Corporate social responsibility means commitment

Transcription

1 Sustainability Report 2005 Corporate social responsibility means commitment Financial value added Corporate social responsibility The environment

2 Kongsberg Kongsberg Gruppen (Kongsberg) primarily targets offshore, merchant marine and defence markets. The bulk of the Group's activities address the international arena, with Europe, the USA, the Middle East and Asia as the most important markets. Kongsberg Gruppen ASA Kongsberg Maritime AS Kongsberg Defence & Aerospace AS Offshore & Merchant Marine Offshore & Marine Process Automation Subsea Positioning Defence & Aerospace Missiles & Space Naval Systems Integrated Air Defence Systems Dynamic Systems Land Systems & Surveillance Defence Communication

3 1 Introduction This is Kongsberg's third Sustainability Report. The report is divided into three main chapters: financial management, corporate social responsibility and environmental management. In other words, we are reporting the triple bottom line. Kongsberg's reporting is based on the Global Reporting Initiative's Sustainability Reporting Guidelines. In the earlier reports, we have discussed intellectual capital in a separate main chapter. This time, we have placed that discussion under the introductory chapter on financial management. This does not mean that we are placing less emphasis on this topic. It is very important to us. Our international presence has increased dramatically in recent years, and we expect this trend to continue. This means that problems related to corporate social responsibility and the environment will call for more attention on our part. We want to maintain a pro-active attitude to these challenges. The report has been discussed by the corporate Board of Directors. THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT OTHER Introduction 1 Indicators 2 Cheif Executive Officer 4 Vision, objectives and strategy 7 This is Kongsberg 8 Kongsberg's values 10 Introduction 12 Finances and value added 14 Corporate governance 15 The world of Kongsberg 16 Intellectual capital 18 Introduction 20 Policy for corporate social responsibility 21 Kongsberg's corporate social responsibility 22 SOS Children's Villages 23 Interview Svein Grønnern 24 Ethics 25 Diversity 26 Dialogue with our stakeholders 27 Health, safety and the working environment 28 Activities Goals Introduction 32 Environmental policy 33 The organisation of environmental efforts 34 Environmental accounts 36 Environmental challenges facing Kongsberg 39 Environmental data from outer space 40 Activities Environmental objectives The GRI Index 44

4 2 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Indicators Indicators Financial Key financial figures value added Operating revenues (MNOK) Operating revenues, civilian (%) Operating revenues, outside Norway (%) EBT (earnings before tax) (MNOK) Backlog of orders (MNOK) Equity in % Direct and indirect taxes to state/municipality (MNOK) Salaries to employees (net after tax) (MNOK) Share dividend (MNOK) Interest to lenders (MNOK) Retained earnings (MNOK) 197 (23) 86 Level of education Graduate Engineer and other higher education (4 year +) % Engineers/Technicians (up to 3 year) % Other salaried employees (higher education 3 year) % Operators % Average age Number of employees Number of employees abroad Value added accounts (MNOK) Employees, by region Retained earnings MNOK 197 Direct and indirect taxes to state/miunicipality MNOK 889 Africa 0.2% Canada 1.8% USA 2.0% Asia 5.8% Norway 84.7% Interest to lenders MNOK 54 Share dividend MNOK 64.5 Europe 5.5% Salaries to employees (net after tax) MNOK 1 060

5 3 Indicators Corporate Social Social responsibility Responsibility Donations to organisations, etc (NOK 1 000) Diversity Women as a % of the number of employees Women in leading positions as a % of total managerial positions (Norway) Shareholder-elected women on the Board in % Health and safety Absence due to illness as a % of hours worked The environment Waste Waste for recycling (metric tonnes) Residual waste (metric tonnes) Hazardous waste (metric tonnes) Chemicals Environment-unfriendly and hazardous chemicals (metric tonnes) Other categories (metric tonnes) Energy consumption Electricity (MWh) District heating (MWh) Gas/oil (MWh) Employees by level of education Generated waste by waste fraction Graduate engineers (and other higher educations - 4 years or more) 25% Operators 12% Engineers/ technicians 47% Wood for recycling 12% EE waste for recycling 3% Paper/cardboard for recycling 22% Metal for recycling 16% Hazardous waste 7% Other salaried employees (up to 3 years of higher education) 16% Plastic for recycling 2% Residual waste 38%

6 4 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS The Chief Executive Officer Dear reader, This is Kongsberg's third report regarding its relationship to and responsibility for sustainable development. The report generally deals with the same topics as we have discussed in the earlier reports. However, each year we aspire to get a little better and a little more systematic in the course of our sustainable development work and the way in which we report on it. What do we mean by sustainable development at Kongsberg? In a global perspective, the UN defined sustainable development as "development that meets the needs of the present without compromising the ability of future generations to meet their own needs". This is a course of development we support. As a small company, we are aware that we are not in a position to determine how society will develop. Notwithstanding, we will ensure that our own operations comply with the requirements for achieving the desired course of development, at the same time as we will strive to influence our partners and suppliers to do the same.

7 5 To us, sustainable development is also a question of keeping our own house in order. For example, we must follow our corporate Code of Ethics and comply with our policies for social responsibility, the environment and corporate governance. Where do we stand relative to our objectives? Last year's report focused on our main objectives for corporate social responsibility and the outdoor environment. The first pages of this year's report describe these objectives and the measures that have been implemented. We also describe our objectives for Most of the objectives we set for 2005 have been achieved. Nonetheless, we see that in certain fields we need more momentum and closer follow up to reach our objectives. We will continue to work on this. In early 2006, we signed an agreement with SOS Children's Villages to build a children's village in Zambia. Read more about this on page 23. Sustainability and the defence industry It is absolutely essential that Kongsberg's operations are run in an ethical, environment-friendly and socially responsible manner. Deliveries to the defence market account for 42 per cent of Kongsberg's total turnover. Many would contend that an enterprise can not stand for sustainable development and be socially responsible at the same time as it delivers weapon and systems to the defence market. I do not agree with that view. There is broad political consensus that all countries have defence forces. However, there are differences in countries' politics, handling of human rights and level of agressiveness towards other countries and nations. Consequently, the Norwegian authorities have one of the world's most restrictive regimes for the export of defence materiel. When we sign contracts to sell our systems, the other party is the Armed Forces of the country in question, or we sign directly with one of our large international alliance partners. We do not deliver components or systems to the nuclear weapons industry, nor do we operate on the market for mines or chemical weapons. Our challenges By international standards we are a small corporation, yet we face the same challenges as the big companies. We have operations in 21 countries. Naturally, we encounter cultures that differ from our own, and we cannot expect that our standards can be applied immediately. We aspire to promote sustainable development wherever we operate, based on our position in each individual country. The Group has ambitions for growth. This growth will largely take place on the international market. This means we must be extra aware of the problems involving our corporate social responsibility that we will be facing in connection with

8 6 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS this expansion. We will have to identify the areas in which we will encounter the greatest challenges, and where we have the best chances to exert a favourable influence. Within the Group, we need to be more systematic in striving to attain the objectives we set for ourselves and to follow up policies and guidelines related to ethics, the environment and corporate social responsibility. By way of conclusion, I hope this report will give you a fair idea of how Kongsberg addresses its environmental and corporate social responsibility. Happy reading! Jan Erik Korssjøen CEO

9 7 Vision, objectives and strategy Objectives Kongsberg shall be an internationally-oriented technology enterprise, headquartered in Norway. By taking advantage of its high level of expertise to develop attractive solutions for the market and its constant operational improvements, the Group will safeguard and enhance shareholder value by: Engaging in a programme of continual improvement measures with a view to boosting profitability. Generating growth and profitability, both organically and through acquisitions and structural initiatives. The Group is to be organised in a way that allows it to exploit coherence and potential synergies. The Group shall be operated in an ethical, environment-friendly and socially responsible manner, projecting a distinct image and safeguarding its good reputation. is also motivated by the desire to augment the range of products, and to gain admission to new markets or access to specialised technology. Constant improvement in the Group's strategic market position plays a vital role in its acquisition strategy. Expertise Knowledge and expertise are Kongsberg's most important competitive parameters. Offering all employees comprehensive human resources development opportunities is crucial to positive performance trends, making it a high priority. To recruit and retain personnel, the company must offer attractive, challenging jobs. The Group offers a systematic management development programme. Corporate social responsibility and ethics Kongsberg has a corporate Code of Ethics, an Environmental Policy and a Policy for Corporate Social Responsibility. These are basic elements in the Vision WORLD CLASS through people, technology and dedication Strategy Important initiatives for achieving the objectives include: Markets Kongsberg's markets are characterised by high standards for performance, quality and operational reliability. About 70 per cent of the Group's operating revenues were earned outside Norway. Kongsberg consistently strives to develop a marketing system that can effectively help satisfy customers' needs. Customer proximity and cooperation on the development of optimal solutions play key roles. Strategic alliance-building is a prerequisite for success in several of Kongsberg's product areas. Concentration on the strategic business areas The business areas are continuously reviewed to identify activities which do not occupy a natural place there, or which might better be developed under the auspices of other industrial constellations. When conditions are right for divestments, the Group makes a meticulous assessment to protect assets insofar as possible. Acquisitions Acquisitions are a key part of the corporate growth strategy in the core areas. The goal of acquisitions is to exploit common technology and achieve market synergies. This strategy efforts to achieve a corporate culture that supports sustainable development. Technology Kongsberg generally spends about 10 per cent of its operating revenues on product development. A high level of activity in this field is considered a prerequisite for profitable organic growth. Product development may be funded by customers and/or be equity-financed. The needs of the market will invariably govern the direction of, and the ambitions and solutions associated with product development. Kongsberg's products are largely based on the following core competencies: software development, engineering cybernetics, systems integration and signal processing. Financial strategy Corporate management attaches importance to having the financial strength needed to ensure its freedom of action. Growth is to be funded mainly by earnings and the availability of previously tied-up capital. External funding is always based on a long-term perspective that is commensurate with the Group's business strategy. The Group's financial policy is primarily aimed at increasing predictability and reducing risk.

