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2006

Board of director’s reportannual accounts and notes

2 // Block Watne Gruppen ASA // Annual Report 2006 //

HARALD WALTHER (61)Chairman of the BoardPosition: Practicing lawyer with his own practise from 1980Prior position: Consultant with the Ministry of Finance from 1971 to 1973.Education: Law degree from the University of Oslo (1970).Board positions: Has a seat on the boards of a number of privately held companies. On the board of Block Watne since 1994, Board Chairman 2000-06, Deputy Chairman from 2006. Board Chairman of BWG from 2005.Shares in BWG: 21 200

HEGE BØMARK (43)Deputy ChairmanPosition: Business economistPrior positions: Financial analyst with Orkla Finans AS (securities brokerage), Fearnley Finans AS (securities brokerage), project manager with AS Eiendomsutvikling.Education: Advanced degree in business from the Norwegian School of Economics and Business Administration, Bergen (1987).Board positions: On boards of directors of Norwegian Property ASA and Norgani Hotels ASA. On the boards of directors of BWG and Block Watne since 2005.Shares in BWG: 0

PETTER NESLEIN (53)Director of the boardPosition: CEO and owner of Pecunia A/SPrior positions: CEO of Nevinvest A/S 1983 to 1985, employed by The Boston Consulting Group 1981 to 1983.Education: Master of Business Administration from Columbia University, New York (1981) and advanced degree in business from Universite Fribourg, Switzerland (1978).Board positions: Member of the board of directors of Formuesforvaltning ASA (2003 -) and various private investment companies (1990 -). On the boards of directors of BWG and Block Watne since 2006.Shares in BWG: 60 000

BRIT HAGELUND (53)Employee representativePosition: Salary administratorPrior position: Salary administrator in Gartnerhallen, 1994 to 1998.Education: Otto Treider Commercial College.Board positions: On the board of directors of Block Watne since 2001 and on BWG’s board of directors since 2005.Shares in BWG: 400

TORE MORTEN RANDEN (41)Employee representativePosition: CarpenterEducation: Vocational school, trade certificate.Board positions: On the board of directors of Block Watne since 2001 and on BWG’s board of directors since 2005. Senior trade union representative for carpenters at Block Watne AS.Shares in BWG: 200

ØYVIND WIIK (56)Employee representativePosition: Project managerPrior positions: Regional manager and sales consultant in Block Watne, 1981 to 1999.Education: Officer training school, degree in business economics. Board positions: On the boards of directors of BWG and Block Watne since 2006.Shares in BWG: 400

// REPORT fROM THE BOARD Of DIRECTORS //

// Annual Report 2006 // Block Watne Gruppen ASA // �

The subsidiary Block Watne AS is currently the

largest independent house builder in Norway,

building in excess of 1 000 homes annually, and

from the 1950s to date it has delivered more than

84 000 homes in Norway. Block Watne’s core

activities involve the development of building projects

embracing reasonably quality housing on the

outskirts of major cities and over-populated areas.

The standardisation of product development,

projects, material selection and building methods

is sharply focused upon, and this, combined

with restricted possibilities of individual adaptations,

ensures cost-effective housing production.

The group operates from its premises in Munke-

damsveien 45, Oslo, where Block Watne AS also

has its head office. The group’s activities are for

the most part operated through the subsidiary

Block Watne AS. Currently, the subsidiary

Hetlandshus AS has no activity.

Block Watne AS has a subsidiary, Norpartner Sp.

Z.o.o., in Poland. Norpartner has a staff of 2 and

provides logistics support in connection with

Block Watne’s commodity purchases in Poland.

The Polish subsidiary has little other activity

worthy of mention.

Long-term objectivesThe Board’s goal is for the group to be among

the leading house builders in Norway and to

maintain its position as the best known brand

in the sector by far.

The group strives to achieve controlled organic

growth by at least maintaining stable profit margins.

By giving priority to its own housing projects in

the outskirts of larger cities it seeks profits that

are more stable than general market fluctuations

might otherwise indicate.

Systematic training, good profitability and market

adaptation will allow the company to offer good,

stable jobs. The group is to assume an active

role in possible consolidation processes in the

Nordic market.

Highlights of the yearIn general, the housing market in Norway was

characterised by a high level of activity and growth

in 2006. As a consequence of this high activity the

industry experienced a year with production capacity

under pressure and a scarcity of some building

materials. More than 33 000 housing starts were

registered, a rise of 8.3 per cent compared to the

preceding year. In 2006, the ten largest house

builders started to build 11 415 dwellings, corre-

sponding to 34.6 per cent of the total market.

The group’s building activity is organised in projects,

and four project categories are reported on:

Residential projects, Property sales with commit-

ment to construction, Residential construction

for individual customers and Construction for

professional clients. Residential projects are the

main activity, representing 86 per cent of turnover

in 2006. The different project categories have

much the same risk and profitability and the group,

therefore, does not present separate segment

information.

REPORT fROM THE BOARD Of DIRECTORS

the company Block Watne Gruppen asa Was estaBlished on 20 septemBer 2005.

the Group Block Watne Gruppen asa Was estaBlished on 30 novemBer 2005

throuGh the acquisition of the shares in Block Watne as and hetlandshus as.

the Group’s shares Were listed on oslo Børs on 17 march 2006. the Group’s

activities are for the most part operated throuGh the suBsidiary Block Watne as.


� // Block Watne Gruppen ASA // Annual Report 2006 //

Block Watne Gruppen ASA has consolidated its

position in 2006 and can report good development

in profits and high sales and a good order book.

In line with the group’s strategy, profitability and

quality have been prioritised rather than short-term

top line growth.

financial affairsThrough the year, the group has reported sound

development in all key figures. Comparative figures

are pro forma figures for the whole of 2005

(cf. note 31). Operating revenue was NOK 1 529

million, a rise of NOK 37 million (2.5 per cent)

on 2005. Operating expenses were on a par

with 2005, at NOK 1 283 million.

Operating profit (EBIT) rose by NOK 31 million

(14.8 per cent) compared to 2005. The profit

margin improved from 14.0 per cent in 2005

to 15.7 per cent in 2006. Profit before tax (EBT)

amounted to NOK 218 million, up NOK 45 million

(26.3 per cent) on 2005. The EBT margin rose from

11.6 per cent in 2005 to 14.2 per cent in 2006. The

increase in the result must be seen in conjunction

with the group’s stringent cost control and relatively

higher earnings in the project categories:

“Residential projects” and “Property sales with

commitment to construction”. The result also reflects

good operations in the second half of the year

in particular, combined with strong margins in

projects completed in that period. In 2006, the

contribution ratio was 31.6 per cent compared

to 29.2 per cent in 2005.

Net orders received totalled NOK 1 686 million

in 2006. This is 11.5 per cent more than in 2005

(NOK 1 512 million). Based on the volume of orders

received in the first half of the year, sales starts

were postponed on certain projects in the second

half of the year in order to improve the balance

between order book and production capacity.

The group’s order book at year-end was NOK

966 million, compared to NOK 807 million at the

end of 2005. This is a rise of 19.7 per cent, providing

a good basis for future production.

The group’s cash flow from operations in 2006

was a positive NOK 112 million compared to

NOK 144 million in 2005. Net investments aggre-

gated NOK 11 million in 2006, compared to NOK

3 million in 2005. Most of the increase in invest-

ments was in scaffolding and other safety equip-

ment, in line with the group’s health, safety and

environment (HSE) goals. Net interest-bearing debt

at the end of 2006 totalled NOK 621 million

compared to NOK 869 million at the end of 2005.

In 2006, repayments of long-term debt totalled

NOK 252 million.

A share issue in connection with the stock

exchange listing in the first quarter of 2006 provided

NOK 144 million in fresh capital. The group’s

equity at year-end amounted to NOK 715 million,

representing an equity ratio of 33.2 per cent,

compared to NOK 408 million and 18.7 per

cent at the end of the preceding year.

In addition to the need to finance building sites and

work in progress, the group has a considerable

need to provide warranties. These are for the

most part in favour of customers pursuant to the

Norwegian House Construction Act. The group

co-operates closely with a number of banks and

financial institutions and the current ceilings for

credits and warranties are considered adequate

for the present day activity level. The group’s

liquidity is good.

The accounts are prepared under the assumption

that the company is a growing concern. This

assumption is based on the reported results, the

group’s business strategy and adopted budgets.

Research and developmentNo research and development costs were

capitalised in 2006. Production development

and the development of building methods are

included in ordinary activities as part of the on-

going efforts to improve quality, and costs are

expensed as they accrue. This area is focused

upon to ensure market-adapted housing and

cost-effective housing production.

In 2006, special efforts were made to find technical

solutions that provide more energy-efficient housing.

In 2007, the group will deliver low-energy housing

that is based on the new regulations calling for a

25 per cent reduction in energy consumption.

Block Watne is constantly developing new types

of housing for its own projects. In addition, four

new standard houses were developed and

designed, and these will be launched in 2007.

In 2006, in order to increase the efficiency and

quality of its administrative processes, Block

Watne AS worked on new solutions for regi-

stration via mobile phones and the internet of

hours worked, as well as electronic invoice

handling. The solutions arrived at will be put

into full-scale operation in 2007.

Risk factorsThe risks that Block Watne is primarily exposed

to in its operations are market risk and risk linked

to the implementation of the building process

itself (execution risk). In addition, it is also ex-

posed to some degree to credit risk, interest

rate risk, currency risk and liquidity risk.

Market risk

Block Watne’s share of the total market for new

housing in Norway is relatively modest (3.2 per

cent). In order to sell and construct in excess of

1 000 units a year, the company is more

dependent upon its own performance in the

market than in the development of the market

itself. The company seeks to limit the risk linked

to market fluctuations first and foremost by con-

centrating its building operations in areas outside

of town centres and over-populated zones, thus

avoiding the market’s most volatile sections. It

deliberately seeks long-term brand building and

professional customer service. The company

shall at all times have a good portfolio of attrac-

tive projects that are ready for execution.

The group has defined and well-established

decision-making processes for starting buildings

for sale. Started but unsold units are followed

closely.


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Execution risk

Execution risk involves the ability to deliver with

regard to progress (daily fines), costs related to

the building process and the scope of complaints

and cost of warranties.

Execution progress is taken care of by overseeing

the order backlog, resource plans, the company’s

owns carpenters, efficient logistics and central

and local agreements. As regards cost risk, a

considerable part of the cost of factor inputs is

fixed in the shorter term through land acquisition

contracts, agreements relating to the purchase of

building materials, fixed-price contracts with sub-

contractor and agreements on wages and work-

ing terms. Some increase in input factor prices

might arise, but by far the majority of customer

contracts have a regulation clause linked to the

construction cost index. The group invests a

great deal of resources in calculating projects that

are underway or are planned and by way of active

construction management it seeks to avoid

budget overruns.

The group tries to keep the cost of claims and

warranties to a minimum by ensuring quality in all

links of the chain. In this connection, Block Watne

AS’s quality system (ISO 9000-certified) plays a

central role. This system documents the processes

and routines for the entire operation, including

deviation, complaints and improvement routines.

New products and processes are tested small-scale

before being put into service in the whole business.

Credit risk

Credit risk is limited by calling for customers to

provide proof of financing and that homes shall be

paid prior to hand-over. Special credit checks are

made in the case of large customers. Consequently,

bad debts are insignificant.

Interest rate risk

Changes in interest rates represent both a market

risk, through their impact on the demand for housing,

and a cost risk linked to the interest rates applicable

to the company’s loans and operating credits. Most

of the group’s production loans carry floating interest

rates and are therefore exposed to such changes.

However, net financial costs account for only 0.5

per cent of total turnover (gross financial costs

are 0.9 per cent of turnover) and these represent,

therefore, a very modest cost element.

Forward rate agreements have been entered

into for about half of the group’s long term debt

to financial institutions. Subordinated loans carry

interest at floating rates.

Currency risk

The group has only a very modest currency

risk exposure, since only a small amount of its

purchases are made directly in foreign countries.

Such purchases are hedged by buying in NOK.

The group can be exposed indirectly to currency

risk linked to the purchasing of commodities

and services from sub-contractors, but this

risk is not considered significant.

Liquidity risk

Considering the current activity level, the group’s

liquidity is very good. Satisfactory earnings,

customer payment terms and good operating

credit terms (mortgage loans on land, building

loans and guarantee/warranty facilities) contribute

to this. Should the group experience a significant

decline in its activity level, its land-related com-

mitments could result in drawings on credit lines

being relatively higher than is the case today.

A reduction in earnings could also bring about

weaker liquidity. However, the group has a sub-

stantial liquidity reserve, and with good warning

systems it will have adequate time to implement

necessary adjustments. As of today, it has no

indications of any need for such adjustments.

Internal control

The group has a wide-reaching set of rules for its

internal control. The internal control systems are

reported on under the heading “Management’s

review of operations and strategy” in the annual report.

Corporate governanceGuidelines and instructions for Block Watne

Gruppen ASA are prepared in accordance with,

and adapted to, “Norwegian recommendations

for corporate governance” dated 28 November

2006. The board has adopted instructions for the

work of the board of directors, the chief executive

officer, the managing director of Block Watne

AS, and the board’s relations with the auditor. In

addition, the board has approved ethical guide-

lines. Reference is made to a separate chapter

in the annual report on Corporate governance.

Organisation, working environment and the external environmentAt year-end the group employed 606 in more

than 50 per cent of full-time positions. Of these,

two were in group management, 212 were office

staff and 392 were carpenters, including 50

apprentices. Block Watne AS’s activities are

organised through 21 regional offices. Approx-

imately 550 of the company’s employees are

attached to the regional offices.

Working environment

A secure and good working environment is

considered essential to the group’s long-term

creation of values. The board considers the

group’s working environment to be satisfactory.

In 2006, Block Watne AS’s working environment

committee held four meeting.

Block Watne AS is an inclusive workplace (IA)

complying with established inclusive workplace

(IA) procedures. Efforts are continually being

made to reduce injuries, accidents and strains

that can result in sick leave. Block Watne covers

user fees for treatment by physiotherapists, chiro-

practors and for other types of physical treatment

when the patient is referred by a doctor.

