CEO JAN ERIK KORSSJØEN

This instils pride, but also presents new challenges. The steep increase in the number of orders calls for more space and greater resources. We must still deliver all customers' orders with the agreed quality, on time and on budget. We accomplished that throughout 2007. It is when the challenges are great that one sees the difference between the good, and the less than good suppliers. We do everything in our power to be a good contractor for our customers.

During periods of prosperity, it is also important to build good positions for the future. Customer proximity and being a genuine local supplier are crucial for strengthening our competitiveness. In 2007, we carried out several expansions and set up new ventures, especially in Asia and the USA. These address local markets but are also intended to serve as resource bases for all our international activities. Doing more work locally is also one of our most important means of avoiding currency fluctuations. Earning and spending in the same currency helps make our profits predictable. Growth remains strong in Norway, although the relative growth rate is highest abroad. The internationalisation of KONGSBERG has helped secure Norwegian jobs.

Despite the feverish pressure for deliveries, we have never spent as much on product development as in 2007, and our ambitions are even higher for the future. The smart application of technology has resulted in good, cost-efficient solutions for our customers and for us as contractor.

KONGSBERG has continued its acquisition of smaller companies with products or market positions that fit into the Group's strategic target areas. Consolidated oil and gas activities and subsea activities have been fortified during the year.

Strong markets

2007 has been a good year in all our markets. KONGSBERG's maritime business area (BA), Kongsberg Maritime, saw strong demand for its products for merchant vessels as well as for purpose-built vessels for the offshore industry. The boom in the markets for drilling rigs and hydroacoustics-based products (seabed surveying, sonars and transponders) has also been favourable for the Group.

2007 also turned out to be a very good year for the BA Kongsberg Defence & Aerospace. Culminating more than 10 years of development efforts, the company signed a contract with the Norwegian Armed Forces for serial production of the new NSM anti-ship missile. The agreement generated new orders worth approx. NOK 2.5 billion.

Further, KONGSBERG consolidated its position as a world leader in vehicle-based weapon control systems through a framework agreement with the US Army valued at approx. NOK 8 billion over a five-year period. Sales of weapon control systems have resulted in aggregate revenues of NOK 1.3 billion in 2007.

Norway's plans to purchase new fighter craft may potentially represent great opportunities for KONGSBERG. We are working actively to position ourselves with the contractors short-listed by the Norwegian Government, and we are devising industrial solutions that are good regardless of which type of aircraft Norway chooses. We are already building new facilities for the production of composite aircraft components. Composite is a state-of-the-art material designed for the future, and our efforts in this field will have a major impact on KONGSBERG's future.

Continued growth in 2008

We expect the trend from 2007 to continue through 2008. Growth improves our capacity utilisation and thus improves profitability. Consequently, we expect profitability to improve further.

The recruitment and training of new employees at the national and international levels are and will continue to be crucial. We are building up resource centres in different parts of the world. They require more leadership and coordination, a challenge we have managed to deal with in a satisfactory manner.

In 2007, we worked hard to make the Group more attractive to job-seekers and students, addressing engineering students in particular. Different polls among relevant groups of students indicate that KONGSBERG is one of the most attractive employers in Norway.

KONGSBERG is highly innovative and spends roughly 10 per cent of its operating revenues on product development each year. The results of an analysis of our core technologies indicate that KONGSBERG has a strong, broad knowledge base. Combined with its genuine understanding of the markets and its ability to deliver, KONGSBERG has what it takes to succeed in the years ahead.

Corporate social responsibility

KONGSBERG's corporate social responsibility is first and foremost to the Group's employees. We emphasise that KONGSBERG is to be a good place of work, where employees can feel that they are working in a positive atmosphere that rests on a foundation of sound basic values.

It is also important that we team up with the local communities in which we operate. Our support generally targets activities for children and young people as well as local colleges and universities. Having favourable conditions for growing up and educating competent, relevant specialists are values we support.

In the larger perspective, corporate social responsibility is a question of human rights, workers' rights, anti-corruption efforts, the struggle against climate change and the practice of good ethics and morals. In 2006, we joined the UN Global Compact and we strive to promote the values underlying this initiative. In 2007, we also joined Transparency International. We support TI's primary objective of combating and eliminating corruption.

Tusen takk

After more than eight years as CEO of KONGSBERG, it is with a mixture of pride and humility that I would like to thank you for your efforts and cooperation. It has been a great honour to be part of such splendid corporation, and to be its most senior representative. As we say in Norwegian, tusen takk (a thousand thanks) to our valued customers for placing so much confidence in us. Tusen takk to all those employees who compete in the KONGSBERG 'world championships' every single day. And tusen takk to all of you others who support KONGSBERG in so many ways. I extend my very best wishes to KONGSBERG's new CEO, Walter Qvam. Tusen takk to each and every one of you!

Jan Erik Korssjøen
CEO