Report - Kongsberg Gruppen 2007 - Kongsberg Maritime ...

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making procurement decisions in 2008
and in subsequent years. At present,
Kongsberg enjoys a generous share of
this market but the competition is becom -
ing keener. As the Norwegian market's
largest, most seasoned contractor,
Kongsberg's chances should nevertheless
be good for winning contracts with several
of the upcoming programmes. Eleven
coun tries have chosen to procure the sys -
tem thus far. To meet the growing demand
for the system, the company is expanding
its production capacity in the USA. Staf f -
ing will also be increased. Deliveries to the
US will largely be manufactured at the
facil ities in Johnstown, Pennsylvania,
using US subcontractors. This will con -
sider ably reduce the currency risk inherent
in the projects.
Risk factors and risk management
The Group is exposed to different types
of risk, and the Board monitors trends in
the various risk areas closely. The Board
has established an Audit Committee to
help the Board deal with accounting and
rele vant discretionary items, and to follow
up internal control and risk management.
At the minimum, the Audit Committee
meets in connection with the presentation
of the annual and interim accounts.
The Board reviews operational reports
on a monthly basis, and the administra -
tion draws up quarterly risk reports. The
Board is of the opinion that there is a
good balance between overall risk and the
Group's capacity to deal with risk.
Financial risk
Kongsberg has centralised management
of financial risk. The Board has adopted
guidelines for the Group's financial risk
management, as embodied in the cor -
porate Financial Policy. Kongsberg aspires
to limit financial risk and increase predict -
ability while exploiting financing as a
competitive factor. Kongsberg is vulner -
able to financial risk attached to credit
risk, liquidity and refinancing risk, cur ren -
cy risk, interest rate risk and market risk
attached to financial investments.
Credit risk is the risk of loss if a cus -
tomer or another counterpart does not
manage to fulfil its contractual obliga -
tions. The customer base is well diversified
and con sists mainly of public institutions
and large private sector companies.
Historically speaking, the Group has few
losses due to bad debts, and the Group's
credit risk is considered low.
Liquidity and refinancing risk refers to
the risk that Kongsberg will not be able
to fulfil its financial obligations as they
fall due. Kongsberg's goal is to have an
average term to maturity on its long-term
credit facilities of more than two years.
At 31 Dec. 2007, the Group had undrawn
over draft facilities of NOK 1 billion that
will run until 2013, in addition to bond
loans of MNOK 300 and MNOK 400,
respectively, with terms to maturity of
30 March 2012 and 10 June 2009. On
31 Dec. 2007, Kongsberg had net cash
reserves of MNOK 242.
Kongsberg has considerable foreign
cur rency exposure. The Group's most im -
portant trading currencies outside Norway
are USD and EUR. Kongsberg's policy is
to limit currency risk while actively asses s -
ing various currencies' importance as com -
petitive parameters. The Group hedges all
contractual currency flows, as well as parts
of the Group's anticipated new orders.
For a more detailed description of the
Group's financial risk, see Note 5 "Finan -
cial risk management" in the consolidated
accounts.
Operational risk
The Group's added value mainly consists
of systems of great technological com -
plexi ty. The deliveries are organised as
projects. Project management is an im por -
tant success factor for reducing opera -
tional risk. Kongsberg has established
a project management process based on
'best practices' internally and externally.
All project managers undergo an in-house
training programme on the project man -
agement process.
Projects' earnings are contractualised, so
any uncertainty is attached to assess -
ments of remaining costs and the accrual
of projects' earnings. The Group has
estab lished principles for categorising
proj ects on the basis of their techno lo -
gical complexity and development con -
tent. This paves the way for valuations of
'profit at risk' and taking to account the
profits from the projects. The profit at risk
refers to the profit retained in the projects
until the uncertainty has been clarified.
The Naval Strike Missile (NSM) is the
largest development project ever under -
taken by the Group. The development
project is now in the final phase, further
mitigating project risk.
Business risk
Business risk is related to market condi -
tions, competitors and other general busi -
ness conditions prevailing in the markets
in which we operate. The shipbuilding
market fluctuates over time, impacting
Kongsberg's deliveries of ships' systems.
The market is currently expansive, espe -
cial ly in Asia. The competition is growing
keener and the shipyards in Asia are in -
creasingly trying to provide a larger share
of the value added. The Group is monitor -
ing trends closely and taking strategic
initiatives to protect its market position.
The level of investment in the petro le -
um industry is another important para -
meter for Kongsberg. This market is
booming. Kongsberg has maintained its
market shares, but the competition is
getting sharper.
Insofar as the defence market is con -
cern ed, sales with long lead times and
large-scale individual projects can lead
to fluctuations in activity levels. The
Norwegian Armed Forces' development of
pro prietary solutions in collaboration with
Nor wegian industry is decisive for con -
tinu ed growth and profitability in the long
term.
Kongsberg – Annual Report and Sustainability Report 2007