a n n u a l r e p o r t 2010

Transcription

1 a n n u a l r e p o r t 2010 TTS GROUP ASA

2 TTS Group Historical development 6 Financial highlights 8 Key events Report from the CEO 12 Business areas Marine Division 16 Energy Division 20 Port and Logistics Division 24 Chinese venture 28 Momentum 30 Extensive upgrading of ports 32 corporate covernance information Shareholder information 35 Corporate governance 36 Senior management 40 Board of Directors 42 director s report and accounts Director s report 45 Profit and loss account and notes - Group 51 - TTS Group ASA 95 Auditor s report 114 Responsibility statement 116 organisation This is TTS 118 Companies in the TTS Group 122 financial calendar quarter 2010/preliminary annual result February - 1. quarter May - 2. quarter August - 3. quarter November - Annual general meeting 19 May

3 Canada Edmonton USA Fort Lauderdale Houston TTS continuously generating profits by being the preferred global supplier for handling equipment to the maritime and oil & gas industry Brazil Macaé 3

4 Germany Bremen Lübeck Sweden Gothenburg Finland Tampere Norway Bergen Nodeland Kristiansand Drøbak Singapore Singapore China Dalian Nantong Shanghai Czech Rebublic Ostrava-Hrabová Italy Genoa Greece Piraeus Vietnam Haiphong City Korea Busan TTS has a worldwide network of branch offices, service stations and agents, and provides after sales service in the major shipping regions in the world. Companies in the TTS Group Sales and service network

5 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION TTS Group ASA Bergen-headquartered TTS is a global enterprise that designs, develops and supplies equipment for marine industry and the oil & gas industry. The operations are split into three separate divisions: Marine, Energy and Port and Logistics. TTS is one of the top three largest suppliers in its market segments. TTS is listed on the Oslo Stock Exchange and the group s annual turnover is in the region of NOK million. With a worldwide workforce of around 1 100, TTS has over 40 years of experience in the marine industry. The group has subsidiaries in Norway, Sweden, Germany, USA, China, Finland, Korea, Czech Republic, Vietnam, Canada, Singapore, Italy, Greece and Brazil. Marine Cruise vessel equipment Mooring winches Hatch covers Anchor handling winches Marine cranes Davits Mega yacht equipment Roro equipment Sideloading systems Energy Drilling equipment Drilling packages Land rigs Mud systems Offshore cranes Offshore ships equipment Offshore winches Roll compensated systems Port and Logistics Block and heavy load handling Cargo handling Consulting Container terminals Port equipment Shiplift and transfer systems Shipyard production lines 5

6 3-15 TTS GROUP BUSINESS AREAS CORPORATE GOVERNANCE DIRECTOR S REPORT AND ACCOUNTS organisation When the company was founded in 1966 TTS stood for Total Transportation Systems Today, TTS is better represented as Total Technology Solutions 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 Port Equipment AB, Gothenburg, Sweden 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 Jiangnan TTS, Nantong, China TTS establishes TTS Marine Equipment (Dalian), China TTS establishes TTS Greece Ltd., Greece TTS establishes TTS Singapore Pte. Ltd., Singapore TTS establishes TTS Marine AS, Kristiansand, Norway TTS establishes TTS Brazil, Brazil. 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 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 50 % of TTS Keyon Marine, Zhang Jia Gang, China TTS acquires Sense EDM AS, Kristiansand, Norway TTS acquires 100 % Sense MUD AS, Kristiansand, Norway TTS acquires Wellquip Holding AS, Kristiansand, Norway TTS sells TTS Keyon Marine, Zhang Jia Gang, China. 6

7 Annual turnover The TTS Group s turnover showed a steady growth up to and including 2008, in line with the company s entry into new markets and its strengthening of activities in established business areas. In 2009 and 2010, the turnover fell as a result of the financial crisis and the subsequent economic downturn. TTS total turnover in 2010 was 15 percent lower than in the year before. For 2011, it is the group s objective again to grow turnover. MNOK OMSETNING MNOK Port and Logistics Marine Energy 7

8 3-15 TTS GROUP BUSINESS AREAS CORPORATE GOVERNANCE DIRECTOR S REPORT AND ACCOUNTS organisation Financial highlights Marine division NOK Million Turnover turnover 2010 consolidated turnover NOK Million EBITDA Order backlog per ENERGY division NOK Million Marine 68.8 % Energy 22.0 % P&L 9.2 % Turnover EBITDA Order backlog per PORT AND LOGISTICS division NOK Million Turnover EBITDA Order backlog per Marine 60.7 % Energy 30.7 % P&L 8.6 % consolidated EBITDA NOK Million order backlog Marine 80.2 % Energy 17.3 % consolidated order backlog P&L 2.6 % NOK Million Marine 75.7 % Energy 18.9 % P&L 5.4 %

9 main figures 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) 23.3 % 25.4 % 22.6 % 30.1 % 36.6 % profitability EBITDA margin 0.1 % -2.2 % 3.5 % 6.8 % 6.7 % EBIT margin -1.5 % -6.0 % 2.7 % 5.5 % 6.1 % Profit margin (pre-tax) -4.8 % -8.2 % 0.9 % 4.0 % 5.3 % Profit margin (after tax) -6.1 % -6.5 % 0.9 % 3.2 % 3.8 % Rate of return Return on equity % % 3.7 % 10.5 % 14.1 % Return on total capital -4.4 % -6.3 % 2.6 % 4.3 % 5.5 % shares Equity per share Earnings per share (NOK) , Number of shares, end of year Average number of shares Nominal value, end of year Defininitions 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 average equity. Profitability, total capital: Operating profit as a percentage of average total capital. 9

10 3-15 TTS GROUP BUSINESS AREAS CORPORATE GOVERNANCE DIRECTOR S REPORT AND ACCOUNTS organisation Key events 2010 TTS reported earnings At the start of 2011, In 2010, TTS adjusted its TTS achieved a satisfactory before depreciation TTS had an order backlog manning in relation to level of profitability in of NOK 4 million, based of NOK million. the weak demand in vital the markets for handling on a turnover of NOK The order intake in 2010 markets. At the start equipment for ships and million. The group was NOK million, of 2011, the number of ports, while earnings reported a pre-tax loss of which NOK employees in wholly and results from activities of NOK million. million in the fourth owned companies relating to the oil and gas quarter. was 1 057, compared to industry were weak the year before. 10

11 Photo: A. Maresca TTS entered into an agreement TTS established TTS strengthened the TTS made an out-of-court with the Chinese ship building a sales office in group s balance sheet by settlement subsequent group, Dalian Shipbuilding Industry Macae in Brazil, carrying out a private to the bankruptcy of Corporation (DSIC) regarding to market its placement that provided Ability Drilling. TTS strategic cooperation on deliveries products and the company with NOK purchased a land rig to the offshore industry. Whenever services to the 42 million. Additionally, from the bankruptcy DSIC enters into new contracts, offshore industry. TTS has taken up a estate for NOK 75 million TTS will contribute with expertise subordinated convertible with sellers credit of up in design, marketing and delivery loan of NOK 200 million. to two years. All other of drilling packages. TTS will claims between the furthermore supply equipment for parties were waived. four jack-up rigs built by DSIC. 11

12 3-15 TTS GROUP BUSINESS AREAS CORPORATE GOVERNANCE DIRECTOR S REPORT AND ACCOUNTS organisation Photo: helge skodvin We can conclude that the many challenges affecting TTS as a result of the financial crisis are being resolved, which in turn means that the organisation may once again direct its efforts toward creating growth and healthy economic results. johannes neteland president & ceo tts group asa 12

13 We are coming back! T TS is an international group that designs and supplies handling equipment for use onboard vessels, in ports and on installations for production of oil and gas. With activities spanning most continents, we are far more exposed to risk than had we limited our geographical field of activities. At the same time, a global presence provides us with opportunities that we may not otherwise have. The market for our products is global, and accordingly we must be present in close proximity to our customers operations providing products and solutions at a competitive price and quality. Over the past two years, TTS owners and employees alike have experienced how tough it can be to create results. The financial crisis and the subsequent economic downturn had significant consequences and taught us valuable lessons. When summing up 2009, we used the expression annus horribilis, and our expectations for 2010 were level-headed. The financial figures have now been presented, and although results have taken a positive direction, we must admit that the past year is not one to be joyously recalled with regard to TTS bottom line. Still, we have succeeded in maintaining the expertise in TTS, and as such we are well-equipped for the return of the markets for our products and services within all three of our business areas was a good year for the Marine division, our largest division. Although the total turnover was somewhat lower than in 2009, there was a high level of activity throughout most of the year, and the operating margin showed positive development. The potential for further improvement of profitability is predominantly related to an increase in the sale of services and products in the after sales and service market. For the Port and Logistics division, 2010 was a year of improved results and operational margins, despite a lower turnover than the year before. The Energy division, however, was marked by a year of little activity and weak margins on orders in progress, and consequently its operational result were very poor. When we in spite of an unsatisfactory result for the year, we choose to assess our current situation to be far better than the one we were in at the end of 2009, this is mainly due to a solid order intake towards the end of The order intake close to NOK 1.5 billion in the fourth quarter was the largest order intake since the third quarter of 2008, and one of the largest order intakes during one single quarter in the history of TTS. 13

14 When, in conclusion, we sum up the situation for TTS as far better than twelve months ago, this relates to the fact that several factors hampering the group s operation have either been removed or are in the process of being solved: - TTS dispute with the bankruptcy estate following the bankruptcy of Ability Drilling was settled out-of-court last autumn. Instead of a presumably prolonged legal process, the dispute was settled by an agreement in which TTS purchased a land rig from the bankruptcy estate for NOK 75 million with a seller s credit of up to two years. All other claims between the parties were waived. - The effort to dispose of the three land rigs that TTS was left with following the bankruptcy of Ability Drilling is progressing favourably. Selling these rigs is an important step in order to reduce the group s balance sheet. In February this year, one of these rigs was hired out on commercial terms for a period of twelve months. - The group s capital situation has been strengthened. In July, TTS carried out a private placing that provided the company with NOK 42 million. In January 2011, a subordinated convertible loan of NOK 200 million was issued. - Efforts to bring the Energy division into a position for new contracts for drilling equipment packages and cranes for offshore vessels has proven successful. In November, TTS entered into an agreement with the Chinese ship building group, Dalian Shipbuilding Industry Corporation (DSIC) a company that TTS is familiar with through many years cooperation in the joint venture TTS Bohai Machinery regarding strategic cooperation on deliveries to the offshore industry. When DSIC enters into new contracts, TTS will contribute with expertise in design, marketing, and delivery of drilling packages. Parallell to this, an agreement was made for TTS to deliver equipment for two jack-up rigs which DSIC will deliver, at a total value of NOK 460 million. In April 2011 the number of rigs was increased to four, at a total value of NOK 900 million. At the end of last year, further contracts were signed regarding deliveries of cranes to the offshore segment at a total value of NOK 50 million. 14

15 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION With this, we can conclude that the many challenges affecting TTS as a result of the financial crisis are being resolved, which in turn means that the organisation may once again direct its efforts toward creating growth and healthy economic results. The strong growth in order intake at the end of last year has continued into Furthermore, we believe that our long-term focus on developing operations in China continues to be important, and overall we expect about 40 percent of TTS total value creation to take place in our Chinese companies. Our expectations of the cooperation with DSIC in the energy segment are high. We are further convinced that the experiences which our customers of our first drilling packages will gain when this equipment is put to use in the coming year will provide us with a marketing advantage. As a major player within our markets, TTS has had a tradition of playing a role in restructuring the industry. We will continue to vigilantly seek solutions that will create value for our share holders. Although there is still uncertainty related to the development of TTS markets, 2011 promises to be a year of progress within all of TTS business areas. We will none theless have to fight for each contract in a market with surplus capacity following several years of drought. The demand for our products and services will depend on the economic and political development in the world. If the surge of unrest in several states in the Middle East and North Africa has such consequences as a limiting in the supply of oil and gas, this will negatively affect the world economy and may reduce the willingness to invest in new equipment and purchase service and after sales support. We must therefore be prepared for setbacks, and on the whole have level-headed expectations to our turnover and results in Having said this, the potential for the activities that TTS engage in are considerable, and we have a clear ambition of returning to the levels seen prior to the financial crisis. We are coming back! Johannes D. Neteland President & CEO 15

16 Marine division For the Marine division of TTS, 2010 was a prosperous year. The market for marine handling equipment has been brisk, and by concentrating the group s activities in the maritime sector into one division, TTS has been able to achieve synergies and strengthen its competitive edge. ivar k. hanson DIREctor marine division Ivar K. Hanson, Director and head of the Marine division. Until the new organisation became operative on 1 January 2010, he headed the Marine Cranes division for six years. Hanson holds a Master of Science in Business Administration, as well as a degree in Mechanical Engineering, and he has worked with TTS for a total of 16 years. The activities in the maritime sector make up the largest part of TTS operations. At the start of 2010, it was expected that the market would recover following a period affected by the financial crisis and economic downturn. This expectation was by a long way fulfilled. At the same time, the competitive situation intensified, owing to a considerable build up of capacity in the maritime equipment industry over the past years. Our response to this challenge has been to concentrate all our resources within this business area, both to achieve cost synergies and to appear more uniform and with a higher degree of power with all our products and solutions, says Ivar K. Hanson, Director and head of the Marine division. In 2010, operation and results within the business area of cargo access were excellent. Furthermore, the activities related to deck equipment yielded satisfactory results. The joint venture companies in China made a particularly positive contribution. In all, the Chinese companies contributed close to a third of the division s added value. Results from the division s activities within service and maintenance were somewhat weaker than anticipated. Lower day rates resulted in reduced demand for maintenance. Operations Operations in the Marine division are headed from Bergen, Norway, and have been divided into four business areas: Deck equipment, comprising deck machinery, hatch covers, cargo cranes and yacht equipment; Cargo access, comprising RoRo equipment, side loading systems and equipment for cruise ships and mega yachts; Services, including repairs, maintenance, training and sale of spare parts; and finally, the joint venture companies in China constitute the division s fourth business area. At the start of 2011, the Marine division had 667 employees, compared to 681 the year before, and most of these employees have an emphasis on engineering skills. The employees are distributed Turnover Order backlog EBIDTA

17 TTS GROUP 3-15 business areas CORPORATE governance director s report and accounts ORGANISATION Quarter ramp supplied by TTS to the world s largest RoRo vessel, MV Tönsberg, built at Mitsubishi Heavy Industries in Nagasaki for Wilh. Wilhelmsen. Delivered in March Photo: A. Maresca 17

18 geographically, with 118 employees in Norway, 86 in Sweden, 159 in Germany, 37 in the Czech Republic, 6 in Italy, 6 in Greece, 12 in the USA, 168 in China, 56 in South Korea, 8 in Singapore and 7 in Vietnam. In addition to this, the joint venture companies in China have a total of 153 employees, with 83 employees in TTS Bohai Machinery in Dalian and 70 in TTS Hua Hai in Shanghai. TTS Hua Hai owns 40 percent of the manufacturing company Jiangnan TTS Ships Equipment, in Nantong, with 720 employees. In Germany, TTS Kocks and TTS Ships Equipment in Bremen merged in In the first half of 2011, TTS LMG in Lübeck will formally be incorporated into one German company with employees in Bremen and Lübeck. Through our entire organisation we have a strong focus on achieving synergies; cost-wise by improving our purchasing routines, and income-wise by further streamlining the way in which we market and sell our products and services, says Ivar K. Hanson. In the autumn of 2010, the Marine division initiated a cultural project in collaboration with the Norwegian embassy in Beijing. The aim of this project is to strengthen and improve cooperation and interaction between the division s employees in Europe, primarily in Sweden, Norway and Germany, and the enterprises in China. The project is organised as a series of seminars with assistance from external advisors, with the aim of increasing knowledge and understanding of each other s approaches and work methods, including relevant differences between the various European countries and different parts of China. Hatch covers Stern ramp and stern door Wire luffing cranes Products The Marine division supplies design and engineering of equipment for cargo handling and cargo access on vessels, with related functions within service and maintenance. Product development is carried out internally in each business unit and across these units. TTS is among the world s leading suppliers of cargo handling systems for vessels; including side loading systems, RoRo equipment, hatch covers and specialist equipment for yachts and cruise ships. TTS is also one of the world s major suppliers of hose handling systems, and holds a strong position in the market for provision cranes and cargo cranes. TTS is furthermore a significant supplier of winches and deck machinery. Our portfolio of products is continuously improved and re newed, in line with the technological development and customers requirements to efficient and functional solutions. Our focus is pre dominantly on developing our programs in service and after sales. Historically, this is an area in which TTS has had limited focus, but we are building a service function to meet our customers 18

19 TTS GROUP 3-15 business areas CORPORATE governance director s report and accounts ORGANISATION requirements for standby guarantees relating to unforeseen events and regular maintenance. Our aim is to provide a solid service function for our customers throughout our products service life, says Ivar K. Hanson. Market outlook At the start of 2011, the order backlog of the Marine division was NOK million, compared to NOK million the year before. These figures include 50 percent of the order backlog of the joint venture companies TTS Hua Hai Ships Equipment Co. Ltd. and TTS Bohai Machinery Co. Ltd. in China. The weakened order intake is a result of the pronounced decline in the shipbuilding market until 2010, and the fact that there is normally a degree of staging between the date of contracting of new vessels and orders of new equipment. In the first half of 2010, a large number of bulk carriers and tankers were contracted at shipyards in South Korea, which together with a renewed activity in the car carrier market present improved opportunities for TTS, says Hanson. In addition to equipment deliveries for RoRo vessels, the market for cruise liners appears to hold opportunities for TTS. Furthermore, there is an increase in activity in the niche market for mega yachts, and the same applies to reefers. We are looking at the possibility of deliveries to the naval forces of several countries in connection with the refurbishment of vessels. The tanker and bulk market, however, remain slow, Hanson maintains. He adds that the Marine division also supplies specialist equipment for offshore vessels, including deck machinery, special purpose hatches as well as rescue and emergency equipment. Weather and tween hatch cover Deck winches Ramp cover Strategy The Marine division has an order situation that ensures full capacity utilization in 2011, and the main challenge is to sell new projects with satisfactory margins for implementation in 2012 and following years. We must continue our efforts to develop and market our expertise as supplier of services. Due to the strong increase in our volume delivered in recent years, the basis for products requiring service and maintenance will continue to grow. Hence, our opportunities in this business area are significant, even if the service market in general remains weak, Hanson points out. The Marine division will continue its efforts to achieve cost synergies on the basis of the Momentum Project (ref. separate article on page 30-31). 19

20 Energy division inge gabrielsen DIREctor energy division Inge Gabrielsen is head of the Energy division, and is furthermore Director of TTS Energy AS. Gabrielsen holds a Master of Science from NTNU, the Norwegian University of Science and Technology, and was head of operations in former TTS Sense until He has previous experience from Subsea 7 and several Aker companies. The Energy division concluded 2010 by entering into two major contracts for delivery of complete drilling packages. As a consequence of strategic co operation agreements in China, additional two contracts were signed in April The demand for land rigs and offshore cranes is expected to rise in the course of this year. At the start of 2010, TTS concentrated most of the group s activities in the oil and gas industry into the Energy division. The scope of activities is primarily development and production of advanced drilling equipment, cranes, winches and other handling equipment. Following the acquisition of Sense EDM in 2007, equipment for onshore and offshore rigs was incorporated into TTS product portfolio. In the same year, TTS resumed supplying offshore cranes. In 2010 TTS merged all Energy companies in Norway into one single company; TTS Energy AS, and by doing so achieved a more defined and efficient operational structure. Efforts are focused on achieving both administrative and operative synergies. As expected, the market for the Energy division s products remained weak for most of last year. TTS has succeeded in maintaining a high level of expertise in the area, and is well-equipped to service the market with high-quality products and solutions. In 2010, TTS delivered a complete drilling equipment package to Keppel FELS in Singapore. The equipment package constitutes part of a highly advanced jack-up rig for the drilling and production of oil and gas. Testing of the drilling package is expected to be completed during the second quarter of this year. In 2009, similar drilling packages were delivered to a CJ70 jack-up rig currently under construction at the Jurong Shipyard in Singapore. Testing of this drilling package will also be completed in the second quarter of this year. Both rigs have been acquired by rig operators that have been awarded drilling assignments for operating companies in the North Sea, thus providing TTS with valuable references. In 2010, TTS entered into a contract with PetroVietnam Marine Shipyard Company regarding a drilling equipment package for a jack-up rig currently under construction at the Vung-Tau shipyard. The equipment is scheduled for delivery in In 2010, TTS further signed a strategic cooperation agreement Turnover Order backlog EBIDTA

21 TTS Energy delivers land rigs based on our internationally patented rack & pinion technology. These rigs are unique in term of mobilization, operational weight, speed of operation as well as level of automation. TTS GROUP 3-15 business areas CORPORATE governance director s report and accounts ORGANISATION

22 4-11 TTS GROUP BUSINESS AREAS CORPORATE GOVERNANCE DIRECTOR S REPORT AND ACCOUNTS organisation Offshore Modular Rig where the rack & pinion principle results in a more compact and lighter rig compared with traditional solutions. with the Chinese shipbuilding group Dalian Shipbuilding Industry Corporation (DSIC) regarding delivery of drilling equipment to the offshore industry. Through its Energy division, TTS will contribute with expertise in design, marketing and delivery of drilling packages, whenever DSIC enters into new contracts for the delivery of such equipment. The collaboration on equipment deliveries to customers in the offshore market is organised through the joint venture company that TTS owns together with DSIC; TTS Bohai Machinery. TTS entered into an agreement with DSIC for the delivery of two drilling equipment packages for jack-up rigs, ordered by Prospector Offshore Drilling. These are scheduled for delivery in the fourth quarter of Two additional contracts for drilling equipment packages were signed in April Through its offshore company DSOC, DSIC holds options for the delivery of an additional three jack-up rigs. Following its re-entry into the crane market, TTS has developed a range of cranes for rigs and offshore vessels, anchor handling winches and other handling equipment. With its unique technology for active heave compensation, TTS has become a significant supplier of cranes and equipment for handling of heavy loads at great ocean depths. In 2010, the Energy division delivered its first 250 ton active heave compensated offshore crane was a weak year for the Energy division s company in Canada. As a result of the low level of activity in the market for land rigs, operations have been focused on the sale of individual components as well as after sales service. On the basis of recent years deliveries to the oil and gas industry, TTS has obtained a solid foundation for providing its service and after sales. In addition to the sale of spare parts for drilling rigs and cranes, TTS has developed a simulator-based training program for continuous maintenance. TTS has established a 24-hour technical support for service, and the activity in this area is increasing. In 2010, TTS made an out-of-court settlement with the bankruptcy estate following the bankruptcy of Ability Drilling. TTS committed to purchasing a land rig from the bankruptcy estate for NOK 75 million. Efforts are focused on disposing of all three rigs on commercial terms. Operations The Energy division comprises all units of the TTS Group that deliver equipment to the oil and gas industry. Its main products are drilling packages, complete land rigs, as well as cranes and winches for rigs and offshore vessels. The Energy division is managed from Kristiansand in Norway. Operations are divided into the two business areas Drilling and Offshore & Subsea, of which the first is managed from Kristiansand and the latter from Bergen. 22

23 Gulmar Atlantis is equipped with a 140 ton AHC offshore crane from TTS. At the start of 2011, the Energy division had 316 employees, compared to 395 the year before, whereof 264 work in Norway, 38 in Canada, 11 in Singapore, one in China and one in the USA. Furthermore, a sales office has been established in Macae in Brazil, with one employee. Products The Energy division designs, develops and supplies advanced equipment for onshore and offshore rigs, and for vessels serving the oil and gas industry. The products are divided into the following main categories; drilling equipment, drilling packages, land rigs, mud systems, offshore cranes, equipment for offshore vessels, offshore winches and active heave compensated systems. The development of equipment is carried out in close cooperation with the division s customers, based on requirements for functionality, productivity, safety and quality. We have developed a virtually complete product portfolio for the high end part of the market for drilling equipment. So far, we have primarily focused on equipment for jack-up rigs. However, we have ambitions of making deliveries to floaters by employing the heave compensation technology. We have initially developed concepts for semi-floaters, but will eventually be able to provide solutions for drill ships, Inge Gabrielsen says. Market outlook At the start of 2011, the order backlog of the Energy division was NOK 690 million, compared to NOK 854 million the year before. Following two years of a low level of activity, the market for the division s products is once again on an upward trend. Our challenge is to document our competitive edge as regards technology and quality in a market marked by two major, well established suppliers. The development for the cooperation in China will as such be of significant consequence; here TTS has an advantage that we will take great care of, emphasises Inge Gabrielsen. The market for offshore cranes is weak. The demand for land rigs is expected to improve in Strategy For the Energy division, the main focus of 2011 is to capitalise on the product portfolio which TTS has developed; primarily through more contracts for deliveries of offshore cranes and drilling equipment for jack-up rigs. The basis for growth in the drilling equipment market is favourable, and our ambition is to go from being a small contender to a major market player in this segment. Our basis for this is that, toward 2015, another 100 jack-up rigs will be constructed worldwide, providing a favourable potential for the sale of our products. We anticipate that the demand will increase further towards the end of this year. In the market for offshore cranes, TTS will focus on the re-sale of cranes cancelled during the financial crisis and securing new orders. In spite of a weak market for land rigs, we are convinced that the operators will gradually require more rigs. Our strategy will be to serve the high end market with automated solutions. We will make use of technology from offshore installations and approach the segment of the market that requires advanced rigs, Gabrielsen points out. The Energy division has established a sales office in Macae in Brazil, to market the division s products to shipyards in Brazil and to offer service functions. With regard to the service market, the division s strategy is to develop the position that TTS has built as a supplier with solid expertise and excellent training programs for customers. 23

