Kverneland skal bli verdens ledende og mest profitable leverandør av kvalitetsutstyr og tjenester til den framsynte bonden

Annual Report 1999

Table of Contents

Who and what is Kverneland Page 3

Report from the President & CEO Page 4

Development in the world market

International depression in agriculture Page 6-7

Modern farming demands new technology Page 8-9

Group Strategy

Restructuring and innovation – basis for growth Page 10-11

Multi brands – multi distribution channels Page 12-13

A winning culture – a necessity for success Page 14-15

Product areas Page 16-17

The Board of Directors’ Annual report Page 18-25

Financial Statements Page 26-43

Auditors’ report Page 44

Historic figures Page 45

Definition of key figures Page 47

Shareholders’ Policy and Investor Relations Page 49

Kverneland shall become the global market leader andthe most profitable supplier of quality equipment and services to the professional farming community

Kverneland offers a unique productrange to both farmers and dealerswith complete product lines withinarable, seeding, grass, spreaders andsprayers. The history of the Groupdates back to 1879 when the companywas established as a plough producer.Kverneland was family owned andfamily managed until the companywas listed on the stock exchange in1983. The Kverneland Group hasexpanded strongly during the 90’sthrough acquisition of a number ofwell know manufactures of agricultu-ral implements:

• Underhaug in 1986 – Norwegian• Maletti in 1992/95/97 – Italian• Taarup in 1993 – Danish• Kidd in 1993 – British • Accord in 1994/96 – German • Silo-Wolff in 1997 – German • Greenland in 1998 – Dutch • RAU in 1999 – German/French

Product rangeThe strategy of Kverneland is to offera complete product line of the toolsthat the farmer uses on the farm whether the final product is potatoes,meat, milk, grapes, grain or other agricultural products. The strategy isreflected in the product range whichincludes:

Grass and fertiliser spreadersMowers, conditioners, tedders, rakes,harvesters, square and round balersand bale wrappers and a completerange of spreaders. The productgroup represents 47.6 % of the Group’sturnover.

Soil preparation and seedingAll types of ploughs and harrows,stubble cultivators, pneumatic seeddrills and planters. The product grouprepresents 40 % of the Group’s turnover.

SprayersA complete line of three-point linkagemounted, trailed or self-propelledsprayers. The product group repre-sents 6 % of the Group’s turnover.

Potato machinery and other Potato machinery includes bedformers,clod separators, planters, toppers andharvesters. Other comprises of agricul-tural buildings and a few minor productgroups. In total these products repre-sents 7 % of the Group’s turnover.

Spare parts and equipmentThe turnover of spare parts comesfrom all product areas mentionedabove and represents approximately20 % of total Group turnover.

Kverneland is the world’s largest specialised producerand distributor of agricultural implements.

Key figures

(NOK million) 1999 1998 1997

Operating revenue 3,808 3,119 1,981

Operating profit 86 293 112

Profit before tax 43 235 93

Return on capital employed (%) 5.1 17.4 11.0

Return on equity (%) 2.0 17.3 8.7

Equity ratio (%) 33.4 36.2 47.1

Earnings Per Share (NOK) 2.14 17.1 7.3

No. of employees at 31 December 3,508 3,273 2,147

For definitions of key figures, see page 40.

Kverneland ASA is a Norwegian Company listed on the stock exchangein Oslo. The shares are held by investors from several countries. At present no shareholder owns more than 10 % of the share capital.

WESTERN EUROPE 84 %

EASTERN EUROPE 5 %

NORTH AND SOUTH-AMERICA 6 %

REMAINING MARKETS 5 %

Geographical distribution of sales

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Report from President & CEO 1999 – a year characterised by a turbulentmarket and internal restructuring.

During most of the 90’s there has been high prices for agricultural products, increasing income for the farmers and a good investment climate in most of the western world. In the last couple of years, however,we have seen a gradual change and a reduction in our customers’ income.

Kverneland has clearly stated that the company will take a leading role in the inevitable restructuring of the agricultural machinery business

In many ways it is a paradox that, despite a large unfulfilled demand forfood in the world, in 1999 we experi-enced another year with global pressure on prices for a number ofimportant agricultural products. The consequence of this is reduced

income for our customers, whichagain has resulted in a more moderatedemand for a number of our machines– especially the products where themain market is within grain productioni.e. sprayers and arable products.

Restructuring the businessKverneland has clearly stated that thecompany will take a leading role in theinevitable restructuring of the agricul-tural machinery business. Reducedincome, fewer units and increasedinternationalisation are important forces behind this necessary change.Our ambition demands that we continuously develop the Group todeal with increasingly tougher compe-

tition. In order to be able to reach ourgoals concerning more rational andcost effective operations we need torealise the synergies from our acquisi-tions. This means carrying outdemanding adjustments and restruc-turing of Group operations. We will

further develop our distribution strategy and focus on our well-knownbrands and will continue to developour long-term relationships with ourdealers. An important tool for this willbe changes in our sales organisation.Over time this will improve our service level towards the farmers anddealers.Substantial changes in our internalorganisation have been carried out in1999 – especially in our sales compa-nies in France, Germany and Spainwhere we merged the Kverneland andVicon organisations. In addition substantial restructuring has been car-ried out in the factories Kerteminde(Taarup), Weilheim (RAU) and Orleans

(Vicon). The purpose of the changesis to increase our service level, improveproduct quality and, not least, accele-rate the pace within our product development. Further restructuringwill be carried out in the year 2000 so that the Kverneland Group will

become a more market oriented andeffective organisation.

New establishmentsDuring 1999 the Group has been established in the Czech Republic andSlovakia through a co-operation withour importer AMT. The establishmentof a sales organisation in South Africawas decided and the company willbe operational early in year 2000.New possible acquisitions, withinKverneland core strategy have beenlooked into. These acquisitions areplanned to be realised in the years tocome.

New productsOne of the foundations in our strategyis to use considerable resources onproduct development. This policyenabled us to launch a number of newproducts, even in a demanding yearlike 1999. The new products provideus with a good position in the fight formarket shares within all productareas. In 1999 the Group used approx-imately NOK 121 million on productdevelopment.

SAP implementationThe Kverneland Group is an integratedGroup with control over its valuechain. In order to be able to better con-trol the value added, it was decided in1996 to implement SAP R/3. Sincethis decision was taken the Group hasbecome more complex. The imple-mentation of SAP has proved to bemore demanding than first assumedboth with respect to costs and theworkload for our employees. In thefirst half of 2000 the Group will carryout a thorough analysis of the use ofSAP in the Group before we makedecisions on further implementation.However, there is no doubt in ourminds that once we can start using theintegrated IT-system in the wholeGroup, the communication will becomeeasier and more rationalised. This willlead to both lower costs and bettercustomer service.

Financial resultsAs stated in the annual report fromthe Board of Directors, the financialresults for 1999 are far from satis-factory. The long-term target of10 % operating margin seems to bemore unobtainable than obtainable.However, 1999 has been characterised

by the combination of a reduced totalmarket and substantial adjustmentsand restructuring in Kverneland. Thishas given the Group lower earningsthan planned. It is, however, necessa-ry to continue the process of restruc-turing in order to reduce the level offixed costs over time and therebymake the Group more robust towardcyclical fluctuations in our customers’income. The restructuring is a cost-and time-consuming process, involv-ing relocations and changes in man-ning. The development in profits andthe moderate short-term expectationswhich have been stated by the Boardof Directors and the CEO, have causeda negative share price developmentfor Kverneland during the year.

The strategy remainsThe fundamental industrial conditionswhich are the basis for our strategyare developing as expected, eventhough the short-term reduction inprices of agricultural products hasbeen larger and more long-term thanexpected. However, there is no reasonto change our strategy for furthergrowth. We will try to find acquisitioncandidates, of which some will beboth well operated and profitable andothers will need substantial restructu-ring. A consequence of the acquisitionstrategy is that the Group will be in acontinual process of restructuring.Kverneland acquires companies inorder to take a leading role in therestructuring of the agriculturalmachinery business. By doing this wewill be able to further expand the breadth and depth of our productrange and also focus aggressively onproduct development. This will in turngive our dealers access to strong

brands, the best service, top qualityproducts and a continual flow of newproducts. The substantial restructu-ring will increase Kverneland’s competitiveness in the years tocome. However, we expect that alsothe profits for year 2000 will be characterised by a difficult marketsituation and continued restructu-ring.

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One of the foundations in our strategy is to useconsiderable resources on product development.This policy enabled us to launch a number of new products, even in a demanding year like 1999

Atle EidePRESIDENT & CEO

Kverneland Inc. Canada

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➙ Kverneland South Africa (operational beginning of 2000)

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Due to the demand for moreeffective and environmentallyfriendly mechanisation,Kverneland will experienceglobal growth in the demandfor agricultural machinery.

The farmer as well as themanufacturer of agriculturalmachinery is dependent onincreased prices for agri-cultural products in order to finance growth and newinvestments in the short-term.

This depression is a direct con-sequence of low prices for agricul-tural products. However, we see large variations in the market, for examplein the production of grapes, where profitability was good and in potato where prices were very good inthe EU in 1999. Still 1999 as a wholewas a difficult year for the farmersworldwide with record low prices for anumber of agricultural products,which again caused reduced demandfor machines and equipment. Withinthe EU, which is Kverneland’s mainmarket, the farmers have in additionexperienced uncertainties related tothe new agricultural policy and thediscussions in WTO. This has withoutdoubt affected the investments. Anintense political struggle made theeffect of the reform of Agenda 2000somewhat less dramatic than firstassumed. However, the farmers’ incomeis under pressure. For example willthe intervention prices on grain bereduced in the years to come in theEU. The farmer as well as the manu-facturer of agricultural equipment isdependent on increased prices onagricultural products in order to growand finance new investments in theshort-term. Another issue, which influ-ences the investments in machinery,concerns the expectation that farmerswill use substantial capital resourcesto buy land. The land will becomeavailable, as a number of smaller farmers will discontinue operations.

It has never before been more difficult to predict future pricedevelopmentsThe statements from the experts vary,and even though there seems to be aconsensus that prices are currently atrock bottom, there is uncertaintyregarding how much the prices willincrease and on how fast the price

increase will come. In Kverneland weexpect that the demand for agriculturalmachinery and implements will be further reduced in 2000. The extent ofthe reduction is not certain, but in ourprognosis we assume a reduction ofminimum 5 – 10 %. As a consequence ofdifferences in the price developmentsbetween the different products weexpect large variations within the vari-ous machine markets.

Development in a longer perspectiveThe demand for, for example grain, isexpected to increase considerably overthe next decades. At the same timethere will be a fight for the agriculturalland in the industrialised world. A number of groups and operationsneed cultivated land for other purposesand therefore the need for more efficient use of the remaining agri-cultural land will be higher. However,this will have to happen in a way thatis in line with demands of society.The demand for more effective andenvironmentally friendly mechani-sation, which therefore is expected,will give Kverneland a global growth inthe demand for agricultural equipment.This development, together with thechange to larger units, providesKverneland with exiting possibilities todevelop and distribute a whole newrange of products and solutions.

Growth potential in new marketswill be even more importantEastern Europe and the former SovietUnion (FSU)Some of the most productive agricultu-ral areas are located in this region andthere is a large demand for increasedmechanisation in order to get thenecessary growth in food production.The lack of investments for a numberof years has meant that there is nowsubstantial demand for replacement of

the existing machines. The pace of thegrowth in investments is related to theoverall social and economic develop-ment in the area.

South-AmericaThe agricultural area here faces thesame challenges as in Eastern Europe.Productive land together with the needfor increased food production both fornational consumption and export provi-des a large future market for agricultu-ral machinery. Both South-Americaand Eastern Europe are interestingmarkets with growth potential for thetechnology and the productsKverneland produces.

Africa and Southeast AsiaThe combination of a productive agri-cultural area and well-known techno-logy provides good growth possibilitiesin the world’s food production close tothe areas where most of the consump-tion will take place. Therefore we seegood growth potential for Kvernelandin parts of Africa and large parts ofSoutheast Asia. This is an area with alarge population and agricultural area(over 2 million people in China andIndia), and Kverneland has the techno-logy that is required to carry out thenecessary mechanisation.

