Group accounting principles 2009

General information

Scana Industrier ASA is located at Strandkaien 2 in Stavanger, Norway.

The company is a public limited company listed on the Oslo Stock Exchange. The business is described in note 3. The consolidated accounts for Scana Industrier ASA for 2009 were approved by the board on March 24th 2010.

Fundamental principle

The consolidated accounts for Scana Industrier ASA have been prepared in accordance with IFRS and interpretations determined by the International Accounting Standards Board as approved by the EU.

The annual accounts consist of a profit and loss account, balance sheet, cash flow analysis, an overview of changes in equity and notes to the accounts. The most important consolidation- and accounting principles used in the compilation of the annual accounts are as follows:

The consolidated accounts have been prepared based on historical cost, with the exception of:

• Buildings valued at restated value

• Financial instruments valued at fair value

• Loan, receivables and other financial liabilities valued at amortised cost The consolidated accounts have been prepared using uniform accounting principles for corresponding transactions and events under otherwise equal conditions.

Functional currency and presentation currency

The consolidated accounts are presented in Norwegian Kroner (NOK), and all figures are rounded off to the nearest thousand (‘000) unless otherwise specified. The functional currency of the parent company Scana Industrier ASA is Norwegian Kroner (NOK), while the functional currency of the subsidiaries is their local currency. Subsidiaries with a functional currency other than NOK are translated at the rate on the balance sheet date for balance sheet items, and items in the profit and loss account are translated using the transaction rate. The monthly average rates are used as an approximation of the transaction rate. Translation differences are recorded against total comprehensive income. For the disposal of investments in foreign subsidiaries, accumulated translation differences linked to the subsidiary are recognised.

Consolidation principles

The consolidated accounts include the parent company Scana Industrier ASA and the companies in which Scana Industrier ASA has a controlling interest, either directly or indirectly through ownership or according to separate agreements. Controlling interest is defined as Scana Industrier ASA controlling more than 50 per cent of the voting rights at the shareholders’ meeting. The group subsidiaries are listed in note 2 of the parent company’s annual accounts. Minority interests are included in the group’s shareholders’ equity.

The acquisition method is used for the accounting of business mergers.

Cost price is measured at fair value of the acquired assets, the shares issued or debt transferred on the acquisition date plus costs directly attributable to the acquisition. The cost price that exceeds fair value of net assets in acquisitions is recorded as goodwill. Companies that are acquired or disposed of during the year are included in the consolidated accounts from the date control is established until control ceases.

Associated companies are units in which the group has a significant influence, but not control (normally with a holding of between 20 and 50 per cent), over financial and operational matters. The consolidated accounts include the group’s share of the profit from associated companies recorded according to the equity method from the date significant influence is established until such influence ceases.

When the group’s share of loss exceeds the investment in an associated company, the group’s book value is reduced to zero, and further loss is not

entered in the accounts unless the group has an obligation to cover this loss.

Inter-company transactions and accounts, including internal profit and unrealised gains and losses are eliminated. Unrealised gains linked to transactions with associated companies and joint ventures are eliminated by the groups holding in the associated company. Correspondingly, unrealised loss is eliminated, but only to the extent that there are no indications of a fall in value of the asset that is sold internally.

The group implemented the following changes to standards and interpretations in 2009:

• IFRS 2 (change) – Share-based remuneration: earnings conditions and cancellations

• IFRS 8 - Operating Segments

• IAS 1 (revised) – Presentation of financial statements

• IAS 23 (revised) – Borrowing costs

• IFRIC 12 – Service concession arrangements

• IFRIC 13 – Customer loyalty programmes

• IFRIC 14 – IAS 19

The following standards and interpretations have been announced but have not come into force, and have not therefore been applied.

Amendments to IFRS 2 Share­based Payments – Group Cash­settled Share­

based payment Transactions

The amendment to IFRS 2 provides more guidance on the accounting for group cash-settled share-based payment transactions. In addition, the definition of share based payment is somewhat modified. This amendment supersedes IFRIC 8 and IFRIC 11. This amendment is effective for annual periods beginning on or after 1 January 2010, but the amendment is not yet approved by the EU. The Group expects to apply the amendment as of 1 January 2010..

