GLOBAL PERFORMANCE BENCHMARK: GCE BLUE MARITIME

Klyngekonferansen 26. september 2019

Erik Werner Jakobsen

• The tide has turned – steady growth ahead?

- 10% revenue growth in 2018

- All segments expect increasing revenues in 2019 and 2020

- The total orderbook has grown from 14 to 19 months the last year

- Cluster companies expect to hire at least 1000 new colleagues in 2018 and 2019

- Across all segments, the companies expect profitability to improve in 2019

• Møre is well-positioned in key growth markets

- Most yards have taken important positions in the growing exploration cruise market

- High expectations for growth in offshore wind

- Offshore oil and gas recovery

• Some key questions:

- Ocean industry transformation, but still low productivity – for how long?

- How fast will the cruise market grow? Risky specialization?

- Offshore wind – when will it “take off”?

- High debt – financial strain

- High oil price and booming offshore markets – but for how long?

MAIN MESSAGE

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 2

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 3

ESTIMATED PERFORMANCE IN THE BLUE MARITIME CLUSTER IN 2019

59 bill NOK in total revenues

Oil/gas market 32% of total revenues

85 bill NOK in orderbooks –19 months work

60% of total revenues

Up from 14 months in 2018 (8 months in 2017)

+ 5 bill NOK (+9%)

Down from 35% in 2018 (50% in 2017)

Up from 56% in 2018 (39% in 2017)

Development in revenues broken down on the four segments. Source: Menon (2019)

Stable growth ahead?

-

10

20

30

40

50

60

70

80

90

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Rev

enu

es,

NO

K b

n

Shipping companies Design and services Equipment Yards

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 4

Development in revenues broken down on the four segments. Source: Menon (2019)

Revenues expected to grow in all segments

-

5

10

15

20

25

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Rev

enu

es,

NO

K b

n

Shipping companies Design and services Equipment Yards

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 5

Development in value added in the cluster from 2004 to 2018. Source: Menon (2019)

Shipping share of total value added peaked in 2015 – equipment and services now close to 50%

0 %

10 %

20 %

30 %

40 %

50 %

60 %

70 %

80 %

90 %

100 %

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Yards

Equipment

Design and services

Shipping companies

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 6

Distribution of the cluster’s combined revenues on different ocean and land-based markets. Source: Menon (2019)

The cruise market nearly accounts for as much revenue as theoffshore oil and gas markets

OCEAN MARKET SEGMENTS

Offshore oil & gas32 %

Offshore wind5 %Fishery

10 %

Aquaculture7 %

Ferries4 %

Cruise and yacht26 %

Cargo shipping

8 %

Other8 %

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 7

MARKET SEGMENTS – MEASURED AS SHARE OF REVENUES

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 8

Offshore oil & gas

32 %

Offshore wind5 %Fishery

10 %Aquaculture7 %

Ferries4 %

Cruise and yacht26 %

Cargo shipping

8 %

Other8 %

65%

18%

28%

25%

16%

15%

11%

10%

15%

6%

5%

6%

5%

7%

38%

15%

45%

26%

13%

8%

8%

0 % 20 % 40 % 60 % 80 % 100 %

Shipping companies

Design and services

Equipment

Yards

Offshore oil & gas Offshore wind Fishery Aquaculture

Ferries Cruise and yacht Cargo shipping Other

Development in value added for the aquaculture/wellboatssegment vs the oil and gas-oriented shipping segment. Indexed on 2014. Source: Menon (2019)

Shipping value added: Oil/gas and aquaculture in opposite directions

SHIPPING – OFFSHORE OIL&GAS VS AQUACULTURE

-

50

100

150

200

250

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Aquaculture support Offshore shipping

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 9

The Møre cluster share of different market segments over time. Shipping companies are not included. Menon (2019)

The cruise segment has grown strongly in 2019

OCEAN MARKETS

27%25%

15%

33%

26%

17%

33%

24%

0%

5%

10%

15%

20%

25%

30%

35%

Offshore markets Fisheries and aquaculture Cruise and yacht Other markets

2018 2019

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 1 0

Have you made deliveries to thecruise/yacht market in previousyears? Source: Menon (2019)

Deliveries to the cruise market – 35% new companies in 2018/19

CRUISE MARKET

15%

21%

42%

21%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Ja, i ett år. Ja, i to år. Ja, i mer enn to år. Nei

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Yes, 1 year Yes, more than2 years

Yes, 2 years No

Development in employment in the Blue Maritime cluster broken down on the four segments. Source: Menon (2019)

