Annual Report2009

Key figures 2008 - 2009

INCOME STATEMENT 2009 2008

Operating income 565 601 553 287

Annual growth operating income % 2,2 % 19,5 %

EBITDA 44 271 76 262

EBIT 4 022 52 300

Return on total assets -1,2 % 1,5 %

Return on equity -2,4 % 3,1 %

Total assets 732 999 868 784

Equity 364 145 421 311

Equity ratio 50 % 48 %

Current ratio 0,71 0,79

Earnings per share -0,41 0,75

Number of shares (average for year) 20 990 17 616

Share price 11,50 11,30

P/E -27,9 15,0

Number of employees 31.12 355 392

Operating income per employee 1 593 1 327

The figures for 2008 include the merger with CashGuard AB with effect from 10 June 2008 for accounting purposes

1) Return on total assets (Profit + interest) x 100

Average total assets

2) Return on equity Profit x 100 Average equity

3) Equity ratio

Equity 31.12 x 100 Total assets 31.12

4) Current ratio

Current assets 31.12 Current liabilities 31.12

5) Earnings per share Annual profit Average no. of shares

6) P/E

Share price at end of year Earnings per share

7) Operating income per employee Operating income Number of employees 31.12

This is PSI Group...3

Complete security...4

Retail Solutions: # 1 in Retail Technology...6

Technology and partner structure...7

Directors’ report for 2008...8

Consolidated financial statements and reports...12

Income statement...12

Balace sheet...13

Cash flow statements...15

Statements of changes in equity...14

Notes...16

Statement of holding with notes...38

Income statement...38

Balace sheet...39

Cash flow statements...40

Notes...41

Corporate governance...48

Auditors’ report...50

Contact information...53

Contents

PSI Group consists of three primary business areas where each has its distinct identity and profile with regards to development, sales and implementing the various technology solutions the Group offers. The three business areas are Retail Solutions, Cash Management Retail and Cash Management CIT/ATM.

The Group has gained a leading position in the most central and potentially important markets within each of these business areas and overall.

This is PSI Group

Per Haagensen

Division Manager Retail Solutions Per Haagensen manages the division Retail Solutions, the Group’s biggest business areas measured in revenue.

Haagensen, who took of- fice in 2010, has an MBA from BI – Norwegian School of Manage- ment. Before joining

PSI Group he was Managing Director in Tomra AS for 12 years, resulting in leading insight and knowledge of technology solutions for the Retail segment.

A leading supplier of technology solutions for the Retail segment in Scandinavia with affili- ated sales, services and consumables for this market segment

Jørgen Waaler has been CEO of PSI Group since 2006 and prior to that he was PSI Group’s vice CEO for four years. Jørgen Waaler has gained a deep and broad understanding in the technology, market conditions and the commercial opportunities after almost ten years in the Group’s top management. He has studied economics and has an MBA from University of Wyoming from 1983. Waaler has worked within IT his whole carrier, first as finance con-

sultant, consultant manager and IT manager in Fabritus AS, than later as CEO in Norsk Computer Industri AS, sales manager in Norsk Data AS, managing director in European Trading Corporation AS and CEO in iGroup

ASA, before he came to PSI Group in 2002.

Anders Nilsen has been CFO in PSI Group since 2007. With a degree from University of St. Andrews (Master of Arts in Managament with Senior Honours) and an IT degree from NITH, Anders Nilsen has particular exper- tise within technology and finance. His prior working experience

includes Finance Manager in Konica Minolta Business Solutions Norway as well as Financial Controller at Get and Helly Hansen.

Torgeir Abusdal

Division Manager Cash Management Retail Torgeir Abusdal has led the division

Cash Management Retail since 2010, after first leading inter- national sales and marketing for CashGuard. Abusdal has an MBA from BI – Norwegian School of Management.

He was Marketing Direc- tor and Training Manager

in Norgesgruppen for over ten years through his job as Director for Value-added Services in Ica, prior to joining PSI and CashGuard. Abusdal’s experience provides commercial knowledge re- lated to the focus on CashGuard.

Developing, producing and marketing world leading technology solutions through the brand CashGuard™ for efficient, closed and secure cash management in Retail.

Jørgen Waaler CEO

Erik Svedmark

Division Manager Cash Management CIT/ATM Erik Svedmark has managed Cash-

Management CIT/ATM since 2008. Svedmark is graduate civil engineer from Linköpings University with significant post- graduate studies. He has been a researcher at the Swedish Defence Reaserch Establishment (FOA), re-

search engineer and team leader at Bofors Aero- tronics AB related to the fighter plane JAS 39 as well as working in Telia and withholding several leading positions en Ericsson.

Developing, producing and marketing world leading technology solutions though the brand SQS™ for efficient, closed and secure cash management for CIT and ATMs.

Retail Solutions Cash Management

Retail Cash Management

CIT/ATM

PSI Group ASA

As part of the efforts to establish a solid foundation organisational as well as for business after the merger between PSI Group and CashGuard in 2008, recruitments were made last year to ensure a complete Group management with broad experience and competence within the Group’s business areas.

Complete Group management in place

Anders Nilsen

CFO

The Group’s objective is for PSI to become leading global supplier of closed and secure cash management solutions in the community – wherever cash is in circulation. This will be achieved through extensive and increasing international partners- hips, continuous significant investments in product development and comprehensive systematisation of customer know- ledge and needs. The Group is already in a leading position within these areas – through unique and

complete technology solutions from both SQS and CashGuard – securing the entire value chain individually and collectively.

Cash Management CIT/ATM

SQS is also a significant sub-supplier of associated dyeing technology that forms part of CashGuard’s advanced cash han- dling systems for those who require the high- est level of security. This makes PSI a world leading supplier through the Group’s secure solutions for the storage and transportation of cash without the need of armour plating.

The solutions offered by SQS are based on patented and advanced dyeing technology making it impossible to reuse notes from burglary, robbery or theft from security trans- port, ATM or Retail.

The SQS product secures cash though dyeing at burglary or robbery attempts. The solutions from SQS are used extensively by a string of banks and security transport com- panies in Scandinavia and Europe and else- where in the world. The market for securing ATMs and security transport without the need of armour platting is expected to grow. PSI is leading in this area with the Group’s security solutions from SQS.

From late 80s Norwegian security trans- ports has been ahead in finding innovative so- lutions for cash security. While other countries have focused on the staid, the Scandinavian Security Directors have focused on finding technical solutions. On these grounds armour

Cash Management CIT/ATM develops, produces and sell the most advanced cash protection solutions for se- curity transport and ATMs available on the market. In this area market leading and intelligent transport, case and storage solutions from SQS are offered, for secure and efficient cash transport.

platting will lose market shares because of high operational costs and lack of security.