Our home marketWithin the EU we see a structuralchange in agriculture. The trendtowards larger units continues, likewisethe contractors are taking over an incre-asing part of the work for the farmer.The development is a natural conse-quence of reduced subsidies and largerdependence on the prices on the worldmarket. This gives exciting prospectsbecause the demand changes towardslarger and more advanced machineryand new products, new technology andservice and quality improvements.

Development in the world marketThe international agriculture is in depression

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Food production and management ofthe arable land are demanding tasks.There is little room for experiments inthe industry since the consequencesfor the harvests and environment aretoo critical. However, at the same timeall parts of the value chain have to dealwith a new and far more competitivereality and challenge. Therefore the far-mers have always been looking for newtechnology and will continue to do so inthe years to come.

Productivity must improveSince the world’s population is growing the harvest per acreage mustbe increased at the same time as thearea available for agriculture is underpressure – especially in the westernworld. The demands from society arebecoming more critical with respect tothe environment and sustainabledevelopment. To be more specific thismeans more cultivation with minimalnegative effect on the environment. At the same time there is pressure onproduct prices and the subsidies arebeing reduced. The whole situationchallenges Kverneland with respect toinnovation and product development –areas which in many ways are thebasis for the Group’s success. Thefocus in the future will primarily be onproduct development directed at thechallenges faced by the farmers.

In the future there is a need tooperate in a better wayThis applies to both the farmer andKverneland. It is of great importancefor the farmer to reduce the numberof passes in the field. This will save

time and protect the cultivated land.This gives Kverneland as a Group theopportunity to develop and distributea number of combination implementswhich carry out several operationssimultaneously. At the same time thisgives us the possibility to connectemployees from different productdevelopments environments so thatwe better can utilise the total expertisein the Group. Kverneland is in a uniqueposition because we, to a larger extentthan any other, have a complete product range and thereby a specialbreadth in our product expertise.

Precision FarmingThis concept reflects the farmers’need to optimise the use of input factors in production. By mapping theland and customising the use of seeds,fertiliser and chemicals the farmerwill be able to achieve the optimal har-vest. This is an area where we havethe opportunity to develop completelynew machinery and mechanisationand where we have used substantialresources.

The high-tech farmerWhilst farming today is to a largeextent characterised by traditionaltechnology, we will see a change inthe future to high-tech productionunits. The use of IT will also leadto far more interaction betweenmachines, which gives a company likeKverneland, which provides a widerange of machinery, very good possi-bilities. The modern agriculture hasnew requirements with respect to ser-vice and logistics, be it in the form of

fine-tuning the use of machinery, simpler maintenance or quicker delivery of spare parts. The Internettechnology will be central in this area.This is especially interesting becausea number of analyses show that thefarmer is a long way ahead withregards using the Internet as a tool.

Development in the world market Modern agriculture demands new technology

Agriculture is a traditional business. A long-term view and a depen-dence on sustainable development characterise the agricultural wayof thinking.

The use of IT will also lead to far moreinteraction betweenmachines – this gives a company likeKverneland, which provides a wide rangeof machinery, very good possibilities.

”It is of great importance for the farmer to reduce thenumber of passes in the field. This will savetime and protect thecultivated land. This provides Kverneland as a Group with the opportunity to developand distribute a numberof combination imple-ments, which carry out several operationssimultaneously.”

Patrick VerheeckeManaging Director Kverneland France

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The acquisitions during the last 7-8years have quadrupled the Group’sturnover and because of thisKverneland now provides a wide product range within grass, fertiliserspreaders, soil preparation, sprayers,potato equipment and more.

The farmer is the basis for ourgrowth strategyThe farmer is central for us whetherhe produces grain, potato, root crops,

grapes, milk or meat. Kvernelandaims to build up a complete productrange and related services. Since dis-tribution is one of the keys to success,Kverneland co-operates with an exten-sive network of competent dealers.Both the farmer and the dealer appre-ciate a product range which over timecan offer a homogenous quality- andservice-level. The Kverneland productrange is attractive in the marketbecause it gives the farmer the bestoperating profits and makes it profita-ble for the dealers to sell the products.

Advantages from improved distribution As a consequence of the acquisitionscarried out over the last years,Kverneland has established new salesorganisations in a number of countries.The organisations are owned byKverneland and are operated as anintegrated part of the Group. In timethis will create a cost effective distri-bution system and also facilitate aclose and open co-operation betweenthe production and development environments internally and external-ly. It ensures quick and effective feedback from and to the market andtherefore enables Kverneland tocarry out a market oriented and high-speed product development.

Size is important for KvernelandSize enables us to use further resour-ces on the development of both products and service levels. The wideproduct range makes it possible toexchange experience over a widespectre. In the years to come this willlead to completely new concepts formachinery because innovation occurswhen people form different nationsand professions exchange ideas andwork together. Our presence in morethan 20 countries also enables us tohave close contact with a lot of users.Our partnership with importers in anumber of countries also gives usadditional breadth in distribution andaccess to information.

The Kverneland productrange is attractive inthe market because itgives the farmer thebest operating profitsand makes it profitablefor the dealers to sellthe products.

The acquisitions duringthe last 7-8 years havequadrupled the Group’sturnover and because of this Kverneland nowprovides a wide productrange.

Group StrategyRestructuring and innovation – basis for growth

Until the early 90’s Kverneland was a typical European producer of agricultural machinery. The product range was limited and with a large part of turnover through importers and with focuse on a few geographical markets.

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Multi brands versus one brandA strategy to continue and furtherdevelop a number of strong brands isthe basis for growth of the KvernelandGroup (multi brand strategy). Thismeans that over time there will becompeting brands within most product groups. This strategy hasbeen chosen due to the great valuesand goodwill connected to theKverneland brands and also becausesuch a strategy allows us to offerexclusive distributions agreements inseveral distribution channels in eachmarket. These values are linked tobrand recognition, utility value,second hand value and the possibilityfor the dealer to develop a sustainablebusiness. Furthermore these brandshave been marketed and distributedfor decades and this has led to valuable relations between farmers,employees and the leading brandnames.

Kverneland will therefore have at least two brand names withinmost product groups in the futureThese will be products which, in mostmarkets, will be different with respectto technical solution and design. Thebrand names will also have their ownidentity regarding special quality standards, characteristics and servicelevel. This will make it easier for thefarmer to select the products with theright characteristics and for the dealers to better market the productsthey sell. With a multi brand strategythe dealers are guaranteed a reliabledistribution and this means that theKverneland dealer can invest in thebrands he sells. A third, equallyimportant reason for choosing themulti brand strategy is the considerablepotential for synergies within logistics,distribution and procurement which itoffers. In addition the strategy givesadvantages within product developmentand, not least, in production. The strategy chosen by Kverneland hasalso been chosen by the large tractormanufacturers and has been used inthe global car business for a long time.

The different brandnames will also havetheir own identity withrespect to special quality standards, characteristics and service levels.

Group StrategyMulti brands – multi distribution channels

Well-known brands such as Kverneland, Kverneland Taarup, RAU,Vicon, Kverneland Underhaug and Kverneland Accord are part of theKverneland Group today. For farmers all over the world these arebrands associated with quality, first-class solutions and, not least,high second hand value.

”With a multi brand strategy the dealers areguaranteed a reliable distribution, which again means that theKverneland dealer caninvest in the brands he sells.”

Karl-Heinz Lammert, Managing Director Kverneland Deutschland

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Kverneland is one of the sponsors for theNorwegian ladies down-hill ski team. There aremany parallels betweentop-level athletics andour ambitious Group.

Group StrategyA winning culture – a necessity for success

Kverneland has set a clear course to reach its targets. Therefore consi-derable resources have been used in order to communicate the strategyto all levels in the Group to ensure that we all pull together in the samedirection. Information is a central element in organisational development.

”What is understood is supported andwhat is supported gets done”. This isthe simple logic behind how we imple-ment our strategy in an increasinglymore complex organisational structureof the Group.

Different toolsThe tools in the process are different.First of all internal communication is prioritised and structured. Allemployees receive a personal copy of the strategy plan and additionalinternal information is frequently distributed through the magazine”Kverneland Family” and the news-letter ”Kverneland This Week”.

Strategy planThe Balanced Score Card (BSC) isused to communicate the strategy andis a systematic and logical way ofsetting targets and measurementswhich allow us to determine whetherour goals are being reached and whenwe need to take corrective action. Thelogic behind the BSC is that ouremployees are the most central resour-ce in the company. The BSC is used inthe whole Group as a strategic tool andfocuses on all our strategic goals, whether they are financial, customer,process or development oriented.

Employee developmentOur goal is to develop our employeesat all levels in the organisation so thatthey can utilise their own potential.In order to achieve this, extensivetraining and education is offeredthroughout the organisation.Kverneland has a trainee program

which has been developed to attractnew talents. In addition a number ofemployees are encouraged to workfor the Group in other countries onsecondments. At present a number ofour employees work outside their owncountry and the Group ManagementTeam also include members from outside Norway. A systematic andextensive management training program is also carried out in theGroup. The program is run inco-operation The Norwegian School of Business and Economics and gives several hundred managers a unique opportunity for development.In addition the program contributes to building a common culture for theGroup.

Management processesEmployees in management positionsare to a large extent involved in deci-ding and developing the strategythrough cross company meetings. Inaddition managers also frequentlyreceive information on strategic andcommercial decisions so that they candevelop the right strategic responsesin their local operations. Our management philosophy is todeliver the results that have been promised. Therefore all managers inthe Kverneland Group shall be pro-active and have a commercial focus.The Balanced Score Card is the mostimportant tool for the managers withrespect to reporting and follow up. All Managers have performance contracts where the achievement oftheir targets is closely linked to compensation.

OrganisationThe Kverneland Group is organisedaround strategic business units(SBU). Operational companies areorganised in this way if they are over-lapping in products or core expertise.This organisational structure makes iteasier to transfer and co-ordinateideas, expertise and technology withinthe Group. In addition it enables theproduction and administration to berationalised. The strategic businessunits will play a more important rolein the future with regards souring,procurement, distribution, customerservice and product planning.

Sponsor for the NorwegianNational Female Team inDownhillKverneland is one of the sponsors forthe Norwegian ladies downhill skiingteam. There are many parallels to befound between top level athletics andambitious companies like our Group,and the national team is important forus since it represents a ”winning culture” – a culture which we aim todevelop in our organisation. In such aculture critical success factors are puton the agenda and the necessaryskills and knowledge are developed toenable goals to be achieved. Thedownhill skiers clearly represent thistype of culture. They participate in asport where the requirements for dis-cipline, courage, skills and the willing-ness to push the boundaries are partof their everyday life. As a nationalteam they are dependent on helpingand supporting each other and functioning well as an integrated group.

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Group StrategyProduct Areas

The Kverneland Group is built up around the product areas arable,sprayers, grass and other. These are strategic focus areas wherethe Group has a strong position. In addition there are some productarea which Kverneland finds very exciting and where the farmersinvest large amounts. Kverneland will enter these areas when thetime is right.

ArableThe turnover in 1999 was NOK 1,511million. Operating profit was NOK 66million.The product area consists ofthe following brand names: RAU(power harrows, harrows, seed drillsand stubble cultivators). Accord (seeddrills and planters). Kverneland(plough, power harrows, harrows andstubble cultivators). Accord is themarket leader for pneumatic seedersin Europe in the same way thatKverneland is the market leader forploughs. Concerning harrows, bothKverneland and RAU hold a strongposition in a number of countries. The products within the product area arable are distributed in all westerncountries and in Eastern Europe.

SprayersThe turnover in 1999 was NOK 216million and the operating loss was NOK 12 million. The sprayers are distributed under the brand namesVicon and RAU. RAU is the marketleader in Germany while both brandsin total have a strong position inBenelux and France. We also seeincreasing sales in Denmark, Norway,Italy, Great Britain and a number ofEast-European countries.

GrassThe turnover in 1999 was NOK 1,783million. Operating profit was NOK 83 million. The product area consists of

the following brand names: Vicon(complete range of seeders, rakes,harrows, harvesters, round balers andfrom year 2000 also balers). Taarup(movers, rakes, tedders, harvestersand round balers) Both brands are strong all overEurope and have a significant positionin the rest of the world.In addition fertiliser spreaders is included in this product area. Thespreaders are sold globally under thebrand name Vicon.

