English version - Hexagon Composites ASA

Prospectus
COMROD
Comrod Communication ASA
(a public limited liability company organized under the laws of Norway)
Listing of the Company’s shares on the Oslo Stock Exchange
This Prospectus does not constitute an offer to buy, subscribe or sell the
securities described herein. This Prospectus serves as a listing prospectus as
required by applicable laws and no securities are being offered or sold
pursuant to this Prospectus.
Manager:
17 January 2007

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Important Information
This Prospectus has been prepared in connection with the admission to trading on The Oslo Stock
Exchange of New Shares in Comrod Communication ASA (“Comrod” or the “Company”) issued by
the consummation of the Demerger (as defined herein) and as further described herein. The Prospectus
has been prepared to comply with the Norwegian Securities Trading Act (the “Securities Trading
Act”). This Prospectus has been published in an English version only. The Prospectus has been
reviewed and approved by The Oslo Stock Exchange pursuant to section 5-7 of the Securities Trading
Act.
The information contained herein is as of the date hereof and subject to change, completion or
amendment without notice. There may have been changes in matters, which affect the Company
subsequent to the date of this Prospectus. Any new significant factor, material mistake or inaccuracy
relating to the information included in the Prospectus which is capable of affecting the assessment of
the Shares and which arises or is noted between the publication of this Prospectus and the listing of the
Shares at The Oslo Stock Exchange,, will be included in a supplement to this Prospectus in accordance
with applicable regulations in Norway. The delivery of this Prospectus shall, under no circumstance,
create any implication that the information contained herein is complete or correct as of any time
subsequent to the date hereof or that the affairs of the Company have not since changed.
The contents of this Prospectus are not to be construed as legal, business, financial or tax advice. Each
prospective investor should consult their legal advisor, business advisor, financial advisor or tax
advisor as to legal, business, financial and tax advice.
The distribution of this Prospectus may in certain jurisdictions be restricted by law, and this
Prospectus may not be distributed into or used for the purpose of, or in connection with, any offer or
solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or to any
person to whom it is unlawful to make such offer or solicitation. No actions have been taken to
register or qualify the Shares or otherwise to permit an offering of the Shares in any jurisdiction
outside of Norway. Any person receiving this Prospectus is required by the Company and the
Managers to inform themselves about and to observe such restrictions.
All inquires relating to this Prospectus should be directed to the Manager. Only the Manager is entitled
to provide information in respect of matters described in this Prospectus. Information that might be
provided by any other persons is of no relevance to the contents of this Prospectus and should not be
relied upon.
Certain statements in section 2 “Risk Factors”, section 5 “Presentation of Comrod Communication
ASA”, section 6 “Market Overview”, section 7 “Financial information”, and elsewhere in this
Prospectus are forward-looking. These statements relate to the Company’s expectations, beliefs,
intentions or strategies regarding the future. These statements may be identified by the use of words
like “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “plan”, “project”, “will”, “should”,
“seek”, and similar expressions. The forward-looking statements reflect the Company’s current views
and assumptions with respect to future events and are subject to risks and uncertainties. Actual and
future results and trends could differ materially from those set forth in such statements. Many factors
could cause the actual results, performance or achievements of the Company to be materially different
from any future results, performance or achievements that may be expressed or implied by such
forward-looking statements. Some of these factors are discussed in more detail under section 2, “Risk
Factors”. The Company does not intend, and does not assume any obligation, to update the forwardlooking
statements included in this Prospectus as of any date subsequent to the date hereof.
This Prospectus shall be governed by Norwegian law, and any disputes relating to this Prospectus or
the Offering are subject to the sole jurisdiction of Norwegian courts, with Oslo District Court as legal
venue.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Table of Contents
1 SUMMARY .................................................................................................................... 5
1.1 Presentation of Comrod Communication ASA.......................................................... 5
1.2 Board of Directors, senior management and employees ........................................... 8
1.3 Advisors and auditors ......................................................................................... 8
1.4 Major shareholders and related party transactions .................................................. 9
1.5 Financial information .......................................................................................... 9
1.6 Trends.............................................................................................................11
1.7 Share capital and shareholders matters................................................................12
1.8 Purpose of the Demerger and the listing on the Oslo Stock Exchange .......................12
1.9 The Demerger ..................................................................................................12
1.10 VPS-registration and trading of the new Shares on The Oslo Stock Exchange .............13
1.11 Expenses .........................................................................................................13
1.12 Appendices and documents on display .................................................................13
1.13 Summary of risk factors.....................................................................................13
2 RISK FACTORS ........................................................................................................... 15
2.1 Operational risks...............................................................................................15
2.2 Financial risks...................................................................................................16
2.3 Other risks.......................................................................................................17
3 RESPONSIBILITY FOR THE PROSPECTUS ................................................................... 19
3.1 Responsibility Statements ..................................................................................19
3.2 Third party information ......................................................................................19
4 THE DEMERGER AND LISTING ON OSLO STOCK EXCHANGE ....................................... 20
4.1 Purpose of the Demerger and the listing on Oslo Stock Exchange.............................20
4.2 The Demerger ..................................................................................................20
4.3 VPS-registration and trading of the new Shares on The Oslo Stock Exchange .............24
4.4 The Company's share capital following the Demerger and the Directed Issue .............24
4.5 Rights conferred on the Shares ...........................................................................24
4.6 Manager ..........................................................................................................24
4.7 Legal counsel ...................................................................................................24
4.8 Expenses .........................................................................................................24
5 PRESENTATION OF COMROD COMMUNICATION ASA ................................................. 25
5.1 Information about Comrod Communication ASA ....................................................25
5.2 Organisational structure.....................................................................................25
5.3 Background and history .....................................................................................26
5.4 Objective and strategy.......................................................................................28
5.5 Business Overview ............................................................................................29
5.6 Principal Markets...............................................................................................35
5.7 Patents and licences ..........................................................................................42
5.8 Research and Development ................................................................................42
5.9 Property, plant and equipment............................................................................43
5.10 The environment...............................................................................................44
6 MARKET OVERVIEW ................................................................................................... 45
6.1 Overview of the market .....................................................................................45
6.2 Market shares and competition ...........................................................................50
7 FINANCIAL INFORMATION ........................................................................................ 56
7.1 Significant accounting policies.............................................................................56
7.2 Transition from NGAAP to IFRS ...........................................................................65
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
7.3 Historical financial statements.............................................................................69
7.4 Pro-forma financial information ...........................................................................74
7.5 Annual report for Comrod Communication ASA......................................................80
7.6 Capital resources ..............................................................................................80
7.7 Discussion of financial condition and results of operations .......................................83
7.8 Investments.....................................................................................................84
7.9 Financial instruments.........................................................................................86
7.10 Subsequent events............................................................................................86
7.11 Changes in financial structure subsequent to Q3 2006 ............................................86
7.12 Changes in the Company’s financial or trading position...........................................86
7.13 Trend information .............................................................................................86
7.14 Statutory Auditor ..............................................................................................87
8 BOARD OF DIRECTORS AND MANAGEMENT................................................................ 88
8.1 Board of Directors .............................................................................................88
8.2 Management ....................................................................................................88
8.3 Background of the Management and Board of Directors ..........................................88
8.4 Conflicts of interest ...........................................................................................90
8.5 The Board’s independence..................................................................................91
8.6 Remuneration and benefits.................................................................................91
8.7 Board practices.................................................................................................91
8.8 Employees .......................................................................................................92
8.9 Financial reporting and IR ..................................................................................92
8.10 Related Party Transactions .................................................................................92
9 SHARE CAPITAL AND SHAREHOLDER MATTERS ......................................................... 93
9.1 Share capital - overview ....................................................................................93
9.2 Share Registration and Listing ............................................................................93
9.3 Share Option Plan .............................................................................................93
9.4 Convertible loans, warrants etc. ..........................................................................93
9.5 Authorizations ..................................................................................................94
9.6 Shareholder structure........................................................................................94
9.7 Articles of Association........................................................................................95
9.8 Shareholder and dividend policy..........................................................................95
9.9 Corporate governance .......................................................................................96
9.10 Mandatory Bid Rules..........................................................................................96
9.11 Compulsory Acquisition Rules .............................................................................96
9.12 Disclosure of Acquisition and Disposals.................................................................97
9.13 Public takeover bids past 12 months ....................................................................97
10 TAXATION.................................................................................................................. 98
10.1 Norwegian shareholders.....................................................................................98
10.2 Non-resident shareholders..................................................................................99
10.3 Transfer taxes etc. VAT.................................................................................... 100
10.4 Inheritance tax ............................................................................................... 100
11 LEGAL MATTERS....................................................................................................... 101
11.1 Certain regulatory issues with respect to the United States ................................... 101
11.2 Legal and arbitration proceedings ...................................................................... 101
12 DOCUMENTS ON DISPLAY ........................................................................................ 102
13 DEFINITIONS........................................................................................................... 103
APPENDIX 1: ARTICLES OF ASSOCIATION ..................................................................... 105
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
APPENDIX 2: ANNUAL REPORT FOR 2005 FOR COMROD AS ........................................... 106
APPENDIX 3: 3 RD QUARTER REPORT FOR 2006 FOR COMROD AS.................................... 114
APPENDIX 4: AUDITOR STATEMENT REGARDING LIMITED REVIEW OF THE
FINANCIAL STATEMENTS FOR THE 3 RD QUARTER OF 2006....................................... 120
APPENDIX 5: AUDITOR REPORT REGARDING THE PRO FORMA FINANCIAL
INFORMATION ......................................................................................................... 121
APPENDIX 6: ANNUAL REPORT FOR 2006 FOR COMROD COMMUNICATION ASA
INCLUDING AUDITOR STATEMENT........................................................................... 122
APPENDIX 7: ANNUAL REPORT FOR FIDULERC SA FOR 2005.......................................... 128
APPENDIX 8: ANNUAL REPORT FOR 2005 FOR LERC SA ................................................. 135
APPENDIX 9: FIDULERC SA. AND LERC SA. - TRANSITION FROM FGAAP TO IFRS IN
THE INCOME STATEMENT......................................................................................... 152
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
1 SUMMARY
This summary should be read as an introduction to the Prospectus and any decision to invest should
be based on consideration of the Prospectus as a whole by the investor, including the documents
incorporated by reference and the risks of investing in the Shares set out in chapter 2, “Risk Factors”.
This summary is not complete and does not contain all the information that you should consider in
connection with any decision relating to the Shares. Where a claim relating to the information
contained in this Prospectus is brought before a court, the plaintiff might under the applicable
legislation have to bear the costs of translating the Prospectus before the legal proceedings are
initiated. No civil liability will attach to the Board of Directors of Comrod in respect of this summary,
unless it is misleading, inaccurate or inconsistent when read together with the other parts of this
Prospectus.
1.1 Presentation of Comrod Communication ASA
Comrod Communication ASA (“Comrod”) is a Norwegian public limited company with headquarters
in Tau in South-Western Norway and offices in Norway and France. The Company was incorporated
19 September 2006 and was registered in the Norwegian Register of Business Enterprises 23
September 2006 with the organisation number 900 295 697. The Company’s business address is
Fiskåvegen, NO-4120 Tau, Norway.
Comrod’s strategy is to strengthen the position as an internationally leading company within
development, production and marketing of marine antennas and antenna systems, tactical defence
antennas, masts, battery chargers, power supplies and insulating products. The Company will continue
to develop its global position through existing and new products with the aim to increase its market
share. It is the Company’s strategy to have a strong emphasis on research & development.
1.1.1 Memorandum and articles of association
Pursuant to the articles of association, the purpose of the Company is to operate business related to
production and sales of communication products of fiberglass and other materials, including
participation in companies engaged in similar business, and any other things related to this.
The articles of association do not lay down more significant conditions necessary to change the rights
of shareholders than required by the Norwegian Public Limited Companies Act.
The Company’s articles of association are set out in Appendix 1 to this Prospectus.
1.1.2 Organisation
The legal structure of the Company after the Demerger 1 is shown in the figure below.
1 The demerger of Comrod AS from Hexagon Composites ASA, after which Comrod AS and its subsidiaries will be part of Comrod
Communication ASA. See section 1.9 and chapter 4 for more information about the Demerger.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
FIGURE:LEGAL STRUCTURE OF COMROD COMMUNICATION ASA
Comrod Communication ASA
(Norway)
100%
Comrod AS
(Norway)
100%
Fidulerc S.A.
(France)
100%
Laboratoire d’Etudes et de Recherches
Chimiques (LERC) S.A.
(France)
The operational structure of the Company is shown in the figure below.
FIGURE:COMROD COMMUNICATION ASA - ORGANISATION CHART
Comrod Communication
Ole Gunnar Fjelde
Finance & IR
Kari Duestad
Lerc SA
J. Mouray
Comrod AS
Ole Gunnar Fjelde
Sales & marketing
V. Lernoud/
E.V.Renterghem
Sales &
marketing
T.R Brekke
R&D
T. Demol
R&D
J. Eide
Industry
S. Proffit
Operations
O.G. Fjelde
Production
H. Dufresnoy/
O. Lelong
Power
O.G. Fjelde
1.1.3 History and development
The Company’s activities dates back to 1948. A brief overview of the Company’s history is listed
below:
1948: Company established
1950s: Introduced steel and fiber fishing rods
1960s: Introduced marine antennas to the commercial market
1970s: Transferring technology to defense antennas
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
1980s: First defence contract with Sweden
1990s: Entered into its first major international defense contract with Switzerland
1997: Sold from Christian Bjelland & Co to Norwegian Applied Technology ASA (NAT). Spilka
Gruppen became the main owner of NAT during 1999 and 2000
2002: Signed the Bowman contract for delivery of antennas to the British Military
2003: Contract for VHF/UHF OMNI directional system for the Swedish Visby Stealth Corvettes
2005: Entered into 3 year OEM agreement with US radio manufacturer Harris Corporation for the
delivery of tactical communication antennas
2006: Acquisition of Power operations from Eltek Energy in 1Q 2006 and acquisition of
Fidulerc/Lerc SA in 3Q 2006
See section 5.3 for more information about the Company’s history and development.
1.1.4 Business overview
The Company develops and manufactures tactical masts, antennas and antenna systems, power
supplies, battery chargers and commercial products. The Company’s main focus is on the defence
communication market. Customers within this market segment are highly demanding in terms of
technical specifications, delivery precision and functional requirements. A typical project can last for
several years, starting with an extensive development and/or a pre-qualification phase.
The Company manufactures its products under two brand names, Lerc and Comrod. Both companies
have strong international brand names, associated with high-quality and long-lasting products.
The Norwegian subsidiary, Comrod AS, is a supplier of antennas, antenna systems and power
supplies, mainly for the defence market, but also for other maritime and commercial applications.
The Company’s subsidiary in France, Lerc SA, is a supplier of masts, antennas and industrial
products. All products are sold both to the defence segment and to the commercial market.
The Company’s main product groups are:
1. Antennas and antenna systems
2. Masts
3. Industrial products
4. Power supplies
A more detailed overview of the Company’s products and operations can be found in section 5.5.
1.1.5 Customer segments
The Company’s customers can be split into the following main categories:
- Radio manufacturers and system houses
- Agents and distributors
- Ships and dockyards
- End-users Defence (governments, MODs, different military organisations)
- Railways
- Dedicated applications
The defence market constitute the most important customer base for the Company, both in terms of the
revenues and the resources spent on development, marketing and sales.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
1.1.6 R&D, patents and licences
The Company has brought a number of products to the market by R&D projects driven by customer
requirements. The Company’s R&D work is based on multi-discipline knowledge, organizational
flexibility and a close relationship to end-user needs.
The Company does not rely on any specific patents and licenses, and the Company has not patented its
product technology in general. However, some special solutions are patented. The manufacturing
processes apply well-known technologies combined in a number of ways to form the Company’s high
quality products.
1.2 Board of Directors, senior management and employees
1.2.1 Board of Directors
As of the date of this Prospectus, the following persons serve on the Board of Directors of Comrod:
Name
Board Current position & Business Address:
Position
Erik Espeset Chairman Group Managing Director of Hexagon Composites ASA, Korsegata 8,
P.O. Box 836 Sentrum, 6001 Ålesund, Norway
Randi Elin Hognestad Vice chairman Director of investor relations, HitecVision Private Equity AS,
Klubbgata 1, P.O. Box 8120, 4068 Stavanger, Norway
Niklas Hermansson Board member CEO of Technor ASA (from 1 February 2007)
Merete Alnes Mostue Board member HR Manager Coop Møre BA, P.O. Box 10, 6025 Ålesund, Norway
As of the date of this Prospectus, the Company’s senior management consists of the following
individuals:
Name Position Business Address:
Ole Gunnar Fjelde Acting CEO from 1 January 2007 & Fiskåvegen 1, 4120 Tau
Operations Manager
Kari Duestad Finance Manager Fiskåvegen 1, 4120 Tau
Jean Morrey General Manager, Lerc SA 600 chemin des Hamaïdes, BP
10119, Saint Amand les Eaux Cedex,
France
Arne Risvik Syversen VP Sales & Marketing, Power division Leangbukta, 1392 Vettre
1.2.2 Employees
As of the date of the Prospectus the Company had approximately 166 employees, 81 of whom were
employed at the Company’s headquarters in Norway and 85 were employed at the Company’s
subsidiary in France.
1.3 Advisors and auditors
First Securities ASA has acted as Manager for the Demerger and the listing of Comrod at the Oslo
Stock Exchange.
Advokatfirmaet Schjødt AS is the Company’s legal advisor.
Ernst & Young AS, Stavanger, is the statutory auditor of the Company.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
1.4 Major shareholders and related party transactions
1.4.1 Major shareholders
Based on the share register of Hexagon per 16 January, the number of registered shareholders of the
Company will be about 1,444 as of the date of the Demerger, of which 96.8% are Norwegian and
3.2% are non-Norwegian.
Flakk Holding AS is the largest shareholder in Comrod with an ownership stake of 26.8% at the date
of the Demerger. Hexagon 2 is the second largest shareholder with an ownership share of 25% whereas
Bøckmann Eiendom AS has 6.8% and MP Pensjon with 5.9% of the shares.
See section 9.6 for more information regarding the Company’s shareholder structure.
1.4.2 Related party transactions
The Company has entered into an agreement to purchase administrative services from Hexagon. These
services will mainly be related to assistance with the financial reporting and IR. See section 8.9 and
8.10 for more details regarding this administration agreement.
1.5 Financial information
Below is an extract of the financial statements of Comrod AS for the past three fiscal years as well as
for the interim periods ending 30 September 2006 and 2005. A summary of the pro forma financial
figures for 2005 and for the 3 rd quarter of 2006 are also included in this section. For more detailed
financial information, please see chapter 7 as well as Appendix 2, 3, 7,8 and 9.
2 Hexagon Composites ASA, the parent company of Comrod Communication and Comrod AS until the date of the Demerger described in
this Prospectus.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
1.5.1 Income statement
(in NOK 1000)
2006 2005 2005 2004 2003
01.01.-30.09 01.01.-30.09 01.01-31.12 01.01-31.12 01.01-31.12
IFRS IFRS IFRS IFRS NGAAP
Operating revenues 83 676 77 523 109 559 106 737 91 648
Total operating expenses 75 212 60 345 85 217 80 027 79 855
Operating profit/loss 8 464 17 178 24 342 26 710 11 793
Net financial income/expenses -4 389 -1 210 1 372 -1 699 -1 907
Profit before tax 4 075 15 968 25 714 25 011 9 886
Taxes 1 349 4 491 7 296 6 956 2 814
Profit for the year 2 726 11 476 18 418 18 055 7 072
1.5.2 Balance sheet
(in NOK 1000) 2006
01.01-30.09
2005
01.01-30.09
2005
01.01-31.12
2004
01.01-31.12
2003
01.01-31.12
IFRS IFRS IFRS IFRS NGAAP
ASSETS
Total non-current assets 122 137 19 496 20 881 19 296 17 412
Total current assets 126 946 60 889 74 307 54 222 46 431
Total assets 249 083 80 385 95 188 73 518 63 843
EQUITY AND LIABILITIES
Total equity 12 155 21 899 26 579 29 024 9 037
Total non-current liabilities 167 210 12 240 11 756 18 274 9 753
Total current liabilities 69 718 46 246 56 853 26 220 45 053
Total liabilities 236 928 58 486 68 609 44 495 54 806
Total equity and liabilities 249 083 80 385 95 188 73 518 63 843
Comrod AS has experienced a significant growth in activity and revenues over the last years. The
reason is several large, new contracts, in the defence market, in particular:
- The Bowman contract signed in 2002 with start-up in 2003. Main contract period 2003 –
2006.
- Visby system deliveries in 2003
- Switzerland contract with deliveries 2004 - 2005
- Kuwait contract with deliveries in 2005
- Harris OEM agreement 2005
The expected turnover for 2006 will be in line with 2004 and 2005, but including the Power operations
and Lerc. The drop in revenues for the mast and antenna operations in 2006, is mainly due to
postponements in deliveries.
The ongoing and future trends are not expected to cause any significant changes in the Company’s
results. Despite the very positive net income for Comrod AS in the last years, the equity ratio has not
increased. This is due to group contribution dispositions to Hexagon.
1.5.3 Pro forma financial information
In September 2006 the Company acquired the French company Fidulerc SA and its subsidiary Lerc
SA. Pro forma financial information have been made for the financial year ended 31 December 2005
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
and for the nine months ended 30 September 2006. The pro forma figures have been prepared for
illustrative purposes only and does not represent the Company’s actual financial position or results.
Pro forma income information
Below is the pro forma income information for the fiscal year 2005 and for the period ended 30
September 2006.
(in NOK 1000)
2006 2005
01.01.-30.09. 01.01.-31.12
IFRS
Proforma
IFRS
Proforma
Operating revenues 137 812 211 239
Total operating expenses 128 933 179 160
Operating profit/loss 8 878 32 079
Net financial income/expenses -8 946 -5 316
Profit before tax -68 26 763
Taxes 491 8 983
Profit for the year -558 17 780
Pro forma balance sheet
Below is the pro forma balance sheet for the period ended 30 September 2006.
(in NOK 1000)
2006
30.sep
IFRS
Proforma
ASSETS
Total non-current assets 122 137
Total current assets 116 413
Total assets 238 550
EQUITY AND LIABILITIES
Total equity 81 659
Total non-current liabilities 112 537
Total current liabilities 44 354
Total liabilities 156 891
Total equity and liabilities 238 550
1.5.4 Capital resources
From the date of the Demerger the Company will have access to long term financing of up to NOK 90
mill. from DnB NOR in addition to a current debt facility of NOK 10 mill. Combined with the cash
flow from operations this gives the Company a very healthy, long term financing.
Detailed information about the Company’s capital resources is presented in section 7.6, “Capital
resources”.
1.6 Trends
The Company has not experienced any changes or trends outside the ordinary course of business that
are significant to the Company after 30 September 2006 and to the date of this Prospectus, other than
those described in this Prospectus.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Besides the Demerger and the new bank loan described in section 7.6.3, no major changes in the
financial structure of the Company has taken place since the end of the 3 rd quarter of 2006.
There have been no significant changes in the Company’s financial or trading position subsequent to
Q3 2006.
1.7 Share capital and shareholders matters
The Company’s share capital as following the Demerger and the directed issue is NOK 16,938,649
divided into 16,938,649 shares, each with a par value of NOK 1.00.
1.8 Purpose of the Demerger and the listing on the Oslo Stock Exchange
Comrod Communication ASA is a wholly owned subsidiary of Hexagon Composites ASA
(“Hexagon”). Hexagon and its subsidiaries are currently involved in four different business areas, one
of which is the manufacturing and sale of antennas and masts made by composite materials, which is
operated through Comrod AS and its subsidiary Lerc SA (together “the Communication Business”).
The board of Hexagon regards the synergies between the Communication Business and Hexagon’s
other operations to be limited, and has therefore resolved to move the antenna and mast operations to a
separate company, Comrod Communication ASA, to be listed on the Oslo Stock Exchange. Comrod
Communication ASA was incorporated in September 2006 following a resolution by the board of
directors of Hexagon.
A listing on the Oslo Stock Exchange will give the Company access to the capital market and
necessary funding as well as an instrument to secure a stable liquidity in the Company’s Shares. Such
access to funding, will help the Company secure and strengthen its market position. Major defence
projects may create the need for additional and available liquidity. As a listed company, Comrod will
have an instrument to help securing the Company’s future business development.
1.9 The Demerger
Under the Demerger, a company group from Hexagon Composites ASA will be established under
Comrod Communication ASA to continue the Communication Business, and the assets, rights and
liabilities primarily related to the Communication Business will be transferred from Hexagon
Composites ASA to Comrod by means of a demerger transaction effected in accordance with
Norwegian law.
29 September 2006 the respective Board of Directors of each of Hexagon and Comrod
Communication ASA entered into the Demerger Plan. Hexagon’s shareholders approved the
Demerger Plan at an extraordinary general meeting on 6 November 2006. Upon the consummation of
the Demerger, the Communication Business will be transferred to Comrod. Until the Demerger is
consummated, Comrod will remain a wholly-owned subsidiary of Hexagon with no subsidiaries or
operational activity.
In connection with the Demerger Comrod’s share capital will be increased by NOK 12,703,987.00
from NOK 1,000,000.00 to NOK 13,703,987.00 through the issue of 12,703,987 new Shares each with
a par value of NOK 1.00 in the ratio of one Share per 10 Hexagon shares. The Share Premium Fund is
increased from NOK 0.00 to NOK 27,804,542.28.
Upon consummation of the Demerger, shareholders in Hexagon will receive one Share with a par
value of NOK 1.00 for every 10 shares in Hexagon they hold on the last day of trading before the
consummation of the Demerger (expected to be 19 January 2007).
Prior to the Completion of the Demerger, 17 January 2007 there was an extraordinary general meeting
in Comrod Communication ASA that adopted a directed issue of new Shares at market value towards
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Hexagon, to be paid and registered immediately following the Completion of the Demerger 19 January
2007, designed to give Hexagon a 25.00 % ownership interest in Comrod following the Demerger. In
this transaction, 3,234,662 Shares will be issued, by conversion of debt of NOK 55,667,097, which
equals a subscription price of NOK 17.21 per Share. The debt which will be used for the conversion is
currently from Comrod AS to Hexagon Composites ASA, but will be transferred to Comrod
Communication ASA immediately following the consummation of the Demerger. The transaction
does not invoke any further costs for the Company.
Consummation of the Demerger is expected to occur on or about 19 January 2007 (after the closing of
trading at the Oslo Stock Exchange). As soon as practicable thereafter Comrod will cause the new
Shares to register in the name of the registered holders of Hexagon shares with the VPS, which is also
expected to occur on or about 19 January 2007.
1.10 VPS-registration and trading of the new Shares on The Oslo Stock Exchange
The Company was registered with the Norwegian Register of Business Enterprises on 23 September
2006. The Company is registered in the VPS with the ISIN no. 001 0338445.
The Company’s Shares will be admitted to listing on the Oslo Stock Exchange following the
publication of this Prospectus. This is expected to take place on or about 22 January 2007. The
Company’s ticker code will be COMROD.
1.11 Expenses
The costs related to the Demerger and the listing of the Company at the Oslo Stock Exchange will be
paid by Hexagon. Comrod will have no expenses related to the Demerger. No expenses or taxes will
be charged to Hexagon’s or Comrod’s shareholders in connection with the Demerger and the listing of
the Shares at the Oslo Stock Exchange.
1.12 Appendices and documents on display
The Company’s financial statements for 2006, Comrod AS’ annual report for 2005 and Comrod AS’
interim report for the 3 rd quarter of 2006 and the Company’s articles of association are included as
appendices to this Prospectus.
For the life of the Prospectus the documents referred to (or copies thereof), where applicable, may be
inspected at the offices of the Company at Fiskåvegen 1, N-4120 Tau, Norway. Tel.: +47 51 74 05
00/Fax: +47 51 74 05 01.
1.13 Summary of risk factors
A number of risk factors may adversely affect the Company. Below is a summary of some of the most
important risk factors. The risk factors presented in this Prospectus are not exhaustive, and other risks
not discussed herein may also adversely affect the Company.
Both operational risks, financial risks and other risk factors may have a negative impact on the
Company’s results.
Risks related to the commercialization of new technology, risks related to technological competence
and key personnel and risks related to competition and strategic choices are considered the main
operational risk factors. Other operational risk factors may include the dependence on few customers,
risks related to cost and organisational control, management execution and to some extent risks related
to timely delivery and quality of products that are outsourced.
The financial risks may include currency risk, liquidity risk, interest and customer credit risk.
Currency risk is the most significant financial risk factors to which the Company is exposed as a
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
stronger Norwegian currency may decrease profitability. Export and sales abroad are settled in foreign
currencies, mainly EUR, USD, GBP and CHF. This comprised about 57% of the Company’s total
turnover in 2005. The currency risk is reduced by purchasing products in foreign currency, taking out
foreign currency loans and using derivatives for sales contracts and some of the net sales expected in
foreign currency. Net cash flow is used to gauge currency risk. The currency risk may not be
eliminated in total in future business, but will be a part of the commercial risk characteristic of
international operations.
Other risk factors may include risks related to the payment of dividends and fluctuations in the share
price. The risk factors are described in more details in Chapter 2.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
2 RISK FACTORS
A number of risk factors may adversely affect the Company. These risk factors include financial risks,
technical risks, risks related to the business operations of the Company, environmental and regulatory
risks. If any of these risks or uncertainties actually occurs, the business, operating results and
financial condition of the Company could be materially and adversely affected. The risks presented in
this Prospectus are not exhaustive, and other risks not discussed herein may also adversely affect the
Company. Prospective investors should consider carefully the information contained in this
Prospectus and make an independent evaluation before making an investment decision.
Included in this Prospectus are various “forward-looking statements”, including statements regarding
the intent, opinion, belief or current expectations of the Company or its management with respect to,
among other things, (i) the Company's target market, (ii) evaluation of the Company's markets,
competition and competitive position, (iii) trends which may be expressed or implied by financial or
other information or statements contained herein. Such forward-looking statements are not guarantees
of future performance and involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance and outcomes to be materially different from any future results,
performance or outcomes expressed or implied by such forward-looking statements. Such factors
include, but are not limited to, the risk factors described below and elsewhere in this Prospectus.
2.1 Operational risks
Operational risk can be defined as the risk of loss resulting from failed or inappropriate processes or
procedures. The Company acknowledges the importance of limiting its dependence on individual
customers or suppliers. In Comrod, operational risk management is delegated to each division, based
on the main guidelines in the Company’s control and management system.
2.1.1 The level of activity within the defence industry
Almost all countries reduced their overall defence budgets after the end of the Cold War. After the
terrorist attacks on 11 September 2001, however, military spending has increased substantially.
Defence organizations have changed their priorities to spend more money on sophisticated equipment
and less on large numbered armies. Military equipment is rapidly becoming sophisticated and more
expensive. This is both good and bad news for the defence industry. It is good because of the fact that
demand for advanced weapons, aircrafts, naval ships and information systems is increasing in relative
terms, but bad because the competition is becoming much more fierce as a result of the net volume
reduction. In addition the defence procurement agencies are getting more concerned with the need to
“procure smart”. Thus there is less money available for up font product development, as the military
wants to buy more “off the shelf” products. One consequence of this is that the concentration will
continue in the industry, as the large defence groups need more economies of scale to support large
and costly development programs, like new aircrafts and ships. However, this will give interesting
opportunities for small companies like Comrod operating in market niches that will not get attention
from the large groups.
2.1.2 Dependence on few customers
To some extent the Company’s different product groups have an overlapping customer base. However,
the dependence on a few customer segments has been reduced through the acquisition of Lerc in
September 2006. Accordingly, the Company’s overall risk of lost sales is considerably lower than the
risk for one individual product group. This has encouraged favourable financing of the Company,
increasing its capacity for long-term technological development.
2.1.3 Commercialisation of new technology
There is always risks related to development of new products and services regarding how fast and to
what extent existing and potential customers will accept and buy the new products and services. Most
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
of the product development is performed in close contact with the customers limiting the Company’s
risk related to product development.
2.1.4 Technological competence and key personnel
To be able to meet future plans for development and growth the Company has to maintain a high level
of competence. The Company is dependent on recruitment of personnel with a high level of
competence and that key personnel do not leave the Company or can not easily be replaced.
The Company offers competitive terms of employment and possibilities of development to attract the
best qualified personnel and keep the turnover of key personnel as low as possible.
2.1.5 Competition and strategic choices
The Company’s competitors will always be a possible threat to the Company’s performance. The
Company is experiencing that the competitive arenas for the different product and services have
different characteristics. The competition is in general fragmented and the risk for pressure on prices
and loss of contracts is lower than for example for unilateral strong competition between a limited
number of big international players.
The competitive situation means that high requirements are set with respect to the Company’s Board
and Management and the long-term strategic choices made. The Board and Management’s
competence and ability to make the correct strategic choices can have a significant effect on the
Company’s future financial performance and position.
The products the Company offers consist of increasingly more sophisticated technology, and
development of new technology can make the Company’s products less competitive. It may be
necessary to make considerable additional investments in new technology in order to remain
competitive. As a consequence of this, the Company could lose customers, fail to attract new
customers or incur considerable costs related to maintaining the customer base.
2.1.6 Cost and organisational control
Cost and organisational control are key issues in a period of strong growth. Growth increases the risk
of a higher cost increase than assumed as well as organisational disruption. Growth also requires
development of administrative systems and routines.
2.1.7 Management execution
The planned growth in revenues and profits is partly dependent on management execution of the
Company’s strategy and plans. There is a risk that the management may not succeed in implementing
the Company’s strategy and plans, and consequently may not deliver the expected revenues and
profits.
2.1.8 Delivery
For the Company’s Power operations, manufacturing has been outsourced. There is some risk related
to the timely delivery and the quality of the products that are outsourced.
2.2 Financial risks
The Company has an overall financial strategy which covers management of important financial risk
factors, namely currency, liquidity, interest and credit risk.
The Company does not have any holdings of shares or other financial securities of which the purpose
is to make profit from resale.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
2.2.1 Currency risk
Currency risk is the most significant financial risk factor to which the Company is exposed, as a
stronger Norwegian currency decreases its profitability. The consolidated accounts are settled in NOK.
Export and sales abroad are settled in foreign currencies, mainly in EUR, USD, GBP and CHF, and
this comprised 57% of the Company’s turnover in 2005. The currency risk is reduced by purchasing
products in foreign currency, taking out foreign currency loans and using derivatives for sales
contracts and some of the net sales expected in foreign currency. Net cash flow is used to gauge
currency risk. The currency risk may not be eliminated in total in future business, but will be a part of
the commercial risk characteristic of international operations. With the Lerc acquisition Comrod will
reduce its dependency of the Norwegian krone, since a substantial part of the cost base will be
denominated in Euros.
2.2.2 Liquidity risk
Comrod may be exposed to delays in payments in connection with closure of major projects. This risk
may stem from official approval of final payment or delayed progress at partners. The capitalisation of
the Company is set up in order to meet this risk. With increasing company size and a more diversified
product and customer portfolio, the relative importance of separate projects/customers is decreasing.
2.2.3 Interest rate risk
The Company’s long-term interest-bearing debt has floating interest. A higher interest level will thus
have a negative effect on performance through higher net interest costs. To minimise interest risk,
limits have been defined for hedging instruments and fixed-interest terms ranging from 0.5 to 4 years.
Liquidity risk is managed by setting a minimum level of available liquidity in the group, which is
based on the estimated annual turnover.
2.2.4 Customer credit risk
Customer credit risk is low for Comrod, since the major customer base comprise large defence
organisations and radio manufacturers Over the past five years losses on accounts payable have been
very low. For new customers with limited credit information available, trade finance instruments, such
as letters of credit or bank guarantees, are utilised. Requirements have been drawn up for all financial
institutions which are to be transaction counterparties.
2.2.5 IFRS
With effect from the first quarter of 2006 Comrod have prepared its consolidated financial statements
in accordance with the new reporting standard, IFRS (International Financial Reporting Standards,
formerly IAS).
The annual report for 2006 will adhere to these standards. The historical comparative figures for 2005
have been restated in line with IFRS. The effect of the transition from NGAAP (Norwegian generally
accepted accounting principles) to IFRS on the balance sheet and final results for the financial year
2005 and 2006 is further described in chapter 7, “Financial information” of this Prospectus.
2.3 Other risks
2.3.1 Dividends
Dividends will have to be assessed in relation to earnings over time. Future dividends will depend on
the Company’s earnings and financial position.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
2.3.2 Capital market development
As listed company, the pricing of the Comrod shares will be affected by fluctuations in the stock
market. Consequently, the share price could fall, even if the Company shows a positive underlying
development.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
3 RESPONSIBILITY FOR THE PROSPECTUS
3.1 Responsibility Statements
3.1.1 The Board of Directors
The Board of Directors of Comrod Communication ASA is responsible for the information given in
this Prospectus.
We confirm that to the best of our knowledge, having taken all reasonable care to ensure that such is
the case, the information contained in the Prospectus is in accordance with the facts and contains no
omissions likely to affect its import.
Ålesund, 17 January 2007
The Board of Directors of Comrod Communication ASA
Erik Espeset
Chairman
Niklas Hermansson
Randi E. Hognestad
Merete Alnes Mostue
3.2 Third party information
The information in this Prospectus that has been sourced from third parties has been accurately
reproduced and, as far as the Company is aware and able to ascertain from information published by
that third party, no facts have been omitted which would render the reproduced information inaccurate
or misleading.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
4 THE DEMERGER AND LISTING ON OSLO STOCK EXCHANGE
4.1 Purpose of the Demerger and the listing on Oslo Stock Exchange
Comrod Communication ASA is a wholly owned subsidiary of Hexagon Composites ASA
(“Hexagon”). Hexagon and its subsidiaries are currently involved in four different business areas, one
of which is the manufacturing and sale of antennas and masts made by composite materials. These
activities are mainly carried out through Hexagon’s subsidiary Comrod AS and Comrod’s subsidiary
Lerc SA. The board of Hexagon has concluded that the synergies between Comrod’s activities and the
rest of the Hexagon group’s activities are limited. As a result, the board of Hexagon has resolved to
move the antenna and mast operations to a separate company to be listed on the Oslo Stock Exchange.
In connection with the demerger of Hexagon, Comrod Communication ASA has been established as a
separate company. Comrod Communication ASA will be the parent company for Comrod AS, its
subsidiary Fidulerc SA with its subsidiary Lerc SA.
The shareholders of Hexagon will receive shares in Comrod Communication ASA in accordance with
their ownership stake in Hexagon. See section 4.2 for more information.
A listing on the Oslo Stock Exchange will give the Company access to the capital market and
necessary funding as well as an instrument to secure a stable liquidity in the Company’s shares. Such
access to necessary funding, will help the Company secure and strengthen its market position. Major
defence projects may create the need for additional and available liquidity. As a listed company,
Comrod will have an instrument to help securing the Company’s future business development.
4.2 The Demerger
Under the Demerger, an independent group will be established under Comrod Communication ASA to
continue the Communication Business, and the assets, rights and liabilities primarily related to the
Communication Business will be transferred from Hexagon Composites ASA to Comrod by means of
a demerger transaction effected in accordance with Norwegian law. Under Norwegian law, a demerger
is the transfer of part of the assets rights and liabilities of a company (the transferor company) to one
newly formed or pre-existing company (the transferee company) in exchange of shares of the
transferee company. Provided that the relevant tax, accounting, and corporate law provisions are met,
a demerger may, under Norwegian law, be carried out tax-free for the Norwegian demerging company
and its Norwegian shareholders.
29 September 2006 the respective Board of Directors of each of Hexagon and Comrod entered into the
Demerger Plan. Hexagon’s shareholders approved the Demerger Plan at an extraordinary general
meeting on 6 November 2006. Upon the consummation of the Demerger, the Communication
Business will be transferred to Comrod. Until the Demerger is consummated, Comrod will remain a
wholly-owned subsidiary of Hexagon with no subsidiaries or operational activity.
The remaining assets, rights and liabilities presently held by Hexagon and not transferred to Comrod
will after completion of the Demerger remain with Hexagon, which will continue to operate the
Composite Business.
4.2.1 Comrod Prior to the Demerger
Comrod Communication ASA was incorporated as a wholly owned subsidiary of Hexagon on 19
September 2006 for the purpose of acting as the transferee company in the Demerger, and at the date
of this Prospectus have a paid in capital of NOK 1,000,000, allocated to a share capital of
NOK 1,000,000 divided into 1,000,000 shares, each with a par value of NOK 1.00. Comrod
Communication ASA has not had, and will not have, any operational activity prior to the Completion
Date.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
4.2.2 Allocation of Assets, Rights and Liabilities pursuant to the Demerger Plan
Upon consummation of the Demerger, the assets, rights and liabilities relating to the Communication
Business shall be transferred to Comrod. The transferred assets consist primarily of the shares in
Comrod AS (and indirectly of shares in its subsidiaries). All assets, rights and liabilities presently
owned by Hexagon and not transferred as part of the Demerger, shall remain with Hexagon.
For purposes of the Demerger, Comrod will as of the Completion Date be deemed to have received a
loan from Hexagon of MNOK 12.8 which shall be settled in cash on the Completion Date, unless
Hexagon has given its consent to the extension of the loan, whether in part or in whole, beyond the
Completion Date, on terms to be agreed between the parties.
If either Comrod or Hexagon after consummation of the Demerger identifies that any of the assets and
rights of Hexagon and its subsidiaries primarily relates to and are required for the operation of the
Comrod Business, Hexagon shall procure, to the extent possible, that such assets and rights (and the
liabilities related thereto) shall be assigned to Comrod free of any additional consideration. This
principle shall apply in the same manner if Hexagon or Comrod identifies that any of the assets and
rights of the Comrod Companies primarily relate to and are required for the operation of the
Composite Business.
4.2.3 Share Split Ratio; Issuance of new shares
The split ratio for the Demerger is derived from estimates of the fair value of the Communication
Business relative to the estimates of the fair value of Hexagon. The Board of Directors of Hexagon
and Comrod have determined that the Demerger entails an allocation of the fair values in the ratio of
74,51 % to Hexagon and 25,49 % to Comrod. The share capital and share premium fund of Hexagon
is consequently allocated in the same ratio of 74,51 % to Hexagon and 25,49 % to Comrod. Comrod’s
Board of Directors and Hexagon’s Board of Directors are of the opinion that the legal requirements for
Norwegian tax-free treatment of the Demerger are met by the above allocation.
The reduction of share capital in Hexagon will be effected by way of a reduction in the par value of
each share. The capital increase in Comrod will be accomplished by issuance of 1 new Comrod Share
for each 10 Hexagon-shares. Consistent with the ratio described above, the par value of each Hexagon
share will be reduced from NOK 0,125 to NOK 0.093. The par value will then be increased to NOK
0.10 through a capital increase by transfer from the Hexagon’s premium fund, which was adopted by
the extraordinary general meeting 6 November 2006. The par value of each Comrod Share will
continue to be NOK 1.00. This will be accomplished in the following manner:
The share capital of Hexagon will be reduced by NOK 4,047,283.72 from NOK 15,879,983.50 to
NOK 11,832,699,78 through reduction of the par value for each share from NOK 0.125 to NOK 0.093.
The share premium fund will be reduced from NOK 143,059,893.29 to NOK 106,598,647.74.
Comrod’s share capital will be increased by NOK 12,703,987.00 from NOK 1,000,000.00 to NOK
13,703,987.00 through the issue of 12,703,987 new shares each with a par value of NOK 1.00 in the
ratio of one Share per 10 Hexagon shares. The Share Premium Fund is increased from NOK 0.00 to
NOK 27,804,542.28.
Comrod was incorporated with 1.000.000 shares owned by Hexagon. Prior to the Completion of the
Demerger, 17 January 2007, there was an extraordinary general meeting in Comrod Communication
ASA which adopted a directed issue of new Shares at market value towards Hexagon, to be paid and
registered immediately following the Completion of the Demerger 19 January 2007, designed to give
Hexagon a 25.00 % ownership interest in Comrod following the Demerger. In this transaction,
3,234,662 Shares will be issued, by conversion of debt of NOK 55,667,097, which equals a
subscription price of NOK 17.21 per Share. The debt which will be used for the conversion is
currently from Comrod AS to Hexagon Composites ASA, but will be transferred to Comrod
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Communication ASA immediately following the consummation of the Demerger. The transaction
does not invoke any further costs for the Company.
4.2.4 Distribution of Shares in the Demerger
Upon consummation of the Demerger, shareholders in Hexagon will receive one Share with a par