When SQS introduced an advanced secu- rity transport case in the mid 90s, it became a bestseller in Norway and later on also in France, Belgium and Sweden. With time more and more European security companies has increased their focus on advanced technolo- gy for securing cash instead of using armour and weapons because it is safer and cheap- er. This applies particularly France, Belgium and England.

The application of SQS’s dyeing technol- ogy is also adjusted for solutions securing ATMs (ATM) and cash registers within retail (CashGuard Blue).

Norway and Sweden are among the countries in Europe with the lowest security transport robberies. At the same time more and more European countries adopt these solutions with the recognition of that “these solutions work”.

One market with significant growth is Eng- land, where SQS in corporation with one of the leading security transport companies recently has developed a new case with great interest in the market. Great Britain is now one of the fastest growing markets for SQS.

SQS has a strong focus in customer

friendly system solutions, besides securing valuables, and are an over- all supplier of security and logistic systems for security transport.

- Market leading supplier of security transport in Europe

Complete security solutions for the entire value chain

● SQS was established in 1974

● Production i Skellefteå

● Security solutions for CIT, ATM, Retail and weapons storage Facts about Cash Management CIT/ATM

CASH MANAGEMENT CIT/ATM

● PSI offers complete solutions for secure cash management in a closed system

● It provides unique securing of cash throughout the entire transport and distribution

● chain – from consumer and retail center to the monetary central and out again

“No losses wherever money moves”

products from SQS, PSI Group can offer unique across the entir e value chain.

solutions for closed and secure cash handling

With CashGuard B lue and security

Coin Recycler A8

• Coin machine with automatic feeding.

• Coin Recycler A8 lets the customers pay with all coins they may have on them.

• One can put up to 50 coins simultaneously in the coin bowl.

• The coins are automatically checked for authenticity and cor- rect change is returned.

• The amount is visible for the customer and any potential excess amount can be returned in larger units if desirable.

• Invalid coins are rejected..

Myntautomaten holder orden på all endring i beholdning, og risikoen for å gjøre feil ved påfylling eller kassatelling er ikke eksisterende. Kassapersonell trenger ikke lenger å manuelt telle mynter, og de kan unngå å bli utsatt for metaller som

kan medføre nikkelallergi.

Note Recycler H4

• The high level of security allows stores to accumulate cash over night

• You can relocate the cash to a safe whenever it suits you

• H4 is equipped with dyeing solutions to void notes obtained by robbery or burglary.

• The cabinet’s walls perceive any form of manipulation and trigger the dyeing function.

• H4 can not be open by force, tilted, heated up or any- thing similar without triggering the dyeing function RETAIL SOLUTIONS

Cash Management Retail

Cash Management Retail develops and produces CashGuards Cash Management solu- tions offering efficient cash handling with increased security and improves working environ- ment for employees. The stores save 20 to 30 minutes per register – everyday – by having an automatic cash settlement. At the same time the risk of embezzlement is eliminated.

- Pays it self with the associated savings

Complete security solutions for the entire value chain

CASH MANAGEMENT RETAIL

“No losses wherever money moves”

This has made CashGuard’s solutions for cash management preferred. With over 15,000 installed and well functioning CashGuard sys- tems, both CashGuard’s technology and PSI’s implementing and maintenance expertise are in demand by the largest supermarket chains, because CashGuard’s software and mainte- nance provides complete management and ef- ficiency of the cash logistics within retail. Cash Management Retail consists of CashGuard with affiliated partners and distributors in the Nordic region, in Europe and internationally – including

PSI in Norway and Sweden (Retail Solutions).

CashGuard produces and sells world leading solutions for efficient, closed and secure cash management in the cash registers. CashGuard was founded in 1991 based on a patented inven- tion in Sweden for closed cash management in retail. The first system was installed in 1994. Today CashGuard is market leading, with over 15,000 systems in operation in Europe, the Middle-East and South Africa and over two million customers use CashGuard systems every day.

CashGuard Blue

CashGuard Blue has in recent years sold approx. 1,500 units of CashGuard Blue(H5). This product has a high level of security which allows the stores to accumulate larger amounts of cash in the cash register over night. The product has a dyeing protection making it impossible to use notes obtained by burglary or robbery. Many in-store postal offices and bank offices has in- stalled CashGuard Blue which has eliminated the risk of burglary and robbery in these stores.

Recently a smaller and cheaper version of the CashGuard Blue (H4) was launched – with the same high level of security.

products from SQS, PSI Group can offer unique across the entir e value chain.

solutions for closed and secure cash handling

With CashGuard B lue and security

Retail Solutions

# 1 in Retail Technology

Solutions that increase stores’ efficiency, simplifying sales staff’s life

Reatil Solutions supplies a range of technology solutions for the supermarket and retail sector, including CashGuard Cash management solutions as well as packaging machines and solutions for electronic shelf labels, Auto-ID, interactive TV, product scanning and bottle deposit machines. Everything delivered with complete service and maintenance as well as a regular supply of consumables such as adhesive labels with a variety of designs. In these areas PSI is the leading and preferred supplier of technological solutions to the retail sector in Scandinavia. Retail Solutions primarily comprises the activities of PSI System AS in Norway and PSI Antonson AB in Sweden.

PSI PRODUCTION SVERIGE

● PSI was established in 1986

● Acquired the Swedish company Antonson (established in the 1890s) in 2004

● Is market leader with the most slid product and service platform and with strong brands in Scandinavia.

● Largest CashGuard distributor Facts about Retail Solutions

PSI PRODUCTION NORGE PSI ANTONSON SVERIGE

The last years PSI’s Norwegian label press increased production capacity consider- able. At its 4,000 sq m premises outside Oslo it produces a wide range of labels for several supermarket chains and other large customers.

The last years PSI’s Swedish label press was expanded with a

number of new print- ing presses and

increased capacity.

Digital Signage (Interactive TV) PSI specialises in visual communica- tion towards cus- tomers, employees and visitors though so called Digital Signage. With self developed software, MyTv- media, there has been delivered interactive TV solutions to customers like McDonalds, Esthet- ique, Nespresso, Møller, Plantasjen, The Norwe- gian National Opera & Ballet and Nato. MyTv al- lows you to control TV screens in several stores – and nationwide retail chains – with simply designed shared content. In this way central- ized campaigns can easily be administrated by retail chains or stores with PSI’s flexible tools to make advertising posters with video, images and text.

AutoID/POS solutions and labeling systems PSI is a leading retailer within AutoID (data cap- ture and marking) as well as self-produced adhesive labels, which are included in the cus- tomers technological installations as consumables. Scanners, hand- held terminals, label and ID card printers as well as a variety of cash register equipment and bank terminals are provided in corporation with world leading producers.

