English version - Hexagon Composites ASA

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COMROD COMMUNICATION <strong>ASA</strong> – 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 15
COMROD COMMUNICATION <strong>ASA</strong> – 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. 16
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