10 8 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS This is Kongsberg from the perspective of sustainability Kongsberg is an internationally-oriented knowledge-based technology enterprise headquartered in Norway. The Group has two business areas: Kongsberg Maritime and Kongsberg Defence & Aerospace. Their main activities are in the offshore industry and merchant marine, and the defence and aerospace market, respectively. The bulk of the Group's operations address international markets, with a strong and growing geographical distribution of earnings. In 2005, the Group posted total operating revenues of NOK 5.7 billion. Kongsberg has operations at 36 locations in 21 countries, and has employees, of which 516 work outside Norway. Objectives Kongsberg's main objective is to enhance shareholder value over time. This will also benefit employees, society-at-large and other stakeholders. The main objective will be achieved not least by conducting ethically, environmentally and socially responsible operations. Growth is a key part of the Group's strategy. Sustainability Kongsberg aspires to achieve sustainable development, i.e. a good balance between financial results and corporate social and environmental responsibility. In recent years, the Group has placed additional emphasis on addressing issues related to sustainable development. Corporate social responsibility The Group's work with corporate social responsibility will be part of its routine operations and help support corporate development. To succeed in this important work, we must ensure that we comply with our policy for corporate social responsibility, and that our corporate Code of Ethics is communicated and followed up. The environment Kongsberg's main business activities involve software and systems integration. The Group produces little direct pollution of the outdoor environment. The Group is only marginally affected by government environmental regulations. However, our production does entail some water and air pollution, and small amounts of chemicals are used. Our objective is to limit such consumption insofar as possible. Most of our employees work in offices and office landscapes, and they use office supplies. Energy is used to heat office and production facilities. We are also aware that extensive travel activities have an adverse impact on the environment. Products The Group is one of Norway's largest industrial engineering communities, and its products are characterised by a high technology content. The products have to function under demanding conditions, from equipment for surveying the seabed down to depths of metres to satellites in outer space. Accordingly, reliability requirements are very stringent. We strive to reduce the use of substances that are hazardous to the environment and human health and chemicals in the products we develop. We have also started setting environmental standards for our suppliers. Markets Markets outside Norway account for an ever larger, more important share of Kongsberg's total operating revenues. This is true of products for the civilian and defence markets alike. This trend is expected to continue In 2005, 67 per cent of operating revenues were earned outside Norway. All of our defence-related exports are contingent on the approval of the Norwegian authorities. Business areas Kongsberg's two business areas, Kongsberg Maritime and Kongsberg Defence and Aerospace, work in the same areas of technology. Signal processing, engineering cybernetics, software development services and systems integration are the most important areas of expertise for both BAs. Both deliver decision-support systems, from command and weapons control systems to communications solutions and automation and surveillance systems. Kongsberg Maritime Kongsberg Maritime delivers systems for positioning, navigation and automation to merchant vessels and offshore installations, as well as systems for seabed surveying, monitoring, fishing vessels and fisheries research. The business area is a market leader in these areas. Important markets include countries with significant offshore and shipyard industries. Kongsberg Defence & Aerospace Kongsberg Defence & Aerospace is Norway's premier supplier of high-technology defence systems. Solutions developed with the Norwegian Armed Forces have proven competitive at the international level. In recent years, they have achieved a significant export share. Kongsberg Defence & Aerospace delivers systems for command and weapons control, RWS, surveillance, communication and missiles, where the main products are the Penguin and the new Naval Strike Missile (NSM).

11 9 Expertise Kongsberg is a knowledge enterprise. Having the right expertise promotes added value and is decisive for the Group's competitiveness. Shareholder policy Kongsberg's primary goal is to enhance shareholder value over time. Our policy is to pay out about 30 per cent of the Group's annual profit from ordinary operations to shareholders in the form of dividends. Ownership Kongsberg Gruppen ASA is listed on the Oslo Stock Exchange. The total number shareholders was at 31 December The principal shareholder is the Norwegian state with a per cent stake. The world of Kongsberg Svalbard (Spitsbergen) British Columbia (Canada) Newfoundland (Canada) Washington (USA) Ontario (Canada) Nova Scotia (Canada) Pennsylvania (USA) Connecticut (USA) Texas (USA) Louisiana (USA) Norway 1) Scotland Ireland England France Spain Germany The Netherlands Italy Greece The United Arab Emirates China South Korea Singapore Peru Brazil Chile South Africa Antarctica 1) Kongsberg, Horten, Asker, Kjeller, Trondheim, Stjørdal, Tromsø, Svalbard Operating revenues MNOK Norway Scandinavia Europe USA Canada South America Middle East China South Korea Rest of Asia Africa Australia

12 10 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Kongsberg's values Kongsberg's values indicate how we should behave and work, providing guidelines for cooperation, both within and outside the Group. A common value platform is essential for building a strong corporate culture and a good reputation. We see that this can help us activate the energy inherent in the organisation as well as support our vision: WORLD CLASS through people, technology and dedication. Culture and identity building Introducing and establishing a corporate value platform is a continuous process. Collectively, we build up a culture over time. We are dependent on having a good reputation to achieve our business targets. The way in which we operate is just as important as the results we achieve. Motivated employees who like their jobs are a prerequisite for achieving good results in the long term. Kongsberg is represented in many countries, and there are considerable variations with a view to political, economic, cultural and social conditions. The world around us is in constant flux and we Kongsberg's values indicate how we should behave and work, providing guidelines for cooperation, both within and outside the Group. must keep pace with these changes. However, it is also important that some things remain constant. A common value platform based on continuity helps ensure predictability. Our values and corporate Code of Ethics are intended to help us to find solutions and take decisions about how Kongsberg's operations should be conducted. Kongsberg's way of working Kongsberg's value platform has been the subject of numerous processes within the Group. Discussions about what the values mean to each individual and his or her unit have been a profoundly important part of implementation. Our managers are required to 'walk the talk' (serve as good role models). It is through behaviour that culture is created, not through elegantly worded rhetoric. We continuously address the main challenge facing us, i.e. to boost interaction and intensify synergies within the Group. Network building is important and good pan-group teamwork is one of our goals. We will continue to promulgate the value base throughout the Group. The point is for these values to be reflected in all our coworkers' behaviour, so that our business associates describe Kongsberg as customer-centric, quality conscious, bold and good to have as a partner! 11,95 mmtarget for 2006 To continue to promulgate our fundamental values throughout the Group so that all employees become aware of their importance in 2006.

13 11 Kongsberg's values Customers We will maintain a focus on our customers at all times in order to contribute to and enhance their value added. We depend on building up loyalty and confidence. Maintaining a local presence is one of Kongsberg's most important philosophies. It allows us to build relationships that make it easier to understand customers' needs. Quality High quality is one of the most important reasons customers do business with us. Reliability must permeate everything we do and make, so that customers continue to have confidence in the Group's products and services. We aspire to be known as a supplier of high-quality goods and services. Boldness Boldness is exciting and demanding. Innovation and revitalisation are of the utmost importance if Kongsberg is to grow and create value in future as well. We aspire to challenge traditional thinking and behaviour. Employees who think bold thoughts and managers who give these ideas room to grow and develop will promote even more innovation. Transparency is a key word when it comes to boldness. We seek to create an open corporate culture, where employees dare to express their opinions. Network building Good interaction is essential both within and outside the Group. Kongsberg encompasses a wide range of different communities and competencies, spread throughout its business areas. Better coordination and the re-use of knowledge will be profitable and inspiring for employees, at the same time as they will facilitate added value both within and outside the Group. Financial value added Corporate social responsibility The environment South Korean value process provides direction "Working with Kongsberg's values has given us a better understanding of what we stand for as a corporation, and of the direction in which we want our employees to develop", says Steinar Gran, head of Kongsberg Maritime's office in Pusan, South Korea. All those who work at Kongsberg's office in Pusan have participated in a workshop to study Kongsberg's values. "We focused on what the values mean to us in our everyday work. Based on the values project entitled 'Walk the Talk', we gave the values our own local interpretations", Gran explains. By actively using the values in different development and seminar programmes and job evaluation systems, employees became more aware of their importance. "To keep people aware of the core values process, we hung up pictures of Kongsberg's value slogans and of our understanding of them at different strategic locations in our premises", adds Gran. He believes that by working actively with the values, the staff has got a better understanding and more awareness of the correlation between working with values issues, ethics and communication, and working on purely technical and commercial assignments.

14 12 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Financial value added Corporate Social Responsibility and our financial value added Kongsberg aspires to achieve a good balance between financial results and corporate social and environmental responsibility. This must be based on profitable and secure operations. This chapter discusses financial value added in relation to reporting routines based on the triple bottom line. In other words, we are not reporting traditional financial data. That type of information can be found in the Group's Annual Report. Kongsberg's corporate Code of Ethics is also part of our reports. We have chosen to discuss this under the chapter on 'Corporate social responsibility'.

