// BLOCK WATNE GRUPPEN QUARTER //

Transcription

1 // BLOCK WATNE GRUPPEN QUARTER //

2 Block Watne Gruppen ASA REPORT FOR THE FIRST QUARTER 2006 Strong key figures Solid order intake and backlog Successful IPO Improved financial terms Key figures Block Watne Gruppen ASA NOK Q Q (*) 2005 (*) Operating revenue Operating costs Operating profit (EBIT) Profit before tax (EBT) Net profit of the period Cash flow from operating activities Order backlog EBIT margin 13.9 % 11.5 % 14.0 % EBT margin 12.2 % 9.2 % 11.6 % Operating profit margin 10.4 % 6.6 % 8.3 % Earnings per share (NOK) Closing price (NOK) n/a n/a No. of employees (*) Comparing figures are pro forma figures as the group was established per 30 November Block Watne Gruppen ASA achieved operating revenues of NOK 357 million in the first quarter of 2006, up by three per cent from the same period of Turnover was affected to some extent by a hard winter with very heavy snowfall at times. Operating profit (EBIT) for the first quarter came to NOK 49.7 million, an increase of 25.1 per cent from the same period of last year. The improvement is related to a relatively high turnover for Residential project development and Property sales with a commitment to construction, combined with a strong focus on costs. Ordinary net financial expenses were NOK 0.7 million lower than in the first quarter of The change in the market value of financial instruments had a positive effect of NOK 2 million, while dividend from associated companies was NOK 0.8 million as against NOK 1.9 million in the first quarter of last year. This yielded net financial expenses of NOK 6.1 million as against NOK 7.7 million in the same period of Profit before tax (EBT) came to NOK 43.6 million, an increase of 36.4 per cent from NOK 32 million for the same quarter of last year. Cash flow from operations in the period was strong, and no noteworthy investment was made during the quarter. The group s liquidity is good. Block Watne Gruppen has a strong order backlog, which provides a solid basis for continued progress during the year. // PAGE 1 //

3 IFRS The consolidated accounts have been presented in accordance with the International Financial Reporting Standards (IFRS) and interpretations specified by the International Accounting Standards Board (IASB). This represents the first set of accounts presented by the group under the IFRS, and IFRS 1 has been applied. Further details are provided in the notes to the consolidated accounts. Key figures by project cathegory NOK Q Q (*) 2005 (*) Residental project development (GR) Revenues Contribution margin Gross contribution margin ratio 30.9 % 28.7 % 30.4 % Residental construction for indiv. customers (EAT) Revenues Contribution margin Gross contribution margin ratio 29.2 % 31.5 % 31.7 % Property sales with commitment to constr. (EF) Revenues Contribution margin Gross contribution margin ratio 34.8 % 31.5 % 34.5 % Construction for professional clients (SK) Revenues Contribution margin Gross contribution margin ratio 22.5 % 26.8 % 28.6 % Other Revenues Contribution margin Total Revenues Contribution margin Gross contribution margin ratio 30.7 % 28.7 % 29.2 % (*) Comparing figures are pro forma figures as the group was established per 30 November Contribution margin is revenues deducted variable project costs. Gross contribution margin ratio is contribution margin dived by revenues. The gross contribution margin ratio for the group as a whole was 30.7 per cent, compared with 28.7 per cent for the same quarter of This increase reflects improved earnings from Residential project development and Property sales with a commitment to construction, which made contributions viewed in isolation of 30.9 per cent as against 28.7 per cent for the first quarter of 2005 and 34.8 per cent compared with 31.5 per cent respectively. The gross contribution margin ratio for Residential construction for individual customers and Professional clients was rather lower than in the first quarter of Description of project categories: Residential project development (GR) - Block Watne acquires and develops land, constructing and selling houses to end customers. Residential construction for individual customers (EAT) - Block Watne constructs one of its standard single-unit houses on property owned by the customer, who is responsible for foundations and land development Property sales with a commitment to construction (EF) - Block Watne sells pre-regulated properties prepared for construction work with an obligation to build a Block Watne house. Construction for professional clients (SK) - Residential construction for professional clients, typically tenants associations, housing cooperatives, local authorities or property developers building for resale. Other items - Sales to employees (construction materials, kitchen), reinvoiced rents, hire of carpenters, repayments, and the cost of guarantees and complaints. // PAGE 2 //

