INTERIM REPORT TTS GROUP ASA

Transcription

1 Q 4 TO 31 DECEMBER 2016 INTERIM REPORT TTS GROUP ASA

2 TTS Group continues delivering positive operating results, however disturbed by impairments TTS has successfully stabilized key business divisions and are proceeding well with its internal improvement program. The group has in all quarters of 2016, continued the positive trend from We are starting to benefit from the positive effects of our improvement program. Combining our ambition to maintain and grow market position and our continued focus on synergies and operational efficiency with a goal to reduce year-on-year operating cost with MNOK 100 across the Group, we expect to maintain our positive margins in a challenging market. We have an order backlog that covers more than 80% of the expected new-build turnover for This gives a good basis for our 2017 operations. We expect reduced activity in 2017 compared to 2016, particularly due to short-term challenges within the car carrier and heavy lift segments. Although the market for Container/Bulk/Tank also remains challenging, we expect stable turnover in the 100% owned units, but somewhat reduced activity in the 50% owned Chinese companies. The market for ship-lifts remains strong. For the services sector, we see a large potential for further development of both the spare parts sales and the general service activity. Business unit Offshore continues to deliver marginally positive operating results in the fourth quarter, which confirms the improvement from an operating loss of MNOK 50 last year to a positive break even this year. We still expect a weak offshore market in the foreseeable future, and have reduced the TTS Group's exposure towards the Offshore sector, which today represents around 7 percent of our turnover. Business unit Multipurpose General Cargo has experienced a low order intake in The turnaround of the heavy lift market and the development of the offshore wind installation market takes longer time than previously expected. Due to this, the business unit has reported impairment of MNOK 118, of which inventories MNOK 20, fixed assets MNOK 16 and goodwill MNOK 82. To reduce the cost base for the business unit and adapt the operations to the current market, we plan a ramp down of our German manufacturing setup. We announce a restructuring program for the unit. This will add restructuring cost of around MNOK 30, which will hit the first quarter 2017 result. We continue our efforts to develop a more flexible organization that can shift resources between segments, and thereby be better suited to scale activity by market changes. Despite a challenging market for marine equipment, we have a strong market position with a global presence, and a comprehensive and diversified product portfolio. Together with committed competent colleagues, this creates a strong platform for future growth when the market improves.

3 4 th quarter turnover reduced 10% from 2015, particularly due to reduced activity in Offshore and RoRo/Cruise/Navy Continued improvement in underlying operations, with an underlying EBITDA year to date of MNOK 133, compared to MNOK 89 in 2015 ** Impairment in Multipurpose/General cargo of MNOK 118 due to weakened market expectations Good visibility for 2017 turnover TTS GROUP MNOK Turnover EBITDA ** Order intake Order backlog * EPS (NOK) Total -1,11-1,07-1,17-0,55 * Order backlog includes 50% of backlog from equity consolidated investments in China Q4 Full year ** 2016 EBITDA includes a negative inventory impairment in the Multipurpose/General cargo segment of MNOK 20 ** 2015 EBITDA includes a positive one off effect from consolidating TTS Hua Hai of MNOK 104 (Q2/15), a negative inventory impairment in the Offshore segment of MNOK 20 (Q3/15), and a negative impact from restructuring allocation in Offshore of MNOK 18 (Q4/15). FINANCIAL PERFORMANCE The 4 th quarter turnover MNOK 758 was on level with 3 rd quarter, but 10% lower than 4 th quarter 2015, with the Offshore and RoRo/Cruise/Navy segments being the largest contributors to the reduced turnover. Operating profit (EBITDA) in the 4th quarter was MNOK 33, excluding the impairment of inventory in Multipurpose / General cargo, which confirms a trend with a positive EBITDA in the area between MNOK 25 and 40 in The full year underlying** EBITDA for 2016 was MNOK 133, a significant improvement compared to the same period underlying*** EBITDA for 2015 of MNOK 89. The Earnings before interest and tax (EBIT) in 4 th quarter 2016 was MNOK -94, hit by impairment of fixed assets (MNOK 16) and goodwill (MNOK 82) in business unit Multipurpose / General cargo. ** 2016 Excluding inventory impairment MNOK 20 *** 2015 Excluding positive one off effect MNOK 104 from THH consolidation, and negative impact of Offshore restructuring and inventory impairment MNOK 38

