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Hexagon Composites ASAKorsegata8p.o.Box8�6sentrum600�Ålesundnorway

phone:+4770��6445Fax:+4770��6440e-mail:[email protected]

2005AnnUAL RePoRt

� Hexagoncompositesasa Hexagoncompositesasa �

Contents

ABoUt HeXAGon CoMPosItes AsAHexagoncompositesasaisaleadingcompanyinthecompositesindustryinthenordicRegion.

composites are fibre-reinforced plastic products. theseproducts,whichhavethepropertyofhighstrengthcombinedwithlightweight,aretakingmarketsharesfromconventionalmaterials such as steel, aluminium, wood and concrete.Hexagoncompositesaimstorankamongthegloballeadersinselectednichesofthecompositesindustry.

ourproductscurrentlycomprise:• containersforstorageandtransportationofpropanegas (complet®)• systemsforbiogas,naturalgasandhydrogenforvehicles (tuffshell®)• materialsforhigh-strength,lightwindmillsandships• advancedcompositeantennas,mainlyforthedefence industry

innovationandproductdevelopmentplayacentralroleinthegroup’s operations.We concentrate on automated, industrialproduction processes, in combination with technologicallyadvancedandinnovativeproducts.togetherwithourtargetedinternational marketing initiatives, this enhances ourcompetitivestrength.

oRGAnIsAtIonHexagoncompositesasahasfivewholly-ownedsubsidiaries.Ragascoas(Raufoss),Devoldamtas(LangevågnearÅlesund),comrod as (tau near stavanger) and the two companieswhichcomprisethebusinessareaforhigh-pressurecontainers,Lincolncomposites(nebraska,Usa)andRaufossFuelsystemsas(Raufoss).centraladministrationofHexagoncompositesislocatedinÅlesund,inpremisessharedwiththespilkagroup,whichisourlargestshareholder.thetotalnumberofemployeesatyearendwas�50.

HeXAGon CoMPosItes AsA

HeXAGon CoMPosItes AsA

Composite Containers High-Pressure Containers Composite Reinforcements Composite Antennas

Hexagoncompositesasa 0�

KeYFigURes 05

gRoUppResiDent’sRepoRt 06

BUsinessaReas

compositecontainers 08

High-pressurecontainers �0

compositeReinforcements ��

compositeantennas �4

annUaLRepoRt �6

gRoUp

incomestatement �0

Balancesheet ��

cashflowstatement ��

changesinequity ��

notes ��

paRentcompanY

incomestatement 56

Balancesheet 57

cashflowstatement 59

notes 60

aUDitoR’sRepoRt 67

BoaRDanDaDministRation 68

coRpoRategoVeRnance 70

tHesHaRe 74

anaLYticaLinFoRmation 76

stRategiesanDVaLUes 77

inteRnaLanDexteRnaLenViRonment 78

aDDResses 79

Composite Containers High-Pressure Containers Composite Reinforcements Composite AntennasComposite Containers High-Pressure Containers Composite Reinforcements Composite Antennas

FinanciaLcaLenDaR�006:

6.apRiL�006 ��.maY�006 �8.aUgUst�006 �7.octoBeR�006 �6.FeBRUaRY�007

annUaLgeneRaL inteRimRepoRt, inteRimRepoRt, inteRimRepoRt, inteRimRepoRt,

meeting �stQUaRteR �nDQUaRteR �RDQUaRteR 4thQUaRteR

FinanciaLcaLenDaR�006:

6.apRiL�006 ��.maY�006 �8.aUgUst�006 �7.octoBeR�006 �6.FeBRUaRY�007

annUaLgeneRaL inteRimRepoRt, inteRimRepoRt, inteRimRepoRt, inteRimRepoRt,

meeting �stQUaRteR �nDQUaRteR �RDQUaRteR 4thQUaRteR

4 Hexagoncompositesasa Hexagoncompositesasa 5

HIstoRYinsummer�999,thespilkagroupbecametheprincipalownerofnorwegianappliedtechnologyasa.certainareasofactivitywere closed down during �999 and �000. a new boardwaselected and the head office was moved from stavanger toÅlesund.atthesametime,thegroupwasrenamedHexagoncomposites asa. the subsidiary comrod,whichmanufacturesadvanced composite antennas, continues to operate in thestavangerarea.

in June�000,HexagoncompositesmergedwithDevoldamt,whichwaspreviouslyprivatelyowned,withthespilkagroupasthe principal owner. Ragasco (formerly Raufoss composites)becamepartofthegroupinoctober�00�,whileRaufossFuelsystems(Raufoss)wasacquiredbyHexagonon�march�00�.in January�005, the company Lincoln composites also joinedthegroup’sranks.

IMPoRtAnt eVents In 200516. DeCeMBeRRagascostartssalesofcompositecontainersforpropaneinthenorthamericanmarket,withcontractualvolumesinitiallylow.Ragasco subsequently enters into agreements for small testdeliverieswithtworegionaldistributorsinnorthamerica.

17. noVeMBeRDevold amt signs an agreement with a large windmillmanufacturer.theagreementisexpectedtogenerateaturnoverofnoK�0millionin�006.aconditionfordeliveriesundertheagreement is successful matching of product materials tocustomer specifications. Deliveries will be made to a northeuropeanmanufacturingsite.

27. sePteMBeRcomrodsignsathree-yearoem(originalequipmentmanufacturer)agreement with Us radio manufacturer Harris corporation,RF communicationDivision. the agreement confirms comrod’sability to compete on an international front and represents abreakthroughintotheUsdomesticmarket.

26. sePteMBeRLincoln receivesaUsD�.�millionorder fromaustralia for thedelivery of composite containers for haulage of compressednatural gas (cng). Lincoln composites produces the largestcompositecontainersintheworldforthispurpose,withaweightreduction of 75 percent compared with conventional steelcontainers.

23. MAYit is announced that Raufoss Fuel systems is now developinghydrogen storage systems for think nordic’s hybrid carwhichrunsonhydrogenandbatteries.thecarwillbereadyfordeliveryduring�006.

17. MARCHchanges in the Hexagon Board of Directors. ingvild Vartdal, asolicitorinthelawfirmschjødt,becomesanewboardmember,whiletoreFjellandperHenningHanssen leavetheboard.thechangemeansthatthegroupisoneofthefewlistedcompanieswith40percentfemalerepresentationonitsboard.

1. FeBRUARYDevold amt and Brødrene aa are nominated for theJec composites award for an innovative vessel series, builtexclusivelyofcarbonfibreandvinylestersandwichcomposite.thecompanieswintheaward.

21. JAnUARYagreement with general Dynamics armament and technicalproducts,inc.(gDatp)fortheacquisitionoftheircompanywhichsupplieshigh-pressurecontainerstothecivilianmarket(Lincolncomposites).thecompanyhas40employeesandislocatedinLincoln,nebraska.

11. JAnUARYa marked increase in liquidity is announced. the increase isattributable to favourable trends in share turnover. the shareissue of �004, good news and a sharp price increase haveattractednewshareholders.

HeXAGon CoMPosItes AsA KeY FIGUResoPeRAtInG InCoMe AnD PRoFIt IFRs nGAAP(AMoUnts In noK 1000) 2005 2004 2003 2002 2001operatingincome 4�5078 ��7896 �986�0 �900�7 �76��5operatingprofit ��088 �60�6 ��55 906� 986�profitbeforetax �085� ��0�9 (7667) �46 598�profitaftertax ��8�5 �6486 (7�40) ��5 ��5� CAPItAL 31.12 totalassets 4��65� ��9590 ��5�7� �07�46 ��66�9totalequity �0��8� �80�77 ��8� ��877� ��6�equityratio(�) 49,00% 54,7 4�,7% 45,�% �5,0% PRoFItABILItY AnD RAte oF RetURn cashflowfromoperations �655� 4��8 �76�� 8�76 �05�6operatingmargin(�) 7,��% 8,�9% 0,8% �,�% 5,6%Returnonequity(�) ��,40% �0,60% -5,4% 0,�% �,8%totalrateofreturn(4) 9,80% 8,60% 0,5% 4,8% 5,6% sHARes sharecapital �5777 �57�� 4�64 �4�64 ��6�0totalno.ofshares��.�� 6��9868 ��5695549 �4��849 ��4��849 �0�0�7�96earningspershare(5) 0,�7 0,�4 (0,06) 0 0,04cashflowpershare(6) 0,�9 0,�6 0,�4 0,05 0,��equitypershare(7) �,6 �,4� �,�5 �,�� ,��

DeFInItIon oF KeY FIGURes �totalequityasapercentageoftotalassets�operatingprofitasapercentageofoperatingincome �profitaftertaxdividedbyaveragetotalequity 4profitaftertax+interestexpensedividedbyaverage totalassets 5netprofitfortheyeardividedbyaveragenumberof sharesoutstanding 6netcashflowfromoperationsdividedbyaverage numberofsharesoutstanding 7totalequitydividedbyaveragenumberof sharesoutstanding

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KeY FIGUResKeY FIGURes


it is the goal of Hexagon composites to secure a leadingpositioninglobalnichemarkets.Webelievewehaveachievedthisgoalinmostofourbusinessareasandweshallcontinuetomakethisacommonfocusin�006,alongsideourmaingoalofbuildingglobalstrengthincompositepressurecontainers.

the group was able to report another year of positivedevelopmentin�005.theacquisitionofLincolncompositesinJanuary �005 was highly successful and the group wasstrengthened and enhanced by it.We anticipate evenmoreactivityforthegroupin�006andlookforwardtotakingonmajor challenges and implementing the tasks we haveplanned. the group’s global strategy will be pursued bothorganicallybydevelopingourownorganisationandstructurallythrough binding partnershipswith, or acquisition of, relatedoperations.

themaingoalofbuildingglobalstrengthincompositepressurecontainers in �006 is relevant to the companies Ragasco,LincolnandRaufoss.Ragasco,thegloballeaderinlow-pressurecompositecontainersforpropaneandbutanegas,willbethesubjectofamajorinvestmentprogrammewhichwilldoublethe company’s production capacity. �006 will also see thefirst ever distribution of the complet® propane container inthenorthamericanmarket. this represents amilestone forRagasco,whichbegan itsefforts toobtain typeapproval forthecontainerasfarbackas�000.

Lincolncomposites,whichisagloballeaderinhigh-pressurecompositecontainers, isexperiencingsteadilyrisingdemandforcontainersfortransportationofnaturalgas.Until�005,thisdemandwasforfuelcontainersforvehiclesrunningonnaturalgas,butoverthepastyearwehaveexperiencedheightenedinterest in pressure containers for compressed natural gas(cng)haulagesolutions.thegrouphasdecidedthatweshallstrengthenourpositionassupplieroflargecompositepressurecontainers and has commenced development of a largepressurecontainerfamilythatwillincreasethestoragevolumepercontainertobetween�0and�0timesthatofthepresentseries. We are also increasing our activities in compressed

storageofhydrogenforthehydrogen-powered,zero-emissionvehicles of the future. Lincoln composites and Raufoss Fuelsystemsareworkingcloselywithseveralleadinginternationalautomotivegroupsinthisarea.

Devoldamtisinaphaseofpositivedevelopmentandiswellpositionedtoshareinthepresentgrowthintheinternationalwind power industry. We are working to strengthen thiscompanyintheglobalmarketandbindingpartnershipswithrelatedplayersinthissectorareontheagenda.

comrod is currently the leading global company in defenceantennasandantennasystems.trendsinthisareaaremovingincreasingly towards signal processing and electronics. thiscompanywillbe strengthened further in�006andweshallconsider additional niche acquisitions of related companiesto consolidate comrod’s position as defence communicationleader.

thegroup’smostimportantassetisouremployees.Developingglobalstrengthisasmuchaboutnurturinganddevelopingthestrengthanddriveofeachindividualemployeeasthecollectivestrength which emanates from effective joint groups andmanagementteams.Wemustsucceedhereinordertobebestatwhatwedo,whateverthemarketarea.

in Hexagon composites we are fortunate to work withtechnology and markets that are undergoing strongdevelopment.Wecreateproductsandsolutionswhichhelptomaketheworldalittlelighter.theyareenvironmentallysoundandalsocontributetowardsraisingthequalityandlifetimeofsystemsfortransport,energyproductionandcommunication.mayiventuretosaythatthisisaverysoundbasisforaglobalstrategy.

myverybestwisheserikespeset

grouppresident

GRoUP PResIDent:

- Global and strong

Composite Containers

High-Pressure Containers

Composite Reinforcements

Composite Antennas

RAGAsCo

RAUFoss/LInCoLn

DeVoLD AMt

CoMRoD

BUsIness AReAsBUsIness AReAs


its production capacity significantly. the annual productioncapacityatRaufossiscurrently500,000containers.

thegascontainersaresoldtoalargenumberofmarketsthroughthedistributionnetworksofstatoil,Bp,aga/Linde,exxonmobil,nesteoil,andUgi.thecomplet®containerhastypeapprovalforusethroughouttheeUarea,theUsaandothercountriesaroundtheworld.

Large-scale expansion of the sales markets is expected tocontinueoverthenextfewyears.Ragascoisactivelyengagedin

marketinginitiatives,bothaloneandinpartnershipwithBp.atotalpopulationof�00milliongascontainersineuropehasbeenestimated.

IFRs nGAAPKey figures, Ragasco 2005 2004 2003turnover ��878 8�965 90�4�operatingprofit �9740 -��78 98��profit/lossbeforetax �848� -�977 80�6

Composite Containers – RAGAsCo

thecompanywasestablishedin�997andislocatedinRaufoss.turnoverfor�005amountedtonoK��.9(8�.0)million.

Ragasco’smainproductsarepressurecontainersforpropaneandbutanegas(Lpg).productionofLpgcontainersisfullyautomated.this ensures solid competitiveness for Ragasco and forms thebasisofahigh levelofprofitability. the companyhasworkedintensivelytoexpanditsproductioncapacityinrecentyears,andthese efforts continued during �005. increasing capacity andstrengtheningproductionwill enable the company to grow inpacewithanexpandingmarket.PRoDUCts & PRoDUCt DeVeLoPMentpressure containers are traditionally made of steel, and areheavytohandle.steelcontainersaredegradedbycorrosionandcanrepresentanexplosionhazardinconnectionwithfire.

compositepressurecontainersaremuchlighter–oftenweighingonly half asmuch as a their steel counterparts – and do notcorrode. While a steel container will explode and shatter, acompositeonewillemptyduringcontrolledburning-off.

Ragasco’smainfocusistodevelopthemarketforcomplet®Lpgcontainers(Lpg=Liquefiedpetroleumgas).thelargestmarketareaisthehouseholdandleisuremarket,inwhichpropanegasisused for cooking,barbequesand toheat cabinsandpatios.complet®issuppliedinthreesizes–5,7.5and�0kg.in�004,the company started production of the second generation ofthesecontainers. in�005,aspecialcontainerdesignedforthenorthamericanmarketwasputintoproduction.Lpg containers have a number of advantages over steel, themost importantofwhichare theirweightandexplosion-proofproperties.otheradvantagesincludetransparency,whichallowsvisualmonitoring of thegas level at anygiven time,moderndesignlinesandgoodgrippingsurfaces,andthefactthatitcanbedeliveredinthegascompany’scoloursandlogoandstackedtofacilitatetransportationandstorage.

stRAteGYRagasco’soverallgoalistobethegloballeaderinsupplyingcost-effectivepressurecontainersforthestorageandtransportationofgas.thecompanyhasdefinedthefollowingmaingoalsfortheperiod�006to�008:- toincreaseproductioncapacitytoatleasttwice thelevelof�005- tosecuremajorsalesinnorthamerica- tomakepreparationsforestablishingaproduction locationinnorthamericaRagascowill alwayswork at being competitive. the companywillalsomeet thesector’shighest standardsof safetyandberecognisedasitsmostreliablesupplier.

MARKet & tHe FUtURegashaspropertiesthatmakeitparticularlysuitableinareassuchas leisure/gas barbecuing, household and transport. severalmarketsareshowingaconsiderableincreaseintheuseofLpg.innovember�004,Ragascowasgrantedfinalapproval for itscompositeLpgcontainersfromtheDepartmentoftransportation(Dot)intheUsathisapprovalgavethecompanyafootholdinone of the world’s largest and most attractive Lpg containermarkets.theUsmarketcurrentlycomprisesaround80millioncontainers,themajorityofwhicharemadeofsteel.inDecember�005,agreementsweresignedwithtworegionaldistributorsfortest deliveries in north america. the containers are beinglaunchedintheearlypartof�006.thecompanyiscontinuingitseffortstoestablishgooddistributionagreements.

Ragascomadeitsinternationalbreakthroughin�00�bysecuringa long-termcontractwithBp internationalLtd.theagreementcovers the sale and marketing of complet® in selectedinternationalmarkets. this became possible after the existingframework agreement with statoil was renegotiated to giveRagasco non-restricted international marketing rights. thisresultedinincreasedsalesintheeuropeanmarketin�004and�005,withRagascomaintainingitsstaffinglevelsandincreasing

Ragasco is one of the world’s leading manufacturers of composite pressure containers – strong, lightweight containers for propane and butane gas (LPG).

31,5%

68,5%

-5000 0 5000 10000 15000 20000

2003

2004

2005

�997–Raufosscompositesisestablishedasaseparatecompanyafter�5yearsworkingwithcompositesintheRaufossgroup.

�000–Fullyautomatedproductionplantcompleted,withannualcapacityof�50,000containers.

�006–complet®tobeintroducedintheUsmarket.

1997 1998 2000 2001 2002 2003 2004 2005 2006

�998–ownersstatoilandRaufossdecidetobuildanewfactoryfortheproductionofcompositepropanegascontainers,Ragasco.

�00�–thecompanyistakenoverbyHexagoncompositesasa.

�00�–thestatoilagreementisrenegotiated.anewinter-nationalagreementissignedwithBp.

�004–secondgenerationLpgcontainerslaunched

onthemarket.

�00�–new5kgcompositepropanecontainerfortheconsumermarketislaunched.

�005–productioncapacityisincreased.

tIMeLIne – RAGAsCo

Ragascoas’managementfromlefttoright:

skjalgstavheim,ØyvindHamre,

tommadsen,HansHenrikLarsenand

RuneUlekleiv

Ragasco’sshareofHexagongroupturnoverin�005:

Ragasco’sprofitdevelopmentoverthelastthreeyears.profit/lossbeforetax:

Ragascoas’managementfromlefttoright:

skjalgstavheim,ØyvindHamre,

tommadsen,HansHenrikLarsenand

RuneUlekleiv

Ragasco’sshareofHexagongroupturnoverin�005:

Ragasco’sprofitdevelopmentoverthelastthreeyears.profit/lossbeforetax:

�0 Hexagoncompositesasa Hexagoncompositesasa ��

High-Pressure Containers – RAUFoss & LInCoLn

the business area comprising Lincoln Composites and Raufoss Fuel systems develops and supplies complete natural gas and hydrogen storage systems, mainly to the automotive industry.

20,4%

79,6%2003

2004

2005

-5000 -4000-3000 -2000 -1000 0 1000 2000 3000 4000 5000 6000

Raufossissolesupplierofhigh-pressurestoragesystemsforgas-poweredvehiclestoVolvoBuscorporation.thepartnershiphasbeen in place since �996. in �004, Raufoss and Volvo Buscorporationsignedanewlong-termagreementforfuelstoragesystemsforVolvo’snewbusseriesaimedattheeuropeanmarket.

HYDRoGenthe major car manufacturers are investing large sums indeveloping alternatives to the present internal combustionengines.Fuelcellsareamongthemostlikelyalternatives,andcompositecontainersareideallysuitedforstorageofhydrogen.Raufoss is a development partner for hydrogen containersdesignedfortHinKcars.ForRaufossthiswillactasanimportantreferenceprojectfordevelopmentoftechnologyandmarket.

Lincoln has a number of hydrogen cooperation projects withparties in north america. the company is active in thedevelopmentofrelatedproductssuchasaccumulatorbottlesfor

off-shoreplatformsandpressurecontainersinanenergysavingsystemforheavy-dutyvehicles.thelatterapplicationmayofferconsiderablepotential.Lincolnisworkingunceasinglytodeveloplargercompositecontainers.

the business area has identified many exciting developmentopportunities for the future. increased energy prices havedirected the spotlightontohaulageofenergy ingas form.aspossiblytheworld’sleadingplayerinhigh-pressurecontainers,thebusinessareaiswellpositionedtoexploitthistrend.

IFRs nGAAPKey Figures, Raufoss/Lincoln 2005 2004 2003turnover 86556 �5988 �8055operatingprofit -�556 59�� -��6profit/lossbeforetax -4575 54�7 -�86�FiguresincludeLincolnfromJanuary�005.

tIMeLIne – RAUFoss & LInCoLn

�99�–Lincolncompositesstartsdevelopmentofplastic/compositecngcontainers.

�996–RaufossisestablishedasabusinessareaofRaufosstechnologyas.Firstcng

vesselsdeliveredtoVolvoandscania.

�005–UscompanyLincolncompositesbecomespartofHexagon,securingaleadingpositionforthe

groupinthenorthamericanmarket.

1993 1995 1996 2000 2003 2004 2005

�00�–RausfossistakenoverandincorporatedintotheHexagongroup

asawholly-ownedsubsidiary.

�004–RaufossischosenassupplierbyVolvoBuscorporationforthethirdtime.

Raufoss became part of the Hexagon group in �00�, whileLincolnwasacquiredinJanuary�005.thebusinessareaachievedaturnoverofnoK86.6millionin�005.thecompaniescoverthesameproductareas,withRaufossconcentratingoneuropeandLincolntargetingitsmainmarketsofnorthamericaandasia.

PRoDUCts & PRoDUCt DeVeLoPMentpressure containers are traditionally made of steel, whichincreases the weight of the vehicle and can cause corrosionproblems.compositepressurecontainersaremuchlighter,withcomparable or higher performance, and do not give rise tocorrosion problems. the business area has concentrated itsproductionofhigh-pressurecontainersinLincoln.

Lincoln Composites’mainproductareaishigh-pressurecompositecontainers for buses runningonnatural gas. Lincoln has beendeveloping plastic liners for a number of years through itspatented tuffshell concept. the companyproduces the largestcomposite containers of their type on the market. size isparticularlyimportantforroadhaulageofcompressedgas,asitprovides considerable advantages in terms of logistics. thecontainerscontributetowardsmajorweightreductioncomparedwith conventional steel containers. this substantially increasespayloadpervehicleandresultsinalowertransportationcostperunitofgasthanwhensteelcontainersareused.

Raufoss integrates containers with other components to formcomplete storage systems,whichare tailored toallowoptimalinstallationinvehicles.in�004,Raufossbegantodevelopanewsystem based on composite containers with a plastic liner toreplacethetraditionalaluminiumliner.

LincolnandRaufosshavedevelopedahighlevelofcompetenceand carved a strong position in this niche of the automotiveindustry.Bothcompetenceandpositionareenhancedbyactiveinvolvement in the preparation and revision of internationalstandardsandregulations.HexagonalsoworkswithitscustomerstoachieveoptimumintegrationofLincolnandRaufossproductsintotheirdifferentvehicleconcepts.

stRAteGYtheoverallgoalofthebusinessareaistobeagloballeaderinthedevelopmentanddeliveryoflargecontainersandsystemsforstor-ageofgasunderhighpressure(over�00bar).thebusinessareahasdefinedthefollowingmaingoalsfortheperiod�006to�008:- toobtainaminimumoftwonewmajorcustomersineurope- todevelopanewseriesoflargecontainers,approximately tentimesthesizeofthecurrentones.- topositionitselfastheleadingsupplierofcontainersto freightsolutionsfornaturalgasincompressedformLincolnwillremainconstantlycompetitivewithitscoreproducts,alwaysmeetthehighestsafetystandardsandberecognisedasthemostreliablesupplierintheindustry.

MARKet & tHe FUtURenew european requirements on emissions into the air haveheightenedtheinterestinnewformsofenergyforvehicles.theeU commission has drawn up an action plan to increase theproportionofalternative fuelsused in transport ineUmembercountries.cngandhydrogenarecentralelementsinthisplan.

