D Scanning AS are not included in the Group s consolidated profit & loss statement, due to the date of the transaction being late December The Profit & Loss after the date of control are considered insignificant. Financial development and annual result The parent company was founded in 2011, and has since then experienced a continuous growth in revenue. Sales revenues for the parent company increased with 285% compared with 2014, ending at a total of NOK in The Group s revenues in 2015 was lower due to elimination of internal transactions, and ended at NOK The annual profit before tax for the parent company increased with 93% compared with 2014, ending at a total of NOK in The Group s profit before tax in 2015 was NOK The growth from 2014 to 2015 can be explained by the company s experience and reputation within relevant installation projects, and successful positioning to gain a foothold in the increasing market for installation of exhaust gas cleaning systems. Note 03 on segments provides further insights to the importance of such installations for the company s revenues. Per , the equity ratio for the parent company was 50,80%. For the Group, the equity ratio per was 38,50 % The Board of Directors are confident that the annual Financial Statement for 2015 provides a correct overview of the company s total assets and debt, financial position and annual result. Research and development activities The company has no on-going research and development activities. Financing During the course of 2015, the parent company established a bank overdraft facility of USD, with DNB, in order to adequately finance its expected growth ahead. Per , the overdraft facility was 3

4 not in use. See Note 13 for further information on covenants relative to the overdraft facility, and other facilities in subsidiaries. Continued operation The Financial Statement for 2015 has been made under the prerequisite of continued operation of the parent company. At the time of writing this report, the company is undergoing a very challenging cash flow situation. Some of its larger installation projects has taken far longer time than scheduled to complete, thus leading to increased costs and reduced gross margins compared with budget. This is also part of the reason why the Annual Report of 2015 has been delayed. The potential size of each individual contract has increased, from a maximum of USD previously, to a total of USD on certain current projects. This increase has proven to be difficult as well. As such large contracts have payments from customer linked to the company meeting certain milestones, delays put strain on the liquidity rather rapidly. Although profitable in the end, it has sometimes been a challenge to agree on a payment structure that adequately funds the project through its entire duration. In addition to above, the Group s subsidiaries and new ventures/acquisitions has during 2016 required funding from the parent company, thus increasing cash flow challenges of the parent company. The company s management and Board of Directors are working continuously to improve this situation through a number of measures, both operationally and commercially. To mention some: Gross margin improvements through thorough cost control, strengthened planning, utilizing Group synergies, sourcing of more cost effective technicians and more precise/dynamic manning on projects with long duration. Improving project cash flow by suggesting more predictable payment plans to customers and targeting projects with less material purchases in scope of work. Requesting loan payback from subsidiaries The Board of Directors are positive about the future of the company, and it is hereby confirmed that the prerequisite of continued operation is present and valid. Although, some uncertainty exists due to the current liquidity challenges as described above. Credit risk The parent company has gradually developed a more diverse portfolio of customers. However, approximately 80% of revenues in 2015 are generated with only 3 customers, which creates a certain dependability and risk. These customers are, however, large and solid companies, and there are no losses on trade receivables connected with them. Other Group companies have a more diverse portfolio of customers, thus reducing this risk. The parent company has in 2015 taken a loss of approx. NOK based on an older issue whereas a settlement agreement with the customer was signed late The agreement enabled future cooperation with the specific customer but forced the parent company to take a loss. All other trade receivables per have been received at the time of writing this report, and the company has therefore not allocated any further losses on trade receivables. Currency risk The parent company and its subsidiaries has revenues mainly in EUR and USD. As the main costs also are in same currencies, the company has not engaged in any hedging instruments to date. 4

5 Future Outlook At the time of writing this report, the Group in total expects a decrease of revenue up to 25% in 2016, relative to It also expects this decrease to continue into 1H 2017, before increasing again in 2H This is based on knowledge of the industry, and planned activity level ahead at key customers. Two events during 2016 within the maritime legislation, are considered extremely important for the expectations for the future. Firstly, The International Maritime Organization (IMO), has ratified a convention for control and management of ships ballast water and sediments. This forces most ship owners globally to install cleaning systems on their vessels. Secondly, IMO has also decided to cap the Sulphur content of marine fuels at 0,5% by year 2020, instead of 2025 as was the alternative. This decision will trigger a lot of activity within the company s most important business segment; installation of exhaust gas cleaning systems. It is difficult to predict how soon the various ship owners will react to above legislative changes, but there is no doubt that it will lead to a significant increase of relevant installation projects to bid for by The Maritime Group. The Board of Directors are therefore very satisfied with the legislative development of late. Events after the reporting period The financial statement is adjusted to reflect events after the balance sheet date that constitute a condition that existed at the date of the balance sheet, i.e. adjusted estimates for ongoing projects. At the time of writing this report, there are events in some of the subsidiaries that indicate that financial results in 2016 will be lower than expected during impairment testing pr Consolidated, 3D Scanning AS and TECO Maritime Group AS (subsidiaries) is expected to have a negative result in Correspondingly, the company expects to make an impairment on some of the shares owned in these subsidiaries per in the parent company and goodwill in the Group. The company has received a requirement MNOK 6,3 as tax payable, from Norwegian Tax Government since the tax papers for 2015 was not filed in time. The company has now filed the tax papers, and they have been handled by the Tax Government. The tax papers show a loss carry forward of MNOK 8,1 and no tax payable. The Maritime Group AS has a low positive working capital per However, at the time of writing this report, the company need to improve the liquidity situation. Due to the nature of the projects the company is currently engaged in, general growth of the Group with new ventures and acquisitions, lower gross margins than anticipated on some major projects and other challenges experienced with cash flow and liquidity during the course of 2016 so far, this is a focus point for the management and Board of Directors to rectify. Per today, the liquidity situation is challenging and is not at an adequate level. Early 2016, The Maritime Group AS has acquired 80% of the shares in Spanish company Cross Maritime Group S.A and its subsidiaries accordingly. The acquisition requires an investment of EUR, payable in equal monthly instalments from January 2016 until December The acquisition required a loan of EUR to gain a sufficient working capital. It is expected that EUR is paid back within 1Q During 2016, The Maritime Group AS founded Nordic Made Boiler Service, Inc. in USA, and its subsidiary Nordic Made Boiler Service ApS in Denmark. Ownership of the US entity is 62,5%, whereas remaining shares are owned by company management. The founding of these entities, has required a loan to the US entity of approximately USD which will be paid back when the company s liquidity situation allows for it. Due to growth in total revenue and amount of subsidiaries, The Group has identified a need to strengthen its Financial Department. In order to achieve this, an experienced CFO has been hired, with background from several publicly traded companies. Employment will commence no later than

6 Working environment The Board of Directors are confident that the working environment has been satisfactory in The Maritime Group AS wishes to be an attractive employer, and offer competitive terms and possibilities for career development for ambitious employees. Aggregate sick leave has been 0 days/0%. Gender equality Per , the parent company had 6 employees, whereas 30% female and 70% male. The Group as a whole had 27 employees, whereas 20 % female and 80% male. The Board of Directors for the parent company consist of three male and one female (including Chairman). Environment The company does not pollute the environment. A majority of the installations the company is involved in, are considered environmentally friendly technology, among other things - reducing emissions and fuel consumption on vessels worldwide. Allocation of annual profit The Board of Directors recommends the following allocation of the profit for the year in The Maritime Group AS: Total amount to be allocated: NOK Transferred to other equity: NOK February 2 nd, 2017 Sign. Sign. Sign. Tore Enger Henrik Badin Bettina Nowak Chairman of the Board and CEO Board member Board member Sign. Michael N. Rasmussen Board Member 6