Total sick leave in 2006 was 10 154 days,

representing 7.4 per cent, compared to 9 909

days and 7.2 per cent in 2005.

In 2006, 20 injuries and accidents resulting in

sick leave were reported, compared to 15 injuries

and accidents in 2005. Of these 20 injuries and

accidents, six were injuries caused by the use of

nail guns, five were falls from relatively low heights



or falls at the same level, seven were cuts or lesions

and two were other injuries. None of the accidents/

injuries resulted in serious or permanent injury.

ISO certification

Block Watne AS is certified in accordance with

NS-EN ISO 9001:2000. This certificate applies to

product development, project development, sale

and building of houses.

HSE

Block Watne AS regularly carries out mandatory

training measures and training under its own

auspices in the HSE field. In order to ensure that

the HSE routines are lived up to by the company’s

own employees and by sub-contractors, it carries

out unannounced inspections of building sites, with

subsequent internal treatment of discrepancies.

Such unannounced inspections are carried out

by third parties, and follow the same routines as

those practiced by the Norwegian Labour

Inspection Authority. 40 such inspections were

carried out in 2006.

External environment

The Norwegian Government has adopted a goal

of reducing energy consumption in new homes by

25 per cent. The group’s ambition is to be among

the leaders in the development of tomorrow’s

energy-efficient homes, and an active contributor to

achieving the goals set by the authorities. For each

house produced, an environment and life-cycle

statement is prepared. Such statements include

environmental information and energy consumption

details for each house. All sub-contractors who con-

tribute with products provide their own environmental

statements. The houses’ annual energy consumption,

which on average is approximately 20 000 kWh,

can be read from specific heat-loss and energy

estimates. These estimates are included in the

overall documentation of the house, in line with

the requirements of the building code.

In order to reduce energy consumption in new

houses, the group is working on the following

measures:

Annual saving per

Measure kWh/m2 utility floor space

External walls – increase insulation from 15 to 20 cm 7Roof – increase insulation from 25 to 30 cm 1

Window – double-glazed with insulated frame reduces U values from 1.5 to 1.2 6

Balanced ventilation increases recovery effect from 70% to 80% 4

Leakage figures (tightness)changed from 4.0 h–1 to 2.5 h–1 15

Optimal placement of window in construction 2Total kwh/m2 utility floor space 35

With an average of 105 square metres utility floor

space per house this will reduce energy con-

sumption by 3 675 kWh per annum. This repre-

sents a 20 per cent reduction compared to

current production methods.

Waste generated in the production phase is

treated in accordance with specific waste treatment

plans. Sorting at source is an integral part of the

waste treatment plans, and is handled by firms

that have special competence. Waste treatment

plans are prepared by the building manager and

are presented to local authorities for approval.

Municipalities have varying requirements relating to

waste treatment, so these plans must be adapted

to local conditions.

The group’s production system has a limited

number of component parts, acknowledged

building details and optimal material dimensions.

By continually improving building methods it will

be able to achieve a further reduction in material

consumption and a reduction in the transport of

goods. In accordance with the framework agree-

ments with suppliers, any surplus material is

returned from the building site.

Equal opportunities

Companies in the building and construction

industry have traditionally had only a small per-

centage of women among their employees. Of

Block Watne AS’s 392 carpenters, only two are

women. One of the company’s 31 project managers

one is a woman and one of the regional offices is

managed by a woman. Of the group’s 606

employees in at least 50 per cent of full-time

positions at 31 December 2006 there were 66

women, or slightly more than 10 per cent.

When recruiting staff, the company consciously

seeks to raise the percentage of women, even

though this is difficult because of the extreme

lopsidedness of the building sector’s recruitment

basis.

Of the 10 members of Block Watne AS’s manage-

ment group, two are women. There are no women

in group management. Of the six members of the

board of directors, two are women.

Wage policyManagement team

Block Watne Gruppen ASA’s management team

comprises the chief executive officer and the

chief financial officer. The chief executive’s salary

is fixed by the board of directors. The chief

financial officer’s salary is fixed by the chief

executive. Members of the management team

do not have bonus schemes or other variable

remuneration based on the company’s profits,

the development of its balance sheet or its share

performance, nor do they have any share-based

remuneration or option schemes. Members of

the management team have company cars, and

they have the cost of telephones, newspapers

and other relevant expenses covered.

The management team is covered by the parent

company’s defined benefit pension plan. This

ensures a pension, including benefits from the

National Insurance Scheme, of approximately

60 per cent of salary up to 12 times the National

Insurance Scheme’s base amount (G). In addition,

the management team are members of the

company’s personnel insurance schemes covering

group life insurance, accident insurance and

occupational injury insurance. No amendments

have been made to the above schemes for 2007,

nor have any such amendments been proposed.



The chief executive officer may propose a discret-

ionary bonus for the chief financial officer. This must

be approved by the board of director’s chairman.

Block Watne AS

Block Watne AS’s managing director has his salary

and bonus scheme set by the board of Block

Watne AS. The board has given the managing

director a discretionary bonus for 2006. For 2007,

the board has approved a bonus model without

any monetary limits. The managing director is a

member of the company’s contribution-based

pension scheme and he receives mileage for use

of his own car in accordance with State-adopted

rates, expenses for telephone and newspapers,

and for other relevant outlays. Furthermore, the

managing director is a member of the company’s

personnel insurance schemes covering group life

insurance, accident insurance and occupational

injury insurance. No amendments have been

made to the above schemes for 2007, nor have

any such amendments been proposed.

Salaries to office staff and management comprise

two elements: fixed compensation and perform-

ance-based remuneration. The performance-

based remuneration is linked to the achievement

of goals and is set by the board’s chairman and

the managing director. The performance-based

remuneration can, as a maximum, represent from

three to five months’ salary, depending on the

job category.

The primary pay system for the carpenters is

piece-rate based, in accordance with piece-work

tariffs as they apply at any time. Wage adjust-

ments take place on 1 April for salaried office

staff and carpenters (hourly paid) on the basis

of centralised collective bargaining by the

Norwegian Federation of Trade Unions and

The Confederation of Norwegian Enterprises.

Personal wage increases to office staff and

managers are fixed by the managing director.

Board of Directors and day-to-day managementChanges in the composition of the

board of directors

With one exception, Block Watne Gruppen

ASA and the subsidiary Block Watne AS have

identical boards of directors with the same

shareholder-elected directors and employee-

elected directors. The exception is that Lars Nilsen,

the chief executive officer, is not a member of the

board of Block Watne Gruppen ASA.

Chief executive officer Lars Nilsen resigned from

the board of Block Watne Gruppen ASA when

the company was listed on the stock exchange

on 17 March 2006. With effect from that date,

shareholders appointed Petter Neslien a new

director of the board. The annual general meeting

elected Harald Walther as Block Watne Gruppen

ASA’s chairman, with Hege Bømark as deputy

chairman. The composition of the Block Watne

Gruppen ASA’s board of directors satisfies the

requirements relating to independence between the

board and the group’s day-to-day management.

The three employee-elected board members,

and their deputies, were elected by and from

among Block Watne AS employees on 30

November 2006. They are: Brit Hagelund

(re-elected), Tore Morten Randen (re-elected)

and Øyvind Wiik (new).

CEO Lars Nilsen is chairman of the board of the

subsidiary Block Watne AS, with Harald Walther

as deputy chairman.

Day-to-day management

The group’s day-to-day management is made

up of CEO Lars Nilsen, CFO Ketil Kvalvik and the

managing director of Block Watne AS, Ole Feet.

CEO Lars Nilsen was employed as managing

director of Block Watne AS through to 1 June

2006, when operational manager Ole Feet

succeeded to this position. Block Watne AS’s

management team comprises three operational

managers who are responsible for supervising

the 21 regional offices, and the managers of the

six staff areas. Elisabet Landsend was appointed

to a newly established position as commuication

manager on 16 January 2006. John Erling Aarnes

was appointed operational manager with effect

from 1 March 2007, succeeding John Tarjei Skree.

Prospects for 2007For many years, the group’s overriding strategy

has been to build in the outskirts of larger cities.

Access to land, services and production resources

is more stable in this geographic market, and costs

are lower than in pressurised areas. The need for

reasonably-priced quality housing in the markets

where Block Watne Gruppen is active has proven

to be less exposed to fluctuations in price and

demand.

By manufacturing with its own employees and

by controlling significant parts of the value-added

chain, the group can to a great extent compensate

for the general pressure in the sector. Long-term

contracts with suppliers of building materials,

and a long-term planning horizon, result in the

group being exposed to commodity scarcity

only to a limited degree.

The market for the group’s products was good

and stable during 2006 and it is expected that

demand will remain at the same level in 2007

and 2008. With the order-book the group has

built up at 31 December 2006, it should be

possible to predict controlled growth in operating

revenues. However, as before, profitability will

be given higher priority than top line growth.

Shareholder relationsThe chief executive officer, Lars Nilsen, is the

largest shareholder in Block Watne Gruppen

ASA. Through his companies Lani Industrier AS,

Lani Development AS and Lagulise AS he owns

22 560 000 shares (50.13 per cent).

Otherwise, the shareholder structure is domi-

nated by institutional shareholders. Foreign

shareholders owned 18.85 per cent of the

shares at the end of 2006.


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20052006

� // Block Watne Gruppen ASA // Annual Report 2006 //

There were 701 shareholders at 31 December

2006. A review of the 20 largest shareholders as

at 31 December 2006 and shares held by board

members and management can be seen in note

17 to the accounts.

The group’s policy is to distribute a dividend

representing between 50 and 70 per cent of the

profit after tax. For the 2006 fiscal year, the board

will propose that the annual general meeting

approves the distribution of a dividend of NOK

2.50 per share (corresponding to 68 per cent of

the profit after tax), totalling NOK 112.5 million.

The year’s result and allocation of profitThe group

The group’s accounts are presented in accor-

dance with International Financial Reporting

Standards as adopted by the EU (IFRS) and

interpretations adopted by the International

Accounting Standards Board (IASB). This is the

group’s first IFRS group account and IFRS 1 has

been applied.

The group accounts show a profit after tax of

NOK 162.8 million. This is transferred to the

group’s other equity. It is proposed that a dividend

of NOK 2.50 per share be declared, totalling

NOK 112.5 million. Pursuant to IFRS this will first

be recorded when the general meeting has

approved the dividend.

The parent company

The annual accounts for the parent company

Block Watne Gruppen ASA are presented in

accordance with the Norwegian Public Limited

Share Company Act, the Norwegian Accounting

Act and generally accepted accounting prin-

ciples in Norway as at 31 December 2006.

The accounts show a profit after tax of NOK

153.1 million.

The board proposes the following allocations:

MNOK

To dividend 112,5To other equity 40,6Total allocations 153,1

Subsequent to these allocations the company’s

unrestricted equity amounts to NOK 40.8 million.

Oslo, 12 March 2007

Board of directors in Block Watne Gruppen ASA

HARALD WALTHERChairman

HEGE BØMARKDeputy Chairman

PETTER NESLEINDirector of the board

BRIT HAGELUNDEmployee representative

TORE MORTEN RANDENEmployee representative

ØYVIND WIIKEmployee representative

LARS NILSENChief Executive Officer



(nok 1 000) Note 01.01.-31.12.2006 01.12-31.12.2005

Sales revenue 1 1 528 913 89 715 Other income 2 281 14Total income 1 529 194 89 729

Cost of materials 14 874 583 38 538Payroll and personnel expenses 3, 4, 28 297 119 25 164Other operating expenses 111 726 11 928Total operating expenses 1 283 428 75 631

Operating profit before depreciation/amortisation 245 766 14 098

Depreciation of property, plant and equipment 9, 10 5 130 479Operating profit 240 636 13 619 Income from associates 11 2 860 0Other interest income 2 920 1 760Other finance income 137 0Change in fair values of financial derviates 12 6 373 0Other interest expense -30 358 -5 477Other finance expense -4 860 422Net financial costs -22 928 -3 294

Profit on ordinary activities before tax 217 708 10 325Tax on profit on ordinary activities 6 54 956 2 432NET PROfIT fOR THE PERIOD 162 752 7 893 Earnings per share (NOK) Basic EPS, weighted 7 3,70 2,53 Diluted EPS, weighted 7 3,70 2,53

ChANGeS iN equity - CoNSolidAted (NOK 1 000) 01.01.-31.12.2006 01.12-31.12.2005

Consolidated statement of recognised income and expence Translation differences 133 0Net charged to equity 133 0Profit for the period 162 752 7 893totAl ReCoGNiSed iNCome ANd expeNCe 162 885 7 893

Income StatementGroup


(nok 1 000) Note 31.12.2006 31.12.2005 ASSetS

NON-CURRENT ASSETSIntangible assets Other intangible assets 9 214 322Trademarks 5, 9 125 000 125 000 Goodwill 5, 9 700 882 700 882Total intangible assets 826 096 826 204

Tangible assetsLand and buildings 10, 22, 27 14 576 14 969 Machinery and plant 10, 22, 27 10 977 5 343 Fixtures, fittings and equipment 10, 22, 27 5 325 4 850Total property, plant and equipment 30 878 25 162

financial assets Investments in associates 11 5 498 3 938Loans to associates 13 5 321 2 651Other receivables 13 352 2 662Total financial assets 11 171 9 251

Total non-current assets 868 145 860 617

CURRENT ASSETS Land and buildings under constructionConstruction work in progress 5, 14, 27 111 521 174 153 Properties for sale 5, 14, 27 8 850 1 737 Land 5, 14, 27 705 529 702 283Total land and buildings under construction 825 900 878 173

ReceivablesTrade receivables 5, 27 348 284 293 056 Other receivables 13 15 440 19 582 Fair values of financial derviates 12 6 373 0Total receivables 370 097 312 637

Bank deposits, cash and cash equivalents 16 86 216 129 479Total current assets 1 282 213 1 320 289

totAl ASSetS 2 150 358 2 180 907

Balance Sheet Group

// Annual Report 2006 // Block Watne Gruppen ASA // 11

(nok 1 000) Note 31.12.2006 31.12.2005

equity ANd liABilitieS

EQUITY Paid-in capitalShare capital 17, 18 9 000 8 000Share premium reserve 18 534 884 391 984Total paid-in capital 543 884 399 984