Equipment

PSI also sells a wide range of equipment, includ- ing Thermal Transfer Ribbons (TTR), toners, inc cartridges, receipt rolls, packaging film, equip- ment for catering etc.

Own label printing presses

Currently PSI has two printing presses, PSI Production AS at Tangen outside Oslo and PSI Antonson AB in Mölndal by Gothenburg. The Swedish printing press was first to be ISO9002 certified in the industry. Modern production equipment, qualified printers, flexible solutions and high speed provides efficient production and competitive prices on the adhesive labels.

Scales and pack- aging machines PSI is the leading supplier of Digi’s scales and packag- ing machines in Swe- den and Norway. As an overall supplier PSI provides every- thing from control scales and price calculating kiosk scales to advanced and fully automatic packaging ma- chines. PSI has solutions to meet all the require- ments to weighing, packaging, tracking and labeling in a fresh produce department and in the fruits and vegetables department.

Bottle deposit solutions

PSI and Repant provides high qual- ity comprehensive bottle deposit solu- tions. Repants prod- ucts are based on the idea of making simple and com- petitive recycling machines. PSI is ex- clusive distributor of Repants products in Norway and Sweden providing cash col- lateral systems for the deposits, maintenance systems, and logistic systems for handling packaging.

Electronic

shelf labels

PSI offers a broad

range of Pricer’s

electronic shelf lable

solutions. With the

high-quality man-

agement system

Pricer is easily integrated to back office sys-

tems (POS software) trough Pricer’s File In-

terface. Pricer makes it easy and efficient for

chains and stores to adjust the pricing infor-

mation, improve inventory and reduce the risk

of incorrect pricing.

Unique technology

ensure competitiveness

PSI Group’s unique, secure and patented solutions within a variety of areas will in combination with the Group’s technological advantage – associated SQS and CashGuard – provide real competitiveness in several areas.

The Group’s strong technological position is secured through the unique dyeing system, with more than ten years remaining of the patent protec- tion. The greatest advantage with the patented dyeing system is how the dye by a blast will spread all over the notes by any attempts of burglary.

PSI Group’s technology, through SQS and CashGuard’s transport and cash management solutions, has proven to be very reliable and stabile. PSI Group, through SQS and CashGuard, simply owns the world’s leading tech- nology for securing cash, offering a broad application range in new areas.

One foundation, several technologies

PSI Group holds all rights to the development of patents connected the technological solutions from SQS and CashGuard. The systems have many similarities and a lot of the same technologies but there are also differences.

The security transport cases and ATM protection from SQS utilize dye- ing technology than CashGuard. A lot of the same foundation is used in

both systems but CashGuard uses a mechanical system to spread the patented dye, instead of explosives.

Whatever system, the amount of dye and colour quality is the most important. Al dyeing solutions from PSI Group is complete and perma- nent whether used in CashGuard’s cash management system or in SQS’

security transports.

Another key common feature is that PSI Group owns all the patented technology, ensuring income in form of resale. The idea behind the technological solutions, either for fixed installations or for transportable units, allows PSI Group to sell secure, patented solutions where cash is handled.

The secure and patented solutions are of key value for PSI Group as a Group and for every single company, as it secures the customers values. This value also ensures the Group’s leading competitiveness in the years ahead.

More complete

partner structure

CashGuard’s international efforts progress with the hiring of sales staff in emerging countries and with several new partner agreements in place – especially in Europe. On these grounds the international volume of CashGuard is expected to increase the next years, with good growth already this year.

At the same time the international growth strategy is adapted by the fact that the focus no longer is solely is on markets such as Norway and Sweden as well as Germany and France. Alongside the partner and distributor agreements fo CashGuard established in Finland and Denmark in 2009, several similar agreements has also been signed in other markets the last year. This means that the expectations for new and potentially exciting markets also increases, such as Spain, which is expected to be a significant export market for CashGuard. At the same time 2010 is a year where key partner relationship must be developed with emphasis on establishing and developing a corporation with small and medium sized partners in the biggest and most important European markets.

The Group is working hard at building and expanding its partner

networks in Europe. The objective is to create a European network with

partners in key markets. CashGuard has developed a roadmap for

launching products forward with a focus on totally closed solutions for

internal cash transports as well as transporting cash from store to count-

ing terminal. This is why new products accommodating these customer

needs will be launched during the next year. CashGuard has extensive

corporation with most cash transport companies (CIT).

Introduction

The last year has been affected by the merger between PSI Group ASA and CashGuard AB in 2008. The Board has focused on implementing the new Group structure as well as establish- ing an extended Group management adapted to the new structure. The Board is not satisfied with the company’s profit and development in 2009. Thus, cost reductions and downsizing in the Retail Solution division have been intialized.

These measures gradually showed results from 4th quarter 2009, with full effect from the be- ginning of 2010. Further cost reductions in 2010 can not be excluded.

2010 is expected to turn into another demand- ing year for the Group. While a stabile growth in revenue within the Retail Solutions division is ex- pected, the imposed cost reductions will improve the proft within this business area. The business area Cash Management Retail is expected to see stabile revenues in the established markets in Scandinavia as well as a moderate increase in revenues related to the European export markets.

There is an increasing interest for the division’s products in Europe. Cash Management CIT / ATM is well positioned for growth within securing cash in transit as well as in ATMs, but the business area is based on contracts and therefore it is crucial that the company gets new contracts with exist- ing customers in the EU or in new markets.

The company’s activities

PSI Group is the leading global supplier of se- cure and closed cash handling solutions in the market – wherever cash is in circulation. It is also Scandinavia’s leading tehnology supplier of complete retail solutions and supplies to the retail value chain.

PSI, which is listed on both the Oslo Stock Ex- change and the Nasdaq in Stockholm, aims to be an attractive and innovative company for its customers, investors and staff.

The company’s headquarters are in Rælingen, near Oslo. The company’s Swedish business is managed from Stockholm, Gothenburg and Skel- lefteå. PSI also carries out business via subsidiar-

ies in Britain, France, Belgium and Germany and from more than 30 service locations in Norway and Sweden.

Financial statements for 2009

The consolidated financial statements are based on IFRS. The merger with CashGuard AB was conducted with accounting effect from 10.6.2008.

The income statement for 2008 therefore in- cludes The CashGuard Group from 10 June 2008.

The consolidated financial statements show that PSI Group ASA achieved revenue of NOK 563.8 million in 2009 compared with 550.9 in 2008.

Consolidated profit after tax showed a deficit of NOK 8.7 million for the year, compared with a profit of NOK 13.2 million in 2008. The decline is mainly due a slower turnover in Retail Solutions and Cash Management CIT/ ATM, as well as the write downs of intangible assets in Cash Man- agement of NOK 13.3 million. The results for 2009 include a one-time post of NOK 4.0 million related to down sizing the division Retail Solutions.