CnGthemarketforcngvehiclesisexpectedtocontinuetogrowinthefuture.mostofthegrowthisexpectedineurope,boostedbyrequirements for eU countries to reduce pollution and particleemissions in large towns and cities, and a need for morediversifiedenergyconsumption.However,thetransportindustryin other parts of theworld is also appreciating the benefit ofcompositecontainers,mainlyduetotheirweightadvantages.

theacquisitionofLincolnsecuredaleadingpositionforthegroupinthenorthamericanmarket. in�005,LincolnreceivedaUsD�.� million order from australia for the delivery of compositecontainers for haulage of compressed natural gas (cng). theorderrepresentsageneralbreakthroughintothemarketforbulkhaulageofcompressedgasandisevidenceofthecompetitivenessof Lincoln containers. Use of composite containerswas in thiscaseaprerequisiteforimplementationoftheproject.

RaufossFuelsystemsas’management

fromlefttoright:persigurdHeggem,

tommadsen,FrankHäberliandWegarLøkken

Raufoss/Lincoln’sshareofHexagongroupturnoverin�005:

Raufoss/Lincoln’sprofitdevelopmentoverthelastthreeyears.profit/lossbeforetax:

Lincolncomposites’management

fromlefttoright:christinesimetich,

Williame.Dick,normannewhouse,

DaletillerandRitaHatten

RaufossFuelsystemsas’management

fromlefttoright:persigurdHeggem,

tommadsen,FrankHäberliandWegarLøkken

Lincolncomposites’management

fromlefttoright:christinesimetich,

Williame.Dick,normannewhouse,

DaletillerandRitaHatten

Raufoss/Lincoln’sshareofHexagongroupturnoverin�005:

Raufoss/Lincoln’sprofitdevelopmentoverthelastthreeyears.profit/lossbeforetax:

�� Hexagoncompositesasa Hexagoncompositesasa ��

maritimesectorcompositesaresuppliedprimarilytohigh-speeddefencevesselsandtheinnovativesegmentswithinhigh-speedcivilianvesselsand pleasure boats. the company’s close partnerships withleadingshipyardsinscandinaviahaveelevatedittothepositionofsolesupplierofadvancedfibrereinforcementstotheswedishnavy’s Visby class corvettes – the world’s largest carbon-fibreconstruction–andnorway’snewskjoldclassmtBs.

in�004,Brødreneaainnorwaylaunchedaninnovativevesselseries, using carbon fibre and vinylester sandwich composite.the hull was constructed using closed-mould technology. thematerials were supplied by Devold amt. Four different vesseltypeswere developed: an ambulance boat, a harbour shuttleboatandtwopassengercatamarans,accommodatingbetween

60to�80passengers.Usingcarbonfibrereducesstructuralmassby40percentandtheadditionalcostislessthan�0percent.thenewhullprovidesbetterpassengercomfortandimprovedfueleconomy. in spring �005, Devold amt and Brødrene aawerenominatedforandwontheJeccompositesawardforthisvesselseries. Jec composite is the world’s largest composites tradeshowandisheldannuallyinparis.

IFRs nGAAPKey figures, Devold AMt 2005 2004 2003turnover 96�90 97956 �04896operatingprofit -56�� 98 -5559profit/lossbeforetax -44�� 075 -9488

thecompanywasestablishedintheearly�990sandislocatedatLangevågnearÅlesund.turnoverfor�005amountedtonoK96.�(98.0)million.

Devoldamtisnowwellpositionedtoexploitthegrowthwhichis expected in the company’smost important segment. �005wasanactiveyearwithregardtosales,andthisisexpectedtobereflectedintheturnoverfiguresfor�006.PRoDUCts & PRoDUCt DeVeLoPMentDevoldamtsuppliesknittedfibrereinforcements,mainlymadeofcarbonandglassfibre,tothecompositesindustry.

multiaxialknittedreinforcementsaredirectional,straightfibreswhicharefixedtogetherusingknittingtechnology.thesetypesofreinforcementsareparticularlyappropriateinproductswhereweightandstrengthareimportantproperties.themostdemandingapplicationsarecurrentlyexperiencingashiftfromfibreglasstocarbonfibrereinforcements.theuniquestrengthofcarbonfibremakesitthenumberonematerialfordevelopinglighter,strongerandmorerigidreinforcements.

Devoldamtisakeycontributortoitscustomers’researchanddevelopmentwork, and has also participated in a number ofinternationalresearchprogrammes.thecompanyisrecognisedfor its expertise in developing new production technology,productsandsolutionsinclosecollaborationwithitscustomers.

stRAteGYDevoldamt’soverallgoalistobetheworld’sbestmassproducerof high-quality composite reinforcements based on knittingtechnology.thecompanyhasdefinedthefollowingmaingoalsfortheperiod�006to�008:- toestablishaminimumofonenewproductionlocation.- toformastrategicalliancetostrengthenthecompany asaglobalsupplier.- tosecureglobaldeliveriestoanumberofselected majorcustomers.Devoldamtwillachieveitsgoalsbymeansofextensivemarketpenetrationandcompetitivepricingofitsproducts.

MARKet & tHe FUtUReDevold amt’s focuses on wind power, followed by civilianand defence vessels, aerospace and the transport sector. thecompany’sprincipalmarket iswindpower,whichaccounts formorethan80percentofturnover.

theinternationalwindpowermarketexperiencedanupturnin�004and�005,but is still subject touncertainty.Devoldamtshares the optimism ofmarket analysts,who predict positivedevelopmentandgoodgrowthinwindpower,andthecompanyconsidersthistobeitsmostimportantmarketsegmentforthefuture.

in �005, the company entered into a cooperation agreementwith a large european producer of windmills. in �004, adistributionagreementwassignedwithFinnishcompanyBang&Bonsomer.Devoldamtisworkingtostrengthenitsdistributioningeographicalareaswhereitcurrentlylacksasalespresence.

Wind powerFollowingaweakperformancein�00�,thewindpowermarketexperienced a turnaround in �004. in �005, the companyhassuccessfully identified new openings and are positioned forupcoming projects in europe, north america and asia. Windpowerwillbethemosteasilyavailableandreasonableformofpure,renewableenergyintheforeseeablefuture.

Devoldamtisoneofthetopsuppliersoffibreglassreinforcementsfor windmill blades and supplies the largest players in thisindustry.DevoldamtdevelopedthereinforcementmaterialsforLmglasfiber’slargestwindturbinerotorbladeintheworld.thetwo companies have jointly developed a new patentedtechnologyforcombiningfibreglassandcarbonfibreintohybridreinforcements.themostimportantmarketsareeuropeandtheUsa,asbothareashaveastrongenvironmentalfocusandarecommittedtosafeguardingandincreasingthereliabilityoftheirelectricpowersupply.

Devold AMt is a leading supplier of multiaxial knitted fibre reinforcements – materials which make aircraft, ships and windmills lighter and stronger.

22,6%

77,4%

tIMeLIne – DeVoLD AMt

-10000 -8000 -6000 -4000 -2000 0 2000 4000

2003

2004

2005

�988–textilecompanyDevoldstartsdevelopmentoftechnicalreinforcementtextilesforuseindefencevessels.

�996–marketbreak-throughforcarbon-fibrereinforcementsformaritimeuse.

�005–newframeworkagreementwithmajorwindenergycustomerforfuturedeliveriestothewindmill

industry.WinnerofJecawardwithBrødreneaa.aprestigiousawardforinnovativecompositesolutions.

1988 1992 1995 1996 2000 2001 2002 2003 2004 2005

�99�–Devoldamtestablishedasseparatecompany.

�000–marketbreak-throughforfibreglassreinforcementsforthewindmillindustry.

�00�–stronggrowthindeliveriestothewindmillindustry.

�00�–stagnationinthewindenergymarket.Devoldamtimplementsrestructuringprogrammeandreducescosts.

Composite Reinforcements – DeVoLD AMt

Devoldamtas’managementfromlefttoright:

RaymondJohnsen,JohanFausa,BaardRøsvik,

KåreDybvikandDagolavtennfjord

Devoldamt’sshareofHexagongroupturnoverin�005:

Devoldamt’sprofitdevelopmentoverthelast�years.profit/lossbeforetax:

Devoldamtas’managementfromlefttoright:

RaymondJohnsen,JohanFausa,BaardRøsvik,

KåreDybvikandDagolavtennfjord

Devoldamt’sshareofHexagongroupturnoverin�005:

Devoldamt’sprofitdevelopmentoverthelast�years.profit/lossbeforetax:

�4 Hexagoncompositesasa Hexagoncompositesasa �5

in�004,comrodwonacontractworthnoK�7milliontosupplytacticalantennastoswitzerland.thecompanyalsosecured itsfirstdeliveriestothechinesemarket.

thedefencemarkethasgrownstronglyover recentyearsandthistrendisexpectedtocontinue.

IFRs nGAAPKey figures, Comrod 2005 2004 2003turnover �09559 �0677� 9�648operatingprofit �446� �67�9 ��79�profit/lossbeforetax �58�4 �50�9 9887

Antennas and Antenna systems – CoMRoD

thecompanywasestablishedin�948andislocatedintau,nearstavanger. turnover for �005amounted tonoK�09.6 (�06.8)million.

comrodisoneoftheworld’sleadingsuppliersofcommunicationantennasandrelatedsystems.thecompanysuppliesantennasand systems to the defence market and for commercial andmaritime use. the expertise gained from the development ofunique antenna technology in robust composites has enabledcomrodtobecomealeadingsuppliertotheglobalmarket.PRoDUCts & PRoDUCt DeVeLoPMentactive product development and close cooperation withcustomershavecreatedasound,competitiveproductportfolioforthecivilian/maritimemarketandthedefencemarket.severalofthepresentproductsaretheresultofcloseR&Dcooperationwith key customers. the company is engaged in continuousproductdevelopment.

theroleofsupplier to thedefencemarket isbothdemandingandchallenging,andtheprocesslastsalongtime.itnormallystartswithadevelopmentphase,whichcanlastseveralyears,andculminatesinamajorlong-termcontract.Defencecustomershaveextensiveexpertiseandarehighlydemandingintermsoftechnical specifications, delivery precision and functionalrequirements.atthesametime,thesecustomersmakevaluablecontributionstocompetencedevelopmentinthecompany.

comrod has fully integrated production, which means thecompanycontrolsall the importantprocesses indevelopment,marketingandsales,aswellasproductionitself.thisrepresentsacompetitiveadvantage,asallcoreprocessesandtechnologiesareprotectedandcontrolled.

stricter international rules on maritime communication havemadeitvitalfornewsolutionstobedeveloped.combinedVHF/gps antennas for use inais (automatic identification system)

arenowmandatoryonallvesselsunderthesoLas(safetyoflifeatsea)requirements.thisalsoappliestofishingvesselsover45metreslongwhichcallateeaports,includingthoseinnorway.

stRAteGIcomrod’s overall goal is to be the global leader in supplyingantennasandantennasystemsto thedefencecommunicationmarket.thecompanyhasdefinedthefollowingmaingoalsfortheperiod�006to�008:- toincreasesalesvolumestotheUsmarket- toacquireatleastonecompetingorrelatedcompany- tosecureatleastonemajoreuropeancustomer.inadditiontoitsroleoftraditionalantennasupplier,comrodwillsupply more of the related support systems for tacticalcommunicationsolutions.

MARKet & tHe FUtUReWith its long history, comrod is a strong international brand,known for its high-quality, long-lasting products. the mostimportantmarketwasthemerchantfleet,includingocean-goingfishingvessels,butlargedefencecontractsinrecentyearshavenowelevated thedefencemarket to thepositionof comrod’sprincipal market. global distribution, alliances with differentsystemsuppliers,quality,flexibilityandabilitytodeliverareallfactorswhichsharpenthecompany’scompetitiveedge.

inseptember�005,comrodsignedathree-yearoem(originalequipmentmanufacturer)agreementwithUsradiomanufacturerHarriscorporation,RFcommunicationDivision. theagreementcovers deliveries of tactical communication antennas for useboth in the internationalmarketand theUsdomesticmarket.this agreement confirms comrod’s ability to compete on aninternational front and represents a breakthrough into the Usdomesticmarket.

Comrod supplies high-quality, wide-coverage, stable antennas and related systems.

25,8%

74,2%

0 5000 10000 15000 20000 25000 30000

2003

2004

2005

tIMeLIne – CoMRoD

�960–productionofwhipantennasforthefishingfleetbegins,basedonfishingrodtechnology.

�988–Firstmajordefencecontractinsweden.

1960 1970 1988 1994 1996 1998 2002 2003 2004 2005

�970–antennatechnologyis

transferredtothedefencemarket.

thecompanybecomesaleadingsuppliertogmDssupgradesformerchantvessels.

�996–Firstmajorinternationaldefencecontractwithswitzerlandiswon.

�00�–prestigiousBritishBoWmandefencecontractissecured.

�00�–�5-yearoemagreementwithgerman

radiomanufacturerRohde&schwarz.

�004–newdefencecontractwithswitzer-land,andfirst-evercontractwithchina.

�998–Firstdeliveriestothenorwegian

armedForces’newmRRradios.

�005–contractwithUsradiomanufacturer

Harriscorporation.

comrodas’managementfromleft

toright:KariDuestad,Joeide,

olegunnarFjelde,torReidarBrekke,

niklasHermanssonandottarHølleslid

comrod’sshareofHexagongroupturnoverin�005:

comrod’sprofitdevelopmentoverthelastthreeyears.profit/lossbeforetax:

comrodas’managementfromleft

toright:KariDuestad,Joeide,

olegunnarFjelde,torReidarBrekke,

niklasHermanssonandottarHølleslid

comrod’sshareofHexagongroupturnoverin�005:

comrod’sprofitdevelopmentoverthelastthreeyears.profit/lossbeforetax:


overall,theHexagongroupperformedverysoundlyin�005.

thecompositecontainersbusinessarea(Ragasco)continuedtoperformwellinthemarketandwasabletoreportgoodresults.High-pressurecontainers(Raufoss/Lincoln)reportedstableoper-ating income, although profitability was unsatisfactory, as thebusinessareawasadverselyaffectedbythelackofcarbonfibre.the composite reinforcements business area (Devold amt)reportedamoderateturnoverandanegativeresult.compositeantennas(comrod)reportedgood,stableoperatingincomeandhighlysatisfactoryprofitfigures.

Hexagon composites had an operating income of noK 4�5.�millionin�005.operatingprofitwasnoK��.�millionandprofitbeforetaxnoK�0.9million.

BUsIness AReAsCoMPosIte ContAIneRs – RAGAsCo AsRagasco’s operating income for �005 amounted tonoK��.9(8�.0) million, which is a 6�.� percent increase on the �004figure. the company had a regular flow of deliveries of thecomplet®container,mainlytointernationalcustomers.RagascoislocatedinRaufossinnorway.

propane gas containers (complet®) are attractingmajor inter-nationalinterest.theproducthasstrongcompetitiveadvantages,suchas lightness, transparency,explosion-proofpropertiesandcorrosionresistance.thenewsecond-generationcomplet®,whichhasbeendeliveredthroughout�005,is�0percentlighterandismoretransparentthanthefirstgeneration.

towardstheendof�005,thecompanyenteredintonewagree-ments for small test deliveries with distributors who will belaunchingthecontainersonthenorthamericanmarket.Ragascoseestheseagreementsasthesecondstepintheintroductionofcomplet®intheUsa,thefirstbeingthecontainer’sapprovalbytheUsDepartmentoftransportattheendof�004.thecoope-rationwithinternationaldistributionpartnerBpinternationalLtdcontinuestobehighlyproductive.Bpisoneoftheworld’sleadingpropanedistributorsandconsiderscomplet®tobeanimportantinstrument in its strategy to sell propanegasasaproprietarybrandinuser-friendlyandsafecontainers.

Ragasco’soperatingprofitfor�005wasnoK�9.7(-�.�)million.thecompanyhasreportedexcellentresultssinceitssuccessfulrestructuringand streamliningprogramme in�004,and ithasbeendecidedtoimplementaninvestmentprogrammein�006.this is expected to increase production capacity considerably,with improved capacity utilisation producing lower unit costs.

anambitiousexpansionprogrammeofthistypewillbehighlydemandingoftheentireorganisation.

thenumberofemployeesinthecompanyat��December�005was 6� (55). sickness absence was 6.4 percent (7.9). During�005 there were no incidents of occupational injury causingabsence or material damage in the company. the company’sworkingenvironmentisconsideredtobesatisfactory.

thecompany’sproductionprocessesandwasteproductsdonotrequireanyspecialpermits.Wasteproductsaresenttoapproveddisposalsitesorrecycled.theproductsdonotpresentahealthhazardoncetheyleavethecompany.

HIGH-PRessURe ContAIneRs – RAUFoss/LInCoLnthe high-pressure business area’s operating income for �005amounted tonoK86.6(�6.0)million.thegrowthwas largelydue to the Hexagon group’s acquisition of general Dynamics’high-pressure container operation in the Usa on �� January�005,namelyLincolncompositesinc.

the business area comprises Lincoln composites inc (Lincoln),RaufossFuelssystemsas(Raufoss)andHexagontechnologyas.allproductionofhigh-pressurecompositecontainershas,forthepresent, beenmoved to theUsa. Lincoln sells containers andsystemsintheUsa,asiaandaustralia.

mostofRaufoss’andLincoln’ssalesare inthemarketforeco-friendlyvehicles,particularlygas-poweredbuses.DevelopmentintheeuropeanmarketisdrivenbythecurrenteURo4emissionrequirement,whichistheeUcommission’sactionplanforreduc-ingpollutionandparticleemissionsinlargetownsandreducingdependenceonpetrolanddiesel.theeUtargetisfor�0percentofallenergyusedinvehiclestobealternativefuelsby�0�0.in�005, the proportion of alternative fuels used in vehicles ineuropewasstillnegligible.

thebusinessareareportedanoperatinglossofnoK-�.6(6.0)millionin�005.thedeclineislargelyduetohighpricesandashortageoftheimportantresourcecarbonfibrein�005,plusthefactthatanimportantcustomersufferedamajordelayindevel-opmentofnewgasengines.

thenumberofemployeesinthebusinessareaat��December�005was 5�. sickness absencewas �.� percent (5.6). During�005 there were no incidents of occupational injury causingabsenceormaterialdamage.thecompanies’workingenviron-mentsareconsideredtobesatisfactory.

Annual reportthecompanies’productionprocessesandwasteproductsdonotrequireanyspecialpermits.Wasteproductsaresenttoapproveddisposalsitesorrecycled.theproductsdonotpresentahealthhazardoncetheyleavethecompanies.

CoMPosIte ReInFoRCeMents – DeVoLD AMt AsDevoldamt’soperating incomefor�005wasnoK96.� (98.0)million.mostofthecompany’srevenuesarefromsalestothewindpowerindustry.thismarketexperiencedstronggrowthin�005.

the company won several large customers in wind power in�005, although deliveries to these new customers will notcommenceuntil�006.thecompany’soperatingincomefor�005waslowerthangeneralactivityintheindustrywouldindicate.Devoldamt’ssalestothewindpowerindustryamountednoK76.9million,comparedwithnoK76.�millionthepreviousyear.

goodgrowthisforecastinthewindpowerindustryin�006andbeyond, although the sector is expected to continue to sufferfrompressedmargins.in�005,Devoldamt’sentireoperationwaslocatedinLangevåg,nearÅlesund,innorway.thecompanyhasdecidedtoestablishanewproductionunitinLithuaniain�006.thiswillincreasetheproductionvolumeandspreadoperationalriskovertwoproduc-tionsites.

thecompanyreportedanoperatinglossofnoK-5.6(�.�)millionin�005.thedeclinewasduetoinsufficientcapacityutilisationintheproductionsystem.

thenumberofemployeesinthecompanyat��December�005was59(58).sicknessabsencewas6.�percent(�0.6).in�005,therewasone incidentofoccupational injurycausingabsenceand no incidents causing material damage. the company’sworkingenvironment is considered tobesatisfactory.sicknessabsencefellcomparedwiththepreviousyear,andthecompanyisworkingonmeasurestoreducethefiguresevenmore.

thecompany’sproductionprocessesandwasteproductsdonotrequire any special permits. Waste products are sold as rawmaterialsandsenttoapproveddisposalsites.theproductsdonotpresentahealthhazardoncetheyleavethecompany.thecompanyhasinprogressaprogrammeaimedatobtainingiso�400�environmentalcertificationin�006.

CoMPosIte AntennAs – CoMRoD Asthecompany’soperatingincomefor�005wasnoK�09.6(�06.8)million.thedefencecommunicationmarketwasstrongin�005,

with growth expected to continue over the next few years.comrod is actively engaged in development in its businesssegment, and is probably the leading integrated supplier ofantennas to the international defence communicationmarket.noK87.� (85.6)millionof sales in�005were to thedefencemarket.comrodoperatesfromtau,nearstavanger,innorway.

in�005,thecompanywasawardeda�-yearcontractwiththeUsradiomanufacturerHarriscorporation.thecontractgivescomrodan important foothold intheUsmarket,afterseveralyearsoffocusedwork.

thenaval/commercialmarketwasstablein�005withsalesofnoK�0.�(�0.7)million.newdevelopmentinthisareaispartlydependentonthesolutionsadoptedfordefenceantennas.

in�005,comrodmadefurtherinvestments,inordertorationaliseoperations, improveproduct flow, reduceunit costs andboostcapacity.itisexpectedthatthesemeasureswillhelptomaintainthecompany’sgoodlevelofearnings.thecompanyhadanoperatingprofitofnoK�4.5(�6.7)millionin�005.thisshowsthattheprofitabilitytrendwhichbeganin�004iscontinuing.

comrodhasenteredintoanagreementtoacquirethedefencepowersupplybusinessofeltekasa.thebusinesswasacquiredfornoK�5millionandtheacquisitionwereconsummatedwitheffectfrom�march�006.thebusinessareashalltolicensetheuniqueFlatpack�technologyfromeltekanddevelopitforde-fenceapplications.comrodenvisagesmarketsynergiesfromco-ordinatingthiswithitsexistingmarket.

thenumberofemployeesinthecompanyat��December�005was 76 (74). sickness absence was �.6 percent (�.6). During�005 there were no incidents of occupational injury causingabsence or material damage in the company. the company’sworkingenvironmentisconsideredtobesatisfactory.

the company does not release any substances into thesurroundingenvironmentwhichrequireanykindofpermit,andnohealthhazardsareassociatedwithitsproducts.Wasteissenttoapproveddisposalsites.

PARent CoMPAnY – HeXAGon CoMPosItes AsAgroupadministration is located inÅlesund,andcomprises thegrouppresident,who isanemployeeof theparent company,thechiefFinancialofficer,whoholdsthesamepositioninDevoldamt, the Director of accounting and control, a group Directorresponsibleforhighpressurecontainersandacompanysecretary

AnnUAL RePoRt AnnUAL RePoRtAnnUAL RePoRtAnnUAL RePoRt


hiredinfromspilkagrouponapart-timebasis.thisarrangementprovides cost-effective group management. operating profitamountedtonoK-5.4(-5.4)million.

group administration did not report any sickness absence orincidents causing personal injury or material damage. thecompany’soperationsdonotpollutetheexternalenvironment.

GRoUPthegroup’soperatingincomefor�005wasnoK4�5.�(��7.9)million.

operating profit amounted to noK ��.� (�6.0) million. netfinancialitemsamountedtonoK-0.�(-4.0)million.profitbeforetaxwasnoK�0.9(��.0)million.netcashflowfromoperatingactivitieswasnoK�6.6(4�.�)million.

theequityratiowas49.0percent(54.7).thegroup’sliquidityisgood.overall, theBoard is generally satisfiedwith this year’sresults,particularlyforRagascoandcomrod.theresultsforhigh-pressurecontainersandreinforcementswereunsatisfactory.

thenumberofemployees in thegroupat��December�005was�50(�98).

it is the Board and management’s wish to promote diversityandequalityinallareas.accordingly,thecompanyhasmadeita priority to seekhighly-qualifiedwomenasnewappointees,and preference is given to womenwhen all other conditionsare equal. However, as most workplaces in the group areconnected with industrial production, which is a traditionallymale-dominatedarea,Hexagoncompositesfacesachallengehereatallitslocations.theBoardhas40%femalerepresentation.

the financial statements for �005 have been prepared onthe basis of a going concern. the Board of Directors confirmscompliance with the provisions of § �-� of the norwegianaccountingact.

enVIRonMentAL RePoRtInGthegroupdoesnotreleaseanysubstancesintothesurroundingenvironmentwhich requireanykindofpermit,andnohealthhazardsareassociatedwithitsproducts.Remainsfromproductioninallsubsidiaries,suchasmetalshavings,aresenttoanapproveddisposal centre. this also applies to specialwaste, such as oilemulsions.otherwasteisseparatedatsourceanddepositedatthe inter-authoritywastedisposal site.Ragasco’sproduction inRaufoss releases exhaust gases containing styrene,which arecleared in a separate treatment plant. the remaining styrene

whichdoesnotpassthroughthetreatmentplantisfedoutthroughtwo jet cowls in the ceiling. external emissions are registeredannually and reported to the norwegian pollution controlauthority (sFt). Lincoln composites complies with the currentenvironmentalregulationsofnebraska,Usa.thesearespecifiedin thenebraskaHazardousWasteRegulations.Raufosshasanenvironmentmanagementsystemwhich iscertifiedunder iso�400�.Devoldamthasbegunaprogrammeaimedatobtainingthesamecertification.