Retained earningsOther equity 18 170 864 7 979Total retained earnings 170 864 7 979

Total equity 18 714 748 407 963

LIABILITIESProvisionsPension obligations 3 15 403 11 582Deferred tax 6 64 775 63 800Total provisions 80 178 75 382

Other non-current liabilitiesSubordinated loans 20 95 000 95 000Liabilities to financial institutions 19, 27 507 700 759 900Total other non-current liabilities 602 700 854 900

Current liabilitiestLiabilities to financial institutions 21, 27 104 545 143 825Trade payables 131 032 105 334Tax payable 6 53 857 62 520Public duties payable 24 31 050 21 648Current liabilities related to land and projects 14, 23 259 982 313 589Other current liabilities 22, 25 172 266 195 747Total current liabilities 752 732 842 663

Total liabilities 1 435 610 1 772 945

totAl equity ANd liABilitieS 2 150 358 2 180 907

Oslo, 12 March 2007









Balance Sheet Group


(nok 1 000) Note 01.01.-31.12.2006 01.12-31.12.2005

Cash flows from operating activitiesNet profit for the period 162 752 7 893

Adjustment for: Gains/losses on sale of non-current assets 10 -32 0Depreciation and write-downs 9, 10 5 130 479Net finance expense 22 928 3 294Change in fair values of financial derviates 12 -6 373 0Share of profit/loss in associates 11 -2 860 0Current tax expense 6 54 956 2 432 236 501 14 098Change in inventories 52 273 -136 178Change in trade receivables -55 228 35 302Change in trade payables 25 698 54 502Change in liabilities relating to land 23 -53 607 -63 126Change in liabilities to employees 3 3 821 0 Change in other accrual accounting entries 29 -2 540 -17 568 206 917 -112 969Interest paid -32 339 -3 366Tax paid -62 516 0Net cash flow from operating activities 112 062 -116 335 Cash flows from investing activitiesInterest received 2 960 1 760Sale of fixed assets 10 236 0Purchase of tangible fixed assets 5, 10 -10 942 0Purchase of subsidiaries 5 0 -1 085 665 Net cash flow from investing activities -7 746 -1 083 905

Cash flows from financing activitiesIncrease/decrease (-) current liabilities 21 -39 280 179 736 New long-term liabilities 19 0 1 100 000Repayment of long-term liabilities 19 -252 200 -350 000New share capital 18 143 900 399 984Dividend paid 26 0 0Net cash flow from financing activities -147 580 1 329 720 Net change in cash & cash equivalents -43 264 129 480Cash & cash equivalents 1 January 129 481 0Cash & cash equivalents 31 December 16 86 217 129 480

Cash flow statement Group

// Annual Report 2006 // Block Watne Gruppen ASA // 1�

Accounting policiesThe Block Watne Gruppen ASA group is domiciled in Norway. The 2006 consolidated financial statements for the business comprise the parent company (reg. office, Oslo) and its sub-sidiaries Block Watne AS (Oslo), Norpartner Sp. z.o.o. (Opole, Poland) and Hetlandhus AS (Oslo).

The financial statements were authorised for issuance by the board on 12 March 2007.

Establishment of the group/ comparative figuresBlock Watne Gruppen ASA was established by Lani Invest AS on 20 September 2005.

The Block Watne Gruppen ASA group was established when the company purchased all the shares in Block Watne AS and Hetlandhus AS on 30 November 2005. The purchase was made from Lani Development AS, a wholly-owned subsidiary of Lani Invest AS. The purchase was an arm’s length transaction between related parties/joint ventures.

The group figures for 2005 only contain the subsidiaries’ income statement items for December 2005.

For comparison purposes, pro forma income statements have been produced for the subsidiaries’ operations in 2005 and 2004, with adjustments for items in the parent company, as if the group had been established on 1 January 2004. Please refer to note 32 for more detailed information. In addition, the subsidiaries’ annual reports will also provide further information on operations in these companies.

Statement of compliance with IfRSThe consolidated financial statements have been presented in accordance with International Financial Reporting Standards (IFRS), as endorsed by the EU, and interpretations of the International Accounting Standards Board (IASB). These are the group’s first IFRS consolidated financial statements, and IFRS 1 (First-time Adoption of International Financial Reporting Standards) has been applied.

Basis of preparationThe financial statements are presented in Norwegian kroner, with amounts rounded to the nearest thousand. They are prepared on the historical cost basis except that financial derivatives are stated at their fair value.

Non-current assets held for sale are stated at the lower of carrying amount and fair value less costs to sell.

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities, income and expenses. Estimates and associated assumptions are

based on historical experience and other factors regarded as reasonable in the circumstances. These calculations form the basis for measuring the carrying amount of assets and liabilities when this is not apparent from other sources. Actual outcomes may vary from these estimates.

Estimates and associated assumptions are assessed on a continuous basis. Changes in accounting estimates are recognised in the period when the changes arise providing they apply only to that period. Should the changes also apply to future periods, the effect will be allocated over present and future periods.

Assumptions made by the management when applying the IFRS which have a substantial effect on the financial state-ments and estimates, and involve a substantial risk of being significantly adjusted in the next fiscal year are described below.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. They have also been applied in preparing a pro forma opening IFRS balance sheet at 1 January 2004 for the purpose of the transition to IFRS.

The accounting policies have been applied consistently throughout the group. Comparative figures are restated where necessary, in order to obtain uniform presentation and allow comparison with the figures for the year. Basis of consolidationSubsidiariesSubsidiaries are entities controlled by the company. Control exists when the company has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

AssociatesAssociated companies are entities for which the group has significant influence, but not control, over financial and ope-rating policies. The consolidated financial statements include the group’s share of the total recognised gains and losses of associates on an equity accounted basis, from the date on which significant influence commences until the date on which it ceases. Insignificant holdings in associated companies are recognised on a historical cost basis. When the group’s share of losses exceeds its interest in an associate, the group’s carrying amount is reduced to zero and recognition of further losses is discontinued except to the extent that the group has incurred legal or constructive obligations or made payments on behalf of an associate.

Accounting policiesGroup

1� // Block Watne Gruppen ASA // Annual Report 2006 //

Business combinations involving entities under common controlA business combination involving entities or businesses under common control, is a business combination in which all the combining entities or businesses ultimately are controlled by the same party or parties both before and after the business combination, and in which such control is not transitory. In the absence of more specific guidance, the group applies the fair value measurement method to all common control transactions.

Transactions eliminated on consolidationIntra-group balances and any unrealised gains and losses or income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements.

Unrealised gains arising from transactions with associates are eliminated to the extent of the group’s interest in the entity.Un- realised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Foreign currency transactions Transactions in foreign currencies are translated at the ex-change rate prevailing at the transaction date. Monetary assets and liabilities denominated in foreign currencies are translated to Norwegian kroner at the exchange rate prevailing at the balance sheet date. Exchange differences arising on translation are recognised in profit or loss.

Financial statements of foreign operationsThe assets and liabilities of foreign operations arising on con-solidation are translated to Norwegian kroner at the foreign exchange rate prevailing at the balance sheet date. The re-venues and expenses of foreign operations are translated to Norwegian kroner at rates approximating the foreign exchange rates prevailing at the dates of the transactions.

Derivate financial instrumentsThe group uses derivative financial instruments to hedge its exposure to interest rate risks arising from operational, financing and investment activities. In accordance with its financial policy, the group does not purchase or issue derivative financial instruments for trading purposes.

Derivative financial instruments are recognised initially at cost. Subsequent to initial recognition, they are stated at fair value. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss. The fair value of interest rate swaps is the estimated amount that the group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the creditworthiness of the swap counterparty. Operating incomeIncome is recognised as it accrues. Block Watne’s activities comprise construction of houses on its own account and for other parties. As soon as the outcome of a construction

contract can be estimated reliably, revenue is recognised in proportion to the stage of completion of the contract. For identified onerous contracts, a provision is made or the entire expected loss. Operating income is less VAT and any discounts.

Only sold contracts are recognised. The stage of completion corresponds to contract costs incurred for work performed to date as a percentage of the estimated total costs. Recog- nised revenue is the estimated total revenue x degree of sale x stage of completion. The reported outcome is estimated final outcome x degree of sale x stage of completion.

Revenue recognition normally follows progress billing to customers. Billing coincides with certain key stages in the contract, such as completion of foundation wall or commen-cement of painting. Contracts which are wholly or partly financed by the Norwegian Housing Bank are also billed, even if the bank’s payment is not made until after the contract is handed over. Discrepancies between billing and production in relation to stage of completion are included in receivables and current liabilities (gross).

Using reported warranty and claims expenses over the past five years and their estimated distribution over five years (war-ranty period specified in the Norwegian act on construction of buildings), a calculation of the warranty provision is made, based on previous years’ turnover. In addition, a specific assessment is made to ascertain whether there is a need for special provisions relating to larger claims.

Significant income and expense not associated with the group’s ordinary business is classified as other operating income and expenses. Significant items which are unusual and irregular are classified as extraordinary items.

ExpensesOperating lease paymentsPayments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease.

Net finance costsNet finance costs comprise interest payable on borrowings calculated using the effective interest rate method, dividends, interest income on funds invested, foreign exchange gains and losses, and gains and losses on hedging instruments that are recognised in profit or loss. Fees paid for guarantees on advance payments under construction costs are also recognised as finance costs.

Income taxIncome tax on the profit or loss for the periods presented comprises current and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.



Current tax is the expected tax payable on taxable income for the year, using enacted tax rates, and any adjustment to tax payable in respect of prior years.

Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. No account is taken of goodwill which is not deductible for tax purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Earnings per shareThe calculation of basic earnings per share is based on the profit attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding during the period. The calculation of diluted earnings per share is based on the profit attributable to ordinary shareholders and the weighted number of ordinary shares outstanding, with an adjustment for the dilution effects of potential shares outstanding, including convertible notes and share options issued to employees.

Property, plant and equipmentOwned assetsItems of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and a proportion of production overheads.

When parts of property, plant and equipment have different useful lives, those components are accounted for as separate items of property, plant and equipment.

Leased assetsLeases in terms of which the group assumes substantially all the risks and rewards of ownership are classified as finance leases.

DepreciationDepreciation is charged to profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant or equipment. Land is not depreciated. Estimated useful lives are as follows:

Buildings 20-50 yearsPlant and equipment 3-5 yearsFixtures and fittings 3-5 years

Intangible assetsGoodwillAll business combinations are accounted for by applying the acquisition method. Goodwill is recognised in acquisitions of subsidiaries, and represents the difference between the cost of the acquisition and the fair value of the net identifiable assets acquired. Goodwill is stated at cost less any accumu-lated impairment losses. Goodwill is allocated to cash-generating units, and is not amortised but is tested annually for impairment.

TrademarksWhen subsidiaries are acquired, values of trademarks are identified. Trademarks are stated at cost less any accumulated impairment losses. Trademarks are not amortised, but are tested annually for impairment.

Research and developmentExpenditure on research activities, undertaken with the pro-spect of gaining new scientific or technical knowledge and understanding, is recognised in profit or loss as an expense as incurred.

Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products or processes, is capitalised if the product or process is technically and com-mercially feasible and the group has sufficient resources to complete development. The expenditure capitalised includes the cost of materials, direct labour and a proportion of over-heads. Other development expenditure is recognised in the income statement in the period in which it is incurred. Capitalised development expenditure is stated at cost less accumulated amortisation and impairment losses.

AmortisationAmortisation is charged to profit or loss on a straight-line basis over the estimated useful lives of intangible assets, unless such lives are indefinite. Goodwill, trademarks and intangible assets with an indefinite useful life are tested systematically for impairment at each balance sheet date.

Land and land obligationsBinding agreements for the purchase of land are reported as land under current assets and as land obligations under current liabilities. Agreements not defined as for housing as at the balance sheet date, where there is a suspensive clause to this effect, are not included in the consolidated financial statements.

Land includes the carrying amounts of land at full cost and construction of infrastructure at large construction sites. As soon as a sale has been decided and work commenced at a sub-divided site, the land cost and infrastructure for that site is moved to construction work in progress. Land is recognised at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.



Construction work in progressConstruction work in progress includes cost of acquisition and profit earned at the balance sheet date, less a provision for bad debts and advance payments. Cost of acquisition includes expenditure directly related to specific projects and a share of fixed and variable indirect costs incurred in the company’s contractual activities based on normal capacity utilisation.

Assets for saleAssets for sale comprise show houses that are to be sold, but which remain unsold as at the balance sheet date. Assets are measured at the lower of cost and estimated net market value. Assets held for sale are not depreciated, but written down in the event of impairment.

Trade receivables Trade and other receivables are recognised at cost less impairment losses.

Cash and cash equivalentsCash and cash equivalents comprise cash in hand and bank deposits.

ImpairmentThe carrying amounts of the group’s assets, other than inven-tories and deferred tax assets, are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount of the asset is estimated.

Recoverable amounts are estimated at each annual balance sheet date for goodwill and assets with an indefinite useful life. An impairment loss is recognised when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in profit or loss.

Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit, and then to reduce the carrying amount of the other assets on a pro rata basis. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Calculation of recoverable amount The recoverable amount is the higher of the net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For assets which do not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

Impairment losses in respect of goodwill are not reversed. In respect of other assets, impairment losses are reversed if there has been a change in the estimates used to determine

the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Employee benefitsTermination payment agreementsManagment has agreements which under certain conditions give entitlement to up to one annual salary after the normal period of notice of 6 months. More information can be found in notes 3 and 4.

Mandatory occupational pension The parent company and its Norwegian subsidiaries are legally obliged to have mandatory occupational pension arrangements, and these satisfy the requirements of the Norwegian mandatory occupational pension act.

Pension plansThe group has defined benefit and defined contribution pension plans, in addition to its contractual early retirement plans and unfunded arrangements.