7 Consolidated Financial Statement 2015 Consolidated income Statement The Maritime Group AS Revenue Note 2015 Sales 3, Sum Revenue Operating expenses Cost of sales 3, Employee expenses Depreciation Other operating expenses Sum Operating expenses OPERATING RESULT Financial INCOME AND EXPENSES Financial income Interest income Financial income Agio gain Sum Financial income Financial expenses Interest expenses Financial cost Agio loss Sum Financial expenses NET Financial ITEMS PROFIT BEFORE TAX Tax on ordinary result PROFIT FOR THE YEAR ALLOCATED AS FOLLOWS Transferred to other equity and uncovered deficit Non-controlling interest 0 Controlling interest Transferred other Equity Total allocated

8 Consolidated balance The Maritime Group AS pr Note ASSETS NON-CURRENT ASSETS Intangible assets Goodwill Intangible assets Tangible assets Property Equipment Total tangible assets Financial assets Other receivables Total financial assets Sum non-current assets CURRENT ASSETS Goods Trade receivables 7, Other receivables 8,17, Total receivables Cash and cash equivalents Total current assets TOTAL ASSETS

9 Consolidated balance The Maritime Group AS pr Note EQUITY AND LIABILITIES EQUITY Paid-in capital Share capital Premium on share Total paid-in capital Retained earnings Retained earnings Non-controlling interest Total retained earnings TOTAL EQUITY LIABILITIES NON-CURRENT LIABILITIES Other non-current liabilities Deferred tax Sum non-current liabilities CURRENT LIABILITIES Bank overdraft facility Trade creditors Tax payable Public duties payable Other short-term liabilities Total current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES February 2 nd, 2017 Sign. Sign. Sign. Tore Enger Henrik Badin Bettina Nowak Chairman of the Board and CEO Board member Board member Sign. Michael N. Rasmussen Board Member 9

10 Consolidated equity The Maritime Group AS pr Share Share Other Total capital premium Non - controlling interest equity equity Equity Profit for the year Subst. Conversion factor from balance Contribution in kind, Contribution in kind Dividend Equity at 31 December

11 Consolidated cash flow statement The Maritime Group AS pr Cash flow - indirect alignment 2015 Cash flow from operational activities Profit before income tax Income tax paid Loss / gain on sale of fixed assets 0 Depreciation, amortization and impairment Difference between booked pension expenses and actual payments Increase /(reduction) in - Warehouse inventory Accounts receivable Accounts payable Other accruals Currency effect Cash flow from operational activities Proceeds from sale of intangible assets Purchase of intangible assets 0 Proceeds from sale of fixed assets 0 Purchase of fixed assets Proceeds from sale of shares / stakes in other companies 0 Purchase of shares / stakes in other companies 0 Proceeds from sales of other investments 0 Purchase from other investments Cash flow from investment activities Proceeds from capital increase Payments to shareholders Proceeds from issuance of current liabilities 0 Payments of current liabilities Proceeds from issuance of new long-term debt 0 Payments of noncurrent liabilities 0 Purchase of own shares 0 Cash flow from investment activities Net increase / (decrease) in cash and cash equivalents Movements in cash and cash equivalents Cash and cash equivalents start of year Increase / (decrease) in cash and cash equivalents Net impact of currency transactions in cash and cash equivalents Cash and cash equivalents end of year

12 Notes to the consolidated Financial Statement The Maritime Group AS 01 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis for preparation The financial statements of The Maritime Group AS are prepared in accordance with Norwegian Accounting Act, and generally accepted accounting principles. Basis of consolidation The Group s consolidated financial statements comprise The Maritime Group AS and its subsidiaries. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtained control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, income and expenses, unrealised gains and losses and dividends resulting from intragroup transactions are eliminated in full. A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. Group companies in consolidated financial statement The consolidated financial statement for 2015, The Maritime Group AS, is taking into consideration two fully owned subsidiaries, Nordic Made, Inc. (USA) and Nordic Made Poland Sp.Z o.o. (Poland). Group acquisitions in th of December 2015, the Group acquired 100% of the shares in the Norwegian company 3D Scanning AS and 90,55% of the shares in the Norwegian company TECO Maritime Group AS. The acquisitions were conducted as non-cash contribution, and shareholders were issued shares in The Maritime Group AS as settlement. Results from TECO Maritime Group AS and 3D Scanning AS are not included in the Group s consolidated revenues and results, due to the date of the transaction. Earnings in the acquired companies in 2015 after the transaction date are considered insignificant. The investments in above mentioned subsidiaries are, however, considered in the balance sheet of the parent company per Foreign currency The accounting currency and presentation currency is NOK. Foreign currency transactions are translated into the accounting currency using exchange rates at the transaction date. Monetary balances in foreign currencies are translated into the accounting currency at the exchange rates on the date of the balance sheet. Foreign exchange gains and losses resulting from the settlement of such transaction and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. Classification of assets and liabilities Non-current assets are assets meant for permanent ownership or use. Other assets are current assets. Receivables to be paid within one year will always be classified as current assets. Liabilities are classified correspondingly. 12

13 Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method and includes the costs incurred in acquiring the goods and the costs of bringing the goods to their current location. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Trade receivables and other current receivables Trade receivables and other current receivables are initially recognized at fair value plus any transaction costs. If material, transaction costs are amortised linear over the contractual maturity. The receivables are impaired if the carrying amount is above the net realisable value. Other current receivables include prepayments, and receivables on related parties. Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment charges. Depreciations are calculated on a straight line basis over the assets expected useful life and adjusted for any impairment charges. Expected useful lives of long-lived assets are reviewed annually and where they differ significantly from previous estimates, depreciation periods are changed accordingly. Ordinary repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in operating profit. Major assets with different expected useful lives are reported as separate components. Property, plant and equipment are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. Cash and cash equivalents Cash and the equivalents include cash on hand, deposits with banks and other short-term highly liquid investments with original maturities of three months or less. Trade creditors Trade creditors are recognized initially at fair value and subsequently measured at amortised cost using the effective interest method, if the amortisation effect is material. Taxes The Group parent company is subject to tax under the Norwegian corporate tax regime, whilst subsidiaries are subject to tax in their home countries respectively. Income taxes for the period comprise tax payable and changes in deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized directly in equity. In this case the tax is also recognized directly in equity. Deferred tax assets and liabilities are calculated on the basis of existing and temporary differences between the carrying amounts of assets and liabilities in the financial statement and their tax bases, together with the tax losses carried forward at the balance sheet date. Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the assets can be utilized. 13

