Hexagon Composites — Annual Report 2014

Mar 18, 2015

ANNUAL REPORT 2014 EXTRACT OF

CONTENTS

The comprehensive annual report will be published in due time before the Annual General Meeting.

BOARD OF DIRECTORS' REPORT 04

FINANCIAL STATEMENTS GROUP

• 14 Income statement
• 15 Statement of comprehensive income
• 16 Financial position
• 18 Cash flow statement
• 19 Changes in equity
• 20 Notes

FINANCIAL STATEMENTS PARENT COMPANY

• 63 Income statement
• 64 Balance sheet
• 66 Cash flow statement
• 67 Notes

STATEMENT FROM THE BOARD AND MANAGEMENT 77

AUDITOR'S REPORT 78

REINFORCING OUR LEADING GLOBAL POSITION

257 MNOK

Underlying EBIT of 2014 increased by 81% from previous year to NOK 257 million.

1,651 MNOK

In 2014 operating income increased 30% driven by record activity in our core business segments.

B O A R D O F DIRECTORS' REPORT

In 2014 Hexagon Composites' operating income increased 30% driven by record activity in our core business segments. 2014 was the Group's best year so far with a significant improvement in margins and a strengthened balance sheet including strong cash generation, reduced debt and an increase in the equity ratio from 30.6% to 41.3%.

Key figures from continuing operations

	2014	2013
Operating income	1,650.8	1,271.6
EBITDA	329.2	204.4
EBIT	256.8	142.1
EBITDA %	19.9 %	16.1 %
EBIT %	15.6 %	11.2 %

RESULTS AND KEY DEVELOPMENTS

Hexagon Composites' operating income amounted to NOK 1,650.8 million compared with NOK 1,271.6 million in 2013. Operating profit before depreciation (EBITDA) was NOK 329.2 million (204.4). Operating profit (EBIT) for the year was NOK 256.8 million (142.1). The Group's profit before tax was NOK 237.4 million (128.5).

In 2014 the Group focused on increasing capacity utilization, production efficiency and product quality. The Group also strengthened its organizational capacity and expertise for business development and product innovation to provide a platform for future growth. The Board is confident that the Company is well positioned to maintain and grow its established market positions.

The Board is pleased with the continued sales growth in the North American market for TITAN™ Gas Distribution Products and high-pressure cylinders for heavy-duty vehicles. These developments, together with improvements and increased efficiencies in production and procurement operations contributed to significantly higher operating margins and strengthened the Company's competitive position.

The Board is also pleased with Hexagon Ragasco's sales performance in the low pressure cylinder markets particularly outside Europe. New markets help us to balance the seasonal demand of our core European business.

In January 2014, the Group completed an agreement for the sale of Hexagon Devold in order to concentrate solely on the pressure cylinder businesses. Amounts related to Hexagon Devold are reported separately in the Company's consolidated financial statements as activities held for sale.

SEGMENT RESULTS

HIGH-PRESSURE CYLINDERS CNG AND CHG

HEXAGON LINCOLN AND HEXAGON RAUFOSS

EBITDA MNOK

948 1,098 324 387 545 OPERATING INCOME MNOK

2012

2013

2014

	2014	2013
Operating income	1,098.3	948.3
EBITDA	216.3	148.9
EBIT	183.9	115.6
EBITDA %	19.7 %	15.7 %
EBIT %	16.7 %	12.2 %

SALES AND MARKET

2010

2011

The High-Pressure Cylinders segment achieved record operating income in 2014 amounting to NOK 1,098.3 million (948.3).

Volumes improved for both our Gas Distribution Products (Mobile Pipeline™) and CNG Automotive business operations. Sales of TITAN™ and SMARTSTORE™ modules increased primarily in North and South America. Growth in CNG cylinders for heavy-duty vehicles was solid for the year, while demand for the Company's bus systems continued to gather momentum both in the US and Europe.

Sales to the passenger vehicle market grew by 51% compared with 2013, but was not sufficient for our Light-Duty Vehicle operations to make an operating profit for the year. In 2014, however, Hexagon Raufoss was nominated by a major car manufacturer to supply fuel cylinders for their vehicles from 2017 onwards. The call-off contract has a sales value up to NOK 500 million.

PRODUCTION

The expansion program, which is comprised of leading, automated technology, will continue into 2015 and be optimized to meet expected capacity requirements.

EBIT MNOK

PROFIT/LOSS

High-Pressure Cylinders made an operating profit (EBIT) of NOK 183.9 million (115.6) in 2014. Operating margin increased to 16.7% (12.2%).

KEY DEVELOPMENTS

The business area achieved the following:

• 16% sales growth compared with 2013
• Capacity expansion programs at Hexagon Lincoln
• Further development of hydrogen programs
• Acquisition of the main assets of MasterWorks
• Strategic joint venture agreement between Hexagon Lincoln and US based Agility Fuel Systems.

LOW-PRESSURE CYLINDERS LPG

HEXAGON RAGASCO

OPERATING INCOME	EBITDA	EBIT
MNOK	MNOK	MNOK

73 139 97 72 24

2013 2014 2010 2011 2012

	2014	2013
Operating income	559.1	338.9
EBITDA	138.5	73.1
EBIT	99.1	44.7
EBITDA %	24.8 %	21.6 %
EBIT %	17.7 %	13.2 %

SALES AND MARKET

Operating income for our Low-Pressure Cylinders segment (Hexagon Ragasco) increased 65% to NOK 559.1 million (338.9) compared with 2013.

In 2014, dedicated initiatives resulted in two large contracts to Iraq and Qatar, enabling high capacity utilization and efficient, cost effective operations. Hexagon Ragasco's primary market is the leisure market in Europe normally resulting in seasonally higher sales in the first half of the year. To ensure continued growth and capacity utilization in the second half of the year, the company has focused on selected markets outside Europe.

PRODUCTION

During the year, we operated at near full capacity to meet customer demand and improve capacity utilization at the Hexagon Ragasco plant in Raufoss, Norway. Production stability and volumes were satisfactory during 2014.

The Group's Russian joint venture Rugasco has met challenges with currency devaluations and a manufacturing halt. This followed a recall after certain LPG fills were found to contain quantities of additives that were higher than levels approved for this type of manufactured cylinder. The joint venture has not accepted any liability. However, the cylinders were subject to recall in accordance with our standard practices. The Group's share of losses related to the Rugasco joint venture amounted to NOK 9.6 million for the year.

PROFIT/LOSS

Low-Pressure Cylinders achieved an operating profit (EBIT) in 2014 of NOK 99.1 million (44.7). Operating margins increased to 17.7% (13.2%).

KEY DEVELOPMENTS

The business area achieved the following:

• High capacity utilization due to two large orders to Qatar and Iraq
• Record sales and production volume for the year.

THE GROUP

Hexagon Composites' headquarters are located in Ålesund, Norway. At the end of 2014, the Group's administration consisted of eleven employees, responsible for general administration, finance, procurement, strategy, business development, investor relations and communications. In addition, certain administrative services were purchased from the Flakk Group.

FINANCIAL POSITION

In 2014, the Group significantly strengthened its financial position with strong cash generation, a reduction in long-term debt and an increase in the equity ratio to 41.3% (30.6%).

Cash and cash equivalents declined by NOK 46.1 million to NOK 202.2 million at the end of the year. The main factors influencing developments for the year included a repayment of NOK 150 million of bank loans, proceeds from the divestment of Hexagon Devold, relatively large capital expenditures, payments of dividends and other financing outlays. Strong underlying operational cash generation was partly offset by an increase in working capital.

At the end of 2014, the Group's total assets increased 3.6% to NOK 1,179.6 million (1,137.3). Intangible assets and property, plant and equipment were NOK 83.9 million (87.4) and NOK 294.5 million (229.0) respectively. The increase in property, plant and equipment was primarily due to capital expenditure in the Hexagon Lincoln and Hexagon Ragasco production sites. Inventory was NOK 320.5 million (213.0). Inventories increased partly to support higher sales volumes and also

due to volume leveraged discount pricing. The growth in sales volumes resulted in a corresponding increase in total outstanding receivables to NOK 206.6 million.

Long-term interest bearing debt declined to NOK 297.2 million (446.5). Equity was strengthened to NOK 487.1 million (348.6) due to the positive results for the year together with positive US dollar translation effects relating to Hexagon Lincoln. The Group's equity ratio was 41.3% (30.6%) at the end of 2014.

CASH FLOW AND LIQUIDITY

Total cash amounted to 202.2 million (248.3) at the end of 2014. Unused credit and overdraft facilities amounted to NOK 390.8 million (270.8). The Group expects that cash and available credit facilities will be sufficient to cover planned capital expenditures, operational requirements and financing activities in 2015.

Net cash flow from operating activities was NOK 195.3 million (163.2). Depreciation and write-downs totaled NOK 72.4 million (62.3). The difference between the operating profit and cash flow from operating activities was primarily due to changes in working capital and depreciation. Net cash flow from investment activities was NOK 4.7 million (-75.4) after receipts from the sale of Hexagon Devold of NOK 118.0 million. Net cash flow from financing activities was NOK -246.1 million (89.9).

8

MARGINS

LONG TERM BORROWING

Most of the Group's financing requirement is covered by an unsecured bond loan and a senior secured credit facility from DNB which is currently undrawn. Interest rate hedging agreements cover a total of NOK 250 million which is 83% of the outstanding long-term loans balance. The applicable fixed interest rates amount to 2.47% for NOK 100 million maturing in July 2018 and 3.01% for NOK 150 million maturing in December 2015. The net interest margin on our financing investments is charged in addition to these swap rates. See Note 24 for more information.

SHARE PRICE DEVELOPMENT AND DIVIDENDS

At the end of 2014 Hexagon Composites' share value was NOK 22.80, a decrease of 29% from NOK 32.30 at the beginning of the year. This represents a market value at the end of the year of NOK 3.0 billion. By comparison, the OBX Index increased by 4% while the Industrial Index decreased by 6%.

At the end of the year the Group had 1,166,075 own shares.

A dividend of NOK 44 million was paid in 2014 relating to the previous year. A dividend of NOK 0.62 per outstanding share, NOK 81.9 million in total, will be proposed to the General Meeting of Shareholders on 21 April 2015.

RISK MANAGEMENT

Hexagon Composites works systematically to identify and manage risks. Risk management is executed by Group

management and management in our subsidiary companies. The Board's audit committee reviews the overall risk management policy and procedures and the Group's internal control routines. The committee functions as a preparatory and advisory committee for the Group's Board and provides support for exercising its responsibilities relating to risk management, financial reporting, financial information and auditing.

FINANCIAL RISK

The Group has a centralized finance function with overall responsibility for accounting, cash management, capital management, financing arrangements and management of the Groups' financial risk factors. In addition, the business areas have financial controllers that perform similar tasks on the subsidiary level.

The most significant financial risks for the Group include interest rate risk, liquidity risk, currency risk and credit risk. The Group uses financial instruments to hedge risks associated with interest rate and foreign currency fluctuations. In addition to the discussion below, please see Note 24 to the consolidated financial statements for more information related to financial risk factors and mitigating actions.

Unexpected events and potential fluctuation in cash generation from operations could result in the Group being unable to meet its financial obligations. To mitigate this risk, the Group targets a sufficient liquidity position and adequate level of credit facilities. At the end of the year, the Group had unused credit overdraft facilities totaling NOK 390.8 million (270.8). See also discussion above on cash flow and liquidity.

The Group is mainly exposed to credit risk related to counter-party default on contractual agreements and trade, and other current receivables. The Group has policies and procedures in place to secure that sales are made to customers with appropriate credit profiles within defined limits. Actual losses on outstanding receivables in 2014 were NOK 0.5 million (1.2). Trade receivables at the end of the year amounted to NOK 206.6 million (123.4)

The Group is exposed to changes in currency rates which can impact our competitive position, and have a significant effect on our reported results. The most important foreign currencies to the Group are the US Dollar and Euro. According to our finance policy we enter into forward exchange contracts to reduce this risk.

Certain of our interest-bearing liabilities have variable interest rates, which expose the Group to volatility in future interest payment amounts. The aim of the Group's interest rate management is to reduce interest expense while keeping this volatility within acceptable limits. See discussion above under Long-term borrowing for information relating to interest rate hedging agreements maintained by the Group.

OPERATIONAL RISK

Business risk

Business risk relates to the risk of loss and reduced profitability due to changes in our competitive position. Factors which can impact our competitive position include new players in the industry, pressure on market prices and future demand and supply factors, including the price of natural gas and the relative price of gas compared with diesel. Depending on developments, these factors can have a negative impact on our results and financial positions.

Operational and technological risk

Hexagon Composites currently has a strong position in the market, in particular due to leading technologies in its niches markets. The Company uses its expertise to develop and commercialize new products, processes and technologies. The Company has protected its products, technologies and production processes with patents where possible and deemed appropriate. However, the Company is exposed to competing technologies and processes that could have a negative effect on our competitive positions and, in turn our profitability and financial position. Hexagon Composites operates in markets with strict standards for quality and delivery. Deviations from these standards could result in significant additional costs, lost sales revenues and damage to the Company's reputation. In order to mitigate this risk, the Company has procedures and controls in place to identify and prevent deviations.

Raw materials risk

The Group is exposed to developments in the price of its raw material and in particular the cost of carbon fiber. The price of carbon fiber is primarily linked to developments in the price of oil and energy and the prevailing market balance where supply is dependent on a limited number of manufactures. To mitigate this risk the Group has a procurement policy which requires periodic fixed price agreements with its most important suppliers. The policy requires a minimum of two suppliers for the purchases of principal materials.

CORPORATE GOVERNANCE

The Group's principles for corporate governance were last revised at the Board meeting of 18 March 2015 and follow the Norwegian recommendations in NUES (Norwegian Code of Practice for Corporate Governance) updated as of 30 October 2014. The Group's principles are referred to in a separate chapter in the annual report.

CORPORATE SOCIAL RESPONSIBILITY

Hexagon Composites strives to conduct its business in an economically, socially and environmentally responsible manner. The description of corporate social responsibility (CSR) has been provided in accordance with the provision in section 3-3 (c) of the Norwegian Accounting Act. The Group's CSR principles and practices are referred to in a separate chapter in the annual report.

RESEARCH & DEVELOPMENT

In order to maintain Hexagon Composites' leading position within its niche markets, the Group invests in technological and process development. Several R&D projects are carried out in cooperation with major customers.

The Group expensed R&D costs amounting to NOK 12.1 million (6.7) in 2014. The Group has received government contributions of NOK 5.8 million (1.0) towards research and development activities for 2014. The total amount of deferred costs related to R&D amounted to NOK 33.5 million as of 31.12.2014. Costs capitalized for the year amounted to NOK 1.8 million (3.8), while amortization of deferred costs amounted to NOK 8.3 million (8.3). In addition to the directly expensed R&D costs, the Group has around 25 fulltime equivalents involved in development activities.

POST BALANCE SHEET EVENTS

There were no significant post balance sheet events.

FUTURE PROSPECTS

The Board expects that the Hexagon Composites Group will consolidate its strong market positions and continue to deliver robust results despite the near-term uncertainty caused by oil price volatility.

The Group has strengthened its organization substantially during 2014, and the Board believes the Company is well positioned to pursue attractive business opportunities and successfully achieve its long term growth ambitions.

Key focus areas in 2015 will include:

• Continued development of the Gas Distribution Products (Mobile Pipeline™) market opportunities
• Development of market opportunities within Low-Pressure Cylinders
• Increased investment in product innovation to leverage the Company's competitive advantage.

The Board expects growth for 2015 as a whole. However, shortterm negative impacts to growth and profitability due to recent oil price volatility are expected. The Group is well positioned and sufficiently diversified to absorb such short-term impacts, while realizing the longer-term potential of natural gas as a competitive, price-stable and abundant alternative to diesel fuel.

Our financial position is strong, with considerable unused liquidity reserves. Investments in new capacity are being made in order to maintain or strengthen the Company's market share. The strengthening of the USD relative to NOK is positive to the Group's equity due to the large positive contribution from our US operations. The strengthening of the EUR is also positive for our Norwegian operations since our export sales to Europe are mainly denominated in EUR or USD while our cost base is in NOK.

The Board emphasizes that there is always uncertainty associated with assessments of future circumstances.

GOING CONCERN

According to section 3-3a of the Norwegian Accounting Act, the Board confirms that the financial statements have been prepared on the assumption of a going concern.

THE PARENT COMPANY

The Parent Company Hexagon Composites ASA incurred an operating loss of NOK -28.1 million (-18.6) in 2014 and a profit of NOK 72.1 million (30.7).

The Board of Hexagon Composites ASA proposes that the profit for the year is allocated as follows:

Total allocations	72.1
Transferred from/to other equity	-9.8
Allocated to dividends	81.9

Ålesund, 18 March 2015 The Board of Directors of Hexagon Composites ASA

Knut Flakk Chairman of the Board

Kristine Landmark Deputy Chair

Sverre Narvesen Board Member

May Britt Myhr

Board Member

Tom Vidar Rygh Board Member

Jon Erik Engeset Group President

F I N A N C I A L STATEMENTS 2014

FINANCIAL STATEMENTS GROUP

• 14 Income statement
• 15 Statement of comprehensive income
• 16 Financial position
• 18 Cash flow statement
• 19 Changes in equity
• 20 Notes

FINANCIAL STATEMENTS PARENT COMPANY

• 63 Income statement
• 64 Balance sheet
• 66 Cash flow statement
• 67 Notes

STATEMENT FROM THE BOARD AND MANAGEMENT

77

INCOME STATEMENT GROUP

01.01 – 31.12

(NOK 1 000)	NOTE	2014	2013
	5		Restated
OPERATING INCOME
Sales revenue	4	1 650 829	1 271 621
Total operating income		1 650 829	1 271 621
OPERATING EXPENSES
Cost of materials	13	812 026	667 545
Payroll & social security expenses	9,18,27	321 407	236 005
Depreciation and impairment	10,11	72 363	62 298
Other operating expenses	5,14,19,23	188 245	163 710
Total operating expenses		1 394 041	1 129 558
Operating profit	4	256 788	142 064
FINANCE INCOME AND EXPENSES
Finance income	6,24	44 181	45 794
Finance expense	6,20,21	53 996	55 190
Net financial items		-9 815	-9 396
Profit/loss from associates and joint ventures	2,5,26	-9 554	-4 224
Profit before tax		237 419	128 443
Tax expense	7	77 072	41 742
Profit/loss for the year from continuing operations		160 347	86 702
Profit/loss for discontinued operations	5	4 325	2 941
Profit/loss for the year	24,26	164 672	89 643
Earnings per share (NOK)
Ordinary	8	1.24	0.67
Diluted	8	1.24	0.67
Earnings per share for continuing operations (NOK)
Ordinary	8	1.21	0.65
Diluted	8	1.21	0.65

STATEMENT OF COMPREHENSIVE INCOME

(NOK 1 000)	NOTE	2014	2013
			Restated
Profit/loss after tax		164 672	89 643
ITEMS THAT WILL BE RECLASSIFIED THROUGH PROFIT OR LOSS IN SUBSEQUENT PERIODS
Translation differences when translating overseas activities		46 581	16 902
Actual gains or losses on instruments used for cash flow hedging	24	-382	83
Tax on actual gains or losses on instruments used for cash flow hedging	7	103	-66
Net total of items that will be reclassified through profit and loss in
subsequent periods		46 302	16 919
ITEMS THAT WILL NOT BE RECLASSIFIED THROUGH PROFIT OR LOSS IN SUBSEQUENT PERIODS
Actuarial gains/losses for the period	18	-2 314	3 479
Tax on actuarial gains/losses for pensions for the period	7	625	-974
Net total of items that will not be reclassified through profit and loss in subsequent periods		-1 689	2 505
Comprehensive income for the period		209 285	109 067

FINANCIAL POSITION OF THE GROUP

(NOK 1 000)	NOTE	2014	2013
	5		Restated
ASSETS
NON-CURRENT ASSETS
Property, plant & equipment	10	294 462	228 963
Intangible assets	11	83 922	87 415
Net pension assets	18	255	288
Investments in associates and joint ventures	2,5,26	0	26
Other non-current assets	12	4 597	3 529
Deferred tax asset	7	23 163	20 302
Total non-current assets		406 398	340 524
CURRENT ASSETS
Inventories	13	320 468	213 026
Trade receivables	14	206 577	123 410
Other current assets	15	43 993	18 117
Bank deposits, cash and cash equivalents	16	202 179	248 303
Total current assets		773 216	602 855
Assets held for sale	5	0	193 967
Total assets	4,24,26	1 179 615	1 137 346