4 Order intake Q 04 3Q 04 4Q 04 1Q 05 2Q 05 3Q 05 4Q 05 1Q 06 Construction for professional clients Property sales Residental construction Residental project development Order intake was NOK 454 million, compared with NOK 403 million for the same quarter of This represents an increase of 12.6 per cent. Order backlog per project cathegory Q 04 3Q 04 4Q 04 1Q 05 2Q 05 3Q 05 4Q 05 1Q 06 Construction for professional clients Property sales Residental construction Residental project development The order backlog is defined as remaining to be invoiced under registered contracts Block Watne Gruppen s order backlog at 31 March was NOK 887 million, an increase of NOK 80 million or 9.9 per cent from 31 December Most of the improvement related to Residential project development (10.9 per cent), which accounted for 78.5 per cent of the backlog. Compared with the first quarter of 2005, the order backlog rose by NOK 91 million or 11.4 per cent. // PAGE 3 //

5 Order backlog by housing starts and non-starts Q 04 3Q 04 4Q 04 1Q 05 2Q 05 3Q 05 4Q 05 1Q 06 Not started Started Total order backlog (remaining to be invoiced) at the end of each quarter, broke down by contract starts and non-starts. The company distinguishes between the backlog of housing starts and non-starts, since the time until revenues are received will normally be shorter for contracts under way than those waiting to start. At 31 March, the company had 120 started but unsold units. That compares with 138 at the same date last year. Employees The company had 568 employees doing at least 50 per cent of a full-time job at 31 March. Of these, 204 were white-collar staff and 364 were carpenters (including apprentices). Comparable figures for the same date in 2005 were 552 employees, 201 white-collar staff and 351 carpenters (including apprentices). Sickness absence Q Q Short-term 3.6% 3.5% 3.2% Long-term 4.8% 2.8% 4.0% Total 8.4% 6.3% 7.2% Eight accidents causing lost-time injuries were recorded in the first quarter, compared with four for the same period of None of these incidents led to serious injury or permanent disability. The increase in long-term sickness absence reflects a general industry-independent national trend. Absences covered by medical certificates rose for carpenters in Block Watne during the first quarter. As a member of Norway s inclusive workplace (IA) scheme, the company observes established IA procedures. Health, safety and the environment The company regularly carries out legally-required training activities in the HSE field as well as unannounced inspections at its building sites. Group-level inspections were carried out by the Norwegian Labour Inspection Authority during the first quarter at a selection of the company s sites. As a consequence of non-conformances exposed for in-house routines, further measures were implemented in such areas as observing regulations on the use of scaffolding and building site supervision. // PAGE 4 //

6 Financial aspects CASH FLOW BWG ASA group NOK Q Q (*) 2005 (*) Net cash flow from operating activities Net cash flow from investing activities (5 886) (2 752 Net cash flow from financing activities ( ) (9 777) (78 289) Net change in cash and cash equivalents (53 913) Net interest-bearing debt (*) Comparing figures are pro forma figures as the group was established per 30 November Removal of dividend clause and reduced interest rate margin NOK 251 million of the loan from Nordea was repaid at 31 March, about NOK 108 million more than the proceeds from the share issue. This reduced long-term bank borrowing to NOK 499 million. The company is not required to pay any instalments until December 2009, and the loan matures in its entirety in The bank has dropped its demand to exercise a veto on dividend payments, which means that the company is free to allocate its net profit. With effect from 1 May 2006, the interest rate margin for the loan was reduced by 40 basis points, from 95 to 55 points on the three-month Norwegian interbank offered rate (Nibor). Shareholders Block Watne Gruppen ASA was listed on the Oslo Stock Exchange with effect from 17 March An initial public offering and dispersion sale were held in advance of the listing. Great interest in the company, both in Norway and internationally, meant that the issue was oversubscribed approximately 20-fold in the institutional tranche of the share issue. The company had shareholders at 31 March, 72.5 per cent of whom were Norwegians and 27.5 per cent foreigners. Chief executive Lars Nilsen held per cent of the shares through his companies Lani Invest AS and Lani Development AS, while 175 Block Watne employees owned 0.3 per cent of the shares between them. At 31 March, the 10 largest shareholders were: Shareholder No of shares % of shares Lani Development AS shares % Lani Invest AS shares % Morgan Stanley & Co. Inc shares 4.77 % Credit Suisse Securities shares 2.25 % AG Invest AS shares 2.13 % Vital Forsikring ASA shares 1.68 % GMO Small Foreign Companies Fund shares 1.57 % Morgan Stanley & Co. Intl shares 1.52 % Bank of New York, Brussels shares 1.26 % JPMorgan Chase Bank shares 1.20 % Total 10 largest shareholders % Totalt number of shares shares A total of 16.8 million Block Watne Gruppen shares were traded on the Oslo Stock Exchange from March. The figure for April was 5.3 million. The closing price on 31 March was NOK // PAGE 5 //

