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COMROD COMMUNICATION <strong>ASA</strong> – 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. 17
COMROD COMMUNICATION <strong>ASA</strong> – 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. 18
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