FINANCIAL POSITION OF THE GROUP

(NOK 1 000)	NOTE	2014	2013
			Restated
EQUITY AND LIABILITIES
EQUITY
Share capital	17	13 329	13 329
Share premium	17	82 955	82 955
Own shares	17	-117	-106
Other paid-in capital		7 602	7 602
Total paid-in capital		103 770	103 781
Other equity		383 338	244 782
Total other equity		383 338	244 782
Total equity		487 109	348 564
NON-CURRENT LIABILITIES
Non-current interest-bearing liabilities	6,20,23	297 243	446 466
Interest and currency derivatives	24	7 334	4 247
Pension liabilities	18	3 374	1 932
Deferred tax liabilities	7	25 863	14 018
Total non-current liabilities		333 815	466 663
CURRENT LIABILITIES
Short-term loans	6,16,21,23	0	0
Trade payables and other current liabilities	22,24,26	301 941	211 897
Income tax payable	7	29 551	8 003
Provisions	19	27 200	21 943
Total current liabilities		358 691	241 844
Liabilities directly associated with assets held for sale		0	80 275
Total liabilities	4,24,26	692 506	788 782
Total equity and liabilities		1 179 615	1 137 346

Ålesund, 18 March 2015 The Board of Directors of Hexagon Composites ASA

Knut Flakk Chairman

May Britt Myhr Board Member

Kristine Landmark

Deputy Chair

Tom Vidar Rygh Board Member

Sverre Narvesen

Board Member

Jon Erik Engeset Group President

CASH FLOW STATEMENT GROUP

(NOK 1 000)	NOTE	2014	2013
	5		Restated
CASH FLOW FROM OPERATING ACTIVITIES
Profit before tax		237 419	128 443
Tax paid for the period	7	-52 069	-38 117
Depreciation/amortisation	10,11	72 363	54 593
Impairment loss	11	0	7 705
Interest income	6	-3 227	-3 430
Interest expenses	6	26 244	23 243
Profit/loss from associates and joint ventures	26	9 554	4 224
Changes in inventories, trade receivables and payables		-154 345	-32 277
Changes in pension liabilities	18	-839	-184
Changes in other accrual accounting entries 1)		60 166	19 001
Net cash flow from operating activities		195 266	163 200
CASH FLOW FROM INVESTMENT ACTIVITIES
Sale of property, plant & equipment	10	1 212	0
Purchase of property, plant & equipment	10	-105 341	-71 119
Purchase of intangible assets	11	-1 849	-3 695
Net proceedes sale of subsidiary		118 016	0
Interest received	6	3 227	3 450
Other investments		-10 595	-1 407
Net cash flow associated with activities held for sale	5	0	-2 587
Net cash flow from investing activities		4 670	-75 358
CASH FLOW FROM FINANCING ACTIVITIES
New non-current liabilities	20,23	0	296 250
Repayment of non-current liabilities	20,23	-150 000	-150 000
Bank overdraft payments	21	0	-18 067
Interest payments	6	-25 321	-18 342
Payments of dividends		-43 967	-19 991
Purchase of own shares		-26 773	0
Net cash flow from financing activities		-246 060	89 850
Net change in cash & cash equivalents		-46 124	177 693
Cash & cash equivalents at beginning of period		248 303	70 610
Cash & cash equivalents for continuing operations at end of period	16	202 179	248 303
1) Of which NOK 19 357 thousand (4 625 thousand) relates to currency translation on cash & cash equivalents.
Undrawn group overdraft facility	16	90 783	120 783
Undrawn credit facility at DNB	16,20	300 000	150 000
Restricted funds, included in cash & cash equivalents	16	6 359	4 898

STATEMENT OF CHANGES IN EQUITY

(NOK 1 000)	SHARE CAPITAL	OWN SHARES	SHARE PREMIUM	HEDGING RESERVE	OTHER PAID-IN EQUITY	TRANS LATION DIFFER ENCES	OTHER EQUITY	TOTAL
Balance 1.1.2013	13 329	-106	82 955	-3 117	7 602	-5 992	164 816	259 488
Dividends to shareholders							-19 993	-19 993
Profit/loss for the year							89 643	89 643
OTHER COMPREHENSIVE INCOME
Translation differences when translating foreign activities						16 902		16 902
Actuarial gains/losses for the period							2 505	2 505
Actual gains or losses on instruments used for cash flow hedging				17				17
Total other comprehensive income				17		16 902	2 505	19 425
Balance as of 31.12.2013	13 329	-106	82 955	-3 100	7 602	10 910	236 973	348 564

(NOK 1 000)	SHARE CAPITAL	OWN SHARES	SHARE PREMIUM	HEDGING RESERVE	OTHER PAID-IN EQUITY	TRANS LATION DIFFER ENCES	OTHER EQUITY	TOTAL
Balance 1.1.2014	13 329	-106	82 955	-3 100	7 602	10 910	236 973	348 564
Dividends to shareholders							-43 967	-43 967
Movement in own shares etc.		-11					-26 762	-26 773
Profit/loss for the year							164 672	164 672
OTHER COMPREHENSIVE INCOME
Translation differences when translating foreign activities						46 581		46 581
Actuarial gains/losses for the period							-1 689	-1 689
Actual gains or losses on instruments used for cash flow hedging				-279				-279
Total other comprehensive income				-279		46 581	-1 689	44 613
Balance as of 31.12.2014	13 329	-117	82 955	-3 379	7 602	57 491	329 227	487 109

Own shares comprise cost of acquisition for the Company's shares owned by the Group. As of 31 December 2014, the Group owned 1 166 075 (20 727) own shares.

Other equity includes accumulated actuarial gains/losses for pensions after tax of NOK -19 298 thousand (change of NOK -1 689 thousand from NOK -17 609 thousand as of 31.12.2013).

NOTES

NOTE 1 GENERAL

Hexagon Composites ASA is a public limited Company with its registered office in Norway. The Company's headquarters is at Korsegata 4B, 6002 Ålesund, Norway.

The Board of Directors authorised the annual report for publication on 18 March 2015.

The Group's operations are described in note 4.

NOTE 2 ACCOUNTING POLICIES

2.1 BASIS OF PREPARATION OF ANNUAL FINANCIAL STATEMENTS

The consolidated annual financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and endorsed by the EU as of 31.12.2014.

The measurement basis used is historical cost, with the exception of financial derivatives at fair value through profit or loss and financial derivatives used as cash flow hedges that are recognised at fair value.

The consolidated financial statements have been prepared using uniform accounting policies for equivalent transactions and events under otherwise identical circumstances.

2.2. FUNCTIONAL CURRENCY AND PRESENTATION CURRENCY

The Group's presentation currency is NOK. This is also the Parent Company's functional currency. Subsidiaries with different functional currencies are translated at the balance sheet date exchange rate for balance sheet items and at the weighted average exchange rate during the period for income statement items. Translation differences are recognised in the statement of total comprehensive income.

2.3 BASIS OF CONSOLIDATION

The consolidated financial statements comprise Hexagon Composites ASA and the companies over which Hexagon Composites ASA has control. Control normally exists when the Group owns more than 50% of the shares in a company, and the Group is in a position to exercise actual control over the company. Reference is made to note 30 which contains a list of subsidiaries and associates, note 25 and 26 which lists joint operations and joint ventures respectively.

Business combinations are accounted for using the acquisition method, and transaction costs are expensed as incurred.

The consideration for an acquisition is measured at fair value at the acquisition date and consists of cash and contingent consideration. Contingent consideration is classified as a liability in accordance with IAS 39 and is measured at fair value in subsequent periods, with any gains or losses recognised in profit or loss. The assumptions for exercising the contingent consideration are described in note 5.

All assets acquired and liabilities assumed in a business combination are classified and designated in accordance with the contractual terms, economic conditions and other factors that exist on the acquisition date, and are measured at their acquisition-date fair values.

The purchase price allocation may be adjusted if new information is obtained about the fair value on the date on which control was obtained. However, the allocation can be changed to up to 12 months after the acquisition date. Any non-controlling interest in the acquiree is measured at fair value or as the non-controlling interest's proportionate share of the acquiree's identifiable assets and liabilities. A choice of method is made for each individual business combination.

In a business combination achieved in stages, the acquisitiondate fair value of the previously held equity interest is measured, and any fair-value changes are recognised in profit or loss.

Goodwill is the difference between the aggregate of the consideration and recognised value of the non-controlling interests and the fair value of previously held equity interests with deductions for the net value of identifiable assets and liabilities calculated on the acquisition date. Goodwill is not depreciated, but is tested annually for impairment. During impairment testing, goodwill is allocated to cash generating units or groups of cash generating units which are expected to achieve synergies from the business combination.

If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in profit or loss.

2.4 INVESTMENT IN ASSOSIATES AND JOINT VENTURES

Associates are entities where the Group has significant influence, but not control, over financial and operating policies (normally a holding of between 20% and 50%).

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only

The considerations made in determining whether the Group has joint control or significant influence over an entity are similar to those necessary to determine control over subsidiaries. For more detailed description of the Group's considerations regarding level of influence and joint control as well as classification of joint arrangement, see note 26.

Associates and joint ventures are accounted for using the equity method from the date when significant influence or joint control is achieved until such influence ceases.

Investments in an associates or joint ventures are initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group's share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment individually.

The statement of profit or loss reflects the Group's share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Group's OCI. In addition, when there has been a change recognised directly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture.

If there is an indication that the investment in the associate or joint venture is impaired, the Group will perform an impairment test of the carrying amount of the investment. Any impairment losses are recognised as share of profit of an associate and a joint venture in the statement of profit or loss.

If the Group's share of the loss equals or exceeds the carrying amount of the associate or joint venture, the carrying amount is set to zero and further loss is not recognised unless the Group has incurred a legal or constructive obligation on behalf of the associate or joint venture.

Upon loss of significant influence over the associate or joint control over the joint venture, and as such the equity method ceases, the Group measures and recognises any retained investment at its fair value.

2.5 JOINT OPERATIONS

A joint operation is a joint arrangement whereby the Group and the other parties that have joint control over the arrangement, have contractual rights to the assets and obligation for the liabilities relating to the arrangement. All decisions about the relevant activities require unanimous consent.

When assessing if a joint arrangement is a joint operation, the Group assesses the structure of the arrangement, the legal form, the contractual agreement and other facts and circumstances. For a detailed description of the Group's assessment regarding joint operation, see note 25.

The Group recognises its assets, liabilities, revenue and expenses and its relative share of assets, liabilities, revenue and expenses of the joint operation.

When the Group enters into transactions with a joint operation in which it is a joint operator, the Group recognises gains and losses resulting from such a transaction only to the extent of the other parties' interests in the joint operation.

2.6 CASH AND CASH EQUIVALENTS

Cash & cash equivalents consist of cash in hand and at bank. Any positive balances against bank overdrafts are included as a component of cash and cash equivalents in the cash flow statement. The cash flow statement has been prepared using the indirect method. Bank overdrafts are reported under short-term loans in the balance sheet.

2.7 TRADE RECEIVABLES

Trade receivables are recognised at fair value less impairment losses. Nominal value does not normally differ significantly from amortised cost.

2.8 INVENTORIES

Inventories are recognised at the lower of historical cost and net realisable value. Net realisable value is the estimated selling price (in the normal course of business) less the estimated costs of completion, marketing and distribution. Cost is based on the average cost price, and comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Goods produced by the Company itself include variable and fixed costs that can be allocated based on normal capacity utilisation.

2.9 PROPERTY, PLANT & EQUIPMENT

Items of property, plant and equipment are carried at cost, less accumulated depreciation and impairment. An asset is removed from the balance sheet on disposal or when it is withdrawn from use and no future economic benefits are expected from its disposal. The gain or loss on disposal is recognised in the income statement.

The cost of an item of property, plant and equipment includes its original purchase price and all costs necessary to bring the asset to working condition for its intended use. Subsequent expenditure on repair and maintenance of assets is recognised as an expense in the income statement, while expenses that are expected to generate future economic benefits are capitalised.

The cost of a non-current asset is depreciated to the residual value over the asset's useful life. The following depreciation periods apply:

• Buildings 10-20 years
• Machinery and equipment 4-15 years
• Fixtures & fittings, motor vehicles 3-10 years

If an item of property, plant and equipment has different parts with different useful lives, the parts are depreciated separately if the cost is significant in relation to the total cost of the item.

In most cases, depreciation is calculated on a straight-line basis, although the Group also uses the unit of production method (number of units expected to be produced).

The depreciation period and method are assessed annually. The same applies to residual value. When the carrying amount of property, plant and equipment exceeds the estimated recoverable amount, the value is written down to the recoverable amount.

Assets under construction are classified as property, plant and equipment and are carried at cost until its manufacture or development is completed. Assets under construction are not subject to depreciation until the assets are taken into use.

2.10 LEASING – GROUP AS A LESSEE Finance leases

A lease is classified as a finance lease if it transfers to the Group substantially all the risks and rewards incidental to ownership of a leased asset. At the inception of the lease term, finance leases are recognised at the lower of the fair value and the present value of the minimum lease payments. The discount rate used to calculate the present value of the minimum lease payments is the interest rate implicit in the lease, if this is practicable to determine. If not, the Company's incremental borrowing rate is used. Direct costs in connection with the establishment of a lease are included in the cost of the asset.

The same depreciation period is used as for the Company's other depreciable assets. If there is no reasonable certainty that the Company will obtain ownership at the end of the lease term, the asset is depreciated over the shorter of the lease term and the useful life of the asset.

Operating leases

A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership of the asset. Lease payments are classified as an operating expense and are recognised as an expense over the lease term.

2.11 FINANCIAL INSTRUMENTS

Financial assets and liabilities are recognised on the date the Group becomes a party to the instruments' contractual terms. A financial asset is derecognised when the contractual rights to the cash-flow expires or when the Group transfers substantially all the risk and rewards of the ownership of the financial asset. Financial liabilities are derecognised on the date the obligation specified in the contract are discharged, cancelled or expire.

In accordance with IAS 39, Financial instruments: Recognition and measurement, financial instruments within the scope of IAS 39 are classified in the following categories: at fair value with changes in value through profit or loss, held to maturity, loans and receivables and other liabilities.

Financial assets and liabilities measured at fair value through profit or loss

The Group has forward exchange contracts that are measured at fair value with gains or losses through profit or loss. Interest rate derivatives that do not qualify as hedges are measured at fair value with gains or losses through profit or loss. The financial instruments are classified as current assets or liabilities or non-current assets or liabilities based on the maturity of the financial instrument.

Gains or losses are recognised on an ongoing basis in the period they arise and are recognised in finance income or finance expense in the income statement.

Financial assets and liabilities measured at amortised cost

Trade receivables, other non-current and current receivables and bank deposits, cash and cash equivalents are valued at amortised cost based on expected cash flows. They are measured at fair value when measured for the first time, with the addition of any transaction costs.

Interest-bearing liabilities and other liabilities are measured at their fair value less associated transaction costs on the establishment date. In subsequent periods, financial liabilities are recognised at their amortised cost calculated using the effective interest rate.

Receivables and liabilities are non-derivative financial assets and liabilities with fixed or determinable payments that are not traded in one active market. They are classified as current assets or current liabilities, unless they fall due more than 12 months after the balance sheet date, in which case they are classified as non-current assets or non-current liabilities.

2.12 HEDGING

The Group uses forward currency contracts to reduce currency exposure, but does not use hedge accounting associated with the currency instruments.

Cash flow hedges

The Group uses hedge accounting of hedging instruments entered into to reduce its interest exposure. Interest rate hedging instruments classified as cash flow hedging are recognised at fair value on the establishment date. Subsequent changes in value are recognised in other income and expenses in the statement of comprehensive income.

The portion of gain or loss on a hedging instrument that is determined to be effective is recognised in total comprehensive income. The ineffective portion of the gain or loss on the hedging instrument is recognised in profit or loss.

If the hedging instrument is sold, the accounting treatment differs according to whether the forecast transaction (the hedged item) is expected to occur. If the forecast transaction is expected to occur, the cumulative gain or loss on the hedging instrument shall remain separately in equity until the forecast transaction occurs or is no longer expected to occur. If the forecast transaction is not expected to occur, gains and losses accumulated in equity shall be reclassified from equity to profit or loss.

If the hedging instrument is no longer effective, but the forecast transaction is still expected to occur, the cumulative gain or loss on the hedging instrument shall remain separately in equity until the forecast transaction occurs or is no longer expected to occur. Subsequent gains or losses on the hedging instrument are recognised immediately in profit or loss.

If the forecast transaction is no longer expected to occur, the cumulative unrealised gain or loss on the hedging instrument that was recognised in total comprehensive income is reversed and recognised in profit or loss.

2.13 INTANGIBLE ASSETS

Intangible assets acquired independently are recognised at cost. The cost of intangible assets acquired as part of acquisitions is recognised at fair value in the Group's opening balance. Capitalised intangible assets are recognised at cost less any amortisation and impairment.

Internally generated intangible assets, with the exception of capitalised development expenses, are not capitalised, but recognised as incurred.

Useful life is determined and intangible assets are depreciated over the useful life and tested for impairment if there is an

indication that they are impaired. The amortisation method and period are assessed at least annually. Changes to the amortisation method and/or period are accounted for as a change in estimate.

Goodwill

Assets and liabilities acquired in a business combination are recognised at fair value in the Group's opening balance. Non-controlling interests in the acquiree are measured at fair value or as the non-controlling interest's proportionate share of the acquiree's identifiable assets and liabilities. A choice of method is made for each individual business combination. The difference between the consideration transferred and the fair value of the net identifiable assets at the time of acquisition is classified as goodwill. It is allocated to cash-generating units or groups of cash generating units which are expected to achieve synergies from the business combination.

Goodwill is recognised in the balance sheet at cost, less any accumulated impairment. Goodwill is not amortised, but is tested annually for impairment. Cash generating units are measured at a higher level than other assets, with 'operating segment' being the highest level. An impairment loss is recognised when the recoverable amount is lower than the carrying amount.

Patents and licences

Amounts paid for patents and licences are recognised in the balance sheet and are amortised on a straight-line basis over their useful life. The expected useful life of patents and licences varies between 6 and 17 years.

Technology development

Research costs are expensed as incurred. The development costs of projects (relating to the design and testing of new or improved products) are capitalised as intangible assets if all the following criteria are met:

• a) it is technically feasible to complete the asset for future use or sale;
• b) it is the management's intention to complete the asset and use or sell it;
• c) it is possible to use or sell the asset;
• d) it can be demonstrated how the asset will generate future economic benefits;
• e) technological and financial resources are available to complete the asset; and
• f) the costs can be reliably measured.

Other development costs are recognised as incurred. Development costs that have previously been expensed are not recognised in subsequent periods. Capitalised development costs are amortised on a straight line basis over the estimated useful life of the asset or using the unit of production method, when the use of time is closely linked to production equipment that is depreciated according to the unit of production method.

Capitalised development costs with an indefinite useful life or related to projects under development are tested annually for impairment in accordance with IAS 36.

Customer relationships

Purchased customer contracts have a finite useful life, and are recognised at cost less amortisation. Customer contracts and technology are amortised using the straight line method over their estimated useful lives (2 to 20 years).

2.14 IMPAIRMENT OF NON-FINANCIAL ASSETS

Intangible assets with an indefinite useful life are not amortised, but are tested annually for impairment. Items of property, plant and equipment and intangible assets are tested for impairment if there is reason to believe that future earnings do not justify the asset's carrying amount. The difference between the carrying amount and the recoverable amount is recognised as an impairment loss. The recoverable amount is the higher of the fair value less costs to sell and the value in use.

When testing for impairment, non-current assets are grouped at the lowest level at which it is possible to distinguish independent cash inflows (cash generating units). A cash generating unit is the smallest identifiable group of assets that generates cash inflows which are largely independent of the cash inflows from other assets or groups of assets. At each reporting date, the Company considers the possibility of reversing previous impairment losses on non-financial assets (except goodwill and other intangible assets with an indefinite useful life).

2.15 PROVISIONS

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If the effect is significant, the provision is calculated by discounting anticipated future cash flow using a discount rate before tax that reflects the market's pricing of the time value of money and, if relevant, risks specifically associated with the obligation.

A provision for guarantees is recognised when the underlying products or services are supplied. The provision is based on historical information about guarantees and a weighting of all possible outcomes by their associated probabilities. A provision for onerous contracts is recognised when the group's expected economic benefits under the contract are lower than the unavoidable costs of meeting the obligations under the contract.

2.16 EQUITY

(I) Own shares

In the event of a share buy-back, the purchase price and any directly associated costs are recognised as a change in equity. Own shares are reported as a reduction in equity. Gains or losses on share buy-back transactions are not recognised.

(II) Costs arising from equity transactions

Transaction costs directly linked to an equity transaction are recognised directly in equity.

