TTS continuously. generating profits. by being the preferred. global supplier for. handling equipment. to the maritime and. oil & gas industry.

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1 A N N U A L R E P O R T

2 TTS continuously generating profits by being the preferred global supplier for handling equipment to the maritime and oil & gas industry. 2

3 Port and material handling equipment Yard equipment Heavy load equipment Port equipment Maritime RoRo-equipment Hatch covers Side doors Cruise- and Yachtequipment Hose handling cranes Cargo cranes Davits Anchor- and mooringwinches On-/offshore Offshore cranes Offshore handling equipment Drilling equipment Drilling packages HMI & Controls

4 This is TTS ESTABLISHMENTS 1966 TTS is established TTS is listed on Oslo Stock Exchange TTS establishes joint venture in Shanghai, China TTS establishes Rep. Office in Pusan, Korea TTS establishes TTS Bohai in Dalian, China TTS establishes TTS Marine Inc. in Florida, USA TTS establishes TTS Marine s.r.l. in Genova, Italy TTS establishes TTS Vietnam, Haiphong, Vietnam TTS establishes Sense Drill Fab AS, Norway TTS establishes Sense EDM Pte Ltd, Singapore TTS establishes TTS Keyon Marine, Zhangjiagang, China TTS establishes Jiangnan TTS, Nantong, China. ACQUISITIONS/SALES 1996 TTS acquires Mongstad Engineering AS, Bergen, Norway TTS acquires Norlift AS, Bergen, Norway TTS acquires Aktro AS, Molde, Norway TTS sells TTS Construction AS, Bergen, Norway TTS acquires Hamworthy KSE AB, Dry Cargo Division. ANNUAL TURNOVER NOK MILL TTS acquires Hydralift Marine, and sell TTS-Aktro AS TTS acquires 100 % of joint venture in Shanghai, China TTS acquires LMG, Lübeck, Germany TTS acquires Liftec Oy, Tampere, Finland TTS acquires NavCiv Engineering AB, Gothenburg, Sweden TTS acquires Kocks GmbH, Bremen, Germany TTS acquires ICD Projects AS, Ålesund, Norway TTS acquires 100 % of joint venture in Pusan, Korea TTS acquires Sense EDM AS, Kristiansand, Norway TTS acquires 100% Sense MUD AS, Kristiansand, Norway TTS acquires Wellquip Holding AS, Kristiansand, Norway Port and Material Handling Equipment Offshore and Drilling Equipment Marine Equipment 4

5 Companies in the TTS Group Sales and service network TTS is an international group which develops and supplies handling equipment to the marine and oil & gas industry. The operations are divided into five divisions: Marine Cranes, Dry Cargo Handling, Port & Material Handling, Deck Machinery, Drilling Equipment. TTS is the second largest supplier in the world within its market segments. TTS has a workforce of 1250 employees with main emphasis on engineering expertise. The group has subsidiaries in Norway, Sweden, Finland, Germany, China, USA, Italy, Czech Republic, Korea, Canada, Vietnam and Singapore. TTS Marine ASA is headquartered in Bergen, Norway and listed on the Oslo Stock Exchange. 5

6 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Financial highlights 2007 IFRS IFRS IFRS IFRS NGAAP PROFIT AND LOSS ACCOUNT (NOK 1 000) Operating income Operating profit/loss before depresiation (EBITDA) Operating profit/loss (EBIT) Pre-tax profit/loss Net profit/loss BALANCE SHEET (NOK 1 000)) Fixed assets Current assets Total assets Equity Long-term liabilities Current liabilities Total equity and liabilities KEY RATIOS FINANCIAL STRENGTH Equity to assets ratio (as a percentage of total capital) 30.1 % 36.6 % 33.4 % 32.6 % 30.9 % PROFITABILITY EBITDA margin 6.8 % 6.7 % 6.4 % 5.7 % 2.7 % EBIT margin 5.5 % 6.1 % 5.8 % 4.9 % 0.1 % Profit margin (pre-tax) 4.0 % 5.3 % 4.9 % 4.0 % -0.2 % Profit margin (after tax) 3.2 % 3.8 % 3.5 % 2.8 % 0.1 % RATE OF RETURN Return on equity 10.5 % 14.1 % 14.3 % 12.0 % -0.5 % Return on total capital 4.3 % 5.5 % 5.0 % 4.5 % -0.4 % SHARES Equity per share Earnings per share (NOK) Number of shares, end of year Average number of shares Nominal value, end of year DEFINITIONS Earnings per share: Profit after taxes divided on total number of shares at the end of the fiscal year. Profitability, equity: Profit before tax as a percentage of equity. Profitability, total capital: Operating profit as a percentage of total capital. 6

7 TURNOVER NOK million TURNOVER 2006 DM 16 % PMH 11 % MC 28 % DCH 45 % ORDER BACKLOG 2006 DRY CARGO HANDLING MNOK Turnover EBITDA Order backlog per MARINE CRANES MNOK Turnover EBITDA Order backlog per EBITDA NOK million DM 20 % PMH 7 % MC 26 % DCH 47 % DECK MACHINERY MNOK Turnover EBITDA Order backlog per ORDER BACKLOG NOK million 6949 TURNOVER 2007 DM 12 % DE 10 % PMH 14 % MC 28 % DCH 36 % ORDER BACKLOG 2007 PORT AND MATERIAL HANDLING MNOK Turnover EBITDA Order backlog per DRILLING EQUIPMENT* MNOK Turnover EBITDA Order backlog per *) The takeover of Sense EDM AS and subsidiaries was made effective as of PMH 3 % DM 10 % DE 14 % DCH 38 % 588 MC 35 %

8 Key events 2007 FOR THE FOURTH YEAR RUNNING, TTS reported a record turnover and its best result ever. Turnover increased by 53 percent to NOK million, and earnings before depreciation (EBITDA) increased by 55 percent to NOK million. AT THE START OF THE NEW YEAR, TTS had an order backlog of NOK million. This is a 344 percent increase from the year before, and the highest level ever recorded in the history of the company. The order intake remains steady within all areas of operation. TTS MADE A COMEBACK into the offshore cranes market and landed contracts worth about NOK 600 million. Through acquisitions, the TTS Group has gained access to advanced technology for lifting equipment for offshore vessels and for operations at great ocean depths. THROUGH THE ACQUISITION of Sense EDM and Wellquip, TTS made drilling equipment a new business segment. The Drilling Equipment Division has signed its first contracts for complete drilling packages and, as of February 2008, the division had an order backlog of about NOK million. TTS CONTINUES ITS SUCCESS in China in the business segment ships equipment. To ensure its ability to deliver and its competitiveness, the TTS Group has become partowner in Chinese companies manufacturing steel structures. BASED ON SOLID RESULTS in 2007, TTS has proposed that a resolution be passed at the annual general meeting for a dividend payment to the shareholders of NOK 1.25 per share. TTS STRENGTHENED the company s capital base by means of an increase in share capital by NOK 290 million and successful establishment of unsecured debentures of NOK 500 million. 8

9 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Heading toward new and higher goals PRESIDENT & CEO JOHANNES NETELAND PRESIDENT & CEO TTS MARINE ASA According to the World Economic Forum, 2008 might just become the most demanding year in several decades for corporate leaders all over the world. The financial market is balancing on the brink of a serious system crisis, the dollar continues to weaken, and USA is threatened by an economic recession that could negatively affect Europe. The price of food and energy continues to rise, while globalisation may be put on hold. In a situation marked by great uncertainty with regard to how the world economy will develop, TTS s goal of a 45 percent growth in turnover this year could be construed as audacious. In addition, we expect strong growth in 2008 to be followed by an additional increase in 2009 and We have further reason to believe that the anticipated increase in turnover will be reflected on the bottom line. We have made one reservation however; should pessimism become predominant and global economy essentially fold, this could lead to delays and cancellations of deliveries on orders from TTS, which in turn would likely have consequences for our operations and results. Assessing the likelihood of this scenario is left to the financial analysts. For those of us working in and serving the market for handling equipment for ships, shipyards and offshore installations, this scenario does, however, appear somewhat remote. Quite the contrary; the demand for our products and services has never been higher. The situation is the same for many of our subcontractors. Therefore, our greatest challenge at present is to produce and deliver components that constitute part of our deliveries on time. In this perspective, a slightly less pressured market might have been preferable, but we are in no way complaining. We feel privileged to have customers with confidence in our products and services on most of the world s continents. We work hard and are determined to meet all our customers expectations, and overall we succeed in doing so. We work well with our subcontractors, and we have taken some strategic and successful steps toward preventing any of the capacity issues that generally follow from a pressured market. We set off in 2007 with a clear ambition of a comeback, following a five-year break from the offshore market. At first, our main focus was to develop our expertise in the market for cranes for offshore vessels. This effort has yielded solid results, and will have a significant effect on turnover and results over the next few years. Through the acquisition of ICD Projects in Ålesund, we secured access to important technology and, with this 9

10 We believe that with our diversified industrial base and expertise, we have all chance of continuing our success not only in 2008, but for many years into the future. JOHANNES D. NETELAND, PRESIDENT & CEO starting point, we have established Centres of Excellence in Os outside Bergen and in Kristiansand that will play an important role in our ability to serve this market. Overall, we are well positioned in the market for handling equipment for fixed and floating installations. Through the acquisition of Sense EDM, we have taken a leap into a new business segment for TTS; rigs and equipment for drilling operations both onshore and offshore. Shortly after the establishment of the Drilling Equipment Division, we landed our first contract for a complete package delivery of drilling equipment to a shipyard in Singapore, worth about NOK 385 million. Later on, we entered into yet another contract for a similar drilling package. In addition to this, we have made considerable investments into the development of a concept for landbased rigs, and are now well under way with a compre hensive delivery program. To further strengthen our expertise in drilling technology, we acquired of the company Wellquip Holding AS in Kristiansand at the turn of the year. With that, the foundation has been laid for a high level of activity and solid results in the Drilling Equipment Division, both in 2008 and in the years to come. TTS s business concept is to supply equipment for the maritime industry that satisfies the market s 10

11 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS requirements and expectations, thereby strengthening our customers productivity and value creation. Our expertise and resources are focused on design and engineering, as well as assembly and testing of products. After-sales and service are important in our value chain, while we have primarily based ourselves on purchasing steel structures and various components that constitute part of a total delivery from subcontractors. In 2007, we entered into an agreement with the owners of the privately owned company Keyon in China, a company that manufactures steel structures for cranes and other ships equipment. Our intention was to obtain a firmer grip of supplies to our companies both in and outside of China. At the time of TTS entry into the company, which has now been given the name TTS Keyon Marine Equipment, production capacity was about tons of steel a year. Already plans have been made for considerable expansions, thereby reducing the vulnerability associated with deliveries from external suppliers. For the same TTS delivered an all time high in 2007, with earnings before depreciation of NOK million, a growth of NOK 60.7 million from the year before. Each of the four established divisions improved their results, and as already mentioned, we lay a solid foundation for the new Drilling Equipment Division to contribute positively over the years to come. The order backlog at the start of 2008 was a whole of NOK 7 billion, and our order books are continuing to fill up. We are prepared for a slowdown of the markets for parts of our productline in the longer run; however, we believe that with our diversified industrial base and expertise, we have all chance of continuing our success not only in 2008, but for many years into the future. As a brand name, TTS is stronger than ever, and our appetite for venturing into segments that may further complete our products and services has not been lessened. Therefore, we invite all those who have faith in our strategy and philosophy, to join us on our journey toward new and higher goals! reason, TTS entered into an agreement toward the end of the year, in which the joint venture company in Shanghai, TTS Hua Hai Ships Equipment, became part-owner with a 40 percent ownership interest in Johannes D. Neteland PRESIDENT & CEO a company in Nantong that will deliver hatch covers to shipyards in China. 11

12 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Dry Cargo Handling Division 2007 saw the Dry Cargo Handling Division continue its solid growth in turnover and results, as well as reporting a formidable order intake. The market outlook for the coming years remains excellent. T HE COMPANY HAS CONSOLIDATED its position as leading supplier of marine cargo handling systems, reflected in an order backlog that will secure a high level of activity for many years to come. The Dry Cargo Handling Division is the largest division of TTS and historically the group s most profitable division. Through participation in two joint ventures in China manufacturing steel structures, TTS has strengthened its control over the value chain in a way that will have both short-term and long-term implications for TTS positing as leading supplier of cargo handling equipment. The Dry Cargo Handling Division primarily supplies Ro-Ro equipment, hatch covers, side-loading systems as well as equipment for cruise ships, passenger ships and mega yachts. The division is also involved in TTS focus on supplying equipment for offshore vessels, in addition to having a high level of activity in the after-sales market through its global network of sales agents and service stations. The division is managed out of Gothenburg in Sweden and has operations in Germany, Norway, Italy, USA and Vietnam. In China, the Dry Cargo Handling Division participates with a 50 percent ownership interest in a joint venture company in Shanghai in partnership with the Chinese shipbuilding group China State Shipbuilding Corporation (CSSC). The company is showing excellent development. In 2007, the division furthermore entered into an agreement regarding 50 percent joint venture in the privately owned manufacturing company Keyon. This company manufactures steel structures for hatch covers and Ro-Ro equipment, and will also be delivering steel structures for cranes. The basis for TTS entry into this market is the need to secure steel supplies for TTS Group s other operations. The joint venture company in Shanghai has, for the same reason, entered into agreement with the company Jiangnan Heavy Industries regarding a 40 percent participation in a company that will manufacture hatch covers. The Dry Cargo Handling Division has 470 employees, whereof 86 are based in Sweden, 23 in Norway, 57 in Germany, six in Italy, seven in the USA, 285 in China and six in Vietnam. Stellan Bernsro has been Head of the Dry Cargo Handling Division since Bernsro trained as a naval officer and holds a degree in civil engineering, and is also Managing Director of TTS Ships Equipment AB. - TTS global orientation, expansive strategy, high level of expertise and ability to deliver, is fast making us the preferred business partner for shipping companies and shipyards. Our order books are showing an increasing number of large contracts, in both extent and complexity. This has contributed to a greater predictability in the planning and implementation of our deliveries, and lays a long-term and solid foundation for profitable operations in our business units, says Stellan Bernsro. Operations The Dry Cargo Handling Division has historically focused primarily on design and engineering. To an extent this has now changed, seeing that TTS has participated with ownership interest in two manufacturing companies. Over the past few years, the division has seen an increasing share of its deliveries associated to equipment for car carriers. These are purpose-built vessels, designed for the transportation of a large number of cars within, as well as between, continents. TTS is among the world s leading suppliers in this niche of the Ro-Ro market. 12 Two of the division s other significant business segments are supplying hatch covers for container vessels, dry cargo carriers and dry bulk carriers, as well as supplying equipment for cruise ships. Another speciality is side-loading systems for various ship types. On the basis of an increased environmental awareness in the shipping companies, the division has placed emphasis on the development of products that minimize energy consumption and do not negatively affect the environment. The joint venture company, TTS Hua Hai Ships Equipment Co. Ltd. in Shanghai in China, designs and manufactures hatch covers for Chinese shipyards. With regard to the manufacturing company Keyon Marine Equipment, the plans are to increase manning and capacity to meet the demands for steel structures for production of ships equipment. On the basis of an increasing level of activity, the division is preparing to increase manning, in particular in Sweden, Norway and Germany. TTS is generally successful in retaining qualified personnel. Market outlook At the start of 2008, the Dry Cargo Handling Division had a total order backlog of NOK million, an increase of NOK million since the start of This figure includes the order backlog of the joint venture company TTS Hua Hai Ships Equipment. By a consolidated presence in all relevant markets, most recently through the establishment of a sales and representative office in Haiphong in Vietnam in 2006, TTS is working to ensure enhanced service to shipyards and shipping companies. In addition to its own presence in the market, TTS makes a point of cooperating with local suppliers. The demand for Ro-Ro vessels, in particular car carriers, was unusually high in With regard to 2008 and the following years, a slightly lower order intake is expected. The markets for equipment for cruise ships and mega yachts are expected to remain steady. Deliveries to container ships and bulk carriers will remain at a high level over the coming years due to the high level of contracting of new vessels. Overall, the market outlook for cargo handling equipment, which constitutes the main part of the Dry Cargo Handling Division s product portfolio, remains extremely promising, both for 2008 and the following years. Operating margin is expected to be maintained at an acceptable level. Strategy The Dry Cargo Handling Division will continue to have a strong focus on marketing and sales in all established markets. TTS considers targeting other Asian countries with increasing levels of activity within ship building. Service and support to operators and shipping companies will be further strengthened. Through the establishment of a collective organisation in China, TTS will utilise synergies within purchasing and quality control. The Dry Cargo Handling Division will continue to place emphasis on the development of new equipment and concepts that may provide improved cargo handling with lower environmental impact. The recruitment of employees with engineering expertise within shipbuilding is given high priority.