4 ORDER BACKLOG The order intake for 4 th quarter 2016 was MNOK 446, a decrease of 52% compared to the unusually high MNOK 937 in 4 th quarter The largest decrease is in business units RoRo/Cruise/Navy and Container/Bulk/Tank. The order backlog* at the end of 4th quarter reached NOK 2,7 billion (4,0 billion), of which approximately NOK 1,8 billion is expected to be turned into revenue in Consequently, about 80 % of the expected revenue from new build activity in 2017 is expected to be covered by existing contracts. Order-cancellations year to date is MNOK 198 in fully consolidated companies, of which MNOK 77 in 4 th quarter. Cancellations in equity-consolidated investments in China was MNOK 126 in *including 50% of the order backlog of MNOK 138 (323), in equity consolidated investments in China Expected turnover from the Services segment is not included in the reported order backlog TOTAL ASSETS AND NET INTEREST-BEARING DEBT Total assets at the end of 4 th quarter 2016 was MNOK 2 216, a decrease of MNOK 810 compared to the end of 2015 and MNOK 305 compared to 3 rd quarter Net working capital at the end of the 4 th quarter was MNOK 124, an increase of MNOK 45 from 3 rd quarter, of which MNOK 70 relates to increase in the 50/50 owned subsidiaries in China, partly offset by a reduction in the 100% owned entities. Net interest-bearing debt at the end of the 4 th quarter was MNOK 294, an increase of MNOK 40 from 3 rd quarter. The effect of the consolidation of THH and TTS-SCM represents a total reduction of the reported net interest-bearing debt of MNOK 99. The equity at the end of the 4 th quarter was 27,3%. Including the convertible bond debt the equity was 31,6%. TTS has covenants for both equity ratio and EBITDA related to its debt and bonding facilities with Nordea and DNB. The debt- and bonding facilities were renewed in 4 th quarter The subordinated debt matures in 2 nd quarter The group has started the process to refinance/prolong the subordinated convertible bond loan in 1 st quarter 2017.

5 RORO/CRUISE/NAVY The business unit reports a decrease in turnover and margin compared to last year. The reduction of margin is an effect of changes in the product mix, as well as losses on a few specific projects. The order backlog at the end of the quarter was MNOK 652, a reduction of MNOK 49 from last quarter, and MNOK 289 lower than at the end of 4 th quarter Going forward, the Group expects lower new orders and risk of delays from the customer side on existing orders in the market for car carriers. Although this is replaced by higher activity in the market for RoPax and Cruise, we expect a significantly lower turnover in this segment in RORO, CRUISE, NAVY Q4 Full year MNOK Turnover EBITDA Order backlog CONTAINER/BULK/TANK The business unit reports an EBITDA in line with the same quarter last year. Change of consolidation method from the equity method to full consolidation of the 50% owned company THH from 2 nd quarter 2015, explains the major part of the reported difference in revenue and margin when comparing full year 2016 with Consolidated turnover and EBITDA from THH 2016 (2015) represent MNOK 837 (667) and MNOK 58 (48) respectively. Reported EBITDA in Q further included one-off effects of MNOK 104. Reduced utilization of the Jiangnan steel fabrication plant in China (a company 40% owned by THH) continues to give negative contribution from equity-consolidated investments. For 4 th quarter 2016 (2015) the net contribution from equity consolidated investments was MNOK -3 (MNOK 3). Total 2016 (2015) contribution was MNOK -20 (MNOK 6). The weak market for winches in South-Korea has led to a reduced order intake in 2016 compared to In China however, THH had an order intake in 4 th quarter of around MNOK 170, which is in line with 4 th quarter CONTAINER, BULK, TANK Q4 Full year MNOK Turnover EBITDA ** Order backlog * * Order backlog includes 50% of order reserve in equity consolidated investments in China ** One of effect from consolidating TTS Hua Hai included in full year 2015 of MNOK 104