(III) Other equity

(a) Translation differences

Translation differences arise in connection with exchange differences on consolidation of foreign operations, and are recognised in other comprehensive income.

On disposal of a foreign operation, cumulative translation differences are reversed and recognised in profit or loss in the same period in which the gain or loss on the disposal is recognised.

(b) Change in actuarial gains/losses (pension commitments) Actuarial gains or losses resulting from changes in assumptions and basic data are recognised directly in other comprehensive income.

(c) Dividends

Proposed dividends are classified as other equity until they are approved by the general meeting of Hexagon Composites ASA.

(IV) Other paid-in capital – Share-based payments

When the Group had incentive programs including options, fair value of management's options to subscribe for shares was recognised, with a corresponding increase in other paid-in capital, over the period in which the performance and/or service conditions were fulfilled. The fair value was calculated on the grant date using the Black & Scholes model.

(V) Hedging reserve

Forward exchange contracts and interest rate derivatives that qualify as hedging instruments (cash flow hedges) are recognised at fair value, with a corresponding entry in total comprehensive income, and transferred to the revaluation reserve (net of tax). Realised gains or losses are recognised in profit or loss to offset gains or losses on the items that were hedged.

2.17 REVENUE RECOGNITION

The Group's main revenues come from the sale of its own products in the different segments:

• Low-Pressure Cylinders
• High-Pressure Cylinders

Revenue is recognised to the extent that it is probable that transactions will generate future economic benefits for the Company and the revenue can be reliably measured. Sales revenue is stated net of VAT and discounts.

Revenue from the sale of goods and services is recognised when delivery has taken place and the significant risks incidental to ownership of the goods have passed to the buyer. Royalties are recognised when earned in accordance with the substance of the relevant royalty agreement. Interest income is recognised as interest accrues.

Dividends are recognised when the shareholders' right to receive the payment is established by the annual general meeting.

2.18 FOREIGN CURRENCY

Transactions in foreign currency

Foreign currency transactions are translated at the exchange rates existing at the date of the transactions. Monetary items denominated in foreign currencies are translated to functional currency using the exchange rates ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated to functional currency using the exchange rates at the dates of the transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Exchange differences are recognised in profit or loss in the period in which they arise.

Foreign operations

Assets and liabilities of foreign operations with a functional currency that differs from the presentation currency are translated to functional currency using the exchange rate on the balance sheet date. Income and expense from foreign operations is translated to functional currency using the weighted average exchange rate (if the average does not provide a reasonable estimate of the cumulative effects of using the transaction

rate, the transaction rate is used). Translation differences are recognised in other comprehensive income.

Translation differences arising from the translation of net investments in foreign operations, and from related hedged items, are classified as translation differences in total comprehensive income. Translation differences in total comprehensive income are transferred to the income statement on the disposal of a foreign operation.

2.19 EMPLOYEE BENEFITS

Defined benefit pension plans

The Group's Norwegian companies have benefit pension plans. The defined benefit liability is the net total of the present value of future pension benefits accrued at the balance sheet date, minus the fair value of plan assets.

In previous years the discount rate has been based on the 10 year government bond interest rate with a markup for the duration of the pension liability exceeding 10 years. As of 31.12.2013 the Group changed this to the discount rate being based on interest on corporate bonds with a high credit rating. The Norwegian market for bonds with preferential rights is considered to have the features that would indicate that it can be used as a basis in the calculation of the discount rate. The expected return on pension plan assets is calculated with the same interest rate that is used for the discounting of the pension liabilities. Returns exceeding the discount rate are recognised in other comprehensive income. The net interest expense from gross pension liabilities and plan assets is presented as wages and salaries.

The actuary calculations are carried out by a qualified actuary and are based on the projected unit credit method. Actuarial gains or losses are recognised directly in other comprehensive income.

There are different schemes in place at the Group's companies. Pension benefits are dependent on age, length of service and salary. The net retirement benefit expense for the period (gross expense less estimated return on plan assets) is included in the item Payroll & social security expenses. Employer's contributions are included in the figures and are calculated on the basis of the net pension liability.

Any introduction of a new defined benefit plan or an improvement to the present plan will involve changes to the retirement benefit obligation. These are recognised as an expense on a straight-line basis until the effect of the change has been accommodated. The introduction of new plans or changes to existing plans which take place retrospectively, thereby qualifying employees for a free policy (or change to a free policy), are recognised immediately. Gains or losses on the curtailment or settlement of pension plans are recognised when the curtailment or settlement occurs.

Multi-employer plans

Some of the Norwegian employees participate in a AFP pension scheme. The scheme is a defined benefit multi-employer pension plan, funded through premiums that are defined as a percentage of salary. The scheme's retirement benefit obligation and plan assets cannot be reliably measured and allocated at present. For accounting purposes, the scheme is treated as a defined contribution plan, with premium payments expensed as incurred, and no provisions made in the accounts.

Defined contribution pension plans

In December 2008, the Company decided to terminate the defined benefit pension plan for the Norwegian employees under 52 years of age on the date of transfer. These employees joined a defined contribution pension plan with effect from 1 January 2009. Employees over the age of 52 on the date of transfer continued to be members of the defined benefit plan. The Group's companies in the US and Sweden have defined contribution pension plans.

Pension premiums relating to defined contribution plans are recognised as an expense as they are incurred.

Share-based payment

Senior executives in the Group have previously received options to subscribe for shares in the Parent Company. The fair value of the share options was measured at the grant date and the cost was recognised, together with a corresponding increase in other paid-in capital, over the period in which the performance and/or service conditions were fulfilled. The fair value was calculated using the Black & Scholes model. The employer's contribution was accrued over the period in which the service conditions were fulfilled, based on the intrinsic value. A new incentive programme for senior executives was established in 2010 and existing, granted options continued until August 2012. As at 31.12.2014 the incentive programme does not include options.

2.20 GOVERNMENT GRANTS

Government grants, including the Skattefunn tax incentive scheme, are recognised when there is reasonable assurance that the Company will comply with the conditions attaching to them, and that the grants will be received. Grants are entered as deductions against the cost that they are intended to compensate. Investment grants are capitalised and recognised as income on a systematic basis over the useful life of the asset. Investment grants are recognised by deducting the grant from the asset's carrying amount.

2.21 INCOME TAXES

Tax expense comprises current tax expense and deferred tax expense. Deferred tax liabilities are recognised for all taxable temporary differences, except in the following cases:

• When deferred tax assets arise due to first-time classification of goodwill or of an asset or liability in a transaction that is not a business combination and does not impact on either the accounting or tax gain or loss on the transaction date, and
• Taxable temporary differences related to investments in subsidiaries, associates and joint ventures, where the Group is able to control the timing of the reversal of the temporary differences and it is probable that the reversal will not occur in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences and the carryforward of unused tax losses and unused tax credits to the extent that it is probable that future taxable profit will be available to offset against deductible temporary differences and the carryforward of unused tax losses and unused tax credits. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and liabilities are recognised at nominal value and are classified as non-current assets and non-current liabilities in the balance sheet. Deferred tax is presented as a gross amount for the geographical countries in which the Group operates.

Deferred tax is recognised directly in total comprehensive income if the tax items relate to items recognised in total comprehensive income. Deferred tax is recognised directly in equity if the tax items relate to items recognised directly in equity.

2.22 SEGMENTS

For management purposes, the Group is organised into different business areas according to product/service range. The Group's segment reporting format is business areas. Financial information relating to segments and geographical areas is presented in note 4.

The Group is organised into the following business areas:

• Low-Pressure Cylinders Hexagon Ragasco
• High-Pressure Cylinders Hexagon Lincoln / Hexagon Raufoss / Hexagon Technology

In segment reporting, internal gains on sales between segments are eliminated.

2.23 CONTINGENT LIABILITIES AND CONTINGENT ASSETS

Contingent liabilities are not recognised in the annual accounts. Significant contingent liabilities are disclosed, with the exception of contingent liabilities that are unlikely to be incurred.

Contingent assets are not recognised in the annual accounts but are disclosed if there is a certain probability that a benefit will be added to the Group.

2.24 EVENTS AFTER THE BALANCE SHEET DATE

The amounts recognised in the financial statements are adjusted to reflect new information received after the balance sheet date that provide evidence of conditions that existed at the balance sheet date ("adjusting events"). The amounts recognised in the financial statements are not adjusted to reflect new information that are indicative of conditions that arose after the reporting period ("non-adjusting events"), but non-adjusting events are disclosed if material.

2.25 NEW ACCOUNTING STANDARDS

The accounting policies adopted are consistent with those of the previous financial year, except for the amendments to IFRS which have been implemented by the Group during the current financial year. Below we have listed the amendments in IFRS which have been applicable for the Group's financial statements, as well as the effect of the amendments.

The Group implemented new standards which require restatement of previous accounting periods, including IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements. Additional note requirements have also been required due to the implementation of IFRS 12 Disclosure of Interests in Other Entities.

IFRS 10 Consolidated Financial Statements

IFRS 10 Consolidated Financial Statements has amended the definition of control. The effect of implementation of IFRS 10 has not had any effect for the Group.

IFRS 11 Joint Arrangements

IFRS 11 Joint Arrangements removes the option to account for jointly controlled entities using proportionate consolidation. All entities meeting the definition of a joint venture in IFRS 11 Joint Arrangements must be accounted for using the equity method.

The implementation of IFRS 11 Joint Arrangements resulted in changes to the accounting of one jointly controlled entity Rugasco LLC. The Group has 49% of the ownership interests and 50% voting rights in Rugasco LLC. Until 31.12.2013 Rugasco LLC was accounted for by using proportionate consolidation. As a consequence of implementing IFRS 11 Joint Arrangements Rugasco LLC has now been assessed as a joint venture and will be accounted for by using the equity method. The change in the accounting method does not affect the profit or the equity, however if does have effect on certain other items in the profit and loss and balance sheet. The accounting effect of the implementation is included in note 5.

IFRS 12 Disclosure of Interests in Other Entities IFRS 12

Disclosure of Interests in Other Entities applies for the Group's interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. The disclosures requirements have been extended. The Group does not have any unconsolidated entities. The disclosure requirements regarding subsidiaries, joint arrangements and associates can be found in note 25, 26 and 30.

2.26 NEW AND AMENDED IFRSS AND IFRICS WITH FUTURE EFFECTIVE DATES

Standards and interpretations that are issued up to the date of issuance of the consolidated financial statements, but not yet effective, are disclosed below. The Group's intention is to adopt the relevant new and amended standards and interpretations when they become effective, subject to EU approval before the consolidated financial statements are issued.

IFRS 9 Financial Instruments

IFRS 9 will eventually replace IAS 39 Financial Instruments: Recognition and Measurement. In order to expedite the replacement of IAS 39, the IASB divided the project into phases: classification and measurement, hedge accounting and impairment. New principles for impairment were published in July 2014 and the standard is now completed. The parts of IAS 39 that have not been amended as part of this project have been transferred into IFRS 9. The Standard is not yet approved by the EU. For entities outside the EU/EEA the Standard will be effective for accounting periods beginning on or after 1 January 2018.

IFRS 15 Revenue from Contracts with Customers

The IASB and the FASB have issued their joint revenue recognition standard, IFRS 15. The standard replaces existing IFRS and US GAAP revenue requirements. The core principle of IFRS 15 is that revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard applies to all revenue contracts and provides a model for the recognition and measurement of sales of some non-financial assets (e.g., disposals of property, plant and equipment). The Standard is not yet approved by the EU. For entities outside the EU/EEA with a statutory obligation to keep accounts, the Standard will be effective for accounting periods beginning on or after 1 January 2017.

The Group has not yet considered if IFRS 9 Financial Instrument or IFRS 15 Revenue from contracts with customers will impact the financial statements.

Other issued standards and interpretations, that are not yet effective, are not applicable for the Group, and will not have an impact on the financial statements.

NOTE 3 ESTIMATION UNCERTAINTY

In the process of applying the Group's accounting policies in accordance with IFRS, management has made several judgements and estimates. All estimates are assessed to the most probable outcome based on the managements best knowledge. Estimates and assumptions are regularly reassessed and are based on historical experience and other factors, including forecast events that are considered probable under current circumstances.

The Group prepares estimates and makes assumptions about the future. The accounting estimates based on this process are, by definition, rarely completely in line with the final outcome. Estimates and assumptions represent a risk of material changes in the carrying amounts of assets and liabilities over the next financial year.

The Group's most significant accounting estimates are related to the following items:

• Depreciation/amortisation of property, plant & equipment and intangible assets.
• Recognition of intangible assets.
• Impairment of goodwill
• Fair value of assets and liabilities acquired in a business combination.
• Deferred tax asset
• Product warranty provisions

Depreciation/amortisation of property, plant & equipment and intangible assets

Group management determines the useful lives and depreciation rates for items of property, plant & equipment and intangible assets. The expected useful life of the Group's production equipment is largely dependent on technological development. The present depreciation period is 3-20 years, but an uncertainty exist for the interval between 10-20 years.

A part of a production line at Hexagon Ragasco is depreciated in accordance with the unit method, i.e. in accordance with the number of cylinders produced. The useful life is estimated on the basis of 8 000 000 cylinders, but an uncertainty exists for production in excess of 8 000 000 cylinders.

Depreciation for a part of the production line for the TitanTM cylinders at Hexagon Lincoln is based on the unit of production method, i.e. in accordance with the number of cylinders produced. The useful life is estimated on the basis of 5 000 TitanTM cylinders, and depreciation is applied on the basis of the annual number of units produced. The same depreciation method and basis is used for capitalised development costs associated with the TitanTM cylinder. An uncertainty exists for the production in excess of 5 000 cylinders. See also notes 10 and 11.

Recognition of intangible assets

There is uncertainty about the date for when the criteria for recognition of intangible assets are satisfied. The management uses the starting point that the Group first commences capitalisation when there is an identifiable intangible asset that is controlled by the Group and is expected to create future earnings.

There is uncertainty associated with the valuation and allocation of the cost of acquisition for intangible assets.

The Group capitalises development costs for a project in accordance with the accounting policy. Initial capitalisation of costs is based on management's judgement that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to project plan. In determining the amounts to be capitalised, management makes assumptions regarding the expected future cash generation of the project, discount rates to be applied and the expected period of benefits. At 31 December 2014, the carrying amount of capitalised development costs was NOK 33 474 (39 869) thousand. For criteria for recognition, see note 2.13 and note 11.

Impairment of goodwill

Recognised goodwill is assessed annually for impairment. Recoverable amounts from cash-generating units are calculated based on their value in use. There is uncertainty associated with the assumptions used as a basis in the preparation of budgets for the calculation of value in use. These calculations require the use of estimates and assumptions about future income and expense trends.

In 2013 there was impairment of goodwill related to the unit Hexagon Raufoss of NOK 7 705 thousand. See also note 11.

Fair value of assets and liabilities at the time of acquisition

The Group must allocate the cost of a business combination by recognising the assets acquired and liabilities assumed based on their estimated fair values. The fair value measurement requires management to make significant judgements in the choice of method, estimates and assumptions. Significant acquired intangible assets which the Group recognises include the customer base and deferred tax assets. Assumptions used for the valuation of intangible assets include, but are not limited to, the estimated useful life of the customer relationship based on customer attrition.

Significant acquired assets that the Group recognises include land and buildings and machines and equipment. Methods for the valuation of property, plant & equipment include, but are not limited to, the replacement cost of the assets. Management's fair value estimates are based on reasonable, but not entirely certain, assumptions. See also note 5.

Deferred tax asset

The group's deferred tax assets are reviewed regularly and recognised only to the extent that it is probable that future taxable profits will be available against which they can be utilised. See also note 7.

Product warranty provisions

Management estimates the warranty provision using information on historical warranty costs and other relevant information relevant to future warranty claims. Factors that can influence estimated liabilities include the results of productivity and quality initiatives, as well as prices of parts and labour costs. See also note 19.

NOTE 4 SEGMENT INFORMATION

The Group's operations are divided into strategic business areas, which are organised and managed separately. The different business areas sell different products, address different customer groups and have different risk profiles.

THE HEXAGON COMPOSITES GROUP IS DIVIDED INTO THE FOLLOWING BUSINESS SEGMENTS

a) Low-Pressure Cylinders - Hexagon Ragasco

b) High-Pressure Cylinders– Hexagon Lincoln / Hexagon Raufoss / Hexagon Technology

Hexagon Ragasco manufactures low-pressure cylinders, i.e. cylinders for propane gas.

Hexagon Lincoln / Hexagon Raufoss develop and supply complete storage and transport systems for natural gas and hydrogen to the bus and automotive industry and for bulk transport of compressed gas.

Transactions between the segments are based on arm's-length prices.

BUSINESS SEGMENT DATA

	HIGH-PRESSURE CYLINDERS		LOW-PRESSURE CYLINDERS
(NOK 1 000)	2014	2013	2014	2013
OPERATING INCOME FROM EXTERNAL CUSTOMERS:
Sale of goods	1 097 625	939 395	551 082	330 084
Royalties
Total operating income from external customers	1 097 625	939 395	551 082	330 084
Internal transactions	712	8 859	8 009	8 863
Total operating income	1 098 337	948 254	559 092	338 947
Operating profit for segment before depreciation/amortisation (EBITDA)	216 295	148 937	138 537	73 091
Operating profit for segment (EBIT)	183 940	115 578	99 133	44 674
Profit/loss from associates and joint ventures			-9 554	-4 224
Net financial items
Tax expense
Profit/loss from discontinued operations (note 5)
Profit/loss for the year
Segment assets	886 975	588 464	436 156	335 181
Segment liabilities	508 060	350 260	345 044	251 543
Investments in assets for the year	80 041	60 840	24 709	14 966
Depreciation/amortisation/impairment	32 355	33 359	39 403	28 417

GEOGRAPHICAL SEGMENT DATA

	EUROPE		NORTH AMERICA
(NOK 1 000)	2014	2013	2014	2013
Income divided among customer locations from external customers	449 006	441 079	875 932	720 639
Segment assets	476 914	632 718	702 701	504 628
Investments in assets for the year	28 008	28 384	77 334	71 410

Other information

In 2014 the High-Pressure Cylinders business segment had one customer group with sales that constituted more than 10% of the Group's annual sales. Sales to the customer totalled NOK 196 288 thousand in 2014 and NOK 140 459 thousand in 2013. The Group's customer base is relatively fragmented in terms of size and concentration such that it is not dependent upon any one single customer.

GEOGRAPHICAL SEGMENTS

The Group's activities are divided into the following regions: Europe, North America, South-East Asia, Middle East and South America.

Transactions in the different segments have been eliminated.

CYLINDERS CYLINDERS	UNALLOCATED		ELIMINATION		CONSOLIDATED
(NOK 1 000) 2014 2013 2014 2013	2014	2013	2014	2013	2014	2013
OPERATING INCOME FROM EXTERNAL CUSTOMERS:
Sale of goods 1 097 625 939 395 551 082 330 084	2 122	1 750	0	0	1 650 829	1 271 229
Royalties	0	393			0	393
Total operating income from external customers 1 097 625 939 395 551 082 330 084	2 122	2 143			1 650 829	1 271 621
Internal transactions 712 8 859 8 009 8 863	10 733	10 733	-19 454	-28 455	0	0
Total operating income 1 098 337 948 254 559 092 338 947	12 855	12 876	-19 454	-28 455	1 650 829	1 271 621
Operating profit for segment before depreciation/amortisation (EBITDA) 216 295 148 937 138 537 73 091	-25 681	-17 666			329 151	204 362
Operating profit for segment (EBIT) 183 940 115 578 99 133 44 674	-26 285	-18 187			256 788	142 064
Profit/loss from associates and joint ventures -9 554 -4 224					-9 554	-4 224
Net financial items					9 815	9 396
Tax expense					77 072	41 742
Profit/loss from discontinued operations (note 5)					4 325	2 941
Profit/loss for the year					164 672	89 643
Segment assets 886 975 588 464 436 156 335 181	18 692	273 034	-162 209	-59 333	1 179 615	1 137 346
Segment liabilities 508 060 350 260 345 044 251 543	168 903	212 441	-329 501	-25 462	692 506	788 782
Investments in assets for the year 80 041 60 840 24 709 14 966	591	23 987			105 341	99 794
Depreciation/amortisation/impairment 32 355 33 359 39 403 28 417	604	521			72 363	62 298

NORTH AMERICA	SOUTH-EAST ASIA		MIDDLE EAST		SOUTH AMERICA		OTHER		CONSOLIDATED
2013	2014	2013	2014	2013	2014	2013	2014	2013	2014	2013
	22 680	61 889	236 086	18 514	29 361	22 706	37 765	6 794	1 650 829	1 271 622
504 628									1 179 615	1 137 346
71 410									105 341	99 794

NOTE 5 NOTE 5 CHANGES IN THE GROUP'S STRUCTURE / DISCONTINUED OPERATIONS

PURCHASE OF MASTERWORKS IN 2014

With effect from 10 October 2014 Hexagon Lincoln acquired the main assets of MasterWorks Machining, Inc and Helman Tensioners, Inc.. MasterWorks and Helman Tensioners specialize in providing innovative design and manufacturing solutions for the composites industry. This acqusition enhances Hexagon Composites' technology leadership and manufacturing robustness, which will strengthen the Group's position as the global leader in the industry, and will provide additional capabilities for further expansions.