OtherThe turnover in 1999 was NOK 298million. The potato machines are distributed under the brand nameUnderhaug, which has a strong position in the Nordic countries, GreatBritain, Holland and a number of East-European countries.

Spare partsA synergy potential which has risenfrom the acquisitions during the lastyears can be found in the distributionand sale of spare parts. Kverneland isbuilding a central organisation whichwill handle spare parts for all ourbrands and for all markets. The figures show that this is a strategicallyimportant area for the Group. At present the sales of spare parts represents 20 % of the Group’s totalsales, which constitutes approximatelyNOK 800 million.

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Kverneland Board of Directors 1999. From the left: Kai Ole Togstad (employee representative), Sven Erga (deputy board member), Steinar Olsen (Chairman), Ole Julian Eilertsen, Georg Eldor Fjermestad, Anders Eckhoff (Deputy Chairman), Per Otto Dyb, Stein Mossige (employee representative), Henrik Ager-Hanssen, Magne Wiggo Høyland (observer), Olaf Eie and Atle Eide (President & CEO).

TYPE AND LOCATION OF OPERATIONS

The Kverneland Group is involved indevelopment, production, distribution,marketing, sale and service of agricul-tural machinery and equipment. TheGroup has factories in Norway,Denmark, Great Britain, Germany,France, The Netherlands and Italy,which are owned 100 % by the Group.In order to take care of the sale anddistribution of the Group’s productrange the Group has established salescompanies in all the largest singlemarkets in West- and NorthernEurope, Canada, Poland, The CzechRepublic and Slovakia.

STATEMENT OF ANNUALACCOUNTS

Profit developmentThe reported net profit for theKverneland Group in 1999 is less thansatisfactory. Reduced earning in thesecond half of 1999 made it necessaryfor the Group to send out a profit warning. The profit warning has resulted in a negative effect on theshare price development of theKverneland share.

Due to difficult market conditions the Group’s revenue, excluding new acquisitions, is reduced by NOK 257 million, which represents 7 % of turnover in 1999. The Group has not been able to adjust the costsufficiently to compensate for themarket reduction. The restructuringwithin the Group, a consequence fromthe last acquisitions, has taken moretime than planned and the cost relatedto this has been higher than expected.Realisation of synergies has also takenmore time than expected.Problems related to the implementationof an extensive IT project (SAP R/3)has had a negative effect on the ope-rations in 1999. The Board ofDirectors finds it necessary to makeadditional amortisation and expenseof NOK 60 million in total for 1999.This amount is included in the opera-ting expenses.In addition NOK 65 million has beenexpensed this year relating to restruc-turing of the operating companies.The profit and loss account is alsoaffected by operating losses in two ofthe Group’s production companies,Kverneland Weilheim and KvernelandKerteminde (Taarup) with a total ofNOK 42 million. As a consequence of

a reduction in the total market and therefore reduced volumes, theoperating profit in Kverneland Kleppand Kverneland Soest (Accord) isNOK 62 million lower than in 1998.In order to improve the Group’s abilityto predict changes, faster reactionsand stronger project control, theGroup’s organisation has beenstrengthened.Year 2000 will be characterised by further reduction in the market and a need for further restructuring.

Sales and market developmentThe Group’s net operating revenue for 1999 were NOK 3,808 million com-pared to NOK 3,119 million for 1998.This represents an increase in turn-over of 22 %. The increase in turnovercompared to 1998 is mainly due to thefact that in 1998 the Greenland Groupwas only consolidated as of 1 May.The increase in turnover is also due tothe acquisition and consolidation ofRAU as of 1 January 1999.The market for agricultural machineryhas demonstrated its cyclical naturewith a negative trend in 1999. This hasparticularly been the case within soilpreparation and sprayers. The reductionin turnover of arable products (Soest,

The Board of Directors’ Annual Report 1999

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Modena and Klepp) has been 13.5 %compared to 1998. The indicationfrom some markets is that the Group’smarket share shows a slight increaseduring 1999.When considering the turnover forthe Greenland Group in the 1st Four-Month Period of 1998, the turnoverwithin product area grass for 1999 isapproximately at the same level as in1998. The turnover within productarea grass now represents 46 % com-pared to 41 % in 1998. The turnoverwithin product area arable is at thesame time reduced from 48 % to 39 %of total sales. The recent acquisitionshave therefore given the Group amore balanced and stronger productrange, which have made Kverneland amore attractive partner both withrespect to the farmer and distributionnetwork. The geographical distribution of salesin 1999 is the same as the Group presented for 1998 – 84 % withinWestern Europe, 6 % within NorthAmerica, 5 % within Central andEastern Europe and 5 % in remainingmarkets.

Comparable figuresThe new accounting act, effectivefrom 01.01.99, has suspended the prohibition of booking net deferredtax assets in the balance sheet. As per31.12.97 the Group had a net deferredtax asset of NOK 16 million. Thisdeferred tax asset has been booked inthe revised opening balance as per01.01.98. The tax expense for 1997shows a reduction of NOK 16 millioncompared to the official accounts andthe tax expense for 1998 shows a corresponding increase. Further, thegoodwill related to the acquisition ofGreenland is increased by NOK 9 million

as a consequence of new informationabout deferred tax at the time of consolidation. Due to the abovechanges the comparable figures including key figures for 1998, hasbeen changed compared to the annualreport for 1998.

Margins and profitsThe operating margin for the Groupwas 2.3 % compared to 9.4 % in 1998.The operating margin for 1999 inclu-des an expense of NOK 60 millionrelated to amortisation and expense ofSAP cost, which had been capitalisedby the end of the 2nd Four-MonthPeriod. Adjusted for the cost of NOK 60million the operating margin was3.9 % in 1999. The adjusted operatingmargin is comparable to an operatingmargin of 7.6 % for 1998, whichis exclusive of the gain from thesale of operations in KvernelandKvernex AS of NOK 60 million. Thereduction in operating margin is main-ly due to the difficult market conditi-ons, especially within soil preparationand sprayers. In addition high costsrelated to the restructuring of operatio-nal companies in some of the Group’smain markets have affected the opera-

ting margin. Substantial restructuring has been carried out in our sales com-panies in France, Germany, UK andSpain and in our factories inKerteminde (Denmark) and Soest(Germany). Operating profit for pro-duct area grass has increased fromNOK 61 million in 1998 to NOK 83million in 1999. However, the opera-ting margin is reduced from 4.8 % to4.7 % in 1999.The operating profit for product areaarable is reduced from NOK 163 mil-lion in 1998 to NOK 65 million in 1999.The operating margin is reduced correspondingly from 10.9 % to 4.3 %in 1999.The Group’s profit before tax was NOK 43 million compared toNOK 235 million in 1998.The tax expense was NOK 20 millionand represents 45.6 % of profit beforetax, compared to NOK 74 million and31 % in 1998. The high tax rate is a result of higher tax rates abroadcompared to Norway in addition tothe fact that only parts of tax losscarry forward are booked as deferredtax assets in the balance sheet.The profit and loss account shows aprofit after tax and minority interestsof NOK 21 million compared to

Arable

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Operating Revenue 1998 and 1999(NOK MILLION)

200

400

600

800

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1,200

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1,600

1,800

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1999

The Board of Directors’ Annual Report 1999

NOK 161 million in 1998. Earningsper share are NOK 2.14 compared toNOK 17.14 in 1998.Return on capital employed isNOK 5 % – down from 17 % in 1998.Return on equity is 2 % – down from17 % in 1998.The operating profit and return oncapital for 1999 are not satisfactory.However, it is a result of identifiedconditions such as the falling marketand the implemented restructuringwhich is founded in the Group strategy.A number of actions that have beencarried out will have a positive effectfor year 2000. The process of restruc-turing and adjustment will continue,and is expected to cause non-recur-ring costs also in 2000.

AcquisitionsEffective from 1 January 1999 theGroup acquired RAU, the German/French producer of agriculturalmachinery. The production in RAUincludes sprayers and soil prepa-ration equipment. The result fromthe operations in the German RAUcompanies has not been satisfactoryin 1999. In August the Group acquired 50 % ofthe shares in A.M.T. spol.s.r.o., thatfor a number of years have been theGroup’s importer in the CzechRepublic and Slovakia. The companywas consolidated as of 1 August 1999.

Financial strategy, exposure andexposure managementThe Group’s equity ratio is 33 % –down from 36 % at the end of 1998.The reduction in the equity ratio isdue to the acquisition of RAU. Netinterest bearing debt as per 31.12.99was NOK 1,141 million compared toNOK 936 million at the end of 1998.

Financial management and liquidityAt the end of 1999 the Group’s balancesheet was NOK 3,062 million com-pared to NOK 3,038 million at the end of 1998. At the time of acquisitionthe total balance sheet of RAU wasNOK 400 million. Hence there hasbeen a reduction in the Group’s balan-ce sheet of NOK 323 million in 1999.The reduction is mainly due to reduc-tion in current assets. In addition theGroup has sold some property and asubsidiary of RAU in Germany during1999. Due to these transactions thebalance sheet is reduced by NOK 22million.The Group’s liquid assets are reduced by NOK 29 million and wereNOK 89 million at the end of 1999.The cash flow from operations wasNOK 161 million compared to NOK 187 million in 1998. Cash flowbefore financing was NOK 59 millioncompared to minus NOK 369 millionin 1998. The cash flow in 1998 includeseffect of acquisitions of NOK 264 millioncompared to NOK 49 million in 1999.The accounts are based on continuedoperations.

GROUP PROSPECTS

StrategyThe Group has through a number ofacquisitions during the 90’s taken aleading position as a producer anddistributor of agricultural implementsin Europe. The target of owning theimporters in all the main markets isaccomplished. Over 70 % of sales arenow through owned sales organisations.The Group has an extensive productrange and the long-term objective isto be able to offer the dealers on a global basis a complete product range

with the implements required by thefarmers.The Group strategy is multiplebrands coupled with multiple distribu-tion. This means that the dealers willbe offered differentiated productsunder well-known brands with thepossibility for local exclusivity. Thisstrategy makes Kverneland an attrac-tive partner for the best dealers andopens the possibility for long-termgrowth.Further growth will come from acqui-sitions and gradual expansion in newgeographical markets. Product deve-lopment, procurement, productionand outsourcing are central issues inthe processes to achieve synergies. The Group expects a reorganisationof spare parts logistics to result in anincreased service level, a more costeffective operation and better utilisa-tion of capital. Increased focus onmarketing and distribution of originalwear- and spare parts together withstronger customer focus are expectedto have a positive effect on turnover.A co-ordination within this area willalso make it easier to integrate acqui-red companies in the future. Withoperational effect from year 2001 thisarea will be a separate business unit.The use of E-business and Internetwill be established as a separate focusarea. The Group aims to have a leading role within this area in theagricultural sector. The Groupexpects that electronic shopping andcommunication via Internet will be animportant instrument in all contactwith the professional farmer. Theincreased focus in this area will be acombination of the Group’s ownresources and co-operation with otherpartners. The Group’s dealers willalso be important partners in this.

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The marketThe farmers within the EU haveexperienced reduced income duringthe last three years. The positivedevelopment in the farmer’s incomethat took place until 1996 causedincreased investments by the farmers. The market also remained ata high level in 1997/1998 even thoughthe development in the farmer’s inco-me started to fall. However, in 1999the reduction within soil preparationand sprayers came as a consequenceof record low grain prices on theworld market. The reduction withinthe EU is probably related to thechanges agreed within the EuropeanCommon Agricultural Policy (CAP).The cyclical nature of the agriculturalmachinery business will also charac-terise the global market in the yearsto come.In a world still characterised by a growing population, there will be anincreased demand for production offood. A prerequisite for achieving thenecessary growth in production offood is mechanisation. Globally thiscan in a longer perspective causegrowth within the total market foragricultural equipment.However, in Europe the EuropeanCommon Agricultural Policy willcause a continuing reduction in thenumber of farmers and a change tolarger units. This restructuring willlead to a long-term moderate reduc-tion in the total market in Europe.The consequence will be a change inthe demand for larger and moreadvanced machinery. The pressure inthe market due to the restructuringwill reduce the number of producersof agricultural machinery and giveKverneland an opportunity to furtherstrengthen it’s position.

