Offshore Finance it s all about oil & gas!

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1 Investor Relations Newsletter 3/2013 Offshore it s all about oil & gas! With effect from 1 January 2013, DVB separated its existing offshore financing activities in offshore drilling and production as well as in offshore support from the Shipping division, to establish a fourth division Offshore (total lending volume as at 31 March 2013: 2.5 billion) alongside its existing financing activities in shipping, aviation and land transport. In the following interview Geir Sjurseth, Head of the newly-formed Offshore division and part of DVB s managerial staff since August 2001, talks about his vision, the essential strategic points and distinguishing structures of the business model. The interview was conducted by Elisabeth Winter, Head of Investor Relations Geir, what is the strategy behind the formation of DVB s Offshore division at this point in time It has become evident over the years that the offshore industry is driven by very different economics and demand drivers versus the traditional sea going shipping transportation. Further, the size of DVB s offshore business has grown relatively more than conventional shipping, thus justifying a separate division. In a competitive banking environment, oil & gas, or energy, is considered a long-term sustainable growth industry which has attracted energy dedicated investors, lenders, ECA institutions and other related stakeholders, thus further emphasizing the ring fencing from traditional shipping. Some of the larger offshore financing banks are also managing their offshore business in separate divisions. What are the key drivers of DVB s Offshore activities We are a highly competent team of professionals supported by in-house research and corporate finance colleagues who are 100% dedicated to support our clients need for strategic and corporate advice. Thus, I consider the division as a fully integrated offshore boutique catering to owners and operators in the OSV market, subsea, construction vessels, seismic, accommodation units, drilling and floating production units.

2 2 Does the business model you are pursuing with Offshore differ from DVB s general market approach No. The fundamentals of DVB s transport finance model stay the same - supported by thorough financial and credit analysis of the clients we are pursuing; the assets we are financing and the industry our clients are operating within. However, we need to address particular characteristics applicable to the offshore value chain which may differ from conventional shipping. This typically relates to highly specialized and complex offshore equipment which is needed to support existing oil and gas fields and the exploration of new deep water fields. On the other hand, our clients charterers, the oil majors and the integrated contracting companies, I consider amongst the world s best credits. How would you express your mission statement for DVB s Offshore division Firstly, as a transport finance (& energy) bank, the Offshore division shall enjoy a visible share of the Bank s total lending book, a minimum of 15% which is not unrealistic over next five years, a business which shall continue to produce above average earnings and equity returns. Secondly, DVB s Offshore is to be among the world s five highest ranking and most integrated providers of i) debt financing, ii) advisory services, iii) participant/underwriter of bond issues and iv) market, industry & product intelligence. Thirdly, DVB s Offshore shall enjoy a high level of reputation and visibility in world offshore hubs and fora, and be recognised as a lender with high business integrity and financial solutions orientated. Who are your clients, where are they located and what kind of assets are you financing As mentioned above, our clients are owners and operators of offshore vessels, rigs and floating production units supporting the multitude of existing offshore fields; fields under developments and seismic shooting to verify potential new fields of economic interests, controlled by national oil companies and international independent oil companies. The offshore division covers the global markets for offshore owners and operators, in particular addressing the four key offshore hubs, Norway, Middle East, India & Singapore, and finally the Houston, South America axis. The division has people located in Norway, Singapore and New York covering their respective regional markets. One of DVB s major competitive strengths is a highly diversified credit portfolio Yes, and it is important to stay diversified. DVB Group is a uniquely focused transportation bank providing financial solutions to its clients. To manage and reduce risks implicit in our lending, or debt finance business, we need to spread/reduce risk concentration along several dimensions: by asset types and age of assets, by satisfactory employment of the assets financed, by client and country of borrower and by flag etc. Offshore represents no exception. On the contrary, driven by the often specialized and complex equipment that we finance, a well balanced and managed Offshore portfolio is critical to achieve and maintain. One of our short- to medium-term objectives is to reassess DVB s total Offshore portfolio to see how we can enhance or rebalance the various asset classes pertaining to risk versus return and diversification considerations.