6 MULTIPURPOSE/GENERAL CARGO The business unit s 4 th quarter 2016 EBITDA excluding impairments is close to zero, a marginal improvement from the same quarter last year. The weak EBITDA margin is due to customer-initiated delays in project deliveries, combined with a slow market. The 2016 order intake was low. We expect the turnaround of the heavy lift market as well as the development of the offshore wind installation market will take longer time than previously expected. Due to this, the business unit has reported impairment of MNOK 118, of which inventories MNOK 20, fixed assets MNOK 16 and goodwill MNOK 82. To reduce the cost base for the business unit and adapt the operations to the current market, we plan a ramp down of the German manufacturing setup. We announce a restructuring program for the unit. This will add restructuring cost of around MNOK 30, which will hit the 1 st quarter 2017 result. MULTIPURPOSE, GENERAL CARGO Q4 Full year MNOK Turnover EBITDA * Order backlog * 2016 EBITDA includes an inventory impairment of MNOK 20 (Q4/16). OFFSHORE The business unit delivers an EBITDA around zero for the fourth consecutive quarter, a result of the continuing adaption of capacity and cost to the market. From the peak in 3 rd quarter 2014, the number of full time employee equivalents has been reduced by around 70%. The offshore market is still weak, with generally low visibility and demand, combined with fierce price competition, and we expect the market to remain challenging throughout 2017 and into However, the business unit has managed to enter into new contracts with acceptable margins. OFFSHORE Q4 Full year MNOK Turnover EBITDA * Order backlog * 2015 EBITDA includes an inventory impairment of MNOK 20 (Q3/15) and a restructuring allocation of MNOK 18 (Q4/15).

7 SHIPYARD SOLUTIONS The 4 th quarter results from the business unit is somewhat below the same quarter last year. Total 2016 EBITDA has improved both for Syncrolift, increased from MNOK 13 to MNOK 17 and for Liftec, increased from MNOK 4 to MNOK 8. This confirms a solid market position in the niche market for shiplifts, transfer systems and other logistics solutions for the production industry. A profit of MNOK 9 from sale of the office/warehouse utilized by TTS Syncrolift AS in 2 nd quarter is included in full year result. TTS Syncrolift, which is a leading ship lift provider, continues its positive trend from previous quarters, with stable positive earnings and order intake. In 1 st quarter 2017, TTS signed an agreement to sell Liftec. The agreed value of the transaction is a gross base price of MEUR 5,8 including net cash, payable at closing, and an earn-out of maximum MEUR 1,8 over the next three years if specific targets are met. The transaction is expected to be completed within the end of February SHIPYARD SOLUTIONS Q4 Full year MNOK Turnover EBITDA Order backlog SERVICES Both turnover and EBITDA for the business unit Services in 4 th quarter 2016 is somewhat reduced compared to 4 th quarter 2015, influenced by the low charter rates in several shipping markets. Although the service market still remains influenced by low ship charter rates and increased competition, particularly within heavy lift equipment, we see a large potential for further development of both spare parts sales and servicing based on TTS' worldwide services network and the substantial installed base of TTS equipment. SERVICES Q4 Full year MNOK Turnover EBITDA

8 The shipbuilding market has experienced significant reduction of activity, with strong competition and price pressure. However, within certain segments, demand and activity are still good. TTS Group is well diversified across market segments, geographical presence and product portfolio. TTS benefits from this position, which gives the company a strong market position in a challenging market. Short term, the low level in the new-building activity is expected to affect TTS turnover negatively. We see a risk of postponements and cancellations in most business units. In addition to the weak offshore market, we particularly see short-term challenges within the car carrier and heavy lift segments. Although the market for Container/Bulk/Tank also remains challenging, we expect stable turn over in the 100% owned units, but somewhat reduced activity in the 50% owned Chinese companies. The market for shiplifts remains strong. For the services sector, we see a large potential for further development of both the spare parts sales and the general service activity. To reduce the cost base for Business unit Multipurpose General Cargo and adapt the operations to the current market, we plan a ramp down of our German manufacturing setup. In February, we announce a restructuring program for the unit. This will add restructuring cost of around MNOK 30, which will hit the first quarter 2017 result. Long term, a positive development of the market is expected in line with increased demand for seaborne transport. TTS Group has a strong ambition to, as a minimum; maintain its share of the overall market. At the end of the quarter, the order backlog was NOK 2,7 billion, of which approximately NOK 1,7 billion is expected to be turned into revenue in This means that about 80% of the expected revenue from new-build activities in 2017 is covered by existing contracts. Expected turnover from the business unit Services is not included in the Group's reported order backlog. TTS Group has a well-established market position as one of the three largest suppliers within its market segments. The company s strong position in China provides a good foothold in the world's largest shipbuilding market, which accounts for 40% of the global shipbuilding. In its further development of a robust strategy on "stand alone" basis, TTS Group focuses on customer base, improving operations, increasing flexibility and reducing cost in order to meet the market competition and increase profitability.