It also needs to be emphasised thatyear 2000 is the first year with tight-ened subsidies to agriculture as a con-sequence of the changes in the”Common Agricultural Policy”, andthere is uncertainty about how thefarmer’s investment will be affectedby this. An increase in the prices onthe world market is necessary inorder to get new growth in invest-ments. However, it is not likely thatthe growth will be so strong that it willaffect the market estimates describedhere.With respect to the planned growth inthe new markets in the East- andCentral Europe, we have to state thatthe difficult economic conditionshave postponed the expected growth.Despite of these market conditions,the Group has been able to avoid amajor reduction in turnover in thesemarkets. This underlines the value ofthe competence and contacts establis-hed, and gives the Group a good posi-tion when the market turns again.

Kverneland in year 2000The Group expects that the marketfor all product groups will show areduction in year 2000 and 2001. Theestimates are characterised by uncer-tainty. Soil preparation and sprayersare expected to fall in the area of 10 %,while product area grass is expectedto fall less. The reduction in the totalmarket is related to falling income forthe farmer’s due to the low prices onthe world market on relevant rawmaterials – especially grain.With new products, the Group’s cont-inuously growing product range,improved service and a more focusedmarket orientation after years withlarge restructuring, Kvernelandexpects growth in market shares.

Taken into account the strained market situations, this will only tosome extent compensate for thereduction in the total market.As part of the restructuring carriedout within the sales organisation,Kverneland has kept and furtherdeveloped the dealer network.Indications of improved market sharefor important products in some markets, strengthens Kvernelandsposition in a period with pressure inthe market. The Group’s high qualityprofiled products are expected to gainmarket share when the farmers nowmore than ever have to focus on

The Board of Directors’ Annual Report 1999

reducing operating- and maintenancecosts.The Group’s order back-log in thebeginning of year 2000 is not satis-factory and is 16 % lower than at thesame time last year. The reduction ismainly within soil preparation andsprayers.

Synergies and restructuringIn 1999 the Group has carried out substantial restructuring within distribution, procurement and infor-mation technology. The sales compa-nies of Kverneland and Greenlandhave been merged in all the mainmarkets. In addition there have beenlarge restructuring in KvernelandKerteminde, Kverneland Weilheim,Kverneland Klepp and KvernelandSoest. The restructuring of KvernelandGottmadingen, which started in 1998,is progressing according to plans.Wages and other personnel expenserepresents 51 % of the Group’s indirect cost in 1999. The reduction innumber of employees takes time andin some cases involves large costs.The actions carried out in 1999 havereduced the number of employeeswith over 320 persons or approxima-tely 10 % of the permanent staff. Thiswill have a positive effect on the costsas from year 2000.The actions taken to establish pro-curement agreements on a Grouplevel have had a positive effect andthis will continue in year 2000.The actions taken to reduce theGroup’s balance sheet has also givenresults. However, the Group will con-tinue to focus on this area. The targetis a further reduction of the balancesheet of 10 %.The restructuring will be continuedand the Group plans further adjust-

ments in the organisation in order toreduce the fixed cost base. The Boardof Directors sees opportunities forimproved efficiency within procure-ment, production, product develop-ment, distribution and logistics andan effective use of IT investments carried out. Further the Group willgradually be able to increase turnoverthrough more intensive distributionof the total product range.

Administrative integrationThe implementation of SAP has proved to be more demanding thanpreviously assumed. The overrun incost is partly due to the project beingsubstantially changed since the imple-mentation was decided in 1996. Anextensive use of external consultantshas been necessary in order to keepthe pace to make solutions that wascritical to the year 2000. There stillremains a lot of work before SAP willgive the Group reduced operatingcosts.Further implementation of SAP in theGroup companies will be consideredbased on operations and costs duringthe year.

OrganisationThe organisation has been strength-ened in key areas throughout 1999.Continued investments in manage-ment training and further focus onorganisation will take place in 2000.The activities related to E-businessand Internet, spare parts and furtheracquisitions will be central.

Targets for growthThe previous targets for growth andprofitability still apply. A falling market will affect earnings in theshort-term, but will give exiting

opportunities for acquisitions.The Group emphasises that eventhough the profit for 1999 is not satisfactory, the underlying opera-tions are solid in most Group compa-nies. The process of restructuring in afalling market has taken more timeand cost more than planned, but putsthe Group in a strong position bothstrategic and market wise.

WORKING ENVIRONMENT

There is a good co-operation betweenthe employee representatives andGroup Management. ”EuropeanWorks Council” was established in1997 and has since had annual meetings with representatives frommost countries where Kverneland islocated. European Works Council isthe most important co-operative bodybetween the employees and themanagement. The European WorksCouncil focuses on achieving a goodco-operation and high degree of involvement and information at alllevels in the Group.The working environment in theKverneland Group is considered tobe good and a number of actions toimprove the working environment inoperating companies and on Grouplevel has been started. A commoninternal information system, focus onco-operation between employees andmanagement, visit by all employees(200) at our factory in Nieuw-Vennep(Holland) to the head quarters inNorway are examples on actions onGroup level.On Group level the absence due tosickness was 5.6 % in 1999, varyingfrom 0 % to 10.2 % dependent on thecompany. There have not been anyworking accidents with fatal issue in

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1999. Absence due to working accidents is insignificant.

ENVIRONMENT

Manufacturing of agricultural imple-ments result in noise and specialwaste. The noise level is according tolocal regulations. Special wastesmainly comprise oil-, plastic- and paintproducts. All special wastes are hand-led properly by certified companies inthe countries where the Group hasproduction.The most important raw materialused in the production is steel of dif-ferent quality and different degree ofprocessing. Electricity, oil and gas areused as the source of energy in pro-duction.Personal safety and protective equip-ment relevant to the work performedare used as appropriate and required.Since most transportation of machi-nes from the factory to the customersare done by cars this involves air pollution.The pollution from using Kvernelandproducts is limited to the air pollutioncaused by the tractors, with the

exception of spreaders and sprayers.The fertiliser and chemicals used inthe spreaders and sprayers can causedamage on the environment.However, the Kverneland productsfulfil all requirements set by local authorities and the Group’s researchand development activities aim to beahead or minimum in line with newenvironmental requirements.

OTHER

At the end of 1999 Kverneland ASAhad 3,708 shareholders. No singleshareholder holds more than 20 % ofthe share capital. 8.3 millionKverneland shares have been tradedin 1999. The Kverneland share priceat the end of 1999 was NOK 167.00per share – down from NOK 187.50 atthe end of last year.At the end of 1999 foreigners held 17 % of the shares – down from 22 % inthe beginning of 1999.The risk-amount for 1998 (as per01.01.99) was NOK 5.92 per share.The corresponding risk-amount for1999 (as per 01.01.00) is calculated tobe NOK 5.56 per share.

ALLOCATION OF PROFITS

Retained earnings in Kverneland ASAare NOK 371 million at the end of 1999.The Board of Directors proposes adividend payment of NOK 1.00 pershare for the financial year 1999. Thisrepresents a pay out ratio of 47 %.Normally the pay out ratio forKverneland is in the area of 20-30 % ofnet profit after tax. The higher pay outratio in 1999 reflects the Board ofDirectors wishes to soften the effectof the large variations in profits.

The Board of Directors proposes thefollowing allocations:

(NOK million)Loss for the year 9.9Group contributions received 62.6Dividend distribution 9.7Total transferred to retained earnings 43.0

Kvernaland, 31 December 1999/Oslo, 3 February 2000.

Steinar Olsen Anders Eckhoff Henrik Ager-Hanssen Per Otto DybCHAIRMAN DEPUTY CHAIRMAN

Olaf Eie Ole Julian Eilertsen Stein Mossige Georg Eldor Fjermestad Kai Ole Togstad

Atle EidePRESIDENT & CEO

The Board of Directors’ Annual Report 1999

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Consolidated Profit and Loss Account

Consolidated Balance Sheet

(NOK million) Note 1999 1998 1997

Sales revenue 3,976.9 3,244.1 2,048.8Freight and royalty 168.6 124.7 67.6Operating revenue 1, 3 3,808.3 3,119.4 1,981.2

Materials consumed 1,564.5 1,290.2 768.2Wages and other personnel expenses 4 1,253.1 927.3 646.3Depreciation and amortisation 9 206.1 131.9 66.0Other operating expenses 5 698.2 476.9 388.3Operating expenses 3,721.9 2,826.3 1,868.8

Operating profit 1 86.4 293.1 112.4

Financial income 6 29.1 10.5 14.7Financial expenses 6 72.7 68.9 33.7Profit before tax 42.8 234.7 93.4

Taxes 8, 18 -19.6 -73.8 -27.8Profit before minority interests 23.2 160.9 65.6

Minority interests 14 -2.4 0.4 -0.7Profit after minority interests 20.8 161.3 64.9

Earnings Per Share (NOK) 2.1 17.1 7.3Fully Diluted Earnings Per Share (NOK) 2.1 17.1 7.3

(NOK million) Note 1999 1998 1997

ASSETSIntangible assets 9 118.1 127.3 77.8Deferred tax asset 8, 18 23.6 – 16.1Tangible assets 9 811.0 817.3 407.2Investments and other Long-term financial assets 10 44.3 73.1 14.1Fixed assets 997.0 1,017.7 515.2

Stocks 12 1,144.4 1,074.2 505.6Trade debtors 5 750.6 765.4 495.7Other debtors 81.2 63.2 73.6Cash and deposits 88.9 117.9 37.0Current assets 2,065.1 2,020.7 1,111.9

Total assets 3,062.1 3,038.4 1,627.1

Note 1999 1998 1997EQUITY AND LIABILITYPaid in capital 399.6 399.6 272.6Retained earnings 613.5 695.0 493.0Minority interests 14 8.8 6.0 0.9Equity 13 1,021.9 1,100.6 766.5

Pension liabilities 15 59.4 73.8 18.4Deferred tax 18 – 8.8 –Provisions 59.4 82.6 18.4

Long-term interest bearing debt 16, 17 1,158.7 885.8 133.4

Short-term interest bearing debt 71.0 167.5 329.1Other current liabilities 19 751.1 801.9 379.7Current liabilities 822.1 969.4 708.8

Total equity and liabilities 3,062.1 3,038.4 1,627.1

Consolidated Cash Flow Statement

(NOK million) 1999 1998 1997

Profit before tax 42.8 234.7 93.4Depreciation and amortisation 206.1 131.0 66.8Taxes -19.6 -73.8 -27.8Equity Dividends -9.7 -38.8 -14.8Operating cash flow 219.6 253.1 117.6

Increase/decrease in stocks 97.9 -123.3 -18.2Increase/decrease in debtors 89.2 45.5 45.9Increase/decrease in current liabilities 246.2 11.9 -95.5Changes in working capital employed -59.1 -65.9 -67.8

Cash flow from operations 160.5 187.2 49.8

Investments in fixed assets -221.3 -239.0 -113.2Acquisitions -48.9 -264.0 -183.3Increase/decrease in financial assets 39.0 -56.4 7.6Sale of tangible fixed assets 129.2 3.5 7.1Cash flow before financing 58.5 -368.7 -232.0

Increase/decrease in debt due beyond one year 218.3 428.7 -19.2Increase/decrease in debt due within one year -221.4 -201.1 150.8Issue of ordinary shares – 127.0 –Effects of foreign exchange movements -84.4 95.0 -3.1Net change in liquidity -29.0 80.9 -103.5

Liquid assets 88.9 117.9 37.0

Kvernaland, 31 December 1999/Oslo, 3 February 2000.

Steinar Olsen Anders Eckhoff Henrik Ager-Hanssen Per Otto DybCHAIRMAN DEPUTY CHAIRMAN

Olaf Eie Ole Julian Eilertsen Stein Mossige Georg Eldor Fjermestad Kai Ole Togstad

Atle EidePRESIDENT & CEO

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Accounting Principles

The consolidated accounts ofKverneland ASA and its subsidiaries(Kverneland) have been prepared in accordance with Norwegian generally accepted accounting principles. These principles are similar to the international account-ing standards (IAS).