3 3 Offshore portfolio by asset type (31 March 2013: 2.5 bn) Anchor handlers 26.0% Plattformsupply vessels 25.3% Rigs 12.1% Drillships 10.5% Multifunction service vessels 5.3% Seismic survey vessels 4.7% Offshore construction vessels 4.5% FPSOs 3.8% Others 7.8% Does Offshore comprise more than DVB s key lending activities Yes, we have been and are quite active offering strategic and corporate advice to clients, being mandated to execute raising of private capital to allow a client to faster expand its business; do sale and leasebacks of assets on their balance sheet as an alternative; work with company shareholders to sell an offshore company or for an established player or Private Equity to identify and execute acquisitions of a specific target company. Where is the Offshore team located and how would you characterise your team s major strength The Offshore team is located in DVB s hubs, from New York covering the Americas, to Amsterdam, as the new shipping/offshore hub for Europe and to Singapore covering the markets from the Middle East to Asia and the Pacific. The team s major strengths are: i) offshore industry knowledge, ii) a long track-record from providing offshore financial solutions globally; and iii) the most importantly we are very close to our clients and possess a unique, worldwide offshore company knowledge as the market is highly integrated. Some sectors of the maritime shipping industry (mainly container vessels, crude oil tankers and dry bulk carriers) still suffer from the aftermath of the world economic crisis with excess capacity still prevailing but declining in How do you assess your Offshore markets in 2013 and beyond Offshore enjoys a healthy and promising market outlook. Driven by national and independent oil companies growth in E&P spending at a trendline growth of some 11 12% per year, backed by a stable oil price around the US$100/barrel mark, existing fields see an enhanced oil recovery output while new and large deep water fields attract more equipment. In particular subsea and construction, drilling and floating production see good prospects. In good markets, owners are tempted to place new-building contracts, thus in a few subsectors like PSVs and jack up drilling units, the order books tell us to act cautiously when looking at new financings. However, I do not feel we are close to any market peaks, this time driven by a more sober market responding to somewhat lesser access to debt finance.

4 4 Geir and finally what is your vision for the medium-term future I am thankful for all the support we get, but realistic enough to understand that, while the offshore industry is doing fine, we are not entirely disconnected from the outlook for transportation industry in general and the maritime shipping sector in particular. Our objective is to grow the Offshore portfolio, revenues and advisory fees. However, caused by the currently stressed banking and shipping environment, this needs to take place in a very well managed and balanced form and substance which includes regular updates to the Board of Managing Directors, Supervisory Board, Credit Committee where applicable, also for purpose of verifying that lending guidelines and exposure policy are aligned with the Division s strategy and growth objective.! Thank you very much! Geir Sjurseth is Managing Director and Global Head of DVB s Offshore division which was formed in January He started his career at DVB in August Overall, Geir has more than 30 years experience from international finance, shipping and investment banking having worked for institutions in Bergen, Oslo, Singapore and London. Geir holds a Master of Science from the Norwegian School of Economics and Business Administration from Bergen, Norway and a Master of Business Administration in international finance from San Diego State University, California (U.S.).

5 5 A successful start to the year: DVB rises net income and affirms its full-year outlook by Alisa Imas, Investor Relations On 14 May 2013, DVB published its financial results for the period ending 31 March DVB more than doubled consolidated net income before taxes, to 46.0 million (Q1 2012: 22.0 million) despite a persistently challenging environment. Consolidated net income before IAS 39 and taxes also rose by a marked 20%, from 37.1 million to 44.7 million. Consolidated net income before IAS 39 and taxes ( mn), as at 31 March mn Total income (comprising net interest income after allowance for credit losses, net fee and commission income, results from investments in companies accounted for using the equity method, and net other operating income/expenses), rose by 4.9%, to 86.0 million during the first quarter of 2013 (Q1 2012: 82.0 million). Net interest income after allowance for credit losses was therefore up by 27.7%, to 64.1 million. New business in Shipping, Aviation, Offshore and Land Transport comprised 29 transactions, with an aggregate volume of 0.9 billion and an average interest margin of 315 basis points (Q1 2012: 28 transactions with an aggregate volume of 1.0 billion and an average interest margin on new business of 361 basis points).