13 TURNOVER NOK million 874 ORDER BACKLOG NOK million STELLAN BERNSRO DIRECTOR DIVISION DRY CARGO HANDLING The Dry Cargo Handling Division will continue to concentrate on the development of new products and solutions that may improve cargo handling with a lower environmental impact. 13

14 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Marine Cranes Division In 2007, the Marine Cranes Division accomplished a successful re-entry into the offshore cranes market. The organisational restructuring in the division over the past few years has manifested itself in a record growth in turnover and a significant growth in profits. T TS DEVELOPS and supplies marine cranes to ships and offshore vessels. The company is the world s leading supplier of hose handling cranes, and holds a strong position in the market for provision cranes and cargo cranes. In 2007, the company resumed its marketing of cranes to the offshore market, resulting in a total order intake of approximately NOK 600 million. The Marine Cranes Division is managed from Bergen in Norway, and has operations in Kristiansand in Norway, Lübeck in Germany and Shanghai and Dalian in China, of which the last-mentioned is a joint venture with the stateowned shipbuilding group DSIC (Dalian State Industrial Corporation). Furthermore, the division has a sales and service office in Korea. As part of the targeting of the offshore market, TTS in 2007 acquired an engineering company in Ålesund, specialising in lifting equipment with active heave compensation. In addition to this, Centres of Excellence for various types of lifting equipment for fixed and floating installations have been established in Os outside of Bergen, and in Kristiansand. The division has 388 employees, of which 174 are based in Norway, 147 in China, 61 in Germany and six in South- Korea. Ivar K. Hanson has been Head of the Marine Cranes Division since He holds a degree in business and economics, as well as a degree in mechanical engineering, and has worked for TTS for a total of 13 years. - TTS has succeeded in building up a well-functioning global corporation that supplies a wide range of cranes for ships and offshore installations. Due to a marked increase in contracting of bulk carriers, the division experienced an extraordinary order intake for cargo cranes in Furthermore, our comeback into the offshore market, after five years quarantine, was very well received. Turnover increased in all units, and overall we are on the right track to achieve an acceptable operating margin level. Capacity has been strengthened in order to handle a higher volume, says Hanson. He further points out that the high level of activity in the market is creating a demanding task of getting components delivered from cooperating partners within the set deadlines. Moreover, the division still faces a challenge in securing sufficient access to qualified personnel, in particular in Norway and Germany. Operations The division is organised with product development and sale of cylinder cranes taking place primarily in Bergen, while product development and sale of wire luffing cranes take place in Lübeck, Germany. After-sales, service and industrial products are handled by the office in Kristiansand. The development and sale of purpose-built cranes for offshore vessels are managed from Bergen. The branch in Ålesund, with the support of corresponding Centres of Excellence in Os and Kristiansand, develops control systems and software for winches for deep-sea cranes. TTS has documented expertise on systems that ensure efficient cargo handling even in very rough seas, so-called active heave compensation. The fully owned company in Shanghai carries out engineering, project management, assembly and follow-up of deliveries to shipowners and shipyards in Asian markets outside of China. Moreover, the company functions as purchasing office for the entire TTS Group. As part of the organisational restructuring of the Marine Cranes Division, the responsibility for seeing through deliveries of standard marine cranes has, for the most part, been transferred to TTS Marine Shanghai and the joint venture company TTS Bohai Machinery in Dalian. TTS production of steel structures and equipment for cranes is generally based on subcontractors in low-cost countries. Deliveries in Europe are assembled and tested in Bergen and Lübeck. Deliveries in China are assembled and tested at the facility in Dalian, while deliveries to the Korean market are handled by the company in Shanghai. Market outlook At the start of 2008, the total order backlog of the Marine Cranes Division had reached NOK million, including the order backlog of TTS Bohai Machinery. This is an increase of NOK million compared to the previous year. The predominant part of the order intake was cargo cranes ordered at TTS-LMG Marine Cranes in Germany. These cranes will primarily be produced and delivered from TTS operations in China. Both the facilities in Shanghai and in Dalian have implemented considerable expansions of capacity in order to handle the high volume of orders. The marine cranes market is driven by the activity level of newbuildings and ship upgrading. The total order intake is expected to be lower in 2008 than in 2007, but will still maintain a high level in both the European and the Asian market. In 2007, TTS built up a considerable order backlog in the offshore market, where deliveries will come mainly in 2008 and the following years. In addition the purpose-built cranes for offshore vessels, TTS is approaching the markets for deepwater cranes, anchor handling/ towing winches and deepwater winches for subsea lifts beyond a depth of meters. Strategy TTS will further strengthen its efforts in the global markets for cranes for ships and offshore vessels. In addition to this, there is other handling equipment for offshore use, where particular focus is given to deliveries of advanced technology to the deepwater subsea industry. In order for the Marine Cranes Division to continue its progress within its defined business segments, TTS has planned to substantially increase manning during 2008, in both Europe and China. The division will furthermore extend its efforts relating to after-sales and service. 14

15 TURNOVER NOK million 688 ORDER BACKLOG NOK million IVAR K. HANSON DIRECTOR DIVISION MARINE CRANES After a year where our customers have given us their vote of confidence by placing a record high number of orders, our primary focus is to deliver our products at the agreed time and to the agreed quality, while maintaining the positive development of the division s margins. 15

16 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Port and Material Handling Division 2007 was a very good year for the Port and Material Handling Division, with a near doubling of turnover and results. Future prospects for the division s products are thought to be extremely promising. T HE PORT AND MATERIAL HANDLING DIVISION S primary products are shipyard equipment and equipment for handling containers in ports. This business segment is in dynamic growth, and is less sensitive to market fluctuations than other parts of TTS operations. The Port and Material Handling Division is managed from Gothenburg in Sweden, and has also operations in Finland and Norway. In all, the division has 56 employees, of which 12 are based in Sweden, 18 in Norway and 26 in Finland. Göran Johansson is Head of the Port and Material Handling Division. He was formerly Head of the Dry Cargo Handling Division as well as Managing Director of TTS Ships Equipment AB. Johansson is a naval architect and engineer, and managed Hamworthy KSE AB, Dry Cargo Handling Division, from 1995 up until its incorporation into the TTS Group. In 2007, TTS experienced strong growth in the market for production lines to shipyards, and carried out several installations in China and India. The division also made several deliveries of heavy load handling systems to shipyards, and furthermore, the demand for equipment for material handling in the heavy industry has been at a high level. In Venice, TTS is assisting with equipment that will be employed in the transport of large concrete structures weighing tons each, in connection with a project to prevent the sea flooding the city, says Göran Johansson. With regard to port equipment, the development has been very positive too. In 2007, TTS landed a contract for the delivery of an advanced passenger gangway for the new port facilities at Risavika in Stavanger. In addition to this, another contract for the delivery of cassette systems and translifters to a port in Spain was entered into in This year, we have reaped the benefits of our marketing efforts in the form of several substantial contracts. Among others things, we will be supplying a complex Linkspan over two levels to Stena Line in Holland, says Johansson. Operations For cargo handling in ports, TTS offers Linkspan, which is a special ramp linking vessel and port. The product portfolio for port equipment also includes automatic mooring devices and systems for handling of containers and loading cassettes. The cassettes have been developed to handle special transport requirements for industries such as the steel industry and paper industry. The division has further developed a system for Automatic Guided Vehicles (AGV) to be used for cargo handling on Ro-Ro vessels and in container ports. The container system has been put into operation in an American port, with great success. The product portfolio for cargo handling in ports moreover includes automatic container shuttle trains, for the transport of containers between ports and dedicated container storage areas outside the ports. - Our assessment is that the market for cargo handling in ports will see a tremendous growth over the next years. The growth in cargo volume in container terminals is strong, and our concepts and products provide increased utilisation of capacity in existing ports, in place of costly development of new port facilities. On this basis, product development is given high priority in TTS, emphasises Göran Johansson. Market outlook At the start of 2008, the Port and Material Handling Division had an order backlog of NOK 216 million, compared to NOK 148 million the year before. Furthermore, so far this year the division has entered into several major contracts; among others for the delivery of a panel production line to a shipyard in China to increase capacity in connection with welding and assembly of steel sections for vessels. The market outlook for deliveries of shipyard equipment is expected to remain good. The division is experiencing strong competition in the port equipment market; however, the potential for TTS is considerable. We have faith in an imminent breakthrough into the market for automatic container handling and mooring systems, Johansson says. Overall, the division is aiming for a continued strong growth in turnover and results. Strategy The Port and Material Handling Division has fostered good cooperation between the units in Norway, Sweden and Finland with regard to both product development and marketing efforts, and the division has accordingly attained excellent results. Strategically, it is important to further develop this cooperation, to extend TTS line of products and to broaden the division s market segments. The division will focus on marketing of port equipment to countries in Europe, North-Africa and the USA. Asia will come later. In addition to the port market, the division will intensify its efforts related to marketing and sale of cassette handling systems for various industries. It further aims to strengthen marketing efforts in China and India of systems for material handling in shipyards. 16

17 - Our assessment is that the market for cargo handling in ports will see a tremendous growth over the next few years. TURNOVER NOK million 333 ORDER BACKLOG NOK million GÖRAN JOHANSSON DIRECTOR DIVISION PORT AND MATERIAL HANDLING 17

18 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Deck Machinery Division In 2007, the Deck Machinery Division implemented its plans for restructuring, resulting in a positive yield with regard to both turnover and results. The order backlog has been significantly strengthened and future prospects are good. T TS HAS, ON THE BASIS of the line of products and the expertise represented by TTS Kocks of Germany, taken over in 2005, made deck machinery one of the target areas of the TTS Group. The Deck Machinery Division is managed from Bremen in Germany, and has operations in Ostrava in the Czech Republic, as well as in Busan in South-Korea. TTS participated in a joint venture in South- Korea, but in 2007 the TTS Group acquired the remaining shares. The company manufactures and delivers to the Korean and the Japanese market, as well as providing after-sales and service support in those markets. In total, the Deck Machinery Division has 111 employees, whereof 41 are based in Germany, 33 in the Czech Republic and 37 in South- Korea. Edgar Bethmann is Head of the Deck Machinery Division and Managing Director of TTS Kocks GmbH. He holds an engineering degree in machine construction, and was Managing Director of TTS Ships Equipment GmbH prior to being appointed Head of the Deck Machinery Division in Operations The Deck Machinery Division delivers deck machinery to the maritime industry; primarily various types of winches for tankers, container ships and other freighters. TTS holds a particularly good position in the market for supplying winches for LNG ships. The division has a significant level of activity within after-sales and services support. A great number of the Deck Machinery Division s deliveries have been for ships built in South-Korea. In 2007, 80 percent of the turnover was related to the South-Korean market. The division has further succeeded in acquiring major contracts in China, Taiwan and Vietnam, as well as delivering to shipyards in Japan, USA and Europe. In order to strengthen the operations in China, TTS established a branch for deck machinery within the company TTS Bohai Machinery in Dalian in After only a year, the order backlog in the Chinese market is closer to NOK 150 million. In Bremen, the activities of the Deck Machinery Division were co-localised with TTS Ships Equipment GmbH in 2007, with the intention of strengthening cooperation regarding sales and service. The operations in Ostrava have been reorganised to achieve a more efficient operation. - We have implemented changes to the division s organisation and operation, overall improving our capability for sales and implementation of new projects with a high level of quality. After-sales, which generally yields good return, has been further strengthened. The high level of activity in the market is creating a demanding task of getting components delivered from cooperating partners within the set deadlines, Bethmann points out. In 2007, the Deck Machinery Division became involved in the TTS Group s general targeting of the offshore market through the development of purpose-built winches for use at great ocean depths handled by Marine Crane Division. The division will participate in the development of packages of technologically advanced handling equipment for use by special-purpose vessels dedicated to deep sea operations. Market outlook At the start of 2008, the order backlog of the Deck Machinery Division was NOK 681 million, compared to NOK 462 million twelve months previously, and the order backlog has approximately doubled since the start of As a result of the positive order situation, the utilisation in the Deck Machinery Division will be excellent in One expects to see a strengthening of both turnover and results compared to The division has entered into contracts for considerable deliveries for 2009 and The market outlook for our product series of electrical and hydraulic winches is generally good. Further growth is expected in all segments and market areas. On a general basis, a somewhat lower level of activity is expected in the shipbuilding markets beyond TTS will be able to make up for a potential decline in demand for deck machinery with increased efforts towards the offshore industry. Strategy As a result of the past years restructuring, the Deck Machinery Division is on track and well positioned for new advancement. The division will strengthen its efforts in sales of established products to known as well as geographically new markets. The development of new products and entering into new markets and niches, such as the offshore sector, will be endeavoured. This could be obtained organically and through acquisitions of companies that possess interesting and relevant technology. The advantages of the division s association with the TTS Group will be utilised in other sectors and geographically new markets. Sales and service will be further prioritised in order to enhance customer satisfaction and strengthen the total earnings of the Deck Machinery Division. 18

19 TURNOVER NOK million ORDER BACKLOG NOK million EDGAR BETHMANN DIRECTOR DIVISION DECK MACHINERY - We have implemented changes to the division s organisation and operation, overall improving our capability for sales and implementation of new projects with a high level of quality. 19

