BWG Homes Annual Report 2008 by Creuna Norge As

2008

Bwg homes Annual Report

NOTES PARENT

EBITDA MARGIN 2008

11.6%

“Our long-term goal

will still be achieving profitable growth and adding value for our shareholders. LArs nilsen CEO

REVENUE OmsetningPEr perBUSINESS AREAs (NOK MILLION) foretningsområde

SWEDEN

1 713 NORWAY

1 459

BWG Homes ANNUAL REPORT 2008

Key 70 figures NOTES Parent

Key figures 2008 2007 and Highlights (NOK million) NOTE Actual PRO FORMA Actual Letter New from orders 1 2 347 2 482 3 387 1 686 the CEO

Order backlog

1 169

1 950

966

Letter from country managers

3 172 2 572 3 272 1 529 368 385 441 246 EBIT 121 345 429 243 Report from the EBT -32 274 333 218 Board of Directors Net profit for the year -82 201 242 163 Annual accounts and notes Group EBITDA margin 3 11.6% 15.0% 13.5% 16.1% Annual accounts EBIT margin 4 3.8% 13.4% 13.1% 15.9% and notes Parent Operating revenue

This is EBITDA BWG Homes

Corporate Number of governance

2006 PRO FORMA

3 260 1 909 3 059 397 402 325 240 13.0% 13.1%

employees at 31.12

965

flow from operating activities Dividend paid Net change cash & cash equivalents

-226 -132 -21

Total assets Net interest bearing debt 5 Book value equity Capital employed 6

4 796 2 073 1 540 3 887

4 872 1 621 1 703 3 652

2 150 622 715 1 422

4 588 1 550 1 643 3 341

Equity ratio Return on equity Return on capital employed

32.1% -5.1% 3.3%

35.0% 16.6% 13.6%

35.0% 14.5% 12.3%

33.3% 20.9% 17.2%

35.8% 14.6% 12.0%

66 000 000 66 000 000 66 000 000 45 000 000 66 000 000 58 619 233 66 000 000 43 958 904 -1.25 3.43 3.66 3.70 0.00 2.00 2.50 2.56 31.30 38.00

45 000 000 45 000 000 3.64

About the Net cash reporting

7 8 9

Number of shares at 31.12 Average number of shares Earnings per share (NOK) Dividend per share (NOK) Share price at 31.12 (NOK)

1 363

606

-28 -113 -4

112 0 -43

1 140

Definitions/notes 1 New orders registrated less cancelled orders received the same year 2 Rest income of new orders registrated 3 EBITDA/operating revenue 4 EBIT/operating revenue 5 Interest-bearing debt incl. subordinated debt excl. cash & cash equiv. 6 Total assets excl. non interest-bearing debt 7 Book value equity/total assets 8 Profit after tax/average book equity 9 EBIT/average capital employed

GROUP

Highlights 2008

Dividend of NOK 2 per share paid. This corresponds to 65.6 per cent of profit for fiscal year 2007. New CFO, Arnt Eriksen, takes up position. Production capacity and costs adapted to lower sales. Staff reduced by approximately 30 per cent.

BLOCK WATNE

Regional office established in Hamar. New website and new edition of the house book. Launches five campaign houses.

Myresjöhus

Launches ”Effekthusen” – six low-energy houses and ”En smak av Skåne” – seven houses in local style. New general agent, Rakennusalfa, in Finland. Finnish website introduced.

01 OPERATING REVENUES (NOK million)

3500 3272

3000

3059

2500

3172

2572

2000 1500

1529

1000 Actual

500

Pro forma

OPERATING PROFIT (EBIT) (NOK million)

480 420

180

Actual

19–44 19 20–21 22 24–44

Annual accounts and notes Parent Income statement Balance Sheet Cashflow statement Notes

45–56 45 46–47 48 49–56 57 58–63 64 65

121

Pro forma

NUMBER OF EMPLOYEES

Annual accounts and notes Group Income statement Balance Sheet Cashflow statement Notes

Corporate governance About the reporting Contact information

243

120

01 02–03 04–05 06–07 08–18

Auditor´s report

345

300 240

429

402

360

Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors

1600 1400 1363 1363

1200 1140

1000

965

800 600

606

400 Actual

200

Pro forma

SmålandsVillan

Introduces two new house types Villa Granna and Villa Visingsö. New website and house catalogue. New general agent, Plania Talo, in Finland.

GROUP HETLANDHUS

Highlights 1Q 2009

Loan terms renegotiated for three years. Private placement and a subsequent repair issue implemented with gross proceeds of NOK 163.38 million.

Launches nine modern and functional standard houses. New website and catalogue. First house is built outside Oslo.

BWG Homes ANNUAL REPORT 2008

02 Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

Lars nilsen (41) CEO BWG Homes ASA

Education: MBA Finance and real estate Shares in BWG HOMES: 31 958 000

Caution and focus in a challenging market 03 LETTER FROM THE CEO

Dear Co-owner of BWG Homes. In many ways, 2008 was a year of large and dramatic changes. The trend of a US housing market in freefall and rising interest rates, became much more pronounced, culminating in the autumn of 2008 with the virtual collapse of international financial markets. Our customers faced high interest rates and big difficulties getting mortgages. In November this caused the complete paralyzation of the housing market. In spite of that, BWG Homes was able to conclude 2008 with acceptable margins.

The falling price of credit has in recent years increased consumers’ purchasing power, helping to push up the price of both resale and new homes. Easy access to financing has also led to overinvestment, with a large number of speculators entering the housing market. Even before the financial crisis culminated in the collapse of Lehman Brothers, the sale of new houses had come to a virtual standstill in both Norway and Sweden. Far more homes, and in particular flats, were being built than the market could absorb. In the autumn of 2008, the banks changed their attitude to one of completely irrational pessimism, leading to the strict rationing of credit. When the banking industry in much of the world stops func tioning, the outcome is a crisis. When customers are unable to get loans, they are also unable to buy homes. We had never before experienced a situation like that. About the housing market The term “housing market” does not refer to a homo genous entity. The market can be split into two main segments: tower blocks in towns and detached/ semi-detached houses outside town centres. The detached/semi-detached house segment has tradi tionally been more stable. There are several reasons for this. These homes are less subject to price fluctua tions, and are relatively unaffected by speculators and overbuilding. The detached/semi-detached market is also mainly aimed at customers with a real need for housing based on their situation in life: firsttime buyers, growing families and second families. The tower block segment has historically experienced major fluctuations. A large proportion of these newbuild units are bought by investors/speculators – not to live in, but to make a profit by selling them on. These conditions allow overinvestment in expensive homes. What we saw in 2008 was that the tower block seg ment, which had seen overbuilding and very high prices, was hit first and hardest by falling prices. But in the second half of the year, the detached/

semi-detached segment was also hit badly. A lack of financing, com bined with general concern about the future outlook and the banks’ demand that “you sell before you buy”, meant that home sales came to a juddering halt. With equity “locked into” existing homes that were impossible to sell, potential customers were shut off from the housing market. Restructuring our business for lower sales In the spring of 2008 we noticed signs of falling demand for our products. Over the course of 2006 and 2007 we had expanded our organisation to handle higher sales. We always aim to optimise production capacity in relation to demand, and it therefore became urgent to adjust our capacity and costs in line with lower sales and earnings. Over the second half of the year we implemented a number of measures, and we have now reduced staffing by approximately 35 per cent. The full impact of the reduction in staffing will be seen in the first half of 2009. Focusing on core activities In the first months of 2009 we have seen a recovery in sales in both Norway and Sweden. Significantly lower interest rates and less restrictive credit policies are contributing factors. The resale housing market is also starting to function more normally. More people are coming to viewings now, and overall

levels of activity in the market have picked up. On the other hand, we must be prepared for increasing unemployment and anticipated slower economic growth to hold back demand. 2009 will almost certainly be a year of uncertainty and fluctua tions in the housing market. Our core business is building and selling quality homes at affordable prices. Our customer segment is the “man in the street”. This section of the housing market is not driven by speculators. Our customers need a home regardless of the changing economic climate, because demand is led by people’s family situations, general popu lation growth and moving patterns. Historically it has also been true that demand for family houses and the detached/semi-detached seg ment are much more stable over the long term than demand for the tower block segment. BWG Homes entered 2009 with a lower cost base, revised loan terms and a stronger financial position as a result of completed share issues. We have a strong focus on operational efficiency and on being conservative in all areas of our organisation. Our homes and projects are tailored to the needs of our market seg ment. We prioritise profitability and the quality of our housing projects above short-term topline growth. We are therefore in a good position to meet these challenging times. And we will maintain our long-term goal of achieving profitable growth and adding value for our shareholders.

Lars Nilsen CEO

BWG Homes ANNUAL REPORT 2008

We make it easier for customers to buy a new home 04 Throughout the autumn of 2008, the finance crisis and a declining property market represented an ever-growing challenge for house builders in Norway and Sweden, including Block Watne, Myresjöhus and SmålandsVillan.

Key figures and Highlights Highlights Letter from the CEO from Letter from country managers managers country This is BWG Homes Report from the directors Board of Directors accounts Annual accounts and notes Group

- Our core business is building and selling homes – and to create profitability. In a demanding market, it is even more important to make it simple and attractive for customers to buy a new home, state Ole Feet, CEO of Block Watne and Mikael Olsson, CEO of Myresjöhus and SmålandsVillan.

accounts Annual accounts Parent and notes Parent Corporate governance About the reporting

Q How is Block Watne adapting to the market situation?

Ole Feet (49) CEO Block Watne AS

EDUCATION: Master of Civil Engineering, Business Administration. Shares in BWG HOMES: 15 400

A Almost 90 per cent of our turnover comes from housing projects under our own name, in which we control the entire value chain – from buying prop erties to sale, building and hand over to the customer. This requires us having the flexibility to adjust along the way, and select the products the market demands and which are efficient to produce. The ideal housing project involves several subprojects which are developed over time, and the types of housing can be detached, terraced and small apartment buildings. Affordable and spaceefficient family homes are what we currently are building most of. These products are popular regardless of the state of the economy, because they fulfil a real housing need.

Q Realising sales has been a challenge in 2008. What is the key to success? A We have focused on selling completed and nearly com pleted homes, which has been important to reduce capital investments and maintain our margins. We also believe it is important to have a certain stock of homes which are ready to move into, because custom ers in the current market want to be able to take occupation as soon as they have sold their existing home.

- When we throughout the autumn of 2008 experienced that customers were having problems with bridging loans due the banks’ highly restrictive lending policies, we introduced a five year interest rate guaran tee, double home insurance and trained our sales personnel in financial consultancies. A large part of our homes have a uni versal design in accordance with Husbanken’s rules, which means we can offer Husbank financing for many of our projects. - Local marketing activities com bined with the Internet have shown to be very effective and will be continued in 2009. The first few months of 2009 have been positive, with low interest rates and better access to credit giving increased sales. We have a trimmed organisation and good products. We have cautious optimism for 2009.

05 LETTER FROM COUNTRY MANAGERS

MiKael OlsSOn (49) CEO BWG Homes AB

Education: Business administration and accounting Shares in BWG HOMES: 136 279

Q The need for new housing in Sweden is significant, yet there is a lot of competition for the same customers. How will Myresjöhus and SmålandsVillan tackle this? A Myresjöhus targets the more established families who set high standards for their home and want individual design. Whilst SmålandsVillan’s custom ers are often first-time buyers, and more price sensitive. Our competitive advantage is that we have known brands, lots of experience and continuous product development. We can sustain the latter because we have in-house resources in the form of architects, development staff and production facilities.

- In a declining market, we find that the simple and reasonablypriced houses are those which sell best. Consequently, Myresjö hus launched two new house

collections in 2008 – the “Effect Houses” which are productionefficient low-energy houses and the “Skåne Houses”, specially developed for southern part of Sweden. SmålandsVillan intro duced two new house types, and we can also offer a “Do it yourself” concept for customers who want to save money by building and fitting out them selves. And in January, we launched the Villa 2009 cam paign house, which has already proved a success. We also have high expectations for our joint project with the Norwegian business – the Hetlandhus col lection. The Hetlandhus house types are built as modules on SmålandsVillan’s production facilities. In this way the Norwegian and Swedish busi nesses are exploiting products, competence and resources across the borders.

- Thanks to intensive sales work with the emphasis on local activities, efficient operations and high productivity, we man aged to achieve higher turnover and profit in 2008 than in 2007, even though sales were signifi cantly lower. This confirms that the product portfolio is attractive. - In 2009, we will benefit from the extensive downsizing we had to perform to reduce costs. The cost base is now much lower and we can see that sales are on the rise again. Surveys show that more than 70 per cent of the population wants to live in their own home. We are one of the few house builders which operate nationwide, and we have the products and compe tence to ensure success.

BWG Homes ANNUAL REPORT 2008

This is BWG Homes 06 BWG Homes’ mission is to operate and develop leading residential builders with strong brands. Our brands Block Watne and Hetlandhus in Norway and Myresjöhus and Smålands Villan in Sweden sell and produce affordable homes through own residential projects and for individual customers.

Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of directors

Profitability with moderate risk level

Annual accounts and notes Group

BWG Homes Group’s main goal is to create good profitability with a moderate risk level. We do so by constantly standardising and industrialising our production processes, maintaining a longterm land bank containing prop erties on the outskirts of large cities and densely populated areas. We develop housing pro jects which remain under our own control throughout the value chain – from site purchase to delivery of a house which is ready for occupation. And we constantly develop new spaceefficient house types.

Annual accounts and notes Parent Corporate governance About the reporting

Large product portfolio

Our portfolio reflects our exten sive experience and broad expertise in residential building. Our production methods com bine the finest craftsmanship with streamlined production. The product portfolio contains more than 100 different standard houses in modern and classic style, as well as houses which

are specially developed for our projects. The houses are devel oped in collaboration with lead ing architects. Particular areas of focus are house quality, low energy consumption, healthy indoor climate, functional space utilisation and efficient production. Controls the value chain

BWG Homes delivers some 2 000 new houses every year. “Housing projects under our own control”, where Block Watne and Myresjöhus control the entire value chain, account for 53 per cent of turnover. Products include detached houses, terraced houses and low-rise apartments. Housing projects are based on a land bank with a long development horizon, situated on the outskirts of large cities and populated areas. “Detached houses on cus tomers’ own land” represent 39 per cent of turnover. The cus tomer chooses a standard house type with optional extras from the Block Watne, Hetlandhus, Myresjöhus or SmålandsVillan

Positioning strategy High END Affordable homes, attractive living

BLOCK WATNE MYRESJÖHUS

HETLANDHUS SMÅLANDSVILLAN LOW END/SPECIAL NEED

house catalogue. Customers can opt for a house which is ready for occupation or can make their own contribution to the building. “Professional customers” account for 8 per cent of turnover. These customers are professional play ers – public or private – with their own land and project management.

Standardization, value for money

Objectives for profitable growth

BWG Homes will create good profitability with moderate risk by owning and developing leading residential builders. The Group’s companies will be leaders and represent strong brands in their markets. The Group shall maintain a con trolled organic growth with good profit margins. By giving priority to housing projects outside urban centres, the Group seeks to achieve a more stable earnings trend than general market fluctu ations might indicate. The Group prioritises profitability and quality of housing projects ahead of short-term top-line growth. Systematic training, develop ment opportunities, good pro fitability and market alignment mean that the Group is able to offer attractive and stable workplaces. The Group will take an active role in possible consolidation processes in the Nordic market. Dividends to the company’s shareholders will be an area of particular focus. The target is to pay between 50 and 70 per cent of profit after tax in dividends to shareholders. A dividend is proposed if in the Board’s view it will not adversely impact the BWG Homes’ future growth ambi tions or capital structure.

07 THIS IS BWG HOMES

Norway

SHARE OF OPERATING REVENUE

Block Watne builds approximately 1 000 houses each year, and the company has delivered over 86 000 houses since the 1950s. The core business is the develop ment of housing projects on the outskirts of urban centres and the construction of standard houses for customers with their

SWEDEN

(PER CENT)

Sweden

SHARE OF PROFIT (EBITDA) SWEDEN

41 NORWAY

KEY FIGURES SWEDEN (NOK MILLION) 2008*

Operating revenue EBITDA EBIT EBITDA margin EBIT margin Order intake Order backlog Number of employees

1 713 169 155 9.9% 9.0% 1 189 717 457

Hetlandhus is launched in first quarter 2009.

KEY FIGURES NORWAY (nok MILLION) 2008

Operating revenue EBITDA EBIT EBITDA margin EBIT margin Order intake Order backlog Number of employees

NORWAY

(PER CENT)

own land. Operations are con ducted from 21 regional offices – from Trøndelag in the north down to the south. The company’s teams of carpenters build the house at the construction site.

2007

2006

1 631 153 149 9.40% 9.10% 1 949 1 168 643

1 529 152 158 9.90% 10.40% 1 574 943 534

* The figures do not include write-down goodwill NOK 266 million and restructuring costs NOK 11 million.

Myresjöhus and SmålandsVillan build around 1 200 houses every year. Since the company was founded in 1927, Myresjöhus has built more than 80 000 houses, most of them in Sweden. Små landsVillan which was established in 1997 has built some 2 400 houses. The core business is the development and production of prefabricated detached or multi-dwelling houses, both for customers with their own plots of land and as housing projects – either independently or with development partners. Components for Myresjöhus and modules for SmålandsVillan are produced at the company’s pro duction facilities, and are assem bled and finished at the building site. Myresjöhus and Smålands Villan products are sold through a nationwide sales network.

1 459 229 222 15.7% 15.2% 1 158 452 503

2007

2006

1 641 302 294 18.4% 17.9% 1 438 782 717

1 528 253 249 16.5% 16.3% 1 686 966 604

BWG Homes ANNUAL REPORT 2008

8 Key figures and Highlights

HarAld WaltHer (63) Chairman of the Board

Letter from the CEO

Position: Practising lawyer with his own firm. Prior position: Consultant in the Ministry of Finance, 1971–73. Education: Law degree, University of Oslo, 1970. Board positions: Chairman of the board of BWG Homes since 2005. Director of the board of Block Watne since 1994, chairman of the board of Block Watne 2000–2006, deputy chairman since 2006. Serves as chairman or director of the board of a number of privately owned companies. Shares in BWG HOMES: 417 500

Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance

Hege Bømark (45) Deputy chairman

About the reporting

Position: Master of Business Administration Prior positions: Financial analyst in Orkla Finans (Fondsmegling) AS and in Fearnley Finans (Fondsmegling) AS, project manager in AS Eiendomsutvikling. Education: MBA degree, Norges Handelshøyskole, Bergen, 1987. Board positions: Deputy chairman of the board of BWG Homes since 2006. Director of the board of BWG Homes since 2005. Director of the boards of Scandinavian Property Development ASA and Oslo Aquapark AS. Shares in BWG HOMES: 0

Petter Neslein (55) Director of the Board

EVA ERIKSSON (49) Director of the Board

Brit Hagelund (55) Employee representative

Position: Salary administrator in Block Watne since 1998. Education: Otto Treider Commercial college. Board positions: Director of the board of BWG Homes since 2005. Director of the board of Block Watne since 2001. Shares in BWG HOMES: 400

Position: CEO in Landic Property Bonds IX AB. Prior positions: CEO in Union Property Investment AB, 2008, CEO in Norgani Hotels ASA, 2006–2007, Regional manager, Kungsleden AB (publ), 2005–2006, Manager of property development and transactions, JM AB (publ), 2000–2005, Manager property sales, NCC Fastigheter AB, 1999–2000, Manager real estate finance Sweden, Landesbank Schleswig-Holstein, Stockholm, 1997–1999, Manager real estate finance, Föreningsbanken AB, 1994–1997. Education: MSc degree, KTH, Stockholm, 1983. Board positions: Director of the board of BWG Homes since 2007. Director of the board of Byggpartner AB since 2007. Shares in BWG HOMES: 20 000

Tore Morten randen (43) Employee representative

Position: Carpenter in Block Watne since 1983. Education: Technical college. Board positions: Director of the board of BWG Homes since 2005. Director of the board of Block Watne since 2001. Senior trade union representative for the carpenters in Block Watne. Member of the boards of Målervirksomhetens Felles utvalgs Fond AS and Fellesforbundet Avd. 766 Snekker og Tømmermennenes Forening. Shares in BWG HOMES: 200

Position: CEO and main owner of Pecunia AS. Prior positions: CEO in Nevinvest AS 1983–1985, management consultant in The Boston Consulting Group 1981–1983. Education: MBA degree, Columbia University, New York, 1981, MSc, Universite Fribourg, Switzerland, 1978. Board positions: Director of the board of BWG Homes since 2006. Director of the board of Formuesforvaltning AS since 2003. Serves as chairman or director of the board of a number of privately owned companies. Shares in BWG HOMES: 810 000

Einar Salbu (51) Employee representative

Position: Carpenter in Block Watne since 1983. Education: Technical college. Board positions: Director of the boards of BWG Homes and Block Watne since 2008. Deputy chairman of Fellesforbundet Avd. 751 Snekker og Tømmermennenes Forening. Shares in BWG HOMES: 0

Report from the Board of Directors 9 REPORT FROM THE BOARD OF DIRECTORS

2008 will go down in history as a very demanding year. The rapidly escalating financial crisis resulted in bankruptcies, lending restrictions and rising unemployment. Despite this situation, BWG Homes was able to report relatively good turnover, improved margins and profitability until the financial crisis seriously kicked in during the autumn. The Group has carried out significant cost reductions, renegotiated its loan terms and strengthened its equity in order to position itself for challenging times ahead.

In 2008, BWG Homes reported revenues of NOK 3 172 million and an operating profit before depreciation and restructuring costs (EBITDA) of NOK 379 mil lion. After a goodwill write-down of NOK 226 million, operating profit before finance costs (EBIT) was NOK 121 million. Profit before tax was negative at NOK -32 million. Earnings per share was NOK -1.25. Corrected for the goodwill write-down, EPS was positive at NOK 2.18. In 2008, BWG Homes paid a dividend of NOK 132 million for the financial year 2007, corresponding to NOK 2 per share. Highlights of the year

BWG Homes was generally less exposed to market fluctuations than was housing production in Norway and Sweden as a whole. However, the turbulence on the international financial markets, with financial institutions

REVENUE AND EBITDA margin (2007 pro forma figures)

finding themselves in a deep crisis, and the lack of access to home financing also fuelled uncertainty in our market segments in 2008. In the first half of 2008, the number of resale and newly built homes was unusually high. This situa tion and rising interest rates created a significant uncertainty, and customers adopted a wait-andsee attitude where house investments were con cerned. The global financial turmoil escalated in the 3rd quarter and made its presence felt with a vengeance in the 4th quarter, with stock markets plummeting and large numbers of financial insti tutions facing serious crises. A highly restrictive lending policy left customers unable to finance their home purchases. In late October and November, sales of new and resale homes virtually grounded to a halt. For BWG Homes it led to an increased number of unsold units. The situation improved somewhat in early 2009 as a result of a noticeable decline in prices in the home market and relatively sharp interest rate cuts. During 2006 and 2007, the Group increased its production capacity in response to a growing market with high demand for new homes. In spring 2008, the Group saw a need to adapt to a weaker market and reduced volumes.