CONSOLIDATION PRINCIPLES

Consolidated companiesThe consolidated financial statementsfor Kverneland include the financialstatements of Kverneland ASA and itssubsidiaries in which KvernelandASA owns, directly or indirectly, morethan 50 % of the shares or has con-trolling power. New subsidiaries areincluded from their respective datesof acquisition during the year. Theresults of subsidiaries disposed ofduring the year are included to thedate of disposal.

Elimination of shares in subsidiariesThe purchase price of an acquiredsubsidiary is assigned to the subsidia-ries identifiable assets and liabilities.When the fair value of the considera-tion exceeds the fair value of the sub-sidiaries’ separable net assets, thedifference is treated as purchasedgoodwill and is capitalised and amor-tised over its estimated economic life.The value attributed to tangible fixedassets are depreciated at a rate reflec-ting the economic life of the assets.

Currency translation relating toforeign subsidiariesProfit and loss items are translatedinto Norwegian kroner at averageexchange rates. Assets and liabilitiesare translated at the exchange

rates ruling on 31 December.Translation differences are recordedas part of shareholders’ equity.

Elimination of transactions within the GroupUnrealised profit in stocks whicharise from internal transactions areeliminated from the consolidatedstocks value. Changes in internal pro-fit are eliminated from the operatingprofit/loss for the year. All otherinternal transactions, as well asdebtors and liabilities between groupcompanies, are eliminated in theconsolidated accounts.

Associated companiesCompanies where Kverneland ownsbetween 20 % and 50 % and has astrategic interest will be accountedfor in accordance with the equitymethod.

VALUATION PRINCIPLES

Cash and DepositsCash and deposits include cash,deposits and financial instrumentspurchased for an original maturity ofthree months or less.

DebtorsTrade debtors and other debtors arevalued net of estimated bad debts.

StocksStocks of raw materials are valued atthe lower of acquisition cost andreplacement cost, following the firstin first out principle. Work in progressand finished goods are included at thelower of cost and net realisable valueafter making due allowance for anyobsolete or slow moving items. Costcomprises direct materials, direct

labour and, an appropriate amount ofworks overhead expenses related tothe state of manufacture of the goodsconcerned.

Investment Investments classified as fixed assetsare stated at cost, less provision fordiminution in value. This also appliesto investments in subsidiaries in thefinancial statement of Kverneland ASA.

Tangible assetsTangible fixed assets are stated atcost plus write-ups less depreciation.Depreciation is provided on a straightline basis to write off the cost of fixedassets over their estimated usefullives.

Monetary assets and liabilitiesin foreign currenciesMonetary assets and liabilitiesdenominated in foreign currenciesare valued at the exchange ratesruling on 31 December.

Financial instrumentsThe company uses various financialinstruments in order to reduce currencyrisk. The accounting treatment forfinancial instruments follow the inten-tion of the contract. At the time ofcommitment, the financial instrumentwill be defined as either a balancesheet contract or a cash flow contract.A balance sheet contract is enteredinto to secure the account balancesand order back-logs and will beaccounted for in connection withthese. A cash flow contract is enteredinto to secure future currency in- andoutflows and will be accounted for inconnection with these.

Research and developmentResearch and development costs,including market development, ischarged against profits in the year inwhich it is incurred.

Pension costsKverneland ASA and its Norwegiansubsidiaries have pension schemeswhich will give the employees futurepension benefits. Except for somepension schemes in subsidiaries inGermany, the UK and in France, thepension schemes relating to theforeign subsidiaries are considered to be defined contribution plans.The calculation of net pension assetsand net pension liabilities are basedon economic and actuarial assump-tions as outlined in Note 15. For the

Norwegian pension schemes, theeffect of changes in estimates, changesin schemes and deviation betweenreal and estimated yield, are amor-tised over the remaining duration orexpected life only when the accumu-lated effect represents more than 10 %of the pension assets or the pensionliabilities whichever is the largeramount.

Extraordinary itemsTo be considered extraordinary, anitem must be unusual in nature, material and not expected to occuroften or regularly. Restructuring costsare recorded as ordinary items.Profits/losses on disposals of fixedassets are also recorded as ordinaryitems.

TaxTaxes in the profit and loss accountcomprise the tax expense related tothe fiscal result of the year. The taxexpense consist of taxes payable andthe net change in deferred taxes.Taxes are distributed on ordinaryprofit and extraordinary items. Taxrelated to equity transactions areposted against the equity.

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Notes – Consolidated

All amounts in NOK million unless otherwise specifically stated.

NOTE 1 PRODUCT AREAS AND MARKETS

Net sales and operating profits derive from the following areas:

Net sales 1. Tert 2. Tert 3. Tert 1999 1. Tert 2. Tert 3.Tert 1998

Arable 553 503 455 1,511 545 480 474 1,499Grass 772 553 458 1,783 183 624 462 1,269Sprayers 119 44 53 216 – 9 15 24Other 90 126 82 298 70 158 99 327Total 1,534 1,226 1,048 3,808 798 1,271 1,050 3,119

Operating profit 1. Tert 2. Tert 3. Tert 1999 1. Tert 2. Tert 3.Tert 1998

Arable 48 41 -24 65 64 59 40 163Grass 77 13 -7 83 9 38 14 61Sprayers -1 -1 -10 -12 – – -1 -1Other 9 11 -70 -50 3 70 -3 70Total 133 64 -111 86 76 167 50 293

All Kverneland product areas are within the same business area.

Geographical distribution of net sales:

Net sales 1. Tert 2. Tert 3. Tert 1999 1. Tert 2. Tert 3.Tert 1998

Nordic 203 177 124 504 200 250 136 586Western Europe ex Nordic 1,113 827 752 2,692 477 791 732 2,000Remaining markets 218 222 172 612 121 230 182 533Total 1,534 1,226 1,048 3,808 798 1,271 1,050 3,119

NOTE 2 ACQUISITIONS

1999 The German/French producer of agricultural machinery, RAU Agrotechnic, were acquired and consolidated into theGroup accounts as from 1 January. The total asset of RAU was NOK 400 million at the time of acquisition. Since RAUwas the minority share holder in Ferrag Ltd, the Group now owns 100 % of the Ferrag shares as of 1 January. The purchase price for RAU was DEM 9.3 million. On 1 August the Group bought 50 % of the shares in our former importer,A.M.T. spol. s.r.o, in the Czech Republic.

1998 The Greenland Group was acquired 100 % and consolidated into the Group accounts as from 1 May. The total assetsof the Greenland Group was NOK 1,020 million at the time of acquisition. The Group’s ownership in Ferrag was increased to 75 % and consolidated into the Group accounts from 1 January.

1997 Kverneland Maletti S.p.A (former Agricole Maletti S.p.A): The Group’s ownership was increased to 100 % as from 1 January 1997. As of 31 December 1997 our newly established company Kverneland Silo-Wolff GmbH bought all theshares in Silo-Wolff KG. The total asset of the company was NOK 248 million. Kverneland Poland sp.zo.o was established in the autumn of 1997 to take over the role as importer/distributor in Poland as of 1 January 1998. Kverneland owns 94 % of the company and the local management owns the remaining 6 %. The sales support office, Kverneland USA Inc. was established in the autumn of 1997.

NOTE 3 OTHER REVENUE

Sales revenue for 1998 includes other revenue of NOK 64 million related to the sale of Kverneland Kvernex. Kverneland Kvernexwas sold to the newly established company Komatsu KVX LLC in July 1998. The new company is owned 60% by Komatsu Americaand 40 % by Kverneland ASA.

NOTE 4 WAGES AND REMUNERATION

1999 1998 1997

Wages 1,253.1 927.3 646.3

Average number of employees 3,671 2,952 2,047

Notes – Consolidated

NOTE 5 OPERATING EXPENSES

Operating expenses include loss on receivables as follows:

1999 1998 1997

Actual loss of the year 3.3 0.4 1.5Change in bad debt allowance 8.6 5.0 3.2Settlement for claims previously written off -3.6 -0.2 0.3Loss on receivables in the Profit and Loss Account 8.3 5.2 5.0

Operating expenses include research and development costs as follows:

1999 1998 1997

Research and development 120.8 91.8 74.7

The Group carries out research and development related to new products and improvement of existing products. The Groupexpects that the total income from the ongoing research and development will correspond to the cost accrued.

NOTE 6 FINANCIAL ITEMS

Financial Income 1999 1998 1997

Interest income 14.0 9.1 1.1Cash discounts – – 4.5Currency exchange gain 13.4 – 7.4Other 1.7 1.4 1.7Total financial income 29.1 10.5 14.7

Financial expenses 1999 1998 1997

Interest expenses 64.2 53.6 25.0Currency exchange loss – 3.1 –Other 9.2 12.2 8.7Total financial expenses 73.4 68.9 33.7

NOTE 7 CURRENCY CONTRACTS

The Group’s cash flow is mainly in other currencies than NOK, with Euro being the dominant currency. The Group uses forwardexchange contracts to secure future in- and outflows in foreign currency to change the currency mix of the Group’s balance sheetand order back-log. In addition the Group uses currency swaps in order to adjust the liquidity in each currency.

Outstanding currency contracts as per 31.12.99:

Currency Bought/sold Net amount Averageremaining days

American dollars (USD) Sold 11,8 175British pounds (GBP) Sold 16.7 55Canadian dollars (CAD) Sold 13.2 120Danish kroner (DKK) Sold 19.9 71Euro (EUR) Bought 38.1 73Norwegian kroner (NOK) Bought 77.8 156Swedish kroner (SEK) Bought 8.4 31

NOTE 8 REVISED OPENING BALANCE

The new accounting act effective from 01.01.99 has suspended the prohibition against the booking of net deferred tax assets inthe balance sheet. As per 31.12.97 the Group had a net deferred tax asset of NOK 16.1 million. This deferred tax asset is booked in the revised opening balance as per 01.01.98. The taxes paid for 1997 shows a reduction of NOK 16.1 million compared to the official accounts and the taxes paid for 1998 shows an equivalent increase.

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NOTE 9 FIXED ASSETS

Goodwill/ Machinery Plant TotalIntangible & under Site and Tangible

Assets equipment Buildings construction Property Assets

Acquisition cost 01.01.99 153.2 1,023.4 406.9 9.2 217.7 1,657.2Write-up per 01.01.99 – – 8.0 – 8.1 16.1Additions 1999 8.3 153.9 77.0 5.9 18.7 255.5Additions Groupproduced tangible assets – 15.0 – – – 15.0Disposals 1999 2.1 93.8 10.7 3.0 24.8 132.3Acquisition cost 31.12.99 159.4 1,098.5 481.2 12.1 219.7 1,811.5Accumulated depreciation 41.3 770.1 224.9 – 5.5 1,000.5Depreciation 1999 15.3 168.4 20.1 – 2.3 190.8Net book value 31.12.99 118.1 328.4 256.3 12.1 214.2 811.0

Total

Economic life 5 – 10 year 3- 6 year 20 – 35 yearRent operational leasing 24 8 33Capitalised amountrelated to financial leasing 19 19

The opening balance of the intangible assets consist only of goodwill. The Group depreciate goodwill over 10 years. Goodwill ismainly related to the distribution channels obtained through the various acquisitions. The expected economic life of these areminimum 10 years. In the pro forma opening balance presented in note 11 to the 1998 financial statement of the Group, the dif-ference between the adjusted equity of RAU and the acquisition cost was estimated at NOK 25 million and reported as negativegoodwill. This has now been allocated to the appropriate balance sheet items. The goodwill related to the acquisition of Greenlandhas been increased by NOK 8.8 million as per the time of acquisition due to new information about deferred tax at the time ofconsolidation. The additions in 1999 is due to the purchase of the production rights of a new bale wrapper. These rights will beamortised on a straight-line basis over five years.

NOTE 10 INVESTMENTS AND OTHER LONG-TERM FINANCIAL ASSETS

Company name Ownership % Purchase price Book value (1.000)

Tritec AS 40 3.0 3.0Komatsu KVX LLC 40 33.4 33.4Other investments owned by Kverneland ASA 0.1 0.1Investments owned by Kverneland ASA 36.5 36.5Other investments owned by subsidiaries 0.7 0.7Total 37.2 37.2

In addition to these investments, the Group has long-term receivables of NOK 7.1 million.