Total assets for the Group were NOK 733 million as at 31 December 2009. The strong decline is largely due to currency fluctuations, which par- ticularly affected the Group’s Swedish values, because the Swedish exchange rate was signifi- cantly reduced during the year compared to Nor- wegian currency. That gives a negative currency effect of NOK 48 million and together with the Group’s loss after taxes by NOK 9 million, total as- sets are affected negatively. Equity is NOK 364.1 million which gives an equity ratio of 49.7 per- cent. Distributable equity of the parent company amounted to NOK 87.6 million. The large increase in distributable equity is due to transfers from the share premium reserve by NOK 100 million.

Net interest-bearing debt reduced to reflect bank deposits of NOK 9.7 million, amounted to NOK 187.6 million by the end of 2009, a de- crease of 31.8 from 219.4 at the end of 2008. The Group has a joint Cash Pool, creating benefits regarding a more efficient management of the Group’s liquidity and cash flow. With the Cash Pool and refinanced loans terms, combined with expected ongoing positive cash flow from op- erational management, further reductions of the

Directors’ report for 2009

company’s long term debt in 2010 is intended.

The Group’s liquidity was NOK 9.7 million at the end of the year, including restricted cash of NOK 0.3 million. Unused credit facilities amounted to NOK 37.8 million. The Board considers the Group’s liquidity and financial strength to be limiting the ability to grow through acquisitions, but still it is considered adequate for funding continued organizational growth. It is with the main bank agreed as part of the company’s loans terms that the first regular measurement of specified requirements for the relationship between income and EBITDA (earnings before depreciation) will be in 30 June 2010. Compli- ance with existing agreements with the compa- ny’s main bank assumes a positive development of the Group’s results in 2010.

The cash flow statements show a positive cash flow from operational activities of NOK 42.7 mil- lion in 2009 compared with NOK 52.3 million in 2008. Investments of NOK 17.5 million are mainly activated development cost and IT investments.

Risks

So far the financial crisis has only affected PSI to a limited extent. Historically the company’s mar- kets have been resistant to economic downturns as investment in both the supermarket and secu- rity sectors has traditionally not been significantly affected by financial and macroeconomic fluctu- ations. It must still be expected that the financial crisis and ongoing recession may also affect the PSI Group’s areas of business. This creates more uncertainty in the times ahead. Macroeconomic circumstances may therefore increase the mar- ket’s risk, credit risk and liquidity risk.

The Group’s activities imply exposure to currency and interest rate risks. The interest on the Group’s interest-bearing debts is floating. Market condi- tions may lead to increasing challenges with regards to trade receivables and may therefore affect the company’s credit risks.

As a result of the circumstances described above

the liquidity risk is also considered to be higher

than previously. Measures have been introduced

to reduce the working capital. The liquidity risk

will be reduced as a result of the expected posi- tive cash flow from operations. We are working to incor¬porate the bank accounts of over¬seas sub- sidiaries into the group account system.

The financial statements are prepared under the assumption of continued operations.

It is the Board’s opinion that the published fi- nancial statements and accompanying bal- ance sheet and notes give a true and fair view of the company’s position and profit for the year of 2009. Apart from the issues addressed in the annual report the Board is not aware of any other circumstances that may affect the assessment of the company.

Segment information

Since the merger with CashGuard AB on 10 June 2008 the Group has been organized into three divisions: Retail Solutions, Cash Management CIT/ATM and Cash Management Retail. Before the merger PSI was segmented into two areas of business: Solutions Sales and After-sales.

Retail Solutions comprises the previous ac- tivities of PSI before the merger, including solu- tion sales and after-sales to retail, in¬dustry and the public sector. The division saw turnover of NOK 393.8 million in 2009 with EBITDA of NOK 14.9 million. In 2009 the division Retail Solutions signed several framework agrrements for deliv- ering CashGuard to the Norwegian and Swedish market. A new head of this division was also ap- pointed, starting 1 February 2010.

Cash Management Retail com¬prises the pre- vious activities of CashGuard, which includes all development, production and systems sales to all of Cash¬Guard’s global retail partners/

dis¬tributors, including the PSI com¬panies. The division saw turnover of NOK 107.4 million in 2009 with EBITDA of NOK 7.6 million. The divi- sion Cash Management Retail increased their focus on the Nordic market by entering distribu- tor agreements in Denmark and Finland. At the same time a new and smaller CashGuard Blue was launched. A new head of this division was appointed 1 January 2010.

Cash Management CIT/ATM com¬prises the activities of Security Qube Systems AB (SQS).

The divi¬sion delivers the most advanced cash security solutions for ATMs and cash trans- port available on the market. SQS is also a signifi¬cant sub-supplier of associated dyeing technology for CashGuard products aimed at retailers who require the highest level of secu¬rity. The division saw turnover of NOK 173.7 in 2009 with a EBITDA of NOK 28.7. Cash Man- agement CIT / ATM has consolidated its posi- tion as leading supplier of equipment for secur- ing cash in transportation and of ATMs.

Staff

There are 355 employees in the Group as at 31.12.09. In addition, there are employees in af- filiated service companies and Instore IT com- panies with a total of approx 75 employees.

Remuneration to the CEO of the company was NOK 1,274 thousand in 2009. In addition, bo- nuses for 2008 of NOK 138 thousand was paid in 2009. Neither the CEO nor CFO have pen- sion chemes or will receive pension benefits from the company expect for the compulsory company pension introduced in 2006 with 2 percent of the salary payments. See Note 4 in the Groups financial statements.

There are no share option schemes in place for company employees.

The Board’s policy with regards to the CEO’s remuneration primar¬ily involves a fixed salary plus a bonus in the region of up to 30 per cent of the fixed salary. The bonus criteria vary from year to year and may contain elements such as profit growth, share price and or¬ganisational development.

Research and development

Every year the Group allocates considerable re- sources to research and development.

In the Retail Solutions division these investments mean the company is a market leader in the field of tracking / nutritional content (SmartScale) in relation to scales and packing machines for supermarket fresh food cabinets. It is also a

Svein S. Jacobsen, Chairman of the Board

Svein S. Jacobsen has been Group CEO of Tomra ASA for eight years - during a period where the company expanded substantially - and currently he serves as Board Member of a several compa- nies, including Orkla ASA, Expert AS, Think Global AS, Vensafe ASA and Nordea Bank AB.

Erik Pinnås, Director

Pinnås startet his career as a service technician in Scanvekt-Antonson AS in 1980. After 4 years as a salesman in Pinnås System AS and 4 years as Sales Manager for barcode products in UBI AS, he established Pinnås System International AS and Pinnås System International AS in 1993 He was Chairman in PSI Group from 1997 to 1 March 2006.