IFRS 3 (revised) Business Combinations

Compared to the existing IFRS 3, the revised IFRS 3 incorporates certain amendments and clarifications related to the use of the purchase method.

This includes issues such as goodwill in business combinations achieved in stages, minority interests and contingent considerations. Transactions costs other than share and debt issuance costs will be expensed as incurred. IFRS 3 (R) is effective for annual periods beginning on or after 1 July 2009. The Group expects to implement IFRS 3 (R) as of 1 January 2010.

IFRS 9 Financial instruments

IFRS 9 replaces the classification and measurement rules in IAS 39 Financial Instruments- Recognition and measurement for financial instruments. According to IFRS 9 financial assets with basic loan features shall be measured at amortised cost, unless one opts to measure these assets at fair value. All other financial assets shall be measured at fair value.

IFRS 9 is effective for annual periods beginning on or after 1 January 2013, but the standard is not yet approved by the EU. The Group expects to apply IFRS 9 as of 1 January 2013.

IAS 24 (revised) Related Party Disclosures

The revised IAS 24 clarifies and simplifies the definition of a related party, compared to the current IAS 24. The revised standard also provides some relief for government-related entities to disclose details of all transactions with other government-related entities (as well as with the government itself). IAS 24 (R) is effective for annual periods beginning on or after 1 January 2011, but the revised standard is not yet approved by the EU. The Group expects to implement IAS 24 (R) as of 1 January 2011.

IAS 27 (revised) Consolidated and Separate Financial Statements The revised IAS 27 provides more guidance on accounting for changes in ownership interest in a subsidiary and the disposal of a subsidiary, compared to the current IAS 27. According to the revised standard the entity measures the interest retained in a former subsidiary at fair value upon loss of control of the subsidiary, and the corresponding gain or loss is recognised through profit and loss. The revised standard also includes a change in the requirements relating to the allocation of losses in a loss-making subsidiary. IAS 27 (R) requires total comprehensive income to be allocated between the controlling and the non-controlling party, even if this results in the non-controlling interest having a deficit balance. IAS 27 (R) is effective for annual periods beginning on or after 1 July 2009. The Group plans to implement IAS 27 (R) as of 1 January 2010.

Amendments to IAS 32 Financial Instruments: Presentation – Classification of Rights Issues

The amendment to IAS 32 Financial Instruments - Presentation provides relief to entities that issue rights in a currency other than their functional currency, from treating the rights as derivatives with fair value changes recorded in profit or loss. Such rights will now be classified as equity instruments when certain conditions are met. The amendment is effective for annual periods beginning on or after 1 February 2010. The Group expects to implement the amendments as of 1 January 2011.

Amendments to IAS 39 Financial instruments – Recognition and measurement

­ Eligible Hedged Items

The amended IAS 39 clarifies the principles for determining whether a hedged risk or portion of cash flows is eligible for designation for certain risks or components of the cash flow. The approved changes gives primarily additional guidance for hedging a one-sided risk (hedging with options) and hedging of inflation risk, but also clarifies that designated risks and cash flows must be identifiable and can be reliable measured.

The amendment is effective for annual periods beginning on or after 1 July 2009. The Group plans to implement the amendments as of 1 January 2010.

IFRIC 12 Service concession arrangements

IFRIC 12 deals with public services related to infrastructure provided by private sector when public authorities regulates or controls which services that shall be provided, to whom the services shall be provided and at what price. The interpretation describes how such arrangements shall be accounted for. The interpretation is effective for annual periods beginning on or after 29 March 2009. The Group plans to implement IFRIC 12 from 1 January 2010.