9 TTS GROUP AMOUNTS IN NOK Unaudited Audited Unaudited Unaudited PROFIT AND LOSS ACCOUNT Note YTD YTD Q Q Turnover from projects Total operating turnover Raw materials and consumables used Other operating costs Result from JV ( - is income) EBITDA Depreciation Other depreciation/write-downs Operating profit Financial income Financial expense Net finance Profit/loss before tax Tax Net result continued business Net result divested business Net result * Attributable to equity holders of the company Attributable to non-controlling interests NET RESULT FOR THE YEAR Net result for the period Currency effects Total comprehensive income Attributable to equity holders of the company Attributable to non-controlling interests Earnings per share (NOK) -1,17-0,55-1,11-1,07 Diluted earnings per share (NOK) -1,17-0,55-1,11-1,07 Average number of shares used as calculation basis for diluted EPS (000) * 2016: Net result affected by MNOK from impairment of assets BUMPG * 2015: Net resultat affected by MNOK + 66 from consolidation effects (+104 in BUCBT) and impairment effects (- 38 in BUOFF)

10 TTS GROUP Note Unaudited Audited AMOUNTS IN NOK Intangible assets 6, Tangible assets Financial assets Sum anleggsmidler Inventories Total receivables Bank deposits/cash Total current assets Total assets Share capital Other equity Non-controlling interests Total equity Provisions Long term interest bearing debt Long term liabilities Current interest bearing debt Current liabilities Total current liabilities Total liabilities Total equity and liabilities

11 NOK Share capital Treasury shares Share premium reserve Other equity Shareholders equity Non controlling interest Total equity Equity as of Comprehensive income Share option cost Equity transactions with non controlling interests Equity Closing balance NOK Unaudited Audited AMOUNTS IN NOK EBITDA Change in net current assets Cash from operations (A) Aquisition and sale of non-current assets Other investing activities Cash from investments (B) New loans and repayment Payments to shareholders * Net interest paid Cash from financing ( C) Change in cash (A+B+C) Cash position OB Effect of exchange rate changes on cash Cash position CB * includes payment of dividend to minority shareholders in TTS Hua Hai Co.Ltd.

12 NOTE 1. GENERAL INFORMATION Reporting entity TTS Group ASA is registered and domiciled in Norway, and the head office is located in Bergen. The consolidated financial statements cover TTS Group ASA including its subsidiaries. There has been no change in consolidated companies from Q to Q During 1 st half of 2016, TTS Group established new subsidiaries, which is a part of the overall Service Network expansion. The new subsidiaries are located in Dubai (United Arab Emirates), and in Antwerp (Belgium). As of 2 nd quarter 2015, changes in the joint venture agreement related to the jointly owned 50/50% company TTS Hua Hai Co Ships Equipment Co Ltd. in China, required TTS to change its consolidation method from the equity method to full consolidation. Operation in TTS SCM commenced as of 2 nd quarter 2015, and the company is fully consolidated into TTS accounts. Jointly controlled and associated companies are accounted for using the equity method. The Board of Directors approved the consolidated financial statements for the year ended 31 December 2015 on 19 April The annual report 2015 including the consolidated financial statements for the TTS Group, the separate financial statements for TTS Group ASA and the auditors' opinion from KPMG, are available at our website Basis of preparation TTS Group s financial reports are prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union. The unaudited consolidated financial statements for 4 th quarter 2016 have been prepared in accordance with IAS 34 Interim Financial Statements. The interim accounts do not include all the information required for a full financial statement and should therefore be read in connection with the consolidated financial statements of The accounting principles applied are the same as those described in the consolidated financial statements of This condensed consolidated 4 th quarter interim report of 2016 was approved by the Board on 14 February Judgments, estimates and assumptions The preparation of the interim report requires the use of judgments, estimates and assumptions that affect the application of accounting principles and the reported amounts of assets and liabilities, income and expenses. Actual future outcome may differ from these estimates. In preparing these consolidated interim financial statements, the key assessments made by the management in applying the Group s accounting principles and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the financial year that ended 31 December New standards, amendments and interpretations not yet adopted by TTS: IFRS 9 IFRS 9 replaces the existing guidance in IAS39, and is effective from the annual reporting beginning after 1 January The fair value hedge structure applied by TTS Group is set within the framework of IAS39. TTS is currently assessing the potential impact of IFRS 9, but do not expect any major change or impact on the consolidated financial statements. As per 31 December 2016 the market value of FXderivatives qualifying as fair value hedges is negative by MNOK 43. IFRS 15 IFRS 15 provides a renewed basis for defining revenue recognition principles, affecting both nature, timing, amount and uncertainty of revenue and cash flow arising from an entity's contracts with customers. IFRS 15 is effective from the annual reporting beginning after 1 January TTS is currently assessing the impact from IFRS 15, both related to revenue recognition and impact on customer contracts. The new definition is expected to postpone revenue and margin recognition from customer projects within the RoRo/Cruise/Navy, Offshore, Multipurpose/General Cargo, and Shipyard Solutions segments. The new definitions are expected to have a marginal impact on revenue and margin recognition coming from the segments reflecting our Container/Bulk/Tank, Services and Other. IFRS 16 IFRS 16 principally require lessees to recognize assets and liabilities for all leases. IFRS 16 is effective from the annual reporting beginning after 1 January TTS is currently assessing the impact from IFRS 16. As set out in note 6 to the annual report 2015, committed nominal lease payments at the end of 2015 was MNOK 269, of which MNOK 55 has been paid in Based on the current structure of lease contracts, a 10% discount rate and 3,5% annual increase in nominal leases, our lease assets and lease liabilities as per 1 January will increase by approximately MNOK 160.