1200

20.0%

1050

17.5%

900

15.0%

750

12.5%

600

10.0%

450 300 Revenue EBITDA margin

7.5% 785

856

701

931

858

937

655

721

150 0

5.0% 2.5%

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

0.0%

During June and the second half of the year, major staff cuts were made in all parts of the organisation in order to adapt production capacity and costs to a lower level of sales. The number of employees was reduced by approx. 400 between the end of 2007 and the end of 2008. Another 170 employees are in their period of notice and will leave during the first half of 2009. In 2008 the Group has had a satisfactory long-term land bank for future development of housing projects within the framework of the market situa tion. Consequently, no new sites were acquired. Completion of housing projects in progress has been prioritised in order to release capital. While awaiting more stable demand, new housing projects will not be initiated without relatively high advance sales. For projects which are in an early development phase, the start-up of capital-intensive infrastructure is being postponed. In addition to reducing the cost level, the main focus of the Group’s operations in 2008 has been tar geted sales of selected projects and products, completion of projects and optimisation of pro duction processes. Reasonably priced family homes are the pri ority in projects. To expand our market share, we are also devel oping more production-efficient and reasonable standard houses for customers wanting to build on their own land.

BWG Homes ANNUAL REPORT 2008

10 Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

The Swedish operation has entered into agree ments with the general agents Rakennusalfa and Plania Talo for the sale of Myresjöhus and SmålandsVillan on the Finnish market. The Hetlandhus trademark will be relaunched in Norway in 2009 with a portfolio of nine stan dardised reasonably priced houses.

Results

After facing challenges during the commissioning of its new Sundsvall production facility in 2007, the Swedish operation has achieved good produc tivity growth. This has contributed to improved margins up to and including the 3rd quarter of 2008. The Norwegian operation maintained its strong margins until the end of the 3rd quarter, with profitability on a par with the previous year.

Despite a difficult market situa tion in 2008, the Group achieved good development in turnover until the 4th quarter. Operating revenue for the year was NOK 3 172 million, which is a decline of NOK 101 million (-3%) on the pro forma figure for 2007. Consolidated sales rose by NOK 600 million in 2008 compared with the previous year. Q4 reve nues were NOK 210 million lower than in the same quarter the previous year.

Financial review of 2008 Basis of preparation

The annual financial statements have been prepared in accordance with IFRS (International Financial Reporting Standards) as endorsed by the EU. The Board confirms that the annual financial statements have been prepared on the basis of a going concern, assumption in accordance with section 3-3 of the Norwegian Accounting act.

RESIDENTIAL HOUSING STARTS IN NORWAY

2008 is the first year in which the Norwegian and Sweden operations have been consoli dated for the full year. The pur chase of the Swedish operations was completed on 31 May 2007.

Earnings before depreciation and amortisation (EBITDA) and before restructuring costs amounted to NOK 379 million,

40000 35000 30000 25000 20000 15000 10000

Detatched houses

5000

Apartments Total

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09E 10E 11E (Source: Prognosesenteret, Norway)

RESIDENTIAL HOUSING STARTS IN SWEDEN

which is a decline of NOK 62 million (-14%) on the pro forma figure for 2007. This represents a decline of NOK 6 million (-1.5 per cent) compared with the consoli dated figure for 2007. EBITDA for the 4th quarter fell by NOK 86 million compared with the 4th quarter the previous year. The EBITDA margin for 2008 was 12 per cent, compared with 13.5 per cent in 2007 (pro forma). The large-scale staff cuts and other rationalisation measures imple mented in 2008 helped the Group deliver relatively good results in what was a very demanding year. At the end of 2008 the Board decided to recognise goodwill impairment losses of NOK 226 million in the Swedish operation. The reason for this decision is the major uncertainty in the financial markets and the conse quences of this on the real econ omy in Sweden. The Board has made a downward revision of its estimates of the Swedish opera tion’s earnings. At the end of 2008, restructuring costs of NOK 11 million associated with the staff cuts in the Swedish operation were recognised. Operating profit (EBIT) after the goodwill write-down and the mentioned restructuring costs amounted to NOK 121 million. This is a decline of NOK 309 million (-72.0%) on the figure for 2007 (pro forma). When adjusting for write-downs and restructuring costs, EBIT for 2008 amounted to NOK 358 million which is a decline of NOK 72 million (-17%) on the 2007 figure (pro forma).

40000 35000 30000 25000 20000 15000

Detatched houses Multi unit houses Total

10000 5000 0

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09E 10E 11E (Source: Prognoscentret, Sweden)

Net finance costs for the year amounted to NOK 153 million, including a fall in the value of forward rate agreements by NOK 43 million. Net finance costs for 2007 (pro forma) amounted to NOK 107 million, while the consolidated figure for 2007 was NOK 71 mil lion. In addition to the declining value of forward rate agreements, interest rates were relatively

11 REPORT FROM THE BOARD OF DIRECTORS

high during most parts of 2008. During the year, the Group increased its interest-bearing debt, which also contributed to the increased finance costs.

NEW ORDERS (NOK MILLION)

Profit before tax (EBT) for 2008 was negative at NOK -32 million, which is NOK 364 million down on the 2007 figure (pro forma). After adjusting for the goodwill write-down and restructuring costs in the Swedish operation, profit before tax for 2008 was NOK 205 million.

3500 3387

3260

3000 2500

2482

2000 1500

2347

2482

1000

Tax expense for the year amounted to NOK 50 mil lion, which is a decline of NOK 42 million compared with the 2007 pro forma figure. This is mainly due to a fall in the Group’s taxable profit and a reduction in the Swedish tax rate, which cut NOK 9 million off the tax liability in Sweden. The writedown of goodwill of NOK 226 million in the Swedish operation has not affected taxable profit.

500

Actual Pro forma

ORDER BACKLOG (NOK MILLION)

2000 1909

1750

Profit for the year was negative at NOK -82 million, which is a decline of NOK 322 million compared with the 2007 pro forma figure, and down 283 million compared with the consolidated figure.

19491949

1500 1250 1000

1169 966

750

Net order intake for 2008 was NOK 2 347 million. This is 30.7 per cent lower than in 2007 (pro forma NOK 3 387 million). The Group’s order backlog at the end of the year amounted to NOK 1 169 million, compared with NOK 1 949 million the previous year, which is a decline of 40 per cent.

500 Actual

250

Pro forma

Financial factors and capital structure

The Group’s cash flow from operations in 2008, taking into account interest and tax paid, was negative at NOK -226 million. Cash flow from operations was adversely affected by changed VAT rules in Sweden, which increased forced VAT payments by NOK 80 million on a one-off basis in 2008. In addition, the Group had an increased number of unsold completed houses at the end of 2008, representing a considerable amount of tied-up capital. At the end of 2008, the Group had approx. 150 completed unsold houses. This is approx. 100 units more than normal. The increase is due to a considerable slow-down in sales in the latter part of 2008. Net cash flow from investments for 2008 was NOK 20 million. This includes interest on bank deposits of approximately NOK 8 million. Investments in operating assets in 2008 amounted to NOK 27 million, compared with NOK 19 million in 2007. The Group’s usage of from project financing and other short-term credit facilities increased with NOK 357 million during the year. After the dividend pay ment of NOK 132 million, net cash flow from financ ing was positive at NOK 225 million in 2008. Net interest-bearing debt ended 2008 on NOK

2 073 million, compared with NOK 1 622 million at the end of 2007. NOK 784 million of this figure relates to project financing (land/building loans) and working capital loans. The increase is largely due to an increased number of unsold completed houses as a result of lower sales in 2008, particu larly in the 4th quarter. A number of measures were implemented in 2008, aimed at adapting production to lower sales, thereby reducing tiedup capital. The full effects of the measures are expected to be felt in the first half of 2009. In addition to financing needs connected with land and construction work in progress, the Group also has a considerable need for provision of guarantees. These are mainly statutory guarantees in favour of customers. The Group has a good working rela tionship with a number of banks and insurance companies, and the current facilities for borrowing and guarantees are considered adequate for the present activity level. At the end of the year, the Group’s equity was NOK 1 540 million, which corresponds to an equity ratio of 32.1 per cent, while equity for 2007 was

NOK 1 703 million, with an equity ratio of 35 per cent. The Group’s cash & cash equiva lents amounted to NOK 61 million at the end of 2008, with an addi tional NOK 97 million available under credit facilities. In addition to cash & cash equivalents and working capital loans, the Group had a varying level of available cash in the form of project financing. The level of this type of additional liquidity is depen dent on individual project status which varies during the year. Shareholders

The largest shareholder is CEO Lars Nilsen, who owned 23 958 000 shares (36.3%) at the end of 2008, through Lani Industrier AS, Lani Development AS and Lagulise AS. The rest of the shareholder structure is

BWG Homes ANNUAL REPORT 2008

12 Key figures and Highlights

dominated by institutional shareholders. The total number of shareholders at 31 December was 847. The number of foreign shareholders was 55, correspon ding to an ownership share of 18.8 per cent.

Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors

A list of the 20 largest share holders at 31 December 2008 and Board and management shareholdings can be found in Note 8. The top 20 shareholders are updated every Monday on the company website.

Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

Events after the balance sheet date Renegotiated loan terms

In January 2009, the Group rene gotiated the loan terms with its main bank Nordea. The new terms involve establishment of new covenants. In addition, debt management during the next three years has been clarified – this is not only necessary, but will also be useful both for the company and lender. Despite the increased pricing of the Group’s financing, the Board is satisfied with the new covenants, which are better adapted to the chal lenges the Group faces. A binding term sheet is in place, although the final loan agreements are still being drawn up.

The main elements of the rene gotiated terms are as follows: All long-term liabilities now due on 1 January 2012 (previously, NOK 499 million was due in 2010) New covenants associated with new sales, operating profit (EBITDA) and available cash; all at levels which reflect the difficult market situation New installment structure Re-pricing of entire commit ment with generally higher margins. Share issue

As part of efforts aimed at giving the company the flexibility and financial soundness it needs, the Board issued shares in BWG Homes ASA in the form of a pri vate placement on 12 February. A total of 28 000 000 shares were issued at NOK 5.00 per share with gross proceeds of NOK 140 million. After the reso lution of the Extraordinary General Meeting on 6 March 2009, a subsequent repair issue was implemented in the period 16–31 March 2009, in which 4 276 000 shares were issued at NOK 5.00 per share, with gross proceeds of NOK 21.38 million.

Sale of Gar-Bo

In January 2009, an agreement was signed for the sale of the ownership stake in the Swedish insur ance company Gar-Bo AB. The sale is conditional on approval by the supervisory authorities in Sweden and Luxembourg. The final selling price and settlement structure will be defined on the assumption that the sale will be implemented before the end of April 2009. The total selling price will be on a par with the carrying amount (SEK 65 million). Business areas

The business areas of BWG Homes encompass the development, sale and construction of residential homes. The Group’s present brands are Block Watne and Hetlandhus (Norway) and Myresjöhus and SmålandsVillan (Sweden). Norwegian operation

Block Watne AS is the largest independent house builder in Norway. The core business is the develop ment of the company’s own residential projects on the outskirts of urban centres, and standard houses for customers with their own land. Operations are conducted from 21 regional offices – from Trøndelag in the north down to the south. The company’s own employees work on develop ment of properties, projects, sales and construction. At the start of 2008, Block Watne had a large num ber of projects in production. Sales and production in the second half of 2008 and of 2009 have largely concerned projects in progress and the order backlog. In the 4th quarter of 2008, sales hit a historically low point, due to a highly restrictive lending policy on the part of banks which left cus tomers unable to finance their home purchases.

EQUITY DEVELOPMENT (PER CENT)

Under the amended loan terms, the share issue proceeds will not be used to repay debt. The Board is pleased to note that participation by both existing and new shareholders has strengthened the company’s financial position. The fact that we were able to implement such a measure in a very difficult capital market is par ticularly heartening.

40 35 33.3

35.0 32.1

25 20 15

18.7

10 5 0

Operating revenue for 2008 amounted to NOK 1 459 million, which is a decline of NOK 182 million (-11.1%) on the 2007 figure. Operating profit (EBIT) was NOK 222 million, a decline of NOK 72 million (-24.6%) compared with the previous year. The EBIT margin was 15.2 per cent, compared with 17.9 per cent in 2007. The order intake for 2008 was NOK 1 158 million, which is NOK 280 million (-19.5%) lower than in 2007. The order backlog ended 2008 on NOK 452 million, compared with NOK 782 million (-42%) at the end of 2007.

13 REPORT FROM THE BOARD OF DIRECTORS

Production capacity was substan tially reduced during 2008 in order to adapt operations to lower sales. At the end of 2008, the staffing level was 215 employees lower (30%) than at the end of 2007. In the 1st quarter of 2009, the production capacity is expected to be at the right level in relation to expected sales. With effect from January 2009, the Kongsberg and Notodden regional offices were merged in order to obtain better utilisation of resources.

Hetlandhus AS is relaunched in the 1st quarter of 2009, with a portfolio of nine reasonably priced standardised houses with defined optional extras. The target customer segment for Hetlandhus con sists mainly of young families and price-conscious first-time buyers. The houses, which will be produced in modules at SmålandsVillan’s production facilities in Sweden, satisfy Norwegian building regulations. A sales catalogue has been produced, the Hetlandhus website is up and running and the new manager of the company took up his position in January 2009. A network of retailers is going to be established in the central parts of Eastern Norway. Hetlandhus products will also be offered to the professional market as private branding.

The company is constantly developing new dwelling types for projects under its own con trol. In 2008, Block Watne was able to provide low-energy houses based on the new energy regulations which come into force in August 2009. The company will also deliver solu tions which exceed the new requirements. All the standard houses in the House Book were adapted in 2007, in order to incorporate technical solutions which give a 20 per cent reduc tion in energy consumption.

Swedish operation

Sales work has been intensified, and market initiatives, customer follow-ups and property viewings are being conducted with the emphasis on local activities. Further focus will be on selling the right products and projects, and optimisation of all areas of the company operations.

BWG Homes AB, with Myresjöhus and Smålands Villan, is Sweden’s leading producer of small houses. The core business of Myresjöhus is the development and production of standard houses for customers with their own land, or as residential projects, either independently or with development partners. SmålandsVillan develops and produces prefabricated detached houses for customers with their own land. Wall sections and house modules are produced at the company’s own production facilities and assembled at the construction site. The operation achieved satisfactory sales, good operating efficiency and sound production develop ment during the first nine months of the year. After a challenging start-up at the new Sundsvall production facility in 2007, in 2008 its production time per house could be cut by half as a result of rationalised working processes. Operating margins (EBITDA) at the end of the 3rd quarter were 1.4 per centage point higher than at the same point in 2007.

SHAREHOLDER STRUCTURE (PER CENT)

FOREIGN

18.8 NORWEGIAN

81.2

The 2008 order intake for Myresjöhus and Små landsVillan was 39 per cent lower than in 2007, when the order intake was exceptionally high. 2008 was a year which was dominated by major uncertainty in the financial markets, an economic downturn and rising unemployment. Demand for new homes fell sharply in the second half of the year, with sales reaching a historically low point in the 4th quarter. Operating revenue for 2008 was NOK 1 713 million, which is an increase of NOK 82 million (5%) on the 2007 figure (pro forma). Operating profit (EBIT) before the goodwill write-down and restructuring expenses was NOK 155 million, which is a rise of NOK 6 million (4%). The EBIT margin was 9 per cent which is on a par with the previous year. The order intake for 2008 was NOK 1 189 million, which is NOK 760 (-39%) million lower than in 2007. The order backlog ended 2008 on NOK 717 million, compared with NOK 1 168 million (-38.6%) at the end of 2007. Staffing and production capacity were substan tially reduced during the second half of the year in order to adapt to lower sales. At the end of 2008, the staffing level was 190 employees lower (29%) than at the end of 2007. At the end of 2008, another 120 employees received redundancy notices, which will make the total staffing reduc tion approximately 48 per cent. In the first half of 2009, the factory at Vrigstad will have periods of reduced operation, while the Sundsvall factory has been converted into an assembly factory. In 2008, particular focus was directed towards developing new products in response to new design trends and demand for more reasonable houses, and in order to prepare products for imminent energy requirements. The company will continue to align its production with future energy requirements during 2009, with focus on construction and component design. The product portfolio has also been adapted to Finnish regulations. Sales work was intensified, and market initiatives, customer follow-ups and property viewings are being conducted, with the emphasis on local activities. In 2008, Myresjöhus launched two new house collections – “En Smak av Skåne”, which comprises seven houses designed in local style, and “Effekthusen”, which is a collection of six space-efficient and production-optimal standard houses with low energy consumption. Smålands Villan added two new house types to its portfolio. The market area has been expanded to include Finland via two local agents (Rakennusalfa and Plania Talo) who will sell Myresjöhus and SmålandsVillan on the Finnish market.

BWG Homes ANNUAL REPORT 2008

14 Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

Risk factors

EMPLOYEES PER SEGMENT AT 31 deCember 2008

The main risks to which the Group is exposed are market risk, interest rate risk and risks inherent in implementation of the building process. The Group is also exposed to a certain degree of credit risk, currency risk and liquidity risk.

(PER CENT)

SWEDEN

48 NORWAY

Market risk

The Group’s share of the total new housing market in Norway and Sweden lies between 3.5 and 5 per cent. In order to sell and produce houses, the Group is equally dependent on its own market performance as the market performance per se. The Group seeks to limit its market risk by concentrating its building operations on projects outside urban centres, thus avoiding the market’s most volatile area. Priority is also given to produc tion efficient and reasonably priced family homes designed for the main core of our market. There is also a focus on long-term brand building and professional customer service. The Group has a number of defined and wellestablished decision-making processes for acquisition of land and production starts and pre-building sales. Started but unsold units are monitored very closely. Implementation risk

Implementation risk relates to the ability to deliver, which can be affected by failure to keep to schedule (daily fines), costs related to building/production processes and excessive claim/ warranty costs. Measures to ensure project schedules are adhered to include order backlog monitoring, resource plans, use of the company’s own carpenters and production workers, efficient logistics systems and central and local agreements. With regard to cost risk, a large proportion of component prices are fixed in the short term by means of land purchase contracts, agreements to the purchase

building materials, fixed-price contracts with sub-contractors and agreements on wages and working conditions. Although increases in the prices of compo nents may occur, the majority of customer contracts have a regulation clause linked to the construction cost index. The Group also invests considerable resources in calculating projects which are in progress or planned, and seeks to avoid overruns by means of active construction management. The Group endeavours to keep the cost of claims and warran ties to a minimum by ensuring quality in all parts of the chain. The Group’s quality systems (ISO 9001 certification) play a central role in this regard. These sys tems document processes and routines for the entire opera tion, including procedures for non-conformances, claims and improvements. The Swedish operations are also environmen tally certified to ISO 14001. New products and processes are tested on a small scale before being taken into use in all the companies. Credit risk

The Group aims to minimise credit risk by ensuring that customers produce proof of financing and that houses are paid for before being handed over. Special credit checks are conducted for poten tial major customers. Consequen tly, bad debts are insignificant.

Interest rate risk

Changes in interest rates represent a market risk through their effect on demand for housing and a cost risk associated with interest rates for the company’s borrowings and working capital loans. Most of the Group’s working capital loans carry floating interest rates. The Group has forward rate agreements hedging approximately 40 per cent of its mortage loan. Currency risk

The Group’s investment in the Swedish subsidiary BWG Homes AB is largely financed by means of a bank loan in SEK, thereby reducing the currency risk associated with the subsidiary’s net assets. The remainder of the Group is exposed to direct currency risk only to a minor extent. Only a small part of the Group’s purchases are directly from abroad. These purchases are hedged by means of forward exchange contracts in NOK. The Group may be indirectly exposed to currency risk associ ated with the purchase of materials and services from sub-contractors, although such risk is con sidered to be low. Liquidity risk

In the event of a considerable decline in activity, maturity of the company’s land-related obligations could mean proportionately higher drawings from the Group’s borrowing facilities than is the case at present. Reduced earnings could also result in weaker liquidity. However, the Group has a consid erable liquidity reserve, which means that, with good warning systems, there will be sufficient time to implement the necessary restructuring. At the present time there is no indication of a need for such restructuring measures. Internal control

Block Watne has a comprehensive system for internal control of its activities. Internal control systems encompass quality systems, decisionmaking procedures, planning processes, reporting, risk assessment and ethical guidelines.

15 REPORT FROM THE BOARD OF DIRECTORS

EMPLOYEES PER CATEGORY (PER CENT)

BUILDING MANAGERS

8.5

CARPENTERS/PRODUCTION

58.5

PROJECT MANAGERS/DEVELOPMENT

8.5 17

MANAGEMENT/STAFF/ADM.

SALES/SALES SUPPORT

7.5

Corporate governance

The Group’s guidelines and regulations on corporate governance are in line with the Norwegian Code of Practice for Corporate Governance. The Board has adopted instructions for its own work, the CEO’s work, the Board’s dealings with the auditor, guidelines for the nomination committee, investor relations work and ethical guidelines. Please also see the section of the annual report entitled Corporate Governance. Board of Directors and Group Management Composition of the Board

The Board of BWG Homes consists of seven mem bers - four shareholder-elected members and three employee representatives. The shareholderelected members have extensive experience in the housing sector, property development, finance and law. The shareholder-elected members serve until the annual general meeting in 2009. Board members’ CVs are published in the annual report, and their shareholdings are listed in Note 8.

phone, newspaper and other relevant expenses are covered. Members of Group management have individual bonus agreements based on individual criteria. The bonus agreements have individ ual limits up to a maximum of one annual salary. The bonus criteria are decided by the CEO and are largely performancebased in the individual’s area of responsibility. No member of Group management has any equity compensation benefits or share option schemes. The Group is not under any obligation to grant the Group management, board or other employees profit-sharing, options or similar benefits. More information can be found in Note 8.

Group Management

Group management comprises CEO Lars Nilsen, CFO Arnt Eriksen, CEO of Block Watne AS Ole Feet, CEO of BWG Homes AB Mikael Olsson and CFO of BWG Homes AB Jonas Karlsson. Director of Com munications Elisabet Landsend participates in Group management as coordinator and the referrer. Remuneration policy

The CEO’s salary is set by the Board. The salary of the CFO is set by the CEO. The salaries of the CEOs of Block Watne AS and BWG Homes AB are set by the boards of their companies. Members of Group management have termination agreements which under certain conditions give entitlement of up to 12 monthly salaries beyond the standard period of notice. Members of Group management have company cars, and their tele

Pensions and retirement benefits

The Group’s retirement benefit arrangements consist of definedcontribution pension plans (funded), contractual early retirement pension (AFP) and collective defined-benefit plans (funded). At the end of the year, the pension plans had 967 members. At the end of the year, 16 employees had taken out an AFP pension (11 in 2007), while 2 persons were paid a pension directly from the company.