14 Revenue recognition The Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group s activities as described below. Construction contracts Revenue from long-term manufacturing projects is recognized under the percentage-ofcompletion method. The company estimates the progress of these contracts with hours spent on the projects, but some of the projects only cost spent on the projects, and some with a combination. When the outcome cannot be reliably estimated, only revenues equalling the project costs incurred can be recognized as revenue. Contract costs include costs that relate directly to the specific contract such as direct wages and direct materials. Pre-contract costs are expensed unless it is virtually certain that the company receives a contract. Costs that cannot be attributed to contract activity are expensed. Contract revenue includes the agreed amount under the contract, adjusted for any changes or additional work related to the contract. If circumstances arise that may change the original estimate of revenues, costs or extent of progress towards completion, estimates are revised. These revisions may result in increases or decreases in estimated revenues or costs and reflected in income in the period in which the circumstances that give rise to the revision become known by management. The total estimated loss on a project will be recognized in the income statement when it is identified that the project will generate a loss. Estimates The preparation of periodical financial statements, requires the company to make judgements, use estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are considered reasonable under the circumstances. The estimates and underlying assumptions are reviewed on an on-going basis. The Group has estimated the value of goodwill annually. The evaluation is primarily based on the company management s best estimates for the future outlook in each of the segment. The Group uses estimates to determine amount of revenue/cost to be booked on an ongoing project with activity in more than one accounting period. Responsible Project Manager calculates a degree of completion at end of the accounting period based on knowledge of the complete project scope of work and what remains. Some customers also base their payments on degree of completion, where milestone payments are released at certain stages of the project. In addition, the total turnover and gross margin is estimated by responsible Project Manager, based on knowledge of contract amount, change orders and remaining work/purchases. 14

15 Cost of equity transactions Transaction costs directly linked to an equity transaction are recognized directly in equity, net after deducting tax. Leases (as lessee) Finance leases Finance leases which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the income statement. Operating leases All leases that are not classified as financial leases are classified as operating leases. Operating lease payments are recognized as an operating expense in the income statement on a straightline basis over the lease term. Provisions A provision is recognized when the Group has a present legal or constructive obligation as a result of past events, it is probable (i.e. more likely than not) that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation. The increase in the provision due to passage of time is recognized as finance cost. Cash flow statement The cash flow statement is prepared by using the indirect method Events after the balance sheet date The financial statements are adjusted to reflect events after the balance sheet date that provides evidence of conditions that existed at the date of the balance sheet (adjusting events). The financial statements are not adjusted to reflect events after the balance sheet date that are indicative of conditions that arose after the date of the balance sheet (non-adjusting events). Non-adjusting events are disclosed if significant. 15

16 02 TAX Payable tax as follows 2015 Profit before income tax Other permanent differences Goodwill impairment - Change in temporary differences Basis for tax payable Tax payable on annual profit Annual taxes as follows Income tax payable - Gross change on deferred taxes - Tax effect on issuance costs against equity - Annual income tax payable - Tax payable after balance as follows - Annual Income tax payable - Tax effect of Group contributions - Sum payable tax - Specification of basis for deferred tax / tax claim Fixed assets Current assets Deficit carry forward Total Temporary differences not included Sum temporary differences Deferred tax / (deferred tax asset) The relative between tax expense and tax payable calculated as average nominal tax rate on profit before tax % Taxes calculated as average nominal tax rate on profit before tax Tax other tax regimes Effect of permanent differences /deferred tax assets not taken to account Total income tax expenses

17 03 SEGMENT INFORMATION Segments The company is involved in various segments within marine installations and repair. However, the majority of the revenue was in 2015 generated through turnkey installation of exhaust gas cleaning systems (scrubbers). Geographically, it is difficult to determine where the revenues have been generated, as the majority of the installation work is conducted while the vessels are in service and therefore in transit. Amounts in NOK Sales Scrubber BWTS Adv.Heating System Electrical Service Steel Repair Other Elimination Total

18 04 SHARE CAPITAL AND SHAREHOLDERS INFORMATION Total shares per Share holder Shares % 1 TECO Group AS ,45 % 2 Michael Nygaard Rasmussen ,05 % 3 Badin Invest Ltd ,86 % 4 Daler Inn Ltd ,29 % 5 Bettina Nowak ,98 % 6 Christian Compton ,03 % 7 Lukasz Podlinski ,29 % 8 Høgåsen Holding AS ,13 % 9 Bloms Oppmåling AS ,06 % 10 NOROCO AS ,94 % 11 BUSKERUD TELEMARK VESTFOLD ,88 % 12 MONS HOLDING AS ,38 % 13 NORDNET BANK AB ,31 % 14 AHLQVIST, ROLF ,27 % 15 SANDVIK, LASSE ,12 % 16 ERIKSEN, TOM ,09 % 17 STOCK INVESTMENT AS ,08 % 18 BECK; OLE TORMOD ,07 % 19 ELVEVOLD; ARNULF ,07 % 20 NEST TRADING A/S ,07 % OTHER SHAREHOLDERS ,57 % ,00 % Shares owned by company management or Board of Directors: Name Title Shares % Share Tore Enger (1) CEO & Chairman ,99 % Christian Compton COO ,03 % Eivind Hermansen (2) CFO ,13 % Lukasz Podlinski Project Director ,29 % Michael Rasmussen Board Member ,05 % Henrik Badin (3) Board Member ,86 % Bettina Nowak Board Member ,98 % TOTAL ,33 % 1 Tore Enger has indirect ownership through his 78,4% ownership in TECO Group AS 2 Eivind Hermansen has indirect ownership through his 100% ownership in Høgåsen Holding AS 3 Henrik Badin has indirect ownership through his 100% ownership in Badin Invest Ltd 18

19 05 SALARIES AND AUDITOR 2015 Salaries Social security expenses Other benefits Sum Average number of employees in the Group was 27 in Percent female 22%, male 78% According to law about mandatory occupational pension, Norwegian companies in the Group are obliged to have occupational pension. The Norwegian company has a deposit of 5% of the employee s annual gross salary between 1 and 12 G. In addition, 3% of gross salary between 7,1 and 12G. Managing Director salary and other benefits 2015 Managing Director/CFO Salary Social security expenses Other benefits Sum CEO Salary Social security expenses Other benefits Sum COO Salary Social security expenses Other benefits Sum Remuneration to auditor is allocated as specified below 2015 Statutory audits Other assurance services - Tax consultancy - Other services Sum excl. VAT

20 06 ASSETS Property Equipment Total Land Acquisition cost Acquisition cost Additions Disposals Acquisition cost Accumulated depreciation Depreciation this year Impairment Accumulated depreciation At Useful life (year) TRADE RECEIVABLES 2015 Trade receivables/debtors All receivables per have been received at the time of writing this report. No further losses on trade receivables are accrued. 08 OTHER RECEIVABLES 2015 Contracts in progress, accrued revenue VAT settlement account Accounts receivable employees Other receivables Net other receivables

21 09 GOODS 2015 Goods No impairment is considered in the value of goods 10 CASH AND CASH EQUIVALENTS 2015 Cash and cash equivalents Total cash and cash equivalents Restricted cash for Tax dues GOODWILL In 2015, The Maritime Group AS purchased two companies; TECO Maritime Group AS and 3D Scanning AS, including their subsidiaries. The transaction cost used in the PPA, is based on an independent evaluation made by Arkwright per December Due to these acquisitions, it has been prepared a purchase price allocation (PPA), that calculates the goodwill to NOK Goodwill Acquisition cost Additions Disposals 0 Acquisition cost Accumulated depreciation Depreciation this year 0 Accumulated depreciation At Useful life (year) 5 To initiate the acquisition process, The Maritime Group AS engaged Arkwright Corporate Finance AS (Arkwright) as an independent advisor, in order to find a fair comparative transaction cost. Arkwright is an experienced strategy advisory firm, with valuation during mergers and acquisitions as one of their areas of expertise. 21

