TOM GERHARDSEN, PRESIDENT
KONGSBERG DEFENCE & AEROSPACE

2006 was a good year for Kongsberg Defence & Aerospace in several respects. The development of the new NSM (Naval Strike Missile) is on schedule, and the Protector RWS (Remote Weapon Station) is a success. Profitability improved for the business area as a whole, and the backlog of orders increased from MNOK 3 124 to MNOK 3 253 during the year.

Our market success

During the year, the company signed contracts with a total value of NOK 1.2 billion for the Protector RWS system. The US Army and General Dynamics Land Systems of the US are the main contract partners. The system has also been sold to Norway, Canada, Australia, Ireland, Finland and Switzerland.

During the year, we set up operations in the US, i.e. a factory where we manufacture, maintain and upgrade RWS equipment.

Improvements

We work continuously to improve the RWS in terms of capacity, technology and adaptation to vehicles in different weight classes. These efforts have benefited greatly from the Group's vast store of technological expertise. We have successfully transferred partial designs from the NSM to the RWS.

Our largest development project

Kongsberg Defence & Aerospace's largest development project, the NSM, has made good progress. We have conducted several successful test firings in California as part of the Norwegian Navy's final approval of the development phase. The successful tests confirmed the missile's highly sophisticated properties, further mitigating project risk. As planned, the NSM will be ready for deployment on Norway's new Nansen class frigates and missile torpedo boats.

Surveillance

In 2005, the Group's surveillance expertise was organised as a new division: Land Systems and Surveillance. Coastal surveillance systems have been designated a target area for the new division. A Group-wide working group is examining how the enterprise can position itself relative to oil and gas activities in the Barents region.

Challenges

We expect to sign a production contract with the Norwegian Armed Forces for the NSM in 2007. The next step will be to sell the anti-ship missile to other countries. Integration of the NSM into any new fighter aircraft will further enhance export opportunities.

Another challenge is to continue developing and taking advantage of our position in the market for remote weapons systems. The market is large and growing, and the competition is keener than ever. For the moment, ours is the system of choice thanks to its performance, quality and technology. It is also important to take advantage of the spin-off effect on the sale of the RWS by adapting it to vehicles in different weight classes.

We depend on maintaining the diversity in our range of products to win contracts with the Norwegian Armed Forces, our most important customer. To maintain diversity, it is crucial to be able to adapt to the market swiftly. This means we must have a flexible organisation so that we can rapidly exploit common technologies and resources across the divisions.