15 13 In the light of the Global Reporting Initiative (GRI) Index and the triple bottom line, we discuss the Group's socio-economic impact on the communities in which we operate, both locally and at the international level. Value added The report covers value added in the form of operating revenues by geographical area, the purchase of goods and services, the payment of payroll and social security expenses, and the resources spent on research and development. Tax and the payment of dividends are also part of this picture. The world of Kongsberg A large part of the Group's operations take place abroad. The percentage is on the rise. We provide an overview of our world-wide locations and operations. Intellectual Capital Kongsberg is a knowledge-based technology enterprise. The quality of the Group's overall knowledge base is pivotal for our success. It is currently at a high level, and it is important to maintain and further develop this expertise. This is discussed under the section on intellectual capital. Governing bodies The way in which the Group is run affects goal achievement. This chapter is about systems of governance, mainly in respect of the environment and corporate social responsibility. For a thorough discussion of the overall systems of governance, please see the Group's Annual Report. This chapter deals with the following topics: Financial impact Systems of governance The world of Kongsberg Intellectual capital

16 14 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Finances and value added Kongsberg's primary goal is to enhance shareholder value. We will do this through good profitability, growth, efficient organisation and ethically, environmentally and socially responsible operations. Our operations create values in the areas and countries in which we operate. This is done directly by paying dividends to our owners and wages to our employees, and indirectly by purchasing goods and services from suppliers. Moreover, value is created by our emphasis on research and development. Results In 2005, the Group had an EBT of MNOK 311. Revenues had a slight decline, but profitability improved. Most of the Group's business units saw progress in 2005, and the Offshore & Merchant Marine markets were especially good. Operating revenues Consolidated operating revenues, by geographical area: Tax expense The Group's total taxes for 2005 came to MNOK 96, up 35 per cent from the year before. Tax expenses by geographical area: Norway MNOK 88 Asia MNOK 4 America MNOK 3 Europe MNOK 1 Total MNOK 96 Kongsberg's primary goal is to enhance shareholder value over time. Amounts in MNOK Norway Rest of Europe America Asia Other Total The figures for 2005 and 2004 have been adjusted for the sale of yachting activities, which was the main reason for the decline in operating revenues from America from 2003 to Procurement of goods and services Kongsberg spent a total of NOK 2.3 billion in This was a decline of NOK 0.2 billion from The bulk of procurements takes place from or through Norwegian suppliers. The products are nonetheless largely manufactured abroad. The foreign proportion is expected to increase. Payroll and social security expenses In 2005, payroll and social security expenses aggregated NOK 2 billion. That corresponds 39 per cent of the Group's operating expenses, an increase of 1.3 per cent from Dividends The Board of Directors will propose to the AGM a dividend for 2005 of NOK 2.15 per share. Provided the proposal is adopted at the AGM on 9 May 2006 and the ownership structure at 7 March does not change, the following dividends will be paid: The Norwegian State MNOK 30.2 Organisations/enterprises MNOK 14.2 Securities funds MNOK 10.3 Insurance/pension funds MNOK 3.8 Private individuals MNOK 3.2 Foreign owners MNOK 0.6 Total MNOK 64.5 Research and development (R&D) Kongsberg's spends more than 10 per cent of its operating revenues on R&D. Of that amount, MNOK 258, corresponding to 5 per cent of operating revenues, is equity-financed. Kongsberg Defence & Aerospace operates in a market where the customer funds parts of product development. Kongsberg Maritime undertakes equity-financed development projects up to the finished product.

17 15 Corporate governance from the perspective of environmental and corporate social responsibility The Group depends on good, effective governance and control systems to achieve its goals. Our overall system of governance is related to the 'Norwegian recommendation for corporate governance'. It is essential to achieve smooth responsible interaction between owners, the Board, management and different stakeholders. Annual General Meeting The Annual General Meeting (AGM) is the supreme governing body in the Group. The AGM guarantees shareholders their right to co-determination. The ordinary Annual General Meeting is usually held in May. The Board The Board's function is first and foremost to look after all shareholders' interests. This also includes responsibility for the Group's other stakeholders. The corporate Board of Directors bears the ultimate responsibility for Kongsberg's contribution to sustainable development. The Board ensures the Group's environmental and corporate up and proposing environmental goals at the corporate level, for following up the goals in the business areas, and for routines and reporting at the corporate level. The Environmental Forum is comprised of representatives of the two main BAs, the property management company, the shop stewards and the parent company. Corporate Social Responsibility Forum A special Corporate Social Responsibility Forum was set up in The Forum is responsible for following up compliance with, evaluating and making any amendments and adjustments to the Group's Policy for Corporate Social Responsibility. The Forum is also responsible for drawing up and proposing goals for social responsibility at the corporate level, for following up the goals in It is essential to achieve smooth, responsible interaction between owners, the Board, management and different stakeholders. social responsibilities are taken into account, and receives briefings on individual measures and events related to these topics. In addition, the Board adopts the Group's Sustainability Report. Corporate management Corporate management bears the ultimate responsibility for operations. This means they are responsible for ensuring compliance with legislation, regulations and in-house environmental standards. They are also responsible for compliance with the Environmental Policy and the Policy for Corporate Social Responsibility. Twice a year, reports are drawn up to describe the status of the Group's work with environmental and corporate social responsibility. The reports are submitted to corporate management. Business areas The practical efforts involved in corporate social responsibility and environmental activities are usually handled by the business areas. Each business area has a designated person in charge of environmental efforts and one for corporate social responsibility. Environmental Forum The Environmental Forum is responsible for following up, evaluating and proposing changes to and adjustments in the Group's environmental policy. The Forum is also responsible for drawing the BAs, and for routines and reporting at the corporate level. The Forum consists of two representatives of corporate management (executive vice president, HR, and executive vice president, Corporate Communications), a representative of each business area and the Group's manager for corporate social responsibility. For additional information about our governing bodies, see page of the Annual Report. The following elements underpin Kongsberg's Corporate Governance Policy Kongsberg will maintain open, reliable and relevant communication with the public about its business activities and factors related to corporate governance. Kongsberg's Board of Directors will be autonomous and independent of the Group's management. Kongsberg will attach importance to avoiding conflicts of interest between the owners, the Board and management. Kongsberg will have a clear division of responsibilities between the Board and management. All shareholders will be treated equally.

18 16 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS The world of Kongsberg a brief description of the Group's main activities Europe Norway The Group is headquartered in Norway, which is also home base for the two main business areas Kongsberg Maritime and Kongsberg Defence & Aerospace. Kongsberg Maritime is located in Asker, Horten, Kongsberg, Oslo and Trondheim. All these units engage in development, production, testing, sales and service. Simrad's yachting activities were sold in autumn The business area has a total of employees, of whom work in Norway. Kongsberg Defence & Aerospace has its main base of activities in Kongsberg. The Group's defence activities are located in Horten, Asker, Kjeller, Stjørdal, Tromsø and Svalbard. All these places engage in development, production, testing, sales and support. The business area has a total of employees. and the like from Norway. Kongsberg Maritime Korea Ltd. is a reputable, competitive supplier and partner on the South Korean market. Singapore Kongsberg Maritime Pt Ltd. in Singapore has about 25 employees, three of whom Norwegian. The company's main responsibilities are service/support, sales, installation and startup. Singapore has one of the world's largest harbours and is a port of call for several hundred vessels a day. Kongsberg Maritime offers world-wide service and support. For an enterprise that has equipment on board more than vessels, it is essential to maintain a presence in such a maritime hub. One of the Group's main objectives is to provide service and support to vessels while they are in port. Singapore is also a major shipping and shipbuilding nation, making it very important for Kongsberg Maritime to provide good service there. Markets outside Norway are accounting for an increasingly larger share of overall operating revenues. Great Britain With oil activities concentrated in the North Sea, it is natural for Kongsberg Maritime's centre for offshore activities to be located in Aberdeen, Scotland. Product development and the production of special area underwater cameras takes place in Wick, Scotland. Altogether, the business area has 121 employees in the UK. Rest of Europe The Group also has sales and service units in Germany, the Netherlands, France, Spain, Italy and Greece. Asia South Korea Kongsberg Maritime has its main South Korean offices in Pusan. The Group has a total of about 90 employees in South Korea, including four Norwegians. The others are South Korean. The company's main responsibilities are sales, engineering, installation, start-up and service/support. We are building up a local presence and expertise in what is now the world's largest shipbuilding nation. This enables our customers to perceive us as a reliable local supplier that knows the customer's business operations and way of working, and communicates with the customer in his own language. Having wellqualified local employees eliminates the need to send technicians Norcontrol IT, a Kongsberg Defence & Aerospace subsidiary that makes significant deliveries in connection with Singapore's vessel traffic monitoring, is also represented here by a company with 17 local employees. China Kongsberg Maritime China Ltd. in Shanghai has about 60 employees. Three are Norwegian, while the others are Chinese. The company is run in collaboration with Kongsberg Maritime's longstanding partner in China: Hoi Tung. The intention is to operate as a local supplier to the Chinese shipyard industry. We also have a significant amount of local production, mainly of cabinets and the equipment that goes into them. The company has seen a favourable development trend since its inception in summer In the light of China's rapidly expanding share of the world's shipbuilding market, the company has the potential to become an increasingly important part of Kongsberg Maritime's international commercial shipping operations.

19 17 North America USA Kongsberg Maritime is represented at the following main locations in the USA: Seattle, Houston and New Orleans, as well as by some smaller units along the southern and eastern coasts of the US. These units are mainly devoted to sales and customer support. The unit in Seattle is also engaged in technological development and the adaptation of existing products to the US market. The units serve either or both Offshore & Merchant Marine and Fishery. Of the two segments, Offshore clearly dominates in the US, with the Gulf of Mexico, Houston and New Orleans, as their most important arenas. Altogether, Kongsberg Maritime has roughly 60 employees in the US. Kongsberg Defence & Aerospace is establishing an enterprise in the US to maintain the weapons control system for armoured personnel carriers. Canada Kongsberg Maritime's main operation in Canada is located in Vancouver on the west coast. The unit there is engaged in proprietary product development and production, and has 50 employees. Kongsberg Maritime also has offices at three locations on the east coast (in Nova Scotia and Newfoundland). The activity in Vancouver is based on hydroacoustics-related technology, and is an integral part of Kongsberg Maritime's other hydroacoustics activities. Sales and customer support are handled at all locations. Kongsberg Maritime has a total of 72 employees in Canada. In November 2005, Kongsberg Defence & Aerospace signed an agreement to buy Gallium Software Inc. of Canada. Gallium has 65 employees and is well-known for its map graphics tool for military command and control systems. South America Brazil Kongsberg Maritime's operations in Brazil are closely associated with its local agent in Brazil: REM. The office handles sales, service and commissioning of offshore vessels as well as user training. Kongsberg Maritime/REM in Brazil currently has 20 employees, four of whom are Norwegians. There is a boom in the oil fields outside Rio de Janeiro, which affects activities at Kongsberg Maritime's office. Field service was the first step for Kongsberg Maritime's activities in the country, but the shipping industry has seen formidable growth as Brazil's political and financial situations have evolved. New legislation and regulations in Brazil require that vessels in Brazilian waters sail under the Brazilian flag, and with a Brazilian crew. This is also reflected in the expectations of customers, who require a local presence and local training facilities for their Brazilian crews. Kongsberg Maritime currently has a number of delivery and startup projects in the area that are handled by local employees. A variety of training programmes are available for Brazilian crews at Kongsberg Maritime's training centre in Macaé outside Rio. Rest of South America Otherwise, Kongsberg Maritime's fishery operations have stakes in enterprises at three locations: Santiago and Talcahuano, Chile, and Callao, Peru. These undertakings have a total of six local employees in Chile and four in Peru, and are dedicated to sales and service of fishery equipment. Africa In Africa, Kongsberg Defence & Aerospace's subsidiary Norcontrol IT is represented in Durban, South Africa. There, seven local employees work with software development.