22 In their valuation process, Arkwright used several methods to establish enterprise value; Discounted cash flow (DCF) o Calculates present value of the future expected cash flows. For this method, Arkwright has identified certain parameters for each company based on industry relevance and the company s business area, such as WACC (weighted average cost of capital) to discount the cash flows. Trading multiples o Involves evaluating listed, and therefore publicly priced, companies that are comparable in their business model to the companies in question. The companies are then valued at the same level as their peer groups relative to parameters in the profit and loss statement. Transaction multiples o Similar to trading multiples, but bases itself on transactions of comparable companies for which the transaction value is known instead of listed companies. Audited balance sheets per in all three companies were provided to Arkwright, and the company management submitted documented growth plans in order to establish the DCF. The equity value established in their valuation was basis for the relative ownership after a potential transaction, and included as documentation in the offer provided by The Maritime Group AS to the shareholders of TECO Maritime Group AS and 3D Scanning AS. The management considered no impairment needed per , see note 21 for further information. 12 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The preparation of the financial statements, requires the company to make judgements, use estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are considered reasonable under the circumstances. The estimates and underlying assumptions are reviewed on an on-going basis. Revenue recognition ongoing contracts Revenue is recognized based on estimated progress under the contracts. Several estimates have to be made to calculate the stage of completion. These estimates have a direct influence on the amount of revenue and cost that is recognized in the relevant period. Certain factors create uncertainty regarding the recognized revenue/cost on a given contract: Total man-hours estimated to complete scope of work Total materials purchase to complete scope of work Discussions with customers regarding which tasks are to be considered within scope of work, and which should generate a change order/separate job. To reduce these uncertainties, all projects are reviewed thoroughly on a weekly basis. A project budget file is updated weekly by the responsible Project Manager. In order to provide necessary information to Accounting personnel, the project s total revenue and cost, thereby also the expected gross margin, needs to be estimated. Knowledge of complete scope of work, best estimates on remaining work/purchases, contract amount and all change orders to original contract are then combined in order to finalize the estimates. 22

23 Another important element of the project review, is to track all extra work/idle time etc, that eventually will lead to a change order from the customer and increase project revenue. Experience has shown that the total revenue from a turnkey installation contract always increases along the duration of the project, often with significant amounts. As the company has experienced turnkey installation contracts that are significantly longer in duration than what was seen earlier, this furthermore increases the demand of continuous control and evaluation of all project estimates. Valuation of Goodwill At the end of the reporting period, the Group evaluates its investments in subsidiaries. Subsidiaries with cash flow separate from that of the parent company, are evaluated separately. Both of the acquired subsidiaries in 2015 with an acquisition cost, 3D Scanning AS and TECO Maritime Group AS, are to be considered as separate entities in this regard. Once acquisition cost is identified, the real value is identified on basis of identifiable assets and debt, and remaining value is defined as Goodwill. If an indication of decrease exists, the Group will annually test value of Goodwill for impairment, and adjust accordingly at the end of the reporting period. 13 BORROWINGS The parent company, The Maritime Group AS, has a bank overdraft facility with DNB, limited to USD. Utilization per was 0%. The NOK account per had a negative balance of NOK, which is due to a currency exchange between NOK and USD accounts late December 2015, which was not recorded before by the bank. Note 10 takes this into consideration. Covenants: Major changes in the company s owner constellation and/or management, to be authorized by the bank. The company s equity is expected to be a minimum of NOK per , and NOK per and onwards. Measurement annually based on audited financial statement for the parent company/the Maritime Group AS. Utilization of the overdraft facility is expected to be lower than 50% of receivables. Periodical reporting every 3 months, with P&L and Balance Sheet, including a 6-month prognosis on liquidity. TECO Electronics AS has a bank overdraft facility of NOK, whereas utilization per was 85,6%%. There are no covenants connected to this facility. TECO Solutions AS is paying monthly instalments to Lindorff as part of a former leasing agreement with DNB, in order to facilitate the company s needs for heavy machinery. Per the remaining balance was NOK. 23

24 14 OTHER OPERATING EXPENCES 2015 Property lease Travel expenses Auditor, accounting and legal fees Other services Other expenses FINANCIAL INCOME AND EXPENSES 2015 Interest income Foreign exchange gains Other financial income Total financial incomes Interest expenses Foreign exchange loss Other financial cost Wire fees Penalties/ late fees Total financial expenses Income statement Financial income Financial expenses Net financial income/(expenses) CONTINGENT LIABILITIES No contingent liabilities 24

25 17 RELATED PARTY DISCLOSURES Amounts in NOK 1000 a) Purchase Purchase of services and goods from 2015 Scanship AS 150 Scanship Americas TECO Management AS 990 TECO Group AS Sales of services and goods to 2015 Scanship AS 145 Scanship Americas 695 TECO Group AS TECO Management AS 28 b) Balance with related parties Assets 2015 Other receivables (financial assets) M. Rasmussen Other receivables (current assets) T. Enger 454 Other receivables (current assets) TECO Management AS 45 Other receivables (current assets) TECO Group AS Other receivables (current assets) Other shareholders 80 Trade Receivables Scanship AS 57 Trade Receivables Scanship Americas 150 Trade Receivables TECO Group AS 732 Trade Receivables TECO Management AS 323 Total receivable from related parties Liabilities: 2015 Trade payables TECO Management AS 57 Trade payables TECO Group AS 849 Trade payables Scanship Americas Inc 266 Trade payables Scanship Americas AS

26 Other payables (short term debt) TECO Group AS Other payables (short term debt) TECO Management AS 225 Other payables (short term debt) TECO Holding AS 195 Total liabilities to related parties CURRENT LIABILITIES 2015 Contracts in progress Vacation allowance Other liabilities CONTRACTS IN PROGRESS The table below shows the total accumulated revenue and costs incurred or deferred from ongoing contracts recognised in the "Consolidated Financial Statement" since the contracts were started Acc. contract revenue recognised Acc. related costs incurred Acc. recognised profit or loss on contracts in progress Recognised and included in the financial statement as amount due: 2015 Due from customers for contract work Due to suppliers for contract work Net work in progress