The Swedish operation has different pension plans, both defined-contribution and defined-benefit plans, which are financed via payments to pension institutions or managed funds. More information can be found in Note 7 and in the accounting policies. Organisation, work and environment

At the end of 2008, the Group had 965 employees. Of these, 400 were salaried employees (230 of them associated with production-oriented operations) and 782 were production workers and carpenters. 503 were employed in the Norwegian operation and 457 in the Swedish operation. The number of employees was reduced by approximately 400 (approx. 30%) between the end of 2007 and the end of 2008. Another 170 employees are in their period of notice and will leave during the first half of 2009. The staff cuts were imple mented in accordance with Hovedavtalen – the General Agreement for Civil Servants (Norway), collective bargaining agreements (Sweden) and applicable legislation, and in negotiation with the employee representatives of the trade unions (Fellesforbundet in Norway, the Swedish Forest and Wood Trade Union, Unionen and the Swedish Organisation for Managers). The selection process involved an overall assessment which not only took into account the period of service, but also other selection criteria such as formal expertise, personal apti tude and social conditions (fam ily responsibilities, age). Temp orary contracts were terminated before permanent employees. Apprentices were, as far as possible, protected in the staff reduction process at Block Watne. In cases where the company was unable to justify apprenticeship under the training scheme, apprentices lost their

BWG Homes ANNUAL REPORT 2008

16 Key figures and Highlights

place. Older employees with a short period to retirement were also protected from redundancy.

Letter from the CEO Letter from country managers

Following the reduction in staff ing, the Swedish company imple mented a major reorganisation. With effect from January 2009, the Myresjöhus and Smålands Villan brands will be more closely integrated. The management structure has been re-estab lished, with construction management, development departments and administrative support functions now integrated to enable them to serve both brands more effectively.

This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

Group administration comprises five persons, including the CEO. Two full-time equivalents have also been added in order to ensure tighter economic follow-up and more capacity with regard to the investor and financial market. Working environment

A safe and good working environ ment is a crucial determinant of the Group’s capacity for longterm value creation. The Board considers the Group’s working environment satisfactory. Management and representa tives of the trade union organi sations hold regular meetings

during the year. The Board wishes to give credit to the employees and management for their solutionoriented attitude in implementing such a demanding restructuring process. Total sick leave in 2008 was 7.9 per cent in the Norwegian operation and 4.2 in the Swedish oper ation, compared with 6.2 per cent and 3.6 per cent in 2007. In 2008, there were 62 lost-time accidents and injuries, compared with 45 in 2007. Typical injuries included wounds from nail guns and other tools and low-height falls. None of the reported accidents resulted in serious or permanent injury. ISO certification

The Norwegian and Swedish companies are certi fied to ISO 9001:2000. The certification applies to product and project development, sales and con struction of houses. The Swedish companies are also environmentally certified to ISO 14001:1996. In addition, Myresjöhus’s building systems are SITAC-approved. HSE

Block Watne AS conducts regular statutory train ing programmes and in-house training in the area of HSE. To ensure that HSE routines are com plied with by the company’s employees and subcontractors, unannounced inspections are done of building sites with subsequent internal discussion of non-conformances. Unannounced inspections of building sites are conducted by third parties according to the routines practised by the Norwegian Labour Inspection Authority. There were 127 unannounced inspections in 2008, with the number of reported non-conformances 48 per cent lower than in 2007.

Measures for reducing energy consumption

(block watne Products)

MEASURE

ANNUAL SAVINGS PER kWh/m2 USABLE FLOOR SPACE

External walls: increase insulation from 15 cm to 20 cm Roofs: increase insulation from 25 cm to 30 cm Windows: double-glazing with insulated frame reduces U-values from 1.4 to 1.2 Balanced ventilation with 80% energy recovery effect Leakage figure (tightness) changed from 4.0h-1 to 2.5h-1 Total kWh/m2 usable floor space

7 2 6 4 15 36

Equal opportunities

When recruiting employees, BWG Homes makes a focused effort to increase the percentage of women, although this is made more difficult by a marked recruitment bias in the building sector. Working conditions have been organised to suit women and men of any ethnicity. Two of the four shareholderelected Board members are women. One of the three employee representatives on the Board is a woman. There is one woman in Group manage ment. 12 per cent of employees in the Norwegian company are women. 5 per cent of employees in sales and production are women. Two of the nine members of the Block Watne AS management group are women. 21 per cent of employees in the Swedish com pany are women. 18 per cent of employees in sales and produc tion are women. There are no women in the BWG Homes AB management group. External environment

BWG Homes aims to be a leader in the development of the space and energy-efficient houses of the future. The Group’s products satisfy regulatory energy con sumption requirements. Energy and environmental issues are taken into consideration when selecting building materials and solutions from sub-contractors. BWG Homes mainly builds tim ber frame houses. As a building material, wood is environmen tally friendly. Wood products achieve negative CO2 emissions throughout their lifecycle. Norway In 2008, Block Watne was able to provide low-energy houses based on the new energy regulations contained in the Norwegian Planning and Building Act, which comes into force in August 2009. All the standard houses in the company’s portfolio were adapted to accommodate technical solutions that cut energy consumption by 20 per cent. This means that a

17 REPORT FROM THE BOARD OF DIRECTORS

house with 105 m2 usable floor space, will reduce its annual energy consumption by approximately 4 000 kWh. The company will also be able to deliver solutions which exceed the new requirements. An environmental and lifecycle report is produced for each dwelling produced. The report contains environmental and energy consumption data for the dwelling. All sub-contractors contributing products to a Block Watne house submit their own environmental reports. The annual energy consumption (average 17 000 kWh) of houses is generated from specific heat-loss and energy cal culations. These calculations are included in the overall documentation for the house, in line with the requirements of the building code. Waste generated in the production phase is dealt with in accordance with specified waste manage ment plans. These plans include separation at source, which is handled by companies specialising in sorting and recycling. Most of the building materials are made of timber. The insulation materials are produced from recycled glass, and the company uses interior cladding which does not emit gases. Balanced ventilation with 80 per cent energy recovery is standard in all the houses the company builds. This satisfies the indoor cli mate regulations and also reduces heating costs. Most houses produced are delivered in a universal design according to Husbanken’s standards. Production systems are based on a limited number of components, acknowledged building details, and optimised material dimensions. By continually improving building methods, the company will be able to cut material consumption even more and also reduce transportation of goods. Under framework agreements with suppliers, any surplus material from the building work is returned. Sweden Environmental work is part of the com pany’s standard quality programme. The aim is for all products to be recyclable or reusable. The company has annual environment goals relating to energy consumption in the house portfolio, reduction of non-approved chemicals at the production facilities and the proportion of waste going to landfill. The company’s three production facilities have the same technical production solutions which satisfy regulatory energy requirements for residential buildings. Building materials and solutions from sub-contractors are checked to ensure they follow quality and environmental specifications. The building regulations issued by the Swedish National Board of Housing, Building and Planning

AVERAGE ENERGY CONSUMPTION

kWh per m2

Type of house

1-storey Myresjöhus 1½-storey Myresjöhus 2-storey Myresjöhus SmålandsVillan

(Boverket) require residential buildings (detached and semidetached) to be designed with a maximum specific energy con sumption of 110 kWh/m2 in zone south and 130 kWh/m2 in zone north. The regulations are checked by calculating the build ing’s expected energy consump tion in the project phase and measuring the specific energy consumption in the completed building. A list of expected pur chased energy needs in normal use has been produced for all standard houses in the portfolio. Average energy consumption per kWh/m2 in 2008 as shown in the table above. In 2009, the company will be testing a number of construction changes aimed at reducing energy consumption further. Energy consumption is measured continuously at the production facilities. The Myresjö factory uses district heating fuelled by renewable energy (wood chip pings). 2008 energy consump tion in the production facilities was 272 kWh/m2 in Myresjö, 201 kWh/m2 in Vrigstad and 103 kWh/m2 in Sundsvall. Chemicals used in house pro duction are checked against the Swedish Chemicals Agency PRIO List and registered in the Sunda Hus Miljödata environ mental database. It is the

78 61 70 79

company’s aim to continuously reduce the use of environment harmful substances. Waste from the production facilities and offices are sorted at source. Waste at construction sites is separated at source in accordance with local authority requirements. Waste produced at the production facilities in 2008 was as follows: Myresjöhus 1 241 tonnes (1.5% to landfill), Vrigstad 1 090 tonnes (2.9% to landfill) and Sundsvall 498 tonnes (3.1% to landfill). Targets for 2009 are to reduce landfill waste by 1 per cent for Myre sjöhus, 2.5 per cent for Vrigstad and 3 per cent for Sundsvall. Accounting policies for the parent company Basis of preparation

The annual financial statements for BWG Homes ASA have been prepared in accordance with the Norwegian Public Limited Liability Companies Act, the Norwegian Accounting Act and Norwegian GAAP as at 31 December 2008. Earnings 2008

In 2008, the parent company’s group contributions from sub sidiaries amounted to NOK 32 million. This amount was recogn ised in the income statement. The company has in connection with the impairment of goodwill in the Group written down the value of the shares in BWG Homes AB to book value of the

BWG Homes ANNUAL REPORT 2008

Notes GROUP Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

Swedish business. The amount written down is NOK 112.9 million. After a tax expense of NOK 9 million the income statement for the parent company shows a deficit after tax of NOK -112.4 million. Profit after tax for 2007 was NOK 166 million. Allocation of profit

The Board will propose to the annual general meeting that no dividend be paid to the company’s shareholders for the financial year 2008. In view of the chal lenging market situation and volatile financial markets, the Board finds it necessary to prioritise strengthening the company’s capital ahead of paying a dividend. The Board proposes that the deficit in the parent company in its entirety to be transferred to other equity. Prospects for 2009

The long-term aim of BWG Homes is to create stable good profitability with moderate risk by owning and developing leading house builders. For many years, the Group has created good profit by building on the out skirts of urban centres. In these areas, access to property is gen erally more stable, and costs are lower than in highly populated areas. In the Group’s markets, family houses at affordable

Oslo, 31 March 2009 Board of Directors in BWG Homes ASA

prices have proved less exposed to fluctuations both in price and demand. 2008 was a particularly difficult year for the building industry, with a significant imbalance in the housing market and quite unusual low sales, particularly in the latter part of the year. Although housing market dynamics are low, the early months of 2009 have shown a rising sales trend compared to the 4th quarter 2008. Both the Norwegian and Swedish opera tions have noted a clear increase in the number of potential home buyers at arranged viewings and higher demand for our products. It is the Board’s opinion that if the banks make further interest rate cuts and above all adopt a less restrictive lending policy, this will have a positive effect on sales. On the other hand, rising unemploy ment and expectations of lower growth in the real economy will have a dampening effect on demand for new homes. The Board therefore believes that demand for housing will take longer to stabilise than was origi nally predicted and that the market will continue to be unstable and demanding in 2009. The Board and Group manage ment are monitoring develop ments closely to allow optimal adaption of production capacity and products to the prevailing market situation.

It is the Board’s opinion that the amended loan terms, which ensure the Group’s financing over the next three years, and the share issues in early 2009 give the Group the necessary flexibility and manoeuvrability in what will be a demanding period. A continued strong focus on profitability and stable operation is required. It is the Board’s opinion that, overall, BWG Homes is in a good position to face up to these challenging times. Statement by the Board and CEO

The Board of Directors and CEO have today reviewed and approved the Board of Directors’ report, the consolidated financial statements for BWG Homes ASA and the parent company accounts for the year ending as of 31 December 2008 (Annual report 2008). BWG Homes ASA consolidated financial state ments have been prepared in accordance with IFRS standards and IFRICs as adopted by the EU and additional disclosure requirements in the Norwegian Accounting Act that are applicable as of 31 December 2008. The separate financial state ments for BWG Homes ASA have been prepared in accordance with the Norwegian Accounting Act and Norwegian accounting standards as of 31 December 2008. We confirm that the consolidated and separate annual financial statements for 2008 have been prepared in accordance with applicable accounting standards, and give a true and fair view of the assets, liabilities, financial position and profit (loss) as a whole as of 31 December 2008 for the Group and the parent company. Further we confirm that the Board of Directors’ report for the Group and the parent company presents a true and fair view of the development and performance of the business and the position of the Group and the parent company, including a proper description of the most relevant the risk factors facing the Group and the parent company.

HARALD WALTHER

HEGE BØMARK

Eva Eriksson

PETTER NESLEIN

Chairman of the Board

Deputy chairman

Director of the Board

BRIT HAGELUND

TORE MORTEN RANDEN

Einar Salbu

Lars Nilsen

Employee representative

ChIEF EXECUTIVE OFFICER

Consolidated income statement Group (01.01–31.12) 19 ACCOUNTS GROUP (NOK 1 000) Note

2008

2007

Sales revenue Other income 2 Total income Cost of materials 20 Payroll and personnel expenses 6, 7, 8 Other operating expenses 33 Total operating expenses

3 170 495 1 030 3 171 525

2 572 015 23 2 572 038

-1 906 232 -599 557 -297 650 -2 803 439

-1 465 151 -505 598 -215 913 -2 186 662

368 086

385 376

Income from associates 15 Impairment of goodwill 13 Amortisation of intangible assets 13 Depreciation of property, plant & equipment 13, 14 Operating profit (EBIT) Interest income Other finance income Change in market value of financial instruments 17 Interest expense Other finance expense Net financial items

621 -226 050 0 -22 061 120 596

-2 695 0 -22 589 -15 359 344 733

7 802 24 830 -42 500 -137 562 -5 244 -152 674

8 299 122 -368 -74 429 -4 587 -70 963

-32 078

273 770

-50 204

-72 690

-82 282

201 080

Earnings per share (NOK)

2008

2007

11 11

-1.25 -1.25

3.43 3.43

Operating profit before depreciation/amortisation (EBITDA)

Profit on ordinary activities before tax Tax on profit Profit for the period Earnings per share Diluted earnings per share, weighted

BWG Homes ANNUAL REPORT 2008

Consolidated Balance Sheet Group (per 31.12) 20

(NOK 1 000) Note

2008

2007

13 13 13

501 650 2 021 282 4 473 2 527 405

477 199 2 146 938 5 160 2 629 297

14 14 14

23 692 78 064 7 327 109 083

17 119 73 980 7 216 98 315

15 16 19 19

69 758 1 995 5 321 190 77 264

66 697 1 995 5 321 229 74 243

2 713 752

2 801 855

20, 32 20, 32 20, 32 20, 32

472 393 0 36 548 1 057 587 1 566 528

369 892 4 687 55 214 925 540 1 355 333

Receivables Trade receivables 21, 32 Other receivables 19 Market value of financial assets 17 Total receivables

428 082 26 305 0 454 387

588 803 37 432 6 005 632 240

61 152

82 507

Total current assets

2 082 067

2 070 080

Total assets

4 795 819

4 871 934

Assets Non-current assets Intangible assets

Trademarks Goodwill Other intangible assets Total intangible assets Property, plant & equipment

Land and buildings Machinery and plant Fixtures, fittings and equipment Total property, plant & equipment

Financial assets

Investments in associates Investments in other companies Loans to associates Other receivables Total financial assets Total non-current assets

Current assets Land and buildings under construction

Construction work in progress Assets held for sale Other inventories Land Total land and buildings under construction

Bank deposits, cash & cash equivalents

21 ACCOUNTS GROUP (NOK 1 000) Note

2008

2007

23, 24 24

66 000 1 414 897 1 480 897

Retained earnings Other equity 24 Total retained earnings

59 300 59 300

221 817 221 817

1 540 197

1 702 713

Provisions Pension obligations 7 20 867 Deferred tax 10 201 722 Total provisions 222 589

18 229 226 564 244 792

Equity and liabilities EQUITY Paid-in capital Share capital Share premium reserve Total paid-in capital

Total equity

Liabilities

Other non-current liabilities

18, 25, 32

0 1 309 938 1 309 938

95 000 1 258 995 1 353 995

Current liabilities Liabilities to credit institutions 26, 32 Other current interest-bearing liabilities 27 Trade payables Tax payable 10 Public duties payable 30 Market value of financial instruments 17 Current liabilities – land and projects 20, 29 Other current liabilities 28, 31 Total current liabilities

784 340 40 000 292 108 62 217 41 239 36 495 233 352 233 344 1 723 095

350 362 0 412 408 48 671 46 210 0 424 283 288 501 1 570 435

Total liabilities

3 255 622

3 169 221

Total equity and liabilities

4 795 819

4 871 934

Subordinated loans Liabilities to credit institutions Total other non-current liabilities

Oslo, 31 March 2009 Board of Directors in BWG Homes ASA

HARALD WALTHER

HEGE BØMARK

Eva Eriksson

PETTER NESLEIN

Chairman of the Board

Deputy chairman

Director of the Board

BRIT HAGELUND

TORE MORTEN RANDEN

Einar Salbu

Lars Nilsen

Employee representative

ChIEF EXECUTIVE OFFICER

BWG Homes ANNUAL REPORT 2008

Cash Flow Statement Group (01.01–31.12) 22

Notes GROUP Key figures and Highlights

(NOK 1 000) Note

2008

2007

Cash flow from operating activities

Letter from the CEO

Profit on ordinary activities before tax

-32 078

273 770

Letter from country managers

Adjustment for Gains/losses on sale of non-current assets 14 Depreciation and write downs 14 Goodwill impairment 13 Amortisation of intangible assets Net financial items Income from associates 15 Cash flow from operations before change in working capital Change in inventories Change in trade receivables Change in trade payables Net change in liabilities – land 29 Change in liabilities to employees 6 Change in other accruals 34 Change in working capital Paid interest Paid tax Net cash flow from operating activities

-11 22 061 226 050 0 152 674 -621 368 075 -194 552 167 708 -128 276 -191 389 2 638 -52 560 -396 429 -142 806 -55 065 -226 225

17 15 359 0 22 589 74 026 2 695 388 456 -314 219 -96 993 6 454 74 671 2 826 33 812 95 007 -70 826 -51 863 -27 682

7 802 300 -27 819 -208 0 1 463 -20 462

8 299 0 -18 740 -567 -1 365 720 283 -1 376 445

413 532 0 -56 200 0 -132 000 225 332

-175 392 845 500 -94 205 937 014 -112 500 1 400 417

-21 355

-3 710

82 507

86 216

61 152

82 507

This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

Cash flow from investing activities Interest received Sale of non-current assets 14 Purchase of property, plant & equipment 14 Purchase of intangible assets 13 Purchase of subsidiaries Other investments (net) Net cash flow from investing activities Cash flow from financing activities Increase/decrease (-) current liabilities 31 New long-term liabilities 25 Repayment of long-term liabilities 25 New share capital Dividend paid 24 Net cash flow from financing activities Net change in cash & cash equivalents

Cash & cash equivalents 01.01 Cash & cash equivalents 31.12

Statement of changes in equity Group (01.01–31.12) 23 ACCOUNTS GROUP Consolidated statement of changes in equity (NOK 1 000) Note

2008

2007

1 702 713

714 748

-82 282

201 080

24 24 24

0 10 648 41 118

-22 834 0 -37 627

24 24

-132 000 0

-112 500 959 846

Changes in equity during year

-162 516

987 965

Equity 31.12

1 540 197

1 702 713

Equity 01.01 Profit for the year Recognised in equity

Share issue expenses Equity effect of group contribution from prior years Translation differences

Equity transactions with owners

Dividend Share issue

BWG Homes ANNUAL REPORT 2008

Notes to the consolidated financial statements Group 24 NOTEs GROUP Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

1. General information

BASIS OF PRESENTATION

BWG Homes ASA Group is domiciled in Norway, with its registered office at Munkedamsveien 45 D, Oslo. The group operates in two geographic segments – segment Norway and segment Sweden. The company’s consolidated financial statements for 2008 cover the company and its subsidiaries: Block Watne AS Norpartner Sp. z.o.o Hetlandhus AS BWG Homes AB Myresjöhus AB Myresjö Mark AB SmålandsVillan AB Boligbygg Prosjekt AS Nordiska Trähus AB* Käglinge Bytomt AB*

(Oslo, Norway) (Opole, Poland) (Oslo, Norway) (Vetlanda, Sweden) (Vetlanda, Sweden) (Vetlanda, Sweden) (Vetlanda, Sweden) (Oslo, Norway) (Vetlanda, Sweden) (Vetlanda, Sweden)

* Dormant at present.

The financial statements were authorised for issuance by the Board on 31 March 2009. ESTABLISHMENT OF THE GROUP/COMPARATIVE FIGURES

BWG Homes ASA was established by Lani Invest AS on 20 September 2005. BWG Homes ASA Group was established when the company purchased all the shares in Block Watne AS and Hetlandhus AS on 30 November 2005. The purchase was made from Lani Development AS, a wholly-owned subsidiary of Lani Invest AS. The purchase was an arm’s length transaction between related parties and was made at fair value. The company purchased 100 per cent of the shares in BWG Homes AB on 15 March 2007 and the income statement items for this company were incorporated into the consolidated accounts from this date. The Group took over 100 per cent of the shares in the Swedish group Prevesta AB with effect from 1 June. The group figures for 2007 therefore only contain the results for Prevesta Group for the period from June up to and including December 2007. For comparison purposes, pro forma income statements have been produced for subsidiaries’ operations in 2007 and 2006, with adjustments for parent company items, as if Prevesta Group had been acquired on 1 January 2006. More detailed information can be found in the separate note about this. In addition, the subsidiaries’ annual reports also provide further information on operations in these companies.

2. Accounting policies

The financial statements are presented in NOK (the parent’s functional currency) rounded to the nearest thousand. The statements have been prepared under the historical cost convention with the exception of financial derivatives, which are recognised in the balance sheet at their fair value. Preparing financial statements under IFRS requires management to make use of estimates and assumptions which affect the application of the accounting principles and the reported amounts of assets and liabilities, revenues and expenses. Estimates and associated assumptions are based on historical experience and other factors regarded as reasonable in the circumstances. These calculations form the basis for measuring the carrying amount of assets and liabilities which do not find clear expression from other sources. The actual result can differ from these estimates. Estimates and their underlying assumptions are measured regularly. Changes in accounting estimates are recognised in the period when the changes arise providing they apply only to that period. Should the changes also apply to future periods, the effect will be distributed over the present and future periods. The annual financial statements are based on adopted and effective IFRS standards. The company has assessed standards which have been adopted but have not yet become effective. More information on these standards can be found under “New standards and interpretations not yet adopted”. The accounting policies specified below have been applied consistently for all the periods presented in the consolidated accounts. These accounting policies have been applied consistently by all the companies in the Group. Comparative figures are restated where necessary, in order to obtain uniform presentation and allow comparison with the figures for the year. BASIS OF CONSOLIDATION Consolidation

The consolidated financial statements show the Group’s financial position, earnings and cash flows for its total operations as one entity.