The business operates under the formed entity, MasterWorks, Inc, as a wholly owned subsidiary of Hexagon Lincoln, and will continue its offering of services and products to the composites industry.

The net assets acquired in the acquisition are as follows:

MASTERWORKS

(NOK 1 000)	FAIR VALUE RECOGNISED ON ACQUISITION
ASSETS
Property, plant and equipment	8 194
Inventories	1 498
Trade accounts receivable	1 416
Total assets	11 108
LIABILITIES
Defered consideration	1 307
Provisions	441
Deferred tax liabilities	0
Total equity and liabilities	1 748
Net identifiable assets and liabilities at fair value	9 360
Goodwill	0
Purchase consideration transferred / Paid in cash	9 360

The deferred consideration will be paid to the sellers within 31 October 2015 based on certain criteria. The Group expect that these criteria will be met and thus has recongnised the deferred consideration.

MasterWorks Inc. has from the date of acqusition contributed to the Group's revenues and profit before tax by NOK 4.2 million and -0.2 million respectively.

If the acquisition had occurred at the beginning of 2014, revenues for 2014 and profit before taxes for 2014 for the Group would have been NOK 1 669 million and NOK 236 million respectively.

In the Group's profit for 2014, MasterWorks, Inc is included from the acquisition date.

CHANGES ACCORDING TO IFRS 11 JOINT ARRANGEMENTS RUGASCO LLC

The application of IFRS 11 impacted the Hexagon Composites Group's accounting of its interest in the joint venture, Rugasco LLC (see note 26). The Group has a 50% interest in Rugasco LLC which was included in the Low-Pressure Cylinders segment in 2013. Prior to the transition to IFRS 11, Rugasco LLC was classified as a jointly controlled entity and the Group's share of the assets, revenue, income and expenses was proportionately consolidated in the financial statements. Upon adoption of IFRS 11, the Group has determined its interest in Rugasco LLC to be classified as a joint venture under IFRS 11. According to IFRS 11 comparative information for the immediately preceding period 2013 is restated. The effect of applying IFRS 11 on the Group's financial statements is as follows:

IMPACT ON STATEMENT OF PROFIT OR LOSS (INCREASE/-DECREASE) IN PROFIT

(NOK 1 000)	2013
Operating income	-8 485
Cost of materials	-5 868
Payroll and social security expenses	-949
Other operating expenses	-4 111
Operating profit before depreciation (EBITDA)	2 444
Depreciation	-33
Operating profit (EBIT)	2 477
Net financial items	341
Profit/loss from associates	-2 977
Profit before tax	-159
Tax expense	-159
Net impact on profit/loss for the year	0

The transition did not have any impact on either the other comprehensive income for the period or the Group's basic or diluted earnings per share.

IMPACT ON BALANCE SHEET AND NET EQUITY (INCREASE/-DECREASE)

(NOK 1 000)	2013
Tangible fixed assets	-169
Investment in associates	26
Total non-current assets	-143
Inventories	-5 899
Trade receivables	-998
Other current assets	-2 371
Bank deposits, cash and equivalents	-173
Total current assets	-9 442
Total assets	-9 585
Non-currents interest-bearing liabilities	-2 011
Deferred tax-liabilities	-250
Total non-current liabilities	-2 261
Short term loans	-27
Trade payables and other current liabilities	-7 297
Total current liabilities	-7 325
Total liabilities	-9 585
Net impact on equity	0

IMPACT ON CASH FLOW STATEMENTS (INCREASE/-DECREASE) IN CASH FLOWS

(NOK 1 000)	2013
Operating	226
Investing	202
Financing	-1 520
Net increase/-decrease in cash and cash equivalents	-1 092

DISCONTINUED OPERATIONS

On 16 January 2014 an agreement was entered into to sell the shares in the subsidiary Hexagon Devold AS to the German company Saertex GmbH & Co. KG. The transaction was completed on 30 January 2014. At the end of 2013 it was considered probable that the transaction would occur and the business area was therefore treated as "held for sale" in the accounts as of 31.12.2013. Hexagon Devold with its accompanying subsidiaries have constituted the Composite Reinforcements business area and this business segment was therefore removed from the Group in 2013 as a result of the sale.

Specification of the profit/loss in 2013 and until the sale of Hexagon Devold is presented below:

(NOK 1 000)	30.01.2014	2013
Operating income	25 060	183 132
Cost of materials	17 552	127 278
Payroll & social security expenses	2 001	19 612
Depreciation/amortisation	1 093	11 306
Other operating expenses	2 502	18 689
Total operating expenses	23 148	176 885
Operating profit	1 912	6 247
Net financial items	-1 429	-2 595
Profit before tax	483	3 653
Tax expense	47	712
Annual profit/loss for discontinued operations	436	2 941
Recognised gain sale of Hexagon Devold	3 889
Total profit discontinued operations	4 325
Earnings per share for discontinued operations (NOK)	0.03	0.02
Diluted EPS for discontinued operations (NOK)	0.03	0.02
SPECIFICATION OF TAX EXPENSE ON PROFIT ON ORDINARY ACTIVITIES
Income tax payable	47	515
Change in deferred tax	0	197
Total tax expenses	47	712
SPECIFICATION OF TAX EXPENSE IN COMPREHENSIVE INCOME
Tax on actuarial gains/losses for pensions for the period	0	53

The key figures in the balance sheet as of 31.12.2013 from Hexagon Devold classified as held for sale were as follows:

(NOK 1 000)	31.12.2013
ASSETS
Property, plant & equipment	112 133
Net pension assets	305
Deferred tax assets	1 270
Inventories	27 747
Trade receivables	45 985
Other current assets	667
Bank deposits, cash and similar	5 859
Total assets held for sale	193 967
LIABILITIES
Non-current interest-bearing liabilities	23 581
Retirement benefit obligation	63
Deferred tax liabilities	1 991
Provisions	17 085
Interest-bearing current liabilities	6 146
Trade payables and other current liabilities	31 410

Net assets discontinued operations 113 691

The translation difference for discontinued operations totalled NOK 1 026 thousand as of 31.12.2013 (-2 231 as of 31.12.2012). The change of NOK 3 257 thousand was entered in other comprehensive income in 2013.

Total liabilities directly associated with assets held for sale 80 275

Immediately prior to the the classification of Hexagon Devold as held for sale, the repurchase values of buildings, machines and fixtures/fittings were estimated, however no impairment indicators were identified. No impairment requirement was identified for the remaining parts of the assets in the disposal group because the carrying amount was lower than fair value upon sale.

Net cash flow from the business area of Composite reinforcements was as follows:

(NOK 1 000)	2013
Cash flow from operating activities	3 527
Cash flow from investing activities	-23 307
Cash flow from financing activities	15 270
Net cash flow	-4 510

Cash & cash equivalents for the Company in the business area were NOK 1 923 thousand in 2013.

NOTE 6 NET FINANCIAL ITEMS

(NOK 1 000)	2014	2013
Interest income	3 227	3 450
Other foreign exchange items	40 954	42 344
Total finance income	44 181	45 794
Other loss on exchange items	9 844	18 898
Unrealised loss on forward exchange contracts and interest rate swaps with actual gains or losses through profit and loss	12 837	10 745
Cost of interest on loans etc.	26 183	24 797
Other finance expense	5 131	750
Total finance expense	53 996	55 190
Net financial items	-9 815	-9 396

NOTE 7 TAX

TAX EXPENSE

(NOK 1 000) NOTE	2014	2013
Income tax payable in the income statement	67 359	44 304
Change in deferred tax in income statement	9 713	-2 562
Tax expense	77 072	41 742
Income tax payable in the balance sheet for continuing operations.	29 551	8 993 1)
Prepaid tax overseas 15	-6 257	-927
Settled tax overseas	44 066	36 238
Total income tax payable in the income statement	67 359	44 304
Nominal tax rates in Norway	27%	28%
Profit before tax	237 419	128 443
Tax based on nominal tax rate in Norway	64 103	35 964
Other differences relating to foreign subsidiaries	11 602	4 934
Share of profit/loss from associates	2 580	189
Other non-taxable income and non-deductible expenses	-1 213	-27
Effect of change in tax rate in Norway	0	682
Tax expense	77 072	41 742
Effective tax rate in the Group	32.46 %	32.50 %
Tax expense in income statement	77 072	41 742
Tax expense	77 072	41 742

1) Income tax payable in the balance sheet for 2013 was reduced by deductions for the Skattefunn tax incentive scheme with NOK 990 thousand.

DEFERRED TAX ASSETS AND DEFERRED TAX LIABILITIES

	BALANCE SHEET		CHANGE IN DEFERRED TAX IN INCOME STATEMENT
(NOK 1 000)	2014	2013	2014	2013
DEFERRED TAX ASSET
Pension	-842	-444	227	67
Loss carryforwards	-1 287	-1 278	-9	1 268
Inventories and trade receivables	-5 405	-5 250	-155	23
Derivatives	-6 848	-3 279	-3 466	-2 132
Provisions for liabilities/other current liabilities	-1 377	-1 060	-318	2 167
Other	-7 126	-5 274	-1 850	-3 776
Deferred tax asset – gross	-22 885	-16 586	-5 571	-2 382
DEFERRED TAX LIABILITIES
Property, plant & equipment	17 241	10 302	6 939	-362
Derivatives	0	0	0	-797
Provisions for liabilities/other current liabilities	8 345	0	8 345	0
Deferred tax liabilities – gross	25 586	10 302	15 284	-1 158
Net recognised deferred tax liabilities/assets (-)	2 701	-6 284	9 713	-3 541
CARRYING AMOUNTS
Deferred tax asset	-23 163	-20 302
Deferred tax liabilities	25 863	14 018
Net recognised deferred tax assets/deferred tax liabilities	2 701	-6 284

The Group has a total loss carried forward of NOK 4.6 million (4.7 million) as of 31 December 2014, of which NOK 4.6 million (4.7 million) is related to overseas activities.

Deferred tax assets are recognised when it is probable that the Group will have taxable profit available against which the tax assets can be utilised.

DEFERRED TAX RECOGNISED IN THE STATEMENT OF OTHER REVENUES AND EXPENSES IN THE TOTAL COMPREHENSIVE INCOME ARE AS FOLLOWS

(NOK 1 000)	2014	2013
Actuarial gains/losses, pensions	-625	974
Derivatives	-103	66
Total	-728	1 040

NOTE 8 EARNINGS PER SHARE

Earnings per share is calculated by dividing profit for the year by the weighted average number of shares outstanding.

To calculate diluted earnings per share, the profit and weighted average number of shares outstanding is adjusted to accommodate all dilution effects associated with share options. All share options are taken into consideration in the "denominator", and adjustments are made for recognised option expenses in the numerator. In the calculations, share options are considered to have been converted at the grant date. Redeemed options are included from the date of issue.

(NOK 1 000) NOTE		2014	2013
PROFIT/LOSS FOR THE YEAR FLOWING TO HOLDERS OF ORDINARY SHARES
Profit/loss for the year from continuing operations		160 347	86 702
Profit/loss for activities held for sale		4 325	2 941
Profit/loss for the year		164 672	89 643
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 31.12	17
Ordinary shares issued 01.01		133 294 868	133 294 868
Own shares		-1 166 075	-20 727
Outstanding number of shares 31.12		132 128 793	133 274 141
Weighted average number of shares outstanding 31.12		132 701 467	133 274 141
Profit/loss per share for continuing operations		1.21	0.65
Profit/loss per share		1.24	0.67
DILUTED NUMBER OF SHARES OUTSTANDING 31.12	17
Ordinary shares issued 01.01		133 294 868	133 294 868
Own shares		-1 166 075	-20 727
Outstanding shares 31.12 adjusted for dilution effects		132 128 793	133 274 141
Weighted average number of shares outstanding 31.12 adjusted for dilution effects		132 701 467	133 274 141
Diluted profit/loss per share for continuing operations		1.21	0.65
Diluted profit/loss per share		1.24	0.67

NOTE 9 PAYROLL COSTS AND NUMBER OF EMPLOYEES

(NOK 1 000)	NOTE	2014	2013
Salaries/fees 1)		262 439	192 517
Bonus/profit-sharing		15 284	12 993
Pension expense, defined-benefit plans	18	619	963
Pension expense, defined-contribution plans	18	14 266	10 478
Other social security costs		28 798	19 054
Payroll costs for continuing operations		321 407	236 005
Number of full-time equivalents		432	372
GROUP MANAGEMENT		10	3
LOW-PRESSURE CYLINDERS
Norway		106	76
Sweden		3	4
HIGH-PRESSURE CYLINDERS
Norway		52	49
USA		261	240
Total of		432	372

1) Capitalised payroll costs amounted to NOK 1.8 million in 2014 and 0 in 2013.

NOTE 10 PROPERTY, PLANT & EQUIPMENT

(NOK 1 000)	LAND AND BUILDINGS	PLANT AND EQUIPMENT	FIXTURES & FITTINGS, VEHICLES	ASSETS UNDER CONSTR UCTION	2014 TOTAL
COST OF ACQUISITION
Cost of acquisition 01.01.2014	40 585	483 907	19 818	40 120	584 430
Additions	2 648	39 698	8 679	54 317	105 341
Transfer from assets under construction	0	44 526	0	-44 526	0
Disposals/scrap	0	-926	0	0	-926
Translation differences	1 937	29 749	1 101	6 875	39 663
Cost of acquisition 31.12.2014	45 170	596 954	29 598	56 785	728 508
ACCUMULATED DEPRECIATION AND IMPAIRMENT Accumulated depreciation 01.01.2014	16 656	323 033	15 772	0	355 462
Depreciation for the year	2 990	59 405	1 589	0	63 984
Disposals/scrap	0	291	0	0	291
Translation differences	593	13 085	631	0	14 310
Accumulated depreciation and impairment 31.12.2014	20 239	395 815	17 992	0	434 046
Net carrying amount as of 31.12.2014	24 932	201 139	11 606	56 785	294 462
Of which pledged					294 462
Amortisation rate	5-10%	7-33%	10-33%
Useful life	10-20 years	3-15 years	3-10 years
Depreciation method	Straight-line	Straight line/unit production method	Straight-line

(NOK 1 000)	LAND AND BUILDINGS	PLANT AND EQUIPMENT	FIXTURES & FITTINGS, VEHICLES	ASSETS UNDER CONSTR UCTION	2013 TOTAL
COST OF ACQUISITION
Cost of acquisition 01.01.2013	82 193	495 009	22 937	17 917	618 057
Additions	9 335	21 660	998	46 797	78 790
Transfer from assets under construction	0	25 209	387	-25 596	0
Disposals/scrap	0	-763	-22	0	-786
Additions from purchase of companies	0	17 018	0	0	17 018
Disposals in activities held for sale	-56 245	-91 170	-5 471	0	-152 885
Translation differences	5 302	16 944	989	1 002	24 237
Cost of acquisition 31.12.2013	40 585	483 907	19 818	40 120	584 430
ACCUMULATED DEPRECIATION AND IMPAIRMENT Accumulated depreciation 01.01.2013	14 116	301 912	16 096	0	332 124
Depreciation for the year for continuing operations	2 715	41 895	1 544	0	46 155
Depreciation for the year for activities held for sale	2 221	8 229	830	0	11 280
Disposals/scrap	0	-763	-21	0	-784
Disposals in activities held for sale	-2 702	-34 954	-3 139	0	-40 795
Translation differences	307	6 719	462	0	7 489
Accumulated depreciation and impairment 31.12.2013	16 656	323 039	15 772	0	355 468
Net carrying amount as of 31.12.2013	23 929	160 868	4 045	40 120	228 963
Of which pledged					228 963

1) Assets under construction. Hexagon Lincoln Inc., Hexagon Ragasco AS and Hexagon Raufoss AS have assets under construction totalling NOK 56 785 thousand

(40 120 thousand).

2) Construction loan interest expenses No construction loan interest expenses were recognised in 2013 or 2014.

3) Part of a production line at Hexagon Ragasco is depreciated in accordance with the unit method, i.e. in accordance with the number of cylinders

produced. The useful life is estimated on the basis of 8 000 000 cylinders, and since 2006 depreciation has been applied on the basis of the annual number of units produced.

4) The production line for the Titan cylinders at Hexagon Lincoln is depreciated in accordance with the unit of production method, i.e. in accordance with the number of cylinders produced.

The useful life is estimated on the basis of 5 000 Titan cylinders, and since 2009 depreciation has been applied on the basis of the annual number of units produced.

5) The calculated residual value on property, plant & equipment totalled NOK 6 000 thousand as of 31.12.2014 and NOK 6 000 thousand as of 31.12.2013. 6) Finance lease equipment.

Hexagon Devold, classified as discontinued operation as of 31.12.2013 had recognised amounts of NOK 22 110 thousand related to finance lease equipment. See note 5 concerning changes in the Group's structure/discontinued operation and note 23 concerning leases.

NOTE 11 INTANGIBLE ASSETS

HEXAGON COMPOSITES ASA HAS THE FOLLOWING PURCHASED AND OWN-DEVELOPED INTANGIBLE ASSETS

(NOK 1 000)	GOODWILL	PATENTS AND LICENCES	TECHNOLOGY DEVELOPMENT1)	CUSTOMER RELATION SHIPS	2014 TOTAL
COST PRICE
Opening balance 01.01.2014	62 926	11 041	68 859	18 483	161 308
Additions	0	0	1 849	0	1 849
Translation differences	3 037	0	296	0	3 332
Cost of acquisition 31.12.2014	65 962	11 041	71 003	18 483	166 489
ACCUMULATED DEPRECIATION AND IMPAIRMENT
Opening balance 01.01.2014	16 530	9 891	28 989	18 483	73 893
Depreciation for the year	0	134	8 245	0	8 379
Translation differences	0	0	295	0	295
Accumulated depreciation and impairment 31.12.2014	16 530	10 025	37 529	18 483	82 566
Net carrying amount 31.12.2014	49 432	1 016	33 474	0	83 922
Amortisation rate	None	6-17 %	5-20%	50%
Useful life	Indefinite	6-17 years	5-20 years	2 years
			Straight
			line/unit
Depreciation method	None	Straight-line	production method	Straight-line
1) Technology development of own resources.
		PATENTS	TECHNOLOGY	CUSTOMER
(NOK 1 000)	GOODWILL	AND LICENCES	DEVELOPMENT1)	RELATION SHIPS	2013 TOTAL
COST PRICE
Opening balance 01.01.2013	61 762	11 161	64 981	18 483	156 387
Additions	0	20	3 764	0	3 784
Disposals in activities held for sale	0	-158	0	0	-158
Translation differences	1 164	17	113	0	1 294
Cost of acquisition 31.12.2013	62 926	11 041	68 859	18 483	161 308
ACCUMULATED DEPRECIATION AND IMPAIRMENT
Opening balance 01.01.2013	8 826	9 831	20 578	18 483	57 717
Depreciation for the year for continuing operations	0	140	8 298	0	8 438
Depreciation for the year for activities held for sale	0	26	0	0	26
Impairment	7 705	0	0	0	7 705
Disposals in activities held for sale	0	-120	0	0	-120
Translation differences	0	14	113	0	127
Accumulated depreciation and impairment 31.12.2013	16 530	9 891	28 989	18 483	73 893
Net carrying amount 31.12.2013	46 396	1 150	39 869	0	87 415

1) Technology development of own resources.

Additions for this year and the previous year primarily relate to technological developments in the High-Pressure Cylinders segment.

Research & development costs totalling NOK 12.1 (6.7) million were expensed in 2014. The Group has received government grants of NOK 5.8 million (1.0) which have reduced the recognised research and development costs with NOK 1.5 million. 4.3 million are presented as income.

The Group has recognised goodwill as a result of three acquisitions of business enterprises. Each goodwill item is linked to a cash generating unit (CGU). When the acquired business enterprise is maintained as an independent business enterprise it is, as a starting point, the CGU. Entities that have considerable synergies and for which the type of activity is the same, are considered to be a unified CGU. This applies when acquired business enterprises are integrated with an existing Hexagon Composites company or the acquired business enterprise is, in operative terms, closely linked together with existing Hexagon Composites businesses. In these instances, it is the linking enterprise that is the level of the CGU where goodwill is measured and followed up. In the Group, three CGU's have been identified which capitalised goodwill has been linked to.