value of NOK 1.00 for every 10 shares in Hexagon they held on the last day of trading before the
consummation of the Demerger (expected to be 19 January 2007).
The existing Shares and the shares issued in the directed issue, all of which are held by Hexagon, will
immediately after consummation of the Demerger represent 25.00 % of the total number of Shares.
The Shares to be issued to the holders of Hexagon shares upon consummation of the Demerger will
constitute the remaining 75.00 % of the Shares.
4.2.5 Conditions of the Consummation of the Demerger
Consummation of the Demerger is subject to the following conditions:
All consents, both contractual and governmental, required for the consummation of the Demerger shall
have been obtained or waived.
Oslo Stock Exchange shall have consented to Comrod being listed immediately after registration of
the new Shares issued in connection with the Demerger with the VPS.
Satisfactory long-term financing and insurance for both both Comrod and Hexagon shall have been
established.
There shall be no outstanding indebtness between any of the subsidiaries under Comrod and the
subsidiaries of Hexagon, other than the debts described in the Demerger Plan.
The deadline for objections from the creditors pursuant to section 14-7 cf. section 13-15 of the Public
Limited Companies Act shall have expired for both Comrod and Hexagon, and the position regarding
any creditors who have raised objections has been settled or Hexagon shall have obtained a final ruling
from Norwegian courts regarding any such objections concluding that the Demerger may nevertheless
be consummated and registered with the Register.
No circumstance having a material adverse effect on the business, property, result of operation or
financial condition of the Hexagon Companies or the Comrod Companies shall have occurred, unless
the Board of Directors of Hexagon is of the opinion that it will be in the interest of the shareholders of
Hexagon to nevertheless consummate the Demerger.
There shall be no decision by a subsequent extraordinary general meeting of Hexagon, pursuant to a
calling notice from the Hexagon Board of Directors or otherwise to cancel the Demerger.
4.2.6 Consummation of the Demerger
If the conditions of the consummation of the Demerger are satisfied, or where applicable waived, the
respective Boards of Directors of Hexagon and Comrod will approve the consummation of the
Demerger, after which notice of consummation of the Demerger will be filed with the Norwegian
Register of Business Enterprises.
Consummation of the Demerger is expected to occur on or about 19 January 2007 (after the closing of
trading at the Oslo Stock Exchange). As soon as practicable thereafter Comrod will cause the new
Shares to register in the name of the registered holders of Hexagon shares with the VPS, which is
expected to occur on or about 24 January 2006.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
4.2.7 Relationship with Creditors
The Demerger resolution was reported to the Norwegian Register of Business Enterprises and a public
notice was issued on 8 November 2006. The creditors of Hexagon and Comrod will have the right to
object to the consummation of the Demerger until 8 January 2007. By 8 January 2007 there have been
no objections to the Demerger.
If a creditor with an undisputed and due claim raises an objection, the Demerger cannot be
consummated before the claim has been settled. If a creditor with a disputed claim or a claim which is
not yet due raises any objection, the Demerger cannot be consummated unless the claim has been
settled, adequate security has been placed to the benefit of the creditor, or Hexagon has obtained a
final ruling from a Norwegian court decision that the Demerger may nevertheless be consummated
and registered with the Register.
Under the Norwegian Public Limited Companies Act, Comrod will be secondarily liable following
consummation of the Demerger for the obligations of Hexagon upon the Completion Date.
Conversely, Hexagon will be secondarily liable for the obligations of Comrod upon the Completion
Date.
To minimize cross liabilities following completion of the Demerger, Hexagon and Comrod have used,
and will continue to use until and after the Completion Date, their best efforts to obtain waivers
releasing Hexagon from secondary liability in respect of the Communication Business, and waivers
releasing Comrod from secondary liability relating to the Composites Business. However, no
assurance can be given that such replacements and waivers will be obtained for all the current
obligations of Hexagon and Comrod, respectively.
To the extent that Hexagon or the other Hexagon Companies after the Completion Date continue to be
directly liable (as distinguished from the secondary joint and several liability under section 14-11 of
the Public Limited Companies Act) for contingent or actual liabilities owned by the Comrod
Companies to third parties, Comrod will pay to Hexagon a guarantee fee calculated on the basis of the
guaranteed sum at a rate equal to the average margin paid by Comrod on its interest-bearing debt for
the continuation of such guarantees.
4.2.8 Tax Matters
Hexagon believes that the Demerger complies with the requirements for a tax-free transaction in
Norway. Accordingly, it is expected that the Demerger should not give rise to any Norwegian taxes for
Hexagon. Comrod will take over Hexagon’s tax position with respect to the assets and liabilities
transferred to Comrod in the Demerger.
The Demerger will for Norwegian tax purposes take effect as of the Effective Date, which means that
items of income and expenses generated by Hexagon from such date will, to the extent related to the
operations transferred to Comrod in the Demerger, be attributed to Comrod for tax purposes.
4.2.9 Employees and Pension Rights and Liabilities
The Demerger will have no direct effect on the employment relationship for the employees under the
Communication Business. The employees of the various subsidiaries of Hexagon will not be directly
affected by the Demerger. Comrod has separate pension funds.
The Demerger will not involve redundancies and it is not expected that the Demerger will have other
significant consequences for the employees.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
4.2.10 Demerger-Related Agreements between Hexagon and Comrod
In connection with the Demerger, the Hexagon Companies and the Comrod Companies have entered
into, or will enter into, certain agreements that will regulate the continuation of a transitional period
for established commercial connections between the Communication Business and the Composites
Business, including a framework and service agreement giving Comrod the necessary support for
financial reporting and Investor Relations following consummation of the Demerger.
The terms and conditions of the agreements between Hexagon and Comrod are, or will be, in general
based on arm’s length principles. The agreements will be terminated as soon as practically possible.
4.3 VPS-registration and trading of the new Shares on The Oslo Stock Exchange
The Company was registered with the Register of Business Enterprises on 23 September 2006.
The Company’s Shares will be expected to be listed on the Oslo Stock Exchange, SMB list, following
the publication of this Prospectus. This is expected to take place on or about 22 January 2007. The
Company’s ticker code will be COMROD and one round lot is expected to be 500 Shares.
The Company is registered in the VPS with the ISIN no. 001 0338445.
4.4 The Company's share capital following the Demerger and the Directed Issue
Following the Demerger, the Company’s share capital will be NOK 16,938,649 divided into
16,938,649 Shares each with par value NOK 1.00.
4.5 Rights conferred on the Shares
The Shares carry full shareholders’ rights in the Company from the time of registration of the share
capital increase with the Norwegian Register of Business Enterprises (Foretaksregisteret), see section
4.3. The Shares carry right to dividends, if any, from and including the financial year 2006 for any
dividends which are resolved distributed after the share capital increase is registered in the Norwegian
Register of Business Enterprises. For a description of rights attaching to Shares in the Company, see
chapter 9, “Share Capital and Shareholder Matters” of this Prospectus.
4.6 Manager
First Securities ASA is Manager of the Demerger and the listing of the Company’s shares at the Oslo
Stock Exchange. The Manager’s address is:
First Securities ASA, Fjordalléen 16, P.O. Box 1441 Vika, 0115 Oslo, Norway.
4.7 Legal counsel
The Company’s Norwegian legal counsel is Advokatfirmaet Schjødt AS, Dronning Maudsgt. 11, P.O.
Box 2444 Solli, 0201 Oslo, Norway.
4.8 Expenses
The costs related to the Demerger and the listing of the Company at the Oslo Stock Exchange will be
paid by Hexagon. Comrod will have no expenses related to the Demerger.
No expenses or taxes will be charged to Hexagon’s or Comrod’s shareholders in connection with the
Demerger and the listing of the Shares at the Oslo Stock Exchange.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
5 PRESENTATION OF COMROD COMMUNICATION ASA
5.1 Information about Comrod Communication ASA
Comrad Communication ASA is a Norwegian public limited liability company with headquarters in
Tau in South-Western Norway and offices in Norway and France.
The Company’s activities dates back to 1948. Comrod Communication ASA was incorporated on 19
September 2006 and was registered in the Norwegian Register of Business Enterprises 23 September
2006 with the organisation number 900 295 697. The Company’s legal name is Comrod
Communication ASA, and the Company’s business address is Fiskåvegen 1, NO-4120 Tau, Norway,
tel. +47 51 74 05 00.
The Company’s shares are registered in the VPS (the Norwegian electronic share registry) with the
ISIN no. 001 0338445. The Company is subject to Norwegian company legislation.
5.2 Organisational structure
The legal structure of the Company after the Demerger is shown in the figure below.
FIGURE:LEGAL STRUCTURE OF COMROD COMMUNICATION ASA
Comrod Communication ASA
(Norway)
100%
Comrod AS
(Norway)
100%
Fidulerc S.A.
(France)
100%
Laboratoire d’Etudes et de Recherches
Chimiques (LERC) S.A.
(France)
The operational structure of the Company is shown in the figure below.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
FIGURE:COMROD COMMUNICATION ASA - ORGANISATION CHART
Comrod Communication
Ole Gunnar Fjelde
Finance & IR
Kari Duestad
Lerc SA
J. Mouray
Comrod AS
Ole Gunnar Fjelde
Sales & marketing
V. Lernoud/
E.V.Renterghem
Sales &
marketing
T.R Brekke
R&D
T. Demol
R&D
J. Eide
Industry
S. Proffit
Operations
O.G. Fjelde
Production
H. Dufresnoy/
O. Lelong
Power
O.G. Fjelde
The Company’s business is operated through its wholly owned subsidiaries, Comrod AS in Norway
and Lerc SA in France. As per 30 September 2006 the Company had 166 employees, 85 of whom
were employed at Lerc S.A. and 81 of whom worked at Comrod AS.
The number of employees at Comrod AS for the past three accounting years and per 30 September
2006, are divided as follows:
by function: per 30 Sept. 2006 per 31 Dec. 2005 per 31 Dec. 2004 per 31 Dec. 2003
Administration 11 11 9 9
Sales & Marketing 3 3 3 3
R&D 7 6 4 4
Operations 55 55 58 57
Division Power 5 0 0 0
Total 81 75 74 73
The total number of employees in Lerc S.A. for 2005 and at the end of the 3 rd quarter of 2006 were
divided as follows:
by function: per 30 Sept. 2006 per 31 Dec. 2005
Administration 6 6
Sales & Marketing 5 4
R&D 7 7
Operations 67 64
Total 85 81
5.3 Background and history
The Company’s origins dates back to 1948 when the company Brødrene Tjøstheim was incorporated
in Tau outside of Stavanger in Western Norway. Comrod AS has developed from a manufacturer of
fishing rods to today’s advanced communication antennas, antenna systems and lightweight mast
solutions.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Based on its knowledge of fibre composites, the company began to develop antennas designed for
extreme weather conditions. In 1960, Comrod AS started production of whip antennas for the fishing
vessels based on technology from the manufacturing of fishing rods. Since the early 1970s the
company has focused on the development and manufacturing of sophisticated antennas for the
defence, commercial and maritime market.
A brief overview of the main products that Comrod AS has produced over the years is listed below:
- 1949 Steel fishing rods
- 1953 Fiber glass fishing rods
- 1960 Marine antennas
- 1969 Military antennas
- 1970 Ski-poles
- 1982 Broadband antennas
- 1986 Composite insulators
- 1990 Pipe production (continued in the company Compipe AS, acquired by NAT in 1995)
- 1997 Combined active GPS / VHF antennas
- 2001 INTAS system for vehicles
- 2002 AIS combined antennas
- 2002 MAS 1 antenna system for pleasure yachts
- 2003 VHF / UHF OMNI directional system for Visby Stealth Corvettes
- 2004 Development of L1/L2 active GPS antennas
- 2006 Power supply, battery chargers, masts and insulation products
In the following is an overview of the most important events related to Comrod AS’ development over
the past years.
In 1988 the company signed its first major defence contract in Sweden.
In 1994 Comrod AS became one of the leading suppliers of GMDSS upgrades to merchant vessels.
In 1997 Comrod AS entered into its first major international defence contract with Switzerland.
In 1997 Comrod AS was sold from Chr. Bjelland & Co Inc. to Norwegian Applied Technology ASA
(NAT). In the summer of 1999, Spilka Gruppen became the main owner of Norwegian Applied
Technology ASA, and during 1999 and 2000 some of NAT’s operations were liquidated. A new board
was elected, and the company headquarters was moved from Stavanger to Ålesund in Norway. At the
same time NAT was renamed Hexagon Composites ASA. In June 2000, Hexagon Composites ASA
merged with Devold AMT, a company formerly privately held by Spilka Gruppen and others, with
Spilka Gruppen as the main shareholder. Comrod AS continued as a subsidiary of Hexagon
Composites ASA, and maintained its location in Tau.
In 1998 Comrod AS started deliveries for the new MRR radios for the Norwegian Armed Forces.
In 2002 Comrod AS signed a contract for the prestigious BOWMAN project involving the delivery of
antennas to portable radios, various vehicles and base stations for the British military. In the same year
the Company entered into an agreement for the delivery of antennas and an antenna control system to
the Swedish navy’s new corvettes (the Visby project).
In 2003 the company entered into a 15 year OEM agreement with German radio manufacturer Rohde
& Schwarz.
In 2004 Comrod AS signed a new defence contract for the delivery of tactical antennas to Switzerland.
In addition, the company for the first time secured a defence contract in China.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
In September 2005 Comrod AS entered into a three-year OEM agreement with US radio
manufacturer, Harris Corporaton, RF Communication Division. This agreement includes deliveries of
tactical communication antennas for use both in the international market as well as the US domestic
market. This contract represented a breakthrough for Comrod AS in the US market.
In February 2006 the company signed an agreement with Eltek Energy AS to purchase its power
supply unit for the defence market.
In the beginning of 2006 the company entered into a new business area by winning the contract for
delivery of antenna switches to Swedish submarines.
In September 2006 Comrod AS acquired Lerc S.A., a world leading French manufacturer of integrated
mast and antenna solutions for the defence market, from the Canadian company ECI Composites.
On 6 November 2006 an extraordinary general meeting of Hexagon Composites ASA passed a
resolution to spin off Comrod AS and its subsidiaries and to seek listing for the new parent company,
Comrod Communication ASA, at the Oslo Stock Exchange. The Demerger is expected to become
effective on or about 19 January 2007.
Following the Demerger, the Company was reorganized into a holding structure, with Comrod
Communication ASA as the parent company, and Comrod AS, Fidulerc S.A. and Lerc S.A. as the
Company’s wholly owned subsidiaries.
For more information about the Company’s current operations, see the following sections.
5.4 Objective and strategy
5.4.1 Objective
Comrod’s goal is to strengthen its position as an internationally leading company within development,
production and marketing of antennas and antenna systems, masts and mast systems, power supply,
battery chargers and insulating products. It is the Company’s overall objective to be a global leader in
supplying antennas, antenna systems, power supply, battery chargers and masts to the defence
communication market. In addition the Company is in the process of developing from a supplier of
standard antennas and masts, to also become a supplier of more advanced and related support systems
for tactical communication solutions. The Company also supplies antennas and antenna systems for
commercial use as well as industrial composite products for the offshore industry and railroad
systems.
5.4.2 Strategy
The Company will continue to develop its global market position for masts and marine antennas
through existing and new products with the aim to increase its sale of tactical defence antennas, masts,
antenna systems, power supplies and battery chargers. Active product development through close
cooperation with its customers, is an important part of the Company’s strategy. The Company has a
fully integrated production process, which means that the Company controls all the important
processes in the development, marketing and sales, as well as the actual production. With the recent
acquisitions of Lerc S.A. and the Power operations, the Company is better positioned to increase its
share of the global market for communications systems.
For the period 2007 to 2009, the Company has the following targets:
- to increase the sales volume in the US market (all areas)
- to complete at least one acquisition of a competing or related company
- become a global supplier for power supplies and battery chargers
- increase activities and obtain a new customer base for systems applications
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
- introduce the Flat Pack technology for defence power supplies
- maximize the synergies between the different divisions
- maintain the superior quality and flexibility of products and deliveries
5.5 Business Overview
5.5.1 Principal activities
The Company develops and manufactures tactical masts, antennas and antenna systems, power
supplies, battery chargers and commercial products. The Company’s main focus is on the defence
communication market. Customers within this market segment are highly demanding in terms of
technical specifications, delivery precision and functional requirements. A typical project can last for
several years, starting with an extensive development and/or a pre-qualification phase.
The Company manufactures its products under two brand names, Lerc and Comrod. Both companies
have strong international brand names, associated with high-quality and long-lasting products.
Operations in Norway (Comrod AS)
The Norwegian subsidiary, Comrod AS, is a supplier of antennas, antenna systems and power
supplies, mainly for the defence market, but also for other maritime and commercial applications.
Operations in France (Lerc SA)
The Company’s subsidiary in France, Lerc SA, is a supplier of masts, antennas and industrial
products. All products are sold both to the defence segment and to the commercial market.
5.5.2 Product groups
The Company’s main product groups are:
1. Antennas and antenna systems
2. Masts
3. Industrial products
4. Power supplies
The following sections describe each product group in more detail.
1. Antennas and antenna systems
Comrod manufactures antennas for the defence market and for civilian/commercial use. For the
defence market, Comrod also supplies sophisticated antenna systems. The manufacturing of antennas
and antenna systems takes place in Norway and France.
The Company provides advanced technology solutions to meet defence requirements and supplies a
comprehensive range of tactical mobile antennas suitable for man-pack, vehicles and transportable
remote applications. The product line of antennas for the defence segment includes combined antennas
for VHF/GPS, VHF/DECT, VHF/WLAN, UHF/GPS, UHF/DECT and UHF/WLAN.
For commercial use the Company supplies marine antennas for a number of different vessels, from
deep-sea fishing boats, workboats to cruise and pleasure boats.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
The table below lists the various antenna products manufactured by the Company.
Product description antennas: Applications: Comments:
HF: 1.5 to 30MHz - Man-pack
- Development of new generation
- Vehicle
wire antennas
- Stationary
- Traditional
- Wire or whip
- Commercial shipping
VHF: 30 – 88 or 108 MHz - Vehicle
- Handheld
- Manpack
- Stationary
- Commercial shipping and light
marine
UHF: 225 – 512 MHz - Handheld
- Vehicle
- Station
- Commercial shipping and light
marine
Dual Band and Multi-Band:
Center-Fed VHF + GPS
End-Fed VHF + GPS
30 – 88 Center-Fed + 2.4GHz
30 – 88 + UHF 225 – 512 MHz
30 – 512 MHz
Radio Link antennas
- Center-fed
- End-fed
- Mostly vehicle antennas
- Emerging market
- Development of new generation
whip antennas
- Market moving towards Multi-
Band
- High volume – high pricing
- More technology – patents
- Higher margins
Spare parts - Stable business
Radio Beacon - Offshore and commercial shipping - Used for aircraft guidance
Civil antennas - Airports - ILS monitoring
AIS receiver antenna - Automatic identification system - Monitoring of ships
The VHF segment is the main product constituting an estimated 60% of the turnover within the
antenna segment. The HF products make up approximately 30% and the UHF products approximately
10% of the turnover within this segment. The defence segment comprise approximately 80% of the
Company’s turnover from antennas.
The clients include OEMs, defence organisations and commercial vessels. The main customers within
the antenna segment are ITT, Harris, Thales and Rhode & Schwarz.
FIGURE: ANTENNAS -MANPACK, HANDHELD AND VEHICLE
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Communication antenna control system
The Company sees an emerging market for communication antenna control systems for the defence
segment. The demand is shifting towards more sophisticated systems, comprising alternative forms of
communication (HF, VHF, UHF, etc.) using different broadband applications. This combined with
higher demands/more needs for installations onto the platform, has led to an increasing demand for
such systems worldwide.
A typical systems application is as follows; The antenna system is an active antenna combiner and an
antenna selector switch. It is primary designed to reduce the number of antennas in an installation and
allows the simultaneous use of several radios to one transmit antenna or to individual directional
antennas. A receive distribution amplifier is included to allow multiple receivers at the same time.
2. Masts
Tactical masts for military use are one of the main product categories for the Company’s French
subsidiary, Lerc SA, constituting approximately 17% of the Company’s turnover.
All masts are manufactured at the Company’s production facility in France. The Company supplies
telescopic, sleeve, manpack, manual and motorized masts. The Company is also able to provide a
complete antenna and mast system for rapid deployment. Key features of the mast products include
easy maintenance, standard as well as tailor-made versions and advanced control systems for
unmanned use of the masts.
The table below gives an overview of the products that the Company produces within the segment for
tactical masts.
Product: Applications: Comments:
Manpack masts - HF or VHF radio stations (C4), 4 - 5% of mast turnover
to 12m ground installation - Next generation wire antennas
need ultra-light manpack masts
Sleeve masts (tripods/shelters) - Line of sight (“LOS”)
- Cellphone
- Emergency
- 6 to 40m, on tripod, vehicle or
shelter
Telescopic - Electronic Warfare (“EW”)
- LOS
- Ground surveillance
- Energy
- (Live line maintenance)
- 2.5 to 30m
- On vehicle, shelter or trailer
(good prospects)
- 67% of mast turnover
- New generation of Line of Sight
need more accurate masts with
heavier toploads
- Belt driven and motorized:
- 15% of mast turnover
- New generation Electronic
Warefare systems need
automated masts
- Good outlook for US & Europe
- Manual:
- 8% of mast turnover
- Stable market
Spare parts - Stable business
Services:
manuals
training
maintenance
engineering (integration on vehicle or
shelter)
- Added value for the customer
Sleeve masts constitute the main product category within the mast segment. These masts constitute
67% of the mast turnover. Lerc has superior competence and a well-proven track record for
calculating, designing and manufacturing masts, especially for large sized and heavy top-load
applications.
In the following is an illustration of some of the masts that the Company offers.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
FIGURE:MASTS FOR ADVANCED CONTROL AND UNMANNED USE (FROM LEFT)
3. Industrial products
The Company’s industrial products comprise insulating products and structural composites. Some
90% of the sales within this segment is related to the energy and utility industry, and the defence
industry makes up approximately 10% of the sales.
All manufacturing of the Company’s industrial products take place at the Company’s manufacturing
plant in France. The Company’s industrial products are targeted towards niche markets.
Key clients include Siemens, Schlumberger, SNECMA, French Railways, Belgium Railways, and
EDF.
Insulating products
Lerc produces two main insulating products; synthetic insulators and insulating poles. The two product
categories are described in the table below:
Product description: Applications: Comments:
Synthetic insulators, 750V to 25kV - Railways
- Only 2 competitors in Europe
- Urban transport
- New competition from Asia and
Insulating poles - Live maintenance on high tension
lines
Eastern Europe
- End of market life cycle within 3
to 5 years (will be replaced by
automated tools)
Synthetic insulators make up approximately 70% of the division’s turnover from insulating products.
Below is an illustration of insulating products.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
FIGURE:SYNTHETIC INSULATOR FOR RAILROAD APPLICATION AND EXAMPLE OF INSULATOR
Structural composites
These are custom-designed products for commercial and military applications. The structural
composites can be divided in the following product categories:
Product description: Applications: Comments:
Custom designed products for
- Oil & gas exploration tools - Co-design and strategic subcontracting
with commercial applications
- Electrical equipment
customers
Custom designed products for military
applications
- Aeronautic components
- Pressure tubes for missile and
rocket launchers
- Missile propulsion components
- Co-design and strategic subcontracting
with customers
The custom designed products for commercial applications constitute an estimated 70% of the
Company’s turnover within structural composites.
4. Power supplies
The Company acquired the Power operations from Eltek Energy AS in the first quarter of 2006. The
power operations deliver a full service range of power supplies for large industrial and military
projects. The technology rights for battery systems was acquired from Eltek Energy AS with exclusive
rights in the defence market.
The table below gives an overview of the various product groups within power supplies manufactured
by the Company.
Product description: Applications: Comments:
BC1500RM series - Vehicles, shelters and navy vessels - Combined power supply and battery
charger, 28V 50A, for mounting in
19” racks
BC1500BM series - Vehicles, shelters - Combined power supply and battery
charger, 28V 50A
Battery chargers and power supplies for - Vehicles and stationary, used for - Both vehicle and man held versions.
handheld radios
various types of batteries
Battery chargers and power supplies for - Vehicles and stationary, used for - Both vehicles and shelters
man-pack radios
various types of batteries
Ultra Compact – high efficiency - Next generation power supplies
- Goal - ½ size double effect
The Company delivers power supplies and battery chargers to original equipment manufacturers
(OEMs), and has experience from more than 130 OEM projects worldwide. The power supply
products are developed in close cooperation with the Company’s customers and are constructed to
withstand rough environments. The Company offers engineering and manufacturing of both Ni Cad
and Li-Ion batteries with advanced applications and tailor-make solutions to fit with the customers’
needs.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Manufacturing is outsourced and takes place at the following locations:
- VTech in Dongguan, China
- Fideltronic in Krakow, Poland
- Åstvedt in Bergen, Norway
Below is an illustration of a battery charger.
ILLUSTRATION: EXAMPLES OF POWER SUPPLY PRODUCTS, FROM LEFT: DOUBLE MAN-PACK
CHARGER, COMBINED CHARGER AND POWER SUPPLY AND STANDARD POWER SUPPLY
5.5.3 New products
The Company is currently in an R&D phase for several new products and product groups. These new
product ranges are expected to be released during the period 2007 - 2010.
The products that the Company expects to release over the next few years are as follows:
- Communication antenna control system
- Next generation power supplies - expected to be introduced to the market within the end of
2007
- Smart system for vehicle applications – more radios onto one single antenna, expected to be
introduced Q3 2007
- Wideband HF antenna for Navy vessels, under current study. First delivery Q4 2006
- SATCOM antennas, expected to start up Q2 2007 finalized Q1 2008
- Various wideband antennas
- The development of a new range of Railways insulators
- The development of a new high margin product for the oil industry
5.5.4 Main products by revenue
Below is an overview of the revenues for the main product categories sold by the Company for the
past three accounting years.
Based on pro forma figures for 2005, antennas comprised 69% of the Company’s turnover, whereas
masts made up 17% and industrial products 14% of the turnover. At the end of the 3 rd quarter of 2006,
the revenue from the different product groups can be split as follows: 64% from antennas, 9% from
masts, 21% from industrial products and 6% from power supplies. The changes in revenues from
masts are due to postponements within some defence supply orders. For industrial products the growth
in 2006 is related to increased sales within dedicated applications.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
TABLE:COMROD’S TURNOVER BY PRODUCT CATEGORY 2003 – 2006
(in NOK mill.) per 3Q 2006
IFRS
2005
IFRS
2004
IFRS
2003
NGAAP
Masts 12.2 35.4 N/A N/A
Antennas 88.3 146.2 105 90
Industrial products 28.5 29.6 1.8 1.7
Power supplies 8.8 N/A N/A N/A
Sum revenues 137.8 211.2 106.8 91.7
Note: Figures for 2003 and 2004 only include financials for Comrod AS. Figures for 2005 and 2006 are based on proforma
financials for Comrod AS and Lerc SA. Power supplies included from March 2006.
The above table shows Comrod’s historic turnover for the past three accounting years. Lerc is included
from 2005.
Factors that have affected the Company’s principal activities and turnover
Over the period shown in the above table, these factors have all influenced the Company’s principal
activities and turnover:
- Securing the BOWMAN contract in 2002 with deliveries until bulk 2006. This also included a 10
year spare parts contract.
- Winning Visby Stealth systems to Sweden in 2003, next generation products.
- Greece antenna contract (MNOK 14), ongoing deliveries
- Switzerland spare parts contract delivered in 2004 (MNOK 12)
- Kuwait MOD contract delivered in 2005 (MNOK 16.5)
- Croatia LOS mast contract in 2005, ongoing deliveres
- Signing an OEM contract with Harris RF Communication Division USA in 2005
- Continuous production up-grades to achieve an optimal and effective production. This was
accelerated after securing the BOWMAN contract.
- The development of a new range of Railways insulators
- The development of a new high margin product for oil industry (related to the Industrial Products
segment)
5.6 Principal Markets
In the following is a description of the Company’s principal markets, including an overview of the
Company’s marketing and distribution as well as main customer segments.
5.6.1 Customer segments
The Company’s customers can be split into the following main categories:
1. Radio manufacturers and system houses
Typical customers are:
- ITT Industries, USA
- Harris, USA
- Kongsberg Group, Norway
- General Dynamics, USA
- Furuno, Japan
- Radio Holland, Holland
- Thales Group, France
2. Agents and distributors
- See marketing and distribution section
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
3. Ships and dockyards
Typical customers include:
- Kockums
- HDW
- Ulstein Group, Norway
4. End-users Defence (governments, MODs, different military organisations)
Typical customers include:
- FMV, Sweden
- Kuwait MOD
- GRD, Switzerland
- TamsCo, USA
- US Army
5. Railways
- Railway companies in Europe
- OEM building railways tracks
6. Dedicated applications
- Oil companies (linked to non disclosure agreements)
- Missile manufacturers (linked to non disclosure agreements)
See more information about the Company’s customers in section 5.6.3.
The defence market constitute the most important customer base for the Company, both in terms of the
revenues and the resources spent on development, marketing and sales.
5.6.2 Marketing and distribution
Sales and marketing is an integrated part of the Company’s production plans. The main part of the
products manufactured are a result of direct orders. Direct orders constitute some 80% of the
Company’s revenues. Customer requirements and the subsequent research and development efforts are
at the core of the Company’s production and distribution.
There is a close correlation between R&D, production, engineering, sales and marketing. The key
factor is multi-discipline knowledge, flexibility and a close relationship to the end-users.
Approximately 10 people work with sales and marketing of the Company’s products. In addition the
Company has a number of agents and distributors worldwide who market the Company’s products.
Technical and production personnel from the different subsidiaries support all sales activities. This
also includes demos and field tests where the customer require participation. This is to ensure that the
products are installed and equipped correctly.
The Company mainly delivers products to the defence market, but commercial applications also
constitute an important market segment. The marketing approach and the time to market differs
significantly between the customers within the different areas. Consequently, the description of the
Company’s marketing and distribution efforts are divided into two categories; 1) Defence products
and 2) Commercial products. See also the description of the market in chapter 6.
Defence products
The Defence sector is mainly project driven, and the Company has extensive know-how in terms of
what major projects are being planned in various countries.
The time to market in the defence sector typically takes longer than for commercial products. It may
take six to eight years to secure a contract, and throughout that process the Company often has to go
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
through a pre-qualification phase, extensive testing and development before the actual delivery starts.
Once, started however, a defence contract often lasts for several years, including a long period of spare
parts delivery after the main delivery has been completed.
FIGURE:TYPICAL TIMELINE FOR A DEFENCE PROJECT
Year 0 Year 6-8
Start Demo Development Qualification Deliveries Spare parts
In general, as is also the case for the commercial products, original components are sold to OEMs and
integrators, who include the Company’s products in their deliveries to the end-users. It is the end-user,
who decides on the specifications for the various orders. The end-user normally purchases the spare
parts directly from the Company.
Customers
Within the defence sector the Company works closely with the customers on product development.
The Company’s customers within the defence sector can be divided in the following categories:
- Integrators/Original Equipment Manufacturers (OEMs), which again sell to armies
- Armies/End-users
Integrators/OEMs may choose to use the Company’s products because it has been specified by the
end-user. Within this segment, there are few competitors for key applications. The typical order to this
customer group is customized. Typical for this market segment is the importance of personal contacts
in order to secure a contract.
The armies/end-users decide on the program and system specifications and thereby the specific
technical specifications for masts and antennas to be included in the program. This customer group
also purchases the spare parts directly from the suppliers. As is the case for integrators/OEMs,
relationships are important to secure contracts. Lobbying also plays a role in order to secure funding
for R&D and innovation programs.
Power supply
For the distribution of the power units the Company plans to use the same market approach as for
antennas, masts and systems. Within the power supply segment, the Company can target the same
customer base that the Company has developed for antennas/masts/systems over the years, i.e. mainly
the defence segment. At this stage the Company’s Power operations is at a premature stage, which can
be compared to where Comrod’s defence operations was 10 years ago. Following the growth of
Comrod in the last few years, this implies that the power division has a substantial potential for rapid
growth internationally.
Commercial products
The Company has more than 30 commercial distributors globally in the following main countries;
- USA
- Canada
- Singapore
- Hong Kong
- Taiwan
- Korea
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
- Japan
- Australia
- Most European countries
In Norway there are no distributors. Here the customers mainly include the large shipyards, and
marketing and distribution are targeted directly at the customer. Most of the distributors have been
working with the Company for at least 10 years.
The Company’s commercial products are often sold from warehouse inventory rather than customer
based production orders, but for the products with more of an R&D focus, personal relationships still
play an important role.
Customers
The main customer segments within the commercial product segment are:
Marine antennas:
- Shipyards
- Distributors
Structural Composites:
- Oil & gas exploration companies
- Defence manufacturing
Insulating Products:
- Railroad companies
- Industrial groups
- Offshore customers
Marine antennas are mainly sold to shipyards or to agents/distributors as this is more of an off-the
shelf product than the more technologically advanced defence antennas.
The Company delivers drilling tubes to oil and gas exploration companies and rocket and missiles
launch tubes for the defence-manufacturing segment. The structural composites market is highly
profitable and characterised by highly confidential and long-term contracts. There is a strong R&D
focus in this segment, which again is a driver for innovation and consequently higher margins. The
structural composites and insulation products are distributed to a few, but very strong, OEM customers
such as the French railroad system SNCF. Therefore the Company has a strong Key Account focus for
these product groups. The deliveries of insulating products are dependent on European railways
investments.
5.6.3 Key customers
The Company has a number of large customers. Given the wide range of products and the Company’s
customer base, the Company does not rely on any key customer(s).
Below is an overview of some of the Company’s key customers within the various product groups.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Antennas
Customer/country:
Order:
ITT Industries, USA - Comrod is the main supplier for antennas to the international programs
Harris RF Communications, USA - Comrod now has a 3 year OEM agreement for HF and VHF antennas
and lightweight masts
UK MOD BOWMAN - Contract has since awarded been substantial for the Company. The
program has included all HF, VHF and UHF vehicle antennas together
with lightweight masts. At the peak in 2004 this contract amounted to
more than 25% of the year’s turnover.
Racal Antennas, England - A strategic partner that Comrod has had numerous programs with
during the last 10 – 15 years, including BOWMAN
FMV, Sweden (Swedish MOD) - Has been an active customer for Comrod since the late 1980s
Kongsberg Group, Norway - An important customer for both antennas and power supplies/battery
chargers to the Norwegian MRR and LFR program
Thales Group, France - Very important customer for Lerc, Lerc being the main antenna
manufacturer for Thales France and most of its subsidiaries overseas.
Lerc has indirectly sold antennas in more than 70 countries through
Thales France.
DGA, French MOD - Has been an active customer for Lerc during the last 30 years, spare
parts as well as new programs
Belgian Army - A very active customer for Lerc in Antennas
Australian Army - Major contract delivered in the 1980s. Lerc currently distributes spare
parts directly
Masts
Below is an overview of the most important customers for masts.
Customer/country:
Order:
Thales Group, France - Very important customer for Lerc, Lerc being the main mast
manufacturer for Thales France and main export programs
DGA, French MOD - Has been an active customer for Lerc during the last 30 years, Buys
mostly spare parts.
US Army - Buys mostly spare parts after a major contract delivered between 1989
and 1998 through Harris Corporation
ULTRA ELECTRONICS, Canada - Buys masts for US Army and Canadian Army programs
Spanish Army - New customer for LERC in motorized masts for Electronic Warfare
and radars
Industrial products
Below is an overview of the most important customers for the Company’s industrial products.
Customer/country:
Order:
SNCF, France - French railroad system, important customer
SNCB, Belgium - Belgium railroad system, very large customer over several years
Siemens, Germany - Important customer, different insulators
SNECMA, France - Various dedicated applications
Ultra Electronics, USA/Canada - Stable customer
ALSTOM - Important customer
Porsche, Germany - Various installations for different customers
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Power
Below is an overview of the most important customers for the Company’s power supply products.
Customer/country:
Order:
Kongsberg Group, Norway - Very large customer over several years
FMV, Sweden (Swedish MOD) - Has been an active customer
DOD, Canada - Important customer
5.6.4 Major Contracts
Below is a list of some of the major ongoing contracts that the Company has entered into during the
past three accounting years.
Year: Customer/program: Contract value: Length of contract:
2001 CHF program for French Army: 1,000 masts of Approx. MEUR 15 2008
20m for LOS system
2002 GSM/R contract with French and Belgian Approx. MEUR 2.5 2010
Railways
2002 BOWMAN contract including all vehicle (and approx. MNOK 150 Ending 2006 for bulk
one manpack) antennas for UK MOD
2002 LINX & SAEC programs – Unmanned masts for Approx. MEUR 2.5 2007
EW – French Army
2003 15 year OEM agreement with Rohde & Schwarz,
till 2018
Germany
2003 Contract for antenna systems to the Swedish approx. MNOK 22
Visby stealth corvettes
2003 Greece antenna contract approx. MNOK 14 Ongoing till 2009
2004 Spareparts Switzerland (delivered 2004) approx. MNOK 12 2004
2005 Kuwait MOD contract (delivered 2005) approx. MNOK 35 2005
2005 Spare parts contract for 10 years to the
2015
BOWMAN program
2005 OEM Contract with Harris RF Communications,
2008
USA
2005 Croatia LOS mast program approx. MNOK 5 2006
2006 FMV contract for Submarine antenna switch
2006 + options
system
2006 Contract for HF Broadband study approx. MNOK 1.6 2006
2006 ITT, Saudi Arabia SANG approx. MNOK 20 2007
2006 Mast program, France approx. MNOK 50 2010
Other than the contracts mentioned above and the loan agreement described in section 7.6.3 the
Company is not dependent on any industrial, commercial or financial contracts.
5.6.5 Order book
Given the nature of the Company’s products and the market in which the Company operates, many
deliveries will take place over a period of time. At the end of 2006 the Company had a strong order
book, totalling about NOK 122 million. This is a historical high level, even though the order book
typically increases towards the end of a year. In addition to seasonal variations, the high order book is
to some extent a result of delays in deliveries combined with a substantial amount of orders related to
the Company’s power and commercial products. Also, Lerc has an all time high order reserve, and
there is at present a high level of activity within the shipbuilding industry, which gives the Company a
stable amount of incoming orders for regular antennas.
Going forward the Company is in a strong position to realize interesting market opportunities. The
prospects for the power supply products overlap the prospects for the antenna and antenna systems.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
FIGURE:ORDER BOOK AS OF NOVEMBER 2006
Industrial
products
18 %
Masts
21 %
Power
21 %
Antennas
40 %
5.6.6 Geographic presence
The Company has a strong global presence in a number of countries. Over the past three accounting
years, the Company has delivered products to some 300 customers in approximately 65 countries.
Comrod AS had customers in 50 countries, whereas Lerc SA had customers in 35 countries (some
overlap regarding the countries) over the past three year period. The following figure shows the
Company’s worldwide presence. More than 90% of the products manufactured at the Company’s
factory in Tau in Norway are shipped abroad.
FIGURE:THE COMPANY’S WORLDWIDE PRESENCE
The following table shows the Company’s turnover by geographic market for the past three accounting
years and for the 3 rd quarter of 2006.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
COMROD’S TURNOVER BY GEOGRAPHIC MARKET 2003 - 2006
(in NOK mill.) per 3Q 2006 2005 2004 2003
Europe 113.1 162.5 89.0 69.9
America 16.7 21.3 10.6 15.4
Asia 4.9 23.9
Other regions 3.1 3.5 7.2 6.4
Sum revenues 137.8 211.2 106.8 91.7
Note: Figures for 2003 and 2004 only include financials for Comrod AS. Figures for 2005 and 2006 are based on proforma
financials for Comrod AS and Lerc SA. Power supplies included from March 2006.
5.7 Patents and licences
The Company does not rely on any specific patents and licenses, and the Company has not patented its
product technology in general. However some special solutions are patented. The manufacturing
processes apply well-known technologies combined in a number of ways to form the Company’s high
quality products. The Company will always consider patents or trade marking if they believe that it is
strategic right and that it will not expose the product for potential copying.
As of 30 September 2006 the Company’s French subsidiary, Lerc SA, held a total of 44 patents, of, 6
expires in 2008, 4 expires in 2010 and 34 expires in 2012.
5.8 Research and Development
The Company has brought a number of products to the market by R&D projects driven by customer
requirements. The Company’s R&D work is based on multi-discipline knowledge, organizational
flexibility and a close relationship to end-user needs.
In addition to the above mentioned customer based R&D, the Company has developed a number of
products based on its on own ideas. The figure below illustrates the typical birth of a new product:
FIGURE:TYPICAL BIRTH OF A NEW PRODUCT
Idea
Identify the
need
Sales
Possible
demand
Business
Management
Human Resources
Finance / IT
QA
Customer Satisfaction
Engineering /
Design
Define the
solution
Productio
n
Provide the
Over the past three accounting years and including the 3 rd quarter of 2006 the Company has spent a
total of MNOK 13.8 on R&D divided as follows:
2003: MNOK 2.5
2004: MNOK 3.5
2005: MNOK 3.6
Q3 2006: MNOK 4.2
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
5.8.1 Quality control and testing
The Company is recognized for its high quality products. The Company’s subsidiary Comrod AS, is
ISO 9001-2000 certified for its design, development, manufacturing and marketing processes. The
Company’s French subsidiary, Lerc SA, is in the process of implementing a quality policy equivalent
to ISO 9001. The Company’s insulating products have been certified in accordance with EU standards.
The Company’s products have been designed to withstand extreme conditions and must withstand
extensive tests to ensure that the quality standards are being met.
The products go through extensive testing in the Company’s on site test laboratories in Norway and
France. Testing include chemical, mechanical, electrical and climatic testing.
The manufacturing and technical platform is based on substantial development and experience within
composites and antenna and mast manufacturing to ensure the best possible performance of the
Company’s communication masts and antennas. All vital antenna components are completely
protected from the elements. The antenna conductors are encapsulated in polyurethane foam, which
keeps out humidity which again prevents corrosion and ensures that the conductor lies stable in the
antenna sheath. The foam prevents fractures due to vibrations from engines and also enhances
mechanical stability. The Howald production method 3 using fibreglass reinforced epoxy, provides the
unique strength and flexibility. To achieve the optimal quality on the antenna surface, all tubes go
through a grinding process before a strong two component, elastic polyurethane coating is applied. As
a result salt and dirt cannot adhere, reducing the danger of sparkover and the antenna is effectively
protected against water, ice and damaging UV radiation.
All products are subject to extensive testing. Comrod uses the standards listed below.
- MIL-STD-810F
- MIL-STD-461E
- MIL-STD-464
- MIL-HDBK-454A
- MIL-HDBK-217F
- DEF-STAN 00-35
- IEC 60945
- IEC 60060-2
- IEC 60068-2
- ANSI TIA/EIA-222-F
These are all well known international standards for defence and shipbourne equipment.
5.9 Property, plant and equipment
In Norway the Company owns a manufacturing plant at Tau, 45 minutes’ travel with ferry outside
Stavanger. The plant covers about 2,771 square meters (m 2 ) and have today an approximate book
value of about MNOK 11, and the insurance value is MNOK 39.
The plant has been built and upgraded in the following seven steps:
- 1970: New factory existing of 700m 2 production site and a 230m 2 office building.
- 1972: Extension of the production site with 800m 2 included shelter.
- 1982: New warehouse 201m 2
- 1989: Second level on the office building 230m 2 .
- 1996: Rebuilding the production plant and a new 360m 2 mechanical production compartment.
- 2002: New paint compartment 300m 2 .
3 The Howald production method involves winding/spinning glass fibre onto a mandrill.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
- 2004: New warehouse 180m 2 .
The book value for machinery at the Company’s plant at Tau, was MNOK 10.7 per 30 September
2006.
In France the Company’s main asset is its plant in St. Amand lex Eaux in Northern France, about ½
hour drive from Lille and 1 ½ hour drive from Paris. The plant was built in 1990 and was upgraded in
2004 and 2005. The plant covers about 10,000 square metres, and the property covers some 120,000
square metres. The book value of the plant was approximately EUR 2.1 million in 2005. The original
cost of the plant was EUR 16 million, and the insurance value is EUR 13 million. Lerc has been in this
site since 1962. The old buildings are more than 100 years old. Another part of the plant is 30 years
old, and the modern one is 10 years old.
Other than the two production plants and machinery, the Company has no other material fixed assets,
and the Company leases no assets or properties other than one minor lease contract for machinery,
which will expire in 1Q 2007.
5.10 The environment
The Company does not release any substances into the surrounding environment which require any
kind of permit, and no health hazards are associated with its products. Remains from production are
sent to an approved disposal centre. This also applies to special waste, such as oil emulsions. Other
waste is separated at source and deposited at the inter-authority waste disposal site. The Company
complies with the current environmental regulations in France and Norway.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
6 MARKET OVERVIEW
The Company confirms that information in this section which has been sourced from third parties has
been accurately reproduced and that as far as the Company is aware and is able to ascertain from
information published by such third parties, no facts have been omitted which would render the
reproduced information inaccurate or misleading.
6.1 Overview of the market
The main focus of this chapter is the market for antennas, masts and power supplies for defence and
civilian applications since these products constitute, or is expected to constitute, the main part of the
Company’s turnover. Since the Company in particular targets the defence sector, there is a more
detailed overview of this segment of the market than the market for civilian/commercial products in
which the Company operates.
6.1.1 The defence market
General
Following 11 September 2001 and the subsequent “War on Terror”, the global defence sector,
measured by the world military expenditure, has increased substantially. In addition to the perceived
threat from various terrorist groups over the recent years, an increasing number of conflict areas and
war zones worldwide has led to an escalating demand for military products, including highly
sophisticated communications systems.
The global military expenditure increased by 3.4% from 2004 to 2005, and by 34% in the 10-year
period from 1996 to 2005. The total world market amounted to USD 1,118 billion in 2005. This
represents approximately 2.5% of the world total GDP or an average spending of USD 173 per capita.
FIGURE:GLOBAL MILITARY EXPENDITURE 1996 TO 2005 – IN BILLION USD
1200
1118
1000
800
747 756 748 757
784 800
851
914
969
600
400
200
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: Stockholm International Peace Research Institute, 2005 yearbook
A decreasing number of countries are responsible for a growing proportion of the spending. The 15
largest spenders accounted for 84% of the total world market. The US alone is responsible for 48% of
the total global expenditure on military products, followed by the UK, France, Japan and China with
some 4 – 5% each. The rapid increase in the US’ military spending can to a large extent be attributed
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
to the costly ongoing military operations in Iraq and Afghanistan. Also, in 2005 the effects of the
hurricanes Katrina and Rita also played an important role.
Another factor that has influenced the increase in military expenditure is the high prices on minerals,
oil and gas. Military expenditure in countries like Algeria, Azerbaijan, Russia, Saudi Arabia, Chile and
Peru are to a large extent resource-driven. Increased military spending from countries like China and
India, on the other hand, are linked to their economic growth.
FIGURE:THE 10 COUNTRIES WITH THE HIGHEST MILITARY SPENDING IN 2005 – IN BILLION USD
0 100 200 300 400 500 600
USA
478,2
UK
France
Japan
China
Germany
Italy
Saudi Arabia
Russia
India
48,3
46,2
42,1
41
33,2
27,2
25,2
21
20,4
Source: Stockholm International Peace Research Institute, 2005 yearbook
Market characteristics
The defence sector is highly project driven, and demand can be extremely volatile driven by defence
programs initiated by governments, usually handled by various Ministries of Defence (“MoD”). A
number of suppliers and sub-suppliers may be involved in one single program, and the decision
process may last for several years. Suppliers have to qualify by meeting pre-defined quality standards,
e.g. like the NATO standard for communication on military vehicles. Once qualified, the manufacturer
may need to take part in extensive research and development programs to tailor-make the product(s) to
the end-user’s needs before the actual delivery takes place. Manufacturing and delivery can typically
take place over a period of time targeting different “milestones” throughout the project. Once the main
delivery has been completed, the supplier will typically undertake to deliver spare parts to the products
for a specified number of years. Consequently, a defence order may last for several years, including
spare parts delivery. It is not uncommon for a defence contract to last for ten to twenty years. As a
result, having signed a contract, the manufacturer will have secured an order backlog over a relatively
long period of time. The contract lengths and the fact that the products are usually tailor-made to each
customer, reduces the risk of competition from substitute products substantially. The barriers to entry
in the defence market can be characterized as relatively high.
Given that the time to market products in the defence sector takes so long, building relationships over
time is a key factor to success. Suppliers need to be active within lobbying towards both customers,
like OEMs, and the end-users (usually Ministries of Defence).
To some extent deliveries to the defence sector can be characterized as cyclical. This can be attributed
to two factors. First, orders are mainly project based. Once a contract has been secured, the timing of
the bulk deliveries will be predictable, both in terms of timing and quantities. Secondly, the spare part
delivery programs will normally represent a yearly order, which is typically a percentage (often 10 –
15%) of the bulk order. Such spare part orders often materialize at the end of a calendar year. The size
46