The subsidiary Block Watne AS had a collective defined benefit pension plan up to 31 December 2006. This plan closed with effect from 1 January 2007 and free policies were issued. A new defined contribution plan was established on the same date. Obligations under the defined benefit plan therefore ceased on 31 December 2006 and the decision was made not to recognise funds relating to this plan.

The defined benefit plan which ceased with effect from 1 January 2007 was based on the projected unit credit method. The plan was calculated based on assumptions relating to the number of service years, discount rate, future return on plan assets, future changes in salary, pensions and national in-surance contributions, and actuarial assumptions on mortality and early retirement.

The company has obligations relating to early retirement pension (AFP) and an unfunded obligation. These obligations are recognised in the balance sheet.

Defined contribution pension plansObligations in respect of contributions to defined contribution pension plans are recognised as an expense in profit or loss as incurred.

Defined benefit pension plansThe group’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefits that employees have earned in return for their service in the current and prior periods. These future benefits are discounted to determine their present value, and the fair value of plan assets is deducted to determine the net obligation. The discount rate is the yield at the balance



sheet date for AA credit rated bonds that have maturity dates approximating the terms of the group’s obligations. These calculations are performed by a qualified actuary using the projected unit credit method.

When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense in profit or loss.

All actuarial gains and losses are recognised immediately in profit or loss.

Other pension plansObligations in respect of early retirement pension (AFP) and an unfunded obligation are recognised in the balance sheet.

Provisions A provision is recognised in the balance sheet when the group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to liability.

Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the group from a contract are lower than the unavoidable cost of meeting its obligations under the contract.

Trade payables and other current liabilitiesTrade and other payables are stated at cost.

Interest-bearing loans and borrowingsInterest-bearing loans and borrowings are recognised initially at fair value less attributable transaction costs. Interest-bearing

liabilities are subsequently stated at amortised cost, with any difference between cost and redemption value being recog-nised in profit or loss over the period of the borrowings on an effective interest basis.

Segment reportingA segment is a distinguishable component of the group engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. As the group’s turnover is homogenous and mainly generated in Norway, only one segment has been identified.

New standards and interpretations not yet adoptedThere were several new standards, amendments to standards and interpretations which were not required to be implemented at the end of the financial year. These have therefore not been included in the consolidated financial statements at 31 December 2006. We have ascertained that the following new standards, amendments to standards and interpretations would have an impact on the previous year’s consolidated financial statements; see table below.

Transition from ngaap to ifrsBlock Watne Gruppen ASA is a new group, which was esta-blished at 1 December 2005. The 2005 annual report was the group’s first report. The 2005 annual report therefore only included financial statements for the period 1-31 December 2005. In addition, pro forma accounts were produced for the full year 2005.

The notes show the transition from NGAAP to IFRS both for the official financial statements and the pro forma accounts, and for the balance sheet as at 31 December 2005. Please refer to notes 31 and 32.

Effective for periods

Standard beginning/after Title Implications

IFRIC 10 1 Nov 2006 Interim financial Impairment losses recognised in interim reports[IAS 34-36-39] reporting and cannot be reversed in the annual report. impairmentIFRS 7 1 Jan 2007 Financial instruments: May require additional disclosures about risk, disclosures credit risk, liquidity risk and market risk, in addition to reporting of comparative figures.Amendment to IAS 1 1 Jan 2007 Presentation of The company will have to provide information Financial Statements: allowing users to assess its objectives, polices Capital Disclosures and processes for managing capital.IFRIC – update Not endorsed Construction Discussion of proposed draft interpretation on whether IAS 11 or IAS 18 is used to measure revenue recognition. This may mean that the company can only recognise revenue from completed/delivered contracts and not, as at present, on a stage of completion basis.



As the group’s turnover is homogenous and generated mainly in Norway, only one segment has been identified.

(NOK 1 000) 2006 2005

Sale of assets 111 0Commission and similar income 4 0Other income 166 14Total 281 14

COSTS RECOGNISED AS PAYROLL COSTS (NOK 1 000) 2006 2005

Salaries and holiday pay 240 185 21 350Employer contributions 30 907 3 010Pension expense 7 517 0Other payroll costs 18 510 0Total 297 119 24 360 NUMBER Of EMPLOYEES

Average number of full-time equivalents 584 561

ShAReS to employeeS

In the new share issue in March 2006, all employees were invited to subscribe for up to 2 board lots (400 shares) at a discount of 20 per cent on the subscription price. 174 employees took up the offer, and the discount amounted to NOK 446. The amount has been recognised in equity as a counter-item.

peNSioNS/RetiRemeNt BeNefit oBliGAtioNS

Retirement benefit obligations consist of contractual early retirement pension (AFP), collective pension arrangements (funded) and unfunded pension obligations.

From 1 January 2007, the subsidiary Block Watne AS moves from a defined-benefit to a defined-contribution collective arrangement. As the defined-benefit pension arrangement has ceased, plan assets and pension liabilities from this arrangement are not included in the balance sheet.

The underlying estimates were reviewed in autumn 2006 and are considered reasonable. A subsequent recommendation was made to use a lower discount rate (4.35%), a higher salary adjustment (4.5%), a lower pension adjustment (1.6%), a higher NI base rate change (4.25%) and a lower return (5.4%). The effect of this has been calculated and shows that net pension obliga-tions for AFP increase by NOK 1.4 million. This has not been incorporated into the 2006 financial statements, as the calculation came after the annual financial statements were prepared.

At the end of the year, collective pension plans included 604 members (579 at 31.12.05), of whom 124 (121) were retired.At the end of the financial year, 15 (12) employees had taken out AFP pensions, while 1 (1) person had been paid pension directly from the company.

//01 SeGmeNt//01 SeGmeNt

//02 otheR opeRAtiNG iNCome //02 otheR opeRAtiNG iNCome

//03 pAyRoll CoStS ANd RemuNeRAtioN of employeeS //03 pAyRoll CoStS ANd RemuNeRAtioN of employeeS

Notes Group


EMPLOYEE BENEfITS (NOK 1 000) 2006 2005

Present value of unfunded obligations 12 832 11 582Present value of funded obligations 1 327 40 610Fair value of plan assets -659 -42 839Present value of net obligations 13 500 9 353Unrecognised actuarial gains and losses 1 903 0Recognised obligations relating to defined benefit pension plans 15 403 9 353Obligations relating to seniority leave 0 0Obligations relating to cash transactions 0 0Total employee benefits 15 403 9 353

CHANGES IN OBLIGATIONS RELATING TO DEfINED BENEfIT

PENSION PLANS RECOGNISED IN BALANCE SHEET (NOK 1 000) 2006 2005

Defined benefit pension obligations, 1 January 52 192 0Changes to estimates 1 573 0Effect of acquisition of subsidiaries 52 192Effect of transition to a defined-contribution collective arrangement -40 610 0Deposits during the year -3 061 0Cost recognised in income statement 5 968 0Defined benefit pension obligations, 31 Desember 16 062 52 192

CHANGES IN ASSETS RELATING TO DEfINED BENEfIT PENSION PLANS RECOGNISED IN BALANCE SHEET (NOK 1 000) 2006 2005

Value of plan assets for defined benefit pension obligations, 1 January 42 839 0Changes to estimates 0 0Effect of acquisition of subsidiaries 42 839Effect of transition to a defined-contribution collective arrangement -40 610 0Deposits during the year 0 0Cost recognised in income statement -1 570 0Value of plan assets for defined benefit pension obligations, 31 December 659 42 839

COST RECOGNISED IN INCOME STATEMENT (NOK 1 000) 2006 2005

Current service cost 3 270 3 093Capital cost of past service cost 2 215 2 101Gross pension expense for the year 5 485 5 194Expected return on plan assets -2 322 -2 214Administrative expenses 580 391Accrued employer contributions 542 789Changes to estimates in profit or loss 0 -4 953Change to pension obligations due to agreement changes 3 253 0Net pension expense for the year in income statement 7 538 -793

ASSUMPTIONS USED TO CALCULATE PENSION ExPENSES 2006 2005

Discount rate 5.0% 4.5%Salary adjustment 3.5% 3.3%Pension adjustment 3.0% 2.5%NI base rate change 3.0% 2.5%Turnover 12.5% 10.0%Anticipated AFP acceptance 62-67 years 75.0% 50.0%Expected return 5.5% 5.5%

INVESTMENT Of PLAN ASSETS

Property 16% 16%Shares 18% 17%Floating bonds/certificates 24% 29%Capital bonds 37% 34%Other assets 5% 4%Total financial assets 100% 100%

Notes Group


SENSITIVITY ANALYSIS (NOK 1 000) ONE PER CENT POINT INCREASE ONE PER CENT POINT REDUCTION

Effect on pension obligation 160 -160

HISTORICAL INfORMATION (NOK 1 000) 2006 2005

Present value of pension obligation 14 159 52 192Fair value of plan assets -659 -42 839Present value of net obligation 13 500 9 353

The group expects to contribute approx. NOK 8 million in payments to pension plans in 2007.

BoARd of diReCtoRS

The group paid NOK 448 000 in board fees in 2006. See below. AuditoR

THE fOLLOWING AUDITORS’ fEES WERE PAID (NOK 1 000) 2006 2005

Standard auditing 749 0Consulting services relating to IPO 481 0Tax advice 10 0Other 18 0Total 1 258 0

the folloWiNG RemuNeRAtioN WAS pAid to mANAGemeNt ANd BoARd iN 2006 (nok 1 000)

OTHER PENSION BOARD OTHER NAME POSITION SALARY BONUS BENEfITS PREMIUM fEES LOANS fEES

MANAGEMENT

Lars Nilsen CEO 1 616 0 67 47 0 0 0 1)

Ketil Kvalvik CFO 574 0 130 87 0 0 0 Ole Feet CEO of Block Watne AS 1 172 452 130 33 0 0 0 2)

BOARD Harald Walther Chairman 0 0 0 0 150 0 622 3) 4)

Hege Bømark Deputy Chairman 0 0 0 0 100 0 0 3)

Petter Neslein Board member 0 0 0 0 0 0 0 4)

Brit Hagelund Employee repr. 544 112 9 12 60 3 0 3) 5) 6)

Tore M. Randen Employee repr. 302 0 6 2 60 1 0 3) 5) 6)

Einar Hauge Employee repr. 445 0 4 2 60 0 0 3) 5)

Bjørn S. Ask Employee repr., deputy 360 0 4 1 9 3 0 3) 5) 6)

John Brattebø Employee repr., deputy 492 0 3 3 9 3 0 3) 5) 6)

Øyvind Wiik Employee repr. 445 99 7 13 0 3 0 5) 6)

Comments

1) Lars Nilsen was CEO of Block Watne AS until 1 June 2006. The amounts are total payments in the group.

2) Ole Feet took over as CEO of Block Watne AS on 1 June 2006. Prior to this date he had been head of department. The amounts are total payments for the full year.

3) Board fees apply to Block Watne Gruppen ASA and Block Watne AS.

4) Other fees are invoiced from the individual business areas. These fees have been approved by the board.

5) Employee representatives on the board, including deputies, are employees of Block Watne AS.

6) Loans refer to interest-free stock loans granted in conjunction with the IPO. These are repaid over 1 year.

//04 RemuNeRAtioN of mANAGemeNt ANd BoARd //04 RemuNeRAtioN of mANAGemeNt ANd BoARd

Notes Group

// Annual Report 2006 // Block Watne Gruppen ASA // 21

Salary includes holiday pay. Bonus paid refers to the bonus earned in 2005, which was paid in 2006. The bonus earned in 2006, which will be paid in 2007, is on the same level. Other benefits include taxable benefits, such as company car, car allowance, accident insurance, telephone etc.

The management group has agreements to receive salary for 12 months beyond the given 6-month period of notice on certain conditions. There are no other agreements for the management group or board for compensation on termination of employment or change of position. The CFO of Block Watne AS has a bonus agreement for 2007. The board will define the bonus on a discretionary basis.

The group is not under any obligation to grant the management group, board or other employees profit-sharing, options or similar benefits.

The group was established on 30 November 2005, when all the shares in Block Watne AS and Hetlandhus AS were acquired for NOK 1 095 million and NOK 5 million respectively. Note 31 contains pro forma accounts for 2004 and 2005 as if the group had been established on 1 January 2004.

effeCtS of the ACquiSitioN of BloCk WAtNe AS

RECOGNISED fAIR VALUE CARRYING

NET ASSETS IN THE ACQUIRED COMPANY AT THE DATE Of ACQUISITION (NOK 1 000) AMOUNTS ADjUSTMENT AMOUNTS

Goodwill 0 700 882 700 882Trademarks 0 120 000 120 000Other intangible assets 331 0 331Total intangible assets 331 820 882 821 213Total property, plant and equipment 26 111 0 26 111Total financial assets 16 584 0 16 584Total land and buildings under construction 741 995 111 074 853 069Total receivables 566 292 0 566 292Total cash and bank deposits 14 235 0 14 235Total interest-bearing loans and borrowings -454 235 0 -454 235Total other borrowings and liabilities -683 568 -64 701 -748 269Net identifiable assets and liabilities 227 745 867 255 1 095 000Added value on acquisition 867 255 Cash payment 1 095 000 Cash acquired -14 235 Net cash outflows on acquisition 1 080 765

effeCtS of the ACquiSitioN of hetlANdhuS AS

RECOGNISED fAIR VALUE CARRYING

NET ASSETS IN THE ACQUIRED COMPANY AT THE DATE Of ACQUISITION (NOK 1 000) AMOUNTS ADjUSTMENT AMOUNTS

Trademarks 0 5 000 5 000Total intangible assets 0 5 000 5 000Total receivables 9 0 9Total cash and bank deposits 100 0 100Total interest-bearing loans and borrowings 0 0 0Total other borrowings and liabilities -1 -1 400 -1 401Net identifiable assets and liabilities 108 3 600 3 708Added value on acquisition 4 892 Cash payment 5 000 Cash acquired -100 Net cash outflows on acquisition 4 900

//05 ACquiSitioN of SuBSidiARieS //05 ACquiSitioN of SuBSidiARieS

Notes Group


TAx ExPENSE RECOGNISED IN INCOME STATEMENT (NOK 1 000) 2006 2005

Current tax expense 54 183 2 432Deferred tax expense 773 0Total tax expense recognised in income statement 54 956 2 432

2006 2005

Tax recognised directly in equity 0 0

EffECTIVE TAx RATE RECONCILIATION (NOK 1 000) 2006 2005

Profit before tax 217 708 10 325Tax based on current tax rate 28.0% 60 958 28.0% 2 891Effect of non-deductible expenses 0.1% 226 0.0% 0Effect of deductible expenses recognised in equity -2.7% -5 783 0.0% 0Effect of unutilised tax losses 0.0% 10 0.0% 0Effect of tax-free revenue -0.4% -874 -4.4% -459Other adjustments 0.2% 418 Total 25.2% 54 956 23.6% 2 432

DEfERRED TAx LIABILITIES (NOK 1 000) 2006 2005

Project reserve 132 239 118 709Trade receivables 77 -2 410Profit and loss account -275 -343Net pension obligation -15 403 -9 353Property, plant and equipment 256 -4 948Other provisions -70 566 -77 353Trademarks 125 000 125 000Added value, land 59 247 78 558Basis of deferred tax 230 622 227 860Deferred tax 28% 64 574 63 801Change 773

The group has tax loss carryforwards in foreign subsidiaries amounting to approx. NOK 6 751 thousand. Deferred tax assets have not been reported, as it is not considered probable that future taxable profits will be available against which the tax losses can be offset.