IMPAIRMENT TESTING

Goodwill is not depreciated but is subject to impairment testing in the fourth quarter each year. If there are particular indications of possible impairment, the impairment test is carried out on a quarterly basis. The impairment test is carried out by the calculated recoverable amount being compared with invested capital for the unit in question. When the recoverable amount exceeds invested capital, capitalised goodwill is maintained. When the recoverable amount is lower than invested capital, capitalized goodwill is written down to its recoverable amount. Invested capital consists of the units' total assets less interest-free current liabilities and interest-free non-current liabilities. The recoverable amount is based on expected future cash flows for the relevant unit based on the management's approved budget and strategy figures for the next four years. These are estimated based on current sales and margins and the expected market development. For subsequent periods it is assumed that there will be an increase in the cash flows equivalent to expected general growth within the various business areas.

The expected future investment requirements for the units are reflected in the calculations. These are in accordance with the management's approved budget and strategy. For the period beyond the next three years, it is assumed that the re-investment requirement will be equivalent to expected depreciation. Changes in working capital have been assessed and adjusted in accordance with expected developments.

When there are indications that a company's assets (including goodwill) may be impaired, an impairment test is conducted using the company's weighted average capital cost (WACC) as an estimate for the discount rate (= return on assets ratio). Correspondingly, WACC is also used for annual impairment testing. The WACC rate which is used to discount future cash flows is based on 10-year risk-free interest rates in the market, the company's borrowing interest, beta factor, equity ratio and market risk premium, adjusted for the liquidity risk and size of the company.

Value in use is calculated by discounting future cash flows. Present value calculations are based on expected future cash flows for the different cash-generating units, which are all separate subsidiaries. Estimates of future cash flows are made on the basis of board-approved budgets and market plans for 2015, as well as forecasts up to and including 2019. Cash flow projections for subsequent years will be the same as the cash flow for 2019, as the units are not expected to have a finite useful life. The projections do not take into account price increases or other forms of growth in the cash flows.

The most important assumptions relate to estimates for operating income, operating margin and rates of return. A WACC of 13.4% before tax has been used for all companies.

THE GOODWILL ITEMS OF THE FOLLOWING CASH FLOW GENERATING UNITS ARE SUBJECT TO IMPAIRMENT TESTING

(NOK 1 000)	2014	2013
Hexagon Ragasco – Low-Pressure Cylinders	32 350	32 350
Hexagon Raufoss – High-Pressure Cylinders	0	0
Hexagon Lincoln – High-Pressure Cylinders	17 082	14 046
Total goodwill	49 432	46 396

The assumptions that were used as a basis for the calculations made at the end of 2014 were met by good margins. The exception where of the profit expectations for Hexagon Raufoss AS which was impaired to 0 in 2013.

GOODWILL HEXAGON RAUFOSS - HIGH-PRESSURE CYLINDERS

The European passenger car market was also generally weak during 2013 and this was due to, among other things, delays in new car models. The weaker result and cash flow than previously forecast resulted in impairment of goodwill of NOK 7 704 thousand in 2013.

ASSUMPTIONS FOR THE OTHER GOODWILL ITEMS

The recoverable amount is calculated based on the general assumptions referred to above. The calculations do not assume major changes in the level of activity or operating margins compared with the results achieved in 2014. In the prognosis period, an increase in the operating profit equal to the general growth in the economy is expected.

SENSITIVITY ANALYSES

In connection with the impairment testing of goodwill, the Group has carried out sensitivity analyses. These sensitivity analyses are carried out for each cash-generating unit. The present value of the cash flow in the calculations made is, among other things, sensitive to changes in the discount rate. The sensitivity analysis uses the economic assumptions referred to above as its starting point. Calculations have been made based on one of the estimated economic assumptions being changed and in which the other economic assumptions remain unchanged.

The sensitivity analyses for the CGU demonstrate that recoverable amounts of goodwill exceed the recognised value by a good margin, and a reasonable change in key assumption would not cause the carrying amount to exceed value in use.

NOTE 12 OTHER NON-CURRENT ASSETS

(NOK 1 000)	2014	2013
Loans to employees	1 364	423
Other non-current assets	3 233	3 106
Total other non-current assets	4 597	3 529

More information relating to loans to employees can be found in note 27.

NOTE 13 INVENTORIES

(NOK 1 000)	2014	2013
Raw materials and consumables	201 072	111 291
Work in progress	56 360	42 007
Finished goods	63 036	59 729
Total inventories	320 468	213 026
Recognised impairment consists of	-1 925	-1 879
Goods with identified impairment have carrying amount of	2 765	5 104
Carrying amount of holdings used as pledged assets	91 868	94 777

Inventories in the Norwegian operations have been pledged in their entirety.

NOTE 14 TRADE RECEIVABLES

(NOK 1 000)	2014	2013
Trade receivables	212 203	127 612
Provisions for loss	-5 626	-4 202
Trade receivables after provision for losses	206 577	123 410

Losses on trade receivables are classified as other operating expenses in the income statement. Provision for losses are made on the basis of the individual assessments of each claim. In the assessment, consideration is made to guaranteed and insured amounts (see note 24 concerning credit risk).

Carrying amount of trade receivables used as pledged assets	105 029	51 840

CHANGES IN THE PROVISION FOR LOSSES ARE AS FOLLOWS

(NOK 1 000)	2014	2013
Opening balance 1 January	4 202	5 516
Provision for losses for the year	1 827	61
Actual losses during the year	-548	-1 172
Change in provisions for activities held for sale	0	-440
Translation differences	145	237
Closing balance 31 December	5 626	4 202

Credit risk and currency risk regarding trade receivables are described in more detail in note 24.

AS OF 31 DECEMBER THE COMPANY HAD THE FOLLOWING AGEING OF TRADE RECEIVABLES

	TOTAL	NOT DUE	<30 DAYS	30-60 DAYS	60-90 DAYS	>90DAYS
2014	212 203	101 209	94 920	10 360	588	5 126
2013	127 612	77 524	41 090	1 150	2 283	5 564

NOTE 15 OTHER CURRENT ASSETS

(NOK 1 000)	2014	2013
Earned, not invoiced income	12	10
Prepaid expenses	12 489	6 728
VAT due	16 978	7 035
Prepaid tax overseas	6 257	927
Other 1)	8 257	3 416
Total other current assets	43 993	18 117

1) Other in 2014 included receivables from the Skattefunn tax incentive scheme of NOK 689 thousand.

NOTE 16 BANK DEPOSITS, CASH AND CASH EQUIVALENTS

(NOK 1 000)	2014	2013
Cash at bank and in hand	202 179	248 303
Bank deposits, cash and cash equivalents	202 179	248 303
Bank overdrafts	0	0
Cash & cash equivalents in the cash flow analysis	202 179	248 303
Undrawn Group overdraft facility	90 783	120 783
Undrawn credit facility at DNB	300 000	150 000
Restricted funds included in cash & cash equivalents 1)	6 359	4 898

1) Restricted tax withholdings

NOTE 17 SHARE CAPITAL AND SHARE PREMIUM

(NOK 1 000)	2014	2013
Ordinary shares of NOK 0.10 each	133 294 868	133 294 868
Total number of shares	133 294 868	133 294 868

The Company's share capital consists of one class of shares and is fully paid-up.

CHANGES IN SHARE CAPITAL AND SHARE PREMIUM

	NUMBER OF SHARES		(NOK 1 000)	SHARE CAPITAL	SHARE PREMIUM (NOK 1 000)
	2014	2013	2014	2013	2014	2013
ORDINARY SHARES
Issued and paid 1 January	133 294 868	133 294 868	13 329	13 329	82 955	82 955
Issued and paid 31 December	133 294 868	133 294 868	13 329	13 329	82 955	82 955
OWN SHARES
1 January	20 727	20 727	2	2
Change during period	1 145 348	0	115	0
31 December	1 166 075	20 727	117	2

As of 31.12.2014 the Company had 1 166 075 own shares (20 727). The cost of acquisition of NOK 26 773 thousand is entered as a deduction in equity. The shares are held as "own shares", and the Company is entitled to sell them in the future.

20 LARGEST SHAREHOLDERS AS OF 31.12.2014

	NUMBER OF SHARES	SHAREHOLDING
Flakk Holding AS 1,2)	39 115 988	29.35%
MP Pensjon PK	12 267 614	9.20%
Bøckmann Holding AS	10 000 000	7.50%
Nødingen AS 1)	4 800 000	3.60%
DNB Markets, AKS	4 546 720	3.41%
Skandinaviska Enskilda Banken AB	4 436 967	3.33%
JP Morgan Chase Bank Special Treaty Lendi	3 731 449	2.80%
Verdipapirfondet DNB	1 810 325	1.36%
Thread - Pan Eur Sma c/o Citybank NA	1 804 197	1.35%
Thread - European SM c/o Citybank NA	1 775 721	1.33%
Verma Mutual Pension Company	1 559 147	1.17%
JP Morgan Chase Bank, SA Escrow Account	1 469 738	1.10%
JP Morgan Chase Bank, Handelsbanken Nordic	1 410 192	1.06%
Hexagon Composites ASA	1 166 075	0.87%
JP Morgan Chase Bank, NA (Nominee)	1 072 727	0.80%
Spilka International AS	1 007 852	0.76%
Verdipapirfondet Eik	1 006 518	0.76%
Flakk Invest AS 1)	1 000 000	0.75%
Lars Ivar Flydal	900 000	0.68%
Storebrand Norge JP Morgan Europe Ltd.	789 230	0.59%
Total 20 largest shareholders	95 670 460	71.77%
Remainder	37 624 408	28.23%
Total	133 294 868	100.00%

1) These shareholdings are controlled by the Chairman of the Board, Knut Flakk.

2) Flakk Holding AS has entered into a forward agreement for the buy-back of 6 000 000 shares from DNB Bank ASA on 20 May 2015.

OWNERSHIP STRUCTURE

The total number of shareholders as of 31.12.2014 was 2 755 of whom 197 were foreign shareholders. The number of shares held by foreign shareholders was 23 191 939 or 17.4%.

The Board has a mandate to increase share capital by up to NOK 1 332 948 by issuing up to 13 329 480 shares (par value) NOK 0.10). This authorisation is valid until the next ordinary general meeting.

The Board proposes to the general meeting that a dividend is paid of NOK 0.62 per the outstanding share, NOK 81 920 thousand in total, for the 2014 financial year. A dividend of NOK 0.33 per share, NOK 43 987 thousand in total, was paid for the 2013 financial year.

Dividends are included as allocations to the owners in the period in which they are paid.

NOTE 18 PENSIONS AND OTHER NON-CURRENT EMPLOYEE BENEFITS

The Norwegian companies in the group are legally obliged to have occupational pension arrangements under the Norwegian Mandatory Occupational Pension Act. The Norwegian pension arrangements satisfy the requirements of this act.

MULTI-EMPLOYER PENSION PLAN IN NORWAY

159 (119)of the Norwegian employees participate in a AFP pension plan. The AFP plan is a lifelong supplement to the regular pension. Employees can take the new AFP scheme from the age of 62 or remain in employment and earn further benefits until the standard retirement age of 67. The AFP pension scheme is a defined benefit multi-employer pension plan, funded through premiums that are defined as a percentage of salary. The scheme's retirement benefit obligation and plan assets cannot be reliably measured and allocated at present. For accounting purposes, the scheme is treated as a defined contribution plan, with premium payments expensed as incurred, and no provisions made in the accounts. Premiums is 2,4% for saleries in the range 1.0 - 7.1 times the national insurance base rate (G), and is expected to increase in the comming years. Total contribution for the arrangement were NOK 1 442 thousand in 2014 and NOK 1 164 thousand in 2013. Expected premium for 2015 is NOK 1 485 thousand.

LIABILITIES FROM DEFINED BENEFIT PENSION PLAN IN NORWAY

In December 2008, the Group terminated the defined benefit pension plan in Norway for employees under 52 years of age on the date of transfer. The employees joined a defined contribution pension plan with effect from 1 January 2009. Employees over the age of 52 on the date of transfer continued to be members of the defined benefit plan. The terms are 60% and 66% of final salary and 30 years of service. The plans include disability benefits. Some companies also have spouse's benefits

The obligation for the defined benefit pension plans is calculated on a straight-line basis. Unrealised gains and losses resulting from changes in actuarial assumptions are recognised directly in other revenues and expenses in the statement of comprehensive income Net accumulated actuarial gains/losses after tax as of 31.12.2014 amounted to NOK -19 298 thousand, compared with NOK -17 609 thousand as of 31.12.2013.

As of 31.12.2014 the Norwegian defined benefit plans had 15 members.

PENSION EXPENSES FOR THE YEAR RELATING TO THE DEFINED BENEFIT PENSION PLANS ARE CALCULATED AS FOLLOWS

(NOK 1 000)	2014	2013
Current service cost	465	713
Interest cost on benefit obligation	596	396
Expected return on plan assets	-568	-299
Administrative costs	35	34
Employer's contribution	91	119
Total pension expenses	619	963

Total pension expenses for activities held for sale in 2013 was NOK 78 thousand. The amount is not included in the 2013 figures.

PENSION LIABILITIES AND PLAN ASSETS

(NOK 1 000)	2014	2013
Present value of funded obligations	17 819	15 188
Fair value of plan assets	-15 085	-13 747
Employer's contributions on net pension liabilities	385	203
Net liability recognised in balance sheet 31 December	3 119	1 644

Net pension liabilities for activities held for sale in 2013 was NOK -243 thousand. The amount is not included in the 2013 figures.

(NOK 1 000)	2014	2013
Net liability recognised in balance sheet 1 January	1 644	5 307
Recognised benefit expense	603	963
Benefits paid	-1 473	-1 337
Actuarial gains and losses arising from changes in financial assumtions	2 634	-4 062
Actuarial gains and losses arising from changes in demographic assumtions	-290	773
Net liability recognised in balance sheet 31 December	3 119	1 644
Retirement benefit obligation	3 374	1 932
Plan assets	255	288

CHANGE IN BENEFIT LIABILITY DURING YEAR

(NOK 1 000)	2014	2013
Benefit obligation 1 January	15 188	17 312
Current service cost	465	713
Interest expense	596	396
Actuarial gains/losses (-)	1 929	-2 763
Pension payments	-359	-469
Retirement benefit obligation 31 December	17 819	15 188

Expected premium payment next year is NOK 1 667 thousand.

The benefit liabilities for activities held for sale in 2013 was NOK 1 062 thousand. The amount is not included in the 2013 figures.

RETIREMENT BENEFIT OBLIGATIONS ARE DISTRIBUTED AMONG THE FOLLOWING SCHEMES

(NOK 1 000)	2014	2013
Funded schemes, Norway	17 819	15 074
AFP scheme, Norway	0	115
Retirement benefit obligation 31 December	17 819	15 188

CHANGE IN FAIR VALUE OF PLAN ASSETS DURING THE YEAR

(NOK 1 000)	2014	2013
Plan assets 1 January	13 747	12 661
Return on plan assets	568	299
Actuarial gains/losses (-)	-126	119
Administrative costs	-35	-34
Pension premiums	1 291	997
Unpaid pensions	-359	-294
Change due to termination of employees (see note 9)	0	0
Plan assets 31 December	15 085	13 747

The plan assets for activities held for sale in 2013 was NOK 1 275 thousand. The amount is not included in the 2013 figures.

All the assets relate to funded schemes in Norway. Next year's payment for pension premiums is estimated at NOK 1 667 thousand.

AVERAGE DISTRIBUTION OF PLAN ASSETS BY INVESTMENT CATEGORY AS OF 31 DECEMBER

	2014		2013
(NOK 1 000)	ALLOCATION	AMOUNT	ALLOCATION	AMOUNT
Shares	7%	1 012	6%	830
Bonds/certificates	72%	10 845	75%	10 314
Property	14%	2 142	14%	1 966
Other	7%	1 086	5%	637
Total	100%	15 085	100%	13 747

The actual return on plan assets in 2014 was NOK 442 thousand (418 thousand), allowing for previous years' actuarial gains/losses.

CALCULATION OF PENSION EXPENSES AND NET PENSION LIABILITIES IS BASED ON THE FOLLOWING ASSUMPTIONS

(NOK 1 000)	2014	2013
Discount rate	2.30%	4.00%
Return on plan assets	2.30%	4.00%
Salary increases	2.75%	3.75%
Pension increases	0.00%	0.60%
Adjustment of national insurance base rate	2.50%	3.50%
Mortality table	K2013 BE	K2013 BE

Actuarial assumptions for demographic factors and resignation are based on standard assumptions used within the insurance sector. Previously, the selected discount rate was based on 10-year Government bond interest. In 2013 the Group changed this to the discount rate being based on interest on corporate bonds with a high credit rating. The transition has not entailed any significant accounting effects in 2013. Changes in other assumptions of +/-1% will not have a significant accounting effect for the Group.

OBLIGATIONS FROM DEFINED CONTRIBUTION PENSION PLANS IN NORWAY AND OVERSEAS

The defined contribution pension plan in the Norwegian companies has contribution rates from 5% for salaries in the range of up to 7,1 times the national insurance base rate (G) and from 8% for salaries in the range 6 to 12 G. As of 31.12.2014 the Norwegian defined contribution pension plans had 159 members.

Expensed contributions in the defined contribution based Norwegian plans totalled NOK 5 844 thousand in 2014 and NOK 4 190 thousand in 2013.

Hexagon Lincoln Inc and MasterWorks Inc. in USA, has a defined contribution plan which is operated in accordance with local laws. The defined contribution plan covers full-time employees and represents 4% to 5% of pay for employees paid hourly and 4% to 6% for those paid monthly. An additional payment is also made at the end of the year in accordance with the terms of the defined contribution plan. As of 31.12.2014, 289 members were covered by the plan.

Expensed contributions totalled in Hexagon Lincoln Inc. NOK 7 979 thousand in 2014 and NOK 5 840 thousand in 2013.

Expensed contributions totalled in MasterWorks Inc. NOK 28 thousand in 2014.

Composite Scandinavia AB in Sweden has a defined contribution plan which is operated according to local laws. Average contributions are 9% of the salaries of those of are members of the plan. As of 31.12.2014, 3 members were covered by the plan.

Expensed contributions totalled NOK 415 thousand in 2014 and NOK 447 thousand in 2013.

NOTE 19 PROVISIONS

GUARANTEES

(NOK 1 000)	2014	2013
Balance 1 January	21 943	6 590
Provisions for year	18 182	21 800
Translation differences	2 973	286
Provisions used during year	-15 898	-6 733
Balance 31 December	27 200	21 943

Provisions are made for general levels of warranty claims on low-pressure and high-pressure cylinders. Provisions are based on historical warranty costs for equivalent products and services.

NOTE 20 NON-CURRENT INTEREST-BEARING LIABILITIES

				CARRYING AMOUNT
(NOK 1 000)	INTEREST RATE CONDITIONS	CURRENCY	MATURITY	2014	2013
UNSECURED
Bond issue	Nibor 3 month + 5.0%	NOK	02.07.2018	297 243	296 571
Total unsecured non-current liabilities				297 243	296 571
SECURED
Bank loan (bullet)	Nibor 3 month + margin	NOK	23.12.2015	0	149 895
Total secured non-current liabilities				0	149 895
Total non-current liabilities				297 243	446 466
Total non-current liabilities, not including 1st year's instalments for continuing operations				297 243	446 466

ESTIMATED REPAYMENT STRUCTURE FOR NON-CURRENT LIABILITIES FOR CONTINUING OPERATIONS (NOK 1 000) AS OF 31.12.2014

2015	2016	2017	2018	2019	THEREAFTER
0	0	0	300 000

A bond loan of NOK 300 million was issued on 27 June 2013 and drawn on 2 July 2013. The total bond loan is NOK 300 million and is due for payment in its entirety on 2 July 2018. The loan is listed on Oslo Stock Exchange with ISIN: NO 0010683717

Bank loans are secured against trade payables, inventories, and operating equipment in the Group's subsidiaries. The Parent Company also has unconditional guarantees from the Norwegian subsidiaries. As of 31.12.2014, the total carrying amount on assets pledged as collateral was NOK 491 thousand (continuing operations) and NOK 375 thousand 31.12.2013 (515 thousand including held for sale).

THE FOLLOWING CONDITIONS APPLY TO BANK LOANS

The equity/capital employed (total interest-bearing liabilities plus equity) ratio must be more than 30%.

Net interest-bearing liabilities can not be greater than 4 times the rolling earnings before interest, tax, depreciation/amortisation for the last 12 months (NIBD/EBITDA < 4,0).