FInAnCIAL RIsKMarket riskthe company is exposed to fluctuations in exchange rates,particularlytheeuroandUsdollar,asalargeproportionofthecompany’srevenueisinforeigncurrency.thenetcurrencyriskisreduced by means of foreign exchange derivatives, foreigncurrency loansandbypurchasingproducts in foreigncurrency.thisalsoreducestheoperationalmarketrisk.

thecompanyisexposedtochangesininterestrates,asitsliabil-itieshavevariable interest rates.changes in interest ratescanalsoaffectinvestmentpotentialinfutureperiods.

Credit riskthe riskofa counterpartynothaving thefinancial capacity tofulfilitsobligationsisconsideredtobelow,astherehavebeenfewbaddebtlossesinthepast.thegroup’sgrosscreditriskwasnoK8�millionatthebalancesheetdate,whichisanincreasefrom�004,whentradereceivablesamountedtonoK5�million.thesefiguresdonotincludeamountsduefromgroupcompanies.credit risk insuranceorother receivables insurance isused forcustomerportfoliosconsideredtorepresentsubstantialcounter-partyrisk.

there are no netting agreements in place or other financialinstrumentstominimisecreditriskinHexagoncompositesasa.

Liquidity riskasthecompanyconsidersliquiditytobegood,nomeasurestochangetheliquidityriskwillbeintroduced.atthebalancesheetdate,thelevelofcreditfacilitieswastemporarilyincreasedfromnoK�5milliontonoK45million.Followingtheraisingofnewlong-termdebt,thecompanywillseektokeepthelevelofshort-termcreditfromlendinginstitutionsatnoK�5million.theduedatesfortradereceivablesremainthesameandotherlong-termreceivables have not been renegotiated or settled. Followingrenegotiationoflong-termloansin�005,theaveragedurationof long-term liabilities increased,withan improvement in theratiooftotalliabilitiestoannualrepayments.

Raw materials riskagreementsareenteredintoforrawmaterialswhichrepresentalargepartofthegroup’sfinishedproducts.thesearenormallyonanannualbasis,withanagreedpriceandquantityfortheperiod of agreement. the company endeavours to have thesame commitment periods in its raw materials purchasingagreementsasinitsagreementsforthesaleoffinishedproducts.in�005,thereweresomedifficultiesinobtainingcarbonfibre,which is a main ingredient in high-pressure containers (forcng/hydrogen)andwhichisalsoused(�0%ofturnover)intheareaoffibrereinforcements.the situation is expected to continue to be difficult in �006,although the group has managed to increase its access tocarbonfibreconsiderablycomparedwithpreviousyears.apartfromfixed-pricecontractswithsuppliers,therearefewoppor-tunitiesforhedgingthegroup’smostimportantrawmaterialsbyusingderivativesorfinancialcontracts.

sHARe PRICe DeVeLoPMentthegroup’ssharesperformedwellin�005.atthestartoftheyearthesharepricewaslistedatnoK�.�9,andbytheendoftheyearithadrisentonoK7.�0.generalpricemovementsontheoslostockexchangewerepositivein�005.moredetailedinformationon theshareand itspricedevelopment is shownelsewhereinthisannualreport.

FUtURe PRosPeCtsRRagasco performed well in �005, with a sharp increase inoperating income and profit. the company is implementinginternationalmarketpenetrationinaccordancewiththegroup’splans. a large-scale investment programme is scheduled for�006,whichwillboostdeliverycapacitysignificantly.

theacquisitionof Lincolncomposites in�005addedstrengthandefficiencytothegroup’soperationscoveringhigh-pressurecontainersandsystemsforeco-friendlyvehicles.Raufoss/Lincolnhasestablishedthemselvesastheleadingglobalplayersinthisarea, with sales in europe, north america and asia. Raufossand Lincolnwork closelywith selected customers to developcompositecontainersforhydrogen.theyalsotakepart inthetesting of hydrogen as an energy carrier,which is conductedinalargenumberofcountries.thebusinessareaisexpectedtoimproveonthe�005resultsin�006.

Devold amt made an important breakthrough in the windpowermarketin�005bywinningseveralmajorcustomers.thecompanyispoisedtotakeadvantageoftheexpectedmarketgrowthandhasdecidedtoinvestinnewcapacitybyestablishinga production site in Lithuania during �006. the company’sresultsareexpectedtoimprovein�006.

comrodmaintaineditshighlevelofoperatingincomeandprofitin�005.thecompanyisprobablytheleadingglobalplayerinantennasforthedefencecommunicationmarket.comrodhasachieved a unique market position internationally, and thecompanyiscurrentlyengagedinplansfororganicandacquisition-basedgrowthaimedat broadening theproduct portfolio andincreasingsalesthroughestablishedchannels.prospectsforthecompanyin�006andbeyondcontinuetobegood.

the group has several development projects which may bedeveloped into commercial business areas in the future. ofparticular interest are Lincoln’s high-pressure accumulator forhydraulic regeneration of braking power for vehicles (hybridvehicles), and the development of larger containers for bulktransportationofcompressednaturalgas.

Hexagon composites has a number of focused strategies forthe management of operational and financial risk. thesearedescribedinmoredetailinthesectionentitled“analyticalinformation”.

ALLoCAtIon oF PRoFIt FoR tHe YeAR In HeXAGon CoMPosItes AsA the Board of Hexagon composites asa (parent company)proposesthattheprofitfortheyearbeallocatedasfollows:

profitfortheyearofnoK��.7milliontobetransferredtootherequity.

Distributableequityat��.��.�005:otherequity noK �7,6mtaxasset noK 0,7mDistributableequity noK �6,9m

Ålesund,9march�006

KnutFlakk gunnars.Bøckmann ingvildVartdalchairmanoftheBoard

sverrenarvesen marianneL.Borchgrevink erikespeset grouppresident

AnnUAL RePoRt AnnUAL RePoRtAnnUAL RePoRt AnnUAL RePoRt


Consolidated Balance sheet(noK 1000) note 31-12-05 31-12-04Assets non-current assets property,plantandequipment �� 8468 �056��intangibleassets �� 87908 64�08pensionassets �0 0 ��9othernon-currentassets �� 679 40�Deferredtaxasset 8 ��646 �99�7totalnon-currentassets ��9700 �90�87

Current assets inventories �4 65047 4�797tradereceivables �5 8��85 5�96�Forwardexchangecontracts �6 �46� 6��4othercurrentassets �6 ��954 ��Bankdeposits,cashandsimilar �7 �0�04 �5909totalcurrentassets �7�95� ��9�0�total assets 4��65� ��9590 eqUItY AnD LIABILItIes equity sharecapital �8,�9 �5777 �57��sharepremiumreserve �8,�9 �40486 ��9��0ownshares �9 -98 -98otherpaid-incapital �9 �05� �05totalpaid-incapital �57��7 �550�9Revaluationreserve �9 �09� 4�6�otherequity �9 4407� ��076totalretainedearnings 45�64 �5��8totalequity �0��8� �80�77

non-current liabilities non-currentinterest-bearingliabilities ��,�5 88�00 57�65pensioncommitments �0 ��707 ��75totalnon-currentliabilities �00007 69�40Current liabilities short-termloans �7,��,�5 ��79� ��647tradepayablesandothercurrentliabilities �4 7��65 5�7�6provisions �� 6�06 6600totalcurrentliabilities ��0�64 7997�totalliabilities ��0�7� �49�� total equity and liabilities 4��65� ��9590

BALAnCe sHeet

Balance sheet

Consolidated Income statement for period 1 January to 31 December

(noK 1000) IFRs nGAAP

operating income note �005 �004 �004 �00�salesrevenue 4 4�5078 ��7896 ��7896 �979�0otheroperatingincome 6 0 0 74� 690totaloperatingincome 4�5078 ��7896 ��86�7 �986�0

operating expenses costofmaterials �4 �8�455 ��5590 ��5590 ��9076payrollandsocialsecurityexpenses �0,�0,�7 ��0456 8607� 85�0� 8��94Depreciation/amortisation ��,�� 07�8 �56�5 �4�57 ��58�otheroperatingexpenses �5 70�4� 6457� 65�� 60�04totaloperatingexpenses �9�990 �9�860 �0056� �96�55 operating profit/loss ��088 �60�6 �8076 ��55

Finance income and expense Financeincome 7 ��889 747� 645� 865�Financeexpense 7 ��6 ��49� ��9�8 �8674netfinancialitems -��7 -40�7 -5486 -�00�� profit/lossbeforetax �085� ��0�9 ��590 -7667 taxexpense 8 90�7 55�� 4774 -��7 Profit/loss for the year ��8�5 �6486 78�6 -7�40 earningspershare(noK) 9 0,�7 0,�4 0,07 -0,06Dilutedearningspershare(noK) 9 0,�7 0,�4 0,07 -0,06

Income statement

InCoMe stAteMent


noteR

note 1 GeneRALHexagoncompositesasaisapubliclimitedcompanywithitsregisteredofficeinnorway.thecompany’sheadofficeisatKorsegata8,600�Ålesund,norway.

theboardofdirectorsauthorisedtheannualreportforpublicationon9march�006.

thegroup’sbusinessisdescribedinnote4.

note 2 ACCoUntInG PRInCIPLes2.1 Benchmark treatmentWitheffectfrom�January�005,theconsolidatedfinancialstatementsfortheHexagongrouparepreparedinaccordancewiththeinternationalreportingstandardspublishedbytheinternationalaccountingstandardsBoard.comparativefiguresfor�004havebeenrestated.asthesearethecompany’sfirstiFRsaccounts,iFRs�,First-timeadoptionofinternationalFinancialReportingstandards,hasbeenapplied.

themeasurementbasisusedishistoricalcost.2.2. Functional currency and presentation currencythegrouppresentsitsaccountsinnoK.thisisalsothegroup’sfunctionalcurrency.Forconsolidationpurposes,balancesheetfiguresforsubsidiarieswhichhaveadifferentfunctionalcurrencyaretranslatedattheexchangerateonthebalancesheetdate,andincomestatementfiguresaretranslatedat the average exchange rate for the period. translation differences are credited or charged to equity. on disposal of a foreign subsidiary, anyaccumulatedtranslationdifferencesarerecognisedintheincomestatement.

2.3 Consolidation principlestheconsolidatedfinancialstatementscompriseHexagoncompositesasaandthecompaniesitcontrols.controlnormallyexistswhenthegroupowns,directlyorindirectly,morethan50%ofthesharesinacompany,andthegroupisinapositiontoexerciseactualcontroloverthecompany.

theacquisitionofanenterpriseisaccountedforbyuseofthepurchasemethodofaccounting.companiespurchasedorsoldduringtheyearareconsolidatedfrom/tothedateofconsummationofthepurchase/sale.investmentsinassociates(normallybetween�0%and50%oftheinvestee’sequity)overwhichHexagoncompositesasahasasignificantinfluenceareaccountedforbyuseoftheequitymethod.thevalueoftheseinvestmentsismeasuredwhenthere isevidenceof impairmentorwhenpreviously identified impairment lossesno longerapply.Whenthegroup’sshareoflossesexceedsitsinterestintheassociate,thegroup’sinterestisenteredasazeroamount.ifthegroup’sshareoflossesexceedsitsinterest,aliabilityisrecognisedtotheextentthatthegrouphasincurredcommitmentstocoversuchlosses.

allotherinvestmentsareaccountedforinaccordancewithias�9,Financialinstruments,Recognitionandmeasurement.

intra-group transactionsandbalances, including internalearningsandunrealisedprofits/losses, areeliminated.Unrealisedprofits resulting fromtransactionswithassociatesareeliminatedtotheextentofthegroup’sinterestintheassociate.Unrealisedlossesarealsoeliminated,providedthereisnoevidenceofanyimpairmentoftheassetsoldinternally.

theconsolidatedfinancialstatementsarepreparedusinguniformaccountingpoliciesforliketransactionsandeventsinsimilarcircumstances.

2.4 Cash & cash equivalents cashincludesbankandcashbalances.Bankoverdraftsareincludedasacomponentofcash&cashequivalentsinthecashflowstatement.

2.5 trade receivablestradereceivablesarerecognisedathistoricalcostlessimpairmentlosses.

note 2 Cont. ›

CAsH FLoW stAteMent & CHAnGes In eqUItY

Cash flow statementCash flow from operating activities note 2005 2004 profitbeforetax �085� ��0�9gains/lossesonsaleofproperty,plant&equipment 449 -706Depreciation/amortisation ��,�� 07�8 �56�5changesininventories,tradereceivables/payables -�9��4 �755changesinpensionprovisions -�49 �4��changesinotheraccrualaccountingentries �987 ��netcashflowfromoperatingactivities �655� 4��8

Cash flow from investing activities proceedsfromsaleofproperty,plant&equipment 0 �400purchaseofproperty,plant&equipment -�57�� -��60�purchaseofoperations/subsidiaries 5 -58957 0otherinvestments -�78 -�0�netcashflowfrominvestingactivities -94968 -��40�

Cash flow from financing activities newlong-termliabilities �04��9 0Repaymentoflong-termliabilities -84�95 -��068netchangeinbankoverdraft �� 56 -�9�6�newsharecapital �9 �4�� 850netcashflowfromfinancingactivities 4�7�� -7580

netchangeincash&cashequivalents -�5705 ��45cash&cashequivalentsatbeginningofperiod �5909 4764

cash&cashequivalentsatendofperiod �7 �0�04 �5909

Unutilisedgroupoverdraftfacility �7 ��744 �5000Restrictedfundsincludedincash&cashequivalents �7 5�46 �97�

Consolidated statement of changes in equity Recognisedincomeandexpense 2005 2004(noK�000) translationdifferences �554 0cashflowhedging -�07� �0�actuarialgains/losses(pensions) -�07 �5

net profit/loss recognised directly in equity -�7�4 ��7

profit/lossfortheperiod ��8�5 �6496

total changes in equity for the period �0�0� �67��seealsonote�9.

Changes in equity

notesnotes


2.6 Hedging Beforeanyhedgingtransactionisundertaken,thefinancialdirectorwillassesswhetheraderivativeistobeusedtohedgea)thefairvalueofanassetorliability,b)futurecashflowsfromaninvestment,repaymentofaliabilityorafutureidentifiedtransactionorc)anetinvestmentinaforeignentity.

thegroupusesthefollowingcriteriatoclassifyaderivativeasahedginginstrument:(�)thehedgeisexpectedtobehighlyeffectiveinoffsettingchangesinfairvalueorcashflowsattributabletoanidentifiedasset,andhedgeeffectivenessisexpectedtoliewithintherange80%-��5%,(�)hedgeeffectivenesscanbemeasuredreliably,(�)thereissufficientdocumentationattheinceptionofthehedgetodemonstratethatthehedgeishighlyeffective,(4)inthecaseofcashflowhedges,theimpendingtransactionmustbehighlyprobable,(5)thehedgeisregularlyassessedandhasprovedtobeeffectivethroughoutthereportingperiodsforwhichitisdesignated.

(i)fairvaluehedgechangesinthefairvalueofderivativesthataredesignatedasfairvaluehedgesarerecognisedinprofitorloss,togetherwithanychangeinthefairvalueofthehedgeditemandanygainsandlosses.Hedgeaccountingdiscontinueswhen:(a)thehedginginstrumentexpires,issold,terminatedorexercised;or(b)thehedgenolongermeetsthecriteriaforhedgingdescribedabove.Whenhedgeaccountingisdiscontinued,theadjustmentsareamortisedatcostoverthehedgeditem’sremainingusefullifeusingtheeffectiveinterestmethod.(ii)cashflowhedges:theportionofgainorlossonahedginginstrumentthatisdeterminedtobeahighlyeffectivecashflowhedgeisrecogniseddirectlyinequity.theineffectiveportionofthegainorlossonthehedginginstrumentisrecognisedinprofitorloss.ifacashflowhedgesubsequentlyresultsintherecognitionofanassetorliability,theassociatedgainsorlossesthatwererecogniseddirectlyinequityarereclassifiedintoprofitorlossandincludedintheinitialmeasurementoftheassetorliability.Forothercashflowhedges,associatedgainsandlossesrecogniseddirectlyinequityarereclassifiedintoprofitorlossinthesameperiodorperiodsduringwhichtheassetorliabilityaffectsprofitorloss.Whenahedginginstrumentceasestobehighlyeffective,hedgeaccountingisdiscontinuedprospectively.inthiscase,thecumulative.gainorlossonthehedginginstrumentthatremainsrecogniseddirectlyinequityfromtheperiodwhenthehedgewaseffectivewillremainseparatelyrecognisedinequityuntiltheforecasttransactionoccurs.iftheforecasttransactionisnolongerexpectedtooccur,thecumulativegainorlossonthehedginginstrumentthathadbeenrecogniseddirectlyinequitywillbereversedandrecognisedinprofitorloss. 2.7 Inventoriesinventoriesarerecognisedatthelowerofcostandnetrealisablevalueaccordingtotheobsolescencereserve.netrealisablevalueistheestimatedsellingpriceintheordinarycourseofbusinesslessthecostsofcompletion,marketinganddistribution.thecostsofinventoriesareassignedbyusingweightedaveragecostformula.thecostsofconversionofinventoriesincludeallocationoffixedandvariableoverheadsincurredinconvertingmaterialsintofinishedgoods.theallocationisbasedonnormalcapacityoftheproductionfacilities.obsoleteinventoriesarewrittendown.

2.8 non-current assetsnon-currentassetsaremeasuredatcostlessaccumulateddepreciationandimpairmentlosses.gainsandlossesonthedisposalofassetsarerecognisedinprofitorloss,andthecostandaccumulateddepreciationarereversed.thecostofanon-currentassetcomprisesitspurchaseprice,includingimportdutiesandotherpurchasetaxes,andanydirectlyattributablecostsofbringingtheassettoworkingconditionforitsintendeduse.subsequentexpenditureonrepairsormaintenanceofassetsisrecognisedasanexpensewhenincurred.subsequentexpenditureonrepairandmaintenanceofproperty,plantorequipmentwhichwillgeneratefutureeconomicbenefitsiscapitalised.Depreciableamountsareallocatedusingthestraight-linemethodoverthefollowingperiods:Buildings �5yearsplantandequipment 5-��yearsFixtures&fittings,motorvehicles �-5years

thedepreciationperiodandmethod isassessedonanannualbasis toensure that themethodandperiodused reflect theexpectedpatternofeconomicbenefitsfromtheasset.thesameappliestoscrapvalue.Workinprogressisclassifiedasproperty,plantandequipmentandisrecognisedattheincurredcostsassociatedwiththeasset.Workinprogressisnotsubjecttodepreciationuntiltheassetistakenintouse.

2.9 Leasing Financeleasesaleaseisclassifiedasafinanceleaseifittransferstothegroupsubstantiallyalltherisksandrewardsincidentaltoownershipofaleasedasset.thegrouprecognisesfinanceleasesasassetsandliabilitiesinitsbalancesheet,atamountsequaltothefairvalueoftheleasedassetor,iflower,thepresentvalueoftheminimumleasepaymentsdeterminedintheleaseagreement.thediscountratetobeusedincalculatingthepresentvalueoftheminimumleasepaymentsistheinterestrateimplicitinthelease,ifthisispracticabletodetermine;ifnot,thecompany’sincrementalborrowingrateisused.Directcostsinconnectionwithleasingactivitiesareaddedtotheamountrecognisedasanasset.monthlyleasepaymentsareapportionedbetweenthefinancechargeandthereductionoftheoutstandingliability.thefinancechargeisallocatedtoperiodsduringtheleaseterm,soastoproduceaconstantperiodicrateofinterestforeachperiod.

assetswhicharepartofafinanceleasearedepreciated.thedepreciationpolicyisconsistentwiththatfordepreciableassetswhichareownedbythegroup.ifthereisnoreasonablecertaintythatthegroupwillobtainownershipbytheendoftheleaseterm,theassetisfullydepreciatedovertheshorteroftheleasetermorthedepreciationperiodfordepreciableassetsownedbythegroup.ifasaleandleasebacktransactionresultsinafinancelease,anyexcessofsalesproceedsoverthecarryingamountisdeferredandamortisedovertheleaseterm.operatingleasesaleaseisclassifiedasanoperatingleaseifitdoesnottransfertothegroupsubstantiallyalltherisksandrewardsincidentaltoownership.Leasepaymentsareclassifiedasanoperatingexpenseandrecognisedasanexpenseovertheleaseterm.ifasaleandleasebacktransactionresultsinanoperatinglease,anditisclearthatthetransactionisestablishedatfairvalue,anyprofitorlossisrecognisedimmediately.ifthesalepriceisbelowfairvalue,anyprofitorlossisrecognisedimmediatelyexceptthat,ifthelossiscompensatedbyfutureleasepaymentsatbelowmarketprice,itisamortisedinproportiontotheleasepaymentsovertheleaseterm.ifthesalepriceisabovefairvalue,theexcessoverfairvalueisamortisedovertheperiodforwhichtheassetisexpectedtobeused.

2.10 Financial instrumentsias�9,Financialassets,Recognitionandmeasurement,statesthatfinancialinstrumentsareclassifiedintothefollowingcategories:heldtomaturity,heldfortradingandavailableforsale.Held-to-maturityinvestmentsarefinancialinstrumentswhichhavefixedordeterminablepaymentsandafixedmaturitydate,andwhichthegrouphasapositiveintentionandtheabilitytoholdtomaturity.Financialassetsandfinancialliabilitiesheldfortradingarefinancialinstrumentsheldwiththeobjectiveofgeneratingaprofitfromshort-termpricefluctuations.allotherfinancialinstruments,exceptloansandreceivablesoriginatedbythecompany,areclassifiedasavailableforsale.Financialinstrumentsheldtomaturityareincludedinfinancialassets,unlessthematuritydateiswithin��monthsofthebalancesheetdate.Financialinstrumentsheldfortradingareclassifiedascurrentassets.available-for-salefinancialinstrumentsarealsoreportedascurrentassetsifthemanage-menthasdecidedtodisposeoftheinstrumentwithin��monthsofthebalancesheetdate.allpurchasesandsalesoffinancialinstrumentsarerecognisedonthetransactiondate.transactioncostsareincludedintheinitialmeasurement.

Financialinstrumentsclassifiedasavailableforsaleandheldfortradingarerecognisedatfairvalueatthebalancesheetdate,withoutanydeductionforcostsassociatedwiththesale.

note 2 Cont. ›

notes notesnotes notes


againorlossarisingfromachangeinthefairvalueoffinancialinvestmentsclassifiedasavailableforsaleisrecogniseddirectlyinequityuntilthefinancialassetisderecognised,atwhichtimethecumulativegainorlosspreviouslyrecognisedinequityisreversedandrecognisedinprofitorloss.anychangesinthefairvalueoffinancialinstrumentsclassifiedasheldfortradingarerecognisedintheincomestatementundernetfinancialincome/expense.Held-to-maturityinvestmentsarerecognisedatamortisedcost.