27 20 GOING CONCERN The Balance Sheet for 2015 of the parent company show a positive equity of NOK , and for the Group a positive equity of NOK The board assesses the equity to be sufficient, although it consists mainly of goodwill. See also note 22 (Events after the reporting period), where there is a further description of development in the subsidiaries. Due to subsequent events, it is expected an impairment of goodwill per The Maritime Group AS has a low positive working capital per However, at the time of writing this report, the company need to improve the liquidity situation. Due to the nature of the projects the company is currently engaged in, general growth of the Group with new ventures and acquisitions, lower gross margins than anticipated on some major projects and other challenges experienced with cash flow and liquidity during the course of 2016 so far, this is a focus point for the management and Board of Directors to rectify. Per today, the liquidity situation is challenging and is not at an adequate level. The Board of Directors and management of the company has taken certain measures during 2016 to improve its liquidity situation, to mention some: Improving project gross margins: Intensifying focus on project personnel cost control, through measuring on weekly basis whether or not man hours are spent effectively on scope of work. Intensifying focus on project material cost control, through better preparations and planning, and extensive use of 3D Scanning before initiating purchases of piping. Utilizing synergies, by combining the company s own resources with those in subsidiaries. This is relevant both on project management level and administrative level. Sourcing more cost effective pools of technicians worldwide, whilst maintaining skill level. Manning down on projects on short notice when experiencing less access to work areas or lack of materials to install due to reasons outside the company s control. Project payment plan and scope: Cooperating closely with key customers in order to find an optimal payment plan during the course of a project. Large turnkey contracts tend to be based on milestone achievement, which is unpredictable at times. It is therefore considered beneficial to receive payments more periodically in the duration of the project instead, thus creating predictability. Large scrubber installations include vast amount of piping, which cost wise often constitute more than half of the contract amount. The company is focusing on being awarded projects where material purchases are not part of the scope of work, but lies on customer side. This will be beneficial as it reduces the strain on liquidity. Funding The company expects a payback of loan, EUR, during 1Q 2017 from Crosscomar, a subsidiary acquired in The market outlook for the industry is very good, and important legislative changes are assumed to trigger the market for installation services ahead. The company has positioned itself well to increase its activities within both scrubber and ballast water management systems in the future. 27

28 21 EVENTS AFTER THE REPORTING PERIOD The financial statement is adjusted to reflect events after the balance sheet date that constitute a condition that existed at the date of the balance sheet, i.e. adjusted estimates for ongoing projects. At the time of writing this report, there are events in some of the subsidiaries that indicate that financial results in 2016 will be lower than expected during impairment testing per Consolidated, 3D Scanning AS and TECO Maritime Group AS (subsidiaries) is expected to have a negative result in Correspondingly, the Group expects to make an impairment of the goodwill per The Maritime Group AS has a low positive working capital per However, at the time of writing this report, the company need to improve the liquidity situation. Due to the nature of the projects the company is currently engaged in, general growth of the Group with new ventures and acquisitions, lower gross margins than anticipated on some major projects and other challenges experienced with cash flow and liquidity during the course of 2016 so far, this is a focus point for the management and Board of Directors to rectify. Per today, the liquidity situation is challenging and is not at an adequate level. Early 2016, The Maritime Group AS has acquired 80% of the shares in Spanish company Cross Maritime Group S.A and its subsidiaries accordingly. The acquisition requires an investment of EUR, payable in equal monthly instalments from January 2016 until December The acquisition required a loan of EUR to gain a sufficient working capital. It is expected that EUR is paid back within 1Q During 2016, The Maritime Group AS founded Nordic Made Boiler Service, Inc. in USA, and its subsidiary Nordic Made Boiler Service ApS in Denmark. Ownership of the US entity is 62,5%, whereas remaining shares are owned by company management. The founding of these entities, has required a loan to the US entity of approximately USD which will be paid back when the company s liquidity situation allows for it. Due to growth in total revenue and amount of subsidiaries, The Group has identified a need to strengthen its Financial Department. In order to achieve this, an experienced CFO has been hired, with background from several publicly traded companies. The employment will commence no later than

29 Financial Statement 2015 Parent Company Income Statement The Maritime Group AS Note Revenue Sales 3, Sum Revenue Operating expenses Cost of sales 3, Employee expenses Depreciation Other operating expenses Sum operating expenses OPERATING RESULT FINANCIAL INCOME AND EXPENSES Financial income Income from subsidiaries Interest income Agio gain Sum financial income Financial expenses Interest expenses Agio loss Sum financial expenses NET FINANCIAL ITEMS PROFIT BEFORE TAX Tax on ordinary result NET PROFIT OR LOSS FOR THE YEAR PROFIT FOR THE YEAR ALLOCATED AS FOLLOWS Transferred to other equity and uncovered deficit

30 BALANCE The Maritime Group AS pr ASSETS NON-CURRENT ASSETS Tangible assets Note Equipment Total tangible assets Financial assets Investment subsidiaries Other receivables Total financial assets Sum non-current assets CURRENT ASSETS Goods Trade receivables 7, Intercompany Other receivables Total receivables Investments Other financial instruments Total investments Cash and cash equivalents Total current assets TOTAL ASSETS

31 BALANCE The Maritime Group AS pr Note EQUITY AND LIABILITIES EQUITY Paid-in capital Share capital premium on share Total paid-in capital Retained earnings Other equity Total retained earnings TOTAL EQUITY LIABILITIES NON-CURRENT LIABILITIES Deferred tax Sum non-current liabilities CURRENT LIABILITIES Trade creditors 17, Tax payable Public duties payable Other short-term liabilities 13, Total current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES February 2 nd, 2017 Sign. Sign. Sign. Tore Enger Henrik Badin Bettina Nowak Chairman of the Board and CEO Board member Board member Sign. Michael N. Rasmussen Board member 31

32 EQUITY The Maritime Group AS pr Share Share Retained Total capital premium earnings equity Equity at 1 January Profit for the year Dividend Additional dividend, June Additional dividend, December Contribution in kind, November Contribution in kind, December Equity at 31 December

33 CASH FLOW STATEMENT The Maritime Group AS pr Cash flow from operating activities Profit before income tax Adjustments: Depreciation, amortisation and impairment Changes in inventories, trade rec, Rec. Group and other rec Changes in group payable, current borrowing, other liab Net cash flow from operating activities Cash flow from investing activities Purchase of property, plant and equipment Investment in subsidiary Sales of subsidiary Investment in intangible assets Net cash flow from investing activities Cash flow from financing activities Proceeds from group contribution Proceeds from borrowings Bank Overdraft Facility Repayments of loans Interest Paid Dividends paid Net cash flow from financing activities Net change in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December Non restricted cash, ) Restricted cash, Cash

34 Notes to the Financial Statement The Maritime Group AS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis for preparation The financial statements of The Maritime Group AS are prepared in accordance with Norwegian Accounting Act, and generally accepted accounting principles. Investment in subsidiaries Investment in subsidiaries is recognised at cost, less any necessary impairment. Impairment to fair value will be carried out if the reduction in value is caused by circumstances which may not be regarded as incidental, and deemed necessary by generally accepted accounting principles. Impairments are reversed when the cause and basis of the initial impairment is no longer present. Foreign currency The accounting currency and presentation currency is NOK. Foreign currency transactions are translated into the accounting currency using exchange rates at the transaction date. Monetary balances in foreign currencies are translated into the accounting currency at the exchange rates on the date of the balance sheet. Foreign exchange gains and losses resulting from the settlement of such transaction and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. Classification of assets and liabilities Non-current assets are assets meant for permanent ownership or use. Other assets are current assets. Receivables to be paid within one year will always be classified as current assets. Liabilities are classified correspondingly. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (FIFO) method and includes the costs incurred in acquiring the goods and the costs of bringing the goods to their current location. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Trade receivables and other current receivables Trade receivables and other current receivables are initially recognized at fair value plus any transaction costs. If material, transaction costs are amortised linear over the contractual maturity. The receivables are impaired if the carrying amount is above the net realisable value. Other current receivables include prepayments, and receivables on related parties. Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment charges. Depreciations are calculated on a straight line basis over the assets expected useful life and adjusted for any impairment charges. Expected useful lives of long-lived assets are reviewed annually and where they differ significantly from previous estimates, depreciation periods are changed accordingly. Ordinary repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying 34