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
of the spare part orders will often be a function of the activity level in the project in general, and may
therefore not occur every year.
Most defence programs, whether comprising vehicles, airplanes or ships or a combination of these,
will include communication equipment. Large defence programs will therefore as a rule trigger the
demand for communication antennas and masts and also power supply products for the
communication systems.
Key drivers in military communication market
The demand for communication equipment for the defence sector, is mainly driven by the following
factors:
The demand for communication
Communication is essential in today’s military operations. The trend is towards more and more
sophisticated communication systems where one single antenna or mast is packed with more
technology and a number of different frequencies, in so-called “smart systems”. Integrated systems
including masts, antennas and power supply solutions is to an increasing extent preferred by the OEMs
and end-users. As a result there is a large upside to such smart systems for communication, and
manufacturers who can supply such systems, are expected to gain an edge over competitors.
Speed and reliance of communication
The speed and reliance at which the communication is transferred, will be increasingly more important
for the end-users. Most of the leading suppliers within military communication moves towards
broadband technology and wireless communication. Given the use of the communication products,
both the equipment and the technology must be manufactured to withstand extreme conditions and
harsh environments, and manufacturers who can supply such products will have a competitive
advantage.
Military projects
Defence projects will continue to be a key driver for demand within this sector. A large defence
project may increase the market size for communication solutions substantially. The implementation
of large defence projects will typically be driven by one of two things; 1) the need to upgrade old and
obsolete equipment, and 2) the amount of global military operations. The perceived threat to world
peace, e.g. through the level of terrorism activity or threats, may also play an important role in
governments’ decisions to increase their defence budgets. Large nature disasters, may also contribute
to a government’s increase in military spending.
Future trends
For future military projects it seems that the trend moves towards highly mobile units with
sophisticated communication equipment. Today’s soldier is becoming ever more “intelligent” in the
sense that he/she operates, and often carries, sophisticated communication systems. Such
communication equipment can be handheld or manpack systems carried by the individual soldier. It
can also include larger communications systems applied to vehicles, aircraft or shipborne
communication equipment.
Many Ministries of Defence seem to change their priorities to spend more money on sophisticated
equipment rather than on large armies. As a result, military equipment is becoming both more
sophisticated and more expensive. The demand for military equipment, including communication
systems, is increasing, and competition seems to become more fierce.
This demand for more high-tech communication technology can be compared to the telecom market,
where there is a clear trend towards convergence of technologies allowing for the transmission of
voice, data and images at the same time (multi-band transmission). In the early days the antennas used
to include voice only capabilities. Now there is an emerging demand for different combinations of
transmission with high data and high capacity requirements. This will most likely shift demand from
47

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
narrow band in low frequencies to broadband in high frequencies. This trend has been enhanced due to
the fact that more and more communications equipment are now mounted onto an installation platform
(vehicle, navy, shelters, etc.) This again reinforces the need for more sophisticated antennas as well as
systems to solve these demands.
There is a growing demand for fast deployment of equipment with high tacticity. The need for rapid
deployment and mobile units, is expected to further trigger the demand for more compact
communication equipment involving integrated mast and antenna solutions and “smart boxes” with
more technology “packed” on a single mast or antenna.
In general there is less competition in the high-end of the market. This is due to the fact that products
are developed over time in close cooperation with the customers and end-users and also that long-term
relationships play an important role.
The demand for masts, antennas and communication systems will be affected by the ongoing market
trends for defence products. When it comes to masts, it is expected that future US combat systems will
require highly mobile communication vehicles with 10 to 30m masts with rapid deployment
capabilities and heavy toploads. For antennas, the demand is expected to grow for high technology
products made of durable materials, such as composites. In line with the need for rapid deployment
and the “smart soldier”, an increase in demand for hand-held units and uniform kits is expected.
6.1.2 The market for civilian/commercial applications of antennas
The type of antennas manufactured by the Company, can be used for a number of civilian or
commercial applications. The Company has a strong brand name within marine antennas, and supplies
antennas to all types of ships, from large offshore vessels, tug boats, tank ships, roll-on/roll-off ships,
and cruise boats.
The market for marine antennas can be characterized as a mass market, and the antennas are typically
off-the shelf products. Compared to the defence sector, the antennas are similar, but there is more
standardisation in this end of the market. The quality standards are less rigid, than for defence
antennas.
Since products are more standardized, a larger part of the distribution can be sold trough agents or
distributors. The distributors typically buy the antennas to keep in stock and thereby carries the risk
related to stock. The suppliers often recruit distributors through participation at trade fairs.
To some extent marine antennas are sold directly to the customers, such as shipyards, who build the
entire ships including outfitting - and communication equipment. Newbuildings make up an important
part of this market. Radio manufacturers also constitute an important customer group within the
commercial antenna segment.
6.1.3 The market for industrial products
The Company delivers industrial products within two niche segments, i) structural composites and ii)
insulation products.
Structural composites
The structural composites market is characterized by high-end contract development and
manufacturing. The Company supplies tubes for two main applications. The first is manufacturing
tubes for oil and gas industries, and the other includes rocket and missiles launch tubes for defence
customers. The defence market is described in more detail above.
The oil and gas industry has over the past couple of years experienced an substantial growth. A large
number of new oil exploration rigs and vessels has been ordered in the past two years, and the industry
has a large order backlog. The figure below illustrates the positive development in the oil service
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
industry for the period 1994 and till today. The activity in the oil and gas industry is a main driver for
the demand for drilling tubes.
FIGURE: OIL SERVICE PERFORMANCE 1994 TO 2006 BASED ON THE NORWEGIAN OIL SERVICE
INDEX
500
Oil Service Performance 1994-2006
400
300
Index
200
100
0
94 96 97 98 99 00 01 02 03 04 05 06
Source: Reuters EcoWin
Source: Reuters EcoWin
These are the main factors for investments and product development within the structural composites
market:
- Current material, processes
- Vertical integration (engineering, composite processes, complementary technologies, testing)
- Highly-engineered products
- Customized specifications
- Study and development, leading to manufacturing
In general the structural composites market is highly profitable and characterized by long-term
contracts. This is an R&D driven niche market with relatively high margins. The barriers to entry are
relatively high due to a high level of investments, multiplicity of processes and product development
through fabrication and testing. The time to market is relatively long, and long-term relationships to
the clients is a pre-requisite.
Insulation products
The market for the type of insulation products in which the Company operates, does not show a stable
demand as purchases to a large degree depend on investments within European Railways. To a large
extent the market adheres to European railway standards.
The high-end of the market include railways and high-voltage transmission and other niche products.
Insulating products is becoming a commodity type of product, especially in the low-end of the market,
and manufacturing is to an increasing extent moving offshore to Asian countries. Customers have
become increasingly more price sensitive and there is a strong focus on cutting costs on raw materials
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
and fittings. There are a number of players and the market can be characterized as fragmented. It is
also a very competitive market.
Since the market is moving towards a commodity type market, relationships are becoming less
important, whereas price is becoming an increasingly important factor.
6.1.4 The market for power supplies
The market for power supply products is very fragmented with many small suppliers. Comrod is at an
early stage in its ownership of this product range. However with the potential and strategic market
position that Comrod/Lerc possesses it gives this niche product range a superior position.
This is a segment where most of the contracts are based on inquiries, offers and purchase orders. The
trends for this segment are similar to the trends for the antenna segment. On the product side, the
demand for LiIon and smart batteries seem to replace the demand for NiCad batteries. There is also a
trend towards more compact products and “smart solutions” as is also the case for antennas.
The type of customers match the market for antennas to a large degree and there is substantial
opportunities with cross-selling for suppliers offering both antennas and power supplies.
6.2 Market shares and competition
In the following, competition and market shares for each of the Company’s main product groups, i.e.
antennas, masts, industrial products and power supplies, are described in more detail.
It should be noted though, that some level of discretion regarding the actual deliveries and the value of
the contracts is typical for the defence sector. Given the characteristics of the market and the type of
products delivered, a number of the players, including suppliers, OEMs and end-users, do not disclose
information, or they only disclose selected information, regarding the contracts entered into. In many
cases customers also prefer to remain anonymous. As a result, it is not possible to estimate the exact
size of the total market for the products. Based on its market knowledge the Company has, however,
estimated market sizes and market shares for the main market segments in which the Company
competes. See more information in the following sections.
6.2.1 Antennas
The global market for composite antenna products in which Comrod competes, is estimated to
approximately NOK 912 million, of which the European market is estimated to NOK 283 million, the
US market is estimated to NOK 379 million and other regions make up NOK 250 million.
Competition in the antenna market
The Company had a combined market share of approximately 12% of the global market in 2006. This
include antennas for the defence segment as well as marine antennas for the commercial segment.
The market for the Company’s antenna products is relatively fragmented. However, the five largest
players, Comrod, Shakespeare, RA Miller and Antenna Products, control approximately 36% of the
market. During 2006 Comrod slightly increased its total market share, and is estimated to have a
market share of 13.5% at the end of 2006.
The table below gives a breakdown of the market and competition in Europe and the US for the
segment of the antenna market in which the Company operates.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
OVERVIEW OF THE GLOBAL MARKET FOR COMROD RELATED COMPOSITE ANTENNA PRODUCTS
Figures per 2005
Company Market share local Market share global
Comrod 26 % 8 %
Lerc 12 % 4 %
Tadiran 21 % 7 %
Racal 12 % 4 %
Others Europe 28 % 9 %
Sum Europe 100% 31 %
Shakespeare 21% 9 %
RA Miller 20 % 8 %
Antenna Products 16 % 7 %
Aero Antenna 11 % 5 %
Trivec 11 % 5 %
Radial Larsen 7 % 3 %
Others USA 14 % 6 %
Sum USA 100% 42%
Other regions 27%
Total market size 100%
Source: Comrod’s estimates
Below is a brief overview of the Company’s main competitors.
Shakespeare
Shakespeare Electronic Products Group is a US manufacturer of marine and military antennas. The
company has a particularly strong focus on broadband technology, and has a fairly diversified product
specter. The company has more than a 100 years of history.
RA Miller
The US company R.A. Miller Industries, Inc. began engineering and manufacturing antenna systems
for the US Military in 1956. In addition to marine and military antennas, the company also develops
and manufactures antennas for the commercial market, such as automotive and aviation applications.
The company has also been involved in the US Space Program. RA Miller mainly operates within the
US market.
Antenna Products
Antenna Products Corporation is a wholly owned subsidiary of the publicly owned US company,
Phazar Corp. The company designs, manufactures and markets antenna systems, towers and
communication accessories worldwide. The United States government, military and civil agencies, and
prime contractors represent Antenna Products Corporation’s principal customers. The company was
incorporated in 1984 to continue a business started in 1972.
Tadiran
Tadiran Communications Ltd. is a listed company with headquarters in Israel. The company has over
40 years of experience in military communications technology. The company utilizes its expertise for
civilian applications as well as communications solutions tailored to the government and military
markets. Tadiran delivers to customers around the world.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod’s competitive position
Compared to its most important competitors, Comrod is at the high end of the market, and the
Company is currently in the process of diversifying. If succeeding in an ongoing development project,
the Company sees the opportunity to further strengthen its position in the antenna market.
Within the antenna market targeted by Comrod, the Company has the following main competitive
advantages:
- Antenna performance
- Mechanical and radio electrical
- High quality, competitive prices
- Partnerships and relationships
- OEMs
- Ministries of Defence and armies in Europe and globally
- Product offerings
- Capability of combining antenna and mast systems and “smart systems”
- Wide range, compatible with all main current and future defence programs
- Composite technology
- Control of the whole production process
- Production, R&D and testing
6.2.2 Masts
The market for communication masts targeted by the Company is estimated to approximately NOK
507 million worldwide of which the US market amounts to approx. MNOK 280, Europe comprise
approx. MNOK 177 and other regions make up approx. MNOK 50.
The mast market is a relatively concentrated market with the four largest manufacturers controlling
approximately 75% of this market, with Will-Burt as the most dominant player holding some 39% of
the market. The second largest player is Mastsystems, with a market share of approximately 18%. The
Company was the fourth largest player in this market segment holding a share of the market of
approximately 4% in 2005. The Company is increasing its markets share and is currently estimated to
have a 6% market share within the mast segment.
The Company’s products are at the high end of the market, and the Company is diversifying. There is
an opportunity to further strengthen the Company’s market position through a challenging
development project that is currently in process.
Competition in the mast market
The table below gives a breakdown of the market and competition in Europe and the US (Company
estimates) for the segment of the mast market in which the Company competes.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
OVERVIEW OF THE GLOBAL MARKET FOR COMROD RELATED COMPOSITE MAST PRODUCTS
Figures per 2005
Company Market share local Market share global
Comrod (Lerc) 17% 6%
Mastsystems 51% 18%
Wibe 8% 3%
Larimart 11% 4%
Racal 11% 4%
Others 1% 0%
Sum Europe 100% 35%
Will-Burt 71% 39%
The Mast Comp 7% 4%
Clark Masts 18% 10%
Others 4% 2%
Sum USA 100% 55%
Other regions 10%
Sum masts 100%
Source: Comrod’s estimates
The main competitors within mast products are Will-Burt, Mastsystems and Clark Masts. In the
following is a brief description of these companies.
Will-Burt
Will-Burt is a US based Company, located in Ohio, and a manufacturer of tactical masts for a variety
of worldwide commercial, mobile, industrial and military applications. Most of the turnover is made in
the commercial market. Will-Burt has a range of telescopic masts competing against the heavy duty
masts of Comrod/Lerc for EW. This is the largest company within the mast area, and holds a very
strong market position globally.
Mastsystems
MastSystems is a Finnish company recently bought by Racal Antennas (UK). MastSystems is
specialized in Telescopic Tactical Masts made of composite, mainly dedicated to LOS systems.
MastSystems has a strong position in the USA and in the Middle East, and is the company within the
mast segment that has had the strongest growth during the past three years. Mastsystems and Comrod
have had a similar development over the past few years.
Clark Masts
Clark Masts is a company located in the UK and Belgium. It competes again Comrod/Lerc in the
sleeve masts market and in the light telescopic masts. In the last years, ClarkMast has been mainly
concentrating in the lighting supports more than in antenna supports. Clark Masts has been in the
market for a long time. They have a similar product range as Lerc, and mainly operates in the UK
market.
Comrod’s competitive position
Comrod’s competitive advantage within the mast segment, is a combination of the following factors:
- Performance of the masts
- Mechanical performance
- Durable products with easy maintenance
- Heavy payloads
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
- Partnerships and relationships
- OEMs
- Ministries of Defence and armies in Europe and globally
- Product offerings
- Designed to meet customer specifications
- High quality and tacticity
- Composite technology
- Mastering of the whole production process
- Modeling, calculation and live test capability
6.2.3 Industrial products
The Company’s industrial products include i) structural composites and ii) insulating products as
described above. The industrial products manufactured by the Company are targeted towards a niche
market.
The market for these industrial products is relatively fragmented, and there is a lack of official market
data. The market size is assumed to be relatively large, but there are no official market data and the
Company has no estimates for the total market size and market shares because this is a niche market
activity.
For insulators the Company, through its subsidiary Lerc, is one of three suppliers that are pre-qualified
in the French home market.
Structural composite products are meeting a demanding need internationally, especially within the oil
and gas sector.
Competition
For the insulating products market, there are five to six major global players delivering to specific
market niches. In the market segment in which the Company operates there are two other main
players, one French and one Italian company. Both of these competitors delivers ceramic or porcelain
insulators, which differ from the Company’s composite based insulating products. The other main
competitors are Chinese and Indian companies.
The main competitors are:
- Seves (former Sediver): French company bought by an Italian group, and transferred to Brazil
- Rebosio: Italian company concentrated in railways applications
- Sefag: Swiss manufacturer with good activity in Eastern Europe
The Company has obtained certification in accordance with EU standards and also has railways
utilities qualifications for its insulating products. The products comply with mechanical and electrical
test capabilities, and the Company has a strong R&D focus. The Company’s expertise within
composites is also a competitive advantage within this market segment.
For structural composites the Company offers design and calculation capabilities. These products are
highly engineered and made to comply with customer specifications. Manufacturing is a result of a
long research and development phase, and the knowledge of the customers’ operations are important
factors to success. The production is characterised by vertical integration combining engineering,
composite processes, complementary technology and testing. The Company’s extensive experience
from working on classified projects is an important competitive advantage.
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6.2.4 Power supplies
The global market for power supplies is estimated to be approximately three to four times the antenna
market, i.e. in the range of up to NOK 3.6 to 4.6 billion.
The Company’s power products include i) battery chargers and ii) power supplies as described earlier.
This segment is targeted towards a niche market and also to the Company’s existing customer base.
For these products the manufacturing is outsourced.
The market for these products is relatively fragmented, and there is a lack of official market data. The
market size is estimated to be four times the antenna area. In a premature start-up phase, however, and
with already established customer relationships, the opportunities for power supplies are be considered
as positive. The Company expects the growth potential to be substantial based on the potential for
cross-sales to the existing customer base.
Competition
The market place is very fragmented with a number of small players. The following key competitors
are identified;
- Xcel Power System LTD, England
- Vision Power LTD, England
- Efore, Finland
- DiCom, Czech Rep.
- Bren Tronics Inc. USA
- Behlman El Inc. USA
- Lambda Inc. USA
- Analytica Systems, Canada
These companies are all involved with the same applications as Comrod. The similarity is that they are
all relatively small and niche focused against their home markets. There are many other companies
(some very large ones), that manufacture power supplies and chargers but targeted more towards
standard commercial applications.
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7 FINANCIAL INFORMATION
This chapter gives an overview of the Company’s financial condition. In order to fully understand the
Company’s financial condition, this chapter should be read in conjunction with the Company’s audited
annual and interim reports. Historical financial information, including annual reports and audit reports,
can be found on the Company’s website at www.comrod.com. The most recent financial statements,
i.e. the annual report for 2005 and the interim report for the 3 rd quarter of 2006, can be found in
Appendix 2 and 3 to this Prospectus. The IFRS adjusted financial figures for the past three accounting
years and the figures for the 3 rd quarter of 2006, which have been subject to a limited review, are
presented in section 7.3. The effects from the transition from NGAAP to IFRS are shown in section
7.2. In connection with the Company’s acquisition of Lerc, pro-forma financial statements have been
prepared. The pro forma figures are presented in section 7.4 of this Prospectus.
7.1 Significant accounting policies
7.1.1 General information
Comrod Communication ASA will not be the parent company of the group until the Demerger is
effective (expected to be medio January 2007, for further description of the demerger, please refer to
section 4.2 of this Prospectus). The following financial information includes Comrod AS. The
historical financial information presented does not include Fidulerc/Lerc except for the balance sheet
at 30 September 2006 and income statement for the 3 rd quarter 2006. Fidulerc SA and its subsidiary
Lerc SA was acquired 29 June 2006. The purchase was subject to approval of French authorities
regarding competitive regulations. Comrod AS received the necessary approval by French authorities
medio September 2006. Hence, consolidation and purchase price allocation of Fidulerc/Lerc started
medio September 2006.
Comrod AS has not published any audited stand-alone financial statements prepared in accordance to
IFRS. As part of the Hexagon Composites Group, IFRS has been applied in the preparation of the
Hexagon Composites ASA’s consolidated financial statements for 2005. The published audited
financial statements for Comrod AS for the years 2003, 2004 and 2005 were prepared in accordance
with the Norwegian Accounting Act and Norwegian Generally Accepted Accounting Principles.
7.1.2 Basis for preparation
The following consolidated financial statements for the Comrod AS Group are prepared in accordance
with the international reporting standards published by the International Accounting Standards Board,
as adopted by the European Union (EU). Comparative figures for 2004 have been restated. As these
are the company’s first IFRS accounts, IFRS 1, First-Time Adoption of International Financial
Reporting Standards, has been adopted in preparing Comrod AS Group’s opening balance sheet at 1.
January 2004. The effect of transition to IFRS is presented in section 7.2.The measurement basis used
is historical cost, except for derivatives which are measured at fair value according to IAS 39.
7.1.3 Functional currency and presentation currency
The group presents its financial statements in NOK. Functional currency for the Norwegian companies
is NOK. For the French companies the functional currency is EUR. For consolidation purposes,
balance sheet figures for subsidiaries which have a different functional currency are translated at the
exchange rate on the balance sheet date, and income statement figures are translated at the average
exchange rate for the period. Exchange differences are recognised as a separate component of equity.
On disposal of a foreign subsidiary, any accumulated exchange differences are recognised in the
income statement.
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7.1.4 Basis for consolidation
The consolidated financial statements comprise Comrod AS and companies where Comrod AS has a
controlling interest. A controlling interest is normally attained when the group owns, either directly or
indirectly, more than 50% of the shares in a company, and the group is in a position to exercise actual
control over the company.
The purchase method is applied when accounting for business combinations. Companies which have
been acquired or sold during the year are consolidated from/until the date when control is
obtained/ceases.
Intra-company transactions and balances, including internal earnings and unrealised profits/losses, are
eliminated. Unrealised losses are correspondingly eliminated, provided there is no evidence of any
impairment of the asset sold internally.
The consolidated financial statements are prepared using uniform accounting policies for identical
transactions and events in similar circumstances.
7.1.5 Cash & cash equivalents
Cash includes bank and cash balances. The cash-flow statement is prepared using the indirect method.
7.1.6 Trade receivables
Trade receivables are carried at amortised cost. The interest element is disregarded if it is insignificant.
Should there be objective evidence of a fall in value, the difference between the carrying amount and
the present value of future cash flows is recognised as a loss, discounted by the receivable amount’s
effective interest rate.
7.1.7 Hedging
Before any hedging transaction is undertaken, the financial director will assess whether a derivative is
to be used to hedge a) the fair value of an asset or liability, b) future cash flows from an investment,
debt payment or future identified transaction or c) a net investment in a foreign operation.
The group uses the following criteria to classify a derivative as a hedging instrument: (1) the hedge is
expected to be highly effective in offsetting changes in fair value or cash flows attributable to an
identified asset, and hedge effectiveness is expected to lie within the range 80%-125%, (2) hedge
effectiveness can be measured reliably, (3) there is adequate documentation at the inception of the
hedge to demonstrate that the hedge is highly effective, (4) in the case of cash flow hedges, the
impending transaction must be highly probable, and (5) the hedge is regularly assessed and has proved
to be effective throughout the reporting periods for which it is designated.
(i) Fair value hedge
Changes in the fair value of derivatives that are designated as fair value hedges are recognised in the
income statement. Correspondingly, a change in the fair value of the hedged object is recognised in the
income statement, as is the net gain or loss.
Hedge accounting discontinues when:
(a) The hedging instrument expires, is sold, terminated or exercised; or
(b) The hedge no longer meets the criteria for hedging stated above.
When hedge accounting is discontinued, the adjustments made to the carrying amount of the hedged
object are amortized over the remaining life using the effective interest rate.
(ii) Cash flow hedges
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The portion of gain or loss on a hedging instrument that is determined to be a highly effective cash
flow hedge is recognised directly in equity. The ineffective portion of the gain or loss on the hedging
instrument is recognised in the income statement.
If the hedge of a cash flow results in an asset or liability being recognised, all former gains and losses
recognised directly in equity are transferred from equity and included in the initial measurement of the
asset or liability. For other cash flow hedges, associated gains and losses recognised directly in equity
are recognised in the income statement in the same period as the cash flow which comprises the
hedged object is recognised in the income statement.
When a hedging instrument ceases to be highly effective, hedge accounting is discontinued
prospectively. In this case, the cumulative gain or loss on the hedging instrument recognised directly
in equity remains separately recognised in equity until the future identified transaction occurs.
If the hedge transaction is no longer expected to occur, any previously accumulated gain or loss on the
hedging instrument that has been recognised directly in equity will be recognised in profit or loss.
(iii) Hedges of a net investment in a foreign operation
The company has taken positions in EUR in order to hedge its net investment in foreign operations.
Changes in the currency derivatives designated for hedging are reported as exchange differences in the
Group’s equity until the investment is disposed of, after which accumulated exchange differences
relating to the investment are recognised in the income statement. The ineffective portion of the hedge
is recognised in profit or loss.
7.1.8 Inventories
Inventories, including work in progress, are carried at the lower of cost and fair value less costs to sell.
The fair value less cost to sell is the estimated selling price in the ordinary course of business less the
estimated costs of completion, and estimated costs necessary to make the sale. Inventories are
measured by using the weighted average cost formula. Finished goods and work in progress include
variable costs and fixed costs that can be allocated to goods based on normal capacity. Obsolete
inventories have been fully recognised as impairment losses.
7.1.9 Non-current assets
Non-current assets are measured at cost less accumulated depreciation and impairment losses. When
assets are sold or disposed of, the gross carrying amount and accumulated depreciation are
derecognised, and any gain or loss on the sale or disposal is recognised in the income statement.
The cost of a non-current asset comprises its purchase price, including duties/taxes, and any directly
attributable costs of bringing the asset to working condition for its intended use. Subsequent cost on
repairs or maintenance of assets is recognised as an expense when incurred. Subsequent expenditure
on repair and maintenance of property, plant or equipment which will generate future economic
benefits is capitalised.
Depreciable amounts are calculated using the straight-line method over the following periods:
Buildings ..................................................... 6 - 40 years
Plant and equipment ................................... 3 - 8 years
Fixtures & fittings, motor vehicles.............. 4 - 10 years
The depreciation period and method is assessed on an annual basis to ensure that the method and
period used reflect the expected pattern of economic benefits from the asset. The same applies to scrap
value.
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Plants under construction is classified as property, plant and equipment and is recognised at the
incurred costs associated with the asset. Plants under construction is not subject to depreciation until
the asset is taken into use.
7.1.10 Impairment of assets
An assessment of impairment losses on assets is made when there is an indication of a fall in value. If
an asset’s carrying amount is higher than the asset’s recoverable amount, an impairment loss will be
recognised in the income statement. The recoverable amount is the higher of the fair value less costs to
sell and the discounted cash flow from continued use. The fair value less costs to sell is the amount
that can be obtained from a sale to an independent third party minus the sales costs. The recoverable
amount is determined separately for all assets but, if this is impossible, it is determined together with
the entity to which the assets belong.
With the exception of goodwill, impairment losses recognised in the income statements for previous
periods are reversed when there is information that the need for the impairment loss no longer exists or
is not as great as it was. The reversal is recognised as revenue or an increase in other reserves.
However, no reversal takes place if the reversal leads to the carrying amount exceeding what the
carrying amount would have been if normal depreciation periods had been used.
7.1.11 Leasing
Finance leases
A lease is classified as a finance lease if it transfers to the group substantially all the risks and rewards
incidental to ownership of a leased asset. The group presents finance leases in the financial statements
as assets and liabilities, at amounts equal the cost price of the asset or, if lower present value of the
cash flow to the lease. The discount rate to be used in calculating the present value of the minimum
lease payments is the interest rate implicit in the lease, when it can be determined; if not, the
company’s marginal borrowing rate in the market is used. Direct costs in connection with leasing
activities are included in the asset’s cost price. Monthly lease payments are separated into an interest
element and a repayment element Interest cost is allocated to periods during the lease term, so as to
produce a constant periodic rate of interest for each period.
Assets which are part of a finance lease are depreciated. The depreciation period is consistent with that
for depreciable assets which are owned by the group. If there is no reasonable certainty that the group
will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the
lease term or the depreciation period for depreciable assets owned by the group.
If a sale and leaseback transaction results in a finance lease, any gain will be postponed and recognised
as revenue over the period of the lease.
Operating leases
A lease is classified as an operating lease if it does not transfer to the group substantially all the risks
and rewards incidental to ownership. Lease payments are classified as an operating expense and
recognised as an expense over the lease term.
If a sale and leaseback transaction results in an operating lease, and it is clear that the transaction is
established at fair value, any gain or loss is recognised immediately. If the sale price is below fair
value, any gain or loss is recognised immediately except that, if the loss is compensated by future
lease payments at below market price, it is amortised over the lease term. If the sale price is above fair
value, the excess over fair value is amortised over the period for which the asset is expected to be
used.
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7.1.12 Financial instruments
IAS 39, Financial Instruments: Recognition and Measurement, states that financial instruments are
classified into the following categories: at fair value through profit or loss, held-to-maturity
investments, loans and receivables, available-for-sale and other liabilities.
Financial instruments held to maturity are included in financial assets, unless the maturity date is
within 12 months of the balance sheet date. Financial instruments held for trading are classified as
current assets. Available-for-sale financial instruments are also reported as current assets if the
management has decided to dispose of the instrument within 12 months of the balance sheet date.
All purchases and sales of financial instruments are recognised on the transaction date. Transaction
costs are included in the initial measurement.
Financial instruments classified as available for sale and held for trading are recognised at fair value at
the balance sheet date, without any deduction for costs associated with the sale.
A gain or loss arising from a change in the fair value of financial investments classified as available
for sale is recognised directly in equity until the financial asset is derecognised, at which time the
cumulative gain or loss previously recognised in equity is reversed and recognised in profit or loss.
Any changes in the fair value of financial instruments classified as held for trading are recognised in
the income statement under net financial income/expense.
Held-to-maturity investments are recognised at amortised cost.
7.1.13 Interest bearing loans and borrowings
All loans and borrowings are initially recognized at the fair value of the consideration received less
directly attributable transaction costs. After initial recognition, interest bearing loans and borrowings
are subsequently measured at amortised cost using the effective interest method. Gains and losses are
recognised in the income statement when the liabilities are derecognised as well as through the
amortisation process.
7.1.14 Intangible assets
Intangible assets are recognised if it is probable that the expected future benefits attributable to the
asset will flow to the company, and its cost can be measured reliably. Intangible assets are recognised
at cost. Intangible assets with an indefinite useful life are not amortised, but an impairment loss is
recognised if the recoverable amount is less than the carrying amount. The intangible asset is tested for
impairment by comparing its recoverable amount with its carrying amount (a) annually, and (b)
whenever there is an indication that the intangible asset may be impaired. Intangible assets with a
finite useful life are amortised and tested for impairment. The intangible asset is amortised over its
estimated useful life using the straight-line method. The amortisation period and the amortisation
method for an intangible asset with a finite useful life are reviewed at least at each financial year end.
7.1.15 Patents and licences
Amounts paid for patents and licences are recognised in the balance sheet and amortised on a straightline
basis over their useful life.
7.1.16 Goodwill
Goodwill acquired in a business combination is initially measured at cost being the excess of the cost
of the business combination over the Group's interest in the net fair value of the acquiree's identifiable
assets, liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost
less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a
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business combination is, from the acquisition date, allocated to each of the Group's cash generating
units, or groups of cash generating units, that are expected to benefit from the synergies of the
combination, irrespective of whether other assets or liabilities of the Group are assigned to those units
or groups of units. Each unit or group of units to which the goodwill is allocated:
- represents the lowest level within the Group at which the goodwill is monitored for internal
management purposes; and
- is not larger than a segment based on either the Group's primary or the Group's secondary reporting
format determined in accordance with IAS 14, Segment Reporting.
Where goodwill forms part of a cash-generating unit (group of cash generating units) and part of the
operation within that unit is disposed of, the goodwill associated with the operation disposed of is
included in the carrying amount of the operation when determining the gain or loss on disposal of the
operation. Goodwill disposed of in this circumstance is measured based on the relative values of the
operation disposed of and the portion of the cash-generating unit retained.
When subsidiaries are sold, the difference between the selling price and the net assets plus cumulative
translation differences and unamortised goodwill is recognised in the income statement
7.1.17 Research and development
Expenses relating to research are recognised in the income statement in the year in which the
expenditure is incurred. Expenses relating to development are recognised in the income statement in
the year in which the expenditure is incurred unless the following criteria are met in full:
- the product or process is clearly defined and expenditure can be identified and measured reliably;
- the technical solution for the product has been demonstrated;
- the product or process will be sold or used in the business;
- the asset will generate future benefits; and
- sufficient technical, financial and other resources to complete the project are in place.
When all criteria are met, development costs are capitalised. Costs which have been expensed in
previous accounting periods are not capitalised. Capitalised development costs are amortised over the
asset’s estimated useful life. The carrying amount of development costs is reviewed when there is an
indication of impairment, or when impairment losses from previous periods no longer apply.
7.1.18 Provisions
A provision is recognised when, and only when, the company has a present obligation (legal or
constructive) as a result of a past event and it is probable (more likely than not) that an outflow of
resources embodying economic benefits will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet
date and adjusted to reflect the current best estimate. If the effect of the time value of money is
immaterial, the amount of the provision will be equal to the expenditures required to be free of the
obligation. If the effect of the time value of money is material, the amount of the provision will be the
present value of the expenditures required to settle the obligation. Any increase in the provisions due
to time is presented as interest costs.
A provision for guarantees is recognised when the underlying products or services are sold. The
provision is based on historical information about guarantees and a weighting of all possible outcomes
by their associated probabilities.
A provision for onerous contracts is recognised when the group’s expected economic benefits
expected to be received under the contract are lower than the unavoidable costs of meeting the
obligations under the contract.
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7.1.19 Equity
(i) Equity and liabilities
Financial instruments are classified as liabilities or equity in accordance with the underlying financial
reality.
(ii) Own shares
In the event of a share buy-back, the purchase price and any directly associated costs are recognised as
a change in equity. Own shares are reported as a reduction in equity. Gains or losses on share buyback
transactions are not recognised.
(iii) Costs arising from equity transactions
Transaction costs directly linked to an equity transaction are recognised directly in equity after a
deduction for tax.
(iv) Other equity
(a) Exchange differences
Exchange differences arise in connection with currency differences on consolidation of foreign
operations.
On disposal of a foreign operation, cumulative exchange differences are reversed and recognised in
profit or loss in the same period in which the gain or loss on the disposal is recognised.
(b) Hedge reserve
The hedge reserve includes all net changes in fair value for financial instruments designated as
available for sale until the investment is derecognised or until the investment is determined to be
impaired.
7.1.20 Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the
company and the revenue can be measured reliably. Sales revenue is stated net of VAT and discounts.
Revenue from sale of goods is recognised when delivery has taken place and the significant risks and
rewards of ownership of the goods have passed to the buyer.
Revenue from the sale of services and long-term manufacturing projects is recognised by reference to
the stage of completion, when the transaction outcome can be measured reliably.
Royalties are recognised in accordance with the substance of the relevant royalty agreement.
Interest income is recognised as interest accrues.
Dividends are recognised when the shareholders’ right to receive the payment is established by the
annual general meeting.
7.1.21 Foreign currency
Transactions in currency other than the functional currency
Transactions in foreign currencies are translated at the exchange rates existing at the date of the
transactions. Monetary items denominated in foreign currencies are translated to functional currency
using the exchange rates ruling at the balance sheet date. Non-monetary items that are measured in
terms of historical cost in a foreign currency are translated to functional currency using the exchange
rates at the dates of the transaction. Non-monetary items measured at fair value in a foreign currency
are translated using the exchange rates at the date when the fair value was determined. Exchange
differences are recognised in profit or loss in the period in which they arise.
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Foreign operations
Assets and liabilities in foreign operations, including goodwill and fair value adjustments, which arise
on consolidation, are translated to presentation currency at the closing rate. Income and expense from
foreign operations is translated to presentation currency using the average monthly rate as an
approximation for transaction rate. Exchange differences are recognised in equity.
7.1.22 Employee benefits
Defined benefit pension plans
The group’s Norwegian companies offer their employees defined benefit pension plans. The defined
benefit liability is the net total of the present value of future pension benefits accrued at the balance
sheet date, minus the fair value of plan assets. The discount rate applies to interest on a 10-year
government bond with a margin to take into consideration the bond’s maturity. The pension assets are
valued by actuaries each year. The pension commitments and pension costs are determined using a
linear accrual formula. A linear accrual formula distributes the accrual of future pension benefits in a
straight line over the accrual period, and regards the employees’ accrued pension rights during a
period as the pension costs for the year.
The introduction of a new defined benefit plan or an improvement to the present plan will involve
changes to the pension liability. These are recognised as an expense on a straight-line basis until the
effect of the change has been accommodated. The introduction of new plans or changes to existing
plans which take place retrospectively, thereby qualifying employees for a paid-up policy (or change
to a paid-up policy), are recognised immediately. Gains or losses on the curtailment or settlement of
pension plans are recognised when the curtailment or settlement occurs.
Actuarial gains or losses are recognised directly in equity (net of tax).
The French companies have a retirement indemnity obligation to their employees. The obligation is
calculated based on assumptions regarding period of employment, discount rate, salary increase, age
of retirement and social charges.
7.1.23 Share-based payment
Senior executives in the group have received options to subscribe for shares in Hexagon Composites
ASA. The fair value of the share options is measured at the date on which they are granted and the
cost is recognised, together with a corresponding increase in other paid-in capital, over the period in
which the performance and/or service conditions are fulfilled.
It is not established a new share-based payment program in Comrod Communication ASA.
7.1.24 Government grants
A government grant is recognised when there is reasonable assurance that the company will comply
with the conditions attaching to it, and that the grant will be received. When the grant relates to an
expense item, it is recognised as income over the period necessary to match it on a systematic basis
with the related costs it is intended to compensate. Grants relating to assets are capitalised and
recognised as income on a systematic basis over the useful life of the asset. Grants related to assets are
presented either by setting up the grant as deferred income or by deducting the grant when establishing
the asset’s carrying amount.
7.1.25 Income taxes
Tax expense comprises current tax expense and deferred tax expense. Deferred tax liabilities are
recognised for all accounting and taxable temporary differences, except to the extent that the deferred
tax liability arises from:
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- temporary differences related to goodwill for which amortisation is not deductible for tax purposes
- temporary differences related to investments in subsidiaries, associates or interests in joint
ventures, where the timing of the reversal of the temporary differences can be controlled by the
group and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised when it is probable that the company will have a sufficient profit
for tax purposes to utilise the tax asset. Deferred tax assets and liabilities are measured at the future tax
rates that are expected for the group companies in which temporary tax differences arise. Deferred tax
assets and liabilities are recognised at nominal value and designated as financial assets (non-current
liabilities) in the balance sheet. Current tax and deferred tax is charged or credited directly to equity if
the tax relates to items that are credited or charged directly to equity.
7.1.26 Segments
For management purposes, the group is organised into different business areas according to
product/service range. The group’s primary segment reporting format is business areas. The group has
the following segments:
- Comrod Antennas
- Comrod Power Supplies
- Lerc Masts, Antennas and Industrial products
Financial information relating to segments is presented in appendix 3. From the fiscal year 2007 the
Company expects to report revenues by product category. See also section 5.5.3.
In segment reporting, internal gains on sales between segments are eliminated.
7.1.27 Contingent liabilities and contingent assets
Contingent liabilities are defined as:
i) possible obligations resulting from past events whose existence depends on future events.
ii) obligations that are not recognised because it is not probable that they will lead to an outflow of
resources
iii) obligations that cannot be measured with sufficient reliability.
Contingent liabilities are not recognized in the financial statements. Material contingent liabilities are
disclosed, unless the possibility of any outflow in settlement is remote.
Contingent assets are not recognised, but are disclosed where an inflow of economic benefits is
probable.
7.1.28 Events after the balance sheet date
New information received after the balance sheet date about the Company’s financial position at the
balance sheet date is taken into account in the annual report. Material events after the balance sheet
date which do not affect the company’s financial position at the balance sheet date, but which will
affect the company’s financial position in the future are disclosed.
7.1.29 Use of estimates
Management has used estimates and sources of estimation that have affected assets, liabilities, income,
expense and disclosures about potential liabilities. This particularly applies to pension liabilities,
share-based payments and the measurement of goodwill. Future events may cause an adjustment to the
estimates. Estimates and underlying sources of estimation are regularly reviewed. Changes to
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
accounting estimates are recognised in the period in which the changes occur. If the changes also
apply to future periods, the effect is distributed over present and future periods.
7.2 Transition from NGAAP to IFRS
7.2.1 Introduction
The interim report as of 30 September 2006 (appendix 3) is prepared in accordance with IAS 34. The
accounting principles described in section 7.1. has been applied in the preparation of the consolidated
financial statements as of 30 September 2006, the restatement of the figures for 2004 and 2005 and the
calculation of IFRS opening balances at 1 January 2004, which is the Group’s date of transition from
NGAAP to IFRS.
Preparation of IFRS opening balances has involved some adjustments to previous accounting figures
prepared under NGAAP. The effect of the transition from NGAAP to IFRS on the Group’s financial
statements is detailed below.
7.2.2 Transition from NGAAP to IFRS
IFRS 1, First-time adoption of International Financial Reporting Standards has been adopted in
preparing Comrod AS Group opening balance sheet at 1 January 2004. For Comrod AS Group the
most important effects of the transition are described below.
Pensions
All accumulated, unrecognised actuarial gains/losses relating to retirement benefit obligation at 1
January 2004 have been recognised as an equity adjustment. Changed assumptions for calculation of
future pension costs under IFRS involve an increase in the calculated pension expense for 2004.
Financial derivatives
Under NGAAP, foreign currency instruments (forwards) which met the hedging criteria were not
recognised, while only unrealised losses on other foreign currency transactions were recognised.
Under IFRS, all foreign currency transactions are measured at fair value and recognised in the balance
sheet. Fair value changes relating to foreign currency transactions which meet the hedging criteria are
recognised directly in equity until the object of the hedge transaction is realised, or the hedging is
evaluated not to be effective. Both IAS 32 and IAS 39 have been implemented with effect from 1
January 2004.
Reclassification of long-term debt
Under IFRS the first year instalment of long-term debt is classified as short-term debt.
Dividends and Group Contributions
Dividends and Group Contributions are under IFRS not recognised until the entity has an obligation to
pay the dividend or group contribution, which generally is not until these are approved by the General
Assembly. Under NGAAP dividends and group contributions were provided for at the balance sheet
date in the year prior to the approval of the general assembly.
Deferred tax
Deferred tax assets and liabilities will be affected by the transition to IFRS due to changes in other
balance sheet values as described in this section.
Amortisation of goodwill
Amortization of goodwill is not permitted under IFRS. Instead, goodwill is subject to impairment
review, both annually and when there are indications that the carrying value may not be recoverable.
65

