Acquisition of Sea Odyssey

Vision: We will be the most advanced innovative, reliable and trusted partner to our clients.Delivering leading edge subsea technologz solutions – pioneering to the greatest depths and beyond. ...we go deeper!

• GL Group considers the acquisition of Odyssey company. An evaluiation of the acquisition opportunity should be made

• An integration plan with potential acquisition targets to be designed

Background

Agenda

• Results of Analysis• Snyergies• Action plan• Predicted future value added• Four core messages

• Products

-RUV

-AUV under development (delays, risks)

• Existing Markets

-Oil & gas

• Potential Markets

- see Odyssee

• Products-AUVs (Selling/leasing/servicing) 15% market share in commercial market

-Strategy to increase to 35% by 2015

- AUV: 3 lines (30, 45..under trial with BP, 1030…under development..but delayed)

• Products - Communication Systems, sensing, measurement, thrusters, Software (supply chain)

•Existing Markets (# 3 in the market)-Oil & Gas (Commercial – global clients and national)-Some Ocean research-Some Subsea cables operation-Some Navy (projected growth, despite economic downturn)•Potential Markets-Non-commercial (Navy)-Civil Hydrography (emerging)-Shallow water•Clients-Existing: Oil majors and 2 locals- Potential: further local clients (Petro China, other local Oil & gas)

Subsea Innovation Odyssey SonarTec Competition

• Kongsberg

-RUV and AUV

-Well established in military sector

-Bluefin Robotics

-AUV sector

Current market position

Organization overview

• Proper integration of Sonar Tech into Sea Odyssey did not take place although merger has been done more than 3 years ago. This lead to duplication on certain function in both companies, inefficiencies and high cost.

• after taking over of Sea Odyssey, integration of all 3 companies into one unit within 6 months is imperative

Culture

• technically oriented• high level of independence, low level of control• project management is a weak

People

• There are definitely to big management team, audit of company with emphasizes to people skills is required. It will be required to conduct interview with all management and to decide on its reduction

• combining R&D of all 3 companies , Dr Cheyne is perfect candidate for head of the team due to his vast experience and esteemed careear. Also, as expert in RUV field, he will be able to push trough project for Tokyo Universities. It will remove obsticles Mr Boardman is creating in Subsea, and send signal trough both companies that most competent people will be assigned to functions.

Business processes

• project management – weak, • production – behind schedule, and at high cost at 2 different location• finances, 2 teams inefficient + subsea team. • hr function being done by management, • sales, at the moment 2 teams of 7 pple (8%). Considering favorable market....

IT

• both companies require high tech IT. Review and harmonization of IT solution and equipment need to be done trough all 3 companies.

• Sonartech, being in its core IT company would be perfect to leed the process

Potential synergies

• common market, common sales function , combined client database and contacts would enable more efficient sales

• complimenting R&D, avoiding duplication of functions, one more efficient and better equipped R&D facility

• combining productions under one roof would make it more efficient, and perhaps remove bottle neck effect

• combining admin functions (finances ,hr, management) making it leaner and more efficient

Financial - SWOTStrength

Operating section:•Solid two digit growth of 17% in average•High direct profit margins on AUV sales (about 50%)•Tangable assets

WeaknessOperating section:•Loss on increasing AUV lease business

•Initial exponential growth rates decrease quickly due to failure to meet demand due to capacity restraints and as a result declining sales versus rise of cost•Overtime work, discounts, increase receivables and penalty payments •Increasing inventories•High interest rates•Long time to cash period•High overhead cost •Not utilised synergies•Cash flow drain, high outstandings•Continuity: 30% of revenue comes from 4 major clients•Potential contract cancellations

Product profitability

Financial - SWOT

Opportunities•Strong market growth predicted for the long term•Opportunity to capitalise tangible assets•Opportunity to renegotiate loans or to inject private cheaper investment•Increase cost efficiency of Shanghai office•Relocate manufacturing line to China and utilise Shanghai office as manufacturing and sourcing base

Threats•High liquidity risk due to decreasing cash flow•Restructuring might trigger resistance, loss of key talent and impact the work morale•Reputation and brand protection – Avoidance of cancellation is critical success factor

Merge quality control

Impact

Duration to implement

6,5

2,0

5,50,0

Merge Sales

1,0

Merge offices - turn tangible assets into cash

6,00,0

Merge R+D

Merge management

5,0

1,0

7,0

1,5 Consolidate Tokyo project with Sea Odyssey 4500

2,5

7,53,53,02,52,01,5

Merge Administration

0,5 4,54,0 8,0

0,5

Merge production3,0

Synergy matrix

0

1

2

3

4

5

6

7

8

9

10

Impact10,09,59,08,58,07,57,06,5

Duration to fix

0,0

Reduction in Admin capacities (10-5)

Reduction in overhead (Management 15-5)

Cease unprofitable lease business

Negotiate lower interest rates

Shorten invoice settlement period

Reduction in OT work

Increase manufacturing capacity

6,05,55,04,54,03,53,02,52,01,51,00,5

Critical actions for company turn around

Very long

Very short

Project plan2012 2013 2014 2015

Business Process integration

Integrate supply chain and manufacturing

Increase manufacturing capacity

Integrate support functions

Resolve Cash Flow problem

Consolidate Product Portfolio

Change management – Communication concept, Workshops, Change agents

Future key assets

Major risk

• Cancellation of projects or loss of clients due to manufacturing capacity shortage may cause cash flow issues and bankrupcy

Markets Clients

• Business Segments

-Oil & Gas

-Navy (Non commercial)

-Hydrographic

-Shallow Water

• Oil & gas

•Navy

•Hydrographic

Product Lines

• Products

-AUV production

-AUV leasing

-AUV technology licensing

-AUV services

Field of play – the core

Added value to GL Group due to utilisation of synergies

Addi t i onal turnover 2014 2015 2016 2017Subsea 2% 2% 2% 2%GL 1% 3% 4% 4%Odyssey + Sonar Tec 1% 3% 4% 4%

Cost synergi es/ savi ngsSubsea - 10% - 2% - 2% - 2%GL 0% 0% 0% 0%Odyssey + Sonar Tec - 12. 34% - 1% - 1% - 1%

Current and future value

Appreciation of value of other GL Group companies not considered here

Not more than:

Not less than:

Next steps

• Approve acquisition budget of not less than 28 mill. EURO• Build Integration team• Break down and implementation of integration plan

Four core messages at the end

• Acquisition will create positive effects on all business lines of GL Group

• Cash Flow and manufacturing are core issues with high risk to cause bankrupcy. Cash injection from mother company might linder this short term operational risk.

• The acquisition will secure and protect market share in the long term key markets of GL Group

• Merger is a strategic fit with GL Groups strategy

THANK YOU FOR YOUR ATTENTION