BALANCE CONSOLIDATED BALANCE

CHANGES IN TEMPORARY DIffERENCES IN 2005 (NOK 1 000) 01.01.05 INCOME STATEMENT PURCHASED 31.12.05

Project reserve 0 0 118 709 118 709Trade receivables 0 0 -2 410 -2 410Profit and loss account 0 0 -343 -343Net pension obligation 0 0 -9 353 -9 353Property, plant and equipment 0 0 -4 948 -4 948Other provisions 0 0 -77 353 -77 353Trademarks 0 0 125 000 125 000Added value, land 0 -1 401 79 959 78 558Total 0 -1 401 229 261 227 860

//06 tAx//06 tAx

Notes Group


BALANCE CONSOLIDATED BALANCECHANGES IN TEMPORARY DIffERENCES IN 2006 (NOK 1 000) 01.01.06 INCOME STATEMENT PURCHASED 31.12.06

Project reserve 118 709 13 530 0 132 239Trade receivables -2 410 2 487 0 77Profit and loss account -343 68 0 -275Net pension obligation -9 353 -6 050 0 -15 403Property, plant and equipment -4 948 5 204 0 256Other provisions -77 353 6 787 0 -70 566Trademarks 125 000 0 0 125 000Added value, land 78 558 -19 311 0 59 247Total 227 860 2 715 0 230 575

BASiC eARNiNGS peR ShARe

Basic earnings per share at 31 December 2006 is based on profit attributable to ordinary shares,which amounts to NOK 162 752 (2005: 7 893) thousand, and the weighted average number of shares in 2006, which was 43 958 904 (2005: 3 125 000), and is calculated as follows

PROfIT ATTRIBUTABLE TO ORDINARY SHARES (NOK 1 000) 2006 2005

Net profit for the period 162 752 7 893

WEIGHTED AVERAGE NUMBER Of ORDINARY SHARES (IN 1 000 SHARES)

Ordinary shares outstanding at 1 January 40 000 0Effect of shares issued on establishment 0 2 083Effect of shares issued in new share issue 3 959 1 042Weighted average number of shares at 31 December 43 959 3 125

There are no dilution effects in the company. 2006 2005

Basic earnings per share, weighted (NOK) 3.70 2.53

Related parties are companies in which the CEO Lars Nilsen is majority owner through his investment companies. This applies to Lani Invest AS, Lani Development AS and Waterguard Intl. AS.

Lani Development AS has granted two subordinated loans totalling NOK 95 million to Block Watne AS. The loans carry an interest rate that is 1 percentage point above the best investment rate on the market. Interest paid in 2006 was NOK 3 812 thousand.

Lani Invest AS, parent company of the Lani Group, established Block Watne Gruppen ASA on 20 September 2005. The Block Watne Group was established through the acquisition by Block Watne Gruppen ASA of all the shares in Block Watne AS and Hetlandhus AS on 30 November 2005. The shares were purchased at fair value. For more detailed information, please see the Accounting Policies and note 5.

Waterguard Intl. AS sells water leakage systems to subsidiary Block Watne AS. These are sold through wholesalers and are conducted at market prices.

Waterguard Intl. AS rents premises and certain administrative services from Block Watne AS. In 2006, these amounted to NOK 115 thousand (2005: NOK 38 thousand).

//07 eARNiNGS peR ShARe //07 eARNiNGS peR ShARe

//08 RelAted pARty tRANSACtioNS //08 RelAted pARty tRANSACtioNS

Notes Group


Goodwill and trademarks arose from the parent company’s acquisition of all the shares in Block Watne AS and Hetlandhus AS in 2005. Goodwill and trademarks are not amortised; instead, they are tested annually for impairment. If there is any indication of impairment, their carrying amount is written down.

OTHER INTANG. (NOK 1 000) GOODWILL TRADEMARKS ASSETS 2006 2005

At 1 January

Cost of acquisition 700 882 125 000 467 826 349 0Accumulated amortisation 0 0 145 145 0At 1 january 700 882 125 000 322 826 204 0

Carrying amount, 1 January 700 882 125 000 322 826 204 0Translation differences 0 0 0 0 0Purchases during the year*) 0 0 0 0 826 213Disposals during the year 0 0 0 0 0Impairment losses during the year 0 0 108 108 9Net carrying amount, 31 December 700 882 125 000 214 826 096 826 204

At 31 december

Cost of acquisition 700 882 125 000 467 826 349 826 349Accumulated amortisation 0 0 253 253 145At 31 December 700 882 125 000 214 826 096 826 204

*) PURCHASES IN 2005 RELATE TO ACQUISITION Of SUBSIDIARIES 2005

Historical cost, intangible assets 947Historical accumulated amortisation, intangible assets 616Carrying amount of purchased intangible assets 331Goodwill and trademarks arising from purchase 825 882Net purchases in 2005 826 213

GoodWill impAiRmeNt teStiNG foR CASh-GeNeRAtiNG uNitS

THE fOLLOWING UNITS HAVE SUBSTANTIAL GOODWILL VALUES 2006 2005

Block Watne AS - Development and construction of houses in Norway 700 882 700 882Total 700 882 700 882

Recoverable amounts for the cash-generating unit are based on their value in use. The calculations are based on budgets and estimates of future cash flows from operations and investments, using actual operating results and three-year forecasts. Cash flows over an indefinite time horizon are derived by assuming annual growth of 2.5 per cent. The growth rate corresponds to the average long-term growth rate for the industry. When projected cash flows are discounted, a weighted yield expectation to total assets of 7.71 per cent is used.

The calculation indicates that no impairment has arisen.

Sensitivity analysis

An increase of 1 per cent in the discount rate would not result in impairment losses. A 10 per cent reduction in future cash flows would not result in impairment losses.

//09 iNtANGiBle ASSetS//09 iNtANGiBle ASSetS

Notes Group


MACHINERY OffICE

(NOK 1 000) PROPERTY EQUIPMENT EQUIPMENT 2006 2005

At 1 January

Cost of acquisition 15 702 14 319 16 751 46 772 0Accumulated depreciation 733 8 977 11 901 21 611 0At 1 january 14 969 5 343 4 850 25 162 0

Carrying amount, 1 January 14 969 5 343 4 850 25 162 0Translation differences 0 0 -67 -67 0Purchases during the year*) 0 8 037 2 905 10 942 25 632Disposals during the year 0 136 0 136 0Depreciation during the year 393 2 266 2 363 5 023 470Net carrying amount, 31 December 14 576 10 977 5 325 30 878 25 162

At 31 december

Cost of acquisition 15 702 22 220 19 590 57 511 46 772Accumulated depreciation 1 126 11 243 14 264 26 633 21 611Net carrying amount, 31 December 14 576 10 977 5 325 30 878 25 162

*) PURCHASES IN 2005 RELATE TO ACQUISITION Of SUBSIDIARIES 2005

Historical cost, property, plant and equipment 46 772Historical accumulated depreciation of property, plant and equipment 21 141Net purchases in 2005 25 632

//10 mAChiNeRy ANd pRopeRty //10 mAChiNeRy ANd pRopeRty

Notes Group


REG’D. ASHARE SHAREHOLDING CARRYING NET SHARE Of EQUITY SHARE Of PROfIT

(NOK 1 000) OffICE SHARE Of CAPITAL CARRYING AMOUNT 31.12.06 2006

Smeaheia Utb.selsk. AS Sandnes 2 000 40% 800 1367 1 367Hetlandsgården AS Sandnes 200 50% 100 194 94Lunde Utb.selsk. AS Sandnes 1 500 40% 600 905 305A4 Bogafjell AS Sandnes 500 50% 250 290 40Buggeland Utb.selsk.AS Sandnes 1 500 33% 508 649 141Trøåsen Utb.selsk. AS *) Trondheim 200 50% 110 -1 -111Skadberg Utv.selsk. AS Sandnes 900 20% 180 1413 1 233Jåsund Utb.selsk. AS Sola 1 000 18% 890 681 -209Total 3 438 5 498 2 860

Associated companies are valued using the equity method and the group’s share of their profit/loss is included in the 2006 consolidated accounts. The group’s share of equity in the companies is reported as an asset in the consolidated accounts. SummARy of fiNANCiAl iNfoRmAtioN foR ASSoCiAted CompANieS - 100%

OPERATING PROfIT/LOSS

(NOK 1 000) ASSETS EQUITY LIABILITIES INCOME fOR THE YEAR

Smeaheia Utb.selsk. AS 8 478 3 416 5 061 5 046 408Hetlandsgården AS 787 387 400 0 -7Lunde Utb.selsk. AS 5 962 2 262 3 699 5 796 821A4 Bogafjell AS 1 424 579 844 1 867 79Buggeland Utb.selsk.AS 37 939 1 966 35 973 2 144 645Trøåsen Utb.selsk. AS *) 1 294 -187 1 481 0 -127Skadberg Utv.selsk. AS 13 208 7 065 6 143 16 377 2 582Jåsund Utb.selsk. AS 48 174 3 828 44 347 84 -1 157Total 117 265 19 317 97 948 31 314 3 244

*) Figures for Trøåsen Utviklingsselskap AS are at 31 December 2005. Accounts for 2006 have not yet been completed.

The group has entered into forward rate agreements amounting to NOK 250 000 thousand. The agreements do not meet the criteria to qualify for hedge accounting as defined in IAS 39 and are therefore stated at their fair value at the balance sheet date.Changes in fair value are recognised in the profit or loss.

TRANSACTION CAPITAL SUM START MATURITY INTEREST MARKET VAL.

PRODUCT DATE NOK 1 000 DATE DATE RATE 31.12.06

Threshold Swap Ap. 17.01.06 100 000 06.03.06 07.03.11 3.62% 3 100Extendable Interr. Swap 24.04.06 150 000 05.09.06 06.06.11 3.10% 3 273Total 6 373

The market value is calculated based on the mid-point of the relevant interest curve and is confirmed by the financial institutionwhich is the contracting party.

//11 ASSoCiAteS//11 ASSoCiAteS

//12 fiNANCiAl iNStRumeNtS //12 fiNANCiAl iNStRumeNtS

Notes Group


fiNANCiAl RiSk

Credit risk

The group aims to minimise credit risk by ensuring that customers produce proof of financing and houses are paid for before they are handed over.

Interest rate risk

Changes in interest rates represent a market risk because of of their effect on demand for houses and a cost risk associated with interest rates on the company’s borrowings and working capital loans. Borrowings and working capital loans carry floating interest rates. The group has entered into forward rate agreements of NOK 250 000 thousand which are shown overleaf. Under these agreements, approx. 50 per cent of the group’s mortgage loans and approx. 37 per cent of its net interest- bearing liabilities are hedged. Finance costs correspond to approx. 2 per cent of the group’s turnover and therefore represent an immaterial cost element.

Currency risk

The group is exposed to direct currency to a minor extent. The Polish subsidiary is very small. Only a small part of the company’s purchases are directly from abroad and these are hedged by means of forward exchange contracts in NOK. The company may be indirectly exposed to currency risk associated with the purchase of goods and services from sub-contractors, although such risk is not considered substantial.

Liquidity risk

The company’s present activity level means that its liquidity situation is very solid. Satisfactory earnings, customers’ terms of payment and good facilities for working capital loans are all key factors. In the event of a considerable decline in activity, matu-rity of the company’s land obligations could place proportionately higher pressure on the group’s borrowing facilities than is the case at present. reduced earnings could also result in weaker liquidity. However, the company has a considerable liquidity reserve, which means that, with good warning systems, there will be sufficient time to implement the necessary restructuring

measures. At the present time, there is no indication of a need for such restructuring measures.

(NOK 1 000) 2006 2005

Loans to associates 5 321 2 651

Other non-current receivables Plan assets 0 2 229 Long-term loans to customers 15 28 Loans to employees 337 405Total other non-current receivables 352 2 662

Other current receivables Prepaid expenses/accrued income 10 128 6 247 Advances to landowners 4 650 4 650 County tax inspector 0 8 566 Other receivables 662 120Total other current receivables 15 440 19 582

Financial assets are measured at the lower of nominal and fair value. These have undergone testing for impairment, particularly in respect of debtors’ solvency. No impairment losses were recognised for 2006.

//13 fiNANCiAl ASSetS //13 fiNANCiAl ASSetS

Notes Group


(NOK 1 000) 2006 2005

Construction work in progress 111 521 174 153Land 705 529 702 283Assets for sale 8 850 1 737Total 825 900 878 173

Block Watne Gruppen previously reported agreements on the purchase of land as an asset and their associated terms of pay-ment as a liability, when implementation of the agreement appeared likely. This was done, even when some conditions had not been finally fulfilled at the time the agreement was recognised in the balance sheet.