2.11 Intangible assetsintangibleassetsarerecognisedifitisprobablethattheexpectedfuturebenefitsattributabletotheassetwillflowtothecompany,anditscostcanbemeasuredreliably.intangibleassetsarerecognisedatcost.intangibleassetswithanindefiniteusefullifearenotamortised,butanimpairmentlossisrecognisediftherecoverableamountislessthanthecarryingamount.theintangibleassetistestedforimpairmentbycomparingitsrecoverableamountwithitscarryingamount(a)annually,and(b)wheneverthereisanindicationthattheintangibleassetmaybeimpaired.intangibleassetswithafiniteusefullifeareamortisedandtestedforimpairment.theintangibleassetisamortisedoveritsestimatedusefullifeusingthestraight-linemethod.theamortisationmethodandestimatearesubjectedtoanannualreviewbasedonfinancialreality.patentsandlicencesamountspaidforpatentsandlicencesarerecognisedinthebalancesheetandamortisedonastraight-linebasisovertheirusefullife.theexpectedusefullifeofpatentsandlicencesvariesbetween6and�7years.theamortisationperiodforpatentsisequivalenttotheremainingdurationofthepatents.2.12 Goodwilladdedvalueacquiredinabusinesscombinationwhichcannotbeallocatedtoassetsorliabilityitemsattheacquisitiondateisclassifiedasgoodwillinthebalancesheet.Forinvestmentsinassociates,goodwillisincludedinthecostofinvestment.theacquirerrecognisestheexistingidentifiableassetsandliabilitiesattheirfairvaluesatthetransactiondate.anyminorityinterestintheidentifi-ableassetsandliabilitiesisstatedattheminority’sproportionofthenetfairvalueofthoseitems.if,subsequenttoacquisition,additionalevidencebecomesavailabletoassistwiththeestimationoftheamountsassignedtoidentifiableassetsandliabilitieswhentheacquisitionwasinitiallyaccountedfor,thecarryingamountsmaybeadjustedbytheendofthefirstaccountingperiodcommencingafteracquisition.goodwillisnotamortised,butistestedforimpairmentannually.ifthereisanyindicationofgoodwillimpairment,animpairmenttestiscarriedouttodeterminewhetherdiscountedcashflowsrelatingtogoodwillexceedthecarryingamountofgoodwill.ifthediscountedcashflowsarelowerthanthecarryingvalue,animpairmentlossisrecognised.2.13 Research and developmentResearchcostsareexpensedasincurred.Developmentcostsarerecognisedasincurredunlessthefollowingcriteriaaremet:•theproductorprocessisclearlydefinedandexpenditurecanbeidentifiedandmeasuredreliably;•thetechnicalsolutionfortheproducthasbeendemonstrated;•theproductorprocesswillbesoldorusedinthebusiness;•theassetwillgeneratefuturebenefits;and•sufficienttechnical,financialandotherresourcestocompletetheprojectareinplace.Whenallcriteriaaremet,developmentcostsarecapitalised.costswhichhavebeenexpensedinpreviousaccountingperiodsarenotcapitalised.capitaliseddevelopmentcostsareamortisedovertheasset’sestimatedusefullife.thecarryingamountofdevelopmentcostsisreviewedwhenthereisanindicationofimpairment,orwhenimpairmentlossesfrompreviousperiodsnolongerapply.

2.14 Provisions aprovisionisrecognisedwhen,andonlywhen,thecompanyhasapresentobligation(legalorconstructive)asaresultofapasteventanditisprobable(morelikelythannot)thatanoutflowofresourcesembodyingeconomicbenefitswillberequiredtosettletheobligation,andareliableestimatecanbemadeoftheamountoftheobligation.provisionsarereviewedateachbalancesheetdateandadjustedtoreflectthecurrentbestestimate.iftheeffectofthetimevalueofmoneyisimmaterial,theamountoftheprovisionwillbeequaltotheexpendituresrequiredtobefreeoftheobligation.iftheeffectofthetimevalueofmoneyismaterial,theamountoftheprovisionwillbethepresentvalueoftheexpendituresrequiredtosettletheobligation.anincreaseinaprovision’scarryingamounttoreflectthepassageoftimeisrecognisedasborrowingcost.aprovisionforguaranteesisrecognisedwhentheunderlyingproductsorservicesaresold.theprovisionisbasedonhistoricalinformationaboutguaranteesandaweightingofallpossibleoutcomesbytheirassociatedprobabilities.aprovisionforonerouscontractsisrecognisedwhenthegroup’sexpectedeconomicbenefitsexpectedtobereceivedunderthecontractarelowerthantheunavoidablecostsofmeetingtheobligationsunderthecontract.

2.15 equity(i)ownsharesintheeventofasharebuy-back,thepurchasepriceandanydirectlyassociatedcostsarerecognisedasachangeinequity.ownsharesarereportedasareductioninequity.gainsorlossesonsharebuy-backtransactionsarenotrecognised.(ii)costsarisingfromequitytransactionstransactioncostsdirectlylinkedtoanequitytransactionarerecogniseddirectlyinequityafteradeductionfortax.(iii)otherequitya)translationdifferencestranslationdifferencesariseinconnectionwithcurrencydifferencesonconsolidationofforeignoperations. ondisposalofaforeignoperation,cumulativetranslationdifferencesarereversedandrecognisedinprofitorlossinthesameperiodinwhichthegainorlossonthedisposalisrecognised.(b)Revaluationreservethe revaluation reserve includes all net changes in fair value for financial instruments designated as available for sale until the investment isderecognisedoruntiltheinvestmentisdeterminedtobeimpaired.

2.16 Revenue recognition Revenueisrecognisedtotheextentthatitisprobablethattheeconomicbenefitswillflowtothecompanyandtherevenuecanbemeasuredreliably.salesrevenueisstatednetofVatanddiscounts.Revenuefromsaleofgoodsisrecognisedwhendeliveryhastakenplaceandthesignificantrisksandrewardsofownershipofthegoodshavepassedtothebuyer.Revenuefromthesaleofservicesandlong-termmanufacturingprojectsisrecognisedbyreferencetothestageofcompletion,whenthetransactionoutcomecanbemeasuredreliably.Royaltiesarerecognisedinaccordancewiththesubstanceoftherelevantroyaltyagreement.interestincomeisrecognisedasinterestaccrues.Dividendsarerecognisedwhentheshareholders’righttoreceivethepaymentisestablishedbytheannualgeneralmeeting.

note 2 Cont. ›



2.17 Foreign currencytransactionsinforeigncurrencytransactionsinforeigncurrenciesaretranslatedattheexchangeratesexistingatthedateofthetransactions.monetaryitemsdenominatedinforeigncurrenciesare translated tonoKusing theexchangerates rulingat thebalancesheetdate.non-monetary itemsthataremeasured in termsofhistoricalcostinaforeigncurrencyaretranslatedtonoKusingtheexchangeratesatthedatesofthetransaction.non-monetaryitemsmeasuredatfairvalueinaforeigncurrencyaretranslatedusingtheexchangeratesatthedatewhenthefairvaluewasdetermined.exchangedifferencesarerecognisedinprofitorlossintheperiodinwhichtheyarise.Foreignoperationsassetsandliabilitiesinforeignoperations,includinggoodwillandfairvalueadjustments,whichariseonconsolidation,aretranslatedtonoKattheclosingrate.incomeandexpensefromforeignoperationsistranslatedtonoKusingtheaveragerate.exchangedifferencesarerecognisedinequity.

2.18 employee benefitsDefinedbenefitpensionplansthegroup’snorwegiancompaniesoffertheiremployeesdefinedbenefitpensionplans.thedefinedbenefitliabilityisthenettotalofthepresentvalueoffuturepensionbenefitsaccruedatthebalancesheetdate,minusthefairvalueofplanassets.thediscountrateappliestointerestona�0-yeargovernmentbondwithamargin to take into consideration thebond’smaturity. thevaluation is carriedoutbyaqualifiedactuaryandbenefit isattributedusingtheprojectedunitcreditmethod.theintroductionofanewdefinedbenefitplanoranimprovementtothepresentplanwillinvolvechangestothepensionliability.thesearerecognisedasanexpenseonastraight-linebasisuntiltheeffectofthechangehasbeenaccommodated.theintroductionofnewplansorchangestoexistingplanswhichtakeplaceretrospectively,therebyqualifyingemployeesforafreepolicy(orchangetoafreepolicy),arerecognisedimmediately.gainsorlossesonthecurtailmentorsettlementofpensionplansarerecognisedwhenthecurtailmentorsettlementoccurs.actuarialgainsorlossesarerecogniseddirectlyinequity(netortax). Definedcontributionpensionplansthegroup’scompanyintheUsahasadefinedbenefitpensionplan.pensionpremiumsarerecognisedasanexpensewhentheyaccrue.share-basedpaymentseniorexecutivesinthegrouphavereceivedoptionstopurchasesharesintheparentcompany.thefairvalueoftheshareoptionsismeasuredatthedateonwhichtheyaregrantedandthecostisrecognised,togetherwithacorrespondingincreaseinotherpaid-incapital,overtheperiodinwhichtheperformanceand/orserviceconditionsarefulfilled.2.19 Government grantsagovernmentgrantisrecognisedwhenthereisreasonableassurancethatthecompanywillcomplywiththeconditionsattachingtoit,andthatthegrantwillbereceived.Whenthegrantrelatestoanexpenseitem,itisrecognisedasincomeovertheperiodnecessarytomatchitonasystematicbasiswiththerelatedcostsitisintendedtocompensate.grantsrelatingtoassetsarecapitalisedandrecognisedasincomeonasystematicbasisovertheusefullifeoftheasset.grantsrelatedtoassetsarepresentedeitherbysettingupthegrantasdeferredincomeorbydeductingthegrantwhenestablishingtheasset’scarryingamount.

2.20 Income taxestaxexpensecomprisescurrenttaxexpenseanddeferredtaxexpense.Deferredtaxliabilitiesarerecognisedforallaccountingandtaxabletemporarydifferences,excepttotheextentthatthedeferredtaxliabilityarisesfrom:• temporarydifferencesrelatedtogoodwillforwhichamortisationisnotdeductiblefortaxpurposes• temporarydifferencesrelatedtoinvestmentsinsubsidiaries,associatesorinterestsinjointventures,wherethetimingofthereversalofthe temporarydifferencescanbecontrolledbythegroupanditisprobablethatthetemporarydifferenceswillnotreverseintheforeseeablefuture.

Deferredtaxassetsarerecognisedwhenitisprobablethatthecompanywillhavetaxableprofitavailableagainstwhichunusedtaxcreditscanbeutilised.Deferredtaxassetsandliabilitiesaremeasuredatthefuturetaxratesthatareexpectedforthegroupcompaniesinwhichtemporarytaxdifferencesarise.Deferredtaxassetsandliabilitiesarerecognisedatnominalvalueanddesignatedasfinancialassets(non-currentliabilities)inthebalancesheet.currenttaxanddeferredtaxischargedorcrediteddirectlytoequityifthetaxrelatestoitemsthatarecreditedorchargeddirectlytoequity.

2.21 segmentsFormanagementpurposes,thegroupisorganisedintodifferentbusinessareasaccordingtoproduct/servicerange.thegroup’sprimarysegmentreportingformatisbusinessareas.Financialinformationrelatingtosegmentsandgeographicalareasispresentedinnote4.

insegmentreporting,internalgainsonsalesbetweensegmentsareeliminated.

2.22 Contingent liabilities and contingent assetscontingentliabilitiesarenotrecognised.materialcontingentliabilitiesaredisclosed,unlessthepossibilityofanyoutflowinsettlementisremote.

contingentassetsarenotrecognised,butaredisclosedwhereaninflowofeconomicbenefitsisprobable.

2.23 events after the balance sheet datenewinformationreceivedafterthebalancesheetdateaboutthecompany’sfinancialpositionatthebalancesheetdateistakenintoaccountintheannualreport.materialeventsafterthebalancesheetdatewhichdonotaffectthecompany’sfinancialpositionatthebalancesheetdate,butwhichwillaffectthecompany’sfinancialpositioninthefuturearedisclosed.

2.24 Use of accounting estimatesmanagementhasusedestimatesandsourcesofestimationthathaveaffectedassets,liabilities,income,expenseanddisclosuresaboutpotentialliabilities.thisappliesparticularlytopensionliabilities,share-basedpaymentsandthemeasurementofgoodwill.Futureeventsmaycauseanadjust-menttotheestimates.estimatesandunderlyingsourcesofestimationareregularlyreviewed.changestoaccountingestimatesarerecognisedintheperiodinwhichthechangesoccur.ifthechangesalsoapplytofutureperiods,theeffectisdistributedoverpresentandfutureperiods.

note 3 UnCeRtAIntY oF estIMAtesthegroup’smostsignificantaccountingestimatesarerelatedtothefollowingitems:•Depreciationofproperty,plantandequipment.•impairment/impairmentreversalofgoodwill,otherintangibleassetsandproperty,plantandequipment.•Fairvalueofassetsandliabilitiesacquiredinabusinesscombination.•productwarrantyprovisions•netpensioncommitments

theexpectedusefullifeofthegroup’sproductionequipmentishighlyaffectedbytechnologicaldevelopment.thepresentdepreciationperiodis5-�7years,andthereisareasonableintervalofuncertaintybetween�0and�5years.seenote��.

thegroup’scapitalisedgoodwillissubjectedtoannualimpairmenttesting/impairmentreversaltesting.thereisparticularriskassociatedwithRaufossFuelsystemsas.thecompanyishighlyaffectedbydevelopmentinthesectorforgas-poweredbusesandcommercialvehicles.seenote��.

thefairvalueofassetsandliabilitiesacquiredinabusinesscombinationinvolvedadivisionofacquiredassetsandliabilitiesforthebusinessofLincolncompositesinc.Debtorsweretakenoverattheircarryingamount,whichwasestimatedtocorrespondtofairvalue.impairmentlosseswererecog-nisedforinventoriesinrelationtotheircarryingamountwiththepreviousownerofLincolncompositesinc.non-currentassetsweremeasuredatfairvalue,resultinginarevaluationinrelationtopreviouscarryingamounts.technology,patentsetc.aremeasuredonthebasisofthepresentvalueoffuturecashflowsassociatedwithroyalties.themeasurementbasisisayieldexpectationof�0%andaroyaltyof4.5%ofnetsales.thelargestareaofuncertaintyisassociatedwithestimatesfortechnology,patentsetc.Wealsoincludedtheworkforceinthemeasurement,although,underiFRs�,thisis includedingoodwill.measurementoftheabove-mentionedintangibleassets issubjecttoconsiderableuncertainty,althoughweestimatethevaluesto liewithinanintervalofuncertaintyof+/-�0%,seenote5.

Forpensionassets,theyieldexpectationhasbeensetatonepercentagepointabovethediscountrate.ifthisisreduced,unrealisticactuarialgainswillincreaseandmayhavetoberecognisedinthebalancesheetfor�006,seenote�0.

Forproductwarrantyprovisions,seenote��.



Business segment dataprimarysegment Composite Composite Composite High-pressure Unallocated eliminated Consolidated(noK�000) antennas reinforcements containers containersBusiness segment 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004Revenuefromexternalcustomers: sales �09559 �0677� 960�� 97956 ��879 8�965 969�7 �5�47 -��08 -4044 4�5078 ��7896totalrevenuefromexternalcustomers �09559 �0677� 960�� 97956 ��879 8�965 969�7 �5�47 4�5078 ��7896internaltransactions �69 9�7 �987 �4074 57 �550 -�87�0 -4044 0 0total revenue �09559 �0677� 96�90 97956 ��48�6 8595� ��00� �5�04 �550 -�87�0 -4044 4�5078 ��7896 Profit/lossfor segment �4464 �67�9 -56�� 98 �97�9 -��78 -�556 59�� 70�6 ��67�Unallocatedcosts -5948 -56�5 operating profit/loss ��088 �60�6netfinanceexpense -��7 -40�7taxexpense 90�7 55��Profit/loss for the year ��8�5 �6486 segment assets �007�8 806�7 7�8�4 75598 ��8�54 �0997� ��875� 40984 ��9� �89�0 -�9�09 -649� 4��65� ��9590Unallocatedassets total assets 4��65� ��9590 segmentliabilities 846�8 �0�6� 44576 �8490 7468� �85�� 7�0�� 9695 ��878 �6�48 -�89495 �6�88 ��0�7� �49��total liabilities 846�8 �0�6� 44576 �8490 7468� �85�� 7�0�� 9695 ��878 �6�48 -�89495 �6�88 ��0�7� �49�� investmentsinnon-currentassets 4�05 4�89 �858 469 �74�6 89�9 4�690 �5 78069 ��60�Depreciationforsegment �5�� 857 6�4� 6�70 8454 7��9 �4�� 69 �07�8 �56�5 Geographical segment data secondarysegment europe north southeast Middle other eliminated Consolidated Amerika Asia east (noK�000) 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004Geographical segments Revenuefromexternalcustomers ��87� �0��7 9059� �0654 7�9� 0 �7�4� 8�4 48�0 7��5 -�87�0 -4044 4�5078 ��7896segmentassets �48�46 ��9590 64506 4��65� ��9590investmentsinnon-currentassets �4496 ��60� 4�57� 78069 ��60�

note 4 seGMent InFoRMAtIonthegroup’soperationsaredividedintostrategicbusinessareas,whichareorganisedandmanagedseparately.thedifferentbusinessareasselldifferentproducts,addressdifferentcustomergroupsandhavedifferentriskprofiles. theHexagongroupisdividedintothefollowingbusinesssegments: a.comrodas–compositeantennas b.Devoldamtas–compositereinforcements c.Ragascoas–compositecontainersgas d.Raufoss/Lincoln–High-pressurecontainers comrodmanufactureshigh-quality,wide-coverage,stableantennasandrelatedsystemsforthedefenceandcivil/maritimemarkets. Devoldamtisasupplierofmultiaxialknittedfibrereinforcements.thesematerialsmakeaircraft,shipsandwindmillslighterandstronger. Ragascomanufacturescompositepressurecontainers–containersforpropanegas.theproductsaresoldthroughstatoil,Bp,agaandthedistributionnetworkoftehoka/Fortum. Raufoss/Lincolndevelopsandsuppliescompletenatural-gasandhydrogenstoragesystemstothemotorvehicleindustry. thepricingoftransactionsbetweenthesegmentsisbasedonthearm’slengthprinciple. Geographical segments thegroup’sactivitiesaredividedintothefollowingregions:europe,northamerica,middleeastandsoutheastasia. transactionsinthedifferentsegmentshavebeeneliminated.



note 5 CHAnGes In GRoUP stRUCtURe Acquisition: on��January�005,Lincolncompositesincbecameawholly-ownedsubsidiaryoftheHexagongroup.theacquisitionwasfinancedbymeansofloanagreements,5mUsDwiththegroup’sbank,andnoK��.7millionofnewcapitalraisedinDecember�004.Lincolncompositesincmanufactureshigh-pressurecontainersforbusesandothercommercialvehiclesfuelledbynaturalgas.goodwillofnoK�4.4millionwasacquiredinthebusinesscombination,andthisissubjectedtoannualimpairmenttesting.WiththeacquisitionofLincolncompositesinc,theHexagongroupnowranksamongthegloballeadersincompositecontainers.exchangerateUsD/noK6.�6. 2005patents,licences,trademarks 9�9�tradereceivables 7�70inventories �6999Buildingrepairs/renovation �409plant,equipment �584�interest-freeliabilities (6769)net identifiable assets and liabilities 44�4�*interestportion,deferred�) (��5)acquisitioncosts�) �67�goodwillonacquisition �4�59Purchase price 58957

*netvalueoftheacquiredcompanywasnoK4�,�million.

�)interesteffectofseller’screditfromgeneralDynamics.interestrate4.5%.�)costsassociatedwithsolicitors,consultantsetc. iftheacquisitionhadbeenconsummatedon�.�.�005,thegroup’sprofitbeforetaxwouldhavebeenvirtuallyunchanged.turnoverwouldhavebeenapprox.noK8millionhigher.

note 6 otHeR InCoMe thegroupdidnothaveanyotherincomein�004and�005.UnderiFRs,gainsonthedisposalofassetsarenotclassifiedasincome.

note 7 net FInAnCe eXPense 2005 2004interestincome 74� 84�netgainonderivativesatfairvalue 50� ��08agio �0646 5��totalfinanceincome ��889 747� Disagio 6078 5�74costofinterestonloans 54�6 5945costofinterestonfinanceleases �4 49otherfinanceexpense 588 ��totalfinanceexpense ��6 ��49� netfinanceitems -��7 -40�7

note 8 tAXtax expense: 2005 2004incometaxpayable 0 0changeindeferredtax 90�7 55��tax expense 90�7 55�� incometaxpayablefortheyear 0 0total income tax payable 0 0 effectivetaxratereconciliation �8% �8% Profit/loss before tax �085� ��0�9taxbasedontaxrateinnorway 86�8 6�65shareissuecostsrecognisedinequity 0 -445otherpermanentdifferences �08 -�88Differencesrelatingtoforeignsubsidiaries 80 0tax expense 90�7 55�� effective tax rate �9,�% �5,�% Deferred tax assets and deferred tax liabilities: Consolidated balance sheet Consolidated income statementDeferred tax assets 2005 2004 2005 2004pension -��78 -�409 50 -�84Losscarryforwards -�878 -��5� 9�7� 6566property,plantandequipment -�969 -�� -857 -�948inventoriesandtradereceivables -�0�0 -��47 ��6 -�64Forwardcontracts 0 �4�provisions/othercurrentliabilities -��9� -767 -4�6 �078other 0 0 76 0Deferred tax assets – gross -��48 -��785 84�� 5�90 Deferred tax liabilities Forwardcontracts 689 �74� �4� �70pension 89 -89 -��other �� 6 -� -4Deferred tax liabilities – gross 70� �848 48 �4� netrecogniseddeferredtaxliabilities -��646 -�99�7 8480 55�� thegrouphasatotalofnoK��.8(47.0)millionintaxlosscarryforwardsat��December�005. thefollowingdeferredtaxisrecogniseddirectlyinequity: 2005 2004translationdifferences -74changesinestimates,pensions 8� -�0cashflowhedges -��94 -79total -��87 -89



note 9 eARnInGs PeR sHAReearningspershareiscalculatedbydividingprofitfortheyearbytheweightedaveragenumberofsharesoutstanding. tocalculatethedilutedearningspershare,theprofitandweightedaveragenumberofsharesoutstandingisadjustedtoaccommodatealldilutioneffectsassociatedwithshareoptions.allshareoptionsaretakenintoconsiderationinthe“denominator”.inthecalcula-tions,shareoptionsareconsideredtohavebeenconvertedatthegrantdate.Redeemedoptionsareincludedfromthedateofissue. Profit/loss for the year flowing to holders of ordinary shares 2005 2004profit/lossfortheyear ��8�5 �6486Profit/loss for the year flowing to holders of ordinary shares ��8�5 �6486 Weighted average number of shares outstanding 31.12 (note 18) ordinarysharesissued�.� ��5695549 ��4��849effectofownshares–fullyear -�4000 -�4000effectofredeemedemployeeoptions/shareoptionscheme–september�005 �89�9� �0�8�effectofdirectednewshareissue 950000Weighted average number of shares outstanding 31.12 ��585074� ��5060�� earnings per share 0,�7 0,�4 Diluted number of shares outstanding 31.12 (note 18) ordinarysharesissued�.� ��5695549 ��4��849effectofownshares–fullyear -�4000 -�4000effectofredeemedemployeeoptions/shareprogramme–september�005 �89�9� �0�8�effectofdirectednewshareissue 950000effectofemployeeoptionsissued �94��75 595�75Weighted average number of shares outstanding 31.12 ��779�0�6 ��5655507 Diluted earnings per share 0,�7 0,�4

note 10 PAYRoLL AnD nUMBeR oF eMPLoYees 2005 2004salaries/fees �066�4 766��Bonus/profit-sharing 48�6 �4�4pensionexpense,defined-benefitplans(note�0) �647 4�0�pensionexpense,defined-contributionplans(note�0) 98� 0othersocialsecuritycosts 4�66 �7�4totalpayrollcosts ��0456 8607� averagenumberofemployees: �46 �98 groupmanagement � �compositeantennas 74 74compositereinforcements 59 58compositecontainers 6� 55High-pressurecontainers norge �0 �0Usa 4� 0total �46 �98

note 11 PRoPeRtY, PLAnt AnD eqUIPMent

Land and Plant and Fixtures & Work in 2005 2004 buildings equipment fittings progress total totalCost costofacquisition�.� �6766 �90�79 �069� ��77�8 �04967additions 68� 95�� 5704 �98�4 �57�� 60�Disposals 0 -449 0 -449 -8��additionsfrompurchaseofcompanies 0 �5588 �6� �585� 0translationdifferences �400 �400 0costofacquisition��.��.05 �7448 ��6�� 6660 �98�4 �70�7� ��77�8

Accumulated depreciation and impairment accumulateddepreciation�.� 4709 98094 9�� 6 97��Depreciationfortheyear 76� �7�9� �6�� 0 �9689 �56�5Disposals - (8��)translationdifferences -accumulateddepreciationandimpairment��.��.05 547� ��5�87 �0946 0 ��805 ��6Carrying amount at 31.12.05 ��976 �00944 57�4 �98�4 ��8468 �056�� Carrying amount at 31.12.04 ��057 9��85 ��80 0 �056�� pledgedassets ��976 8468� ��44 �98�4 ��97�7 �056��

�)additions/disposals.RagascohasworkinprogresstotallingnoK�9,8�4thousand,relatingtoexpansionofproductioncapacity.