STATEMENT OF COMPLIANCE WITH IFRS

The consolidated financial statements have been presented in accordance with International Financial Reporting Standards (IFRS), as endorsed by the EU, and interpretations of the International Accounting Standards Board (IASB), and also Norwegian requirements under the Norwegian Accounting Act as at 31 December 2008.

Subsidiaries

Subsidiaries are companies over which BWG Homes ASA has control. Control exists when the company has a controlling influence, directly or indirectly, on an entity’s financial and operational management, and thereby benefits from its operations. Such control is normally achieved

by ownership of 50 per cent or more. Financial statements for subsidiaries are consolidated from the time when control transfers to the Group, and de-consolidated when control ceases.

SHARE CAPITAL

Associates

NON-CURRENT ASSETS

Associates are entities where the Group exercises significant influence, but not control, over financial and operational management. Such controlling influence is normally achieved by ownership of 20–50 per cent.

Non-current assets are carried at their cost less accumulated depreciation and any impairment losses.

The consolidated accounts include the Group’s share of the associated company’s profit or loss in accordance with the equity method from the time when significant influence is established and until such influence ceases. The Group’s share of the profit and loss of associates is reported under Income from associates in the income statement. Insignificant holdings in associates are recognised in accordance with the historical cost method. When the Group’s share of losses exceeds its investment in an associate, the carrying amount of its investment is reduced to zero. Further losses are not recognised unless the Group has undertaken legal or constructive obligations or has made payments on behalf of an associated company. Elimination of transactions on consolidation

Intra-group transactions and balances, including internal earnings and unrealised profits/losses, are eliminated.

Ordinary shares are classified as equity. Expenses which are directly attributable to the issue of ordinary shares are recognised as a net reduction in equity (share premium reserve) after tax.

Gains or losses on the sale of assets are defined as the difference between the sales total and the carrying amount of the unit and are recognised (net) as other income. The Group has a large stock of property which includes land, finished houses and projects in progress which are classified as current assets in the balance sheet. Depreciation

Depreciation is calculated on a straight-line basis over the estimated life of items of property, plant & equipment and recognised in the income statement. Land is not subject to depreciation. Estimated useful lives are: • Buildings 20–50 years • Plant and equipment 5–7 years • Equipment, fixtures & fittings 3–7 years

Translation of foreign companies

Assets and liabilities of foreign companies are translated to NOK at the exchange date prevailing on the balance sheet date. Income and expense in foreign companies is translated to NOK using the average rate. Exchange differences are recognised directly in equity. NON-DERIVATIVE FINANCIAL INSTRUMENTS

Non-derivative financial instruments consist of investments in debt and equity instruments, trade and other receivables, cash & cash equivalents, loans and trade and other payables. Cash and bank deposits, including deposits under special conditions, are classified as cash & cash equivalents. FINANCIAL DERIVATIVES

The Group has entered into forward rate agreements. These financial derivatives are recognised initially at cost. In subsequent periods, they are measured at fair value. Changes in fair value are recognised immediately in profit or loss. The fair value of interest swap agreements is the estimated amount the Group will receive or be required to pay in order to settle the agreement on the balance sheet date, after taking into consideration current interest rates and the creditworthiness of the counterparty.

1. General information

2. Accounting policies

3. Estimates

4. Group structure

5. Segments

6. Payroll costs and

employee benefits

7. Pensions and retirement benefit

29 29

8. Remuneration of management

and board

9. Fee to auditors

10. Tax

11. Earnings per share

12. Related party transactions

13. Intangible assets

14. Non-current assets

The Group does not have any finance leases. The Group has operating leases for offices, warehouses and production premises. The leases have variable terms, although most remaining lease terms are between 3 and 8 years, with a renewal option. The leases are not based on variable rent conditions. The Group also has operating leases relating to cars and fixtures & fittings. These expire during the period 2008–2010.

15. Investments in associates

16. Other shares

17. Financial instruments

INTANGIBLE ASSETS Goodwill

21. Trade receivables

LEASES

Foreign currency transactions

Foreign currency transactions are translated at the exchange rate prevailing on the transaction date. Assets and liabilities in foreign currencies are translated to Norwegian kroner at the exchange rate prevailing on the balance sheet date. Exchange differences arising from the translation are recognised in profit or loss.

25 NOTEs GROUP

All business combinations are accounted for by applying the acqui sition method. Goodwill arising on an acquisition is the difference between the cost on the acquisition date and the fair value of the net identified assets acquired. Goodwill is recognised in the balance sheet as acquisition cost less any accumulated impairment. Goodwill is allocated to cashgenerating units, and is not amortised but tested annually for impairment. Trademarks

When subsidiaries are acquired, values of trademarks are identified. Trademarks are stated at cost less any accumulated impairment losses. Trademarks are not amortised, but are tested annually for impairment. IMPAIRMENT TESTING

The carrying amounts of the Group’s intangible assets are regularly reviewed in order to determine whether there is any indication of impairment. If such an indication exists, an estimation is made of the asset’s recoverable amount. Recoverable amounts of goodwill and assets with an indefinite useful life are estimated annually on the balance sheet date, regardless of whether there is any indication of impairment. This is done for each cash-generating unit (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). An impairment loss is recognised when the carrying amount of an asset or a cash-generating unit exceeds the recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit, and then to reduce the carrying amount of the other assets on a pro rata basis.

18. Financial risk and

capital management

19. Financial assets

36 38

20. Land and projects

under construction

38 38

22. Cash & cash equivalents

23. Number of shares, shareholders

24. Equity

25. Non-current liabilities

to financial institutions

26. Current liabilities to

financial institutions

27. Other current interest

bearing liabilities

28. Product warrenty provisions

41 41

29. Land obligations

30. Public duties payable

31. Other current liabilities

32. Pledged assets and

guarantee commitments

33. Leases

34. Cash flow statement

35. Events after the

balance sheet date

36. Pro forma income statement 2007

43 44

BWG Homes ANNUAL REPORT 2008

Calculation of recoverable amount

26 NOTEs GROUP Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

The recoverable amount is the higher of net selling price and value in use. The latter is calculated by discounting estimated future cash flows to their present value, using the discount rate before tax which reflects the market’s pricing of the value of money over time and the risk associated with a specific asset. For assets which do not primarily generate independent cash flows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Goodwill impairment is not reversed. CONSTRUCTION WORK IN PROGRESS

Construction work in progress includes land costs and infrastructure for projects where sales have begun and production is underway. It also includes the buildings produced. Construction work in progress includes cost of acquisition and profit earned at the balance sheet date, less a provision for bad debts and advance payments. Cost of acquisition includes expenditure directly related to specific projects and a share of fixed and variable indirect costs incurred in the company’s contractual activities based on normal capacity utilisation. OTHER INVENTORIES

Other inventories include mainly materials. Inventories are measured at the lower of cost and net realisable value. Cost of acquisition of inventories is based on the first-in, first-out principle and includes expenditure and costs relating to the acquisition, production, processing and bringing the materials and goods to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. LAND AND LAND OBLIGATIONS

Land and associated obligations are classified as current items, as land is a component of the Group’s production/operating cycle. Binding agreements for the purchase of land are reported as land under current assets and as land obligations under current liabilities.

prior years. The Swedish tax rate was reduced from 28 per cent to 26.3 per cent during the year. Deferred tax is normally recognised for all accounting and taxable temporary differences for assets and liabilities. Deferred tax is recognised at nominal value and is designated as a noncurrent liability in the balance sheet. No account is taken of goodwill which is not tax-deductible. The provision for deferred tax is based on expectations on the realisation or settlement of assets and liabilities in the balance sheet, and is calculated using tax rates that have been enacted by the balance sheet date. FINANCE INCOME AND COSTS

Finance income consists of interest income on financial investments and dividend received. Interest income is recognised as interest accrues. The dividend is recognised when it has been adopted by the annual general meeting of shareholders of the company paying the dividend. Finance costs consist of interest on loans, other fees and changes in the fair value of financial derivatives and are recognised as incurred. Exchange gains and losses are recognised in profit or loss as they arise and are classified as financial items. Fees paid in advance for guarantees on construction contracts are also recognised as finance costs. EARNINGS PER SHARE

Land includes the carrying amounts of land at full cost, and the construction of infrastructure at large construction sites. As soon as a sale has been decided and work commenced at a sub-divided site, the land cost and infrastructure for that site is moved to construction work in progress. Land is recognised in the balance sheet at the lower of acquisition cost and net realisable value. Net realisable value is the estimated sales price in ordinary operation less estimated costs for completion and sales. TRADE RECEIVABLES

Trade and other receivables are recognised at cost less bad debts. A provision for losses on trade receivables is recognised when there is objective evidence that the group will not be able to recover outstanding amounts. Indications of losses include major financial problems on the part of the debtor, the likelihood of the debtor being declared bankrupt and reduced payments from the debtor.

Earnings per share is calculated by dividing the profit attributable to ordinary shares by the weighted average number of outstanding ordinary shares in the period. The Group has not had any potential shares, and diluted earnings per share is the same as earnings per share. EMPLOYEE BENEFITS Termination payment agreements

Key management personnel have agreements which under certain conditions give entitlement to up to one annual salary after the normal 6-month period of notice. See note 8. Mandatory occupational pension

OPERATING REVENUES

Income is recognised as it is earned. The Group’s activities consist of house construc tion, both under its own control and for other parties. As soon as the outcome of a construction contract can be estimated reliably, revenue is recognised in proportion to the stage of completion of the contract. For identified onerous contracts, a provision is made for the entire expected loss. Operating income is less VAT and any discounts. Only sold contracts are recognised. The stage of completion corresponds to contract costs incurred for work performed to date as a percentage of the estimated total costs. Degree of sale is defined as the number sold as a percentage of total expected sales. Recognised revenue is the estimated total revenue x degree of sale x stage of completion. The reported outcome is estimated final outcome x degree of sale x stage of completion. INCOME TAX

Income tax on the result for the period comprises tax for the period and deferred tax. Income tax is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Tax for the period comprises the expected tax payable on profit for the period based on tax rates that have been enacted, and any corrections to tax payable in

The parent company and its Norwegian subsidiaries are legally obliged to have a mandatory occupational pension scheme. This satisfies the requirements of the Norwegian mandatory occupational pension act. Pension plans

The Group has defined-benefit and definedcontribution pension plans, in addition to its contractual early retirement plans and unfunded arrangements. Defined-contribution pension plans

A defined-contribution pension plan is a plan whereby fixed contributions are paid to a fund or a pension fund and for which the company does not have a legal or constructive obligation to make further contributions. Compulsory contributions are recognised as personnel costs as they arise. Prepayments are recognised as an asset to the extent that the funds paid can be paid back or future payments to the plan can be reduced.

Defined-benefit pension plans

A defined-benefit plan is a plan which is not based on contributions. The net obligation relating to defined benefit pension plans is calculated sep arately for each plan by estimating the size of future benefits earned by employees through their service in the present and previous periods. These future benefits are discounted in order to calculate their present value, and the fair value of pension fund assets is deducted in order to establish the net obligation. The discount rate is based on the interest on 10-year Norwegian government bonds, adjusted to reflect the duration of the pension obligations. These calculations are made by a qualified actuary, and based on a straight-line pension-earning model. When benefits in a plan are improved, the share of the improvement in benefits earned by the employee is recognised as an expense in the income statement. All actuarial gains and losses are recognised immediately in profit or loss. Other pension plans

Obligations in respect of early retirement pension (AFP) and an unfunded obligation are recognised in the balance sheet/income statement.

Segment information includes interest income, costs, assets and liabilities directly associated with the segment, and other elements which can be reasonably allocated. Elements which cannot be allocated consist mainly of investments and associated operating income, loans and associated costs, common assets and costs related to the head office and tax assets and liabilities. NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

IFRIC Interpretation 15 Agreements for the Construction of Real Estate was published in July 2008, but has not yet been adopted by the EU. The interpretation discusses principles for recognition of revenue on contracts. The interpretation will influence the timing of recognition of income and profit in the accounts also in the accounts of BWG Homes. The practical consequences will be delayed recognition of income and profit for a substantial part of the contracts entered into by the Group, so that all income and profit on a contract is recognised when delivery of house takes place. No specific date is known with respect to adoption by the EU, but it is anticipated that the interpretation will be applicable for accounts starting in 2010. The company awaits final adoption by the EU before changes are made in the reporting. Implementation of the interpretation will imply reworking of comparable figures for previous years in line with requirements in IAS 8. The new standard IAS 23, that is in effect from 1 January 2009, requires capitalisation of interest costs that are directly linked to acquisition, production and development of qualifying assets. It is not any longer an option to expense the interest in the income statement continuously. For BWG Homes the consequence of this will be capitalisation of the part of the interest expenses that are caused by financing of projects and land. These interest expenses will in the following be reported as costs of the projects. The implementation of IAS 23 is required from 2009, but will not have any effect on historical figures.

Provisions

A restructuring provision is recognised when the Group has approved a detailed and formal restructuring plan and the restructuring has either started or has been publicly announced. Onerous contracts

A provision for onerous contracts is recognised when the unavoidable costs of meeting the obligations under a contract exceed the economic benefits expected to be received under it. TRADE PAYABLES AND OTHER CURRENT LIABILITIES

Trade payables and other liabilities are recognised at cost. Interest-bearing loans and borrowings are recognised initially at fair value. Borrowing costs are recognised as an expense. Interest-bearing liabilities are subsequently assessed at amortised cost. Any difference between cost and redemption value is recognised over the period of the loan. SEGMENT REPORTING

A business segment is a distinguishable component of the Group that is engaged in providing products or services, and that is subject to risks and returns that are different from those of other segments. A geographical segment is a distinguishable component of the Group that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of other segments. The accounting policies used to prepare the segment figures are the same as those applied when preparing the consolidated financial statements. Segment information is presented for geographical segments and is based on the Group’s management and internal reporting. Inter-segment sales are conducted under standard market conditions.

IFRS 8 Segments introduces a principle requiring management reporting being the basis for segment reporting. IFRS 8 is mandatory for the accounts for 2009. In current reporting from BWG Homes the segment information is presented for geographical segments/business segments. The introduction of IFRS 8 will not lead to changes in the structure of the segments of BWG Homes, but IFRS 8 might lead to changes in the information presented for each segment.

3. Estimates Many accounting principles require management to use accounting estimates and assumptions for important items in the income statement and balance sheet. There follows a description of the important items in BWG Homes ASA for which accounting estimates and assumptions have been used, and which may therefore have a material effect on the financial statements of BWG Homes ASA if these assumptions change considerably. Income and projects (construction work in progress)

Income is recognised as it is earned. The Group’s activities consist of house construction, both under its own control and for other parties. As soon as the outcome of a con struction contract can be estimated reliably, revenue is recognised in proportion to the stage of completion of the contract. For identified onerous contracts, a provision is made for the entire expected loss. Projects in progress (construction work in progress) is a counter-item in the consolidated balance sheet. Material changes in assumptions relating to the stage of completion or contribution margin may have an effect on the consolidated financial statements. Pension costs and retirement benefit obligation

The Group has defined-benefit and defined-contribution pension plans in addition to its contractual early retirement plans and unfunded arrangements. Measurement of pension costs and obligations requires the use of estimates and assumptions, such as salary increases and discount rates. Material changes in estimates and assumptions may affect the pension costs and obligations in the financial statements of BWG Homes ASA. Intangible assets and impairment

When the Group makes an acquisition, it is required to measure the fair values of assets, liabilities and intangible assets at the date of acquisition. Any additional value (residual) is recognised as goodwill. Values associated with trademarks were identified when the Norwegian and Swedish subsidiaries were acquired. These values are identified using different valuation methods based on different assumptions. These assumptions may include projected cash flows, required rate of return and so on.

27 NOTEs GROUP

BWG Homes ANNUAL REPORT 2008

IAS 36 Impairment of Assets requires goodwill and intangible assets to undergo impairment testing at least once a year. Goodwill impairment testing requires the fair value of cash-generating units to be estimated and compared with the carrying amount. If the carrying amount exceeds the fair value, an impairment loss is recognised. This type of testing requires estimates and assumptions about uncertain factors such as future cash flows, required rates of return and macro-conditions (interest, unemployment, inflation etc). Any significant change to these assumptions may have a material effect on the consolidated financial statements. Finance costs and value of financial agreements

28 NOTEs GROUP Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

The Group has entered into forward rate agreements in order to reduce the risk associated with interest costs relating to its interestbearing liabilities. Changes in the market value of forward rate agreements are recognised in profit or loss. The market value is based on the net present value of the company’s future floating interest less fixed interest. Changes in the estimates of future interest rates will therefore have a material effect on the Group’s finance costs. Tax in the income statement and balance sheet

BWG Homes ASA reports income tax on the basis of reported figures from the Group’s subsidiaries. Deferred tax is calculated, in accordance with applicable tax rules, on the basis of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the balance sheet. Calculation of tax expense for the period and its categorisation as tax payable or deferred tax for the period requires use of judgement by management with regard to the sometimes complex tax rules in Norway and Sweden.

4. Group structure The Group consists of the following units: Parent

Company reg. no. Address

BWG Homes ASA 988 737 798 Subsidiaries

Oslo, Norway

Registered Number Company reg. no. Address Shares Holding

Block Watne AS 986 757 954 Norpartner Sp.z.o.o. - - - Hetlandhus AS 986 157 913 BWG Homes AB 556723-6087 Myresjöhus AB 556031-7702 Myresjö Mark AB 556070-7464 SmålandsVillan AB 556210-9651 Boligbygg Prosjekt AS* 993 469 696 Nordiska Trähus AB* 556120-9189 Käglinge Bytomt* 556735-3114 * Dormant at present.

Oslo, Norway Opole, Poland Oslo, Norway Vetlanda, Sweden Vetlanda, Sweden Vetlanda, Sweden Vetlanda, Sweden Oslo, Norway Vetlanda, Sweden Vetlanda, Sweden

4 000 000 3 676 100 1 100 000 300 000 10 000 2 500 1 000 20 000 1 000

100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

Equity 31.12.08

430 480 1 158 133 666 802 152 414 3 458 19 320 115 2 205 90

5. Segments The Group has identified the following business segments, which are identical to geographical segments: Segment Norway

House production in Norway under the Block Watne trademark. Operations consist mainly of development, sale and expansion of housing projects in Norway. House production follows the traditional method on-site construction. Segment Sweden

House production in Sweden under the Myresjöhus and SmålandsVillan trademarks. Operations consist mainly of development and factory construction of house models for the Swedish market and some development, sale and expansion of housing projects in Sweden. As the segment was acquired with effect from 31 May 2007, the results only apply to the period June to December 2007. There were no material inter-segment sales or other transactions in 2008. The Group is organised in such a way that each segment has its own management who report to Group management. The Group’s legal organisation also follows the same structure. Consumers represent the main customers group for both segments. The segments’ production processes are different, as are the distribution channels. (NOK 1 000)

Segment Norway 2008

Segment Sweden

Other/eliminations

2007

2008

External operating income Internal operating income Operating profit before depreciation/amortisation (EBITDA) Depreciation Goodwill impairment Income from associates

1 459 376 1 640 860 1 713 072 0 0 0

931 160 0

-923 0

97 907 -7 891 0 -2 591

-18 762 -169 0 0

-14 130 368 086 -43 -22 061 0 -226 050 0 621

Assets Carrying amount, associates Liabilities Investments during period

2 598 229 2 526 730 2 257 052 2 374 975 3 681 3 629 66 077 63 068 -1 852 179 -1 738 787 -1 740 240 -1 602 100 9 617 12 553 19 963 5 788

-59 462 0 336 802 435

-29 771 4 795 819 4 871 934 0 69 758 66 697 171 666 -3 255 617 -3 169 221 965 30 015 19 306

301 599 158 131 -7 425 -13 443 0 -226 050 -104 -776

2007

Consolidated

2008

228 717 -8 449 0 1 397

2007

2008

2007

18 3 171 525 2 572 038 0 0 0 385 376 -15 359 0 -2 695

6. Payroll costs and employee benefits Costs recognised as payroll costs (NOK 1 000)

2008

2007

Salaries and holiday pay 457 694 Social security tax 99 449 Pension costs 18 152 Other payroll costs 24 281 Total 599 577 Number of employees Average number of full-time equivalents 1 079 Number of employees at end of year 965

387 025 72 019 16 723 29 832 505 598 1 303 1 363

7. Pensions and retirement benefit obligation The Group has established pension plans for employees in Norway and Sweden. At the end of the year, collective pension plans covered 967 members (1 303 at 31.12.07), 140 (124) of whom were retired. At the end of the financial year, 16 (11) employees had taken out AFP pensions, while 2 (1) persons had been paid pension directly from the company. Block Watne has an established collective pension plan which is a defined contribution plan covering all employees. There is also a contractual early retirement pension agreement (AFP). In the Swedish company BWG Homes AB (and subsidiaries), there are different pension plans which are financed via payments to pension institutions or managed funds. These include defined contribution and defined benefit plans. The parent company has a collective pension plan which is a defined benefit plan covering all employees. The carrying amount of the retirement benefit obligation in the balance sheet is as follows: (NOK 1 000)

Retirement benefit obligation, Block Watne Retirement benefit obligation, parent company Total retirement benefit obligation

2008

2007

19 869 999 20 868

17 267 962 18 229

More information about pension plans in Norway

In the Norwegian pension plans (AFP in Block Watne and defined benefit in parent), the calculation of the retirement benefit obligation is based on the following assumptions: Assumptions used to calculate pension costs

Discount rate Salary adjustment Pension adjustment NI base rate Turnover AFP - withdrawal propensity 65–67 years Expected return

2008

2007

4.30% 4.50% 2.80% 4.25% 12.50% 75.00% 6.30%

4.70% 4.50% 2.75% 4.25% 12.50% 75.00% 5.75%

The main elements of the calculated retirement benefit obligation associated with the contractual early retirement pension agreement (AFP) in Block Watne AS are shown below. 503 persons are members of Block Watne’s pension plans. (Nok 1 000) AFP

Estimated present value of retirement benefit obligation at 31.12 -13 607 - Estimated plan assets at 31.12 0 Net retirement benefit obligation at 31.12 -13 608 Employer’s contribution -1 919 Net obligation recognised in balance sheet 31.12 -15 527

Unfunded

2008 Total AFP

29 NOTEs GROUP

2007

Unfunded

TOTAL

-3 805 0 -3 805 -538

-17 412 0 -17 412 -2 457

-12 787 0 -12 787 -1 803

-2 346 0 -2 346 -331

-15 133 0 -15 133 -2 134

-4 343

-19 869

-14 590

-2 677

-17 267

The main elements of the calculated retirement benefit obligation in the parent company are listed in the parent company’s note 2. The pension plan covers 5 employees. More information about pension plans in Sweden

In the Swedish company BWG Homes AB (and subsidiaries), there are different pension plans which are financed via payments to pension institutions or managed funds. The companies have both defined-contribution and defined-benefit plans. The pension plans in Sweden cover a total of 457 persons. Defined contribution plans are recognised as an expense as incurred. The defined benefit plans are insured with Alecta. According to the statement issued by the Emerging Issues Task Force of the Norwegian Accounting Advisory Council (URA 42), this is categorised as a defined-benefit plan. However, the company does not have access to the necessary information to present this plan as a defined benefit plan. This is because Alecta has been unable to give an overview of the necessary information in time. The pension plan is therefore presented as a defined contribution plan.