Growth in employment since 2017 – but still far below 2014 level

EMPLOYMENT

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2004 2006 2008 2010 2012 2014 2016 2018 2020

Shipping companies Design and services Equipment Yards

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 1 2

Value added per employee- in running currency – broken down to wages and EBITDA. Source: Menon (2019)

Value added per employee still low

PRODUCTIVITY

-

200 000

400 000

600 000

800 000

1 000 000

1 200 000

1 400 000

1 600 000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Wage EBITDA

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 1 3

Value added per employee broken down to wages and EBITDA. Source: Menon (2019)

Personell cost per employee grows – EBITDA does not

PRODUCTIVITY

-

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

900 000

1 000 000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Wage EBITDA

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 1 4

Indexed development of value added for the cluster and the Norwegian benchmark. Source: Menon (2019)

Møre and «the national mirror» follow the same path

VALUE ADDED BENCHMARK TOWARDS THE NORWEGIAN MIRROR

-

50

100

150

200

250

300

350

400

450

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2 018

Møre cluster Norwegian benchmark

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 1 5

Development in productivity (value added per employee) between the cluster and the national benchmark. Weighted average based on the cluster’s share of employment in each segment. Source: Menon (2019)

Lower productivity in Møre persisted in 2018

THE PRODUCTIVITY GAP

-

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Møre cluster Norwegian benchmark

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 1 6

EBIT margin

PROFITS

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 1 7

EBIT margin per segment

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2004 2006 2008 2010 2012 2014 2016 2018

EBIT margin

-11%

4%

-4% -5%

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

Shippingcompanies

Design andservices

Equipment Yards

By segment, 2018

The cluster companies’profitability expectations : How do you expect operating profits to develop this yearcompared to last year? Source: Menon Economics

However, 2 of 3 companies expect higher profitability in 2019 than in 2018

PROFITABILITY

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 1 8

-31%-25%

-6%

-9%

-3%

-2%

28%

49% 48%

10%

7%18%

-60%

-40%

-20%

0%

20%

40%

60%

80%

2017 2018 2019

Slightly weaker Much weaker Sligthly stronger Much stronger

38%56% 66%

Where do the cluster expect the increased profitability. Shares do not sum to 100% due to multiple alternatives were possible. Source: Menon (2019)

What will drive the increased profitability?

PROFITS

33%

88%

71%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Growht in offshore oil and gas Growth in other markets improved cost efficiency

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 1 9

Development within the shipping segment. Turnover and EBIT-margin for the shipping companies. Source: Menon (2019)

Still huge challenges in shipping

PROFITS – SHIPPING COMPANIES

-80%

-60%

-40%

-20%

0%

20%

40%

60%

-

5 000 000

10 000 000

15 000 000

20 000 000

25 000 000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Revenue EBIT-margin EBITDA-margin

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 2 0

Share of the respective group'soffshore fleet that is laid up. Source: Clarkson/Menon (2019)

Fewer ships laid-up

SHIPPING – UTILIZATION OF FLEET

17% 17%

24%

27%

24%

29%

25%

19%

24%

20%

17%

23%

0%

5%

10%

15%

20%

25%

30%

35%

Møre controlled Norwegian controlled World fleet

2016 2017 2018 2019

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 2 1

The world offshore fleet broken down on vessel types and according to their service status. Source: Clarkson/Menon (2019)

Still lots of laid up vessels in offshore oil/gas

SHIPPING – UTILIZATION OF FLEET

1273

1089

480

139

24 %27 %

13 % 29 %

0

200

400

600

800

1000

1200

1400

AHTS PSV Subsea/multipurpose Seismic

In Service Laid Up

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 2 2

Scrapping of AHTS, PSV, seismic and subsea vessels (in numbers) 2017-sep. 2019. Source Clarkson/Menon (2019)

Large number of offshore oil&gas vessels scrapped every year

SCRAPPING

0

10

20

30

40

50

60

70

AHTS PSV Seismic Subsea/multipurpose

2017 2018 2019

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 2 3

Market value as share of Net Capitalization. Source: Tidewater (2019)

Offshore oil/gas shipping – debt challenge deepens in 2019

SHIPPING – DEBT CHALLENGE

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 2 4

Development within the yards segment. Turnover and EBIT-margin for the yards. Source: Menon (2019)

Yards: Revenues increase – profits disappear

YARDS

-5%

0%

5%

10%

15%

(10 000 000)

(5 000 000)

-

5 000 000

10 000 000

15 000 000

20 000 000

25 000 000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Revenue EBIT-margin