�)equipmentleasedunderfinanceleases.thecarryingamountwasnoK�,0��thousandat��December�005andnoK�,�9�thousandat��December�004.seealsonote�5leases.

(�)Buildingloaninterest.nobuildingloaninterestwascapitalisedin�004or�005.



note 12 IntAnGIBLe Assets Hexagoncompositesasahasthefollowingintangibleassets: Acquired intangible assets Goodwill Patents and total total Cost licences 2005 2004openingbalance 64�08 0 64�08 64�08adjustmentofpreviousyear’scost -�40 -�40additions �47�5 940� �4��7 0translationdifferences 87� 87�acquisitioncost��.��.05 79555 940� 88957 64�08 Accumulated amortisation and impairment openingbalance 0 0 0 0amortisationfortheyear 0 �049 �049 0accumultedamortisationandimpairment��.��.05 0 �049 �049 0net carrying amount 79555 8�5� 87908 64�08

amortisation% none 6-�7% Usefullife perpetual 6-�7year amortisationmethod none straight-line

goodwillarosefromtheacquisitionofLincolncompositesincinJanuary�005.thisincludedtechnologyintheformofpatentsrelatingtotheproductionandsaleofhigh-pressurecompositecontainers.amortisationperiodforpatentsisinaverage8,�years. thecompanydoesnothaveanyinternallygeneratedintangibleassetswhichqualifyforcapitalisation.ResearchanddevelopmentcoststotallingnoK8,94�(9,088)thousandwereexpensedin�005. Impairment testing goodwillisnotamortised,butisnowsubjecttoannualimpairmenttestingtodeterminewhethertherecoverableamountislowerthanthecarryingamount. thefollowingcash-generatingunits’goodwillitemsaresubjecttoimpairmenttesting name 2005 2004comrod �5087 �5087Ragasco ��50 ��50RaufossFuelsystems �667� �667�Lincoln �5447totalgoodwill 79555 64�08

thefairvalueiscalculatedbydiscountingfuturecashflows.presentvaluecalculationsarebasedonexpectedfuturecashflowsforthedifferentcash-generatingunits,whichareallseparatesubsidiaries.theestimatesforfuturecashflowsaremadeonthebasisofboard-approvedbudgetsandmarketplansfor�006,aswellasforecastsuptoandincluding�0�0,basedoneachunit’sstrategicplans.cashflowprojectionsforsubsequentyearswillbethesameasthecashflowfor�0�0,astheunitsarenotexpectedtohaveafiniteusefullife.theprojectionsdonottakeintoaccountpriceincreasesorotherformsofgrowthinthecashflows.

themostimportantassumptionsrelatetoestimatesforoperatingprofit,operatingmarginandyieldexpectations.theestimatesforRaufossFuelsystemsgiverisetomostuncertainty.Forthiscompanywehaveusedayieldexpectationbeforetaxof�5%andanaverageoperatingmarginof7%.growthinturnoverofnoK�5millionandimprovedoperatingprofitofnoK9.6millionfor�006areexpected,inrelationtotheactualfiguresfor�005.thisisbasedoninformationrelatingtovolumeanddeliverytimesfrompresentandpotentialcustomers.Fortheyears�005to�0�0,wehaveassumedagrowthinturnoverofnoK75million.the�005turnoverfigureofnoK�5millionwasparticularlylowcomparedwithpreviousyearsandisduetoextraordinaryeventsatthecompany’sonlycustomerVolvo.

incomrod,operatingmarginsusedareonaparwiththoseofpreviousyears.Ragascoexpectsaslightincreaseinoperatingmargins.Lincolncompositesexpectsthecarbonfibresituationtonormalisewithasubsequentimprovementintheoperatingmargin.

note 13 otHeR non-CURRent Assets 2005 2004Loanstoemployees 45� �00othernon-currentassets ��6 �0�totalothernon-currentassets 679 40�

moredetailsrelatingtoloanstoemployeescanbefoundinnote�8.

note 14 InVentoRIes 2005 2004Rawmaterialsandconsumables 4�547 �79�4Workinprogress ��787 4600Finishedgoods 87�� 9�8�total 65047 4�797 thecarryingamountofinventoriesusedaspledgedassets 5��77 4�797

note 15 tRADe ReCeIVABLes 2005 2004tradereceivables 8��85 5�96�trade receivables 8��85 5�96�

tradereceivablesat��.��.�005arelessaprovisionforlossforaspecificcustomerofnoK��8(0)thousand.

note 16 otHeR CURRent Assets 2005 2004earned,notinvoicedincome ��8 ��8�prepaidexpenses �447 70�Vatdue �0009 6457other ��60 �77�total other current assets ��954 ��

notesnotes notesnotes


note 17 CAsH & CAsH eqUIVALents 2005 2004cashatbankandinhand �0�04 �5909Cash & cash equivalents in balance sheet �0�04 �5909 Bankoverdrafts ��56 0 Cash & cash equivalents in balance sheet �0�04 �5909 Unusedgroupoverdraftfacility ��744 �5000Restrictedfundsareincludedincashandcashequivalents�) 5�46 �97�

�)taxwithholdings

note 18 sHARe CAPItAL AnD sHARe PReMIUM 2005 2004ordinarysharesofnoK0.��5each ��6��9868 ��5695548total number of shares ��6��9868 ��5695548

thecompany’ssharecapitalconsistsofoneclassofshares.

changesinsharecapitalandsharepremium: number of shares share capital share premium (1000) (1000) 2005 2004 2005 2004 2005 2004 ordinary shares issuedandpaid0�.0� ��5695548 ��4��848 �57�� 4�64 ��9��0 �067�8exercisedshareoptions�004 �8�700 �� 0 77increaseincapital�004 ��400000 �4�5 ��5exercisedshareoptions�005 5�4��9 0 66 0 ��66 issuedandpaid��.�� 6��9868 ��5695548 �5777 �57�� 40486 ��9��0

own shares 0�.0� �4000 �4000 4 4 ��.�� 4000 �4000 4 4

�0largestshareholdersat��.��.�005

shareholder number of shares shareholding %spilkainvestas�) ��9406�7 �6,�0%Bøckmanneiendomas ��5475�� 9,�5%mppensjon �005�097 7,96%spilkaindustrias�) 7�9�86� 5,70%odinnorden 47��700 �,74%nødingenas�) 4�68000 �,�0%sagaequityFund 4000000 �,�7%skagenVekst �000000 �,�8%HsBcBank(nom.) �0�7500 �,�9%VerdipapirfondetHolbergnorge �00�000 �,59%spilkainternationalas�) ��56847 0,9�%terraVekst �55�000 �,��%JpmorganchaseBank �9��48 �,5�%KnutFlakk�) �9��48 �,5�%LarsivarFlydal �545��5 �,��%strafoas �400000 �,��%Kårestafset�) �050000 0,8�%ivar-arvidmolvær �000000 0,79%BankofnewYork(nom.) 985000 0,78%goldmansachsinternational(nom.) 98�000 0,78% total�0largestshareholders 96�75994 76,�0%Remainder �004�874 ��,80%totAL ��6��9868 �00,00%

�)theseshareholdingsareconsideredtobepartofspilkagroup ownershipstructure: thetotalnumberofshareholdersat��.��.�005was�,850,ofwhom49wereforeign.


40 Hexagoncompositesasa Hexagoncompositesasa 4�

note 19 eqUItYchangesinreserves share capital share Hedging translation own shares Paid-in other total premium reserves differences other equity equity Balance 1.1.2004 �4�64 �067�8 �845 (98) �� 468� ��95��profit/lossfortheyear ��6 �6�70 �6486proceedsfromsharesissued �4�5 ��5 ��750share-basedpayment �� 77 �9� �9�changeinpensionestimatesfortheyear �5 �5Fairvalueadjustments �0� �0� Balance pr 31.12.2004 �57�� 9��0 4�6� (98) �05 ��076 �80�77 Balance 1.1.2005 �57�� 9��0 4�6� (98) �05 ��076 �80�77profit/lossfortheyear ��8�5 ��8�5shareoptionsusedbyemployees 66 ��66 �4��share-basedpayment 746 -�74 57�changeinpensionestimatesfortheyear -�07 -�07Fairvalueadjustments -�07� -�07�translationofforeignsubsidiaries �554 �554 -Balance pr 31.12.2005 �5777 �40486 �09� �554 (98) �05� 4�5�0 �0��8�

ownsharescomprisecostofacquisitionforthecompanysharesownedbythegroup.at��December�005,thegroupowned�4,000(�4,000)ownshares.

note 20 PensIons AnD otHeR Post-eMPLoYMent BeneFItsallemployeesinthegroup’snorwegiancompaniesarecoveredbyadefinedbenefitpensionplan.eachcompanyhasitsownplan.thetermsare60%and66%offinalsalaryand�0yearsofservice.theplansincludedisabilitybenefits.somecompaniesalsohavespouse’sbenefits.

theobligationiscalculatedonastraight-linebasis(projectedcreditunitmethod).Unrealisedgainsandlossesresultingfromchangesinactuarialassumptionsarerecogniseddirectlyinequity.

Retirementbenefitexpensefortheyeariscalculatedasfollows: 2005 2004currentservicecost ��4� �964interestcostonbenefitobligation ��09 ��05expectedreturnonplanassets -80� -865total �647 4�0� Benefitliabilityandplanassets 2005 2004presentvalueoffundedobligations �9945 �67��Fairvalueofplanassets -�8��8 -�4865net liability recognised in balance sheet 31.12 ��707 ��856 Unrecognisedactuarialgains/losses 0 0 2005 2004netliability�.� ��856 �04�4Recognisedbenefitexpense �647 4�0�Benefitspaid -408� -�857actuarialgains/lossesrecognisedinequity �88 -�5net liability recognised in balance sheet 31.12 ��707 ��856 Plan assets -��9Benefit liability ��707 ��75

calculationofretirementbenefitexpenseandnetliabilityisbasedonthefollowingassumptions: 2005 2004Discountrate 4,50% 5,00%Returnonplanassets 5,50% 6,00%salaryincreases �,75% �,00%pensionincreases �,75% �,00%nationalinsurancebaserateincrease �,75% �,00%

note 20 Cont. ›


4� Hexagoncompositesasa Hexagoncompositesasa 4�

Cont. note 20 Pensions and other post-employment benefitsDefinedcontributionpensionplans Lincolncompositesinc,Usa,hasadefinedcontributionplan(40�k),whichisoperatedaccordingtolocallegislation.thedefinedcontributionplancoversfull-timeemployeesandrepresents5%ofsalaryforemployeespaidhourlyand6%forthosepaidmonthly.at��December�005,4�memberswerecoveredbytheplan.

expensedcontributionsamountedtonoK�,05�thousandin�005. averagedistributionofpensionassetsininvestmentcategoriesat��December�005and�004:

2005 2004shares ��% �7%Bonds 6�% 66%Realestate ��% ��%other 4% 4%total �00% �00%

note 21 PRoVIsIonsLong-term provisions Maintenance warranties totalBalance 1.1.05 6600 6600additionalprovisions�005 �7� �7�Unusedamountsreversedin�005 0 0Usedin�005 �94 �94Balance 31.12.05 6�06 6�06

maintenancewarranties aprovisionisrecognisedforexpectedwarrantyclaimsonLpgandcngcontainers.assumptionsusedtocalculatetheprovisionarebasedonhistoricalwarrantycostsforequivalentproductsandservices.

note 22 non-CURRent LIABILItIes Carrying amount Interest Currency Maturity 2005 2004secured Bankloans 0 0 total secured non-current liabilities 0 0

Unsecured Bankloan–variousserial Variable noK �004-�0�� 5684�Bankloan–variousserial Variable eUR �004-�0�� 088�Bankloan–serialloan nibor�mth+�,�% noK �005-�0�� 750Bankloan–serialloan euribor�mth+�,�% eUR �005-�0�� 5697Bankloan-bullet Libor�mth+�% UsD �009 ��844Bankloan-bullet nibor�mth+�,�% noK �0�0 �5000obligationsunderfinanceleases nibor+0,85% noK �00�-�006 545 �088total unsecured non-current liabilities 988�6 788��totalnon-currentliabilities 988�6 788��styear’sinstalments,non-currentliabilities -�05�6 -��647total non-current liabilities, not incl. 1st year’s instalments 88�00 57�65alllong-termloanshavequarterlyinterestcharges.

securedbankloansaresecuredagainsttradepayables, inventories,operatingequipmentandpropertyinthegroup’snorwegiansubsidiaries.theparentcompanyalsohasanunconditionalguaranteeofnoK��5millionfromeachofthenorwegiansubsidiaries. theliabilityforlastyear’sfinanceleasingofnoK545thousandisclassifiedasashort-termloan. thefollowingtermshavebeenestablishedforliabilitiestocreditinstitutions: • the ratioofnet interest-bearing liabilities tooperatingprofitplusdepreciationandamortisation (eBitDa)mustnotexceed5. theratioisbasedonthemovingaverageofthelastfourquarters,andiscalculatedonaquarterlybasis.• equitylessgoodwillrecognisedinthebalancesheetmustrepresentatleast�5%ofthetotalbalancesheetamountlessgoodwill.• anysaleofsubsidiariesmustbeapprovedbythelendinginstitutions.

note 23 sHoRt-teRM LoAns AnD otHeR BoRRoWInG 2005 2004 secured ��56 0Unsecured 0�styear’sinstalments,non-currentliabilities �05�6 ��647total ��79� ��647

at��December�005,short-terminterest-bearingloansandotherborrowingconsistedofbankoverdrafts.currentliabilitiesaresubjecttothesametermsasnon-currentliabilities.seenote��.



note 24 tRADe PAYABLes AnD otHeR CURRent LIABILItIes 2005 2004tradepayables �8��4 �4709amountsduetorelatedparties 64� 78�publicdutiespayable 8��9 97�9accruedexpensesandothercurrentliabilities �5079 �65�7totAL 7��65 5�7�6

note 25 LeAsesFinance leases – Group as lesseethegroup’sassetsheldunderfinanceleasesareconfinedtooneleaseforaturninglatheincomrod.thecompanyisresponsibleformaintenanceandinsurance.theleasetermis5years.theremainingtermis�year.theleasedequipmentispledgedascollateralfortheleaseliabilities. 2005 2004assetsheldunderfinanceleases:plantandequipment �5�0 �5�0 accumulateddepreciation �5�8 ��9net carrying amount �0�� 9� Futureminimumleasepayments: notlaterthan�year 545�to5years Laterthan5years Future minimum lease payments 545 Present value of future minimum lease payments -currentliabilities 5�5 -non-currentliabilities

operating leases – Group as lessee thegrouphasenteredintovariousoperatingleasesonitemsofmachinery,plantandotherfacilities.mostoftheseleaseshavearenewaloption.themajorityoftheleasesareassociatedwiththerentingofpremises.theleaseshavetermsrangingfrom�to�0years.theleasesnormallyallowrevisiontoaccommodatefactorssuchaschangesinthecpi,increasesinpublicdutiesandinterestrates.noneoftheleasesincludescontingentrents.thereisnolegalrighttoacquiretitletoanyleasedasset. Leaseliabilities: 2005 2004 ordinaryleasepayments �0685 967�total �0685 967�Futureminimumleasepayments: notlaterthan�year �0685�to5years 405�8Laterthan5years 4��6� total 94�67

note 26 FInAnCIAL InstRUMents Financial risktheHexagongroup’sinternationalactivitiesexposeittocurrencyriskandinterestrisk.thegroupusesderivativefinancialinstrumentstominimisetheserisksunderitsstrategyforinterestandcurrencyexposure.

theproceduresforriskmanagementareadoptedbytheboardandcarriedoutbythechieffinancialofficerinclosecooperationwiththeindividualoperatingunits. (i) Credit risk thegrouphasnosignificantconcentrationsofcreditriskrelatingtoonecounterpartyoranumberofcounterpartieswhichcanbeconsideredtobeagroupduetosimilaritiesincreditrisk.

thegrouphaspoliciesinplacetoensurethatsalesofproductsaremadetocustomerswithanappropriatecredithistoryandthatoutstandingamountsdonotexceedthedefinedcreditlimits.

thegrouphasnotissuedguaranteesfortheobligationsofthirdparties.

the carrying amount of the financial assets, including derivatives, in the balance sheet represents themaximum risk exposureamount.ascounterpartiesinderivativetransactionsarenormallybankers,thecreditriskassociatedwithderivativesisconsideredtobenegligible.

(ii) Interest-rate risk thegroup’spolicyisthatupto50%ofitsexposuretochangesininterestratesmaybesecuredwithfixedrates.at��December�005,0%ofthegroup’sloanswasatfixedrates(seenote��). thegrouphasnotusedanyinteresthedginginstruments. Usingthebalancesheettotalsat��December�005,ageneralincreaseof�%wouldreducetheprofitfigurebynoK855(�96)thousand. seenote��forinformationonlong-termloans,note��forshort-termfinancingobligationsandnote�5forinformationonfinanceleaseobligations. (iii) Liquidity risk theHexagongroup’sstrategyistomaintaincontinuityofcash&cashequivalentsandcreditfacilitiesinordertobeabletofinanceoperationsandinvestmentsoverthenext�months.Unusedcreditfacilitiesaredealtwithinnote�7. excessliquidityisinvestedmainlyinbankdeposits

note 26 Cont. ›



Cont. note 26 Financial assets (iv) Currency risk asthegrouphasproductionandsalesinforeigncountries,itisexposedtocurrencyrisk.thegroupseekstomitigateitscurrencyriskfromcashinflowsbymeansofpurchases,multi-currencygroupaccountingsystemsandcurrencyloansinthesamecurrency.thegroupalsousesforwardcontractsandoptioncontracts. itisthegroup’spolicytohedgenetcashflowsintheforeigncurrencybyusingforwardcontracts.Forwardcurrencycontractswhichhedgeforecasttransactionsaredesignatedascashflowhedges.theeffectiveportionofahedginginstrumentisrecognisedwiththetransactiontheinstrumentishedging,whiletheineffectiveportionisrecognisedunderfinanceitems. at��December�005,thegrouphadthefollowingforwardcontractstohedgefuturesalestocustomers.Forwardcontractsareusedtohedgecurrencyriskassociatedwithexpectedfuturesales.thetermsofthecontractsareasfollows: Forward contracts Amount (1000) Maturity exchange rate Fair value 31.12.05Forwardcontractstohedgeexpectedfuturesales* gBp�8�4 �006 ��,��-��,40 �4�5othercontracts** gBp47� �006 ��,��-��,40 �8�Forwardcontractstohedgeexpectedfuturesales* gBp98 �007 ��,4� 9�othercontracts** gBp579 �007 ��,4�-��,46 56�total �46�

*Definedascashflowhedges. **appliestoforwardcontractsdefinedasineffectiveunderias�9.

at��December�004,thegrouphadthefollowingforwardcontractstohedgefuturesalestocustomers.Forwardcontractsareusedtohedgecurrencyriskassociatedwithexpectedfuturesales.thetermsofthecontractsareasfollows: Forward contracts Amount (1000) Maturity exchange rate Fair value 31.12.04Forwardcontractstohedgeexpectedfuturesales* gBp��8 �005 ��,5�-��,�0 �90�Forwardcontractstohedgeexpectedfuturesales* cHF��00 �005 549-565 �4�Forwardcontractstohedgeexpectedfuturesales* gBp�049 �006 ��,48-��,40 �6��Forwardcontractstohedgeexpectedfuturesales* gBp897 �007 ��,47-��,46 9�6othercontracts** eUR�500 �005 8,5�-8,5� 44�total 6��4

*Definedascashflowhedges.*appliestoforwardcontractsdefinedasineffectiveinias�9.

(v) Measurement of fair value thefairvalueofforwardcontractsismeasuredbyreferencetotheforwardrateatthebalancesheetdate.thefairvalueofshareoptionsismeasuredbyreferencetotheoptionpriceatthebalancesheetdate. thefollowingfinancialinstrumentsarenotmeasuredatfairvalue:cash&cashequivalents,tradepayables,othercurrentreceivables,bankoverdraftsandnon-currentliabilities.theseitemsarerecognisedatnominalvalueinthebalancesheetat��December�005,withouttakingintoaccountthediscountratewhichrelatestofutureinflowsandoutflows.

nominalamountsareassumedtoreflectthefairvalueofreceivablesandliabilitieswhichhaveadurationoflessthan�year. thefairvalueofnon-currentliabilitiesisbasedonfutureinterestratesandinstalmentpayments.asthecompanydoesnothaveanyfixedinterestagreementsandtheinterestpaymentdateandbalancesheetdatecoincide,therewillnotbeanydiscrepancybetweencarryingamountsandfairvalues. thefairvalueoffinancialassetsandliabilitiesrecognisedattheircarryingamountsisthepresentvalueofestimatedcashflowslesstheinterestthatappliestotheassetsandliabilitiesatthebalancesheetdate.thisappliesto: - Loanstoemployees(seenote�8) - obligationsunderfinanceleases(seenote�5)

2005 2004 Financial assets Carrying amount Fair value Carrying amount Fair valueBankdeposits,cashandsimilar �0�04 �0�04 �5909 �5909tradereceivables 8��85 8��85 5�96� 5�96�othernon-currentreceivables 679 6�� 40� �7�Forwardcurrencycontracts �46� �46� 6��4 6��4 Financialliabilities short-termloans ��79� ��78� ��647 ��647tradepayablesandothercurrentliabilities 7��65 7��65 5�7�6 5�7�6 interest-bearingliabilities: Bankloans 88�00 88�00 57�65 57�65

other information nofinancialassetshavebeenreclassifiedbychangingthemeasurementmethodfromamortisedcosttofairvalueorviceversa. mostofthehighlyprobablefuturetransactionswhicharehedgedwithforwardcontractsareexpectedtooccurwithin��months.



note 27 eMPLoYee sHARe oPtIonsshare option schemethecompanyhasashareoptionschemecoveringcertainexecutives.at��December�005,theschemeincluded�8employees.theemployeesmustbeworkinginthegrouponthedateofredemptioninordertobeentitledtoexercisetheoptions.alltheoptionshaveanegativeintrinsicvalueonthegrantdate.theoptionsareconvertedintosharesontheexercisedate.theoptionsarestandardeuropeanpurchaseoptionswithafixedredemptiondate. theemployer’scontributionisaccruedovertheperiodinwhichtheserviceconditionsarefulfilled,basedontheintrinsicvalueat��.��.�005.

thefairvalueoftheoptionsiscalculatedonthegrantdateandthecostisrecognisedovertheserviceperiodof�years.costsofnoK�9�(746)thousandassociatedwiththeshareoptionschemewereexpensedin�005.thefairvalueofshareoptionsgrantedin�005wasnoK�,678(�,0�7)thousand.

shareoptionsoutstanding: (noK 1000) 2005 2004 shareoptionsoutstanding�.� �650 0optionsgranted ��60 �650optionsexercised -550 0optionslapsed 0 0shareoptionsoutstanding��.�� 460 �650ofwhichfullyexercised 0 0theredemptionpriceforexercisedoptionswasnoK�.5�.thefairvalueofsharesontheexercisedatewasnoK�,604thousand.

shareoptionsoutstandinghavethefollowingexpirydatesandexerciseprices: number expiry date Av. exercise price (noK 1000) shareoptionscheme� �006 �,76 550�007 �,0� 550�008 5,07 550shareoptionscheme� �006 4,�9 �70�007 4,58 �70�008 5,07 �70sum �460shareoptionscheme�appliestooptionsgrantedon�9august�004,andshareoptionscheme�tooptionsgrantedon�8august�005. thefairvalueofshareoptionsatthegrantdateisdeterminedusingtheBlackscholesmodel.themodelworksonthebasisofthefollowingassumptions:

Part 1 option 1 option 2 option 3sharepriceonpurchasedate �,�8 �,�8 �,�8sharepriceonredemptiondate �,5� �,76 �,0�Volatility 58,8 58,8 58,8Risk-freeinterest �,95 �,95 �,95expecteddividend�006-�008 0 0 0Remainingoptionterm(years) � � � Part 2 option 1 option 2 option 3sharepriceonpurchasedate �,9 �,9 �,9sharepriceonredemptiondate 4,�9 4,68 5,07Volatility 6�,87 6�,87 6�,87Risk-freeinterest �,6� �,7� �,78expecteddividend�006-�008 0 0 0Remainingoptionterm(years) � � � Historicalvolatilityisassumedtobeindicativeoffuturevolatility.Futurevolatilityhasthereforebeengiventhesamevalueashistoricalvolatility.

itisassumedthat�00%ofemployeeswillexercisetheoptionsontheredemptiondate.theexpecteddurationoftheoptionsis�years. Management’s holdings of shares and options options shares

erikespeset,president&coo �00000 �54544torolsenHusø,groupcontroller �50000 ��8�65Dagolavtennfjord,cFo �50000 6�044toreFjell,Director �50000 59�044JohanFausa,m.D.Devoldamtas �50000 �76064niklasHermansson,m.D.comrodas �50000 ��500perHeggem,adm.dirRaufossFuelsystemsas �50000 87044WilliamDick,ceoLincolncompositesinc. �50000 -

employee share option scheme in�005,thegroupofferedallitsemployeesinthenorwegiancompaniestheopportunitytobuysharesuptothevalueofnoK7,500,withatax-freecashdiscountofnoK�,500deductedfromthepurchaseprice.



note 28 ReLAteD PARtY tRAnsACtIons thegroup’srelatedpartiesconsistofmainshareholders,subsidiaries(seenote��),membersoftheboardandmanagement.thegrouphasenteredintoseveralagreementswithcompaniesinspilkagroup.allthetransactionswerecarriedoutaspartofnormalbusinessandatanarm’slengthprice.spilkagroupreferstothecompaniescontrolledbyasspilkainternational,asspilkainvestandasspilkaindustri.thechairmanoftheboard,KnutFlakk,hasownershipinterestsandmanagerialrolesinthesecompanies.themainagreementsareasfollows: a) thepurchaseofadministrativeservicesfromasspilkainternational.noK750(700)thousandin�005. thisagreementcoversthehireofgroupcontroller,accountingservices,secretarialservicesandcomputerservices, andtheleasingofpremises.b)thepurchaseofadministrativeservicesfromasspilkainternational.noK66�(�7�)thousand. theagreementcoversthehireofadirectorforthecngbusinessarea. c) Leasingofpropertyfromthespilkainvestgroup.totalleasepaymentsamountedtonoK�,7�4(4,095)thousandin�005. theagreementcoverstheleasingofproductionandadministrationbuildingsforDevoldamtinLangevåg.

thebalancesheetincludesthefollowingamountsresultingfromtransactionswithcompaniesinspilkagroup: 2005 2004tradepayables 64� 78�

Boardcompensation: 2005 2204salaries/fees 464 ��0total compensation 464 ��0

sharesownedbyboardmembersorrelatedparties: 2005 2004KnutFlakk* �45�9758 �094�859gunnars.Bøckmann** ��5475�� 85475��marianneL.Borchgrevink*** �0000 *ofthesharesownedbyKnutFlakk,�9��48areprivatelyowned,��56847areownedthroughasspilkainternational,4�68000throughnødingenasand7�9�86�throughspilkaindustrias.KnutFlakkdoesnothaveamajorshareofvotingpowerinasspilkainvest.Hiswife,LineFlakk,owns8�80�shares.

**allthesharesownedbygunnars.BøckmannareownedthroughBøckmanneiendomas.

***BoardmembermarianneL.Borchgrevink’shusband,JørnolavBorchgrevink,owns�0000sharesinHexagon.

Key management compensation expensedcompensationpaidtothemanagingdirectoroftheparentcompany: 2005 2004salaryandothershort-termemployeebenefits �060 8�9post-employmentbenefits 50 �7Bonus 450 -shareoptions �47 -total compensation �806 8�6

themanagingdirectoralsoparticipatesinthegroup’sshareoptionscheme.seenote�7.themanagingdirectorandchairmanoftheboarddonothaveanagreement relating to terminationbenefits. themanagingdirectorhasabonusagreementbasedonachievementofdefinedtargets.aprovisionofnoK450thousandhasbeenrecognisedtocoverthebonussumfor�005.

noloansweremadeto,orguaranteedfor,themanagingdirector.

Loansweremadetotwoemployeesinseniorpositionsinthegroup.theremainingbalanceisnoK45�thousand.theloanswereprovidedonnormalbusinessterms. Undertheemployeeshareoptionscheme,whichwasofferedtoallemployeesinJune�005,anagreedsalarydeductionofuptonoK6,000peremployeewasagreed.thetotaloutstandingamountduefromemployeesat��December�005wasnoK�6�,600.seenote�7.

expensedauditors’feesamountedtonoK�468thousand,andcomprisethefollowingservices(notincludingVat):statutoryauditing 680otherattestationservices ��taxadvice 67accountingassistance 698

note 29 PURCHAse CoMMItMents thegrouphasthefollowingcommitmentsresultingfrompurchaseofproperty,plantandequipment: 2005 2004�005 �86��006 ��789�007 �008 �009 �0�0 thereafter total ��789 �86� allcontractsrelatetoinvestmentsinproductionplantandequipment



note 30 eVents AFteR tHe BALAnCe sHeet DAte DevoldamthasestablishedasubsidiaryinLithuania,whichwillproducefibreglassreinforcementsofthesametypeproducedatthenorwegianproductionunit.thisispartlyinresponsetoincreaseddemandforproducts,particularlyinthewindpowerindustry,andpartlyastrategy for reducingoperational riskbyhavingmoreproductionsites.thenewunitwillalsoallowmorecost-effectiveproduction.DevoldamthasaccesstonetworksandexpertiseinthisparticularareathroughtheprincipleownerofHexagoncomposites,spilkagroup.theplanistoleasepremiseswithspilkagroup.productionatthenewunitisscheduledtostartduring�006.totalca-pacityexpansionwillbedefinedonthebasisofvolumeforecastsinframeworkagreementswithexistingandnewcustomers.on�8.February�006,theHexagoncompositesasasubsidiarycomrodasenteredintoanagreementtopurchasefromeltekenergyasatheirdepartmentoftelecompowersuppliesforthedefencemarket.thepurchasepriceisnoK�5million.theacquisitionwillbefinancedbybankloan.thedateoftransferis�.march�006.comrodestimatestheturnovercontributionfromtheacquiredbusinessareaatapprox.noK�5millionandanoperatingprofitbeforedepreciation(eBitDa)atapprox.noK5million.thenumberofemployeesinthetransferreddepartmentare5.allproductionintheacquiredbusinessunitisoutsourced.

note 31 LIst oF sUBsIDIARIes thefollowingsubsidiariesareincludedintheconsolidatedfinancialstatements: Company Country Reg’d office Main business ownership Voting sharecomrodas norway tau compositeantennas �00% �00%Devoldamtas norway Langevåg compositereinforcements �00% �00%Ragascoas norway Raufoss compositecontainers �00% �00%RaufossFuelsystemsas norway Raufoss High-pressurecontainers �00% �00%Lincolncompositesinc�) Usa Lincoln,ne High-pressurecontainers �00% �00%Hexagontechnologyas norway Ålesund High-pressurecontainers �00% �00%

�)consolidatedfrom��January�005.seenote5.

transactionswithsubsidiariesareonanarm’slengthbasis.

note 32 eXCHAnGe RAtes Currency Average exch. exchange rate 1.1.2005 rate 2005 31-12-05UsDollar 6,04 6,44 6,77euro 8,�4 8,0� 7,99gBp ��,64 ��,7� ��,65cHF 5��,79 5�7,�7 5��,47seK 9�,�� 86,�0 85,05

Reconciliation of transitional effects 01.01.2004 31.12.2004 (noK�000) note nGAAP effect of IFRs nGAAP effect of IFRs transition transition Assets to IFRs to IFRs property,plantandequipment �08�4� 0 �08�4� �056�� 0 �056��intangibleassets a) 64�08 0 64�08 55�76 87�� 64�08pensionassets B) ��88 -786 40� ��4 -895 ��9othernon-currentassets 0 0 0 40� 0 40�Deferredtaxasset e) �48�5 7�� 5558 �006� -��4 �99�7total non-current assets �9847� -6� �98409 �8�674 77�� 90�87inventories 45�0� 0 45�0� 4�797 0 4�797tradereceivables 57484 0 57484 5�96� 0 5�96�Forwardexchangecontracts c) 0 5�40 5�40 0 6��4 6��4othercurrentreceivables 9�47 0 9�47 �� 0 ��Bankdeposits,cashandsimilar 4764 0 4764 �5909 0 �5909total current assets ��6697 5�40 ��0�7 ��979 6��4 ��9�0�total assets ��5�70 5�77 ��0446 ��565� ��9�7 ��9590 equity and liabilities sharecapital �4�64 0 �4�64 �57�� 0 �57��sharepremiumreserve �067�8 0 �067�8 ��9��0 0 ��9��0ownshares -98 0 -98 -98 0 -98otherpaid-incapital e) �� 0 �� 9� �05totalpaid-incapital ��0996 0 ��0996 �54846 �9� �550�9Revaluationreserve c) 0 �845 �845 0 4�6� 4�6�otherequity g) �0�85 -570� 468� �8�00 �876 ��076totalretainedearnings �0�85 -�858 85�7 �8�00 70�9 �5��8total equity ��8� -�858 ��95�� 7�046 7�� 80�77non-currentinterest-bearingliabilitiesD) �0088� -��969 789�� 788�� -��647 57�65pensionliability B) 4566 6�70 �08�6 5469 6706 ��75total non-current liabilities �05447 -�5699 89748 84�8� -�494� 69�40short-termloans D) �9�6� ��969 4�� 0 ��647 ��647tradepayablesandothercurrentliabilities 57480 0 57480 5�7�6 0 5�7�6Forwardexchangecontracts c) 0 864 864 0 0 0incometaxpayable 0 0 0 0 0 0provisions �500 0 �500 6600 0 6600total liabilities �8�789 7��4 �909�� 4�607 6706 �49��total equity and liabilities ��5�70 5�77 ��0446 ��565� ��9�7 ��9590

note 33 Cont. ›

note 33 eXPLAnAtIon oF tRAnsItIon to IFRs thisisthegroup’sfirstyearofaccountingunderiFRs.

theaccountingpoliciesdescribedinnote�havebeenappliedinthepreparationoftheconsolidatedfinancialstatementsfor�005,therestatementoffiguresfor�004andthecalculationofiFRsopeningbalancesat�January�004,whichisthegroup’sdateoftransitionfromngaaptoiFRs.

preparation of iFRs opening balances has involved some adjustments to previous accounting figures prepared under ngaap.theeffectofthetransitionfromngaaptoiFRsonthegroup’sfinancialposition,resultsandcashflowisexplainedinmoredetailinthisnote.



Cont. note 33 explanation of transition to IFRsReconciliation of profit/loss for 2004 2004 effect of 2004 note nGAAP transitions IFRs(noK�000) to IFRs salesrevenue ��7896 0 ��7896otheroperatingincome F) 74� -74� 0total operating income ��86�7 -74� ��7896 costofmaterials ��5590 0 ��5590payrollandsocialsecurityexpenses B)-e) 85�0� 77� 8607�Depreciation/amortisation a) �4�57 -87�� 56�5otheroperatingexpenses F) 65�� -74� 6457�total operating expenses �0056� -870� �9�860 operating profit �8076 7960 �60�6 Financeincome c) 645� �0�� 747�Financeexpense c) ��9�8 -447 ��49�net financial items -5486 �468 -40�7 profitbeforetax ��590 94�8 ��0�9 taxexpense e) 4774 758 55�� Profit/loss for the year 78�6 8670 �6486 earnings per share Basicearningspershare(noK) 0,07 0,�4Dilutedearningspershare(noK) 0,07 0,�4 thetransitionfromngaaptoiFRshasnotresultedinanymaterialchangestothestatementofcashflows.

explanation of transition to IFRsnotes on reconciliation of equity

A) Goodwill (IFRs 3 Business Combinations)thegrouphaselectedtoimplementiFRs�forallacquisitionswitheffectfrom��march�004,applyingthetransitionalprovisioniniFRs�.UnderiFRs,goodwillamortisationisnotpermittedafter�January�004.instead,goodwillissubjecttoannualimpairmenttesting.Underngaap,goodwillistreatedasanassetwithafiniteusefullifeandisamortisedoveritsexpectedusefullife.

B) Pensionsallaccumulated,unrecognisedactuarialgains/lossesrelatingtoretirementbenefitobligationat�January�004havebeenrecognisedasanequityadjustment.changedassumptionsforcalculationoffuturepensioncostsunderiFRsinvolveanincreaseinthecalculatedpensionexpensefor�004.

C) Financial assetsalltheseitemsareforeigncurrencytransactionsusedtohedgefuturecashflowsinforeigncurrency.Underngaap,foreigncurrencytransactionswhichmetthehedgingcriteriawerenotrecognised,whileonlyunrealisedlossesonotherforeigncurrencytransactionswererecognised.UnderiFRs,allforeigncurrencytransactionsaremeasuredatfairvalueandrecognisedinthebalancesheet.asnotallforeigncurrencytransactionsat�.�.�004and��.��.�004meetthenewcriteriaforhedgeaccounting,anychangesinvaluearerecognisedinprofitandloss.Revaluationsrelatingtoforeigncurrencytransactionswhichmeetthehedgingcriteriaarerecogniseddirectlyinequityuntiltheobjectofthehedgetransactionisrealised.

Bothias��andias�9havebeenimplementedwitheffectfrom�.�.�004.

D) First-year’s repayment of non-current liabilities Hexagonhasclassifiedalloutstandingbalancesoflong-termloansasnon-currentliabilities,inaccordancewithngaap.UnderiFRs,theportionofdebtwhichisdueforpaymentwithinoneyearisclassifiedascurrent.

e) share-based payment transactionsinaccordancewithiFRs�,thefairvalueofalloptionsgrantedafter7.��.0�isrecognisedoverthevestingperiod.thefairvalueperoptioniscalculatedusinganoptionpricingmodel(Black&scholes).costsarerecognisedinprofitandlossaspayrollexpenses.theexpenseisrecognisedasanincreaseinotherpaid-incapital.

F) Gains on sale of property, plant & equipmentUnderiFRs,gainsonthesaleofproperty,plantandequipmentcannotbeclassifiedasrevenue.

G) Reconciliation of equity and profit/loss for 2004

equityat��.��.�00�underngaap ��8�

iFRsadjustment: pensions -5080Financialassets ��equity at 1.1.2004 under IFRs ��95��

profitaftertaxfor�004underngaap 78�6

iFRsadjustment: goodwillamortisation 87��pensions -579share-basedpayment -�9�Financialassets �468taxexpenseonaboveitems -758Profit after tax for 2004 under IFRs �6486

equityat��.��.�004underngaap �7�046

iFRsadjustment: goodwill 87��pensions -58�7Financialassets 5084tax -758equity at 31.12.2004 under IFRs �80�77



InCoMe stAteMent PARent CoMPAnY BALAnCe sHeet PARent CoMPAnY

Balance sheet

Income statement

note 2005 2004(noK�000)salesrevenue �550 0total operating income �550 0 payrollandsocialsecurityexpenses 8,�0 �066 �506otheroperatingexpenses �0 5867 �9�� operating profit/loss -5�8� -54�8 incomefrominvestmentinsubsidiaries ��66 �5��6Financeincome �� 0�07 �50�Financeexpense �� 8059 �90� Profit on ordinary activities before tax �9�� 8�0� taxonprofitonordinaryactivities 9 548� 4690 Profit on ordinary activities ��749 ��6�� Profit/loss for the year ��749 ��6�� transferredequity � ��749 ��6��total transferred ��749 ��6��

note 2005 2004(noK�000)Assets non-current assets Intangible assets Deferredtaxasset 9 7�8 5874total intangible assets 7�8 5874 Property, plant and equipment Fixtures/fittings,equipmentandtools � ��0 ��0total property, plant and equipment ��0 ��0 Financial assets investmentsinsubsidiaries � �6�50� �4��8�Loanstogroupcompanies 4,5 �470�6 4�79�investmentsinshares �0� �0�netpensionassets 8 0 804total financial assets �087�8 �87�77 total non-current assets �09576 �9��8� Current assets trade and other receivables otherreceivables 5 4508� 4��98total trade and other receivables 4508� 4��98 Investments Bankdeposits,cashandsimilar 6 99 ��6�� total current assets 45�80 6�809 total assets �54756 �55990


Balance sheet

BALAnCe sHeet PARent CoMPAnY CAsH FLoW PARent CoMPAnY

�005 �004(noK�000) Cash flow from operating activities profitbeforetax �9�� 8�0�groupcontributionanddividend -��66 -�5��6changesintradepayables 805 8��changesinpensionprovisions �� -��changesinotheraccrualaccountingentries ��85� 9000netcashflowfromoperatingactivities ��556 �984 Cash flow from investing activities purchaseofshares/operations -�9��0 -�0�netcashflowfrominvestingactivities -�9��0 -�0� Cash flow from financing activities newlong-termliabilities �04��9 0netchangeinloanstosubsidiaries -�0��6 ��7�0Repaymentoflong-termliabilities -�77�8 -�0000newcurrentliabilities 4�89� 0Repaymentofothercurrentliabilities -4�89� 0netchangeinbankoverdraft ��56 -�9�96newsharecapital �4�� 850netcashflowfromfinancingactivities -��948 �8�64 netchangeincash&cashequivalents -��5�� 47cash&cashequivalentsatbeginningofperiod ��6�� 464 cash&cashequivalentsatendofperiod 99 ��6�� Unutilisedgroupoverdraftfacility ��744 �5000

equity and liabilities (noK 1000) note 2005 2004

equity Paid-in capital companycapital �,7 �5777 �57��ownshares � -98 -98sharepremiumreserve � �40486 ��9��0otherpaid-incapital � �9� ��total paid-in capital �56458 �54847 Retained earnings otherequity � �764� �49��total retained earnings �764� �49�� total equity �94�00 �79778 Liabilities pensioncommitments 8 4�0 0total provisions 4�0 0 other non-current liabilities Liabilitiestocreditinstitutions 4 98�90 ��700total other non-current liabilities 98�90 ��700

short term liabilities Liabilitiestocreditinstitutions 4 ��56 0tradepayables 5 �85� �047publicdutiespayable �� 86�othercurrentliabilities 5 �8705 4060�total current liabilities 6�9�6 445�� total liabilities �60656 76�� total equity and liabilities �54756 �55990

Ålesund,09.0�.�006 theBoardofHexagoncompositesasa

KnutFlakk gunnars.Bøckmann ingvildVartdalchairmanoftheBoard memberoftheBoard memberoftheBoard sverrenarvesen marianneLoeBorchgrevink erikespesetmemberoftheBoard memberoftheBoard grouppresident

Cash flow


ACCoUntInG PoLICIes theannualfinancialstatementshavebeenpreparedinaccordancewiththeprovisionsofthenorwegianaccountingactandgenerallyacceptedaccountingprinciples.

Consolidated financial statements theconsolidatedfinancialstatementshavebeenpreparedinaccordancewithiFRs.

sales revenueRevenuefromthesaleofgoodsisrecognisedatthetimeofdelivery.Revenuefromservicesisrecognisedasservicesarerendered.theportionofsalesrevenuerelatingtofuturerenderingofservicesiscapitalisedasunearnedrevenueonthesaleandrecognisedthereafterastheserviceisrendered.

Classification and measurement of balance sheet itemscurrentassetsandliabilitiesincludeitemsdueforpaymentwithinoneyearofthedateofacquisitionanditemswhicharepartoftheoperatingcycle.otheritemsareclassifiedasnon-currentassets/liabilities.

non-currentassetsaremeasuredatthecostofacquisition,butarewrittendowntofairvalueifimpairmentisidentifiedwhichisnotconsideredtobeofatemporarynature.non-currentliabilitiesarerecognisedatnominalvalueonthedateofcommencement.

Receivablestrade andother receivables are recognised in the balance sheet at their nominal value, followingdeductions for provisions forexpectedlosses.provisionforlossesismadeonthebasisoftheindividualclaims.thereisalsoanunspecifiedprovisiontocoverexpectedlossesforothertradereceivables.

Assets and liabilities in foreign currencytransactionsinforeigncurrenciesarerecognisedattheexchangerateineffectatthetransactiondate.monetaryitemsinforeigncurrencyaremeasuredusingtheexchangerateineffectatthebalancesheetdate.currencygains/lossesonreceivables/liabilitieswhicharepartoftheoperatingcycleareclassifiedasfinancialitems.

Property, plant and equipment property,plantandequipmentisdepreciatedovertheasset’sexpectedusefullife.Directmaintenanceofproperty,plantandequipmentisrecognisedunderoperatingexpensesasitisincurred,whileoverheadsorimprovementcostsareaddedtothecostpriceoftheassetanddepreciatedinpacewiththeasset’sowndepreciation.iftherecoverableamountoftheassetislowerthanitscarryingamount,thisiswrittendowntoitsrecoverableamount.therecoverableamountisthehigherofnetrealisablevalueandvalueinuse.Valueinuseisthepresentvalueoffuturecashflowstheassetwillgenerate.

shares thecostmethodofaccountingisusedforallshares.

share-based payment thevalueofshareoptionsgrantedtoemployeesisrecognisedoverthevestingperiod.theemployer’scontributionsrelatingtoout-standingoptionsarerecognisedasincurred. Pension costs pensioncostsandbenefitobligationarecalculatedusingthestraight-linemethod,basedontheexpectedfinalsalary.thecalculationsarebasedonanumberofassumptions,includingdiscountrate,futurechangesinsalary,pensionsandnationalinsurancecontributions,theexpectedreturnonplanassetsandactuarialassumptionsonmortalityandearlyretirement.planassetsaremeasuredatfairvalueanddeductedfromnetpensioncommitmentsinthebalancesheet.changesinthebenefitobligationarisingfromchangesin

planassetsaredistributedovertheexpectedremainingserviceperiod.changesinthebenefitobligationandplanassetsduetotheeffectsofchangesinactuarialassumptions(actuarialgainsandlosses)arerecognisedinequity.

tax tax expense in the income statement includes income tax payable for the period and changes in deferred tax.Deferred tax iscalculatedat�8%basedonthetemporarydifferencesbetweenaccountingandfiscalvaluesandlosscarryforwardsattheendofthefinancialyear.tax-increasingandtax-reducingtemporarydifferenceswhichreversedormayreverseinthesameperiodareoffset.netdeferredtaxassetisrecognisedtotheextentthatitisprobablethatitcanbeutilised. Cash flow statementthecashflowstatementhasbeenpreparedusingtheindirectmethod.cash&cashequivalentsincludeaccounts,bankdepositsandothershort-termcashdeposits.