20 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Drilling Equipment Division Through the acquisition of two companies, TTS has made drilling equipment a new and significant business segment of the TTS Group. In the space of only a few months, we have signed contracts for the delivery of complete drilling packages and land rigs, indicating a high level of activity in the years to come. T HE DRILLING EQUIPMENT DIVISION was established in May 2007, as a result of TTS entering an agreement to purchase all of the shares in Sense EDM AS. Sense EDM s head office is located in Kristiansand and it has a branch office in Stavanger, as well as a subsidiary company in Edmonton, Canada. Furthermore, the company has a fully owned sales company in Singapore and a sales office in Houston. Sense MUD is a fully owned subsidiary company in Kristiansand. Sense EDM has a 49.9 percent ownership in Sense DrillFab AS, a company that carries out testing and assembly of equipment. At the turn of the year, the drilling technology company Wellquip Holding AS, located in Kristiansand, was also incorporated into the division. The technology company Sense was founded in In 2005, Sense merged with EDM, in Stavanger, a company with a history going back to In 2008, Sense EDM will change its name to TTS Sense. Wellquip was founded by Per A. Vatne in All in all, the new division has 248 employees, of which 166 are based in Kristiansand, 25 in Stavanger, 50 in Edmonton, six in Singapore, and one in Houston. The Drilling Equipment Division is headed by Tom Fedog, who is Managing Director in Sense EDM AS. Fedog has an advanced degree in business administration and extensive experience from Aker Kværner Maritime Hydraulics. He has worked for Sense since the company was started. Through development of established centres of expertise within drilling technology, as well as acquisition and expansion both in Norway and abroad, TTS will work to achieve a solid position in the global market for rigs and drilling equipment. Our greatest challenge at the moment is to secure sufficient access to expertise for planning and implementation of agreed deliveries in 2008 and the following years. We plan to recruit in all 30 people this year, says Tom Fedog, Head of the Drilling Equipment Division. Operations Sense EDM develops and supplies advanced drilling equipment and drilling systems to the international oil and gas industry, including complete drilling packages, drilling equipment and pipe handling equipment. The company furthermore supplies patented technology for rigs that combine drilling, maintenance and service. The rigs used for drilling operations both on land and at sea. In June 2007, Sense EDM entered into an agreement with Jurong Shipyard in Singapore for the delivery of a complete drilling equipment package worth a total of NOK 385 million. The equipment constitutes part of the shipyard s delivery of a highly advanced jack-up rig for production in the North Sea. The rig has been contracted by the company ProdJac, owned by Larsen Oil & Gas in Bergen, and will be delivered by the end of In September 2007, Sense EDM signed a contract with Keppel FELS in Singapore for yet another drilling package worth about NOK 230 million. This equipment will be ready for delivery by the summer of 2010 and will be used on a mobile jack-up rig currently under construction in Singapore for Skeie Drilling and Production (SKDP). Moreover, Sense EDM has signed a contract for the delivery of a total of nine large land-based drilling rigs and two smaller work-over rigs to Ability Drilling, with a contract value of about NOK million. The first rig will be delivered in the spring of 2008 and the schedule goes on until the spring of In addition to the major contracts, Sense EDM has single deliveries of equipment to various operators within the drilling and rig industry. Wellquip has developed and patented an automatic multifunctional roughneck (JIM). This roughneck has been the chosen solution for jack-up rigs newly contracted in connection with planned drilling operations in the North Sea, and is included in the two drilling packages that Sense EDM will deliver to a shipyard in Singapore. Market outlook At the start of 2008, the total order backlog of the Drilling Equipment Division was NOK 999 million. Following the agreement in February with Ability Drilling regarding extension of the land rig program, the order backlog has increased to about NOK million. The market for drilling equipment for mobile jack-up rigs is expected to remain positive for many more years. However, unrest in the financial markets and a potential economic setback in the USA could generally influence activity level in the drilling industry. The Drilling Equipment Division aims at delivering additional complete packages, with existing contracts as reference. Through its strong presence in Norway, as well as its offices in Singapore and Houston, the division is in a solid position to challenge major competitors in the market. With regard to the market for land rigs, the division will in 2008 focus on marketing in relation to the oil and gas industry in Russia. Strategy Since its establishment in 2007, the Drilling Equipment Division has undertaken large investments in product development and marketing and has achieved excellent results. In 2008, focus is aimed toward implementation of existing contracts. Recruitment and development of expertise internally in the division, as well as preparation for collaboration with relevant centres of expertise in the TTS Group will be key elements in a strategy for TTS to maintain a lasting and strong position in the market for drilling equipment. 20

21 TURNOVER as of NOK million NOK million 999 ORDER BACKLOG TOM FEDOG DIRECTOR DIVISION DRILLING EQUIPMENT We shall be world leaders in developing advanced and efficient technical solutions for the drilling industry worldwide, onshore as well as offshore. 21

22 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Global job Global TTS offers a multitude of opportunities. In many ways, it has been a blessing for me working for TTS, says the Swedish installation engineer Stefan Falk, who has worked in the Dry Cargo Handling Division in South-Korea for the past four years. T TS MARINE is a global corporation with operations in Norway, Sweden, Finland, Germany, the Czech Republic, Italy, China, Singapore, USA, Canada, South-Korea and Vietnam. Including employees in TTS s joint venture companies, the TTS Group has employees, most of whom have an engineering background. Over the past few years, a considerable level of activity has been built up in Asian countries through the transfer of technology and expertise from the European units. Globalisation entails a range of opportunities for people wishing to work outside of their native country. Swedish Stefan Falk and Norwegian Ingve Hjelmeseter are two people who have grasped this opportunity. - I have a mostly maritime background, says Stefan Falk (46), who since 2004 has worked as an installation engineer in Mokpo in South-Korea. I hold a degree as a marine engineer from Gothenburg and prior to my engineering studies I was employed as an engineer in the merchant fleet. My career in TTS started in 2000, and most of my time with the company has been spent working abroad; first in Europe, then later Korea. Working for TTS has, in many ways, been a blessing. Compared to my days as engineer at sea, this is a whole new world, in particular as far as personnel policy goes. I enjoy my work and the future looks bright. - What is it like living and working in South Korea? - I have lived in Mokpo with my family for four years now, and we enjoy it here. There are a few Europeans here, but not many Scandinavians. Obviously, we do miss family and friends, but it is not a great problem. Even though I have not been in Sweden since 2006, homesickness is not yet a critical issue. I have lived and worked abroad for much of my career, even before I started working for TTS, so I am used to living in other cultures. When you arrive in a new country, you cannot expect to live in the same way as you would at home; you adapt to the local way of life. A good place to start is so as my family has done, which is to adopt the Korean national dish, kimchi, consisting of fermented cabbage. - How do you view the future? It looks bright. Homesickness is definitely under control, and we will remain in South Korea for at least another year. 22

23 opportunities in TTS Found love in China - TTS offers a multitude of opportunities for those willing to travel, says Ingve Hjelmeseter, who is presently Section Manager in the Marine Cranes Division in Bergen. - I worked at Rosendal Verft and Vik-Sandvik prior to pursuing an education in engineering at Bergen College. After completing my education in 1999, I started working for TTS. I was lucky, because the industry was down in a dump. But with the exception of , the curves have shown an upward trend, and there has been more than enough work to do. Ingve Hjelmeseter feels that his job in the cranes division offers many challenges. A crane is a unit with a lot of technology. It is accessible, as everything is in one place. Even though my work is in structure, I am learning about electronics and hydraulics. The job also offers plenty of opportunity for travel, both in Norway and in the rest of the world. I, myself, was in Dalian in China for a year, where TTS produces cranes for China and steel structures for Norway. After this I worked for a few months in Gdansk in Poland, as start-up coordinator for our new design office. Hjelmeseter says that the international dimension of TTS came as a positive surprise. When I first started working for the company, I had not envisaged I would have this many opportunities for travelling abroad, and meeting other cultures through my work has been very interesting. My stay in China offered many experiences and challenges, and at times the cultural differences were enormous. I met my love in China, and she has now arrived in Bergen and is experiencing a reverse culture shock. Compared to Dalian, Bergen seems deserted, and the fact that Norwegians take pleasure in spending their spare time in the woods seems very strange to a Chinese person. Common set of values Chief of Staff in TTS Marine, Hans-Jan Erstad, says that the TTS Group focuses on developing a corporate culture in which it is natural for employees to work and cooperate across borders. Erstad started working for TTS in 1995, and in the past few of years he has primarily worked with projects related to Human Resources. The development of a common set of values, The Spirit of TTS, has had high priority the past few years. It is starting to become a natural part of the organisation, and we see that our efforts are bearing fruit. At present, our focus is on the start-up of a trainee program. We will further focus on leadership development through our course Becoming a TTS Manager, which is offered to executives in the TTS Group s many branches all over the world. This will be implemented for the first time in the spring of Erstad emphasises that for TTS, the restructuring of the shipyard industry has made it both necessary and natural to buy up and establish operations in many countries. The introduction of common attitudes and values, as expressed in The Spirit of TTS, has been essential to global interaction, at the same time as we would like to preserve our small-company culture. We believe that our strategy for development and diversification of our operations will render TTS less exposed to economic fluctuations and, on the whole, strengthen our position. Another advantage is that employees who might become surplus to requirement in one part of our organisation may be transferred to units that need more personnel. How do you view the future? - I am optimistic. We must be prepared for fluctuations in the market, but we have full order books. Consequently, I am more concerned with how to deal with existing orders than worrying about the orders not coming in. Our main challenge is securing new personnel, in order to carry out pending tasks in a satisfactory manner. And there is a lot of work waiting. We are continuously stretching limits. Cranes are getting larger and heavier, and have to move faster. 23

24 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS In 2007, offshore equipment became a new and significant area of focus for TTS. During the autumn of 2006, a three-step strategy was developed for a comeback to this market following a five-year standstill agreement, and each step has accelerated progress. Return to offshore S TEP ONE WAS BASED on revitalising the expertise that historically TTS has had when it comes to engineering of cranes for offshore vessels. Following five years offshore quarantine, which was part of the deal with National Oilwell in 2001 in connection with the acquisition of Hamworthy KSE AB Dry Cargo Handling Division, TTS could once again, as of 11 January 2007, offer products and services to this market. The timing turned out to be perfect, says Ivar K. Hanson, Head of the Marine Cranes Division. A comeback to the offshore sector was evaluated and planned over the course of several years. The requirements to technology are in general higher for cranes delivered to ships in the merchant fleet, and TTS has purposely ensured maintenance of its expertise on construction and production of cranes for offshore vessels. In the years , we implemented a radical re-adjustment of the cranes operations, first of all by transferring operations from Norway to China. By building up operations for engineering and production of marine cranes in China, we freed up capacity in Norway for efforts toward the demanding offshore market, Hanson points out. Ready at the start line As the standstill period approached its end, the demand for offshore cranes was rapidly growing. Delivery time for certain key elements from subcontractors had reached almost two years. We had, however, secured the necessary components to maintain our ability to deliver and, accordingly, we quickly had a lot to enter into our order books. The Centre of Excellence for the crane division s development and sale of purpose-built cranes for offshore vessels is concentrated in Bergen. Access to valuable technology Step two in the targeting of the offshore was implemented through TTS acquisition of ICD Projects in Ålesund. The company specialises in the development and delivery of crane-associated and winch-associated systems to offshore vessels for handling of cargo at great ocean depths. Through this acquisition we have gained control of core technology, making TTS a one-stop supplier of handling equipment for vessels built and equipped for operations at great depths. The core technology is software for control of lifting operations on the sea bed, neutralising wave motion at surface level. The system of active heave compensation is in demand for offshore vessels, and may be applicable for use in other areas affected by wave motion, such as helidecks on ships and floating offshore installations. Based on the technology environment in Ålesund being incorporated into TTS, we have further focused on development of Centres of Excellence in associated areas in Os outside Bergen and in Kristiansand. Thus, we have put together a specialist team of about 80 engineers with top competence in an important area within delivery of handling systems for subsea and offshore installations, says Hanson. In total, the Marine Cranes Division succeeded in signing contracts in the offshore market worth about NOK 600 million. We think it is realistic to assume that we will be able to carry out deliveries of this magnitude yearly with a high level of profitability. Cranes and other lifting equipment for the offshore industry has overnight become a significant part of the total value creation in the TTS Group. Success with acquisition of drilling technology Step three in the offshore sector was implemented when TTS, in May last year, entered into an agreement regarding takeover of 24

25 the drilling technology company Sense EDM. The company has its head office in Kristiansand and supplies drilling equipment and control systems for both offshore and onshore rigs. With this, the foundation was laid for establishing the Drilling Equipment Division as the fifth division in the TTS Group. Over the past few years, Sense EDM has established itself as a competitor in the market for drilling equipment and, prior to TTS takeover, the company had reached a considerable volume associated with deliveries of single items. It was not until June last year that Sense EDM reached its target of a sale of a complete drilling package for an offshore rig. In September, the company entered into yet another contract for the delivery of a complete drilling package. The total contract value for the two equipment packages is about NOK 615 million. Sense EDM, which in 2008 will change its name to TTS Sense, is also supplier of patented technology to rigs that combine drilling, maintenance and service onshore. In 2007 and 2008, the company experienced a breakthrough in this market through a contract with a single customer regarding a series of nine large drilling rigs and two smaller work-over rigs. Total value of this contract is about NOK million. As a subsidiary of Sense EDM, Sense MUD develops and supplies complete solutions for handling of mud, both offshore and onshore. Following the takeover of Sense EDM, the TTS Group also acquired Wellquip, an engineering company in Kristiansand specialising in drilling technology. The company has patented solutions that complement TTS s total product portfolio for the offshore sector. Aggressive strategy TTS has at record speed made delivery of equipment to the offshore industry an important business segment in the TTS Group. We are both grateful and proud of the response that we have received, says Johannes D. Neteland, President and CEO. He points out that TTS will continue to focus on strengthening its success as supplier of offshore and drilling equipment. We will continue the strategy of acquiring centres of technology that complete our expertise, and at the same time utilise synergies between the taken over companies and the established units of TTS. For example, we expect that the shipyard industry in China will have a stronger focus on construction of offshore installations. Based on our longstanding and good relations, TTS will be in a good position to develop a profitable cooperation with regard to technology deliveries there, emphasises Neteland. 25