35 amount and are included in operating profit. Major assets with different expected useful lives are reported as separate components. Property, plant and equipment are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. Cash and cash equivalents Cash and the equivalents include cash on hand, deposits with banks and other short-term highly liquid investments with original maturities of three months or less. Trade creditors Trade creditors are recognized initially at fair value and subsequently measured at amortised cost using the effective interest method, if the amortisation effect is material. Taxes The company is subject to tax under the Norwegian corporate tax regime. Income taxes for the period comprise tax payable and changes in deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized directly in equity. In this case the tax is also recognized directly in equity. Deferred tax assets and liabilities are calculated on the basis of existing and temporary differences between the carrying amounts of assets and liabilities in the financial statement and their tax bases, together with the tax losses carried forward at the balance sheet date. Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the assets can be utilized. Revenue recognition The company recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the company s activities as described below. Construction contracts Revenue from long-term manufacturing projects is recognized under the percentage-ofcompletion method. The company estimates the progress of these contracts with hours spent on the projects, but some of the projects only cost spent on the projects, and some with a combination. When the outcome cannot be reliably estimated, only revenues equalling the project costs incurred can be recognized as revenue. Contract costs include costs that relate directly to the specific contract such as direct wages and direct materials. Pre-contract costs are expensed unless it is virtually certain that the company receives a contract. Costs that cannot be attributed to contract activity are expensed. Contract revenue includes the agreed amount under the contract, adjusted for any changes or additional work related to the contract. 35

36 If circumstances arise that may change the original estimate of revenues, costs or extent of progress towards completion, estimates are revised. These revisions may result in increases or decreases in estimated revenues or costs and reflected in income in the period in which the circumstances that give rise to the revision become known by management. The total estimated loss on a project will be recognized in the income statement when it is identified that the project will generate a loss. Estimates The preparation of periodical financial statements, requires the company to make judgements, use estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are considered reasonable under the circumstances. The estimates and underlying assumptions are reviewed on an on-going basis. The company has evaluated the value of its investments in subsidiaries, whereas the company management of each subsidiary has provided their best estimates for the future outlook, to establish a discounted cash flow (DCF). The company also uses estimates to determine amount of revenue/cost to be booked on an ongoing project with activity in more than one accounting period. Responsible Project Manager calculates a degree of completion at end of the accounting period based on knowledge of the complete project scope of work and what remains. Some customers also base their payments on degree of completion, where milestone payments are released at certain stages of the project. In addition, the total turnover and gross margin is estimated by responsible Project Manager, based on knowledge of contract amount, change orders and remaining work/purchases. Cost of equity transactions Transaction costs directly linked to an equity transaction are recognized directly in equity, net after deducting tax. Leases (as lessee) Finance leases Finance leases which transfer to the company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the income statement. Operating leases All leases that are not classified as financial leases are classified as operating leases. Operating lease payments are recognized as an operating expense in the income statement on a straightline basis over the lease term. Provisions A provision is recognized when the company has a present legal or constructive obligation as a result of past events, it is probable (i.e. more likely than not) that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Provisions are measured at the present value of the expenditures expected to be required to 36

37 settle the obligation. The increase in the provision due to passage of time is recognized as finance cost. Cash flow statement The cash flow statement is prepared by using the indirect method Events after the balance sheet date The financial statements are adjusted to reflect events after the balance sheet date that provides evidence of conditions that existed at the date of the balance sheet (adjusting events). The financial statements are not adjusted to reflect events after the balance sheet date that are indicative of conditions that arose after the date of the balance sheet (non-adjusting events). Non-adjusting events are disclosed if significant. 37

38 02 TAX Specification of income tax: Income tax payable Change in deferred tax Total income tax expense Specification of temporary differences and deferred tax: Property, plant and equipment Construction contracts Tax loss carry forward Total basis for deferred tax Not recognised deferred tax 0 0 Deferred tax liability 25% (27%) Specification of basis of tax payable: Profit before income tax Non-deductible expenses Change in temporary differences Taxable losses carried forward Taxable profit Reconciliation of effective tax rate: Profit before income tax Expected income tax (25%/27%) Effect of change in not recognised deferred tax Effect of change of tax rate from 27 % to 25 % Adjusted for tax effect of the following items: Permanent differences Total income tax expense

39 03 SEGMENT INFORMATION Segments The company is involved in various segments within marine installations and repair. However, the majority of the revenue was in 2015 generated through turnkey installation of exhaust gas cleaning systems (scrubbers). Geographically, it is difficult to determine where the revenues have been generated, as the majority of the installation work is conducted while the vessels are in service and therefore in transit. Amounts in NOK Sales Scrubber BWTS Adv.Heating System Electrical Service Steel Repair Other Total

40 04 SHARE CAPITAL AND SHAREHOLDERS INFORMATION Total shares per Share holder Shares % 1 TECO Group AS ,45 % 2 Michael Nygaard Rasmussen ,05 % 3 Badin Invest Ltd ,86 % 4 Daler Inn Ltd ,29 % 5 Bettina Nowak ,98 % 6 Christian Compton ,03 % 7 Lukasz Podlinski ,29 % 8 Høgåsen Holding AS ,13 % 9 Bloms Oppmåling AS ,06 % 10 NOROCO AS ,94 % 11 BUSKERUD TELEMARK VESTFOLD ,88 % 12 MONS HOLDING AS ,38 % 13 NORDNET BANK AB ,31 % 14 AHLQVIST, ROLF ,27 % 15 SANDVIK, LASSE ,12 % 16 ERIKSEN, TOM ,09 % 17 STOCK INVESTMENT AS ,08 % 18 BECK; OLE TORMOD ,07 % 19 ELVEVOLD; ARNULF ,07 % 20 NEST TRADING A/S ,07 % OTHER SHAREHOLDERS ,57 % ,00 % Shares owned by company management or Board of Directors: Name Title Shares % Share Tore Enger (1) CEO & Chairman ,99 % Christian Compton COO ,03 % Eivind Hermansen (2) CFO ,13 % Lukasz Podlinski Project Director ,29 % Michael Rasmussen Board Member ,05 % Henrik Badin (3) Board Member ,86 % Bettina Nowak Board Member ,98 % TOTAL ,33 % 1 Tore Enger has indirect ownership through his 78,4% ownership in TECO Group AS 2 Eivind Hermansen has indirect ownership through his 100% ownership in Høgåsen Holding AS 3 Henrik Badin has indirect ownership through his 100% ownership in Badin Invest Ltd 40

41 05 SALARIES AND AUDITOR Salaries Social security expenses Other benefits Sum Average number of employees in the company was 5 in Percent female 29%, male 71%. According to law about mandatory occupational pension, Norwegian companies in the Group are obliged to have occupational pension. The Norwegian company has a deposit of 5% of the employee s annual gross salary between 1 and 12 G. In addition, 3% of gross salary between 7,1 and 12G. Managing Director salary and other benefits Managing Director/CFO Salary Social Security expenses Other benefits Sum Remuneration to auditor is allocated as specified below Statutory audits Other assurance services - Tax consultancy - Other services Sum excl. VAT

42 06 ASSETS Tools Office 2015 Equipment Equipment Total Acquisition cost , Additions Disposals Acquisition cost Accumulated depreciation Depreciation this year Reversal of previous years depreciation Accumulated depreciation At Useful life (year) Tools and equipment Office equipment Total Acquisition cost Additions Disposals Acquisition cost Accumulated depreciation Depreciation this year Reversal of previous years depreciation Accumulated depreciation At Useful life (year)