7 Other aspects Changes to Block Watne Gruppen s management: Elisabet Landsend was appointed as the manager for corporate communication in January 2006, and is a member of the management team for Block Watne AS. Lars Nilsen has previously combined the posts of chief executive for the Block Watne subsidiary and Block Watne Gruppen. In accordance with the information given when Block Watne Gruppen received its listing, operational manager Ole Feet will take over as chief executive of Block Watne with effect from 1 June John Tarje Skree has been appointed new operational manager from the same date. Lars Nilsen will remain a member of the management team for Block Watne. Board changes: In connection with the company s application for a listing on the Oslo Stock Exchange, it was resolved that Lars Nilsen would resign from the board and be replaced by a new shareholder-elected director in order to meet the requirements for independence. Petter Neslein, president and principal shareholder of Pecunia AS, was elected as a new director of Block Watne Gruppen and Block Watne at the annual general meeting on 23 February. He replaced Lars Nilsen as a director of Block Watne Gruppen with effect from 17 March. Lars Nilsen will take over as chairman of Block Watne on 1 June Market outlook The market has been good so far in Block Watne Gruppen has a solid order backlog which will help to ensure stable progress for turnover in the time to come. Although some increase is likely in interest rates and the rates charged on customer loans, we believe that this will be spread over a relatively long period. A rise in interest rates will accordingly have a marginal impact on future sales. Oslo, 23 May 2006 Board of directors of Block Watne Gruppen ASA Harald Walther Hege Bømark Petter Neslein Chairman Deputy chairman Director Brit Hagelund Einar Hauge Tore Morten Randen Employee repr. Employee repr. Employee repr. // PAGE 6 //

8 Principal figures - Block Watne Gruppen ASA, consolidated accounts The group was established on 30 November 2005 through the acquisition by Block Watne Gruppen of all the shares in Block Watne AS and Hetlandhus AS. Block Watne owns the Norpartner Sp.z.o.o. subsidiary in Poland. Pro forma profit and loss accounts have been prepared for the first quarter of 2005 and fiscal 2005 as well as a pro forma balance sheet for the first quarter of 2005, in each case as if the group were established at 1 January The pro forma figures cover the business operations of the companies corrected for pro forma financial expenses and amortisation of additional value as shown below. PROFIT AND LOSS ACCOUNT Block Watne Gruppen ASA group NOK Notes Q Q (*) 2005 (*) Operating revenue Cost of stocks 2 ( ) ( ) ( ) Payroll expences (73 406) (67 675) ( ) Other operating expences 4 (27 416) (20 886) (99 246) EBITDA Depreciations (1 270) (1 427) (5 253) EBIT Financial income and costs 1 (6 120) (7 772) (37 256) EBT Tax 5 (6 410) (8 942) (47 784) Net profit of the period Earnings per share (NOK) Diluted earnings per share (NOK) EBITDA margin 14.3 % 11.9 % 14.4 % EBIT margin 13.9 % 11.5 % 14.0 % EBT margin 12.2 % 9.2 % 11.6 % Operating profit margin of the period 10.4 % 6.6 % 8.3 % Change operating revenue 3.0 % Change EBIT 25.1 % Change EBT 36.4 % Tax % of EBT 5 15 % 28 % 28 % Pro forma adjustments 1. Charged added value land (4 202) (16 808) 2. Interest received Interest expences (6 581) (26 325) Pro forma adjustments before tax (10 490) (41 958) 4. Tax 28 % of Pro forma adjustments after tax (7 552) (30 210) (*) Comparing figures are pro forma figures as the group was established per 30 November EQUITY Changes in equity - consolidated Block Watne Gruppen ASA group NOK Q Q (*) 2005 (*) Net dividends and group contribution to shareholders 0 ( ) ( ) Conversion differences (96) Net charged equity (96) ( ) ( ) Net new equity connected to the IPO Costs connected to the IPO (20 654) 0 0 Profit of the period Total changes in equity of the period ( ) (39 319) (*) Comparing figures are pro forma figures as the group was established per 30 November // PAGE 7 //