13 NOTE 2. SEGMENT INFORMATION TTS Group reports on the following segments. RoRo/Cruise/Navy (BURCN) Container/Bulk/Tank (BUCBT) Offshore (BUOFF) Multipurpose/General cargo (BUMPG) Shipyard Solutions (BUSYS) Services (BUSER) Q4 Q3 Q2 Q1 Full year / YTD Turnover EBITDA Turnover EBITDA Turnover EBITDA Turnover EBITDA Turnover EBITDA RoRo, Cruise, Navy Container, Bulk, Tank Offshore Multipurpose, General Cargo Shipyard Solutions Services Corporate / Other Total BURCN delivers complete cargo handling solutions to RoRo, PCTC, cruise and navy vessels, including terminal loading and passenger systems. Product range includes external and internal ramps, covers and doors, liftable decks, passenger gangways and linkspan systems. BUCBT delivers complete cargo handling solutions to the container, tanker and bulk vessels. Product range includes t winches, t cranes and specialized hatch covers designs. BUOFF delivers support solutions to the offshore based oil industry and the supporting service industry. Product range includes t offshore cranes, t active heave compensated cranes, mooring winches, internal and external covers and doors. BUMPG delivers supporting solutions to the vessels which is designed to operate in the multipurpose or general cargo market, requiring specialized operating capabilities. Product range includes t heavy lift cranes, side loading systems, hatch covers and mooring winches. BUSYS includes shiplift and transfer systems, as well as complete production lines to the yard industry. Product range includes ship lift system, ship transfer systems, multiwheelers and translifters. BUSER includes service and after sales for all segments within TTS. This enables TTS to offer service and after sale worldwide for the full range of its products.

14 NOTE 3. SHARE CAPITAL AND EQUITY As per 31 December 2016 TTS Group ASA has issued shares, each with a face value of NOK 0.11 giving a share capital of total NOK TTS Group ASA holds own shares. No options or other equity instruments have been awarded in At period closing there are conversion rights related to the subordinated convertible bond. In addition, senior employees holds share options with a strike price of NOTE 4. EARNINGS PER SHARE Earnings per share (EPS) is based upon the weighted average number of shares outstanding during the period. Diluted EPS includes the effect of the assumed conversion of potentially dilutive instruments. Instruments that have a positive intrinsic value has been included in dilution effects. YTD YTD Q Q Net income available to shareholders Effect of dilution Diluted net income available to shareholders Weighted average number of shares outstanding Effect of dilution Diluted numbers of shares Earnings per share (NOK) -1,17-0,55-1,11-1,07 Diluted earnings per share (NOK) -1,17-0,55-1,11-1,07 Closing price at Oslo Stock Exchange per 31 December 2016 was NOK NOTE 5. RELATED PARTIES Note 21 and accounting principles section 2.2 in the consolidated financial statements of 2015 describe the principles related to elimination of transactions between group subsidiaries. Eliminated transactions have no significance for the financial position and profit for the period. The Group has carried out various transactions with subsidiaries and joint ventures. All the transactions have been carried out as part of the ordinary operations and at arm s length prices. Balance sheet items to/from Joint Ventures Current receivables Current liabilities Net receivables (+) / liabilities (-) to/from Joint Ventures