THE FOLLOWING PRINCIPAL CONDITIONS APPLY TO THE UNSECURED BOND ISSUE

The equity/capital employed (total interest-bearing liabilities plus equity) ratio must be more than 30%.

The interest coverage ratio (rolling earnings before interest, tax, depreciation/amortisation for the last 12 months / rolling net interest expenses) must be greater than 2.0.

Maximum annual dividend shall not exceed 50% of the Group's profit for the year.

	31.12.2014	COVENANT
Interest coverage ratio	14.3	> 2.0
Equity to capital employed	62.1 %	> 30%
NIBD/EBITDA	0.3	< 4.0

The Group has not had any breach of covenants.

NOTE 21 SHORT-TERM INTEREST-BEARING LOANS

(NOK 1 000)	2014	2013
SECURED
Current interest-bearing liabilities	0	0
1st year's instalments, non-current interest-bearing liabilities	0	0
Total	0	0

Current bank debt is subject to the same financial terms as non-current bank debt. See note 20. The overdraft facility in Norway is subject to NIBOR + margin. In addition to this is the limit provision. Bank overdrafts in Sweden have interest at STIBOR + margin.

As at 31.12.2014 and 31.12.2013 the Group has not drawn on these facilities.

NOTE 22 TRADE PAYABLES AND OTHER CURRENT LIABILITIES

(NOK 1 000)	2014	2013
Trade payables	188 027	144 568
Amounts due to related parties	0	197
Forward exchange contracts	18 029	7 897
Public duties payable	10 164	7 595
Accrued expenses and other current liabilities	75 281	51 640
Current liabilties to closely-related parties	10 440	0
Total	301 941	211 897

NOTE 23 LEASES

THE GROUP AS LESSEE / FINANCIAL LEASES IN ACTIVITIES HELD FOR SALE

As of 31.12.2014 The Group has no financial leases. As of 31.12.2013 there was finacial leases related to Hexagon Devold AS classified as held for sale in 2013. These included:

Leasing agreements at Hexagon Devold Lithuania UAB for knitting machines and auxiliary equipment. The company is responsible for maintenance and insurance. Lease terms are 8 years. The remaining lease term is from 1 to 6 years. The leased equipment is pledged as collateral for the lease liabilities. The lease has a renewal option.

The lease at Hexagon Devold USA LLC is for two knitting machines. The company is responsible for maintenance and insurance. The lease term is 5 years for both machines. The remaining lease terms are 1 and 4 years respectively. The leased equipment is pledged as collateral for the lease liabilities.

ASSETS HELD UNDER FINANCIAL LEASES

(NOK 1 000)	2013
Plant and equipment	35 621
Accumulated depreciation	13 512
Net carrying amount	22 110

OVERVIEW OF FUTURE MINIMUM LEASE PAYMENTS

Future minimum lease payments	13 212
Later than 5 years	543
1 to 5 years	8 639
Next year	4 030

PRESENT VALUE OF FUTURE MINIMUM LEASE PAYMENTS

Which includes: - current liabilities 3 868 - non-current liabilities 9 027

THE GROUP AS LESSEE - OPERATIONAL LEASES

The Group has entered into various operating leases for items of machinery, plant and other facilities. Most of these leases have a renewal option. Other have fixed terms. The majority of the leases are associated with the renting of premises. The leases have terms ranging from 3 to 20 years. The leases normally allow revision to accommodate factors such as changes in the CPI, increases in public duties and interest rates. None of the leases includes contingent rents. There is no legal right to acquire title to any leased asset.

LEASE RENTALS PAYABLE ARE AS FOLLOWS

(NOK 1 000)	2014	2013
Ordinary lease payments	17 562	14 152
Total	17 562	14 152
FUTURE MINIMUM LEASE PAYMENTS RELATING TO FIXED TERM LEASES FALL DUE AS FOLLOWS
Not later than 1 year	19 599
1 to 5 years	62 702
Later than 5 years	26 692
Total	108 993

NOTE 24 FINANCIAL INSTRUMENTS

FINANCIAL RISK

The Group uses financial instruments such as bank loans and loans from other financial institutions. The purpose of the financial instruments is to raise capital for investments necessary for the group's operations. The group also has financial instruments such as trade receivables and payables which are directly linked to day-to-day operations. The Group can use some financial derivatives for hedging purposes.

Procedures for risk management are adopted by the board and carried out by the chief financial officer in close cooperation with the subsidiaries.

The most significant financial risks to which the group is exposed are interest rate risk, liquidity risk, currency risk and credit risk. The Group's management regularly evaluates these risks and defines guidelines on their management.

The Group uses financial instruments to hedge risks associated with interest rate and foreign currency fluctuations. The Group uses derivative financial instruments to minimise these risks under its strategy for interest and currency exposure. The accounting treatment of financial derivatives is described in note 2.

THE GROUP HAS THE FOLLOWING FINANCIAL ASSETS AND LIABILITIES DIVIDED INTO DIFFERENT CATEGORIES FOR ACCOUNTING TREATMENT AND RECONCILED AGAINST THE BALANCE SHEET ITEMS

31.12.2014 (NOK 1 000)	FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSS	INTEREST RATE SWAPS USED AS CASH FLOW HEDGING 1)	LOANS AND RECEIVABLES/ FINANCIAL OBLIGATIONS AT AMORTISED COSTS	NON FINANCIAL ASSETS / LIABILITIES	TOTAL
ASSETS
Other non-current assets			4 597		4 597
Trade receivables			206 577		206 577
Other current assets				43 993	43 993
Bank deposits, cash and cash equivalents			202 179		202 179
Total financial assets	0	0	413 353	43 993	457 346
LIABILITIES
Non-current interest-bearing liabilities			297 243		297 243
Derivatives	2 705	4 629			7 334
Short-term loans			0		0
Forward exchange contracts	18 029				18 029
Trade payables and other current liabilities			188 027	95 885	283 912
Total financial liabilities	20 734	4 629	485 270	95 885	606 518

1) Changes in value are recognised in other income and expenses in the statement of comprehensive income.

31.12.2013 (NOK 1 000)	FINANCIAL ASSETS MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSS	INTEREST RATE SWAPS USED AS CASH FLOW HEDGING 1)	LOANS AND RECEIVABLES/ FINANCIAL OBLIGATIONS AT AMORTISED COSTS	NON FINANCIAL ASSETS / LIABILITIES	TOTAL
ASSETS
Other non-current assets			3 529		3 529
Trade receivables			123 410		123 410
Forward exchange contracts	0				0
Other current assets				18 117	18 117
Bank deposits, cash and cash equivalents			248 303		248 303
Total financial assets	0	0	375 241	18 117	393 358
LIABILITIES
Non-current interest-bearing liabilities			446 466		446 466
Derivatives		4 247			4 247
Short-term loans			0		0
Forward exchange contracts	7 897				7 897
Trade payables and other current liabilities			144 765	59 235	204 000
Total financial liabilities	7 897	4 247	591 231	59 235	662 610

1) Changes in value are recognised in other income and expenses in the statement of comprehensive income.

(I) CREDIT RISK

The Group is mainly exposed to credit risk associated with trade payables and other current receivables. The Group minimises its exposure to credit risk by ensuring that all parties requiring credit (customers, for example) are approved and undergo a credit check.

The Group has a small number of large customers or counterparties who could be considered to be a Group due to similarities in credit risk. The risk associated with these counterparties is regularly reviewed and is minimised by measures such as use of credit insurance. The Norwegian subsidiaries Hexagon Ragasco AS and Hexagon Raufoss AS have taken out credit insurance with GIEK or the equivalent which covers parts of the companies' receivables.

Trade receivables in foreign subsidiaries amounted to NOK 101 981 thousand (70 728 thousand). These do not have credit insurance, however are partly covered through Letter of Credits.

The Group has policies in place to ensure that sales of products are made to customers with an appropriate credit history and that outstanding amounts do not exceed the defined credit limits. Credit information is also used in the group's regular appraisal of new and existing customers.

The Group has not issued guarantees for third party obligations.

The carrying amount of the financial assets,including derivatives, in the balance sheet represents the maximum risk exposure. As counterparties in derivative transactions are normally banks, the credit risk associated with derivatives is considered to be negligible. The Group considers its maximum risk exposure to be the carrying amount of its trade receivables (see note 14) and other current assets (see note 15).

(II) INTEREST RATE RISK

The Group is exposed to interest rate risk from its financing activities (see notes 20 and 21). Some of the Group's interest-bearing liabilities have variable interest rates, which means it is affected by changes in interest rates.

The aim of the Group's interest rate risk management is to reduce interest expenses, while also keeping the volatility of future interest payments within acceptable limits. The Group's strategy is for its finance departments to regularly evaluate the interest rate exposure of Hexagon Composites liabilities based on a total assessment of interest expectations and risk profile. The total fixed-interest term must be not be below 0 years and must not exceed 10 years. The Group use derivatives to adjust its effective interest rate exposure. As a starting point, all interest rate derivatives are adapted to the duration and other conditions of individual loans. At 31.12.2014 the Group had NOK 100 million in interest rate derivatives considered as effective hedging. This represents 33% of the group's non-current liabilities. Taking into account an interest rate derivative related to NOK 150 million of the loan which do not meet all criteria to be effective and thus is classified as ineffective hedging according to IAS 39, NOK 250 million or 83% of the Group's interest-bearing liabilities had fixed interest rates at 31.12.2014.

FORWARD RATE AGREEMENTS 31.12.2014

	CURRENCY	AMOUNT (NOK 1 000)	MATURITY	FIXED RATE	FAIR VALUE
Interest rate swap	NOK	NOK 150 000	23.12.2015	3.01% + margin	-2 705
Interest rate swap	NOK	NOK 100 000	02.07.2018	2.47% + margin	-4 629
Total					-7 334

FORWARD RATE AGREEMENTS 31.12.2013

	CURRENCY	AMOUNT (NOK 1 000)	MATURITY	FIXED RATE	FAIR VALUE
Interest rate swap	NOK	NOK 150 000	23.12.2015	3.01% + margin	-3 645
Interest rate swap	NOK	NOK 100 000	02.07.2018	2.47% + margin	-602
Total					-4 247

Fixed rate contracts are classified as hedging instruments, with the underlying hedged item being a long-term variable rate loan. The entire fair value of the interest rate swap is classified as a non-current asset or non-current liability (derivatives), as the underlying risk being hedged is the long-term financing.

The interest rate swap is the hedging of the cash flow and is recognised at fair value. Gains or losses from interest rate swaps are included in other income and expenses in total comprehensive income provided that all hedging criteria have been satisfied.

The following table shows the group's sensitivity to potential changes in interest rates. The calculations take into account all interest-bearing instruments and associated interest rate derivatives as of 31.12.

	CHANGE IN INTEREST RATES IN BASE POINTS	EFFECT ON PROFIT/LOSS AFTER TAX (NOK 1 000)	GAINS OR LOSSES ON INTEREST RATE DERIVATIVES IN COMPREHENSIVE INCOME AFTER TAX (NOK 1 000)
2014	+50	-182	1 907
	-50	182	-1 907
2013	+50	-737	2 774
	-50	737	-2 774

Based on the financial instruments which existed as of 31 December 2014, an interest rate increase of 1% would reduce profit after tax by NOK 365 thousand (1 475 thousand).

THE AVERAGE EFFECTIVE INTEREST RATE ON FINANCIAL INSTRUMENTS WAS AS FOLLOWS

	2014	2013
Bank overdrafts	3.1 %	3.2 %
Bank loan NOK	3.3 %	3.8 %
Bond issue	7.0 %	6.9 %
Finance leases	N/A	3.7 %
Bank loan EUR	N/A	2.8 %

(III) LIQUIDITY RISK

Liquidity risk is the risk of the group not being in a position to fulfil its financial obligations when they fall due. The group's strategy for managing liquidity risk is to set a level of available liquidity to enable it to discharge its financial obligations when they fall due, both under normal and unexpected circumstances, without risking unacceptable losses or damaging the group's reputation. Unused credit facilities are dealt with in note 16.

The majority of excess liquidity is invested in bank deposits

The following table provides an overview of the maturity structure of the group's financial obligations based on undiscounted contractual payments. In cases where the counterparty is entitled to ask for early settlement, the amount is included in the earliest period in which the payment may be demanded. If the counterparty is entitled to ask for on-demand settlement, the amount is included in the first column (under 1 month):

31.12.2014 REMAINING PERIOD

(NOK 1 000)	LESS THAN 1 MONTH	1-3 MONTHS	3-12 MONTHS	1-5 YEARS	MORE THAN 5 YEARS	TOTAL
Bank overdrafts						0
Repayment of bond loan				300 000		300 000
Interest on bond loan		4 853	14 558	48 525		67 935
Derivatives			2 705	4 629		7 334
Forward exchange contracts		3 727	8 821	5 482		18 029
Trade payables	122 218	65 809				188 027
Total	122 218	74 389	26 083	358 635	0	581 325

31.12.2013 REMAINING PERIOD

(NOK 1 000)	LESS THAN 1 MONTH	1-3 MONTHS	3-12 MONTHS	1-5 YEARS	MORE THAN 5 YEARS	TOTAL
Bank overdrafts			0			0
Repayment of bank and bond loan				450 000		450 000
Interest on bank and bond loan		6 290	18 871	75 411		100 572
Derivatives				4 247		4 247
Forward exchange contracts		1 357	4 654	1 886		7 897
Trade payables	92 349	52 416				144 765
Total	92 349	60 063	23 525	531 544	0	707 481

See note 20 for information on long-term loans, notes 21 and 22 for short-term liabilities and note 23 for finance lease obligations.

(IV) FOREIGN EXCHANGE RISK

As the Group has production and sales in different countries with different functional currencies, it is exposed to currency risk associated with movements of the Norwegian krone against other currencies, while the Group's presentation currency is NOK. The carrying amount of the Group's net investments in foreign companies fluctuates as the Norwegian krone moves in relation to other relevant currencies. The Group's profit after tax is also affected by currency movements, as the results of foreign companies are translated to the Norwegian currency using the weighted average exchange rate for the period. The Group uses forward contracts to reduce its currency risk from cash flows denominated in foreign currencies. Currency risk is calculated for each currency and takes into consideration assets and liabilities, off-balance sheet obligations and highly probable purchases and sales in the relevant currency.

The following table shows the group's sensitivity to potential changes in the Norwegian krone, with all other conditions remaining constant. The calculation is based on the same movement of the krone against the relevant currencies. The effect on the profit/loss is caused by changes in the value of monetary items and currency derivatives. The effect on equity is caused by currency effects of net investments in foreign currencies.

	MOVEMENT OF NOK AGAINST USD	EFFECT ON PROFIT/LOSS AFTER TAX	EFFECT ON OTHER INCOME AND EXPENSES AFTER TAX (NOK 1 000)
2014	+5 %	-7 645	-10 867
	-5 %	7 645	10 867
2013	+5 %	-2 116	-5 546
	-5 %	2 116	5 546

	MOVEMENT OF NOK AGAINST EUR	EFFECT ON PROFIT/LOSS AFTER TAX	EFFECT ON OTHER INCOME AND EXPENSES AFTER TAX (NOK 1 000)
2014	+5 %	6 187	0
	-5 %	-6 187	0
2013	+5 %	1 828	0
	-5 %	-1 828	0

The fair values of derivatives classified as hedging instruments are reported under other current assets/liabilities or other noncurrent assets/liabilities depending on the recovery or settlement date for the associated hedged item.

As of 31.12.2014, the group had the following forward contracts to hedge forecast sales to customers. Forward contracts are used to reduce currency risk associated with expected future sales. The terms of the contracts are as follows:

FORWARD EXCHANGE CONTRACTS

	CURRENCY SELL/BUY	AMOUNT (NOK 1 000)	MATURITY	EXCHANGE RATE	FAIR VALUE 31.12.2014
Forward contracts to hedge expected future sales 1)	EUR/NOK	21 000/177 080	2015	7.73 - 8.80	-12 548
Forward contracts to hedge expected future sales 1)	EUR/NOK	10 500/90 201	2016	8.37 - 8.89	-5 481
Total					-18 029

1) The forward contracts do not qualify for hedge accounting under IAS 39.

As of 31.12.2013, the Group had the following forward contracts to hedge future sales to customers.

	CURRENCY SELL/BUY	AMOUNT (NOK 1 000)	MATURITY	EXCHANGE RATE	FAIR VALUE 31.12.2013
Forward contracts to hedge expected future sales 1)	EUR/NOK	11 200/88 341	2014	7.59 - 8.19	-6 011
Forward contracts to hedge expected future sales 1)	EUR/NOK	6 500/53 630	2015	7.73 - 8.69	-1 886
Total					-7 897

1) The forward contracts do not qualify for hedge accounting under IAS 39.

(V) MEASUREMENT OF FAIR VALUE

The fair value of forward exchange contracts is calculated by comparing the agreed forward rate and the estimated equivalent forward rate prevailing on the balance sheet date with the same maturity multiplied by the fixed volume specified in the contract. The fair value of the interest rate/currency swaps is determined by comparing with observable market data (pricing of financial instruments in the finance markets). For all the above derivatives, the fair value is confirmed by the financial institution with which the Company has entered into the contract. The fair value of the issued bond loan (HEX02) is messured according to the market value on Oslo Stock Exchange.

The following financial instruments are not measured at fair value: Cash & cash equivalents, trade payables, other current receivables and bank overdrafts. These items are recognised at nominal value in the balance sheet as of 31 December, without taking into account the discount rate which relates to future inflows and outflows. Loans to employees and non-current interest bearing liabilities are recognised in accordance with amortised cost.

Nominal amounts are assumed to reflect the fair value of receivables and liabilities which have a duration of less than 1 year. The fair value of non-current liabilities is based on future interest rates and instalment payments.

ENTERING OF INCOME AND EXPENSES AGAINST TOTAL OTHER COMPREHENSIVE INCOME AND TRANSFERRED TO REVALUATION RESERVE

(NOK 1 000)	2014	2013
Fair value of cash flow hedges 1 January	-4 247	-4330
Change over total comprehensive income	-382	83
Fair value of cash flow hedges 31 December	-4 629	-4 247

FAIR VALUE HIERARCHY

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities

• Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly
• Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

CARRYING AMOUNT AND FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES

		2014		2013
(NOK 1 000)	LEVEL	BOOK VALUE	FAIR VALUE	BOOK VALUE	FAIR VALUE
FINANCIAL ASSETS
Other non-current assets		4 597	4 597	3 529	3 529
Trade receivables		206 577	206 577	123 410	123 410
Bank deposits, cash and cash equivalents		202 179	202 179	248 303	248 303
FINANCIAL LIABILITIES
Bank loans		0	0	151 906	152 011
Bond issue		297 243	306 000	296 571	311 640
Interest rate swaps	2	7 334	7 334	4 247	4 247
Short-term loans		0	0	0	0
Forward exchange contracts	2	18 029	18 029	7 897	7 897
Trade payables and other current liabilities		188 027	188 027	149 393	149 393

FINANCIAL INSTRUMENTS APPRAISED AT FAIR VAUE WITH GAINS AND LOSSES IN THE INCOME STATEMENT

(NOK 1 000)	2014	2013
Level 1: Based on prices in an active market	0	0
Level 2: Observable market data	-20 734	-7 897
Level 3: Other than observable market data	0	0
Total financial instruments at fair value	-20 734	-7 897

FINANCIAL INSTRUMENTS APPRAISED AT FAIR VAUE WITH GAINS AND LOSSES OVER OTHER INCOME AND EXPENSES IN TOTAL COMPREHENSIVE INCOME

(NOK 1 000)	2014	2013
Level 1: Based on prices in an active market	0	0
Level 2: Observable market data	-4 629	-4 247
Level 3: Other than observable market data	0	0
Total financial instruments at fair value	-4 629	-4 247

OTHER INFORMATION RELATING TO FINANCIAL INSTRUMENTS

No financial assets were reclassified by changing the measurement method from amortised cost to fair value or vice versa.

(VI) CAPITAL STRUCTURE AND EQUITY

The main goal of the Group's capital structure management is to ensure it maintains a good credit rating (and therefore reasonable borrowing terms from lenders) and a level of equity which is reasonable in relation to the Group's operations.

By achieving a good debt/equity ratio, the Group will be able to support its operations and in doing so maximise the value of its shares. The Group's shareholders shall receive a competitive return on their shares, mainly through price increases in the Group's shares, but also in the form of dividends based on financial performance/investment needs.

The Group manages and makes necessary changes to its capital structure by regularly assessing prevailing economic conditions and prospects of short and medium-term growth.

Capital structure management is largely dealt with by means of new share issues. No changes to guidelines in this area were made in 2013 or 2014.