24 Port and Logistics division The Port and Logistics division is wellequipped to handle a growing market for equipment for ports, and as an example is prequalified to participate in competitive tendering for deliveries to Rotterdam s new container terminal. The market for lifting and transport equipment to the industry is recovering. Accordingly, the division has lennart svensson DIREctor port and logistics division high expectations to operation and results in Lennart Svensson was appointed Director of the former Port and Material Handling division in 2008, and continued as head of the new division, following last year s restructuring. Svensson holds a degree in Mechanical Engineering, and has for most of his career been involved in marine cargo handling. He was previously Marketing Director of TTS Ships Equipment AB, and has been Managing Director of TTS Port Equipment AB since its establishment in Since 2005, TTS has developed products and services for the handling of cargo in ports. Together with the traditional activities within material handling, this has become a significant business area for the group. The Port and Logistics organisation has in 2010 been strengthened to enhance interaction between the units in Sweden, Norway and Finland. The division has its own function for marketing and administrative services, ensuring efficient operation and proximity to customers at all stages. The Port and Logistics division products and customers make its operations less exposed to fluctuations in the market than TTS other divisions. Thus, turnover and results in 2009 and 2010 have on the whole been acceptable, even though profitability between the three units of the division has varied. In 2010, the division s most prosperous operations were the ones involving development and manufacturing of port equipment. The division is managed from Gothenburg. As a result of the restructuring of TTS at the start of 2010, several joint administrative functions were established to make the division less dependent on resources from other divisions and from the group administration. Operations At the start of 2011, the Port and Logistics division had 67 employees, compared to 61 the year before. The employees are distributed geographically; with 22 employees based in Sweden, 17 in Norway and 28 in Finland. In Sweden, the staff was increased by five employees in 2010, while minor adjustments were made elsewhere. Most of the division s employees have an emphasis on engineering skills. In Sweden, the expertise is focused on developing equipment for efficient cargo handling in ports, while in Norway it is Turnover Order backlog EBIDTA

25 TTS GROUP 3-15 business areas CORPORATE governance director s report and accounts ORGANISATION Upper deck Linkspan, Port of Gothenburg. 25

26 Two tier Linkspan in Hoek van Holland. Transfer system from TTS Handling System. Upper deck Linkspan for Harwich International Port, England, UK. focused on production lines and equipment for heavy load handling in shipyards and other industries. In Finland, specialisation is on systems and vehicles for the transport of containers and loading cassettes. A review of 2010 indicates that this is probably the most hectic year since TTS made equipment for cargo handling an area of focus. The level of activity was particularly high in the Gothenburg-based company performing the installation of a number of linkspans (special ramps linking ship to shore), passenger gangways and other terminal equipment, says Lennart Svensson. In 2010, TTS delivered port equipment to Stena Line and to ports in Germany, England, Denmark and Sweden. Last year, TTS Port Equipment was approved as one of three potential suppliers for a fully automated transport system for Rotterdam s new container terminal. An announcement on the choice of system and supplier is expected during the autumn of We have made considerable investments in the development of a system for automatic container handling, and should TTS be chosen as preferred supplier, this would constitute a major project for the division over the next few years. There will be two-three other major port terminal projects, with a focus on automation of manual systems, maintains Svensson. Not all areas within the division kept up the same level of activity in As a consequence of the financial crisis, the market for our operations in Finland has been weak for the past two years. A weak order intake resulted in a temporary reduction in manning in the first half of After the summer holidays, there has been an increase in the demand for cassette loadings systems and translifters for customers in shipping and other industries. The market for equipment for heavy load handling and production lines to the industry was expected to be weak in In Norway, the focus was therefore on deliveries of lifting equipment to repair yards. TTS collaborates with another technology company relating to the development of a separate system for the lifting of ships, and has commenced marketing of this system. In collaboration with wind power producers, a considerable effort has been made to develop heavy lift and logistics solutions for the transport and installations of offshore wind turbines and wind power plants. Products TTS has an extensive product portfolio for cargo handling in ports. In addition to linkspan and passenger gangways, this further comprises automatic mooring devices and systems for handling containers and cassettes. The cassettes are further suited for special transport requirements related to production, e.g. in the steel and paper industries. Additionally, TTS has developed a complete AGV system (Automated Guided Vehicles) for the handling of containers in container terminals. Through is activities in Norway, TTS has for a number of years been a supplier of production lines to shipyards and of systems and solutions dealing with heavy load handling, both in shipyards and other industries. In recent years, TTS has invested development resources on heavy lift and logistics solutions in connection with establishment and installation of onshore and offshore wind power plants. The 26

27 demand for such systems is growing as a result of the steadily increasing size of the wind turbines. TTS has considerable knowhow with regard to heavy lifts, and uses this to develop solutions that ensure a safe and efficient transport of installations with a height up to 90 meters. Market outlook At the start of 2011, the order backlog of the Port and Logistics division was NOK 102 million, compared to NOK 242 million the year before. We have prepared for a slight growth in turnover and results in 2011 compared to last year, despite the fact that parts of our markets are experiencing surplus capacity and price pressure, maintains Svensson. The Port and Logistics division delivers the majority of its products and services to customers in Europe, but it also has deliveries to countries in Asia. In 2010, the division entered into contracts for linkspans to Australia and New Zealand. The division will continue to focus on the marketing of linkspan and passenger gangways towards port authorities and commercial players in Northern Europe and Great Britain. The market for heavy lift equipment to repair yards in Europe and Asia is considered to be significant. Furthermore, the Port and Logistics division considers Brazil to be an interesting market for heavy lift equip- ment and production lines, provided that plans for the establishment of new shipyards in Brazil are carried through. Strategy In 2011, the Port and Logistics division will focus on achieving even more synergies between its units with regard to marketing of products and services. The organising of TTS entails that each division is fully responsible for operation and economy, which Port and Logistics as the smallest division has adjusted to. At a higher level, we are concerned with the fact that we, through our deliveries, contribute to ensuring the requirement for efficiency through the greatest possible use of automated systems, and that environmental considerations are safeguarded through the use of electricity as a principal energy source, says Svensson. He maintains that the division to a higher degree wishes to be seen as a system supplier rather than a product supplier. We will focus intensely on developing and strengthening our position as supplier of systems for cargo handling in container terminals. The division bases itself on the fact that the increase in world trade over time will compel new and automated solutions for cargo handling in ports. In this perspective, our challenge is to maintain and develop our expertise through participation in specific projects. Hence, we must continue to focus on product development and sales, emphasises Lennart Svensson. 27

28 3-15 TTS GROUP BUSINESS AREAS CORPORATE GOVERNANCE DIRECTOR S REPORT AND ACCOUNTS organisation New phase in our Chinese venture TTS has a long tradition of collaboration and operations in China. Presently, we are about to initiate a new phase in our Chinese venture. We hope that it will be as eventful and promising as the cooperation on development and production of maritime equipment. Last autumn, TTS entered into an agreement with the Chinese shipbuilding group Dalian Shipbuilding Industry Corporation (DSIC) regarding strategic cooperation on delivery of drilling equipment to the rig market. When DSIC enters into new contracts, TTS will contribute with expertise in design, marketing and delivery of drilling packages through its Energy division. Chinese shipyards aim to become leading suppliers to the offshore industry and this agreement offers TTS a great oppor tunity to strengthen our position in this market, says Johannes D. Neteland, President and CEO of the TTS Group. Two-dimensional cooperation Cooperation in China within the field of energy has two dimen sions. With respect to DSIC, the agreements entails that TTS is to be DSIC s preferred partner and supplier of drilling equipment when ever the shipbuilding group takes on assignments for customers in the rig market. With regard to TTS Bohai Machinery, the cooperation means that the joint venture company establishes a separate offshore organisation for production of drilling equipment and offshore cranes to sell these to Chinese yards. Making the most of each others advantages TTS Bohai Machinery is well established in Dalian, with 83 employees and operations within engineering, production and sale of marine cranes to shipyards in China. Within this niche, the company has taken a market share of just under 25 percent. Now that TTS Bohai Machinery is entering the rig market, the company will enter into agreements with subcontractors regarding the construction of drilling equipment, and will handle its own production and assembly. A steering committee with representatives from TTS Energy and TTS Bohai Machinery shall be responsible for further developing this cooperation. The basis for this cooperation is that TTS Energy in Norway develops products and solutions, while production and assembly takes place in China. Thus, the parties competitive advantages are utilised for our common good, says Inge Gabrielsen, Director of TTS Energy division. TTS Bohai Machinery already supplies cranes to the offshore market, and further plans to offer winches and other lifting equipment to AHTS vessels and subsea vessels. Adding drilling equipment to the productrange will strengthen the company s profile as offshore supplier. Conducive to quality control DSIC has set aside large areas for use as premises and facilities for the production of equipment to this market. The Energy division will be represented by two-three engineers to ensure quality control and documentation in connection with the establishment of an organisation and the construction of premises. The Chinese must follow international standards of quality, and our main task is to continuously revise developments and projects according to these standards. DSIC has already constructed 11 jack-up rigs and has contracts for the delivery of six more rigs. Four of these will be delivered to Prospector Offshore Drilling in the fourth quarter of 2012 and in 2013, with advanced drilling equipment packages from TTS Energy. Taking a firm position These contracts entail the recognition that TTS as a supplier is considered equal to the two major players in the industry and to other makers of drilling equipment. Provided that we maintain our competitive edge with regard to price and quality, this cooperation provides us plenty of opportunity to build up a portfolio that will make TTS the third alternative in this segment, emphasises Gabrielsen. He points out that TTS history as a supplier of complete drilling packages is short. The initial contract for such a delivery was entered into with Jurong Shipyard in Singapore in June It has been an demanding journey, however, we are about to take up a position which in both technical terms and business terms entails great opportunities. Strengthening our service function Gabrielsen maintains that by building a portfolio of rigs with TTS drilling equipment, one opens a market for service and after sales support. In order to service rigs operating in Asian waters, we are currently establishing a service hub consisting of our employees in Singapore and our new representative in Shanghai. There are further plans of a service station in Dubai. Thus, TTS will be seen to have a competitive edge as regards both expertise and availability. 28

29 DSIC has already constructed 11 jack-up rigs and has contracts for the delivery of six more rigs. Four of these will be delivered to Prospector Offshore Drilling in the fourth quarter of 2012 and in 2013, with advanced drilling equipment packages from TTS Energy. 29

30 3-15 TTS GROUP BUSINESS AREAS CORPORATE GOVERNANCE DIRECTOR S REPORT AND ACCOUNTS organisation Progress to continue with Momentum The Marine division is enjoying helthy growth. However, no matter how good something is it can always be improved. Hence, internal processes and routines are under critical scrutiny in order to improve TTS competitive edge and profitability. As a project, Momentum will contribute to our continued improvement. Momentum is the name of a project to cover three business-critical areas; work processes, product development and strategic purchasing. The Business Process Reengineering Project deals with professionalising the way in which work is performed, in order to make our organi sation more efficient and increase productivity. Improved work processes The most important parameters of any enterprise are its human capital and the business processes. We have technically skilled employees in the Marine division, yet we know that the organisation of and execution of projects can be carried out in a more efficient manner. As an example, we should have systems for a common database, enabling engineers in various countries to work on the same project more effortlessly. The same applies to the way in which we present our tenders. It is essential that we set certain standards and are disciplined in applying these, says Ivar K. Hanson, Director and head of the Marine division. Our approach to these challenges has been to bring out examples of best practise in our organisation, and form strategies for putting this practice into effect throughout the rest of the organisation. We have identified best practice in the Marine division at the business unit Cargo Access in Gothenburg, and we have agreed to define and introduce these processes as work procedures for the entire division in the present year. Parallel to this, we are introducing the Balanced Scorecard to measure key performance indicators, continues Hanson. Offering improved products The main aim of the product development project is to further develop and optimise the product portfolio for cargo cranes, deck machinery and hatch covers. During the spring of 2011, we will have in place a product portfolio in these areas that will improve our competitive edge significantly. Product development is also about improving the purchasing of components. Removing two out of three suppliers leaves us with a choice of suppliers that will reduce the overall cost in the supply chain. By grouping our purchases in component families, it is easier to obtain favourable prices, the director of the Marine division points out. Trimming suppliers The project for strategic purchasing involves both the standardisation of technical components in products and the improvement of processes by purchasing such components. The project group is assisted by external consultants. In the course of 2011, we will arrive at cross-divisional standard solutions involving a reduction in the number of component and choice of supplier. In principle, our purchases shall be made as close to the customer as possible, as long as this does not compromise our high standard of quality. At the same time, purchases shall be improved through routines that group volumes at the lowest possible prices. Ivar K. Hanson emphasises that all units in the division are taking part in Momentum, including the joint ventures in China. These companies are, to an increasingly greater degree, becoming integrated in operations and development. The Momentum project will enable us to guard market shares and provide the foundation for even better earnings once the market starts to gain momentum, concludes the divisional director. 30

31 AHC kran under testing på TTS Marine Shanghai Photo: helge skodvin The Business Process Reengineering Project deals with professionalising the way in which work is performed, in order to make our organi sation more efficient and increase productivity 31

32 3-15 TTS GROUP BUSINESS AREAS CORPORATE GOVERNANCE DIRECTOR S REPORT AND ACCOUNTS organisation Extensive upgrading of port using TTS equipment Through its Port and Logistics division, TTS is involved in a large-scale modernisation of port facilities in a number of ports in Northern Europe. Stena Line s new Superferries underlines the demand for more efficient and comfortable flow of traffic. In recent years, Stena Line has invested large sums in new ships for the ferry service in the Baltic Sea and the North Sea. The shipping company has built two Superferries; Hollandica and Britannica, which at 240 meters in length are the largest Superferries in the world able to carry both passengers and freight. The investments have been based on a clear strategy for efficient cargo handling and expansion of Stena Line s ferry terminals in Harwich and Hoek van Holland. Furthermore, substantial upgrades have been completed in the port facilities that Stena Line makes use of in Loch Ryan in Scotland, in Belfast, Gothenburg, Karlskrona, Gdynia and Kiel. Stena Line has chosen TTS as business partner for these assignments, based on our expertise and experience with similar projects. We have been responsible for conducting exploratory analysis and concept development in each individual case, says Lennart Svensson, Director of the Port and Logistics division. The final deliveries for Stena Line were completed last autumn. Improving traffic flow TTS has delivered double-tier linkspans, which are bridges linking ship and shore, with two transport corridors in and out of the vessel from the upper and lower deck. This ensures an optimum flow of traffic in and out of the ferries. Installations have been carried out with minimal disruption to the regular ferry schedule. Our transport of goods and passengers has continued without delays. The installations and the work executed on the quayside were carried out in a very satisfactory manner, says Pim de Lange, Area Director in Stena Line. Automatic mooring system Furthermore, TTS has delivered a new automatic mooring system and passenger gangway to Stena Line s ferry terminal in Gothenburg. At the same terminal, TTS has designed an advanced gangway, connecting the vessel to a new floor on top of the existing terminal building. In Karlskrona, TTS has upgraded an existing linkspan for the ferries servicing the Karlskrona-Gdynia route, and installed a new passenger gangway. An analysis has been made of the need for adjustments to the equipment in the ferry terminal in Gdynia. Large linkspans in major port Stena Line has established a route in the Irish Sea between the Port of Belfast in Northern Ireland and the Port of Stranraer in Scotland. Stena Line s terminals in these ports have undergone a reconstruction according to TTS engineering, and both ports have taken delivery of new passenger gangways. In addition, the Port and Logistics division are responsible for a new automatic mooring system to the contracting firm Skanska in the Copenhagen-Malmø Port. TTS has delivered four large linkspans with upper and lower decks, and final tests were completed in January this year with highly satisfactory results. Continued focus on major market On the basis of the group s many years of presence in China, TTS has entered into collaboration with suppliers that manufacture port equipment. The market for efficient and environmentally sound solutions for the infrastructure in ports is substantial. In just a few years, TTS has built up a considerable portfolio of terminal projects, giving us a solid foundation for the sale of new and profitable assignments, emphasises Lennart Svensson. 32

33 Göteborg Belfast Loch Ryan Karlskrona Kiel CMPort Gdynia Harwich Hoek van Holland Upper deck Linkspan in Harwich for the world s largest RoPax ferries, Stena Superferries. Photo: Mike Louagie 33

34 34

35 Shareholder information TTS GROUP 3-15 BUSINESS areas corporate governance director s report and accounts ORGANISATION 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 NOK NOK NOK 7,60 The share price has been adjusted to reflect the 1:2 share split in April trade in tts share Number of shareholders Foreign holdings 12,97 % 18,17 % Average per trading day Number of trades Value (NOK 1000) Number of shares (1000) ,4 Average price 6,57 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 movement in share capital, risk adjustment Date Type of Share capital Number Nominal value transaction after transaction shares in NOK Public offering Share split Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Privat placing Rights issue Privat placing ,50 TTS share value NOK The company s financial calendar is as follows: 4. quarter 2010/preliminary annual result february 1. quarter May 2. quarter August 3. quarter November Annual general meeting 19 May

36 Corporate governance TTS Group ASA (TTS) applies the Norwegian code of practice for corporate governance, dated 21 October 2010, as guidelines for its work. The following principles for corporate governance have been adopted by the Board of TTS Group 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 14 countries, there is a continuous focus on our core values and corporate culture. Through a process involving all companies and divisions, we have evaluated and established our core values; which are integrity, openness, loyalty and initiative. Our core values shall influence TTS activities, in order that they contribute to cooperation and progress for each and everyone in the group. Through clearly defined core values TTS wishes to contribute to develop ment of the societies in countries where it is present. Much of TTS operations is based on trade across borders and culture. TTS takes s ocial responsibility through developing increased understanding of cultural differences and in this way increased tolerance. TTS has in cooperation with external expertise held seminars to enhance under standing of cultural differences. TTS has also sponsored Chinese cultural activities in Norway. 2. Business TTS Group ASA s Articles of Association are available on the company s website. Article 3 defines the company s purpose: The company s purpose is to engage in industrial activities related to ship building, oil and gas production, and port activities, including any related activities, as well as participation in or acquisition of other enterprises. The group s goals and main strategies are described on the group s website; 3. Equity and dividends EQUITY Total balance at 31 December 2010 was MNOK, with an equity capital of NOK 803 million, giving an equity-to-assets ratio of 23.3 %. The company s solidity requirement is continuously assessed on the basis of the company s goals, strategies and risk profile. In January 2011 the company issued a subordinated convertible bond loan of 200 MNOK. In addition the company renegotiated terms on bank and bond loan to include the convertible loan as part of the covenants from 31. December TTS covenants on bank loans are minimum equity of 800 MNOK and more than 25 % equity ratio. TTS also has an unsecured bond loan where the covenants requirement is 550 MNOK in equity and more than 22.5 % 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 by means of acquisitions will be implemented through balanced financing of equity and debt. The Annual General Meeting determines the annual dividend, based on the Board s proposal. The Board of TTS Group ASA will propose to the Annual General Meeting, on 19 May 2011 that no dividend is paid out for the accounting year STRATEGY FOR FURTHER GROWTH TTS has, since 1996, completed fourteen 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 260 MNOK in 1997 to about MNOK in In the last 2 years the turnover has been reduced and in 2010 the turnover was MNOK. The international offshore and shipbuilding industry has been affected by the financial crisis in the last part of 2008 and this has also affected TTS. The market conditions have become more demanding for TTS core businesses offshore and ships equipment, but have also affected port equipment. Accordingly, TTS significantly reduced its order backlog from the end of 2008 to the end of In the last quarter of 2010 TTS strenghtened its order backlog for the first time since 3rd quarter 2008 as a consequence of a stronger market within drilling. In general the market for the Energy division has improved during the year while the markets for shipbuilding and port have been stable. 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 15 June 2009, the Annual General Meeting adopted a resolution to give the Board authority to issue a maximum of shares against cash redemption for the benefit of the company s executive management. This authorisation is valid until 15 June shares have been issued in the form of options, with a possible first time exercise of options following the presentation of the first quarterly results for 2010, equivalent to a maximum of 50 % of the allocated options. The number of shares for further exercise of options constitutes 12.5 % following the presentation of the results for the second, third and fourth quarter of 2010 and the first quarter of 2011, in addition to options not previously exercised. On the 3 June 2010, the Annual General Meeting adopted a resolution to give the board authority to issue a maximum of shares against cash or non-monetary redemption including merger. The authority is valid to the Annual General Meeting 19 May On 13 July 2010 the authority was utilized to issue shares to Scana Industrier ASA in a right issue at NOK 6.30 per share. On 3 June 2010, the Annual General Meeting adopted a resolution to give the board authority to issue shares against cash 36

37 TTS GROUP 3-15 BUSINESS areas corporate governance director s report and accounts ORGANISATION redemption for the benefit of the company s executive management. This authorisation is valid to 19 May shares have been issued in the form of options, with a possible first time exercise of options following the presentation of the first quarterly results for 2011, equivalent to a maximum of 50 % of the allocated options. The number of shares for further exercise of options constitutes 12.5 % following the presentation of the results for the second, third and fourth quarter of 2011 and the first quarter of 2012, in addition to options not previously exercised. On 3 June 2010, the Annual General Meeting adopted a resolution to give the board authoritiy to issue shares against cash redemption for the benefit of the company s employees. This authorisation is valid to 19 May No shares has been issued on the basis of this authorisation as of 31 March Equal treatment of shareholders and transactions with closely related parties SHARE CAPITAL AND SHAREHOLDERS The share capital at 31 December 2010 was NOK divided into shares at a nominal value of 0.50 NOK each. The company has only one class of freely negotiable 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. At 31 March 2011, the company s own shareholding was THE BOARD OF DIRECTORS AND GROUP MANAGEMENT TTS Group 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. According to the Norwegian code of practice for corporate governance, a company should list reasons for deviation from existing shareholders preferential status when making a right issue. TTS aim to follow the Norwegian code when and if applicable. RELATED COMPANIES The joint venture companies in the TTS group are treated as related companies with transactions as shown in Note Freely negotiable shares As transpires from the Articles of Association posted on the company s website, no form of transfer restriction has been effectuated. 6. Annual General Meeting The Annual General Meeting is usually held at the end of May/beginning of June. The Annual General Meeting for 2010 will be held on 19 May 2011, in accordance with the financial calendar for Agenda papers for the Annual General Meeting, including the nominating committee s recommendations, are distributed to the shareholders at the latest three 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. The agenda papers are detailed enough to permit the shareholders to make a decision on all items up for consideration. Shareholders unable to attend may vote by proxy. Proxy forms will be sent out for each shareholder to fill in and return to the admini stration. On the proxy form, the shareholder may vote on each individual item. The registration deadline is normally 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 turnout for 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 individual general assembly. The Annual General Meeting will be given the opportunity to vote for each of the candidates up for positions in the company s bodies. 7. Nominating committee In TTS, a nominating committee is statutory according to the Articles of Association. In accordance with the Annual General Meeting on 3 June 2010, a nomination committee was appointed with the following members: NAME Johan Aasen Bjørn Sjaastad Bjørn Olafsson POSITION Trustee, Skagenfondene Consultant 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 Group 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. According to the Norwegian code of practice for corporate governance, the chairman of the nominating committee should be elected at the Annual General Meeting and guidelines for its work should be established. In the opinion of TTS, it is more appropriate that the committee decides on the distribution of tasks, including the election of a chairperson. The Annual General Meeting determines the nominating committee s remuneration. 37

38 The members of the committee including practical information as deadlines for nominations and contact information is listed on the company s website. 8. Corporate Assembly and Board of Directors, composition and independence As TTS Group ASA have fewer than 200 employees, the management model does not include a corporate assembly. There are two employees representatives on the Board of TTS Group ASA. In accordance with the Annual General Meeting on 3 June 2010, the shareholders elected the following members to the Board: NAME STATUS POSITION Trym Skeie Re-elected Chairman, Skagerak Venture Capital AS Anne Breive Re-elected CFO, Løvenskiold Vækerø AS Kjerstin Fyllingen Not for election Group Director, Tryg AS Bjarne Skeie Re-elected Skeie Technology AS Rune Selmar Elected Consultant In December 2010 Rune Selmar resigned as a director from the board of TTS Group ASA. The board made the decision to elect his successor at the Annual General Meeting on the 19 May In accordance with ordinary election of two employee representatives to the Board of TTS Group ASA, the following were appointed to the Board in September of 2010: Name Company Position Karen T. Mørkestøl TTS Energy AS Director Jarle Dyrdal TTS Energy AS Director Morten Heiseldal TTS Energy AS 1st Deputy Director Anne Karin Bedringås TTS Energy AS 2nd Deputy Director TTS Board members are elected for a two-year period. Each Board member s CV is available in the Annual Report. Trym Skeie and Bjarne Skeie are both directly and indirectly major shareholders in the company. The other 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 interests, and the company s requirements for expertise, capacity and diversity in a fine 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. At 31 March 2011, Trym Skeie, Chairman of the Board, had shares in TTS Group ASA, through Tamafe Holding AS, in which he owns all of the voting shares. Bjarne Skeie, Director for the Board, had shares in TTS Group ASA, through Skeie Technology and Skeie Consultants, in which he owns all of the voting shares. The other Directors of the Board do not hold any shares in TTS Group ASA. None of the Board Directors hold any options. In 2010, the turnout for Board meetings was good. 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 the chairman. 9. The work of the Board The Board has eight scheduled meetings annually, and an annual meeting plan is set up. Further meetings are held as required. A total of 13 board meetings were held in The work of the Board has been intensified as a result of the financial challenges that TTS was up against in Owing to this situation, the Board s primary focus in the past quarterly periods has been risk analyses and risk management. Procedures for the Board and management have been established, focusing on distribution of tasks and responsibilities. The Board complies with the rules regarding disqualification pursuant to the Joint Stock Public Companies Act, Section The group s use of nominating committee has been made statutory in its Articles of Association. In addition, the Board of TTS Group ASA has appointed an audit committee: AUDIT COMMITTEE Anne Breive (Chairman) Kjerstin Fyllingen Rune Selmar (up to December 2010) At present, the Board does not have a compensation committee. This is assessed on an annual basis. TTS previously had a compensation committee. There are no other committees in the Board. At present, TTS does not have a deputy chairman. This is assessed on an annual basis. TTS previously had a deputy chairman. The board conducts an self-assessment annually. 10. Risk management and internal control The TTS Group has a decentralized structure with operative boards in each company holding an average of six to eight board meetings a year. The largest company in each division reports on all the companies in its own 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. The administration prepares monthly reports on results, which are submitted to and reviewed by the members of the Board. In addition, more comprehensive quarterly financial reports are prepared, which are reviewed at the quarterly period board meetings. Included in the reporting are any variances or measures for the most significant projects. In addition to continuous risk management, the Board and administration undertake specific risk analyses in connection with major investments and contract signing, as well as a continuous risk analysis of projects. Risk management is part of the Board s work, and in addition to a continuous review, this is moreover a part of budget and strategy related work. The Board of Directors undertakes a thorough review of the company s financial status in the Directors Report. This review includes a further description of the main elements of HSE and risk aspects. 38