15 NOTE 6. TAX TTS Group is taxable in more than one jurisdiction based on its operations. A loss in one jurisdiction may not be offset against taxable income in another jurisdiction. Thus, the Group may pay tax within some jurisdictions even though it might have an overall loss or have tax losses exceeding taxable profit at the consolidated level. Deferred tax Deferred income tax reflects the impact of temporary differences between the amount of assets and liabilities recognized for financial purposes and such amounts recognized for tax purposes. The net recognized deferred tax consists of the following: AMOUNTS IN NOK Gross deferred tax asset Gross deferred tax liability Net deferred tax asset (+) / liability (-) ) Gross deferred tax asset is recognized as intangible assets and gross deferred tax liability is recognized as provisions Recognized deferred tax asset primarily relates to tax losses in the Norwegian and German companies, as well as short term tax differences from the Chinese companies. The criteria that have been utilized to estimate that future taxable profit can be utilized have been unchanged during the year.

16 NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS TTS Group tests the value of goodwill and other intangible assets annually or at the end of each reporting period if any indication that the assets may be impaired. TTS shares are freely traded at Oslo Stock Exchange. Closing price of last trading date in December 2016 was NOK 3,78 per share, indicating a nominal trade value of TTS of MNOK 327. Book value of equity at 31 December 2016 was MNOK 439 excluding minority interest. At the end of the current reporting period, TTS Group has not identified any changes in the overall financial market that give basis for a significant change in the average cost of capital. The CGU "NMF", which was acquired in the 3 rd quarter of 2012, encompass the activities within the legal entities TTS NMF GmbH - Germany, and TTS SCM - China. EBITDA in the 4 th quarter 2016, excluding impairments, is around zero, a marginal improvement from the same quarter last year. The weak EBITDA margin reflects customer-initiated delays in project deliveries, combined with a slow market, which reduces overall utilization. Low charter rates combined with available unutilized tonnage from other marine sectors have delayed or cancelled investment prospects in new tonnage relevant to the CGU, which is reflected in a low order intake during TTS expects that the turnaround of the heavy lift market, as well as the development of the offshore wind installation market will take longer time than previously expected. Consequently, the book value of goodwill allocated to the CGU has been impaired by MNOK 82 in 4 th quarter An additional impairment of fixed assets by MNOK 16, and inventories by MNOK 20, in the CGU in 4 th quarter 2016 reflects a reduction of short-term/mid-term utilization of resources. During the past two years, the CGU "Offshore Solutions" in TTS has experienced substantial losses, combined with a low order intake. Changes in the segment structure combined with market conditions which remain challenging, gave basis for impairment of goodwill in The market development in 2016 is still weak. The book value of intangible assets in BUOFF is approximately MNOK 10 with a planned straight-line depreciation of close to MNOK 4 per year. The CGU "Liftec" is a well-recognized supplier within the European niche market for translifters based on the activities within the legal entity TTS Liftec Oy. Based on market outlook and margins at yearend 2015, an impairment of goodwill of MEUR 2 (~MNOK 19) was allocated to the 4 th quarter As of 2 February 2017, TTS Group has entered into a sales agreement of the shares in TTS Liftec OY. The sale is expected to give basis for a gain allocated to 1 st quarter The gain reflects the company's improved performance and market development during 2016 compared to expectations at year-end The CGU "Marine AB" has over the past years delivered improving turnover, and acceptable project margins. In 2016, we see a decrease in turnover and margin compared to last year. The reduction of margin is an effect of changes in the product mix, as well as losses on a few specific projects. Going forward, the Group expects lower new orders and risk of delays on existing orders in the market for car carriers. Although this is replaced by higher activity in the market for RoPax and Cruise, we expect a significantly lower turnover in this segment in Even after taking reduced market expectations into account, the expected future net cash flows from the CGU support that value in use exceeds book value. TTS Group considers that there are no major events, changes in assumptions or other new information indicating a change in the valuation of goodwill or other intangible assets from year-end 2015 in the other business segments. Estimates related to future market expectations could have material impact on the impairment test. Goodwill Other intangible assets AMOUNTS IN NOK Net book value, beginning of period Acquisition Divestment Additions Depreciations/Amortizations Impairment Foreign currency differences Net book value, end of period