6 6 New Transport business during the first quarter of 2013 Shipping Aviation Offshore Land Transport New business in Transport 31 Mar 2013 New business in Transport 31 Mar 2012 No. of new deals Underwriting mn mn mn 99.1 mn mn mn Syndicated 40.8 mn mn 69.3 mn Final take mn mn mn 99.1 mn mn mn Avg. deal size 31.9 mn 39,4 mn 27.2 mn 19.8 mn 30.1 mn 35.1 mn Avg. margin 333 bp 275 bp 339 bp 283 bp 315 bp 361 bp Leading role 88.4% 83.1% 71.2% 70.0% 81.9% 87.9% Net fee and commission income was down slightly, by 2.4%, from 24.5 million to 23.9 million. Net income from financial instruments in accordance with IAS 39 changed from 15.1 million to 1.3 million, reflecting volatility on foreign exchange and interest rate markets. General administrative expenses declined by 8.0%, to 41.3 million. DVB reported total assets of 24.8 billion as at 31 March 2013, up 4.2% from the 2012 yearend (31 December 2012: 23.8 billion). Nominal customer lending was up slightly, by 1.4%, to 22.5 billion. Customer lending by business division (31 March 2013: 22.5 bn) Shipping Aviation Offshore Land Transport ITF Suisse Investment Management Business no longer in line with DVB s strategy 43.1% (+0.8 pp) 30.2% ( 0.9 pp) 11.1% ( 0.2 pp) 7.6% ( 0.1 pp) 4.4% (+0.4 pp) 2.7% (0.0 pp) 0.9% (0.0 pp) The key financial indicators DVB employs to manage its business developed as follows: Return on equity (before taxes) was 15.2% (Q1 2012: 7.9%), whilst the cost/income ratio improved to an excellent 45.1% (Q1 2012: 63.9%). Calculated in accordance with Basel II, DVB's tier 1 ratio amounted to 17.7% (31 December 2012: 20.3%), and the total capital ratio was 20.5% (31 December 2012: 23.6%).

7 7 Wolfgang F. Driese, CEO and Chairman of the Board of Managing Directors: "I am confident that we will deliver for the whole of 2013 a result comparable to the previous year." Wolfgang F. Driese, CEO and Chairman of the Board of Managing Directors, expects this year's result to be comparable to last year's. He explained that on the one hand, the comparison depends upon the relatively weak results of the previous year's quarter, whereas new business volumes especially in Aviation have fallen short of expectations, due to the very high liquidity available on the capital markets, combined with a strong competitive interest in aviation finance. On 14 May 2013, the German daily business newspaper Handelsblatt quoted news agency Reuters, according to which many sizeable institutions as well as private investors desperately chasing investment opportunities are discovering aviation finance as an asset class. As a result, DVB's competitive environment has changed. The situation on the shipping markets remained challenging during the first quarter, particularly concerning crude oil tankers, bulkers and container carriers. This was reflected in higher allowance for credit losses: during the first quarter of 2013, portfolio-based allowance for credit losses of 4.2 million was recognised largely in Shipping. "Despite the new business weakness in Aviation and the continuing burdens from Shipping during the first quarter of 2013, DVB markedly boosted its profit on a yearon-year comparison"; thus German financial daily Börsen-Zeitung lauded the Bank's performance on 15 May A video commentary on the Bank s first quarter results for 2013 is available on > Media > Photos & videos > Videos & webcasts > IR webcasts.

8 8 DVB in brief by Alisa Imas, Investor Relations, and Elisabeth Winter, Head of Investor Relations A review of the Ordinary Annual General Meeting 2013 Numerous DVB shareholders attended the Bank's Ordinary Annual General Meeting (AGM) which took place on Thursday, 13 June 2013, at the Hermann Josef Abs Saal in Frankfurt/ Main. The agenda covered the usual items, such as the presentation of the financial statements and management report of DVB Bank SE and the DVB Group including the passing of resolutions on the appropriation of net After eight years, Mr Flemming retained profit for the 2012 business year, the formal approval of the Robert Jacobs (69) retired from members of the Board of Managing Directors and the Supervisory DVB's Supervisory Board with Board for the 2012 business year, as well as concerning the appointment of Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, effect from 13 June He described his collaboration with Stuttgart, as external auditors for the 2013 business year. Following the Bank as impressive time, the retirement of Mr Flemming Robert Jacobs from the Supervisory driven by new challenges and Board, for reasons of age, the AGM elected Mr Carl Erik Steen as a opportunities. new shareholder representative to the Supervisory Board. This was followed by the passing of resolutions approving amendments of the profit transfer agreements between DVB Bank SE and LogPay Financial Services GmbH, as well as DVB Holding GmbH. The manuscript of the speech given by Wolfgang F. Driese, CEO and Chairman of the Board of Managing Directors, is available for download from our website, together with details of shareholder presence at the Meeting, and the voting results. > Investor Relations > General Meeting You can find the video of the speech and the accompanying presentation slides on our homepage, and in the "Media" section of our website. > Media > Photos & videos > Videos & webcasts