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
There has been no goodwill recognised in Comrod AS Group’s financial statements until the
acquisitions performed in 2006, consequently this difference will appear in the 2006 financial
statements, only.
Gains on sale of property, plant & equipment
Under IFRS, gains on sale of property, plant and equipment is classified as a cost reduction.
Share-based payment transactions
Under NGAAP Share-based payment transactions has not, until the year 2005, been recognised in the
Income Statement. In accordance with IFRS 2, the fair value of all options granted after 7.11.02 is
recognised over the vesting period. The fair value per option is calculated using an option pricing
model (Black & Scholes). Costs are recognised in profit and loss as payroll expenses together with a
corresponding increase in other paid-in capital.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
7.2.3 Balance sheet 1 January 2004, transition from NGAAP to IFRS
(in NOK 1000) 31.12.03 01.01.2004 01.01.2004
NGAAP IFRS just. IFRS
ASSETS
Deferred tax asset 447 -447 0
Goodwill and other intangibles 0 0 0
Total intangible assets 447 -447 0
Total tangible assets 16 964 0 16 964
Total non current assets 17 412 -447 16 964
Inventories 16 325 0 16 325
Accounts receivable 14 273 0 14 273
Forward exchange contracts 0 5 340 5 340
Receivable group company 11 328 0 11 328
Other receivables 3 332 0 3 332
Bank deposits and cash 1 173 0 1 173
Total current assets 46 431 5 340 51 771
Total assets 63 843 4 893 68 736
EQUITY AND LIABILITIES
Equity
Paid in capital 3 700 0 3 700
Other equity 5 337 8 878 14 215
Total equity 9 037 8 878 17 915
Liabilities
Non-current liabilities
Pension obligations 2 430 2 832 5 262
Deferred tax 0 255 255
Other long-term debt 7 323 -1 147 6 176
Total non-current liabilities 9 753 1940 11 693
Current liabilities
Liabilities to financial institutions 0 1 147 1 147
Accounts payable 12 504 0 12 504
Public duties payable 2 344 0 2 344
Current liabilities to group companies 24 963 -7 072 17 891
Other current liabilities 5 242 0 5 242
Total current liabilities 45 053 -5 925 39 128
Total liabilities 54 806 -3 985 50 821
Total equity and liabilities 63 843 4 893 68 736
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
7.2.4 Equity, NGAAP versus IFRS
(in NOK 1 000) NGAAP IFRS
Equity at 31.12.03 NGAAP 9 037 9 037
Effects on transition from NGAAP to IFRS on other equity:
Forward exchange contracts 3 845
Increase in pension liability -2 039
Reversed provision for group contribution 31.12.2003 7 072
Equity at 01.01.04 9 037 17 915
Effects on transition from NGAAP to IFRS:
Profit 2004 according to NGAAP/IFRS 18 066 18 055
Provision for group contribution 31.12.2004 -18 084
Approved group contribution 31.12.2003 -7 072
Actuarial gains and losses -104
Share based payment 28
Forward exchange contracts 202
Equity at 31.12.04 9 019 29 024
Profit 2005 according to NGAAP/IFRS 18 540 18 418
Change of accounting principles 1.1.2005 1 921
Provision for group contribution 31.12.2005 -18 264
Received group contribution 31.12.2005 2 500
Share based payment 122
Actuarial gains and losses 169 169
Forward exchange contracts -3 071 -3 071
Approved group contribution 31.12.2004 -18 084
Equity at 31.12.05 10 815 26 579
Profit as of 30.09.06 according to NGAAP/IFRS 2 348 2 726
Forward exchange contracts -965 -965
Share based payment 146 146
Actuarial gains and losses -1 088 -1 088
Exchange rate difference 1 802 1 802
Exchange rate difference Net investment -1 281 -1 281
Approved group contribution 31.12.2005 -18 264
Received group contribution 31.12.2005 2 500
Equity at 30.09.06 11 777 12 155
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
7.2.5 Income statement, NGAAP versus IFRS 2004
(in NOK 1000) 2004
01.01-31.12
2004
01.01-31.12
2004
01.01-31.12
NGAAP IFRS just. IFRS
Operating revenues 106 772 -35 106 737
Operating expenses
Change in Work In Progress -658 0 -658
Cost of materials 31 156 0 31 156
Payroll and social security expenses 34 154 165 34 319
Depreciation 1 857 0 1 857
Other operating expenses 13 388 -35 13 353
Total operating expenses 79 897 130 80 027
Operating profit/loss 26 875 -165 26 710
Financial income/expenses
Interest received 135 0 135
Other financial income 1 212 161 1 373
Other interest paid -1 143 0 -349
Other financial expenses -2064 0 -1 143
Net financial income/expenses -1 860 161 -1 699
Profit before tax 25 015 -4 25 011
Taxes 6949 7 6 956
Profit for the year 18 066 -11 18 055
7.3 Historical financial statements
Below are the IFRS adjusted financial statements of Comrod AS for the accounting years 2004 and
2005 and the audited NGAAP financial statement for the accounting year 2003, as well as for the
interim periods ending 30 September 2006 and 2005. The figures per 30 September 2006 have been
subject to a limited review. The figures per 30 September 2005 has not been subject to a limited
review.
The historical financial statements presented does not include Fidulerc/Lerc except for the balance
sheet at 30 September 2006 and income statement for the 3 rd quarter 2006. Fidulerc SA and its
subsidiary Lerc SA was acquired 29 June 2006. The purchase was subject to approval of French
authorities regarding competitive regulations. Comrod AS received the necessary approval by French
authorities medio September 2006. Consequently, consolidation and purchase price allocation of
Fidulerc/Lerc started medio September 2006.
The historical financial statements for Fidulerc SA and Lerc SA for 2005 translated from French can
be found in appendix 7 and 8 respectively.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
7.3.1 Income statement
The table below shows the income statement of Comrod AS Group for the years 2003 to 2005 and for
the 3rd quarter of 2005 and 2006.
(in NOK 1000)
2006 2005 2005 2004 2003
01.01.-30.09 01.01.-30.09 01.01-31.12 01.01-31.12 01.01-31.12
IFRS IFRS IFRS IFRS NGAAP
Operating revenues 83 676 77 523 109 559 106 737 91 648
Operating expenses
Change in Work In Progress -1 292 -785 1 650 -658 -113
Cost of materials 28 837 22 313 28 918 31 156 38 444
Payroll and social security expenses 31 200 27 374 38 132 34 319 29 345
Depreciation 3 856 1 950 2 522 1 857 1 464
Other operating expenses 12 611 9 493 13 995 13 353 10 715
Total operating expenses 75 212 60 345 85 217 80 027 79 855
Operating profit/loss 8 464 17 178 24 342 26 710 11 793
Financial income/expenses
Interest received 224 2 136 135 36
Other financial income 0 138 2 982 1 373 1 967
Other interest paid -3 578 -861 -1 286 -1 143 -1 776
Other financial expenses -1 035 -489 -460 -2 064 -2 134
Net financial income/expenses -4 389 -1 210 1 372 -1 699 -1 907
Profit before tax 4 075 15 968 25 714 25 011 9 886
Taxes 1 349 4 491 7 296 6 956 2 814
Profit for the year 2 726 11 476 18 418 18 055 7 072
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
7.3.2 Balance sheet
The table below shows the balance sheet of Comrod AS Group for the years 2003 to 2005 and the 3 rd
quarter of 2005 and 2006.
(in NOK 1000) 2006
01.01-30.09
2005
01.01-30.09
2005
01.01-31.12
2004
01.01-31.12
2003
01.01-31.12
IFRS IFRS IFRS IFRS NGAAP
ASSETS
Non current assets
Intangible assets
Deferred tax asset 0 0 0 0 448
Goodwill 38 793 0 0 0 0
Other intangible assets 25 658 0 0 0 0
Total intangible assets 64 451 0 0 0 448
Tangible assets
Property, plant and equipment 32 225 12 195 11 977 12 057 11 810
Machinery and equipment 23 008 5 734 7 306 6 484 4 541
Fixtures and fittings 2 350 1 567 1 598 755 613
Other financial assets 103 0 0 0 0
Total tangible assets 57 686 19 496 20 881 19 296 16 964
Total non-current assets 122 137 19 496 20 881 19 296 17 412
Current assets
Inventories 46 536 19 316 16 200 17 447 16 325
Accounts receivable 43 031 24 141 36 200 16 455 14 273
Forward exchange contracts 380 3 505 2 462 5 781 0
Receivable group company 32 521 10 974 13 322 10 314 11 328
Other receivables 2 681 1 852 4 445 2 699 3 332
Bank deposits and cash 1 797 1 101 1 678 1 525 1 173
Total current assets 126 946 60 889 74 307 54 222 46 431
Total assets 249 083 80 385 95 188 73 518 63 843
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
(in NOK 1000) 2006
01.01-30.09
2005
01.01-30.09
2005
01.01-31.12
2004
01.01-31.12
2003
01.01-31.12
IFRS IFRS IFRS IFRS NGAAP
EQUITY AND LIABILITIES
Equity
Share capital 1 500 1 500 1 500 1 500 1 500
Other paid-in capital 4 996 2 300 2 350 2 228 2 200
Other reserves 647 2 524 1 091 0 0
Other equity 5 012 15 575 21 638 25 296 5 337
Total equity 12 155 21 899 26 579 29 024 9 037
Liabilities
Non-current liabilities
Pension obligations 9 936 5 942 5 373 5 942 2 430
Deferred tax 679 4 478 6 383 7 249 0
Other long-term debt 156 595 1 820 0 5 084 7 323
Total non-current liabilities 167 210 12 240 11 756 18 274 9 753
Current liabilities
Liabilities to financial institutions 3 879 547 545 1 147 0
Accounts payable 15 965 4 171 6 606 5 619 12 504
Public duties payable 5 782 2 128 3 193 2 887 2 344
Current liabilities to group companies 25 366 35 311 35 475 9 823 24 963
Other current liabilities 18 726 4 089 11 034 6 745 5 242
Total current liabilities 69 718 46 246 56 853 26 220 45 053
Total liabilities 236 928 58 486 68 609 44 495 54 806
Total equity and liabilities 249 083 80 385 95 188 73 518 63 843
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
7.3.3 Cash flow statement
The table below shows the cash flow statement of Comrod AS Group for the years 2003 to 2005 and
the 3 rd quarter of 2005 and 2006.
(in NOK 1000) 2006
01.01-30.09
2005
01.01-30.09
2005
01.01-31.12
2004
01.01-31.12
2003
01.01-31.12
IFRS IFRS IFRS IFRS NGAAP
Cash flow from operating activities
Profit before tax 4 075 15 968 25 714 25 011 9 886
Depreciation/amortisation 3 856 1 950 2 522 1 857 1 464
Changes in inventories -4 068 -1 869 1 247 -1 122 -1 391
Changes in trade receivables 15 867 -7 686 -19 745 -2 182 -2 250
Changes in trade payables 2 161 -1 448 987 -6 885 9 312
Changes in pension provisions 1 584 0 -425 399 426
Changes in other accrual accounting
entries -366 -665 4 616 2 681 58
Changes in group receivables -19 199 -660 -4 971 -14 126 -11 328
Net cash flow from operating activities 3 911 5 590 9 945 5 633 6 177
Additions of property, plant & equipment -122 526 -2 150 -4 106 -4 189 -6 100
Payment from sale of shares 0 0 0 0 32
Net cash flow from investing activities -122 526 -2 150 -4 106 -4 189 -6 068
Repayment/raise of long-term liabilities 117 370 -3 264 -5 686 -1 092 1 724
Net change bank overdraft -600 0 0 -2 384
Net cash flow from financing activities 117 370 -3 864 -5 686 -1 092 -660
Net change in cash and cash equivalents -1 245 -424 153 352 -551
Cash from acquisition 1 363 0 0 0 0
Cash and cash equivalents at start of
period 1 678 1 525 1 525 1 173 1 724
Cash and cash equivalents at end of
period 1 797 1 101 1 678 1 525 1 173
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
7.3.4 Statement of changes in equity
The table below shows the changes in equity that occurred for Comrod AS since 2003 and till the
period ended 30 September 2006.
Share
capital
Other paidin
equity
Translation
differences
Hedging Other equity
reserves
Equity 01.01.2004 1 500 2 200 3 845 10 370 17 915
Profit 2004 according to IFRS 116 17 939 18 055
Approved group contribution from
2003 -7 072 -7 072
Forward exchange contracts 201 201
Actuarial gains and losses -103 -103
Share based payment (B&S) 28 28
Equity 31.12.2004 1 500 2 228 0 4 162 21 134 29 024
Profit 2005 according to IFRS 18 418 18 418
Approved group contribution from
2004 -18 084 -18 084
Forward exchange contracts -3 071 -3 071
Actuarial gains and losses 169 169
Share based payment (B&S) 122 122
Equity 31.12.2005 1 500 2 350 0 1 091 21 638 26 579
Profit 01.01. - 30.09. 2006 according to
IFRS 2 726 2726
Approved group contribution from
2005 -18 264 -18 264
Recieved group contribution from
2006 2 500 2 500
Forward exchange contracts -965 -965
Actuarial gains and losses -1 088 -1 088
Share based payment (B&S) 146 146
Exchange rate difference 1 802 1 802
Exchange rate difference Net
investment -1 281 -1 281
Equity 30.09.2006 1 500 4 996 1 802 -1 155 5 012 12 155
Total
7.3.5 Key financial figures
(in TNOK)
For the 9 months period
ended 30 Sept. 2006
For the period 1 Jan. to 31
Dec. 2005
Equity ratio (%) end of period 4,9% 27,9%
Net operating margin before depreciation (EBITDA) 12 320 26 864
Return on equity (annualized) 18,8% 66,2%
Number of employees 165 75
7.4 Pro-forma financial information
The pro forma financial statements information below shows Comrod Communication ASA, Comrod
AS, Fidulerc SA and Lerc SA as if they had been operating as one group for the financial year ended
31 December 2005 and for the nine months ended 30 September 2006. The pro forma financial
information is based on certain assumptions that not necessarily would have been applicable if
Comrod Communication ASA, Comrod AS, Fidulerc SA and Lerc SA were one consolidated group
from the beginning of the periods presented (1 January 2005) in the pro forma financial statements.
The pro forma income information for 2005 is prepared based on the audited income statements for
Comrod AS, Fidulerc SA and Lerc SA. As there will be no activity in Comrod Communication ASA
until the Demerger is effective, no profit and loss from this company is included in the pro forma
financial information as of 2005 and for the nine month period ended 30 September 2006. The pro
forma financial information as of and for the nine month period ended 30 September 2006 is prepared
74

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
based on the income statement and balance sheet for Comrod AS, Fidulerc SA and Lerc SA which has
been subject to a review by Ernst & Young. The balance sheet for Comrod Communication ASA as of
30 September 2006 is the draft opening demerger balance for Comrod Communication ASA according
to the demerger plan between Hexagon Composites ASA and Comrod Communication ASA as of 29
September 2006.
The pro forma financial information addresses a hypothetical situation and, therefore, does not
represent what the income statement or balance sheet would actually had been if the transactions had
in fact occurred on those dates, and is not representative of the results of operations for any future
period.
Accounting principles for the IFRS pro forma accounts are prepared applying the same accounting
principles as stated in section 7.1. The pro forma financial information has been prepared based on the
requirements of Annex II of the Prospectus Directive Regulation EU Regulation 809/2004 and
CESR’s Level 3 guidance. The Fidulerc SA and Lerc SA figures shown in the following proforma
tables 7.4.2 – 7.4.4 are adjusted to IFRS. The most important effects between FGAAP (French
Generally Accepted Accounting Principles) and IFRS is detailed in Appendix 9.
Ernst & Young has performed a review of the pro forma adjustments in the IFRS pro forma accounts
for the year 2005 and for the nine month period ended 30 September 2006. The review report in
respect of the pro forma adjustments is prepared in accordance with International Standard on
Assurance Engagements 3000. Please refer to a separate statement in Appendix 5.
The pro forma adjustments, as described in more detail below, are based on available information and
certain assumptions. The Comrod Communication ASA group pro forma financial information has
been prepared for illustrative purposes only and is not intended to represent what Comrod
Communication ASA group financial position or results of operations would actually have been if the
demerger had occurred on an earlier date and Comrod Communication ASA had operated as a
separate group. Due to its nature, there is uncertainty related to the pro forma financial statements. The
pro forma financial information should be read in conjunction with the Comrod AS annual report for
2005, included in Appendix 2 and the interim report for the period ending 30 September 2006,
included in Appendix 3.
Reference is made to Appendix 3, note 4, “Business Combinations”, were the acquisition of the Power
operations is described. It is not possible to give reliable information of revenue and profit and loss for
the Power operations for the years 2005 and 2006. This is due to the fact that Comrod AS purchased
only a division of Eltek Energy ASA which did not have separate reliable financial information for
this division’s separate revenues, costs and profit and loss. Hence, no pro forma adjustments have been
prepared related to this division in the pro forma financial information for the years 2005 and 2006
below.
7.4.1 Preliminary Purchase Price Allocation Fidulerc SA
The Company has performed a purchase price allocation of the assets acquired from Fidulerc SA . The
valuation is performed in accordance with IFRS 3 which requires that intangible assets have to be
recognised as assets apart from goodwill, and based on the principles described in the summary of
significant accounting principles. The purpose of the purchase price allocation is to allocate the excess
purchase price (purchase price above net fair value of assets acquired).
Reference is made to appendix 3 which is the 3 rd quarter 2006 reporting for the Comrod AS group
prepared in accordance with IAS 34, note 4, where the purchase price allocation is presented. Below is
a short description of the purchase price allocation.
The excess purchase price is calculated to TNOK 47,941 based on a purchase price of TNOK 93,633
and net assets of TNOK 45,692. Below is a summary of the fair value of the acquired assets:
75