17 NOTE 8. NON-CURRENT ASSETS AMOUNTS IN NOK Net book value, beginning of period Acquisition Divestment - - Additions Depreciations/Amortizations Impairment Foreign currency differences Net book value, end of period TTS recorded an MNOK 16 impairment of fixed assets in the Multipurpose/ General Cargo segment in 4 th quarter Higher cost of producing standardized heavy lift equipment in European high-cost countries has a negative impact on competitiveness, and hence on equipment utilization. The impairment reflects an expected reduction of utilization of the production equipment in Hamburg. NOTE 9. EQUITY ACCOUNTED INVESTMENTS AMOUNTS IN NOK Net book value, beginning of period Acquisition Divestment - - Reclassification Share of profit (+) / loss (-) Share of dividend received - - Foreign currency differences Net book value, end of period As per 31 December 2016, equity accounted investments include TTS Bo Hai Machinery Co Ltd. in which TTS Group ASA holds 50% of the shares, and Jiangnan TTS Ships Equipment Manufacturing Co Ltd. in which TTS Hua Hai Ltd. holds a 40% share portion. Both units are reported as part of the Container/Bulk/Tank segment. Losses in 2016 relates to the running operation of the steel production factory in Jiangnan.

18 NOTE 10. INVENTORIES AMOUNTS IN NOK Inventories, incl non current Obsolescence Total inventories In 4 th quarter 2016, TTS recorded an MNOK 20 obsolescence accrual of inventory in the Multipurpose/General Cargo segment. The accrual is a consequence of reduced potential to utilize parts of the inventory towards ongoing projects. NOTE 11. CHANGE OF CONTROL IN 50/50 OWNED COMPANIES Governing agreements for the 50/50 owned company, TTS Hua Hai Ships Equipment Ltd Co. were changed in 2 nd quarter 2015, and lead to THH being fully consolidated as from 2 nd quarter Please find additional information on the 2015 effects in TTS Annual report 2015, note 27.

19 NOTE 12. FINANCIAL RISK MANAGEMENT The Group's objectives and principles of financial risk management are consistent with what is stated in the consolidated financial statements for the fiscal year On 17 December 2015, the bondholders agreed to an extension of the subordinated debt until 18 April The TTS General Assembly approved the extension 5 January The amendments mainly involves a 15-month extension of the maturity date from 18 January 2016 to 18 April 2017, and a change of fixed coupon rate from 8% to 12%p.a. Changes also include minor amendments to conversion and redemption provisions. Terms and conditions in the renewed agreement have been evaluated according to IAS 39. Based on the evaluation the renewed agreement is considered a prolonging of the prior bond debt agreement. There has been no execution related to the subordinated bond facility during The nominal amount and conversion price of the convertible bond loan is unchanged from 4 th quarter 2015 and is MNOK 95.3, giving right to shares upon full conversion. The subordinated convertible bond debt is classified as short term debt as per 31 December The group has initiated a process to refinance/prolong the subordinated convertible bond loan in 1 st quarter The debt covenants from 1Q 2017 are: On 19 December 2016, TTS Group ASA entered into an agreement with Nordea and DNB on new financing agreements for credit and guarantee facilities, which represents an extension of the agreements the company had at the beginning of the prior fiscal year. The extended agreements expire on 1 January The credit facility in the agreement is MNOK, consisting of: MNOK 173, term loan facility (DNB) MNOK 100, term loan facility (Nordea) MNOK 200, multi-currency overdraft facility (Nordea) MNOK 600, guarantee facility (Nordea MNOK 465, DNB MNOK 135) The term loan facilities are classified as long term debt as per 31 December Overdraft facilities is classified as short-term debt. The debt covenants per 4Q/2016 are not changed: Accumulated EBITDA for 2016 > MNOK 100 Equity ratio > 25% (nominal value of remaining bonddebt is to be included in the basis of calculation) Minimum liquidity reserve (MNOK 50) At end of 4 th quarter 2016 TTS Group meet the set covenants. TTS Korea has prolonged its prior credit facilities with Kookmin Bank in Korea, of which MNOK 25 was drawn. The credit facility is classified as short-term debt. At the end of 4 th quarter 2016, TTS Group has drawn MNOK 173 out of the total MNOK 173 loan facility with DNB. TTS group has drawn MNOK 178 of the total MNOK 300 loan and overdraft facilities with Nordea. Bank loan covenants 1Q Q Q Q Q 2018 NIBD * / EBITDA ** maximum 4, Equity *** minimum 24 % 24 % 25 % Minimum liquidity reserve MNOK 50 MNOK 50 MNOK 50 * NIBD = Net interest bearing debt, excluding subordinated convertible bond loan, and including 50%of cash from 50%owned consolidated subsidiaries ** EBITDA from 100%owned companies + 50%of EBITDA from 50%owned consolidated subsidiaries, adjusted for one-time effects, including impairment, restructuring, gainsfrom sale of businesses and changes of accounting regulations *** Equity, including subordinated convertible bond loan Consolidation of TTS Hua Hai and TTS SCM has significant effects on the cash flow and presented cash in the balance. Cash within the 50/50 companies is not available to other companies within TTS AMOUNTS IN NOK Bank deposits in fully owned companies Bank deposits in 50/50 owned companies Bank deposits An overall description of debt facilities, and additional information regarding financial risk management is available as part of the notes to the annual report 2015.