Amendments to IFRIC 14 IAS 19 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction ­ Prepayments of a Minimum funding Requirement

This amendment will allow entities to recognise a prepayment of pension contributions as an asset rather than an expense. The amendment is effective for annual periods beginning on or after 1 January 2011, but the amendment is not yet approved by the EU. The Group expects to implement the amendment as of 1 January 2011.

IFRIC 15 Agreements for the construction of real estate

The interpretation addresses the divergence in accounting treatment for real estate projects, and also provides guidance on whether a project is within the scope of IAS 11 Construction Contracts or IAS 18 Revenue.

The amendment implies that a number of projects can no longer be regarded as construction projects in accordance with IAS 11 construction projects, and can no longer be recognized using the percentage of completion method. The interpretation has been approved by the EU and is effective for annual periods beginning on or after 1 January 2010. The Group plans to implement IFRIC 15 as of 1 January 2010.

IFRIC 16 Hedges of a net investment in a foreign operation

The interpretation addresses issues relating to the accounting of a hedge of the foreign currency exposure arising from a net investment in a foreign entity. The interpretation clarifies what types of hedges that might qualify for hedge accounting and what types of foreign currency risks that might be hedged. The interpretation is effective for annual periods beginning on or after 1 July 2009. The Group plans to implement IFRIC 16 as of 1 January 2010.

IFRIC 17 Distributions of non­cash assets to owners

The interpretation provides guidance on how to account for distributions of non-cash assets to its owners. The interpretation applies prospectively and is applicable for annual periods beginning on or after 1 July 2009. The Group plans to implement IFRIC 17 as of 1 January 2010.

IFRIC 18 Transfers of Assets from Customers

The interpretation provides guidance on accounting for transfers of assets which an entity receives from a customer for the acquisition or construction of such items. The seller should account for the asset at fair value and the income in line with the underlying substance of the transaction. The interpretation is effective for annual periods beginning on or after 1 November 2009. The Group plans to implement IFRIC 18 as of 1 January 2010.

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

The interpretation clarifies the accounting treatment of financial liabilities

that, as a result of a renegotiation of the terms of the financial liability, are fully, or partially, extinguished with equity instruments. The interpretation is effective for annual periods beginning on or after 1 July 2010, but the interpretation is not yet approved by the EU. The Group expects to implement IFRIC 18 as of 1 January 2011.

The group does not expect the implementation of the aforementioned proposals to have any effect on the consolidated accounts on the implementation date, but will undertake further analyses of the various proposals before implementation.

Significant accounting judgements and estimates

Management has used estimates and assumptions that affect the recognition and measurement of assets, liabilities, revenues, expenses and information on contingent liabilities. This particularly applies to the entering of revenues from long-term manufacturing contracts, depreciation and write-down valuations of fixed assets, income tax, evaluations of losses on accounts receivable, evaluations of dead stock linked to inventories, recognition of development costs, and valuations of pension obligations. Future events may lead to these estimates being changed. Future events may lead to changes in these estimates. Estimates and the underlying assumptions are evaluated on an ongoing basis.

Amendments to accounting estimates are entered in the accounts in the period in which the changes occur. See also note 2.

SIGNIFICANT ACCOUNTING POLICIES Revenues

Revenue is recognised when it is probable that transactions will generate future economic benefits that will be transferred to the company and the amount can be reliably estimated. Sales revenues are presented net of VAT and discounts.

Revenues from the sale of goods are recognised in the profit and loss account once delivery has taken place, i.e. when the risks and potential gains associated with the goods are transferred to the buyer and the company has established a claim against the customer.

Rental income is recognised on a linear basis over the rental period.

Revenues relating to long-term manufacturing contracts (projects) are recognised in the profit and loss account in line with the project’s progress and when the project’s results can be reliably estimated. The degree of completion is calculated using the method that is most appropriate for the individual contract, which is normally the accrued costs as a percentage of estimated total costs. When the project’s results cannot be reliably estimated, only revenues equal to the accrued project costs will be recognised as revenue. Any loss on a contract will be recognised in full in the profit and loss account for the period when it has been determined that the project will incur a loss.