BWG Homes ANNUAL REPORT 2008

8. Remuneration of management and board The Group paid NOK 963 000 (2007: NOK 906 000) in board fees in 2008. See below. The following remuneration was paid to management and board in 2008:

30 NOTEs GROUP Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

(NOK 1 000) Other Pension Board Name Position Salary Bonus benefits premium fees Loans

Other FEES

Management

Lars Nilsen Arnt Eriksen Ole Feet Mikael Olsson Jonas Karlsson Ketil Kvalvik Elisabet Landsend Board Harald Walther Hege Bømark Petter Neslein Eva Eriksson Brit Hagelund Tore M. Randen Øyvind Wiik Einar Salbu Torunn Thiemer

CEO, BWG Homes ASA CFO, BWG Homes ASA CEO, Block Watne AS CEO, BWG Homes AB CFO, BWG Homes AB CFO, BWG Homes ASA Director Corp. Communications

1 822 301 1 581 1 360 870 543 1 008

0 0 1 483 154 67 193 165

56 24 135 106 96 101 133

127 22 21 323 274 194 140

0 0 0 0 0 0 0

0 0 1) 0 0 0 0 2) 0

Chairman Deputy Chairman Board member Board member Employee representative Employee representative Employee representative Employee representative Employee representative, deputy

0 0 0 0 591 384 538 528 722

0 0 0 0 110 0 0 0 86

0 0 0 0 9 7 35 4 15

0 0 0 0 0 0 0 0 0

270 210 180 60 80 80 80 0 3

0 0 0 0 0 0 0 0 0

261 3)4) 0 3) 0 3) 0 3) 0 3)5) 0 3)5) 0 3)5) 0 3)5) 0 3)5)

Comments 1) Arnt Eriksen took up his position on 6 October 2008 2) Ketil Kvalvik left his position on 31 October 2008 3) Board fees apply to BWG Homes ASA and Block Watne AS 4) Other fees are invoiced from the individual business areas. These fees have been approved by the board. 5) Employee representatives on the board, including deputies, are employees of Block Watne AS.

Salary includes holiday pay. Bonus paid refers to the bonus earned in 2007, which was paid in 2008. The bonus earned in 2008, which will be paid in 2009, is considerably lower than the previous year. Other benefits include taxable benefits, such as company car, car allowance, accident insurance, telephone etc. Members of the management group have bonus agreements, based on performance and other individual criteria. The bonuses are limited to a certain number of monthly salaries. The maximum number of monthly salaries that can be paid as a bonus is 12. The management group has agreements allowing early-retirement benefits up to 12 months beyond the standard 6-month period of notice. There are no other agreements for the management group or board with regard to special compensation on termination of employment or change of position. The CEO of Block Watne AS has a bonus agreement for 2008. The Group is not under any obligation to grant the management group, board or other employees profit-sharing, options or similar benefits. For comparative purposes, remuneration of management and board in 2007 is shown below: (NOK 1 000) Other Pension Board Other Name Position Salary Bonus benefits premium fees Loans fees Management

Lars Nilsen Ketil Kvalvik Ole Feet Mikael Olsson Jonas Karlsson Board Harald Walther Hege Bømark Petter Neslein Brit Hagelund Tore M. Randen Einar Hauge Bjørn S. Ask John Brattebø Øyvind Wiik

CEO, BWG Homes ASA CFO, BWG Homes ASA CEO, Block Watne AS CEO, Prevesta AB CFO, Prevesta AB

1 735 599 1 499 741 478

0 88 800 0 0

73 120 138 48 48

Chairman Deputy Chairman Board member Employee representative Employee representative Employee representative Employee representative, deputy Employee representative, deputy Employee representative

0 0 0 562 387 446 393 441 504

0 0 0 120 0 0 45 0 104

0 0 0 7 5 2 27 22 27

66 0 0 115 0 0 0 0 0 218 140 0 0 0 14 10 11 10 11 13

270 210 180 80 80 40 3 3 40

0 0 0 0 0 0 0 0 0

0 0 0 1) 1)

524 2)3) 0 2) 0 2) 0 2)4) 0 2)4) 0 2)4) 0 2)4) 0 2)4) 0 2)4)

Comments 1) Applies to period 1 June 2007-31 December 2007 2) Board fees apply to BWG Homes ASA and Block Watne AS 3) Other fees are invoiced from the individual business areas. These fees have been approved by the board. 4) Employee representatives on the board, including deputies, are employees of Block Watne AS.

Shares owned by management and board at 31 December 2008: management

Lars Nilsen Arnt Eriksen Elisabet Landsend Ole Feet Mikael Olsson Jonas Karlson

CEO, BWG Homes ASA CFO, BWG Homes ASA Director Corp. Communications, BWG Homes ASA CEO, Block Watne AS CEO, BWG Homes AB CFO, BWG Homes AB

23 958 000 * 38 000 10 400 15 400 116 279 93 023

NOTEs GROUP

Board

Harald Walther Hege Bømark Eva Eriksson Petter Neslein Brit Hagelund Tore Morten Randen Øyvind Wiik

Chairman 201 000 * Deputy chairman 0 Board member 0 Board member 110 000 * Employee representative 400 Employee representative 200 Employee representative 400 * Including shares owned by related parties and/or companies

9. Fee to auditors The following auditors’ fees EXCL. VAT were paid (NOk 1 000)

Standard auditing Tax advice Other Total

2008

2007

1 635 43 215 1 893

893 51 681 1 626

10. Tax Tax expense recognised in income statement (NOK 1 000)

Tax on profit for the year Change in deferred tax Total tax expense recognised in income statement Effective tax rate reconciliation (NOK 1 000)

2007

74 937 -24 733 50 204

60 148 12 542 72 690

2008

Profit before tax Tax (income) based on nominal tax rate in Norway 28.0% Effect of GW write-down (not taxable deduction) 197.3% Effect of non-deductible expenses 0.1% Effect of unutilised tax losses -11.8% Effect of tax-free revenue -16.0% Changed tax rate in Sweden 26.3% Other adjustments 8.0% Total 156.5% Tax recognised in equity (NOK 1 000)

2008

2007

-32 078 8 982 28.0% -63 294 0.0% -24 0.1% 3 780 -1.5% 5 138 0.0% -2 232 -2 553 0.0% -50 204 26.6%

273 770 76 656 178 -4 120 7 -31 72 690

2008

2007

Tax effect of share issue expenses 0

6 394

BWG Homes ANNUAL REPORT 2008

32 NOTEs GROUP Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

Basis of deferred tax in balance sheet (temporary differences) (NOK 1 000)

2008

2007

Project reserve Trade receivables Profit and loss account Net pension obligation Inventories Non-current assets Other provisions Financial assets measured at market value Loss carryforwards Trademarks Added value, financial assets Added value, land Basis of deferred tax

242 128 568 -176 -20 867 7 961 24 299 -38 605 -36 495 0 501 650 27 351 33 242 741 057

294 962 509 -220 -18 229 7 652 17 813 -45 565 6 005 -12 498 477 199 25 576 55 953 809 157

51 257 150 574 201 831

78 431 148 133 226 564

56 373 5 844 62 217

47 665 1 006 48 671

Deferred tax asset in balance sheet (NOK 1 000)

Norway Sweden Total Tax payable in balance sheet (NOK 1 000)

Norway Sweden Total Tax Rates

Nominal tax rate in Norway is 28 per cent. The Swedish tax rate was changed from 28 per cent to 26.3 per cent during the financial year. The effect of this reduction in the Group’s tax liabilities (approximately NOK 9 million) was recognised as income in the 4th quarter.

11. Earnings per share Calculation of EPS (NOK 1 000)

Profit for the period Weighted average number of ordinary shares (in 1 000 shares) Ordinary shares outstanding at 01.01 Effect of shares issued Weighted average number of shares at 31.12

2008

2007

-82 282

201 080

66 000 0 66 000

43 959 14 660 58 616

-1.25

3.43

0 -1.25

0 3.43

Earnings per share (NOK) Diluted earnings per share

Number of potential shares Diluted earnings per share (NOK)

12. Related party transactions Related parties are companies in which the CEO Lars Nilsen is majority owner through his investment companies. This applies to Lani Development AS and Waterguard International AS. Lani Development AS has issued two subordinated loans totalling NOK 95 million to Block Watne AS. The loans have been converted to standard loans, with NOK 55 million repaid during 2008. The balance at 31 December 2008 was NOK 40 million. Interest paid in 2008 was NOK 8.13 million (2007: NOK 4.816 million). The outstanding loan was paid of in its entirety in February 2009. Waterguard International AS sells water leakage systems to subsidiary Block Watne AS. These are sold through wholesalers and are conducted at market prices. Waterguard Intlernational AS leases premises and purchases certain administrative services from Block Watne AS. In 2008 these amounted to NOK 26 000 (2007: NOK 115 000). The chairman of the board invoiced lawyer services of NOK 261 000 in 2008 (2007: NOK 524 000). See also note 8.

13. Intangible assets Goodwill and value of trademarks arose from the parent company’s acquisition of all the shares in Block Watne AS and Hetlandhus AS in 2005 and Prevesta in 2007. Goodwill and the value of trademarks are not amortised; instead, they are tested annually for impairment. If there is any indication of impairment, the recoverable amount is calculated, and if this is lower than the carrying amount, an impairment loss is recognised. The Group’s Norwegian trademarks Block Watne and Hetlandhus have existed for 80 and 15 years respectively. The Swedish company’s Myresjöhus trademark has existed for more than 80 years, while SmålandsVillan has existed for more than 10 years. Operations will continue to be conducted under these trademarks. The Group’s trademarks have generated strong cash flows over a long period of time. (NOK 1 000)

Goodwill

Trademarks

Other intang. assets 2008

2007

At 01.01

Cost of acquisition 2 146 938 477 199 5 605 2 629 742 Accumulated amortisation 0 0 445 445 Carrying amount at 01.01 2 146 938 477 199 5 160 2 629 297 Translation differences 100 394 24 451 -895 123 950 Purchases during year* 0 0 208 208 Other additions 0 0 0 0 Disposals during year 0 0 0 0 Depreciation during year 0 0 0 0 Impairment during year 226 050 0 0 226 050 Carrying amount at 31.12 2 021 282 501 650 4 473 2 527 405 At 31.12 Cost of acquisition 2 146 938 477 199 5 813 2 629 950 Accumulated amortisation 0 0 445 445 Accumulated impairment 226 050 0 0 226 050 Translation differences 100 394 24 451 -895 123 950 Carrying amount at 31.12 2 021 282 501 650 4 473 2 527 405 * Additions from purchase of subsidiaries (NOK 1 000)

Historical cost, intangible assets Historical accumulated amortisation, intangible assets Carrying amount of purchased intangible assets Goodwill and trademarks arising on acquisition Net additions

826 349 253 826 096 0 1 802 844 567 18 0 192 2 629 297 2 629 742 445 0 0 2 629 297

2008

2007

0 0 0 0 0

386 300 391 385 910 1 416 934 1 802 844

Other intangible assets are amortised over 3–5 years. Goodwill impairment testing for cash-generating units. The following units have substantial trademark and goodwill values: (NOK 1 000)

Block Watne AS BWG Homes AB Total

Goodwill

Trademarks

2008

2007

2008

2007

700 882 1 320 400 2 021 282

700 882 1 446 056 2 146 938

125 000 376 650 501 650

125 000 352 199 477 199

Impairment testing

The Group has defined two cash-generating units – segment Norway and segment Sweden. Impairment testing is conducted on the basis that the cash-generating units fulfil the going concern requirement. Based on this the Group has performed an impairment test of assets focusing on goodwill and other intangible assets in line with IAS 36. The impairment test is particularly relevant for goodwill related to the Swedish operations. The Swedish operations produce houses using two brands, SmålandsVillan and Myresjöhus. For the impairment test the combined operations have been considered as one cashgenerating unit. This because the activities are managed in one structure and the cash flow generated is not possible to split between the two brands. In internal reporting the combined Swedish operations are reported jointly and Group management monitor the operations in total. Key assumptions used in the analysis are sales/turnover, margins and the discount rate. We have based future estimates of sales and margins on a combination of market predictions, estimated macroeconomic conditions and past figures for the Swedish operation. The analysis is therefore based on both external and internal information. The discount rate is defined in accordance with the capital asset pricing model and WACC, and has been calculated at 11 per cent. The discount rate has been calculated by external experts. Future cash flow has been set at 2.5 per cent after 5 years. The basis for measurement was a calculation of discounted cash flows (value in use) based on projected cash flows for the next 5 years and the terminal value.

33 NOTEs GROUP

BWG Homes ANNUAL REPORT 2008

In view of the high level of uncertainty in the financial markets and the consequences of this on the real economy in Sweden, the Board has decided to make a downward revision of estimates of future turnover and earnings. Consequently, at the end of 2008, the Board decided to write down the value of goodwill in the Swedish operations by NOK 226 million. Sensitivity analysis

A 1 per cent increase in the discount rate would require a further goodwill write-down of SEK 237 million. A 10 per cent reduction in future cash flows would involve a further impairment loss of SEK 208 million.

34 NOTEs GROUP Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

14. Non-current assets

(NOK 1 000)

MACHINERY, Property EQUIPMENT

OFFICE EQUIPMENT, FIXTURES 2008

Cost at start of period 18 751 96 444 24 615 139 810 Accumulated depreciation 1 632 22 464 17 399 41 495 Carrying amount at start of period 17 119 73 980 7 216 98 315 Translation differences 197 -1 833 556 -1 080 Additions from acquisition of operations* 0 0 0 0 Additions during year 8 240 23 112 3 166 34 518 Disposals during year 316 292 0 608 Depreciation during year 1 548 16 902 3 611 22 061 Carrying amount at 31.12 23 692 78 065 7 327 109 083 The Group’s depreciation periods are

20–50 years

5–7 years

2007

57 511 26 633 30 878 394 58 021 18 740 222 14 861 92 950

3–7 years

Straight-line depreciation is applied over assets’ expected useful lives. * Additions from acquisition of operations

Historical cost, property, plant & equipment Historical accumulated depreciation of property, plant & equipment Net additions

2008

2007

0 0 0

180 282 122 261 58 021

15. Investments in associates Associates in which the Group has a holding of 20–50 per cent are valued using the equity method, and the Group’s share of their profit or loss is recognised in the consolidated income statement. The Group’s share of equity in the companies is reported as an asset in the consolidated accounts. Reg’d Share (NOK 1 000) office capital Holding

Carrying amount 31.12.08

Share of profit 2008

Carrying amount 31.12.07

Share of profit 2007

Liquidated 292 Liquidated Liquidated 574 -210 105 -89 3 009 66 077 69 758

63 -198 929 -20 0 0 607 16 0 -776 621

1403 194 922 72 574 -210 478 195 0 63 068 66 696

36 1 17 169 -28 -59 -135 -105 0 -2 590 -2 694

Associates

Smeheia Utb AS* Sandnes 2 000 40% Hetlandsgården AS Sandnes 200 50% Lunde Utb AS* Sandnes 1 500 40% A4 Bogafjell AS* Sandnes 200 50% Buggeland Utb AS Sandnes 1 500 33% Trøåsen Utb AS Trondheim 200 50% Skadberg Utb AS Sandnes 900 20% Eivindsholen AS Sandnes 1 000 30% Hemmingstad AS Sandnes 8 000 40% Gar-Bo AB Sweden 2 500 34% Total Associates * Settlement and dividend to shareholders in connection with liquidation of company.

Summary of financial information for associated companies – 100 per cent for 2008: Reg’d office Assets Equity Liabilities

Operating Profit/loss income for the year

Smeheia Utb AS Hetlandsgården AS Lunde Utb AS A4 Bogafjell AS Buggeland Utb AS* Trøåsen Utb AS* Skadberg Utb AS Eivindsholen AS Hemmingstad AS Gar-Bo AB Total

0 400 0 0 0 0 0 30 184 0 88 943 119 527

0 -395 0 0 -86 -117 -967 52 -435 -2 103 -4 051

Sandnes Liquidated 2008 Sandnes 809 Sandnes Liquidated 2008 Sandnes Liquidated 2008 Sandnes 38 317 Trondheim 1 288 Sandnes 2 851 Sandnes 35 946 Sandnes 7 553 Sweden 696 557 783 321

0 784 0 0 1 723 -419 1 423 704 7 524 116 286 128 025

0 25 0 0 36 594 1 707 1 429 35 242 29 580 270 655 296

* 2007 figure. 2008 accounts not yet available.

16. Other shares Other companies in which the Group has a holding of less than 20 per cent are valued using the cost method. Reg’d (NOK 1 000) office

SHARE CAPITAL Holding

Carrying amount 31.12.08

Share of profit 2008

Carrying amount 31.12.07

Share of profit 2007

Jåsund Utb AS Sola 1 000 18% Sørbø Hove AS Sandnes 2 000 16% Total

890 1 105 1 995

0 0 0

890 1 105 1 995

0 0 0

17. Financial instruments The Group has entered into forward rate agreements of NOK 100 million and SEK 450 million. These are measured at fair value with value changes recognised in profit or loss. Product

Transaction datE Capital sum

Start Maturity Interest Market val. Market val. datE datE RATE 31.12.08 (NOK 1 000) 31.12.07 (NOK 1 000)

Threshold Swap 17.01.06 100 000 TNOK 06.03.06 07.03.11 3.62% Interest Swap 29.05.07 150 000 TSEK 30.11.07 30.05.12 4.58% Extendable Interest Swap 29.05.07 150 000 TSEK 30.11.07 31.05.10 4.33% Interest Swap 29.05.07 150 000 TSEK 30.11.07 30.05.17 4.67% Cap* 17.09.08 250 000 TNOK 02.01.09 02.01.14 6.50% Extendable Interest Swap** Total

-1 219 -9 518 -10 382 -16 029 653 0 -36 495

3 518 46 -251 648 0 2 044 6 005

* The Group has entered into a forward rate agreement of NOK 250 million (Cap) with a ceiling of 6.5 per cent linked to 1 mth Nibor. This relates to Block Watne AS’s wish to offer some of its customers an interest guarantee under corresponding conditions. ** The extendable interest rate swap of NOK 150 million matured at the end of the year and was not extended.

The market value was confirmed by the financial institution which was the agreement counterparty. The maturity structure of the market value obligation is as follows:

2009

2010

2011

2012

2013

2014---->

TNOK TSEK

-482 -9 295

-753 -9 888

21 -6 836

150 -3 479

454 -1 777

45 -4 653

35 NOTEs GROUP

BWG Homes ANNUAL REPORT 2008

18. Financial risk and capital management Credit risk

Credit risk is the risk of the company incurring losses on granted credit. The Group grants credit on the sale of homes, although the risk is reduced by requiring the customer to be able to provide documentary evidence of satisfactory financing before a contract is entered into. In addition, houses are not handed over until full payment has been received. Historically, the Group’s bad debt losses/credit losses has been low. Credit risk is considered to be the same in all the Group’s segments.

36 NOTEs GROUP Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

The carrying amount of outstanding receivables represents the maximum credit risk at the balance sheet date. The carrying amount of outstanding receivables at 31 December 2008 was NOK 454.387 million, compared with NOK 632.24 million at the end of 2007. Interest rate risk

Interest rate risk is the risk that changes in interest rates will result in fluctuations in future cash flows for the Group’s operations. Changes in interest rates will affect the company’s markets through their effect on demand for housing, as the borrowing rate is an important factor, perhaps the most important factor, on the house customer’s desire and ability to invest. Experience shows that expected interest rate movements, or actual changes in the borrowing rate, cause a slowdown in demand, while a clearer interest picture helps boost demand for homes. As the Group has considerable interest-bearing liabilities, interest rates and interest trends will have a direct effect on the Group’s profitability and earnings. Most of the Group’s working capital loans carry floating interest rates. The Group has entered into forward rate agreements of NOK 100 million and SEK 450 million which are shown overleaf. Consequently, approximately 40 per cent of the Group’s mortgage loans and 27 per cent of its net interest-bearing liabilities are hedged. A 1 per cent change in interest rates would change borrowing costs in the company’s liabilities by approximately NOK 16 million. Changed interest rates will also affect present value calculations under normal circumstances. Present value calculations are carried out during impairment testing (see note 13) and when calculating pension obligations (see note 7) and the fair value of financial instruments/ hedging instruments (see note 17). Currency risk

Currency risk is the risk of the company’s assets or cash flows being affected by exchange rate movements. The Group’s investment in the subsidiary BWG Homes AB is financed by loans in SEK, thereby reducing the Group’s net exposure in SEK. A 10 per cent change in the NOK/SEK exchange rate would result in a change of NOK 52 million in the Group’s equity. Distribution of the Group’s monetary items by currency:

2008

2007

Currency risk Note

TNOK

TSEK

TPLN

TNOK

TSEK

TPLN

Trade receivables 21, 32 Other receivables 19 Non-current liabilities to financial institutions 25, 32 Current liabilities to financial institutions 26, 32 Trade payables Net balance of exposure

309 768 315

130 849 14 862

0 0

421 283 17 321

198 131 23 786

77 56

-505 200

-984 296

-506 500

-890 000

-675 873 -121 148 -992 138

-118 218 -189 073 -1 145 876

0 -20 -20

-310 606 -219 241 -597 743

-47 021 -228 465 -943 569

0 -46 87

Relevant exchange rates during the year: Average rate Closing rate

SEK PLN

2008

2007

2008

2007

85.47 2.34

86.87 2.12

90.42 2.36

84.55 2.22

With the Group having extensive operations in Sweden in SEK, currency risk associated with translation of the Swedish operations’ results will arise. NOK 1 713.072 million (54%) of the Group’s sales for 2008 was generated in Swedish kronor. NOK 158.133 million (43%) of the Group’s operating profit before depreciation/amortisation (EBITDA) was generated in Swedish kroner. A 10 per cent change in the NOK/SEK exchange rate would result in a change of NOK 15 million in the Group’s net profit. Only a minor part of the Group’s purchases are in foreign currency. Liquidity risk

Liquidity risk is the risk of the company being unable to fulfil its current conditions due to a lack of liquidity. Access to loan financing is crucial to ensure the Group is able to fulfil its current conditions. The Group had net interest-bearing debt of approximately NOK 2 billion at the end of 2008, and any failure on the part of the Group or the lender to comply with the conditions of the loan agreements will result in a lack of liquidity. In January 2009, the Group renegotiated the loan agreements with the largest lender and established a three-year loan agreement which takes into account the difficult market situation which is expected to persist. The Group also has loan financing from two other banks in Norway, SpareBank 1 SR Bank and Fokus Bank.