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
TNOK
Net assets 45 692
Fixed asset 10 800
Goodwill 29 230
Customer relationship 11 507
Deferred tax -3 596
Purchase price 93 633
The figures above are not finalized and may be changed in subsequent periods.
7.4.2 Pro forma income information for the period ended 31 December 2005
The following table shows the pro forma figures and related adjustments that have been made to the
income information data for the year ended 31 December 2005. The pro forma income information is
prepared as if the acquisition was effected 1 January 2005.
(in NOK 1000)
2005 2005 2005 2005 2005
01.01.-31.12. 01.01.-31.12. 01.01.-31.12. 01.01.-31.12. 01.01.-31.12
Comrod
Communication
ASA
IFRS
Comrod AS
IFRS
Lerc/Fidulerc
Proforma
adjustments
Note 1-3
IFRS
Proforma
Operating revenues 0 109 559 101 680 211 239
Operating expenses
0 0 0
Cost of materials 30 568 36 858 67 426
Payroll and social security expenses 38 132 14 794 52 926
Depreciation 2 522 2 753 3 459 8 734
Other operating expenses 13 995 36 079 50 074
Total operating expenses 0 85 217 90 484 3 459 179 160
Operating profit/loss 0 24 342 11 195 - 3 459 32 079
Financial income/expenses
Interest received 136 302 438
Other financial income 2 982 529 3 511
Interest paid to Hexagon-group -1 051 -1 051
Other interest paid -235 -1 110 -5 793 -7 138
Other financial expenses -460 -616 -1 076
Net financial income/expenses 0 1 372 -895 -5 793 -5 316
Profit before tax 0 25 714 10 300 -9 251 26 763
Taxes 0 7 296 3 700 -2 014 8 983
Profit for the year 0 18 418 6 600 -7 238 17 780
Pro forma adjustment comments:
1. “Depreciation”: TNOK 3,459 is 1 year estimated depreciation of surplus values allocated to
customer relationship, property plant and equipment and machinery and equipment, according to
purchase price allocation.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
2. “Other interest paid”: The purchase of Fidulerc SA on 11.4 MEUR was 100 % financed by an
inter company loan from Hexagon Composites ASA. Interest is 6,32% according to long term
bond loan in Hexagon Composites ASA related to the acquisition.
3. “Taxes”: All the adjustments have a calculated 28% tax expense for adjustments subject to
Norwegian tax rules and 33,3% for adjustments subject to French tax rules.
All of the adjustments listed above will also apply for and impact the financial statements going
forward. See Appendix 9 for information about the IFRS adjustments for Lerc and Fidulerc.
7.4.3 Pro forma income statement for the period ended 30 September 2006
The following table shows the pro forma figures and related adjustments that have been made to the
income information data for the period ended 30 September 2006. The pro forma income information
is prepared as if the acquisition was effected 1 January 2006.
(in NOK 1000)
2006 2006 2006 2006 2006
01.01.-30.09. 01.01.-30.09. 01.01.-30.09. 01.01.-30.09. 01.01.-30.09.
Comrod
Communication
ASA Comrod AS Lerc/Fidulerc
Proforma
adjustments
Note 4-6
IFRS
Proforma
Operating revenues 0 73 283 64 529 0 137 812
Operating expenses
0 0 0
Cost of materials 22 525 24 065 0 46 590
Payroll and social security expenses 29 674 10 336 0 40 010
Depreciation 3 285 2 125 2 581 7 991
Other operating expenses 9 660 24 682 0 34 342
Total operating expenses 0 65 144 61 208 2 581 128 933
Operating profit/loss 0 8 139 3 321 -2 581 8 878
Financial income/expenses
Interest received 223 88 0 311
Other financial income 0 103 0 103
Interest paid to Hexagon-group -3 551 0 0 -3 551
Other interest paid 0 -629 -3 825 -4 454
Other financial expenses -1 015 -340 -1 355
Net financial income/expenses 0 -4 343 -779 -3 825 -8 946
Profit before tax 0 3 796 2 542 -6 406 -68
Taxes 0 1 063 791 -1 363 491
Profit for the year 0 2 733 1 751 -5 043 -558
Pro forma adjustment comments:
4. “Depreciation”: TNOK 2,581 is 9 month estimated depreciation of surplus values allocated to
customer relationship, property plant and equipment and machinery and equipment, according to
purchase price allocation.
5. “Other interest paid”: The purchase of Fidulerc SA on 11.4 MEUR was 100 % financed by an
inter company loan from Hexagon Composites ASA. Interest is 6.32% according to long term
bond loan in Hexagon Composites ASA related to the acquisition.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
6. “Taxes”: All the adjustments have a calculated 28% tax expense for adjustments subject to
Norwegian tax rules and 33.3% for adjustments subject to French tax rules.
All of the adjustments listed above will also apply for and impact the financial statements going
forward.
See Appendix 9 for information about the IFRS adjustments for Lerc and Fidulerc.
7.4.4 Pro forma balance sheet as of 30 September 2006
(in NOK 1000)
2006 2006 2006 2006 2006 2006 2006
30.sep 30.sep 30.sep 30.sep 30.sep 30.sep 30.sep
Comrod
Communication
ASA
Proforma
adjustment
Demerger,
effective
2007
Note 17
Comrod
AS
Fidulerc /
Lerc
Eliminations
Note 7 - 12
Proforma
adjustments
Note 13 -16
IFRS
Proforma
ASSETS
Non current assets
Intangible assets
Deferred tax asset 455 2 000 -2 456 0 0
Goodwill 9 000 0 29 793 0 38 793
Other intangible assets 14 125 11 533 0 25 658
Total intangible assets 0 0 23 580 2 000 38 870 0 64 451
Tangible fixed assets
Property, plant and equipment 11 432 17 004 3 790 0 32 225
Machinery and equipment 8 346 7 444 7 218 0 23 008
Fixtures and fittings 2 350 0 0 2 350
Other financial assets 103 103
Total tangible fixed assets 0 0 22 127 24 551 11 008 0 57 686
Financial fixed assets
Investments in subsidiaries 0 27 669 93 633 0 -121 302 0
Total financial fixed assets 0 27 669 93 633 0 -121 302 0 0
Total non-current assets 0 27 669 139 340 26 552 -71 424 0 122 137
Current assets
Inventories 16 209 30 328 0 46 536
Accounts receivable 19 707 23 324 0 43 031
Forward exchange contracts 380 0 0 380
Receivable Hexagon -group 12840 32 522 0 -45 361 0
Other receivables 2 017 664 0 0 2 681
Bank deposits and cash 1 000 1 122 676 20 987 23 784
Total current assets 1 000 12 840 71 957 54 991 0 -24 374 116 413
Total assets 1 000 40 509 211 297 81 543 -71 424 -24 374 238 550
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
(in NOK 1000) 2006 2006 2006 2006 2006 2006 2006
30.sep 30.sep 30.sep 30.sep 30.sep 30.sep 30.sep
Proforma
adjustment
Eliminations
Comrod
Proforma
Demerger, Comrod Fidulerc/
IFRS
Communication
ASA
Note –13 - 16
adjustments
effective AS Lerc
Proforma
2007
Note 7 - 12
Note 17
EQUITY AND
LIABILITIES
Equity
Share capital 1 000 12 704 1 500 3 069 -4 569 3 235 16 939
Other paid-in capital 27 805 4 996 -4 996 52 432 80 237
Other reserves 678 0 678
Other equity 4 467 43 655 -64 317 -16 195
Total equity 1 000 40 509 11 641 46 725 -73 882 55 667 81 659
Liabilities
Non-current liabilities
Pension obligations 0 6 884 3 052 0 9 936
Deferred tax 0 679 679
Other long-term debt 0 153 841 978 1 779 -54 675 101 922
Total non-current liabilities 0 0 160 725 4 030 2 458 -54 675 112 537
Current liabilities
Liabilities to financial
institutions 0 3 879 3 879
Accounts payable 0 5 437 10 528 0 15 965
Public duties payable 0 2 205 3 577 0 5 782
Current liabilities to
Hexagon-group 0 25 366 0 -25 366 0
Other current liabilities 0 5 924 12 803 0 18 727
Total current liabilities 0 0 38 932 30 788 0 -25 366 44 354
Total liabilities 0 0 199 656 34 818 2 458 -80 041 156 891
Total equity and liabilities 1 000 40 509 211 297 81 543 -71 424 -24 374 238 550
Pro forma adjustment comments:
7. “Goodwill”: TNOK 29,793 preliminary estimate of goodwill in connection with the acquisition of
Fidulerc SA/Lerc SA and adjustment regarding acquisition Power.
8. “Other intangible assets”: TNOK 11,533 preliminary estimate of other intangible assets in
connection with the acquisition of Fidulerc SA/Lerc SA.
9. “Tangible fixed assets”: TNOK 11,008 (3,790 + 7,218) is the difference between fair value and
book value in connection with the acquisition of Fidulerc SA/Lerc SA.
10. “Investments in subsidiaries”: TNOK 121,302 is the book value of the shares in Comrod AS and
Fidulerc SA.
11. “Other long term debt”: TNOK 1,779 is change in currency related to long term debt designated
for hedging in net investment foreign subsidiary.
12. “Taxes”: TNOK - 3,135 (- 2,456 – 679) is related to the above mentioned eliminations. 2,456 are
reclassified from Deferred tax assets to Deferred tax. Net Deferred tax 30.9.2006 is 679.
13. “Other long term debt”: TNOK – 54,675 (-55,667 + 100,000 – 99,008). -55,667 is assumed
increase in share capital and other paid in capital related to debt conversion to bring Hexagon
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Composites ASA to 25% ownership. TNOK 100,000 is assumed external long term debt from
financial institution. TNOK – 99,008 is reduction in long term debt to Hexagon Composites ASA
related to set off and repayment (See comment 14, 15 and 16).
14. “Receivables Hexagon Group”: TNOK – 45,361 is set off between receivables Hexagon Group
and debt Hexagon Group.
15. “Current liabilities Hexagon Group”: TNOK – 25,366 is assumed repayment of debt to Hexagon
Group.
16. “Bank deposits and cash”: TNOK 20,987 is the remaining cash from new long term debt from
financial institution after repayment and set of to Hexagon Group.
17. Proforma adjustment according to the Demerger. See section 4.2.
All of the adjustments listed above (excluding 13 – 17) will also apply for and impact the financial
statements going forward. Assuming that the Demerger and the stock exchange listing are completed
adjustment 13 – 17 will also affect the financial statements going forward.
7.4.5 Auditor statement
An auditor statement regarding the pro forma adjustments has been received from the Company’s
auditor, Ernst & Young AS, and can be found in Appendix 5.
7.5 Annual report for Comrod Communication ASA
Comrod Communication ASA was incorporated 19 September 2006. There has been no activity in the
Company since the incorporation and till the Effective Date of the Demerger, there will be no such
activity. See chapter 4 for more information about the Demerger.
See Appendix 6 for the complete annual report for 2006 for Comrod Communication ASA.
7.6 Capital resources
7.6.1 Capitalization and indebtedness
As of 30 September 2006 Comrod AS was participating in a corporate cash and overdraft system.
Therefore the cash in the balance sheet before the Demerger mainly consists of tied-up capital, and
cash contributions to the corporate cash system are categorized as receivables from the Hexagon
group. Long-term loans are also internal loans to Hexagon Composites.
On this background the best overview of the capitalization of the Company is a combination of the
pro-forma balance sheet and committed new bank loans.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
The following table shows the Company’s projected capitalization as of the date of the Demerger.
in NOK mill. 22 Jan. 2007
Share capital 16.9
Legal reserve -
Other reserves 64.8
Total shareholders’ equity (A) 81.7
Current debt:
Guaranteed -
Secured 10
Total current debt: 10
Non-current debt:
Guaranteed -
Secured 90
Total non-current debt 90
Total indebtedness (B) 100
Total capitalization (A+B) 181.7
The table below shows a statement of the Company’s net indebtedness in the short term and the
medium-long term as of the date of the Demerger.
in NOK mill. 22 Jan. 2007
A. Cash 22
B. Cash equivalents 20
C. Trading securities -
D. Liquidity (A+B+C) 42
E. Current financial receivable -
F. Current bank debt
G. Current portion of non current debt 10
H. Other current financial debt
I. Current financial indebtedness (F + G + H) 10
J. Net Current Financial Indebtness (I-E-D) -32
K. Non-current bank loans 90
L. Bonds issued -
M. Other non-current loans -
N. Non-current financial indebtedness (K+L+M) 90
O. Net financial indebtedness (J+N) 58
7.6.2 Description of cash flow
Comrod AS has over the recent years had a positive net cash flow after organic investments. The
acquisitions in 2006 have been financed through internal loans from Hexagon Composites.
Historically, postponement of scheduled projects has been the largest challenge for the liquidity in
Comrod AS. The large movement in trade payables shown in the cash flow analysis (see section 7.3.3)
in 2005 and reversal of this movement in 2006 is an example of this type of fluctuations. Lerc has had
an independent financing situation with a factoring agreement that has provided the company with a
sufficient cash flow buffer. Under this factoring agreement, Lerc can borrow on a short-term basis
with its trade receivables as collateral. Cash flow forecasts show positive development in the cash
balance for Comrod Communication for the year ahead. Historically, Comrod AS has had cash flow
from operations ranging from MNOK 5.6 to MNOK 9.9 over the past three accounting years. In the
same period organic investments have been on a lower level all years, ranging from MNOK 4.1 to
MNOK 6.1. This shows a stable and robust development of a company self supplied with cash. The
acquisitions of new entities in 2006 add new business units with established customer relationships
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
and for Lerc a stable cash flow. The cash flow from the acquired Power operations is more volatile as
it depends on few projects and customers, however it constitutes only about 10% of the total activity,
and as activity and customer base increases the volatility is likely to be reduced.
7.6.3 Debt structure
Following the Demerger, the Company has obtained a long-term loan through DnB Nor Bank to
refinance inter company loans to Hexagon, mainly related to the acquisition of Lerc SA, and to secure
a sound working capital and financing of the Company’s operations.
Long-term debt
A secured long-term loan (5 years) of NOK 100 million or the equivalent in Euro is committed from
DnB NOR. As a reserve NOK 10 mill will be available to the Company in the offer, but is not
included in the cash flow projections above. Of the NOK 100 million a total of 10 million in
installments are due for payment within the first year. Consequently these NOK 10 mill. are defined as
a short-term part of long-term debt under IFRS.
The total loan will be split in two and granted 50/50 between Comrod AS and Comrod
Communication ASA.
Short-term debt
The Company will have free cash and cash equivalents of MNOK 22. This figure is dependent on cash
movements from mid December to the time of listing. In this period the cash balance is expected to
remain stable or increase. In addition, an overdraft facility of MNOK 20 from DnB NOR is committed
to Comrod Communication ASA. This credit is secured in the same manner and with the same
financial covenants as the long-term loan.
7.6.4 Restrictions on use of capital resources
Financial covenants on the sum of long-term and short-term debt to DnB NOR are as follows:
1. The equity ratio, defined as book value of equity as a ratio of total assets shall be the minimum of:
From To Equity ratio
March 2007 June 2007 25%
Sept. 2007 Dec. 2007 27.5%
March 2008 30%
Quarterly reporting and measurement.
2. Net Interest Bearing Debt/Earnings Before Interest, Tax, Amortisations and Depreciation
(NIBD/EBITDA) shall not be larger than specified in the table below:
From To NIBD/EBITDA
March 2007 Dec. 2007 3,5
March 2008 Dec. 2008 3,25
March 2009 3,0
Quarterly reporting and measurement will be made against the average EBITDA for the last four
quarters.
3. Should the Company sell assets amounting to more than 5% of the Company’s total balance, the
proceeds shall in full be used for payment of the long-term loan.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
7.6.5 Working capital statement
It is the opinion of the Company that the working capital is sufficient for the issuer’s present
requirements.
7.7 Discussion of financial condition and results of operations
In the following is a description of the financial condition of Comrod AS for the years 2003 to 2005,
and for the 3 rd quarter of 2005 and 2006.
Comrod AS has experienced a significant growth in activity and revenues over the last years.
Revenues for 2003 was 91,648 and the increase from 2002 was 86% from 49,182. The reason was
several large new contracts in the defence market, in particular the Bowman contract signed in 2002
and with start-up in 2003. The contract period run from 2003 to 2006. Also, the deliveries of the Visby
system started in 2003. The growth continued into 2004 and 2005 with revenues of 106,737 and
109,559 respectively. Additional contracts won in the defence market included the Switzerland
contract with deliveries in 2004 and 2005, and the Kuwait contract with deliveries in 2005. In
addition, Comrod AS signed an OEM agreement with Harris Corporation in 2005.
The cost of materials in the above mentioned periods were:
In 2003 the amount was 38,444, equal to 42 % of the total revenues.
In 2004 the amount was 31,156, equal to 29.1 % of the total revenues.
In 2005 the amount was 28,918 equal to 26.4 % of the total revenues.
The portion of material cost in 2003 was relatively high due to the Visby development project. This
project was run with an agreement of co-operation with an external partner.
Depreciation costs increased from 1,464 in 2003 to 1,857 in 2004 and to 2,522 in 2005. Comrod AS
has over the past years put high priority to efficiency improvements and as a result made several
important investments in the production area.
Some investments made during these years were:
- Packing machine
- Cellofan removal
- Winder
- Grinder
- Core pull machine
- Robot
- Building improvements
In addition to investments in the production area, Comrod AS implemented a new ERP system
(Axapta) in 2006. This has given the company some challenges in the production planning/detail
planning during the year and has had a negative impact on the company’s variable salary costs.
The operating profit for the years 2003 – 2005 were:
2003: NOK 11,793 with a margin of 13% of total revenues
2004: NOK 26,710 with a margin of 25% of total revenues
2005: NOK 24,342 with a margin of 22% of total revenues
The margin for 2003 was lower than in 2004 and 2005, mainly due to higher material costs related to
the Visby project. Comrod AS achieved good margins on the defence contracts with deliveries in both
2004 and 2005.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Due to a high financial income from currency gains the profit before tax in 2005 exceeded the profit
before tax for 2004 despite a lower operating profit. This is mostly related to a currency hedge contract
in GBP related to the Bowman deliveries.
The turnover for 2006 is expected to be in line with 2004 and 2005, but included the Power operations.
The drop in revenue for the communication products in 2006 was mainly due to postponements in
Saudi Arabia (the SANG project) and the spare part deliveries to the Bowman contract. These delays
combined with delays in deliveries to Kuwait and Switzerland has made a negative impact of the
operation result for 2006. The Kuwait delivery has very high gross margins (because of delivery
directly to end-user) as has the spare part programme for Bowman.
The cost of materials as per Q3 2006 was NOK 28,837 (34.4 % of revenues), compared to Q3 2005
with NOK 22,313 (28.8 % of revenues). The increase is due to Power sales with a higher material cost,
and the product mix in general. Since manufacturing of the Power products has been outsourced, the
Company has a higher material cost related to these products.
Payroll and social security expenses, depreciation and other operating expenses were higher in Q3
2006 than Q3 2005 due to the acquisition of the Power operations in March 2006.
Net financial income/expense in Q3 2006 was -4,389 compared to –1,210 in Q3 2005. The main
explanation were the acquisitions made of the Power operations and Lerc in 2006, which increased the
Company’s interest-bearing debt to Hexagon.
The ongoing and future trends are not expected to cause any significant changes on any level.
However, with Comrod AS’ strategy of always supporting the company’s customers with superior
quality with deliveries and product management quality must be top of mind in the Company’s
development combined with market needs and an effective production.
Despite the very positive net income for Comrod AS in the last years, the equity ratio has not
increased. This is due to group contribution dispositions to Hexagon.
7.8 Investments
As per the date of this Prospectus, Comrod Communication ASA, has not made any investments, has
no investments in progress nor has the Company decided on any future investments. Investments
presented in this section relates to the investments in Comrod AS. Planned investments in Lerc SA are
included in section 7.8.4, “Future investments”. Except for acquisitions, investments will primarily be
related to extension or improvements in production (premises, machinery, etc.) and on developing
products.
7.8.1 Historical investments
The table below shows the Comrod AS’ principal investments during the periods for which financial
statements are provided in the Prospectus.
In 2006 the Company has made two major acquisitions, the acquisition of the Power operations and
the acquisition of Fidulerc SA.
On 28 February 2006 the Company acquired what is now the the Company’s Power operations from
Eltek Energy AS. The purchase consideration for the Power operations was MNOK 25, and the
acquisition was financed through an inter company loan.
On 15 September 2006 the acquisition of the French company Fidulerc SA with its subsidiary Lerc SA
was finalized. The purchase price for Fidulerc SA was MNOK 93.6 (EUR 11.4 million), and the
acquisition was settled by an inter company loan from Hexagon Composites ASA. The interest is
6.23% according to a long-term bond loan in Hexagon Composites related to the acquisition. See
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
section 7.4 for more details on the acquisition of Fidulerc SA including pro-forma financial statements
for the combined Company. In connection with the Demerger from Hexagon, Comrod will enter into a
new long-term loan agreement with DnB Nor Bank ASA, which will replace the above mentioned
inter company loan. See section 7.6.4 for more details.
INVESTMENTS IN MACHINERY AND EQUIPMENT (IN NOK 1000)
Time Investment Amount
2003 Property, machinery, inventory, etc. 6 100
2004 Packing machine 350
Cellofan removal 900
Winder 278
Element laithe 142
Building 1 500
Grinder 1 019
Sum 2004 4 189
2005 Core pull machine 280
Grinder 300
Resin mixing machine 520
Robot 1 000
Light storage building 600
Building 900
Sum 2005 4 100
2006 Resin mixing systems 350
Robot 800
Braiding machine 1 200
Back-up systems 400
Grinder 150
Building 760
Sum 2006 3 660
Total investments 11 949
7.8.2 Investments made after the most recent quarterly report
Total investments after the publication of Comrod AS’ 3 rd quarter report for 2006, amounts to TNOK
844. This is mainly related to the braiding machine.
7.8.3 Investments in progress
In Norway Comrod has the following investments in progress to optimize and make the production
flow more efficient:
- Upgrade of the braiding machine which was 100% manually operated and now will be 100%
automated. Investment: approx. MNOK 1.2.
- One 100% manual and very time-consuming measuring and labeling operation to be 100%
automated in the robot cell. Investment: approx. MNOK 2.
The investments listed above will be financed in cash on delivery.
7.8.4 Future investments
In Norway the Company plan to spend about 7 million NOK in future investments to optimize the
production and products and to achieve a more cost effective production. These investments will help
the Company to be in position to satisfy the market with regard to quality, price and delivery time. Of
planned future investments related to the Company’s Norwegian operations, the following can be
mentioned:
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
- Robot cell. See also section 7.8.3. This is an ongoing project, which will last for several years with
different milestones. More machines will be connected in time. This project will start in the 1 st
quarter of 2007 and the robot cell is expected to be finalized during the 3 rd quarter of 2007. An
additional investment of MNOK 2 is expected related to this project.
- A new 100% automated winding machine (reduce the exposure of epoxy to the operator and give
higher production capacity). This project has started and is expected to be finalized during the 3 rd
quarter of 2007. Investment: approx. MNOK 1.7.
- Planned investments in machinery also include a braiding machine (investment amount: MNOK
0.75) and ComPact (investment amount: MNOK 1.1) in addition to several minor project totalling
approximately MNOK 1.5 in investments.
In the period 2007 – 2008, the Company plans to complete the following investments in France:
- Industrialization of the Schlumberger collars (related to industrial products). Amount: approx.
EUR 300,000.
- Industrialization of the Siemens loop (related to insulating products). Amount: approx. EUR.
50,000.
- Industrialization of the steady arms (related to insulating products). Amount: approx.: EUR
100,000.
- Industrialization of the MLV/LOS masts. Amount: approx. EUR 240,000.
- Industrialization of the MT masts. Amount: approx. EUR 200,000.
- Industrialization of the Manpack – Handheld antennas. Amount: approx. EUR 300,000.
- Company heating reform. Amount: approx. EUR 230,000.
- Replacement of an air conditioner. Amount: approx. EUR 50,000.
- Demolition of the old buildings and control of the company access. Amount: EUR 300,000.
- Control of the access to work units. Amount: approx EUR 70,000.
The above investments will be settled in cash on delivery.
7.9 Financial instruments
To be able to lower the risk of currency exposure on turnover, Comrod has a policy to hedge currency
on fixed contracts. As per 30 September 2006 Comrod had a currency hedge in GBP for the Bowman
contract. The date of currency hedge was October 2002 and the expiration date for the last contract is
June 2007.
7.10 Subsequent events
Other than the issues described in this Prospectus, there have been no material events related to the
Company since the publication of the 3 rd quarter report for 2006.
7.11 Changes in financial structure subsequent to Q3 2006
Besides the Demerger and the new bank loan described in this Prospectus, no major changes in the
financial structure of the Company has taken place since the end of the 3 rd quarter of 2006.
7.12 Changes in the Company’s financial or trading position
There have been no significant changes in the Company’s financial or trading position subsequent to
Q3 2006.
7.13 Trend information
The Company has not experienced any changes or trends outside the ordinary course of business that
are significant to the Company after the publication of its third quarter report and to the date of this
Prospectus, other than those described elsewhere in this Prospectus. Please see chapter 6,
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
“Presentation of the Company”, chapter 7, “Market overview” and chapter 2, “Risk factors” for more
information about significant recent trends in the Company’s business and relevant markets.
For any governmental, economic, fiscal, monetary or political policies or factors that could materially
affect the Company’s future operations please refer to chapter 2, “Risk factors”. Historically, no such
events have had any adverse impact on the Company’s operations.
7.14 Statutory Auditor
Ernst & Young AS (Ernst & Young) has been the independent auditor for Comrod Communication
ASA since its incorporation on 19 September 2006. The auditor’s address is Vassbotnen 11, P.O. Box
815, 4068 Stavanger, Norway. Ernst & Young is a member of the Norwegian Institute of Public
Accountants (DnR).
Ernst & Young has also been the independent auditor of Comrod AS since 1999.
The auditor statements for the last three accounting years have contained no qualifications or
disclaimers.
Ernst & Young has issued an unqualified auditor’s report (“Report on review of interim condensed
financial statements”) for Comrod AS’ 3rd quarter report for 2006, as set forth in their report in
Appendix 4.
The pro forma adjustments for the income statement for the year ended 31 December 2005 and for the
income statement for the nine month period ended 30 September 2006 and the balance sheet for the
period ended 30 September 2006, included in section 7.4 of this prospectus (“Independent Assurance
Report on Pro Forma Financial Information”), have been examined by Ernst & Young (appendix 5).
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
8 BOARD OF DIRECTORS AND MANAGEMENT
8.1 Board of Directors
As of the date of this Prospectus, the following persons serve on the Board of Directors of Comrod:
Name
Board Current position & Business Address:
Position
Erik Espeset Chairman Group Managing Director of Hexagon Composites ASA,
Korsegata 8, P.O. Box 836 Sentrum, 6001 Ålesund, Norway
Randi Elin Hognestad Vice chairman Director of investor relations, HitecVision Private Equity AS,
Klubbgata 1, P.O. Box 8120, 4068 Stavanger, Norway
Niklas Hermansson Board member CEO of Technor ASA (from 1 February 2007)
Merete Alnes Mostue Board member HR Manager Coop Møre BA, P.O. Box 10, 6025 Ålesund,
Norway
8.2 Management
As of the date of this Prospectus, the Company’s senior management consists of the following
individuals:
Name Position Business Address:
Ole Gunnar Fjelde Acting CEO from 1 January 2007 & Fiskåvegen 1, 4120 Tau
Operations Manager
Kari Duestad Finance Manager Fiskåvegen 1, 4120 Tau
Jean Morrey General Manager, Lerc SA 600 chemin des Hamaïdes, BP
10119, Saint Amand les Eaux Cedex,
France
Arne Risvik Syversen VP Sales & Marketing, Power division Leangbukta, 1392 Vettre
8.2.1 The CEO
The CEO as of the date of the Prospectus Mr. Ole Gunnar Fjelde is the Company’s acting CEO. The
former CEO resigned on 31 December 2006. The Board has started the search for a new CEO, and
expects to complete this some time during the 1 st quarter of 2007. Until a new CEO is in place, the
chairman will take a more active role in the day-to-day operations of the Company.
8.3 Background of the Management and Board of Directors
Board of Directors
Erik Espeset, chairman of the board
Mr. Espeset is Group Managing Director of Hexagon Composites ASA. He has an M.Sc. from the
Norwegian University of Science and Technology (NTNU) and an MBA from Helsinki School of
Economics. He has professional experience in project management, sales and marketing from
Kvaerner, Alcatel and Enron. He joined Hexagon in 2001.
Randi Elin Hognestad, board member
Ms. Hognestad joined HitecVision AS as Director of Investor Relations in January 2007. Her
background combines law and communication. She is a qualified lawyer, and has been an associate
with the law firms Bugge, Arentz-Hansen & Rasmussen (BA-HR) and Schjødt. Hognestad previously
held the position as Director of Investor Relations with Global IP Sound in San Francisco, and has
worked as a journalist with Dagens Næringsliv. Her work experience also includes several years as an
executive assistant with McKinsey & Company.
Niklas Hermansson, board member
Mr. Hermansson will join Technor AS as CEO in February 2007. He was CEO of Comrod AS from
2002 till December 2006. Before joining Comrod AS he was Managing Director for the Proserv Group
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
(1999 – 2001), Sales & Marketing Director for the oil and gas division of AS Stavanger Rørhandel
(1997 – 1999) and Sales Manager for the trading department of Proserv AS (1995 – 1997). Mr.
Hermansson is a former professional handball player and has played nearly 50 international games for
Sweden.
Merete Alnes Mostue, board member
Merete A. Mostue is personnel and organisation manager in Coop Møre BA. Prior to joining Coop in
2004 she was finance and HR Manager at Firmenich Bjørge Biomarin AS in Ålesund. She was
Assisting Director for Investor Relations at Telenor ASA in Oslo from 1999 to 2001 and financial
consultant and finance manager for Norsk Telekom/Telenor AS in the period 1993 to 1997. Ms.
Mostue has international experience as financial controller for Telenor (UK) Ltd. in London and Dai-
Ichi Kangyo Bank S.A. in Luxembourg. Ms. Mostue has an M.Sc. in business administration from the
Norwegian School of Economics and Business Administration (NHH).
Management
Ole Gunnar Fjelde, CEO
Mr. Fjelde is the acting CEO of Comrod. He has been Vice President of Operations for Comrod since
2003 and was plant manager at Compipe AS from 1994 to 2000. He has also experience from
counsultancy and product development from Welldynamics AS and Ole Gunnar Fjelde AS. Mr. Fjelde
is an automation mechanic and has also studied aircraft engineering.
Kari Duestad, Finance Manager
Ms. Duestad joined Comrod AS as financial director in 2005. Her former experience include the
positions as Accounting Manager of Weatherford Norge AS (1988 – 2005) and accounting counsultant
at Amoco (1985 – 1986). She is a Bachelor of Management from the Norwegian School of
Management (BI) (1990).
Jean Morrey, General Manager Lerc SA
Mr. Mourey joined Lerc SA as Chief Financial Officer in 1982. In the period 1996 to 2003 he was
chairman and General Manager, and from 2003 and till today he has served as General Manager of
Lerc SA. His professional experience before joining Lerc include the position as Chief Financial
Officer for Trigano Group (1976 – 1982) and Chief Financial Officer of Douriez-Bataille Group (1972
– 1976). Mr. Mourey has an M.Sc. in business, with a specialisation in accounting and auditing from
DECS (1972).
Arne Risvik Syversen, Vice President Sales & Marketing, Power
Mr. Syversen is responsible for sales and marketing of Comrod’s Power Supply products. He has
extensive experience from international sales and marketing for technical products. From 1997 to 2006
he was Sales Manager for Unitech/Eltek towards the defence and industry segments. He was
previously sales manager at Tillquist AS, sales engineer at Honeywell AS, sales manager at
Cosmotronic AS and sales manager at AMP Norge AS. Mr. Syversen is an engineer from Bergen
Ingeniørhøgskole (1984).
Over the five years preceding the date of this Prospectus, the members of the Board and the senior
management presently have and have held the following directorships (apart from the directorship in
the Company), partnerships and/or management positions:
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Name
Board of Directors:
Erik Espeset
Randi Elin Hognestad
Niklas Hermansson
Merete Alnes Mostue
Management:
Ole Gunnar Fjelde
Current
directorships/partnerships
Comrod AS, Norway
Lerc SA, France
Fidulerc SA, France
Ragasco AS, Norway
Raufoss Fuel Systems AS,
Norway
Devold AMT AS, Norway
Hexagon Technology AS,
Norway
Lincoln Composites Inc., USA
The environmental founcation Zero
Månebakken AS, Norway
Sophies Verden AS, Norway
Axeleration AS, Norway
Pertinax AS, Norway
Kristians And AS, Norway
Linsy AS, Trondheim, Norway
Travel & Event AS, Bryne, Norway
Directorships/partnerships/management
positions previous 5 years
Hexagon Composites, Group Managing
Director
Global IP Sound, director of investor relations
Comrod AS, CEO
Coop Møre BA
Firmenich Bjørge Biomarin AS
Bjørge Biomarin AS
Ole Gunnar Fjelde AS
Ole Gunnar Fjelde Eiendom AS
Fjelde Holding AS
Comrod AS, Operations Manager
Ole Gunnar Fjelde AS
Ole Gunnar Fjelde Eiendom AS
Fjelde Holding AS
Kari Duestad None Weatherford Norge AS, Chief Accountant
Jean Morrey
Arne Risvik Syversen
Lerc SA
Fidulerc SA
None
Lerc International SAS
8.3.1 Other
During the last five years preceding the date of this Prospectus, no member of the Board or the senior
management has:
- any convictions in relation to indictable offences or convictions in relation to fraudulent offences
- received any official public incrimination and/or sanctions by any statutory ore regulatory
authorities (including designated professional bodies) or ever been disqualified by a court from
acting as a member of the administrative, management or supervisory bodies of a company or
from acting in the management or conduct of the affairs of any company, or
- been declared bankrupt or been associated with any bankruptcy, receivership or liquidation in
his/her capacity as a founder, director or senior manager of a company.
8.4 Conflicts of interest
The following board members may at times be in a position where there is a conflict of interest
between their other positions or directorships and their roles as directors for the Company:
- Erik Espeset, as CEO of one of the Company’s main owners, Hexagon Composites ASA
- Niklas Hermansson, as former CEO of Comrod
The Company has taken reasonable steps to avoid potential conflicts of interests arising from the
directors’ and management’s private interests and other duties. The Company is not aware of any
potential conflicts of interests other than the above mentioned.
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
8.5 The Board’s independence
Hexagon Composites holds 25% of the Company’s share capital at the time of the Demerger, and is
one of the Company’s main shareholders (see also section 10.6). One officer of Hexagon Composites
ASA) are board member of the Company. The former CEO of the Company has been elected a board
member. He resigned his position at Comrod on 31 December 2006. Considering that the remaining
two board members are independent from any major owners, management and principal business
associates of the Company, the Company satisfies the regulations in the Norwegian Code of Practice
for Corporate governance regarding the Board’s independence.
8.6 Remuneration and benefits
8.6.1 Remuneration and benefits
The CEO of Comrod AS was paid a total salary, including bonus, of 1,390,708 for 2005.
For 2005 and 2006 the board received a total of NOK 30,000 each year from Comrod AS. For the
fiscal year 2007 the salary for the directors of Comrod Communication ASA is expected to amount to
NOK 100,000 annually for the chairman and NOK 75,000 for each board member. The remuneration
of the directors shall be determined by the Company’s general meeting.
8.6.2 Shares and options
None of the directors or management group own shares or share options in the Company. As of the
date of this Prospectus the Company has no share option programme.
However, some of the Company’s employees currently participate in Hexagon’s share option
programme. For the management group, this applies to Mr. Ole Gunnar Fjelde who has 30,000 share
options in Hexagon as per the date of the Prospectus. For Mr. Ole Gunnar Fjelde the strike price is
4.68 in 2007, 5.07 in 2008 and 9.82 in 2009.
The Board may decide to establish a similar share option programme for the Comrod employees to
replace the current share option programme in Hexagon.
As of the date of the Prospectus Mr. Fjelde owned 30,769 shares in Hexagon.
8.6.3 Pension, retirement or similar benefits
Comrod does not have any agreements with regards to retirement or severance obligations with
employees.
The Company’s pension plan has been described in detail under section 7.1.22.
A yearly bonus plan is not fixed, but is evaluated by the CEO based on the Company’s results each
year. Up until now any bonus payment in Comrod has been equally shared between all employees.
8.7 Board practices
8.7.1 Term of office
The following table sets out the length of the various board members’ terms of office and for which
period each board member has served on the Board.
Name Position Has served since Term expires
Erik Espeset Chairman September 2006 2008
Randi Elin Hognestad Board member December 2006 2008
Niklas Hermansson Board member December 2006 2008
Merete Alnes Mostue Board member December 2006 2008
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8.7.2 Service contracts
None of the board members are entitled to any severance payment upon termination or expiration of
their service.
There is no severance program for the employees apart from the normal terms of notice and what is
mentioned under 8.6.3.
8.7.3 Board committees
The Company shall have a nominating committee to be elected at the Annual General Meeting. The
Company’s nomination committee shall consist of three members, one of whom shall be a board
member.
The task of the Nomination Committee is to propose candidates for election as members of the Board
of Directors and to make recommendations regarding the remuneration of the members of the Board
of Directors.
There are no other board committees.
8.8 Employees
As of the date of the Prospectus the Company has 166 employees, 81 of whom were employed at the
Company’s head office in Tau, Norway. 85 of the Company’s employees were located abroad. See
section 5.2 for more details.
8.9 Financial reporting and IR
The operating responsibility for the finance function will be handled by the Company’s Finance
Manager, Ms. Kari Duestad. The Company has also entered into an agreement with Hexagon
regarding the assistance with financial reporting. This will include the consolidation of figures on a
group level, and assistance with the annual reports and interim reports. See section 8.10 for more
information regarding this agreement.
Ms. Kari Duestad, will be day-to-day responsible for the handling of Investor Relations (“IR”). In
addition, Hexagon’s CFO, Mr. Dag Olav Tennfjord, will advice the Company on overall IR issues,
e.g. IR policy in general, use of the internet, webcasts, roadshows, etc. The Company will thereby be
in a position to draw on Hexagon’s expertise in IR matters.
8.10 Related Party Transactions
The Company has entered into an agreement to purchase administrative services from Hexagon. These
services will mainly be related to assistance with the financial reporting and IR.
The background for this agreement is to ensure that Comrod can benefit from the expertise within
Hexagon during the first phase as a listed company. See also section 8.8 for more details regarding this
agreement.
The above mentioned management agreement has been entered into as part of the Company’s ordinary
operations and at arms length terms. The agreement has been entered into at market terms and can be
terminated at one months notice.
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9 SHARE CAPITAL AND SHAREHOLDER MATTERS
9.1 Share capital - overview
Comrod Communication ASA is a public limited liability company organized under the laws of
Norway. The Company’s share capital following the Demerger is NOK 16,938,649, made up of
16,938,649 shares with a par value of NOK 1.00 per Share, all fully paid. All Shares of the Company
are of the same class and are equal in all respects. The Company’s articles of association do not
provide for shares of other classes. Each Share carries the right to one vote in shareholders’ meetings.
The Company’s articles of association do not provide for limitations on the transferability or
ownership of Shares.
All Shares carry rights to dividends, if any, which the general meeting may resolve to distribute in
accordance with the requirements of the Norwegian Public Limited Companies Act. There are no
particular restrictions or procedures relating to distributions of dividends to shareholders who are
resident outside of Norway. See, however, section 10.2 for a description of the withholding tax
provisions relating to the distributions of dividends to non-residents.
All Shares carry an equal right to any surplus in the event of a liquidation of the Company. The Shares
are not subject to any redemption or conversion provisions.
Under the Norwegian Public Limited Companies Act, existing shareholders of the Company will, as a
main rule, have pre-emptive rights to subscribe for any new Shares which the Company may issue.
However, the pre-emptive rights of existing shareholders may be set aside by a majority of two thirds
of the votes cast and the capital represented at the general meeting approving the share capital
increase.
The development of the Company’s share capital is set forth in the table below.
Time Event Capital
increase
Share
price
Par
value
Share capital Shares
issued
19.09.2006 Incorporation 1 000 000.00 1.00 1.00 1 000 000.00 1 000 000
19.01.2007 Demerger 12 703 987.00 1.00 13 703 987.00 13 703 987
19.01.2007 Directed Issue 3 234 662.00 1.00 16 938 649.00 16 938 649
9.2 Share Registration and Listing
The Company’s shares are registered in book entry form in the VPS. The securities number of the
shares is ISIN NO001 0338445. The registrar is DnB Nor ASA, Stranden 21, 0021 Oslo, Norway.
Following the publication of this Prospectus, the Company’s Shares will listed on The Oslo Stock
Exchange under the ticker code COMROD.
9.3 Share Option Plan
The Company has no share option plan for its employees. Some of the leading employees and board
members have shares and share options in Hexagon Composites ASA, as described in more detail in
section 8.6.2. The share option plan in Hexagon will be continued for the Comrod employees after the
Demerger until the board of directors of Hexagon and/or Comrod resolves otherwise.
9.4 Convertible loans, warrants etc.
As of the date of the Demerger, the Company has no convertible loans or warrants.
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9.5 Authorizations
As of the date of the Prospectus there are no authorizations to issue new shares or convertible loans,
nor any authorizations to purchase own shares or any other authorizations.
9.6 Shareholder structure
Based on the share register of Hexagon registered in the VPS per 16 January 2007 the number of
registered shareholders of the Company will be about 1,492 as of the date of the Demerger. A total of
1,444 (96.8%) of the shareholders are Norwegian and 48 (3.2%) are non-Norwegian.
The following table sets forth the 20 largest shareholders of the Company:
Shareholder: No. of shares: % ownership:
FLAKK HOLDING AS 4 545 735 26,8 %
HEXAGON COMPOSITES ASA 4 238 062 25,0 %
BØCKMANN EIENDOM AS 1 154 753 6,8 %
MP PENSJON 1 005 310 5,9 %
RASMUSSENGRUPPEN AS 725 200 4,3 %
VERDIPAPIRFOND ODIN NORDEN 568 730 3,4 %
SAGA EQUITY FUND 465 800 2,7 %
SKAGEN VEKST 300 000 1,8 %
HSBC BANK PLC 281 750 1,7 %
JPMORGAN CHASE BANK 244 750 1,4 %
FLAKK, KNUT 193 125 1,1 %
HOLBERG NORGE 185 200 1,1 %
SEB PRIVATE BANK S.A. LUXEMBOURG 150 000 0,9 %
STRAFO A/S, NIL 130 000 0,8 %
FLYDAL, LARS IVAR 127 333 0,8 %
MOLVÆR, IVAR ARVIC 100 000 0,6 %
STAFSET, KÅRE 100 000 0,6 %
VERDIPAPIRFONDET DANSKE FUND NOR 85 300 0,5 %
STATE STREET BANK AND TRUST CO. 84 400 0,5 %
RASMUSSEN, DAG 70 000 0,4 %
Sum 20 largest shareholders: 14 755 447 87,1 %
Other: 2 183 202 12,9 %
Total: 16 938 649 100,0 %
9.6.1 Major shareholders
According to the shareholder structure in Hexagon as of the date of the Demerger, Flakk Holding AS 4 ,
will be the largest shareholder in Comrod with an ownership stake of 26.8%. Hexagon will be the
second largest shareholder with an ownership share of 25%. Two other shareholders have major
ownership shares, i.e. Bøckmann Eiendom AS 5 with 6.8% and MP Pensjon with 5.9% of the shares.
No other shareholders hold a number of shares in the Company that is notifiable under Norwegian law
(more than 5%).
None of the Company’s major shareholders, or any other shareholders in the Company, have voting
rights different from other shareholders.
4 The main shareholder of Flakk Holding AS is Knut Flakk, chairman of the board of Hexagon. Flakk Holding AS and Knut Flakk has a
combined ownership stake of 27.9% of the Company as of the date of the Demerger.
5 Gunnar Bøckmann, board member of Hexagon, is a main owner of Bøckmann Eiendom.
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9.6.2 Shareholder agreements
The Company is not aware of any shareholder, or group of shareholders, that control Comrod, or that
any group of shareholders have entered into agreements, or cooperate, to that effect. The Board or
Management of the Company are not aware of any arrangement that may result in, prevent or restrict a
change in control of Comrod.
9.6.3 Lock-up agreements
No shareholder has entered into any lock-up agreement with respect to the Company’s shares.
9.7 Articles of Association
The Company’s articles of association are set out in Appendix 1 to this Prospectus.
Pursuant to article 3 of the articles of association, the objective of the Company is to operate business
related to production and sales of communication products of fiberglass and other materials, including
participation in companies engaged in similar business, and any other things related to this.
The articles of association provide that the Board of Directors of the Company shall have no less than
3 and no more than 8 members, elected by the annual general meeting.
The articles of association do not provide for any rights, preferences and restrictions attaching to the
Shares.
The articles of association do not lay down more significant conditions necessary to change the rights
of shareholders than required by the Norwegian Public Limited Companies Act.
Under the Norwegian Public Limited Companies Act, general meetings must be convened by written
notice to all shareholders whose address is known. The notice must be sent at the latest two weeks
before the date of the general meeting. The notice must set forth the time and date of the meeting and
specify the agenda of the meeting. It must also name the person appointed by the Board of Directors to
open the meeting. All shareholders who are registered in the register of shareholders maintained by the
VPS as of the date of the general meeting, or have otherwise reported and proved an acquisition of
Shares, are entitled to admission without any requirement for pre-registration. The articles of
association do not contain any provisions as to the manner in which general meetings of the Company
are called or as to the conditions of admission to general meetings.
There are no provisions in the articles of association which would have an effect of delaying, deferring
or preventing a change of control of the Company, or which require disclosure of ownership above
any thresholds. However, please see section 9.12 for a description of the requirements under the
Securities Trading Act for the disclosure of transactions which cause certain thresholds to be passed.
The articles of association do not impose more stringent conditions for changing the capital of the
Company than required by law.
Amendment of the Company’s Articles of Association would require the affirmative vote of twothirds
of the votes cast at a general meeting as well as two-thirds of the share capital represented at the
meeting. Certain types of changes in the rights of the Company’s shareholders require the consent of
all shareholders or 90 % of the votes cast at a general meeting. Each outstanding share gives the right
to one vote, and all of the Company’s shares have an equal right to vote on general meetings.
9.8 Shareholder and dividend policy
As a listed company, Comrod will be committed to a shareholder friendly policy where maximum
dividends are paid out, taking operational and financial covenants into consideration. Financial
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
covenants which the Company has to adhere to and restrictions and limitations on the ability of the
Company to pay out dividends or make other distribution to their shareholders are described in more
detail under section 7.6.4, “Restrictions on use of capital resources”.
The Company will seek to assist the market and the Company’s shareholders with reliable and
consistent information in order to secure that the market is able to assess the most correct pricing of
the Company’s share capital. The Company will to carry out regular reporting of financial statements
and presentations to the market, investors and analysts in Norway. All financial reports and
presentations will be distributed through the electronic message system of the Oslo Stock Exchange.
9.9 Corporate governance
Upon listing of the Comrod shares on the Oslo Stock Exchange, Comrod will be committed to
following high standards of corporate governance based on the principles set forth in the Norwegian
Code of Practice for Corporate Governance. The corporate governance principles of Comrod comply
with the Norwegian Code of Practice for Corporate Governance with the exception that the Company
has not established any sub-committees to the Board, i.e. there are not compensation and audit
committees as outlined in the Corporate Governance recommendations. Because of the Company’s
size, it is at present regarded as adequate that the Board attends to these matters directly.
The Board will annually produce a report as to corporate governance, which will be included in the
annual report. To the extent that the Company does not fully adhere to all recommendations in the
Norwegian Code of Practice for Corporate Governance, the reasons for choosing an alternative
approach will be explained in the annual report.
9.10 Mandatory Bid Rules
Norwegian law requires any person, or associated persons that acquire more than 40% of the voting
rights of a Norwegian company listed on the Oslo Stock Exchange to make an unconditional general
offer to acquire the whole of the outstanding share capital of that company. The offer must be made
within four weeks of the transaction which triggers the obligation to make the offer. The offer is
subject to approval by the Oslo Stock Exchange before submission of the offer to the shareholders.
The offer must be in cash or contain a cash alternative at least equivalent to any other consideration
offered. The offering price per share must be at least as high as the highest price paid or agreed to be
paid by the offeror in the six-month period prior to the date the 40% threshold was exceeded, but at
least equal to the market price when the 40% threshold was exceeded if it is clear that that market
price was higher than the highest price in the preceding six months. A shareholder who fails to make
the required offer must, within four weeks, dispose of sufficient shares to bring his shareholding below
40%. Otherwise, the Oslo Stock Exchange may cause the shares exceeding the 40% limit to be sold by
public auction. A shareholder who fails to make such bid within the statutory time limit cannot, as
long as the mandatory bid requirement remains in force, vote for his shares or exercise any rights of
share ownership, unless a majority of the remaining shareholders approve. However, such shareholder
retains the right to receive dividends and preferential rights in the event of a share capital increase. In
addition, the Oslo Stock Exchange may impose a daily fine upon a shareholder who fails to make the
required offer.
9.11 Compulsory Acquisition Rules
A shareholder who, directly or via subsidiaries, acquires shares representing more than 90% of the
total number of issued shares as well as more than 90% of the total voting rights of a company has the
right (and each remaining minority shareholder of that company would have the right to require the
majority shareholder) to effect a compulsory acquisition of any shares not already owned by the
majority shareholder. A compulsory acquisition results in the majority shareholder becoming the
owner of the shares of the minority shareholders with immediate effect.
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A majority shareholder who effects a compulsory acquisition is required to offer the minority
shareholders a specific price per share and to pay the consideration offered to a separate bank account
for the benefit of the minority shareholders. The determination of the offer price is at the discretion of
the majority shareholder. Should any minority shareholder not accept the offered price, such minority
shareholder may, within a specified period of not less than two months, request that the price be set by
the Norwegian courts. The cost of such court procedure would normally be charged to the account of
the majority shareholder, and the courts would have full discretion in determining the consideration
due to the minority shareholder as a result of the compulsory acquisition.
9.12 Disclosure of Acquisition and Disposals
Under the Securities Trading Act, a person, entity or group acting in concert that acquires or disposes
of shares, options for shares or other rights to shares resulting in its beneficial ownership, directly or
indirectly, in the aggregate, reaching, exceeding or falling below the respective thresholds of 1/20,
1/10, 1/5 1/3, 1/2, 2/3 or 9/10 of the share capital has an obligation to notify the Oslo Stock Exchange
immediately.
9.13 Public takeover bids past 12 months
There have been no public takeover bids for the Company for the past 12 months.
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10 TAXATION
This section describes certain tax consequences in Norway for shareholders who are resident in
Norway for tax purposes (“Norwegian Shareholders”) and for shareholders who are not resident in
Norway for tax purposes (“Non-resident Shareholders”). The statements herein regarding taxation
are based on the laws in force in Norway as of the date of this Prospectus and are subject to any
changes in law occurring after such date, which changes could be made on a retrospective basis. The
following summary does not purport to be a comprehensive description of all the tax considerations
that may be relevant to a decision to purchase, own or dispose of shares. Investors are advised to
consult their own tax advisors concerning the overall tax consequences of their ownership of shares.
10.1 Norwegian shareholders
10.1.1 Taxation on dividends
Norwegian corporate shareholders (i.e. limited liability companies and similar entities) are not subject
to Norwegian tax on dividends received on shares in companies’ resident within the European
Economic Area. Thus, any dividend received on the Shares is not taxable for a Norwegian Corporate
Shareholder.
Dividends distributed to Norwegian individual shareholders are taxable under the Shareholder Model.
According to the Shareholder Model, individual shareholder’s income from shares (dividends and
capital gains) is taxable as ordinary income (28% flat rate) to the extent the income exceeds a basic
tax-free allowance. The tax-free allowance shall be calculated on a share by share basis and is equal to
the tax purchase price of the share multiplied by a risk-free interest. The risk-free interest will be
calculated every income year. Any unused allowance may be carried forward and set off against future
dividend distributions on the same share or against gains on the realisation of the share.
Partnerships are as a general rule transparent for Norwegian tax purposes. Taxation occurs at partner
level, and each partner is taxed on a current basis for its proportional share of the net income generated
by the partnership at a rate of 28%, regardless of whether such income is distributed to the partners or
not. However, dividends received by the partnership are not taxed on a current basis. For partners who
are Norwegian personal shareholders taxation occurs when the dividends received are distributed from
the partnership to such partners. Such distributions will be taxed as ordinary income at a rate of 28%.
The Norwegian personal shareholders will be entitled to deduct a calculated allowance when
calculating their taxable income, cf. the description of tax issues related to personal shareholders
above. Norwegian corporate shareholders holding shares through a partnership will be exempt from
taxation of their proportional part of dividends received and distributed by the partnership.
10.1.2 Taxation on capital gains / losses on disposal of shares
Norwegian Corporate Shareholders are not subject to tax on capital gains derived from realisation of
shares in companies’ resident within the European Economic Area, while losses suffered from such
realisations are not tax deductible. Costs incurred in connection with the purchase and sale of such
shares are not tax deductible. Thus, any capital gains on the Shares are not taxable while losses are not
deductible for a Norwegian Corporate Shareholder.
Norwegian individual shareholders are taxable in Norway for capital gains on the realisation of shares,
and have a corresponding right to deduct losses. This applies irrespective of how long the shares have
been owned by the individual shareholder and irrespective of how many shares that are realised. Gains
are taxable as ordinary income in the year of realisation, and losses can be deducted from ordinary
income in the year of realisation. The current tax rate for ordinary income is 28%. Under current tax
rules, gain or loss is calculated per share, as the difference between the consideration received and the
tax base of the share. The tax base of each share is based on the individual shareholder’s purchase
price for the share. Unused allowance connected to a share may be deducted from a capital gain on the
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same share, but may not lead to or increase a deductible loss. Further, unused allowance may not be
set off against gains from realisation of the other shares.
If an individual shareholder disposes of shares acquired at different times, the shares that were first
acquired will be deemed as first sold (the “FIFO”-principle) upon calculating taxable gain or loss.
Costs incurred in connection with the purchase and sale of shares may be deducted in the year of sale.
Partnerships are as a general rule transparent for Norwegian tax purposes, and taxation occurs at
partner level on a current basis, cf section 10.1.1 above. However, capital gains received by the
partnership are not taxed on a current basis. For partners who are Norwegian personal shareholders
taxation occurs when the capital gains received are distributed from the partnership to such partners.
Such distributions will be taxed as ordinary income at a rate of 28%. The Norwegian personal
shareholders will be entitled to deduct a calculated allowance when calculating their taxable income,
cf. the description of tax issues related to personal shareholders above. Norwegian corporate
shareholders holding shares through a partnership will be exempt from taxation of their proportional
part of capital gains received and distributed by the partnership.
10.1.3 Net wealth tax
Norwegian limited liability companies and certain similar entities are exempt from Norwegian net
wealth tax.
For other Norwegian shareholders, shares will form part of their basis for calculation of Norwegian net
wealth tax. Listed shares are valued at 85% of their quoted value as of 1 January in the assessment
year. The current marginal wealth tax rate is 1.1%.
10.2 Non-resident shareholders
10.2.1 Taxation on dividends
Dividends distributed from a Norwegian company to Non-resident shareholders are subject to
Norwegian withholding tax at a rate of 25% unless the recipient qualifies for a reduced rate according
to an applicable tax treaty or other specific regulations. Norway has entered into tax treaties with a
number of countries and withholding tax is normally set at 15% under these treaties. The withholding
obligation lies with the Company distributing the dividends. Foreign shareholders who have suffered a
higher withholding tax than set out by an applicable tax treaty may apply to the Norwegian tax
authorities for a refund of the excess withholding tax deducted.
Corporate shareholders resident within the European Economic Area are not subject to Norwegian
withholding tax.
Dividends paid to individual shareholders are as the main rule subject to Norwegian withholding tax at
a rate of 25%, unless a lower rate has been agreed in an applicable tax treaty. If the individual
shareholder is resident within the European Economic Area, the shareholder may apply to the tax
authorities for a refund of an amount corresponding to the tax-free allowance on each individual share.
Dividends distributed to foreign partnerships are normally subject to withholding tax at a rate of 25%.
However, the partners in the partnership may be entitled to a reduced withholding tax rate (or a zero
rate) based on their tax residency and/or applicable tax treaties. However, this depends on each
partner’s specific situation, and each investor is advised to consult with their tax advisors in this
respect.
In accordance with the present administrative system in Norway, a distributing company will generally
deduct withholding tax at the applicable rate when dividends are paid directly to an eligible foreign
shareholder, based on information registered with the VPS. Dividends paid to foreign shareholders in
respect of nominee registered shares are not eligible for reduced treaty withholding tax rate at the time
of payment unless the nominee, by agreeing to provide certain information regarding beneficial owner,
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has obtained approval for reduced treaty withholding tax rate from the Central Office for Foreign Tax
Affairs.
Foreign shareholders should consult their own advisers regarding the availability of treaty benefits in
respect of dividend payments.
10.2.2 Taxation on capital gains / losses on disposal of shares
Shareholders not tax resident in Norway are as a main rule not taxable for gains on disposal of shares
in Norwegian limited entities, and losses on disposal of such shares are similarly not deductible.
A Norwegian personal shareholder who moves abroad and ceases to be tax resident in Norway as a
result of this, will be deemed taxable in Norway for any potential gain on the shares held at the time
the tax residency ceased, as if the shares were realised at this time(“the exit rules”). Gains of NOK 500
000 or less are not taxable. If the person moves to a jurisdiction within the EEA, losses on shares held
at the time tax residency ceases will be tax deductible. Taxation (loss deduction) will occur at the time
the shares are actually sold or otherwise disposed of. If the shares are not realised within five years
after the shareholder ceased to be resident in Norway for tax purposes, the tax liability calculated
under these provisions will not apply.
The Government has reintroduced the earlier five year rule, which implies that a Norwegian personal
shareholder who moves abroad and ceases to be tax resident is taxable in Norway for gains upon
realisation of shares in Norwegian companies if the shares are realised within five years after the
shareholder ceased to be resident in Norway for tax purposes. If both the exit rules and the
reintroduced five year rule are applicable, the exit rules shall prevail.
Such taxation may be limited according to an applicable tax treaty.
10.2.3 Net wealth tax
Foreign shareholders are not subject to net wealth tax in Norway on shares in Norwegian companies
unless the shareholder is an individual and the shareholding is effectively connected with business
activities carried out by the shareholder in Norway.
10.3 Transfer taxes etc. VAT
No transfer taxes, stamp duty or similar taxes are currently imposed in Norway on purchase, disposal
or redemption of shares. Further, there is no VAT on transfer of shares.
10.4 Inheritance tax
Upon transfer of shares by way of inheritance or gift, the transfer may be subject to Norwegian
inheritance or gift tax. The basis for computation is the market value of the shares on the time the
transfer takes place. However, such a transfer is not subject to Norwegian tax if the donor/deceased
was neither a citizen nor resident of Norway for tax purposes at the time of the transfer.
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11 LEGAL MATTERS
11.1 Certain regulatory issues with respect to the United States
No securities are being offered to US Persons (as defined in regulation S under the Securities Act
("Regulation S"). The Shares have not been and will not be registered under the Securities Act of
1993, or with any other regulatory authority of any state or other jurisdiction in the United States, and
may not be offered, sold, pledged or otherwise transferred except pursuant to an exemption from, or in
a transaction not subject to, the registration requirements of the Securities Act and in compliance with
any applicable state securities law.
The distribution of this Prospectus in certain jurisdictions may be restricted by law. Persons in
possession of this prospectus are required to inform themselves about and to observe such restrictions.
No shares or other securities are being offered or sold in any jurisdiction pursuant to this Prospectus.
11.2 Legal and arbitration proceedings
There has been no governmental, legal or arbitration proceedings (including such proceedings pending
or threatened) during the period of the last 12 months which may have, or have had in the recent,
significant effects on Comrod Communication ASA and its subsidiaries’ financial position or
profitability.
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12 DOCUMENTS ON DISPLAY
For the life of the Prospectus the following documents (or copies thereof), where applicable, may be
inspected at the offices of the Company at Fiskåvegen 1, 4120 Tau, Norway:
(a) the memorandum and articles of association of the Company;
(b) the Comrod AS’ financial statements (annual reports and interim reports) for 2003, 2004,
2005 till and including the 3 quarter of 2006
(c) The annual report for Comrod Communication ASA for 2006
(c) the Demerger Plan dated 29 September 2006
These documents may also be found en electronic form at the Company’s web site at
www.comrod.com or at www.hexagon.com.
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13 DEFINITIONS
Board:
Board or Board of Directors:
CHF:
Communication Business:
The board of directors of Comrod Communication ASA
The board of directors of Comrod
Swiss franc, the lawful currency of Switzerland
Comrod AS including all subsidiaries and assets owned by the company
Company: Comrod Communication ASA, org. no. 900 295 697
Completion Date:
Composite Business:
Comrod AS:
Comrod Companies:
Comrod:
Demerger:
Demerger Plan
EBIT:
EBITDA:
Effective Date:
EGM:
ERP:
EUR:
Fidulerc S.A.:
First Securities:
GBP:
GMDSS:
Hexagon Companies:
The date on which the Demerger will be consummated, expected to occur on or about
19 January 2007
Hexagon Composites excluding Comrod AS and its subsidiaries
Subsidiary of Hexagon Composites ASA to be transferred with all its assets from
Hexagon to Comrod Communication ASA in connection with the Demerger
described in this Prospectus.
Comrod Communications ASA and subsidiaries following the Demerger
Comrod Communication ASA
The proposed demerger of Comrod from Hexagon, to be effected as set out in the
Demerger Plan
The plan of demerger of Comrod, dated 29 September 2006, which governs the terms
of the demerger.
Earnings before interest and taxes.
Earnings before interest, taxes, depreciation and amortization.
1 January 2007; the date on which the Demerger shall take effect for tax and
financial statements purposes.
Extraordinary shareholders meeting
Enterprise Resource Planning, a common abbreviation for software systems for
finance and operations management
Euro, the lawful currency within most EU countries
French company with registration no. B 410 954 499, subsidiary of Comrod AS
First Securities ASA.
British pound sterling, the lawful currency of the UK
General Marine Distress system at sea
Hexagon Composites ASA and subsidiaries following the Demerger
Hexagon: Hexagon Composites ASA, org.no. 938 992 185
HF:
IFRS:
Integrator
Lerc or Lerc SA:
LOS:
Management:
Manager:
MEUR:
High Frequency
International Financing Reporting Standards
The Integrator is typical, a large engineering Company that has the turnkey
contracts/installations of a communication platform. They install, test and verify that
the system functions are as expected and according to ordered specifications.
Examples of this are General Dynamics and Thales Group.
Laboratoire d’Etudes et de Recherrches Chimiques (LERC) SA, company located in
France with registration no. B 542 087 044, subsidiary of Fidulerc S.A.
Line of Sight (wireless communication)
The management team of Comrod
First Securities ASA
Million Euro
103