Pinnås is currently head of the nomination

committee in PSI Group ASA.

leading Digital Signage supplier through its own applica¬tion MyTV. Some projects are part- financed by Skattefunn. In 2009 all development costs were allo¬cated to this segment.

With regards to Cash Manage¬ment Retail these investments mean the division is a market leader in the field of secure and closed cash handling solutions to the retail sector. Development ac- tivities are particularly centred around products linking Retail to CIT. In 2009 development costs of NOK 11.8 million were realised in this segment, as well as depreciations of NOK 5.0 millions and down-writements of NOK 13.3 millions of previ- ously balanced development costs.

For Cash Management CIT/ATM these invest- ments mean the divi¬sion is a market leader in the field of secure and closed cash han¬dling solutions for security trans¬port companies and suppliers of ATMs to banks. Development activi- ties are particularly centred around dyeing and tracking sys¬tems. In 2009 development costs of NOK 2.2 million were realised in this segment, as well as deprecations of NOK 10.3 million.

Environmental issues

The working environment is considered to be good. In 2009 the measures taken to improve the health of employees as well as the general work- ing environment was continued - including bo- nuses for staff who have given up smoke perma- nently. They included bonuses for staff who have given up smok¬ing permanently, registration fee subsidies for endurance competi¬tions and inter- national professional development conferences.

The company’s divisions comply with in-house and statutory procedures designed to prevent the pollution of the external environment. The to- tal leave-sick is estimated to 3.6 per cent (to 2.9 per cent the previous year) which is considered normal for this type of businesses. No employees have sustained any injuries or been involved in any ac¬cidents during the year.

Some subsidiaries sell and store products that are classed as being harmful to the environ- ment if they are not handled appropriately and

according to the relevant regula¬tions. The com- pany has addressed this issue, and the respec- tive sub¬sidiaries have agreements in place with licensed recycling companies. None of the sub- sidiaries handle substances that contain PCB. PSI Production AS delivers ink waste to an approved facility in Hedmark. SQS AB has an agreement with an approved supplier, Ragnsells AB, on the destruction of solvents contained in the dye used in the company’s products.

Equality

The Group aims to be a workplace where there is full equality between men and women. The Group has incorporated into its policy equal- ity measures that aim to ensure that there is no differential treatment because of gender on issues such as pay, promotion and recruit- ment. The company has traditionally re¬cruited staff from environments where men and women are equally represented. 50 per cent of the Group’s Board directors are female. Of the Group’s around 355 staff at the end of the year, around 80 were women. There are no female members of the Group manage¬ment team. There are two female managers in the Group’s divisions. The Group has more female than male part-time staff.

Working hours within the Group depend on the individual position and are independent of gen- der. However, the number of employ¬ees working part-time is some¬what higher amongst female staff, while overtime hours are slightly higher for male employees. Female employees are se- lected over men if the candidates are otherwise equally well qualified in the case of new appoint- ments. The Group also works to ensure that there is no gender bias in re¬lation to opportunities for training and promotion.

The Group does not discriminate the employee’s opportunities or development on basis of race, skin colour, religion, gender, national origin, age, sexual orientation or other characteristics.

The Group has not taken special measures to promote inclusion of Groups underrepresented in the employer market. The prospective employ-

Bente Holm Mejdell, Director

Holm Mejdell has broad experience from leader- ship and administration from both the public and private sector. She is Executive Director of Helse Sør-Øst and is former CEO of Norsk Kontant- service AS – NOKAS, Area Director in Norges Bank, as well as Executive Director HR and HSE in Dyno and Director of the Nursing Department in Oslo municipality. She also withholds several directorships within the public sector.

Guri Kogstad, Director

Guri Kogstad has experience from NorgesGruppen/

Kiwi and EFTA - and currently serves as Board

Member of Vensafe ASA. She also has extensive

experience and expertise within Human Resources.

Rælingen, 15. april 2010 ee’s qualifications are essential for the employ-

ment, regardless of disability and nationality.

Shareholders

The value of the company’s shares increased from NOK 11.25 at the beginning of the year to 11.50 at the end of 2009, representing an increase of 2 per cent for the year. As at 31 December 2009 the company has a share capital of NOK 13,756,572.40, spread over 22,188,020 shares with a nominal value of NOK 0.62. At the end of the period the company owned 1,197,927 treasury shares at an av¬erage value of NOK 9.85, making up 5.4 per cent of the total share capital.

The number of shareholders in the company at the end of 2009 was 8,742. The 20 largest share- holders represent 55.3 per cent of the total share capital. At the end of 2009 1,182 shareholders (516 sharehold¬ers registered through VPS and 666

registered through VPC) own a round lot (1,000 shares) or more.

Events after balance sheet date No material events have occurred since the be- ginning of the new year.

Future prospects

The company focuses on growth in new geo- graphic markets for the divisions Cash Manage- ment CIT / ATM and Cash Management Retail, while efforts are targeted to increase profitabil- ity in the Retail Solutions. The company is per- ceived to possess a strong technological and operational platform for international profitable growth in the future.

The parent company – PSI Group ASA The main function of the par¬ent company is to exercise opti¬mal ownership of its subsidiaries and maximise shareholder value through the

listing of the share in Oslo and Stockholm. PSI Group ASA only employs three people: the CEO, CFO and Corporate Controller.

The parent company PSI Group ASA saw an an- nual loss of NOK -11.6 million. Group relief has been received from subsidiaries to a value of NOK 13.6 million in 2009 compared with NOK 18.9 million in 2008. This is partly due to changes in exchange rates and associated currency effects.

Proposed distribution of annual profit The Board will propose to the annual general meeting that the profit of the parent company PSI Group ASA for 2009 be allocated as follows:

Profit for the year: NOK -11,555,544

Transfer from other equity of NOK 7,555 thousand and NOK 4,001 thousand from other accumulated equity issue proceeds.