20 18 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Intellectual capital Kongsberg has chosen to incorporate intellectual capital into the sustainability concept. The way we develop and manage our intellectual capital is crucial for our ability to innovate and add value over time. To illustrate how our intellectual capital works, we have defined our own model. The model is based on traditional terms: human, structural and customer capital. Separately, these add little value. It is first when they interact that innovation and value are created. Consequently, we have introduced the concept of 'interaction capital'. The sum of these four types of capital is what we define as our intellectual capital. Kongsberg's work with intellectual capital is not organised as a special project. That would also be difficult since intellectual capital encompasses most of our activities, from how we treat customers and outside relationships, to our in-house processes, infrastructure and human resource development. Initiatives aimed at human resources development Expertise is one of Kongsberg's most important competitive advantages. Our ambition is to attract qualified labour and further develop all our human resources. Some of our human resources development measures are centrally operated, while others are decentralised activities, specifically adapted to the needs that arise in the individual units. Kongsberg cooperates closely with different research and educational institutions such as the Norwegian University of Science and Technology (NTNU), the Foundation for Scientific and Industrial Research at NTNU (SINTEF), the Norwegian Defence Research Establishment and several technical colleges. One important aspect of human resources development is the continuous updating of skills through external courses and different types of certification. In 2005, we established several new programmes across the Group. Kongsberg's activities are largely organised as projects and are therefore dependent on good project implementation. Intellectual capital a significant contribution to sustainable development. The Kongsberg model for intellectual capital VISION HUMAN SURROUNDINGS STRATEGY INTER- ACTION INNOVATION/VALUE ADDED CUSTOMER STRUCTURAL VALUES Interaction capital refers to the ability to get employees and organisations to work together within the Group, and with our customers. This is decisive for our ability to revitalise and add value over time. Human capital encompasses the competence and motivation of each individual employee, and the employee's behaviour and values. Human capital also includes management skills. Structural capital can be defined simply as the value of the knowledge inherent in an enterprise's structures, routines, processes, systems, databases, brand names, patents, etc. Customer capital constitutes the value of all the relations Kongsberg has with its surroundings. We emphasise the importance of customer relations, at the same time as our relations with alliance partners, owners, the authorities, capital markets, suppliers and society-at-large are also important. A long-term perspective is crucial for all our relationships.

21 19 A Group-wide project management training programme was set up in response, feedback and situation-specific management. Course duration: five days. Corporate leadership development at Kongsberg Kongsberg has engaged in centrally organised management training since the start-up of Norsk Forsvarsteknologi in Our main focus is on the human dimension of leadership. Kongsberg has a very high percentage of highly educated employees, more than 70 per cent of them in technical subjects. Our programme portfolio Our programme portfolio consists of the A, B and C seminars and 'Hard Fun'. The A, B and C seminars are short-term programmes that focus on different aspects of leadership (myself, others and the team). Hard Fun is a lengthier, more in-depth programme that also focuses on business challenges (see fig.) LEADING TEAMS C LEADING BUSINESS HARD FUN LEADING SELF A PROFESSIONAL KNOWLEDGE & EXPERIENCE LEADING INDIVIDUALS Seminar A cooperation Gives new managers concise fundamental insight into group dynamics. The topics are: approaches, diversity, communication, motivation, development goals, feedback, values and ground rules. Course duration: three days. Seminar B self-management Gives managers deeper insight into themselves, their own management platform and managerial talent. The focus of the programme is clarified through a conversation between the participant, his or her immediate superior and the course leadership. After completing the programme, participants should have definite insight into their personal development needs and a plan for what this entails in terms of behaviour modification. The plan is set up during a talk with the participant's immediate superior and must be further followed up in future performance appraisal interviews. The topics are: team management, dilemma thinking, B Seminar C leading a team Gives participants a deeper understanding of the impact of their behaviour on developing and managing effective teams at Kongsberg. Participants are seasoned managers who contribute their own experience. At the course, individual plans are devised to outline how knowledge can be translated into action in one's own organisation. Course duration: five days. Hard Fun business management Gives participants in-depth insight into their own style of management and its impact on the choices they make as managers. Development and performance take place in a close dialogue with and with contributions from corporate management. Special emphasis is placed on the choices that have an impact on business opportunities for the enterprise. This involves challenging individuals as regards their own points of view on topics such as strategy, organisation and management across dividing lines and cultures. The question of perspective is a common denominator in all the sessions. Coaching challenges individuals' ability to recognise the organisation's challenges and to see potential solutions based on alternative positions. The programme involves six sessions over the course of a year. New human resources development initiatives In 2005, we launched two new Group programmes. The one is a course on board work for our employee representatives and their deputies who serve on the corporate board or on our inter-group boards. The other is a common introductory course for new employees. Challenges One of the challenges facing Kongsberg in 2006 will be to offer management development programmes at all levels that are adapted to the tasks the Group faces at any given time. Another is to internationalise the programmes. Target for 2006 Outline a set of management specifications for the entire Group Implement systematic management audits Evaluate and compile an overall concept for management development at Kongsberg

22 20 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Corporate social responsibility Kongsberg's corporate social responsibility At Kongsberg, corporate social responsibility means taking into account the communities in which the Group operates and which are impacted by our activities. It also involves relations with our employees, society-at-large and external stakeholders. It is important that we have knowledge about the effects of our activities on the communities in which we operate. Compiling knowledge about and understanding of those communities, is an area on which we will spend more time in We support the principles underlying sustainable development. This is because we feel it is important for business and industry to shoulder their part of the responsibility for how tomorrow's world will look. This is a responsibility we take seriously. We also see that sustainable business practices have favourable ramifications for our own enterprise in terms of reducing business risk and strengthening our reputation internally and externally.

23 21 Policy for Corporate Social Responsibility Kongsberg shall engage in value-adding activities that benefit its owners, employees and stakeholders from the perspective of sustainability. Owners Kongsberg's owners shall be assured a competitive rate of return on their investments through management's goaloriented efforts to make the Group's share price appreciate in a long-term sustainable perspective. In addition, owners shall be assured a competitive rate of return through an annual dividend averaging 30 per cent of the company's net profit. Employees Kongsberg's employees shall be encouraged to take advantage of their abilities and to contribute to the Group's development as well as their own. They are to be taken seriously, treated with respect and given orderly working conditions. Kongsberg shall be a corporation with an abundance of diversity. Naturally, health and safety are to be given priority and all Kongsberg employees are to have equal opportunities, regardless of sex, age, and cultural or religious background. Stakeholders Kongsberg shall create values that benefit its stakeholders and society-at-large. This shall take place in a longterm sustainable perspective. Ethics Kongsberg's employees shall comply with the Group's corporate Code of Ethics, which reflects accepted and anticipated attitudes in the community. The Code of Ethics will be updated to stay abreast of trends in society. This chapter deals with the following topics: Kongsberg's Policy for Corporate Social Responsibility Social responsibility Ethics Diversity Dialogue with our stakeholders Health, safety and the working environment Corporate social responsibility activities 2005 Corporate social responsibility targets 2006

24 22 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Kongsberg's corporate social responsibility Inside the Group Kongsberg's corporate social responsibility is first and foremost to our employees. Kongsberg should be a good place to work. We want our co-workers to feel they work in a positive environment and that they are developing favourably through working relationships and the efforts they invest. The high quality of the work done with a view to health and the working environment is also essential if the Group is to reach its goals. This includes human resource development and equal opportunity. We must continuously adapt the organisation to the markets we serve. This means we will regularly face problems that will call for structural changes. This was also the case in It was necessary to downsize some units. This situation is regrettable for those involved, but we do our best to offer job opportunities in other units where we are adding staff. We sold Simrad's yachting operations in In addition, we found new owners for our day-care centres, and sold our stakes in Humanitarian organisations In early 2006, we entered into a long-term agreement with SOS Children's Villages. Kongsberg's wish is to work together to make a better future for orphaned and neglected children. Read more about this on pages 23 and 24. Moreover, we have supported humanitarian organisations both through direct donations and through fund-raising campaigns for charity. It is important for Kongsberg to show co-workers and society-at-large that we are an integral part of the community around us, and that we participate actively in developing a good society for ourselves and for coming generations. Kongsberg shall be a socially responsible enterprise for its employees and stakeholders, as well as for the communities in which it operates. the Kongsberg Health and Environment Centre (the company health service in Kongsberg) and Reime Prosess Notodden. We will continue to cooperate with the new owners of the company medical service, Hjelp24. Outside the Group Human rights Kongsberg has operations in more than 20 countries. Some of these countries face challenges with a view to human rights. We are a small player and our primary responsibility is to protect human rights within our own core activities. We are certain that we do that. Sports and culture We also take responsibility in the local communities in which we operate. For many years, Kongsberg has made donations to sports, culture and not-for-profit organisations. In particular, Kongsberg takes part in preventative work among young people in local communities. We do this by supporting sports clubs that engage in activities designed for the 13 to 18 age group. Activating young people through sports promotes good health and a healthy environment, at the same time as it helps create a good childhood environment in the communities in which Kongsberg is represented. Targets for 2006 It is important to foster enthusiasm among employees for our work with SOS Children's Village. Consequently, in 2006 we will draw up a plan for how to further develop our collaboration with SOS Children's Villages. Kongsberg will continue to support sports and culture in the places where we have the bulk of our operations.

