Financial overview

in NOK million	FY2006	FY2005	Rate of Change	Factors
Overall
Sales	2,863	2,525	13.4%	See 1) below
Operating Income	276	292	-5.5%
Operating revenues by business areas
-Seat comfort	1,389	1,141	21.7%	See 2) below
-Commercial vehicle systems	1,104	1,006	9.7%	See 3) below
-Gearshifts	370	378	-2.1%

 

Overall Sales
- The year 2006 was characterized by major changes in its business environment. Several raw materials had dramatic price increases. The future of several of the world's largest car manufacturers was questioned. Global systems suppliers to the automotive industry were brought to the brink of bankruptcy. There was a market swing towards fuel-efficient cars as well as frequent changes in vehicle manufacturers relative market shares especially in the US where American car manufactures have lost market shares to Asian brands.
- Operating revenues for the Company in 2006 amounted to NOK 2,863 million (2,525) with a corresponding operating profit of NOK 276 million (292). This gave an operating margin of 9.6 percent (11.6 percent). In 2006 the Company had a growth in revenues of 13.4 percent. This reflects a strong truck market and an increased underlying growth in demand for its products. In terms of profitability the year has been characterized by high raw material prices, as well as capacity expenses associated with higher volumes and the start-up of new programmes.

2) Seat comfort
- Sales of the Company's products to passenger cars increased by 15.8 percent, representing 66 percent of the sales in 2006. Adjusting for the effect of the acquisition of Milan, USA, (June 2005) the revenue increase was 4.4 percent. This growth is due to the Company capturing market shares and also because the product portfolio which the Company has within the area of safety and comfort, shows a positive development, despite a somewhat weaker overall market. Sales of passenger cars in Europe showed an increase of 0.7 percent. Many of the Company's main customers, however, have lost market shares.
- In 2006 a substantial portion of the seat heater assembly work was moved from Sweden to Poland, together with component production that previously took place in England. Furthermore, work on new orders started in Poland. The largest single project was head restraints for the Audi Q7, which has become a market success.

3) Commercial vehicle systems (CVS)
- Deliveries to truck and bus manufacturers have increased by 9.8 percent and represented 34 percent of the Company's turnover in 2006.The European market showed record figures; Brazil too was positive, whereas the Korean market was weak.
- Trucks sales are strongly linked to general economic development and not least to investment in infrastructure. Consequently the truck market in Eastern Europe, as well as in a number of Asian countries, is expanding and is expected to represent substantial volumes in the years to come. Contracts signed in 2006 for future deliveries to the commercial vehicle market are expected to give annual sales of approx. NOK 365 million; start of production is from 2006 to 2009.
- In connection with the takeover of Raufoss United in 2004, an ambitious programme for qualifying a completely new range of air brake couplings was initiated. These new connectors are to a large extent based on plastic instead of brass. An agreement was entered into in the middle of 2006 for the supply of connectors to a global truck manufacturer that will be using the Company's new product range in all future vehicles. This contract, the largest in the Company's history, is expected to provide total revenues of NOK 2 billion during the period 2008 to 2018. Furthermore, other
contracts representing annual sales of approx. NOK 50 million have been concluded.

Merger of Business Segments
- From Jan. 2007, the business areas Gearshifts and Commercial Vehicle Systems have been merged into one division: Driveline & Chassis. The other division is Seat Comfort. The purpose of the merger is to utilize common technology and simplify the management structure.

Strategy of Stronger Emphasis on Asia
- The Company has increased its activities in Asia during 2006. This applies not only to marketing and sales, but also to resources for adapting product concepts to local needs. A new laboratory has been built in Wuxi, China, for the testing of seat heating elements in connection with lifespan and the environment. The Company's new factory in China (approx. 5000 m2) was opened, and new production facilities were also brought into service in Korea. The Company's sales office in Japan has been expanded.
Through market research the Company has determined that there is a considerable potential for the Company's products in Asia. Concrete projects have been identified for all product areas, which collectively represent more than NOK 1 billion in annual sales. To enhance the probability of success, the Board has decided to step up activities in Japan, Korea, China and India.
Several of the Asian car manufacturers such as Toyota, Hyundai and Honda are increasing market shares globally. The Company intends increasing its sales among these winners. As many important decisions regarding future concepts are taken at headquarters, a strong local presence in Japan and Korea will be necessary in order to achieve this.

R&D Expenditure

(in NOK million)	2006 (IFRS)	2005 (IFRS)	2004 (IFRS)	2003	2002
R&D Expenditure	159.0	170.0	144.0	93.8	75.4
% in Sales	5.6%	6.7%	6.6%	5.9%	5.8%

R&D Structure
- Collective product development expenses amounted to NOK 159 million (170). As a percentage of revenues this represents 5.6 percent (6.7 percent). The main effort has been concentrated on pre-production qualifying of products. Concept development mainly takes place at the competence centers in Sweden, Norway, England and the USA.
- All new products undergo comprehensive testing programmes that are determined in corporation with the customers with the intention to ensure zero defect products and sufficient lifetime guaranties. Within the gearshift product area, preparations have been made for start-up on behalf of GM, Ford, Renault, BMW and DC.
- Following the acquisition of Milan (USA) in 2005, many of the R&D activities have been directed towards head restraint products. The main process at Milan (Foam-In-Place) has been further developed to meet new safety requirements in the American market from 2008. Further work with active head restraint systems, designed to prevent whiplash injuries, has also been pursued with a view to commence marketing in 2007.
- Within lumbar and lateral support systems for car seats, R&D activities have mainly been concentrated on customer projects. The number of new projects has had a positive development and several important contracts have been secured. The Company's "Smart Wire" concept has become established as a market leader wherever robust and dependable car-seat heating is required.

(in NOK million)	FY2006 (IFRS)	FY2005 (IFRS)	FY2004 (IFRS)	FY2003	FY2002
Capital Investment	121.4	121.5	89.3	77.6	37.5

- The Company's expanding activities in Brazil have created the basis for a new 3,500 square meter manufacturing plant in the city of jundiai, some 70 km outside Sao Paulo. The plant was inaugurated on Nov. 29, 2006. The new plant allows Kongsberg Automotive to meet the growing demand for its products in Brazil. The company has been present in the Brazilian market since 2000. (From a press release by the company on Nov. 30)