Accrued income, not received, is included in the balance sheet under other current receivables. Advances on long-term contracts are presented in the balance sheet under other current liabilities.

Royalties will be recognised in the profit and loss account in relation to the terms and conditions of the various royalty agreements. Dividends are recognised in the profit and loss account for the period when the shareholders’ rights to receive dividends have been determined.

Interest income is recognised as interest accrues.

Trade receivables

Trade receivables are normally recognised and carried at original invoice amount. Provision for loss is made when there is objective evidence that the group will not be able to collect the debt.

Inventory

Inventory, which comprises purchased goods and own manufactured products, is valued at the lower of purchase/production cost and expected net realisable value. The net sales value is estimated at the selling price during ordinary operations, minus estimated costs of completion, marketing and distribution. Acquisition cost is determined by applying the FIFO method, and includes expenses incurred for the acquisition of goods and costs of bringing the goods to the present condition and location.

Own manufactured goods includes raw materials, energy, direct labour and a proportion of overheads, including maintenance and depreciation.

Property, plant and equipment

Tangible fixed assets are measured by acquisition cost, minus accumulated depreciation and write-downs. When assets are sold or transferred, the book value is deducted and any loss or gain is entered in the profit and loss account.

Acquisition cost for tangible fixed assets is the purchase price, including duties/taxes and costs directly linked to rendering the asset usable.

Expenses incurred after the asset is commissioned, such as ongoing maintenance, are entered in the profit and loss account while other expenses that are expected to give future economic benefits, including major maintenance work, are entered in the balance sheet.

Depreciation is calculated on a straight-line basis over the useful life of the assets. The useful life, residual value and depreciation method of the property, plant and equipment are reviewed annually. Major periodic maintenance work is depreciated in line with the periodic maintenance programme.

The book value of property, plant and equipment is reviewed for write-down when events or changes in circumstances indicate that the book value may not be recoverable.

Larger spare parts and back-up equipment are included in property, plant and equipment when they are expected to be utilised over more than one accounting period. Similarly, if the spare parts and back-up equipment can only be utilised in combination with some property, plant and equipment, they are included in these assets in the balance sheet.

Intangible assets

Intangible assets acquired separately are valued at cost price at initial recognition. The cost of intangible assets secured via an acquisition is fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost price less any accumulated amortisation and any accumulated write-downs.

Internally-generated intangible assets, excluding capitalised development costs, are not capitalised and the expenditure is charged against profits in the accounting period in which the expenditure is incurred. The useful life of intangible assets is assessed to be either limited or undefined. Intangible assets with limited lives are amortised over the useful life and assessed for write-down whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a limited useful life are reviewed at the end of each financial year as a minimum. Changes in the expected useful life or the expected pattern of consumption of the intangible assets are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates.

Intangible assets with an undefined useful life are tested for write-down annually, either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an undefined life is reviewed annually in order to determine whether it can still be regarded as undefined. If not, the change in the useful life assessment from undefined to limited is made on a prospective basis.

Goodwill

Goodwill that arises from an acquisition of business is valued at cost. This constitutes the part of the total acquisition cost that exceeds the net fair value of identifiable assets, debt and contingent liabilities. Following initial recognition, goodwill is valued at cost price less any accumulated downs. Goodwill is not amortised, but is assessed annually for any write-downs, or more frequently if events or changes in circumstances indicate that the book value may be impaired.

Research and development costs

Research and development costs are expensed as incurred. An intangible asset that results from development expenditure in an individual project is capitalised when the following can be demonstrated: the technical feasibility of completing the development of the intangible asset so that it will be available for use or sale, its performance potential and its potential to use or sell the asset, how the asset will generate future economic

Research and development costs are expensed as incurred. An intangible asset that results from development expenditure in an individual project is capitalised when the following can be demonstrated: the technical feasibility of completing the development of the intangible asset so that it will be available for use or sale, its performance potential and its potential to use or sell the asset, how the asset will generate future economic