25 23 Kongsberg helps give Zambian orphans a future Kongsberg has signed a three-year agreement with SOS Children's Villages. We have initially chosen to support the construction of a 'Children's Football Village' in Livingstone, Zambia. The new children's village will provide 150 orphans with care and hope for the future. It will also offer thousands of poor people in the local community educational, health-related and sports-related opportunities. It is hoped that Kongsberg's commitment to a 'Children's Football Village' in Zambia will be the start of broad-based, longterm contact with SOS Children's Villages. In the longer term, Chief Executive Officer Jan Erik Korssjøen hopes that all the Group's units will get involved. "This project is of such a nature that it should mean something to all our co-workers, regardless of where in the world they happen to work", says Korssjøen. The Group's agreement with SOS Children's Villages will initially extend for a three-year term (2006 to 2008). Children's Football Village scheduled for completion in 2007 Construction of the children's village in Zambia will begin in autumn It will consist of 10 family houses with room for 150 children, a day-care facility for 90 children, a social centre for users, a school for 360 pupils, a medical centre for patients each year and a football pitch to enrich the lives of all the children and young people in the area. Zambia Zambia has 10.3 million inhabitants. 50 per cent of the population are children, and 1 million of them are orphans. About children have no school to go to, and the oldest children are the breadwinners in a large number of families. Without help, these children can fall victim to violence, prostitution and substance abuse. The average life expectancy is 35 years. This is because one in five people has HIV/AIDS. The country has a 20 per cent illiteracy rate, 70 per cent of the population live under the poverty line, and the unemployment rate is 50 per cent. Kongsberg is funding the construction of family houses in Zambia Under the agreement with SOS Children's Villages, Kongsberg is helping by financing one of the family houses in the children's village. It will give children a safe home for several generations. "The Group and our co-workers have long traditions of giving gifts and supporting different humanitarian organisations. Now we want a long-term project that is geographically neutral relative to our own locations, and where we can follow along with developments. I am convinced that helping to give orphans a future will have a unifying effect on the whole Group", states Jan Erik Korssjøen. The world's largest relief organisation for neglected and orphaned children is politically, religiously and culturally independent. SOS Children's Villages is active in 132 countries orphans have been given a home in an SOS Children's Village child are being educated in SOS Children's Village day-care centres and schools Every day, more than children are helped by SOS Children's Villages SOS Children's Villages have sponsors in Norway. More than MNOK 300 was raised in Norway in 2005.

26 24 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Corporate Social Responsibility = commitment Svein Grønnern, secretary general of SOS Children's Villages. The construction of the 'Children's Football Village' will not merely help the 150 children who will be living in the children's village. The day-care centre, the school, the social centre, the medical centre and the football pitch will be available to all the children and young people in the area. Thus the 'Children's Football Village' will improve the lives of a whole local community in Livingstone. By getting local children and youth leaders and instructors involved in football, sports arenas can also be used to disseminate knowledge about HIV/AIDS. This could help limit the spread and adverse effects of the epidemic. What kind of expectations do SOS Children's Villages have regarding Kongsberg's involvement? The organisation sincerely appreciates Kongsberg's contribution to the construction of the 'Children's Football Village' in Zambia. We share a joint commitment to help orphans. Why has SOS Children's Villages entered into collaboration with the Football Association of Norway for the construction of 'The Children's Football Village', and how can this cooperation help Zambian orphans? Football is a huge international sport, and it plays a social role. In connection with the world football championships last summer, Children's Village's international organisation took advantage of an opportunity to become a humanitarian partner. SOS Children's Villages in Norway contacted the Football Association of Norway (NFF) and suggested a joint venture, i.e. the building of a 'Children's Football Village' in Zambia. NFF was very favourable to the idea. By involving local branches and teams all across the country, we hope to initiate a broad-based campaign to ensure better lives for orphans in Zambia. What can the agreement with SOS Children's Villages mean to Kongsberg? For Kongsberg, I think the agreement can help enhance the sense of solidarity, and that it will help build up common values within the Group. It will forge bonds and promote team efforts between management and co-workers, creating pride in our workplace. Since the agreement is long term, co-workers can monitor the development of the project, and feel like they have a vested interest in the children's village. The agreement signals care and a long-term perspective. It is an expression of the Group's corporate social responsibility. It has been contended that the business community's commitment to humanitarian projects can be perceived as window dressing. What do you think about this? That is not how I see the business community's support. I believe enterprises' commitment and sense of corporate social responsibility are genuine. They want to focus on common values, instilling long-term commitment in their co-workers. This way of demonstrating corporate social responsibility introduces new values into the enterprises.

27 25 Ethics Our attitude to ethics Kongsberg's corporate Code of Ethics emphasises that all co-workers and the Group's Board of Directors shall maintain high ethical standards when performing their duties. The Code of Ethics has been distributed to all our partners and agents. We expect them to live up to the same ethical standards as we expect of ourselves. The Group's corporate Code of Ethics is posted on our website at: Working with ethics creates awareness The work to generate enthusiasm and an open discussion about ethics and ethical dilemmas was high on the agenda at Kongsberg once again in The management groups, from the corporate Executive Management Group to all the management groups in the divisions, completed the ethics programme in This has resulted in a lot of constructive feedback that will be included in the evaluation and continuation of ethics training. Ethics Council The Board has appointed an Ethics Council to ensure a high level of ethical awareness, good behaviour and a good reputation in and for Kongsberg. The Ethics Council shall maintain and further develop the corporate Code of Ethics, and give recommendations and advice on dealing with ethical dilemmas. The Council has the following composition: CEO, who also chairs the Ethics Council One representative from the management of each business area Executive Vice President, HR Executive Vice President, Corporate Communications Three employee directors Kongsberg's corporate Code of Ethics emphasises that all co-workers and the Group's Board of Directors shall maintain high ethical standards when performing their duties. The programme has raised questions about a number of different ethical dilemmas, e.g. the harassment of co-workers, dealing with invitations and gifts, agency contracts and facilitation payments. Since implementation began, about 500 employees have completed the ethics programme. The participants have shown great enthusiasm, and have taken an active part in discussions. Corruption and facilitation payments One of the many important topics discussed in Kongsberg's corporate Code of Ethics involves attitudes to corruption. Corruption undermines all sorts of business activities and free competition. It would be destructive for the Group's standing, and expose individual employees to risk. In many countries, corruption is one of the reasons for oppression and poverty. Kongsberg is opposed to all forms of corruption. Facilitation payments are small sums that must be paid from time to time to ensure deliveries, get supplies and the like. Formally, one usually has a legal right to these services without addition payment. Any payments of this type shall be considered carefully with a view to their legality and necessity, and they shall be accounted for correctly, specifying their purpose. Challenges in 2006 The challenge in 2006 will be to sustain the level of commitment and debate relating to ethics and ethical dilemmas. Target for 2006 During the year, all Group employees shall have completed the ethics programme.

28 26 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Diversity Kongsberg's corporate Code of Ethics establishes that all individuals are of equal value and that Kongsberg will not tolerate discrimination of any kind. To us, this is obvious, at the same time as it is important that these basic principles are clearly expressed in our corporate Code of Ethics. There should never be any doubt about where we stand, within the Group or relative to our surroundings. We are convinced that rich diversity will also contribute to the Group's competitiveness and make it easier for us to achieve our goals. Consequently, we want Kongsberg to be well diversified in the broad sense. We aspire to diversity in terms of education, culture, nationality, and gender. We encourage diversity among managers, and diversity in our ways of thinking and communicating, within the parameters of the value standards defined by Kongsberg. We attach importance to achieving an even age distribution among our employees. Gender Kongsberg is a high-technology enterprise with a significant share of employees with higher technical educations. When it comes to technology, we are often in the market for specialists in areas such as cybernetics. However, there are traditionally few women in such disciplines. We have nevertheless managed to recruit a large proportion of the female graduates in such fields. The overall percentage of women recruited in 2005 was 26 per cent. There are indications such as our job satisfaction surveys which indicate that women enjoy working for Kongsberg. Altogether, women account for 19.5 per cent of our employees. Education and experience The vast majority of our employees are graduate engineers and engineers. To encourage diversity, it is important to have coworkers from different backgrounds and experience. We need this in order to challenge the status quo and pre-dominant. We aspire to reflect the society in which we operate. We believe that rich diversity will enhance our chances of reaching our financial, environmental and social objectives. More international operations Our more than 35 offices and production units in 21 countries are staffed by people of many different nationalities. There is vast diversity inherent in our international operations. Kongsberg has clear ambitions for growth. Most of this growth will take place outside Norway. This means we are becoming ever more international, embracing even greater diversity. This is a deliberate choice for us, and it means that we have to be prepared for the challenges we meet. In 2005, Kongsberg acquired a Canadian enterprise, Gallium, that makes mapping systems for the defence industry. We also acquired 100 per cent of Norcontrol IT, and established defence operations at a new location in Johnstown, Pennsylvania, USA. Challenges It is disturbing that fewer people are choosing to study scientific subjects in Norway these days. This will present a challenge when it comes to attracting employees with the competence we will need in future. We will try to increase the percentage of women in managerial positions, especially at higher levels in the Group. Today, women account for 9.2 per cent of our managers. We are interested in increasing diversity in education and experience among all our managers. Target for 2006 In collaboration with Sintef and NTNU, in 2006 we will conduct a project that will focus on the attractiveness of managerial positions. Which factors govern attractiveness? For example, do women and men have different preferences? If so, what are the differences and what can we do about them?