NOTE 25 INTEREST IN JOINT OPERATIONS

Hexagon Composites Group recognizes their assets, liabilities, revenues and expenses and their relative share of assets, liabilities, income and expenses.

HEXAGON COMPOSITES ASA HAS THE FOLLOWING INVESTMENTS IN JOINT OPERATIONS

JOINT VENTURE	COUNTRY	BUSINESS ACTIVITY	OWNERSHIP SHARE	VOTES
Agility Hexagon LLC	USA	High-Pressure Cylinders	50%	50%

In May 2014 Hexagon Lincoln Inc. entered into an agreement with Agility Fuel Systems to establish a 50/50 joint operations to supply CNG high-pressure cylinders for fuel systems to support the growing heavy duty natural gas market in North America. The agreement gives Hexagon Composites and Agility joint control over the business as decisions about the relevant activities requires unanimous concent of both parties. The parties receive substantially all of the economic benefits from the arrangement and it is therefore considered to be a joint operation.

NOTE 26 INVESTMENTS IN JOINT VENTURES

The Group has classified the investment in Rugasco LLC as a joint venture. The entity is organised as a limited liability company with its own management in charge of day-to-day business. However, the composition of the board and guidelines for operation of the company are based on a shareholder agreement. Under the shareholder agreement, It is required unanimity between the parties for making decissions abaout relevant activities. Accordingly, the venturers have joint control over the company's operations. Thus, the group as a participant is entitled to the arrangements net assets. The Group's responsibility as a participant in Rugasco LLC is limited to the capital contribution, and the return equals the Group's share of profit/loss. The investments in joint ventures are accounted for according to the equity method.

HEXAGON COMPOSITES ASA HAS THE FOLLOWING INVESTMENTS IN JOINT VENTURES

JOINT VENTURE	COUNTRY	BUSINESS ACTIVITY	OWNERSHIP SHARE	VOTES
Rugasco LLC	Russia	Low-Pressure Cylinders	49%	50%

Upon adoption of IFRS 11, the Group has determined that its interest in Rugasco LLC should be classified as a joint venture under IFRS 11. It is required by IFRS 11 to restate the comparative information for the immediately preceding period 2013. The effect of applying IFRS 11 on the Group's financial statements is specified in note 5.

RUGASCO LLC IS CONSIDERED TO BE A MATERIAL JOINT VENTURE BELOW IS AN OVERVIEW OF HEXAGON COMPOSITES GROUP'S SHARE OF PROFIT/LOSS

(NOK 1 000)
Book value as at 31.12.2013	26
Share of profit after tax 2014 (reported as share of loss from assosiates)	-9 554
Comitted contribution (other operating expenses)	-913
Book value as at 31.12.2014	-10 440

The Group does not have an obligation to pay additional equity in Rugasco LLC. However, the Group have commited for futher operations in the Joint Venture for 2015 and a liability is recognised in other current liabilities. Rugasco LLC does not have an observable market value in form of market price or similar.

THE TABLE BELOW SHOWS THE CONDENSED FINANCIAL INFORMATION OF RUGASCO LLC, BASED ON 100%

	RUGASCO, LLC
(NOK 1 000)	2014	2013
Operating income	24 126	25 580
Operating expenses	40 830	30 533
Net financial items	2 202	682
Profit before tax	-18 907	-5 636
Tax	201	319
Profit/loss after tax from joint venture	-19 108	-5 954
Group's share of profit/loss	-9 554	-2 977
ASSETS
Current assets	8 497	18 538
Cash and cash equivalentes	45	347
Non-current assets	289	339
LIABILITIES
Current liabilities	20 567	14 594
Current financial liabilities	45	55
Long-term liabilities	0	500
Long-term financials liabilities	7 274	4 022
Equity	-19 056	52
Group's carrying amount of the equity	-9 528	26
Extra commited contribution as of 31.12.2014	-912
Group's carrying amount of the investment	-10 440

The Group has no excess values in relation to the investment in Rugasco LLC.

Rugasco LLC have the same reporting period as the Parent Company.

NOTE 27 TRANSACTIONS WITH RELATED PARTIES

The Group's related parties consist of main shareholders, members of the Board and management.

The Hexagon Composites Group has entered into several agreements with companies in Flakk Group. All the transactions were carried out as part of normal business and at arm's length prices. The term Flakk Group refers to companies controlled by Flakk Holding AS. The Chairman of the Board, Knut Flakk, has ownership interests and managerial roles in these companies.

THE MAIN AGREMENTS ARE AS FOLLOWS

The purchase of administrative services from Flakk International AS, NOK 1 598 thousand (4 960 thousand) in 2014.

In 2014 this agreement covers accounting services, secretarial and computer services, and premises.

In 2013 this agreement covered hire of chief financial officer, director of accounting & control, procurement manager, accounting services, secretarial and computer services, and premises. Of this, the hire of the chief financial officer amounted to approximately NOK 1 050 thousand.

THE BALANCE SHEET INCLUDES THE FOLLOWING AMOUNTS RESULTING FROM TRANSACTIONS WITH COMPANIES IN THE FLAKK GROUP

(NOK 1 000)	2014	2013
Trade payables	0	197

REMUNERATION OF THE BOARD AND MANAGEMENT

(NOK 1 000)	FEES TO BOARD MEMBERS	SALARIES	BONUSES PAID	BENEFITS IN KIND	PAID PENSION PREMIUM	TOTAL REMUN ERATION 2014	TOTAL REMUN ERATION 2013
EXECUTIVE MANAGEMENT
Jon Erik Engeset, Group President 1)		2 636	270	79	109	3 094	1 168
Tore J. Fjell, Senior Vice President 1)		1 401	590	199	22	1 890	1 890
David Bandele, Chief Financial Officer		1 469	0	9	81	1 560	N/A
BOARD OF DIRECTORS
Knut Flakk, Chairman	190					190	190
Kristine Landmark, Deputy Chair	100					100	100
Sverre Narvesen	120					120	120
Tom Vidar Rygh	0					0	N/A
May Britt Myhr	0					0	N/A
FORMER BOARD MEMBERS
Kristin Krohn Devold	145					145	145
Jan Magne Galåen 2)	120					120	120
Total remuneration	675	5 507	860	288	212	7 541	3 733

1) Jon Erik Engeset became Group President on 5 August 2013. Tore J. Fjell was acting Group President until this date.

2) Board remuneration to J. M. Galåen is paid to the employer, Rasmussengruppen AS.

David Bandele was employed as CFO at Hexagon Composites ASA in January 2014. In 2013 Tor Olsen Husø was hired in as CFO from Flakk International AS.

The Chairman of the Board has no agreement relating to termination benefits. In his employment agreement, the Group President has a period of notice of 6 months. He has an agreement for up to 12 months' severance pay. The management of the Group have a target-based bonus agreement. At the end of the year, the following bonuses were allocated: NOK 1 450 thousand to the Group President, NOK 300 thousand to the Senior Vice President and NOK 600 thousand to the CFO.

Group management participates in the Company's general pension arrangements, which are described in Note 18, Pensions. The Group President and CFO participate in the Group's defined contribution plan and the Senior Vice President participate in the Group's defined benefit plan.

No loans have been made, or security provided for loans, to any member of Group management, the Board or other elected standing committees or any of their related parties.

SHARES OWNED BY BOARD MEMBERS OR RELATED PARTIES

	2014	2013
Knut Flakk, (Chairman) 1)	45 047 236	45 047 236
Kristine Landmark (Deputy Chair) 2)	10 000	0
Tom Vidar Rygh (Board Member) 3)	50 000	N/A
Gunnar S. Bøckmann (Deputy Board Member) 4)	10 339 400	10 269 400
Line K. Flakk 5)	681 802	681 802

1) Of the shares owned by Knut Flakk, 131 248 are privately owned, 39 115 988 are owned through Flakk Holding AS, 4 800 000 are owned through Nødingen AS and 1 000 000 are owned through Flakk Invest AS. Flakk Holding AS has also entered into a forward agreement with DNB Bank ASA for the buy-back of 6 000 000 shares as of 20 May 2015. See note 17.

2) The shares are owned by Kristine Landmarks husband, Bjørn Siem.

3) Shares owned by Tom Vidar Rygh is owned through Retiro AS.

4) Of the shares owned by Gunnar S. Bøckmann, 339 400 are privately owned and 10 000 000 are owned through Bøckmann Holding AS.

5) Line K. Flakk is married to Knut Flakk.

SHARES HELD BY KEY MANAGEMENT PERSONNEL

	2014	2013
Jon Erik Engeset, Group President 1)	420 867	409 000
Tore Fjell, Senior Vice President	775 131	771 044
David Bandele, Chief Financial Officer	29 545	N/A

1) Jon Erik Engeset became Group President on 5 August 2013. Of the shares owned by Jon Erik Engeset 1 867 are privately owned and 419 000 are owned by related limited liability companies.

Car loans have been given to two employees in subsidiaries. The remaining balance was NOK 1 364 thousand. The loans were given on market terms.

Pursuant to Section 6-16a of the Norwegian Public Limited Liabilities Companies Act, the board must prepare a declaration regarding the determination of pay and benefits to the managing director and other key management personnel. Reference is made to the separate management declaration.

EXPENSED AUDITOR FEES WERE DIVIDED AMONG THE FOLLOWING SERVICES (EXCL. VAT)

(NOK 1 000)	2014	2013
Statutory audit and auditing-related services	1 941	2 069
Other attestation services	22	4
Tax advice	346	203
Other non-auditing services	1 059	1 464
Total	3 368	3 740

The figures in 2013 include activities held for sale of NOK 312 thousand.

NOTE 28 PURCHASING COMMITMENTS

THE GROUP HAS THE FOLLOWING COMMITMENTS RESULTING FROM PURCHASING MATERIALS

(NOK 1 000)	2014	2013
2014	0	0
2015	209 507	0
2016	279 343	0
Thereafter	69 836	0
Total	558 685	0

THE GROUP HAS THE FOLLOWING COMMITMENTS RESULTING FROM CONTRACTS FOR INVESTMENTS IN PRODUCTION FACILITIES/MACHINES

(NOK 1 000)	2014	2013
2014	0	7 117
2015	17 798	0
Thereafter	0	0
Total	17 798	7 117

NOTE 29 EVENTS AFTER THE BALANCE SHEET DATE

There have not been any significant events after the balance sheet date.

NOTE 30 LIST OF SUBSIDIARIES AND ASSOCIATES

THE FOLLOWING COMPANIES ARE INCLUDED IN THE CONSOLIDATED FINANCIAL STATEMENTS

COMPANY	HOME COUNTRY	REGISTERED OFFICE	NATURE OF BUSINESS	OWNERSHIP SHARE	VOTES
SUBSIDIARIES
Hexagon Ragasco AS	Norway	Raufoss	Low-Pressure Cylinders	100%	100%
Composite Scandinavia AB	Sweden	Piteå	Low-Pressure Cylinders	100%	100%
Hexagon Raufoss AS	Norway	Raufoss	High-Pressure Cylinders	100%	100%
Hexagon Lincoln Inc.	USA	Lincoln, NE	High-Pressure Cylinders	100%	100%
MasterWorks, Inc.	USA	Nebraska	High-Pressure Cylinders	100%	100%
Hexagon Technology AS	Norway	Ålesund	High-Pressure Cylinders	100%	100%
JOINT VENTURES / JOINT OPERATIONS
Agility Hexagon, LLC	USA	Delaware	High-Pressure Cylinders	50%	50%
Rugasco, LLC	Russia	Nizhny Novgorod	Low-Pressure Cylinders	49%	50%

30 January 2014 the segment Composites Reinforcements (100% subsidiary Hexagon Devold AS) was sold to Saertex Gmbh & Co KG. The business area has been treated as "held for sale" in the accounts as of 31.12.2013. See note 5.

NOTE 31 EXCHANGE RATES

	EXCHANGE RATE 1.1.2014	AVERAGE EXCHANGE RATE 2014	EXCHANGE RATE 31.12.2014
USD	6.0837	6.3730	7.4332
EUR	8.3825	8.3961	9.0365
GBP	10.0530	10.3690	11.5710
LTL	2.4278	2.4317	2.6172
RUB	18.5000	16.4059	12.8420
CHF	683.81	687.82	751.32
SEK	94.72	92.04	95.97

INCOME STATEMENT – PARENT COMPANY HEXAGON COMPOSITES ASA

(NOK 1 000)	NOTE	2014	2013
Sales revenue	6	21 632	12 483
Total operating income		21 632	12 483
Payroll & social security expenses	9,11	25 544	12 483
Depreciation	2,3	2 381	966
Other operating expenses	11	21 769	17 666
Operating profit		-28 062	-18 631
Income from investment in subsidiaries	10	128 221	49 110
Finance income	4,12,13	77 695	46 961
Finance expense	4,5,12,13	78 875	37 267
Profit on ordinary activities before tax		98 978	40 173
Tax on profit on ordinary activities	10	26 872	9 487
Profit on ordinary activities		72 106	30 686
Profit/loss for the year		72 106	30 686
Allocated to dividends	1	81 920	43 987
Transferred equity	1	-9 813	-13 301
Total transferred		72 106	30 686

BALANCE SHEET – PARENT COMPANY

HEXAGON COMPOSITES ASA

(NOK 1 000)	NOTE	2014	2013
ASSETS
NON-CURRENT ASSETS
INTANGIBLE ASSETS
Research & development	3	19 994	21 771
Deferred tax assets	10	0	474
Total intangible assets		19 994	22 245
PROPERTY, PLANT AND EQUIPMENT
Land, buildings and other real estate	2	6 362	6 831
Fixtures/fittings, equipment and tools	2	751	295
Total property, plant & equipment		7 113	7 126
FINANCIAL ASSETS
Investments in subsidiaries	4	120 966	137 855
Loans to group companies	5,6	364 485	381 706
Other non-current receivables	5	2 932	2 905
Investments in shares	4	4 150	4 050
Excess financing of pension liabilities	9	255	288
Total financial assets		492 788	526 803
Total non-current assets		519 894	556 174
CURRENT ASSETS
RECEIVABLES Trade receivables	6	127	112
Other receivables	6	137 104	52 857
Total receivables		137 230	52 969
Bank deposits, cash and cash equivalents	7	654	61 840
Total current assets		137 885	114 809
Total assets		657 778	670 983

BALANCE SHEET – PARENT COMPANY

HEXAGON COMPOSITES ASA

(NOK 1 000)	NOTE	2014	2013
EQUITY AND LIABILITIES
EQUITY
PAID-IN CAPITAL
Share capital	1,8	13 329	13 329
Own shares	1	-117	-106
Share premium	1	76 816	82 955
Other paid-in capital	1	0	2 326
Total paid-in capital		90 028	98 505
Other equity	1	0	28 164
Total other equity		0	28 164
Total equity		90 028	126 669
LIABILITIES
OTHER NON-CURRENT LIABILITIES
Bond issue	5,12	297 243	296 571
Liabilities to credit institutions	5,13	0	149 895
Liabilities to group companies	6	30 743	26 536
Deferred tax liabilities	10	6 714	0
Total other non-current liabilities		334 700	473 002
CURRENT LIABILITIES
Liabilities to credit institutions	5,13	101 773	0
Trade payables		3 891	941
Income tax payable	10	19 656	6 062
Public duties payable		1 142	472
Allocated dividends	1	81 920	43 987
Other current liabilities	6	24 669	19 849
Total current liabilities		151 130	71 311
Total liabilities		485 830	544 313
Total equity and liabilities		657 778	670 983

Ålesund, 18 March 2015 The Board of Directors of Hexagon Composites ASA

Knut Flakk Chairman

May Britt Myhr Board Member

Kristine Landmark

Deputy Chair

Tom Vidar Rygh Board Member

Sverre Narvesen Board Member

Jon Erik Engeset Group President

CASH FLOW STATEMENT – PARENT COMPANY HEXAGON COMPOSITES ASA

(NOK 1 000)	NOTE	2014	2013
CASH FLOW FROM OPERATING ACTIVITIES
Profit before tax		98 978	40 173
Tax paid for the period		-6 062	0
Depreciation/amortisation		2 381	966
Gains and losses on shares/loss from sale		-13	-6 503
Recognised group contribution and dividend		-128 221	-49 110
Changes in trade payables		2 949	219
Changes in pension provisions		-70	64
Changes in other accrual accounting entries		5 741	19 209
Net cash flow from operating activities		-24 315	5 017
CASH FLOW FROM INVESTMENT ACTIVITIES
Purchase of property, plant & equipment and intangible assets		-591	-107
Sales of shares		16 901	0
Purchase of shares		-100	0
Other investments		-26	-1 863
Net payments on loans to/from subsidiaries		65 913	-17 480
Net cash flow from investing activities		82 097	-19 449
CASH FLOW FROM FINANCING ACTIVITIES
New non-current liabilities		0	296 250
Repayment of non-current liabilities		-150 000	-150 000
Net change in bank overdraft		101 773	-50 215
Dividend payments		-43 967	-19 991
Purchase of own shares		-26 773	0
Net cash flow from financing activities		-118 967	76 044
Net change in cash & cash equivalents		-61 186	61 611
Cash & cash equivalents at beginning of period		61 840	229
Cash & cash equivalents at end of period	7	654	61 840
Undrawn group overdraft facility	7	85 000	85 000
Undrawn credit facility	7	300 000	150 000

NOTES – PARENT COMPANY

(NOK 1 000)

ACCOUNTING PRINCIPLES

The annual accounts have been prepared in accordance with the provisions of the Norwegian Accounting Act and generally accepted accounting principles in Norway.

CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements have been prepared in accordance with the international IFRS standards.

SALES REVENUE

Revenue from services is recognised as services are rendered. The portion of sales revenue relating to future rendering of services is capitalised as unearned revenue on the sale and recognised thereafter as the service is rendered.

CLASSIFICATION AND VALUATION OF BALANCE SHEET ITEMS

Current assets and liabilities include items due for payment within one year of the date of acquisition. Other items are classified as non-current assets/liabilities.

Current assets are valued at the lower of cost of acquisition and fair value. Current liabilities are recognised at nominal value on the date of commencement.

Non-current assets are measured at the cost of acquisition, but are written down to fair value if impairment is identified which is not considered to be of a temporary nature. Non-current liabilities are recognised at nominal value on the date of commencement. Costs associated with non-current liabilities are amortised over the duration of the loan using the effective interest method.

RECEIVABLES

Trade and other receivables are recognised in the balance sheet at their nominal value, following deductions for provisions for expected losses. Provisions for losses are made on the basis of the individual claims.

ASSETS AND LIABILITIES IN FOREIGN CURRENCY

Foreign currency transactions are recognised at the exchange rate prevailing at the transaction date. Foreign currency monetary items are valued using the exchange rate prevailing at the balance sheet date. Currency gains/losses on receivables/ liabilities are classified as financial items.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is recognised and depreciated over the asset's expected useful life. Direct maintenance of property, plant and equipment is recognised under operating expenses as it is incurred, while overheads or improvement costs are added to the cost price of the asset and depreciated in pace with the asset's own depreciation. If the recoverable amount of the asset is lower than its carrying amount, this is written down to its recoverable amount. The recoverable amount is the higher of net realisable value and value in use. Value in use is the present value of future cash flows the asset will generate.

FINANCIAL INSTRUMENTS

In addition to traditional financial instruments such as trade receivables, trade payables and interest-bearing liabilities, the Company also uses forward exchange contracts and interest rate swaps to limit the Company's currency and interest rate exposure. The effects of these instruments are recognised as they arise, together with the hedged objects. The interest rate

instruments are not measured at the fair value on the balance sheet date because the Company uses hedge accounting. The currency instruments are valued at fair value and converted to the exchange rate specified on the balance sheet date.

SHARES

In the company accounts, the cost method of accounting is used for all shares.

PENSION EXPENSES

Pensions are accounted for in accordance with NRS 6A, applying IAS 19 under Norwegian Legislation. Pension costs and benefit obligation are calculated using the straight-line method, based on the expected final salary. The calculations are based on a number of assumptions, including discount rate, future changes in salary, pensions and national insurance contributions, the expected return on plan assets and actuarial assumptions on mortality and early retirement. The discount rate is based on corporate bonds with a high credit rating. The Norwegian market for bonds with preferential rights is considered to have the features that would indicate that it can be used as a basis in the calculation of the discount rate. Plan assets are measured at fair value and deducted from net pension liabilities in the balance sheet. Changes in the benefit obligation arising from changes in plan assets are distributed over the expected remaining service period. Changes in the benefit obligation and plan assets due to the effects of changes and deviations in actuarial assumptions (actuarial gains and losses) are recognised in equity (net after tax).