Use of estimatespreparationoftheannualfinancialstatementsinaccordancewithgoodaccountingpracticerequiresmanagementtouseestimatesandassumptionswhichaffecttheincomestatementandmeasurementofassetsandliabilitiesandinformationonuncertainassetsandobligationsatthebalancesheetdate.contingentlosseswhichareprobableandquantifiable,areexpensesasincurred.

note 1 eqUItY share capital own shares share premium other paid-in other total capital equity equity0�.0�.�005 �57�� -98 ��9��0 �� 49�� 79778actuarialgains/losses(pensions)0�.0�.�005 -�49 -�49profit/lossfortheyear ��749 ��749shareoptionsusedbygroupemployees 66 ��66 �4��share-basedpayment �80 -�74 6actuarialgains/lossesfortheyear 0 -5�6 -5�6equityat��.��005 �5777 -98 �40486 �9� �764� �94�00

note 2 PRoPeRtY, PLAnt & eqUIPMent Fixtures/fittings, equipment and similar totalcostofacquisition0�.0�.�005 �6� �6�costofacquisition��.��.�005 �6� �6� accumulatedimpairmentlosses��.��.�005 �� carryingamountat��.��.�005 ��0 ��0 Depreciationfortheyear 0 0Usefullife �year/eternal

notes PARent CoMPAnY notes PARent CoMPAnYnotes PARent CoMPAnY notes PARent CoMPAnY


note 3 sHARes In sUBsIDIARIes Company Reg’d office ownership Votes net carrying subsidiaries: share amount (noK th) Devoldamtas Langevåg �00% �00% �60�9comrodas tau �00% �00% �7669Ragascoas Raufoss �00% �00% 7�588RaufossFuelsystemas Raufoss �00% �00% �5086Hexagontechnologyas Ålesund �00% �00% �00Lincolncomposites,inc.(Usa) nebraska,Usa �00% �00% �90�0 �6�50� equityandprofit/lossasperlastannualaccounts: Devold AMt As Comrod As Ragasco As RFs As Hexagon Lincoln Composites Inc.(noK�000) technology As (UsA)costofacquisition �60�9 �7669 7�588 �5086 �00 �90�0equityat��.��.05 ��5� �08�5 48945 �5895 ��06 �0989profit/loss�005 -�978 �85�9 ��99 -55�7 ��78 77�

note 4 ReCeIVABLes AnD LIABILItIes Receivables due for payment within 1 year 2005 2004 Loanstogroupcompanies �470�6 4�79�total �470�6 4�79� Long-term liabilities maturing after 5 years 2005 2004 Liabilitiestocreditinstitutions ��750 0total ��750 0 Liabilitiessecuredwithcollateral ��9546 ��700

securedbankloansaresecuredagainsttradepayables, inventories,operatingequipmentandpropertyinthegroup’snorwegiansubsidiaries.theparentcompanyalsohasanunconditionalguaranteeofnoK��5millionfromeachofthenorwegiansubsidiaries.

note 5 IntRA-GRoUP BALAnCes Receivables 2005 2004Loanstogroupcompanies �470�6 4�79�othercurrentreceivables 4�847 40�8�total �9086� 84�7� Liabilities 2005 2004 tradecreditors �48 0othercurrentliabilities �76�0 �996�total �7778 �996�

note 6 BAnK DePosIts 2005Restrictedtaxwithholdings 99

group’sliquidityareorganisedinagroupaccount.thismeansthatthesubsidiaries’cashinhandisformallyconsideredasaninter-companyreceivableandallgroupcompaniesarejointlyresponsibleforwithdrawalsmadebythegroup.

note 7 sHARe CAPItAL AnD sHAReHoLDeR InFoRMAtIon sharecapitalconsistsof: number nominal carryingamountashares ��6��9868 0,��5 �5777thecompany’ssharecapitalconsistsofoneclassofshares. Largest shareholders at 31.12.2005: number of shares shareholding %spilkainvestas�) ��9406�7 �6,�0%Bøckmanneiendomas ��5475�� 9,�5%mppensjon �005�097 7,96%spilkaindustrias�) 7�9�86� 5,70%odinnorden 47��700 �,74%nødingenas�) 4�68000 �,�0%sagaequityFund 4000000 �,�7%skagenVekst �000000 �,�8%HsBcBank(nom.) �0�7500 �,�9%VerdipapirfondetHolbergnorge �00�000 �,59%spilkainternationalas�) ��56847 0,9�%terraVekst �55�000 �,��%JpmorganchaseBank �9��48 �,5�%KnutFlakk�) �9��48 �,5�%LarsivarFlydal �545��5 �,��%strafoas �400000 �,��%Kårestafset�) �050000 0,8�%ivar-arvidmolvær �000000 0,79%BankofnewYork(nom.) 985000 0,78%goldmansachsinternational(nom.) 98�000 0,78% total�0largestshareholders 96�75994 76,�0%Remainder �004�874 ��,80%total ��6��9868 �00,00% �)theseshareholdingsareconsideredtobepartofspilkagroupthetotalnumberofshareholdersat��.��.�005was�,850,ofwhom49wereforeign.

notes PARent CoMPAnY notes PARent CoMPAnYnotes PARent CoMPAnY notes PARent CoMPAnY


notes PARent CoMPAnY notes PARent CoMPAnY

note 8 PensIons AnD BeneFIt oBLIGAtIon pensionarrangementsaredealtwithaccordingtothenorwegianaccountingstandardforpensioncosts. inaccordancewiththisstandard,thecompany’spensionarrangementsaretreatedasadefined-benefitplan.theparentcompany’spensionarrangementscover twopeople –oneemployedandone retired.a collectivepension insuranceschemehasbeenestablished for thegroup’semployees.thepensionplansgiveanentitlementtodefinedfuturereturnsonplanassets.theselargelydependonyearsofservice,salarylevelonretirementandtheamountofnationalinsurancecontributions.thecompany’sbenefitobligationiscoveredbyaninsuranceplan.

Pension costs for the year are calculated as follows: 2005 2004 currentservicecost 90 74interestcostonbenefitobligation �� 0�expectedreturnonplanassets -�5 -�47Recognisedactuarialgains/losses -� 0sum 87 �8

Benefitliabilityandplanassets: 2005 2004 presentvalueoffundedobligations ��87 �059Fairvalueofplanassets -�758 -��78net liability recognised in balance sheet 31.12 4�0 -��9 Unrecognisedactuarialgains/losses 0 0

2005 2004netliability�.� -��9 -40�Recognisedbenefitexpense 87 �8premiumpayments/contributionspaid -55 -�6Recognisedactuarialgains/losses 7�6 80net liability recognised in balance sheet 31.12 4�0 -��9 Plan assets -��9Benefit liability 4�0

Financial assumptions: Discountrate 4,50% 5,00%expectedsalaryadjustment �,75% �,00%expectedpensionadjustment �,75% �,00%adjustmentofnationalinsurancebaserate �,75% �,00%expectedreturnonplanassets 5,50% 6,00%

actuarialassumptionsfordemographicfactorsandresignationarebasedonstandardassumptionsusedininsurance.Witheffectfrom�005,thecompanyusestheoptionofrecognisingactuarialgainsandlossesinequity.

thefiguresforthepreviousyearinthisnotehavebeenrestatedaccordingtothisprinciple.thereisthereforeadiscrepancybetweennetpensionassetsat��.��.�004inthebalancesheetandplanassetsinthisnote.seenote�.

note 9 tAX tax expense for the year consists of: 2 005 2 004 incometaxpayable 0 0changeindeferredtax 548� 4690totaltaxexpense 548� 4690 Calculation of tax base: profitbeforetax �9�� 8�0�permanentdifferences*) �50 -�55�changeintemporarydifferences �9� 69Useoflosscarryforwards -�9875 -�68�8taxbasefortheyear 0 0 temporary differences: provisionaftergoodaccountingpractice -�90 -��9pensions -4�0 804Losscarryforwards -�779 -��654total -�599 -�0979 Deferredtax,�8% -7�8 -5874 Why tax expense for the year does not amount to 28% of profit before tax: �8%ofprofitbeforetax 5�85 5��4permanentdifferences(�8%) 98 -4�4calculatedtaxexpense 548� 4690 effectivetaxrate**) �8,5% �5,6%

*)includes:non-deductiblecosts,suchasentertaining/sustenanceexpenses.**)taxexpenseinrelationtoprofitbeforetax.


notes PARent CoMPAnY AUDItoR’s RePoRt

note 10 PAYRoLL, nUMBeR oF eMPLoYees, ReMUneRAtIon, LoAns to eMPLoYees Payroll costs 2 005 2004Wages/salariesandfees �057 ��7employer’scontribution(incl.options) 70� �9�pensionexpense 9� �7othercontributions ��6 59total �066 �506therewasoneemployeeinthecompanyduringthefinancialyear Boardcompensation: 464 ��0 expensedcompensationpaidtothemanagingdirectoroftheparentcompany: salary �060 8��othercompensation 50 5Bonus 450 0shareoptions �47 0totalcompensation �806 8�8

thegrouppresidentalsoparticipatesinthegroup’sshareoptionscheme.thegrouppresidentandchairmanoftheboarddonothaveanagreementrelatingtoterminationbenefits.thegrouppresidenthasabonusagreementbasedonachievementofdefinedtargets.aprovisionofnoK450thousandhasbeenrecognisedtocoverthebonussumfor�005.noloansweremadeto,orguaranteedfor,themanagingdirector. expensedauditors’feesamountedtonoK6�9,05�,andcomprisethefollowingservices(notincludingVat):statutoryauditing �99accountingassistance 440

note 11 MeRGeD IteMs In tHe ACCoUnts Finance income 2 005 2004interestincomefromgroupcompanies 47�0 ��otherinterestincome �� 7�otherfinanceincome(currencygains) 5�56 0totalfinanceincome �0�07 �50� Finance expenseinterestexpense 49�5 �578currencylosses �556 otherfinanceexpense 588 ��totalfinanceexpense 8059 �90�

note 12 FInAnCIAL MARKet RIsK asat��.��.�005,thecompanywasnotusinganyfinancialinstrumentsinconnectionwithmanagementoffinancialriskinthecompany.Interest rate risk interestriskarisesintheshortandmediumtermfromthecompany’sfloatingrateliabilities.

Currency risk Fluctuationsinexchangeratesrepresentafinancialrisktothecompany,bothdirectlyandindirectly.asat��.��.�005,thecompanydidnothaveanycontractsinplacetoreducethisrisk.


KnUt FLAKKChairman of the Board

msc(norwegianschoolofmanagement),mBa(LondonBusinessschool).president&ceospilkagroup.KnutFlakkhasextensiveinternationalbusinessexperienceandhasplayedakeyrole inanumberofstart-ups,companyturnaroundsandacquisitions.Hehasbeenpresidentof spilkagroupsince�996andservesontheBoardsofallitsmainsubsidiaries.KnutFlakklivesinÅlesund.numberofshares:�4447956

GUnnAR s. BøCKMAnnMember of the Board

playedacentralroleintheestablishmentofBrødreneBøckmann and managed this family companyduring �� years of strong growth and profitability.He remained at the head of the company for fiveyearsafteritwassoldtotheFrenchindustrialgroupsaintgobainin�99�.gunnarBøckmannischairmanof the Board of Bøckmann eiendomas. He lives inFredrikstad.numberofshares:��5475��

InGVILD VARtDALMember of the Board

Qualified lawyer, now a solicitor in the law firmschjødt as in Ålesund, specialising in tax andcorporate law. she previously worked with KpmgLawandtheBærumtaxoffice.numberofshares:0

sVeRRe nARVesenMember of the Board

msc engineering. managing Director of Raufosstechnology& industrialmanagement (Rtim). sverrenarvesen has extensive experience from leadingpositions in the Raufoss group. He is particularlyexperienced in supplying the automotive industry.He now heads Raufoss technology & industrialmanagement, which is a subsidiary of sinteF inRaufoss.HelivesinRaufoss.numberofshares:0

MARIAnne Loe BoRCHGReVInKMember of the Board

msc (Business) fromBi, specialising in strategyandfinance.LoeBorchgrevinkhaspreviouslyheldpositionswith Deloitte, the coca-cola company (norway andUsa)andaccenture.sheisnowemployedwithstatoilas europeanHeadofcardsandcustomer Loyalty inretailtrade.marianneLoeBorchgrevinklivesinoslo.numberofshares:0

eRIK esPesetGroup PresidentMsc engineering/MBA

erikespesethasbeenmanagingDirectoroftheparentcompanyandgrouppresidentofHexagoncompositessince�september�00�.HehaspreviousexperiencefromKværnerenergy,alcatelcableandenronenergyservices.

KRIstIn WAAtLAnD KestLeRCompany secretary

Kristin Waatland Kestler is employed as companysecretary on a part-timebasis. she is an employeeofspilka international,andhaspreviousexperiencefrom Royal Viking Line and group management inalcanaluminiumwerkegmbH.

toR oLsen HUsøGroup ControllerMsc Business

torolsenHusøhasbeenDirectorofaccountingandcontrolonapart-timebasissince�november�000,and is responsible for accounts and financial man-agement.Heisanemployeeofspilkainternational,and has previous experience from Vital Forsikring,UnistorebrandFactoringandDnBFinans.

DAG oLAV tennFJoRDChief Financial officerMsc Business

Dagolavtennfjordhasbeenthegroup’schiefFinancialofficeronapart-timebasissince�october�00�,andis responsible for financing and investor relations.He is also cFo in Devold amt, and has previousexperience from svanøy stiftelse, april Data nordandtafjordKraft.

ADMInIstRAtIon & MAnAGeMent:

JoHAn FAUsAManaging Director Devold AMt As

BscandDiploma inBa. JohanFausahasfiveyears’experience in sales andmarketing in the computerindustry. He has worked for �5 years in the spilkagroup, the last�0of theseasmanagingDirectorofasspilkaindustri.

øYVInD HAMReManaging Director Ragasco As

msc engineering. Øyvind Hamre has worked forRagasco sinceearly�997and forRaufossasa since�995.HetookoverasmanagingDirectorinFebruary�005 from his position as Development manager.He previously worked as a field engineer withschlumbergeroilfieldservices.

nIKLAs HeRMAnssonManaging Director Comrod As

niklasHermanssonhasbeenemployedwithcomrodsince�January�00�.Hehasbroadmanagerialexpe-riencefromtheoilandgassector.Hejoinedthecom-panyfromhispositionasgrouppresidentofproserv.

PeR sIGURD HeGGeMManaging Director Raufoss Fuel systems As

per sigurdHeggemhas led Raufoss since the com-panywastakenoverfromRaufossasain�00�.Hewas previously in charge of the cng business areaintheRaufossgroup.HehasexperiencefromR&Din fuels and gas engines at ntnU and marintek introndheim.

toRe J. FJeLL Group Director for high-pressure containers (Raufoss/Lincoln)

msc(Business)/Ba.Hehasextensiveexperiencefromvarious leading positions in the orkla group andelkem.HewasaDirectoroftheoslostockexchangefor six years, responsible for listed companies. toreFjellisassociatedwithHartmarkconsultingandspilkagroup.HehasalsoservedontheHexagonBoardofDirectors.

WILLIAM B. DICKManaging Director Lincoln Composites

mscengineeringandmaster’sdegree inmechanics.William Dick has over �0 years’ experience in thecomposites industry, including design, projectman-agement, company start-ups and management ofindustrial companies in the Usa and europe. Hewaspreviously a vice president in Lincoln under itspreviousowners,generalDynamics.

BoARD oF DIReCtoRs:

CoMPAnY MAnAGeRs:


CoRPoRAte GoVeRnAnCe

Hexagoncompositescontinuouslynurturestheinterplaybetweenshareholders, theboardand themanagement team toensuregoodcorporatemanagement.theboardhasadoptedthegroup’scodeofpracticeforcorporategovernance.thecodeofpracticecan be found on the company’s web site, and contains theinformation provided here in the annual report, plus relevantadditionalinformationfor�005.

a norwegian code of conduct for corporate governance wasdrawnupinDecember�004.thiswasreplacedbyarevisededitionissuedbythenorwegiancorporategovernancecommittee(nUes)inDecember�005.norwegianlistedcompaniesarerecommendedtoimplementtherevisedcodenolaterthanthefinancialyear�006.Hexagon’sowncodeofpracticeforcorporategovernancewasadoptedinaboardmeetingheldon�6February�004.areasinwhichourcodediffersfromtheupdatedrecommendationsof8December�005aredescribedinthisannualreport.

Generalthegroup’scorporategovernanceprinciplesare largely in linewiththenorwegianrecommendations.thegroupworksonthebasisthatallactivityandallemployees’workshallbeperformedtoahighethicalstandardandwithcommonvalues.theseare:

• topractiseallbusinessoperationswithintheregulatoryframe- workoftheindividualmarketandtoahighethicalstandard• topromotecooperationandjointresolutionofchallenges• topromoteinnovationandfreshapproaches• tomakeexpertiseandmarketfocustheverybackboneof thegroup’soperations• tofindsolutionsthatwillstandthetestoftime• tobeambitiousandbelieveinourownstrength

Rules have been drawn up with regard to trading in groupsecuritiesbyemployeesandemployeerepresentatives.

Business Hexagonisatechnologicalgroupwhichdevelopsandcommer-cialises competitive products based on advanced compositetechnology. it is the company’s goal to rank among the inter-national leaders in selectednichesof the composites industryandtotakemarketsharefromtraditionalmaterialsbymeansofinnovativeandcompetitivecompositesolutions.thegroup’sareaoffocusdefinedinitsarticlesofassociationisactivitieswithinthecompositesarea.thearticlesofassociation

specifythatthecompany’spurposeistocarryoutR&D,produc-tion,marketingandsaleofproductsandservicesrelatedtothecompositesorotherareas,andanyassociatedactivity,includingparticipationinothercompanieswithsimilaroperations.thefullarticlesofassociationarepublishedonthecompany’swebsite,www.hexagon.noamoredetaileddescriptionofthecompany’sstrategycanbefoundinthepresentationofeachbusinessareainthisannualreport,andonpage77.

equal treatmentHexagonhasonlyoneclassofshares.intheeventofanincreaseinsharecapital,allshareholderswillnormallybetreatedequally.ifthisisnotthecase,subsequentmeasuresshallbeimplementedtoensurethattheothershareholdersare,asfaraspossible,inthepositiontheywouldhaveoccupiedhadtheyparticipatedintheoriginalincreaseincapital.

thegroupwillnormallyconducttransactionsinitsownsharesthrough the stock exchange or at market rates. particularprudenceshouldbeappliedinexternaltransactionswherethegroup’sshareholders,boardmembers,managementorrelatedpartieshavefinancialorpersonalinterests.intheeventofanynotimmaterialexternaltransactionsinwhichthegroup’sshare-holders,boardmembers,managementorrelatedpartieshaveafinancialorpersonalinterest,avaluationshallbeobtainedfromanindependentthirdparty.

Hexagonhaswellestablishedroutineswherebymembersoftheboardandexecutivemanagementnotifytheboardofanydirectorindirectinterestinatransactionenteredintobythecompany.the norwegian code of practice recommends using separateguidelines in this respect.although the companyhasnoneatpresent,asetofguidelinesisbeingproducedin�006.

Freely negotiable sharesallsharesinHexagonarefreelynegotiable.

equityHexagon’sequityisatalevelappropriatetothegroup’sobjec-tives, strategies and risk profile. Hexagon has set aminimumequitytargetof40percent.theshareissuemandateisrestrictedto defined purposes and should normally be renewed at theannualgeneralmeeting.

Dividendsthegroup is active in high-growthmarkets andHexagonwillmake the necessary investments to realise such growth. thegroup’sshareholderswill receiveacompetitivereturnontheirshares, mainly through price increases in the group’s share.accordingly, theboardhas recommended thatnodividendbepaidfor�005.

General meetingsthedeadlineforregistrationisthreedaysbeforethedateofthegeneralmeeting.shareholderswhoareunable toattendmayvotebyproxy.allrelevantdocumentationwillbesenttoshare-holdersnolaterthantwoweeksbeforethegeneralmeeting.

Hexagon haswell established procedures for announcing andissuinginformationaboutgeneralmeetings.thecompanyalsomakesarrangementstoensureanindependentchairmanforthegeneralmeeting.theboardandnominationcommitteehavenotalwaysattendedgeneralmeetingsinthepast.Fullattendanceisnowrecommendedunderthecurrentnorwegiancodeofpracticefor corporate governance, and the groupwill update its ownregulationsaccordingly.minutesarepublishedonthecompany’swebsite.

Board of directors: composition and independence the Board has been composed with the aim of gatheringsufficient expertise to make independent evaluations of thegroup’s operations and ensuring that the board can functioneffectivelyasacollegiatebody.atleasthalfoftheshareholder-electedboardmembersshouldbe independentof thegroup’sexecutivemanagementanditsmainbusinessconnections.inthisrespect,thetermindependentmeansthattheboardmember:

• doesnotnormallyreceiveremuneration otherthanboardfees.• hasnotbeenanemployeeofthecompanyinrecentyears.• isnotentitledtoanyperformance-basedboardfees.• doesnothaveanycross-relationshipswithotherboard membersorthemanagingdirector.• doesnothaveanyclosefamilytieswiththe managingdirector.• doesnothaveorrepresentanymaterialbusiness connectionswiththecompany.

atleasttwooftheshareholder-electedmembersoftheboardshould be independent of the company’smain shareholder(s)(i.e. owner of �0 percent or more of the shares). the grouppresidentwillnotserveontheboard.thetermofofficeforboardmembersistwoyears.

the Board of Hexagon composites consists of five membersat present. the two largest shareholders, spilka invest andBøckmann eiendom, have direct representation on the Boardwithonemembereach.theotherthreemembersdonothaveany ownership interests in the company and are consideredindependentasdefined in thenorwegiancodeofconduct forcorporategovernance.sevenboardmeetingswereheldin�005.presentationsofmembersoftheboardandexecutivemanage-mentcanbefoundonpages68-69.

nomination committeethegrouphasanominationcommittee,whichiselectedattheannualgeneralmeeting.thenominationcommitteeconsistsofthreemembers,oneofwhomisaboardmember.thenominationcommittee’s duties are to evaluate the work and expertiseprofileof theboardofdirectorsandtoproposecandidates forelectiontotheboard.thenominationcommitteealsoproposesthefeestobepaidtomembersoftheboard.thecommittee’sproposalsandrelevantinformationaboutcandidatesshouldbesent outwith other documents related to the annual generalmeeting.thenominationcommitteeislaiddowninthearticlesofassociation.

thegroup’sowncodeofpracticedeviatesfromthenorwegianrecommendationsincertainrespects:thechairmanoftheboardisalsotheboard’srepresentativeonthenominationcommittee.Heisre-elected,bothaschairmanoftheboardandmemberofthenominationcommittee.thenominationcommitteedoesnotmakesuggestionsforboardfees.thisisdonebytheboarditself,inaccordancewiththeseprinciples(see“Remunerationoftheboard”below),andisadoptedbytheannualgeneralmeeting.

the work of the board of directorsasetofinstructionsforboardworkhasbeenissued.theboardalsoproducesanannualplanforitswork.theboardmustensurethatthegrouphasgoodleadershipwithclearinternalallocationofresponsibilitiesandduties.informationoninternalcontrolcanbefoundintheBoardofDirectors’Reportonpage�6.

Corprate Governance


CoRPoRAte GoVeRnAnCe

a set of instructions for the grouppresident has been issued.the board of directors must work with the group presidentandauditortoensurethatthegrouphasgoodinternalcontrol,inaccordancewith its corporatevaluesandethicalguidelines.theboardshouldsubmitanevaluationof itsownworktothenominationcommittee.theboardelectedadeputychairmaninDecember�005.

theboardhasnotidentifiedanyneedtoappointboardcommit-tees. the board’s expertise and composition provides a goodoverviewofthepresentsizeandscopeofthegroup’sbusiness.

Remuneration of the boardthe remuneration of the board of directors must reflecttheboard’sresponsibility,expertise,timecommitmentandthecomplexity of the company’s activities. the remuneration oftheboardmustnotbelinkedtothecompany’sperformance.

members of the boardmay be included in any of thegroup’sshareoptionschemesformanagement.membersoftheboard,orcompanieswithwhichtheyareassociated,willnotnormallytakeonspecificassignmentsforthecompanyinadditiontotheirboardwork. in special cases, amember of the boardmay beaskedtoassisttheexecutivemanagementinparticularmatters.anysuchadditionalassistancemustbeauthorisedbythegroupchairman and also disclosed to the board. normal terms ofpaymentforthistypeofassignmentwillapply.membersoftheboardandrelatedpartieswishingtotradeinthecompany’ssecuritiesmustobtainpriorclearance.Boardmembersandrelatedpartiesarenotallowedtoconductshort-termtradinginthecompany’ssecurities.

on�7march�005,theannualgeneralmeetingsetboardfeesofnoK464,�85for�004,atthetimeofitsadoptionoftheannualfinancialstatements.thechairmanoftheboardreceivedboardfees of noK �00,000 for �004, while the other four boardmemberseachreceivednoK75,000.

Remuneration of the executive managementtherearedefinedguidelinesforremunerationoftheexecutivemanagement.thegroup’sowncodeofpracticedeviates fromthenorwegianrecommendationsinonerespect:theguidelinesare not presented to the annual general meeting. the boardofdirectorsholdsameetingtodeterminethesalaryandotherremunerationofthegrouppresident.theboardisalsoinformedaboutremunerationofmembersoftheexecutivemanagement.