29 27 Dialogue with our stakeholders Kongsberg's approach We are currently engaged in active dialogue with most of our stakeholders. This dialogue rests on honesty and candour. It takes long time to build up a good reputation and very little time to corrupt it. Our customers The customer is always the centre of our attention. We aspire to live up to customers' expectations of us. Customers' needs and expectations change constantly. Close dialogue is therefore a prerequisite for success. For several years, customer-centrism has been one of our four core values. Our corporate Code of Ethics states: All our customers will be treated with respect, integrity and understanding. We will deal with customers' needs in the best possible manner within the business and ethical parameters that apply to Kongsberg. Our employees We give priority to maintaining an open, good dialogue with our employees. We have different types of committees where corporate management and representatives of the employees meet regularly for information and discussion purposes. Performance appraisal interviews and the annual 'working environment survey' are also tools to strengthen the dialogue. We have regular works council meetings. Moreover, an annual meeting is organised for all shop stewards with corporate management in attendance. Three employees are members of the corporate Board of Directors. Our suppliers We collaborate closely with our suppliers. Our buyers are in the front lines of this contact. Our corporate Code of Ethics states that suppliers are to be treated impartially and fairly and that they can rest assured that they compete for Kongsberg contracts on an equal footing with other vendors. The Group has started setting environmental standards for this group of stakeholders. One of the Group's objectives is to project a distinct image and maintain a good reputation and in this context, it is important for us conduct on an open, trusting dialogue with our various groups of stakeholders. Our owners and investors Kongsberg's paramount objective is to enhance shareholder value over time. Transparency and trust are the basis of our dialogue with owners and investors. All owners and investors will be treated equally. We worked to make information even more accessible to investors, and augmented our organisation and stepped up our investor relations work. The Group s regular routines and channels ensure that: We always keep our website up-to-date with a view to investor information. We try to ensure that our annual report always exceeds expectations. We have regular routines for market presentations. We also make a number of investor presentations in Norway and abroad. We comply with all disclosure requirements for the Oslo Stock Exchange. Kongsberg has earned the Stock Exchange's Information Flag and distinction for Good English. Moreover, Kongsberg was awarded a prestigious prize for the best report on corporate governance in a 2004 annual report. Our allies and partners Both business areas work with numerous partners. They are critical for product development and market contact. As a niche player in the defence market, Kongsberg is sometimes dependent on alliances to ensure market access for its products. Consequently, we have established alliances with some major defence industry suppliers. The authorities and society-at-large A close dialogue with the authorities is essential for ensuring the best possible conditions for Kongsberg as a player on the international market. The authorities are both the customer and the decision-maker for most major defence procurements. Accordingly, our dialogue with the authorities is based on trust, transparency and honesty. We conduct a close, good dialogue with the social partners. We work actively to make positive contributions to the local communities in which we are heavily represented. Target for 2006 We acknowledge that there is always room for improvement in everything we do. We will continue to work hard to develop the dialogue with our stakeholders.

30 28 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Health, safety and the working environment It is imperative that our work with health, safety and the working environment be performed in a systematic, reliable manner. One basic principle for working in this area is that the work should be preventative. More and more of our employees work outside Norway. Kongsberg's growing international presence requires more attention to and insight into HSE issues in the countries in which we operate. Our corporate Code of Ethics establishes that Kongsberg aspires to safeguard health, safety and the environment for employees, resulting in high job satisfaction and a healthy working environment. This is a basic tenet of our work in this area. We strive to eliminate job-related injuries. Routines and follow up Kongsberg's internal routines ensure compliance with relevant legislation and regulations relevant to health, safety and the working environment for co-workers and others involved in the Group's activities. Priority is given to life and health, and to responsibility and commitment at all levels of the organisation. Kongsberg is an IWL enterprise (Inclusive Working Life). HSE reports are submitted to the Board each quarter. The standards for systematic HSE efforts and follow up are increasing. In 2005, the following measures were implemented, among others: The oil companies have a database, Achilles, in which they can check the HSE systems of a number of their vendors. It is the vendors themselves that put information about their HSE systems into the database. In 2005, Kongsberg Maritime's HSE system was reviewed and audited by Statoil, based on the data in Achilles. Kongsberg Maritime has appointed special HSE liaisons in all divisions. Those individuals are responsible for drawing up HSE documentation for all major projects Kongsberg Defence & Aerospace conducted a risk analysis pursuant to guidelines issued by the Norwegian Industrial Safety and Security Organisation (NSO). The analysis revealed no major problems, but a list of actions was drawn up to further safeguard It is imperative that our work with health, safety and the working environment be performed in a systematic, reliable manner.

31 29 activities. The points will be followed up by the individual divisions. Restructuring and downsizing Once again in 2005, it was necessary to adapt the organisation to the markets we serve. For certain units, this led to some downsizing, while it led to more staff in other units. Considerable efforts are invested in finding solutions for those affected by downsizing, not least by finding work in other Group units. Employee satisfaction The Group conducts employee satisfaction surveys at regular intervals. The results of the surveys are used as a tool for implementing improvement measures. The surveys of recent years generally indicate a high level of employee satisfaction for the Group, although there is room for improvement in certain units. Challenges The challenges are to maintain low absence due to illness and to avoid injuries and accidents. New HSE standards are being posed all the time by the public sector as well as by customers. This means we must constantly strive to be better in this area. Target for 2006 We will try to prevent injuries in the Group. We will continue to work towards this end in 2006 at the same time as we make constant efforts to minimise absence due to illness. Sick leave Absence due to illness (as a % of hours worked) has been 3.2 per cent in the past few years. In 2005, the figure was 3.1 per cent. This is well below the national average of 6.5 per cent. We emphasise a good working environment, interesting work and good development opportunities. This lays the foundation for low absence due to illness. There were six work-related accidents in the Group in Three people were in a serious car accident on a business trip. None of them is permanently disabled. In addition, there were three less serious injuries: one pinching injury, one cut and one cut in the head caused by a stumble and subsequent fall. Measures have been taken to prevent repetition.

32 30 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Corporate social responsibility Activities 2005 The following is a list of the main goals we set for corporate social responsibility in 2005 and the activities we conducted. What we said in the 2004 report What we have done Performance Internal organisation It was decided to designate Corporate Social Responsibility a separate subject area in autumn During 2005, objectives, action plans and budgets were drawn up. Our international activities will play an important role in this planning. Considering participation in international organisations During the year, we will consider participation in international organisations and our support for international initiatives to promote corporate social responsibility. Corporate Social Responsibility into management training Corporate Social Responsibility will be integrated into the curriculum for the Group's management development programmes. Corporate social responsibility was formally established as a speciality in the spring of 2005, at which time a manager was appointed. A separate forum for corporate social responsibility was set up in the Group, comprising representatives of the holding company and the business areas. An action plan was drawn up. During the year, we considered joining the UN's 'Global Compact' initiative and membership of Transparency International Norway. We chose not to join any of these organisations in 2005, but we consider such cooperation on an ongoing basis. It is already part of the management programme Hard Fun. The other management development programmes will be revised in 2006.

33 31 Corporate social responsibility Goals 2006 The following is a list of the main goals and activities Kongsberg has planned for its work with corporate social responsibility in Goals Expertise and awareness Improve in-house expertise and awareness relating to problems involving corporate social responsibility Identify challenges Identify the areas in which we meet challenges related to corporate social responsibility Cooperation Consider collaborating with outside organisations and take the initiative for corporate social responsibility Activities Use external expertise In-house information Formulate a plan for this work Seek the advice of others who have worked with similar issues Study the consequences and identify the obligations of any cooperation

34 32 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS The environment Kongsberg's responsibility for the outdoor environment The Group's environmental work has been systematised over the past three to four years. Each year, data is obtained on energy consumption, waste treatment and the consumption of chemicals, and a list is compiled regarding the environmental measures implemented. This data make it easier for us to remain cognisant of the challenges we face, allowing us to initiate improvement measures. These efforts have yielded benefits, at the same time as we are well aware that challenges still remain with a view to our impact on the outdoor environment. The limitations of the report The reports only cover companies in which Kongsberg owns 50 per cent or more. The environmental data encompasses all our Norwegian units (offices and production units), as well as our production units abroad. In 2005, our companies in Pusan, South Korea, and Shanghai, China, were incorporated into our reporting routines. In October, Simrad's yachting activities were sold. This means that Simrad Egersund, Simrad Marine, Simrad Margate (UK) and SIMRAD Støvring (Denmark) are no longer covered by our reports.