43 07 TRADE RECEIVABLES Trade receivables/debtors All receivables per have been received at the time of writing this report. No further losses on trade receivables are accrued. 08 OTHER RECEIVABLES Contracts in progress, accrued revenue and deferred cost VAT settlement account Loan employees Other receivables Net other receivables GOODS Cost of goods No impairment is considered in the value of goods 10 CASH AND CASH EQUIVALENTS Cash and cash equivalents Total cash and cash equivalents Restricted cash for Tax dues

44 11 INVESTMENTS IN SUBSIDIARIES The following subsidiaries are included in the consolidated financial investments: Company Date of acquisition or incorporation Country of location % Equity and voting share Annual Result 2015 Equity per Cost of acquisition Nordic Made, Inc USA 100,00 % Nordic Made Poland Sp.Zo.O Poland 100,00 % TECO Maritime Group AS Norway 91,47 % D Scanning AS Norway 100,00 % th of December 2015, the company acquired 100% of the shares in the Norwegian company 3D Scanning AS and 90,55% of the shares in the Norwegian company TECO Maritime Group AS. The acquisitions were conducted as non-cash contribution, and shareholders were issued shares in The Maritime Group AS as settlement. (At the time of writing this report, ownership in TECO Maritime Group AS has increased to 91,47%). The value of the acquired companies TECO Maritime Group AS and 3D Scanning AS, is recognized in the balance sheet of The Maritime Group AS, per To initiate the acquisition process, The Maritime Group AS engaged Arkwright Corporate Finance AS (Arkwright) as an independent advisor, in order to find a fair comparative pricing between the shares in the two acquisitions and in The Maritime Group AS. Arkwright is an experienced strategy advisory firm, with valuation during mergers and acquisitions as one of their areas of expertise. In their valuation process, Arkwright used several methods to establish enterprise value; Discounted cash flow (DCF) o Calculates present value of the future expected cash flows. For this method, Arkwright has identified certain parameters for each company based on industry relevance and the company s business area, such as WACC (weighted average cost of capital) to discount the cash flows. Trading multiples o Involves evaluating listed, and therefore publicly priced, companies that are comparable in their business model to the companies in question. The companies are then valued at the same level as their peer groups relative to parameters in the profit and loss statement. Transaction multiples o Similar to trading multiples, but bases itself on transactions of comparable companies for which the transaction value is known instead of listed companies. Audited balance sheets per in all three companies were provided to Arkwright, and the company management submitted documented growth plans in order to establish the DCF. The equity value established in their valuation was basis for the relative ownership after a potential transaction, and included as documentation in the offer provided by The Maritime Group AS to the shareholders of TECO Maritime Group AS and 3D Scanning AS. 44

45 12 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The preparation of the financial statements, requires the company to make judgements, use estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are considered reasonable under the circumstances. The estimates and underlying assumptions are reviewed on an on-going basis. Revenue recognition ongoing contracts Revenue is recognized based on estimated progress under the contracts. Several estimates have to be made to calculate the stage of completion. These estimates have a direct influence on the amount of revenue and cost that is recognized in the relevant period. Certain factors create uncertainty regarding the recognized revenue/cost on a given contract: Total man-hours estimated to complete scope of work Total materials purchase to complete scope of work Discussions with customers regarding which tasks are to be considered within scope of work, and which should generate a change order/separate job. To reduce these uncertainties, all projects are reviewed thoroughly on a weekly basis. A project budget file is updated weekly by the responsible Project Manager. In order to provide necessary information to Accounting personnel, the project s total revenue and cost, thereby also the expected gross margin, needs to be estimated. Knowledge of complete scope of work, best estimates on remaining work/purchases, contract amount and all change orders to original contract are then combined in order to finalize the estimates. Another important element of the project review, is to track all extra work/idle time etc, that eventually will lead to a change order from the customer and increase project revenue. Experience has shown that the total revenue from a turnkey installation contract always increases along the duration of the project, often with significant amounts. As the company has experienced turnkey installation contracts that are significantly longer in duration than what was seen earlier, this furthermore increases the demand of continuous control and evaluation of all project estimates. Valuation of subsidiaries At the end of the financial period, the company evaluates impairment on its investments. Since the fair value of the subsidiaries was established by an independent advisor (Arkwright) per December 2015, the management considered no impairment needed per A new evaluation will be made annually. 45

46 13 BORROWINGS The company has a bank overdraft facility with DNB, limited to USD. Utilization per was 0%. The NOK account per had a negative balance of NOK, which is due to a currency exchange between NOK and USD accounts late December 2015, which was not recorded before by the bank. Note 10 takes this into consideration. Covenants: Major changes in the company s owner constellation and/or management, to be authorized by the bank. The company s equity is expected to be a minimum of NOK per , and NOK per and onwards. Measurement annually based on audited financial statement for the parent company/the Maritime Group AS. Utilization of the overdraft facility is expected to be lower than 50% of receivables. Periodical reporting every 3 months, with P&L and Balance Sheet, including a 6-month prognosis on liquidity. 14 OTHER OPERATING EXPENSES Split: Property lease Travel expenses Auditor, accounting and legal fees Other services Other expenses FINANCIAL INCOME AND EXPENSES Gain of sale of investment Interest income Foreign exchange gains Other financial income Total financial income Interest expenses Loss on sale of shares Foreign exchange loss Total financial expenses Income statement Financial income Financial expenses Net financial income/(expenses)

47 16 CONTINGENT LIABILITIES No contingent liabilities. 17 RELATED PARTY DISCLOSURES Amount in NOK 1000 a) Purchase Purchase of services and goods from Scanship AS D Scanning AS D Scanning Inc TECO Management AS TECO Group AS TECO Maritime Group AS TECO Maritime Poland Sp.z.o.O TECO Solutions AS 8 TECO Maritime Middle East LLC Nordic Made Inc Nordic Made Poland Sales of services and goods to Scanship AS Nordic Made Inc Nordic Made Poland 6-3D Scanning AS TECO Solutions AS 8 - b) Balance with related parties Assets Other receivables (financial assets) M. Rasmussen Other receivables (current assets) TECO Group AS - - Other receivables (current assets) Nordic Made Inc - 62 Other receivables (current assets) Other shareholders

48 Trade Receivables TECO Maritime Poland Sp.z.o.O Trade Receivables Scanship AS 38 - Trade Receivables 3D Scanning AS Trade Receivables TECO Electronics AS - 1 Trade Receivables TECO Group AS 26 - Trade Receivables Nordic Made Inc Trade Receivables Nordic Made Poland 6 - Total receivable from related parties Assets, receivables from subsidiaries Other receivables (current assets) Loan to 3D Scanning AS Other receivables (current assets) Receivable TECO Solutions Other receivables (current assets) Nordic Made Boiler Services 13 - Receivables from subsidiaries 1116 Liabilities: Trade payables TECO Management AS 1 1 Trade payables TECO Maritime Group AS Trade payables TECO Solutions AS 12 0 Trade payables Scanship Americas Inc Trade payables TECO Maritime Middle East LLC Trade payables 3D Scanning AS Trade payables 3D Scanning Inc 21 - Trade payables Nordic Made Polska Trade payables Nordic Made Poland Trade payables TECO Maritime Poland Trade payables Nordic Made Inc Total liabilities to related parties