26 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS TTS has faith in China. With regard to value creation in the TTS Group, the activities in fully owned and joint venture operations in China may, in just a few years, come to be more important than in any other country in which TTS is represented. To ensure our ability to deliver and our competitiveness, TTS has become part-owner of Chinese companies that manufacture pre-painted steel structures such as crane beams and hatch covers. The Chinese adventure continues F OR TTS, THE ROAD TO CHINA went through successful acquisition of the Dry Cargo Handling Division of Hamworthy KSE in Through this acquisition, TTS became 50 percent owner of a joint venture company now bearing the name TTS Hua Hai Ships Equipment in Shanghai. TTS s partner is the Chinese state owned company CSSC (China State Shipbuilding Corpo ration), which had chosen this strategy to gain access to technology that could make China world leader within ship building. In the same year, the crane company now bearing the name TTS Marine Shanghai was established. This is a fully owned subsidiary of the TTS Group. These companies in Shanghai were, at the time, small and relatively insignificant, but they gave us strategically important entrances into a market that we believed might develop rapidly, says Johannes D. Neteland, President & CEO. And quite right; when the economic cycles for international shipping improved in 2003, the Chinese were set to offer Asia and Europe competition. China now accounts for 32 percent of the world s shipbuilding, and aims to become global leader within Market leader in hatch covers Working with CSSC, TTS has built up TTS Hua Hai to a company with 70 employees, focused on engineering and sale of hatch covers and Ro-Ro equipment to shipyards in China. Within this niche, the company has a market share of over 60 percent. Turnover in 2007 was NOK 380 million, and the company s earnings before depreciation were NOK 29 million. At the start of 2008, the order backlog was NOK million. Madame He Pu has been Managing Director of TTS Hua Hai since Chairman of the Board is Bjørn Andersson, who has been engaged by TTS on the basis of his extensive experience with industrial development in the Far East. Crane activity in strong development The positive experiences from working with TTS Hua Hai led to TTS entering into agreement regarding a 50 percent joint venture with the Chinese shipbuilding group DSIC (Dalian Shipbuilding Industry Corporation) at the start of 2005, for engineering, production and sale of marine cranes to shipyards in China. TTS Bohai Machinery has been established in modern premises in Dalian, and has 76 employees. Within this niche, the company has a market share of about 40 percent. Turnover in 2007 was NOK 89 million, and the company s earnings before depreciation were NOK 9 million. At the turn of the year, the order backlog was NOK 275 million. Li Dali has been Managing Director since the beginning, and the company s Chairman of the Board is Bjørn Andersson. As a result of the establishment of TTS Bohai Machinery, the focus of the operations in TTS Marine Shanghai was adjusted to Asian shipbuilding markets outside of China and to Europe. TTS Marine Shanghai supplies hose handling cranes, smaller service cranes and provision cranes, as well as davits. The turnover in 2007 was NOK 60 million, and the company s earnings before depreciation were NOK 6 million. The order backlog at the start of 2008 was NOK 450 million. Arne Kundsen has been Managing Director of TTS Marine Shanghai since He started in the company as technical supervisor in Targeting offshore market from China In TTS Marine Shanghai, we are currently investing in a new manufacturing facility, which means that production capacity may be increased five-fold. The business segment is extended to include cargo cranes for the merchant fleet and later also include offshore cranes. We are developing expertise in a way that entails that the large offshore cranes may be supplied from 26

27 TTS Bohai Macinery Jiangnan TTS Ships Equipment TTS Keyon Marine Equipment TTS Hua Hai TTS Marine Shanghai here too, says Ivar K. Hanson, Head of the Marine Cranes Division. He states that outstanding leadership and a labour market with easy access to qualified personnel make targeting of the offshore cranes market possible. In total, TTS Marine Shanghai will have the capacity to supply standard cranes and several large offshore cranes on a yearly basis. Production capacity is being increased in TTS Bohai Machinery too. As of 2009, the company will be able to supply around 300 cargo cranes and around 200 hose handling cranes. Through its cooperation with the Deck Machinery Division, the company has also started production of deck machinery. Taking control of supplies The TTS Group s successful targeting of China and the strategy to increase the complexity of its deliveries has increased the need for better control of supplies, as regards both volume and quality. In addition to this, there is the rapidly expanding industrial development in China, increasing the competition for steel structure supplies. For this reason, we have entered into agreements in the past year regarding ownership in two companies that manufacture steel structures adapted to our requirements. In other words, we are preparing for a stronger vertical integration to secure the entire value chain up to the final delivery of cranes and hatch covers, says Johannes D. Neteland, President & CEO. Through TTS Ships Equipment AS, TTS has become owner of half the shares in the manufacturing company TTS Keyon Marine Equipment. Private Chinese investors own the other half. The company has been established with about 200 employees and a square meter in Zhangjiagang, a town about two hours drive to the northeast of Shanghai. The company is lead by Barnard Zhong, and the company s Chairman of the Board is Bjørn Anderson. Last year, TTS Keyon Marine Equipment produced about tons of completed steel constructions, but an expansion of manning and production capacity is under planning, says Neteland. Likewise, TTS Hua Hai has become owner of 40 percent of the shares in a manufacturing company in Nantong, a town about three hours drive northwest of Shanghai. The company, now bearing the name Jiangnan TTS Ships Equipment, is under establishment. Chairman of the Board of Jiangnan TTS is Madame He Pu, Managing Director of TTS Hua Hai. Growth to continue We have estimated the total requirement for finished steel constructions for our operations to be about tons in 2008, and in two years the requirement will probably double. Our business partners in the state companies CSSC and DSIC are very satisfied with our joint organisation and development of operations in China, Neteland emphasises. At the start of 2008, the total order backlog of TTS Marine Shanghai and the joint venture companies TTS Hua Hai and TTS Bohai Machinery was NOK 1.7 billion out of the TTS Group s total order backlog of NOK 7 billion. We feel we are well positioned to increase value creation in China over the years to come, states Johannes D Neteland, President & CEO. 27

28 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Shareholder information Share price performance In March 1995, TTS Marine ASA completed a public share issue, and 3 May 1995, the company was listed on the SMB list of the Oslo Stock Exchange. Date Price Subscription price at time of offering NOK Opening price NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK NOK (The share price has been adjusted to reflect the 1:2 share split in April In the period the trade in the TTS share has been as follows: Number of shareholders Foreign holdings 40.5 % % Average per trading day Number of trades Value (NOK 1000)) Number of shares (1000) Average price Information TTS emphasizes the importance of giving the shareholders, the stock market and the general public the best possible knowledge of the Group s operations and performance. Relevant information will be made available through stock market reports and press releases. Regular financial reports are issued in the form of annual reports and quarterly interim reports. The company is also in constant contact with financial analysts. The company s financial calendar is as follows: 4. quarter 2007 / preliminary annual result February 1. quarter May 2. quarter August 3. quarter October Annual general meeting 22 May Annual general meeting will be held at the company s premises in Bergen. 28

29 Movements in share capital, RISK adjustment Date Type of Share capital Number Nominal value transaction after transaction shares in NOK Public offering Share split Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing Private placing TTS share value

30 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Corporate governance TTS Marine ASA (TTS) applies the Norwegian code of practice for corporate governance, dated 28 November 2006, as guidelines for its work. The following principles for corporate governance have been adopted by the Board of TTS Marine ASA: 1. Review of corporate governance The intent of TTS principles of corporate governance is to clarify the roles of the shareholders, the Board of Directors and management beyond what follows from legislation. These principles constitute part of the company s annual report. The Spirit of TTS is available on the company s website, and describes 1) Vision and Strategy 2) Corporate Culture and Core Values 3) Management and 4) Ethical Guidelines. As a global group with companies in 12 countries, there is a continuous focus on joining the companies, the corporate cultures and the environments together. Through a process involving all companies and divisions, we have examined and established our core values, integrity, openness, loyalty and initiative. Our core values shall influence TTS s activities, so that they contribute to cooperation and progress for each and everyone in the TTS Group. 2. Operations TTS Marine ASA s Articles of Association are available on the company s website. In accordance with Article 3: The company s purpose is to engage in industrial activities related to marine equipment, shipyard systems and port terminal systems, and any related activities, as well as participation in or acquisition of other businesses. In order to better clarify the company s purpose, the Board of Directors will propose to the Annual General Meeting on an amendment of Article 3 to: The company s purpose is to engage in industrial activities related to ship building, oil and gas production and port activities, and any related activities, as well as participation in or acquisition of other businesses. 3. Capital and dividend EQUITY Total equity as of was NOK million, with an equity capital of NOK million, giving an equity-to-assets ratio of 30.1 percent. TTS has an unsecured bond loan where the covenants requirement is NOK 550 million in equity and more than 22.5 percent equity ratio, where equity ratio is normative for minimum equity. SHAREHOLDER POLICY TTS aims to give our shareholders a competitive long-term return that reflects the risk inherent to the company s operations. Based on TTS growth strategy, the shareholders return should be realised through an increase in the value of their shares, together with dividends when circumstances so permit. Growth through acquisitions will be implemented through balanced financing of equity and debt. The Board of TTS Marine ASA will propose a dividend payment of NOK 1.25 per share to the Annual General Meeting in May STRATEGY FOR FURTHER GROWTH TTS has, since 1996, completed thirteen successful acquisitions, establishing a leading position in its segments of the market for handling equipment. This has entailed a considerable growth, and turnover has increased from about NOK 260 million in 1997 to about NOK 2.5 billion in The international offshore and shipbuilding industry has experienced five good years. This has entailed excellent market conditions for offshore and ships equipment, which is TTS core business. Accordingly, TTS noted a record high order backlog at the end of The global markets and economic cycles have shown a negative trend in Consequently, there is far greater uncertainty surrounding the future development in our markets. We will, however, point out two circumstances that give reason for optimism in TTS. The high order intake established in a good market indicates a growth of more than 45 percent in group turnover in 2008, with further improvement of EBITDA margins. The record high level of the contracting of vessels over the past two years moreover indicate that, unless extensive cancellations are made, there is a growing market for ships equipment in 2009 and High oil prices are further expected to provide good market conditions for our offshore products. In the coming years, TTS will continue to expand the group s activities within its segments for handling equipment for ships, ports and offshore installations, in addition to advanced drilling equipment for offshore and land-based units. AUTHORISATIONS TO THE BOARD On , the Annual General Meeting adopted a resolution to give the Board authority to issue a maximum of shares against cash redemption or non-monetary consideration, including merger. This authorisation is valid until the Annual General Meeting for 2007, and no later than As of , shares have been issued. On , the Annual General Meeting adopted a resolution to give the Board authority to issue a maximum of shares against cash redemption at the benefit of the company s executive management. This authorisation is valid until share-options have been issued. As of , options have been exercised. On , the Annual General Meeting adopted a resolution to give the Board authority to issue a maximum of shares against cash redemption at the advantage of the company s executive management. This authorisation is valid until share-options have been issued. As of , no options have been exercised. On , the Annual General Meeting adopted a resolution to give the Board authority to purchase/own a maximum of of the company s own shares. This authorisation is valid until the Annual Gene ral Meeting for 2007, and no later than As of , the company s holding of own shares was 3 700, with a maximum holding in the period of shares. TTS has used the authorisation to purchase own shares and subsequently sell these shares to employees at a discounted rate. 30

31 4. Equal treatment of shareholders and transactions with closely related parties SHARE CAPITAL AND SHAREHOLDERS The share capital as of and was NOK divided into shares at a nominal value of NOK 0.50 each. The company has only one class of freely transferable shares, which are listed on the Oslo Stock Exchange s Match List under the ticker symbol TTS. Each share is allocated one vote. A list of the TTS 20 major shareholders is available on the company s website. OWN SHARES Own shares are purchased on the Oslo Stock Exchange. TTS maintains its preceding years practice of selling own shares to its employees at a discounted rate. In 2007 employees were given an offer to purchase a maximum of 450 shares at a rate of NOK 76.50, a 20 percent discount compared with the average rate in week employees purchased a total of shares. THE BOARD OF DIRECTORS AND GROUP MANAGEMENT TTS Marine ASA s Board of Directors and Group Management are viewed as closely related parties of TTS, using the Oslo Stock Exchange for the transaction of TTS shares. There have been no closely related transactions between the Board of Directors or the Group Management and TTS. According to the Norwegian code of practice for corporate governance, a company is advised to implement guidelines assuring that closely related parties give notice of closely related transactions. Based on the current Board of Directors and group management, the company has deemed such guidelines to be unnecessary. CLOSELY RELATED COMPANIES The joint venture companies in the TTS group are treated as closely related companies with transactions as shown in Note 19. On , Sense EDM AS established a letter of intent in respect of an acquisition of 100 percent of the shares in Wellquip Holding AS. The transaction has been effectuated, see Note 24. Neram AS, owned by Trym Skeie, and Lesk AS, owned by Lena Skeie, companies that are both shareholders of TTS Marine ASA, own 9.8 percent and 4.9 percent respectively of the issued share capital of Wellquip (as of ). The value of Wellquip Holding AS has been verified by third party DnBNOR Markets. 5. No transfer restrictions As transpires from the Articles of Association posted on the company s website, no form of transfer restriction have been effectuated. 6. Annual general meeting The Annual General Meeting (AGM) is ordinarily held at the end of May. The Annual General Meeting for 2007 will be held on in accordance with the financial calendar published for Agenda papers for the Annual General Meeting, including the nominating committee s recommendation, are distributed to the shareholders at the latest two weeks prior to the Annual General Meeting, and are available on the company s website at the latest three weeks prior to the Annual General Meeting. Shareholders unable to attend may vote by proxy. The registration deadline is set to the day before the Annual General Meeting. The Chairman of the Board, chairman of the nominating committee, auditor and CEO are present at the Annual General Meeting, in addition to other board members when appropriate. The Annual General Meeting elects its own chair; usually this is the Chairman of the Board. On account of a low participation on the general assemblies, TTS does not deem it necessary for the full Board of Directors to be present. We have, for the same reason, found it unnecessary to establish routines to secure independent chairing of the Annual General Meeting. Should there be particular items on the agenda requiring need for such measures; this will be individually considered for each general assembly. 7. Nominating committee In TTS, a nominating committee is statutory according to the Articles of Association. In accordance with the Annual General Meeting on , a nomination committee was appointed with the following members: NAME STATUS POSITION Harald Espedal Not for election Managing Director, Skagenfondene Bjørn Sjaastad Not for election Managing Director, Frontline Management Bjørn Olafsson Re elected Managing Director, Frende Liv AS The nominating committee appoints its own chairman of the committee. Bjørn Olafsson was elected to chair the committee. No one in the nominating committee is a member of the Board of TTS Marine ASA or part of the management of TTS, as such ensuring independence. The nominating committee has knowledge of TTS and its shareholders, so that the interests of the shareholders are protected. The nominating committee recommends candidates to the Board and related remuneration, where the nominating committee s recommendation is substantiated. The nominating committee s members and the deadlines for submitting proposals to the committee are available on the company s website. For the Annual General Meeting on the , the deadline for proposals is According to the Norwegian code of practice for corporate governance, the chairman of the nominating committee should be elected at the Annual General Meeting. TTS views it as more appropriate that the committee decides on the distribution of tasks, including the election of a chairperson. 8. Corporate assembly and board of directors, composition and independence As TTS Marine ASA has fewer than 200 employees, the management model does not include a corporate assembly. There are two employee representatives on the Board of TTS Marine ASA. In accordance with the Annual General Meeting on , the shareholders elected the following members to the Board: NAME STATUS POSITION Nils O. Aardal Re-elected Executive Director, J.O. Odfjell AS Agnar Gravdal New Self-employed Anne Breive Not for Election CFO, Løvenskiold Vækerø AS Hilde P. Aarseth Krøgenes Not for election Marketing Manager, Kongsberg Norcontrol IT AS In accordance with ordinary election of two employee representatives to the Board of TTS Marine ASA, the following were appointed to the Board in August of 2006: NAME COMPANY POSITION Olav Smeland TTS Marine Cranes AS Director Oddmund Hatletun TTS Marine Cranes AS Director Mona L. Tellnes Halvorsen TTS Marine Cranes AS 1st Deputy Director Magne Kvamme TTS Ships Equipment AS 2nd Deputy Director Nils O. Aardal was elected Chairman of the Board. TTS Board members are elected for a two-year period. Each Board member s CV is available in the Annual Report. The shareholder elected Board members are independent of management, the company s major shareholders and primary business connections. Furthermore, the composition of the Board upholds shareholder 31