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
MLV:
MNOK:
MOD:
NGAAP:
NOK:
Norwegian Register of Business
Enterprises:
Norwegian Securities Act:
OEM:
Oslo Stock Exchange:
Mast light weight
Million NOK
Ministry of Defence
Norwegian Generally Accepted Accounting Principles
Norwegian kroner, the lawful currency of Norway
Foretaksregisteret
The Securities Act of 19 June 1997 no 70 (in Norwegian: “Verdipapirhandelloven”).
Original Equipment Manufacturer
Oslo Børs ASA. The stock exchange located in Oslo, Norway.
Power operations The power supply unit acquired from Eltek Energy in 1Q 2006.
Prospectus:
R&D:
This document, prepared in connection with the Demerger and listing of Comrod,
including all appendixes hereto
Research and development
Securities Trading Act: The Norwegian Securities Trading Act of 19 June 1997
Share Capital:
Share(s):
the Comrod Business:
UHF/DECT:
UHF/GPS:
UHF/WLAN:
USD:
VHF/DECT:
VHF/GPS:
VHF/WLAN:
VPS:
The total amount of registered and outstanding Shares in Comrod at the date of this
Prospectus.
the shares in Comrod Communication ASA
Comrod Communications ASA and subsidiaries following the Demerger
Ultra high frequency combined with digital European cordless telephone
Ultra high frequency combined with global positioning system
Ultra high frequency combined with wireless local area network
United States Dollars, the lawful currency of the US
Very high frequency combined with digital European cordless telephone
Very high frequency combined with global positioning system
Very high frequency combined with wireless local area network
The Norwegian Securities Registry (in Norwegian: “Verdipapirsentralen”).
104

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
APPENDIX 1: ARTICLES OF ASSOCIATION
This is an office translation of the Articles of Association of Comrod Communication ASA. The
official language of this document is Norwegian. In the event of any discrepancy between the
Norwegian and English text, the Norwegian shall take precedence.
ARTICLES OF ASSOCIATION
OF
Comrod Communication ASA
(adopted 19 September 2006)
§ 1 Company
The name of the company is Comrod Communication ASA. The company is a public limited
liability company
§ 2 Registered office
The registered office is in Strand municipality.
§ 3 Object of the company
The company’s object is business related to production and sales of communication-products
made of fibreglass and other materials, and participation in companies within the same
business area, and any other business related to this.
§ 4 Share capital
The company’s share capital is NOK 1,000,000.- divided into 1,000,000 shares, each with a
par value of NOK 1. The company’s shares shall be registered in the Norwegian Central
Securities Depository (VPS).
§ 5 Share transferring rights
The shares of the company may be transferred without any restrictions.
§ 6 Board of Directors
The board of directors of the company shall consist of 3 to 8 members elected by the General
Meeting.
§ 7 Management
The company shall have a chief executive officer.
§ 8 Signature
Two directors of the board may jointly sign for and on behalf of the Company.
The board of directors may grant power of attorney
§ 9 The General Meeting
The General Meeting shall:
1) approve the annual accounts and the annual reports,
2) decide on allocation of profits or deficits, including the distribution of dividends
3) elect directors of the board
4) deal with any other business as required by and in accordance with the law
105

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
APPENDIX 2: ANNUAL REPORT FOR 2005 FOR COMROD AS
2005 – annual report
COMROD ANNUAL REPORT - 2005
Description of Business
Comrod AS operates from Tau in Rogaland, developing, manufacturing and marketing communications
equipment for defence, naval and commercial use, with a market that encompasses the whole world.
This annual report has been prepared on the basis of a going concern.
2005 was a year marked by a high level of activity and positive market development.
Sales income ended the year on NOK 109.6 million. Export sales accounted for 91% of turnover.
The Environment
1.1 Working Environment
No serious injury/damage to individuals or equipment was recorded.
Total sickness absence in 2005 was approx. 2.5%, which is considerably lower than the sector average.
During the year, the company invested in a number of environmental measures at its production premises.
The company practises a policy of gender equality with regard to salary and development opportunities. At
the end of the year, 23 of the 75 permanent employees were female.
1.2 External Environment
The company does not release any substances into the surrounding environment which require any kind of
permit. Waste is sent to approved disposal sites. The company is not aware of any conditions that might
concern emissions in previous periods. The company has been established at its present location since 1970.
There are no health hazards associated with the company’s products when they leave the company.
Energy consumption in 2005 was approx. 1,400,000 kWh of electrical power and 5,000 litres of oil.
Future Prospects
There continue to be high levels of activity in the defence market and the prospects for 2006 appear positive.
The company has a good backlog of orders for 2006. In maritime operations, sales to the company’s
traditional market, the merchant fleet, are stable. Comrod expects that ongoing and planned
expansion/improvement projects will give the company a sharper competitive edge.
Financial Status
Operating profit amounted to NOK 24,464,310, compared with NOK 26,875,315 in 2004. Profit before tax
was NOK 25,835,437, compared with NOK 25,015,578 in 2004.
The Board proposes that the profit for the year of NOK 18,539,494 be allocated as follows:
Group contribution NOK 18,263,520
Transferred to Other equity NOK 275,974
Share capital amounts to NOK 1,500,000. All shares are owned by Hexagon Composites ASA.
Equity at 31.12.05 is 11%.
No circumstances of significance to the 2005 annual report occurred during 2006.
Tau, 6 February 2006 / 31 December 2005
Erik Espeset Tore Johan Fjell Sigurd Håbakk
Chairman of the Board
Solfrid Abrahamsen
Niklas Hermansson
Managing Director
106

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod AS
Annual Accounts 2005
Comrod AS
Annual Accounts 2005
Profit and Loss Account
01.01 - 31.12
Note 2 005 2 004
Revenue 2 109 559 382 106 737 108
Other operating income 0 35 000
Total operating income 109 559 382 106 772 108
Changes in work in progress and finished goods 1 649 749 -658 000
Cost of materials 28 918 489 31 155 581
Payroll expenses 4,5 38 010 201 34 154 379
Depreciation of fixed assets 6 2 521 644 1 856 897
Other operating expenses 13 994 989 13 387 936
Operating profit 24 464 310 26 875 315
Interest received 136 253 134 734
Other financial income 2 981 972 1 211 688
Interest payable to group companies 1 051 415 793 831
Other interest expenses 235 203 348 529
Other financial expenses 460 480 2 063 799
Net financial items 1 371 127 -1 859 737
Profit before taxes 25 835 437 25 015 578
Tax on ordinary profit 10 7 295 943 6 949 185
Profit for the year 18 539 494 18 066 393
Profit for the year is distributed as follows:
Group contribution (net after tax) 18 263 520 18 083 808
Other equity 275 974 -17 415
Total distributed 18 539 494 18 066 393
107

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod AS
Annual Accounts 2005
Balance sheet
Note 31.12.2005 31.12.2004
Assets
Fixed assets
Intangible fixed assets
Deferred tax asset 10 718 888 531 064
Total intangible fixed assets 718 888 531 064
Tangible fixed assets
Land, buildings and other property 6 11 976 785 12 057 235
Plant and machinery 6 7 305 918 6 484 043
Fixtures and fittings 6 1 597 924 755 429
Total tangible fixed assets 20 880 627 19 296 707
Total fixed assets 21 599 515 19 827 771
Current assets
Inventories 3 16 200 165 17 446 914
Accounts receivable
Trade accounts receivable 36 200 394 16 455 093
Other receivables 4 445 049 2 699 329
Forward exchange contracts 2 462 231 0
Receivables group companies 9 15 821 899 10 313 848
Total accounts receivable 58 929 573 29 468 270
Cash and cash equivalents 1 677 885 1 525 444
Total current assets 76 807 623 48 440 628
Total assets 98 407 138 68 268 399
Comrod AS
Annual Accounts 2005
Balance sheet
Note 31.12.2005 31.12.2004
Equity and liabilities
Equity
Called up share capital
Share capital 11,12 1 500 000 1 500 000
Other paid-in equity 11 4 700 000 2 200 000
Total called up capital 6 200 000 3 700 000
Retained earnings
Reserve for valuation variances 11 1 091 629 0
Other equity 11 3 523 483 5 319 590
Total retained earnings 4 615 112 5 319 590
Total equity 10 815 112 9 019 590
Liabilities
Provisions
Pension liabilities 5 5 373 240 2 828 554
Total provisions 5 373 240 2 828 554
Other long-term liabilities
Other long-term liabilities 7 0 6 231 152
Total long-term liabilities 0 6 231 152
Current liabilities
Accounts payable 6 605 525 5 618 772
Social security, VAT and other taxation payable 3 192 862 2 886 637
Liabilities to group companies 9 60 841 332 34 938 583
Other current liabilities 11 579 067 6 745 111
Total current liabilities 82 218 786 50 189 103
Total liabilities 87 592 026 59 248 809
Total equity and liabilities 98 407 138 68 268 399
108

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod AS
Annual Accounts 2005
Cash flow statement 01.01 - 31.12
Note 2 005 2 004
Cash flow from operating activities
Profit before tax 25 835 437 25 015 578
Depreciation 2 521 644 1 856 897
Changes in inventories 1 246 749 -1 122 000
Changes in accounts receivables -19 745 301 -2 181 836
Changes in accounts payables 986 753 -6 885 348
Changes in pension plan assets /liabilities -424 544 398 539
Changes in other current balance sheet items 4 494 711 2 678 419
Changes in receivables group companies -4 971 302 -14 126 099
Net cash flow from operating activities 9 944 147 5 634 150
Cash flow from investing activities
Investments in tangible fixed assets -4 105 563 -4 189 286
Net cash flow from investing activities -4 105 563 -4 189 286
Cash flow from financing activities
Proceeds from- and repayment of long term debt -5 686 144 -1 092 159
Net cash flow from financing activities -5 686 144 -1 092 159
Net change in cash and cash equivalents 152 440 352 705
Cash and cash equivalents 01.01. 1 525 444 1 172 739
Cash and cash equivalents 31.12. 1 677 884 1 525 444
Comrod AS
Annual Accounts 2005
Notes
Note 1 Accounting principles
The financial statements are prepared in accordance with the Norwegian Accounting Act and Norwegian generally
accepted accounting principles
Sales revenue
Sales revenue is recognized at the time of delivery.
Balance sheet classification and valuation
Current assets and short term liabilities consist of receivables and payables due within one year, and entries related
to goods in circulation. Other entries are classified as fixed assets / long term liabilities.
Current assets are valued at the lower of acquisition cost and fair value. Short term liabilities are recognized at
nominal value.
Fixed assets are valued at acquisition cost, but in the case of impairment the asset will be written down to the
recoverable amount if this is lower than the recorded amount. Recoverable amount is the higher of value in use and
net realisable value. Long term liabilities are recognized at nominal value.
Intangible assets / government grants
Costs related to research and development costs are expensed as incurred. Government grants from SkatteFUNN
related to development costs are treated as a reduction in development costs.
Accounts receivable and other receivables
Accounts receivable and other current receivables are recorded in the balance sheet at nominal value less provisions
for doubtful debts. Provisions for doubtful debts are estimated using individual assessments of the different
receivables. In addition, for the remainder of the receivables, a general provision is estimated based on expected
loss.
Inventories
Inventories are valued at the lower of cost or market value. Cost is estimated using the FIFO method. Finished goods
and work in progress are valued at full production cost. Impairments are carried out in case of foreseeable
obsolescence.
Foreign currency translation
Foreign currency transactions are translated using the transaction date exchange rates. Balance sheet items are
translated using the year end exchange rates.
Property, plant and equipment
Property, plant and equipment is capitalized and depreciated over the estimated useful economic life if the assets
useful life is over 3 years and the cost price is over NOK 15.000,-. Maintenance costs are expensed as incurred,
whereas improvements and upgrading are added to the acquisition cost and depreciated with the asset.
Pensions
All the employees in the company are secured in a pension plan which is funded in an insurance company. Pension
costs and pension liabilities are estimated and recognised on a straight line basis considering final salary. Pension
funds are recognised at fair value and deducted from net pension liabilities in the balance sheet. This years pension
cost (gross pensions cost after deduction of estimated profit from pension assets) is included in payroll expenses.
The pension cost (gross) comprises of net value of the years earnings and interest of last years pension obligation.
Social security costs are included in the figures.
109

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod AS
Annual Accounts 2005
Notes
Note 1 Accounting principles continued
Financial instruments
In addition to traditional financial instruments as trade receivables, accounts payable and interest-bearing liabilities,
the company has entered into forward exchange contracts. Gains or losses from the forward exchange contracts
classified as hedging is accrued for and offset against the item which is hedged. Forward exchange contracts which
not meet the hedging criteria are measured at fair value and recognised in the balance sheet. Gains or losses is
recognised as financial income or financial expenses.
Income tax
The tax expense in the profit and loss account consists of both tax payable for the accounting period and changes in
deferred tax. Deferred tax is calculated as 28 percent of temporary differences between accounting profit and
taxable profit considering the tax effect of former operating losses. Temporary differences, both positive and
negative, are offset within the same period. Deferred tax assets are recorded in the balance sheet when it is more
likely than not that the tax assets will be utilized.
Change of accounting principles
a) Pensions
Until 2004 actuarial gains and losses (if they exceeded 10% of the highest of total pension assets or liabilities
(corridor)) were amortized over the remaining average period for accumulated actuarial gains or losses. From 2005
actuarial gains or losses is recognised directly in equity (net of tax). Accumulated actuarial gains from former
periods (net of tax) at a total of NOK 143 850 has reduced the equity in 2005.
Effective from 2005 pension obligations is treated in accordance with NRS 6 (correspond with IAS 19 "Employee
Benefits"). The effect of the transition NOK 2.241 418 (net of tax) is set of against equity.
b) Financial derivatives
Forward exchange contracts which did meet the hedging criteria were until 2004 not recognised until the transaction
was realised, while only unrealized losses on other foreign currency transactions were recognised. From 2005 also
unrealised gains on other exchange contracts is recognised. In 2005 gains (net of tax) of
NOK 946 080 were recognised in the income statement.
Forward exchange contracts which met the hedging criteria were until 2004 not recognised. From 2005 these
forward exchange contracts are measured at fair value and recognised in the balance sheet. Revaluations relating to
foreign currency transactions which meet the hedging criteria are recognised directly in equity until the object of the
hedge transaction is realised, or the hedging is evaluated not to be effective. The value of unrealised gains was NOK
5 781 265 (net of tax) at 31.12.2004
The figures from former years are not restated and are not directly comparable.
Comrod AS
Annual Accounts 2005
Note 2 Revenue
Amounts in NOK 1000
2 005 2004
By business area
Marine/civil 20 109 21 458
Defence 89 450 85 279
Total 109 559 106 737
Geographical distribution
Europe 69 574 88 983
America 14 113 10 619
Asia 5 895
Middle East 17 343
Other countries 2 634 7 135
Total 109 559 106 737
Revenue from other countries includes 34 countries all over the world.
Note 3 Inventories
2 005 2004
Raw materials 8 717 000 8 314 000
Work in progress 4 140 914 4 599 914
Finished goods 3 342 251 4 533 000
Total 16 200 165 17 446 914
Note 4 Salaries / Number of employees / Benefits
Payroll and related cost
2 005 2 004
Payroll 31 217 364 28 173 604
Social security costs 4 599 340 4 187 630
Pension costs 1 280 252 1 196 255
Other employee related costs 913 245 596 890
Payroll and related cost 38 010 201 34 154 379
Average number of employees: 74 74
Management remuneration Salary
Other
benefits
Managing Director 1 390 708 167 867
Board of Directors 30 000
In addition to salary paid to Managing Director in 2005, an accrual for earned bonus of NOK 500 000,- are made.
Included in salary to Managing Director for 2005, NOK 500 000,- is bonus earned in 2004.
Audit
Expensed audit fee for 2005 was NOK 131 650,-. In addition there has been other services of NOK 71 922,-.
VAT is not included.
110

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod AS
Annual Accounts 2005
Note 5 Pensions and pension liabilities
The company has a pension plan which covers a total of 74 persons. The scheme entitle its members to defined
future benefits. These benefits are primarily dependent upon the number of years of employment, the salary level
at the time of retirement and the size of defined benefit contributions from the government. The liabilities are
funded through an insurance company.
2005 2 004
Net present value of benefits earned during
the year (social security costs included) 1 078 954 962 014
Interest cost on pension liabilities 530 501 474 216
Actual return on plan assets -329 203 -302 613
Effect of changes in estimates 0 62 638
Net pension cost 1 280 252 1 196 255
2005 2 004
Accrued pension obligations 11 953 240 9 463 306
Pension plan assets (at market value) -6 580 000 -4 896 991
Net benefit obligations (social security costs included) 5 373 240 4 566 315
Unrecognised effects of actuarial gains/ losses -1 737 761
Net benefit obligations (social security costs included) 5 373 240 2 828 554
Economic assumptions:
Discount rate 4,50 % 6,00 %
Expected increase in salaries 2,75 % 3,50 %
Expected increase in pensions 2,75 % 3,00 %
Expected increase in basis for calculating government
contributions 2,75 % 3,00 %
Expected return on plan assets 5,50 % 7,00 %
The disposition to leave on AFP is estimated to: 40,00 % 40,00 %
Note 6 Tangible assets
Property, plant and equipment
Land Machinery
and
equipment
Fixtures and
fittings
Property
and plant
Total
Acquisition cost at 01.01.05 1 056 055 17 359 533 6 697 102 15 709 644 40 822 334
Purchased tangibles 0 2 297 247 1 126 602 681 715 4 105 564
Acquisition cost 31.12.05 1 056 055 19 656 780 7 823 704 16 391 359 44 927 898
Accumulated depreciation 01.01.05 0 10 875 490 5 941 673 4 708 464 21 525 627
Accumulated depreciation 31.12.05 0 12 350 862 6 225 780 5 470 629 24 047 271
Net carrying value at 31.12.05 1 056 055 7 305 918 1 597 924 10 920 731 20 880 628
Depreciation for the year 0 1 475 372 284 107 762 165 2 521 644
The useful economic life is estimated to be: 3 - 7 years 5 - 7 years 6 - 25 years
Depreciation plan Linear Linear Linear
Lease payments operating leases 91 291
Comrod AS
Annual Accounts 2005
Note 7 Liabilities due more than five years after the end of the fiscal year
2005 2 004
Other long-term liabilities 0 6 231 152
Note 8 Security and guarantees
Debt secured by collateral 2005 2 004
Short term liabilities to financial institutions 0 0
Other long-term liabilities 0 5 142 855
0 5 142 855
Book value of assets used as security for the company’s
and other group companies liabilities 53 198 714
The company takes part in Hexagon Composites credit facilities. According to this the company’s assets are used
as security for the company’s and the other group companies liabilities to the groups financial institution.
The terms established for the liabilities are based on the groups key ratios.
Note 9 Intercompany balances with group companies
All intercompany balances with group companies are specified in the balance sheet (receivables group companies
and liabilities to group companies).
Note 10 Income taxes
The tax expense consists of: 2005 2 004
Tax payable 7 102 480 7 032 592
Changes in deferred tax 193 463 -83 407
Total income tax expense 7 295 943 6 949 185
Reconciliation tax expenses against Profit before taxes
Total income tax expense 7 295 943 6 949 185
28% of Profit before taxes 7 233 922 7 004 362
Difference related to permanent differences 62 021 -55 177
2005 2 004
Current tax consists of:
Profit before taxes 25 835 437 25 015 578
Permanent differences 221 550 -197 032
Changes in temporary differences -690 941 297 883
Basis for current tax 25 366 046 25 116 429
Tax 28% 7 102 480 7 032 592
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COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod AS
Annual Accounts 2005
Current tax consists of:
2 005 2 004
Tax payable from this years profit 7 102 480 7 032 592
Tax payable on group contribution -7 102 480 -7 032 592
Tax payable in total 0 0
Specification of the basis for deferred taxes
Offsetting differences: 2 005 2 004
Fixed assets 2 236 556 2 872 650
Current assets -1 221 720 -886 650
Pension liabilities, ex actuarial gain/losses -5 464 580 -5 797 784
Other accruals -716 000 -1 110 000
Taxable gain/losses carried forward 44 717 55 896
Forward exchange contracts - Hedging 1 516 151 5 781 265
Other forward exchange contracts 946 080 0
Pension liabilities, accumulated actuarial gain/losses 91 350 -143 850
Total -2 567 446 771 527
Deferred tax / deferred tax asset 28% -718 886 216 027
Deferred tax last year of NOK 216 027 differs compared with deferred tax asset in the Balance sheets figures.
Se note above regarding change of accounting principles.
Note 11 Equity
Share
capital
Other paidin
equity
Reserve for
valuation
variances
Other equity Total
Equity 31.12.2004 1 500 000 2 200 000 5 319 590 9 019 590
Change of accounting principles financial
instruments 01.01.05 (net of tax) 4 162 511 4 162 511
Change of accounting principles
pensions 01.01.05 (net of tax) -2 241 418 -2 241 418
Change in actuarial gain/losses -
this year (net of tax) 169 337 169 337
Change in financial instruments (net of tax) -3 070 882 -3 070 882
Group contribution received 2 500 000
This years profit 18 539 494 18 539 494
Group contribution (net of tax) -18 263 520 -18 263 520
Equity 31.12.2005 1 500 000 4 700 000 1 091 629 3 523 483 10 815 112
Comrod AS
Annual Accounts 2005
Note 12 Equity and shareholder information
The share capital in Comrod AS as at 31.12.2005 consists of the following classes of shares:
Number of
shares Nominal value Book value
Class A shares 1500 1000 1 500 000
Shareholders:
Class A-shares Proportion of
shares
Proportion of
votes
Hexagon Composites ASA 1500 100,00 % 100 %
Tau 31. desember 2005
6. februar 2006
The Board of Comrod AS
Tore Johan Fjell Erik Espeset Sigurd Håbakk
Chairman of the Board
(sign.) (sign.) (sign.)
Solfrid Abrahamsen Niklas Hermansson
Managing Director
(sign.) (sign.)
112