NOTE 11 INVESTMENTS IN SUBSIDIARIES

Company name Time of acquisition Business address Ownership %

Owned by Kverneland ASA

Kverneland Klepp AS 04.01.88 Kvernaland, Norway 100.00Kverneland Nærbø AS 01.01.86 Nærbø, Norway 100.00Kverneland Norge AS 01.01.89 Kvernaland, Norway 100.00Kverneland Sverige AB 01.01.69 Nyköping, Sweden 100.00Kverneland Poland sp.z.o.o 01.01.98 Torun, Poland 94.00Kverneland Inc 01.01.86 Drummondville, Canada 100.00Kverneland USA Inc 01.01.98 Rosemont, USA 100.00Kverneland Eiendom AS 01.01.85 Kvernaland, Norway 99.60Globus AS 01.01.55 Brummunddal, Norway 100.00Kverneland IT AS 01.01.86 Kvernaland, Norway 100.00A.M.T. spol. s.r.o. 01.08.99 Kraluv Dvur, Czech Republic 50.00Kverneland Holding (DE) GmbH 01.05.96 Soest, Germany 1.00Kverneland Europe b.v 01.04.98 Nieuw Vennep, The Netherlands 100.00

Notes – Consolidated

NOTE 11 (CONTINUES)

Company name Time of acquisition Business address Ownership %

Owned by subsidiares

Kverneland Holding (DE) GmbH 01.05.96 Soest, Germany 99.00Kverneland Grass nv 01.05.98 Nieuw-Vennep, The Netherlands 100.00Kverneland Holding (DK) AS 01.11.94 Kerteminde, Denmark 100.00Kverneland Holding France SAS 01.12.98 Saint Jean de Braye, France 100.00Kverneland Holding (UK) Ltd 01.05.95 Haydock, United Kingdom 100.00Vicon Agricultural Holdings Ltd 01.05.98 Market Drayton, United Kingdom 100.00Kverneland Modena Sp.A 01.01.95 Modena, Italy 100.00Kverneland Iberica SA 01.01.90 Barcelona, Spain 100.00Machinenfabrik RAU GmbH 01.01.99 Weilheim, Germany 100.00RAU Agrotechnic SRL 01.01.99 Modena, Italy 80.00Landtechnich Hohenmölsen GmbH 01.01.99 Hohenmölsen, Germany 91.67RAU Agrotechnic Spotka Zoo. 01.01.99 Poznan, Poland 100.00Kverneland (DK) AS 01.01.65 Kerteminde, Denmark 100.00Kverneland Kerteminde AS 01.05.93 Kerteminde, Denmark 100.00Kverneland Ireland Ltd. 01.05.93 Kilkenny, Ireland 51.00Kverneland Devizes Ltd 01.05.93 Devizes, United Kingdom 100.00Kverneland (UK) Ltd 01.01.78 Haydock, United Kingdom 100.00Ferrag Ltd 0 1.01.98 Haydock, United Kingdom 100.00Vicon Ltd 01.05.98 Market Drayton, United Kingdom 100.00Greenland Seed Drills Ltd. 01.05.98 Market Drayton, United Kingdom 100.00Kverneland Deutschland GmbH 01.05.98 Lauenförde, Germany 100.00Kverneland Soest GmbH 01.01.96 Soest, Germany 100.00Kverneland Accord GmbH&CO KG 01.01.96 Soest, Germany 100.00Kverneland Accord Verwaltungs GmbH 01.01.96 Soest, Germany 100.00Kverneland Vermögensverwaltungs GmbH 01.01.96 Soest, Germany 100.00Accord Fähse GmbH 01.01.96 Soest, Germany 99.30Greenland Vertriebs GmbH 01.05.98 Lauenförde, Germany 100.00Vicon Belgium nv 01.05.98 Ternat, Belgium 100.00Kverneland Gottmadingen Verw. GmbH 01.05.98 Gottmadingen, Germany 100.00Kverneland Gottmadingen GmbH & CO KG 01.05.98 Gottmadingen, Germany 100.00Kverneland Geldrop bv 01.05.98 Geldrop, The Netherlands 100.00Vicon Friesland bv 01.05.98 Nieuw-Vennep, The Netherlands 100.00Machinenfabriek & Meetalgieterij Bosch bv. 01.05.98 Geldrop, The Netherlands 100.00Machinenfabriek Nijverdal b.v. 01.05.98 Geldrop, The Netherlands 100.00Kverneland International bv 01.05.98 Nieuw-Vennep, The Netherlands 100.00Kverneland Nieuw Vennep bv 01.05.98 Nieuw-Vennep, The Netherlands 100.00Vissers bv 01.05.98 Nieuw-Vennep, The Netherlands 100.00Kverneland Benelux bv 01.05.98 Dronten, The Netherlands 100.00Multinorm bv. 01.05.98 Nieuw-Vennep, The Netherlands 100.00A.M.T. Slovakia s.r.o. 01.08.99 Nove Zamky, Slovakia 100.00Kverneland France, SA 01.01.82 Saint Jean de Braye, France 100.00Kverneland Orleans, SA 01.05.98 Saint Jean de Braye, France 100.00RAU Agrotechnic SA 01.01.99 Les Landes Genusson, France 100.00Sider, SA 01.01.99 Bourgoin Jallieu, France 49.90Sicam SA 01.01.99 Les Landes Genusson, France 100.00Jean de Bru S.A 01.01.99 Carcasonne, France 100.00RAU SARL 01.01.99 Connantre, France 100.00Kverneland Finance 01.08.99 Lauenförde, Germany 100.00

With the exception of Kverneland Poland the voting share equals the ownership. For Kverneland Poland the voting share is 70 %.

NOTE 12 STOCKS

Consolidated stocks comprise 1999 1998 1997

Raw materials 161.4 155.6 59.6Work in progress 372.0 288.6 186.5Finished goods 611.0 630.0 259.5Total stocks 1,144.4 1,074.2 505.6

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NOTE 13 EQUITY

1999 1998 1997Paid in capital 31.12. 399.6 399.6 272.6

Retained earnings 01.01 695.0 493.0 435.0Effect of step by step acquisitions – 10.6 –Translation differences -92.6 68.9 7.9Profit of the year (less dividend payable) 11.1 122.5 50.1Total retained earnings 613.5 695.0 493.0

Minority interests 01.01 6.0 0.9 9.6Change in minority interests 0.4 5.5 -9.4Minority interests share of profit of the year 2.4 -0.4 0.7Total minority interests 8.8 6.0 0.9

Total equity 1,021.9 1,100.6 766.5

In May 1998 a private placement was carried out towards a foreign investor, related to the acquisition of Greenland. Offeringcomprised 751,661 shares with an offering price per share of NOK 169.00. The translation differences in 1999 reflects a 10 % strengthening of the Norwegian kroner.

NOTE 14 MINORITY INTERESTS

Company Minority interests Equity ratio Profit share

Kverneland Ireland 49% – 1.7Kverneland Poland 6% 1.3 0.3RAU companies Various 0.2 -0.2RAU Czech Republic 50% 7.3 0.6Total 8.8 2.4

NOTE 15 PENSION AND PENSION OBLIGATIONS

Kverneland ASA, the Norwegian subsidiaries and some foreign subsidiaries, have pension schemes that entitle its members todefined future benefits. These benefits are primarily dependent upon the number of years of employment, the salary level at thetime of retirement and the size of pension payments from the government. The Norwegian pension obligations are insured andmanaged by life insurance companies. In addition the Group has some uninsured pension obligations which includes obligationsto former owners of subsidiaries and pension obligations for top management. The uninsured pension obligations also includesestimated futures obligations related to AFP (early retirement scheme) and uninsured pension schemes outside Norway. Pensionobligations related to top management are partly insured through life insurance companies. Some of the subsidiaries outsideNorway have pension schemes that are defined as contribution plans. These pension schemes are either managed by a life insurance company or by the Group company. These plans may be specific for the company or be multiple-employer plans. Pensionliabilities related to pension schemes managed by Group companies are included as uninsured pension plans.

Norwegian insured pension schemes

Pension cost 1999

Net present value of current year pension earnings 4.9Interest expenses on pension obligations 6.9Return on pension fund -9.7Profit from changes in estimates 0.8Net pension cost 2.9

Reconciliation of financial status 1999

Pension obligations to date 88.0Calculated net effect of future salary increase 20.8Calculated pension obligations 108.8Pension funds (at market value) 137.2Effect of changes in estimates not charged to profit and loss 9.4Net pension asset 37.8

The Norwegian insured pension schemes cover 1,001 people. The net pension assets are included in the Group’s Balance Sheet in its entirety since the total obligation is higher than the market value of the funds.

Notes – Consolidated

Non-Norwegian financed plans

Reconciliation of financial status 1999

Calculated pension obligations 104.6Pension funds (at market value) 115.1Net pension asset 10.5

The non Norwegian insured pension schemes cover 237 people. The total net pension asset of the non Norwegian plans areincluded in the Balance Sheet. For these plans, there is a net income of NOK 10.5 million in 1999.

Operational pension schemes

Reconciliation of financial status 1999

Pension obligations to date 98.4Calculated net effect of future salary increase 17.6Calculated pension obligations 116.0Effect of changes in estimates not charged to profit and loss -8.2Net pension obligations 107.8

Operational pension schemes cover 2,139 people. The pension cost for these schemes in 1999 is NOK 3 million.

Economic assumptions (%) 1999

Discount rate 7.0Expected future increase in salary 3.3Expected future increase of pensions 1.5Expected increase in the basis for calculation of government contributions 2.5Expected return on pension funds 8.0Expected percentage of qualifying employees to use the pension scheme AFP 45.0

The actuarial calculations assumes commonly used insurance assumptions for demographic factors and turnover rates.Comparable figures have not been included due to information not being available.

NOTE 16 LONG-TERM INTEREST BEARING DEBT

The Group had the following long-term facilities at the end of 1999:

NOK 700 million 7 years Multicurrency Revolving Credit Facility established in April 1997NOK 500 million 4 years Multicurrency Revolving Credit Facility established in December 1998

Drawings 1999 Drawings 1998 Drawings 1997

Average Average AverageCurrency Amount NOK int.rate Amount NOK int.rate Amount NOK int.rate

NOK 200.0 200.0 6.16% 200.0 200.0 3.96%DEM 100.0 453.4 3.72%NLG 22.0 88.5 4.43%DKK 180.0 214.2 5.55%EUR 103.0 830.8 3.2%Total 1,030.8 756.1 200.0

In addition the Group has mortgages on buildings totalling NOK 77.5 million. The remainder of the account balance is mainlyrelated to financial leases. Drawings on the above mentioned credit facility are due at the end of each interest period (1, 3 or 6months), and are replaced by new drawings according to the Group’s need and within the 7 and 4 year facilities. The interest rateon both facilities are LIBOR plus a margin. The Multicurrency Revolving Credit Facility Agreement includes a clause about solidity. This clause is fulfilled.

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NOTE 17 MORTGAGES

1999 1998 1997Long-term mortgage debt 84.3 116.8 110.7Overdraft facility used 65.4 40.1 16.1Total mortgaged debt 149.7 156.9 126.8

Debtors 14.8 20.4 3.2Stocks 13.6 129.7 –Machinery and equipment 56.5 70.7 71.9Buildings 60.9 69.4 81.5Site and property 33.1 20.8 14.4Total value mortgaged assets 178.9 311.0 171.0

NOTE 18 TAXES

Nominal tax rates in the various countries have been applied in the calculation of deferred taxes. However, in calculation ofdeferred tax pertaining to purchase price allocations on acquisitions, the discounted tax rates as reflected in the purchase pricehave been used.