Agreements on the purchase of land in the areas of agricultural, nature and leisure require the local authority to redefine the areas as housing prior to fulfilment of the agreement conditions. Although Block Watne submits justified proposals for redefini-tions, these are outside Block Watne’s control.

After a thorough review and assessments, we found that, based on IASB Framework (definition of assets and liabilities) and IAS 37 (provisions, contingent assets and contingent liabilities), agricultural, nature and leisure land agreements are assets and liabilities that cannot be recognised in the balance sheet.

The balance sheet at 31 December 2005 has changed as a result of the balance sheet items “Land” and “Other current liabili-ties related to land and projects” falling by NOK 43.0 million. The corresponding figure for 2006 will be NOK 152.2 million.

If local authorities approve development of the areas, the group will increase property values and obligations totalling NOK 152.2 million (2005: 43.0) million. It is considered likely that the local authorities will approve development.

CONSTRUCTION WORK IN PROGRESS (NOK 1 000) 2006 2005

Recognised revenue relating to houses not yet handed over 475 420 417 356Costs relating to houses not yet handed over -346 758 -304 329Contributions relating to houses not yet handed over 128 662 113 027Remaining production relating to onerous contracts 575 736Earned, not invoiced income included in trade receivables 67 973 95 569Production invoiced in advance included in current liabilities 47 935 68 651

Trade receivables are measured at the lower of nominal and fair value. Of the group’s trade receivables, which amount to NOK 348 (2005: NOK 293) million, NOK 68 (2005: NOK 96) million relate to accruals and NOK 162 (NOK 129) million to invoicing to customers who have obtained financing through the Norwegian Housing bank. The remaining trade payables of NOK 118 (2005: NOK 68) million include very few disputed amounts. All receivables have been reviewed. Where claims have been retained or losses are expected, a provision has been made under other current liabilities. The group does not have receivables for which payment is delayed due to contractual conditions, and all its trade receivables are due within one year. (NOK 1 000) 2006 2005

Identified bad debts -118 0Settlement of previously written-off receivables 117 0Net loss -1 0

//14 lANd ANd pRoJeCtS uNdeR CoNStRuCtioN //14 lANd ANd pRoJeCtS uNdeR CoNStRuCtioN

//15 tRAde ReCeiVABleS //15 tRAde ReCeiVABleS

Notes Group


(NOK 1 000) 2006 2005

Cash and bank deposits 86 216 129 479Of which reserved for witholding tax 6 987 6 322

The group has undrawn credit facilities and currency loans totalling NOK 120 000 thousand. In addition, the group may utilise granted building and land loans of approx. NOK 350 000 thousand.

the lARGeSt ShAReholdeRS iN BloCk WAtNe GRuppeN ASA At 31 deCemBeR 2006

SHAREHOLDER SHARES % Of TOTALL

Lani Industrier AS 20 210 000 44.91%Lani Development AS 2 250 000 5.00%Pareto Aksje Norge 1 972 700 4.38% Bank of New York, Brussels Branch, Equity 1 595 680 3.55%Vital Forsikring ASA 1 492 140 3.32% Bank of New York, Brussels Branch, Alpine 1 158 600 2.57%AG Invest AS 946 900 2.10% Bank of New York, Brussels Branch, Clients Account (Nom) 885 500 1.97%Pareto Aktiv 876 750 1.95%Verdipapirfond Odin Norden 861 700 1.91%GMO Foreign Small Companies Fund 805 000 1.79%Verdipapirfond Odin Norge 784 500 1.74%DnB NOR Norge (IV) 765 473 1.70%Citybank Intl. Plc (Nom) 512 800 1.14%Nordea Bank Denmark AS (Nom) 459 200 1.02%Commerzbank AG (Nom) 388 700 0.86%Skandinaviska Enskilda Banken (Nom) 378 500 0.84%UBS AG, London Branch (Nom) 356 800 0.79% Bank of New York, Brussels Branch, Treaty Account (Nom) 334 800 0.74%J P Morgan Chase Bank (Nom) 309 000 0.69%Total 20 largest shareholders 37 344 743 82.99%Other 7 655 257 17.01%Total 45 000 000 100.00%

Total number of shareholders 701 Par value of shares NOK 0.20

ShAReS oWNed By mANAGemeNt ANd BoARd At 31 deCemBeR 2006

MANAGEMENT SHARES

Lars Nilsen CEO 22 560 000 *)

Ketil Kvalvik CFO 6 000 Ole Feet CEO of Block Watne AS 15 400 BOARD

Harald Walther Chairman 21 200 *)

Hege Bømark Deputy Chairman 0 Petter Neslein Board member 60 000 *)

Brit Hagelund Board member, employee repr. 400 Tore Morten Randen Board member, employee repr. 200 Øyvind Wiik Board member, employee repr. 400

*) Incl. shares owned by related parties and/or companies

//16 CASh & CASh equiVAleNtS //16 CASh & CASh equiVAleNtS

//17 NumBeR of ShAReS - ShAReholdeRS //17 NumBeR of ShAReS - ShAReholdeRS

Notes Group

�0 // Block Watne Gruppen ASA // Annual Report 2006 //

SHARE SHARE PREMIUM TRANSLATION RETAINED TOTALRECONCILIATION Of CHANGES IN EQUITY (NOK 1 000) CAPITAL RESERVE DIffERENCES EARNINGS EQUITY

Group establishment 8 000 391 984 0 0 399 984Total recognised and expensed 0 0 0 7 979 7 979Balance 31 December 2005 8 000 391 984 0 7 979 407 963

Balance 1 January 2006 8 000 391 984 0 7 979 407 963 Total recognised and expensed 133 162 752 162 885Share issue, net 1 000 142 900 143 900Balance 31 December 2006 9 000 534 884 133 170 731 714 748

SHARE CAPITAL AND SHARE PREMIUM (NOK 1 000) 2006 2005

Issued at 1 January 399 984 0Issued on establishment (cash) 0 24 984New share issue (cash) 143 900 375 000Issued at 31 December, fully paid 543 884 399 984

At 31 December 2006, registered share capital consisted of 45 000 000 ordinary shares (31 December 2005: 40 000 000). The shares have a par value of NOK 0.20. Holders of ordinary shares are entitled to receive the adopted dividend and have one vote per share at the group’s annual general meeting. All shares carry equal rights to net assets.

tRANSlAtioN diffeReNCeS

Translation differences consist of all exchange differences arising on translation of obligations which hedge the group’s invest-ments in foreign subsidiaries.

diVideNd

After the balance sheet date, the board proposed that a dividend of NOK 2.50 (2005: NOK 0.00) per ordinary share be paid.No provision has been made for the proposed dividend and it has no tax implications, see note 26.

(NOK 1 000) 2006 2005

Mortgage loan 507 700 759 900Interest rate at 31 December 3.70% 3.51%

2007 2008 2009 2010 2011

Repayments 1200 1 200 40 200 461 200 1 200

The company’s mortgage loan is secured against shares in its subsidiaries. The loan carries a floating interest rate (3-month NIBOR + additions). See note 12 on forward rate agreements. In addition, the group has a small mortgage loan secured by a mortgage on office buildings.

//18 equity//18 equity

//19 NoN-CuRReNt liABilitieS to fiNANCiAl iNStitutioNS //19 NoN-CuRReNt liABilitieS to fiNANCiAl iNStitutioNS

Notes Group

// Annual Report 2006 // Block Watne Gruppen ASA // �1

(NOK 1 000) 2006 2005

Subordinated loans 95 000 95 000Interest rate at 31 December 4.50% 3.40%

The subsidiary Block Watne AS has been granted two subordinated loans by Lani Development AS. The loans amount to NOK 65 million and NOK 30 million respectively. The loans are not repaid, but can be cancelled by giving 12 months’ notice. The loans carry an annual interest rate based on the best investment rate plus one percentage point.

(NOK 1 000) 2006 2005

Bank overdraft 0 0Building and land loans 104 545 143 758Total current liabilities to financial institutions 104 545 143 758Interest rate at 31 December 3.70% 3.51%

Building and land loans are secured with collateral in projects and land. More information can be found in note 27, which shows the carrying amounts of collateral.

(NOK 1 000) 2006 2005

Product warranty provision, calculated 43 430 51 000Product warranty provisions, special projects 18 337 18 504Total product warranty provisions 61 767 69 504

Using reported warranty and claims costs over the last five years and their estimated distribution over five years (warranty period specified in the Norwegian act on construction of buildings), a fair assessment of the warranty provision is made, based on the previous year’s turnover. In addition, a specific assessment is made to ascertain whether there is a need for special provisions relating to larger claims. 2006 2005

Product warranty provision 1 January 69 504 0Used during year -18 027 0Reversed during year 0 0Deposited during year 10 290 69 504Product warranty provision 31 December 61 767 69 504

//20 SuBoRdiNAted loANS //20 SuBoRdiNAted loANS

//21 CuRReNt liABilitieS to fiNANCiAl iNStitutioNS //21 CuRReNt liABilitieS to fiNANCiAl iNStitutioNS

//22 pRoduCt WARRANty pRoViSioNS //22 pRoduCt WARRANty pRoViSioNS

Notes Group


Land obligations are contractual arrangements with landowners which involve an obligation on the part of the group to make payment. The obligation is not interest-bearing, but can in certain cases be adjusted to the consumer price index.

In previous years, the company reported agreements on land not defined as housing in the balance sheet. After a thorough review, it has been discovered that these cannot be recognised in the balance sheet. See also note 14.

If local authorities approve development of the areas, the group’s property values and obligations will increase by NOK 153.2 (2005: NOK 43.3) million. It is considered highly likely that the local authorities will approve such development. (NOK 1 000) 2006 2005

Land obligations 259 982 313 589Total product warranty provisions 259 982 313 589

(NOK 1 000) 2006 2005

Tax and public duties 9 923 8 946Employer contributions 9 543 12 702VAT 11 584 0Total 31 050 21 648

(NOK 1 000) 2006 2005

Accrued salaries. Holiday pay, etc. 49 655 43 545Accrued interest expense 130 2 111Product warranty provision 61 767 69 504Accruals 12 698 11 797Advance payments from customers 47 936 68 651Other current liabilities 81 139Total 172 266 195 747

No dividend was paid in 2006. The board has proposed that a dividend of NOK 2.50 per share be paid in 2007, totalling NOK 112.5 million. A provision for this amount has reported in the parent company’s balance sheet at 31 December 2006.

In accordance with IFRS, this is not recognised until the annual general meeting of shareholders has approved the dividend. This is scheduled to be held on 18 April 2007.

//23 lANd oBliGAtioNS //23 lANd oBliGAtioNS

//24 puBliC dutieS pAyABle //24 puBliC dutieS pAyABle

//25 otheR CuRReNt liABilitieS //25 otheR CuRReNt liABilitieS

//26 diVideNd//26 diVideNd

Notes Group

// Annual Report 2006 // Block Watne Gruppen ASA // ��

CARRYING AMOUNT Of THE COMPANY’S LIABILITIES SECURED AGAINST MORTGAGES (NOK 1 000) 2006 2005

Building and land liabilities 104 545 143 758Bank overdrafts 0 0Mortgage loan 507 700 759 900Total 612 245 903 658

CARRYING AMOUNT Of ASSETS PLEDGED AS COLLATERAL fOR LIABILITIES (NOK 1 000) 2006 2005

Shares 0 0Trade receivables 100 000 100 000Land and buildings under construction 825 900 878 173Property, plant and equipment 15 049 15 314Total 940 949 993 487

The amount under ”Land and buildings under construction” above corresponds to the total carrying amount in the consolidated accounts. Many small projects, in parts of, or in the entire construction process, are not pledged as collateral for liabilities.

Of the carrying amount of NOK 825.9 million in land and buildings under construction, NOK 260.0 million relates to land obligations (current liabilities). In previous years, the company reported agreements on land not defined as housing in the balance sheet. After a thorough review, it has been discovered that these cannot be recognised in the balance sheet. See also note 14. GUARANTEES (NOK 1 000) 2006 2005

Guarantee for advance payments 939 750 827 434Contract guarantees for building projects 130 749 102 932Other guarantees 41 514 84 404Total 1 112 013 1 014 770

The group has a number of operating leases relating to offices and warehouses. The leases have variable lease terms, although the average lease term is between 3 and 10 years, with a renewal option. The leases are not based on variable rent conditions.The group also has operating leases relating to cars and fixtures & fittings, which expire in the period 2007-2009. The group does not have any finance leases. ANNUAL LEASE PAYMENTS fOR Off-BALANCE SHEET ASSETS (NOK 1 000) 2006 2005

Cars, fixtures & fittings 2 705 237Rents 9 751 813Total 12 456 1 050

Lease payments are reported under other operating expenses. Future annual lease payments will be at the same level as in 2006.

The cash flow statement has been prepared using the indirect method.