Svein S Jacobsen Chairman of the Board

Erik Pinnås Director Rælingen, 15 April 2010

Guri Kogstad Director

Bente Holm Mejdell Director

Jørgen Waaler

Group Chief Executive Officer

Consolidated statement of comprehensive income

NOK Thousands INCOME STATEMENT

note 2009 2008

Sales revenue 3, 24 563 826 550 904

Share of profit associate companies, Service companies 6 1 775 2 383

Total operating income 565 601 553 287

Cost of goods sold 12 240 925 274 573

Payroll 9 180 988 152 423

Depreciation 10, 11 27 029 23 962

Write-downs 11 13 221

Other operating expenses 5,16,22 99 417 50 029

Total operating expenses 561 580 500 987

Operating profit 4 022 52 300

Interest income 8 1 806 6 169

Other financial income 8 1 658 7 632

Total financial income 3 464 13 801

Interest expense 8 10 146 19 458

Share of profit associate companies, CashGuard 10 697

Other financial expenses 8 6 024 10 710

total financial expenses 16 170 40 865

Net financial items -12 706 -27 063

Ordinary profit before tax -8 684 25 236

Tax 27 64 12 034

Profit for year -8 748 13 203

Of which

Majority interest -8 667 13 332

Minority interest -81 -129

-8 748 13 203

Other comprehensive income 2009 2008

Translation variances -48 417 27 429

Total comprehensive income -57 165 40 632

Of which

Majority interest -57 067 40 760

Minority interest -98 -129

-57 165 40 632

Earnings per share note

Earnings per share 23 -0,41 0,76

Fully diluted earnings per share 23 -0,41 0,76

Consolidated balance sheet

NOK Thousands Note 31.12.2009 31.12.2008

ASSETS

Intangible assets 11 144 085 177 370

Goodwill 11 313 090 346 602

Tangible assets 10 27 592 31 921

Land and buildings 10 10 578 12 778

Associate companies 6 9 187 8 844

Other long-term investments 7 490 517

Deferred tax 27 36 577 38 306

Total fixed assets 541 599 616 338

Short-term financial investments 7 25 707

Stock 12 75 137 98 402

Trade receivables 13 90 320 115 862

Prepaid expenses 13 3 107 6 607

Other receivables 13 13 118 9 849

Bank deposits etc. 14 9 692 21 018

Total current assets 191 400 252 446

TOTAl ASSETS 732 999 868 784

EQUITY AND LIABILITIES

Share capital 25 13 757 13 757

Treasury shares 25 -743 -743

Other equity items 25 351 100 408 168

Minority intrest 25 31 129

Total equity 364 145 421 311

Long-term interest-bearing liabilities 15 81 800 110 258

Long-term provisions 22 13 029 8 707

Other long-term debts 22 3 240 7 234

Total long-term debts 98 068 126 199

Current interest-bearing liabilities 15 115 452 130 153

Account payable 51 141 80 916

Tax payable 27 86 2 760

Indirect taxes 16 011 12 504

Other short-term liabilities 22,28 88 096 94 942

Total short-term liabilities 270 785 321 275

Total liabilities 368 854 447 474

TOTAl EquITy AND lIABIlITIES 732 999 868 784

Svein S Jacobsen Chairman of the Board

Erik Pinnås Director Rælingen, 15 April 2010

Guri Kogstad Director

Bente Holm Mejdell Director

Jørgen Waaler

Group Chief Executive Officer

Consolidated cash flow statement

Note 2009 2008

Ordinary profit before tax -8 684 25 236

Net interest 8 340 13 289

Tax paid -415 -428

Share of profit, associate companies 6 -1 775 8 313

Ordinary depreciation 10, 11 27 029 23 962

Write-downs 11 13 221 -

Realised loss on financial instruments 8 - 3 913

Non-realised loss on financial instruments 8 - 784

Realised profit on financial instruments 8 -663 -

Change in stock 14 912 4 031

Change in receivables 16 583 2 261

Change in account payables -23 407 -9 747

Change in other accrued items -2 437 -19 295

Net cash flow from operational activities 42 704 52 319

Net payments for fixed assets 10 -8 175 -11 402

Net capitalisation of development costs 11 -14 118 -5 111

Payment for CG shares - -10 234

Payment from sale of fixed assets 10 152 -

Payment from sale of financial instruments 7 1 370 660

Purchase of Repant shares 7 - -1 500

Interest income 8 1 806 6 169

Dividends received from associated companies 6 1 432 1 560

Net effect acquisitions - -13 777

Net change treasury shares 25 - -11 189

Net cash flow from investment activities -17 533 -44 824

Change long-term debt -16 435 -6 685

Change in overdraft -8 203 38 112

Trasaction cost of mergers taken to equity - -1 475

Interest expenses 8 -10 146 -19 458

Net cash flow from financing activities -34 784 10 494

Net change in liquid assets -9 614 17 989

Cash and cash equivalents at the start of the period 21 018 4 013

Effect of foreign exchange rate fluctuations -1 712 100

Deconsolidation PSI Finance - -1 084

Cash and cash equivalents at the end of the period 14 9 692 21 018

Premium account consists of paid capital over stock value.

Other paid in equity are funds which can be allocated by the general assembly.

Consolidated statement of changes in equity

Majority interest Minority

interest Total equity

Note Share capital

Share premium

account Treasury shares

Other paid-in

equity Translation variances Other

equity Total

Equity as at 31.12.2007 7 467 6 057 -17 8 879 -6 173 103 829 120 042 446 120 488

Profit for the year 27 429 13 331 40 760 -129 40 631

Net effect - purchase and sale of own shares -726 -10 464 -11 190 -11 190

Effect merger with CashGuard AB 6 289 277 924 -11 053 273 160 273 160

Merger transaction costs 4 -1 475 -1 475 -1 475

Tax effetc of transaction costs 4 413 413 413

Effect of deconsolidation of PSI Finance 27 -529 -529 -188 -717

Equity as at 31.12.2008 13 757 282 919 -743 8 879 21 256 95 114 421 182 129 421 311

Profit for the year -48 400 -8 667 -57 067 -98 -57 165

Reduced premium accounts -100 000 100 000 0 0

Equity as at 31.12.2009 13 757 182 919 -743 108 879 -27 144 86 447 364 114 31 364 145

note 1 // general information

PSI Group ASA is based in Norway with its registered office at Slynga 10 in the municipality of Rælingen. The company is listed on the Oslo Stock Exchange with the ticker PSI and at Nasdaq OMX in Stockholm with the ticker PSI_SEK. The consolidated financial statements include the par- ent company and subsidiaries (referred to collectively as “the group” or individually as “group companies” or “subsidiaries”) as well as the group’s shares in associate companies and jointly controlled entities. The group’s main area of business is the supply of progressive and advanced technol-

note 2 // accounting principles

Basic principles

The consolidated financial statements have been prepared in accordance with the EU-approved International Financial Reporting Standards (IFRS) and associated interpretations and with additional Norwegian dis¬closure requirements pursuant to the Accounting Act, Stock Exchange Regulations and stock exchange rules applicable to financial statements completed by 31.12.2009. The consolidated financial statements have been produced based on historical costs with the exception of certain financial instru- ments, which have been given at their fair value.

The group has incorporated all standards and statements required to in- troduce the financial statements prepared 31.12.2009. The introduction of changes in IAS 1 for the presentation has resulted in the preparation of comprehensive income statement. No new standards and statements be- yond that has caused significant changes.

