English version - Hexagon Composites ASA

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COMROD COMMUNICATION <strong>ASA</strong> – 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 49
COMROD COMMUNICATION <strong>ASA</strong> – 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. 50
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