CHANGES IN OTHER ACCRUALS, ITEMISED (NOK 1 000) 2006 2005

Changes in other receivables 3 782 0Change in public duties payable 9 402 -17 238Change in other current liabilities -15 724 -330Total -2 540 -17 568

//27 pledGed ASSetS ANd GuARANtee CommitmeNtS //27 pledGed ASSetS ANd GuARANtee CommitmeNtS

//28 leASeS//28 leASeS

//29 CASh floW StAtemeNt //29 CASh floW StAtemeNt

Notes Group

�� // Block Watne Gruppen ASA // Annual Report 2006 //

The group consists of the following units:

PARENT COMPANY REG. NO. ADDRESS

Block Watne Gruppen ASA 988 737 798 Oslo, Norge

REGISTERED NUMBER Of EQUITY (NOK 1 000)SUBSIDIARIES COMPANY REG. NO. ADDRESS SHARES % Of SHARES 31.12.06

Hetlandhus AS 986 157 913 Oslo, Norge 100 100% 120Block Watne AS 986 757 954 Oslo, Norge 4 000 000 100% 274 709Norpartner Sp.z.o.o. - - - Opole, Polen 3 676 000 100% 1 155

Pro forma figures for 2005 and 2004 prepared as if the group had been established on 1 January 2004. These figures have not been revised audited.

pRo foRmA iNCome StAtemeNt - ifRS BloCk WAtNe GRuppeN ASA-GRoup

(NOK 1 000) fULL YEAR 2005 fULL YEAR 2004

Sales revenue 1 492 022 1 226 976Other income 123 1 112Total income 1 492 144 1 228 088

Cost of materials 894 658 737 681Payroll and personnel expenses 283 383 258 414Other operating expenses 99 246 86 890Total operating expenses 1 277 287 1 082 985

Operating profit before depreciation/amortisation 214 857 145 103

Depreciation of property, plant and equipment 5 253 5 307Operating profit 209 604 139 796

Income from associates 1 920 0Other interest income 3 546 2 803Other finance income 0 0Change in market value of financial instruments 0 0Other interest expense -37 866 -34 567Other finance expense -4 856 -4 185Net finance costs -37 256 -35 949

Profit on ordinary activities before tax 172 348 103 847 Tax on profit on ordinary activities 47 784 29 087Net profit for the period 124 564 74 760

//30 GRoup StRuCtuRe //30 GRoup StRuCtuRe

//31 pRo foRmA iNCome StAtemeNt 2005 ANd 2004 – uNAudited //31 pRo foRmA iNCome StAtemeNt 2005 ANd 2004 – uNAudited

Notes Group


The group was established on 30 November 2005 through the acquisition by Block Watne Gruppen ASA of all the shares in Block Watne AS and Hetlandshus AS. The 2005 consolidated financial statements were reported in accordance with NGAAP. In addition to the standard consolidated accounts, a pro forma income statement was prepared in accordance with NGAAP, as if the group had been established on 1 January 2005.

The table below shows the effect of the transition from NGAAP to IFRS on the 2005 consolidated income statement, the 2005 pro forma consolidated income statement and the consolidated balance sheet at 31 December 2005.

30.11 - 31.12.2005

PROPERTY,

INCOME STATEMENT NGAAP PLANT & WORK PENSION IfRS(NOK 1 000) EffECT 2005 EQUIPMENT IN PROGRESS LEASING ExPENSE RECLASSIf. 2005

Operating income 89 729 89 729Cost of goods sold 1 -39 893 1 355 -38 538Payroll expenses 2 -24 380 -784 -25 164Other operating expenses 3, 6 -9 852 -2 -2 075 -11 928EBITDA 15 603 0 1 355 -2 -784 -2 075 14 098Depreciation 4, 5 -3 920 3 441 -479EBIT 11 683 3 441 1 355 -2 -784 -2 075 13 619Finance income and costs 6 -3 296 2 -3 295EBT 8 387 3 441 1 355 0 -784 -2 075 10 325Tax 7 -2 689 257 -2 432Net profit 5 698 3 441 1 355 0 -784 -1 818 7 893

pRofoRmA 01.01. - 31.12.2005 uNAudited

PROPERTY,

INCOME STATEMENT NGAAP PLANT & WORK PENSION IfRS(NOK 1 000) EffECT 2005 EQUIPMENT IN PROGRESS LEASING ExPENSE RECLASSIf. 2005

Operating income 1 492 144 1 492 144Cost of goods sold 1 -892 746 -1 912 -894 658Payroll expenses 2 -273 969 -9 414 -283 383Other operating expenses 3, 6 -97 580 17 -1 683 -99 246EBITDA 227 849 0 -1 912 17 -9 414 -1 683 214 857Depreciation 4, 5 -48 347 43 094 -5 253EBIT 179 502 43 094 -1 912 17 -9 414 -1 683 209 604Finance income and costs 6 -37 239 -17 -37 256EBT 142 263 43 094 -1 912 0 -9 414 -1 683 172 348Tax 7 -49 798 2 014 -47 784Net profit 92 465 43 094 -1 912 0 -9 414 331 124 564

Effect of IfRS1. Indirect cost of goods sold

2. Pension costs

3. NGAAP provision

4. Amortisation of intangible assets

5. Depreciation decomposed buildings

6. Lease costs are classified as finance expense

7. Net tax effect of changes

//32 tRANSitioN fRom NGAAp to ifRS //32 tRANSitioN fRom NGAAp to ifRS

Notes Group


PROPERTY,BALANCE SHEET NGAAP PLANT & WORK PENSION IfRS(NOK 1 000) EffECT 31.12.05 EQUIPMENT IN PROGRESS LEASING ExPENSE RECLASSIf. 01.01.06

ASSETS

Other intangible fixed assets 1, 3 0 322 322Trademarks 1 124 480 520 0 125 000Goodwill 1 702 824 -1 942 700 882Total intangible assets 827 304 -1 422 0 0 0 322 826 204

Property 2 15 314 -345 14 969Machinery and plant 2, 3 5 343 67 -322 5 088Fixtures/fittings, equipment and similar 2, 3 5 105 5 105Total property, plant & equipment 25 762 -345 0 67 0 -322 25 162

Investments in associates 3 938 3 938Loans to associates 2 651 2 651Other receivables 2 662 2 662Total financial assets 9 251 0 0 0 0 9 251Non-current assets 862 317 -1 767 0 67 0 860 617 Work in progress 3, 4 171 584 4 306 -1 737 174 153Assets held for sale 3 1 737 1 737Land 4 700 907 1 376 702 283Trade receivables 293 056 293 056Other current assets 19 581 0 19 582Bank deposits, cash and similar 129 479 129 479Current assets 1 314 607 0 5 682 0 0 1 320 290 Assets 2 176 924 -1 767 5 682 67 0 2 180 907 EQUITY

Paid-in capital 399 984 399 984Other equity 5 5 706 -1 818 4 091 7 979Equity 405 689 -1 818 4 091 0 0 407 963

Pension obligations 11 582 11 582Deferred tax 6 62 159 51 1 591 63 800Provisions 73 741 51 1 591 0 0 75 382

Subordinated loans 95 000 95 000Non-current interest-bearing liabilities 759 900 759 900Other non-current liabilities 0Non-current liabilities 854 900 0 0 0 0 854 900

Current interest-bearing liabilities 3 143 758 67 143 825Liabilities relating to land 313 589 313 589Trade payables 105 334 105 334Other current liabilities 279 913 0 279 913Current liabilities 842 594 0 0 67 0 842 662 Equity and liabilities 2 176 924 -1 767 5 682 67 0 2 180 907

Effect of IfRS1. Difference in the measurement of added value (intangible assets) and their amortisation

2. Decomposed buildings, difference in depreciation

3. Reclassifications

4. Indirect expenses

5. Earnings effect

6. Net deferred tax effect of changes

Notes Group


(nok 1 000) Note 01.01.-31.12.2006 20.09-31.12.2005

total income 0 0 Payroll and personnel expenses 1, 2 3 653 0Other operating expenses 4 217 1 702Total operating expenses 7 870 1 702

Operating profit before depreciation/amortisation -7 870 -1 702 Depreciation of property, plant and equipment 0 0Operating profit -7 870 -1 702 Income from investment in subsidiaries 3, 4 236 017 3 678Other interest income 1 077 533Other finance income 1 0Other interest expense -24 085 -2 510Other finance expense -5 0Net finance costs 213 003 1 702 Profit on ordinary activities before tax 205 133 0Tax on profit on ordinary activities 5 51 654 0Net profit for the period 153 479 0 Allocation of profit Dividend 8 112 500 0Transferred to other equity 8 40 979 0Total allocated 153 479 0

Income StatementBlock Watne Gruppen ASA


(nok 1 000) Note 2006 2005

ASSetS

NON-CURRENT ASSETSIntangible assets Deferred tax asset 5 209 0Total intangible assets 209 0 financial assets Investments in subsidiaries 4 1 100 000 1 100 000Total financial assets 1 100 000 1 100 000

Total non-current assets 1 100 209 1 100 000 Current assets Other receivables 6 236 037 3 696Bank deposits, cash and cash equivalents 7 17 487 48 525Total current assets 253 524 52 221

totAl ASSetS 1 353 732 1 152 221

Balance Sheet Block Watne Gruppen ASA


(nok 1 000) Note 2006 2005

equity ANd liABilitieS

EQUITYPaid-in capital Share capital 8, 9 9 000 8 000Share premium reserve 8 534 884 391 984Total paid-in capital 543 884 399 984

Retained earnings Other equity 8 40 979 0Total retained earnings 40 979 0

Total equity 584 863 399 984

LIABILITIES Provisions Pension obligations 1 762 0Total provisions 762 0

Other non-current liabilities Liabilities to financial institutions 10, 11 499 000 750 000Total other non-current liabilities 499 000 750 000

Current liabilities Trade payables 405 91Public duties payable 12 608 0Tax payable 5 51 863 0Provision for dividend 8 112 500 0Other current liabilities 13 103 732 2 147Total current liabilities 269 108 2 238

Total liabilities 768 869 752 238

totAl equity ANd liABilitieS 1 353 732 1 152 222

Oslo, 12 March 2007









Balance Sheet Block Watne Gruppen ASA


(nok 1 000) Note 2006 20.09-31.12.2005

Cash flows from operating activitiesProfit before tax 205 133 0 Changes in inventories, trade receivables and trade payables 314 91Difference between expensed pension and contributions/payments 1 762 0Change in other accrual accounting entries 15 -130 148 -1 550Net cash flow from operating activities 76 061 -1 459

Cash flows from investing activitiesPurchase of shares 4 0 -1 100 000Net cash flow from investing activities 0 -1 100 000

Cash flows from financing activitiesNew long-term liabilities 0 1 100 000 Repayment of long-term liabilities 10 -251 000 -350 000New share capital 8 143 900 399 984Net cash flow from financing activities -107 100 1 149 984

Net change in cash & cash equivalents -31 039 48 525Cash & cash equivalents 1 January 48 525 0Cash & cash equivalents 31 December 17 486 48 525

Cash flow Statement Block Watne Gruppen ASA

// Annual Report 2006 // Block Watne Gruppen ASA // �1

Basic principles – valuation and classification – other issues

Block Watne Gruppen ASA was incorporated on 20 September 2005.

The annual financial statements comprise the income state-ment, balance sheet, statement of cash flow, and accom-panying notes. The annual financial statements have been drawn up in accordance with the Public Limited Companies Act, the Accounting Act and generally accepted accounting principles in Norway as of 31 December 2006.

The annual financial statements are based on the basic principles of historical cost, comparability, going concern, matching and prudence. Transactions are recorded at the value of the consideration paid/received at the time the transaction took place. Revenues are taken to income when they are earned and costs matched against accrued revenues.

Assets/liabilities associated with the production and sale of goods, and items falling due for payment less than one year after the balance sheet day, are classified as current assets/current liabilities. Current assets/current liabilities are valued at the lower/higher of acquisition cost or fair value. Fair value is defined as the estimated future sales price, less estimated sales costs. Other assets are classified as fixed assets. Fixed assets are valued at acquisition cost. Fixed assets which have a finite life are depreciated. Should the value of a fixed asset change, and that change is deemed not to be temporary, the value of the fixed asset is written down.

Accounting principles for significant accounting items

Revenue recognition Revenues are recognised when they accrue.

Cost recognition/matching Expenses are matched against and recognised at the same time as those revenues with which they are associated. Expenses which cannot be ascribed to specific revenues, are recognised when they accrue.

Other operating revenues (costs)Material revenues and costs which are not associated with ordinary operations are classfied as other operating revenues or costs. Items which are unusual, irregular and of material sigificance are classified as extraordinary items.

Research and developmentExpenses associated with the company’s own research and development activities are recognised as they accrue.

Property, plant and equipmentProperty, plant and equipment are recorded on the balance sheet at acquisition cost, less accumulated depreciation and write-downs. If the fair value of an item of property, plant or equipment is less than its book value, and this is due to circumstances which are not expected to be of a temporary nature, the value of the item is written down to fair value. Expenses associated with major replacements or renovations which extend the life of the asset are capitalised. To be included under property, plant or equipment, assets must have an economic life of more than three years and a cost price in excess of NOK 15 000. Operational leasing contracts are recognised as normal leasing expenses and classified as ordinary operating costs.

DepreciationDepreciation is calculated in a straight line over the asset’s economic life, based on its historical cost price. Depreciation is classified as an ordinary operating cost.

financial assetsSubsidiaries A subsidiary is a company in which the Group holds 50 per cent or more of the shares.

Associated companies Associated companies are com-panies in which the Group has a shareholding of 18-50 per cent, where the investment is of a long-term, strategic nature and where the Group is able to exercise a significant influence. Shares in associated com-panies are valued in accordance with the general rules for valuation (cost method).

Accounting policiesBlock Watne Gruppen ASA


Pension liabilities and pension costs The company has an occupational pension scheme which entitles employees to agreed future pension benefits, ie a defined benefit scheme. Pension liabilities are calculated on the basis of linear accrual, with the number of years to re-tirement, the discount rate, future returns on pension assets, future regulation of salaries, pensions and social security benefits, and actuarial assumptions relating to mortality, voluntary withdrawal, etc, being important factors. Pension assets are valued at fair value. Net pension liabilities com-prise gross pension liabilities, less the fair value of pension assets. Net pensoin liabilities relating to underfunded schemes are capitalised as long-term interest-free liabilities, while net pension assets relating to overfunded schemes are capitalised as long-term interest-free receivables, if it is likely that the overfunding may be put to use. The liabilities associated with these schemes is calculated using the same principles as described above.

Changes in pension liabilities and assets which can be as-cribed to changes in or deviations from previous financial assumptions (estimate changes) are recognised in their entirety.

Net pension costs (gross pension costs, less the estimated return on pension assets) are classified as ordinary operating expenses and are presented together with salaries and other benefits. Cf. note 2.

The company is legally obliged to maintain an occupational pension scheme and meets the requirements of the Occu-pational Pension Schemes Act.

foreign exchangeThe translation of foreign currency transactions is carried out in accordance with accepted principles, ie that transactions in the income statement are translated using average exchange rates, while balance sheet items are translated using the rate in effect on 31 December.

Purchases of goods and services in foreign currencies were insignificant.