35 33 Environmental Policy Kongsberg aspires to be a responsible corporation in terms of how its activities impact the environment. This means we will strive to keep our direct influence on the environment to a minimum. Employees Kongsberg strives to raise awareness and to get the organisation and individuals involved in environmental issues. Stakeholder Kongsberg cooperates on environmental and safety issues with customers, partners and suppliers to find the most environment-friendly solutions possible in the short- and the long-term perspectives. Products Product development, production, distribution, and the use and re-use of Kongsberg products shall be compatible with sustainable social development. Kongsberg will strive to minimise product-related environmental burdens. Information Kongsberg will maintain an open dialogue on environmental issues with the communities in which it operates. Naturally, Kongsberg will be in full compliance with legislation and regulations. Kongsberg will prepare and update environmental information on a regular basis, reporting on all significant environmental issues related to the Group. Kongsberg will make this information available in printed form and on the Group's website at Organisation Kongsberg's environmental policy will form a general framework for our environmental efforts. Responsibility for setting objectives, and the implementation and evaluation of environmental efforts rests with the individual business area and company. Systems, inspections and reporting routines will be adapted continuously to ensure that efforts in this area proceed in a satisfactory manner. This chapter discusses the following topics: Environmental Policy The organisation of environmental efforts Environmental accounts 2005 Environmental challenges for Kongsberg Environmental date from outer space Environmental activities 2005 Environmental goals 2006

36 34 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS The organisation of environmental efforts Responsibility The Board of Directors bears the ultimate responsibility for the Group's impact on the environment. This includes the Group's commitment to establishing management and control systems and to organising environmental efforts. Kongsberg's environmental policy has been adopted by the Board. Corporate management is responsible for ensuring compliance and for setting and following up environmental goals, as well as for compliance with legislation and regulations. The Group has established an Environmental Forum to coordinate its environmental efforts. Operative and routine responsibility rests with the management of the various companies and units in the Group. Kongsberg Defence & Aerospace studied the potential consequences of ISO certification in Based on an overall assessment and ranking of priorities for process improvement work, the BA chose to postpone certification for the time being. Quality management The BAs' quality management systems are certified pursuant to ISO In addition, defence activities are approved by the Armed Forces in accordance with NATO standard AQAP Internal inspections The Group's control systems comply with relevant legislation and regulations. International presence The Group has a number of companies outside Norway. Since these companies operate under different national and local rules, there will be differences in their environmental efforts, depending The Group has established an Environmental Forum to coordinate its environmental efforts. Follow up The Group's Sustainability Report has been adopted by the Board. Twice a year, reports are drawn up to describe the status of the Group's work with environmental and corporate social responsibility. The report is also submitted to corporate management and the management groups in the two business areas. The Environmental Forum, consisting of representatives of all main units in the Group, meets on an ad hoc basis. The Environmental Forum follows up the Group's environmental objectives and helps facilitate environmental measures. The Environmental Forum met five times in Otherwise, environment-related problems are dealt with by the respective department managers in the operating units. Management is required to report any serious incidents to corporate management. One incident was reported in It involved operating problems with the treatment plant for process water from cutting coolant at Kongsberg Protech. Beginning in 2004 and continuing in 2005, the problems entailed overruns relative to the discharge permit. The treatment plant was closed in 2005 and the cutting coolant is now delivered to an approved site for the treatment of hazardous waste. Environmental management In 2005, Kongsberg Maritime AS earned environmental certification under ISO This means that about 90 per cent of the employees in the Norwegian part of the business area now work in units with environmental certification. Efforts to earn certification for the other activities in Norway will continue in on where they are located. Notwithstanding, the corporate environmental policy applies to the whole Group, so companies strive to achieve the best possible environmental management given the local opportunities available to them. Supplier standards The environmental impact of the Group's activities extends beyond proprietary production. Accordingly, we try to encourage other players in the industry to also focus on the environment. We consider it an advantage that our suppliers have an explicit environmental policy and an established environmental management system. In 2003 and 2004, Kongsberg conducted surveys on its main suppliers' environmental profiles. The surveys indicate that most of them have an established environmental policy, engage in systematic HSE efforts and source separate their waste. A little more than half are certified under ISO 9001, while a mere 10 per cent have environmental certification under ISO Of the suppliers that responded, roughly 40 per cent state that they set environmental standards for their suppliers. In early 2006, we will be following up the supplier survey taken in 2004 by requesting feedback from suppliers that have made substantial changes in their environmental management systems since 2004 or begun making public environmental reports.

37 35 In future, we will follow up our suppliers through the environmental standards in our standard terms of business, in connection with quality audits of suppliers, and through regular surveys. Property The Group's property company is responsible for facilitating source separation and waste collection at Kongsberg Industrial Park, where there are about employees. Of that number, about are employed by Kongsberg. Further, the property company strives to reduce energy consumption and to convert from electricity to alternative energy sources. This work is handled through the Enova projects. Enova is a state-owned enterprise run by the Ministry of Petroleum and Energy. Its purpose is to promote environmentfriendly restructuring of energy consumption and production in Norway. The Enova projects' purpose and results The purpose of the Enova projects is to reduce energy consumption and to switch to alternative energy sources at the Industrial Park in Kongsberg. The Enova projects consist of several phases. Phase I consists of organisational initiatives ( ) and is nearing completion; the target of 5.2 GWh/year ( kwh) has been reached. Initiated in 2005, the latest Enova project covers roughly 200 building and construction measures over the next three years ( ). This project is designed to reduce energy consumption by 18.4 GWh/year. Moreover, there are plans for a heat recovery unit from two large divisions that will save a further 7.4 GWh/year. It is scheduled to come online in the next three to four years. The energy conservation measures mentioned above add up to 31 GWh, corresponding to the annual energy consumption of 1500 Norwegian dwellings. Kongsberg Maritime AS earned certification under the ISO environmental standards in summer We are seeing more of our major customers and partners placing growing emphasis on environmental responsibility among their partners and suppliers, so this certification as been a great help for us. Now we are usually spared from continuously having to explain our environmental awareness and from being questioned about it in connection with qualifying for contracts and deliveries. ISO certification is a recognised environmental seal of approval that tells customers that awarding us a contract will not cause the client to question the environmental awareness inherent in the project. It also reassures employees that we are working in a modern, socially aware enterprise that is cognisant of its responsibility, not only for smooth business operations, but also for the environment around us. Ole Gunnar Hvamb (Executive Vice President Offshore & Marine, Kongsberg Maritime) and Tor Erik Sørensen (Executive Vice President - Sale & Marketing, Kongsberg Maritime).

38 36 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Environmental accounts 2005 The environmental accounts describe Kongsberg's most important environmental impacts. Environmental impacts are generally related to waste, energy and chemicals. Environmental impact Explanation Measuring and follow up Waste Generated waste Kongsberg generates waste from production and from office activities. Waste volumes are part of Kongsberg's in-house environmental reporting. The report covers generated waste broken down by category of waste and waste for recycling broken down into recycling fractions. The graph refers to figures by business area. Our property company makes efforts to increase source separation among the companies located in Kongsberg Industrial Park. Comments on trends waste The degree of source separation has improved considerably. The total amount of generated waste has also gradually decreased in the business areas in recent years. The significant decline in waste at Kongsberg Maritime from 2004 to 2005 was due to the sale of the four production units in Otherwise, the change was due to more emphasis on waste generation, re-use and source separation. Generated hazardous waste declined substantially from 2004 to 2005 at Kongsberg Defence & Aerospace. This was related to operating problems at Kongsberg Protech's purification plant (see discharges to water), which entailed large amounts of hazardous waste in Environmental impacts are generally related to waste, energy and chemicals. Share of source separated waste relative to the total amount Kongsberg Maritime 1) 26% 46% 48% 51% Kongsberg Defence & Aerospace 1) 41% 54% 62% 66% 1) The figures are based on residual waste and source separated waste. Hazardous waste is not included. Waste generated by business area, by type of waste Kongsberg Maritime Kongsberg Defence & Aerospace Amount [metric tonnes] 1) Waste for recycling by recylcing fractions Kongsberg Maritime Kongsberg Defence & Aerospace Amount [metric tonnes] 1) Waste for recycling Residual waste Hazardous waste Paper/cardboard Wood Metal Plastic EE waste 1) 'Amount': Waste from the administration of Kongsberg Industrial Park, as well as the corporate staff, is included in Kongsberg Defence & Aerospace. 1) 'Amount': Waste from the administration of Kongsberg Industrial Park, as well as the corporate staff, is included in Kongsberg Defence & Aerospace.

39 37 Environmental impact Explanation Measuring and follow up Energy Energy consumption Kongsberg consumes energy in connection with production and office activities. The Group consumes energy derived from electricity, district heating, gas and oil. The district heating facility at Kongsberg Industrial Park supplies energy to several companies in the Group. Energy consumption is part of Kongsberg's in-house environmental reporting. The figures below illustrate energy consumption in the BAs by energy source. The district heating data includes Kongsberg's own and external facilities. In respect of the companies located in Kongsberg Industrial Park and throughout the Group, our property company strives to reduce energy consumption and to convert to alternative energy sources. Comments on trends energy In recent years, total energy consumption has diminished in both business areas. This can be related to energy conservation measures. Some of the decline at Kongsberg Maritime is ascribable to the divested companies. Total consumption and the breakdown between energy sources vary somewhat from year to year, depending on weather conditions. Chemicals The consumption of chemicals Kongsberg uses environment-unfriendly and hazardous chemicals in certain parts of its production. The consumption of chemicals is part of Kongsberg's in-house environmental reporting. The figures show the consumption of chemicals divided into those that are hazardous to the environment and human health, and other substances. The graphs show figures by business area. The figures for the consumption of chemicals should be viewed as estimates. This is because reporting practices vary (can be based on procurement figures or on warehouse figures) and the classification of chemicals can differ from place to place. Comments on trends chemicals The Group's aggregate chemical consumption was estimated at 32.9 metric tonnes in The reduction in consumption was because a most of the materials used by Kongsberg Defence & Aerospace to make composite were taken out in A significant percentage of the hazardous substances used in production consist of composite materials that are innocuous after tempering. The reduction in the consumption of non-hazardous chemicals at Kongsberg Maritime is predominantly due to the sale of four units in Energy consumption by business area, by energy source Kongsberg Maritime Kongsberg Defence & Aerospace Energy consumption [Mwh] 1) Consumption of chemicals by business area, by classification 1) Kongsberg Maritime Kongsberg Defence & Aerospace Amount [kg] 2) Electricity District heating 2) Gas/oil Hazardous to the environment and human heath Other classification 1) 'Energy consumption': The energy consumption of the administration at Kongsberg Industrial Park, as well as the corporate staff, is reported under Kongsberg Defence and Aerospace. 2) As from 2004, this figure refers exclusively to water-borne district heating. Other contributions are reported under gas/oil. 1) 'Classification': Based on CAS classification. 2) 'Amount': The figures should be considered estimates.