49 18 TRADE PAYABLES INTERCOMPANY Amount in NOK 1000 Liabilities: Trade payables TECO Maritime Group AS Trade payables TECO Solutions AS 12 0 Trade payables TECO Maritime Middle East LLC Trade payables 3D Scanning AS Trade payables 3D Scanning Inc 21 - Trade payables Nordic Made Poland Trade payables TECO Maritime Poland Trade payables Nordic Made Inc Trade payables External CURRENT LIABILITIES Contracts in progress Vacation allowance Other liabilities CONTRACTS IN PROGRESS The table below shows the total accumulated revenue and costs incurred or deferred from ongoing contracts recognised in the "Consolidated Financial Statement" since the contracts were started. Parent Company Acc. contract revenue recognised Acc. related costs incurred Acc. recognised profit or loss on contracts in progress

50 Recognised and included in the financial statement as amount due: Parent Company Due from customers for contract work Due to suppliers for contract work Net work in progress GOING CONCERN The Balance Sheet for 2015 show a positive equity of NOK The board assesses the equity to be sufficient, although it consists mainly of investment in subsidiaries. See also note 22 (Events after the reporting period), where there is a further description of development in the subsidiaries. Due to subsequent events, it is expected an impairment of shares in subsidiaries per The Maritime Group AS has a low positive working capital per However, at the time of writing this report, the company need to improve the liquidity situation. Due to the nature of the projects the company is currently engaged in, general growth of the Group with new ventures and acquisitions, lower gross margins than anticipated on some major projects and other challenges experienced with cash flow and liquidity during the course of 2016 so far, this is a focus point for the management and Board of Directors to rectify. Per today, the liquidity situation is challenging and is not at an adequate level. The Board of Directors and management of the company has taken certain measures during 2016 to improve its liquidity situation, to mention some: Improving project gross margins: Intensifying focus on project personnel cost control, through measuring on weekly basis whether or not man hours are spent effectively on scope of work. Intensifying focus on project material cost control, through better preparations and planning, and extensive use of 3D Scanning before initiating purchases of piping. Utilizing synergies, by combining the company s own resources with those in subsidiaries. This is relevant both on project management level and administrative level. Sourcing more cost effective pools of technicians worldwide, whilst maintaining skill level. Manning down on projects on short notice when experiencing less access to work areas or lack of materials to install due to reasons outside the company s control. Project payment plan and scope: Cooperating closely with key customers in order to find an optimal payment plan during the course of a project. Large turnkey contracts tend to be based on milestone achievement, which is unpredictable at times. It is therefore considered beneficial to receive payments more periodically in the duration of the project instead, thus creating predictability. Large scrubber installations include vast amount of piping, which cost wise often constitute more than half of the contract amount. The company is focusing on being awarded projects where material purchases are not part of the scope of work, but lies on customer side. This will be beneficial as it reduces the strain on liquidity. 50

51 Funding The company expects a payback of loan, EUR, during 1Q 2017 from Crosscomar, a subsidiary acquired in The market outlook for the industry is very good, and important legislative changes are assumed to trigger the market for installation services ahead. The company has positioned itself well to increase its activities within both scrubber and ballast water management systems in the future. 22 EVENTS AFTER THE REPORTING PERIOD The financial statement is adjusted to reflect events after the balance sheet date that constitute a condition that existed at the date of the balance sheet, i.e. adjusted estimates for ongoing projects. At the time of writing this report, there are events in some of the subsidiaries that indicate that financial results in 2016 will be lower than expected during impairment testing pr Consolidated, 3D Scanning AS and TECO Maritime Group AS (subsidiaries) is expected to have a negative result in Correspondingly, the company expects to make an impairment on the shares owned in these subsidiaries per The Maritime Group AS has a low positive working capital per However, at the time of writing this report, the company need to improve the liquidity situation. Due to the nature of the projects the company is currently engaged in, general growth of the Group with new ventures and acquisitions, lower gross margins than anticipated on some major projects and other challenges experienced with cash flow and liquidity during the course of 2016 so far, this is a focus point for the management and Board of Directors to rectify. Per today, the liquidity situation is challenging and is not at an adequate level. Early 2016, The Maritime Group AS has acquired 80% of the shares in Spanish company Cross Maritime Group S.A and its subsidiaries accordingly. The acquisition requires an investment of EUR, payable in equal monthly instalments from January 2016 until December The acquisition required a loan of EUR to gain a sufficient working capital. It is expected that EUR is paid back within 1Q During 2016, The Maritime Group AS founded Nordic Made Boiler Service, Inc. in USA, and its subsidiary Nordic Made Boiler Service ApS in Denmark. Ownership of the US entity is 62,5%, whereas remaining shares are owned by company management. The founding of these entities, has required a loan to the US entity of approximately USD which will be paid back when the company s liquidity situation allows for it. Due to growth in total revenue and amount of subsidiaries, The Group has identified a need to strengthen its Financial Department. In order to achieve this, an experienced CFO has been hired, with background from several publicly traded companies. The employment will commence no later than

52 To the Annual Shareholders Meeting of The Maritime Group AS ( ) AUDITOR S REPORT Report on the Financial Statements We have audited the accompanying financial statements of The Maritime Group AS, comprising the financial statement of the Parent Company showing a profit NOK and an equity NOK , and the Group showing a profit NOK and equity NOK The Financial Statement of the Parent Company and the Group comprise the statement of the financial position as at 31. December 2015, the statements of income and cash flows for the year then ended as well as a summary of significant accounting policies and other explanatory information. The Board of Directors and the Chief Executive Officer s Responsibility for the Financial Statements The Board of Directors and the Chief Executive Officer s is responsible for the preparation and fair presentation of these financial statements in accordance with Norwegian accounting act and accounting standards and practices generally accepted in Norway, and for such internal control as the Board of Directors and the Chief Executive Officer determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion of the financial statements for the Parent Company and the Group. Opinion In our opinion, the financial statements give a true and fair view of the financial position of Company and the Group as at 31. December 2015, and its financial performance and cash flows for the year then ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway.

53 FGH REVISJON AS INDEPENDENT AUDITOR S REPORT 2015/page 2 The Maritime Group AS Emphasis of Matter We draw attention to note 21 to the Financial Statement and the Board of Directors Report which describes that the liquidity position is challenging and is not at an adequate level. The Board of Directors and Management has taken certain measures to improve its liquidity position, but it is still challenging. This conditions indicate the existence of a material uncertain which may cast significant doubt as the Company ability to continue as a going concern. The Financial Statement do not include the adjustments that would result if the Company was unable continue as a going concern. Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors report Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors report concerning the financial statements, the going concern assumption and the proposal for the allocation of the profit is consistent with the financial statements and complies with the law and regulations. Opinion on Registration and Documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, «Assurance Engagements Other than Audits or Reviews of Historical Financial Information», it is our opinion that the Board of Directors and Chief Executive Officer s have fulfilled its duty to produce a proper and clearly set out registration and documentation of the company s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway. Emphasis of Matter The Financial Statements are signed 2. February 2017 as is after Companies Act deadline for approve the Financial Statement. The company has not filed the tax paper within deadline. Sandefjord, 2. February 2017 Ståle Raastad Hansen State Authorized Public Accountant