Tax expense 1999 1998 1997

Current year tax payable 45.5 57.7 43.9Net change in deferred tax -25.9 16.1 -16.1

Tax expense 19.6 73.8 27.8Foreign part of total tax expense 5.6 20.0 13.0

Reconciliation of actual tax expense to calculated tax based on the tax rate of the parent company 1999 1998 1997

Profit before tax 42.8 234.7 93.4

Calculated tax, using the tax rate of the parent company (28%) 12.0 65.7 26.2Current year tax losses not recognised as deferred tax assets 23.5 38.3 7.5Effect of differences in tax rates as compared to parent company 2.0 7.7 1.2Tax effect on permanent differences -0.1 -4.2 0.8Utilisation of tax losses carry forward -20.1 -35.0 -9.9Other 2.3 1.3 2.0Tax expense 19.6 73.8 27.8

Payable tax comprises:

Current year taxes payable on taxable income 45.5 57.7 43.9Other -5.7 -3.0 –Taxes payable 39.8 54.7 43.9

Deferred tax/deferred tax asset 1999 1998

Tax depreciation 8.0 16.9Pensions 2.9 0.1Effect of changes in tax rates 4.7 3.7Other temporary differences 36.8 29.1Other 33.9 10.6Sum deferred tax 86.3 60.4

Provisions not tax deductible 21.4 14.8Write down of assets 5.7 6.1Tax losses carry forward 52.4 18.9Pensions 2.6 3.4Other 39.1 13.5Tax assets not recorded -11.3 -5.1Sum deferred tax liabilities 109.9 51.6

Deferred tax/deferred tax asset net 23.6 -8.8

Notes – Consolidated

Tax losses carry forward by year of expiry Amount

2002 15.92003 16.22004 46.32005 24.62008 0.42009 5.5Subsequent expiry date 21.3No expiry date 1,076.3

1,206.5

Deferred tax assets of NOK 52.4 million related to losses carry forward is accounted for. This asset is expected to be utilisedthrough future earnings. NOK 25.9 million out of total change in deferred tax has been recorded to the profit and loss statement.The remainder has been recorded against equity.

NOTE 19 OTHER CURRENT LIABILITIES

1999 1998 1997

Trade creditors 315.8 333.9 179.3Accrued VAT, tax, social welfare contribution etc. 110.7 72.6 54.8Wages 83.4 110.7 44.1Provisions for guarantee obligations 43.7 41.7 40.1Taxes payable 39.8 54.7 43.9Dividend payable 9.7 38.8 14.8Operational provisions 82.3 70.4 2.7Other current liabilities 65.7 79.0 –Total 751.1 801.8 379.7

NOTE 20 GUARANTEE OBLIGATIONS

At the end of 1999 the Group had guarantee obligations of NOK 158.3 million compared to NOK 112.9 million in 1998.In addition the Group has overdraft facilities for the companies in the Netherlands with a limit of NLG 5 million. As per 31 December 1999 the Group used NLG 5 million.

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Kverneland ASA Profit and Loss Account

Kverneland ASA Balance Sheet

(NOK million) Note 1999 1998 1997

Sales revenue 1 65.4 47.3 69.2

Wages and other personnel expenses 2 21.7 19.0 21.4Depreciation and amortisation 4 44.1 12.6 4.9Other operating expenses 2 35.9 25.9 35.9Operating expenses 101.7 57.5 62.2

Operating profit (loss) -36.3 -10.2 7.0

Financial income 3 91.5 112.1 53.9Financial expenses 3 72.4 37.0 14.5Profit before tax -17.2 64.9 46.4

Taxes 10 7.3 -10.0 -6.7Profit after tax -9.9 54.9 39.7

Group contribution received 62.6 72.5 42.1Allocated to dividend 9.7 38.8 14.8

(NOK million) Note 1999 1998 1997

ASSETSDeferred tax asset 10 1.7 1.3 1.3Tangible assets 4 40.6 132.0 74.4Shares in subsidiaries 5 388.3 160.3 135.7Long-term debtors, Group companies 1,089.0 1,069.4 325.0Investments and other long-term financial assets 5 36.5 36.5 0.3Fixed assets 1,556.1 1,399.5 536.7

Debtors, Group companies 442.1 554.8 237.6Other debtors 14.3 5.0 6.3Cash and deposits 0.2 0.3 0.6Current assets 456.6 560.1 244.5

Total assets 2,012.7 1,959.6 781.2

EQUITY AND LIABILITY Paid in capital 399.6 399.6 272.6Retained earnings 371.3 327.2 238.5Equity 6, 7 770.9 726.8 511.1

Pension liabilities 8 3.9 4.9 4.5Deferred tax 10 – 8.8 4.5Provisions 3.9 13.7 9.0

Long-term interest bearing debt 9, 11 1,059.3 788.0 39.3

Short-term interest bearing debt 109.6 316.2 148.1Other current liabilities 69.0 114.9 73.7Current liabilities 178.6 431.1 221.8

Total equity and liabilities 2,012.7 1,959.6 781.2

Kverneland ASA Cash Flow Statement

(NOK million) 1999 1998 1997

Profit before tax -17.2 64.9 46.4Depreciation and amortisation 44.1 12.6 4.9Taxes 7.3 -36.7 -23.0Group contribution 62.6 99.2 58.4Equity dividend -9.7 -38.8 -14.8Operating cash flow 87.1 101.2 71.9

Increase/decrease in debtors 103.4 -315.9 -118.2Increase/decrease in current liabilities -45.8 41.2 10.6Changes in working capital employed 57.6 -274.7 -107.6

Cash flow from operations 144.7 -173.5 -35.7

Investments in fixed assets -1.2 -71.0 -24.5Increase/decrease in financial assets -248.1 -805.1 -207.1Sale of fixed assets 48.5 0.8 1.0Cash flow before financing -56.1 -1,048.8 -266.3

Increase/decrease debt due beyond one year 261.5 753.4 -4.6Increase/decrease debt due within one year -206.6 168.1 148.1Increase in equity 1.1 127.0 0.0Net change in liquidity -0.1 -0.3 -122.8

Liquid assets 0.2 0.3 0.6

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Accounting Principles and Notes to the accounts – Kverneland ASA

The accounts for Kverneland ASA have been prepared in accordance with Norwegian generally accepted accounting principles.These are described in the notes to the consolidated accounts.

All amounts in NOK million unless otherwise specified

NOTE 1 SALES REVENUE

Sales revenue include income from rent of property to the Norwegian operations in the Group and management fee from Groupcompanies.

NOTE 2 WAGES AND REMUNERATION

Wages 1999 1998 1997

Wages 14.4 13.6 15.8Payroll tax 3.7 2.5 2.7Pension cost 1.9 1.7 0.8Other cost 1.7 1.2 2.1Total wages 21.7 19.0 21.4

Payment to management (NOK 1,000) President & CEO Board of Directors

Wages/remuneration 2,314 1,185Pension cost 169 –Other remuneration 189 –

If the company terminates the employment of the Chief Executive Officer, he is entitled to a compensation corresponding to 12 months of salary beyond the termination period of 6 months. Any income earned by the Chief Executive Officer in anotherposition in this 12 months period will be deducted from the above mentioned compensation. The profit and loss account for Kverneland ASA includes auditor fees of NOK 0.5 million in 1999. In addition the accounts include consultant fees of NOK 0.7 million paid to the auditors.

NOTE 3 FINANCIAL ITEMS

Financial Income 1999 1998 1997

Interest income 84.8 61.0 29.3Currency exchange gain – 21.5 0.6Dividend 6.7 29.6 23.8Other – – 0.2Total financial income 91.5 112.1 53.9

Financial expenses

Interest expenses 52.0 36.0 12.9Currency exchange loss 19.9 – –Other 0.5 1.0 1.6Total financial expenses 72.4 37.0 14.5

NOTE 4 FIXED ASSETSMachinery Buildings Site Total

and and fixedequipment property assets

Acquisition cost 01.01.99 105.5 105.3 2.0 212.8Write-up per 01.01.99 – – 8.1 8.1Additions 1999 1.0 0.2 – 1.2Disposals 1999 88.2 0.9 – 89.1

Acquisition cost 31.12.99 18.3 104.6 10.1 133.0Accumulated depreciation 15.2 77.2 – 92.4Depreciation 1999 41.5 2.6 – 44.1Net book value 31.12.99 3.1 27.4 10.1 40.6Economic life 3 – 10 years 20 – 35 years – –

Kverneland ASA have no financial leasing agreements. Rent related to operational leasing is NOK 0.4 million in 1999.Depreciation for 1999 includes write-down of formerly capitalised expenses related to SAP. The SAP system has been sold toKverneland IT AS in 1999.

Notes to the accounts – Kverneland ASA

NOTE 5 SHARES IN SUBSIDIARIES AND OTHER COMPANIES

Kverneland ASA’s ownership in subsidiaries and other companies are specified in note 10 and 11 of the Group accounts.

NOTE 6 EQUITY

1999 1998 1997

Paid in capitalShare capitalShare capital 01.01. 97.1 89.6 89.6Issue of ordinary shares – 7.5 –Share capital 31.12 97.1 97.1 89.6

Share premium reserveShare premium reserve 01.01 302.5 183.0 183.0Issue of ordinary shares – 119.5 –Share premium reserve 31.12. 302.5 302.5 183.0

Paid in capital 31.12. 399.6 399.6 272.6

Retained earnings:Retained earnings 01.01. 327.2 238.5 171.5Group contribution received 62.6 72.5 42.1Implementation of pension accounting 1.1 – –Profit less equity dividend payable -19.6 16.2 24.9Retained earnings 31.12. 371.3 327.2 238.5

Total equity 770.9 726.8 511.1

In May 1998 a private placement was carried out towards a foreign investor, related to the acquisition of Greenland. Offering of751,661 shares with an offering price per share of NOK 169.00.

NOTE 7 SHAREHOLDER INFORMATION

The share capital is NOK 97.2 million – 9,715,301 shares of NOK 10.00. The following shares are owned by members of theBoard of Directors and Group Management:

Board of Directors

Anders Eckhoff 5,000Stein Martin Mossige (employee representative) 350

Group Management

Atle Eide 10,000Ellinor Grude 150Eirik Larsen 3

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NOTE 7 SHAREHOLDER INFORMATION (CONTINUES)

The 20 largest shareholders in Kverneland ASA at 31 December 1999

Company No. of shares % of all shares

Chase Manhattan – Client account 918,680 9.46Orkla ASA 913,733 9.41Storebrand Livsforsikring 681,120 7.01Kommunal Landspensjonskasse 473,900 4.88Vital forsikring ASA 361,249 3.72Gjensidige Nor 256,505 2.64K-Holding AS 250,000 2.57Norsk Hydros Pensjonskasse 224,200 2.31Avanse Forvaltning 176,200 1.81Folketrygdfondet 173,700 1.79K-Vekst Aksjefondet 166,500 1.71Odin Norge 165,300 1.70Hartog & Co. A/S 160,000 1.65Union Bank of California – Client account 130,150 1.34Bosten Safe Dep. & Trust – Client account 128,640 1.32Avanse Forvaltning 117,500 1.21Vår Livsforsikring 114,250 1.18Bankers Trust Company 114,000 1.17Storebrand AMS 109,950 1.13Tine Pensjonskasse 99,372 1.02Total 5.734,949 59.03

NOTE 8 PENSION COST

Kverneland ASA have pension schemes that entitle its members to defined future benefits. The pension schemes cover 19 people. The benefits are primarily dependent upon the number of years of employment, the salary level at the time of retirement and the size of the pension payments from the government. The pension schemes are insured and managed by a lifeinsurance company. Effective from 01.01.1999 the pension obligations related to the insured pension plans are included in thecompany accounts. The implementation is booked against equity. The total effect of the implementation is NOK 1,1 million. Inaddition Kverneland ASA has uninsured pension obligations. These includes top management and estimated future obligationsrelated to the early retirement scheme AFP.

Insured plans Uninsured plansPension cost 1999 1999

Net present value of current year pension earnings 0.7 0.4Interest costs from pension obligations 0.2 0.3Return on pension fund -0.4 –Profit/loss from changes in estimates – 0.2Net pension cost 0.5 0.9

Insured plans Uninsured plans Uninsured plansReconciliation of financial status 31.12.1999 31.12.1999 31.12.1998Pension obligations to date 2.9 0.1 0.1Calculated net effect of future salary increase 1.0 10.4 8.7

Calculated pension obligations 3.9 10.5 8.8Pension funds (market value) 6.1 – –Effect of changes in estimates not charged to profit and loss – 4.4 4.6Net pension asset (+)/ obligations (-) 2.2 -6.1 -4.2

The net pension asset on the insured pension plans are included in the company’s balance sheet since the total obligations ishigher than the market value of the funds.

