In general

KONGSBERG has centralised management of financial risk. The Board has adopted guidelines for the Group's financial risk management, which are embodied in the corporate Financial Policy. KONGSBERG seeks to limit financial risk and increase predictability while exploiting finance as a competitive factor.
KONGSBERG is exposed to the following type of financial risk:

• Credit risk
• Liquidity and refinancing risk
• Currency risk
• Interest rate risk
• Market risk related to financial investments

The different types of risk are described below. Further quantitative information related to the Group's financial exposure is included in the following notes: Note 17 "Financial income and financial expenses", Note 20 "Available-for-sale shares", Note 22 "Receivables and credit risk", and Note 24 "Financial instruments".

Credit risk

Credit risk is the risk of loss if a customer or another counterpart is unable to fulfil their contractual obligations. KONGSBERG has about NOK 1 billion in accounts receivable and other receivables at any given time. These receivables carry varying degrees of risk, depending on the customer, term to maturity and whether any payment guarantees or the like have been furnished. The customer base is diversified and consists mainly of public undertakings and large companies. Historically, the Group has incurred relatively modest losses on bad debts. Credit insurance is used insofar as deemed necessary. The Group has an active debt collection system for those business units which sell on credit. Credit derivatives are not used in connection with credit risk.

Liquidity and refinancing risk

Liquidity and refinancing risk refers to the risk that KONGSBERG will not be able to fulfil its financial obligations as they fall due. KONGSBERG's goal is to have an average term to maturity on its long-term credit facilities of more than two years. Kongsberg also strives to ensure that short-term loans in the money market never exceed available long-term credit limits. There are also target figures for how much of the aggregate loan and credit facilities should fall due in one and the same year. KONGSBERG is to have predictable funding, with a moderate gearing ratio. The gearing ratio, calculated as net interest-bearing debt as a percentage of EBITDA, should ordinarily be less than three. If the gearing ratio were to exceed this, the goal would be to return to less than three. For further information about loans and loan covenants, see Note 24 d) "Financial instruments – Interest risk related to loans".

The Group is subject to requirements for liquidity reserves. Liquidity management shall ensure there is enough available liquidity to honour KONGSBERG's commitments when they fall due.

Currency risk

KONGSBERG has considerable foreign currency exposure since it earns 70 per cent of its revenues abroad. KONGSBERG also buys a substantial share of its procurements abroad and runs businesses outside Norway. This mitigates the Group's net foreign currency exposure by 30 to 40 per cent. The Group's most important trading currencies outside Norway are USD and EUR. KONGSBERG's policy is to limit currency risk while actively assessing various currencies' importance as competitive parameters. All contractual currency flows are hedged (project hedges), and hedges are also made for parts of the Group's anticipated new orders (prognosis hedges). At 31 Dec. 2007, the Group had forward contracts of MUSD 208 and MEUR 243 related to anticipated new orders. In addition, loans provided by Kongsberg Gruppen ASA to foreign subsidiaries are hedged. Since the Group has hedged budgeted currency flows and signed contracts in foreign currencies, consolidated operating revenues and profits are not expected to be influenced to any great extent by fluctuations in foreign exchange rates over the next one to three years.

Hedging is mainly based on forward foreign exchange contracts. Currency accounts in banks are used to hedge small amounts and for short terms to maturity. Options are also used under special circumstances. See Note 24 "Financial instruments – currency risk and hedging foreign currency" for a more detailed explanation.

The CEO stipulates the parameters for the extent to which each individual division or business area can engage in prognosis hedging. The hedged portion of estimated new orders will vary in the light of the exchange rates between NOK and the Group's trading currencies. The hedging ratio is reduced annually for up to three years in advance.

Projects are fully hedged upon signing an agreement. Minor contracts and ongoing sales can be hedged using prognosis hedges.

At 31 December 2007, KONGSBERG had no significant foreign currency loans.

Interest rate risk

KONGSBERG hedges parts of the interest on its loans through interest rate swaps. Consequently, KONGSBERG should emphasise predictability at times when changes in the interest level have a significant influence on the consolidated profit.

Market risk attached to financial investments

The value of the Group's financial investments is vulnerable to fluctuations in the equity market. Investments are evaluated and followed up centrally. The Group requires regular reports on trends in the value of financial assets.