The Group is also dependent on access to guarantees from banks, insurance companies and other sources, in order to allow it to operate efficiently, and ensuring earnings and profitability, and also as a instrument for releasing liquidity when required. The international financial crisis has had a significant impact on access to financing in Norway and Sweden, and this will to some extent increase the risk of present lenders being unable to fulfil their agreements with the Group. Nevertheless, this risk remains low, and is normally described as minimal. The Group’s ability to fulfil its liabilities is highly dependent on current earnings and sales. The Group has reported good results in recent years and generated considerable cash flows. The Group has scaled down its operations substantially in 2008 and these are now at a level which allows the Group to fulfil its current obligations with much lower production and sales than in previous years. The Group’s share issues in the early part of 2009 brought additional liquidity, and the group has a satisfactory liquidity reserve.

37 NOTEs GROUP

The Group constantly monitors liquidity needs and available liquidity. If there is a need for liquidity somewhere in the Group, an internal allocation is made, within available limits. The Group has established working capital loans for operating units, which give flexibility throughout the year. The Group holds regular dialogue with Nordea with regard to capital requirements and liquidity management. The table below shows the due dates for financial obligations (interest included) in nominal figures.

Liquidity risk

1–3 mths

Maturity 3–6 mths

6–12 mths

1 yr +

Pension obligations Deferred tax Total provisions 0 0 0

19 868 201 831 221 699

Other obligations Liabilities to credit institutions 16 361 16 351 Total other non-current liabilities 16 361 16 351

Liabilities to credit institutions

110 881

95 771

72 687 72 687

1 476 368 1 476 368

191 546

425 803

Liabilities to related parties

Trade payables 281 838 7 500 2 922 Tax payable 62 217 Public duties payable 41 201 Market value of financial instruments Other current liabilities, land and projects 71 919 31 205 Other current liabilities 43 743 67 998 Total current liabilities 549 582 202 474

50 485 27 177 334 347

79 743 94 313 599 859

The Group’s projected cash flows and liquidity base will fulfil the current financial obligations in each of the intervals. Capital management

The main goal for the Group’s capital management is to ensure access to capital to allow satisfactory operation and maximise values for the owners. The Group manages its own capital structure and makes adaptations in the light of changes in the underlying economic conditions. Access to loan capital is constantly monitored and the Group maintains regular dialogue with lenders. Good dialogue with lenders is particularly important in establishing competitiveness and securing competitive financing terms. The Group has established a dividend policy whereby 50–70 per cent of profit for the year is paid to shareholders, provided such payment is not detrimental to the company’s growth prospects or inappropriate in relation to the Group’s overall financial situation. The renegotiation of the loan agreements in January 2009 included a clause that a dividend cannot be paid without the approval of Nordea. The Board has a mandate to increase capital by up to 30 million shares. The Group has covenants associated with the majority of its loan debt. Long-term monitoring ensures internal control over compliance with the covenants, and allows any compliance problems to be dealt with as quickly as possible. As far as short-term liquidity needs are concerned, it is vital to have established adequate project financing for current projects. Drawing and writing-down of project financing is regulated constantly, and is dependent on invoicing/receipts and on projected liquidity trends. Original covenants were suspended by Nordea in the 4 quarter as Nordea gave a waiver for over 12 months in anticipation of renegotiation of loan terms. In January 2009, the Group renegotiated its loan terms with Nordea. The due date of the acquisition liability relating to the Block Watne purchase has been deferred until 1 January 2012. A binding term sheet is in place, although the final loan agreements are still being drawn up. The renegotiation also involves changed repayment terms and repricing of the loans. Formalisation of loan agreements remain. See further discussion in the Board of Directors’ report.

BWG Homes ANNUAL REPORT 2008

19. Financial assets (NOK 1 000)

2008

2007

5 321

Long-term loans to customers 191 Loans to employees Total other non-current receivables 191 Other current receivables Prepaid expenses/accrued income 26 448 Advances to landowners 4 650 County tax inspector -6 600 Other receivables 1 807 Total other current receivables 26 305

229 0 229

Loans to associates Other non-current receivables

38 NOTEs GROUP Key figures and Highlights Letter from the CEO Letter from country managers

24 857 4 650 6 389 1 535 37 432

Financial assets are measured at the lower of nominal and fair value. A concrete assessment of risk of bad debt losses has been made, particularly with regard to debtors’ ability to pay. No risk of bad debt losses has been identified.

This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

20. Land and projects under construction Construction work in progress (NOK 1 000)

2008

2007

Unsold units capitalised Sold units capitalised Total holding

305 685 167 108 472 793

179 339 190 553 369 892

1 121 038 -821 868 299 170 0 78 647 32 304

1 228 110 -906 181 321 929 0 61 078 52 412

754 783 78 559 -45 317 269 562 1 057 587

670 813 78 559 -29 504 205 672 925 540

Recognised revenue relating to houses not yet handed over Costs relating to houses not yet handed over Contributions relating to houses not yet handed over Remaining production relating to onerous contracts Earned, not invoiced income included in trade receivables Production invoiced in advance included in current liabilities Land (NOK 1 000)

Land at cost of acquisition Added value land Accumulated recognition of added value* Main plant Total holding

* In connection with the acquisition of Block Watne AS, added values of NOK 78.559 million arising from land were identified. These are recognised as an expense (cost of goods sold) when the land is taken into use (specified land) and on a straight-line basis (unspecified land).

21. Trade receivables Specification of carrying amount of trade receivables (NOK 1 000)

2008

2007

Trade receivables Accrued income Trade receivables with Norwegian Housing Bank financing Provision for bad debts Total trade receivables

379 231 -91 000 146 300 -6 449 428 082

540 475 -91 000 147 000 -7 672 588 803

The Group does not have receivables for which payment is delayed due to contractual conditions, and all its trade receivables are due within one year. Ageing analysis of trade receivables Trade receivables (NOK 1 000)

2008 2007 Gross Expected losses Gross Expected losses

Not due 0–30 days 31–120 days More than 1 year Total

250 495 62 529 112 620 8 887 434 531

0 -64 -642 -5 743 -6 449

346 088 118 904 120 999 10 483 596 475

-1 064 0 -648 -5 960 -7 672

22. Cash & cash equivalents (NOK 1 000)

Cash and bank deposits Of which reserved for tax

2008

2007

61 152 8 373

82 507 7 943

The Group has undrawn credit facilities and other loans totalling NOK 103.947 million.

39 NOTEs GROUP

23. Number of shares, shareholders The largest shareholders in BWG Homes ASA at 31 December 2008. Shareholder

Lani Industrier AS Pareto Aksje Norge Lani Development AS Ojada AS Bank of New York, Brussels Branch Pareto Aktiv AB Invest A/S Nordea Securities AB Vital Forsikring ASA Verdipapirfond Odin Norge Verdipapirfond Odin Norden MP Pensjon Folketrygdfondet DnB NOR Norge (IV) BNP Paribas Secs Services Paris Citibank Intl. PLC. (Lux Branch) Swedbank Euroclear Bank S.A./N.V. (‘Ba’) Oslo Pensjonsforsikring AS Omløp JPMorgan Chase Bank Total 20 largest shareholders Other Total Total number of shareholders Par value of shares

847 NOK 1.00

% of total

20 210 000 3 448 000 3 339 800 2 331 200 2 093 041 1 668 457 1 525 183 1 451 349 1 424 300 1 382 067 1 313 800 1 275 500 1 262 644 1 247 551 1 205 800 1 117 536 1 007 197 991 851 985 211 961 400 50 241 887 15 758 113 66 000 000

30.62% 5.22% 5.06% 3.53% 3.17% 2.53% 2.31% 2.20% 2.16% 2.09% 1.99% 1.93% 1.91% 1.89% 1.83% 1.69% 1.53% 1.50% 1.49% 1.46% 76.12% 23.88% 100.00%

BWG Homes ANNUAL REPORT 2008

24. Equity (NOK 1 000) Share Share premium Reconciliation of changes in equity capital reserve

40 NOTEs GROUP Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

Translation Retained Total differences earnings equity

Balance 01.01.07 9 000 534 884 133 170 731 Share issue 4 200 955 646 Share issue expenses -22 834 Bonus issue 52 800 -52 800 Dividend -112 500 Profit for the year 201 080 Translation differences 0 0 -37 626 Balance at 31.12.07 66 000 1 414 896 -37 493 259 311

714 748 959 846 -22 834 0 -112 500 201 080 -37 626 1 702 714

Balance 01.01.08 66 000 1 414 896 -37 493 Dividend Profit for the year Equity effect of group contrib. prev. year Translation differences 41 117 Balance at 31.12.08 66 000 1 414 896 -3 624

1 702 714 -132 000 -82 282 10 648 41 117 1 540 197

259 311 -132 000 -82 282 10 648 55 677

Share capital and share premium

Issued at 01.01 New share issue (cash) Issued at 31.12, fully paid

2008

2007

1 480 896 0 1 480 896

543 884 937 012 1 480 896

At 31 December 2008, registered share capital consisted of 66 000 000 ordinary shares (31.12.2007: 66 000 000). The par value of the share is NOK 1. Holders of ordinary shares are entitled to receive the adopted dividend and have one vote per share at the Group’s annual general meeting. All shares carry equal rights to net assets. Translation differences

Translation differences consist of all currency effects arising on translation of foreign subsidiaries in the consolidated accounts. Dividend

A dividend of NOK 2 per share (total NOK 132 million) was paid in 2008. The dividend paid in 2007 was NOK 112.5 million. The Board will propose to the annual general meeting that no dividend be paid to the company’s shareholders for the financial year 2008. In view of the challenging market situation and volatile financial markets, the Board finds it necessary to prioritise strengthening the company’s capital ahead of paying a dividend.

25. Non-current liabilities to financial institutions

Mortgage loan NOK 499 000 NOK 7 500 SEK 890 000 (converted to NOK) Total Interest rate at 31.12

Norwegian operations Swedish operations

2008

2007

499 000 6 200 804 738 1 309 938

499 000 7 500 752 495 1 258 995

5.52% 5.43%

6.53% 5.79%

The company’s long-term debt is secured against shares in its subsidiaries. The loan carries a floating interest rate (3-month NIBOR + margin). See note 17 on forward rate agreements. In addition, the Group has a small mortgage loan on office buildings. Original covenants were suspended by Nordea in the 4 quarter as Nordea gave a waiver for over 12 months in anticipation of renegotiation of loan terms. In January 2009, the Group renegotiated the loan terms with Nordea. The due date of the acquisition liability relating to the Block Watne purchase has been deferred until 1 January 2012. A binding term sheet is in place, although the final loan agreements are still being drawn up. The renegotiation also involves changed repayment terms and repricing of the loans. Based on the new term sheet, the repayments are as shown below.

Repayments

TNOK TSEK

2009

2010

2011

2012

2013

41 200 0

380 200 890 000

1 200 0

26. Current liabilities to financial institutions (NOK 1 000)

2008

2007

Bank overdraft Other working capital loans Building and land loans Total current liabilities to financial institutions

106 893 75 110 602 337 784 340

39 756 0 310 606 350 362

5.34% 3.07%

6.15% 3.53%

Interest rate, Norwegian operations 31.12 Interest rate, Swedish operations 31.12

Building and land loans are secured with collateral in projects and land. More information can be found in note 32, which shows the carrying amounts of collateral.

27. Other current interest-bearing liabilities The loan consists entirely of the original related party subordinated loan which was converted into an ordinary loan in 2008, with repay ments of NOK 55 million during the year. The remaining loan of NOK 40 million was repaid in full after the share issue in February 2009 (see note 35).

28. Product warranty provisions In its capacity as a construction company, the Group issues product warranties on houses that have been handed over. During the construction period, product warranties are purchased from banks or insurance brokers, although after a house is handed over the Group is required under Norwegian and Swedish law to establish product warranties. The Group has an ongoing provision for its product warranty commitments. (NOK 1 000)

Product warranty provision, calculated Product warranty provisions, special projects Total product warranty provisions

2008

2007

46 251 2 520 48 771

56 113 4 808 60 921

Using reported warranty and claims costs over the last five years and their estimated distribution over five years (warranty period specified in the Norwegian act on construction of buildings), a fair assessment of the warranty provision is made, based on the previous year’s turnover. In addition, a specific assessment is made to ascertain whether there is a need for special provisions relating to larger claims. (NOK 1 000)

Product warranty provision, 01.01 Used during year Reversed during year Allocated during year Product warranty provision, 31.12

2008

2007

60 921 -12 150 0 0 48 771

61 767 -33 872 0 33 026 60 921

29. Land obligations The Group enters into binding agreements with land owners on allocation, planning and development of sites. When these agreements are drawn up, the company’s future payments are defined. The contracts may contain both conditional and unconditional commitments. Future payments are not normally interest-bearing, although the agreements may in individual cases be adjusted to reflect the consumer price index. For agreements in which the land obligations are not conditional, the land is capitalised. Provision is made for associated payment obligations to the extent that payment has not been made in connection with establishing the agreement. Other contracts with conditions that must be met before obligations arise often concern land which has not been approved for residential development. At the end of 2008, conditional contracts totalled NOK 286 million (not balance sheet), and when these are approved for development, the Group’s land values and land obligations will increase correspondingly. Conditional contracts at the end of 2007 amounted to NOK 311 million. It is considered highly likely that the local authorities will approve development.

41 NOTEs GROUP

BWG Homes ANNUAL REPORT 2008

30. Public duties payable (NOK 1 000)

Public duties payable Social security tax VAT Total

2008

2007

9 252 23 639 8 348 41 239

19 207 26 107 895 46 210

42 NOTEs GROUP Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

31. Other current liabilities (NOK 1 000)

2008

2007

Accrued salaries, holiday pay etc Accrued interest expense Product warranty provision Provision for accrued expenses Advance payments from customers Restructuring costs Other current liabilities Total

69 498 4 779 48 771 34 665 63 815 10 137 1 680 233 344

84 393 4 713 60 291 48 225 89 342 0 1 538 288 502

32. Pledged assets and guarantee commitments Carrying amount of the company’s liabilities secured against mortgages (NOK 1 000)

Building and land liabilities, other working capital loans Bank overdraft Mortgage loan Total

2008

2007

660 763 106 893 505 200 1 272 856

310 606 39 756 506 500 856 862

1 616 935 104 458 1 248 344 16 808 2 986 545

1 550 115 104 168 1 039 314 26 530 2 720 128

Carrying amount of assets pledged as collateral for liabilities (NOK 1 000)

Shares in subsdiaries* Trade receivables Land and buildings under construction Property, plant & equipment Total * The long-term liability with Nordea is secured against shares in Block Watne AS, Hetlandhus AS and BWG Homes AB.

Many small projects, in parts of or in the entire construction process, are not pledged as collateral for liabilities. Of the carrying amount of NOK 1 567 million in land and buildings under construction, NOK 233 million relates to land obligations (current liabilities). The renegotiation of the loan terms with Nordea in January 2009 included an agreement that the liabilities to Nordea are secured by unpledged assets, mainly unpledged land. These collateral arrangements will be established during spring 2009. Guarantees issued by financial institutions (NOK 1 000)

Guarantee for advance payments Contract guarantees for building projects Other guarantees Total

2008

2007

737 480 155 273 235 714 1 128 467

848 951 133 396 244 954 1 227 301

33. Leases The Group has a number of operating leases relating to offices and warehouses. The leases have variable lease terms, although the average lease term is between 3 and 8 years, with a renewal option. The leases are not based on variable rent conditions. The Group also has operating leases relating to cars and fixtures & fittings. These expire during the period 2008-2010. The Group does not have any finance leases. Annual lease payments for off-balance sheet assets (NOK 1 000)

Cars, fixtures & fittings Rents Total

2008

2007

8 013 44 652 52 666

4 326 28 274 32 600

Lease payments are reported under other operating expenses.

34. Cash flow statement The cash flow statement has been prepared using the indirect method. Changes in other accruals, itemised (NOK 1 000)

Changes in other receivables Change in social security tax Change in other current liabilities Total

2008

2007

11 928 -5 209 -59 279 -52 560

-2 338 15 159 20 991 33 812

35. Events after the balance sheet date In January 2009, the Group renegotiated its loan terms with Nordea. The due date of the acquisition liability relating to the Block Watne purchase has been deferred until 1 January 2012. A binding term sheet is in place, although the final loan agreements are still being drawn up. Formalisation of loan agreements remain. See further discussion in the Board of Directors’ report. In February 2009, a private placement of NOK 140 million was completed, with a subsequent repair issue in March of NOK 21.38 million. The issues were settled in cash and the number of shares issued was 32 276 000. The subscription price was NOK 5. In January 2009, an agreement was signed for the sale of the ownership stake in the Swedish insurance company Gar-Bo. The sale is conditional on approval by the financial supervisory authorities in Sweden and Luxembourg. The final selling price and settlement structure will be defined on the assumption that the sale will be implemented before the end of April 2009. The total selling price will be on a par with the carrying amount (SEK 65 million).

43 NOTEs GROUP

BWG Homes ANNUAL REPORT 2008

36. Pro forma income statement 2007 – unaudited Pro forma figures for 2007 have been prepared as if Prevesta had been acquired on 1 January 2006. These figures have not been audited. Pro forma income statement – BWG Homes ASA

44 NOTES Parent Key figures and Highlights Letter from the CEO Letter from country managers

2008 (NOK 1 000) Actual

Sales revenue Other income Total income Cost of materials Payroll and personnel expenses Other operating expenses Total operating expenses

2007 Pro forma

3 170 495 1 030 3 171 525

3 272 324 23 3 272 346

-1 906 232 -599 557 -297 650 -2 803 439

-1 943 185 -607 175 -281 041 -2 831 400

This is BWG Homes

Operating profit before depreciation/amortisation

368 086

440 946

Report from the Board of Directors

Income from associates Impairment of goodwill Depreciation of property, plant & equipment Operating profit

621 -226 050 -22 061 120 596

9 503 0 -21 033 429 416

Interest income Other finance income Change in market value of financial instruments Interest expense Other finance expense Net financial items

7 802 24 830 -42 500 -137 562 -5 244 -152 674

8 045 396 -368 -74 316 -29 713 -95 956

Profit/loss on ordinary activities before tax

-32 078

333 460

Tax on profit

-50 204

91 575

Profit/loss for the period

-82 282

241 885

Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

Income Statement Parent (01.01–31.12) 45 ACCOUNTS PARENT (NOK 1 000) Note

2008

2007

11 11

0 0

2, 3

-9 356 -8 197 -17 553

-4 838 -8 461 -13 299

-17 542

-13 299

10, 11

-148 -17 691

-51 -13 350

4, 7 5 7 6

32 034 37 414 0 -112 857 -42 201 0 -85 610

243 468 7 540 20 0 -27 872 -16 223 140

-103 301

209 892

Tax expense 9 Profit for the period

-9 064

-43 504

-112 365

166 388

0 0 -112 365 -112 365

132 000 14 789 19 497 166 286

Other income Total income Payroll and personnel expenses Other operating expenses Total operating expenses Operating profit before depreciation/amortisation (EBITDA) Depreciation of property, plant & equipment Operating profit (EBIT) Income from investment in subsidiaries Interest income Other finance income Write-down shares in subsidaries Interest expense Other finance expense Net finance costs Profit on ordinary activities before tax

Allocation of profit

Dividend Group contributions Transferred to other equity Total allocated

BWG Homes ANNUAL REPORT 2008

Balance Sheet Parent (per 31.12) 46 NOTES Parent Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

(NOK 1 000) Note

2008

2007

259 228 487

326 228 554

421 421

358 358

7 8

1 616 935 353 114 1 970 049

1 879 095 0 1 879 095

1 970 049

1 880 007

12 13

36 781 1 574 38 355

406 795 12 610 419 405

2 009 312

2 299 413

Assets Non-current assets Intangible assets

Intangible assets 10 Deferred tax asset 9 Total intangible assets Property, plant & equipment Fixtures, fittings and equipment 11 Total property, plant & equipment Financial assets Investments in subsidiaries Loans to subsidiaries Total financial assets

Total non-current assets Current assets Other receivables Bank deposits, cash & cash equivalents Total current assets Total assets

47 ACCOUNTS PARENT (NOK 1 000) Note

2008

2007

14, 15 14

66 000 1 414 897 1 480 897

-41 241 -41 241

60 476 60 476

1 439 656

1 541 373

999 999

962 962

16, 17

499 000 499 000

19 18 9 20

16 684 877 367 2 671 0 49 057 69 657

0 1 371 391 37 131 132 000 87 185 258 078

Total liabilities

569 656

758 040

Total equity and liabilities

2 009 312

2 299 413

Equity and liabilities Equity Paid-in capital Share capital 66,000,000 shares, par value NOK 1 Share premium reserve Total paid-in capital Retained earnings

Other equity Total retained earnings Total equity Liabilities Provisions Pension obligations Total provisions Other non-current liabilities

Liabilities to credit institutions Total other non-current liabilities Current liabilities

Current interest-bearing liabilities Trade payables Public duties payable Tax payable Provision for dividend Other current liabilities Total current liabilities

Oslo, 31 March 2009 Board of Directors in BWG Homes ASA

HARALD WALTHER

HEGE BØMARK

Eva Eriksson

PETTER NESLEIN

Chairman of the Board

Deputy chairman

Director of the Board

BRIT HAGELUND

TORE MORTEN RANDEN

Einar Salbu

Lars Nilsen

Employee representative

ChIEF EXECUTIVE OFFICER

BWG Homes ANNUAL REPORT 2008

Cash Flow Statement Parent (01.01–31.12) 48 NOTES Parent Key figures and Highlights

(NOK 1 000) Note

2008

2007

-103 301

209 790

9, 10, 11 9, 10, 11

-11 148 85 610

0 51 -223 140

9 6

-43 524 -39 738

-51 863 -27 887

Cash flow from operating activities

Letter from the CEO

Profit before tax

Letter from country managers

Adjustments for

This is BWG Homes Report from the Board of Directors Annual accounts and notes Group

Gains/losses on sale of non-current assets Depreciation/amortisation//impairment Net finance costs Paid tax Paid interest

Annual accounts and notes Parent

Change in working capital, incl. balances with subsidiaries

-451

1 166

Corporate governance

Net cash flow from operating activities

-101 267

-91 884

About the reporting

Cash flow from investing activities Purchase of property, plant & equipment 11 Sale of property, plant & equipment 11 Purchase of shares 7 Interest received (incl. from subsidiaries) 5 Long-term loans to subsidiaries 8 Change in short-term balances with subsidiaries 22 Net cash flow from investing activities

-435 300 -115 5 237 -11 100 -31 808

-735 0 -942 395 7 540 0 -37 933

-37 921

-973 523

0 -132 000 16 684 243 468 0

0 -112 500 0 236 017 937 014

128 152

1 060 531

-11 036

-4 876

12 610

17 486

1 574

12 610

Cash flow from financing activities

Repayment of long-term liabilities 16 Dividend paid 14 New current liabilities Group contributions from subsidiaries 4 New share capital 14 Net cash flow from financing activities Net change in cash & cash equivalents Cash & cash equivalents at start of period Cash & cash equivalents at end of period 13

Notes Parent 49 NOTES PARENT

1. Accounting policies BWG Homes ASA was incorporated on 20 September 2005. The company changed its name from Block Watne Gruppen ASA to BWG Homes ASA on 20 September 2007. The company is the parent company in a Group with operations both in Norway and Sweden. The company’s office address is Munkedamsveien 45, 0250 Oslo. All figures in the tables presented below are in NOK thousands unless otherwise specified. The annual financial statements comprise the income statement, balance sheet, statement of cash flow, and accompanying notes. The annual financial statements have been drawn up in accordance with the Public Limited Companies Act, the Accounting Act and generally accepted accounting principles in Norway as of 31 December 2008. Basic principles, valuation and classification, other issues The annual financial statements are based on the basic principles of historical cost, comparability, going concern, matching and prudence. Transactions are recorded at the value of the consideration paid/received at the time the transaction took place. Revenues are recognised when they are earned and costs are matched against accrued revenues. Assets/liabilities associated with the production and sale of goods and items falling due for payment less than one year after the balance sheet day are classified as current assets/current liabilities. Current assets/current liabilities are valued at the lower/ higher of acquisition cost and fair value. Fair value is defined as the estimated future sales price, less estimated sales costs. Other assets are classified as noncurrent assets. Non-current assets are valued at cost. Non-current assets which have a finite life are depreciated. If the value of a non-current asset changes, and that change is deemed not to be temporary, an impairment loss is recognised for the asset. Accounting principles for significant accounting items Revenue recognition Revenues are recognised when they accrue. Cost recognition/matching Expenses are matched against and recognised at the same time as those revenues with which they are associated. Expenses which cannot be ascribed to specific revenues, are recognised when they accrue. Property, plant and equipment Items of property, plant and equipment are carried at acquisition cost, less accumulated depreciation and impairment. If the fair value of an item of property, plant or equipment is less than its carrying amount, and this is due to circumstances which are not expected to be of a temporary nature, the value of the item is written down to fair value. Expenses associated with major replacements or renovations which extend the life of the asset are capitalised.