39 TTS GROUP 3-15 BUSINESS areas corporate governance director s report and accounts ORGANISATION 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 program 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 the call for the Annual General Meeting on 19 May Remuneration of executive management The Board has issued guidelines for stipulation of salaries and other remunerations to executive management. The President and CEO s terms are stipulated by the Board. The Board s attitude to management salaries is that these should be competitive and motivating, but not ahead of the market with regard to their level. Bonus is calculated on the basis of measured results. Guidelines are presented in Note 4. According to the note, share options constitute part of the remuneration. Share options for executive management (see Item 3 Authorisations to the Board) include group management. Exercise of share options is dependent on the share price listed on the Oslo Stock Exchange. At the end of 2010 and at 31 March 2010, in all authorised share options had been issued to group management options may be exercised up to 15 June 2011 at a price of 7.55 NOK and options that may be exercised up to 3 June 2012 at a price of 5.91 NOK. DISTRIBUTION OF OPTIONS AND SHARES AT 31 March 2011 Number of Number of Name Position options of shares Johannes D. Neteland CEO Arild Apelthun CFO Ivar K. Hanson Head of division Lennart Svensson Head of division Inge Gabrielsen Head of division Total 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 in 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 (with the exception of the call for an annual general meeting, see Item 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, and one of the meetings deals with the company s internal control. The audit committee meets with the auditors to go through the audit plan for the year where any specific areas are being discussed. The auditor is present at board meetings as required. Remuneration payable to the auditor, specifying the division between auditing 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 to making use of the auditor for services other than auditing. 39

40 Senior Management Johannes D. Neteland president & ceo Neteland (53) is President & CEO of TTS Group ASA. He holds a Master of Science in Business degree from the Norwegian School of Economics and Business Administration (NHH). Neteland worked for Statoil from , was the deputy managing director of Block Watne Boliger from and the marketing director of the Ekornes Group from He was the division director of Vital Forsikring from until he assumed his current position. Ivar K. Hanson Executive Vice President Hanson (46) is division Director of Marine and President of TTS Marine AS. He holds a Master of Science in Business degree from the Norwegian School of Economics and Business Administration (NHH) and is a mechanical engineer. Hanson has worked as a contract co - ordinator 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. He took up his current position with TTS in Lennart Svensson Executive Vice President Svensson (54) is Director of the Port and Logistics division. Svensson is a Naval Architect and Mechanical Engineer. He has eight years of experience from various enter prises that are currently part of the MacGregor Group and two years as Marketing Director at Daros Piston Rings AB. Svensson has worked for TTS since 1996 and as President in TTS Port Equipment AB since the company was established in He took up his current position in the autumn of

41 TTS GROUP 3-15 BUSINESS areas corporate governance director s report and accounts ORGANISATION Inge Gabrielsen Executive Vice President Gabrielsen (58) is Executive Vice President of the TTS Energy division and President of TTS Energy AS. Gabrielsen holds a degree as M.Sc. Naval Architect and Marine Engineering from the Norwegian Institute of Technology (NTH) in Trondheim. Gabrielsen started in TTS Sense in 2007 and came from the position as Vice President for Vessel Mangement and Equipment Group in Subsea 7 ASA. Prior to this he worked for different companies in Aker Maritime for 10 years. Until he took up his current position in TTS in the autumn of 2009, Mr Gabrielsen was Vice President Operations in TTS Sense AS. Arild Apelthun cfo Apelthun (39) Apelthun is CFO in the TTS Group ASA. Apelthun comes from the position as CFO of Aker Process, based in the Netherlands. Apelthun has been holding various positions in subsidiaries of Aker Solutions in the USA and Europe over the last 7 years. Prior to that he has been working with ABB, Aker Maritime and Ementor in Norway. Arild Apelthun holds a degree as Master of Science in Business from Bodø Graduate School of Business. Apelthun took up his current position with TTS in

42 The Board of Directors TTS Group ASA Trym Skeie chairman of the board Skeie (42) is one of the main founders of Skagerak Venture Capital AS (SVC), where he currently is a partner and holds the Chairman seat. Before establishing SVC in 2006, Trym was with Kistefos Venture Capital as an Investment Manager within the IT/Telecom area. He also has an offshore industry background through active involvement and Board seats in companies such as Sinvest ASA, Premium Drilling AS, Venture Drilling AS and Wellquip AS. Earlier he has worked as a Vice President at Silicon Capital Ltd., Manager in Accenture and structural design engineer in Hydralift ASA. Skeie`s current Chairman/directorships in SVC portfolio includes: UFIS Airport Solutions AS, Presens AS, Mobile Nordic AS and Nordic Energy Services. Skeie holds the equivalent of a Masters degree from the Norwegian School of Economics and Business Administration (NHH), and a MSc. from the Norwegian University of Science and Technology (NTH). Skeie has been chairman of the board since November He has shares and no options in TTS Group ASA. Skeie is a Norwegian citizen. Kjerstin Fyllingen Director of the board Fyllingen (53) is corporate director of Tryg, Private & Commercial Norway. She holds a Diploma in Economics and an MSc in Leader ship, both from the Norwegian School of Management BI. Fyllingen previously worked for Vital Forsikring, where she held various managerial positions in charge of the business segments Public Sector, as well as Customer Service Private & Commercial. Fyllingen has furthermore held various managerial positions in DnB within the areas of IT and Economics. She has been head of Infodoc International and held various positions within Economics in DnV. Fyllingen has been a member of the board since She has no shares or options in TTS Group ASA. Fyllingen is a Norwegian citizen. Anne Breive Director of the board Breive (45) is CFO of Løvenskiold-Vækerø AS. She has a Bachelor of Commerce degree from the Norwegian School of Management (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 Statnett from Breive has been a member of the TTS Group ASA board since She has no shares or options in the company. Breive is a Norwegian citizen. 42

43 TTS GROUP 3-15 BUSINESS areas corporate governance director s report and accounts ORGANISATION Bjarne Skeie Director of the board Skeie (65) has an engineering background and is known as an entre preneur, industrial developer and investor in the rig, offshore and equipment industries. This includes the founding of Maritime Hydraulics AS (1970), as well as acquisitions and restructuring of a number of companies that were merged and listed on the Oslo Stock Exchange as Skeie Group (1986/87). He undertook further establishments and acquisitions of new companies, one of which was Hydralift (1990), a company that saw tremendous organic growth through acquisitions. Hydralift was sold to National Oilwell in the autumn of 2002, at the time the major shareholder of TTS Group ASA (39.1 percent). He founded Sinvest in 2002, which was sold in In 2006, Skeie Drilling & Productions was established, and in 2007, Skeie energy was established. Per March 2011 Bjarne Skeie owns shares in TTS Group ASA, through Skeie Technology and Skeie Consultants, in which he owns all of the voting shares. He holds no options in TTS Group ASA. Skeie was Chairman of the Board of TTS Group ASA in the period and has been a member of the board since Skeie is a Norwegian citizen. Karen T. Mørkestøl Director of the board Mørkestøl (58) has completed upper secondary school with emphasis on English language and music, and has further completed a one-year course at a college of commerce. Mørkstøl worked for ship chandler Oskar Pedersen AS from 1972 to 1980 as a secretary/purchaser of equipment for deck and machinery. Following a period of temporary positions with various companies, she was employed by Maritime Hydraulics/Aker Solution as salary administrator in charge of wages, travel and timesheets. Mørkestøl has held a position with Sense Technology/ TTS Energy since Her responsibilities have included accounting, wages, secretarial duties, administration and human resources. In 2006, Mørkestøl was appointed Manager HR & Administration. She was appointed employee representative of the Board of TTS Group ASA in Mørkestøl holds shares in TTS Group ASA, and has no share options. Mørkestøl is a Norwegian citizen. Jarle Dyrdal Director of the board Dyrdal (39) holds a Bachelor s degree in Industrial Electronics from the University of Agder. He has worked for Sense Technology, now TTS, since For the duration of this period he worked on design and development of drilling equipment, and he currently holds the position of Vice President Products & Technology in the TTS Energy division in Kristiansand. From 1996 to 2001, he worked for Aker Solution MH in Kristiansand, in charge of design and development of drilling equipment. Dyrdal was a member of the Board of Directors of TTS Offshore Handling Equipment from 2008 to 2010, and was appointed employee representative on the Board of TTS Group ASA in He holds shares in the company, and has no share options. Dyrdal is a Norwegian citizen. 43

44 44

45 Director s report for 2010 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION Introduction For the TTS Group (TTS), 2010 was an eventful year. The markets are recovering or stabilising in most of the business areas in which the group operates, and the group has taken a number of actions that have positively affected the results and financial strength. In 2010, TTS turnover was MNOK, compared to MNOK in This decrease in turnover is primarily a result of lower level of activity in the Energy division. The group reported an EBITDA of 4 MNOK, an improvement of 88 MNOK from The group reports a net loss of 197 MNOK, an improvement of 51 MNOK compared to Despite an unsatisfactory annual result, it represents a considerable improvement compared to The Marine division and the Port and Logistics division deliver satisfactory results, the Energy division s results has been influenced by a weak market throughout 2010, in addition to the write-downs and cost overruns on projects. The market for marine equipment has shown a steady development throughout the year, and has stabilised. The same applies to the Port and Logistics division where especially the market for port equipment has improved. Within the business area of transport solutions for industry, the market has gradually improved. Furthermore, the market for drilling equipment and other offshore rig equipment showed a distinct improvement in the final quarter of In fourth quarter TTS signed a contract for delivery of two jack-up drilling packages for approximately 460 MNOK. In April 2011 TTS signed contracts for delivery of two additional drilling packages. The market for offshore handling equipment and land rigs remains weak. In September, TTS reached an agreement with the bankruptcy estate of Ability Drilling by means of court-administered mediation. The agreement entailed that TTS purchased a land rig with seller s credit over two years for 75 MNOK. All other claims between the parties were waived. The claim from the bankruptcy estate was 580 MNOK. In January 2011, TTS issued a subordinated convertible bond loan of 200 MNOK to strengthen the group s financial flexibility. This, in conjunction with adjustments in the loan agreements with banking partners and bondholders, ensure that the company is in compliance with its loan covenants as of 31 December Targets and strategy TTS goal is to develop and supply equipment for the maritime industry and for the oil and gas industry, with products and of a quality that strengthens our customers productivity and value generation. The group s expertise and resources are aimed at sales, design and engineering, assembly and testing of products, as well as the priority area service and after sales. TTS strategy is to build up and maintain a relationship of trust with our customers, through development and delivery of products that are competitive with regard to price and quality. TTS has based its growth and development on a combination of organic growth and acquisition of new business areas to create positive synergies product wise/market wise and/or cost wise. This strategy will be continued within the parameters of the group s three defined areas of operation. Operations TTS is an international group that develops and supplies handling equipment to the maritime industry and to the oil and gas industry. As of 2010, operations were reorganised into three divisions; Marine, Energy and Port and Logistics. In 2010, TTS established a new branch office in Brazil in order to increase its global presence with regard to the sale of new projects and as part of a strategy to build up a network of service and after sales. In all, the group comprises 26 operative units in 14 countries. TTS is aiming to simplify its legal structure and several mergers have been done in In China, TTS holds a 50 % ownership interest in the two joint venture companies, TTS Hua Hai Ships Equipment Co. Ltd. and TTS Bohai Machinery Co. Ltd., together with partners China State Shipbuilding Corporation (CSSC) and Dalian Shipbuilding Industry Co. (DSIC) respectively. Furthermore, the joint venture company TTS Hua Hai Ships Equipment participates with an 40 % ownership in the company Jiangnan TTS (Nantong) Ships Equipment Co. Ltd,. which manufactures hatch covers. Divisions and markets The Marine division, which delivers a broad range of products and services to the maritime industry, is experiencing a stable market with a steady level of contracting of new-buildings and demand for service and maintenance. The market in China and South-Korea has shown a healthy development through the year. The Port and Logistics division delivers production lines and systems for cargo handling in shipyards and other industries, as well as cargo systems and transport systems for ports. In general, the markets for this division remained stable in 2010, with an increase in the level of activity toward the end of the year in individual segments. The Energy division, which delivers drilling equipment to offshore rigs, handling systems to offshore vessels, as well as complete land 45

46 rigs, has remained slow for most of In the fourth quarter, however, the market for drilling equipment recovered, particularly with regard to the jack-up segment. The market for offshore handling and for land rigs within our segment remains weak. The TTS Group The parent company, TTS Group ASA, has its head office in Bergen, in Norway, and is listed on the Oslo Stock Exchange. At the end of 2010, the group had employees, of which with regular employment. Geographically, they are distributed as follows: Country Employees Norway 458 Germany 169 China 168 Sweden 158 Other countries 215 Review of the annual accounts Accounting principles TTS Group ASA presents its annual accounts pursuant to the Norwegian Accounting Act s Section 3-9 annual accounts, in accordance with IFRS, International Financial Reporting Standards. TTS Group ASA s group accounts are presented according to generally accepted accounting principles. The accounting principles are the same as for the annual accounts for Annual result for 2010 mnok Turnover EBITDA 4-84 Operating profit Net financial items Profit/loss before tax Net profit/loss Turnover for 2010 was MNOK and is down from 2009 mainly due to lower activity in the Energy division. EBITDA of 4 MNOK is an improvement from 2009 and is the result of satis factory profit in Marine and Port and Logistics divisions while there were significant operational losses in the Energy division. The increase in net financial items is partly due to unrealised losses on foreign exchange. The tax expense for the year is influenced by adjustments in capitalized deferred tax assets and taxes in foreign subsidiaries. Balance sheet Total assets at 31 December 2010 were MNOK compared to MNOK in Equity at the end of the year was 803 MNOK, equivalent to an equity ratio of 23.3 % compared to 25.4 % at the end of the last year. In connection with the issue of a subordinated convertible bond loan of 200 MNOK in January 2011, TTS renegotiated terms with the bank syndicate Nordea/Sparebanken Vest and the bond loan. The agreement entails that the convertible loan is to be included in the equity capital ratio upon the testing of covenant from 31 December The requirement is an equity capital ratio of 25 %/800 MNOK on the loans from the bank syndicate and 22.5 %/550 MNOK on the bond loan. At the end of 2010 TTS is in compliance with the covenants on the loans shown above. In July 2010, a private placement of 9.9 % of the outstanding shares for 42 MNOK. At the end of 2010, TTS had a net interest-bearing debt of 799 MNOK compared to 839 MNOK at the end of During 2010, TTS has repaid 100 MNOK in loans. 50 MNOK was related to the facility from the bank syndicate Nordea/Sparebanken Vest and 50 MNOK was related to the bond loan. The establishment of debt relates to the purchase of land rigs from Ability Drilling s bankruptcy estate by means of an interest-bearing seller s credit of 75 MNOK. Financial fixed assets at the end of the year were 128 MNOK, up from 111 MNOK at the end of Of this, the ownership interests in the two joint venture companies in China represents 121 MNOK compared to 94 MNOK in Based on an evaluation of future earnings and expected timing of utilisation of deferred tax, the company reduced the deferred tax assets with 88 MNOK. Compared to 2009 the deferred tax asset has been reduced with 25 MNOK at year end. TTS significantly improved its working capital in The reduction of stock and other finished products, along with an increased order intake resulting in advance payment from customers, are the main reasons for the reduction in working capital. However, there are still 200 MNOK worth of finished products, primarily related to land rigs. TTS is actively focusing on reducing its working capital requirements. The TTS Group has income and expenses in foreign currencies, where the financial risk has been reduced by the use of hedging instruments, described 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 at 31 December The Board and management are not aware of any events that have occurred subsequent to the balance sheet date 46

47 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION of 31 December 2010 that may be of material significance to TTS and the annual accounts for At the end of 2010, TTS Group ASA had a share capital of MNOK divided into shares at 0.50 MNOK each. The company holds own shares. Cash flow Net cash flow for the group in 2010 was 80 MNOK. Cash flow from operations where positive 132 MNOK mainly due improved working capital. The group made investments for approx. 27 MNOK during Other elements influencing the cash flow was instalments on bond and bank loan, seller s credit as a consequence of the agreement with the bankruptcy estate of Ability Drilling and a share issue in July and financial expenses. R&D During 2010 a total of 11 MNOK has been capitalized relating to research and development. Order backlog The order backlog at 31 December 2010 was MNOK compared to MNOK last year. These figures include 50 % of the order backlog of the joint venture companies in China. The order backlog has been adjusted according to confirmed and anticipated cancellations as a result of the economic development in markets significant to TTS. Continued operation The requirement for continued operation pursuant to Section 3-3 of the Norwegian Accounting Act has been fulfilled, and the annual accounts have been prepared according to this. At 31 December 2010, the equity ratio was 23.3 % of a total balance of MNOK, with a net interest-bearing debt of 799 MNOK. Business areas TTS develops and supplies and delivers handling equipment to the maritime industry and to the oil and gas industry. In 2010, operations were organised into three divisions. Marine division mnok Turnover EBITDA EBITDA margin (%) The Marine division reported a turnover that was somewhat lower than in 2009, however, income increased notably since the result for 2009 was affected by appropriations and write-downs. In 2010 the Marine division has initiated a number of improvement efforts, among other things relating to procurement and delivery model. These efforts are described in more detail in the annual report. At the end of the year, the order backlog was MNOK compared to MNOK in The Order backlog includes 50 % of the joint ventures. Energy division mnok Turnover EBITDA EBITDA margin (%) The level of activity within drilling and offshore equipment has remained low in 2010, and together with low margins on existing contracts, as well as cost overruns, it resulted in the weak results seen in In 2010 a number of initiatives have been taken to improve profitability, mainly relating to consolidation and efficiency improvement. Toward the end of 2010, the Energy division strengthened its order backlog significantly, with two drilling equipment packages to the Prospector rigs, currently under construction in China, at a total value of approximately 460 MNOK. In April 2011 the division signed contracts for delivery of two additional drilling packages to the same client. At the end of 2010, the division s order backlog was 690 MNOK compared to 545 MNOK in Port and Logistics division mnok Turnover EBITDA EBITDA margin (%) The division reported a somewhat lower turnover compared to 2009, but increased its profitability. The division has had a high level of activity as regards port equipment, and has improved its margins compared to The market for lifting equipment was fairly weak in During 2010 there have been a number of adjustments to trim the cost level. At the end of 2010, the order backlog was 102 MNOK compared to 242 MNOK at the end of

48 Risk factors and risk management The group is exposed to various types of risks, such as market risk relating to the development relevant markets, financial risk relating to credit, liquidity and foreign currency, as well as operational risk relating, among other factors, to the execution of projects. On a monthly basis, the Board reviews operating reports from the administration. In addition to the continuous risk management, the Board and administration carry out specific risk analyses in connection with major investments, contract signing, as well as continuous risk analyses of projects. Market risk There are risks related to the market development of all the markets in which TTS is represented. TTS closely monitors market indicators such as contracting of vessels, rig utilisation and rate level. Contracting of newbuild for both vessels and drilling rigs are a risk factor for the group as it represents a significant part of the group s market. Risk relating to aftersales and service is somewhat lower, but also here the demand is influenced by rate levels for drilling rigs and transportation. At the start of 2011, TTS has a significant order backlog. As the delivery time from most of the equipment for TTS is between 6 months to 2 years, TTS is exposed to market risk. Uncertainty in the global economy, entails an uncertainty in relation to the order backlog with regard to cancellations or postponements of orders. Financial risk TTS is exposed to financial risk which comprises credit risk, liquidity risk and currency risk. Credit risk is the potential financial losses should a contractual partner fail to fulfil his obligations. The customer base is differentiated, and with the exception of the past two years, the group has seen only a modest loss on accounts receivable. The development of the global economy in general, and of the ship building industry and offshore industry in particular, has resulted in an increased credit risk. On this basis, the group has implemented actions to limit risk exposure, by, among other factors, evaluating all our business partners. In September 2010, TTS reached a settlement with Ability Drilling s bankruptcy estate by means of court-administered mediation. The settlement entailed that TTS purchased a land rig from the bankruptcy estate for 75 MNOK with an interest-bearing seller s credit for the entire amount over two years, while all other claims between the parties are waived. Liquidity risk is the risk of TTS being unable to fulfil its financial obligations as they fall due. At 31 December 2010, TTS has an unused bank overdraft of 249 MNOK. TTS further strengthened the group s liquidity in January 2011, by issuing a subordinated convertible loan of 200 MNOK. The group has implemented measures to reduce its working capital.the group is actively working to sell three land rigs, which at 31 December are booked as trading stock. TTS expects a large portion of the sales proceeds from these rigs to be used for down payment of loans. Furthermore, TTS has initiated a project to optimise the company s routines and processes in order to reduce the working capital requirement. The group has considerable liquidity located outside of Norway. TTS is working toward the most efficient liquidity flow between the parent company and the various subsidiaries located abroad, such as by including more companies in the group s group account system. Covenant requirements on the company s bond loan are equity of a minimum of 550 MNOK and an equity ratio of 22.5 %. TTS fulfils the covenants requirement at the end of The bond loan falls due 24 May The group s agreement with the bank syndicate headed by Nordea, is renegotiated annually, and the agreement falls due 31 December According to the agreement, proceeds from the sale of property shall be used to pay off a supplementary facility of 150 MNOK during the course of the year, and at the latest by 31 December The group is exposed to a considerable currency risk as a result of its high degree of export trade. The group s primary trading currencies are EUR and USD. The group s policy is to limit currency risk through hedging all contractual income. Operational risk The group s deliveries are primarily organised in the form of projects. Operational risks in projects are mainly related to project management and technical execution of projects. The group is continuously working to improve its work processes, develop competence and project management tools. The company has carried out considerable development work on new products in the past year and expects this to contribute to a reduction of future operational risk related to sale and implementation of new projects. 48

49 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION Organisation Organisation and environment At the end of 2010, the number of employees in the TTS Group was Absence due to illness was 3.1 % in 2010, compared to 2.8 % in minor personal injuries were reported during the year, compared to 12 in The number of days of absence due to personal injuries was 115 days compared to 60 days last year. TTS is systematically and continuously striving to achieve improvements with respect to Health, Safety and Environment (HSE).TTS has prepared its own HSE Handbook, which has been translated into most of the languages native to the group s employees. TTS has committed considerable resources in establishing a cross-border connection between the managers and employees. In all of the group s companies and divisions, work is done to establish and maintain a joint corporate culture based on the core values integrity, openness, loyalty and initiative. These core values shall influence TTS s activities, so that they contribute to cooperation and progress for each and everyone in the TTS Group. TTS activities are primarily related to sale, design and engineering, as well as assembly and testing of equipment. Assembly and testing are based on a limited use of chemicals that may be harmful to human health or to the environment. The products supplied by TTS are primarily electro-hydrauli cally powered, and there is little risk of environmental pollution. The TTS Group s operations are not regulated by licenses or regulatory orders. layout that does not hinder access for employees who depend upon wheelchairs. It is furthermore the company s policy to adapt the workplace for employees with hearing of sight impairments. Board of Directors TTS Group ASA s Chairman of the Board of Directors is Trym Skeie. At the annual shareholders 2010 meeting Nils Aardal announced that he should not be considered for election and Rune Selmar was elected to the board of directors. In December 2010, Rune Selmar resigned from the Board as a consequence of accepting a new position with Norfund. In September, the employee representatives Jarle Dyrdal and Karen Mørkestøl were elected to the Board, both from TTS Energy AS in Kristiansand. Auditor KPMG AS was chosen to be the company s auditor for Corporate governance Introduction A more detailed account of the applicable principles for corporate governance is provided in this Annual Report. The same applies to election of a new Board of Directors and nominating committee at the Annual General Meeting on 3 June 2010, as well as the employee s election of members to the Board. 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 professional and personal development. Among TTS employees, most of them have engineering expertise. Women are typically underrepresented in this field; of the total workforce of employees, 215 of these are women, constituting 20.4 % (19.6 % in Norway). 87 of the female in TTS hold positions within administration, finance or sales and marketing, giving a 43.9 % of women within these functions. Three of the six board members of TTS Group ASA are women; two of these were elected by the shareholders and one was elected by the employees. Pursuant to the act prohibiting discrimination based on disability (the Norwegian Anti-Discrimination and Accessibility Act), TTS has striven to locate its operations with an accessibility and office Capital structure At the start of 2010, the company s share capital was NOK divided into shares at a value of 0.50 NOK each. In July a private placement was done for a total of shares at a share price of 6.30 NOK. At the end of 2010, the company s share capital was NOK divided into shares at a nominal value of 0.50 NOK each. The company holds own shares. 49

50 3-15 TTS GROUP BUSINESS AREAS CORPORATE GOVERNANCE DIRECTOR S REPORT AND ACCOUNTS organisation Future prospects The financial crisis and subsequent crisis in the market economy, has placed particular demands on management and risk control of operations in TTS. The Board is satisfied that the company in 2010 succeeded in strengthening the financial basis for it operations through increasing its capital, establishing a new loan and renegotiating the company s bond loan at market terms. The Board evaluates the short-term market situation to be stable. For the Energy division demand for rigs and rig equipment has improved. In the Port and Logistic division the market has improved somewhat while the market for the Marine is expected to be unchanged in the short term. Allocation of annual profit for TTS Group asa In 2010, the group s net loss was 197 MNOK. The equity at 31 December 2010 was 803 MNOK. TTS Group ASA reported a net loss in 2010 of -253 MNOK, and the equity at 31 December 2010 was 622 MNOK. The Board proposes that TTS Group ASA s negative result for 2010 is covered by Other Equity Capital. The Board proposes that there shall be no payment of dividend to the shareholders. Bergen, 13 April 2011 the board of TTS Group ASA Trym Skeie Bjarne Skeie Anne Breive CHAIRMAN BOARD MEMBER BOARD member Kjerstin Fyllingen Jarle Dyrdal Karen T. Mørkestøl board MEMBER BOARD MEMBER BOARD member Johannes D. Neteland PRESIDENT & CEO 50