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
113

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
APPENDIX 3: 3 RD QUARTER REPORT FOR 2006 FOR COMROD AS
INTERIM REPORT 3rd QUARTER 2006 – COMROD AS GROUP
Introduction
This interim report has been compiled according to the accounting policies applied by the
Hexagon Group in its annual report for 2005 and according to IAS 34, Interim Financial
Reporting. On 15 September 2006 Lerc S.A. was formally taken over by Hexagon’s subsidiary
Comrod AS. The figures from Lerc have been incorporated with effect from medio September, a
delay of two months with regard to what was communicated in the previous interim report for the
Hexagon Group.
Comrod achieved a satisfactory turnover, but continued to report a lower profit than usual, due to
the postponement of deliveries to the defence market and a product mix shift towards products
with lower margins in the commercial market.
Turnover and market
The companies achieved a turnover of NOK 34.7 (28.5) million in the 3rd quarter. The
improvement is primarily due to increased activity in the commercial maritime segment. Comrod
is seeing high order levels in the market for defence communication. Some of these orders are
to be delivered in the fourth quarter, but the lion’s share in 2007 and 2008. The company will
have lower turnover in the antennas and defence markets this year compared with the two
previous years. Power is expected to achieve a turnover in the 4th quarter as assumed when it
was acquired. Lerc’s 3rd quarter turnover is as expected. For the 4th quarter a high turnover is
expected owing to normal seasonal fluctuations. Lerc’s order levels are good.
Production and margins
This year Comrod has seen growth in civilian products, which have somewhat lower margins.
Comrod has also experienced increased costs associated with the implementation of a new ERP
system. It is expected that the profit margin for 2006 will be somewhat lower than in 2005, but
that the margin will improve substantially in the fourth quarter, when some substantial defence
orders will be delivered. Lerc’s margins are somewhat lower than Comrod’s, owing to a different
product mix. Satisfactory margins for Lerc are expected in the 4th quarter.
Costs and profit
The group reported an operating profit of NOK 4,1 (7.5) million in the 3rd quarter. A good
operating profit is expected for the fourth quarter, and the business area as a whole will achieve
a result for all of 2006 that is on par with 2005. “
Demerger
The Board of Comrod has recommended a demerger of the Comrod Group from Hexagon. An
application to list the new company with effect from the demerger date is in preparation. The
intention of the Hexagon Group is to retain an approximately 25 % stake through the conversion
of intra-group balances to shares. Comrod’s listing is expected to take effect in the 1st quarter of
2007. Alternatives to demerging Comrod will be considered if the Board finds that this can
increase total shareholder value.
Tau, 21 st December 2006
Board of Directors ”
114

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod AS - Income Statement 3. Quarter 2006
(All figures in NOK 1.000)
PROFIT AND LOSS ACCOUNT 30.09.2006 3Q 2006 30.09.2005 3Q 2005 31.12.2005
Operating revenues 83 676 34 716 77 523 28 502 109 559
Cost of materials incl. changes in WIP 27 545 13 055 21 528 8 686 30 568
Payroll and social security expenses 31 200 10 078 27 374 8 717 38 132
Other operating expenses 12 611 5 695 9 493 2 979 13 995
Operating profit before depreciation (EBITDA) 12 320 5 888 19 128 8 120 26 864
Depreciation 3 856 1 784 1 950 650 2 522
Operating profit (EBIT) 8 464 4 104 17 178 7 470 24 342
Net financial items -4 389 -2 472 -1 210 -437 1 372
Profit/loss before tax 4 075 1 631 15 968 7 033 25 714
Taxes -1 349 -633 -4 491 -1 977 -7 296
Profit/loss after tax 2 726 998 11 476 5 056 18 418
BALANCE SHEET
Intangible assets 64 451 0 0
Tangible fixed assets 57 686 19 496 20 881
Inventories 46 536 19 316 16 200
Receivables Hexagon-Group 32 521 10 974 13 322
Other receivables 46 092 29 498 43 107
Bank deposits and cash 1 797 1 101 1 678
Total assets 249 083 80 385 95 188
Paid-in capital 6 496 6 300 6 350
Other equity 5 659 15 599 20 229
Provisions 10 615 10 420 11 756
Interest-bearing long-term liabilities 1 920 1 820 0
Interest-bearing liabilities Hexagon-Group 180 041 35 311 35 475
Interest-bearing short-term liabilities 3 879 547 545
Other current liabilities 40 473 10 388 20 833
Total liabilities and equity 249 083 80 385 95 188
CASH FLOW STATEMENT
Profit before tax 4 075 15 968 25 714
Depreciation/amortisation 3 856 1 950 2 522
Change in net working capital -4 020 -12 328 -18 291
Net cash flow from operating activities 3 911 5 590 9 945
Net cash flow from investing activities -122 526 -2 150 -4 106
Net cash flow from financing activities 117 370 -3 864 -5 686
Net change in cash and cash equivalents -1 245 -424 153
Cash and cash equivalents at start of period 1 678 1 525 1 525
Cash from acquisition 1 364 0 0
Cash and cash equivalents at end of period 1 797 1 101 1 678
EQUITY RECONCILIATION
Equity at start of period 26 579 29 024 29 024
Profit/loss in period 2 726 11 476 18 418
Forward exchange contracts -965 -590 -3 071
Share based payment / Actuarial gain and losses -942 72 291
Exchange rate difference 521 0 0
Approved/received group contributions from last year -15 764 -18 084 -18 084
Equity at end of period 12 155 21 899 26 579
KEY FIGURES
Equity ratio 4,9 % 27,2 % 27,9 %
Liquidity ratio I 1,82 1,32 1,31
Return on equity (annualised) 18,8 % 60,1 % 66,2 %
Total return (annualised) 5,9 % 29,2 % 32,0 %
Earnings per share 1,82 7,65 12,28
Diluted earnings per share 1,82 7,65 12,28
Cash flow from operations per share 2,61 3,73 6,63
Equity per share 8,10 14,60 17,72
Net interest-bearing liabilities 185 840 37 678 36 020
Information on Business Areas: 30.09.2006 3Q 2006 30.09.2005 3Q 2005 31.12.2005
Comrod Antennas:
Operating income 64 435 20 951 77 523 28 502 109 559
Operating profit before depreciation (EBITDA) 9 995 4 373 19 128 8 120 26 864
Operating profit (EBIT) 7 709 3 595 17 178 7 470 24 342
Comrod Power supplies:
Operating income 8 847 3 371
Operating profit before depreciation (EBITDA) 1 574 652
Operating profit (EBIT) 576 217
Lerc Masts and Industrial products :
Operating income 10 394 10 394
Operating profit before depreciation (EBITDA) 751 864
Operating profit (EBIT) 179 292
Comrod AS Group - Notes to the interim financial statements 3. Quarter 2006
Note 1 Reporting entity
Comrod AS is a company domiciled in Norway. The interim financial statements for the third quarter 2006 ended
30. September comprise Comrod AS and its subsidiaries (together referred to as the “Group”.)
Note 2 Significant accounting principles and statement of compliance
Comrod AS Group has not published any audited stand-alone financial statements prepared in accordance with
International Financial Reporting Standards. As part of the Hexagon Composites Group, International Financial
Reporting Standards has been applied in the preparation of Hexagon Composites consolidated financial
statements for 2005.
The accounting policies applied by Comrod AS Group in these interim financial statements are the same as those applied by
Hexagon Composites ASA Group for the year ended 31 December 2005 and that will be applied in the annual group financial
statements for 2006.
These interim financial statements have been prepared in accordance with international Financial Reporting Standards
(IFRS) IAS 34 Interim Financial Reporting. These statements do not include all of the information required for full annual
financial statements, and should be read in conjunction with the consolidated financial statements of
Hexagon Composites ASA Group for the year ended 31 December 2005 and section 7.1 in the Prospectus.
Note 3 Estimates
The preparation of interim financial statements requires management to make judgments, estimates and assumptions that
affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
The significant judgments made by management in preparing these interim financial statements in applying the Group’s
accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated
financial statements of Hexagon Composites ASA Group for the year ended 31 December 2005 and
section 7.1 in the Prospectus.
Note 4 Business Combinations
(All figures in 1.000)
Acquisition of Fidulerc SA with the wholly-owned subsidiary Lerc SA.
As of 29 June 2006 Comrod AS made an agreement with ECI Composites Inc to buy 100% of the shares
in Fidulerc SA. Total purchase price including direct costs relating to the acquisition amount to EUR 11 589.
Comrod AS was approved by the French authorities as the new owner of Fidulerc SA in the middle of September 2006.
Consolidation and allocation of surplus value have been taken into the accounts from the same time.
Details of net assets acquired and goodwill are as follows:
Purchase consideration:
Cash paid 92 421
Direct costs relating to the acquisition 1212
Total consideration, cash only 93 633
The assets and liabilities arising from the acquisition are as
follows:
Fidulerc 15.09.06
Fair value
adjustments
Recognised
values
Goodwill 29 230 29 230
Customer relationship 11 507 11 507
Tangible assets 24 337 10 800 35 137
Inventories 25 757 25 757
Receivables 24 151 24 151
Bank deposits and cash 701 701
Total assets acquierd 74 946 51 537 126 483
Non-current liabilities 4 001 4 001
Deferred tax (2 239) 3 596 1 358
Current liabilities 27 491 27 491
Net assets acquired 45 692 47 941 93 633
The figures above are not finalized and may be changed in subsequent periods.
115

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod AS Group - Notes to the interim financial statements 3. Quarter 2006
Note 4 continued
Pro forma income statement as if the acquisition had taken place 01.01.2006:
Pro forma
Income statement 30.09.2006
Operating revenue 137 812
Cost of materials incl. changes in WIP 46 590
Payroll and social security expenses 40 010
Other operating expenses 34 342
Operating profit before depreciation (EBITDA) 16 869
Depreciation 7 991
Operating profit (EBIT) 8 878
Net financial items -8 946
Profit/loss before tax -68
Taxes -491
Profit/loss after tax -558
Acquisition of Power Division (1. Quarter 2006).
On 28. February 2006, Comrod AS entered into an agreement to purchase from Eltek Energy ASA their department
of telecom power supplies for the defence market. The purchase price was NOK 25 million.
The date of transfer was 1. March 2006.
Details of net assets acquired and goodwill are as follows:
Purchase consideration:
Total consideration, cash only 25 000
The assets and liabilities arising from the acquisition are as
follows:
Recognized values
Goodwill 9 000
Other Intangible assets 15 000
Tangible assets 489
Inventories 511
Total assets acquired 25 000
Liabilities 0
Net assets acquired 25 000
The figures above are not finalized and may be changed in subsequent periods.
It is not possible to give reliable information of revenue and profit and loss for the combined entity as if the acquisition of the
Power Division was made 1. January 2006. This is due to the fact that Comrod AS purchased only a division of Eltek
Energy ASA which did not have separate reliable financial information for this division’s separate revenues,costs and profit and loss.
Comrod AS Group - Notes to the interim financial statements 3. Quarter 2006
Note 5 Transition from NGAAP to IFRS
Introduction
This interim report is prepared in accordance with IAS 34 and is the company´s first IFRS report. The accounting
principles refered in note 2 has been applied in the preparation of the consolidated financial statements as of 30
September 2006, the restatement of the figures for 2004, 2005 and 2006 and the calculation of IFRS opening
balances at 1 January 2004, which is the Group’s date of transition from NGAAP to IFRS.
Preparation of IFRS opening balances has involved some adjustments to previous accounting figures prepared under
NGAAP. The effect of the transition from NGAAP to IFRS on the Group’s financial statements is detailed below.
Transition from NGAAP to IFRS
IFRS 1, First-time adoption of International Financial Reporting Standards has been adopted in preparing Comrod AS
Group´s opening balance sheet at 1 January 2004. For Comrod AS Group the most important effects of the transition
are described below. Please refer to corresponding notes below.
1. Pensions
All accumulated, unrecognised actuarial gains/losses relating to retirement benefit obligation at 1 January 2004 have
been recognised as an equity adjustment. Changed assumptions for calculation of future pension costs under IFRS
involve an increase in the calculated pension expense for 2004.
2. Financial derivatives
Under NGAAP, foreign currency instruments (forwards) which met the hedging criteria were not recognised, while only
unrealised losses on other foreign currency transactions were recognised. Under IFRS, all foreign currency
transactions are measured at fair value and recognised in the balance sheet. Fair value changes relating to foreign
currency transactions which meet the hedging criteria are recognised directly in equity until the object of the hedge
transaction is realised, or the hedging is evaluated not to be effective. Both IAS 32 and IAS 39 have been
implemented with effect from 1 January 2004.
3. Reclassification of long-term debt
Under IFRS the first year instalment of long-term debt is classified as short-term debt.
4. Dividends and Group Contributions
Dividends and Group Contributions are under IFRS not recognised until the entity has an obligation to pay the
dividend or group contribution, which generally is not until these are approved by the General Assembly. Under
NGAAP dividends and group contributions were provided for at the balance sheet date in the year prior to the
approval of the general assembly.
5. Deferred tax
Deferred tax assets and liabilities will be affected by the transition to IFRS due to changes in other balance sheet
values as described in this report.
6. Amortization of goodwill
Amortization of goodwill is not permitted under IFRS. Instead, goodwill is subject to impairment review, both annually
and when there are indications that the carrying value may not be recoverable.
There has been no goodwill recognised in Comrod AS Group financial statements until the acquisitions performed in
2006, consequently this difference will appear in the 2006 financial statements, only.
7. Gains on sale of property, plant & equipment
Under IFRS, gains on sale of property, plant and equipment is classified as a cost reduction.
8. Share-based payment transactions
Under NGAAP Share-based payment transactions has not, until the year 2005, been recognised in the Income
Statement. In accordance with IFRS 2, the fair value of all options granted after 7.11.02 is recognised over the vesting
period. The fair value per option is calculated using an option pricing model (Black & Scholes). Costs are recognised
in profit and loss as payroll expenses together with a corresponding increase in other paid-in capital.
116

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod AS - Notes to the interim financial statements 3. Quarter 2006
Note 5 Transition from NGAAP to IFRS continued
Balance sheet 1 January 2004, transition from NGAAP to IFRS
(in NOK 1000)
31.12.2003 01.01.2004 01.01.2004
Notes NGAAP IFRS adj. IFRS
ASSETS
Deferred tax asset 5 448 -447 0
Goodwill and other intagibles 0 0 0
Total intangible assets 448 -447 0
Total tangible assets 16 964 0 16 964
Total non current assets 17 412 -447 16 964
Inventories 16 325 0 16 325
Accounts receivable 14 273 0 14 273
Forward exchange contracts 2 0 5 340 5 340
Receivable group company 11 328 0 11 328
Other receivables 3 332 0 3 332
Bank deposits and cash 1 173 0 1 173
Total current assets 46 431 5 340 51 771
Total assets 63 843 4 893 68 736
EQUITY AND LIABILITIES
Paid in capital 3 700 0 3 700
Other equity 1, 2, 4, 5 5 337 8 878 14 215
Total equity 9 037 8 878 17 915
Non-current liabilities
Pension obligations 1 2 430 2 832 5 262
Deferred tax 5 0 255 255
Other long-term debt 3 7 323 -1 147 6 176
Total non-current liabilities 9 753 1 940 11 693
Liabilities to financial 3 0 1 147 1 147
Accounts payable 12 504 0 12 504
Public duties payable 2 344 0 2 344
Current liabilities to group 4 24 963 -7 072 17 891
Other current liabilities 5 242 0 5 242
Total current liabilities 45 053 -5 925 39 128
Total liabilities 54 806 -3 985 50 821
Total equity and liabilities 63 843 4 893 68 736
Balance sheet, NGAAP versus IFRS
(in NOK 1000) 31.12.2004 31.12.2004 31.12.2004
Notes NGAAP IFRS adj. IFRS
ASSETS
Deferred tax asset 5 531 -531 0
Goodwill and other intagibles 0 0 0
Total intangible assets 531 -531 0
Total tangible assets 19 296 0 19 296
Total non current assets 19 827 -531 19 296
Inventories 17447 0 17 447
Accounts receivable 16455 0 16 455
Forward exchange contracts 2 0 5 781 5 781
Receivable group company 10314 0 10 314
Other receivables 2699 0 2 699
Bank deposits and cash 1525 0 1 525
Total current assets 48 441 5 781 54 222
Total assets 68 268 5 250 73 518
Comrod AS - Notes to the interim financial statements 3. Quarter 2006
Note 5 Transition from NGAAP to IFRS continued
(in NOK 1000)
31.12.2004 31.12.2004 31.12.2004
Notes NGAAP IFRS adj. IFRS
EQUITY AND LIABILITIES
Paid in capital 3 700 0 3 700
Other equity 1, 2, 4, 5 5 319 20 005 25 324
Total equity 9 019 20 005 29 024
Pension obligations 1 2 829 3 113 5 942
Deferred tax 5 7 249 7 249
Other long-term debt 3 6 231 -1 147 5 084
Total non-current liabilities 9 060 9 214 18 274
Liabilities to financial institutions 3 1 147 1 147
Accounts payable 5 619 0 5 619
Public duties payable 2 887 0 2 887
Current liabilities to group companies 4 34 939 -25 116 9 823
Other current liabilities 6 745 0 6 745
Total current liabilities 50 189 -23 969 26 220
Total liabilities 59 249 -14 755 44 494
Total equity and liabilities 68 268 5 250 73 518
(in NOK 1000) 30.09.2005 30.09.2005 30.09.2005
Notes NGAAP IFRS adj. IFRS
ASSETS
Deferred tax asset 5 -4 368 4 368 0
Goodwill and other intagibles 0 0 0
Total intangible assets -4 368 4 368 0
Total tangible assets 19 496 0 19 496
Total non current assets 15 128 4 368 19 496
Inventories 19316 0 19 316
Accounts receivable 24141 0 24 141
Forward exchange contracts 2 0 3505 3 505
Receivable group company 10974 0 10 974
Other receivables 1852 0 1 852
Bank deposits and cash 1101 0 1 101
Total current assets 57 384 3 505 60 889
Total assets 72 512 7 873 80 385
EQUITY AND LIABILITIES
Paid in capital 3 700 0 3 700
Other equity 17 917 282 18 199
Total equity 21 617 282 21 899
Pension obligations 1 2 829 3 113 5 942
Deferred tax 5 4 478 4 478
Other long-term debt 1 820 0 1 820
Total non-current liabilities 4 649 7 591 12 240
Liabilities to financial institutions 3 547 547
Accounts payable 4171 0 4 171
Public duties payable 2128 0 2 128
Current liabilities to group companies 35311 0 35 311
Other current liabilities 3 4636 -547 4 089
Total current liabilities 46 246 0 46 246
Total liabilities 50 895 7 591 58 486
Total equity and liabilities 72 512 7 873 80 385
117

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod AS - Notes to the interim financial statements 3. Quarter 2006
Note 5 Transition from NGAAP to IFRS continued
(in NOK 1000)
31.12.2005 31.12.2005 31.12.2005
Notes NGAAP IFRS adj. IFRS
ASSETS
Deferred tax asset 5 719 -719 0
Goodwill and other intagibles 0 0 0
Total intangible assets 719 -719 0
Total tangible assets 20 881 0 20 881
Total non current assets 21 600 -719 20 881
Inventories 16 200 0 16 200
Accounts receivable 36 200 0 36 200
Forward exchange contracts 2 462 0 2 462
Receivable group company 4 15 822 -2 500 13 322
Other receivables 4 445 0 4 445
Bank deposits and cash 1 678 0 1 678
Total current assets 76 807 -2 500 74 307
Total assets 98 407 -3 219 95 188
EQUITY AND LIABILITIES
Paid in capital 4 7 292 -2 500 4 792
Other equity 4 3 523 18 264 21 787
Total equity 10 815 15 764 26 579
Non-current liabilities
Pension obligations 5 373 0 5 373
Deferred tax 5 6 383 6 383
Total non-current liabilities 5 373 6 383 11 756
Liabilities to financial 3 545 545
Accounts payable 6 606 0 6 606
Public duties payable 3 193 0 3 193
Current liabilities to group 4 60 841 -25 366 35 475
Other current liabilities 3 11 579 -545 11 034
Total current liabilities 82 219 -25 366 56 853
Total liabilities 87 592 -18 983 68 609
Total equity and liabilities 98 407 -3 219 95 188
(in NOK 1000) 30.09.2006 30.09.2006 30.09.2006
NGAAP IFRS adj. IFRS
ASSETS
Deferred tax asset 0 0 0
Goodwill and other intagibles 6 63 926 525 64 451
Total intangible assets 63 926 525 64 451
Total tangible assets 57 686 0 57 686
Total non current assets 121 612 525 122 137
Inventories 46 536 0 46 536
Accounts receivable 43 031 0 43 031
Forward exchange contracts 380 0 380
Receivable group company 32 522 0 32 522
Other receivables 2 680 0 2 680
Bank deposits and cash 1 796 0 1 796
Total current assets 126 946 0 126 946
Total assets 248 558 525 249 083
Comrod AS - Notes to the interim financial statements 3. Quarter 2006
Note 5 Transition from NGAAP to IFRS continued
(in NOK 1000)
30.09.2006 30.09.2006 30.09.2006
Notes NGAAP IFRS adj. IFRS
EQUITY AND LIABILITIES
Paid in capital 6 200 0 6 200
Other equity 5,6 5 577 378 5 956
Total equity 11 777 378 12 155
Pension obligations 9 936 0 9 936
Deferred tax 5 532 147 679
Other long-term debt 156 595 0 156 595
Total non-current liabilities 167 063 147 167 210
Liabilities to financial institutions 3 879 0 3 879
Accounts payable 15 965 0 15 965
Public duties payable 5 782 0 5 782
Current liabilities to group companies 25 366 0 25 366
Other current liabilities 18 725 0 18 725
Total current liabilities 69 717 0 69 717
Total liabilities 236 781 147 236 927
Total equity and liabilities 248 558 525 249 083
Income statement, NGAAP versus IFRS
(in NOK 1000)
2004
01.01-31.12
2004
01.01-31.12
2004
01.01-31.12
Notes NGAAP IFRS adj. IFRS
Operating revenues 7 106 772 -35 106 737
Change in Work In Progress -658 0 -658
Cost of materials 31 156 0 31 156
Payroll and social security expenses 1,8 34 154 165 34 319
Depreciation 1 857 0 1 857
Other operating expenses 7 13 388 -35 13 353
Total operating expenses 79 897 130 80 027
Operating profit/loss 26 875 -165 26 710
Interest received 135 0 135
Other financial income 2 1 212 161 1 373
Other interest paid -1 143 0 -1 143
Other financial expenses -2 064 0 -2 064
Net financial income/expenses -1 860 161 -1 699
Profit before tax 25 015 -4 25 011
Taxes 5 6 949 7 6 956
Profit for the year 18 066 -11 18 055
118

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod AS - Notes to the interim financial statements 3. Quarter 2006
Note 5 Transition from NGAAP to IFRS continued
(in NOK 1000)
2005
01.01-30.09
2005
01.01-30.09
2005
01.01-30.09
Notes NGAAP IFRS adj. IFRS
Operating revenues 77 523 0 77 523
Change in Work In Progress -785 0 -785
Cost of materials 22 313 0 22 313
Payroll and social security expenses 8 27 302 72 27 374
Depreciation 1 950 0 1 950
Other operating expenses 9 493 0 9 493
Total operating expenses 60 273 72 60 345
Operating profit/loss 17 250 -72 17 178
Interest received 2 0 2
Other financial income 2 1 594 -1 456 138
Other interest paid -861 0 -861
Other financial expenses -489 0 -489
Net financial income/expenses 246 -1 456 -1 210
Profit before tax 17 496 -1 529 15 967
Taxes 5 4 899 -408 4 491
Profit for the year 12 597 -1 121 11 476
(in NOK 1000)
2005
01.01-31.12
2005
01.01-31.12
2005
01.01-31.12
Notes NGAAP IFRS adj. IFRS
Operating revenues 109 559 0 109 559
Change in Work In Progress 1 650 1 650
Cost of materials 28 918 0 28 918
Payroll and social security expenses 8 38 010 122 38 132
Depreciation 2 522 0 2 522
Other operating expenses 13 995 0 13 995
Total operating expenses 85 095 122 85 217
Operating profit/loss 24 464 -122 24 342
Interest received 136 0 136
Other financial income 2 982 0 2 982
Other interest paid -1286 0 -1 286
Other financial expenses -460 0 -460
Net financial income/expenses 1 372 0 1 372
Profit before tax 25 836 -122 25 714
Taxes 7296 0 7 296
Profit for the year 18 540 -122 18 418
Comrod AS - Notes to the interim financial statements 3. Quarter 2006
Note 5 Transition from NGAAP to IFRS continued
(in NOK 1000)
2006
01.01-30.09
2006
01.01-30.09
2006
01.01-30.09
Notes NGAAP IFRS adj. IFRS
Operating revenues 83 676 0 83 676
Change in Work In Progress -1 309 0 -1 309
Cost of materials 28 854 0 28 854
Payroll and social security expenses 31 200 0 31 200
Depreciation 6 4 381 -525 3 856
Other operating expenses 12 611 0 12 611
Total operating expenses 75 737 -525 75 212
Operating profit/loss 7 939 525 8 464
Interest received 223 0 223
Other financial income 1 1
Other interest paid -3 578 0 -3 578
Other financial expenses -1 035 0 -1 035
Net financial income/expenses -4 389 0 -4 389
Profit before tax 3 550 525 4 075
Taxes 5 1 202 147 1 349
Profit for the year 2 348 378 2 726
Equity, NGAAP versus IFRS
(in NOK 1 000) NGAAP IFRS
Equity at 31.12.03 NGAAP 9 037 9 037
Effects on transition from NGAAP to IFRS on other equity:
Forward exchange contracts 3 845
Increase in pension liability -2 039
Reversed provision for group contribution 31.12.2003 7 072
Equity at 01.01.04 9 037 17 915
Effects on transition from NGAAP to IFRS :
Profit 2004 according to NGAAP/IFRS 18 066 18 055
Provision for group contribution 31.12.2004 -18 084
Approved group contribution 31.12.2003 -7 072
Actuarial gains and losses -104
Share based payment 28
Forward exchange contracts 202
Equity at 31.12.04 9 019 29 024
Profit 2005 according to NGAAP/IFRS 18 540 18 418
Change of accounting principles 1.1.2005 1 921
Provision for group contribution 31.12.2004 -18 264
Received group contribtion 31.12.2004 2 500
Share based payment 122
Actuarial gains and losses 169 169
Forward exchange contracts -3 071 -3 071
Approved group contribution 31.12.2004 -18 084
Equity at 31.12.05 10 815 26 579
Profit as of 30.09.06 according to NGAAP/IFRS 2 348 2 726
Forward exchange contracts -965 -965
Share based payment 146 146
Actuarial gains and losses -1 088 -1 088
Exchange rate difference 1 802 1 802
Exchange rate difference Net investment -1 281 -1 281
Approved group contribution 31.12.2005 -18 264
Received group contribtion 31.12.2005 2 500
Equity at 30.09.06 11 777 12 155
119

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
APPENDIX 4: AUDITOR STATEMENT REGARDING LIMITED REVIEW
OF THE FINANCIAL STATEMENTS FOR THE 3RD QUARTER OF 2006
120

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
APPENDIX 5: AUDITOR REPORT REGARDING THE PRO FORMA
FINANCIAL INFORMATION
121

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
APPENDIX 6: FINANCIAL STATEMENTS 2006 FOR COMROD
COMMUNICATION ASA INCLUDING AUDITOR STATEMENT
Comrod Communication ASA
Financial Statements 2006
Comrod Communication ASA
Income Statement for the period 19 September to 31 December
(NOK)
Note 2006
Operating income
Sales revenue 0
Total operating income 0
Operating expenses
Other operating expenses 6,10 0
Total operating expenses 0
Operating profit/loss 0
Finance income and expense
Interest income 526
Net financial items 526
Profit/loss before tax 526
Tax expense 4 147
Profit/loss for the year 379
Earnings per share 5 0,00
122

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod Communication ASA
Cash flow statement
(NOK)
Note 2006
Cash flow from operating activities
Profit before tax (interest income) 526
Net cash flow from operating activities 526
Cash flow from investing activities
Investing activities 0
Net cash flow from investing activities 0
Cash flow from financing activities
New share capital 8,9 1 000 000
Net cash flow from financing activities 1 000 000
Net change in cash & cash equivalents 1 000 526
Cash & cash equivalents at beginning of period 0
Cash & cash equivalents at end of period 7 1 000 526
Restricted funds included in cash & cash equivalents 7 0
Statement of changes in equity
Recognised income and expense
(NOK ) 2 006
Net Profit/lossrecognised directly in equity 0
Net profit/loss recognised directly in equity 0
New share capital 19.09.2006 8,9 1 000 000
Profit/loss for the period 379
Total changes in equity for the period 1 000 379
123

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod Communication ASA
Financial Statements 2006
NOTE 1 GENERAL INFORMATION
Comrod Communication ASA is a public limited company with its registered office in Norway. The
company’s head office is at Fiskåvegen 1, 4120 Tau, Norway.
The board of directors authorised the financial statements for publication on 11. January 2007.
Comrod Communication ASA was incorporated as a wholly owned subsidiary of Hexagon Composites ASA
on 19 September 2006 for the purpose of acting as the transferee company in a Demerger of the
Communication Business of Hexagon Composites ASA. Comrod Communication ASA has not had, and will
not have, any operational activity prior to the Completion Date of the Demerger. The expected date for final
approval of the Demerger is 17 January 2007. Also see note 11.
NOTE 2 ACCOUNTING PRINCIPLES
Basis for preparation
The following financial statements for Comrod Communication ASA are prepared in accordance with the
international reporting standards published by the International Accounting Standards Board, as adopted
by the European Union (EU). Since the company was incorporated in 2006 there are no comparative
figures for 2005.The measurement basis used is historical cost.
Accounting principles and disclosure requirements deriving from the following standards are not adopted
as per 31 December 2006:
- Amendment to IAS 1 “Presentation of Financial Statements”. The amendment is effective for the
period beginning on or after 1 January 2007.
- IFRS 7 “Financial instruments: disclosures”. The standard is effective for the period beginning on or
after 1 January 2007.
Functional currency and presentation currency
The company presents its financial statements in NOK. Functional currency for the company is NOK.
Cash & cash equivalents
Cash includes bank and cash balances. The Cash-Flow statement is prepared using the indirect method.
Provisions
A provision is recognised when, and only when, the company has a present obligation (legal or
constructive) as a result of a past event and it is probable (more likely than not) that an outflow of
resources embodying economic benefits will be required to settle the obligation, and a reliable estimate
can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and
adjusted to reflect the current best estimate. If the effect of the time value of money is immaterial, the
amount of the provision will be equal to the expenditures required to be free of the obligation. If the effect
of the time value of money is material, the amount of the provision will be the present value of the
expenditures required to settle the obligation. Any increase in the provisions due to time is presented as
interest costs.
Equity
Equity and liabilities
Financial instruments are classified as liabilities or equity in accordance with the underlying financial
reality.
Comrod Communication ASA
Financial Statements 2006
Costs arising from equity transactions
Transaction costs directly linked to an equity transaction are recognised directly in equity after a deduction
for tax.
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the company
and the revenue can be measured reliably.
Interest income is recognised as interest accrues.
Income taxes
Tax expense comprises current tax expense and deferred tax expense. Deferred tax liabilities are
recognised for all accounting and taxable temporary differences.
Deferred tax assets are recognised when it is probable that the company will have a sufficient profit for tax
purposes to utilise the tax asset. Deferred tax assets and liabilities are measured at the future tax rates
that are expected. Deferred tax assets and liabilities are recognised at nominal value and designated as
financial assets (non-current liabilities) in the balance sheet. Current tax and deferred tax is charged or
credited directly to equity if the tax relates to items that are credited or charged directly to equity.
Segments
The company has not had any operational activity in 2006. Therefore the company does not report in
business areas. All activity in 2006 has been in Norway.
Contingent liabilities and contingent assets
Contingent liabilities are defined as:
i) possible obligations resulting from past events whose existence depends on future events.
ii) obligations that are not recognised because it is not probable that they will lead to an outflow of
resources
iii) obligations that cannot be measured with sufficient reliability.
Contingent liabilities are not recognized in the financial statements. Material contingent liabilities are
disclosed, unless the possibility of any outflow in settlement is remote.
Contingent assets are not recognised, but are disclosed where an inflow of economic benefits is probable.
Events after the balance sheet date
New information received after the balance sheet date about the Company’s financial position at the
balance sheet date is taken into account in the annual report. Material events after the balance sheet date
which do not affect the company’s financial position at the balance sheet date, but which will affect the
company’s financial position in the future are disclosed.
Use of estimates
Management has used estimates and sources of estimation that have affected assets, liabilities, income,
expense and disclosures about potential liabilities. There are no significant accounting estimates in the
financial statements for 2006.
124

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod Communication ASA
Financial Statements 2006
NOTE 3 UNCERTAINTY OF ESTIMATES
There are no significant accounting estimates in the financial statements for 2006.
NOTE 4 TAX
Tax expense:
2006
Income tax payable 147
Change in deferred tax 0
Tax expense 147
2006
Income tax payable for the year 147
Total income tax payable 147
2 006
Profit/loss before tax 526
Tax based on tax rate in Norway 147
Tax expense 147
Effective tax rate 28,0 %
Deferred tax assets and deferred tax liabilities:
There are no taxable temporary differences at the end of 2006.
NOTE 5 EARNINGS PER SHARE
Earnings per share is calculated by dividing profit for the year by the weighted average number of shares
outstanding.
As there are no outstanding share options, diluted earnings per share is not calculated.
2006
Profit for the year 379
Profit for the year flowing to
holders of ordinary shares 379
Weighted average number of shares outstanding 31.12.2006
Ordinary shares issued 19.09.2006 1 000 000
Weighted average number of
shares outstanding 31.12.2006 1 000 000
Earnings per share 0,00
Comrod Communication ASA
Financial Statements 2006
NOTE 6 PAYROLL AND NUMBERS OF EMPLOYEES
2006
Salaries/fees 0
Total payroll costs 0
Average number of employees: 0
No salaries or fees have been paid to the General Manager or members of the Board in 2006.
No loans have been granted or guarantees pledged to the General Manager, members of the
Board or other related parties.
NOTE 7 CASH & CASH EQUIVALENTS
2006
Cash at bank and in hand 1 000 526
Cash & cash equivalents in
balance sheet 1 000 526
Bank overdrafts 0
Cash & cash equivalents in cash
flow statement
1 000 526
Restricted funds 0
Interest rate bank deposits 0,25 %
NOTE 8 SHARE CAPITAL
2006
Ordinary shares of NOK 1,00 each 1 000 000
Total number of shares 1 000 000
The company’s share capital consists of one class of shares.
Changes in share capital
Ordinary shares
Number of
Share
shares
capital
2006 2006
Issued and paid 19.09.2006 1 000 000 1 000 000
Issued and paid 31.12.2006 1 000 000 1 000 000
Shareholders at 31.12.2006 Number of shares Shareholding %
Hexagon Composites ASA 1 000 000 100,00 %
TOTAL 1 000 000 100,00 %
125

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Comrod Communication ASA
Financial Statements 2006
NOTE 9 EQUITY
Changes in equity
Share
capital
Other equity
Total
Balance 19.09.2006 1 000 000 0 1 000 000
Profit/loss for the year 379 379
Balance 31.12.2006 1 000 000 379 1 000 379
The costs related to the incorporation of the company, the Demerger and the listing of the company at The
Oslo Stock Exchange will be paid by Hexagon Composites ASA. Comrod Communication ASA will have no
expenses related to the Demerger.
NOTE 9 FINANCIAL MARKET RISK
As of 31.12.2006 the company´s only asset is a bank deposit of NOK 1.000.526,-.
In addition there has not been any operating activity in 2006.
As a result of this there is no significant financial market risk.
In 2007 activities will increase as an effect of the Demerger from Hexagon Composites ASA.
Financial strategy will be revised in line with the new activities and risks.
NOTE 10 RELATED PARTY TRANSACTIONS
The company´s related parties consist of Hexagon Composites ASA and its subsidiaries, the main
shareholders of Hexagon Composites ASA, members of the board and management.
Except the payment of share capital, there have not been any transactions between the related parties in
2006.
The Company has entered into an agreement to purchase administrative services from Hexagon
Composites ASA in 2007. These services will mainly be related to assistance with the financial reporting
and Investor Relations. The background for this agreement is to ensure that Comrod Communication ASA
can benefit from the expertise within Hexagon during the first phase as a listed company. The above
mentioned management agreement has been entered into as part of the Company’s ordinary operations
and at arms length terms. The agreement has been entered into at market terms and can be terminated at
one months notice. Monthly expense is NOK 100 000.
For management compensation, see note 6.
Auditor
There has been no auditors fee in 2006.
Comrod Communication ASA
Financial Statements 2006
NOTE 11 EVENTS AFTER THE BALANCE SHEET DATE
The Demerger of the Communication Business in Hexagon Composites ASA into Comrod Communication
ASA is expected to occur on or about 17 January 2007. As soon as practicable thereafter Comrod
Communication ASA will be listed on the Oslo Stock Exchange, which is expected to occur on or about 22
January 2007.
Under the Demerger, an independent group will be established under Comrod Communication ASA to
continue the Communication Business, and the assets, rights and liabilities primarily related to the
Communication Business, which is held by Comrod AS and its subsidiaries Fidulerc SA and Lerc SA, will be
transferred from Hexagon Composites ASA to Comrod Communication ASA by means of a demerger
transaction effected in accordance with Norwegian law.
In connection with the Demerger Comrod Communication ASAs share capital will be increased by NOK 12
703 987 from NOK 1 000 000 to NOK 13 703 987 through the issue of 12 703 987 new Shares each with a
par value of NOK 1,00 in the ratio of one Share per 10 Hexagon Composites ASA Shares. The Share
Premium Fund will be increased from NOK 0,00 to NOK 27 804 542.
Prior to the Completion of the Demerger there will be an additional directed issue of new Shares at market
value towards Hexagon, to be subscribed, paid and registered simultaneously as the Completion of the
Demerger, designed to give Hexagon a 25.00 % ownership interest in Comrod following the Demerger.
Payment for the shares in the directed issue will be done through conversion of debt of approximately
MNOK 55, which will arrise in connection with the demerger, from Comrod Communication ASA to
Hexagon Composites ASA.
126