Estimates and judgements

The preparation of financial statements in compliance with IFRS involves judgements, estimates and assumptions that affect the accounting prin- ciples applied and the reported amounts for assets, liabilities, earnings and costs. Actual amounts may deviate from estimated amounts. Estimates and underlying assumptions are reviewed and evaluated continually.

Changes in accounting estimates are factored in in the period the estimates are amended and in any future periods that are affected. Areas particularly affected by judgements and estimates include the allocation of excess val- ue from acquisitions and balance sheet entries for deferred tax assets and goodwill. The judgements made are detailed in Note 26.

Consolidation principles

The consolidated financial statements include those companies where the parent company and subsidiary directly or indirectly have a control- ling influence. The consolidated financial statements give details of the companies’ financial position, the results of that year’s activities and cash flow given as a collective financial unit. Uniform accounting principles have been applied to all companies forming part of the group. Newly acquired companies are included from the date a controlling influence was achieved. Companies are consolidated up until the date when the controlling influence ceases to exist. Any minority interests’ share of the profit and equity is shown as a separate item in the income statement but is included in the equity.

Any significant transactions or balances between companies within the group have been eliminated. Stakes in subsidiaries have been eliminated in the consolidated financial statements using the acquisition method. The difference between the cost price of the assets and the book value of net assets at the time of acquisition is analysed and allocated to individual bal- ance sheet items in accordance with their fair value. Any additional excess value caused by expected future earnings is recognised as goodwill.

ogy solutions for the retail sector, efficient solutions and securing of cash for the retail sector, and secure transportation and ATM solutions for the handling of cash. The company is divided into three areas of business:

Retail Solutions, Cash Management Retail and Cash Management CIT/ATM.

The proposed annual financial statements were adopted by the board and CEO on the date shown on the signed balance sheet. The annual financial statements will be reviewed by the ordinary general meeting for final approval.

Associate companies are evaluated using the equity method by the group.

Associate companies are entities over which the group has considerable influence but no overall control (normally in the case of stakes between 20% and 50%) over their financial and operational management. In the case of transfers from shares available for sale to associate companies any unrealised increase in value is recognised directly and reversed against equity. Associate companies whose main areas of business are directly linked to the activities of the PSI group are presented as operat- ing income – other associate companies are presented as financial items.

Any other investments are considered to be investments available for sale and are recognised in accordance with IAS 39 at their fair value and with any change in value through equity.

Translation of foreign currency

(a) Functional currency and reporting currency

The accounts of individual entities within the group are measured in the currency predominantly used in the economic area in which the entity operates (functional currency). The functional currencies largely consist of NOK and SEK. The consolidated financial statements have been pre- pared in NOK, which is both the functional currency and the reporting currency of the parent company.

(b) Transactions and balance sheet items

Transactions in foreign currency are translated into the foreign currency using the transaction exchange rate. Foreign exchange gains and losses that occur when paying for such transactions and when translating mon- etary items (assets and liabilities) in foreign currency at the end of the year at the exchange rate on the balance sheet date are recognised in the income statement. Monetary items in foreign currency are translated into NOK using the exchange rate on the balance sheet date. Non-mon- etary items measured at their historic exchange rate in foreign currency are translated into NOK using the exchange rate on the transaction date.

Non-monetary items measured at their fair value in foreign currency are translated using the exchange rate determined on the valuation date.

(c) Group companies

The income statements and balance sheets for group companies whose functional currencies differ from the reporting currency are translated as follows:

i. The balance is converted to the closing rate on the balance sheet date.

ii. The income statement is converted to the average exchange rate.

iii. Conversion differences are recognised in comprehensive income.

iv. Loans to overseas entities where repayment has not been planned or

is not likely in the foreseeable future are considered part of the net invest-

ment in overseas activities, and foreign exchange gains or losses linked

to such loans are recognised as translation differences in comprehensive

income.

Fixed assets

Fixed assets are recognised at their acquisition cost less any accu- mulated write-downs and depreciation. The acquisition cost includes costs directly linked to the acquisition of the asset. Subsequent costs are added to the value of the asset as recognised on the balance sheet or are recorded on the balance sheet separately if it is likely that any future financial benefits in relation to the asset will fall to the group, provided these costs can be reliably measured. Any other repair and maintenance costs are recognised over the result in the period the costs are incurred.

The assets are subject to straight line depreciation in order that the ac- quisition cost of the assets is depreciated at the residual value after the expected useful life of the assets, which is:

Fixtures, fittings and equipment 3–5 years Machinery 10 years

Plant and property (Production and warehouse facilities) 20 years Land values are not depreciated

Assets that have been financed by financial leasing are depreciated over the duration of the shortest period of the leasing contract or the asset’s economical duration.

The useful life of the assets and their residual value are revalued on each balance sheet date and adjusted if necessary. When the balance sheet value of a fixed asset is higher than the estimated recoverable amount the value is reduced to the recoverable amount. Any profit and loss on disposal of the asset is recorded as the difference between sale price and balance sheet value.

Any fixed assets hired on terms that predominantly sees the transfer of financial rights and commitments to PSI Group are activated as fixed as- sets at the current value of the minimum hire sum, alternatively at their fair value if this is lower. The commitment is recognised as a long-term liability.

In the case of any other hire agreements the hire sum is carried as an op- erating cost and distributed systematically across the hire period.

Intangible assets

Intangible assets are assessed at their cost price less any accumulated write-downs and depreciation and are revised periodically for deprecia- tion in the case of a fall in value. Any losses in relation to falls in value are recognised as operating costs.

Goodwill and other intangible assets on acquisitions:

Any additional cost of acquisition beyond the fair value of net identifiable acquired assets is stated on the balance sheet as goodwill. In the case of step acquisitions goodwill is identified for each acquisition. In the event of a transfer of control, goodwill is recorded on the balance sheet for each acquisition and other intangible assets of acquisition.

On the balance sheet day the group evaluates the book value of any goodwill.

Costs in the event of losses following a fall in value are recognised if the current value of expected future cash flow from the operation of underly- ing activities is below the book value of any associated goodwill.

Negative goodwill in relation to transfers of business is immediately taken to income on the acquisition date. Goodwill is not depreciated.

Development costs:

Product development costs that can be reliably measured, and where the products are likely to provide future financial benefits, are activated as intangible assets and depreciated. Research into new products and main- tenance of existing products are recognised as costs. Activated expenses include in-house payroll costs and contract services. Any government

grants received are recognised as a cost reduction, and any activated government production grants mean the activated costs become lower.

Activated development is depreciated over the period during which the products are expected to generate earnings. Activated development, ex- pected earnings and any residual value are reassessed on each balance sheet date and adjusted if necessary.