32 interests, and the company s requirements for expertise, capacity and diversity in a good collegiate body. The complementary expertise of the Board ensures the Board member s ability to assess matters from different perspectives before reaching a final conclusion. As of , Nils O. Aardal, Chairman of the Board, owned shares in TTS. Oddmund Hatletun, Director of the Board, owned shares, while Olav Smeland, Director of the Board, owned shares. The other Directors of the Board do not hold any shares. None of the Board Directors hold any options. According to the Norwegian code of practice for corporate governance, the Chairman of the Board should be elected by the Annual General Meeting. In TTS the Board appoints its own chairman. 9. The work of the board The Board has eight scheduled meetings annually, in addition to further meetings as required. A total of 17 board meeting were held in As a result of the tremendous expansion that the company is undergoing, the work of the Board has been intensified, with increased focus on strategic work and acquisitions. In the coming years, TTS will continue to expand the group s activities within its market segment for handling equipment for ships, ports and offshore installations, as well as advanced drilling equipment for offshore and land based units. Procedures for the Board and management have been established, focusing on distribution of tasks and responsibilities. The Board of TTS Marine ASA has an audit committee: AUDIT COMMITTEE Nils Olav Aardal (Chairman) Anne Breive According to the Norwegian code of practice for corporate governance, the Board should have a Deputy Chairman who may function when the Chairman of the Board is unable to or disqualified from heading the work of the Board. 10. Risk management and internal control The TTS Group has a decentralized structure with operative boards in each company holding an average of 6 to 8 board meetings a year. The largest company in each of the five divisions reports on all the companies in its division. The President and CEO is chairman of the board in all of the division s Board of Directors. The head of division is chairman of the board of the companies within the division. In addition to this, the boards consist of personnel from various companies in different divisions, as well as external board members as required. An authority matrix has been established detailing which matters may be dealt with at the various levels. Procedures and systems upholding uniform reporting have been prepared for monthly reporting with a more comprehensive quarterly reporting. Included in the reporting are any variances or measures for the most significant projects. This project reporting may be more frequent as required. 11. Remuneration of the board of directors Based on the recommendation of the nominating committee, the Annual General Meeting determines the remuneration of the Board of Directors. Remuneration is not linked to the company s result. There is no share option programme for the Board of Directors. Members of the Board of Directors, or companies with whom they are associated, are not usually given separate tasks by TTS in addition to their function as members of the Board. Still, should such tasks be assigned, this will be based on the approval of the Board of Directors. There were no such assignments in The nominating committee s proposal for remuneration of the Board of Directors is presented in Notice of ordinary annnual general meeting Remuneration of executive management Guidelines for remuneration of executive management are presented in Note 4. According to the note, share options constitute part of the remuneration. Share options for executive management (ref. Item 3 Authorisations to the Board) include the group management. At the end of 2007, and as of , a total of authorised share options had been issued to group management options may be exercised up until at a price of NOK 35 and options may be exercised up until at a price of NOK 79 per share. AS OF , THE DISTRIBUTION OF OPTIONS AND SHARES WAS AS FOLLOWS: Name Position Number of Number of options owned shares Johannes D. Neteland President and CEO Olav Bruåsdal Financial Director Hans-Jan Erstad Chief of Staff Göran K. Johansson Head of Division Ivar K. Hanson Head of Division Stellan Bernsro Head of Division Edgar Bethmann Head of Division Tom Fedog 1 ) Head of Division Margrethe Hauge 2 ) Group Managing Director 0 0 Total ) Owns Wary AS (100 %) that owns 50 % of Ilution AS and Itlution II AS which in total owns shares in TTS Marine ASA 2 ) Started in February Information and communication The company has established guidelines for the handling of information and communication. These guidelines also address contact with the owners separate from the general assembly. The reporting by TTS of financial and other information is based on transparency, respecting the principles of equal treatment of stock market participants. A financial calendar is available on the company s website. Any dividend proposal is presented in the fourth quarterly report and the call for an annual general meeting. Information for the shareholders of the company is posted on the company s website at the same time as it is distributed to the shareholders (except of Notice of ordinary annnual general meeting, see point 6). 14. Company takeover The company s Articles of Association do not include mechanisms aimed at preventing takeover, nor are other hindrances in effect to reduce transfer of the company s shares. No main principles have been established for TTS response to a prospective takeover bid, other than that the Norwegian code of practice for corporate governance will have a normative function. 15. Auditor The auditor conducts a minimum of two meetings a year with the audit committee, part of the meeting without management present. One of the meetings is conducted in connection with the review of the annual accounts. The auditor is present at board meetings as required. Remuneration payable to the auditor, specifying the division between audit and other services, is shown in Note 4. The extent of services other than audit services is addressed in the meeting between the auditor and the audit committee. It has not been deemed necessary by the Board to implement additional guidelines with regard to the management s access of using of the auditor for services other than auditing.

33 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Senior management Johannes D. Neteland PRESIDENT & CEO Olav Bruåsdal FINANCIAL DIRECTOR Hans-Jan Erstad HR MANAGER Margrethe Hauge AFTER SALES DIRECTOR Neteland (50) is President & Bruåsdal (52) is Financial Erstad (64) is HR Manager with Hauge (36) is appointed After CEO of TTS Marine ASA. He Director of TTS Marine ASA. additional responsibility for sales Director. The position is has an advanced business He has an advanced engineering corporate IT and quality newly established. administration degree from degree from the Norwegian assurance projects. He is an She holds a degree in Master the Norwegian School Institute of Technology at the automation engineer and has of Science in Business and of Economics and Business University of Trondheim and also studied economics, Administration from the Administration. Neteland a higher degree in business management and contract University of Mannheim in worked for Statoil from administration from the management. Erstad has Germany, specialising in , was the deputy Norwegian School of Economics worked in defence, maritime Logistics and Marketing. managing director of Block and Business Administration. and offshore industry. For many Hauge started her career in Watne Boliger from Bruåsdal worked with enginee- years he also worked as a Hydro Seafood AS in 1996 and and the marketing director of ring, project and department consultants in more than since 1999 she has held diffe- the Ekornes Group from management for 12 years before 40 Norwegians companies. He rent management positions in He was the division he started at TTS in He started in TTS in 1995 and has Kverneland ASA, among these; director of Vital Forsikring from started out as a project manager been responsible for IT, logistics Managing Director of business until he assumed and was subsequently appointed and industrial development. area Spare Parts, Managing his current position. as the director of projects and He assumed his current positi- Director of Kverneland Group administration. He assumed his on in Australia, and in the last year current position in Managing Director for business area Crop Care. Hauge started in TTS Marine ASA in February

34 4-8 KONSERNET 9-11 KONSERNSJEFEN VIRKSOMHETSBESKRIVELSE VIRKSOMHETSSTYRING ÅRSBERETNING OG REGNSKAP Senior management Stellan Bernsro DIRECTOR Bernsro (47) is Director of Dry Cargo Handling Division and Managing Director of TTS Ships Equipment AB. Bernsro holds a Master of Science in Industrial Engineering and Management, an Engineering degree in Mechanics while being graduated Captain in the Royal Swedish Navy. Bernsro has experience from management positions in marine diesel engine service, industrial gas applications and production automation, prior to joining TTS in He was initially assigned as contract manager and was in 2005 appointed managing director, while during the spring 2006 assuming current position. Ivar K. Hanson DIRECTOR Hanson (43) is Division Director for Marine Cranes. He has an advanced degree in business admi ni stration from the Norwegian School of Economics and Business Admini stration (NHH) and is a mechanical engineer. Hanson has worked as a contract coordi nator and bid manager. He started at TTS as a shipyard consultant in 1994 and was appointed managing director of TTS Automation AS in 1999 and TTS Handling Systems AS in From 1 January 2003 to 30 May 2004, Hanson was director in Prosafe Drilling Services AS for Technology and Projects in the engineering division. Göran K. Johansson DIRECTOR Johansson (64) is Director of the Port and Material Handling Division. Johansson is a naval architect and engineer. He has 20 years of experience from various enterprises that are cur rently part of the MacGregor Group. Johansson was the managing direc tor of Ham worthy KSE AB from 1995 until the company was inte grated into the TTS Group on 1 January

35 Edgar Bethmann DIRECTOR Bethmann (51) is the Division Director for Deck Machinery and Managing Director of TTS Kocks GmbH. He has a Bachelor of Commerce degree from the German Institute of Technology at the University of Clausthal-Zellerfeld, Germany. Bethmann has 16 years experience from the shipbuilding industry in Germany, partly as a technical director. Since 2000, he has been Managing Director of TTS Ships Equipment GmbH in Bremen. Bethmann took up his current position with TTS in the autumn of Tom Fedog DIRECTOR Tom Fedog (45) is Division Director for Drilling Equip ment. He has an advanced degree in business administration from the University of Agder. Mr. Fedog has a long experience from the oil and gas industry. He worked thirteen years at Aker Maritime Hydraulics, in different departments. He also worked several years as President for Maritime Hydraulics Canada. Returning to Norway he became the Vice President of the Business Development department in the company. Mr. Fedog has since 1992 to 2000 been member of the Corporate Management Team at Maritime Hydraulics. From 2000 and until the merge with TTS-group he was President and shareholder of Sense Technology AS. 35

36 4-8 KONSERNET 9-11 KONSERNSJEFEN VIRKSOMHETSBESKRIVELSE VIRKSOMHETSSTYRING ÅRSBERETNING OG REGNSKAP Board of Directors TTS Marine ASA Nils O. Aardal CHAIRMAN OF THE BOARD Aardal (60) with a background in economics studies, Aardal has over 30 years experience of the shipping and offshore industry through managerial and board positions with Jo Tankers and Odfjell Drilling. He has also held many posts as a director within banking, marine insurance and interest organisations. Today, Nils O. Aardal is a working director of the ship-owning companies that are used by Jo Tankers, and he also holds board positions within the marine industry. As of March 2008, Nils O. Aardal owns shares in TTS. He has no options in the company. Aardal has been a member of the TTS Marine ASA board since He is a Norwegian citizen. Agnar Gravdal DIRECTOR OF THE BOARD Agnar Gravdal (66) is self employed, and has nearly 40 years experience from offshore and yard industry. He has an advanced engineering degree form the Norwegian Institute of Technology at the University of Trondheim. He has also further education in business admini stration and management. Gravdal has many years of experience from Rosenberg Verft, where he has been Managing Director from He has also been CEO at Umoe ASA for six years. Gravdal has also held many posts as Director in several companies, including 6 years in TBL-Offshore s Board of Directors where he was Chairman for a 2-year term. Gravdal has been on the board since He has no shares or options in TTS Marine ASA. Gravdal is a Norwegian citizen. Hilde P. Aarseth Krøgenes DIRECTOR OF THE BOARD Krøgenes (46) has a Bachelor of Commerce degree from the Norwegian School of Management, and works as Marketing Manager for Kongsberg Norcontrol IT AS, where she has also held the position of Product Manager. Krøgenes has previously worked for the Norwegian Trade Council, including as regional manager for Southern Europe and on overseas postings in Toronto and New York. Krøgenes has also worked as Business Development Manager for IBA Corp., San Jose and as a consultant for the Norwegian Trade Council in San Francisco. As of March 2008, Krøgenes has no shares or options in the company. Hilde P. Aarseth Krøgenes has been a member of the board of TTS Marine ASA since Krøgenes is a Norwegian citizen. 36

37 Anne Breive DIRECTOR OF THE BOARD Breive (42) is CFO of Løvenskjold Vækerø. She has a Bachelor of Commerce degree from the Norwegian School of Manage ment (BI) and an MBA degree from Glasgow University. During the period , she held various managerial positions in the Norske Skog group, including that of Vice President Corporate Funding and Vice President Corporate Controlling. Breive was CFO of Statnet from Breive has been on the board since As of March 2008, she has no shares or options in the company. Breive is a Norwegian citizen. Oddmund Hatletun DIRECTOR OF THE BOARD Hatletun (61) graduated in mechanical engineering from Bergen Technical School in He has worked as a designer/project manager for Norsk Mac Gregor, Hagglunds MTT and TTS Marine. In these companies, he has worked on ships hatches, ramps, doors, lifts and cranes and therefore has an extensive knowledge of much of TTS product spectrum. He also has experience of the offshore industry as a project engineer with CCB-Base and as an inspector stationed on diving vessels and platforms. As of March 2008, Hatletun owns shares in TTS. He has been the employees representative on the TTS board during the periods and 2004 to the present day. Oddmund Hatletun is a Norwegian citizen. Olav Smeland DIRECTOR OF THE BOARD Smeland (33) holds a degree as Technical Economic Engineer (Machinery) at Agder College, Grimstad division, from He has previously been employed by Hydralift, and has worked for TTS since He has worked primarily as purchaser for parts and accessories r elated to crane production. Presently, he is Project Manager in the Marine Crane Division branch office in Kristiansand. As of March 2008, Smeland owns shares in TTS. He has acted as employee r epresentative on the Board of TTS Marine ASA since Smeland is a Norwegian citizen 37

38 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Directors report for 2007 Introduction In 2007, the turnover in the TTS Group (TTS) totalled NOK million (NOK million in 2006) and earnings before depreciation (EBITDA) were NOK million (NOK million). The order backlog at the end of the year was NOK million (NOK million). These results represent record achievements for TTS for the fourth year in a row. In 2007, TTS positioned itself in the offshore and drilling market and, at the end of the year, the order backlog was NOK 1.5 billion in this new business area. The Board of TTS proposes a dividend payment of NOK 1.25 per share. Operations THE OFFSHORE MARKET As a result of agreements entered into in connection with a major transaction in 2002, TTS has been absent from the offshore market for five years. This agreement expired on 11 January 2007, and TTS has spent the year repositioning itself in the offshore market. The first step was to secure access to technology for active heave compensation, which is essential in order to supply larger offshore cranes. In February 2007, TTS acquired the Ålesundbased company ICD Projects AS, a company developing and supplying software and control systems for active heave compensation. Throughout the year, the company has been further developed to become a one-stop supplier of handling equipment for offshore vessels. The company, which at the end of the year had 26 employees, has been renamed TTS Offshore Handling Equipment AS. Through the acquisition of Sense EDM, TTS has moreover taken a leap into the fixed and floating installations segment. With the acquisition of this company, TTS has become supplier of both handling equipment and drilling equipment to such installations. Following the takeover, the company signed contracts for two complete drilling packages, which has positioned TTS as the third supplier of complete drilling packages. To further strengthen its expertise and increase its range of products, TTS implemented acquisition of the company Wellquip Holding AS at the turn of the year. MARKET AND DIVISIONS TTS is an international group that develops and supplies handling equipment within its market segments for: Ships equipment Offshore equipment Port equipment TTS activities have been organised into the following five divisions; Dry Cargo Handling (DCH), Marine Cranes (MC), Deck Machinery (DM) and the new division Drilling Equipment (DE), in addition to Port and Material Handling (PMH). The Dry Cargo Handling Division supplies RoRo equipment, hatch covers, side-loading systems, as well as cruise and yacht equipment. As a result of a pressured sub suppliers market, TTS established a joint venture company in China in 2007 to manufactures steel structures, with a particular focus on hatch covers. The total investment has been approximately NOK 5 million. In addition to this, TTS Hua Hai, our joint venture company in China, has entered into an agreement (in 2008) for a 40 percent ownership interest in another company that will manufacture the same. The value of the investment for the joint venture company is approximately NOK 30 million. These new establishments will reduce TTS s total exposure to sub suppliers, thus significantly diminishing delivery risks. Even with this capacity in TTS, we will still be purchasing large quantities of steel structures in the market. The Deck Machinery Division supplies anchorhandling and mooring winches. In 2007, TTS bought up its partner s 50 percent share in the manufacturing company in Korea. As part of the TTS Group, TTS Kocks commenced assembly of its products in China in 2007, with a healthy development of the order backlog as a result. The Marine Cranes Division supplies marine cranes to the merchant fleet and to offshore vessels, as well as supplying offshore handling equipment to both fixed and floating installations. Strong growth in the order backlog for cargo cranes and offshore cranes has resulted in TTS significantly expanding its capacity for delivery of cranes, in particular in China. The Drilling Equipment Division supplies drilling equipment for offshore rigs, in addition to complete drilling rigs for on shore use. In 2007, the division signed contracts for its first two complete offshore drilling packages. The land rig concept is under extensive development, based on a comprehensive delivery program. 38