9 BALANCE SHEET Block Watne Gruppen ASA group NOK Notes Q Q (*) 2005 ASSETS Fixed assets Other intangible fixed assets Trademark Goodwill Total intangible fixed assets Land and buildings Machinery and plant Total tangible fixed assets Investments in subsidiaries Loans to associates Other receivables Total financial fixed assets Total fixed assets Current assets Buildings under construction Properties for sale 2, Land Total beholdninger Trade receivables Other receivables Market value of financial instruments Total accounts reveivable Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Equity Share capital ( ) shares á 0, Share premium reserve Total contributed equity Group reserve Total retained earnings Total equity Liabilities Pension liabilities Deferred tax liability Total provisions Subordinated loans Liabilities to financial institutions Total non-current liabilities Liabilities to financial institutions Trade payables Tax payable Tax deduction and other deduction Current liabilities related to land and projects Other current liabilities Total current liabilities Total liabilities Total equity and liabilities (*) Comparing figures are pro forma figures as the group was established per 30 November // PAGE 8 //

10 CASH FLOW Block Watne Gruppen ASA group NOK Q Q (*) 2005 (*) Net cash flow from operating activities Net cash flow from investing activities (5 886) (2 752) Net cash flow from financing activities ( ) (9 777) (78 289) Net change in cash and cash equivalents (53 914) Cash and cash equivalents by start of period Cash and cash equivalents by end of period Block Watne Gruppen ASA group Interest-bearing debt Q Q (*) 2005 Subordinated loan Liabilities to financial institutions Current liabilities to financial institutions Cash and cash equivalents (75 566) (73 570) ( ) Net interest-bearing debt (*) Comparing figures are pro forma figures as the group was established per 30 November // PAGE 9 //

11 NOTES TO THE CONSOLIDATED ACCOUNTS ACCOUNTING PRINCIPLES The Block Watne Gruppen ASA group is domiciled in Norway. The consolidated accounts for the business for the first quarter of 2006 embrace the parent company (business office in Oslo) and its subsidiaries Block Watne AS (Oslo), Norpartner Sp.z.o.o. (Opole, Poland) and Hetlandhus AS (Oslo). The interim accounts were presented by the board on 23 May DECLARATION THAT THE FINANCIAL STATEMENTS ACCORD WITH THE IFRS The consolidated accounts have been presented in accordance with the International Financial Reporting Standards (IFRS) and interpretations specified by the International Accounting Standards Board (IASB). This represents the first set of accounts presented by the group under the IFRS, and IFRS 1 has been applied. The interim accounts have been presented in accordance with the rules in IAS 34. BASIS FOR PREPARING THE STATEMENTS The financial statements are presented in Norwegian kroner, rounded off to the nearest thousand. They have been prepared on the basis of the historical cost convention with the exception of financial derivatives, which are recognised in the balance sheet at their fair value. Fixed assets held for sale are recognised at the lower of the amount carried in the balance sheet and fair value less sales expenses. Preparing financial statements in conformity with the IFRS requires the management to make use of estimates and assumptions which affect the application of the accounting principles and the reported amounts of assets and liabilities, revenues and expenses. Estimates and associated assumptions are based on historical experience and other factors regarded as reasonable in the circumstances. These calculations form the basis for assessing the capitalised value of assets and liabilities which do not find clear expression from other sources. The actual result can vary from these estimates. Estimates and the underlying assumptions are assessed on a continuous basis. Changes in accounting estimates are recognised in the period when the changes arise providing that they apply only to that period. Should the changes also apply to future periods, the effect will be allocated over the present and future periods. Assumptions made by the management when applying the IFRS which have a substantial effect on the financial statements and estimates which involve a substantial risk of being significantly adjusted in the next fiscal year are described in note 3. The accounting principles specified below have been applied consistently for all the periods presented in the consolidated accounts and in preparing an IFRS balance sheet at 1 January 2004 in connection with the transition to the IFRS. These accounting principles have been applied consistently by all the companies in the group. CONSOLIDATION PRINCIPLES Subsidiaries Subsidiaries are units controlled by the group. Control exists when the group has a controlling influence, directly or indirectly, on the unit s financial and operational management, and thereby benefits from its operations. When determining whether a controlling influence exists, the effect of potential voting rights which can be exercised or converted immediately is taken into account. Financial statements for subsidiaries are consolidated from the time when control transfers to the group, and de-consolidated when the control ceases. Associated companies Associated companies are entities where the group exercises significant influence, but not control, over financial and operational management. The consolidated accounts include the group s share of the associated company s profit or loss in accordance with the equity method from the time when significant influence is established and until such influence ceases. Insignificant holdings in associated companies are recognised in accordance with the historical cost method. When the group s share of a loss exceeds the investment in an associated company, the carrying amount in the group balance sheet is reduced to zero and no further losses are recognised in the profit // PAGE 10 //