Decrease in value of non-financial assets

Fixed assets and tangible assets that are depreciated are assessed for a decrease in value when there are indications that future earnings cannot justify their balance sheet value. Depreciation is stated as the difference between the balance sheet value and recoverable amount.

The recoverable amount is the highest of fair value less sale costs and value in use. When assessing a decrease in value the fixed assets are grouped at the lowest level on which it is possible to extract indepen- dent cash flows (cash-generated units). At each reporting date an as- sessment is made of the possibility of reversing previous depreciation of any non-financial assets.

The group carries out at least one annual impairment test of goodwill items.

Stock

Stock is assessed at its acquisition cost or net realisable value, whichever is lower. The acquisition cost of stock is based on the “first in, first out method” (FIFO) and includes costs in relation to the acquisition, the cost of production or reworking as well as any other cost of bringing the stock to its present location and condition.

The net realisable value is the estimated sale price under ordinary conditions less the estimated cost of preparation and completion at the transfer date.

Trade receivables

Trade receivables are measured at acquisition cost less any deducted provisions for expected losses. Amendments to the provisions are recog- nised as other operating costs.

Provisions for bad debts are based on a percentage provision in relation to the length of time that the claim remains unpaid. The percentage is progressive and increases in line with the age of the claim. Only overdue claims are depreciated.

Receivables are recorded as losses only after attempted debt collection or if the company is liquidated.

Cash and cash equivalents

Cash and cash equivalents comprise both cash and bank deposits with an initial term of maximum three months.

Pension commitments, bonus schemes and other staff compensation schemes

(a) Pension commitments

Norwegian employees of the group have a contribution-based pension scheme, while Swedish staff have a pension scheme that is accounted for as a contribution-based scheme by which the pension premium is continually recognised as pension costs.

(b) Bonus schemes

The group recognises a commitment and a cost for bonus schemes. The

group recognises a provision where there are contractual obligations or

a precedent that generates a self-imposed obligation.

(c) Options

The group has no option schemes for employees.

Income

Income from the sale of goods and services is stated at its fair value, net after deductions for value added tax, returns, reductions and discounts.

Inter-company sales are excluded. Revenue from the sale of goods is re- corded when an entity within the group has delivered the goods to the customer, the customer has accepted the product and the customer’s abil- ity to settle the account has been satisfactorily confirmed. Services are recorded as income based on the number of hours supplied.

Long-term service agreements are recognised over the period that the agreement is in force.

Tax

Tax expenses are linked to the recorded profit and comprise tax payable and changes in deferred tax.

Deferred tax is calculated on temporary differences between the taxable value and consolidated accounting value of assets and debts, with the exception of goodwill, which is not tax deductible. Deferred tax is calcu- lated by applying rates of tax and tax legislation that are in force, or all but in force, on the balance sheet date and that are expected to be applied when the deferred tax asset is realised or when the deferred tax is settled.

Positive and negative differences are assessed against each other within the same time interval. Deferred tax assets are recognised on the balance sheet to the extent that it is likely that future taxable earnings will be pres- ent and the temporary differences can be deducted from these earnings.

Equity capital and cost of equity capital Debts and equity:

Financial instruments are classified as debt or equity in accordance with the underlying financial realities.

Interest, dividends, profits and losses relating to a financial instrument classed as debts are reported as costs or income. Payments to holders of financial instruments classed as equity will be recognised directly through equity. When rights and obligations linked to pay-outs from financial instru- ments are dependent on certain types of unpredictable future events and are beyond the control of both the issuer and holder, the financial instrument will be classed as debt unless the probability of the issuer having to pay out cash or other financial assets is not deemed to be remote at the time of is- sue. In this case the financial instrument is classed as equity capital.

Own shares:

In the case of a buyback of own shares the purchase price including directly attributable costs is reported as changes in equity. Own shares are reported as a reduction in equity capital. Losses or profits on transac- tions in own shares are not recorded. Forward contracts relating to the purchase of own shares are treated as own shares.

Cost of equity capital transactions:

Transaction costs directly linked to an equity capital transaction are recognised directly through equity after the deduction of tax.

Other equity:

Translation differences occur in connection with currency differences when consolidating foreign entities.

Currency differences on monetary items (debts or receivables) which in reality are part of a company’s net investment in an overseas entity are also included as translation differences.

When disposing of a foreign entity the accumulated translation differ- ence linked to the entity is reversed and recorded in the same period that the profit or loss incurred from the disposal is recorded.

Provisions

A provision is recognised when the group has an obligation (legal or self-imposed) resulting from a previous event if it is likely (more likely than not) that there will be a financial settlement as a result of this obligation, and if the size of the amount can be reliably measured. If the effect of the provision is significant the provision is calculated by discounting expected future cash flows with a discount rate before tax that reflects the market’s pricing of the time value of money and, if relevant, any risks specifically linked to the obligation. Provisions for warranties are factored in when the underlying products and services are sold. The provisions are based on historic information about war- ranties and on a weighting of the possible outcomes compared with the likelihood that they will occur.

Financial instruments

In accordance with IAS 39, Financial Instruments: Recognition and Measurements,financial instruments are grouped within the scope of IAS 39 into the following categories: financial assets at fair value through profit or loss (held for trading), held-to-maturity investments, loans and receivables, available-for-sale financial assets and other commitments.

In 2008 and 2009 the group has financial instruments within the catego- ries loans and receivables as well as shares available for sale. Loans and receivables are recognised at their amortised cost, while available- for-sale instruments are recognised at their fair value as observed in the market place without reduction for sale costs.

Profits or losses incurred as a result of changes in the actual value of fi- nancial investments classed as available for sale are recognised directly against comprehensive income until the investment is disposed of. Upon disposal any accumulated profit or loss on the financial instrument previ- ously recognised against comprehensive income is reversed, and any profit or loss is recognised.

Forward contracts and other financial derivatives that are not securities are included at their fair value and with any change in value recognised through profit and loss.

Financial assets classified as available for sale shall be written down when there are objective indications that the asset has fallen in value.

Such indications are normally considered to be present when the impair- ment is above 20% or if it has lasted for more than six months. The accu- mulated loss factored directly into the total profit (the difference between acquisition cost and current fair value less impairment previously fac- tored into the accounts and any amortisation) is factored into the profit.

The impairment of an investment in an equity instrument is not reversed through profit and loss.

Investments in associate companies are impairment tested based on the principles given in IAS 39. If there are objective indications of a fall in value an impairment test shall be carried out in accordance with IAS 36. Any recoverable amount shall be based on sale value or value in use, whichever is higher. The value shall be written down if the carrying amount exceeds the recoverable amount.

Borrowing costs

Borrowing costs are recorded when the borrowing costs incur. Borrowing

costs are capitalized when directly related to the purchase or manufac-

ture of a fixed asset