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
127

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
APPENDIX 7: ANNUAL REPORT FOR FIDULERC SA FOR 2005
(translated from French)
128

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
KPMG
Fidulerc SA
Auditor's General Report
129

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
BALANCE SHEET - ASSETS
Company name: SA Fidulerc
Duration of the financial year in months: 12
Company address: Chemin des Hamaïdes 59230 Saint Amand Les Eaux
Duration of previous year: 12
SIRET number: 41095449900019
APE Code: 741J
Gross Amortisation,
provisions
Net
31.12.2005
Net
31.12.2004
Other
2067312 2067312 2067312
participations
Receivables
500000 500000 500000
from
participating
interests
TOTAL (II) 2567312 2567312 2567312
Other
18081 18081 7660
receivables (3)
Funds
available
5448
TOTAL (III) 18081 18081 13108
TOTAL
GENERAL
(I to VI)
2585393 2585393 2580421
BALANCE SHEET – LIABILITIES before distribution
Shareholders'
equity
Share capital or individual
capital (I)
(of which 372737 paid up)
Issue, merger, or
contribution premiums
Year N
31.12.2005
Year N – 1
31.12.2004
372737 372737
1205658 1205658
Legal reserve (3) 11271 11271
Compulsory reserves (3)
243918 243918
(Including special reserve for
provisions for currency
fluctuations)
Carried forward -17775 -12852
RESULT FOR THE YEAR
126 -4922
(profit or loss)
TOTAL (I) 1815937 1815810
Debts
Loans and debts to credit
establishments (5)
Sundry loans and financial
debts (including participating
loans)
Trade creditors and
accounts payable
495 166
750000 750000
10011 7344
Other debt 8950 7100
TOTAL (IV) 769456 764610
GENERAL TOTAL (1 to V) 2585393 2580421
References
Debts and unearned income
of less than one year
Of which bank loans and
overdrafts, credit with banks
and postal accounts
19456 14610
495
130

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
PROFIT AND LOSS ACCOUNT FOR THE YEAR (in list format)
Operating
expenses
Other external purchases
and charges (3) (6 bis)
Year N
31.12.2005
Total
Year (N-1)
31.12.2004
3108 4204
Total operating expenses 3108 4204
Operating result (I-II) -3108 -4204
21050 22900
Financial
income
Financial
expenses
Income from other
transferable securities and
receivables from fixed
assets (5)
Exchange gains 3045
24095 22900
Total financial income
(V)
Interest and similar
expenses
Total financial expenses
(VI)
22866 23618
22866 23618
Financial result (V-VI) 1228 -718
Operating result before tax -1879 -4922
PROFIT AND LOSS ACCOUNT FOR THE YEAR (continued)
Extraordinary
income
Extraordinary income on
management operations
Total extraordinary
income
Year N Year N-1
2006
2006
Extraordinary result (VII-VIII) 2006
Total income (I+III+V+VII) 26101 22900
Total expenses (II+IV+VI+VIII+IX+X) 25975 27822
Profit or loss (total income – total
expenses
126 -4922
131

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
SA Fidulerc
Annexe to the Annual Accounts
for the year ending 31.12.2005
All amounts in EUR
Major events
Main events during the year
There were no major events worthy of mention.
Principles, rules and accounting methods
The annual accounts were drawn up and presented in accordance with the prevailing
French regulations, established by means of decrees issued by the Committee for
Accounting Regulation (CRC).
Regulation CRC 2000-6 of 07/12/2000 on liabilities was applied.
Reform of assets:
Regulation CRC 2004-06 of 23/11/2004, relating to the definition, inclusion in
accounts and evaluation of assets and Regulation CRC 2002-10 of 12/12/2002,
relating to the amortisation and depreciation of assets, were introduced for this
financial year.
There were no consequences for the profit and loss account and shareholders' equity
for 2005.
132

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Information on the Balance Sheet
Balance Sheet – Assets
List of subsidiaries and participating interests
Company Shareholders'
equity
Capital
held
Net capital
value of
securities
held
Turnover
exc. tax of
previous
year
Result for
previous
year
Dividends
paid out in
the year
Lerc SA 6,320,998 96.39 2,067,312 12,619,397 1,225 952 0
Trade investments
259,995 shares in the company Lerc (95% of the capital) were acquired at the global
purchase value of 1 FRF, in other words €0.15, and 135,606 shares in 2003, for a
value of €2,067,312.
Receivables on participating interests - Classification by due date
Type up to one year over one year
Lerc SA 500,000
At CORRI's request, this sum remained frozen until the complete reimbursement of
loans taken out by Lerc at the time of its financial restructuring in 2003.
The final repayment is due to be made in August 2008.
Items on the balance sheet relating to subsidiaries and
participating interests
Type
Amount involving companies:
that are linked
(ECI Group)
in which the
Company has a
participation
(LERC SA)
Receivables on participating interests
500,000
Other participating interests
2,067,312
Sundry financial debts and loans
750,000
Other receivables (RRR to obtain)
10,421
Supplier debts and accounts payable
7,500
Other debts (RRR to approve)
8,950
Financial expenses
22,533
Financial income
21,050
Current Assets – Classification by due date
All receivables in current assets are payable within a year except for the following
item:
Item Total up to one year and over one year
Carry back receivable 7,660 7,660
The carry back receivable, generated in 2001, will be repaid in 2007.
133

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
Balance sheet – Liabilities
Capital
The capital is comprised of 24,450 shares of €15.24 nominal value. There has not
been any change during the year
Table of variation of shareholders' capital
2004 + – 2005
Capital 372,737 - - 372,737
Issue premium 1,205,658 - - 1,205,658
Legal reserve 11,271 - - 11,271
Compulsory reserves 243,919 - - 243,919
Carried forward -12,853 -4,922 - -17,775
Result of year N-1 -4,922 - -4,922 0
Shareholders' equity before
result for the year 1,815,810 -4,922 -4,922 1,815,810
Result for the year - - 126 126
Shareholders' equity after the
result for the year 1,815,810 -4,922 -4,796 -1,815,936
Identity of parent companies consolidating the Company's
accounts
The parent company consolidating the accounts of the Company is Electro
Composites Inc, based in Saint-Jérôme, Québec (Canada).
Financial debts - Classification by due date
Type Total Up to one year Between one and Over five years
five years
ECI current
account
750,000 500,000 250,000
Commitments made
Fidulerc has made the 259,993 shares that it holds in Lerc SA available to the
company ECI St Jérôme Québec (Canada) by way of a guarantee for an advance
of 250,000 Canadian dollars provided by the latter. The advance was repaid but
the guarantee has not been cancelled.
In an agreement signed on 15 April 1997, Fidulerc, or any commercial entity or
individual appointed by it, undertakes to purchase the holding that Finorpa has in
its subsidiary Lerc, by 30 June 2003 at the latest. In an amendment of 23 June
2003, this date was put back to 30 June 2006.
The agreed purchase value shall not be less than the subscription value of the
14,814 shares, namely €304,881, plus annual interest of 5.75%, in other words a
minimum of €509,120.
Freezing of €500,000 in Fidulerc's current account held with Lerc until complete
repayment of the CEPME loan, namely in August 2008.
On 31.12.2005, the amount of capital still payable by Lerc to CEPME was
€187,500.
134

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
APPENDIX 8: ANNUAL REPORT FOR 2005 FOR LERC SA
(translated from French)
135

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
KPMG
Lerc SA
Auditor's General Report
136

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
BALANCE SHEET - ASSETS
Company name: SA Lerc
Duration of the financial year in months: 12
Company address: 600 Chemin des Hamaïdes 59230 Saint Amand Les Eaux
Duration of previous year: 12
SIRET number: 54208704400021
APE Code: 322A
Gross Amortisation,
provisions
Net
31.12.2005
Net
31.12.2004
Other intangible assets 348247 305448 42799 27364
Land 6010 6010 6010
Buildings 5149504 2770341 2379163 2225783
Technical installations,
7916117 7188337 727780 493691
equipment and industrial tools
Other tangible assets 1691140 1587661 103479 121438
Assets under construction 109519 109519 341370
Advance payments 12361 12361
Other equities 13645 13645 13645
Loans 250000 250000 250000
Other long-term investment 43718 43718 23137
Total (II) 15540261 11851787 3688474 3502438
Raw materials, supplies 2482471 460462 2022009 1731459
Work in progress for goods 666543 35337 631206 658748
384346 116167 268179 177886
Semi-finished and finished
products
Advances paid on orders 15728 15728
Trade accounts receivable 1628978 3817 1625161 709450
Other accounts receivable 2762860 320142 2442718 2699039
Cash on hand 54968 54968 84376
Prepayments 49531 49531 54199
Total (III) 8045425 935925 7109500 9115157
Conversion rate adjustment -
assets
46544
General Total (I to VI) 23585686 12787712 10797974 9664139
BALANCE SHEET – LIABILITIES before distribution
Shareholders'
equity
Provisions for
contingencies
and
expenses
Debts
Year N
31.12.2005
Year N-1
31.12.2004
Share capital or individual capital (of 6256812 6256812
which 6256812 paid up)
Issue, merger or contribution premiums 79043 79043
Legal reserve 163628 163628
Other reserves (including reserve for the 222221 222221
purchase of original works by living
artists)
Carried forward -1902351 -2642792
Result for the year
1225952 740440
(profit or loss)
Investment subsidies 212256 237274
Compulsory provisions 63435
Total (I) 6320996 5056626
Provision for contingencies 74845 89044
Provision for expenses 60640
Total (III) 135485 89044
Loans and debts to credit establishments 808462 724605
Sundry financial debts and loans
1062422 1153506
(including participating loans)
Advance payments received on orders in 45879 32265
progress
Trade creditors and accounts payable 1447036 1718688
Fiscal debts and social charges 858912 779928
Debts on fixed assets and accounts
15202 69746
payable
Other debt 74650 25529
Unearned income 14202
Total (IV) 4312563 4518469
Conversion rate adjustment – Liabilities
(V)
28930
General Total 10797974 9664139
3337529 3175169
Debts and unearned income of less than
one year
Of which bank loans and overdrafts,
credit with banks and postal accounts
379835 165884
137

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
PROFIT AND LOSS ACCOUNT FOR THE YEAR (in list format)
Operating
income
Year N (31.12.2005) Year N-1
31.12.2004
France Exports and intracommunity Total
deliveries
Sales of 348433 140531 488964 264098
goods
Production
sold 7962771 4088153 12050924 12194566
- goods
- services 71542 7966 79508 80512
Net
turnover
Operating income
Operating Expenses
Operating
expenses
Operating
allocations
8382746 4236650 12619396 12539176
Production stocked 57276 -382217
Returns on amortisation and provisions,
10777 36470
transfers of expenses
Other income 11231 5912
Total operating income (I) 12698680 12199341
Purchases of goods (inc. customs duties)
Purchase of raw materials and other
4928393 5329270
supplies (inc. customs duties)
Variation of stock (raw materials an
-356100 -344588
supplies)
Other external purchases and charges 2388289 2066260
Taxes, duties and associated payments 534096 472256
Salaries and fees 2302788 2180430
Social charges 975123 925112
On fixed - allocations for amortisation 368630 481427
assets - allocations for provisions
On current assets: allocations for provisions 74668 112914
For contingencies and expenses:
62345
allocations for provisions
Other expenses 5257 16695
Total operating expenses (II) 11284035 11239776
1. OPERATING RESULT (I-II) 1414645 959565
Financial income Financial income from participating interests
Income from other marketable securities
15000
and receivables from fixed assets
Other interest and similar income 2336 7652
Return on provisions and transfer of
46544 21037
expenses
Exchange gains 62309 5730
Financial expenses
Total financial income (V) 126189 34419
Financial allocations to amortisation and
46544
provisions
Interest and similar expenses 125735 152807
Exchange losses 36495 10189
Net expenses on sale of short-term
marketable securities
Total financial expenses (VI) 162230 209540
2. FINANCIAL RESULT (V-VI) -36041 -175121
3. OPERATING RESULT BEFORE TAX (I-II+III-IV+V-VI) 1378604 784444
PROFIT AND LOSS ACCOUNT FOR THE YEAR (continued)
Extraordinary income
Extraordinary
expenses
Year N
31.12.2005
Year N-1
31.12.2004
Extraordinary income on management
operations
Extraordinary income on capital operations 25418 60015
Returns on provisions and transfer of
expenses
Total extraordinary income (VII) 25418 60015
Extraordinary charges on management
68995 10029
operations
Extraordinary charges on capital operations 36488
Extraordinary allocations for amortisation
94075 42500
and provisions
Total extraordinary expenses (VIII) 163070 89017
4. EXTRAORDINARY RESULT (VII-VIII) -137652 -29002
Employee profit-sharing (IX)
Tax on profits (X) 15000 15000
TOTAL INCOME (I+III+V+VII) 12850288 12293777
TOTAL EXPENSES (II+IV+VI+VIII+IX+X) 11624336 11553336
5. PROFIT OR LOSS (total income – total expenses) 1225952 740441
References Of which partial net income on long-term operations
Of which property rents
Of which operating income relating to previous years
(details given in (8) below)
Of which equipment leasing 177782 162647
Of which property leasing
Of which operating expenses relating to previous years
(details given in (8) below)
Of which income concerning associated enterprises
Of which interest concerning associated enterprises
Of which gifts made to organisations in the public
interest (art. 238 bis of the CGI)
Of which transfers of expenses
Of which personal contributions by the operator
Of which duties for patents and licences (income)
Of which duties for patents and licences (expenses)
Of which additional personal optional compulsory
premiums and contributions
Details of extraordinary income and expenses (If this
section is insufficient, attach a statement in the same
format)
Extraordinary
expenses
Charges on management operations 68995
Year N
Extraordinary
income
Accelerated amortisation 63435
Provisions for contingencies and expenses 30640
Income from sale of assets 400
Investment subsidies included in the result 25018
Year N
(8) Details of income and expenses for previous years Previous Previous
expenses income
138

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
SA Lerc
Annexe to the Annual Accounts
for the year ending 31.12.2005
All amounts in EUR
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
1 Major events
1.1 Main events during the year
No major events occurred during the financial year.
1.2 Events after the year end
At the meeting of the company's Board of Directors of 30 May 2006, a
resolution was passed for the advance reimbursement of €500,000 to the
current account opened in the name of the parent company, Fidulerc.
1.3 Principles, rules and accounting methods
The annual accounts were drawn up and presented in accordance with the
prevailing French regulations, established by means of decrees issued by
the Committee for Accounting Regulation (CRC).
Regulation CRC 2004-06 of 23/11/2004, relating to the definition, inclusion
in accounts and evaluation of assets and Regulation CRC 2002-10 of
12/12/2002, relating to the amortisation and depreciation of assets, were
introduced for this financial year.
These reforms were applied in the following manner:
Use of the method of reallocating net accounting values,
Differentiation of the amortised "Buildings" item:
For the structure, 40 years, straight line,
For the components, 20 years, straight line.
Review of the amortisation plan for equipment and tools not amortised at
the start of the year, based on the actual duration of use.
Inclusion in the accounts, as accelerated amortisation, of the differential
between amortisation calculated on the duration of usage previously
employed and the estimated working life.
The consequences for the profit and loss account take the form of a transfer between
the operating expenses and extraordinary expenses for the amount of the
contribution to accelerated amortisation, namely €64,000.
139

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
2 Information on the Balance Sheet
2.1 Assets
2.1.1 Fixed assets table
Table 2054.
2.1.2 Amortisation table
Table 2055.
2.1.3 Intangible fixed assets
2.1.3.1 Research and development costs
Expenses incurred during previous years that have been completely
amortised are excluded. No expense of this type was included in fixed
assets for the year.
2.1.3.2 Amortisation
Type of fixed asset Method Duration
Research and development costs Straight line 2 years
Software and software packages Straight line 3 years
2.1.4 Tangible fixed assets
2.1.4.1 Evaluation
Tangible and intangible fixed assets are evaluated at their acquisition cost
(purchase cost plus associated expenses, not including acquisition
expenses for fixed assets) or their production cost.
The interest on loans specific to the production of fixed assets is not
included in the cost of production of the fixed assets.
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
2.1.4.2 Amortisation
The amortisation for depreciation is calculated from 2005 in accordance with
the scheduled period of use. The most commonly used rates are described
below (SL = straight line):
Structure
Components
Fittings, construction
Tangible fixed assets Duration Method Rate
40 years
20 years
10 years
SL
SL
SL
2.5%
5%
10%
Technical equipment Duration Method Rate
Equipment and tools From 4 years
up to 10 years
SL
SL
25%
10%
General fixed assets Duration Method Rate
Fittings 10 years SL 10%
Equipment Duration Method Rate
Office and computer equipment 4 years
8 years
SL
SL
25%
12.5%
140

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
2.1.4.3 Leasing and financial leases (in euros)
Land Buildings
Installations
Equipment
Tools
Other Total
Original value 885,165 885,165
Amortisation:
Accumulation from previous
years
541,386 541,386
Contribution for the year 149,115 149,115
Total 690,501 690,501
Instalments paid:
Accumulation from previous
years
640,833 640,833
Years 219,304 219,304
Total 860,137 860,137
Instalments payable:
Less than 1 year 141,000 141,000
Over 1 year and less than 5
years
51,098 51,098
Over five years
Total 192,098 192,098
Residual value:
Less than 1 year
Over 1 year and less than 5
years
1,257 1,257
Over five years
Total 1,257 1,257
Amount taken into account during
the year
177,782 177,782
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
2.1.5 Long-term investment
2.1.5.1 Securities in subsidiaries and participating interests
List of subsidiaries and participating interests
Company Capital % capital held Net accounting
value of
securities held
Subsidiaries (+ 50%)
None
Participating interests (10-50%)
SA Janssens Engineering
11 rue Hanstrée
4608 War Sage
Belgium
1,400 shares 21.43%, i.e. 300
shares
€7,543
2.1.5.2 Long-term receivables
Receivables payable on participating interests
Classification by due date.
Table 2057.
141

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
Balance sheet items relating to associated enterprises and participating
interests.
that are
associated
Subscribed capital, not called up
Advances on intangible fixed assets
Advances on tangible fixed assets
Participating interests
Receivables on participating interests
Loans to the company ECI 250,000
Long-term securities in portfolio
Other long-term securities
Other long-term investment
Advance payments on orders
Receivables, clients and ECI 201,602
Other receivables
Called up subscribed capital, unpaid
Short-term investments
Treasury instruments (assets)
Cash on hand
Convertible debenture loans
Other debenture loans
Loans and debts to credit establishments
Sundry financial debts and loans: Fidulerc SA current account 500,000
Advance payments received on orders in progress
Trade creditors and accounts payable
Debts on fixed assets and accounts payable
Other debt
Treasury instruments (liabilities)
Amount concerning enterprises:
with which the
Company has a
participating interest
Financial charges on Fidulerc SA current account 21,050
Financial income on ECI loan 15,000
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
2.1.5.3 Other long-term receivables
Classification by due date
Table 2057.
Accrued interest
€21,450
2.1.6 Stock
2.1.6.1 Status of stock
Stock category Gross value Depreciation Net value
Stock of raw materials, supplies, spare parts 2,482,471 460,462 2,022,009
Stock of work in progress 666,543 35,337 631,206
Stock of finished products and demonstration 384,346 116,167 268,179
materials
Total 3,533,360 611,966 2,921,394
The raw materials stock is evaluated at weighted average unit price.
Production in progress and finished products are valued at direct cost, multiplied by a
general production expenses coefficient, determined in accordance with incorporable
expenses per sector.
An estimate of incorporable general expenses on the stock of products in progress
and finished products is drawn up each year as part of the provision of financial
information for the year.
The value thus obtained is in all cases restricted to the market value, with a
deduction for the remaining commercial expenses to be covered.
No financial expenses are included in the cost of products in progress and finished
products.
The provisions for depreciation of stocks result from probable losses relating to
technical and financial events.
142

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
2.1.7 Receivables
2.1.7.1 Classification by due date
Table 2057.
2.1.7.2 Receivables transferred to the factor
€1,110,858
2.1.7.3 Income receivable
Amount
Receivables for participating interests
Other long-term investment 21,450
Client receivables
Other receivables
Cash on hand
Total 21,450
2.1.7.4 Prepayments
Unifergie lease 34,095
Other leases 1,847
2006 exhibitions 11,022
Interest on refinancing debts and revolving credit 2,565
49,529
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
2.2 Liabilities
2.2.1 Table of variation of shareholders' equity
N-1 + – N
Capital 6,256,813 6,256,813
Premiums, reserves 464,894 464,894
Carried forward -2,642,792 740,440 -1,902,352
Results 740,440 1,225,952 740,440 1,225,952
Investment subsidies 237,274 25,018 212,256
Mandatory provisions 63,435 63,435
Other
Total 5,056,629 2,029,827 765,458 6,320,998
2.2.2 Capital
2.2.2.1 Movements during the year
The capital comprises 410,420 shares of €15.2449 nominal value. There
has not been any change during the financial year.
2.2.2.2 Identity of the parent companies consolidating the Company's
accounts
Lerc SA is consolidated in accordance with the global integration method at
31 December 2005 with the company ECI Composites Inc, 325 rue Scott,
Saint Jérome, Canada.
The company ECI Composites Inc indirectly holds 96.35% of Lerc SA
ECI holds 99.97% of Fidulerc SA
Fidulerc holds 96.38% of Lerc SA
143

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
2.2.3 Other shareholders' equity
2.2.3.1 Investment subsidies
Amortisation
Entity Original amount Method Duration Amount
Regional Council 457,347 Straight line 20 years 22,867
ERDF 17,209 Straight line 8 years 2,151
2.2.3.2 Exceptional fiscal evaluations
Result for the year + 1,225,952
Tax on profits at 33.83% + /
Result before tax = 1,225,952
Variation of regulatory provisions + 63,435
Result not including exceptional fiscal evaluations 1,289,387
The method used for the calculation of accelerated amortisation is given in paragraph
1.2.
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
2.2.4 Provisions for contingencies and expenses
2.2.4.1 Table of provisions for contingencies and expenses
Provisions for
contingencies
- industrial
tribunal
disputes
- additional tax
assessment
- provision for
exchange
losses
Amount
at the
start of
the year
42,500
46,544
Made up
from own
funds
Allocations
for the
year
32,345
Withdrawals
used
46,544
Withdrawals
not used
Withdrawals
from own
funds
Amount
at the
end of
the year
42,500
32,345
Total 89,044 32,345 46,544 74,845
Provisions for
expenses
- additional tax
assessment
- costs to be
incurred on
invoiced
products
30,640
30,000
30,640
30,000
Total 60,640 60,640
2.2.4.2 Employees' training rights
Employees' training rights Number of hours of training
Accumulated rights acquired by employees during the year 1,660 hours
Accumulated rights that were not subject to a claim by employees 1,660 hours
144

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
2.2.4.3 Pension commitments
Pension commitments Provision
made
Provision not
made
IDR [compulsory retirement indemnity] (including
364,491 364,491
expenses)
Pension commitments to former directors 0 0
Health insurance contributions for retired employees 0 0
Total
Methods of calculation of pension commitments:
Pension commitments were evaluated in accordance with prospective methods
based on each employee's future situation and taking into account years of service
on the day of retirement.
Parameters:
Retirement age: 65
Calculation criteria
rate of annual revaluation of salaries: 2.0%
annual average interest rate: 4.5%
The calculation of compensation takes into account the following matters:
Probability of departure (resignation, redundancy) of the employee before the age
of retirement,
Risk of mortality of the employee before retirement age (TPRV table 1993).
2.2.5 Financial debts
2.2.5.1 Classification by due date
Table 2057.
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
2.2.5.2 Guaranteed debts
Type Assets used as guarantee Amount of debt
at 31.12.2005
Revolving loan CDN 2005 Security on business capital 150,000
Loan CEPME 2003 Security on business capital 187,500
Loan BPN 2004 Mortgage on property 78,740
Total 416,240
2.2.6 Other debts
2.2.6.1 Classification by due date
Table 2057.
2.2.6.2 Charges payable
Charges payable Amount
Convertible debenture loans
Other debenture loans
Loans and debts with credit establishments 4,219
Sundry loans and financial debts 4,655
Advance payments received on orders in progress
Trade creditors and accounts payable 115,263
Fiscal debts and social charges 301,723
Debts on fixed assets and accounts payable
Other debts 9,746
Total 435,604
145

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
2.2.6.3 Other significant information
Debts in foreign currency giving rise to a conversion rate adjustment.
None.
2.2.7 Deferred payment and unearned income
2.2.7.1 Composition of unearned income
None.
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
3 Information on profit and loss account
3.1 Breakdown of turnover by activity sector and geographical
market
Activity sector / Geographical market Amount
Sales of goods in France 348,433
Sales of goods for export 140,531
Production sold in France, goods 7,962,772
Production sold abroad, goods 4,088,153
Production sold in France, services 71,542
Production sold abroad, services 7,966
Total 12,619,397
3.2 Financial Result
Financial income
Interest on group current account 15,000
Other income on client receivables and currency accounts 2,336
Write-back of provision for exchange losses 46,544
Foreign exchange gains 62,309
126,139
Financial expenses
Interest on loans, overdrafts, current accounts 125,733
Foreign exchange losses 36,495
162,228
146

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
3.3 Extraordinary Result
Extraordinary income
Investment subsidies related to the result 25,018
Income from transfers 400
25,418
Extraordinary expenses
Tax adjustments 31,889
Company contribution re an agreement 36,032
signed with DDTE [Ministry of Employment]
Allocation to accelerated amortisation 63,435
Allocation to provisions for contingencies and expenses 30,640
Contract penalties 1,074
163,070
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
3.4 Corporation Tax
3.4.1 Statement of deferred and potential tax
Heading Amount
Tax due on:
Investment subsidies
Accelerated amortisation
212,256
63,435
70,751
21,145
Total increase 91,896
Tax paid in advance on:
Expenses temporarily not deductible (to be deducted in the following
year)
Paid holidays
Other:
Organic and construction investment
190,398
63,465
30,563 10,188
Total reduction 73,653
Net deferred tax 18,243
Deferrable deficits at 31.12.2005 869,440 289,810
Net potential tax 289,810
147

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
4 Other Information
4.1 Financial commitments
Commitments made
Category
Amount
Pension commitments
€364,491
Other commitments made
- loans
- advance to the company Française de Factoring
- property lease (total not inc. tax or residual value)
€416,240
€1,110,858
€192,008
TOTAL €2,083,597
Commitments received at 31.12.2005
Category Initial guarantee Remaining
Guarantee received from La Viscontea for the payment of the
balance of fishing equipment fund transferred to Lerc
International.
320,142.87
Guarantee received from ECI Composites Inc, Québec, Canada
for the payment of loans 2003
350,000.00
195,667.98
Deposit of Lerc International guarantee received in 2003
Freezing Fidulerc current account
until complete repayment of the CEPME loan in August 2008.
This subject is described in the paragraph on subsequent
events.
500,000.00
7,043.00
500,000.00
SA Lerc
Annexe the Annual Accounts for the year ending 31.12.2005
4.2 Average workforce
Salary
personnel
Managers 15
Skilled workers and technicians 12
Employees 0
Manual labour 56
Total 83
Personnel
available
4.3 Remuneration of Directors
Information is not provided on the remuneration of management entities as
this would indirectly lead to disclosing details on individual remuneration.
148

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
FIXED ASSETS
Structure
A
Intangible
Tangible
Financial
Fixed Assets Gross value
of fixed
assets at
start of year
Establishment and
research and development
costs
TOTAL I
Other intangible fixed
asset items
330335
Increases
As a consequence of a
re-evaluation during
the year or resulting
from an equity method
procedure
Acquisitions,
creations,
contributions and
transfers from
item to item
311602 36645
TOTAL II
Land 6010
On own site 4827301 322202
Technical installations,
8039672 368270
equipment and industrial
tools
General installations,
2392067 14503
fittings, sundry facilities
Office equipment and
682077 11950
computer fittings
Tangible fixed assets in
341370 109519
progress
Advances 12364
TOTAL III 16288497 838808
Other participating
13645
interests
Loans and other long-term 273137 35390
investment
TOTAL IV 286782 35390
GENERAL TOTAL (I+II+III+IV) 17217216 910843
Reductions
Structure
B
Intangible
Tangible
Financial
Fixed Assets by transfer
from item to
item
Establishment and
research and
development costs
TOTAL I
Other intangible fixed
asset items
TOTAL II
by transfer to third
parties or put out of
service or resulting
from an equity method
procedure
Gross value of
fixed assets at the
end of the year
330335 0
348247
Land 6010
On own site 5149503
Technical installations,
491826 7916116
equipment and industrial
tools
General installations,
1404493 1002077
fittings, sundry facilities
Office equipment and
4964 689063
computer fittings
Tangible fixed assets in
341370 109519
progress
Advances 12364
TOTAL III 341370 1901283 14884652
Other participating
13645
interests
Loans and other longterm
14808 293719
investment
TOTAL IV 14808 307364
GENERAL TOTAL (I+II+III+IV) 341370 2246426 15540263
AMORTISATION
Structure A Positions and movements during the year
Amortisable fixed
assets
Establishment and
research and
development costs
Amount of
amortisation at
the start of the
year
Increases:
contributions
during the year
Decreases:
amortisation of
items removed
from the assets
and write-backs
Amount of
amortisation at
the end of the
year
330335 284237 330335 0
TOTAL I
Other intangible
284237 21210 305447
fixed asset items
TOTAL II
Constructions on
2601517 168823 2770340
own land
Technical
7545980 134182 491826 7188336
installations,
equipment and
industrial tools
General
2297569 28946 1404493 922022
installations, fittings,
sundry facilities
Office equipment
655136 15466 4964 665638
and computer
fittings
TOTAL III 13100202 347417 1901283 11546336
GENERAL TOTAL
13714774 368627 2231618 11851783
(I+II+III)
Structure B Breakdown of contributions to amortisation over
the year
Amortisable fixed
assets
Straight line
amortisation
Declining-balance
amortisation
Structure C
Movements affecting
provision for
accelerated
amortisation
Contributions
Intangible fixed assets
21210
TOTAL II
On own land 168823 56696
Technical installations,
130810 3372 6739
equipment and
industrial tools
General installations,
28946
fittings, sundry facilities
Office equipment and
15466
computer fittings
TOTAL III 344045 3372 63435
GENERAL TOTAL
(I+II+III)
365255 3372 63435
149

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
PROVISIONS RECORDED IN THE BALANCE SHEET
Type of provision Amount at the
start of the year
Increases:
Contributions
during the year
Decreases: Writeback
during the
year
Amount at the
end of the year
Accelerated
63435 63435
amortisation
TOTAL I 63435 63435
Provisions for
46544 46544 0
exchange losses
Other provisions
42500 92985 135485
for contingencies
and expenses
TOTAL II 89044 92985 46544 135485
On stock and in
551892 70851 10777 611966
progress
On client accounts 3817 3817
Other provisions
320142 320142
for depreciation
TOTAL III 872034 74668 10777 935925
GENERAL TOTAL
961078 231088 57321 1134845
(I+II+III)
- operating 137013 10777
- financial 46544
- extraordinary 94075
SA LERC
Year ending 31.12.2005
DETAILS OF OTHER PROVISIONS FOR CONTINGENCIES AND EXPENSES
Type Amount at
start of year
Increase Decrease Amount at
end of year
Provision for industrial relations disputes 42,500 42,500
Provision for other tax expenses 62,985 62,985
Costs related to production sold 30,000 30,000
150

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
SA LERC
Year ending 31.12.2005
DETAILS OF OTHER PROVISIONS FOR DEPRECIATION
Type Amount at
start of year
Increase Decrease Amount at
end of year
Provision for Lerc International receivable 320,142 320,142
STATEMENT OF DUE DATES FOR CREDITS AND DEBTS AT THE END OF THE
YEAR
Structure A Statement of receivables Gross amount Up to one year Over one
year
Fixed assets Loans 250000 250000
Other long-term investment 43718 43178
Current
assets
Other client receivables 1628978 1628978
Personnel and accounts receivable 2393 2393
State and Corporation tax 30000 30000
other public bodies
Value-added tax 44467 44467
Sundry 42729 42729
Sundry debtors 2643270 2643270
Prepayments 49531 49531
TOTALS 4735086 4485086 250000
Structure
B
Loans and
debts to
credit
establish
Debt
statement
maximum
of one
year from
origin
ments over one
year from
origin
Sundry loans and
financial debts
Trade creditors and
accounts payable
Personnel and
accounts payable
Social Security and
other social welfare
bodies
State and
other
public
bodies
Valueadded
tax
Other
taxes,
duties and
similar
Gross amount Up to one year Between one and five
years
379835 379835
428627 124471 304155
257524 132524 125000
1447033 1447033
303504 303504
226189 226189
189622 189622
139596 139596
Debts on fixed assets
15202 15202
and accounts payable
Group and associates 804898 304898 500000
Other debts (including
74650 74650
debts relating to repo
operations)
TOTALS 4266680 3337524 929155
151

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
APPENDIX 9: FIDULERC SA. AND LERC SA. - TRANSITION FROM
FGAAP TO IFRS IN THE INCOME STATEMENT
The following table shows the effects of the transitions from FGAAP (French Generally Accepted
Accounting Principles) to IFRS for Fidulerc SA and Lerc SA for the income statement for the period
ended 31.12.2005. The most important effects of the transition are described below. Please refer to the
corresponding notes.
2005 2005 2005 2005 2005
01.01.-31.12. 01.01.-31.12. 01.01.-31.12. 01.01.-31.12. 01.01.-31.12
Notes
FIDULERC SA
FGAAP
LERC SA
FGAAP
IFRS
adjustments
Fidulerc/Lerc
IFRS
EUR
Fidulerc/Lerc
IFRS
NOK
Operating revenues 0 12 690 0 12 690 101 680
Operating expenses
Cost of materials 4 600 0 4 600 36 858
Payroll and social security expenses
1 1 852 -6 1 846 14 794
Depreciation 2 407 -63 344 2 753
Other operating expenses 3 1 4 477 25 4 503 36 079
Total operating expenses 1 11 336 -44 11 293 90 484
Operating profit/loss -1 1 354 44 1 397 11 195
Financial income/expenses
Interest received 21 17 0 38 302
Other financial income 3 63 0 66 529
Other interest paid -23 -116 0 -139 -1 110
Other financial expenses -77 0 -77 -616
Net financial income/expenses 1 -113 0 -112 -895
Profit before tax 0 1 241 44 1 285 10 300
Taxes 4 0 15 447 462 3 700
Profit/loss for the year 0 1 226 -402 824 6 600
IFRS adjustment comments:
1. “Payroll and social security expenses”: TEUR - 6 is decrease in employee benefits liability that
has been recognized in 2005 according to IFRS. According to French accounting standards
provision for the employee benefits liability is not compulsory and has not been recognized by
Lerc. Under IFRS a provision is mandatory and the change in liability is recognized as a payroll
expense.
2. “Depreciation”: TEUR – 63 is reversal of additional depreciation made for tax purposes. French
accounting standards permit this additional depreciation in the income statement. Under IFRS this
additional depreciation is not recognised.
3. “Other operating expenses”: TEUR 25 is government grants related to fixed asset which is added
back to the income statement. Under IFRS these grants is accounted for as a reduction of cost of
fixed assets.
4. “Tax”: TEUR 447. Income tax for 2005 (33.33%) is calculated to EUR 432. Tax related to
adjustment 1 – 3 above amount to 15. The tax recognized in the FGAAP statement is a standard
tax applied whether the company has taxable income or not. Under IFRS temporary differences,
152

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
including losses carried forward is recognized in the balance. Changes in temporary differences
are recognized in the income statement.
The following table shows the effects of the transitions from FGAAP (French Generally Accepted
Accounting Principles) to IFRS for Fidulerc SA and Lerc SA for the income statement for the period
ended 30.09.2006. The most important effects of the transition are described below. Please refer to the
corresponding notes.
(in 1000)
2006 2006 2006 2006 2006
01.01.-30.09. 01.01.-30.09. 01.01.-30.09. 01.01.-30.09. 01.01.-30.09.
Notes
FIDULERC
SA
FGAAP
LERC SA
FGAAP
IFRS
adjustments
Fidulerc/Lerc
IFRS
EUR
Fidulerc/Lerc
IFRS
NOK
Operating revenues 0 8 093 0 8 093 64 529
Operating expenses
Cost of materials 3 018 0 3 018 24 065
Payroll and social security
expenses 5 1 290 6 1 296 10 336
Depreciation 6 317 -50 266 2 125
Other operating expenses 7 0 3 077 18 3 096 24 682
Total operating expenses 0 7 702 -26 7 676 61 208
Operating profit/loss 0 391 26 417 3 321
Financial income/expenses
Interest received 0 11 0 11 88
Other financial income 0 13 0 13 103
Other interest paid 0 -79 0 -79 -629
Other financial expenses -43 0 -43 -340
Net financial income/expenses 0 -98 0 -98 -779
Profit before tax 0 293 26 319 2 542
Taxes 8 0 23 76 99 791
Profit for the year 0 270 -51 219 1 751
IFRS adjustment comments:
5. “Payroll and social security expenses”: TEUR 6 is increase in employee benefits liability that has
been recognized in the period according to IFRS. According to French accounting standards,
provision for the employee benefits liability is not compulsory and has not been recognized by
Lerc. Under IFRS a provision is mandatory and the change in liability is recognized as a payroll
expense.
6. “Depreciation”: TEUR – 50 is reversal of additional depreciation made for tax purposes. French
accounting standards permit this additional depreciation in the income statement. Under IFRS this
additional depreciation is not recognized.
7. “Other operating expenses”: TEUR 18 is government grants related to fixed asset which is added
back to the income statement. Under IFRS these grants is accounted for as a reduction of cost of
fixed assets.
153

COMROD COMMUNICATION ASA – LISTING ON THE OSLO STOCK EXCHANGE
8. “Tax”: TEUR 76. Income tax for the period (33.33%) is calculated to TEUR 68. Tax related to
adjustment 5 - 7 above amount to 9. The tax recognized in the FGAAP statement is a standard tax
applied whether the company has taxable income or not. Under IFRS temporary differences,
including losses carried forward is recognized in the balance. Changes in temporary differences is
recognized in and changes in the income statement.
154

Comrod Communication ASA
Fiskåvegen 1
4120 Tau
Norway
Tel: +47 51 74 05 00
Fax: +47 51 74 05 01
www.comrod.com
First Securities ASA
Fjordalléen 16 – Aker Brygge
P.O. Box 1441 Vika
0115 Oslo
Norway
Tel: +47 23 23 80 00
Fax: +47 23 23 80 01
www.first.no
www.kursiv.no