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Risk Factors

In order to better understand the risks, the Company suggests reading the complete version of the last reference form available for download on this website.

Description of Risk Factors

a) To the Issuer

The fierce competition, mainly from other providers of support services for oil platforms and/or shipbuilding, may jeopardize the development of the Company’s activities.

The Company is going through a strong expansion period and is therefore a major consumer of dedicated resources that are not yet generating relevant financial results. Thus, the full evaluation of the Company‘s performance is compromised and eventual investments in its shares are highly speculative.

The Company is subject to risks and uncertainties associated with the implementation of its business plan. The early implementation stages of this plan offer significant financial risks, which may lead to significant losses. The Company cannot guarantee the financial success of its building of support vessels for oil platforms nor its success in obtaining and renewing logistics service agreements for the support of these oil platforms.

The Company’s business strategy is comprehensive and is subject to future changes. This strategy may not be successful and, in this case, the Company may be unable to implement the necessary changes in a timely manner. Additionally, companies undergoing strong expansion face uncertainties and challenges related to an accurate financial planning based on historical information and uncertainties concerning nature, scope, and results of future activities. The Company should maintain successful business relationships and its operational procedures when carrying out its planned activities. The Company may not be successful in some or all of these aspects and, due to these risks, there is no guarantee that it will be able to implement its business strategy or carry out its businesses as planned. These uncertainties give an eventual investment in the Company‘s shares a speculative character, leading to a high degree of risk.

The vessel operation segments which provide offshore support for oil platforms and shipbuilding are highly competitive. The competition results primarily in the reduction of margins. If the Company is unable to meet demand for its services and its customers’ prices in such a way as to overcome its competitors and maintain or increase its market share, its results may be adversely affected in a relevant manner.

Construction delays and increased implementation costs could increase projects’ costs and reduce the Company’s profitability.

Delays in the construction of new vessels and higher related costs could increase projects’ costs. In addition, delays in the completion or financing disbursement related to these projects may negatively impact the Company‘s cash flow, which may increase its capital requirements. These delays and cost increases may cause a project’s conclusion to be unfeasible.

In addition, the Company may not be able to complete the construction due to various other factors, including lack of materials, equipment, technical expertise and manpower; adverse weather conditions; natural phenomena; labor claims; unexpected engineering problems; environmental or geological problems; disputes with contractors and subcontractors; delays in obtaining licenses, authorizations and approvals by competent authorities; and other problems and circumstances that may increase the investments required. Any of these factors may adversely affect the results of the projects invested by the Company.

Popular movements can affect construction costs of the shipbuilding unit, as well as compromise its normal operations, affecting the Company’s profitability.

Popular and trade union movements are extremely active in the country in activities involving a large number of people, and the Company cannot guarantee that its shipbuilding unit will not be subject to stoppage, invasion or occupation by groups of this nature.

The implementation of the Company‘s growth strategy will require significant investments, and may require obtaining additional resources, which may not be available or, if available, may be subject to unacceptable terms.

The Company intends to carry out significant investments in addition to those already underway to broaden the provision of logistics support services for oil platforms and implement its growth strategy. Investments will include the construction of new vessels and investments in the Company’s shipbuilding unit. A substantial increase in the sector’s competition can encourage or increase investment requirements. The Company expects to finance a substantial portion of its investments with operating cash flow, with the resources of its shareholders and funds from Fundo da Marinha Mercante (FMM). However, it is not possible to ensure that said proceeds will be sufficient to fund all investments deemed necessary. In this case, the Company’s strategy may require additional funding.

The Company’s ability to raise capital will probably depend on its level of indebtedness and market conditions. Additional capital may not be available or, if available, may be subject to unacceptable terms. Failure to obtain additional funds under terms acceptable to the Company may restrict the future development of its businesses, which could adversely affect the Company.

The Company’s business plan requires a significant amount of capital for investments, to which the Company may not have access.

Vessels providing offshore support for oil platforms require large capital investments and the Company hopes to make significant capital expenditures in its businesses and operations for the construction of its shipbuilding unit. If the Company does not have enough revenue when it comes into operation due to the demand for its services being lower than expected, operational difficulties or other reasons, it may have a limited ability to raise the capital necessary to support its future operations.

If access to credit lines is restricted or financing costs increase, including due to the worsening of the recent economic crisis, the Company‘s operations could be adversely affected. Future financing, if available, may result in higher interest and amortization expenses, increased leverage and less revenue available to finance acquisitions and future expansions.

If the Company is unable to generate or obtain additional funds in the future, it may be forced to reduce or delay its capital expenditures, sell assets or restructure its debt; any of these events could adversely affect its businesses and financial situation.

The Company will depend on the results of its subsidiaries, which may not be distributed.

The Company’s ability to distribute dividends to shareholders will depend on its subsidiaries’ cash flow and profits, as well as on the distribution of these profits to the Company as dividends. It is not possible to ensure that any of these funds will be available to the Company or that they will be enough to pay its obligations and distribute dividends to its shareholders.

The Company may not be able to hire a sufficient number of skilled workers.

The Company’s ability to become productive and profitable will depend significantly of its ability to attract, train and retain project managers and executive officers, as well as skilled workers for the construction, development and operation of our business units. The Company has more than 2,000 job positions. The demand for skilled workers is high and the supply is limited in Brazil. The increase in salaries paid by the Company’s competitors may reduce its workforce or increase personnel costs to be paid by the Company, or both. Additionally, the lack of skilled workers could adversely affect the development of the Company’s activities. The inability to attract, train and retain a sufficient number of skilled workers may cause a significant adverse impact on the Company’s businesses.

The Company depends on the members of its management, who may not be retained or replaced by people with the same experience and qualification.