TAX

Tax expense in the income statement includes income tax payable for the period and changes in deferred tax. Deferred tax is calculated at 27% based on the temporary differences between accounting and fiscal values and loss carryforwards at the end of the financial year.

Tax-increasing and tax-reducing temporary differences which reverse or may reverse in the same period are offset. Net deferred tax asset is recognised to the extent that it is probable that it can be utilised.

INTEREST-BEARING LOANS AND BORROWING COSTS

Loans are recognised at the initial amount received less directly related transaction costs. In subsequent periods, interest-bearing loans are measured at amortised cost using the effective interest method. Profit and loss is entered in the income statement when liabilities are deducted from the balance and via amortisation. Borrowing costs are expensed as they arise.

CASH FLOW STATEMENT

The cash flow statement has been prepared using the indirect method. Cash & cash equivalents include cash and bank deposits.

USE OF ESTIMATES

Preparation of the annual financial statements in accordance with good accounting practice requires the use of estimates and assumptions by management which influence the income statement and the valuation of assets and liabilities, and disclosures on uncertain assets and obligations at the balance sheet date.

Contingent losses which are probable and quantifiable, are expensed as incurred.

NOTE 1 EQUITY

(NOK 1 000)	SHARE CAPITAL	OWN SHARES	SHARE PREMIUM RESERVE	OTHER PAID-IN CAPITAL	OTHER EQUITY	TOTAL EQUITY
Equity as of 01.01.2014	13 329	-106	82 955	2 326	28 164	126 669
Profit/loss for the year					72 126	72 126
Allocated dividends			-6 140	-2 326	-73 454	-81 920
Actuarial gains/losses for the year					-75	-75
Movement in own shares etc.		-11			-26 762	-26 773
Equity at 31.12.2014	13 329	-117	76 816	0	0	90 028

NOTE 2 PROPERTY, PLANT & EQUIPMENT

(NOK 1 000)	LAND/ BUILDINGS AND OTHER PROPERTY	FIXTURES/ FITTINGS, EQUIPMENT AND SIMILAR	TOTAL
Cost of acquisition as of 01.01.2014	8 345	525	8 870
Property, plant & equipment purchased	0	591	591
Cost of acquisition 31.12.2014	8 345	1 117	9 462
Accumulated depreciation and impairment 31.12.2014	1 983	366	2 349
Carrying amount at 31.12.2014	6 362	751	7 113
Depreciation for the year	469	135	604
Useful life	20 years - perpetual	4-10 years - perpetual

NOTE 3 INTANGIBLE ASSETS

(NOK 1 000)	RIGHTS TO TECHNOLOGY	TOTAL
Cost of acquisition as of 01.01.2014	22 215	22 215
Cost of acquisition 31.12.2014	22 215	22 215
Accumulated depreciation and impairment 31.12.2014	2 222	2 222
Carrying amount at 31.12.2014	19 994	19 994
Depreciation for the year	1 777	1 777
Useful life	12.5 years

NOTE 4 SHARES IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

SUBSIDIARIES

(NOK 1 000)	REGISTERED OFFICE	OWNERSHIP SHARE	VOTING SHARE	CARRYING AMOUNT
Hexagon Ragasco AS	Raufoss	100%	100%	64 905
Hexagon Raufoss AS	Raufoss	100%	100%	30 842
Hexagon Technology AS	Ålesund	100%	100%	6 200
Hexagon Lincoln Inc.	Nebraska, USA	100%	100%	19 020
				120 966

30 January 2014 Hexagon Composites ASA completed the sale of the 100% owned subsidiary Hexagon Devold AS to Saertex GmbH & Co KG. The shares was sold with profit NOK 13 thousand.

EQUITY AND PROFIT/LOSS AS REPORTED IN MOST RECENT ANNUAL ACCOUNTS (COMPANY)

(NOK 1 000)	HEXAGON RAGASCO AS	HEXAGON RAUFOSS AS	HEXAGON TECHNOLOGY AS	HEXAGON LINCOLN INC.
Cost of acquisition	64 905	30 842	6 200	19 020
Equity at 31.12.2014	108 870	33 207	54 029	297 726
Profit 2014	78 381	-16 308	37 897	93 878

ASSOCIATES AND JOINT VENTURES

(NOK 1 000)	REGISTERED OFFICE	OWNERSHIP SHARE	VOTES	CARRYING AMOUNT
Rugasco LLC	Nizhny Novgorod, Russia	49.0 %	50.0 %	3 849

EQUITY AND PROFIT/LOSS AS REPORTED IN MOST RECENT ANNUAL ACCOUNTS

(NOK 1 000)	RUGASCO LLC
Cost of acquisition	3 849
Equity at 31.12.2014	-19 056
Profit/loss 2014	-19 108

NOTE 5 RECEIVABLES AND LIABILITIES

(NOK 1 000)	2014	2013
RECEIVABLES DUE FOR PAYMENT AFTER 1 YEAR
Other non-current receivables	2 932	2 905
Loans to group companies	364 485	381 706
Total	367 416	384 611
LONG-TERM LIABILITIES DUE FOR PAYMENT AFTER 5 YEARS
Liabilities to credit institutions	0	0
Total	0	0
Liabilities secured with collateral	0	150 000

Bank loans are secured against trade payables, inventories, and operating equipment in the Group's Norwegian subsidiaries. The Parent Company also has unconditional guarantees from the Norwegian subsidiaries.

LONG-TERM FINANCING

(NOK 1 000)	CURRENCY AMOUNT	CARRYING AMOUNT	INTEREST	DURATION	MATURITY
Bond issue	300 000	297 243	Nibor 3 mth + 5.00%	5 years	02.07.2018

In addition to the bond-loan Hexagon Composites ASA has a unused credit facility of NOK 300 000 from DNB.

Costs associated with the loans are amortised over the duration of the loans using the effective interest method and are included in the carrying amount of the loans. Balance as of 31.12.2014 was NOK 2 757 thousand.

Some loan agreements require the Company to maintain its key figures and financial ratios at defined levels.

It is a requirement for the bond loan and financing at DNB that the Group's equity is higher than 30% of capital employed (total interest-bearing liabilities plus equity).

For the bond loan there is also a requirement that the interest coverage ratio (rolling earnings before interest, tax, depreciation/ amortisation for the last 12 months/rolling net interest expenses) must be greater than 2.0.

In addition, dividends declared for any one year is limited to a maximum of 50% of Net Profit for the year.

Financing from DNB requires that the Group's NIBD/EBITDA (net interest-bearing debt/rolling earnings before interest, tax, depreciation/amortisation for the last 12 months) is less than 4.0.

(NOK 1 000)	31.12.2014
Fair value of interest rate swaps	-7 334
Net fair value of unrecognised interest rate swaps	-7 334

Unrealised loss on interest rate swaps of NOK 7 334 thousand has not been recognised due to the Company using hedge accounting.

NOTE 6 INTRA-GROUP BALANCES

(NOK 1 000)	2014	2013
INCOME
Administrative services to subsidiaries	19 447	11 697
Total	19 447	11 697
RECEIVABLES
Loans to group companies	364 485	381 706
Trade receivables	127	112
Other current receivables	130 184	51 100
Total	494 795	432 917
LIABILITIES
Liabilities to group companies - long-term	30 743	26 536
Liabilities to group companies - current	7 802	6 205
Total	38 545	32 741

NOTE 7 BANK DEPOSITS

(NOK 1 000)	2014	2013
Restricted tax withholdings	654	300

The Group's liquidity in Norway is organised in a Group overdraft facility. This means that the Norwegian subsidiaries' cash in hand is formally considered a receivable from the Parent Company and that the companies are jointly responsible for withdrawals made by the Group under this arrangement.

NOTE 8 SHARE CAPITAL AND SHAREHOLDER INFORMATION

SHARE CAPITAL CONSISTS OF

(AMOUNTS IN NOK)	NUMBER	NOMINAL	CARRYING AMOUNT
A shares	133 294 868	0.10	13 329 487

The Company's share capital consists of one class of shares and is fully paid-up.

20 LARGEST SHAREHOLDERS AS OF 31.12.2014

	NUMBER OF SHARES	SHAREHOLDING
Flakk Holding AS 1,2)	39 115 988	29.35%
MP Pensjon PK	12 267 614	9.20%
Bøckmann Holding AS	10 000 000	7.50%
Nødingen AS 1)	4 800 000	3.60%
DNB Markets, AKS	4 546 720	3.41%
Skandinaviska Enskilda Banken AB	4 436 967	3.33%
JP Morgan Chase Bank Special Treaty Lendi	3 731 449	2.80%
Verdipapirfondet DNB	1 810 325	1.36%
Thread - Pan Eur Sma c/o Citybank NA	1 804 197	1.35%
Thread - European SM c/o Citybank NA	1 775 721	1.33%
Verma Mutual Pension Company	1 559 147	1.17%
JP Morgan Chase Bank, SA Escrow Account	1 469 738	1.10%
JP Morgan Chase Bank, Handelsbanken Nordic	1 410 192	1.06%
Hexagon Composites ASA	1 166 075	0.87%
JP Morgan Chase Bank, NA (Nominee)	1 072 727	0.80%
Spilka International AS	1 007 852	0.76%
Verdipapirfondet Eik	1 006 518	0.76%
Flakk Invest AS 1)	1 000 000	0.75%
Lars Ivar Flydal	900 000	0.68%
Storebrand Norge JP Morgan Europe Ltd.	789 230	0.59%
Total 20 largest shareholders	95 670 460	71.77%
Remainder	37 624 408	28.23%
Total	133 294 868	100.00%

1) These shareholdings are controlled by the Chairman of the Board, Knut Flakk.

2) Flakk Holding AS has entered into a forward agreement for the buy-back of 6 000 000 shares from DNB Bank ASA on 20 May 2015.

The total number of shareholders as of 31.12.2014 was 2 755 of whom 197 were foreign shareholders.

NOTE 9 PENSIONS AND BENEFIT OBLIGATIONS

The Company is legally obliged to have occupational pension arrangements under the Norwegian Mandatory Occupational Pension Act. The Company's pension arrangements satisfy the requirements of this Act.

The parent Company's pension arrangements cover 11 people in total - ten employed and one retired. Pension arrangements are dealt with according to the Norwegian Accounting Standard NRS 6A for pension costs.

In December 2008, the Group decided to terminate the defined benefit pension plan for employees under 52 years of age on the date of transfer. These employees joined a defined contribution pension plan with effect from 1 January 2009. Employees over the age of 52 on the date of transfer continued to be members of the defined benefit plan.

The defined benefit pension plans give an entitlement to defined future returns on plan assets. These largely depend on years of service, salary level on retirement and the amount of national insurance contributions. The Company's benefit obligation is covered by an insurance plan.

As a part of the wage settlement in October 2014 the contribution rates increased from 5% to 7% for salaries in the range of up to 7.1 times the national insurance base rate (G) and from 8% to 15% for salaries in the range 7.1 to 12 G.

Contributions for the year were expensed at NOK 797 thousand (69), excluding employer's contributions.

NET PENSION EXPENSES FOR THE YEAR IN THE DEFINED BENEFIT PENSION PLAN ARE CALCULATED AS FOLLOWS

(NOK 1 000)	2014	2013
Current service cost	40	71
Interest cost on benefit obligation	69	43
Expected return on plan assets	-80	-47
Administrative costs	8	8
Employer's contribution	5	11
Total	41	85

PENSION LIABILITIES AND PLAN ASSETS

(NOK 1 000)	2014	2013
Present value of funded obligations	1 886	1 775
Fair value of plan assets	-2 110	-2 027
Employer's contributions on net pension liabilities	-32	-36
Net pension liabilities/plan assets recognised in balance sheet 31.12	-255	-288
Net liability recognised in balance sheet 1 January	-288	-172
Recognised benefit expense	41	85
Premium payments/contributions paid	-111	-21
Actuarial gains/losses recognised directly in equity	103	-180
Net liability recognised in balance sheet 31.12	-255	-288
Retirement benefit obligation	0	0
Plan assets	255	288
Accumulated actuarial gains/losses are recognised directly in equity (net after tax).	162	86

FINANCIAL ASSUMPTIONS

(NOK 1 000)	2014	2013
Discount rate	2.30%	4.00%
Expected salary adjustment	2.75%	3.75%
Expected pension adjustment	0.00%	0.60%
Adjustment of national insurance base rate	2.50%	3.50%
Expected return on plan assets	2.30%	4.00%
Mortality table	K2013 BE	K2013 BE

Actuarial assumptions for demographic factors and resignation are based on standard assumptions used within the insurance sector. Previously, the selected discount rate was based on 10-year Government bond interest. In 2013 the Parent Company changed this to the discount rate being based on interest on corporate bonds with a high credit rating. The transition did not entail any significant accounting effects.

NOTE 10 TAX

TAX EXPENSE FOR THE YEAR CONSISTS OF

(NOK 1 000)	2014	2013
Income tax payable	19 656	6 062
Change in deferred tax	7 216	3 425
Total tax expense	26 872	9 487

CALCULATION OF TAX BASE FOR THE YEAR

(NOK 1 000)	2014	2013
Profit before tax	98 978	40 173
Permanent differences	220	149
Gains and losses on/sale of financial assets (27%)	327	-6 503
Change in temporary differences	-26 725	-6 500
Use of loss carryforwards	0	-5 670
Tax base for the year	72 801	21 648

Received group contributions of NOK 128 221 thousand (49 110 thousand in 2013) have been entered as income on investments in subsidiaries and included in the pre-tax profit.

OVERVIEW OF TEMPORARY DIFFERENCES

(NOK 1 000)	2014	2013
Receivables	25 268	-1 597
Non-current assets	-658	-448
Pensions	255	288
Total	24 865	-1 757
27% Deferred tax	6 714	-474

WHY TAX EXPENSE FOR THE YEAR DOES NOT AMOUNT TO 27% (28% IN 2013) OF PROFIT BEFORE TAX

(NOK 1 000)	2014	2013
27% (28% in 2013) of profit before tax	26 724	11 248
Permanent differences 27% (28% in 2013)	59	42
Gains and losses/sale of financial assets 27% (28% in 2013)	88	-1 821
Correction for previous year	0	0
Effect of change in tax rate	0	18
Calculated tax expense	26 872	9 487
Effective tax rate 1)	27.1 %	23.6 %

1) Tax expense in relation to profit before tax.

From the 2014 financial year, the tax rate on general income in Norway has been reduced from 28% to 27%. Deferred tax and deferred tax assets are calculated using a tax rate of 27%. The effect of changing rates on tax expense for the year 2013 was NOK -18 thousand.

NOTE 11 PAYROLL, NUMBER OF EMPLOYEES, REMUNERATION, LOANS TO EMPLOYEES ETC.

PAYROLL COSTS

(NOK 1 000)	2014	2013
Wages/salaries and fees	21 952	11 426
Employer's contribution	2 548	665
Pension expense	506	152
Other contributions	538	240
Total	25 544	12 483

There were 10 (3 in 2013) employees in the Company during the financial year.

(NOK 1 000)	FEES TO BOARD MEMBERS	SALARIES	BONUSES PAID	BENEFITS IN KIND	PAID PENSION PREMIUM	TOTAL REMUNE RATION
EXECUTIVE MANAGEMENT
Jon Erik Engeset, Group President		2 636	270	79	109	3 094
Tore J. Fjell, Senior Vice President		1 401	590	199	22	2 213
David Bandele, CFO		1 469	0	9	81	1 560
BOARD OF DIRECTORS
Knut Flakk, Chairman	190					190
Kristine Landmark, Deputy Chair	100					100
Sverre Narvesen	120					120
Tom Vidar Rygh	0					0
May Britt Myhr	0					0
FORMER BOARD MEMBERS
Kristin Krohn Devold	145					145
Jan Magne Galåen 1)	120					120
Total remuneration	675	5 507	860	288	212	7 541

1) Board remuneration to J. M. Galåen was paid to the employer, Rasmussengruppen AS.

The Chairman of the Board has no agreement relating to termination benefits. In his employment agreement, the Group President has a period of notice of 6 months. He has an agreement for up to 12 months' severance pay. The management of the Group have a target-based bonus agreement. At the end of the year, the following bonuses were allocated: NOK 1 450 thousand to the Group President, NOK 300 thousand to the Senior Vice President and NOK 600 thousand to the CFO.

Group management participate in the Company's general pension arrangements, which are described in Note 8, Pensions.

No loans have been made, or security provided for loans, to any member of Group management, the Board or other elected standing committees.

SHARES OWNED BY BOARD MEMBERS OR RELATED PARTIES

	2014	2013
Knut Flakk, (Chairman) 1)	45 047 236	45 047 236
Kristine Landmark (Deputy chair) 2)	10 000	0
Tom Vidar Rygh (Board Member) 3)	50 000	N/A
Gunnar S. Bøckmann (Deputy Board Member) 4)	10 339 400	10 269 400
Line K. Flakk 5)	681 802	681 802

1) Of the shares owned by Knut Flakk, 131 248 are privately owned, 39 115 988 are owned through Flakk Holding AS, 4 800 000 are owned through Nødingen AS and 1 000 000 are owned through Flakk Invest AS. Flakk Holding AS has also entered into a forward agreement with DNB Bank ASA for the buy-back of 6 000 000 shares as of 20 May 2015. See note 17.

2) The shares are owned by Kristine Landmarks husband, Bjørn Siem.

3) Shares owned by Tom Vidar Rygh is owned through Retiro AS.

4) Of the shares owned by Gunnar S. Bøckmann, 339 400 are privately owned and 10 000 000 are owned through Bøckmann Holding AS.

5) Line K. Flakk is married to Knut Flakk.

EXPENSED AUDITORS' FEES AND COMPRISED OF THE FOLLOWING SERVICES (NOT INCLUDING VAT)

(NOK 1 000)	2014	2013
Statutory audit and auditing-related services	837	841
Other attestation services	18	0
Tax advice	7	0
Other non-auditing services	0	921
Total	862	1 761

NOTE 12 MERGED ITEMS IN THE ACCOUNTS

FINANCE INCOME

(NOK 1 000)	2014	2013
Interest income from group companies	25 222	21 099
Other interest income	1 900	2 206
Other finance income (currency gains)	50 561	15 906
Profit on sale of shares	13	0
Reversed impairment for shares in subsidiaries	0	7 750
Total finance income	77 695	46 961

FINANCE EXPENSE

(NOK 1 000)	2014	2013
Interest expenses to group companies	2 137	1 388
Other interest expenses	25 976	22 264
Accrued provisions for non-current liabilities	2 486	486
Currency losses	47 556	11 349
Loss on sale of shares	0	1 247
Other finance expense	721	533
Total finance expense	78 875	37 267

NOTE 13 FINANCIAL MARKET RISK

The Company's international activities expose it to currency risk and interest risk. Derivative financial instruments are used to minimise these risks under the Group's strategy for interest and currency exposure.

INTEREST RATE RISK

Interest rate risk arises in the short and medium term from the Company's floating rate liabilities. The Company uses interest rate swaps to minimise the risk.

CURRENCY RISK

Fluctuations in exchange rates represent a financial risk to the Company, both directly and indirectly. The Company uses currency swaps and borrows in foreign currency to minimise the risk.

NOTE 14 EVENTS AFTER THE BALANCE SHEET DATE

There have not been any significant events after the balance sheet date.

State Authorised Public Accountants Ernst & Young AS

DaaeGården, NO-6010 Ålesund Langelandsvegen 1, NO-6010 Ålesund Foretaksregisteret: NO 976 389 387 MVA Tlf: +47 70 11 82 82 Fax: +47 70 14 34 86 www.ey.no Member of the Norwegian Institute of Public Accountants

To the Annual Shareholders' Meeting of Hexagon Composites ASA

AUDITOR'S REPORT

Report on the financial statements

We have audited the accompanying financial statements of Hexagon Composites ASA, comprising the financial statements for the Parent Company and the Group. The financial statements of the Parent Company comprise the balance sheet as at 31 December 2014, the income statement and the cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory information. The financial statements of the Group comprise the consolidated statement of financial position as at 31 December 2014, the income statement, the statements of comprehensive income, the cash flow statement and the statement of changes in equity for the year then ended as well as a summary of significant accounting policies and other explanatory information.

The Board of Directors' and Group President's responsibility for the financial statements

The Board of Directors and Group President are responsible for the preparation and fair presentation of these financial statements in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway for the financial statements of the Parent Company and the International Financial Reporting Standards as adopted by the EU for the financial statements of the Group, and for such internal control as the Board of Directors and Group President determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

78

HEXAGON COMPOSITES ASA Korsegata 4B, P. O. Box 836 Sentrum, N0-6001 Ålesund, Norway. Phone: +47 70 30 44 50, office@hexagon.no, www.hexagon.no