51 Consolidated statement of comprehensive income TTS group TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION january - 31 december (Amounts in NOK 1000) IFRS IFRS Notes Operating revenue Project revenue Other income Total revenue and income Operating expenses Cost of sales Personnel costs 4, Depreciation of fixed assets 6, Other depreciations/amortisation Other operating expenses 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 before income tax Income tax expenses Profit for the period Statement of comprehensive income for the period 1 January to 31 DECEMBER Foreign currency differences Total comprehensive income for the period Earnings per share (NOK) ,72 Diluted earnings per share (NOK) ,63 1) Profit for the period and total comprehensive income have been allocated to the owners of the parent company. 51

52 Consolidated statement of financial position TTS group Assets (Amounts in NOK 1000) IFRS IFRS Notes Non-current assets Intangible assets Deferred tax assets Research and development Licences and patents Other intangible assets Goodwill Total intangible assets Fixed assets Property Buildings Machinery and vehicles Furniture, office-, and computer equipment Total fixed assets Financial fixed assets Investments in joint ventures 10, Investments in shares Other receivables Pensions Total financial fixed assets Total assets Current assets Inventories Work in progress Total inventories Accounts receivable Trade receivables Other receivables Acquired, non-invoiced production Derivative financial instruments Prepayments to suppliers Total receivables Bank deposits, cash in hand, etc Total current assets Total assets

53 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION Equity and liabilities (Amounts in NOK 1000) IFRS IFRS Notes Equity Issued share capital Treasury shares Share premium reserve Other equity Total equity Liabilities Provisions for liabilites Deferred tax Total provisions for liabilites Other long-term liabilities Bond loan 12, Debt to financial institutions Other long-term liabilities Total other long-term liabilities Current liabilities Debt to credit institutions 13, Payables to suppliers Income tax payable Other taxes payable Prepayments from customers Non-invoiced production costs, suppliers Derivative financial instruments Other current liabilities 17, Total current liabilities Total liabilities Total equity and liabilities Bergen, 13 April 2011 Board of Directors of TTS Group ASA Trym Skeie Kjerstin Fyllingen Anne Breive Bjarne Skeie Chairman of the board Board member Board member Board member Karen T. Mørkestøl Jarle Dyrdal Johannes D. Neteland Board member Board member Chief executive Officer 53

54 Consolidated statement of changes in equity TTS group (IFRS) Treasury Share premium (Amounts in NOK 1000) Note Share capital shares reserve Other equity Total Equity as of Treasury shares New issue New issues expenses Option plans Net profit for the year Equity as of Treasury shares New issue New issues expenses Net profit for the year Equity as of

55 Consolidated cash flow statement TTS group TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION january - 31 december (Amounts in NOK 1000) Cash flow from operating activities Profit/loss before tax Income tax paid Amortisation Depreciation shares Depreciation non-current assets/goodwill Net change in project accruals Interest cost Profit/loss from joint ventures Difference between pension charges and payments to/from pension schemes Inventories, customers and suppliers Other receivables and other short term liabilities Net cash flow from operating activities Cash flow from investment activities Acquisition of subsidiaries, net of cash acquired 0 0 Proceeds from sale of fixed assets Disbursements from acquisition of fixed assets Disbursements on own developement Payments on other liabilities Foreign currency gains/loss related to investments Net cash flow from investment activities Cash flow from financing activities Proceeds from issuance of short-term/long-term debt Disbursement on short-term/long-term debt Net change in bank overdraft facility Interest paid Proceeds from issued new share capital Net cash flow from financing activities Net change in cash and cash equivalents Cash and cash equivalents at the start of the period Foreign currency gains/loss on cash and cash equivalents Cash and cash equivalents at the end of the period This consists of: Bank deposits etc

56 56

57 Accounting principles TTS GROUP TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION General information TTS is a global company that creates and supplies handling equipment for ships, ports and offshore installations. Up to and including 2009, operations were organised into the five divisions; Dry Cargo Handling, Marine Cranes, Port and Material Handling, Deck Machinery and Drilling Equipment. As of , TTS will report on three divisions; Marine, Energy and Port and Logistics. The TTS group is among the leading suppliers in its market segments. For these notes, comparative figures for 2009 are converted to correspond to reporting on three divisions. TTS Group ASA is registered and domiciled in Norway, and its head office is located in Bergen. The group has companies in Sweden, Germany, Finland, China, USA, the Czech Republic, Italy, Canada, Singapore, Korea, Greece, Brazil and Mexico, as well as a branch office in Vietnam. The company is listed on the Oslo Stock Exchange. The consolidated accounts were approved by the Board on 13 April Summary of the most central accounting principles The most central accounting principles applied in the preparation of the consolidated accounts are described below. These principles have been applied identically to all the periods presented, unless otherwise stated in the description. 2.1 Basic principles The consolidated accounts for TTS Group ASA have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the European Union. Discretionary standards and interpretations as of have not been implemented. The consolidated accounts have been prepared on the basis of the principle of historic cost, with the following modifications: Shares held available for sale, and financial derivatives, are obligations estimated to fair value in the profit and loss accounts. Preparation of the accounts according to IFRS requires the use of estimates. Furthermore, application of the company s accounts principles requires that management performs evaluations. Areas that to a great extent involve such evaluations or high degree of complexity, or areas where assumptions and estimated are material to the consolidated accounts, are described in Item 4. New accounting standards In January 2010, the group has implemented the following new standards and interpretations: IFRS 3 Business combinations (2008) IAS 27 Consolidated and Separate Financial Statements (2008) IFRIC 17 Distributions of non-cash assets to owner of the Company IFRIC 18 Transfers of assets from customers None of these presently have any effect on the Financial statements. The following standards, changes and interpretations of existing standards are publicised and will be mandatory for the group to adhere to in the consolidated the Financial statements beginning 1 January 2011 or later, but without the group having chosen early implementation. The effect of the implementation of standards, changes and interpretations, beyond what is stated below, is being assessed within the group. Changes to IFRS 7 Financial Instruments - Details The change concerns a requirement of notes for transfers of financial assets in which the company remains involved. The changes are aimed to give users a better understanding of the exposure of the company transferring the financial assets. The implementation time for IFRS 7 is set to 1 July 2011; however, the standard is still not approved by the EU. The group expects to implement the modified standard from 1 January IFRS 9 Financial Instruments IFRS 9 will replace the classification and measurement rules in IAS 39 Financial Instruments: Recognition and Measurement for financial instruments. According to IFRS 9, financial assets with standard terms and conditions for debt shall be accounted as amortised costs, unless one chooses to recognise them at fair value, while other financial assets shall be accounted at fair value. The classification and measurement rules for financial obligations designated as fair value through profit and loss (fair value option), in which changes in value connected to own credit risk are distinguished and accounted over comprehensive income. The time of implementation for IFRS 9 is set to 1 January 2013; however, the standard is still not approved by the EU. Change to IAS 32 Financial Instruments - Presentation- Classification of Rights Issues The change to IAS 32 implies that subscription rights issued in a currency other than the functional currency of the company shall be classifiable as equity. Time of implementation is set to 1 February The group expects to apply the altered standard from 1 January IAS 24 (revised) Information about related parties. In relation to the applicable IAS 24, the revised standard includes a clarification and simplification of the definition of related parties. The revised standard also provides some relief in requirements of additional information for public enterprises. The time of implemen tation is set to 1 January The group expects to apply the revised IAS 24 from 1 January IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments The interpretation provides guidance for accounting of transactions when a company reconciles the whole or parts of its financial obligations by issuing equity instruments, and applies when the debt conversion is done as a result of a renegotiation of the loan agreement. The issuing of equity instruments shall be measured to fair value and is seen as remuneration for settlement of the debt. The difference between book value of debt and fair value of equity instruments. 57

58 shall be recognised through profit and loss. The interpretation has an implementation date of 1 July The group expects to apply IFRIC 19 from 1 January write-down of the asset transferred. The accounting principles in subsidiaries are revised as required, in order to achieve compliance with the group s accounting principles. IASB s annual improvement project 2010 Through its annual improvement project, IASB has resolved to change to a number of standards. These changes will be implemented with effect on 1 July 2010 and thereafter. The group expects to implement the changes from 1 January Furthermore, changes are approved in the following standards and interpretations, which are not expected to have any effect on the group: IAS 12 Income Taxes IFRC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Prepayments of a Minimum Funding Requirement 2.2 Consolidation principles a) Subsidiaries Subsidiaries are all the units where the group has a controlling influence over the unit s financial and operating strategy, normally through ownership of more than half of the voting capital. When determining whether controlling influence exists, the effect of potential voting rights that may be exercised or converted on the balance sheet date is included. 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 applied for the acquisition of subsidiaries with operations. The historical acquisition cost is measured as the fair value of: assets rendered as compensation upon acquisition, equity instruments issued and liabilities incurred by the transfer of control. Identifiable assets acquired and liabilities assumed are recorded in the accounts at the date of acquisition at their fair value, independent of any non-controlling ownership interests. Goodwill is calculated as the sum of the compensation and the carrying value of non-controlling interests and the fair value of previously owned shares, with allowance for the net value of identifiable assets and liabilities calculated at the time of acquisition. Goodwill is not amortised but tested at least annually for impairment. In connection with an impairment assessment, goodwill is allocated to those cash-generating units or groups of cash-generating units that are expected to get synergy effects from the business acquisition. The part of the fair value of equity that exceeds the compensation (negative goodwill) is recognised in the profit and loss account at the time of acquisition; see Item 2.6. All intra-group transactions, outstanding accounts and unrealised gains between group companies are eliminated. Unrealised losses are eliminated, but considered an impairment indicator in relation to b) Joint ventures Joint ventures are units where the group by agreement has a controlling influence together with other parties, but not alone. Investments in joint ventures are recorded in the accounts according to the equity method. Investments in joint ventures 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) (ref. Item 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 value of the investments recognised in the balance sheet, together with other income and costs along 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 value of the investment recognised in the balance sheet becomes negative (including unsecured claims against the unit), unless the group has assumed liabilities or granted guarantees for the joint venture company s liabilities. The group s share of unrealised gains on transactions between the group and the joint ventures are eliminated against the investment. The same applies to unrealised losses unless the transaction indicates a write-down of the asset transferred. The accounting principles in joint ventures have been revised as required, in order to achieve compliance with the group s accounting principles. 2.3 Segment information The group presents the operating segments based on information provided to the CEO, who is the group s supreme decision-maker. An operating segment is a component of a company doing business which allows the company to receive revenues and incur expenses, including revenues and expenses related to transactions with other components of the same company. The earnings of the operating segment are reviewed regularly by the segment manager and the central executive management to consider the need for allocating resources and assess the achievements of the operating segment. Separate financial information is obtainable about the operating segment. Profit from operating segments that are reported to the segment manager include items that are directly attributable to the segment, as well as posts which can be reasonably allocated to the segment. Items which cannot be distributed include expenses for the main office, as well as assets and liabilities related to tax. Investment costs consist of costs related to acquisition of property, facilities and equipment, as well as intangible assets with the exception of goodwill. 58

59 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION For 2010, the company has three segments. These are Marine, Energy and Port and Logistics. This has been changed from 2009 when the segments were: Dry Cargo Handling, Marine Cranes, Port and Material Handling, Deck Machinery and Drilling Equipment. The change in the segment divisions follows the group s consolidation of its activities and corporate structure. Comparable segment information has been prepared. 2.4 Foreign currency a) Functional and presentation currencies The accounts of the individual units in the group are measured in the currency primarily used 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 of 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 at the end of the balance sheet date, are recognised in the profit and loss account. Non-monetary items measured at historical cost in foreign currency are translated into functional currency at the time of transaction. c) Group companies The profit and loss account and balance sheet for group units with a functional currency that differs from the presentation currency are translated as follows: i. the balance sheet is translated to the closing rate on the date of the balance sheet ii. profit and loss account is translated to 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 is 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 accumulated depreciation and accumulated writedowns. Historical cost includes the costs directly related to the acquisition of the fixed asset. Other repair and maintenance costs are carried to 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 expected useful life, which is: Buildings Machinery and vehicles Fixtures/office equipment Computer equipment 50 years 3-5 years 5 years 3 years Depreciation on tangible fixed assets is recognised on a separate line in the profit and loss account. The assessment of indicators related to possible revaluation requirements is monitored continously. 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. Depreciation methods, useful lives and residual values are assessed at each balance sheet date and adjusted if necessary. 2.6 Intangible assets a) Goodwill Goodwill 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. Goodwill from the acquisition of subsidiaries is classified as an intangible fixed asset, according to performed analysis of acquisition showing the distribution of added values between goodwill and other assets. Goodwill associated with the acquisition of an interest in joint ventures is included in the investments in joint ventures according to equity method. Goodwill is tested annually for impairment in value and recognised in the balance sheet at historical cost less write-downs. The write-down of goodwill is not reversible. b) Patents, technology and development Patents and technology have limited useful life, and are recorded at historical cost in the balance sheet less depreciation. Patents and technology are depreciated by the straight-line method over their expected useful life (2 to 15 years). Subsequent expenses are added to the value of the fixed asset on the balance sheet or recorded separately on the balance sheet, where it is likely that the future economic benefits associated with the expense will accrue to the group, and the expense can be measured reliably. Development costs associated with market surveys, market development and the development of new products are normally charged against operating income as they are incurred. Development related to orders is charged directly to the individual projects. For certain extraordinary 59

60 projects, the development costs are recorded in the balance sheet, ref. Note 7. In such cases the development costs are depreciated over their expected useful life (2 to 15 years). Depreciation of intangible fixed assets is recognised on a separate line in the profit and loss account. c) Research and development Expenses for research activities, to acquire new scientific or technical knowledge, are recognized in the profit and loss as incurred. Development activities include design or planning of production of new or significantly improved products and processes. Development costs are capitalized only to the extent that they can be reliably measured, the product or process is technically or commercially feasible, future financial benefits are likely, and the group intends and has sufficient resources to complete the development, and to sell or use the asset. Capitalized development expenses include materials, direct labour, directly attributable overheads and capitalized borrowing costs. Other development expenditure is recognised in the profit and loss when incurred. Capitalised development expenses are recognised at cost less accumulated amortisation and accumulated impairment losses. 2.7 Financial assets The group classifies financial assets into the following categories: a) loans and receivables b) assets available for sale (investments in shares) c) assets at fair value in the profit and loss account (derivatives) a) Loans and other receivables Loans and receivables are non-derivative financial assets with payments that are fixed or fixable and that are not realised in an active market. They 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 receivables are initially recognised at fair value plus directly attributable transaction costs. After initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables consist of accounts receivable and other outstanding claims. b) Assets available for sale (investments in shares) Financial assets available for sale are non-derivative financial assets publicly communicated as being available for sale, and which are not classified in any of the other categories. Investments in shares are included in fixed assets unless management intends to sell the investment within 12 months from the date of the balance sheet. Investments are assessed at fair value on the balance sheet date. Any changes in fair value are charged directly against comprehensive income and presented as revaluation reserve in the equity. However, this does not apply to impairment losses and exchange rate differences on equity instruments available for sale. When an investment is derecognised, the cumulative gain or loss from comprehensive income is transferred to the result. c) Assets to fair value over profit and loss Ref. Item Leases Leases of property, plant and equipment at terms that in all material aspects transfer the risks and rewards of ownership to the group are classified as finance leases. Finance leases are capitalized at the commencement 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 finance charges and reduction of lease liabilities. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are posted to the profit and loss account on a straight-line basis over the period of the lease. 2.9 Derivatives and hedging In accordance with adopted guidelines and the group s strategy, the group utilises hedging of contractual income in a foreign currency at the date of signature of the contract. The same may apply to individual larger sub-contracts in foreign currencies. Fair value hedging The group has financial derivatives to hedge currency risk. In the initial calculation, derivatives are measured at fair value. Attributable transaction costs are recognised in the profit and loss as they are incurred. The group only enters into forward currency contracts that qualify for fair value hedging. At the establishment of a hedging transaction, the group undertakes documentation of the relation between hedging instruments and hedge objects. Furthermore, the group documents whether the derivatives used are efficient in balancing changes to the fair value related to the hedge objects. Such evaluations are documented both at the start of the hedge and continuously throughout the hedging period. Fair value of the derivatives used for hedging are set out in Note 20. Fair value of the derivatives is classified as current assets or short-term liabilities, as the hedges and derivatives essentially fall due within 12 months. 60

61 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION Changes to fair value of the derivatives are recognised in the profit and loss account along with the change in fair value associated with the corresponding hedge asset or liability. Profit or loss attributable to the hedged risk is recognised as project revenue if it is associated with hedging of contract revenue and under operational expenses if it is associated with hedging of contract costs. The ineffective portion of the value hedge is recognised as change in value of derivatives in revenues and operating expenses. In the event that the hedge no longer fulfils the criteria for hedge accounting, the derivative is carried at fair value to the profit and loss account. This applies to derivatives where the underlying delivery contract has been cancelled. Derivatives at fair value carried to profit and loss Derivatives that do not fulfil the criteria for hedge accounting are carried at fair value to the profit and loss account. Changes to the fair value of the derivatives are recognised in the profit and loss statement as financial expenses and financial income Inventories Inventories are valued at the lower of their 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 product design expenses, consumption of materials, direct wage costs, other direct costs, and indirect production costs (based on a normal capacity level). Inventories established as a result of a project being cancelled are recognised as inventory Accounts receivable Accounts receivable are measured upon initial recognition in the balance sheet at fair value. For subsequent measurements, accounts receivables are assessed at amortised cost determined using the effective interest method, and less provision for impairment. Provisions for losses are recognised when there are objective indicators that the group will not receive settlement in accordance with the original terms. Considerable financial difficulties on part of the customer, likelihood of bankruptcy on part of the customer and significant delays of payment, are all deemed to be indicators of the need to write down accounts receivables. Changes in the provisions are recognised in the profit and loss account as losses on accounts receivable. Receivables in foreign currencies are converted to NOK at the exchange rate on the balance sheet date Cash and cash equivalents Cash and cash equivalents consist of cash and bank deposits. Bank deposits in foreign currencies are assessed to the exchange rate on the balance sheet date. Withdrawals from the bank overdraft constitute part of current liabilities 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 equity as a reduction in proceeds. When the company s own shares are purchased, the consideration, including any transaction costs less tax, 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 The group initially recognises the bond debt on the issue date. All other financial liabilities are initially recognised on the agreement date, when the group becomes a party to the instrument s contractual provisions. The group derecognises a financial liability when the contractual obligations are satisfied or cancelled. The group has the following non-derivative financial liabilities: loans, overdrafts, accounts payable and other liabilities. Non-derivative financial liabilities are initially recognised at fair value plus directly attributable transaction costs. After initial recognition, liabilities are measured at amortised costs using the effective interest method. 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 following year s payment is classified as short-term debt Accounts payable Accounts payable are measured at fair value upon initial recognition in the balance sheet. Upon subsequent measurement, accounts payable are valued at amortised cost using the effective interest rate method Taxes Tax in the profit and loss account comprises both tax payable for the period and change in deferred tax. Period tax and deferred tax are recognised in the profit and loss, with the exception of tax on items related to business mergers or taxes recognised directly in equity or comprehensive income. Periodic tax is payable tax or tax receivables on taxable income or loss for the year, based on tax rates adopted or principally adopted on the balance sheet date. Revision of the estimated periodic tax for previous years is included in the figures. Deferred tax is calculated on all temporary differences between the tax and accounting values of assets and liabilities. 61

62 For the following temporary differences, no deferred tax is recognised: initial recognition of assets or liabilities in a transaction that is not a business combination and that does not affect accounting or taxbased results upon inclusion differences related to investments in subsidiaries to the extent that it is likely that these differences will not be reversed in the foreseeable future tax-increasing differences upon initial recognition of goodwill Temporary differences are only offset between the Norwegian companies in the group. Deferred tax is stipulated using tax rates and tax laws adopted or in all material aspects adopted on the balance sheet date, and which presumably may be utilised when the deferred tax advantage 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 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 plans and defined benefit plans. A contribution plan is a pension scheme in which the group pays fixed contributions to a separate legal entity. The group has no legal or other obligation to pay further contributions if the insurance company does not have sufficient assets to pay all employee benefits relating to employee service in current and prior periods. 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. 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 can reduce future payments. A defined benefit plan is a pension scheme that is not a defined contribution plan. A defined benefit plan is typically a pension scheme defining the pension payments which employees will receive upon retirement. Pension payments are normally dependent on one or more factors such as age, years of service for the company and salary level. Net liability for defined benefit pension plans is calculated for each plan by estimating the future benefits employees have earned for services rendered in the current or prior periods. The benefits are discounted to calculate present value, and the cost of pension earning for prior periods not yet recognised, along with the fair value of plan assets, are deducted. The discount rate for Norwegian schemes is based on the interest rate on 10-year Norwegian government bonds at the balance sheet date, adjusted to reflect the maturity of pension liabilities. For foreign plans, the discount rate is based on the interest rate on a bond issued by a company with a high credit rating in the same currency as the benefits will be paid and with a maturity that is approximately equal to the maturity of the related pension liability. The pension obligation is calculated annually by independent actuaries using the projected unit credit method. Estimate deviations due to new information or changes in the actuarial assumptions in excess of 10 % of the value of the pension resources or 10 % of the pension obligations will be recorded in the profit and loss account over a period that corresponds to the employees expected average remaining period of service. 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 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. Gains and losses on the curtailment or settlement of a defined contribution plan are recognised at the time that the curtailment or settlement occurs. A curtailment occurs when the group adopts a significant reduction in the number of employees covered by the plan or changes the terms of a defined contribution plan such that a significant proportion if current employees future earnings will no longer qualify for benefits, or qualify only for reduced benefits. 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 terms until the employee has worked up an unconditional right to exercise the options. Fair value of allotted options 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. 62

63 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION 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. Guarantee liabilities are recognised when the underlying products or services are sold. Additionally, the group recognises provisions for remaining work or claims from the customer regarding long-term construction contracts. Appropriations are measured at current value of expected payments in order to fulfil the obligation. A pre-tax discount rate is utilised, reflecting the present market situation and risk specific to that obligation. An increase in the obligation due to altered time frame is recognised on the balance sheet as a financial cost Recognition of income The group s revenue relates to long-term construction contracts, service contracts and after-sales. Income from the sale of goods and services is assessed at net fair value after the deduction of value added tax, returns, discounts and rebates. Revenue from the sale of goods is recognised when there is persuasive evidence, usually in the form of signed sales agreement, that the most significant risks and benefits of owning the goods are transferred to the buyer, it is likely that the payment will be recovered, associated costs and possible return of goods can be estimated reliably, there is no involvement in the goods normally associated with owning, and the revenue can be reliably measured. The date of transfer of risks and benefits varies depending on the conditions of the individual sales contract Construction contracts Revenue from contracts includes original contract amount, as well as variation orders, disputed amounts and incentive bonuses to the extent that it is likely that the income is realised and reliable estimates are available. 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 reliable manner, according to IAS 11. Several methods are used to calculate the progress of projects, dependent on the method which each individual company considers to best demonstrate progress. The group s and companies primary valuation method assumes that if there is no other reliable information to measure, progress assessment shall be based on the measured cost divided by the expected cost. In some companies, progress is measured as accrued hours compared to the total estimated hours, while others measure progress according to time (weeks, months) spent compared to the estimated time it would take to manufacture the product. Finally, in some companies technical progress is measured, where the project is split into various activities and progress is measured against specific milestones for each activity, and where each activity is weighed in relation to how much of the total project it comprises. 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. 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. Revenue from delivery of services is recognised according to percentage of completion on the balance sheet date. Income from long-term production contracts are recognised in the balance sheet in accordance with guidelines in IAS 11, using the method of current settlement, ref. Item 2.20 for more detail. The group s products are frequently sold with a warranty period of +/- two years. As for other matters, reference is made to information regarding guarantee liabilities in paragraph 4 and Note 21. Incurred costs and profits received relating 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 on-account billings exceed costs incurred and recognised profits (less losses), this is recorded as received advance payments from customers as presented as current liabilities. The assessment is made for each contract at company level. There will be no other net allocation at corporate level. Intragroup revenue is eliminated. Interest 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. For terminated contracts, the loss is accounted as an expense. In assessing financial loss, the value of the inventory of which TTS Group takes ownership is taken into account. The inventory is valued at the lowest of acquisition cost and fair value. Any payments received that the group has a contractual right to retain at termination are included in the calculation of the acquisition cost. 63