39 The Port and Material Handling Division supplies shipyard equipment and port equipment. In 2007, TTS acquired technology for port equipment that will further strengthen its position as a leading supplier within this segment. Furthermore, the division will focus on developing and testing new products for container terminals, for which TTS has great expectations. THE TTS GROUP At the end of the year, TTS had a workforce of 874 employees, of which 381 were based in Norway. In addition, TTS has three joint venture companies in China with a total of 361 employees. The TTS Group has a total of 25 units in the following 12 countries; Norway, Sweden, Finland, Germany, the Czech Republic, Italy, China, Singapore, USA, Canada, South-Korea and Vietnam. The parent company, TTS Marine ASA, has its head office in Bergen, in Norway, and is listed on the Oslo Stock Exchange. As a group, TTS exploits the operational and marketing synergies that come from being a major market participant with in relevant niches. At the same time, there is strong focus on what TTS has found to be a strategic advantage; namely the cultivation of a small-company culture within the TTS companies. Proximity to operations and results in each of the 25 units motivates management and employees to greater efforts, and this in turn strengthens the perception of the individual customer s experience that their needs and requirements are being met in a satisfactory manner. In TTS, product development primarily takes place through projects. Prior to the signing of contracts, each project sees considerable development work in cooperation with the customers. However, for some of the new product areas, such as within port terminal equipment and drilling equipment, some of the product development will not be tied to one single project. Review of the annual accounts for 2007 RESULTS Earnings per share in 2007 were NOK 3.40 (NOK 2.92 in 2006) based on a turnover of NOK million (NOK million), earnings before depreciation (EBITDA) were NOK 67.8 million (NOK million) and the operating profit NOK million (NOK 98.1 million). Pre-tax profit was NOK 97.6 million (NOK 84.5 million), while net profit was NOK 79 million (NOK 60.5 million). In 2007, TTS shares and convertible loan in FastShip Inc were written down by NOK 16 million to NOK 3.2 million, which is in line with the shares estimated market value. There is still activity in the FastShip project, in which TTS was given a consultancy assignment in Turnover increased by 53.4 percent and EBITDA increased by 56.7 percent compared to the previous year, representing the highest turnover and results ever recorded by TTS in the history of the company. The results are in line with the guiding of the market presented by TTS in February ACCOUNTING PRINCIPLES In 2007, profit/loss (50 percent) from the joint venture companies has been carried from financial income to operating income, compared to the annual accounts for This was done as the activity levels in the joint venture companies are strongly increasing and constitute a substantial part of the group s operations. Most of the contracts have been established by TTS based on sub supplies from the joint venture companies and, accordingly, the turnover has already been reflected in the group s turnover. The new reporting system thus gives a more correct picture of the group s operation(s) and margins. For the basis of comparison to 2006 to be correct, historical figures have been adjusted correspondingly. BALANCE SHEET Total assets as of were NOK million (NOK million) with a total equity of NOK million (NOK million), equivalent to an equity ratio of 30.1 percent (36.6 percent). The increase in intangible assets to NOK million (NOK million) is a result of acquisitions of several new companies, but primarily related to the acquisition of Sense EDM AS (NOK 665 million). The increase in tangible fixed assets to NOK 78.3 milllion (NOK 34 million) is mainly due to the acquisition of the remaining part of the joint venture company in Korea; as the company owns buildings and inventory (NOK 22.5 million). Fixed assets constitute NOK 61.9 million (62.4 million), of which NOK 57 million (NOK 42.2 million) are ownership interests in the three joint venture companies. Of the remaining NOK 4.9 million (NOK 20.2 million) FastShip Inc constitutes NOK 3 million (NOK 19.2 million). Increase in current assets to NOK million (NOK 39

40 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS million) is a result of increased activity, in addition to funds from acquired companies. Net interest-bearing debt as of was NOK million compared to a net interest-bearing debt of NOK 22.8 million a year ago. Cash reserves as of were NOK million (NOK million). The acquisition of Sense EDM was financed by means of a bond loan of NOK 500 million. The bond loan is a three year unsecured loan in the Norwegian market. The loan was fully subscribed with NOK 500 million, with disbursement on , based on 3 months NIBOR percent (plus about 0.3 percent in deferred establishment fees. The loan is listed on the Alternative Bond Market (ABM). The loan s covenants requirement is based on a minimum of NOK 550 in equity and more that 22.5 percent equity ratio. With equity of NOK million, equivalent to an equity ratio of 30.1, the covenants requirements are fulfilled by a good margin. According to the cash flow statement, NOK 23.4 million was generated by operating activities in 2007, NOK million was used for investment activities and NOK million was generated by financing activities. The main cause of the difference between the operating profit and cash flow from operating activities was the higher level of project activity, and consequently increased employment of capital. The TTS Group has income and expenses in foreign currencies, where the financial risk has been reduced through the use of hedging instruments described in greater detail in Accounting Principles. The annual accounts have been prepared in accordance with the International Financial Reporting Standard (IFRS). The accounts provide a true picture of the company s financial position as of The Board and management are not aware of any events that have occurred subsequent to the balance sheet date of that may be of material significance to TTS and the annual accounts for At the end of 2007, TTS Marine ASA had a share capital of NOK divided into shares of NOK 0.50 each. ORDER BACKLOG The order backlog as of was NOK million, the highest level recorded in the history of the company, compared to NOK million at the same time in 2006 (including 50 percent of the joint venture companies). BUSINESS AREAS DRY CARGO HANDLING NOK MILLION Turnover EBITDA Order backlog The division experienced yet another year of excellent operations. The EBITDA margin was 10.9 percent, compared to 12.4 percent in From an already high level, the order backlog almost doubled during This is primarily due to the high level of contracting of bulk carriers needing hatch covers. There has, however, also been a significant contracting of car carriers; a market in which TTS holds a solid market position. DECK MACHINERY NOK MILLION Turnover EBITDA Order backlog When TTS took over Kocks in 2005, we also took over a sizeable order backlog with low margins. This has resulted in a deficit for 2006 and the first half of The second half of 2007, however, yielded a profit. For the year as a whole, the EBITDA margin was 1.8 percent compared to -1.8 percent in This is entirely in line with expectations, and points toward a significant improvement in the future. In 2007, the division focused on increasing the quality of production in Korea, at the same time as we commenced sales and production in China. This necessitated an extensive development of the organisation with a strong growth in the number of employees. The order backlog increased with almost 50 percent during the year, to NOK 681 million, another record high. MARINE CRANES NOK MILLION Turnover EBITDA Order backlog

41 41

42 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS In 2007, the Marine Cranes division had a positive development of operations in line with expectations. The EBITDA margin was 5.1 percent compared to 3.1 percent in The newly established operation for offshore handling equipment has shown good results and a strong growth already in its first year of operation. There is primarily two reasons for the remarkably strong growth in order backlog; first, a strong growth in order intake for cargo cranes, as a result of the high level of contracting of bulk carriers, and second, our re-entry into the offshore cranes market, which alone has yielded an order intake of about NOK 600 million. Due to quality issues in relation to delivery of cranes through our partners in Korea, we decided in 2007 to leave this model and transferred all our assembly for the Korean market to our Shanghaian operation. DRILLING EQUIPMENT NOK MILLION Turnover EBITDA Order backlog The takeover of Sense EDM AS was made effective as of The profit level following the takeover are clearly marked by the use of substantial resources for further development of a patented land rig concept. Consequently, turnover has been low with a corresponding profit performance. Thus, the EBITDA margin was 5.2 percent, which is considerably lower than expected. The development work on the land rig concept has been activated with NOK 88 million, in accordance with IFRS. In February 2008, the company signed a contract for the delivery of 5 land rigs to a value of about NOK 500 million, with delivery frame mid 2009 to the end of TTS has previously signed contracts with the same customer for the delivery of 4 land rigs and 2 work-over rigs. With this, TTS has orders for 9 land rigs and 2 work-over rigs at a total contract value of NOK million. The prospects of new contracts are promising. To ensure assembly capacity, TTS has established a new joint venture company in Kristiansand. Following the takeover of Sense EDM, the company has shown a healthy development in the offshore market with the signing of several large contracts. Furthermore, the product range has been strengthened by the acquisition of Wellquip Holding. The company has established a new company in Singapore that will deal with the follow-up of delivery of drilling packages. Moreover, the office will be further developed to deal with new sales and after sales for the TTS Group. At the end of the year, Sense EDM had a total order backlog of NOK 999 million. PORT AND MATERIAL HANDLING NOK MILLION Turnover EBITDA Order backlog In 2007, the Port and Material Handling Division had a positive development of operations in line with expectations. The EBITDA margin was 7.7 percent compared to 7.1 percent in The margins in port equipment were good, whereas the margins in shipyard systems are traditionally somewhat weaker. In total, the division reported a satisfactory result for The growth in order backlog is primarily owing to contracts for shipyard systems and heavy load handling systems to the Far East. Moreover, a new contract has been signed for a major single order in yard equipment (NOK 60 million) in 2008, with prospects of more orders. In 2007, the company had a high order intake of new contracts for port equipment to Ro-Ro terminals. With the exception of consultancy assignments, there have been no new contracts for delivery in the market for cargo handling equipment for large container terminals. This large market will be a key business area for the division in future. In 2007, TTS bought the technology to further target the market for linkspan, which is a purpose-built ramp linking vessel and port. The access to such technology has increased after-sales and strengthened TTS position and competitiveness in this segment. In February 2008, TTS signed a linkspan contract worth about NOK 34 million. Organisation ORGANISATION AND ENVIRONMENT The number of employees in the TTS Group increased by 266 to 874 during

43 Absence due to illness was 3.2 percent in 2007, compared to 3.3 percent in No serious injuries were reported in personal injuries were reported during the year (including six from Sense EDM), compared to 10 in the previous year. The number of weeks of absence due to personal injuries in 2007 were 25. A key area for continuous improvement is work within Health, Safety and Environment (HSE). To ensure understanding of this work, our HSE handbook has been translated into several languages, among these Chinese. As a global group with companies in 12 countries, there is a continuous focus on joining the companies, the corporate cultures and the environments together. Through a process involving all companies and divisions, we have examined and established our core values, integrity, openness, loyalty and initiative. Our core values shall influence TTS s operations, so that they contribute to cooperation and progress for each and everyone in the TTS Group. Quality at all levels is fundamental to our ability to deliver products and services of a quality that builds confidence. A quality control process is one of the measures used, and our aim is for all TTS companies to be ISO certified during the summer of The TTS Group s activities are primarily related to engineering, assembly and testing of equipment. Assembly and testing of TTS products is based on a very limited use of chemicals harmful to human health or to the environment. The products supplied by TTS are primarily electro-hydraulically powered, and there is little risk of environmental pollution. The TTS Group s operations are not regulated by licenses or regulatory orders. EQUAL OPPORTUNITIES TTS aims to ensure equal working conditions, equal opportunities and equal treatment regardless of gender, religion or ethnic background. The aim is equal treatment of all with regard to recruitment, remuneration and promotion. TTS has 874 employees, with a main emphasis on engineering expertise. Women are typically underrepresented in this business; of the total workforce, 157 (17.9 percent, 16.4 percent in Norway) are women. Of these women, 96 hold positions within administration, finance or sales and marketing, giving a 41/59 distribution of women and men within these functions. There are a total of two women out of the four shareholderelected board members on the Board of TTS Marine ASA, in addition to two employee representatives who are both men. NEW MANAGER IN 2007 As part of TTS increased targeting of the after-sales market, Margrethe Hauge (36) was appointed After Sales Director in TTS Marine ASA (TTS) in February The newly established position constitutes a part of the TTS Group s management team. Hauge worked for Hydro Seafood AS from 1996 to 1999, and has since held several management positions for Kverneland ASA; among these, Managing Director of After-Sales, Managing Director of Kverneland in Australia and, prior to her appointment for TTS, Managing Director of the Business Area Crop Care in Kverneland ASA. Margrethe Hauge completed a Diploma Programme in Economics at the University of Mannheim in Germany. Corporate governance INTRODUCTION A more detailed account of the applicable principles for corporate governance is provided in this Annual Report for The same applies to election of a new Board of Directors and nominating committee at the Annual General Meeting on INCREASE OF SHARE CAPITAL The company s share capital at the start of the year was NOK divided into shares at NOK In accordance with the Annual General Meeting s resolution of , the Board has issued share purchase options. The last options were exercised on , at a price of NOK per share. Correspondingly, in accordance with the Annual General Meeting s resolution of , the Board has issued share purchase options, of which were exercised on at a price of NOK 35 per share. In accordance with authority granted by the Annual General Meeting on , the Board resolved on to in - crease the share capital of TTS Marine ASA by NOK , by issuing shares at a nominal value of NOK 0.50 per share, at a subscription price of NOK 66.07, as part settlement (NOK 50 million) in connection with the acquisition of Sense EDM AS. In accordance with authority granted by the Annual General Meeting on , the Board resolved on to increase the share capital of TTS Marine ASA by NOK , by issuing shares at a nominal value of NOK 0.50 per share, at a subscription price of NOK 110. In addition, a repair 43