9 9 DVB further broadens its international investor base through the placement of a third senior unsecured benchmark bond DVB placed a 500 million senior unsecured benchmark bond on 22 May 2013 the third such issue within twelve months. The five-year bond will mature on 28 May The transaction attracted significant market interest: the order book was oversubscribed within just one hour, exceeding 0.9 billion. The coupon was set at 1.625%, and the final spread was 83 basis points over mid-swaps. Banks subscribed to the lion's share of the transaction (61.5%), followed by asset managers (27.0%). In particular, this successful placement affirms the growing interest of international investors in building exposure to DVB. 43% of the investors are domiciled abroad: 16.5% in Scandinavia, followed by Austria and Switzerland (12.0%), the United Kingdom (5.0%), the Benelux countries (3.0%), Southern Europe (3.0%), and Korea (2.5%). The share of foreign investors in the debut placement (in May 2012) was just 12%; it rose to 23% for the second bond, issued in August The third issue clearly shows the trend to geographical diversification. Global demand for the bond issued on 22 May 2013 Germany 57.0% Nordic countries 16.5% Austria and Switzerland 12.0% United Kingdom 5.0% Benelux 3.0% South Europe 3.0% Korea 2.5% Other foreign investors 1.0% The positive feedback from the successfull placement was also promoted by the media, both national and international. For example, the magazine Euroweek, which is specialised in capital markets, entitled its article DVB diversity and highlighted the strong demand of international investors for the bond.

10 10 DVB publishes online version of its Group Annual Report 2012 On 25 April 2013, DVB published its user-friendly Online Annual Report 2012, in German and English. This special service is addressed to all of the Bank's stakeholders: in addition to information from the Annual Report 2012, the online version offers additional tools which users may select individually. Specifically, this includes the interactive analysis function comprising financial data from 2008 to 2012, and a convenient download centre. The publication of the online annual report concludes the series of DVB's publications for the 2012 business year. The interactive Group Annual Report is available in the "Investor Relations" section on our website or via > Investor Relations > Publications > Financial Reports > DVB Group s Annual Report 2012 > Online version Regulatory Risk Report as at 31 December 2012 online since April With the Regulatory Risk Report published on 23 April 2013, DVB Bank SE, in its capacity as parent company of the DVB Group, complies with the reporting requirements of sections 319 to 337 of the SolvV in conjunction with section 26a of the KWG. As a member of the DZ BANK Group, DVB is, in fact, exempt from the reporting requirements of section 319 (2) of the SolvV. Nevertheless, the Board of Managing Directors of DVB Bank SE has decided to voluntarily comply with said disclosure requirements. The Regulatory Risk Report is available in the "Investor Relations" section on our website. > Investor Relations > Publications > Regulatory Risk Report

11 11 DVB in the press by Borislav Bjelicic, Head of Group Corporate Communications Imprint Performance Investor Relations Newsletter DVB Bank SE Platz der Republik Frankfurt/Main, Germany Editorial team: Investor Relations-Team Elisabeth Winter elisabeth.winter@dvbbank.com Sabine Schlieben Alisa Imas Katrin Sammer Layout: Alisa Imas Greek ship owners continue to play an important role in the global maritime economy. In 2012, aggregate loans to Greek ship owners amounted to 65.8 billion, according to Petrofin Research's most recent study on "Key developments and growth in Greek ship-finance". Petrofin is a consultancy that publishes an annual study on bank loan portfolios to the Greek shipping industry. DVB is now the fourth largest lender to Greek carriers. Petrofin's analysis has shown that a total of 51 banks are engaged in Greek shipping finance, whereby DVB has increased its activities alongside KfW, ABN AMRO, Citi, Nordea, Bremer Landesbank, Nord/LB and Credit Suisse. Banks from the Far East have also grown their presence, says Petrofin. The complete study is available for download on the Petrofin website: > Upload > PetrofinBankResearch-end2012 On 16 May 2013, Lloyd's List published an extensive article on the results of the Petrofin report. As reported many times before, our research teams are closely monitoring developments in several sub markets and sub segments. In their latest report, they reviewed the market for the transport of palm oil and other vegetable oils. Our shipping research experts gave a positive market outlook which was echoed in May this year in several shipping magazines, including Tradewinds and Lloyd's List. Other areas of the Bank also showcase their expertise. Our colleague Kevin Bourque, who joined DVB in 2007, was recently named one of the 100 "most interesting and influential inhouse lawyers in business" by Legal Business. The magazine's editors gave a number of reasons for their choice: "Kevin has impressed us with his excellent organisational skills and he is very helpful when it comes to specific clauses that he requires in the loan documentation for the bank, which makes it really easy to work with him. He combines his deep legal knowledge with an outstanding commercial awareness and a vast experience from various markets around the world." To learn more, please visit: > index.php > gc-power-list-2013 After scanning this QR code with your smartphone, you will have direct access to our website