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 2 6

Møre yards: Well positioned in the world cruise market

YARDS - CRUISE

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0

2

4

6

8

10

12

14

16

2019 2020 2021

World Fleet Møre cluster

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 2 7

Cruise ship orderbook: Vessels delivered between 2019 and 2021. Total number and the Møreyards share of the deliveries. Cruise vessel less than 50. 000 tonnage. Source: Cruise Industry News/Menon (2019)

Annual deliveries of offshore vessels world-wide and Møre’sshare of these deliveries. Source: Clarkson/Menon (2019)

Offshore service vessels: Møre yards’ share up in the short run

YARDS – OFFSHORE OIL/GAS

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 2 8

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

0

100

200

300

400

500

600

700

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

World newbuilds Built in Møre

Share of world’s newbuilt offshore vessels. Source Clarkson/Menon (2019)

Most offshore service vessels are built in China

YARDS

0%

10%

20%

30%

40%

50%

60%

70%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Built in Møre Europas share of offshore vessels

Chinas share of offshore vessels S.Koreas share of offshore vessels

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 2 9

Offshore deliveries from Møre yards and remaining nationalyards. Source Clarkson/Menon (2019)

Møre have gradually taken over all offshore deliveries in Norway

YARDS

0

10

20

30

40

50

60

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Møre Remaining Norwegian yards

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 3 0

Development within the shipping segment. Turnover and EBIT-margin for the equipment manufacturers. Source Menon (2019)

Gradual recovery in equipment

EQUIPMENT

-20%

-15%

-10%

-5%

0%

5%

10%

15%

-

5 000 000

10 000 000

15 000 000

20 000 000

25 000 000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Revenue EBIT-margin

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 3 2

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

-

2 000 000

4 000 000

6 000 000

8 000 000

10 000 000

12 000 000

14 000 000

16 000 000

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Revenue EBIT-margin

Healthy development in design and services

SERVICES AND DESIGN

Turnover and EBIT-margin for service companies. Source: Menon (2019) Turnover and EBIT-margin for design companies. Source: Menon (2019)

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 3 3

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

200000

400000

600000

800000

1000000

1200000

Revenue EBIT

Order reserves in the Blue Maritime cluster in August 2019. Source: Menon (2019)

85 billion NOK in order reserves – secures 19 months work for thecluster as a whole

ORDER BOOKS

Shipping companies23 %

Design and services24 %

Equipment16 %

Yards37 %

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 3 4

The orderbook marketsegmentation. Source: Menon (2019)

Cruise dominates orderbooks

ORDER BOOKS

51%

24%

22%

25%

13%

4%

13%

13%

8%

29%

7%

14%

6%

9%

5%

46%

39%

44%

8%

6%

6%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Shipping companies

Design and services

Equipment

Yards

Offshore oil & gas Offshore wind Fishery Aquaculture

Ferries Cruise and yacht Cargo shipping Other

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 3 5

MARKET SEGMENTS –REVENUES AND ORDER BOOKS COMPARED

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 3 6

65%

18%

28%

25%

16%

15%

11%

10%

15%

6%

5%

6%

5%

7%

38%

15%

45%

0 % 10 % 20 % 30 % 40 % 50 % 60 % 70 % 80 % 90 % 100 %

Shipping companies

Design and services

Equipment

Yards

Revenues

Offshore oil & gas Offshore wind Fishery

Aquaculture Ferries Cruise and yacht

51%

24%

22%

25%

13%

4%

13%

13%

8%

29%

7%

14%

6%

9%

5%

46%

39%

44%

0% 20% 40% 60% 80% 100%

Shipping companies

Design and services

Equipment

Yards

Orderbooks

Offshore oil & gas Offshore wind Fishery

Aquaculture Ferries Cruise and yacht

Does the cluster have the right competence to succeed in the future?

37% 35%43%

60%

3% 9%

37%

25%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2018 2019 2018 2019

Parts of the company's expertise have been outdated as aresult of the restructuring we are undergoing

Our company has to employ people with a different skillset toremain competitive in the future

Agree

Somewhat agree

0 3 . 1 0 . 2 0 1 9M E N O N E C O N O M I C S 3 9

SUMMING UP

10

%

9 %

10

%2018 2019 2020

Cluster revenue

Expected

Productivity (value addedper employe

Møre cluster

National benchmark

27% 25%

15%

33%26%

17%

33%

24%

Offshoremarkets

Fisheries andaquaculture

Cruise andyacht

Other markets

2018

2019

Market segments (shipping not included)

-40%

-20%

0%

20%

2004 2006 2008 2010 2012 2014 2016 2018

EBIT margin negative in 2018 – two-thirds of the companies expect better

results in 2019