12 and loss account unless the group has incurred legal or constructive obligations or has made payments on behalf of an associated company. Joint ventures A merged enterprise which embraces companies or activities under joint control is a joint venture when all the joint companies or activities are controlled by the same party or parties both before and after the creation of the joint venture, and where this control is not temporary. In the absence of more specific guidance, fair value is utilised for all transactions under joint control. Elimination of transactions in the consolidation Intra-group balances and possible unrealised gains and losses or revenues and expenses related to intra-group transactions are eliminated when preparing the consolidated accounts. Unrealised gains related to transactions with associated companies are eliminated in accordance with the equity interest in the company. Unrealised losses are eliminated in the same way, but only to the extent that no indications exist of an impairment in value. FOREIGN CURRENCIES Transactions in foreign currencies Transactions in foreign currencies are translated at the exchange rate prevailing on the transaction date. Monetary assets and liabilities in foreign currencies are translated to Norwegian kroner at the exchange rate prevailing on the balance sheet date. Currency differences arising from the translation are recognised in the profit and loss account. Financial statements of foreign businesses Assets and liabilities in foreign businesses which arise in connection with the consolidation are translated to Norwegian kroner at the exchange rate prevailing on the balance sheet date. Revenues and expenses for foreign businesses are translated to Norwegian kroner at the approximate exchange rate prevailing on the transaction date. FINANCIAL DERIVATES The company uses financial derivatives to hedge against the interest rate risk which arises through operational, financial and investment activities. Under the holding company s financial guidelines, financial derivatives are not purchased or issued for trading purposes. Financial derivatives are recognised initially at historical cost. In subsequent periods, they are assessed for fair value. Gains or losses arising from a reassessment of fair value are recognised immediately in the profit and loss account. The fair value of interest swap agreements is the estimated amount that the group will receive or be required to pay in order to settle the contract on the balance sheet date when account is taken off the current level of interest rates and the creditworthiness of the counterparty. PROPERTY, PLANT AND EQUIPMENT Own assets Property, plant and equipment are recognised in the balance sheet at their acquisition cost less accumulated depreciation and possible impairment loss. The acquisition cost of operating assets of own manufacture includes material costs, direct pay costs and a share of overheads. When parts of the property, plant and equipment have different useful lives, they are recognised as separate items of property, plant and equipment. Leased assets Leases where the group acquires substantially all the risks and benefits are classified as financial leases. Depreciation Depreciation is calculated on a straight-line basis over the estimated lifetime of an item of property, plant or equipment and recognised in the profit and loss account. Land is not depreciated. Estimated useful lives are: Buildings years Machinery and equipment 3-5 years Fixtures and fittings 3-5 years // PAGE 11 //