Notes to the accounts – Kverneland ASA

Economic assumptions 1999 1998

Discount rate (%) 7.0 7.0Expected future increase in salary (%) 3.3 3.3Expected future increase in pension (%) 1.5 1.5Expected increase in the basis for calculation of government contributions (%) 2.5 2.5Expected return on plan assets (%) 8.0 8.0

The actuarial calculations assumes commonly used insurance assumptions for demographic factors and turnover rates.

NOTE 9 LONG-TERM INTEREST BEARING DEBT

Long-term debt 1999 1998 1997

Multicurrency Revolving Credit Facility 1,030.8 756.1 –Mortgage debt 28.5 31.9 39.3Total long-term debt 1,059.3 788.0 39.3

NOTE 10 TAXES

Tax expense 1999 1998 1997

Current year tax payable 1.9 5.8 5.3Net change in deferred tax -9.2 4.2 1.4Tax expense -7.3 10.0 6.7

Reconciliation of actual tax expense to calculated tax

Profit before tax -17.2 64.9 46.4

Calculated tax (28 %) -4.8 18.2 13.0Tax effect on permanent differences -2.5 -8.2 -6.3Tax expense -7.3 10.0 6.7

Payable tax comprises:

Current year taxes payable on taxable income 1.9 5.8 5.3Payable tax related to Group contribution 21.3 26.7 16.3Taxes payable 23.2 32.5 21.6

Deferred tax/deferred tax asset 1999 1998

Tax depreciation – 8.5Other temporary differences 0.4 0.3Sum deferred tax 0.4 8.8

Provisions not tax deductible 1.0 –Pensions 1.1 1.3Sum deferred tax liability 2.1 1.3

Deferred tax/deferred tax asset net 1.7 -7.5

NOTE 11 MORTGAGES

1999 1998 1997

Mortgage debt 28.5 31.9 39.3

Buildings 27.4 30.6 32.0 Site and property 10.1 10.1 10.1 Net book value of mortgaged assets 37.5 40.7 42.1

NOTE 12 GUARANTEE OBLIGATIONS

At the end of 1999 Kverneland ASA had guarantee obligations on behalf of their subsidiaries of NOK 114.6 million compared toNOK 63.4 million in 1998. Kverneland ASA has a cash pool system with an overdraft facility where all subsidiaries in Norway,Sweden, Denmark, UK and Germany are participating, and where Kverneland ASA is responsible for the total overdraft of theGroup. The limit of this overdraft facility is NOK 100 million but it was not used as at 31.12.99.

Notes to the accounts – Kverneland ASA

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To the Annual Shareholders’ Meeting of Kverneland ASA

We have audited the annual financial statements of Kverneland ASA as of 31 December 1999, showing a loss of NOK 9,9 million for the parent company and a profit NOK 20,8 million for the group. We have also audited the information in the Board of Directors’ report concerning the financial statements, the going concern assumption, and theproposal for the coverage of the loss. The financial statements comprise the balance sheet, the statements of income andcash flows, the accompanying notes and the group accounts. These financial statements are the responsibility of theCompany’s Board of Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on the other information according to the requirements of the Norwegian Act on Auditing and Auditors.

We conducted our audit in accordance with the Norwegian Act on Auditing and Auditors and Norwegian good auditingpractice. Good auditing practice require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and good auditing practice an audit also comprises a review of the managementof the Company’s financial affairs and its accounting and internal control systems. We believe that our audit provides areasonable basis for our opinion.

In our opinion,• the financial statements are prepared in accordance with the law and regulations and present the financial position of

the Company and the Group as of December 31, 1999, and the results of its operations and its cash flows for the yearthen ended, in accordance with Norwegian good accounting practice

• the company’s management has fulfilled its duty to produce a proper and clearly set out registration and documentationof accounting information in accordance with the law and good accounting practice

• the information in the Board of Directors’ report concerning the financial statements, the going concern assumption, and the proposal for the coverage of the loss are consistent with the financial statements and comply with the law andregulations.

Oslo, 3 February 2000PricewaterhouseCoopers DA

Per HanstadSTATE AUTHORISED PUBLIC ACCOUNTANT (NORWAY)

Note: This translation from Norwegian has been prepared for information purposes only

Auditors’ Report for 1999

Historic figures

(NOK million) 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990

Revenue and IncomeNet sales 3,808 3,119 1,981 1,952 1,618 1,445 1,102 899 961 1,087 Operating profit 86 293 112 205 185 144 83 79 25 78 Profit (loss) before minority and tax 43 235 93 171 143 102 26 23 -40 7 Taxes 20 74 28 47 43 27 5 6 14 5 Net income (loss) 21 161 65 122 99 73 20 18 -26 2

CapitalDebtors 751 765 496 531 397 356 346 246 201 173 Stocks 1,144 1,074 506 411 329 287 286 249 248 313 Interest bearing liabilities 1,230 1,053 463 316 183 205 372 327 367 380 Capital employed 2,311 2,237 1,247 1,057 826 649 760 631 644 685 Equity 1,022 1,101 767 718 634 429 367 283 266 305 Total assets 3,062 3,038 1,627 1,479 1,210 980 983 805 768 862 Investments in fixed assets 221 595 239 146 62 42 22 20 34 70

ProfitabilityOperating margin (%) 2.3 9.4 5.7 10.5 11.5 10.0 7.5 8.7 2.6 7.2Return on capital employed (%) 5.1 17.4 11.0 23.3 26.8 23.1 13.3 14.3 5.4 13.1Return on equity (%) 2.0 17.3 8.7 18.1 18.6 18.3 6.0 6.4 -9.1 0.8Equity ratio (%) 33.4 36.2 47.1 48.5 52.4 43.7 37.3 35.2 34.6 35.4

LiquidityCash flow from operations 161 187 50 37 93 206 -11 78 17 21

SharesNumber of shares at 31 Dec. (1.000) 9,715 9,715 8,964 8,964 8,964 7,467 7,420 5,565 5,565 5,565 Market capitalisation at 31 Dec. (NOK million) 1,622 1,822 1,076 1,578 1,098 672 397 145 100 300 Equity per share at 31 Dec. (NOK) 105 113 86 80 71 57 49 51 48 55 Share price at 31 Dec. (NOK) 167.00 187.50 120.00 176.00 122.50 90.00 53.43 25.27 17.50 52.49 Share price – High (NOK) 241.00 217.00 234.50 177.00 125.00 93.36 53.98 31.53 48.73 109.69 Shareprice – Low (NOK) 126.00 118.00 114.00 125.00 82.06 52.02 24.83 17.20 14.33 42.99 Payout ratio (%) 46.7 24.1 22.8 22.0 20.0 15.4 26.6 – – –Earnings Per Share (NOK) 2.14 17.14 7.25 13.61 12.11 9.79 3.05 3.16 -4.67 0.44 Cash Flow Per share (NOK) 16.52 19.86 5.56 4.15 11.36 27.71 -1.72 13.98 2.97 3.94

EmployeesNumber of employees at 31 Dec. 3,508 3,273 2,147 2,032 1,621 1,469 1,313 894 1,021 1,228

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Definitions of key figures

1. Interest bearing debtShort-term and long-term interest bearing debt.

2. Capital employedTotal assets less short-term non interest bearing debt.

3. EquityUntaxed equity is 100% included before 1991. From 1991 untaxed equity is transferred partly to equity, partly to deferred tax. From 1993 the effect of the new accounting standard for pension is included in equity.

4. Operating marginOperating profit as % of net sales.

5. Return on capital employedOperating profit plus financial income as % of average capital employed.

6. Return on equityNet income after tax as % of average equity.

7. Equity ratioEquity as % of total assets.

8. Share price at 31 Dec.Share price adjusted for share issues.

9. Share price high/lowApplicable year's highest and lowest share price adjusted for share issues.

10. Payout ratioDividend as % of net income after tax.

11. Earnings Per ShareNet income after tax divided by average number of shares.

12. Cash Flow Per ShareCash flow from operations divided by average number of shares.

Share price development(LAST 2 YEARS)

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ALL SHARE INDEX, OSLO STOCK EXCHANGE

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Shareholders' Policy and Investor Relations

OWNERSHIP STRUCTURE AT 31.12.99No. of No. of No. of Holding

No. of shares shareholders shareholders as a % shares as a %

1 – 100 2,315 62.4 98,179 1.0101 – 1,001 1,002 27.0 336,354 3.51,001 – 10,000 299 8.1 994,255 10.210,001 – 92 2.5 8,286,513 85.3Total 3,708 100.0 9,715,301 100.0

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Financial targetsThe Board has established the long-term yield target on capital employedfor the Group to be risk free interestwith the addition of 8 % covering risk.

Capital structureTo ensure freedom of action and basedon risk assessment, Kverneland hasdeter mined to maintain a solvency ratiofor the Group of at least 40 % of totalassets.

This should help the company ensure ithas access to the necessary loan capitalon reasonable terms.

Shareholders’ earningsKverneland’s aim is that shareholdersshould, in the long-term, have a yieldthat is competitive in relation to otherinvestments having the same degree ofrisk. The yield should reflect the valueadded of the company and should beexpressed in the form of dividend andan increase in the value of the compa-ny’s shares. The sum of the dividendand the increase in share price shouldgive the shareholders an annual yieldthat at least corresponds to risk-free placements plus addition for risk.

Share issuesIt is the company’s policy, by possiblenew share issues, to ensure that a dilu-tion of the shareholders’ value does nothappen. Share issues will primarily beeffected with preference for existingshareholders. Private share issues maybe effected if they are consideredfavourable for existing shareholders,

for instance when related to acquisitionsof or mergers with other companies.

Voting rightsOne share gives the right to one vote atthe General Assembly.

Investors relations/Financial informationKverneland is committed to discloserelevant information promptly in orderto enable shareholders, investors andthe financial market in general to under-take correct company evaluation andpricing. In connection with its presen-tation of interim results, Kvernelandregularly holds presentations for inves-tors and analysts at home and abroad.The objective is to increase the under-standing and enhance knowledge aboutKverneland, so that at any given timethe share price will reflect the compa-ny’s status and future prospects. In addi-tion, the company will give the stockmarket ongoing information aboutevents of importance to the Group.The Kverneland Group publishes written reports in Norwegian andEnglish for the 1st and 2nd four-monthperiods as well as an annual report. Asfrom year 2000 the Kverneland Groupwill start reporting on a quarterly basis.In 2000, Kverneland will publish thequarterly results on 28 April, 4 Augustand 27 October. The General Assemblywill take place on 27 April.

The Kverneland shareThe Kverneland share is listed on theOslo Stock Exchange (ticker symbolKVE). A total of 8.4 million Kverneland

shares were traded, where 5.4 millionwere traded on the Oslo Stock Exchangewith a trading value of NOK 984 million.This represents 56 % of the average out-standing number of Kverneland sharesduring 1999. The total number of out-standing shares at 31 December 1999 is9.7 million.The Kverneland share traded at NOK 187.50 at the end of 1998 and theshare price at the end of 1999 is NOK 167.00. This represents a decreasein 1999 of 10.9 %. During the same peri-od, the OSE index on the Oslo StockExchange increased by 45.5 %, while theindustrial index increased by 48.9 %. Thehigh and low for 1998 were NOK 241.00and NOK 140.00 respectively.The Board of Directors in Kvernelandproposes that for 1999 the dividend pershare is set to NOK 1.00, a reductionfrom NOK 4.00 in 1998. This repre-sents a distribution ratio of 47 %, anincrease from 22 % in 1998. TheGeneral Assembly will be held on27 April 2000, and the share will bequoted ex dividend on the followingday. The dividend will be paid out inthe middle of May to those registeredas shareholders with the NorwegianRegistry of Securities, the Verdipapir-sentralen (VPS), as at 27 April 2000.

Shareholder profileThere were 3,708 shareholder inKverneland as per 31 December 1999of which 121 were non-Norwegians.The number of shares held by non-Norwegians has reduced by 4.1percentage points during 1999 andstands at 17.4% at year-end.

www.kverneland.com

Kverneland shall become the global market leader and the most profitable supplier of quality equipment and services to the professional farming community

DESIGN: MELVÆR & LIEN RRA7 PHOTO: PETTER HEGRE PRINT: BRYNE OFFSET

Kverneland ASA, 4355 Kvernaland, Norway. Telephone +47 51 42 94 00. Telefax +47 51 42 94 01 www.kverneland.com