64 2.21 Impairment Financial assets On the balance sheet date (reporting date), financial assets that are not measured at fair value through profit and loss, are measured with regard to whether there is objective indications of impairment. A financial asset is considered to be impaired if there are objective indications of one or more events having had a negative effect on the estimated future cash flow for the asset, and this can be reliably measured. Objective evidence that financial assets are impaired may be customer breach, change of outstanding claims on terms that the group would otherwise not have accepted, indications that a borrower or issuer will enter bankruptcy or closure of an active market for the security. For equity instruments, there will be objective evidence of impairment by significant or prolonged decline to below cost price. Impairment losses relating to a financial asset measured at amortised cost is the difference between the carrying value and the present value of estimated future cash flows discounted at the original effective interest rate. An impairment loss is recognised in the profit and loss account and the asset s carrying value is reduced by the use of an allowance account. Non-financial assets On the balance sheet date (reporting date), assessment is made as to whether there are indications of depreciation relating to recognised value of non-financial assets, with the exception of stock and assets in relation to deferred tax. If such indications exist, the asset s recoverable sum is estimated. For goodwill and intangible assets not yet available for use, or with an indeterminable useful life, the recoverable sum is estimated at the same time each year. The recoverable amount for an asset or cash-generating unit is the higher of value in use and disposal value less sales expenses. In the assessment of value in use, the estimated future cash flow is discounted to net present value, with a pretax market-based discount rate. The rate takes into consideration the time value of money and asset-specific risk. With the purpose of testing for impairment, assets that have not been tested individually are grouped in the smallest identifiable group of assets that generate incoming cash flow which in all material aspects is independent of incoming cash flows from other assets or group of assets (cash generating units or CGU). On implementation of a test for the upper limit for operational segment in the assessment of impairment of goodwill, the CGUs to which goodwill has been allocated, are gathered so that the level of impairment being tested reflect the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill is allocated to the cash-generating unit expected to gain advantages from the synergies associated with a merger. Impairment is recognised in the profit and loss if the carrying value of an asset or cash-generating unit exceeds the calculated recoverable amount. Upon recognition of impairment related to cash generating 64 units, the recorded value of any goodwill is first reduced. Subsequently, the remaining sum is distributed on remaining assets in the unit (group of units). Impairment relating to goodwill is not reversed. For other assets, it is assessed on the balance sheet date whether there are indications that the impairment no longer exists or is reduced. Impairment is reversed if the estimates in the calculation of the recoverable amount is changed. Reversals are made only until the carrying value equals the value that would have been recognised, net of amortisation, if the depreciation was not previously recognised Cash flow statement The cash flow statement has been prepared based on the indirect method Earnings per share The basic earnings per share and diluted earnings per share are presented for ordinary shares. The basic earnings per share is calculated by dividing the period s earnings attributable to owners of the ordinary shares, with a weighted average number of ordinary shares in the period, adjusted for the number of own shares. Diluted earnings per share are calculated by adjusting the earnings and the weighted average number of ordinary outstanding shares, adjusted for the number of own shares, for potential dilution effects. Dilution effects are a result of employee share options Financial income and cost Financial income consists of capital gains on financial investments and changes to fair value of financial assets to fair value in the profit and loss account. Capital gains are recognised in the profit and loss account using the effective interest rate method. Financial costs comprises interest costs on loans, the effect of interest in discounted appropriation, changes to fair value of financial assets to fair value in the profit and loss account, and depreciation of financial assets in the profit and loss account. Borrowing costs not directly attributable to acquisition, processing or production of the qualifying asset, are included in the profit and loss account using the effective interest rate method. Foreign currency gains and losses are reported as a net sum. 3. Financial risk management 3.1 Financial risk factors The group s activities entail various types of financial risk; market risk (including currency risk and floating rate of interest risk), credit risk, liquidity risk and operational risk. The Board has primary responsibility for the establishment and supervision of the group s framework for risk management. The principles of risk management have been established in order to identify and analyse

65 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION the risk to which the group is exposed. Principles and systems for risk management are regularly reviewed to reflect any changes in activities and market conditions. The auditing committee implements follow-up of managements supervision of the group s principles and procedures for risk management. The group s main risk management plan focuses on the unpredictability of the capital market, and attempts to minimise its potentially negative effects on the group s financial results. The group engages in international operations and is especially exposed to currency risk. The group makes use of hedging to reduce the risk of currency exposure. The group has a decentralised structure with operational supervision 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 28. MARKET RISK Market risk is the risk of changes to market prices, such as foreign exchange rates, interest and stock-exchange values, affecting the income or value of financial instruments. Management of market risk intends to supervise that risk exposure lies within a set framework. The group is particularly vulnerable to fluctuations in the price of steel. The group monitors the development of steel prices on a continuous basis. The companies of the group buy and sell derivatives, and incur financial obligations to control market risk. Transactions are carried out within the guidelines issued by the group. To control result volatility, hedge accounting is used whenever possible. a) Currency risk The 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, EUR and RMB. The group endeavours 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 optimised 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. When necessary, forward exchange contracts are continued as they mature. These hedging activities meet the requirements of hedge accounting. Interest on loans is in the currency corresponding with cash flows generated by the underlying operations, primarily in Euro. This ensures financial hedging without the use of derivatives, and accordingly does not necessitate hedging. For other monetary assets and obligations in foreign currency, net exposure is kept at an acceptable level by purchasing and selling foreign currency at spot prices whenever necessary. The company has investments in foreign subsidiaries where net assets are exposed to currency risk at conversion of currency. A more detailed description of conversion differences is presented in Note 25. Significant currencies throughout the year: Average Exchange Rates Spot rate Q1 Q2 Q3 Q SEK EUR USD RMB Sensitivity analysis A 10 % strengthening of EUR against NOK at year-end would have increased equity and result with the figures given below. The analysis is subject to other variables being constant. Result Equity after tax 31 Desember Desember A 10 % weakening of EUR against NOK would have the same effect as regards to amount, only with the opposite sign, subject to other variables being constant. A 10 % strengthening of SEK against NOK at year-end would have increased equity and result with the figures given below. The analysis is subject to other variables being constant. Result Equity after tax 31 Desember Desember A 10 % weakening of SEK against NOK would have the same effect as regards to amount, only with the opposite sign, subject to other variables being constant. 65

66 b) Interest rate risk The 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 is in the form of bank deposits. 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. Sensitivity analysis of cash flow for instruments of variable interest Calculations take into account all interest-bearing entries. All effects will be carried to the profit and loss account, as the company has no hedging instruments related to interest that will be directly charged against equity. The analysis is subject to other variables being constant. Fluctuations Effect on in interest net result Effect on rate after taxes equity /- 1 %-points /- 1 %-points Calculations are made on the basis of an average net interest-bearing debt. A more detailed account of interest-bearing debt is presented in Note 12. CREDIT RISK Credit risk is the risk of financial losses should a customer or counterparty to a financial instrument become unable to fulfil his obligations according to contract. 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. The credit risks are reduced through distribution over several counterparties. Requirements to credit ratings have been established toward counterparties, and new customers are subject to credit rating. Furthermore, the group makes a comprehensive use of Letters of Credit toward its customers, in order to minimise the risk of losses. The group s customers are mainly located in Europe, including Scandinavia, and Asia, particularly China. The group carries out assessment of credit risk to the political structure depending on the economic importance of the agreements based on assessments from the OECD and other equivalent factors. Maximum risk exposure is represented by the extent of financial assets recognised in the balance sheet. In a hypothetical situation where no outstanding claims where met, this would be the equivalent to the following: 66 (All figures in NOK 1000) Accounts receivable Cash reserves Project-related outstanding amounts Derivatives Other outstanding amounts Total The counterparty for pension resources is a Norwegian insurance company, and the risk related to this is considered to be minimal. The counterparties for derivatives are banks, and the credit risk related to these is considered to be insignificant. The same applies to bank deposits. Volatility in the financial markets in 2008 and 2009, with continued significant volatility in 2010 resulted in significantly increased credit risk. As a response, the group implemented actions against increased risk through close follow-up of customers and suppliers. Customers with bad debt or delayed instalment payments were particularly scrutinised. Historically, the group has had no substantial losses on accounts receivable, but in 2009 the group recorded a loss that exceeded 100 MNOK relating to bankruptcies. For 2010, an expected and confirmed loss of 20.9 MNOK is recorded. This relates to customers who are no longer able to settle contractual liabilities. Though this is a significant reduction compared with 2009 high level of customer monitoring is still required. The bankruptcy in Ability Drilling in 2009, with its following claim against TTS Energy AS (formerly TTS Sense AS) was concluded in September 2010 by the establishment of a settlement between TTS Group/TTS Energy and the bankruptcy estate. For further details, ref. Note 26. As of 31.12, the group had the following maturity distribution on its external customers (including a claim on the joint venture companies): Not > 6 Total due months months months For accounts receivable that are not yet due, the assessment is, based on previous experience, that there is no need to write down the value. These relate to independent customers who have no previous history of failing to fulfill their obligations to the group. Invoicing is to a large extent carried out in accordance with milestone-based progress in each project. Due to delay in delivery, a considerable gap between due date and payment date may arise. As of , the provision for loss on accounts receivable is 83.5 MNOK, compared to MNOK in Accounts receivable are discussed in further detail in Note 11. The main part of the amount relates to appropriations in connection with four major risk exposures in the Energy segment.

67 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION LIQUIDITY RISK Liquidity risk is the risk of the group being unable to fulfil its financial obligations as they fall due. Liquidity management shall, to the extent possible, ensure that available liquidity is sufficient to meet obligations as they mature for payment, without this resulting in unacceptable loss or risk of damage to the group s reputation. The availability of sufficient liquidity to meet expected operating cost, as well as resources to service financial obligations in the future, shall be secured. During the autumn of 2009, the group implemented actions to reduce working capital. These actions are continued in The actions include active promotion to dispose of partially manufactured rigs that were commissioned by Ability Drilling prior to the bankruptcy in Relevant rigs are as of assessed in accordance with the expected market value, adjusted for completion costs. The rigs are recognised as inventory. Furthermore, a project has been initiated to optimise the company s procedures and processes in order to reduce the need for working capital. TTS has established a joint cash pool arrangement that includes most of its subsidiaries. The joint cash pool arrangement improves accessibility and flexibility in the management of liquidity. Work is being done to include several of the foreign subsidiaries in the group accounting system within national legal frameworks. The group s loan commitment with a bank syndicate led by Nordea is renegotiated annually. The commitment has its mature at As a result of the financial crisis, in the winter of 2010 the group instigated measures to increase its financial action capacity and liquidity. In parts of 2010, the group s liquidity has not been satisfactory, and has also delayed the reduction of the credit facility of 200 MNOK that had maturity in March As part of the delay, 50 MNOK was repaid at the end of September The remaining facility, 150 MNOK are to be settled within Through the issuance of convertible subordinated loan, the group has improved its liquidity in The facility of 200 MNOK was fully subscribed in December 2010 and paid to the group in January In assessing equity-based loan terms with Nordea and bond owners, the responsible convertible loan shall be considered part of the equity. The group s liquidity developments are monitored continuously based on regular liquidity forecasts from all the units in the group. As of 31 December 2010, TTS has an undrawn overdraft facility of 246 MNOK. Furthermore, the group has available liquidity in the form of bank deposits amounting to 272 MNOK. The group s strategy is to have sufficient cash reserves 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 market terms. The table below gives an overview of the structure of maturity of the group s financial obligations: Remaining period: More than 2010 < 6 months 6-12 months 1-5 years 5 years Total Long-term financial obligations: Interest-bearing non-current liabilities Current financial obligations: First year s instalment on non-current liabilities Interest-bearing current liabilities Derivatives Accounts payable and other current liabilities Total financial obligations More than 2009 < 6 months 6-12 months 1-5 years 5 years Total Long-term financial obligations: Interest-bearing non-current liabilities Current financial obligations: First year s instalment on non-current liabilities Interest-bearing current liabilities Derivatives Accounts payable and other current liabilities Total financial obligations

68 The syndicated loan from Nordea constitutes part of short-term loans, and will be renewed by 31 December Reference is made to Notes 13 and 24 for a further discussion on the syndicated loan. For further information on financial obligations, see Notes 12, 13, 15, 17, 20, and 28. 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. The items are further detailed in Note 2. OPERATIONAL RISK Operational risk is the risk of direct or indirect losses as a result of a whole range of causes related to the group s processes, personnel, technology and infrastructure, as well as external factors besides of credit risk, market risk and liquidity risk that follow from laws, rules and generally accepted principles for business conduct. Operational risk arises in all of the group s business areas. The group s deliveries are primarily organised in the form of projects. The group is continuously striving to improve operations and projects implementation. This further includes credit rating of major sub-suppliers in order to ensure implementation of the projects. The group s aim is to deal with operational risk, so that a balance is reached between avoiding economic loss or damage to the group s reputation, and general cost effectiveness, and to avoid control routines that limit initiative and creativity. The main responsibility for development and implementation of controls designed to handle operational risk is allocated to the top management within each business area. This responsibility is supported by developing the overall group standard for management of operational risk in various areas. 3.2 Risk related to investment management The 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: Total loan cash and cash equivalents Net interest bearing debt Equity Total Gearing 49.9 % 47.3 % 3.3 Estimation of fair market value Fair value of financial instruments traded in an active market is based on the market value on the balance sheet date. Examples of this are forward contracts in foreign currencies where fair value is calculated by using a market-to-market rate on the balance sheet date. Fair value of financial instruments not traded in an active market is stipulated by the use of valuation techniques (primarily discounted future prospective cash flows) or other relevant information for giving a best estimate of fair value on the balance sheet date. An example of this is shares held available for sale that have been estimated based on information regarding transactions involving said shares. Accounts receivable and accounts payable are assessed at face value, less deductions for occurred or estimated losses on the balance sheet date, an amount presumed to be equal to the actual value of the entry. Fair value of employee share options is measured using the Black & Sholes formula. The data forming the basis for measurement includes the share price at the time of measurement, the option s exercise price, expected volatility, weighted average expected economic life for the instruments, expected return, as well as risk free interest rate. Service terms and non-market based terms are not considered in the calculation of fair value. 4. Risk related to key accounting estimates and evaluations Accounting estimates and evaluations are based on a best estimate. Estimates are evaluated on the basis of available information on the balance sheet date, as well as management s experience and expectation of future events deemed likely to occur. When considering the best estimate, allowance is made for relevant events that have occurred subsequent to the balance sheet date and up until the Board s approval of the accounts, to the extent that such events are presumed to significantly alter the estimates. Estimates are always associated with uncertainty and consequently the recorded balance sheet and result variables. These days unrest in the financial market significantly increases the uncertainty of the premises for estimates and assessments of likely future events. Below follows a discussion of the key balance sheet items and appropriate profit and loss items where estimates are considered to be associated with major risk which forms the basis of the accounts. a) Risk related to significant loss of value of good will and other intangible assets Book value of goodwill and other intangible assets are evaluated on an annual basis, and for each balance sheet date when there is external or internal depreciation indicators. The assessment is based on implemented tests of any depreciation performed in accordance with requirements and guidelines given in IAS 36. As will appear from section 2.6, depreciation tests have been carried through indicating that there is 68

69 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION no need for depreciation as of The premises that form the basis of this assessment may be significantly affected by future alterations to market conditions or events. Reference is made to a more detailed discussion of these balance sheet items in section 2.6 and accounting values in Note 7. b) Risk related to assessment of capital contracts ACCORDING to the method of continuous settlement Entering of income and appropriate commodity costs from capital contracts is done according to the method of current settlement pursuant to requirements and guidelines given in IAS 11. The method demands of the group that it prepares reliable estimates (prognosis) for future income and costs for each project as well as degree of completion on the balance sheet date. Accounting values related to capital contracts have been further discussed in section 2.19 and Note 11. Income forecasts are based on contractual values where future income in foreign currencies is secured by forward contracts. Forward contracts and hedging accounting is discussed in section 2.9 and the accounting value of hedging instruments in Note 20. Commodity cost forecast is based on evaluation of calculated volume and evaluation of future price levels. The price of steel, in particular, could significantly alter commodity cost. In today s market, there is particular risk related to delays and cancellations of firm contracts. The group assesses the likelihood of cancellations and delays on a continuous basis. Delays and cancellation entail the risk of reduced income, increased costs, and that any previously estimated margins must be charged as an expense. In the event of cancellations, the foundation for hedging accounting ceased to exist according to IAS 39. This entails a risk of unrealised loss on forward contracts associated with cancelled projects. c) Risk related to assessment of financial assets and obligations The group s financial assets and obligation are further discussed in sections 2.7, 2.8, 2.9, 2.11, 2.12, 2.14 and Risk related to currency, interest, credit and liquidity, as well as asset management is discussed in section 3. These days unrest in the financial market could significantly affect the premises for valuation, estimated cash flow and liquidity in the course of the next accounting year. For further discussion of this, reference is made to section 3 and, for accounting values see Note 11, 12, 15, 20, 22, and 28. e) Risk related to pension obligations Net pension obligations are stipulated according to invoice calcu lations based on the premises related to discount rate, future salary developments, pension adjustment, expected returns on funds, r esignation rate as well as demographic considerations such as disability and mortality. The premises are stipulated based on observable market prices and historic development of the group and society. Changes to these premises could significantly affect the estimated pension obligation and pension cost. Pension cost and other compensation payments to employees are further discussed in section 2.17, and accounting values in Note 5. f) Risk related to fair value on shares Fair value on shares not traded in an active market is stipulated by the use of valuation techniques. The group evaluates and chooses the methods and premises that are primarily based on market conditions on the balance sheet date. Changes to the market conditions may significantly affect the fair value of shares. The accounting value of shares is further discussed in Note 8. g) Deferred tax assets The group has recognised deferred tax assets primarily related to the Norwegian and German companies. The following criteria have been employed to estimate that it is probable that future taxable profit will be available against which unused tax losses can be utilised: The group has sufficient temporary differences Tax losses as a result of specific identifiable causes In 2010 the group has made a reduction of value related to tax losses in the Norwegian companies. It is expected that taxable income over the next five years will be able to offset the tax losses, and the balance of deferred tax assets will be utilised. Impairment of 88.5 MNOK has been recognised as a tax expense in d) Risk related to guarantee liability The group customarily offers a warranty period of +/- two years on its deliveries. Management estimates appropriation for future guaranty commitments based on information of historical guarantee claims, together with information indicating that information regarding previous expenses may differ from future obligations. Factors that may affect estimated obligations include the outcome of productivity and quality initiatives, as well as reference prices and labour costs. Guarantee costs are further discussed in section 2.17, and accounting values in Note

70 70

71 Notes for consolidated accounts TTS group TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION Note 1 Operating segments (Amounts in NOK 1000) Primary reporting format business segments From TTS Group is divided into three strategic business entities, organised and managed separately. Corresponding figures for 2009 is revised to be comparable with the new organisation. The different business segments sell different products and have different risk profiles. Information about the result of each of the reported segments are included below. Earnings are measured based on segment income before tax, as evidenced by internal management reports reviewed by the CEO. Transaction pricing between segments are determined by arm s length principle. Intercompany transactions are eliminated within the individual segments. Transactions and transfers between different segments take place at standard terms that are equal to those of independent parties. These are not recognised on a separate line, as the amounts are immaterial. The Group is divided into the following business segments: Marine: Marine Division Port: Port and Logistics Division Energy: Energy Division Other: Corporate and others Key profit figures 2010 Marine Port Energy Other Total Turnover Income from associated companies Earnings before depreciation (EBITDA) Depreciation/amortisation Operating profit/loss Financial income Financial cost Segment profit/loss before tax Marine Port Energy Other Total Turnover Income form joint ventures Earnings before depreciation (EBITDA) Other depreciations/amortisations Operating profit/loss Financial income Financial cost Segment profit/loss before tax Segment assets and liabilities as of and capital expenditure 2010 Marine Port Energy Other Total Assets Joint ventures Total segment assets Liabilities This year s capital expenditures Marine Port Energy Other Total Assets Joint ventures Total segment assets Liabilities This year s capital expenditures

72 71-93 notes TO THE ACCOUNTS tts GROUP Note 1 cont. Secondary reporting format geographical SEGMENTS The Group s activities are primarily distributed in the following regions: Scandinavia Rest of Europe Asia USA/Canada Rest of the world Sales revenue Scandinavia Rest of Europe Asia USA/Canada Rest of the world Sales are allocated based on the customer s home country. Segment assets Scandinavia Rest of Europe Asia USA/Canada Rest of the world Assets are based on their location. Capital expenditures Scandinavia Rest of Europe Asia USA/Canada Rest of the world Capital expenditures are based on where the assets are located. Note 2 Construction contracts (Amounts in NOK 1000) Revenue from projects Balance sheet items related to construction contracts Current Assets Completed production Invoiced production Accrued, non-invoiced production Prepayments to suppliers Total current assets Current liabilities Completed production Invoiced production Prepayments from customers Non-invoiced production cost, suppliers Total current liabilities Risks related to the estimation of the posted values are further discussed under accounting principles, in sections 2.20 and 4. 72

73 71-93 notes TO THE ACCOUNTS tts GROUP Note 3 Inventories (Amounts in NOK 1000) Inventories, incl. non-current Obsolescence Total inventories Work in progress Book value of inventories pledged as security for liabilities Raw materials removed from storage for use in ongoing production in 2010 is presented along with accrued, non-invoiced production. Consumption of raw materials, supplies, changes in finished goods and changes in work in progress are included under the item cost of sales, and amounts to TNOK in 2010 (2009: TNOK) Note 4 Payroll expenses and employee information (Amounts in NOK 1000) Payroll expenses Salaries Employer s social security contribution Defined benefit pension costs Defined contribution pension costs Other benefits Total payroll expenses 1) Number of employees at the end of the year ) The 2009 annual report lists the total wage cost at TNOK. The corresponding figures for 2009 has been revised for illustration purposes only. The alteration for 2009 amounts to TNOK. The number of employees in the Group decreased by 79 from 2009 to Board remunerations* Trym Skeie (Chairman of the board from 11.09) Birger Skeie - deceased estate (Chairman of the board until 08.09) Nils O. Ardal (until 06.10) Bjarne Skeie Rune Selmar ( ) 0 0 Anne Breive Kjerstin Fyllingen Karen Torine Mørkestøl (from 10.10) 0 0 Jarle Dyrdal (from 10.10) 0 0 Olav Smeland (until 10.10) Anne Karin Bedringås (until 10.10) Total *) The Annual General Meeting determines the remuneration to the Board from one general meeting to the next. For the accounting year 2010, the same remuneration was stipulated as was determined by the Board at the Annual General Meeting for Proposed remuneration from the General Meeting in 2010 until the General Meeting in 2011, is stipulated in the notice of the General Meeting The same applies to the nomination committee. 73

74 71-93 notes TO THE ACCOUNTS tts GROUP Note 4 cont. Nomination committee remuneration The TTS nomination committee is comprised of the following members: Bjørn Olafsson (Chairman), Bjørn Sjaastad og Johan Aasen. The nomination committee remuneration for 2010 was 40 TNOK for the chairman and 25 TNOK for each of the members, a total of 90 TNOK. STATEMENT REGARDING THE STIPULATION OF REMUNERATION AND OTHER BENEFITS FOR THE PRESIDENT & CEO AND OTHER EXECUTIVES Regarding group management, TTS Group ASA s remuneration policy is based on offering competitive terms. Remunerations should reflect that TTS is a listed company with an international focus. The annual remuneration is based on group managements part-taking in the results generated by the company and the added value for shareholders through increased company value. Remuneration consists of three main components; Base salary, bonus and a share option programme. Bonus is determined on the basis of target results. In certain circumstances where change and development are of decisive nature, the bonus is further based on specific developmental targets. Bonus targets are revised annually. The maximum bonus is one year s base salary for the President & CEO, and up to 50 % for other executives. Since 1998, a share option program has been active for the group management of TTS; the goal being that the group management shall have the same incentive as the shareholders in respect of increasing company value over time. The Annual General Meeting has each year given the Board authority to establish share option programmes with a two year term. Redemption price equals market price on allotment. First exercise is 50 % after one year. Next 12,5 % per quarter, in addition to options not previously utilised. Each option program expires after 2 years. The group pension scheme in Norway is based on about 65 % of base salary at the age of 67, limited to 12G, with the exeption of TTS Sense AS which has a defined contribution scheme. For employees abroad, the prevailing schemes in the respective companies apply. The period of notice is 6 months with a severance pay of 24 months, including period of notice for the President & CEO and from 6 to 24 months for the other memers in the senior executive group. The share option program is contingent on the Annual General Meeting s approval, based on the Board being granted authority to make such allotments. The President & CEO s remuneration is determined by the Board of TTS Group ASA. Remuneration to other executives is determined by the President & CEO. Remuneration and other benefits for the President & CEO and other executives Other Bonus Share Total Pension Name Position Base salary benefits paid options remuneration cost Johannes D. Neteland President & CEO Arild Apelthun CFO (from 04.10) Mette Henriksen Acting CFO (until 03.10) Ivar K. Hanson EVP, Marine Lennart Svensson EVP, Port and Logistics Inge Gabrielsen EVP, Energy Remunerations Other benefits Bonus paid Share options Total Taxable remuneration Car sheme, group life insurance, taxable pension schemes, telephone, newspapers, etc. Bonus paid in current year Difference in market price and exercise price Total taxable remuneration Taxable pension scheme is early retirement and top-hat pension (CEO) which used to be a annuity-based solution. In accordance with the new tax regulations per , these are considered taxable benefits. The early retirement scheme applies to the President & CEO from the age of 60. Remuneration of auditor Statutory audit Other attestation services Other services including tax service Total

75 71-93 notes TO THE ACCOUNTS tts GROUP Note 5 Pension (Amounts in NOK 1000) The Norwegian companies in the group, with the exception of TTS Energy, has defined benefit pension plans that give employees the right to future pension benefits depending on length of service, salary levels, retirement age and the National Insurance benefits received. As of the pension scheme includes 247 persons, including 10 active retirees. The Group s obligation are covered primarily by an insurance company. The parent company has unfunded pension liabilities for which provisions have been made. Group companies outside Norway have defined benefit plans in accordance with local practice and regulations, which are of defined contribution nature. TTS Energy AS also has a defined contribution pension plan. The net pension obligations for companies affiliated with the benefit plans are based on the assumptions as of and are determined as follows: Insured Uninsured Total Insured Uninsured Total Market value of pension funds Net present value of accrued pension obligations Unrecognised estimate changes and deviations Accrued payroll tax = Net pension obligations after payroll taxes Net pension costs are determined as follows: Insured Uninsured Total Insured Uninsured Total Net present value of current year s pension benefits Interest payable on pension obligations Expected return on pension funds Recognised estimate changes and deviations Change in payroll tax Costs in relation to accrued pension from prior periods = Total costs, included in wage costs Change in recognised funds: Book value as of Cost recognised during the year (see above) /- Pension payments and payment of pension premiums = Book value as of The following economic assumptions have been made for calculation of the pension obligations: Return on pension funds 3.20 % 5.60 % 5.60 % 6.10 % Discount rate 4.60 % 4.40 % 4.40 % 5.10 % Annual wage growth 4.00 % 4.25 % 4.25 % 4.50 % Annual adjustment of National pension index (G) 3.75 % 4.00 % 4.00 % 4.25 % Annual adjustment of pensions in payment 3.75 % 4.00 % 4.00 % 2.35 % Voluntary retirement % % % % Withdrawal propensity for early retirement (AFP) % % % % Payroll tax % % % % Risk related to the estimates that form the basis for the book values are further described in Accounting principles, under sections 2.17 and 4. TTS Handling Systems AS, TTS Energy Bergen AS and TTS Marine AS partially participates in a LO/NHO-pension plan that enables all employees to choose early retirement from the age of 62 years. This plan was motioned terminated in February 2010 and early retirement according to this arrangement was only available for the company s employees until The effect of the termination have been recognised in The remaining appropriation regards the company s own risk for persons that are early retirees of this pension plan. At the termination of the the old AFP-plan there proved to be a significant undercoverage in the old pension plan. This undercoverage will have to be covered by the participating companies through continued payment of premiums for the coming five years. The company s share of this undercoverage has been estimated and made provisions for. As replacement of the old AFP-pension plan a new AFP-plan has been established. The new AFP-plan is, unlike the old, not an early retirement plan but a plan that gives a lifelong addition to the ordinary pension. The employees can choose to realise the new AFP-plan from the age of 62 years while continuing working, as the plan gives additional earnings for continued work until the age of 67 years. The new AFP-plan is a defined benefit multi-company pension scheme and is financed through premiums determined as a percent of salary. At the time there are no reliable rating and allotment of liabilities and assets in the pension plan. In accounting the plan is considered as a defined contribution plan of which the premium payments are current costs, and no provisions are made in the financial statement. No premium is expected to be paid to this new pension plan until 2012, at which time the premium is set to 1,4 % of total payments between 1G and 7,1G to the company s employees. There is no accumulation of capital in the scheme and it is not expected that the premium level will increase the coming years. 75