Depreciation Depreciation is calculated on a straight line basis over the asset’s useful life, based on its historical cost price. Depreciation is classified as an ordinary operating expense. Financial assets Subsidiaries: A subsidiary is a company in which the Group holds 50 per cent or more of the shares. The company uses the cost method of accounting for subsidiaries. Pension liabilities and pension costs The company has an occupational pension scheme which entitles employees to agreed future pension benefits, ie a defined benefit scheme. The pension obligation is calculated on the basis of linear accrual, with the number of years to retirement, the discount rate, future returns on plan assets, future regulation of salaries, pensions and social security benefits, and actuarial assumptions relating to mortality, voluntary withdrawal, etc, being important factors. Changes in pension liabilities and plan assets which are due to changes in or deviations from previous financial assumptions (estimate changes) are recognised as they arise. Net pension costs in the income statement are the change in the net pension obligation in the financial year. The change largely comprises the estimated earned pensions during the year less the estimated return on plan assets. Pension costs are classified as ordinary operating expenses and are presented with salaries and other benefits. The company is legally obliged to maintain an occupational pension scheme, and the pension scheme meets the requirements of the Occupational Pension Schemes Act.

1. Accounting policies

2. Payroll costs and

employee benefits

3. Remuneration of management,

board and auditors

4. Income from investment

in subsidiaries

5. Interest income

6. Interest expense

7. Subsidiaries

8. Loan to subsidiaries

9. Tax

10. Intangible assets

11. Tangible fixed assets

12. Other receivables

13. Cash and cash equivalents

14. Equity

15. Number of shares, shareholders

16. Liabilities to financial institutions

17. Forward rate agreements

and financial risk

18. Public duties payable

19. Current liabilities

20. Other current liabilities

21. Pledge assets and

guarantee commitments

22. Cash flow statement

56 56

23. Events after the

Forward rate agreements The company has entered into forward rate agreements. The agreements are not capitalized, but payments are recorded as interest income in the income statement. Foreign exchange Purchases of goods and services in foreign currencies were insignificant. Deferred tax and tax expenses Deferred tax liabilities/assets are calculated on the basis of temporary differences between the accounting and taxable value of assets at the end of the financial year. The calculation is based on the nominal rate of tax. Positive and negative differences are offset within the same time period. Deferred tax assets arise if there are temporary differences which may lead to tax deductions in the future. The tax expense for the year comprises changes in deferred tax liabilities and deferred tax assets, as well as the tax payable for the financial year in question, corrected for errors in previous years’ calculations. Cash flow The cash flow statement is prepared using the indirect method and shows cash flows from operations, cash flow from investing activities and cash flows from financing activities. Group contributions from subsidiaries to the parent company and from the parent company to subsidiaries during the period are reported under cash flow from financing activities. Long-term loans from subsidiaries to the parent company are reported under cash flow from financing activities. Short-term intra-group balances with subsidiaries (loans and receivables) are reported under cash flow from investing activities.

balance sheet date

BWG Homes ANNUAL REPORT 2008

2. Payroll costs and employee benefits Costs recognised as payroll costs (NOK 1 000) 2008

50 NOTES Parent Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

Salaries and holiday pay Social security tax Pension costs Other payroll costs Total Number of employees Average number of full-time equivalents Number of employees at end of year

2007

7 351 1 195 701 109 9 356

3 780 597 444 16 4 837

4.6 5.0

2.3 3.0

Pensions/retirement benefit obligations

The company is obliged to have mandatory occupational pension arrangements under the Norwegian mandatory occupational pension act. Pension obligations consist of a collective pension plan (funded). The underlying estimates were reviewed in autumn 2008 and are considered reasonable. On 6 January 2009, the accounts committee released the following pension assumptions as at 31 December 2008: Discount rate 3.80% Salary adjustment approx. 4.00% Pension adjustment approx. 3.75% Expected return approx. 5.80% The assumptions which were used to calculate the pension costs/retirement benefit obligation have not changed as a result of the new assumptions, as the effects of any change are not considered to be substantive. The collective pension schemes had 5 (3) members at the end of the year. Changes in net obligations relating to defined benefit (NOK 1 000)

2008

2007

962 0 -757 794 999

762 0 -278 478 962

506 95 601 -92 36 77 0 171 794

221 64 285 -46 29 38 0 173 478

2 739 -1 762 137 -115 999

2 819 -916 268 -1 210 961

4.30% 4.50% 2.80% 4.25% 12.50% 6.30%

4.70% 4.50% 2.75% 4.25% 12.50% 5.75%

Defined benefit pension obligations 01.01 Changes to estimates Deposits during the year Cost recognised in income statement Defined benefit pension obligations 31.12 Cost recognised in income statement (NOK 1 000)

Current service cost Capital cost of past service cost Gross pension expense for the year Expected return on plan assets Administrative expenses Accrued employer contributions Changes to estimates in profit or loss Change to pension obligations due to agreement changes Net pension cost for the year Reconciliation of benefit pension obligations

Estimated present value of accrued pension liability 31.12 Estimated pension assets 31.12 Social security tax Estimate deviations Net liability for defined benefit pension obligations 31.12 Assumptions used to calculate pension costs

Discount rate Salary adjustment Pension adjustment NI base rate Turnover Expected return The company expects to contribute approximately NOK 0.7 (0.7) million in payments to pension plans in 2009.

3. Remuneration of management, board and auditors The following remuneration was paid to management and board in 2008: (NOK 1 000) Other Pension Board Other NaME Position Salary Bonus benefits premium fees Loans fees Management

Lars Nilsen CEO 1 822 0 56 127 Arnt Eriksen CFO 301 0 24 22 Ketil Kvalvik CFO 543 193 101 194 Elisabet Landsend Director of Communications 1 008 0 133 140 Board Harald Walther Chairman 0 0 0 0 Hege Bømark Deputy Chairman 0 0 0 0 Petter Neslein Board member 0 0 0 0 Eva Eriksson Board member 0 0 0 0 Brit Hagelund Employee representative 0 0 0 0 Tore M. Randen Employee representative 0 0 0 0 Øyvind Wiik Employee representative 0 0 0 0 Torunn Thiemer Employee representative, deputy 0 0 0 0

0 0 0 0 0 180 150 120 60 50 50 50 3

0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 1) 0 2) 0 261 3) 0 0 0 0 4) 0 4) 0 4) 0 4)

Comments 1) Arnt Eriksen took up his position as CFO on 6 October 2008. 2) Ketil Kvalvik left his post on 31 October 2008 3) Other fees are invoiced from the individual business areas. These fees have been approved by the board. 4) Employee representatives on the board, including deputies, are employees of Block Watne AS.

The management group has agreements allowing early-retirement benefits for 12 months beyond the standard 6-month period of notice. There are no other agreements for the management group or board with regard to special compensation on termination of employment or change of position. The Group is not under any obligation to grant the management group, board or other employees profit-sharing, options or similar benefits. The company paid NOK 663 000 in board fees in 2008. See above. Auditors’ FEES EXCL. VAT (NOK 1 000)

2008

2007

The following auditors’ fees were paid:

Standard auditing Tax advice Other Total

434 0 28 462

251 6 375 633

4. Income from investment in subsidiaries (NOK 1 000)

Group contribution from Block Watne AS

2008

2007

32 000

243 468

5. Interest income

This item consists of (NOK 1 000)

Interest from Block Watne AS Interest from BWG Homes AB Interest from bank Total interest income

2008

2007

1 858 31 495 4 061 37 414

1 883 0 5 657 7 540

51 NOTES PARENT

BWG Homes ANNUAL REPORT 2008

6. Interest expense This item consists of (NOK 1 000)

2008

2007

2 463 39 738 42 201

2 142 25 730 27 872

Cost/ Carrying amount

Share of equity 31.12.2008

Share of equity 31.12.2007

1 095 000 5 008 115 516 812 1 616 935

399 577 253 115 516 812 916 757

293 687 110 0 582 945 876 742

Interest to Block Watne AS Interest to bank Total interest expense

52 NOTES Parent Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

7. Subsidiaries (NOK 1 000) Holding/ Shares, Subsidiaries Reg’d office Share capital voting share par value (NOK)

Block Watne AS Oslo 40 000 100% NOK 10 Hetlandhus AS Oslo 100 100% NOK 1 Boligbygg Prosjekt AS Oslo 100 100% NOK 100 BWG Homes AB* Vetlanda 1 100 100% SEK 1 Total

* Prevesta AB was merged in BWG Homes AB in 2008. In connection with the impairment of goodwill in the Swedish business, (note 13 Intagible assets), the parent company has written down the value of the subsidiary to book equity. The impairment amount to NOK 112.857 million

8. Loans to subsidiaries

This item consists of (NOK 1 000)

2008

2007

Loans to BWG Homes AB Loans to Hetlandhus AS Total loans to subsidiaries

342 014 11 100 353 114

0 0 0

9. Tax Tax on profit (NOK 1 000)

2008

2007

Profit before tax Group contribution without tax effect Permanent differences Temporary differences Group contribution Basis of tax payable Tax payable on profit for the year Change in deferred tax Adjustments in tax for previous years Tax expense in income statement

-103 301 0 112 837 -1 0 9 535 2 670 0 6 394 9 064

209 790 -16 795 -22 834 70 -14 789 155 443 43 524 -20 0 43 504

6 394

-999 151 34 -813 -228

-962 130 18 -814 -228

2 670 0 2 670

43 524 -6 394 37 130

Tax recognised in equity (NOK 1 000)

Tax effect of share issue expenses Calculation of deferred tax in balance sheet (NOK 1 000) Offset differences

Net pension obligation Operating assets Other differences Basis of deferred tax Deferred tax asset in balance sheet Income tax payable in balance sheet (NOK 1 000)

Tax on profit for the year Tax on share issue costs recognised directly in equity Income tax payable in balance sheet

10. Intangible assets (NOK 1 000)

2008

2007

Cost of acquisition 337 Accumulated amortisation 11 At 01.01 326 Carrying amount 01.01 326 Purchases during year 0 Depreciation during year 67 Carrying amount 31.12 259

0 0 0 0 337 11 326

At 31.12 Cost of acquisition 337 Accumulated depreciation 79 At 31.12 259

337 11 326

At 01.01

Intangible assets consist entirely of purchased software, which is depreciated over 5 years.

11. Tangible fixed assets (NOK 1 000)

2008

2007

Cost of acquisition 398 Accumulated depreciation 40 Carrying amount 01.01 358 Purchases during year 435 Disposals during year 292 Depreciation during year 81 Carrying amount 31.12 421 At 31.12 Cost of acquisition 541 Accumulated depreciation 120 Carrying amount 31.12 421

0 0 0

At 01.01

398 0 40 358 398 40 358

Tangible fixed assets consist entirely of cars that are depreciated over 5 years.

12. Other receivables This item consists of (NOK 1 000)

Receivable from Block Watne AS (interest-bearing) Receivable from BWG Homes AB (interest-bearing) Receivable from Hetlandhus AS (interest-bearing) Total other receivables

2008

2007

0 36 781 0 36 781

243 468 163 300 27 406 795

13. Cash & cash equivalents This item consists of bank deposits and small amounts of cash in hand. (NOK 1 000)

Cash and bank deposits Of which reserved for deduction for employees

2008

2007

1 574 378

12 610 278

53 NOTES PARENT

BWG Homes ANNUAL REPORT 2008

14. Equity (NOK 1 000)

54 NOTES Parent Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes

Share Share Capital premium reserve

Equity 01.01.07 Share issue Share issue expenses Tax effect of share issue expenses Bonus issue Profit for the year Dividend Group contributions Equity 31.12.07 Equity 01.01.08 Profit for the year Equity effect of group contribution from prior years Equity 31.12.08

OTHER EQUITY

Total

9 000 4 200 0 0 52 800 0 0 0 66 000

534 884 949 253 -22 834 6 394 -52 800 0 0 0 1 414 897

40 979 0 0 0 0 166 286 -132 000 -14 789 60 476

584 863 953 453 -22 834 6 394 0 166 286 -132 000 -14 789 1 541 373

66 000 0 0 66 000

1 414 897 0 0 1 414 897

60 476 -112 365 10 648 -41 241

1 541 373 -112 365 10 648 1 439 656

% OF total

30.62% 5.22% 5.06% 3.53% 3.17% 2.53% 2.31% 2.20% 2.16% 2.09% 1.99% 1.93% 1.91% 1.89% 1.83% 1.69% 1.53% 1.50% 1.49% 1.46% 76.12% 23.88% 100.00%

Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent

15. Number of shares, shareholders

Corporate governance

The 20 largest shareholders in BWG Homes ASA at 31 December 2008

About the reporting

Shareholder

Lani Industrier AS Pareto Aksje Norge Lani Development AS Ojada AS Bank of New York, Brussels Branch Pareto Aktiv AB Invest A/S Nordea Securities AB Vital Forsikring ASA Verdipapirfond Odin Norge Verdipapirfond Odin Norden MP Pensjon Folketrygdfondet DnB NOR Norge (IV) BnP Paribas Secs Services Paris Citibank Intl. PLC. (Lux Branch) Swedbank Euroclear Bank S.A./N.V. (‘Ba’) Oslo Pensjonsforsikring As Omløp JPMorgan Chase Bank Total 20 largest shareholders Others Total Total number of shareholders 847 Par value of shares NOK 1.00 Shares owned by management and board at 31 December 2008:

Lars Nilsen Arnt Eriksen Elisabet Landsend

CEO CFO Director of Communications

23 958 000 * 38 000 10 400

Board

Harald Walther Hege Bømark Eva Eriksson Petter Neslein Brit Hagelund Tore Morten Randen Øyvind Wiik

Chairman Deputy Chairman Board member Board member Employee representative Employee representative Employee representative

* Including shares owned by related parties and/or companies

201 000 * 0 0 110 000 * 400 200 400

16. Liabilities to financial institutions (NOK 1 000)

2008

2007

Long-term liabilities to financial institutions comprise a mortgage loan secured against shares in subsidiaries 499 000 499 000 At 31 December, the loan carries a floating interest rate (3-month NIBOR + margin). See note 17 on forward rate agreements. The loan agreement was renegotiated in January 2009. See also note 23. Based on the new term sheet (final loan agreements being drawn up), the repayments are as shown below. (NOK 1 000)

Repayments

2009

2010

2011

2012

40 000

379 000

17. Forward rate agreements and financial risk The Group has entered into forward rate agreements amounting to NOK 350 million. The agreements have not been recognised in the balance sheet. (NOK 1 000) ProduCt

Transaction datE

Capital Sum

Start Maturity Accrued Market val. Market val. datE datE Interest 31.12.08 31.12.07

Threshold Swap 17.01.06 100 000 06.03.06 07.03.11 Cap 17.09.08 250 000 02.01.09 02.01.14 Extendable Interest Swap 24.04.06 150 000 05.09.06 06.06.11 Total market value of interest-rate derivative products

137 299 436

-1 219 653 0 -566

3 518 0 2 044 5 662

Market value has been confirmed by the financial institution which is agreement counterparty. Financial risk (NOK 1 000)

2008

2007

Net interest-bearing liabilities at 31.12 Change in net interest expense in the event of a 1-per cent change in interest rates

514 284 4 143

486 390 2 364

Financial risk is described in more detail earlier in this annual report.

18. Public duties payable (NOK 1 000)

Tax for employees Social security tax VAT Total

2008

2007

339 254 -225 367

264 127 0 391

19. Current liabilities The total amount consists of current liabilities to Nordea.

20. Other current liabilities (NOK 1 000)

Accrued salaries, holiday pay etc. Short-term loans from subsidiaries Liabilities to group companies Total

2008

2007

2 141 32 139 14 777 49 057

1 251 71 146 14 789 87 185

55 NOTES PARENT

BWG Homes ANNUAL REPORT 2008

21. Pledged assets and guarantee commitments Carrying amount of company’s liabilities secured by pledged assets (NOK 1 000)

2008

2007

Mortgage loan Total

499 000 499 000

1 100 000 1 100 000

Carrying amount of pledged assets (NOK 1 000)

Shares in Block Watne AS and Hetlandhus AS Total

NOTES Parent

The company set itself a surety to Nordea for SEK 1 090 million ensuring BWG Homes AB´s lending relationship with Nordea. Key figures and Highlights Letter from the CEO Letter from country managers

Collateral provided (NOK 1 000)

2008

2007

Collateral for guarantees to subsidiaries Total

175 000 175 000

A guarantee has been issued to a mortgage insurance company on behalf of the subsidiary Block Watne AS.

This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

22. Cash flow statement Change of current balances with subsidiaries mainly comprise a liquidity loan to BWG Homes AB.

23. Events after the balance sheet date In January 2009, the Group renegotiated the loan terms with Nordea. The due date of the acquisition liability relating to the Block Watne purchase (cf note 16) has been deferred until 1 January 2012. A binding term sheet is in place, although the final loan agreements are still being drawn up. The renegotiation also involves changed repayment terms and repricing of the loans. See further discussion in the Board of Directors’ report. In February 2009, a private placement of NOK 140 million was completed, with a subsequent repair issue in March of NOK 21.38 million. The issues were settled in cash and the number of shares issued was 32 276 000. The subscription price was NOK 5.00.

Auditor’s Report 57 AUDITOR’S REPORT

BWG Homes ANNUAL REPORT 2008

Corporate governance 58 Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

BWG Homes shall adhere to high corporate governance standards. A healthy corporate culture is a key driver in creating confidence in the company, providing access to capital and ensuring value growth. All shareholders shall be treated equally and there shall be a clear division of work between the Board of directors and management.

BWG Homes’ corporate gover nance guidelines follow the Norwegian Code of Practice for Corporate Governance of 4 December 2007, the Public Limited Liability Companies Act, the Securities Trading Act and Stock Exchange regulations. The annual report contains descrip tions of the company’s guide lines, compliance with the Norwegian Code and explana tions of any deviations from it, and this information is also available on the company’s website. In accordance with the Norwegian Code of Practice, instructions have been drawn up for the Board’s work, the CEO’s work, the Board’s relation ship with the auditor, guidelines for the nomination committee, investor relations work and ethical guidelines. Each year the Board of directors reviews and evaluates compliance with the adopted guidelines and instructions.

The main ethos of BWG Homes’ corporate governance is based on the following principles: BWG Homes will communicate with the external world in an open, reliable and relevant way about its operations and corporate governance The Board of BWG Homes will be autonomous and indepen dent of the company’s management There will be a clear division of work between BWG Homes’ Board and management All shareholders will be treated equally

Corporate governancE report Compliance

Implementation of the adopted corporate governance guidelines will strengthen confidence in the company and help create added value. A clear division of roles between shareholders, Board of directors and management has been defined based on current legislation.

Values and ethical guidelines

A healthy corporate culture and integrity throughout the com pany’s operations are important in building and maintaining internal and external confidence in the company and our products. With ethical guidelines and a set of internal values behind them, our employees and management are better able to comply with good business practice standards. The Board of directors and employees will exhibit fairness, honesty and integrity in all its dealings with other employees, business associates, customers, suppliers, shareholders, compe titors, the general public and government authorities. Our ethical guidelines will also be a tool for self-evaluation and development of BWG Homes’ identity.

Operations

The area of operations of BWG Homes is defined in the company’s articles of association. The object

of the company is to engage in building operations and other associated operations, either under its own direction or by participation in other companies. The articles of association appear in their entirety on page 63 and are also available on the compa ny’s website. Strategies for BWG Homes’ operations are adopted by the Board. The main strate gies are discussed in the annual report and on the company’s website.