13 INTANGIBLE FIXED ASSETS All merged enterprises are recognised in accordance with the acquisition method. Goodwill represents the amount which arises when acquiring a subsidiary, and is the difference between the acquisition cost at the acquisition date and the fair value of the net identified assets acquired. Goodwill is recognised in the balance sheet at acquisition cost less possible accumulated impairment. Goodwill is attributed to cash-generating units, and is not amortised but tested annually for impairment. Research and development Spending on research activities made with the expectation of achieving new scientific or technical knowledge and understanding is recognised as an expense in the profit and loss account for the period in which it is incurred. Expenditure on development activities in which research results are applied in a plan or model for producing new or significantly improved products or processes are recognised in the balance sheet to the extent that the product or process is technically and commercially feasible and the group has sufficient resources to complete the development. The expenses carried in the balance sheet include material costs, direct pay costs and a share of overheads. Other development costs are recognised in the profit and loss account for the period in which they are incurred. Development expenses carried in the balance sheet are recognised at their acquisition cost less accumulated depreciation and impairment. Amortisation Amortisation is calculated on a straight-line basis and recognised in the profit and loss account over the estimated useful life of the intangible fixed asset, unless such life is indefinite. Goodwill, trademarks and intangible fixed assets with an indefinite useful life are tested for impairment on the balance sheet date. LAND Land represents sites where development has not yet begun. Land is recognised in the profit and loss account at the lower of acquisition cost and net realisable value. Net realisable value is the estimated sales price in ordinary operation less estimated costs for completion and sales. BUILDINGS UNDER CONSTRUCTION Buildings under construction include acquisition cost and profit earned at the balance sheet date less a provision for bad debts and advance payments. Acquisition cost includes expenditures directly related to specific projects and a share of fixed and variable indirect costs incurred in the company s contract activities based on normal capacity utilisation. ASSETS FOR SALE Assets for sale comprise show houses it has been resolved to sell, but which remain unsold on the balance sheet date. Assets are valued at the lower of acquisition costs and estimated net market value. Assets for sale are not depreciated, but written down in the event of impairment. TRADE DEBTORS Trade debtors and other debtors are recognised in the profit and loss account at acquisition cost less impairment loss. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash in hand and bank deposits. IMPAREMENT The carrying amounts of group assets, with the exception of investment property, holdings and deferred tax assets, are reviewed on the balance sheet date to assess whether there are indications of impairment. Should such indications be found, the recoverable amount of the asset is estimated. Recoverable amounts are estimated annually on the balance sheet date for goodwill and assets with an indefinite useful life. An impairment loss is recognised when the carrying amount of an asset or a cash-generating unit exceeds the recoverable amount. Impairment loss is recognised in the profit and loss account. Calculated impairment of cash-generating units is allocated so that the carrying amount of possible goodwill in the cash-generating unit is reduced first. The remaining impairment is then allocated proportionately between the remaining assets in the unit on the basis of their carrying amount. // PAGE 12 //

14 Calculation of recoverable amount The recoverable amount is the higher of net sales price and value in use. The latter is calculated by discounting estimated future cash flows to their present value, using the discount rate before tax which reflects the market s pricing of the value of money over time and the risk associated with the specific assets. For assets which do not primarily generate independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses on goodwill are not reversed. For other assets, impairment losses are reversed if a change occurs in the estimates used to calculate the recoverable amount. An impairment loss is reversed only to the extent that the asset s carrying amount does not exceed the carrying amount which would have been determined net after depreciation or amortisation if no impairment loss had been calculated. EMPLOYEE BENEFITS Defined benefit pension plans The net obligation relating to defined benefit pension plans is calculated separately for each plan by estimating the size of future benefits earned by the employee through their work contribution in the present and previous periods. These future benefits are discounted in order to calculate their present value, and the fair value of pension fund assets deducted in order to establish the net obligation. The discount rate comprises the interest rate on the balance sheet date for company bond loans with particularly high creditworthiness and roughly the same duration as the group s obligations. These calculations are made by a qualified actuary, and based on a straight-line pension-earning model. When benefits in a plan are improved, the share of the improvement in benefits earned by the employee is recognised as an expense in the profit and loss account. All actuarial gains and losses are recognised immediately in the profit and loss account. PROVISIONS A provision is recognised in the balance sheet when the group has an existing legal or constructive obligation as a result of past events and it is more likely than not that an outflow of financial resources from the group will be required to settle the obligation. If the effect is substantial, the provision is calculated by discounting the estimated future cash flows with a discount rate before tax which reflects the market s pricing of the value of money over time and, where relevant, risks specifically associated with the obligation. Loss-making contracts A provision for loss-making contracts is recognised when the group s expected revenue from a contract is lower than unavoidable costs which would be incurred to settle the obligations under the contract. TRADE CREDITORS AND OTHER CURRENT LIABILITIES Trade creditors and other payment liabilities are recognised at cost. Interest-bearing loans and credits Interest-bearing loans and credits are recognised initially at their fair value less directly-attributable transaction costs. In subsequent periods, the interest-bearing liabilities are assessed at amortised cost and any difference between acquisition cost and redemption value is recognised over the life of the loan in accordance with the effective interest rate method. OPERATING REVENUES Construction contracts As soon as a reliable estimate of the outcome of a construction contract can be made, revenues and costs under the contract are recognised proportionately in the profit and loss account in relation to the degree of completion of the contract. As a basis for calculating the degree of completion, the group uses costs incurred in the project as a proportion of total expected project costs. Expected losses on contracts are recognised immediately in the profit and loss account. Project calculations are revised by the company on a continuous basis and assessed on a quarterly basis through specific reviews of the contract portfolio. The group s business consists in part of the purchase and development of real property for the construction and sale of houses, and in part of the construction of houses on land owned by others. When building houses on land owned by others, each contract is normally modest in size, and virtually all the value creation (accrual) period consists of a construction process which lasts for less than six months. // PAGE 13 //