76 71-93 notes TO THE ACCOUNTS tts GROUP Note 6 Fixed assets (Amounts in NOK 1000) Furniture, office-, Machinery and computer Property Buildings and vehicles equipment Total As of 1 January 2009 Acquisition cost Accumulated depreciation as of Book value as of Fiscal year Book value as of Foreign currency differences Acquisitions Additions Disposals Amortisation for the year Book value as of As of 31 December 2009 Aqcuisition cost Accumulated depreciation as of Book value as of Fiscal year Book value as of Foreign currency differences Acquisitions Additions Disposals Amortisation for the year Book value as of As of 31 December 2010 Acquisition cost Accumulated depreciation as of Book value as of Property in the Norwegian companies has been pledged as security for long-term and short-term debt to credit institutions, see Note 13. Leased fixed assets: Machinery and vehicles Computer equipment 2010 Fiscal year Book value as of Additions 0 0 Disposals 0 0 Amortisation for the year 0 0 Book value as of Fiscal year Book value as of Foreign currency differences 0 0 Additions 0 0 Disposals Amortisation for the year 0 0 Book value as of

77 71-93 notes TO THE ACCOUNTS tts GROUP Note 7 Intangible assets (Amounts in NOK 1000) Customer Patents, portfolio licences etc. 1) R&D Goodwill 2) Total As of 1 January 2009 Acquisition cost Accumulated depreciation as of Book value as of Fiscal year Book value as of Foreign currency differences Additions Acquisitions Disposals Depreciation Amortisation for the year Book value Per 31 December 2009 Acquisition cost Accumulated depreciation as of Book value Fiscal year Book value Foreign currency differences Additions Acquisitions Disposals Depreciation Amortisation for the year Book value Per 31 December 2010 Acquisition cost Accumulated depreciation as of Book value Book value R&D, patents and licences per consists of: EU project Terminal System Development - Drilling equipment Development - Heave compensated VME Development - Offshore cranes Others Total For proprietary products a continuous assessment is carried out to ensure the criteria for recognition of development costs have been met. 1) The item consists of: TTS Port Equipment AB has activated own development relating to the development of terminal systems. TTS Energy AS - Drilling unit has activated Rack & Pinion (R&P) rig solution, other drilling solutions, joint integrated machine (JIM) and mud mixing plant. TTS Energy AS - Offshore unit has activated own development of automatic handling winches with high pressure hydraulics. TTS Energy AS - Offshore unit has activated own development of a range of concepts for subsea offshore cranes with secondary controlled active heave compensation (AHC). 77

78 71-93 notes TO THE ACCOUNTS tts GROUP Note 7 cont. 2) Summary of the allocation of goodwill at segment level is as follows: 2010 Port Marine Energy Other Total Scandinavia Rest of Europe Asia Rest of world Total Port Marine Energy Other Total Scandinavia Rest of Europe Asia Rest of world Total Risk related to the estimates that form the basis for the book values are further described in Accounting principles, under sections 2.6 and 4. Goodwill impairment assessment There are external indicators of the need to test for impairment of the carryvalue of the three assessments cash generating units (CGU) in accordance with the IAS 36-structure. The TTS Group has defined three CGUS in the group, consistent with the three divisions below. The value of goodwill in the balance sheet and important assumptions for the test is shown below: Goodwill Revenue EBITDA Margin (MNOK) (MNOK) WACC Division (CGU) Marine % 7.1 % 6.4 % % 8.9 % 9.5 % Port and Logistic % 6.9 % 5.2 % % 8.3 % 9.5 % Energy % % 5.3 % % 9.5 % 9.5 % Total Test for write down is implemented by estimating a utility value in use for each of the divisions, which is compared to the booked value. Estimated utility value is based on discounted future cash flows, and is subject to the following premises: Expected cash flows are set to EBITDA with deductions made for investments and requirement for working capital, and is based on an actual board-approved business plan for each division over the next five years. The basis for this is a growth in turnover up until From 2016, growth is assumed to be equal to inflation, and on this basis calculation has been made of a terminal value at the end of the sixth year (2016). Sales income is based on thorough market analyses and evaluations of the different markets in which the various companies and divisions compete. There is a varying development between the divisions, particularly for 2011, for which allowance has been made for the Energy division with regard to the demanding market in the years mentioned. After 2011, the basis for these divisions is growth in turnover. Expected future earnings (EBITDA) is estimated at a level with competing and comparable companies in the marketplace. The positive development in EBITDA margin is in part the result of increased volume and in part the expectation of generally higher margins when the markets recover. The estimates are further based, in particular for the Energy division, on that the major development projects implemented will yield future returns and lowered costs. Inflation is presumed at 2.5 % per year, and all values in the estimations are based on real value (less inflation). The presumption of inflation is according to estimates from Norges Bank. Weighted average cost of capital (WACC) is calculated on the basis of the capital asset pricing model. The WACC from the total capital is pre-tax and less inflation. All divisions are stipulated at the same WACC (9.5 %). Beta values are calculated by comparison with other similar listed companies. The basis for all divisions is a risk-adjustment of 5 % relating to equity. The investment requirements of each division are based on an investment plan approved by the Board. On the basis of the major investments in recent years, it is budgeted for a lower level of investment than the previous years. Change to the working capital is estimated on the basis of the working capital constituting 8 % of the division s operating income. Beyond this, it has been assumed that the group will be able to reduce working capital in With regard to the Energy division, it is anticipated the sale of three rigs in stock during Based on the above presumptions, the estimated value in use exceeds the carrying value for each CGU indicating that there is no need to impair in any of the divisions. Please note, however, that there is a high degree of uncertainty related to the presumptions, and that changes to theses could entail future write downs. The group has conducted sensitivity analyses that show no need for write downs given the following premises: - 10 % decline in sales revenues - 1 %- point increase in the WACC - 1 %- point decrease in EBITDA margin Sensitivity analysis does show that the risk of the utility value falling below the book value is greatest in the Energy division. A decrease of 1 percentage point in the EBITDA, together with an increase in WACC of 1.8 percentage points, will represent a need for write down of approximately 4 MNOK. A decrease of 2.0 % in the EBITDA together with an increase in WACC of 1 % will represent a need for write down of approximately 44 MNOK. Furthermore, the sensitivity analysis does show that a decrese of 10 % in revenue, together with an decrease in EBITDA of 1,0 % does not represent a write down scenario. A decrease of 20 % in revenue, combined with a 2.0 % decrease in EBITDA will represent a write down requirement of approximately 21 MNOK. 78

79 71-93 notes TO THE ACCOUNTS tts GROUP Note 8 Investments in other companies (Amounts in NOK 1000) Book value Ownership (percent) Acquisition cost Fixed assets Shin Young Heavy Industry 13.4 % FastShip Inc.* 6.7 % Other Total investment in other enterprises Other investments in shares are wholly defined as available for sale. *) In the balance sheet per the company has recorded shares in FastShip Inc (FSI) with a total book value of 1 NOK. There are currently no ongoing activity in the project and the company s certificates have expired. The company is per still active for judicial clarifications of a sertificate dispute in the US. Since the project is terminated TTS has recorded the whole investment of 19.0 MNOK as a loss. Shares have been written off by 1.7 MNOK, and convertible loan with 1.1 MNOK in Risk related to the estimates that form the basis for the book values are further described in Accounting principles, under sections 2.7 and 4. Note 9 Subsidiaries (Amounts in NOK 1000) The following subsidiaries are included in the consolidated accounts: TTS Group ASA Subsidiary Registered office Aqcuisition date Ownership (percent) Voting share TTS Handling Systems AS Drøbak, Norway % 100 % TTS Ships Equipment AS Bergen, Norway % 100 % Norlift AS Bergen, Norway % 100 % Hydralift Marine AS Kristiansand, Norway % 100 % TTS Marine AB (former TTS Ships Equipment AB) Gothenburg, Sweden % 100 % TTS Marine Shanghai Co Ltd Shanghai, China % 100 % TTS Energy Bergen AS (former TTS Marine Cranes AS) Bergen, Norway % 100 % TTS Cranes Norway AS Bergen, Norway % 100 % TTS Energy Ålesund AS (former TTS Offshore Handling) Ålesund, Norway % 100 % TTS Energy AS (former TTS Sense AS) Kristiansand, Norway % 100 % TTS Marine AS Bergen, Norway % 100 % TTS Singapore Pte. Ltd. Singapore % 100 % TTS Greece Ltd. Pireus, Greece % 100 % Joint venture TTS BoHai Machinery Co. Ltd. Dalian, China % 50 % With accounting effect from January 2010, the companies TTS Energy AS (surviving), TTS Energy Bergen AS and TTS Energy Ålesund AS were merged. Final closing date, including fiscal merger date is January TTS Marine AB has the following investments: Subsidiary Registered office Aqcuisition date Ownership (percent) Voting share TTS Marine GmbH (former TTS Ships Equipment GmbH) Bremen, Germany % 100 % TTS Marine Inc. Virginia, USA % 100 % TTS Hua Hai AB Gotheburg, Sweden % 100 % TTS Liftec Oy Tampere, Finland % 100 % TTS Port Equipment AB Gotheburg, Sweden % 100 % TTS Marine S.r.l Genoa, Italy % 100 % Joint venture TTS Hua Hai Ships Equipment Co. Ltd. Shanghai, China % 50 % TTS JV Jiangsu Shanghai, China % 50 % TTS Keyon Marine Equipment Co. Ltd. was sold during

80 71-93 notes TO THE ACCOUNTS tts GROUP Note 9 cont. TTS Marine GmbH has the following investments: Subsidiary Registered office Aqcuisition date Ownership (percent) Voting share TTS-LMG Marine Cranes GmbH Lübeck, Germany % 100 % TTS Kocks Ostrava s.r.o Ostrava, Czech Republic % 100 % TTS Kocks GmbH Korea Co. Ltd Korea % 100 % TTS Marine Equipment Dalian, China % 100 % In 2010 TTS Kocks GmbH was merged with former TTS Ships Equipment GmbH. The company name was changed to TTS Marine GmbH in relations with the merger. TTS Energy AS has the following investments: Subsidiary Registered office Aqcuisition date Ownership (percent) Voting share TTS Sense (Canada) Ltd. Edmonton, Canada % 100 % TTS Sense MUD AS Kristiansand, Norway % 100 % TTS Sense Pte Ltd Singapore Singapore % 100 % TTS EDM Inc USA % 100 % TTS Mexico S.A de C.V Mexico % 100 % TTS Drillrig AS Kristiansand, Norway % 100 % Joint venture TTS Sense Drillfab AS Kristiansand, Norway ,0 % 50,0 % Maskinering og Sveiseservice AS Kristiansand, Norway % 34 % With accounting effect from January 2010, the companies TTS Energy AS (surviving) and TTS Sense MUD AS was merged. Final closing date, including fiscal merger date is January Joint ventures are accounted for in accordance with the equity method. Note 10 Investments in joint ventures (Amounts in NOK 1000) Joint ventures are accounted for in accordance with the equity method. Per 31 December the Group has the following investments in joint ventures Company Registered office Aqcuisition date Ownership Voting share TTS Hua Hai Ships Equipment Co. Ltd. Shanghai, China % 50 % TTS Jiangsu Shanghai, China % 50 % TTS Bohai Machinery Co. Ltd. Dalian, China % 50 % Sense Drillfab AS Kristiansand, Norway % 50 % Maskinering og Sveiseservice AS Kristiansand, Norway % 34 % Interests in TTS Bohai TTS Hua Hai TTS Keyon jointly controlled Machinery Ships Equipment Marine Equipment Sense operations Co. Ltd. inkl. Jiangsu Co. Ltd. Drillfab Total Opening balance Aqcuisitions/establishments Share of profit/loss Currency effect Closing balance There are no contingent liabilities relating to the Group s interests in the joint ventures and no contingent liabilities of the joint ventures themselves. Group s share of profit/loss, Long term Current Long term Current assets and liabilities per assets assets liabilities liabilities Income Profit/loss TTS Hua Hai Ships Equipment Co., Ltd incl. Jiangsu TTS Bohai Machinery Co., Ltd TTS Keyon Marine Equipment Co., Ltd Sense Drillfab Total Group s share of profit/loss, Long term Current Long term Current assets and liabilities per assets assets liabilities liabilities Income Profit/loss TTS Hua Hai Ships Equipment Co. Ltd. incl. Jiangsu TTS Bohai Machinery Co. Ltd TTS Keyon Marine Equipment Co. Ltd Sense Drillfab Total

81 71-93 notes TO THE ACCOUNTS tts GROUP Note 11 Trade and other receivables (Amounts in NOK 1000) Trade receivables Loss provisions Net trade receivables Recognised value of Group receivables per currency: Euro USD NOK Other currencies Total Additional information on accounts receivables and associated risks, see 24 and sections 2.11, 3.1 and 4.0 under Accounting Principles. Other receivables under financial fixed assets: Loan capital Fast Ship Deposit Loan Other receivables Other receivables under short-term receivables: Foreign currency contracts Other receivables Other short-term receivables ) TTS Group ASA has given a convertible loan of TNOK to FastShip Inc. Ref. Note 8. The loan was written down by TNOK in 2007, 138 TNOK in 2008 an additionally TNOK in All are long-term receivables without fixed maturity. 81

82 71-93 notes TO THE ACCOUNTS tts GROUP Note 12 Long-term liabilities (Amounts in NOK 1000) period of repayment and maturity dates Balance and later Bond loan Long-term liabilities Total long-term debt incl. first year instalments first year installment of long-term debt Total long-term debt Expected interest payments Specification of loans Loan Nominal Installment Book value Book value type Currency interest rate Maturity terms TTS group asa Nordea ASA Mortgage loan NOK Nibor+2.75 % 2011 quarterly Norsk Tillitsmann ASA Bond Issue NOK Nibor %* 2012 none Innovasjon Norge Mortgage loan NOK 5.75 % 2015 bi-annually Drillrig AS Ability Drilling, bankruptcy estate Mortgage loan NOK 6.00 % 2012 none TTS Marine GmbH Nordea Mortgage loan EUR Euribor % 2011 quarterly TTS Kocks Ostrava Unicredit Bank Mortgage loan EUR Euribor % 2012 quarterly TTS Kocks Korea Ltd. Pusan Bank Mortgage loan KRW 4.40 % 2014 quarterly TTS Marine Shanghai DnB NOR Bank AS Shanghai Branch Mortgage loan EUR market rate % 2011 none DnB NOR Bank AS Shanghai Branch Mortgage loan EUR market rate % 2015 none DnB NOR Bank AS Shanghai Branch Mortgage loan RMB market rate 2016 none Total *) In addition comes approximately 0.3 % in capitalization costs. The bond matures Fair value is estimated to approximately equal to carrying value as the loans are based on market terms and no fixed-rate terms exists. Recognised value of the Group s long-term liabilities in various currencies are as follows: NOK EUR RMB CZK KRW Total See Note 13 for security on long-term debt. Risk related to the estimates that form the basis for the book values are further described in Accounting principles, under sections 2.7, 2.14, 3 and 4. 82

83 71-93 notes TO THE ACCOUNTS tts GROUP Note 13 Assets pledged as security and guarantees (Amounts in NOK 1000) The credit facility of TTS Group ASA in Norway is established with Nordea Norge ASA (Nordea) and Sparebanken Vest, with Nordea as agent. TTS Group ASA has the following credit facilities: Limit Drawn Limit Drawn Group account/bank overdraft facility Drawing facility, operations Guarantee limit for Group (including Energy division) Per the Norwegian companies, as well as TTS Sense Canada, TTS Marine AB, TTS Port Equipment AB and TTS Marine GmbH are included in the Group account. The same applies for the Group s guarantee limit. The guarantee limits covers payment guarantee, performance bonds, advance payment bonds and tax guarantees. For the above mentioned facilities the following assets (from TTS Group ASA, TTS Energy AS, TTS Handling Systems AS, TTS Ships Equipment AS and Norlift AS, which also holds responsibility) have been pledged as collateral to Nordea: Assets pledged as collateral for secured debt: Shares in TTS Marine AB Account/Group receivables Non-invoiced production Inventory/Work in progress Prepayments to suppliers Property Total assets pledged as collateral In addition the following has been pledged with leasing right with additional equipment. TTS Group ASA TTS Group ASA has a loan in Innovasjon Norge for establishment of TTS Marine Equipment (Dalian, Kina) Co. Ltd. The loan of 15 MNOK has security in the shares of TTS Marine Equipment Co. Ltd. TTS-LMG Marine Cranes GmbH As of ,2 MNOK (0,8 MEUR) was drawn in guarantees. This amount is included in the total guarantee drawn with Nordea of 401 MNOK in the above table. Marine Gmbh As of MNOK (4.9 MEUR) was drawn in guarantees. This amount is included in the total guarantee drawn with Nordea of 401 MNOK in the above table. TTS Liftec Oy TTS Liftec Oy has a bank guarantee limit of 25 MNOK (3.0 MEUR) with Sampo Pankki Oyi (Sampo Bank) in Finland. As of this was drawn with 2.3 MNOK ( EUR). The bank has a parent company guarantee from TTS Group ASA of 27,5 MNOK (3.3 MEUR). TTS Marine Shanghai Co. Ltd. TTS Marine Shanghai Co. Ltd. has established a credit facility with DnB Bank ASA, Shanghai Branch with a credit limit of MNOK (4 MEUR) which was drawn with 31,25 MNOK (4 MEUR) as of A credit limit has also been established in RMB of 26.7 MNOK (30 MRMB) which was drawn with 12,4 MNOK (14 MRMB) as of The bank has a parent company guarantee from TTS Group ASA of 7,8 MNOK (1 MEUR). TTS Kocks Ostrava s.r.o TSS Kocks Ostrava s.r.o has established a loan of 3.1 MNOK (0.4 MEUR) with UniCredit Bank Czech Republic a.s in the Czech Republic. The company also has a credit limit of 1.5 MNOK (5 MCZK), with a draw of 1.4 MNOK (4.5 MCZK) as of The bank has security in the company s assets, in addition TTS Group ASA is co-debtor. The assets are recorded to 15,3 MNOK (49 MCZK). TTS Port Equipment AB TTS Port Equipment AB has established several bank guarantee agreements with Bohus Banken (part of Den danske Bank). As per total guarantees were 45.2 MNOK (51.9 MSEK). The bank has a parent company guarantee from TTS Group ASA of 50 MNOK. TTS Kocks Korea TTS Kocks Korea s.r.o has established a loan of 7,1 MNOK (1 366,4 MKRW) with Pusan Bank in Korea. The company also has a credit limit of 12.3 MNOK (2 500 MKRW), of which 10.9 MNOK (2 102 MKRW) was drawn. The bank has security in the company s building, in addition TTS Group ASA is co-debtor. The building is recorded to MNOK ( MKRW). Drillrig AS Drillrig AS has established a loan of MNOK 75.0 with the bankruptcy estate of Ability Drilling in connection with the purchase of a land rig from the estate. The Ability Drilling estate has security for unpaid purchase in the rig. The rig value equal MNOK As of , the rig is recognized as inventory. TTS Marine AB TTS Marine AB has established several bank guarantee agreements with Bohus Banken (part of Den danske Bank). As per total guarantees were MNOK (141.0 MSEK). The bank has a parent company guarantee from TTS Group ASA of 150 MNOK. 83

84 71-93 notes TO THE ACCOUNTS tts GROUP Note 13 cont. Covenants The Group has undertaken to meet the following financial strength requirements for Nordea: There is a requirement that the group equity shall be greater than 800 MNOK at all time. In addition, the equity ratio must be greater than 25 %. Nordea has accepted that the subordinated con vertible bond loan of 200 MNOK are to be considered as equity as per With an equity of 802 MNOK together with the subordinated convertible bond loan of 200 MNOK, the equity rate as per is 29.0 %, thus TTS Group meet the financial covenant requirement as per Part of the syndicate facility (150 MNOK) must be repaid latest within , or sooner if proceeds from sales of assets or material inventory sale are material. Please find maturity description for the Group s financial liabilities in section 3.1 under Accounting principles. The Group has undertaken to meet the following financial strength requirements for Norsk Tillitsmann ASA: There is a requirement that the equity shall be greater than 550 MNOK at any time. Norsk Tillitsmann ASA has accepted that the subordinated convertible bond loan of 200 MNOK are to be considered as equity as per With an equity of 802 MNOK together with the subordinated convertible bond loan of 200 MNOK, the equity rate as per is 29.0 %, thus TTS Group meet the financial covenant requirement as per Regarding the bond loan there is in addition to the covenant requirement of equity ratio at 22,5 % and nominal equity of 550 MNOK, a multiple of other standard default clauses related to the bond loan inclusive cross default clauses. Note 14 Tax (Amounts in NOK 1000) Deferred tax and deferred tax assets are netted if the Group has a legal right to offset deferred tax assets against defferd taxes in the balance sheet, and if the deferred taxes are owed to the same tax authorities Deferred tax assets Gross deferred tax assets Write down of deferred tax assets Offset deferred taxes Deferred tax assets to be recovered after 12 months Deferred tax assets to be recovered within 12 months Total recognised deferred tax assets Deferred taxes Gross deferred tax Netted deferred taxes against deferred tax assets Deferred tax to be recovered after 12 months Deferred tax to be settled within 12 months Total recognised deferred taxes Net deferred taxes in Group Change in recognised deferred taxes Recognised value Recognised in period (see specification under) Deferred tax related to the acquisition of TTS Sense Depreciation of deferred tax assets Prior period adjustment of deferred taxes Recognised value Change in deferred taxes and deferred tax assets (excluding netting within the same tax regime): Changes Changes Deferred taxes/deferred tax assets Fixed assets Current assets Other temporary differences/provisions Deferred tax credit Deferred tax benefits Impairment deferred tax assets Tax deductable losses Change in deferred taxes related to business combinations Prior period adjustment Deferred tax assets not recognised Net deferred tax assets

85 71-93 notes TO THE ACCOUNTS tts GROUP Note 14 cont. Deferred tax assets related to tax deficit carried forward have been recognised as deferred tax assets. This as an effect of the positive future prospects to offset the tax deficit against expected taxable profit in the years to come. TTS Group and particularly the Norwegian entities allocated to the Energy division have in 2008, 2009 and 2010 had considerable tax losses. This is mainly due to the loss of contracts caused by cancellations, recorded tax-related development costs and tax-related losses on accounts receivables. These tax losses is considered economic fluctuations and are not expected to be a recurring theme in the coming years. As a result of the losses there has been a considerable build-up of tax-related losses in Norway and Germany. The Group has received and is expecting orders to yield taxable profit in the years to come. Taxable income may be counterbalanced against the carried deficit, enabling utilisation of the tax advantage. An assesment has been made based on IFRS requirements regarding reversion of the tax losses in light of the expected tax profit. The following criteria has been applied to assess the likelihood of taxable income against which unused tax losses may be utilised: - the Group has sufficient temporary differences - tax losses is induced by specific identifiable causes Specification of differences between the financial profit before tax and the tax basis for the year: Pre-tax profit/loss Permanent differences Changes in temporary differences Utilisation of tax deductable losses Tax basis for the year Decomposition of tax cost: Payable tax 1) Impairment deferred tax assets Change in tax deductable losses Tax cost in the P&L statement ) Tax payable is related to the foreign subsidiaries taxable profit that cannot be offset against tax losses carryforward in Norway. Tax payable in the balance sheet: Tax payable Prepaid tax in foreign subsidiaries Total tax payable Average tax rate for Group 22.0 % 22.0 % Tax calculated at nominal tax rate Prior period adjustment deferred taxes Impairment deferred tax assets Profit JV Permanent differences Tax cost in the P&L statement The Group has received and are expecting orders to yield a positive taxable profit the coming years. Taxable income may be offset against the carried deficit, enabling utilisation of the tax advantage over time. In accordance with IFRS requirements, impairment testing of the value of deffered tax assets have been carried out in light of the expected reversal date for the tax losses. Given the current market situation, the Group s business structure and expected earnings, the Group assesses that the accrued tax losses in Norway cannot be fully utilised within the recommended assessment horizon. Losses carried forward - Norwegian entities Present value adjustment of expected earnings Norwegian entities 1) Impairment deferred tax assets ) Expected earnings are based on the budget for 2011 and established strategy plans for the period up to The required rate of return (WACC) is calculated on the basis of the capital asset pricing model (CAPM) and set at 9.5 %. The required return on the total capital is before tax and deducted of inflation. All divisions are given the same rate of return (9.5 %). The beta values are calculated by comparison with similar listed companies. An assuption of a risk premium of 5 % for equity applies for all divisions. Various structural alternatives are continuously assessed to ensure the utilization of tax positions in Norway. 85