44 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS issue was implemented ( ), equivalent to shares at the same subscription price. The purpose of the issue for cash is to further develop the company through new acquisitions. The company s share capital subsequent to the issue and as of , was NOK divided into shares at NOK 0.50 each. At the start of 2007, TTS holding of own shares was During 2007, TTS purchased of its own shares at an average price of NOK 100. TTS has maintained its preceding years practice of selling its own shares to employees at a discounted rate. Employees have been given an offer to purchase a maximum of 450 shares at a rate of NOK 76.50, a discount of 20 percent compared with the average rate in week employees have purchased a total of shares. TTS holding of own shares subsequent to the sale was shares. Future prospects The international offshore and shipbuilding industry has experienced five good years. This has entailed excellent market conditions for offshore and ships equipment, which is TTS core business. Accordingly, TTS noted a record high order backlog at the end of The global markets and economic cycles have shown a negative trend in Consequently, there is far greater uncertainty surrounding future development in our markets. We will, however, point out two circumstances that give reason for optimism in TTS. The high order intake established in a good market indicates a growth of more than 45 percent in group turnover in 2008, with further improvement of EBITDA margins. The record high level of contracting of vessels over the past 2 years moreover indicates that unless extensive cancellations are made, there is a growing market for ships equipment in 2009 and High oil prices are further expected to provide good market conditions for our offshore products. Allocation of annual profits for TTS Marine ASA The TTS Group s net profit was NOK 79 million, and equity totalled NOK million as of TTS Marine ASA s equity as per was NOK million, with NOK 34.5 million in unrestricted equity after dividend payment. The company s net profit was NOK The Board proposes the following allocation of TTS Marine ASA s profit for 2007: ALLOCATION OF PROFIT: Dividend NOK ,- Allocated to others reserves NOK ,- Total allocation NOK ,- The Board of TTS Marine ASA proposes a dividend payment of NOK 1.25 per share for the accounting year Bergen, 27 March 2008 The Board of TTS Marine ASA Nils Olav Aardal CHAIRMAN Anne Breive DIRECTOR Hilde P. Aarseth Krøgenes DIRECTOR Agnar Gravdal DIRECTOR Olav Smeland DIRECTOR Oddmund Hatletun DIRECTOR 44 Johannes D. Neteland PRESIDENT & CEO

45 Profit and loss account TTS GROUP 1 JANUARY - 31 DECEMBER (AMOUNTS IN NOK 1 000) IFRS IFRS IFRS OPERATING INCOME Income from projects Other operating income Total operating income NOTES OPERATING COST Cost of sales Personnel costs 4, Depreciation of tangible fixed assets 6, Other depreciations/write-downs Other operating costs Losses on accounts receivable Income from investments in joint ventures Total operating expenses Operating profit/loss FINANCIAL INCOME AND EXPENSES Other interest income Other financial income Other interest expenses Other financial expenses Net financial items Profit/loss before tax Tax Net profit for the year Earnings per share (NOK) Diluted earnings per share (NOK)

46 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Balance sheet TTS GROUP ASSETS (AMOUNTS IN NOK 1 000)) IFRS IFRS Fixed assets NOTES Deferred tax assets INTANGIBLE FIXED ASSETS Research and development Licences, patents, etc Other intangible fixed assets Goodwill Total intangible fixed assets TANGIBLE FIXED ASSETS Land etc Buildings Machinery and vehicles Furniture and office equipment Total tangible fixed assets FIXED ASSET INVESTMENTS Investments in joint ventures Loans to associated companies Investments in shares and units Other receivables Pensions Total fixed asset investment Total fixed assets Current assets Inventories Work in progress Total inventories ACCOUNTS RECEIVABLES Receivables from customers Other receivables Accrued, non-invoiced production Financial derivatives Prepayments to suppliers Total receivables Bank deposits, cash in hand, etc Total current assets Total assets

47 EQUITY AND LIABILITIES (AMOUNTS IN NOK 1 000) IFRS IFRS Equity NOTES Share capital Company s own shares Share premium reserve Other equity Total equity Liabilities PROVISIONS FOR LIABILITIES AND CHARGES Pension obligations Deferred tax Total provisions for liabilities and charges OTHER LONG-TERM LIABILITIES Debt to financial institutions 12, Total other long-term liabilities CURRENT LIABILITIES Debt to credit institutions 13, Payables to suppliers Tax payable Unpaid government taxes Prepayments from customers Non-invoiced production costs, suppliers Financial derivatives Other current liabilities 17, Total current liabilities Total liabilities Total equity and liabilities Bergen, 27 March 2008 The Board of TTS Marine ASA Nils Olav Aardal Anne Breive Hilde P. Aarseth Krøgenes Agnar Gravdal CHAIRMAN DIRECTOR DIRECTOR DIRECTOR Olav Smeland Oddmund Hatletun Johannes D. Neteland DIRECTOR DIRECTOR PRESIDENT & CEO 47

48 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Consolidated equity statement TTS GROUP (IFRS) (AMOUNTS IN NOK 1 000) NOTES Share premium- Share capital Own Shares reserve Other equity Total Equity as of 1 January Depreciation of share premium account Company s own shares New issue New issue expenses Currency differences Opsions cost Net profit for the year Equity as of 31 December Dividends Company s own share New issue New issue expenses Currency differences Opsions cost Net profit for the year Equity as of 31 December

49 Consolidated cash flow statement TTS GROUP 1 JANUARY - 31 DECEMBER (AMOUNTS IN NOK 1 000) Cash flow from operations Net profit for the year Tax paid during the period Depreciation Other depreciations/write-downs Gains/losses on the sale of tangible fixed assets Net change in project accruals Interest cost Profit attributable to associated companies Foreign currency gains/losses on loans Difference between pension charges and payments to/from pension schemes Inventories, customer receivables and payables to suppliers Other receivables and other short-term liabilities Net cash flow from operations Cash flow from investments Acquisition of subsidiaries (less cash balances in subsidiaries) Receipts from sale of fixed assets Disbursements for acquisition of tangible fixed assets Acquisition of intangible fixed assets Payments on other claims (loans) Dividends received Net cash flow from investments Cash flow from financing Receipts from new short-term/long-term debt Disbursements for repayment of short-term/long-term debt Net change in bank overdraft Dividends Paid-in equity Net cash flow from financing Net change in cash and cash equivalents Cash and cash equivalents at the start of the period Cash and cash equivalents at the end of the period This consists of: Bank deposits etc

50 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS Accounting principles TTS GROUP 1. General information TTS is a global company that creates and supplies innovative systems and equipment to the Marine and Offshore industries. The operations are organised into the following divisions: Dry Cargo Handling, Marine Cranes, Port and Material Handling, Deck Machinery and Drilling Equipment. TTS is among the world s leading suppliers in its market segments. TTS Marine ASA is registered and domiciled in Norway, and the head office is located in Bergen. The group has companies in Norway, Sweden, Germany, Finland, China, the US, the Czech Republic, Italy, Canada, Singapore as well as offices in Korea and Vietnam. The company is listed on the Oslo Stock Exchange. This consolidated accounts were approved by the Board on 27 March STRUCTURAL CHANGES At 25 May 2007 TTS Marine ASA acquired 100 per cent of the shares in Sense EDM AS in Kristiansand, Norway The comparative figures have not been changed as a result of this acquisition. See Note 28 for detailed information. 2. Accounting principles The most important accounting principles applied in the preparation of the consolidated accounts are described below. These principles have been applied identically to all the periods that are presented unless otherwise stated in the description. CHANGES TO THE ACCOUNTING PRINCIPLES In 2007, profit/loss (50 percent) from the joint venture companies has been carried from financial income to operating income, compared to the annual accounts for This was done as the activity levels in the joint venture companies are strongly increasing and constitute a substantial part of the group s operations. Most of the contracts have been established by TTS based on sub supplies from the joint venture companies and, accordingly, the turnover has already been reflected in the group turnover. The new reporting system thus gives a more correct picture of the group s operation(s) and margins. For the basis of comparison to 2006 to be correct, historical figures have been adjusted correspondingly. 2.1 Basic principles The consolidated accounts have been prepared in accordance with the International Financial Reporting Standard (IFRS) as stipulated by the EU. Voluntary standards and interpretations as of 31 December 2007 have not been implemented. The consolidated accounts have been prepared based on the historical cost principle, except: financial derivatives and financial assets and liabilities that are measured at fair value over the profit and loss account. The preparation of accounts in accordance with IFRS requires the use of estimates. In addition, the application of the company s accounting principles requires that the management exercise judgement. Areas that contain a high degree of such discretionary assessments, or a high degree of complexity, or areas where the assumptions and estimates are of significance to the consolidated accounts are described in Article 4. Changes in published standards from 2007: - IFRS 7 - IFRIC 8 - IFRIC 10 Additionally other new standards and interpretations of 2007 has been evaluated but are not relevant for the group. This is changes in IFRS 4, IFRIC 7 and Consolidation principles (A) SUBSIDIARIES Subsidiaries are all the units where the group has a controlling influence over the unit s financial and operational strategy, normally through ownership of more than half of the voting capital. Subsidiaries are consolidated from the point in time when control is transferred to the group and eliminated from consolidation when such control ends. The purchase method of accounting is used for the acquisition of subsidiaries. The historical acquisition cost is measured as the fair value of the compensation. Identifiable assets acquired and liabilities assumed are recorded at fair value at the time of the acquisition in the accounts. The portion of the historical cost that exceeds the fair value of identifiable net assets in the subsidiary is recognised on the balance sheet as goodwill. If historical cost is lower than fair value of identittiable net assets in the subsidiary, the difference is recognised in profit and loss account at the time of acquisition (se article 2.6). All intragroup transactions, outstanding accounts and unrealised gains between group companies are eliminated. The accounting principles in subsidiaries are changed as required to achieve compliance with the group s accounting principles. (B) JOINT VENTURES Joint ventures are units where the group has a controlling influence together with other parties, but not alone. Investments in joint ventures are recorded in the accounts in accordance with the equity method. Investments in joint ventures are recorded in the accounts in accordance with the equity method. Investments in joint ventures companies are recorded in the accounts at the historical cost at the time of acquisition and include goodwill (which is reduced by any subsequent write-downs) (see Article 2.6). The group s share of the profit or loss in joint ventures is recognised in the profit and loss account and added to the book value of the investments together with the share of equity changes not recognised in the profit and loss account. The group does not recognise its share of the losses in the profit and loss account if this entails that the book value 50

51 of the investment becomes negative (including unsecured claims against the unit), unless the group has assumed liabilities or granted guarantees for the associated company s liabilities. The group s share of unrealised gains on transactions between the group and its associated companies are eliminated. The same applies to unrealised losses unless the transaction indicates a write-down of the asset transferred. The accounting principles in subsidiaries have been changed as required to achieve compliance with the group s accounting principles. 2.3 Segment information A business segment is a portion of the business operations that delivers products or services that are subject to a risk and return that are distinct from that of other business areas. The group s primary reporting format is business segment. A geographic market (segment) is a portion of the business operations that delivers products or services within a limited geographic area that are subject to a risk and return that are distinct from that of other geographic markets. The secondary reporting segment is geographical segment. 2.4 Foreign currency translation (A) FUNCTIONAL AND PRESENTATION CURRENCIES The accounts of the individual units in the group are measured in the currency that is used primarily in the economic area where the unit operates (functional currency). The consolidated accounts are presented in Norwegian kroner (NOK), which is both the functional and presentation currency for the parent company. (B) TRANSACTIONS AND BALANCE SHEET ITEMS Transactions involving foreign currencies are translated into the functional currency using the exchange rates that are in effect at the time of the transactions. Foreign currency gains and losses that arise from the payment of such transactions and the translation of monetary items (assets and liabilities) in foreign currencies at the rates in effect on the date of the balance sheet are recognised in the profit and loss account. (C) GROUP COMPANIES The profit and loss account and balance sheet for group units with a functional currency different than the presentation currency are translated as follows: i. balance sheet is translated at the closing rate on the date of the balance sheet ii. profit and loss account is translated at the average rate during the year iii. translation differences are entered directly against equity and specified separately Goodwill associated with the acquisition of a foreign unit are allocated to the acquired unit and translated at the rate in effect on the date of the balance sheet. This is for acquisitions from 2004 and later. 2.5 Tangible fixed assets Tangible fixed assets are recorded in the accounts at historical cost less depreciation. The historical cost includes the costs directly related to the acquisition of the fixed asset. Subsequent expenses are added to the value of the fixed asset on the balance sheet or recorded separately on the balance sheet, when it is probable that the future economic benefits associated with the expense will accrue to the group and the expense can be measured reliably. Other repair and maintenance costs are recorded in the profit and loss account in the period when the expenses are incurred. Land is not depreciated. Other fixed assets are depreciated based on the straight-line method, so that the historical cost of the fixed asset is depreciated to the residual value over the expected time of use. Buildings 50 years Machinery and vehicles 3-5 years Fixtures/office equipment 5 years Computer equipment 3 years Depreciation is recognised on a separate line in the profit and loss account. When the book value of the fixed asset is higher than the estimated recoverable amount, the value is written down to the recoverable amount. Gains and losses on disposals are recognised in the profit and loss account and represent the difference between the sales price and book value. The need for depreciation is taken into continuous evaluation. 2.6 Intangible fixed assets (A) GOODWILL Added value is the difference between the historical cost of the acquisition of a business and the fair value of the group s share of the net identifiable assets in the business at the time of the acquisition. Analysis of acquisition distributes added values between goodwill (not written off) and other assets (written off). Goodwill from the acquisition of subsidiaries is classified as an intangible fixed asset. Goodwill associated with the acquisition of an interest in joint ventures is included in the investments in joint ventures. Goodwill is tested annually for impairment in value and recorded on the balance sheet at historical cost less write-downs. The write-down of goodwill is not reversed. In assessing whether there is a need to write down goodwill, it is allocated to the relevant cash-generating units. This allocation is made to the cash-generating units or groups of cash-generating units that are expected to benefit from the acquisition. (B) PATENTS, TECHNOLOGY AND DEVELOPMENT Patents/technology have a limited useful life and are recorded at historical cost on the balance sheet less depreciation. Patents/technology are depreciated by the straight-line method over their expected useful life (0 to 15 years). Development costs associated with market surveys, market development and the development of new products are normally charged against operating income as they are incurred. Order-related development is charged directly to the projects. For certain special projects the development costs are capitalised, cf. Note 8. In such cases the development costs are depreciated over their expected useful life (0 to 15 years). Depreciation is recognised on a separate line in the profit and loss account. 51