Part of the Company’s success depends on the skills and efforts of its executive officers. The Company may not be able to maintain these executive officers, because they can choose to no longer participate in the management of the Company‘s businesses. Additionally, the Company may not be able to hire professionals equally qualified to follow its growth strategy or to replace those who eventually leave the management, and this could have a detrimental effect on the Company‘s businesses.

The Company is an indirect beneficiary of tax incentives and the suspension, cancellation or non-renewal of these tax benefits may adversely affect its results.

The Company enjoys tax benefits in its operations in Brazil and eventually abroad. The loss of said tax benefits or the Company’s failure to renew these benefits can negatively affect its results.

The Company may not be able to maintain all licenses and authorizations required for its operations.

With the exception of the operational license for the third construction phase of the Oceana shipyard, all production units’ environmental and operational licenses and other government authorizations have already been granted. However, the Company cannot guarantee that it will be able to renew current licenses or obtain the other licenses and authorizations required for its operations in a timely manner. The failure or delay in obtaining the necessary licenses and authorizations in a timely manner or any disputes related to the licenses and authorizations previously obtained may adversely affect the Company‘s businesses, operational results and financial position.

b) To its direct or indirect Controlling Shareholder, or Control Group

Our Controlling Shareholder may take certain decisions concerning our businesses that may be conflicting with the interests of our other shareholders.

Our Controlling Shareholder may take measures which may be contrary to the interests of our other shareholders, including corporate reorganizations and conditions for the payment of dividends. Our Controlling Shareholder holds our effective control and is eligible to elect the majority of the members of our Board of Directors. The decision of our Controlling Shareholder as to our directions can diverge from the decision expected by our minority shareholders.

c) To its Shareholders

The Company cannot guarantee the payment of dividends to its shareholders in the future.

Except for the minimum mandatory dividend required by the Brazilian Corporation Law and by the Company’s Bylaws, any future decision related to the payment of dividends will be discretionary. The decision to distribute dividends will depend on the Company’s profitability, financial situation, investment plans, contractual limitations and restrictions imposed by the applicable legislation, including the regulations issued by the Brazilian Securities and Exchange Commission (CVM), among other factors. Additionally, the Company’s ability to pay dividends depends on its ability to generate profits. The Company cannot guarantee the payment of dividends to its shareholders in the future.

d) To its Subsidiaries and Affiliated Companies

The Company’s subsidiaries and affiliated companies are subject to the same risks related to the Company described in section 4.1(a) above.

e) To its Suppliers

For carrying out services, the Company must rely on suppliers of equipment, materials and services, which will be backed by agreements or purchase orders, duly signed by both parties. Although the agreements define the scope, financial conditions and supply periods, there is a potential risk of delay in supply or non-compliance by the supplier of all or part of the scope contracted, directly impacting the Company‘s operations.

Significant increases in the Company‘s cost structure may affect operating results. The Company is subject to risks related to the eventual difficulty of passing input cost increases on to their customers, such as fuel, personnel costs and inputs, which may adversely impact its results.

f) To its Customers

The Company has a greater concentration of customers than desired.

A significant portion of the Company‘s revenue comes from a limited number of customers. There is no guarantee that the Company will receive equivalent revenue from its customers in the future. Any change in the demand for vessels providing offshore support for oil platforms to one or more of these key customers may adversely affect the Company’s operating results.

g) To sectors of the economy where the issuer operates

Fluctuations in some sectors where the Company‘s customers operate may adversely affect its businesses.

The oil and gas sectors usually follow global economic cycles, as well as the supply and demand balance of the product. The Company’s main customers operating in these markets and any fluctuation in these sectors may adversely affect the Company‘s businesses. The Company cannot guarantee that prices and demand for these products will not reduce in the future, negatively affecting these sectors and, in turn, its businesses and financial results.

Shipbuilding activities and shipping companies rely on subsidies and benefits which, if removed, may limit the Company’s growth or reduce its competitiveness.

Shipbuilding enjoys some tax benefits, such as: The Special Regime for the Purchase of Capital Goods for Exporters (RECAP), which deals directly with importing of equipment that will be installed in the Company’s shipyard; the Pro Emprego program (Pro job), which is an ICMS tax benefit in the State of Santa Catarina; taxes arising from Registro Especial Brasileiro - REB (Brazilian special registration); among others. The levying of federal taxes such as PIS/Cofins/IPI and ICMS on the purchase by Brazilian shipyards of materials and equipment, including parts and components, intended for the construction, maintenance, modernization, repair or conversion of vessels which are pre-registered or registered with the REB has been suspended. If said subsidies and benefits are removed, the Company may have limited growth or have its competitiveness reduced.

h) To the regulation of the sectors where the issuer operates

The Company is subject to various government regulations. Failure to comply with the regulations or any regulatory changes can adversely affect the Company.

Shipping is regulated by government agencies and port authorities. Said entities regulate the granting of operational licenses, permits and authorizations, impose limits on changes in the equity interest of companies that operate in the industry, and issue safety procedures and rules.

Regulatory authorities may impose penalties on the Company for breach of contractual, regulatory or legal provisions. Depending on the severity of the breach, said penalties may include warnings, fines, embargo on the construction of new facilities or equipment, restrictions on the operation of existing facilities and equipment, temporary suspension of the participation in bidding processes. Any of the previously described penalties could have a relevant and adverse effect on the business, operating results and financial position of the Company.

The Company‘s operations are also subject to environmental laws and regulations. These environmental laws can result in delays, cause the Company to incur in significant costs to comply with them, or even prohibit or restrict its operations in regions or areas subject to environmental protection.

i) To the foreign countries where the issuer operates

The Company does not operate in foreign countries.