86 71-93 notes TO THE ACCOUNTS tts GROUP Note 15 Liquid assets/interest-bearing debt (Amounts in NOK 1000) Bank deposits, cash etc. as of Deposits (+)/Withdrawals (-) in the cash pool agreement as of Other short term interest bearing debt Net interest-bearing debt - /deposits Drawing facilities, security and covenants are described in Note 13. Note 16 Share capital and shareholder information (Amounts in NOK) Number of shares as of 31 December Nominal value Book value of share capital The following companies are included in TTS Group: Ownership Share Number Company Owner interest Currency capital of shares Norlift AS TTS Group ASA 100 % NOK TTS Handling Systems AS TTS Group ASA 100 % NOK TTS Ships Equipment AS TTS Group ASA 100 % NOK Hydralift Marine AS TTS Group ASA 100 % NOK TTS Marine AB (former TTS Ships Equipment AB) TTS Group ASA 100 % SEK TTS Marine Shanghai Co Ltd TTS Group ASA 100 % USD TTS Marine AS TTS Group ASA 100 % NOK TTS Singapore TTS Group ASA 100 % SGD TTS Greece TTS Group ASA 100 % EUR TTS Marine GmbH (former TTS Ships Equipment GmbH) TTS Marine AB 100 % EUR TTS Marine Inc. TTS Marine AB 100 % USD TTS-LMG Marine Cranes GmbH TTS Marine GmbH 100 % EUR TTS Liftec Oy TTS Marine AB 100 % EUR TTS Port Equipment AB TTS Marine AB 100 % SEK TTS Kocks Ostrava s.r.o. TTS Marine GmbH 100 % EUR TTS Marine Equipment TTS Marine GmbH 100 % RMB TTS Marine S.r.l TTS Marine AB 100 % EUR TTS Energy Bergen AS (former TTS Marine Cranes AS) 1 TTS Group ASA 100 % NOK TTS Cranes Norway TTS Group ASA 100 % NOK TTS Energy Ålesund AS (former TTS Offshore Handling Equipment AS) 1 TTS Group ASA 100 % NOK TTS Energy AS (former TTS Sense AS) 1 TTS Group ASA 100 % NOK TTS Kocks Korea TTS Marine GmbH 100 % KRW TTS Hua Hai AB TTS Marine AB 100 % SEK TTS Sense (Canada) Ltd TTS Energy AS 100 % CAD TTS Sense MUD AS 1 TTS Energy AS 100 % NOK TTS Sense Pte Ltd Singapore TTS Energy AS 100 % SGD TTS Sense Drillfab TTS Energy AS 50 % NOK TTS EDM Inc TTS Energy AS 100 % USD TTS Mexico TTS Energy AS 100 % MXN Drillrig AS TTS Energy AS 100 % NOK ) TTS Energy Ålesund (formerly TTS Offshore Handling Equipment AS), TTS Energy Bergen (formerly TTS Marine Cranes), TTS Energy AS (formerly TTS Sense AS) and TTS Sense MUD AS were merged in January

87 71-93 notes TO THE ACCOUNTS tts GROUP Note 16 cont. Principal shareholders of TTS Group ASA as of Shareholder Number of shares Ownership Voting share Rasmussengruppen AS % % Skeie Technology AS % % Skandinaviska Enskilda Banken % 7.68 % Lesk AS % 7.11 % Stisk AS % 7.11 % Odin Maritim % 2.90 % Tamafe Holding AS % 2.90 % Barrus Capital AS (Ii) % 2.68 % Holberg Norge % 2.57 % Statoil Pensjon % 2.07 % Itlution AS % 1.98 % Shb Stockholm Clients Account % 1.90 % Holberg Norden % 1.61 % Skagen Vekst % 1.58 % Sal Oppenheim Jr & Cie % 1.47 % Rbc Dexia Investor Services Bank % 1.29 % Skeie Consultants AS % 1.28 % Odin Europa SMB % 1.14 % Sundt AS % 0.88 % Statoil Forsikring A.S % 0.56 % Total, 20 largest shareholders % % Total other % % Total % % Shares owned by board members, Group executives and their relatives: Board Per Per Trym Skeie Bjarne Skeie Karen T. Mørkestøl Jarle Dyrdal Group executives Johannes D. Neteland Related daugther Anna S. Neteland Ivar K. Hanson Lennart Svensson Inge Gabrielsen ) Owns 100 % of the shares in Tamafe Holding. 2) Bjarne Skeie owns 20 % of the shares and 100 % of the voting shares in Skeie Technology AS and Skeie Consultants AS. Lesk AS is owned by related daugther Lena Skeie. Stisk AS is owned by related daugther Stina Skeie. On it was decided at the ordinary general meeting to give the Board authority to issue up to shares in the event of acquisitions or mergers. The authority is valid until the ordinary general meeting for 2010, at at the latest. In relation to this authority shares were issued through private placing in July of As of , options were allotted that can be exercised until at a price of 7,55 NOK. (from an authorisation for a total of options granted at the ordindary general meeting of ). In addition there has been issued options, of which can be exercised until with a strike price of 5,91 NOK. (from an authorisation for a total of options granted at the ordindary general meeting of ). 87

88 71-93 notes TO THE ACCOUNTS tts GROUP Note 16 cont. Allocation of options: Number Number of options of options exercisable Strike exercisable Strike Name Position Company until price until price Total Johannes D. Neteland CEO TTS Group ASA Arild Apelthun CFO TTS Group ASA Lennart Svensson COO TTS Port Equipment AB Ivar K. Hanson COO TTS Marine AS Inge Gabrielsen COO TTS Energy AS Total number of options to senior executives No share options has been exercised in In accordance with authorities granted by the annual general meeting in 2008, 2009 and 2010, TTS has issued share option programmes to senior executives. Through these programmes, Senior Executivent in the TTS Group have a future right to purchase a number of shares at an exercise price equal to the marked rate on the date that the share option programme was initiated. The option premium is estimated on the date of allotment using the Black & Scholes option pricing model (BS). The options have a maximum term of two years, with a possible first exercise after one year (50 %), then (12.5 %) per quarter, giving a weighted averaged of 15 months maturity which is employed in BS. The option premium is distributed over the option s two-year term. Implied volatility is based on a combination of historic data and assumptions. For options issued in 2008, 42 % volatility is used, 74 % volatility for 2009, and 81 % volatility for For 2008 a risk-free interest rate of 5.0 % is used, 2.95 % for 2009 and 2.23% for For 2010, TNOK in option premium has been charged as expenses classified as salary in the profit and loss statement. Comparable numbers in 2009 were TNOK. Payroll taxes are charged when share options are realised. Own SHARES A resolution was adopted at the Annual General Meeting not to grant the Board authorisation to purchase the company s own shares. This resolution was upheld in In the period from to TTS has owned a maximum of shares. Treasury shares as of was Subordinated convertible LOAN 10 January 2011 the extraordinary general meeting approved the issuance of a convertible bond loan of 200 MNOK. The loan has been given an 8 % coupon rate and reaches maturity On specific terms the Group has a call option that expires on Bondholders have continuous conversion rights with an exercise price of NOK. The maximum number of shares to be issued at full conversion is , equivalent to a dilution effect of %. Note 17 Other short-term liabilities (Amounts in NOK 1000) Provisions for project (see Note 21) Other liability provisions (see Note 21) Foreign currency contracts Other current liabilities Total Other short-term liabilities The best estimate for maturity date for completed projects are within 12 months from balance-sheet date. Note 18 Other operating cost (Amounts in NOK 1000) Premises and office expenses Computer expences Marketing and travel expences Other expences Total other operating expenses

89 71-93 notes TO THE ACCOUNTS tts GROUP Note 19 Related parties (Amounts in NOK 1000) The subsidiaries (Note 9), Investments in joint ventures (Note 10), members of the Board (Note 4) and members of the Senior Executive Group are considered as related parties. The group has carried out various transactions with underlying companies and joint ventures. All the transactions have been carried out as part of the ordinary operations and at arm s length prices. Sales: Joint ventures Cost of sales: Joint ventures Balance sheet items related to purchase and sale of goods and services Receivables Joint ventures Liabilities Joint ventures Information on the Board and Group management s shares and options are stated in Note 16. There are no further transactions with related parties. Note 20 Derivatives (Amounts in NOK 1000) Assets Liabilities Assets Liabilities Forward currency contracts fair value hedging Forward currency contracts to fair value of the result Forward currency contracts Total Fair value of hedging instruments are classified as current assets or short-term liabilities. Fair value of derivatives are classified as current assets or short-term liabilites, as the hedging items and derivatives mainly falls due within 12 months. Matured Q Q Q Q Total Forward currency contracts The nominal value of the outstanding forward currency contracts at is MNOK compared to MNOK in Derivatives are on principal recognised at fair value on the date of contract signing. The value is adjusted to fair value in later periods. The value is set to observable market price. TTS enters into hedging contracts that qualify as, and are considered accounting wise to be, actual value hedges. In addition to this, the Group has hedging contracts that no longer meet the criteria for hedging accounting as the underlying delivery contract has been cancelled. These are recognised at fair value in the financial statement. Changes to fair value that meets the criteria of an effective hedge is recognised in the financial statement with the change in fair value of the assets or liabilities that are being hedged. The ineffective portion of the recognised hedge value amounts to 473 TNOK and is posted together with the changes in value of derivatives. The asset or liability being hedged is contractual income or cost related to production cost. Hedged assets or liabilities are recognised in the balance sheet at actual value. The hedged asset or liability represents, among other things, the part of the contractual income or cost that has not been invoiced on the balance sheet date, or where invoices have not been received from the supplier. The asset and liability is included in Other Short-term Assets and Other Short-term Liabilities respectively. Additionally the hedged assets or liability for each contract is represented through bank, client or supplier. For additional information on foreign currency and appurtenant risks, see Accounting principles, section 2.9 og

90 71-93 notes TO THE ACCOUNTS tts GROUP Note 21 Provisions for liabilities (Amounts in NOK 1000) Completed projects* Guarantees Other Total 1 January Provisions for the year Utilised during the year December Completed projects* Guarantees Other Total 1 January Provisions Utilised during the year December Classification in the balance Presented as other current liabilities *) Liabilities related to supplementary work and other demands from clients. Risk related to the estimates that form the basis for the book values are further described in Accounting principles, under sections 2.17 and 4. Note 22 Financial items and foreign currency gains/losses (Amounts in NOK 1000) Other interest income Interest on debt to financial institutions Net other financial expenses Total Net other financial expenses primarily consists of foreign currency gains and losses as well as transaction costs from banks. 90

91 71-93 notes TO THE ACCOUNTS tts GROUP Note 23 Earnings per share (Amounts in NOK 1000) Earnings per share is calculated by dividing the profit attributable to shareholders by the weigthed average of the number of ordinary issued shares through the year excluding treasury shares Profit attributable to shareholders Weigthed average of issued shares excluding own shares Earnings per share (NOK per share) (2.76) (5.72) Diluted earnings per share When calculating the diluted result per share, the weigthed average of the number of ordinary issued shares in circulation is regulated for the convertion effect of all potential shares that can cause dilution. The company has share options where a calculation is made to determine the number of shares which could have been acquired at market rate (calculated to an average share price of the company s shares through the year) based on the money value of the subscription rights of the outstanding share options. The number of shares calculated is compared to the number of shares that would have been issued if all share options were exercised. The difference is attributed to the denominator in the fraction that issued the shares without compensation Profit used to calculate diluted earnings per share Average of ordinary issued shares excluding own shares Adjustment for share options Average number of ordinary shares for calculation of diluted earning per share Diluted earnings per share (NOK per share) (2.74) (5.63) Share structure Issued shares Own shares Unused share options that can be settled by issue Subordinated convertible bond issue At the 10 January 2011 the extraordinary general meeting approved the drawdown of a subordinated convertible bond loan of 200 MNOK. The bondholders have a continuous conversion right at a call price of 9,2839 NOK. The maximum amount of shares that can be issued at full conversion is Loan and conversion rights are established after end of year and are therefore not included in the calculation of earnings per share in Note 24 Subsequent events No dividend for shareholders have been proposed for January 2011 the extraordinary general meeting approved the issuance of a convertible bond loan of 200 MNOK. The loan has been given an 8 % coupon rate and reaches maturity On specific terms the Group has a call option that expires on Bondholders have continuous conversion rights with an exercise price of NOK The maximum number of shares to be issued at full conversion is , equivalent to a dilution effect of %. In February 2011 the companies of the Norwegian Energy division was merged to simplify the internal structure and streamline internal processes. The companies included in the merger are TTS Energy AS (acquiring company), TTS Energy Bergen AS, TTS Energy Ålesund AS and TTS Sense MUD AS. After the merger all of the companies are included in TTS Energy AS. Accounting date for the merger was We also refer to announcements published on the Oslo Stock Exchange of new material contracts entered into in Material contracts disclosed to Oslo Stock Exchange that are concluded after year-end amounts to approximately 91 MNOK for Marine, approx. 55 MNOK for Port and Logistics and approx. 505 MNOK for Energy. There has been no significant cancellations in the period after year end. 91

92 71-93 notes TO THE ACCOUNTS tts GROUP Note 25 Foreign currency differences (Amounts in NOK 1000) Foreign currency differences consists of all currency differences that arises from translation of the financial statements of the foreign entities that are not an integrated part of the operation of the company. Per Exchange differences 2009 Group company Joint ventures Per Exchange differences 2010 Group company Joint ventures Per Note 26 Contingencies Provisions for contingent liabilities have been made (Ref. Note 21). No significant provisions are expected beyond what has already been earmarked. Note 27 Government grants TTS has not received government grants from public institutions for research and development activites through its subsidiaries in Government grants are recorded at fair value when there is reasonable certainty that the reiceiving company fulfils the conditions of the grant. 92

93 71-93 notes TO THE ACCOUNTS tts GROUP Note 28 Financial risk management (Amounts in NOK 1000) Financial assets and liabilities are described in Accounting principles, sections 2.7, 2.9, 2.11, 2.12, 2.14 and Risk associated with the underlying estimates of the recognised values and financial risk management are described in Accounting principles, section 3. Classification of financial assets Derivatives Derivatives related Assets related Assets to hedging Loans and available to hedging Loans and available purposes receivables for sale Total purposes receivables for sale Total Financial assets Shares Other receivables Financial current assets Trade receivables Other current receivables Acquired, non-invoiced production Derivatives Prepayment to suppliers Cash and cash equivalents Total financial assets The Group has no financial assets classified under hold to maturity or available for sale on the date or Classification of financial liabilities Derivatives Derivatives related to Other related to Other hedging financial hedging financial purposes liabilities Total purposes liabilities Total Long-term financial liabilities Interest-bearing long-term debt Current financial liabilites First year installment of long-term debt Interest-bearing current liabilities Prepayments from customers Cost related to facilities under construction Derivatives 1) Accounts payable and other long-term debt Total financial liabilities Fair value of financial liabilities: 1) The Group s derivatives consists of forward currency contracts. Fair value of forward currency contracts is determined by utilising market-to-market rate on the balance-sheet date as stated by the Group s bank. Fair Value related to long-term debt is considered approximately equal to carrying value, as loans are given at market terms and with a floating rate. 93

94 94

95 Profit and loss account TTS group asa TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION january - 31 december (Amounts in NOK 1000) NGAAP NGAAP Notes Operating income Intra-Group operating income Other operating income 0 25 Group service fee from TTS subsidiaries Total operating income Operating costs Cost of stock Personnel costs etc. 1, Depreciation on tangible fixed assets 3, Other operating costs 1, Total operating costs Operating profit Financial income and expenses Income from investments in subsidiaries 5, Income from investments in joint ventures 5, Interest received from group companies Other interest income Other financial income Interest expenses to group companies Other interest expenses Other financial expenses Net financial items Profit before tax Tax Profit for the year Transferred from other equity

96 Balance sheet TTS group asa assets (Amount in NOK 1000) NGAAP NGAAP Notes Fixed assets Deferred tax assets Total intangible fixed assets Tangible fixed assets Machinery and vehicles Furniture, office and computer equipment Total tangible fixed assets Financial fixed assets Shares in subsidiaries 5, Investments in joint ventures Loans to companies in same group 6, Investments in shares and other financial instruments Other receivables Pensions Total financial fixed assets Total assets Current assets Accounts receivable Trade debtors Intra-group accounts receivable 6, Other receivables Other intra-group receivables 6, Total receivables Bank deposits, cash in hand etc Total current assets Total assets

97 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION Equity capital and liabilities (Amount in NOK 1000) NGAAP NGAAP Notes Equity capital Paid up equity capital Share capital 11, Treasury shares Premium account Total paid up equity capital Retained earnings Valuation variable fund 0 0 Other equity capital Total retained earnings Total equity capital 14, Liabilities Other long-term liabilities Bond loan 7, Liabilities to financial institutions 7, Total other long-term liabilities Current liabilities Liabilities to financial institutions 7, Overdraft 8, Trade payables Intra-group trade payables Taxes due Provision for dividends 0 0 Other intra-group liabilities 8 11 Other current liabilities Total current liabilities Total liabilities Total equity capital and liabilities Bergen, 13 April 2011 Board of Directors of TTS Group ASA Trym Skeie Kjerstin Fyllingen Anne Breive Bjarne Skeie Chairman of the board Board member Board member Board member Karen T. Mørkestøl Jarle Dyrdal Johannes D. Neteland Board member Board member Chief executive Officer 97

98 Equity statement TTS group asa Share Share Treasury premium Other (Amounts in NOK 1000) capital shares account equity Total Equity as of Issue Issue costs Option schemes Currency difference concerning equity method Net profit for the year Equity as of

99 Cashflow statement TTS group asa TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION january - 31 december (Amounts in NOK 1000) Net profit before tax Income from investments in subsidiaries Depreciation Writedowns on shares and receivables Pro rata income from joint ventures Foreign currency gains/losses on intra-group loans Difference between pension charges and payments to/from pension scheme Trade and other receivables Trade payables and other short-term liabilities Net cashflow from operations Cashflow from investments Acquisition of subsidiaries (less cash balances at subsidiaries) Disbursements injecting equity into subsidiaries Income from sales of tangible fixed assets 0 54 Disbursements on acquisitions of tangible fixed assets Income from long-term intra-group loans Disbursements on long-term intra-group loan receivables Net cashflow from investments Cashflow from financing Income from taking up new short-term/long-term liabilities Disbursements on repayment of short-term/long-term liabilities Paid up equity capital Net cashflow from financing Effects of exchange-rate fluctuations on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents (opening balance) Cash and cash equivalents (closing balance) This consists of: Bank deposits etc

100 100

101 Accounting principles TTS group asa TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION The financial statements have been prepared in accordance with The Norwegian Accounting Act of 1998 and generally accepted accounting principles. Subsidiaries, associated companies Subsidiaries are valuated according to the equity method in the annual accounts. The parent company s share of the result is based on the invested companies post-tax result after allowing for internal gains and possible depreciation of any additional value arising because the cost price of the shares was higher than the acquired share of the book equity. In the profit and loss account, the share of the profit is posted under financial items, while the assets in the balance sheet are posted under financial assets. Also associated companies (joint ventures) are included in the accounts in accordance with the cost method. This means that the result is included as financial income and portion of equity is included under financial assets. Operating income Operating income includes income on delivered products and services granted over the year. The income is booked when the services are delivered. Classification and valuation of balance sheet items Current assets and short term liabilities include items which fall due within one year of the end of the financial year, as well as items related to the operating cycle. Other items are classified as fixed assets/long-term liabilities. Current assets are valued at the lowest of cost and market value. Short-term liabilities are posted in the balance sheet at the nominal value at the time of initial establishment. is expensed as incurred under operating expenses, while renovation or upgrading is added to the asset s cost price and is depreciated in line with the asset. Pensions The company has a defined-benefit pension. The pension expenses and pension commitments are calculated on a straight-line earning profile basis, based on assumptions relating to discount rates, projected salaries, the amount of benefits from the National Insurance Scheme, future return on pension funds, and actuarial calculations relating to mortality rate, voluntary retirement, etc. Pension funds are valued at net realizable value and deducted in the net pension commitment in the balance sheet. Changes in the commitment due to changes in the pension plans are written down over the expected remaining service period. The same applies to estimated differences if they exceed 10 % of the largest of the pension commitment and pension funds (corridor). Social security fees are expensed on basis of pension premiums paid for pension schemes and accrued changes in net pension commitment. Taxes The tax expense in the profit and loss account includes both the current tax payable and change in deferred tax. Deferred tax is estimated to 28 % based on the temporary changes between taxation and accounting values, as well as tax losses carried forward to the end of the fiscal year. Tax-increasing and tax-reducing temporary differences which are reversed, or could be reversed, during the same period are offset against each other and recorded as a net sum. Temporary changes are only assessed for the Norwegian companies. Foreign currency Items in foreign currency are converted to NOK at the exchange rate on the balance sheet date. For future contracts, forward rates are used. Fixed assets are recorded at cost, but are written down to net realizable value if the diminution in value is not expected to be temporary. Long-term liabilities are posted in the balance sheet at the nominal value at the time of the initial establishment. Accounts receivables Trade debtors and other accounts receivables are recorded in the balance sheet at their nominal value reduced by a provision for bad debts. The provisions are made on the basis of an individual assessment of each balance. In addition, an unspecified provision is made to cover expected losses. Fixed assets Fixed assets are booked on the balance sheet and depreciated over the asset s life span if the expected life span exceeds 3 years and has a cost price higher than NOK Direct maintenance of assets Future contracts ensuring trade debtors, accrued operating income and/or trade creditors are converted to an average rate of exchange for all future contracts in connection with each individual long-term project. Cash flow statement The cash flow statement has been prepared according to the indirect method. Cash and cash equivalents include cash, bank deposits, and other short term investments which immediately and with minimal exchange risk can be converted into known cash amounts, with due date less than three months from purchase date. Cash and cash equivalents Cash and cash equivalents consist of cash and bank deposits. Bank deposits in foreign currencies are assessed to the exchange rate of the balance sheet date. Withdrawals from the bank overdraft constitute part of current liabilities. 101

102 Notes TTS group asa Note 1 Personnel costs, number of employees, remunerations, loans to employees etc. (Amounts in NOK 1000) Payroll expenses Salaries, options etc Employer s contributions Pension costs Other benefits Total personnel costs Number of employees per Remuneration to Board members* Trym Skeie (Chairman from 11.09) Birger Skeie - estate Nils O. Ardal (to 06.10) Bjarne Skeie Rune Selmar ( ) 0 0 Anne Breive Kjerstin Fyllingen Karen Torine Mørkestøl (from 10.10) 0 0 Jarle Dyrdal (from 10.10) 0 0 Olav Smeland (to 10.10) Anne Karin Bedringås (to 10.10) Total *) The Annual General Meeting determines the remuneration to the Board from one general meeting to the next. For the financial year 2010, the same remuneration was used as resolved at the Annual General Meeting in The remuneration proposed from the Annual General Meeting in 2010 until the general meeting in 2011 is shown in the notice of general meeting The same applies to the nomination committee. Remuneration to nomination committee The members of TTS s nomination committee are as follows: Bjørn Olafsson (chairman), Bjørn Sjaastad and Johan Aasen. Remuneration paid in 2010 was 40 TNOK to the chairman and 25 TNOK to the members, total 90 TNOK. Principles on setting salaries and other benefits for the managing staff of the company TTS Group ASA s remuneration policy is based on offering group executive competitive terms. Remuneration levels reflect the fact that the company is listed and focused internationally. Annual remuneration assumes the group executive shares in the company s results and creates shareholder value through increasing the value of the company. Remuneration consists of three main components: base salary, bonuses and option scheme. Bonuses are based on target results. In certain circumstances where change and development are decisive, bonuses are also based on specific growth targets. Bonus targets are reviewed annually. The maximum bonus is one year s base salary for the President and CEO and up to 50 % for other executive staff. 102

103 TTS GROUP 3-15 BUSINESS areas CORPORATE governance director s report and accounts ORGANISATION Note 1 cont. TTS has had an option scheme for the group executive since 1998, aimed at giving the group executive the same incentive as shareholders to increase the value of the company over time. The general meeting has authorised the Board to issue two-year option schemes each year, which can be exercised for the first time as to 50 % after one year, followed by a further 12.5 % per quarter in addition to any options not exercised previously. Options must be exercised within two years. The group pension scheme in Norway is based on approx. 65 % of base salary at age 67, subject to a maximum of 12 G. Six months notice of termination is required, with severance pay of from six to 24 months, period of notice included. Option schemes have to be approved by the general meeting, subject to the Board being granted authority to decide allocations. The President and CEO s remuneration is determined by the Board of TTS Group ASA. For other executive staff, remuneration is determined by the Boards of the subsidiaries concerned or President and CEO. Remuneration to President & CEO and group executives Other Bonus Option Total Pension Name Position Base pay benefits paid profits income costs Johannes D. Neteland President & CEO Arild Apelthun CFO (from 04.10) Mette Henriksen Acting CFO (until 03.10) Ivar K. Hanson Head of division, Marine Lennart Svensson Head of division, Port and Logistics Inge Gabrielsen Head of division, Energy Base pay Other benefits Bonus paid Option profits Total income Taxable base pay Car scheme, group life insurance, taxable pension schemes, telephone, newspapers etc. Bonus paid for year concerned Difference between market price and redemption price when exercising options Total taxable income The taxable pension schemes are an early retirement pension and top-hat pension which were formerly based on a pension for life solution. The amendments to the tax rules per mean these must be accounted for as taxable benefits. The premature retirement scheme applies once the President & CEO reaches 60. Six months notice of termination is required with severance pay of 24 months, notice period included, and from six to 24 months for other group executives Auditors fees (excl. VAT) Statutory audit Other certifications Other assistance including tax advice Total