20 NOTE 13. SUBSEQUENT EVENTS Major events reported to Oslo Stock Exchange after 31 st December 2016 On 2 February 2017, TTS signed an agreement with the Danish company Novatech ApS to sell TTS Liftec Oy. Revenues in 2016 was MEUR 12, with an EBITDA of MEUR 0.9. The agreed value of the transaction is a gross base price of MEUR 5,8 including net cash, payable at closing, and an earn-out of maximum MEUR 1,8 over the next three years if specific targets are met. In accordance with the company's bank loan agreements, 50% of the proceeds from the sale of TTS Liftec Oy will be applied as down payment on existing term loans. Additional information on subsequent events is available at ticker TTS.

21 Shareholders per Shares Share portion SKEIE TECHNOLOGY AS 1) ,2 % RASMUSSENGRUPPEN AS ,3 % SKEIE CAPITAL INVESTMENT AS 1) ,9 % BARRUS CAPITAL AS ,0 % HOLBERG NORGE ,8 % PIMA AS ,5 % SKAGEN VEKST ,8 % CIPI LAMP UCITS SWEDBANK SMB ,6 % MERTOUN CAPITAL AS ,0 % DANSKE BANK AS ,8 % ITLUTION AS ,7 % KRISTIANRO AS ,3 % SKANDINAVISKA ENSKILDA BANKEN AB ,2 % AVANT AS ,2 % AVANZA BANK AB ,1 % RBC INVESTOR SERVICES BANK S.A ,9 % NORDNET BANK AB ,9 % PHAROS INVEST I AS ,8 % GLASTAD INVEST AS ,8 % SIX-SEVEN AS ,6 % TRYM SKEIE 1) ,4 % SKEIE CONSULTANTS AS 1) ,3 % SKEIE ALPHA INVEST AS 1) ,3 % Other ,8 % ,0 % 1) Shares ow ned or controlled by members of the Skeie family. Conversion Share portion if Bondholders as per rights fully diluted MP PENSJON PK ,7 % SKEIE TECHNOLOGY AS 1) ,7 % Skandinaviska Enskilda Banken AB NOM ,6 % DANSKE BANK A/S NOM ,2 % SKEIE CONSULTANTS AS 1) ,1 % AKERSHUS FYLKESKOMM. PENSJONSKASSE ,8 % TAMAFE HOLDING AS 1) ,8 % MERTOUN CAPITAL AS ,8 % SKEIE CAPITAL INVESTMENT AS 1) ,7 % Other ,9 % ,1 % 1) Shares ow ned or controlled by members of the Skeie family.

22 TTS Group ASA Folke Bernadottes vei 38 P.O. Box 3577 Fyllingsdalen NO-5845 Bergen, Norway Organization: NO TTSGROUP.COM