Equity and dividendS Equity

BWG Homes’ equity capital as at 31 December 2008 totalled NOK 1 540.2 million, corresponding to an equity ratio of 32.1 per cent. BWG Homes must maintain a level of equity that is reasonable in relation to the company’s object, strategy and risk profile. Dividend policy

BWG Homes seeks to pay its shareholders an annual dividend of 50 to 70 per cent of profit after tax. A dividend is proposed if in the Board’s view it will not have an adverse impact on BWG Homes’ Group’s future growth ambitions or capital structure. The company’s dividend policy is discussed in the annual report and on the company’s website. The Board will propose to the annual general meeting that no dividend be paid to the company’s shareholders for the financial year 2008. In view of the chal lenging market situation and volatile financial markets, the Board finds it necessary to prioritise strengthening the company’s capital ahead of paying a dividend. Capital increase

The Board will only propose a share capital increase if it is in the long-term interests of all share holders. Existing shareholders will normally have pre-emptive allot ment or subscription rights in any significant share issues. The

59 CORPORATE GOVERNANCE

Board may - in accordance with the Public Limited Companies Act § 10-5 - decide to waive existing shareholders pre-emptive rights when special reasons indicate that this is the company’s and share holders’ common interest. The Board’s share issue mandates are confined to specific purposes. At 31 December 2008, the Board had one such mandate, which was granted by the 2008 AGM and was to be valid until the 2009 meeting. On 6 March 2009 the Board was authorised by the extraordinary General Meeting to increase the company’s share capital with NOK 30 000 000. As distinct from what is recommended in the Code of Practice, the authorisation is not dedicated to a specific purpose. The Board considers that it is in the best interest of the compnay that the Board has flexibility in this respect. The new Board mandate granted by the Extraordinary General Meeting on 6 March 2009 is valid until the 2010 meeting and replaces the previously registered Board mandate. The new man date covers only capital increase against cash deposits, and does cover resolution on mergers in accordance with section 13-5 of the Norwegian Public Limited Liability Companies Act. At 31 December 2008, the Board had no mandate to purchase its own shares.

Equal treatment of shareholders and transactions with close associates Equal treatment

BWG Homes has one class of shares. The articles of association do not contain any restrictions with regard to voting rights. Consequently, all shares have equal status, and this includes voting rights. All share holders will be treated equally; there will not be any differential treatment that does not have a factual basis in the common interests of BWG Homes or the shareholders. Existing shareholders have preemptive rights in connection with share capital increases. Any waiver of these pre-emptive rights must be in the common interests of the company and shareholders. Transactions with close associates

CEO Lars Nilsen has a 32.52 per cent holding in BWG Homes through his companies Lani Industrier AS, Lani Development AS and Lagulise AS. He is not a member of the Board of BWG Homes. If any not immaterial transactions are conducted between the company and close associates, the Board will obtain an independent valuation and inform the shareholders. The company has rules which define who, outside the Board and executive management, are an insider. Insider trading in the BWG share must always be approved by the person in charge of trading clearance prior to the transaction. The Oslo Stock Exchange must be notified when the transaction is completed. Board members and executive management must notify the Board of any direct or indi rect interest they have in a transaction or agreement entered into by the company.

5. Freely negotiable shares

Shares in BWG Homes are freely negotiable; the articles of association do not contain any restrictions with regard to negotiability. BWG

Homes ASA is listed on the Oslo Stock Exchange. Active efforts are made to create interest among existing and potential investors and give an insight into the company. The BWG Homes management team holds regular meetings with Norwegian and international investors. In its communication with investors and analyst environ ments the company aims to give a picture of its strategy, activities, operations and financial position which is as precise as possible.

General Meetings

The shareholders exercise the highest authority in BWG Homes through the general meeting. The Board of directors takes steps to ensure the general meeting is an effective forum for the views of shareholders and the Board. Notice

All shareholders are entitled to submit business for consideration, attend, address the meeting, and vote at a general meeting. The annual general meeting of shareholders is held before 30 June. The 2009 AGM will be held on 26 May. The financial calendar is published as a stock exchange notice, in the annual report and on the company’s website. An extraordinary general meeting may be called by the Board of directors at any time. The BWG Homes’ auditor or shareholders representing at least five per cent of share capital may request the convening of an EGM. Notice of the general meeting must be made in writing to all the shareholders with a known address no later than 14 days before the date of the meeting. Supporting documents, resolu tion proposals, the nomination committee’s recommendations/ names of proposed candidates and registration and proxy forms will be sent to shareholders with the notice. The supporting docu ments will include all the neces sary information to enable

shareholders to form a view on business that will be dealt with, and will indicate the procedure relating to proxies and use of the proxy form. The notice will also give information on the shareholders’ entitlement to submit resolution proposals on business to be considered by the general meeting, and the web site address at which the notice and supporting documents are available. The notice and sup porting documents will be avail able on the company’s website no later than 21 days before the date of the general meeting. The deadline for registration expires no earlier than three days before the date of the meeting. Attendance

Registration for the general meeting must be sent in writing, by post, e-mail or fax. Shareholders who are unable to attend may vote by proxy. The proxy may be applied to each item of business dealt with. The Board of directors, chairman of the nomination com mittee, auditor, CEO and CFO all participate in the general meeting. Implementation

The general meeting elects a chairman of the meeting who is independent of the Board and management. The annual general meeting will approve the annual accounts and determine the fees to Board members. The general meeting elects the members of the nomination committee, and then the chairman of the com mittee in a separate election. The meeting also elects the Board’s shareholder-elected members, and then the chairman of the Board and the deputy chairman in a separate election. There is voting on each individual candidate. The general meeting also deals with matters which it is required to consider by law or the company’s articles of association. The CEO reports on the company’s status. The minutes of the general meeting are published as a stock exchange notice, and are also available on the company’s website.

BWG Homes ANNUAL REPORT 2008

60 Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

Nomination committee

The organisation of the nomination committee is formalised in the company’s articles of association, and separate instructions for the committee’s work have been drawn up. Composition

The composition of the nomination committee will be independent of the Board and management and will take into account the interests of share holders in general. The nomination committee consists of three members, all of whom are elected by the general meeting for a term of one year. The general meeting elects the nomination committee chairman and also decides on the com mittee’s fees. The nomination committee was re-elected by the annual general meeting held on 21 May 2008 and consists of Andreas Mellbye (chairman), Lise Lindbäck and Stine Rolstad Brenna. All members are up for election in 2009. The work of the nomination committee

The nomination committee’s duties consist of pro posing candidates for election as Board members and making recommendations regarding Board fees. The nomination committee is required to report on its work and submit its recommenda tions, with reasons, to the general meeting. The recommendations will include relevant information about the candidates and an evaluation of their independence from the company’s management and its important business associations. Information on the nomination committee and its members is available on the company’s website. The company gives notice of deadlines for submit ting proposals for potential Board and nomination committee members on its website.

Corporate assembly and Board of directors: composition and independence

Following a resolution by Bedriftsdemokratinemda (Corporate Democracy Committee) on 30 August 2006, BWG Homes does not have its own corporate assembly. In accordance with this resolution the Board has three employee representatives elected by and from the employees of the Group. The General Meeting elects the Board after considering the recommendations of the nomination committee. Composition of the Board

Board members are elected according to BWG Homes’ need for expertise, capacity and balanced decisions. The composition of the Board will ensure that it can operate independently of any special interests and function effectively as a collegiate body.

The Board of BWG Homes consists of seven members - four share holder-elected members and three employee representatives. Three of the Board members (two shareholder-elected and one employee representative) are women. The shareholderelected members have extensive experience in the housing sector, property development, finance and law.

among other matters performed assignments in connection with various schemes related to the financing of the Group’s business. See also note 8 to the consoli dated income statement, which contains an itemisation of fees paid in 2008. Harald Walther does not have any connection with BWG Homes’ important business associations. CEO

Three of the shareholderselected Board members were elected by the 2007 annual gen eral meeting for a two-year term of office. They are Harald Walther (chairman), Hege Bømark (deputy chairman) and Petter Neslein (member). The fourth shareholder elected Board mem ber, Eva Eriksson, was elected by the EGM held on 20 December 2007, and has the same period of office as the other share holder-elected Board members. The three employee representa tives were elected by and from the company’s employees on 16 September 2008 for a two-year term of office. Board members’ CVs are published in the annual report, and their shareholdings are reported in note 8. Updated CV and information on share ownership can also be found on the company’s website. BWG Homes ASA and its subsid iary Block Watne AS have the same employee representatives. The Board’s independence

The majority of the shareholderelected Board members do not have any association with BWG Homes’ management, its impor tant business associations and principle shareholder(s). Chairman Harald Walther is a lawyer with his own law business. Part of this business includes carrying out assignments for BWG Homes and in more limited extent also for its subsidiaries. The entire Board is informed of these assignments and fees for them are approved by the Board. In 2008, Harald Walther

CEO Lars Nilsen is chairman of the Board of the subsidiaries Block Watne AS and BWG Homes AB. He is not a member of the Board of BWG Homes ASA. Election of the Board

According to the articles of association, the Board of BWG Homes shall consist of between five and seven members. In accordance with the agreement approved by the Corporate Democracy Committee, three of the Board members and their deputies are elected by and from the employees. The general meeting elects the shareholderelected Board members after considering the recommendations of the nomination committee. The chairman and deputy chair man are elected by the general meeting. Board members are elected for a term of two years. Remuneration of the Board is decided by the general meeting following a recommendation from the nomination committee. Information on Board members and candidates

Relevant information about Board members can be found in the annual report and on the company’s website. Detailed information about candidates is enclosed with the notice of the general meeting and is also available on the company’s website. Board members’ holdings

The shareholdings of Board mem bers and executive management are reported in note 8. An updated list is also available on the comp any’s website.

61 CORPORATE GOVERNANCE

RELATIONS OF RESPOSIBILITY GENERAL MEETING Board of Directors CEO

Nomination commitTee

Executive Mangement

The work of the Board The Board’s tasks

The Board of directors has overall responsibility for the manage ment of BWG Homes and imple mentation of the company’s strategy. This also includes mon itoring and supervision of BWG Homes’ operations. The manage ment of BWG Homes draws up proposals relating to strategy, long-term goals and budget. The final budget is approved by the Board of directors. The CEO is appointed by the Board. Instructions for the Board

More detailed regulations relating to the Board’s areas of responsi bility and administrative proce dures are specified in separate instructions. The chairman is responsible for ensuring the Board’s work is performed in an efficient and correct way, in accordance with current legisla tion and the adopted instruc tions. The Board produces an annual plan for its work. Instructions for the CEO

The CEO is responsible for the day-to-day operations of BWG Homes. The CEO also ensures that the accounts of BWG Homes com ply with legislation and other relevant regulations, and that the assets of BWG Homes are managed responsibly.

The CEO is appointed by the Board of directors and reports to the Board. The CEO’s remuneration is decided by the Board. The CEO’s authority and areas of responsi bility are defined in separate instructions adopted by the Board.

internal control, values, ethical guidelines, organisation structure and corporate governance prin ciples. The Board annually evalu ates the company’s management and organisation structure.

ensuring the company has sound internal control and risk management systems. The Board periodically receives reports which include opera tional, economic and financial status, as well as management’s evaluation of significant risks and its own management of them. The Board’s annual plan includes an annual review of the company’s risk areas, internal con trol systems, values and ethical guidelines. The main components of the company’s risk areas and internal control systems associ ated with financial reporting are discussed separately in the annual report. The auditor reviews BWG Homes’ internal control with the Board of directors. The review includes discussion of identifiable weak nesses and suggestions for improvement. See also note 18 “Financial risks”.

Financial reporting

At 31 March 2009 CEO Lars Nilsen has a 32.52 per cent holding in BWG Homes through his com panies Lani Industrier AS, Lani Development AS and Lagulise AS. Chairman of the Board

The chairman of the Board is responsible for ensuring the Board’s work is well organised and effective. Board business is prepared by the CEO and manage ment in consultation with the chairman of the Board. The chairman of the Board declares general meetings open.

The Board periodically receives reports on the company’s eco nomic and financial status. The CFO submits and reports on the interim and annual financial statements. The Company fol lows the deadlines from the Oslo Stock Exchange for interim reporting. Board committees

The Board did not have any Board committees in 2008. The Board will establish an audit committee when this becomes mandatory. Board’s evaluation of its own work

Meeting structure

Seven Board meetings are nor mally held during the year, plus a separate strategy meeting. Extraordinary Board meetings are held, if required, to deal with business which cannot wait until the next ordinary Board meeting. Nine Board meetings were held in 2007. The Board also has a fixed annual plan for its work. The annual plan encompasses approval of strategy, interim accounts, annual accounts and budget, review of risk areas,

The Board carries out an annual evaluation of its own perfor mance, working arrangements and competence. A summary of this evaluation is communicated to the nomination committee. The Board also carries out a simi lar evaluation of the CEO.

10.

Risk management and internal control Responsibility and object of the Board

The Board is responsible for

The subsidiaries Block Watne AS and BWG Homes AB have implemented authorisation and attestation instructions with rules for entering into agreements and approving payments. All employees have clear guidelines on the extent of their own authority and where the next level for deci sions or approvals lies. The CEO has operative responsibility for following up these guidelines. The planning, management, implementation and evaluation of construction processes and projects are integrated into BWG Homes’ business opera tions. Construction projects are systematically reported to the company’s management.

11.

Remuneration of Board and nomination committee

Remuneration of Board members is decided by the general meeting following a recommendation from the nomination committee. Remuneration of the Board is not performance-based on and no options are issued to Board members.

BWG Homes ANNUAL REPORT 2008

62 Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

In 2008, the chairman of the Board performed assignments for the company among other matters in connection with various schemes related to the financing of the Group’s business. The entire Board was informed of his assignments and fees for them were approved by the Board. The AGM held on 21 May 2008 adopted the following Board fees, see below. See note 8 to the consolidated income statement for a break-down of fees paid in 2008.

12.

Remuneration of executive management Guidelines

In accordance with § 6-16a of the Public Companies Act, the Board draws up a statement about the determination of executive management salaries and other remuneration. The statement is presented to the general meeting and this is followed by a consul tative vote on the statement. The CEO’s remuneration is decided by the Board. Remuneration of executive management is decided by the CEO. Members of executive management have agreements allowing early-retirement bene fits for until 12 months beyond the period of notice. There are no other agreements for executive management or the Board with regard to special compensation on termination of employment or change of employment.

Performance-related remuneration

Members of executive management have a bonus programme based on the company’s results. Members of executive management do not have any equity compensation benefits or share option schemes. BWG Homes is not under any obligation to grant executive management, the Board or other employees profit-sharing, options or similar ben efits. The CEO may propose payment of a discre tionary bonus to executive management. This must be approved by the chairman of the Board. Policy and reporting

The company’s executive management remune ration policy is described in the annual report. For payment of all components of remuneration to the CEO and other executive management, see note 8.

13.

Information and communication Guidelines on reporting financial and other information

BWG Homes’ information and communication is based on openness and equal treatment of all shareholders. The company provides investors and analysts with equal and simultaneous access to new and price-sensitive information. The com pany has defined guidelines for investor relations and financial information. BWG Homes’ communication with the financial market must give investors and analysts the best possible basis for creating an accurate picture of the company’s financial position, key value driv ers, risk factors and other considerations which may affect future creation of added value. At the same time, company management must try to harness policy signals from the market. The company has pledged to provide the financial market with precise, relevant, timely and consistent information about factors of importance in valuing

REMUNERATION TO THE BOARD OF DIRECTORS

Chairman Deputy Chairman Board member Employee representative Deputy member per meeting

NOK

180 000 150 000 120 000 50 000 3 000

the company’s securities, when BWG Homes is the correct source of such information. Company spokespersons have been designated for different subjects. The company has a contingency plan for manage ment of the media in response to events of a particular nature. Reports and announcments

BWG Homes follows the Securities Trading Act in its interim reporting. The complete annual financial statements, Board of directors’ report and annual report are available on the company’s website no later than 21 days before the AGM and are sent to shareholders no later than 14 days before the date of the meeting. The financial calendar is published annually as a stock exchange notice, and can be found on the website and in the annual report. Announce ments are published and distributed in an “efficient and non-discriminatory way” to the Oslo Stock Exchange and simul taneously to national and international news agencies, in accordance with §5-12 of the Securities Trading Act and the Stock Exchange regulations. Dialogue with shareholders and the financial market

The CEO and CFO are the com pany’s financial market spokes persons, and have ongoing dialogue with investors and analysts. Open presentations are arranged in conjunction with the publication of interim reports. All interim presenta tions are also available as live webcasts. After the interim presentation, investor presen tations are held, both nationally and internationally. The company does not hold any meetings with analysts or inves tors for a period of four weeks prior to the publication of its interim results. All price-sensitive information is published in an “efficient and non-discriminatory way”

63 in Norwegian and English. Stock exchange announce ments, press releases, reports, presentation material and webcasts are available on the company website. BWG Homes satisfies the require ments for the Oslo Stock Exchange Information Symbol (I) and English Symbol (E).

15.

Auditor Election of the auditor

CORPORATE GOVERNANCE

ARTICLES OF ASSOCIATION OF BWG HOMES ASA

BWG Homes has used KPMG as its auditor in 2008 and continues to do so in 2009. The auditor’s primary duty is to perform the auditing mandated by the law and professional standards with the accuracy, competence and integrity prescribed by the law and professional standards.

§1 The company’s name is BWG Homes ASA, and it is a public limited liability company.

Takeovers Equal treatment and openness

The Board of Directors’ relationship to the auditor

§3 The company’s registered business address is in Oslo.

The company’s articles of associ ation do not contain any restric tions with regard to share pur chase. The Board works on the basis that all shareholders are treated equally. The Board will not, without good reason, seek to obstruct or hinder takeover bids for shares in BWG Homes.

Special instructions have been adopted for the Board of Directors’ relationship to the auditor. The instructions include guidelines for the company’s access to make use of the auditor for other services than auditing. The auditor shall meet with the Board of Directors at least once a year without the management being present. The auditor shall once a year present a letter of confirmation of the established requirements on independence. The auditor shall participate at Board meetings that discuss the annual accounts. The auditor is entitled to be present at General Meetings.

14.

Evaluation of offer

In the event of a takeover bid for some or all of the company, the Board will ensure that shareholders are treated equally and that BWG Homes’ business activities are not disrupted unnecessarily. If a bid is made for BWG Homes’ shares, the Board will issue a statement evaluating the offer and making a recommendation as to whether the shareholders should accept it or not. The Board will obtain an independent valuation and com municate this to the shareholders in its statement. If the Board is unable to make such a recom mendation, it will report on the background to this decision. If the Board’s views are not unani mous, it must explain the basis on which specific members of the Board have excluded them selves from the Board’s state ment. The Board’s statement will in other respects follow the guidelines of the Securities Trading Act. Disposal of activities

Any transaction that is in effect a disposal of the company’s activities is decided by the general meeting.

The auditor shall present the main elements of the plan for performing the auditing work to the Board of Directors every year. The auditor shall review any material changes to the BWG Homes’ accounting princi ples, evaluations of significant accounting estimates and any material matters where there may have been disagreement between the auditor and the management. The auditor shall review the BWG Homes’ internal control with the Board of Directors, including identifiable weaknesses and improvement proposals, at least once a year. The Board of Directors will inform about the auditor’s fees broken down into auditing and other services at the Annual General Meeting.

§2 The object of the company is to engage in building operations and other similar operations, either under its own direction or through participation in other companies. The company may grant loans and furnish security in this connection.

§4 The company’s share capital is NOK 98 276 000 divided into 98 276 000 shares each with a nominal value of NOK 1. §5 The company shall have a Board of Directors consisting of five to seven Board Members, as determined by the General Meeting. The Board of Directors, including its Chairman and the Deputy Chairman, shall be elected by the General Meeting for a term of two years. The Company can be signed for by the Chairman of the Board or the Deputy Chairman individually, or by two Board members jointly or by whomsoever the Board otherwise delegates signatory rights. §6 The company shall have a Nomination Committee consisting of three members which are elected by the General Meeting for a term of one year. The Nomination Committee shall nominate candidates for the Board of Directors and the Corporate Assembly (if any) and the remuneration for the members of these bodies. The Board of Directors may lay down instructions for the Nomination Committee. §7 The Annual General Meeting of shareholders shall consider and decide on the following matters: a) Approval of the annual report and accounts, including the dividend to the shareholders. b) Any other matters that shall be dealt with by the General Meeting by law or pursuant to the Articles of Association. §8 In all other respects, the provisions of the Public Limited Companies Act shall apply.

BWG Homes ANNUAL REPORT 2008

About the reporting 64 Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes

For the Annual Report 2008 BWG Homes has chosen to publish parts of the business description at the company’s website. See below for an overview of where the various articles can be found.

Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

www

www/annual

Our brands Block Watne Hetlandhus Myresjöhus SmålandsVillan Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes History Value chain Business areas Management review Report from the Board of Directors Annual accounts Group Income statement Balance Sheet Cashflow statement Notes Annual accounts Parent Income statement Balance Sheet Cashflow statement Notes Auditor’s report Corporate governance Investor information

www.bwghomes.no

www.bwghomes.no/annualreport08

annual report 2008

Contact information 73 NOTES PARENT

BWG Homes ASA P.O. Box 1817 Vika, NO-0123 Oslo Tel: (+47) 23 24 60 00 Fax: (+47) 23 24 60 13 E-mail: post@bwghomes.no

Block Watne AS P.O. Box 1817 Vika NO-0123 Oslo Tel: (+47) 23 24 60 00 Fax: (+47) 23 24 60 01 E-mail: post@blockwatne.no

HETLANDHUS AS P.O. Box 1817 Vika NO-0123 Oslo Tel: (+47) 22 01 20 00 Fax: (+47) 22 01 20 01 E-mail: post@hetlandhus.no

BWG HOMES AB Myresjö SE-574 85 Vetlanda Tel: (+46) 383 963 00 Fax: (+46) 383 914 40

Myresjöhus AB Myresjö SE-574 85 Vetlanda Tel: (+46) 383 960 00 Fax: (+46) 383 914 40 E-mail: kontakt@myresjohus.se

Design: CREUNA Photo: Bård Ek, page 2, 4 and 8 Kjell Israelsson, page 5 Jarle Nyttingnes, page 7 Kolonihaven Studio, page 7 Duo fotografi, page 7 Print: RK Grafisk

SMÅLANDSVILLAN AB Myresjö SE-574 85 Vetlanda Tel: (+46) 382 345 50 Fax: (+46) 383 962 05 E-mail: info@smalandsvillan.se

BWG Homes ANNUAL REPORT 2008

68 NOTES Parent Key figures and Highlights Letter from the CEO Letter from country managers This is BWG Homes Report from the Board of Directors Annual accounts and notes Group Annual accounts and notes Parent Corporate governance About the reporting

www.bwghomes.no BWG Homes ASA P.O. Box 1817 Vika NO-0123 OSLO