104 NOTEs to the accounts TTS group ASA Note 2 Pension (Amounts in NOK 1000) The company is required to have a company pension scheme under the law on mandatory company pensions. The company has a pension scheme that meets the requirements under this law. The Norwegian companies in the group have defined benefit pension schemes that entitle employees to defined future pension benefits depending on length of service, salary level, retirement age and social security pensions received. The pension scheme included 19 persons per , including eight retired persons. Reported net pension liabilities are as follows: Insured Uninsured Total Insured Uninsured Total Market value of pension funds Net present value of accrued pension liabilities Unrecognised estimate changes and deviations Unrecognised costs in respect of past period pension earnings Periodised employer s contributions = Employer s contributions Net pension costs are determined as follows: Insured Uninsured Total Insured Uninsured Total Net present value of current year s pension benefits accrued Interest payable on pension liabilities Expected return on pension funds Recognised estimate changes and deviations Changes to employer s contributions Costs relating to past period pension earnings Loss on reduction of pension scheme = Total costs included in salary costs Changes to book value of funds: Book value as at 1 January Costs recognised during year (see above) /- Pension payments and payment of pension contributions = Book value per 31 December Financial assumptions used in calculating pension liabilities: Return on pension funds 4.60 % 5.60 % 5.60 % 5.80 % Discount rate 3.20 % 4.40 % 4.40 % 3.80 % Annual wage inflation 4.00 % 4.25 % 4.25 % 4.80 % Annual adjustment of G [basic social security unit] 3.75 % 4.00 % 4.00 % 3.80 % Annual adjustment of pensions being paid 3.75 % 4.00 % 4.00 % 3.80 % Voluntary retirement % % % % Withdrawal tendency for early retirement (AFP) % % % % Employer s contributions % % % % 104

105 NOTEs to the accounts TTS group ASA Note 3 Tangible fixed assets (Amounts in NOK 1000) Furniture Machinery and office and vehicles equipment Total per 1 January 2009 Acquisition cost as at 31 December Cumulative depreciation as at 31 December Book value per 31 December Financial year 2009 Book value as at 1 January Acquisitions during the year Disposals during the year Depreciation for the year Book value per 31 December per 31 December 2009 Acquisition cost as at 31 December Cumulative depreciation as at 31 December Book value per 31 December Financial year 2010 Book value as at 1 January Acquisitions during the year Disposals during the year Depreciation for the year Book value per 31 December per 31 December 2010 Acquisition cost as at 31 December Cumulative depreciation as at 31 December Book value per 31 December Depreciation plan Linear Linear Depreciation period 5 year 3-10 year Note 4 Shares in other companies (Amounts in NOK 1000) Holding Acquisition cost Book value Fixed assets Shin Young Heavy Industry 13.4 % FastShip Inc.* 6.7 % Total shares in other companies *) In the balance sheet per the company has recorded shares in FastShip Inc (FSI) with a total book value of 1 NOK. There are currently no ongoing activity in the project and the company s certificates have expired. The company is per still active for judicial clarifications of a sertificate dispute in the US. Since the project is terminated TTS has recorded the whole investment of 19,0 MNOK as a loss. Shares have been written off by 1,7 MNOK, and convertible loan with 1,1 MNOK in

106 NOTEs to the accounts TTS group ASA Note 5 Subsidiaries and joint ventures (Amounts in NOK 1000) Subsidiaries Registered office Acquired Ownership Votes TTS Handling Systems AS Drøbak, Norway % 100 % TTS Ships Equipment AS Bergen, Norway % 100 % Norlift AS Bergen, Norway % 100 % Hydralift Marine AS Kristiansand, Norway % 100 % TTS Marine AB (former TTS Ships Equipment AB) Gothenburg, Sweden % 100 % TTS Marine Shanghai Co Ltd Shanghai, China % 100 % TTS Energy Bergen AS (former TTS Marine Cranes AS) Bergen, Norway % 100 % TTS Cranes Norway AS Bergen, Norway % 100 % TTS Energy Ålesund AS (former TTS Offshore Handling Equipment AS) Ålesund, Norway % 100 % TTS Energy AS (former TTS Sense AS) Kristiansand, Norway % 100 % TTS Marine AS Bergen, Norway % 100 % TTS Singapore Pte. Ltd. Singapore % 100 % TTS Greece Ltd. Pireus, Greece % 100 % Joint venture TTS BoHai Machinery Co., Ltd Dalian, China % 50 % Companies are accounted for using the equity method. TTS Norlift TTS TTS TTS Marine TTS Cranes TTS TTS Hydralift TTS TTS HS AS AS SE AS Marine AB Shanghai Norway AS Energy AS Marine AS Marine AS Singap. Greece Total Acquisition cost when acq Of which goodwill Of which added value Unamortised added value/ goodwill 31 December Goodwill Amortisation of GW Unamortised GW Calculating profit for the year Share of profit for the year Amortisation on goodwill Income from inv. in subsid Shares in subsidiaries Opening balance Associated comp/subs. acq Liabilities conv. to shares Capital injected Income from investm. in sub Group contribution/dividends Foreign currency effects Closing balance The former TTS Sense AS (acquirer), TTS Marine Cranes AS (acquire) and TTS Offshore Handling AS (acquire) merged for accounts purposes as of 1 January The merged company is named TTS Energy AS. TTS Bohai Shares in joint ventures Machinery Co. Ltd. Opening balance per 1 January Companies acquired or started 0 Share of profits 891 Dividends 0 Forgiveness of debt 0 Foreign currency effects 243 Disposals of shares in associated companies 0 Closing balance per 31 December

107 NOTEs to the accounts TTS group ASA Note 6 Trade and other receivables (Amounts in NOK 1000) Trade receivables 0 0 Trade receivables within group Other receivables within group (group cont./overdraft) Short-term receivables Receivables maturing later than one year Other receivables Loans to group companies Total There are no credit risk concentrations within customer receivables. Steps have been taken to avoid delays in settling internal receivables. Note 7 Long-term liabilities (Amounts in NOK 1000) Repayment profile and maturity Balance as at 31 December and beyond Bond liabilities Other long-term liabilities Total long-term liabilities First year repayment LTD Total long-term liabilities Breakdown of loans TTS Group ASA Instalment Book value Book value Long-term loans Type of loan Currency Nominal rate Matures terms Nordea ASA Mortgage loan NOK NIBOR % 2011 Four per year Norsk Tillitsmann ASA Bond loan NOK NIBOR %* 2012 None Innovasjon Norge Mortgage loan NOK 5.75 % 2015 Two per year *) Plus approx. 0.3 % deferred costs. Bond loan matures at Book value Book value Short-term loans Type of loan Currency Nominal rate Matures Instalment terms Nordea ASA Mortgage loan NOK NIBOR % 2011 Four per year Nordea ASA Mortgage loan NOK NIBOR % 2011 Renegotiated annually Innovasjon Norge Mortgage loan NOK 5.75 % 2015 Short-term component LTD See Note 8 for security for long-term debt. 107

108 NOTEs to the accounts TTS group ASA Note 8 Assets pledged as security and guarantees (Amounts in NOK 1000) The credit agreement for TTS Group ASA in Norway was established (50/50) with Nordea Norge ASA (Nordea) and Sparebanken Vest, with Nordea as agent. TTS Group ASA has agreements as follows: Limit Drawing Limit Drawing Group account Drawing facility, operations Guarantee limit for Group Per 31 December 2010, the companies in Norway, and TTS Sense Canada, TTS Marine AB, TTS Port Equipment AB and TTS Marine GmbH are all involved in the group cash pool facility. The same applies to the guarantee limit for the group. Guarantee limits cover payment, contract, prepayment and tax guarantees. TTS Group ASA also has long-term loans (see Note 7). For the agreements above, the assets below (from TTS Group ASA, TTS Energy AS, TTS Handling Systems AS, TTS Ships Equipment AS and Norlift AS, which are also jointly and severally liable) have been pledged as collateral to Nordea: Secured debt Assets at book value Customer/intra-group receivables Shares in TTS Marine AB Total assets pledged as security Leases in Norway with plant and equipment are also pledged. The mortgage bond has a nominal value of 200 MNOK. Covenants The Group s has undertaken to meet the following financial strength requirements for Nordea: There is a requirement that the group equity shall be greater than 800 MNOK at all time. In addition, the equity ratio must be greater than 25 %. Nordea has accepted that the subordinated convertible bond loan of 200 MNOK are to be considered as equity as per With an equity of 802 MNOK together with the subordinated convertible bond loan of 200 MNOK, the equity rate as per is 29,0 %, thus TTS Group meet the financial covenant requirement as per Part of the syndicate facility (150 MNOK) must be repaid latest within , or sooner if proceeds from sales of assets or material inventory sale are material. Please find maturity description for the Group s financial liabilities in section 3.1 under Accounting principles. The Group s has undertaken to meet the following financial strength requirements for Norsk Tillitsmann ASA There is a requirement that the equity shall be greater than 550 MNOK at any time. Norsk Tillitsmann ASA has accepted that the subordinated convertible bond loan of 200 MNOK are to be considered as equity as per With an equity of 802 MNOK together with the subordinated convertible bond loan of 200 MNOK, the equity rate as per is 29.0 %, thus TTS Group meet the financial covenant requirement as per Regarding the bond loan there is in addition to the covenant requirement of equity ratio at 22.5 % and nominal equity of 550 MNOK, a multiple of other standard default clauses related to the bond loan inclusive cross default clauses. 108

109 NOTEs to the accounts TTS group ASA Note 9 Tax (Amounts in NOK 1000) Changes to deferred tax assets and deferred tax Change Change Deferred tax Fixed assets Receivables Construction contracts Pension funds Other temporary differences Total deferred tax Deferred tax assets Fixed assets Receivables Inventories Pension funds Other provisions for liabilities Total deferred tax assets Net deferred tax assets Credit deduction carried forward Allowance carried forward Loss carried forward Net deferred tax assets Unrecognised deferred tax assets related to other temporary differences Unrecognised deferred tax assets related to allowance Net deferred tax assets reported Deferred tax assets related to losses which can be carried forward for tax purposes are reported if the management believes it is likely that the company can use these against future taxable income. Breakdown of differences between profit before tax as per the accounts and tax basis for year Result before tax Permanent differences Change to assessment in relation to previous years accounts 0 0 Change to temporary profit/loss differences Reversed share of profits/losses in subsidiaries and joint ventures Group contribution with tax Application of loss to be carried forward Tax basis for year Breakdown of tax costs: Tax payable 0 0 Withholding tax from activities outside Norway 20 0 Effect of group contribution on deferred tax Effect of tax on issue costs netted directly with deferred tax assets 0 0 Changes to deferred tax Tax cost Tax payable on balance sheet: Tax payable 0 0 Tax effects of group contribution 0 0 Tax payable on balance sheet 0 0 Explanation as to why this year s tax costs are not 28% of profit before tax: 28 % of profit before tax Permanent differences Results from subsidiaries and joint ventures Tax on issue costs not recognised 0 0 Estimated tax costs

110 NOTEs to the accounts TTS group ASA Note 10 Liquid funds (Amounts in NOK 1000) Bank deposits, cash etc. as at 31 December Deposits (+)/withdrawals (-) from cash pool account system as at 31 December ) Restricted bank deposits per 31 December were TNOK. Of these 239 TNOK were deposits on tax withdrawal accounts, and TNOK werer deposits as morgage for a loan from Innovasjon Norge. TTS Group ASA operates a cash pool account system. The group has been granted a credit facility of 327 MNOK. TTS Group ASA also has a drawing facility of 350 MNOK. Note 11 Share capital and shareholder information Number of shares Nominal Book value of as at 31 December value share capital The companies in the TTS Group are as follows: (Amounts in NOK 1000) Company Owner Holding Share capital No. of shares Norlift AS TTS Group ASA 100 % NOK TTS Handling Systems AS TTS Group ASA 100 % NOK TTS Ships Equipment AS TTS Group ASA 100 % NOK Hydralift Marine AS TTS Group ASA 100 % NOK TTS Marine AB (former TTS Ships Equipment AB) TTS Group ASA 100 % SEK TTS Marine Shanghai Co. Ltd. TTS Group ASA 100 % USD TTS Marine AS TTS Group ASA 100 % NOK TTS Singapore TTS Group ASA 100 % SGD TTS Greece TTS Group ASA 100 % EUR TTS Marine GmbH (former TTS Ships Equipment GmbH) TTS Marine AB 100 % EUR TTS Marine Inc. TTS Marine AB 100 % USD TTS-LMG Marine Cranes GmbH TTS Marine GmbH 100 % EUR TTS Liftec Oy TTS Marine AB 100 % EUR TTS Port Equipment AB TTS Marine AB 100 % SEK TTS Kocks Ostrava s.r.o. TTS Marine GmbH 100 % EUR TTS Marine Equipment Co. Ltd. TTS Marine GmbH 100 % RMB TTS Marine S.r.l TTS Marine AB 100 % EUR TTS Energy Bergen AS (former TTS Marine Cranes AS) 1 TTS Group ASA 100 % NOK TTS Cranes Norway AS TTS Group ASA 100 % NOK TTS Energy Ålesund AS (former TTS Offshore Handling Equipment AS) 1 TTS Group ASA 100 % NOK TTS Energy AS (former TTS Sense AS) 1 TTS Group ASA 100 % NOK TTS Kocks Korea TTS Marine GmbH 100 % KRW TTS Hua Hai AB TTS Marine AB 100 % SEK TTS Sense (Canada) Ltd. TTS Energy AS 100 % CAD TTS Sense MUD AS 1 TTS Energy AS 100 % NOK TTS Sense Pte Ltd Singapore TTS Energy AS 100 % SGD TTS EDM Inc. TTS Energy AS 100 % USD TTS Mexico TTS Energy AS 100 % MXN Drillrig AS TTS Energy AS 100 % NOK ) TTS Energy Ålesund (formerly TTS Offshore Handling Systems), TTS Energy Bergen (formerly TTS Marine Cranes), TTS Energy AS (formerly TTS Sense AS) and TTS Sense MUD AS were merged in January

111 NOTEs to the accounts TTS group ASA Note 11 cont. The largest shareholders in TTS Group ASA per 31 December 2010 were as follows: (All figures in NOK) Shareholder Number of shares Holding Voting share Rasmussengruppen AS % % Skeie Technology AS % % Skandinaviska Enskilda Banken % 7.68 % Lesk AS % 7.11 % Stisk AS % 7.11 % Odin Maritim % 2.90 % Tamafe Holding AS % 2.90 % Barrus Capital AS (Ii) % 2.68 % Holberg Norge % 2.57 % Statoil Pensjon % 2.07 % Itlution AS % 1.98 % SHB Stockholm Clients Account % 1.90 % Holberg Norden % 1.61 % Skagen Vekst % 1.58 % Sal Oppenheim Jr & Cie % 1.47 % Rbc Dexia Investor Services Bank % 1.29 % Skeie Consultants AS % 1.28 % Odin Europa Smb % 1.14 % Sundt AS % 0.88 % Statoil Forsikring A.S % 0.56 % Total 20 largest shareholders % % Total others % % Total % % Shares owned by Board members and group management and related PARTIES Board Per Per Trym Skeie Bjarne Skeie Karen T. Mørkestøl Jarle Dyrdal Group management Johannes D. Neteland Related daugther Anna S. Neteland Ivar K. Hanson Lennart Svensson Inge Gabrielsen ) Owns Tamafe Holding (100 %) 2) Bjarne Skeie owns (20 % of the shares and 100 % of the voting shares) in Skeie Technology AS and Skeie Consultants AS. Lesk AS is owned by his daughter Lena Skeie. S tisk AS is owned by his daughter Stina Skeie. On 3 June 2010, the Annual General Meeting resolved to authorise the Board to issue up to 7,000,000 shares in the event of an acquisition or merger. This authority is valid until the ordinary general meeting 2010, or until 30 June 2011, whichever is the earlier. The directed issue in July 2010 issued shares under this authority. As at 31 December 2010, options had been allotted that can be exercised until 15 June 2011 at the price of 7.55 NOK (under an authority for a total of options granted at the ordinary general meeting on 15 June 2009). A further options were issued that can be exercised until 3 June 2012 at the price of 5.91 NOK (under an authority for a total of options granted at the ordinary general meeting on 3 June 2010). 111

112 NOTEs to the accounts TTS group ASA Note 11 cont. These options are distributed as follows: Number of Number of options that can options that can be exercised Exercise be exercised Exercise Name Position Company until price until price Totalt Johannes D. Neteland President & CEO TTS Group ASA Arild Apelthun CFO TTS Group ASA Lennart Svensson Divisional Director TTS Port Equipment AB Ivar K. Hanson Divisional Director TTS Marine AS Inge Gabrielsen Divisional Director TTS Energy AS Total number of options to management staff No options were exercised in Option schemes were granted to group management under authorities granted by the ordinary general meeting in 2008, 2009 and These schemes allow group management to buy a number of shares in future for a previously agreed purchase price equal to the fair market price at the time share options are granted. Option premiums will be exercised when options are awarded using the Black & Scholes (BS) option pricing model. The options run for up to two years, with the first exercise to option being after one year (50 %) and then (12.5 %) per quarter, giving a weighted average 15 month period as used in BS. Option premiums are spread over the option period of two years. Forecast volatility is based on a combination of historic data and estimates. Volatilities used for options awarded are 42 % for 2008, 74 % for 2009 and 81 % for Risk-free interest rates used are 5.0 % for 2008, 2.95 % for 2009 and 2.23 % for Option costs for 2010 are charged to costs at TNOK. The corresponding figure for 2009 was TNOK. Option costs are classified as pay in the profit and loss account. Employer s contributions are charged to costs when options are realised. Treasury shares The ordinary general meeting on 15 June 2009 resolved not to authorise the Board to buy treasury shares. This resolution was upheld in TTS had up to shares between 15 June 2009 and 31 December 2010, holding treasury shares as at 31 December Subordinated convertible loan At an extraordinary general meeting on 10 January 2011, the company agreed to take up a subordinated convertible loan of 200 MNOK. Bond holders may convert at the price of NOK at any time. The maximum number of shares which can be created by converting in full is The loan and conversion rights were established after the year end, and hence are not included when calculating the profit per share in Note 12 Other short-term liabilities (Amounts in NOK 1000) Provision for holiday pay Other provisions for costs Total other short-term liabilities Note 13 Other operating costs (Amounts in NOK 1000) Building lease, cost of premises IT costs Marketing, travel Other Total other operating costs

113 NOTEs to the accounts TTS group ASA Note 14 Related parties All subsidiaries (Note 6), joint ventures (note 6), members of the Board and top management are to be regarded as related parties. The group has engaged in many different transactions with subsidiaries and joint ventures. All transactions were made in the normal course of business at arm s length prices. Note 15 Financial items and exchange rate gains/losses (Amounts in NOK 1000) Income from investments in subsidiaries Income from investments in associated companies Interest income from companies in same group Other interest income Dividends 0 0 Interest income to companies in same group Interest costs on liabilities to financial institutions Other financial costs Net exchange rate gains (losses) Total Exchange rate gains/losses Currency differences booked to income and costs in the profit and loss account are as follows: FX income FX costs Total FX income and costs are net and shown as other financial costs. Note 16 Events since year end No dividends have been proposed to shareholders for The extraordinary general meeting on 10 January, 2011 resolved to take up a subordinated convertible bond loan of a nominal 200 MNOK. The loan carries 8 % coupon interest and matures on 18 January The group has a call option on the stated terms which expires on August Bondholders may convert at a price of NOK at any time. The maximum number of shares which can be issued if the loan is converted in full is , e quivalent to a dilution effect of %. The Norwegian entities in the Energy division were merged in February 2011 to simplify internal structures and streamline internal processes. The companies involved in the merger were TTS Energy AS (acquiring company), TTS Energy Bergen AS, TTS Energy Ålesund AS and TTS Sense MUD AS. Since the merger, all companies are now part of TTS Energy AS. The merger date for accounting purposes was 1 January We would also refer to announcements published on the Oslo Stock Exchange of major new contracts concluded in The main individual contracts announced to the Oslo Exchange and concluded since the year end a worth a total of approx. 91 MNOK for Marine, approx. 55 MNOK for Port and Logistics and approx. 505 MNOK for Energy. There have not been any cancellations of significance since the year end. 113

114 Auditor s report 2010 KPMG AS Telephone Postboks 4 Nygårdstangen Fax St. Jakobs plass 9 Internet N-5838 Bergen Enterprise MVA To the Annual Shareholders Meeting of TTS Group ASA INDEPENDENT AUDITOR S REPORT Report on the Financial Statements We have audited the accompanying financial statements of TTS Group ASA, which comprise the financial statements of the parent company TTS Group ASA and the consolidated financial statements of TTS Group ASA and its subsidiaries. The parent company s financial statements comprise the balance sheet as at 31 December 2010, the income statement and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information. The consolidated financial statements comprise the statement of financial position and the statement of comprehensive income, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information. The Board of Directors and the Managing Director s Responsibility for the Financial Statements The Board of Directors and the Managing Director are responsible for the preparation and fair presentation of the parent company financial statements in accordance with the Norwegian Accounting Act and generally accepted accounting standards and practices in Norway and for the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the EU, and for such internal control as the Board of Directors and the Managing Director determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Offices in: KPMG AS, a Norwegian member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. Statsautoriserte revisorer - medlemmer av Den norske Revisorforening Oslo Alta Arendal Bergen Bodø Elverum Finnsnes Grimstad Hamar Haugesund Kristiansand Larvik Mo i Rana Molde Narvik Røros Sandefjord Sandnessjøen Stavanger Stord Tromsø Trondheim Tønsberg Ålesund 114

115 Independent auditor's report TTS Group ASA Opinion on the separate financial statement In our opinion, the parent company s financial statements give a true and fair view of the financial position of TTS Group ASA as at 31 December, 2010, and of its financial performance and its cash flows for the year then ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway. Opinion on the consolidated financial statements In our opinion, the consolidated financial statements give a true and fair view of the financial position of TTS Group ASA and its subsidiaries as at 31 December, 2010, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU. Report on Other Legal and Regulatory Requirements Opinion on the Board of Directors report Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors report concerning the financial statements, the going concern assumption, and coverage of the loss is consistent with the financial statements and complies with the law and regulations. Opinion on Accounting Registration and Documentation Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, «Assurance Engagements Other than Audits or Reviews of Historical Financial Information», it is our opinion that the company s management has fulfilled its duty to produce a proper and clearly set out registration and documentation of the company s accounting information in accordance with the law and bookkeeping standards and practices generally accepted in Norway. Bergen, 27 April 2011 KPMG AS Knut Olav Karlsen State Authorised Public Accountant [Translation has been made for information purposes only] p. 2 / 2 115

116 3-15 TTS GROUP BUSINESS AREAS CORPORATE GOVERNANCE DIRECTOR S REPORT AND ACCOUNTS organisation Confirmation from the Board of Directors and Chief Executive Officer We confirm, to the best of our knowledge, that the consolidated annual accounts for the period 1 January to 31 December 2010 have been prepared in accordance with current accounting standards/ifrs and that the information herein gives a true and fair view of the company s and group s assets, liabilities, financial position and profit as a whole, and that the annual report gives a fair view of the development, result and position of the company and of the group, together with a description of the principal risks and uncertainties facing the enterprise. Bergen, 13. april 2011 the board of TTS Group ASA Trym Skeie Bjarne Skeie Anne Breive chairman director director Kjerstin Fyllingen Jarle Dyrdal Karen T. Mørkestøl director director director Johannes D. Neteland president & ceo 116

117 117

118 3-15 TTS GROUP BUSINESS AREAS CORPORATE GOVERNANCE DIRECTOR S REPORT AND ACCOUNTS organisation tts group Johannes D. Neteland PRESIDENT & CEO marine Ivar K. Hanson EXECUTIVE VICE PRESIDENT deck Equipment Edgar Bethmann cargo access Per Croner services Arne Knudsen JV/MGMT Ivar K. Hanson TTS-LMG Marine Cranes GmbH Jens Meldal TTS Marine AB Per Croner TTS Marine AS Ivar K. Hanson TTS Hui Hai Ships Equipment Co. Ltd. Madame He Pu TTS Marine GmbH Edgar Bethmann TTS Ships Equipment AS Jan-Magnar Grøtte TTS Marine Inc. Torsten Paas TTS Bohai Machinery Co. Ltd. Li Dali TTS Marine Shanghai Co. Ltd. Ketil Skjeggedal TTS Marine s.r.l. Alessio Quargnenti TTS Vietnam Dan Magnusson TTS Kocks Ostrava s.r.o. Thomas Fojtik TTS Korea Kyung-Hwan Kim TTS Marine Korea Co. Ltd. Marcus Bergmann TTS Singapore Pte. Ltd. Jan Ove Hovdenak TTS Marine Equipment (Dalian) Co. Ltd. Göran Bertilson TTS Greece Ltd. Dimitris Manolias 118

119 ENERGY Inge Gabrielsen EXECUTIVE VICE PRESIDENT port and LOGistics Lennart Svensson EXECUTIVE VICE PRESIDENT TTS Energy AS Inge Gabrielsen TTS Liftec Oy Tatu Miikkulainen TTS Sense Canada Ltd. Mark Skawronski TTS Port Equipment AB Lennart Svennson TTS Sense Singapore Pte. Ltd. Bergtor Haugaa TTS Handling Systems AS Rolf-Atle Tomassen Sense DrillFab AS Jan Ove Aasen TTS do Brazil Joao Manoel de Souza Araujo 119

120 3-15 TTS GROUP BUSINESS AREAS CORPORATE GOVERNANCE DIRECTOR S REPORT AND ACCOUNTS organisation Marine Division foto: Olof Holdar Edgar Bethmann Per Croner Arne Knudsen Ivar K. Hanson Jens Meldal Madame He Pu Jan-Magnar Grøtte Dimitris Manolias Li Dali Ketil Skjeggedal Alessio Quargnenti Jan Ove Hovdenak Göran Bertilson Thomas Fojtik Torsten Paas Marcus Bergmann Dan Magnusson Kyung-Hwan Kim 120

121 Energy Division Port and Logistics Division Inge Gabrielsen Mark Skawronski Tatu Miikkulainen Bergtor Haugaa Jan Ove Aasen Lennart Svensson Pål Larsen Joao Manoel de Souza Araujo Rolf-Atle Tomassen 121