Deferred tax and tax expensesDeferred tax liabilities/assets are calculated on the basis of temporary differences between the accounting and taxable value of assets at the end of the financial year. The calculati-on is based on the nominal rate of tax. Positive and negative differences are offset within the same time period. Deferred tax assets arise if there are temporary differences which may lead to tax deductions in the future. The tax expense for the year comprises changes in deferred tax liabilities and deferred tax assets, as well as the tax payable for the financial year in question, corrected for errors in previous years’ calculations.

All figures in the tables presented below are in NOK 1 000, unless otherwise specified.

Accounting policiesBlock Watne Gruppen ASA


COSTS RECOGNISED AS PAYROLL COSTS (NOK 1 000) 2006 2005

Salaries and holiday pay 2 250 0Employer contributions 371 0Pension expense 914 0Other payroll costs 18 0Total 3 553 0

NUMBER Of EMPLOYEES

Average number of full-time equivalents 2 0

peNSioNS/RetiRemeNt BeNefit oBliGAtioNS

The company is obliged to have mandatory occupational pension arrangements under the Norwegian mandatory occupational pension act. Pension obligations consist of a collective pension plan (funded).

The underlying estimates were reviewed in autumn 2006 and are considered reasonable. A subsequent recommendation was made to use a lower discount rate (4.35%), a higher salary adjustment (4.5%), a lower pension adjustment (1.6%), a higher NI base rate change (4.25%) and a lower return (5.4%). The effect of this has been calculated and shows that net pension obligations for AFP increase by NOK 0.2 million. This has not been incorporated into the 2006 financial statements, as the calculation came after the annual financial statements were prepared. The collective pension schemes have 2 (0) members at the end of the year. EMPLOYEE BENEfITS (NOK 1 000) 2006 2005

Present value of unfunded obligations 0 0Present value of funded obligations 1 327 0Fair value of plan assets -659 0Present value of net obligations 668 0Unrecognised actuarial gains and losses 94 0 Recognised obligations relating to defined benefit pension plans 762 0 Obligations relating to seniority leave 0 0 Obligations relating to cash transactions 0 0Total employee benefits 762 0

CHANGES IN NET OBLIGATIONS RELATING TO DEfINED BENEfIT

PENSION PLANS RECOGNISED IN BALANCE SHEET (NOK 1 000) 2006 2005

Defined benefit pension obligations, 1 January 0 0Changes to estimates 0 0Deposits during the year -173 0Cost recognised in income statement 935 0Defined benefit pension obligations, 31 December 762 0

//01 pAyRoll CoStS ANd RemuNeRAtioN of employeeS //01 pAyRoll CoStS ANd RemuNeRAtioN of employeeS

Notes Block Watne Gruppen ASA


COST RECOGNISED IN INCOME STATEMENT (NOK 1 000) 2006 2005

Current service cost 149 0Capital cost of past service cost 56 0Gross pension expense for the year 205 0Expected return on plan assets -30 0Administrative expenses 24 0Accrued employer contributions 28 0Changes to estimates in profit or loss 0 0Change to pension obligations due to agreement changes 708 0Net pension expense for the year in income statement 935 0

ASSUMPTIONS USED TO CALCULATE PENSION ExPENSES 2006 2005

Discount rate 5.0% n./a.Salary adjustment 3.5% n./a.Pension adjustment 3.0% n./a.NI base rate change 3.0% n./a.Turnover 12.5% n./a.Anticipated AFP acceptance 62-67 years 75.0% n./a.Expected return 5.5% n./a.INVESTMENT Of PLAN ASSETS

Property 16% n./a.Shares 18% n./a.Floating bonds/certificates 24% n./a.Capital bonds 37% n./a.Other assets 5% n./a.Total financial assets 100% n./a.

SENSITIVITY ANALYSIS (NOK 1 000) ONE PER CENT POINT INCREASE ONE PER CENT POINT REDUCTION

Effect on pension obligation 8 -8

HISTORICAL INfORMATION (NOK 1 000) 2006 2005

Present value of pension obligation 1 327 0Fair value of plan assets -659 0Present value of net obligation 668 0

The company expects to contribute approx. NOK 0.2 million in payments to pension plans in 2007.



BoARd

The company paid NOK 230 000 in board fees in 2006. See below. . AUDITOR (NOK 1 000) 2006 2005

The following auditors’ fees were paid:Standard auditing 245 0Consulting services relating to IPO 481 0Tax advice 0 0Other 25 0Total 752 0

the folloWiNG RemuNeRAtioN WAS pAid to mANAGemeNt ANd BoARd iN 2006

(NOK 1 000)

OTHER PENSION BOARD Of DIRECTORS OTHER NAME POSITION SALARY BONUS BENEfITS PREMIUM fEES LOANS fEES

MANAGEMENT Lars Nilsen CEO 716 0 67 36 0 0 0 1)

Ketil Kvalvik CFO 574 0 130 87 0 0 0 BOARD Harald Walther Chairman 0 0 0 0 75 0 150 2)

Hege Bømark Deputy Chairman 0 0 0 0 50 0 0 Petter Neslein Board member 0 0 0 0 0 0 0 Brit Hagelund Employee repr. 0 0 0 0 30 0 0 3) Tore M. Randen Employee repr. 0 0 0 0 30 0 0 3)

Einar Hauge Employee repr. 0 0 0 0 30 0 0 3) Bjørn S. Ask Employee repr., deputy 0 0 0 0 6 0 0 3) John Brattebø Employee repr., deputy 0 0 0 0 9 0 0 3) Øyvind Wiik Employee repr. 0 0 0 0 0 0 0 3)

Comments1) Lars Nilsen was CEO of Block Watne AS until 1 June 2006. The amount is his salary from the company.

2) Other fees are invoiced from the individual business areas. These fees have been approved by the board.

3) Employee representatives on the board, including deputies, are employees of Block Watne AS.

The management group has agreements to receive salary 12 months beyond the given 6-month period of notice on certain conditions. There are no other agreements for the management group or board with regard to special compensation on termination of employment or change of position. The group is not under any obligation to grant the management group, board or other employees profit-sharing, options or similar benefits.

(NOK 1 000) 2006 2005

Group contribution from Block Watne AS 236 017 3 678

//02 RemuNeRAtioN of mANAGemeNt ANd BoARd //02 RemuNeRAtioN of mANAGemeNt ANd BoARd

//03 iNCome fRom iNVeStmeNt iN SuBSidiARieS //03 iNCome fRom iNVeStmeNt iN SuBSidiARieS



HOLDING/ SHARES, CARRYING SHARE Of SHARE OfSUBSIDIARIES (NOK 1 000) REG’D OffICE SHARE CAPITAL VOTING SHARE NOM. VAL. AMOUNT EQUITY 31.12.06 EQUITY 31.12.05

Block Watne AS Oslo 40 000 100% 10 1 095 000 274 709 255 995Hetlandhus AS Oslo 100 100% 1 5 000 120 120Total 1 100 000 274 829 256 115

CALCULATION Of DEfERRED TAx (NOK 1 000) 2006 2005

Offset differences

Net pension obligation -762 Loss carryforwards -16Basis of deferred tax -762 -16Deferred tax -213 -4

Change -209

TAx ON PROfIT ON ORDINARY ACTIVITIES (NOK 1 000) 2006 2005

Profit before tax 205 133 0Permanent differences -20 654Temporary differences -746 -16Basis of tax payable 183 733 -16Tax payable 51 445 -4Change in deferred tax 209 4Tax expense 51 654 0

THIS ITEM CONSISTS Of (NOK 1 000) 2006 2005

Receivables from group contributions 236 017 3 678Other receivables 20 18Cash and bank deposits 236 037 3 696

THIS ITEM CONSISTS Of BANK DEPOSITS AND SMALL AMOUNTS Of CASH IN HAND (NOK 1 000) 2006 2005

Cash and bank deposits 17 487 48 525Of which reserved for withholding tax 257 0

//04 SuBSidiARieS //04 SuBSidiARieS

//05 tAx//05 tAx

//06 otheR ReCeiVABleS //06 otheR ReCeiVABleS

//07 CASh & CASh equiVAleNtS //07 CASh & CASh equiVAleNtS



SHARE PREMIUM OTHER

(NOK 1 000) SHARE CAPITAL RESERVE EQUITY TOTAL

Equity 1 January 8 000 391 984 0 399 984Share issue 1 000 163 554 0 164 554Share issue costs 0 -20 654 0 -20 654Profit for the year 0 0 153 061 153 061Dividend 0 0 -112 500 -112 500Equity 31 December 9 000 534 884 40 561 584 445

the lARGeSt ShAReholdeRS iN BloCk WAtNe GRuppeN ASA At 31 deCemBeR 2006

SHAREHOLDER SHARES % Of TOTAL

Lani Industrier AS 20 210 000 44.91% Lani Development AS 2 250 000 5.00% Pareto Aksje Norge 1 972 700 4.38% Bank of New York, Brussels Branch, Equity 1 595 680 3.55% Vital Forsikring ASA 1 492 140 3.32% Bank of New York, Brussels Branch, Alpine 1 158 600 2.57% AG Invest AS 946 900 2.10% Bank of New York, Brussels Branch, Clients Account (Nom) 885 500 1.97% Pareto Aktiv 876 750 1.95% Verdipapirfond Odin Norden 861 700 1.91% GMO Foreign Small Companies Fund 805 000 1.79% Verdipapirfond Odin Norge 784 500 1.74% DnB NOR Norge (IV) 765 473 1.70% Citybank Intl. Plc (Nom) 512 800 1.14% Nordea Bank Denmark AS (Nom) 459 200 1.02% Commerzbank AG (Nom) 388 700 0.86% Skandinaviska Enskilda Banken (Nom) 378 500 0.84% UBS AG, London Branch (Nom) 356 800 0.79% Bank of New York, Brussels Branch, Treaty Account (Nom) 334 800 0.74%J P Morgan Chase Bank (Nom) 309 000 0.69%Total 20 largest shareholders 37 344 743 82.99%Other 7 655 257 17.01%Total 45 000 000 100.00%

Total number of shareholders 701 Par value of shares NOK 0.20

//08 equity//08 equity

//09 NumBeR of ShAReS - ShAReholdeRS //09 NumBeR of ShAReS - ShAReholdeRS



ShAReS oWNed By mANAGemeNt ANd BoARd At 31 deCemBeR 2006

MANAGEMENT SHARES

Lars Nilsen CEO 22 560 000 *) Ketil Kvalvik CFO 6 000BOARD

Harald Walther Chairman 21 200 *) Hege Bømark Deputy Chairman 0 Petter Neslein Board member 60 000 *) Brit Hagelund Board member, employee repr. 400 Tore Morten Randen Board member, employee repr. 200 Øyvind Wiik Board member, employee repr. 400

*) Incl. shares owned by related parties and/or companies

LIABILITIES TO fINANCIAL INSTITUTIONS COMPRISE A MORTGAGE

LOAN SECURED AGAINST SHARES IN SUBSIDIARIES (NOK 1 000) 2006 2005

499 000 750 000

At 31 December, the loan carries a floating interest rate (3-month NIBOR + additions). See note 9 on forward rate agreements.The loan is repaid as follows:

(NOK 1 000) 2007 2008 2009 2010

Repayments 0 0 40 000 459 000

//10 liABilitieS to fiNANCiAl iNStitutioNS //10 liABilitieS to fiNANCiAl iNStitutioNS



The group has entered into forward rate agreements amounting to NOK 250 000 thousand. The agreements have not been recognised in the income statement or balance sheet.

TRANSACTION CAPITAL START MATURITY INTEREST MARKET VAL.PRODUCT (NOK 1 000) DATE SUM DATE DATE RATE 31.12.06

Threshold Swap Ap. 17.01.06 100 000 06.03.06 07.03.11 3.62% 3 100Extendable Interr. Swap 24.04.06 150 000 05.09.06 06.06.11 3.10% 3 273 6 373

The market value is calculated based on the mid-point of the relevant interest curve and is confirmed by the financial institution which is the contracting party.

fiNANCiAl RiSk* 2006 2005

Net interest-bearing liabilities at 31 December 481 514 695 743Change in net interest expense in the event of a 1 per cent change in interest rates 2 315 6 957

* Financial risk is described in more detail earlier in this annual report

(NOK 1 000) 2006 2005

Tax and public duties 255 0Employer contributions 103 0VAT 251 0Total 608 0

(NOK 1 000) 2006 2005

Accrued salaries, holiday pay, etc. 762 0Accrued interest expense 130 1 974Short-term loans from subsidiaries 102 828 0Other current liabilities 42 173Total 103 762 2 147

//11 foRWARd RAte AGReemeNtS ANd fiNANCiAl RiSk //11 foRWARd RAte AGReemeNtS ANd fiNANCiAl RiSk

//12 puBliC dutieS pAyABle //12 puBliC dutieS pAyABle

//13 otheR CuRReNt liABilitieS //13 otheR CuRReNt liABilitieS



CARRYING AMOUNT Of THE COMPANY’S LIABILITIES SECURED AGAINST MORTGAGES (NOK 1 000) 2006 2005

Mortgage loan 499 000 750 000Total 499 000 750 000

CARRYING AMOUNT Of ASSETS PLEDGED AS COLLATERAL fOR LIABILITIES (NOK 1 000) 2006 2005

Shares 1 100 000 1 100 000Total 1 100 000 1 100 000

GUARANTEES (NOK 1 000) 2006 2005

Other guarantees 175 000 0Total 175 000 0

A guarantee has been issued to a mortgage insurance company on behalf of the subsidiary Block Watne AS.

The cash flow statement has been prepared using the indirect method. CHANGES IN OTHER ACCRUALS, ITEMISED (NOK 1 000) 2006 2005

Changes in other receivables -232 341 -3 696Change in dividend payable 112 500 0Change in public duties payable 608 0Change in other current liabilities -10 915 2 147Total -130 148 -1 550

//14 pledGed ASSetS ANd GuARANtee CommitmeNtS //14 pledGed ASSetS ANd GuARANtee CommitmeNtS

//15 CASh floW StAtemeNt //15 CASh floW StAtemeNt


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