15 When building for the group s own account, large construction sites are subdivided into smaller sites which can normally be sold and completed within the space of months. Only sold contracts are recognised as revenue, and continuing recognition is based on the expected final results (project calculation). Provisions have been made on the basis of experience for guarantee work on jobs recognised in revenue. An individual assessment is also carried out for possible major guarantee cases in order to assess the need to make a special provision in addition to the ordinary provision. The guarantee period for houses is normally five years. Disputed amounts and supplementary claims are either not recognised as revenue, or provisions are made for completing the work. EXPENCES Payments under operational leases Payments made under operational leases are recognised in the profit and loss account on a straight-line basis over the period of the lease. Net financial expenses Net financial expenses include interest charges on loans in accordance with the effective interest rate method, dividends, interest income on invested funds, currency gains or losses, and gains or losses on hedging instruments recognised in the profit and loss account. Fees paid for guarantees on advance payments under construction costs are also recognised as financial expenses. Income tax Income tax on the result for the period comprises tax for the period and deferred tax. Income tax is recognised in the profit and loss account with the exception of tax on items recognised directly against equity. The tax effect of the latter is recognised directly against equity. Tax for the period comprises expected tax payable at prevailing rates on the taxable result for the period and possible corrections of tax payable for earlier years. Deferred tax is calculated using the liability method on all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the balance sheet. No account is taken of goodwill which is not tax-deductible. Provision for deferred tax is based on expectations about the realisation of or settlement for assets and liabilities in the balance sheet, and calculated on the basis of tax rates prevailing on the balance sheet date. Deferred tax assets are recognised only to the extent that it is probable that the asset can be utilised through future taxable profit. SEGMENT REPORTING A business segment is an identifiable part of the business which either delivers products or services (operational segment) or delivers products and services within a defined economic area (geographical segment), and which is subject to risks and returns which differ from those in other segments. Since the group s turnover is homogenous and primarily in Norway, only one segment has been identified. TRANSITION FROM NGAAP TO THE IFRS Block Watne Gruppen ASA is a new group formed on 1 December 2005, and has accordingly not published interim reports before. The main business of the group is activities which have been pursued for a number of years through the Block Watne subsidiary. This company has also not presented interim reports earlier. For information purposes, however, transition effects are presented in pro forma accounts for the first quarter of 2005 and fiscal The main adjustments from Norwegian generally-accepted accounting principles (NGAAP) to the IFRS are as follows: The group owns four commercial buildings which were each depreciated as a single unit under NGAAP. Under the IFRS, the various components are depreciated on a straight-line basis over their expected useful life. Accounting treatment of pension plans differs between the IFRS and NGAAP, primarily because of differences in discount rates. Intangible fixed assets such as goodwill and trademarks are not amortised under the IFRS, but tested for impairment in accordance with IAS 36. // PAGE 14 //