Remunerationshall,both informandsize,promote long-termvalue creation in the company. it is the group’s belief thatprudentuseofoptionsand/orsimilarinstrumentsand/orbonusschemeswillpromotelong-termvaluecreation.theceilingforcapital increases for honouring option agreements and otheragreementsregardingallocationofsharesmustbeapprovedbytheannualgeneralmeeting.membersoftheexecutivemanage-ment and related parties trading in the company’s securitiesmust obtain prior clearance. they are not allowed to conductshort-termtradinginthecompany’ssecurities.

at themeetingheldon�9august�004, theboardadoptedathree-yearshareoptionschemeformanagementoftheHexagongroup.theoptionscheme(optionscheme�)covers�650000options.theexercisepricewasnoK�,5�in�005,noK�,76in�006andnoK�,0�in�007.theoptionschemeisdividedinto550000shareoptionswithamaturityofoneyear,550000withamaturityoftwoyearsand550000withamaturityofthreeyears.at the meeting held on �8 august �005 the board acceptedredemption of 4�5 000 share options and cash settlement of��5000shareoptions.optionsscheme�wasprolongedwith550000newshareoptions.theoptionscheme(optionscheme�)wasextendedwith8�0000shareoptions.theexercisepricewasnoK4,�9in�006,noK4,68in�007andnoK5,07in�008.theoptionschemeisdividedinto�70000shareoptionswithamaturityofoneyear,�70000withamaturityoftwoyearsand�70 000 with a maturity of three years. in total, the optionschemescover�460000shareoptions.

thefollowingprimaryinsidersarecoveredbytheshareoptionscheme:• grouppresidentofHexagoncompositesasa erikespeset:�00,000options• managingDirectorofRagascoas ØyvindHamre:�95,000options• managingDirectorofcomrodas niklasHermansson:�50,000options• managingDirectorofDevoldamtas JohanFausa:�50,000options• managingDirectorofRaFsasper sigurdHeggem:�50,000options• chiefFinancialofficer Dagolavtennfjord:�50,000options• groupcontroller torolsenHusø:�50,000options

abreak-downofremunerationofthemanagingdirectorandatotalforothermembersoftheexecutivemanagementisshowninnote�8onpage50.

Information policy in�004,Hexagoncompositeswasawardedtheoslostockexchange’sinformationsymbol.thecompanyworksactivelytoensurethatitcontinuestomeettheinformationsymbolrequirements.

thegroup’sinformationpolicyisbasedonopennessandequaltreatment of all shareholders. all shareholders shall receivecorrect,clear,relevantandpromptinformation.effortsshallbedirectedtowardsproducinganddevelopingmajorvaluedriversandriskfactors.thegrouppresidentnormallyspeaksonbehalfofthecompany.thechairmanoftheboardmayalsospeakonbehalfofthecompanyoneventsofaparticularcharacter.

employees,shareholdersandinvestorsmusthaveequaloppor-tunities tomonitor the company’s performance, and sufficientinformationtoevaluatethecompanycorrectly.thegroupseekstospreadknowledgeaboutitsproductsandmarketstocentraltargetgroups.thegrouphasanactionplanforinformationandsocialcontact.

shareholders,investorsandbrokersareinvitedtoregularpresen-tationsatwhichshareholdersarealsoabletoputforwardtheirviews.thequarterlypresentationsarewebcastsimultaneouslyand are open for questions from the audience, both on theinternet and in the hall. Financial documents are regularlypublishedonthecompanywebsite,www.hexagon.no.seealsopage�forthe�006financialcalendar.

take-oversintheeventoftake-overorrestructuringsituations,thevaluesandinterestsofallshareholderswillberespected.theboardofdirectorswillnotseektohinderorobstructtake-overbidsunlessthereareparticularreasonsforthis.

intheeventofatake-overbid,theboardofdirectorswillnotexercisemandates or pass any resolutionswhich obstruct thetake-over bid unless this is approved by the generalmeetingfollowingannouncementofthebid.theboardwillalsobeboundby any resolutions whichmay have been passed at previousgeneralmeetings. transactionswhich in reality involve sellingthe company’s entire operationswill be put before a generalmeeting.Auditorthe auditor will provide annual written confirmation of hisindependenceandobjectivity.

theauditorwillparticipateinboardmeetingswhichdealwiththeannual accounts. theauditor should, at least oncea year,presenttotheboardofdirectorsaletterorreportcontaininghisopinions of the company’s accounting policies, assetmanage-mentandinternalcontrolprocedures.all importantcorrespondence fromtheauditor issubmittedtotheboard.theauditorwillnormallyonlyperformauditingandattestation assignments and services associated with theseassignments,suchasassistancewithtaxandaccountingmatters.

ernst&Youngarethegroup’sauditors,appointedbytheannualgeneralmeetingofshareholders.theauditorsdonothaveanyassignmentsforHexagoncompositeswhichmightresultincon-flictsofinterest.note�8givesinformationaboutremunerationof theauditor,brokendown into legally requiredauditingandremunerationforotherassignments.


share price movementstheHexagonsharehadapositiverealreturnof��5.8percent(��6.7)in�005.thisplacesthecompanyin�6th(�9th)positionontheoslostockexchange’slistofcompaniesachievinggrowthinturnoverfortheyear.

oBx,theoslostockexchangemainindex,roseby40.5percent(�8.4)inthesameperiod.

thepositiveperformancewasboostedbythecontinuedsuccessoftheinternationaldistributionofRagasco’scomplet®container.theacquisitionofLincolncomposites,andapositivetrendtowardshydrogencontainersintheinternationaltransportmarket,alsoattractedstockmarketinterest.in�005,Hexagoncontinuedtobuildonitssoundprovisionofinformationtothesharemarketand the group was able to report increased knowledge andinterestamonginvestorsandanalysts.

Analyststhe following analysts follow Hexagon Composites AsA: Hans-erikJacobsenofFirstsecuritiestel.+47��8�54|mob.+47907�55�7e-mail:[email protected]

espentidemannJørgensenofterrasecuritiestel.+47��878��|mob.+47907504�4e-mail:[email protected]

KristiantunaalofDnBnoRmarketstel.+47��94887�|mob.+479088�5��e-mail:[email protected]

FredrikKvaleoforionsecuritiestel.+47��00�954|mob.+4740��480�e-mail:[email protected]

Liquidityin �005, trading in the Hexagon share was good, and muchimprovedon�004.Boththenumberofofficialtransactionsandtheaverageordersizeincreased.atthesametime,thespread(thedifferencebetweenthebestbuyerandsellerintheorderlog)wasreduced.thecompanyissatisfiedwiththistrend,whichitseesasacontinuingchallengeinordertomaintaininterestintradingintheshare.

newmedium-sized investors joinedtheranksofshareholders,andindoingsoreducedtherelativeshareofthelargestshare-holders.spilkainvestandBøckmanneiendomtogethercontrol�5.�percent(40.9)oftheshares.

Hexagonsharesweretradedonall�5�businessdays.

RIsK adjustmentadjustmentoftheopeningvaluebythechangeintaxedcapital(RisK) applies to shareholders who are subject to norwegiantaxation. the RisK amounts are allocated to shareholders on� January of the following financial year. the amount mustbe positive for years in which the company has a tax-baseddividendthatexceedsthetotaldividend.

Date Risk amount0�.0�.�005 0,000�.0�.�004 0,000�.0�.�00� 0,000�.0�.�00� 0,000�.0�.�00� 0,000�.0�.�000 0,000�.0�.�999 0,000�.0�.�998 0,000�.0�.�997 0,000�.0�.�996 �,080�.0�.�995 �09,660�.0�.�994 �9,��

sHARes AnD sHAReHoLDeRs

Hexagon composites has a share capital of noK �5.8million.eachsharehasanominalvalueof��.5øre.attheendof�005,thecompanyhadamarketvalueofnoK896.�million(4��.5millionin�004).thismeansthatthecompanyisoneofthe�4companies listed on the oslo stock exchange which doubledtheirmarketvaluethisyear.

HexagoncompositesislistedontheoslostockexchangeunderthetickersymbolHex.

Capital increaseon�9august�005thecompanyimplementedacapitalincreaseinconjunctionwiththeshareoptionschemeformanagement.seenote�7foramoredetaileddescriptionoftheshareoptionscheme.

the company implemented a share issue of noK �.�million,comprising4�5,000newshares(nominalvalue0.��5øre)atasubscriptionpriceofnoK�.5�.

shareholder policythe company has only one class of shares and all shares arefreely negotiable. thegroup’s corporatemanagement codeofpracticedealswithmatterssuchascapitalincreasesandequaltreatmentofshareholders.

intheeventofanincreaseinsharecapital,allshareholderswillnormallybetreatedequally.ifthisisnotthecase,subsequentmeasuresshallbeimplementedtoensurethattheothershare-holdersare,asfaraspossible,inthepositiontheywouldhaveoccupiedhadtheyparticipatedintheoriginalincreaseincapital.

thegroupwillnormallyconducttransactionsinitsownsharesthroughthestockexchangeoratmarketrates.particularprudenceshouldbeappliedinexternaltransactionsinwhichthegroup’sshareholders,boardmembers,managementor relatedpartieshaveafinancialorpersonalinterest.

intheeventofanynotimmaterialexternaltransactionsinwhichthe group’s shareholders, board members, management orrelatedpartieshaveafinancialorpersonalinterest,avaluationmustbeobtainedfromanindependentthirdparty.

Investor Relationsthegroup’sinformationpolicyisbasedonopennessandequaltreatment of all shareholders. this is also laid down in thecompany’scodeofpracticeforcorporategovernance.

allshareholderswillreceivecorrect,clear,relevantandpromptinformation.emphasiswillbeplacedonproducinganddevelopingmajorvaluedriversandriskfactors.

the group meets the requirements to display the oslo stockexchange’s informationsymbol.Hexagonholdsregularpresen-tations at which shareholders may put forward their views.the presentations are also simultaneously webcast. time andresourcesarealsoallocatedforprovidinganalysts,brokersandpotential investors with information. on request, the grouparrangespresentationsfortheseparties.in�005,grouppresen-tationswereheldinÅlesund,oslo,Bergen,stavangerandLondon.

Head of IR, Hexagon Composites AsA:chiefFinancialofficerDagolavtennfjordtel.+4770�985�4/+4770��64��mob.+4797�757��e-mail:[email protected]

Account Controller:monaJohannessenofDnBnoRtel.+47��949��0e-mail:[email protected]

shareholder structureattheendof�005,thecompanyhad�,850shareholders.ofthese,49(�.7percent)wereforeignshareholders.thenumberofsharesinforeignownershipwas7.4percentattheendoftheyear.

spilkainvestisthelargestownerwith�6.�(�6.�)percentoftheshares.thetoptenshareholdersrepresent66.�percent(69.4)ofsharecapital.shareholdingsarelistedasat��December�005.

shareholder shareholding %spilkainvestas �6,�0Bøckmanneiendomas 9,�5mppensjon 7,96spilkaindustrias 5,70odinnorden �,78nødingenas �,�0sagaequityFund �,�7HsBcBankpLc(nom.) �,�0skagenVekst �,�8HolbergnorgeVerdipapirfondet �,59totAL 66,23amoredetailedlistingisshowninnote�8oftheaccounts.

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shares and shareholders

2005 2004 2003 2002

totalnumberofsharestraded��8.798.000 40.04�.000 �7.08�.000 �0.060.000

averageperbusinessday 548.609 �58.�7� 68.�� 40.�40

turnoverrate ��0,�0% �4,9% �5% 9%


stRAteGIes AnD VALUesAnALYtICAL InFoRMAtIon

For anoverviewof keyfigures, please refer topage5of thisannualreport.

Distribution of geographical sales geographicalsalesbybusinessareaandcontinent(percent):

ofthetotaleuropeansales,��percentareinnorway.

RiskHexagon composites is strongly committed to developing itscontrolandmanagementprocedures.Work is regularlycarriedouttoalignreportingandfollow-upprocedureswiththeorgani-sation’srateofdevelopment.

operational riskoperationalriskcanbedefinedastheriskoflossresultingfromfailed or inappropriate processes or procedures. in Hexagon,operationalriskmanagementisdelegatedtoeachbusinessarea,basedonthemainguidelines inthegroup’scontrolandman-agementsystem.

the group acknowledges the importance of limiting itsdependenceonindividualcustomersorsuppliers.thisvulnera-bility isatanundesirable level insomeofthecompanies– inparticularRaufosFuelsystemsandDevoldamt,whicharebothworkingtoachieveabroadercustomerbase.

the different business areas in the group have very differentdriversfortheirparticularnichemarketsandwecansafelysaythereislittlecorrelationbetweenthemarketsforgascontainers,defenceantennasandfibrereinforcementsforthewindpowerindustry. accordingly, the group’s overall risk of lost sales isconsiderablylowerthantheriskinoneindividualbusinessarea.this has encouraged favourable financing of the company,increasingitscapacityforlong-termtechnologicaldevelopment.

Financial riskthegrouphasanoverallfinancestrategywhichcoversmanage-mentofimportantfinancialriskfactorsforHexagoncompositesasa,namelycurrency,liquidity,interestandcreditrisk.

currencyriskisthemostsignificantfinancialriskfactortowhichthegroupisexposed,asastrongernorwegiankronedecreasesits profitability. the risk is reduced by purchasing products inforeign currency, taking out foreign currency loans and usingderivativesforsalescontractsandsomeofthenetsalesexpectedinforeigncurrency.netcashflowisusedtogaugecurrencyrisk.theacquisitionof Lincolncomposites in January�005has leftthe parent company more exposed to UsD fluctuations thanpreviously. However, the Us subsidiary’s purchases and salestakeplaceinthesamecurrencyzone.

tominimiseinterestrisk,limitshavebeendefinedforhedginginstruments and fixed-interest terms ranging from 0.�5 to 4years.Liquidityriskismanagedbysettingaminimumlevelofavailableliquidityinthegroup,whichisbasedontheestimatedannual turnover. customer credit risk ismanagedby the indi-vidual business areas, which use various hedging methods,depending on the customer profile. For high-risk customers,variouscredithedgingtoolsareused.Requirementshavebeendrawnupforallfinancialinstitutionswhicharetobetransactioncounterparties.

thegroupdoesnothaveanyholdingsofsharesorotherfinancialsecuritiesofwhichthepurposeistomakeprofitfromresale.

IFRsHexagon composites now prepares its consolidated financialstatements in accordancewith iFRs,with effect from the firstquarterof�005.theannualreportfor�005alsoadherestothesestandards. (iFRs = international Financial Reporting standards,formerlyias).

the company was quick to see the importance of fullyimplementing the new reporting standards, and all historicalcomparative figures havebeen restated in linewith iFRs. theeffect of the transition from ngaap (norwegian generallyacceptedaccountingprinciples)toiFRsonthebalancesheetandfinalresultsforthefinancialyear�004wasdescribedinastockexchangeannouncementon�may�005.

Hexagon composites is a technological groupwhich developsand commercialises competitive products based on advancedcomposite technology. it is the company’s aim to rankamongthe international leaders in selected niches of the compositesindustry.thecompanywilltakemarketsharesfromtraditionalmaterials by using an innovative approach and offeringcompetitivecompositesolutions.

competitivenesswillbecreatedbystrategicallyfocusingon:- commercialisationofcompetitiveproducts- marketnicheswithlargevolumesand/orgrowthpotential- marketswhichareamenabletointroducingnewsolutions- High-tech,innovativecompositesolutionswhichoffer clearproductadvantages- automatedandindustrialproductionprocesses

90 percent of the group’s sales are exported. to win largersharesofaglobalmarket,whilemaintainingorincreasingprofitmargins, Hexagon focuses on highly automated production,customiseddesignandanextensivemarketinganddistributionapparatus.

Marketsthe group’s overall goal for the period �006 to �008 is tobuildglobalstrengthincompositepressurecontainers.eachofHexagon’sfourbusinessareashasitsownmarketdevelopmentgoalsandhas identifiedassociatedaction-based strategies fortheperiod�006-�008.pleaseseethebusinessareapresentationsinthisannualreportforadescriptionofthemainpoints.

Development strategyallinnovationrevolvesaroundthecompany’scorecompetences.atthesametime,theclimatefornewideasisbeingnurturedin the subsidiaries. the challenge is how to transform goodideas into realistic opportunities. this has prompted Hexagoncompositestoformcloseallianceswithtechnologicallyadvancedcustomersaspartof itsproductdevelopmentstrategy.strong,dedicated and demanding partners who, like us, are primemoversinproductdevelopment,playakeyroleinoursuccess.

ValuesHexagon composites has defined the following values for itscompanies:- topractiseallbusinessoperationswithintheregulatory frameworkoftheindividualmarketandtoahigh ethicalstandard- topromotecooperationandjointresolutionofchallenges

-topromoteinnovationandfreshapproaches- tomakeexpertiseandmarketfocustheverybackbone ofthegroup’soperations- tofindsolutionsthatwillstandthetestoftime- tobeambitiousandbelieveinourownstrength

organisational and skills developmentthemost importantcontributionfactor inHexagoncompositescompanies is people. Recruitment of the right people, theright composition of working teams and identifying the rightindividual and joint challengeswill encourage innovation andallowconstantimprovement.

allworkingteamsandmanagementgroupswillcontainpeoplewho complement each other, in order to ensure balance andconsideration of every aspect of the total picture. Whenforminggroups,careistakentoestablishnatural,internalcontrolmechanisms, and to discourage any predominantly passiveattitudestakinghold(“theyesculture”).

Diversity creates increased understanding, new suggestionsfor solutions, innovation and better equipment for constantimprovement.Hexagoncompositesseekstocultivatediversity.it is important tohaveagoodmix in termsofgender,ethnicorigin,culturalbackgroundandeducationalbackground.energyandriskpropensityareseenaskeyelementsintheorganisation’sculture, and enable the company to occupy a position at theforefrontofdevelopment in itsexistingbusinessareas,andtodevelopnewbusinessareas.

equalitythegoalofdiversityintheorganisationalsocentresonequality.asanindustrialgroupwithaclearweightingtowardstraditionallymale-dominated occupations, Hexagon composites faces achallenge in this area throughout the group. accordingly, thecompanyhasmadeitaprioritytoseekhighly-qualifiedwomenasnewappointees,andpreferenceisgiventowomenwhenallotherconditionsareequal.theprincipleofequalpayforequalworkisanabsoluterequirementwhenestablishingsalarylevels.the group is also committed to increasing the percentage offemalerepresentationontheboard.attheendoftheyear,therewere no women in the group’s senior management group.However,wehavewomeninthemanagementgroupsoftwoofthefourbusinessareas,andtheHexagonBoardhas40%femalerepresentation.

Analytical information the group’s strategies and values

0

EUROPE

NORTH-AMERICA

SOUTH-EASTASIA

MIDDLE-EAST

OTHER

50 100 150 200 250 300 350

2005: total 425 2004: total 319


InteRnAL AnD eXteRnAL enVIRonMent

the companies which comprise Hexagon composites areindependent business unitswhich prepare their own detailedHsereportsinaccordancewiththerequirementsoftherelevantauthorities.thekeypointsinthereportsfor�005aresumma-risedbelow.

Working environmentthe company works incessantly to create the best possibleworkingenvironmentatallitslocations.eachbusinessunithasappointedaworkingenvironmentcommitteeandprepareditsownproceduresandappropriateorganisationforindustrialsafety.the group considers effective internal information to be animportantcatalystforasoundworkingenvironment.

Industrial Accidents and Fire ProtectionallthecompaniesreportedahighlevelofHseawarenessamongtheir employees. in �005, Devold amt reported two minoraccidents,neitherofwhichresultedinsickleave.thecompanyhasarrangedacourseinfirstaidforitsemployees.

Ragascodidnothaveanyabsencesduetoworkplaceaccidentsduringtheyear.thecompanyhasundergoneformalinspectionsby the local fire service. the drills revealed only one non-conformanceandthefireservicemadetwocriticisms.theoverallconclusion is that Ragasco has very sound fire preventionmeasures and the company ranks as one of the best in theindustrialarea.

Raufossreportedoneminoraccidentwhichnecessitatedshort-term absence in �005. the company carried out an internalevacuationexercisein�005.

Lincolncompositeshasasafetycommitteewhichmeetsmonthlytoevaluateandfollowupsafetyproceduresinthecompany.thecompanyalsoarrangesweeklymeetingswithproductionstaff,whichfocusonHse.thecompanyhashadtraininginfirefighting

and employees have participated in exercises associatedwithtornadowarnings.

emissions and RecyclingRagasco’sproductioninRaufossreleasesexhaustgasescontain-ingstyrene,whichareclearedinaseparatetreatmentplant.theremainingstyrenewhichdoesnotpassthroughthetreatmentplant is fed out through two jet cowls in the ceiling. externalemissionsareregisteredannuallyandreportedtothenorwegianpollutioncontrolauthority(sFt).

RemainsfromRagasco’sproductionaresortedatsourceandsentto an approved disposal centre. the same applies to specialwaste such as oil emulsions. otherwaste is deposited at theinter-authoritywastedisposalsite.

theoperationsof theotherHexagongroupcompaniesdonotinvolveanyemissionsintotheexternalenvironmentthatrequireapermit.Remainsofrawmaterials,suchasmetalshavings,aresenttoanapproveddisposalcentre.thesameappliestospecialwastesuchasoilemulsions.otherwasteisdepositedattheinter-authoritywastedisposalsite.

Lincoln composites complies with the current environmentalregulationsofnebraska,Usa.thesearespecifiedinthenebraskaHazardous Waste Regulations. in may �005, the nebraskaDepartment of environmental Quality carried out a waste-management inspectionoftheplant.the inspection identifiedasmallnumberofissues,whichhaveallbeenfollowedupandactioned.

Raufoss has an environmental management system which iscertifiedunderiso�400�.aprogrammeaimedatobtainingiso�400� certification is in progress, and this is expected to beawardedintheearlypartof�006.

HeXAGon CoMPosItes AsA Korsegata8|p.o.Box8�6sentrum|n-600�Ålesundphone+4770��6445|Fax+4770��[email protected]|www.hexagon.nogrouppresident:erikespeset

CoMRoD As n-4��0tauphone+475�740500|Fax+475�74050�[email protected]|www.comrod.commanagingDirector:niklasHermansson

RAUFoss FUeL sYsteMs As p.o.Box74|n-�8��Raufossphone+476��5��0|Fax+476��5�[email protected]|www.rafs.nomanagingDirector:persigurdHeggem

DeVoLD AMt As n-60�0Langevågphone+4770�98500|Fax+4770�9850�[email protected]|www.amt.nomanagingDirector:JohanFausa

RAGAsCo As p.o.Box50|n-�8��Raufossphone+476��5�600|Fax+476��5�8�[email protected]|www.ragasco.commanagingDirector:ØyvindHamre

LInCoLn CoMPosItes, InC.680�cornhuskerHwy|Lincoln|ne68507phone+�40�46466��|Fax+�40�[email protected]|www.lincolncomposites.commanagingDirector:Williame.Dick

Internal and external environment

sickness Absencetotalsicknessabsenceforeachcompanyin�005(�004).thefiguresareexpressedaspercentages. gRoUpmgmt comRoD DeVoLDamt RaUFoss* LincoLn** Ragasco�stquarter (0) �,7(4,�) 8,6(��,7) ��,5(4,�) �,� 6,� (7,�)�ndquarter (0) �,8(�,�) 6,7(�5,8) 8,�(5,�) 0,9 7,4(�0,5)�rdquarter (0) �,0(�,8) 4,7 (8,0) 9,6(4,9) �,0 6,9 (7,7)4thquarter (0) �,6(4,5) 4,9 (7,0) 9,4(8,�) �,� 6,0 (6,0)accumulated (0) �,6(�,6) 6,�(�0,6) �0,5(5,6) �,� 6,4 (7,9)

*anumberofindividualsinRaufossarecurrentlyonsickleave.theseabsencesarenotrelatedtoworkingconditions.thecompany’sabsencefigures(notincludinglong-termsickleave)arewellunderitstargetoffourpercent.itshouldalsobenotedthatthecompanyonlyhas�0employees,whichmeansthateachabsencehasagreaterimpactonthestatistics.**LincolncompositesbecamepartofthegroupinJanuary�005.

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