52 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS 2.7 Financial assets The group classifies financial assets into the following categories: (a) loans and receivables (b) investments in shares (assets available for sale) (c) fair value over result ( derivatives) (A) LOANS AND OTHER RECEIVABLES Loans and receivables are classified as current assets unless they mature later than 12 months after the date of the balance sheet. In this case they are classified as fixed assets. Loans and other are assessed to nominal value reduced by a provision for bad debt. (B) INVESTMENTS IN SHARES (ASSETS AVAILABLE FOR SALE) Investments in shares are included in the fixed assets unless the management intends to sell the investment within 12 months from the date of the balance sheet. Investments are assessed at fair value on balance day. Possible changes in fair value are entered directly against equity. By possible sale are or written downs the entire value adjustment entered against equity is recognised in the profit and loss account as a gain or loss from investments in securities. (C) FAIR VALUE OVER RESULT See Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalized at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payment made under operating leases is charged to the income statement on a straight-line basis over the period of the lease. 2.9 Derivatives and hedging According to approved instructions, derivatives are effected for income from delivey contracts when signing the contract. This is also current for som larger subcontracts. Derivatives are recorded on the balance sheet at fair value at the point in time when the derivative contract is entered into, and then at fair value on an ongoing basis. The group only enters into derivates that qualifies for fair value hedging. At the start of the hedging transaction the group documents the relationship between the hedging instruments and hedging objects. The purpose of the risk management and strategy behind the various hedging transactions is assessed on an ongoing basis and laid down in the group s strategy. The group also documents whether the derivatives that are used are effective in offsetting changes in the fair value or cash flows associated with the hedging objects. The fair value of derivatives used for hedging is specified in Note 20. Changes in the fair value of the derivatives are entered over the profit and loss account together with the change in the fair value related to associate with the respective hedged asset or liability. The results are booked as operating income when securing income of contracts, and as operating cost when securing cost of contracts Inventories Inventories are valued at the lower of historical cost or net realisable value. The historical cost is calculated by means of the first-in, first-out principle (FIFO). For finished goods and work in progress, the historical cost consists of the product design expenses, consumption of materials, direct wage costs, other direct costs, and indirect production costs (based on a normal capacity level). Loan costs are not included Receivables from customers Receivables from customers are recognised initially at nominal value considered to be fair value on the balance sheet, that is nominal value. For subsequent measurement receivables from customers are assessed at nominal value less provisions for losses that have incurred. Provisions for losses are recognised when there are objective indicators that the group will not receive settlement in accordance with the original terms. Changes in the provisions are recognised in the profit and loss account as losses on accounts receivable. Receivables in foreign currency are converted to NOK at the exchange rate on the balance sheet date Bank deposit and cash Bank deposits in foreign currency are converted to NOK at the exchange rate on the balance sheet date Share capital and premium Ordinary shares are classified as equity. Expenses that are directly attributable to the issuance of new shares or options less taxes are entered against the equity as a reduction in the proceeds. When the company s own shares are purchased, the consideration, is entered as a reduction of the equity (attributable to the company s shareholders). If the company s own shares are subsequently sold or reissued, the proceeds are entered as an increase in the equity attributable to the company s shareholders Loans Loans are recorded at their fair value when they are disbursed, less any transaction costs. In subsequent periods, loans are recorded at their amortised cost, as calculated by means of the effective interest rate. The difference between the loan amount disbursed (less transaction costs) and the redemption value are recognised in the profit and loss account over the term of the loan. Loans are classified as current liabilities unless there is an unconditional right to postpone payment of the debt by more than 12 months from the date of the balance sheet. The next years payment is classified as short term debt Taxes Tax in the profit and loss account encompasses both the tax payable for the period and the change in deferred tax. 52

53 Deferred tax is calculated for all the temporary differences between the financial and tax values of assets and liabilities and tax losses carry forward. Temporary differences are only offset for the Norwegian companies in the group. Deferred tax is determined by means of the tax rates and tax laws that have been adopted or essentially adopted on the date of the balance sheet, which are assumed to apply when the deferred tax asset is realised or when the deferred tax is settled. Deferred tax assets are recognised on the balance sheet provided future taxable income is probable and the temporary differences can be offset against this income. Deferred taxes are not calculated based on temporary differences from investments in subsidiaries and associated companies when the group controls the timing for the reversal of the temporary differences and it is probable that they will not be reversed in the foreseeable future Pension obligations, bonus schemes and other compensation schemes for employees (A) PENSION OBLIGATIONS The companies in the group have different pension schemes. The pension schemes are financed in general by payments to insurance companies or pension funds, as determined by periodic actuarial calculations. The group has both defined contribution and defined benefit plans. A defined contribution plan is a pension scheme in which the group pays fixed contributions to a separate legal entity. The group does not have any legal or other obligation to pay additional contributions if this unit does not have sufficient funds to pay all employees benefits relating to their service in current and prior periods. A defined benefit plan is a pension scheme that is not a defined contribution plan. For defined contribution plans, the group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The group does not have any further payment obligations after the contributions have been paid. The contributions are recorded as a payroll expense in the accounts as they fall due. Contributions paid in advance are recognised as an asset in the accounts if the contribution can be refunded or reduce future payments. A defined benefit plan is typically a pension scheme that defines the pension payments employees will receive when they retire. Pension payments are normally dependent on one or more factors such as age, years of service for the company and salary level. The liability recorded on the balance sheet relating to defined benefit plans is the net present value of the defined benefits on the date of the balance sheet less the fair value of the pension assets, adjusted for unrecognised estimate deviations and costs relating to pension benefits earned from prior periods. The pension obligation is calculated annually by an independent actuary on the basis of a linear model. The net present value of the defined benefits is determined by discounting the estimated future payments at the interest rate for a bond issued by a company with high creditworthiness in the same currency as the benefits will be paid with a term that is approximately the same as the term of the associated pension obligation. Estimate deviations due to new information or changes in the actuarial assumptions in excess of 10 per cent of the value of the pension assets or 10 per cent of the pension obligations will be recorded in the profit and loss account over a period that corresponds to the employees expected average remaining service lifetime. rights in accordance with the new pension plan are contingent on the employee remaining in service for a specified period of time (accrual period). In this case the cost related to the change in benefits is amortised linearly over the accrual period. The employer s share of National Insurance contributions are charged against income based on the pension premiums paid, as well as the accrued change in the net pension obligation. (B) EMPLOYEE OPTIONS In accordance with authorities granted by the Annual General Meeting, the management of the company has been granted options to purchase shares in the parent company. The fair value of allotted options is calculated as part of the salary cost with a corresponding increase in equity. The fair value is measured on the date of allotment and distributed over the intervals till the employee has worked up an unconditional right to exercise the options. The option premium is estimated on the date of allotment using the Black & Sholes option pricing model. Ref. note 16 (C) GROUP BONUSES The group records a liability and a cost for any group bonuses. Whether the bonus shall be calculated and paid and the size of the bonus is dependent on the profit for the year. The bonus is paid to all of the employees in the following year Provisions The group recognises provisions for restructuring, legal requirements, etc., when: There is a legal or self-imposed obligation to do so as a result of earlier events, there is a preponderance of evidence that the obligation will be settled by a transfer of economic resources, and the size of the obligation can be estimated with an adequate degree of reliability. The group recognises provisions for expected guarantee liabilities based on experience and contract. Additionally the group recognises provisions for remaining work or claims from the customer regarding long-term construction contracts Recognition of income Income from the sale of goods and services is assessed at the net fair value after the deduction of value added tax and possible rebates. The group s income is related to long-term construction contracts, service contracts and after-sales. Income connected to long-term construction contacts is posted according to the degree of completion of each project; see further information under Article The group s products are often sold with a warranty period +/- 2 years. See also note 14. Income connected to service contracts and after-sales is recognised in the period it is accrued, i.e. when the risk and control has passed to the buyer. Intragroup income is eliminated. Interest income is recognised in the profit and loss account over time in accordance with the effective interest method. If receivables are written down, the book value of the receivables are reduced to the recoverable amount. Changes in the pension plan s benefits are entered as an expense or income on a current basis in the profit and loss account, unless the 53

54 4-8 TTS GROUP 9-11 REPORT FROM THE CEO BUSINESS AREAS CORPORATE GOVERNANCE DIRECTORS S REPORT AND ACCOUNTS 2.19 Construction contracts Revenue from long-term manufacturing projects is allocated in step with the degree of progress of the project, if the outcome of the transaction can be estimated in a reiable manner. Progress is measured as accrued hours in comparison to total estimated hours, when reliable estimates are available. When the outcome of the transaction cannot be reliably estimated, only the revenue corresponding to accrued project costs will be entered as income. In the period where it is identified that a project will give a negative outcome, the estimated deficit on the contract will be fully allocated. Costs relating to manufacturing projects are allocated in step with the degree of progress on a level with the revenue. In the event that a major discrepancy between what is considered as actual progress and budgeted costs based on calculated degree of completion, the degree of competition will be adjusted so that it to a greater extent will correspond to the actual progress of the manufacturing project. Upon establishing accrued costs for manufacturing contracts, purchasing relating to future activities of a contract will not be taken into account. The purchases/costs are posted as goods, advance payments or other liquid assets depending of type of costs. Incurred costs and profit received related to all construction contracts in progress, where the incurred costs and profit received (less recognised losses) exceed the payments on account invoiced, will be recorded on the balance sheet as an asset. The asset is classified as accrued, non-invoiced production. If the payments on account invoiced for all the construction contracts in progress exceed the incurred costs and income recognised (less losses) this is presented as prepayments received from customers under Prepayments from customers Cash flow statement The cash flow statement has been prepared based on the indirect method. Bank deposit and cash are defined above under Section Financial risk management 3.1 Financial risk factors The TTS Group s activities entail various types of financial risk; market risk (including currency risk and floating rate of interest risk), credit risk and liquidity risk. The group s main risk management plan focuses on the unpredictability of the capital market, and attempts to minimize its potentially negative effects on the group s financial results. The group engages in international operations and is exposed to currency risk and interest rate risk. The group makes use of hedging to reduce the risk of currency exposure. Risk management routines are determined by the Board. The TTS Group has a decentralized structure with operational super vision of the various business units, where the main management of financial risk is determined by the Board. This applies to areas such as currency risk, interest rate risk, credit risk and use of financial derivatives. For the classification of financial assets and liabilities, reference is made to Note 29. MARKET RISK (A) CURRENCY RISK The TTS Group operates internationally and is exposed to currency risk in a number of foreign currencies. The consolidated accounts are to a great extent affected by the exchange rate of NOK against SEK, USD and EUR. The group endeavors to reduce the risk of exposure to exchange rate fluctuations by obtaining an optimal balance between incoming and outgoing payments in the same currency, in addition to forward exchange transactions at an acceptable exchange rate. Currency risk is to a large extent related to contracts for delivery that involve income and expenses in foreign currencies. Following contract signing, the guidelines are to sell and purchase foreign currencies on a forward exchange contract, to reduce the currency risk in cash flows designated in foreign currencies. With a production process based on the use of an international network of sub suppliers, purchases may further be optimized with regard to currency. In order to manage the currency risk of future trade transactions and assets and liabilities recognised in the balance sheet, the TTS Group s units use forward exchange contracts. These hedging activities meet the requirements of hedge accounting. The company has investments in foreign subsidiaries where net assets are exposed to currency risk at conversion of currency. (B) INTEREST RATE RISK The TTS Group s interest-bearing debt is based on a floating rate of interest. This involves an interest rate risk for the group s cash flow. The group s surplus liquidity are in the form of bank deposits and not in liquid securities. Any divergence from the use of a floating rate of interest and placement of surplus liquidity shall be determined by the Board. Entries exposed to interest rate risk are bank deposits and long-term liabilities. The following table illustrates the group s sensitivity to potential fluctuations in interest rate levels. Calculations take into account all interest-bearing entries. All effects will be brought forward to the profit and loss account, as the company has no hedging instruments related to interest that will be directly charged to equity. Fluctuations in Effect on Effect on interest rates results equity /- 1% point /- 1% point Calculations are made on the basis of an average of net interest-bearing debt. CREDIT RISK Credit risk is dealt with at a corporate level. Credit risk arises in transactions with derivatives, bank deposits and financial institutions, in addition to transactions with customers. Maximum risk exposure is represented by the extent of financial assets recognized in the balance sheet. The counterparty for pension resources is a Norwegian insurance company, and risk related to this is regarded as minimal. The counterparties for derivates are banks, and the credit risk related to these is considered to be insignificant. The same applies to bank deposits. The credit risk degree is moderate for all the group s business segments, and is presently regarded as limited. Historically, the group has had no substantial losses on accounts receivable. 54

55 AS OF 31.12, THE GROUP HAD THE FOLLOWING MATURITY DISTRIBUTION ON ITS EXTERNAL CUSTOMERS: Total Not yet due 0 3 months 3-6 months > 6 months It is considered that it is not required to write down the value of overdue account receivables. These account receiveables relates to independent customers which previously not failed to fulfill their obligations to the group. The invocing is to a great extent in accordance with milestones bases on progress in each project. Due to delay in the delivery, a gap between due date and payment date may occur from time to time. LIQUIDITY RISK The TTS Group s strategy is to have sufficient cash or credit options to be able to, at any time, finance operations and investments throughout the year, in accordance with the group s strategy plan. The group regards it as most likely that it will be able to renew loan agreements or negotiate alternative financing agreements upon expiry of the current agreements. Surplus liquidity is placed as deposits in bank on the best possible terms. THE TABLE BELOW GIVES AN OVERVIEW OF THE STRUCTURE OF MATURITY OF THE GROUP S FINANCIAL OBLIGATIONS: Remaining period: < 6 months 6-12 months 1-5 years More than 5 years In total LONG-TERM FINANCIAL OBLIGATIONS Interest-bearing non-current liabilities CURRENT FINANCIAL OBLIGATIONS First year s installment on non-current liabilities Interest-bearing current liabilities Derivatives Accounts payable and other current liabilities Total financial obligations In addition to this is advance payment from customers and cost related to facilities under construction. These entries are items of accrual and ordinarily fall due within a year. 3.2 Risk related to investment management The TTS Group s aim with regard to investment management is to secure continued operations in order to ensure a return for the owners and other partners, and maintain an optimum capital structure, so as to reduce capital costs. To improve the capital structure, the group may adjust the level of dividend payment to shareholders, issue new shares or sell assets to repay loans. The company s gearing as of and is illustrated below: Net interest-bearing debt Equity In total Gearing 21.3 % In December of 2006, a private placing was completed to further develop the company through new acquisitions. The same was done in 2007, in addition to debt financing in order to finance acquisitions implemented in Estimation of fair market value Fair market value of the shares available for sale is estimated specifically to a fair market value, as the share is not traded on an active market. The fair market value of forward contracts in foreign currencies is estimated by employing the market-to-market rate on the balance sheet date. 4. Important accounting estimates and discretionary assessments Estimates and discretionary assessments are assessed continuously and based on historical experience and other factors, including expectations of future events that are regarded as probable under the current circumstances. The group prepares estimates and makes assumptions concerning the future. The accounting estimates that are made as a result of this will rarely coincide in full with the final outcome. Estimates and assumptions/prerequisites that represent a significant risk of major changes in the book value of assets and liabilities during the next financial year are discussed below. (A) ESTIMATED IMPAIRMENT IN VALUE OF GOODWILL The group performs annual tests to assess whether the value of goodwill is impaired, cf. Article 2.6. The recoverable amount from cashgenerating units is determined by calculation of the utility value. These calculations require the use of estimates (Note 7). (B) FAIR VALUE OF SHARES The fair value of shares that are not traded in an active market (such as unlisted derivatives) is determined by means of various valuation methods. The group assesses and selects the methods and prerequisites that are based primarily on the market conditions on the date of the balance sheet. (C) CLAIMS AND SUPPLEMENTARY WORK OF CONSTRUCTION CONTRACTS The group recognizes provisions regarding claims from customers in connection with delivery of construction contracts and possible supplementary work due to proved weakness in the delivery of product. The management estimates the determination of the value of the allocation. 55

56 (D) WARRANTY LIABILITY The group offers a warranty period of +/- 2 years on its deliveries. The management estimates provisions for future warranty liabilities based on information on historical warranty claims, together with information that indicates that the information on earlier expenses may be different from future liabilities. Factors that can influence the estimated liabilities include the outcome of productivity and quality initiatives, as well as the price of spare parts and labour costs. (E) RECOGNITION OF INCOME Income from the sale of goods/services is recognised in accordance with the percentage of completion method. This method requires that the group make discretionary assessments concerning what percentage of the total goods/services have been delivered on the date of the balance sheet. 56