16 Dividend and group contribution are first recognised under the IFRS following a resolution of the general meeting. The IFRS sets stricter requirements for provisions. Certain general provisions under NGAAP have therefore been reversed in the IFRS accounts. NOTE 1 FINANCIAL DERIVATES The group entered into hedging contracts totalling NOK in the first quarter. These agreements do not satisfy the requirements for hedge accounting under IAS 39, and have been recognised at fair value on the balance sheet date. Changes in fair value are recognised in the profit and loss account. This had a positive effect of NOK on results for the first quarter. NOTE 2 - ESTIMATES Operating revenues and the cost of goods in the group derive from housing projects. Operating revenues and the cost of goods in uncompleted projects are influenced by estimates. See the note on the accounting principles. NOTE 3 ASSETS HELD FOR SALE Assets held for sale relate to show houses which it has been resolved to sell. This item has been reclassified from fixed assets to current assets. NOTE 4 SHARE ISSUE/STOCK EXCHANGE LISTING The group was listed on the Oslo Stock Exchange on 17 March In addition to costs recognised directly against equity, NOK has been recognised in the profit and loss account as one-off costs under other operating expenses. NOTE 5 - TAX One-off costs for the IPO/stock market listing are tax-deductible. This means that the tax rate for the first quarter has been reduced from the normal 28 per cent to about 15 per cent. // PAGE 15 //

17 Block Watne Gruppen ASA Transition from NGAAP to the IFRS Block Watne Gruppen ASA is a new group formed on 30 November 2005, and has accordingly not published interim reports before. The main business of the group is activities which have been pursued for a number of years through the Block Watne subsidiary. This company has also not presented interim reports earlier.. For information purposes, however, transition effects are presented in pro forma accounts for the first quarter of 2005 and fiscal PROFIT AND LOSS ACCOUNT PRO FORMA PRO FORMA NGAAP Effect of IFRS NGAAP Effect of IFRS NOK Effect Q IFRS Q IFRS 2005 Operating revenue Cost of stocks 1 ( ) (513) ( ( ) (1 912) ( ) Payroll expences 2 (65 322) (2 353) (67 675) ( ) (9 414) ( ) Other operating expences 3,6 (20 975) 89 (20 886) (97 580) (1 666) (99 246) EBITDA (2 777) (12 992) Depreciations 4,5 (11 668) (1 427) (48 34) (5 253) EBIT Financial income and costs 6 (7 779) 7 (7 772) (37 239) (17) (37 256) EBT Tax 7 (9 753) 811 (8 942) (49 798) (47 784) Net profit of the period Earings per share EBITDA margin 12.7 % 11.9 % 15.3 % 14.4 % EBIT margin 9.3 % 11.5 % 12.0 % 14.0 % EBT margin 7.1 % 9.2 % 9.5 % 11.6 % Operating profit margin of the period 4.3 % 6.6 % 6.2 % 8.3 % Effect of IFRS 1. Indirect cost of stocks 2. Pension costs 3. Allocation NGAAP 4. Depreciation intangible fixed assets 5. Depreciation decomponed buildings 6. Leasing cost classified as financial expences 7. Net tax of changes BALANCE SHEET PRO FORMA PRO FORMA NGAAP Effect of IFRS NGAAP Effect of IFRS NOK Effect Q IFRS Q IFRS 2005 ASSETS Fixed assets Intangible fixed assets (32 172) (1 100) Tangible fixed assets 2, (11 164) Financial fixed assets Total fixed assets (41 074) Current assets Land and buildings under constructions 3, Receivables Cash and cash equivalents Total current assets Total assets (21 179) EQUITY AND LIABILITIES Equity Shareholder s equity Retained earnings (83 830) (19 520) ( ) Total equity (19 520) Liablities Provisions 6, (1 150) Other non-current liabilities Current liabilities ( Total liabilities (1 659) Total equity and liabilities (21 179) Effect of IFRS 1. Differences in valuation of value added (intangible fixed assets), and amortization of these 2. Decomponed buildings, differences in depreciation 3. Reclassifications 4. Indirect costs 5. Allocation NGAAP 6. Valuation variances of pension liabilities 7. Net deferred tax of changes // PAGE 16 //

18 Block Watne Gruppen ASA Munkedamsveien 45 P.O. Box 1817 Vika NO-0123 Oslo Tel