40 38 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Environmental impact Explanation Measuring and follow up Discharges to water Surface treatment at Kongsberg Discharges of process water in connection with surface treatment at Kongsberg Protech (Kongsberg Defence & Aerospace). The volumes are no longer included in Kongsberg's in-house environmental reports, see the comments on trends. Comments on trends discharges to water In connection with surface treatment, Protech has had discharge permits for process water from oil separators. The oil separator was used in connection with cutting coolant in machine tools. Protech began experiencing operating problems with its purification plant in 2004 that entailed overruns relative to the discharge permit, also in The purification plant was closed down in 2005, and cutting coolant is now treated by Protech's partner Volvo. Simrad Egersund (Kongsberg Maritime) has also had discharge permits for process water, but this unit has now been sold. Surface treatment by subcontractors Subcontractors handle surface treatment for most of the Group's products. In this connection, there are discharges of process water. Kongsberg follows up its suppliers by posing requirements for environmental management systems in standard terms of business, environmental audits of suppliers and surveys of suppliers. Emissions to air Welding and casting There are some emissions of lead compounds from welding processes and some emissions owing to suction from casting processes. The emissions are marginal and not subject to mandatory purification. The emissions are therefore not measured. Comments on trends emissions to air Emissions of lead compounds in connection with welding processes were significantly reduced due to the sale of operations in Støvring (Denmark) and Egersund. Transportation Oil heating Emissions of greenhouse gases in connection with the transport of goods and travel. Emissions of greenhouse gases in connection with oil heating. Oil heating is used at some Kongsberg locations. Kongsberg follows up expenses associated with travel. We have not yet begun to register transport figures to estimate emissions in connection with transportation. Fossil fuel for heating is included in the energy consumption figures. Inasmuch as the pollution is marginal, emissions to air from oil heating are not estimated.

41 39 Environmental challenges facing Kongsberg Decentralised governance structures Kongsberg has an organisational structure that is largely based on local management. This makes the efforts to establish policy, attitudes and measures profoundly important. Operations in many countries Many of our companies are located far from Group headquarters, often in countries that do not necessarily apply the same environmental standards as Norway. Consequently, the objectives and parameters for environmental efforts will not be the same everywhere in the world. Since it is nonetheless important that our environmental policy applies throughout the Group and that Kongsberg focuses on environmental impacts, we make conscientious efforts towards that end. Environment-unfriendly and hazardous chemicals We seek to replace as many environment-unfriendly and hazardous chemicals as possible with environment-friendly alternatives. It is a challenge to maintain a full overview of the alternatives that are available and comply with the standards that apply to the Group's products. Initially, we examine our own design processes by establishing routines that minimise the content of hazardous substances. Through this work, we enhance our capability and insight in this field. In the long term, we encourage customers and suppliers to consider environment-friendly alternatives. Kongsberg not a traditional polluter The Group is not engaged in the type of activities that have traditionally been compelled to focus on the environment as a consequence of serious environmental pollution. We are only marginally affected by environmental regulations. However, inasmuch as the Group has decided to apply environmental standards above and beyond those required by legislation, we are aware of the problems. We will strive to promote environmental awareness and commitment among the Group's companies.

42 40 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Environmental data from outer space Satellites provide important information for studying the global environment and monitoring environmental changes. By virtue of its aerospace activities, Kongsberg supplies equipment for satellites, carries them into outer space and downloads data from them, supplying virtually real-time satellite data and services to its customers. Using satellite data, customers can rapidly detect oil spills at sea, locate dangerous algae growth along coastlines or identify snow melting and run off to prevent floods. Carrying satellites into outer space Ariane 5 is a powerful booster rocket used to launch satellites into outer space. In March 2002, the 12th Ariane 5 was launched, carrying the world's largest, most advanced Earth observation satellite ever, ENVISAT, into outer space. Kongsberg has supplied components for all the Ariane 5 booster rockets. Kongsberg also delivers equipment for the satellites per se. Kongsberg supplied an instrument for ENVISAT that provides data on the amount of we have equipment to download the satellite data. Kongsberg Spacetec has become a leading manufacturer of ground stations for receiving data from meteorological and earth observation satellites. Spacetec delivers ground stations to customers the world over. The company also supplies software for processing the flow of data from the satellites. Supplying virtually real-time satellite data for environmental monitoring The world's most state-of-the-art ground station for the reception of satellite data from satellites in polar orbit is located on Svalbard. Kongsberg Satellite Services (KSAT) owns and operates By virtue of its aerospace activities, Kongsberg supplies equipment for satellites, carries them into outer space and downloads data from them, supplying virtually real-time satellite data and services to its customers. oxygen and ozone in different layers of the Earth's atmosphere. Kongsberg also supplies advanced solar panels made of composite materials for advanced Earth observation. Equipment for downloading environmental data ENVISAT and all the other satellites in outer space can produce large volumes of data that can be useful for monitoring the atmosphere, oceans and land areas. However, this requires that KSAT Svalbard Station (SvalSat) and has the best conceivable geographical location for downloading data from satellites in polar orbit. These satellites orbit the earth 14 times a day. At 78 degrees north, SvalSat is the only station in the world that can communicate with the satellites on all 14 orbits. The auspicious location, along with secure communication through the optical fibre cable to the mainland, guarantees swift access to global data. Solar panel (ultra-light and rigid) made of a carbon fibre epoxy sandwich with an aluminium beehive core, ready for delivery from Kongsberg Defence & Aerospace to the Planck space probe. The world's most modern ground station for the reception of satellite data is located on Svalbard (SvalSat). In 2007, Kongsberg Satellite Services will begin using a new ground station on Antarctica (TrollSat).

43 41 Kongsberg Satellite Services (KSAT) has established a network of its own ground stations in Tromsø, on Svalbard and in Grimstad, Norway, as well as on Antarctica (TrollSat, as from 2007). This network guarantees access to global satellite data specifically for use in environmental monitoring. The data is transferred to the main station in Tromsø for analysis and interpretation before being passed on to our customers. KSAT works continuously to develop new services for monitoring environmental factors based on satellite data. The most useful service developed to cover national needs is the surveillance of ocean territories to check for illegal discharges of oil from ships. KSAT currently has contracts for the delivery of this service to the environmental monitoring authorities in Norway and a number of countries around the North Sea and the Baltic Sea. It takes 30 to 60 minutes from the time KSAT receives the satellite imagery until the customer receives data on illegal oil spills, for example, and can dispatch aircraft to check the scope. The service provided by KSAT in Norway is now based on integration with AIS (Automatic Identification System), allowing comparison of satellite data on oil and ships. AIS is an automatic system for recording data on vessel identification, position, movement and cargo. Using this system, it is possible to see which ships were in an area when an oil spill occurred. The Kongsberg companies Kongsberg Seatex and Norcontrol IT are vital to the development of AIS services and systems. Under the EU's 'Floodman' project, KSAT and the research institute NORUT IT of Tromsø have developed a system that uses radar-based satellite imagery to compile flood maps quickly and accurately. The system can indicate water lines onshore. This can help authorities and those involved in flood prevention and flood warning to identify areas in the danger zone. Aerospace research = the environmental research of the future Kongsberg Defence & Aerospace is Norway's largest supplier to ESA, the European Space Agency. In conjunction with other European suppliers, Kongsberg has supplied equipment to space programmes including Rosetta, the Mars Express and Huygens. These space research programmes help us obtain information about the Earth, seen from the perspective of another planet. The Venus Express is hurdling through space, and will enter into orbit around Venus in April Gaining insight into what caused the greenhouse effect on Venus might give us useful information about what we can to do to prevent a similar situation from occurring on Earth. Surveillance for flood prevention Another KSAT research and development project is snow monitoring in mountainous areas. Information on snow conditions is essential for the power industry, for example. Data from the satellites is used for improving prognoses regarding run off in catchment areas and reservoirs. The world's largest, most advanced Earth observation satellite, ENVISAT, can produce large volumes of data that can be useful for monitoring the atmosphere, oceans and land areas. Kongsberg delivered solar array drive mechanisms (SADM) to the Venus Express. The Venus Express space probe is on its way to Venus to explore the atmosphere and the relationship between Venus and the sun.

44 42 THE GROUP FINANCIAL VALUE ADDED CORPORATE SOCIAL RESPONSIBILITY THE ENVIRONMENT THE GRI INDEXS Environmental activities 2005 What we said in the 2004 report What we have done Performance Environmental management system Continue to formalise the environmental management system in our operations. The units Dynamic Positioning & Navigation, Process Automation and Hydroacoustics at Kongsberg Maritime have been certified under ISO Kongsberg Defence & Aerospace has conducted a preliminary analysis with a view to ISO certification. However, it was decided not to initiate the certification process in Environment-unfriendly and hazardous chemicals Increase focus on environment-unfriendly and hazardous chemicals. Source separation Reduce the amount of residual waste. In 2005, Kongsberg Defence & Aerospace initiated a process to establish rules to design products with a minimal content of hazardous substances. Kongsberg Maritime has initiated a survey of the chemicals in its products that could be hazardous to the environment and human health. Plastic has been partially introduced as a waste fraction at Kongsberg Industrial Park. Efforts are being made to reduce waste with a view to packaging.

45 43 Environmental objectives for 2006 The following is a list of Kongsberg's environmental objectives and main activities for Kongsberg Maritime has defined its goal in connection with ISO certification. Where so required, we will continue activities we initiated earlier. Objective Chemicals that are hazardous to the environment and human health Reduce the use of environment-unfriendly and hazardous chemicals. Source separation Decrease residual waste. Energy Decrease energy consumption. Activity Establish an interdisciplinary forum at Kongsberg Defence & Aerospace to continue developing environment-friendly designs for products Survey the consumption of environment-unfriendly and hazardous chemicals in Kongsberg Maritime's products. The percentage of source separation of residual waste shall be improved by five per cent by the end of 2006, relative to the 2005 level (the reduction must be seen against the level of activity in the Group). Decrease energy consumption in Kongsberg Industrial Park by 25 per cent by the end of 2008, relative to the 2003 level. Implement energy conservation measures in Kongsberg units outside Kongsberg Industrial Park.